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NATIONWIDE LIFE INSURANCE COMPANY
Deferred Variable Annuity contracts
Issued by Nationwide Life Insurance Company through
its Nationwide Variable Account
The date of this prospectus is May 1, 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 UNDERLYING MUTUAL FUNDS ARE AVAILABLE UNDER THE CONTRACTS:
FOR CONTRACTS ISSUED ON OR AFTER JANUARY 1, 1993:
o American Century: Short Term Government (formerly American Century:
Benham Short-Term Government)
o American Century: Income & Growth
o American Century: Growth (formerly American Century: Twentieth Century
Growth)
o American Century: International Growth (formerly American Century:
Twentieth Century International Growth)
o American Century: Ultra (formerly American Century: Twentieth Century
Ultra)
o Delchester Fund-Institutional Class
o Dreyfus A Bonds Plus, Inc.
o Dreyfus Appreciation Fund, Inc.
o Dreyfus Balanced Fund, Inc.
o Dreyfus S & P 500 Index Fund
o Dreyfus Third Century Fund, Inc.
o Evergreen Income and Growth Fund
o Federated Bond Fund - Class F
o Federated High Yield Trust*
o Fidelity Advisor Balanced Fund - Class T
o Fidelity Advisor Equity Income Fund - Class T
o Fidelity Advisor Growth Opportunities Fund - Class T
o Fidelity Advisor High Yield Fund - Class T
o Fidelity Asset Manager(TM)
o Fidelity Equity-Income Fund
o Fidelity Magellan(R) Fund
o Fidelity Puritan Fund
o Fidelity VIP High Income Portfolio* (additional purchase payments or
exchanges may not be made to this Fund on or after December 1, 1993).
o Franklin Mutual Series Fund, Inc. - Mutual Shares Fund: Class A
o INVESCO Dynamics Fund
o Janus Fund
o Janus Twenty Fund
o Janus Worldwide Fund
o Lazard Small Cap Portfolio - Open Shares
o MFS(R) World Governments Fund
o Nationwide(R) Bond Fund
o Nationwide(R) Fund
o Nationwide(R) Growth Fund
o Nationwide(R) Money Market Fund - Prime Shares
o Nationwide S&P 500(R) Index Fund - Class R (sub-adviser: The Dreyfus
Corporation)
o Nationwide(R) Intermediate U.S. Government Bond Fund
o Neuberger Berman Guardian Fund, Inc.
o Neuberger Berman Limited Maturity Bond Fund
o Neuberger Berman Partners Fund, Inc.
o Oppenheimer Global Fund/VA
o Phoenix Balanced Fund Series
o Prestige Balanced Fund - Class A
o Prestige International Fund - Class A
o Prestige Large Cap Growth Fund - Class A
o Prestige Large Cap Value Fund - Class A
o Prestige Small Cap Fund - Class A
o Strong Common Stock Fund, Inc.
o Strong Total Return Fund, Inc.
o Templeton Foreign Fund - Class A
o Warburg Pincus Emerging Growth Fund
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o Warburg Pincus Global Fixed Income Fund
* The Fidelity VIP High Income Portfolio and the Federated High Yield Trust may
invest in lower quality debt securities commonly referred to as junk bonds.
FOR PLANS ESTABLISHED PRIOR TO MARCH 6, 1998
o Neuberger Berman Equity Trust(R) - Neuberger Berman Genesis Trust
FOR CONTRACTS ISSUED PRIOR TO JANUARY 1, 1993
o American Century: Short Term Government (formerly American Century:
Benham Short-Term Government)
o American Century: Growth (formerly American Century: Twentieth Century
Growth)
o MFS(R) World Governments Fund
o Fidelity Capital & Income Fund(1)
o Fidelity VIP High Income Portfolio(2)
o Nationwide(R) Money Market Fund
o Fidelity Equity - Income Fund
(1)Additional purchase payments or exchanges may not be made to this Fund on or
after May 1, 1991. Not available for contracts which were issued on or after
May 1, 1987.
(2)Additional purchase payments or exchanges may not be made to this Fund on or
after December 1, 1993.
Purchase payments not invested in the underlying mutual fund options of the
Nationwide Variable Account may be allocated to the fixed account.
The Statement of Additional Information (dated May 1, 1999) which contains
additional information about the contracts and the variable account, has been
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 51.
For general information or to obtain FREE copies of the:
o Statement of Additional Information;
o prospectus for any underlying mutual fund; and
o required Nationwide forms,
call: 1-800-848-6331
TDD 1-800-238-3035
or write:
NATIONWIDE LIFE INSURANCE COMPANY
P.O. BOX 16609
COLUMBUS, OHIO 43216-6609
The Statement of Additional Information and other material incorporated by
reference can be found on the SEC website at:
www.sec.gov
THIS ANNUITY IS NOT:
o A BANK DEPOSIT o FEDERALLY INSURED
o ENDORSED BY A BANK o AVAILABLE IN EVERY STATE
OR GOVERNMENT AGENCY
Investors assume certain risks when investing in the contracts, including the
possibility of losing money.
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
ACCUMULATION UNIT- An accounting unit of measure used to calculate the contract
value allocated to the variable account before the annuitization date.
ANNUITIZATION DATE- The date on which annuity payments begin.
ANNUITY COMMENCEMENT DATE- The date on which annuity payments are scheduled to
begin. This date may be changed by the contract owner with Nationwide's consent.
ANNUITY UNIT- An accounting unit used to calculate the variable payment annuity
payments.
CONTRACT VALUE- The total of all accumulation units in a contract and any amount
held in the fixed account.
CONTRACT YEAR- Each year the contract is in force beginning with the date the
contract is issued.
ERISA- The Employee Retirement Income Security Act of 1974, as amended.
FIXED ACCOUNT- An investment option that is funded by the general account of
Nationwide.
GENERAL ACCOUNT- All assets of Nationwide other than those of the variable
account or in other separate accounts that have been or may be established by
Nationwide.
INDIVIDUAL RETIREMENT ACCOUNT- An account that qualifies for favorable tax
treatment under Section 408(a) of the Internal Revenue Code, but does not
include Roth IRAs.
INDIVIDUAL RETIREMENT ANNUITY- An annuity contract that qualifies for favorable
tax treatment under Section 408(b) of the Internal Revenue Code, but does not
include Roth IRAs or Simple IRAs.
NATIONWIDE- Nationwide Life Insurance Company.
NON-QUALIFIED CONTRACT- A contract which does not qualify for favorable tax
treatment as a Qualified Plan, Individual Retirement Annuity, Roth IRA, SEP IRA,
Simple IRA, or Tax Sheltered Annuity.
QUALIFIED PLANS- Retirement plans which receive favorable tax treatment under
Section 401 or 403(a) of the Internal Revenue Code.
ROTH IRA- An annuity contract which qualifies for favorable tax treatment under
Section 408A of the Internal Revenue Code.
SUB-ACCOUNTS- Divisions of the variable account to which underlying mutual fund
shares are allocated and for which accumulation units and annuity units are
separately maintained.
TAX SHELTERED ANNUITY- An annuity that qualifies for favorable tax treatment
under Section 403(b) of the Internal Revenue Code.
VALUATION PERIOD- Each day the New York Stock Exchange is open for business.
VARIABLE ACCOUNT- Nationwide Variable Account, a separate account of Nationwide
that contains variable account allocations. The variable account is divided into
sub-accounts, each of which invests in shares of a separate underlying mutual
fund.
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TABLE OF CONTENTS
GLOSSARY OF SPECIAL TERMS................................................ 3
SUMMARY OF STANDARD CONTRACT
EXPENSES (FOR CONTRACTS ISSUED ON OR AFTER JANUARY 1, 1993) ........ 6
UNDERLYING MUTUAL FUND ANNUAL
EXPENSES (FOR CONTRACTS ISSUED ON OR AFTER JANUARY 1, 1993) ........ 7
EXAMPLE (FOR CONTRACTS ISSUED ON OR AFTER JANUARY 1, 1993) .............. 9
SUMMARY OF STANDARD CONTRACT
EXPENSES (FOR CONTRACTS ISSUED PRIOR TO JANUARY 1, 1993) ...........12
UNDERLYING MUTUAL FUND ANNUAL
EXPENSES (FOR CONTRACTS ISSUED PRIOR TO JANUARY 1, 1993) ...........13
EXAMPLE (FOR CONTRACTS ISSUED PRIOR TO JANUARY 1, 1993) .................14
SYNOPSIS OF THE CONTRACTS................................................15
FINANCIAL STATEMENTS.....................................................15
CONDENSED FINANCIAL INFORMATION..........................................16
NATIONWIDE LIFE INSURANCE COMPANY........................................24
NATIONWIDE ADVISORY SERVICES, INC........................................24
INVESTING IN THE CONTRACT................................................24
The Variable Account and Underlying Mutual Funds
Guaranteed Term Options
The Fixed Account
STANDARD CHARGES AND DEDUCTIONS..........................................26
Mortality Risk Charge
Expense Risk Charge
Contingent Deferred Sales Charge
Elimination of CDSC
Contract Maintenance Charge
Administration Charge
Premium Taxes
CONTRACT OWNERSHIP.......................................................28
Annuitant
Beneficiary and Contingent Beneficiary
OPERATION OF THE CONTRACT................................................29
Pricing
Allocation of Purchase Payments
Determining the Contract Value
Transfers
RIGHT TO REVOKE..........................................................32
SURRENDER (REDEMPTION)...................................................32
Surrenders Under a Qualified Plan
LOAN PRIVILEGE...........................................................33
Minimum & Maximum Loan Amounts
Loan Processing Fee
How Loan Requests are Processed
Interest
Loan Repayment
Distributions & Annuity Payments
Transferring the Contract
Grace Period & Loan Default
CONTRACT OWNER SERVICES..................................................34
Asset Rebalancing
Dollar Cost Averaging
Systematic Withdrawals
ANNUITY COMMENCEMENT DATE................................................35
ANNUITIZING THE CONTRACT.................................................35
Annuitization Date
Annuitization
Fixed Payment Annuity
Variable Payment Annuity
Assumed Investment Rate
Value of an Annuity Unit
Exchanges Among Underlying Mutual Funds
Frequency and Amount of Annuity Payments
Annuity Payment Options
DEATH BENEFITS..........................................................37
Death of Contract Owner
Death of Annuitant
Death of Contract Owner/Annuitant
How the Death Benefit Value is Determined
Death Benefit Payment
REQUIRED DISTRIBUTIONS..................................................38
Required Distributions for Qualified Plans
Required Distributions for Individual Retirement Accounts
Required Distributions for Roth IRAs
FEDERAL TAX CONSIDERATIONS..............................................40
Federal Income Taxes
IRAs, SEP IRAs and Individual Retirement Accounts
Roth IRAs
Qualified Plans and Individual Retirement Accounts
Individual Retirement Accounts
Withholding
Federal Estate, Gift, and Generation Skipping Transfer Taxes
STATEMENTS AND REPORTS..................................................44
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YEAR 2000 COMPLIANCE ISSUES.............................................44
LEGAL PROCEEDINGS.......................................................45
ADVERTISING AND SUB-ACCOUNT PERFORMANCE SUMMARY.........................46
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION................51
APPENDIX A: OBJECTIVES FOR UNDERLYING MUTUAL FUNDS......................52
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SUMMARY OF CONTRACT EXPENSES
(FOR CONTRACTS ISSUED ON OR AFTER JANUARY 1, 1993)
The expenses listed below are charged to all contracts issued on or after
January 1, 1993, unless the contract owner meets an available exception.
CONTRACT OWNER TRANSACTION EXPENSES
Maximum Contingent Deferred Sales Charge ("CDSC") (as a percentage of
purchase payments surrendered)...........................................7%(1)
Range of CDSC over time:
<TABLE>
<CAPTION>
NUMBER OF COMPLETED YEARS FROM CDSC
DATE OF PURCHASE PAYMENT PERCENTAGE
<S> <C>
0 7%
1 6%
2 5%
3 4%
4 3%
5 2%
6 1%
7 0%
</TABLE>
(1) Starting with the second year after a purchase payment has been made, 10%
of that purchase payment may be withdrawn without imposition of a CDSC. The
CDSC is waived:
(a) for first year withdrawals of up to 10% of purchase payments for
Individual Retirement Account rollover contracts; or
(b) for any amount withdrawn from this contract required to meet minimum
distribution requirements under the Internal Revenue Code.
This free withdrawal privilege is non-cumulative. Free amounts not taken
during any given contract year cannot be taken as free amounts in a
subsequent contract year (see "Contingent Deferred Sales Charge").
Withdrawals may be restricted for contracts issued pursuant to the terms of
a Qualified Plan.
MAXIMUM ANNUAL CONTRACT MAINTENANCE CHARGE.............................$30(2)
VARIABLE ACCOUNT CHARGES(3)
(as a percentage of average account value)
Administration Charge..................................................0.05%
Mortality and Expense Risk Charge......................................1.25%
Total Variable Account Charges....................................1.30%
(2) The Contract Maintenance Charge is deducted annually from all contracts on
each contract anniversary.
(3) These charges apply only to sub-account allocations. They do not apply to
allocations made to the fixed account. They are charged on a daily basis at
the annual rate noted above.
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UNDERLYING MUTUAL FUND ANNUAL EXPENSES
(FOR CONTRACTS ISSUED ON OR AFTER JANUARY 1, 1993)
<TABLE>
<CAPTION>
Management Other 12b-1 Total Mutual
Fees Expenses Fees Fund Expenses
<S> <C> <C> <C> <C>
American Century: Short Term Growth (formerly Benham 0.59% 0.00% 0.00% 0.59%
Short-Term Government)
American Century: Income & Growth 0.69% 0.00% 0.00% 0.69%
American Century: Growth (formerly Twentieth Century Growth) 1.00% 0.00% 0.00% 1.00%
American Century: International Growth (formerly Twentieth 1.35% 0.00% 0.00% 1.35%
Century International Growth)
American Century: Ultra (formerly Twentieth Century Ultra) 1.00% 0.00% 0.00% 1.00%
Delchester Fund-Institutional Class 0.26% 0.69% 0.00% 0.95%
Dreyfus A Bonds Plus, Inc. 0.65% 0.30% 0.00% 0.95%
Dreyfus Appreciation Fund, Inc. 0.55% 0.34% 0.00% 0.89%
Dreyfus Balanced Fund, Inc. 0.60% 0.32% 0.00% 0.92%
Dreyfus S & P 500 Index Fund (formerly Peoples Index Fund(R), 0.25% 0.25% 0.00% 0.50%
Inc.)
The Dreyfus Third Century Fund, Inc. 0.75% 0.22% 0.00% 0.97%
Evergreen Income and Growth Fund 0.97% 0.28% 0.00% 1.25%
Federated Bond Fund - Class F 0.65% 0.43% 0.00% 1.08%
Federated High Yield Trust 0.53% 0.35% 0.00% 0.88%
Fidelity Advisor Balanced Fund - Class T 0.46% 0.26% 0.50% 1.22%
Fidelity Advisor Equity Income Fund - Class T 0.55% 0.45% 0.25% 1.20%
Fidelity Advisor Growth Opportunities Fund - Class T 0.46% 0.42% 0.25% 1.13%
Fidelity Advisor High Yield Fund - Class T 0.58% 0.24% 0.25% 1.07%
Fidelity Asset Manager 0.42% 0.17% 0.00% 0.59%
Fidelity Equity-Income Fund 0.47% 0.20% 0.00% 0.67%
Fidelity Magellan(R) Fund 0.42% 0.17% 0.00% 0.59%
Fidelity Puritan Fund 0.44% 0.19% 0.00% 0.63%
Fidelity VIP High Income Portfolio 0.58% 0.12% 0.00% 0.70%
Franklin Mutual Series Fund Inc. - Mutual Shares Fund: 0.60% 0.15% 0.35% 1.10%
Class A
INVESCO Dynamics Fund 0.55% 0.28% 0.25% 1.08%
Janus Fund 0.65% 0.19% 0.00% 0.84%
Janus Twenty Fund 0.65% 0.21% 0.00% 0.86%
Janus Worldwide Fund 0.65% 0.24% 0.00% 0.89%
Lazard Small Cap Portfolio - Open Shares 0.75% 0.14% 0.25% 1.14%
MFS(R) World Governments Fund 0.75% 0.35% 0.25% 1.35%
Nationwide(R) Bond Fund - Class D 0.50% 0.30% 0.00% 0.80%
Nationwide(R) Fund - Class D 0.57% 0.12% 0.00% 0.69%
Nationwide(R) Growth Fund - Class D 0.58% 0.19% 0.00% 0.77%
Nationwide(R) Money Market - Prime Shares 0.40% 0.18% 0.00% 0.58%
Nationwide Nationwide(R) Intermediate U.S. Government Bond 0.50% 0.27% 0.00% 0.77%
Fund - Class D)
Nationwide S&P 500(R) Index Fund - Class R 0.13% 0.23% 0.24% 0.60%
Neuberger Berman Equity Trust(R) - Neuberger Berman Genesis 1.11% 0.06% 0.00% 1.17%
Trust
Neuberger Berman Guardian Fund, Inc. 0.70% 0.09% 0.00% 0.79%
Neuberger Berman Limited Maturity Bond Fund 0.65% 0.11% 0.00% 0.76%
</TABLE>
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UNDERLYING MUTUAL FUND ANNUAL EXPENSES (CONTINUED)
(FOR CONTRACTS ISSUED ON OR AFTER JANUARY 1, 1993)
<TABLE>
<CAPTION>
Management Other 12b-1 Total Mutual
Fees Expenses Fees Fund Expenses
<S> <C> <C> <C> <C>
Neuberger Berman Partners Fund, Inc. 0.71% 0.09% 0.00% 0.80%
Oppenheimer Global Fund/VA 0.69% 0.23% 0.22% 1.14%
Phoenix Balanced Fund Series 0.53% 0.19% 0.25% 0.97%
Prestige Balanced Fund - Class A 0.25% 0.60% 0.25% 1.10%
Prestige International Fund - Class A 0.43% 0.62% 0.25% 1.30%
Prestige Large Cap Growth Fund - Class A 0.35% 0.60% 0.25% 1.20%
Prestige Large Cap Value Fund - Class A 0.30% 0.60% 0.25% 1.15%
Prestige Small Cap Fund - Class A 0.50% 0.60% 0.25% 1.35%
Strong Common Stock Fund 1.00% 0.20% 0.00% 1.20%
Strong Total Return Fund, Inc. 0.80% 0.21% 0.00% 1.01%
Templeton Foreign Fund- Class A 0.61% 0.26% 0.25% 1.12%
Warburg Pincus Emerging Growth Fund 0.90% 0.32% 0.00% 1.22%
Warburg Pincus Global Fixed Income Fund 0.55% 0.40% 0.00% 0.95%
</TABLE>
The expenses shown above are deducted by the underlying mutual fund before it
provides Nationwide with the daily net asset value. Nationwide then deducts
applicable variable account charges from the net asset value to calculate the
unit value of the corresponding sub-account. The management fees and other
expenses are more fully described in the prospectus for each underlying mutual
fund. Information relating to the underlying mutual funds was provided by the
underlying mutual funds and not independently verified by Nationwide.
Some underlying mutual funds are subject to fee waivers and expense
reimbursements. The following chart shows what the expenses would have been for
such funds without fee waivers and expense reimbursements.
<TABLE>
<CAPTION>
Management Other 12b-1 Total Mutual
Fees Expenses Fees Fund Expenses
<S> <C> <C> <C> <C>
Delchester Fund - Institutional Class 0.65% 0.49% 0.00% 1.14%
Federated Bond Fund - Class F
Federated High Yield Trust 0.75% 0.40% 0.00% 1.15%
Fidelity Advisor Equity Income Fund - Class T 0.50% 0.46% 0.25% 1.21%
Fidelity Advisor Growth Opportunities - Class T 0.46% 0.43% 0.25% 1.14%
Fidelity Asset Manager 0.42% 0.18% 0.00% 0.60%
Fidelity Magellan 0.42% 0.18% 0.00% 0.60%
Fidelity Puritan 0.44% 0.21% 0.00% 0.65%
Nationwide S&P 500(R) Index Fund - Class R 0.13% 0.66% 0.24% 1.03%
Nationwide Intermediate U.S. Government Bond Fund 0.50% 0.78% 0.00% 0.78%
Warburg Pincus Global Fixed Income Fund 1.00% 0.41% 0.00% 1.41%
</TABLE>
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EXAMPLE
(FOR CONTRACTS ISSUED ON OR AFTER JANUARY 1, 1993)
The following chart shows the amount of expenses (in dollars) that would be
incurred under this contract assuming a $1,000 investment, 5% annual return, and
no change in expenses. These dollar figures are illustrative only and should not
be considered a representation of past or future expenses. Actual expenses may
be greater or less than those shown below.
The example reflects expenses of both the variable account and the underlying
mutual funds. The example reflects the standard 7 year CDSC schedule and the
maximum amount of variable account charges that could be assessed to a contract
(1.30%). The Contract Maintenance Charge is expressed as a percentage of the
average contract account size for existing contracts. Since the average contract
account size is greater than $1000, the expense effect of the Contract
Maintenance Charge is reduced accordingly. Deductions for premium taxes are not
reflected but may apply.
The summary of contract expenses and example are to help contract owners
understand the expenses associated with the contract.
<TABLE>
<CAPTION>
IF YOU SURRENDER YOUR IF YOU DO NOT SURRENDER IF YOU ANNUITIZE YOUR
CONTRACT AT THE END OF THE YOUR CONTRACT AT THE END CONTRACT AT THE END OF THE
APPLICABLE TIME PERIOD OF THE APPLICABLE TIME APPLICABLE TIME PERIOD
PERIOD
1 3 5 10 1 3 5 10 1 3 5 10
YR. YRS. YRS. YRS. YR. YRS. YRS. YRS. YR. YRS. YRS. YRS.
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
American Century: Short Term 91 109 137 237 21 64 110 237 * 64 110 237
Government (formerly Benham
Short-Term Government)
American Century: Income & 92 112 143 248 22 67 116 248 * 67 116 248
Growth
American Century: Growth 95 122 159 281 25 77 132 281 * 77 132 281
(formerly Twentieth Century
Growth)
American Century: International 99 133 177 317 29 88 150 317 * 88 150 317
Growth (formerly Twentieth
Century International Growth)
American Century: Ultra 95 122 159 281 25 77 132 281 * 77 132 281
(formerly Twentieth Century
Ultra)
Delchester Fund-Inst'l 92 113 143 249 22 68 116 249 * 68 116 249
Dreyfus A Bonds Plus 95 121 156 276 25 76 129 276 * 76 129 276
Dreyfus Appreciation Fund, Inc. 94 119 153 270 24 74 126 270 * 74 126 270
Dreyfus Balanced Fund, Inc. 94 120 155 273 24 75 128 273 * 75 128 273
Dreyfus S & P 500 Index Fund 90 106 132 228 20 61 105 228 * 61 105 228
(Formerly Peoples Index Fund,
Inc.)
The Dreyfus Third Century Fund, 95 121 157 278 25 76 130 278 * 76 130 278
Inc.
Evergreen Income and Growth Fund 98 130 172 307 28 85 145 307 * 85 145 307
Federated Bond Fund - Class F 96 125 163 289 26 80 136 289 * 80 136 289
Federated High Yield Trust 94 118 153 268 84 73 126 268 * 73 126 268
Fidelity Advisor Balanced Fund 95 123 160 283 25 78 133 283 * 78 133 283
- - Class T
Fidelity Advisor Fund Equity 95 123 160 283 25 78 133 283 * 78 133 286
Income Fund - Class T
Fidelity Advisor Fund Growth 95 121 157 277 25 76 130 277 * 76 130 277
Opportunities Fund - Class T
</TABLE>
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EXAMPLE (CONTINUED)
(FOR CONTRACTS ISSUED ON OR AFTER JANUARY 1, 1993)
<TABLE>
<CAPTION>
IF YOU SURRENDER YOUR IF YOU DO NOT SURRENDER IF YOU ANNUITIZE YOUR
CONTRACT AT THE END OF THE YOUR CONTRACT AT THE END CONTRACT AT THE END OF THE
APPLICABLE TIME PERIOD OF THE APPLICABLE TIME APPLICABLE TIME PERIOD
PERIOD
1 3 5 10 1 3 5 10 1 3 5 10
YR. YRS. YRS. YRS. YR. YRS. YRS. YRS. YR. YRS. YRS. YRS.
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fidelity Advisor High Yield 95 122 159 281 25 77 132 281 * 77 132 281
Fund - Class T
Fidelity Asset Manager(TM) 91 109 137 237 21 64 110 237 * 64 110 237
Fidelity Equity-Income Fund 92 112 141 246 22 67 114 246 * 67 114 246
Fidelity Magellan Fund 91 109 137 237 21 64 110 237 * 64 110 237
Fidelity Puritan Fund 91 110 139 242 21 65 112 272 * 65 112 242
Fidelity VIP High Income 92 113 143 249 22 68 116 249 * 68 116 249
Portfolio
Franklin Mutual Series Fund 95 125 164 291 26 80 137 291 * 80 137 291
Inc.- Mutual Shares Fund:
Class A
INVESCO Dynamics Fund 96 125 163 289 26 80 136 289 * 80 136 289
Janus Fund 93 117 150 264 23 72 123 264 * 72 123 264
Janus Twenty Fund 94 118 152 266 244 73 125 266 * 73 125 266
Janus Worldwide Fund 94 119 153 270 24 74 126 810 * 74 126 270
Lazard Small Cap Portfolio - 97 127 166 295 27 82 139 295 82 139 295
Open Shares
MFS(R) World Governments Fund 99 133 177 317 29 88 150 317 * 88 150 317
Nationwide(R) Bond Fund - Class D 93 116 148 260 23 71 121 269 * 71 121 260
Nationwide(R) Fund - Class D 92 112 143 248 22 67 116 248 * 67 116 248
Nationwide(R) Growth Fund - 93 115 147 257 23 70 120 257 * 70 120 257
Class D
Nationwide(R) Money Market Fund - 91 109 137 236 21 64 110 236 * 64 110 236
Prime Shares
Nationwide(R) Intermediate U.S. 93 115 147 258 23 70 120 258 * 70 120 258
Government Bond Fund
Nationwide S&P 500(R) Index Fund 95 123 160 284 25 78 133 284 * 78 133 284
- - Class R
Neuberger Berman Equity Trust(R) 97 128 168 299 27 83 141 299 * 83 141 299
- - Neuberger Berman Genesis Trust
Neuberger Berman Guardian Fund, 93 116 148 259 23 71 121 259 * 71 121 259
Inc.
Neuberger Berman Limited 92 113 143 249 22 68 116 249 * 68 116 249
Maturity Bond Fund
Neuberger Berman Partners Fund, 93 116 148 260 23 71 121 261 * 71 121 260
Inc.
