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NATIONWIDE LIFE INSURANCE COMPANY
Individual Single Premium Immediate Variable Annuity Contracts
Issued by Nationwide Life Insurance Company through
its Nationwide Variable Account-9
The date of this prospectus is September 27, 1999.
- --------------------------------------------------------------------------------
This prospectus contains basic information you should know about the contracts
before investing.
Please read it and keep it for future reference.
The following investment options are available under the contracts:
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC., A MEMBER OF THE AMERICAN CENTURY(SM)
FAMILY OF INVESTMENTS
o American Century VP Income & Growth
o American Century VP International
o American Century VP Value
DREYFUS
o Dreyfus Investment Portfolios - European Equity Portfolio
o Dreyfus Stock Index Fund, Inc.
o Dreyfus Variable Investment Fund - Capital Appreciation Portfolio
o The Dreyfus Socially Responsible Growth Fund, Inc.
FEDERATED INSURANCE SERIES
o Federated Quality Bond Fund II
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
o VIP Equity-Income Portfolio: Service Class
o VIP Growth Portfolio: Service Class
o VIP High Income Portfolio: Service Class*
o VIP Overseas Portfolio: Service Class
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
o VIP II Contrafund Portfolio: Service Class
FIDELITY VARIABLE INSURANCE PRODUCT FUND III
o VIP III Growth Opportunities Portfolio: Service Class
MORGAN STANLEY
o Morgan Stanley Dean Witter Universal Funds, Inc. - Emerging Markets
Debt Portfolio
o Van Kampen Life Investment Trust - Morgan Stanley Real Estate
Securities Portfolio
NATIONWIDE SEPARATE ACCOUNT TRUST
o Capital Appreciation Fund
o Government Bond Fund
o Money Market Fund
o Total Return Fund
o Nationwide Balanced Fund (subadviser: Salomon Brothers Asset
Management, Inc.)
o Nationwide Equity Income Fund (subadviser: Federated Investment
Counseling)
o Nationwide Global Equity Fund (subadviser: J.P. Morgan Investment
Management Inc.)
o Nationwide High Income Bond Fund* (subadviser: Federated Investment
Counseling)
o Nationwide Mid Cap Index Fund (subadviser: The Dreyfus Corporation)
o Nationwide Multi Sector Bond Fund* (subadviser: Salomon Brothers Asset
Management, Inc. with Salomon Brothers Asset Management Limited)
o Nationwide Select Advisers Small Cap Growth Fund (subadvisers:
Franklin Advisers, Inc., Miller Anderson & Sherrerd, LLP, Neuberger
Berman, LLC)
o Nationwide Small Cap Value Fund (subadviser: The Dreyfus Corporation)
o Nationwide Small Company Fund (subadvisers: The Dreyfus Corporation,
Neuberger Berman, LLC, Lazard Asset Management, Strong Capital
Management, Inc. and Credit Suisse Asset Management, LLC)
o Nationwide Strategic Growth Fund (subadviser: Strong Capital
Management Inc.)
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o Nationwide Strategic Value Fund (subadviser: Strong Capital Management
Inc./Schafer Capital Management Inc.)
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
o AMT Guardian Portfolio
o AMT Mid-Cap Growth Portfolio
o AMT Partners Portfolio
OPPENHEIMER VARIABLE ACCOUNT FUNDS
o Oppenheimer Aggressive Growth Fund/VA
o Oppenheimer Capital Appreciation Fund/VA
o Oppenheimer Main Street Growth & Income Fund/VA
VAN ECK WORLDWIDE INSURANCE TRUST
o Worldwide Emerging Markets Fund
o Worldwide Hard Assets Fund
WARBURG PINCUS TRUST
o Growth & Income Portfolio
*Invests in lower quality debt securities commonly referred to as junk bonds.
Purchase payments not invested in the investment options of the Nationwide
Variable Account-9 ("variable account") may be allocated for the purchase of
fixed annuity payments (see Appendix B).
The Statement of Additional Information (dated September 27, 1999) which
contains additional information about the contracts and the variable account is
filed with the Securities and Exchange Commission ("SEC") and is incorporated
herein by reference. The table of contents for the Statement of Additional
Information is on page 40.
For general information or to obtain FREE copies of the:
o Statement of Additional Information;
o prospectus for any investment option; or
o required Nationwide forms,
call: 1-800-243-6295
TDD 1-800-238-3035
or write:
NATIONWIDE LIFE INSURANCE COMPANY
ONE NATIONWIDE PLAZA, 01-05-P1
COLUMBUS, OHIO 43215-2220
The Statement of Additional Information and other material incorporated by
reference can be found on the SEC website at:
WWW.SEC.GOV
Information about this and other Best of America products can be found at:
WWW.BESTOFAMERICA.COM
THIS ANNUITY IS NOT:
o A BANK DEPOSIT o FEDERALLY INSURED
o ENDORSED BY A BANK OR o AVAILABLE IN EVERY STATE
GOVERNMENT AGENCY
Investors assume certain risks when investing in the contracts, including the
possibility of losing money.
These contracts are offered to customers of various financial institutions and
brokerage firms. No financial institution or brokerage firm is responsible for
the guarantees under the contracts. Guarantees under the contracts are the sole
responsibility of Nationwide.
In the future, additional underlying mutual funds managed by certain financial
institutions or brokerage firms (or their affiliates) may be added to the
variable account. These additional underlying mutual funds may be offered
exclusively to purchasing customers of the particular financial institution or
brokerage firm.
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.
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GLOSSARY OF SPECIAL TERMS
ANNUITY INCOME UNIT- An accounting unit of measure used to calculate the
variable annuity payments after the first payment.
ASSUMED INVESTMENT RETURN- The net investment return required to maintain level
variable annuity payments. The selected assumed investment return is used in
calculating the initial variable annuity payment.
ASSUMED INVESTMENT RETURN FACTOR- The assumed investment return factor adjusts
the annuity income unit value based on the assumed investment return chosen by
the owner and permitted under the contract.
COMMUTATION VALUE- The value of future annuity payments that are converted
(commuted) into a lump sum. The commutation value may be available for
withdrawal under certain income options and may be available to beneficiaries
when an annuitant dies before all term certain payments have been made.
CONTRACT VALUE- The value of any amount allocated to the variable account (plus
or minus any investment experience), plus any amount designated for the purchase
of fixed annuity payments, less any distributions previously made.
FIXED ANNUITY PAYMENT(S)- Annuity payments which are guaranteed by Nationwide as
to dollar amount.
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.
INCOME OPTION- The type of annuity payments chosen by the contract owner.
INCOME START DATE- The date annuity payments actually commence.
INDIVIDUAL RETIREMENT ANNUITY- An annuity described in Section 408(b) of the
Internal Revenue Code (not including Roth IRAs or Simple IRAs).
INVESTMENT OPTION(S)- The underlying mutual funds which are purchased by the
variable account and accounted for in separate sub-accounts of the variable
account. The performance of selected investment options determines the value of
variable annuity payments after the first payment.
NATIONWIDE- Nationwide Life Insurance Company.
NON-QUALIFIED CONTRACT- A contract which does not qualify for favorable tax
treatment as an Individual Retirement Annuity, Roth IRA, SEP IRA, Simple IRA, or
Tax Sheltered Annuity.
ROTH IRA- An annuity described in Section 408A of the Internal Revenue Code.
SEP IRA- An annuity described in Section 408(k) of the Internal Revenue Code.
SIMPLE IRA- An annuity described Section 408(p) of the Internal Revenue Code.
SUB-ACCOUNTS- Separate and distinct divisions of the variable account. Each
sub-account corresponds to a specific underlying mutual fund upon which
investment performance is based.
TAX SHELTERED ANNUITY- An annuity described in Section 403(b) of the Internal
Revenue Code.
VALUATION DAY- Each day the New York Stock Exchange is open for business.
VALUATION PERIOD- The period of time beginning at the close of a valuation day
and ending at the close of business on the next valuation day.
VARIABLE ACCOUNT- Nationwide Variable Account-9, which is a separate account of
Nationwide. The variable account is divided into sub-accounts, each of which
invests in shares of a separate investment option.
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VARIABLE ACCOUNT VALUE- The amount allocated to the variable account plus or
minus investment experience minus any previous variable account distributions.
VARIABLE ANNUITY PAYMENT(S)- Annuity payments which are not guaranteed as to
dollar amount and which vary with the investment experience of the investment
options.
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TABLE OF CONTENTS
GLOSSARY OF SPECIAL TERMS.....................3
SUMMARY OF STANDARD CONTRACT EXPENSES.........7
ADDITIONAL CONTRACT CHARGE....................7
INVESTMENT OPTION ANNUAL EXPENSES.............8
SYNOPSIS OF THE CONTRACTS....................10
FINANCIAL STATEMENTS.........................10
NATIONWIDE LIFE INSURANCE COMPANY............11
NATIONWIDE ADVISORY SERVICES, INC............11
INVESTING IN THE CONTRACT....................11
The Variable Account and Investment Options
STANDARD CHARGES AND DEDUCTIONS..............12
Mortality and Expense Risk Charge
Contingent Deferred Sales Charge
Premium Taxes
ADDITIONAL CONTRACT CHARGE...................13
Enhanced Death Benefit Charge
CONTRACT OWNERSHIP...........................13
Ownership Rights Between the Date of Issue and the Income Start Date
Ownership Rights Between the Income Start Date and Prior to the Annuitant's
Death Changes
Joint Ownership
Annuitant and Joint Annuitant
Beneficiary and Contingent Beneficiary
OPERATION OF THE CONTRACT....................15
Purchase Payments
Allocation of the Purchase Payment
Pricing
Transfers
RIGHT TO REVOKE..............................16
WITHDRAWAL (REDEMPTION)......................17
Withdrawals Before the Income Start Date
Withdrawals On or After the Income Start Date
Partial Withdrawals (Partial Redemptions)
Full Withdrawals (Full Redemptions)
Restrictions on Withdrawals from a Tax Sheltered Annuity
ASSIGNMENT...................................19
ANNUITY PAYMENTS.............................19
Income Start Date
Fixed Annuity Payments
Variable Annuity Payments
Frequency and Amount of Annuity Payments
Annual Benefit Leveling
INCOME OPTIONS...............................21
Single Life
Single Life with Term Certain
Single Life with Cash Refund
Joint and Last Survivor
Joint and 100% Last Survivor with Term Certain
Joint and 100% Last Survivor with Cash Refund
Joint and 50% Survivor
Term Certain
Term Certain with Enhanced Death Benefit
Any Other Option
DEATH BEFORE THE INCOME START DATE...........24
Death of Contract Owner
Death of Annuitant
DEATH AFTER THE INCOME START DATE............24
Death of Contract Owner
Death of Annuitant
REQUIRED DISTRIBUTIONS.......................25
Required Distributions for Non-Qualified Contracts
Required Distributions for Tax Sheltered Annuities
Required Distributions for IRAs and SEP IRAs
Required Distributions for Roth IRAs
FEDERAL TAX CONSIDERATIONS...................28
Federal Income Taxes
IRAs, SEP IRAs, and Tax Sheltered Annuities
Roth IRAs
Withholding
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Non-Resident Aliens
Federal Estate, Gift, and Generation Skipping Transfer Taxes
Puerto Rico
Charge for Tax
Diversification
Tax Changes
STATEMENTS AND REPORTS.......................33
YEAR 2000 COMPLIANCE ISSUES..................34
LEGAL PROCEEDINGS............................35
ADVERTISING AND SUB-ACCOUNT PERFORMANCE
SUMMARY....................................36
Advertising
Sub-Account Performance Summary
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL
INFORMATION................................40
APPENDIX A: OBJECTIVES FOR INVESTMENT
OPTIONS....................................41
APPENDIX B: FIXED ANNUITY PAYMENTS...........51
APPENDIX C: ILLUSTRATION OF VARIABLE ANNUITY
INCOME.....................................53
APPENDIX D: DETERMINATION OF THE HIGHEST
VARIABLE PAYMENT AMOUNT FOR THE ENHANCED
DEATH BENEFIT CALCULATION WHEN PARTIAL
WITHDRAWALS HAVE BEEN TAKEN................56
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SUMMARY OF STANDARD CONTRACT EXPENSES
The expenses listed below are charged to all contracts unless otherwise
provided.
CONTRACT OWNER TRANSACTION EXPENSES
Maximum Contingent Deferred Sales
Charge ("CDSC") (as a percentage of
of purchase payments withdrawn)...............6%
<TABLE>
CDSC Percentages
<CAPTION>
- -----------------------------------------------------------
Years from Date of Issue CDSC Percentage
- -----------------------------------------------------------
<S> <C>
1 6%
- -----------------------------------------------------------
2 6%
- -----------------------------------------------------------
3 5%
- -----------------------------------------------------------
4 5%
- -----------------------------------------------------------
5 4%
- -----------------------------------------------------------
6 3%
- -----------------------------------------------------------
7 2%
- -----------------------------------------------------------
Thereafter 0%
- -----------------------------------------------------------
</TABLE>
A CDSC will ONLY be assessed if a withdrawal (other than an annuity payment) is
taken as permitted under certain income options. Income options permitting
withdrawals are:
o Term Certain; and
o Term Certain with Enhanced Death Benefit.
VARIABLE ACCOUNT CHARGES
(as a percentage of average account value)
Mortality and Expense Risk Charge.........1.25%
Total Variable Account Charges.......1.25%
These charges apply only to sub-account allocations. They are charged on a daily
basis at the annual rate noted above.
ADDITIONAL CONTRACT CHARGE
Enhanced Death Benefit Charge.............0.20%
Total Variable Account Charges
(including Enhanced Death
Benefit Charge)......................1.45%
The Enhanced Death Benefit Charge is assessed ONLY if the contract owner elects
the Term Certain with Enhanced Death Benefit income option. The charge is in
addition to the variable account charges of 1.25% that are assessed to every
contract.
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<TABLE>
INVESTMENT OPTION ANNUAL EXPENSES
(AS A PERCENTAGE OF UNDERLYING MUTUAL FUND NET ASSETS, AFTER EXPENSE REIMBURSEMENT)
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Management Other 12b-1 Total Investment Option
Fees Expenses Fees Expenses
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
American Century Variable Portfolios, Inc. 0.70% 0.00% 0.00% 0.70%
- - American Century VP Income & Growth
- ------------------------------------------------------------------------------------------------------------------------
American Century Variable Portfolios, Inc. 1.47% 0.00% 0.00% 1.47%
- - American Century VP International
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American Century Variable Portfolios, Inc. 1.00% 0.00% 0.00% 1.00%
- - American Century VP Value
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Dreyfus Investment Portfolios - European 1.00% 0.50% 0.00% 1.50%
Equity Portfolio
- ------------------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------
Federated Insurance Series - Federated 0.23% 0.47% 0.00% 0.70%
Quality Bond Fund II
- ------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Equity-Income Portfolio: 0.49% 0.08% 0.10% 0.67%
Service Class,
- ------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Growth Portfolio: Service 0.59% 0.06% 0.10% 0.75%
Class
- ------------------------------------------------------------------------------------------------------------------------
Fidelity VIP High Income Portfolio: 0.58% 0.14% 0.10% 0.82%
Service Class
- ------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Overseas Portfolio: Service 0.74% 0.13% 0.10% 0.97%
Class
- ------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund Portfolio: 0.59% 0.06% 0.10% 0.75%
Service Class
- ------------------------------------------------------------------------------------------------------------------------
Fidelity VIP III Growth Opportunities 0.59% 0.10% 0.10% 0.79%
Portfolio: Service Class
- ------------------------------------------------------------------------------------------------------------------------
Morgan Stanley Dean Witter Universal 0.27% 1.03% 0.00% 1.30%
Funds, Inc. - Emerging Markets Debt
Portfolio
- ------------------------------------------------------------------------------------------------------------------------
NSAT Capital Appreciation Fund 0.58% 0.22% 0.00% 0.80%
- ------------------------------------------------------------------------------------------------------------------------
NSAT Government Bond Fund 0.44% 0.22% 0.00% 0.66%
- ------------------------------------------------------------------------------------------------------------------------
NSAT Money Market Fund 0.34% 0.21% 0.00% 0.55%
- ------------------------------------------------------------------------------------------------------------------------
NSAT Total Return Fund 0.57% 0.21% 0.00% 0.78%
- ------------------------------------------------------------------------------------------------------------------------
NSAT Nationwide Balanced Fund 0.54% 0.36% 0.00% 0.90%
- ------------------------------------------------------------------------------------------------------------------------
NSAT Nationwide Equity Income Fund 0.45% 0.50% 0.00% 0.95%
- ------------------------------------------------------------------------------------------------------------------------
NSAT Nationwide Global Equity Fund 0.59% 0.61% 0.00% 1.20%
- ------------------------------------------------------------------------------------------------------------------------
NSAT Nationwide High Income Bond 0.48% 0.47% 0.00% 0.95%
Fund
- ------------------------------------------------------------------------------------------------------------------------
NSAT Nationwide Mid Cap Index Fund 0.15% 0.50% 0.00% 0.65%
- ------------------------------------------------------------------------------------------------------------------------
NSAT Nationwide Multi-Sector Bond 0.54% 0.36% 0.00% 0.90%
Fund
- ------------------------------------------------------------------------------------------------------------------------
NSAT Nationwide Select Advisers Small 0.57% 0.73% 0.00% 1.30%
Cap Growth Fund
- ------------------------------------------------------------------------------------------------------------------------
NSAT Nationwide Small Cap Value Fund 0.47% 0.58% 0.00% 1.05%
- ------------------------------------------------------------------------------------------------------------------------
NSAT Nationwide Small Company Fund 1.00% 0.25% 0.00% 1.25%
- ------------------------------------------------------------------------------------------------------------------------
NSAT Nationwide Strategic Growth Fund 0.20% 0.80% 0.00% 1.00%
- ------------------------------------------------------------------------------------------------------------------------
NSAT Nationwide Strategic Value Fund 0.52% 0.48% 0.00% 1.00%
- ------------------------------------------------------------------------------------------------------------------------
Neuberger Berman AMT Guardian 0.85% 0.15% 0.00% 1.00%
Portfolio
- ------------------------------------------------------------------------------------------------------------------------
Neuberger Berman AMT Mid-Cap Growth 0.85% 0.15% 0.00% 1.00%
Portfolio
- ------------------------------------------------------------------------------------------------------------------------
Neuberger Berman AMT Partners Portfolio 0.78% 0.06% 0.00% 0.84%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Management Other 12b-1 Total Investment Option
Fees Expenses Fees Expenses
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Oppenheimer Variable Account Funds - 0.69% 0.02% 0.00% 0.71%
Oppenheimer Aggressive Growth Fund/VA
- ------------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds - 0.72% 0.03% 0.00% 0.75%
Oppenheimer Capital Appreciation
Fund/VA
- ------------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds - 0.74% 0.05% 0.00% 0.79%
Oppenheimer Main Street Growth &
Income Fund/VA
- ------------------------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance Trust - 0.69% 0.61% 0.00% 1.30%
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 - 1.00% 0.08% 0.00% 1.08%
Morgan Stanley Real Estate Securities
Portfolio
- ------------------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust - Growth & Income 0.51% 0.49% 0.00% 1.00%
Portfolio
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The expenses shown above are deducted by the investment option 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 investment option.
Information relating to the investment options was provided by the investment
options and not independently verified by Nationwide.
Some investment options are subject to fee waivers and expense reimbursements.
The following chart shows what the expenses would have been for such funds
without fee waivers and expense reimbursements.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Management Other Total Investment
Fees Expenses 12b-1 Fees Option Expenses
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dreyfus Investment Portfolios - European 1.00% 2.67% 0.00% 3.67%
Equity Portfolio
- ----------------------------------------------------------------------------------------------------------------------
Fidelity VIP Equity-Income Portfolio: 0.49% 0.09% 0.10% 0.68%
Service Class
- ----------------------------------------------------------------------------------------------------------------------
Fidelity VIP Growth Portfolio: Service 0.59% 0.11% 0.10% 0.80%
Class
- ----------------------------------------------------------------------------------------------------------------------
Fidelity VIP Overseas Portfolio: Service 0.74% 0.17% 0.10% 1.01%
Class
- ----------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund Portfolio: 0.59% 0.11% 0.10% 0.80%
Service Class
- ----------------------------------------------------------------------------------------------------------------------
Fidelity VIP III Growth Opportunities 0.59% 0.11% 0.10% 0.80%
Portfolio: Service Class
- ----------------------------------------------------------------------------------------------------------------------
Morgan Stanley Dean Witter Universal 0.80% 1.25% 0.00% 2.05%
Funds, Inc. - Emerging Markets Debt
Portfolio
- ----------------------------------------------------------------------------------------------------------------------
NSAT Capital Appreciation Fund 0.60% 0.22% 0.00% 0.82%
- ----------------------------------------------------------------------------------------------------------------------
NSAT Government Bond Fund 0.50% 0.22% 0.00% 0.72%
- ----------------------------------------------------------------------------------------------------------------------
NSAT Money Market Fund 0.40% 0.21% 0.00% 0.61%
- ----------------------------------------------------------------------------------------------------------------------
NSAT Total Return Fund 0.59% 0.21% 0.00% 0.80%
- ----------------------------------------------------------------------------------------------------------------------
NSAT Nationwide Balanced Fund 0.75% 0.36% 0.00% 1.11%
- ----------------------------------------------------------------------------------------------------------------------
NSAT Nationwide Equity Income Fund 0.80% 0.50% 0.00% 1.30%
- ----------------------------------------------------------------------------------------------------------------------
NSAT Nationwide Global Equity Fund 1.00% 0.61% 0.00% 1.61%
- ----------------------------------------------------------------------------------------------------------------------
NSAT Nationwide High Income Bond Fund 0.80% 0.47% 0.00% 1.27%
- ----------------------------------------------------------------------------------------------------------------------
NSAT Nationwide Mid Cap Index Fund 0.50% 0.50% 0.00% 1.00%
- ----------------------------------------------------------------------------------------------------------------------
NSAT Nationwide Multi-Sector Bond Fund 0.75% 0.36% 0.00% 1.11%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Management Other Total Investment
Fees Expenses 12b-1 Fees Option Expenses
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NSAT Nationwide Select Advisers Small 1.10% 0.73% 0.00% 1.83%
Cap Growth Fund
- ----------------------------------------------------------------------------------------------------------------------
NSAT Nationwide Small Cap Value Fund 0.90% 0.58% 0.00% 1.48%
- ----------------------------------------------------------------------------------------------------------------------
NSAT Nationwide Strategic Growth Fund 0.90% 0.80% 0.00% 1.70%
- ----------------------------------------------------------------------------------------------------------------------
NSAT Nationwide Strategic Value Fund 0.90% 0.48% 0.00% 1.38%
- ----------------------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance Trust - 1.00% 0.61% 0.00% 1.61%
Worldwide Emerging Markets Fund
- ----------------------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance Trust - 1.00% 0.20% 0.00% 1.20%
Worldwide Hard Assets Fund
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
SYNOPSIS OF THE CONTRACTS
The contracts described in this prospectus are individual single premium
immediate fixed and variable annuity contracts.
The contracts can be categorized as:
o Non-Qualified;
o IRAs;
o Roth IRAs;
o SEP IRAs;
o Simple IRAs; or
o Tax Sheltered Annuities.
PURCHASE PAYMENTS
The minimum single purchase payment is $35,000. No additional purchase payments
will be accepted or permitted.
CHARGES AND EXPENSES
Nationwide deducts a mortality and expense risk charge equal to an annual rate
of 1.25% of the daily net assets of the variable account. Nationwide assesses
these charges in return for bearing certain mortality and expense risks, and for
administrative expenses.
Nationwide does not deduct a sales charge from purchase payments upon deposit
into the contract. However, if the income option elected permits withdrawals
other than annuity payments, Nationwide may deduct a CDSC upon such withdrawal.
This CDSC reimburses Nationwide for sales expenses. The amount of the CDSC will
not exceed 6% of purchase payments withdrawn.
If the contract owner elects the Term Certain with Enhanced Death Benefit income
option, Nationwide will deduct an additional 0.20% of the daily net assets of
the variable account. This charge reimburses Nationwide for increased mortality
expenses associated with the enhanced death benefit.
ANNUITY PAYMENTS
Annuity payments begin on the income start date. The payments will be based on
the income option chosen at the time of application (see "Income Options").
TAXATION
The tax treatment of the contracts depends on the type of contract issued.
Nationwide will charge against the contract any premium taxes levied by any
governmental authority (see "Federal Tax Considerations" and "Premium Taxes").
TEN DAY FREE LOOK
Contract owners may return the contract for any reason within ten days of
receipt and Nationwide will refund the contract value or the amount as required
by law (see "Right to Revoke").
FINANCIAL STATEMENTS
Financial statements for the variable account and Nationwide are located in the
Statement of Additional Information. A current Statement of Additional
Information may be obtained, without charge, by contacting Nationwide's home
office at
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<PAGE> 11
the telephone number listed on page 2 of this prospectus.
NATIONWIDE LIFE INSURANCE COMPANY
Nationwide is a stock life insurance company organized under Ohio law 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, Puerto
Rico, and the Virgin Islands.
NATIONWIDE ADVISORY SERVICES, INC.
The contracts are distributed by the general distributor, Nationwide Advisory
Services, Inc. ("NAS"), Three Nationwide Plaza, Columbus, Ohio 43215. NAS is a
wholly owned subsidiary of Nationwide.
INVESTING IN THE CONTRACT
The contracts described in this prospectus are combination fixed and variable
immediate annuity contracts. The following provisions discuss those interests
under the contracts that relate to the portion of the purchase payment allocated
to variable annuity payments. For a discussion of the interests allocated to a
fixed annuity payment, see APPENDIX B.
THE VARIABLE ACCOUNT AND INVESTMENT OPTIONS
Nationwide Variable Account-9 is a separate account that invests in the
investment options listed in Appendix A. Nationwide established the separate
account on May 22, 1997, 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 other assets and are not chargeable with
liabilities incurred in any other business of Nationwide.
The variable account is divided into sub-accounts. Nationwide uses the assets of
each sub-account to buy shares of the investment options based on contract owner
instructions. There are two sub-accounts for each investment option. One
sub-account contains shares attributable to accumulation units and annuity
income units under Non-Qualified Contracts. The other contains shares
attributable to accumulation units and annuity income units under IRAs, Simple
IRAs, SEP IRAs, Roth IRAs, and Tax Sheltered Annuities.
Each investment option's prospectus contains more detailed information about
that fund. Prospectuses for the investment options should be read in conjunction
with this prospectus.
Investment options in the variable account are NOT publicly traded mutual funds.
They are only 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.
The investment advisers of the investment options may manage publicly traded
mutual funds with similar names and investment objectives. However, the
investment options are NOT directly related to any publicly traded mutual fund.
Contract owners should not compare the performance of a publicly traded fund
with the performance of investment options participating in the variable
account. The performance of the investment options could differ substantially
from that of any publicly traded funds.
Voting Rights
Contract owners who have allocated assets to the investment options are entitled
to certain voting rights. Nationwide will vote contract owner shares at special
shareholder meetings based on contract owner instructions. However,
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<PAGE> 12
if the law changes and Nationwide is allowed to vote in its own right, it may
elect to do so.
Contract owners with voting interests in an investment option will be notified
of issues requiring a shareholders' vote as soon as possible before the
shareholder meeting. Notification will contain proxy materials and a form with
which to give Nationwide 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 contract owner may vote will be determined as of a
date to be chosen by Nationwide not more than 60 days prior to the shareholder
meeting.
Material Conflicts
The investment options 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 investment options
participate.
Material conflicts may occur due to a change in law affecting the operations of
variable life insurance policies and variable annuity contracts, or differences
in the voting instructions of the contract owners and those of other companies.
If a material conflict occurs, Nationwide will take whatever steps are necessary
to protect contract owners and variable annuity payees, including withdrawal of
the variable account from participation in the investment option(s) involved in
the conflict.
Substitution of Securities
Nationwide may substitute, eliminate, or combine shares of another investment
option for shares already purchased or to be purchased in the future if either
of the following occurs:
1) shares of a current investment option are no longer available for
investment; or
2) further investment in an investment option becomes inappropriate in
the judgement of Nationwide management.
No substitution, elimination, or combination of shares may take place without
the prior approval of the SEC and state insurance departments.
STANDARD CHARGES AND DEDUCTIONS
MORTALITY AND EXPENSE RISK CHARGE
Nationwide deducts a Mortality and Expense Risk Charge from the variable
account. This amount is computed on a daily basis, and is equal to an annual
rate of 1.25% of the daily net assets of the variable account.
The mortality risk charges compensate Nationwide for guaranteeing the annuity
rate of the contracts. This guarantee ensures that the annuity rates will not
change regardless of the death rates of annuity payees or the general
population.
The expense risk charges compensate Nationwide for guaranteeing that
administration charges will not increase regardless of actual expenses.
If the Mortality and Expense Risk Charge is insufficient to cover actual
expenses, the loss is borne by Nationwide.
CONTINGENT DEFERRED SALES CHARGE
No sales charge deduction is made from the purchase payment when amounts are
deposited into the contracts. However, if the income option elected permits
withdrawals other than regular annuity payments, Nationwide will deduct a CDSC
upon such withdrawal. The CDSC will not exceed 6% of the purchase payment
withdrawn.
The CDSC is calculated by multiplying the applicable CDSC percentage (noted
below) by the amount that is withdrawn. The applicable CDSC will not be applied
to any amount in excess of the single purchase payment.
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The CDSC applies as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Years from Date of Issue CDSC Percentage
- ----------------------------------------------------------
<S> <C>
1 6%
- ----------------------------------------------------------
2 6%
- ----------------------------------------------------------
3 5%
- ----------------------------------------------------------
4 5%
- ----------------------------------------------------------
5 4%
- ----------------------------------------------------------
6 3%
- ----------------------------------------------------------
7 2%
- ----------------------------------------------------------
Thereafter 0%
- ----------------------------------------------------------
</TABLE>
The CDSC is used to cover sales expenses, including commissions (maximum of 5.5%
of purchase payment), production of sales material, and other promotional
expenses. If expenses are greater than the CDSC, the shortfall will be made up
from Nationwide's general account, which may indirectly include portions of the
variable account charges, since Nationwide may generate a profit from these
charges.
Contract owners taking withdrawals (other than substantially equal periodic
payments for life) before age 59 1/2 may be subject to a 10% tax penalty. In
addition, all or a portion of the withdrawal may be subject to federal income
taxes (see "Federal Income Taxes").
PREMIUM TAXES
Nationwide will charge against the contract value any premium taxes levied by a
state or other government entity. Premium tax rates currently range from 0% to
3.5%. This range is subject to change. The method used to assess premium tax
will be determined by Nationwide at its sole discretion in compliance with state
law.
If applicable, Nationwide will deduct premium taxes from the contract either at:
1) the time the contract is withdrawn;
2) annuitization; or
3) such earlier date as Nationwide becomes subject to premium taxes.
ADDITIONAL CONTRACT CHARGE
ENHANCED DEATH BENEFIT CHARGE
If the contract owner elects the Term Certain with Enhanced Death Benefit income
option, Nationwide will deduct an additional 0.20% of the daily net assets of
the variable account. This charge is in addition to the variable account charges
of 1.25% assessed against every contract. The Enhanced Death Benefit Charge
reimburses Nationwide for increased mortality expenses associated with the
enhanced death benefit.
CONTRACT OWNERSHIP
The contract owner has all rights under the contract. Purchasers who name
someone other than themselves as the contract owner will have no rights under
the contract.
At the time of application, the contract owner designates/elects:
1) an annuitant and joint annuitant, if applicable;
2) the frequency of payments, income option, assumed investment return,
and income start date;
3) a beneficiary and contingent beneficiary, if applicable;
4) the portion of the single purchase payment used to purchase fixed
annuity payments and/or variable annuity payments;
5) the allocation among investment options; and
6) any optional benefits that may be provided under the elected income
option.
Once elected, the income option cannot be changed.
OWNERSHIP RIGHTS BETWEEN THE DATE OF ISSUE AND THE INCOME START DATE
Between the date of issue and the income start date, the contract owner has the
right to:
1) cancel the contract during the free look period;
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2) change the beneficiary and/or the contingent beneficiary;
3) change allocations among investment options;
4) elect to take a partial or full withdrawal, depending on the income
option selected and subject to any restrictions described in this
prospectus; and
5) elect or revoke a prior election of Annual Benefit Leveling (see
"Annual Benefit Leveling").
OWNERSHIP RIGHTS BETWEEN THE INCOME START DATE AND PRIOR TO THE ANNUITANT'S
DEATH
After the income start date and prior to the annuitant's death, the contract
owner has the right to:
1) change the beneficiary and/or the contingent beneficiary;
2) change allocations among investment options;
3) elect to take a partial or full withdrawal, depending on the income
option selected and subject to any restrictions described in this
prospectus; and
4) elect or discontinue Annual Benefit Leveling.
CHANGES
All changes, except those to Annual Benefit Leveling, will take effect as of the
time such changes are recorded by Nationwide, whether or not the contract owner
or annuitant is living at the time of the recording. Nationwide will not be
liable for any payments made or actions taken by Nationwide before recording the
change.
Nationwide may require that all changes be submitted in writing or in another
form Nationwide deems acceptable. Nationwide may require that signatures be
guaranteed by a member firm of a major stock exchange or other depository
institution qualified to give such a guarantee.
JOINT OWNERSHIP
Joint owners each own an undivided interest in the contract. Joint owners must
be spouses at the time joint ownership is requested unless state law requires
Nationwide to allow non-spousal joint owners. A joint owner may only be named in
Non-Qualified Contracts.
The exercise of any ownership right in the contract will require a written
request signed by both joint owners.
If a contract owner who IS NOT the annuitant dies before the income start date
and there is a surviving joint owner, the joint owner will become the contract
owner.
If the contract owner who IS the annuitant dies before the income start date and
there is a surviving joint owner, the contract will terminate and Nationwide
will pay the contract value to the joint owner.
ANNUITANT AND JOINT ANNUITANT
The annuitant (and joint annuitant, if applicable) must be age 85 or younger at
the time of contract issuance, unless Nationwide approves a request for an
annuitant or joint annuitant of greater age. Once designated, the annuitant and
joint annuitant, if applicable, cannot be changed. Joint annuitants can be named
only if permitted under the elected income option.
For contracts issued as IRAs or Tax Sheltered Annuities, the contract owner and
annuitant must be the same person and that individual's entire interest in the
contract is nonforfeitable. For either of these contract types, if a joint and
survivor income option is elected, the joint annuitant must be the annuitant's
spouse.
BENEFICIARY AND CONTINGENT BENEFICIARY
The beneficiary is the person who may receive benefits under the contract if the
annuitant (and joint annuitant, if any) dies after the income start date. The
contract owner can name more than one beneficiary. The beneficiaries will share
the benefits equally, unless otherwise specified.
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If no beneficiaries survive the annuitant, the beneficiary's rights will vest in
the contingent beneficiary. Contingent beneficiaries will share the benefits
equally, unless otherwise specified.
If no beneficiary or contingent beneficiary survives the annuitant (and the
joint annuitant, if applicable), all beneficiary rights will vest with the
contract owner or the last surviving contract owner's estate.
If the annuitant (and joint annuitant, if any) dies before the income start
date, and there is no surviving contract owner or joint owner, Nationwide will
pay the contract proceeds to the beneficiary.
OPERATION OF THE CONTRACT
PURCHASE PAYMENTS
The minimum single purchase payment must be at least $35,000. No additional
purchase payments will be accepted or permitted.
The cumulative total of all purchase payments under contracts issued by
Nationwide on the life of any one annuitant cannot exceed $1,000,000 without
Nationwide's prior consent.
ALLOCATION OF THE PURCHASE PAYMENT
For any particular income option, the single purchase payment may be allocated
to provide variable annuity payments, fixed annuity payments, or a combination
of both. The chosen allocation is irrevocable.
Nationwide allocates that portion of the purchase payment intended for variable
annuity payments to investment options as instructed by the contract owner.
Shares of the investment options are purchased by the separate account at net
asset value and maintained as accumulation units until being converted into
annuity income units on the income start date. Contract owners can change
allocations or make exchanges among the sub-accounts subject to conditions
imposed by the investment options and those set forth in the contract.
PRICING
The portion of the single purchase payment designated for variable annuity
payments will be allocated to sub-accounts and will be priced at the
accumulation unit value determined no later than 2 business days after receipt
of an order to purchase if the application and all necessary information are
complete. If the application is not complete, Nationwide may retain the purchase
payment for up to 5 business days while attempting to complete it. If the
application is not completed within 5 business days, the prospective purchaser
will be informed of the reason for the delay. The purchase payment will be
returned unless the prospective purchaser specifically allows Nationwide to hold
the purchase payment until the application is completed.
Purchase payments 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 purchase payments if:
(1) trading on the New York Stock Exchange is restricted;
(2) an emergency exists making disposal or valuation of securities held in
the variable account impracticable; or
(3) the SEC, by order, permits a suspension or postponement for the
protection of security holders.
Rules and regulations of the SEC will govern as to when the conditions described
in (2) and (3) exist. If Nationwide is closed on days when the New York Stock
Exchange is open, account value may be affected since the contract owner would
not have access to their account.
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TRANSFERS
Any portion of the single purchase payment that is allocated to provide fixed
annuity payments may not be transferred to any sub-accounts. Similarly, any
portion of the single purchase payment that is allocated to provide variable
annuity payments may not be transferred to provide fixed annuity payments.
However, any portion of a single purchase payment that is allocated to provide
variable annuity payments may be reallocated by the contract owner among
investment options, subject to the following conditions:
o Transfers between sub-accounts may be made once daily without charges
or penalties.
o Nationwide reserves the right to limit transfers between sub-accounts
to 12 per year or to assess a fee for any transfer in excess of 12 per
year.
Amounts transferred between the sub-accounts will receive the annuity income
unit value that is next computed immediately following receipt of the transfer
request.
Transfer Requests
Nationwide will accept transfer requests in writing or, in those states that
allow them, over the telephone. Nationwide will use reasonable procedures to
confirm that telephone instructions are genuine and will not be liable for
following telephone instructions that it reasonably determined to be genuine.
Nationwide may withdraw the telephone exchange privilege upon 30 days written
notice to contract owners.
Market Timing Firms
Some contract 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 or exchange requests on
behalf of multiple contract 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 investment option (the underlying mutual
fund) to process transactions. This can potentially disadvantage contract owners
not using market-timing firms. To avoid this, Nationwide may modify transfer
rights of contract owners who use market timing firms (or other third parties)
to transfer or exchange funds on their behalf.
The transfer rights of individual contract owners will not be modified in any
way when instructions are submitted directly by the contract owner, or by the
contract owner's representative (as authorized by the execution of a valid
Nationwide Limited Power of Attorney Form).
To protect contract owners, Nationwide may refuse transfer requests:
o submitted by any agent acting under a power of attorney on behalf of more
than one contract owner; or
o submitted on behalf of individual contract 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 contract owner at the
same time.
Nationwide will not restrict exchange rights unless Nationwide believes it to be
necessary for the protection of all contract owners.
RIGHT TO REVOKE
Contract owners have a ten day "free look" to examine the contract. The contract
may be returned to Nationwide's home office for any reason within ten days of
receipt and Nationwide will refund the contract value or another amount required
by law. The refunded contract value will reflect the deduction of any contract
charges, unless otherwise required by law. All IRA and Roth IRA refunds will be
a return of purchase payments. State and/or federal law may provide additional
free look privileges.
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Liability of the variable account under this provision is limited to the
contract value in each sub-account on the date of revocation. Any additional
amounts refunded to the contract owner will be paid by Nationwide.
WITHDRAWAL (REDEMPTION)
The contract owner may take a partial or full withdrawal after the end of the
free look period if the contract owner elected either the Term Certain or the
Term Certain with Enhanced Death Benefit income option at the time of
application. If the contract owner did not elect one of the two income options
listed above, the contract owner may not withdraw value from the contract.
Withdrawals may not be permitted in all states.
Withdrawal requests must be in writing or in a form otherwise acceptable to
Nationwide. Nationwide reserves the right to require that the signature(s) be
guaranteed by a member firm of a major stock exchange or other depository
institution qualified to give such a guarantee.
Nationwide will pay any amounts withdrawn to the contract owner within seven
days of receipt of a proper request and instructions satisfactory to Nationwide.
WITHDRAWALS BEFORE THE INCOME START DATE
If the income option elected so permits, a contract owner may take a partial or
full withdrawal after the free look period and before the income start date. The
variable account value on the date of withdrawal will reflect the investment
performance of the sub-accounts chosen by the contract owner. A CDSC will apply.
WITHDRAWALS ON OR AFTER THE INCOME START DATE
If the income option elected so permits, a contract owner may take a partial or
full withdrawal on or after the income start date. The amount available for
withdrawal on or after the income start date will be based on the commutation
value and will reflect the investment performance of the sub-accounts chosen by
the contract owner. A CDSC may apply.
After the income start date, distributions other than regular annuity payments
are generally required to be included in income for federal income tax purposes.
