<PAGE> 1
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 May 1, 2000.
Variable annuities are complex investment products with unique benefits and
advantages that may be particularly useful to many investors in meeting
long-term savings and retirement needs. There are, however, costs and charges
associated with some of these unique benefits - costs and charges that do not
exist or are not present with other investment products. With help from
financial consultants or advisers, investors are encouraged to compare and
contrast the costs and benefits of the variable annuity described in this
prospectus with those of other investment products, including other variable
annuity or variable life insurance products offered by Nationwide Life Insurance
Company and its affiliates. This process will aid in determining whether the
purchase of the contract described in this prospectus is consistent with an
individual's goals, risk tolerance, time horizon, marital status, tax situation,
and other personal characteristics and needs.
THIS PROSPECTUS CONTAINS BASIC INFORMATION YOU SHOULD KNOW ABOUT THE CONTRACTS
BEFORE INVESTING. PLEASE READ THIS PROSPECTUS CAREFULLY AND KEEP IT FOR FUTURE
REFERENCE.
The following underlying mutual funds are available under the contracts:
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
o VIP Equity-Income Portfolio
o VIP Growth Portfolio
o VIP High Income Portfolio*
o VIP Money Market Portfolio
o VIP Overseas Portfolio
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
o VIP II Asset Manager Portfolio
o VIP II Asset Manager: Growth Portfolio
o VIP II Contrafund(R) Portfolio
o VIP II Investment Grade Bond Portfolio
o VIP II Index 500 Portfolio
FIDELITY VARIABLE INSURANCE PRODUCTS FUND III
o VIP III Balanced Portfolio
o VIP III Growth & Income Portfolio
o VIP III Growth Opportunities Portfolio
*This underlying mutual fund 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.
The Statement of Additional Information (dated May 1, 2000) 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 43.
For general information or to obtain FREE copies of the:
o Statement of Additional Information;
o prospectus, annual report or semi-annual report for any underlying mutual
fund; 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 43216
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The Statement of Additional Information and other materials 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 OR o AVAILABLE IN
GOVERNMENT AGENCY EVERY STATE
Investors assume certain risks when investing in the contracts, including the
possibility of losing money.
These contracts are offered to customers of various financial institutions and
brokerage firms. No financial institution or brokerage firm is responsible for
the guarantees under the contracts. Guarantees under the contracts are the sole
responsibility of Nationwide.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC, NOR HAS THE
SEC PASSED UPON THE ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
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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 of measure used to calculate the variable
annuity payments.
CONTRACT VALUE- The total value of all accumulation units in a contract plus any
amount held in the fixed account.
CONTRACT YEAR- Each year the contract is in force beginning with the date the
contract is issued.
ERISA- The Employee Retirement Income Security Act of 1974, as amended.
FIXED ACCOUNT- An investment option that is funded by the general account of
Nationwide.
GENERAL ACCOUNT- All assets of Nationwide other than those of the variable
account or in other separate accounts that have been or may be established by
Nationwide.
INDIVIDUAL RETIREMENT ACCOUNT- An account that qualifies for favorable tax
treatment under Section 408(a) of the Internal Revenue Code, but does not
include Roth IRAs.
INDIVIDUAL RETIREMENT ANNUITY- An annuity contract that qualifies for favorable
tax treatment under Section 408(b) of the Internal Revenue Code, but does not
include Roth IRAs.
INVESTMENT-ONLY CONTRACT- A contract purchased by a Qualified Pension,
Profit-Sharing or Stock Bonus Plan as defined by Section 401(a) if the Internal
Revenue Code.
NATIONWIDE- Nationwide Life Insurance Company.
NON-QUALIFIED CONTRACT- A contract which does not qualify for favorable tax
treatment as an Individual Retirement Annuity, Roth IRA, or Tax Sheltered
Annuity.
QUALIFIED PLANS- Retirement plans which receive favorable tax treatment under
Section 401 or 403(a) of the Internal Revenue Code.
ROTH IRA- An annuity contract which qualifies for favorable tax treatment under
Section 408A of the Internal Revenue Code.
SUB-ACCOUNTS- Divisions of the variable account to and for which accumulation
units and annuity units are separately maintained - each sub-account corresponds
to a single underlying mutual fund.
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............8
EXAMPLE...........................................9
SYNOPSIS OF THE CONTRACTS........................10
FINANCIAL STATEMENTS.............................10
CONDENSED FINANCIAL INFORMATION..................11
NATIONWIDE LIFE INSURANCE COMPANY................11
GENERAL DISTRIBUTOR..............................11
TYPES OF CONTRACTS...............................11
Non-Qualified Annuity Contracts
Individual Retirement Annuities (IRAs)
Roth IRAs
Tax Sheltered Annuities
INVESTING IN THE CONTRACT........................12
The Variable Account and Underlying
Mutual Funds
The Fixed Account
STANDARD CHARGES AND DEDUCTIONS..................14
Mortality and Expense Risk Charge
Administration Charge
Contingent Deferred Sales Charge
Premium Taxes
OPTIONAL CONTRACT BENEFITS, CHARGES AND
DEDUCTIONS..................................16
Death Benefit Options
CONTRACT OWNERSHIP...............................17
Joint Ownership
Contingent Ownership
Annuitant
Beneficiary and Contingent Beneficiary
OPERATION OF THE CONTRACT........................18
Minimum Initial and Subsequent Purchase
Payments
Pricing
Allocation of Purchase Payments
Determining the Contract Value
Transfers Prior to Annuitization
Transfers After Annuitization
Transfer Requests
RIGHT TO REVOKE..................................21
SURRENDER (REDEMPTION)...........................22
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...................................23
Minimum and Maximum Loan Amounts
Loan Processing Fee
How Loan Requests are Processed
Interest
Loan Repayment
Distributions and Annuity Payments
Transferring the Contract
Grace Period and Loan Default
ASSIGNMENT.......................................25
CONTRACT OWNER SERVICES..........................25
Asset Rebalancing
Dollar Cost Averaging
Systematic Withdrawals
ANNUITY COMMENCEMENT DATE........................27
ANNUITIZING THE CONTRACT.........................27
Annuitization Date
Annuitization
Fixed Payment Annuity
Variable Payment Annuity
Frequency and Amount of Annuity Payments
Annuity Payment Options
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DEATH BENEFITS...................................29
Death of Contract Owner - Non-Qualified
Contracts
Death of Annuitant - Non-Qualified
Contracts
Death of Contract Owner/Annuitant
Death Benefit Payment
REQUIRED DISTRIBUTIONS...........................31
Required Distributions for Non-Qualified
Contracts
Required Distributions for Tax Sheltered
Annuities
Required Distributions for Individual
Retirement Annuities
Required Distributions for Roth IRAs
FEDERAL TAX CONSIDERATIONS.......................34
Federal Income Taxes
Withholding
Non-Resident Aliens
Federal Estate, Gift, and Generation
Skipping Transfer Taxes
Charge for Tax
Diversification
Tax Changes
STATEMENTS AND REPORTS...........................38
LEGAL PROCEEDINGS................................39
ADVERTISING AND SUB-ACCOUNT PERFORMANCE
SUMMARY.....................................40
Advertising
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL
INFORMATION.................................43
APPENDIX A: OBJECTIVES FOR UNDERLYING MUTUAL
FUNDS.......................................44
APPENDIX B: CONDENSED FINANCIAL INFORMATION......47
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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 under the contract; 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 6%
- -------------------------------- ------------------------
2 5%
- -------------------------------- ------------------------
3 4%
- -------------------------------- ------------------------
4 3%
- -------------------------------- ------------------------
5 2%
- -------------------------------- ------------------------
6 1%
- -------------------------------- ------------------------
7 0%
- -------------------------------- ------------------------
(1) Each contract year, the contract owner may withdraw without a CDSC the
greater of:
a) 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 as Tax Sheltered Annuities
due to Internal Revenue Code restrictions.
VARIABLE ACCOUNT CHARGES(2)
(as a percentage of daily net assets of the variable account)
Mortality and Expense Risk Charge.............1.25%
Administration Charge.........................0.15%
Total Variable Account Charges...........1.40%(3)
(2) These charges apply only to sub-account allocations. They do not apply to
allocations made to the fixed account. They are charged on a daily basis at
the annual rate noted above.
(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 permit Nationwide to assess a loan processing fee (see "Loan Privilege").
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ADDITIONAL CONTRACT OPTIONS
For an additional charge, the following death benefit options are available to
contract owners. Such options must be elected at the time of application and
will replace the Five-Year Reset Death Benefit that is standard to every
contract.
Charges for the optional death benefits are IN ADDITION TO the standard variable
account charges. The optional death benefit charges will only apply to
allocations made to the variable account and are charged as a percentage of the
average variable account value. They are charged on a daily basis at the annual
rate noted below.
OPTIONAL DEATH BENEFITS
An applicant may choose among the following death benefits as a replacement for
the death benefits instead of the Five-Year Reset Death Benefit that is standard
to every contract.
The optional death benefits are:
Optional Long Term
Care Facility and One-Year Step Up
Death Benefit................................0.05%
Total Variable Account Charges
(including One-Year Step Up
Death Benefit).............................1.45%
Optional Long Term
Care Facility and 5% Enhanced Death
Benefit......................................0.10%
Total Variable Account Charges
(including 5% Enhanced Death
Benefit)...................................1.50%
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<TABLE>
<CAPTION>
UNDERLYING MUTUAL FUND ANNUAL EXPENSES
(AS A PERCENTAGE OF UNDERLYING MUTUAL FUND NET ASSETS, AFTER EXPENSE REIMBURSEMENT)
- --------------------------------------------------------------------------------------------------------------------
Management Other 12b-1 Total Mutual
Fees Expenses Fees Fund Expenses
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
VIP Equity-Income Portfolio 0.48% 0.08% 0.00% 0.56%
- --------------------------------------------------------------------------------------------------------------------
VIP Growth Portfolio 0.58% 0.07% 0.00% 0.65%
- --------------------------------------------------------------------------------------------------------------------
VIP High Income Portfolio 0.58% 0.11% 0.00% 0.69%
- --------------------------------------------------------------------------------------------------------------------
VIP Money Market Portfolio 0.18% 0.09% 0.00% 0.27%
- --------------------------------------------------------------------------------------------------------------------
VIP Overseas Portfolio 0.73% 0.14% 0.00% 0.87%
- --------------------------------------------------------------------------------------------------------------------
VIP II Asset Manager Portfolio 0.53% 0.09% 0.00% 0.62%
- --------------------------------------------------------------------------------------------------------------------
VIP II Asset Manager: Growth Portfolio 0.58% 0.12% 0.00% 0.70%
- --------------------------------------------------------------------------------------------------------------------
VIP II Contrafund(R)Portfolio 0.58% 0.07% 0.00% 0.65%
- --------------------------------------------------------------------------------------------------------------------
VIP II Investment Grade Bond Portfolio 0.43% 0.11% 0.00% 0.54%
- --------------------------------------------------------------------------------------------------------------------
VIP II Index 500 Portfolio 0.24% 0.04% 0.00% 0.28%
- --------------------------------------------------------------------------------------------------------------------
VIP III Balanced Portfolio 0.43% 0.12% 0.00% 0.55%
- --------------------------------------------------------------------------------------------------------------------
VIP III Growth & Income Portfolio 0.48% 0.11% 0.00% 0.59%
- --------------------------------------------------------------------------------------------------------------------
VIP III Growth Opportunities Portfolio 0.58% 0.10% 0.00% 0.68%
- --------------------------------------------------------------------------------------------------------------------
</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 in calculating 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>
VIP Equity-Income Portfolio 0.48% 0.09% 0.00% 0.57%
- --------------------------------------------------------------------------------------------------------------------
VIP Growth Portfolio 0.58% 0.08% 0.00% 0.66%
- --------------------------------------------------------------------------------------------------------------------
VIP Overseas Portfolio 0.73% 0.18% 0.00% 0.91%
- --------------------------------------------------------------------------------------------------------------------
VIP II Asset Manager Portfolio 0.53% 0.10% 0.00% 0.63%
- --------------------------------------------------------------------------------------------------------------------
VIP II Asset Manager Growth Portfolio 0.58% 0.13% 0.00% 0.71%
- --------------------------------------------------------------------------------------------------------------------
VIP II Contrafund(R)Portfolio 0.58% 0.09% 0.00% 0.67%
- --------------------------------------------------------------------------------------------------------------------
VIP II Index 500 Portfolio 0.24% 0.10% 0.00% 0.34%
- --------------------------------------------------------------------------------------------------------------------
VIP III Balanced Portfolio 0.43% 0.14% 0.00% 0.57%
- --------------------------------------------------------------------------------------------------------------------
VIP III Growth & Income Portfolio 0.48% 0.12% 0.00% 0.60%
- --------------------------------------------------------------------------------------------------------------------
VIP III Growth Opportunities Portfolio 0.58% 0.11% 0.00% 0.69%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
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EXAMPLE
The following chart shows the 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 assumed variable account charge is
1.55% which includes the optional 5% Enhanced Death Benefit.