Oppenheimer Global Fund/VA 97 127 166 295 27 82 139 295 * 82 139 295
Phoenix Balanced Fund Series 95 121 157 278 25 76 130 278 * 76 130 278
Prestige Balanced Fund - Class A 96 125 164 291 26 80 137 291 * 80 137 291
Prestige International Fund - 98 132 175 312 28 87 148 312 * 87 148 312
Class A
</TABLE>
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EXAMPLE (CONTINUED)
(FOR CONTRACTS ISSUED ON OR AFTER JANUARY 1, 1993)
<TABLE>
<CAPTION>
IF YOU SURRENDER YOUR IF YOU DO NOT SURRENDER IF YOU ANNUITIZE YOUR
CONTRACT AT THE END OF THE YOUR CONTRACT AT THE END CONTRACT AT THE END OF THE
APPLICABLE TIME PERIOD OF THE APPLICABLE TIME APPLICABLE TIME PERIOD
PERIOD
1 3 5 10 1 3 5 10 1 3 5 10
YR. YRS. YRS. YRS. YR. YRS. YRS. YRS. YR. YRS. YRS. YRS.
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Prestige Large Cap Growth Fund 97 128 169 302 27 83 142 302 * 83 142 302
- - Class A
Prestige Large Cap Value Fund - 97 127 167 297 27 82 140 297 * 82 140 297
Class A
Prestige Small Cap - Fund 99 133 177 317 29 88 150 317 * 88 150 317
Class A
Strong Common Stock Fund 97 128 168 299 27 83 141 299 * 83 141 299
Strong Total Return Fund, Inc. 95 122 159 282 25 77 132 282 * 77 132 282
Templeton Foreign Fund - Class A 96 126 165 293 26 81 138 293 * 81 138 293
Warburg Pincus Emerging Growth 97 129 170 304 27 84 143 304 * 84 143 304
Fund
Warburg Pincus Global Fixed 95 121 156 276 25 76 129 276 * 76 129 276
Income Fund
</TABLE>
* The contracts sold under this prospectus do not permit annuitization during
the first two contract years.
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SUMMARY OF CONTRACT EXPENSES
(FOR CONTRACTS ISSUED PRIOR TO JANUARY 1, 1993)
The expenses listed below are charged to all contracts issued prior to January
1, 1993, unless the contract owner meets an available exception.
CONTRACT OWNER TRANSACTION EXPENSES
Maximum Contingent Deferred Sales Charge ("CDSC") (as a percentage of
purchase payments surrendered)...........................................5%(1)
(1) After the first year from the date of any purchase payment, the contract
owner may withdraw 5% of that purchase payment without imposition of a
CDSC.
MAXIMUM ANNUAL CONTRACT MAINTENANCE CHARGE...............................$30(2)
VARIABLE ACCOUNT CHARGES(3)
(as a percentage of average account value)
Mortality and Expense Risk Charges......................................1.30%
Total Variable Account Charges.....................................1.30%
(2) The Contract Maintenance Charge is deducted annually from all contracts on
each contract anniversary.
(3) These charges apply only to sub-account allocations. They do not apply to
allocations made to the fixed account. They are charged on a daily basis at
the annual rate noted above.
12
<PAGE> 13
UNDERLYING MUTUAL FUND ANNUAL EXPENSES
(FOR CONTRACTS ISSUED PRIOR TO JANUARY 1, 1993)
<TABLE>
<CAPTION>
Total Mutual
Management Other Fund
Fees Expenses 12b-1 Fees Expenses
<S> <C> <C> <C> <C>
American Century: Short Term Government (formerly 0.59% 0.00% 0.00% 0.59%
Benham Short-Term Government)
American Century: Growth (formerly Twentieth Century 1.00% 0.00% 0.00% 1.00%
Growth)
Fidelity Capital & Income Fund 0.58% 0.23% 0.00% 0.81%
Fidelity VIP High Income Portfolio 0.58% 0.12% 0.00% 0.70%
MFS(R)World Governments Fund 0.75% 0.35% 0.25% 1.35%
Nationwide(R) Bond Fund - Class D 0.50% 0.30% 0.00% 0.80%
Nationwide(R) Fund - Class D 0.57% 0.12% 0.00% 0.69%
Nationwide(R) Growth Fund - Class D 0.58% 0.19% 0.00% 0.77%
Nationwide(R) Money Market - Prime Shares 0.40% 0.18% 0.00% 0.58%
</TABLE>
The expenses shown above are deducted by the underlying mutual fund before it
provides Nationwide with the daily net asset value. Nationwide then deducts
applicable variable account charges from the net asset value to calculate the
unit value of the corresponding sub-account. The management fees and other
expenses are more fully described in the prospectus for each underlying mutual
fund. Information relating to the underlying mutual funds was provided by the
underlying mutual funds and not independently verified by Nationwide.
13
<PAGE> 14
EXAMPLE
(FOR CONTRACTS ISSUED PRIOR TO JANUARY 1, 1993)
The following chart shows the amount of expenses (in dollars) that would be
incurred under this contract assuming a $1,000 investment, 5% annual return, and
no change in expenses. These dollar figures are illustrative only and should not
be considered a representation of past or future expenses. Actual expenses may
be greater or less than those shown below. The example reflects expenses of both
the variable account and the underlying mutual funds.
The example reflects the standard 7 year CDSC schedule and the maximum amount of
variable account charges that could be assessed to a contract (1.30%). The
Contract Maintenance Charge is expressed as a percentage of the average contract
account size for existing contracts. Since the average contract account size is
greater than $1000, the expense effect of the Contract Maintenance Charge is
reduced accordingly. Deductions for premium taxes are not reflected but may
apply.
The summary of contract expenses and example are to help contract owners
understand the expenses associated with the contract.
<TABLE>
<CAPTION>
IF YOU SURRENDER YOUR IF YOU DO NOT SURRENDER IF YOU ANNUITIZE YOUR
CONTRACT AT THE END OF THE YOUR CONTRACT AT THE END OF CONTRACT AT THE END OF THE
APPLICABLE TIME PERIOD THE APPLICABLE TIME PERIOD APPLICABLE TIME PERIOD
1 3 5 10 1 3 5 10 1 3 5 10
YR. YRS. YRS. YRS. YR. YRS. YRS. YRS. YR. YRS. YRS. YRS.
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
American Century: 95 122 159 281 25 77 132 281 * 77 132 281
Growth (formerly
Twentieth Century
Growth)
American Century: 91 109 137 237 21 64 110 237 * 64 110 237
Short Term Government
(formerly Benham
Short-Term Government)
Fidelity Capital & 93 116 149 261 23 71 122 261 * 71 122 261
Income Fund
Fidelity VIP High 92 113 143 249 22 68 116 249 * 68 116 249
Income Portfolio
MFS(R) World 99 133 177 317 29 88 150 317 * 88 150 317
Governments Fund
Nationwide(R) Money 91 109 137 236 21 64 110 236 * 64 110 236
Market Fund - Prime
Shares
Nationwide(R) Bond 93 116 148 260 23 71 121 261 * 71 121 260
Fund - Class D
Nationwide(R) Fund - 92 112 143 248 22 67 116 248 * 67 116 248
Class D
Nationwide(R) Growth 93 115 147 257 23 70 120 257 * 70 120 257
Fund - Class D
</TABLE>
* The contracts sold under this prospectus do not permit annuitization during
the first two contract years.
14
<PAGE> 15
SYNOPSIS OF THE CONTRACTS
The contracts described in this prospectus are deferred variable annuity
contracts. Contracts issued prior to January 1, 1993 were issued to the trustees
of Qualified Plans as Qualified Contracts. Currently (and at all times after
January 1, 1993), the contracts are issued to custodians of Individual
Retirement Accounts for the benefit of Individual Retirement Account holders.
Contracts issued after January 1, 1993 do not qualify for tax-deferral under
federal tax rules governing Non-Qualified Annuities or Individual Retirement
Annuities. Such contracts are, however, issued to custodians of Individual
Retirement Accounts for the benefit of Individual Retirement Account holders.
Such account holders will be the annuitant under these contracts. Annuity
payments under the contracts are deferred until a selected later date.
CHARGES AND EXPENSES
Nationwide deducts a Mortality Risk Charge equal to an annual rate of 0.80% of
the daily net assets of the variable account for mortality risk assumed by
Nationwide (see "Mortality Risk Charge").
Nationwide deducts an Expense Risk Charge equal to an annual rate of 0.45%
(0.50% for contracts issued prior to January 1, 1993) of the daily net assets of
the variable account as compensation for Nationwide's risk in undertaking not to
increase administrative charges on the contracts regardless of the actual
administrative costs (see "Expense Risk Charge").
Nationwide does not deduct a sales charge from purchase payments made for these
contracts. However, if any part of the contract value is surrendered, Nationwide
will, with certain exceptions, deduct a Contingent Deferred Sales Charge
("CDSC") not to exceed 7% of purchase payments surrendered. For contracts issued
before January 1, 1993, Nationwide will deduct a CDSC not to exceed 5% of
purchase payments surrendered. This charge, when applicable, is imposed to
permit Nationwide to recover sales expenses which have been advanced by
Nationwide (see "Contingent Deferred Sales Charge").
On each contract anniversary, Nationwide will deduct a Contract Maintenance
Charge of $30 from the contract value.
For contracts issued on or after January 1, 1993, Nationwide will assess an
Administration Charge equal to an annual rate of 0.05% of the daily net assets
of the variable account.
These charges are to reimburse Nationwide for administrative expenses related to
the issuance and maintenance of the contracts (see "Contract Maintenance Charge"
and "Administration Charge").
ANNUITY PAYMENTS
Annuity payments begin on the annuitization date. The payments will be based on
the annuity payment option chosen at the time of application (see "Annuity
Payment Options").
TAXATION
How the contracts are taxed 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 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 the telephone number listed on page 2 of this prospectus.
15
<PAGE> 16
CONDENSED FINANCIAL INFORMATION
Accumulation unit values for an accumulation unit outstanding throughout the
period.
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION PERCENT NUMBER OF
UNIT VALUE UNIT VALUE CHANGE IN ACCUMULATION
AT BEGINNING AT END ACCUMULATION UNITS AT END
FUND OF PERIOD OF PERIOD UNIT VALUE OF THE PERIOD YEAR
<S> <C> <C> <C> <C> <C>
American Century: Short 21.986961 23.012292 4.66% 131,664 1998
Term Government 21.012508 21.986961 4.64% 138,808 1997
(formerly Benham Short 20.449954 21.012508 2.75% 157,941 1996
Term Government) 18.748399 20.449954 9.08% 216,620 1995
19.087872 18.748399 -1.78% 183,649 1994
18.563845 19.087872 2.82% 182,484 1993
18.018283 18.563845 3.03% 177,970 1992
16.352445 18.018283 10.19% 191,264 1991
15.400806 16.352445 6.18% 188,328 1990
14.188398 15.400806 8.55% 224,117 1989
American Century: Income 14.002308 17.640513 25.98% 397,026 1998
& Growth 10.551440 14.002308 32.71% 135,424 1997
10.000000 10.551440 5.51% 18,133 1996
American Century: 65.572069 88.518097 34.99% 150,519 1998
Growth (formerly 51.389039 65.572069 27.60% 158,492 1997
Twentieth Century Growth) 45.274141 51.389039 13.51% 186,518 1996
38.113717 45.274141 18.79% 231,124 1995
39.197771 38.113717 -2.77% 324,141 1994
38.275689 39.197771 2.41% 335,369 1993
40.518750 38.275689 -5.54% 404,811 1992
24.287059 40.518750 66.83% 410,440 1991
25.592676 24.287059 -5.10% 401,940 1990
18.114515 25.592676 41.28% 428,017 1989
American Century: 15.678789 18.416900 17.46% 48,212 1998
International Growth 13.268469 15.678789 18.17% 31,799 1997
(formerly Twentieth 11.748911 13.268469 12.93% 7,683 1996
Century International 10.000000 11.748911 17.49% 25,477 1995
Growth)
American Century: Ultra 16.780808 22.284614 32.80% 784,677 1998
(formerly Twentieth 13.807925 16.780808 21.53% 660,821 1997
Century Ultra) 12.289075 13.807925 12.36% 530,842 1996
9.043121 12.289075 35.89% 266,570 1995
9.505758 9.043121 -4.87% 116,020 1994
10.000000 9.505758 -4.94% 2,713 1993
Delchester Fund Inst'l 15.348845 14.911925 -2.85% 73,489 1998
13.618147 15.348845 12.71% 87,319 1997
12.257125 13.618147 11.10% 70,363 1996
10.867271 12.257125 12.79% 65,214 1995
11.511092 10.867271 -5.59% 43,997 1994
10.000000 11.511092 15.11% 15,953 1993
</TABLE>
16
<PAGE> 17
CONDENSED FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION PERCENT NUMBER OF
UNIT VALUE UNIT VALUE CHANGE IN ACCUMULATION
AT BEGINNING AT END ACCUMULATION UNITS AT END
FUND OF PERIOD OF PERIOD UNIT VALUE OF THE PERIOD YEAR
<S> <C> <C> <C> <C> <C>
Dreyfus Appreciation Fund, 10.000000 12.724781 27.25% 56,730 1998
Inc. - Q
Dreyfus Balanced Fund, 10.000000 10.755504 7.56 14,859 1998
Inc. - Q
Dreyfus A Bonds Plus, Inc. 11.848519 12.008201 1.35% 14,859 1998
10.958199 11.848519 8.12% 156,006 1997
10.819193 10.958199 1.28% 169,248 1996
9.110600 10.819193 18.75% 53,005 1995
10.000000 9.110600 -8.89% 15,283 1994
Dreyfus S & P 500 Index 22.921661 28.976575 26.42% 429,513 1998
Fund 17.509385 22.921661 30.91% 332,923 1997
14.505515 17.509385 20.71% 187,389 1996
10.749166 14.505515 34.95% 33,323 1995
10.819026 10.749166 -0.65% 12,668 1994
10.000000 10.819026 8.19% 585 1993
The Dreyfus Third Century 20.101260 25.825514 28.48% 41,708 1998
Fund, Inc. 15.742432 20.101260 27.69% 35,892 1997
12.829548 15.742432 22.70% 21,194 1996
9.570659 12.829548 34.05% 12,292 1995
10.477293 9.570659 -8.65% 7,325 1994
10.000000 10.477293 4.77% 2,583 1993
Evergreen Income and 17.394044 17.031564 -2.08% 75,243 1998
Growth Fund (formerly 14.032960 17.394044 23.95% 63,791 1997
Evergreen Total Return 12.594984 14.032960 11.42% 65,357 1996
Fund) 10.301799 12.594984 22.26% 60,789 1995
11.153183 10.301799 -7.63% 51,305 1994
10.000000 11.153183 11.53% 32,321 1993
Federated Bond Fund - 11.076983 11.547474 4.25% 104,392 1998
Class F
10.117861 11.076983 9.48% 33,538 1997
10.000000 10.117861 1.18% 9,873 1996
Federated High Yield Trust 10.000000 9.976102 -0.24% 49,055 1998
- - Q
Fidelity Advisor Balanced 13.150098 14.984876 13.95% 31,056 1998
Fund - Class T 10.890814 13.150098 20.74% 13,345 1997
10.177458 10.890814 7.01% 2,740 1996
10.000000 10.177458 1.77% 0 1995
</TABLE>
17
<PAGE> 18
CONDENSED FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION PERCENT NUMBER OF
UNIT VALUE UNIT VALUE CHANGE IN ACCUMULATION
AT BEGINNING AT END ACCUMULATION UNITS AT END
FUND OF PERIOD OF PERIOD UNIT VALUE OF THE PERIOD YEAR
<S> <C> <C> <C> <C> <C>
Fidelity Advisor Equity 14.355400 16.455574 14.63% 103,814 1998
Income Fund - Class T 11.552736 14.355400 24.26% 84,318 1997
10.213719 11.552736 13.11% 59,163 1996
10.000000 10.213719 2.14% 0 1995
Fidelity Advisor Growth 15.224094 18.629791 22.37% 391,088 1998
Opportunities Fund - 11.997760 15.224094 26.89% 315,184 1997
Class - T 10.325686 11.997760 16.19% 177,245 1996
10.000000 10.325686 3.26% 0 1995
Fidelity Advisor High 12.767617 12.545500 -1.74% 22,247 1998
Yield Fund - Class T 11.241941 12.767617 13.57% 195,236 1997
10.057673 11.241941 11.77% 70,939 1996
10.000000 10.057673 0.58% 0 1995
Fidelity Asset Manager 15.016191 17.206302 14.58% 240,850 1998
12.442308 15.016191 20.57% 244,272 1997
11.183603 12.442308 11.25% 244,667 1996
9.589367 11.183603 16.63% 198,546 1995
10.415849 9.589367 -7.93% 150,536 1994
10.000000 10.415849 4.16% 3,292 1993
Fidelity Capital & Income 46.743425 48.330455 3.40% 24,848 1998
Fund 41.287772 46.743425 13.21% 27,378 1997
37.550944 41.287772 9.95% 29,770 1996
32.589111 37.550944 15.23% 37,608 1995
34.612981 32.589111 -5.85% 47,236 1994
28.076548 34.612981 23.28% 59,521 1993
22.214568 28.076548 26.39% 67,342 1992
17.337275 22.214568 28.13% 73,366 1991
18.269034 17.337275 -5.10% 100,081 1990
19.118217 18.269034 -4.44% 181,935 1989
Fidelity Equity - Income 70.928467 78.774753 11.06% 216,592 1998
Fund 55.285184 70.928467 28.30% 245,733 1997
46.285491 55.285184 19.44% 257,747 1996
35.576037 46.285491 30.10% 263,736 1995
35.955883 35.576037 -1.06% 306,544 1994
30.029661 35.955883 19.73% 305,774 1993
26.531856 30.029661 13.18% 285,928 1992
20.772673 26.531856 27.72% 294,858 1991
24.479712 20.772673 -15.14% 330,860 1990
20.898784 24.479712 17.13% 408,022 1989
</TABLE>
18
<PAGE> 19
CONDENSED FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION PERCENT NUMBER OF
UNIT VALUE UNIT VALUE CHANGE IN ACCUMULATION
AT BEGINNING AT END ACCUMULATION UNITS AT END
FUND OF PERIOD OF PERIOD UNIT VALUE OF THE PERIOD YEAR
<S> <C> <C> <C> <C> <C>
Fidelity Magellan(R) Fund 22.253917 29.350937 31.89% 775,189 1998
17.810611 22.253917 24.95% 655,202 1997
16.158074 17.810611 10.23% 6,562 1996
11.964387 16.158074 35.05% 63,859 1995
12.346838 11.964387 -3.10% 07,064 1994
10.000000 12.346838 23.47% 9,100 1993
Fidelity Puritan Fund 19.778111 22.760633 15.08% 631,678 1998
16.377974 19.778111 20.76% 99,590 1997
14.410892 16.377974 13.65% 75,617 1996
12.020413 14.410892 19.89% 01,466 1995
11.972512 12.020413 0.40% 61,179 1994
10.000000 11.972512 19.73% 4,320 1993
Fidelity VIP High 25.310146 23.899779 -5.57% 5,077 1998
Income Portfolio 21.793257 25.310146 16.14% 0,793 1997
19.364421 21.793257 12.54% 2,382 1996
16.267014 19.364421 19.04% 2,970 1995
16.739460 16.267014 -2.82% 4,151 1994
14.073333 16.739460 18.94% 2,931 1993
11.587552 14.073333 21.45% 2,842 1992
10.000000 11.587552 15.88% 0,365 1991
Franklin Mutual Series 10.000000 9.868029 -1.32% 18,848 1998
Fund, Inc. - Mutual Series
Fund: Class A - Q
INVESCO Dynamics Fund - Q 10.000000 10.504025 5.04% 0 1998(1)
Janus Fund 14.640570 20.070038 37.09% 303,830 1998
12.087447 14.640570 21.12% 35,485 1997
10.239338 12.087447 18.05% 33,123 1996
10.000000 10.239338 2.39% 0 1995
Janus Twenty Fund 18.897600 32.342568 71.15% 507,576 1998
14.762398 18.897600 28.01% 12,701 1997
11.699046 14.762398 26.18% 30,288 1996
8.701036 11.699046 34.46% 6,594 1995
9.451097 8.701036 -7.94% 6,135 1994
10.000000 9.451097 -5.49% 1,020 1993
Janus Worldwide Fund 12.268712 15.241714 24.23% 459,107 1998
10.317427 12.268712 18.91% 23,968 1997
10.000000 10.317427 3.17% 5,099 1996
</TABLE>
19
<PAGE> 20
CONDENSED FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION PERCENT NUMBER OF
UNIT VALUE UNIT VALUE CHANGE IN ACCUMULATION
AT BEGINNING AT END ACCUMULATION UNITS AT END
FUND OF PERIOD OF PERIOD UNIT VALUE OF THE PERIOD YEAR
<S> <C> <C> <C> <C> <C>
Lazard Small Cap Portfolio 10.000000 10.448830 4.49% 45 1998(1)
- - Open Shares - Q
MFS(R) World 36.509244 37.527462 2.79% 19,990 1998
Governments Fund - Q 36.879814 36.509244 -1.00% 0,631 1997
35.454983 36.879814 4.02% 8,013 1996
31.104159 35.454983 13.99% 4,015 1995
33.728667 31.104159 -7.78% 9,642 1994
28.864451 33.728667 16.85% 5,016 1993
28.856612 28.864451 0.03% 48,580 1992
25.777493 28.856612 11.94% 39,397 1991
22.152081 25.777493 16.37% 44,525 1990
20.902197 22.152081 5.98% 44,572 1989
Nationwide(R) Bond Fund - Q 40.827520 43.667785 6.96% 36,470 1998
37.842928 40.827520 7.89% 41,735 1997
37.782872 37.842928 0.16% 42,476 1996
30.832258 37.782872 22.54% 38,843 1995
33.991130 30.832258 -9.29% 35,282 1994
31.104546 33.991130 9.28% 35,392 1993
29.186916 31.104546 6.57% 21,409 1992
25.300143 29.186916 15.36% 18,724 1991
23.686756 25.300143 6.81% 16,600 1990
21.674206 23.686756 9.29% 20,519 1989
Nationwide(R) Fund - Q 97.524886 125.467347 28.65% 59,155 1998
70.764576 97.524886 37.82% 45,672 1997
57.857937 70.764576 22.31% 34,681 1996
45.095466 57.857937 28.30% 30,473 1995
45.422888 45.095466 -0.72% 32,311 1994
43.104048 45.422888 5.38% 32,770 1993
42.418147 43.104048 1.62% 30,648 1992
33.001868 42.418147 28.53% 28,864 1991
33.337339 33.001868 -1.01% 27,869 1990
25.242361 33.337339 32.07% 26,210 1989
</TABLE>
20
<PAGE> 21
CONDENSED FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION PERCENT NUMBER OF
UNIT VALUE UNIT VALUE CHANGE IN ACCUMULATION
AT BEGINNING AT END ACCUMULATION UNITS AT END
FUND OF PERIOD OF PERIOD UNIT VALUE OF THE PERIOD YEAR
<S> <C> <C> <C> <C> <C>
Nationwide(R) Growth 93.947252 121.157545 21.14% 218 1998
Fund - Q 75.405663 93.947252 24.59% 46,513 1997
65.471148 75.405663 15.17% 48,441 1996
51.535806 65.471148 27.04% 48,841 1995
51.458079 51.535806 0.15% 48,009 1994
46.832151 51.458079 9.88% 48,190 1993
44.639577 46.832151 4.91% 48,853 1992
33.241418 44.639577 34.29% 42,168 1991
36.439953 33.241418 -8.78% 43,789 1990
32.118373 36.439953 13.46% 53,223 1989
Nationwide(R) Money 20.316392 21.071063 3.71% 503,152 1998
19.580907 20.316392 3.76% 325,458 1997
Market Fund - Prime Shares 18.898613 19.580907 3.61% 327,248 1996
18.146709 18.898613 4.14% 424,693 1995
17.721943 18.146709 2.40% 326,464 1994
17.504831 17.721943 1.24% 294,859 1993
17.183173 17.504831 1.87% 303,845 1992
16.480790 17.183173 4.26% 450,748 1991
15.478296 16.480790 6.48% 548,549 1990
14.401492 15.478296 7.48% 568,349 1989
Nationwide S&P 500(R) Index 10.000000 10.015679 0.16% 0 1998(1)
Fund - Class R - Q
Nationwide(R) 11.156351 11.915504 6.80% 43,459 1998
Intermediate U.S. 10.324818 11.156351 8.05% 6,737 1997
Government Bond Fund
10.124709 10.324818 1.98% 6,372 1996
10.000000 10.124709 1.25% 0 1995
Neuberger Berman Equity 10.000000 9.266508 -7.33% 67,525 1998
Trust(R) Neuberger Berman
Genesis Trust - Q
Neuberger Berman 17.024633 17.198573 1.02% 436,072 1998
Guardian Fund 14.625126 17.024633 16.41% 448,443 1997
12.571028 14.625126 16.34% 357,346 1996
9.640402 12.571028 30.40% 139,046 1995
10.000000 9.640402 -3.60% 25,549 1994
</TABLE>
21
<PAGE> 22
CONDENSED FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION PERCENT NUMBER OF
UNIT VALUE UNIT VALUE CHANGE IN ACCUMULATION
AT BEGINNING AT END ACCUMULATION UNITS AT END
FUND OF PERIOD OF PERIOD UNIT VALUE OF THE PERIOD YEAR
<S> <C> <C> <C> <C> <C>
Neuberger Berman 11.672986 12.056542 3.29% 81,393 1998
Limited Maturity Bond 11.068501 11.672986 5.46% 67,262 1997
Fund 10.735070 11.068501 3.11% 74,163 1996
9.833352 10.735070 9.17% 91,976 1995
9.995028 9.833352 -1.62% 89,231 1994
10.000000 9.995028 -0.05% 423 1993
Neuberger Berman 23.764888 24.928856 4.90% 374,224 1998
Partners Fund 18.631249 23.764888 27.55% 312,513 1997
14.924653 18.631249 24.84% 222,551 1996
11.183371 14.924653 33.45% 73,504 1995
11.548721 11.183371 -3.16% 38,329 1994
10.000000 11.548721 15.49% 9,926 1993
Oppenheimer Global Fund/VA 21.669822 24.105920 11.24% 301,407 1998
18.022572 21.669822 20.24% 262,844 1997
15.538850 18.022572 15.98% 228,413 1996
13.503390 15.538850 15.07% 160,871 1995
14.119303 13.503390 -4.36% 87,590 1994
10.000000 14.119303 41.19% 5,128 1993
Phoenix Balanced Fund 14.235004 16.652539 16.98% 47,793 1998
Series 12.187868 14.235004 16.80% 46,629 1997
11.373217 12.187868 7.16% 43,659 1996
9.338434 11.373217 21.79% 23,786 1995
10.000000 9.338434 -6.62% 9,028 1994
Prestige Balanced Fund - Q 10.000000 10.034647 0.35% 0 1998(1)
Prestige International 10.000000 10.035113 0.35% 181 1998(1)
Fund - Q
Prestige Large Cap Growth 10.000000 10.084070 0.84% 0 1998(1)
Fund - Q
Prestige Large Cap Value 10.000000 10.229636 2.30% 0 1998(1)
Fund - Q
Prestige Small Cap Fund - Q 10.000000 10.359298 3.59% 45 1998(1)
Strong Common Stock Fund, 10.000000 10.418119 4.18% 0 1998(1)
Inc. - Q
Strong Total Return 20.549313 26.782090 30.33% 75,602 1998
Fund, Inc. 16.766964 20.549313 22.56% 78,495 1997
14.893186 16.766964 12.58% 63,801 1996
11.881033 14.893186 25.35% 41,291 1995
12.205201 11.881033 -2.66% 19,727 1994
10.000000 12.205201 22.05% 3,939 1993
Templeton Foreign 13.604014 12.770793 -6.12% 318,666 1998
Fund - Class A 12.923758 13.604014 5.26% 354,769 1997
11.097523 12.923758 16.46% 266,477 1996
10.000000 11.097523 10.98% 69,083 1995
</TABLE>
22
<PAGE> 23
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION PERCENT NUMBER OF
UNIT VALUE UNIT VALUE CHANGE IN ACCUMULATION
AT BEGINNING AT END ACCUMULATION UNITS AT END
FUND OF PERIOD OF PERIOD UNIT VALUE OF THE PERIOD YEAR
<S> <C> <C> <C> <C> <C>
Warburg Pincus Emerging 14.140391 14.769496 4.45% 338,034 1998
Growth Fund 11.814248 14.140391 19.69% 316,835 1997
10.895016 11.814248 8.44% 250,912 1996
10.000000 10.895016 8.95% 0 1995
Warburg Pincus Global 10.000000 10.651516 6.52% 14,079 1998(1)
Fixed Income Fund - Q
</TABLE>
(1) The INVESCO Dynamics fund, Lazard Small Cap Portfolio - Open Shares,
Nationwide S&P 500(R) Index Fund - Class R, Prestige Balanced Fund,
Prestige International Fund, Prestige Large Cap Growth Fund, Prestige Large
Cap Value Fund, Prestige Small Cap Fund, and Strong Common Stock Fund, Inc.
were added to the variable account November 2, 1998. Consequently, the
condensed financial information reflects the reporting period from November
2, 1998 to December 31, 1998.
