-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DxfVLb+0bLDVTbj+q2Er04CISPycO1WVflUrKz9lVF7CC+RgZQQz3Rp5isyex3wT vmaE294LMNp5+MhRpwkXUw== 0000950152-99-007651.txt : 19990920 0000950152-99-007651.hdr.sgml : 19990920 ACCESSION NUMBER: 0000950152-99-007651 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19990917 EFFECTIVENESS DATE: 19990917 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONWIDE VARIABLE ACCOUNT II CENTRAL INDEX KEY: 0000356514 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 314156830 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 033-60063 FILM NUMBER: 99713252 BUSINESS ADDRESS: STREET 1: NATIONWIDE LIFE INSURANCE CO STREET 2: ONE NATIONWIDE PLZ CITY: COLUMBUS STATE: OH ZIP: 43216 BUSINESS PHONE: 614-249-7111 MAIL ADDRESS: STREET 1: NATIONWIDE LIFE INSURANCE CO STREET 2: ONE NATIONWIDE PLAZA CITY: COLUMBUS STATE: OH ZIP: 43216-6609 FORMER COMPANY: FORMER CONFORMED NAME: NATIONWIDE SPECTRUM VARIABLE ACCOUNT DATE OF NAME CHANGE: 19870428 485BPOS 1 NATIONWIDE VARIABLE ACCOUNT-II FORM 485BPOS 1 As filed with the Securities and Exchange Commission. `33 Act File No. 33-60063 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM N-4 REGISTRATION STATEMENT UNDER THE SECURITIES [X] ACT OF 1933 POST-EFFECTIVE AMENDMENT NO. 9 and REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ] NATIONWIDE VARIABLE ACCOUNT-II (EXACT NAME OF REGISTRANT) NATIONWIDE LIFE INSURANCE COMPANY (NAME OF DEPOSITOR) ONE NATIONWIDE PLAZA, COLUMBUS, OHIO 43215 (Address of Depositor's Principal Executive Offices) (Zip Code) Depositor's Telephone Number, including Area Code: (614) 249-7111 DENNIS W. CLICK, SECRETARY, ONE NATIONWIDE PLAZA, COLUMBUS, OHIO 43215 (Name and Address of Agent for Service) This Post-Effective Amendment amends the Registration Statement in respect of the Prospectus, the Statement of Additional Information and the Financial Statements. It is proposed that this filing will become effective (check appropriate space): [ ] immediately upon filing pursuant to paragraph (b) of Rule 485 [X] on September 24, 1999 pursuant to paragraph (b) of Rule 485 [ ] 60 days after filing pursuant to paragraph (a) of Rule 485 [ ] on (date) pursuant to paragraph (a) of Rule 485 [ ] this post-effective amendment designates a new effective date for a previously filed post-effective amendment. ================================================================================ 1 of 134 REDLINED 2 NATIONWIDE VARIABLE ACCOUNT-II REFERENCE TO ITEMS REQUIRED BY FORM N-4 Caption in Prospectus and Statement of Additional Information and Other Information
N-4 ITEM PAGE Part A INFORMATION REQUIRED IN A PROSPECTUS Item 1. Cover Page...................................................................................4 Item 2. Definitions..................................................................................6 Item 3. Synopsis or Highlights......................................................................14 Item 4. Condensed Financial Information.............................................................15 Item 5. General Description of Registrant, Depositor, and Portfolio Companies.......................22 Item 6. Deductions and Expenses.....................................................................24 Item 7. General Description of Variable Annuity Contracts...........................................25 Item 8. Annuity Period..............................................................................30 Item 9. Death Benefit and Distributions.............................................................32 Item 10. Purchases and Contract Value................................................................26 Item 11. Redemptions.................................................................................28 Item 12. Taxes.......................................................................................35 Item 13. Legal Proceedings...........................................................................42 Item 14. Table of Contents of the Statement of Additional Information................................48 Part B INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION Item 15. Cover Page..................................................................................58 Item 16. Table of Contents...........................................................................58 Item 17. General Information and History.............................................................58 Item 18. Services....................................................................................58 Item 19. Purchase of Securities Being Offered........................................................59 Item 20. Underwriters................................................................................59 Item 21. Calculation of Performance Information......................................................59 Item 22. Annuity Payments............................................................................60 Item 23. Financial Statements........................................................................61 Part C OTHER INFORMATION Item 24. Financial Statements and Exhibits..........................................................116 Item 25. Directors and Officers of the Depositor....................................................118 Item 26. Persons Controlled by or Under Common Control with the Depositor or Registrant.............120 Item 27. Number of Contract Owners..................................................................130 Item 28. Indemnification............................................................................130 Item 29. Principal Underwriter......................................................................130 Item 30. Location of Accounts and Records...........................................................132 Item 31. Management Services........................................................................132 Item 32. Undertakings...............................................................................132
2 of 134 3 SUPPLEMENT DATED SEPTEMBER 24, 1999 TO PROSPECTUS DATED MAY 1, 1999 FOR DEFERRED VARIABLE ANNUITY CONTRACTS ISSUED BY NATIONWIDE LIFE INSURANCE COMPANY THROUGH ITS NATIONWIDE VARIABLE ACCOUNT - II THIS SUPPLEMENT UPDATES CERTAIN INFORMATION CONTAINED IN YOUR PROSPECTUS. PLEASE READ IT AND KEEP IT WITH YOUR PROSPECTUS FOR FUTURE REFERENCE. 1. EFFECTIVE JULY 6, 1999, ALL REFERENCES TO WARBURG PINCUS ASSET MANAGEMENT, INC. IN YOUR PROSPECTUS CHANGED TO: Credit Suisse Asset Management, LLC 2. THE FOLLOWING UNDERLYING MUTUAL FUNDS WILL NOT BE AVAILABLE FOR NEW ANNUITY APPLICATIONS RECEIVED ON OR AFTER SEPTEMBER 27, 1999, OR APPLICATIONS RECEIVED BY NATIONWIDE'S HOME OFFICE PRIOR TO SEPTEMBER 27, 1999, THAT WERE NOT RECEIVED IN GOOD ORDER: American Century Variable Portfolios, Inc. - American Century VP Capital Appreciation Strong Variable Insurance Funds, Inc. - Strong Discovery Fund II, Inc. Strong Variable Insurance Funds, Inc. - International Stock Fund II Warburg Pincus Trust - International Equity Portfolio Warburg Pincus Trust - Post-Venture Capital Portfolio CURRENT CONTRACTS ARE NOT AFFECTED BY THIS CHANGE. 3. EFFECTIVE SEPTEMBER 1, 1999, "APPENDIX A: OBJECTIVES FOR UNDERLYING MUTUAL FUNDS" LOCATED ON PAGES 46 THROUGH 54 OF YOUR PROSPECTUS IS AMENDED AS FOLLOWS: NATIONWIDE SEPARATE ACCOUNT TRUST Nationwide Separate Account Trust ("NSAT") is a diversified open-end management investment company created under the laws of Massachusetts. NSAT offers shares in the mutual funds listed below, each with its own investment objectives. Shares of NSAT will be sold primarily to separate accounts to fund the benefits under variable life insurance policies and variable annuity contracts issued by life insurance companies. Effective September 1, 1999, the investment advisory services previously performed by Nationwide Advisory Services ("NAS") were transferred to Villanova Mutual Fund Capital Trust ("VMF"), an affiliate of NAS and an indirect subsidiary of Nationwide Financial Services, Inc. The portfolio managers and subadvisers for each of the Funds continue to manage the Funds after the transfer to VMF. 4 NATIONWIDE LIFE INSURANCE COMPANY Deferred Variable Annuity Contracts Issued by Nationwide Life Insurance Company through its Nationwide Variable Account-II The date of this prospectus is May 1, 1999. - -------------------------------------------------------------------------------- This prospectus contains basic information you should know about the contracts before investing. Please read it and keep it for future reference. The following underlying mutual funds are available under the contracts: AMERICAN CENTURY VARIABLE PORTFOLIOS, INC., A MEMBER OF THE AMERICAN CENTURY(SM) FAMILY OF INVESTMENTS o American Century VP Balanced o American Century VP Capital Appreciation o American Century VP Income & Growth o American Century VP International o American Century VP Value DREYFUS o The Dreyfus Socially Responsible Growth Fund, Inc. o Dreyfus Stock Index Fund, Inc. DREYFUS VARIABLE INVESTMENT FUNDS, INC. o Dreyfus Variable Investment Fund - Capital Appreciation Portfolio o Dreyfus Variable Investment Fund- Growth & Income Portfolio* FIDELITY VARIABLE INSURANCE PRODUCTS FUND o VIP Equity-Income Portfolio o VIP Growth Portfolio o VIP High Income Portfolio* o VIP Overseas Portfolio FIDELITY VARIABLE INSURANCE PRODUCTS FUND II o VIP II Contrafund Portfolio o VIP II Asset Manager Portfolio FIDELITY VARIABLE INSURANCE PRODUCT FUND III o VIP III Growth Opportunities Portfolio MORGAN STANLEY o Morgan Stanley Dean Witter Universal Funds, Inc. - Emerging Markets Debt Portfolio o Van Kampen Life Investment Trust - Morgan Stanley Real Estate Securities Portfolio NATIONWIDE SEPARATE ACCOUNT TRUST o Capital Appreciation Fund o Government Bond Fund o Money Market Fund o Total Return Fund o Nationwide Small Cap Value Fund (sub-adviser: The Dreyfus Corporation) o Nationwide Small Company Fund (sub-advisers: The Dreyfus Corporation, Neuberger Berman, LLC., Lazard Asset Management, Strong Capital Management, Inc. and Warburg Pincus Asset Management, Inc.) NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST o AMT Guardian Portfolio o AMT Partners Portfolio o AMT Growth Portfolio o AMT Limited Maturity Bond Portfolio OPPENHEIMER VARIABLE ACCOUNT FUNDS o Oppenheimer Bond Fund/VA o Oppenheimer Capital Appreciation Fund/VA (formerly Oppenheimer Growth Fund) o Oppenheimer Global Securities Fund/VA o Oppenheimer Multiple Strategies Fund/VA STRONG OPPORTUNITY FUND II, INC. (FORMERLY STRONG SPECIAL FUND II, INC.) STRONG VARIABLE INSURANCE FUNDS, INC. o Strong Discovery Fund II, Inc. o International Stock Fund II VAN ECK WORLDWIDE INSURANCE TRUST o Worldwide Emerging Markets Fund o Worldwide Hard Assets Fund o Worldwide Bond Fund 1 4 of 134 5 WARBURG PINCUS TRUST o International Equity Portfolio o Post-Venture Capital Portfolio o Small Company Growth Portfolio * These underlying mutual funds may invest in lower quality debt securities commonly referred to as junk bonds. Purchase payments not invested in the underlying mutual fund options of the Nationwide Variable Account -II may be allocated to the fixed account. The Statement of Additional Information (dated May 1, 1999) which contains additional information about the contracts and the variable account, has been filed with the Securities and Exchange Commission ("SEC") and is incorporated herein by reference. The table of contents for the Statement of Additional Information is on page 45. For general information or to obtain FREE copies of the: o Statement of Additional Information; o prospectus for any underlying mutual fund; or o required Nationwide forms, call: 1-800-243-6295 TDD 1-800-238-3035 VOICE RESPONSE 24 HOURS: 1-800-848-8258 or write: NATIONWIDE LIFE INSURANCE COMPANY P.O. BOX 182356 COLUMBUS, OHIO 43216-2365 The Statement of Additional Information and other material incorporated by reference can be found on the SEC website at: www.sec.gov Information about this and other Best of America products can be found at: www.bestofamerica.com THIS ANNUITY IS NOT: o A BANK DEPOSIT o FEDERALLY INSURED o ENDORSED BY A BANK OR GOVERNMENT AGENCY o AVAILABLE IN EVERY STATE Investors assume certain risks when investing in the contracts, including the possibility of losing money. These contracts are offered to customers of various financial institutions and brokerage firms. No financial institution or brokerage firm is responsible for the guarantees under the contracts. Guarantees under the contracts are the sole responsibility of Nationwide. