<PAGE> 1
As filed with the Securities and Exchange Commission.
`33 Act File No. 33-89560
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES [X]
ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 7
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [_]
NATIONWIDE FIDELITY ADVISOR VARIABLE ACCOUNT
(EXACT NAME OF REGISTRANT)
NATIONWIDE LIFE INSURANCE COMPANY
(NAME OF DEPOSITOR)
ONE NATIONWIDE PLAZA, COLUMBUS, OHIO 43216-6609
(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 43216-6609
(Name and Address of Agent for Service)
This Post-Effective Amendment amends the Registration Statement in respect of
the Prospectus, 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
[_] on (date) pursuant to paragraph (b) of Rule 485
[_] 60 days after filing pursuant to paragraph (a) of Rule 485
[X] on December 30, 1999 pursuant to paragraph (a) of Rule 485
[_] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
================================================================================
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NATIONWIDE FIDELITY ADVISOR VARIABLE ACCOUNT
REFERENCE TO ITEMS REQUIRED BY FORM N-4
Caption in Prospectus and Statement of Additional Information and Other
Information
<TABLE>
<CAPTION>
N-4 ITEM CAPTION
<S> <C>
PART A INFORMATION REQUIRED IN A PROSPECTUS
Item 1. Cover Page.................................................................................Cover Page
Item 2. Definitions.................................................................Glossary of Special Terms
Item 3. Synopsis or Highlights......................................................Synopsis of the Contracts
Item 4. Condensed Financial Information.......................................Condensed Financial Information
Item 5. General Description of Registrant, Depositor, and Portfolio
Companies ..........................Nationwide Life Insurance Company; Investing in the Contract
Item 6. Deductions and Expenses.................................................Standard Charges & Deductions
Item 7. General Description of Variable
Annuity Contracts.......................................Contract Ownership; Operation of the Contract
Item 8. Annuity Period...............................................................Annuitizing the Contract
Item 9. Death Benefit..........................................................................Death Benefits
Item 10. Purchases and Contract Value................................................Operation of the Contract
Item 11. Redemptions...................................................................Surrender (Redemption)
Item 12. Taxes ....................................................................Federal Tax Considerations
Item 13. Legal Proceedings...................................................................Legal Proceedings
Item 14. Table of Contents of the Statement of Additional
Information.........................Table of Contents of the Statement of Additional Information
PART B INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
Item 15. Cover Page.................................................................................Cover Page
Item 16. Table of Contents...................................................................Table of Contents
Item 17. General Information and History.......................................General Information and History
Item 18. Services.....................................................................................Services
Item 19. Purchase of Securities Being Offered.............................Purchase of Securities Being Offered
Item 20. Underwriters.............................................................................Underwriters
Item 21. Calculation of Performance Information.........................Calculation of Performance Information
Item 22. Annuity Payments.....................................................................Annuity Payments
Item 23. Financial Statements.............................................................Financial Statements
PART C OTHER INFORMATION
Item 24. Financial Statements and Exhibits.............................................................Item 24
Item 25. Directors and Officers of the Depositor.......................................................Item 25
Item 26. Persons Controlled by or Under Common Control with
the Depositor or Registrant..............................................................Item 26
Item 27. Number of Contract Owners.....................................................................Item 27
Item 28. Indemnification...............................................................................Item 28
Item 29. Principal Underwriter.........................................................................Item 29
Item 30. Location of Accounts and Records..............................................................Item 30
Item 31. Management Services...........................................................................Item 31
Item 32. Undertakings..................................................................................Item 32
</TABLE>
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SUPPLEMENT DATED DECEMBER 30, 1999 TO
PROSPECTUS DATED APRIL 30, 1999 FOR
MODIFIED SINGLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACTS
ISSUED BY
NATIONWIDE LIFE INSURANCE COMPANY
THROUGH ITS
NATIONWIDE FIDELITY ADVISOR VARIABLE ACCOUNT
THIS SUPPLEMENT UPDATES CERTAIN INFORMATION CONTAINED IN YOUR PROSPECTUS. PLEASE
READ IT AND KEEP IT WITH YOUR PROSPECTUS FOR FUTURE REFERENCE.
1. THE "ADDITIONAL CONTRACT OPTIONS" ON PAGES 7 AND 8 OF YOUR PROSPECTUS IS
AMENDED TO INCLUDE THE FOLLOWING:
EXTRA VALUE OPTION
For an additional charge of 0.45% of the daily net assets of the variable
account, Nationwide will credit 3% of the purchase payment for each
purchase payment made to the contract during the first 12 months the
contract is in force. Nationwide will discontinue deducting this charge
seven years from the date the contract was issued (see "Extra Value
Option").
<TABLE>
<S> <C>
Extra Value Option..................................................................................0.45%
Total Variable Account Charges (including Extra Value Option)..................................1.40%
</TABLE>
2. THE "EXAMPLE" ON PAGE 10 OF YOUR PROSPECTUS IS AMENDED AS FOLLOWS:
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 chart reflects expenses of both the variable account and the underlying
mutual funds. The chart reflects variable account charges of 2.50%, which
is the maximum variable account charges that could be assessed to a
contract.
For those contracts that do not elect the maximum number of rider options,
the expenses would be reduced. 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
at the end of the applicable contract at the end of the contract
time period applicable time period at the end of the applicable
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>
VIP Equity-Income Portfolio: 96 156 208 359 33 102 172 359 * 102 172 359
Service Class
VIP Growth Portfolio: Service 97 158 212 367 34 104 176 367 * 104 176 367
Class
VIP High Income Portfolio: 98 160 216 373 35 106 180 373 * 106 180 373
Service Class
</TABLE>
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<TABLE>
<CAPTION>
If you surrender your contract If you do not surrender your If you annuitize your
at the end of the applicable contract at the end of the contract
time period applicable time period at the end of the applicable
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>
VIP Money Market Portfolio 92 144 189 323 29 90 153 323 * 90 153 323
VIP Overseas Portfolio: 99 165 223 387 36 111 187 387 * 111 187 383
Service Class
VIP II Asset Manager 97 159 213 369 34 105 177 369 * 105 177 369
Portfolio: Service Class
VIP II Asset Manager: Growth 98 162 219 379 35 108 183 379 * 108 183 379
Portfolio: Service Class
VIP II Contrafund Portfolio: 97 158 212 367 34 104 176 367 * 104 176 367
Service Class
VIP II Investment Grade Bond 95 152 203 349 32 98 167 349 * 98 167 349
Portfolio
VIP II Index 500 Portfolio 92 143 188 321 29 89 152 321 * 89 152 321
VIP III Balanced Portfolio: 96 156 209 361 33 102 173 361 * 102 173 361
Service Class
VIP III Growth & Income 97 156 210 362 34 102 174 362 * 102 174 362
Portfolio: Service Class
VIP III Growth Opportunities 98 159 214 370 35 105 178 370 * 105 178 370
Portfolio: Service Class
VIP III Mid Cap Portfolio: 101 169 230 399 38 115 194 399 * 115 194 399
Service Class
</TABLE>
* The contracts sold under this prospectus do not permit annuitization during
the first two contract years.
3. THE "MINIMUM INITIAL AND SUBSEQUENT PURCHASE PAYMENTS" PROVISION ON PAGE 11
OF YOUR PROSPECTUS IS AMENDED TO INCLUDE THE FOLLOWING:
If the contract owner elects the Extra Value Option, amounts credited to
the contract may not be used to meet the minimum initial and subsequent
purchase payment requirements.
4. THE "CHARGES AND EXPENSES" PROVISION ON PAGES 11 AND 12 OF YOUR PROSPECTUS
IS AMENDED TO INCLUDE THE FOLLOWING:
An Extra Value Option is available under the contract. If the contract
owner elects the Extra Value Option, Nationwide will deduct an additional
charge of 0.45% of the daily net assets of the variable account. In
exchange, Nationwide will apply a credit of 3% of the purchase payment for
each purchase payment made during the first 12 months the contract is in
force. Nationwide will discontinue deducting this charge seven years from
the date the contract was issued (see "Extra Value Option").
5. THE "OPTIONAL CONTRACT BENEFITS, CHARGES AND DEDUCTIONS" PROVISION ON PAGES
17 THROUGH 19 OF YOUR PROSPECTUS IS AMENDED TO INCLUDE THE FOLLOWING:
EXTRA VALUE OPTION
For an additional charge of 0.45% of the daily net assets of the variable
account, the contract owner can purchase an Extra Value Option at the time
of application. Nationwide may reduce this charge.
In exchange, Nationwide will apply a credit of 3% of the purchase payment
for each purchase payment made during the first 12 months the contract is
in force. This credit is funded from Nationwide's general account. The
amount credited will be
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allocated among the sub-accounts, the fixed account, and/or the Guaranteed
Term Options in the same proportion that the purchase payment is allocated
to the contract.
For the first seven years the contract is in force, a percentage of any
credit previously applied will be forfeited for any amounts surrendered
from the contract that are subject to a CDSC. The amount forfeited will be
in the same percentage as the amount withdrawn subject to CDSC is to the
total of all purchase payments made to the contract during the first 12
months. Nationwide will deduct the forfeited credit from the sub-accounts,
fixed account, and/or the Guaranteed Term Options in the same proportion
that amounts are invested at the time of the withdrawal.
No credit will be forfeited if the withdrawal is not subject to a CDSC or
is taken as a result of death, annuitization, or to meet minimum
distribution requirements under the Internal Revenue Code.
6. THE "MINIMUM INITIAL AND SUBSEQUENT PURCHASE PAYMENTS" PROVISION ON PAGE 20
OF YOUR PROSPECTUS IS AMENDED TO INCLUDE THE FOLLOWING:
If the contract owner elects the Extra Value Option, amounts credited to
the contract may not be used to meet the minimum initial and subsequent
purchase payment requirements.
7. THE "RIGHT TO REVOKE" PROVISION ON PAGE 24 OF YOUR PROSPECTUS IS AMENDED TO
INCLUDE THE FOLLOWING:
Contract owners who have elected the Extra Value Option and subsequently
terminate the contract under the free look provision, will forfeit any
amounts credited to the contract. For those jurisdictions which allow a
return of contract value, any earnings attributable to the amount credited
will be retained by the contract owner; all losses attributable to the
amount credited will be incurred by Nationwide.
8. THE "SURRENDER (REDEMPTION)" PROVISION ON PAGES 24 AND 25 OF YOUR
PROSPECTUS IS AMENDED TO INCLUDE THE FOLLOWING:
If the contract owner elected the Extra Value Option, for the first seven
years the contract is in force, a percentage of any credit previously
applied will be forfeited for any amounts surrendered from the contract
that are subject to a CDSC. The amount forfeited will be in the same
percentage as the amount withdrawn subject to CDSC is to the total of all
purchase payments made to the contract during the first 12 months.
Nationwide will deduct the forfeited credit from the sub-accounts, fixed
account, and/or the Guaranteed Term Options in the same proportion that
amounts are invested at the time of the withdrawal.
No credit will be forfeited if the withdrawal is not subject to a CDSC or
is taken as a result of death, annuitization, or to meet minimum
distribution requirements under the Internal Revenue Code.
9. THE "PARTIAL SURRENDERS (PARTIAL REDEMPTIONS)" PROVISION ON PAGE 24 OF YOUR
PROSPECTUS IS AMENDED TO INCLUDE THE FOLLOWING:
The CDSC deducted is a percentage of the amount requested by the contract
owner. Amounts deducted for CDSC are not subject to subsequent CDSC.
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NATIONWIDE LIFE INSURANCE COMPANY
Modified Single Premium Deferred Variable Annuity Contracts
Issued by Nationwide Life Insurance Company
through its Nationwide Fidelity Advisor Variable Account
The date of this prospectus is April 30, 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:
VARIABLE INSURANCE PRODUCTS FUND
o VIP Equity-Income Portfolio: Service Class
o VIP Growth Portfolio: Service Class
o VIP High Income Portfolio: Service Class*
o VIP Money Market Portfolio
o VIP Overseas Portfolio: Service Class
VARIABLE INSURANCE PRODUCTS FUND II
o VIP II Asset Manager Portfolio: Service Class
o VIP II Asset Manager: Growth Portfolio: Service Class
o VIP II Contrafund Portfolio: Service Class
o VIP II Investment Grade Bond Portfolio
o VIP II Index 500 Portfolio
VARIABLE INSURANCE PRODUCTS FUND III
o VIP III Balanced Portfolio: Service Class
o VIP III Growth & Income Portfolio: Service Class
o VIP III Growth Opportunities Portfolio: Service Class
o VIP III Mid Cap Portfolio: Service Class
*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 Fidelity Advisor Variable Account ("variable account") may be
allocated to the fixed account or the Guaranteed Term Options (Guaranteed Term
Options may not be available in every jurisdiction - refer to your contract for
specific information).
The Statement of Additional Information (dated April 30, 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 50.
For general information or to obtain FREE copies of the:
o Statement of Additional Information;
o prospectus for any underlying mutual fund;
o prospectus for the Guaranteed Term Options; or
o required Nationwide forms,
call: 1-800-494-1132
1-800-573-2447 (VOICE RESPONSE AVAILABLE 24 HOURS)
1-800-238-3035 (TDD)
or write:
NATIONWIDE LIFE INSURANCE COMPANY
P.O. BOX 182610
COLUMBUS, OHIO 43218-2610
The Statement of Additional Information and other material incorporated by
reference can be found on the SEC website at:
www.sec.gov
THIS ANNUITY IS NOT:
o A BANK DEPOSIT o FEDERALLY INSURED
o ENDORSED BY A BANK o AVAILABLE IN
OR GOVERNMENT AGENCY EVERY STATE
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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
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GLOSSARY OF SPECIAL TERMS
ACCUMULATION UNIT- An accounting unit of measure used to calculate the contract
value allocated to the variable account before the annuitization date.
ANNUITIZATION DATE- The date on which annuity payments begin.
ANNUITY COMMENCEMENT DATE- The date on which annuity payments are scheduled to
begin. This date may be changed by the contract owner with Nationwide's consent.
ANNUITY UNIT- An accounting unit used to calculate the variable payment annuity
payments.
CONTRACT VALUE- The total of all accumulation units in a contract, any amount
held in the fixed account, and any amount held under Guaranteed Term Options.
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.
INVESTMENT-ONLY CONTRACT- A contract purchased by a Qualified Pension,
Profit-Sharing or Stock Bonus Plan as defined by Section 401(a) of the Internal
Revenue Code.
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.
SIMPLE IRA- An annuity contract which qualifies for favorable tax treatment
under Section 408(p) 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 Fidelity Advisor Variable Account, a separate
account of Nationwide that contains variable account allocations. The variable
account is divided into sub-accounts, each of which invests in shares of a
separate underlying mutual fund.
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TABLE OF CONTENTS
GLOSSARY OF SPECIAL TERMS.........................3
SUMMARY OF STANDARD CONTRACT
EXPENSES.....................................6
ADDITIONAL CONTRACT OPTIONS.......................7
UNDERLYING MUTUAL FUND ANNUAL
EXPENSES.....................................9
EXAMPLE..........................................10
SYNOPSIS OF THE CONTRACTS........................11
FINANCIAL STATEMENTS.............................12
CONDENSED FINANCIAL INFORMATION..................12
NATIONWIDE LIFE INSURANCE COMPANY................12
GENERAL DISTRIBUTOR..............................12
INVESTING IN THE CONTRACT........................12
The Variable Account and Underlying
Mutual Funds
Guaranteed Term Options
The Fixed Account
STANDARD CHARGES AND DEDUCTIONS..................15
Mortality and Expense Risk Charge
Contingent Deferred Sales Charge
Premium Taxes
OPTIONAL CONTRACT BENEFITS, CHARGES AND
DEDUCTIONS..................................17
Reduced Purchase Payment Option
CDSC Options and Charges
Death Benefit Options
Guaranteed Minimum Income Benefit Option
CONTRACT OWNERSHIP...............................19
Joint Ownership
Contingent Ownership
Annuitant
Beneficiary and Contingent Beneficiary
OPERATION OF THE CONTRACT........................20
Minimum Initial and Subsequent
Purchase Payments
Pricing
Allocation of Purchase Payments
Determining the Contract Value
Transfers
RIGHT TO REVOKE..................................24
SURRENDER (REDEMPTION)...........................24
Partial Surrenders (Partial Redemptions)
Full Surrenders (Full Redemptions)
Surrenders Under a Texas Optional
Retirement Program or a
Louisiana Optional Retirement Plan
Surrenders Under a Tax Sheltered Annuity
LOAN PRIVILEGE...................................25
Minimum & Maximum Loan Amounts
Loan Processing Fee
How Loan Requests are Processed
Loan Interest
Loan Repayment
Distributions & Annuity Payments
Transferring the Contract
Grace Period & Loan Default
ASSIGNMENT.......................................27
CONTRACT OWNER SERVICES..........................27
Asset Rebalancing
Dollar Cost Averaging
Systematic Withdrawals
ANNUITY COMMENCEMENT DATE........................29
ANNUITIZING THE CONTRACT.........................29
Annuitization Date
Annuitization
Fixed Payment Annuity
Variable Payment Annuity
Frequency and Amount of Annuity
Payments
Guaranteed Minimum Income Benefit
Option ("GMIB")
Annuity Payment Options
DEATH BENEFITS...................................34
Death of Contract Owner - Non-Qualified
Contracts
Death of Annuitant - Non-Qualified
Contracts
Death of Contract Owner/Annuitant
Death Benefit Payment
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REQUIRED DISTRIBUTIONS...........................36
Required Distributions for Non-Qualified
Contracts
Required Distributions for Tax Sheltered
Annuities
Required Distributions for Individual
Retirement Annuities, SEP IRAs and
Simple IRAs
Required Distributions for Roth IRAs
FEDERAL TAX CONSIDERATIONS.......................39
Federal Income Taxes
Individual Retirement Annuities, SEP IRAs,
Simple IRAs and Tax Sheltered
Annuities
Roth IRAs
Withholding
Non-Resident Aliens
Federal Estate, Gift, and Generation
Skipping Transfer Taxes
Puerto Rico
Charge for Tax
Diversification
Tax Changes
STATEMENTS AND REPORTS...........................44
YEAR 2000 COMPLIANCE ISSUES......................45
LEGAL PROCEEDINGS................................46
ADVERTISING AND SUB-ACCOUNT PERFORMANCE
SUMMARY.....................................47
TABLE OF CONTENTS OF STATEMENT OF
ADDITIONAL INFORMATION......................50
APPENDIX A: OBJECTIVES FOR UNDERLYING
MUTUAL FUNDS................................51
APPENDIX B: CONDENSED FINANCIAL
INFORMATION.................................54
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SUMMARY OF STANDARD CONTRACT EXPENSES
The expenses listed below are charged to all contracts unless:
o the contract owner meets an available exception; or
o a contract owner has replaced a standard benefit with an available option
for an additional charge.
CONTRACT OWNER TRANSACTION EXPENSES
Maximum Contingent Deferred Sales
Charge ("CDSC") (as a percentage of
purchase payments surrendered)...................7%(1)
Range of CDSC over time:
Number of Completed Years from CDSC
Date of Purchase Payment Percentage
0 7%
1 7%
2 6%
3 5%
4 4%
5 3%
6 2%
7 0%
(1) Each contract year, the contract owner may withdraw without a CDSC the
greater of:
a) 10% of all purchase payments made to the contract; 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.
VARIABLE ACCOUNT CHARGES(2)
(as a percentage of average account value)
Mortality and Expense Risk Charges............0.95%
Total Variable Account Charges...........0.95%(3)
(2) These charges apply only to sub-account allocations. They do not apply to
allocations made to the fixed account or to the Guaranteed Term Options. They
are charged on a daily basis at the annual rate noted above.
(3) Charges shown include the Five-Year Reset Death Benefit that is standard to
every contract (see "Death Benefit Payment").
Nationwide may assess a loan processing fee at the time each new loan is
processed. Loans are only available for contracts issued as Tax Sheltered
Annuities. Loans are not available in all states. In addition, some states may
not allow Nationwide to assess a loan processing fee (see "Loan Privilege").
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ADDITIONAL CONTRACT OPTIONS
For an additional charge, the following options are available to contract owners
(upon approval by state insurance authorities). These options must be elected at
the time of application and will replace the corresponding standard contract
benefits.
If the contract owner chooses one or more of the following optional benefits, a
corresponding charge will be deducted. Charges for the optional benefits are IN
ADDITION TO the standard variable account charges. Optional benefit charges will
only apply to allocations made to the variable account and are charged as a
percentage of the average variable account value.
REDUCED PURCHASE PAYMENT OPTION
For an additional 0.25% of the daily net assets of the variable account,
Nationwide will lower an applicant's minimum intitial purchase payment to $1,000
and subsequent purchase payments to $25. This option is not available to
contracts issued as Investment-only Contracts.
Reduced Purchase Payment Option............0.25%
Total Variable Account Charges (including Reduced Purchase
Payment Option)..........................1.20%
CDSC OPTION FOR ROTH IRAS
For an additional 0.15% of the daily net assets of the variable account, a Roth
IRA applicant can receive a five year CDSC schedule, instead of the standard
seven year CDSC schedule.
Five Year CDSC Option .......................0.15%
Total Variable Account Charges
(including Five Year CDSC Option)..........1.10%
Range of Five-Year CDSC over time:
Number of Completed Years from CDSC
Date of Purchase Payment Percentage
0 7%
1 7%
2 6%
3 4%
4 2%
5 0%
CDSC WAIVER OPTIONS
ADDITIONAL WITHDRAWAL WITHOUT CHARGE AND DISABILITY WAIVER
For an additional 0.10% of the daily net assets of the variable account, an
applicant can receive an additional 5% CDSC-free withdrawal privilege, which
also includes a disability waiver. This 5% is in addition to the standard 10%
CDSC-free withdrawal privilege that applies to every contract (see "CDSC
Options and Charges").
Additional Withdrawal Without
Charge and Disability Waiver ..............0.10%
Total Variable Account Charges
(including Additional Withdrawal
Without Charge and
Disability Waiver) ....................1.05%
ADDITIONAL CDSC WAIVER OPTIONS FOR TAX SHELTERED ANNUITIES
Applicants of a Tax Sheltered Annuity may also elect two additional CDSC
waiver options (see "CDSC Options and Charges").
10 Year and Disability Waiver..............0.05%
Total Variable Account Charges
(including 10 Year and Disability
Waiver) .................................1.00%
Hardship Waiver............................0.15%
Total Variable Account Charges
(including Hardship Waiver)..............1.10%
DEATH BENEFIT OPTIONS
An applicant may choose one of two optional death benefits instead of the
Five-Year Reset Death Benefit that is standard to every contract. The optional
death benefits are:
Optional One-Year Step Up
Death Benefit................................0.05%
Total Variable Account Charges
(including One Year Step Up
Death Benefit).............................1.00%
Optional 5% Enhanced Death
Benefit......................................0.10%
Total Variable Account Charges
(including 5% Enhanced Death
Benefit)...................................1.05%
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GUARANTEED MINIMUM INCOME BENEFIT OPTION
For an additional 0.45% of the daily net assets of the variable account, an
applicant may elect the Guaranteed Minimum Income Benefit Option (see
"Guaranteed Minimum Income Benefit Option").
Guaranteed Minimum Income Benefit Option.....0.45%
Total Variable Account Charges
(including a Guaranteed Minimum
Income Benefit Option).....................1.40%
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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>
Fidelity VIP Equity-Income Portfolio: Service Class 0.49% 0.08% 0.10% 0.67%
Fidelity VIP Growth Portfolio: Service Class 0.59% 0.06% 0.10% 0.75%
Fidelity VIP High Income Portfolio: Service Class 0.58% 0.14% 0.10% 0.82%
Fidelity VIP Money Market Portfolio 0.20% 0.10% 0.00% 0.30%
Fidelity VIP Overseas Portfolio: Service Class 0.74% 0.13% 0.10% 0.97%
Fidelity VIP II Asset Manager Portfolio: Service Class 0.54% 0.13% 0.10% 0.77%
Fidelity VIP II Asset Manager: Growth Portfolio: 0.59% 0.19% 0.10% 0.88%
Service Class
Fidelity VIP II Contrafund Portfolio: Service Class 0.59% 0.06% 0.10% 0.75%
Fidelity VIP II Investment Grade Bond Portfolio 0.43% 0.14% 0.00% 0.57%
Fidelity VIP II Index 500 Portfolio 0.24% 0.04% 0.00% 0.28%
Fidelity VIP III Balanced Portfolio: Service Class 0.44% 0.15% 0.10% 0.69%
Fidelity VIP III Growth & Income Portfolio: Service 0.49% 0.11% 0.10% 0.70%
Class
Fidelity VIP III Growth Opportunities Portfolio: 0.59% 0.10% 0.10% 0.79%
Service Class
Fidelity VIP III Mid Cap Portfolio: Service Class 0.56% 0.44% 0.10% 1.10%
</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: Service Class 0.49% 0.09% 0.10% 0.68%
Fidelity VIP Growth Portfolio: Service Class 0.59% 0.11% 0.10% 0.80%
Fidelity VIP Overseas Portfolio: Service Class 0.74% 0.17% 0.10% 1.01%
Fidelity VIP II Asset Manager Portfolio: Service Class 0.54% 0.14% 0.10% 0.78%
Fidelity VIP II Asset Manager Growth Portfolio: 0.59% 0.20% 0.10% 0.89%
Service Class
Fidelity VIP II Contrafund Portfolio: Service Class 0.59% 0.11% 0.10% 0.80%
Fidelity VIP II Index 500 Portfolio 0.24% 0.11% 0.00% 0.35%
Fidelity VIP III Balanced Portfolio: Service Class 0.44% 0.16% 0.10% 0.70%
Fidelity VIP III Growth & Income Portfolio: Service 0.49% 0.12% 0.10% 0.71%
Class
Fidelity VIP III Growth Opportunities Portfolio: 0.59% 0.12% 0.10% 0.81%
Service Class
</TABLE>
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<PAGE> 15
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 chart reflects expenses of both the variable account and the underlying
mutual funds. Expenses shown reflect variable account charges of 1.05%, the
maximum charge that could be assessed to a contract as of December 31, 1998, and
the standard 7 year CDSC, where applicable.
