<PAGE> 1
As filed with the Securities and Exchange Commission.
'33 Act File No. 2-75059
'40 Act File No. 811-3330
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933
Post-Effective Amendment No.32 [x]
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 33 [x]
NATIONWIDE VARIABLE ACCOUNT-II
(Exact Name of Registrant)
NATIONWIDE LIFE INSURANCE COMPANY
(Name of Depositor)
ONE NATIONWIDE PLAZA, COLUMBUS, OHIO 43215
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code: (614) 249-7111
DENNIS W. CLICK, SECRETARY, ONE NATIONWIDE PLAZA, COLUMBUS, OHIO 43215
(Name and Address of Agent for Service)
This Post-Effective Amendment amends the Registration Statement in respect of
the Prospectus, the Statement of Additional Information and the Financial
Statements.
It is proposed that this filing will become effective (check appropriate space):
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on September 24, 1999 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a) of Rule 485
[ ] on (date) pursuant to paragraph (a) of Rule 485
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
================================================================================
1 of 152
<PAGE> 2
NATIONWIDE VARIABLE ACCOUNT-II
REFERENCE TO ITEMS REQUIRED BY FORM N-4
<TABLE>
<CAPTION>
N-4 ITEM PAGE
<S> <C> <C>
Part A INFORMATION REQUIRED IN A PROSPECTUS
Item 1. Cover Page...................................................................................4
Item 2. Definitions..................................................................................6
Item 3. Synopsis or Highlights......................................................................15
Item 4. Condensed Financial Information.............................................................17
Item 5. General Description of Registrant, Depositor, and Portfolio Companies.......................30
Item 6. Deductions and Expenses.....................................................................32
Item 7. General Description of Variable Annuity Contracts...........................................36
Item 8. Annuity Period..............................................................................43
Item 9. Death Benefit and Distributions.............................................................45
Item 10. Purchases and Contract Value................................................................37
Item 11. Redemptions.................................................................................39
Item 12. Taxes.......................................................................................49
Item 13. Legal Proceedings...........................................................................56
Item 14. Table of Contents of the Statement of Additional Information................................63
Part B INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
Item 15. Cover Page..................................................................................74
Item 16. Table of Contents...........................................................................74
Item 17. General Information and History.............................................................74
Item 18. Services....................................................................................74
Item 19. Purchase of Securities Being Offered........................................................75
Item 20. Underwriters................................................................................75
Item 21. Calculation of Performance Information......................................................75
Item 22. Annuity Payments............................................................................76
Item 23. Financial Statements........................................................................77
Part C OTHER INFORMATION
Item 24. Financial Statements and Exhibits..........................................................132
Item 25. Directors and Officers of the Depositor....................................................134
Item 26. Persons Controlled by or Under Common Control with the Depositor or Registrant.............136
Item 27. Number of Contract Owners..................................................................147
Item 28. Indemnification............................................................................147
Item 29. Principal Underwriter......................................................................147
Item 30. Location of Accounts and Records...........................................................149
Item 31. Management Services........................................................................149
Item 32. Undertakings...............................................................................149
</TABLE>
2 of 152
<PAGE> 3
SUPPLEMENT DATED SEPTEMBER 20, 1999 TO
PROSPECTUS DATED MAY 1, 1999 FOR
DEFERRED VARIABLE ANNUITY CONTRACTS
ISSUED BY
NATIONWIDE LIFE INSURANCE COMPANY
THROUGH ITS
NATIONWIDE VARIABLE ACCOUNT - II
THIS SUPPLEMENT UPDATES CERTAIN INFORMATION CONTAINED IN YOUR PROSPECTUS. PLEASE
READ IT AND KEEP IT WITH YOUR PROSPECTUS FOR FUTURE REFERENCE.
1. EFFECTIVE JULY 6, 1999, ALL REFERENCES TO WARBURG PINCUS ASSET MANAGEMENT,
INC. IN YOUR PROSPECTUS CHANGED TO:
Credit Suisse Asset Management, LLC
2. THE FOLLOWING UNDERLYING MUTUAL FUNDS WILL NOT BE AVAILABLE FOR NEW ANNUITY
APPLICATIONS RECEIVED ON OR AFTER SEPTEMBER 27, 1999, OR APPLICATIONS
RECEIVED BY NATIONWIDE'S HOME OFFICE PRIOR TO SEPTEMBER 27, 1999, THAT WERE
NOT IN GOOD ORDER:
American Century Variable Portfolios, Inc. -
American Century VP Capital Appreciation
Strong Variable Insurance Funds, Inc. - Strong Discovery Fund II, Inc.
Strong Variable Insurance Funds, Inc. - International Stock Fund II
Warburg Pincus Trust - International Equity Portfolio
Warburg Pincus Trust - Post-Venture Capital Portfolio
CURRENT CONTRACTS ARE NOT AFFECTED BY THIS CHANGE.
3. EFFECTIVE SEPTEMBER 1, 1999, "APPENDIX A: OBJECTIVES FOR UNDERLYING MUTUAL
FUNDS" LOCATED ON PAGES 61 THROUGH 70 OF YOUR PROSPECTUS IS AMENDED AS
FOLLOWS:
NATIONWIDE SEPARATE ACCOUNT TRUST
Nationwide Separate Account Trust ("NSAT") is a diversified open-end
management investment company created under the laws of Massachusetts. NSAT
offers shares in the mutual funds listed below, each with its own
investment objectives. Shares of NSAT will be sold primarily to separate
accounts to fund the benefits under variable life insurance policies and
variable annuity contracts issued by life insurance companies. Effective
September 1, 1999, the investment advisory services previously performed by
Nationwide Advisory Services ("NAS") were transferred to Villanova Mutual
Fund Capital Trust ("VMF"), an affiliate of NAS and an indirect subsidiary
of Nationwide Financial Services, Inc. The portfolio managers and
subadvisers for each of the Funds continue to manage the Funds after the
transfer to VMF.
1
3 of 152
<PAGE> 4
NATIONWIDE LIFE INSURANCE COMPANY
Deferred Variable Annuity Contracts
Issued by Nationwide Life Insurance Company through
its Nationwide Variable Account-II
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:
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC., A MEMBER OF THE AMERICAN CENTURY(SM)
FAMILY OF INVESTMENTS
o American Century VP Balanced
o American Century VP Capital Appreciation
o American Century VP Income & Growth
o American Century VP International
o American Century VP Value
DREYFUS
o The Dreyfus Socially Responsible Growth Fund, Inc.
o Dreyfus Stock Index Fund, Inc.
DREYFUS VARIABLE INVESTMENT FUND, INC.
o Dreyfus Variable Investment Fund - Capital Appreciation Portfolio
o Dreyfus Variable Investment Fund- Growth & Income Portfolio*
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
o VIP Equity-Income Portfolio
o VIP Growth Portfolio
o VIP High Income Portfolio*
o VIP Overseas Portfolio
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
o VIP II Contrafund Portfolio
o VIP II Asset Manager Portfolio
FIDELITY VARIABLE INSURANCE PRODUCT FUND III
o VIP III Growth Opportunities Portfolio
MORGAN STANLEY
o Morgan Stanley Dean Witter Universal Funds, Inc. - Emerging Markets Debt
Portfolio
o Van Kampen Life Investment Trust - Morgan Stanley Real Estate Securities
Portfolio
NATIONWIDE SEPARATE ACCOUNT TRUST
o Capital Appreciation Fund
o Government Bond Fund
o Money Market Fund
o Total Return Fund
o Nationwide Small Cap Value Fund (sub-adviser: The Dreyfus Corporation)
o Nationwide Small Company Fund (sub-advisers: The Dreyfus Corporation,
Neuberger Berman, LLC, Lazard Asset Management, Strong Capital
Management, Inc. and Warburg Pincus Asset Management, Inc.)
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
o AMT Guardian Portfolio
o AMT Partners Portfolio
o AMT Growth Portfolio
o AMT Limited Maturity Bond Portfolio
OPPENHEIMER VARIABLE ACCOUNT FUNDS
o Oppenheimer Bond Fund/VA
o Oppenheimer Capital Appreciation Fund/VA (formerly Oppenheimer Growth
Fund)
o Oppenheimer Global Securities Fund/VA
o Oppenheimer Multiple Strategies Fund/VA
STRONG OPPORTUNITY FUND II, INC. (FORMERLY "STRONG SPECIAL FUND II, INC.")
STRONG VARIABLE INSURANCE FUNDS, INC.:
o Strong Discovery Fund II, Inc.
o International Stock Fund II
VAN ECK WORLDWIDE INSURANCE TRUST
o Worldwide Emerging Markets Fund
o Worldwide Hard Assets Fund
o Worldwide Bond Fund
1
4 of 152
<PAGE> 5
WARBURG PINCUS TRUST
o International Equity Portfolio
o Post-Venture Capital Portfolio
o Small Company Growth Portfolio
AVAILABLE FOR ALL CONTRACTS ISSUED ON OR AFTER MAY 1, 1987 AND BEFORE SEPTEMBER
1, 1989:
AMERICAN VARIABLE INSURANCE SERIES
o Growth Fund
o High Yield Bond Fund
o U.S. Government/AAA-Rated Securities Fund
* These underlying mutual funds may invest in lower quality debt securities
commonly referred to as junk bonds.
Purchase payments not invested in the underlying mutual fund options of the
Nationwide Variable Account-II 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 60.
For general information or to obtain FREE copies of the:
o Statement of Additional Information
o prospectus for any underlying mutual fund
o required Nationwide forms,
call: 1-800-848-6331
TDD 1-800-238-3035
or write:
NATIONWIDE LIFE INSURANCE COMPANY
ONE NATIONWIDE PLAZA, 1-05-P1
COLUMBUS, OHIO 43215
The Statement of Additional Information and other material incorporated by
reference can be found on the SEC website at:
WWW.SEC.GOV
Information about this and other Best of America products can be found at:
WWW.BESTOFAMERICA.COM
THIS ANNUITY IS NOT:
o A BANK DEPOSIT
o FEDERALLY INSURED
o ENDORSED BY A BANK OR GOVERNMENT AGENCY
o AVAILABLE IN EVERY STATE.
Investors assume certain risks when investing in the contracts, including the
possibility of losing money.
These contracts are offered to customers of various financial institutions and
brokerage firms. No financial institution or brokerage firm is responsible for
the guarantees under the contracts. Guarantees under the contracts are the sole
responsibility of Nationwide.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC, NOR HAS THE
SEC PASSED UPON THE ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
2
5 of 152
<PAGE> 6
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.
SEP IRA- An annuity contract which qualifies for favorable tax treatment under
Section 408(k) 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-II, 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.
3
6 of 152
<PAGE> 7
TABLE OF CONTENTS
GLOSSARY OF SPECIAL TERMS.........................3
SUMMARY OF CONTRACT EXPENSES......................6
UNDERLYING MUTUAL FUND ANNUAL
EXPENSES....................................7
EXAMPLE...........................................9
SYNOPSIS OF THE CONTRACTS........................12
FINANCIAL STATEMENTS.............................12
CONDENSED FINANCIAL INFORMATION..................14
NATIONWIDE LIFE INSURANCE COMPANY................27
NATIONWIDE ADVISORY SERVICES, INC................27
INVESTING IN THE CONTRACT........................27
The Variable Account and Underlying
Mutual Funds
The Fixed Account
STANDARD CHARGES AND DEDUCTIONS..................29
Mortality and Expense Risk Charges
Contract Maintenance Charge
Administration Charge
Contingent Deferred Sales Charge
Premium Taxes
CONTRACT OWNERSHIP...............................32
Joint Ownership
Contingent Ownership
Annuitant
Beneficiary and Contingent Beneficiary
OPERATION OF THE CONTRACT........................32
Minimum Initial and Subsequent Purchase
Payments
Pricing
Allocation of Purchase Payments
Determining the Contract Value
Transfers
RIGHT TO REVOKE..................................36
SURRENDER (REDEMPTION)...........................36
Surrenders Under a Texas Optional
Retirement Program or a Louisiana
Optional Retirement Program
Surrenders Under a Qualified Contract or
Tax Sheltered Annuity
LOAN PRIVILEGE...................................38
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
ASSIGNMENT.......................................39
CONTRACT OWNER SERVICES..........................39
Asset Rebalancing
Dollar Cost Averaging
Systematic Withdrawals
ANNUITY COMMENCEMENT DATE........................40
ANNUITIZING THE CONTRACT.........................41
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...................................42
Death of Contract Owner - Non-Qualified
Contracts
Death of Annuitant - Non-Qualified
Contracts
Death of Contract Owner/Annuitant
How the Death Benefit Value is Determined
Death Benefit Payment
REQUIRED DISTRIBUTIONS...........................44
Required Distributions for Non-Qualified
Contracts
Required Distributions for Qualified Plans
or Tax Sheltered Annuities
Required Distributions for Individual
Retirement Annuities or SEP IRAs
Required Distributions for Roth IRAs
FEDERAL TAX CONSIDERATIONS.......................46
Federal Income Taxes
Qualified Plans, SEP IRAs, Individual
Retirement Annuities and Tax Sheltered
Annuities
Roth IRAs
4
7 of 152
<PAGE> 8
Withholding
Non-Resident Aliens
Federal Estate, Gift, and Generation
Skipping Transfer Taxes
Puerto Rico
Charge for Tax
Diversification
Tax Changes
STATEMENTS AND REPORTS...........................52
YEAR 2000 COMPLIANCE ISSUES......................52
LEGAL PROCEEDINGS................................53
ADVERTISING AND SUB-ACCOUNT PERFORMANCE
SUMMARY.....................................54
TABLE OF CONTENTS OF STATEMENT OF
ADDITIONAL INFORMATION......................60
APPENDIX A: OBJECTIVES FOR UNDERLYING
MUTUAL FUNDS................................61
5
8 of 152
<PAGE> 9
SUMMARY OF CONTRACT EXPENSES
The expenses listed below are charged to all contract owners unless the contract
owner meets an available exception.
CONTRACT OWNER TRANSACTION EXPENSES
Maximum Contingent Deferred Sales
Charge ("CDSC") (as a percentage of
of purchase payments surrendered).............7%(1,2)
Range of CDSC over time:
NUMBER OF COMPLETED YEARS FROM CDSC
DATE OF PURCHASE PAYMENT PERCENTAGE
0 7%
1 6%
2 5%
3 4%
4 3%
5 2%
6 1%
7 0%
(1) Each contract year, the contract owner may withdraw without a CDSC the
greater of:
a) up to 10% of each purchase payment under Individual Retirement Annuity
contracts issued on or after March 1, 1993; or
b) any amount withdrawn to meet minimum distribution requirements under the
Internal Revenue Code.
Starting with the second contract year after a purchase payment has been made,
the contract owner may withdraw without a CDSC the greater of:
a) an amount equal to 10% of each purchase payment; or
b) any amount withdrawn 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 to fund a Tax Sheltered
Annuity plan or a Qualified Plan.
(2) For contracts issued prior to December 15, 1988 the CDSC is 5% (as
percentage of the lesser of purchase payments or amounts surrendered).
MAXIMUM ANNUAL CONTRACT
MAINTENANCE CHARGE.............................$30(3)
VARIABLE ACCOUNT CHARGES(4)
(as a percentage of average account value)
Administration Charge.........................0.05%
Mortality and Expense Risk Charges............1.25%
Total Variable Account Charges...........1.30%
(3) The Contract Maintenance Charge is deducted annually from all contracts on
each contract anniversary and upon a full surrender of the contract.
(4) 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.
6
9 of 152
<PAGE> 10
UNDERLYING MUTUAL FUND ANNUAL EXPENSES
(AS A PERCENTAGE OF UNDERLYING MUTUAL FUND
NET ASSETS, AFTER EXPENSE REIMBURSEMENT)
<TABLE>
<CAPTION>
Management Other 12b-1 Total Mutual
Fees Expenses Fees Fund Expenses
<S> <C> <C> <C> <C>
American Century Variable Portfolios Inc. - American 0.97% 0.00% 0.00% 0.97%
Century VP Balanced
American Century Variable Portfolios, Inc. - American 1.00% 0.00% 0.00% 1.00%
Century VP Capital Appreciation
American Century Variable Portfolios, Inc. - American 0.70% 0.00% 0.00% 0.70%
Century VP Income & Growth
American Century Variable Portfolios, Inc. - American 1.47% 0.00% 0.00% 1.47%
Century VP International
American Century Variable Portfolios, Inc. - American 1.00% 0.00% 0.00% 1.00%
Century VP Value
Avis- Growth Fund 0.40% 0.01% 0.00% 0.41%
Avis- High Yield Bond Fund 0.49% 0.02% 0.00% 0.51%
Avis U.S. Government/AAA Rated Securities Fund 0.50% 0.01% 0.00% 0.51%
The Dreyfus Socially Responsible Growth Fund, Inc. 0.75% 0.05% 0.00% 0.80%
Dreyfus Stock Index Fund, Inc. 0.25% 0.01% 0.00% 0.26%
Dreyfus Variable Investment Fund - Capital 0.75% 0.05% 0.00% 0.80%
Appreciation Portfolio
Dreyfus Variable Investment Fund - Growth & Income 0.75% 0.03% 0.00% 0.78%
Portfolio
Fidelity VIP Equity-Income Portfolio 0.49% 0.08% 0.00% 0.57%
Fidelity VIP Growth Portfolio 0.59% 0.07% 0.00% 0.66%
Fidelity VIP High Income Portfolio 0.58% 0.12% 0.00% 0.70%
Fidelity VIP Overseas Portfolio 0.74% 0.15% 0.00% 0.89%
Fidelity VIP II Asset Manager Portfolio 0.54% 0.09% 0.00% 0.63%
Fidelity VIP II Contrafund Portfolio 0.59% 0.07% 0.00% 0.66%
Fidelity VIP III Growth Opportunities Portfolio 0.59% 0.11% 0.00% 0.70%
Morgan Stanley Dean Witter Universal Funds, Inc. - 0.27% 1.25% 0.00% 1.52%
Emerging Markets Debt Portfolio
NSAT- Capital Appreciation Fund 0.60% 0.07% 0.00% 0.67%
NSAT- Government Bond Fund 0.50% 0.07% 0.00% 0.57%
NSAT- Money Market Fund 0.40% 0.06% 0.00% 0.46%
NSAT- Nationwide Small Cap Value Fund 0.90% 0.15% 0.00% 1.05%
NSAT- Nationwide Small Company Fund 1.00% 0.07% 0.00% 1.07%
NSAT- Total Return Fund 0.59% 0.06% 0.00% 0.65%
Neuberger Berman AMT - Guardian Portfolio 0.85% 0.15% 0.00% 1.00%
Neuberger Berman AMT - Growth Portfolio 0.83% 0.09% 0.00% 0.92%
Neuberger Berman AMT - Partners Portfolio 0.78% 0.06% 0.00% 0.84%
Neuberger Berman AMT - Limited Maturity Bond Portfolio 0.65% 0.11% 0.00% 0.76%
Oppenheimer VAF - Oppenheimer Bond Fund/VA 0.72% 0.02% 0.00% 0.74%
Oppenheimer VAF - Oppenheimer Capital Appreciation/VA 0.72% 0.03% 0.00% 0.75%
(formerly Oppenheimer Growth Fund
Oppenheimer VAF - Oppenheimer Global Securities Fund/VA 0.68% 0.06% 0.00% 0.74%
</TABLE>
7
10 of 152
<PAGE> 11
UNDERLYING MUTUAL FUND ANNUAL EXPENSES (CONTINUED)
<TABLE>
<CAPTION>
Management Other 12b-1 Total Mutual
Fees Expenses Fees Fund Expenses
<S> <C> <C> <C> <C>
Oppenheimer VAF - Oppenheimer Multiple Strategies 0.72% 0.04% 0.00% 0.76%
Fund/VA
Strong Opportunity Fund II, Inc. 1.00% 0.16% 0.00% 1.16%
Strong Variable Insurance Funds, Inc. - Discovery Fund 1.00% 0.18% 0.00% 1.18%
II, Inc.
Strong Variable Insurance Funds, Inc. - International 1.00% 0.62% 0.00% 1.62%
Stock Fund II
Van Eck Worldwide Insurance Trust - Worldwide Bond Fund 1.00% 0.15% 0.00% 1.15%
Van Eck Worldwide Insurance Trust - Worldwide Emerging 1.00% 0.50% 0.00% 1.50%
Markets Fund
Van Eck Worldwide Insurance Trust - Worldwide Hard 1.00% 0.16% 0.00% 1.16%
Assets Fund
Van Kampen Life Investment Trust - Morgan Stanley Real 1.20% 0.00% 0.00% 1.20%
Estate Securities Portfolio
Warburg Pincus Trust - Small Company Growth Portfolio 0.90% 0.24% 0.00% 1.14%
Warburg Pincus Trust - International Equity Portfolio 1.00% 0.33% 0.00% 1.33%
Warburg Pincus Trust - Post-Venture Capital Portfolio 1.08% 0.32% 0.00% 1.40%
</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>
Fidelity VIP Equity-Income Portfolio, 0.49% 0.09% 0.00% 0.58%
Fidelity VIP Growth Portfolio 0.59% 0.09% 0.00% 0.68%
Fidelity VIP Overseas Portfolio 0.74% 0.17% 0.00% 0.91%
Fidelity VIP II Asset Manager Portfolio 0.54% 0.10% 0.00% 0.64%
Fidelity VIP II Contrafund Portfolio 0.59% 0.11% 0.00% 0.70%
Fidelity VIP III Growth Opportunities Portfolio 0.59% 0.12% 0.00% 0.71%
Morgan Stanley Dean Witter Universal Funds, Inc. - 0.80% 1.25% 0.00% 2.05%
Emerging Markets Debt Portfolio
NSAT- Nationwide Small Cap Value Fund 0.90% 0.43% 0.00% 1.33%
Strong Variable Insurance Funds, Inc. - International 1.00% 0.68% 0.00% 1.68%
Stock Fund II
Van Eck Worldwide Insurance Trust - Worldwide Emerging 1.00% 0.61% 0.00% 1.61%
Markets Fund
Van Eck Worldwide Insurance Trust - Worldwide Hard 1.00% 0.20% 0.00% 1.20%
Assets Fund
</TABLE>
8
11 of 152
<PAGE> 12
EXAMPLE
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 example also reflects the maximum $30 Contract Maintenance Charge
expressed as a percentage of the average contract account size for existing
contracts. Since the average contract account size issued under this prospectus
is greater than $1,000, 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 contract If you do not surrender your If you annuitize your contract
at the end of the applicable contract at the end of the at the end of the applicable
time period applicable time period time period
1 Yr. 3 Yrs. 5 Yrs. 10 Yrs. 1 Yr. 3 Yrs 5 Yrs. 10 Yrs. 1 Yr. 3 Yrs. 5 Yrs. 10 Yrs.
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
American Century Variable 94 120 155 273 24 75 128 273 * 75 128 273
Portfolios, Inc. - American
Century VP Balanced
American Century Variable 95 122 158 276 25 77 131 280 * 77 131 280
Portfolios, Inc. - American
Century VP Capital
Appreciation
American Century Variable 91 111 140 244 21 66 113 244 * 66 113 244
Portfolios, Inc. - American
Century VP Income & Growth
American Century Variable 100 135 181 324 30 90 154 324 * 90 154 324
Portfolios, Inc. - American
Century VP International
American Century Variable 95 121 156 276 25 76 129 276 * 76 129 276
Portfolios, Inc. - American
Century VP Value
AVIS - Growth Fund 88 102 125 212 18 57 98 212 * 57 98 212
AVIS - High Yield Bond Fund 89 105 130 223 19 60 103 223 * 60 103 223
AVIS - U.S. Government/AAA 89 105 130 223 19 60 103 223 * 60 103 223
Rated Securities Fund
The Dreyfus Socially 92 114 146 255 22 69 119 255 * 69 119 255
Responsible Growth Fund, Inc.
Dreyfus Stock Index Fund, Inc. 87 97 117 196 17 52 90 196 * 52 90 196
Dreyfus VIF - Capital 92 114 146 255 22 69 119 255 * 69 119 255
Appreciation Portfolio
Dreyfus VIF - Growth & Income 92 114 145 253 22 69 118 253 * 69 118 253
Portfolio
Fidelity VIP Equity-Income 90 107 134 230 20 62 107 230 * 62 107 230
Portfolio
Fidelity VIP Growth Portfolio 91 110 138 240 21 65 111 240 * 65 111 240
</TABLE>
9
12 of 152
<PAGE> 13
(EXAMPLE (CONTINUED)
<TABLE>
<CAPTION>
If you surrender your contract If you do not surrender your If you annuitize your contract
at the end of the applicable contract at the end of the at the end of the applicable
time period applicable time period time period
1 Yr. 3 Yrs. 5 Yrs. 10 Yrs. 1 Yr. 3 Yrs 5 Yrs. 10 Yrs. 1 Yr. 3 Yrs. 5 Yrs. 10 Yrs.
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fidelity VIP High Income 91 111 140 244 21 66 113 244 * 66 113 244
Portfolio
Fidelity VIP Overseas 93 117 151 264 23 72 124 264 * 72 124 264
Portfolio
Fidelity VIP II Asset Manager 91 109 137 237 21 64 110 237 * 64 110 237
Portfolio
Fidelity VIP II Contrafund 91 110 138 240 21 65 111 240 * 65 111 240
Portfolio
Fidelity VIP III Growth 91 111 140 244 21 66 113 244 * 66 113 244
Opportunities Portfolio
Morgan Stanley Dean Witter 100 137 183 329 30 92 156 329 * 92 156 329
Universal Funds, Inc. -
Emerging Markets Debt
Portfolio
NSAT-Capital Appreciation Fund 91 110 139 241 21 65 112 241 * 65 112 241
NSAT-Government Bond Fund 90 107 134 230 20 62 107 230 * 62 107 230
NSAT-Money Market Fund 89 104 128 218 19 58 101 218 * 58 101 218
NSAT-Nationwide Small Cap 95 122 159 281 25 77 132 281 * 77 132 281
Value Fund
NSAT-Nationwide Small Company 95 123 160 283 25 78 133 283 * 78 133 283
Fund
NSAT-Total Return Fund 91 110 138 239 21 65 111 239 * 65 111 239
Neuberger Berman AMT- 95 121 156 276 25 76 129 276 * 76 129 276
Guardian Portfolio
Neuberger Berman AMT- Growth 94 118 152 268 24 73 125 268 * 73 125 268
Portfolio
Neuberger Berman AMT- 93 116 148 259 23 71 121 259 * 71 121 259
Partners Portfolio
Neuberger Berman AMT- Limited 92 113 144 251 22 68 117 251 * 68 117 251
Maturity Bond Portfolio
Oppenheimer VAF - Oppenheimer 92 112 143 248 22 67 116 248 * 67 116 248
Bond Fund/VA
Oppenheimer VAF - Oppenheimer 92 113 143 249 22 68 116 249 * 68 116 249
Capital Appreciation Fund/VA
(formerly Oppenheimer Growth
Fund)
Oppenheimer VAF - Oppenheimer 92 112 143 248 22 67 116 248 * 67 116 248
Global Securities Fund/VA
Oppenheimer VAF - Oppenheimer 92 113 144 251 22 68 117 251 * 68 117 251
Multiple Strategies Fund/VA
Strong Opportunity Fund II, 96 126 165 293 26 81 138 293 * 81 138 293
Inc.
Strong Variable Insurance 96 126 166 295 26 81 139 295 * 81 139 295
Funds, Inc. - Discovery Fund
II, Inc.
Strong Variable Insurance 101 140 188 339 31 95 161 339 * 95 161 339
Funds, Inc. - International
Stock Fund II
</TABLE>
11
14 of 152
<PAGE> 14
(EXAMPLE (CONTINUED)
<TABLE>
<CAPTION>
If you surrender your contract If you do not surrender your If you annuitize your contract
at the end of the applicable contract at the end of the at the end of the applicable
time period applicable time period time period
1 Yr. 3 Yrs. 5 Yrs. 10 Yrs. 1 Yr. 3 Yrs 5 Yrs. 10 Yrs. 1 Yr. 3 Yrs. 5 Yrs. 10 Yrs.
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Van Eck Worldwide Insurance 96 125 164 292 26 80 137 292 * 80 137 292
Trust - Worldwide Bond Fund
Van Eck Worldwide Insurance 100 136 182 327 30 91 155 327 * 91 155 327
Trust - Worldwide Emerging
Markets Fund
Van Eck Worldwide Insurance 96 126 165 293 26 81 138 293 * 81 138 293
Trust - Worldwide Hard Assets
Fund
Van Kampen Life Investment 97 127 167 297 27 82 140 297 * 82 140 297
Trust - Morgan Stanley Real
Estate Securities Portfolio
Warburg Pincus Trust - Small 95 125 164 291 26 80 137 291 * 80 137 291
Company Growth Portfolio
Warburg Pincus Trust - 98 131 174 310 28 86 147 310 * 86 147 310
International Equity Portfolio
Warburg Pincus Trust - 99 133 177 317 29 88 150 317 * 88 150 317
Post-Venture Capital Portfolio
</TABLE>
* The contracts sold under this prospectus do not permit annuitization during
the first two contract years.
11
14 of 152
<PAGE> 15
SYNOPSIS OF THE CONTRACTS
The contracts described in this prospectus are flexible purchase payment
contracts. The contracts may be issued as either individual or group contracts.
In those states where contracts are issued as group contracts, references
throughout this prospectus to "contract owner" will also mean "participant"
unless the plan otherwise permits or requires the contract owner to exercise
contract rights under the plan terms.
The contracts can be categorized as:
o Non-Qualified;
o Individual Retirement Annuities;
o Roth IRAs;
o SEP IRAs;
o Tax Sheltered Annuities; and
o Qualified.
MINIMUM INITIAL AND SUBSEQUENT PURCHASE PAYMENTS
MINIMUM INITIAL MINIMUM
CONTRACT PURCHASE PAYMENT SUBSEQUENT
TYPE PAYMENTS
Non-Qualified $1,500 $10
IRA $0 $10
Roth IRA $0 $10
SEP IRA $0 $10
Tax Sheltered $0 $10
Annuity
Qualified $0 $10
CHARGES AND EXPENSES
Nationwide deducts a Mortality and Expense Risk Charge equal to an annual rate
of 1.25% and an Administration Charge equal to 0.05% of the daily net assets of
the variable account. Nationwide assesses these charges in return for bearing
certain mortality and administrative risks.
Nationwide deducts the following Contract Maintenance Charges (see "Contract
Maintenance Charge"):
AMOUNT TYPE OF CONTRACT ISSUED
-Non-Qualified Contracts
$30.00 -Individual Retirement Annuities
-Roth IRAs -Tax Sheltered Annuities (sold prior to
December 17, 1990) -Qualified Contracts (issued pursuant
to a 401 plan prior to January 14, 1991).
$12.00 -Tax Sheltered Annuity Contracts issued on or after
December 17, 1990 and before August 1, 1994.
$30.00 to $0.00 -Qualified Contracts issued on or
after January 14, 1991 and before
August 1, 1994.
-Qualified Contracts (sold on or after
$12.00 to $0.00 August 1, 1994); SEP IRAs
-Tax Sheltered Annuity Contracts (sold on or after August
1, 1994).
Nationwide does not deduct a sales charge from purchase payments upon deposit
into the contract. However, Nationwide may deduct a CDSC if any amount is
withdrawn from the contract. This CDSC reimburses Nationwide for sales expenses.
The amount of the CDSC will not exceed 7% of purchase payments surrendered.
For contracts issued prior to December 15, 1988, the CDSC will not exceed the
lesser of (see "Contingent Deferred Sales Charge"):
(1) 5% of the amount surrendered; or
(2) 5% of the total of all purchase payments made within 8 years of the
surrender date.
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").
12
15 of 152
<PAGE> 16
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.
13
16 of 152
<PAGE> 17
CONDENSED FINANCIAL INFORMATION
Accumulation unit values for an accumulation unit outstanding throughout the
period.
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION PERCENT CHANGE NUMBER OF
UNIT VALUE AT UNIT VALUE AT IN ACCUMULATION ACCUMULATION
UNDERLYING MUTUAL FUND BEGINNING OF END OF PERIOD UNIT VALUE UNITS AT END YEAR
PERIOD OF PERIOD
<S> <C> <C> <C> <C> <C>
American Century Variable 16.345418 18.677491 14.27% 3,311,879 1998
Portfolios, Inc. - 14.300170 16.345418 14.30% 3,321,528 1997
American Century VP 12.912980 14.300170 10.74% 3,254,121 1996
Balanced-Q 10.801286 12.912980 19.55% 2,978,792 1995
10.876699 10.801286 -0.69% 2,670,990 1994
10.232829 10.876699 6.29% 2,039,118 1993
10.000000 10.232829 2.33% 1,233,110 1992
American Century Variable 16.345418 18.677491 14.27% 2,684,128 1998
Portfolios, Inc. - 14.300170 16.345418 14.30% 2,535,285 1997
American Century VP 12.912980 14.300170 10.74% 2,577,277 1996
Balanced-NQ 10.801286 12.912980 19.55% 2,471,621 1995
10.876699 10.801286 -0.69% 2,324,933 1994
10.232829 10.876699 6.29% 2,073,593 1993
10.000000 10.232829 2.33% 1,301,248 1992
American Century Variable 22.608168 21.832994 -3.43% 5,691,252 1998
Portfolios, Inc. - 23.677551 22.608168 -4.52% 7,405,239 1997
American Century VP 25.074858 23.677551 -5.57% 9,324,052 1996
Capital Appreciation-Q 19.378026 25.074858 29.40% 9,867,412 1995
19.864882 19.378026 -2.45% 9,394,094 1994
18.244594 19.864882 8.88% 8,366,010 1993
18.736465 18.244594 -2.63% 7,578,213 1992
13.379768 18.736465 40.04% 4,222,602 1991
13.732668 13.379768 -2.57% 1,954,531 1990
10.801278 13.732668 27.14% 548,848 1989
American Century Variable 22.608168 21.832994 -3.43% 3,199,790 1998
Portfolios , Inc. - 23.677551 22.608168 -4.52% 4,340,405 1997
American Century VP 25.074858 23.677551 -5.57% 6,231,979 1996
Capital Appreciation-NQ 19.378026 25.074858 29.40% 7,570,906 1995
19.864882 19.378026 -2.45% 7,577,109 1994
18.244594 19.864882 8.88% 7,513,748 1993
18.736465 18.244594 -2.63% 8,116,485 1992
13.379768 18.736465 40.04% 5,428,104 1991
13.732668 13.379768 -2.57% 2,629,880 1990
10.801278 13.732668 27.14% 974,118 1989
American Century Variable 10.000000 10.825822 8.26% 851,923 1998(3)
Portfolios, Inc. - American
Century VP Income & Growth Q
American Century Variable 10.000000 10.825822 8.26% 1,195,005 1998(3)
Portfolios, Inc. - American
Century VP Income & Growth
- - NQ
American Century Variable 13.753336 16.121219 17.22% 4,804,748 1998
Portfolios, Inc. - 11.745639 13.753336 17.09% 3,513,167 1997
American Century VP 10.402550 11.745639 12.91% 2,194,705 1996
International-Q 9.392316 10.402550 10.76% 1,565,354 1995
10.000000 9.392316 -6.08% 688,372 1994
</TABLE>
14
17 of 152
<PAGE> 18
CONDENSED FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION PERCENT CHANGE NUMBER OF
UNIT VALUE AT UNIT VALUE AT IN ACCUMULATION ACCUMULATION
UNDERLYING MUTUAL FUND BEGINNING OF END OF PERIOD UNIT VALUE UNITS AT END OF YEAR
PERIOD PERIOD
<S> <C> <C> <C> <C> <C>
American Century Variable 13.753336 16.121219 17.22% 3,904,415 1998
Portfolios, Inc. - 11.745639 13.753336 17.09% 2,814,767 1997
American Century VP 10.402550 11.745639 12.91% 1,758,586 1996
International-NQ 9.392316 10.402550 10.76% 1,498,305 1995
10.000000 9.392316 -6.08% 845,551 1994
American Century Variable 12.621843 13.057214 3.45% 1,289,505 1998
Portfolio, Inc. - 10.142565 12.621843 24.44% 1,153,698 1997
American Century VP Value- 10.000000 10.142565 1.43% 12,933 1996(1)
Q
American Century Variable 12.621843 13.057214 3.45% 1,042,979 1998
Portfolio, Inc. - 10.142565 12.621843 24.44% 1,177,685 1997
American Century VP Value- 10.000000 10.142565 1.43% 77,276 1996(1)
NQ
AVIS- 31.433956 42.056137 33.79% 371,663 1998
Growth Fund-Q 24.479182 31.433956 28.41% 425,839 1997
21.880052 24.479182 11.88% 486,423 1996
16.632869 21.880052 31.55% 533,382 1995
16.767635 16.632869 -0.80% 568,831 1994
14.603954 16.767635 14.82% 614,673 1993
13.356752 14.603954 9.34% 630,618 1992
10.154286 13.356752 31.54% 637,666 1991
10.758820 10.154286 -5.62% 612,309 1990
8.912471 10.758820 20.72% 578,318 1989(2)
7.950563 8.912471 12.10% 335,760 1988
AVIS- 31.433956 42.056137 33.79% 368,482 1998
Growth Fund-NQ 24.479182 31.433956 28.41% 417,659 1997
21.880052 24.479182 11.88% 471,250 1996
16.632869 21.880052 31.55% 544,338 1995
16.767635 16.632869 -0.80% 538,005 1994
14.603954 16.767635 14.82% 573,448 1993
13.356752 14.603954 9.34% 658,355 1992
10.154286 13.356752 31.54% 675,796 1991
10.758820 10.154286 -5.62% 709,255 1990
8.912471 10.758820 20.72% 847,522 1989(2)
AVIS- 25.696356 25.475118 -0.86% 62,435 1998
High-Yield Bond Fund-Q 23.160826 25.696356 10.95% 79,449 1997
20.729452 23.160826 11.73% 74,769 1996
17.247186 20.729452 20.19% 74,984 1995
18.696382 17.247186 -7.75% 90,073 1994
16.269615 18.696382 14.92% 97,302 1993
14.656040 16.269615 11.01% 96,741 1992
11.731211 14.656040 24.93% 104,317 1991
11.446666 11.731211 2.49% 91,778 1990
10.615988 11.446666 7.82% 107,592 1989(2)
</TABLE>
15
18 of 152
<PAGE> 19
CONDENSED FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION PERCENT CHANGE IN NUMBER OF
UNIT VALUE AT UNIT VALUE AT ACCUMULATION UNIT ACCUMULATION
UNDERLYING MUTUAL FUND BEGINNING OF END OF PERIOD VALUE UNITS AT END YEAR
PERIOD OF PERIOD
<S> <C> <C> <C> <C> <C>
AVIS- 25.696356 25.475118 -0.86% 38,541 1998
High-Yield Bond Fund-NQ 23.160826 25.696356 10.95% 44,445 1997
20.729452 23.160826 11.73% 53,096 1996
17.247186 20.729452 20.19% 65,007 1995
18.696382 17.247186 -7.75% 63,653 1994
16.269615 18.696382 14.92% 90,260 1993
14.656040 16.269615 11.01% 85,512 1992
11.731211 14.656040 24.93% 93,543 1991
11.446666 11.731211 2.49% 84,258 1990
10.615988 11.446666 7.82% 120,140 1989(2)
AVIS- 19.60955 21.026607 6.78% 129,959 1998
U.S. Gov't/AAA-Rated 18.395431 19.690955 7.04% 146,543 1997
Securities Fund-Q 18.077072 18.395431 1.76% 183,087 1996
15.872495 18.077072 13.89% 315,331 1995
16.810323 15.872495 -5.58% 346,442 1994
15.319654 16.810323 9.73% 414,364 1993
14.425067 15.319654 6.20% 396,892 1992
12.605067 14.425067 14.44% 436,968 1991
11.780016 12.605067 7.00% 457,802 1990
10.909251 11.780016 7.98% 493,935 1989(2)
AVIS- 19.026607 21.026607 6.78% 81,141 1998
U.S. Gov't/AAA-Rated 18.395431 19.690955 7.04% 111,728 1997
Securities Fund-NQ 18.077072 18.395431 1.76% 149,634 1996
15.872495 18.077072 13.89% 238,614 1995
16.810323 15.872495 -5.58% 272,776 1994
15.319654 16.810323 9.73% 365,338 1993
14.425067 15.319654 6.20% 447,387 1992
12.605067 14.425067 14.44% 496,734 1991
11.780016 12.605067 7.00% 528,128 1990
10.909251 11.780016 7.98% 997,613 1989(2)
Dreyfus Stock Index 21.614298 27.352140 26.55% 16,760,500 1998
Fund, Inc.- Q 16.470432 21.614298 31.23% 12,220,119 1997
13.619180 16.470432 20.94% 7,592,255 1996
10.087774 13.619180 35.01% 3,284,707 1995
10.130946 10.087774 -0.43% 539,188 1994
10.000000 10.130946 1.31% 114,256 1993
Dreyfus Stock Index 21.614298 27.352140 26.55% 11,496,653 1998
Fund, Inc.- NQ 16.470432 21.614298 31.23% 9,791,828 1997
13.619180 16.470432 20.94% 6,210,747 1996
10.087774 13.619180 35.01% 2,805,145 1995
10.130946 10.087774 -0.43% 418,990 1994
10.000000 10.130946 1.31% 53,556 1993
Dreyfus Variable 10.192063 13.099410 28.53% 3,218,773 1998
Investment Fund- Capital 10.000000 10.192063 1.92% 160,444 1997(1)
Appreciation Portfolio - Q
Dreyfus Variable 10.192063 13.099410 28.53% 3,158,512 1998
Investment Fund- Capital 10.000000 10.192063 1.92% 195,833 1997(1)
Appreciation Portfolio - NQ
Dreyfus Variable 11.455116 12.641927 10.36% 1,530,286 1998
Investment Fund - Growth & 9.986925 11.455116 14.70% 948,045 1997
Income Portfolio - Q 10.000000 9.986925 -0.13% 15,022 1996(1)
Dreyfus Variable 11.455166 12.641927 10.36% 1,010,647 1998
Investment Fund - Growth & 9.986925 11.455166 14.70% 850,450 1997
Income Portfolio NQ 10.000000 9.986925 -0.13% 2,643 1996(1)
</TABLE>
16
19 of 152
<PAGE> 20
CONDENSED FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION PERCENT CHANGE IN NUMBER OF
UNIT VALUE AT UNIT VALUE AT ACCUMULATION UNIT ACCUMULATION
UNDERLYING MUTUAL FUND BEGINNING OF END OF PERIOD VALUE UNITS AT END YEAR
PERIOD OF PERIOD
<S> <C> <C> <C> <C> <C>
The Dreyfus Socially 21.597400 27.580026 27.70% 3,208,339 1998
Responsible Growth 17.037112 21.597400 26.77% 2,568,412 1997
Fund, Inc.- Q 14.239508 17.037112 19.65% 1,552,615 1996
10.721141 14.239508 32.82% 640,387 1995
10.702195 10.721141 0.18% 301,426 1994
10.000000 10.702195 7.02% 32,265 1993
The Dreyfus Socially 21.597400 27.580026 27.70% 1,734,954 1998
Responsible Growth 17.037112 21.597400 26.77% 1,595,569 1997
Fund, Inc.- NQ 14.239508 17.037112 19.65% 1,190,421 1996
10.721141 14.239508 32.82% 421,093 1995
10.702195 10.721141 0.18% 263,764 1994
10.000000 10.702195 7.02% 48,396 1993
Fidelity VIP 35.459509 39.068090 10.18% 23,119,147 1998
Equity-Income 28.043676 35.459509 26.44% 23,984,214 1997
Portfolio-Q 24.863579 28.043676 12.79% 23,565,494 1996
18.646331 24.863579 33.34% 21,482,777 1995
17.644458 18.646331 5.68% 15,283,540 1994
15.123262 17.644458 16.67% 10,828,747 1993
13.099125 15.123262 15.45% 6,712,294 1992
10.095775 13.099125 29.75% 4,458,956 1991
12.075648 10.095775 -16.40% 3,063,355 1990
10.425721 12.075648 15.83% 1,898,037 1989
Fidelity VIP Equity - 35.459509 39.068090 10.18% 17,190,931 1998
Income Portfolio-NQ 28.043676 35.459509 26.44% 19,527,927 1997
24.863579 28.043676 12.79% 20,058,276 1996
18.646331 24.863579 33.34% 21,094,657 1995
17.644458 18.646331 5.68% 15,217,260 1994
15.123262 17.644458 16.67% 11,195,669 1993
13.099125 15.123262 15.45% 6,754,475 1992
10.095775 13.099125 29.75% 4,614,322 1991
12.075648 10.095775 -16.40% 3,627,225 1990
10.425721 12.075648 15.83% 2,861,738 1989
Fidelity VIP Growth 46.18894 64.597153 37.68% 17,523,628 1998
Portfolio-Q 38.497038 46.918894 21.88% 17,382,123 1997
34.006052 38.497038 13.21% 17,849,804 1996
25.451479 34.006052 33.61% 15,252,906 1995
25.790764 25.451479 -1.32% 11,689,858 1994
21.890060 25.790764 17.82% 8,260,724 1993
20.287900 21.890060 7.90% 5,747,021 1992
14.125398 20.287900 43.63% 3,088,464 1991
16.214983 14.125398 -12.89% 1,245,106 1990
12.501824 16.214983 29.70% 398,400 1989
10.938414 12.501824 14.29% 38,122 1988
</TABLE>
17
20 of 152
<PAGE> 21
CONDENSED FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION PERCENT CHANGE IN NUMBER OF
UNIT VALUE AT UNIT VALUE AT ACCUMULATION UNIT ACCUMULATION
UNDERLYING MUTUAL FUND BEGINNING OF END OF PERIOD VALUE UNITS AT END YEAR
PERIOD OF PERIOD
<S> <C> <C> <C> <C> <C>
Fidelity VIP Growth 46.918894 64.597153 37.68% 11,328,287 1998
Portfolio-NQ 38.497038 46.918894 21.88% 11,857,821 1997
34.006052 38.497038 13.21% 13,715,597 1996
25.451479 34.006052 33.61% 13,813,237 1995
25.790764 25.451479 -1.32% 10,492,508 1994
21.890060 25.790764 17.82% 8,788,434 1993
20.287900 21.890060 7.90% 6,695,765 1992
14.125398 20.287900 43.63% 4,003,764 1991
16.214983 14.125398 -12.89% 2,190,071 1990
12.501824 16.214983 29.70% 57,832 1989
Fidelity VIP High 28.515871 26.926873 -5.57% 6,464,105 1998
Income Portfolio-Q 24.553550 28.515871 16.14% 6,886,178 1997
21.817076 24.553550 12.54% 7,274,256 1996
18.327364 21.817076 19.04% 6,464,833 1995
18.859652 18.327364 -2.82% 4,924,388 1994
15.855840 18.859652 18.94% 4,044,756 1993
13.055215 15.855840 21.45% 1,837,635 1992
9.778064 13.055215 33.52% 669,289 1991
10.147625 9.778064 -3.64% 277,945 1990
10.736745 10.147625 -5.49% 209,652 1989
Fidelity VIP High 28.926873 26.926873 -5.57% 6,457,997 1998
Income Portfolio-NQ 24.553550 28.515871 16.14% 8,097,358 1997
21.817076 24.553550 12.54% 8,722,126 1996
18.327364 21.817076 19.04% 7,993,534 1995
18.859652 18.327364 -2.82% 6,177,851 1994
15.855840 18.859652 18.94% 5,307,509 1993
13.055215 15.855840 21.45% 2,645,096 1992
9.778064 13.055215 33.52% 1,098,412 1991
10.147625 9.778064 -3.64% 425,270 1990
10.736745 10.147625 -5.49% 353,195 1989
Fidelity VIP Overseas 18.248482 20.307878 11.29% 11,283,013 1998
Portfolio-Q 16.573676 18.248482 10.11% 12,793,113 1997
14.832631 16.573676 11.74% 13,781,464 1996
13.701507 14.832631 8.26% 14,272,080 1995
13.646118 13.701507 0.41% 15,065,853 1994
10.074553 13.646118 35.45% 11,518,590 1993
11.432117 10.074553 -11.88% 5,381,715 1992
10.707951 11.432117 6.76% 3,095,641 1991
11.042233 10.707951 -3.03% 1,715,341 1990
8.858811 11.042233 24.65% 356,389 1989
Fidelity VIP Overseas 18.248482 20.307878 11.29% 9,318,467 1998
Portfolio-NQ 16.573676 18.248482 10.11% 11,023,038 1997
14.832631 16.573676 11.74% 12,840,712 1996
13.701507 14.832631 8.26% 14,672,390 1995
13.646118 13.701507 0.41% 17,550,925 1994
10.074553 13.646118 35.45% 14,793,318 1993
11.432117 10.074553 -11.88% 5,341,001 1992
10.707951 11.432117 6.76% 3,211,265 1991
11.042233 10.707951 -3.03% 1,989,713 1990
8.858811 11.042233 24.65% 605,461 1989
</TABLE>
18
21 of 152
<PAGE> 22
CONDENSED FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION PERCENT CHANGE IN NUMBER OF
UNIT VALUE AT UNIT VALUE AT ACCUMULATION UNIT ACCUMULATION
UNDERLYING MUTUAL FUND BEGINNING OF END OF PERIOD VALUE UNITS AT END YEAR
PERIOD OF PERIOD
<S> <C> <C> <C> <C> <C>
Fidelity VIP II Asset 24.319958 27.616728 13.56% 18,785,187 1998
Manager Portfolio-Q 20.422622 24.319958 19.08% 20,417,818 1997
18.056027 20.422622 13.11% 21,570,235 1996
15.641016 18.056027 15.44% 22,704,319 1995
16.874276 15.641016 -7.31% 24,788,850 1994
14.123234 16.874276 19.48% 17,438,762 1993
12.789976 14.123234 10.42% 6,977,842 1992
10.572963 12.789976 20.97% 2,513,661 1991
10.028081 10.572963 5.43% 729,271 1990
10.000000 10.028081 0.28% 161,084 1989
24.319958 27.616728 13.56% 10,977,395 1998
Fidelity VIP II Asset
Manager Portfolio- NQ 20.422622 24.319958 19.08% 12,420,418 1997
18.056027 20.422622 13.11% 13,822,886 1996
15.641016 18.056027 15.44% 16,037,811 1995
16.874276 15.641016 -7.31% 20,692,145 1994
14.123234 16.874276 19.48% 16,652,403 1993
12.789976 14.123234 10.42% 6,313,629 1992
10.572963 12.789976 20.97% 1,991,456 1991
10.028081 10.572963 5.43% 696,595 1990
10.000000 10.028081 0.28% 161,084 1989
Fidelity VIP II Contrafund 16.241378 20.836167 28.29% 15,609,123 1998
Portfolio - Q 13.255157 16.241378 22.53% 13,856,940 1997
11.071500 13.255157 19.72% 10,594,586 1996
10.000000 11.071500 10.72% 3,025,498 1995