For those contracts that do not elect the 5% Enhanced Death Benefit, the
expenses are reduced. Deductions for premium taxes are not reflected but may
apply.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
If you surrender your contract If you do not surrender your If you annuitize your contract
at the end of the applicable contract at the end of the at the end of the applicable
time period applicable time period time period
- --------------------------------------------------------------------------------------------------------------------------
1 Yr. 3 Yrs. 5 Yrs. 10 Yrs. 1 Yr. 3 Yrs 5 Yrs. 10 Yrs. 1 Yr. 3 Yrs. 5 Yrs. 10 Yrs.
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
VIP Equity-Income Portfolio 86 116 149 262 23 71 122 262 * 71 122 262
- --------------------------------------------------------------------------------------------------------------------------
VIP Growth Portfolio 87 119 154 272 24 74 127 272 * 74 127 272
- --------------------------------------------------------------------------------------------------------------------------
VIP High Income Portfolio 88 121 156 276 25 76 129 276 * 76 129 276
- --------------------------------------------------------------------------------------------------------------------------
VIP Money Market Portfolio 83 107 134 231 20 62 107 231 * 62 107 231
- --------------------------------------------------------------------------------------------------------------------------
VIP Overseas Portfolio 89 126 156 294 26 81 139 294 * 81 139 294
- --------------------------------------------------------------------------------------------------------------------------
VIP II Asset Manager 87 118 153 268 24 73 126 268 * 73 126 268
Portfolio
- --------------------------------------------------------------------------------------------------------------------------
VIP II Asset Manager: Growth 88 121 157 277 25 76 130 277 * 76 130 277
Portfolio
- --------------------------------------------------------------------------------------------------------------------------
VIP II Contrafund(R) Portfolio 87 119 154 272 24 74 127 272 * 74 127 272
- --------------------------------------------------------------------------------------------------------------------------
VIP II Investment Grade Bond 86 116 148 260 23 71 121 260 * 71 121 260
Portfolio
- --------------------------------------------------------------------------------------------------------------------------
VIP II Index 500 Portfolio 83 108 135 232 20 63 108 232 * 63 108 232
- --------------------------------------------------------------------------------------------------------------------------
VIP III Balanced Portfolio 86 116 149 261 23 71 122 261 * 71 122 261
- --------------------------------------------------------------------------------------------------------------------------
VIP III Growth & Income 87 117 151 265 24 72 124 265 * 72 124 265
Portfolio
- --------------------------------------------------------------------------------------------------------------------------
VIP III Growth Opportunities 87 120 156 275 24 75 129 275 * 75 129 275
Portfolio
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
*The contracts sold under this prospectus do not permit annuitization during the
first two contract years.
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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
references to "contract owner" will mean "participant."
The contracts can be categorized as:
o Non-Qualified;
o 401(a) Investment-only;
o IRAs, with contributions rolled over or transferred from certain
tax-qualified plans
o Roth IRAs; or
o Tax Sheltered Annuities, with contributions rolled over or transferred
from other Tax Sheltered Annuity plans.
For more detailed information with regard to differences in contract types,
please see "Types of Contracts" later in the prospectus.
MINIMUM INITIAL AND SUBSEQUENT PURCHASE PAYMENTS
- -------------------- ----------------- ------------------
MINIMUM INITIAL MINIMUM
CONTRACT PURCHASE SUBSEQUENT
TYPE PAYMENT PAYMENTS
- -------------------- ----------------- ------------------
Non-Qualified $15,000 $1,000
- -------------------- ----------------- ------------------
401(a)
Investment-only $15,000 $1,000
- -------------------- ----------------- ------------------
IRA $15,000 $1,000
- -------------------- ----------------- ------------------
Roth IRA $15,000 $1,000
- -------------------- ----------------- ------------------
Tax Sheltered $15,000 $1,000
Annuity
- -------------------- ----------------- ------------------
CHARGES AND EXPENSES
Nationwide deducts a mortality and expense risk charge equal to an annual rate
of 1.25% of the daily net assets of the variable account. Nationwide assesses
this charge in return for bearing certain mortality and expense risks.
Nationwide deducts an administration charge equal to an annual rate of 0.15% of
the daily net assets of the variable account. Nationwide assesses this charge
for reimbursement of administrative expenses relating to contract issuance and
maintenance.
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.
Two optional death benefits are available under the contract. Nationwide will
deduct 0.05% if the One-Year Step Up Death Benefit is elected, or 0.10% if the
5% Enhanced Death Benefit is elected.
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 and the
purpose for which the contract is purchased. 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 other amounts 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.
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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 variable
account charges, which may vary from contract to contract (for more information
on the calculation of accumulation unit values, see "Variable Payment Annuity").
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.
TYPES OF CONTRACTS
The contracts described in this prospectus are classified according to the tax
treatment they are subject to under the Internal Revenue Code. The following is
a general description of the various types of contracts. Eligibility
requirements, tax benefits (if any), limitations, and other features of the
contracts will differ depending on the type of contract.
NON-QUALIFIED ANNUITY CONTRACTS
A Non-Qualified Annuity Contract is a contract that does not qualify for certain
tax benefits under the Internal Revenue Code, and which is not an IRA, a Roth
IRA or a Tax Sheltered Annuity.
Upon the death of the owner of a Non-Qualified Annuity Contract, mandatory
distribution requirements are imposed to ensure distribution of the entire
balance in the contract within a required period.
Non-Qualified Annuity contracts that are owned by natural persons allow for the
deferral of taxation on the income earned in the contract until it is
distributed or deemed to be distributed.
INDIVIDUAL RETIREMENT ANNUITIES (IRAS)
Individual Retirement Annuities are contracts that are issued by insurance
companies and satisfy the following requirements:
o the contract is not transferable by the owner;
o the premiums are not fixed;
o the annual premium cannot exceed $2,000 (although rollovers of greater
amounts from qualified plans, tax-sheltered annuities and other IRAs can
be received);
o certain minimum distribution requirements must be satisfied after the
owner attains the age of 70 1/2;
o the entire interest of the owner in the contract is nonforfeitable; and
o after the death of the owner, additional distribution requirements may be
imposed to ensure distribution of the entire balance in the contract
within the statutory period of time.
Depending on the circumstance of the owner, all or a portion of the
contributions made to the account may be deducted for federal income tax
purposes.
Failure to make the mandatory distributions can result in an additional penalty
tax of 50% of the excess of the amount required to be distributed over the
amount that was actually distributed.
IRAs may receive rollover contributions from other Individual Accounts and
Individual Annuities, from Tax Sheltered Annuities, and from qualified
retirement plans, including 401(k) plans.
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<PAGE> 12
For further details regarding IRAs, please refer to the disclosure statement
provided when the IRA was established.
ROTH IRAS
Roth IRA contracts are contracts that are issued by insurance companies and
satisfy the following requirements:
o the contract is not transferable by the owner;
o the premiums are not fixed;
o the annual premium cannot exceed $2,000 (although rollovers of greater
amounts from other Roth IRAs and IRAs can be received);
o the entire interest of the owner in the contract is nonforfeitable; and
o after the death of the owner, certain distribution requirements may be
imposed to ensure distribution of the entire balance in the contract
within the statutory period of time.
A Roth IRA can receive a rollover from an IRA; however, the amount rolled over
from the IRA to the Roth IRA is required to be included in the owner's federal
gross income at the time of the rollover, and will be subject to federal income
tax.
There are income limitations on eligibility to participate in a Roth IRA and
additional income limitations for eligibility to roll over amounts from an IRA
to a Roth IRA. For further details regarding Roth IRAs, please refer to the
disclosure statement provided when the Roth IRA was established.
TAX SHELTERED ANNUITIES
Certain tax-exempt organizations (described in section 501(c)(3) of the Internal
Revenue Code) and public school systems may establish a plan under which annuity
contracts can be purchased for their employees. These annuity contracts are
often referred to as Tax Sheltered Annuities.
Purchase payments made to Tax Sheltered Annuities are excludible from the income
of the employee, up to statutory maximum amounts. These amounts should be set
forth in the plan adopted by the employer.
The owner's interest in the contract is nonforfeitable (except for failure to
pay premiums) and cannot be transferred. Certain minimum distribution
requirements must be satisfied after the owner attains the age of 70 1/2, and
after the death of the owner, additional distribution requirements may be
imposed to ensure distribution of the entire balance in the contract within the
statutory period of time.
INVESTING IN THE CONTRACT
THE VARIABLE ACCOUNT AND UNDERLYING MUTUAL FUNDS
Nationwide Fidelity Advisor Variable Account is a variable account that invests
in the underlying mutual funds listed in Appendix A. Nationwide established the
variable account on July 22, 1994, pursuant to Ohio law. Although the variable
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, each corresponding to a
single underlying mutual fund. Nationwide uses the assets of each sub-account to
buy shares of the underlying mutual funds based on contract owner instructions.
There are two sub-accounts for each underlying mutual fund. One sub-account
contains shares attributable to accumulation units under Non-Qualified
Contracts. The other contains shares attributable to accumulation units under
IRAs,
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Investment-only Contracts, 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.
No substitution, elimination, or combination of shares may take place without
the prior approval of the SEC.
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THE FIXED ACCOUNT
The fixed account is an investment option that is funded by assets of
Nationwide's general account. The general account contains all of Nationwide's
assets other than those in other Nationwide separate accounts. It is used to
support Nationwide's annuity and insurance obligations and may contain
compensation for mortality and expense risks. The general account is not subject
to the same laws as the variable account and the SEC has not reviewed material
in this prospectus relating to the fixed account. However, information relating
to the fixed account is subject to federal securities laws relating to accuracy
and completeness of prospectus disclosure.
Purchase payments will be allocated to the fixed account by election of the
contract owner.
The investment income earned by the fixed account will be allocated to the
contracts at varying guaranteed interest rates(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 mutual funds in the variable account to the fixed account may
receive a different rate. The rate may be lower than the New Money Rate.
There may be limits on the amount and frequency of movements from the
variable account to the fixed account.
o Renewal Rate - The rate available for maturing fixed account allocations
that 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 underlying mutual fund options.
o Dollar Cost Averaging - 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 which the 12 month anniversary of 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
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annual rate of 1.25% of the daily net assets of the variable account.
The mortality risk charge (0.80%) compensates Nationwide for guaranteeing the
annuity purchase rates of the contracts. This guarantee ensures that the annuity
purchase rates will not change regardless of the death rates of annuity payees
or the general population. The mortality risk charge also compensates Nationwide
for risks assumed in connection with the standard death benefit, but only
partially compensates Nationwide in connection with the two optional death
benefits, for which there are separate charges.
The expense risk charge (0.45%) compensates Nationwide for guaranteeing that
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.