For those contracts that do not elect the maximum number of options, the
expenses would be reduced. 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
at the end of the applicable contract at the end of the contract
time period applicable time period at the end of the applicable
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>
VIP Equity-Income Portfolio: 81 110 132 209 18 56 96 209 * 56 96 209
Service Class
VIP Growth Portfolio: Service 82 112 137 218 19 58 101 218 * 58 101 218
Class
VIP High Income Portfolio: 83 115 140 225 20 61 104 225 * 61 104 225
Service Class
VIP Money Market Portfolio 77 98 112 167 14 44 76 167 * 44 76 167
VIP Overseas Portfolio: 84 119 148 242 21 65 112 242 * 65 112 242
Service Class
VIP II Asset Manager 82 113 138 220 19 59 102 220 * 59 102 220
Portfolio: Service Class
VIP II Asset Manager: Growth 83 117 144 232 20 63 108 232 * 63 108 232
Portfolio: Service Class
VIP II Contrafund Portfolio: 82 112 137 218 19 58 101 218 * 58 101 218
Service Class
VIP II Investment Grade Bond 80 107 127 198 17 53 91 198 * 53 91 198
Portfolio
VIP II Index 500 Portfolio 77 97 111 165 14 43 75 165 * 43 75 165
VIP III Balanced Portfolio: 81 111 133 211 18 57 97 211 * 57 97 211
Service Class
VIP III Growth & Income 81 111 134 212 18 57 98 212 * 57 98 212
Portfolio: Service Class
VIP III Growth Opportunities 82 114 139 222 19 60 103 222 * 60 103 222
Portfolio: Service Class
VIP III Mid Cap Portfolio: 86 124 155 256 23 70 119 256 * 70 119 256
Service Class
</TABLE>
*The contracts sold under this prospectus do not permit annuitization during the
first two contract years.
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<PAGE> 16
SYNOPSIS OF THE CONTRACTS
The contracts described in this prospectus are modified single 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(s)" will also mean "certificate(s)" and
"contract owner" will mean "participant."
The contracts can be categorized as:
o Investment-only Contracts;
o Non-Qualified;
o Individual Retirement Annuities with contributions rolled over or
transferred from certain tax-qualified plans*;
o Roth IRAs;
o Tax Sheltered Annuities with contributions rolled over or transferred
from other Tax Sheltered Annuity plans*;
o SEP IRAs; and
o Simple IRAs.
*Contributions are not required to be rolled over or transferred if the contract
owner elects the Reduced Purchase Payment Option.
MINIMUM INITIAL AND SUBSEQUENT PURCHASE PAYMENTS
MINIMUM INITIAL MINIMUM
CONTRACT PURCHASE PAYMENT SUBSEQUENT
TYPE PAYMENTS
Investment-only $100,000 $15,000
Contracts
Non-Qualified $15,000 $1,000
IRA $15,000 $1,000
Roth IRA $15,000 $1,000
Tax Sheltered $15,000 $1,000
Annuity
Charitable $15,000 $1,000
Remainder Trust
SEP IRA $15,000 $1,000
Simple IRA $15,000 $1,000
If the contract owner elects the Reduced Purchase Payment Option, minimum
initial and subsequent purchase payments will be reduced accordingly.
Guaranteed Term Options
Guaranteed Term Options are separate investment options under the contract. The
minimum amount that may be allocated to a Guaranteed Term Option is $1,000.
CHARGES AND EXPENSES
Nationwide deducts a Mortality and Expense Risk Charge equal to an annual rate
of 0.95% of the daily net assets of the variable account. Nationwide assesses
this charge in return for bearing certain mortality and expense risks, and for
administrative expenses.
Nationwide does not deduct a sales charge from purchase payments upon deposit
into the contract. However, 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.
There are several CDSC options that are available to contract owners, each with
different characteristics and costs. The charge associated with each option is
charged as a percentage of the daily net assets of the variable account. They
are as follows:
OPTION CONTRACT TYPE CHARGE
Five Year CDSC Option Roth IRAs 0.15%
Additional Withdrawal All 0.10%
Without Charge and
Disability Waiver
10 Year and Disability Tax Sheltered 0.05%
Waiver Annuities
Hardship Waiver Tax Sheltered 0.15%
Annuities
If the contract owner elects the Reduced Purchase Payment Option, Nationwide
will reduce the minimum purchase payment to $1,000 and subsequent purchase
payments to $25. In return for the reduction, Nationwide will deduct an
additional charge of 0.25% of the daily net assets of the variable account. This
option is not available for contracts issued as Investment-only Contracts.
Two optional death benefits are available under the contract. If the contract
owner elects one of these options, Nationwide will deduct either 0.05% for the
One-Year Step Up Death Benefit, or 0.10% for the 5% Enhanced Death Benefit.
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<PAGE> 17
A Guaranteed Minimum Income Benefit option is available under the contract. If
the contract owner elects the Guaranteed Minimum Income Benefit option,
Nationwide will deduct an additional charge of 0.45% of the daily net assets of
the variable account (see "Guaranteed Minimum Income Benefit").
ANNUITY PAYMENTS
Annuity payments begin on the annuitization date. The payments will be based on
the annuity payment option chosen at the time of application (see "Annuity
Payment Options").
TAXATION
How the contracts are taxed depends on the type of contract issued. Nationwide
will charge against the contract any premium taxes levied by any governmental
authority (see "Federal Tax Considerations" and "Premium Taxes").
TEN DAY FREE LOOK
Contract owners may return the contract for any reason within ten days of
receipt and Nationwide will refund the contract value or the amount required by
law (see "Right to Revoke").
FINANCIAL STATEMENTS
Financial statements for the variable account and Nationwide are located in the
Statement of Additional Information. A current Statement of Additional
Information may be obtained, without charge, by contacting Nationwide's home
office at the telephone number listed on page 1 of this prospectus.
CONDENSED FINANCIAL INFORMATION
The value of an accumulation unit is determined on the basis of changes in the
per share value of the underlying mutual funds and the assessment of a variable
account charge which may vary from contract to contract (for more information on
the calculation of accumulation unit values, see "Determining Variable Account
Value - Valuing an Accumulation Unit"). Please refer to Appendix B for
information regarding each class of accumulation units.
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.
GENERAL DISTRIBUTOR
The contracts are distributed by the general distributor, Fidelity Investments
Institutional Services Company, Inc., located at 82 Devonshire Street, Boston,
MA 02109.
INVESTING IN THE CONTRACT
THE VARIABLE ACCOUNT AND UNDERLYING MUTUAL FUNDS
Nationwide Fidelity Advisor Variable Account is a separate account that invests
in the underlying mutual funds listed in Appendix A. Nationwide established the
separate account on July 22, 1994, 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
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<PAGE> 18
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 Investment-only Contracts, Individual
Retirement Annuities, SEP IRAs, Simple IRAs, Roth IRAs, and Tax Sheltered
Annuities.
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.
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.
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<PAGE> 19
No substitution, elimination, or combination of shares may take place without
the prior approval of the SEC and state insurance departments.
GUARANTEED TERM OPTIONS
Guaranteed Term Options are separate investment options under the contract. A
Guaranteed Term Option prospectus must be read along with this prospectus. The
minimum amount that may be allocated to a Guaranteed Term Option is $1,000.
Allocations to the Guaranteed Term Options are not subject to variable account
charges.
Guaranteed Term Options provide a guaranteed rate of interest over four
different maturity durations: three (3), five (5), seven (7) or ten (10) years.
Note: The guaranteed term may last for up to 3 months beyond the 3, 5, 7, or 10
year period since every guaranteed term will end on the final day of a calendar
quarter.
For the duration selected, Nationwide will declare a guaranteed interest rate.
That rate will be credited to amounts allocated to the Guaranteed Term Option
UNLESS a distribution is taken before the maturity date. If a distribution
occurs before the maturity date, the amount distributed will be subject to a
market value adjustment. A market value adjustment can increase or decrease the
amount distributed depending on current interest rate fluctuations. No market
value adjustment will be applied if Guaranteed Term Option allocations are held
to maturity.
Because a market value adjustment can affect the value of a distribution, its
effects should be carefully considered before surrendering or transferring from
Guaranteed Term Options. When actual interest rates are higher than the
guaranteed rate, a market value adjustment would reduce the value of the amount
distributed. When actual interest rates are lower than the guaranteed rate, the
value of the amount distributed would increase.
Guaranteed Term Options are available only during the accumulation phase of a
contract. They are not available after the annuitization date. In addition,
Guaranteed Term Options are not available for use with asset rebalancing, Dollar
Cost Averaging, or systematic withdrawals.
Guaranteed Term Options may not be available in every state.
THE FIXED ACCOUNT
The fixed account is an investment option that is funded by the 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.
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<PAGE> 20
o Renewal Rate - The rate available for maturing fixed account allocations
which are entering a new guarantee period. The contract owner will be
notified of this rate in a letter issued with the quarterly statements when
any of the money in the contract owner's fixed account matures. At that
time, the contract owner will have an opportunity to leave the money in the
fixed account and receive the Renewal Rate or the contract owner can move
the money to any of the other underlying mutual fund options.
o Dollar Cost Averaging Rate - From time to time, Nationwide may offer a more
favorable rate for an initial purchase payment into a new contract when
used in conjunction with a Dollar Cost Averaging program.
All of these rates are subject to change on a daily basis; however, once applied
to the fixed account, the interest rates are guaranteed until the end of the
calendar quarter during the 12 month anniversary in which the fixed account
allocation occurs.
Credited interest rates are annualized rates - the effective yield of interest
over a one-year period. Interest is credited to each contract on a daily basis.
As a result, the credited interest rate is compounded daily to achieve the
stated effective yield.
The guaranteed rate for any purchase payment will be effective for not less than
twelve months. Nationwide guarantees that the rate will not be less than 3.0%
per year.
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 a Mortality and Expense Risk Charge from the variable
account. This amount is computed on a daily basis, and is equal to an annual
rate of 0.95% of the daily net assets of the variable account.
The mortality risk charges compensate Nationwide for guaranteeing the annuity
rate of the contracts. This guarantee ensures that the annuity rates will not
change regardless of the death rates of annuity payees or the general
population.
The expense risk charges compensate Nationwide for guaranteeing that
administration charges will not increase regardless of actual expenses.
If the Mortality and Expense Risk Charge is insufficient to cover actual
expenses, the loss is borne by Nationwide.
CONTINGENT DEFERRED SALES CHARGE
No sales charge deduction is made from the purchase 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.
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<PAGE> 21
The CDSC applies as follows:
Number of Years from Date CDSC
of Purchase Payment Percentage
0 7%
1 7%
2 6%
3 5%
4 4%
5 3%
6 2%
7 0%
The CDSC is used to cover sales expenses, including commissions (maximum of 6%
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
variable account charges, since Nationwide may generate a profit from these
charges.
Contract owners taking withdrawals before age 59 1/2 may be subject to a 10% tax
penalty. In addition, all or a portion of the withdrawal may be subject to
federal income taxes (see "Non-Qualified Contracts - Natural Persons as Contract
Owners").
Waiver of Contingent Deferred Sales Charge
Each contract year, the contract owner may withdraw without a CDSC the greater
of:
(a) 10% of all purchase payments; 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
Guaranteed Term Options, the fixed account, or the variable account.
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.
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 earlier date as Nationwide becomes subject to premium taxes.
Premium taxes may be deducted from death benefit proceeds.
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<PAGE> 22
OPTIONAL CONTRACT BENEFITS, CHARGES AND DEDUCTIONS
REDUCED PURCHASE PAYMENT OPTION
If the contract owner chooses the Reduced Purchase Payment Option, Nationwide
will deduct a charge equal to an annual rate of 0.25% of the daily net assets of
the variable account. In return, the minimum initial purchase payment for that
contract will be $1,000 and minimum subsequent pruchase payments will be $25.
This option is not available for contracts issued as Investment-only Contracts.
The contract owner may elect to terminate this rider if, throughout a period of
at least two years and continuing until such election:
(1) the total of all purchase payments, less surrenders and withdrawals,
is maintained at $25,000 or more; and
(2) during such period and continuance, all subsequent purchase payments
were at least $1,000.
This election must be submitted in writing on a form provided by Nationwide.
Termination of the rider will occur as of the date on the election form, and the
charge for this rider will no longer be assessed. Subsequent purchase payments,
if any, will be subject to the terms of the contract and must be at least
$1,000.
CDSC OPTIONS AND CHARGES
Five Year CDSC Option for Roth IRAs
For an additional charge of 0.15% of the daily net assets of the variable
account, the contract owner of a Roth IRA may choose the Five-Year CDSC Option.
Under this option, CDSC will not exceed 7% of purchase payments surrendered.
The Five Year CDSC Option for Roth IRAs applies as follows:
Number of Years from Date of CDSC
Purchase Payment Percentage
0 7%
1 7%
2 6%
3 4%
4 2%
5 0%
Additional Withdrawal Without Charge and Disability Waiver
Each contract has a standard 10% CDSC-free withdrawal privilege each year. For
an additional charge of 0.10% of the daily net assets of the variable account,
the contract owner can withdraw an additional 5% of total purchase payments each
year without incurring a CDSC. This would allow the contract owner to withdraw a
total of 15% of the total of all purchase payments each year free of CDSC. Like
the standard 10% CDSC-free privilege, this additional withdrawal benefit is
non-cumulative.
This option also contains a disability waiver. Nationwide will waive CDSC if a
contract owner (or annuitant if the contract is owned by a non-natural owner) is
disabled after the contract is issued but before reaching age 65. If this waiver
becomes effective due to disability, no additional purchase payments may be made
to the contract.
Additional CDSC Waiver Options for Tax Sheltered Annuities
10 Year and Disability Waiver
For an additional charge of 0.05% of the daily net assets of the variable
account, the contract owner of a Tax Sheltered Annuity can purchase the 10
Year and Disability Waiver. Under this option, Nationwide will waive CDSC
if two conditions are met:
1) the contract owner has been the owner of the contract for 10
years; and
2) the contract owner has made regular payroll deferrals during the
entire
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<PAGE> 23
contract year for at least 5 of those 10 years.
This option also contains a disability waiver. Nationwide will waive CDSC
if the contract owner is disabled after the contract is issued but before
reaching age 65. If this waiver becomes effective due to disability, no
additional purchase payments may be made to the contract.
Hardship Waiver
For an additional charge of 0.15% of the daily net assets of the variable
account, the contract owner of a Tax Sheltered Annuity can purchase the
Hardship Waiver. Under this option, Nationwide will waive CDSC if the
contract owner experiences a hardship (as defined for purposes of Internal
Revenue Code Section 401(k)). The contract owner may be required to provide
proof of hardship.
If this waiver becomes effective, no additional purchase payments may be
made to the contract.
DEATH BENEFIT OPTIONS
If the contract owner chooses an optional death benefit, Nationwide will deduct
a charge equal to an annual rate of either 0.05% (for the One-Year Step Up Death
Benefit) or 0.10% (for the 5% Enhanced Death Benefit) of the daily net assets of
the variable account, depending upon which option was chosen. Nationwide may
lower either of these charges at any time without notifying contract owners.
Further information about these benefits can be found in the "Death Benefit
Payment" provision.
One-Year Step Up Death Benefit
If the annuitant dies before the annuitization date, the death benefit will be
the greatest of:
1) the contract value;
2) the total of all purchase payments, less an adjustment for amounts
surrendered; or
3) the highest contract value on any contract anniversary before the
annuitant's 86th birthday, less an adjustment for amounts subsequently
surrendered, plus purchase payments received after that contract
anniversary.
The adjustment for amounts surrendered will reduce items (2) and (3) above in
the same proportion that the contract value was reduced on the date(s) of the
partial surrender(s).
5% Enhanced Death Benefit
If the annuitant dies before the annuitization date, the death benefit will be
the greater of:
(1) the contract value; or
(2) the total of all purchase payments, less any amounts surrendered,
accumulated at 5% simple interest from the date of each purchase
payment or surrender to the most recent contract anniversary prior to
the annuitant's 86th birthday, less an adjustment for amounts
subsequently surrendered, plus purchase payments received since that
contract anniversary.
Long Term Care Facility Provisions
If the contract owner chooses an optional death benefit, no CDSC will be charged
if:
o The third contract anniversary has passed; and
o The contract owner has been confined to a long-term care facility or
hospital for a continuous 90-day period that began after the contract
issue date.
Additionally, if the contract owner chooses an optional death benefit, no CDSC
will be charged if:
o The contract owner has been diagnosed by a physician to have a
terminal illness; and
o Nationwide receives and records a letter from that physician
indicating such diagnosis.
Written notice and proof of terminal illness or confinement for 90 days in a
hospital or long term care facility must be received in a form satisfactory to
Nationwide and recorded at Nationwide's home offer prior to waiver of the CDSC.
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For those contracts that have a non-natural person as contract owner as an agent
for a natural person, the annuitant may exercise the rights of the contract
owner for the purposes described in this provision. If the non-natural contract
owner does not own the contract as an agent for a natural person (e.g., the
contract owner is a corporation or a trust for the benefit of an entity), the
annuitant may NOT exercise the rights described in this provision.
GUARANTEED MINIMUM INCOME BENEFIT OPTION
For an additional charge of 0.45% of the daily net assets of the variable
account, the contract owner can purchase a Guaranteed Minimum Income Benefit
option at the time of application. The Guaranteed Minimum Income Benefit option
provides for a minimum guaranteed value that may replace the contract value as
the amount to be annuitized under certain circumstances. A Guaranteed Minimum
Income Benefit may afford protection against unfavorable investment performance.
CONTRACT OWNERSHIP
The contract owner has all rights under the contract. Purchasers who name
someone other than themselves as the contract owner will have no rights under
the contract.
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, unless
the contract owner is a Charitable Remainder Trust.
JOINT OWNERSHIP
Joint owners each own an undivided interest in the contract.
Contract owners can name a joint owner at any time before annuitization subject
to the following conditions:
o Joint owners can only be named for Non-Qualified Contracts.
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 generally
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 by either joint owner.
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
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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 who will receive annuity payments and upon whose
continuation of life any annuity payment involving life contingencies depends.
This person must be age 85 or younger at the time of contract issuance, (age 83
or younger if electing a Guaranteed Minimum Income Benefit option) unless
Nationwide approves a request for an annuitant of greater age. The annuitant may
be changed before the annuitization date with Nationwide's consent.
BENEFICIARY AND CONTINGENT BENEFICIARY
The beneficiary is the person(s) who is entitled to the death benefit if the
annuitant dies before the annuitization date and there is no joint owner. The
contract owner can name more than one beneficiary. Multiple beneficiaries will
share the death benefit equally, unless otherwise specified.
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
MINIMUM INITIAL MINIMUM
CONTRACT PURCHASE PAYMENT SUBSEQUENT
TYPE PAYMENTS
Investment-only $100,000 $15,000
Contracts
Non-Qualified $15,000 $1,000
IRA $15,000 $1,000
Roth IRA $15,000 $1,000
Tax Sheltered $15,000 $1,000
Annuity
Charitable $15,000 $1,000
Remainder Trust
SEP IRA $15,000 $1,000
Simple IRA $15,000 $1,000
Subsequent purchase payments are not permitted for contracts issued in the State
of Oregon, and may not be permitted in other states under certain circumstances.
If the contract owner elects the Reduced Purchase Payment Option, minimum
initial and subsequent purchase payments will be reduced accordingly.
Guaranteed Term Options
Guaranteed Term Options are separate investment options under the contract. The
minimum amount that may be allocated to a Guaranteed Term Option is $1,000.
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.
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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. o Labor Day 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 sub-accounts, the fixed account,
and/or Guaranteed Term Options 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, fixed account or
Guaranteed Term Options. 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.
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 the sum of:
1) the value of amounts allocated to the sub-accounts of the variable account;
2) amounts allocated to the fixed account; and
3) amounts allocated to a Guaranteed Term Option.
If part or all of the contract value is surrendered, or charges are assessed
against the whole contract value, Nationwide will deduct a proportionate amount
from each sub-account, the fixed account and any Guaranteed Term Option 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:
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(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); and
(b) is the net asset value of the underlying mutual fund determined as of
the end of the preceding valuation period; and
(c) is a factor representing the daily variable account charges, which may
include charges for contract options chosen by the contract owner. The
factor is equal to an annual rate ranging from 0.95% to 2.05% of the
daily net assets of the variable account, depending on which contract
features the contract owner chooses.
Based on the change in 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.
Determining the Guaranteed Term Option Value
Nationwide determines the value of a Guaranteed Term Option by:
1) adding all amounts allocated to any Guaranteed Term Option, minus
amounts previously transferred or withdrawn (which may be subject to a
market value adjustment);
2) adding any interest earned on the amounts allocated to any Guaranteed
Term Option; and
3) subtracting charges deducted in accordance with the contract.
TRANSFERS
Transfers from the Fixed Account to the Variable Account or to a Guaranteed Term
Option
Fixed account allocations may be transferred to the variable account or to a
Guaranteed Term Option 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 or to a Guaranteed Term Option;
however Nationwide may, under certain economic conditions and at its discretion,
limit the maximum transferable amount. Under no circumstances will the maximum
transferable amount be less than 10% of the fixed account allocation reaching
the end of an interest rate guarantee period. Transfers of the fixed account
allocations must be made within 45 days after reaching the end of an interest
rate guarantee period.
Contract owners who use Dollar Cost Averaging may transfer from the fixed
account to the variable account under the terms of that program (see "Dollar
Cost Averaging").
Transfers to the Fixed Account
Variable account allocations may be transferred to the fixed account at any
time. Normally, Nationwide will not restrict transfers from the variable account
to the fixed account; however, Nationwide may establish a maximum transfer limit
from the variable account to the fixed account. Except as noted below, under no
circumstances will the transfer limit be less than 10% of the current value of
the variable
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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
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.
Transfers from a Guaranteed Term Option
Transfers from a Guaranteed Term Option prior to maturity are subject to a
market value adjustment.
Transfer Requests
Nationwide will accept transfer requests in writing or, in those states that
allow them, over the telephone. Nationwide will use reasonable procedures to
confirm that telephone instructions are genuine and will not be liable for
following telephone instructions that it reasonably determined to be genuine.
Nationwide may withdraw the telephone exchange privilege upon 30 days written
notice to contract owners.
After annuitization, transfers may only be made on the anniversary of the
annuitization date.
Amounts transferred to the variable account will receive the accumulation unit
value next determined after the transfer request is received.
Interest Rate Guarantee Period
The interest rate guarantee period is the period of time that the fixed account
interest rate is guaranteed to remain the same. Within 45 days of the end of an
interest rate guarantee period, transfers may be made from the fixed account to
the variable account 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 or a Guaranteed Term Option, 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.
The interest rate guarantee period does not in any way refer to interest rate
crediting practices connected with Guaranteed Term Options.
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 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
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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 Individual Retirement Annuity,
SEP IRA, Simple 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 amounts 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 REDEMPTIONS)
Nationwide will surrender accumulation units from the sub-accounts and an amount
from the fixed account and Guaranteed Term Options. 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 take the CDSC from either:
a) the amount requested; or
b) the contract value remaining after the contract owner has received the
amount requested.
If the contract owner does not make a specific election, any applicable CDSC
will be taken from the contract value remaining after the contract owner has
received the amount requested.
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, 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;
o the participant retires;
o the participant terminates employment due to total disability; or
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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 TAX SHELTERED ANNUITY
Contract owners of a 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
(as 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 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.
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.