Fidelity VIP II Contrafund 16.241378 20.836167 28.29% 11,340,649 1998
Portfolio - NQ 13.255157 16.241378 22.53% 11,315,346 1997
11.071500 13.255157 19.72% 9,866,842 1996
10.000000 11.071500 10.72% 3,490,716 1995
Fidelity VIP III - Growth 10.932125 13.446025 23.00% 2,942,745 1998
Opportunities Portfolio - Q 10.000000 10.932125 9.32% 946,688 1997(1)
Fidelity VIP III Growth 10.932125 13.446025 23.00% 2,183,868 1998
Opportunities Portfolio - NQ 10.000000 10.932125 9.32% 861,112 1997(1)
Morgan Stanley Dean Witter 9.810487 6.934889 -29.31% 417,556 1998
Universal Funds, Inc.- 10.000000 9.810487 -1.90% 172,203 1997(1)
Emerging Markets
Debt Portfolio-Q
Morgan Stanley Dean Witter 9.810487 6.934889 -29.31% 283,779 1998
Universal Funds, Inc.- 10.000000 9.810487 -1.90% 222,098 1997(1)
Emerging Markets
Debt Portfolio-NQ
NSAT-Capital 23.867569 30.616503 28.28% 6,725,123 1998
Appreciation Fund-Q 17.979967 23.867569 32.75% 3,948,978 1997
14.442619 17.979967 24.49% 2,288,355 1996
11.311683 14.442619 27.68% 897,315 1995
11.564256 11.311683 -2.18% 890,035 1994
10.689287 11.564256 8.19% 545,013 1993
10.000000 10.689287 6.89% 189,896 1992
NSAT-Capital 23.867569 30.616503 28.28% 5,812,770 1998
Appreciation Fund-NQ 17.979967 23.867569 32.75% 4,139,623 1997
14.442619 17.979967 24.49% 2,612,175 1996
11.311683 14.442619 27.68% 904,797 1995
11.564256 11.311683 -2.18% 897,902 1994
10.689287 11.564256 8.19% 549,294 1993
10.000000 10.689287 6.89% 551,252 1992
</TABLE>
19
22 of 152
<PAGE> 23
CONDENSED FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION PERCENT CHANGE IN NUMBER OF
UNIT VALUE AT UNIT VALUE AT ACCUMULATION UNIT ACCUMULATION
UNDERLYING MUTUAL FUND BEGINNING OF END OF PERIOD VALUE UNITS AT END YEAR
PERIOD OF PERIOD
<S> <C> <C> <C> <C> <C>
NSAT- 32.793820 35.250995 7.49% 4,202,514 1998
Government Bond 30.296925 32.793820 8.24% 3,575,004 1997
Fund-Q 29.663756 30.296925 2.13% 3,938,276 1996
25.309101 29.663756 17.21% 4,150,795 1995
26.497619 25.309101 -4.49% 4,217,320 1994
24.513489 26.497619 8.09% 4,093,697 1993
23.025331 24.513489 6.46% 3,388,192 1992
19.989831 23.025331 15.19% 2,396,577 1991
18.497836 19.989831 8.07% 1,366,952 1990
16.442690 18.497836 12.50% 769,336 1989
NSAT- 32.707206 35.157882 -0.26% 3,353,428 1998
Government Bond 30.216906 32.707206 8.24% 2,848,085 1997
Fund-NQ 29.585401 30.216906 2.13% 3,184,368 1996
25.242252 29.585401 17.21% 3,385,486 1995
26.427634 25.242252 -4.49% 3,855,380 1994
24.448737 26.427634 8.09% 4,068,930 1993
22.964507 24.448737 6.46% 3,746,706 1992
19.937021 22.964507 15.19% 3,069,935 1991
18.448970 19.937021 8.07% 2,213,029 1990
16.399248 18.448970 12.50% 1,776,299 1989
NSAT-Money 22.994005 23.891623 3.90% 10,938,889 1998
Market Fund-Q* 22.132823 22.994005 3.89% 10,935,137 1997
21.334141 22.132823 3.74% 9,766,503 1996
20.457373 21.334141 4.29% 9,961,763 1995
19.951530 20.457373 2.54% 11,466,217 1994
19.672720 19.951530 1.42% 5,669,948 1993
19.275668 19.672720 2.06% 5,743,893 1992
18.453701 19.275668 4.45% 5,848,337 1991
17.301093 18.453701 6.66% 4,869,455 1990
16.070303 17.301093 7.66% 1,988,984 1989
NSAT-Money 22.994005 23.891623 3.90% 12,513,821 1998
Market Fund-NQ* 22.132823 22.994005 3.89% 11,155,103 1997
21.334141 22.132823 3.74% 10,963.993 1996
20.457373 21.334141 4.29% 10,688,426 1995
19.951530 20.457373 2.54% 16,632,423 1994
19.672720 19.951530 1.42% 8,583,554 1993
19.275668 19.672720 2.06% 7,286,887 1992
18.453701 19.275668 4.45% 7,417,882 1991
17.301093 18.453701 6.66% 7,729,382 1990
16.070303 17.301093 7.66% 5,325,942 1989
15.171173 16.070303 5.93% 5,407,347 1988
NSAT-Nationwide Small 16.020642 15.971964 -0.30% 4,961,782 1998
Company Fund - Q 13.831813 16.020642 15.82% 4,812,645 1997
11.410135 13.831813 21.22% 3,071,120 1996
10.000000 11.410135 14.10% 157,084 1995
NSAT-Nationwide Small 16.020642 15.971964 -0.30% 3,151,728 1998
Company Fund - NQ 13.831813 16.020642 15.82% 3,793,288 1997
11.410135 13.831813 21.22% 3,061,699 1996
10.000000 11.410135 14.10% 607,477 1995
</TABLE>
20
23 of 152
<PAGE> 24
CONDENSED FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION PERCENT CHANGE IN NUMBER OF
UNIT VALUE AT UNIT VALUE AT ACCUMULATION UNIT ACCUMULATION
UNDERLYING MUTUAL FUND BEGINNING OF END OF PERIOD VALUE UNITS AT END YEAR
PERIOD OF PERIOD
<S> <C> <C> <C> <C> <C>
NSAT - Nationwide Small Cap 10.000000 8.528787 -14.71% 405,997 1998(3)
Value Fund - Q
NSAT - Nationwide Small Cap 10.000000 8.528787 -14.71% 600,393 1998(3)
Value Fund - NQ
NSAT-Total 80.108117 93.358149 16.54% 4,459,090 1998
Return Fund-Q 62.707634 80.108117 27.75% 4,368,093 1997
52.147953 62.707634 20.25% 3,546,292 1996
40.926247 52.147953 27.42% 2,843,673 1995
41.023082 40.926247 -0.24% 2,189,971 1994
37.471598 41.023082 9.48% 1,747,873 1993
35.094975 37.471598 6.77% 1,417,457 1992
25.674744 35.094975 36.69% 905,547 1991
28.286971 25.674744 -9.23% 720,473 1990
25.311336 28.286971 11.76% 604,552 1989
NSAT-Total 78.045294 90.954119 16.54% 3,296,114 1998
Return Fund-NQ 61.092889 78.045294 27.75% 3,538,356 1997
50.805130 61.092889 20.25% 3,148,253 1996
39.872391 50.805130 27.42% 2,833,128 1995
39.966728 39.872391 -0.24% 2,396,609 1994
36.506693 39.966728 9.48% 2,125,354 1993
34.191261 36.506693 6.77% 2,066,486 1992
25.013609 34.191261 36.69% 1,759,891 1991
27.558577 25.013609 -9.23% 1,524,116 1990
24.659571 27.558577 11.76% 1,576,425 1989
Neuberger Berman 37.889922 43.203987 14.03% 4,739,527 1998
AMT-Growth 29.757359 37.889922 27.33% 5,338,769 1997
Portfolio-Q 27.626244 29.757359 7.71% 5,597,573 1996
21.247525 27.626244 30.02% 5,919,670 1995
22.656907 21.247525 -6.22% 4,909,356 1994
21.495392 22.656907 5.40% 4,959,418 1993
19.882145 21.495392 8.11% 4,432,865 1992
15.527030 19.882145 28.05% 3,336,332 1991
17.135185 15.527030 -9.39% 1,761,170 1990
13.408445 17.135185 27.79% 751,612 1989
Neuberger Berman 37.889922 43.203987 14.03% 3,535,046 1998
AMT-Growth Portfolio- 29.757359 37.889922 27.33% 4,164,923 1997
NQ 27.626244 29.757359 7.71% 4,702,904 1996
21.247525 27.626244 30.02% 5,358,461 1995
22.656907 21.247525 -6.22% 4,342,056 1994
21.495392 22.656907 5.40% 4,728,052 1993
19.882145 21.495392 8.11% 4,843,969 1992
15.527030 19.882145 28.05% 3,982,667 1991
17.135185 15.527030 -9.39% 2,294,185 1990
13.408445 17.135185 27.79% 1,363,755 1989
</TABLE>
21
24 of 152
<PAGE> 25
CONDENSED FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION PERCENT CHANGE IN NUMBER OF
UNIT VALUE AT UNIT VALUE AT ACCUMULATION UNIT ACCUMULATION
UNDERLYING MUTUAL FUND BEGINNING OF END OF PERIOD VALUE UNITS AT END YEAR
PERIOD OF PERIOD
<S> <C> <C> <C> <C> <C>
Neuberger Berman 17.690564 18.227259 3.03% 3,027,892 1998
AMT- Limited Maturity 16.791470 17.690564 5.35% 3,398,882 1997
Bond Portfolio-Q 16.311479 16.791470 2.94% 3,722,398 1996
14.896724 16.311479 9.50% 4,061,293 1995
15.115753 14.896724 -1.45% 3,859,535 1994
14.362908 15.115753 5.24% 5,013,322 1993
13.836035 14.362908 3.81% 3,563,619 1992
12.589849 13.836035 9.90% 1,462,609 1991
11.776036 12.589849 6.91% 720,644 1990
10.770188 11.776036 9.34% 303,493 1989
Neuberger Berman 17.690564 18.227259 3.03% 2,828,271 1998
AMT- Limited Maturity 16.791470 17.690564 5.35% 2,928,007 1997
Bond Portfolio-NQ 16.311479 16.791470 2.94% 3,388,267 1996
14.896724 16.311479 9.50% 3,866,535 1995
15.115753 14.896724 -1.45% 4,238,249 1994
14.362908 15.115753 5.24% 5,023,386 1993
13.836035 14.362908 3.81% 3,217,005 1992
12.589849 13.836035 9.90% 1,326,257 1991
11.776036 12.589849 6.91% 676,768 1990
10.770188 11.776036 9.34% 299,695 1989
Neuberger Berman 22.354609 22.992724 2.85% 7,610,496 1998
AMT- Partners 17.256151 22.354609 29.55% 7,980,031 1997
Portfolio-Q 13.494251 17.256151 27.88% 5,383,558 1996
10.017795 13.494251 34.70% 2,151,917 1995
10.000000 10.017795 0.18% 223,285 1994
Neuberger Berman 22.54609 22.992724 2.85% 5,337,515 1998
AMT- Partners 17.256151 22.354609 29.55% 7,769,569 1997
Portfolio- NQ 13.494251 17.256151 27.88% 5,392,259 1996
10.017795 13.494251 34.70% 2,173,222 1995
10.000000 10.017795 0.18% 324,320 1994
Neuberger Berman AMT - 10.000000 9.282422 -7.18% 928,355 1998(3)
Guardian Portfolio - Q
Neuberger Berman AMT - 10.000000 9.282422 -7.18% 782,161 1998(3)
Guardian Portfolio - NQ
Oppenheimer VAF- 18.715948 19.729274 5.41% 4,366,241 1998
Oppenheimer Bond 17.356310 18.715948 7.83% 4,076,992 1997
Fund/VA-Q 16.781326 17.356310 3.43% 3,808,030 1996
14.531774 16.781326 15.48% 3,369,101 1995
15.013579 14.531774 -3.21% 2,694,486 1994
13.456350 15.013579 11.57% 2,304,838 1993
12.801628 13.456350 5.11% 1,429,504 1992
11.026344 12.801628 16.10% 609,779 1991
10.352435 11.026344 6.51% 193,600 1990
10.000000 10.352435 3.52% 64,637 1989
</TABLE>
22
25 of 152
<PAGE> 26
CONDENSED FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION PERCENT CHANGE NUMBER OF
UNIT VALUE AT UNIT VALUE AT IN ACCUMULATION ACCUMULATION
UNDERLYING MUTUAL FUND BEGINNING OF END OF PERIOD UNIT VALUE UNITS AT END OF YEAR
PERIOD PERIOD
<S> <C> <C> <C> <C> <C>
Oppenheimer VAF- 18.715948 19.729274 5.41% 3,654,118 1998
Oppenheimer Bond 17.356310 18.715948 7.83% 3,420,959 1997
Fund/VA-NQ 16.781326 17.356310 3.43% 3,276,566 1996
14.531774 16.781326 15.48% 3,073,942 1995
15.013579 14.531774 -3.21% 2,666,115 1994
13.456350 15.013579 11.57% 2,249,484 1993
12.801628 13.456350 5.11% 1,407,269 1992
11.026344 12.801628 16.10% 627,014 1991
10.352435 11.026344 6.51% 243,677 1990
10.000000 10.352435 3.52% 56,538 1989
Oppenheimer VAF 16.030693 18.054116 12.62% 9,503,851 1998
Oppenheimer Global 13.266755 16.030693 20.83% 9,603,574 1997
Securities Fund/VA-NQ 11.411200 13.266755 16.26% 7,895,779 1996
11.307851 11.411200 0.91% 6,518,772 1995
12.151882 11.307851 -6.95% 6,376,101 1994
10.000000 12.151882 21.52% 1,254,946 1993
Oppenheimer VAF 16.030693 18.054116 12.62% 5,697,473 1998
Oppenheimer Global 13.266755 16.030693 20.83% 6,175,581 1997
Securities Fund/VA-NQ 11.411200 13.266755 16.26% 5,355,527 1996
11.307851 11.411200 0.91% 4,810,440 1995
12.151882 11.307851 -6.95% 6,373,740 1994
10.000000 12.151882 21.52% 1,833,969 1993
Oppenheimer VAF 10.427884 12.762568 22.39% 1,553,053 1998
- -Oppenheimer Capital 10.000000 10.427884 4.28% 465,695 1997(1)
Appreciation Fund/VA
(formerly Oppenheimer
Growth Fund)
Oppenheimer VAF 10.427884 12.762568 22.39% 1,122,440 1998
- - Oppenheimer Capital 10.000000 10.427884 4.28% 330,322 1997(1)
Appreciation Fund/VA
(formerly Oppenheimer
Growth Fund) -NQ
Oppenheimer VAF- 20.878401 21.978211 5.27% 4,734,705 1998
Oppenheimer Multiple 18.045475 20.878401 15.70% 5,140,468 1997
Strategies Fund/VA-Q 15.831164 18.045475 13.99% 4,869,534 1996
13.216172 15.831164 19.79% 4,418,303 1995
13.655607 13.216172 -3.22% 3,897,893 1994
11.932236 13.655607 14.44% 2,951,734 1993
11.091678 11.932236 7.58% 1,837,408 1992
9.565675 11.091678 15.95% 1,118,029 1991
9.880485 9.565675 -3.19% 643,641 1990
10.000000 9.880485 -1.20% 139,332 1989
Oppenheimer VAF- 20.878401 21.978211 5.27% 3,383,989 1998
Oppenheimer Multiple 18.045475 20.878401 15.70% 4,005,875 1997
Strategies Fund/VA-NQ 15.831164 18.045475 13.99% 3,811,559 1996
13.216172 15.831164 19.79% 3,837,204 1995
13.655607 13.216172 -3.22% 3,363,638 1994
11.932236 13.655607 14.44% 2,677,668 1993
11.091678 11.932236 7.58% 1,697,934 1992
9.565675 11.091678 15.95% 1,012,431 1991
9.880485 9.565675 -3.19% 603,205 1990
10.000000 9.880485 -1.20% 184,606 1989
</TABLE>
23
26 of 152
<PAGE> 27
CONDENSED FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION PERCENT CHANGE IN NUMBER OF
UNIT VALUE AT UNIT VALUE AT ACCUMULATION UNIT ACCUMULATION
UNDERLYING MUTUAL FUND BEGINNING OF END OF PERIOD VALUE UNITS AT END OF YEAR
PERIOD PERIOD
<S> <C> <C> <C> <C> <C>
Strong Opportunity 26.092982 29.241637 12.07% 10,757,453 1998
Fund II, Inc.-Q 21.072564 26.092982 23.82% 11,262,847 1997
18.071722 21.072564 16.61% 11,342,542 1996
14.551898 18.071722 24.19% 9,874,627 1995
14.230988 14.551898 2.26% 8,576,003 1994
11.519061 14.230988 23.54% 4,733,084 1993
10.000000 11.519061 15.19% 1,132,322 1992
Strong Opportunity 26.09298 29.241637 12.07% 6,829,157 1998
Fund II, Inc.-NQ 21.072564 26.092982 23.82% 7,827,155 1997
18.071722 21.072564 16.61% 8,634,564 1996
14.551898 18.071722 24.19% 8,712,015 1995
14.230988 14.551898 2.26% 8,937,552 1994
11.519061 14.230988 23.54% 5,766,194 1993
10.000000 11.519061 15.19% 1,281,636 1992
Strong Variable 17.733129 18.773240 5.87% 3,330,945 1998
Insurance Funds, Inc.- 16.129688 17.733129 9.94% 3,782,422 1997
Discovery Fund II, 16.212409 16.129688 -0.51% 4,502,456 1996
Inc.-Q 12.143604 16.212409 33.51% 5,223,195 1995
13.003747 12.143604 -6.61% 3,921,214 1994
10.796708 13.003747 20.44% 2,178,730 1993
10.000000 10.796708 7.97% 1,002,256 1992
Strong Variable 17.733129 18.773240 5.87% 2,561,304 1998
Insurance Funds, Inc.- 16.129688 17.733129 9.94% 3,017,702 1997
Discovery Fund II, 16.212409 16.129688 -0.51% 3,833,429 1996
Inc.-NQ 12.143604 16.212409 33.51% 5,248,509 1995
13.003747 12.143604 -6.61% 4,385,371 1994
10.796708 13.003747 20.44% 3,188,982 1993
10.000000 10.796708 7.97% 1,433,375 1992
Strong Variable 9.509278 8.937224 -6.02% 1,115,317 1998
Insurance Funds, Inc.- 11.140682 9.509278 -14.64% 1,303,896 1997
International Stock 10.226470 11.140682 8.94% 1,788,555 1996
Fund II - Q 10.000000 10.226470 2.26% 70,603 1995
Strong Variable 9.509278 8.937224 -6.02% 824,150 1998
Insurance Funds, Inc.- 11.140682 9.509278 -14.64% 1,020,345 1997
International Stock 10.226470 11.140682 8.94% 1,660,749 1996
Fund II - NQ 10.000000 10.226470 2.26% 86,735 1995
Van Eck Worldwide 14.758566 16.424717 11.29% 1,824,058 1998
Insurance Trust - 14.604281 14.758566 1.06% 2,104,195 1997
Worldwide Bond Fund-Q 14.433345 14.604281 1.18% 2,627,198 1996
12.465907 14.433345 15.78% 2,993,355 1995
12.798654 12.465907 -2.60% 2,731,900 1994
12.031194 12.798654 6.38% 2,906,303 1993
12.872259 12.031194 -6.53% 2,263,731 1992
11.012132 12.872259 16.89% 1,132,905 1991
10.027192 11.012132 9.82% 453,396 1990
10.000000 10.027192 0.27% 51,091 1989
</TABLE>
24
27 of 152
<PAGE> 28
CONDENSED FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION PERCENT CHANGE NUMBER OF
UNIT VALUE AT UNIT VALUE AT IN ACCUMULATION ACCUMULATION
UNDERLYING MUTUAL FUND BEGINNING OF END OF PERIOD UNIT VALUE UNITS AT END OF YEAR
PERIOD PERIOD
<S> <C> <C> <C> <C> <C>
Van Eck Worldwide 14.758566 16.424717 11.29% 1,736,777 1998
Insurance Trust - 14.604281 14.758566 1.06% 2,016,599 1997
Worldwide Bond Fund- 14.433345 14.604281 1.18% 2,639,292 1996
NQ 12.465907 14.433345 15.78% 3,020,939 1995
12.798654 12.465907 -2.60% 3,204,016 1994
12.031194 12.798654 6.38% 3,619,098 1993
12.872259 12.031194 -6.53% 2,707,532 1992
11.012132 12.872259 16.89% 1,168,830 1991
10.027192 11.012132 9.82% 497,712 1990
10.000000 10.027192 0.27% 27,550 1989
Van Eck Worldwide 8.738462 5.716175 -34.99% 1,862,823 1998
Insurance Trust - 10.077830 8.792462 -12.75% 2,421,738 1997
Worldwide Emerging 10.000000 10.077830 0.78% 271,881 19961
Markets Fund Q
Van Eck Worldwide 8.792462 5.716175 -34.99% 1,394,148 1998
Insurance Trust - Worldwide 10.077830 8.792462 -12.75% 2,018,746 1997
Emerging Markets Fund - NQ 10.000000 10.077830 0.78% 239,183 1996(1)
Van Eck Worldwide 15.737781 10.743036 -31.87% 1,976, 563 1998
Insurance Trust- 16.248199 15.767781 -2.96% 2,616,530 1997
Worldwide 13.944310 16.248199 16.52% 3,151,393 1996
Hard Assets Fund-Q 12.728311 13.944310 9.55% 3,166,034 1995
13.544828 12.728311 -6.03% 3,213,104 1994
8.325308 13.544828 62.69% 2,189,942 1993
8.795164 8.325308 -5.34% 800,912 1992
9.175494 8.795164 -4.15% 449,387 1991
10.823789 9.175494 -15.23% 337,698 1990
10.000000 10.823789 8.24% 44,378 1989
Van Eck Worldwide 15.767781 10.743036 -31.87% 1,953,375 1998
Insurance Trust-Worldwide 16.248199 15.767781 -2.96% 2,702,266 1997
Hard Assets Fund-NQ 13.944310 16.248199 16.52% 3,558,069 1996
12.728311 13.944310 9.55% 3,714,045 1995
13.544828 12.728311 -6.03% 4,473,812 1994
8.325308 13.544828 62.69% 3,344,681 1993
8.795164 8.325308 -5.34% 960,152 1992
9.175494 8.795164 -4.15% 565,314 1991
10.823789 9.175494 -15.23% 475,693 1990
10.000000 10.823789 8.24% 83,552 1989
Van Kampen 17.901858 15.615675 -12.77% 2,429,141 1998
Life Investment Trust - 14.931303 17.901858 19.89% 3,539,264 1997
Morgan Stanley Real Estate 10.765351 14.931303 38.70% 2,491,780 1996
Securities Portfolio - Q 10.000000 10.765351 7.65% 161,110 1995
Van Kampen 17.901858 15.615675 -12.77% 2,423,893 1998
Life Investment Trust - 14.931303 17.901858 19.89% 4,040,440 1997
Morgan Stanley Real Estate 10.765351 14.931303 38.70% 3,554,657 1996
Securities Portfolio - NQ 10.000000 10.765351 7.65% 310,010 1995
</TABLE>
25
28 of 152
<PAGE> 29
CONDENSED FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION PERCENT CHANGE IN NUMBER OF
UNIT VALUE AT UNIT VALUE AT ACCUMULATION UNIT ACCUMULATION
UNDERLYING MUTUAL FUND BEGINNING OF END OF PERIOD VALUE UNITS AT END YEAR
PERIOD OF PERIOD
<S> <C> <C> <C> <C> <C>
Warburg Pincus Trust- 11.164048 11.608185 3.98% 4,923,915 1998
International Equity 11.572294 11.164048 -3.53% 5,900,906 1997
Portfolio - Q 10.661059 11.572294 8.55% 5,551,036 1996
10.000000 10.661059 6.61% 1,798,470 1995
Warburg Pincus Trust- 11.164048 11.608185 3.98% 3,738,519 1998
International Equity 11.572294 11.164048 -3.53% 5,196,387 1997
Portfolio - NQ 10.661059 11.572294 8.55% 5,736,148 1996
10.000000 10.661059 6.61% 2,012,385 1995
Warburg Pincus Trust- 11.369600 11.952364 5.13% 531,483 1998
Post-Venture Capital 10.163772 11.369600 11.86% 391,358 1997
Portfolio Q 10.000000 10.163772 1.64% 205,349 1996(1)
Warburg Pincus Trust- 11.369600 11.952364 5.13% 448,154 1998
Post-Venture Capital 10.163772 11.369600 11.86% 316,378 1997
Portfolio NQ 10.000000 10.163772 1.64% 198,784 1996(1)
Warburg Pincus Trust- 15.950665 15.294249 -4.12% 5,715,162 1998
Small Company Growth 13.973889 15.950665 14.15% 6,148,609 1997
Portfolio - Q 12.430073 13.973889 12.42% 4,899,073 1996
10.000000 12.430073 24.30% 2,450,661 1995
Warburg Pincus Trust- 15.950665 15.294249 -4.12% 4,595,026 1998
Small Company Growth 13.973889 15.950665 14.15% 5,532,845 1997
Portfolio - NQ 12.430073 13.973889 12.42% 4,810,067 1996
10.000000 12.430073 24.30% 2,574,975 1995
</TABLE>
* The 7-day yield on the NSAT Money Market Fund as of December 31, 1998 was
3.52%.
(1) The Dreyfus Variable Investment Fund - Capital Appreciation Portfolio,
Fidelity VIP III - Growth Opportunities Portfolio, Morgan Stanley Dean Witter
Universal Funds, Inc. - Emerging Markets Debt Portfolio, and Oppenheimer
Variable Account Funds - Oppenheimer Capital Appreciation Fund/VA (formerly
Oppenheimer Growth Fund) were added July 14, 1997. Consequently, the
condensed financial information reflects the accumulation unit values for the
accumulation units outstanding for the period from July 14, 1997 to December
31, 1997. The American Century Variable Portfolio, Inc. - American Century VP
Value, Dreyfus Variable Investment Fund - Growth & Income Portfolio, Van Eck
Worldwide Insurance Trust - Worldwide Emerging Markets Fund, and Warburg
Pincus Trust - Post-Venture Capital Portfolio were added December 23, 1996.
Consequently, the condensed financial information reflects the accumulation
unit values for the accumulation units outstanding for the period from
December 23, 1996 to December 31, 1996.
(2) On October 20, 1989, Nationwide substituted shares of the American VI
Series for the then existing shares of the American Life/Annuity Series. The
unit values for the American VI Series started at the same unit values as the
corresponding units of the American Life/Annuity Series on the date of the
substitution.
(3)The American Century Variable Portfolios, Inc. - American Century VP
Income & Growth Fund, NSAT Nationwide Small Cap Value Fund, and the Neuberger
Berman AMT - Guardian Portfolio were added to the variable account on May 1,
1998. Consequently, the condensed financial information reflects the
reporting period from May 1, 1998, to December 31, 1998.
26
29 of 152
<PAGE> 30
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 Life Insurance Company.
INVESTING IN THE CONTRACT
THE VARIABLE ACCOUNT AND UNDERLYING MUTUAL FUNDS
Nationwide Variable Account-II is a separate account that invests in the
underlying mutual funds listed in Appendix A. Nationwide established the
separate account on October 7, 1981, 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 Annuities, 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.
27
30 of 152
<PAGE> 31
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.
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
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.
28
31 of 152
<PAGE> 32
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 AND EXPENSE RISK CHARGE
Nationwide deducts Mortality and Expense Risk Charge from the variable account.
This amount is computed on a daily basis, and is equal to an annual rate of
1.25% of the daily net assets of the variable account.
The mortality risk charge is equal to an annual rate of 0.80% of the daily net
assets of the variable account. The mortality risk charges compensate Nationwide
for guaranteeing the annuity rate of the contracts. This guarantee ensures that
the annuity rates will not change regardless of the death rates of annuity
payees or the general population.
The expense risk charge is equal to an annual rate of 0.45% of the daily net
assets of the variable account. The expense risk charges compensate Nationwide
for guaranteeing that administration charges will not increase regardless of
actual expenses.
If the Mortality and Expense Risk Charge is insufficient to cover actual
expenses, the loss is borne by Nationwide.
CONTRACT MAINTENANCE CHARGE
On each contract anniversary (and upon a full surrender of the contract),
Nationwide deducts a Contract Maintenance Charge. This charge reimburses
Nationwide for administrative expenses involved in issuing and maintaining the
contract. Contract Maintenance Charges are as follows:
MAINTENANCE CHARGE CONTRACT TYPE
- Non-Qualified Contracts
$30.00 - Individual Retirement Annuities
- Roth IRAs
- Tax Sheltered Annuities (sold
prior to December 17, 1990)
- Qualified Contracts (issued
pursuant to a 401 plan prior
to January 14, 1991).1
- Tax Sheltered Annuity
$12.00 Contracts issued on or after
December 17, 1990 and before
August 1, 1994.2
- Qualified Contracts issued on
$30.00 to $0.00 or after January 14, 1991 and
before August 1, 1994.3
- Qualified Contracts (sold on
$12.00 to $0.004 or after August 1, 1994); SEP
IRAs
- Tax Sheltered Annuity
Contracts (sold on or after August 1, 1994).
(1) Qualified contracts issued on or after 1/14/91 pursuant to a plan funded by
contracts issued prior to 1/14/91, will have a Contract Maintenance Charge
of $30.00.
(2) This charge may be lowered to reflect savings in administration of the
contracts.
(3) Variances based on internal underwriting guidelines can result in a
reduction of charges in incremental amounts of $5.00. Underwriting
considerations include: size of the group; average participant account
balance transferred to Nationwide; and administrative savings.
29
32 of 152
<PAGE> 33
(4) The amount of the charge is determined based on Nationwide's underwriting
guidelines.
The deduction of the Contract Maintenance Charge will be taken proportionately
from each sub-account and the fixed account based on the value in each option as
compared to the total contract value.
Nationwide will not increase the Contract Maintenance Charge. Nationwide will
not reduce or eliminate the Contract Maintenance Charge where it would be
discriminatory or unlawful.
ADMINISTRATION CHARGE
Nationwide deducts an Administration Charge equal to 0.05% of the daily net
asset of the variable account. This charge reimburses Nationwide for
administrative expenses related to maintenance of the contract.
If this charge is insufficient to cover actual expenses, the loss is borne by
Nationwide.
CONTINGENT DEFERRED SALES CHARGE
No sales charge deduction is made from the purchase payments when amounts are
deposited into the contracts. However, if any part of the contract is
surrendered, Nationwide will deduct a CDSC. The CDSC will not exceed 7% of
purchase payments surrendered.
The CDSC is calculated by multiplying the applicable CDSC percentage (noted
below) by the amount of purchase payments surrendered.
For purposes of calculating the CDSC, surrenders are considered to come first
from the oldest purchase payment made to the contract, then the next oldest
purchase payment, and so forth. For tax purposes, a surrender is usually treated
as a withdrawal of earnings first.
The CDSC applies to contracts issued on or after December 15, 1988 as follows:
CDSC
Number of Years from Date Percentage
of Purchase Payment
0 7%
1 6%
2 5%
3 4%
4 3%
5 2%
6 1%
7 0%
For contracts issued prior to December 15, 1998, the CDSC will not exceed the
lesser of:
(1) 5% of the amount surrendered; or
(2) 5% of the total of all purchase payments made within 8 years of the
surrender date.
After the first year from the date of each purchase payment, the contract owner
may withdraw, without a CDSC, up to 5% of that purchase payment for each year it
has remained on deposit (less the amount of such purchase payment previously
surrendered free of charge) without a CDSC.
The CDSC is used to cover sales expenses, including commissions (maximum of
5.25% of purchase payments), production of sales material, and other promotional
expenses. If expenses are greater than the CDSC, the shortfall will be made up
from Nationwide's general account, which may indirectly include portions of the
Contract Maintenance Charge and other variable account charges, since Nationwide
may generate a profit from these charges.
Waiver of Contingent Deferred Sales Charge
Each contract year, the contract owner may withdraw without a CDSC the greater
of:
(a) up to 10% of each purchase payment under Individual Retirement Annuities
issued on or after March 1, 1993; or
(b) any amount withdrawn to meet minimum distribution requirements under the
Internal Revenue Code.
30
33 of 152
<PAGE> 34
Starting with the second contract year, the contract owner may withdraw without
a CDSC the greater of:
a) an amount equal to 10% of that purchase payment; or
b) any amount withdrawn to meet minimum distribution requirements under the
Internal Revenue Code.
This CDSC-free privilege is non-cumulative. Free amounts not taken during any
given contract year cannot be taken as free amounts in a subsequent contract
year.
In addition, no CDSC will be deducted:
(1) upon the annuitization of contracts which have been in force for at least
two years;
(2) upon payment of a death benefit; or
(3) from any values which have been held under a contract for at least 7
years.
No CDSC applies to transfers among sub-accounts or between or among the fixed
account or the variable account. Nationwide may waive the CDSC if a contract
described in this prospectus is exchanged for another Nationwide contract (or a
contract of any of its affiliated insurance companies). A CDSC may apply to the
contract received in the exchange.
A contract held by a Charitable Remainder Trust may withdraw CDSC-free the
greater of (a) or (b), where:
(a) is the amount which would otherwise be available for withdrawal without a
CDSC; and
(b) is the difference between the total purchase payments made to the
contract as of the date of the withdrawal (reduced by previous
withdrawals) and the contract value at the close of the day prior to the
date of the withdrawal.
For Tax Sheltered Annuity Contracts issued on or after December 17, 1990,
Qualified Contracts sold in conjunction with 401 cases sold on or after January
14, 1991, and SEP IRA Contracts sold on or after January 14, 1991, Nationwide
will waive the CDSC when:
a) the plan participant experiences a case of hardship (as provided in
Internal Revenue Code Section 403(b) and as defined for purposes of
Internal Revenue Code Section 401(k));
b) the plan participant becomes disabled (within the meaning of Internal
Revenue Code Section 72(m)(7));
c) 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 immediately preceding the distribution;
d) the plan participant has participated in the contract for at least 15
years as determined from the contract anniversary date immediately
preceding the distribution;
e) the plan participant dies; or
f) the contract is annuitized after 2 years from the inception of the
contract.
The contract owner may be subject to income tax on all or a portion of any such
withdrawals and to a tax penalty if the contract owner takes withdrawals prior
to age 59 1/2 (see "Non-Qualified Contracts- Natural Persons as Contract
Owners").
The CDSC will not be eliminated if to do so would be unfairly discriminatory or
prohibited by state law.
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.
31
34 of 152
<PAGE> 35
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, contingent owner,
annuitant, contingent annuitant, beneficiary, contingent beneficiary, annuity
payment option, and annuity commencement date. 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 actions
taken by Nationwide before it was recorded.
The contract owner may also request a change in the annuitant, contingent
annuitant, contingent owner, 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.
On the annuitization date, the annuitant will become the contract owner.
JOINT OWNERSHIP
Joint owners each own an undivided interest in the contract. If a contract owner
who is NOT the annuitant dies before the annuitization date, the joint owner
becomes the contract owner.
Contract owners can name a joint owner at any time before annuitization subject
to the following conditions:
o Joint owners must be spouses at the time joint ownership is requested,
unless state law requires Nationwide to allow non-spousal joint owners;
o The exercise of any ownership right in the contract will require a
written request signed by both joint owners;
o An election in writing signed by both contract owners must be made to
authorize Nationwide to allow the exercise of ownership rights
independently of either joint owner; and
o Nationwide will not be liable for any loss, liability, cost, or expense
for acting in accordance with the instructions of either joint owner.
CONTINGENT OWNERSHIP
The contingent owner is entitled to certain benefits under the contract, if a
contract owner who is NOT the annuitant dies before the annuitization date, and
there is no surviving joint owner.
The contract owner may name or change a contingent owner at any time before the
annuitization date. To change the contingent owner, a written request must be
submitted to Nationwide. Once Nationwide has recorded the change, it will be
effective as of the date it was signed, whether or not the contract owner was
living at the time it was recorded. The change will not affect any action taken
by Nationwide before the change was recorded.
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
32
35 of 152
<PAGE> 36
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 change prior to the annuitization date with the consent of
Nationwide.
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. The beneficiaries will share
the death benefit equally, unless otherwise specified.
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
MINIMUM INITIAL AND SUBSEQUENT PURCHASE PAYMENTS
CONTRACT MINIMUM INITIAL MINIMUM
TYPE PURCHASE PAYMENT SUBSEQUENT
PAYMENTS
Non-Qualified $1,500 $10
IRA $0 $10
Roth IRA $0 $10
SEP IRA $0 $10
Tax Sheltered $0 $10
Annuity
Qualified $0 $10
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. 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.
Purchase payments will not be priced when the New York Stock Exchange is closed
or on the following nationally recognized holidays:
o New Year's Day o Independence Day
o Martin Luther King, Jr. Day o Labor Day
o Presidents' Day o Thanksgiving
o Good Friday o Christmas
o Memorial Day
Nationwide also will not price purchase payments if:
(1) trading on the New York Stock Exchange is restricted;
(2) an emergency exists making disposal or valuation of securities held in
the variable account impracticable; or
(3) the SEC, by order, permits a suspension or postponement for the
protection of security holders.
Rules and regulations of the SEC will govern as to when the conditions described
in (2) and (3) exist.
If Nationwide is closed on days when the New York Stock Exchange is open,
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
33
36 of 152
<PAGE> 37
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;
2) and amounts allocated to the fixed account.
If part or all of the contract value is surrendered, or charges are assessed
against the 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.
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
34
37 of 152
<PAGE> 38
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 25% 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.
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.
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.
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 or to the Guaranteed Term Options. 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, 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
35
38 of 152
<PAGE> 39
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, SEP 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 remaining contract value remaining after the contract
owner has received the amount requested.
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, a Contract Maintenance Charge, underlying mutual fund charges
and the investment performance of the underlying mutual funds. A CDSC may apply.
SURRENDERS UNDER A TEXAS OPTIONAL RETIREMENT PROGRAM OR A LOUISIANA OPTIONAL
RETIREMENT PLAN
Redemption restrictions apply to contracts issued under the Texas Optional
Retirement Program or the Louisiana Optional Retirement Plan.
The Texas Attorney General has ruled that participants in contracts issued under
the Texas Optional Retirement Program may only take withdrawals if:
o the participant dies;
36
39 of 152
<PAGE> 40
o the participant retires;
o the participant terminates employment due to total disability; or
o the participant that works in a Texas public institution of higher education
terminates employment.
A participant under a contract issued under the Louisiana Optional Retirement
Plan may only take distributions from the contract upon retirement or
termination of employment. All retirement benefits under this type of plan must
be paid as lifetime income; lump sum cash payments are not permitted, except for
death benefits.
Due to the restrictions described above, a participant under either of these
plans will not be able to withdraw cash values from the contract unless one of
the applicable conditions is met. However, contract value may be transferred to
other carriers, subject to any CDSC.
Nationwide issues this contract to participants in the Texas Optional Retirement
Program in reliance upon and in compliance with Rule 6c-7 of the Investment
Company Act of 1940. Nationwide issues this contract to participants in the
Louisiana Optional Retirement Plan in reliance upon and in compliance with an
exemptive order that Nationwide received from the SEC on August 22, 1990
SURRENDERS UNDER A QUALIFIED CONTRACT OR TAX SHELTERED ANNUITY
Contract owners of a Qualified Contract or Tax Sheltered Annuity may surrender
part or all of their contract value before the earlier of the annuitization date
or the annuitant's death, except as provided below:
A. Contract value attributable to contributions made under a qualified cash or
deferred arrangement (within the meaning of Internal Revenue Code Section
402(g)(3)(A)), a salary reduction agreement (within the meaning of Internal
Revenue Code Section 402(g)(3)(C)), or transfers from a Custodial Account
(described in Section 403(b)(7) of the Internal Revenue Code), may be
surrendered only:
1. when the contract owner reaches age 59 1/2, separates from service,
dies, or becomes disabled (within the meaning of Internal Revenue Code
Section 72(m)(7)); or
2. in the case of hardship (as defined for purposes of Internal Revenue
Code Section 401(k)), provided that any such hardship surrender may NOT
include any income earned on salary reduction contributions.
B. The surrender limitations described in Section A also apply to:
1. salary reduction contributions to Tax Sheltered Annuities made for plan
years beginning after December 31, 1988;
2. earnings credited to such contracts after the last plan year beginning
before January 1, 1989, on amounts attributable to salary reduction
contributions; and
3. all amounts transferred from 403(b)(7) Custodial Accounts (except that
earnings and employer contributions as of December 31, 1988 in such
Custodial Accounts may be withdrawn in the case of hardship).
C. Any distribution other than the above, including a ten day free look
cancellation of the contract (when available) may result in taxes,
penalties, and/or retroactive disqualification of a Qualified Contract or
Tax Sheltered Annuity.
In order to prevent disqualification of a Tax Sheltered Annuity after a ten day
free look cancellation, Nationwide will transfer the proceeds to another Tax
Sheltered Annuity upon proper direction by the contract owner.
Surrender provisions may be modified pursuant to the plan terms and tax
provisions of the Internal Revenue Code when a contract is issued to fund a
Qualified Plan.
These provisions explain Nationwide's understanding of current withdrawal
restrictions. These restrictions may change.
Distributions pursuant to Qualified Domestic Relations Orders will not violate
the restrictions stated above.
37
40 of 152
<PAGE> 41
Contract provisions may be modified pursuant to plan terms when the contract is
issued to fund a Qualified Plan.
LOAN PRIVILEGE
The loan privilege is ONLY available to owners of Qualified Contracts and Tax
Sheltered Annuities. 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:
CONTRACT MAXIMUM OUTSTANDING LOAN
VALUES BALANCE ALLOWED
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*)
* The $50,000 limits will be reduced by the highest outstanding balance owed
during the previous 12 months.
For salary reduction Tax Sheltered Annuities, loans may be secured only by the
contract value.
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.
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;
38
41 of 152
<PAGE> 42
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.
ASSIGNMENT
Contract rights are personal to the contract owner and may not be assigned
without Nationwide's written consent. IRAs, Roth IRAs, SEP IRAs, Qualified
Contracts and Tax Sheltered Annuities may not be assigned, pledged or otherwise
transferred except where allowed by law.
A Non-Qualified Contract owner may assign some or all rights under the contract.
An assignment must occur before annuitization while the annuitant is alive. Once
proper notice of assignment is recorded by Nationwide's home office, the
assignment will become effective as of the date the written request was signed.
Nationwide is not responsible for the validity or tax consequences of any
assignment. Nationwide is not liable for any payment or settlement made before
the assignment is recorded. Assignments will not be recorded until Nationwide
receives sufficient direction from the contract owner and the assignee regarding
the proper allocation of contract rights.
Amounts pledged or assigned will be treated as distributions and will be
included in gross income to the extent that the cash value exceeds the
investment in the contract for the taxable year in which it was pledged or
assigned. Amounts assigned may be subject to a tax penalty equal to 10% of the
amount included in gross income.
Assignment of the entire contract value may cause the portion of the contract
value exceeding the total investment in the contract and previously taxed
amounts to be included in gross income for federal income tax purposes each year
that the assignment is in effect.
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 or Tax Sheltered Annuity 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
39
42 of 152
<PAGE> 43
transfer of a specified amount from certain sub-accounts and the fixed account
into other sub-accounts. Contract owners 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 following underlying mutual funds: Fidelity VIP
High Income Portfolio, NSAT-Government Bond Fund, NSAT-Money Market Fund and
Neuberger Berman AMT- Limited Maturity Bond Portfolio 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 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 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.
40
43 of 152
<PAGE> 44
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 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%.
41
44 of 152
<PAGE> 45
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 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 - NON-QUALIFIED CONTRACTS
If the contract owner who is not the annuitant dies before the annuitization
date, the joint owner becomes the contract owner. If no joint owner is named,
the contingent owner becomes the contract owner. If no contingent owner is
named, the last surviving contract owner's estate becomes the contract owner.
42
45 of 152
<PAGE> 46
If the contract owner and annuitant are the same, and the contract
owner/annuitant dies before the annuitization date, the contingent owner will
not have any rights in the contract unless the contingent owner is also the
beneficiary.
Distributions under Non-Qualified Contracts will be made pursuant to the
"Required Distributions for Non-Qualified Contracts" provision.
DEATH OF ANNUITANT - NON-QUALIFIED CONTRACTS
If the annuitant who is not the contract owner dies before the annuitization
date, a death benefit is payable to the beneficiary unless a contingent
annuitant is named. If a contingent annuitant is named, the contingent annuitant
becomes the annuitant and no death benefit is payable.
If no beneficiary(ies) survive the annuitant, the contingent beneficiary(ies)
receives 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.
If the annuitant dies after the annuitization date, any benefit that may be
payable will be paid according to the selected annuity payment option.
DEATH OF CONTRACT OWNER/ANNUITANT
If a contract owner who is also the annuitant dies before the annuitization
date, a death benefit is payable according to the "Death of the Annuitant -
Non-Qualified Contracts" provision.
If the contract owner/annuitant dies after the annuitization date, any benefit
that may be payable will be paid according to the selected annuity payment
option.
HOW THE DEATH BENEFIT VALUE IS DETERMINED
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).
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.
The beneficiary must notify Nationwide of this election within 60 days of the
annuitant's death.
DEATH BENEFIT PAYMENT
For contracts issued on or after the later of May 1, 1998 or the date on which
state insurance authorities approved applicable contract modifications:
o If the annuitant dies prior to his or her 75th birthday, 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).
o If the annuitant dies on or after his or her 75th birthday and prior to
annuitization, the death benefit will equal the contract value.