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC, NOR HAS THE SEC PASSED UPON THE ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. 2 5 of 134 6 GLOSSARY OF SPECIAL TERMS ACCUMULATION UNIT- An accounting unit of measure used to calculate the contract value allocated to the variable account before the annuitization date. ANNUITIZATION DATE- The date on which annuity payments begin. ANNUITY COMMENCEMENT DATE- The date on which annuity payments are scheduled to begin. This date may be changed by the contract owner with Nationwide's consent. ANNUITY UNIT- An accounting unit used to calculate the variable payment annuity payments. CONTRACT VALUE- The total of all accumulation units in a contract and any amount held in the fixed account. CONTRACT YEAR- Each year the contract is in force beginning with the date the contract is issued. ERISA- The Employee Retirement Income Security Act of 1974, as amended. FIXED ACCOUNT- An investment option that is funded by the general account of Nationwide. GENERAL ACCOUNT- All assets of Nationwide other than those of the variable account or in other separate accounts that have been or may be established by Nationwide. INDIVIDUAL RETIREMENT ACCOUNT- An account that qualifies for favorable tax treatment under Section 408(a) of the Internal Revenue Code, but does not include Roth IRAs. INDIVIDUAL RETIREMENT ANNUITY- An annuity contract that qualifies for favorable tax treatment under Section 408(b) of the Internal Revenue Code, but does not include Roth IRAs or Simple IRAs. NATIONWIDE- Nationwide Life Insurance Company. NON-QUALIFIED CONTRACT- A contract which does not qualify for favorable tax treatment as a Qualified Plan, Individual Retirement Annuity, Roth IRA, SEP IRA, Simple IRA, or Tax Sheltered Annuity. ROTH IRA- An annuity contract which qualifies for favorable tax treatment under Section 408A of the Internal Revenue Code. SEP IRA- An annuity contract which qualifies for favorable tax treatment under Section 408(k) of the Internal Revenue Code. SUB-ACCOUNTS- Divisions of the variable account to which underlying mutual fund shares are allocated and for which accumulation units and annuity units are separately maintained. TAX SHELTERED ANNUITY- An annuity that qualifies for favorable tax treatment under Section 403(b) of the Internal Revenue Code. VALUATION PERIOD- Each day the New York Stock Exchange is open for business. VARIABLE ACCOUNT- Nationwide Variable Account-II, a separate account of Nationwide that contains variable account allocations. The variable account is divided into sub-accounts, each of which invests in shares of a separate underlying mutual fund. 3 6 of 134 7 TABLE OF CONTENTS GLOSSARY OF SPECIAL TERMS......................................................3 SUMMARY OF CONTRACT EXPENSES...................................................5 UNDERLYING MUTUAL FUND ANNUAL EXPENSES.........................................6 EXAMPLE........................................................................8 SYNOPSIS OF THE CONTRACTS.....................................................11 FINANCIAL STATEMENTS..........................................................11 CONDENSED FINANCIAL INFORMATION...............................................12 NATIONWIDE LIFE INSURANCE COMPANY.............................................19 NATIONWIDE ADVISORY SERVICES, INC.............................................19 INVESTING IN THE CONTRACT.....................................................19 The Variable Account and Underlying Mutual Funds The Fixed Account STANDARD CHARGES AND DEDUCTIONS...............................................21 Mortality Risk Charge Premium Taxes CONTRACT OWNERSHIP............................................................21 Joint Ownership Contingent Ownership Annuitant Beneficiary and Contingent Beneficiary OPERATION OF THE CONTRACT.....................................................22 Minimum Initial and Subsequent Purchase Payments Pricing Allocation of Purchase Payments Determining the Contract Value Transfers RIGHT TO REVOKE...............................................................25 SURRENDER (REDEMPTION)........................................................25 ASSIGNMENT....................................................................26 CONTRACT OWNER SERVICES.......................................................26 Asset Rebalancing Dollar Cost Averaging Systematic Withdrawals ANNUITY COMMENCEMENT DATE.....................................................27 ANNUITIZING THE CONTRACT......................................................27 Annuitization Date Annuitization Fixed Payment Annuity Variable Payment Annuity Assumed Investment Rate Value of an Annuity Unit Exchanges among Underlying Mutual Funds Frequency and Amount of Annuity Payments Annuity Payment Options DEATH BENEFITS................................................................29 Death of Contract Owner - Non-Qualified Contracts Death of Annuitant - Non-Qualified Contracts How the Death Benefit Value is Determined Death of Contract Owner/Annuitant Death Benefit Payment REQUIRED DISTRIBUTIONS........................................................30 Required Distributions for Non-Qualified Contracts Required Distributions for Individual Retirement Annuities or SEP IRAs Required Distributions for Roth IRAs FEDERAL TAX CONSIDERATIONS....................................................32 Federal Income Taxes Individual Retirement Annuities and SEP IRAs Roth IRAs Withholding Non-Resident Aliens Federal Estate, Gift, and Generation Skipping Transfer Taxes Puerto Rico Charge for Tax Diversification Tax Changes STATEMENTS AND REPORTS........................................................38 YEAR 2000 COMPLIANCE ISSUES...................................................38 LEGAL PROCEEDINGS.............................................................39 ADVERTISING AND SUB-ACCOUNT PERFORMANCE SUMMARY...............................40 TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION......................45 APPENDIX A: OBJECTIVES FOR UNDERLYING MUTUAL FUNDS............................46 4 7 of 134 8 SUMMARY OF CONTRACT EXPENSES The expenses listed below are charged to all contract owners unless the contract owner meets an available exception. CONTRACT OWNER TRANSACTION EXPENSES VARIABLE ACCOUNT CHARGES(1) (as a percentage of average account value) Mortality Risk Charges........................0.80% Total Variable Account Charges...........0.80% (1) 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. 5 8 of 134 9 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 American Century Variable Portfolios Inc. - American 0.97% 0.00% 0.00% 0.97% Century VP Balanced American Century Variable Portfolios, Inc. - American 1.00% 0.00% 0.00% 1.00% Century VP Capital Appreciation American Century Variable Portfolios, Inc. - American 0.70% 0.00% 0.00% 0.70% Century VP Income & Growth American Century Variable Portfolios, Inc. - American 1.47% 0.00% 0.00% 1.47% Century VP International American Century Variable Portfolios, Inc. - American 1.00% 0.00% 0.00% 1.00% Century VP Value The Dreyfus Socially Responsible Growth Fund, Inc. 0.75% 0.05% 0.00% 0.80% Dreyfus Stock Index Fund, Inc. 0.25% 0.01% 0.00% 0.26% Dreyfus Variable Investment Fund - Capital 0.75% 0.05% 0.00% 0.80% Appreciation Portfolio Dreyfus Variable Investment Fund - Growth & Income 0.75% 0.03% 0.00% 0.78% Portfolio Fidelity VIP Equity - Income Portfolio 0.49% 0.08% 0.00% 0.57% Fidelity VIP Growth Portfolio 0.59% 0.07% 0.00% 0.66% Fidelity VIP High Income Portfolio 0.58% 0.12% 0.00% 0.70% Fidelity VIP Overseas Portfolio 0.74% 0.15% 0.00% 0.89% Fidelity VIP II Asset Manager Portfolio 0.54% 0.09% 0.00% 0.63% Fidelity VIP II Contrafund Portfolio 0.59% 0.07% 0.00% 0.66% Fidelity VIP III Growth Opportunities Portfolio 0.59% 0.11% 0.00% 0.70% Morgan Stanley Dean Witter Universal Funds, Inc. - 0.27% 1.25% 0.00% 1.52% Emerging Markets Debt Portfolio NSAT - Capital Appreciation Fund 0.60% 0.07% 0.00% 0.67% NSAT - Government Bond Fund 0.50% 0.07% 0.00% 0.57% NSAT - Money Market Fund 0.40% 0.06% 0.00% 0.46% NSAT - Total Return Fund 0.59% 0.06% 0.00% 0.65% NSAT - Nationwide Small Cap Value Fund 0.90% 0.15% 0.00% 1.05% NSAT - Nationwide Small Company Fund 1.00% 0.07% 0.00% 1.07% Neuberger Berman AMT Guardian Portfolio 0.85% 0.15% 0.00% 1.00% Neuberger Berman AMT Growth Portfolio 0.83% 0.09% 0.00% 0.92% Neuberger Berman AMT Partners Portfolio 0.78% 0.06% 0.00% 0.84% Neuberger Berman AMT - Limited Maturity Bond Portfolio 0.65% 0.11% 0.00% 0.76% Oppenheimer VAF - Oppenheimer Bond Fund/VA 0.72% 0.02% 0.00% 0.74% Oppenheimer VAF - Oppenheimer Capital Appreciation/VA 0.72% 0.03% 0.00% 0.75% (formerly Oppenheimer Growth Fund) Oppenheimer VAF - Oppenheimer Global Securities Fund/VA 0.68% 0.06% 0.00% 0.74% Oppenheimer VAF - Oppenheimer Multiple Strategies 0.72% 0.04% 0.00% 0.76% Fund/VA Strong Opportunity Fund II, Inc. 1.00% 0.16% 0.00% 1.16% Strong Variable Insurance Funds, Inc. - Discovery Fund 1.00% 0.18% 0.00% 1.18% II, Inc. Strong Variable Insurance Funds, Inc. - International 1.00% 0.62% 0.00% 1.62% Stock Fund II Van Eck Worldwide Insurance Trust - Worldwide Bond Fund 1.00% 0.15% 0.00% 1.15% Van Eck Worldwide Insurance Trust - Worldwide Emerging 1.00% 0.50% 0.00% 1.50% Markets Fund Van Eck Worldwide Insurance Trust - Worldwide Hard 1.00% 0.16% 0.00% 1.16% Assets Fund
6 9 of 134 10
MANAGEMENT OTHER 12b-1 TOTAL MUTUAL FEES EXPENSES FEES FUND EXPENSES Van Kampen Life Investment Trust - Morgan Stanley Real 1.20% 0.00% 0.00% 1.20% Estate Securities Portfolio Warburg Pincus Trust - Small Company Growth Portfolio 0.90% 0.24% 0.00% 1.14% Warburg Pincus Trust - International Equity Portfolio 1.00% 0.33% 0.00% 1.33% Warburg Pincus Trust - Post-Venture Capital Portfolio 1.08% 0.32% 0.00% 1.40%
The expenses shown above are deducted by the underlying mutual fund before it provides Nationwide with the daily net asset value. Nationwide then deducts applicable variable account charges from the net asset value to calculate the unit value of the corresponding sub-account. The management fees and other expenses are more fully described in the prospectus for each underlying mutual fund. Information relating to the underlying mutual funds was provided by the underlying mutual funds and not independently verified by Nationwide. Some underlying mutual funds are subject to fee waivers and expense reimbursements. The following chart shows what the expenses would have been for such funds without fee waivers and expense reimbursements.