LOAN PRIVILEGE
The loan privilege is ONLY available to owners of Tax Sheltered Annuities. These
contract owners can take loans from the contract value beginning
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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, this fee compensates Nationwide for expenses related to
administering and processing loans.
The fee is taken from the sub-accounts, fixed account, and Guaranteed Term
Options in proportion to the contract value at the time the loan is processed.
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. Any
remaining required collateral will be transferred from the Guaranteed Term
Options. Transfers from the Guaranteed Term Options may be subject to a market
value adjustment. No CDSC will be deducted on transfers related to loan
processing.
LOAN 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.
Loan repayments to the Guaranteed Term Options must be at least $1,000. If the
proportional share of the repayment to the Guaranteed Term Option is less than
$1,000,
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that portion of the repayment will be allocated to the Fidelity Money Market
Fund unless the contract owner directs otherwise.
DISTRIBUTIONS & ANNUITY PAYMENTS
Distributions made from the contract while a loan is outstanding will be reduced
by the amount of the outstanding loan plus accrued interest if:
o the contract is surrendered;
o the contract owner/annuitant dies;
o the contract owner who is not the annuitant dies prior to
annuitization; or
o annuity payments begin.
TRANSFERRING THE CONTRACT
Nationwide reserves the right to restrict any transfer of the contract while the
loan is outstanding.
GRACE PERIOD & LOAN DEFAULT
If a loan payment is not made when due, interest will continue to accrue. A
grace period may be available (please refer to the terms of the loan agreement).
If a loan payment is not made by the end of the applicable grace period, the
entire loan will be treated as a deemed distribution and will be taxable to the
borrower. This deemed distribution may also be subject to an early withdrawal
tax penalty by the Internal Revenue Service.
After default, interest will continue to accrue on the loan. Defaulted amounts,
plus interest, are deducted from the contract value when the participant is
eligible for a distribution of at least that amount. Additional loans are not
available while a previous loan is in default.
ASSIGNMENT
Contract rights are personal to the contract owner and may not be assigned
without Nationwide's written consent.
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.
Investment-only Contracts, Individual Retirement Annuities, Roth IRAs, SEP IRAs,
Simple IRAs, and Tax Sheltered Annuities may not be assigned, pledged or
otherwise transferred except where allowed by law.
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 or the Guaranteed Term Options.
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
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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 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 transfer of a
specified amount from the fixed account and/or certain sub-accounts 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: VIP High
Income Portfolio and VIP Money Market Portfolio to any other underlying mutual
fund. Dollar Cost Averaging transfers may not be directed to Guaranteed Term
Options. The minimum monthly transfer is $100.
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.
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 owners that wish to utilize Dollar Cost Averaging from the fixed
account should first inquire whether any Enhanced Rate Dollar Cost Averaging
programs are available.
Enhanced Rate Dollar Cost Averaging
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 VIP Money Market Portfolio.
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. Systematic
withdrawals are not available from the Guaranteed Term Options.
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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.
If the contract owner takes systematic withdrawals, the maximum amount that can
be withdrawn annually without a CDSC is the greatest of:
1) 10% of all purchase payments made to the contract as of the withdrawal
date;
2) an amount withdrawn to meet minimum distribution requirements under
the Internal Revenue Code; or
3) a percentage of the contract value based on the contract owner's age,
as shown in the table below:
CONTRACT OWNER'S PERCENTAGE OF
AGE CONTRACT VALUE
Under age 59 1/2 5%
Age 59 1/2 through age 61 7%
Age 62 through age 64 8%
Age 65 through age 74 10%
Age 75 and over 13%
Contract value and contract owner's age are determined as of the date the
request for the withdrawal program is recorded by Nationwide's home office. For
joint owners, the older joint owner's age will be used.
If total amounts withdrawn in any contract year exceeds the CDSC-free amount
described above, those amounts will only be eligible for the 10% of purchase
payment CDSC-free withdrawal privilege described in the "Contingent Deferred
Sales Charge" section. The total amount of CDSC for that contract year will be
determined in accordance with that provision.
The CDSC-free withdrawal privilege for systematic withdrawals is non-cumulative.
Free amounts not taken during any contract year cannot be taken as free amounts
in a subsequent contract year.
Nationwide reserves the right to stop establishing new systematic withdrawal
programs. Nationwide also reserves the right to assess a processing fee for this
service. Systematic withdrawals are not available before the end of the ten-day
free look period (see "Right to Revoke").
ANNUITY COMMENCEMENT DATE
The annuity commencement date is the date on which annuity payments are
scheduled to begin. The contract owner may change the annuity commencement date
before annuitization. This change must be in writing and approved by Nationwide.
ANNUITIZING THE CONTRACT
ANNUITIZATION DATE
The annuitization date is the date that annuity payments begin. It will be the
first day of a calendar month unless otherwise agreed, and must be at least 2
years after the contract is issued. If the contract is issued to fund a 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.
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FIXED PAYMENT ANNUITY
A fixed payment annuity is an annuity where the amount of the annuity payments
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.
A VARIABLE PAYMENT ANNUITY MAY NOT BE ELECTED WHEN EXERCISING THE GUARANTEED
MINIMUM INCOME BENEFIT OPTION.
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
and to calculate the investment performance of an underlying mutual fund in
order to determine subsequent payments under a variable payment annuity. An
assumed investment rate 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 payment based on whether actual investment
performance of the underlying mutual funds is higher or lower than the assumed
investment rate of 3.5%.
Value of an Annuity Unit
Annuity unit values for sub-accounts are determined by multiplying the net
investment factor for the valuation period for which the annuity unit is being
calculated by the immediately preceding valuation period's annuity unit value,
and multiplying the result by an interest factor to neutralize the assumed
investment rate of 3.5% per annum built into the variable payment annuity
purchase rate basis in the contracts.
Exchanges among Underlying Mutual Funds
Exchanges among underlying mutual funds during annuitization must be in writing.
Exchanges will occur on each anniversary of the annuitization date.
FREQUENCY AND AMOUNT OF ANNUITY PAYMENTS
Payments are made based on the annuity payment option selected, unless:
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o the amount to be distributed is less than $5,000, in which case
Nationwide may make one lump sum payment of the contract value; or
o an annuity payment would be less than $50, in which case Nationwide
can change the frequency of payments to intervals that will result in
payments of at least $50. Payments will be made at least annually.
GUARANTEED MINIMUM INCOME BENEFIT OPTION ("GMIB")
What is a GMIB?
A GMIB is a benefit which ensures the availability of a minimum amount when the
contract owner wishes to annuitize the contract. This minimum amount, referred
to as the Guaranteed Annuitization Value, may be used at specified times to
provide a guaranteed level of determinable lifetime annuity payments. The GMIB
may provide protection in the event of lower contract values that may result
from the investment performance of the contract.
How is the Guaranteed Annuitization Value Determined?
The Guaranteed Annuitization Value is equal to (a) - (b), but will never be
greater than 200% of all purchase payments, where:
(a) is the sum of all purchase payments, plus interest accumulated at a
compounded annual rate of 5% starting at the date of issue and ending on
the contract anniversary occurring immediately prior to the annuitant's
86th birthday; and
(b) is the reduction to (a) due to surrenders made from the contract. All such
reductions will be proportionately the same as the reductions to the
contract value caused by surrenders. For example, a surrender which reduces
the contract value by 25% will also reduce the Guaranteed Annuitization
Value by 25%.
Special Restrictions for a GMIB
After the first contract year, if the value of the contract owner's fixed
account allocation becomes greater than 30% of the contract value in any
contract year due to:
(1) the application of additional purchase payments;
(2) surrenders; or
(3) transfers from the variable account,
then 0% interest will accrue in that contract year for purposes of calculating
the Guaranteed Annuitization Value.
If the contract owner's fixed account allocation becomes greater than 30% of the
contract value solely as a result of fluctuations in the value of the variable
account, then interest will continue to accrue for the purposes of the
Guaranteed Annuitization Value at 5% annually, subject to the other terms and
conditions outlined herein.
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GMIB Illustrations
The following charts illustrate the amount of income that will be provided to an
annuitant if the contract owner annuitizes the contract at the 7th, 10th or 15th
contract anniversary date, using the GMIB.
The illustrations assume the following:
o An initial purchase payment of $100,000 is made to the contract and
allocated to the variable account;
o There are no surrenders from the contract or transfers to the fixed
account (raising the fixed account value to greater than 30% of the
contract value);
o The contract is issued to a MALE at age 55, 65 or 70; and
o A Life Annuity with 120 Months Guaranteed Fixed Payment Annuity Option
is elected.
<TABLE>
<CAPTION>
7 Years in Accumulation
$140,710.04 for GMIB at Annuitization
Male Age at Issue Male Age at Annuitization GMIB Purchase Rate* Monthly GMIB
<S> <C> <C> <C>
55 62 $4.72 $664.15
65 72 $5.96 $838.63
70 77 $5.79 $955.42
</TABLE>
<TABLE>
<CAPTION>
10 Years in Accumulation
$162,889.46 for GMIB at Annuitization
Male Age at Issue Male Age at Annuitization GMIB Purchase Rate* Monthly GMIB
<S> <C> <C> <C>
55 65 $5.03 $819.33
65 75 $6.44 $1,049.01
70 80 $7.32 $1,192.35
</TABLE>
<TABLE>
<CAPTION>
15 Years in Accumulation
$200,000.00 for GMIB at Annuitization
Male Age at Issue Male Age at Annuitization GMIB Purchase Rate* Monthly GMIB
<S> <C> <C> <C>
55 70 $5.66 $1,132.00
65 80 $7.32 $1,464.00
70 85 $8.18 $1,636.00
*Guaranteed Monthly Benefit per $1,000 applied.
</TABLE>
The illustrations should be used as a tool to assist an investor in determining
whether purchasing and exercising a GMIB option is right for them. The
guaranteed purchase rates assumed in the illustrations may not apply in some
states, or for contracts issued under an employer sponsored plan. Different
guaranteed purchase rates will also apply for females, for males who annuitize
at ages other than the ages shown above, or for annuitizations under other
annuity payment options. Where different guaranteed purchase rates apply, GMIB
amounts shown above will be different. In all cases, the guaranteed purchase
rates used to calculate the GMIB will be the same as the purchase rates
guaranteed in the contract for fixed annuitizations without the GMIB.
The purchase rates available in connection with annuitization options under a
GMIB are minimum guaranteed purchase rates. Alternative purchase rates, which
may be more favorable, may apply to annuitizations which occur without a GMIB
option.
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When May the Guaranteed Annuitization Value be Used?
The contract owner may use the Guaranteed Annuitization Value by annuitizing the
contract during the thirty day period following any contract anniversary:
(1) after the contract has been in effect for seven years; and
(2) the annuitant has attained age 60.
What Annuity Payment Options May Be Used With the Guaranteed Annuitization
Value?
The contract owner may elect any life contingent FIXED ANNUITY PAYMENT OPTION
calculated using the guaranteed annuity purchase rates set forth in the
contract. Such Fixed Annuity Payment Options include:
o Life Annuity;
o Joint and Last Survivor Annuity; and
o Life Annuity with 120 or 240 Monthly Payments Guaranteed.
Other GMIB Terms and Conditions
**PLEASE READ CAREFULLY**
o The GMIB must be elected at the time of application.
o The annuitant must be age 83 or younger at the time the contract is
issued.
o The GMIB is irrevocable and will remain for as long as the contract
remains in force.
IMPORTANT CONSIDERATIONS TO KEEP IN MIND REGARDING THE GMIB OPTION
While a GMIB does provide a Guaranteed Annuitization Value, A GMIB MAY NOT BE
APPROPRIATE FOR ALL INVESTORS and should be understood completely and analyzed
thoroughly before being elected.
- A GMIB DOES NOT in any way guarantee the performance of any underlying
mutual fund, or any other investment option available under the
contract.
- Once elected, the GMIB is irrevocable, meaning that even if the
investment performance of underlying mutual funds or other available
investment options surpasses the minimum guarantees associated with
the GMIB, the GMIB charges will still be assessed.
- The GMIB in no way restricts or limits the rights of contract owners
to annuitize the contract at other times permitted under the contract
nor will it in any way restrict the right to annuitize the contract
using contract values that may be higher than the Guaranteed
Annuitization Value.
- Please take advantage of the guidance of a qualified financial adviser
in evaluating the GMIB options, and all other aspects of the contract.
- GMIB may not be approved in all state jurisdictions.
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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. Individual Retirement Annuities 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.
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.
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.
If no beneficiaries survive the annuitant, the contingent beneficiary(ies)
receives the death benefit. Contingent beneficiaries will share the
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death benefit equally, unless otherwise specified.
If no beneficiary(ies) or contingent beneficiaries survive the annuitant, the
contract owner or the last surviving contract owner's estate will receive the
death benefit.
If the contract owner is a Charitable Remainder Trust and the annuitant dies
before the annuitization date, the death benefit will accrue to the Charitable
Remainder Trust. Any designation in conflict with the Charitable Remainder
Trust's right to the death benefit will be void.
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.
A joint owner will receive a death benefit if a contract owner/annuitant dies
before the annuitization date.
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.
DEATH BENEFIT PAYMENT
Contract owners may select one of three death benefits available under the
contract at the time of application (not all death benefit options may be
available in all states). If no selection is made at the time of application,
the death benefit will be the Five-Year Reset Death Benefit.
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).
Five-Year Reset Death Benefit (Standard Contractual Death Benefit)
If the annuitant dies before the annuitization date, the death benefit will be
the greatest of:
1) the contract value;
2) the total of all purchase payments, less an adjustment for amounts
surrendered; or
3) the contract value as of the most recent five year contract
anniversary before the annuitant's 86th birthday, less an adjustment
for amounts surrendered, plus purchase payments received after that
five year contract anniversary.
The adjustment for amounts surrendered will reduce items (2) and (3) above in
the same proportion that the contract value was reduced on the date(s) of the
partial surrender(s).
One-Year Step Up Death Benefit
If the annuitant dies before the annuitization date, the death benefit will be
the greatest of:
1) the contract value;
2) the total of all purchase payments, less an adjustment for amounts
surrendered; or
3) the highest contract value on any contract anniversary before the
annuitant's 86th birthday, less an adjustment for amounts subsequently
surrendered, plus purchase payments received after that contract
anniversary.
The adjustment for amounts surrendered will reduce items (2) and (3) above in
the same proportion that the contract value was reduced on the date(s) of the
partial surrender(s).
5% Enhanced Death Benefit
If the annuitant dies before the annuitization date, the death benefit will be
the greater of:
1) the contract value; or
2) the total of all purchase payments, less any amounts surrendered,
accumulated at 5% simple interest from the date of each purchase
payment or surrender to the most recent contract anniversary prior to
the
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annuitant's 86th birthday, less an adjustment for amounts subsequently
surrendered, plus purchase payments received since that contract
anniversary.
The total accumulated amount will not exceed 200% of the net of purchase
payments and amounts surrendered. The adjustment for amounts subsequently
surrendered after the most recent contract anniversary will reduce the 5%
interest anniversary value in the same proportion that the contract value was
reduced on the date(s) of the partial surrender(s).
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; or
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, 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 TAX SHELTERED ANNUITIES
Distributions from Tax Sheltered Annuities will be made according to the Minimum
Distribution and Incidental Benefit ("MDIB") provisions of Section 401(a)(9) of
the Internal Revenue Code. Distributions will be made to the annuitant according
to the selected annuity payment option over a period not longer than:
a) the life of the annuitant or the joint lives of the annuitant and the
annuitant's designated beneficiary; or
b) a period not longer than the life expectancy of the annuitant or the
joint life expectancies of the annuitant and the annuitant's
designated beneficiary.
Required distributions do not have to be withdrawn from this contract if they
are being
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withdrawn from another Tax Sheltered Annuity of the annuitant.
If the annuitant's entire interest in a Tax Sheltered Annuity will be
distributed in equal or substantially equal payments over a period described in
a) or b), the payments will begin on the required beginning date. The required
beginning date is the later of:
a) April 1 of the calendar year following the calendar year in which the
annuitant reaches age 70 1/2; or
b) the annuitant's retirement date.
Provision b) does not apply to any employee who is a 5% owner (as defined in
Section 416 of the Internal Revenue Code) with respect to the plan year ending
in the calendar year when the employee attains the age of 70 1/2.
Distributions commencing on the required distribution date must satisfy minimum
distribution and incidental benefit provisions set forth in the Internal Revenue
Code. Those provisions require that distributions cannot be less than the amount
determined by dividing the annuitant's interest in the Tax Sheltered Annuity
determined by the end of the previous calendar year by (a) the annuitant's life
expectancy; or if applicable, (b) the joint and survivor life expectancy of the
annuitant and the annuitant's beneficiary. The life expectancies and joint life
expectancies are determined by reference to Treasury Regulation 1.72-9.
If the annuitant dies before distributions begin, the interest in the Tax
Sheltered Annuity must be distributed by December 31 of the calendar year in
which the fifth anniversary of the annuitant's death occurs unless:
a) the annuitant names his or her surviving spouse as the beneficiary and
the spouse chooses to receive distribution of the contract in
substantially equal payments over his or her life (or a period not
longer than his or her life expectancy) and beginning no later than
December 31 of the year in which the annuitant would have attained age
70 1/2; or
b) the annuitant names a beneficiary other than his or her surviving
spouse and the beneficiary elects to receive distribution of the
contract in substantially equal payments over his or her life (or a
period not longer than his or her life expectancy) beginning no later
than December 31 of the year following the year in which the annuitant
dies.
If the annuitant dies after distributions have begun, distributions must
continue at least as rapidly as under the schedule used before the annuitant's
death.
If distribution requirements are not met, a penalty tax of 50% is levied on the
difference between the amount that should have been distributed for that year
and the amount that actually was distributed for that year.
REQUIRED DISTRIBUTIONS FOR INDIVIDUAL RETIREMENT ANNUITIES, SEP IRAS OR SIMPLE
IRAS
Distributions from an Individual Retirement Annuity, SEP IRA or Simple 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. Distributions 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, SEP IRA or Simple 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:
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1) treat the contract as an Individual Retirement Annuity, SEP IRA
or Simple IRA established for his or her benefit; or
2) receive distribution of the contract in substantially equal
payments over his or her life (or a period not longer than his or
her life expectancy) and beginning no later than December 31 of
the year in which the contract owner would have reached age 70
1/2; or
b) the contract owner names a beneficiary other than his or her surviving
spouse and such beneficiary elects to receive a distribution of the
contract in substantially equal payments over his or her life (or a
period not longer than his or her life expectancy) beginning no later
than December 31 of the year following the year of the contract owner's
death.
Required distributions do not have to be withdrawn from this contract if they
are being withdrawn from another Individual Retirement Annuity, SEP IRA, Simple
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, SEP IRA or Simple 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, SEP
IRAs or Simple IRAs.
If the contract owner dies before the entire interest in the contract has been
distributed, the balance will also be included in his or her gross estate.
REQUIRED DISTRIBUTIONS FOR ROTH IRAS
The rules for Roth IRAs do not require distributions to begin during the
contract owner's lifetime.
When the contract owner dies, the 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.
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Distributions from Roth IRAs may be either taxable or nontaxable, depending upon
whether they are "qualified distributions" or "non-qualified distributions" (see
"Federal Tax Considerations").
FEDERAL TAX CONSIDERATIONS
FEDERAL INCOME TAXES
Contract owners should consult a financial consultant, legal counsel or tax
advisor to discuss in detail the taxation and the use of the contracts.
Nationwide does not guarantee the tax status of the contracts or any
transactions involving the contracts.
Section 72 of the Internal Revenue Code governs federal income taxation of
annuities in general. That section sets forth different rules for: (1)
Individual Retirement Annuities, including SEP IRAs and Simple IRAs; (2) Roth
IRAs; (3) Tax Sheltered Annuities; and (4) Non-Qualified Contracts. Each type of
annuity is discussed below.
Individual Retirement Annuities, SEP IRAs and Simple IRAs
Distributions from Individual Retirement Annuities, including SEP IRAs and
Simple IRAs and contracts owned by Individual Retirement Accounts are generally
taxed when received. The excludable portion of each payment is based on the
ratio between the amount by which non-deductible purchase payments to all the
contracts exceeds prior non-taxable distributions from the contracts, and the
total account balances in the contracts at the time of the distribution. The
owner of the Individual Retirement Annuity, SEP IRA, Simple IRA or the annuitant
under contracts held by Individual Retirement Accounts must annually report to
the Internal Revenue Service:
o the amount of nondeductible purchase payments;
o the amount of any distributions;
o the amount by which nondeductible purchase payments for all years
exceed non-taxable distributions for all years; and
o the total balance in all Individual Retirement Annuities, SEP IRAs,
Simple IRAs and Individual Retirement Accounts.
Roth IRAs
Distributions of earnings from Roth IRAs are taxable or nontaxable, depending
upon whether they are "qualified distributions" or "non-qualified
distributions." A "qualified distribution" is one that satisfies the five-year
rule and meets one of the following requirements:
(i) it is made on or after the date on which the contract owner
attains age 59 1/2;
(ii) it is made to a beneficiary (or the contract owner's estate) on
or after the death of the contract owner;
(iii) it is attributable to the contract owner's disability; or
(iv) it is a qualified first-time homebuyer distribution (as defined
in Section 72(t)(2)(F) of the Internal Revenue Code).
If the Roth IRA does not have any qualified rollover contributions from a
retirement plan other than a Roth IRA (or income allocable thereto), the five
year rule is satisfied if the distribution is not made within the five year
period beginning with the first contribution to the Roth IRA. If the Roth IRA
contains qualified rollover contributions from a retirement plan other than a
Roth IRA (or income allocable thereto), the five year rule is satisfied if the
distribution is not made within the five taxable year period commencing with the
taxable year in which the qualified rollover contribution was made.
A non-qualified distribution is any distribution that is not a qualified
distribution.
A qualified distribution is not included in gross income for federal income tax
purposes. A non-qualified distribution is not includible in gross income to the
extent that the distribution, when
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added to all previous distributions, does not exceed that total amount of
contributions made to the Roth IRA. Any non-qualified distribution in excess of
the aggregate amount of contributions will be included in the contract owner's
gross income in the year that is distributed to the contract owner.
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.
Tax Sheltered Annuities
Distributions from Tax Sheltered Annuities are generally taxed when received. A
portion of each distribution is excludable from income based on a formula
required by the Internal Revenue Code. The formula excludes from income the
amount invested in the contract divided by the number of anticipated payments
(as determined pursuant to Section 72(d) of the Internal Revenue Code) until the
full investment in the contract is recovered. Thereafter all distributions are
fully taxable.
Non-Qualified Contracts - Natural Persons as Contract Owners
The rules applicable to Non-Qualified Contracts provide that a portion of each
annuity payment is excludable from taxable income based on the ratio between the
contract owner's investment in the contract and the expected return on the
contract until the investment has been recovered. Thereafter the entire amount
is includible in income. The maximum amount excludable from income is the
investment in the contract. If the annuitant dies before the entire investment
in the contract has been excluded from income and no additional payments are due
after his or her death, then he or she may be entitled to a deduction for the
balance of the unrecovered investment on the contract 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.
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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 a result of a contract owner's death;
2) is a 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; or
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;
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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.
INDIVIDUAL RETIREMENT ANNUITIES, SEP IRAS, SIMPLE IRAS AND TAX SHELTERED
ANNUITIES
Contract owners looking for information on eligibility, limitations on
permissible amounts of purchase payments, and the tax consequences of
distributions from Individual Retirement Annuities, SEP IRAs, Simple IRAs and
Tax Sheltered Annuities should contact a qualified adviser. The terms of each
plan may limit the rights available under the contracts.
Section 403(b)(1)(E) of the Internal Revenue Code requires a contract issued as
a Tax Sheltered Annuity to limit purchase payments for any year to an amount
that does not exceed the limit set forth in Section 402(g) of the Internal
Revenue Code. This limit is increased from time to time to reflect increases in
the cost of living. This limit may be reduced by deposits, contributions or
payments made to another Tax Sheltered Annuity or other plan, contract or
arrangement by or on behalf of the contract owner.
The Internal Revenue Code allows most distributions from Qualified Plans to be
rolled into Individual Retirement Annuities, SEP IRAs or Simple IRAs. Most
distributions from Tax Sheltered Annuities may be rolled into another Tax
Sheltered Annuity, Individual Retirement Annuity, SEP IRA or Simple IRA.
Distributions that may NOT be rolled over are those that are:
a) one of a series of substantially equal annual (or more frequent)
payments made:
1) over the life (or life expectancy) of the contract owner;
2) over the joint lives (or joint life expectancies) of the contract
owner and the contract owner's designated beneficiary; or
3) for a specified period of ten years or more; or
b) a required minimum distribution.
Any distribution that is eligible for rollover will be subject to federal tax
withholding of 20% if the distribution is not rolled into an appropriate plan as
described above.