23
<PAGE> 24
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 and Puerto
Rico.
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 VARIABLE ACCOUNT AND UNDERLYING MUTUAL FUNDS
Nationwide Variable Account is a separate account that invests in the underlying
mutual funds listed in Appendix A. Nationwide established the separate account
on March 3, 1976, pursuant to Ohio law. Although the separate account is
registered with the SEC as a unit investment trust pursuant to the Investment
Company Act of 1940 ("1940 Act"), the SEC does not supervise the management of
Nationwide or the variable account.
Income, gains, and losses credited to, or charged against, the variable account
reflect the variable account's own investment experience and not the investment
experience of Nationwide's other assets. The variable account's assets are held
separately from Nationwide's assets and are not chargeable with liabilities
incurred in any other business of Nationwide. Nationwide is obligated to pay all
amounts promised to contract owners under the contracts.
The variable account is divided into sub-accounts. Nationwide uses the assets of
each sub-account to buy shares of the underlying mutual funds based on contract
owner instructions. There are two sub-accounts for each underlying mutual fund.
One sub-account contains shares attributable to accumulation units under
Non-Qualified contracts. The other contains shares attributable to accumulation
units under Individual Retirement Accounts, Roth IRAs, SEP IRAs, Tax Sheltered
Annuities, and Qualified contracts.
Each underlying mutual fund's prospectus contains more detailed information
about that fund. Prospectuses for the underlying mutual funds should be read in
conjunction with this prospectus.
Underlying mutual funds in the variable account are NOT publicly traded mutual
funds. 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 underlying mutual funds may manage publicly
traded mutual funds with similar names and investment objectives. However, the
underlying mutual funds 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 underlying mutual funds participating in the
variable account. The performance of the underlying mutual funds could differ
substantially from that of any publicly traded funds.
Voting Rights
Contract owners who have allocated assets to the underlying mutual funds are
entitled to certain voting rights. Nationwide will vote contract owner shares at
special shareholder meetings based on contract owner instructions. However, 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 underlying mutual fund will be
notified of issues requiring the 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.
24
<PAGE> 25
The number of shares which a contract owner may vote is determined by dividing
the cash value of the amount they have allocated to an underlying mutual fund by
the net asset value of that underlying mutual fund. Nationwide will designate a
date for this determination not more than 90 days before the shareholder
meeting.
Material Conflicts
The underlying mutual funds may be offered through separate accounts of other
insurance companies, as well as through other separate accounts of Nationwide.
Nationwide does not anticipate any disadvantages to this. However, it is
possible that a conflict may arise between the interests of the variable account
and one or more of the other separate accounts in which these underlying mutual
funds participate.
Material conflicts may occur due to a change in law affecting the operations of
variable life insurance policies and variable annuity contracts, or differences
in the voting instructions of the contract owners and those of other companies.
If a material conflict occurs, Nationwide will take whatever steps are necessary
to protect contract owners and variable annuity payees, including withdrawal of
the variable account from participation in the underlying mutual fund(s)
involved in the conflict.
For contracts issued after January 1, 1993, the underlying mutual fund options
offered are also available to the general public. (Based on Nationwide's
marketing plan for the contracts, Nationwide does not anticipate any
disadvantages to this.) There is, however, a possibility that a material
conflict may arise between those with interests in the contracts, the variable
account and the various individuals and entities holding shares of the funds. A
conflict may occur due to a number of reasons, including a change in law
affecting the operations of variable annuity separate accounts or differences in
the voting instructions of the owners and others maintaining a voting interest
in the underlying mutual funds. In the event of conflict, Nationwide will take
any steps necessary to protect those with interests in the contracts.
Substitution of Securities
Nationwide may substitute, eliminate, or combine shares of another underlying
mutual fund for shares already purchased or to be purchased in the future if
either of the following occurs:
1) shares of a current underlying mutual fund are no longer available for
investment; or
2) further investment in an underlying mutual fund is inappropriate.
No substitution, elimination, or combination of shares may take place without
the prior approval of the SEC and state insurance departments.
THE FIXED ACCOUNT
The fixed account is an investment option that is funded by assets of
Nationwide's general account. The general account contains all of Nationwide's
assets other than those in other Nationwide separate accounts. It is used to
support Nationwide's annuity and insurance obligations and may contain
compensation for mortality and expense risks. The general account is not subject
to the same laws as the variable account and the SEC has not reviewed material
in this prospectus relating to the fixed account. However, information relating
to the fixed account is subject to federal securities laws relating to accuracy
and completeness of prospectus disclosure.
Purchase payments will be allocated to the fixed account by election of the
contract owner.
The investment income earned by the fixed account will be allocated to the
contracts at varying guaranteed interest rate(s) depending on the following
categories of fixed account allocations:
o New Money Rate - The rate credited on the fixed account allocation when
the contract is purchased or when subsequent purchase payments are made.
Subsequent purchase payments may receive different New Money Rates than
the rate when the contract was issued, since the New Money Rate is
subject to change based on market conditions.
o Variable Account to Fixed Rate - Allocations transferred from any of the
25
<PAGE> 26
underlying investment options in the variable account to the fixed
account may receive a different rate. The rate may be lower than the New
Money Rate. There may be limits on the amount and frequency of movements
from the variable account to the fixed account.
o Renewal Rate - The rate available for maturing fixed account allocations
which are entering a new guarantee period. The contract owner will be
notified of this rate in a letter issued with the quarterly statements
when any of the money in the contract owner's fixed account matures. At
that time, the contract owner will have an opportunity to leave the money
in the fixed account and receive the Renewal Rate or the contract owner
can move the money to any of the other underlying mutual fund options.
o Dollar Cost Averaging Rate - From time to time, Nationwide may offer a
more favorable rate for an initial purchase payment into a new contract
when used in conjunction with a Dollar Cost Averaging program.
All of these rates are subject to change on a daily basis; however, once applied
to the fixed account, the interest rates are guaranteed until the end of the
calendar quarter during the 12 month anniversary in which the fixed account
allocation occurs.
Credited interest rates are annualized rates - the effective yield of interest
over a one-year period. Interest is credited to each contract on a daily basis.
As a result, the credited interest rate is compounded daily to achieve the
stated effective yield.
Any interest in excess of 3.0% will be credited to fixed account allocations at
Nationwide's sole discretion. The contract owner assumes the risk that interest
credited to fixed account allocations may not exceed the minimum guarantee of
3.0% for any given year.
Nationwide guarantees that the fixed account contract value will not be less
than the amount of the purchase payments allocated to the fixed account, plus
interest credited as described above, less any applicable charges including
CDSC.
STANDARD CHARGES AND DEDUCTIONS
MORTALITY RISK CHARGE
Nationwide deducts a Mortality Risk Charge from the variable account. This
amount is computed on a daily basis, and is equal to an annual rate of 0.80% of
the daily net assets of the variable account. By guaranteeing the contract's
annuity rate, Nationwide assumes the Mortality Risk. These guarantees cannot
change regardless of the death rates of persons receiving annuity payments or of
the general population. Nationwide expects to generate a profit from this
charge.
EXPENSE RISK CHARGE
Nationwide deducts an Expense Risk Charge from the variable account. This amount
is computed on a daily basis, and is equal to an annual rate of 0.45% (0.50% for
contracts issued prior to January 1, 1993) of the daily net assets of the
variable account. By guaranteeing the contract's annuity rate, Nationwide
assumes the Expense Risk. These guarantees cannot change regardless of its
annual expenses. Nationwide expects to generate profit from this charge.
CONTINGENT DEFERRED SALES CHARGE ("CDSC")
No deduction for a sales charge is made from the purchase payments for this
contract. However, if any part of the contract value of such contracts is
surrendered, Nationwide will, with certain exceptions, deduct a CDSC (see
"Elimination of CDSC"). The CDSC will not exceed the lesser of 7% of purchase
payments surrendered.
The CDSC, when it is applicable, will be used to cover expenses relating to the
sale of the contract, including commissions paid to sales personnel, the costs
of preparation of sales literature and other promotional activity. Nationwide
attempts to recover its distribution costs relating to the sale of the contract
from the CDSC. Any shortfall will be made up from the general account of
Nationwide, which may indirectly include portions of the Mortality Risk Charge
and Expense Risk Charge since Nationwide expects to generate a profit through
26
<PAGE> 27
these charges. Gross distribution allowances which may be paid on the sale of
these contracts are not more than 5.25% of the purchase payments.
If part or all of the contract value is surrendered, a CDSC will be deducted by
Nationwide. For purposes of the CDSC, surrenders under a contract come first
from the purchase payments which have been on deposit under the contract for the
longest time period. (For tax purposes, a surrender is usually treated as a
withdrawal of earnings first.)
For contracts issued on or after January 1, 1993, the CDSC will apply in the
amounts set forth below. In no event will any CDSC be made against any values
which have been held under the contract for at least 84 months, or to
commencement of an annuity payout under contracts which have been in effect for
at least two years or upon the death of the annuitant.
<TABLE>
<CAPTION>
NUMBER OF YEARS FROM DATE OF CDSC PERCENTAGE
PURCHASE PAYMENT
<S> <C>
0 7%
1 6%
2 5%
3 4%
4 3%
5 2%
6 1%
7 0%
</TABLE>
Starting with the second year after a purchase payment has been made under the
contract, 10% of that purchase payment may be withdrawn each year without
imposition of the CDSC. This free withdrawal privilege is non-cumulative and
will not exceed 10% of the purchase payment in any year. The CDSC is waived:
a) for first year withdrawals of up to 10% of purchase payments for
Individual Retirement Account rollover contracts; or
b) for any amount withdrawn from this contract in order to meet minimum
distribution requirements under the Internal Revenue Code.
Withdrawals may be restricted for contracts issued pursuant to the terms of a
Qualified Plan. No sales charges are deducted on redemption proceeds that are
transferred to the fixed account option of this annuity. The contract owner may
be subject to a tax penalty if withdrawals are taken prior to age 59-1/2.
For contracts issued before January 1, 1993 a CDSC will be deducted by
Nationwide equal to 5% of the lesser of the total of all purchase payments made
within 96 months prior to the date of the request for surrender, or the amount
surrendered. In no event will any CDSC be made against any values which have
been held under the contract for at least 96 months. Certain partial surrenders
may be requested for which no CDSC will be assessed. For any purchase payments
made, the contract owner (or annuitant, if applicable) may, after the first year
from the date of each such purchase payment, withdraw without a CDSC, up to 5%
of that purchase payment for each year that the purchase payment has remained on
deposit (less the amount of such purchase payment previously surrendered free of
charge).
ELIMINATION OF CDSC
For contracts sold pursuant to Qualified Plans established on or after January
1, 1993, as described in Section 401 of the Code, SEP-IRA contracts sold on or
after January 1, 1993, and Roth IRAs, Nationwide will waive the CDSC when:
1) the plan participant experiences a case of hardship (as defined for
purposes of Internal Revenue Code Section 401(k));
2) the plan participant becomes disabled (within the meaning of Internal
Revenue Code Section 72(m)(7));
3) the plan participant attains age 59-1/2 and has participated in the
contract for at least 5 years, as determined from the contract
anniversary date;
4) the plan participant has participated in the contract for at least 15
years as determined from the contract anniversary date;
5) the plan participant dies; or
6) the plan participant annuitizes after 2 years in the contract.
For Individual Retirement Accounts, Nationwide will waive the CDSC when:
27
<PAGE> 28
1) the designated annuitant dies; or
2) the contract owner annuitizes after 2 years in the contract.
When a contract is exchanged for another contract issued by Nationwide or any of
its affiliate insurance companies, of the type and class which Nationwide
determined is eligible for such exchange, Nationwide will waive the CDSC on the
first contract.
In no event will elimination of the CDSC be permitted where such elimination
would be unfairly discriminatory to any person, or where it is prohibited by
law.
CONTRACT MAINTENANCE CHARGE
Each year on the contract anniversary (and on the date of surrender in any year
in which the entire contract value is surrendered), Nationwide deducts a
Contract Maintenance Charge of $30 from the contract value. This charge
reimburses Nationwide for administrative expenses relating to the issuance and
maintenance of the contract. For contracts issued pursuant to Qualified Plans
described in Section 401 of the Internal Revenue Code, established on or after
January 1, 1993 and SEP-IRA contracts established on or after January 1, 1993
and before August 1, 1994, the Contract Maintenance Charge varies from $30 to
$0. Underwriting considerations include the size of the group, the average
participant account balance transferred to Nationwide, if any, and
administrative savings. For contracts issued to Qualified Plans described in
Section 401 of the Code and SEP-IRA contracts established on or after August 1,
1994, the Contract Maintenance Charge varies from $12 to $0. Variances are based
on internal underwriting guidelines. The Contract Maintenance Charge will be
allocated between the fixed account and variable account in the same percentages
as the purchase payment investment allocations are to the fixed account and
variable account.
ADMINISTRATION CHARGE
Nationwide deducts an Administration Charge from the variable account. This
amount is computed on a daily basis, and is equal to an annual rate of 0.05% of
the daily net assets of the variable account for contracts issued after January
1, 1993. The Administration Charge is designed only to reimburse Nationwide for
administrative expenses. Nationwide will monitor this charge to ensure that it
does not exceed annual administration expenses.
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 surrendered;
(2) annuitization; or
(3) such other date as Nationwide becomes subject to premium taxes.
Premium taxes may be deducted from death benefit proceeds.
CONTRACT OWNERSHIP
The contract owner has all rights under the contract, including the right to
designate and change any designations of the contract owner, annuitant,
contingent annuitant, beneficiary, contingent beneficiary, annuity payment
option, and annuity commencement date. Contract rights may be exercised by the
annuitant if the contract owner has authorized the annuitant to exercise such
rights. Purchasers who name someone other than themselves as the contract owner
will have no rights under the contract.
Contract owners of Non-Qualified contracts may name a new contract owner at any
time before the annuitization date. Any change of contract owner automatically
revokes any prior contract owner designation. Changes in contract ownership may
result in federal income taxation and may be subject to state and federal gift
taxes.
A change in contract ownership must be submitted in writing and recorded at
Nationwide's home office. Once recorded, the change will be effective as of the
date signed. However, the change will not affect any payments made or
28
<PAGE> 29
actions taken by Nationwide before it was recorded.
The contract owner may also request a change in the annuitant, contingent
annuitant, beneficiary, or contingent beneficiary before the annuitization date.
These changes must be:
o on a Nationwide form;
o signed by the contract owner; and
o received at Nationwide's home office before the annuitization date.
Nationwide must review and approve any change requests. If the contract owner is
not a natural person and there is a change of the annuitant, distributions will
be made as if the contract owner died at the time of the change.
ANNUITANT
The annuitant is the person designated to receive annuity payments during
annuitization of the contract and upon whose continuation of life any annuity
payment involving life contingencies depends. This person must be age 78 or
younger at the time of contract issuance, unless Nationwide approves a request
for an annuitant of greater age. The annuitant may be changed prior to the
annuitization date with the consent of Nationwide.
Although not the contract owner, the annuitant may exercise contract rights if
authorized by the holder of the contract (an Individual Retirement Account or
Qualified Plan trustee(s)).
BENEFICIARY AND CONTINGENT BENEFICIARY
The beneficiary is the person(s) who is entitled to the death benefit if the
annuitant dies before the annuitization date and there is no joint owner. The
contract owner can name more than one beneficiary. Multiple beneficiaries will
share the death benefit equally, unless otherwise specified.
If no beneficiary(ies) survive the annuitant, the contingent beneficiaries
receive the death benefit. Contingent beneficiaries will share the death benefit
equally, unless otherwise specified.
If no beneficiaries or contingent beneficiaries survive the annuitant, the
contract owner or the last surviving contract owner's estate will receive the
death benefit.
The contract owner may change the beneficiary or contingent beneficiary during
the annuitant's lifetime by submitting a written request to Nationwide. Once
recorded, the change will be effective as of the date it was signed, whether or
not the annuitant was living at the time it was recorded. The change will not
affect any action taken by Nationwide before the change was recorded.
OPERATION OF THE CONTRACT
The cumulative total of all purchase payments under contracts on the life of any
one annuitant cannot exceed $1,000,000 without Nationwide's prior consent.
PRICING
Initial purchase payments allocated to sub-accounts 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 a 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.
Subsequent purchase payments will be priced based on the next available
accumulation unit value after the payment is received.
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;
29
<PAGE> 30
(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,
contract value may be affected since the contract owner would not have access to
their account.
ALLOCATION OF PURCHASE PAYMENTS
Nationwide allocates purchase payments to the sub-accounts and the fixed account
as instructed by the contract owner. Shares of the underlying mutual funds
allocated to the sub-accounts are purchased at net asset value, then converted
into accumulation units. Contract owners can change allocations or make
exchanges among the sub-accounts or the fixed account. However, no change may be
made that would result in an amount less than 1% of the purchase payments being
allocated to any sub-account for any contract owner. Certain transactions may be
subject to conditions imposed by the underlying mutual funds, as well as those
set forth in the contract.
DETERMINING THE CONTRACT VALUE
The contract value is:
1) the value of amounts allocated to the sub-accounts of the variable
account; and
2) amounts allocated to the fixed account.
If part or all of the contract value is surrendered, or charges are assessed
against the whole contract value, Nationwide will deduct a proportionate amount
from each sub-account and the fixed account based on current cash values.
Determining Variable Account Value - Valuing an Accumulation Unit
Purchase payments or transfers allocated to sub-accounts are accounted for in
accumulation units. Accumulation unit values (for each sub-account) are
determined by calculating the net investment factor for the underlying mutual
funds for the current valuation period and multiplying that result with the
accumulation unit values determined on the previous valuation period.
Nationwide uses the net investment factor as a way to calculate the investment
performance of a sub-account from valuation period to valuation period. For each
sub-account, the net investment factor shows the investment performance of the
underlying mutual fund in which a particular sub-account invests, including the
charges assessed against that sub-account for a valuation period.
The net investment factor for any particular sub-account is determined by
dividing (a) by (b), and then subtracting (c) from the result, where
(a) is:
(1) the net asset value of the underlying mutual fund as of the end of
the current valuation period; and
(2) the per share amount of any dividend or income distributions made by
the underlying mutual fund (if the ex-dividend date occurs during
the current valuation period).
(b) is the net asset value of the underlying mutual fund 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 1.30% of the daily net assets of the
variable account.
Based on the net investment factor, the value of an accumulation unit may
increase or decrease. Changes in the net investment factor may not be directly
proportional to changes in the net asset value of the underlying mutual fund
shares because of the deduction of variable account charges.
Though the number of accumulation units will not change as a result of
investment experience, the value of an accumulation unit may increase or
decrease from valuation period to valuation period.
30
<PAGE> 31
Determining Fixed Account Value
Nationwide determines the value of the fixed account by:
1) adding all amounts allocated to the fixed account, minus amounts
previously transferred or withdrawn; and
2) adding any interest earned on the amounts allocated.
TRANSFERS
Transfers from the Fixed Account to the Variable Account
Fixed account allocations may be transferred to the variable account only upon
reaching the end of an Interest Rate Guarantee Period. Normally, Nationwide will
permit 100% of such fixed account allocations to be transferred to the variable
account; however Nationwide may, under certain economic conditions and at its
discretion, limit the maximum transferable amount. Under no circumstances will
the maximum transferable amount be less than 10% of the fixed account allocation
reaching the end of an Interest Rate Guarantee Period. Transfers of the fixed
account allocations must be made within 45 days after reaching the end of an
Interest Rate Guarantee Period.
Contract owners who use Dollar Cost Averaging may transfer from the fixed
account to the variable account under the terms of that program (see "Dollar
Cost Averaging").
Transfers to the Fixed Account
Variable account allocations may be transferred to the fixed account at any
time. Normally, Nationwide will not restrict transfers from the variable account
to the fixed account; however, Nationwide may establish a maximum transfer limit
from the variable account to the fixed account. Except as noted below, under no
circumstances will the transfer limit be less than 10% of the current value of
the variable account, less any transfers made in the 12 months preceding the
date the transfer is requested, but not including transfers made prior to the
imposition of the transfer limit. However, where permitted by state law,
Nationwide reserves the right to refuse transfers or purchase payments to the
fixed account from the variable account when the fixed account value is greater
than or equal to 30% of the contract value at the time the purchase payment is
made or the transfer is requested.
Amounts transferred to the variable account will receive the accumulation unit
value next determined after the transfer request is received.
After annuitization, transfers may only be made on the anniversary of the
annuitization date.
Transfer Requests
Nationwide will accept transfer requests in writing or over the telephone.
Nationwide will use reasonable procedures to confirm that telephone instructions
are genuine and will not be liable for following telephone instructions that it
reasonably determined to be genuine. Nationwide may withdraw the telephone
exchange privilege upon 30 days written notice to contract owners.
For transfers involving the variable account, Nationwide determines contract
value as of the date the completed transfer request is received.
Interest Rate Guarantee Period
The interest rate guarantee period is the period of time that the fixed account
interest rate is guaranteed to remain the same. Within 45 days of the end of an
interest rate guarantee period, transfers may be made from the fixed account to
the variable account. Nationwide will determine the amount that may be
transferred and will declare this amount at the end of the guarantee period.
This amount will not be less than 10% of the amount in the fixed account that is
maturing.
For new purchase payments allocated to the fixed account, or transfers to the
fixed account from the variable account this period begins on the date of
deposit or transfer and ends on the one year anniversary of the deposit or
transfer. The guaranteed interest rate period may last for up to 3 months beyond
the 1 year anniversary because guaranteed terms end on the last day of a
calendar quarter.
During an interest rate guarantee period, transfers cannot be made from the
fixed account,
31
<PAGE> 32
and amounts transferred to the fixed account must remain on deposit.
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 underlying mutual fund to process
transactions. This can potentially disadvantage contract owners not using market
timing firms. To avoid this, Nationwide may modify transfer and exchange rights
of contract owners who use market timing firms (or other third parties) to
transfer or exchange funds on their behalf.
The exchange and 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 exchange and 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.
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.
SURRENDER (REDEMPTION)
Contract owners may surrender some or all of their contract value before the
earlier of the annuitization date or the annuitant's death. Surrender requests
must be in writing and Nationwide may require additional information. When
taking a full surrender, the contract must accompany the written request.
Nationwide may require a signature guarantee.
Nationwide will pay any amount surrendered from the sub-accounts within 7 days.
However, Nationwide may suspend or postpone payment when it is unable to price a
purchase payment or transfer.
Partial Surrenders (Partial Redemption)
Nationwide will surrender accumulation units from the sub-accounts and an amount
from the fixed account. The amount withdrawn from each investment option will be
in proportion to the value in each option at the time of the surrender request.
A CDSC may apply. The contract owner may direct Nationwide to deduct the CDSC
either from:
a) the amount requested; or
b) the contract value remaining after the contract owner has received the
amount requested.
If the contract owner does not make a specific election, any applicable CDSC
will be taken from the contract value remaining after the contract owner has
received the amount requested.
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Full Surrenders (Full Redemptions)
The contract value upon full surrender may be more or less than the total of all
purchase payments made to the contract. The contract value will reflect variable
account charges, contract maintenance charge underlying mutual fund charges and
the investment performance of the underlying mutual funds. A CDSC may apply.
SURRENDERS UNDER A QUALIFIED PLAN
The contract surrender provisions may be modified pursuant to the plan terms and
Internal Revenue Code provisions when the contract is issued to fund a Qualified
Plan.
LOAN PRIVILEGE
Loans are available only for contracts issued on or before January 1, 1993.
The loan privilege is ONLY available to owners of Qualified Contracts. These
contract owners can take loans from the contract value beginning 30 days after
the contract is issued up to the annuitization date. Loans are subject to the
terms of the contract, the plan, and the Internal Revenue Code. Nationwide may
modify the terms of a loan to comply with changes in applicable law.
MINIMUM & MAXIMUM LOAN AMOUNTS
Contract owners may borrow a minimum of $1000, unless Nationwide is required by
law to allow a lesser minimum amount. Each loan must individually satisfy the
contract minimum amount.
Nationwide will calculate the maximum nontaxable loan amount based upon
information provided by the participant or the employer. Loans may be taxable if
a participant has additional loans from other plans. The total of all
outstanding loans must not exceed the following limits:
<TABLE>
<CAPTION>
CONTRACT MAXIMUM OUTSTANDING LOAN
VALUES BALANCE ALLOWED
<S> <C> <C>
NON-ERISA PLANS up to up to 80% of contract
$20,000 value (not more than
$10,000)
$20,000 up to 50% of contract
and over value (not more than
$50,000*)
ERISA PLANS All up to 50% of contract
value (not more than
$50,000*)
</TABLE>
* The $50,000 limits will be reduced by the highest outstanding balance owed
during the previous 12 months.
LOAN PROCESSING FEE
Nationwide may charge a Loan Processing Fee at the time each new loan is
processed. If assessed it compensates Nationwide for expenses related to
administering and processing loans. Loans are not available in all states. In
addition, some states may not allow Nationwide to assess a Loan Processing Fee.
HOW LOAN REQUESTS ARE PROCESSED
All loans are made from the collateral fixed account. Nationwide transfers
accumulation units in proportion to the assets in each sub-account to the
collateral fixed account until the requested amount is reached. If there are not
enough accumulation units available in the contract to reach the requested loan
amount, Nationwide next transfers contract value from the fixed account. No CDSC
will be deducted on transfers related to loan processing.
INTEREST
The outstanding loan balance in the collateral fixed account is credited with
interest until the loan is repaid in full. The interest rate will be 2.25% less
than the loan interest rate fixed by Nationwide. It is guaranteed never to fall
below 3.0%.
Specific loan terms are disclosed at the time of loan application or issuance.
LOAN REPAYMENT
Loans must be repaid in five years. However, if the loan is used to purchase the
contract owner's principal residence, the contract owner has 15 years to repay
the loan.