ADMINISTRATION CHARGE
Nationwide deducts an administration charge from the variable account. This
amount is computed on a daily basis and is equal to an annual rate of 0.15% of
the daily net assets of the variable account.
The administration charge compensates Nationwide for expenses related to
contract issuance and maintenance.
If this charge is insufficient to cover actual expenses, the loss is borne by
Nationwide.
CONTINGENT DEFERRED SALES CHARGE
No sales charge deduction is made from the purchase payments when amounts are
deposited into the contracts. However, if any part of the contract is
surrendered, Nationwide will deduct a CDSC. The CDSC will not exceed 7% of
purchase payments surrendered.
The CDSC is calculated by multiplying the applicable CDSC percentage (noted
below) by the amount of purchase payments surrendered.
For purposes of calculating the CDSC, surrenders are considered to come first
from the oldest purchase payment made to the contract, then the next oldest
purchase payment, and so forth. Earnings are not subject to the CDSC, but may
not be distributed prior to the distribution of all purchase payments. (For tax
purposes, a surrender is usually treated as a withdrawal of earnings first.)
The CDSC applies as follows:
- ----------------------------- ---------------------------
Number of Years from Date CDSC
of Purchase Payment Percentage
- ----------------------------- ---------------------------
0 7%
- ----------------------------- ---------------------------
1 6%
- ----------------------------- ---------------------------
2 5%
- ----------------------------- ---------------------------
3 4%
- ----------------------------- ---------------------------
4 3%
- ----------------------------- ---------------------------
5 2%
- ----------------------------- ---------------------------
6 1%
- ----------------------------- ---------------------------
7 0%
- ----------------------------- ---------------------------
The CDSC is used to cover sales expenses, including commissions (maximum of
6.25% of purchase payments), production of sales material, and other promotional
expenses. If expenses are greater than the CDSC, the shortfall will be made up
from Nationwide's general account, which may indirectly include portions of the
variable account charges, since Nationwide may generate a profit from these
charges.
All or a portion of any withdrawal may be subject to federal income taxes.
Contract owners taking withdrawals prior to age 59 1/2 may be subject to a 10%
penalty tax.
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;
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(2) upon payment of a death benefit; or
(3) from any values which have been held under a contract for at least 7
years.
No CDSC applies to transfers among sub-accounts or between or among the fixed
account and 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
5.0%. 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.
OPTIONAL CONTRACT BENEFITS, CHARGES AND DEDUCTIONS
DEATH BENEFIT OPTIONS
For contracts issued on or after the later of November 3, 1997 or the date on
which state insurance authorities approve contract modifications, if the
contract owner chooses an optional death benefit, Nationwide will deduct a
charge equal to an annual rate of either 0.05% or 0.10% of the daily net assets
of the variable account, depending upon the options chosen. Further information
about these benefits can be found in the "Death Benefit Payment" provision. All
of the following death benefit options may not be available in every state.
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
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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
on withdrawals 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.
For those contracts that have a non-natural person as contract owner (e.g. a
trust or corporation) for the benefit of 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 has NOT been established for the
benefit of 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.
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 Nationwide will not be liable for any loss, liability, cost, or expense
for acting in accordance with the instructions of either joint owner; and
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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.
CONTINGENT OWNERSHIP
The contingent owner is entitled to certain benefits under the contract, if a
contract owner who is NOT the annuitant dies before the annuitization date, and
there is no surviving joint owner.
The contract owner may name or change a contingent owner at any time before the
annuitization date. To change the contingent owner, a written request must be
submitted to Nationwide. Once Nationwide has recorded the change, it will be
effective as of the date it was signed, whether or not the contract owner was
living at the time it was recorded. The change will not affect any action taken
by Nationwide before the change was recorded.
ANNUITANT
The annuitant is the person 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, 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 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(ies) or contingent
beneficiary(ies) 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 SUBSEQUENT
TYPE PAYMENT PAYMENTS
- -------------------- ----------------- ------------------
Non-Qualified $15,000 $1,000
- -------------------- ----------------- ------------------
401(a) $15,000 $1,000
Investment-only
- -------------------- ----------------- ------------------
IRA $15,000 $1,000
- -------------------- ----------------- ------------------
Roth IRA $15,000 $1,000
- -------------------- ----------------- ------------------
Tax Sheltered $15,000 $1,000
Annuity
- -------------------- ----------------- ------------------
Subsequent purchase payments are not permitted in the State of New York.
PRICING
Initial purchase payments allocated to sub-accounts will be priced at the
accumulation unit value determined no later than 2 business days after receipt
of an order to purchase if the application and all necessary information are
complete. If the application is not complete, Nationwide may retain a purchase
payment for up to 5 business days while attempting to complete it. If the
application is not completed within 5 business days, the prospective purchaser
will be informed of the reason for the delay. The purchase payment will be
returned unless the prospective purchaser specifically allows Nationwide to hold
the purchase payment until the application is completed.
Subsequent purchase payments will be priced based on the next available
accumulation unit value after the payment is received. The cumulative total of
all purchase payments under contracts issued by Nationwide the life of any one
annuitant cannot exceed $1,000,000 without Nationwide's prior consent.
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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 will
not have access to their account.
ALLOCATION OF PURCHASE PAYMENTS
Nationwide allocates purchase payments to sub-accounts and/or the fixed account
as instructed by the contract owner. Shares of the underlying mutual funds
allocated to the sub-accounts are purchased at net asset value, then converted
into accumulation units. Contract owners can change allocations or make
exchanges among the sub-accounts and the fixed account. However, no change may
be made that would result in an amount less than 1% of the purchase payments
being allocated to any sub-account. 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; and
(2) amounts allocated to the fixed account.
If part or all of the contract value is surrendered, or charges are assessed
against the whole contract value, Nationwide will deduct a proportionate amount
from each sub-account and the fixed account based on current cash values.
Determining Variable Account Value - Valuing an Accumulation Unit
Purchase payments or transfers allocated to sub-accounts are accounted for in
accumulation units. Accumulation unit values (for each sub-account) are
determined by calculating the net investment factor for the underlying mutual
funds for the current valuation period and multiplying that result with the
accumulation unit values determined on the previous valuation period.
Nationwide uses the net investment factor as a way to calculate the investment
performance of a sub-account from valuation period to valuation period. For each
sub-account, the net investment factor shows the investment performance of the
underlying mutual fund in which a particular sub-account invests, including the
charges assessed against that sub-account for a valuation period.
The net investment factor for any particular sub-account is determined by
dividing (a) by (b), and then subtracting (c) from the result, where:
(a) is:
(1) the net asset value of the underlying mutual fund as of the end of
the current valuation period; and
(2) the per share amount of any dividend or income distributions made
by the underlying mutual fund (if the
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ex-dividend date occurs during the current valuation period);
(b) is the net asset value of the underlying mutual fund determined as of
the end of the preceding valuation period; 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 1.40% to 1.55% 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.
TRANSFERS PRIOR TO ANNUITIZATION
Transfers from the Fixed Account to the Variable Account
Fixed account allocations may be transferred to the variable account only upon
reaching the end of an interest rate guarantee period. Normally, Nationwide will
permit 100% of such fixed account allocations to be transferred to the variable
account; however Nationwide may, under certain economic conditions and at its
discretion, limit the maximum transferable amount. Under no circumstances will
the maximum transferable amount be less than 10% of the fixed account allocation
reaching the end of an interest rate guarantee period. Transfers of the fixed
account allocations must be made within 45 days after reaching the end of an
interest rate guarantee period.
Contract owners who use dollar cost averaging may transfer from the fixed
account to the variable account under the terms of that program (see "Dollar
Cost Averaging").
Transfers to the Fixed Account
Variable account allocations may be transferred to the fixed account at any
time. Normally, Nationwide will not restrict transfers from the variable account
to the fixed account; however, Nationwide may establish a maximum transfer limit
from the variable account to the fixed account. Except as noted below, under no
circumstances will the transfer limit be less than 10% of the current value of
the variable account, less any transfers made in the 12 months preceding the
date the transfer is requested, but not including transfers made prior to the
imposition of the transfer limit. However, where permitted by state law,
Nationwide reserves the right to refuse transfers or purchase payments to the
fixed account 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 Among the Sub-Accounts
Allocations may be transferred among the sub-accounts once per valuation date.
TRANSFERS AFTER ANNUITIZATION
After annuitization, transfers may only be made on the anniversary of the
annuitization period.
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
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for following telephone instructions that it reasonably determined to be
genuine. Nationwide may withdraw the telephone exchange privilege upon 30 days
written notice to contract owners.
Amounts transferred to the variable account will receive the accumulation unit
value next determined after the transfer request is received.
Interest Rate Guarantee Period
The interest rate guarantee period is the period of time that the fixed account
interest rate is guaranteed to remain the same. Within 45 days of the end of an
interest rate guarantee period, transfers may be made from the fixed account to
the variable account. Nationwide will determine the amount that may be
transferred and will declare this amount at the end of the guarantee period.
This amount will not be less than 10% of the amount in the fixed account that is
maturing.
For new purchase payments allocated to the fixed account, or transfers to the
fixed account from the variable account, this period begins on the date of
deposit or transfer and ends on the one year anniversary of the deposit or
transfer. The guaranteed interest rate period may last for up to 3 months beyond
the 1-year anniversary because guaranteed terms end on the last day of a
calendar quarter.
During an interest rate guarantee period, transfers cannot be made from the
fixed account, and amounts transferred to the fixed account must remain on
deposit.
Market Timing Firms
Some contract owners may use market timing firms or other third parties to make
transfers on their behalf. Generally, in order to take advantage of perceived
market trends, market timing firms will submit transfer or exchange requests on
behalf of multiple contract owners at the same time. Sometimes this can result
in unusually large transfers of funds. These large transfers might interfere
with the ability of Nationwide or the underlying mutual fund to process
transactions. This can potentially disadvantage contract owners not using market
timing firms. To avoid this, Nationwide may modify transfer and exchange rights
of contract owners who use market timing firms (or other third parties) to
transfer or exchange funds on their behalf.
The exchange and transfer rights of individual contract owners will not be
modified in any way when instructions are submitted directly by the contract
owner, or by the contract owner's representative (as authorized by the execution
of a valid Nationwide Limited Power of Attorney Form).
To protect contract owners, Nationwide may refuse exchange and transfer
requests:
o submitted by any agent acting under a power of attorney on behalf of more
than one contract owner; or
o submitted on behalf of individual contract owners who have executed
pre-authorized exchange forms which are submitted by market timing firms
(or other third parties) on behalf of more than one contract owner at the
same time.
Nationwide will not restrict exchange rights unless Nationwide believes it to be
necessary for the protection of all contract owners.
RIGHT TO REVOKE
Contract owners have a ten day "free look" to examine the contract. The contract
may be returned to Nationwide's home office for any reason within ten days of
receipt and Nationwide will refund the contract value or another amount required
by law. All IRA and Roth IRA refunds will be a return of purchase payments. The
refunded contract value will reflect the deduction of any contract charges,
unless otherwise required by law. 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
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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. The amount withdrawn from each investment option will be
in proportion to the value in each option at the time of the surrender request.
A CDSC may apply. The contract owner may direct Nationwide to deduct the CDSC
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
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.
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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
(described in Section 403(b)(7) of the Internal Revenue Code), may be
surrendered only:
1. when the contract owner reaches age 59 1/2, separates from service, dies,
or becomes disabled (within the meaning of Internal Revenue Code Section
72(m)(7)); or
2. in the case of hardship (as defined for purposes of Internal Revenue Code
Section 401(k)), provided that any such hardship surrender may NOT include
any income earned on salary reduction contributions.
B. The surrender limitations described in Section A also apply to:
1. salary reduction contributions to Tax Sheltered Annuities made for plan
years beginning after December 31, 1988;
2. earnings credited to such contracts after the last plan year beginning
before January 1, 1989, on amounts attributable to salary reduction
contributions; and
3. all amounts transferred from 403(b)(7) custodial accounts (except that
earnings and employer contributions as of December 31, 1988 in such
custodial accounts may be withdrawn in the case of hardship).