However, this general rule does not apply to a complete withdrawal or redemption
of a contract - a portion of the amount received in a complete withdrawal or
redemption may be treated for federal income tax purposes as the tax-free return
of investment in the contract. Partial withdrawals or redemptions other than
regular annuity payments are generally required to be included in income. THE
INTERNAL REVENUE CODE, TREASURY REGULATIONS, AND OTHER INFORMATIONAL RELEASES BY
THE IRS CONTAIN COMPLEX RULES REGARDING THE TAXATION OF DISTRIBUTIONS FROM
ANNUITY CONTRACTS, WHICH THE CONTRACT OWNER SHOULD REVIEW WITH A TAX ADVISER
PRIOR TO REQUESTING A DISTRIBUTION.
Commutation Value of Variable Annuity Payments
The commutation value of variable annuity payments is equal to the present value
of the variable annuity payments remaining in the term certain period. This
present value is calculated using the assumed investment return for the contract
and the annuity income unit values determined at the next unit value calculation
after Nationwide receives the withdrawal request.
If a contract owner who has elected Annual Benefit Leveling takes a full
withdrawal, the withdrawn amount will be made up of two components:
1) the commutation values (which do not include amounts allocated to
Annual Benefit Leveling); and
2) the present value of the leveled variable annuity payments scheduled
to be paid after Nationwide receives complete instructions, but before
the next income start date anniversary.
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The present value of these payments will be calculated using the
Annual Benefit Leveling interest rate that was assumed when the
leveled payment amount was determined.
If a contract owner who has elected Annual Benefit Leveling takes a partial
withdrawal, no portion of the present value of the leveled variable annuity
payments scheduled to be paid before the next income start date anniversary may
be withdrawn. Only the commutation value of amounts remaining in the investment
options or of the fixed annuity payments may be withdrawn.
Commutation Value of Fixed Annuity Payments
The commutation value of fixed annuity payments is defined in Appendix B.
PARTIAL WITHDRAWALS (PARTIAL REDEMPTIONS)
If a partial withdrawal is allowed under the income option and elected, the
contract owner must specify the percentage of the withdrawal to be taken from
fixed annuity payments and/or variable annuity payments.
A partial withdrawal will result in the reduction of the remaining term certain
period payments. If the contract owner elects a partial withdrawal of fixed
annuity payments, Nationwide will reduce the remaining payments by the ratio of
the withdrawal amount received from fixed annuity payments, plus any CDSC, to
the total commutation value available from fixed annuity payments. If the
contract owner elects a partial withdrawal of variable annuity payments,
Nationwide will reduce the number of annuity income units provided by each
sub-account on a pro-rata basis, unless the contract owner specifies otherwise.
The minimum partial withdrawal amount is $2,000. In addition, each remaining
annuity payment after the partial withdrawal must equal $100 or more.
A CDSC may apply. The CDSC deducted is a percentage of the amount requested by
the contract owner. Amounts deducted for CDSC are not subject to subsequent
CDSC. The contract owner may take the CDSC from either:
a) the amount requested; or
b) the commutation value remaining after the contract owner has received
the requested amount.
If the contract owner does not make a specific election, any applicable CDSC
will be taken from the commutation value remaining after the contract owner has
received the requested amount.
FULL WITHDRAWALS (FULL REDEMPTIONS)
The commutation value upon full withdrawal may be more or less than the purchase
payment made to the contract. The commutation value will reflect variable
account charges, investment option charges, the investment performance of the
investment options, prior redemptions, and annuity payments. A CDSC may apply.
RESTRICTIONS ON WITHDRAWALS FROM A TAX SHELTERED ANNUITY
The withdrawal of interest in the contract attributable to contributions made
pursuant to a salary reduction agreement (within the meaning of Internal Revenue
Code Section 402(g)(3)(C)), or transfers from a custodial account as described
in Internal Revenue Code Section 403(b)(7), may be executed only if otherwise
permitted by the contract and:
(1) when the contract owner attains age 59 1/2, separates from service,
dies, or becomes disabled (within the meaning of Internal Revenue Code
Section 72(m)(7)); or
(2) in the case of hardship (as defined for purposes of Internal Revenue
Code Section 401(k)), provided that any withdrawal in the case of
hardship may not include any income attributable to salary reduction
contributions.
These withdrawal limitations apply to the withdrawal of interest in the contract
attributable to the following:
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(1) salary reduction contributions to Tax Sheltered Annuities made for
plan years beginning after December 31, 1988;
(2) earnings credited to such contracts after the last plan year beginning
before January 1, 1989, on amounts attributable to salary reduction
contributions; and
(3) all amounts transferred from custodial accounts described in Internal
Revenue Code Section 403(b)(7) (except that employer contributions and
earnings in such accounts as of December 31, 1988, may be withdrawn in
the case of hardship).
These provisions explain Nationwide's understanding of current withdrawal
restrictions. These restrictions may change.
Distributions pursuant to Qualified Domestic Relations Orders will not violate
the restrictions stated above, but may be subject to restrictions found in the
employer's plan or the Internal Revenue Code.
ASSIGNMENT
Contract rights are personal to the contract owner and may not be assigned.
ANNUITY PAYMENTS
INCOME START DATE
The income start date is the date chosen by the contract owner as the date for
annuity payments to begin. The income start date must be no earlier than the day
after the end of the free look period and no later than 60 days after the date
of issue. In connection with the income start date, the contract owner also
elects the frequency of annuity payment dates.
FIXED ANNUITY PAYMENTS
Fixed annuity payments provide for level annuity payments. The fixed annuity
payments will remain level unless the income option calls for a reduction in the
annuity income upon withdrawal or death of the annuitant (or joint annuitant).
See Appendix B.
VARIABLE ANNUITY PAYMENTS
Variable annuity payments will vary depending on the performance of the
investment options selected.
First Variable Annuity Payment
The following factors determine the amount of the first variable annuity
payment:
o the portion of the single purchase payment allocated to provide
variable annuity payments;
o the variable account value on the income start date;
o the age and sex of the annuitant (and joint annuitant, if any);
o the income option elected;
o the frequency of annuity payments;
o the income start date;
o the selected assumed investment return (the net investment return
required to maintain level variable annuity payments);
o the deduction of applicable premium taxes; and
o the date the contract was issued.
Subsequent Variable Annuity Payments
Variable annuity payments after the first will vary with the performance of the
investment options chosen by the contract owner after the investment performance
is adjusted by the assumed investment return factor.
The dollar amount of each subsequent variable annuity payment is determined as
follows:
The portion of the first annuity payment funded by a particular sub-account is
divided by the annuity income unit value for that sub-account as of the income
start date. This establishes the number of annuity income units provided by each
sub-account for each variable annuity payment after the first.
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The number of annuity income units for each sub-account will remain constant,
subject to the following exceptions:
1) if a reduction applies after the first death when the contract owner
elected a joint and survivor income option;
2) if the contract owner takes a withdrawal, as permitted under the
income option elected; or
3) if the contract owner transfers value from one investment option to
another.
The number of annuity income units for each sub-account is multiplied by the
annuity income unit value for that sub-account for the valuation day for which
the payment is due. The sum of these results for all the sub-accounts in which
the contract owner invests establishes the dollar amount of the variable annuity
payment.
Subsequent variable annuity payments may be more or less than the previous
variable annuity payment, depending on whether the net investment performance of
the elected investment options is greater or lesser than the assumed investment
return.
Assumed Investment Return
An assumed investment return is the net investment return required to maintain
level variable annuity payments. Payments will increase from one payment date to
the next if the annualized net rate of return is greater than the assumed
investment return during that time. Conversely, payments will decrease from one
payment to the next if the annualized net rate of return is less than the
assumed investment return during that time.
At the time of application, the contract owner elects one of three available
assumed investment return percentages: 3.5%, 5.0%, or 6.0%. This percentage
cannot be changed after contract issuance. Refer to Appendix C for more
information on selecting an assumed investment return percentage. One or more of
the above assumed investment return percentages may not be available in all
states. Please refer to your contract for specific information.
Nationwide uses this percentage rate of return to determine the amount of the
first variable annuity payment.
Value of an Annuity Income Unit
Annuity income unit values for sub-accounts are determined by:
1) multiplying the annuity income unit value for each sub-account for the
immediately preceding valuation day by the net investment factor for
the sub-account for the subsequent valuation day; and then
2) multiplying the result from (1) by the assumed investment return
factor adjusted for the number of days in the valuation period. The
assumed investment return factor corresponds with the assumed
investment return chosen by the contract owner.
The net investment factor is determined by dividing (a) by (b), and then
subtracting (c) from the result, where:
(a) is:
(1) the net asset value of the investment option as of the end of the
current valuation period; less
(2) the per share amount of any dividend or income distributions made by
the investment option (if the ex-dividend date occurs during the
current valuation period).
(b) is the net asset value of the investment option determined as of the end of
the preceding valuation period.
(c) is a factor representing the daily variable account charges. The factor is
equal to an annual rate of 1.25% (1.45% if the income option with an
Enhanced Death Benefit has been chosen) of the daily net assets of the
variable account.
Changes in the net investment factor may not be directly proportional to changes
in the net asset
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value of the investment option shares because of the deduction of variable
account charges.
Though the number of annuity income units will not change as a result of
investment experience, the value of an annuity income unit may increase or
decrease from valuation day to valuation day.
FREQUENCY AND AMOUNT OF ANNUITY PAYMENTS
Payments are made based on the income option and frequency selected. Payment
frequencies available are: monthly, quarterly, semi-annually, or annually. In no
event will Nationwide make payments less frequently than annually.
Nationwide reserves the right to change the frequency of payments if the amount
of any payment becomes less than $100. The payment frequency will be changed to
an interval that will result in payments of at least $100.
ANNUAL BENEFIT LEVELING
If the contract owner elects Annual Benefit Leveling, variable annuity payments
will be adjusted to reflect the performance of the investment options once every
12 months, instead of with every payment.
On the income start date (or the income start date anniversary on which Annual
Benefit Leveling begins), the number of annuity income units necessary to make
the payments for the following year will be calculated. These annuity income
units will be redeemed from the sub-accounts and transferred to Nationwide's
general account. The Annual Benefit Leveling interest rate for that quarter will
be used to calculate the guaranteed amount of level payments for the following
year.
The level payment calculated on each subsequent income start date anniversary
could be higher or lower than the level payment for the previous year.
An election to start or discontinue Annual Benefit Leveling will take effect
only on the income start date or anniversary thereof. In order for such an
election to take effect on the next income start date anniversary, Nationwide
must receive the election at least 5 days prior to the income start date
anniversary. If a contract owner elects Annual Benefit Leveling, the process of
calculating leveled variable annuity payments will take place on each subsequent
income start date anniversary until the contract owner instructs Nationwide
otherwise.
Nationwide reserves the right to discontinue Annual Benefit Leveling. If
Nationwide does discontinue this program, any contract owner receiving leveled
variable annuity payments will continue to do so until the next income start
date anniversary.
INCOME OPTIONS
Contract owners must elect an income option. This election is made at the time
of application and is irrevocable.
The income options available are:
o Single Life;
o Single Life with Term Certain;
o Single Life with Cash Refund;
o Joint and Last Survivor;
o Joint and 100% Last Survivor with Term Certain;
o Joint and 100% Last Survivor with Cash Refund;
o Joint and 50% Survivor;
o Term Certain; and
o Term Certain with Enhanced Death Benefit.
Each of the income options is discussed more thoroughly below.
SINGLE LIFE
The Single Life income option provides for annuity payments to be paid during
the lifetime of the annuitant.
Payments will cease with the last payment before the annuitant's death. No death
benefit will be paid.
No withdrawals other than the scheduled annuity payments are permitted.
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SINGLE LIFE WITH TERM CERTAIN
The Single Life with Term Certain income option provides that annuity payments
will be made during the annuitant's lifetime or for the term certain selected by
the contract owner on the application, whichever is longer. The contract owner
may select a term certain of 10, 15, or 20 years at the time of application.
If the annuitant dies during this term certain period, the beneficiary will have
the option to continue payments for the remainder of the term certain period or
to receive the commutation value of the remaining payments in a single lump sum
payment.
No withdrawals other than the death benefit and the scheduled annuity payments
are permitted.
SINGLE LIFE WITH CASH REFUND
The Single Life with Cash Refund income option provides that annuity payments
will be made during the lifetime of the annuitant.
If the annuitant dies before receiving aggregate annuity payments at least equal
to the single purchase payment, less any premium tax, the difference between the
aggregate annuity payments and the single purchase payment, less any premium
tax, will be paid to the beneficiary in a single lump sum.
No withdrawals other than the death benefit or scheduled annuity payments are
permitted.
JOINT AND LAST SURVIVOR
The Joint and Last Survivor income option provides for annuity payments to
continue during the joint lifetimes of the annuitant and joint annuitant. After
the death of either the annuitant or joint annuitant, payments will continue for
the life of the survivor. Payments to the survivor will be 50%, 75%, or 100% of
the amount that would have been paid if both annuitants were living, depending
on which continuation percentage was selected by the contract owner on the
application.
Payments will cease with the last payment due prior to the death of the last
survivor of the annuitant and joint annuitant. No death benefit will be paid.
No withdrawals other than the scheduled annuity payments are permitted.
JOINT AND 100% LAST SURVIVOR WITH TERM CERTAIN
The Joint and 100% Last Survivor with Term Certain income option provides for
annuity payments to be made during the joint lifetimes of the annuitant and
joint annuitant. After the death of either the annuitant or joint annuitant,
payments will continue at the same level for the life of the survivor.
If the annuitant and joint annuitant die during the term certain period, the
beneficiary will have the option to continue payments for the remainder of the
period or to receive the commutation value of the remaining payments in a single
lump sum payment.
The contract owner may select a term certain of 10, 15, or 20 years at the time
of application.
No withdrawals other than the death benefit and the scheduled annuity payments
are permitted.
JOINT AND 100% LAST SURVIVOR WITH CASH REFUND
The Joint and 100% Last Survivor with Cash Refund income option provides for
annuity payments to be made during the joint lifetimes of the annuitant and
joint annuitant.
After the death of either the annuitant or joint annuitant, payments will
continue at the same level for the life of the survivor.
If the survivor dies after the income start date, but before aggregate annuity
payments have been made that are at least equal to the single purchase payment,
less any premium tax, the difference between the aggregate annuity payments and
the single purchase payment, less any premium tax, will be paid to the
beneficiary in a single lump sum.
No withdrawals other than the death benefit and scheduled annuity payments are
permitted.
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JOINT AND 50% SURVIVOR
The Joint and 50% Survivor income option provides for annuity payments to be
made during the joint lifetimes of the annuitant and joint annuitant.
After the death of the annuitant, payments of 50% of the amount that would have
been paid if the annuitant were living will be made for the life of the joint
annuitant. If the joint annuitant dies before the annuitant, the 50% reduction
does not apply.
Payments will cease with the last payment due before the death of the last
survivor of the annuitant and joint annuitant. No death benefit will be paid.
No withdrawals other than the scheduled annuity payments are permitted.
TERM CERTAIN
The Term Certain income option provides for annuity payments to be made for the
term certain selected by the contract owner on the application, between 5 and 30
years, inclusive. Nationwide reserves the right to limit the availability of
some term certain durations based on economic circumstances.
The contract owner may elect at any time prior to the annuitant's death to
withdraw all or part of the value of the contract as set forth in the
"Withdrawals (Redemptions)" provision. Withdrawals may be subject to a CDSC.
If the annuitant dies during the term certain period, the beneficiary will have
the option to continue payments for the remainder of the period or to receive
the commutation value of the remaining payments in a single lump sum payment.
TERM CERTAIN WITH ENHANCED DEATH BENEFIT
The Term Certain with Enhanced Death Benefit income option provides for annuity
payments to be made for the term certain selected by the contract owner on the
application, between 10 and 20 years, inclusive.
The contract owner may elect at any time prior to the Annuitant's death to
withdraw all or part of the value of the contract. Withdrawals may be subject to
a CDSC.
If the annuitant dies during the term certain period, the beneficiary will have
the option to continue payments for the remainder of the period or to receive
the death benefit in a single lump sum payment as described below.
Because of the enhanced death benefit associated with this income option,
Nationwide will assess an additional charge of 0.20% to the variable account
charges of 1.25% of the daily net assets of the variable account.
The Term Certain with Enhanced Death Benefit income option may not be available
in all states.
Lump Sum Death Benefit Option
If the beneficiary elects to receive the death benefit in one lump sum, the
amount will be calculated as described in Appendix B for fixed annuity payments
remaining in the term certain period after Nationwide receives proper proof of
death and complete instructions, plus the greater of (1) or (2) where:
1) is the commutation value of variable annuity payments remaining in the
term certain period after Nationwide receives proper proof of death
and complete instructions; and
2) is the commutation value of variable annuity payments remaining in the
term certain period after Nationwide receives proper proof of death
and complete instructions, calculated as if each remaining payment
would be equal to the highest variable annuity payment the annuitant
received under the contract prior to the earlier of the annuitant's
attainment of age 80 or the date of the annuitant's death. This
commutation value will be calculated using the assumed investment
return elected for the contract, and will be appropriately adjusted
for any partial
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withdrawals that have been taken. See Appendix D.
If Annual Benefit Leveling is in effect, the lump sum death benefit will be made
up of two components: 1) the commutation values described above (which do not
include amounts allocated to Annual Benefit Leveling); and 2) the present value
of the leveled variable annuity payments scheduled to be paid after Nationwide
receives complete instructions, but before the next income start date
anniversary. The present value of these payments will be calculated using the
Annual Benefit Leveling interest rate that was assumed when the leveled payment
amount was determined.
Continuation of Payments Death Benefit Option
If the beneficiary elects to receive the annuity payments remaining in the term
certain period, Nationwide will proportionately adjust the number of annuity
income units associated with each remaining variable annuity payment to reflect
the greater of (1) or (2) as described in the "Lump Sum Death Benefit Option"
provision. All remaining variable annuity payments will be paid on the basis of
this adjusted number of units. Remaining fixed annuity payments will be paid
without enhancement or adjustment.
If Annual Benefit Leveling is in effect, the amount of the leveled variable
annuity payments scheduled to be made after Nationwide receives complete
instructions, but before the next income start date anniversary, will not be
changed.
ANY OTHER OPTION
Income options not set forth in this provision may be available. Any income
option not set forth in this provision must be approved by both Nationwide and
the contract owner.
DEATH BEFORE THE INCOME START DATE
DEATH OF CONTRACT OWNER
If a contract owner, who is not the annuitant, dies before the income start
date, ownership rights will vest in the surviving joint owner, if any. If there
is no surviving joint owner, ownership rights will vest in the annuitant.
Subject to the "Required Distributions" provisions, the annuitant will be
entitled to receive scheduled annuity payments.
If the contract owner, who is also the annuitant, dies before the income start
date, the terms of the "Death of Annuitant" provision apply.
DEATH OF ANNUITANT
If the annuitant dies before the income start date, the contract will terminate
and Nationwide will pay the contract value to the surviving owner(s). If there
is no surviving owner, the beneficiary will be entitled to elect a lump sum
distribution or to receive annuity benefits in accordance with the "Required
Distributions" provisions.
DEATH AFTER THE INCOME START DATE
DEATH OF CONTRACT OWNER
If any contract owner dies after the income start date, annuity payments will
continue under the elected income option and ownership rights will vest in any
surviving joint owner. If there is no surviving joint owner, ownership rights
will vest in the annuitant.
DEATH OF ANNUITANT
If the annuitant dies after the income start date, the terms of the income
option elected by the contract owner will apply.
Once Nationwide is notified of the annuitant's (and joint annuitant's, if
applicable) death, any remaining term certain fixed or variable annuity payments
will be suspended until Nationwide has received proper proof of death and
complete instructions to either continue payments or pay the death benefit in a
single lump sum. The availability of any withdrawals allowed by the selected
income option will also be suspended for this period. In addition, the
commutation value of any remaining term certain variable annuity payments will
be transferred to the money market investment option no later than the valuation
day following receipt by Nationwide of notification of death.
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Once Nationwide receives proper proof of death and complete instructions,
Nationwide will make any payments that were suspended. The amount of each
suspended variable annuity payment will be determined using the annuity income
unit values for the money market investment option on the date the variable
annuity payment was originally scheduled to be made. No interest will be paid on
any payments that were suspended. Once any remaining term certain fixed or
variable annuity payments have resumed, the beneficiary shall have the right to
make any transfers to other investment options allowed by the contract.
Instructions regarding payment of any death benefit provided by the income
option selected must be in writing or in a form otherwise acceptable to
Nationwide. Nationwide reserves the right to require that the signature(s) be
guaranteed by a member firm of a major stock exchange or other depository
institution qualified to give such a guarantee.
If a lump sum death benefit is available and has been elected, it will be paid
to the beneficiary within seven days of receipt of proper proof of death and
instructions satisfactory to Nationwide.
REQUIRED DISTRIBUTIONS
REQUIRED DISTRIBUTIONS FOR NON-QUALIFIED CONTRACTS
Internal Revenue Code Section 72(s) requires Nationwide to make certain
distributions when a contract owner dies. The following distributions will be
made according to those requirements:
1) If any contract owner dies on or after the income start date and
before the entire interest in the contract has been distributed, then
the remaining interest must be distributed at least as rapidly as the
distribution method in effect on the contract owner's death.
2) If any contract owner dies before the income start date, then the
entire interest in the contract (consisting of either the death
benefit or the contract value reduced by charges set forth elsewhere
in the contract) will be distributed within 5 years of the contract
owner's death, provided however:
a) any interest payable to or for the benefit of a natural person
(referred to herein as a "designated beneficiary"), may be
distributed over the life of the designated beneficiary or over a
period not longer than the life expectancy of the designated
beneficiary. Payments must begin within one year of the contract
owner's death unless otherwise permitted by federal income tax
regulations; and
b) if the designated beneficiary is the surviving spouse of the
deceased contract owner, the spouse can choose to become the
contract owner instead of receiving a death benefit. Any
distributions required under these distribution rules will be
made upon that spouse's death.
In the event that the contract owner is NOT a natural person (e.g., a trust or
corporation), then, for purposes of these distribution provisions:
a) the death of the annuitant will be treated as the death of a contract
owner;
b) any change of annuitant will be treated as the death of a contract
owner; and
c) in either case, the appropriate distribution will be made upon the
death or change, as the case may be.
These distribution provisions do not apply to any contract exempt from Section
72(s) of the Internal Revenue Code by reason of Section 72(s)(5) or any other
law or rule.
The designated beneficiary must elect a method of distribution and notify
Nationwide of this election within 60 days of the contract owner's death.
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REQUIRED DISTRIBUTIONS FOR TAX SHELTERED ANNUITIES
Distributions from Tax Sheltered Annuities will be made according to the Minimum
Distribution and Incidental Benefit ("MDIB") provisions of Section 401(a)(9) of
the Internal Revenue Code. Distributions will be made to the annuitant according
to the selected annuity payment option over a period not longer than:
a) the life of the annuitant or the joint lives of the annuitant and the
annuitant's designated beneficiary; or
b) a period not longer than the life expectancy of the annuitant or the
joint life expectancies of the annuitant and the annuitant's
designated beneficiary.
Required distributions do not have to be withdrawn from this contract if they
are being withdrawn from another Tax Sheltered Annuity of the annuitant.
If the annuitant's entire interest in a Tax Sheltered Annuity will be
distributed in equal or substantially equal payments over a period described in
a) or b), the payments will begin on the required beginning date. The required
beginning date is the later of:
a) April 1 of the calendar year following the calendar year in which the
annuitant reaches age 70 1/2; or
b) the annuitant's retirement date.
Provision b) does not apply to any employee who is a 5% owner (as defined in
Section 416 of the Internal Revenue Code) with respect to the plan year ending
in the calendar year when the employee attains the age of 70 1/2.
Distribution commencing on the required distribution date must satisfy MDIB
provisions set forth in the Internal Revenue Code. Those provisions require that
distributions cannot be less than the amount determined by dividing the
annuitant's interest in the Tax Sheltered Annuity determined by the end of the
previous calendar year by (a) the annuitant's life expectancy; or, if
applicable, (b) the joint and survivor life expectancy of the annuitant and the
annuitant's beneficiary. The life expectancies and joint life expectancies are
determined by reference to Treasury Regulation 1.72-9.
If the annuitant dies before distributions begin, the interest in the Tax
Sheltered Annuity must be distributed by December 31 of the calendar year in
which the fifth anniversary of the annuitant's death occurs unless:
a) the annuitant names his or her surviving spouse as the beneficiary and
the spouse chooses to receive distribution of the contract in
substantially equal payments over his or her life (or a period not
longer than his or her life expectancy) and beginning no later than
December 31 of the year in which the annuitant would have attained age
70 1/2; or
b) the annuitant names a beneficiary other than his or her surviving
spouse and the beneficiary elects to receive distribution of the
contract in substantially equal payments over his or her life (or a
period not longer than his or her life expectancy) beginning no later
than December 31 of the year following the year in which the annuitant
dies.
If the annuitant dies after distributions have begun, distributions must
continue at least as rapidly as under the schedule used before the annuitant's
death.
If distribution requirements are not met, a penalty tax of 50% is levied on the
difference between the amount that should have been distributed for that year
and the amount that actually was distributed for that year.
REQUIRED DISTRIBUTIONS FOR IRAS AND SEP IRAS
Distributions from an IRA or SEP IRA must begin no later than April 1 of the
calendar year following the calendar year in which the contract owner reaches
age 70 1/2. Distribution may be paid in a lump sum or in substantially equal
payments over:
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a) the contract owner's life or the lives of the contract owner and his
or her spouse or designated beneficiary; or
b) a period not longer than the life expectancy of the contract owner or
the joint life expectancy of the contract owner and the contract
owner's designated beneficiary.
If the contract owner dies before distributions begin, the interest in the IRA
or SEP IRA must be distributed by December 31 of the calendar year in which the
fifth anniversary of the contract owner's death occurs, unless:
a) the contract owner names his or her surviving spouse as the
beneficiary and such spouse chooses to:
1) treat the contract as an IRA or SEP IRA established for his or
her benefit; or
2) receive distribution of the contract in substantially equal
payments over his or her life (or a period not longer than his or
her life expectancy) and beginning no later than December 31 of
the year in which the contract owner would have reached age 70
1/2; or
b) the contract owner names a beneficiary other than his or her surviving
spouse and such beneficiary elects to receive a distribution of the
contract in substantially equal payments over his or her life (or a
period not longer than his or her life expectancy) beginning no later
than December 31 of the year following the year of the contract
owner's death.
Required distributions do not have to be withdrawn from this contract if they
are being withdrawn from another IRA or SEP IRA of the contract owner.
If the contract owner dies after distributions have begun, distributions must
continue at least as rapidly as under the schedule being used before the
contract owner's death. However, a surviving spouse who is the beneficiary under
the annuity payment option may treat the contract as his or her own, in the same
manner as is described in section (a)(i) of this provision.
If distribution requirements are not met, a penalty tax of 50% is levied on the
difference between the amount that should have been distributed for that year
and the amount that actually was distributed for that year.
A portion of each distribution will be included in the recipient's gross income
and taxed at ordinary income tax rates. The portion of a distribution which is
taxable is based on the ratio between the amount by which non-deductible
purchase payments exceed prior non-taxable distributions and total account
balances at the time of the distribution. The owner of an IRA or SEP IRA must
annually report the amount of non-deductible purchase payments, the amount of
any distribution, the amount by which non-deductible purchase payments for all
years exceed non-taxable distributions for all years, and the total balance of
all IRAs.
If the contract owner dies before the entire interest in the contract has been
distributed, the balance will also be included in his or her gross estate.
REQUIRED DISTRIBUTIONS FOR ROTH IRAS
The rules for Roth IRAs do not require distributions to begin during the
contract owner's lifetime.
When the contract owner dies, the entire interest in the Roth IRA must be
distributed by December 31 of the calendar year in which the fifth anniversary
of his or her death occurs, unless:
a) the contract owner names his or her surviving spouse as the
beneficiary and the spouse chooses to:
1) treat the contract as a Roth IRA established for his or her
benefit; or
2) receive distribution of the contract in substantially equal
payments over his or her life (or a period not longer than his or
her life expectancy) and
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beginning no later than December 31 of the year following the
year in which the contract owner would have reached age 70 1/2;
or
b) the contract owner names a beneficiary other than his or her surviving
spouse and the beneficiary chooses to receive distribution of the
contract in substantially equal payments over his or her life (or a
period not longer than his or her life expectancy) beginning no later
than December 31 of the year following the year in which the contract
owner dies.
Distributions from Roth IRAs may be either taxable or non-taxable, depending
upon whether they are "qualified distributions" or "non-qualified distributions"
(see "Federal Tax Considerations").
FEDERAL TAX CONSIDERATIONS
FEDERAL INCOME TAXES
Contract owners should consult a financial consultant, legal counsel or tax
adviser to discuss in detail the taxation and the use of the contracts.
Nationwide does not guarantee the tax status of the contracts or any
transactions involving the contracts.
Section 72 of the Internal Revenue Code governs federal income taxation of
annuities in general. That section sets forth different rules for: (1) IRAs,
including SEP IRAs; (2) Roth IRAs; (3) Tax Sheltered Annuities; and (4)
Non-Qualified Contracts. Each type of annuity is discussed below.
IRAs and SEP IRAs
Distributions from IRAs and SEP IRAs and contracts owned by Individual
Retirement Accounts are generally taxed when received. The excludable portion of
each payment is based on the ratio between the amount by which non-deductible
purchase payments to all the contracts exceeds prior non-taxable distributions
from the contracts, and the total account balances in the contracts at the time
of the distribution. The owner of the IRA or SEP IRA or the annuitant under
contracts held by Individual Retirement Accounts must annually report to the
Internal Revenue Service:
o the amount of nondeductible purchase payments;
o the amount of any distributions;
o the amount by which nondeductible purchase payments for all years
exceed non-taxable distributions for all years; and
o the total balance in all IRAs.
Roth IRAs
Distributions of earnings from Roth IRAs are taxable or non-taxable, depending
upon whether they are "qualified distributions" or "non-qualified
distributions." A "qualified distribution" is one that satisfies the five-year
rule and meets one of the following requirements:
(i) it is made on or after the date on which the contract owner attains
age 59 1/2;
(ii) it is made to a beneficiary (or the contract owner's estate) on or
after the death of the contract owner;
(iii) it is attributable to the contract owner's disability; or
(iv) it is a qualified first-time homebuyer distribution (as defined in
Section 72(t)(2)(F) of the Internal Revenue Code).
The five year rule is satisfied if the distribution is not made within the five
taxable year period commencing with the taxable year in which the first
contribution to a Roth IRA (including a conversion from a traditional IRA) is
made.
A non-qualified distribution is any distribution that is not a qualified
distribution.
A qualified distribution is not included in gross income for federal income tax
purposes. A non-qualified distribution is not includible in gross income to the
extent that the distribution, when added to all previous distributions, does not
exceed that total amount of contributions made
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to the Roth IRA. Any non-qualified distribution in excess of the aggregate
amount of contributions will be included in the contract owner's gross income in
the year that is distributed to the contract owner.
If the contract owner dies before the contract is completely distributed, the
balance will also be included in the contract owner's gross estate for tax
purposes.
Tax Sheltered Annuities
Distributions from Tax Sheltered Annuities are generally taxed when received. A
portion of each distribution is excludable from income based on a formula
required by the Internal Revenue Code. The formula excludes from income the
amount invested in the contract divided by the number of anticipated payments
(as determined pursuant to Section 72(d) of the Internal Revenue Code) until the
full investment in the contract is recovered. Thereafter all distributions are
fully taxable.
Non-Qualified Contracts - Natural Persons as Contract Owners
The rules applicable to Non-Qualified Contracts provide that a portion of each
annuity payment is excludable from taxable income based on the ratio between the
contract owner's investment in the contract and the expected return on the
contract until the investment has been recovered. Thereafter the entire amount
is includible in income. The maximum amount excludable from income is the
investment in the contract. If the annuitant dies before the entire investment
in the contract has been excluded from income, and no additional payments are
due after his or her death, then he or she may be entitled to a deduction for
the balance of the unrecovered investment in the contract on his or her final
income tax return.
After the income start date, distributions other than regular annuity payments
are generally required to be included in income for federal income tax purposes.
However, this general rule does not apply to a complete withdrawal or redemption
of a contract - a portion of the amount received in a complete withdrawal or
redemption may be treated for federal income tax purposes as the tax-free return
of investment in the contract. Partial withdrawals or redemptions other than
regular annuity payments are generally required to be included in income. THE
INTERNAL REVENUE CODE, TREASURY REGULATIONS, AND OTHER INFORMATIONAL RELEASES BY
THE IRS CONTAIN COMPLEX RULES REGARDING THE TAXATION OF DISTRIBUTIONS FROM
ANNUITY CONTRACTS, WHICH THE CONTRACT OWNER SHOULD REVIEW WITH A TAX ADVISER
PRIOR TO REQUESTING A DISTRIBUTION.
Distributions before the income start date are taxable to the contract owner to
the extent that the cash value of the contract exceeds the contract owner's
investment at the time of the distribution. Distributions, for this purpose,
include partial withdrawals or dividends, or for contracts issued after April
22, 1987, any portion of the contract transferred by gift. For these purposes, a
transfer by gift may occur if the contract owner and the annuitant are not the
same individual.
In determining the taxable amount of a distribution, all annuity contracts
issued after October 21, 1988 by the same company to the same contract owner
during any 12-month period will be treated as one annuity contract. Additional
limitations on the use of multiple contracts may be imposed by Treasury
Regulations.
Internal Revenue Code Section 72 assesses a penalty tax if a distribution is
made before the contract owner reaches age 59 1/2. The amount of the penalty is
10% of the portion of any distribution that is includible in gross income. The
penalty tax does not apply if the distribution:
1) is the result of a contract owner's death;
2) is the result of a contract owner's disability;
3) is one of a series of substantially equal periodic payments made over
the life or life expectancy of the contract owner (or the joint lives
or joint life expectancies of the contract owner and
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the beneficiary selected by the contract owner to receive payment
under the annuity payment option selected by the contract owner);
4) is from an immediate annuity; or
5) is allocable to an investment in the contract before August 14, 1982.
The Internal Revenue Service has ruled that if an annuity contract is acquired
in exchange for another contract in a transaction described in Internal Revenue
Code Section 1035 (tax free exchange of contracts), then the date that the old
contract was purchased must be no earlier than 1 year before the date that the
annuity payments commence under the new contract in order for the new contract
to be treated as an immediate annuity for purposes of the exemption from the 10%
penalty.
A contract owner that wants to begin taking distributions to which the 10% tax
penalty does not apply should forward a written request to Nationwide. Upon
receipt of this written request, Nationwide will inform the contract owner of
Nationwide's policies and procedures, as well as contract limitations. An
election to begin taking these withdrawals will be irrevocable and may not be
amended or changed.
In order to qualify as an annuity contract under Section 72 of the Internal
Revenue Code, the contract must provide for distribution of the entire contract
upon a contract owner's death. These rules are described in "Required
Distributions for Non-Qualified Contracts."
The Internal Revenue Code requires that any election to receive an annuity
instead of a lump sum payment be made within 60 days after the lump sum becomes
payable (generally, within 60 days of the death of a contract owner or the
annuitant). As long as the election is made within the 60 day period, each
distribution will be taxable when it is paid. Upon the end of this 60 day
period, if no election has been made, the entire amount of the lump sum will be
subject to immediate tax, even if the payee decides at a later date to take the
distribution as an annuity.
Non-Qualified Contracts - Non-Natural Persons as Contract Owners
The previous discussion related to the taxation of Non-Qualified Contracts owned
(or, pursuant to Section 72(u) of the Internal Revenue Code, deemed to be owned)
by individuals. Different rules apply if the contract owner is not a natural
person.
Generally, contracts owned by corporations, partnerships, trusts, and similar
entities ("non-natural persons") are not treated as annuity contracts under the
Internal Revenue Code. Specifically, they are not treated as annuity contracts
for purposes of Section 72. Therefore, income earned under a Non-Qualified
Contract that is owned by a non-natural person is taxed as ordinary income
during the taxable year that it is earned. Taxation is not deferred, even if the
income is not distributed out of the contract to the contract owner.
This non-natural person rule does not apply to all entity-owned contracts. A
contract that is owned by a non-natural person as an agent for an individual is
treated as owned by the individual. This would put the contract back under
Section 72, allowing tax deferral. However, this exception does not apply when
the non-natural person is an employer that holds the contract under a
non-qualified deferred compensation arrangement for one or more employees.
The non-natural person rule also does not apply to a contract that is:
a) acquired by the estate of a decedent by reason of the death of the
decedent;
b) issued in connection with certain qualified retirement plans and
individual retirement plans;
c) used in connection with certain structured settlements;
d) purchased by an employer upon the termination of certain qualified
retirement plans; or
e) an immediate annuity.
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The Internal Revenue Service has ruled that if an annuity contract is acquired
in exchange for another contract in a transaction described in Internal Revenue
Code Section 1035 (tax free exchange of contracts), then the date that the old
contract was purchased must be no earlier than 1 year before the date that the
annuity payments commence under the new contract in order for the new contract
to be treated as an immediate annuity for purposes of the non-natural owner
rules.
IRAS, SEP IRAS, AND TAX SHELTERED ANNUITIES
Contract owners looking for information on eligibility, limitations on
permissible amounts of purchase payments, and the tax consequences of
distributions from IRAs, SEP IRAs, and Tax Sheltered Annuities should contact a
qualified adviser. The terms of each plan may limit the rights available under
the contracts.
Section 403(b)(1)(E) of the Internal Revenue Code requires a contract issued as
a Tax Sheltered Annuity to limit purchase payments for any year to an amount
that does not exceed the limit set forth in Section 402(g) of the Internal
Revenue Code. This limit is increased from time to time to reflect increases in
the cost of living. This limit may be reduced by deposits, contributions or
payments made to another Tax Sheltered Annuity or other plan, contract or
arrangement by or on behalf of the contract owner.
The Internal Revenue Code allows most distributions from Qualified Plans to be
rolled into IRAs or SEP IRAs. Most distributions from Tax Sheltered Annuities
may be rolled into another Tax Sheltered Annuity, IRA or SEP IRA. Distributions
that may NOT be rolled over are those that are:
a) one of a series of substantially equal annual (or more frequent)
payments made:
1) over the life (or life expectancy) of the contract owner;
2) over the joint lives (or joint life expectancies) of the contract
owner and the contract owner's designated beneficiary; or
3) for a specified period of ten years or more; or
b) a required minimum distribution.
Any distribution that is eligible for rollover will be subject to federal tax
withholding of 20% if the distribution is not rolled into an appropriate plan as
described above.
IRAs and SEP IRAs may not provide life insurance benefits. If the death benefit
exceeds the greater of the contract's cash value or the sum of all purchase
payments (less any withdrawals), the contract could be considered life
insurance. Consequently, the Internal Revenue Service could determine that the
IRA or SEP IRA does not qualify for the desired tax treatment.
ROTH IRAS
The contract may be purchased as a Roth IRA. For detailed information on
purchasing and holding this contract as a Roth IRA, the contract owner should
contact a financial adviser.
The Internal Revenue Code allows distributions (other than required minimum
distributions) from Individual Retirement Accounts and Individual Retirement
Annuities to be rolled into Roth IRAs. The rollovers are subject to federal
income tax as distributions from the Individual Retirement Account or Individual
Retirement Annuity.
For rollovers from Individual Retirement Accounts or Individual Retirement
Annuities, all of the income from the rollover will be required to be included
in income in the year of the rollover distribution from the Individual
Retirement Account or Individual Retirement Annuity.
A distribution from a Roth IRA that contains the proceeds of a rollover from an
Individual Retirement Account or Individual Retirement Annuity within the
preceding five years could
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be subject to a 10% penalty, even if the distribution is not taxable. In
addition, if the rollover from the Individual Retirement Account or Individual
Retirement Annuity was made in 1998, and the income from that rollover was
included in income ratably over a four year period, a distribution from the Roth
IRA within four years of the rollover may result in the loss of the four year
spread, subject to the amount deferred under the four year election to be taxed
immediately.
WITHHOLDING
Pre-death distributions from the contracts are subject to federal income tax.
Nationwide will withhold the tax from the distributions unless the contract
owner requests otherwise. Contract owners may not waive withholding if the
distribution is subject to mandatory back-up withholding (if no mandatory
taxpayer identification number is given or if the Internal Revenue Service
notifies Nationwide that mandatory back-up withholding is required), or if it is
an eligible rollover distribution. Mandatory back-up withholding rates are 31%
of income that is distributed.
NON-RESIDENT ALIENS
Generally, a pre-death distribution from a contract to a non-resident alien is
subject to federal income tax at a rate of 30% of the amount of income that is
distributed. Nationwide is required to withhold this amount and send it to the
Internal Revenue Service. Some distributions to non-resident aliens may be
subject to a lower (or no) tax if a treaty applies. In order to obtain the
benefits of such a treaty, the non-resident alien must:
1) provide Nationwide with proof of residency and citizenship (in
accordance with Internal Revenue Service requirements); and
2) provide Nationwide with an individual taxpayer identification number.
If the non-resident alien does not meet the above conditions, Nationwide will
withhold 30% of income from the distribution.
Another way to avoid the 30% withholding is for the non-resident alien to
provide Nationwide with sufficient evidence that:
1) the distribution is connected to the non-resident alien's conduct of
business in the United States; and
2) the distribution is includible in the non-resident alien's gross
income for United States federal income tax purposes.