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Contract owners must identify loan repayments as loan repayments or they will be
treated as purchase payments and will not reduce the outstanding loan. Payments
must be substantially level and made at least quarterly.
Loan repayments will consist of principal and interest in amounts set forth in
the loan agreement. Repayments are allocated to the sub-accounts in accordance
with the contract, unless Nationwide and the contract owner have agreed to amend
the contract at a later date on a case by case basis.
DISTRIBUTIONS & ANNUITY PAYMENTS
Distributions made from the contract while a loan is outstanding will be reduced
by the amount of the outstanding loan plus accrued interest if:
o the contract is surrendered;
o the contract owner/annuitant dies;
o the contract owner who is not the annuitant dies prior to annuitization;
or
o annuity payments begin.
TRANSFERRING THE CONTRACT
Nationwide reserves the right to restrict any transfer of the contract while the
loan is outstanding.
GRACE PERIOD & LOAN DEFAULT
If a loan payment is not made when due, interest will continue to accrue. A
grace period may be available (please refer to the terms of the loan agreement).
If a loan payment is not made by the end of the applicable grace period, the
entire loan will be treated as a deemed distribution and will be taxable to the
borrower. This deemed distribution may also be subject to an early withdrawal
tax penalty by the Internal Revenue Service.
After default, interest will continue to accrue on the loan. Defaulted amounts,
plus interest, are deducted from the contract value when the participant is
eligible for a distribution of at least that amount. Additional loans are not
available while a previous loan is in default.
CONTRACT OWNER SERVICES
ASSET REBALANCING
Asset rebalancing is the automatic reallocation of contract values to the
sub-accounts on a predetermined percentage basis. Asset rebalancing is not
available for assets held in the fixed account. Requests for asset rebalancing
must be on a Nationwide form.
Asset rebalancing occurs every three months or on another frequency if permitted
by Nationwide. If the last day of the three-month period falls on a Saturday,
Sunday, recognized holiday, or any other day when the New York Stock Exchange is
closed, asset rebalancing will occur on the next business day.
Asset rebalancing may be subject to employer limitations or restrictions for
contracts issued to a Qualified Plan. Contract owners should consult a financial
adviser to discuss the use of asset rebalancing.
Nationwide reserves the right to stop establishing new asset rebalancing
programs. Nationwide also reserves the right to assess a processing fee for this
service.
DOLLAR COST AVERAGING
Dollar Cost Averaging is a long-term transfer program that allows you to make
regular, level investments over time. It involves the automatic transfer of a
specified amount from certain sub-accounts and the fixed account into other
sub-accounts. Contract owners (or annuitants if authorized) may participate in
this program if their contract value is $15,000 or more. Nationwide does not
guarantee that this program will result in profit or protect contract owners
from loss.
Contract owners direct Nationwide to automatically transfer specified amounts
from the fixed account and the Money Market Fund to any other underlying mutual
fund. The minimum monthly transfer is $100.
Dollar Cost Averaging from the Fixed Account
Transfers from the fixed account must be equal to or less than 1/30th of the
fixed account value at the time the program is requested. A dollar cost
averaging program which transfers amounts
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<PAGE> 35
from the fixed account to the variable account is not the same as an enhanced
rate dollar cost averaging program. Contract owner that wish to utilize dollar
cost averaging from the fixed account should first inquire as to whether any
enhanced rate dollar cost averaging programs are available.
Enhanced Rate Dollar Cost Averaging Program
Nationwide may, from time to time, offer enhanced rate dollar cost averaging
programs. Dollar cost averaging transfers for this program may only be made from
the fixed account. Such enhanced rate dollar cost averaging programs allow the
contract owner to earn a higher rate of interest on assets in the fixed account
than would normally be credited when not participating in the program. Each
enhanced interest rate is guaranteed for as long as the corresponding program is
in effect. Nationwide will process transfers until either amounts in the
enhanced rate fixed account are exhausted, or the contract owner instructs
Nationwide in writing to stop the transfers. For this program only, when a
written request to discontinue transfers is received, Nationwide will
automatically transfer the remaining amount in the enhanced rate fixed account
to the NSAT Money Market Fund.
Transfers occur monthly or on another frequency if permitted by Nationwide.
Nationwide will process transfers until either the value in the originating
investment option is exhausted, or the contract owner instructs Nationwide in
writing to stop the transfers.
Nationwide reserves the right to stop establishing new Dollar Cost Averaging
programs. Nationwide also reserves the right to assess a processing fee for this
service.
SYSTEMATIC WITHDRAWALS
Systematic withdrawals allow contract owners (or annuitants if authorized) to
receive a specified amount (of at least $100) on a monthly, quarterly,
semi-annual, or annual basis. Requests for systematic withdrawals and requests
to discontinue systematic withdrawals must be in writing.
The withdrawals will be taken from the sub-accounts and the fixed account
proportionately unless Nationwide is instructed otherwise. A CDSC may apply.
Nationwide will withhold federal income taxes from systematic withdrawals unless
otherwise instructed by the contract owner. The Internal Revenue Service may
impose a 10% penalty tax if the contract owner is under age 59 1/2 unless the
contract owner has made an irrevocable election of distributions of
substantially equal payments.
Nationwide reserves the right to stop establishing new systematic withdrawal
programs. Nationwide also reserves the right to assess a processing fee for this
service. Systematic withdrawals are not available before the end of the ten-day
free look period (see "Right to Revoke").
ANNUITY COMMENCEMENT DATE
The annuity commencement date is the date on which annuity payments are
scheduled to begin. The contract owner may change the annuity commencement date
before annuitization. This change must be in writing and approved by Nationwide.
ANNUITIZING THE CONTRACT
ANNUITIZATION DATE
The annuitization date is the date that annuity payments begin. It will be the
first day of a calendar month unless otherwise agreed, and must be at least 2
years after the contract is issued. If the contract is issued to fund a
Qualified Plan or Tax Sheltered Annuity plan, annuitization may occur during the
first 2 years subject to Nationwide's approval.
ANNUITIZATION
Annuitization is the period during which annuity payments are received. It is
irrevocable once payments have begun. Upon arrival of the annuitization date,
the annuitant must choose:
(1) an annuity payment option; and
(2) either a fixed payment annuity, variable payment annuity, or an available
combination.
Nationwide guarantees that each payment under a fixed payment annuity will be
the same
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<PAGE> 36
throughout annuitization. Under a variable payment annuity, the amount of each
payment will vary with the performance of the underlying mutual funds chosen by
the contract owner.
FIXED PAYMENT ANNUITY
A fixed payment annuity is an annuity where the amount of the annuity payment
remains level.
The first payment under a fixed payment annuity is determined on the
annuitization date on an "age last birthday" basis by:
1) deducting applicable premium taxes from the total contract value; then
2) applying the contract value amount specified by the contract owner to the
fixed payment annuity table for the annuity payment option elected.
Subsequent payments will remain level unless the annuity payment option elected
provides otherwise. Nationwide does not credit discretionary interest during
annuitization.
VARIABLE PAYMENT ANNUITY
A variable payment annuity is an annuity where the amount of the annuity
payments will vary depending on the performance of the underlying mutual funds
selected.
The first payment under a variable payment annuity is determined on the
annuitization date on an "age last birthday" basis by:
1) deducting applicable premium taxes from the total contract value; then
2) applying the contract value amount specified by the contract owner to the
variable payment annuity table for the annuity payment option elected.
The dollar amount of the first payment is converted into a set number of annuity
units that will represent each monthly payment. This is done by dividing the
dollar amount of the first payment by the value of an annuity unit as of the
annuitization date. This number of annuity units remains fixed during
annuitization.
The second and subsequent payments are determined by multiplying the fixed
number of annuity units by the annuity unit value for the valuation period in
which the payment is due. The amount of the second and subsequent payments will
vary with the performance of the selected underlying mutual funds. Nationwide
guarantees that variations in mortality experience from assumptions used to
calculate the first payment will not affect the dollar amount of the second and
subsequent payments.
ASSUMED INVESTMENT RATE
An assumed investment rate is the percentage rate of return assumed to determine
the amount of the first payment under a variable payment annuity. Nationwide
uses the assumed investment rate of 3.5% to calculate the first annuity payment.
The assumed investment rate of 3.5% is the percentage rate of return required to
maintain level variable annuity payments. Subsequent variable annuity payments
may be more or less than the first based on whether actual investment
performance is higher or lower than the assumed investment rate of 3.5%.
VALUE OF AN ANNUITY UNIT
Annuity unit values for sub-accounts are determined by multiplying the net
investment factor for the valuation period for which the annuity unit is being
calculated by the immediately preceding valuation period's annuity unit value,
and multiplying the result by an interest factor to neutralize the assumed
investment rate of 3.5% per annum built into the variable payment annuity
purchase rate basis in the contracts.
EXCHANGES AMONG UNDERLYING MUTUAL FUNDS
Exchanges among underlying mutual funds during annuitization must be in writing.
Exchanges will occur on each anniversary of the annuitization date.
FREQUENCY AND AMOUNT OF ANNUITY PAYMENTS
Payments are made based on the annuity payment option selected, unless:
o the amount to be distributed is less than $500, in which case Nationwide
may make one lump sum payment of the contract value; or
o an annuity payment would be less than $20, in which case Nationwide can
change the frequency of payments to intervals that will
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<PAGE> 37
result in payments of at least $20. Payments will be made at least
annually.
ANNUITY PAYMENT OPTIONS
Contract owners must elect an annuity payment option before the annuitization
date. The annuity payment options are:
(1) LIFE ANNUITY - An annuity payable periodically, but at least annually, for
the lifetime of the annuitant. Payments will end upon the annuitant's
death. For example, if the annuitant dies before the second annuity payment
date, the annuitant will receive only one annuity payment. The annuitant
will only receive two annuity payments if he or she dies before the third
annuity payment date, and so on.
(2) JOINT AND LAST SURVIVOR ANNUITY - An annuity payable periodically, but at
least annually, during the joint lifetimes of the annuitant and a
designated second individual. If one of these parties dies, payments will
continue for the lifetime of the survivor. As is the case under option 1,
there is no guaranteed number of payments. Payments end upon the death of
the last surviving party, regardless of the number of payments received.
(3) LIFE ANNUITY WITH 120 OR 240 MONTHLY PAYMENTS GUARANTEED - An annuity
payable monthly during the lifetime of the annuitant. If the annuitant dies
before all of the guaranteed payments have been made, payments will
continue to the end of the guaranteed period and will be paid to a designee
chosen by the annuitant at the time the annuity payment option was elected.
The designee may elect to receive the present value of the remaining
guaranteed payments in a lump sum. The present value will be computed as of
the date Nationwide receives the notice of the annuitant's death.
Not all of the annuity payment options may be available in all states. Contract
owners may request other options before the annuitization date. These options
are subject to Nationwide's approval.
No distribution for Non-Qualified contracts will be made until an annuity
payment option has been elected. Qualified contracts, IRAs, SEP IRAs and Tax
Sheltered Annuities are subject to the "minimum distribution" requirements set
forth in the plan, contract, and the Internal Revenue Code.
DEATH BENEFITS
DEATH OF CONTRACT OWNER
If the contract owner and the annuitant are not the same person and the contract
owner dies prior to the annuitization date, then the annuitant becomes the
contract owner. In such event, the entire interest in the contract value, less
any applicable deductions (which may include a CDSC), must be distributed in
accordance with the appropriate "Required Distributions" section.
DEATH OF ANNUITANT
If the contract owner and annuitant are not the same person, and the annuitant
dies prior to the annuitization date, then the contingent annuitant becomes the
annuitant and no death benefit is payable. In the event there is no living
contingent annuitant, then, upon the annuitant's death, a death benefit will be
payable to the beneficiary, the contingent beneficiary, the contract owner, or
the contract owner's estate, as specified in the "beneficiary" section.
DEATH OF CONTRACT OWNER/ANNUITANT
If any contract owner and the annuitant are the same person, and such person
dies before the annuitization date, a death benefit will be payable to the
beneficiary, contingent beneficiary, or the last surviving contract owner's
estate, as specified in the "Beneficiary" section and in accordance with the
appropriate "Required Distributions" section.
HOW THE DEATH BENEFIT VALUE IS DETERMINED
The beneficiary may elect to receive the death benefit:
(1) in a lump sum;
(2) as an annuity; or
(3) in any other manner permitted by law and approved by Nationwide.
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The beneficiary must notify Nationwide of this election within 60 days of the
annuitant's death.
If the annuitant dies after the annuitization date, any benefit that may be
payable will be paid according to the selected annuity payment option
The death benefit value is determined as of the date Nationwide receives:
(1) proper proof of the annuitant's death;
(2) an election specifying the distribution method; and
(3) any state required form(s).
DEATH BENEFIT PAYMENT
For contracts issued on or after the later of May 1, 1998 or a date on which
state insurance authorities approve applicable contract modifications:
o If the annuitant dies on or after his or her 75th birthday and prior to
the annuitization date, the dollar amount of the death benefit will be
equal to the contract value, if the contract owner has:
1) requested an annuity commencement date later than the first day of
the calendar month after the annuitant's 75th birthday; and
2) Nationwide approved the request.
o If the annuitant dies prior to his or her 75th birthday and prior to the
annuitization date, the dollar amount of the death benefit will be the
greater of:
1) the contract value; or
2) the sum of all purchase payments, less an adjustment for amounts
surrendered.
The adjustment for amounts surrendered will reduce item (2) above in the same
proportion that the contract value was reduced on the date(s) of the partial
surrender(s).
For contracts issued prior to May 1, 1998 or a date prior to approval of
applicable contract modifications by state insurance authorities:
o If the annuitant dies on or after his or her 75th birthday and prior to
the annuitization date, the dollar amount of the death benefit will be
equal to the contract value, if the contract owner has:
1) requested an annuity commencement date later than the first day of
the calendar month after the annuitant's 75th birthday; and
2) Nationwide approved the request.
o If the annuitant dies prior to his or her 75th birthday and prior to the
annuitization date, the dollar amount of the death benefit will be the
greater of:
1) the contract value; or
2) the sum of all purchase payments, less any amounts surrendered.
REQUIRED DISTRIBUTIONS
REQUIRED DISTRIBUTIONS FOR QUALIFIED PLANS
Distributions from Qualified Contracts 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 Qualified Plan or 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
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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.
Distributions commencing on the required distribution date must satisfy MDIB
provisions set forth in the Internal Revenue Code. Those provisions require that
distribution cannot be less than the amount determined by dividing the
annuitant's interest in the Tax Sheltered Annuity 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 Qualified
Contract or 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 INDIVIDUAL RETIREMENT ACCOUNTS
Distributions from an Individual Retirement Annuity 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:
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
Individual Retirement Annuity 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 Individual Retirement Annuity 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
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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 Individual Retirement Annuity, SEP IRA or
Individual Retirement Account 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 Individual Retirement
Annuity 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 Individual Retirement Annuities.
Individual Retirement Annuity or SEP IRA distributions will not receive the
favorable tax treatment of a lump sum distribution from a Qualified Plan. 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 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 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 nontaxable, 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.
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Section 72 of the Internal Revenue Code governs federal income taxation of
annuities in general. That section sets forth different rules for: (1)
Individual Retirement Annuities and Individual Retirement Accounts; (2) Roth
IRAs; (3) SEP IRAs; (4) Qualified contracts; (5) Tax Sheltered Annuities; and
(6) Non-Qualified contracts. Each type of annuity is discussed below.
Individual Retirement Annuities, SEP IRAs and Individual Retirement Accounts
Distributions from Individual Retirement Annuities, 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 these Individual
Retirement Annuities or SEP IRAs, 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 Individual Retirement Annuities, SEP IRAs and
Individual Retirement Accounts.
Roth IRAs
Distributions of earnings from Roth IRAs are taxable or nontaxable, 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).
If the Roth IRA does not have any qualified rollover contributions from a
retirement plan other than a Roth IRA (or income allocable thereto), the five
year rule is satisfied if the distribution is not made within the five year
period beginning with the first contribution to the Roth IRA. If the Roth IRA
contains qualified rollover contributions from a retirement plan other than a
Roth IRA (or income allocable thereto), 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 qualified rollover contribution was 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 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.
Taxable distributions will not receive the same favorable tax treatment of a
lump sum distribution from a Qualified Plan. 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.
A change of the annuitant or contingent annuitant may be treated by the Internal
Revenue Service as a taxable transaction.
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<PAGE> 42
QUALIFIED PLANS AND INDIVIDUAL RETIREMENT ACCOUNTS
The contracts may be purchased as Qualified Plans (contracts issued on or before
January 1, 1993), Individual Retirement Accounts (funded after January 1, 1993),
and other plans receiving favorable tax treatment.
Contract owners looking for information on eligibility, limitations on
permissible amounts of purchase payments, and the tax consequences of
distributions from Qualified Plans, SEP IRAs, Individual Retirement Annuities
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 other Qualified Plans, SEP IRAs or Individual Retirement Annuities.
Most distributions from Tax Sheltered Annuities may be rolled into another Tax
Sheltered Annuity, Individual Retirement Annuity, SEP IRA or an Individual
Retirement Account. 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;
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.
The contracts are available for Qualified Plans electing to comply with Section
404(c) of ERISA. It is the plan's responsibility to determine and satisfy the
requirements of 404(c).
Individual Retirement Accounts, SEP IRAs and Individual Retirement Annuities 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
surrenders), the contract could be considered life insurance. Consequently, the
Internal Revenue Service could determine that the Individual Retirement Account,
SEP IRA or Individual Retirement Annuity does not qualify for the desired tax
treatment.
INDIVIDUAL RETIREMENT ACCOUNTS
The Internal Revenue Service issued a ruling on September 25, 1981 that
Individual Retirement Annuities could not be established using variable annuity
contracts that allocated assets to separate accounts of life insurance
companies, if the separate account purchased shares of publicly available mutual
funds. The owner of such a contract is treated as the owner of the underlying
mutual fund shares purchased and is taxed on any dividends accruing or
recognized gains.
It is possible to establish an Individual Retirement Account funded with such a
variable annuity contract, by depositing the funds in a trust or custodial
account which qualifies under Section 408 of the Internal Revenue Code, and
having the trustee or custodian purchase the contract. Such an Individual
Retirement Account is subject to rules which are comparable to those which apply
to Individual Retirement Annuities. The trustee or custodian is treated as the
owner of the underlying mutual fund shares, and the individual establishing the
account is taxed in the manner described in "Required Distributions For
Individual Retirement Accounts."
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<PAGE> 43
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 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 Annuities and Individual Retirement
Accounts, 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 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 all or a portion of the four year spread, subjecting to the amount
deferred under the four year election to current taxation.
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.
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:
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.
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<PAGE> 44
STATEMENTS AND REPORTS
Nationwide will mail contract owners (or annuitants if authorized) all
statements and reports required by law. 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., Dollar Cost Averaging or salary reduction programs).
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 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. Conversions of existing
traditional life policies will continue through second quarter, 1999. In
addition, the shareholder services system that support our mutual fund products
will be fully deployed in the first quarter of 1999.
Nationwide has completed an inventory and assessment of all vendor products and
has tested and certified that each vendor product is Year 2000 compliant. Any
vendor products that could not be certified as Year 2000 compliant were replaced
or eliminated in 1998.
Nationwide has also addressed issues associated with the exchange of electronic
data with external organizations. Nationwide has completed an inventory and
assessment of all business partners including electronic interfaces. Processes
have been put in place and programs initiated to process data irrespective of
the format by converting non-compliant data into a Year 2000 compliant format.
Systems supporting Nationwide's infrastructure such as telecommunications, voice
and networks will be compliant by March 1999. Nationwide's assessment of Year
2000 issues has also included non-information technology systems with embedded
computer chips. Nationwide's building systems such as fire, security, elevators
and escalators supporting facilities in Columbus, Ohio have been tested and are
Year 2000 compliant.
In addition to resolving internal Year 2000 readiness issues, Nationwide is
surveying significant external organizations (business partners) to assess if
they will be Year 2000
44
<PAGE> 45
compliant and be in a position to do business in the Year 2000 and beyond.
Specifically, Nationwide has contacted mutual fund organizations that provide
funds for our variable annuity and life products. The same action will continue
during the first quarter of 1999 with wholesale producers. Nationwide continues
its efforts to identify external risk factors and is planning to develop
contingency plans as part of its ongoing risk management strategy.
Operating expenses in 1998 and 1997 included approximately $44.7 million and
$45.4 million, respectively, for technology projects, including costs related to
Year 2000. Nationwide anticipates spending approximately $5 million on Year 2000
activities in 1999. These expenses 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.
The general distributor, Nationwide Advisory Services, Inc. is not engaged in
any litigation of any material nature.
In recent years, life insurance companies have been named as defendants in
lawsuits, including class action lawsuits, relating to life insurance and
annuity pricing and sales practices. A number of these lawsuits have resulted in
substantial jury awards or settlements.
In February 1997, Nationwide was named as a defendant in a lawsuit filed in New
York state court related to the sale of whole life policies on a "vanishing
premium" basis (John H. Snyder v. Nationwide Life Insurance Company). In April
1998, Nationwide was named as a defendant in a lawsuit filed in Ohio state court
similar to the Snyder case (David and Joan Mishler v. Nationwide Life Insurance
Company). In August 1998, Nationwide Mutual Insurance Company and Nationwide and
the plaintiffs executed a stipulation of settlement and submitted it to the New
York state court for approval. On August 20, 1998, the court in the Snyder case
signed an order preliminarily approving a class for settlement purposes (which
would include the Mishler case) and scheduled a fairness hearing for December
17, 1998. At the hearing, the court reviewed the fairness and reasonableness of
the proposed settlement and issued a final order and judgment. The approved
settlement provides for dismissal of both the Snyder and Mishler cases, bars
class members from pursuing litigation against Nationwide Mutual Insurance
Company and its affiliates, including Nationwide and its subsidiaries, relating
to the allegations in the Snyder case, and provides class members with a
potential value of approximately $100 million in policy adjustments, discounted
premiums and discounted products.
In November 1997, two plaintiffs, one who was the owner of a variable life
insurance policy and the other who was the owner of a variable annuity contract,
commenced a lawsuit in a federal court in Texas against Nationwide and the
American Century group of defendants (Robert Young and David D. Distad v.
Nationwide Life Insurance Company et al.). In this lawsuit, plaintiffs seek to
represent a class of variable life insurance policy owners and variable annuity
contract owners whom they claim were allegedly misled when purchasing these
variable contracts into believing that the performance of their underlying
mutual fund option managed by American Century, whose shares may only be
purchased by insurance companies, would track the performance of a mutual fund,
also managed by American Century, whose shares are publicly traded. The amended
complaint seeks unspecified compensatory and punitive damages. On April 27,
1998, the district court denied, in part, and granted, in part, Nationwide and
American Century's motions to dismiss the complaint. The remaining claims
against Nationwide allege securities fraud, common law fraud, civil
45
<PAGE> 46
conspiracy and breach of contract. On December 2, 1998, the district court
issued an order denying plaintiffs' motion for class certification. On December
10, 1998, the district court stayed the lawsuit pending plaintiffs' petition to
the federal appeals court for interlocutory review of the order denying class
certification. On December 14, 1998, plaintiffs filed their petition for
interlocutory review, on which the federal appeals court has not yet ruled.
Nationwide intends to defend the case vigorously.
On October 29, 1998, Nationwide and certain of its subsidiaries were named in a
lawsuit filed in Ohio state court related to the sale of deferred annuity
products for use as investments in tax-deferred contributory retirement plans
(Mercedes Castillo v. Nationwide Financial Services, Inc., Nationwide Life
Insurance Company and Nationwide Life and Annuity Insurance Company). The
plaintiff in such lawsuit seeks to represent a national class of Nationwide's
customers and seeks unspecified compensatory and punitive damages. Nationwide
currently is evaluating this lawsuit, which has not been certified as a class.
Nationwide intends to defend this lawsuit vigorously.
There can be no assurance that any litigation relating to pricing or sales
practices will not have a material adverse effect on Nationwide in the future.
ADVERTISING AND SUB-ACCOUNT PERFORMANCE SUMMARY
A "yield" and "effective yield" may be advertised for 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 Money Market Fund's units. Yield is an
annualized figure, which means that it is assumed that the 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, underlying mutual fund
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;
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<PAGE> 47
-- 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
o Variable Annuity Research & Data Service (The VARDS Report).
These rating services and publications rank the underlying mutual funds'
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 underlying mutual fund has
been available in the variable account if it has not been available for one of
the prescribed periods). This calculation reflects the standard 7-year CDSC
schedule and the deduction of all charges that could be made to the contracts,
except for 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 $10,000 for the most recent one, five and ten year periods
(or for a period covering the time the underlying mutual fund has been in
existence). For those underlying mutual funds which have not been available for
one of the prescribed periods, the nonstandardized total return illustrations
will show the investment performance the underlying mutual funds 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 $10,000 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.