For contracts issued prior to May 1, 1998 or the date prior to which state
insurance authorities approved applicable contract modifications:
o If the annuitant dies prior to his or her 75th birthday, 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.
o If the annuitant dies on or after his or her 75th birthday and prior to
annuitization, the death benefit will equal the contract value.
43
46 of 152
<PAGE> 47
REQUIRED DISTRIBUTIONS
REQUIRED DISTRIBUTIONS FOR NON-QUALIFIED CONTRACTS
Internal Revenue Code Section 72(s) requires Nationwide to make certain
distributions when a contract owner dies. The following distributions will be
made according to those requirements:
1) If any contract owner dies on or after the annuitization date and before
the entire interest in the contract has been distributed, then the
remaining interest must be distributed at least as rapidly as the
distribution method in effect on the contract owner's death.
2) If any contract owner dies before the annuitization date, then the entire
interest in the contract (consisting of either the death benefit or the
contract value reduced by charges set forth elsewhere in the contract)
will be distributed within 5 years of the contract owner's death,
provided however:
a) any interest payable to or for the benefit of a natural person
(referred to herein as a "designated beneficiary"), may be
distributed over the life of the designated beneficiary or over a
period not longer than the life expectancy of the designated
beneficiary. Payments must begin within one year of the contract
owner's death unless otherwise permitted by federal income tax
regulations;
b) if the designated beneficiary is the surviving spouse of the deceased
contract owner, the spouse can choose to become the contract owner
instead of receiving a death benefit. Any distributions required
under these distribution rules will be made upon that spouse's death.
In the event that the contract owner is NOT a natural person (e.g., a trust or
corporation), then, for purposes of these distribution provisions:
a) the death of the annuitant will be treated as the death of a contract
owner;
b) any change of annuitant will be treated as the death of a contract owner;
and
c) in either case the appropriate distribution will be made upon the death
or change, as the case may be.
These distribution provisions do not apply to any contract exempt from Section
72(s) of the Internal Revenue Code by reason of Section 72(s)(5) or any other
law or rule.
The designated beneficiary must elect a method of distribution and notify
Nationwide of this election within 60 days of the contract owner's death.
REQUIRED DISTRIBUTIONS FOR QUALIFIED PLANS OR TAX SHELTERED ANNUITIES
Distributions from Qualified Contracts or Tax Sheltered Annuities will be made
according to the ("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
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
44
47 of 152
<PAGE> 48
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 ANNUITIES OR SEP IRAS
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 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
45
48 of 152
<PAGE> 49
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.
Simplified Employee Pensions (SEPS) and Salary Reduction Simplified Employee
Pensions (SAR SEPS), described in Internal Revenue Code Section 408(k) are taxed
in a manner similar to IRAs, and are subject to similar distribution
requirements as IRAs. SAR SEPs cannot be established aster 1996.
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 "nonqualified 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.
46
49 of 152
<PAGE> 50
Nationwide does not guarantee the tax status of the contracts or any
transactions involving the contracts.
Section 72 of the Internal Revenue Code governs federal income taxation of
annuities in general. That section sets forth different rules for: (1)
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 "nonqualified 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 nonqualified 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 nonqualified 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 nonqualified
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.
47
50 of 152
<PAGE> 51
Tax Sheltered Annuities and Qualified Contracts
Distributions from Tax Sheltered Annuities and Qualified Contracts are generally
taxed when received. A portion of each distribution is excludable from income
based on a formula required by the Internal Revenue Code. The formula excludes
from income the amount invested in the contract divided by the number of
anticipated payments (as determined pursuant to Section 72(d) of the Internal
Revenue Code) until the full investment in the contract is recovered. Thereafter
all distributions are fully taxable.
Non-Qualified Contracts - Natural Persons as Contract Owners
The rules applicable to Non-Qualified Contracts provide that a portion of each
annuity payment is excludable from taxable income based on the ratio between the
contract owner's investment in the contract and the expected return on the
contract until the investment has been recovered. Thereafter the entire amount
is includible in income. The maximum amount excludable from income is the
investment in the contract. If the annuitant dies before the entire investment
in the contract has been excluded from income and no additional payments are due
after his or her death, then he or she may be entitled to a deduction for the
balance of the investment on his or her final income tax return.
Distributions before the annuitization date are taxable to the contract owner to
the extent that the cash value of the contract exceeds the contract owner's
investment at the time of the distribution. Distributions, for this purpose,
include partial surrenders, dividends, loans, or any portion of the contract
that is assigned or pledged; or for contracts issued after April 22, 1987, any
portion of the contract transferred by gift. For these purposes, a transfer by
gift may occur upon annuitization if the contract owner and the annuitant are
not the same individual.
In determining the taxable amount of a distribution, all annuity contracts
issued after October 21, 1988 by the same company to the same contract owner
during any 12-month period will be treated as one annuity contract. Additional
limitations on the use of multiple contracts may be imposed by Treasury
Regulations.
Distributions before the annuitization date allocable to a portion of the
contract invested prior to August 14, 1982, are treated first as a recovery of
the investment in the contract as of that date. A distribution in excess of the
amount of the investment in the contract as of August 14, 1982, will be treated
as taxable income.
The Tax Reform Act of 1986 has changed the tax treatment of certain
Non-Qualified Contracts held by entities other than individuals. Such entities
are taxed currently on earnings from contributions made to the contract after
February 28, 1986. There are exceptions for immediate annuities and certain
contracts owned for the benefit of an individual. An immediate annuity, for
purposes of this discussion, is a single premium contract on which payments
begin within one year of purchase. If this contract is issued as the result of
an exchange described in Section 1035 of the Internal Revenue Code, for purposes
of determining whether the contract is an immediate annuity, it will generally
be considered to have been purchased on the purchase date of the contract given
up in the exchange.
Internal Revenue Code Section 72 also assesses a penalty tax if a distribution
is made before the contract owner reaches age 59 1/2. The amount of the penalty
is 10% of the portion of any distribution that is includible in gross income.
The penalty tax does not apply if the distribution
1) is the result of a contract owner's death;
2) is the result of a contract owner's disability;
3) is one of a series of substantially equal periodic payments made over the
life or life expectancy of the contract owner (or the joint lives or
joint life expectancies of the contract owner and the beneficiary
selected by the contract owner to receive payment under the annuity
payment option selected by the contract owner),
4) is for the purchase of an immediate annuity;
48
51 of 152
<PAGE> 52
5) is allocable to an investment in the contract before August 14, 1982.
A contract owner that wants to begin taking distributions to which the 10% tax
penalty does not apply should forward a written request to Nationwide. Upon
receipt of this written request, Nationwide will inform the contract owner of
Nationwide's policies and procedures, as well as contract limitations. An
election to begin taking these withdrawals will be irrevocable and may not be
amended or changed.
In order to qualify as an annuity contract under Section 72 of the Internal
Revenue Code, the contract must provide for distribution of the entire contract
upon a contract owner's death. These rules are described in "Required
Distributions for Non-Qualified Contracts."
The Internal Revenue Code requires that any election to receive an annuity
instead of a lump sum payment be made within 60 days after the lump sum becomes
payable (generally, within 60 days of the death of a contract owner or the
annuitant). As long as the election is made within the 60 day period, each
distribution will be taxable when it is paid. Upon the end of this 60 day
period, if no election has been made, the entire amount of the lump sum will be
subject to immediate tax, even if the payee decides at a later date to take the
distribution as an annuity.
Non-Qualified Contracts - Non-Natural Persons as Contract Owners
The previous discussion related to the taxation of Non-Qualified Contracts owned
(or, pursuant to Section 72(u) of the Internal Revenue Code, deemed to be owned)
by individuals. Different rules apply if the contract owner is not a natural
person.
Generally, contracts owned by corporations, partnerships, trusts, and similar
entities ("non-natural persons") are not treated as annuity contracts under the
Internal Revenue Code. Specifically, they are not treated as annuity contracts
for purposes of Section 72. Therefore, income earned under a Non-Qualified
Contract that is owned by a non-natural person is taxed as ordinary income
during the taxable year that it is earned. Taxation is not deferred, even if the
income is not distributed out of the contract to the contract owner.
This non-natural person rule does not apply to all entity-owned contracts. A
contract that is owned by a non-natural person as an agent for an individual is
treated as owned by the individual. This would put the contract back under
Section 72, allowing tax deferral. However, this exception does not apply when
the non-natural person is an employer that holds the contract under a
non-qualified deferred compensation arrangement for one or more employees.
The non-natural person rule also does not apply to contracts that are:
a) acquired by the estate of a decedent by reason of the death of the
decedent;
b) issued in connection with certain qualified retirement plans and
individual retirement plans;
c) used in connection with certain structured settlements;
d) purchased by an employer upon the termination of certain qualified
retirement plans; or
e) an immediate annuity.
QUALIFIED PLANS, SEP IRAS, INDIVIDUAL RETIREMENT ANNUITIES AND TAX SHELTERED
ANNUITIES
Contract owners looking for information on eligibility, limitations on
permissible amounts of purchase payments, and the tax consequences of
distributions from 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
49
52 of 152
<PAGE> 53
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.
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 Accounts or Individual Retirement
Annuities, 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 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.
NON-RESIDENT ALIENS
Generally, a pre-death distribution from a contract to a non-resident alien is
subject to
50
53 of 152
<PAGE> 54
federal income tax at a rate of 30% of the amount of income that is distributed.
Nationwide is required to withhold this amount and send it to the Internal
Revenue Service. Some distributions to non-resident aliens may be subject to a
lower (or no) tax if a treaty applies. In order to obtain the benefits of such a
treaty, the non-resident alien must:
1) provide Nationwide with proof of residency and citizenship (in accordance
with Internal Revenue Service requirements); and
2) provide Nationwide with an individual taxpayer identification number.
If the non-resident alien does not meet the above conditions, Nationwide will
withhold 30% of income from the distribution.
Another way to avoid the 30% withholding is for the non-resident alien to
provide Nationwide with sufficient evidence that:
1) the distribution is connected to the non-resident alien's conduct of
business in the United States; and
2) the distribution is includible in the non-resident alien's gross income
for United States federal income tax purposes.
Note that these distributions may be subject to back-up withholding, currently
31%, if a correct taxpayer identification number is not provided.
FEDERAL ESTATE, GIFT, AND GENERATION SKIPPING TRANSFER TAXES
The following transfers may be considered a gift for federal gift tax purposes:
o a transfer of the contract from one contract owner to another; or
o a distribution to someone other than a contract owner.
Upon the contract owner's death, the value of the contract may be subject to
estate taxes, even if all or a portion of the value is also subject to federal
income taxes.
Section 2612 of the Internal Revenue Code may require Nationwide to determine
whether a death benefit or other distribution is a "direct skip" and the amount
of the resulting generation skipping transfer tax, if any. A direct skip is when
property is transferred to, or a death benefit or other distribution is made to:
a) an individual who is two or more generations younger than the contract
owner; or
b) certain trusts, as described in Section 2613 of the Internal Revenue Code
(generally, trusts that have no beneficiaries who are not 2 or more
generations younger than the contract owner).
If the contract owner is not an individual, then for this purpose ONLY,
"contract owner" refers to any person:
o who would be required to include the contract, death benefit,
distribution, or other payment in his or her federal gross estate at his
or her death; or
o who is required to report the transfer of the contract, death benefit,
distribution, or other payment for federal gift tax purposes.
If a transfer is a direct skip, Nationwide will deduct the amount of the
transfer tax from the death benefit, distribution or other payment, and remit it
directly to the Internal Revenue Service.
PUERTO RICO
Under the Puerto Rico tax code, distributions from a Non-Qualified Contract
before annuitization are treated as nontaxable return of principal until the
principal is fully recovered. Thereafter all distributions are fully taxable.
Distributions after annuitization are treated as part taxable income and part
nontaxable return of principal. The amount excluded from gross income after
annuitization is equal to the amount of the distribution in excess of 3% of the
total purchase payments paid, until an amount equal to the total purchase
payments paid has been excluded. Thereafter, the entire distribution is included
in gross income. Puerto Rico does not impose an early withdrawal penalty tax.
Generally, Puerto Rico does not require income tax to be withheld from
distributions of income. A personal adviser should be consulted in these
situations.
51
54 of 152
<PAGE> 55
CHARGE FOR TAX
Nationwide is not required to maintain a capital gain reserve liability on
Non-Qualified Contracts. If tax laws change requiring a reserve, Nationwide may
implement and adjust a tax charge.
DIVERSIFICATION
Internal Revenue Code Section 817(h) contains rules on diversification
requirements for variable annuity contracts. A variable annuity contract that
does not meet these diversification requirements will not be treated as an
annuity, unless
o the failure to diversify was accidental;
o the failure is corrected; and
o a fine is paid to the Internal Revenue Service.
The amount of the fine will be the amount of tax that would have been paid by
the contract owner if the income, for the period the contract was not
diversified, had been received by the contract owner.
If the violation is not corrected, the contract owner will be considered the
owner of the underlying securities and will be taxed on the earnings of his or
her contract. Nationwide believes that the investments underlying this contract
meet these diversification requirements.
TAX CHANGES
The foregoing tax information is based on Nationwide's understanding of federal
tax laws. It is NOT intended as tax advice. All information is subject to change
without notice. For more details, contact your personal tax and/or financial
adviser.
STATEMENTS AND REPORTS
Nationwide will mail contract owners statements and reports. Therefore, contract
owners should promptly notify Nationwide of any address change.
These mailings will contain:
o statements showing the contract's quarterly activity;
o confirmation statements showing transactions that affect the contract's
value. Confirmation statements will not be sent for recurring
transactions (i.e., dollar cost averaging or salary reduction programs).
Instead, confirmation of recurring transactions will appear in the
contract's quarterly statements;
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
52
55 of 152
<PAGE> 56
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 had completed an inventory and
assessment of all business partners including electronic interfaces. Processes
have been put in place and programs initiated to process data irrespective of
the format by converting non-compliant data into a Year 2000 compliant format.
Systems supporting Nationwide's infrastructure such as telecommunications, voice
and networks will be compliant by March 1999. Nationwide's assessment of Year
2000 issues has also included non-information technology systems with embedded
computer chips. Nationwide's building systems such as fire, security, elevators
and escalators supporting facilities in Columbus, Ohio have been tested and are
Year 2000 compliant.
In addition to resolving internal Year 2000 readiness issues, Nationwide is
surveying significant external organizations (business partners) to assess if
they will be Year 2000 compliant and be in a position to do business in the Year
2000 and beyond. Specifically, Nationwide has contacted mutual fund
organizations that provide funds for our variable annuity and life products. The
same action will continue during the first quarter of 1999 with wholesale
producers. Nationwide continues its efforts to identify external risk factors
and is planning to develop contingency plans as part of its ongoing risk
management strategy.
Operating expenses in 1998 and 1997 included approximately $44.7 million and
$45.4 million, 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
53
56 of 152
<PAGE> 57
fairness hearing for December 17, 1998. At the hearing, the court reviewed the
fairness and reasonableness of the proposed settlement and issued a final order
and judgment. The approved settlement provides for dismissal of both the Snyder
and Mishler cases, bars class members from pursuing litigation against
Nationwide Mutual Insurance Company and its affiliates, including Nationwide and
its subsidiaries, relating to the allegations in the Snyder case, and provides
class members with a potential value of approximately $100 million in policy
adjustments, discounted premiums and discounted products.
In November 1997, two plaintiffs, one who was the owner of a variable life
insurance policy and the other who was the owner of a variable annuity contract,
commenced a lawsuit in a federal court in Texas against Nationwide and the
American Century group of defendants (Robert Young and David D. Distad v.
Nationwide Life Insurance Company et al.). In this lawsuit, plaintiffs seek to
represent a class of variable life insurance policy owners and variable annuity
contract owners whom they claim were allegedly misled when purchasing these
variable contracts into believing that the performance of their underlying
mutual fund option managed by American Century, whose shares may only be
purchased by insurance companies, would track the performance of a mutual fund,
also managed by American Century, whose shares are publicly traded. The amended
complaint seeks unspecified compensatory and punitive damages. On April 27,
1998, the district court denied, in part, and granted, in part, Nationwide and
American Century's motions to dismiss the complaint. The remaining claims
against Nationwide allege securities fraud, common law fraud, civil conspiracy
and breach of contract. On December 2, 1998, the district court issued an order
denying plaintiffs' motion for class certification. On December 10, 1998, the
district court stayed the lawsuit pending plaintiffs' petition to the federal
appeals court for interlocutory review of the order denying class certification.
On December 14, 1998, plaintiffs filed their petition for interlocutory review,
on which the federal appeals court has not yet ruled. Nationwide intends to
defend the case vigorously.
On October 29, 1998, Nationwide and certain of its subsidiaries were named in a
lawsuit filed in Ohio state court related to the sale of deferred annuity
products for use as investments in tax-deferred contributory retirement plans
(Mercedes Castillo v. Nationwide Financial Services, Inc., Nationwide Life
Insurance Company and Nationwide Life and Annuity Insurance Company). The
plaintiff in such lawsuit seeks to represent a national class of Nationwide's
customers and seeks unspecified compensatory and punitive damages. Nationwide
currently is evaluating this lawsuit, which has not been certified as a class.
Nationwide intends to defend this lawsuit vigorously.
There can be no assurance that any litigation relating to pricing or sales
practices will not have a material adverse effect on Nationwide in the future.
ADVERTISING AND SUB-ACCOUNT PERFORMANCE SUMMARY ADVERTISING
A "yield" and "effective yield" may be advertised for the NSAT-Money Market
Fund. "Yield" is a measure of the net dividend and interest income earned over a
specific seven-day period (which period will be stated in the advertisement)
expressed as a percentage of the offering price of the NSAT-Money Market Fund's
units. Yield is an annualized figure, which means that it is assumed that the
NSAT-Money Market Fund generates the same level of net income over a 52-week
period. The "effective yield" is calculated similarly but includes the effect of
assumed compounding, calculated under rules prescribed by the SEC. The effective
yield will be slightly higher than yield due to this compounding effect.
Nationwide may advertise the performance of a sub-account in relation to the
performance of other variable annuity sub-accounts, underlying mutual fund
options with similar or different objectives, or the investment industry as a
whole. Other investments to which the sub-
54
57 of 152
<PAGE> 58
accounts may be compared include, but are not limited to:
o precious metals;
o real estate;
o stocks and bonds;
o closed-end funds;
o bank money market deposit accounts and passbook savings;
o CDs; and
o the Consumer Price Index.
Market Indexes
The sub-accounts will be compared to certain market indexes, such as:
o S&P 500;
o Shearson/Lehman Intermediate Government/Corporate Bond Index;
o Shearson/Lehman Long-Term Government/Corporate Bond Index;
o Donoghue Money Fund Average;
o U.S. Treasury Note Index;
o Bank Rate Monitor National Index of 2 1/2 Year CD Rates; and
o Dow Jones Industrial Average.
Tracking & Rating Services; Publications
Nationwide's rankings and ratings are sometimes published by other services,
such as:
o Lipper Analytical Services, Inc.;
o CDA/Wiesenberger;
o Morningstar;
o Donoghue's;
o magazines such as:
- Money;
- Forbes;
- Kiplinger's Personal Finance Magazine;
- Financial World;
- Consumer Reports;
- Business Week;
- Time;
- Newsweek;
- National Underwriter; and
- News and World Report;
o LIMRA;
o Value;
o Best's Agent Guide;
o Western Annuity Guide;
o Comparative Annuity Reports;
o Wall Street Journal;
o Barron's;
o Investor's Daily;
o Standard & Poor's Outlook; and
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
55
58 of 152
<PAGE> 59
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.
56
59 of 152
<PAGE> 60
SUB-ACCOUNT PERFORMANCE SUMMARY
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
10 Years or Date Date Fund
Fund Available in Available in
1 Year To 5 Years To Variable Account the Variable
Sub-Account Options 12/31/98 12/31/98 to 12/31/98 Account
<S> <C> <C> <C> <C>
American Century Variable Portfolios, Inc.- 4.27% 8.32% 6.74% 05-01-92
American Century VP Balanced
American Century Variable Portfolios, Inc.- -12.98% -1.51% 5.29% 12-01-87
American Century VP Capital Appreciation
American Century Variable Portfolios, Inc.- 7.22% N/A 7.42% 08-01-94
American Century VP International
American Century Variable Portfolios, Inc. - N/A N/A 2.61% 05-01-98
American Century Income & Growth
American Century Variable Portfolios, Inc.- -6.55% N/A 7.26% 12-23-96
American Century VP Value
AVIS Growth Fund 23.79% 17.36% 14.42% 10-20-89
AVIS High Yield Bond Fund -10.59% 3.04% 8.41% 10-20-89
AVIS US Govt./AAA- Rated Securities Fund -3.22% 1.04% 5.98% 10-20-89
Dreyfus Stock Index Fund, Inc. 16.55% 19.27% 17.74% 09-20-93
Dreyfus Variable Investment Fund-Capital 18.53% N/A 11.86% 07-14-97
Appreciation Portfolio
Dreyfus Variable Investment 0.36% N/A 5.26% 12-23-96
Fund - Growth & Income Portfolio
The Dreyfus Socially Responsible 17.70% 18.10% 18.17% 10-01-93
Growth Fund, Inc.
Fidelity VIP Equity-Income Portfolio 0.18% 14.55% 11.93% 05-01-87
Fidelity VIP Growth Portfolio 27.68% 17.32% 15.96% 12-01-87
Fidelity VIP High Income Portfolio -14.97% 4.20% 7.27% 05-01-87
Fidelity VIP Overseas Portfolio 1.29% 4.99% 6.27% 05-01-87
Fidelity VIP II Asset Manager Portfolio 3.56% 7.05% 8.95% 09-01-89
Fidelity VIP II Contrafund Portfolio 18.29% N/A 19.54% 07-03-95
Fidelity VIP III Growth Opportunities 13.00% N/A 14.20% 07-14-97
Portfolio
Morgan Stanley Dean Witter Universal Fund, -37.05% N/A -29.10% 07-14-97
Inc.- Emerging Markets Debt Portfolio
NSAT- Capital Appreciation Fund 18.28% 18.70% 15.50% 05-01-92
NSAT- Government Bond Fund -2.51% 2.45% 5.64% 11-15-82
NSAT- Money Market Fund -6.10% 0.17% 1.27% 02-25-82
NSAT Small Cap Value Fund N/A N/A -29.50% 05-01-98
NSAT- Nationwide Small Company Fund -10.07% N/A 11.51% 10-23-95
NSAT-Total Return Fund 6.54% 15.06% 11.71% 11-15-82
Neuberger Berman AMT- 4.03% 10.72% 10.30% 12-01-87
Growth Portfolio
Neuberger Berman AMT-Guardian Portfolio N/A N/A -19.60% 05-01-98
Neuberger Berman AMT- -6.97% 0.30% 2.85% 12-01-87
Limited Maturity Bond Portfolio
Neuberger Berman AMT- -7.14% N/A 17.55% 08-01-94
Partners Portfolio
</TABLE>
57
60 of 152
<PAGE> 61
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN (CONTINUED)
<TABLE>
<CAPTION>
10 Years or Date Date Fund
Fund Available in Added to
1 Year To 5 Years To Variable Account Variable
Sub-Account Options 12/31/98 12/31/98 to 12/31/98 Account
<S> <C> <C> <C> <C>
Oppenheimer VAF - Oppenheimer Bond -4.59% 2.21% 4.89% 09-01-89
Fund/VA
Oppenheimer VAF- Oppenheimer Global 2.62% 4.71% 8.49% 10-01-93
Securities Fund/VA
Oppenheimer VAF- Oppenheimer Capital 12.39% N/A 9.79% 07-14-97
Appreciation Fund/VA (formerly
Oppenheimer Growth Fund)
Oppenheimer VAF- Oppenheimer Multiple -4.73% 6.85% 5.92% 09-01-89
Strategies Fund/VA
Strong Opportunity Fund II, Inc. 2.07% 12.65% 15.15% 05-08-92
Strong Variable Insurance Funds, Inc.- -4.13% 4.38% 7.19% 05-08-92
Discovery Fund II, Inc.
Strong Variable Insurance Funds, Inc.- -15.38% N/A -8.59% 10-23-95
International Stock II
Van Eck Worldwide Insurance Trust- 1.29% 1.65% 2.51% 09-01-89
Worldwide Bond Fund
Van Eck Worldwide Insurance Trust- -42.33% N/A -30.40% 12-23-96
Worldwide Emerging Markets Fund
Van Eck Worldwide Insurance Trust- -39.43% -8.05% -2.47% 09-01-89
Worldwide Hard Assets Fund
Van Kampen Life Investment Trust- Morgan -21.67% N/A 9.77% 07-03-95
Stanley Real Estate Securities Portfolio
Warburg Pincus Trust- International Equity -6.02% N/A -0.23% 07-03-95
Portfolio
Warburg Pincus Trust - -4.87% N/A 2.17% 12-23-96
Post-Venture Capital Portfolio
Warburg Pincus Trust-Small Company -13.62% N/A 9.10% 07-03-95
Growth Portfolio
</TABLE>
NON-STANDARDIZED TOTAL RETURN
<TABLE>
<CAPTION>
10 Years To
1 Year To 5 Years To 12/31/98 or Life Date Fund
Sub-Account Options 12/31/98 12/31/98 of Fund Effective
<S> <C> <C> <C> <C>
American Century Variable Portfolios, Inc.- 13.97% 11.16% 9.96% 05-01-91
American Century VP Balanced
American Century Variable Portfolios, Inc.- -3.73% 1.63% 6.62% 11-20-87
American Century VP Capital Appreciation
American Century Variable Portfolios, Inc. - 24.88% N/A 28.40% 10-30-97
American Century Income & Growth
American Century Variable Portfolios, Inc.- 16.92% N/A 10.53% 05-01-94
American Century VP International
American Century Variable Portfolios, Inc.- 3.15% N/A 14.15% 05-01-96
American Century VP Value
AVIS Growth Fund 33.49% 19.95% 16.27% 02-08-84
AVIS High Yield Bond Fund -1.16% 6.11% 11.00% 02-08-84
AVIS US Govt./AAA- Rated Securities Fund 6.48% 4.29% 6.70% 11-19-85
Dreyfus Stock Index Fund, Inc. 26.25% 21.74% 15.36% 09-29-89
Dreyfus Variable Investment Fund-Capital 28.23% 21.74% 19.80% 04-05-93
Appreciation Portfolio
</TABLE>
58
61 of 152
<PAGE> 62
NON-STANDARDIZED TOTAL RETURN (CONTINUED)
<TABLE>
<CAPTION>
10 Years To
1 Year To 5 Years To 12/31/98 or Life Date Fund
Sub-Account Options 12/31/98 12/31/98 of Fund Effective
<S> <C> <C> <C> <C>
Dreyfus Variable Investment 10.06% N/A 19.52% 05-02-94
Fund - Growth & Income Portfolio
The Dreyfus Socially Responsible Growth Fund, 27.40% 20.61% 21.11% 10-06-93
Inc.
Fidelity VIP Equity-Income Portfolio 9.88% 17.00% 12.74% 10-09-86
Fidelity VIP Growth Portfolio 37.38% 19.91% 15.66% 10-09-86
Fidelity VIP High Income Portfolio -5.87% 7.12% 9.48% 09-19-85
Fidelity VIP Overseas Portfolio 10.99% 8.00% 6.95% 01-28-87
Fidelity VIP II Asset Manager Portfolio 13.26% 10.08% 11.29% 09-06-89
Fidelity VIP II Contrafund Portfolio 27.99% N/A 26.76% 01-03-95
Fidelity VIP III Growth Opportunities Portfolio 22.70% N/A 24.44% 01-03-95
Morgan Stanley Dean Witter Universal Fund, Inc.- -29.61% N/A -20.49% 06-16-97
Emerging Markets Debt Portfolio
NSAT- Capital Appreciation Fund 27.98% 21.25% 17.55% 04-15-92
NSAT- Government Bond Fund 7.19% 5.60% 8.01% 11-08-82
NSAT- Money Market Fund 3.60% 3.39% 5.43% 11-10-81
NSAT Small Cap Value Fund -4.66% N/A -5.78%
NSAT- Nationwide Small Company Fund -0.60% N/A 15.50% 10-23-95
NSAT-Total Return Fund 16.24% 17.63% 14.77% 11-08-82
Neuberger Berman AMT- 13.73% 13.52% 12.49% 09-10-84
Growth Portfolio
Neuberger Berman AMT- Guardian Portfolio 29.61% N/A 30.12% 11-03-97
Neuberger Berman AMT- 2.73% 3.53% 6.37% 09-10-84
Limited Maturity Bond Portfolio
Neuberger Berman AMT- 2.55% N/A 17.92% 03-22-94
Partners Portfolio
Oppenheimer VAF - Oppenheimer Bond 5.11% 5.34% 7.97% 04-30-85
Fund/VA
Oppenheimer VAF - Oppenheimer Global 12.32% 7.95% 10.76% 11-12-90
Securities Fund/VA
Oppenheimer VAF - Oppenheimer Capital 22.09% 20.30% 14.41% 04-03-85
Appreciation Fund/VA (formerly Oppenheimer
Growth Fund)
Oppenheimer VAF - Oppenheimer Multiple 4.97% 9.73% 9.93% 02-09-87
Strategies Fund/VA
Strong Opportunity Fund II, Inc. 11.77% 15.25% 17.30% 05-08-92
Strong Variable Insurance Funds, Inc.- Discovery 5.57% 7.35% 9.70% 05-08-92
Fund II, Inc.
Strong Variable Insurance Funds, Inc.- -6.32% N/A -3.79% 10-20-95
International Stock II
Van Eck Worldwide Insurance Trust- Worldwide 10.99% 4.83% 5.20% 09-01-89
Bond Fund
Van Eck Worldwide Insurance Trust- -35.29% N/A -11.42% 10-27-95
Worldwide Emerging Markets Fund
Van Eck Worldwide Insurance Trust- Worldwide -32.17% -4.82% 0.48% 09-01-89
Hard Assets Fund
Van Kampen Life Investment Trust- Morgan -13.07% N/A 13.32% 07-03-95
Stanley Real Estate Securities Portfolio
Warburg Pincus Trust- International Equity 3.68% N/A 4.03% 06-30-95
Portfolio
Warburg Pincus Trust - 4.83% N/A 5.84% 09-30-96
Post-Venture Capital Portfolio
Warburg Pincus Trust-Small Company Growth -4.42% N/A 12.62% 06-03-95
Portfolio
</TABLE>
59
62 of 152
<PAGE> 63
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
PAGE
General Information and History...............................................1
Services......................................................................1
Purchase of Securities Being Offered..........................................2
Underwriters..................................................................2
Calculations of Performance...................................................2
Annuity Payments..............................................................3
Financial Statements..........................................................4
60
63 of 152
<PAGE> 64
APPENDIX A: OBJECTIVES FOR 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.
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC., MEMBER OF THE AMERICAN CENTURY(SM)
FAMILY OF INVESTMENTS.
American Century Variable Portfolios, Inc. was organized as a Maryland
corporation in 1987. It is a diversified, open-end investment management company
which offers its shares only as investment vehicles for variable annuity and
variable life insurance products of insurance companies. American Century
Variable Portfolios, Inc. is managed by American Century Investment Management,
Inc.
-AMERICAN CENTURY VP BALANCED
Investment Objective: Capital growth and current income. The Fund will seek
to achieve its objective by maintaining approximately 60% of the assets of
the Fund in common stocks (including securities convertible into common
stocks and other equity equivalents) that are considered by management to
have better-than-average prospects for appreciation and approximately 40%
in fixed income securities. A minimum of 25% of the fixed income portion of
the Fund will be invested in fixed income senior securities. There can be
no assurance that the Fund will achieve its investment objective.
-AMERICAN CENTURY VP CAPITAL APPRECIATION
Investment Objective: Capital growth. The Fund will seek to achieve its
objective by investing in common stocks (including securities convertible
into common stocks and other equity equivalents) that meet certain
fundamental and technical standards of selection and have, in the opinion
of the Fund's investment manager, better than average potential for
appreciation. The Fund tries to stay fully invested in such securities,
regardless of the movement of stock prices generally.
The Fund may invest in cash and cash equivalents temporarily or when it is
unable to find common stocks meeting its criteria of selection. It may
purchase securities only of companies that have a record of at least three
years continuous operation. There can be no assurance that the Fund will
achieve its investment objective.
-AMERICAN CENTURY VP INCOME & GROWTH
Investment Objective: Dividend growth, current income and capital
appreciation. The Fund seeks to achieve its investment objective by
investing in common stocks. The investment manager constructs the portfolio
to match the risk characteristics of the S&P 500 Stock Index and then
optimizes each portfolio to achieve the desired balance of risk and return
potential. This includes targeting a dividend yield that exceeds that of
the S&P 500. Such a management technique known as "portfolio optimization"
may cause the Fund to be more heavily invested in some industries than in
others. However, the Fund may not invest more than 25% of its total assets
in companies whose principal business activities are in the same industry.
-AMERICAN CENTURY VP INTERNATIONAL
Investment Objective: To seek capital growth. The Fund will seek to achieve
its investment objective by investing primarily in securities of foreign
companies that meet certain fundamental and technical standards of
selection and, in the opinion of the investment manager, have potential for
appreciation. Under normal conditions, the Fund will invest at least 65% of
its assets in common stocks or other equity securities of issuers from at
least three countries outside the United States. While securities of United
States issuers may be included in the portfolio from time to time, it is
the primary intent of the manager to diversify investments across a broad
range of foreign
61
64 of 152
<PAGE> 65
issuers. Although the primary investment of the Fund will be common stocks
(defined to include depository receipts for common stock and other equity
equivalents), the Fund may also invest in other types of securities
consistent with the Fund's objective. When the manager believes that the
total capital growth potential of other securities equals or exceeds the
potential return of common stocks, the Fund may invest up to 35% of its
assets in such other securities. There can be no assurance that the Fund
will achieve its objectives.
-AMERICAN CENTURY VP VALUE
Investment Objective: The investment objective of the Fund is long-term
capital growth; income is a secondary objective. The equity securities in
which the Fund will invest will be primarily securities of well-established
companies with intermediate-to-large market capitalizations that are
believed by management to be undervalued at the time of purchase. Under
normal market conditions, the Fund expects to invest at least 80% of the
value of its total asset in equity securities, including common and
preferred stock, convertible preferred stock and convertible debt
obligations.
DREYFUS STOCK INDEX FUND, INC.
The Dreyfus Stock Index Fund, Inc. ("Fund") is an open-end, non-diversified,
management investment company incorporated under Maryland law on January 24,
1989 and commenced operations on September 29, 1989. The Fund offers its shares
only as investment vehicles for variable annuity and variable life insurance
products of insurance companies. The Dreyfus Corporation ("Dreyfus") serves as
the Fund's manager, while Mellon Equity Associates, an affiliate of Dreyfus,
serves as the Fund's index manager. Dreyfus is a wholly-owned subsidiary of
Mellon Bank, N.A., which is a wholly-owned subsidiary of Mellon Bank
Corporation.
Investment Objective: To provide investment results that correspond to
the price and yield performance of publicly traded common stocks in the
aggregate, as represented by the Standard & Poor's 500 Composite Stock
Price Index. The Fund is neither sponsored by nor affiliated with
Standard & Poor's Corporation.
DREYFUS VARIABLE INVESTMENT FUND
Dreyfus Variable Investment Fund ("Fund") is an open-end, management investment
company. It was organized as an unincorporated business trust under the laws of
the Commonwealth of Massachusetts on October 29, 1986 and commenced operations
on August 31, 1990. The Fund offers its shares only as investment vehicles for
variable annuity and variable life insurance products of insurance companies.
Dreyfus serves as the Fund's manager. Fayez Sarofim & Company serves as the
Capital Appreciation Portfolio's subadviser and provides day-to-day management
of this Portfolio.
-CAPITAL APPRECIATION PORTFOLIO
Investment Objective: The Portfolio's primary investment objective is to
provide long-term capital growth consistent with the preservation of
capital; current income is a secondary investment objective. This Portfolio
invests primarily in the common stocks of domestic and foreign issuers.
-GROWTH & INCOME PORTFOLIO
Investment Objective: To provide long-term capital growth, current income
and growth of income, consistent with reasonable investment risk. The
Portfolio invests in equity securities, debt securities and money market
instruments of domestic and foreign issuers. The proportion of the
Portfolio's assets invested in each type of security will vary from time to
time in accordance with Dreyfus' assessment of economic conditions and
investment opportunities. In purchasing equity securities, Dreyfus will
invest in common stocks, preferred stocks and securities convertible into
common stocks, particularly those which offer opportunities for capital
appreciation and growth of earnings, while paying current dividends. The
Portfolio will generally invest in investment-grade debt obligations,
except that it may invest up to 35% of the value of
62
65 of 152
<PAGE> 66
its net assets in convertible debt securities rated not lower than Caa by
Moody's Investor Service, Inc. or CCC by Standard & Poor's Ratings Group,
Fitch Investors Service, L.P. or Duff & Phelps Credit Rating Co., or if
unrated, deemed to be of comparable quality by Dreyfus. These securities
are considered to have predominantly speculative characteristics with
respect to capacity to pay interest and repay principal and are considered
to be of poor standing. See "Investment Considerations and Risks-Lower
Rated Securities" in the Portfolio's prospectuses.
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
The Dreyfus Socially Responsible Growth Fund, Inc. is an open-end, diversified,
management investment company incorporated under Maryland law on July 20, 1992
and commenced operations on October 7, 1993. The Fund offers its share only as
investment vehicles for variable annuity and variable life insurance products of
insurance companies. The Dreyfus Corporation serves as the Fund's investment
adviser. NCM Capital Management Group, Inc. serves as the Fund's sub-investment
adviser and provides day-to-day management of the Fund's portfolio.
Investment Objective: Capital growth through equity investment in companies
that, in the opinion of the Fund's advisers, not only meet traditional
investment standards, but which also show evidence that they conduct their
business in a manner that contributes to the enhancement of the quality of
life in America. Current income is secondary to the primary goal.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
The Fidelity Variable Insurance Products Fund (VIP) is an open-end, diversified,
management investment company organized as a Massachusetts business trust on
November 13, 1981. Shares of VIP are purchased by insurance companies to fund
benefits under variable life insurance policies and variable annuity contracts.
Fidelity Management & Research Company ("FMR") is the manager for VIP and it's
portfolios.
-VIP EQUITY-INCOME PORTFOLIO
Investment Objective: Reasonable income by investing primarily in
income-producing equity securities. In choosing these securities FMR also
will consider the potential for capital appreciation. The Portfolio's goal
is to achieve a yield which exceeds the composite yield on the securities
comprising the Standard & Poor's 500 Composite Stock Price Index.
-VIP GROWTH PORTFOLIO
Investment Objective: Capital appreciation. This Portfolio will invest in
the securities of both well-known and established companies, and smaller,
less well-known companies which may have a narrow product line or whose
securities are thinly traded. These latter securities will often involve
greater risk than may be found in the ordinary investment security. FMR's
analysis and expertise plays an integral role in the selection of
securities and, therefore, the performance of the Portfolio. Many
securities which FMR believes would have the greatest potential may be
regarded as speculative, and investment in the Portfolio may involve
greater risk than is inherent in other underlying mutual funds. It is also
important to point out that this Portfolio makes most sense for you if you
can afford to ride out changes in the stock market, because it invests
primarily in common stocks. FMR can also make temporary investments in
securities such as investment-grade bonds, high-quality preferred stocks
and short-term notes, for defensive purposes when it believes market
conditions warrant.
-VIP HIGH INCOME PORTFOLIO
Investment Objective: High level of current income by investing primarily
in high-risk, lower-rated, high-yielding, fixed-income securities, while
also considering growth of capital. FMR will seek high current income
normally by investing the Portfolio's assets as follows:
- at least 65% in income-producing debt securities and preferred stocks,
including convertible securities.
63
66 of 152
<PAGE> 67
- up to 20% in common stocks and other equity securities when consistent
with the Portfolio's primary objective or acquired as part of a unit
combining fixed-income and equity securities.
Higher yields are usually available on securities that are lower-rated or
that are unrated. Lower-rated securities are usually defined as Ba or lower
by Moody's Investor Services, Inc. ("Moody's"); BB or lower by Standard &
Poor's and may be deemed to be of a speculative nature. The Portfolio may
also purchase lower-quality bonds such as those rated Ca3 by Moody's or C-
by Standard & Poor's which provide poor protection for payment of principal
and interest (commonly referred to as "junk bonds"). For a further
discussion of lower-rated securities, please see the "Risks of Lower-Rated
Debt Securities" section of the Portfolio's prospectus.
-VIP OVERSEAS PORTFOLIO
Investment Objective: Long-term capital growth primarily through
investments in foreign securities. This Portfolio provides a means for
investors to diversify their own portfolios by participating in companies
and economies outside of the United States.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
The Fidelity Variable Insurance Products Fund II (VIP II) is an open-end,
diversified, management investment company organized as a Massachusetts business
trust on March 21, 1988. VIP II's shares are purchased by insurance companies to
fund benefits under variable life insurance policies and variable annuity
contracts. FMR is the manager of VIP II and its portfolios.
-VIP II ASSET MANAGER PORTFOLIO
Investment Objective: To seek high total return with reduced risk over the
long-term by allocating its assets among domestic and foreign stocks, bonds
and short-term fixed income instruments.
-VIP II CONTRAFUND PORTFOLIO
Investment Objective: To seek capital appreciation by investing primarily
in companies that the FMR believes to be undervalued due to an overly
pessimistic appraisal by the public. This strategy can lead to investments
in domestic or foreign companies, small and large, many of which may not be
well known. The Portfolio primarily invests in common stock and securities
convertible into common stock, but it has the flexibility to invest in any
type of security that may produce capital appreciation.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND III
The Fidelity Variable Insurance Products Fund III (VIP III) is an open-end,
diversified, management investment company organized as a Massachusetts business
trust on July 14, 1994. VIP III's shares are purchased by insurance companies to
fund benefits under variable life insurance policies and variable annuity
contracts. FMR is the manager of VIP III and its portfolios.
-VIP III GROWTH OPPORTUNITIES PORTFOLIO
Investment Objective: Capital growth by investing primarily in common
stocks and securities convertible into common stocks. The Portfolio, under
normal conditions, will invest at least 65% of its total assets in
securities of companies that FMR believes have long-term growth potential.
Although the Portfolio invests primarily in common stock and securities
convertible into common stock, it has the ability to purchase other
securities, such as preferred stock and bonds, that may produce capital
growth. The Portfolio may invest in foreign securities without limitation.
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
Morgan Stanley Dean Witter Universal Funds, Inc. is a mutual fund designed to
provide investment vehicles for variable annuity contracts and variable life
insurance policies and for certain tax-qualified investors. Its Emerging
64
67 of 152
<PAGE> 68
Markets Debt Portfolio is managed by Morgan Stanley Dean Witter Investment
Management, Inc.
-EMERGING MARKETS DEBT PORTFOLIO
Investment Objective: High total return by investing primarily in dollar
and non-dollar denominated fixed income securities of government and
government-related issuers located in emerging market countries, which
securities provide a high level of current income, while at the same time
holding the potential for capital appreciation if the perceived
creditworthiness of the issuer improves due to improving economic,
financial, political, social or other conditions in the country in which
the issuer is located.
NATIONWIDE SEPARATE ACCOUNT TRUST
Nationwide Separate Account Trust ("NSAT") is a diversified open-end management
investment company created under the laws of Massachusetts. NSAT offers shares
in the funds listed below, each with its own investment objectives. Shares of
NSAT will be sold primarily to life insurance company separate accounts to fund
the benefits under variable life insurance policies and variable annuity
contracts issued by life insurance companies. The assets of NSAT are managed by
Nationwide Advisory Services, Inc. ("NAS"), a wholly-owned subsidiary of
Nationwide Life Insurance Company.
-CAPITAL APPRECIATION FUND
Investment Objective: The Capital Appreciation Fund seeks long-term capital
appreciation.
-GOVERNMENT BOND FUND
Investment Objective: As high a level of income as is consistent with the
preservation of capital by investing in a diversified portfolio of
securities issued or backed by the U.S. Government, its agencies or
instrumentalities.
-MONEY MARKET FUND
Investment Objective: The Fund seeks as high a level of current income as
is consistent with the preservation of capital and maintenance of
liquidity.
-NATIONWIDE SMALL CAP VALUE FUND
Subadviser: The Dreyfus Corporation
Investment Objective: Capital appreciation through investment in a
diversified portfolio of equity securities of companies with a median
market capitalization of approximately $1 billion. The Fund intends to
pursue its investment objective by investing, under normal market
conditions, at least 75% of the Fund's total assets in equity securities of
companies whose equity market capitalizations at the time of investment are
similar to the market capitalizations of companies in the Russell 2000
Small Stock Index. The Fund will invest in equity securities of domestic
and foreign issuers characterized as "value" companies according to
criteria established by The Dreyfus Corporation, the Fund's subadviser.
-NATIONWIDE SMALL COMPANY FUND
Subadvisers: The Dreyfus Corporation, Neuberger Berman, LLC, Lazard Asset
Management, Strong Capital Management, Inc. and Warburg Pincus Asset
Management, Inc.
Investment Objective: Under normal market conditions, the Fund will invest
at least 65% of its total assets in equity securities of investment are
similar to the market capitalizations of companies in the Russell 2000
Small Stock Index. The subadvisers were chosen because they utilize a
number of different investment styles when investing in small company
stocks. By utilizing different investment styles, NAS hopes to increase
prospects for investment return and to reduce market risk and volatility.
-TOTAL RETURN FUND
Investment Objective: The investment objective of the Fund is to obtain a
reasonable, long-term total return on invested capital.
65
68 of 152
<PAGE> 69
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
Neuberger Berman Advisers Management Trust ("Neuberger Berman AMT") is an
open-end, diversified management investment company consisting of several
series. Shares of the series of Neuberger Berman AMT are offered in connection
with certain variable annuity contracts and variable life insurance policies
issued through life insurance company separate accounts and are also offered
directly to qualified pension and retirement plans outside of the separate
account context.
The Guardian and Partners Portfolios of Neuberger Berman AMT invest all of their
investable assets in a corresponding series of Advisers Managers Trust managed
by Neuberger Berman Management Incorporated ("Neuberger Berman Management").
Each series then invests in securities in accordance with an investment
objective, policies and limitations identical to those of the Portfolio. This
"master/feeder fund" structure is different from that of many other investment
companies which directly acquire and manage their own portfolios of securities.
(For more information regarding "master/feeder fund" structure, see "Special
Information Regarding Organization, Capitalization and Other Matters" in the
underlying mutual fund prospectus.) The investment advisor for all the
portfolios is Neuberger Berman Management.
-AMT GROWTH PORTFOLIO
Investment Objective: Seeks capital growth through investments in common
stocks of companies that the investment adviser believes will have above
average earnings or otherwise provide investors with above average
potential for capital appreciation. To maximize this potential, the
investment adviser may also utilize, from time to time, securities
convertible into common stocks, warrants and options to purchase such
stocks.
-AMT GUARDIAN PORTFOLIO
Investment Objective: Capital appreciation and secondarily, current income.
The Portfolio and its corresponding series seek to achieve these objectives
by investing in common stocks of long-established, high-quality companies.
Neuberger Berman Management uses a value-oriented investment approach in
selecting securities, looking for low price-to-earnings ratios, strong
balance sheets, solid management, and consistent earnings.
-AMT LIMITED MATURITY BOND PORTFOLIO
Investment Objective: To provide high level of current income, consistent
with low risk to principal and liquidity. As a secondary objective, it also
seeks to enhance its total return through capital appreciation when market
factors, such as falling interest rates and rising bond prices, indicate
that capital appreciation may be available without significant risk to
principal. It seeks to achieve its objectives through investments in a
diversified portfolio of limited maturity debt securities.
-AMT PARTNERS PORTFOLIO
Investment Objective: Capital growth by investing primarily in the common
stock of established companies. Its investment program seeks securities
believed to be undervalued based on fundamentals such as low
price-to-earnings ratios, consistent cash flows, and the company's track
record through all parts of the market cycle.
OPPENHEIMER VARIABLE ACCOUNT FUNDS
The Oppenheimer Variable Account Funds are an open-end, diversified management
investment company organized as a Massachusetts business trust in 1984. Shares
of the Funds are sold only to provide benefits under variable life insurance
policies and variable annuity contracts. OppenheimerFunds, Inc. is investment
adviser.