Note that these distributions may be subject to back-up withholding, currently
31%, if a correct taxpayer identification number is not provided.
FEDERAL ESTATE, GIFT, AND GENERATION SKIPPING TRANSFER TAXES
The following transfers may be considered a gift for federal gift tax purposes:
o a transfer of the contract from one contract owner to another; or
o a distribution to someone other than a contract owner.
Upon the contract owner's death, the value of the contract may be subject to
estate taxes, even if all or a portion of the value is also subject to federal
income taxes.
Section 2612 of the Internal Revenue Code may require Nationwide to determine
whether a death benefit or other distribution is a "direct skip" and the amount
of the resulting generation skipping transfer tax, if any. A direct skip is when
property is transferred to, or a death benefit or other distribution is made to:
a) an individual who is two or more generations younger than the contract
owner; or
b) certain trusts, as described in Section 2613 of the Internal Revenue
Code (generally, trusts that have no beneficiaries who are not 2 or
more generations younger than the contract owner).
If the contract owner is not an individual, then for this purpose ONLY,
"contract owner" refers to any person:
32
<PAGE> 33
o who would be required to include the contract, death benefit,
distribution, or other payment in his or her federal gross estate at
his or her death; or
o who is required to report the transfer of the contract, death benefit,
distribution, or other payment for federal gift tax purposes.
If a transfer is a direct skip, Nationwide will deduct the amount of the
transfer tax from the death benefit, distribution or other payment, and remit it
directly to the Internal Revenue Service.
PUERTO RICO
Under the Puerto Rico tax code, distributions from a Non-Qualified Contract
before annuitization are treated as non-taxable return of principal until the
principal is fully recovered. Thereafter all distributions are fully taxable.
Distributions after annuitization are treated as part taxable income and part
non-taxable return of principal. The amount excluded from gross income after
annuitization is equal to the amount of the distribution in excess of 3% of the
total purchase payments paid, until an amount equal to the total purchase
payments paid has been excluded. Thereafter, the entire distribution is included
in gross income. Puerto Rico does not impose an early withdrawal penalty tax.
Generally, Puerto Rico does not require income tax to be withheld from
distributions of income. A personal adviser should be consulted in these
situations.
CHARGE FOR TAX
Nationwide is not required to maintain a capital gain reserve liability on
Non-Qualified Contracts. If tax laws change requiring a reserve, Nationwide may
implement and adjust a tax charge.
DIVERSIFICATION
Internal Revenue Code Section 817(h) contains rules on diversification
requirements for variable annuity contracts. A variable annuity contract that
does not meet these diversification requirements will not be treated as an
annuity, unless
o the failure to diversify was accidental;
o the failure is corrected; and
o a fine is paid to the IRS.
The amount of the fine will be the amount of tax that would have been paid by
the contract owner if the income, for the period the contract was not
diversified, had been received by the contract owner.
If the violation is not corrected, the contract owner will be considered the
owner of the underlying securities and will be taxed on the earnings of his or
her contract. Nationwide believes that the investments underlying this contract
meet these diversification requirements.
TAX CHANGES
The foregoing tax information is based on Nationwide's understanding of federal
tax laws. It is NOT intended as tax advice. All information is subject to change
without notice. For more details, contact your personal tax and/or financial
adviser.
STATEMENTS AND REPORTS
Nationwide will mail contract owners statements and reports. Therefore, contract
owners should promptly notify Nationwide of any address change.
These mailings will contain:
o statements showing the contract's quarterly activity;
o confirmation statements showing transactions that affect the
contract's value. Confirmation statements will not be sent for
recurring transactions (i.e., regular annuity payments). Instead,
confirmation of recurring transactions will appear in the contract's
quarterly statements; and
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
33
<PAGE> 34
beneficial shareholders as required by the rules under the Investment
Company Act of 1940 for the variable account.
Contract owners should review statements and confirmations carefully. All errors
or corrections must be reported to Nationwide immediately to assure proper
crediting to the contract. Unless Nationwide is notified within 30 days of
receipt of the statement, Nationwide will assume statements and confirmation
statements are correct.
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. The shareholder services
system that supports mutual fund products was fully deployed during the first
quarter 1999. Conversion of existing traditional life policies to the new
compliant system was completed by July 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's facilities in Columbus, Ohio have been inventoried, assessed and
tested as being Year 2000 compliant. Mission-critical systems supporting
Nationwide's infrastructure such as telecommunications, voice and networks were
renovated and brought into compliance as planned during the second quarter.
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 utilizing electronic interfaces with
Nationwide and processes have been put in place to allow Nationwide to accept
data regardless of the format. During the third quarter 1999, contingency plans
will be finalized for other interfaces with our critical business partners.
In addition to resolving internal Year 2000 readiness issues, Nationwide is
conducting a due diligence effort with significant external organizations,
including mutual fund organizations, financial institutions and wholesale
producers, to assess if they will be Year 2000 compliant. This involves
communication and follow-up with critical business partners to determine if they
will be in a position to continue doing business in the Year 2000 and beyond.
The results are currently being gathered and analyzed and these efforts will
continue until compliance is assured or until regulatory rulings indicate
actions to be taken related to non-compliant firms. Contingency plans have been
developed for mutual fund organizations, financial institutions and wholesale
producers who may not become compliant prior to the end of 1999.
As part of its risk management strategy, Nationwide has identified risk
scenarios including the identification of external risk factors that could cause
business interruptions from Year 2000 related events. These risk scenarios
include increased customer service
34
<PAGE> 35
volume, increased producer service volume, utility failures, technology failures
and disruptions in business operations, finance and cash flow. Nationwide is in
the process of developing mitigation and contingency plans to address these
risks that would, except for complete utility failure, permit uninterrupted
service to customers and producers. Contingency and mitigation plan efforts are
expected to be completed during the third quarter of 1999.
Operating expenses in 1998 and 1997 include 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 and expenditures for the first six months of 1999 totaled
$4.2 million. These expenses do not have an effect on the assets of the variable
account and are not charged through to the contract owner.
Management does not anticipate that the completion of Year 2000 renovation and
replacement activities will result in a reduction in operating expenses. Rather,
personnel and resources currently allocated to Year 2000 issues will be assigned
to other technology-related projects.
LEGAL PROCEEDINGS
Nationwide is a party to litigation and arbitration proceedings in the ordinary
course of its business, none of which is expected to have a material adverse
effect on Nationwide.
In recent years, life insurance companies have been named as defendants in
lawsuits, including class action lawsuits, relating to life insurance and
annuity pricing and sales practices. A number of these lawsuits have resulted in
substantial jury awards or settlements.
In November 1997, two plaintiffs, one who was the owner of a variable life
insurance contract and the other who was the owner of a variable annuity
contract, commenced a lawsuit in a federal court in Texas against Nationwide
Life Insurance Company and the American Century group of defendants (Robert
Young and David D. Distad v. Nationwide Life Insurance Company et al.). In this
lawsuit, plaintiffs sought to represent a class of variable life insurance
contract owners and variable annuity contract owners whom they claim were
allegedly misled when purchasing these variable contracts into believing that
the performance of their underlying mutual fund option managed by American
Century, whose shares may only be purchased by insurance companies, would track
the performance of a mutual fund, also managed by American Century, whose shares
are publicly traded. The amended complaint seeks unspecified compensatory and
punitive damages. On April 27, 1998, the district court denied, in part, and
granted, in part, 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. The District Court,
on December 2, 1998, issued an order denying plaintiffs' motion for class
certification and the appeals court declined to review the order denying class
certification upon interlocutory appeal. On June 11, 1999, the District Court
denied the plaintiffs' motion to amend their complaint and reconsider class
certification. Nationwide intends to defend this lawsuit (now limited to the
claims of the two named plaintiffs) vigorously.
On October 29, 1998, Nationwide was named in a lawsuit filed in Ohio state court
related to the sale of deferred annuity products for use as investments in
tax-deferred contributory retirement plans (Mercedes Castillo v. Nationwide
Financial Services, Inc., Nationwide Life Insurance Company and Nationwide Life
and Annuity Insurance Company). On May 3, 1999, the complaint was amended to,
among other things, add Marcus Shore as a second plaintiff. The amended
complaint is brought as a class action on behalf of all persons who purchased
individual deferred annuity contracts or participated in group annuity contracts
sold by Nationwide and the other named Nationwide affiliates which were used to
fund certain tax-
35
<PAGE> 36
deferred retirement plans. The amended complaint seeks unspecified compensatory
and punitive damages. On June 11, 1999, Nationwide and the other named
defendants filed a motion to dismiss the amended complaint. 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 the Company in the future.
The general distributor, NAS, is not engaged in any litigation of any material
nature.
ADVERTISING AND SUB-ACCOUNT PERFORMANCE SUMMARY
ADVERTISING
A "yield" and "effective yield" may be advertised for the NSAT Money Market
Fund. "Yield" is a measure of the net dividend and interest income earned over a
specific seven-day period (which period will be stated in the advertisement)
expressed as a percentage of the offering price of the NSAT Money Market Fund's
units. Yield is an annualized figure, which means that it is assumed that the
NSAT Money Market Fund generates the same level of net income over a 52-week
period. The "effective yield" is calculated similarly but includes the effect of
assumed compounding, calculated under rules prescribed by the SEC. The effective
yield will be slightly higher than yield due to this compounding effect.
Nationwide may advertise the performance of a sub-account in relation to the
performance of other variable annuity sub-accounts, investment options with
similar or different objectives or the investment industry as a whole. Other
investments to which the sub-accounts may be compared include, but are not
limited to:
o precious metals;
o real estate;
o stocks and bonds;
o closed-end funds;
o bank money market deposit accounts and passbook savings;
o CDs; and
o the Consumer Price Index.
Market Indexes
The sub-accounts will be compared to certain market indexes, such as:
o S&P 500;
o Shearson/Lehman Intermediate Government/Corporate Bond Index;
o Shearson/Lehman Long-Term Government/Corporate Bond Index;
o Donoghue Money Fund Average;
o U.S. Treasury Note Index;
o Bank Rate Monitor National Index of 2 1/2 Year CD Rates; and
o Dow Jones Industrial Average.
Tracking & Rating Services; Publications
Nationwide's rankings and ratings are sometimes published by other services,
such as:
o Lipper Analytical Services, Inc.;
o CDA/Wiesenberger;
o Morningstar;
o Donoghue's;
o magazines such as:
- Money;
- Forbes;
- Kiplinger's Personal Finance Magazine;
- Financial World;
- Consumer Reports;
- Business Week;
- Time;
- Newsweek;
- National Underwriter; and
- News and World Report;
o LIMRA;
o Value;
o Best's Agent Guide;
o Western Annuity Guide;
o Comparative Annuity Reports;
o Wall Street Journal;
o Barron's;
o Investor's Daily;
o Standard & Poor's Outlook; and
36
<PAGE> 37
o Variable Annuity Research & Data Service (The VARDS Report).
These rating services and publications rank the investment options' performance
against other funds. These rankings may or may not include the effects of sales
charges or other fees.
Financial Rating Services
Nationwide is also ranked and rated by independent financial rating services,
among which are Moody's, Standard & Poor's and A.M. Best Company. Nationwide may
advertise these ratings. These ratings reflect Nationwide's financial strength
or claims-paying ability. The ratings are not intended to reflect the investment
experience or financial strength of the variable account.
Some Nationwide advertisements and endorsements may include lists of
organizations, individuals or other parties that recommend Nationwide or the
contract. Furthermore, Nationwide may occasionally advertise comparisons of
currently taxable and tax deferred investment programs, based on selected tax
brackets, or discussions of alternative investment vehicles and general economic
conditions.
Historical Performance of the Sub-Accounts
Nationwide will advertise historical performance of the sub-accounts. Nationwide
may advertise for the sub-account's standardized "average annual total return,"
calculated in a manner prescribed by the SEC, and nonstandardized "total
return." Average annual total return shows the percentage rate of return of a
hypothetical initial investment of $1,000 for the most recent one, five and ten
year periods (or for a period covering the time the investment option has been
available in the variable account if it has not been available for one of the
prescribed periods). This calculation reflects the deduction of the maximum
charges that could be assessed to the contract (1.45%), which includes the
charge for the Enhanced Death Benefit, but does not reflect premium taxes, which
may be imposed by certain states.
Nonstandardized "total return," calculated similar to standardized "average
annual total return," shows the percentage rate of return of a hypothetical
initial investment of $35,000 for the most recent one, five and ten year periods
(or for a period covering the time the investment option has been in existence).
For those investment options which have not been available for one of the
prescribed periods, the nonstandardized total return illustrations will show the
investment performance the investment options would have achieved (reduced by
the same charges except the CDSC) had they been available in the variable
account for one of the periods. The CDSC is not reflected because the contracts
are designed for long term investment. The CDSC, if reflected, would decrease
the level of performance shown. An initial investment of $35,000 is assumed
because that amount is closer to the size of a typical contract than $1,000,
which was used in calculating the standardized average annual total return.
The standardized average annual total return and nonstandardized total return
quotations are calculated using data for the period ended December 31, 1998.
However, Nationwide generally provides performance information more frequently.
Information relating to performance of the sub-accounts is based on historical
earnings and does not represent or guarantee future results.
37
<PAGE> 38
<TABLE>
SUB-ACCOUNT PERFORMANCE SUMMARY
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
10 Years
or Date Fund
Available in Date Fund
the Variable Available in
1 Year 5 Years Account the Variable
Sub-Account Option to 12/31/98 to 12/31/98 to 12/31/98 Account
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
American Century Variable Portfolios, Inc. - 19.65% N/A 20.97% 11/03/97
American Century VP Income & Growth
- ----------------------------------------------------------------------------------------------------------------
American Century Variable Portfolios, Inc. - 11.65% N/A 10.78% 11/03/97
American Century VP International
- ----------------------------------------------------------------------------------------------------------------
American Century Variable Portfolios, Inc. - -2.11% N/A 0.76% 11/03/97
American Century VP Value
- ----------------------------------------------------------------------------------------------------------------
The Dreyfus Socially Responsible Growth 22.13% N/A 20.59% 11/03/97
Fund, Inc.
- ----------------------------------------------------------------------------------------------------------------
Dreyfus Stock Index Fund, Inc. 20.99% N/A 21.44% 11/03/97
- ----------------------------------------------------------------------------------------------------------------
Dreyfus Variable Investment Fund - Capital 22.96% N/A 22.14% 11/03/97
Appreciation Portfolio
- ----------------------------------------------------------------------------------------------------------------
Fidelity VIP Equity-Income Portfolio: Service 4.53% N/A 7.01% 11/03/97
Class
- ----------------------------------------------------------------------------------------------------------------
Fidelity VIP Growth Portfolio: Service Class 32.00% N/A 27.35% 11/03/97
- ----------------------------------------------------------------------------------------------------------------
Fidelity VIP High Income Portfolio: Service -10.87% N/A -8.54% 11/03/97
Class
- ----------------------------------------------------------------------------------------------------------------
Fidelity VIP Overseas Portfolio: Service Class 5.61% N/A 3.82% 11/03/97
- ----------------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund Portfolio: Service 22.68% N/A 18.74% 11/03/97
Class
- ----------------------------------------------------------------------------------------------------------------
Fidelity VIP III Growth Opportunities 17.32% N/A 18.85% 11/03/97
Portfolio: Service Class
- ----------------------------------------------------------------------------------------------------------------
Morgan Stanley Dean Witter Universal Funds, -33.09% N/A -26.80% 11/03/97
Inc. - Emerging Markets Debt Portfolio
- ----------------------------------------------------------------------------------------------------------------
NSAT Capital Appreciation Fund 22.72% N/A 23.39% 11/03/97
- ----------------------------------------------------------------------------------------------------------------
NSAT Government Bond Fund 1.95% N/A 2.93% 11/03/97
- ----------------------------------------------------------------------------------------------------------------
NSAT Money Market Fund -1.65% N/A -0.84% 10/31/97
- ----------------------------------------------------------------------------------------------------------------
NSAT Total Return Fund 10.98% N/A 11.74% 11/03/97
- ----------------------------------------------------------------------------------------------------------------
NSAT Nationwide Balanced Fund 1.11% N/A 2.08% 11/03/97
- ----------------------------------------------------------------------------------------------------------------
NSAT Nationwide Equity Income Fund 8.08% N/A 8.43% 11/03/97
- ----------------------------------------------------------------------------------------------------------------
NSAT Nationwide Global Equity Fund 12.04% N/A 11.25% 11/03/97
- ----------------------------------------------------------------------------------------------------------------
NSAT Nationwide High Income Bond Fund -1.13% N/A 0.86% 11/03/97
- ----------------------------------------------------------------------------------------------------------------
NSAT Nationwide Mid Cap Index Fund 3.81% N/A 2.50% 11/03/97
- ----------------------------------------------------------------------------------------------------------------
NSAT Nationwide Multi-Sector Bond Fund -4.29% N/A -3.00% 11/03/97
- ----------------------------------------------------------------------------------------------------------------
NSAT Nationwide Small Cap Value Fund -9.61% N/A -9.81% 11/03/97
- ----------------------------------------------------------------------------------------------------------------
NSAT Nationwide Small Company Fund -5.83% N/A -8.28% 11/03/97
- ----------------------------------------------------------------------------------------------------------------
NSAT Nationwide Strategic Growth Fund 7.54% N/A 8.37% 11/03/97
- ----------------------------------------------------------------------------------------------------------------
NSAT Nationwide Strategic Value Fund -6.41% N/A -4.42% 11/03/97
- ----------------------------------------------------------------------------------------------------------------
Neuberger Berman AMT Guardian Portfolio 24.39% N/A 26.11% 11/03/97
- ----------------------------------------------------------------------------------------------------------------
Neuberger Berman AMT Mid-Cap Growth 31.92% N/A 46.13% 11/03/97
Portfolio
- ----------------------------------------------------------------------------------------------------------------
Neuberger Berman AMT Partners Portfolio -2.70% N/A -1.23% 11/03/97
- ----------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds - 5.37% N/A 0.10% 11/03/97
Oppenheimer Aggressive Growth Fund/VA
- ----------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds - 16.82% N/A 12.50% 11/03/97
Oppenheimer Capital Appreciation Fund/VA
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
38
<PAGE> 39
<TABLE>
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
10 Years
or Date Fund
Available in Date Fund
the Variable Available in
1 Year 5 Years Account the Variable
Sub-Account Option to 12/31/98 to 12/31/98 to 12/31/98 Account
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Oppenheimer Variable Account Funds - -2.19% N/A 0.35% 11/03/97
Oppenheimer Main Street Growth & Income
Fund/VA
- ----------------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance Trust - -38.42% N/A -40.98% 11/03/97
Worldwide Emerging Markets Fund
- ----------------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance Trust - -35.48% N/A -37.58% 11/03/97
Worldwide Hard Assets Fund
- ----------------------------------------------------------------------------------------------------------------
Van Kampen Life Investment Trust - Morgan -17.54% N/A -12.95% 11/03/97
Stanley Real Estate Securities Portfolio
- ----------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust - Growth & Income 5.11% N/A 7.86% 11/03/97
Portfolio
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
10 Years
to 12/31/98
1 Year 5 Years or Life of Date Fund
Sub-Account Option to 12/31/98 to 12/31/98 Fund Effective
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
American Century Variable Portfolios, Inc. - 25.05% N/A 28.84% 10/30/97
American Century VP Income & Growth
- ----------------------------------------------------------------------------------------------------------------
American Century Variable Portfolios, Inc. - 17.05% N/A 10.69% 05/02/94
American Century VP International
- ----------------------------------------------------------------------------------------------------------------
American Century Variable Portfolios, Inc. - 3.29% N/A 18.23% 05/01/96
American Century VP Value
- ----------------------------------------------------------------------------------------------------------------
The Dreyfus Socially Responsible Growth 27.53% 20.68% 21.22% 10/06/93
Fund, Inc.
- ----------------------------------------------------------------------------------------------------------------
Dreyfus Stock Index Fund, Inc. 26.39% 21.59% 15.34% 09/29/89
- ----------------------------------------------------------------------------------------------------------------
Dreyfus Variable Investment Fund - Capital 28.36% 21.55% 19.67% 04/05/93
Appreciation Portfolio
- ----------------------------------------------------------------------------------------------------------------
Fidelity VIP Equity-Income Portfolio: Service 9.93% 17.04% 13.95% 10/09/86
Class,
- ----------------------------------------------------------------------------------------------------------------
Fidelity VIP Growth Portfolio: Service Class 37.40% 19.97% 17.68% 10/09/86
- ----------------------------------------------------------------------------------------------------------------
Fidelity VIP High Income Portfolio: Service -5.82% 7.19% 9.46% 09/19/85
Class
- ----------------------------------------------------------------------------------------------------------------
Fidelity VIP Overseas Portfolio: Service Class 11.01% 8.10% 8.48% 01/28/87
- ----------------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund Portfolio: Service 28.08% N/A 26.78% 01/03/95
Class
- ----------------------------------------------------------------------------------------------------------------
Fidelity VIP III Growth Opportunities 22.72% N/A 24.45% 01/03/95
Portfolio: Service Class
- ----------------------------------------------------------------------------------------------------------------
Morgan Stanley Dean Witter Universal Funds, -29.46% N/A -20.28% 06/19/97
Inc. - Emerging Markets Debt Portfolio
- ----------------------------------------------------------------------------------------------------------------
NSAT Capital Appreciation Fund 28.12% 21.34% 17.64% 04/15/92
- ----------------------------------------------------------------------------------------------------------------
NSAT Government Bond Fund 7.35% 5.73% 7.78% 11/08/82
- ----------------------------------------------------------------------------------------------------------------
NSAT Money Market Fund 3.75% 3.51% 3.89% 11/10/81
- ----------------------------------------------------------------------------------------------------------------
NSAT Total Return Fund 16.38% 17.64% 13.74% 11/08/82
- ----------------------------------------------------------------------------------------------------------------
NSAT Nationwide Balanced Fund 6.51% N/A 6.65% 10/31/97
- ----------------------------------------------------------------------------------------------------------------
NSAT Nationwide Equity Income Fund 13.48% N/A 12.91% 10/31/97
- ----------------------------------------------------------------------------------------------------------------
NSAT Nationwide Global Equity Fund 17.44% N/A 15.69% 10/31/97
- ----------------------------------------------------------------------------------------------------------------
NSAT Nationwide High Income Bond Fund 4.27% N/A 5.45% 10/31/97
- ----------------------------------------------------------------------------------------------------------------
NSAT Nationwide Mid Cap Index Fund 9.21% N/A 7.06% 10/31/97
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
39
<PAGE> 40
<TABLE>
NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
10 Years
to 12/31/98
1 Year 5 Years or Life of Date Fund
Sub-Account Option to 12/31/98 to 12/31/98 Fund Effective
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NSAT Nationwide Multi-Sector Bond Fund 1.11% N/A 1.64% 10/31/97
- ----------------------------------------------------------------------------------------------------------------
NSAT Nationwide Small Cap Value Fund -4.48% N/A -5.39% 10/31/97
- ----------------------------------------------------------------------------------------------------------------
NSAT Nationwide Small Company Fund -0.46% N/A 15.65% 10/23/95
- ----------------------------------------------------------------------------------------------------------------
NSAT Nationwide Strategic Growth Fund 12.94% N/A 12.85% 10/31/97
- ----------------------------------------------------------------------------------------------------------------
NSAT Nationwide Strategic Value Fund -1.07% N/A 0.25% 10/31/97
- ----------------------------------------------------------------------------------------------------------------
Neuberger Berman AMT Guardian Portfolio 29.79% N/A 30.60% 11/03/97
- ----------------------------------------------------------------------------------------------------------------
Neuberger Berman AMT Mid-Cap Growth 37.32% N/A 50.51% 11/03/97
Portfolio
- ----------------------------------------------------------------------------------------------------------------
Neuberger Berman AMT Partners Portfolio 2.70% N/A 18.01% 03/22/94
- ----------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds - 10.77% 11.44% 14.46% 08/15/86
Oppenheimer Aggressive Growth Fund/VA
- ----------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds - 22.22% 20.36% 15.18% 04/03/85
Oppenheimer Capital Appreciation Fund/VA
- ----------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds - 3.21% N/A 25.18% 07/05/95
Oppenheimer Main Street Growth & Income
Fund/VA
- ----------------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance Trust - -35.13% N/A -11.16% 12/21/95
Worldwide Emerging Markets Fund
- ----------------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance Trust - -32.00% -4.68% 0.62% 09/01/89
Worldwide Hard Assets Fund
- ----------------------------------------------------------------------------------------------------------------
Van Kampen Life Investment Trust - Morgan -12.92% N/A 13.15% 07/03/95
Stanley Real Estate Securities Portfolio
- ----------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust - Growth & Income 10.51% N/A 12.34% 10/31/97
Portfolio
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
The Federated Insurance Series - Federated Quality Bond Fund II and NSAT
Nationwide Select Advisers Small Cap Growth Fund were added to the variable
account May 1, 1999. Therefore, no sub-account performance is available.
The Dreyfus Investment Portfolios - European Equity Portfolio was added to the
variable account September 27, 1999. Therefore, no sub-account performance is
available.
<TABLE>
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
<CAPTION>
PAGE
<S> <C>
General Information and History...............................................1
Services......................................................................1
Purchase of Securities Being Offered..........................................2
Underwriters..................................................................2
Calculations of Performance...................................................2
Annuity Payments..............................................................3
Financial Statements..........................................................4
</TABLE>
40
<PAGE> 41
APPENDIX A: OBJECTIVES FOR INVESTMENT OPTIONS
The underlying mutual funds listed below are designed primarily as investments
for variable annuity contracts and variable life insurance policies issued by
insurance companies.
There is no guarantee that the investment objectives will be met.
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC., A MEMBER OF THE AMERICAN CENTURY(SM)
FAMILY OF INVESTMENTS
American Century Variable Portfolios, Inc. was organized as a Maryland
corporation in 1987. It is a diversified, open-end investment management company
that offers its shares only as investment vehicles for variable annuity and
variable life insurance products of insurance companies. American Century
Variable Portfolios, Inc. is managed by American Century Investment Management,
Inc.
AMERICAN CENTURY VP INCOME & GROWTH
Investment Objective: Dividend growth, current income and capital
appreciation. The Fund seeks to achieve its investment objective by
investing in common stocks. The investment manager constructs the portfolio
to match the risk characteristics of the S&P 500 Stock Index and then
optimizes each portfolio to achieve the desired balance of risk and return
potential. This includes targeting a dividend yield that exceeds that of
the S&P 500. Such a management technique known as "portfolio optimization"
may cause the Fund to be more heavily invested in some industries than in
others. However, the Fund may not invest more than 25% of its total assets
in companies whose principal business activities are in the same industry.
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. While securities of United
States issuers may be included in the portfolio from time to time, it is
the primary intent of the manager to diversify investments across a broad
range of foreign issuers. Although the primary investment of the Fund will
be common stocks (defined to include depository receipts for common stock
and other equity equivalents), the Fund may also invest in other types of
securities consistent with the Fund's objective. When the manager believes
that the total capital growth 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.
AMERICAN CENTURY VP VALUE
Investment Objective: The investment objective of the Fund is long-term
capital growth; income is a secondary objective. 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. 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.
DREYFUS INVESTMENT PORTFOLIOS
Dreyfus Investment Portfolios (the "Fund") is an open-end, management investment
company known as a mutual fund. Shares are offered only to variable annuity and
variable life insurance separate accounts established by insurance companies to
fund variable annuity contracts and variable life insurance policies and to
qualified pension and retirement plans.
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Individuals may not purchase shares directly from the Fund. The Dreyfus
Corporation serves as the Fund's investment adviser.
EUROPEAN EQUITY PORTFOLIO
Investment Objective: The Portfolio seeks long-term capital growth. To
pursue this goal, the Portfolio generally invests at least 80% of its total
assets in stocks included within the universe of the 300 largest European
companies. The Portfolio may invest up to 10% of its total assets in the
stocks of non-European companies. The Portfolio's stock investments may
include common stocks, preferred stocks and convertible securities.
DREYFUS STOCK INDEX FUND, INC.
The Dreyfus Stock Index Fund, Inc. is an open-end, non-diversified, management
investment company incorporated under Maryland law on January 24, 1989 and
commenced operations on September 29, 1989. The Fund offers its shares only as
investment vehicles for variable annuity and variable life insurance products of
insurance companies. The Dreyfus Corporation ("Dreyfus") serves as the Fund's
manager, while Mellon Equity Associates, an affiliate of Dreyfus, serves as the
Fund's index manager. Dreyfus is a wholly owned subsidiary of Mellon Bank, N.A.,
which is a wholly owned subsidiary of Mellon Bank Corporation.
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 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 on
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. Fayez Sarofim & Company serves as the
sub-adviser and provides day-to-day management of the Portfolio.
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.
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
The Dreyfus Socially Responsible Growth Fund, Inc. is an open-end, diversified,
management investment company incorporated under Maryland law on July 20, 1992
and commenced operations on October 7, 1993. The Fund offers its share only as
investment vehicles for variable annuity and variable life insurance products of
insurance companies. Dreyfus serves as the Fund's investment adviser. 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: Capital growth through equity investment in companies
that, in the opinion of the Fund's advisers, 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.
FEDERATED INSURANCE SERIES
Federated Insurance Series (the "Trust"), an Open-End Management Investment
Company, was established as a Massachusetts business trust, under a Declaration
of Trust dated September 15, 1993. The Trust offers its shares only as
investment vehicles for variable annuity and variable life insurance products of
insurance companies. Federated Advisers serves as the investment adviser.
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FEDERATED QUALITY BOND FUND II
Investment Objective: Current income by investing in investment grade fixed
income securities.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
The Fidelity Variable Insurance Products Fund (VIP) is an open-end, diversified,
management investment company organized as a Massachusetts business trust on
November 13, 1981. Shares of VIP are purchased by insurance companies to fund
benefits under variable life insurance policies and variable annuity contracts.
Fidelity Management & Research Company ("FMR") is the manager for VIP and its
portfolios.
VIP EQUITY-INCOME PORTFOLIO: SERVICE CLASS
Investment Objective: Reasonable income by investing primarily in
income-producing equity securities. In choosing these securities FMR also
will consider the potential for capital appreciation. The Portfolio's goal
is to achieve a yield which exceeds the composite yield on the securities
comprising the Standard & Poor's 500 Composite Stock Price Index.
VIP GROWTH PORTFOLIO: SERVICE CLASS
Investment Objective: Capital appreciation. This Portfolio will invest in
the securities of both well-known and established companies, and smaller,
less well-known companies which may have a narrow product line or whose
securities are thinly traded. These latter securities will often involve
greater risk than may be found in the ordinary investment security. FMR's
analysis and expertise plays an integral role in the selection of
securities and, therefore, the performance of the Portfolio. Many
securities which FMR believes would have the greatest potential may be
regarded as speculative, and investment in the Portfolio may involve
greater risk than is inherent in other underlying mutual funds. It is also
important to point out that this Portfolio makes sense for you if you can
afford to ride out changes in the stock market because it invests primarily
in common stocks. FMR can also make temporary investments in securities
such as investment-grade bonds, high-quality preferred stocks and
short-term notes, for defensive purposes when it believes market conditions
warrant.
VIP HIGH INCOME PORTFOLIO: SERVICE CLASS
Investment Objective: High level of current income by investing primarily
in high-risk, lower-rated, high-yielding, fixed-income securities, while
also considering growth of capital. FMR will seek high current income
normally by investing the Portfolio's assets as follows:
o at least 65% in income-producing debt securities and preferred stocks,
including convertible securities
o up to 20% in common stocks and other equity securities when consistent
with the Portfolio's primary objective or acquired as part of a unit
combining fixed-income and equity securities
Higher yields are usually available on securities that are lower-rated or
that are unrated. Lower-rated securities are usually defined as Ba or lower
by Moody's Investor Service, Inc. ("Moody's"); BB or lower by Standard &
Poor's and may be deemed to be of a speculative nature. The Portfolio may
also purchase lower-quality bonds such as those rated Ca3 by Moody's or C-
by Standard & Poor's which provide poor protection for payment of principal
and interest (commonly referred to as "junk bonds"). For a further
discussion of lower-rated securities, please see the "Risks of Lower-Rated
Debt Securities" section of the Portfolio's prospectus.
VIP OVERSEAS PORTFOLIO: SERVICE CLASS
Investment Objective: Long-term capital growth primarily through
investments in foreign securities. This Portfolio provides a means for
investors to diversify their own portfolios by participating in companies
and economies outside the United States.
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FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
The Fidelity Variable Insurance Products Fund II (VIP II) is an open-end,
diversified, management investment company organized as a Massachusetts business
trust on March 21, 1988. VIP II's shares are purchased by insurance companies to
fund benefits under variable life insurance policies and variable annuity
contracts. FMR is the manager of VIP II and its portfolios.
VIP II CONTRAFUND PORTFOLIO: SERVICE CLASS
Investment Objective: To seek capital appreciation by investing primarily
in companies that FMR 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 Portfolio 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
The 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 shares are purchased by insurance companies to
fund benefits under variable life insurance policies and variable annuity
contracts. FMR is the manager of VIP III and it's portfolios.
VIP III GROWTH OPPORTUNITIES PORTFOLIO: SERVICE CLASS
Investment Objective: 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. is a mutual fund designed to
provide investment vehicles for variable annuity contracts and variable life
insurance policies and for certain tax-qualified investors. Its Emerging Markets
Debt Portfolio is managed by Morgan Stanley Dean Witter Asset Management, Inc.
EMERGING MARKETS DEBT PORTFOLIO
Investment Objective: High total return by investing primarily in dollar
and non-dollar denominated fixed income securities of government and
government-related issuers located in emerging market countries, which
securities 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 mutual funds listed below, each with its own investment objectives.
Shares of NSAT will be sold primarily to separate accounts to fund the benefits
under variable life insurance policies and variable annuity contracts issued by
life insurance companies. The assets of NSAT are managed by Villanova Mutual
Fund Capital Trust ("Villanova MF"), an indirect subsidiary of Nationwide
Financial Services, Inc.
CAPITAL APPRECIATION FUND
Investment Objective: Long-term growth by primarily investing in a
diversified portfolio of the common stock of companies which
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Villanova MF determines have a better-than-average potential for sustained
capital growth over the long term.
GOVERNMENT BOND FUND
Investment Objective: As high a level of income as is consistent with the
preservation of capital by investing in a diversified portfolio of
securities issued or backed by the U.S. Government, its agencies or
instrumentalities.
MONEY MARKET FUND
Investment Objective: As high a level of current income as is considered
consistent with the preservation of capital and liquidity by investing
primarily in money market instruments.
TOTAL RETURN FUND
Investment Objective: Capital growth by investing in common stocks of
companies that Villanova MF believes will have above-average earnings or
otherwise provide investors with above-average potential for capital
appreciation. To maximize this potential, Villanova MF may also utilize
from time to time, securities convertible into common stock, warrants and
options to purchase such stocks.
SUBADVISED NATIONWIDE FUNDS
NATIONWIDE BALANCED FUND
Subadviser: Salomon Brothers Asset Management, Inc.
Investment Objective: Primarily seeks above-average income compared to a
portfolio entirely invested in equity securities. The Fund's secondary
objective is to take advantage of opportunities for growth of capital and
income. The Fund seeks its objective primarily through investments in a
broad variety of securities, including equity securities, fixed-income
securities and short-term obligations. Under normal market conditions, it
is anticipated that the Fund will invest at least 40% of the Fund's total
assets in equity securities and at least 25% in fixed-income senior
securities. The Fund's subadviser, Salomon Brothers Asset Management,
Inc., will have discretion to invest in the full range of maturities of
fixed-income securities. Generally, most of the Fund's long-term debt
investments will consist of "investment grade" securities, but the Fund
may invest up to 20% of its net assets in non-convertible fixed-income
securities rated below investment grade or determined by the subadviser
to be of comparable quality. These securities are commonly known as junk
bonds. In addition, the Fund may invest an unlimited amount in
convertible securities rated below investment grade.
NATIONWIDE EQUITY INCOME FUND
Subadviser: Federated Investment Counseling
Investment Objective: Seeks above average income and capital appreciation
by investing at least 65% of its assets in income-producing equity
securities. Such equity securities include common stocks, preferred
stocks, and securities (including debt securities) that are convertible
into common stocks. The portion of the Fund's total assets invested in
each type of equity security will vary according to the Fund's
subadviser's assessment of market, economic conditions and outlook.
NATIONWIDE GLOBAL EQUITY FUND
Subadviser: J. P. Morgan Investment Management Inc.
Investment Objective: To provide high total return from a globally
diversified portfolio of equity securities. Total return will consist of
income plus realized and unrealized capital gains and losses. The Fund
seeks its investment objective through country allocation, stock
selection and management of currency exposure. Under normal market
conditions, J.P. Morgan Investment Management Inc. intends to keep the
Fund essentially fully invested with at least 65% of the value of its
total assets in
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equity securities consisting of common stocks and other securities with
equity characteristics such as preferred stocks, warrants, rights,
convertible securities, trust certificates, limited partnership interests
and equity participations. The Fund's primary equity instruments are the
common stock of companies based in the developed countries around the
world. The assets of the Fund will ordinarily be invested in the
securities of at least five different countries.
NATIONWIDE HIGH INCOME BOND FUND
Subadviser: Federated Investment Counseling
Investment Objective: Seeks to provide high current income by investing
primarily in a professionally managed, diversified portfolio of fixed
income securities. To meet its objective, the Fund intends to invest at
least 65% of its assets in lower-rated fixed income securities such as
preferred stocks, bonds, debentures, notes, equipment lease certificates
and equipment trust certificates which are rated BBB or lower by Standard
& Poor's or Fitch Investors Service or Baa or lower by Moody's (or if not
rated, are determined by the Fund's subadviser to be of a comparable
quality). Such investments are commonly referred to as "junk bonds." For
a further discussion of lower-rated securities, please see the "High
Yield Securities" section of the Fund's prospectus.
NATIONWIDE MID CAP INDEX FUND
Subadviser: The Dreyfus Corporation
Investment Objective: Capital appreciation. The Fund seeks to match the
performance of the Standard & Poor's MidCap 400 Index. To pursue this
goal, the Fund generally is fully invested in all 400 stocks included in
this index in proportion to their weighting in the index, and in futures
whose performance is tied to the index. The Fund is neither sponsored by
nor affiliated with Standard & Poor's Corporation.
NATIONWIDE MULTI SECTOR BOND FUND
Subadviser: Salomon Brothers Asset Management, Inc. with Salomon Brothers
Asset Management Limited Investment Objective: Primarily seeks a high
level of current income. Capital appreciation is a secondary objective.
The Fund seeks to achieve its objectives by investing in a globally
diverse portfolio of fixed-income investments and by giving the
subadviser, Salomon Brothers Asset Management, Inc. broad discretion to
deploy the Fund's assets among certain segments of the fixed-income
market that the subadviser believes will best contribute to achievement
of the Fund's investment objectives. The Fund reserves the right to
invest predominantly in securities rated in medium or lower categories,
or as determined by the subadviser to be of comparable quality, commonly
referred to as "junk bonds." Although the subadviser has the ability to
invest up to 100% of the Fund's assets in lower-rated securities, the
subadviser does not anticipate investing in excess of 75% of the Fund's
assets in such securities. The subadviser has entered into a subadvisory
agreement with its London based affiliate, Salomon Brothers Asset
Management Limited, pursuant to which the subadviser has delegated to
Salomon Brothers Asset Management Limited responsibility for management
of the Fund's investments in non-dollar denominated debt securities and
currency transactions.
NATIONWIDE SELECT ADVISERS SMALL CAP GROWTH FUND
Subadvisers: Franklin Advisers, Inc., Miller Anderson & Sherrerd, LLP,
Neuberger Berman, LLC Investment Objective: Seeks capital growth by
investing in a broadly diversified portfolio of equity securities
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issued by U.S. and foreign companies with market capitalizations in the
range of companies represented by the Russell 2000, known has small cap
companies. Under normal market conditions, the Fund will invest at least
65% of its total assets in the equity securities of small cap companies.
The balance of the Fund's assets may be invested in equity securities of
larger cap companies. The Fund may also invest in foreign securities.
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. Under normal market
conditions, at least 75% of the Fund's total assets will be invested in
equity securities of companies with market capitalizations at the time of
purchase of between $200 million and $2.5 billion. 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.
NATIONWIDE SMALL COMPANY FUND
Subadvisers: The Dreyfus Corporation, Neuberger & Berman, L.P., Lazard
Asset Management, Strong Capital Management, Inc. and Credit Suisse Asset
Management, LLC Investment Objective: Long-term growth of capital by
investing primarily in equity securities of domestic and foreign
companies with market capitalizations of less than $1 billion at the time
of purchase. The subadvisers were chosen because they utilize a number of
different investment styles when investing in small company stocks. By
utilizing different investment styles, Villanova MF hopes to increase
prospects for investment return and to reduce market risk and volatility.
NATIONWIDE STRATEGIC GROWTH FUND
Subadviser: Strong Capital Management Inc.