Individual Retirement Annuities, SEP IRAs and Simple IRAs may not provide life
insurance benefits. If the death benefit exceeds the greater of the contract's
cash value or the sum of all purchase payments (less any surrenders), the
contract could be considered life insurance. Consequently, the Internal Revenue
Service could determine that the Individual Retirement Annuity, SEP IRA or
Simple IRA does not qualify for the desired tax treatment.
ROTH IRAS
The contract may be purchased as a Roth IRA. For detailed information on
purchasing and holding this contract as a Roth IRA, the contract owner should
contact a financial adviser.
The Internal Revenue Code allows distributions 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 and Individual Retirement
Annuities, all of the income from the rollover will be required to be included
in income in the year of the rollover distribution from the Individual
Retirement Account or Individual Retirement Annuity.
A distribution from a Roth IRA that contains the proceeds of a rollover from an
Individual Retirement Account or Individual Retirement Annuity within the
preceding five years could be subject to a 10% penalty, even if the distribution
is not taxable. In addition, if the rollover from the Individual Retirement
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Account or Individual Retirement Annuity was made in 1998, and the income from
that rollover was included in income ratably over a four year period, a
distribution from the Roth IRA within four years of the rollover may result in
the loss of the four year spread, subject to the amount deferred under the four
year election to be taxed immediately.
WITHHOLDING
Pre-death distributions from the contracts are subject to federal income tax.
Nationwide will withhold the tax from the distributions unless the contract
owner requests otherwise. Contract owners may not waive withholding if the
distribution is subject to mandatory back-up withholding (if no mandatory
taxpayer identification number is given or if the Internal Revenue Service
notifies Nationwide that mandatory back-up withholding is required), or if it is
an eligible rollover distribution. Mandatory back-up withholding rates are 31%
of income that is distributed.
NON-RESIDENT ALIENS
Generally, a pre-death distribution from a contract to a non-resident alien is
subject to federal income tax at a rate of 30% of the amount of income that is
distributed. Nationwide is required to withhold this amount and send it to the
Internal Revenue Service. Some distributions to non-resident aliens may be
subject to a lower (or no) tax if a treaty applies. In order to obtain the
benefits of such a treaty, the non-resident alien must:
1) provide Nationwide with proof of residency and citizenship (in
accordance with Internal Revenue Service requirements); and
2) provide Nationwide with an individual taxpayer identification number.
If the non-resident alien does not meet the above conditions, Nationwide will
withhold 30% of income from the distribution.
Another way to avoid the 30% withholding is for the non-resident alien to
provide Nationwide with sufficient evidence that:
1) the distribution is connected to the non-resident alien's conduct of
business in the United States; and
2) the distribution is includible in the non-resident alien's gross
income for United States federal income tax purposes.
Note that these distributions may be subject to back-up withholding, currently
31%, if a correct taxpayer identification number is not provided.
FEDERAL ESTATE, GIFT, AND GENERATION SKIPPING TRANSFER TAXES
The following transfers may be considered a gift for federal gift tax purposes:
o a transfer of the contract from one contract owner to another; or
o a distribution to someone other than a contract owner.
Upon the contract owner's death, the value of the contract may be subject to
estate taxes, even if all or a portion of the value is also subject to federal
income taxes.
Section 2612 of the Internal Revenue Code may require Nationwide to determine
whether a death benefit or other distribution is a "direct skip" and the amount
of the resulting generation skipping transfer tax, if any. A direct skip is when
property is transferred to, or a death benefit or other distribution is made to:
a) an individual who is two or more generations younger than the contract
owner; or
b) certain trusts, as described in Section 2613 of the Internal Revenue
Code (generally, trusts that have no beneficiaries who are not 2 or
more generations younger than the contract owner).
If the contract owner is not an individual, then for this purpose ONLY,
"contract owner" refers to any person:
o who would be required to include the contract, death benefit,
distribution, or other
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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.
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
advisor.
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
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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 computer systems so
that the systems will function properly after December 31, 1999.
Nationwide has completed an inventory and assessment of all computer systems and
has implemented a plan to renovate or replace all applications that were
identified as not Year 2000 compliant. Nationwide has renovated all applications
that required renovation. Testing of the renovated programs included running
each application in a Year 2000 environment and was completed as planned during
1998. For applications being replaced, Nationwide had all replacement systems in
place and functioning as planned by year-end 1998. Conversions of existing
traditional life policies will continue through second quarter, 1999. In
addition, the shareholder services system that supports our mutual fund products
will be fully deployed in the first quarter of 1999.
Nationwide has completed an inventory and assessment of all vendor products and
has tested and certified that each vendor product is Year 2000 compliant. Any
vendor products that could not be certified as Year 2000 compliant were replaced
or eliminated in 1998.
Nationwide has also addressed issues associated with the exchange of electronic
data with external organizations. Nationwide has completed an inventory and
assessment of all business partners including electronic interfaces. Processes
have been put into 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
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replacement activities will result in a reduction in operating expenses. Rather,
personnel and resources currently allocated to Year 2000 issues will be assigned
to other technology-related projects.
LEGAL PROCEEDINGS
Nationwide is a party to litigation and arbitration proceedings in the ordinary
course of its business, none of which is expected to have a material adverse
effect on Nationwide.
In recent years, life insurance companies have been named as defendants in
lawsuits, including class action lawsuits, relating to life insurance and
annuity pricing and sales practices. A number of these lawsuits have resulted in
substantial jury awards or settlements.
In 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 Co.). 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
Co.). In August 1998, Nationwide Mutual Insurance Company and Nationwide and the
plaintiffs executed a stipulation of settlement and submitted it to the New York
state court for approval. On August 20, 1998, the court in the Snyder case
signed an order preliminarily approving a class for settlement purposes (which
would include the Mishler case) and scheduled a fairness hearing for December
17, 1998. At that 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
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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.
The general distributor, Fidelity Investments Institutional Services Company,
Inc., is not engaged in any litigation of any material nature.
ADVERTISING AND SUB-ACCOUNT PERFORMANCE SUMMARY
ADVERTISING
A "yield" and "effective yield" may be advertised for the VIP Money Market
Portfolio. "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 VIP Money
Market Portfolio's units. Yield is an annualized figure, which means that it is
assumed that the VIP Money Market Portfolio generates the same level of net
income over a 52-week period. The "effective yield" is calculated similarly but
includes the effect of assumed compounding, calculated under rules prescribed by
the SEC. The effective yield will be slightly higher than yield due to this
compounding effect.
Nationwide may advertise the performance of a sub-account in relation to the
performance of other variable annuity sub-accounts, underlying mutual fund
options with similar or different objectives, or the investment industry as a
whole. Other investments to which the sub-accounts may be compared include, but
are not limited to:
o precious metals;
o real estate;
o stocks and bonds;
o closed-end funds;
o bank money market deposit accounts and passbook savings;
o CDs; and
o the Consumer Price Index.
Market Indexes
The sub-accounts will be compared to certain market indexes, such as:
o S&P 500;
o Shearson/Lehman Intermediate Government/Corporate Bond Index;
o Shearson/Lehman Long-Term Government/Corporate Bond Index;
o Donoghue Money Fund Average;
o U.S. Treasury Note Index;
o Bank Rate Monitor National Index of 2 1/2 Year CD Rates; and
o Dow Jones Industrial Average.
Tracking & Rating Services; Publications
Nationwide's rankings and ratings are sometimes published by other services,
such as:
o Lipper Analytical Services, Inc.;
o CDA/Wiesenberger;
o Morningstar;
o Donoghue's;
o magazines such as:
o Money;
o Forbes;
o Kiplinger's Personal Finance Magazine;
o Financial World;
o Consumer Reports;
o Business Week;
o Time;
o Newsweek;
o National Underwriter; and
o 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
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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 the sub-account's standardized average annual total return
("standardized return") calculated in a manner prescribed by the SEC, and
non-standardized total return ("non-standardized return").
Standardized 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
charges that could be assessed to a contract if the maximum rider options for a
contract issued as a Tax Sheltered Annuity are chosen as of December 31,
1998(1.05%). Standardized return does not reflect the deduction of state premium
taxes, which may be imposed by certain states.
Non-standardized return is calculated similarly to standardized return except
non-standardized return assumes an initial investment of $25,000, with base
contract variable account charges of 0.95% and does NOT reflect CDSC. An assumed
initial investment of $25,000 is used because that amount more accurately
reflects the average contract size.
Both methods of calculation reflect total return 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 had they been available in the variable account for
one of the periods.
The standardized average annual total return and nonstandardized total return
quotations are calculated using data for the period ended December 31, 1998.
However, Nationwide generally provides performance information more frequently.
Information relating to performance of the sub-accounts is based on historical
earnings and does not represent or guarantee future results.
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SUB-ACCOUNT PERFORMANCE SUMMARY
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
10 Years
or Date Fund
Available in Date Fund
the Variable Available in
1 Year 5 Years Account the Variable
Sub-Account Option to 12/31/98 to 12/31/98 to 12/31/98 Account
<S> <C> <C> <C> <C>
VIP Equity-Income Portfolio: Service Class 4.08% N/A 14.18% 01/20/97
VIP Growth Portfolio: Service Class 31.63% N/A 25.08% 01/20/97
VIP High Income Portfolio: Service Class -11.34% N/A 2.90% 11/01/96
VIP Money Market Portfolio -1.93% N/A 1.62% 11/01/96
VIP Overseas Portfolio: Service Class 5.17% N/A 10.19% 11/01/96
VIP II Asset Manager Portfolio: Service Class 7.18% N/A 12.85% 01/20/97
VIP II Asset Manager: Growth Portfolio: Service Class 9.57% N/A 15.64% 01/20/97
VIP II Contrafund Portfolio: Service Class 22.29% N/A 21.13% 01/20/97
VIP II Investment Grade Bond Portfolio 1.42% N/A 4.87% 11/01/96
VIP II Index 500 Portfolio 20.69% N/A 24.48% 01/20/97
VIP III Balanced Portfolio: Service Class 9.83% N/A 13.77% 01/03/95
VIP III Growth & Income Portfolio: Service Class 21.63% N/A 24.20% 01/20/97
VIP III Growth Opportunities Portfolio: Service Class 16.91% N/A 24.33% 01/03/95
</TABLE>
NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
$25,000 INITIAL INVESTMENT, VARIABLE ACCOUNT CHARGES OF 0.95%, NO CDSC
PLEASE NOTE: THE PERFORMANCE NUMBERS BELOW REFLECT THE DEDUCTION OF THE AMOUNT
ASSESSED FOR THE BASE CONTRACT OF 0.95% (A CONTRACT WITH NO RIDER OPTIONS). FOR
CONTRACT OWNERS WHICH HAVE CHOSEN ONE OR MORE RIDER OPTIONS, THE FUND
PERFORMANCE AS SHOWN BELOW WOULD BE REDUCED IN ACCORDANCE TO THE COSTS OF THE
RIDER OPTIONS SELECTED.
<TABLE>
<CAPTION>
10 Years
to 12/31/98
1 Year 5 Years or Life of Date Fund
Sub-Account Option to 12/31/98 to 12/31/98 Fund Effective
<S> <C> <C> <C> <C>
VIP Equity-Income Portfolio: Service Class 10.47% 17.52% 14.41% 10/09/86
VIP Growth Portfolio: Service Class 38.04% 20.46% 18.14% 10/09/86
VIP High Income Portfolio: Service Class -5.34% 7.64% 9.97% 09/19/85
VIP Money Market Portfolio 4.46% 4.22% 4.58% 04/01/82
VIP Overseas Portfolio: Service Class 11.56% 8.55% 8.92% 01/28/87
VIP II Asset Manager Portfolio: Service Class 13.57% 10.58% 11.77% 09/06/89
VIP II Asset Manager: Growth Portfolio: Service Class 15.96% N/A 20.08% 01/03/95
VIP II Contrafund Portfolio: Service Class 28.69% N/A 27.30% 01/03/95
VIP II Investment Grade Bond Portfolio 7.80% 5.60% 7.23% 12/05/88
VIP II Index 500 Portfolio 27.09% 22.46% 19.93% 08/27/92
VIP III Balanced Portfolio: Service Class 16.22% N/A 14.62% 01/03/95
VIP III Growth & Income Portfolio: Service Class 28.03% N/A 27.76% 12/31/96
VIP III Growth Opportunities Portfolio: Service Class 23.31% N/A 24.96% 01/03/95
</TABLE>
The Fidelity VIP III Mid Cap Portfolio: Service Class was added to the variable
account on January 11, 1999. Therefore, no sub-account performance is available.
49
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<PAGE> 55
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
<S> <C>
General Information and History...................................................................................1
Services..........................................................................................................1
Purchase of Securities Being Offered..............................................................................2
Underwriters......................................................................................................2
Calculations of Performance.......................................................................................2
Annuity Payments..................................................................................................3
Financial Statements..............................................................................................4
</TABLE>
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<PAGE> 56
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.
VARIABLE INSURANCE PRODUCTS FUND
The Variable Insurance Products Fund (VIP) is an open-end, diversified,
management investment company organized as a Massachusetts business trust on
November 13, 1981. Shares of VIP are purchased by insurance companies to fund
benefits under variable life insurance policies and variable annuity contracts.
Fidelity Management & Research Company ("FMR") is the manager for VIP and its
portfolios.
VIP EQUITY-INCOME PORTFOLIO: SERVICE CLASS
Investment Objective: To seek reasonable income by investing primarily in
income-producing equity securities. When choosing these securities, FMR
will also consider the potential for capital appreciation. The Portfolio's
goal is to achieve a yield that exceeds the composite yield on the
securities comprising the Standard & Poor's Composite Stock Price Index.
VIP GROWTH PORTFOLIO: SERVICE CLASS
Investment Objective: To seek to achieve capital appreciation. This
Portfolio will invest in the securities of both well-known and established
companies, and smaller, less well-known companies which may have a narrow
product line or whose securities are thinly traded. These latter securities
will often involve greater risk than may be found in the ordinary
investment security. FMR's analysis and expertise plays an integral role in
the selection of securities and, therefore, the performance of the
Portfolio. Many securities which FMR believes would have the greatest
potential may be regarded as speculative, and investment in the Portfolio
may involve greater risk than is inherent in other mutual funds. It is also
important to point out that the Portfolio makes most sense for you if you
can afford to ride out changes in the stock market, because it invests
primarily in common stocks. FMR also can make temporary investments in
securities such as investment-grade bonds, high-quality preferred stocks
and short-term notes, for defensive purposes when it believes market
conditions warrant.
VIP HIGH INCOME PORTFOLIO: SERVICE CLASS
Investment Objective: Seeks high current income by investing primarily in
all types of income-producing debt securities, preferred stocks, and
convertible securities. FMR normally invests at least 65% of the
Portfolio's total assets in these securities. In choosing investments, the
Portfolio also considers growth of capital.
VIP MONEY MARKET PORTFOLIO
Investment Objective: Seeks to obtain as high a level of current income as
is consistent with preserving capital and providing liquidity. The
Portfolio will invest only in high quality U.S. dollar-denominated money
market securities of domestic and foreign issuers while seeking to maintain
a stable $1.00 share price. Investments in the Money Market Portfolio are
neither insured nor guaranteed by the U.S. Government and there can be no
assurance that the Portfolio will maintain a stable $1.00 share price.
VIP OVERSEAS PORTFOLIO: SERVICE CLASS
Investment Objective: Seeks long-term growth of capital by investing
primarily in securities of issuers whose principal activities are outside
of the U.S. FMR normally invests at least 65% of the Portfolio's total
assets in securities of issuers from at least three different countries
outside of North America (the U.S., Canada, Mexico, and Central America).
The Portfolio expects to invest a majority of its assets in equity
securities, but may also invest in debt securities of any quality.
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<PAGE> 57
VARIABLE INSURANCE PRODUCTS FUND II
The 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: SERVICE CLASS
Investment Objective: Seeks high total return with reduced risk over the
long term by allocating its assets among the following classes or types of
investments in a neutral mix: stock class, the bond class, and short-term
class/money market class.
Asset Manager Range Neutral Mix
Stock Class 30-70% 50%
Bond Class 20-60% 40%
Short-term Class 0-50% 10%
VIP II ASSET MANAGER: GROWTH PORTFOLIO: SERVICE CLASS
Investment Objective: Seeks maximum total return over the long-term by
allocating assets among the following classes or types of investment in a
neutral mix: the stock class, the bond class, short-term class/ money
market class. The Portfolio's more aggressive approach focuses primarily on
stocks for high potential returns.
Asset Manager: Range Neutral Mix
Growth
Stock Class 50-100% 70%
Bond Class 0-50% 25%
Short-term Class 0-50% 5%
VIP II CONTRAFUND PORTFOLIO: SERVICE CLASS
Investment Objective: To seek capital appreciation by investing primarily
in companies that the Portfolio manager believes to be undervalued due to
an overly pessimistic appraisal by the public. This strategy can lead to
investments in domestic or foreign stock, and securities convertible into
common stock.
VIP II INVESTMENT GRADE BOND PORTFOLIO
Investment Objective: Seeks a high level of current income as is consistent
with preservation of capital by investing primarily in obligations issued
or guaranteed by the U.S. government or any of its agencies or
instrumentalities. Under normal circumstances, at least 65% of the
Portfolio's total assets will be invested in investment-grade fixed-income
securities such as debentures, bonds and notes. government securities.
VIP II INDEX 500 PORTFOLIO
Investment Objective: To seek investment results that correspond to the
total return of common stocks that comprise the Standard & Poor's 500
Composite Stock Price Index (S&P 500). Normally, at least 80% of the
Portfolio's assets will be invested in equity securities of companies that
comprise the S&P 500. Although the Portfolio tries to allocate its assets
similarly to those of the S&P 500, the Portfolio's composition may not
always be identical to that of the S&P. In seeking a 98% or better
long-term correlation of the fund Bankers Trust may choose, if
extraordinary circumstances warrant, to exclude a stock held in the S&P 500
and include a similar stock if doing so will help the Portfolio achieve its
objective.
VARIABLE INSURANCE PRODUCTS FUND III
The Variable Insurance Products Fund III (VIP III) is an open-end, diversified,
management investment company organized as a Massachusetts business trust on
July 14, 1994. VIP III's shares are purchased by insurance companies to fund
benefits under variable life insurance policies and variable annuity contracts.
FMR is the manager of VIP III and it's portfolios.
VIP III BALANCED PORTFOLIO: SERVICE CLASS
Investment Objective: Seeks both income and growth of capital using a
balanced approach to provide the best possible total return from
investments in a diversified portfolio of equity and fixed-income
securities with income, growth of income
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<PAGE> 58
and capital appreciation potential. FMR manages the Portfolio to maintain a
balance between stocks and bonds. When FMR's outlook is neutral, it will
invest approximately 60% of the Funds assets in stocks or other equity
securities and the remainder in bonds. The Portfolio will always invest at
least 25% of its total assets in fixed-income senior securities.
VIP III GROWTH & INCOME PORTFOLIO: SERVICE CLASS
Investment Objective: Seeks high total return through a combination of
current income and capital appreciation by investing mainly in equity
securities.
VIP III GROWTH OPPORTUNITIES PORTFOLIO: SERVICE CLASS
Investment Objective: Seeks long-term capital growth by investing primarily
in common stocks and securities convertible into common stocks. Under
normal circumstances, at least 65% of the Portfolio's total assets will be
invested in securities of companies that FMR believes have long-term growth
potential. The Portfolio has the ability to purchase foreign securities,
and preferred stock and bonds that may produce capital appreciation.
VIP III MID CAP PORTFOLIO: SERVICE CLASS
Investment Objective: Long-term growth of capital by investing in equity
securities of companies with medium market capitalizations. FMR normally
invests at least 65% of the Portfolio's total assets in these securities.
The Portfolio has the flexibility, however, to invest the balance in other
market capitalizations and security types. Medium market capitalization
companies are those whose market capitalization is similar to the market
capitalization of companies in the S&P MidCap 400 at the time of the
Portfolio's investment. The S&P MidCap 400 is an unmanaged index of medium
capitalization stocks. Companies whose capitalization no longer meets this
definition after purchase continue to be considered medium-capitalized for
purposes of the 65% policy. The Portfolio also reserves the right to invest
in preferred stocks and investment-grade debt instruments for temporary,
defensive purposes.
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<PAGE> 59
APPENDIX B: CONDENSED FINANCIAL INFORMATION
Accumulation unit values for accumulation units outstanding throughout the
period.
NO OPTIONAL DEATH BENEFITS
(VARIABLE ACCOUNT CHARGES OF 0.95% OF THE DAILY NET ASSETS OF THE VARIABLE
ACCOUNT)
<TABLE>
<CAPTION>
UNDERLYING MUTUAL FUND ACCUMULATION UNIT ACCUMULATION UNIT PERCENTAGE CHANGE NUMBER OF YEAR
VALUE AT VALUE AT END OF IN ACCUMULATION ACCUMULATION UNITS
BEGINNING OF PERIOD UNIT VALUE AT END OF PERIOD
PERIOD
<S> <C> <C> <C> <C> <C>
Fidelity VIP 10.000000 10.758604 7.59% 343,285 1998
Equity-Income Portfolio
- - Q
Fidelity VIP 10.000000 10.758604 7.59% 492,319 1998
Equity-Income Portfolio
- - NQ
Fidelity VIP Growth 10.000000 13.265992 32.66% 272,183 1998
Portfolio - Q
Fidelity VIP Growth 10.000000 13.265992 32.66% 464,386 1998
Portfolio - NQ
Fidelity VIP High 10.000000 9.218542 -7.81% 484,504 1998
Income Portfolio - Q
Fidelity VIP High 10.000000 9.218542 -7.81% 601,794 1998
Income Portfolio - NQ
Fidelity VIP Money 10.000000 10.407380 4.07% 239,010 1998
Market Portfolio - Q*
Fidelity VIP Money 10.000000 10.407380 4.07% 390,433 1998
Market Portfolio - NQ*
Fidelity VIP Overseas 10.000000 10.586638 5.87% 134,873 1998
Portfolio - Q
Fidelity VIP Overseas 10.000000 10.586638 5.87% 129,179 1998
Portfolio - NQ
Fidelity VIP II Asset 10.000000 11.098876 10.99% 71,666 1998
Manager Portfolio - Q
Fidelity VIP II Asset 10.000000 11.098876 10.99% 84,366 1998
Manager Portfolio - NQ
</TABLE>
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<PAGE> 60
<TABLE>
<CAPTION>
UNDERLYING MUTUAL FUND ACCUMULATION UNIT ACCUMULATION UNIT PERCENTAGE CHANGE NUMBER OF YEAR
VALUE AT VALUE AT END OF IN ACCUMULATION ACCUMULATION UNITS
BEGINNING OF PERIOD UNIT VALUE AT END OF PERIOD
PERIOD
<S> <C> <C> <C> <C> <C>
Fidelity VIP II Asset 10.000000 11.278688 12.79% 29,182 1998
Manager: Growth
Portfolio - Q
Fidelity VIP II Asset 10.000000 11.278688 12.79% 57,110 1998
Manager: Growth
Portfolio - NQ
Fidelity VIP II 10.000000 12.539357 25.39% 208,682 1998
Contrafund Portfolio -Q
Fidelity VIP II 10.000000 12.539357 25.39% 350,091 1998
Contrafund Portfolio -
NQ
Fidelity VIP II 10.000000 10.690813 6.91% 147,838 1998
Investment Grade Bond
Portfolio - Q
Fidelity VIP II 10.000000 10.690813 6.91% 250,598 1998
Investment Grade Bond
Portfolio - NQ
Fidelity VIP II Index 10.000000 12.204206 22.04% 196,106 1998
500 Portfolio - Q
Fidelity VIP II Index 10.000000 12.204206 22.04% 338,172 1998
500 Portfolio - NQ
Fidelity VIP III 10.000000 11.340963 13.41% 174,467 1998
Balanced Portfolio - Q
Fidelity VIP III 10.000000 11.340963 13.41% 247,421 1998
Balanced Portfolio - NQ
Fidelity VIP III Growth 10.000000 12.392371 23.92% 228,032 1998
& Income Portfolio - Q
</TABLE>
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<PAGE> 61
<TABLE>
<CAPTION>
UNDERLYING MUTUAL FUND ACCUMULATION UNIT ACCUMULATION UNIT PERCENTAGE CHANGE NUMBER OF YEAR
VALUE AT VALUE AT END OF IN ACCUMULATION ACCUMULATION UNITS
BEGINNING OF PERIOD UNIT VALUE AT END OF PERIOD
PERIOD
<S> <C> <C> <C> <C> <C>
Fidelity VIP III Growth 10.000000 12.392371 23.92% 394,454 1998
& Income Portfolio - NQ
Fidelity VIP III Growth 10.000000 11.936099 19.36% 673,404 1998
Opportunities Portfolio
- - Q
Fidelity VIP III Growth 10.000000 11.936099 19.36% 1,073,225 1998
Opportunities Portfolio
- - NQ
</TABLE>
*The 7-day yield on the Fidelity VIP Money Market Portfolio as of December 31,
1998 was 3.55%.