66
69 of 152
<PAGE> 70
-OPPENHEIMER BOND FUND/VA
Investment Objective: Primarily seeks a high level of current income by
investing at least 65% of its total assets in investment grade debt
securities, U.S. government securities and money market instruments.
Investment grade debt securities would include those rated in one of the
four highest ranking categories by any nationally recognized rating
organization or if unrated or split-rated (rated investment grade and below
investment grade by different rating organizations), determined by
OppenheimerFunds, Inc. to be of comparable quality. The Fund may invest up
to 35% of its total assets in debt securities rated less than investment
grade when consistent with the Fund's investment objectives. The Fund seeks
capital growth as a secondary objective when consistent with its primary
objective.
-OPPENHEIMER GLOBAL SECURITIES FUND/VA
Investment Objective: To seek long-term capital appreciation by investing a
substantial portion of assets in securities of foreign issuers,
"growth-type" companies, cyclical industries and special situations which
are considered to have appreciation possibilities. Current income is not an
objective. These securities may be considered to be speculative.
OPPENHEIMER CAPITAL APPRECIATION FUND/VA (FORMERLY-OPPENHEIMER GROWTH FUND)
Investment Objective: Capital appreciation by investing in securities of
well-known established companies. Such securities generally have a history
of earnings and dividends and are issued by seasoned companies (companies
which have an operating history of at least five years including
predecessors). Current income is a secondary consideration in the selection
of the Fund's portfolio securities.
-OPPENHEIMER MULTIPLE STRATEGIES FUND/VA
Investment Objective: To seek a total investment return (which includes
current income and capital appreciation in the value of its shares) from
investments in common stocks and other equity securities, bonds and other
debt securities, and "money market" securities.
STRONG OPPORTUNITY FUND II, INC. (FORMERLY "STRONG SPECIAL FUND II, INC.")
Strong Opportunity Fund II, Inc. is a diversified, open-end management company
commonly called a Mutual Fund. Strong Opportunity Fund II, Inc. was incorporated
in Wisconsin and may only be purchased by the separate accounts of insurance
companies for the purpose of funding variable annuity contracts and variable
life insurance policies. Strong Capital Management Inc. is the investment
advisor for the Fund.
Investment Objective: To seek capital appreciation through investments in a
diversified portfolio of equity securities.
STRONG VARIABLE INSURANCE FUNDS, INC.
Strong Variable Insurance Funds, Inc. ("Corporation") is an open-end management
investment company commonly referred to as a mutual fund. Incorporated in the
State of Wisconsin, the Corporation has been authorized to issue shares of
common stock and series and classes of series of common stock. The International
Stock Fund II and The Strong Discovery Fund II, Inc. ("Funds") are offered by
the Corporation to insurance company separate accounts for the purpose of
funding variable life insurance policies and variable annuity contracts. Strong
Capital Management, Inc. is the investment advisor to the Funds.
-DISCOVERY FUND II, INC.
Investment Objective: To seek maximum capital appreciation through
investments in a diversified portfolio of securities. The Fund normally
emphasizes investment in equity securities and may invest up to 100% of its
total assets in equity securities including common stocks, preferred stocks
and
67
70 of 152
<PAGE> 71
securities convertible into common or preferred stocks. Although the Fund
normally emphasizes investment in equity securities, the Fund has the
flexibility to invest in any type of security that the Advisor believes has
the potential for capital appreciation including up to 100% of its total
assets in debt obligations, including intermediate to long-term corporate
or U.S. government debt securities.
-INTERNATIONAL STOCK FUND II
Investment Objective: To seek capital growth by investing primarily in the
equity securities of issuers located outside the United States.
VAN ECK WORLDWIDE INSURANCE TRUST
Van Eck Worldwide Insurance Trust ("Van Eck Trust") is an open-end management
investment company organized as a business trust under the laws of the
Commonwealth of Massachusetts on January 7, 1987. Shares of Van Eck Trust are
offered only to separate accounts of various insurance companies to fund the
benefits of life insurance policies and variable annuity contracts. The
investment advisor and manager is Van Eck Associates Corporation.
-WORLDWIDE BOND FUND
Investment Objective: To seek high total return through a flexible policy
of investing globally, primarily in debt securities.
-WORLDWIDE EMERGING MARKETS FUND
Investment Objective: Seeks long-term capital appreciation by investing
primarily in equity securities in emerging markets around the world. The
Fund specifically emphasizes investment in countries that, compared to the
world's major economies, exhibit relatively low gross national product per
capita, as well as the potential for rapid economic growth.
-WORLDWIDE HARD ASSETS FUND
Investment Description: Seeks long-term capital appreciation by investing,
primarily in "Hard Assets Securities." For the Fund's purpose, "Hard
Assets" are real estate, energy, timber, and industrial and precious
metals. Income is a secondary consideration.
VAN KAMPEN LIFE INVESTMENT TRUST
Van Kampen Life Investment Trust is an open-end diversified management
investment company organized as a Delaware business trust. Shares are offered in
separate portfolios which are sold only to insurance companies to provide
funding for variable life insurance policies and variable annuity contracts. Van
Kampen Asset Management, Inc. serves as the Portfolio's investment adviser.
-MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO
Investment Objective: Long-term capital growth by investing principally in
a diversified portfolio of securities of companies operating in the real
estate industry ("Real Estate Securities"). Current income is a secondary
consideration. Real Estate Securities include equity securities, including
common stocks and convertible securities, as well as non-convertible
preferred stocks and debt securities of real estate industry companies. A
"real estate industry company" is a company that derives at least 50% of
its assets (marked to market), gross income or net profits from the
ownership, construction, management or sale of residential, commercial or
industrial real estate. Under normal market conditions, at least 65% of the
Portfolio's total assets will be invested in Real Estate Securities,
primarily equity securities of real estate investment trusts. The Portfolio
may invest up to 25% of its total assets in securities issued by foreign
issuers, some or all of which may also be Real Estate Securities.
WARBURG PINCUS TRUST
The Warburg Pincus Trust is an open-end management investment company organized
in March 1995 as a business trust under the laws of The Commonwealth of
Massachusetts. The Trust offers its shares to insurance companies for allocation
to separate accounts for the purpose of funding variable annuity and variable
life contracts. The Portfolios are managed by
68
71 of 152
<PAGE> 72
Warburg Pincus Asset Management, Inc. ("Warburg")
-INTERNATIONAL EQUITY PORTFOLIO
Investment Objective: Long-term capital appreciation by investing primarily
in a broadly diversified portfolio of equity securities of companies,
wherever organized, that in the judgment of Warburg have their principal
business activities and interests outside the United States. The Portfolio
will ordinarily invest substantially all of its assets, but no less than
65% of its total assets, in common stocks, warrants and securities
convertible into or exchangeable for common stocks. The Portfolio intends
to invest principally in the securities of financially strong companies
with opportunities for growth within growing international economies and
markets through increased earning power and improved utilization or
recognition of assets.
-POST-VENTURE CAPITAL PORTFOLIO
Investment Objective: Long-term growth of capital by investing primarily in
equity securities of issuers in their post-venture capital stage of
development and pursues an aggressive investment strategy. Under normal
market conditions, the Portfolio will invest at least 65% of its total
assets in equity securities of "post-venture capital companies." A
post-venture capital company is one that has received venture capital
financing either: (a) during the early stages of the company's existence or
the early stages of the development of a new product or service; or (b) as
part of a restructuring or recapitalization of the company. The Portfolio
may invest up to 10% of its assets in venture capital and other investment
funds.
-SMALL COMPANY GROWTH PORTFOLIO
Investment Objective: Capital growth by investing in a portfolio of equity
securities of small-sized domestic companies. The Portfolio ordinarily will
invest at least 65% of its total assets in common stocks or warrants of
small-sized companies (i.e., companies having stock market capitalizations
of between $25 million and $1 billion at the time of purchase) that
represent attractive opportunities for capital growth. The Portfolio
intends to invest primarily in companies whose securities are traded on
domestic stock exchanges or in the over-the-counter market. The Portfolio's
investments will be made on the basis of their equity characteristics and
securities ratings generally will not be a factor in the selection process.
AVAILABLE FOR ALL CONTRACTS ISSUED ON OR AFTER MAY 1, 1987 AND BEFORE SEPTEMBER
1, 1989
AMERICAN VARIABLE INSURANCE SERIES
The American Variable Insurance Series was organized as a Massachusetts business
trust in 1983, and is a fully managed, diversified, open-end investment company.
Shares of the series are offered only to separate accounts of various insurance
companies which fund certain variable annuity and life indurance contracts.
-GROWTH FUND
Investment Objective: To provide growth of capital. Whatever current income
is generated by the Fund is likely to be incidental to the objective of
capital growth. Ordinarily, accomplishment of the Fund's objective of
capital growth will be sought by investing primarily in common stocks or
securities with common stock characteristics.
-HIGH-YIELD BOND FUND
Investment Objective: Seeks high current income and secondarily seeks
capital appreciation. The Fund invests substantially in intermediate and
long-term corporate obligations, with emphasis on higher yielding, higher
risk, lower rated or unrated securities. These investments are subject to
greater market fluctuations and risk of loss of income and principal than
are investments on lower yielding fixed income securities.
69
72 of 152
<PAGE> 73
-U.S. GOVERNMENT/AAA RATED SECURITIES FUND
Investment Objective: A high level of current income consistent with
prudent investment risk and preservation of capital. It seeks to achieve
its objective by investing primarily in a combination of (i) securities
guaranteed by the U.S. Government (backed by the full faith and credit of
the U.S.), and (ii) corporate debt securities rated AAA by Standard and
Poor's Corporation or Aaa Moody's Investors Service, Inc. (or that have not
received a rating but are determined to be of comparable quality by the
Investment Advisor).
70
73 of 152
<PAGE> 74
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1999
DEFERRED VARIABLE ANNUITY CONTRACTS
ISSUED BY NATIONWIDE LIFE INSURANCE COMPANY
THROUGH ITS NATIONWIDE VARIABLE ACCOUNT-II
This Statement of Additional Information is not a prospectus. It contains
information in addition to and in some respects more detailed than set forth in
the prospectus and should be read in conjunction with the prospectus dated May
1, 1999. The prospectus may be obtained from Nationwide Life Insurance Company
by One Nationwide Plaza, 1-05-P1 Columbus, Ohio 43215, or calling
1-800-848-6331, TDD 1-800-238-3035.
TABLE OF CONTENTS
PAGE
General Information and History.............................................1
Services....................................................................1
Purchase of Securities Being Offered........................................2
Underwriters................................................................2
Calculations of Performance.................................................2
Annuity Payments............................................................3
Financial Statements........................................................4
GENERAL INFORMATION AND HISTORY
Nationwide Variable Account-II is a separate investment account of Nationwide
Life Insurance Company ("Nationwide. All of Nationwide's common stock is owned
by Nationwide Financial Services, Inc. ("NFS"), a holding company. NFS has two
classes of common stock outstanding with different voting rights enabling
Nationwide Corporation (the holder of all of the outstanding Class B Common
Stock) to control NFS. Nationwide Corporation is a holding company, as well. All
of its common stock is held by Nationwide Mutual Insurance Company (95.24%) and
Nationwide Mutual Fire Insurance Company (4.76%), the ultimate controlling
persons of Nationwide Insurance Enterprise. The Nationwide Insurance Enterprise
is one of America's largest insurance and financial services family of
companies, with combined assets of over $98.28 billion as of December 31, 1998.
SERVICES
Nationwide, which has responsibility for administration of the contracts and the
variable account, maintains records of the name, address, taxpayer
identification number, and other pertinent information for each contract owner
and the number and type of contract issued to each such contract owner and
records with respect to the contract value of each contract.
Nationwide is the custodian of the assets of the variable account. Nationwide
will maintain a record of all purchases and redemptions of shares of the
underlying mutual funds. Nationwide, or affiliates of Nationwide may have
entered into agreements with either the investment adviser or distributor for
several of the underlying mutual funds. The agreements relate to administrative
services furnished by Nationwide or an affiliate of Nationwide and provide for
an annual fee based on the average aggregate net assets of the variable account
(and other separate accounts of Nationwide or life insurance company
subsidiaries of Nationwide) invested in particular underlying mutual funds.
These fees in no way affect the net asset value of the underlying mutual funds
or fees paid by the contract owner.
The audited financial statements have been included herein in reliance upon the
reports of KPMG LLP, independent certified public accountants, Two Nationwide
Plaza, Columbus, Ohio 43215, and upon the authority of said firm as experts in
accounting and auditing.
1
74 of 152
<PAGE> 75
PURCHASE OF SECURITIES BEING OFFERED
The contracts will be sold by licensed insurance agents in the states where the
contracts may be lawfully sold. Agents are registered representatives of
broker-dealers registered under the Securities Exchange Act of 1934 who are
members of the National Association of Securities Dealers, Inc. ("NASD").
When a contract described in the prospectus is exchanged for another contract
issued by Nationwide or any of its affiliated insurance companies of the type
and class which Nationwide determines is eligible for such an exchange,
Nationwide may waive any remaining CDSC on the first contract. A CDSC may apply
to the contract received in the exchange.
UNDERWRITERS
The contracts, which are offered continuously, are distributed by Nationwide
Advisory Services, Inc. ("NAS"), One Nationwide Plaza, Columbus, Ohio 43215, a
wholly owned subsidiary of Nationwide. During the fiscal years ended December
31, 1998, 1997 and 1996, no underwriting commissions were paid by Nationwide to
NAS.
CALCULATIONS OF PERFORMANCE
Any current yield quotations of the NSAT Money Market Fund, subject to Rule 482
of the Securities Act of 1933, will consist of a seven calendar day historical
yield, carried at least to the nearest hundredth of a percent. The yield will be
calculated by determining the net change, exclusive of capital changes, in the
value of a hypothetical pre-existing account having a balance of one
accumulation unit at the beginning of the base period, subtracting a
hypothetical charge reflecting deductions from contract owner accounts, and
dividing the net change in account value by the value of the account at the
beginning of the period to obtain a base period return, and multiplying the base
period return by (365/7) or (366/7) in a leap year. At December 31, 1998, the
NSAT- Money Market Fund's seven-day current unit value yield was 3.52%. The
NSAT-Money Market Fund effective yield is computed similarly but includes the
effect of assumed compounding on an annualized basis of the current unit value
yield quotations of the Fund. At December 31, 1998, the seven-day effective
yield was 3.58%.
The NSAT-Money Market Fund yield and effective yield will fluctuate daily.
Actual yields will depend on factors such as the type of instruments in the
Fund's portfolio, portfolio quality and average maturity, changes in interest
rates, and the Fund's expenses. Although the NSAT-Money Market Fund determines
its yield on the basis of a seven calendar day period, it may use a different
time period on occasion. The yield quotes may reflect the expense limitation
described "Investment Manager and Other Services" in the NSAT-Money Market
Fund's Statement of Additional Information. There is no assurance that the
yields quoted on any given occasion will remain in effect for any period of time
and there is no guarantee that the net asset values will remain constant. It
should be noted that a contract owner's investment in the NSAT-Money Market Fund
is not guaranteed or insured. Yields of other money market funds may not be
comparable if a different base period or another method of calculation is used.
All performance advertising will include quotations of standardized average
annual total return, calculated in accordance with a standard method prescribed
by rules of the SEC. Standardized average annual return is found by taking a
hypothetical $1,000 investment in each of the sub-accounts' units on the first
day of the period at the offering price, which is the accumulation unit value
per unit ("initial investment") and computing the ending redeemable value
("redeemable value") of that investment at the end of the period. The redeemable
value is then divided by the initial investment and this quotient is taken to
the Nth root (N represents the number of years in the period) and 1 is
subtracted from the result which is then expressed as a percentage, carried to
at least the nearest hundredth of a percent. Standardized average annual total
return reflects the deduction of a maximum $30 Contract Maintenance Charge and a
1.30% Mortality and Expense Risk Charge and an Administration Charge. The
redeemable value also reflects the effect of any applicable CDSC that may be
imposed at the end of the period (see "Contingent Deferred Sales Charge "
located in the prospectus). No deduction is made for premium taxes
2
75 of 152
<PAGE> 76
which may be assessed by certain states. Nonstandardized total return may also
be advertised, and is calculated in a manner similar to standardized average
annual total return except the nonstandardized total return is based on a
hypothetical initial investment of $10,000 and does not reflect the deduction of
any applicable CDSC. Reflecting the CDSC would decrease the level of the
performance advertised. The CDSC is not reflected because the contract is
designed for long term investment. An assumed initial investment of $10,000 will
be used because that figure more closely approximates the size of a typical
contract than does the $1,000 figure used in calculating the standardized
average annual total return quotations. The amount of the hypothetical initial
investment used affects performance because the Contract Maintenance Charge is
fixed per contract charge.
The standardized average annual total return and nonstandardized average annual
total return quotations will be current to the last day of the calendar quarter
preceding the date on which an advertisement is submitted for publication. The
standardized average annual return will be based on rolling calendar quarters
and will cover periods of one, five, and ten years, or a period covering the
time the underlying mutual fund has been available in the variable account if
the underlying mutual fund has not been available for one of the prescribed
periods. The nonstandardized annual total return will be based on rolling
calendar quarters and will cover periods of one, five and ten years, or a period
covering the time the underlying mutual fund has been in existence.
Quotations of average annual total return and total return are based upon
historical earnings and will fluctuate. Any quotation of performance is not a
guarantee of future performance. Factors affecting a sub-account's performance
include general market conditions, operating expenses and investment management.
A contract owner's account when redeemed may be more or less than the original
cost.
ANNUITY PAYMENTS
See "Frequency and Amount of Annuity Payments" located in the prospectus.
3
76 of 152
<PAGE> 77
<PAGE> 1
Independent Auditors' Report
The Board of Directors of Nationwide Life Insurance Company and Contract Owners
of Nationwide Variable Account-II:
We have audited the accompanying statement of assets, liabilities and
contract owners' equity of Nationwide Variable Account-II 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-II 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-II
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments at market value:
American Century VP - American Century VP Balanced (ACVPBal)
24,984,966 shares (cost $190,756,295) ................................. $ 208,374,617
American Century VP - American Century VP Capital Appreciation (ACVPCapAp)
27,823,053 shares (cost $277,807,389) 250,963,941
American Century VP Income & Growth (ACVPIncGr)
5,709,110 shares (cost $34,930,762) ................................... 38,707,768
American Century VP - American Century VP International (ACVPInt)
38,320,974 shares (cost $281,911,111) ................................. 292,005,825
American Century VP - American Century VP Value (ACVPValue)
10,228,464 shares (cost $70,690,312) .................................. 68,837,561
American VI Series - Growth Fund (AVISGro)
593,794 shares (cost $24,347,204) ..................................... 31,132,606
American VI Series - High-Yield Bond Fund (AVISHiYld)
197,661 shares (cost $2,826,142) ...................................... 2,628,890
American VI Series - U.S. Government/AAA-Rated Securities Fund (AVISGvt)
396,291 shares (cost $4,410,275) ...................................... 4,482,056
The Dreyfus Socially Responsible Growth Fund, Inc. (DrySRGro)
8,538,487 shares (cost $237,250,934) .................................. 265,376,179
Dreyfus Stock Index Fund (DryStkIx)
52,976,258 shares (cost $1,395,628,578) ............................... 1,722,787,919
Dreyfus VIF - Capital Appreciation Portfolio (DryCapAp)
4,630,292 shares (cost $153,742,536) .................................. 167,199,862
Dreyfus VIF - Growth and Income Portfolio (DryGrInc)
3,555,974 shares (cost $76,690,000) ................................... 80,471,698
Fidelity VIP - Equity-Income Portfolio (FidVIPEI)
106,939,269 shares (cost $2,068,776,990) .............................. 2,718,396,211
Fidelity VIP - Growth Portfolio (FidVIPGr)
61,825,003 shares (cost $2,036,600,808) ............................... 2,774,087,868
Fidelity VIP - High Income Portfolio (FidVIPHI)
63,292,085 shares (cost $776,014,269) ................................. 729,757,734
Fidelity VIP - Overseas Portfolio (FidVIPOv)
28,866,621 shares (cost $559,532,122) ................................. 578,775,761
Fidelity VIP-II - Asset Manager Portfolio (FidVIPAM)
62,696,568 shares (cost $942,679,555) ................................. 1,138,569,676
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
Fidelity VIP-II - Contrafund Portfolio (FidVIPCon)
50,110,361 shares (cost $887,363,469) ................................. 1,224,697,230
Fidelity VIP-III - Growth Opportunities Portfolio (FidVIPGrOp)
6,940,901 shares (cost $139,001,337) .................................. 158,807,810
Morgan Stanley - Emerging Markets Debt Portfolio (MSEmMkt)
1,431,487 shares (cost $9,455,686) .................................... 8,732,068
Nationwide SAT - Capital Appreciation Fund (NSATCapAp)
26,262,417 shares (cost $585,599,581) ................................. 698,317,658
Nationwide SAT - Government Bond Fund (NSATGvtBd)
37,800,382 shares (cost $440,372,627) ................................. 441,886,466
Nationwide SAT - Money Market Fund (NSATMyMkt)
975,757,697 shares (cost $975,757,697) ................................ 975,757,697
Nationwide SAT - Small Cap Value Fund (NSATSmCapV)
1,436,294 shares (cost $13,054,983) ................................... 13,630,430
Nationwide SAT - Small Company Fund (NSATSmCo)
17,578,192 shares (cost $273,509,275) ................................. 281,426,849
Nationwide SAT - Total Return Fund (NSATTotRe)
66,939,068 shares (cost $920,336,374) ................................. 1,231,678,853
Neuberger & Berman AMT - Growth Portfolio (NBAMTGro)
18,427,382 shares (cost $471,929,009) ................................. 484,455,880
Neuberger & Berman AMT - Guardian Portfolio (NBAMTGuard)
2,735,564 shares (cost $36,637,640) ................................... 37,860,204
Neuberger & Berman AMT - Limited Maturity Bond Portfolio (NBAMTLMat)
12,929,046 shares (cost $177,217,512) ................................. 178,679,416
Neuberger & Berman AMT - Partners Portfolio (NBAMTPart)
35,130,413 shares (cost $669,344,481) ................................. 665,018,717
Oppenheimer VAF - Bond Fund (OppBdFd)
27,474,513 shares (cost $324,228,724) ................................. 338,486,000
Oppenheimer VAF - Global Securities Fund (OppGlSec)
24,564,354 shares (cost $469,720,671) ................................. 542,135,299
Oppenheimer VAF - Growth Fund (OppGro)
1,734,324 shares (cost $57,683,239) ................................... 63,597,652
Oppenheimer VAF - Multiple Strategies Fund (OppMult)
19,503,709 shares (cost $292,442,547) ................................. 332,538,233
Strong Opportunity Fund II, Inc. (StOpp2)
36,204,565 shares (cost $696,008,998) ................................. 786,363,158
Strong VIF - Strong Discovery Fund II (StDisc2)
13,750,240 shares (cost $160,852,259) ................................. 174,903,056
Strong VIF - Strong International Stock Fund II (StIntStk2)
4,245,694 shares (cost $40,375,762) ................................... 37,277,194
</TABLE>
(Continued)
<PAGE> 4
<TABLE>
<S> <C>
Van Eck WIT - Worldwide Bond Fund (VEWrldBd)
8,098,069 shares (cost $92,706,860) ................................... 99,444,284
Van Eck WIT - Worldwide Emerging Markets Fund (VEWrldEMkt)
4,914,872 shares (cost $32,134,508) ................................... 34,993,890
Van Eck WIT - Worldwide Hard Assets Fund (VEWrldHAs)
6,942,747 shares (cost $74,086,315) ................................... 63,873,268
Van Kampen American Capital LIT -
Morgan Stanley Real Estate Securities Portfolio (MSRESec)
11,597,104 shares (cost $181,924,838) ................................. 159,576,147
Warburg Pincus Trust - International Equity Portfolio (WPIntEq)
20,718,167 shares (cost $243,432,886) ................................. 227,692,653
Warburg Pincus Trust - Post Venture Capital Portfolio (WPPVenCap)
1,883,351 shares (cost $21,778,605) ................................... 22,185,876
Warburg Pincus Trust - Small Company Growth Portfolio (WPSmCoGr)
20,046,401 shares (cost $323,913,551) ................................. 320,942,882
--------------
Total assets ....................................................... 20,677,515,042
ACCOUNTS PAYABLE ............................................................... 4,840,634
--------------
CONTRACT OWNERS' EQUITY (NOTE 4) ............................................... $ 20,672,674,408
==============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 5
NATIONWIDE VARIABLE ACCOUNT-II
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
TOTAL ACVPBal
-------------------------------- -------------------------------
1998 1997 1998 1997
--------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Investment activity:
Reinvested dividends ............................. $ 315,567,353 296,368,036 3,098,368 1,574,816
Mortality, expense and administration
charges (note 2):
BOA .......................................... (145,540,567) (126,406,070) (1,354,760) (1,191,850)
BOA Vision ................................... (114,290,967) (83,760,749) (1,180,401) (875,039)
BOA Enterprise ............................... (199,407) (118,491) (2,018) (876)
--------------- -------------- -------------- --------------
Net investment activity ........................ 55,536,412 86,082,726 561,189 (492,949)
--------------- -------------- -------------- --------------
Proceeds from mutual fund shares sold ............ 9,502,638,819 6,440,464,106 48,804,378 33,424,138
Cost of mutual fund shares sold .................. (8,727,995,326) (5,862,745,516) (37,362,868) (24,057,900)
--------------- -------------- -------------- --------------
Realized gain (loss) on investments ............ 774,643,493 577,718,590 11,441,510 9,366,238
Change in unrealized gain (loss) on investments .. 440,618,096 1,250,486,745 (5,900,979) 5,524,757
--------------- -------------- -------------- --------------
Net gain (loss) on investments ................. 1,215,261,589 1,828,205,335 5,540,531 14,890,995
--------------- -------------- -------------- --------------
Reinvested capital gains ......................... 1,177,995,583 616,932,003 19,212,723 6,097,662
--------------- -------------- -------------- --------------
Net increase (decrease) in contract owners'
equity resulting from operations ........... 2,448,793,584 2,531,220,064 25,314,443 20,495,708
--------------- -------------- -------------- --------------
Equity transactions:
Purchase payments received from
contract owners ................................ 2,214,889,447 3,614,758,515 22,317,530 31,207,874
Transfers between funds .......................... - - 8,865,047 (4,226,209)
Redemptions ...................................... (1,806,663,808) (1,198,352,163) (16,523,412) (10,189,550)
Annuity benefits ................................. (1,988,285) (1,097,690) (9,922) (2,437)
Annual contract maintenance charge (note 2) ...... (8,003,092) (7,187,524) (76,599) (70,234)
Contingent deferred sales charges (note 2) ....... (23,748,555) (18,196,002) (246,178) (187,816)
Adjustments to maintain reserves ................. (406,310) (692,928) (1,729) (30,715)
--------------- -------------- -------------- --------------
Net equity transactions ...................... 374,079,397 2,389,232,208 14,324,737 16,500,913
--------------- -------------- -------------- --------------
Net change in contract owners' equity ............ 2,822,872,981 4,920,452,272 39,639,180 36,996,621
Contract owners' equity beginning of period ...... 17,849,801,427 12,929,349,155 168,733,833 131,737,212
--------------- -------------- -------------- --------------
Contract owners' equity end of period ............ $20,672,674,408 17,849,801,427 208,373,013 168,733,833
=============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
ACVPCapAp ACVPincGr
------------------------------- -------------------------------
1998 1997 1998 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Investment activity:
Reinvested dividends ............................. $ - - 181,416 -
Mortality, expense and administration
charges (note 2):
BOA .......................................... (2,818,233) (4,037,524) (95,126) -
BOA Vision ................................... (857,721) (1,103,836) (75,918) -
BOA Enterprise ............................... (1,256) (1,623) (117) -
-------------- -------------- -------------- --------------
Net investment activity ........................ (3,677,210) (5,142,983) 10,255 -
-------------- -------------- -------------- --------------
Proceeds from mutual fund shares sold ............ 114,736,720 226,050,085 25,325,017 -
Cost of mutual fund shares sold .................. (136,788,804) (249,168,854) (26,300,565) -
-------------- -------------- -------------- --------------
Realized gain (loss) on investments ............ (22,052,084) (23,118,769) (975,548) -
Change in unrealized gain (loss) on investments .. (264,722) 2,545,749 3,777,007 -
-------------- -------------- -------------- --------------
Net gain (loss) on investments ................. (22,316,806) (20,573,020) 2,801,459 -
-------------- -------------- -------------- --------------
Reinvested capital gains ......................... 15,700,848 8,369,061 - -
-------------- -------------- -------------- --------------
Net increase (decrease) in contract owners'
equity resulting from operations ........... (10,293,168) (17,346,942) 2,811,714 -
-------------- -------------- -------------- --------------
Equity transactions:
Purchase payments received from
contract owners ................................ 23,389,103 46,091,043 2,843,288 -
Transfers between funds .......................... (66,469,516) (101,140,496) 34,214,351 -
Redemptions ...................................... (34,901,415) (38,900,571) (1,148,357) -
Annuity benefits ................................. (44,914) (49,144) - -
Annual contract maintenance charge (note 2) ...... (233,324) (323,047) (4,110) -
Contingent deferred sales charges (note 2) ....... (447,727) (640,085) (9,116) -
Adjustments to maintain reserves ................. 65,167 1,134 6,300 -
-------------- -------------- -------------- --------------
Net equity transactions ...................... (78,642,626) (94,961,166) 35,902,356 -
-------------- -------------- -------------- --------------
Net change in contract owners' equity ............ (88,935,794) (112,308,108) 38,714,070 -
Contract owners' equity beginning of period ...... 339,991,098 452,299,206 - -
-------------- -------------- -------------- --------------
Contract owners' equity end of period ............ $ 251,055,304 339,991,098 38,714,070 -
============== ============== ============== ==============
</TABLE>
(Continued)
<PAGE> 6
NATIONWIDE VARIABLE ACCOUNT-II
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
ACVPint ACVPValue
-------------------------------- -------------------------------
1998 1997 1998 1997
--------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Investment activity:
Reinvested dividends ............................. $ 1,241,910 1,256,182 491,657 77,961
Mortality, expense and administration
charges (note 2):
BOA .......................................... (1,733,033) (1,015,749) (427,970) (236,395)
BOA Vision ................................... (1,962,632) (1,073,332) (588,525) (228,347)
BOA Enterprise ............................... (2,034) (1,174) (1,181) (559)
--------------- -------------- -------------- --------------
Net investment activity ........................ (2,455,789) (834,073) (526,019) (387,340)
--------------- -------------- -------------- --------------
Proceeds from mutual fund shares sold ............ 361,873,253 134,023,354 49,075,920 32,856,963
Cost of mutual fund shares sold .................. (348,435,933) (112,395,449) (49,213,498) (27,872,971)
--------------- -------------- -------------- --------------
Realized gain (loss) on investments ............ 13,437,320 21,627,905 (137,578) 4,983,992
Change in unrealized gain (loss) on investments .. 4,337,447 (1,464,913) (3,517,470) 1,666,087
--------------- -------------- -------------- --------------
Net gain (loss) on investments ................. 17,774,767 20,162,992 (3,655,048) 6,650,079
--------------- -------------- -------------- --------------
Reinvested capital gains ......................... 12,749,123 2,422,638 5,869,944 151,154
--------------- -------------- -------------- --------------
Net increase (decrease) in contract owners'
equity resulting from operations ........... 28,068,101 21,751,557 1,688,877 6,413,893
--------------- -------------- -------------- --------------
Equity transactions:
Purchase payments received from
contract owners ................................ 27,075,201 40,115,028 15,060,446 18,394,894
Transfers between funds .......................... 76,963,986 39,235,433 (9,597,717) 44,252,062
Redemptions ...................................... (21,143,253) (8,333,537) (6,581,279) (1,702,361)
Annuity benefits ................................. (13,625) (1,590) (21,465) -
Annual contract maintenance charge (note 2) ...... (79,895) (50,442) (19,679) (7,615)
Contingent deferred sales charges (note 2) ....... (250,396) (133,437) (100,776) (15,377)
Adjustments to maintain reserves ................. (18,968) 1,318 (51,138) (157)
--------------- -------------- -------------- --------------
Net equity transactions ...................... 82,533,050 70,832,773 (1,311,608) 60,921,446
--------------- -------------- -------------- --------------
Net change in contract owners' equity ............ 110,601,151 92,584,330 377,269 67,335,339
Contract owners' equity beginning of period ...... 181,376,626 88,792,296 68,407,922 1,072,583
--------------- -------------- -------------- --------------
Contract owners' equity end of period ............ $ 291,977,777 181,376,626 68,785,191 68,407,922
=============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
AVISGro AVISHiYld
------------------------------- -------------------------------
1998 1997 1998 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Investment activity:
Reinvested dividends ............................. $ 104,724 144,798 252,109 253,822
Mortality, expense and administration
charges (note 2):
BOA .......................................... (365,360) (329,103) (39,297) (38,276)
BOA Vision ................................... - - - -
BOA Enterprise ............................... - - - -
-------------- -------------- -------------- --------------
Net investment activity ........................ (260,636) (184,305) 212,812 215,546
-------------- -------------- -------------- --------------
Proceeds from mutual fund shares sold ............ 7,115,941 6,487,233 1,134,719 736,561
Cost of mutual fund shares sold .................. (3,771,756) (3,240,097) (1,075,993) (655,361)
-------------- -------------- -------------- --------------
Realized gain (loss) on investments ............ 3,344,185 3,247,136 58,726 81,200
Change in unrealized gain (loss) on investments .. 1,042,218 21,117 (303,262) (32,967)
-------------- -------------- -------------- --------------
Net gain (loss) on investments ................. 4,386,403 3,268,253 (244,536) 48,233
-------------- -------------- -------------- --------------
Reinvested capital gains ......................... 4,170,092 3,172,499 36,591 33,142
-------------- -------------- -------------- --------------
Net increase (decrease) in contract owners'
equity resulting from operations ........... 8,295,859 6,256,447 4,867 296,921
-------------- -------------- -------------- --------------
Equity transactions:
Purchase payments received from
contract owners ................................ 511,282 597,163 116,063 75,598
Transfers between funds .......................... (964,009) (973,320) (107,348) 264,205
Redemptions ...................................... (3,204,144) (2,781,554) (566,909) (409,603)
Annuity benefits ................................. (444) (946) (5,289) (1,226)
Annual contract maintenance charge (note 2) ...... (14,895) (16,365) (1,991) (2,453)
Contingent deferred sales charges (note 2) ....... (9,981) (10,780) (3,772) (1,609)
Adjustments to maintain reserves ................. 578 998 (2,332) 271
-------------- -------------- -------------- --------------
Net equity transactions ...................... (3,681,613) (3,184,804) (571,578) (74,817)
-------------- -------------- -------------- --------------
Net change in contract owners' equity ............ 4,614,246 3,071,643 (566,711) 222,104
Contract owners' equity beginning of period ...... 26,518,943 23,447,300 3,193,216 2,971,112
-------------- -------------- -------------- --------------
Contract owners' equity end of period ............ $ 31,133,189 26,518,943 2,626,505 3,193,216
============== ============== ============== ==============
</TABLE>
<PAGE> 7
NATIONWIDE VARIABLE ACCOUNT-II
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
AVISGvt DrySRGro
-------------------------------- -------------------------------
1998 1997 1998 1997
--------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Investment activity:
Reinvested dividends ............................. $ 270,372 369,310 409,775 623,680
Mortality, expense and administration
charges (note 2):
BOA .......................................... (60,816) (72,106) (1,451,837) (927,006)
BOA Vision ................................... - - (1,439,799) (837,713)
BOA Enterprise ............................... - - (2,748) (1,418)
--------------- -------------- -------------- --------------
Net investment activity ........................ 209,556 297,204 (2,484,609) (1,142,457)
--------------- -------------- -------------- --------------
Proceeds from mutual fund shares sold ............ 1,748,263 1,786,834 143,677,649 79,140,012
Cost of mutual fund shares sold .................. (1,871,313) (1,861,559) (117,379,825) (67,423,514)
--------------- -------------- -------------- --------------
Realized gain (loss) on investments ............ (123,050) (74,725) 26,297,824 11,716,498
Change in unrealized gain (loss) on investments .. 209,910 140,996 14,964,682 12,405,500
--------------- -------------- -------------- --------------
Net gain (loss) on investments ................. 86,860 66,271 41,262,506 24,121,998
--------------- -------------- -------------- --------------
Reinvested capital gains ......................... - - 9,504,871 4,861,060
--------------- -------------- -------------- --------------
Net increase (decrease) in contract owners'
equity resulting from operations ........... 296,416 363,475 48,282,768 27,840,601
--------------- -------------- -------------- --------------
Equity transactions:
Purchase payments received from
contract owners ................................ 143,640 127,889 34,640,924 50,107,726
Transfers between funds .......................... (143,468) (309,384) 17,779,620 36,729,046
Redemptions ...................................... (894,059) (1,207,471) (16,450,256) (14,091,480)
Annuity benefits ................................. (3,938) (536) (5,152) (4,381)
Annual contract maintenance charge (note 2) ...... (3,913) (4,847) (112,389) (67,753)
Contingent deferred sales charges (note 2) ....... (3,582) (4,252) (243,228) (365,621)
Adjustments to maintain reserves ................. (1,962) 51 1,747 2,732
--------------- -------------- -------------- --------------
Net equity transactions ...................... (907,282) (1,398,550) 35,611,266 72,310,269
--------------- -------------- -------------- --------------
Net change in contract owners' equity ............ (610,866) (1,035,075) 83,894,034 100,150,870
Contract owners' equity beginning of period ...... 5,090,894 6,125,969 181,485,180 81,334,310
--------------- -------------- -------------- --------------
Contract owners' equity end of period ............ $ 4,480,028 5,090,894 265,379,214 181,485,180
=============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
DryStkix DryCapAp
------------------------------- -------------------------------
1998 1997 1998 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Investment activity:
Reinvested dividends ............................. $ 18,675,816 13,324,202 862,672 72,902
Mortality, expense and administration
charges (note 2):
BOA .......................................... (7,978,285) (4,928,324) (524,245) (12,311)
BOA Vision ................................... (10,844,564) (6,128,921) (571,382) (24,419)
BOA Enterprise ............................... (17,348) (8,919) (873) (17)
-------------- -------------- -------------- --------------
Net investment activity ........................ (164,381) 2,258,038 (233,828) 36,155
-------------- -------------- -------------- --------------
Proceeds from mutual fund shares sold ............ 443,376,469 196,995,162 74,053,794 5,083,147
Cost of mutual fund shares sold .................. (301,499,093) (145,321,824) (68,960,812) (5,096,505)
-------------- -------------- -------------- --------------
Realized gain (loss) on investments ............ 141,877,376 51,673,338 5,092,982 (13,358)
Change in unrealized gain (loss) on investments .. 179,528,535 113,272,914 13,393,944 63,381
-------------- -------------- -------------- --------------
Net gain (loss) on investments ................. 321,405,911 164,946,252 18,486,926 50,023
-------------- -------------- -------------- --------------
Reinvested capital gains ......................... 3,418,338 30,917,521 14,955 6,103
-------------- -------------- -------------- --------------
Net increase (decrease) in contract owners'
equity resulting from operations ........... 324,659,868 198,121,811 18,268,053 92,281
-------------- -------------- -------------- --------------
Equity transactions:
Purchase payments received from
contract owners ................................ 214,991,310 302,375,457 15,138,079 3,431,579
Transfers between funds .......................... 190,453,913 185,055,283 130,801,206 6,774,363
Redemptions ...................................... (101,442,520) (44,011,999) (6,949,302) (246,314)
Annuity benefits ................................. (151,728) (20,897) - -
Annual contract maintenance charge (note 2) ...... (444,587) (248,202) (22,248) (468)
Contingent deferred sales charges (note 2) ....... (1,522,122) (796,708) (81,927) (2,852)
Adjustments to maintain reserves ................. (10,118) 1,320 (907) (701)
-------------- -------------- -------------- --------------
Net equity transactions ...................... 301,874,148 442,354,254 138,884,901 9,955,607
-------------- -------------- -------------- --------------
Net change in contract owners' equity ............ 626,534,016 640,476,065 157,152,954 10,047,888
Contract owners' equity beginning of period ...... 1,096,238,216 455,762,151 10,047,888 -
-------------- -------------- -------------- --------------
Contract owners' equity end of period ............ $1,722,772,232 1,096,238,216 167,200,842 10,047,888
============== ============== ============== ==============
</TABLE>
(Continued)
<PAGE> 8
NATIONWIDE VARIABLE ACCOUNT-II
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
DryGrinc FidVIPEI
-------------------------------- -------------------------------
1998 1997 1998 1997
--------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Investment activity:
Reinvested dividends ............................. $ 691,042 403,974 36,741,162 31,564,284
Mortality, expense and administration
charges (note 2):
BOA .......................................... (350,592) (148,142) (20,689,256) (18,215,213)
BOA Vision ................................... (598,700) (237,804) (15,778,209) (11,859,942)
BOA Enterprise ............................... (3,387) (1,115) (15,123) (9,194)
--------------- -------------- -------------- --------------
Net investment activity ........................ (261,637) 16,913 258,574 1,479,935
--------------- -------------- -------------- --------------
Proceeds from mutual fund shares sold ............ 30,513,353 7,332,820 360,627,004 137,267,016
Cost of mutual fund shares sold .................. (28,500,253) (6,945,321) (227,981,252) (91,126,170)
--------------- -------------- -------------- --------------
Realized gain (loss) on investments ............ 2,013,100 387,499 132,645,752 46,140,846
Change in unrealized gain (loss) on investments .. 3,889,051 (107,097) (11,150,576) 306,220,297
--------------- -------------- -------------- --------------
Net gain (loss) on investments ................. 5,902,151 280,402 121,495,176 352,361,143
--------------- -------------- -------------- --------------
Reinvested capital gains ......................... 1,182,628 3,333,581 130,755,312 158,698,207
--------------- -------------- -------------- --------------
Net increase (decrease) in contract owners'
equity resulting from operations ........... 6,823,142 3,630,896 252,509,062 512,539,285
--------------- -------------- -------------- --------------
Equity transactions:
Purchase payments received from
contract owners ................................ 20,276,212 31,096,853 244,737,638 395,432,535
Transfers between funds .......................... 2,527,467 21,834,332 (147,382,926) (6,514,287)
Redemptions ...................................... (4,679,160) (1,113,904) (223,884,295) (152,832,877)
Annuity benefits ................................. - - (277,211) (151,789)
Annual contract maintenance charge (note 2) ...... (24,697) (5,976) (1,076,592) (987,195)
Contingent deferred sales charges (note 2) ....... (79,324) (21,429) (2,878,268) (2,099,197)
Adjustments to maintain reserves ................. (1,898) 558 (72,439) (20,082)
--------------- -------------- -------------- --------------
Net equity transactions ...................... 18,018,600 51,790,434 (130,834,093) 232,827,108
--------------- -------------- -------------- --------------
Net change in contract owners' equity ............ 24,841,742 55,421,330 121,674,969 745,366,393
Contract owners' equity beginning of period ...... 55,629,567 208,237 2,596,523,771 1,851,157,378
--------------- -------------- -------------- --------------
Contract owners' equity end of period ............ $ 80,471,309 55,629,567 2,718,198,740 2,596,523,771
=============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
FidVIPGr FidVIPHI
------------------------------- -------------------------------
1998 1997 1998 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Investment activity:
Reinvested dividends ............................. $ 10,166,752 11,151,243 62,256,993 47,561,883
Mortality, expense and administration
charges (note 2):
BOA .......................................... (20,216,127) (17,002,784) (5,314,746) (5,147,050)
BOA Vision ................................... (10,214,372) (7,588,917) (5,818,593) (4,584,647)
BOA Enterprise ............................... (14,330) (8,279) (5,086) (3,838)
-------------- -------------- -------------- --------------
Net investment activity ........................ (20,278,077) (13,448,737) 51,118,568 37,826,348
-------------- -------------- -------------- --------------
Proceeds from mutual fund shares sold ............ 582,531,833 361,048,888 423,878,325 311,819,193
Cost of mutual fund shares sold .................. (421,522,045) (231,057,958) (424,592,843) (295,085,798)
-------------- -------------- -------------- --------------
Realized gain (loss) on investments ............ 161,009,788 129,990,930 (714,518) 16,733,395
Change in unrealized gain (loss) on investments .. 330,693,565 186,810,844 (127,578,300) 45,290,142
-------------- -------------- -------------- --------------
Net gain (loss) on investments ................. 491,703,353 316,801,774 (128,292,818) 62,023,537
-------------- -------------- -------------- --------------
Reinvested capital gains ......................... 265,940,840 49,915,087 39,559,131 5,878,435
-------------- -------------- -------------- --------------
Net increase (decrease) in contract owners'
equity resulting from operations ........... 737,366,116 353,268,124 (37,615,119) 105,728,320
-------------- -------------- -------------- --------------
Equity transactions:
Purchase payments received from
contract owners ................................ 181,501,856 253,081,701 84,716,749 139,864,147
Transfers between funds .......................... 58,879,586 (129,238,876) (63,945,106) (19,876,856)
Redemptions ...................................... (194,431,314) (141,496,031) (79,994,258) (51,389,595)
Annuity benefits ................................. (254,430) (128,135) (64,108) (44,670)
Annual contract maintenance charge (note 2) ...... (1,169,401) (1,099,317) (250,706) (245,933)
Contingent deferred sales charges (note 2) ....... (2,499,712) (2,350,994) (968,813) (744,127)
Adjustments to maintain reserves ................. (85,859) (37,457) 34,738 12,025
-------------- -------------- -------------- --------------
Net equity transactions ...................... 41,940,726 (21,269,109) (60,471,504) 67,574,991
-------------- -------------- -------------- --------------
Net change in contract owners' equity ............ 779,306,842 331,999,015 (98,086,623) 173,303,311
Contract owners' equity beginning of period ...... 1,994,796,761 1,662,797,746 827,837,454 654,534,143
-------------- -------------- -------------- --------------