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<PAGE> 48
UNDERLYING MUTUAL FUND PERFORMANCE SUMMARY
NON-STANDARDIZED TOTAL RETURN
<TABLE>
<CAPTION>
10 Years To
1 Year To 5 Years To 12/31/98 or Date Fund
Sub-Account Options 12/31/98 12/31/98 Life of Fund Effective
<S> <C> <C> <C> <C>
American Century: Short-Term Government 4.36% 3.52% 4.71% 12/15/82
(formerly Benham Short-Term Government)
American Century: Income & Growth 25.68% 22.07% 19.92% 12/17/90
American Century: Growth (formerly 34.69% 17.43% 17.03% 10/31/58
Twentieth Century Growth)
American Century: International Growth 17.16% 9.95% 12.99% 05/01/91
(formerly Twentieth Century International
Growth)
American Century: Ultra (formerly Twentieth 32.50% 18.33% 22.30% 11/02/81
Century Ultra)
Delchester Fund-Institutional Class -3.15% 5.04% 7.62% 08/20/70
Dreyfus A Bonds Plus, Inc. 1.05% 3.79% 7.08% 06/25/76
Dreyfus Appreciation Fund, Inc. 28.85% 22.78% 16.82% 01/31/84
Dreyfus Balanced Fund, Inc. 7.96% 11.62% 11.00% 09/30/92
Dreyfus S & P 500 Index Fund 26.12% 21.54% 15.43% 01/02/90
Dreyfus Third Century Fund, Inc. 28.18% 19.52% 15.11% 03/29/72
Evergreen Income and Growth Fund -2.38% 8.57% 8.91% 08/31/78
Federated Bond Fund - Class F 3.95% 5.81% 8.25% 05/20/87
Federated High Yield Trust -0.42% 6.81% 8.69% 08/23/84
Fidelity Advisor Balanced Fund - Class T 13.65% 8.92% 11.75% 01/31/87
Fidelity Advisor Equity Income Fund - 14.33% 17.00% 17.45% 09/30/92
Class T
Fidelity Advisor Growth Opportunities Fund 22.07% 18.95% 18.45% 11/30/87
- - Class T
Fidelity Advisor High Yield Fund - Class T -2.04% 7.12% 11.27% 01/31/87
Fidelity Asset Manager(TM) 14.28% 10.28% 12.21% 12/28/88
Fidelity Equity-Income Fund 10.76% 16.74% 13.99% 05/16/66
Fidelity Magellan(R) Fund 31.59% 18.66% 18.14% 05/02/63
Fidelity Puritan Fund 14.78% 13.46% 13.08% 04/16/47
Franklin Mutual Series Fund, Inc. - -1.59% 13.75% 12.54% 01/31/68
Mutual Shares Fund: Class A
INVESCO Dynamics Fund 21.36% 17.21% 18.24%
Janus Fund 36.79% 19.32% 18.70% 12/31/85
Janus Twenty Fund 70.85% 27.64% 23.79% 04/26/85
Janus Worldwide Fund 23.93% 17.56% 18.95% 05/15/91
Lazard Small Cap Portfolio - Open Shares -14.79% 0.98% 6.34%
MFS(R)World Governments Fund 2.49% 1.86% 5.81% 02/25/81
Nationwide(R) Bond Fund 6.66% 4.85% 6.95% 03/01/80
Nationwide(R) Fund 28.35% 22.29% 17.18% 05/30/33
Nationwide(R) Growth Fund 21.84% 17.15% 13.36% 02/27/61
Nationwide(R) Money Market Fund - Prime Shares 3.41% 3.24% 3.57% 03/01/80
Nationwide(R) Intermediate U.S. Government 6.50% 5.28% 5.65% 02/28/92
Bond Fund
Nationwide S&P 500(R) Index Fund - Class R N/A N/A N/A 10/30/98(1)
</TABLE>
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<PAGE> 49
NON-STANDARDIZED TOTAL RETURN (CONTINUED)
<TABLE>
<CAPTION>
10 Years To
1 Year To 5 Years To 12/31/98 or Date Fund
Sub-Account Options 12/31/98 12/31/98 Life of Fund Effective
<S> <C> <C> <C> <C>
Neuberger Berman Equity Trust(R) - Neuberger -8.49% 13.59% 12.45% 09/26/88
Berman Genesis Trust
Neuberger Berman Guardian Fund, Inc. 0.72% 11.88% 13.22% 06/01/50
Neuberger Berman Limited Maturity Bond Fund 2.99% 3.54% 5.32% 06/09/86
Neuberger Berman Partners Fund, Inc. 4.60% 16.40% 14.51% 07/16/68
Oppenheimer Global Fund/VA 10.94% 11.02% 12.64% 12/08/69
Phoenix Balanced Fund Series 16.68% 10.66% 11.49% 01/30/81
Prestige Balanced Fund - Class A N/A N/A N/A 11/02/98(1)
Prestige International Fund - Class A N/A N/A N/A 11/02/98(1)
Prestige Large Cap Growth Fund - Class A N/A N/A N/A 11/02/98(1)
Prestige Large Cap Value Fund - Class A N/A N/A N/A 11/02/98(1)
Prestige Small Cap Fund - Fund Class A N/A N/A N/A 11/02/98(1)
Strong Common Stock Fund 15.78% 16.52% 19.21% 12/29/89
Strong Total Return Fund, Inc. 30.03% 16.76% 12.17% 12/30/81
Templeton Foreign Fund - Class A -6.42% 4.33% 8.90% 10/05/82
Warburg Pincus Emerging Growth Fund 4.15% 13.50% 14.83% 01/31/88
Warburg Pincus Global Fixed Income Fund 6.71% 4.30% 6.34% 11/01/90
</TABLE>
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
10 Years or
Date Fund
Available in Date Fund
Variable Added to
1 Year To 5 Years To Account Variable
Sub-Account Options 12/31/98 12/31/98 To 12/31/98 Account
<S> <C> <C> <C> <C>
American Century: Short-Term Government -5.34% 0.27% 2.32% 04/30/84
(formerly Benham Short-Term Government)
American Century: Income & Growth 15.98% N/A 23.95% 10/31/96
American Century: Growth (formerly 24.99% 14.65% 15.49% 01/28/83
Twentieth Century Growth)
American Century: International Growth 7.46% N/A 13.53% 02/01/95
(formerly Twentieth Century International
Growth)
American Century: Ultra (formerly Twentieth 22.80% 15.67% 12.93% 10/15/93
Century Ultra)
Delchester Fund-Institutional Class -12.44% 1.90% 3.24% 12/31/92
Dreyfus A Bonds Plus, Inc. -8.54% N/A -0.03% 01/31/94
Dreyfus Appreciation Fund, Inc. N/A N/A 17.70% 01/05/98
Dreyfus Balanced Fund, Inc. N/A N/A -2.33% 01/05/98
Dreyfus S & P 500 Index Fund 16.42% 19.07% 16.78% 01/04/93
Dreyfus Third Century Fund, Inc. 18.48% 16.85% 14.27% 01/04/93
Evergreen Income and Growth Fund -11.73% 5.62% 6.33% 01/04/93
Federated Bond Fund - Class F -5.75% N/A 0.23% 11/01/96
Federated High Yield Trust -9.90% N/A -10.01% 12/31/97
Fidelity Advisor Balanced Fund - Class T 3.95% N/A 9.13% 12/18/95
Fidelity Advisor Equity Income Fund - 4.63% N/A 12.89% 12/18/95
Class T
</TABLE>
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<PAGE> 50
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN (CONTINUED)
<TABLE>
<CAPTION>
10 Years or
Date Fund
Available in Date Fund
Variable Added to
1 Year To 5 Years To Account Variable
Sub-Account Options 12/31/98 12/31/98 To 12/31/98 Account
<S> <C> <C> <C> <C>
Fidelity Advisor Growth Opportunities Fund 12.37% N/A 17.94% 12/18/95
- - Class T
Fidelity Advisor High Yield Fund - Class T -11.41% N/A 2.54% 12/18/95
Fidelity Asset Manager(TM) 4.58% 7.25% 7.22% 10/15/93
Fidelity Equity-Income Fund 1.06% 14.18% 11.99% 03/16/83
Fidelity Magellan(R) Fund 21.89% 16.03% 17.22% 01/04/93
Fidelity Puritan Fund 5.08% 10.72% 12.10% 01/04/93
Franklin Mutual Series Fund, Inc. - Mutual N/A N/A -11.04% 01/05/98
Shares Fund: Class A
INVESCO Dynamics Fund N/A N/A 834.11% 11/02/98
Janus Fund 27.09% N/A 20.96% 12/18/95
Janus Twenty Fund 61.15% 25.01% 21.54% 10/15/93
Janus Worldwide Fund 14.23% N/A 15.22% 11/01/96
Lazard Small Cap Portfolio - Open Shares N/A N/A 632.26% 11-02-98
MFS(R) World Governments Fund -7.20% -1.49% 3.64% 02/15/83
Nationwide(R) Bond Fund -3.04% 1.62% 4.76% 01/29/81
Nationwide(R) Fund 18.65% 19.77% 15.43% 01/29/81
Nationwide(R) Growth Fund 12.14% 14.54% 11.32% 01/29/81
Nationwide(R) Money Market Fund - Prime Shares -6.29% 0.01% 1.02% 01/29/81
Nationwide(R) Intermediate U.S. Government -3.20 N/A 0.48% 12/18/95
Bond Fund
Nationwide S&P 500(R) Index Fund - Class R N/A N/A -2.59% 11/02/98
Neuberger Berman Equity Trust(R) - Neuberger N/A N/A -16.71% 01/05/98
Berman Genesis Trust
Neuberger Berman Guardian Fund, Inc. -8.84% N/A 8.51% 01/31/94
Neuberger Berman Limited Maturity Bond Fund -6.71% 0.30% -0.42% 09/30/93
Neuberger Berman Partners Fund, Inc. -5.10% 13.85% 13.92% 01/04/93
Oppenheimer Global Fund/VA 1.24% 8.11% 13.45% 01/04/93
Phoenix Balanced Fund Series 6.98% N/A 7.48% 01/31/94
Prestige Balanced Fund - Class A N/A N/A 7.11% 11/02/98
Prestige International Fund - Class A N/A N/A 7.35% 11/02/98
Prestige Large Cap Growth Fund - Class A N/A N/A 36.55% 11/02/98
Prestige Large Cap Value Fund - Class A N/A N/A 171.95% 11/02/98
Prestige Small Cap Fund - Fund Class A N/A N/A 391.10% 11/02/98
Strong Common Stock Fund N/A N/A 538.92% 11/02/98
Strong Total Return Fund, Inc. 20.33% 14.04% 15.31% 01/04/93
Templeton Foreign Fund - Class A -15.49% N/A 2.70% 02/01/95
Warburg Pincus Emerging Growth Fund -5.55% N/A 8.82% 12/18/95
Warburg Pincus Global Fixed Income Fund N/A N/A -3.39% 01/05/98
</TABLE>
(1) The Nationwide S&P 500(R) Index Fund, Prestige Balanced Fund, Prestige
International Fund, Prestige Large Cap Growth Fund, Prestige Large Cap
Value Fund, & Prestige Small Cap Fund were added to the variable account
on December 23, 1998. Therefore, no performance information is available.
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TABLE OF CONTENTS: STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
<S> <C>
General Information and History............................................................................1
Services...................................................................................................1
Purchase of Securities Being Offered.......................................................................1
Underwriters...............................................................................................2
Advertising................................................................................................2
Annuity Payments...........................................................................................3
Financial Statements.......................................................................................4
</TABLE>
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APPENDIX A: OBJECTIVES FOR THE UNDERLYING MUTUAL FUNDS
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.
(AVAILABLE FOR CONTRACTS ISSUED ON OR AFTER JANUARY 1, 1993)
For contracts issued on or after January 1, 1993, variable account purchase
payments may be allocated only to the sub-accounts which consist of shares of
the underlying mutual fund options listed below:
AMERICAN CENTURY: SHORT-TERM GOVERNMENT (FORMERLY BENHAM SHORT-TERM GOVERNMENT)
Investment Objective: To seek current income and limited price volatility by
maintaining an average weighted portfolio maturity of four years or less. The
Fund invests in securities of the United States government and its agencies.
American Century Investment Management, Inc. serves as the Fund's investment
adviser.
AMERICAN CENTURY: INCOME & GROWTH
Investment Objective: Seeks dividend growth, current income and capital
appreciation by investing in common stocks. The Fund may buy securities
convertible into common stock, such as convertible bonds, convertible preferred
stocks or warrants. The Fund may also, for liquidity purposes, invest in
high-quality money market instruments with remaining maturities of one year or
less. The Fund may also enter into repurchase agreements, collateralized by U.S.
government securities, with banks or broker-dealers deemed to present minimal
credit risk. American Century Investment Management, Inc. serves as the Fund's
investment adviser.
AMERICAN CENTURY: GROWTH (FORMERLY TWENTIETH CENTURY GROWTH)
Investment Objective: Seeks capital growth through investment in securities
which the management considers to have better than average prospects for
appreciation of value. The Fund's investment approach identifies companies with
accelerating earnings and revenues. As part of its strategy, the Fund remains
essentially fully invested in stocks at all times. American Century Investment
Management, Inc. serves as the Fund's investment adviser.
AMERICAN CENTURY: INTERNATIONAL GROWTH (FORMERLY TWENTIETH CENTURY INTERNATIONAL
GROWTH)
Investment Objective: Seeks capital growth by investing in an international
portfolio of common stocks, primarily in developed markets; stocks considered by
the investment manager to have prospects for appreciation. The Fund will invest
primarily in common stocks (defined to include depository receipts for common
stocks) and other equity equivalents of such companies. American Century
Investment Management, Inc. serves as the Fund's investment adviser.
AMERICAN CENTURY: ULTRA (FORMERLY TWENTIETH CENTURY ULTRA)
Investment Objective: The investment objective of the Fund is to seek capital
growth by investing primarily in common stocks that are considered by management
to have better-than-average prospects for appreciation. American Century
Investment Management, Inc. serves as the Fund's investment adviser.
DELCHESTER FUND-INSTITUTIONAL CLASS
Investment Objective: Seeks to provide high current income by investing
principally in corporate bonds, and also in U.S. Government securities and
commercial paper. This Fund invests primarily in high-yield securities (junk
bonds) and greater risks may be involved with an investment in the Fund than an
investment in a mutual fund comprised primarily of investment grade bonds.
Delaware Management Company, Inc. serves as the Fund's investment adviser.
DREYFUS A BONDS PLUS, INC.
Investment Objective: The Fund's goal is to provide the maximum amount of
current income to the extent consistent with the preservation of
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capital and the maintenance of liquidity. The Fund invests principally in debt
obligations of corporations, the U.S. Government and its agencies and
instrumentalities, and major U.S. banking institutions. The Fund's investment
objective cannot be changed without approval by the holders of a majority (as
defined in the Investment Company Act of 1940) of the Fund's outstanding voting
shares. There can be no assurance that the Fund's investment objective will be
achieved. The Dreyfus Corporation serves as the Fund's investment adviser.
DREYFUS APPRECIATION FUND, INC.
Investment Objective: To provide long-term capital growth consistent with the
preservation of capital. Current income is a secondary investment objective. The
Fund seeks to meet its objective by investing primarily in the common stocks of
domestic and foreign issuers. The Dreyfus Corporation serves as the Fund's
investment adviser.
DREYFUS BALANCED FUND, INC.
Investment Objective: To provide long-term capital growth and current income,
consistent with reasonable investment risk. The Fund is managed as a balanced
fund and invests in equity and debt securities, the proportion of which will
vary from time to time in accordance the fund manager's assessment of economic
conditions and investment opportunities. The Dreyfus Corporation serves as the
Fund's investment adviser.
DREYFUS S & P 500 INDEX FUND
Investment Objective: Seeks 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's investment objective cannot be changed without approval by the holders of
a majority of the Fund's outstanding voting shares. The Dreyfus Corporation
serves as the Fund's investment adviser.
THE DREYFUS THIRD CENTURY FUND, INC.
Investment Objective: Primarily seeks to provide capital growth through equity
investment in companies that, in the opinion of the Fund's management, not only
meet traditional investment standards but which also show evidence that they
conduct their business, in a manner that contributes to the enhancement of the
quality of life in America. Current income is secondary to the primary goal. The
Dreyfus Corporation serves as the Fund's investment adviser.
EVERGREEN INCOME AND GROWTH FUND (FORMERLY THE EVERGREEN TOTAL RETURN FUND)
Investment Objective: Seeks to achieve a return consisting of current income and
capital appreciation in the value of its shares. The emphasis on current income
and capital appreciation will be relatively equal although, over time, changes
in the outlook for market conditions and the level of interest rates will cause
the Fund to vary its emphasis between these two elements in its search for the
optimum return for its shareholders. The Fund seeks to achieve its investment
objective through investments in common stocks, preferred stocks, securities
convertible into or exchangeable for common stocks and fixed income securities.
The Fund may also write covered call options. Evergreen Asset Management Corp.
serves as the Fund's investment adviser.
FEDERATED BOND FUND - CLASS F
Investment Objective: To provide as high a level of current income as is
consistent with the preservation of capital. The Fund invests primarily in a
professionally managed, diversified portfolio of bonds. Under normal
circumstances, at least 65% of the Fund's net assets will be invested in
investment grade securities, including repurchase agreements collateralized by
investment grade securities. The Fund may invest in corporate debt obligations,
U.S. Government obligations, municipal securities, asset-backed securities,
adjustable rate mortgage securities, collateralized mortgage obligations, and
other securities which are deemed to be consistent with the Fund's investment
objective. Federated Advisers serves as the Fund's investment adviser.
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FEDERATED HIGH YIELD TRUST
Investment Objective: Seeks high current income by investing primarily in a
professionally managed, diversified portfolio of fixed income securities. Such
securities are expected to be lower-rated corporate debt obligations commonly
referred to as "junk bonds." Investments of this type are subject to a greater
risk of loss of principal and interest than investments in higher rated
securities. The Trust's investment adviser will endeavor to limit these risks
through diversifying the portfolio and through careful credit analysis of
individual issuers. Federated Advisers serves as the Fund's investment adviser.
FIDELITY ADVISOR BALANCED FUND - CLASS T
Investment Objective: Seeks income and growth potential by investing in
securities including U.S. government and corporate bonds, and a diversified
selection of common stocks. Fidelity Management & Research Company serves as the
Fund's investment adviser.
FIDELITY ADVISOR EQUITY INCOME FUND - CLASS T
Investment Objective: Seeks to obtain reasonable income from a portfolio
consisting primarily of income-producing equity securities, with a secondary
emphasis on growth potential. Fidelity Management & Research Company serves as
the Fund's investment adviser.
FIDELITY ADVISOR GROWTH OPPORTUNITIES FUND - CLASS T
Investment Objective: Pursues capital growth that exceeds market performance
through investments in growth, cyclical, and value stocks, and securities
convertible to common stocks. Fidelity Management & Research Company serves as
the Fund's investment adviser.
FIDELITY ADVISOR HIGH YIELD FUND - CLASS T
Investment Objective: A bond fund designed to meet the needs of the long-term
investor, seeking above-average monthly income and potential capital growth by
investing in lower-rated, high-yielding, fixed income securities. Fidelity
Management & Research Company serves as the Fund's investment adviser.
FIDELITY ASSET MANAGER(TM)
Investment Objective: Seeks high total return with reduced risk over the long
term by allocating its assets among stocks, bonds and short-term instruments.
Fidelity Management & Research Company serves as the Fund's investment adviser.
FIDELITY EQUITY-INCOME FUND
Investment Objective: Seeks to obtain reasonable income from a portfolio
consisting primarily of income-producing equity securities. The Fund seeks a
yield which exceeds the composite yield on the securities comprising the
Standard & Poor's 500 Composite Stock Price index. In addition, consistent with
the above objective, in managing its portfolio, the Fund will consider the
potential for achieving capital appreciation. Fidelity Management & Research
Company serves as the Fund's investment adviser.
FIDELITY MAGELLAN(R) FUND
Investment Objective: Seeks capital appreciation by investing primarily in
common stock and securities convertible into common stock. Up to 20% of the
Fund's assets may also be invested in debt securities of all types and qualities
issued by foreign and domestic issuers if the Fund's management believes that
doing so will result in capital appreciation. No emphasis is placed on dividend
income except when the Fund's management believes that this income will have a
favorable influence on the market value of the security. Because the Fund has no
limitation on the quality of debt securities in which it may invest, the debt
securities in its portfolio may be of poor quality and may present the risk of
default or may be in default. Fidelity Management & Research Company serves as
the Fund's investment adviser.
FIDELITY PURITAN FUND
Investment Objective: Seeks to obtain as much income as possible, consistent
with the preservation and conservation of capital, by investing in a broadly
diversified portfolio of high-yielding securities, including common stocks,
preferred stocks, and bonds. While emphasis on income is an important objective,
this does not preclude growth in capital since
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some securities offering a better than average yield may also possess some
growth possibilities. Fidelity Management & Research Company serves as the
Fund's investment adviser.
FIDELITY VIP HIGH INCOME PORTFOLIO
Investment Objective: Seeks to obtain a high level of current income by
investing primarily in high-risk, lower rated, high-yielding, fixed-income
securities, while also considering growth of capital. The Fund's manager will
seek high current income normally by investing the Portfolio's assets as
follows:
o at least 80% in income-producing debt securities and preferred stocks,
including convertible securities; and
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; 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.
Fidelity Management & Research Company serves as the Fund's investment adviser.
FRANKLIN MUTUAL SERIES FUND, INC. - MUTUAL SHARES FUND: CLASS A
Investment Objective: Seeks capital appreciation, which may occasionally be
short-term. Income is a secondary objective. The Fund seeks to meet its
objectives by primarily investing in common stock, preferred stock and corporate
debt securities which may be convertible into common stock. Franklin Mutual
serves as the Fund's investment adviser.
INVESCO DYNAMICS FUND
Investment Objective: To seek appreciation of capital through aggressive
investment policies. The Fund invests primarily in common stocks of U.S.
companies traded on national securities exchanges and over-the-counter. The Fund
also has the flexibility to invest in preferred stocks and convertible or
straight issues of debentures, as well as foreign securities. INVESCO Fund
Group, Inc. serves as the Fund's investment adviser. INVESCO Trust Company
serves as the Fund's sub-adviser.
JANUS FUND
Investment Objective: Seeks long-term growth of capital by investing primarily
in common stocks of a large number of issuers of any size. Generally this Fund
emphasizes issuers with larger market capitalizations. Janus Capital Corporation
serves as the Fund's investment adviser.
JANUS TWENTY FUND
Investment Objective: Seeks growth of capital in a manner consistent with the
preservation of capital. Under normal conditions, the Fund will concentrate its
investments in a core position of 20-30 common stocks. However, the percentage
of the Fund's assets invested in common stocks will vary, depending upon its
investment adviser's opinion of prevailing market, financial and economic
conditions. Consequently, the Fund may at times hold substantial positions in
cash, or interest bearing securities. Janus Capital Corporation serves as the
Fund's investment adviser.
JANUS WORLDWIDE FUND
Investment Objective: To seek long-term growth of capital in a manner consistent
with the preservation of capital. The objective is pursued primarily through
investments in common stocks of foreign and domestic issuers. The Fund may
invest on a worldwide basis in companies and organizations of any size,
regardless of country of organization or place of principal business activity.
The Fund normally invests in issuers from at least five different countries.
Janus Capital Corporation serves as the Fund's investment adviser.
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LAZARD SMALL CAP PORTFOLIO - OPEN SHARES
Investment Objective: To seek capital appreciation through investing primarily
in equity securities of companies with market capitalizations under $1 billion
that are believed by the investment adviser to be inexpensively priced relative
to the return on total capital or equity. Lazard Asset Management serves as the
Fund's investment adviser.
MFS(R) WORLD GOVERNMENTS FUND
Investment Objective: To seek not only preservation, but also growth of capital,
together with moderate current income through a professionally managed
internationally diversified portfolio consisting primarily of debt securities
and, to a lesser extent, equity securities. The Fund is designed for investors
who wish to diversify their investments beyond the United States and who are
prepared to accept the risks entailed in such investments which may be higher
than those associated with certain U.S. investments. Massachusetts Financial
Services Company serves as the Fund's investment adviser.
NATIONWIDE BOND FUND - CLASS D
Investment Objective: Seeks as high a level of income as is consistent with
preservation of capital. The Fund invests primarily in fixed-income securities
and currently focuses on corporate debt investments and U.S. Government
mortgage-backed securities. Under normal market conditions, the dollar-weighted
average portfolio maturity of the Fund will be intermediate, which is defined as
being between six and ten years.
NATIONWIDE FUND - CLASS D
Investment Objective: Seeks total return through a flexible combination of
current income and capital appreciation. The Fund invests primarily in common
stocks, but also in convertible securities, other equity securities, bonds and
money market obligations.
NATIONWIDE GROWTH FUND - CLASS D
Investment Objective: Seeks long-term capital appreciation. The Fund invests
primarily in equity securities of companies of all sizes. Major emphasis in the
selection of securities is placed on companies which have capable management,
and are in fields where social and economic trends, technological developments,
and new processes or products indicate a potential for greater-than-average
growth.
NATIONWIDE MONEY MARKET FUND - PRIME SHARES
Investment Objective: Seeks as high a level of current income as is consistent
with the preservation of capital and maintenance of liquidity. The Fund invests
in high-quality money market instruments maturing in 397 days or less.
NATIONWIDE(R) INTERMEDIATE U.S. GOVERNMENT BOND FUND
Investment Objective: Seeks as high a level of current income as is consistent
with the preservation of capital. The Fund invests in securities of the U.S.
Government and its agencies and instrumentalities. The average duration of the
Fund will be between three and a half and six years.
NATIONWIDE S&P 500(R) INDEX FUND - CLASS R
Investment Objective: To provide investment results that correspond to the price
and yield performance of publicly traded common stocks as represented by the
Standard & Poor's 500 Composite Stock Price Index (the "Index"). The Fund
attempts to be fully invested at all times in stocks that comprise the Index and
stock index futures, and in any event, at least 80% of the Fund's net assets
will be invested in stocks comprising the Index. Nationwide Advisory Services,
Inc. serves as the Fund's investment adviser and The Dreyfus Corporation is the
Fund's sub-adviser.
"S&P(R)" has been licensed for use by Nationwide Advisory Services, Inc. The
Fund is not sponsored, endorsed, sold or promoted by Standard & Poor's and
Standard & Poor's makes
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no representation regarding the advisability of investing in the Fund.
NEUBERGER BERMAN EQUITY TRUST(R) - NEUBERGER BERMAN GENESIS TRUST
Investment Objective: Seeks capital appreciation by investing primarily in
stocks of companies with small market capitalizations (usually up to $1.5
billion). The portfolio manager seeks to buy the stocks of strong companies with
a history of solid performance and a proven management team, which are selling
at attractive prices. Neuberger Berman Management Incorporated serves as the
Fund's investment adviser. THIS FUND IS NOT AVAILABLE FOR PLANS ESTABLISHED ON
OR AFTER MARCH 6, 1998.
NEUBERGER BERMAN GUARDIAN FUND, INC.
Investment Objective: Seeks capital appreciation through investments generally
in dividend-paying issues of established companies that its investment officers
believe are well managed. The emphasis of the Fund's investments is on common
stock. The Fund diversifies its holdings among different industries and
different companies in light of conditions prevailing at any given time. Current
income is a secondary objective. (This Fund is not available for Plans
established on or after March 6, 1998). Neuberger Berman Management Incorporated
serves as the Fund's investment adviser.
NEUBERGER BERMAN LIMITED MATURITY BOND FUND
Investment Objective: Seeks highest current income consistent with low risk to
principal and liquidity. The Fund invests in a diversified portfolio of short-to
intermediate-term debt securities and other debt securities with special
features producing similar price characteristics. Total return is a secondary
objective. Neuberger Berman Management Incorporated serves as the Fund's
investment adviser.
NEUBERGER BERMAN PARTNERS FUND, INC.
Investment Objective: Seeks capital growth. The Fund invests in securities
solely on the basis of management's evaluation of their investment merit and
potential for growth using a value-oriented approach to the selection of
individual securities. The Fund's management believes that the Fund is an
attractive investment vehicle for conservative investors who are interested in
long-term appreciation from stock investments, but who have a low tolerance for
risk. Neuberger Berman Management Incorporated serves as the Fund's investment
adviser.
OPPENHEIMER GLOBAL FUND/VA
Investment Objective: Seeks capital appreciation. The Fund emphasizes investment
in foreign and domestic securities considered by the Fund's investment manager
to have appreciation possibilities, primarily common stocks or securities having
investment characteristics of common stocks (such as convertible securities) of
"growth-type" companies. As a matter of fundamental policy, under normal market
conditions, the Fund will invest its total assets in securities of issuers
traded in markets in at least three different countries (which may include the
United States). The portfolio may also emphasize securities of cyclical
industries and "special situations" when the Fund's manager believes that they
present opportunities for capital growth. The remainder of the Fund's invested
assets will be invested in securities for liquidity purposes. Oppenheimer Funds,
Inc. serves as the Fund's investment adviser.
PHOENIX BALANCED FUND SERIES
Investment Objective: The Fund seeks reasonable income, long-term capital growth
and conservation of capital. It is intended that the Fund will invest in common
stocks and fixed income securities, with emphasis on income-producing securities
which appear to have some potential for capital enhancement. Phoenix Investment
Counsel serves as the Fund's investment adviser.