MANAGEMENT OTHER 12b-1 TOTAL MUTUAL FEES EXPENSES FEES FUND EXPENSES Fidelity VIP Equity - Income Portfolio 0.49% 0.09% 0.00% 0.58% Fidelity VIP Growth Portfolio 0.59% 0.09% 0.00% 0.68% Fidelity VIP Overseas Portfolio 0.74% 0.17% 0.00% 0.91% Fidelity VIP II Asset Manager Portfolio 0.54% 0.10% 0.00% 0.64% Fidelity VIP II Contrafund Portfolio 0.59% 0.11% 0.00% 0.70% Fidelity VIP III Growth Opportunities Portfolio 0.59% 0.12% 0.00% 0.71% Morgan Stanley Dean Witter Universal Funds, Inc. - 0.80% 1.25% 0.00% 2.05% Emerging Markets Debt Portfolio NSAT- Nationwide Small Cap Value Fund 0.90% 0.43% 0.00% 1.33% Van Eck Worldwide Insurance Trust - Worldwide Emerging 1.00% 0.61% 0.00% 1.61% Markets Fund Van Eck Worldwide Insurance Trust - Worldwide Hard 1.00% 0.20% 0.00% 1.20% Assets Fund
7 10 of 134 11 EXAMPLE The following chart shows the amount of expenses (in dollars) that would be incurred under this contract assuming a $1,000 investment, 5% annual return, and no change in expenses. These dollar figures are illustrative only and should not be considered a representation of past or future expenses. Actual expenses may be greater or less than those shown below. The example reflects expenses of both the variable account and the underlying mutual funds. The example reflects the maximum amount of variable account charges that could be assessed to a contract (0.80%). Deductions for premium taxes are not reflected but may apply. The summary of contract expenses and example are to help contract owners understand the expenses associated with the contract.
If you surrender your contract If you do not surrender your If you annuitize your at the end of the applicable contract at the end of the contract at the end of the time period applicable time period applicable time period 1 Yr. 3 Yrs. 5 Yrs. 10 Yrs. 1 Yr. 3 Yrs 5 Yrs. 10 Yrs. 1 Yr. 3 Yrs. 5 Yrs. 10 Yrs. American Century Variable 19 58 99 214 19 58 99 214 * 58 99 214 Portfolios, Inc. - American Century VP Balanced American Century Variable 19 58 101 218 19 58 101 218 * 58 101 218 Portfolios, Inc. - American Century VP Capital Appreciation American Century Variable 16 49 84 184 16 49 84 184 * 49 84 184 Portfolios, Inc. - American Century VP Income & Growth American Century Variable 24 73 126 268 24 73 126 268 * 73 126 268 Portfolios, Inc. - American Century VP International American Century Variable 19 58 101 218 19 58 101 218 * 58 101 218 Portfolios, Inc. - American Century VP Value The Dreyfus Socially 17 52 90 195 17 52 90 195 * 52 90 195 Responsible Growth Fund, Inc. Dreyfus Stock Index Fund, Inc. 11 35 60 133 11 35 60 133 * 35 60 133 Dreyfus Variable Investment 17 52 90 195 17 52 90 195 * 52 90 195 Fund - Capital Appreciation Portfolio Dreyfus Variable Investment 17 51 89 193 17 51 89 193 * 51 89 193 Fund - Growth & Income Portfolio Fidelity VIP Equity - Income 14 45 77 169 14 45 77 169 * 45 77 169 Portfolio Fidelity VIP Growth Portfolio 15 48 82 180 15 48 82 180 * 48 82 180 Fidelity VIP High Income 16 49 84 184 16 49 84 184 * 49 84 184 Portfolio Fidelity VIP Overseas 18 55 95 206 18 55 95 206 * 55 95 206 Portfolio Fidelity VIP II Asset Manager 15 47 81 176 15 47 81 176 * 47 81 176 Portfolio Fidelity VIP II Contrafund 15 48 82 180 15 48 82 180 * 48 82 180 Portfolio Fidelity VIP III Growth 16 49 84 184 16 49 84 184 * 49 84 184 Opportunities Portfolio
8 11 of 134 12 EXAMPLE (CONTINUED)
If you surrender your contract If you do not surrender your If you annuitize your at the end of the applicable contract at the end of the contract at the end of the time period applicable time period applicable time period 1 Yr. 3 Yrs. 5 Yrs. 10 Yrs. 1 Yr. 3 Yrs 5 Yrs. 10 Yrs. 1 Yr. 3 Yrs. 5 Yrs. 10 Yrs. Morgan Stanley Dean Witter 24 75 128 274 24 75 128 274 * 75 128 274 Universal Funds, Inc. - -Emerging Markets Debt Portfolio NSAT - Capital Appreciation 15 48 83 181 15 48 83 181 * 48 83 181 Fund NSAT - Government Bond Fund 14 45 77 169 14 45 77 169 * 45 77 169 NSAT - Money Market Fund 13 41 71 156 13 41 71 156 * 41 71 156 NSAT - Nationwide Small Cap 19 60 103 223 19 60 103 223 * 60 103 223 Value Fund NSAT - Nationwide Small 20 61 104 225 20 61 104 225 * 61 104 225 Company Fund NSAT - Total Return Fund 15 47 82 178 15 47 82 178 * 47 82 178 Neuberger Berman AMT - 19 58 101 218 19 58 101 218 * 58 101 218 Guardian Portfolio Neuberger Berman AMT - Growth 18 56 96 209 18 56 96 209 * 56 96 209 Portfolio Neuberger Berman AMT - 17 53 92 200 17 53 92 200 * 53 92 200 Partners Portfolio Neuberger Berman AMT - 16 51 88 191 16 51 88 191 * 51 88 191 Limited Maturity Bond Portfolio Oppenheimer VAF - Oppenheimer 16 50 87 189 16 50 87 189 * 50 87 189 Bond Fund/VA Oppenheimer VAF - Oppenheimer 16 50 87 190 16 50 87 190 * 50 87 190 Capital Appreciation Fund/VA (formerly Oppenheimer Growth Fund) Oppenheimer VAF - Oppenheimer 16 50 87 189 16 50 87 189 * 50 87 189 Global Securities Fund/VA Oppenheimer VAF - Oppenheimer 16 51 88 191 16 51 88 191 * 51 88 191 Multiple Strategies Fund/VA Strong Opportunity Fund II, 21 64 109 235 21 64 109 235 * 64 109 235 Inc. Strong Variable Insurance 21 64 110 237 21 64 110 237 * 64 110 237 Funds, Inc. - Discovery Fund II, Inc. Strong Variable Insurance 25 78 133 284 25 78 133 284 * 78 133 284 Funds, Inc. - International Stock Fund II Van Eck Worldwide Insurance 20 63 109 234 20 63 109 234 * 63 109 234 Trust - Worldwide Bond Fund Van Eck Worldwide Insurance 24 74 127 272 24 74 127 272 * 74 127 272 Trust - Worldwide Emerging Markets Fund Van Eck Worldwide Insurance 21 64 109 235 21 64 109 235 * 64 109 235 Trust - Worldwide Hard Assets Fund Van Kampen Life Investment 21 65 111 240 21 65 111 240 * 65 111 240 Trust - Morgan Stanley Real Estate Securities Portfolio
9 12 of 134 13 EXAMPLE (CONTINUED)
If you surrender your contract If you do not surrender your If you annuitize your at the end of the applicable contract at the end of the contract at the end of the time period applicable time period applicable time period 1 Yr. 3 Yrs. 5 Yrs. 10 Yrs. 1 Yr. 3 Yrs 5 Yrs. 10 Yrs. 1 Yr. 3 Yrs. 5 Yrs. 10 Yrs. Warburg Pincus Trust - Small 20 63 108 233 20 63 108 233 * 63 108 233 Company Growth Portfolio Warburg Pincus Trust - 22 69 118 254 22 69 118 254 * 69 118 254 International Equity Portfolio Warburg Pincus Trust - 23 71 122 261 23 71 122 261 * 71 122 261 Post-Venture Capital Portfolio
* The contracts sold under this prospectus do not permit annuitization during the first two contract years. 10 13 of 134 14 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 owner" will also mean "participant" unless the plan otherwise permits or requires the contract owner to exercise contract rights under the plan terms. The contracts can be categorized as: o Non-Qualified o Individual Retirement Annuities o Roth IRAs o SEP IRAs Individual Retirement Annuities or SEP IRAs may be purchased with annual IRA contributions rolled over from Qualified Plans, Individual Retirement Annuities, Tax Sheltered Annuities or custodial accounts. MINIMUM INITIAL AND SUBSEQUENT PURCHASE PAYMENTS MINIMUM CONTRACT MINIMUM INITIAL SUBSEQUENT TYPE PURCHASE PAYMENT PAYMENTS Non-Qualified $0 $0 IRA $0 $0 Roth IRA $0 $0 SEP IRA $0 $0 CHARGES AND EXPENSES Nationwide does not deduct a sales charges from purchase payments upon deposit into or withdrawal from the contract. Nationwide deducts a Mortality Risk Charge equal to an annual rate of 0.80% of the daily net assets of the variable account. Nationwide assesses these charges in return for bearing certain mortality and administrative risks. ANNUITY PAYMENTS Annuity payments begin on the annuitization date. The payments will be based on the annuity payment option chosen at the time of application (see "Annuity Payment Options"). TAXATION How the contracts are taxed depends on the type of contract issued. Nationwide will charge against the contract any premium taxes levied by any governmental authority (see "Federal Tax Considerations" and "Premium Taxes"). TEN DAY FREE LOOK Contract owners may return the contract for any reason within ten days of receipt and Nationwide will refund the contract value or the amount required by law (see "Right to Revoke"). FINANCIAL STATEMENTS Financial statements for the variable account and Nationwide are located in the Statement of Additional Information. A current statement of Additional Information may be obtained, without charge, by contacting Nationwide's home office at the telephone number listed on page 2 of this prospectus. 11 14 of 134 15 CONDENSED FINANCIAL INFORMATION Accumulation unit values for an accumulation unit outstanding throughout the period.