The Fidelity VIP III Mid Cap Portfolio was added to the variable account on
January 11, 1999. Therefore, no Condensed Financial Information is available.
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<PAGE> 62
OPTIONAL ONE-YEAR STEP UP DEATH BENEFIT
(VARIABLE ACCOUNT CHARGES OF 1.00% OF THE DAILY NET ASSETS OF THE VARIABLE
ACCOUNT)
<TABLE>
<CAPTION>
UNDERLYING MUTUAL FUND ACCUMULATION UNIT ACCUMULATION UNIT PERCENTAGE CHANGE NUMBER OF YEAR
VALUE AT VALUE AT END OF IN ACCUMULATION ACCUMULATION UNITS
BEGINNING OF PERIOD UNIT VALUE AT END OF PERIOD
PERIOD
<S> <C> <C> <C> <C> <C>
Fidelity VIP 10.000000 10.753771 7.54% 312,594 1998
Equity-Income Portfolio
- - Q
Fidelity VIP 10.000000 10.753771 7.54% 456,864 1998
Equity-Income Portfolio
- - NQ
Fidelity VIP Growth 10.000000 13.260038 32.60% 259,268 1998
Portfolio - Q
Fidelity VIP Growth 10.000000 13.260038 32.60% 297,743 1998
Portfolio - NQ
Fidelity VIP High 10.000000 9.214386 -7.86% 316,524 1998
Income Portfolio - Q
Fidelity VIP High 10.000000 9.214386 -7.86% 458,599 1998
Income Portfolio - NQ
Fidelity VIP Money 10.000000 10.402557 4.03% 252,165 1998
Market Portfolio - Q*
Fidelity VIP Money 10.000000 10.402557 4.03% 180,132 1998
Market Portfolio - NQ*
Fidelity VIP Overseas 10.000000 10.581883 5.82% 82,289 1998
Portfolio - Q
Fidelity VIP Overseas 10.000000 10.581883 5.82% 122,011 1998
Portfolio - NQ
Fidelity VIP II Asset 10.000000 11.093882 10.94% 61,666 1998
Manager Portfolio - Q
Fidelity VIP II Asset 10.000000 11.093882 10.94% 91,981 1998
Manager Portfolio - NQ
</TABLE>
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<PAGE> 63
<TABLE>
<CAPTION>
UNDERLYING MUTUAL FUND ACCUMULATION UNIT ACCUMULATION UNIT PERCENTAGE CHANGE NUMBER OF YEAR
VALUE AT VALUE AT END OF IN ACCUMULATION ACCUMULATION UNITS
BEGINNING OF PERIOD UNIT VALUE AT END OF PERIOD
PERIOD
<S> <C> <C> <C> <C> <C>
Fidelity VIP II Asset 10.000000 11.273630 12.74% 54,864 1998
Manager: Growth
Portfolio - Q
Fidelity VIP II Asset 10.000000 11.273630 12.74% 47,213 1998
Manager: Growth
Portfolio - NQ
Fidelity VIP II 10.000000 12.533725 25.34% 227,291 1998
Contrafund Portfolio -Q
Fidelity VIP II 10.000000 12.533725 25.34% 262,976 1998
Contrafund Portfolio -
NQ
Fidelity VIP II 10.000000 10.686005 6.86% 118,873 1998
Investment Grade Bond
Portfolio - Q
Fidelity VIP II 10.000000 10.686005 6.86% 401,936 1998
Investment Grade Bond
Portfolio - NQ
Fidelity VIP II Index 10.000000 12.198716 21.99% 193,851 1998
500 Portfolio - Q
Fidelity VIP II Index 10.000000 12.198716 21.99% 329,494 1998
500 Portfolio - NQ
Fidelity VIP III 10.000000 11.335864 13.36% 128,615 1998
Balanced Portfolio - Q
Fidelity VIP III 10.000000 11.335864 13.36%% 192,273 1998
Balanced Portfolio - NQ
Fidelity VIP III Growth 10.000000 12.386801 23.87% 353,600 1998
& Income Portfolio - Q
</TABLE>
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<PAGE> 64
<TABLE>
<CAPTION>
UNDERLYING MUTUAL FUND ACCUMULATION UNIT ACCUMULATION UNIT PERCENTAGE CHANGE NUMBER OF YEAR
VALUE AT VALUE AT END OF IN ACCUMULATION ACCUMULATION UNITS
BEGINNING OF PERIOD UNIT VALUE AT END OF PERIOD
PERIOD
<S> <C> <C> <C> <C> <C>
Fidelity VIP III Growth 10.000000 12.386801 23.87% 351,258 1998
& Income Portfolio - NQ
Fidelity VIP III Growth 10.000000 11.930730 19.31% 831,168 1998
Opportunities Portfolio
- - Q
Fidelity VIP III Growth 10.000000 11.930730 19.31% 896,484 1998
Opportunities Portfolio
- - NQ
</TABLE>
*The 7-day yield on the Fidelity VIP Money Market Portfolio as of December 31,
1998 was 3.55%.
The Fidelity VIP III Mid Cap Portfolio was added to the variable account on
January 11, 1999. Therefore, no Condensed Financial Information is available.
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<PAGE> 65
OPTIONAL 5% ENHANCED DEATH BENEFIT
(VARIABLE ACCOUNT CHARGES OF 1.05% OF THE DAILY NET ASSETS OF THE VARIABLE
ACCOUNT)
<TABLE>
<CAPTION>
UNDERLYING MUTUAL FUND ACCUMULATION UNIT ACCUMULATION UNIT PERCENTAGE CHANGE NUMBER OF YEAR
VALUE AT VALUE AT END OF IN ACCUMULATION ACCUMULATION UNITS
BEGINNING OF PERIOD UNIT VALUE AT END OF PERIOD
PERIOD
<S> <C> <C> <C> <C> <C>
Fidelity VIP 10.000000 10.748944 7.49% 76,194 1998
Equity-Income Portfolio
- - Q
Fidelity VIP 10.000000 10.748944 7.49% 108,197 1998
Equity-Income Portfolio
- - NQ
Fidelity VIP Growth 10.000000 13.254076 32.54% 46,684 1998
Portfolio - Q
Fidelity VIP Growth 10.000000 13.254076 32.54% 117,255 1998
Portfolio - NQ
Fidelity VIP High 10.000000 9.210254 -7.90% 72,605 1998
Income Portfolio - Q
Fidelity VIP High 10.000000 9.210254 -7.90% 197,839 1998
Income Portfolio - NQ
Fidelity VIP Money 10.000000 10.397737 3.98% 133,561 1998
Market Portfolio - Q*
Fidelity VIP Money 10.000000 10.397737 3.98% 103,226 1998
Market Portfolio - NQ*
Fidelity VIP Overseas 10.000000 10.577127 5.77% 16,755 1998
Portfolio - Q
Fidelity VIP Overseas 10.000000 10.577127 5.77% 68,968 1998
Portfolio - NQ
Fidelity VIP II Asset 10.000000 11.088896 10.89% 8,319 1998
Manager Portfolio - Q
Fidelity VIP II Asset 10.000000 11.088896 10.89% 17,136 1998
Manager Portfolio - NQ
</TABLE>
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<PAGE> 66
<TABLE>
<CAPTION>
UNDERLYING MUTUAL FUND ACCUMULATION UNIT ACCUMULATION UNIT PERCENTAGE CHANGE NUMBER OF YEAR
VALUE AT VALUE AT END OF IN ACCUMULATION ACCUMULATION UNITS
BEGINNING OF PERIOD UNIT VALUE AT END OF PERIOD
PERIOD
<S> <C> <C> <C> <C> <C>
Fidelity VIP II Asset 10.000000 11.268555 12.69% 24,911 1998
Manager: Growth
Portfolio - Q
Fidelity VIP II Asset 10.000000 11.268555 12.69% 8,306 1998
Manager: Growth
Portfolio - NQ
Fidelity VIP II 10.000000 12.528086 25.28% 52,457 1998
Contrafund Portfolio -Q
Fidelity VIP II 10.000000 12.528086 25.28% 81,444 1998
Contrafund Portfolio -
NQ
Fidelity VIP II 10.000000 10.681197 6.81% 38,420 1998
Investment Grade Bond
Portfolio - Q
Fidelity VIP II 10.000000 10.681197 6.81% 125,354 1998
Investment Grade Bond
Portfolio - NQ
Fidelity VIP II Index 10.000000 12.193234 21.93% 45,723 1998
500 Portfolio - Q
Fidelity VIP II Index 10.000000 12.193234 21.93% 71,382 1998
500 Portfolio - NQ
Fidelity VIP III 10.000000 11.330772 13.31% 44,418 1998
Balanced Portfolio - Q
Fidelity VIP III 10.000000 11.330772 13.31% 55,013 1998
Balanced Portfolio - NQ
Fidelity VIP III Growth 10.000000 12.381235 23.81% 48,820 1998
& Income Portfolio - Q
</TABLE>
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<PAGE> 67
<TABLE>
<CAPTION>
UNDERLYING MUTUAL FUND ACCUMULATION UNIT ACCUMULATION UNIT PERCENTAGE CHANGE NUMBER OF YEAR
VALUE AT VALUE AT END OF IN ACCUMULATION ACCUMULATION UNITS
BEGINNING OF PERIOD UNIT VALUE AT END OF PERIOD
PERIOD
<S> <C> <C> <C> <C> <C>
Fidelity VIP III Growth 10.000000 12.381235 23.81% 105,831 1998
& Income Portfolio - NQ
Fidelity VIP III Growth 10.000000 11.925368 19.25% 123,265 1998
Opportunities Portfolio
- - Q
Fidelity VIP III Growth 10.000000 11.925368 19.25% 260,816 1998
Opportunities Portfolio
- - NQ
</TABLE>
*The 7-day yield on the Fidelity VIP Money Market Portfolio as of December 31,
1998 was 3.55%.
The Fidelity VIP III Mid Cap Portfolio was added to the variable account on
January 11, 1999. Therefore, no Condensed Financial Information is available.
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<PAGE> 68
STATEMENT OF ADDITIONAL INFORMATION
APRIL 30, 1999
MODIFIED SINGLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACTS
ISSUED BY NATIONWIDE LIFE INSURANCE COMPANY
THROUGH ITS NATIONWIDE FIDELITY ADVISOR VARIABLE ACCOUNT
This Statement of Additional Information is not a prospectus. It contains
information in addition to and more detailed than set forth in the prospectus
and should be read in conjunction with the prospectus dated April 30, 1999. The
prospectus may be obtained from Nationwide Life Insurance Company by writing
P.O. Box 182610, Columbus, Ohio 43218-2610, or calling 1-800-494-1132, Voice
Response (available 24 hours) 1-800-573-2447, TDD 1-800-238-3035.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
General Information and History..............................................................................1
Services.....................................................................................................1
Purchase of Securities Being Offered.........................................................................2
Underwriters.................................................................................................2
Calculations of Performance..................................................................................2
Annuity Payments.............................................................................................3
Financial Statements.........................................................................................4
</TABLE>
GENERAL INFORMATION AND HISTORY
The Nationwide Fidelity Advisor Variable Account 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 contract owner and records
with respect to the contract value.
The custodian of the assets of the variable account is Nationwide. Nationwide
will maintain a record of all purchases and redemptions of shares of the
underlying mutual funds. Nationwide has entered into an agreement with the
adviser of the underlying mutual funds. The agreement relates to administrative
services furnished by Nationwide and provides 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
68 of 139
<PAGE> 69
PURCHASE OF SECURITIES BEING OFFERED
The contracts will be sold by licensed insurance agents in the states where the
contracts may be lawfully sold. Such agents will be registered representatives
of broker-dealers registered under the Securities Exchange Act of 1934 who are
members of the National Association of Securities Dealers, Inc. ("NASD").
UNDERWRITERS
The contracts, which are offered continuously, are distributed by Fidelity
Investments Institutional Services Company, Inc. ("Fidelity"), 82 Devonshire
Street, Boston, Massachusetts 02109. Nationwide has paid no underwriting
commission to Fidelity.
CALCULATIONS OF PERFORMANCE
Any current yield quotations of the VIP Money Market Portfolio, 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 shall 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. The VIP Money Market
Portfolio's effective yield will be computed similarly but includes the effect
of assumed compounding on an annualized basis of the current unit value yield
quotations of the Portfolio.
The VIP Money Market Portfolio's yield and effective yield will fluctuate daily.
Actual yields will depend on factors such as the type of instruments in the
portfolio, portfolio quality and average maturity, changes in interest rates,
and the portfolio's expenses. Although the portfolio 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 in the
portfolio'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 VIP Money Market
Portfolio 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 the standard 7 year CDSC schedule and the
deduction of all charges that could be made to a contract if all available
options were chosen as of December 31, 1998 (1.05%), except for premium taxes,
which may be imposed by certain states. Nonstandardized total return may also be
advertised, and is calculated in a manner similar to standardized average annual
total return except the nonstandardized total return is based on a hypothetical
initial investment of $25,000 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
2
69 of 139
<PAGE> 70
because the contract is designed for long term investment. An assumed initial
investment of $25,000 will be used because that figure more closely approximates
the size of a typical Contract than does the $1,000 figure used in calculating
the standardized average annual total return quotations.
The standardized average annual total return and nonstandardized average annual
total return quotations will be current to the last day of the calendar quarter
preceding the date on which an advertisement is submitted for publication. The
standardized average annual return will be based on rolling calendar quarters
and will cover periods of one, five, and ten years, or a period covering the
time the underlying mutual fund has been available in the variable account if
the underlying mutual fund has not been available for one of the prescribed
periods. 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
70 of 139
<PAGE> 71
<PAGE> 1
Independent Auditors' Report
The Board of Directors of Nationwide Life Insurance Company and
Contract Owners of Nationwide Fidelity Advisor Variable Account:
We have audited the accompanying statement of assets, liabilities and
contract owners' equity of Nationwide Fidelity Advisor Variable Account as of
December 31, 1998, and the related statements of operations and changes in
contract owners' equity for each of the years in the two year period then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1998, by correspondence with
the transfer agents of the underlying mutual funds. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Nationwide Fidelity Advisor
Variable Account as of December 31, 1998, and the results of its operations and
its changes in contract owners' equity for each of the years in the two year
period then ended in conformity with generally accepted accounting principles.
KPMG LLP
Columbus, Ohio
February 5, 1999
<PAGE> 2
NATIONWIDE FIDELITY ADVISOR VARIABLE ACCOUNT
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments at market value:
Fidelity VIP - Equity-Income Portfolio
2,639,029 shares (cost $61,222,852) .............................. $ 67,084,128
Fidelity VIP - Growth Portfolio
1,249,446 shares (cost $45,218,302) .............................. 56,062,644
Fidelity VIP - High Income Portfolio
13,392,771 shares (cost $162,461,867) ............................ 154,418,650
Fidelity VIP - Money Market Portfolio
63,267,165 shares (cost $63,267,165) ............................. 63,267,165
Fidelity VIP - Overseas Portfolio
3,962,390 shares (cost $73,445,477) .............................. 79,445,912
Fidelity VIP-II - Asset Manager Portfolio
835,419 shares (cost $14,190,713) ................................ 15,171,200
Fidelity VIP-II - Asset Manager: Growth Portfolio
776,512 shares (cost $11,838,166) ................................ 13,224,005
Fidelity VIP-II - Contrafund Portfolio
3,466,726 shares (cost $65,459,513) .............................. 84,726,778
Fidelity VIP-II - Index 500 Portfolio
532,116 shares (cost $61,572,677) ................................ 75,161,352
Fidelity VIP-II - Investment Grade Bond Portfolio
4,176,355 shares (cost $50,778,794) .............................. 54,125,559
Fidelity VIP-III - Balanced Portfolio
10,284,348 shares (cost $121,712,362) ............................ 165,680,849
Fidelity VIP-III - Growth and Income Portfolio
3,551,353 shares (cost $44,719,366) .............................. 57,354,358
Fidelity VIP-III - Growth Opportunities Portfolio
33,894,186 shares (cost $505,260,936) ............................ 775,498,973
Fidelity VIP - Equity-Income Portfolio: Service Class
758,036 shares (cost $18,560,760) ................................ 19,246,523
Fidelity VIP - Growth Portfolio: Service Class
431,282 shares (cost $16,465,473) ................................ 19,330,052
Fidelity VIP - High Income Portfolio: Service Class
1,706,976 shares (cost $20,744,141) .............................. 19,647,293
Fidelity VIP - Overseas Portfolio: Service Class
292,762 shares (cost $5,760,422) ................................. 5,864,016
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
Fidelity VIP-II - Asset Manager Portfolio: Service Class
205,447 shares (cost $3,491,849) ................................. 3,718,593
Fidelity VIP-II - Asset Manager: Growth Portfolio: Service Class
147,309 shares (cost $2,294,845) ................................. 2,498,362
Fidelity VIP-II - Contrafund Portfolio: Service Class
607,247 shares (cost $12,899,743) ................................ 14,828,965
Fidelity VIP-III - Balanced Portfolio: Service Class
594,199 shares (cost $8,999,175) ................................. 9,548,778
Fidelity VIP-III - Growth and Income Portfolio: Service Class
1,139,649 shares (cost $16,301,118) .............................. 18,359,737
Fidelity VIP-III - Growth Opportunities Portfolio: Service Class
2,014,007 shares (cost $40,882,800) .............................. 46,040,194
--------------
Total investments ............................................. 1,820,304,086
Accounts receivable .................................................... 8,912
--------------
Total assets .................................................. 1,820,312,998
ACCOUNTS PAYABLE .......................................................... 271
--------------
CONTRACT OWNERS' EQUITY (NOTE 4) .......................................... $1,820,312,727
==============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 4
NATIONWIDE FIDELITY ADVISOR VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
TOTAL EQUITY-INCOME PORTFOLIO
------------------------------- --------------------------------
1998 1997 1998 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Investment activity:
Reinvested dividends .............................. $ 28,746,293 13,779,569 600,150 15,751
Mortality, expense and administration
charges (note 2)
Classic ....................................... (1,542,846) (1,083,010) (39,219) (10,689)
Select ........................................ (18,369,018) (12,435,476) (760,982) (231,323)
Select (Rider Option 1) ....................... (142,890) (1,046) (15,961) (126)
Select (Rider Option 2) ....................... (46,433) (282) (6,275) (35)
Generations ................................... (346,655) - - -
Generations (Rider Option 1) .................. (346,637) - - -
Generations (Rider Option 2) .................. (99,916) - - -
-------------- -------------- -------------- --------------
Net investment activity ......................... 7,851,898 259,755 (222,287) (226,422)
-------------- -------------- -------------- --------------
Proceeds from mutual fund shares sold ............. 221,265,915 287,881,219 3,724,216 22,507
Cost of mutual fund shares sold ................... (192,745,675) (283,840,344) (3,440,172) (21,016)
-------------- -------------- -------------- --------------
Realized gain (loss) on investments ............. 28,520,240 4,040,875 284,044 1,491
Change in unrealized gain (loss) on investments ... 152,688,719 165,223,943 2,285,323 3,575,954
-------------- -------------- -------------- --------------
Net gain (loss) on investments .................. 181,208,959 169,264,818 2,569,367 3,577,445
-------------- -------------- -------------- --------------
Reinvested capital gains .......................... 51,573,229 17,399,176 2,135,830 79,191
-------------- -------------- -------------- --------------
Net increase (decrease) in contract owners'
equity resulting from operations ............ 240,634,086 186,923,749 4,482,910 3,430,214
-------------- -------------- -------------- --------------
Equity transactions:
Purchase payments received from
contract owners ................................. 439,055,602 429,777,841 24,438,255 28,876,880
Transfers between funds ........................... - - 3,516,796 7,018,612
Redemptions ....................................... (95,841,935) (51,393,337) (4,045,164) (494,788)
Annuity benefits .................................. (45,976) (2,059) (1,314) -
Annual contract maintenance charge (note 2) ....... (135,080) (99,391) (3,209) (203)
Contingent deferred sales charges (note 2) ........ (1,866,659) (1,101,526) (128,773) (7,134)
Adjustments to maintain reserves .................. 4,599 5,922 (823) 1,397
-------------- -------------- -------------- --------------
Net equity transactions ....................... 341,170,551 377,187,450 23,775,768 35,394,764
-------------- -------------- -------------- --------------
Net change in contract owners' equity ............. 581,804,637 564,111,199 28,258,678 38,824,978
Contract owners' equity beginning of period ....... 1,238,508,090 674,396,891 38,824,978 -
-------------- -------------- -------------- --------------
Contract owners' equity end of period ............. $1,820,312,727 1,238,508,090 67,083,656 38,824,978
============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
GROWTH PORTFOLIO HIGH INCOME PORTFOLIO
------------------------------- -------------------------------
1998 1997 1998 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Investment activity:
Reinvested dividends .............................. $ 133,285 4,508 10,862,359 105,786
Mortality, expense and administration
charges (note 2)
Classic ....................................... (29,588) (8,415) (126,145) (79,502)
Select ........................................ (484,627) (136,613) (2,077,769) (1,330,341)
Select (Rider Option 1) ....................... (14,910) (254) (13,240) (45)
Select (Rider Option 2) ....................... (4,473) (15) (5,806) (42)
Generations ................................... - - - -
Generations (Rider Option 1) .................. - - - -
Generations (Rider Option 2) .................. - - - -
--------------- -------------- -------------- --------------
Net investment activity ......................... (400,313) (140,789) 8,639,399 (1,304,144)
--------------- -------------- -------------- --------------
Proceeds from mutual fund shares sold ............. 2,870,100 701,523 34,158,097 9,990,931
Cost of mutual fund shares sold ................... (2,481,565) (663,222) (34,536,377) (9,469,396)
--------------- -------------- -------------- --------------
Realized gain (loss) on investments ............. 388,535 38,301 (378,280) 521,535
Change in unrealized gain (loss) on investments ... 9,302,636 1,541,707 (24,528,745) 16,484,146
--------------- -------------- -------------- --------------
Net gain (loss) on investments .................. 9,691,171 1,580,008 (24,907,025) 17,005,681
--------------- -------------- -------------- --------------
Reinvested capital gains .......................... 3,486,467 20,178 6,902,124 13,075
--------------- -------------- -------------- --------------
Net increase (decrease) in contract owners'
equity resulting from operations ............ 12,777,325 1,459,397 (9,365,502) 15,714,612
--------------- -------------- -------------- --------------
Equity transactions:
Purchase payments received from
contract owners ................................. 16,985,566 17,228,215 28,906,593 40,442,027
Transfers between funds ........................... 4,184,630 5,458,035 (3,894,607) 98,072,875
Redemptions ....................................... (1,597,186) (389,446) (10,314,646) (4,965,856)
Annuity benefits .................................. - - (1,828) (520)
Annual contract maintenance charge (note 2) ....... (2,420) (174) (9,856) (6,797)
Contingent deferred sales charges (note 2) ........ (33,687) (7,662) (221,320) (105,011)
Adjustments to maintain reserves .................. 433 387 (509) 1,793
--------------- -------------- -------------- --------------
Net equity transactions ....................... 19,537,336 22,289,355 14,463,827 133,438,511
--------------- -------------- -------------- --------------
Net change in contract owners' equity ............. 32,314,661 23,748,752 5,098,325 149,153,123
Contract owners' equity beginning of period ....... 23,748,752 - 149,321,511 168,388
--------------- -------------- -------------- --------------
Contract owners' equity end of period ............. $ 56,063,413 23,748,752 154,419,836 149,321,511
=============== ============== ============== ==============
</TABLE>
<PAGE> 5
NATIONWIDE FIDELITY ADVISOR VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO OVERSEAS PORTFOLIO
-------------------------- -------------------------
1998 1997 1998 1997
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Investment activity:
Reinvested dividends .............................. $ 2,729,931 2,138,816 1,390,058 13,050
Mortality, expense and administration
charges (note 2)
Classic ....................................... (40,564) (20,370) (88,594) (60,043)
Select ........................................ (578,067) (540,448) (1,006,416) (670,326)
Select (Rider Option 1) ....................... (11,394) (21) (5,313) (105)
Select (Rider Option 2) ....................... (4,365) - (1,148) (28)
Generations ................................... (27,469) - - -
Generations (Rider Option 1) .................. (21,405) - - -
Generations (Rider Option 2) .................. (13,826) - - -
------------ ----------- ----------- -----------
Net investment activity ......................... 2,032,841 1,577,977 288,587 (717,452)
------------ ----------- ----------- -----------
Proceeds from mutual fund shares sold ............. 86,064,942 50,465,388 9,164,560 6,692,136
Cost of mutual fund shares sold ................... (86,064,942) (50,465,388) (8,380,638) (6,194,942)
------------ ----------- ----------- -----------
Realized gain (loss) on investments ............. - - 783,922 497,194
Change in unrealized gain (loss) on investments ... - - 2,431,247 3,564,616
------------ ----------- ----------- -----------
Net gain (loss) on investments .................. - - 3,215,169 4,061,810
------------ ----------- ----------- -----------
Reinvested capital gains .......................... - - 4,097,014 51,803
------------ ----------- ----------- -----------
Net increase (decrease) in contract owners'
equity resulting from operations ............ 2,032,841 1,577,977 7,600,770 3,396,161
------------ ----------- ----------- -----------
Equity transactions:
Purchase payments received from
contract owners ................................. 36,787,840 53,240,636 8,735,152 19,142,453
Transfers between funds ........................... (10,592,420) (8,324,168) (1,473,900) 48,946,911
Redemptions ....................................... (8,446,229) (4,162,215) (4,144,730) (2,818,245)
Annuity benefits .................................. - - - -
Annual contract maintenance charge (note 2) ....... (2,787) (1,833) (7,644) (5,435)
Contingent deferred sales charges (note 2) ........ (175,051) (81,918) (92,445) (65,968)
Adjustments to maintain reserves .................. 184 (128) 542 3,181
------------ ----------- ----------- -----------
Net equity transactions ....................... 17,571,537 40,670,374 3,016,975 65,202,897
------------ ----------- ----------- -----------
Net change in contract owners' equity ............. 19,604,378 42,248,351 10,617,745 68,599,058
Contract owners' equity beginning of period ....... 43,662,462 1,414,111 68,829,824 230,766
------------ ----------- ----------- -----------
Contract owners' equity end of period ............. $ 63,266,840 43,662,462 79,447,569 68,829,824
============ =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
ASSET MANAGER
ASSET MANAGER PORTFOLIO GROWTH PORTFOLIO
-------------------------- -------------------------
1998 1997 1998 1997
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Investment activity:
Reinvested dividends .............................. $ 350,865 5,034 182,827 -
Mortality, expense and administration
charges (note 2)
Classic ....................................... (7,562) (2,325) (8,047) (3,230)
Select ........................................ (168,847) (61,279) (141,334) (57,643)
Select (Rider Option 1) ....................... (3,292) (18) (2,786) (13)
Select (Rider Option 2) ....................... (1,328) - (409) (8)
Generations ................................... - - - -
Generations (Rider Option 1) .................. - - - -
Generations (Rider Option 2) .................. - - - -
------------ ----------- ----------- -----------
Net investment activity ......................... 169,836 (58,588) 30,251 (60,894)
------------ ----------- ----------- -----------
Proceeds from mutual fund shares sold ............. 2,121,060 167,650 905,852 608,370
Cost of mutual fund shares sold ................... (1,920,469) (169,948) (823,932) (526,461)
------------ ----------- ----------- -----------
Realized gain (loss) on investments ............. 200,591 (2,298) 81,920 81,909
Change in unrealized gain (loss) on investments ... 209,940 770,547 583,636 802,203
------------ ----------- ----------- -----------
Net gain (loss) on investments .................. 410,531 768,249 665,556 884,112
------------ ----------- ----------- -----------
Reinvested capital gains .......................... 1,052,595 12,628 854,987 620
------------ ----------- ----------- -----------
Net increase (decrease) in contract owners'
equity resulting from operations ............ 1,632,962 722,289 1,550,794 823,838
------------ ----------- ----------- -----------
Equity transactions:
Purchase payments received from
contract owners ................................. 4,059,284 6,537,589 3,545,378 5,851,889
Transfers between funds ........................... 109,848 2,915,117 202,313 1,816,591
Redemptions ....................................... (658,699) (124,289) (345,606) (210,136)
Annuity benefits .................................. (16,169) - - -
Annual contract maintenance charge (note 2) ....... (606) (65) (673) (56)
Contingent deferred sales charges (note 2) ........ (5,683) (642) (4,350) (5,660)
Adjustments to maintain reserves .................. (2,123) 169 66 (319)
------------ ----------- ----------- -----------
Net equity transactions ....................... 3,485,852 9,327,879 3,397,128 7,452,309
------------ ----------- ----------- -----------
Net change in contract owners' equity ............. 5,118,814 10,050,168 4,947,922 8,276,147
Contract owners' equity beginning of period ....... 10,050,168 - 8,276,147 -
------------ ----------- ----------- -----------
Contract owners' equity end of period ............. $ 15,168,982 10,050,168 13,224,069 8,276,147
============ =========== =========== ===========
</TABLE>
(Continued)
<PAGE> 6
NATIONWIDE FIDELITY ADVISOR VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
CONTRAFUND PORTFOLIO INDEX 500 PORTFOLIO
---------------------------- ---------------------------
1998 1997 1998 1997
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Investment activity:
Reinvested dividends .............................. $ 374,985 24,653 369,216 9,636