Contract owners' equity end of period ............ $2,774,103,603 1,994,796,761 729,750,831 827,837,454
============== ============== ============== ==============
</TABLE>
<PAGE> 9
NATIONWIDE VARIABLE ACCOUNT-II
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
FidVIPOv FidVIPAM
-------------------------------- -------------------------------
1998 1997 1998 1997
--------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Investment activity:
Reinvested dividends ............................. $ 11,424,188 9,616,272 34,225,218 32,069,538
Mortality, expense and administration
charges (note 2):
BOA .......................................... (5,767,471) (6,016,329) (10,568,738) (9,994,932)
BOA Vision ................................... (2,267,521) (2,010,362) (4,231,809) (3,404,754)
BOA Enterprise ............................... (762) (497) (2,407) (1,229)
--------------- -------------- -------------- --------------
Net investment activity ........................ 3,388,434 1,589,084 19,422,264 18,668,623
--------------- -------------- -------------- --------------
Proceeds from mutual fund shares sold ............ 448,515,931 325,866,496 111,473,351 64,155,222
Cost of mutual fund shares sold .................. (408,495,774) (271,581,444) (90,494,053) (50,691,840)
--------------- -------------- -------------- --------------
Realized gain (loss) on investments ............ 40,020,157 54,285,052 20,979,298 13,463,382
Change in unrealized gain (loss) on investments .. (11,007,004) (34,908,260) (3,096,910) 61,763,112
--------------- -------------- -------------- --------------
Net gain (loss) on investments ................. 29,013,153 19,376,792 17,882,388 75,226,494
--------------- -------------- -------------- --------------
Reinvested capital gains ......................... 33,671,290 38,173,687 102,675,653 80,445,621
--------------- -------------- -------------- --------------
Net increase (decrease) in contract owners'
equity resulting from operations ........... 66,072,877 59,139,563 139,980,305 174,340,738
--------------- -------------- -------------- --------------
Equity transactions:
Purchase payments received from
contract owners ................................ 35,783,097 59,588,290 83,198,673 111,981,451
Transfers between funds .......................... (47,526,193) (49,688,118) (45,694,699) (50,915,784)
Redemptions ...................................... (59,779,420) (45,181,274) (117,229,468) (79,250,445)
Annuity benefits ................................. (122,919) (81,666) (210,178) (154,671)
Annual contract maintenance charge (note 2) ...... (315,146) (348,798) (577,324) (604,024)
Contingent deferred sales charges (note 2) ....... (694,542) (640,146) (1,488,964) (1,221,254)
Adjustments to maintain reserves ................. (2,419) (19,734) (21,188) 20,989
--------------- -------------- -------------- --------------
Net equity transactions ...................... (72,657,542) (36,371,446) (82,023,148) (20,143,738)
--------------- -------------- -------------- --------------
Net change in contract owners' equity ............ (6,584,665) 22,768,117 57,957,157 154,197,000
Contract owners' equity beginning of period ...... 585,358,058 562,589,941 1,080,601,131 926,404,131
--------------- -------------- -------------- --------------
Contract owners' equity end of period ............ $ 578,773,393 585,358,058 1,138,558,288 1,080,601,131
=============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
FidVIPCon FidVIPGrOp
------------------------------- -------------------------------
1998 1997 1998 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Investment activity:
Reinvested dividends ............................. $ 6,336,699 4,746,178 757,412 -
Mortality, expense and administration
charges (note 2):
BOA .......................................... (6,038,275) (4,517,986) (623,486) (60,777)
BOA Vision ................................... (7,641,255) (5,308,985) (837,609) (90,378)
BOA Enterprise ............................... (5,816) (3,863) (1,084) (205)
-------------- -------------- -------------- --------------
Net investment activity ........................ (7,348,647) (5,084,656) (704,767) (151,360)
-------------- -------------- -------------- --------------
Proceeds from mutual fund shares sold ............ 156,614,980 79,785,498 46,907,717 13,987,376
Cost of mutual fund shares sold .................. (103,037,324) (62,047,221) (43,276,275) (13,645,097)
-------------- -------------- -------------- --------------
Realized gain (loss) on investments ............ 53,577,656 17,738,277 3,631,442 342,279
Change in unrealized gain (loss) on investments .. 165,270,018 115,299,306 17,973,839 1,832,634
-------------- -------------- -------------- --------------
Net gain (loss) on investments ................. 218,847,674 133,037,583 21,605,281 2,174,913
-------------- -------------- -------------- --------------
Reinvested capital gains ......................... 46,619,997 12,543,472 2,632,909 -
-------------- -------------- -------------- --------------
Net increase (decrease) in contract owners'
equity resulting from operations ........... 258,119,024 140,496,399 23,533,423 2,023,553
-------------- -------------- -------------- --------------
Equity transactions:
Purchase payments received from
contract owners ................................ 117,785,191 205,780,604 34,421,791 14,171,862
Transfers between funds .......................... 21,712,329 60,354,302 61,633,353 32,032,277
Redemptions ...................................... (69,506,982) (35,225,735) (8,308,180) (564,541)
Annuity benefits ................................. (85,161) (26,879) (8,900) -
Annual contract maintenance charge (note 2) ...... (362,629) (255,108) (28,889) (2,292)
Contingent deferred sales charges (note 2) ....... (1,098,841) (633,851) (90,979) (5,479)
Adjustments to maintain reserves ................. (190,380) 19,885 20,282 1,844
-------------- -------------- -------------- --------------
Net equity transactions ...................... 68,253,527 230,013,218 87,638,478 45,633,671
-------------- -------------- -------------- --------------
Net change in contract owners' equity ............ 326,372,551 370,509,617 111,171,901 47,657,224
Contract owners' equity beginning of period ...... 898,176,376 527,666,759 47,657,224 -
-------------- -------------- -------------- --------------
Contract owners' equity end of period ............ $1,224,548,927 898,176,376 158,829,125 47,657,224
============== ============== ============== ==============
</TABLE>
(Continued)
<PAGE> 10
NATIONWIDE VARIABLE ACCOUNT-II
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
MSEmMkt NSATCapAp
-------------------------------- -------------------------------
1998 1997 1998 1997
--------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Investment activity:
Reinvested dividends ............................. $ 896,541 215,622 4,224,848 2,726,088
Mortality, expense and administration
charges (note 2):
BOA .......................................... (58,296) (15,348) (3,700,716) (1,856,637)
BOA Vision ................................... (62,351) (17,202) (3,266,685) (1,437,155)
BOA Enterprise ............................... (123) (104) (21,628) (6,787)
--------------- -------------- -------------- --------------
Net investment activity ........................ 775,771 182,968 (2,764,181) (574,491)
--------------- -------------- -------------- --------------
Proceeds from mutual fund shares sold ............ 34,386,517 9,201,428 133,708,074 62,546,657
Cost of mutual fund shares sold .................. (37,579,962) (9,604,273) (90,629,019) (46,273,238)
--------------- -------------- -------------- --------------
Realized gain (loss) on investments ............ (3,193,445) (402,845) 43,079,055 16,273,419
Change in unrealized gain (loss) on investments .. (588,871) (134,747) 63,140,856 40,948,774
--------------- -------------- -------------- --------------
Net gain (loss) on investments ................. (3,782,316) (537,592) 106,219,911 57,222,193
--------------- -------------- -------------- --------------
Reinvested capital gains ......................... - 93,569 19,370,613 7,703,943
--------------- -------------- -------------- --------------
Net increase (decrease) in contract owners'
equity resulting from operations ........... (3,006,545) (261,055) 122,826,343 64,351,645
--------------- -------------- -------------- --------------
Equity transactions:
Purchase payments received from
contract owners ................................ 1,603,596 3,095,151 79,993,702 79,512,984
Transfers between funds .......................... 2,595,520 5,390,535 176,934,765 95,314,794
Redemptions ...................................... (600,107) (69,221) (44,265,008) (14,345,113)
Annuity benefits ................................. - - (8,859) (292)
Annual contract maintenance charge (note 2) ...... (2,449) (458) (187,439) (90,956)
Contingent deferred sales charges (note 2) ....... (8,579) (349) (603,195) (235,192)
Adjustments to maintain reserves ................. 3,560 (7,793) 31,933 8,193
--------------- -------------- -------------- --------------
Net equity transactions ...................... 3,591,541 8,407,865 211,895,899 160,164,418
--------------- -------------- -------------- --------------
Net change in contract owners' equity ............ 584,996 8,146,810 334,722,242 224,516,063
Contract owners' equity beginning of period ...... 8,146,810 - 363,605,489 139,089,426
--------------- -------------- -------------- --------------
Contract owners' equity end of period ............ $ 8,731,806 8,146,810 698,327,731 363,605,489
=============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
NSATGvtBd NSATMyMkt
------------------------------- -------------------------------
1998 1997 1998 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Investment activity:
Reinvested dividends ............................. $ 20,283,271 17,136,024 49,803,790 46,200,443
Mortality, expense and administration
charges (note 2):
BOA .......................................... (3,112,323) (2,631,037) (7,311,860) (6,719,210)
BOA Vision ................................... (1,819,228) (1,049,731) (5,795,865) (5,441,823)
BOA Enterprise ............................... (4,150) (1,876) (7,805) (7,890)
-------------- -------------- -------------- --------------
Net investment activity ........................ 15,347,570 13,453,380 36,688,260 34,031,520
-------------- -------------- -------------- --------------
Proceeds from mutual fund shares sold ............ 207,789,615 91,300,089 3,220,375,906 2,446,735,002
Cost of mutual fund shares sold .................. (193,984,368) (88,341,190) (3,220,375,906) (2,446,735,002)
-------------- -------------- -------------- --------------
Realized gain (loss) on investments ............ 13,805,247 2,958,899 - -
Change in unrealized gain (loss) on investments .. (6,851,480) 4,971,271 - -
-------------- -------------- -------------- --------------
Net gain (loss) on investments ................. 6,953,767 7,930,170 - -
-------------- -------------- -------------- --------------
Reinvested capital gains ......................... 2,132,513 - - -
-------------- -------------- -------------- --------------
Net increase (decrease) in contract owners'
equity resulting from operations ........... 24,433,850 21,383,550 36,688,260 34,031,520
-------------- -------------- -------------- --------------
Equity transactions:
Purchase payments received from
contract owners ................................ 39,548,416 36,656,330 264,092,504 574,163,215
Transfers between funds .......................... 121,987,540 (6,550,198) 69,584,573 (398,798,940)
Redemptions ...................................... (43,099,055) (32,967,846) (235,028,324) (176,620,083)
Annuity benefits ................................. (24,316) (22,811) (33,165) (29,991)
Annual contract maintenance charge (note 2) ...... (162,551) (161,508) (329,944) (338,131)
Contingent deferred sales charges (note 2) ....... (471,441) (449,182) (3,229,365) (2,442,204)
Adjustments to maintain reserves ................. (20,225) 2,293 124,919 11,382
-------------- -------------- -------------- --------------
Net equity transactions ...................... 117,758,368 (3,492,922) 95,181,198 (4,054,752)
-------------- -------------- -------------- --------------
Net change in contract owners' equity ............ 142,192,218 17,890,628 131,869,458 29,976,768
Contract owners' equity beginning of period ...... 299,681,912 281,791,284 839,446,497 809,469,729
-------------- -------------- -------------- --------------
Contract owners' equity end of period ............ $ 441,874,130 299,681,912 971,315,955 839,446,497
============== ============== ============== ==============
</TABLE>
<PAGE> 11
NATIONWIDE VARIABLE ACCOUNT-II
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
NSATSmCapV NSATSmCo
-------------------------------- -------------------------------
1998 1997 1998 1997
--------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Investment activity:
Reinvested dividends ............................. $ - - - -
Mortality, expense and administration
charges (note 2):
BOA .......................................... (31,885) - (1,700,513) (1,428,117)
BOA Vision ................................... (35,054) - (2,059,122) (1,497,619)
BOA Enterprise ............................... (83) - (8,482) (8,023)
--------------- -------------- -------------- --------------
Net investment activity ........................ (67,022) - (3,768,117) (2,933,759)
--------------- -------------- -------------- --------------
Proceeds from mutual fund shares sold ............ 43,832,595 - 261,860,480 136,575,863
Cost of mutual fund shares sold .................. (42,411,426) - (254,018,492) (116,663,809)
--------------- -------------- -------------- --------------
Realized gain (loss) on investments ............ 1,421,169 - 7,841,988 19,912,054
Change in unrealized gain (loss) on investments .. 575,447 - (2,212,959) 4,818,936
--------------- -------------- -------------- --------------
Net gain (loss) on investments ................. 1,996,616 - 5,629,029 24,730,990
--------------- -------------- -------------- --------------
Reinvested capital gains ......................... - - - 7,911,895
--------------- -------------- -------------- --------------
Net increase (decrease) in contract owners'
equity resulting from operations ........... 1,929,594 - 1,860,912 29,709,126
--------------- -------------- -------------- --------------
Equity transactions:
Purchase payments received from
contract owners ................................ 859,632 - 36,933,858 68,338,674
Transfers between funds .......................... 11,542,676 - (26,891,714) 46,335,002
Redemptions ...................................... (691,704) - (20,592,877) (12,078,315)
Annuity benefits ................................. - - (24,125) (1,773)
Annual contract maintenance charge (note 2) ...... (1,173) - (105,259) (76,406)
Contingent deferred sales charges (note 2) ....... (8,593) - (293,623) (198,899)
Adjustments to maintain reserves ................. 87 - (19,321) 9,979
--------------- -------------- -------------- --------------
Net equity transactions ...................... 11,700,925 - (10,993,061) 102,328,262
--------------- -------------- -------------- --------------
Net change in contract owners' equity ............ 13,630,519 - (9,132,149) 132,037,388
Contract owners' equity beginning of period ...... - - 290,550,223 158,512,835
--------------- -------------- -------------- --------------
Contract owners' equity end of period ............ $ 13,630,519 - 281,418,074 290,550,223
=============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
NSATTotRe NBAMTGro
------------------------------- -------------------------------
1998 1997 1998 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Investment activity:
Reinvested dividends ............................. $ 12,035,844 12,556,764 - -
Mortality, expense and administration
charges (note 2):
BOA .......................................... (8,914,235) (6,944,503) (4,492,337) (4,438,181)
BOA Vision ................................... (6,595,435) (3,970,444) (1,605,250) (1,315,545)
BOA Enterprise ............................... (44,307) (24,485) (2,546) (1,945)
-------------- -------------- -------------- --------------
Net investment activity ........................ (3,518,133) 1,617,332 (6,100,133) (5,755,671)
-------------- -------------- -------------- --------------
Proceeds from mutual fund shares sold ............ 98,753,814 36,066,433 232,023,189 177,857,355
Cost of mutual fund shares sold .................. (54,160,507) (22,601,600) (234,618,122) (151,296,684)
-------------- -------------- -------------- --------------
Realized gain (loss) on investments ............ 44,593,307 13,464,833 (2,594,933) 26,560,671
Change in unrealized gain (loss) on investments .. 82,128,581 139,386,896 (55,314,235) 47,617,333
-------------- -------------- -------------- --------------
Net gain (loss) on investments ................. 126,721,888 152,851,729 (57,909,168) 74,178,004
-------------- -------------- -------------- --------------
Reinvested capital gains ......................... 48,037,783 32,893,745 124,274,598 32,577,604
-------------- -------------- -------------- --------------
Net increase (decrease) in contract owners'
equity resulting from operations ........... 171,241,538 187,362,806 60,265,297 100,999,937
-------------- -------------- -------------- --------------
Equity transactions:
Purchase payments received from
contract owners ................................ 144,141,140 234,728,766 28,776,863 44,470,540
Transfers between funds .......................... (18,161,876) 82,492,350 (34,982,287) (3,323,065)
Redemptions ...................................... (98,751,498) (51,176,329) (46,230,014) (39,592,901)
Annuity benefits ................................. (194,097) (152,880) (83,808) (60,735)
Annual contract maintenance charge (note 2) ...... (517,264) (390,286) (257,911) (269,972)
Contingent deferred sales charges (note 2) ....... (1,246,430) (714,965) (499,129) (523,316)
Adjustments to maintain reserves ................. 49,874 38,731 (42,003) 12,128
-------------- -------------- -------------- --------------
Net equity transactions ...................... 25,319,849 264,825,387 (53,318,289) 712,679
-------------- -------------- -------------- --------------
Net change in contract owners' equity ............ 196,561,387 452,188,193 6,947,008 101,712,616
Contract owners' equity beginning of period ...... 1,035,147,551 582,959,358 477,494,040 375,781,424
-------------- -------------- -------------- --------------
Contract owners' equity end of period ............ $1,231,708,938 1,035,147,551 484,441,048 477,494,040
============== ============== ============== ==============
</TABLE>
(Continued)
<PAGE> 12
NATIONWIDE VARIABLE ACCOUNT-II
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
NBAMTGuard NBAMTLMat
-------------------------------- -------------------------------
1998 1997 1998 1997
--------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Investment activity:
Reinvested dividends ............................. $ - - 11,658,274 11,734,100
Mortality, expense and administration
charges (note 2):
BOA .......................................... (101,891) - (1,461,067) (1,495,421)
BOA Vision ................................... (175,876) - (1,044,829) (1,132,335)
BOA Enterprise ............................... (340) - (942) (568)
--------------- -------------- -------------- --------------
Net investment activity ........................ (278,107) - 9,151,436 9,105,776
--------------- -------------- -------------- --------------
Proceeds from mutual fund shares sold ............ 27,174,222 - 67,231,619 57,634,002
Cost of mutual fund shares sold .................. (30,893,655) - (69,328,641) (58,656,885)
--------------- -------------- -------------- --------------
Realized gain (loss) on investments ............ (3,719,433) - (2,097,022) (1,022,883)
Change in unrealized gain (loss) on investments .. 1,222,564 - (1,610,865) 1,972,323
--------------- -------------- -------------- --------------
Net gain (loss) on investments ................. (2,496,869) - (3,707,887) 949,440
--------------- -------------- -------------- --------------
Reinvested capital gains ......................... - - - -
--------------- -------------- -------------- --------------
Net increase (decrease) in contract owners'
equity resulting from operations ........... (2,774,976) - 5,443,549 10,055,216
--------------- -------------- -------------- --------------
Equity transactions:
Purchase payments received from
contract owners ................................ 2,669,820 - 23,144,819 56,406,502
Transfers between funds .......................... 40,976,322 - (13,621,857) (64,818,071)
Redemptions ...................................... (2,970,574) - (24,447,184) (16,675,074)
Annuity benefits ................................. - - (19,554) (15,225)
Annual contract maintenance charge (note 2) ...... (4,885) - (61,292) (65,787)
Contingent deferred sales charges (note 2) ....... (35,504) - (209,330) (209,825)
Adjustments to maintain reserves ................. (191) - 5,646 372
--------------- -------------- -------------- --------------
Net equity transactions ...................... 40,634,988 - (15,208,752) (25,377,108)
--------------- -------------- -------------- --------------
Net change in contract owners' equity ............ 37,860,012 - (9,765,203) (15,321,892)
Contract owners' equity beginning of period ...... - - 188,450,178 203,772,070
--------------- -------------- -------------- --------------
Contract owners' equity end of period ............ $ 37,860,012 - 178,684,975 188,450,178
=============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
NBAMTPart OppBdFd
------------------------------- -------------------------------
1998 1997 1998 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Investment activity:
Reinvested dividends ............................. $ 3,116,604 1,231,708 4,888,363 14,915,295
Mortality, expense and administration
charges (note 2):
BOA .......................................... (4,534,910) (3,649,443) (1,946,480) (1,630,280)
BOA Vision ................................... (5,859,017) (4,169,214) (2,306,525) (1,603,881)
BOA Enterprise ............................... (9,661) (6,318) (2,200) (864)
-------------- -------------- -------------- --------------
Net investment activity ........................ (7,286,984) (6,593,267) 633,158 11,680,270
-------------- -------------- -------------- --------------
Proceeds from mutual fund shares sold ............ 323,653,191 239,929,783 72,961,916 30,992,706
Cost of mutual fund shares sold .................. (285,611,423) (184,398,144) (68,091,867) (30,503,439)
-------------- -------------- -------------- --------------
Realized gain (loss) on investments ............ 38,041,768 55,531,639 4,870,049 489,267
Change in unrealized gain (loss) on investments .. (112,673,667) 71,315,949 6,100,995 5,495,496
-------------- -------------- -------------- --------------
Net gain (loss) on investments ................. (74,631,899) 126,847,588 10,971,044 5,984,763
-------------- -------------- -------------- --------------
Reinvested capital gains ......................... 98,173,016 18,968,301 4,423,968 738,909
-------------- -------------- -------------- --------------
Net increase (decrease) in contract owners'
equity resulting from operations ........... 16,254,133 139,222,622 16,028,170 18,403,942
-------------- -------------- -------------- --------------
Equity transactions:
Purchase payments received from
contract owners ................................ 106,356,098 178,218,856 38,178,922 55,252,898
Transfers between funds .......................... (179,019,279) 138,729,962 20,835,559 19,335,126
Redemptions ...................................... (54,732,674) (32,375,861) (27,001,741) (16,712,535)
Annuity benefits ................................. (14,950) (1,195) (62,643) (54,502)
Annual contract maintenance charge (note 2) ...... (238,809) (163,783) (96,177) (89,653)
Contingent deferred sales charges (note 2) ....... (785,338) (453,932) (362,728) (268,113)
Adjustments to maintain reserves ................. (732) 1,670 1,178 (3,694)
-------------- -------------- -------------- --------------
Net equity transactions ...................... (128,435,684) 283,955,717 31,492,370 57,459,527
-------------- -------------- -------------- --------------
Net change in contract owners' equity ............ (112,181,551) 423,178,339 47,520,540 75,863,469
Contract owners' equity beginning of period ...... 777,189,563 354,011,224 290,966,291 215,102,822
-------------- -------------- -------------- --------------
Contract owners' equity end of period ............ $ 665,008,012 777,189,563 338,486,831 290,966,291
============== ============== ============== ==============
</TABLE>
<PAGE> 13
NATIONWIDE VARIABLE ACCOUNT-II
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
OppGISec OppGro
-------------------------------- -------------------------------
1998 1997 1998 1997
--------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Investment activity:
Reinvested dividends ............................. $ 10,856,886 4,353,191 188,351 -
Mortality, expense and administration
charges (note 2):
BOA .......................................... (3,496,341) (2,979,200) (275,168) (18,845)
BOA Vision ................................... (3,604,162) (2,689,657) (239,248) (22,068)
BOA Enterprise ............................... (1,733) (1,095) (731) (42)
--------------- -------------- -------------- --------------
Net investment activity ........................ 3,754,650 (1,316,761) (326,796) (40,955)
--------------- -------------- -------------- --------------
Proceeds from mutual fund shares sold ............ 125,576,767 76,448,017 17,011,520 738,091
Cost of mutual fund shares sold .................. (88,844,140) (62,463,469) (17,085,617) (732,690)
--------------- -------------- -------------- --------------
Realized gain (loss) on investments ............ 36,732,627 13,984,548 (74,097) 5,401
Change in unrealized gain (loss) on investments .. (21,261,831) 60,986,819 6,064,468 (150,054)
--------------- -------------- -------------- --------------
Net gain (loss) on investments ................. 15,470,796 74,971,367 5,990,371 (144,653)
--------------- -------------- -------------- --------------
Reinvested capital gains ......................... 40,867,407 - 2,272,563 -
--------------- -------------- -------------- --------------
Net increase (decrease) in contract owners'
equity resulting from operations ........... 60,092,853 73,654,606 7,936,138 (185,608)
--------------- -------------- -------------- --------------
Equity transactions:
Purchase payments received from
contract owners ................................ 51,559,320 90,024,052 16,030,396 5,815,873
Transfers between funds .......................... (20,304,286) 43,312,410 26,102,066 10,665,183
Redemptions ...................................... (37,751,898) (23,014,747) (2,687,765) (104,041)
Annuity benefits ................................. (42,320) (4,941) (3,335) -
Annual contract maintenance charge (note 2) ...... (192,525) (173,863) (13,027) (799)
Contingent deferred sales charges (note 2) ....... (520,846) (394,896) (30,325) (619)
Adjustments to maintain reserves ................. (20,237) (691,837) 31,362 125
--------------- -------------- -------------- --------------
Net equity transactions ...................... (7,272,792) 109,056,178 39,429,372 16,375,722
--------------- -------------- -------------- --------------
Net change in contract owners' equity ............ 52,820,061 182,710,784 47,365,510 16,190,114
Contract owners' equity beginning of period ...... 489,322,678 306,611,894 16,190,114 -
--------------- -------------- -------------- --------------
Contract owners' equity end of period ............ $ 542,142,739 489,322,678 63,555,624 16,190,114
=============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
OppMult StOpp2
------------------------------- -------------------------------
1998 1997 1998 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Investment activity:
Reinvested dividends ............................. $ 3,212,145 10,986,747 1,848,130 2,534,711
Mortality, expense and administration
charges (note 2):
BOA .......................................... (2,450,308) (2,272,557) (6,768,918) (5,943,611)
BOA Vision ................................... (2,206,025) (1,628,568) (3,890,877) (3,119,935)
BOA Enterprise ............................... (2,886) (1,491) (5,469) (2,861)
-------------- -------------- -------------- --------------
Net investment activity ........................ (1,447,074) 7,084,131 (8,817,134) (6,531,696)
-------------- -------------- -------------- --------------
Proceeds from mutual fund shares sold ............ 41,801,113 8,146,767 193,720,998 148,226,419
Cost of mutual fund shares sold .................. (33,330,835) (6,105,557) (137,667,518) (109,705,183)
-------------- -------------- -------------- --------------
Realized gain (loss) on investments ............ 8,470,278 2,041,210 56,053,480 38,521,236
Change in unrealized gain (loss) on investments .. (9,193,583) 22,703,778 (62,980,528) 53,401,226
-------------- -------------- -------------- --------------
Net gain (loss) on investments ................. (723,305) 24,744,988 (6,927,048) 91,922,462
-------------- -------------- -------------- --------------
Reinvested capital gains ......................... 18,630,439 9,159,579 101,358,207 57,079,292
-------------- -------------- -------------- --------------
Net increase (decrease) in contract owners'
equity resulting from operations ........... 16,460,060 40,988,698 85,614,025 142,470,058
-------------- -------------- -------------- --------------
Equity transactions:
Purchase payments received from
contract owners ................................ 36,934,558 67,724,310 61,374,281 89,723,233
Transfers between funds .......................... (27,844,235) 15,591,000 (62,713,711) (29,207,063)
Redemptions ...................................... (33,380,272) (20,273,082) (60,899,142) (40,126,673)
Annuity benefits ................................. (41,603) (8,967) (63,802) (34,707)
Annual contract maintenance charge (note 2) ...... (137,253) (128,063) (360,713) (341,773)
Contingent deferred sales charges (note 2) ....... (425,530) (313,339) (814,460) (633,525)
Adjustments to maintain reserves ................. (12,023) 2,876 3,809 (51,000)
-------------- -------------- -------------- --------------
Net equity transactions ...................... (24,906,358) 62,594,735 (63,473,738) 19,328,492
-------------- -------------- -------------- --------------
Net change in contract owners' equity ............ (8,446,298) 103,583,433 22,140,287 161,798,550
Contract owners' equity beginning of period ...... 340,972,204 237,388,771 764,227,770 602,429,220
-------------- -------------- -------------- --------------
Contract owners' equity end of period ............ $ 332,525,906 340,972,204 786,368,057 764,227,770
============== ============== ============== ==============
</TABLE>
(Continued)
<PAGE> 14
NATIONWIDE VARIABLE ACCOUNT-II
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
StDisc2 StintStk2
-------------------------------- -------------------------------
1998 1997 1998 1997
--------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Investment activity:
Reinvested dividends ............................. $ - - 531,928 1,173,377
Mortality, expense and administration
charges (note 2):
BOA .......................................... (1,451,734) (1,607,469) (263,007) (440,839)
BOA Vision ................................... (935,260) (996,834) (348,046) (479,748)
BOA Enterprise ............................... (477) (520) (326) (503)
--------------- -------------- -------------- --------------
Net investment activity ........................ (2,387,471) (2,604,823) (79,451) 252,287
--------------- -------------- -------------- --------------
Proceeds from mutual fund shares sold ............ 81,516,149 123,823,006 52,143,627 39,269,990
Cost of mutual fund shares sold .................. (73,384,284) (138,054,663) (61,140,929) (40,207,464)
--------------- -------------- -------------- --------------
Realized gain (loss) on investments ............ 8,131,865 (14,231,657) (8,997,302) (937,474)
Change in unrealized gain (loss) on investments .. 1,124,195 35,647,182 6,694,716 (9,982,351)
--------------- -------------- -------------- --------------
Net gain (loss) on investments ................. 9,256,060 21,415,525 (2,302,586) (10,919,825)
--------------- -------------- -------------- --------------
Reinvested capital gains ......................... 2,856,579 - - 1,762,973
--------------- -------------- -------------- --------------
Net increase (decrease) in contract owners'
equity resulting from operations ........... 9,725,168 18,810,702 (2,382,037) (8,904,565)
--------------- -------------- -------------- --------------
Equity transactions:
Purchase payments received from
contract owners ................................ 13,493,166 22,742,374 4,412,210 16,108,665
Transfers between funds .......................... (28,949,271) (42,069,763) (10,811,583) (22,926,232)
Redemptions ...................................... (14,296,989) (12,584,675) (3,576,372) (4,298,166)
Annuity benefits ................................. (10,191) (9,675) (4,776) (1,862)
Annual contract maintenance charge (note 2) ...... (92,275) (105,512) (17,559) (23,552)
Contingent deferred sales charges (note 2) ....... (225,995) (239,340) (55,830) (69,910)
Adjustments to maintain reserves ................. (15,647) 2,840 (5,143) 5,043
--------------- -------------- -------------- --------------
Net equity transactions ...................... (30,097,202) (32,263,751) (10,059,053) (11,206,014)
--------------- -------------- -------------- --------------
Net change in contract owners' equity ............ (20,372,034) (13,453,049) (12,441,090) (20,110,579)
Contract owners' equity beginning of period ...... 195,266,423 208,719,472 49,718,321 69,828,900
--------------- -------------- -------------- --------------
Contract owners' equity end of period ............ $ 174,894,389 195,266,423 37,277,231 49,718,321
=============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
VEWrldBd VEWrldEMkt
------------------------------- -------------------------------
1998 1997 1998 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Investment activity:
Reinvested dividends ............................. $ 874,183 3,428,399 606,759 154,979
Mortality, expense and administration
charges (note 2):
BOA .......................................... (780,003) (866,795) (339,625) (699,280)
BOA Vision ................................... (569,654) (470,930) (355,352) (592,796)
BOA Enterprise ............................... (230) (130) (728) (1,071)
-------------- -------------- -------------- --------------
Net investment activity ........................ (475,704) 2,090,544 (88,946) (1,138,168)
-------------- -------------- -------------- --------------
Proceeds from mutual fund shares sold ............ 69,501,826 36,100,931 93,885,231 85,151,405
Cost of mutual fund shares sold .................. (64,533,774) (37,747,713) (142,305,956) (84,005,535)
-------------- -------------- -------------- --------------
Realized gain (loss) on investments ............ 4,968,052 (1,646,782) (48,420,725) 1,145,870
Change in unrealized gain (loss) on investments .. 6,347,948 311,663 27,275,773 (24,512,682)
-------------- -------------- -------------- --------------
Net gain (loss) on investments ................. 11,316,000 (1,335,119) (21,144,952) (23,366,812)
-------------- -------------- -------------- --------------
Reinvested capital gains ......................... - - 539,341 -
-------------- -------------- -------------- --------------
Net increase (decrease) in contract owners'
equity resulting from operations ........... 10,840,296 755,425 (20,694,557) (24,504,980)
-------------- -------------- -------------- --------------
Equity transactions:
Purchase payments received from
contract owners ................................ 5,953,441 13,446,356 8,718,923 39,216,218
Transfers between funds .......................... (2,334,954) (16,903,125) (25,081,916) 58,762,770
Redemptions ...................................... (12,034,561) (9,117,586) (5,537,310) (7,729,327)
Annuity benefits ................................. (11,719) (11,204) (2,591) (1,090)
Annual contract maintenance charge (note 2) ...... (39,304) (44,515) (24,163) (31,176)
Contingent deferred sales charges (note 2) ....... (134,345) (111,505) (76,401) (109,502)
Adjustments to maintain reserves ................. (57,710) 3,411 (41,405) (6,833)
-------------- -------------- -------------- --------------
Net equity transactions ...................... (8,659,152) (12,738,168) (22,044,863) 90,101,060
-------------- -------------- -------------- --------------
Net change in contract owners' equity ............ 2,181,144 (11,982,743) (42,739,420) 65,596,080
Contract owners' equity beginning of period ...... 97,264,864 109,247,607 77,776,313 12,180,233
-------------- -------------- -------------- --------------
Contract owners' equity end of period ............ $ 99,446,008 97,264,864 35,036,893 77,776,313
============== ============== ============== ==============
</TABLE>
<PAGE> 15
NATIONWIDE VARIABLE ACCOUNT-II
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
VEWrldHAs MSRESec
-------------------------------- -------------------------------
1998 1997 1998 1997
--------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Investment activity:
Reinvested dividends ............................. $ 711,661 2,942,339 393,097 6,929,835
Mortality, expense and administration
charges (note 2):
BOA .......................................... (800,231) (1,330,754) (1,314,258) (1,477,443)
BOA Vision ................................... (438,740) (670,086) (1,509,947) (1,377,066)
BOA Enterprise ............................... (892) (1,080) (2,421) (2,322)
--------------- -------------- -------------- --------------
Net investment activity ........................ (528,202) 940,419 (2,433,529) 4,073,004
--------------- -------------- -------------- --------------
Proceeds from mutual fund shares sold ............ 110,716,383 180,226,702 109,606,337 87,738,533
Cost of mutual fund shares sold .................. (157,079,801) (178,928,373) (107,603,836) (67,567,070)
--------------- -------------- -------------- --------------
Realized gain (loss) on investments ............ (46,363,418) 1,298,329 2,002,501 20,171,463
Change in unrealized gain (loss) on investments .. (5,019,280) (10,420,493) (34,053,106) (8,041,235)
--------------- -------------- -------------- --------------
Net gain (loss) on investments ................. (51,382,698) (9,122,164) (32,050,605) 12,130,228
--------------- -------------- -------------- --------------
Reinvested capital gains ......................... 17,475,241 3,986,394 3,868,070 22,876,677
--------------- -------------- -------------- --------------
Net increase (decrease) in contract owners'
equity resulting from operations ........... (34,435,659) (4,195,351) (30,616,064) 39,079,909
--------------- -------------- -------------- --------------
Equity transactions:
Purchase payments received from
contract owners ................................ 6,023,164 16,547,301 22,405,804 63,961,156
Transfers between funds .......................... (25,954,967) (24,931,349) (84,189,451) 26,781,688
Redemptions ...................................... (8,770,856) (11,775,774) (16,396,178) (11,168,996)
Annuity benefits ................................. (8,819) (2,890) (23,453) (1,202)
Annual contract maintenance charge (note 2) ...... (51,034) (76,665) (65,816) (56,589)
Contingent deferred sales charges (note 2) ....... (112,511) (187,910) (213,235) (156,322)
Adjustments to maintain reserves ................. (61,663) (7,728) (13,239) 4,138
--------------- -------------- -------------- --------------
Net equity transactions ...................... (28,936,686) (20,435,015) (78,495,568) 79,363,873
--------------- -------------- -------------- --------------
Net change in contract owners' equity ............ (63,372,345) (24,630,366) (109,111,632) 118,443,782
Contract owners' equity beginning of period ...... 127,190,392 151,820,758 268,677,705 150,233,923
--------------- -------------- -------------- --------------
Contract owners' equity end of period ............ $ 63,818,047 127,190,392 159,566,073 268,677,705
=============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
WPintEq WPPVenCap
------------------------------- -------------------------------
1998 1997 1998 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Investment activity:
Reinvested dividends ............................. $ 1,248,393 2,335,080 - 2,289
Mortality, expense and administration
charges (note 2):
BOA .......................................... (1,543,369) (1,892,289) (124,501) (135,993)
BOA Vision ................................... (2,099,581) (2,323,574) (121,909) (167,588)
BOA Enterprise ............................... (1,148) (1,546) (383) (252)
-------------- -------------- -------------- --------------
Net investment activity ........................ (2,395,705) (1,882,329) (246,793) (301,544)
-------------- -------------- -------------- --------------
Proceeds from mutual fund shares sold ............ 175,012,080 94,815,826 41,505,314 46,674,220
Cost of mutual fund shares sold .................. (175,381,602) (87,661,494) (41,036,519) (44,520,920)
-------------- -------------- -------------- --------------
Realized gain (loss) on investments ............ (369,522) 7,154,332 468,795 2,153,300
Change in unrealized gain (loss) on investments .. 16,362,407 (34,790,695) 652,131 (396,347)
-------------- -------------- -------------- --------------
Net gain (loss) on investments ................. 15,992,885 (27,636,363) 1,120,926 1,756,953
-------------- -------------- -------------- --------------
Reinvested capital gains ......................... - 16,160,192 - -
-------------- -------------- -------------- --------------
Net increase (decrease) in contract owners'
equity resulting from operations ........... 13,597,180 (13,358,500) 874,133 1,455,409
-------------- -------------- -------------- --------------
Equity transactions:
Purchase payments received from
contract owners ................................ 24,541,336 69,542,854 2,630,810 6,835,129
Transfers between funds .......................... (77,448,000) (17,704,103) 5,896,486 (463,676)
Redemptions ...................................... (19,392,829) (16,226,024) (1,865,017) (2,561,771)
Annuity benefits ................................. (14,068) (8,123) - -
Annual contract maintenance charge (note 2) ...... (86,940) (95,572) (6,719) (5,950)
Contingent deferred sales charges (note 2) ....... (269,510) (245,953) (22,616) (29,935)
Adjustments to maintain reserves ................. (7,444) 4,927 (184) 975
-------------- -------------- -------------- --------------
Net equity transactions ...................... (72,677,455) 35,268,006 6,632,760 3,774,772
-------------- -------------- -------------- --------------
Net change in contract owners' equity ............ (59,080,275) 21,909,506 7,506,893 5,230,181
Contract owners' equity beginning of period ...... 286,776,025 264,866,519 14,678,793 9,448,612
-------------- -------------- -------------- --------------
Contract owners' equity end of period ............ $ 227,695,750 286,776,025 22,185,686 14,678,793
============== ============== ============== ==============
</TABLE>
(Continued)
<PAGE> 16
NATIONWIDE VARIABLE ACCOUNT-II
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
WPSmCoGr
--------------------------------
1998 1997
--------------- --------------
<S> <C> <C>
Investment activity:
Reinvested dividends ............................. $ - -
Mortality, expense and administration
charges (note 2):
BOA .......................................... (2,148,938) (2,040,961)
BOA Vision ................................... (2,437,919) (2,229,554)
BOA Enterprise ............................... (4,146) (3,912)
--------------- --------------
Net investment activity ........................ (4,591,003) (4,274,427)
--------------- --------------
Proceeds from mutual fund shares sold ............ 234,905,719 206,418,883
Cost of mutual fund shares sold .................. (206,336,848) (190,696,238)
--------------- --------------
Realized gain (loss) on investments ............ 28,568,871 15,722,645
Change in unrealized gain (loss) on investments .. (37,572,573) 32,994,104
--------------- --------------
Net gain (loss) on investments ................. (9,003,702) 48,716,749
--------------- --------------
Reinvested capital gains ......................... - -
--------------- --------------
Net increase (decrease) in contract owners'
equity resulting from operations ........... (13,594,705) 44,442,322
--------------- --------------
Equity transactions:
Purchase payments received from
contract owners ................................ 35,864,595 78,705,384
Transfers between funds .......................... (60,145,996) 21,336,792
Redemptions ...................................... (24,045,876) (17,829,181)
Annuity benefits ................................. (16,707) (4,658)
Annual contract maintenance charge (note 2) ...... (131,597) (116,486)
Contingent deferred sales charges (note 2) ....... (375,448) (332,255)
Adjustments to maintain reserves ................. (8,986) 12,595
--------------- --------------
Net equity transactions ...................... (48,860,015) 81,772,191
--------------- --------------
Net change in contract owners' equity ............ (62,454,720) 126,214,513
Contract owners' equity beginning of period ...... 383,397,113 257,182,600
--------------- --------------
Contract owners' equity end of period ............ $ 320,942,393 383,397,113
=============== ==============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 17
NATIONWIDE VARIABLE ACCOUNT-II
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-II (the Account) was established
pursuant to a resolution of the Board of Directors of Nationwide Life
Insurance Company (the Company) on October 7, 1981. The Account has
been registered as a unit investment trust under the Investment Company
Act of 1940.
The Company offers tax qualified and non-tax qualified Individual
Deferred Variable Annuity Contracts, and Individual Modified Single
Premium Deferred Variable Annuity Contracts through the Account. The
primary distribution for the contracts is through the brokerage
community; however, other distributors are utilized.
(b) The Contracts
Only contracts without a front-end sales charge, but with a contingent
deferred sales charge and certain other fees are offered for purchase.
See note 2 for a discussion of contract expenses.
With certain exceptions, contract owners in either the accumulation or
the payout phase may invest in the following:
Portfolios of the American Century Variable Portfolios, Inc.
(American Century VP);
American Century VP - American Century VP Balanced (ACVPBal)
American Century VP - American Century VP Capital Appreciation
(ACVPCapAp)
American Century VP - American Century VP Income & Growth
(ACVPIncGr)
American Century VP - American Century VP International
(ACVPInt)
American Century VP - American Century VP Value (ACVPValue)
Funds of the American Variable Insurance Series (American VI
Series) (available only for contracts issued on or after May 1,
1987 and before September 1, 1989);
American VISeries - Growth Fund (AVISGro)
American VISeries - High-Yield Bond Fund (AVISHiYld)
American VISeries - U.S. Government/AAA-Rated Securities Fund
(AVISGvt)
The Dreyfus Socially Responsible Growth Fund, Inc. (DrySRGro)
Dreyfus Stock Index Fund (DryStkIx)
Portfolios of the Dreyfus Variable Investment Fund (Dreyfus VIF);
Dreyfus VIF - Capital Appreciation Portfolio (DryCapAp)
Dreyfus VIF - Growth and Income Portfolio (DryGrInc)
Portfolios of the Fidelity Variable Insurance Products Fund
(Fidelity VIP);
Fidelity VIP - Equity-Income Portfolio (FidVIPEI)
Fidelity VIP - Growth Portfolio (FidVIPGr)
Fidelity VIP - High Income Portfolio (FidVIPHI)
Fidelity VIP - Overseas Portfolio (FidVIPOv)
Portfolios of the Fidelity Variable Insurance Products Fund II
(Fidelity VIP-II);
Fidelity VIP-II - Asset Manager Portfolio (FidVIPAM)
Fidelity VIP-II - Contrafund Portfolio (FidVIPCon)
Portfolio of the Fidelity Variable Insurance Products Fund III
(Fidelity VIP-III);
Fidelity VIP-III - Growth Opportunities Portfolio (FidVIPGrOp)
<PAGE> 18
Portfolio of the Morgan Stanley Universal Funds, Inc. (Morgan
Stanley);
Morgan Stanley - Emerging Markets Debt Portfolio (MSEmMkt)
Funds of the Nationwide Separate Account Trust (Nationwide SAT)
(managed for a fee by an affiliated investment advisor);
Nationwide SAT - Capital Appreciation Fund (NSATCapAp)
Nationwide SAT - Government Bond Fund (NSATGvtBd)
Nationwide SAT - Money Market Fund (NSATMyMkt)
Nationwide SAT - Small Cap Value
Fund (NSATSmCapV) Nationwide SAT - Small Company Fund (NSATSmCo)
Nationwide SAT - Total Return Fund (NSATTotRe)
Portfolios of the Neuberger & Berman Advisers Management Trust
(Neuberger &Berman AMT);
Neuberger & Berman AMT - Growth Portfolio (NBAMTGro)
Neuberger & Berman AMT - Guardian Portfolio (NBAMTGuard)
Neuberger & Berman AMT - Limited Maturity Bond Portfolio
(NBAMTLMat)
Neuberger & Berman AMT - Partners Portfolio (NBAMTPart)
Funds of the Oppenheimer Variable Account Funds (Oppenheimer VAF);
Oppenheimer VAF - Bond Fund (OppBdFd)
Oppenheimer VAF - Global Securities Fund (OppGlSec)
Oppenheimer VAF - Growth Fund (OppGro)
Oppenheimer VAF - Multiple Strategies Fund (OppMult)
Strong Opportunity Fund II, Inc. (StOpp2)
Funds of the Strong Variable Insurance Funds, Inc. (Strong VIF);
Strong VIF - Strong Discovery Fund II (StDisc2)
Strong VIF - Strong International Stock Fund II (StIntStk2)
Funds of the Van Eck Worldwide Insurance Trust (Van Eck WIT);
Van Eck WIT - Worldwide Bond Fund (VEWrldBd)
Van Eck WIT - Worldwide Emerging Markets Fund (VEWrldEMkt)
Van Eck WIT - Worldwide Hard Assets Fund (VEWrldHAs)
Portfolio of the Van Kampen American Capital Life Investment
Trust (Van Kampen American Capital LIT);
Van Kampen American Capital LIT - Morgan Stanley Real Estate
Securities Portfolio (MSRESec)
Portfolios of the Warburg Pincus Trust;
Warburg Pincus Trust - International Equity Portfolio (WPIntEq)
Warburg Pincus Trust - Post Venture Capital Portfolio (WPPVenCap)
Warburg Pincus Trust - Small Company Growth Portfolio (WPSmCoGr)
At December 31, 1998, contract owners have invested in all of the above
funds. The contract owners' equity is affected by the investment
results of each fund, equity transactions by contract owners and
certain contract expenses (see note 2).
The accompanying financial statements include only contract owners'
purchase payments pertaining to the variable portions of their
contracts and exclude any purchase payments for fixed dollar benefits,
the latter being included in the accounts of the Company.
A contract owner may choose from among a number of different underlying
mutual fund options. The underlying mutual fund options are not
available to the general public directly. The underlying mutual funds
are available as investment options in variable life insurance policies
or variable annuity contracts issued by life insurance companies or, in
some cases, through participation in certain qualified pension or
retirement plans.
Some of the underlying mutual funds have been established by investment
advisers which manage publicly traded mutual funds having similar names
and investment objectives. While some of the underlying mutual funds
may be similar to, and may in fact be modeled after, publicly traded
mutual funds, the underlying mutual funds are not otherwise directly
related to any publicly traded mutual fund. Consequently, the
investment performance of publicly traded mutual funds and any
corresponding underlying mutual funds may differ substantially.
<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 December 15, 1988, 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
December 15, 1988, 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) for The
BEST OF AMERICA(R) contracts, an annual contract maintenance charge of up
to $30, dependent on contract type and issue date, which is satisfied by
surrendering units; and (b) for The BEST OF AMERICA(R) contracts issued
prior to December 15, 1988, 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 The BEST OF AMERICA(R) contracts
issued on or after December 15, 1988, 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; for The BEST OF AMERICA(R) America's Vision AnnuitySM
contracts, 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 0.15%, respectively; and for
The BEST OF AMERICA(R) Nationwide Insurance Enterprise Annuity contracts, a
mortality risk charge assessed through the daily unit value calculation
equal to an annual rate of 0.80%.