NUMBER OF ACCUMULATION UNIT ACCUMULATION PERCENT CHANGE ACCUMULATION UNDERLYING VALUE AT BEGINNING UNIT VALUE AT IN ACCUMULATION UNITS AT END OF MUTUAL FUND OF PERIOD END OF PERIOD UNIT VALUE PERIOD YEAR American Century 13.063915 15.003357 14.85% 10,841 1998 Variable Portfolios, 11.371689 13.063915 14.88% 7,706 1997 Inc.- American Century 10.216536 11.371689 11.31% 5,362 1996 VP Balanced-Q 10.000000 10.216536 2.17% 0 1995 American Century 13.063915 15.003357 14.85% 12,689 1998 Variable Portfolios, 11.371689 13.063915 14.88% 5,382 1997 Inc.- American Century 10.216536 11.371689 11.31% 1,084 1996 VP Balanced-NQ 10.000000 10.216536 2.17% 0 1995 American Century 8.999141 8.734621 -2.94% 6,953 1998 Variable Portfolios, 9.377268 8.999141 -4.03% 7,635 1997 Inc.- American Century 9.880281 9.377268 -5.09% 7,475 1996 VP Capital 10.000000 9.880281 -1.20% 2,625 1995 Appreciation-Q American Century 8.999141 8.734621 -2.94% 11,266 1998 Variable Portfolios, 9.377268 8.999141 -4.03% 11,715 1997 Inc.- American Century 9.880281 9.377268 -5.09% 10,548 1996 VP Capital 10.000000 9.880281 -1.20% 2,306 1995 Appreciation- NQ American Century Variable 10.000000 10.862433 8.62% 109 1998** Portfolios, Inc.- American Century VP Income & Growth-Q American Century Variable 10.000000 10.862433 8.62% 2,432 1998** Portfolios, Inc.- American Century VP Income & Growth- NQ American Century 13.831167 16.294485 17.81% 4,492 1998 Variable Portfolios, 11.752593 13.831167 17.69% 1,575 1997 Inc.- American Century 10.355977 11.752593 13.49% 365 1996 VP International-Q 10.000000 10.355977 3.56% 72 1995 American Century 13.831167 16.294485 17.81% 11,501 1998 Variable Portfolios, 11.752593 13.831167 17.69% 10,967 1997 Inc.- American Century 10.355977 11.752593 13.49% 9,164 1996 VP International-NQ 10.000000 10.355977 3.56% 741 1995 American Century 12.687119 13.191239 3.97% 997 1998 Variable Portfolio, Inc. 10.143681 12.687119 25.07% 439 1997 Inc.- American Century 10.000000 10.143681 1.44% 0 1996* VP Value-Q American Century 12.687119 13.191239 3.97% 10,800 1998 Variable Portfolio, Inc. 10.143681 12.687119 25.07% 10,139 1997 Inc.- American Century 10.000000 10.143681 1.44% 109 1996* VP Value-NQ Dreyfus Stock Index 16.954928 21.564450 27.19% 73,693 1998 Fund, Inc.-Q 12.854891 16.954928 31.89% 52,598 1997 10.575706 12.854891 21.55% 21,527 1996 10.000000 10.575706 5.76% 750 1995 Dreyfus Stock Index 16.954928 21.564450 27.19% 57,396 1998 Fund, Inc.-NQ 12.854891 16.954928 31.89% 46,692 1997 10.575706 12.854891 21.55% 17,543 1996 10.000000 10.575706 5.76% 0 1995
12 15 of 134 16 CONDENSED FINANCIAL INFORMATION (CONTINUED)
NUMBER OF ACCUMULATION UNIT ACCUMULATION PERCENT CHANGE ACCUMULATION UNDERLYING VALUE AT BEGINNING UNIT VALUE AT IN ACCUMULATION UNITS AT END OF MUTUAL FUND OF PERIOD END OF PERIOD UNIT VALUE PERIOD YEAR Dreyfus Variable 10.216047 13.196658 29.18% 8,555 1998 Investment Fund- 10.000000 10.216047 2.16% 436 1997* Capital Appreciation Portfolio-Q Dreyfus Variable 10.216047 13.199658 29.18% 11,092 1998 Investment Fund-Capital 10.000000 10.216047 2.16% 445 1997* Appreciation Portfolio-NQ Dreyfus Variable 11.514380 12.77167 10.92% 19,404 1998 Investment Fund- 9.988028 11.514380 15.28% 21,624 1997 Growth & Income 10.000000 9.988028 -0.12% 0 1996* Portfolio-Q Dreyfus Variable 11.514380 12.771671 10.92% 14,677 1998 Investment Fund- 9.988028 11.514380 15.28% 13,972 1997 Growth & Income 10.000000 9.988028 -0.12% 100 1996* Portfolio-NQ The Dreyfus Socially 15.827982 20.314721 -28.35% 19,404 1998 Responsible Growth Fund, Inc.-Q 12.423035 15.827982 27.41% 6,260 1997 10.330490 12.423035 20.26% 3,819 1996 10.000000 10.330490 3.30% 806 1995 The Dreyfus Socially 15.827982 20.314721 -28.35% 14,677 1998 Responsible Growth 12.423035 15.827982 27.41% 9,564 1997 Fund, Inc.-NQ 10.330490 12.423035 20.26% 4,955 1996 10.000000 10.330490 3.30% 232 1995 Fidelity VIP Equity-Income 15.458195 17.117556 10.73% 63,894 1998 Portfolio-Q 12.163794 15.458195 27.08% 53,201 1997 10.729806 12.163794 13.36% 38,049 1996 10.000000 10.729806 7.30% 2,701 1995 Fidelity VIP Equity-Income 15.458195 17.117556 10.73% 58,459 1998 Portfolio-NQ 12.163794 15.458195 27.08% 47,182 1997 10.729806 12.163794 13.36% 26,246 1996 10.000000 10.729806 7.30% 920 1995 Fidelity VIP Growth Portfolio-Q 13.440547 18.598337 38.37% 67,118 1998 10.972453 13.440547 22.49% 51,572 1997 9.643317 10.972453 13.78% 38,429 1996 10.000000 9.643317 -3.57% 5,324 1995 Fidelity VIP Growth Portfolio-NQ 13.440547 18.598337 38.37% 72,186 1998 10.972453 13.440547 22.49% 43,269 1997 9.643317 10.972453 13.78% 35,425 1996 10.000000 9.643317 -3.57% 4,256 1995 Fidelity VIP High Income 13.408646 12.725625 -5.09% 20,159 1998 Portfolio-Q 11.487324 13.408646 16.73% 21,865 1997 10.155366 11.487324 13.12% 13,647 1996 10.000000 10.155366 1.55% 806 1995 Fidelity VIP High Income 13.408646 12.725625 -5.09% 29,302 1998 Portfolio-NQ 11.487324 13.408646 16.73% 28,876 1997 10.155366 11.487324 13.12% 18,821 1996 10.000000 10.155366 1.55% 525 1995 Fidelity VIP Overseas 13.030895 14.574887 11.85% 1,306 1998 Portfolio-Q 11.775309 13.030895 10.66% 859 1997 10.484931 11.775309 12.31% 511 1996 10.000000 10.484931 4.85% 1,164 1995
13 16 of 134 17 CONDENSED FINANCIAL INFORMATION (CONTINUED)
NUMBER OF ACCUMULATION UNIT ACCUMULATION PERCENT CHANGE ACCUMULATION UNDERLYING VALUE AT BEGINNING UNIT VALUE AT IN ACCUMULATION UNITS AT END OF MUTUAL FUND OF PERIOD END OF PERIOD UNIT VALUE PERIOD YEAR Fidelity VIP Overseas 13.030895 14.574887 11.85% 3,352 1998 Portfolio-NQ 11.775309 13.030895 10.66% 5,016 1997 10.484931 11.775309 12.31% 3,662 1996 10.000000 10.484931 4.85% 252 1995 Fidelity VIP II Asset Manager 14.332657 16.357953 14.13% 9,570 1998 Portfolio-Q 11.975202 14.332657 19.69% 8,799 1997 10.533861 11.975202 13.68% 6,477 1996 10.000000 10.533861 5.34% 488 1995 Fidelity VIP II Asset Manager 14.332657 16.357953 14.13% 13,208 1998 Portfolio-NQ 11.975202 14.332657 19.69% 7,737 1997 10.533861 11.975202 13.68% 1,925 1996 10.000000 10.533861 5.34% 69 1995 Fidelity VIP II Contrafund 15.126324 19.503885 28.94% 25.061 1998 Portfolio-Q 12.282942 15.126324 23.15% 22,202 1997 10.207482 12.282942 20.33% 14,615 1996 10.000000 10.207482 2.07% 484 1995 Fidelity VIP II Contrafund 15.126324 19.503885 28.94% 21,809 1998 Portfolio-NQ 12.282942 15.126324 23.15% 21,146 1997 10.207482 12.282942 20.33% 12,689 1996 10.000000 10.207482 2.07% 1,565 1995 Fidelity VIP III Growth 10.957842 13.545866 23.62% 5,578 1998 Opportunities Portfolio-Q 10.000000 10.957842 9.58% 1,128 1997* Fidelity VIP III Growth 10.957842 13.545866 23.62% 9,045 1998 Opportunities Portfolio-NQ 10.000000 10.957842 9.58% 7,174 1997* Morgan Stanley Dean Witter 9.833594 6.986517 -28.95% 50 1998 Universal Funds, Inc.- Emerging 10.000000 9.833594 -1.66% 2,014 1997* Markets Debt Portfolio-Q Morgan Stanley Dean Witter 9.833594 6.986517 -28.95% 126 1998 Universal Funds, Inc.- Emerging 10.000000 9.833594 -1.66% 1,055 1997* Markets Debt Portfolio-NQ NSAT- Capital Appreciation 17.967816 23.165130 28.93% 89,909 1998 Fund-Q 13.467403 17.967816 33.42% 41,342 1997 10.763065 13.467403 25.13% 12,286 1996 10.000000 10.763065 7.63% 0 1995 NSAT- Capital Appreciation 17.967816 23.165130 28.93% 83,268 1998 Fund-NQ 13.467403 17.967816 33.42% 30,233 1997 10.763065 13.467403 25.13% 16,971 1996 10.000000 10.763065 7.63% 0 1995 NSAT-Government 11.460915 12.382040 8.04% 38,202 1998 Bond Fund-Q 10.534938 11.460915 8.79% 12,756 1997 10.262495 10.534938 2.65% 5,170 1996 10.000000 10.262495 2.62% 329 1995 NSAT-Government 11.460915 12.382040 8.04% 35,508 1998 Bond Fund-NQ 10.534938 11.460915 8.79% 20,611 1997 10.262495 10.534938 2.65% 16,048 1996 10.000000 10.262495 2.62% 0 1995
14 17 of 134 18 CONDENSED FINANCIAL INFORMATION (CONTINUED)
NUMBER OF ACCUMULATION UNIT ACCUMULATION PERCENT CHANGE ACCUMULATION UNDERLYING VALUE AT BEGINNING UNIT VALUE AT IN ACCUMULATION UNITS AT END OF MUTUAL FUND OF PERIOD END OF PERIOD UNIT VALUE PERIOD YEAR NSAT- Money Market 10.971484 11.457526 4.43% 47,932 1998 Fund- Q** 10.507347 10.971484 4.42% 39,718 1997 10.076854 10.507347 4.27% 32,496 1996 10.000000 10.076854 0.77% 1,951 1995 NSAT- Money Market 10.971484 11.457526 4.43% 57,997 1998 Fund- NQ** 10.507347 10.971484 4.42% 33,925 1997 10.076854 10.507347 4.27% 33,761 1996 10.000000 10.076854 0.77% 578 1995 NSAT-Nationwide Small 16.185025 16.217601 0.20% 21,106 1998 Company Fund-Q 13.903343 16.185025 16.41% 28,143 1997 11.411037 13.903343 21.84% 13,231 1996 10.000000 11.411037 14.11% 1,552 1995 NSAT-Nationwide Small 16.185025 16.217601 0.20% 32,785 1998 Company Fund-NQ 13.903343 16.185025 16.41% 53,457 1997 11.411037 13.903343 21.84% 31,720 1996 10.000000 11.411037 14.11% 676 1995 NSAT-Small Cap Value Fund-Q 10.000000 8.557673 -14.42% 672 1998** NSAT-Small Cap Value Fund-NQ 10.000000 8.557673 -14.42% 1,602 1998** NSAT-Total 16.295055 19.086420 17.13% 175,958 1998 Return Fund-Q 12.691338 16.295055 28.40% 154,636 1997 10.500717 12.691338 20.86% 49,402 1996 10.000000 10.500717 5.01% 42 1995 NSAT-Total 16.295055 19.086420 17.13% 165,625 1998 Return Fund-NQ 12.691338 16.295055 28.40% 127,059 1997 10.500717 12.691338 20.86% 65,856 1996 10.000000 10.500717 5.01% 450 1995 Neuberger Berman 13.815173 15.832511 14.60% 8,454 1998 AMT-Growth Portfolio-Q 10.795282 13.815173 27.97% 12,673 1997 9.971367 10.795282 8.26% 6,941 1996 10.000000 9.971367 -0.29% 2,596 1995 Neuberger Berman 13.815173 15.832511 14.60% 13,157 1998 AMT-Growth Portfolio-NQ 10.795282 13.815173 27.97% 12,764 1997 9.971367 10.795282 8.26% 7,119 1996 10.000000 9.971367 -0.29% 1,831 1995 Neuberger Berman 10.000000 9.313837 -6.86% 1,169 1998* AMT-Guardian Portfolio-Q Neuberger Berman 10.000000 9.313837 -6.86% 10,424 1998* AMT-Guardian Portfolio-NQ Neuberger Berman 11.153775 11.550378 3.56% 2,556 1998 AMT-Limited Maturity 10.533549 11.153775 5.89% 6,757 1997 Bond Portfolio-Q 10.180593 10.533549 3.47% 1,473 1996 10.000000 10.180593 1.81% 0 1995