Mortality, expense and administration
charges (note 2)
Classic ....................................... (59,657) (23,334) (37,450) (10,070)
Select ........................................ (858,526) (345,666) (575,683) (180,444)
Select (Rider Option 1) ....................... (11,902) (95) (9,839) (24)
Select (Rider Option 2) ....................... (2,345) (30) (2,256) (9)
Generations ................................... - - (20,294) -
Generations (Rider Option 1) .................. - - (23,497) -
Generations (Rider Option 2) .................. - - (4,757) -
------------- ------------ ------------ ------------
Net investment activity ......................... (557,445) (344,472) (304,560) (180,911)
------------- ------------ ------------ ------------
Proceeds from mutual fund shares sold ............. 4,899,088 565,018 2,653,129 965,594
Cost of mutual fund shares sold ................... (4,114,192) (487,291) (2,072,374) (889,248)
------------- ------------ ------------ ------------
Realized gain (loss) on investments ............. 784,896 77,727 580,755 76,346
Change in unrealized gain (loss) on investments ... 14,022,891 5,244,373 10,718,449 2,870,226
------------- ------------ ------------ ------------
Net gain (loss) on investments .................. 14,807,787 5,322,100 11,299,204 2,946,572
------------- ------------ ------------ ------------
Reinvested capital gains .......................... 2,758,815 65,154 855,170 19,553
------------- ------------ ------------ ------------
Net increase (decrease) in contract owners'
equity resulting from operations ............ 17,009,157 5,042,782 11,849,814 2,785,214
------------- ------------ ------------ ------------
Equity transactions:
Purchase payments received from
contract owners ................................. 17,410,532 36,229,846 29,555,745 20,344,888
Transfers between funds ........................... 1,764,382 11,100,887 7,332,209 6,144,151
Redemptions ....................................... (2,918,682) (814,886) (2,251,651) (540,303)
Annuity benefits .................................. (1,385) - - -
Annual contract maintenance charge (note 2) ....... (6,037) (692) (3,966) (330)
Contingent deferred sales charges (note 2) ........ (55,124) (18,768) (35,351) (17,514)
Adjustments to maintain reserves .................. 441 (15,272) 87 (1,008)
------------- ------------ ------------ ------------
Net equity transactions ....................... 16,194,127 46,481,115 34,597,073 25,929,884
------------- ------------ ------------ ------------
Net change in contract owners' equity ............. 33,203,284 51,523,897 46,446,887 28,715,098
Contract owners' equity beginning of period ....... 51,523,897 - 28,715,098 -
------------- ------------ ------------ ------------
Contract owners' equity end of period ............. $ 84,727,181 51,523,897 75,161,985 28,715,098
============= ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT GRADE
BOND PORTFOLIO BALANCED PORTFOLIO
---------------------------- ---------------------------
1998 1997 1998 1997
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Investment activity:
Reinvested dividends .............................. $ 1,397,192 21,628 3,537,100 2,651,503
Mortality, expense and administration
charges (note 2)
Classic ....................................... (31,786) (18,691) (190,140) (153,146)
Select ........................................ (457,474) (261,060) (1,978,328) (1,593,030)
Select (Rider Option 1) ....................... (1,121) - (6,802) (28)
Select (Rider Option 2) ....................... (945) (40) (1,037) (9)
Generations ................................... (13,470) - - -
Generations (Rider Option 1) .................. (22,154) - - -
Generations (Rider Option 2) .................. (6,446) - - -
------------- ------------ ------------ ------------
Net investment activity ......................... 863,796 (258,163) 1,360,793 905,290
------------- ------------ ------------ ------------
Proceeds from mutual fund shares sold ............. 5,690,626 2,093,567 8,612,916 4,520,541
Cost of mutual fund shares sold ................... (5,213,813) (2,017,251) (6,109,489) (3,490,030)
------------- ------------ ------------ ------------
Realized gain (loss) on investments ............. 476,813 76,316 2,503,427 1,030,511
Change in unrealized gain (loss) on investments ... 1,274,245 2,072,932 13,665,547 20,657,622
------------- ------------ ------------ ------------
Net gain (loss) on investments .................. 1,751,058 2,149,248 16,168,974 21,688,133
------------- ------------ ------------ ------------
Reinvested capital gains .......................... 165,769 - 5,403,903 -
------------- ------------ ------------ ------------
Net increase (decrease) in contract owners'
equity resulting from operations ............ 2,780,623 1,891,085 22,933,670 22,593,423
------------- ------------ ------------ ------------
Equity transactions:
Purchase payments received from
contract owners ................................. 17,009,962 6,750,960 12,361,983 23,981,267
Transfers between funds ........................... 8,470,608 21,294,182 (1,896,771) (1,028,043)
Redemptions ....................................... (2,606,263) (1,465,723) (9,908,416) (6,165,682)
Annuity benefits .................................. (15,041) - (1,259) (296)
Annual contract maintenance charge (note 2) ....... (2,087) (1,273) (15,153) (13,901)
Contingent deferred sales charges (note 2) ........ (50,558) (29,247) (187,285) (126,607)
Adjustments to maintain reserves .................. (1,468) 222 1,390 1,693
------------- ------------ ------------ ------------
Net equity transactions ....................... 22,805,153 26,549,121 354,489 16,648,431
------------- ------------ ------------ ------------
Net change in contract owners' equity ............. 25,585,776 28,440,206 23,288,159 39,241,854
Contract owners' equity beginning of period ....... 28,538,182 97,976 142,394,052 103,152,198
------------- ------------ ------------ ------------
Contract owners' equity end of period ............. $ 54,123,958 28,538,182 165,682,211 142,394,052
============= ============ ============ ============
</TABLE>
<PAGE> 7
NATIONWIDE FIDELITY ADVISOR VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
GROWTH AND INCOME GROWTH OPPORTUNITIES
PORTFOLIO PORTFOLIO
--------------------------- ---------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Investment activity:
Reinvested dividends .............................. $ - 157,740 6,818,325 6,335,089
Mortality, expense and administration
charges (note 2)
Classic ....................................... (25,704) (6,903) (858,390) (650,933)
Select ........................................ (543,629) (159,344) (8,737,336) (6,371,570)
Select (Rider Option 1) ....................... (11,701) (13) (34,629) (304)
Select (Rider Option 2) ....................... (705) (32) (15,341) (34)
Generations ................................... - - - -
Generations (Rider Option 1) .................. - - - -
Generations (Rider Option 2) .................. - - - -
------------ ------------ ------------ ------------
Net investment activity ......................... (581,739) (8,552) (2,827,371) (687,752)
------------ ------------ ------------ ------------
Proceeds from mutual fund shares sold ............. 1,675,936 45,518 53,776,742 10,276,479
Cost of mutual fund shares sold ................... (1,294,541) (40,650) (31,095,663) (6,486,639)
------------ ------------ ------------ ------------
Realized gain (loss) on investments ............. 381,395 4,868 22,681,079 3,789,840
Change in unrealized gain (loss) on investments ... 10,320,823 2,314,169 99,720,539 110,032,205
------------ ------------ ------------ ------------
Net gain (loss) on investments .................. 10,702,218 2,319,037 122,401,618 113,822,045
------------ ------------ ------------ ------------
Reinvested capital gains .......................... 158,758 512,654 23,701,797 8,869,124
------------ ------------ ------------ ------------
Net increase (decrease) in contract owners'
equity resulting from operations ............ 10,279,237 2,823,139 143,276,044 122,003,417
------------ ------------ ------------ ------------
Equity transactions:
Purchase payments received from
contract owners ................................. 15,826,845 18,613,704 77,524,904 137,949,525
Transfers between funds ........................... 7,690,493 5,163,722 (19,480,824) 2,156,049
Redemptions ....................................... (2,487,061) (510,742) (43,447,338) (26,047,105)
Annuity benefits .................................. - - (8,980) (1,243)
Annual contract maintenance charge (note 2) ....... (2,083) (188) (78,559) (65,787)
Contingent deferred sales charges (note 2) ........ (28,510) (14,424) (833,269) (554,646)
Adjustments to maintain reserves .................. 570 235 5,680 9,130
------------ ------------ ------------ ------------
Net equity transactions ....................... 21,000,254 23,252,307 13,681,614 113,445,923
------------ ------------ ------------ ------------
Net change in contract owners' equity ............. 31,279,491 26,075,446 156,957,658 235,449,340
Contract owners' equity beginning of period ....... 26,075,446 - 618,547,573 383,098,233
------------ ------------ ------------ ------------
Contract owners' equity end of period ............. $ 57,354,937 26,075,446 775,505,231 618,547,573
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
EQUITY-INCOME PORTFOLIO: GROWTH PORTFOLIO:
SERVICE CLASS SERVICE CLASS
------------------------------ ----------------------------
1998 1997 1998 1997
------------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
Investment activity:
Reinvested dividends .............................. $ - - - -
Mortality, expense and administration
charges (note 2)
Classic ....................................... - - - -
Select ........................................ - - - -
Select (Rider Option 1) ....................... - - - -
Select (Rider Option 2) ....................... - - - -
Generations ................................... (35,645) - (33,383) -
Generations (Rider Option 1) .................. (39,080) - (27,492) -
Generations (Rider Option 2) .................. (10,048) - (9,526) -
------------- -------------- ------------ -------------
Net investment activity ......................... (84,773) - (70,401) -
------------- -------------- ------------ -------------
Proceeds from mutual fund shares sold ............. 655,853 - 390,810 -
Cost of mutual fund shares sold ................... (673,141) - (352,615) -
------------- -------------- ------------ -------------
Realized gain (loss) on investments ............. (17,288) - 38,195 -
Change in unrealized gain (loss) on investments ... 685,763 - 2,864,579 -
------------- -------------- ------------ -------------
Net gain (loss) on investments .................. 668,475 - 2,902,774 -
------------- -------------- ------------ -------------
Reinvested capital gains .......................... - - - -
------------- -------------- ------------ -------------
Net increase (decrease) in contract owners'
equity resulting from operations ............ 583,702 - 2,832,373 -
------------- -------------- ------------ -------------
Equity transactions:
Purchase payments received from
contract owners ................................. 18,948,835 - 15,833,951 -
Transfers between funds ........................... 91,604 - 979,486 -
Redemptions ....................................... (375,768) - (312,595) -
Annuity benefits .................................. - - - -
Annual contract maintenance charge (note 2) ....... - - - -
Contingent deferred sales charges (note 2) ........ (1,837) - (3,166) -
Adjustments to maintain reserves .................. (21) - 117 -
------------- -------------- ------------ -------------
Net equity transactions ....................... 18,662,813 - 16,497,793 -
------------- -------------- ------------ -------------
Net change in contract owners' equity ............. 19,246,515 - 19,330,166 -
Contract owners' equity beginning of period ....... - - - -
------------- -------------- ------------ -------------
Contract owners' equity end of period ............. $ 19,246,515 - 19,330,166 -
============= ============== ============ =============
</TABLE>
(Continued)
<PAGE> 8
NATIONWIDE FIDELITY ADVISOR VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
HIGH INCOME PORTFOLIO: OVERSEAS PORTFOLIO
SERVICE CLASS SERVICE CLASS
------------------------------ -----------------------------
1998 1997 1998 1997
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Investment activity:
Reinvested dividends .............................. $ - - - -
Mortality, expense and administration
charges (note 2)
Classic ....................................... - - - -
Select ........................................ - - - -
Select (Rider Option 1) ....................... - - - -
Select (Rider Option 2) ....................... - - - -
Generations ................................... (49,642) - (11,313) -
Generations (Rider Option 1) .................. (37,699) - (10,118) -
Generations (Rider Option 2) .................. (11,178) - (3,117) -
-------------- ------------- ------------- -------------
Net investment activity ......................... (98,519) - (24,548) -
-------------- ------------- ------------- -------------
Proceeds from mutual fund shares sold ............. 1,922,952 - 282,331 -
Cost of mutual fund shares sold ................... (2,195,994) - (301,072) -
-------------- ------------- ------------- -------------
Realized gain (loss) on investments ............. (273,042) - (18,741) -
Change in unrealized gain (loss) on investments ... (1,096,849) - 103,595 -
-------------- ------------- ------------- -------------
Net gain (loss) on investments .................. (1,369,891) - 84,854 -
-------------- ------------- ------------- -------------
Reinvested capital gains .......................... - - - -
-------------- ------------- ------------- -------------
Net increase (decrease) in contract owners'
equity resulting from operations ............ (1,468,410) - 60,306 -
-------------- ------------- ------------- -------------
Equity transactions:
Purchase payments received from
contract owners ................................. 22,844,703 - 5,217,109 -
Transfers between funds ........................... (1,225,535) - 653,623 -
Redemptions ....................................... (500,261) - (66,607) -
Annuity benefits .................................. - - - -
Annual contract maintenance charge (note 2) ....... - - - -
Contingent deferred sales charges (note 2) ........ (3,207) - (416) -
Adjustments to maintain reserves .................. (68) - (10) -
-------------- ------------- ------------- -------------
Net equity transactions ....................... 21,115,632 - 5,803,699 -
-------------- ------------- ------------- -------------
Net change in contract owners' equity ............. 19,647,222 - 5,864,005 -
Contract owners' equity beginning of period ....... - - - -
-------------- ------------- ------------- -------------
Contract owners' equity end of period ............. $ 19,647,222 - 5,864,005 -
============== ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
ASSET MANAGER:
ASSET MANAGER PORTFOLIO: GROWTH PORTFOLIO:
SERVICE CLASS SERVICE CLASS
------------------------------- ------------------------------
1998 1997 1998 1997
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Investment activity:
Reinvested dividends .............................. $ - - - -
Mortality, expense and administration
charges (note 2)
Classic ....................................... - - - -
Select ........................................ - - - -
Select (Rider Option 1) ....................... - - - -
Select (Rider Option 2) ....................... - - - -
Generations ................................... (6,565) - (3,692) -
Generations (Rider Option 1) .................. (4,118) - (4,062) -
Generations (Rider Option 2) .................. (998) - (1,888) -
-------------- -------------- -------------- -------------
Net investment activity ......................... (11,681) - (9,642) -
-------------- -------------- -------------- -------------
Proceeds from mutual fund shares sold ............. 71,477 - 219,864 -
Cost of mutual fund shares sold ................... (73,296) - (231,538) -
-------------- -------------- -------------- -------------
Realized gain (loss) on investments ............. (1,819) - (11,674) -
Change in unrealized gain (loss) on investments ... 226,745 - 203,517 -
-------------- -------------- -------------- -------------
Net gain (loss) on investments .................. 224,926 - 191,843 -
-------------- -------------- -------------- -------------
Reinvested capital gains .......................... - - - -
-------------- -------------- -------------- -------------
Net increase (decrease) in contract owners'
equity resulting from operations ............ 213,245 - 182,201 -
-------------- -------------- -------------- -------------
Equity transactions:
Purchase payments received from
contract owners ................................. 3,392,283 - 2,398,093 -
Transfers between funds ........................... 135,795 - (35,776) -
Redemptions ....................................... (22,375) - (46,097) -
Annuity benefits .................................. - - - -
Annual contract maintenance charge (note 2) ....... - - - -
Contingent deferred sales charges (note 2) ........ (354) - (60) -
Adjustments to maintain reserves .................. (5) - (14) -
-------------- -------------- -------------- -------------
Net equity transactions ....................... 3,505,344 - 2,316,146 -
-------------- -------------- -------------- -------------
Net change in contract owners' equity ............. 3,718,589 - 2,498,347 -
Contract owners' equity beginning of period ....... - - - -
-------------- -------------- -------------- -------------
Contract owners' equity end of period ............. $ 3,718,589 - 2,498,347 -
============== ============== ============== =============
</TABLE>
<PAGE> 9
NATIONWIDE FIDELITY ADVISOR VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
CONTRAFUND PORTFOLIO: BALANCED PORTFOLIO:
SERVICE CLASS SERVICE CLASS
------------------------------ -----------------------------
1998 1997 1998 1997
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Investment activity:
Reinvested dividends .............................. $ - - - -
Mortality, expense and administration
charges (note 2)
Classic ....................................... - - - -
Select ........................................ - - - -
Select (Rider Option 1) ....................... - - - -
Select (Rider Option 2) ....................... - - - -
Generations ................................... (23,438) - (15,680) -
Generations (Rider Option 1) .................. (24,226) - (11,424) -
Generations (Rider Option 2) .................. (6,160) - (5,294) -
-------------- ------------- ------------- -------------
Net investment activity ......................... (53,824) - (32,398) -
-------------- ------------- ------------- -------------
Proceeds from mutual fund shares sold ............. 194,844 - 235,493 -
Cost of mutual fund shares sold ................... (190,062) - (233,390) -
-------------- ------------- ------------- -------------
Realized gain (loss) on investments ............. 4,782 - 2,103 -
Change in unrealized gain (loss) on investments ... 1,929,222 - 549,603 -
-------------- ------------- ------------- -------------
Net gain (loss) on investments .................. 1,934,004 - 551,706 -
-------------- ------------- ------------- -------------
Reinvested capital gains .......................... - - - -
-------------- ------------- ------------- -------------
Net increase (decrease) in contract owners'
equity resulting from operations ............ 1,880,180 - 519,308 -
-------------- ------------- ------------- -------------
Equity transactions:
Purchase payments received from
contract owners ................................. 11,884,096 - 8,771,958 -
Transfers between funds ........................... 1,287,064 - 389,137 -
Redemptions ....................................... (222,049) - (130,919) -
Annuity benefits .................................. - - - -
Annual contract maintenance charge (note 2) ....... - - - -
Contingent deferred sales charges (note 2) ........ (326) - (636) -
Adjustments to maintain reserves .................. 84 - (59) -
-------------- ------------- ------------- -------------
Net equity transactions ....................... 12,948,869 - 9,029,481 -
-------------- ------------- ------------- -------------
Net change in contract owners' equity ............. 14,829,049 - 9,548,789 -
Contract owners' equity beginning of period ....... - - - -
-------------- ------------- ------------- -------------
Contract owners' equity end of period ............. $ 14,829,049 - 9,548,789 -
============== ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
GROWTH AND INCOME PORTFOLIO: GROWTH OPPORTUNITIES
SERVICE CLASS PORTFOLIO: SERVICE CLASS
------------------------------- ------------------------------
1998 1997 1998 1997
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Investment activity:
Reinvested dividends .............................. $ - - - -
Mortality, expense and administration
charges (note 2)
Classic ....................................... - - - -
Select ........................................ - - - -
Select (Rider Option 1) ....................... - - - -
Select (Rider Option 2) ....................... - - - -
Generations ................................... (24,821) - (81,243) -
Generations (Rider Option 1) .................. (31,994) - (89,368) -
Generations (Rider Option 2) .................. (7,363) - (19,315) -
-------------- -------------- -------------- -------------
Net investment activity ......................... (64,178) - (189,926) -
-------------- -------------- -------------- -------------
Proceeds from mutual fund shares sold ............. 801,099 - 173,928 -
Cost of mutual fund shares sold ................... (781,432) - (164,968) -
-------------- -------------- -------------- -------------
Realized gain (loss) on investments ............. 19,667 - 8,960 -
Change in unrealized gain (loss) on investments ... 2,058,619 - 5,157,394 -
-------------- -------------- -------------- -------------
Net gain (loss) on investments .................. 2,078,286 - 5,166,354 -
-------------- -------------- -------------- -------------
Reinvested capital gains .......................... - - - -
-------------- -------------- -------------- -------------
Net increase (decrease) in contract owners'
equity resulting from operations ............ 2,014,108 - 4,976,428 -
-------------- -------------- -------------- -------------
Equity transactions:
Purchase payments received from
contract owners ................................. 15,905,391 - 40,711,144 -
Transfers between funds ........................... 692,100 - 1,099,745 -
Redemptions ....................................... (251,704) - (741,889) -
Annuity benefits .................................. - - - -
Annual contract maintenance charge (note 2) ....... - - - -
Contingent deferred sales charges (note 2) ........ (160) - (5,091) -
Adjustments to maintain reserves .................. 48 - 57 -
-------------- -------------- -------------- -------------
Net equity transactions ....................... 16,345,675 - 41,063,966 -
-------------- -------------- -------------- -------------
Net change in contract owners' equity ............. 18,359,783 - 46,040,394 -
Contract owners' equity beginning of period ....... - - - -
-------------- -------------- -------------- -------------
Contract owners' equity end of period ............. $ 18,359,783 - 46,040,394 -
============== ============== ============== =============
</TABLE>
(Continued)
<PAGE> 10
NATIONWIDE FIDELITY ADVISOR VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
GOVERNMENT
INVESTMENT FUND HIGH YIELD FUND
------------------------------ -----------------------------
1998 1997 1998 1997
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Investment activity:
Reinvested dividends .............................. $ - 287,288 - 1,664,977
Mortality, expense and administration
charges (note 2)
Classic ....................................... - (3,971) - (16,813)
Select ........................................ - (52,722) - (248,687)
Select (Rider Option 1) ....................... - - - -
Select (Rider Option 2) ....................... - - - -
Generations ................................... - - - -
Generations (Rider Option 1) .................. - - - -
Generations (Rider Option 2) .................. - - - -
-------------- ------------- ------------- -------------
Net investment activity ......................... - 230,595 - 1,399,477
-------------- ------------- ------------- -------------
Proceeds from mutual fund shares sold ............. - 20,683,351 - 97,566,593
Cost of mutual fund shares sold ................... - (21,543,654) - (98,450,573)
-------------- ------------- ------------- -------------
Realized gain (loss) on investments ............. - (860,303) - (883,980)
Change in unrealized gain (loss) on investments ... - 502,588 - (2,411,864)
-------------- ------------- ------------- -------------
Net gain (loss) on investments .................. - (357,715) - (3,295,844)
-------------- ------------- ------------- -------------
Reinvested capital gains .......................... - - - 3,446,055
-------------- ------------- ------------- -------------
Net increase (decrease) in contract owners'
equity resulting from operations ............ - (127,120) - 1,549,688
-------------- ------------- ------------- -------------
Equity transactions:
Purchase payments received from
contract owners ................................. - 703,479 - 5,965,726
Transfers between funds ........................... - (20,346,585) - (97,185,398)
Redemptions ....................................... - (279,350) - (1,335,478)
Annuity benefits .................................. - - - -
Annual contract maintenance charge (note 2) ....... - (386) - (1,254)
Contingent deferred sales charges (note 2) ........ - (11,183) - (37,325)
Adjustments to maintain reserves .................. - 13 - 352
-------------- ------------- ------------- -------------
Net equity transactions ....................... - (19,934,012) - (92,593,377)
-------------- ------------- ------------- -------------
Net change in contract owners' equity ............. - (20,061,132) - (91,043,689)
Contract owners' equity beginning of period ....... - 20,061,132 - 91,043,689
-------------- ------------- ------------- -------------
Contract owners' equity end of period ............. $ - - - -
============== ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
MONEY MARKET FUND OVERSEAS FUND
------------------------------- ------------------------------
1998 1997 1998 1997
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Investment activity:
Reinvested dividends .............................. $ - 290,239 - 53,871
Mortality, expense and administration
charges (note 2)
Classic ....................................... - (3,845) - (10,730)
Select ........................................ - (77,418) - (117,562)
Select (Rider Option 1) ....................... - - - -
Select (Rider Option 2) ....................... - - - -
Generations ................................... - - - -
Generations (Rider Option 1) .................. - - - -
Generations (Rider Option 2) .................. - - - -
-------------- -------------- -------------- -------------
Net investment activity ......................... - 208,976 - (74,421)
-------------- -------------- -------------- -------------
Proceeds from mutual fund shares sold ............. - 34,287,294 - 48,228,759
Cost of mutual fund shares sold ................... - (34,287,294) - (48,637,341)
-------------- -------------- -------------- -------------
Realized gain (loss) on investments ............. - - - (408,582)
Change in unrealized gain (loss) on investments ... - - - (2,797,481)
-------------- -------------- -------------- -------------
Net gain (loss) on investments .................. - - - (3,206,063)
-------------- -------------- -------------- -------------
Reinvested capital gains .......................... - - - 4,309,141
-------------- -------------- -------------- -------------
Net increase (decrease) in contract owners'
equity resulting from operations ............ - 208,976 - 1,028,657
-------------- -------------- -------------- -------------
Equity transactions:
Purchase payments received from
contract owners ................................. - 5,893,573 - 2,025,184
Transfers between funds ........................... - (35,384,849) - (47,818,089)
Redemptions ....................................... - (643,822) - (425,271)
Annuity benefits .................................. - - - -
Annual contract maintenance charge (note 2) ....... - (196) - (821)
Contingent deferred sales charges (note 2) ........ - (8,540) - (9,277)
Adjustments to maintain reserves .................. - 2,487 - 1,590
-------------- -------------- -------------- -------------
Net equity transactions ....................... - (30,141,347) - (46,226,684)
-------------- -------------- -------------- -------------
Net change in contract owners' equity ............. - (29,932,371) - (45,198,027)
Contract owners' equity beginning of period ....... - 29,932,371 - 45,198,027
-------------- -------------- -------------- -------------
Contract owners' equity end of period ............. $ - - - -
============== ============== ============== =============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 11
NATIONWIDE FIDELITY ADVISOR VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Nature of Operations
Nationwide Fidelity Advisor Variable Account (the Account) was
established pursuant to a resolution of the Board of Directors of
Nationwide Life Insurance Company (the Company) on July 22, 1994. 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 Fidelity
Investments(R).