Investment Objective: Capital growth by investing primarily in equity
securities that the Fund's subadviser believes have above-average growth
prospects. The Fund will generally invest in companies whose earnings are
believed to be in a relatively strong growth trend, and to a lesser
extent, in companies in which significant further growth is not
anticipated but whose market value is thought to be undervalued. Under
normal market conditions, the Fund will invest at least 65% of its total
assets in equity securities, including common stocks, preferred stocks,
and securities convertible into common or preferred stocks, such as
warrants and convertible bonds. The Fund may invest up to 35% of its
total assets in debt obligations, including intermediate- to long-term
corporate or U.S. Government debt securities.
NATIONWIDE STRATEGIC VALUE FUND
Subadviser: Strong Capital Management Inc./Schafer Capital Management
Inc. Investment Objective: Primarily long-term capital appreciation;
current income is a secondary objective. The Fund seeks to meet its
objectives by investing in securities which are believed to offer the
possibility of increase in value, primarily common stocks of established
companies having a strong financial position and a low stock market
valuation at the time of purchase in relation to investment value. Other
than considered appropriate for cash reserves, the Fund will generally
maintain a fully invested position in common stocks of publicly held
companies, primarily in stocks of companies listed on a national
securities exchange or other equity securities (common stock or
securities convertible into common stock). Investments may also be made
in debt securities which are
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convertible into common stocks and in warrants or other rights to
purchase common stock, which in such case are considered equity
securities by the Fund. Strong Capital Management, Inc. has subcontracted
with Schafer Capital Management, Inc. to subadvise the Fund.
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
Neuberger Berman Advisers Management Trust ("NB AMT") is an open-end,
diversified management investment company consisting of several series. Shares
of the series of NB AMT are offered in connection with certain variable annuity
contracts and variable life insurance policies issued through life insurance
company separate accounts and are also offered directly to qualified pension and
retirement plans outside of the separate account context.
The Guardian, Partners and Mid-Cap Growth Portfolios of NB AMT invest all of
their investable assets in a corresponding series of Advisers Managers Trust
managed by Neuberger Berman Management Incorporated ("NB Management"). Each
series then invests in securities in accordance with an investment objective,
policies and limitations identical to those of the Portfolio. This
"master/feeder fund" structure is different from that of many other investment
companies which directly acquire and manage their own portfolios of securities.
(For more information regarding "master/feeder fund" structure, see "Special
Information Regarding Organization, Capitalization, and Other Matters" in the
underlying mutual fund prospectus.) The investment adviser is NB Management.
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.
NB Management uses a value-oriented investment approach in selecting
securities, looking for low price-to-earnings ratios, strong balance
sheets, solid management, and consistent earnings.
AMT MID-CAP GROWTH PORTFOLIO
Investment Objective: Capital appreciation by investing in equity
securities of medium-sized companies that NB Management believes have the
potential for long-term, above-average capital appreciation. Medium-sized
companies have market capitalizations form $300 million to $10 billion at
the time of investment. The Portfolio and its corresponding series may
invest up to 10% of its net assets, measured at the time of investment, in
corporate debt securities that are below investment grade or, if unrated,
deemed by NB Management to be of comparable quality. Securities that are
below investment grade, as well as unrated securities, are often considered
to be speculative and usually entail greater risk. As a part of the
Portfolio's investment strategy, the Portfolio may invest up to 20% of its
net assets in securities of issuers organized and doing business
principally outside the United States. This limitation does not apply with
respect to foreign securities that are denominated in U.S. dollars.
AMT PARTNERS PORTFOLIO
Investment Objective: Capital growth 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 the company's track
record through all parts of the market cycle.
OPPENHEIMER VARIABLE ACCOUNT FUNDS
The Oppenheimer variable account Funds are an open-end, diversified management
investment company organized as a Massachusetts business trust in 1984. Shares
of the Funds are sold to provide benefits under variable life insurance policies
and variable annuity contracts. OppenheimerFunds, Inc. is the investment
adviser.
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OPPENHEIMER AGGRESSIVE GROWTH FUND/VA
Investment Objective: Capital appreciation by investing in "growth type"
companies. Such companies are believed to have relatively favorable
long-term prospects for increasing demand for their goods or services, or
to be developing new products, services or markets and normally retain a
relatively larger portion of their earnings for research, development and
investment in capital assets. The Fund may also invest in cyclical
industries in "special situations" that OppenheimerFunds, Inc. believes
present opportunities for capital growth.
OPPENHEIMER CAPITAL APPRECIATION FUND/VA
Investment Objective: Capital appreciation by investing in securities of
well-known established companies. Such securities generally have a history
of earnings and dividends and are issued by seasoned companies (companies
which have 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.
OPPENHEIMER MAIN STREET GROWTH & INCOME FUND/VA
Investment Objective: High total return, which stocks, preferred stocks,
convertible securities and warrants. Debt investments will include bonds,
participation includes growth in the value of its shares as well as current
income from quality and debt securities. In seeking its investment
objectives, the Fund may invest in equity and debt securities. Equity
investments will include common interests, asset-backed securities,
private-label mortgage-backed securities and CMOs, zero coupon securities
and U.S. debt obligations, and cash and cash equivalents. From time to
time, the Fund may focus on small to medium capitalization issuers, the
securities of which may be subject to greater price volatility than those
of larger capitalized issuers.
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 Van Eck Trust are offered only to
separate accounts of insurance companies to fund the benefits of variable life
insurance policies and variable annuity contracts. The investment adviser and
manager is Van Eck Associates Corporation.
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 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.
WORLDWIDE HARD ASSETS FUND
Investment Objective: Long-term capital appreciation by investing primarily
in "Hard Asset Securities." For the Fund's purpose, "Hard Assets" are real
estate, energy, timber, and industrial and precious metals. Income is a
secondary consideration.
VAN KAMPEN LIFE INVESTMENT TRUST
Van Kampen Life Investment Trust is an open-end diversified management
investment company organized as a Delaware business trust. Shares are offered in
separate portfolios 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.
MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO
Investment Objective: Long-term capital growth by investing principally in
a diversified portfolio of securities of companies operating in the real
estate
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industry ("Real Estate Securities"). Current income is a secondary
consideration. Real Estate Securities include equity securities, including
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
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 Portfolio 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.
WARBURG PINCUS TRUST
The Warburg Pincus 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. Portfolios are managed by Credit Suisse Asset Management, LLC
("Credit Suisse").
GROWTH & INCOME PORTFOLIO
Investment Objective: Long-term growth of capital and income by investing
primarily in dividend-paying equity securities. Under normal market
conditions, the Portfolio will invest substantially all of its asset in
equity securities that Credit Suisse considers to be relatively undervalued
based upon research and analysis, taking into account factors such as
price/book ratio, price/cash flow ratio, earnings growth, debt/capital
ratio and multiples of earnings of comparable securities. Although the
Portfolio may hold securities of any size, it currently expects to focus on
companies with market capitalizations of $1 billion or greater at the time
of initial purchase.
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APPENDIX B: FIXED ANNUITY PAYMENTS
The contracts described in this prospectus are combination fixed and variable
immediate annuity contracts. This appendix discusses those interests under the
contracts that relate to fixed annuity payments.
Interests in fixed annuity payments purchased under the contracts are supported
by Nationwide's general account. In reliance on certain exemptions provided for
under the Securities Act of 1933, such interests have not been registered with
the SEC, and the following disclosures have not been reviewed by the SEC.
FIXED ANNUITY PAYMENT ALLOCATIONS UNDER THE CONTRACT
Contract owners not allocating all of their single purchase payment to the
variable account for the purchase of variable annuity payments may allocate
their single purchase payment to Nationwide's general account for the purchase
of fixed annuity payments. Alternatively, contract owners may allocate their
single purchase payment to the general account and the variable account for the
purchase of a combination of fixed and variable annuity payments.
Amounts originally allocated for the purchase of variable annuity payments may
not be reallocated to the general account to purchase fixed annuity payments;
similarly, amounts originally allocated for the purchase of fixed annuity
payments may not be reallocated to the variable account to purchase variable
annuity payments.
DETERMINATION OF FIXED ANNUITY PAYMENTS
Fixed annuity payments are level, meaning that each payment received will be the
same as long as no (non-annuity payment) withdrawals are taken as permitted
under some term certain annuity income options. Fixed annuity payments may also
be reduced under the terms of the income option elected. For example, under the
joint and last survivor income option, annuity payments continuing to a survivor
after the death of either the annuitant or joint annuitant may be reduced if the
contract owner selected a continuation percentage of less than 100%. Other
income options may provide for similar reductions in fixed annuity payments.
When the contract owner allocates all or part of the single purchase payment for
the purchase of fixed annuity payments, the amount of such payments will be
determined by Nationwide, based on the following factors:
o The amount/portion of the single purchase payment allocated for the
purchase of fixed annuity payments;
o The age and sex of the annuitant (and joint annuitant, if any);
o The income option elected;
o The frequency of annuity payments (monthly, quarterly, etc.);
o The income start date;
o The deduction of applicable premium taxes; and
o The date the contract was issued.
These factors will allow Nationwide to determine the level of fixed annuity
payments it is able to guarantee on the basis of its expense, mortality, and
normal profit assumptions.
FIXED ANNUITY PAYMENTS AND THE ANNUITY INCOME OPTIONS
Fixed annuity payments may be purchased in conjunction with any of the income
options available under the contract.
COMMUTATION VALUE OF FIXED ANNUITY PAYMENTS
Under certain circumstances, it may be necessary to "commute" the value of fixed
annuity payments. The commutation value of fixed annuity payments is the value
of future guaranteed fixed annuity payments that are converted mathematically
into a lump sum. This is commonly referred to as a "present
51
<PAGE> 52
value" calculation. There are two basic purposes for which it may be necessary
to calculate the commutation value of fixed annuity payments.
First, under term certain income options, the contract owner has the right to
make withdrawals from the contract that are in addition to regularly scheduled
annuity payments. In order to know what can be withdrawn from allocations for
fixed annuity payments, it is necessary to know the commutation value of fixed
annuity payments at the time the withdrawal is taken. (It is important to
understand that partial withdrawals of this nature will reduce on-going fixed
annuity payments subsequent to the withdrawal, and a Contingent Deferred Sales
Charge may apply as well - see the following section.)
Second, for those income options that provide a death benefit based on
commutation values, the commutation value of remaining fixed annuity payments
will equal the lump sum death benefit to which a beneficiary is entitled,
insofar as fixed annuity payments are concerned.
It may also be necessary to calculate the commutation value of fixed annuity
payments when a contract owner and/or annuitant dies prior to the income start
date.
The Adjusted Contract Rate
For purposes of calculating the commutation value of guaranteed fixed annuity
payments, Nationwide calculates the present value of such payments, using the
adjusted contract rate.
The adjusted contract rate is equal to the commutation value interest rate
(which is a rate of interest established and identified in the contract
specification pages which are provided to all contract owners upon the purchase
of a contract), plus the interest rate adjustment.
The interest rate adjustment is equal to
CMT(c) - CMT(i), where
CMT(c) = the 10-year Constant Maturity Treasury (CMT) rate in effect on the date
the request for withdrawal is received (or on the date of a death benefit
calculation), and
CMT(i) = the 10-year Constant Maturity Treasury (CMT) rate in effect on the date
of issue of the contract.
The CMT rates are interest rate quotations for various maturity durations
published by the Federal Reserve Board on a regular basis. These rates represent
a readily available and consistently reliable interest rate benchmark in
financial markets.
If the Federal Reserve Board halts publication of CMT rates, or if for any
reason the CMT rates become unavailable, Nationwide will use appropriate rates
based on Treasury bond yields.
CONTINGENT DEFERRED SALES CHARGES (CDSC)
Under term certain income options (including the term certain with enhanced
death benefit option) withdrawals in addition to regularly scheduled annuity
payments may be taken. Nationwide may assess a CDSC if such withdrawals are
taken.
The CDSC is calculated by multiplying the applicable CDSC percentage by the
amount that is withdrawn. The applicable CDSC will not be applied to any amount
in excess of the single purchase payment.
CDSC may be assessed based on amounts withdrawn from variable annuity payment
allocations as well as fixed annuity payment allocations. The CDSC table is set
forth in the prospectus - see "Summary of Contract Expenses" and "Standard
Charges and Deductions."
52
<PAGE> 53
APPENDIX C: ILLUSTRATION OF VARIABLE ANNUITY INCOME
The following charts demonstrate how the assumed investment return (AIR)
selected, and how different levels of investment performance, would affect
variable annuity income over time. Variable income will increase from one income
start date anniversary to the next if the annualized net rate of return during
that time is greater than the AIR chosen. Variable income will decrease if the
annualized net rate of return is less than the AIR. The first variable annuity
payment will be lower if the contract owner selected a 3.5% AIR than if the
contract owner selected a 5.0% AIR. However, subsequent variable annuity
payments will increase more rapidly (or decrease more slowly) with a 3.5% AIR
than with a 5.0% AIR.
Each of the three charts below shows the variable annuity income amounts for a
contract with a 3.5% AIR, a contract with a 5.0% AIR, and a contract with a 6.0%
AIR. The 6.0% AIR may not be available in all states. (Check with your
registered representative regarding availability.) The first chart is based on a
0% constant investment return before expenses, the second is based on a 6%
return, and the third is based on a 12% return. These are hypothetical rates of
return. Nationwide does not guarantee that the contract will earn these returns.
The charts are for illustrative purposes only. They do not represent past or
future investment returns.
A contract owner's variable annuity income will differ from the income shown if
the actual returns of the investment options selected are different than those
shown below. Since it is very likely that investment returns will fluctuate over
time, the amount of variable annuity income actually received will also
fluctuate. The total amount of variable annuity income actually received will
depend on the cumulative investment returns of the investment options chosen,
the contract owner's life span, and the income option chosen. The annuitant's
age and sex will also affect the level of annuity payments.
The variable income amounts shown reflect the deduction of all fees and
expenses. Actual investment option fees and expenses will vary from year to year
and from investment option to investment option. Actual expenses may be higher
or lower than the rate used in the illustrations. The illustrations assume that
each investment option will incur expenses at an average annual rate of 0.95% of
the average daily net assets of the investment option. The insurance charges are
calculated at an annual rate of 1.25% of the average daily net assets of the
variable account. After taking these expenses and charges into consideration,
the illustrated gross investment returns of 0%, 6%, and 12% are approximately
equal to the net rates (which means after expenses have been deducted) of
- -2.19%, 3.68%, and 9.55%, respectively.
53
<PAGE> 54
ASSUMPTIONS:
Annuitant: Male, Age 70
Date of Birth: 01/01/30
Annuity Purchase Amount: $100,000
Income Option: Single Life with a 10 Year Term Certain
Income Start Date: 01/01/00
Variable Annuity Percentage: 100%
Payment Frequency: Monthly
ASSUMED GROSS RETURN: 0.00%
YEAR AIR 3.5% AIR 5.0% AIR 6.0%
1 643 726 783
2 608 676 723
3 574 630 667
4 543 587 615
5 513 547 568
6 485 509 524
7 458 474 483
8 433 442 446
9 409 412 412
10 387 383 380
11 365 357 350
12 345 333 323
13 326 310 298
14 308 289 275
15 291 269 254
16 275 251 234
17 260 233 216
18 246 217 200
19 232 203 184
20 220 189 170
21 208 176 157
22 196 164 145
23 185 153 134
24 175 142 123
25 166 132 114
ASSUMED GROSS RETURN: 6.00%
YEAR AIR 3.5% AIR 5.0% AIR 6.0%
1 643 726 783
2 644 717 766
3 645 708 749
4 646 699 733
5 647 690 717
6 649 682 701
7 650 673 686
8 651 664 671
9 652 656 656
10 653 648 642
11 654 640 628
12 655 632 614
13 657 624 600
14 658 616 587
15 659 608 574
16 660 601 562
17 661 593 550
18 662 586 538
19 663 578 526
20 665 571 514
21 666 564 503
22 667 557 492
23 668 550 481
24 669 543 471
25 670 536 460
54
<PAGE> 55
ASSUMED GROSS RETURN: 12.00%
YEAR AIR 3.5% AIR 5.0% AIR 6.0%
1 643 726 783
2 681 757 809
3 720 790 836
4 762 825 864
5 807 860 893
6 854 898 923
7 904 936 954
8 957 977 986
9 1013 1019 1019
10 1072 1063 1053
11 1135 1110 1088
12 1201 1158 1125
13 1271 1208 1163
14 1346 1260 1201
15 1424 1315 1242
16 1507 1372 1283
17 1596 1431 1326
18 1689 1493 1371
19 1788 1558 1417
20 1892 1625 1464
21 2003 1696 1513
22 2120 1769 1564
23 2244 1846 1616
24 2375 1926 1670
25 2513 2009 1726
55
<PAGE> 56
APPENDIX D: DETERMINATION OF THE HIGHEST VARIABLE PAYMENT AMOUNT FOR THE
ENHANCED DEATH BENEFIT CALCULATION WHEN PARTIAL WITHDRAWALS HAVE BEEN TAKEN
The following scenario sets forth how the highest annuity payment is determined
for purposes of calculating the enhanced death benefit. In the example, the
contract owner takes 2 partial withdrawals after the income start date. Note:
the partial withdrawal amounts stated have not yet been reduced for any
applicable CDSC.
Assume the following sequence of events:
1) Nationwide pays the first five variable annuity payments to the annuitant
as scheduled. Just after the fifth variable annuity payment is made, the
contract owner's variable account value is $80,000.
2) The contract owner takes a partial withdrawal of $20,000 from the variable
account value. As a result of the withdrawal, Nationwide reduces subsequent
variable annuity payments proportionally.
3) Nationwide pays the sixth and seventh variable annuity payments. Just after
the seventh variable annuity payment is made, the contract owner's variable
account value is $59,000.
4) The contract owner takes a partial withdrawal of $5,000 from the variable
account value. As a result of the withdrawal, Nationwide reduces subsequent
variable annuity payments proportionally.
5) Nationwide pays the eighth and ninth variable annuity payments.
6) The annuitant dies at age 79 just after Nationwide pays the ninth variable
annuity payment.
In order to find the highest adjusted variable annuity payment, the actual
variable annuity payments are proportionally reduced to reflect the partial
withdrawals. Consequently, the following adjustments would be made to the
variable annuity payments:
1) Variable Annuity Payments 1 through 5: The actual variable annuity payment
amount would be multiplied by [(1 - $20,000/$80,000) x (1 -
$5,000/$59,000)]. For example, the calculation for variable annuity payment
1 would be $500.00 x [(1 - 0.25) x (1 - 0.084745)] or $500.00 x 0.686441 or
$343.22.
2) Variable Annuity Payments 6 and 7: The actual variable annuity payment
amount would be multiplied by (1 - $5,000/$59,000). For example, the
calculation for variable annuity payment 6 would be $386.25 x (1 -
0.084745) or $386.25 x 0.915255 or $353.52.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Variable Annuity Payment Variable Annuity Adjusted Variable Annuity Payment
Number Payment Amount Amount for Death Benefit Calculation
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
1 $500.00 $343.22
- -----------------------------------------------------------------------------------------------
2 $515.00 $353.52
- -----------------------------------------------------------------------------------------------
3 $505.00 $346.65
- -----------------------------------------------------------------------------------------------
4 $510.00 $350.08
- -----------------------------------------------------------------------------------------------
5 $520.00 $356.95
- -----------------------------------------------------------------------------------------------
6 $386.25 $353.52
- -----------------------------------------------------------------------------------------------
7 $393.75 $360.38
- -----------------------------------------------------------------------------------------------
8 $363.81 $363.81
- -----------------------------------------------------------------------------------------------
9 $356.95 $356.95
- -----------------------------------------------------------------------------------------------
</TABLE>
Thus, the highest variable annuity payment to be used for calculating the
enhanced death benefit in this example is $363.81.
56
<PAGE> 57
STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 27, 1999
Individual Single Premium Immediate Variable Annuity Contracts
Issued by Nationwide Life Insurance Company through its
Nationwide Variable Account-9
This Statement of Additional Information is not a prospectus. It contains
information in addition to and more detailed than set forth in the prospectus
and should be read in conjunction with the prospectus dated September 27, 1999.
The prospectus may be obtained from Nationwide Life Insurance Company by writing
One Nationwide Plaza 01-05-P1, Columbus, Ohio 43215-2220, or calling
1-800-243-6295, TDD 1-800-238-3035.
<TABLE>
TABLE OF CONTENTS
PAGE
<S> <C>
General Information and History ............................... 1
Services ...................................................... 1
Purchase of Securities Being Offered .......................... 2
Underwriters .................................................. 2
Calculations of Performance ................................... 2
Annuity Payments .............................................. 3
Financial Statements .......................................... 4
</TABLE>
GENERAL INFORMATION AND HISTORY
The Nationwide Variable Account-9 is a separate investment account of Nationwide
Life Insurance Company ("Nationwide"). Nationwide is a member of the Nationwide
Insurance Enterprise. All of Nationwide's common stock is owned by Nationwide
Financial Services, Inc. ("NFS"), a holding company. NFS has two classes of
common stock outstanding with different voting rights enabling Nationwide
Corporation (the holder of all of the outstanding Class B Common Stock) to
control NFS. Nationwide Corporation is a holding company, as well. All of its
common stock is held by Nationwide Mutual Insurance Company (95.24%) and
Nationwide Mutual Fire Insurance Company (4.76%), the ultimate controlling
persons of Nationwide Insurance Enterprise. The Nationwide Insurance Enterprise
is one of America's largest insurance and financial services family of
companies, with combined assets of over $98.28 billion as of December 31, 1998.
SERVICES
Nationwide, which has responsibility for administration of the contracts and the
variable account, maintains records of the name, address, taxpayer
identification number, and other pertinent information for each contract owner
and the number and type of contract issued to each contract owner and records
with respect to the contract/commutation value.
The custodian of the assets of the variable account is Nationwide. Nationwide
will maintain a record of all purchases and redemptions of shares of the
investment options. Nationwide, or affiliates of Nationwide, may have entered
into agreements with either the investment adviser or distributor for the
investment options. The agreements relate to administrative services furnished
by Nationwide or an affiliate of Nationwide and provide for an annual fee based
on the average aggregate net assets of the variable account (and other separate
accounts of Nationwide or life insurance company subsidiaries of Nationwide)
invested in particular underlying mutual funds. These fees in no way affect the
net asset value of the underlying mutual funds or fees paid by the contract
owner.
1
<PAGE> 58
The audited financial statements have been included herein in reliance upon the
reports of KPMG LLP, independent certified public accountants, Two Nationwide
Plaza, Columbus, Ohio 43215, and upon the authority of said firm as experts in
accounting and auditing.
PURCHASE OF SECURITIES BEING OFFERED
The contracts will be sold by licensed insurance agents in the states where the
contracts may be lawfully sold. Such agents will be registered representatives
of broker-dealers registered under the Securities Exchange Act of 1934 who are
members of the National Association of Securities Dealers, Inc. ("NASD").
UNDERWRITERS
The contracts, which are offered continuously, are distributed by Nationwide
Advisory Services, Inc. ("NAS"), One Nationwide Plaza, Columbus, Ohio 43215, a
wholly owned subsidiary of Nationwide. During the fiscal years ended December
31, 1998, 1997 and 1996, no underwriting commissions were paid by Nationwide to
NAS.
CALCULATIONS OF PERFORMANCE
Any current yield quotations of the NSAT Money Market Fund, subject to Rule 482
of the Securities Act of 1933, will consist of a seven calendar day historical
yield, carried at least to the nearest hundredth of a percent. The yield will be
calculated by determining the net change, exclusive of capital changes, in the
value of hypothetical pre-existing account having a balance of one accumulation
unit at the beginning of the base period, subtracting a hypothetical charge
reflecting deductions from contract owner accounts, and dividing the net change
in account value by the value of the account at the beginning of the period to
obtain a base period return, and multiplying the base period return by (365/7)
or (366/7) in a leap year. The NSAT Money Market Fund's effective yield is
computed similarly, but includes the effect of assumed compounding on an
annualized basis of the current unit value yield quotations of the NSAT Money
Market Fund.
The NSAT Money Market Fund's yield and effective yield will fluctuate daily.
Actual yields will depend on factors such as the type of instruments in the
fund's portfolio, portfolio quality and average maturity, changes in interest
rates, and the fund's expenses. Although the NSAT Money Market Fund determines
its yield on the basis of a seven day period, it may use a different time period
on occasion. The yield quotes may reflect the expense limitation described
"Investment Manager and Other Services" in the NSAT Money Market Fund's
Statement of Additional Information. There is no assurance that the yields
quoted on any given occasion will remain in effect for any period of time and
there is no guarantee that the net asset values will remain constant. It should
be noted that a contract owner's investment in the NSAT Money Market Fund is not
guaranteed or insured. Yield of other money market funds may not be comparable
if a different base period or another method of calculation is used.
All performance advertising will include quotations of standardized average
annual total return, calculated in accordance with a standard method prescribed
by rules of the SEC. Standardized average annual total return is found by taking
a hypothetical $1,000 investment in each of the sub-accounts' units on the first
day of the period at the offering price, which is the accumulation unit value
per unit ("initial investment") and computing the ending redeemable value
("redeemable value") of that investment at the end of the period. The redeemable
value is then divided by the initial investment and this quotient is taken to
the Nth root (N represents the number of years in the period) and 1 is
subtracted from the result which is then expressed as a percentage, carried to
at least the nearest hundredth of a percent. Standardized average annual total
return reflects the maximum CDSC and the deduction of variable account charges,
except for premium taxes, which may be imposed by certain states.
Nonstandardized total return may also be advertised, and is calculated in a
manner similar to standardized average annual
2
<PAGE> 59
total return except the nonstandardized total return is based on a hypothetical
initial investment of $35,000. An assumed initial investment of $35,000 will be
used because that figure more closely approximates the size of a typical
contract than does the $1,000 figure used in calculating the standardized
average annual total return quotations.
The standardized average annual total return and nonstandardized average annual
total return quotations will be current to the last day of the calendar quarter
preceding the date on which an advertisement is submitted for publication. The
standardized average annual return will be based on rolling calendar quarters
and will cover periods of one, five, and ten years, or a period covering the
time the underlying mutual fund has been available in the variable account if
the underlying mutual fund has not been available for one of the prescribed
periods. Nonstandardized average annual total return will based on rolling
calendar quarters and will cover periods of one, five and ten years, or a period
covering the time the underlying mutual fund has been in existence.
Quotations of average annual total return and total return are based upon
historical earnings and will fluctuate. Any quotation of performance, is not a
guarantee of future performance. Factors affecting a sub-account's performance
include general market conditions, operating expenses and investment management.
A contract owner's account when redeemed may be more or less than the original
cost.
ANNUITY PAYMENTS
See "Frequency and Amount of Annuity Payments" located in the prospectus.
- --------------------------------------------------------------------------------
America's Income Annuity(sm) commenced sales in September, 1999. Therefore, the
following financial statements do not reflect performance for America's Income
Annuity(sm). However, the financial statements do reflect performance for other
annuity contracts issued through the Nationwide Variable Account-9.
- --------------------------------------------------------------------------------
3
<PAGE> 60
<PAGE> 1
Independent Auditors' Report
The Board of Directors of Nationwide Life Insurance Company and Contract Owners
of Nationwide Variable Account-9:
We have audited the accompanying statement of assets, liabilities and
contract owners' equity of Nationwide Variable Account-9 as of December 31,
1998, and the related statements of operations and changes in contract owners'
equity for the year then ended and the period November 3, 1997 (commencement of
operations) through December 31, 1997. 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 audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1998, by correspondence with
the transfer agents of the underlying mutual funds. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Nationwide Variable
Account-9 as of December 31, 1998, and the results of its operations and its
changes in contract owners' equity for the year then ended and the period
November 3, 1997 (commencement of operations) through December 31, 1997, in
conformity with generally accepted accounting principles.
KPMG LLP
Columbus, Ohio
February 5, 1999
<PAGE> 2
NATIONWIDE VARIABLE ACCOUNT-9
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments at market value:
American Century VP - American Century VP Income & Growth (ACVPIncGr)
6,808,423 shares (cost $41,583,538) ........................................ $ 46,161,106
American Century VP - American Century VP International (ACVPInt)
6,855,908 shares (cost $51,855,024) ........................................ 52,242,021
American Century VP - American Century VP Value (ACVPValue)
3,217,095 shares (cost $21,777,436) ........................................ 21,651,051
The Dreyfus Socially Responsible Growth Fund, Inc. (DrySRGro)
1,248,565 shares (cost $35,462,984) ........................................ 38,805,415
Dreyfus Stock Index Fund (DryStkIx)
9,577,288 shares (cost $279,024,199) ....................................... 311,453,398
Dreyfus VIF - Capital Appreciation Portfolio (DryCapAp)
1,589,914 shares (cost $52,116,562) ........................................ 57,411,798
Fidelity VIP - Equity-Income Portfolio - Service Class (FidVIPEIS)
7,742,140 shares (cost $188,934,420) ....................................... 196,572,937
Fidelity VIP - Growth Portfolio - Service Class (FidVIPGrS)
2,439,295 shares (cost $92,723,883) ........................................ 109,329,206
Fidelity VIP - High Income Portfolio - Service Class (FidVIPHIS)
8,982,394 shares (cost $109,103,276) ....................................... 103,387,351
Fidelity VIP - Overseas Portfolio - Service Class (FidVIPOvS)
1,311,658 shares (cost $25,776,988) ........................................ 26,272,515
Fidelity VIP-II - Contrafund Portfolio - Service Class (FidVIPConS)
5,268,891 shares (cost $110,700,033) ....................................... 128,666,318
Fidelity VIP-III - Growth Opportunities Portfolio - Service Class (FidVIPGrOpS)
4,400,750 shares (cost $88,712,986) ........................................ 100,601,146
Morgan Stanley - Emerging Markets Debt Portfolio (MSEmMkt)
533,017 shares (cost $4,220,740) ........................................... 3,251,406
Nationwide SAT - Balanced Fund (NSATBal)
3,702,529 shares (cost $38,838,888) ........................................ 39,172,762
Nationwide SAT - Capital Appreciation Fund (NSATCapAp)
7,353,398 shares (cost $180,569,944) ....................................... 195,526,840
Nationwide SAT - Equity Income Fund (NSATEqInc)
1,115,255 shares (cost $11,913,630) ........................................ 12,791,978
Nationwide SAT - Global Equity Fund (NSATGlobEq)
1,278,862 shares (cost $14,086,471) ........................................ 15,026,629
Nationwide SAT - Government Bond Fund (NSATGvtBd)
11,611,591 shares (cost $135,670,425) ...................................... 135,739,496
Nationwide SAT - High Income Bond Fund (NSATHIncBd)
2,988,003 shares (cost $30,639,154) ........................................ 29,999,551
Nationwide SAT - Money Market Fund (NSATMyMkt)
190,044,189 shares (cost $190,044,189) ..................................... 190,044,189
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
Nationwide SAT - Multi Sector Bond Fund (NSATMSecBd)
3,559,456 shares (cost $35,711,253) .................................. 34,953,863
Nationwide SAT - Select Advisers Mid Cap Fund (NSATMidCap)
663,376 shares (cost $6,840,714) ..................................... 7,244,064
Nationwide SAT - Small Cap Value Fund (NSATSmCapV)
3,132,624 shares (cost $29,764,563) .................................. 29,728,605
Nationwide SAT - Small Company Fund (NSATSmCo)
2,686,535 shares (cost $42,607,479) .................................. 43,011,428
Nationwide SAT - Strategic Growth Fund (NSATStrGro)
746,793 shares (cost $7,919,572) ..................................... 8,737,474
Nationwide SAT - Strategic Value Fund (NSATStrVal)
1,344,546 shares (cost $13,728,595) .................................. 13,606,806
Nationwide SAT - Total Return Fund (NSATTotRe)
15,536,927 shares (cost $281,022,843) ................................ 285,879,460
Neuberger & Berman AMT - Guardian Portfolio (NBAMTGuard)
2,338,020 shares (cost $31,751,426) .................................. 32,358,203
Neuberger & Berman AMT - Mid-Cap Growth Portfolio (NBAMTMCGr)
1,748,395 shares (cost $23,894,825) .................................. 28,358,964
Neuberger & Berman AMT - Partners Portfolio (NBAMTPart)
5,754,650 shares (cost $111,859,485) ................................. 108,935,530
Oppenheimer VAF - Aggressive Growth Fund (OppAggGro)
610,901 shares (cost $25,670,049) .................................... 27,386,693
Oppenheimer VAF - Growth Fund (OppGro)
1,127,365 shares (cost $37,003,995) .................................. 41,340,470
Oppenheimer VAF - Growth & Income Fund (OppGrInc)
2,521,659 shares (cost $51,774,563) .................................. 51,643,569
Van Eck WIT - Worldwide Emerging Markets Fund (VEWrldEMkt)
664,975 shares (cost $5,629,404) ..................................... 4,734,621
Van Eck WIT - Worldwide Hard Assets Fund (VEWrldHAs)
222,585 shares (cost $2,130,378) ..................................... 2,047,778
Van Kampen American Capital LIT -
Morgan Stanley Real Estate Securities Portfolio (VKMSRESec)
1,308,962 shares (cost $19,243,692) .................................. 18,011,317
Warburg Pincus Trust - Growth & Income Portfolio (WPGrInc)
1,140,740 shares (cost $12,673,239) .................................. 13,095,697
Warburg Pincus Trust - International Equity Portfolio (WPIntEq)
1,439,870 shares (cost $16,523,314) .................................. 15,824,169
Warburg Pincus Trust - Post Venture Capital Portfolio (WPPVenCap)
552,506 shares (cost $6,237,564) ..................................... 6,508,526
--------------
Total investments ................................................. 2,587,514,350
Accounts receivable ........................................................ 1,282,585
--------------
Total assets ...................................................... 2,588,796,935
ACCOUNTS PAYABLE .............................................................. --
--------------
CONTRACT OWNERS' EQUITY (NOTE 4) .............................................. $2,588,796,935
==============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 4
NATIONWIDE VARIABLE ACCOUNT - 9
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
Year Ended December 31, 1998 and For the Period November 3, 1997
(commencement of operations) Through December 31, 1997
<TABLE>
<CAPTION>
TOTAL ACVPIncGr
---------------------------------- ----------------------------------
1998 1997 1998 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .......................... $ 20,037,926 184,101 220,567 --
Mortality and expense risk charges (note 2):
Asset fee @ 0.95% rate ..................... (6,687,096) (26,321) (104,919) (119)
Asset fee @ 1.00% rate ..................... (4,480,001) (13,431) (64,746) (83)
Asset fee @ 1.05% rate ..................... (1,009,646) (4,753) (13,006) (29)
Asset fee @ 1.10% rate ..................... (909) -- (46) --
Asset fee @ 1.15% rate ..................... (244) -- (14) --
Asset fee @ 1.20% rate ..................... (1,510) -- (19) --
Asset fee @ 1.25% rate ..................... (131) -- -- --
Asset fee @ 1.30% rate ..................... (50) -- -- --
Asset fee @ 1.35% rate ..................... (37) -- -- --
--------------- --------------- --------------- ---------------
Net investment activity ...................... 7,858,302 139,596 37,817 (231)
--------------- --------------- --------------- ---------------
Proceeds from mutual fund shares sold ......... 147,138,081 1,928,035 299,469 3,255
Cost of mutual fund shares sold ............... (151,277,931) (1,932,025) (260,801) (3,092)
--------------- --------------- --------------- ---------------
Realized gain (loss) on investments .......... (4,139,850) (3,990) 38,668 163
Change in unrealized gain (loss) on investments 121,513,304 259,323 4,570,573 6,996
--------------- --------------- --------------- ---------------
Net gain (loss) on investments ............... 117,373,454 255,333 4,609,241 7,159
--------------- --------------- --------------- ---------------
Reinvested capital gains ...................... 27,066,537 478,503 9,256 --
--------------- --------------- --------------- ---------------
Net increase (decrease) in contract owners'
equity resulting from operations ......... 152,298,293 873,432 4,656,314 6,928
--------------- --------------- --------------- ---------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners .............................. 2,421,579,829 81,649,336 34,231,141 389,541
Transfers between funds ....................... -- -- 7,880,597 61,740
Redemptions ................................... (66,628,531) (339,129) (1,021,174) (635)
Contingent deferred sales charges (note 2) .... (676,512) (409) (7,094) --
Adjustments to maintain reserves .............. 38,184 2,442 (27,089) 5
--------------- --------------- --------------- ---------------
Net equity transactions .................... 2,354,312,970 81,312,240 41,056,381 450,651
--------------- --------------- --------------- ---------------
NET CHANGE IN CONTRACT OWNERS' EQUITY .......... 2,506,611,263 82,185,672 45,712,695 457,579
Contract owners' equity beginning of period .... 82,185,672 -- 457,579 --
--------------- --------------- --------------- ---------------
Contract owners' equity end of period .......... $ 2,588,796,935 82,185,672 46,170,274 457,579
=============== =============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
ACVPInt ACVPValue
---------------------------------- ----------------------------------
1998 1997 1998 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .......................... 26,394 -- 28,096 --
Mortality and expense risk charges (note 2):
Asset fee @ 0.95% rate ..................... (135,323) (169) (68,970) (235)
Asset fee @ 1.00% rate ..................... (74,971) (58) (44,443) (348)
Asset fee @ 1.05% rate ..................... (14,635) (20) (8,106) (55)
Asset fee @ 1.10% rate ..................... (9) -- (4) --
Asset fee @ 1.15% rate ..................... (9) -- -- --
Asset fee @ 1.20% rate ..................... (2) -- (24) --
Asset fee @ 1.25% rate ..................... -- -- (2) --
Asset fee @ 1.30% rate ..................... -- -- -- --
Asset fee @ 1.35% rate ..................... (4) -- -- --
--------------- --------------- --------------- ---------------
Net investment activity ...................... (198,559) (247) (93,453) (638)
--------------- --------------- --------------- ---------------
Proceeds from mutual fund shares sold ......... 2,580,905 -- 1,595,103 --
Cost of mutual fund shares sold ............... (2,610,970) -- (1,678,560) --
--------------- --------------- --------------- ---------------
Realized gain (loss) on investments .......... (30,065) -- (83,457) --
Change in unrealized gain (loss) on investments 379,163 7,835 (147,770) 21,385
--------------- --------------- --------------- ---------------
Net gain (loss) on investments ............... 349,098 7,835 (231,227) 21,385
--------------- --------------- --------------- ---------------
Reinvested capital gains ...................... 270,951 -- 335,441 --
--------------- --------------- --------------- ---------------
Net increase (decrease) in contract owners'
equity resulting from operations ......... 421,490 7,588 10,761 20,747
--------------- --------------- --------------- ---------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners .............................. 39,680,086 451,373 19,091,612 929,382
Transfers between funds ....................... 12,597,519 90,951 1,715,026 410,117
Redemptions ................................... (1,031,134) (18) (518,275) (856)
Contingent deferred sales charges (note 2) .... (7,206) -- (7,315) --
Adjustments to maintain reserves .............. 31,510 4 (218) 8
--------------- --------------- --------------- ---------------
Net equity transactions .................... 51,270,775 542,310 20,280,830 1,338,651
--------------- --------------- --------------- ---------------
NET CHANGE IN CONTRACT OWNERS' EQUITY .......... 51,692,265 549,898 20,291,591 1,359,398
Contract owners' equity beginning of period .... 549,898 -- 1,359,398 --
--------------- --------------- --------------- ---------------
Contract owners' equity end of period .......... 52,242,163 549,898 21,650,989 1,359,398
=============== =============== =============== ===============
</TABLE>
<PAGE> 5
NATIONWIDE VARIABLE ACCOUNT - 9
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
Year Ended December 31, 1998 and For the Period November 3, 1997
(commencement of operations) Through December 31, 1997
<TABLE>
<CAPTION>
DrySRGro DryStkix
---------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .......................... $ 60,373 2,537 2,203,648 19,230
Mortality and expense risk charges (note 2):
Asset fee @ 0.95% rate ..................... (87,632) (245) (736,785) (1,875)
Asset fee @ 1.00% rate ..................... (63,281) (157) (495,327) (946)
Asset fee @ 1.05% rate ..................... (13,367) (30) (102,440) (152)
Asset fee @ 1.10% rate ..................... (51) -- (137) --
Asset fee @ 1.15% rate ..................... (15) -- (51) --
Asset fee @ 1.20% rate ..................... (13) -- (305) --
Asset fee @ 1.25% rate ..................... (15) -- (30) --
Asset fee @ 1.30% rate ..................... (6) -- (2) --
Asset fee @ 1.35% rate ..................... -- -- (5) --
------------ ------------ ------------ ------------
Net investment activity ...................... (104,007) 2,105 868,566 16,257
------------ ------------ ------------ ------------
Proceeds from mutual fund shares sold ......... 777,497 -- 3,532,880 53,202
Cost of mutual fund shares sold ............... (725,553) -- (3,554,666) (55,328)
------------ ------------ ------------ ------------
Realized gain (loss) on investments .......... 51,944 -- (21,786) (2,126)
Change in unrealized gain (loss) on investments 3,346,139 (3,707) 32,439,748 (10,549)
------------ ------------ ------------ ------------
Net gain (loss) on investments ............... 3,398,083 (3,707) 32,417,962 (12,675)
------------ ------------ ------------ ------------
Reinvested capital gains ...................... 1,392,227 20,741 435,046 83,330
------------ ------------ ------------ ------------
Net increase (decrease) in contract owners'
equity resulting from operations ......... 4,686,303 19,139 33,721,574 86,912
------------ ------------ ------------ ------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners .............................. 29,765,433 806,446 242,868,858 5,885,293
Transfers between funds ....................... 4,305,104 32,713 34,854,129 151,175
Redemptions ................................... (803,449) (1,570) (6,057,535) (3,783)
Contingent deferred sales charges (note 2) .... (4,582) -- (83,383) --
Adjustments to maintain reserves .............. 66 (4) 30,385 1,038
------------ ------------ ------------ ------------
Net equity transactions .................... 33,262,572 837,585 271,612,454 6,033,723
------------ ------------ ------------ ------------
NET CHANGE IN CONTRACT OWNERS' EQUITY .......... 37,948,875 856,724 305,334,028 6,120,635