15 18 of 134 19 CONDENSED FINANCIAL INFORMATION (CONTINUED)
NUMBER OF ACCUMULATION UNIT ACCUMULATION PERCENT CHANGE ACCUMULATION UNDERLYING VALUE AT BEGINNING UNIT VALUE AT IN ACCUMULATION UNITS AT END OF MUTUAL FUND OF PERIOD END OF PERIOD UNIT VALUE PERIOD YEAR Neuberger Berman 11.153775 11.550378 3.56% 6,843 1998 AMT-Limited Maturity 10.533549 11.153775 5.89% 4,478 1997 Bond Portfolio-NQ 10.180593 10.533549 3.47% 2,542 1996 10.000000 10.180593 1.81% 18,239 1995 Neuberger Berman 17.688563 18.285622 3.38% 27,924 1998 AMT-Partners Portfolio-Q 13.585552 17.688563 30.20% 28,536 1997 10.570046 13.585552 28.53% 11,527 1996 10.000000 10.570046 5.70% 934 1995 Neuberger Berman 17.688563 18.285622 3.38% 25,730 1998 AMT-Partners Portfolio-NQ 13.585552 17.688563 30.20% 35,613 1997 10.570046 13.585552 28.53% 19,721 1996 10.000000 10.570046 5.70% 233 1995 Oppenheimer VAF 11.589929 12.279322 5.95% 17,438 1998 - -Oppenheimer Bond 10.693801 11.589929 8.38% 9,333 1997 Fund-/VA-Q 10.287129 10.693801 3.95% 5,191 1996 10.000000 10.287129 2.87% 0 1995 Oppenheimer VAF 11.589929 12.279322 5.95% 19,590 1998 - -Oppenheimer Bond 10.693801 11.589929 8.38% 5,291 1997 Fund-/VA-NQ 10.287129 10.693801 3.95% 2,496 1996 10.000000 10.287129 2.87% 71 1995 Oppenheimer VAF- 14.315651 16.204214 13.19% 7,037 1998 Oppenheimer Global 11.787738 14.315651 21.45% 6,749 1997 Securities Fund/VA-Q 10.087683 11.787738 16.85% 1,508 1996 10.000000 10.087683 0.88% 0 1995 Oppenheimer VAF- 14.315651 16.204214 13.19% 5,896 1998 Oppenheimer Global 11.787738 14.315651 21.45% 8,609 1997 Securities Fund/VA-NQ 10.087683 11.787738 16.85% 4,650 1996 10.000000 10.087683 0.88% 44 1995 Oppenheimer VAF-Oppenheimer 10.452434 12.857366 23.01% 7,443 1998 Capital Appreciation Fund/VA 10.000000 10.452434 4.52% 1,122 1997* (formerly Oppenheimer Growth Fund)-Q Oppenheimer VAF- Oppenheimer 10.452434 12.857366 23.01% 2,581 1998 Capital Appreciation Fund/VA 10.000000 10.452434 4.52% 153 1997* (formerly Oppenheimer Growth Fund)-NQ Oppenheimer VAF 13.725672 14.521876 5.80% 14,316 1998 - -Oppenheimer 11.803522 13.725672 16.28% 14,345 1997 Multiple Strategies 10.302692 11.803522 14.57% 4,469 1996 Fund-VA-Q 10.000000 10.302692 3.03% 0 1995 Oppenheimer VAF 13.725672 14.521876 5.80% 16,138 1998 - -Oppenheimer 11.803522 13.725672 16.28% 9,530 1997 Multiple Strategies 10.302692 11.803522 14.57% 4,093 1996 Fund-NQ 10.000000 10.302692 3.03% 78 1995 Strong Opportunity 15.443112 17.394278 12.63% 19,114 1998 Fund II, Inc.- Q 12.408965 15.443112 24.45% 19,338 1997 10.587949 12.408965 17.20% 7,847 1996 10.000000 10.587949 5.88% 491 1995 Strong Opportunity 15.443112 17.394278 12.63% 19,791 1998 Fund, II Inc.-NQ 12.408965 15.443112 24.45% 14,422 1997 10.587949 12.408965 17.20% 8,283 1996 10.000000 10.587949 5.88% 309 1995
16 19 of 134 20 CONDENSED FINANCIAL INFORMATION (CONTINUED)
NUMBER OF ACCUMULATION UNIT ACCUMULATION PERCENT CHANGE ACCUMULATION UNDERLYING VALUE AT BEGINNING UNIT VALUE AT IN ACCUMULATION UNITS AT END OF MUTUAL FUND OF PERIOD END OF PERIOD UNIT VALUE PERIOD YEAR Strong Variable 11.566866 12.307345 6.40% 756 1998 Insurance Funds, 10.467953 11.566866 10.50% 1,366 1997 Inc.- Discovery 10.468286 10.467953 -0.00% 897 1996 Fund II, Inc.-Q 10.000000 10.468286 4.68% 418 1995 Strong Variable 11.566866 12.037345 6.40% 3,184 1998 Insurance Funds, 10.467953 11.566866 10.50% 6,228 1997 Inc.- Discovery 10.468286 10.467953 -0.00% 5,000 1996 Fund II, Inc.-NQ 10.000000 10.468286 4.68% 1,763 1995 Strong Variable 9.559256 9.029694 -5.54% 3,271 1998 Insurance Funds, Inc. 11.142737 9.559256 -14.21% 3,580 1997 - -International Stock 10.176527 11.142737 9.49% 3,313 1996 Fund II-Q 10.000000 10.176527 1.77% 0 1995 Strong Variable 9.559256 9.029694 -5.54% 704 1998 Insurance Funds, Inc. 11.142737 9.559256 -14.21% 1,291 1997 - -International Stock 10.176527 11.142737 9.49% 2,222 1996 Fund II-NQ 10.000000 10.176527 1.77% 0 1995 Van Eck Worldwide 10.447140 11.685439 11.85% 1,169 1998 Insurance Trust - 10.285816 10.447140 1.57% 637 1997 Worldwide Bond 10.113918 10.285816 1.70% 683 1996 Fund-Q 10.000000 10.113918 1.14% 496 1995 Van Eck Worldwide 10.447140 11.685439 11.85% 1,060 1998 Insurance Trust- 10.285816 10.447140 1.57% 1,016 1997 Worldwide Bond 10.113918 10.285816 1.70% 181 1996 Fund-NQ 10.000000 10.113918 1.14% 0 1995 Van Eck Worldwide 8.838016 5.774938 -34.66% 6,729 1998 Insurance Trust- 10.078944 8.838016 -12.31% 10,818 1997 Worldwide Emerging 10.000000 10.078944 0.79% 0 1996* Markets Fund-Q Van Eck Worldwide 8.838016 5.774938 -34.66% 4,464 1998 Insurance Trust- 10.078944 8.838016 -12.31% 5,579 1997 Worldwide Emerging 10.000000 10.078944 0.79% 151 1996* Markets Fund-NQ Van Eck Worldwide 12.634338 8.651833 -31.52% 1,662 1998 Insurance Trust-Worldwide 12.953621 12.634338 -2.46% 1,428 1997 Hard Assets Fund-Q 11.060595 12.953621 17.12% 1,121 1996 10.000000 11.060595 10.61% 305 1995 Van Eck Worldwide 12.634338 8.651833 -31.52% 9,030 1998 Insurance Trust-Worldwide 12.953621 12.634338 -2.46% 9,072 1997 Hard Assets-NQ 11.060595 12.953621 17.12% 8,904 1996 10.000000 11.060595 10.61% 194 1995 Van Kampen Life Investment 17.802527 15.607765 -12.33% 5,144 1998 Trust-Morgan Stanley 14.773661 17.802527 20.50% 6,274 1997 Real Estate Securities 10.597781 14.773661 39.40% 3,666 1996 Portfolio-Q 10.000000 10.597781 5.98% 231 1995 Van Kampen Life Investment 17.802527 15.607765 -12.33% 11,844 1998 Trust-Morgan Stanley 14.773661 17.802527 20.50% 16,279 1997 Real Estate Securities 10.597781 14.773661 39.40% 10,037 1996 Portfolio-NQ 10.000000 10.597781 5.98% 235 1995
17 20 of 134 21 CONDENSED FINANCIAL INFORMATION (CONTINUED)
NUMBER OF ACCUMULATION UNIT ACCUMULATION PERCENT CHANGE ACCUMULATION UNDERLYING VALUE AT BEGINNING UNIT VALUE AT IN ACCUMULATION UNITS AT END OF MUTUAL FUND OF PERIOD END OF PERIOD UNIT VALUE PERIOD YEAR Warburg Pincus Trust- 10.962668 11.456500 4.50% 3,803 1998 International Equity 11.306243 10.962668 -3.04% 9,899 1997 Portfolio-Q 10.363169 11.306243 9.10% 6,990 1996 10.000000 10.363169 3.63% 56 1995 Warburg Pincus Trust- 10.962668 11.456500 4.50% 3,149 1998 International Equity 11.306243 10.962668 -3.04% 7,315 1997 Portfolio-NQ 10.363169 11.306243 9.10% 7,213 1996 10.000000 10.363169 3.63% 0 1995 Warburg Pincus Trust- 11.428435 12.075066 5.66% 411 1998 Post-Venture Capital 10.164891 11.428435 12.43% 774 1997 Portfolio-Q 10.000000 10.164891 1.65% 0 1996* Warburg Pincus Trust- 11.428435 12.075066 5.66% 3,383 1998 Post-Venture Capital 10.164891 11.428435 12.43% 2,554 1997 Portfolio-NQ 10.000000 10.164891 1.65% 74 1996* Warburg Pincus Trust- 14.460130 13.935312 -3.63% 11,973 1998 Small Company Growth 12.604244 14.460130 14.72% 14,575 1997 Portfolio-Q 11.154927 12.604244 12.99% 11,253 1996 10.000000 11.154927 11.55% 3,368 1995 Warburg Pincus Trust- 14.460130 13.935312 -3.63% 24,274 1998 Small Company Growth 12.604244 14.460130 14.72% 23,748 1997 Portfolio-NQ 11.154927 12.604244 12.99% 26,142 1996 10.000000 11.154927 11.55% 959 1995
* The Dreyfus Variable Investment Fund-Capital Appreciation Portfolio, Fidelity VIP III Growth Opportunities Portfolio, Morgan Stanley Dean Witter Universal Funds, Inc.-Emerging Markets Debt Portfolio, and Oppenheimer VAF-Oppenheimer Capital Appreciation Fund/VA (formerly Oppenheimer Growth Fund) were added July 14, 1997. Consequently, the condensed financial information reflects the accumulation unit values for the accumulation units outstanding for the period from July 14, 1997 to December 31, 1997. The American Century Variable Portfolio, Inc. - American Century VP Value, Dreyfus Variable Investment Fund - Growth & Income Portfolio, Van Eck Worldwide Insurance Trust - Worldwide Emerging Markets Fund, and Warburg Pincus Trust - Post-Venture Capital Portfolio were added December 23, 1996. Consequently, the condensed financial information reflects the accumulation unit values for the accumulation units outstanding for the period from December 23, 1996 to December 31, 1996. ** American Century Variable Portfolios, Inc. - American Century VP Income & Growth, NSAT -Nationwide Small Cap Value Fund and Neuberger Berman AMT - Guardian Portfolio were added to the variable account effective May 1, 1998. Consequently, the condensed financial information reflects the accumulation unit values for the accumulation units outstanding for the period from May 1, 1998 to December 31, 1998. *** The 7-day yield on the Money Market Fund as of December 31, 1998 was 4.02%. 