(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 any of the following:
Funds available in the Fidelity Advisor Classic and Select
Products:
<TABLE>
<S> <C>
Portfolios of the Fidelity Variable Insurance Products Fund (Fidelity VIP);
Fidelity VIP - Equity-Income Portfolio
Fidelity VIP - Growth Portfolio Fidelity VIP - High Income Portfolio
Fidelity VIP - Money Market Portfolio (also available in the Fidelity Advisor Generations product)
Fidelity VIP - Overseas Portfolio
Portfolios of the Fidelity Variable Insurance Products Fund II(Fidelity VIP-II);
Fidelity VIP-II - Asset Manager Portfolio
Fidelity VIP-II - Asset Manager: Growth Portfolio
Fidelity VIP-II - Contrafund Portfolio
Fidelity VIP-II - Index 500 Portfolio (also available in the Fidelity Advisor Generations product)
Fidelity VIP-II - Investment Grade Bond Portfolio (also available in the Fidelity Generations product)
Portfolios of the Fidelity Variable Insurance Products Fund III(Fidelity VIP-III);
Fidelity VIP-III - Balanced Portfolio
Fidelity VIP-III - Growth and Income Portfolio
Fidelity VIP-III - Growth Opportunities Portfolio
Funds of Fidelity Advisor Annuity Fund (effective January 20, 1997, the following funds are no longer available);
Fidelity Advisor Annuity Government Investment Fund
Fidelity Advisor Annuity High Yield Fund
Fidelity Advisor Annuity Money Market Fund
Fidelity Advisor Annuity Overseas Fund
Funds available in the Fidelity Advisor Generations product:
Portfolios of the Fidelity Variable Insurance Products Fund (Fidelity VIP);
Fidelity VIP - Equity-Income Portfolio: Service Class
Fidelity VIP - Growth Portfolio: Service Class
Fidelity VIP - High Income Portfolio: Service Class
Fidelity VIP - Overseas Portfolio: Service Class
</TABLE>
<PAGE> 12
<TABLE>
<S> <C>
Portfolios of the Fidelity Variable Insurance Products Fund II (Fidelity VIP-II);
Fidelity VIP-II - Asset Manager Portfolio: Service Class
Fidelity VIP-II - Asset Manager: Growth Portfolio: Service Class
Fidelity VIP-II - Contrafund Portfolio: Service Class
Portfolios of the Fidelity Variable Insurance Products Fund III (Fidelity VIP-III);
Fidelity VIP-III - Balanced Portfolio: Service Class
Fidelity VIP-III - Growth and Income Portfolio: Service Class
Fidelity VIP-III - Growth Opportunities Portfolio: Service Class
</TABLE>
At December 31, 1998, except as noted, contract owners have invested in
all of the above funds. The contract owners' equity is affected by the
investment results of each fund, equity transactions by contract owners
and certain contract expenses (see note 2). The accompanying financial
statements include only contract owners' purchase payments pertaining
to the variable portions of their contracts and exclude any purchase
payments for fixed dollar benefits, the latter being included in the
accounts of the Company.
A contract owner may choose from among a number of different underlying
mutual fund options. The underlying mutual fund options are not
available to the general public directly. The underlying mutual funds
are available as investment options in variable life insurance policies
or variable annuity contracts issued by life insurance companies or, in
some cases, through participation in certain qualified pension or
retirement plans.
Some of the underlying mutual funds have been established by investment
advisers which manage publicly traded mutual funds having similar names
and investment objectives. While some of the underlying mutual funds
may be similar to, and may in fact be modeled after, publicly traded
mutual funds, the underlying mutual funds are not otherwise directly
related to any publicly traded mutual fund. Consequently, the
investment performance of publicly traded mutual funds and any
corresponding underlying mutual funds may differ substantially.
(c) Security Valuation, Transactions and Related Investment Income
The market value of the underlying mutual funds is based on the closing
net asset value per share at December 31, 1998. The cost of investments
sold is determined on a 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, 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.
<PAGE> 13
The following contract charges are deducted by the Company: (a) for the
Fidelity Advisor Annuity Classic contracts an annual contract maintenance
charge of $30, with certain exceptions, which is satisfied by surrendering
units; and (b) for the Fidelity Advisor Annuity Classic 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 0.05%, respectively; for the Fidelity Advisor Annuity
Select 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; for the
Fidelity Advisor Generations Annuity contracts a mortality risk charge and
an expense risk charge assessed through the daily unit value calculation
equal to an annual rate of .80% and .15%, respectively. For Fidelity
Advisor Annuity Select and Fidelity Advisor Generations Annuity contracts,
optional long term care facility with a one-year stepped up death benefit
rider is offered at an additional annual rate of 0.05% (Rider Option 1).
Optional long care facility with a 5% enhanced death benefit rider is
offered at an additional annual rate of 0.10% (Rider Option 2).
(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> 14
(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>
FIDELITY ADVISOR ANNUITY CLASSIC CONTRACTS:
Fidelity VIP - Equity-Income Portfolio:
Tax qualified .............................. 153,274 $ 13.504485 $ 2,069,886 10%
Non-tax qualified .......................... 134,102 13.504485 1,810,978 10%
Fidelity VIP - Growth Portfolio:
Tax qualified .............................. 117,115 16.000493 1,873,898 38%
Non-tax qualified .......................... 93,958 16.000493 1,503,374 38%
Fidelity VIP - High Income Portfolio:
Tax qualified .............................. 475,850 11.211755 5,335,114 (6)%
Non-tax qualified .......................... 353,048 11.211755 3,958,288 (6)%
Fidelity VIP - Money Market Portfolio:
Tax qualified .............................. 175,478 10.907151 1,913,965 4%
Non-tax qualified .......................... 118,306 10.907151 1,290,381 4%
Fidelity VIP - Overseas Portfolio:
Tax qualified .............................. 303,117 12.890557 3,907,347 11%
Non-tax qualified .......................... 237,415 12.890557 3,060,412 11%
Fidelity VIP-II - Asset Manager Portfolio:
Tax qualified .............................. 26,091 13.242881 345,520 14%
Non-tax qualified .......................... 28,317 13.242881 374,999 14%
Fidelity VIP-II - Asset Manager:
Growth Portfolio:
Tax qualified .............................. 30,141 13.869175 418,031 16%
Non-tax qualified .......................... 19,928 13.869175 276,385 16%
Fidelity VIP-II - Contrafund Portfolio:
Tax qualified .............................. 251,534 15.066384 3,789,708 28%
Non-tax qualified .......................... 155,593 15.066384 2,344,224 28%
Fidelity VIP-II - Index 500 Portfolio:
Tax qualified .............................. 167,612 15.840285 2,655,022 27%
Non-tax qualified .......................... 101,830 15.840285 1,613,016 27%
Fidelity VIP-II - Investment Grade
Bond Portfolio:
Tax qualified .............................. 159,327 11.634559 1,853,699 7%
Non-tax qualified .......................... 93,625 11.634559 1,089,286 7%
Fidelity VIP-III - Balanced Portfolio:
Tax qualified .............................. 533,457 17.091747 9,117,712 16%
Non-tax qualified .......................... 384,433 17.091747 6,570,632 16%
Fidelity VIP-III- Growth and
Income Portfolio:
Tax qualified .............................. 108,608 15.812524 1,717,367 28%
Non-tax qualified .......................... 74,546 15.812524 1,178,760 28%
Fidelity VIP-III - Growth Opportunities
Portfolio:
Tax qualified .............................. 1,579,126 24.090333 38,041,671 23%
Non-tax qualified .......................... 1,568,582 24.090333 37,787,663 23%
</TABLE>
<PAGE> 15
<TABLE>
<S> <C> <C> <C> <C>
FIDELITY ADVISOR ANNUITY SELECT CONTRACTS:
Fidelity VIP - Equity-Income Portfolio:
Tax qualified .............................. 1,732,312 13.477888 23,347,907 10%
Non-tax qualified .......................... 2,789,952 13.477888 37,602,661 10%
Fidelity VIP - Growth Portfolio:
Tax qualified .............................. 1,138,568 15.969000 18,181,792 38%
Non-tax qualified .......................... 2,009,283 15.969000 32,086,240 38%
Fidelity VIP - High Income Portfolio:
Tax qualified .............................. 4,158,432 11.187199 46,521,206 (6)%
Non-tax qualified .......................... 8,642,408 11.187199 96,684,338 (6)%
Fidelity VIP - Money Market Portfolio:
Tax qualified .............................. 1,305,540 10.883253 14,208,522 4%
Non-tax qualified .......................... 2,759,939 10.883253 30,037,114 4%
Fidelity VIP - Overseas Portfolio:
Tax qualified .............................. 1,730,887 12.862332 22,263,243 11%
Non-tax qualified .......................... 3,855,007 12.862332 49,584,380 11%
Fidelity VIP-II - Asset Manager Portfolio:
Tax qualified .............................. 351,207 13.216823 4,641,841 13%
Non-tax qualified .......................... 698,387 13.216823 9,230,457 13%
Fidelity VIP-II - Asset Manager:
Growth Portfolio:
Tax qualified .............................. 299,850 13.841884 4,150,489 16%
Non-tax qualified .......................... 576,240 13.841884 7,976,247 16%
Fidelity VIP-II - Contrafund Portfolio:
Tax qualified .............................. 1,788,055 15.036722 26,886,486 28%
Non-tax qualified .......................... 3,318,944 15.036722 49,906,038 28%
Fidelity VIP-II - Index 500 Portfolio:
Tax qualified .............................. 1,111,939 15.809112 17,578,768 27%
Non-tax qualified .......................... 2,367,722 15.809112 37,431,582 27%
Fidelity VIP-II - Investment Grade
Bond Portfolio:
Tax qualified .............................. 1,286,880 11.609070 14,939,480 7%
Non-tax qualified .......................... 2,102,024 11.609070 24,402,544 7%
Fidelity VIP-III - Balanced Portfolio:
Tax qualified .............................. 2,652,827 17.022798 45,158,538 16%
Non-tax qualified .......................... 6,102,782 17.022798 103,886,425 16%
Fidelity VIP-III- Growth and
Income Portfolio:
Tax qualified .............................. 968,478 15.781386 15,283,925 28%
Non-tax qualified .......................... 2,375,755 15.781386 37,492,707 28%
Fidelity VIP-III - Growth Opportunities
Portfolio:
Tax qualified .............................. 8,627,546 23.993138 207,001,902 23%
Non-tax qualified .......................... 20,287,152 23.993138 486,752,438 23%
</TABLE>
(Continued)
<PAGE> 16
<TABLE>
<S> <C> <C> <C> <C>
FIDELITY ADVISOR ANNUITY SELECT (RIDER OPTION 1):
Fidelity VIP - Equity-Income Portfolio:
Tax qualified .............................. 41,419 11.368793 470,884 10%
Non-tax qualified .......................... 101,795 11.368793 1,157,286 10%
Fidelity VIP - Growth Portfolio:
Tax qualified .............................. 38,516 13.781993 530,827 37%
Non-tax qualified .......................... 94,771 13.781993 1,306,133 37%
Fidelity VIP - High Income Portfolio:
Tax qualified .............................. 55,178 9.547168 526,794 (6)%
Non-tax qualified .......................... 99,132 9.547168 946,430 (6)%
Fidelity VIP - Money Market Portfolio:
Tax qualified .............................. 37,306 10.462911 390,329 4%
Non-tax qualified .......................... 111,460 10.462911 1,166,196 4%
Fidelity VIP - Overseas Portfolio:
Tax qualified .............................. 20,502 10.994287 225,405 11%
Non-tax qualified .......................... 27,574 10.994287 303,156 11%
Fidelity VIP-II - Asset Manager Portfolio:
Tax qualified .............................. 4,399 11.575607 50,921 13%
Non-tax qualified .......................... 28,093 11.575607 325,194 13%
Fidelity VIP-II - Asset Manager
Growth Portfolio:
Tax qualified .............................. 9,734 11.864403 115,488 16%
Non-tax qualified .......................... 17,710 11.864403 210,119 16%
Fidelity VIP-II - Contrafund Portfolio:
Tax qualified .............................. 35,003 12.747959 446,217 28%
Non-tax qualified .......................... 83,877 12.747959 1,069,261 28%
Fidelity VIP-II - Index 500 Portfolio:
Tax qualified .............................. 23,101 13.065126 301,817 26%
Non-tax qualified .......................... 68,636 13.065126 896,738 26%
Fidelity VIP-II - Investment Grade
Bond Portfolio:
Tax qualified .............................. 4,667 10.883913 50,795 7%
Non-tax qualified .......................... 6,209 10.883913 67,578 7%
Fidelity VIP-III - Balanced Portfolio:
Tax qualified .............................. 23,691 11.909803 282,155 16%
Non-tax qualified .......................... 46,788 11.909803 557,236 16%
Fidelity VIP-III- Growth and
Income Portfolio:
Tax qualified .............................. 36,694 13.287693 487,579 28%
Non-tax qualified .......................... 80,881 13.287693 1,074,722 28%
Fidelity VIP-III - Growth Opportunities
Portfolio:
Tax qualified .............................. 114,036 12.762442 1,455,378 23%
Non-tax qualified .......................... 227,642 12.762442 2,905,268 23%
</TABLE>
<PAGE> 17
<TABLE>
<S> <C> <C> <C> <C>
FIDELITY ADVISOR ANNUITY SELECT (RIDER OPTION 2):
Fidelity VIP - Equity-Income Portfolio:
Tax qualified .............................. 24,656 11.362118 280,144 10%
Non-tax qualified .......................... 29,725 11.362118 337,739 10%
Fidelity VIP - Growth Portfolio:
Tax qualified .............................. 30,523 13.773906 420,421 37%
Non-tax qualified .......................... 11,669 13.773906 160,728 37%
Fidelity VIP - High Income Portfolio:
Tax qualified .............................. 11,405 9.541553 108,821 (6)%
Non-tax qualified .......................... 34,631 9.541553 330,434 (6)%
Fidelity VIP - Money Market Portfolio:
Tax qualified .............................. 61,727 10.456715 645,462 4%
Non-tax qualified .......................... 10,039 10.456715 104,975 4%
Fidelity VIP - Overseas Portfolio:
Tax qualified .............................. 1,537 10.987826 16,888 11%
Non-tax qualified .......................... 7,894 10.987826 86,738 11%
Fidelity VIP-II - Asset Manager Portfolio:
Tax qualified .............................. 1,346 11.568800 15,572 13%
Non-tax qualified .......................... 9,296 11.568800 107,544 13%
Fidelity VIP-II - Asset Manager
Growth Portfolio:
Non-tax qualified .......................... 6,520 11.857417 77,310 16%
Fidelity VIP-II - Contrafund Portfolio:
Tax qualified .............................. 2,116 12.740463 26,959 28%
Non-tax qualified .......................... 19,726 12.740463 251,318 28%
Fidelity VIP-II - Index 500 Portfolio:
Tax qualified .............................. 2,611 13.057468 34,093 26%
Non-tax qualified .......................... 24,391 13.057468 318,485 26%
Fidelity VIP-II - Investment Grade
Bond Portfolio:
Tax qualified .............................. 2,596 10.877515 28,238 7%
Non-tax qualified .......................... 4,254 10.877515 46,273 7%
Fidelity VIP-III - Balanced Portfolio:
Tax qualified .............................. 1,398 11.902806 16,640 16%
Non-tax qualified .......................... 7,406 11.902806 88,152 16%
Fidelity VIP-III- Growth and
Income Portfolio:
Tax qualified .............................. 1,884 13.279886 25,019 28%
Non-tax qualified .......................... 7,143 13.279886 94,858 28%
Fidelity VIP-III - Growth Opportunities
Portfolio:
Tax qualified .............................. 60,778 12.754941 775,220 23%
Non-tax qualified .......................... 57,554 12.754941 734,098 23%
</TABLE>
(Continued)
<PAGE> 18
<TABLE>
<S> <C> <C> <C> <C>
FIDELITY ADVISOR GENERATIONS ANNUITY CONTRACTS:
Fidelity VIP - Money Market Portfolio:
Tax qualified .............................. 239,010 10.407380 2,487,468 4%(a)
Non-tax qualified .......................... 390,433 10.407380 4,063,385 4%(a)
Fidelity VIP-II - Index 500 Portfolio:
Tax qualified .............................. 196,106 12.204206 2,393,318 22%(a)
Non-tax qualified .......................... 338,172 12.204206 4,127,121 22%(a)
Fidelity VIP-II - Investment Grade
Bond Portfolio:
Tax qualified .............................. 147,838 10.690813 1,580,508 7%(a)
Non-tax qualified .......................... 250,598 10.690813 2,679,096 7%(a)
Fidelity VIP - Equity-Income Portfolio:
Service Class:
Tax qualified .............................. 343,285 10.758604 3,693,267 8%(a)
Non-tax qualified .......................... 492,319 10.758604 5,296,665 8%(a)
Fidelity VIP - Growth Portfolio:
Service Class:
Tax qualified .............................. 272,183 13.265992 3,610,778 33%(a)
Non-tax qualified .......................... 464,386 13.265992 6,160,541 33%(a)
Fidelity VIP - High Income Portfolio:
Service Class:
Tax qualified .............................. 484,504 9.218542 4,466,420 (8)%(a)
Non-tax qualified .......................... 601,794 9.218542 5,547,663 (8)%(a)
Fidelity VIP - Overseas Portfolio:
Service Class:
Tax qualified .............................. 134,873 10.586638 1,427,852 6%(a)
Non-tax qualified .......................... 129,179 10.586638 1,367,571 6%(a)
Fidelity VIP-II - Asset Manager Portfolio:
Service Class:
Tax qualified .............................. 71,666 11.098876 795,412 11%(a)
Non-tax qualified .......................... 84,366 11.098876 936,368 11%(a)
Fidelity VIP-II - Asset Manager:
Growth Portfolio: Service Class:
Tax qualified .............................. 29,182 11.278688 329,135 13%(a)
Non-tax qualified .......................... 57,110 11.278688 644,126 13%(a)
Fidelity VIP-II - Contrafund Portfolio:
Service Class:
Tax qualified .............................. 208,682 12.539357 2,616,738 25%(a)
Non-tax qualified .......................... 350,091 12.539357 4,389,916 25%(a)
Fidelity VIP-III - Balanced Portfolio:
Service Class:
Tax qualified .............................. 174,467 11.340963 1,978,624 13%(a)
Non-tax qualified .......................... 247,421 11.340963 2,805,992 13%(a)
Fidelity VIP-III- Growth and
Income Portfolio: Service Class:
Tax qualified .............................. 228,032 12.392371 2,825,857 24%(a)
Non-tax qualified .......................... 394,454 12.392371 4,888,220 24%(a)
Fidelity VIP-III - Growth Opportunities
Portfolio: Service Class:
Tax qualified .............................. 673,404 11.936099 8,037,817 19%(a)
Non-tax qualified .......................... 1,073,225 11.936099 12,810,120 19%(a)
</TABLE>
<PAGE> 19
<TABLE>
<S> <C> <C> <C> <C>
FIDELITY ADVISOR GENERATIONS ANNUITY
(RIDER OPTION 1):
Fidelity VIP - Money Market Portfolio:
Tax qualified .............................. 252,165 10.402557 2,623,161 4%(a)
Non-tax qualified .......................... 180,132 10.402557 1,873,833 4%(a)
Fidelity VIP-II - Index 500 Portfolio:
Tax qualified .............................. 193,851 12.198716 2,364,733 22%(a)
Non-tax qualified .......................... 329,494 12.198716 4,019,404 22%(a)
Fidelity VIP-II - Investment Grade
Bond Portfolio:
Tax qualified .............................. 118,873 10.686005 1,270,277 7%(a)
Non-tax qualified .......................... 401,936 10.686005 4,295,090 7%(a)
Fidelity VIP - Equity-Income Portfolio:
Service Class:
Tax qualified .............................. 312,594 10.753771 3,361,564 8%(a)
Non-tax qualified .......................... 456,864 10.753771 4,913,011 8%(a)
Fidelity VIP - Growth Portfolio:
Service Class:
Tax qualified .............................. 259,268 13.260038 3,437,904 33%(a)
Non-tax qualified .......................... 297,743 13.260038 3,948,083 33%(a)
Fidelity VIP - High Income Portfolio:
Service Class:
Tax qualified .............................. 316,524 9.214386 2,916,574 (8)%(a)
Non-tax qualified .......................... 458,599 9.214386 4,225,708 (8)%(a)
Fidelity VIP - Overseas Portfolio:
Service Class:
Tax qualified .............................. 82,289 10.581883 870,773 6%(a)
Non-tax qualified .......................... 122,011 10.581883 1,291,106 6%(a)
Fidelity VIP-II - Asset Manager Portfolio:
Service Class:
Tax qualified .............................. 61,666 11.093882 684,115 11%(a)
Non-tax qualified .......................... 91,981 11.093882 1,020,426 11%(a)
Fidelity VIP-II - Asset Manager:
Growth Portfolio: Service Class:
Tax qualified .............................. 54,864 11.273630 618,516 13%(a)
Non-tax qualified .......................... 47,213 11.273630 532,262 13%(a)
Fidelity VIP-II - Contrafund Portfolio:
Service Class:
Tax qualified .............................. 227,291 12.533725 2,848,803 25%(a)
Non-tax qualified .......................... 262,976 12.533725 3,296,069 25%(a)
Fidelity VIP-III - Balanced Portfolio:
Service Class:
Tax qualified .............................. 128,615 11.335864 1,457,962 13%(a)
Non-tax qualified .......................... 192,273 11.335864 2,179,581 13%(a)
Fidelity VIP-III- Growth and
Income Portfolio: Service Class:
Tax qualified .............................. 353,600 12.386801 4,379,973 24%(a)
Non-tax qualified .......................... 351,258 12.386801 4,350,963 24%(a)
Fidelity VIP-III - Growth Opportunities
Portfolio: Service Class:
Tax qualified .............................. 831,168 11.930730 9,916,441 19%(a)
Non-tax qualified .......................... 896,484 11.930730 10,695,709 19%(a)
</TABLE>
(Continued)
<PAGE> 20
<TABLE>
<S> <C> <C> <C> <C>
FIDELITY ADVISOR GENERATIONS ANNUITY
(RIDER OPTION 2):
Fidelity VIP - Money Market Portfolio:
Tax qualified .............................. 133,561 10.397737 1,388,732 4%(a)
Non-tax qualified .......................... 103,226 10.397737 1,073,317 4%(a)
Fidelity VIP-II - Index 500 Portfolio:
Tax qualified .............................. 45,723 12.193234 557,511 22%(a)
Non-tax qualified .......................... 71,382 12.193234 870,377 22%(a)
Fidelity VIP-II - Investment Grade
Bond Portfolio:
Tax qualified .............................. 38,420 10.681197 410,372 7%(a)
Non-tax qualified .......................... 125,354 10.681197 1,338,931 7%(a)
Fidelity VIP - Equity-Income Portfolio:
Service Class:
Tax qualified .............................. 76,194 10.748944 819,005 7%(a)
Non-tax qualified .......................... 108,197 10.748944 1,163,003 7%(a)
Fidelity VIP - Growth Portfolio:
Service Class:
Tax qualified .............................. 46,684 13.254076 618,753 33%(a)
Non-tax qualified .......................... 117,255 13.254076 1,554,107 33%(a)
Fidelity VIP - High Income Portfolio:
Service Class:
Tax qualified .............................. 72,605 9.210254 668,710 (8)%(a)
Non-tax qualified .......................... 197,839 9.210254 1,822,147 (8)%(a)
Fidelity VIP - Overseas Portfolio:
Service Class:
Tax qualified .............................. 16,755 10.577127 177,220 6%(a)
Non-tax qualified .......................... 68,968 10.577127 729,483 6%(a)
Fidelity VIP-II - Asset Manager Portfolio:
Service Class:
Tax qualified .............................. 8,319 11.088896 92,249 11%(a)
Non-tax qualified .......................... 17,136 11.088896 190,019 11%(a)
Fidelity VIP-II - Asset Manager:
Growth Portfolio: Service Class:
Tax qualified .............................. 24,911 11.268555 280,711 13%(a)
Non-tax qualified .......................... 8,306 11.268555 93,597 13%(a)
Fidelity VIP-II - Contrafund Portfolio:
Service Class:
Tax qualified .............................. 52,457 12.528086 657,186 25%(a)
Non-tax qualified .......................... 81,444 12.528086 1,020,337 25%(a)
Fidelity VIP-III - Balanced Portfolio:
Service Class:
Tax qualified .............................. 44,418 11.330772 503,290 13%(a)
Non-tax qualified .......................... 55,013 11.330772 623,340 13%(a)
Fidelity VIP-III- Growth and
Income Portfolio: Service Class:
Tax qualified .............................. 48,820 12.381235 604,452 24%(a)
Non-tax qualified .......................... 105,831 12.381235 1,310,318 24%(a)
Fidelity VIP-III - Growth Opportunities
Portfolio: Service Class:
Tax qualified .............................. 123,265 11.925368 1,469,980 19%(a)
Non-tax qualified .......................... 260,816 11.925368 3,110,327 19%(a)
========= ===========
Reserves for annuity contracts in payout phase:
Tax qualified .............................. 42,282
Non-tax qualified .......................... 184,309
---------------
$ 1,820,312,727
===============
</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> 72
<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> 73
<TABLE>
<CAPTION>
PART C. OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS PAGE
<S> <C>
(a) Financial Statements:
(1) Financial statements included
in Prospectus
(Part A):
Condensed Financial Information.