Contract owners' equity beginning of period .... 856,724 -- 6,120,635 --
------------ ------------ ------------ ------------
Contract owners' equity end of period .......... $ 38,805,599 856,724 311,454,663 6,120,635
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
DryCapAp FidVIPEIS
--------------------------- -----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .......................... 296,317 4,948 217,564 --
Mortality and expense risk charges (note 2):
Asset fee @ 0.95% rate ..................... (111,207) (267) (505,712) (1,422)
Asset fee @ 1.00% rate ..................... (62,252) (133) (395,500) (815)
Asset fee @ 1.05% rate ..................... (17,737) (30) (90,638) (339)
Asset fee @ 1.10% rate ..................... (62) -- (58) --
Asset fee @ 1.15% rate ..................... (27) -- (7) --
Asset fee @ 1.20% rate ..................... (19) -- (41) --
Asset fee @ 1.25% rate ..................... -- -- (22) --
Asset fee @ 1.30% rate ..................... (4) -- (14) --
Asset fee @ 1.35% rate ..................... (4) -- -- --
------------ ------------ ------------ ------------
Net investment activity ...................... 105,005 4,518 (774,428) (2,576)
------------ ------------ ------------ ------------
Proceeds from mutual fund shares sold ......... 692,754 -- 628,613 72,868
Cost of mutual fund shares sold ............... (632,372) -- (599,673) (74,460)
------------ ------------ ------------ ------------
Realized gain (loss) on investments .......... 60,382 -- 28,940 (1,592)
Change in unrealized gain (loss) on investments 5,296,793 (1,557) 7,558,663 79,853
------------ ------------ ------------ ------------
Net gain (loss) on investments ............... 5,357,175 (1,557) 7,587,603 78,261
------------ ------------ ------------ ------------
Reinvested capital gains ...................... 1,464 414 774,271 --
------------ ------------ ------------ ------------
Net increase (decrease) in contract owners'
equity resulting from operations ......... 5,463,644 3,375 7,587,446 75,685
------------ ------------ ------------ ------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners .............................. 37,281,447 894,637 175,676,909 4,978,409
Transfers between funds ....................... 14,756,161 34,011 13,491,409 268,956
Redemptions ................................... (999,653) -- (5,441,684) (7,395)
Contingent deferred sales charges (note 2) .... (11,014) -- (54,879) --
Adjustments to maintain reserves .............. (10,617) (1) (2,947) 1,150
------------ ------------ ------------ ------------
Net equity transactions .................... 51,016,324 928,647 183,668,808 5,241,120
------------ ------------ ------------ ------------
NET CHANGE IN CONTRACT OWNERS' EQUITY .......... 56,479,968 932,022 191,256,254 5,316,805
Contract owners' equity beginning of period .... 932,022 -- 5,316,805 --
------------ ------------ ------------ ------------
Contract owners' equity end of period .......... 57,411,990 932,022 196,573,059 5,316,805
============ ============ ============ ============
</TABLE>
(Continued)
<PAGE> 6
NATIONWIDE VARIABLE ACCOUNT - 9
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
Year Ended December 31, 1998 and For the Period November 3, 1997
(commencement of operations) Through December 31, 1997
<TABLE>
<CAPTION>
FidVIPGrS FidVIPHIS
------------------------------ ------------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .......................... $ 27,645 -- 609,157 --
Mortality and expense risk charges (note 2):
Asset fee @ 0.95% rate ..................... (212,170) (572) (294,475) (1,047)
Asset fee @ 1.00% rate ..................... (166,839) (312) (193,581) (382)
Asset fee @ 1.05% rate ..................... (35,112) (72) (58,296) (139)
Asset fee @ 1.10% rate ..................... (51) -- (22) --
Asset fee @ 1.15% rate ..................... (10) -- (5) --
Asset fee @ 1.20% rate ..................... (99) -- (16) --
Asset fee @ 1.25% rate ..................... (6) -- -- --
Asset fee @ 1.30% rate ..................... (1) -- -- --
Asset fee @ 1.35% rate ..................... -- -- (4) --
------------- ------------- ------------- -------------
Net investment activity ...................... (386,643) (956) 62,758 (1,568)
------------- ------------- ------------- -------------
Proceeds from mutual fund shares sold ......... 1,691,790 24,231 5,911,230 --
Cost of mutual fund shares sold ............... (1,783,855) (24,000) (7,053,926) --
------------- ------------- ------------- -------------
Realized gain (loss) on investments .......... (92,065) 231 (1,142,696) --
Change in unrealized gain (loss) on investments 16,582,085 23,237 (5,732,014) 16,089
------------- ------------- ------------- -------------
Net gain (loss) on investments ............... 16,490,020 23,468 (6,874,710) 16,089
------------- ------------- ------------- -------------
Reinvested capital gains ...................... 723,135 -- 387,069 --
------------- ------------- ------------- -------------
Net increase (decrease) in contract owners'
equity resulting from operations ......... 16,826,512 22,512 (6,424,883) 14,521
------------- ------------- ------------- -------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners .............................. 71,107,684 1,981,907 106,687,268 2,761,595
Transfers between funds ....................... 21,283,689 1,697 3,713,555 132,705
Redemptions ................................... (1,868,105) (577) (3,477,421) (954)
Contingent deferred sales charges (note 2) .... (25,533) -- (19,045) --
Adjustments to maintain reserves .............. 198 (111) (220) (1)
------------- ------------- ------------- -------------
Net equity transactions .................... 90,497,933 1,982,916 106,904,137 2,893,345
------------- ------------- ------------- -------------
NET CHANGE IN CONTRACT OWNERS' EQUITY .......... 107,324,445 2,005,428 100,479,254 2,907,866
Contract owners' equity beginning of period .... 2,005,428 -- 2,907,866 --
------------- ------------- ------------- -------------
Contract owners' equity end of period .......... $ 109,329,873 2,005,428 103,387,120 2,907,866
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
FidVIPOvS FidVIPConS
------------------------------ ------------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .......................... 39,473 -- 56,795 --
Mortality and expense risk charges (note 2):
Asset fee @ 0.95% rate ..................... (70,614) (303) (299,506) (1,607)
Asset fee @ 1.00% rate ..................... (42,096) (95) (193,026) (564)
Asset fee @ 1.05% rate ..................... (13,142) (40) (37,910) (160)
Asset fee @ 1.10% rate ..................... -- -- (67) --
Asset fee @ 1.15% rate ..................... (2) -- (15) --
Asset fee @ 1.20% rate ..................... (32) -- (115) --
Asset fee @ 1.25% rate ..................... -- -- -- --
Asset fee @ 1.30% rate ..................... -- -- (2) --
Asset fee @ 1.35% rate ..................... -- -- -- --
------------- ------------- ------------- -------------
Net investment activity ...................... (86,413) (438) (473,846) (2,331)
------------- ------------- ------------- -------------
Proceeds from mutual fund shares sold ......... 4,459,537 5,931 389,637 --
Cost of mutual fund shares sold ............... (4,576,878) (5,843) (408,471) --
------------- ------------- ------------- -------------
Realized gain (loss) on investments .......... (117,341) 88 (18,834) --
Change in unrealized gain (loss) on investments 489,713 5,814 17,909,633 56,652
------------- ------------- ------------- -------------
Net gain (loss) on investments ............... 372,372 5,902 17,890,799 56,652
------------- ------------- ------------- -------------
Reinvested capital gains ...................... 116,340 -- 417,852 --
------------- ------------- ------------- -------------
Net increase (decrease) in contract owners'
equity resulting from operations ......... 402,299 5,464 17,834,805 54,321
------------- ------------- ------------- -------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners .............................. 21,535,431 757,896 95,817,883 3,573,555
Transfers between funds ....................... 3,800,935 157,648 13,757,369 83,693
Redemptions ................................... (383,762) -- (2,362,374) (70)
Contingent deferred sales charges (note 2) .... (3,534) -- (32,976) --
Adjustments to maintain reserves .............. 163 (2) (59,196) 7
------------- ------------- ------------- -------------
Net equity transactions .................... 24,949,233 915,542 107,120,706 3,657,185
------------- ------------- ------------- -------------
NET CHANGE IN CONTRACT OWNERS' EQUITY .......... 25,351,532 921,006 124,955,511 3,711,506
Contract owners' equity beginning of period .... 921,006 -- 3,711,506 --
------------- ------------- ------------- -------------
Contract owners' equity end of period .......... 26,272,538 921,006 128,667,017 3,711,506
============= ============= ============= =============
</TABLE>
<PAGE> 7
NATIONWIDE VARIABLE ACCOUNT - 9
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
Year Ended December 31, 1998 and For the Period November 3, 1997
(commencement of operations) Through December 31, 1997
<TABLE>
<CAPTION>
FidVIPGrOpS MSEmMkt
------------------------------ ------------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .......................... $ 67,013 -- 387,439 3,740
Mortality and expense risk charges (note 2):
Asset fee @ 0.95% rate ..................... (225,407) (596) (13,756) (54)
Asset fee @ 1.00% rate ..................... (198,453) (418) (5,701) (40)
Asset fee @ 1.05% rate ..................... (34,785) (123) (1,939) (16)
Asset fee @ 1.10% rate ..................... (23) -- -- --
Asset fee @ 1.15% rate ..................... -- -- -- --
Asset fee @ 1.20% rate ..................... (7) -- (8) --
Asset fee @ 1.25% rate ..................... -- -- (1) --
Asset fee @ 1.30% rate ..................... -- -- -- --
Asset fee @ 1.35% rate ..................... -- -- -- --
------------- ------------- ------------- -------------
Net investment activity ...................... (391,662) (1,137) 366,034 3,630
------------- ------------- ------------- -------------
Proceeds from mutual fund shares sold ......... 312,351 3 1,077,168 810
Cost of mutual fund shares sold ............... (318,329) (3) (1,547,782) (823)
------------- ------------- ------------- -------------
Realized gain (loss) on investments .......... (5,978) -- (470,614) (13)
Change in unrealized gain (loss) on investments 11,843,161 44,999 (967,487) (1,847)
------------- ------------- ------------- -------------
Net gain (loss) on investments ............... 11,837,183 44,999 (1,438,101) (1,860)
------------- ------------- ------------- -------------
Reinvested capital gains ...................... 232,948 -- -- 1,623
------------- ------------- ------------- -------------
Net increase (decrease) in contract owners'
equity resulting from operations ......... 11,678,469 43,862 (1,072,067) 3,393
------------- ------------- ------------- -------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners .............................. 79,527,836 2,201,875 3,872,593 185,958
Transfers between funds ....................... 8,581,600 332,841 313,112 6,858
Redemptions ................................... (1,722,323) (304) (58,191) --
Contingent deferred sales charges (note 2) .... (20,999) -- (253) --
Adjustments to maintain reserves .............. (21,308) (4) (62) (1)
------------- ------------- ------------- -------------
Net equity transactions .................... 86,344,806 2,534,408 4,127,199 192,815
------------- ------------- ------------- -------------
NET CHANGE IN CONTRACT OWNERS' EQUITY .......... 98,023,275 2,578,270 3,055,132 196,208
Contract owners' equity beginning of period .... 2,578,270 -- 196,208 --
------------- ------------- ------------- -------------
Contract owners' equity end of period .......... $ 100,601,545 2,578,270 3,251,340 196,208
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
NSATBal NSATCapAp
------------------------------ ------------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .......................... 683,468 3,951 750,851 5,462
Mortality and expense risk charges (note 2):
Asset fee @ 0.95% rate ..................... (90,403) (195) (465,341) (739)
Asset fee @ 1.00% rate ..................... (70,281) (154) (270,821) (447)
Asset fee @ 1.05% rate ..................... (15,676) (110) (52,969) (244)
Asset fee @ 1.10% rate ..................... (11) -- (81) --
Asset fee @ 1.15% rate ..................... (7) -- (20) --
Asset fee @ 1.20% rate ..................... (9) -- (17) --
Asset fee @ 1.25% rate ..................... -- -- -- --
Asset fee @ 1.30% rate ..................... (1) -- -- --
Asset fee @ 1.35% rate ..................... -- -- -- --
------------- ------------- ------------- -------------
Net investment activity ...................... 507,080 3,492 (38,398) 4,032
------------- ------------- ------------- -------------
Proceeds from mutual fund shares sold ......... 181,876 -- 2,717,344 --
Cost of mutual fund shares sold ............... (178,647) -- (2,728,836) --
------------- ------------- ------------- -------------
Realized gain (loss) on investments .......... 3,229 -- (11,492) --
Change in unrealized gain (loss) on investments 328,826 5,048 14,966,388 (9,492)
------------- ------------- ------------- -------------
Net gain (loss) on investments ............... 332,055 5,048 14,954,896 (9,492)
------------- ------------- ------------- -------------
Reinvested capital gains ...................... 115,971 -- 5,341,096 52,894
------------- ------------- ------------- -------------
Net increase (decrease) in contract owners'
equity resulting from operations ......... 955,106 8,540 20,257,594 47,434
------------- ------------- ------------- -------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners .............................. 33,253,731 818,465 150,374,491 2,528,751
Transfers between funds ....................... 4,913,679 65,644 25,963,419 88,972
Redemptions ................................... (833,930) (90) (3,752,392) (3,756)
Contingent deferred sales charges (note 2) .... (8,225) -- (30,248) --
Adjustments to maintain reserves .............. 177 (26) 53,212 4
------------- ------------- ------------- -------------
Net equity transactions .................... 37,325,432 883,993 172,608,482 2,613,971
------------- ------------- ------------- -------------
NET CHANGE IN CONTRACT OWNERS' EQUITY .......... 38,280,538 892,533 192,866,076 2,661,405
Contract owners' equity beginning of period .... 892,533 -- 2,661,405 --
------------- ------------- ------------- -------------
Contract owners' equity end of period .......... 39,173,071 892,533 195,527,481 2,661,405
============= ============= ============= =============
</TABLE>
(Continued)
<PAGE> 8
NATIONWIDE VARIABLE ACCOUNT - 9
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
Year Ended December 31, 1998 and For the Period November 3, 1997
(commencement of operations) Through December 31, 1997
<TABLE>
<CAPTION>
NSATEqinc NSATGlobEq
---------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .......................... $ 75,504 989 141,975 871
Mortality and expense risk charges (note 2):
Asset fee @ 0.95% rate ..................... (34,439) (265) (39,570) (165)
Asset fee @ 1.00% rate ..................... (27,139) (116) (28,746) (116)
Asset fee @ 1.05% rate ..................... (5,129) (30) (8,199) (45)
Asset fee @ 1.10% rate ..................... -- -- (5) --
Asset fee @ 1.15% rate ..................... (1) -- -- --
Asset fee @ 1.20% rate ..................... (18) -- -- --
Asset fee @ 1.25% rate ..................... -- -- (2) --
Asset fee @ 1.30% rate ..................... -- -- -- --
Asset fee @ 1.35% rate ..................... -- -- -- --
------------ ------------ ------------ ------------
Net investment activity ...................... 8,778 578 65,453 545
------------ ------------ ------------ ------------
Proceeds from mutual fund shares sold ......... 376,534 2 685,356 --
Cost of mutual fund shares sold ............... (366,898) (3) (668,251) --
------------ ------------ ------------ ------------
Realized gain (loss) on investments .......... 9,636 (1) 17,105 --
Change in unrealized gain (loss) on investments 869,248 9,100 936,891 3,267
------------ ------------ ------------ ------------
Net gain (loss) on investments ............... 878,884 9,099 953,996 3,267
------------ ------------ ------------ ------------
Reinvested capital gains ...................... 137,183 -- 98,132 --
------------ ------------ ------------ ------------
Net increase (decrease) in contract owners'
equity resulting from operations ......... 1,024,845 9,677 1,117,581 3,812
------------ ------------ ------------ ------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners .............................. 10,836,292 524,315 12,466,313 505,387
Transfers between funds ....................... 736,897 58,870 1,290,714 4,389
Redemptions ................................... (392,814) (135) (359,325) --
Contingent deferred sales charges (note 2) .... (5,629) -- (2,129) --
Adjustments to maintain reserves .............. (359) 14 35 (105)
------------ ------------ ------------ ------------
Net equity transactions .................... 11,174,387 583,064 13,395,608 509,671
------------ ------------ ------------ ------------
NET CHANGE IN CONTRACT OWNERS' EQUITY .......... 12,199,232 592,741 14,513,189 513,483
Contract owners' equity beginning of period .... 592,741 -- 513,483 --
------------ ------------ ------------ ------------
Contract owners' equity end of period .......... $ 12,791,973 592,741 15,026,672 513,483
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
NSATGvtBd NSATHIncBd
---------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .......................... 4,068,221 46,514 1,175,418 9,587
Mortality and expense risk charges (note 2):
Asset fee @ 0.95% rate ..................... (325,601) (1,060) (70,627) (359)
Asset fee @ 1.00% rate ..................... (228,102) (369) (51,930) (153)
Asset fee @ 1.05% rate ..................... (64,068) (301) (17,784) (125)
Asset fee @ 1.10% rate ..................... (51) -- -- --
Asset fee @ 1.15% rate ..................... (13) -- -- --
Asset fee @ 1.20% rate ..................... (11) -- (14) --
Asset fee @ 1.25% rate ..................... (14) -- (1) --
Asset fee @ 1.30% rate ..................... (1) -- -- --
Asset fee @ 1.35% rate ..................... -- -- -- --
------------ ------------ ------------ ------------
Net investment activity ...................... 3,450,360 44,784 1,035,062 8,950
------------ ------------ ------------ ------------
Proceeds from mutual fund shares sold ......... 6,875,359 24,775 1,434,798 663
Cost of mutual fund shares sold ............... (6,712,656) (24,775) (1,454,954) (653)
------------ ------------ ------------ ------------
Realized gain (loss) on investments .......... 162,703 -- (20,156) 10
Change in unrealized gain (loss) on investments 96,330 (27,259) (637,940) (1,663)
------------ ------------ ------------ ------------
Net gain (loss) on investments ............... 259,033 (27,259) (658,096) (1,653)
------------ ------------ ------------ ------------
Reinvested capital gains ...................... 644,842 -- -- --
------------ ------------ ------------ ------------
Net increase (decrease) in contract owners'
equity resulting from operations ......... 4,354,235 17,525 376,966 7,297
------------ ------------ ------------ ------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners .............................. 135,535,861 3,147,571 26,481,762 762,946
Transfers between funds ....................... (2,966,402) 4,912 2,932,999 144,381
Redemptions ................................... (4,331,237) -- (701,614) (643)
Contingent deferred sales charges (note 2) .... (23,933) -- (4,542) --
Adjustments to maintain reserves .............. 1,128 1 (12) --
------------ ------------ ------------ ------------
Net equity transactions .................... 128,215,417 3,152,484 28,708,593 906,684
------------ ------------ ------------ ------------
NET CHANGE IN CONTRACT OWNERS' EQUITY .......... 132,569,652 3,170,009 29,085,559 913,981
Contract owners' equity beginning of period .... 3,170,009 -- 913,981 --
------------ ------------ ------------ ------------
Contract owners' equity end of period .......... 135,739,661 3,170,009 29,999,540 913,981
============ ============ ============ ============
</TABLE>
<PAGE> 9
NATIONWIDE VARIABLE ACCOUNT - 9
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
Year Ended December 31, 1998 and For the Period November 3, 1997
(commencement of operations) Through December 31, 1997
<TABLE>
<CAPTION>
NSATMyMkt NSATSecBd
------------------------------ ------------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .......................... $ 5,541,671 35,527 1,155,410 5,220
Mortality and expense risk charges (note 2):
Asset fee @ 0.95% rate ..................... (597,802) (4,055) (95,878) (353)
Asset fee @ 1.00% rate ..................... (367,633) (1,841) (61,058) (186)
Asset fee @ 1.05% rate ..................... (112,880) (1,142) (20,762) (71)
Asset fee @ 1.10% rate ..................... (56) -- (2) --
Asset fee @ 1.15% rate ..................... (1) -- -- --
Asset fee @ 1.20% rate ..................... (530) -- (20) --
Asset fee @ 1.25% rate ..................... -- -- (1) --
Asset fee @ 1.30% rate ..................... -- -- (1) --
Asset fee @ 1.35% rate ..................... (16) -- -- --
------------- ------------- ------------- -------------
Net investment activity ...................... 4,462,753 28,489 977,688 4,610
------------- ------------- ------------- -------------
Proceeds from mutual fund shares sold ......... 74,592,150 772,983 474,327 3
Cost of mutual fund shares sold ............... (74,592,150) (772,983) (482,830) (3)
------------- ------------- ------------- -------------
Realized gain (loss) on investments .......... -- -- (8,503) --
Change in unrealized gain (loss) on investments -- -- (757,239) (151)
------------- ------------- ------------- -------------
Net gain (loss) on investments ............... -- -- (765,742) (151)
------------- ------------- ------------- -------------
Reinvested capital gains ...................... -- -- 31,361 --
------------- ------------- ------------- -------------
Net increase (decrease) in contract owners'
equity resulting from operations ......... 4,462,753 28,489 243,307 4,459
------------- ------------- ------------- -------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners .............................. 406,622,866 16,698,066 29,533,663 862,594
Transfers between funds ....................... (219,515,750) (3,252,991) 4,903,909 174,229
Redemptions ................................... (13,347,779) (289,851) (761,323) --
Contingent deferred sales charges (note 2) .... (133,217) (409) (7,092) --
Adjustments to maintain reserves .............. 36,549 2,636 78 14
------------- ------------- ------------- -------------
Net equity transactions .................... 173,662,669 13,157,451 33,669,235 1,036,837
------------- ------------- ------------- -------------
NET CHANGE IN CONTRACT OWNERS' EQUITY .......... 178,125,422 13,185,940 33,912,542 1,041,296
Contract owners' equity beginning of period .... 13,185,940 -- 1,041,296 --
------------- ------------- ------------- -------------
Contract owners' equity end of period .......... $ 191,311,362 13,185,940 34,953,838 1,041,296
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
NSATMidCap NSATSmCapV
------------------------------ ------------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .......................... 40,624 535 -- 590
Mortality and expense risk charges (note 2):
Asset fee @ 0.95% rate ..................... (20,251) (37) (83,736) (376)
Asset fee @ 1.00% rate ..................... (14,445) (62) (45,868) (190)
Asset fee @ 1.05% rate ..................... (4,536) (22) (9,629) (37)
Asset fee @ 1.10% rate ..................... (9) -- (7) --
Asset fee @ 1.15% rate ..................... -- -- (4) --
Asset fee @ 1.20% rate ..................... -- -- (35) --
Asset fee @ 1.25% rate ..................... -- -- (2) --
Asset fee @ 1.30% rate ..................... -- -- -- --
Asset fee @ 1.35% rate ..................... -- -- -- --
------------- ------------- ------------- -------------
Net investment activity ...................... 1,383 414 (139,281) (13)
------------- ------------- ------------- -------------
Proceeds from mutual fund shares sold ......... 1,063,903 -- 2,135,282 --
Cost of mutual fund shares sold ............... (1,093,420) -- (2,330,458) --
------------- ------------- ------------- -------------
Realized gain (loss) on investments .......... (29,517) -- (195,176) --
Change in unrealized gain (loss) on investments 397,911 5,439 (40,635) 4,678
------------- ------------- ------------- -------------
Net gain (loss) on investments ............... 368,394 5,439 (235,811) 4,678
------------- ------------- ------------- -------------
Reinvested capital gains ...................... -- -- -- 4,611
------------- ------------- ------------- -------------
Net increase (decrease) in contract owners'
equity resulting from operations ......... 369,777 5,853 (375,092) 9,276
------------- ------------- ------------- -------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners .............................. 6,187,234 205,427 24,448,985 1,082,589
Transfers between funds ....................... 558,871 20,348 5,269,520 65,401
Redemptions ................................... (98,756) (2,559) (761,878) --
Contingent deferred sales charges (note 2) .... (2,133) -- (10,195) --
Adjustments to maintain reserves .............. 6 (7) 49 (112)
------------- ------------- ------------- -------------
Net equity transactions .................... 6,645,222 223,209 28,946,481 1,147,878
------------- ------------- ------------- -------------
NET CHANGE IN CONTRACT OWNERS' EQUITY .......... 7,014,999 229,062 28,571,389 1,157,154
Contract owners' equity beginning of period .... 229,062 -- 1,157,154 --
------------- ------------- ------------- -------------
Contract owners' equity end of period .......... 7,244,061 229,062 29,728,543 1,157,154
============= ============= ============= =============
</TABLE>
(Continued)
<PAGE> 10
NATIONWIDE VARIABLE ACCOUNT - 9
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
Year Ended December 31, 1998 and For the Period November 3, 1997
(commencement of operations) Through December 31, 1997
<TABLE>
<CAPTION>
NSATSmCo NSATStrGro
---------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .......................... $ -- -- -- 301
Mortality and expense risk charges (note 2):
Asset fee @ 0.95% rate ..................... (117,084) (473) (27,226) (83)
Asset fee @ 1.00% rate ..................... (81,828) (380) (13,699) (44)
Asset fee @ 1.05% rate ..................... (15,866) (83) (3,029) (23)
Asset fee @ 1.10% rate ..................... (7) -- (12) --
Asset fee @ 1.15% rate ..................... -- -- -- --
Asset fee @ 1.20% rate ..................... -- -- -- --
Asset fee @ 1.25% rate ..................... -- -- -- --
Asset fee @ 1.30% rate ..................... -- -- (1) --
Asset fee @ 1.35% rate ..................... -- -- -- --
------------ ------------ ------------ ------------
Net investment activity ...................... (214,785) (936) (43,967) 151
------------ ------------ ------------ ------------
Proceeds from mutual fund shares sold ......... 1,735,242 -- 487,613 1
Cost of mutual fund shares sold ............... (1,907,541) -- (466,818) (1)
------------ ------------ ------------ ------------
Realized gain (loss) on investments .......... (172,299) -- 20,795 --
Change in unrealized gain (loss) on investments 424,838 (20,889) 809,463 8,439
------------ ------------ ------------ ------------
Net gain (loss) on investments ............... 252,539 (20,889) 830,258 8,439
------------ ------------ ------------ ------------
Reinvested capital gains ...................... -- 39,296 -- --
------------ ------------ ------------ ------------
Net increase (decrease) in contract owners'
equity resulting from operations ......... 37,754 17,471 786,291 8,590
------------ ------------ ------------ ------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners .............................. 35,742,935 1,396,707 7,304,155 310,341
Transfers between funds ....................... 6,599,455 144,223 441,689 7,111
Redemptions ................................... (919,776) (19) (118,200) --
Contingent deferred sales charges (note 2) .... (7,264) -- (2,477) --
Adjustments to maintain reserves .............. 6 (67) (24) --
------------ ------------ ------------ ------------
Net equity transactions .................... 41,415,356 1,540,844 7,625,143 317,452
------------ ------------ ------------ ------------
NET CHANGE IN CONTRACT OWNERS' EQUITY .......... 41,453,110 1,558,315 8,411,434 326,042
Contract owners' equity beginning of period .... 1,558,315 -- 326,042 --
------------ ------------ ------------ ------------
Contract owners' equity end of period .......... $ 43,011,425 1,558,315 8,737,476 326,042
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
NSATStrVal NSATTotRe
---------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .......................... 63,791 542 1,708,752 15,396
Mortality and expense risk charges (note 2):
Asset fee @ 0.95% rate ..................... (41,771) (125) (790,615) (2,108)
Asset fee @ 1.00% rate ..................... (23,731) (66) (504,264) (945)
Asset fee @ 1.05% rate ..................... (7,171) (31) (88,737) (369)
Asset fee @ 1.10% rate ..................... (1) -- (65) --
Asset fee @ 1.15% rate ..................... -- -- (29) --
Asset fee @ 1.20% rate ..................... (9) -- (28) --
Asset fee @ 1.25% rate ..................... -- -- (9) --
Asset fee @ 1.30% rate ..................... -- -- (8) --
Asset fee @ 1.35% rate ..................... -- -- (4) --
------------ ------------ ------------ ------------
Net investment activity ...................... (8,892) 320 324,993 11,974
------------ ------------ ------------ ------------
Proceeds from mutual fund shares sold ......... 1,450,301 -- 467,344 --
Cost of mutual fund shares sold ............... (1,513,062) -- (439,529) --
------------ ------------ ------------ ------------
Realized gain (loss) on investments .......... (62,761) -- 27,815 --
Change in unrealized gain (loss) on investments (125,831) 4,042 4,936,630 (80,013)
------------ ------------ ------------ ------------
Net gain (loss) on investments ............... (188,592) 4,042 4,964,445 (80,013)
------------ ------------ ------------ ------------
Reinvested capital gains ...................... -- -- 11,040,291 175,028
------------ ------------ ------------ ------------
Net increase (decrease) in contract owners'
equity resulting from operations ......... (197,484) 4,362 16,329,729 106,989
------------ ------------ ------------ ------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners .............................. 12,996,713 364,129 262,212,521 5,708,934
Transfers between funds ....................... 616,493 114,972 8,063,395 247,938
Redemptions ................................... (291,210) -- (6,698,439) (5,049)
Contingent deferred sales charges (note 2) .... (1,123) -- (83,262) --
Adjustments to maintain reserves .............. (115) -- (796) (666)
------------ ------------ ------------ ------------
Net equity transactions .................... 13,320,758 479,101 263,493,419 5,951,157
------------ ------------ ------------ ------------
NET CHANGE IN CONTRACT OWNERS' EQUITY .......... 13,123,274 483,463 279,823,148 6,058,146
Contract owners' equity beginning of period .... 483,463 -- 6,058,146 --
------------ ------------ ------------ ------------
Contract owners' equity end of period .......... 13,606,737 483,463 285,881,294 6,058,146
============ ============ ============ ============
</TABLE>
<PAGE> 11
NATIONWIDE VARIABLE ACCOUNT - 9
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
Year Ended December 31, 1998 and For the Period November 3, 1997
(commencement of operations) Through December 31, 1997
<TABLE>
<CAPTION>
NBAMTGuard NBAMTMCGr
---------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .......................... $ 1,976 -- 2,804 --
Mortality and expense risk charges (note 2):
Asset fee @ 0.95% rate ..................... (72,339) (110) (60,842) (183)
Asset fee @ 1.00% rate ..................... (65,593) (158) (55,230) (427)
Asset fee @ 1.05% rate ..................... (12,071) (54) (11,986) (92)
Asset fee @ 1.10% rate ..................... (10) -- (1) --
Asset fee @ 1.15% rate ..................... -- -- -- --
Asset fee @ 1.20% rate ..................... -- -- (4) --
Asset fee @ 1.25% rate ..................... -- -- -- --
Asset fee @ 1.30% rate ..................... -- -- -- --
Asset fee @ 1.35% rate ..................... -- -- -- --
------------ ------------ ------------ ------------
Net investment activity ...................... (148,037) (322) (125,259) (702)
------------ ------------ ------------ ------------
Proceeds from mutual fund shares sold ......... 3,798,426 34 2,635,124 2
Cost of mutual fund shares sold ............... (3,492,087) (32) (2,223,804) (2)
------------ ------------ ------------ ------------
Realized gain (loss) on investments .......... 306,339 2 411,320 --
Change in unrealized gain (loss) on investments 594,984 11,793 4,390,487 73,651
------------ ------------ ------------ ------------
Net gain (loss) on investments ............... 901,323 11,795 4,801,807 73,651
------------ ------------ ------------ ------------
Reinvested capital gains ...................... -- -- 19,626 --
------------ ------------ ------------ ------------
Net increase (decrease) in contract owners'
equity resulting from operations ......... 753,286 11,473 4,696,174 72,949
------------ ------------ ------------ ------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners .............................. 24,467,744 399,649 18,933,486 1,023,027
Transfers between funds ....................... 7,388,132 51,821 3,753,367 488,359
Redemptions ................................... (704,350) -- (610,060) (3,016)
Contingent deferred sales charges (note 2) .... (8,663) -- (5,247) --
Adjustments to maintain reserves .............. (16) (876) 10,095 3
------------ ------------ ------------ ------------
Net equity transactions .................... 31,142,847 450,594 22,081,641 1,508,373
------------ ------------ ------------ ------------
NET CHANGE IN CONTRACT OWNERS' EQUITY .......... 31,896,133 462,067 26,777,815 1,581,322
Contract owners' equity beginning of period .... 462,067 -- 1,581,322 --
------------ ------------ ------------ ------------
Contract owners' equity end of period .......... $ 32,358,200 462,067 28,359,137 1,581,322
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
NBAMTPart OppAggGro
---------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .......................... 110,164 -- 9,456 --
Mortality and expense risk charges (note 2):
Asset fee @ 0.95% rate ..................... (403,079) (5,247) (66,368) (275)
Asset fee @ 1.00% rate ..................... (264,681) (1,929) (43,278) (120)
Asset fee @ 1.05% rate ..................... (43,176) (298) (9,592) (83)
Asset fee @ 1.10% rate ..................... (16) -- (7) --
Asset fee @ 1.15% rate ..................... (3) -- (2) --
Asset fee @ 1.20% rate ..................... (17) -- (26) --
Asset fee @ 1.25% rate ..................... (3) -- (5) --
Asset fee @ 1.30% rate ..................... -- -- (4) --
Asset fee @ 1.35% rate ..................... -- -- -- --
------------ ------------ ------------ ------------
Net investment activity ...................... (600,811) (7,474) (109,826) (478)
------------ ------------ ------------ ------------
Proceeds from mutual fund shares sold ......... 11,129,126 8,557 1,420,396 1,564
Cost of mutual fund shares sold ............... (12,460,209) (8,600) (1,460,125) (1,616)
------------ ------------ ------------ ------------
Realized gain (loss) on investments .......... (1,331,083) (43) (39,729) (52)
Change in unrealized gain (loss) on investments (3,000,603) 76,648 1,711,620 5,023
------------ ------------ ------------ ------------
Net gain (loss) on investments ............... (4,331,686) 76,605 1,671,891 4,971
------------ ------------ ------------ ------------
Reinvested capital gains ...................... 3,470,168 -- 97,107 --
------------ ------------ ------------ ------------
Net increase (decrease) in contract owners'
equity resulting from operations ......... (1,462,329) 69,131 1,659,172 4,493
------------ ------------ ------------ ------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners .............................. 107,647,557 12,820,732 21,395,189 690,779
Transfers between funds ....................... (8,050,973) 483,875 4,014,156 25,316
Redemptions ................................... (2,536,518) (12,173) (398,429) (192)
Contingent deferred sales charges (note 2) .... (22,496) -- (3,886) --
Adjustments to maintain reserves .............. (1,292) 21 66 45
------------ ------------ ------------ ------------
Net equity transactions .................... 97,036,278 13,292,455 25,007,096 715,948
------------ ------------ ------------ ------------
NET CHANGE IN CONTRACT OWNERS' EQUITY .......... 95,573,949 13,361,586 26,666,268 720,441
Contract owners' equity beginning of period .... 13,361,586 -- 720,441 --
------------ ------------ ------------ ------------
Contract owners' equity end of period .......... 108,935,535 13,361,586 27,386,709 720,441
============ ============ ============ ============
</TABLE>
(Continued)
<PAGE> 12
NATIONWIDE VARIABLE ACCOUNT - 9
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
Year Ended December 31, 1998 and For the Period November 3, 1997
(commencement of operations) Through December 31, 1997
<TABLE>
<CAPTION>
OppGro OppGrInc
---------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .......................... $ 37,971 -- 15,499 1,975
Mortality and expense risk charges (note 2):
Asset fee @ 0.95% rate ..................... (97,646) (182) (118,139) (341)
Asset fee @ 1.00% rate ..................... (61,251) (193) (87,278) (204)
Asset fee @ 1.05% rate ..................... (15,113) (94) (21,510) (129)
Asset fee @ 1.10% rate ..................... (5) -- (18) --
Asset fee @ 1.15% rate ..................... (2) -- (5) --
Asset fee @ 1.20% rate ..................... (6) -- (26) --
Asset fee @ 1.25% rate ..................... (6) -- -- --
Asset fee @ 1.30% rate ..................... (1) -- (4) --
Asset fee @ 1.35% rate ..................... -- -- -- --
------------ ------------ ------------ ------------
Net investment activity ...................... (136,059) (469) (211,481) 1,301
------------ ------------ ------------ ------------
Proceeds from mutual fund shares sold ......... 597,638 -- 1,051,542 8
Cost of mutual fund shares sold ............... (673,390) -- (1,137,377) (8)
------------ ------------ ------------ ------------
Realized gain (loss) on investments .......... (75,752) -- (85,835) --
Change in unrealized gain (loss) on investments 4,326,733 9,743 (156,268) 25,274
------------ ------------ ------------ ------------
Net gain (loss) on investments ............... 4,250,981 9,743 (242,103) 25,274
------------ ------------ ------------ ------------
Reinvested capital gains ...................... 458,139 -- 341,298 --
------------ ------------ ------------ ------------
Net increase (decrease) in contract owners'
equity resulting from operations ......... 4,573,061 9,274 (112,286) 26,575
------------ ------------ ------------ ------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners .............................. 34,076,956 933,456 47,098,256 953,722
Transfers between funds ....................... 2,552,479 7,668 4,855,602 104,635
Redemptions ................................... (796,810) (27) (1,267,689) (199)
Contingent deferred sales charges (note 2) .... (15,293) -- (14,711) --
Adjustments to maintain reserves .............. (7) (138) 6 (358)
------------ ------------ ------------ ------------
Net equity transactions .................... 35,817,325 940,959 50,671,464 1,057,800
------------ ------------ ------------ ------------
NET CHANGE IN CONTRACT OWNERS' EQUITY .......... 40,390,386 950,233 50,559,178 1,084,375
Contract owners' equity beginning of period .... 950,233 -- 1,084,375 --
------------ ------------ ------------ ------------
Contract owners' equity end of period .......... $ 41,340,619 950,233 51,643,553 1,084,375
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
VEWrldEMkt VEWrldHAs
---------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .......................... 10,120 -- 2,513 --
Mortality and expense risk charges (note 2):
Asset fee @ 0.95% rate ..................... (15,766) (204) (8,058) (79)
Asset fee @ 1.00% rate ..................... (11,953) (380) (3,644) (15)
Asset fee @ 1.05% rate ..................... (2,830) (6) (1,503) (17)
Asset fee @ 1.10% rate ..................... -- -- (5) --
Asset fee @ 1.15% rate ..................... -- -- -- --
Asset fee @ 1.20% rate ..................... (14) -- -- --
Asset fee @ 1.25% rate ..................... -- -- -- --
Asset fee @ 1.30% rate ..................... -- -- -- --
Asset fee @ 1.35% rate ..................... -- -- -- --
------------ ------------ ------------ ------------
Net investment activity ...................... (20,443) (590) (10,697) (111)
------------ ------------ ------------ ------------
Proceeds from mutual fund shares sold ......... 1,437,687 505,309 1,320,656 --
Cost of mutual fund shares sold ............... (1,801,946) (492,562) (1,839,705) --
------------ ------------ ------------ ------------
Realized gain (loss) on investments .......... (364,259) 12,747 (519,049) --
Change in unrealized gain (loss) on investments (898,926) 4,143 (85,920) 3,319
------------ ------------ ------------ ------------
Net gain (loss) on investments ............... (1,263,185) 16,890 (604,969) 3,319
------------ ------------ ------------ ------------
Reinvested capital gains ...................... 8,995 -- 61,720 --
------------ ------------ ------------ ------------
Net increase (decrease) in contract owners'
equity resulting from operations ......... (1,274,633) 16,300 (553,946) 3,208
------------ ------------ ------------ ------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners .............................. 5,631,777 1,193,031 2,371,551 178,412
Transfers between funds ....................... (119,473) (549,841) 111,448 38,553
Redemptions ................................... (159,609) (1,956) (100,995) --
Contingent deferred sales charges (note 2) .... (976) -- (454) --
Adjustments to maintain reserves .............. 120 2 (228) 6
------------ ------------ ------------ ------------
Net equity transactions .................... 5,351,839 641,236 2,381,322 216,971
------------ ------------ ------------ ------------
NET CHANGE IN CONTRACT OWNERS' EQUITY .......... 4,077,206 657,536 1,827,376 220,179
Contract owners' equity beginning of period .... 657,536 -- 220,179 --
------------ ------------ ------------ ------------
Contract owners' equity end of period .......... 4,734,742 657,536 2,047,555 220,179
============ ============ ============ ============
</TABLE>
<PAGE> 13
NATIONWIDE VARIABLE ACCOUNT - 9
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
Year Ended December 31, 1998 and For the Period November 3, 1997
(commencement of operations) Through December 31, 1997
<TABLE>
<CAPTION>
VKMSRESec WPGrinc
---------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .......................... $ 10,631 19,701 108,063 1,508
Mortality and expense risk charges (note 2):
Asset fee @ 0.95% rate ..................... (67,026) (302) (39,367) (61)
Asset fee @ 1.00% rate ..................... (39,789) (166) (19,708) (130)
Asset fee @ 1.05% rate ..................... (7,635) (77) (6,454) (28)
Asset fee @ 1.10% rate ..................... (8) -- (2) --
Asset fee @ 1.15% rate ..................... (2) -- -- --
Asset fee @ 1.20% rate ..................... (26) -- -- --
Asset fee @ 1.25% rate ..................... -- -- (6) --
Asset fee @ 1.30% rate ..................... -- -- -- --
Asset fee @ 1.35% rate ..................... -- -- -- --
------------ ------------ ------------ ------------
Net investment activity ...................... (103,855) 19,156 42,526 1,289
------------ ------------ ------------ ------------
Proceeds from mutual fund shares sold ......... 1,342,798 -- 492,211 --
Cost of mutual fund shares sold ............... (1,619,581) -- (462,324) --
------------ ------------ ------------ ------------
Realized gain (loss) on investments .......... (276,783) -- 29,887 --
Change in unrealized gain (loss) on investments (1,172,272) (60,104) 416,403 6,055
------------ ------------ ------------ ------------
Net gain (loss) on investments ............... (1,449,055) (60,104) 446,290 6,055
------------ ------------ ------------ ------------
Reinvested capital gains ...................... 104,608 66,235 -- --
------------ ------------ ------------ ------------
Net increase (decrease) in contract owners'
equity resulting from operations ......... (1,448,302) 25,287 488,816 7,344
------------ ------------ ------------ ------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners .............................. 17,955,980 917,137 11,279,862 402,032
Transfers between funds ....................... 861,422 117,890 1,072,048 25,646
Redemptions ................................... (416,792) -- (178,134) --
Contingent deferred sales charges (note 2) .... (1,112) -- (1,134) --
Adjustments to maintain reserves .............. (276) (46) (786) (2)
------------ ------------ ------------ ------------
Net equity transactions .................... 18,399,222 1,034,981 12,171,856 427,676
------------ ------------ ------------ ------------
NET CHANGE IN CONTRACT OWNERS' EQUITY .......... 16,950,920 1,060,268 12,660,672 435,020
Contract owners' equity beginning of period .... 1,060,268 -- 435,020 --
------------ ------------ ------------ ------------
Contract owners' equity end of period .......... $ 18,011,188 1,060,268 13,095,692 435,020
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
WPIntEq WPPVenCap
---------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .......................... 82,563 4,961 -- 16
Mortality and expense risk charges (note 2):
Asset fee @ 0.95% rate ..................... (53,651) (325) (17,995) (108)
Asset fee @ 1.00% rate ..................... (28,614) (112) (9,221) (177)
Asset fee @ 1.05% rate ..................... (7,209) (32) (3,019) (5)
Asset fee @ 1.10% rate ..................... -- -- -- --
Asset fee @ 1.15% rate ..................... -- -- -- --
Asset fee @ 1.20% rate ..................... -- -- -- --
Asset fee @ 1.25% rate ..................... -- -- (6) --
Asset fee @ 1.30% rate ..................... -- -- -- --
Asset fee @ 1.35% rate ..................... -- -- -- --
------------ ------------ ------------ ------------
Net investment activity ...................... (6,911) 4,492 (30,241) (274)
------------ ------------ ------------ ------------
Proceeds from mutual fund shares sold ......... 2,101,509 5,961 1,184,605 447,873
Cost of mutual fund shares sold ............... (2,099,792) (6,534) (1,319,705) (460,704)
------------ ------------ ------------ ------------
Realized gain (loss) on investments .......... 1,717 (573) (135,100) (12,831)
Change in unrealized gain (loss) on investments (655,153) (43,991) 268,939 2,023
------------ ------------ ------------ ------------
Net gain (loss) on investments ............... (653,436) (44,564) 133,839 (10,808)
------------ ------------ ------------ ------------
Reinvested capital gains ...................... -- 34,331 -- --
------------ ------------ ------------ ------------
Net increase (decrease) in contract owners'
equity resulting from operations ......... (660,347) (5,741) 103,598 (11,082)
------------ ------------ ------------ ------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners .............................. 14,240,840 838,600 5,338,928 584,670
Transfers between funds ....................... 1,644,029 (19,613) 1,058,670 (427,813)
Redemptions ................................... (211,060) -- (134,332) (3,302)
Contingent deferred sales charges (note 2) .... (2,448) -- (810) --
Adjustments to maintain reserves .............. (112) 11 15 --
------------ ------------ ------------ ------------
Net equity transactions .................... 15,671,249 818,998 6,262,471 153,555
------------ ------------ ------------ ------------
NET CHANGE IN CONTRACT OWNERS' EQUITY .......... 15,010,902 813,257 6,366,069 142,473
Contract owners' equity beginning of period .... 813,257 -- 142,473 --
------------ ------------ ------------ ------------
Contract owners' equity end of period .......... 15,824,159 813,257 6,508,542 142,473
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 14
NATIONWIDE VARIABLE ACCOUNT-9
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Nature of Operations
The Nationwide Variable Account-9 (the Account) was established
pursuant to a resolution of the Board of Directors of Nationwide Life
Insurance Company (the Company) on May 22, 1997. The Account has been
registered as a unit investment trust under the Investment Company Act
of 1940.