18 21 of 134 22 NATIONWIDE LIFE INSURANCE COMPANY Nationwide is a stock life insurance company organized under Ohio law in March, 1929, with its home office at One Nationwide Plaza, Columbus, Ohio 43215. Nationwide is a provider of life insurance, annuities and retirement products. It is admitted to do business in all states, the District of Columbia and Puerto Rico. NATIONWIDE ADVISORY SERVICES, INC. The contracts are distributed by the general distributor, Nationwide Advisory Services, Inc. ("NAS"), Three Nationwide Plaza, Columbus, Ohio 43215. NAS is a wholly owned subsidiary of Nationwide. INVESTING IN THE CONTRACT THE VARIABLE ACCOUNT AND UNDERLYING MUTUAL FUNDS Nationwide Variable Account-II is a separate account that invests in the underlying mutual funds listed in Appendix A. Nationwide established the separate account on October 7, 1981, pursuant to Ohio law. Although the separate account is registered with the SEC as a unit investment trust pursuant to the Investment Company Act of 1940 ("1940 Act"), the SEC does not supervise the management of Nationwide or the variable account. Income, gains, and losses credited to, or charged against, the variable account reflect the variable account's own investment experience and not the investment experience of Nationwide's other assets. The variable account's assets are held separately from Nationwide's assets and are not chargeable with liabilities incurred in any other business of Nationwide. Nationwide is obligated to pay all amounts promised to contract owners under the contracts. The variable account is divided into sub-accounts. Nationwide uses the assets of each sub-account to buy shares of the underlying mutual funds based on contract owner instructions. There are two sub-accounts for each underlying mutual fund. One sub-account contains shares attributable to accumulation units under Non-Qualified Contracts. The other contains shares attributable to accumulation units under Individual Retirement Annuities, Roth IRAs, and SEP IRAs. 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. 19 22 of 134 23 The number of shares which a contract owner may vote is determined by dividing the cash value of the amount they have allocated to an underlying mutual fund by the net asset value of that underlying mutual fund. Nationwide will designate a date for this determination not more than 90 days before the shareholder meeting. Material Conflicts The underlying mutual funds may be offered through separate accounts of other insurance companies, as well as through other separate accounts of Nationwide. Nationwide does not anticipate any disadvantages to this. However, it is possible that a conflict may arise between the interests of the variable account and one or more of the other separate accounts in which these underlying mutual funds participate. Material conflicts may occur due to a change in law affecting the operations of variable life insurance policies and variable annuity contracts, or differences in the voting instructions of the contract owners and those of other companies. If a material conflict occurs, Nationwide will take whatever steps are necessary to protect contract owners and variable annuity payees, including withdrawal of the variable account from participation in the underlying mutual fund(s) involved in the conflict. Substitution of Securities Nationwide may substitute, eliminate, or combine shares of another underlying mutual fund for shares already purchased or to be purchased in the future if either of the following occurs: 1) shares of a current underlying mutual fund are no longer available for investment; or 2) further investment in an underlying mutual fund is inappropriate. No substitution, elimination, or combination of shares may take place without the prior approval of the SEC and state insurance departments. THE FIXED ACCOUNT The fixed account is an investment option that is funded by assets of Nationwide's general account. The general account contains all of Nationwide's assets other than those in other Nationwide separate accounts. It is used to support Nationwide's annuity and insurance obligations and may contain compensation for mortality and expense risks. The general account is not subject to the same laws as the variable account and the SEC has not reviewed material in this prospectus relating to the fixed account. However, information relating to the fixed account is subject to federal securities laws relating to accuracy and completeness of prospectus disclosure. Purchase payments will be allocated to the fixed account by election of the contract owner. The investment income earned by the fixed account will be allocated to the contracts at varying guaranteed interest rate(s) depending on the following categories of fixed account allocations: o New Money Rate - The rate credited on the fixed account allocation when the contract is purchased or when subsequent purchase payments are made. Subsequent purchase payments may receive different New Money Rates than the rate when the contract was issued, since the New Money Rate is subject to change based on market conditions. o Variable Account to Fixed Rate - Allocations transferred from any of the underlying investment options in the variable account to the fixed account may receive a different rate. The rate may be lower than the New Money Rate. There may be limits on the amount and frequency of movements from the variable account to the fixed account. o Renewal Rate - The rate available for maturing fixed account allocations which are entering a new guarantee period. The contract owner will be notified of this rate in a letter issued with the quarterly statements when any of the money in the contract owner's fixed account matures. At that time, the contract owner will have an opportunity to leave the money in the fixed account and receive the Renewal Rate or the contract owner can move the money to any of the other underlying mutual fund options. 20 23 of 134 24 o Dollar Cost Averaging Rate - From time to time, Nationwide may offer a more favorable rate for an initial purchase payment into a new contract when used in conjunction with a Dollar Cost Averaging program. All of these rates are subject to change on a daily basis; however, once applied to the fixed account, the interest rates are guaranteed until the end of the calendar quarter during the 12 month anniversary in which the fixed account allocation occurs. Credited interest rates are annualized rates - the effective yield of interest over a one-year period. Interest is credited to each contract on a daily basis. As a result, the credited interest rate is compounded daily to achieve the stated effective yield. Any interest in excess of 3.0% will be credited to fixed account allocations at Nationwide's sole discretion. The contract owner assumes the risk that interest credited to fixed account allocations may not exceed the minimum guarantee of 3.0% for any given year. Nationwide guarantees that the fixed account contract value will not be less than the amount of the purchase payments allocated to the fixed account, plus interest credited as described above, less any applicable charges. STANDARD CHARGES AND DEDUCTIONS MORTALITY RISK CHARGE Nationwide deducts a Mortality Risk Charge from the variable account. This amount is computed on a daily basis, and is equal to an annual rate of 0.80% of the daily net assets of the variable account. The mortality risk charges compensate Nationwide for guaranteeing the annuity rate of the contracts. This guarantee ensures that the annuity rates will not change regardless of the death rates of annuity payees or the general population. If the Mortality Risk Charge is insufficient to cover actual expenses, the loss is borne by Nationwide. PREMIUM TAXES Nationwide will charge against the contract value any premium taxes levied by a state or other government entity. Premium tax rates currently range from 0% to 3.5%. This range is subject to change. The method used to assess premium tax will be determined by Nationwide at its sole discretion in compliance with state law. If applicable, Nationwide will deduct premium taxes from the contract either at: (1) the time the contract is surrendered; (2) annuitization; or (3) such other dates as Nationwide becomes subject to premium taxes. Premium taxes may be deducted from death benefit proceeds. CONTRACT OWNERSHIP The contract owner has all rights under the contract, including the right to designate and change any designations of the contract owner, contingent owner, annuitant, contingent annuitant, beneficiary, contingent beneficiary, annuity payment option, and annuity commencement date. Purchasers who name someone other than themselves as the contract owner will have no rights under the contract. Contract owners of Non-Qualified Contracts may name a new contract owner at any time before the annuitization date. Any change of contract owner automatically revokes any prior contract owner designation. Changes in contract ownership may result in federal income taxation and may be subject to state and federal gift taxes. A change in contract ownership must be submitted in writing and recorded at Nationwide's home office. Once recorded, the change will be effective as of the date signed. However, the change will not affect any payments made or actions taken by Nationwide before it was recorded. The contract owner may also request a change in the annuitant, contingent annuitant, contingent owner, beneficiary, or contingent beneficiary before the annuitization date. These changes must be: 21 24 of 134 25 o on a Nationwide form; o signed by the contract owner; and o received at Nationwide's home office before the annuitization date. Nationwide must review and approve any change requests. If the contract owner is not a natural person and there is a change of the annuitant, distributions will be made as if the contract owner died at the time of the change. On the annuitization date, the annuitant will become the contract owner. JOINT OWNERSHIP Joint owners each own an undivided interest in the contract. If a contract owner who is NOT the annuitant dies before the annuitization