C. Any distribution other than the above, including a ten day free look
cancellation of the contract (when available) may result in taxes, penalties,
and/or retroactive disqualification of a Qualified Contract or Tax Sheltered
Annuity.
In order to prevent disqualification of a Tax Sheltered Annuity after a ten day
free look cancellation, Nationwide will transfer the proceeds to another Tax
Sheltered Annuity upon proper direction by the contract owner.
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 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 AND MAXIMUM LOAN AMOUNTS
Contract owners may borrow a minimum of $1,000, 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:
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- ---------------- ------------ ---------------------------
CONTRACT MAXIMUM OUTSTANDING
VALUES LOAN 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 and the fixed account 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. No CDSC
will be deducted on transfers related to loan processing.
INTEREST
The outstanding loan balance in the collateral fixed account is credited with
interest until the loan is repaid in full. The interest rate will be 2.25% less
than the loan interest rate fixed by Nationwide. The interest rate is guaranteed
never to fall below 3.0%.
Specific loan terms are disclosed at the time of loan application or issuance.
LOAN REPAYMENT
Loans must be repaid in five years. However, if the loan is used to purchase the
contract owner's principal residence, the contract owner has 15 years to repay
the loan.
Contract owners must identify loan repayments as loan repayments or they will be
treated as purchase payments and will not reduce the outstanding loan. Payments
must be substantially level and made at least quarterly.
Loan repayments will consist of principal and interest in amounts set forth in
the loan agreement. Repayments are allocated to the sub-accounts in accordance
with the contract, unless Nationwide and the contract owner have agreed to amend
the contract at a later date on a case by case basis.
DISTRIBUTIONS AND 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 AND 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.
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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, IRAs, Roth 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. Requests for asset rebalancing
must be on a Nationwide form.
Asset rebalancing occurs every three months or on another frequency if permitted
by Nationwide. If the last day of the three-month period falls on a Saturday,
Sunday, recognized holiday, or any other day when the New York Stock Exchange is
closed, asset rebalancing will occur on the next business day.
Asset rebalancing may be subject to employer limitations or restrictions for
contracts issued to a 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 certain sub-accounts and/or the fixed account into other
sub-accounts. 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, the VIP High Income Portfolio and the VIP Money Market
Portfolio to any other underlying mutual fund.
Transfers occur monthly or on another frequency if permitted by Nationwide.
Nationwide will process transfers until either
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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.
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 that follows:
- ----------------------------- -----------------------
CONTRACT OWNER'S PERCENTAGE OF
AGE CONTRACT VALUE
- ----------------------------- -----------------------
Under age 59 1/2 5%
- ----------------------------- -----------------------
Age 59 1/2through 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 exceed 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
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<PAGE> 27
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, annuitization may occur during the first 2 years subject to
Nationwide's approval.
ANNUITIZATION
Annuitization is the period during which annuity payments are received. It is
irrevocable once payments have begun. Upon arrival of the annuitization date,
the annuitant must choose:
(1) an annuity payment option; and
(2) either a fixed payment annuity, variable payment annuity, or an available
combination.
Nationwide guarantees that each payment under a fixed payment annuity will be
the same throughout annuitization. Under a variable payment annuity, the amount
of each payment will vary with the performance of the underlying mutual funds
chosen by the contract owner.
FIXED PAYMENT ANNUITY
A fixed payment annuity is an annuity where the amount of the annuity payment
remains level.
The first payment under a fixed payment annuity is determined on the
annuitization date on an "age last birthday" basis by:
(1) deducting applicable premium taxes from the total contract value; then
(2) applying the contract value amount specified by the contract owner to the
fixed payment annuity table for the annuity payment option elected.
Subsequent payments will remain level unless the annuity payment option elected
provides otherwise. Nationwide does not credit discretionary interest during
annuitization.
VARIABLE PAYMENT ANNUITY
A variable payment annuity is an annuity where the amount of the annuity
payments will vary depending on the performance of the underlying mutual funds
selected.
The first payment under a variable payment annuity is determined on the
annuitization date on an "age last birthday" basis by:
(1) deducting applicable premium taxes from the total contract value; then
(2) applying the contract value amount specified by the contract owner to the
variable payment annuity table for the annuity payment option elected.
The dollar amount of the first payment is converted into a set number of annuity
units that will represent each monthly payment. This is done by dividing the
dollar amount of the first payment by the value of an annuity unit as of
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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 fund 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 the Underlying Mutual Funds
Exchanges among underlying mutual funds during annuitization must be in writing.
Exchanges may only be made on each anniversary of the annuitization date.
FREQUENCY AND AMOUNT OF ANNUITY PAYMENTS
Payments are made based on the annuity payment option selected, unless:
o the amount to be distributed is less than $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.
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.
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(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. IRAs and Tax Sheltered Annuities are subject to
the "minimum distribution" requirements set forth in the plan, contract and the
Internal Revenue Code.
DEATH BENEFITS
DEATH OF CONTRACT OWNER - NON-QUALIFIED CONTRACTS
If the contract owner who is not the annuitant dies before the annuitization
date, the joint owner becomes the contract owner. If no joint owner is named,
the contingent owner becomes the contract owner. If no contingent owner is
named, the last surviving contract owner's estate becomes the contract owner.
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 beneficiary(ies) survives the annuitant, the contingent beneficiary(ies)
receives the death benefit. Contingent beneficiaries will share the death
benefit equally, unless otherwise specified.
If no beneficiary(ies) or contingent beneficiary(ies) survives 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.
If the contract owner/annuitant dies after the annuitization date, any benefit
that may be
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payable will be paid according to the selected annuity payment
option.
DEATH BENEFIT PAYMENT
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).
For contracts issued before the later of November 3, 1997 or the date state
insurance authorities approve contract modifications, if the annuitant dies
before his or her 86th birthday, the death benefit will be the greatest of:
1) the contract value;
2) the total of all purchase payments, less any amounts surrendered; or
3) the contract value as of the most recent five year contract anniversary,
less any amounts surrendered since that five year anniversary.
If the annuitant dies on or after his or her 86th birthday, the death benefit
will be the contract value.
For contracts issued on or after the later of November 3, 1997 or the date state
insurance authorities approve contract modifications, 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.
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.
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.
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).
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%
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interest anniversary value in the same proportion that the contract value
was reduced on the date(s) of the partial surrender(s).
Death Benefit After Annuitization Date
For any death benefit option, if the annuitant dies after the annuitization
date, payment will be determined based on the annuity payment option selected.
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; and
b) if the designated beneficiary is the surviving spouse of the deceased
contract owner, the spouse can choose to become the contract owner
instead of receiving a death benefit. Any distributions required
under these distribution rules will be made upon that spouse's death.
In the event that the contract owner is NOT a natural person, 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 withdrawn from another Tax Sheltered Annuity of the annuitant.
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If the annuitant's entire interest in a Tax Sheltered Annuity will be
distributed in equal or substantially equal payments over a period described in
a) or b), the payments will begin on the required beginning date. The required
beginning date is the later of:
a) April 1 of the calendar year following the calendar year in which the
annuitant reaches age 70 1/2; or
b) the annuitant's retirement date.
Provision b) does not apply to any employee who is a 5% owner (as defined in
Section 416 of the Internal Revenue Code) with respect to the plan year ending
in the calendar year when the employee attains the age of 70 1/2.
Distribution commencing on the required distribution date must satisfy 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
Distributions from an Individual Retirement Annuity must begin no later than
April 1 of the calendar year following the calendar year in which the contract
owner reaches age 70 1/2. Distribution may be paid in a lump sum or in
substantially equal payments over:
a) the contract owner's life or the lives of the contract owner and his or
her spouse or designated beneficiary; or
b) a period not longer than the life expectancy of the contract owner or
the joint life expectancy of the contract owner and the contract owner's
designated beneficiary.
If the contract owner dies before distributions begin, the interest in the
Individual Retirement Annuity 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 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 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)(1) 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 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 exceeds the nontaxable distributions for all years, and the total
balance of all Individual Retirement Annuities.
Individual Retirement Annuity distributions will not receive the favorable tax
treatment of a lump sum distribution from a Qualified Plan. If the contract
owner dies before the entire interest in the contract has been distributed, the
balance will also be included in his or her gross estate.
REQUIRED DISTRIBUTIONS FOR ROTH IRAS
The rules for Roth IRAs do not require distributions to begin during the
contract owner's lifetime.
When the contract owner dies, the interest in the Roth IRA must be distributed
by December 31 of the calendar year in which the fifth anniversary of his or her
death occurs, unless:
a) the contract owner names his or her surviving spouse as the beneficiary
and the spouse chooses to:
1) treat the contract as a Roth IRA established for his or her benefit;
or
2) receive distribution of the contract in substantially equal payments
over his or her life (or a period not longer than his or her life
expectancy) and beginning no later than December 31 of the year
following the year in which the contract owner would have reached age
70 1/2; or
b) the contract owner names a beneficiary other than his or her surviving
spouse and the beneficiary chooses to receive distribution of the
contract in substantially equal payments over his or her life (or a
period not longer than his or her life expectancy) beginning no later
than December 31 of the year following the year in which the contract
owner dies.
33
<PAGE> 34
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
The tax consequences of purchasing a contract described in this prospectus will
depend on:
o the type of contract purchased;
o the purposes for which the contract is purchased; and
o the personal circumstances of individual investors having interests in
the contracts.
See "Synopsis of the Contracts" for a brief description of the various types of
contracts and the different purposes for which the contracts may be purchased.
Existing tax rules are subject to change, and may affect individuals differently
depending on their situation. Nationwide does not guarantee the tax status of
any contracts or any transactions involving the contracts.
If the contract is purchased as an investment of certain retirement plans (such
as qualified retirement plans, Individual Retirement Accounts, and custodial
accounts as described in Sections 401, 408(a), and 403(b)(7) of the Internal
Revenue Code), tax advantages enjoyed by the contract owner and/or annuitant may
relate to participation in the plan rather than ownership of the annuity
contract. Such plans are permitted to purchase investments other than annuities
and retain tax-deferred status.
The following is a brief summary of some of the federal income tax
considerations related to the contracts. In addition to the federal income tax,
distributions from annuity contracts may be subject to state and local income
taxes. The tax rules across all states and localities are not uniform and
therefore will not be discussed in this prospectus. Tax rules that may apply to
contracts issued in U.S. territories such as Puerto Rico and Guam are also not
discussed. Nothing in this prospectus should be considered to be tax advice.
Contract owners and prospective contract owners are encouraged to consult a
financial consultant, tax advisor or legal counsel to discuss the taxation and
use of the contracts.
The Internal Revenue Code sets forth different income tax rules for the
following types of annuity contracts:
o Individual Retirement Annuities;
o Roth IRAs;
o Tax Sheltered Annuities; and
o "Non-Qualified Annuities."
Individual Retirement Annuities
Distributions from Individual Retirement Annuities are generally taxed when
received. If any of the amount contributed to the IRA was nondeductible for
federal income tax purposes, then a portion of each distribution is excludable
from income.
If distributions of income from an IRA are made prior to the date that the owner
attains the age of 59 1/2 years, the income is subject to both the regular
income tax and an additional penalty tax of 10%. The penalty tax can be avoided
if the distribution is:
o made to a beneficiary on or after the death of the owner;
o attributable to the owner becoming disabled (as defined in the Internal
Revenue Code);
o part of a series of substantially equal periodic payments made not less
frequently than annually made for the life (or life expectancy) of the
owner, or the joint lives (or joint life expectancies) of the owner and
his or her designated beneficiary;
o used for qualified higher education expenses; or
o used for expenses attributable to the purchase of a home for a qualified
first-time buyer.
34
<PAGE> 35
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:
o it is made on or after the date on which the contract owner attains age
59 1/2;
o it is made to a beneficiary (or the contract owner's estate) on or after
the death of the contract owner;
o it is attributable to the contract owner's disability; or
o it is used for expenses attributable to the purchase of a home for a
qualified first-time buyer.