The Company offers tax qualified and non-tax qualified Modified Single
Premium Deferred Variable Annuity Contracts through the Account. The
primary distribution for the contracts is through the brokerage
community; however, other distributors are utilized.
(b) The Contracts
Only contracts without a front-end sales charge, but with a contingent
deferred sales charge and certain other fees are offered for purchase.
See note 2 for a discussion of contract expenses.
With certain exceptions, contract owners in either the accumulation or
the payout phase may invest in the following:
Portfolios of the American Century Variable Portfolios, Inc.
(American Century VP);
American Century VP - American Century VP Income & Growth
(ACVPIncGr)
American Century VP - American Century VP International
(ACVPInt)
American Century VP - American Century VP Value (ACVPValue)
The Dreyfus Socially Responsible Growth Fund, Inc. (DrySRGro)
Dreyfus Stock Index Fund (DryStkIx)
Portfolio of the Dreyfus Variable Investment Fund (Dreyfus VIF);
Dreyfus VIF - Capital Appreciation Portfolio (DryCapAp)
Portfolios of the Fidelity Variable Insurance Products Fund
(Fidelity VIPS);
Fidelity VIP - Equity-Income Portfolio - Service Class
(FidVIPEIS)
Fidelity VIP - Growth Portfolio - Service Class (FidVIPGrS)
Fidelity VIP - High Income Portfolio - Service Class
(FidVIPHIS)
Fidelity VIP - Overseas Portfolio - Service Class (FidVIPOvS)
Portfolio of the Fidelity Variable Insurance Products Fund II
(Fidelity VIP-II);
Fidelity VIP-II - Contrafund Portfolio - Service Class
(FidVIPConS)
Portfolio of the Fidelity Variable Insurance Products Fund III
(Fidelity VIP-III);
Fidelity VIP-III - Growth Opportunities Portfolio - Service
Class (FidVIPGrOpS)
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 - Balanced Fund (NSATBal)
Nationwide SAT - Capital Appreciation Fund (NSATCapAp)
Nationwide SAT - Equity Income Fund (NSATEqInc)
Nationwide SAT - Global Equity Fund (NSATGlobEq)
Nationwide SAT - Government Bond Fund (NSATGvtBd)
Nationwide SAT - High Income Bond Fund (NSATHIncBd)
Nationwide SAT - Money Market Fund (NSATMyMkt)
Nationwide SAT - Multi Sector Bond Fund (NSATMSecBd)
Nationwide SAT - Select Advisers Mid Cap Fund (NSATMidCap)
<PAGE> 15
Nationwide SAT - Small Cap Value Fund (NSATSmCapV)
Nationwide SAT - Small Company Fund (NSATSmCo)
Nationwide SAT - Strategic Growth Fund (NSATStrGro)
Nationwide SAT - Strategic Value Fund (NSATStrVal)
Nationwide SAT - Total Return Fund (NSATTotRe)
Portfolios of the Neuberger & Berman Advisers Management Trust
(Neuberger &Berman AMT);
Neuberger & Berman AMT - Guardian Portfolio (NBAMTGuard)
Neuberger & Berman AMT - Mid-Cap Growth Portfolio (NBAMTMCGr)
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 - Growth Fund (OppGro)
Oppenheimer VAF - Growth & Income Fund (OppGrInc)
Funds of the Van Eck Worldwide Insurance Trust (Van Eck WIT);
Van Eck WIT - Worldwide Emerging Markets Fund (VEWrldEMkt)
Van Eck WIT - Worldwide Hard Assets Fund (VEWrldHAs)
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)
Portfolios of the Warburg Pincus Trust;
Warburg Pincus Trust - Growth & Income Portfolio (WPGrInc)
Warburg Pincus Trust - International Equity Portfolio (WPIntEq)
Warburg Pincus Trust - Post Venture Capital Portfolio
(WPPVenCap)
At December 31, 1998, contract owners have invested in all of the above
funds. The contract owners' equity is affected by the investment
results of each fund, equity transactions by contract owners and
certain contract expenses (see note 2).
The accompanying financial statements include only contract owners'
purchase payments pertaining to the variable portions of their
contracts and exclude any purchase payments for fixed dollar benefits,
the latter being included in the accounts of the Company.
A contract owner may choose from among a number of different underlying
mutual fund options. The underlying mutual fund options are not
available to the general public directly. The underlying mutual funds
are available as investment options in variable life insurance policies
or variable annuity contracts issued by life insurance companies or, in
some cases, through participation in certain qualified pension or
retirement plans.
Some of the underlying mutual funds have been established by investment
advisers which manage publicly traded mutual funds having similar names
and investment objectives. While some of the underlying mutual funds
may be similar to, and may in fact be modeled after, publicly traded
mutual funds, the underlying mutual funds are not otherwise directly
related to any publicly traded mutual fund. Consequently, the
investment performance of publicly traded mutual funds and any
corresponding underlying mutual funds may differ substantially.
(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. The cost of investments
sold is determined on the specific identification basis. Investment
transactions are accounted for on the trade date (date the order to buy
or sell is executed) and dividend income is recorded on 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 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.
<PAGE> 16
(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.
(2) EXPENSES
(a) Sales Charges
The Company does not deduct a sales charge from purchase payments
received from the contract owners. However, if any part of the contract
value of such contracts is surrendered the Company will, with certain
exceptions, deduct from a contract owner's contract value a contingent
deferred sales charge not to exceed 7% of the lesser of purchase
payments or the amount surrendered, such charge declining 1% per year,
to 0% after the purchase payment has been held in the contract for 84
months. On NEA Valuebuilder Select Roth IRA and BOA V Roth IRA
contracts, for an additional charge of 0.15% of the daily net assets,
such charge will decline to 0%, after the purchases payment has been
held in the contract for 60 months.
For all contracts, except BOA Exclusive II, which have elected a death
benefit option at the time of application, the following long term care
facility provisions also apply. Beginning at the third contract
anniversary, surrender charges on withdrawals will not apply if a
contract owner is diagnosed with a terminal illness or has been
confined to a long term care facility or hospital for a continuous 90
day period which has commenced any time after the date of issue.
No sales charges are deducted on BOA Exclusive II contracts and no
sales charges are deducted on redemptions used to purchase units in the
fixed investment options of the Company.
(b) Mortality and Expense Risk Charges
The Company deducts a mortality and expense risk charge assessed
through the daily unit value calculation. Refer to the following table
to determine the mortality and risk expense associated with each of the
products offered in the Account:
<TABLE>
<CAPTION>
ASSET FEE RATE
-----------------------------------------------------------------------
0.95% 1.00% 1.05% 1.10% 1.15% 1.20% 1.25% 1.30% 1.35%
----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BOA Future/NEA Valuebuilder Future ....... X
Optional long term care facility
with a stepped up death benefit ................ X
Optional long term care facility
with a 5% enhanced death benefit ........................ X
BOA V/NEA Valuebuilder Select ..................................... X
Optional long term care facility
with a stepped up death benefit ......................................... X
Optional long term care facility
with a 5% enhanced death benefit ................................................ X
BOA Choice/BOA Vision II .......................................................... X
Optional long term care facility
with a 5% enhanced death benefit ......................................................... X
BOA Exclusive II .................................................................. X
Optional long term care facility
with a stepped up death benefit .................................................................. X
Optional long term care facility
with a 5% enhanced death benefit ........................................................................ X
</TABLE>
<PAGE> 17
(3) RELATED PARTY TRANSACTIONS
The Company performs various services on behalf of the Mutual Fund
Companies in which the Account invests and may receive fees for the
services performed. These services include, among other things, shareholder
communications, preparation, postage, fund transfer agency and various
other record keeping and customer service functions. These fees are paid to
an affiliate of the Company.
<PAGE> 18
(4) COMPONENTS OF CONTRACT OWNERS' EQUITY
The following is a summary of contract owners' equity at December 31, 1998.
<TABLE>
<CAPTION>
ANNUAL
Contract owners' equity represented by: UNITS UNIT VALUE RETURN(b)
--------- ----------- ---------
<S> <C> <C> <C> <C>
Contracts in accumulation phase:
Asset fee @ 0.95% rate:
American Century VP -
American Century VP Income & Growth:
Tax qualified ........................................ 954,865 $13.081019 $12,490,607 26%
Non-tax qualified .................................... 1,156,159 13.081019 15,123,738 26%
American Century VP -
American Century VP International:
Tax qualified ........................................ 1,231,761 11.866841 14,617,112 18%
Non-tax qualified .................................... 1,439,143 11.866841 17,078,081 18%
American Century VP -
American Century VP Value:
Tax qualified ........................................ 628,798 10.689857 6,721,761 4%
Non-tax qualified .................................... 591,188 10.689857 6,319,715 4%
The Dreyfus Socially Responsible
Growth Fund, Inc.:
Tax qualified ........................................ 897,734 13.034607 11,701,610 28%
Non-tax qualified .................................... 729,174 13.034607 9,504,497 28%
Dreyfus Stock Index Fund:
Tax qualified ........................................ 6,530,360 13.135997 85,782,789 27%
Non-tax qualified .................................... 6,930,101 13.135997 91,033,786 27%
Dreyfus VIF -
Capital Appreciation Portfolio:
Tax qualified ........................................ 994,159 13.220513 13,143,292 29%
Non-tax qualified .................................... 1,635,130 13.220513 21,617,257 29%
Fidelity VIP - Equity-Income Portfolio -
Service Class:
Tax qualified ........................................ 4,652,014 11.422130 53,135,909 10%
Non-tax qualified .................................... 4,431,491 11.422130 50,617,066 10%
Fidelity VIP - Growth Portfolio -
Service Class:
Tax qualified ........................................ 2,225,770 13.848033 30,822,536 38%
Non-tax qualified .................................... 1,962,518 13.848033 27,177,014 38%
Fidelity VIP - High Income Portfolio -
Service Class:
Tax qualified ........................................ 3,021,525 9.586675 28,966,378 (5)%
Non-tax qualified .................................... 3,109,107 9.586675 29,805,998 (5)%
Fidelity VIP - Overseas Portfolio -
Service Class:
Tax qualified ........................................ 630,058 11.047878 6,960,804 12%
Non-tax qualified .................................... 759,889 11.047878 8,395,161 12%
Fidelity VIP-II - Contrafund Portfolio -
Service Class:
Tax qualified ........................................ 2,868,661 12.812355 36,754,303 29%
Non-tax qualified .................................... 2,993,987 12.812355 38,360,024 29%
</TABLE>
<PAGE> 19
<TABLE>
<S> <C> <C> <C> <C>
Fidelity VIP-III - Growth Opportunities
Portfolio - Service Class:
Tax qualified ....................... 2,015,088 12.826216 25,845,954 23%
Non-tax qualified ................... 2,029,092 12.826216 26,025,572 23%
Morgan Stanley -
Emerging Markets Debt Portfolio:
Tax qualified ....................... 148,936 7.395794 1,101,500 (29)%
Non-tax qualified ................... 152,995 7.395794 1,131,520 (29)%
Nationwide SAT - Balanced Fund:
Tax qualified ....................... 1,042,085 10.844036 11,300,407 7%
Non-tax qualified ................... 927,751 10.844036 10,060,565 7%
Nationwide SAT -
Capital Appreciation Fund:
Tax qualified ....................... 4,235,753 13.369463 56,629,743 29%
Non-tax qualified ................... 4,697,136 13.369463 62,798,186 29%
Nationwide SAT - Equity Income Fund:
Tax qualified ....................... 237,366 11.588459 2,750,706 14%
Non-tax qualified ................... 340,149 11.588459 3,941,803 14%
Nationwide SAT - Global Equity Fund:
Tax qualified ....................... 296,907 11.921445 3,539,560 18%
Non-tax qualified ................... 382,578 11.921445 4,560,883 18%
Nationwide SAT - Government Bond Fund:
Tax qualified ....................... 3,607,650 10.941842 39,474,336 8%
Non-tax qualified ................... 3,232,045 10.941842 35,364,526 8%
Nationwide SAT - High Income Bond Fund:
Tax qualified ....................... 656,370 10.701912 7,024,414 5%
Non-tax qualified ................... 709,535 10.701912 7,593,381 5%
Nationwide SAT - Money Market Fund:
Tax qualified ....................... 4,931,150 10.504509 51,799,310 4%
Non-tax qualified ................... 5,513,782 10.504509 57,919,573 4%
Nationwide SAT - Multi Sector Bond Fund:
Tax qualified ....................... 915,760 10.252876 9,389,174 2%
Non-tax qualified ................... 934,096 10.252876 9,577,170 2%
Nationwide SAT -
Select Advisers Mid Cap Fund:
Tax qualified ....................... 171,632 10.919701 1,874,170 10%
Non-tax qualified ................... 185,246 10.919701 2,022,831 10%
Nationwide SAT - Small Cap Value Fund:
Tax qualified ....................... 930,565 9.432351 8,777,416 (4)%
Non-tax qualified ................... 1,021,664 9.432351 9,636,693 (4)%
Nationwide SAT - Small Company Fund:
Tax qualified ....................... 1,269,546 9.617964 12,210,448 0%
Non-tax qualified ................... 1,253,383 9.617964 12,054,993 0%
Nationwide SAT - Strategic Growth Fund:
Tax qualified ....................... 265,377 11.582258 3,073,665 14%
Non-tax qualified ................... 223,704 11.582258 2,590,997 14%
Nationwide SAT - Strategic Value Fund:
Tax qualified ....................... 345,847 10.090240 3,489,679 (1)%
Non-tax qualified ................... 505,486 10.090240 5,100,475 (1)%
</TABLE>
(Continued)
<PAGE> 20
<TABLE>
<S> <C> <C> <C> <C>
Nationwide SAT - Total Return Fund:
Tax qualified .................. 8,225,066 11.979444 98,531,718 17%
Non-tax qualified .............. 5,639,031 11.979444 67,552,456 17%
Neuberger & Berman AMT -
Guardian Portfolio:
Tax qualified .................. 578,032 13.699229 7,918,593 30%
Non-tax qualified .............. 609,746 13.699229 8,353,050 30%
Neuberger & Berman AMT -
Mid-Cap Growth Portfolio:
Tax qualified .................. 436,579 16.144809 7,048,485 38%
Non-tax qualified .............. 449,661 16.144809 7,259,691 38%
Neuberger & Berman AMT -
Partners Portfolio:
Tax qualified .................. 3,020,772 10.458607 31,593,067 3%
Non-tax qualified .............. 2,842,880 10.458607 29,732,565 3%
Oppenheimer VAF -
Aggressive Growth Fund:
Tax qualified .................. 787,398 10.609896 8,354,211 11%
Non-tax qualified .............. 753,325 10.609896 7,992,700 11%
Oppenheimer VAF - Growth Fund:
Tax qualified .................. 916,203 12.070167 11,058,723 23%
Non-tax qualified .............. 1,094,091 12.070167 13,205,861 23%
Oppenheimer VAF -
Growth & Income Fund:
Tax qualified .................. 1,242,544 10.639805 13,220,426 4%
Non-tax qualified .............. 1,352,028 10.639805 14,385,314 4%
Van Eck WIT -
Worldwide Emerging Markets Fund:
Tax qualified .................. 217,873 5.751082 1,253,005 (35)%
Non-tax qualified .............. 279,325 5.751082 1,606,421 (35)%
Van Eck WIT -
Worldwide Hard Assets Fund:
Tax qualified .................. 82,690 6.139717 507,693 (32)%
Non-tax qualified .............. 115,681 6.139717 710,249 (32)%
Van Kampen American Capital LIT -
Morgan Stanley Real Estate
Securities Portfolio:
Tax qualified .................. 646,017 9.050353 5,846,682 (12)%
Non-tax qualified .............. 606,338 9.050353 5,487,573 (12)%
Warburg Pincus Trust -
Growth & Income Portfolio:
Tax qualified .................. 373,962 11.521372 4,308,555 11%
Non-tax qualified .............. 328,455 11.521372 3,784,252 11%
Warburg Pincus Trust -
International Equity Portfolio:
Tax qualified .................. 479,917 9.865775 4,734,753 4%
Non-tax qualified .............. 496,472 9.865775 4,898,081 4%
Warburg Pincus Trust -
Post Venture Capital Portfolio:
Tax qualified .................. 192,595 10.394476 2,001,924 5%
Non-tax qualified .............. 209,056 10.394476 2,173,028 5%
</TABLE>
<PAGE> 21
Asset fee @ 1.00% rate:
<TABLE>
<S> <C> <C> <C> <C>
American Century VP -
American Century VP Income & Growth:
Tax qualified ....................... 583,554 13.073386 7,629,027 26%
Non-tax qualified ................... 612,111 13.073386 8,002,363 26%
American Century VP -
American Century VP International:
Tax qualified ....................... 667,671 11.859906 7,918,515 18%
Non-tax qualified ................... 795,739 11.859906 9,437,390 18%
American Century VP -
American Century VP Value:
Tax qualified ....................... 355,592 10.683601 3,799,003 4%
Non-tax qualified ................... 298,758 10.683601 3,191,811 4%
The Dreyfus Socially Responsible
Growth Fund, Inc.:
Tax qualified ....................... 570,245 13.026995 7,428,579 28%
Non-tax qualified ................... 538,134 13.026995 7,010,269 28%
Dreyfus Stock Index Fund:
Tax qualified ....................... 4,403,681 13.128325 57,812,955 27%
Non-tax qualified ................... 4,086,832 13.128325 53,653,259 27%
Dreyfus VIF -
Capital Appreciation Portfolio:
Tax qualified ....................... 620,733 13.212796 8,201,618 29%
Non-tax qualified ................... 689,993 13.212796 9,116,737 29%
Fidelity VIP - Equity-Income Portfolio -
Service Class:
Tax qualified ....................... 3,163,281 11.415454 36,110,289 10%
Non-tax qualified ................... 3,558,258 11.415454 40,619,131 10%
Fidelity VIP - Growth Portfolio -
Service Class:
Tax qualified ....................... 1,633,140 13.839948 22,602,573 38%
Non-tax qualified ................... 1,450,527 13.839948 20,075,218 38%
Fidelity VIP - High Income Portfolio -
Service Class:
Tax qualified ....................... 1,716,342 9.581067 16,444,388 (5)%
Non-tax qualified ................... 1,953,504 9.581067 18,716,653 (5)%
Fidelity VIP - Overseas Portfolio -
Service Class:
Tax qualified ....................... 390,759 11.041416 4,314,533 12%
Non-tax qualified ................... 364,389 11.041416 4,023,371 12%
Fidelity VIP-II - Contrafund Portfolio -
Service Class:
Tax qualified ....................... 1,744,153 12.804877 22,333,665 29%
Non-tax qualified ................... 1,750,402 12.804877 22,413,682 29%
Fidelity VIP-III - Growth Opportunities
Portfolio - Service Class:
Tax qualified ....................... 1,566,691 12.818700 20,082,942 23%
Non-tax qualified ................... 1,701,741 12.818700 21,814,107 23%
</TABLE>
(Continued)
<PAGE> 22
<TABLE>
<S> <C> <C> <C> <C>
Morgan Stanley -
Emerging Markets Debt Portfolio:
Tax qualified ....................... 50,958 7.391460 376,654 (29)%
Non-tax qualified ................... 56,822 7.391460 419,998 (29)%
Nationwide SAT - Balanced Fund:
Tax qualified ....................... 724,101 10.837697 7,847,587 7%
Non-tax qualified ................... 641,839 10.837697 6,956,057 7%
Nationwide SAT -
Capital Appreciation Fund:
Tax qualified ....................... 2,719,427 13.361662 36,336,064 29%
Non-tax qualified ................... 2,067,286 13.361662 27,622,377 29%
Nationwide SAT - Equity Income Fund:
Tax qualified ....................... 182,603 11.581699 2,114,853 14%
Non-tax qualified ................... 263,284 11.581699 3,049,276 14%
Nationwide SAT - Global Equity Fund:
Tax qualified ....................... 209,682 11.914478 2,498,252 18%
Non-tax qualified ................... 265,967 11.914478 3,168,858 18%
Nationwide SAT - Government Bond Fund:
Tax qualified ....................... 2,389,465 10.935440 26,129,851 8%
Non-tax qualified ................... 2,162,208 10.935440 23,644,696 8%
Nationwide SAT - High Income Bond Fund:
Tax qualified ....................... 563,880 10.695657 6,031,067 5%
Non-tax qualified ................... 507,316 10.695657 5,426,078 5%
Nationwide SAT - Money Market Fund:
Tax qualified ....................... 3,146,947 10.498325 33,037,672 4%
Non-tax qualified ................... 2,859,923 10.498325 30,024,401 4%
Nationwide SAT - Multi Sector Bond Fund:
Tax qualified ....................... 628,805 10.246882 6,443,291 2%
Non-tax qualified ................... 548,001 10.246882 5,615,302 2%
Nationwide SAT -
Select Advisers Mid Cap Fund:
Tax qualified ....................... 124,451 10.913315 1,358,173 10%
Non-tax qualified ................... 125,175 10.913315 1,366,074 10%
Nationwide SAT - Small Cap Value Fund:
Tax qualified ....................... 502,680 9.426837 4,738,682 (4)%
Non-tax qualified ................... 467,220 9.426837 4,404,407 (4)%
Nationwide SAT - Small Company Fund:
Tax qualified ....................... 832,015 9.612340 7,997,611 0%
Non-tax qualified ................... 830,194 9.612340 7,980,107 0%
Nationwide SAT - Strategic Growth Fund:
Tax qualified ....................... 105,819 11.575478 1,224,906 13%
Non-tax qualified ................... 115,940 11.575478 1,342,061 13%
Nationwide SAT - Strategic Value Fund:
Tax qualified ....................... 134,335 10.084334 1,354,679 (1)%
Non-tax qualified ................... 239,315 10.084334 2,413,332 (1)%
Nationwide SAT - Total Return Fund:
Tax qualified ....................... 4,784,644 11.972436 57,283,844 17%
Non-tax qualified ................... 3,784,283 11.972436 45,307,086 17%
</TABLE>
<PAGE> 23
<TABLE>
<S> <C> <C> <C> <C>
Neuberger & Berman AMT -
Guardian Portfolio:
Tax qualified ................ 519,550 13.691238 7,113,283 30%
Non-tax qualified ............ 425,826 13.691238 5,830,085 30%
Neuberger & Berman AMT -
Mid-Cap Growth Portfolio:
Tax qualified ................ 347,143 16.135377 5,601,283 38%
Non-tax qualified ............ 372,662 16.135377 6,013,042 38%
Neuberger & Berman AMT -
Partners Portfolio:
Tax qualified ................ 1,949,091 10.452498 20,372,870 3%
Non-tax qualified ............ 1,997,553 10.452498 20,879,419 3%
Oppenheimer VAF -
Aggressive Growth Fund:
Tax qualified ................ 395,607 10.603692 4,194,895 11%
Non-tax qualified ............ 446,338 10.603692 4,732,831 11%
Oppenheimer VAF - Growth Fund:
Tax qualified ................ 587,304 12.063121 7,084,719 23%
Non-tax qualified ............ 591,561 12.063121 7,136,072 23%
Oppenheimer VAF -
Growth & Income Fund:
Tax qualified ................ 825,742 10.633592 8,780,604 4%
Non-tax qualified ............ 1,013,404 10.633592 10,776,125 4%
Van Eck WIT -
Worldwide Emerging Markets Fund:
Tax qualified ................ 141,469 5.747723 813,125 (35)%
Non-tax qualified ............ 104,323 5.747723 599,620 (35)%
Van Eck WIT -
Worldwide Hard Assets Fund:
Tax qualified ................ 69,784 6.136113 428,203 (32)%
Non-tax qualified ............ 36,296 6.136113 222,716 (32)%
Van Kampen American Capital LIT -
Morgan Stanley Real Estate
Securities Portfolio:
Tax qualified ................ 372,172 9.045055 3,366,316 (13)%
Non-tax qualified ............ 250,104 9.045055 2,262,204 (13)%
Warburg Pincus Trust -
Growth & Income Portfolio:
Tax qualified ................ 150,366 11.514627 1,731,408 11%
Non-tax qualified ............ 193,659 11.514627 2,229,911 11%
Warburg Pincus Trust -
International Equity Portfolio:
Tax qualified ................ 216,678 9.860001 2,136,445 4%
Non-tax qualified ............ 284,936 9.860001 2,809,469 4%
Warburg Pincus Trust -
Post Venture Capital Portfolio:
Tax qualified ................ 92,766 10.388404 963,691 5%
Non-tax qualified ............ 59,430 10.388404 617,383 5%
</TABLE>
(Continued)
<PAGE> 24
Asset fee @ 1.05% rate:
<TABLE>
<S> <C> <C> <C> <C>
American Century VP -
American Century VP Income & Growth:
Tax qualified ....................... 81,928 13.065728 1,070,449 26%
Non-tax qualified ................... 128,629 13.065728 1,680,632 26%
American Century VP -
American Century VP International:
Tax qualified ....................... 99,298 11.852979 1,176,977 18%
Non-tax qualified ................... 165,809 11.852979 1,965,331 18%
American Century VP -
American Century VP Value:
Tax qualified ....................... 77,126 10.677353 823,502 4%
Non-tax qualified ................... 72,329 10.677353 772,282 4%
The Dreyfus Socially Responsible
Growth Fund, Inc.:
Tax qualified ....................... 89,640 13.019372 1,167,057 28%
Non-tax qualified ................... 135,100 13.019372 1,758,917 28%
Dreyfus Stock Index Fund:
Tax qualified ....................... 783,466 13.120640 10,279,575 27%
Non-tax qualified ................... 913,818 13.120640 11,989,877 27%
Dreyfus VIF -
Capital Appreciation Portfolio:
Tax qualified ....................... 131,684 13.205079 1,738,898 29%
Non-tax qualified ................... 246,123 13.205079 3,250,074 29%
Fidelity VIP - Equity-Income Portfolio -
Service Class:
Tax qualified ....................... 524,588 11.408770 5,984,904 10%
Non-tax qualified ................... 864,765 11.408770 9,865,905 10%
Fidelity VIP - Growth Portfolio -
Service Class:
Tax qualified ....................... 253,263 13.831860 3,503,098 38%
Non-tax qualified ................... 343,224 13.831860 4,747,426 38%
Fidelity VIP - High Income Portfolio -
Service Class:
Tax qualified ....................... 376,294 9.575458 3,603,187 (5)%
Non-tax qualified ................... 598,620 9.575458 5,732,061 (5)%
Fidelity VIP - Overseas Portfolio -
Service Class:
Tax qualified ....................... 91,010 11.034969 1,004,293 11%
Non-tax qualified ................... 137,943 11.034969 1,522,197 11%
Fidelity VIP-II - Contrafund Portfolio -
Service Class:
Tax qualified ....................... 214,618 12.797393 2,746,551 29%
Non-tax qualified ................... 446,178 12.797393 5,709,915 29%
Fidelity VIP-III - Growth Opportunities
Portfolio - Service Class:
Tax qualified ....................... 231,845 12.811215 2,970,216 23%
Non-tax qualified ................... 295,189 12.811215 3,781,730 23%
</TABLE>
<PAGE> 25
<TABLE>
<S> <C> <C> <C> <C>
Morgan Stanley -
Emerging Markets Debt Portfolio:
Tax qualified ....................... 9,703 7.387124 71,677 (29)%
Non-tax qualified ................... 19,124 7.387124 141,271 (29)%
Nationwide SAT - Balanced Fund:
Tax qualified ....................... 123,286 10.831355 1,335,354 7%
Non-tax qualified ................... 149,449 10.831355 1,618,735 7%
Nationwide SAT -
Capital Appreciation Fund:
Tax qualified ....................... 391,203 13.353842 5,224,063 29%
Non-tax qualified ................... 499,622 13.353842 6,671,873 29%
Nationwide SAT - Equity Income Fund:
Tax qualified ....................... 32,573 11.574924 377,030 14%
Non-tax qualified ................... 46,558 11.574924 538,905 14%
Nationwide SAT - Global Equity Fund:
Tax qualified ....................... 52,138 11.907510 620,834 18%
Non-tax qualified ................... 52,521 11.907510 625,394 18%
Nationwide SAT - Government Bond Fund:
Tax qualified ....................... 425,444 10.929045 4,649,697 8%
Non-tax qualified ................... 578,467 10.929045 6,322,092 8%
Nationwide SAT - High Income Bond Fund:
Tax qualified ....................... 168,923 10.689393 1,805,684 5%
Non-tax qualified ................... 196,834 10.689393 2,104,036 5%
Nationwide SAT - Money Market Fund:
Tax qualified ....................... 773,874 10.492136 8,119,591 4%
Non-tax qualified ................... 932,153 10.492136 9,780,276 4%
Nationwide SAT - Multi Sector Bond Fund:
Tax qualified ....................... 180,699 10.240891 1,850,519 2%
Non-tax qualified ................... 200,225 10.240891 2,050,482 2%
Nationwide SAT -
Select Advisers Mid Cap Fund:
Tax qualified ....................... 20,280 10.906928 221,192 10%
Non-tax qualified ................... 35,289 10.906928 384,895 10%
Nationwide SAT - Small Cap Value Fund:
Tax qualified ....................... 73,139 9.421309 689,065 (4)%
Non-tax qualified ................... 149,068 9.421309 1,404,416 (4)%
Nationwide SAT - Small Company Fund:
Tax qualified ....................... 103,212 9.606706 991,527 0%
Non-tax qualified ................... 182,983 9.606706 1,757,864 0%
Nationwide SAT - Strategic Growth Fund:
Tax qualified ....................... 28,004 11.568711 323,970 13%
Non-tax qualified ................... 14,539 11.568711 168,197 13%
Nationwide SAT - Strategic Value Fund:
Tax qualified ....................... 36,418 10.078441 367,037 (1)%
Non-tax qualified ................... 85,804 10.078441 864,771 (1)%
Nationwide SAT - Total Return Fund:
Tax qualified ....................... 705,982 11.965436 8,447,382 17%
Non-tax qualified ................... 695,165 11.965436 8,317,952 17%
</TABLE>
(Continued)
<PAGE> 26
<TABLE>
<S> <C> <C> <C> <C>
Neuberger & Berman AMT -
Guardian Portfolio:
Tax qualified ................ 66,839 13.683246 914,574 30%
Non-tax qualified ............ 161,709 13.683246 2,212,704 30%
Neuberger & Berman AMT -
Mid-Cap Growth Portfolio:
Tax qualified ................ 41,741 16.125954 673,113 38%
Non-tax qualified ............ 107,495 16.125954 1,733,459 38%
Neuberger & Berman AMT -
Partners Portfolio:
Tax qualified ................ 269,744 10.446379 2,817,848 3%
Non-tax qualified ............ 330,876 10.446379 3,456,456 3%
Oppenheimer VAF -
Aggressive Growth Fund:
Tax qualified ................ 75,188 10.597477 796,803 11%
Non-tax qualified ............ 118,302 10.597477 1,253,703 11%
Oppenheimer VAF - Growth Fund:
Tax qualified ................ 110,392 12.056049 1,330,891 23%
Non-tax qualified ............ 122,036 12.056049 1,471,272 23%
Oppenheimer VAF -
Growth & Income Fund:
Tax qualified ................ 155,966 10.627355 1,657,506 4%
Non-tax qualified ............ 254,947 10.627355 2,709,412 4%
Van Eck WIT -
Worldwide Emerging Markets Fund:
Tax qualified ................ 31,317 5.744349 179,896 (35)%
Non-tax qualified ............ 46,981 5.744349 269,875 (35)%
Van Eck WIT -
Worldwide Hard Assets Fund:
Tax qualified ................ 10,468 6.132522 64,195 (32)%
Non-tax qualified ............ 17,880 6.132522 109,649 (32)%
Van Kampen American Capital LIT -
Morgan Stanley Real Estate
Securities Portfolio:
Tax qualified ................ 40,468 9.039759 365,821 (13)%
Non-tax qualified ............ 71,613 9.039759 647,364 (13)%
Warburg Pincus Trust -
Growth & Income Portfolio:
Tax qualified ................ 18,436 11.507907 212,160 11%
Non-tax qualified ............ 71,280 11.507907 820,284 11%
Warburg Pincus Trust -
International Equity Portfolio:
Tax qualified ................ 43,919 9.854235 432,788 4%
Non-tax qualified ............ 82,462 9.854235 812,600 4%
Warburg Pincus Trust -
Post Venture Capital Portfolio:
Tax qualified ................ 32,373 10.382320 336,107 5%
Non-tax qualified ............ 39,431 10.382320 409,385 5%
</TABLE>
<PAGE> 27
Asset fee @ 1.10% rate:
<TABLE>
<S> <C> <C> <C> <C>
American Century VP -
American Century VP Income & Growth:
Tax qualified ....................... 7,515 12.515499 94,054 25%(a)
Non-tax qualified ................... 411 12.515499 5,144 25%(a)
American Century VP -
American Century VP International:
Non-tax qualified ................... 1,791 12.062037 21,603 21%(a)
American Century VP -
American Century VP Value:
Tax qualified ....................... 360 11.279817 4,061 13%(a)
The Dreyfus Socially Responsible
Growth Fund, Inc.:
Tax qualified ....................... 10,035 12.784895 128,296 28%(a)
Non-tax qualified ................... 706 12.784895 9,026 28%(a)
Dreyfus Stock Index Fund:
Tax qualified ....................... 29,563 12.464249 368,481 25%(a)
Non-tax qualified ................... 1,760 12.464249 21,937 25%(a)
Dreyfus VIF -
Capital Appreciation Portfolio:
Tax qualified ....................... 19,433 12.389971 240,774 24%(a)
Non-tax qualified ................... 366 12.389971 4,535 24%(a)
Fidelity VIP - Equity-Income Portfolio -
Service Class:
Tax qualified ....................... 8,946 11.809798 105,650 18%(a)
Non-tax qualified ................... 384 11.809798 4,535 18%(a)
Fidelity VIP - Growth Portfolio -
Service Class:
Tax qualified ....................... 17,524 12.914475 226,313 29%(a)
Non-tax qualified ................... 382 12.914475 4,933 29%(a)
Fidelity VIP - High Income Portfolio -
Service Class:
Tax qualified ....................... 7,652 10.530579 80,580 5%(a)
Non-tax qualified ................... 71 10.530579 748 5%(a)
Fidelity VIP - Overseas Portfolio -
Service Class:
Tax qualified ....................... 171 12.187321 2,084 22%(a)
Fidelity VIP-II - Contrafund Portfolio -
Service Class:
Tax qualified ....................... 12,351 12.797152 158,058 28%(a)
Non-tax qualified ................... 54 12.797152 691 28%(a)
Fidelity VIP-III - Growth Opportunities
Portfolio - Service Class:
Tax qualified ....................... 3,636 12.309512 44,757 23%(a)
Non-tax qualified ................... 534 12.309512 6,573 23%(a)
Morgan Stanley -
Emerging Markets Debt Portfolio:
Tax qualified ....................... 18 11.395495 205 14%(a)
Nationwide SAT - Balanced Fund:
Tax qualified ....................... 2,359 10.677473 25,188 7%(a)
</TABLE>
(Continued)
<PAGE> 28
<TABLE>
<S> <C> <C> <C> <C>
Nationwide SAT -
Capital Appreciation Fund:
Tax qualified ....................... 12,023 12.439602 149,561 24%(a)
Non-tax qualified ................... 1,118 12.439602 13,907 24%(a)
Nationwide SAT - Equity Income Fund:
Tax qualified ....................... 17 11.846282 201 18%(a)
Nationwide SAT - Global Equity Fund:
Tax qualified ....................... 586 12.212250 7,156 22%(a)
Non-tax qualified ................... 86 12.212250 1,050 22%(a)
Nationwide SAT - Government Bond Fund:
Tax qualified ....................... 9,774 9.853072 96,304 (1)%(a)
Non-tax qualified ................... 345 9.853072 3,399 (1)%(a)
Nationwide SAT - High Income Bond Fund:
Tax qualified ....................... 85 10.339812 879 3%(a)
Nationwide SAT - Money Market Fund:
Tax qualified ....................... 9,288 10.095781 93,770 1%(a)
Nationwide SAT - Multi Sector Bond Fund:
Tax qualified ....................... 338 10.245831 3,463 2%(a)
Nationwide SAT -
Select Advisers Mid Cap Fund:
Tax qualified ....................... 1,248 12.253848 15,293 23%(a)
Non-tax qualified ................... 36 12.253848 441 23%(a)
Nationwide SAT - Small Cap Value Fund:
Tax qualified ....................... 1,427 12.964349 18,500 30%(a)
Nationwide SAT - Small Company Fund:
Tax qualified ....................... 1,394 12.123056 16,900 21%(a)
Non-tax qualified ................... 89 12.123056 1,079 21%(a)
Nationwide SAT - Strategic Growth Fund:
Tax qualified ....................... 896 12.668723 11,351 27%(a)
Nationwide SAT - Strategic Value Fund:
Tax qualified ....................... 184 13.028676 2,397 30%(a)
Nationwide SAT - Total Return Fund:
Tax qualified ....................... 24,285 11.993303 291,257 20%(a)
Non-tax qualified ................... 1,477 11.993303 17,714 20%(a)
Neuberger & Berman AMT -
Guardian Portfolio:
Tax qualified ....................... 1,095 12.887023 14,111 29%(a)
Neuberger & Berman AMT -
Mid-Cap Growth Portfolio:
Tax qualified ....................... 318 14.077949 4,477 41%(a)
Neuberger & Berman AMT -
Partners Portfolio:
Tax qualified ....................... 2,949 11.858021 34,969 19%(a)
Oppenheimer VAF -
Aggressive Growth Fund:
Tax qualified ....................... 1,583 13.191805 20,883 32%(a)
Oppenheimer VAF - Growth Fund:
Tax qualified ....................... 591 13.244991 7,828 32%(a)
Non-tax qualified ................... 199 13.244991 2,636 32%(a)
</TABLE>
<PAGE> 29
<TABLE>
<S> <C> <C> <C> <C>
Oppenheimer VAF -
Growth & Income Fund:
Tax qualified ....................... 4,829 12.340636 59,593 23%(a)
Non-tax qualified ................... 274 12.340636 3,381 23%(a)
Van Eck WIT -
Worldwide Emerging Markets Fund:
Tax qualified ....................... 18 12.634284 227 26%(a)
Van Eck WIT -
Worldwide Hard Assets Fund:
Tax qualified ....................... 489 9.918535 4,850 (1)%(a)
Van Kampen American Capital LIT -
Morgan Stanley Real Estate
Securities Portfolio:
Tax qualified ....................... 883 10.411332 9,193 4%(a)
Warburg Pincus Trust -
Growth & Income Portfolio:
Tax qualified ....................... 252 11.896081 2,998 19%(a)
Warburg Pincus Trust -
International Equity Portfolio:
Tax qualified ....................... 2 11.551939 23 16%(a)
Warburg Pincus Trust -
Post Venture Capital Portfolio:
Tax qualified ....................... 61 12.839012 783 28%(a)
Asset fee @ 1.15% rate:
American Century VP -
American Century VP Income & Growth:
Tax qualified ....................... 1,887 12.513926 23,614 25%(a)
Non-tax qualified ................... 1,522 12.513926 19,046 25%(a)
American Century VP -
American Century VP International:
Tax qualified ....................... 1,080 12.060517 13,025 21%(a)
Non-tax qualified ................... 698 12.060517 8,418 21%(a)
American Century VP -
American Century VP Value:
Tax qualified ....................... 9 11.278389 102 13%(a)
The Dreyfus Socially Responsible
Growth Fund, Inc.:
Tax qualified ....................... 2,027 12.783289 25,912 28%(a)
Non-tax qualified ................... 662 12.783289 8,463 28%(a)
Dreyfus Stock Index Fund:
Tax qualified ....................... 6,396 12.462691 79,711 25%(a)
Non-tax qualified ................... 964 12.462691 12,014 25%(a)
Dreyfus VIF -
Capital Appreciation Portfolio:
Tax qualified ....................... 2,784 12.388419 34,489 24%(a)
Non-tax qualified ................... 1,343 12.388419 16,638 24%(a)
Fidelity VIP - Equity-Income Portfolio -
Service Class:
Tax qualified ....................... 1,580 11.808307 18,657 18%(a)
Non-tax qualified ................... 324 11.808307 3,826 18%(a)
</TABLE>
(Continued)
<PAGE> 30
<TABLE>
<S> <C> <C> <C> <C>