date, the joint owner becomes the contract owner. Contract owners can name a joint owner at any time before annuitization subject to the following conditions: o Joint owners can only be named for Non-Qualified Contracts; o Joint owners must be spouses at the time joint ownership is requested, unless state law requires Nationwide to allow non-spousal joint owners; o The exercise of any ownership right in the contract will generally require a written request signed by both joint owners; o An election in writing signed by both contract owners must be made to authorize Nationwide to allow the exercise of ownership rights independently by either joint owner; and o Nationwide will not be liable for any loss, liability, cost, or expense for acting in accordance with the instructions of either joint owner. CONTINGENT OWNERSHIP For contracts issued in New York, references throughout this prospectus to "contingent owner" will mean "owner's beneficiary." The contingent owner is entitled to certain benefits under the contract, if a contract owner who is NOT the annuitant dies before the annuitization date, and there is no surviving joint owner. The contract owner may name or change a contingent owner at any time before the annuitization date. To change the contingent owner, a written request must be submitted to Nationwide. Once Nationwide has recorded the change, it will be effective as of the date it was signed, whether or not the contract owner was living at the time it was recorded. The change will not affect any action taken by Nationwide before the change was recorded. ANNUITANT The annuitant is the person designated to receive annuity payments during annuitization of the contract and upon whose continuation of life any annuity payment involving life contingencies depends. This person must be age 90 or younger at the time of contract issuance, unless Nationwide approves a request for an annuitant of greater age. The annuitant may be changed prior to the annuitization date with the consent of Nationwide. BENEFICIARY AND CONTINGENT BENEFICIARY The beneficiary is the person(s) who is entitled to the death benefit if the annuitant dies before the annuitization date and there is no joint owner. The contract owner can name more than one beneficiary. Multiple beneficiaries will share the death benefit equally, unless otherwise specified. OPERATION OF THE CONTRACT MINIMUM INITIAL AND SUBSEQUENT PURCHASE PAYMENTS MINIMUM CONTRACT MINIMUM INITIAL SUBSEQUENT TYPE PURCHASE PAYMENT PAYMENTS Non-Qualified $0 $0 IRA $0 $0 Roth IRA $0 $0 SEP IRA $0 $0 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 22 25 of 134 26 application and all necessary information are complete. If the application is not complete, Nationwide may retain a purchase payment for up to 5 business days while attempting to complete it. If the application is not completed within 5 business days, the prospective purchaser will be informed of the reason for the delay. The purchase payment will be returned unless the prospective purchaser specifically allows Nationwide to hold the purchase payment until the application is completed. Subsequent purchase payments will be priced based on the next available accumulation unit value after the payment is received. The cumulative total of all purchase payments under contracts on the life of any one annuitant cannot exceed $1,000,000 without Nationwide's prior consent. Purchase payments will not be priced when the New York Stock Exchange is closed or on the on the following nationally recognized holidays: o New Year's Day o Independence Day o Martin Luther King, Jr. Day o Labor Day o Presidents' Day o Thanksgiving o Good Friday o Christmas o Memorial Day Nationwide also will not price purchase payments if: (1) trading on the New York Stock Exchange is restricted; (2) an emergency exists making disposal or valuation of securities held in the variable account impracticable; or (3) the SEC, by order, permits a suspension or postponement for the protection of security holders. Rules and regulations of the SEC will govern as to when conditions described in (2) and (3) exist. If Nationwide is closed on days when the New York Stock Exchange is open, contract value may be affected since the contract owner would not have access to their account. ALLOCATION OF PURCHASE PAYMENTS Nationwide allocates purchase payments to the sub-accounts and the fixed account as instructed by the contract owner. Shares of the underlying mutual funds allocated to the sub-accounts are purchased at net asset value, then converted into accumulation units. Contract owners can change allocations or make exchanges among the sub-accounts or the fixed account. However, no change may be made that would result in an amount less than 1% of the purchase payments being allocated to any sub-account for any contract owner. Certain transactions may be subject to conditions imposed by the underlying mutual funds, as well as those set forth in the contract. DETERMINING THE CONTRACT VALUE The contract value is: 1) the value of amounts allocated to the sub-accounts of the variable account; and 2) amounts allocated to the fixed account. If part or all of the contract value is surrendered, or charges are assessed against the whole contract value, Nationwide will deduct a proportionate amount from each sub-account and the fixed account based on current cash values. Determining Variable Account Value - Valuing an Accumulation Unit Purchase payments or transfers allocated to sub-accounts are accounted for in accumulation units. Accumulation unit values (for each sub-account) are determined by calculating the net investment factor for the underlying mutual funds for the current valuation period and multiplying that result with the accumulation unit values determined on the previous valuation period. Nationwide uses the net investment factor as a way to calculate the investment performance of a sub-account from valuation period to valuation period. For each sub-account, the net investment factor shows the investment performance of the underlying mutual fund in which a particular sub-account invests, including the charges assessed against that sub-account for a valuation period. The net investment factor for any particular sub-account is determined by dividing (a) by (b), and then subtracting (c) from the result, where 23 26 of 134 27 (a) is: (1) the net asset value of the underlying mutual fund as of the end of the current valuation period; and (2) the per share amount of any dividend or income distributions made by the underlying mutual fund (if the ex-dividend date occurs during the current valuation period). (b) is the net asset value of the underlying mutual fund determined as of the end of the preceding valuation period. (c) is a factor representing the daily variable account charges, which may include charges for contract options chosen by the contract owner. The factor is equal to an annual rate of 0.80% of the daily net assets of the variable account. Based on the net investment factor, the value of an accumulation unit may increase or decrease. Changes in the net investment factor may not be directly proportional to changes in the net asset value of the underlying mutual fund shares because of the deduction of variable account charges. Though the number of accumulation units will not change as a result of investment experience, the value of an accumulation unit may increase or decrease from valuation period to valuation period. Determining Fixed Account Value Nationwide determines the value of the fixed account by: 1) adding all amounts allocated to the fixed account, minus amounts previously transferred or withdrawn; and 2) adding any interest earned on the amounts allocated. TRANSFERS Transfers from the Fixed Account to the Variable Account Fixed account allocations may be transferred to the variable account only upon reaching the end of an interest rate guarantee period. Normally, Nationwide will permit 100% of such fixed account allocations to be transferred to the variable account; however Nationwide may, under certain economic conditions and at its discretion, limit the maximum transferable amount. Under no circumstances will the maximum transferable amount be less than 10% of the fixed account allocation reaching the end of an interest rate guarantee period. Transfers of the fixed account allocations must be made 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. Transfer Requests Nationwide will accept transfer requests in writing or over the telephone. Nationwide will use reasonable procedures to confirm that telephone instructions are genuine and will not be liable for following telephone instructions that it reasonably determined to be genuine. Nationwide may withdraw the telephone exchange privilege upon 30 days written notice to contract owners. 24 27 of 134 28 Amounts transferred to the variable account will receive the accumulation unit value next determined after the transfer request is received. After annuitization, transfers may only be made on the anniversary of the annuitization date. Interest Rate Guarantee Period The interest rate guarantee period is the period of time that the fixed account interest rate is guaranteed to remain the same. 