The five year rule generally is satisfied if the distribution is not made within
the five taxable year period beginning with the first taxable year in which a
contribution is made to any Roth IRA established for the owner.
A qualified distribution is not included in gross income for federal income tax
purposes.
A non-qualified distribution is not includible in gross income to the extent
that the distribution, when added to all previous distributions, does not exceed
that total amount of contributions made to the Roth IRA. Any non-qualified
distribution in excess of the aggregate amount of contributions will be included
in the contract owner's gross income in the year that is distributed to the
contract owner.
Special rules apply for Roth IRAs that have proceeds received from a traditional
IRA prior to January 1, 1999 if the owner elected the special 4-year income
averaging provisions that were in effect for 1998.
If non-qualified distributions of income from a Roth IRA are made prior to the
date that the owner attains the age of 59 1/2 years, the income is subject to
both the regular income tax and an additional penalty tax of 10%. The penalty
tax can be avoided if the distribution is:
o made to a beneficiary on or after the death of the owner;
o attributable to the owner becoming disabled as defined in the Internal
Revenue Code;
o part of a series of substantially equal periodic payments made not less
frequently than annually made for the life (or life expectancy) of the
owner, or the joint lives (or joint life expectancies) of the owner and
his or her designated beneficiary;
o for qualified higher education expenses; or
o used for expenses attributable to the purchase of a home for a qualified
first-time buyer.
If the contract owner dies before the contract is completely distributed, the
balance may be included in the contract owner's gross estate for tax purposes.
Tax Sheltered Annuities
Distributions from Tax Sheltered Annuities are generally taxed when received. A
portion of each distribution is excludable from income based on a formula
established pursuant to the Internal Revenue Code. The formula excludes from
income the amount invested in the contract divided by the number of anticipated
payments until the full investment in the contract is recovered. Thereafter all
distributions are fully taxable.
If a distribution of income is made from a Tax Sheltered Annuity prior to the
date that the owner attains the age of 59 1/2 years, the income is subject to
both the regular income tax and an additional penalty tax of 10%. The penalty
tax can be avoided if the distribution is:
o made to a beneficiary on or after the death of the owner;
o attributable to the owner becoming disabled as defined in the Internal
Revenue Code;
o part of a series of substantially equal periodic payments made not less
frequently
35
<PAGE> 36
than annually made for the life (or life expectancy) of the owner, or the
joint lives (or joint life expectancies) of the owner and his or her
designated beneficiary;
o for qualified higher education expenses;
o used for expenses attributable to the purchase of a home for a qualified
first-time buyer; or
o made to the owner after separation from service with his or her employer
after age 55.
Non-Qualified Contracts - Natural Persons as Contract Owners
Generally, the income earned inside a Non-Qualified Annuity Contract that is
owned by a natural person is not taxable until it is distributed from the
contract.
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, any portion of the contract that is assigned or
pledged; or any portion of the contract that is 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.
With respect to annuity distributions on or after the annuitization date, a
portion of each annuity payment is excludable from taxable income. The amount
excludable is based on the ratio between the contract owner's investment in the
contract and the expected return on the contract. Once the entire investment in
the contract is recovered, all distributions are fully includable 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 as a result of the annuitant's death no more payments are due
under the contract, then the unrecovered investment in the contract may be
deducted on his or her final tax return.
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 the same calendar year will be treated as one annuity contract.
A special rule applies to distributions from contracts that have investments
that were made prior to August 14, 1982. For those contracts, distributions that
are made prior to the annuitization date 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 Internal Revenue Code imposes 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 is:
o the result of a contract owner's death;
o the result of a contract owner's disability, as defined in the Internal
Revenue Code;
o 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; or
o is allocable to an investment in the contract before August 14, 1982.
Non-Qualified Contracts - Non-Natural Persons as Contract Owners
The previous discussion related to the taxation of Non-Qualified Contracts owned
by individuals. Different rules (the so-called "non-natural persons" rules)
apply if the contract owner is not a natural person.
Generally, contracts owned by corporations, partnerships, trusts, and similar
entities are not treated as annuity contracts under the Internal Revenue Code.
Therefore, income earned under
36
<PAGE> 37
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. The
income is taxable as ordinary income, not capital gain.
The non-natural persons rules do not apply to all entity-owned contracts. A
contract that is owned by a non-natural person as an agent of an individual is
treated as owned by the individual. This would cause the contract to be treated
as an annuity under the Internal Revenue Code, 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 persons rules also do not apply to contracts that are:
o acquired by the estate of a decedent by reason of the death of the
decedent;
o issued in connection with certain qualified retirement plans and
individual retirement plans; or
o purchased by an employer upon the termination of certain qualified
retirement plans.
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. If the distribution is from a Tax Sheltered Annuity,
it will be subject to mandatory 20% withholding that cannot be waived, unless:
o the distribution is made directly to another Tax Sheltered Annuity or a
Traditional IRA; or
o the distribution satisfies the minimum distribution requirements imposed
by the Internal Revenue Code.
In addition, contract owners may not waive withholding if the distribution is
subject to mandatory back-up withholding (if no taxpayer identification number
is given or if the Internal Revenue Service notifies Nationwide that mandatory
back-up withholding is required). 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
37
<PAGE> 38
o a distribution to someone other than a contract owner.
Upon the contract owner's death, the value of the contract may subject to estate
taxes, even if all or a portion of the value is also subject to federal income
taxes.
Section 2612 of the Internal Revenue Code may require Nationwide to determine
whether a death benefit or other distribution is a "direct skip" and the amount
of the resulting generation skipping transfer tax, if any. A direct skip is when
property is transferred to, or a death benefit or other distribution is made to:
a) an individual who is two or more generations younger than the contract
owner; or
b) certain trusts, as described in Section 2613 of the Internal Revenue
Code (generally, trusts that have no beneficiaries who are not 2 or more
generations younger than the contract owner).
If the contract owner is not an individual, then for this purpose only,
"contract owner" refers to any person:
o who would be required to include the contract, death benefit,
distribution, or other payment in his or her federal gross estate at his
or her death; or
o who is required to report the transfer of the contract, death benefit,
distribution, or other payment for federal gift tax purposes.
If a transfer is a direct skip, Nationwide will deduct the amount of the
transfer tax from the death benefit, distribution or other payment, and remit it
directly to the Internal Revenue Service.
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
38
<PAGE> 39
averaging or salary reduction programs). Instead, confirmation of
recurring transactions will appear in the contract's quarterly
statements;
o semi-annual reports as of June 30 containing financial statements for
the variable account; and
o annual reports as of December 31 containing financial statements 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.
LEGAL PROCEEDINGS
Nationwide is a party to litigation and arbitration proceedings in the ordinary
course of its business, none of which is expected to have a material adverse
effect on Nationwide.
In recent years, life insurance companies have been named as defendants in
lawsuits, including class action lawsuits relating to life insurance and annuity
pricing and sales practices. A number of these lawsuits have resulted in
substantial jury awards or settlements.
In November 1997, two plaintiffs, one who was the owner of a variable life
insurance contract and the other who was the owner of a variable annuity
contract, commenced a lawsuit in a federal court in Texas against Nationwide and
the American Century group of defendants (Robert Young and David D. Distad v.
Nationwide Life Insurance Company et al.). In this lawsuit, plaintiffs sought to
represent a class of variable life insurance contract owners and variable
annuity contract owners whom they claim were allegedly misled when purchasing
these variable contracts into believing that the performance of their underlying
mutual fund option managed by American Century, whose shares may only be
purchased by insurance companies, would track the performance of a mutual fund,
also managed by American Century, whose shares are publicly traded. The amended
complaint seeks unspecified compensatory and punitive damages. On April 27,
1998, the District Court denied, in part, and granted, in part, motions to
dismiss the complaint filed by Nationwide and American Century. The remaining
claims against Nationwide allege securities fraud, common law fraud, civil
conspiracy, and breach of contract. The District Court, on December 2, 1998,
issued an order denying plaintiffs' motion for class certification and the
appeals court declined to review the order denying class certification upon
interlocutory appeal. On June 11, 1999, the District Court denied the
plaintiffs' motion to amend their complaint and reconsider class certification.
In January 2000 Nationwide and American Century settled this lawsuit now limited
to the claims of the two named plaintiffs. On February 9, 2000 the court
dismissed this lawsuit with prejudice.
On October 29, 1998, Nationwide was named in a lawsuit filed in Ohio state court
related to the sale of deferred annuity products for use as investments in
tax-deferred contributory retirement plans (Mercedes Castillo v. Nationwide
Financial Services, Inc., Nationwide Life Insurance Company and Nationwide Life
and Annuity Insurance Company). On May 3, 1999, the complaint was amended to,
among other things, add Marcus Shore as a second plaintiff. The amended
complaint is brought as a class action on behalf of all persons who purchased
individual deferred annuity contracts or participated in group annuity contracts
sold by Nationwide and the other named Nationwide affiliates which were used to
fund certain tax-deferred retirement plans. The amended complaint seeks
unspecified compensatory and punitive damages. No class has been certified. On
June 11, 1999, Nationwide and the other named defendants filed a motion to
dismiss the amended complaint. On March 8, 2000, the court denied the motion to
dismiss the amended complaint filed by Nationwide and other named
39
<PAGE> 40
defendants. 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 Fidelity 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 Fidelity
VIP Money Market Portfolio's units. Yield is an annualized figure, which means
that it is assumed that the Fidelity 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:
* Money;
* Forbes;
* Kiplinger's Personal Finance Magazine;
* Financial World;
* Consumer Reports;
* Business Week;
* Time;
* Newsweek;
* National Underwriter; and
* News and World Report;
o LIMRA;
o Value;
o Best's Agent Guide;
o Western Annuity Guide;
o Comparative Annuity Reports;
o Wall Street Journal;
o Barron's;
o Investor's Daily;
o Standard & Poor's Outlook; and
o Variable Annuity Research & Data Service (The VARDS Report).
These rating services and publications rank the underlying mutual funds'
performance against
40
<PAGE> 41
other funds. These rankings may or may not include the effects of sales charges
or other fees.
Financial Rating Services
Nationwide is also ranked and rated by independent financial rating services,
among which are Moody's, Standard & Poor's and A.M. Best Company. Nationwide may
advertise these ratings. These ratings reflect Nationwide's financial strength
or claims-paying ability. The ratings are not intended to reflect the investment
experience or financial strength of the variable account.
Some Nationwide advertisements and endorsements may include lists of
organizations, individuals or other parties that recommend Nationwide or the
contract. Furthermore, Nationwide may occasionally advertise comparisons of
currently taxable and tax deferred investment programs, based on selected tax
brackets, or discussions of alternative investment vehicles and general economic
conditions.
Historical Performance of the Sub-Accounts
Nationwide will advertise historical performance of the sub-accounts. Nationwide
may advertise for the sub-account's standardized "average annual total return,"
calculated in a manner prescribed by the SEC, and nonstandardized "total
return." Average annual total return shows the percentage rate of return of a
hypothetical initial investment of $1,000 for the most recent one, five and ten
year periods (or for a period covering the time the underlying mutual fund has
been available in the variable account if it has not been available for one of
the prescribed periods). This calculation reflects the deduction of the maximum
charges that could be assessed to the contract (1.55%), which includes the
charge for the 5% Enhanced Death Benefit option, but does not reflect premium
taxes, which may be imposed by certain states.
Nonstandardized "total return" is calculated similarly to standardized "average
annual total return," except non-standardized return assumes an initial
investment of $25,000 with variable account charges of 1.40%. A CDSC is not
reflected. The CDSC is not reflected because the contracts are designed for long
term investment. The CDSC, if reflected, would decrease the level of performance
shown. An initial investment of $25,000 is assumed because that amount is closer
to the size of a typical contract than $1,000, which was used in calculating the
standardized average annual total return.