(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)
--------- ----------- ---------
<S> <C> <C> <C> <C>
Contracts in accumulation phase:
The BEST OF AMERICA(R) contracts:
American Century VP -
American Century VP Balanced:
Tax qualified 3,311,879 $ 18.677491 $ 61,857,590 14%
Non-tax qualified 2,684,128 18.677491 50,132,777 14%
American Century VP -
American Century VP Capital Appreciation:
Tax qualified 5,691,252 21.832994 124,257,071 (3)%
Non-tax qualified 3,199,790 21.832994 69,860,996 (3)%
American Century VP -
American Century VP Income & Growth:
Tax qualified 851,923 10.825822 9,222,767 8%(a)
Non-tax qualified 1,195,005 10.825822 12,936,911 8%(a)
American Century VP -
American Century VP International:
Tax qualified 4,804,748 16.121219 77,458,395 17%
Non-tax qualified 3,904,415 16.121219 62,943,929 17%
American Century VP -
American Century VP Value:
Tax qualified 1,289,505 13.057214 16,837,343 3%
Non-tax qualified 1,042,979 13.057214 13,618,400 3%
American VI Series - Growth Fund:
Tax qualified 371,663 42.056137 15,630,710 34%
Non-tax qualified 368,482 42.056137 15,496,929 34%
American VI Series -
High-Yield Bond Fund:
Tax qualified 62,435 25.475118 1,590,539 (1)%
Non-tax qualified 38,541 25.475118 981,837 (1)%
American VI Series - U.S. Government/
AAA-Rated Securities Fund:
Tax qualified 129,959 21.026607 2,732,597 7%
Non-tax qualified 81,141 21.026607 1,706,120 7%
The Dreyfus Socially Responsible
Growth Fund, Inc.:
Tax qualified 3,208,339 27.580026 88,486,073 28%
Non-tax qualified 1,734,954 27.580026 47,850,076 28%
Dreyfus Stock Index Fund:
Tax qualified 16,760,500 27.352140 458,435,542 27%
Non-tax qualified 11,496,653 27.352140 314,458,062 27%
Dreyfus VIF -
Capital Appreciation Portfolio:
Tax qualified 3,218,773 13.099410 42,164,027 29%
Non-tax qualified 3,158,512 13.099410 41,374,644 29%
Dreyfus VIF -
Growth and Income Portfolio:
Tax qualified 1,530,286 12.641927 19,345,764 10%
Non-tax qualified 1,010,647 12.641927 12,776,526 10%
</TABLE>
<PAGE> 21
<TABLE>
<S> <C> <C> <C> <C>
Fidelity VIP - Equity-Income Portfolio:
Tax qualified 23,119,147 39.068090 903,220,916 10%
Non-tax qualified 17,190,931 39.068090 671,616,839 10%
Fidelity VIP - Growth Portfolio:
Tax qualified 17,532,628 64.597153 1,132,557,853 38%
Non-tax qualified 11,328,287 64.597153 731,775,089 38%
Fidelity VIP - High Income Portfolio:
Tax qualified 6,464,105 26.926873 174,058,134 (6)%
Non-tax qualified 6,457,997 26.926873 173,893,665 (6)%
Fidelity VIP - Overseas Portfolio:
Tax qualified 11,283,013 20.307878 229,134,051 11%
Non-tax qualified 9,318,467 20.307878 189,238,291 11%
Fidelity VIP-II - Asset Manager Portfolio:
Tax qualified 18,785,187 27.616728 518,785,400 14%
Non-tax qualified 10,977,395 27.616728 303,159,732 14%
Fidelity VIP-II - Contrafund Portfolio:
Tax qualified 15,609,123 20.836167 325,234,294 28%
Non-tax qualified 11,340,649 20.836167 236,295,656 28%
Fidelity VIP-III -
Growth Opportunities Portfolio:
Tax qualified 2,942,745 13.446025 39,568,223 23%
Non-tax qualified 2,183,868 13.446025 29,364,344 23%
Morgan Stanley -
Emerging Markets Debt Portfolio:
Tax qualified 417,556 6.934889 2,895,705 (29)%
Non-tax qualified 283,779 6.934889 1,967,976 (29)%
Nationwide SAT -
Capital Appreciation Fund:
Tax qualified 6,725,123 30.616503 205,899,749 28%
Non-tax qualified 5,812,770 30.616503 177,966,690 28%
Nationwide SAT -
Government Bond Fund:
Tax qualified 4,202,514 35.250995 148,142,800 7%
Non-tax qualified 3,353,428 35.157882 117,899,426 7%
Nationwide SAT - Money Market Fund:
Tax qualified 10,938,889 23.891623 261,347,812 4%
Non-tax qualified 12,513,821 23.891623 298,975,494 4%
Nationwide SAT - Small Cap Value Fund:
Tax qualified 405,997 8.528787 3,462,662 (15)%(a)
Non-tax qualified 600,393 8.528787 5,120,624 (15)%(a)
Nationwide SAT - Small Company Fund:
Tax qualified 4,961,782 15.971964 79,249,403 0%
Non-tax qualified 3,151,728 15.971964 50,339,286 0%
Nationwide SAT - Total Return Fund:
Tax qualified 4,459,090 93.358149 416,292,389 17%
Non-tax qualified 3,296,114 90.954119 299,795,145 17%
Neuberger & Berman AMT Growth Portfolio:
Tax qualified 4,739,527 43.203987 204,766,463 14%
Non-tax qualified 3,535,046 43.203987 152,728,081 14%
Neuberger & Berman AMT -
Guardian Portfolio:
Tax qualified 928,355 9.282422 8,617,383 (7)%(a)
Non-tax qualified 782,161 9.282422 7,260,348 (7)%(a)
</TABLE>
(Continued)
<PAGE> 22
<TABLE>
<S> <C> <C> <C> <C>
Neuberger & Berman AMT -
Limited Maturity Bond Portfolio:
Tax qualified 3,027,892 18.227259 55,190,172 3%
Non-tax qualified 2,828,271 18.227259 51,551,628 3%
Neuberger & Berman AMT
Partners Portfolio:
Tax qualified 7,610,496 22.992724 174,986,034 3%
Non-tax qualified 5,337,515 22.992724 122,724,009 3%
Oppenheimer VAF - Bond Fund:
Tax qualified 4,366,241 19.729274 86,142,765 5%
Non-tax qualified 3,654,118 19.729274 72,093,095 5%
Oppenheimer VAF -
Global Securities Fund:
Tax qualified 9,503,851 18.054116 171,583,628 13%
Non-tax qualified 5,697,473 18.054116 102,862,838 13%
Oppenheimer VAF - Growth Fund:
Tax qualified 1,553,053 12.762568 19,820,945 22%
Non-tax qualified 1,122,440 12.762568 14,325,217 22%
Oppenheimer VAF -
Multiple Strategies Fund:
Tax qualified 4,734,705 21.978211 104,060,346 5%
Non-tax qualified 3,383,989 21.978211 74,374,024 5%
Strong Opportunity Fund II, Inc.:
Tax qualified 10,757,453 29.241637 314,565,536 12%
Non-tax qualified 6,829,157 29.241637 199,695,730 12%
Strong VIF - Strong Discovery Fund II:
Tax qualified 3,330,945 18.773240 62,532,630 6%
Non-tax qualified 2,561,304 18.773240 48,083,975 6%
Strong VIF -
Strong International Stock Fund II:
Tax qualified 1,115,317 8.937224 9,967,838 (6)%
Non-tax qualified 824,150 8.937224 7,365,613 (6)%
Van Eck WIT - Worldwide Bond Fund:
Tax qualified 1,824,058 16.424717 29,959,636 11%
Non-tax qualified 1,736,777 16.424717 28,526,071 11%
Van Eck WIT -
Worldwide Emerging Markets Fund:
Tax qualified 1,862,823 5.716175 10,648,222 (35)%
Non-tax qualified 1,394,148 5.716175 7,969,194 (35)%
Van Eck WIT -
Worldwide Hard Assets Fund:
Tax qualified 1,976,563 10.743036 21,234,287 (32)%
Non-tax qualified 1,953,375 10.743036 20,985,178 (32)%
Van Kampen American Capital LIT -
Morgan Stanley Real Estate
Securities Portfolio:
Tax qualified 2,429,141 15.615675 37,932,676 (13)%
Non-tax qualified 2,423,893 15.615675 37,850,725 (13)%
Warburg Pincus Trust -
International Equity Portfolio:
Tax qualified 4,923,915 11.608185 57,157,716 4%
Non-tax qualified 3,738,519 11.608185 43,397,420 4%
Warburg Pincus Trust -
Post Venture Capital Portfolio:
Tax qualified 531,483 11.952364 6,352,478 5%
Non-tax qualified 448,154 11.952364 5,356,500 5%
</TABLE>
<PAGE> 23
<TABLE>
<S> <C> <C> <C> <C>
Warburg Pincus Trust -
Small Company Growth Portfolio:
Tax qualified 5,715,162 15.294249 87,409,111 (4)%
Non-tax qualified 4,595,026 15.294249 70,277,472 (4)%
The BEST OF AMERICA(R) Nationwide Insurance
Enterprise Annuity contracts:
American Century VP -
American Century VP Balanced:
Tax qualified 10,841 15.003357 162,651 15%
Non-tax qualified 12,689 15.003357 190,378 15%
American Century VP -
American Century VP Capital Appreciation:
Tax qualified 6,953 8.734621 60,732 (3)%
Non-tax qualified 11,266 8.734621 98,404 (3)%
American Century VP -
American Century VP Income & Growth:
Tax qualified 109 10.862433 1,184 9%(a)
Non-tax qualified 2,432 10.862433 26,417 9%(a)
American Century VP -
American Century VP International:
Tax qualified 4,492 16.294485 73,195 18%
Non-tax qualified 11,501 16.294485 187,403 18%
American Century VP -
American Century VP Value:
Tax qualified 997 13.191239 13,152 4%
Non-tax qualified 10,800 13.191239 142,465 4%
The Dreyfus Socially Responsible
Growth Fund, Inc.:
Tax qualified 12,450 20.314721 252,918 28%
Non-tax qualified 8,800 20.314721 178,770 28%
Dreyfus Stock Index Fund:
Tax qualified 73,693 21.564450 1,589,149 27%
Non-tax qualified 57,396 21.564450 1,237,713 27%
Dreyfus VIF -
Capital Appreciation Portfolio:
Tax qualified 8,555 13.196658 112,897 29%
Non-tax qualified 11,092 13.196658 146,377 29%
Dreyfus VIF Growth and Income Portfolio:
Tax qualified 19,404 12.771671 247,822 11%
Non-tax qualified 14,677 12.771671 187,450 11%
Fidelity VIP - Equity-Income Portfolio:
Tax qualified 63,894 17.117556 1,093,709 11%
Non-tax qualified 58,459 17.117556 1,000,675 11%
Fidelity VIP - Growth Portfolio:
Tax qualified 67,118 18.598337 1,248,283 38%
Non-tax qualified 72,186 18.598337 1,342,540 38%
Fidelity VIP - High Income Portfolio:
Tax qualified 20,159 12.725625 256,536 (5)%
Non-tax qualified 29,302 12.725625 372,886 (5)%
Fidelity VIP - Overseas Portfolio:
Tax qualified 1,306 14.574887 19,035 12%
Non-tax qualified 3,352 14.574887 48,855 12%
</TABLE>
(Continued)
<PAGE> 24
<TABLE>
<S> <C> <C> <C> <C>
Fidelity VIP-II - Asset Manager Portfolio:
Tax qualified 9,570 16.357953 156,546 14%
Non-tax qualified 13,208 16.357953 216,056 14%
Fidelity VIP-II - Contrafund Portfolio:
Tax qualified 25,061 19.503885 488,787 29%
Non-tax qualified 21,809 19.503885 425,360 29%
Fidelity VIP-III -
Growth Opportunities Portfolio:
Tax qualified 5,578 13.545866 75,559 24%
Non-tax qualified 9,045 13.545866 122,522 24%
Morgan Stanley -
Emerging Markets Debt Portfolio:
Tax qualified 50 6.986517 349 (29)%
Non-tax qualified 126 6.986517 880 (29)%
Nationwide SAT -
Capital Appreciation Fund:
Tax qualified 89,909 23.165130 2,082,754 29%
Non-tax qualified 83,268 23.165130 1,928,914 29%
Nationwide SAT -
Government Bond Fund:
Tax qualified 38,202 12.382040 473,019 8%
Non-tax qualified 35,508 12.382040 439,661 8%
Nationwide SAT - Money Market Fund:
Tax qualified 47,932 11.457526 549,182 4%
Non-tax qualified 57,997 11.457526 664,502 4%
Nationwide SAT - Small Cap Value Fund:
Tax qualified 672 8.557673 5,751 (14)%(a)
Non-tax qualified 1,602 8.557673 13,709 (14)%(a)
Nationwide SAT - Small Company Fund:
Tax qualified 21,106 16.217601 342,289 0%
Non-tax qualified 32,785 16.217601 531,694 0%
Nationwide SAT - Total Return Fund:
Tax qualified 175,958 19.086420 3,358,408 17%
Non-tax qualified 165,625 19.086420 3,161,188 17%
Neuberger & Berman AMT -
Growth Portfolio:
Tax qualified 8,454 15.832511 133,848 15%
Non-tax qualified 13,157 15.832511 208,308 15%
Neuberger & Berman AMT -
Guardian Portfolio:
Tax qualified 1,169 9.313837 10,888 (7)%(a)
Non-tax qualified 10,424 9.313837 97,087 (7)%(a)
Neuberger & Berman AMT -
Limited Maturity Bond Portfolio:
Tax qualified 2,556 11.550378 29,523 4%
Non-tax qualified 6,843 11.550378 79,039 4%
Neuberger & Berman AMT -
Partners Portfolio:
Tax qualified 27,924 18.285622 510,608 3%
Non-tax qualified 25,730 18.285622 470,489 3%
Oppenheimer VAF - Bond Fund:
Tax qualified 17,438 12.279322 214,127 6%
Non-tax qualified 19,590 12.279322 240,552 6%
</TABLE>
<PAGE> 25
<TABLE>
<S> <C> <C> <C> <C>
Oppenheimer VAF -
Global Securities Fund:
Tax qualified 7,037 16.204214 114,029 13%
Non-tax qualified 5,896 16.204214 95,540 13%
Oppenheimer VAF - Growth Fund:
Tax qualified 7,443 12.857366 95,697 23%
Non-tax qualified 2,581 12.857366 33,185 23%
Oppenheimer VAF -
Multiple Strategies Fund:
Tax qualified 14,316 14.521876 207,895 6%
Non-tax qualified 16,138 14.521876 234,354 6%
Strong Opportunity Fund II, Inc.:
Tax qualified 19,114 17.394278 332,474 13%
Non-tax qualified 19,791 17.394278 344,250 13%
Strong VIF - Strong Discovery Fund II:
Tax qualified 756 12.307345 9,304 6%
Non-tax qualified 3,184 12.307345 39,187 6%
Strong VIF -
Strong International Stock Fund II:
Tax qualified 3,271 9.029694 29,536 (6)%
Non-tax qualified 704 9.029694 6,357 (6)%
Van Eck WIT - Worldwide Bond Fund:
Tax qualified 1,169 11.685439 13,660 12%
Non-tax qualified 1,060 11.685439 12,387 12%
Van Eck WIT -
Worldwide Emerging Markets Fund:
Tax qualified 6,729 5.774938 38,860 (35)%
Non-tax qualified 4,464 5.774938 25,779 (35)%
Van Eck WIT -
Worldwide Hard Assets Fund:
Tax qualified 1,662 8.651833 14,379 (32)%
Non-tax qualified 9,030 8.651833 78,126 (32)%
Van Kampen American Capital LIT -
Morgan Stanley Real Estate
Securities Portfolio:
Tax qualified 5,144 15.607765 80,286 (12)%
Non-tax qualified 11,844 15.607765 184,858 (12)%
Warburg Pincus Trust -
International Equity Portfolio:
Tax qualified 3,803 11.456500 43,569 5%
Non-tax qualified 3,149 11.456500 36,077 5%
Warburg Pincus Trust -
Post Venture Capital Portfolio:
Tax qualified 411 12.075066 4,963 6%
Non-tax qualified 3,383 12.075066 40,850 6%
Warburg Pincus Trust -
Small Company Growth Portfolio:
Tax qualified 11,973 13.935312 166,847 (4)%
Non-tax qualified 24,274 13.935312 338,266 (4)%
The BEST OF AMERICA(R) America's Vision
Annuity(SM) contracts:
American Century VP -
American Century VP Balanced:
Tax qualified 2,324,877 17.180551 39,942,668 14%
Non-tax qualified 3,259,024 17.180551 55,991,828 14%
</TABLE>
(Continued)
<PAGE> 26
<TABLE>
<S> <C> <C> <C> <C>
American Century VP -
American Century VP Capital Appreciation:
Tax qualified 2,096,618 11.105046 23,283,039 (4)%
Non-tax qualified 2,997,998 11.105046 33,292,906 (4)%
American Century VP -
American Century VP Income & Growth:
Tax qualified 660,409 10.818483 7,144,624 8%(a)
Non-tax qualified 867,235 10.818483 9,382,167 8%(a)
American Century VP -
American Century VP International:
Tax qualified 3,867,971 16.049229 62,077,952 17%
Non-tax qualified 5,549,022 16.049229 89,057,525 17%
American Century VP -
American Century VP Value:
Tax qualified 1,368,433 13.030493 17,831,357 3%
Non-tax qualified 1,555,893 13.030493 20,274,053 3%
The Dreyfus Socially Responsible
Growth Fund, Inc.:
Tax qualified 2,233,140 25.996040 58,052,797 28%
Non-tax qualified 2,713,732 25.996040 70,546,286 28%
Dreyfus Stock Index Fund:
Tax qualified 14,729,959 27.128900 399,607,585 26%
Non-tax qualified 20,136,222 27.128900 546,273,553 26%
Dreyfus VIF -
Capital Appreciation Portfolio:
Tax qualified 2,552,942 13.079978 33,392,425 28%
Non-tax qualified 3,823,437 13.079978 50,010,472 28%
Dreyfus VIF -
Growth and Income Portfolio:
Tax qualified 1,631,617 12.616052 20,584,565 10%
Non-tax qualified 2,166,223 12.616052 27,329,182 10%
Fidelity VIP - Equity-Income Portfolio:
Tax qualified 21,218,396 22.453988 476,437,609 10%
Non-tax qualified 29,521,717 22.453988 662,880,279 10%
Fidelity VIP - Growth Portfolio:
Tax qualified 14,762,454 25.487577 376,259,183 38%
Non-tax qualified 20,736,972 25.487577 528,535,171 38%
Fidelity VIP - High Income Portfolio:
Tax qualified 10,344,737 14.405141 149,017,395 (6)%
Non-tax qualified 16,093,648 14.405141 231,831,269 (6)%
Fidelity VIP - Overseas Portfolio:
Tax qualified 4,021,152 15.553060 62,541,218 11%
Non-tax qualified 6,251,077 15.553060 97,223,376 11%
Fidelity VIP-II - Asset Manager Portfolio:
Tax qualified 8,121,780 16.832250 136,707,831 13%
Non-tax qualified 10,607,282 16.832250 178,544,422 13%
Fidelity VIP-II - Contrafund Portfolio:
Tax qualified 13,726,215 20.762500 284,990,539 28%
Non-tax qualified 18,136,001 20.762500 376,548,721 28%
Fidelity VIP-III -
Growth Opportunities Portfolio:
Tax qualified 2,717,672 13.426082 36,487,687 23%
Non-tax qualified 3,950,006 13.426082 53,033,104 23%
</TABLE>
<PAGE> 27
<TABLE>
<S> <C> <C> <C> <C>
Morgan Stanley -
Emerging Markets Debt Portfolio:
Tax qualified 168,941 6.924574 1,169,844 (29)%
Non-tax qualified 389,490 6.924574 2,697,052 (29)%
Nationwide SAT -
Capital Appreciation Fund:
Tax qualified 4,940,669 27.075632 133,771,736 28%
Non-tax qualified 6,517,824 27.075632 176,474,204 28%
Nationwide SAT -
Government Bond Fund:
Tax qualified 5,568,798 13.264325 73,866,347 7%
Non-tax qualified 7,612,211 13.264325 100,970,841 7%
Nationwide SAT - Money Market Fund:
Tax qualified 14,205,644 11.927856 169,442,876 4%
Non-tax qualified 20,133,168 11.927856 240,145,529 4%
Nationwide SAT - Small Cap Value Fund:
Tax qualified 192,359 8.523007 1,639,477 (15)%(a)
Non-tax qualified 397,547 8.523007 3,388,296 (15)%(a)
Nationwide SAT - Small Company Fund:
Tax qualified 4,237,223 15.920417 67,458,357 0%
Non-tax qualified 5,235,907 15.920417 83,357,823 0%
Nationwide SAT - Total Return Fund:
Tax qualified 10,125,826 22.849095 231,365,960 16%
Non-tax qualified 12,095,557 22.849095 276,372,531 16%
Neuberger & Berman AMT -
Growth Portfolio:
Tax qualified 2,485,942 19.155589 47,619,683 14%
Non-tax qualified 4,103,790 19.155589 78,610,515 14%
Neuberger & Berman AMT -
Guardian Portfolio:
Tax qualified 1,202,225 9.276124 11,151,988 (7)%(a)
Non-tax qualified 1,155,905 9.276124 10,722,318 (7)%(a)
Neuberger & Berman AMT -
Limited Maturity Bond Portfolio:
Tax qualified 2,286,137 12.016412 27,471,164 3%
Non-tax qualified 3,686,363 12.016412 44,296,857 3%
Neuberger & Berman AMT -
Partners Portfolio:
Tax qualified 6,708,322 22.890094 153,554,121 3%
Non-tax qualified 9,288,228 22.890094 212,608,412 3%
Oppenheimer VAF - Bond Fund:
Tax qualified 5,838,014 13.161293 76,835,813 5%
Non-tax qualified 7,806,181 13.161293 102,739,435 5%
Oppenheimer VAF -
Global Securities Fund:
Tax qualified 7,043,429 16.529444 116,423,965 13%
Non-tax qualified 9,123,582 16.529444 150,807,738 13%
Oppenheimer VAF - Growth Fund:
Tax qualified 959,141 12.743636 12,222,944 22%
Non-tax qualified 1,331,146 12.743636 16,963,640 22%
Oppenheimer VAF -
Multiple Strategies Fund:
Tax qualified 4,320,161 16.281980 70,340,775 5%
Non-tax qualified 5,100,007 16.281980 83,038,212 5%
</TABLE>
(Continued)
<PAGE> 28
<TABLE>
<S> <C> <C> <C> <C>
Strong Opportunity Fund II, Inc.:
Tax qualified 5,406,908 21.434632 115,895,083 12%
Non-tax qualified 7,229,174 21.434632 154,954,684 12%
Strong VIF - Strong Discovery Fund II:
Tax qualified 1,694,881 15.507147 26,282,769 6%
Non-tax qualified 2,442,361 15.507147 37,874,051 6%
Strong VIF -
Strong International Stock Fund II:
Tax qualified 905,955 8.908351 8,070,565 (6)%
Non-tax qualified 1,324,589 8.908351 11,799,904 (6)%
Van Eck WIT - Worldwide Bond Fund:
Tax qualified 1,351,072 13.016609 17,586,376 11%
Non-tax qualified 1,789,762 13.016609 23,296,632 11%
Van Eck WIT -
Worldwide Emerging Markets Fund:
Tax qualified 1,171,528 5.704452 6,682,925 (35)%
Non-tax qualified 1,694,210 5.704452 9,664,540 (35)%
Van Eck WIT -
Worldwide Hard Assets Fund:
Tax qualified 870,452 8.796887 7,657,268 (32)%
Non-tax qualified 1,571,084 8.796887 13,820,648 (32)%
Van Kampen American Capital LIT -
Morgan Stanley Real Estate
Securities Portfolio:
Tax qualified 3,044,098 15.560452 47,367,541 (13)%
Non-tax qualified 2,317,641 15.560452 36,063,542 (13)%
Warburg Pincus Trust -
International Equity Portfolio:
Tax qualified 4,110,213 11.567145 47,543,430 4%
Non-tax qualified 6,861,319 11.567145 79,365,872 4%
Warburg Pincus Trust -
Post Venture Capital Portfolio:
Tax qualified 416,468 11.927880 4,967,580 5%
Non-tax qualified 458,029 11.927880 5,463,315 5%
Warburg Pincus Trust -
Small Company Growth Portfolio:
Tax qualified 4,139,966 15.240137 63,093,649 (4)%
Non-tax qualified 6,531,391 15.240137 99,539,294 (4)%
=========== ===========
Reserves for annuity contracts in
payout phase:
Tax qualified 3,839,879
Non-tax qualified 9,491,453
-----------
$ 20,672,674,408
================
</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> 78
<PAGE> 1
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Nationwide Life Insurance Company:
We have audited the accompanying consolidated balance sheets of Nationwide Life
Insurance Company and subsidiaries (collectively the Company), a wholly owned
subsidiary of Nationwide Financial Services, Inc., as of December 31, 1998 and
1997, and the related consolidated statements of income, shareholder's equity
and cash flows for each of the years in the three-year period ended December 31,
1998. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Nationwide Life
Insurance Company and subsidiaries as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally accepted
accounting principles.
KPMG LLP
Columbus, Ohio
January 29, 1999
<PAGE> 2
<TABLE>
<CAPTION>
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Balance Sheets
(in millions of dollars, except per share amounts)
December 31,
-----------------------
Assets 1998 1997
------ --------- ---------
<S> <C> <C>
Investments:
Securities available-for-sale, at fair value:
Fixed maturity securities $14,245.1 $13,204.1
Equity securities 127.2 80.4
Mortgage loans on real estate, net 5,328.4 5,181.6
Real estate, net 243.6 311.4
Policy loans 464.3 415.3
Other long-term investments 44.0 25.2
Short-term investments 289.1 358.4
--------- ---------
20,741.7 19,576.4
--------- ---------
Cash 3.4 175.6
Accrued investment income 218.7 210.5
Deferred policy acquisition costs 2,022.2 1,665.4
Other assets 420.3 438.4
Assets held in separate accounts 50,935.8 37,724.4
--------- ---------
$74,342.1 $59,790.7
========= =========
Liabilities and Shareholder's Equity
------------------------------------
Future policy benefits and claims $19,767.1 $18,702.8
Other liabilities 866.1 885.6
Liabilities related to separate accounts 50,935.8 37,724.4
--------- ---------
71,569.0 57,312.8
--------- ---------
Commitments and contingencies (notes 7 and 12)
Shareholder's equity:
Common stock, $1 par value. Authorized 5.0 million shares;
3.8 million shares issued and outstanding 3.8 3.8
Additional paid-in capital 914.7 914.7
Retained earnings 1,579.0 1,312.3
Accumulated other comprehensive income 275.6 247.1
--------- ---------
2,773.1 2,477.9
--------- ---------
$74,342.1 $59,790.7
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 3
<TABLE>
<CAPTION>
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Statements of Income
(in millions of dollars)
Years ended December 31,
-----------------------------------
1998 1997 1996
-------- -------- ---------
<S> <C> <C> <C>
Revenues:
Policy charges $ 698.9 $ 545.2 $ 400.9
Life insurance premiums 200.0 205.4 198.6
Net investment income 1,481.6 1,409.2 1,357.8
Realized gains (losses) on investments 28.4 11.1 (0.3)
Other 66.8 46.5 35.9
-------- -------- --------
2,475.7 2,217.4 1,992.9
-------- -------- --------
Benefits and expenses:
Interest credited to policyholder account balances 1,069.0 1,016.6 982.3
Other benefits and claims 175.8 178.2 178.3
Policyholder dividends on participating policies 39.6 40.6 41.0
Amortization of deferred policy acquisition costs 214.5 167.2 133.4
Other operating expenses 419.7 384.9 342.4
-------- -------- --------
1,918.6 1,787.5 1,677.4
-------- -------- --------
Income from continuing operations before federal income tax expense 557.1 429.9 315.5
Federal income tax expense 190.4 150.2 110.9
-------- -------- --------
Income from continuing operations 366.7 279.7 204.6
Income from discontinued operations (less federal income tax expense
of $4.5 in 1996) -- -- 11.3
-------- -------- --------
Net income $ 366.7 $ 279.7 $ 215.9
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 4
<TABLE>
<CAPTION>
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Statements of Shareholder's Equity
Years ended December 31, 1998, 1997 and 1996
(in millions of dollars)
Accumulated
Additional other Total
Common paid-in Retained comprehensive shareholder's
stock capital earnings income equity
----- ------- -------- ------ ------
<S> <C> <C> <C> <C> <C>
December 31, 1995 $ 3.8 $ 657.2 $1,583.2 $ 384.3 $2,628.5
Comprehensive income:
Net income -- -- 215.9 -- 215.9
Net unrealized losses on securities
available-for-sale arising during
the year -- -- -- (170.9) (170.9)
--------
Total comprehensive income 45.0
--------
Dividends to shareholder -- (129.3) (366.5) (39.8) (535.6)
------ ------- -------- ------- --------
December 31, 1996 3.8 527.9 1,432.6 173.6 2,137.9
Comprehensive income:
Net income -- -- 279.7 -- 279.7
Net unrealized gains on securities
available-for-sale arising during
the year -- -- -- 73.5 73.5
--------
Total comprehensive income 353.2
--------
Capital contribution -- 836.8 -- -- 836.8
Dividend to shareholder -- (450.0) (400.0) -- (850.0)
------ ------- -------- ------- --------
December 31, 1997 3.8 914.7 1,312.3 247.1 2,477.9
Comprehensive income:
Net income -- -- 366.7 -- 366.7
Net unrealized gains on securities
available-for-sale arising during
the year -- -- -- 28.5 28.5
--------
Total comprehensive income 395.2
--------
Dividend to shareholder -- -- (100.0) -- (100.0)
------ ------- -------- ------- --------
December 31, 1998 $ 3.8 $ 914.7 $1,579.0 $ 275.6 $2,773.1
====== ======= ======== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
<TABLE>
<CAPTION>
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Statements of Cash Flows
(in millions of dollars)
Years ended December 31,
---------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 366.7 $ 279.7 $ 215.9
Adjustments to reconcile net income to net cash provided by operating
activities:
Interest credited to policyholder account balances 1,069.0 1,016.6 982.3
Capitalization of deferred policy acquisition costs (584.2) (487.9) (422.6)
Amortization of deferred policy acquisition costs 214.5 167.2 133.4
Amortization and depreciation (8.5) (2.0) 7.0
Realized gains on invested assets, net (28.4) (11.1) (0.3)
(Increase) decrease in accrued investment income (8.2) (0.3) 2.8
(Increase) decrease in other assets 16.4 (12.7) (38.9)
Decrease in policy liabilities (8.3) (23.1) (151.0)
(Decrease) increase in other liabilities (34.8) 230.6 191.4
Other, net (11.3) (10.9) (61.7)
--------- --------- ---------
Net cash provided by operating activities 982.9 1,146.1 858.3
--------- --------- ---------
Cash flows from investing activities:
Proceeds from maturity of securities available-for-sale 1,557.0 993.4 1,162.8
Proceeds from sale of securities available-for-sale 610.5 574.5 299.6
Proceeds from repayments of mortgage loans on real estate 678.2 437.3 309.0
Proceeds from sale of real estate 103.8 34.8 18.5
Proceeds from repayments of policy loans and sale of other invested assets 23.6 22.7 22.8
Cost of securities available-for-sale acquired (3,182.8) (2,828.1) (1,573.6)
Cost of mortgage loans on real estate acquired (829.1) (752.2) (972.8)
Cost of real estate acquired (0.8) (24.9) (7.9)
Policy loans issued and other invested assets acquired (88.4) (62.5) (57.7)
Short-term investments, net 69.3 (354.8) 28.0
--------- --------- ---------
Net cash used in investing activities (1,058.7) (1,959.8) (771.3)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from capital contributions -- 836.8 --
Cash dividends paid (100.0) -- (50.0)
Increase in investment product and universal life insurance
product account balances 2,682.1 2,488.5 1,781.8
Decrease in investment product and universal life insurance
product account balances (2,678.5) (2,379.8) (1,784.5)
--------- --------- ---------
Net cash (used in) provided by financing activities (96.4) 945.5 (52.7)
--------- --------- ---------
Net (decrease) increase in cash (172.2) 131.8 34.3
Cash, beginning of year 175.6 43.8 9.5
--------- --------- ---------
Cash, end of year $ 3.4 $ 175.6 $ 43.8
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 6
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(1) Organization and Description of Business
----------------------------------------
Prior to January 27, 1997, Nationwide Life Insurance Company (NLIC) was
wholly owned by Nationwide Corporation (Nationwide Corp.). On that
date, Nationwide Corp. contributed the outstanding shares of NLIC's
common stock to Nationwide Financial Services, Inc. (NFS), a holding
company formed by Nationwide Corp. in November 1996 for NLIC and the
other companies within the Nationwide Insurance Enterprise that offer
or distribute long-term savings and retirement products. On March 11,
1997, NFS completed an initial public offering of its Class A common
stock.
During 1996 and 1997, Nationwide Corp. and NFS completed certain
transactions in anticipation of the initial public offering that
focused the business of NFS on long-term savings and retirement
products. On September 24, 1996, NLIC declared a dividend payable to
Nationwide Corp. on January 1, 1997 consisting of the outstanding
shares of common stock of certain subsidiaries that do not offer or
distribute long-term savings or retirement products. In addition,
during 1996, NLIC entered into two reinsurance agreements whereby all
of NLIC's accident and health and group life insurance business was
ceded to two affiliates effective January 1, 1996. These subsidiaries,
through December 31, 1996, and all accident and health and group life
insurance business have been accounted for as discontinued operations
for all periods presented. See notes 10 and 14. Additionally, NLIC paid
$900.0 million of dividends, $50.0 million to Nationwide Corp. on
December 31, 1996 and $850.0 million to NFS, which then made an
equivalent dividend to Nationwide Corp., on February 24, 1997.
NFS contributed $836.8 million to the capital of NLIC during March
1997.
Wholly owned subsidiaries of NLIC include Nationwide Life and Annuity
Insurance Company (NLAIC), Nationwide Advisory Services, Inc.,
Nationwide Investment Services Corporation and NWE, Inc. NLIC and its
subsidiaries are collectively referred to as "the Company."
The Company is a leading provider of long-term savings and retirement
products, including variable annuities, fixed annuities and life
insurance.
(2) Summary of Significant Accounting Policies
------------------------------------------
The significant accounting policies followed by the Company that
materially affect financial reporting are summarized below. The
accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles, which differ
from statutory accounting practices prescribed or permitted by
regulatory authorities. Annual Statements for NLIC and NLAIC, filed
with the Department of Insurance of the State of Ohio (the Department),
are prepared on the basis of accounting practices prescribed or
permitted by the Department. Prescribed statutory accounting practices
include a variety of publications of the National Association of
Insurance Commissioners (NAIC), as well as state laws, regulations and
general administrative rules. Permitted statutory accounting practices
encompass all accounting practices not so prescribed. The Company has
no material permitted statutory accounting practices.
<PAGE> 7
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosures of contingent
assets and liabilities as of the date of the consolidated financial
statements and the reported amounts of revenues and expenses for the
reporting period. Actual results could differ significantly from those
estimates.
The most significant estimates include those used in determining
deferred policy acquisition costs, valuation allowances for mortgage
loans on real estate and real estate investments and the liability for
future policy benefits and claims. Although some variability is
inherent in these estimates, management believes the amounts provided
are adequate.
(a) Consolidation Policy
--------------------
The consolidated financial statements include the accounts of NLIC
and its wholly owned subsidiaries. Operations that are classified
and reported as discontinued operations are not consolidated but
rather are reported as "Income from discontinued operations" in
the accompanying consolidated statements of income. All
significant intercompany balances and transactions have been
eliminated.
(b) Valuation of Investments and Related Gains and Losses
-----------------------------------------------------
The Company is required to classify its fixed maturity securities
and equity securities as either held-to-maturity,
available-for-sale or trading. Fixed maturity securities are
classified as held-to-maturity when the Company has the positive
intent and ability to hold the securities to maturity and are
stated at amortized cost. Fixed maturity securities not classified
as held-to-maturity and all equity securities are classified as
available-for-sale and are stated at fair value, with the
unrealized gains and losses, net of adjustments to deferred policy
acquisition costs and deferred federal income tax, reported as a
separate component of shareholder's equity. The adjustment to
deferred policy acquisition costs represents the change in
amortization of deferred policy acquisition costs that would have
been required as a charge or credit to operations had such
unrealized amounts been realized. The Company has no fixed
maturity securities classified as held-to-maturity or trading as
of December 31, 1998 or 1997.
Mortgage loans on real estate are carried at the unpaid principal
balance less valuation allowances. The Company provides valuation
allowances for impairments of mortgage loans on real estate based
on a review by portfolio managers. The measurement of impaired
loans is based on the present value of expected future cash flows
discounted at the loan's effective interest rate or, as a
practical expedient, at the fair value of the collateral, if the
loan is collateral dependent. Loans in foreclosure and loans
considered to be impaired are placed on non-accrual status.
Interest received on non-accrual status mortgage loans on real
estate is included in interest income in the period received.
Real estate is carried at cost less accumulated depreciation and
valuation allowances. Other long-term investments are carried on
the equity basis, adjusted for valuation allowances. Impairment
losses are recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the
assets' carrying amount.
Realized gains and losses on the sale of investments are
determined on the basis of specific security identification.
Estimates for valuation allowances and other than temporary
declines are included in realized gains and losses on investments.
<PAGE> 8
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(c) Revenues and Benefits
---------------------
Investment Products and Universal Life Insurance Products:
Investment products consist primarily of individual and group
variable and fixed deferred annuities. Universal life insurance
products include universal life insurance, variable universal life
insurance, corporate owned life insurance and other
interest-sensitive life insurance policies. Revenues for
investment products and universal life insurance products consist
of net investment income, asset fees, cost of insurance, policy
administration and surrender charges that have been earned and
assessed against policy account balances during the period. Policy
benefits and claims that are charged to expense include interest
credited to policy account balances and benefits and claims
incurred in the period in excess of related policy account
balances.
Traditional Life Insurance Products: Traditional life insurance
products include those products with fixed and guaranteed premiums
and benefits and consist primarily of whole life insurance,
limited-payment life insurance, term life insurance and certain
annuities with life contingencies. Premiums for traditional life
insurance products are recognized as revenue when due. Benefits
and expenses are associated with earned premiums so as to result
in recognition of profits over the life of the contract. This
association is accomplished by the provision for future policy
benefits and the deferral and amortization of policy acquisition
costs.
(d) Deferred Policy Acquisition Costs
---------------------------------
The costs of acquiring new business, principally commissions,
certain expenses of the policy issue and underwriting department
and certain variable sales expenses have been deferred. For
investment products and universal life insurance products,
deferred policy acquisition costs are being amortized with
interest over the lives of the policies in relation to the present
value of estimated future gross profits from projected interest
margins, asset fees, cost of insurance, policy administration and
surrender charges. For years in which gross profits are negative,
deferred policy acquisition costs are amortized based on the
present value of gross revenues. For traditional life insurance
products, these deferred policy acquisition costs are
predominantly being amortized with interest over the premium
paying period of the related policies in proportion to the ratio
of actual annual premium revenue to the anticipated total premium
revenue. Such anticipated premium revenue was estimated using the
same assumptions as were used for computing liabilities for future
policy benefits. Deferred policy acquisition costs are adjusted to
reflect the impact of unrealized gains and losses on fixed
maturity securities available-for-sale as described in note 2(b).
(e) Separate Accounts
-----------------
Separate account assets and liabilities represent contractholders'
funds which have been segregated into accounts with specific
investment objectives. For all but $743.9 million of separate
account assets, the investment income and gains or losses of these
accounts accrue directly to the contractholders. The activity of
the separate accounts is not reflected in the consolidated
statements of income and cash flows except for the fees the
Company receives.
(f) Future Policy Benefits
----------------------
Future policy benefits for investment products in the accumulation
phase, universal life insurance and variable universal life
insurance policies have been calculated based on participants'
contributions plus interest credited less applicable contract
charges. The average interest rate credited on investment product
policy reserves was 6.0%, 6.1% and 6.3% for the years ended
December 31, 1998, 1997 and 1996, respectively.
Future policy benefits for traditional life insurance policies
have been calculated by the net level premium method using
interest rates varying from 6.0% to 10.5% and estimates of
mortality, morbidity, investment yields and withdrawals which were
used or which were being experienced at the time the policies were
issued, rather than the assumptions prescribed by state regulatory
authorities.
<PAGE> 9
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(g) Participating Business
----------------------
Participating business represents approximately 40% in 1998 (50%
in 1997 and 52% in 1996) of the Company's life insurance in force,
74% in 1998 (77% in 1997 and 78% in 1996) of the number of life
insurance policies in force, and 14% in 1998 (27% in 1997 and 40%
in 1996) of life insurance statutory premiums. The provision for
policyholder dividends is based on current dividend scales and is
included in "Future policy benefits and claims" in the
accompanying consolidated balance sheets.
(h) Federal Income Tax
------------------
The Company files a consolidated federal income tax return with
Nationwide Mutual Insurance Company (NMIC), the majority
shareholder of Nationwide Corp. The members of the consolidated
tax return group have a tax sharing arrangement which provides, in
effect, for each member to bear essentially the same federal
income tax liability as if separate tax returns were filed.
The Company utilizes the asset and liability method of accounting
for income tax. Under this method, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be
recovered or settled. Under this method, the effect on deferred
tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.
Valuation allowances are established when necessary to reduce the
deferred tax assets to the amounts expected to be realized.
(i) Reinsurance Ceded
-----------------
Reinsurance premiums ceded and reinsurance recoveries on benefits
and claims incurred are deducted from the respective income and
expense accounts. Assets and liabilities related to reinsurance
ceded are reported on a gross basis. All of the Company's accident
and health and group life insurance business is ceded to
affiliates and is accounted for as discontinued operations. See
notes 10 and 14.
<PAGE> 10
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(j) Recently Issued Accounting Pronouncements
-----------------------------------------
On January 1, 1998 the Company adopted SFAS No. 131 - Disclosures
about Segments of an Enterprise and Related Information (SFAS
131). SFAS 131 supersedes SFAS No. 14 - Financial Reporting for
Segments of a Business Enterprise. SFAS 131 establishes standards
for public business enterprises to report information about
operating segments in annual financial statements and selected
information about operating segments in interim financial reports.
SFAS 131 also establishes standards for related disclosures about
products and services, geographic areas, and major customers. The
adoption of SFAS 131 did not affect results of operations or
financial position, nor did it affect the manner in which the
Company defines its operating segments. The segment information
required for annual financial statements is included in note 13.
On January 1, 1998, the Company adopted SFAS No. 132 - Employers'
Disclosures about Pensions and Other Postretirement Benefits (SFAS
132). SFAS 132 revises employers' disclosures about pension and
other postretirement benefit plans. The Statement does not change
the measurement or recognition of benefit plans in the financial
statements. The revised disclosures required by SFAS 132 are
included in note 8.
In June 1998, the FASB issued SFAS No. 133 - Accounting for
Derivative Instruments and Hedging Activities (SFAS 133). SFAS 133
establishes accounting and reporting standards for derivative
instruments and for hedging activities. Contracts that contain
embedded derivatives, such as certain insurance contracts, are
also addressed by the Statement. SFAS 133 requires that an entity
recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at
fair value. The Statement is effective for fiscal years beginning
after June 15, 1999. It may be implemented earlier provided
adoption occurs as of the beginning of any fiscal quarter after
issuance. The Company plans to adopt this Statement in first
quarter 2000 and is currently evaluating the impact on results of
operations and financial condition.
In March 1998, The American Institute of Certified Public
Accountant's Accounting Standards Executive Committee issued
Statement of Position 98-1 - Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use (SOP 98-1). SOP
98-1 provides guidance intended to standardize accounting
practices for costs incurred to develop or obtain computer
software for internal use. Specifically, SOP 98-1 provides
guidance for determining whether computer software is for internal
use and when costs incurred for internal use software are to be
capitalized. SOP 98-1 is effective for financial statements for
fiscal years beginning after December 15, 1998. The Company does
not expect the adoption of SOP 98-1, which occurred on January 1,
1999, to have a material impact on the Company's financial
statements.
(k) Reclassification
----------------
Certain items in the 1997 and 1996 consolidated financial
statements have been reclassified to conform to the 1998
presentation.
<PAGE> 11
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(3) Investments
-----------
The amortized cost, gross unrealized gains and losses and estimated
fair value of securities available-for-sale as of December 31, 1998 and
1997 were:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
(in millions of dollars) cost gains losses fair value
------------------------ ---- ----- ------ ----------
<S> <C> <C> <C> <C>
December 31, 1998:
Fixed maturity securities:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies $ 255.9 $ 13.0 $ -- $ 268.9
Obligations of states and political subdivisions 1.6 -- -- 1.6
Debt securities issued by foreign governments 106.5 4.5 -- 111.0
Corporate securities 9,899.6 423.2 (18.7) 10,304.1
Mortgage-backed securities 3,457.7 104.2 (2.4) 3,559.5
--------- ------ ------ ---------
Total fixed maturity securities 13,721.3 544.9 (21.1) 14,245.1
Equity securities 110.4 18.3 (1.5) 127.2
--------- ------ ------ ---------
$13,831.7 $563.2 $(22.6) $14,372.3
========= ====== ====== =========
December 31, 1997:
Fixed maturity securities:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies $ 305.1 $ 8.6 $ -- $ 313.7
Obligations of states and political subdivisions 1.6 -- -- 1.6
Debt securities issued by foreign governments 93.3 2.7 (0.2) 95.8
Corporate securities 8,698.7 355.5 (11.5) 9,042.7
Mortgage-backed securities 3,634.2 118.6 (2.5) 3,750.3
--------- ------ ------ ---------
Total fixed maturity securities 12,732.9 485.4 (14.2) 13,204.1
Equity securities 67.8 12.9 (0.3) 80.4
--------- ------ ------ ---------
$12,800.7 $498.3 $(14.5) $13,284.5
========= ====== ====== =========
</TABLE>
As of December 31, 1998 the Company had entered into S&P 500 futures
contracts with a notional amount of $20.0 million to reduce the risk of
changes in the fair market value of certain investments classified as
equity securities. These contracts had an unrealized loss of $1.3
million as of December 31, 1998 which is included in the recorded
amount of the equity securities and in accumulated other comprehensive
income, net of tax, similar to other unrealized gains and losses on
securities available-for-sale.
<PAGE> 12
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
The amortized cost and estimated fair value of fixed maturity
securities available-for-sale as of December 31, 1998, by expected
maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Estimated
(in millions of dollars) cost fair value
---- ----------
<S> <C> <C>
Fixed maturity securities available for sale:
Due in one year or less $ 2,019.9 $ 2,048.0
Due after one year through five years 8,169.1 8,470.6
Due after five years through ten years 2,795.0 2,927.7
Due after ten years 737.3 798.8
--------- ---------
$13,721.3 $14,245.1
========= =========
</TABLE>
The components of unrealized gains on securities available-for-sale,
net, were as follows as of December 31:
<TABLE>
<CAPTION>
(in millions of dollars) 1998 1997
---- ----
<S> <C> <C>
Gross unrealized gains $ 540.6 $ 483.8
Adjustment to deferred policy acquisition costs (116.6) (103.7)
Deferred federal income tax (148.4) (133.0)
------- -------
$ 275.6 $ 247.1
======= =======
</TABLE>
An analysis of the change in gross unrealized gains (losses) on
securities available-for-sale and fixed maturity securities
held-to-maturity follows for the years ended December 31:
<TABLE>
<CAPTION>
(in millions of dollars) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturity securities $52.6 $137.5 $(289.2)
Equity securities 4.2 (2.7) 8.9
----- ------ -------
$56.8 $134.8 $(280.3)
===== ====== =======
</TABLE>
Proceeds from the sale of securities available-for-sale during 1998,
1997 and 1996 were $610.5 million, $574.5 million and $299.6 million,
respectively. During 1998, gross gains of $9.0 million ($9.9 million
and $6.6 million in 1997 and 1996, respectively) and gross losses of
$7.6 million ($18.0 million and $6.9 million in 1997 and 1996,
respectively) were realized on those sales. In addition, gross gains of
$15.1 million and gross losses of $0.7 million were realized in 1997
when the Company paid a dividend to NFS, which then made an equivalent
dividend to Nationwide Corp., consisting of securities having an
aggregate fair value of $850.0 million.
The recorded investment of mortgage loans on real estate considered to
be impaired as of December 31, 1998 was $3.7 million. No valuation
allowance has been recorded for these loans as of December 31, 1998.
The recorded investment of mortgage loans on real estate considered to
be impaired as of December 31, 1997 was $19.9 million which includes
$3.9 million of impaired mortgage loans on real estate for which the
related valuation allowance was $0.1 million and $16.0 million of
impaired mortgage loans on real estate for which there was no valuation
allowance. During 1998, the average recorded investment in impaired
mortgage loans on real estate was approximately $9.1 million ($31.8
million in 1997) and interest income recognized on those loans was $0.3
million ($1.0 million in 1997), which is equal to interest income
recognized using a cash-basis method of income recognition.
<PAGE> 13
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Activity in the valuation allowance account for mortgage loans on real
estate is summarized for the years ended December 31:
<TABLE>
<CAPTION>
(in millions of dollars) 1998 1997
---- ----
<S> <C> <C>
Allowance, beginning of year $42.5 $51.0
Reductions credited to operations (0.1) (1.2)
Direct write-downs charged against the allowance -- (7.3)
----- -----
Allowance, end of year $42.4 $42.5
===== =====
</TABLE>
Real estate is presented at cost less accumulated depreciation of $21.5
million as of December 31, 1998 ($45.1 million as of December 31, 1997)
and valuation allowances of $5.4 million as of December 31, 1998 ($11.1
million as of December 31, 1997).
Investments that were non-income producing for the twelve month period
preceding December 31, 1998 amounted to $42.4 million ($19.4 million
for 1997) and consisted of $32.7 million ($3.0 million in 1997) in
securities available-for-sale and $9.7 million ($16.4 million in 1997)
in real estate.
An analysis of investment income by investment type follows for the
years ended December 31:
<TABLE>
<CAPTION>
(in millions of dollars) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Gross investment income:
Securities available-for-sale:
Fixed maturity securities $ 982.5 $ 911.6 $ 917.1
Equity securities 0.8 0.8 1.3
Mortgage loans on real estate 458.9 457.7 432.8
Real estate 40.4 42.9 44.3
Short-term investments 17.8 22.7 4.2
Other 30.7 21.0 4.0
-------- -------- --------
Total investment income 1,531.1 1,456.7 1,403.7
Less investment expenses 49.5 47.5 45.9
-------- -------- --------
Net investment income $1,481.6 $1,409.2 $1,357.8
======== ======== ========
</TABLE>
An analysis of realized gains (losses) on investments, net of valuation
allowances, by investment type follows for the years ended December 31:
<TABLE>
<CAPTION>
(in millions of dollars) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturity securities $(0.7) $ 3.6 $(3.5)
Equity securities 2.1 2.7 3.2
Mortgage loans on real estate 3.9 1.6 (4.1)
Real estate and other 23.1 3.2 4.1
----- ----- -----
$28.4 $11.1 $(0.3)
===== ===== =====
</TABLE>
Fixed maturity securities with an amortized cost of $6.5 million and
$6.2 million as of December 31, 1998 and 1997, respectively, were on
deposit with various regulatory agencies as required by law.
<PAGE> 14
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(4) Federal Income Tax
------------------
The Company's current federal income tax liability was $72.8 million
and $60.1 million as of December 31, 1998 and 1997, respectively.