Fidelity VIP - Growth Portfolio -
Service Class:
Tax qualified ....................... 667 12.912859 8,613 29%(a)
Non-tax qualified ................... 670 12.912859 8,652 29%(a)
Fidelity VIP - High Income Portfolio -
Service Class:
Tax qualified ....................... 852 10.529250 8,971 5%(a)
Non-tax qualified ................... 168 10.529250 1,769 5%(a)
Fidelity VIP - Overseas Portfolio -
Service Class:
Tax qualified ....................... 221 12.185792 2,693 22%(a)
Fidelity VIP-II - Contrafund Portfolio -
Service Class:
Tax qualified ....................... 1,632 12.795546 20,882 28%(a)
Non-tax qualified ................... 887 12.795546 11,350 28%(a)
Fidelity VIP-III - Growth Opportunities
Portfolio - Service Class:
Tax qualified ....................... 52 12.307964 640 23%(a)
Nationwide SAT - Balanced Fund:
Tax qualified ....................... 798 10.676123 8,520 7%(a)
Nationwide SAT -
Capital Appreciation Fund:
Tax qualified ....................... 2,994 12.438039 37,239 24%(a)
Non-tax qualified ................... 573 12.438039 7,127 24%(a)
Nationwide SAT - Equity Income Fund:
Tax qualified ....................... 58 11.844786 687 18%(a)
Nationwide SAT - Global Equity Fund:
Tax qualified ....................... 97 12.210713 1,184 22%(a)
Nationwide SAT - Government Bond Fund:
Tax qualified ....................... 2,196 9.851828 21,635 (1)%(a)
Non-tax qualified ................... 346 9.851828 3,409 (1)%(a)
Nationwide SAT - High Income Bond Fund:
Tax qualified ....................... 2 10.338506 21 3%(a)
Nationwide SAT - Money Market Fund:
Tax qualified ....................... 99 10.094495 999 1%(a)
Nationwide SAT - Multi Sector Bond Fund:
Tax qualified ....................... 367 10.244538 3,760 2%(a)
Nationwide SAT -
Select Advisers Mid Cap Fund:
Tax qualified ....................... 81 12.252304 992 23%(a)
Nationwide SAT - Small Cap Value Fund:
Tax qualified ....................... 757 12.962717 9,813 30%(a)
Nationwide SAT - Small Company Fund:
Tax qualified ....................... 67 12.121529 812 21%(a)
Nationwide SAT - Strategic Growth Fund:
Tax qualified ....................... 52 12.667131 659 27%(a)
Nationwide SAT - Strategic Value Fund:
Tax qualified ....................... 283 13.027042 3,687 30%(a)
</TABLE>
<PAGE> 31
<TABLE>
<S> <C> <C> <C> <C>
Nationwide SAT - Total Return Fund:
Tax qualified ................... 4,692 11.991803 56,266 20%(a)
Non-tax qualified ............... 645 11.991803 7,735 20%(a)
Neuberger & Berman AMT -
Guardian Portfolio:
Tax qualified ................... 110 12.885403 1,417 29%(a)
Non-tax qualified ............... 2 12.885403 26 29%(a)
Neuberger & Berman AMT -
Mid-Cap Growth Portfolio:
Tax qualified ................... 120 14.076184 1,689 41%(a)
Neuberger & Berman AMT -
Partners Portfolio:
Tax qualified ................... 392 11.856528 4,648 19%(a)
Non-tax qualified ............... 110 11.856528 1,304 19%(a)
Oppenheimer VAF -
Aggressive Growth Fund:
Tax qualified ................... 461 13.190143 6,081 32%(a)
Oppenheimer VAF - Growth Fund:
Tax qualified ................... 206 13.243332 2,728 32%(a)
Oppenheimer VAF -
Growth & Income Fund:
Tax qualified ................... 1,075 12.339083 13,265 23%(a)
Van Eck WIT -
Worldwide Emerging Markets Fund:
Tax qualified ................... 20 12.632701 253 26%(a)
Van Kampen American Capital LIT -
Morgan Stanley Real Estate
Securities Portfolio:
Tax qualified ................... 227 10.410018 2,363 4%(a)
Asset fee @ 1.20% rate:
American Century VP -
American Century VP Income & Growth:
Tax qualified ................... 1,366 12.431326 16,981 24%(a)
Non-tax qualified ............... 1,176 12.431326 14,619 24%(a)
American Century VP -
American Century VP International:
Non-tax qualified ............... 223 10.904652 2,432 9%(a)
American Century VP -
American Century VP Value:
Tax qualified ................... 3 11.497731 34 15%(a)
Non-tax qualified ............... 1,306 11.497731 15,016 15%(a)
The Dreyfus Socially Responsible
Growth Fund, Inc.:
Tax qualified ................... 925 12.758878 11,802 28%(a)
Non-tax qualified ............... 2,098 12.758878 26,768 28%(a)
Dreyfus Stock Index Fund:
Tax qualified ................... 3,618 12.367188 44,744 24%(a)
Non-tax qualified ............... 26,086 12.367188 322,610 24%(a)
</TABLE>
(Continued)
<PAGE> 32
<TABLE>
<S> <C> <C> <C> <C>
Dreyfus VIF --
Capital Appreciation Portfolio:
Tax qualified ....................... 390 12.207586 4,761 22%(a)
Non-tax qualified ................... 2,910 12.207586 35,524 22%(a)
Fidelity VIP - Equity-Income Portfolio -
Service Class:
Tax qualified ....................... 3,974 11.850451 47,094 19%(a)
Non-tax qualified ................... 776 11.850451 9,196 19%(a)
Fidelity VIP - Growth Portfolio -
Service Class:
Tax qualified ....................... 10,429 13.015101 135,734 30%(a)
Fidelity VIP - High Income Portfolio -
Service Class:
Tax qualified ....................... 991 10.384114 10,291 4%(a)
Non-tax qualified ................... 1,251 10.384114 12,991 4%(a)
Fidelity VIP - Overseas Portfolio -
Service Class:
Tax qualified ....................... 3,385 11.296846 38,240 13%(a)
Non-tax qualified ................... 811 11.296846 9,162 13%(a)
Fidelity VIP-II - Contrafund Portfolio -
Service Class:
Tax qualified ....................... 1,641 12.602507 20,681 26%(a)
Non-tax qualified ................... 10,719 12.602507 135,086 26%(a)
Fidelity VIP-III - Growth Opportunities
Portfolio - Service Class:
Tax qualified ....................... 1 12.421717 12 24%(a)
Non-tax qualified ................... 2,338 12.421717 29,042 24%(a)
Morgan Stanley -
Emerging Markets Debt Portfolio:
Non-tax qualified ................... 593 11.400149 6,760 14%(a)
Nationwide SAT - Balanced Fund:
Tax qualified ....................... 2 10.772545 22 8%(a)
Non-tax qualified ................... 842 10.772545 9,070 8%(a)
Nationwide SAT -
Capital Appreciation Fund:
Tax qualified ....................... 35 12.392954 434 24%(a)
Non-tax qualified ................... 2,724 12.392954 33,758 24%(a)
Nationwide SAT - Equity Income Fund:
Non-tax qualified ................... 1,552 11.927845 18,512 19%(a)
Nationwide SAT - Government Bond Fund:
Tax qualified ....................... 10 10.174058 102 2%(a)
Non-tax qualified ................... 1,172 10.174058 11,924 2%(a)
Nationwide SAT - High Income Bond Fund:
Tax qualified ....................... 19 10.558563 201 6%(a)
Non-tax qualified ................... 1,154 10.558563 12,185 6%(a)
Nationwide SAT - Money Market Fund:
Non-tax qualified ................... 48,756 10.126097 493,708 1%(a)
Nationwide SAT - Multi Sector Bond Fund:
Non-tax qualified ................... 1,706 10.475252 17,871 5%(a)
</TABLE>
<PAGE> 33
<TABLE>
<S> <C> <C> <C> <C>
Nationwide SAT - Small Cap Value Fund:
Tax qualified ..................... 1,749 12.586199 22,013 26%(a)
Non-tax qualified ................. 1,878 12.586199 23,637 26%(a)
Nationwide SAT - Small Company Fund:
Tax qualified ..................... 3 12.016781 36 20%(a)
Nationwide SAT - Strategic Value Fund:
Tax qualified ..................... 853 12.477330 10,643 25%(a)
Nationwide SAT - Total Return Fund:
Tax qualified ..................... 335 11.968910 4,010 20%(a)
Non-tax qualified ................. 2,349 11.968910 28,115 20%(a)
Neuberger & Berman AMT -
Guardian Portfolio:
Tax qualified ..................... 29 12.307946 357 23%(a)
Neuberger & Berman AMT -
Mid-Cap Growth Portfolio:
Non-tax qualified ................. 1,744 13.702754 23,898 37%(a)
Neuberger & Berman AMT -
Partners Portfolio:
Tax qualified ..................... 874 11.821068 10,332 18%(a)
Non-tax qualified ................. 1,913 11.821068 22,614 18%(a)
Oppenheimer VAF -
Aggressive Growth Fund:
Tax qualified ..................... 47 12.961315 609 30%(a)
Non-tax qualified ................. 1,383 12.961315 17,925 30%(a)
Oppenheimer VAF - Growth Fund:
Tax qualified ..................... 1 12.752843 13 28%(a)
Non-tax qualified ................. 2,543 12.752843 32,430 28%(a)
Oppenheimer VAF -
Growth & Income Fund:
Tax qualified ..................... 806 12.149185 9,792 21%(a)
Non-tax qualified ................. 1,940 12.149185 23,569 21%(a)
Van Eck WIT -
Worldwide Emerging Markets Fund:
Non-tax qualified ................. 1,018 12.101814 12,320 21%(a)
Van Kampen American Capital LIT -
Morgan Stanley Real Estate
Securities Portfolio:
Tax qualified ..................... 3 10.740684 32 7%(a)
Non-tax qualified ................. 2,201 10.740684 23,640 7%(a)
Warburg Pincus Trust -
Growth & Income Portfolio:
Tax qualified ..................... 25 11.688738 292 17%(a)
Warburg Pincus Trust -
Post Venture Capital Portfolio:
Tax qualified ..................... 3 12.739606 38 27%(a)
</TABLE>
(Continued)
<PAGE> 34
<TABLE>
<S> <C> <C> <C> <C>
Asset fee @ 1.25% rate:
American Century VP --
American Century VP Value:
Non-tax qualified ................... 322 11.495807 3,702 15%(a)
The Dreyfus Socially Responsible
Growth Fund, Inc.:
Tax qualified ....................... 1,342 12.756741 17,120 28%(a)
Dreyfus Stock Index Fund:
Tax qualified ....................... 1,241 12.365124 15,345 24%(a)
Non-tax qualified ................... 1,686 12.365124 20,848 24%(a)
Fidelity VIP - Equity-Income Portfolio -
Service Class:
Tax qualified ....................... 739 11.848469 8,756 18%(a)
Non-tax qualified ................... 1,549 11.848469 18,353 18%(a)
Fidelity VIP - Growth Portfolio -
Service Class:
Tax qualified ....................... 41 13.012933 534 30%(a)
Non-tax qualified ................... 1,201 13.012933 15,629 30%(a)
Morgan Stanley -
Emerging Markets Debt Portfolio:
Tax qualified ....................... 154 11.398245 1,755 14%(a)
Nationwide SAT -
Capital Appreciation Fund:
Tax qualified ....................... 203 12.390885 2,515 24%(a)
Nationwide SAT - Global Equity Fund:
Tax qualified ....................... 155 11.745400 1,821 17%(a)
Non-tax qualified ................... 143 11.745400 1,680 17%(a)
Nationwide SAT - Government Bond Fund:
Tax qualified ....................... 997 10.172348 10,142 2%(a)
Non-tax qualified ................... 598 10.172348 6,083 2%(a)
Nationwide SAT - High Income Bond Fund:
Non-tax qualified ................... 151 10.556787 1,594 6%(a)
Nationwide SAT - Multi Sector Bond Fund:
Non-tax qualified ................... 153 10.473496 1,602 5%(a)
Nationwide SAT - Small Cap Value Fund:
Non-tax qualified ................... 310 12.584102 3,901 26%(a)
Nationwide SAT - Total Return Fund:
Tax qualified ....................... 1,038 11.966903 12,422 20%(a)
Non-tax qualified ................... 137 11.966903 1,639 20%(a)
Neuberger & Berman AMT -
Partners Portfolio:
Tax qualified ....................... 7 11.819096 83 18%(a)
Non-tax qualified ................... 789 11.819096 9,325 18%(a)
Oppenheimer VAF -
Aggressive Growth Fund:
Tax qualified ....................... 147 12.959156 1,905 30%(a)
Non-tax qualified ................... 678 12.959156 8,786 30%(a)
Oppenheimer VAF - Growth Fund:
Tax qualified ....................... 482 12.750719 6,146 28%(a)
</TABLE>
<PAGE> 35
<TABLE>
<S> <C> <C> <C> <C>
Oppenheimer VAF -
Growth & Income Fund:
Tax qualified ....................... 9 12.147153 109 21%(a)
Warburg Pincus Trust -
Growth & Income Portfolio:
Tax qualified ....................... 499 11.686779 5,832 17%(a)
Warburg Pincus Trust -
Post Venture Capital Portfolio:
Tax qualified ....................... 487 12.737475 6,203 27%(a)
Asset fee @ 1.30% rate:
The Dreyfus Socially Responsible
Growth Fund, Inc.:
Tax qualified ....................... 571 12.754610 7,283 28%(a)
Dreyfus Stock Index Fund:
Tax qualified ....................... 1,040 12.363055 12,858 24%(a)
Dreyfus VIF -
Capital Appreciation Portfolio:
Tax qualified ....................... 343 12.203505 4,186 22%(a)
Fidelity VIP - Equity-Income Portfolio -
Service Class:
Tax qualified ....................... 2,008 11.846486 23,788 18%(a)
Fidelity VIP - Growth Portfolio -
Service Class:
Tax qualified ....................... 123 13.010755 1,600 30%(a)
Fidelity VIP-II - Contrafund Portfolio -
Service Class:
Tax qualified ....................... 169 12.598299 2,129 26%(a)
Nationwide SAT - Balanced Fund:
Tax qualified ....................... 1,074 10.768931 11,566 8%(a)
Nationwide SAT - Government Bond Fund:
Tax qualified ....................... 144 10.170644 1,465 2%(a)
Nationwide SAT - Multi Sector Bond Fund:
Tax qualified ....................... 115 10.471735 1,204 5%(a)
Nationwide SAT - Small Company Fund:
Tax qualified ....................... 4 12.012761 48 20%(a)
Nationwide SAT - Strategic Growth Fund:
Tax qualified ....................... 134 12.459415 1,670 25%(a)
Nationwide SAT - Strategic Value Fund:
Tax qualified ....................... 3 12.473162 37 25%(a)
Nationwide SAT - Total Return Fund:
Tax qualified ....................... 1,548 11.964909 18,522 20%(a)
Neuberger & Berman AMT -
Partners Portfolio:
Tax qualified ....................... 3 11.817120 35 18%(a)
Oppenheimer VAF -
Aggressive Growth Fund:
Tax qualified ....................... 415 12.956986 5,377 30%(a)
</TABLE>
(Continued)
<PAGE> 36
<TABLE>
<S> <C> <C> <C> <C>
Oppenheimer VAF - Growth Fund:
Tax qualified ..................... 102 12.748581 1,300 27%(a)
Oppenheimer VAF -
Growth & Income Fund:
Tax qualified ..................... 367 12.145122 4,457 21%(a)
Asset fee @ 1.35% rate:
American Century VP -
American Century VP International:
Tax qualified ..................... 272 12.054452 3,279 21%(a)
Dreyfus Stock Index Fund:
Tax qualified ..................... 311 12.456413 3,874 25%(a)
Dreyfus VIF -
Capital Appreciation Portfolio:
Tax qualified ..................... 259 12.382184 3,207 24%(a)
Fidelity VIP - High Income Portfolio -
Service Class:
Tax qualified ..................... 295 10.523939 3,105 5%(a)
Nationwide SAT -
Capital Appreciation Fund:
Tax qualified ..................... 51 12.431774 634 24%(a)
Nationwide SAT - Money Market Fund:
Tax qualified ..................... 4,169 10.089342 42,062 1%(a)
Nationwide SAT - Total Return Fund:
Tax qualified ..................... 265 11.985762 3,176 20%(a)
===== =========
$2,588,796,935
==============
</TABLE>
(a) This investment option was not being utilized for the entire period.
Accordingly, the annual return was computed for such period as the
investment option was utilized.
(b) The annual return does not include contract charges satisfied by
surrendering units.
<PAGE> 61
<PAGE> 1
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Nationwide Life Insurance Company:
We have audited the accompanying consolidated balance sheets of Nationwide Life
Insurance Company and subsidiaries (collectively the Company), a wholly owned
subsidiary of Nationwide Financial Services, Inc., as of December 31, 1998 and
1997, and the related consolidated statements of income, shareholder's equity
and cash flows for each of the years in the three-year period ended December 31,
1998. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Nationwide Life
Insurance Company and subsidiaries as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally accepted
accounting principles.
KPMG LLP
Columbus, Ohio
January 29, 1999
<PAGE> 2
<TABLE>
<CAPTION>
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Balance Sheets
(in millions of dollars, except per share amounts)
December 31,
-----------------------
Assets 1998 1997
------ --------- ---------
<S> <C> <C>
Investments:
Securities available-for-sale, at fair value:
Fixed maturity securities $14,245.1 $13,204.1
Equity securities 127.2 80.4
Mortgage loans on real estate, net 5,328.4 5,181.6
Real estate, net 243.6 311.4
Policy loans 464.3 415.3
Other long-term investments 44.0 25.2
Short-term investments 289.1 358.4
--------- ---------
20,741.7 19,576.4
--------- ---------
Cash 3.4 175.6
Accrued investment income 218.7 210.5
Deferred policy acquisition costs 2,022.2 1,665.4
Other assets 420.3 438.4
Assets held in separate accounts 50,935.8 37,724.4
--------- ---------
$74,342.1 $59,790.7
========= =========
Liabilities and Shareholder's Equity
------------------------------------
Future policy benefits and claims $19,767.1 $18,702.8
Other liabilities 866.1 885.6
Liabilities related to separate accounts 50,935.8 37,724.4
--------- ---------
71,569.0 57,312.8
--------- ---------
Commitments and contingencies (notes 7 and 12)
Shareholder's equity:
Common stock, $1 par value. Authorized 5.0 million shares;
3.8 million shares issued and outstanding 3.8 3.8
Additional paid-in capital 914.7 914.7
Retained earnings 1,579.0 1,312.3
Accumulated other comprehensive income 275.6 247.1
--------- ---------
2,773.1 2,477.9
--------- ---------
$74,342.1 $59,790.7
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 3
<TABLE>
<CAPTION>
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Statements of Income
(in millions of dollars)
Years ended December 31,
-----------------------------------
1998 1997 1996
-------- -------- ---------
<S> <C> <C> <C>
Revenues:
Policy charges $ 698.9 $ 545.2 $ 400.9
Life insurance premiums 200.0 205.4 198.6
Net investment income 1,481.6 1,409.2 1,357.8
Realized gains (losses) on investments 28.4 11.1 (0.3)
Other 66.8 46.5 35.9
-------- -------- --------
2,475.7 2,217.4 1,992.9
-------- -------- --------
Benefits and expenses:
Interest credited to policyholder account balances 1,069.0 1,016.6 982.3
Other benefits and claims 175.8 178.2 178.3
Policyholder dividends on participating policies 39.6 40.6 41.0
Amortization of deferred policy acquisition costs 214.5 167.2 133.4
Other operating expenses 419.7 384.9 342.4
-------- -------- --------
1,918.6 1,787.5 1,677.4
-------- -------- --------
Income from continuing operations before federal income tax expense 557.1 429.9 315.5
Federal income tax expense 190.4 150.2 110.9
-------- -------- --------
Income from continuing operations 366.7 279.7 204.6
Income from discontinued operations (less federal income tax expense
of $4.5 in 1996) -- -- 11.3
-------- -------- --------
Net income $ 366.7 $ 279.7 $ 215.9
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 4
<TABLE>
<CAPTION>
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Statements of Shareholder's Equity
Years ended December 31, 1998, 1997 and 1996
(in millions of dollars)
Accumulated
Additional other Total
Common paid-in Retained comprehensive shareholder's
stock capital earnings income equity
----- ------- -------- ------ ------
<S> <C> <C> <C> <C> <C>
December 31, 1995 $ 3.8 $ 657.2 $1,583.2 $ 384.3 $2,628.5
Comprehensive income:
Net income -- -- 215.9 -- 215.9
Net unrealized losses on securities
available-for-sale arising during
the year -- -- -- (170.9) (170.9)
--------
Total comprehensive income 45.0
--------
Dividends to shareholder -- (129.3) (366.5) (39.8) (535.6)
------ ------- -------- ------- --------
December 31, 1996 3.8 527.9 1,432.6 173.6 2,137.9
Comprehensive income:
Net income -- -- 279.7 -- 279.7
Net unrealized gains on securities
available-for-sale arising during
the year -- -- -- 73.5 73.5
--------
Total comprehensive income 353.2
--------
Capital contribution -- 836.8 -- -- 836.8
Dividend to shareholder -- (450.0) (400.0) -- (850.0)
------ ------- -------- ------- --------
December 31, 1997 3.8 914.7 1,312.3 247.1 2,477.9
Comprehensive income:
Net income -- -- 366.7 -- 366.7
Net unrealized gains on securities
available-for-sale arising during
the year -- -- -- 28.5 28.5
--------
Total comprehensive income 395.2
--------
Dividend to shareholder -- -- (100.0) -- (100.0)
------ ------- -------- ------- --------
December 31, 1998 $ 3.8 $ 914.7 $1,579.0 $ 275.6 $2,773.1
====== ======= ======== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
<TABLE>
<CAPTION>
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Statements of Cash Flows
(in millions of dollars)
Years ended December 31,
---------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 366.7 $ 279.7 $ 215.9
Adjustments to reconcile net income to net cash provided by operating
activities:
Interest credited to policyholder account balances 1,069.0 1,016.6 982.3
Capitalization of deferred policy acquisition costs (584.2) (487.9) (422.6)
Amortization of deferred policy acquisition costs 214.5 167.2 133.4
Amortization and depreciation (8.5) (2.0) 7.0
Realized gains on invested assets, net (28.4) (11.1) (0.3)
(Increase) decrease in accrued investment income (8.2) (0.3) 2.8
(Increase) decrease in other assets 16.4 (12.7) (38.9)
Decrease in policy liabilities (8.3) (23.1) (151.0)
(Decrease) increase in other liabilities (34.8) 230.6 191.4
Other, net (11.3) (10.9) (61.7)
--------- --------- ---------
Net cash provided by operating activities 982.9 1,146.1 858.3
--------- --------- ---------
Cash flows from investing activities:
Proceeds from maturity of securities available-for-sale 1,557.0 993.4 1,162.8
Proceeds from sale of securities available-for-sale 610.5 574.5 299.6
Proceeds from repayments of mortgage loans on real estate 678.2 437.3 309.0
Proceeds from sale of real estate 103.8 34.8 18.5
Proceeds from repayments of policy loans and sale of other invested assets 23.6 22.7 22.8
Cost of securities available-for-sale acquired (3,182.8) (2,828.1) (1,573.6)
Cost of mortgage loans on real estate acquired (829.1) (752.2) (972.8)
Cost of real estate acquired (0.8) (24.9) (7.9)
Policy loans issued and other invested assets acquired (88.4) (62.5) (57.7)
Short-term investments, net 69.3 (354.8) 28.0
--------- --------- ---------
Net cash used in investing activities (1,058.7) (1,959.8) (771.3)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from capital contributions -- 836.8 --
Cash dividends paid (100.0) -- (50.0)
Increase in investment product and universal life insurance
product account balances 2,682.1 2,488.5 1,781.8
Decrease in investment product and universal life insurance
product account balances (2,678.5) (2,379.8) (1,784.5)
--------- --------- ---------
Net cash (used in) provided by financing activities (96.4) 945.5 (52.7)
--------- --------- ---------
Net (decrease) increase in cash (172.2) 131.8 34.3
Cash, beginning of year 175.6 43.8 9.5
--------- --------- ---------
Cash, end of year $ 3.4 $ 175.6 $ 43.8
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 6
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(1) Organization and Description of Business
----------------------------------------
Prior to January 27, 1997, Nationwide Life Insurance Company (NLIC) was
wholly owned by Nationwide Corporation (Nationwide Corp.). On that
date, Nationwide Corp. contributed the outstanding shares of NLIC's
common stock to Nationwide Financial Services, Inc. (NFS), a holding
company formed by Nationwide Corp. in November 1996 for NLIC and the
other companies within the Nationwide Insurance Enterprise that offer
or distribute long-term savings and retirement products. On March 11,
1997, NFS completed an initial public offering of its Class A common
stock.
During 1996 and 1997, Nationwide Corp. and NFS completed certain
transactions in anticipation of the initial public offering that
focused the business of NFS on long-term savings and retirement
products. On September 24, 1996, NLIC declared a dividend payable to
Nationwide Corp. on January 1, 1997 consisting of the outstanding
shares of common stock of certain subsidiaries that do not offer or
distribute long-term savings or retirement products. In addition,
during 1996, NLIC entered into two reinsurance agreements whereby all
of NLIC's accident and health and group life insurance business was
ceded to two affiliates effective January 1, 1996. These subsidiaries,
through December 31, 1996, and all accident and health and group life
insurance business have been accounted for as discontinued operations
for all periods presented. See notes 10 and 14. Additionally, NLIC paid
$900.0 million of dividends, $50.0 million to Nationwide Corp. on
December 31, 1996 and $850.0 million to NFS, which then made an
equivalent dividend to Nationwide Corp., on February 24, 1997.
NFS contributed $836.8 million to the capital of NLIC during March
1997.
Wholly owned subsidiaries of NLIC include Nationwide Life and Annuity
Insurance Company (NLAIC), Nationwide Advisory Services, Inc.,
Nationwide Investment Services Corporation and NWE, Inc. NLIC and its
subsidiaries are collectively referred to as "the Company."
The Company is a leading provider of long-term savings and retirement
products, including variable annuities, fixed annuities and life
insurance.
(2) Summary of Significant Accounting Policies
------------------------------------------
The significant accounting policies followed by the Company that
materially affect financial reporting are summarized below. The
accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles, which differ
from statutory accounting practices prescribed or permitted by
regulatory authorities. Annual Statements for NLIC and NLAIC, filed
with the Department of Insurance of the State of Ohio (the Department),
are prepared on the basis of accounting practices prescribed or
permitted by the Department. Prescribed statutory accounting practices
include a variety of publications of the National Association of
Insurance Commissioners (NAIC), as well as state laws, regulations and
general administrative rules. Permitted statutory accounting practices
encompass all accounting practices not so prescribed. The Company has
no material permitted statutory accounting practices.
<PAGE> 7
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosures of contingent
assets and liabilities as of the date of the consolidated financial
statements and the reported amounts of revenues and expenses for the
reporting period. Actual results could differ significantly from those
estimates.
The most significant estimates include those used in determining
deferred policy acquisition costs, valuation allowances for mortgage
loans on real estate and real estate investments and the liability for
future policy benefits and claims. Although some variability is
inherent in these estimates, management believes the amounts provided
are adequate.
(a) Consolidation Policy
--------------------
The consolidated financial statements include the accounts of NLIC
and its wholly owned subsidiaries. Operations that are classified
and reported as discontinued operations are not consolidated but
rather are reported as "Income from discontinued operations" in
the accompanying consolidated statements of income. All
significant intercompany balances and transactions have been
eliminated.
(b) Valuation of Investments and Related Gains and Losses
-----------------------------------------------------
The Company is required to classify its fixed maturity securities
and equity securities as either held-to-maturity,
available-for-sale or trading. Fixed maturity securities are
classified as held-to-maturity when the Company has the positive
intent and ability to hold the securities to maturity and are
stated at amortized cost. Fixed maturity securities not classified
as held-to-maturity and all equity securities are classified as
available-for-sale and are stated at fair value, with the
unrealized gains and losses, net of adjustments to deferred policy
acquisition costs and deferred federal income tax, reported as a
separate component of shareholder's equity. The adjustment to
deferred policy acquisition costs represents the change in
amortization of deferred policy acquisition costs that would have
been required as a charge or credit to operations had such
unrealized amounts been realized. The Company has no fixed
maturity securities classified as held-to-maturity or trading as
of December 31, 1998 or 1997.
Mortgage loans on real estate are carried at the unpaid principal
balance less valuation allowances. The Company provides valuation
allowances for impairments of mortgage loans on real estate based
on a review by portfolio managers. The measurement of impaired
loans is based on the present value of expected future cash flows
discounted at the loan's effective interest rate or, as a
practical expedient, at the fair value of the collateral, if the
loan is collateral dependent. Loans in foreclosure and loans
considered to be impaired are placed on non-accrual status.
Interest received on non-accrual status mortgage loans on real
estate is included in interest income in the period received.
Real estate is carried at cost less accumulated depreciation and
valuation allowances. Other long-term investments are carried on
the equity basis, adjusted for valuation allowances. Impairment
losses are recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the
assets' carrying amount.
Realized gains and losses on the sale of investments are
determined on the basis of specific security identification.
Estimates for valuation allowances and other than temporary
declines are included in realized gains and losses on investments.
<PAGE> 8
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(c) Revenues and Benefits
---------------------
Investment Products and Universal Life Insurance Products:
Investment products consist primarily of individual and group
variable and fixed deferred annuities. Universal life insurance
products include universal life insurance, variable universal life
insurance, corporate owned life insurance and other
interest-sensitive life insurance policies. Revenues for
investment products and universal life insurance products consist
of net investment income, asset fees, cost of insurance, policy
administration and surrender charges that have been earned and
assessed against policy account balances during the period. Policy
benefits and claims that are charged to expense include interest
credited to policy account balances and benefits and claims
incurred in the period in excess of related policy account
balances.
Traditional Life Insurance Products: Traditional life insurance
products include those products with fixed and guaranteed premiums
and benefits and consist primarily of whole life insurance,
limited-payment life insurance, term life insurance and certain
annuities with life contingencies. Premiums for traditional life
insurance products are recognized as revenue when due. Benefits
and expenses are associated with earned premiums so as to result
in recognition of profits over the life of the contract. This
association is accomplished by the provision for future policy
benefits and the deferral and amortization of policy acquisition
costs.
(d) Deferred Policy Acquisition Costs
---------------------------------
The costs of acquiring new business, principally commissions,
certain expenses of the policy issue and underwriting department
and certain variable sales expenses have been deferred. For
investment products and universal life insurance products,
deferred policy acquisition costs are being amortized with
interest over the lives of the policies in relation to the present
value of estimated future gross profits from projected interest
margins, asset fees, cost of insurance, policy administration and
surrender charges. For years in which gross profits are negative,
deferred policy acquisition costs are amortized based on the
present value of gross revenues. For traditional life insurance
products, these deferred policy acquisition costs are
predominantly being amortized with interest over the premium
paying period of the related policies in proportion to the ratio
of actual annual premium revenue to the anticipated total premium
revenue. Such anticipated premium revenue was estimated using the
same assumptions as were used for computing liabilities for future
policy benefits. Deferred policy acquisition costs are adjusted to
reflect the impact of unrealized gains and losses on fixed
maturity securities available-for-sale as described in note 2(b).
(e) Separate Accounts
-----------------
Separate account assets and liabilities represent contractholders'
funds which have been segregated into accounts with specific
investment objectives. For all but $743.9 million of separate
account assets, the investment income and gains or losses of these
accounts accrue directly to the contractholders. The activity of
the separate accounts is not reflected in the consolidated
statements of income and cash flows except for the fees the
Company receives.
(f) Future Policy Benefits
----------------------
Future policy benefits for investment products in the accumulation
phase, universal life insurance and variable universal life
insurance policies have been calculated based on participants'
contributions plus interest credited less applicable contract
charges. The average interest rate credited on investment product
policy reserves was 6.0%, 6.1% and 6.3% for the years ended
December 31, 1998, 1997 and 1996, respectively.
Future policy benefits for traditional life insurance policies
have been calculated by the net level premium method using
interest rates varying from 6.0% to 10.5% and estimates of
mortality, morbidity, investment yields and withdrawals which were
used or which were being experienced at the time the policies were
issued, rather than the assumptions prescribed by state regulatory
authorities.
<PAGE> 9
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(g) Participating Business
----------------------
Participating business represents approximately 40% in 1998 (50%
in 1997 and 52% in 1996) of the Company's life insurance in force,
74% in 1998 (77% in 1997 and 78% in 1996) of the number of life
insurance policies in force, and 14% in 1998 (27% in 1997 and 40%
in 1996) of life insurance statutory premiums. The provision for
policyholder dividends is based on current dividend scales and is
included in "Future policy benefits and claims" in the
accompanying consolidated balance sheets.
(h) Federal Income Tax
------------------
The Company files a consolidated federal income tax return with
Nationwide Mutual Insurance Company (NMIC), the majority
shareholder of Nationwide Corp. The members of the consolidated
tax return group have a tax sharing arrangement which provides, in
effect, for each member to bear essentially the same federal
income tax liability as if separate tax returns were filed.
The Company utilizes the asset and liability method of accounting
for income tax. Under this method, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be
recovered or settled. Under this method, the effect on deferred
tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.
Valuation allowances are established when necessary to reduce the
deferred tax assets to the amounts expected to be realized.
(i) Reinsurance Ceded
-----------------
Reinsurance premiums ceded and reinsurance recoveries on benefits
and claims incurred are deducted from the respective income and
expense accounts. Assets and liabilities related to reinsurance
ceded are reported on a gross basis. All of the Company's accident
and health and group life insurance business is ceded to
affiliates and is accounted for as discontinued operations. See
notes 10 and 14.
<PAGE> 10
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(j) Recently Issued Accounting Pronouncements
-----------------------------------------
On January 1, 1998 the Company adopted SFAS No. 131 - Disclosures
about Segments of an Enterprise and Related Information (SFAS
131). SFAS 131 supersedes SFAS No. 14 - Financial Reporting for
Segments of a Business Enterprise. SFAS 131 establishes standards
for public business enterprises to report information about
operating segments in annual financial statements and selected
information about operating segments in interim financial reports.
SFAS 131 also establishes standards for related disclosures about
products and services, geographic areas, and major customers. The
adoption of SFAS 131 did not affect results of operations or
financial position, nor did it affect the manner in which the
Company defines its operating segments. The segment information
required for annual financial statements is included in note 13.
On January 1, 1998, the Company adopted SFAS No. 132 - Employers'
Disclosures about Pensions and Other Postretirement Benefits (SFAS
132). SFAS 132 revises employers' disclosures about pension and
other postretirement benefit plans. The Statement does not change
the measurement or recognition of benefit plans in the financial
statements. The revised disclosures required by SFAS 132 are
included in note 8.
In June 1998, the FASB issued SFAS No. 133 - Accounting for
Derivative Instruments and Hedging Activities (SFAS 133). SFAS 133
establishes accounting and reporting standards for derivative
instruments and for hedging activities. Contracts that contain
embedded derivatives, such as certain insurance contracts, are
also addressed by the Statement. SFAS 133 requires that an entity
recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at
fair value. The Statement is effective for fiscal years beginning
after June 15, 1999. It may be implemented earlier provided
adoption occurs as of the beginning of any fiscal quarter after
issuance. The Company plans to adopt this Statement in first
quarter 2000 and is currently evaluating the impact on results of
operations and financial condition.
In March 1998, The American Institute of Certified Public
Accountant's Accounting Standards Executive Committee issued
Statement of Position 98-1 - Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use (SOP 98-1). SOP
98-1 provides guidance intended to standardize accounting
practices for costs incurred to develop or obtain computer
software for internal use. Specifically, SOP 98-1 provides
guidance for determining whether computer software is for internal
use and when costs incurred for internal use software are to be
capitalized. SOP 98-1 is effective for financial statements for
fiscal years beginning after December 15, 1998. The Company does
not expect the adoption of SOP 98-1, which occurred on January 1,
1999, to have a material impact on the Company's financial
statements.
(k) Reclassification
----------------
Certain items in the 1997 and 1996 consolidated financial
statements have been reclassified to conform to the 1998
presentation.