PRESTIGE BALANCED FUND - CLASS A
Investment Objective: To provide a high total return from a diversified
portfolio of equity and fixed income securities. The Fund seeks to provide a
total return that approaches the total return typical of a portfolio of fixed
income securities. Under normal market conditions, the Fund will invest
approximately 60% of its asset in equity securities and 40% in fixed income
securities. The equity securities will primarily
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be securities of large and medium sized companies included in the Standard &
Poor's 500 Composite Stock Price Index, and the fixed income securities will
cover a range of fixed income sectors and securities, including government,
corporate, asset-backed and mortgage-backed securities. Nationwide Advisory
Services, Inc. serves as the Fund's investment adviser and J.P. Morgan
Investment Management Inc. is the Fund's sub-adviser.
PRESTIGE INTERNATIONAL FUND - CLASS A
Investment Objective: Capital appreciation. The Fund seeks to accomplish its
investment objective by investing primarily in equity securities of non- United
States companies that, in the opinion of its subadviser, are inexpensively
priced relative to the return on total capital or equity. The Fund invests
primarily in equity securities of non-United State companies. Under normal
market conditions, the Fund will invest at least 80% of the value of its total
assets in the equity securities of companies within at least three different
countries (not including the United States). Nationwide Advisory Services, Inc.
serves as the Fund's investment adviser and Lazard Asset Management is the
Fund's sub-adviser.
PRESTIGE LARGE CAP GROWTH FUND - CLASS A
Investment Objective: Long-term capital appreciation. The Fund seeks to achieve
its investment objective from a broadly diversified portfolio of equity
securities of large capitalization companies that are expected to have better
prospects of earnings growth than the growth rate of the general domestic
economy. Dividend income is a secondary objective. A large capitalization
company is a company with a market capitalization and industry characteristics
that are similar to companies in Russell 1000(R) Growth Index, which currently
have market capitalizations that range from $14 billion to $272 billion.
Nationwide Advisory Services, Inc. serves as the Fund's investment adviser and
Goldman Sachs Asset Management is the Fund's sub-adviser.
PRESTIGE LARGE CAP VALUE FUND - CLASS A
Investment Objective: To maximize total return, consisting of both capital
appreciation and current income. The Fund seeks to achieve its investment
objective by investing in U.S. equity securities that are currently undervalued
as determined by its subadviser. Under normal market conditions, substantially
all, but in no event less than 65% of the Fund's total assets will be invested
in equity securities of large capitalization U.S. companies, including foreign
companies whose securities are traded in the United States and who comply with
U.S. accounting standards. A large capitalization company is a company with a
market capitalization and industry characteristics that are similar to companies
in the Russell 1000(R) Value Index, which currently have market capitalizations
that range from $1.4 billion to $272 billion. Nationwide Advisory Services, Inc.
serves as the Fund's investment adviser and Brinson Partners, Inc. is the fund's
sub-adviser.
PRESTIGE SMALL CAP FUND - CLASS A
Investment Objective: Long-term capital appreciation. The Fund seeks to
accomplish its investment objective from a broadly diversified portfolio of
equity securities issued by U.S. companies that have small market
capitalizations. Under normal market conditions, the Fund will invest at least
65% of its total assets in equity securities of companies whose market
capitalizations at the time of investment do not exceed 110% of the largest
company in the Russell 2000(R) Small Stock Index; these companies currently have
market capitalizations that range from $222 million to $1.4 billion. Nationwide
advisory Services, Inc. serves as the Fund's investment adviser and INVESCO
Management & Research, Inc. serves as the Fund's sub-adviser, providing daily
portfolio management for the Fund.
STRONG COMMON STOCK FUND, INC.
Investment Objective: To seek capital growth by investing in a diversified
portfolio of equity securities which, in the opinion of the Fund's investment
adviser, possess the potential for price appreciation. Strong Capital
Management, Inc. serves as the Fund's investment adviser.
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STRONG TOTAL RETURN FUND, INC.
Investment Objective: Seeks a combination of income and capital appreciation
which will produce the highest total return while assuming reasonable risks.
"Reasonable risks" refers to the advisor's judgment that the risks of investing
in the securities in the Total Return Fund's portfolio are no greater than
normal. The Total Return Fund invests in common stocks and other equity-type
securities; corporate bonds, debentures, and notes; and short-term money market
instruments. Common stocks may be either growth or income oriented. Other
equity-type securities are limited to convertible bonds, preferred stocks,
warrants, and convertible preferred shares. Short-term money market instruments
include U.S. Treasury obligations, bank certificates of deposit, commercial
paper, and variable-rate master demand notes (floating-rate debt instruments
without a fixed maturity). The Total Return Fund may also invest in debt
securities issued or guaranteed by the U.S. government and its agencies or
instrumentalities. Strong Capital Management, Inc. serves as the Fund's
investment adviser.
TEMPLETON FOREIGN FUND - CLASS A
Investment Objective: Seeks long-term capital growth through a flexible policy
of investing in stocks and debt obligations of companies and governments outside
the United States. Any income realized will be incidental.
Templeton Investment Counsel, Inc. serves as the Fund's investment adviser.
WARBURG PINCUS EMERGING GROWTH FUND
Investment Objective: Seeks maximum capital appreciation by investing in equity
securities of small- to medium-sized companies in the United States with
emerging or renewed growth potential. Warburg Pincus Asset Management, Inc.,
serves as the Fund's investment adviser.
WARBURG PINCUS GLOBAL FIXED INCOME FUND
Investment Objective: Seeks to maximize total investment return consistent with
prudent investment management, consisting of a combination of interest income,
currency gains and capital appreciation. The Fund will pursue its objective by
investing in a portfolio principally consisting of investment grade fixed income
securities of governmental and corporate issuers denominated in various
currencies, including U.S. dollars. Warburg Pincus Asset Management Inc., serves
as the Fund's investment adviser.
(AVAILABLE FOR CONTRACTS ISSUED ON OR AFTER DECEMBER 25, 1982 AND BEFORE JANUARY
1, 1993)
For contracts issued on or after December 25, 1982, and before January 1, 1993
variable account purchase payments may be allocated only to the sub-accounts
which consist of shares of the underlying mutual fund options listed below:
AMERICAN CENTURY: SHORT-TERM GOVERNMENT (FORMERLY BENHAM SHORT-TERM GOVERNMENT)
Investment Objective: To seek current income and limited price volatility by
maintaining an average weighted portfolio maturity of four years or less. U.S.
Governments invests in securities of the United States government and its
agencies. American Century Investment Management, Inc. serves as the Fund's
investment adviser.
AMERICAN CENTURY: GROWTH (FORMERLY TWENTIETH CENTURY GROWTH)
Investment Objective: To seek capital growth through investment in securities
which the management considers to have better than average prospects for
appreciation of value. The Fund's investment approach identifies companies with
accelerating earnings and revenues. As part of it strategy, the Fund remains
essentially fully invested in stocks at all times. American Century Investment
Management, Inc. serves as the Fund's investment adviser.
FIDELITY CAPITAL & INCOME FUND
Investment Objective: Seeks to provide a combination of income and capital
growth by investing primarily in debt instruments and common and preferred
stocks, with a focus on lower-quality debt securities of companies with
uncertain financial positions. Fidelity Management & Research Company serves as
the Fund's investment adviser.
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FIDELITY EQUITY-INCOME FUND
Investment Objective: Seeks to obtain reasonable income from a portfolio
consisting primarily of income-producing equity securities. The Fund seeks a
yield which exceeds the composite yield on the securities comprising the
Standard & Poor's 500 Composite Stock Price index. In addition, consistent with
the above objective, in managing its portfolio, the Fund will consider the
potential for achieving capital appreciation. Fidelity Management & Research
Company serves as the Fund's investment adviser.
FIDELITY VIP HIGH INCOME PORTFOLIO
Investment Objective: Seeks to obtain a high level of current income by
investing primarily in high-risk, lower rated, high-yielding, fixed-income
securities, while also considering growth of capital. The Fund's manager will
seek high current income normally by investing the Portfolio's assets as
follows:
- at least 80% in income-producing debt securities and preferred stocks,
including convertible securities; and
- up to 20% in common stocks and other equity securities when consistent
with the Portfolio's primary objective or acquired as part of a unit
combining fixed-income and equity securities.
Higher yields are usually available on securities that are lower-rated or that
are unrated. Lower-rated securities are usually defined as Ba or lower by
Moody's; BB or lower by Standard & Poor's and may be deemed to be of a
speculative nature. The Portfolio may also purchase lower-quality bonds such as
those rated Ca3 by Moody's or C- by Standard & Poor's which provide poor
protection for payment of principal and interest (commonly referred to as "junk
bonds"). For a further discussion of lower-rated securities, please see the
"Risks of Lower-Rated Debt Securities" section of the Portfolio's prospectus.
Fidelity Management & Research Company serves as the Fund's investment adviser.
MFS(R) WORLD GOVERNMENTS FUND
Investment Objective: To seek not only preservation, but also growth of capital,
together with moderate current income through a professionally managed
internationally diversified portfolio consisting primarily of debt securities
and, to a lesser extent, equity securities. The Fund is designed for investors
who wish to diversify their investments beyond the United States and who are
prepared to accept the risks entailed in such investments which may be higher
than those associated with certain U.S. Investments. Massachusetts Financial
Services Company serves as the Fund's investment adviser.
NATIONWIDE MONEY MARKET FUND - PRIME SHARES
Investment Objective: Seeks as high a level of current income as is consistent
with the preservation of capital and maintenance of liquidity. The Fund invests
in high-quality money market instruments maturing in 397 days or less.
60
<PAGE> 61
<PAGE> 1
- --------------------------------------------------------------------------------
Independent Auditors' Report
----------------------------
The Board of Directors of Nationwide Life Insurance Company and
Contract Owners of Nationwide Variable Account:
We have audited the accompanying statement of assets, liabilities and
contract owners' equity of Nationwide Variable Account as of December 31, 1998,
and the related statements of operations and changes in contract owners' equity
for each of the years in the two year period then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1998, by correspondence with
the transfer agents of the underlying mutual funds. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Nationwide Variable Account
as of December 31, 1998, and the results of its operations and its changes in
contract owners' equity for each of the years in the two year period then ended
in conformity with generally accepted accounting principles.
KPMG LLP
Columbus, Ohio
February 5, 1999
- --------------------------------------------------------------------------------
<PAGE> 2
- --------------------------------------------------------------------------------
NATIONWIDE VARIABLE ACCOUNT
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY
December 31, 1998
<TABLE>
<CAPTION>
ASSETS:
Investments at market value:
American Century: Benham Short-Term Government Fund (ACBenSTGvt)
<S> <C>
318,360 shares (cost $3,023,746) ............................................. $ 3,037,155
American Century: Income & Growth Fund (ACIncGro)
239,477 shares (cost $6,466,421) ............................................. 7,004,694
American Century: Twentieth Century Growth Fund (ACTCGro)
496,230 shares (cost $11,178,870) ............................................ 13,477,614
American Century: Twentieth Century International Growth Fund (ACTCIntlGr)
92,684 shares (cost $888,476) ................................................ 887,911
American Century: Twentieth Century Ultra Fund (ACTCUltra)
523,376 shares (cost $15,463,890) ............................................ 17,485,992
Delaware Group Delchester High-Yield Bond Fund, Inc. -
Delchester Fund Institutional Class (DeHYBd)
185,894 shares (cost $1,183,704) ............................................. 1,093,058
Dreyfus A Bonds Plus, Inc. (DryABds)
149,493 shares (cost $2,174,658) ............................................. 2,092,907
Dreyfus Appreciation Fund, Inc. (DryApp)
17,044 shares (cost $655,061) ................................................ 717,021
Dreyfus Balanced Fund, Inc. (DryBal)
9,850 shares (cost $165,759) ................................................. 159,865
Dreyfus S&P 500 Index Fund (Dry500Ix)
342,009 shares (cost $10,241,491) ............................................ 12,445,691
The Dreyfus Third Century Fund, Inc. (Dry3dCen)
87,714 shares (cost $974,509) ................................................ 1,077,129
Evergreen Income and Growth Fund - Class Y (EvIncGro)
62,239 shares (cost $1,302,771) .............................................. 1,281,509
Federated High Yield Trust (FedHiYld)
54,906 shares (cost $487,047) ................................................ 489,217
Federated Investment Series Funds, Inc. - Federated Bond Fund - Class F (FedBdFd)
121,397 shares (cost $1,216,998) ............................................. 1,205,468
Fidelity Advisor Balanced Fund - Class T (FABal)
24,900 shares (cost $484,215) ................................................ 465,377
Fidelity Advisor Equity Income Fund - Class T (FAEqInc)
60,237 shares (cost $1,512,578) .............................................. 1,708,317
Fidelity Advisor Growth Opportunities Fund - Class T (FAGrOpp)
145,021 shares (cost $6,129,380) ............................................. 7,285,842
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Fidelity Advisor High Yield Fund - Class T (FAHiYld)
<S> <C>
249,871 shares (cost $3,168,604) ............................................. 2,831,038
Fidelity Asset Manager(TM) (FidAsMgr)
238,304 shares (cost $4,125,986) ............................................. 4,144,111
Fidelity Capital & Income Fund (FidCapInc)
130,527 shares (cost $1,210,400) ............................................. 1,211,289
Fidelity Equity-Income Fund (FidEqInc)
307,411 shares (cost $12,698,617) ............................................ 17,076,675
Fidelity Magellan(R) Fund (FidMgln)
188,315 shares (cost $16,971,067) ............................................ 22,752,212
Fidelity Puritan(R) Fund (FidPurtn)
716,357 shares (cost $13,049,557) ............................................ 14,377,276
Fidelity VIP - High Income Portfolio (FidVIPHI)
10,523 shares (cost $119,580) ................................................ 121,328
Franklin Mutual Series Fund Inc. - Mutual Shares Fund - Class 1 (FranMutSer)
9,538 shares (cost $202,331) ................................................. 185,899
Janus Fund (JanFund)
181,212 shares (cost $4,911,487) ............................................. 6,097,787
Janus Twenty Fund (Jan20Fd)
307,989 shares (cost $11,441,360) ............................................ 16,415,836
Janus Worldwide Fund (JanWrldwde)
147,751 shares (cost $6,154,382) ............................................. 6,997,491
Lazard Small Cap Portfolio - Open Shares (LazSmCap)
26 shares (cost $454) ........................................................ 454
MFS(R) World Governments Fund - Class A (MFSWdGvt)
71,179 shares (cost $784,874) ................................................ 751,652
Nationwide(R) Bond Fund - Class D (NWBdFd)
164,377 shares (cost $1,548,837) ............................................. 1,601,029
Nationwide(R) Fund - Class D (NWFund)
230,420 shares (cost $6,212,047) ............................................. 7,467,925
Nationwide(R) Growth Fund - Class D (NWGroFd)
206,739 shares (cost $2,971,890) ............................................. 3,543,500
Nationwide(R) Money Market Fund (NWMyMkt)
11,440,557 shares (cost $11,440,557) ......................................... 11,440,557
Nationwide(R) Intermediate U.S. Government Bond Fund - Class D(NWUSGvt)
49,384 shares (cost $523,959) ................................................ 517,051
Neuberger & Berman Genesis Trust (NBGenesTr)
30,745 shares (cost $673,006) ................................................ 625,352
Neuberger & Berman Guardian Trust (NBGuardTr)
334,515 shares (cost $8,494,757) ............................................. 7,499,825
Neuberger & Berman Limited Maturity Bond Fund (NBLtdMat)
99,401 shares (cost $991,117) ................................................ 981,091
Neuberger & Berman Partners Fund (NBPartFd)
365,841 shares (cost $9,830,942) ............................................. 9,328,945
</TABLE>
(Continued)
<PAGE> 4
<TABLE>
<CAPTION>
Oppenheimer Global Fund - Class A (OppGlob)
<S> <C>
170,554 shares (cost $7,334,345) ............................................ 7,265,612
Phoenix Balanced Fund Series - Class A (PhxBalFd)
45,951 shares (cost $754,993) ............................................... 795,880
Prestige International Fund - Class A (PrInt)
172 shares (cost $1,815) .................................................... 1,815
Prestige Small Cap Fund - Class A (PrSmCap)
42 shares (cost $454) ....................................................... 454
Strong Total Return Fund, Inc. (StTotRet)
58,723 shares (cost $1,684,593) ............................................. 2,024,753
Templeton Foreign Fund - Class I (TemForFd)
485,063 shares (cost $4,900,840) ............................................ 4,069,681
Warburg Pincus Emerging Growth Fund - Common Shares (WPEmGro)
124,909 shares (cost $4,433,313) ............................................ 4,992,600
Warburg Pincus Global Fixed - Income Fund - Common Shares (WPGlFxInc)
14,142 shares (cost $148,345) ............................................... 149,910
------------
Total investments ........................................................ 227,183,795
Accounts receivable ............................................................. 42,466
------------
Total assets ............................................................. 227,226,261
Accounts payable ................................................................ 308
------------
Contract owners' equity (note 4) ................................................ $227,225,953
============
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
<PAGE> 5
NATIONWIDE VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
TOTAL ACBENSTGVT
--------------------------- ---------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
INVESTMENT ACTIVITY:
<S> <C> <C> <C> <C>
Reinvested dividends ........................ $ 3,196,414 2,943,209 162,608 177,782
Mortality, expense and administration
charges (note 2) .......................... (2,533,959) (1,849,500) (40,633) (42,118)
------------- ------------- ------------- -------------
Net investment activity ................... 662,455 1,093,709 121,975 135,664
------------- ------------- ------------- -------------
Proceeds from mutual fund shares sold ....... 56,416,999 47,219,466 723,023 925,121
Cost of mutual fund shares sold ............. (48,174,169) (41,630,262) (721,176) (914,401)
------------- ------------- ------------- -------------
Realized gain (loss) on investments ....... 8,242,830 5,589,204 1,847 10,720
Change in unrealized gain (loss)
on investments ............................ 14,063,893 6,076,074 17,698 (2,838)
------------- ------------- ------------- -------------
Net gain (loss) on investments ............ 22,306,723 11,665,278 19,545 7,882
------------- ------------- ------------- -------------
Reinvested capital gains .................... 11,574,852 13,114,383 - -
------------- ------------- ------------- -------------
Net increase (decrease) in contract owners'
equity resulting from operations ........ 34,544,030 25,873,370 141,520 143,546
------------- ------------- ------------- -------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ........................... 53,270,516 36,040,726 668,275 178,490
Transfers between funds ..................... - - 7,071 (53,232)
Redemptions ................................. (23,621,452) (12,768,924) (835,080) (517,635)
Annuity benefits ............................ (27,891) (17,520) (952) (938)
Annual contract maintenance charge (note 2).. (169,891) (108,625) (1,748) (1,865)
Contingent deferred sales charges (note 2) .. (324,873) (262,567) (1,752) (15,741)
Adjustments to maintain reserves ............ 788 9,849 290 301
------------- ------------- ------------- -------------
Net equity transactions ................... 29,127,197 22,892,939 (163,896) (410,620)
------------- ------------- ------------- -------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ......... 63,671,227 48,766,309 (22,376) (267,074)
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ... 163,554,726 114,788,417 3,059,798 3,326,872
------------- ------------- ------------- -------------
CONTRACT OWNERS' EQUITY END OF PERIOD ......... $ 227,225,953 163,554,726 3,037,422 3,059,798
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
ACINCGRO ACTCGRO
--------------------------- ---------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
INVESTMENT ACTIVITY:
<S> <C> <C> <C> <C>
Reinvested dividends ........................ $ 64,541 15,209 - -
Mortality, expense and administration
charges (note 2) .......................... (61,634) (12,374) (152,386) (134,498)
------------- ------------- ------------- -------------
Net investment activity ................... 2,907 2,835 (152,386) (134,498)
------------- ------------- ------------- -------------
Proceeds from mutual fund shares sold ....... 2,702,912 1,753,420 1,724,411 2,899,543
Cost of mutual fund shares sold ............. (2,527,718) (1,566,771) (1,226,965) (2,626,829)
------------- ------------- ------------- -------------
Realized gain (loss) on investments ....... 175,194 186,649 497,446 272,714
Change in unrealized gain (loss)
on investments.......................... 627,403 (79,760) 968,585 768,718
------------- ------------- ------------- -------------
Net gain (loss) on investments ............ 802,597 106,889 1,466,031 1,041,432
------------- ------------- ------------- -------------
Reinvested capital gains .................... 275,147 150,836 2,228,156 1,546,715
------------- ------------- ------------- -------------
Net increase (decrease) in contract owners'.