The tax effects of temporary differences that give rise to significant
components of the net deferred tax liability as of December 31, 1998
and 1997 are as follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1998 1997
---- ----
<S> <C> <C>
Deferred tax assets:
Future policy benefits $207.7 $200.1
Liabilities in Separate Accounts 319.9 242.0
Mortgage loans on real estate and real estate 17.5 19.0
Other assets and other liabilities 58.9 59.2
------ ------
Total gross deferred tax assets 604.0 520.3
Less valuation allowance (7.0) (7.0)
------ ------
Net deferred tax assets 597.0 513.3
------ ------
Deferred tax liabilities:
Deferred policy acquisition costs 568.7 480.5
Fixed maturity securities 212.2 193.3
Deferred tax on realized investment gains 34.8 40.1
Equity securities and other long-term investments 9.6 7.5
Other 21.6 22.2
------ ------
Total gross deferred tax liabilities 846.9 743.6
------ ------
Net deferred tax liability $249.9 $230.3
====== ======
</TABLE>
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion of the
total gross deferred tax assets will not be realized. Nearly all future
deductible amounts can be offset by future taxable amounts or recovery
of federal income tax paid within the statutory carryback period. There
has been no change in the valuation allowance for the years ended
December 31, 1998, 1997 and 1996.
Federal income tax expense attributable to income from continuing
operations for the years ended December 31 was as follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Currently payable $186.1 $121.7 $116.5
Deferred tax expense (benefit) 4.3 28.5 (5.6)
------ ------ ------
$190.4 $150.2 $110.9
====== ====== ======
</TABLE>
<PAGE> 15
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Total federal income tax expense for the years ended December 31, 1998,
1997 and 1996 differs from the amount computed by applying the U.S.
federal income tax rate to income before tax as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(in millions of dollars) Amount % Amount % Amount %
------ - ------ - ------ -
<S> <C> <C> <C> <C> <C> <C>
Computed (expected) tax expense $195.0 35.0 $150.5 35.0 $110.4 35.0
Tax exempt interest and dividends
received deduction (4.9) (0.9) - 0.0 (0.2) (0.1)
Other, net 0.3 0.1 (0.3) (0.1) 0.7 0.3
------ ---- ------ ---- ------ ----
Total (effective rate of each year) $190.4 34.2 $150.2 34.9 $110.9 35.2
====== ==== ====== ==== ====== ====
</TABLE>
Total federal income tax paid was $173.4 million, $91.8 million and
$115.8 million during the years ended December 31, 1998, 1997 and 1996,
respectively.
(5) Comprehensive Income
--------------------
Pursuant to SFAS No. 130 - Reporting Comprehensive Income, which the
Company adopted January 1, 1998, the Consolidated Statements of
Shareholder's Equity include a new measure called "Comprehensive
Income". Comprehensive Income includes net income as well as certain
items that are reported directly within separate components of
shareholders' equity that bypass net income. Currently, the Company's
only component of Other Comprehensive Income is unrealized gains
(losses) on securities available-for-sale. The related before and after
federal tax amounts are as follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Unrealized gains (losses) on securities
available-for-sale arising during the period:
Gross $ 58.2 $141.1 $(272.4)
Adjustment to deferred policy acquisition costs (12.9) (21.8) 57.0
Related federal income tax (expense) benefit (15.9) (41.7) 44.0
------ ------ ------
Net 29.4 77.6 (171.4)
------ ------ ------
Reclassification adjustment for net (gains) losses
on securities available-for-sale realized
during the period:
Gross (1.4) (6.3) 0.7
Related federal income tax expense (benefit) 0.5 2.2 (0.2)
------ ------ -------
Net (0.9) (4.1) 0.5
------ ------ -------
Total Other Comprehensive Income $ 28.5 $ 73.5 $(170.9)
====== ====== =======
</TABLE>
(6) Fair Value of Financial Instruments
-----------------------------------
The following disclosures summarize the carrying amount and estimated
fair value of the Company's financial instruments. Certain assets and
liabilities are specifically excluded from the disclosure requirements
of financial instruments. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Company.
<PAGE> 16
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
The fair value of a financial instrument is defined as the amount at
which the financial instrument could be exchanged in a current
transaction between willing parties. In cases where quoted market
prices are not available, fair value is to be based on estimates using
present value or other valuation techniques. Many of the Company's
assets and liabilities subject to the disclosure requirements are not
actively traded, requiring fair values to be estimated by management
using present value or other valuation techniques. These techniques are
significantly affected by the assumptions used, including the discount
rate and estimates of future cash flows. Although fair value estimates
are calculated using assumptions that management believes are
appropriate, changes in assumptions could cause these estimates to vary
materially. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases,
could not be realized in the immediate settlement of the instruments.
Although insurance contracts, other than policies such as annuities
that are classified as investment contracts, are specifically exempted
from the disclosure requirements, estimated fair value of policy
reserves on life insurance contracts is provided to make the fair value
disclosures more meaningful.
The tax ramifications of the related unrealized gains and losses can
have a significant effect on fair value estimates and have not been
considered in the estimates.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures:
Fixed maturity and equity securities: The fair value for fixed
maturity securities is based on quoted market prices, where
available. For fixed maturity securities not actively traded, fair
value is estimated using values obtained from independent pricing
services or, in the case of private placements, is estimated by
discounting expected future cash flows using a current market rate
applicable to the yield, credit quality and maturity of the
investments. The fair value for equity securities is based on
quoted market prices. The carrying amount and fair value for
equity securities exclude the fair value of futures contracts
designated as hedges of equity securities.
Mortgage loans on real estate, net: The fair value for mortgage
loans on real estate is estimated using discounted cash flow
analyses, using interest rates currently being offered for similar
loans to borrowers with similar credit ratings. Loans with similar
characteristics are aggregated for purposes of the calculations.
Fair value for mortgage loans in default is the estimated fair
value of the underlying collateral.
Policy loans, short-term investments and cash: The carrying amount
reported in the consolidated balance sheets for these instruments
approximates their fair value.
Separate account assets and liabilities: The fair value of assets
held in separate accounts is based on quoted market prices. The
fair value of liabilities related to separate accounts is the
amount payable on demand, which is net of certain surrender
charges.
Investment contracts: The fair value for the Company's liabilities
under investment type contracts is disclosed using two methods.
For investment contracts without defined maturities, fair value is
the amount payable on demand. For investment contracts with known
or determined maturities, fair value is estimated using discounted
cash flow analysis. Interest rates used are similar to currently
offered contracts with maturities consistent with those remaining
for the contracts being valued.
<PAGE> 17
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Policy reserves on life insurance contracts: Included are
disclosures for individual life insurance, universal life
insurance and supplementary contracts with life contingencies for
which the estimated fair value is the amount payable on demand.
Also included are disclosures for the Company's limited payment
policies, which the Company has used discounted cash flow analyses
similar to those used for investment contracts with known
maturities to estimate fair value.
Commitments to extend credit: Commitments to extend credit have
nominal fair value because of the short-term nature of such
commitments. See note 7.
Futures contracts: The fair value for futures contracts is based
on quoted market prices.
Carrying amount and estimated fair value of financial instruments
subject to disclosure requirements and policy reserves on life
insurance contracts were as follows as of December 31:
<TABLE>
<CAPTION>
1998 1997
------------------------- --------------------------
Carrying Estimated Carrying Estimated
(in millions of dollars) amount fair value amount fair value
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Assets:
Investments:
Securities available-for-sale:
Fixed maturity securities $14,245.1 $14,245.1 $13,204.1 $13,204.1
Equity securities 128.5 128.5 80.4 80.4
Mortgage loans on real estate, net 5,328.4 5,527.6 5,181.6 5,509.7
Policy loans 464.3 464.3 415.3 415.3
Short-term investments 289.1 289.1 358.4 358.4
Cash 3.4 3.4 175.6 175.6
Assets held in separate accounts 50,935.8 50,935.8 37,724.4 37,724.4
Liabilities:
Investment contracts 15,468.7 15,158.6 14,708.2 14,322.1
Policy reserves on life insurance contracts 3,914.0 3,768.9 3,345.4 3,182.4
Liabilities related to separate accounts 50,935.8 49,926.5 37,724.4 36,747.0
Futures contracts 1.3 1.3 -- --
</TABLE>
(7) Risk Disclosures
----------------
The following is a description of the most significant risks facing
life insurers and how the Company mitigates those risks:
Credit Risk: The risk that issuers of securities owned by the Company
or mortgagors on mortgage loans on real estate owned by the Company
will default or that other parties, including reinsurers, which owe the
Company money, will not pay. The Company minimizes this risk by
adhering to a conservative investment strategy, by maintaining
reinsurance and credit and collection policies and by providing for any
amounts deemed uncollectible.
Interest Rate Risk: The risk that interest rates will change and cause
a decrease in the value of an insurer's investments. This change in
rates may cause certain interest-sensitive products to become
uncompetitive or may cause disintermediation. The Company mitigates
this risk by charging fees for non-conformance with certain policy
provisions, by offering products that transfer this risk to the
purchaser, and/or by attempting to match the maturity schedule of its
assets with the expected payouts of its liabilities. To the extent that
liabilities come due more quickly than assets mature, an insurer would
have to borrow funds or sell assets prior to maturity and potentially
recognize a gain or loss.
<PAGE> 18
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Legal/Regulatory Risk: The risk that changes in the legal or regulatory
environment in which an insurer operates will result in increased
competition, reduced demand for a company's products, or create
additional expenses not anticipated by the insurer in pricing its
products. The Company mitigates this risk by offering a wide range of
products and by operating throughout the United States, thus reducing
its exposure to any single product or jurisdiction, and also by
employing underwriting practices which identify and minimize the
adverse impact of this risk.
Financial Instruments with Off-Balance-Sheet Risk: The Company is a
party to financial instruments with off-balance-sheet risk in the
normal course of business through management of its investment
portfolio. These financial instruments include commitments to extend
credit in the form of loans. These instruments involve, to varying
degrees, elements of credit risk in excess of amounts recognized on the
consolidated balance sheets.
Commitments to fund fixed rate mortgage loans on real estate are
agreements to lend to a borrower, and are subject to conditions
established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment
of a deposit. Commitments extended by the Company are based on
management's case-by-case credit evaluation of the borrower and the
borrower's loan collateral. The underlying mortgage property represents
the collateral if the commitment is funded. The Company's policy for
new mortgage loans on real estate is to lend no more than 75% of
collateral value. Should the commitment be funded, the Company's
exposure to credit loss in the event of nonperformance by the borrower
is represented by the contractual amounts of these commitments less the
net realizable value of the collateral. The contractual amounts also
represent the cash requirements for all unfunded commitments.
Commitments on mortgage loans on real estate of $156.0 million
extending into 1999 were outstanding as of December 31, 1998. The
Company also had $40.0 million of commitments to purchase fixed
maturity securities outstanding as of December 31, 1998.
Significant Concentrations of Credit Risk: The Company grants mainly
commercial mortgage loans on real estate to customers throughout the
United States. The Company has a diversified portfolio with no more
than 22% (20% in 1997) in any geographic area and no more than 2% (2%
in 1997) with any one borrower as of December 31, 1998. As of December
31, 1998, 42% (46% in 1997) of the remaining principal balance of the
Company's commercial mortgage loan portfolio financed retail
properties.
Reinsurance: The Company has entered into a reinsurance contract to
cede a portion of its general account individual annuity business to
The Franklin Life Insurance Company (Franklin). Total recoveries due
from Franklin were $187.9 million and $220.2 million as of December 31,
1998 and 1997, respectively. The contract is immaterial to the
Company's results of operations. The ceding of risk does not discharge
the original insurer from its primary obligation to the policyholder.
Under the terms of the contract, Franklin has established a trust as
collateral for the recoveries. The trust assets are invested in
investment grade securities, the market value of which must at all
times be greater than or equal to 102% of the reinsured reserves.
(8) Pension Plan and Postretirement Benefits Other Than Pensions
------------------------------------------------------------
The Company is a participant, together with other affiliated companies,
in a pension plan covering all employees who have completed at least
one year of service. The Company funds pension costs accrued for direct
employees plus an allocation of pension costs accrued for employees of
affiliates whose work efforts benefit the Company. Assets of the
Retirement Plan are invested in group annuity contracts of NLIC and
Employers Life Insurance Company of Wausau (ELICW).
Pension costs charged to operations by the Company during the years
ended December 31, 1998, 1997 and 1996 were $2.0 million, $7.5 million
and $7.4 million, respectively. The Company has recorded a prepaid
pension asset of $5.0 million as of December 31, 1998 and no prepaid or
accrued pension asset or expense as of December 31, 1997.
<PAGE> 19
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
In addition to the defined benefit pension plan, the Company, together
with other affiliated companies, participates in life and health care
defined benefit plans for qualifying retirees. Postretirement life and
health care benefits are contributory and generally available to full
time employees who have attained age 55 and have accumulated 15 years
of service with the Company after reaching age 40. Postretirement
health care benefit contributions are adjusted annually and contain
cost-sharing features such as deductibles and coinsurance. In addition,
there are caps on the Company's portion of the per-participant cost of
the postretirement health care benefits. These caps can increase
annually, but not more than three percent. The Company's policy is to
fund the cost of health care benefits in amounts determined at the
discretion of management. Plan assets are invested primarily in group
annuity contracts of NLIC.
The Company elected to immediately recognize its estimated accumulated
postretirement benefit obligation (APBO), however, certain affiliated
companies elected to amortize their initial transition obligation over
periods ranging from 10 to 20 years.
The Company's accrued postretirement benefit expense as of December 31,
1998 and 1997 was $40.1 million and $36.5 million, respectively, and
the net periodic postretirement benefit cost (NPPBC) for 1998, 1997 and
1996 was $4.1 million, $3.0 million and $3.3 million, respectively.
Information regarding the funded status of the pension plan as a whole
and the postretirement life and health care benefit plan as a whole as
of December 31, 1998 and 1997 follows:
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
--------------------- -----------------------
(in millions of dollars) 1998 1997 1998 1997
--------------------------------------------------------- -------- -------- -------- -------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $2,033.8 $1,847.8 $237.9 $ 200.7
Service cost 87.6 77.3 9.8 7.0
Interest cost 123.4 118.6 15.4 14.0
Actuarial loss 123.2 60.0 15.6 24.4
Plan curtailment in 1998/merger in 1997 (107.2) 1.5 - -
Benefits paid (75.8) (71.4) (8.6) (8.2)
-------- -------- ------- -------
Benefit obligation at end of year 2,185.0 2,033.8 270.1 237.9
-------- -------- ------- -------
Change in plan assets:
Fair value of plan assets at beginning of year 2,212.9 1,947.9 69.2 63.0
Actual return on plan assets 300.7 328.1 5.0 3.6
Employer contribution 104.1 7.2 12.1 10.6
Plan merger - 1.1 - -
Benefits paid (75.8) (71.4) (8.4) (8.0)
-------- -------- ------- -------
Fair value of plan assets at end of year 2,541.9 2,212.9 77.9 69.2
-------- -------- ------- -------
Funded status 356.9 179.1 (192.2) (168.7)
Unrecognized prior service cost 31.5 34.7 - -
Unrecognized net (gains) losses (345.7) (330.7) 16.0 1.6
Unrecognized net (asset) obligation at transition (11.0) 33.3 1.3 1.5
-------- -------- ------- -------
Prepaid (accrued) benefit cost $ 31.7 $ (83.6) $(174.9) $(165.6)
======== ======== ======= =======
</TABLE>
<PAGE> 20
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Basis for measurements, funded status of the pension plan and
postretirement life and health care benefit plan:
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
-------------------- -----------------------
1998 1997 1998 1997
-------- ------ -------- --------
<S> <C> <C> <C> <C>
Weighted average discount rate 5.50% 6.00% 6.65% 6.70%
Rate of increase in future compensation levels 3.75% 4.25% -- --
Assumed health care cost trend rate:
Initial rate -- -- 15.00% 12.13%
Ultimate rate -- -- 8.00% 6.12%
Uniform declining period -- -- 15 Years 12 Years
</TABLE>
The net periodic pension cost for the pension plan as a whole for the
years ended December 31, 1998, 1997 and 1996 follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1998 1997 1996
-------------------------------------------------------------------------------- ---- ----
<S> <C> <C>
Service cost (benefits earned during the period) $ 87.6 $ 77.3 $ 75.5
Interest cost on projected benefit obligation 123.4 118.6 105.5
Expected return on plan assets (159.0) (139.0) (116.1)
Recognized gains (3.8) - -
Amortization of prior service cost 3.2 3.2 3.2
Amortization of unrecognized transition obligation 4.2 4.2 4.1
------- ------- -------
$ 55.6 $ 64.3 $ 72.2
======= ======= =======
</TABLE>
Effective December 31, 1998, Wausau Service Corporation (WSC) ended its
affiliation with the Nationwide Insurance Enterprise and employees of
WSC ended participation in the plan. A curtailment gain of $67.1
million resulted (consisting of a $107.2 million reduction in the
projected benefit obligation, net of the write-off of the $40.1 million
remaining unamortized transition obligation related to WSC). The
Company anticipates that the plan will settle the obligation related to
WSC employees with a transfer of assets during 1999.
Basis for measurements, net periodic pension cost for the pension plan:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Weighted average discount rate 6.00% 6.50% 6.00%
Rate of increase in future compensation levels 4.25% 4.75% 4.25%
Expected long-term rate of return on plan assets 7.25% 7.25% 6.75%
</TABLE>
<PAGE> 21
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
The amount of NPPBC for the postretirement benefit plan as a whole for
the years ended December 31, 1998, 1997 and 1996 was as follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Service cost (benefits attributed to employee service during the year) $ 9.8 $ 7.0 $ 6.5
Interest cost on accumulated postretirement benefit obligation 15.4 14.0 13.7
Actual return on plan assets (5.0) (3.6) (4.3)
Amortization of unrecognized transition obligation of affiliates 0.2 0.2 0.2
Net amortization and deferral 1.2 (0.5) 1.8
----- ----- -----
$21.6 $17.1 $17.9
===== ===== =====
</TABLE>
Actuarial assumptions used for the measurement of the accumulated
postretirement benefit obligation (APBO) and the NPPBC for the
postretirement benefit plan for 1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- ----
<S> <C> <C> <C>
NPPBC:
Discount rate 6.70% 7.25% 6.65%
Long term rate of return on plan
assets, net of tax 5.83% 5.89% 4.80%
Assumed health care cost trend rate:
Initial rate 12.00% 11.00% 11.00%
Ultimate rate 6.00% 6.00% 6.00%
Uniform declining period 12 Years 12 Years 12 Years
</TABLE>
For the postretirement benefit plan as a whole, a one percentage point
increase or decrease in the assumed health care cost trend rate would
have no impact on the APBO as of December 31, 1998 and have no impact
on the NPPBC for the year ended December 31, 1998.
(9) Shareholder's Equity, Regulatory Risk-Based Capital, Retained Earnings
----------------------------------------------------------------------
and Dividend Restrictions
-------------------------
Ohio, NLIC's and NLAIC's state of domicile, imposes minimum risk-based
capital requirements that were developed by the NAIC. The formulas for
determining the amount of risk-based capital specify various weighting
factors that are applied to financial balances or various levels of
activity based on the perceived degree of risk. Regulatory compliance
is determined by a ratio of the company's regulatory total adjusted
capital, as defined by the NAIC, to its authorized control level
risk-based capital, as defined by the NAIC. Companies below specific
trigger points or ratios are classified within certain levels, each of
which requires specified corrective action. NLIC and NLAIC each exceed
the minimum risk-based capital requirements.
The statutory capital and surplus of NLIC as of December 31, 1998, 1997
and 1996 was $1.32 billion, $1.13 billion and $1.00 billion,
respectively. The statutory net income of NLIC for the years ended
December 31, 1998, 1997 and 1996 was $171.0 million, $111.7 million and
$73.2 million, respectively.
The Company is limited in the amount of shareholder dividends it may
pay without prior approval by the Department. As of December 31, 1998,
the maximum amount available for dividend payment from the Company to
its shareholder without prior approval of the Department was $71.0
million.
<PAGE> 22
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
In addition, the payment of dividends by NLIC may also be subject to
restrictions set forth in the insurance laws of New York that limit the
amount of statutory profits on NLIC's participating policies (measured
before dividends to policyholders) that can inure to the benefit of the
Company and its shareholder.
The Company currently does not expect such regulatory requirements to
impair its ability to pay operating expenses and shareholder dividends
in the future.
(10) Transactions With Affiliates
----------------------------
As part of the restructuring described in note 1, NLIC paid a dividend
valued at $485.7 million to Nationwide Corp. on January 1, 1997
consisting of the outstanding shares of common stock of ELICW, National
Casualty Company (NCC) and West Coast Life Insurance Company (WCLIC).
Also, on February 24, 1997, NLIC paid a dividend to NFS, and NFS paid
an equivalent dividend to Nationwide Corp., consisting of securities
having an aggregate fair value of $850.0 million. The Company
recognized a gain of $14.4 million on the transfer of securities.
The Company leases office space from NMIC and certain of its
subsidiaries. For the years ended December 31, 1998, 1997 and 1996, the
Company made lease payments to NMIC and its subsidiaries of $8.0
million, $8.4 million and $9.1 million, respectively.
Pursuant to a cost sharing agreement among NMIC and certain of its
direct and indirect subsidiaries, including the Company, NMIC provides
certain operational and administrative services, such as sales support,
advertising, personnel and general management services, to those
subsidiaries. Expenses covered by this agreement are subject to
allocation among NMIC, the Company and other affiliates. Amounts
allocated to the Company were $95.0 million, $85.8 million and $101.6
million in 1998, 1997 and 1996, respectively. The allocations are based
on techniques and procedures in accordance with insurance regulatory
guidelines. Measures used to allocate expenses among companies include
individual employee estimates of time spent, special cost studies,
salary expense, commissions expense and other methods agreed to by the
participating companies that are within industry guidelines and
practices. The Company believes these allocation methods are
reasonable. In addition, the Company does not believe that expenses
recognized under the inter-company agreements are materially different
than expenses that would have been recognized had the Company operated
on a stand alone basis. Amounts payable to NMIC from the Company under
the cost sharing agreement were $31.9 million and $20.5 million as of
December 31, 1998 and 1997, respectively.
The Company also participates in intercompany repurchase agreements
with affiliates whereby the seller will transfer securities to the
buyer at a stated value. Upon demand or a stated period, the securities
will be repurchased by the seller at the original sales price plus a
price differential. Transactions under the agreements during 1998 and
1997 were not material. The Company believes that the terms of the
repurchase agreements are materially consistent with what the Company
could have obtained with unaffiliated parties.
<PAGE> 23
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Intercompany reinsurance agreements exist between NLIC and,
respectively, NMIC and ELICW whereby all of NLIC's accident and health
and group life insurance business is ceded on a modified coinsurance
basis. NLIC entered into the reinsurance agreements during 1996 because
the accident and health and group life insurance business was unrelated
to the Company's long-term savings and retirement products.
Accordingly, the accident and health and group life insurance business
has been accounted for as discontinued operations for all periods
presented. Under modified coinsurance agreements, invested assets are
retained by the ceding company and investment earnings are paid to the
reinsurer. Under the terms of the Company's agreements, the investment
risk associated with changes in interest rates is borne by ELICW or
NMIC, as the case may be. Risk of asset default is retained by the
Company, although a fee is paid by ELICW or NMIC, as the case may be,
to the Company for the Company's retention of such risk. The agreements
will remain in force until all policy obligations are settled. However,
with respect to the agreement between NLIC and NMIC, either party may
terminate the contract on January 1 of any year with prior notice. The
ceding of risk does not discharge the original insurer from its primary
obligation to the policyholder. The Company believes that the terms of
the modified coinsurance agreements are consistent in all material
respects with what the Company could have obtained with unaffiliated
parties. Amounts ceded to NMIC and ELICW for the years ended December
31, 1998, 1997 and 1996 were:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------------------------------------------------------------------
(in millions of dollars) NMIC ELICW NMIC ELICW NMIC ELICW
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Premiums $90.1 $106.3 $ 91.4 $199.8 $ 97.3 $224.2
Net investment income and other
revenue $11.1 $ 9.4 $ 10.7 $ 13.4 $ 10.9 $ 14.8
Benefits, claims and expenses $98.8 $160.5 $100.7 $225.9 $100.5 $246.6
</TABLE>
The Company and various affiliates entered into agreements with
Nationwide Cash Management Company (NCMC), an affiliate, under which
NCMC acts as a common agent in handling the purchase and sale of
short-term securities for the respective accounts of the participants.
Amounts on deposit with NCMC were $248.4 million and $211.0 million as
of December 31, 1998 and 1997, respectively, and are included in
short-term investments on the accompanying consolidated balance sheets.
Certain annuity products are sold through three affiliated companies,
which are also subsidiaries of NFS. Total commissions and fees paid to
these affiliates for the three years ended December 31, 1998 were $60.0
million, $66.1 million and $76.9 million, respectively.
(11) Bank Lines of Credit
--------------------
In August 1996, NLIC, along with NMIC, entered into a $600.0 million
revolving credit facility which provides for a $600.0 million loan over
a five year term on a fully revolving basis with a group of national
financial institutions. The credit facility provides for several and
not joint liability with respect to any amount drawn by either NLIC or
NMIC. NLIC and NMIC pay facility and usage fees to the financial
institutions to maintain the revolving credit facility. All previously
existing line of credit agreements were canceled. In September 1997,
the credit agreement was amended to include NFS as a party to and
borrower under the agreement. As of December 31, 1998 the Company had
no amounts outstanding under the agreement.
<PAGE> 24
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(12) Contingencies
-------------
On October 29, 1998, the Company and certain of its affiliates were
named in a lawsuit filed in the Common Pleas Court of Franklin County,
Ohio related to the sale of deferred annuity products for use as
investments in tax-deferred contributory retirement plans (Mercedes
Castillo v. Nationwide Financial Services, Inc., Nationwide Life
Insurance Company and Nationwide Life and Annuity Insurance Company).
The plaintiff in such lawsuit seeks to represent a national class of
the Company's customers and seeks unspecified compensatory and punitive
damages. The Company is currently evaluating this lawsuit, which is in
an early stage and has not been certified as a class. The Company
intends to defend this lawsuit vigorously.
(13) Segment Information
-------------------
The Company uses differences in products as the basis for defining its
reportable segments. The Company reports three product segments:
Variable Annuities, Fixed Annuities and Life Insurance.
The Variable Annuities segment consists of annuity contracts that
provide the customer with the opportunity to invest in mutual funds
managed by independent investment managers and the Company, with
investment returns accumulating on a tax-deferred basis. The Company's
variable annuity products consist almost entirely of flexible premium
deferred variable annuity contracts.
The Fixed Annuities segment consists of annuity contracts that generate
a return for the customer at a specified interest rate, fixed for a
prescribed period, with returns accumulating on a tax-deferred basis.
Such contracts consist of single premium deferred annuities, flexible
premium deferred annuities and single premium immediate annuities. The
Fixed Annuities segment includes the fixed option under variable
annuity contracts.
The Life Insurance segment consists of insurance products, including
variable universal life insurance and corporate-owned life insurance
products, that provide a death benefit and may also allow the customer
to build cash value on a tax-deferred basis.
In addition to the product segments, the Company reports corporate
revenue and expenses, investments and related investment income
supporting capital not specifically allocated to its product segments,
revenues and expenses of its investment advisor subsidiary (other than
the portion allocated to the Variable Annuities and Life Insurance
segments), revenues and expenses related to group annuity contracts
sold to Nationwide Insurance Enterprise employee and agent benefit
plans and all realized gains and losses on investments in a Corporate
and Other segment.
<PAGE> 25
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
The following table summarizes the financial results of the Company's business
segments for the years ended December 31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
Variable Fixed Life Corporate
(in millions of dollars) Annuities Annuities Insurance and Other Total
- ------------------------------------ --------- --------- --------- --------- -----
<S> <C> <C> <C> <C> <C>
1998:
Net investment income (1) $ (31.3) $ 1,116.6 $ 231.6 $ 164.7 $ 1,481.6
Other operating revenue 560.8 35.7 319.6 49.6 965.7
--------- --------- -------- -------- ---------
Total operating revenue (2) 529.5 1,152.3 551.2 214.3 2,447.3
--------- --------- -------- -------- ---------
Interest credited to policyholder
account balances -- 828.6 115.4 125.0 1,069.0
Amortization of deferred policy
acquisition costs 123.9 44.2 46.4 -- 214.5
Other benefits and expenses 187.2 104.2 294.6 49.1 635.1
--------- --------- -------- -------- ---------
Total expenses 311.1 977.0 456.4 174.1 1,918.6
--------- --------- -------- -------- ---------
Operating income (loss) before
federal income tax 218.4 175.3 94.8 40.2 528.7
Realized gains on investments -- -- -- 28.4 28.4
--------- --------- -------- -------- ---------
Consolidated income before
federal tax expense $ 218.4 $ 175.3 $ 94.8 $ 68.6 $ 557.1
========= ========= ======== ======== =========
Assets as of year end $47,668.7 $15,215.7 $5,187.6 $6,270.1 $74,342.1
========= ========= ======== ======== =========
1997:
Net investment income (1) $ (26.9) $ 1,098.2 $ 189.1 $ 148.8 $ 1,409.2
Other operating revenue 430.9 43.2 284.0 39.0 797.1
--------- --------- -------- -------- ---------
Total operating revenue (2) 404.0 1,141.4 473.1 187.8 2,206.3
--------- --------- -------- -------- ---------
Interest credited to policyholder
account balances -- 823.4 78.5 114.7 1,016.6
Amortization of deferred policy
acquisition costs 87.8 39.8 39.6 -- 167.2
Other benefits and expenses 165.3 108.7 284.1 45.6 603.7
--------- --------- -------- -------- ---------
Total expenses 253.1 971.9 402.2 160.3 1,787.5
--------- --------- -------- -------- ---------
Operating income before federal
income tax 150.9 169.5 70.9 27.5 418.8
Realized gains on investments -- -- -- 11.1 11.1
--------- --------- -------- -------- ---------
Consolidated income before
federal tax expense $ 150.9 $ 169.5 $ 70.9 $ 38.6 $ 429.9
========= ========= ======== ======== =========
Assets as of year end $35,278.7 $14,436.3 $3,901.4 $6,174.3 $59,790.7
========= ========= ======== ======== =========
</TABLE>
<PAGE> 26
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
<TABLE>
<CAPTION>
Variable Fixed Life Corporate
(in millions of dollars) Annuities Annuities Insurance and Other Total
------------------------------------ ---------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1996:
Net investment income (1) $ (21.5) $ 1,050.6 $ 174.0 $ 154.7 $ 1,357.8
Other operating revenue 306.1 42.0 261.6 25.7 635.4
---------- ---------- --------- --------- ---------
Total operating revenue (2) 284.6 1,092.6 435.6 180.4 1,993.2
---------- ---------- --------- --------- ---------
Interest credited to policyholder
account balances -- 805.0 70.2 107.1 982.3
Amortization of deferred policy
acquisition costs 57.4 38.6 37.4 -- 133.4
Benefits and expenses 136.9 113.6 260.8 50.4 561.7
---------- ---------- --------- --------- ---------
Total expenses 194.3 957.2 368.4 157.5 1,677.4
---------- ---------- --------- --------- ---------
Operating income before federal
income tax 90.3 135.4 67.2 22.9 315.8
Realized losses on investments -- -- -- (0.3) (0.3)
---------- ---------- --------- --------- ---------
Consolidated income from
continuing operations before
federal tax expense $ 90.3 $ 135.4 $ 67.2 $ 22.6 $ 315.5
========== ========== ======== ======== =========
Assets as of year end $ 25,069.7 $ 13,994.7 $3,353.3 $5,348.5 $47,766.2
========== ========== ======== ======== =========
</TABLE>
-----------
(1) The Company's method of allocating net investment income results
in a charge (negative net investment income) to the Variable
Annuities segment which is recognized in the Corporate and Other
segment. The charge relates to non-invested assets which support
this segment on a statutory basis.
(2) Excludes realized gains and losses on investments.
The Company has no significant revenue from customers located outside
of the United States nor does the Company have any significant
long-lived assets located outside the United States.
(14) Discontinued Operations
-----------------------
As discussed in note 1, NFS is a holding company for NLIC and certain
other companies within the Nationwide Insurance Enterprise that offer
or distribute long-term savings and retirement products. Prior to the
contribution by Nationwide Corp. of the outstanding common stock of
NLIC to NFS, NLIC effected certain transactions with respect to certain
subsidiaries and lines of business that were unrelated to long-term
savings and retirement products.
On September 24, 1996, NLIC's Board of Directors declared a dividend
payable to Nationwide Corp. on January 1, 1997 consisting of the
outstanding shares of common stock of three subsidiaries: ELICW, NCC
and WCLIC. ELICW writes group accident and health and group life
insurance business and maintains it offices in Wausau, Wisconsin. NCC
is a property and casualty company with offices in Scottsdale, Arizona
that serves as a fronting company for a property and casualty
subsidiary of NMIC. WCLIC writes high dollar term life insurance
policies and is located in San Francisco, California. ELICW, NCC and
WCLIC have been accounted for as discontinued operations in the
accompanying consolidated financial statements through December 31,
1996. The Company did not recognize any gain or loss on the disposal of
these subsidiaries.
<PAGE> 27
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Also, during 1996, NLIC entered into two reinsurance agreements whereby
all of NLIC's accident and health and group life insurance business was
ceded to ELICW and NMIC, effective January 1, 1996. See note 10 for a
complete discussion of the reinsurance agreements. The Company has
discontinued its accident and health and group life insurance business
and in connection therewith has entered into reinsurance agreements to
cede all existing and any future writings to other affiliated
companies. NLIC's accident and health and group life insurance business
is accounted for as discontinued operations for all periods presented.
The Company did not recognize any gain or loss on the disposal of the
accident and health and group life insurance business. The assets,
liabilities, results of operations and activities of discontinued
operations are distinguished physically, operationally and for
financial reporting purposes from the remaining assets, liabilities,
results of operations and activities of the Company.
A summary of the results of operations of discontinued operations for
the years ended December 31, 1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1998 1997 1996
---- ---- ----
<S> <C> <C>
Revenues $ -- $ -- $ 668.9
Net income $ -- $ -- $ 11.3
</TABLE>
A summary of the assets and liabilities of discontinued operations as
of December 31, 1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Assets, consisting primarily of investments $221.5 $247.3 $3,288.5
Liabilities, consisting primarily of policy benefits and claims $221.5 $247.3 $2,802.8
</TABLE>
<PAGE> 79
PART C. OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
<TABLE>
<CAPTION>
(a) Financial Statements: PAGE
<S> <C> <C>
(1) Financial statements included
in Prospectus
(Part A):
Condensed Financial Information. 17
(2) Financial statements included
in Part B: 77
Those financial statements required by
Item 23 to be included in Part B have been incorporated
therein by reference to the Prospectus (Part A).
Nationwide Variable Account-II:
Independent Auditors' Report. 77
Statement of Assets, Liabilities and Contract
Owners' Equity as of December 31, 1998. 78
Statements of Operations and Changes in 81
Contract Owners' Equity for the years ended December 31,
1998 and 1997.
Notes to Financial Statements. 93
Nationwide Life Insurance Company and subsidiaries:
Independent Auditors' Report. 105
Consolidated Balance Sheets as of December 106
31, 1998 and 1997.
Consolidated Statements of Income for the 107
years ended December 31, 1998, 1997 and
1996.
Consolidated Statements of Shareholder's 108
Equity for the years ended December 31,
1998, 1997 and 1996.
Consolidated Statements of Cash Flows for 109
the years ended December 31, 1998, 1997
and 1996.
Notes to Consolidated Financial Statements. 110
</TABLE>
132 of 152
<PAGE> 80
Item 24. (b) Exhibits
(1) Resolution of the Depositor's Board of Directors
authorizing the establishment of the Registrant -
Filed previously with the Registration Statement,
and hereby incorporated by reference.
(2) Not Applicable
(3) Underwriting or Distribution of contracts between
the Registrant and Principal Underwriter - Filed
previously with the Registration Statement, and
hereby incorporated by reference.
(4) The form of the variable annuity contract Filed
previously with the Registration Statement, and
hereby incorporated by reference.
(5) Variable Annuity Application
Attached hereto
(6) Articles of Incorporation of Depositor -
Filed previously with the Registration
Statement, and hereby incorporated by
reference.
(7) Not Applicable
(8) Not Applicable
(9) Opinion of Counsel - Filed previously with the
Registration Statement, and hereby incorporated by
reference.
(10) Not Applicable
(11) Not Applicable
(12) Not Applicable
(13) Performance Advertising Calculation Schedule -
Filed previously with Post-Effective Amendment No.
14 to the Registration Statement, and hereby
incorporated by reference.
133 of 152
<PAGE> 81
Item 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS WITH DEPOSITOR
<S> <C>
Lewis J. Alphin Director
519 Bethel Church Road
Mount Olive, NC 28365
A. I. Bell Director
4121 North River Road West
Zanesville, OH 43701
Kenneth D. Davis Director
7229 Woodmansee Road
Leesburg, OH 45135
Keith W. Eckel Director
1647 Falls Road
Clarks Summit, PA 18411
Willard J. Engel Director
300 East Marshall Street
Marshall, MN 56258
Fred C. Finney Director
1558 West Moreland Road
Wooster, OH 44691
Joseph J. Gasper President and Chief Operating Officer
One Nationwide Plaza and Director
Columbus, OH 43215
Dimon R. McFerson Chairman and Chief Executive Officer-
One Nationwide Plaza and Director
Columbus, OH 43215
David O. Miller Chairman of the Board and Director
115 Sprague Drive
Hebron, OH 43025
Yvonne L. Montgomery Director
2859 Paces Ferry Road
Atlanta, GA 30339
Ralph M. Paige, Executive Director Director
Federation of Southern
Cooperatives/Land Assistance Fund
2769 Church Street
East Point, GA 30344
James F. Patterson Director
8765 Mulberry Road
Chesterland, OH 44026
Arden L. Shisler Director
1356 North Wenger Road
Dalton, OH 44618
</TABLE>
134 of 152
<PAGE> 82
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS WITH DEPOSITOR
<S> <C>
Robert L. Stewart Director
88740 Fairview Road
Jewett, OH 43986
Nancy C. Thomas Director
1733A Westwood Avenue
Alliance, OH 44601
Robert A. Oakley Executive Vice President-
One Nationwide Plaza Chief Financial Officer
Columbus, OH 43215
Robert J. Woodward Jr. Executive Vice President
One Nationwide Plaza Chief Investment Officer
Columbus, OH 43215
James E. Brock Senior Vice President - Corporate
One Nationwide Plaza Development
Columbus, OH 43215
John R. Cook, Jr. Senior Vice President -
One Nationwide Plaza Chief Communications Officer
Columbus, OH 43215
Phillip C. Gath Senior Vice President -
One Nationwide Plaza Chief Actuary
Columbus, OH 43215
Richard D. Headley Senior Vice President - Chief
One Nationwide Plaza Information Technology
Columbus, OH 43215
Donna A. James Senior Vice President -
One Nationwide Plaza Human Resources
Columbus, OH 43215
Richard A. Karas Senior Vice President - Sales -
One Nationwide Plaza Financial Services
Columbus, OH 43215
Douglas C. Robinette Senior Vice President-
One Nationwide Plaza Marketing and Product
Columbus, OH 43215 Management
Susan A. Wolken Senior Vice President - Life
One Nationwide Plaza Company Operations
Columbus, OH 43215
Bruce C. Barnes Vice President - Technology
One Nationwide Plaza Strategy and Planning
Columbus, OH 43215
</TABLE>
135 of 152
<PAGE> 83
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS WITH DEPOSITOR
<S> <C>
Dennis W. Click Vice President - Secretary
One Nationwide Plaza
Columbus, OH 43215
David A. Diamond Vice President - Enterprise
One Nationwide Plaza Controller of Nationwide
Columbus, OH 43215 Financial Services
Matthew S. Easley Vice President -
One Nationwide Plaza Investment Life Actuarial
Columbus, OH 43215
R. Dennis Noice Vice President - Systems
One Nationwide Plaza
Columbus, OH 43215
Joseph P. Rath
One Nationwide Plaza Vice President - Office of Product
Columbus, OH 43215 and Market Compliance
Mark R. Thresher Vice President - Finance and Treasurer
One Nationwide Plaza
Columbus, OH 43215
</TABLE>
Item 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR
OR REGISTRANT.
* Subsidiaries for which separate financial statements are
filed
** Subsidiaries included in the respective consolidated
financial statements
*** Subsidiaries included in the respective group financial
statements filed for unconsolidated subsidiaries
**** other subsidiaries
136 of 152
<PAGE> 84
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
COMPANY STATE/COUNTRY (SEE ATTACHED PRINCIPAL BUSINESS
OF CHART UNLESS
ORGANIZATION OTHERWISE
INDICATED)
<S> <C> <C> <C>
The 401K Companies, Inc. Texas Holding Company
The 401(K) Company Texas Third-party administrator for
401(k) plans
401K Investment Advisors, Inc. Texas Investment Advisor registered
with the SEC
401K Investments Services, Inc. Texas NASD registered Broker-Dealer
Affiliate Agency, Inc. Delaware Life Insurance Agency
Affiliate Agency of Ohio, Inc. Ohio Life Insurance Agency
AID Finance Services, Inc. Iowa Holding Company
ALLIED General Agency Company Iowa Managing General Agent and
Surplus Lines Broker (P&C)
ALLIED Group, Inc. Iowa Holding Company
ALLIED Group Insurance Marketing Company Iowa Direct Marketer (P&C)
ALLIED Group Merchant Banking Corporation Iowa Broker-Dealer
ALLIED Group Mortgage Company Iowa Mortgage Lender
ALLIED Life Brokerage Agency, Inc. Iowa Insurance Broker
ALLIED Life Financial Corporation Iowa Holding Company
ALLIED Life Insurance Company Iowa Insurance Company
ALLIED Property and Casualty Insurance Company Iowa Underwrites General P&C Insurance
Allnations, Inc. Ohio Promotes international cooperative
insurance organizations
AMCO Insurance Company Iowa Underwrites General P&C Insurance
American Marine Underwriters, Inc. Florida Underwriting Manager
Auto Direkt Insurance Company Germany Insurance Company
CalFarm Insurance Company California Stock Corporation
Caliber Funding Corporation Delaware Stock Corporation
Colonial County Mutual Insurance Company Texas Insurance Company
Colonial Insurance Company of Wisconsin Wisconsin Insurance Company
Columbus Insurance Brokerage and Service GmbH Germany Insurance Broker
Cooperative Service Company Nebraska Insurance Agency
</TABLE>
137 of 152
<PAGE> 85
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
COMPANY STATE/COUNTRY (SEE ATTACHED PRINCIPAL BUSINESS
OF CHART UNLESS
ORGANIZATION OTHERWISE
INDICATED)
<S> <C> <C> <C>
Depositors Insurance Company Iowa Underwrites P&C insurance
*Employers Life Insurance Wisconsin Life Insurance Company
Company of Wausau
Excaliber Funding Corporation Delaware Limited purpose corporation
F&B, Inc. Iowa Insurance Agency
Farmland Mutual Insurance Company Iowa Mutual Insurance Company
Financial Horizons Distributors Alabama Insurance Agency
Agency of Alabama, Inc.
Financial Horizons Distributors Ohio Insurance Agency
Agency of Ohio, Inc.
Financial Horizons Distributors Oklahoma Insurance Agency
Agency of Oklahoma, Inc.
Financial Horizons Distributors
Agency of Texas, Inc. Texas Insurance Agency
*Financial Horizons Investment Trust Massachusetts Investment Company
Financial Horizons Securities Oklahoma Broker-Dealer
Corporation
GatesMcDonald Health Plus, Inc. Ohio Managed Care Organization
Gates, McDonald & Company Ohio Cost Control
Gates, McDonald & Company of Nevada Self-insurance administration,
Nevada claims examinations and data
processing services
Gates, McDonald & Company of New New York Workers' compensation claims
York, Inc. administration
MedPro Solutions, Inc. Massachusetts Third-party administration
services for workers'
compensation, automobile
injury and disability claims
Insurance Intermediaries, Inc. Ohio Insurance Broker and Insurance
Agency
Irvin L. Schwartz and Associates, Inc. Ohio Insurance Agency
Landmark Financial Services of New New York Life Insurance Agency
York, Inc.
Leben Direkt Insurance Company Germany Life Insurance Company
Lone Star General Agency, Inc. Texas Insurance Agency
Midwest Printing Services, Inc. Iowa General Printing Services
</TABLE>
138 of 152
<PAGE> 86
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
COMPANY STATE/COUNTRY (SEE ATTACHED PRINCIPAL BUSINESS
OF CHART UNLESS
ORGANIZATION OTHERWISE
INDICATED)
<S> <C> <C> <C>
Morley & Associates Oregon Insurance Broker
Morley Capital Management, Inc. Oregon Investment Adviser and stable
value money management
Morley Financial Services, Inc. Oregon Holding Company
Morley Research Associates, Ltd. Delaware Credit research consulting
**MRM Investments, Inc. Ohio Owns and operates a
recreational ski facility
**National Casualty Company Wisconsin Insurance Company
National Casualty Company of Great Britain Insurance Company
America, Ltd.
National Deferred Compensation, Inc. Ohio Administers deferred
compensation plans for public
employees
**National Premium and Benefit Delaware Insurance Administrative Services
Administration Company
Nationwide Advisory Services, Inc. Ohio Investment Management and
Administrative Services
**Nationwide Agency, Inc. Ohio Insurance Agency
Nationwide Agribusiness Insurance Iowa Insurance Company
Company
Nationwide Asset Allocation Trust Massachusetts Investment Company
Nationwide Cash Management Ohio Investment Securities Agent
Company
Nationwide Community Urban Ohio Special purpose real estate
Redevelopment Corporation corporation
Nationwide Corporation Ohio Holding Company
Nationwide Financial Institution Delaware Insurance Agency
Distributors Agency, Inc.
Nationwide Financial Services Bermuda Life Insurance Company
(Bermuda) Ltd.
Nationwide Financial Services Capital Delaware Statutory Business Trust
Trust
Nationwide Financial Services Capital Delaware Statutory Business Trust
Trust II
Nationwide Financial Services, Inc. Delaware Holding Company
Nationwide General Insurance Ohio Insurance Company
Company
Nationwide Global Holdings, Inc. Ohio Holding Company for
International Operations
Nationwide Health Plans, Inc. Ohio Health Maintenance
Organization
</TABLE>
139 of 152
<PAGE> 87
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
COMPANY STATE/COUNTRY (SEE ATTACHED PRINCIPAL BUSINESS
OF CHART UNLESS
ORGANIZATION OTHERWISE
INDICATED)
<S> <C> <C> <C>
*Nationwide Indemnity Company Ohio Reinsurance Company
Nationwide Insurance Company of California Underwriter
America
Nationwide Insurance Company of Ohio Insurance Company
Florida
Nationwide Insurance Enterprise Ohio Membership Non-Profit Corporation
Foundation
Nationwide Services Company, LCC Ohio Shared services functions
Nationwide Insurance Golf Charities, Ohio Membership Non-Profit Corporation
Inc.