<PAGE> 11
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(3) Investments
-----------
The amortized cost, gross unrealized gains and losses and estimated
fair value of securities available-for-sale as of December 31, 1998 and
1997 were:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
(in millions of dollars) cost gains losses fair value
------------------------ ---- ----- ------ ----------
<S> <C> <C> <C> <C>
December 31, 1998:
Fixed maturity securities:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies $ 255.9 $ 13.0 $ -- $ 268.9
Obligations of states and political subdivisions 1.6 -- -- 1.6
Debt securities issued by foreign governments 106.5 4.5 -- 111.0
Corporate securities 9,899.6 423.2 (18.7) 10,304.1
Mortgage-backed securities 3,457.7 104.2 (2.4) 3,559.5
--------- ------ ------ ---------
Total fixed maturity securities 13,721.3 544.9 (21.1) 14,245.1
Equity securities 110.4 18.3 (1.5) 127.2
--------- ------ ------ ---------
$13,831.7 $563.2 $(22.6) $14,372.3
========= ====== ====== =========
December 31, 1997:
Fixed maturity securities:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies $ 305.1 $ 8.6 $ -- $ 313.7
Obligations of states and political subdivisions 1.6 -- -- 1.6
Debt securities issued by foreign governments 93.3 2.7 (0.2) 95.8
Corporate securities 8,698.7 355.5 (11.5) 9,042.7
Mortgage-backed securities 3,634.2 118.6 (2.5) 3,750.3
--------- ------ ------ ---------
Total fixed maturity securities 12,732.9 485.4 (14.2) 13,204.1
Equity securities 67.8 12.9 (0.3) 80.4
--------- ------ ------ ---------
$12,800.7 $498.3 $(14.5) $13,284.5
========= ====== ====== =========
</TABLE>
As of December 31, 1998 the Company had entered into S&P 500 futures
contracts with a notional amount of $20.0 million to reduce the risk of
changes in the fair market value of certain investments classified as
equity securities. These contracts had an unrealized loss of $1.3
million as of December 31, 1998 which is included in the recorded
amount of the equity securities and in accumulated other comprehensive
income, net of tax, similar to other unrealized gains and losses on
securities available-for-sale.
<PAGE> 12
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
The amortized cost and estimated fair value of fixed maturity
securities available-for-sale as of December 31, 1998, by expected
maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Estimated
(in millions of dollars) cost fair value
---- ----------
<S> <C> <C>
Fixed maturity securities available for sale:
Due in one year or less $ 2,019.9 $ 2,048.0
Due after one year through five years 8,169.1 8,470.6
Due after five years through ten years 2,795.0 2,927.7
Due after ten years 737.3 798.8
--------- ---------
$13,721.3 $14,245.1
========= =========
</TABLE>
The components of unrealized gains on securities available-for-sale,
net, were as follows as of December 31:
<TABLE>
<CAPTION>
(in millions of dollars) 1998 1997
---- ----
<S> <C> <C>
Gross unrealized gains $ 540.6 $ 483.8
Adjustment to deferred policy acquisition costs (116.6) (103.7)
Deferred federal income tax (148.4) (133.0)
------- -------
$ 275.6 $ 247.1
======= =======
</TABLE>
An analysis of the change in gross unrealized gains (losses) on
securities available-for-sale and fixed maturity securities
held-to-maturity follows for the years ended December 31:
<TABLE>
<CAPTION>
(in millions of dollars) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturity securities $52.6 $137.5 $(289.2)
Equity securities 4.2 (2.7) 8.9
----- ------ -------
$56.8 $134.8 $(280.3)
===== ====== =======
</TABLE>
Proceeds from the sale of securities available-for-sale during 1998,
1997 and 1996 were $610.5 million, $574.5 million and $299.6 million,
respectively. During 1998, gross gains of $9.0 million ($9.9 million
and $6.6 million in 1997 and 1996, respectively) and gross losses of
$7.6 million ($18.0 million and $6.9 million in 1997 and 1996,
respectively) were realized on those sales. In addition, gross gains of
$15.1 million and gross losses of $0.7 million were realized in 1997
when the Company paid a dividend to NFS, which then made an equivalent
dividend to Nationwide Corp., consisting of securities having an
aggregate fair value of $850.0 million.
The recorded investment of mortgage loans on real estate considered to
be impaired as of December 31, 1998 was $3.7 million. No valuation
allowance has been recorded for these loans as of December 31, 1998.
The recorded investment of mortgage loans on real estate considered to
be impaired as of December 31, 1997 was $19.9 million which includes
$3.9 million of impaired mortgage loans on real estate for which the
related valuation allowance was $0.1 million and $16.0 million of
impaired mortgage loans on real estate for which there was no valuation
allowance. During 1998, the average recorded investment in impaired
mortgage loans on real estate was approximately $9.1 million ($31.8
million in 1997) and interest income recognized on those loans was $0.3
million ($1.0 million in 1997), which is equal to interest income
recognized using a cash-basis method of income recognition.
<PAGE> 13
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Activity in the valuation allowance account for mortgage loans on real
estate is summarized for the years ended December 31:
<TABLE>
<CAPTION>
(in millions of dollars) 1998 1997
---- ----
<S> <C> <C>
Allowance, beginning of year $42.5 $51.0
Reductions credited to operations (0.1) (1.2)
Direct write-downs charged against the allowance -- (7.3)
----- -----
Allowance, end of year $42.4 $42.5
===== =====
</TABLE>
Real estate is presented at cost less accumulated depreciation of $21.5
million as of December 31, 1998 ($45.1 million as of December 31, 1997)
and valuation allowances of $5.4 million as of December 31, 1998 ($11.1
million as of December 31, 1997).
Investments that were non-income producing for the twelve month period
preceding December 31, 1998 amounted to $42.4 million ($19.4 million
for 1997) and consisted of $32.7 million ($3.0 million in 1997) in
securities available-for-sale and $9.7 million ($16.4 million in 1997)
in real estate.
An analysis of investment income by investment type follows for the
years ended December 31:
<TABLE>
<CAPTION>
(in millions of dollars) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Gross investment income:
Securities available-for-sale:
Fixed maturity securities $ 982.5 $ 911.6 $ 917.1
Equity securities 0.8 0.8 1.3
Mortgage loans on real estate 458.9 457.7 432.8
Real estate 40.4 42.9 44.3
Short-term investments 17.8 22.7 4.2
Other 30.7 21.0 4.0
-------- -------- --------
Total investment income 1,531.1 1,456.7 1,403.7
Less investment expenses 49.5 47.5 45.9
-------- -------- --------
Net investment income $1,481.6 $1,409.2 $1,357.8
======== ======== ========
</TABLE>
An analysis of realized gains (losses) on investments, net of valuation
allowances, by investment type follows for the years ended December 31:
<TABLE>
<CAPTION>
(in millions of dollars) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturity securities $(0.7) $ 3.6 $(3.5)
Equity securities 2.1 2.7 3.2
Mortgage loans on real estate 3.9 1.6 (4.1)
Real estate and other 23.1 3.2 4.1
----- ----- -----
$28.4 $11.1 $(0.3)
===== ===== =====
</TABLE>
Fixed maturity securities with an amortized cost of $6.5 million and
$6.2 million as of December 31, 1998 and 1997, respectively, were on
deposit with various regulatory agencies as required by law.
<PAGE> 14
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(4) Federal Income Tax
------------------
The Company's current federal income tax liability was $72.8 million
and $60.1 million as of December 31, 1998 and 1997, respectively.
The tax effects of temporary differences that give rise to significant
components of the net deferred tax liability as of December 31, 1998
and 1997 are as follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1998 1997
---- ----
<S> <C> <C>
Deferred tax assets:
Future policy benefits $207.7 $200.1
Liabilities in Separate Accounts 319.9 242.0
Mortgage loans on real estate and real estate 17.5 19.0
Other assets and other liabilities 58.9 59.2
------ ------
Total gross deferred tax assets 604.0 520.3
Less valuation allowance (7.0) (7.0)
------ ------
Net deferred tax assets 597.0 513.3
------ ------
Deferred tax liabilities:
Deferred policy acquisition costs 568.7 480.5
Fixed maturity securities 212.2 193.3
Deferred tax on realized investment gains 34.8 40.1
Equity securities and other long-term investments 9.6 7.5
Other 21.6 22.2
------ ------
Total gross deferred tax liabilities 846.9 743.6
------ ------
Net deferred tax liability $249.9 $230.3
====== ======
</TABLE>
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion of the
total gross deferred tax assets will not be realized. Nearly all future
deductible amounts can be offset by future taxable amounts or recovery
of federal income tax paid within the statutory carryback period. There
has been no change in the valuation allowance for the years ended
December 31, 1998, 1997 and 1996.
Federal income tax expense attributable to income from continuing
operations for the years ended December 31 was as follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Currently payable $186.1 $121.7 $116.5
Deferred tax expense (benefit) 4.3 28.5 (5.6)
------ ------ ------
$190.4 $150.2 $110.9
====== ====== ======
</TABLE>
<PAGE> 15
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Total federal income tax expense for the years ended December 31, 1998,
1997 and 1996 differs from the amount computed by applying the U.S.
federal income tax rate to income before tax as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(in millions of dollars) Amount % Amount % Amount %
------ - ------ - ------ -
<S> <C> <C> <C> <C> <C> <C>
Computed (expected) tax expense $195.0 35.0 $150.5 35.0 $110.4 35.0
Tax exempt interest and dividends
received deduction (4.9) (0.9) - 0.0 (0.2) (0.1)
Other, net 0.3 0.1 (0.3) (0.1) 0.7 0.3
------ ---- ------ ---- ------ ----
Total (effective rate of each year) $190.4 34.2 $150.2 34.9 $110.9 35.2
====== ==== ====== ==== ====== ====
</TABLE>
Total federal income tax paid was $173.4 million, $91.8 million and
$115.8 million during the years ended December 31, 1998, 1997 and 1996,
respectively.
(5) Comprehensive Income
--------------------
Pursuant to SFAS No. 130 - Reporting Comprehensive Income, which the
Company adopted January 1, 1998, the Consolidated Statements of
Shareholder's Equity include a new measure called "Comprehensive
Income". Comprehensive Income includes net income as well as certain
items that are reported directly within separate components of
shareholders' equity that bypass net income. Currently, the Company's
only component of Other Comprehensive Income is unrealized gains
(losses) on securities available-for-sale. The related before and after
federal tax amounts are as follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Unrealized gains (losses) on securities
available-for-sale arising during the period:
Gross $ 58.2 $141.1 $(272.4)
Adjustment to deferred policy acquisition costs (12.9) (21.8) 57.0
Related federal income tax (expense) benefit (15.9) (41.7) 44.0
------ ------ ------
Net 29.4 77.6 (171.4)
------ ------ ------
Reclassification adjustment for net (gains) losses
on securities available-for-sale realized
during the period:
Gross (1.4) (6.3) 0.7
Related federal income tax expense (benefit) 0.5 2.2 (0.2)
------ ------ -------
Net (0.9) (4.1) 0.5
------ ------ -------
Total Other Comprehensive Income $ 28.5 $ 73.5 $(170.9)
====== ====== =======
</TABLE>
(6) Fair Value of Financial Instruments
-----------------------------------
The following disclosures summarize the carrying amount and estimated
fair value of the Company's financial instruments. Certain assets and
liabilities are specifically excluded from the disclosure requirements
of financial instruments. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Company.
<PAGE> 16
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
The fair value of a financial instrument is defined as the amount at
which the financial instrument could be exchanged in a current
transaction between willing parties. In cases where quoted market
prices are not available, fair value is to be based on estimates using
present value or other valuation techniques. Many of the Company's
assets and liabilities subject to the disclosure requirements are not
actively traded, requiring fair values to be estimated by management
using present value or other valuation techniques. These techniques are
significantly affected by the assumptions used, including the discount
rate and estimates of future cash flows. Although fair value estimates
are calculated using assumptions that management believes are
appropriate, changes in assumptions could cause these estimates to vary
materially. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases,
could not be realized in the immediate settlement of the instruments.
Although insurance contracts, other than policies such as annuities
that are classified as investment contracts, are specifically exempted
from the disclosure requirements, estimated fair value of policy
reserves on life insurance contracts is provided to make the fair value
disclosures more meaningful.
The tax ramifications of the related unrealized gains and losses can
have a significant effect on fair value estimates and have not been
considered in the estimates.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures:
Fixed maturity and equity securities: The fair value for fixed
maturity securities is based on quoted market prices, where
available. For fixed maturity securities not actively traded, fair
value is estimated using values obtained from independent pricing
services or, in the case of private placements, is estimated by
discounting expected future cash flows using a current market rate
applicable to the yield, credit quality and maturity of the
investments. The fair value for equity securities is based on
quoted market prices. The carrying amount and fair value for
equity securities exclude the fair value of futures contracts
designated as hedges of equity securities.
Mortgage loans on real estate, net: The fair value for mortgage
loans on real estate is estimated using discounted cash flow
analyses, using interest rates currently being offered for similar
loans to borrowers with similar credit ratings. Loans with similar
characteristics are aggregated for purposes of the calculations.
Fair value for mortgage loans in default is the estimated fair
value of the underlying collateral.
Policy loans, short-term investments and cash: The carrying amount
reported in the consolidated balance sheets for these instruments
approximates their fair value.
Separate account assets and liabilities: The fair value of assets
held in separate accounts is based on quoted market prices. The
fair value of liabilities related to separate accounts is the
amount payable on demand, which is net of certain surrender
charges.
Investment contracts: The fair value for the Company's liabilities
under investment type contracts is disclosed using two methods.
For investment contracts without defined maturities, fair value is
the amount payable on demand. For investment contracts with known
or determined maturities, fair value is estimated using discounted
cash flow analysis. Interest rates used are similar to currently
offered contracts with maturities consistent with those remaining
for the contracts being valued.
<PAGE> 17
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Policy reserves on life insurance contracts: Included are
disclosures for individual life insurance, universal life
insurance and supplementary contracts with life contingencies for
which the estimated fair value is the amount payable on demand.
Also included are disclosures for the Company's limited payment
policies, which the Company has used discounted cash flow analyses
similar to those used for investment contracts with known
maturities to estimate fair value.
Commitments to extend credit: Commitments to extend credit have
nominal fair value because of the short-term nature of such
commitments. See note 7.
Futures contracts: The fair value for futures contracts is based
on quoted market prices.
Carrying amount and estimated fair value of financial instruments
subject to disclosure requirements and policy reserves on life
insurance contracts were as follows as of December 31:
<TABLE>
<CAPTION>
1998 1997
------------------------- --------------------------
Carrying Estimated Carrying Estimated
(in millions of dollars) amount fair value amount fair value
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Assets:
Investments:
Securities available-for-sale:
Fixed maturity securities $14,245.1 $14,245.1 $13,204.1 $13,204.1
Equity securities 128.5 128.5 80.4 80.4
Mortgage loans on real estate, net 5,328.4 5,527.6 5,181.6 5,509.7
Policy loans 464.3 464.3 415.3 415.3
Short-term investments 289.1 289.1 358.4 358.4
Cash 3.4 3.4 175.6 175.6
Assets held in separate accounts 50,935.8 50,935.8 37,724.4 37,724.4
Liabilities:
Investment contracts 15,468.7 15,158.6 14,708.2 14,322.1
Policy reserves on life insurance contracts 3,914.0 3,768.9 3,345.4 3,182.4
Liabilities related to separate accounts 50,935.8 49,926.5 37,724.4 36,747.0
Futures contracts 1.3 1.3 -- --
</TABLE>
(7) Risk Disclosures
----------------
The following is a description of the most significant risks facing
life insurers and how the Company mitigates those risks:
Credit Risk: The risk that issuers of securities owned by the Company
or mortgagors on mortgage loans on real estate owned by the Company
will default or that other parties, including reinsurers, which owe the
Company money, will not pay. The Company minimizes this risk by
adhering to a conservative investment strategy, by maintaining
reinsurance and credit and collection policies and by providing for any
amounts deemed uncollectible.
Interest Rate Risk: The risk that interest rates will change and cause
a decrease in the value of an insurer's investments. This change in
rates may cause certain interest-sensitive products to become
uncompetitive or may cause disintermediation. The Company mitigates
this risk by charging fees for non-conformance with certain policy
provisions, by offering products that transfer this risk to the
purchaser, and/or by attempting to match the maturity schedule of its
assets with the expected payouts of its liabilities. To the extent that
liabilities come due more quickly than assets mature, an insurer would
have to borrow funds or sell assets prior to maturity and potentially
recognize a gain or loss.
<PAGE> 18
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Legal/Regulatory Risk: The risk that changes in the legal or regulatory
environment in which an insurer operates will result in increased
competition, reduced demand for a company's products, or create
additional expenses not anticipated by the insurer in pricing its
products. The Company mitigates this risk by offering a wide range of
products and by operating throughout the United States, thus reducing
its exposure to any single product or jurisdiction, and also by
employing underwriting practices which identify and minimize the
adverse impact of this risk.
Financial Instruments with Off-Balance-Sheet Risk: The Company is a
party to financial instruments with off-balance-sheet risk in the
normal course of business through management of its investment
portfolio. These financial instruments include commitments to extend
credit in the form of loans. These instruments involve, to varying
degrees, elements of credit risk in excess of amounts recognized on the
consolidated balance sheets.
Commitments to fund fixed rate mortgage loans on real estate are
agreements to lend to a borrower, and are subject to conditions
established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment
of a deposit. Commitments extended by the Company are based on
management's case-by-case credit evaluation of the borrower and the
borrower's loan collateral. The underlying mortgage property represents
the collateral if the commitment is funded. The Company's policy for
new mortgage loans on real estate is to lend no more than 75% of
collateral value. Should the commitment be funded, the Company's
exposure to credit loss in the event of nonperformance by the borrower
is represented by the contractual amounts of these commitments less the
net realizable value of the collateral. The contractual amounts also
represent the cash requirements for all unfunded commitments.
Commitments on mortgage loans on real estate of $156.0 million
extending into 1999 were outstanding as of December 31, 1998. The
Company also had $40.0 million of commitments to purchase fixed
maturity securities outstanding as of December 31, 1998.
Significant Concentrations of Credit Risk: The Company grants mainly
commercial mortgage loans on real estate to customers throughout the
United States. The Company has a diversified portfolio with no more
than 22% (20% in 1997) in any geographic area and no more than 2% (2%
in 1997) with any one borrower as of December 31, 1998. As of December
31, 1998, 42% (46% in 1997) of the remaining principal balance of the
Company's commercial mortgage loan portfolio financed retail
properties.
Reinsurance: The Company has entered into a reinsurance contract to
cede a portion of its general account individual annuity business to
The Franklin Life Insurance Company (Franklin). Total recoveries due
from Franklin were $187.9 million and $220.2 million as of December 31,
1998 and 1997, respectively. The contract is immaterial to the
Company's results of operations. The ceding of risk does not discharge
the original insurer from its primary obligation to the policyholder.
Under the terms of the contract, Franklin has established a trust as
collateral for the recoveries. The trust assets are invested in
investment grade securities, the market value of which must at all
times be greater than or equal to 102% of the reinsured reserves.
(8) Pension Plan and Postretirement Benefits Other Than Pensions
------------------------------------------------------------
The Company is a participant, together with other affiliated companies,
in a pension plan covering all employees who have completed at least
one year of service. The Company funds pension costs accrued for direct
employees plus an allocation of pension costs accrued for employees of
affiliates whose work efforts benefit the Company. Assets of the
Retirement Plan are invested in group annuity contracts of NLIC and
Employers Life Insurance Company of Wausau (ELICW).
Pension costs charged to operations by the Company during the years
ended December 31, 1998, 1997 and 1996 were $2.0 million, $7.5 million
and $7.4 million, respectively. The Company has recorded a prepaid
pension asset of $5.0 million as of December 31, 1998 and no prepaid or
accrued pension asset or expense as of December 31, 1997.
<PAGE> 19
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
In addition to the defined benefit pension plan, the Company, together
with other affiliated companies, participates in life and health care
defined benefit plans for qualifying retirees. Postretirement life and
health care benefits are contributory and generally available to full
time employees who have attained age 55 and have accumulated 15 years
of service with the Company after reaching age 40. Postretirement
health care benefit contributions are adjusted annually and contain
cost-sharing features such as deductibles and coinsurance. In addition,
there are caps on the Company's portion of the per-participant cost of
the postretirement health care benefits. These caps can increase
annually, but not more than three percent. The Company's policy is to
fund the cost of health care benefits in amounts determined at the
discretion of management. Plan assets are invested primarily in group
annuity contracts of NLIC.
The Company elected to immediately recognize its estimated accumulated
postretirement benefit obligation (APBO), however, certain affiliated
companies elected to amortize their initial transition obligation over
periods ranging from 10 to 20 years.
The Company's accrued postretirement benefit expense as of December 31,
1998 and 1997 was $40.1 million and $36.5 million, respectively, and
the net periodic postretirement benefit cost (NPPBC) for 1998, 1997 and
1996 was $4.1 million, $3.0 million and $3.3 million, respectively.
Information regarding the funded status of the pension plan as a whole
and the postretirement life and health care benefit plan as a whole as
of December 31, 1998 and 1997 follows:
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
--------------------- -----------------------
(in millions of dollars) 1998 1997 1998 1997
--------------------------------------------------------- -------- -------- -------- -------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $2,033.8 $1,847.8 $237.9 $ 200.7
Service cost 87.6 77.3 9.8 7.0
Interest cost 123.4 118.6 15.4 14.0
Actuarial loss 123.2 60.0 15.6 24.4
Plan curtailment in 1998/merger in 1997 (107.2) 1.5 - -
Benefits paid (75.8) (71.4) (8.6) (8.2)
-------- -------- ------- -------
Benefit obligation at end of year 2,185.0 2,033.8 270.1 237.9
-------- -------- ------- -------
Change in plan assets:
Fair value of plan assets at beginning of year 2,212.9 1,947.9 69.2 63.0
Actual return on plan assets 300.7 328.1 5.0 3.6
Employer contribution 104.1 7.2 12.1 10.6
Plan merger - 1.1 - -
Benefits paid (75.8) (71.4) (8.4) (8.0)
-------- -------- ------- -------
Fair value of plan assets at end of year 2,541.9 2,212.9 77.9 69.2
-------- -------- ------- -------
Funded status 356.9 179.1 (192.2) (168.7)
Unrecognized prior service cost 31.5 34.7 - -
Unrecognized net (gains) losses (345.7) (330.7) 16.0 1.6
Unrecognized net (asset) obligation at transition (11.0) 33.3 1.3 1.5
-------- -------- ------- -------
Prepaid (accrued) benefit cost $ 31.7 $ (83.6) $(174.9) $(165.6)
======== ======== ======= =======
</TABLE>
<PAGE> 20
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Basis for measurements, funded status of the pension plan and
postretirement life and health care benefit plan:
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
-------------------- -----------------------
1998 1997 1998 1997
-------- ------ -------- --------
<S> <C> <C> <C> <C>
Weighted average discount rate 5.50% 6.00% 6.65% 6.70%
Rate of increase in future compensation levels 3.75% 4.25% -- --
Assumed health care cost trend rate:
Initial rate -- -- 15.00% 12.13%
Ultimate rate -- -- 8.00% 6.12%
Uniform declining period -- -- 15 Years 12 Years
</TABLE>
The net periodic pension cost for the pension plan as a whole for the
years ended December 31, 1998, 1997 and 1996 follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1998 1997 1996
-------------------------------------------------------------------------------- ---- ----
<S> <C> <C>
Service cost (benefits earned during the period) $ 87.6 $ 77.3 $ 75.5
Interest cost on projected benefit obligation 123.4 118.6 105.5
Expected return on plan assets (159.0) (139.0) (116.1)
Recognized gains (3.8) - -
Amortization of prior service cost 3.2 3.2 3.2
Amortization of unrecognized transition obligation 4.2 4.2 4.1
------- ------- -------
$ 55.6 $ 64.3 $ 72.2
======= ======= =======
</TABLE>
Effective December 31, 1998, Wausau Service Corporation (WSC) ended its
affiliation with the Nationwide Insurance Enterprise and employees of
WSC ended participation in the plan. A curtailment gain of $67.1
million resulted (consisting of a $107.2 million reduction in the
projected benefit obligation, net of the write-off of the $40.1 million
remaining unamortized transition obligation related to WSC). The
Company anticipates that the plan will settle the obligation related to
WSC employees with a transfer of assets during 1999.
Basis for measurements, net periodic pension cost for the pension plan:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Weighted average discount rate 6.00% 6.50% 6.00%
Rate of increase in future compensation levels 4.25% 4.75% 4.25%
Expected long-term rate of return on plan assets 7.25% 7.25% 6.75%
</TABLE>
<PAGE> 21
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
The amount of NPPBC for the postretirement benefit plan as a whole for
the years ended December 31, 1998, 1997 and 1996 was as follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Service cost (benefits attributed to employee service during the year) $ 9.8 $ 7.0 $ 6.5
Interest cost on accumulated postretirement benefit obligation 15.4 14.0 13.7
Actual return on plan assets (5.0) (3.6) (4.3)
Amortization of unrecognized transition obligation of affiliates 0.2 0.2 0.2
Net amortization and deferral 1.2 (0.5) 1.8
----- ----- -----
$21.6 $17.1 $17.9
===== ===== =====
</TABLE>
Actuarial assumptions used for the measurement of the accumulated
postretirement benefit obligation (APBO) and the NPPBC for the
postretirement benefit plan for 1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- ----
<S> <C> <C> <C>
NPPBC:
Discount rate 6.70% 7.25% 6.65%
Long term rate of return on plan
assets, net of tax 5.83% 5.89% 4.80%
Assumed health care cost trend rate:
Initial rate 12.00% 11.00% 11.00%
Ultimate rate 6.00% 6.00% 6.00%
Uniform declining period 12 Years 12 Years 12 Years
</TABLE>
For the postretirement benefit plan as a whole, a one percentage point
increase or decrease in the assumed health care cost trend rate would
have no impact on the APBO as of December 31, 1998 and have no impact
on the NPPBC for the year ended December 31, 1998.
(9) Shareholder's Equity, Regulatory Risk-Based Capital, Retained Earnings
----------------------------------------------------------------------
and Dividend Restrictions
-------------------------
Ohio, NLIC's and NLAIC's state of domicile, imposes minimum risk-based
capital requirements that were developed by the NAIC. The formulas for
determining the amount of risk-based capital specify various weighting
factors that are applied to financial balances or various levels of
activity based on the perceived degree of risk. Regulatory compliance
is determined by a ratio of the company's regulatory total adjusted
capital, as defined by the NAIC, to its authorized control level
risk-based capital, as defined by the NAIC. Companies below specific
trigger points or ratios are classified within certain levels, each of
which requires specified corrective action. NLIC and NLAIC each exceed
the minimum risk-based capital requirements.
The statutory capital and surplus of NLIC as of December 31, 1998, 1997
and 1996 was $1.32 billion, $1.13 billion and $1.00 billion,
respectively. The statutory net income of NLIC for the years ended
December 31, 1998, 1997 and 1996 was $171.0 million, $111.7 million and
$73.2 million, respectively.
The Company is limited in the amount of shareholder dividends it may
pay without prior approval by the Department. As of December 31, 1998,
the maximum amount available for dividend payment from the Company to
its shareholder without prior approval of the Department was $71.0
million.
<PAGE> 22
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
In addition, the payment of dividends by NLIC may also be subject to
restrictions set forth in the insurance laws of New York that limit the
amount of statutory profits on NLIC's participating policies (measured
before dividends to policyholders) that can inure to the benefit of the
Company and its shareholder.
The Company currently does not expect such regulatory requirements to
impair its ability to pay operating expenses and shareholder dividends
in the future.
(10) Transactions With Affiliates
----------------------------
As part of the restructuring described in note 1, NLIC paid a dividend
valued at $485.7 million to Nationwide Corp. on January 1, 1997
consisting of the outstanding shares of common stock of ELICW, National
Casualty Company (NCC) and West Coast Life Insurance Company (WCLIC).
Also, on February 24, 1997, NLIC paid a dividend to NFS, and NFS paid
an equivalent dividend to Nationwide Corp., consisting of securities
having an aggregate fair value of $850.0 million. The Company
recognized a gain of $14.4 million on the transfer of securities.
The Company leases office space from NMIC and certain of its
subsidiaries. For the years ended December 31, 1998, 1997 and 1996, the
Company made lease payments to NMIC and its subsidiaries of $8.0
million, $8.4 million and $9.1 million, respectively.
Pursuant to a cost sharing agreement among NMIC and certain of its
direct and indirect subsidiaries, including the Company, NMIC provides
certain operational and administrative services, such as sales support,
advertising, personnel and general management services, to those
subsidiaries. Expenses covered by this agreement are subject to
allocation among NMIC, the Company and other affiliates. Amounts
allocated to the Company were $95.0 million, $85.8 million and $101.6
million in 1998, 1997 and 1996, respectively. The allocations are based
on techniques and procedures in accordance with insurance regulatory
guidelines. Measures used to allocate expenses among companies include
individual employee estimates of time spent, special cost studies,
salary expense, commissions expense and other methods agreed to by the
participating companies that are within industry guidelines and
practices. The Company believes these allocation methods are
reasonable. In addition, the Company does not believe that expenses
recognized under the inter-company agreements are materially different
than expenses that would have been recognized had the Company operated
on a stand alone basis. Amounts payable to NMIC from the Company under
the cost sharing agreement were $31.9 million and $20.5 million as of
December 31, 1998 and 1997, respectively.
The Company also participates in intercompany repurchase agreements
with affiliates whereby the seller will transfer securities to the
buyer at a stated value. Upon demand or a stated period, the securities
will be repurchased by the seller at the original sales price plus a
price differential. Transactions under the agreements during 1998 and
1997 were not material. The Company believes that the terms of the
repurchase agreements are materially consistent with what the Company
could have obtained with unaffiliated parties.
<PAGE> 23
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Intercompany reinsurance agreements exist between NLIC and,
respectively, NMIC and ELICW whereby all of NLIC's accident and health
and group life insurance business is ceded on a modified coinsurance
basis. NLIC entered into the reinsurance agreements during 1996 because
the accident and health and group life insurance business was unrelated
to the Company's long-term savings and retirement products.
Accordingly, the accident and health and group life insurance business
has been accounted for as discontinued operations for all periods
presented. Under modified coinsurance agreements, invested assets are
retained by the ceding company and investment earnings are paid to the
reinsurer. Under the terms of the Company's agreements, the investment
risk associated with changes in interest rates is borne by ELICW or
NMIC, as the case may be. Risk of asset default is retained by the
Company, although a fee is paid by ELICW or NMIC, as the case may be,
to the Company for the Company's retention of such risk. The agreements
will remain in force until all policy obligations are settled. However,
with respect to the agreement between NLIC and NMIC, either party may
terminate the contract on January 1 of any year with prior notice. The
ceding of risk does not discharge the original insurer from its primary
obligation to the policyholder. The Company believes that the terms of
the modified coinsurance agreements are consistent in all material
respects with what the Company could have obtained with unaffiliated
parties. Amounts ceded to NMIC and ELICW for the years ended December
31, 1998, 1997 and 1996 were:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------------------------------------------------------------------
(in millions of dollars) NMIC ELICW NMIC ELICW NMIC ELICW
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Premiums $90.1 $106.3 $ 91.4 $199.8 $ 97.3 $224.2
Net investment income and other
revenue $11.1 $ 9.4 $ 10.7 $ 13.4 $ 10.9 $ 14.8
Benefits, claims and expenses $98.8 $160.5 $100.7 $225.9 $100.5 $246.6
</TABLE>
The Company and various affiliates entered into agreements with
Nationwide Cash Management Company (NCMC), an affiliate, under which
NCMC acts as a common agent in handling the purchase and sale of
short-term securities for the respective accounts of the participants.
Amounts on deposit with NCMC were $248.4 million and $211.0 million as
of December 31, 1998 and 1997, respectively, and are included in
short-term investments on the accompanying consolidated balance sheets.
Certain annuity products are sold through three affiliated companies,
which are also subsidiaries of NFS. Total commissions and fees paid to
these affiliates for the three years ended December 31, 1998 were $60.0
million, $66.1 million and $76.9 million, respectively.
(11) Bank Lines of Credit
--------------------
In August 1996, NLIC, along with NMIC, entered into a $600.0 million
revolving credit facility which provides for a $600.0 million loan over
a five year term on a fully revolving basis with a group of national
financial institutions. The credit facility provides for several and
not joint liability with respect to any amount drawn by either NLIC or
NMIC. NLIC and NMIC pay facility and usage fees to the financial
institutions to maintain the revolving credit facility. All previously
existing line of credit agreements were canceled. In September 1997,
the credit agreement was amended to include NFS as a party to and
borrower under the agreement. As of December 31, 1998 the Company had
no amounts outstanding under the agreement.
<PAGE> 24
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(12) Contingencies
-------------
On October 29, 1998, the Company and certain of its affiliates were
named in a lawsuit filed in the Common Pleas Court of Franklin County,
Ohio related to the sale of deferred annuity products for use as
investments in tax-deferred contributory retirement plans (Mercedes
Castillo v. Nationwide Financial Services, Inc., Nationwide Life
Insurance Company and Nationwide Life and Annuity Insurance Company).
The plaintiff in such lawsuit seeks to represent a national class of
the Company's customers and seeks unspecified compensatory and punitive
damages. The Company is currently evaluating this lawsuit, which is in
an early stage and has not been certified as a class. The Company
intends to defend this lawsuit vigorously.
(13) Segment Information
-------------------
The Company uses differences in products as the basis for defining its
reportable segments. The Company reports three product segments:
Variable Annuities, Fixed Annuities and Life Insurance.
The Variable Annuities segment consists of annuity contracts that
provide the customer with the opportunity to invest in mutual funds
managed by independent investment managers and the Company, with
investment returns accumulating on a tax-deferred basis. The Company's
variable annuity products consist almost entirely of flexible premium
deferred variable annuity contracts.
The Fixed Annuities segment consists of annuity contracts that generate
a return for the customer at a specified interest rate, fixed for a
prescribed period, with returns accumulating on a tax-deferred basis.
Such contracts consist of single premium deferred annuities, flexible
premium deferred annuities and single premium immediate annuities. The
Fixed Annuities segment includes the fixed option under variable
annuity contracts.
The Life Insurance segment consists of insurance products, including
variable universal life insurance and corporate-owned life insurance
products, that provide a death benefit and may also allow the customer
to build cash value on a tax-deferred basis.
In addition to the product segments, the Company reports corporate
revenue and expenses, investments and related investment income
supporting capital not specifically allocated to its product segments,
revenues and expenses of its investment advisor subsidiary (other than
the portion allocated to the Variable Annuities and Life Insurance
segments), revenues and expenses related to group annuity contracts
sold to Nationwide Insurance Enterprise employee and agent benefit
plans and all realized gains and losses on investments in a Corporate
and Other segment.
<PAGE> 25
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
The following table summarizes the financial results of the Company's business
segments for the years ended December 31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
Variable Fixed Life Corporate
(in millions of dollars) Annuities Annuities Insurance and Other Total
- ------------------------------------ --------- --------- --------- --------- -----
<S> <C> <C> <C> <C> <C>
1998:
Net investment income (1) $ (31.3) $ 1,116.6 $ 231.6 $ 164.7 $ 1,481.6
Other operating revenue 560.8 35.7 319.6 49.6 965.7
--------- --------- -------- -------- ---------
Total operating revenue (2) 529.5 1,152.3 551.2 214.3 2,447.3
--------- --------- -------- -------- ---------
Interest credited to policyholder
account balances -- 828.6 115.4 125.0 1,069.0
Amortization of deferred policy
acquisition costs 123.9 44.2 46.4 -- 214.5
Other benefits and expenses 187.2 104.2 294.6 49.1 635.1
--------- --------- -------- -------- ---------
Total expenses 311.1 977.0 456.4 174.1 1,918.6
--------- --------- -------- -------- ---------
Operating income (loss) before
federal income tax 218.4 175.3 94.8 40.2 528.7
Realized gains on investments -- -- -- 28.4 28.4
--------- --------- -------- -------- ---------
Consolidated income before
federal tax expense $ 218.4 $ 175.3 $ 94.8 $ 68.6 $ 557.1
========= ========= ======== ======== =========
Assets as of year end $47,668.7 $15,215.7 $5,187.6 $6,270.1 $74,342.1
========= ========= ======== ======== =========
1997:
Net investment income (1) $ (26.9) $ 1,098.2 $ 189.1 $ 148.8 $ 1,409.2
Other operating revenue 430.9 43.2 284.0 39.0 797.1
--------- --------- -------- -------- ---------
Total operating revenue (2) 404.0 1,141.4 473.1 187.8 2,206.3
--------- --------- -------- -------- ---------
Interest credited to policyholder
account balances -- 823.4 78.5 114.7 1,016.6
Amortization of deferred policy
acquisition costs 87.8 39.8 39.6 -- 167.2
Other benefits and expenses 165.3 108.7 284.1 45.6 603.7
--------- --------- -------- -------- ---------
Total expenses 253.1 971.9 402.2 160.3 1,787.5
--------- --------- -------- -------- ---------
Operating income before federal
income tax 150.9 169.5 70.9 27.5 418.8
Realized gains on investments -- -- -- 11.1 11.1
--------- --------- -------- -------- ---------
Consolidated income before
federal tax expense $ 150.9 $ 169.5 $ 70.9 $ 38.6 $ 429.9
========= ========= ======== ======== =========
Assets as of year end $35,278.7 $14,436.3 $3,901.4 $6,174.3 $59,790.7
========= ========= ======== ======== =========
</TABLE>
<PAGE> 26
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
<TABLE>
<CAPTION>
Variable Fixed Life Corporate
(in millions of dollars) Annuities Annuities Insurance and Other Total
------------------------------------ ---------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1996:
Net investment income (1) $ (21.5) $ 1,050.6 $ 174.0 $ 154.7 $ 1,357.8
Other operating revenue 306.1 42.0 261.6 25.7 635.4
---------- ---------- --------- --------- ---------
Total operating revenue (2) 284.6 1,092.6 435.6 180.4 1,993.2
---------- ---------- --------- --------- ---------
Interest credited to policyholder
account balances -- 805.0 70.2 107.1 982.3
Amortization of deferred policy
acquisition costs 57.4 38.6 37.4 -- 133.4
Benefits and expenses 136.9 113.6 260.8 50.4 561.7
---------- ---------- --------- --------- ---------
Total expenses 194.3 957.2 368.4 157.5 1,677.4
---------- ---------- --------- --------- ---------
Operating income before federal
income tax 90.3 135.4 67.2 22.9 315.8
Realized losses on investments -- -- -- (0.3) (0.3)
---------- ---------- --------- --------- ---------
Consolidated income from
continuing operations before
federal tax expense $ 90.3 $ 135.4 $ 67.2 $ 22.6 $ 315.5
========== ========== ======== ======== =========
Assets as of year end $ 25,069.7 $ 13,994.7 $3,353.3 $5,348.5 $47,766.2
========== ========== ======== ======== =========
</TABLE>
-----------
(1) The Company's method of allocating net investment income results
in a charge (negative net investment income) to the Variable
Annuities segment which is recognized in the Corporate and Other
segment. The charge relates to non-invested assets which support
this segment on a statutory basis.
(2) Excludes realized gains and losses on investments.
The Company has no significant revenue from customers located outside
of the United States nor does the Company have any significant
long-lived assets located outside the United States.
(14) Discontinued Operations
-----------------------
As discussed in note 1, NFS is a holding company for NLIC and certain
other companies within the Nationwide Insurance Enterprise that offer
or distribute long-term savings and retirement products. Prior to the
contribution by Nationwide Corp. of the outstanding common stock of
NLIC to NFS, NLIC effected certain transactions with respect to certain
subsidiaries and lines of business that were unrelated to long-term
savings and retirement products.
On September 24, 1996, NLIC's Board of Directors declared a dividend
payable to Nationwide Corp. on January 1, 1997 consisting of the
outstanding shares of common stock of three subsidiaries: ELICW, NCC
and WCLIC. ELICW writes group accident and health and group life
insurance business and maintains it offices in Wausau, Wisconsin. NCC
is a property and casualty company with offices in Scottsdale, Arizona
that serves as a fronting company for a property and casualty
subsidiary of NMIC. WCLIC writes high dollar term life insurance
policies and is located in San Francisco, California. ELICW, NCC and
WCLIC have been accounted for as discontinued operations in the
accompanying consolidated financial statements through December 31,
1996. The Company did not recognize any gain or loss on the disposal of
these subsidiaries.
<PAGE> 27
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Also, during 1996, NLIC entered into two reinsurance agreements whereby
all of NLIC's accident and health and group life insurance business was
ceded to ELICW and NMIC, effective January 1, 1996. See note 10 for a
complete discussion of the reinsurance agreements. The Company has
discontinued its accident and health and group life insurance business
and in connection therewith has entered into reinsurance agreements to
cede all existing and any future writings to other affiliated
companies. NLIC's accident and health and group life insurance business
is accounted for as discontinued operations for all periods presented.
The Company did not recognize any gain or loss on the disposal of the
accident and health and group life insurance business. The assets,
liabilities, results of operations and activities of discontinued
operations are distinguished physically, operationally and for
financial reporting purposes from the remaining assets, liabilities,
results of operations and activities of the Company.
A summary of the results of operations of discontinued operations for
the years ended December 31, 1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1998 1997 1996
---- ---- ----
<S> <C> <C>
Revenues $ -- $ -- $ 668.9
Net income $ -- $ -- $ 11.3
</TABLE>
A summary of the assets and liabilities of discontinued operations as
of December 31, 1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Assets, consisting primarily of investments $221.5 $247.3 $3,288.5
Liabilities, consisting primarily of policy benefits and claims $221.5 $247.3 $2,802.8
</TABLE>