equity resulting from operations ...... 1,080,651 260,560 3,541,801 2,453,649
------------- ------------- ------------- -------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ........................... 2,774,469 589,787 646,577 482,037
Transfers between funds ..................... 1,481,828 869,824 (134,689) (543,754)
Redemptions ................................. (220,883) (14,946) (1,058,730) (1,535,818)
Annuity benefits ............................ - - (12,964) (4,775)
Annual contract maintenance charge (note 2) . (2,588) (224) (14,839) (16,461)
Contingent deferred sales charges (note 2) .. (5,005) (78) (6,993) (16,969)
Adjustments to maintain reserves ............ (981) (3) 3,397 9,189
------------- ------------- ------------- -------------
Net equity transactions ................. 4,026,840 1,444,360 (578,241) (1,626,551)
------------- ------------- ------------- -------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ......... 5,107,491 1,704,920 2,963,560 827,098
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ... 1,896,251 191,331 10,517,144 9,690,046
------------- ------------- ------------- -------------
CONTRACT OWNERS' EQUITY END OF PERIOD ......... $ 7,003,742 1,896,251 13,480,704 10,517,144
============= ============= ============= =============
</TABLE>
(Continued)
<PAGE> 6
NATIONWIDE VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
ACTCINTLGR ACTCULTRA
--------------------------- ---------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
INVESTMENT ACTIVITY:
<S> <C> <C> <C> <C>
Reinvested dividends ........................ $ 1,491 1,451 - 4,160
Mortality, expense and administration
charges (note 2) .......................... (10,515) (7,272) (183,975) (122,017)
------------- ------------- ------------- -------------
Net investment activity ................... (9,024) (5,821) (183,975) (117,857)
------------- ------------- ------------- -------------
Proceeds from mutual fund shares sold ....... 622,576 411,368 1,479,795 1,635,447
Cost of mutual fund shares sold ............. (562,613) (361,201) (1,263,460) (1,055,134)
------------- ------------- ------------- -------------
Realized gain (loss) on investments ....... 59,963 50,167 216,335 580,313
Change in unrealized gain (loss) on investments 35,468 (27,035) 2,426,265 (936,614)
------------- ------------- ------------- -------------
Net gain (loss) on investments ............ 95,431 23,132 2,642,600 (356,301)
------------- ------------- ------------- -------------
Reinvested capital gains .................... 12,976 65,811 1,488,048 2,211,772
------------- ------------- ------------- -------------
Net increase (decrease) in contract owners'
equity resulting from operations ...... 99,383 83,122 3,946,673 1,737,614
------------- ------------- ------------- -------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ........................... 282,424 154,962 3,883,377 3,371,633
Transfers between funds ..................... 47,185 (81,095) (311,089) (589,520)
Redemptions ................................. (38,282) (151,902) (1,084,444) (729,493)
Annuity benefits ............................ - - - -
Annual contract maintenance charge (note 2) . (677) (269) (14,129) (7,543)
Contingent deferred sales charges (note 2) .. (699) (6,228) (23,446) (23,504)
Adjustments to maintain reserves ............ 14 (16) 172 96
------------- ------------- ------------- -------------
Net equity transactions ................. 289,965 (84,548) 2,450,441 2,021,669
------------- ------------- ------------- -------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ......... 389,348 (1,426) 6,397,114 3,759,283
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ... 498,568 499,994 11,089,110 7,329,827
------------- ------------- ------------- -------------
CONTRACT OWNERS' EQUITY END OF PERIOD ......... $ 887,916 498,568 17,486,224 11,089,110
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
DEHYBD DRYABDS
--------------------------- ---------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
INVESTMENT ACTIVITY:
<S> <C> <C> <C> <C>
Reinvested dividends .......................... $ 123,276 116,418 115,918 109,727
Mortality, expense and administration
charges (note 2) ............................ (16,341) (16,476) (25,437) (23,480)
------------- ------------- ------------- -------------
Net investment activity ..................... 106,935 99,942 90,481 86,247
------------- ------------- ------------- -------------
Proceeds from mutual fund shares sold ......... 341,656 192,668 1,243,229 870,811
Cost of mutual fund shares sold ............... (327,084) (185,268) (1,219,521) (874,737)
------------- ------------- ------------- -------------
Realized gain (loss) on investments ......... 14,572 7,400 23,708 (3,926)
Change in unrealized gain (loss) on investments (151,204) 43,399 (120,982) 38,180
------------- ------------- ------------- -------------
Net gain (loss) on investments .............. (136,632) 50,799 (97,274) 34,254
------------- ------------- ------------- -------------
Reinvested capital gains ...................... - - 32,247 21,033
------------- ------------- ------------- -------------
Net increase (decrease) in contract owners'
equity resulting from operations ........ (29,697) 150,741 25,454 141,534
------------- ------------- ------------- -------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ............................. 156,659 236,070 545,761 592,080
Transfers between funds ....................... (127,468) 143,298 (80,789) (506,273)
Redemptions ................................... (241,587) (144,393) (241,342) (228,961)
Annuity benefits .............................. - - - -
Annual contract maintenance charge (note 2) ... (495) (393) (1,451) (1,091)
Contingent deferred sales charges (note 2) .... (1,713) (3,311) (3,165) (3,508)
Adjustments to maintain reserves .............. (83) 20 (408) 6
------------- ------------- ------------- -------------
Net equity transactions ................... (214,687) 231,291 218,606 (147,747)
------------- ------------- ------------- -------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ........... (244,384) 382,032 244,060 (6,213)
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ..... 1,340,246 958,214 1,848,441 1,854,654
------------- ------------- ------------- -------------
CONTRACT OWNERS' EQUITY END OF PERIOD ........... $ 1,095,862 1,340,246 2,092,501 1,848,441
============= ============= ============= =============
</TABLE>
<PAGE> 7
NATIONWIDE VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
DRYAPP DRYBAL
--------------------------- ---------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
INVESTMENT ACTIVITY:
<S> <C> <C> <C> <C>
Reinvested dividends .......................... $ 3,740 - 3,036 -
Mortality, expense and administration
charges (note 2) ............................ (3,370) - (1,249) -
------------- ------------- ------------- -------------
Net investment activity ..................... 370 - 1,787 -
------------- ------------- ------------- -------------
Proceeds from mutual fund shares sold ......... 108,365 - 38,449 -
Cost of mutual fund shares sold ............... (104,926) - (38,148) -
------------- ------------- ------------- -------------
Realized gain (loss) on investments ......... 3,439 - 301 -
Change in unrealized gain (loss) on
investments ................................. 61,961 - (5,894) -
------------- ------------- ------------- -------------
Net gain (loss) on investments .............. 65,400 - (5,593) -
------------- ------------- ------------- -------------
Reinvested capital gains ...................... 1,147 - 8,351 -
------------- ------------- ------------- -------------
Net increase (decrease) in contract owners'
equity resulting from operations ........ 66,917 - 4,545 -
------------- ------------- ------------- -------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ............................. 301,616 - 123,154 -
Transfers between funds ....................... 367,247 - 63,401 -
Redemptions ................................... (18,608) - (31,225) -
Annuity benefits .............................. - - - -
Annual contract maintenance charge (note 2) ... (113) - (9) -
Contingent deferred sales charges (note 2) .... (36) - - -
Adjustments to maintain reserves .............. 273 - (50) -
------------- ------------- ------------- -------------
Net equity transactions ................... 650,379 - 155,271 -
------------- ------------- ------------- -------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ........... 717,296 - 159,816 -
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ..... - - - -
------------- ------------- ------------- -------------
CONTRACT OWNERS' EQUITY END OF PERIOD ........... $ 717,296 - 159,816 -
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
DRY500IX DRY3DCEN
--------------------------- ---------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
INVESTMENT ACTIVITY:
<S> <C> <C> <C> <C>
Reinvested dividends ........................ $ 120,795 76,946 - 1,186
Mortality, expense and administration
charges (note 2) .......................... (129,044) (65,774) (11,355) (7,462)
------------- ------------- ------------- -------------
Net investment activity ................... (8,249) 11,172 (11,355) (6,276)
------------- ------------- ------------- -------------
Proceeds from mutual fund shares sold ....... 2,847,389 2,535,120 277,680 479,349
Cost of mutual fund shares sold ............. (2,101,605) (2,054,865) (215,841) (427,821)
------------- ------------- ------------- -------------
Realized gain (loss) on investments ....... 745,784 480,255 61,839 51,528
Change in unrealized gain (loss) on invest .. 1,493,487 604,315 68,617 39,050
------------- ------------- ------------- -------------
Net gain (loss) on investments ............ 2,239,271 1,084,570 130,456 90,578
------------- ------------- ------------- -------------
Reinvested capital gains .................... 2,453 117,343 106,354 53,383
------------- ------------- ------------- -------------
Net increase (decrease) in contract owners'
equity resulting from operations ...... 2,233,475 1,213,085 225,455 137,685
------------- ------------- ------------- -------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ........................... 3,936,518 1,991,411 195,911 338,691
Transfers between funds ..................... 1,528 1,332,333 7,991 41,154
Redemptions ................................. (1,319,672) (182,233) (70,148) (125,882)
Annuity benefits ............................ - - - -
Annual contract maintenance charge (note 2) . (8,663) (2,126) (1,341) (358)
Contingent deferred sales charges (note 2) .. (28,571) (2,808) (2,211) (3,494)
Adjustments to maintain reserves ............ 51 420 1 33
------------- ------------- ------------- -------------
Net equity transactions ................... 2,581,191 3,136,997 130,203 250,144
------------- ------------- ------------- -------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ......... 4,814,666 4,350,082 355,658 387,829
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ... 7,631,150 3,281,068 721,473 333,644
------------- ------------- ------------- -------------
CONTRACT OWNERS' EQUITY END OF PERIOD ......... $ 12,445,816 7,631,150 1,077,131 721,473
============= ============= ============= =============
</TABLE>
(Continued)
<PAGE> 8
NATIONWIDE VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
EVINCGRO FEDHIYLD
--------------------------- ---------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
INVESTMENT ACTIVITY:
<S> <C> <C> <C> <C>
Reinvested dividends .......................... $ 53,014 46,100 10,742 -
Mortality, expense and administration
charges (note 2) ............................ (15,523) (12,752) (1,643) -
------------- ------------- ------------- -------------
Net investment activity ..................... 37,491 33,348 9,099 -
------------- ------------- ------------- -------------
Proceeds from mutual fund shares sold ......... 141,082 124,635 6,112 -
Cost of mutual fund shares sold ............... (121,276) (118,286) (6,420) -
------------- ------------- ------------- -------------
Realized gain (loss) on investments ......... 19,806 6,349 (308) -
Change in unrealized gain (loss) on invest .... (202,823) 103,540 2,169 -
------------- ------------- ------------- -------------
Net gain (loss) on investments .............. (183,017) 109,889 1,861 -
------------- ------------- ------------- -------------
Reinvested capital gains ...................... 119,607 68,181 - -
------------- ------------- ------------- -------------
Net increase (decrease) in contract owners'
equity resulting from operations ........ (25,919) 211,418 10,960 -
------------- ------------- ------------- -------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ............................. 529,511 60,014 52,736 -
Transfers between funds ....................... (1,596) (27,145) 427,826 -
Redemptions ................................... (329,204) (50,285) (2,247) -
Annuity benefits .............................. - - - -
Annual contract maintenance charge (note 2) ... (584) (423) (13) -
Contingent deferred sales charges (note 2) .... (286) (1,158) (46) -
Adjustments to maintain reserves .............. 3 10 162 -
------------- ------------- ------------- -------------
Net equity transactions ................... 197,844 (18,987) 478,418 -
------------- ------------- ------------- -------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ........... 171,925 192,431 489,378 -
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ..... 1,109,581 917,150 - -
------------- ------------- ------------- -------------
CONTRACT OWNERS' EQUITY END OF PERIOD ........... $ 1,281,506 1,109,581 489,378 -
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
FEDBDFD FABAL
--------------------------- ---------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
INVESTMENT ACTIVITY:
<S> <C> <C> <C> <C>
Reinvested dividends ................................... $ 63,263 21,641 11,502 3,087
Mortality, expense and administration
charges (note 2) ..................................... (11,793) (3,878) (4,942) (1,279)
----------- ----------- ----------- -----------
Net investment activity .............................. 51,470 17,763 6,560 1,808
----------- ----------- ----------- -----------
Proceeds from mutual fund shares sold .................. 87,912 36,495 463,667 20,257
Cost of mutual fund shares sold ........................ (85,985) (36,293) (435,638) (18,774)
----------- ----------- ----------- -----------
Realized gain (loss) on investments .................. 1,927 202 28,029 1,483
Change in unrealized gain (loss) on investments......... (22,462) 11,825 (21,984) 2,888
----------- ----------- ----------- -----------
Net gain (loss) on investments ....................... (20,535) 12,027 6,045 4,371
----------- ----------- ----------- -----------
Reinvested capital gains ............................... - - 35,081 9,912
----------- ----------- ----------- -----------
Net increase (decrease) in contract owners'
equity resulting from operations ................. 30,935 29,790 47,686 16,091
----------- ----------- ----------- -----------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ...................................... 217,429 42,403 285,138 115,578
Transfers between funds ................................ 627,230 206,842 (26,713) 23,256
Redemptions ............................................ (41,428) (7,402) (15,263) (8,828)
Annuity benefits ....................................... - - - -
Annual contract maintenance charge (note 2) ............ (198) (21) (415) (76)
Contingent deferred sales charges (note 2) ............. (1) - (539) (348)
Adjustments to maintain reserves ....................... (3) (6) (12) (26)
----------- ----------- ----------- -----------
Net equity transactions .............................. 803,029 241,816 242,196 129,556
----------- ----------- ----------- -----------
NET CHANGE IN CONTRACT OWNERS' EQUITY .................... 833,964 271,606 289,882 145,647
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD .............. 371,500 99,894 175,488 29,841
----------- ----------- ----------- -----------
CONTRACT OWNERS' EQUITY END OF PERIOD .................... $ 1,205,464 371,500 465,370 175,488
=========== =========== =========== ===========
</TABLE>
<PAGE> 9
NATIONWIDE VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
FAEQINC FAGROPP
--------------------------- ---------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
INVESTMENT ACTIVITY:
<S> <C> <C> <C> <C>
Reinvested dividends .......................... $ 10,023 9,331 48,032 48,467
Mortality, expense and administration
charges (note 2) ............................ (18,599) (12,553) (78,505) (46,701)
------------- ------------- ------------- -------------
Net investment activity ..................... (8,576) (3,222) (30,473) 1,766
------------- ------------- ------------- -------------
Proceeds from mutual fund shares sold ......... 319,587 146,787 1,353,752 1,220,774
Cost of mutual fund shares sold ............... (238,766) (121,404) (1,094,861) (997,920)
------------- ------------- ------------- -------------
Realized gain (loss) on investments ......... 80,821 25,383 258,891 222,854
Change in unrealized gain (loss) on investments 55,249 113,836 732,635 375,374
------------- ------------- ------------- -------------
Net gain (loss) on investments .............. 136,070 139,219 991,526 598,228
------------- ------------- ------------- -------------
Reinvested capital gains ...................... 71,848 67,192 251,548 246,460
------------- ------------- ------------- -------------
Net increase (decrease) in contract owners'
equity resulting from operations ........ 199,342 203,189 1,212,601 846,454
------------- ------------- ------------- -------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ............................. 451,869 197,077 1,711,707 1,354,651
Transfers between funds ....................... 35,389 169,371 (64,906) 633,126
Redemptions ................................... (185,723) (41,115) (359,563) (155,973)
Annuity benefits .............................. - - - -
Annual contract maintenance charge (note 2) ... (1,384) (369) (5,519) (1,594)
Contingent deferred sales charges (note 2) .... (1,588) (1,252) (6,868) (4,894)
Adjustments to maintain reserves .............. (6) 23 44 78
------------- ------------- ------------- -------------
Net equity transactions ................... 298,557 323,735 1,274,895 1,825,394
------------- ------------- ------------- -------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ........... 497,899 526,924 2,487,496 2,671,848
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ..... 1,210,420 683,496 4,798,392 2,126,544
------------- ------------- ------------- -------------
CONTRACT OWNERS' EQUITY END OF PERIOD ........... $ 1,708,319 1,210,420 7,285,888 4,798,392
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
FAHIYLD FIDASMGR
--------------------------- ---------------------------
1998 1997 1998 1997
-------------- ------------- ------------- -------------
INVESTMENT ACTIVITY:
<S> <C> <C> <C> <C>
Reinvested dividends .......................... $ 255,735 148,014 117,170 110,938
Mortality, expense and administration
charges (note 2) ............................ (38,336) (20,450) (49,446) (42,804)
------------- ------------- ------------- -------------
Net investment activity ..................... 217,399 127,564 67,724 68,134
------------- ------------- ------------- -------------
Proceeds from mutual fund shares sold ......... 1,050,322 321,627 896,828 821,473
Cost of mutual fund shares sold ............... (1,032,112) (303,939) (671,236) (677,732)
------------- ------------- ------------- -------------
Realized gain (loss) on investments ......... 18,210 17,688 225,592 143,741
Change in unrealized gain (loss) on investments (349,860) 5,965 (393,169) 197,082
------------- ------------- ------------- -------------
Net gain (loss) on investments .............. (331,650) 23,653 (167,577) 340,823
------------- ------------- ------------- -------------
Reinvested capital gains ...................... 31,024 51,990 626,712 205,712
------------- ------------- ------------- -------------
Net increase (decrease) in contract owners'
equity resulting from operations ........ (83,227) 203,207 526,859 614,669
------------- ------------- ------------- -------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ............................. 814,267 743,205 740,021 634,370
Transfers between funds ....................... (223,421) 829,565 (76,681) (301,774)
Redemptions ................................... (195,080) (78,562) (694,794) (313,159)
Annuity benefits .............................. - - - -
Annual contract maintenance charge (note 2) ... (1,287) (449) (2,816) (2,060)
Contingent deferred sales charges (note 2) .... (3,651) (1,423) (16,506) (8,276)
Adjustments to maintain reserves .............. 446 (337) 21 43
------------- ------------- ------------- -------------
Net equity transactions ................... 391,274 1,491,999 (50,755) 9,144
------------- ------------- ------------- -------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ........... 308,047 1,695,206 476,104 623,813
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ..... 2,492,698 797,492 3,668,034 3,044,221
------------- ------------- ------------- -------------
CONTRACT OWNERS' EQUITY END OF PERIOD ........... $ 2,800,745 2,492,698 4,144,138 3,668,034
============= ============= ============= =============
</TABLE>
(Continued)
<PAGE> 10
NATIONWIDE VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
FIDCAPINC FIDEQINC
--------------------------- ---------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
INVESTMENT ACTIVITY:
<S> <C> <C> <C> <C>
Reinvested dividends .......................... $ 117,272 87,131 269,798 309,641
Mortality, expense and administration
charges (note 2) ............................ (16,266) (15,505) (229,390) (206,648)
------------- ------------- ------------- -------------
Net investment activity ..................... 101,006 71,626 40,408 102,993
------------- ------------- ------------- -------------
Proceeds from mutual fund shares sold ......... 139,878 119,208 3,943,497 2,893,495
Cost of mutual fund shares sold ............... (116,142) (102,280) (2,379,246) (1,851,804)
------------- ------------- ------------- -------------
Realized gain (loss) on investments ......... 23,736 16,928 1,564,251 1,041,691
Change in unrealized gain (loss) on investments (112,592) 66,754 (528,172) 2,069,323
------------- ------------- ------------- -------------
Net gain (loss) on investments .............. (88,856) 83,682 1,036,079 3,111,014
------------- ------------- ------------- -------------
Reinvested capital gains ...................... 32,589 - 735,781 658,912
------------- ------------- ------------- -------------
Net increase (decrease) in contract owners'
equity resulting from operations ......... 44,739 155,308 1,812,268 3,872,919
------------- ------------- ------------- -------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ............................. 1,897 - 1,203,569 1,025,601
Transfers between funds ....................... (8,199) (2,573) (1,030,099) 20,535
Redemptions ................................... (112,832) (97,708) (2,317,284) (1,703,965)
Annuity benefits .............................. (1,566) (1,097) (4,684) (3,737)
Annual contract maintenance charge (note 2) ... (1,764) (2,112) (17,633) (16,868)
Contingent deferred sales charges (note 2) .... (290) (281) (13,552) (14,857)
Adjustments to maintain reserves .............. 144 (550) (186) 293
------------- ------------- ------------- -------------
Net equity transactions ..................... (122,610) (104,321) (2,179,869) (692,998)
------------- ------------- ------------- -------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ........... (77,871) 50,987 (367,601) 3,179,921
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ..... 1,289,328 1,238,341 17,444,026 14,264,105
------------- ------------- ------------- -------------
CONTRACT OWNERS' EQUITY END OF PERIOD ........... $ 1,211,457 1,289,328 17,076,425 17,444,026
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
FIDMGIN FIDPURTN
--------------------------- ---------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
INVESTMENT ACTIVITY:
<S> <C> <C> <C> <C>
Reinvested dividends .......................... $ 117,953 180,615 443,211 361,432
Mortality, expense and administration
charges (note 2) ............................ (234,858) (171,071) (173,935) (129,814)
------------- ------------- ------------- -------------
Net investment activity ..................... (116,905) 9,544 269,276 231,618
------------- ------------- ------------- -------------
Proceeds from mutual fund shares sold ......... 1,944,713 2,718,430 1,884,862 1,265,875
Cost of mutual fund shares sold ............... (1,734,936) (2,272,279) (1,482,526) (1,040,109)
------------- ------------- ------------- -------------
Realized gain (loss) on investments ......... 209,777 446,151 402,336 225,766
Change in unrealized gain (loss) on investment 4,084,520 1,660,947 177,749 821,043
------------- ------------- ------------- -------------
Net gain (loss) on investments .............. 4,294,297 2,107,098 580,085 1,046,809
------------- ------------- ------------- -------------
Reinvested capital gains ...................... 884,756 753,138 1,012,923 536,381
------------- ------------- ------------- -------------
Net increase (decrease) in contract owners'
equity resulting from operations ........ 5,062,148 2,869,780 1,862,284 1,814,808
------------- ------------- ------------- -------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ............................. 4,957,504 2,893,931 2,895,054 3,077,343
Transfers between funds ....................... (286,839) (1,898,187) (942,420) (390,612)
Redemptions ................................... (1,512,760) (939,188) (1,263,833) (414,158)
Annuity benefits .............................. - - - -
Annual contract maintenance charge (note 2) ... (16,887) (12,358) (9,022) (6,296)
Contingent deferred sales charges (note 2) .... (31,705) (27,286) (23,520) (12,075)
Adjustments to maintain reserves .............. 251 349 89 105
------------- ------------- ------------- -------------
Net equity transactions ................... 3,109,564 17,261 656,348 2,254,307
------------- ------------- ------------- -------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ........... 8,171,712 2,887,041 2,518,632 4,069,115
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ..... 14,580,812 11,693,771 11,858,759 7,789,644
------------- ------------- ------------- -------------
CONTRACT OWNERS' EQUITY END OF PERIOD ........... $ 22,752,524 14,580,812 14,377,391 11,858,759
============= ============= ============= =============
</TABLE>
<PAGE> 11
NATIONWIDE VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
FIDVIPHI FRANMUTSER
--------------------------- ---------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
INVESTMENT ACTIVITY:
<S> <C> <C> <C> <C>
Reinvested dividends ........................ $ 19,285 18,061 3,923 -
Mortality, expense and administration
charges (note 2) .......................... (2,858) (3,314) (1,297) -
------------- ------------- ------------- -------------
Net investment activity ................... 16,427 14,747 2,626 -
------------- ------------- ------------- -------------
Proceeds from mutual fund shares sold ....... 146,537 39,981 34,211 -
Cost of mutual fund shares sold ............. (137,310) (37,078) (39,523) -
------------- ------------- ------------- -------------
Realized gain (loss) on investments ....... 9,227 2,903 (5,312) -
Change in unrealized gain (loss)
on investments ......................... (46,265) 20,298 (16,432) -
------------- ------------- ------------- -------------
Net gain (loss) on investments ............ (37,038) 23,201 (21,744) -
------------- ------------- ------------- -------------
Reinvested capital gains .................... 12,254 2,232 10,640 -
------------- ------------- ------------- -------------
Net increase (decrease) in contract owners'
equity resulting from operations ...... (8,357) 40,180 (8,478) -
------------- ------------- ------------- -------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ........................... - - 151,888 -
Transfers between funds ..................... (132,120) (4,194) 43,975 -
Redemptions ................................. (11,242) (32,145) (1,472) -
Annuity benefits ............................ - - - -
Annual contract maintenance charge (note 2) . (110) (222) (16) -
Contingent deferred sales charges (note 2) .. - (95) - -
Adjustments to maintain reserves ............ (4) (196) 96 -
------------- ------------- ------------- -------------
Net equity transactions ................... (143,476) (36,852) 194,471 -
------------- ------------- ------------- -------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ......... (151,833) 3,328 185,993 -
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ... 273,172 269,844 - -
------------- ------------- ------------- -------------
CONTRACT OWNERS' EQUITY END OF PERIOD ......... $ 121,339 273,172 185,993 -
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
JANFUND JAN20FD
--------------------------- ---------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
INVESTMENT ACTIVITY:
<S> <C> <C> <C> <C>
Reinvested dividends .......................... $ 13,196 26,556 42,176 16,202
Mortality, expense and administration
charges (note 2) ............................ (59,083) (36,518) (127,040) (64,389)
------------- ------------- ------------- -------------
Net investment activity ..................... (45,887) (9,962) (84,864) (48,187)
------------- ------------- ------------- -------------
Proceeds from mutual fund shares sold ......... 630,648 441,921 2,274,301 2,411,435
Cost of mutual fund shares sold ............... (554,019) (403,087) (1,711,517) (2,113,928)
------------- ------------- ------------- -------------
Realized gain (loss) on investments ......... 76,629 38,834 562,784 297,507
Change in unrealized gain (loss) on
investments .................................. 1,321,824 (64,982) 5,023,354 127,847
------------- ------------- ------------- -------------
Net gain (loss) on investments .............. 1,398,453 (26,148) 5,586,138 425,354
------------- ------------- ------------- -------------
Reinvested capital gains ...................... 144,449 543,614 91,123 734,575
------------- ------------- ------------- -------------
Net increase (decrease) in contract owners'
equity resulting from operations ........ 1,497,015 507,504 5,592,397 1,111,742
------------- ------------- ------------- -------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ............................. 1,312,739 1,003,807 3,053,816 1,839,757
Transfers between funds ....................... 123,452 441,173 2,754,222 185,607
Redemptions ................................... (273,851) (111,066) (867,882) (607,222)
Annuity benefits .............................. - - - -
Annual contract maintenance charge (note 2) ... (3,757) (1,046) (8,378) (2,887)
Contingent deferred sales charges (note 2) .... (5,439) (1,859) (17,610) (17,382)
Adjustments to maintain reserves .............. 87 5 447 80
------------- ------------- ------------- -------------
Net equity transactions ................... 1,153,231 1,331,014 4,914,615 1,397,953
------------- ------------- ------------- -------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ........... 2,650,246 1,838,518 10,507,012 2,509,695
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ..... 3,447,634 1,609,116 5,909,299 3,399,604
------------- ------------- ------------- -------------
CONTRACT OWNERS' EQUITY END OF PERIOD ........... $ 6,097,880 3,447,634 16,416,311 5,909,299
============= ============= ============= =============
</TABLE>
(Continued)
<PAGE> 12
NATIONWIDE VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
JANWRLDWDE LAZSMCAP
--------------------------- ---------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
INVESTMENT ACTIVITY:
<S> <C> <C> <C> <C>
Reinvested dividends .......................... $ 27,824 19,023 - -
Mortality, expense and administration
charges (note 2) ............................ (73,506) (31,612) - -
------------- ------------- ------------- -------------
Net investment activity ..................... (45,682) (12,589) - -
------------- ------------- ------------- -------------
Proceeds from mutual fund shares sold ......... 1,326,534 584,448 - -
Cost of mutual fund shares sold ............... (1,091,427) (530,660) - -
------------- ------------- ------------- -------------
Realized gain (loss) on investments ......... 235,107 53,788 - -
Change in unrealized gain (loss) on investments 896,338 (29,732) - -
------------- ------------- ------------- -------------
Net gain (loss) on investments .............. 1,131,445 24,056 - -
------------- ------------- ------------- -------------
Reinvested capital gains ...................... - 252,002 - -
------------- ------------- ------------- -------------
Net increase (decrease) in contract owners'
equity resulting from operations ........ 1,085,763 263,469 - -
------------- ------------- ------------- -------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ............................. 2,138,597 1,462,110 - -
Transfers between funds ....................... 111,111 1,864,319 454 -
Redemptions ................................... (301,152) (78,572) - -
Annuity benefits .............................. - - - -
Annual contract maintenance charge (note 2) ... (5,392) (773) - -
Contingent deferred sales charges (note 2) .... (6,090) (1,044) - -
Adjustments to maintain reserves .............. 70 (145) 16 -
------------- ------------- ------------- -------------
Net equity transactions ................... 1,937,144 3,245,895 470 -
------------- ------------- ------------- -------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ........... 3,022,907 3,509,364 470 -
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ..... 3,974,671 465,307 - -
------------- ------------- ------------- -------------
CONTRACT OWNERS' EQUITY END OF PERIOD ........... $ 6,997,578 3,974,671 470 -
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
MFSWDGVT NWBDFD
--------------------------- ---------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
INVESTMENT ACTIVITY:
<S> <C> <C> <C> <C>
Reinvested dividends .......................... $ 46,268 29,388 93,677 99,663
Mortality, expense and administration
charges (note 2) ............................ (9,446) (11,467) (20,893) (20,516)
------------- ------------- ------------- -------------
Net investment activity ..................... 36,822 17,921 72,784 79,147