Nationwide International Underwriters California Underwriting Manager
Nationwide Investing Foundation Michigan Provide investors with
continuous source of
investment
*Nationwide Investing Foundation II Massachusetts Common Law Trust
Nationwide Investment Services Oklahoma Registered Broker-Dealer in
Corporation deferred compensation market
Nationwide Investors Services, Inc. Ohio Stock Transfer Agent
**Nationwide Life and Annuity Ohio Life Insurance Company
Insurance Company
**Nationwide Life Insurance Ohio Life Insurance Company
Company
Nationwide Lloyds Texas Property Insurance
Nationwide Management Systems, Ohio Preferred provider
Inc. organization, products and
related services
Nationwide Mutual Fire Insurance Ohio Mutual Insurance Company
Company
Nationwide Mutual Funds Ohio Investment Company
Nationwide Mutual Insurance Company Ohio Mutual Insurance Company
Nationwide Properties, Ltd. Ohio Develop, own and operate real
estate and real estate
investments
Nationwide Property and Casualty Ohio Insurance Company
Insurance Company
Nationwide Realty Investors, Inc. Ohio Develop, own and operate real
estate and real estate
investments
Nationwide Retirement Solutions, Inc. Delaware Market and administer deferred
compensation plans for public
employees
</TABLE>
140 of 152
<PAGE> 88
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
COMPANY STATE/COUNTRY (SEE ATTACHED PRINCIPAL BUSINESS
OF CHART UNLESS
ORGANIZATION OTHERWISE
INDICATED)
<S> <C> <C> <C>
Nationwide Retirement Solutions, Inc. Alabama Market and administer deferred
of Alabama compensation plans for public
employees
Nationwide Retirement Solutions, Inc. Arizona Market and administer deferred
of Arizona compensation plans for public
employees
Nationwide Retirement Solutions, Inc. Arkansas Market and administer deferred
of Arkansas compensation plans for public
employees
Nationwide Retirement Solutions, Inc. Montana Market and administer deferred
of Montana compensation plans for public
employees
Nationwide Retirement Solutions, Inc. Nevada Market and administer deferred
of Nevada compensation plans for public
employees
Nationwide Retirement Solutions, Inc. New Mexico Market and administer deferred
of New Mexico compensation plans for public
employees
Nationwide Retirement Solutions, Inc. Ohio Market variable annuity
of Ohio contracts to members of the
National Education Association
in the state of Ohio
Nationwide Retirement Solutions, Inc. Oklahoma Market variable annuity
of Oklahoma contracts to members of the
National Education Association
in the state of Oklahoma
Nationwide Retirement Solutions, Inc. South Dakota Market and administer deferred
of South Dakota compensation plans for public
employees
Nationwide Retirement Solutions, Inc. Texas Market and administer deferred
of Texas compensation plans for public
employees
Nationwide Retirement Solutions, Inc. Wyoming Market variable annuity contracts
of Wyoming to members of the National
Education Association in the state
of Wyoming
Nationwide Retirement Solutions Massachusetts Market and administer deferred
Insurance Agency Inc. compensation plans for public
employees
*Nationwide Separate Account Trust Massachusetts Investment Company
Nationwide Trust Company, FSB United States of America Federal Savings Bank
Neckura Holding Company Germany Administrative services for
Neckura Insurance Group
Neckura Insurance Company Germany Insurance Company
Neckura Life Insurance Company Germany Life Insurance Company
</TABLE>
141 of 152
<PAGE> 89
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
COMPANY STATE/COUNTRY (SEE ATTACHED PRINCIPAL BUSINESS
OF CHART UNLESS
ORGANIZATION OTHERWISE
INDICATED)
<S> <C> <C> <C>
Nevada Independent Companies- Nevada Workers' compensation
Construction administrative services
Nevada Independent Companies- Nevada Workers' compensation
Health and Nonprofit administrative services
Nevada Independent Companies- Nevada Workers' compensation
Hospitality and Entertainment administrative services
Nevada Independent Companies- Nevada Workers' compensation
Manufacturing administrative services
NFS Distributors, Inc. Delaware Holding Company
NWE, Inc. Ohio Special Investments
PanEuroLife Luxembourg Life Insurance
Pension Associates, Inc. Wisconsin Pension plan administration
Portland Investment Services, Inc. Oregon NASD Registered Broker-Dealer
Premier Agency, Inc. Iowa Insurance Agency
Riverview Agency, Inc. Texas Stock Corporation
Scottsdale Indemnity Company Ohio Insurance Company
Scottsdale Insurance Company Ohio Insurance Company
Scottsdale Surplus Lines Insurance Arizona Excess and Surplus Lines
Company Insurance Company
SVM Sales GmbH, Neckura Germany Sales support for Neckura
Insurance Group Insurance Group
Union Bond and Trust Company Oregon Oregon state bank with trust powers
Villanova Capital, Inc. Delaware Holding Company
Villanova Mutual Fund Capital Trust Delaware Business Trust
Villanova SA Capital Trust Delaware Business Trust
**Wausau Preferred Health Insurance Wisconsin Insurance and Reinsurance
Company Company
Western Heritage Insurance Company Arizona Excess and Surplus Lines
Insurance Company
</TABLE>
142 of 152
<PAGE> 90
<TABLE>
<CAPTION>
NO. VOTING
STATE/COUNTRY SECURITIES
OF (SEE ATTACHED CHART)
COMPANY ORGANIZATION UNLESS OTHERWISE INDICATED PRINCIPAL BUSINESS
<S> <C> <C> <C> <C>
* MFS Variable Account Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* NACo Variable Account Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide DC Variable Account Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide DCVA-II Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Separate Account No. 1 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Multi-Flex Variable Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account Account
* Nationwide VA Separate Account-A Ohio Nationwide Life and Issuer of Annuity Contracts
Annuity Separate Account
* Nationwide VA Separate Account-B Ohio Nationwide Life and Issuer of Annuity Contracts
Annuity Separate Account
* Nationwide VA Separate Account-C Ohio Nationwide Life and Issuer of Annuity Contracts
Annuity Separate Account
* Nationwide VA Separate Account-Q Ohio Nationwide Life and Issuer of Annuity Contracts
Annuity Separate Account
* Nationwide Variable Account Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Variable Account-II Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Variable Account-3 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Variable Account-4 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Variable Account-5 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Fidelity Advisor Ohio Nationwide Life Separate Issuer of Annuity Contracts
Variable Account Account
* Nationwide Variable Account-6 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Variable Account-8 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Variable Account -9 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Variable Account -10 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Variable Account-II Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide VL Separate Account-A Ohio Nationwide Life and Issuer of Life Insurance Policies
Annuity Separate Account
Nationwide VL Separate Ohio Nationwide Life and Issuer of Life Insurance Policies
Account-B Annuity Separate Account
</TABLE>
143 of 152
<PAGE> 91
<TABLE>
<CAPTION>
NO. VOTING
STATE/COUNTRY SECURITIES
OF (SEE ATTACHED CHART)
COMPANY ORGANIZATION UNLESS OTHERWISE INDICATED PRINCIPAL BUSINESS
<S> <C> <C> <C> <C>
* Nationwide VL Separate Ohio Nationwide Life and Issuer of Life Insurance Policies
Account-C Annuity Separate Account
Nationwide VL Separate Ohio Nationwide Life and Issuer of Life Insurance Policies
Account-D Annuity Separate Account
* Nationwide VLI Separate Account Ohio Nationwide Life Separate Issuer of Life Insurance Policies
Account
* Nationwide VLI Separate Account-2 Ohio Nationwide Life Separate Issuer of Life Insurance Policies
Account
* Nationwide VLI Separate Account-3 Ohio Nationwide Life Separate Issuer of Life Insurance Policies
Account
* Nationwide VLI Separate Account-4 Ohio Nationwide Life Separate Issuer of Life Insurance Policies
Account
* Nationwide VLI Separate Account-5 Ohio Nationwide Life Separate Issuer of Life Insurance Policies
Account
</TABLE>
144 of 152
<PAGE> 92
<TABLE>
<CAPTION>
(left side)
<S> <C> <C> <C>
- ------------------------
| NATIONWIDE INSURANCE |
| GOLF CHARITIES, INC. |
| |
| MEMBERSHIP |
| NONPROFIT |
| CORPORATION |
- ------------------------
-------------------------------------------------------------------------------------------------------------------------
| | |
- --------------------------- --------------------------- ----------------------------
| ALLIED LIFE | | ALLIED | | AID FINANCE |
| FINANCIAL | | GROUP, INC. | | SERVICES, INC. |
| CORPORATION | | (AGI) | | (AID FINANCE) |
| (ALFC) | | | | |
|Common Stock: 850 | |Common Stock: 850 Shares | |Common Stock: 10,000 |
|------------ Shares | |------------ | |------------ Shares |
| |---| | |---| | |
| Cost | | | Cost | | | Cost |
| ---- | | | ---- | | | ---- |
|Casualty- | | |Casualty- | | |Casualty- |
|100% $47,286,429 | | |100% $1,049,237,226| | |100% $19,545,634 |
- --------------------------- | --------------------------- | ----------------------------
| | |
- --------------------------- | --------------------------- | ----------------------------
| ALLIED GROUP | | | AMCO | | | ALLIED |
| MERCHANT BANKING | | | INSURANCE COMPANY | | | GROUP INSURANCE |
| CORPORATION | | | (AMCO) | | | MARKETING COMPANY |
|Common Stock: 10,000 | | |Common Stock: 155,991 | | |Common Stock: 20,000 |
|------------ Shares | | |------------ Shares | | |------------ Shares |
| |---| |----| |---| | |
| Cost | | | | Cost | | | Cost |
| ---- | | | | ---- | | | ---- |
| | | | | | | |Aid Finance- |
|AFLC-100% $100,000 | | | |AGI-100% $95,925,450| | |100% $16,059,469 |
- --------------------------- | | --------------------------- | ----------------------------
| | |
- --------------------------- | | --------------------------- | ----------------------------
| ALLIED LIFE | | | | WESTERN | | | DEPOSITORS |
| BROKERAGE | | | | HERITAGE INSURANCE | | | INSURANCE COMPANY |
| AGENCY, INC. | | | | COMPANY | | | (DEPOSITORS) |
|Common Stock: 500,000 | | | |Common Stock: 4,776,076 | | |Common Stock: 199,991 |
|------------ Shares | | | |------------ Shares | | |------------ Shares |
| |---| |----| | |---| |
| Cost | | | | Cost | | | Cost |
| ---- | | | | ---- | | | ---- |
|AFLC-100% $442,695 | | | |AMCO-100% $11,686,037| | |AGI-100% $15,251,842 |
- --------------------------- | | --------------------------- | ----------------------------
| | |
- --------------------------- | | --------------------------- | ----------------------------
| ALLIED LIFE | | | | ALLIED | | | ALLIED PROPERTY |
| INSURANCE | | | | GENERAL AGENCY | | | AND CASUALTY |
| COMPANY | | | | COMPANY | | | INSURANCE COMPANY |
|Common Stock: 250,000 | | | |Common Stock: 5,000 | | |Common Stock: 156,822 |
|------------ Shares | | | |------------ Shares | | |------------ Shares |
| |---| |----| | |---| |
| Cost | | Cost | | | Cost |
| ---- | | ---- | | | ---- |
|AFLC-100% $41,732,343| |AMCO-100% $135,342 | | |AGI-100% $33,018,634 |
- --------------------------- --------------------------- | ----------------------------
|
--------------------------- | ----------------------------
| PREMIER | | | ALLIED |
| AGENCY, | | | GROUP MORTGAGE |
| INC. | | | COMPANY |
|Common Stock: 100,000 | | |Common Stock: 9,500 |
|------------ Shares | | |------------ Shares |
| |---|---| |
| Cost | | | Cost |
| ---- | | | ---- |
|AGI-100% $100,000 | | |AGI-100% $213,976 |
--------------------------- | ----------------------------
|
| ----------------------------
| | MIDWEST |
| | PRINTING SERVICES |
| | LTD. |
| |Common Stock: 10,000 |
| |------------ Shares |
|---| |
| Cost |
| ---- |
|AFLC-100% $610,000 |
----------------------------
</TABLE>
<PAGE> 93
<TABLE>
<CAPTION>
NATIONWIDE INSURANCE ENTERPRISE(R) (middle)
<S> <C> <C>
------------------------------------------ ------------------------------------------
| | | |
| NATIONWIDE MUTUAL | | NATIONWIDE MUTUAL |
| INSURANCE COMPANY |============================| FIRE INSURANCE COMPANY |
| (CASUALTY) | | (FIRE) |
| | | |
------------------------------------------ ------------------------------------------
| || | |
| || |--------------------------------------------------------------------| |--------------------------
- --| || |
|| |--------------------------------------------------------------|----------------
|| | |
|| -------------------------------- | -------------------------------- --------------------------------
|| | | | | NATIONWIDE GENERAL | | NECKURA HOLDING |
|| | | | | INSURANCE COMPANY | | COMPANY (NECKURA) |
|| | NATIONWIDE LLOYDS | | | | | |
|| | | | |Common Stock: 20,000 | |Common Stock: 10,000 |
||==| | |---|------------ Shares | |--|------------ Shares |
|| | A TEXAS LLOYDS | | | | | | |
|| | | | | Cost | | | Cost |
|| | | | | ---- | | | ---- |
|| | | | |Casualty-100% $5,944,422 | | |Casualty-100% $87,943,140 |
|| -------------------------------- | -------------------------------- | --------------------------------
|| | |
|| -------------------------------- | -------------------------------- | --------------------------------
|| | FARMLAND MUTUAL | | | NATIONWIDE PROPERTY | | | NECKURA |
|| | INSURANCE COMPANY | | | AND CASUALTY | | | INSURANCE COMPANY |
|| |Guaranty Fund | | | INSURANCE COMPANY | | | |
|| |------------ | | |Common Stock: 60,000 | |--|Common Stock: 6,000 |
||==|Certificate |---| |---|------------ Shares | | |------------ Shares |
|----------- Cost | | | | Cost | | | Cost |
| ---- | | | | ---- | | |Neckura- ---- |
|Casualty $500,000 | | | |Casualty-100% $6,000,000 | | |100% DM 6,000,000 |
-------------------------------- | | -------------------------------- | --------------------------------
| | |
-------------------------------- | | -------------------------------- | --------------------------------
| F & B, INC. | | | | COLONIAL INSURANCE | | | NECKURA LIFE |
| | | | | COMPANY OF WISCONSIN | | | INSURANCE COMPANY |
|Common Stock: 1 Share | | | | (COLONIAL) | | | |
|------------ |---- |---|Common Stock: 1,750 | |--|Common Stock: 4,000 |
| Cost | | | |------------ Shares | | |------------ Shares |
| ---- | | | | Cost | | | Cost |
|Farmland | | | | ---- | | | ---- |
|Mutual-100% $10 | | | |Casualty-100% $41,750,000 | | |Neckura-100% DM 15,825,681 |
-------------------------------- | | -------------------------------- | --------------------------------
| | |
-------------------------------- | | -------------------------------- | --------------------------------
| COOPERATIVE SERVICE | | | | SCOTTSDALE | | | NECKURA GENERAL |
| COMPANY | | | | INSURANCE COMPANY | | | INSURANCE COMPANY |
|Common Stock: 600 Shares | | | | (SIC) | | | |
|------------ | | | |Common Stock: 30,136 | | |Common Stock: 1,500 |
| Cost |---- |---|------------ Shares | ---- |--|------------ Shares |
| ---- | | | Cost | | | | Cost |
|Farmland $3,506,173 | | | ---- | | | | ---- |
|Mutual-100% | | |Casualty-100% $150,000,000 | | | |Neckura-100% DM 1,656,925 |
-------------------------------- | -------------------------------- | | --------------------------------
| | |
-------------------------------- | -------------------------------- | | --------------------------------
| NATIONWIDE AGRIBUSINESS | | | SCOTTSDALE | | | | COLUMBUS INSURANCE |
| INSURANCE COMPANY | | | SURPLUS LINES | | | | BROKERAGE AND SERVICE |
|Common Stock: 1,000,000 | | | INSURANCE COMPANY | | | | GmbH |
|------------ Shares | | | Common Stock: 10,000 | | | |Common Stock: 1 Share |
| |--------| | ------------ Shares | ---| |--|------------ |
| Cost | | | | | | | |
|Casualty-99.9% ---- | | | Cost | | | | Cost |
|Other Capital: $26,714,335 | | | ---- | | | | ---- |
|------------- | | | SIC-100% $6,000,000 | | | |Neckura-100% DM 51,639 |
|Casualty-Ptd. $ 713,576 | | | | | | | |
-------------------------------- | -------------------------------- | | --------------------------------
| | |
-------------------------------- | -------------------------------- | | --------------------------------
| NATIONAL CASUALTY | | | NATIONAL PREMIUM & | | | | LEBEN DIREKT |
| COMPANY | | | BENEFIT ADMINISTRATION | | | | INSURANCE COMPANY |
| (NC) | | | COMPANY | | | | |
|Common Stock: 100 Shares | | |Common Stock: 10,000 | | | |Common Stock: 4,000 Shares |
|------------ |--------| |------------ Shares |----| |--|------------ |
| Cost | | Cost | | | Cost |
| ---- | | ---- | | | ---- |
|Casualty-100% $67,442,439 | |Scottsdale-100% $10,000 | | |Neckura-100% DM 4,000,000 |
-------------------------------- -------------------------------- | --------------------------------
| |
-------------------------------- -------------------------------- | --------------------------------
| NCC OF AMERICA, LTD. | | SVM SALES | | | AUTO DIREKT |
| (INACTIVE) | | GmbH | | | INSURANCE COMPANY |
| | | | | | |
| | |Common Stock: 50 Shares | | |Common Stock: 1500 Shares |
| | |------------ |------------|------------ |
| | | Cost | | Cost |
|NC-100% | | ---- | | ---- |
| | |Neckura-100% DM 50,000 | |Neckura-100% DM 1,643,149 |
| | | | | |
| | | | | |
-------------------------------- -------------------------------- --------------------------------
</TABLE>
<PAGE> 94
<TABLE>
<CAPTION>
(right side)
<S> <C> <C> <C>
------------------------
| NATIONWIDE INSURANCE |
| ENTERPRISE FOUNDATION|
| |
| MEMBERSHIP |
| NONPROFIT |
| CORPORATION |
------------------------
- -----------------------------------------------------------------------|
|
- --------------- --------------------------------------------------
| |
- -----------------------------------------------------------------------------------------|----------------------- |
| | | | |
| -------------------------------- | -------------------------------- | ----------------------------------
| | SCOTTSDALE | | | NATIONWIDE | | | NATIONWIDE |
| | INDEMNITY COMPANY | | | COMMUNITY URBAN | | | CORPORATION |
| | | | | REDEVELOPMENT | | | |
| | | | | CORPORATION | | |Common Stock: Control: |
| |Common Stock: 50,000 | | |Common Stock: 10 Shares | | |------------ ------- |
|-----|------------ Shares | |----|------------ | | |$13,642,432 100% |
| | Cost | | | Cost | | | Shares Cost |
| | ---- | | | ---- | | | ------ ---- |
| |Casualty-100% $8,800,000 | | |Casualty-100% $1,000 | | |Casualty 12,992,922 $751,352,485|
| | | | | | | |Fire 649,510 24,007,936|
| | | | | | | | (See Page 2) |
| -------------------------------- | -------------------------------- | ----------------------------------
| | |
| -------------------------------- | -------------------------------- | ----------------------------------
| | NATIONWIDE | | | INSURANCE | | | ALLNATIONS, INC. |
| | INDEMNITY COMPANY | | | INTERMEDIARIES, INC. | | |Common Stock: 10,330 Shares |
| | | | | | | |------------- Cost |
|-----|Common Stock: 28,000 | |----|Common Stock: 1,615 | |--------| ---- |
| |------------ Shares | | |------------ Shares | | |Casualty-18.6% $88,320 |
| | Cost | | | Cost | | |Fire-18.6% $88,463 |
| | ---- | | | ---- | | |Preferred Stock 1466 Shares |
| |Casualty-100% $294,529,000 | | |Casualty-100% $1,615,000 | | |--------------- Cost |
| | | | | | | | ---- |
| | | | | | | |Casualty-6.8% $100,000 |
| | | | | | | |Fire-6.8% $100,000 |
| -------------------------------- | -------------------------------- | ----------------------------------
| | |
| -------------------------------- | -------------------------------- | ----------------------------------
| | LONE STAR | | | NATIONWIDE CASH | | | PENSION ASSOCIATES |
| | GENERAL AGENCY, INC. | | | MANAGEMENT COMPANY | | | OF WAUSAU, INC. |
| | | | |Common Stock: 100 Shares | | |Common Stock: 1,000 Shares |
------|Common Stock: 1,000 | |----|------------ | |--------|------------- |
| |------------ Shares | | | Cost | | | Cost |
| | Cost | | | ---- | | | ---- |
| | ---- | | |Casualty-90% $9,000 | | | |
| |Casualty-100% $5,000,000 | | |NW Adv. Serv. 1,000 | | |Casualty-100% $2,839,392 |
| -------------------------------- | -------------------------------- | ----------------------------------
| || | |
| -------------------------------- | -------------------------------- | ----------------------------------
| | COLONIAL COUNTY MUTUAL | | | NATIONWIDE INSURANCE | | | AMERCIAN MARINE |
| | INSURANCE COMPANY | | | COMPANY OF FLORIDA | | | UNDERWRITERS, INC. |
| | | | |Common Stock: 10,000 | | |Common Stock: 20 Shares |
| |Surplus Debentures | | |------------- Shares | | |------------- |
| |------------------ | |----| | |--------| Cost |
| | Cost | | | Cost | | ---- |
| | ---- | | | ---- | | |
| |Colonial $500,000 | | |Casualty-100% $300,000,000 | |Casualty-100% $5,020 |
| |Lone Star 150,000 | | | | | |
| -------------------------------- | -------------------------------- ----------------------------------
| |
| -------------------------------- | --------------------------------
| | TIG COUNTRYWIDE | | | WAUSAU INTERNATIONAL |
| | INSURANCE COMPANY | | | UNDERWRITERS |
| |Common Stock 12,000 | | | |
| |------------ Shares | | |Common Stock: 1,000 Shares |
|-----| | -----|------------ |
| | Cost | | | Cost |
| | ---- | | | ---- |
| |Casualty-100% $215,273,000 | | |Casualty-100% $10,000 |
| | | | | |
| -------------------------------- | | |
| | --------------------------------
| |
| -------------------------------- | --------------------------------
| | NATIONWIDE INSURANCE | | | NATIONWIDE |
| | ENTERPRISE SERVICES, LTD. | | | ARENA LLC |
| | | | | |
| |Single Member Limited | | | |
|.....|Liability Company | |....| |
| | | |
| | | |
|Casualty-100% | |Casualty-90% |
| | | |
-------------------------------- --------------------------------
Subsidiary Companies -- Solid Line
Contractual Association -- Double Line
Limited Liability Company -- Dotted Line
December 31, 1998
</TABLE>
Page 1
<PAGE> 95
<TABLE>
<CAPTION>
(Left Side)
<S> <C> <C> <C> <C> <C> <C>
|----------------------------------|-----------------------------------|-------------------------------
| | |
----------------------------- ----------------------------- -----------------------------
| NATIONWIDE LIFE INSURANCE | | NATIONWIDE | | NATIONWIDE FINANCIAL |
| COMPANY (NW LIFE) | | FINANCIAL SERVICES | | INSTITUTION DISTRIBUTORS |
| | | CAPITAL TRUST | | AGENCY, INC. (NFIDAI) |
| Common Stock: 3,814,779 | | Preferred Stock: | | Common Stock: 1,000 |
| ------------ Shares | | --------------- | | ------------ Shares |
| | | | | |
| NFS--100% | | NFS--100% | | NFS--100% |
----------------|------------ ----------------------------- ---------------||------------
| ||
- ----------------------------- | ----------------------------- ----------------------------- || ----------------------------
| NATIONWIDE LIFE AND | | | NATIONWIDE | | FINANCIAL HORIZONS | || | |
| ANNUITY INSURANCE COMPANY | | | ADVISORY SERVICES, INC. | | DISTRIBUTORS AGENCY | || | |
| | | | (NW ADV. SERV.) | | OF ALABAMA, INC. | || | |
| Common Stock: 66,000 | | | Common Stock: 7,676 | | Common Stock: 10,000 | || | FINANCIAL HORIZONS |
| ------------ Shares |--|--| ------------ Shares |==|| | ------------ Shares |--||==| DISTRIBUTORS AGENCY |
| | | | | || | | || | OF OHIO, INC. |
| Cost | | | Cost | || | Cost | || | |
| ---- | | | ---- | || | ---- | || | |
| NW Life -100% $58,070,003 | | | NW Life -100% $5,996,261 | || | NFIDAI -100% $100 | || | |
- ----------------------------- | ----------------------------- || ----------------------------- || ----------------------------
| || ||
- ----------------------------- | ----------------------------- || ----------------------------- || ----------------------------
| NWE, INC. | | | NATIONWIDE | || | LANDMARK FINANCIAL | || | |
| | | | INVESTORS SERVICES, INC. | || | SERVICES OF | || | |
| | | | | || | NEW YORK, INC. | || | |
| Common Stock: 100 | | | Common Stock: 5 Shares | || | Common Stock: 10,000 | || | FINANCIAL HORIZONS |
| ------------ Shares |--| | ------------ |--|| | ------------ Shares |--||==| DISTRIBUTORS AGENCY |
| | | | | || | | || | OF OKLAHOMA, INC. |
| Cost | | | Cost | || | Cost | || | |
| ---- | | | ---- | || | ---- | || | |
| NW Life -100% $35,971,375 | | | NW Adv. Serv. -100% $5,000| || | NFIDAI -100% $10,100 | || | |
- ----------------------------- | ----------------------------- || ----------------------------- || ----------------------------
| || ||
- ----------------------------- | ----------------------------- || ----------------------------- || ----------------------------
| NATIONWIDE INVESTMENT | | | FINANCIAL HORIZONS | || | FINANCIAL HORIZONS | || | |
| SERVICES CORPORATION | | | INVESTMENT TRUST | || | SECURITIES CORP. | || | |
| | | | | || | | || | |
| Common Stock: 5,000 | | | | || | Common Stock: 10,000 | || | FINANCIAL HORIZONS |
| ------------ Shares |--| | |==|| | ------------ Shares |--||==| DISTRIBUTORS AGENCY |
| | | | | || | | || | OF TEXAS, INC. |
| Cost | | | | || | Cost | || | |
| ---- | | | | || | ---- | || | |
| NW Life -100% $529,728 | | | COMMON LAW TRUST | || | NFIDAI -100% $153,000 | || | |
- ----------------------------- | ----------------------------- || ----------------------------- || ----------------------------
| || ||
- ----------------------------- | ----------------------------- || ----------------------------- || ----------------------------
| NATIONWIDE REALTY | | | NATIONWIDE | || | AFFILIATE AGENCY, INC. | || | |
| INVESTORS, LTD. | | | INVESTING | || | | || | |
| | | | FOUNDATION | || | | || | |
| Units: | | | | || | Common Stock: 100 | || | AFFILIATE |
| ------ |..| | |==|| | ------------ Shares |--||==| AGENCY OF |
| | | | | || | | | OHIO, INC. |
| | | | | || | Cost | | |
| NW Life -90% | | | | || | ---- | | |
| NW Mutual-10% | | | COMMON LAW TRUST | || | NFIDAI -100% $100 | | |
- ----------------------------- | ----------------------------- || ----------------------------- ----------------------------
| ||
- ----------------------------- | ----------------------------- || -----------------------------
| NATIONWIDE | | | NATIONWIDE | || | NATIONWIDE |
| PROPERTIES, LTD. | | | INVESTING | || | INVESTING |
| | | | FOUNDATION II | || | FOUNDATION III |
| Units: |..| | | || | |
| ------ | | |==||==| |
| | | | || | |
| | | | || | | ----------------------
| NW Life -97.6% | | | || | | | MORLEY RESEARCH |
| NW Mutual -2.4% | | COMMON LAW TRUST | || | OHIO BUSINESS TRUST | | ASSOCIATES, LTD. |
- ----------------------------- ----------------------------- || ----------------------------- | |
|| |Common Stock: 1,000 |
----------------------------- || ----------------------------- |------------- Shares|------
| NATIONWIDE | || | NATIONWIDE | | Cost |
| SEPARATE ACCOUNT | || | ASSET ALLOCATION TRUST | | ---- |
| TRUST | || | | |Morley-100% $1,000|
| | || | | ----------------------
| |==||==| |
| | | |
| | | |
| | | MASSACHUSETTS |
| COMMON LAW TRUST | | BUSINESS TRUST |
----------------------------- -----------------------------
</TABLE>
<PAGE> 96
<TABLE>
<CAPTION>
(Center)
NATIONWIDE INSURANCE ENTERPRISE (R)
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------- --------------------------------------------------
| NATIONWIDE MUTUAL | | NATIONWIDE MUTUAL |
| INSURANCE COMPANY |================================| FIRE INSURANCE COMPANY |
| (CASUALTY) | | | (FIRE) |
- -------------------------------------------------- | --------------------------------------------------
|
-----------------------------------------
| NATIONWIDE CORPORATION (NW CORP) |
| Common Stock: Control: |
| ------------ ------- |
| 13,642,432 100% |
| Shares Cost |
| ------ ---- |
|Casualty 12,992,922 $751,352,485 |
|Fire 649,510 24,007,936 |
-------------------|---------------------
|--------------------------------------------------------------
---------------|-------------
| NATIONWIDE FINANCIAL |
| SERVICES, INC. (NFS) |
| |
|Common Stock: Control: |
|------------ ------- |
| |
| |
|Class A Public--100% |
|Class B NW Corp--100% |
---------------|-------------
|
- -----------------|-------------------------------|-------------------|--------------------------------|-----------------------------
| | | |
-------------|--------------- --------------|-------------- | ---------------|-------------
| MORLEY FINANCIAL | | THE 401(k) COMPANIES, INC.| | | NATIONWIDE RETIREMENT |
| SERVICES, INC. (MORLEY) | | (401(k)) | | | SOLUTIONS, INC. |
|Common Stock: 82,343 | |Common Stock: Control: | | |Common Stock: 236,494 |
|---|------------- Shares | |------------- ------- |--| | |------------- Shares |
| | | |Class A Other-100% | | | | |
| |NFS-100% | |Class B NFS -100% | | | |NRS-100% |
| ----------------------------- ----------------------------- | | ---------------|-------------
| | | |
| ----------------------------- ----------------------------- | | ----------------------------- | ---------------------------
| | MORLEY & | | 401(k) INVESTMENT | | | | NATIONWIDE RETIREMENT | | | NATIONWIDE RETIREMENT |
| | ASSOCIATES, INC. | | SERVICES, INC. | | | | SOLUTIONS, INC. OF | | | SOLUTIONS, INC. OF NEW |
| | | | | | | | ALABAMA | | | MEXICO |
| |Common Stock: 3,500 | | Common Stock: 1,000,000 | | | | Common Stock: 10,000 | | | Common Stock: 1,000 |
|---|------------- Shares | | ------------- Shares |--| | | ------------- Shares |--|--| ------------- Shares |
| | Cost | | Cost | | | | Cost | | | Cost |
| | ---- | | ---- | | | | ---- | | | ---- |
| |Morley-100% $1,000 | |401(k)-100% $7,800 | | | |NRS-100% $1,000 | | |NRS-100% $1,000 |
| ----------------------------- ----------------------------- | | ----------------------------- | ---------------------------
| | | |
| ----------------------------- ----------------------------- | | ----------------------------- | ---------------------------
| | MORLEY CAPITAL | | 401(k) INVESTMENT | | | | NATIONWIDE RETIREMENT | | | NATIONWIDE RETIREMENT |
| | MANAGEMENT | | ADVISORS, INC. | | | | SOLUTIONS, INC. OF | | | SOLUTIONS, INC. OF |
| | | | | | | | ARIZONA | | | SO. DAKOTA |
| |Common Stock: 500 | |Common Stock: 1,000 | | | |Common Stock: 1,000 | | |Common Stock: 1,000 |
|---|------------- Shares | |------------- Shares |--| | |------------- Shares |--|--|------------- Shares |
| | Cost | | Cost | | | | Cost | | | Cost |
| | ---- | | ---- | | | | ---- | | | ---- |
| |Morley-100% $5,000 | |401(k)-100% $1,000 | | | |NRS-100% $1,000 | | |NRS-100% $1,000 |
| ----------------------------- ----------------------------- | | ----------------------------- | ---------------------------
| | | |
| ----------------------------- ----------------------------- | | ----------------------------- | ---------------------------
| | UNION BOND | | 401(k) ICOMPANY | | | | NATIONWIDE RETIREMENT | | | NATIONWIDE RETIREMENT |
| | & TRUST COMPANY | | | | | | SOLUTIONS, INC. OF | | | SOLUTIONS, INC. OF |
| | | | | | | | ARKANSAS | | | WYOMING |
| |Common Stock: 2,000 | |Common Stock: 855,000 | | | |Common Stock: 50,000 | | |Common Stock: 500 |
|---|------------- Shares | |------------- Shares |--| | |------------- Shares |--|--|------------- Shares |
| | Cost | | Cost | | | Cost | | | Cost |
| | ---- | | ---- | | | ---- | | | ---- |
| |Morley-100% $50,000 | |401(k)-100% $1,000 | | |NRS-100% $500 | | |NRS-100% $500 |
| ----------------------------- ----------------------------- | ----------------------------- | ---------------------------
| | |
| ----------------------------- ----------------------------- | ----------------------------- | ---------------------------
| | PORTLAND INVESTMENT | | NATIONWIDE TRUST | | | NATIONWIDE RETIREMENT | | | NATIONWIDE RETIREMENT |
| | SERVICES, INC. | | COMPANY, FSB | | | SOLUTIONS, INS. AGENCY, | | | SOLUTIONS, INC. OF |
| | | | | | | INC. | | | OHIO |
| |Common Stock: 1,000 | |Common Stock: 2,800,000 | | |Common Stock: 1,000 | | | |
|---|------------- Shares | |------------- Shares |-----| |------------- Shares |--|==| |
| | Cost | | Cost | | | Cost | | | |
| | ---- | | ---- | | | ---- | | | |
| |Morley-100% $25,000 | |NFS-100% $3,500,000 | | |NRS -100% $1,000 | | | |
| ----------------------------- ----------------------------- | ----------------------------- | ---------------------------
| | |
| ----------------------------- ----------------------------- | ---------------------------- | ---------------------------
| | EXCALIBER FUNDING | | NATIONWIDE FINANCIAL | | | NATIONWIDE RETIREMENT | | | NATIONWIDE RETIREMENT |
| | CORPORATION | | SERVICES CAPITAL TRUST II | | | SOLUTIONS, INC. OF | | | SOLUTIONS, INC. OF |
| | | | | | | MONTANA | | | OKLAHOMA |
| |Common Stock: 1,000 | | | | |Common Stock: 500 | | | |
|---|------------- Shares | | |-----| |------------- Shares |--|==| |
| | Cost | | | | | Cost | | | |
| | ---- | | | | | ---- | | | |
| |Morley-100% $1,000 | |NFS-100% | | |NRS-100% $500 | | | |
| ----------------------------- ----------------------------- | ----------------------------- | ---------------------------
| | |
| ----------------------------- ----------------------------- | ----------------------------- | ---------------------------
| | CALIBER FUNDING | | NFS DISTRIBUTORS INC. | | | NATIONWIDE RETIREMENT | | | NATIONWIDE RETIREMENT |
| | CORPORATION | | | | | SOLUTIONS, INC. OF | | | SOLUTIONS, INC. OF |
| | | | | | | NEVADA | | | TEXAS |
| | | | | | | Common Stock: 1,000 | | | |
|---| | | |-----| | ------------- Shares |--|==| |
| | | | | Cost | | |
| | | | | ---- | | |
|Morley-100% | |NFS-100% | | NRS-100% $1,000 | | |
----------------------------- ----------------------------- ----------------------------- ---------------------------
</TABLE>
<PAGE> 97
<TABLE>
<CAPTION>
(Right)
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------|--------------------|---------------------------------------|
| | |
| ---------------|---------------- --------------|----------------
| | EMPLOYERS LIFE INSURANCE CO. | | GATES MCDONALD |
| | OF WAUSAU (ELIOW) | | & COMPANY (GATES) |
| | | | |
| |Common Stock: 250,000 | |Common Stock: 254 |
| |--|------------- Shares | |--|------------- Shares |
| | | | | | |
| | | Cost | | | Cost |
| | | ---- | | | ---- |
| | |NW CORP. -100% $126,509,480 | | |NW CORP. -100% $25,683,532 |
| | -------------------------------- | -------------------------------
- ------------ | | |
| -------------------------------- | | -------------------------------- | --------------------------------
| | NATIONWIDE TRUST | | | | WAUSAU PREFERRED | | | HEALTHCARE |
| | COMPANY | | | | HEALTH INSURANCE CO. | | | FIRST, INC. |
| | | | | | | | | |
| |Common Stock: 2,800,000 | | | |Common Stock: 200 | | | |
|--|------------- Shares | | |--|------------- Shares | |--| |
| | | | | | | | |
| | Cost | | | Cost | | | Cost |
| | ---- | | | ---- | | | ---- |
| |NFS-100% $3,500,000 | | |ELIOW -100% $57,413,193 | | |Gates-100% $6,700,000 |
| -------------------------------- | -------------------------------- | --------------------------------
| | |
| -------------------------------- | -------------------------------- | -------------------------------
| | NATIONWIDE FINANCIAL | | | NATIONWIDE GLOBAL | | | GATES MCDONALD & COMPANY |
| | SERVICES (BERMUDA) INC. | | | HOLDINGS, INC. (NGH) | | | OF NEW YORK, INC. |
| | | | | | | | |
| |Common Stock: 250,000 | | |Common Stock: 1 | | |Common Stock: 3 |
|--|------------- Shares | |-----|------------- Share | |--|------------- Shares |
| | | | | | | | |
| | Cost | | | Cost | | | Cost |
| | ---- | | | ---- | | | ---- |
| |NFS-100% $3,500,000 | | |NW CORP.-100% $7,000,000 | | |Gates-100% $106,947 |
| -------------------------------- | -------------------------------- | -------------------------------
| | | |
| -------------------------------- | -------------------------------- | -------------------------------
| | NATIONWIDE DEFERRED | | | NATIONWIDE GLOBAL HOLDINGS | | | GATES MCDONALD & COMPANY |
| | COMPENSATION, INC. | | | -HONG KONG, LIMITED | | | OF NEVADA |
| | | | | | | | |
| | | | |Common Stock: 2 | | |Common Stock: 40 |
|--| | | |------------- Shares | |--|------------- Shares |
| | | | | | | | |
| | | | | | | | Cost |
| | | | | | | | ---- |
| |NFS-100% | | |NGH-100% | | |Gates-100% $93,750 |
| -------------------------------- | -------------------------------- | -------------------------------
| | |
| -------------------------------- | -------------------------------- | -------------------------------
| | IRVIN L. SCHWARTZ | | | NATIONWIDE | | | GATES McDONALD |
| | AND ASSOCIATES, INC. | | | HEALTH PLANS, INC. (NHP) | | | HEALTH PLUS, INC. |
| | | | | | | | |
| |Common Stock: Control | | |Common Stock: 100 | | |Common Stock: 200 |
|--|------------- ------- | |-----|------------- Shares |--| |--|------------- Shares |
| | | | | | | |
| | | | Cost | | | Cost |
|Class A Other-100% | | | ---- | | | ---- |
|Class B NFS -100% | | |NW CORP.-100% $14,603,732 | | |Gates-100% $2,000,000 |
-------------------------------- | -------------------------------- | -------------------------------
| |
-------------------------------- | -------------------------------- |
| MRM INVESTMENTS, INC. | | | NATIONWIDE MANAGEMENT | |
| | | | SYSTEMS, INC. | |
| | | | | |
|Common Stock: 1 | | |Common Stock: 100 | |
|------------- Share |--| |------------- Shares |--|
| | | | |
| Cost | | Cost | |
| ---- | | ---- | |
|NW CORP.-100% $7,000,000 | |NHP Inc.-100% $25,149 | |
-------------------------------- -------------------------------- |
|
-------------------------------- |
| NATIONWIDE | |
| AGENCY, INC. | |
| | |
|Common Stock: 100 | |
|------------ Shares |--|
| |
| Cost |
| ---- |
|NHP Inc.-99% $116,077 |
--------------------------------
Subsidiary Companies -- Solid Line
Contractual Association -- Double Line
Limited Liability Company -- Dotted Line
December 31, 1998
Page 2
</TABLE>
<PAGE> 98
Item 27. NUMBER OF CONTRACT OWNERS
The number of Contract Owners of Qualified and Non-Qualified
Contracts as of January 31, 1999 was 292,303 and 101,706
respectively.
Item 28. INDEMNIFICATION
Provision is made in Nationwide's Amended and Restated Code of
Regulations and expressly authorized by the General Corporation
Law of the State of Ohio, for indemnification by Nationwide of any
person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or
investigative by reason of the fact that such person is or was a
director, officer or employee of Nationwide, against expenses,
including attorneys fees, judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, to the extent and
under the circumstances permitted by the General Corporation Law
of the State of Ohio.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 ("Act") may be permitted to directors,
officers or persons controlling Nationwide pursuant to the
foregoing provisions, Nationwide has been informed that in the
opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 29. PRINCIPAL UNDERWRITER
(a) Nationwide Advisory Services, Inc. ("NAS") acts as principal
underwriter and general distributor for the Nationwide
Multi-Flex Variable Account, Nationwide Variable Account-II,
Nationwide Variable Account-5, Nationwide Variable
Account-6, Nationwide Variable Account-8, Nationwide
Variable Account-9, Nationwide Variable Account-10,
Nationwide Variable Account-II, Nationwide VA Separate
Account-A, Nationwide VA Separate Account-B, Nationwide VA
Separate Account-C, Nationwide VLI Separate Account,
Separate Account-A, Nationwide VL Separate Account-B,
Nationwide VL Separate Account-C ,Nationwide VL Separate
Account-D, Nationwide VLI Separate Account-2, Nationwide VLI
Separate Account-3, Nationwide VLI Separate Account-4,
Nationwide VLI Separate Account-5, and Nationwide Variable
Account, all of which are separate investment accounts of
Nationwide or its affiliates.
NAS also acts as principal underwriter for, Nationwide
Separate Account Trust, Nationwide Asset Allocation Trust
and Nationwide Mutual Funds which are open-end management
investment companies.
148 pf 152
<PAGE> 99
(b) NATIONWIDE ADVISORY SERVICES, INC.
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
NAME AND POSITIONS AND OFFICES
BUSINESS ADDRESS WITH UNDERWRITER
<S> <C>
Joseph J. Gasper President and Director
One Nationwide Plaza
Columbus, OH 43215
Dimon R. McFerson Chairman and
One Nationwide Plaza Chief Executive Officer and Director
Columbus, OH 43215
Robert A. Oakley Executive Vice President - Chief Financial
One Nationwide Plaza Officer and Director
Columbus, OH 43215
Paul J. Hondros Director
One Nationwide Plaza
Columbus, OH 43215
Susan A. Wolken Director
One Nationwide Plaza
Columbus, OH 43215
Robert J. Woodward, Jr. Executive Vice President - Chief Investment
One Nationwide Plaza Officer and Director
Columbus, OH 43215
Edwin P. McCausland, Jr. Senior Vice President-Fixed Income
One Nationwide Plaza Securities
Columbus, OH 43215
Charles S. Bath Vice President - Investments
One Nationwide Plaza
Columbus, OH 43215
Dennis W. Click Vice President and Secretary
One Nationwide Plaza
Columbus, OH 43215
William G. Goslee Vice President
One Nationwide Plaza
Columbus, OH 43215
James F. Laird, Jr. Vice President and General Manager
One Nationwide Plaza
Columbus, OH 43215
Joseph P. Rath Vice President - Office of Product and
One Nationwide Plaza Market Compliance
Columbus, OH 43215
Alan A. Todryk Vice President - Taxation
One Nationwide Plaza
Columbus, OH 43215
Christopher A. Cray Treasurer
One Nationwide Plaza
Columbus, OH 43215
Elizabeth A. Davin Assistant Secretary
One Nationwide Plaza
Columbus, OH 43215
</TABLE>
148 of 152
<PAGE> 100
<TABLE>
<CAPTION>
NAME AND POSITIONS AND OFFICES
BUSINESS ADDRESS WITH UNDERWRITER
<S> <C>
David E. Simaitis Assistant Secretary
One Nationwide Plaza
Columbus, OH 43215
Patricia J. Smith Assistant Secretary
One Nationwide Plaza
Columbus, OH 43215
</TABLE>
<TABLE>
<CAPTION>
(c) NAME OF NET UNDERWRITING COMPENSATION ON
PRINCIPAL DISCOUNTS AND REDEMPTION OR BROKERAGE
UNDERWRITER COMMISSIONS ANNUITIZATION COMMISSIONS COMPENSATION
<S> <C> <C> <C> <C>
Nationwide N/A N/A N/A N/A
Advisory
Services,
Inc.
</TABLE>
Item 30. LOCATION OF ACCOUNTS AND RECORDS
John Davis
Nationwide Life Insurance Company
One Nationwide Plaza
Columbus, OH 43215
Item 31. MANAGEMENT SERVICES
Not Applicable
Item 32. UNDERTAKINGS
The Registrant hereby undertakes to:
(a) file a post-effective amendment to this registration
statement as frequently as is necessary to ensure that the
audited financial statements in the registration statement
are never more than 16 months old for so long as payments
under the variable annuity contracts may be accepted;
(b) include either (1) as part of any application to purchase a
contract offered by the prospectus, a space that an
applicant can check to request a Statement of Additional
Information, or (2) a postcard or similar written
communication affixed to or included in the prospectus that
the applicant can remove to send for a Statement of
Additional Information; and
(c) deliver any Statement of Additional Information and any
financial statements required to be made available under
this form promptly upon written or oral request.
The Registrant represents that any contracts which are issued
pursuant to Section 403(b) of the Internal Revenue Code are issued
by Nationwide through the Registrant in reliance upon, and in
compliance with, a no-action letter issued by the Staff of the
Securities and Exchange Commission to the American Council of Life
Insurance (publicly available November 28, 1988) permitting
withdrawal restrictions to the extent necessary to comply with
Section 403(b)(11) of the Internal Revenue Code.
Nationwide represents that the fees and charges deducted under the
contract in the aggregate are reasonable in relation to the
services rendered, the expenses expected to be incurred and risks
assumed by Nationwide.
149 of 152
<PAGE> 101
Offered by
Nationwide Life Insurance Company
NATIONWIDE LIFE INSURANCE COMPANY
Nationwide Variable Account - II
Deferred Variable Annuity Contract
PROSPECTUS
May 1, 1999
150 of 152
<PAGE> 102
INDEPENDENT AUDITORS' CONSENT
The Board of Directors of Nationwide Life Insurance Company and Contract Owners
of the Nationwide Variable Account-II:
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Services" in the Statement of Additional Information.
KPMG LLP
Columbus, Ohio
April 29, 1999
151 of 152
<PAGE> 103
SIGNATURES
As required by the Securities Act of 1933, and the Investment Company Act of
1940, the Registrant, NATIONWIDE VARIABLE ACCOUNT-II, certifies that it meets
the requirements of Securities Act Rule 485 for effectiveness of this
Post-Effective Amendment and has caused this Post-Effective Amendment to be
signed on its behalf in the City of Columbus, and State of Ohio, on this 17th
day of September, 1999.
NATIONWIDE VARIABLE ACCOUNT-II
-----------------------------------------------
(Registrant)
NATIONWIDE LIFE INSURANCE COMPANY
-----------------------------------------------
(Depositor)
By/s/JOSEPH P. RATH
--------------------------------------------------------
Joseph P. Rath
Vice President - Office of Product and Market Compliance
As required by the Securities Act of 1933, this Post-Effective Amendment has
been signed by the following persons in the capacities indicated on the 17th day
of September, 1999.
SIGNATURE TITLE
LEWIS J. ALPHIN Director
- -----------------------
Lewis J. Alphin
A. I. BELL Director
- -----------------------
A. I. Bell
KENNETH D. DAVIS Director
- -----------------------
Kenneth D. Davis
KEITH W. ECKEL Director
- -----------------------
Keith W. Eckel
WILLARD J. ENGEL Director
- -----------------------
Willard J. Engel
FRED C. FINNEY Director
- -----------------------
Fred C. Finney
JOSEPH J. GASPER President and Chief
- ----------------------- Operating Office and Director
Joseph J. Gasper
DIMON R. McFERSON Chairman and Chief Executive Officer
- ----------------------- and Director
Dimon R. McFerson
DAVID O. MILLER Chairman of the Board and Director
- -----------------------
David O. Miller
YVONNE L. MONTGOMERY Director
- -----------------------
Yvonne L. Montgomery
ROBERT A. OAKLEY Executive Vice President
- ----------------------- Chief Financial Officer
Robert A. Oakley
RALPH M. PAIGE Director
- -----------------------
Ralph M. Paige
JAMES F. PATTERSON Director By/s/JOSEPH P. RATH
- ----------------------- ------------------------------
James F. Patterson Joseph P. Rath
Attorney-in-Fact
ARDEN L. SHISLER Director
- -----------------------
Arden L. Shisler
ROBERT L. STEWART Director
- -----------------------
Robert L. Stewart
NANCY C. THOMAS Director
- -----------------------
Nancy C. Thomas
152 of 152