The standardized average annual total return and nonstandardized total return
quotations are calculated using data for the period ended December 31, 1999.
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. If the underlying mutual fund has been available in the
variable account for less than one year (or if the underlying mutual fund has
been effective for less than one year), standardized and non-standardized
performance is not annualized.
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<PAGE> 42
SUB-ACCOUNT PERFORMANCE SUMMARY
<TABLE>
<CAPTION>
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
- -------------------------------------------------------------------------------------------------------------------
10 Years
or Date Fund
Available in Date Fund
the Variable Available in
1 Year 5 Years Account the Variable
Sub-Account Option to 12/31/99 to 12/31/99 to 12/31/99 Account
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
VIP Equity-Income Portfolio -1.61% N/A 11.07% 01/20/97
- -------------------------------------------------------------------------------------------------------------------
VIP Growth Portfolio 29.06% N/A 28.90% 01/20/97
- -------------------------------------------------------------------------------------------------------------------
VIP High Income Portfolio 0.19% N/A 4.56% 11/01/96
- -------------------------------------------------------------------------------------------------------------------
VIP Money Market Portfolio -2.76% N/A 2.68% 11/01/96
- -------------------------------------------------------------------------------------------------------------------
VIP Overseas Portfolio 34.18% N/A 19.69% 11/01/96
- -------------------------------------------------------------------------------------------------------------------
VIP II Asset Manager Portfolio 3.09% N/A 12.03% 01/20/97
- -------------------------------------------------------------------------------------------------------------------
VIP II Asset Manager: Growth Portfolio 7.19% N/A 15.33% 01/20/97
- -------------------------------------------------------------------------------------------------------------------
VIP II Contrafund(R)Portfolio 16.06% N/A 21.88% 01/20/97
- -------------------------------------------------------------------------------------------------------------------
VIP II Investment Grade Bond Portfolio -8.70% N/A 2.80% 11/01/96
- -------------------------------------------------------------------------------------------------------------------
VIP II Index 500 Portfolio 12.37% N/A 22.71% 01/20/97
- -------------------------------------------------------------------------------------------------------------------
VIP III Balanced Portfolio -3.37% N/A 11.42% 01/03/95
- -------------------------------------------------------------------------------------------------------------------
VIP III Growth & Income Portfolio 1.19% N/A 18.48% 01/20/97
- -------------------------------------------------------------------------------------------------------------------
VIP III Growth Opportunities Portfolio -3.64% N/A 19.41% 01/03/95
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
- -------------------------------------------------------------------------------------------------------------------
10 Years
to 12/31/99
1 Year 5 Years or Life of Date Fund
Sub-Account Option to 12/31/99 to 12/31/99 Fund Effective
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
VIP Equity-Income Portfolio 4.84% 16.95% 12.89% 10/09/86
- -------------------------------------------------------------------------------------------------------------------
VIP Growth Portfolio 35.51% 27.92% 18.26% 10/09/86
- -------------------------------------------------------------------------------------------------------------------
VIP High Income Portfolio 6.64% 9.31% 10.86% 09/19/85
- -------------------------------------------------------------------------------------------------------------------
VIP Money Market Portfolio 3.70% 4.01% 3.82% 04/01/82
- -------------------------------------------------------------------------------------------------------------------
VIP Overseas Portfolio 40.63% 15.73% 9.87% 01/28/87
- -------------------------------------------------------------------------------------------------------------------
VIP II Asset Manager Portfolio 9.54% 14.01% 11.57% 09/06/89
- -------------------------------------------------------------------------------------------------------------------
VIP II Asset Manager: Growth Portfolio 13.64% N/A 18.51% 01/03/95
- -------------------------------------------------------------------------------------------------------------------
VIP II Contrafund(R)Portfolio 22.52% N/A 25.97% 01/03/95
- -------------------------------------------------------------------------------------------------------------------
VIP II Investment Grade Bond Portfolio -2.43% 5.80% 5.69% 12/05/88
- -------------------------------------------------------------------------------------------------------------------
VIP II Index 500 Portfolio 18.82% 26.38% 19.41% 08/27/92
- -------------------------------------------------------------------------------------------------------------------
VIP III Balanced Portfolio 3.08% N/A 11.93% 01/03/95
- -------------------------------------------------------------------------------------------------------------------
VIP III Growth & Income Portfolio 7.64% N/A 20.45% 12/31/96
- -------------------------------------------------------------------------------------------------------------------
VIP III Growth Opportunities Portfolio 2.81% N/A 19.83% 01/03/95
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
42
<PAGE> 43
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
PAGE
General Information and History........................................1
Services...............................................................1
Purchase of Securities Being Offered...................................2
Underwriters...........................................................2
Calculation of Performance.............................................2
Annuity Payments.......................................................3
Financial Statements...................................................4
43
<PAGE> 44
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.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
The Fidelity Variable Insurance Products Fund (VIP) is an open-end, diversified,
management investment company organized as a Massachusetts business trust on
November 13, 1981. Shares of VIP are purchased by insurance companies to fund
benefits under variable life insurance policies and annuity contracts. Fidelity
Management & Research Company ("FMR") is the manager for VIP and its portfolios.
VIP EQUITY-INCOME PORTFOLIO
Investment Objective: Reasonable income by investing primarily in
income-producing equity securities. In 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 & Poors Composite Stock Price Index.
VIP GROWTH PORTFOLIO
Investment Objective: Capital appreciation. This Portfolio will invest in
the securities of both well-known and established companies, and smaller,
less well-known companies which may have 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 this 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 can also make temporary investments in securities such
as investment-grade bonds, high-quality preferred stocks and short-term
notes, for defensive purposes when it believes market conditions warrant.
VIP HIGH INCOME PORTFOLIO
Investment Objective: High level of current income by investing primarily
in high-risk, lower-rated, high-yielding, fixed-income securities, while
also considering growth of capital. FMR will seek high current income
normally by investing the Portfolio's assets as follows:
o at least 65% in income-producing debt securities and preferred stocks,
including convertible securities; and
o up to 20% in common stocks and other equity securities when consistent
with the Portfolio's primary objective or acquired as part of a unit
combining fixed-income and equity securities.
Higher yields are usually available on securities that are lower-rated or
that are unrated. Lower-rated securities are usually defined as Ba or lower
by Moody's Investor Services, Inc. ("Moody's"); BB or lower by Standard &
Poor's and may be deemed to be of a speculative nature. The Portfolio may
also purchase lower-quality bonds such as those rated Ca3 by Moody's or C-
by Standard & Poor's which provide poor protection for payment of principal
and interest (commonly referred to as "junk bonds"). For a further
discussion of lower-rated securities, please see the "Risks of Lower-Rated
Debt Securities" section of the Portfolio's prospectus.
VIP MONEY MARKET PORTFOLIO
Investment Objective: As high a level of current income as is consistent
with preserving capital and providing liquidity.
44
<PAGE> 45
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
Investment Objective: Long-term capital growth primarily through
investments in foreign securities. This Portfolio provides a means for
investors to diversify their own portfolios by participating in companies
and economies outside of the United States.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
The Fidelity Variable Insurance Products Fund II (VIP II) is an open-end,
diversified, management investment company organized as a Massachusetts business
trust on March 21, 1988. VIP II's shares are purchased by insurance companies to
fund benefits under variable life insurance policies and variable annuity
contracts. FMR is the manager of VIP II and its portfolios.
VIP II ASSET MANAGER PORTFOLIO
Investment Objective: High total return with reduced risk over the long
term by allocating its assets among domestic and foreign stocks, bonds and
short-term fixed income instruments.
------------------ -------------- --------------
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
Investment Objective: 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(R) PORTFOLIO
Investment Objective: Capital appreciation by investing primarily in
companies that the FMR believes to be undervalued due to an overly
pessimistic appraisal by the public. This strategy can lead to investments
in domestic or foreign companies, small and large, many of which may not be
well known. The Portfolio primarily invests in common stock and securities
convertible into common stock, but it has the flexibility to invest in any
type of security that may produce capital appreciation.
VIP II INDEX 500 PORTFOLIO
Investment Objective: 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.
VIP II INVESTMENT GRADE BOND PORTFOLIO
Investment Objective: 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
45
<PAGE> 46
investment-grade fixed-income securities such as debentures, bonds and
notes.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND III
The Fidelity Variable Insurance Products Fund III (VIP III) is an open-end,
diversified, management investment company organized as a Massachusetts business
trust on July 14, 1994. VIP III's name was changed on December 30, 1996 from the
Fidelity Advisor Annuity Fund to the Fidelity Variable Insurance Products Fund
III. VIP III's shares are purchased by insurance companies to fund benefits
under variable life insurance policies and variable annuity contracts. FMR is
the Fund's manager.
VIP III BALANCED PORTFOLIO
Investment Objective: 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 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 Portfolio's
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
Investment Objective: High total return through a combination of current
income and capital appreciation by investing mainly in equity securities.
VIP III GROWTH OPPORTUNITIES PORTFOLIO
Investment Objective: Capital growth by investing primarily in common
stocks and securities convertible into common stocks. The Portfolio under
normal circumstances, will invest at least 65% of its total assets in
securities of companies that FMR believes have long-term growth potential.
Although the Portfolio invests primarily in common stock and securities
convertible into common stock, it has the ability to purchase other
securities such as preferred stock and bonds that may produce capital
growth. The Portfolio may invest in foreign securities without limitation.
46
<PAGE> 47
APPENDIX B: CONDENSED FINANCIAL INFORMATION
Accumulation unit values for accumulation units outstanding throughout the
period.
NO OPTIONAL DEATH BENEFITS ELECTED
(VARIABLE ACCOUNT CHARGES OF 1.40% 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>
VIP Equity-Income 13.477888 14.130390 4.84% 1,695,231 1999
Portfolio - Q1 ------------------- ------------------- ------------------- -------------------- -----------
12.245396 13.477888 10.06% 1,732,312 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 12.245396 22.45% 1,102,775 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP Equity-Income 13.477888 14.130390 4.84% 3,019,886 1999
Portfolio - NQ1 ------------------- ------------------- ------------------- -------------------- -----------
12.245396 13.477888 10.06% 2,789,952 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 12.245396 22.45% 1,900,080 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP Growth 15.969000 21.640361 35.51% 1,601,216 1999
Portfolio - Q1 ------------------- ------------------- ------------------- -------------------- -----------
11.610523 15.969000 37.54% 1,138,568 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 11.610523 16.11% 711,162 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
Fidelity VIP Growth 15.969000 21.640361 35.51% 3,499,888 1999
Portfolio - NQ3 ------------------- ------------------- ------------------- -------------------- -----------
11.610523 15.969000 37.54% 2,009,283 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 11.610523 16.11% 1,186,843 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP High Income 11.187199 11.930180 6.64% 3,512,241 1999
Portfolio - Q2 ------------------- ------------------- ------------------- -------------------- -----------
11.859397 11.187199 -5.67% 4,158,432 1998
------------------- ------------------- ------------------- -------------------- -----------
10.221866 11.859397 16.02% 3,723,025 1997
------------------- ------------------- ------------------- -------------------- -----------
10.000000 10.221866 2.22% 2,287 1996
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP High Income 11.187199 11.930180 6.64% 7,547,236 1999
Portfolio - NQ2 ------------------- ------------------- ------------------- -------------------- -----------
11.859397 11.187199 -5.67% 8,642,408 1998
------------------- ------------------- ------------------- -------------------- -----------
10.221866 11.859397 16.02% 8,132,611 1997
------------------- ------------------- ------------------- -------------------- -----------
10.000000 10.221866 2.22% 12,210 1996
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP Money Market 10.883253 11.285433 3.70% 1,547,965 1999
Portfolio - Q*,2 ------------------- ------------------- ------------------- -------------------- -----------
10.065929 10.883253 8.12% 1,305,540 1998
------------------- ------------------- ------------------- -------------------- -----------
10.063199 10.065929 0.03% 1,517,808 1997
------------------- ------------------- ------------------- -------------------- -----------
10.000000 10.063199 0.63% 77,545 1996
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP Money Market 10.883253 11.285433 3.70% 3,063,912 1999
Portfolio - NQ*,2 ------------------- ------------------- ------------------- -------------------- -----------
10.465899 10.883253 8.12% 2,759,939 1998
------------------- ------------------- ------------------- -------------------- -----------
10.063199 10.465899 0.03% 2,372,121 1997
------------------- ------------------- ------------------- -------------------- -----------
10.000000 10.063199 0.63% 62,978 1996
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
</TABLE>
* The 7-day yield on the VIP Money Market Portfolio as of December 31, 1999 was
4.28%.