(2) Financial statements included in Part B:
Those financial statements required by Item 23 to be N/A
included in Part B have been incorporated therein by
reference to the Prospectus (Part A).
Nationwide Fidelity Advisor Variable Account:
Independent Auditors' Report. 71
Statement of Assets, Liabilities and Contract
Owners' Equity as of December 31, 1998. 72
Statements of Operations and Changes in Contract
Owners' Equity for Years ended December 31,
1998 and 1997. 74
Notes to Financial Statements. 81
Nationwide Life Insurance Company and Subsidiaries:
Independent Auditors' Report. 91
Consolidated Balance Sheets as of December
31, 1998 and 1997. 92
Consolidated Statements of Income for the
years ended December 31, 1998, 1997 and
1996. 93
Consolidated Statements of Shareholder's
Equity for the years ended December 31,
1998, 1997 and 1996. 94
Consolidated Statements of Cash Flows for
the years ended December 31, 1998, 1997 and 1996. 95
Notes to Consolidated Financial Statements. 96
</TABLE>
118 of 139
<PAGE> 74
Item 24. (b) Exhibits
(1) Resolution of Depositor's Board of Directors
authorizing the establishment of the Registrant. -
Filed previously with the Registration Statement
(File No. 33-82174) on November 8, 1994, and hereby
incorporated by reference.
(2) Not Applicable
(3) Form of the Underwriting or Distribution contracts
between the Registrant and the Principal
Underwriter. - Filed previously with the
Registration Statement (File No. 33-82174) on
November 8, 1994, and hereby incorporated by
reference.
(4) The form of the variable annuity contract. - Filed
previously with Registration Statement (File No.
33-89560) on October 31, 1997, and hereby
incorporated by reference.
(5) The variable annuity application. - Filed previously
with Post-Effective Amendment No. 4 to the
Registration Statement (File No. 33-89560) and
hereby incorporated by reference.
(6) Articles of Incorporation of the Depositor. - Filed
previously with the Registration Statement (File No.
33-82174) on November 8, 1994, and hereby
incorporated by reference.
(7) Not Applicable
(8) Not Applicable
(9) Opinion of Counsel - Filed previously with the
Registration Statement (File No. 33-89560) and is
hereby incorporated by reference.
(10) Not Applicable
(11) Not Applicable
(12) Not Applicable
(13) Computation of Performance Quotations - Filed
previously with the Registration Statement (File No.
33-82174) on November 8, 1994, and hereby
incorporated by reference.
119 of 139
<PAGE> 75
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
- --------------------------------------------------------------------------------------------------------------------------
Robert L. Stewart Director
88740 Fairview Road
Jewett, OH 43986
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
120 of 139
<PAGE> 76
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS WITH DEPOSITOR
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
Nancy C. Thomas Director
1733A Westwood Avenue
Alliance, OH 44601
- --------------------------------------------------------------------------------------------------------------------------
Richard D. Headley Executive Vice President - Chief
One Nationwide Plaza Information Technology Officer
Columbus, OH 43215
- --------------------------------------------------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------------------------------------------------
Charles A. Bryan Senior Vice President - Chief Actuary
One Nationwide Plaza Property and Casualty
Columbus, OH 43215
- --------------------------------------------------------------------------------------------------------------------------
John R. Cook, Jr. Senior Vice President -
One Nationwide Plaza Chief Communications Officer
Columbus, OH 43215
- --------------------------------------------------------------------------------------------------------------------------
Thomas L. Crumrine Senior Vice President
One Nationwide Plaza
Columbus, OH 43215
- --------------------------------------------------------------------------------------------------------------------------
David A. Diamond Senior Vice President - Corporate
One Nationwide Plaza Controller
Columbus, OH 43215
- --------------------------------------------------------------------------------------------------------------------------
Phillip C. Gath Senior Vice President -
One Nationwide Plaza Chief Actuary
Columbus, OH 43215
- --------------------------------------------------------------------------------------------------------------------------
Patricia R. Hatler Senior Vice President and
One Nationwide Plaza General Counsel
Columbus, OH 43215
- --------------------------------------------------------------------------------------------------------------------------
David K. Hollingsworth Senior Vice President - Marketing
One Nationwide Plaza
Columbus, OH 43215
- --------------------------------------------------------------------------------------------------------------------------
David R. Jahn Senior Vice President -
One Nationwide Plaza Commercial Insurance
Columbus, OH 43215
- --------------------------------------------------------------------------------------------------------------------------
Donna A. James Senior Vice President -
One Nationwide Plaza Chief Human Resources Officer
Columbus, OH 43215
- --------------------------------------------------------------------------------------------------------------------------
Richard A. Karas Senior Vice President - Sales -
One Nationwide Plaza Financial Services
Columbus, OH 43215
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
121 of 139
<PAGE> 77
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS WITH DEPOSITOR
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
Edwin P. McCausland, Jr. Senior Vice President -
One Nationwide Plaza Fixed Income Securities
Columbus, OH 43215
- --------------------------------------------------------------------------------------------------------------------------
Douglas C. Robinette Senior Vice President- Finance
One Nationwide Plaza
Columbus, OH 43215
- --------------------------------------------------------------------------------------------------------------------------
James A. Taylor Senior Vice President -
One Nationwide Plaza Property and Casualty Insurance
Columbus, OH 43215
- --------------------------------------------------------------------------------------------------------------------------
Mark R. Thresher Senior Vice President - Finance
One Nationwide Plaza
Columbus, OH 43215
- --------------------------------------------------------------------------------------------------------------------------
Richard M. Waggoner Senior Vice President -
One Nationwide Plaza Shared Services
Columbus, OH 43215
- --------------------------------------------------------------------------------------------------------------------------
Susan A. Wolken Senior Vice President -
One Nationwide Plaza Product Management and Marketing
Columbus, OH 43215
- --------------------------------------------------------------------------------------------------------------------------
Bruce C. Barnes Vice President - Technology
One Nationwide Plaza Strategy and Planning
Columbus, OH 43215
- --------------------------------------------------------------------------------------------------------------------------
Dennis W. Click Vice President - Secretary
One Nationwide Plaza
Columbus, OH 43215
- --------------------------------------------------------------------------------------------------------------------------
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 Vice President - Product
One Nationwide Plaza and Market Compliance
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
122 of 139
<PAGE> 78
<TABLE>
<CAPTION>
COMPANY STATE/COUNTRY OF NO. VOTING PRINCIPAL BUSINESS
ORGANIZATION SECURITIES
(SEE ATTACHED
CHART UNLESS
OTHERWISE
INDICATED)
<S> <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 Iowa Direct Marketer (P&C)
Company
ALLIED Group Merchant Banking Iowa Broker-Dealer
Corporation
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 Iowa Underwrites General P&C Insurance
Company
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 Texas Insurance Company
Company
Colonial Insurance Company of Wisconsin Wisconsin Insurance Company
Columbus Insurance Brokerage and Germany Insurance Broker
Service GmbH
</TABLE>
123 of 139
<PAGE> 79
<TABLE>
<CAPTION>
COMPANY STATE/COUNTRY OF NO. VOTING PRINCIPAL BUSINESS
ORGANIZATION SECURITIES
(SEE ATTACHED
CHART UNLESS
OTHERWISE
INDICATED)
<S> <C> <C>
Cooperative Service Company Nebraska Insurance Agency
Depositors Insurance Company Iowa Underwrites P&C insurance
*Employers Life Insurance Company of Wisconsin Life Insurance Company
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 Agency Alabama Insurance Agency
of Alabama, Inc.
Financial Horizons Distributors Agency Ohio Insurance Agency
of Ohio, Inc.
Financial Horizons Distributors Agency Oklahoma Insurance Agency
of Oklahoma, Inc.
Financial Horizons Distributors Agency Texas Insurance Agency
of Texas, Inc.
*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 Nevada Self-insurance administration, claims
examinations and data processing
services
Gates, McDonald & Company of New York, New York Workers' compensation claims
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
</TABLE>
124 of 139
<PAGE> 80
<TABLE>
<CAPTION>
COMPANY STATE/COUNTRY OF NO. VOTING PRINCIPAL BUSINESS
ORGANIZATION SECURITIES
(SEE ATTACHED
CHART UNLESS
OTHERWISE
INDICATED)
<S> <C> <C>
Lone Star General Agency, Inc. Texas Insurance Agency
Midwest Printing Services, Inc. Iowa General Printing Services
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 America, Great Britain Insurance Company
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 Company Ohio Investment Securities Agent
Nationwide Community Urban Ohio Special purpose real estate corporation
Redevelopment 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
</TABLE>
125 of 139
<PAGE> 81
<TABLE>
<CAPTION>
COMPANY STATE/COUNTRY OF NO. VOTING PRINCIPAL BUSINESS
ORGANIZATION SECURITIES
(SEE ATTACHED
CHART UNLESS
OTHERWISE
INDICATED)
<S> <C> <C>
Nationwide Financial Services, Inc. Delaware Holding Company
Nationwide General Insurance Company Ohio Insurance Company
Nationwide Global Holdings, Inc. Ohio Holding Company for International
Operations
Nationwide Health Plans, Inc. Ohio Health Maintenance Organization
*Nationwide Indemnity Company Ohio Reinsurance Company
Nationwide Insurance Company of America California Underwriter
Nationwide Insurance Company of Florida Ohio Insurance Company
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 deferred
Corporation compensation market
Nationwide Investors Services, Inc. Ohio Stock Transfer Agent
**Nationwide Life and Annuity Ohio Life Insurance Company
Insurance Company
**Nationwide Life Insurance Company Ohio Life Insurance Company
Nationwide Lloyds Texas Property Insurance
Nationwide Management Systems, Inc. Ohio Preferred provider 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
</TABLE>
126 of 139
<PAGE> 82
<TABLE>
<CAPTION>
COMPANY STATE/COUNTRY OF NO. VOTING PRINCIPAL BUSINESS
ORGANIZATION SECURITIES
(SEE ATTACHED
CHART UNLESS
OTHERWISE
INDICATED)
<S> <C> <C>
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
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 contracts to
of Ohio members of the National Education
Association in the state of Ohio
Nationwide Retirement Solutions, Inc. Oklahoma Market variable annuity contracts to
of Oklahoma 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 to
of Wyoming members of the National Education
Association in the state of Wyoming
</TABLE>
127 of 139
<PAGE> 83
<TABLE>
<CAPTION>
COMPANY STATE/COUNTRY OF NO. VOTING PRINCIPAL BUSINESS
ORGANIZATION SECURITIES
(SEE ATTACHED
CHART UNLESS
OTHERWISE
INDICATED)
<S> <C> <C>
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
Nevada Independent Nevada Workers' compensation administrative
Companies-Construction services
Nevada Independent Companies-Health Nevada Workers' compensation administrative
and Nonprofit services
Nevada Independent Companies- Nevada Workers' compensation administrative
Hospitality and Entertainment services
Nevada Independent Companies- Nevada Workers' compensation administrative
Manufacturing 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 Insurance
Company Company
SVM Sales GmbH, Neckura Insurance Group Germany Sales support for Neckura Insurance
Group
Union Bond and Trust Company Oregon Oregon state bank with trust powers
Villanova Capital, Inc. Delaware Holding Company
</TABLE>
128 of 139
<PAGE> 84
<TABLE>
<CAPTION>
COMPANY STATE/COUNTRY OF NO. VOTING PRINCIPAL BUSINESS
ORGANIZATION SECURITIES
(SEE ATTACHED
CHART UNLESS
OTHERWISE
INDICATED)
<S> <C> <C>
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>
129 of 139
<PAGE> 85
<TABLE>
<CAPTION>
COMPANY STATE/COUNTRY OF NO. VOTING SECURITIES PRINCIPAL BUSINESS
ORGANIZATION (SEE ATTACHED CHART)
UNLESS OTHERWISE INDICATED
<S> <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 Account Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide VA Separate Account-A Ohio Nationwide Life and Annuity Issuer of Annuity Contracts
Separate Account
* Nationwide VA Separate Account-B Ohio Nationwide Life and Annuity Issuer of Annuity Contracts
Separate Account
* Nationwide VA Separate Account-C Ohio Nationwide Life and Annuity Issuer of Annuity Contracts
Separate Account
Nationwide VA Separate Account-Q Ohio Nationwide Life and Annuity Issuer of Annuity Contracts
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 Variable Account-6 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Fidelity Advisor Variable Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account 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 VL Separate Account-A Ohio Nationwide Life and Annuity Issuer of Life Insurance
Separate Account Policies
</TABLE>
130 of 139
<PAGE> 86
<TABLE>
<CAPTION>
COMPANY STATE/COUNTRY OF NO. VOTING SECURITIES PRINCIPAL BUSINESS
ORGANIZATION (SEE ATTACHED CHART)
UNLESS OTHERWISE INDICATED
<S> <C> <C> <C>
Nationwide VL Separate Account-B Ohio Nationwide Life and Annuity Issuer of Life Insurance
Separate Account Policies
* Nationwide VL Separate Account-C Ohio Nationwide Life and Annuity Issuer of Life Insurance
Separate Account Policies
Nationwide VL Separate Account -D Ohio Nationwide Life and Annuity Issuer of Life Insurance
Separate Account Policies
* Nationwide VLI Separate Account Ohio Nationwide Life Separate Issuer of Life Insurance
Account Policies
* Nationwide VLI Separate Account-2 Ohio Nationwide Life Separate Issuer of Life Insurance
Account Policies
* Nationwide VLI Separate Account-3 Ohio Nationwide Life Separate Issuer of Life Insurance
Account Policies
* Nationwide VLI Separate Account-4 Ohio Nationwide Life Separate Issuer of Life Insurance
Account Policies
Nationwide VLI Separate Account-5 Ohio Nationwide Life Separate Issuer of Life Insurance
Account Policies
</TABLE>
131 of 139
<PAGE> 87
<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> 88
<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> 89
<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> 90
<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> 91
<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> 92
<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> 93
Item 27. NUMBER OF CONTRACT OWNERS
The number of contract owners of Qualified and Non-Qualified
Contracts as of January 31, 1999 was 1,145 and 2,132,
respectively.
Item 28. INDEMNIFICATION
Provision is made in Nationwide's Amended 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) The principal underwriter is Fidelity Investments
Institutional Services Company, Inc. which does not act as
principal underwriter, depositor, sponsor, or investment adviser
to any other investment company.
134 of 139
<PAGE> 94
(b)
<TABLE>
<CAPTION>
NAME AND PRINCIPAL BUSINESS ADDRESS POSITIONS AND OFFICES WITH UNDERWRITER
<S> <C>
Edward C. Johnson 3d Director
Kevin J. Kelly Director
Robert L. Reynolds Director
Kevin J. Kelly President and Chief Executive Officer
Kenneth A. Rathgeber Executive Vice President and Chief Operating Officer
Cornelia Boyle Executive Vice President
John T. Hailer Senior Vice President
Michael W. Kellogg Executive Vice President
Raymond J. Marcinowski Vice President
Jude C. Metcalfe Senior Vice President
Timothy P. Moran Vice President and Chief Financial Officer
William F. O'Grady Executive Vice President
Eric Roiter General Counsel
Stephen E. Tibbetts Treasurer
Jay Freedman Clerk
Elizabeth L. Baker Compliance Officer
Daniel T. Geraci Executive Vice President
Robert L. Reynolds Executive Vice President
James R. Donatell Senior Vice President
Susan Englander Hislop Assistant Clerk
</TABLE>
(c) Not applicable
The address for each person named in Item 29 is 82 Devonshire
Street, Boston, Massachusetts 02109
Item 30. LOCATION OF ACCOUNTS AND RECORDS
John Davis
Nationwide Life Insurance Company
One Nationwide Plaza
Columbus, OH 43216
Item 31. MANAGEMENT SERVICES
Not Applicable
135 of 139
<PAGE> 95
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 post card 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 of the 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.
136 of 139
<PAGE> 96
OFFERED BY
NATIONWIDE LIFE INSURANCE COMPANY
NATIONWIDE LIFE INSURANCE COMPANY
NATIONWIDE FIDELITY ADVISOR VARIABLE ACCOUNT
MODIFIED SINGLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT
PROSPECTUS
APRIL 30, 1999
137 of 139
<PAGE> 97
INDEPENDENT AUDITORS' CONSENT
The Board of Directors of Nationwide Life Insurance Company and Contract Owners
of the Nationwide Fidelity Advisor Variable Account:
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 28, 1999
138 of 139
<PAGE> 98
SIGNATURES
As required by the Securities Act of 1933, the Registrant, NATIONWIDE FIDELITY
ADVISOR VARIABLE ACCOUNT, certifies that it meets the requirements of the
Securities Act Rule 485(b) for effectiveness of the 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 28th day of October, 1999.
NATIONWIDE FIDELITY ADVISOR VARIABLE ACCOUNT
-------------------------------------------------
(Registrant)
NATIONWIDE LIFE INSURANCE COMPANY
-------------------------------------------------
(Depositor)
By/s/JOSEPH P. RATH
-------------------------------------------------
Joseph P. Rath
Vice President - Product and Market Compliance
As required by the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities indicated on the 28th day of
October, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C> <C>
LEWIS J. ALPHIN Director
- ----------------------------------------
Lewis J. Alphin
A. I. BELL Director
- ----------------------------------------
A. I. Bell
KENNETH D. DAVIS Director
- ----------------------------------------
Kenneth D. Davis
KEITH W. ECKEL Director
- ----------------------------------------
Keith W. Eckel
WILLARD J. ENGEL Director
- ----------------------------------------
Willard J. Engel
FRED C. FINNEY Director
- ----------------------------------------
Fred C. Finney
JOSEPH J. GASPER President and Chief Operating
- ---------------------------------------- Officer and Director
Joseph J. Gasper
DIMON R. MCFERSON Chairman and Chief Executive
- ---------------------------------------- Officer and Director
Dimon R. McFerson
DAVID O. MILLER Chairman of the Board and
- ---------------------------------------- Director
David O. Miller
YVONNE L. MONTGOMERY Director
- ----------------------------------------
Yvonne L. Montgomery
ROBERT A. OAKLEY Executive Vice President and Chief
- ---------------------------------------- Financial Officer
Robert A. Oakley
RALPH M. PAIGE Director
- ----------------------------------------
Ralph M. Paige
JAMES F. PATTERSON Director
- ----------------------------------------
James F. Patterson
ARDEN L. SHISLER Director By /s/ JOSEPH P. RATH
- ---------------------------------------- --------------------------------------
Arden L. Shisler Joseph P. Rath
Attorney-in-Fact
ROBERT L. STEWART Director
- ----------------------------------------
Robert L. Stewart
NANCY C. THOMAS Director
- ----------------------------------------
Nancy C. Thomas
</TABLE>
139 of 139