------------- ------------- ------------- -------------
Proceeds from mutual fund shares sold ......... 254,224 436,153 536,549 485,789
Cost of mutual fund shares sold ............... (271,092) (460,939) (509,194) (527,157)
------------- ------------- ------------- -------------
Realized gain (loss) on investments ......... (16,868) (24,786) 27,355 (41,368)
Change in unrealized gain (loss) on investments (1,563) (14,028) 2,462 78,384
------------- ------------- ------------- -------------
Net gain (loss) on investments .............. (18,431) (38,814) 29,817 37,016
------------- ------------- ------------- -------------
Reinvested capital gains ...................... - 3,807 - -
------------- ------------- ------------- -------------
Net increase (decrease) in contract owners'
equity resulting from operations ........ 18,391 (17,086) 102,601 116,163
------------- ------------- ------------- -------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ............................. 53,676 35,762 373,966 218,598
Transfers between funds ....................... 10,990 (134,039) (106,283) (104,705)
Redemptions ................................... (84,094) (161,551) (479,980) (130,239)
Annuity benefits .............................. (2,578) (2,597) (214) (203)
Annual contract maintenance charge (note 2) ... (1,081) (1,293) (1,293) (1,055)
Contingent deferred sales charges (note 2) .... (962) (1,956) (972) (2,203)
Adjustments to maintain reserves .............. 273 156 59 8
------------- ------------- ------------- -------------
Net equity transactions ................... (23,776) (265,518) (214,717) (19,799)
------------- ------------- ------------- -------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ........... (5,385) (282,604) (112,116) 96,364
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ..... 761,789 1,044,393 1,713,185 1,616,821
------------- ------------- ------------- -------------
CONTRACT OWNERS' EQUITY END OF PERIOD ........... $ 756,404 761,789 1,601,069 1,713,185
============= ============= ============= =============
</TABLE>
<PAGE> 13
NATIONWIDE VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
NWFUND NWGROFD
--------------------------- ---------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
INVESTMENT ACTIVITY:
<S> <C> <C> <C> <C>
Reinvested dividends .......................... $ 58,065 42,568 5,977 31,889
Mortality, expense and administration
charges (note 2) ............................ (79,929) (43,646) (53,844) (53,875)
------------- ------------- ------------- -------------
Net investment activity ..................... (21,864) (1,078) (47,867) (21,986)
------------- ------------- ------------- -------------
Proceeds from mutual fund shares sold ......... 2,006,814 422,079 2,457,885 615,042
Cost of mutual fund shares sold ............... (1,061,945) (247,136) (1,632,831) (367,660)
------------- ------------- ------------- -------------
Realized gain (loss) on investments ......... 944,869 174,943 825,054 247,382
Change in unrealized gain (loss) on investments 168,811 627,149 (146,456) 124,155
------------- ------------- ------------- -------------
Net gain (loss) on investments .............. 1,113,680 802,092 678,598 371,537
------------- ------------- ------------- -------------
Reinvested capital gains ...................... 351,018 218,982 224,429 533,665
------------- ------------- ------------- -------------
Net increase (decrease) in contract owners'
equity resulting from operations ........ 1,442,834 1,019,996 855,160 883,216
------------- ------------- ------------- -------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ............................. 2,518,633 613,432 390,995 163,823
Transfers between funds ....................... 286,664 548,513 (150,263) 2,896
Redemptions ................................... (1,272,428) (165,231) (1,950,035) (318,735)
Annuity benefits .............................. (1,645) (1,292) (1,563) (1,330)
Annual contract maintenance charge (note 2) ... (5,526) (1,864) (3,472) (2,546)
Contingent deferred sales charges (note 2) .... (5,815) (600) (4,096) (4,373)
Adjustments to maintain reserves .............. (970) (1,053) 524 396
------------- ------------- ------------- -------------
Net equity transactions ................... 1,518,913 991,905 (1,717,910) (159,869)
------------- ------------- ------------- -------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ........... 2,961,747 2,011,901 (862,750) 723,347
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ..... 4,500,730 2,488,829 4,406,739 3,683,392
------------- ------------- ------------- -------------
CONTRACT OWNERS' EQUITY END OF PERIOD ........... $ 7,462,477 4,500,730 3,543,989 4,406,739
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
NWMYMKT NWUSGVT
--------------------------- ---------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
INVESTMENT ACTIVITY:
<S> <C> <C> <C> <C>
Reinvested dividends .......................... $ 461,473 427,521 14,221 2,659
Mortality, expense and administration
charges (note 2) ............................ (122,488) (111,984) (3,754) (600)
------------- ------------- ------------- -------------
Net investment activity ..................... 338,985 315,537 10,467 2,059
------------- ------------- ------------- -------------
Proceeds from mutual fund shares sold ......... 13,390,890 14,140,604 370,513 49,603
Cost of mutual fund shares sold ............... (13,390,890) (14,140,604) (365,796) (49,605)
------------- ------------- ------------- -------------
Realized gain (loss) on investments ......... - - 4,717 (2)
Change in unrealized gain (loss) on investments - - (8,808) 1,852
------------- ------------- ------------- -------------
Net gain (loss) on investments .............. - - (4,091) 1,850
------------- ------------- ------------- -------------
Reinvested capital gains ...................... - - 3,694 -
------------- ------------- ------------- -------------
Net increase (decrease) in contract owners'
equity resulting from operations ........ 338,985 315,537 10,070 3,909
------------- ------------- ------------- -------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ............................. 6,108,738 4,503,576 292,897 34,673
Transfers between funds ....................... 188,506 (3,008,782) 147,064 (23,833)
Redemptions ................................... (2,839,314) (1,686,416) (7,884) (5,095)
Annuity benefits .............................. (1,725) (1,551) - -
Annual contract maintenance charge (note 2) ... (8,599) (7,909) (162) (40)
Contingent deferred sales charges (note 2) .... (48,336) (24,598) (105) (238)
Adjustments to maintain reserves .............. 1,133 309 796 (6)
------------- ------------- ------------- -------------
Net equity transactions ................... 3,400,403 (225,371) 432,606 5,461
------------- ------------- ------------- -------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ........... 3,739,388 90,166 442,676 9,370
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ..... 7,765,550 7,675,384 75,160 65,790
------------- ------------- ------------- -------------
CONTRACT OWNERS' EQUITY END OF PERIOD ........... $ 11,504,938 7,765,550 517,836 75,160
============= ============= ============= =============
</TABLE>
(Continued)
<PAGE> 14
NATIONWIDE VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
NBGENESTR NBGUARD TR
--------------------------- ---------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
INVESTMENT ACTIVITY:
<S> <C> <C> <C> <C>
Reinvested dividends .......................... $ 3,629 - 43,561 43,637
Mortality, expense and administration
charges (note 2) ............................ (5,221) - (102,643) (90,339)
------------- ------------- ------------- -------------
Net investment activity ..................... (1,592) - (59,082) (46,702)
------------- ------------- ------------- -------------
Proceeds from mutual fund shares sold ......... 46,166 - 1,421,419 852,547
Cost of mutual fund shares sold ............... (51,966) - (1,295,137) (629,818)
------------- ------------- ------------- -------------
Realized gain (loss) on investments ......... (5,800) - 126,282 222,729
Change in unrealized gain (loss) on investments (47,655) - (1,131,594) (237,797)
------------- ------------- ------------- -------------
Net gain (loss) on investments .............. (53,455) - (1,005,312) (15,068)
------------- ------------- ------------- -------------
Reinvested capital gains ...................... 6,048 - 1,110,714 1,010,701
------------- ------------- ------------- -------------
Net increase (decrease) in contract owners'
equity resulting from operations ........ (48,999) - 46,320 948,931
------------- ------------- ------------- -------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ............................. 361,520 - 1,484,830 1,854,345
Transfers between funds ....................... 323,146 - (1,057,014) 13,046
Redemptions ................................... (10,080) - (595,129) (394,887)
Annuity benefits .............................. - - - -
Annual contract maintenance charge (note 2) ... (57) - (5,098) (3,499)
Contingent deferred sales charges (note 2) .... (76) - (8,659) (9,677)
Adjustments to maintain reserves .............. 267 - (9) 88
------------- ------------- ------------- -------------
Net equity transactions ................... 674,720 - (181,079) 1,459,416
------------- ------------- ------------- -------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ........... 625,721 - (134,759) 2,408,347
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ..... - - 7,634,575 5,226,228
------------- ------------- ------------- -------------
CONTRACT OWNERS' EQUITY END OF PERIOD ........... $ 625,721 - 7,499,816 7,634,575
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
NBLTDMAT NBPARTFD
--------------------------- ---------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
INVESTMENT ACTIVITY:
<S> <C> <C> <C> <C>
Reinvested dividends .......................... $ 50,742 51,322 - 42,968
Mortality, expense and administration
charges (note 2) ............................ (11,240) (10,612) (112,673) (75,592)
------------- ------------- ------------- -------------
Net investment activity ..................... 39,502 40,710 (112,673) (32,624)
------------- ------------- ------------- -------------
Proceeds from mutual fund shares sold ......... 212,801 512,384 1,369,375 893,439
Cost of mutual fund shares sold ............... (213,183) (510,665) (1,169,514) (640,676)
------------- ------------- ------------- -------------
Realized gain (loss) on investments ......... (382) 1,719 199,861 252,763
Change in unrealized gain (loss) on investments (12,717) 1,619 (542,191) (202,544)
------------- ------------- ------------- -------------
Net gain (loss) on investments .............. (13,099) 3,338 (342,330) 50,219
------------- ------------- ------------- -------------
Reinvested capital gains ...................... - - 808,960 1,320,713
------------- ------------- ------------- -------------
Net increase (decrease) in contract owners'
equity resulting from operations ........ 26,403 44,048 353,957 1,338,308
------------- ------------- ------------- -------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ............................. 348,091 352,479 3,047,800 1,735,386
Transfers between funds ....................... (146,743) (302,390) (551,497) 616,650
Redemptions ................................... (31,227) (126,409) (922,110) (393,918)
Annuity benefits .............................. - - - -
Annual contract maintenance charge (note 2) ... (396) (256) (7,349) (3,385)
Contingent deferred sales charges (note 2) .... (183) (3,195) (18,634) (12,603)
Adjustments to maintain reserves .............. 225 (2) (27) (5)
------------- ------------- ------------- -------------
Net equity transactions ................... 169,767 (79,773) 1,548,183 1,942,125
------------- ------------- ------------- -------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ........... 196,170 (35,725) 1,902,140 3,280,433
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ..... 785,148 820,873 7,426,836 4,146,403
------------- ------------- ------------- -------------
CONTRACT OWNERS' EQUITY END OF PERIOD ........... $ 981,318 785,148 9,328,976 7,426,836
============= ============= ============= =============
</TABLE>
<PAGE> 15
NATIONWIDE VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
OPPGLOB PHXBALFD
--------------------------- ---------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
INVESTMENT ACTIVITY:
<S> <C> <C> <C> <C>
Reinvested dividends .......................... $ 61,774 96,072 18,333 15,090
Mortality, expense and administration
charges (note 2) ............................ (85,201) (65,639) (9,786) (7,320)
------------- ------------- ------------- -------------
Net investment activity ..................... (23,427) 30,433 8,547 7,770
------------- ------------- ------------- -------------
Proceeds from mutual fund shares sold ......... 2,675,792 1,614,192 143,908 215,973
Cost of mutual fund shares sold ............... (2,232,654) (1,233,355) (144,310) (218,348)
------------- ------------- ------------- -------------
Realized gain (loss) on investments ......... 443,138 380,837 (402) (2,375)
Change in unrealized gain (loss) on investments (210,371) (186,375) 80,132 (8,166)
------------- ------------- ------------- -------------
Net gain (loss) on investments .............. 232,767 194,462 79,730 (10,541)
------------- ------------- ------------- -------------
Reinvested capital gains ...................... 475,445 665,438 29,498 93,626
------------- ------------- ------------- -------------
Net increase (decrease) in contract owners'
equity resulting from operations ........ 684,785 890,333 117,775 90,855
------------- ------------- ------------- -------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ............................. 1,551,016 1,205,785 143,962 213,816
Transfers between funds ....................... (79,722) (95,415) (31,417) (146,863)
Redemptions ................................... (562,042) (404,533) (95,632) (24,836)
Annuity benefits .............................. - - - -
Annual contract maintenance charge (note 2) ... (5,709) (3,916) (749) (292)
Contingent deferred sales charges (note 2) .... (12,575) (13,137) (1,821) (1,026)
Adjustments to maintain reserves .............. (5,842) 76 (7) -
------------- ------------- ------------- -------------
Net equity transactions ................... 885,126 688,860 14,336 40,799
------------- ------------- ------------- -------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ........... 1,569,911 1,579,193 132,111 131,654
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ..... 5,695,782 4,116,589 663,764 532,110
------------- ------------- ------------- -------------
CONTRACT OWNERS' EQUITY END OF PERIOD ........... $ 7,265,693 5,695,782 795,875 663,764
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
PRINT PRSMCAP
--------------------------- ---------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
INVESTMENT ACTIVITY:
<S> <C> <C> <C> <C>
Reinvested dividends .......................... $ - - - -
Mortality, expense and administration
charges (note 2) ............................ - - - -
------------- ------------- ------------- -------------
Net investment activity ..................... - - - -
------------- ------------- ------------- -------------
Proceeds from mutual fund shares sold ......... - - - -
Cost of mutual fund shares sold ............... - - - -
------------- ------------- ------------- -------------
Realized gain (loss) on investments ......... - - - -
Change in unrealized gain (loss) on investments - - - -
------------- ------------- ------------- -------------
Net gain (loss) on investments .............. - - - -
------------- ------------- ------------- -------------
Reinvested capital gains ...................... - - - -
------------- ------------- ------------- -------------
Net increase (decrease) in contract owners'
equity resulting from operations ........ - - - -
------------- ------------- ------------- -------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ............................. - - - -
Transfers between funds ....................... 1,815 - 454 -
Redemptions ................................... - - - -
Annuity benefits .............................. - - - -
Annual contract maintenance charge (note 2) ... - - - -
Contingent deferred sales charges (note 2) .... - - - -
Adjustments to maintain reserves .............. 1 - 12 -
------------- ------------- ------------- -------------
Net equity transactions ................... 1,816 - 466 -
------------- ------------- ------------- -------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ........... 1,816 - 466 -
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ..... - - - -
------------- ------------- ------------- -------------
CONTRACT OWNERS' EQUITY END OF PERIOD ........... $ 1,816 - 466 -
============= ============= ============= =============
</TABLE>
(Continued)
<PAGE> 16
NATIONWIDE VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
STTOTRET TEMFORFD
--------------------------- ---------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
INVESTMENT ACTIVITY:
<S> <C> <C> <C> <C>
Reinvested dividends .......................... $ 4,227 9,509 111,484 141,805
Mortality, expense and administration
charges (note 2) ............................ (22,635) (18,949) (59,378) (59,161)
------------- ------------- ------------- -------------
Net investment activity ..................... (18,408) (9,440) 52,106 82,644
------------- ------------- ------------- -------------
Proceeds from mutual fund shares sold ......... 377,041 383,941 1,293,020 662,819
Cost of mutual fund shares sold ............... (384,883) (343,668) (1,287,738) (572,838)
------------- ------------- ------------- -------------
Realized gain (loss) on investments ......... (7,842) 40,273 5,282 89,981
Change in unrealized gain (loss) on investments 473,589 (72,806) (678,199) (364,660)
------------- ------------- ------------- -------------
Net gain (loss) on investments .............. 465,747 (32,533) (672,917) (274,679)
------------- ------------- ------------- -------------
Reinvested capital gains ...................... 21,813 333,588 328,019 373,056
------------- ------------- ------------- -------------
Net increase (decrease) in contract owners'
equity resulting from operations ........ 469,152 291,615 (292,792) 181,021
------------- ------------- ------------- -------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ............................. 307,761 396,146 917,664 1,244,024
Transfers between funds ....................... (207,357) 39,129 (948,243) 175,787
Redemptions ................................... (154,396) (178,732) (423,401) (209,477)
Annuity benefits .............................. - - - -
Annual contract maintenance charge (note 2) ... (1,357) (635) (3,898) (2,245)
Contingent deferred sales charges (note 2) .... (2,073) (4,415) (5,931) (6,278)
Adjustments to maintain reserves .............. 34 161 (65) (47)
------------- ------------- ------------- -------------
Net equity transactions ................... (57,388) 251,654 (463,874) 1,201,764
------------- ------------- ------------- -------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ........... 411,764 543,269 (756,666) 1,382,785
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ..... 1,613,016 1,069,747 4,826,284 3,443,499
------------- ------------- ------------- -------------
CONTRACT OWNERS' EQUITY END OF PERIOD ........... $ 2,024,780 1,613,016 4,069,618 4,826,284
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
WPEMGRO WPGIFXINC
--------------------------- ---------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
INVESTMENT ACTIVITY:
<S> <C> <C> <C> <C>
Reinvested dividends .......................... $ - - 3,459 -
Mortality, expense and administration
charges (note 2) ............................ (61,048) (49,041) (821) -
------------- ------------- ------------- -------------
Net investment activity ..................... (61,048) (49,041) 2,638 -
------------- ------------- ------------- -------------
Proceeds from mutual fund shares sold ......... 1,097,855 1,065,213 8,819 -
Cost of mutual fund shares sold ............... (912,250) (995,193) (8,789) -
------------- ------------- ------------- -------------
Realized gain (loss) on investments ......... 185,605 70,020 30 -
Change in unrealized gain (loss) on investments 95,404 399,868 1,566 -
------------- ------------- ------------- -------------
Net gain (loss) on investments .............. 281,009 469,888 1,596 -
------------- ------------- ------------- -------------
Reinvested capital gains ...................... - 263,613 - -
------------- ------------- ------------- -------------
Net increase (decrease) in contract owners'
equity resulting from operations ........ 219,961 684,460 4,234 -
------------- ------------- ------------- -------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ............................. 1,272,369 1,083,873 64,115 -
Transfers between funds ....................... (414,970) 57,962 81,989 -
Redemptions ................................... (547,689) (298,254) (400) -
Annuity benefits .............................. - - - -
Annual contract maintenance charge (note 2) ... (3,914) (1,806) (3) -
Contingent deferred sales charges (note 2) .... (13,328) (10,397) (25) -
Adjustments to maintain reserves .............. (10) (4) 53 -
------------- ------------- ------------- -------------
Net equity transactions ................... 292,458 831,374 145,729 -
------------- ------------- ------------- -------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ........... 512,419 1,515,834 149,963 -
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ..... 4,480,173 2,964,339 - -
------------- ------------- ------------- -------------
CONTRACT OWNERS' EQUITY END OF PERIOD ........... $ 4,992,592 4,480,173 149,963 -
============= ============= ============= =============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 17
- --------------------------------------------------------------------------------
NATIONWIDE VARIABLE ACCOUNT
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 (the Account) was established pursuant
to a resolution of the Board of Directors of Nationwide Life Insurance
Company (the Company) on March 3, 1976. The Account has been registered
as a unit investment trust under the Investment Company Act of 1940.
The Company offers Individual Deferred Variable Annuity Contracts
through the Account. As of December 25, 1982, only tax qualified
contracts are issued. The primary distribution for the contract is
through the Company for Individual Retirement Account rollovers;
however, other distributors may be 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 charges.
With certain exceptions, contract owners in either the accumulation or
the payout phase may invest in the following:
<TABLE>
<CAPTION>
<S> <C>
American Century: Benham Short-Term Government Fund (ACBenSTGvt)
American Century: Income & Growth Fund (ACIncGro)
American Century: Twentieth Century Growth Fund (ACTCGro)
American Century: Twentieth Century International Growth Fund (ACTCIntlGr)
American Century: Twentieth Century Ultra Fund (ACTCUltra)
Delaware Group Delchester High-Yield Bond Fund, Inc. - Delchester Fund Institutional Class (DeHYBd)
Dreyfus A Bonds Plus, Inc. (DryABds)
Dreyfus Appreciation Fund, Inc. (DryApp)
Dreyfus Balanced Fund, Inc. (DryBal)
Dreyfus S&P 500 Index Fund (Dry500Ix)
The Dreyfus Third Century Fund, Inc. (Dry3dCen)
Evergreen Income and Growth Fund - Class Y (EvIncGro)
Federated High Yield Trust (FedHiYld)
Federated Investment Series Funds, Inc. - Federated Bond Fund - Class F (FedBdFd)
Fidelity Advisor Balanced Fund - Class T (FABal)
Fidelity Advisor Equity Income Fund - Class T (FAEqInc)
Fidelity Advisor Growth Opportunities Fund - Class T (FAGrOpp)
Fidelity Advisor High Yield Fund - Class T (FAHiYld)
Fidelity Asset Manager(TM) (FidAsMgr)
Fidelity Capital & Income Fund (FidCapInc)
(not available for additional purchase payments or exchanges after May 1, 1991)
Fidelity Equity-Income Fund (FidEqInc)
Fidelity Magellan(R) Fund (FidMgln)
Fidelity Puritan(R) Fund (FidPurtn)
</TABLE>
<PAGE> 18
<TABLE>
<CAPTION>
<S> <C>
Portfolio of the Fidelity Variable Insurance Products Fund (Fidelity VIP);
Fidelity VIP - High Income Portfolio (FidVIPHI)
(not available for additional purchase payments or exchanges after December 1, 1993)
Franklin Mutual Series Fund Inc. - Mutual Shares Fund - Class I (FranMutSer)
INVESCO Dynamics Fund (InvDynam)
Janus Fund (JanFund)
Janus Twenty Fund (Jan20Fd)
Janus Worldwide Fund (JanWrldwde)
Lazard Small Cap Portfolio - Open Shares (LazSmCap)
MFS(R) World Governments Fund - Class A (MFSWdGvt)
Nationwide(R) Bond Fund - Class D (NWBdFd) (managed for a fee by an affiliated investment advisor)
Nationwide(R) Fund - Class D (NWFund) (managed for a fee by an affiliated investment advisor)
Nationwide(R) Growth Fund - Class D (NWGroFd) (managed for a fee by an affiliated investment advisor)
Nationwide(R) Money Market Fund (NWMyMkt) (managed for a fee by an affiliated investment advisor)
Nationwide(R) Intermediate U.S. Government Bond Fund - Class D (NWUSGvt)
(formerly Nationwide U.S. Government Income Fund)
(managed for a fee by an affiliated investment advisor)
Nationwide S&P 500(R) Index Fund - Class R (NWIndxFd)
(managed for a fee by an affiliated investment advisor)
Neuberger & Berman Genesis Trust (NBGenesTr)
(available only for contracts established prior to March 6, 1998)
Neuberger & Berman Guardian Trust (NBGuardTr)
Neuberger & Berman Limited Maturity Bond Fund (NBLtdMat)
Neuberger & Berman Partners Fund (NBPartFd)
Oppenheimer Global Fund - Class A (OppGlob)
Phoenix Balanced Fund Series - Class A (PhxBalFd)
Prestige Balanced Fund - Class A (PrBal) (managed for a fee by an affiliated investment advisor)
Prestige International Fund - Class A (PrInt) (managed for a fee by an affiliated investment advisor)
Prestige Large Cap Growth Fund - Class A (PrLgCapGro)
(managed for a fee by an affiliated investment advisor)
Prestige Large Cap Value Fund - Class A (PrLgCapVal)
(managed for a fee by an affiliated investment advisor)
Prestige Small Cap Fund - Class A (PrSmCap) (managed for a fee by an affiliated investment advisor)
Strong Common Stock Fund, Inc. (StComStk)
Strong Total Return Fund, Inc. (StTotRet)
Templeton Foreign Fund - Class I (TemForFd)
Warburg Pincus Emerging Growth Fund - Common Shares (WPEmGro)
Warburg Pincus Global Fixed-Income Fund - Common Shares (WPGlFxInc)
</TABLE>
At December 31, 1998, contract owners have not invested in all of the
above funds except for INVESCO Dynamics Fund, Nationwide S&P 500(R)
Index Fund - Class R, Prestige Balanced Fund - Class A, Prestige Large
Cap Growth Fund - Class A, Prestige Large Cap Value Fund - Class A and
Strong Common Stock Fund, Inc. 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.
<PAGE> 19
(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.
(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
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. For contracts issued prior to January 1, 1993,
the contingent deferred sales charge will be equal to 5% of the lesser
of the total of all purchase payments made within 96 months prior to
the date of the request for surrender or the amount surrendered. For
contracts issued on or after January 1, 1993, the Company will deduct 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. No sales charges are deducted on redemptions
used to purchase units in the fixed investment options of the Company.
The following contract charges are deducted by the Company: (a) an
annual contract maintenance charge of up to $30, dependent upon
contract type and issue date, which is satisfied by surrendering units;
and (b) for contracts issued prior to January 1, 1993, a charge for
mortality and expense risk assessed through the daily unit value
calculation equal to an annual rate of 0.80% and 0.50%, respectively;
for contracts issued on or after January 1, 1993, a mortality risk
charge, an expense risk charge and an administration charge assessed
through the daily unit value calculation equal to an annual rate of
0.80%, 0.45% and 0.05%, respectively.
(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> 20
(4) COMPONENTS OF CONTRACT OWNERS' EQUITY
The following is a summary of contract owners' equity at December 31,
1998, for each series, in both the accumulation and payout phases.
<TABLE>
<CAPTION>
ANNUAL
Contract owners' equity represented by: UNITS UNIT VALUE RETURN(B)
------- ---------- ---------
Contracts in accumulation phase:
American Century: Benham
Short-Term Government Fund:
<S> <C> <C> <C> <C>
Tax qualified ........................ 131,664 23.012292 $3,029,890 5%
American Century: Income & Growth Fund:
Tax qualified ........................ 397,026 17.640513 7,003,742 26%
American Century: Twentieth Century
Growth Fund:
Tax qualified ........................ 150,519 88.518097 13,323,655 35%
American Century: Twentieth Century
International Growth Fund:
Tax qualified ........................ 48,212 18.416900 887,916 17%
American Century: Twentieth Century
Ultra Fund:
Tax qualified ........................ 784,677 22.284614 17,486,224 33%
Delaware Group Delchester High-Yield
Bond Fund, Inc. - Delchester Fund
Institutional Class:
Tax qualified ........................ 73,489 14.911925 1,095,862 (3)%
Dreyfus A Bonds Plus, Inc.:
Tax qualified ........................ 174,256 12.008201 2,092,501 1%
Dreyfus Appreciation Fund, Inc.:
Tax qualified ........................ 56,370 12.724781 717,296 27%(a)
Dreyfus Balanced Fund, Inc.:
Tax qualified ........................ 14,859 10.755504 159,816 8%(a)
Dreyfus S&P 500 Index Fund:
Tax qualified ........................ 429,513 28.976575 12,445,816 26%
The Dreyfus Third Century Fund, Inc.:
Tax qualified ........................ 41,708 25.825514 1,077,131 28%
Evergreen Income and Growth
Fund - Class Y:
Tax qualified ........................ 75,243 17.031564 1,281,506 (2)%
Federated High Yield Trust:
Tax qualified ........................ 49,055 9.976102 489,378 0%
Federated Investment Series Funds, Inc. -
Federated Bond Fund - Class F:
Tax qualified ........................ 104,392 11.547474 1,205,464 4%
Fidelity Advisor Balanced Fund - Class T:
Tax qualified ........................ 31,056 14.984876 465,370 14%
Fidelity Advisor Equity Income
Fund - Class T:
Tax qualified ........................ 103,814 16.455574 1,708,319 5%
</TABLE>
<PAGE> 21
<TABLE>
<CAPTION>
Fidelity Advisor Growth Opportunities
Fund - Class T:
<S> <C> <C> <C> <C>
Tax qualified.............................. 391,088 18.629791 7,285,888 22%
Fidelity Advisor High Yield Fund - Class T:
Tax qualified.............................. 223,247 12.545500 2,800,745 (2)%
Fidelity Asset Manager(TM):
Tax qualified.............................. 240,850 17.206302 4,144,138 15%
Fidelity Capital & Income Fund:
Tax qualified.............................. 24,848 48.330455 1,200,915 3%
Fidelity Equity-Income Fund:
Tax qualified.............................. 216,592 78.774753 17,061,981 11%
Fidelity Magellan(R) Fund:
Tax qualified.............................. 775,189 29.350937 22,752,524 32%
Fidelity Puritan(R) Fund:
Tax qualified.............................. 631,678 22.760633 14,377,391 15%
Fidelity VIP - High Income Portfolio:
Tax qualified.............................. 5,077 23.899779 121,339 (6)%
Franklin Mutual Series Fund Inc. -
Mutual Shares Fund - Class I:
Tax qualified ............................. 18,848 9.868029 185,993 (1)%(a)
Janus Fund:
Tax qualified ............................. 303,830 20.070038 6,097,880 37%
Janus Twenty Fund:
Tax qualified ............................. 507,576 32.342568 16,416,311 71%
Janus Worldwide Fund:
Tax qualified ............................. 459,107 15.241714 6,997,578 24%
Lazard Small Cap Portfolio - Open Shares:
Tax qualified ............................. 45 10.448830 470 4%(a)
MFS(R) World Governments Fund - Class A:
Tax qualified ............................. 19,990 37.527462 750,174 3%
Nationwide(R) Bond Fund - Class D:
Tax qualified ............................. 36,470 43.667785 1,592,564 7%
Non-tax qualified ......................... 148 43.480582 6,435 7%
Nationwide(R) Fund - Class D:
Tax qualified ............................. 59,155 25.467347 7,422,021 29%
Non-tax qualified ......................... 176 30.686988 23,001 29%
Nationwide(R) Growth Fund - Class D:
Tax qualified ............................. 30,515 14.746202 3,501,480 22%
Non-tax qualified ......................... 218 21.157545 26,412 22%
Nationwide(R) Money Market Fund:
Tax qualified - Pre 12/25/82 .............. 32,588 26.532610 864,645 4%
Tax qualified ............................. 503,152 21.071063 10,601,947 4%
Non-tax qualified ......................... 841 26.700292 22,455 4%
Nationwide(R) Intermediate U.S.
Government Bond Fund - Class D:
Tax qualified ............................. 43,459 11.915504 517,836 7%
</TABLE>
<PAGE> 22
<TABLE>
<CAPTION>
Neuberger & Berman Genesis Trust
<S> <C> <C> <C> <C>
Tax qualified ............................. 67,525 9.266508 625,721 (7)%(a)
Neuberger & Berman Guardian Trust:
Tax qualified ............................. 436,072 17.198573 7,499,816 1%
Neuberger & Berman Limited Maturity
Bond Fund:
Tax qualified ............................. 81,393 12.056542 981,318 3%
Neuberger & Berman Partners Fund:
Tax qualified ............................. 374,224 24.928856 9,328,976 5%
Oppenheimer Global Fund - Class A:
Tax qualified ............................. 301,407 24.105920 7,265,693 11%
Phoenix Balanced Fund Series - Class A:
Tax qualified ............................. 47,793 16.652539 795,875 17%
Prestige International Fund - Class A:
Tax qualified ............................. 181 10.035113 1,816 0%(a)
Prestige Small Cap Fund - Class A:
Tax qualified ............................. 45 10.359298 466 4%(a)
Strong Total Return Fund, Inc.:
Tax qualified ............................. 75,602 26.782090 2,024,780 30%
Templeton Foreign Fund - Class I:
Tax qualified ............................. 318,666 12.770793 4,069,618 (6)%
Warburg Pincus Emerging Growth
Fund - Common Shares:
Tax qualified ............................. 338,034 14.769496 4,992,592 4%
Warburg Pincus Global Fixed-Income
Fund - Common Shares:
Tax qualified ............................. 14,079 10.651516 149,963 7%(a)
====== =========
Reserves for annuity contracts in payout phase:
Tax qualified ............................. 247,310
-------------
$ 227,225,953
=============
</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> 62
<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>