47
<PAGE> 48
<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>
VIP Overseas 12.862332 18.088630 40.63% 1,594,341 1999
Portfolio - Q2 ------------------- ------------------- ------------------- -------------------- -----------
11.569690 12.862332 11.17% 1,730,887 1998
------------------- ------------------- ------------------- -------------------- -----------
10.518503 11.569690 9.99% 1,594,615 1997
------------------- ------------------- ------------------- -------------------- -----------
10.000000 10.518503 5.19% 4,339 1996
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP Overseas 12.862332 18.088630 40.63% 3,514,876 1999
Portfolio- NQ2 ------------------- ------------------- ------------------- -------------------- -----------
11.569690 12.862332 11.17% 3,855,007 1998
------------------- ------------------- ------------------- -------------------- -----------
11.518503 11.569690 9.99% 3,828,801 1997
------------------- ------------------- ------------------- -------------------- -----------
10.000000 10.518503 5.19% 17,196 1996
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
Fidelity VIP II Asset 13.216823 14.477303 9.54% 405,505 1999
Manager Portfolio - Q3 ------------------- ------------------- ------------------- -------------------- -----------
11.650850 13.216823 13.44% 351,207 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 11.650850 16.51% 234,516 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP II Asset Manager 13.216823 14.477303 9.54% 824,691 1999
Portfolio - NQ1 ------------------- ------------------- ------------------- -------------------- -----------
11.650850 13.216823 13.44% 698,387 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 11.650850 16.51% 585,920 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP II Asset Manager: 13.841884 15.730503 13.64% 279,404 1999
Growth Portfolio - Q1 ------------------- ------------------- ------------------- -------------------- -----------
11.940378 13.841884 15.93% 299,850 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 11.940378 19.40% 236,306 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP II Asset Manager: 13.841884 15.730503 13.64% 629,730 1999
Growth Portfolio - NQ1 ------------------- ------------------- ------------------- -------------------- -----------
11.940378 13.841884 15.93% 576,240 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 11.940378 19.40% 412,776 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP II Contrafund(R) 15.036722 18.422344 22.52% 2,003,071 1999
Portfolio -Q1 ------------------- ------------------- ------------------- -------------------- -----------
11.732706 15.036722 28.16% 1,788,055 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 11.732706 17.33% 1,484,705 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP II Contrafund(R) 15.036722 18.422344 22.52% 4,068,308 1999
Portfolio - NQ1 ------------------- ------------------- ------------------- -------------------- -----------
11.732706 15.036722 28.16% 3,318,944 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 11.732706 17.33% 2,614,941 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP II Investment Grade 11.609070 11.326409 -2.43% 1,254,764 1999
Bond Portfolio - Q2 ------------------- ------------------- ------------------- -------------------- -----------
10.817010 11.609070 7.32% 1,286,880 1998
------------------- ------------------- ------------------- -------------------- -----------
10.059105 10.817010 7.53% 881,781 1997
------------------- ------------------- ------------------- -------------------- -----------
10.000000 10.059105 0.59% 8,008 1996
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
</TABLE>
48
<PAGE> 49
<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>
VIP II Investment Grade 11.609070 11.326409 -2.43% 2,232,584 1999
Bond Portfolio - NQ2 ------------------- ------------------- ------------------- -------------------- -----------
10.817010 11.609070 7.32% 2,102,024 1998
------------------- ------------------- ------------------- -------------------- -----------
10.059105 10.817010 7.53% 1,572,576 1997
------------------- ------------------- ------------------- -------------------- -----------
10.000000 10.059105 0.59% 1,732 1996
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP II Index 500 15.809112 18.785022 18.82 1,356,828 1999
Portfolio - Q1 ------------------- ------------------- ------------------- -------------------- -----------
12.494291 15.809112 26.53% 1,111,939 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 12.494291 24.94% 687,172 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP II Index 500 15.809112 18.785022 18.82 2,902,750 1999
Portfolio - NQ1 ------------------- ------------------- ------------------- -------------------- -----------
12.494291 15.809112 26.53% 2,367,722 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 12.494291 24.94% 1,471,434 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP III Balanced 17.022798 17.547850 3.08% 2,352,156 1999
Portfolio - Q ------------------- ------------------- ------------------- -------------------- -----------
14.675543 17.022798 15.99% 2,652,827 1998
------------------- ------------------- ------------------- -------------------- -----------
12.181451 14.675543 20.47% 2,672,535 1997
------------------- ------------------- ------------------- -------------------- -----------
11.234358 12.181451 8.43% 2,291,575 1996
------------------- ------------------- ------------------- -------------------- -----------
10.000000 11.234358 12.34% 975,789 1995
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP III Balanced 17.022798 17.547850 3.08% 5,436,492 1999
Portfolio - NQ ------------------- ------------------- ------------------- -------------------- -----------
14.675543 17.022798 15.99% 6,102,782 1998
------------------- ------------------- ------------------- -------------------- -----------
12.181451 14.675543 20.47% 6,127,776 1997
------------------- ------------------- ------------------- -------------------- -----------
11.234358 12.181451 8.43% 5,374,512 1996
------------------- ------------------- ------------------- -------------------- -----------
10.000000 11.234358 12.34% 2,441,208 1995
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP III Growth & Income 15.781386 16.987037 7.64% 1,145,440 1999
Portfolio - Q1 ------------------- ------------------- ------------------- -------------------- -----------
12.350709 15.781386 27.78% 968,478 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 12.350709 23.51% 641,220 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP III Growth & Income 15.781386 16.987037 7.64% 2,718,399 1999
Portfolio - NQ1 ------------------- ------------------- ------------------- -------------------- -----------
12.350709 15.781386 27.78% 2,375,755 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 12.350709 23.51% 1,370,152 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP III Growth 23.993138 24.667851 2.81% 7,527,710 1999
Opportunities ------------------- ------------------- ------------------- -------------------- -----------
Portfolio - Q 19.527096 23.993138 22.87% 8,127,546 1998
------------------- ------------------- ------------------- -------------------- -----------
15.239855 19.527096 28.13% 8,514,753 1997
------------------- ------------------- ------------------- -------------------- -----------
13.069019 15.239855 16.61% 6,415,213 1996
------------------- ------------------- ------------------- -------------------- -----------
10.000000 13.069019 30.69% 2,965,497 1995
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
</TABLE>
49
<PAGE> 50
<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>
VIP III Growth 23.993138 24.667851 2.81% 17,920,089 1999
Opportunities ------------------- ------------------- ------------------- -------------------- -----------
Portfolio - NQ 19.527096 23.993138 22.87% 20,287,152 1998
------------------- ------------------- ------------------- -------------------- -----------
15.239855 19.527096 28.13% 20,154,563 1997
------------------- ------------------- ------------------- -------------------- -----------
13.069019 15.239855 16.61% 16,114,264 1996
------------------- ------------------- ------------------- -------------------- -----------
10.000000 13.069019 30.69% 8,130,130 1995
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
</TABLE>
1 These underlying mutual funds were added to the variable account on January
20, 1997. Condensed Financial Information for these funds for 1997 reflects
values from January 20, 1997 to December 31, 1997.
2 These underlying mutual funds were added to the variable account on October
26, 1996. Condensed Financial Information for these funds for 1996 reflects
values from October 26, 1996 to December 31, 1996.
On March 14, 1997, pursuant to an SEC order, the following fund replacements
occurred:
a) the VIP High Income Portfolio replaced the Fidelity Advisor Annuity High
Yield Fund;
b) the VIP Money Market Portfolio replaced the Fidelity Advisor Annuity Money
Market Fund;
c) the VIP Overseas Portfolio replaced the Fidelity Advisor Annuity Overseas
Fund; and
d) the VIP II Investment Grade Bond Portfolio replaced the Fidelity Advisor
Annuity Government Investment Fund.
50
<PAGE> 51
>
OPTIONAL ONE-YEAR STEP UP DEATH BENEFIT
ELECTED (VARIABLE ACCOUNT CHARGES OF 1.45% 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>
VIP Equity-Income 11.368793 11.913142 4.79% 60,593 1999
Portfolio - Q ------------------- ------------------- ------------------- -------------------- -----------
10.334399 11.368793 10.01% 41,419 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 10.334399 3.34% 1,233 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP Equity-Income 11.368793 11.913142 4.79% 146,671 1999
Portfolio - NQ ------------------- ------------------- ------------------- -------------------- -----------
10.334399 11.368793 10.01% 101,795 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 10.334399 3.34% 9,973 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP Growth Portfolio - Q 13.781993 18.667172 35.45% 78,768 1999
------------------- ------------------- ------------------- -------------------- -----------
10.025497 13.781993 37.47% 38,516 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 10.025497 0.25% 1,555 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP Growth 13.781993 18.667172 35.45% 218,645 1999
Portfolio -NQ ------------------- ------------------- ------------------- -------------------- -----------
10.025497 13.781993 37.47% 94,771 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 10.025497 0.25% 19,167 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP High Income 9.547168 10.176069 6.59% 79,734 1999
Portfolio - Q ------------------- ------------------- ------------------- -------------------- -----------
10.125956 9.547168 -5.72% 55,178 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 10.125956 1.26% 12,121 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP High Income 9.547168 10.176069 6.59% 123,514 1999
Portfolio - NQ ------------------- ------------------- ------------------- -------------------- -----------
10.125956 9.547168 -5.72% 99,132 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 10.125956 1.26% 6,193 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP Money Market 10.462911 10.844055 3.64% 41,696 1999
Portfolio - Q* ------------------- ------------------- ------------------- -------------------- -----------
10.066783 10.462911 3.94% 37,306 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 10.066783 0.67% 0 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP Money Market 10.462911 10.844055 3.64% 51,072 1999
Portfolio - NQ* ------------------- ------------------- ------------------- -------------------- -----------
10.066783 10.462911 3.94% 111,460 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 10.066783 0.67% 103,446 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP Overseas 10.994287 15.453729 40.56% 25,983 1999
Portfolio - Q ------------------- ------------------- ------------------- -------------------- -----------
9.894400 10.994287 11.12% 20,502 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 9.894400 -1.06% 63 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP Overseas 10.994287 15.453729 40.56% 39,558 1999
Portfolio - NQ ------------------- ------------------- ------------------- -------------------- -----------
9.894400 10.994287 11.12% 27,574 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 9.894400 -1.06% 12,510 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
</TABLE>
* The 7-day yield on the Fidelity VIP Money Market Portfolio as of December 31,
1999 was 4.23%.
51
<PAGE> 52
<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>
VIP II Asset Manager 11.575607 12.673141 9.48% 21,912 1999
Portfolio - Q ------------------- ------------------- ------------------- -------------------- -----------
10.209261 11.575607 13.38% 4,399 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 10.209261 2.09% 0 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP II Asset Manager 11.575607 12.673141 9.48% 35,532 1999
Portfolio - NQ ------------------- ------------------- ------------------- -------------------- -----------
10.209261 11.575607 13.38% 28,093 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 10.209261 2.09% 9,263 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP II Asset Manager: 11.864403 13.476375 13.59% 11,295 1999
Growth Portfolio - Q ------------------- ------------------- ------------------- -------------------- -----------
10.239737 11.864403 15.87% 9,734 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 10.239737 2.40% 0 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP II Asset Manager: 11.864403 13.476375 13.59% 12,166 1999
Growth Portfolio - NQ ------------------- ------------------- ------------------- -------------------- -----------
10.239737 11.864403 15.87% 17,710 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 10.239737 2.40% 3,686 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP II Contrafund(R) 12.747959 18.422344 44.51% 54,385 1999
Portfolio -Q ------------------- ------------------- ------------------- -------------------- -----------
9.951886 12.747959 28.10% 35,003 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 9.951886 -0.48% 913 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP II Contrafund(R) 12.747959 15.610339 22.45% 128,262 1999
Portfolio - NQ ------------------- ------------------- ------------------- -------------------- -----------
9.951886 12.747959 28.10% 83,877 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 9.951886 -0.48% 9,371 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP II Investment Grade 10.883913 10.613518 -2.48% 13,862 1999
Bond Portfolio - Q ------------------- ------------------- ------------------- -------------------- -----------
10.146469 10.883913 7.27% 4,667 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 10.146469 1.46% 0 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP II Investment Grade 10.883913 10.613518 -2.48% 52,551 1999
Bond Portfolio - NQ ------------------- ------------------- ------------------- -------------------- -----------
10.146469 10.883913 7.27% 6,209 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 10.146469 1.46% 0 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP II Index 500 13.065126 15.516650 18.76% 46,530 1999
Portfolio - Q ------------------- ------------------- ------------------- -------------------- -----------
10.330898 13.065126 26.47% 23,101 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 10.330898 3.31% 61 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP II Index 500 13.065126 15.516650 18.76% 127,837 1999
Portfolio - NQ ------------------- ------------------- ------------------- -------------------- -----------
10.330898 13.065126 26.47% 68,636 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 10.330898 3.31% 3,644 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
</TABLE>
52
<PAGE> 53
<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>
VIP III Balanced 11.909803 12.270926 3.03% 27,944 1999
Portfolio - Q ------------------- ------------------- ------------------- -------------------- -----------
10.272783 11.909803 15.94% 23,691 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 10.272783 2.73% 0 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP III Balanced 11.909803 12.270926 3.03% 74,853 1999
Portfolio - NQ ------------------- ------------------- ------------------- -------------------- -----------
10.272783 11.909803 15.94% 46,788 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 10.272783 2.73% 8,383 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP III Growth & Income 13.287693 14.295582 7.59% 56,050 1999
Portfolio - Q ------------------- ------------------- ------------------- -------------------- -----------
10.404380 13.287693 27.71% 36,694 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 10.404380 4.04% 0 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP III Growth & Income 13.287693 14.295582 7.59% 97,471 1999
Portfolio - NQ ------------------- ------------------- ------------------- -------------------- -----------
10.404380 13.287693 27.71% 80,881 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 10.404380 4.04% 6,119 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP III Growth 12.762442 13.114680 2.76% 151,722 1999
Opportunities ------------------- ------------------- ------------------- -------------------- -----------
Portfolio - Q 10.392122 12.762442 22.81% 114,036 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 10.392122 3.92% 2,407 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP III Growth 12.762442 13.114680 2.76% 312,763 1999
Opportunities ------------------- ------------------- ------------------- -------------------- -----------
Portfolio - NQ 10.392122 12.762442 22.81% 227,642 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 10.392122 3.92% 37,507 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
</TABLE>
1 These underlying mutual funds were added to the variable account on January
20, 1997. Condensed Financial Information for these funds for 1997 reflects
values from January 20, 1997 to December 31, 1997.
2 These underlying mutual funds were added to the variable account on October
26, 1996. Condensed Financial Information for these funds for 1996 reflects
values from October 26, 1996 to December 31, 1996.
On March 14, 1997, pursuant to an SEC order, the following fund replacements
occurred:
e) the VIP High Income Portfolio replaced the Fidelity Advisor Annuity High
Yield Fund;
f) the VIP Money Market Portfolio replaced the Fidelity Advisor Annuity Money
Market Fund;
g) the VIP Overseas Portfolio replaced the Fidelity Advisor Annuity Overseas
Fund; and
h) the VIP II Investment Grade Bond Portfolio replaced the Fidelity Advisor
Annuity Government Investment Fund.
53
<PAGE> 54
OPTIONAL 5% ENHANCED DEATH BENEFIT ELECTED
(VARIABLE ACCOUNT CHARGES OF 1.50% 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>
VIP Equity-Income 11.362118 11.900112 4.73% 28,206 1999
Portfolio - Q ------------------- ------------------- ------------------- -------------------- -----------
10.333567 11.362118 9.95% 24,656 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 10.333567 3.34% 2,158 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP Equity-Income 11.362118 11.900112 4.73% 31,200 1999
Portfolio - NQ ------------------- ------------------- ------------------- -------------------- -----------
10.333567 11.362118 9.95% 29,725 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 10.333567 3.34% 2,704 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP Growth Portfolio - Q 13.773906 18.646776 35.38% 37,563 1999
------------------- ------------------- ------------------- -------------------- -----------
10.024687 13.773906 37.40% 30,523 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 10.024687 0.25% 1,085 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP Growth 13.773906 18.646776 35.38% 30,852 1999
Portfolio - NQ ------------------- ------------------- ------------------- -------------------- -----------
10.024687 13.773906 37.40% 11,669 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 10.024687 0.25% 1,393 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP High Income 9.541553 10.164929 6.53% 30,522 1999
Portfolio - Q ------------------- ------------------- ------------------- -------------------- -----------
10.125138 9.541553 -5.76% 11,405 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 10.125138 1.25% 2,387 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP High Income 9.541553 10.164929 6.53% 36,652 1999
Portfolio - NQ ------------------- ------------------- ------------------- -------------------- -----------
10.125138 9.541553 -5.76% 34,631 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 10.125138 1.25% 4,150 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP Money Market 10.456715 10.832134 3.59% 25,144 1999
Portfolio - Q* ------------------- ------------------- ------------------- -------------------- -----------
10.065929 10.456715 3.88% 61,727 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 10.065929 0.66% 0 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP Money Market 10.456715 10.832134 3.59% 23,877 1999
Portfolio - NQ* ------------------- ------------------- ------------------- -------------------- -----------
10.065929 10.456715 3.88% 10,039 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 10.065929 0.66% 0 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP Overseas 10.987826 15.436822 40.49% 7,933 1999
Portfolio - Q ------------------- ------------------- ------------------- -------------------- -----------
9.893604 10.987826 11.06% 1,537 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 9.893604 -1.06% 400 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP Overseas 10.987826 15.436822 40.49% 8,015 1999
Portfolio - NQ ------------------- ------------------- ------------------- -------------------- -----------
9.893604 10.987826 11.06% 7,894 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 9.893604 -1.06% 3,338 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
</TABLE>
* The 7-day yield on the Fidelity VIP Money Market Portfolio as of December
31, 1999 was 4.18%.
54
<PAGE> 55
<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>
VIP II Asset Manager 11.568800 12.659254 9.43% 2,118 1999
Portfolio - Q ------------------- ------------------- ------------------- -------------------- -----------
10.208441 11.568800 13.33% 1,346 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 10.208441 2.09% 0 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP II Asset Manager 11.568800 12.659254 9.43% 14,021 1999
Portfolio - NQ ------------------- ------------------- ------------------- -------------------- -----------
10.208441 11.568800 13.33% 9,296 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 10.208441 2.09% 0 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP II Asset Manager: 11.857417 13.461613 13.53% 3,397 1999
Growth Portfolio - Q ------------------- ------------------- ------------------- -------------------- -----------
10.238907 11.857417 15.81% 0 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 10.238907 2.39% 0 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP II Asset Manager: 11.857417 13.461613 13.53% 6,520 1999
Growth Portfolio - NQ ------------------- ------------------- ------------------- -------------------- -----------
10.238907 11.857417 15.81% 6,520 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 10.238907 2.39% 1,231 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP II Contrafund(R) 12.740463 15.593260 22.39% 12,643 1999
Portfolio -Q ------------------- ------------------- ------------------- -------------------- -----------
9.951081 12.740463 28.03% 2,116 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 9.951081 -0.49% 1,148 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP II Contrafund(R) 12.740463 15.593260 22.39% 23,346 1999
Portfolio - NQ ------------------- ------------------- ------------------- -------------------- -----------
9.951081 12.740463 28.03% 19,726 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 9.951081 -0.49% 3,555 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP II Investment Grade 10.877515 10.601902 -2.53% 9,626 1999
Bond Portfolio - Q ------------------- ------------------- ------------------- -------------------- -----------
10.145651 10.877515 7.21% 2,596 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 10.145651 1.46% 1,718 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP II Investment Grade 10.877515 10.601902 -2.53% 9,188 1999
Bond Portfolio - NQ ------------------- ------------------- ------------------- -------------------- -----------
10.145651 10.877515 7.21% 4,254 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 10.145651 1.46% 2,680 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP II Index 500 13.057468 15.499687 18.70% 18,437 1999
Portfolio - Q ------------------- ------------------- ------------------- -------------------- -----------
10.330070 13.057468 26.40% 2,611 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 10.330070 3.30% 386 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP II Index 500 13.057468 15.499687 18.70% 40,607 1999
Portfolio - NQ ------------------- ------------------- ------------------- -------------------- -----------
10.330070 13.057468 26.40% 24,391 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 10.330070 3.30% 1,382 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
</TABLE>
55
<PAGE> 56
<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>
VIP III Balanced 11.902806 12.257491 2.98% 2,319 1999
Portfolio - Q ------------------- ------------------- ------------------- -------------------- -----------
10.271954 11.902806 15.88% 1,398 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 10.271954 2.72% 0 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP III Balanced 11.902806 12.257491 2.98% 20,233 1999
Portfolio - NQ ------------------- ------------------- ------------------- -------------------- -----------
10.271954 11.902806 15.88% 7,406 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 10.271954 2.72% 1,363 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP III Growth & Income 13.279886 14.279936 7.53% 11,738 1999
Portfolio - Q ------------------- ------------------- ------------------- -------------------- -----------
10.403545 13.279886 27.65% 1,884 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 10.403545 4.04% 0 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP III Growth & Income 13.279886 14.279936 7.53% 29,850 1999
Portfolio - NQ ------------------- ------------------- ------------------- -------------------- -----------
10.403545 13.279886 27.65% 7,143 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 10.403545 4.04% 3,430 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP III Growth 12.754941 13.100322 2.71% 84,838 1999
Opportunities ------------------- ------------------- ------------------- -------------------- -----------
Portfolio - Q 10.391285 12.754941 22.75% 60,778 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 10.391285 3.91% 1,056 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
VIP III Growth 12.754941 13.100322 2.71% 76,283 1999
Opportunities ------------------- ------------------- ------------------- -------------------- -----------
Portfolio - NQ 10.391285 12.754941 22.75% 57,554 1998
------------------- ------------------- ------------------- -------------------- -----------
10.000000 10.391285 3.91% 7,724 1997
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
- ------------------------- ------------------- ------------------- ------------------- -------------------- -----------
</TABLE>
1 These underlying mutual funds were added to the variable account on January
20, 1997. Condensed Financial Information for these funds for 1997 reflects
values from January 20, 1997 to December 31, 1997.
2 These underlying mutual funds were added to the variable account on October
26, 1996. Condensed Financial Information for these funds for 1996 reflects
values from October 26, 1996 to December 31, 1996.
On March 14, 1997, pursuant to an SEC order, the following fund replacements
occurred:
i) the VIP High Income Portfolio replaced the Fidelity Advisor Annuity High
Yield Fund;
j) the VIP Money Market Portfolio replaced the Fidelity Advisor Annuity Money
Market Fund;
k) the VIP Overseas Portfolio replaced the Fidelity Advisor Annuity Overseas
Fund; and
l) the VIP II Investment Grade Bond Portfolio replaced the Fidelity Advisor
Annuity Government Investment Fund.
56