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. The refunded contract value will reflect the deduction of any contract charges, unless otherwise required by law. All IRA, SEP IRA, and Roth IRA refunds will be a return of purchase payments. State and/or federal law may provide additional free look privileges. Liability of the variable account under this provision is limited to the contract value in each sub-account on the date of revocation. Any additional amounts refunded to the contract owner will be paid by Nationwide. SURRENDER (REDEMPTION) Contract owners may surrender some or all of their contract value before the earlier of the annuitization date or the annuitant's death. Surrender requests must be in writing and Nationwide may require additional information. When taking a full surrender, the contract must accompany the written request. Nationwide may require a signature guarantee. Nationwide will pay any amount surrendered from the sub-accounts within 7 days. However, Nationwide may suspend or postpone payment 25 28 of 134 29 when it is unable to price a purchase payment or transfer. Partial Surrenders (Partial Redemption) Nationwide will surrender accumulation units from the sub-accounts and an amount from the fixed account. The amount withdrawn from each investment option will be in proportion to the value in each option at the time of the surrender request. 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. ASSIGNMENT Contract rights are personal to the contract owner and may not be assigned without Nationwide's written consent. IRAs, Roth IRAs, and SEP IRAs may not be assigned, pledged or otherwise transferred except where allowed by law. A Non-Qualified Contract owner may assign some or all rights under the contract. An assignment must occur before annuitization while the annuitant is alive. Once proper notice of assignment is recorded by Nationwide's home office, the assignment will become effective as of the date the written request was signed. Nationwide is not responsible for the validity or tax consequences of any assignment. Nationwide is not liable for any payment or settlement made before the assignment is recorded. Assignments will not be recorded until Nationwide receives sufficient direction from the contract owner and the assignee regarding the proper allocation of contract rights. Amounts pledged or assigned will be treated as distributions and will be included in gross income to the extent that the cash value exceeds the investment in the contract for the taxable year in which it was pledged or assigned. Amounts assigned may be subject to a tax penalty equal to 10% of the amount included in gross income. Assignment of the entire contract value may cause the portion of the contract value exceeding the total investment in the contract and previously taxed amounts to be included in gross income for federal income tax purposes each year that the assignment is in effect. CONTRACT OWNER SERVICES ASSET REBALANCING Asset rebalancing is the automatic reallocation of contract values to the sub-accounts on a predetermined percentage basis. Asset rebalancing is not available for assets held in the fixed account. Requests for asset rebalancing must be on a Nationwide form. Asset rebalancing occurs every three months or on another frequency if permitted by Nationwide. If the last day of the three-month period falls on a Saturday, Sunday, recognized holiday, or any other day when the New York Stock Exchange is closed, asset rebalancing will occur on the next business day. Nationwide reserves the right to stop establishing new asset rebalancing programs. Nationwide also reserves the right to assess a processing fee for this service. DOLLAR COST AVERAGING Dollar Cost Averaging is a long-term transfer program that allows you to make regular, level investments over time. It involves the automatic transfer of a specified amount from certain sub-accounts and the fixed account into other sub-accounts. Nationwide does not guarantee that this program will result in profit or protect contract owners from loss. Contract owners direct Nationwide to automatically transfer specified amounts from the fixed account and the following underlying mutual funds: Fidelity VIP High Income Portfolio, NSAT-Government Bond Fund, NSAT-Money Market Fund and Neuberger Berman AMT- Limited Maturity Bond Portfolio to any other underlying mutual fund. The minimum monthly transfer is $100. 26 29 of 134 30 Dollar Cost Averaging from the Fixed Account Transfers from the fixed account must be equal to or less than 1/30th of the fixed account value at the time the program is requested. A dollar cost averaging program which transfers amounts from the fixed account to the variable account is not the same as an enhanced rate dollar cost averaging program. Contract owner that wish to utilize dollar cost averaging from the fixed account should first inquire as to whether any enhanced rate dollar cost averaging programs are available. Enhanced Rate Dollar Cost Averaging Program Nationwide may, from time to time, offer enhanced rate dollar cost averaging programs. Dollar cost averaging transfers for this program may only be made from the fixed account. Such enhanced rate dollar cost averaging programs allow the contract owner to earn a higher rate of interest on assets in the fixed account than would normally be credited when not participating in the program. Each enhanced interest rate is guaranteed for as long as the corresponding program is in effect. Nationwide will process transfers until either amounts in the enhanced rate fixed account are exhausted, or the contract owner instructs Nationwide in writing to stop the transfers. For this program only, when a written request to discontinue transfers is received, Nationwide will automatically transfer the remaining amount in the enhanced rate fixed account to the NSAT Money Market Fund. Transfers occur monthly or on another frequency if permitted by Nationwide. Nationwide will process transfers until either the value in the originating investment option is exhausted, or the contract owner instructs Nationwide in writing to stop the transfers. Nationwide reserves the right to stop establishing new Dollar Cost Averaging programs. Nationwide also reserves the right to assess a processing fee for this service. SYSTEMATIC WITHDRAWALS Systematic withdrawals allow contract owners to receive a specified amount (of at least $100) on a monthly, quarterly, semi-annual, or annual basis. Requests for systematic withdrawals and requests to discontinue systematic withdrawals must be in writing. The withdrawals will be taken from the sub-accounts and the fixed account proportionately unless Nationwide is instructed otherwise. Nationwide will withhold federal income taxes from systematic withdrawals unless otherwise instructed by the contract owner. The Internal Revenue Service may impose a 10% penalty tax if the contract owner is under age 59-1/2 unless the contract owner has made an irrevocable election of distributions of substantially equal payments. Nationwide reserves the right to stop establishing new systematic withdrawal programs. Nationwide also reserves the right to assess a processing fee for this service. Systematic withdrawals are not available before the end of the ten-day free look period (see "Right to Revoke"). ANNUITY COMMENCEMENT DATE The annuity commencement date is the date on which annuity payments are scheduled to begin. The contract owner may change the annuity commencement date before annuitization. This change must be in writing and approved by Nationwide. ANNUITIZING THE CONTRACT ANNUITIZATION DATE The annuitization date is the date that annuity payments begin. It will be the first day of a calendar month unless otherwise agreed, and must be at least 2 years after the contract is issued. 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. 27 30 of 134 31 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 " age last birthday basis" by: 1) deducting applicable premium taxes from the total contract value; then 2) applying the contract value amount specified by the contract owner to the variable payment annuity table for the annuity payment option elected. The dollar amount of the first payment is converted into a set number of annuity units that will represent each monthly payment. This is done by dividing the dollar amount of the first payment by the value of an annuity unit as of the annuitization date. This number of annuity units remains fixed during annuitization. The second and subsequent payments are determined by multiplying the fixed number of annuity units by the annuity unit value for the valuation period in which the payment is due. The amount of the second and subsequent payments will vary with the performance of the selected underlying mutual funds. Nationwide guarantees that variations in mortality experience from assumptions used to calculate the first payment will not affect the dollar amount of the second and subsequent payments. ASSUMED INVESTMENT RATE An assumed investment rate is the percentage rate of return assumed to determine the amount of the first payment under a variable payment annuity. Nationwide uses the assumed investment rate of 3.5% to calculate the first annuity payment. The assumed investment rate of 3.5% is the percentage rate of return required to maintain level variable annuity payments. Subsequent variable annuity payments may be more or less than the first based on whether actual investment performance is higher or lower than the assumed investment rate of 3.5%. VALUE OF AN ANNUITY UNIT Annuity unit values for sub-accounts are determined by multiplying the net investment factor for the valuation period for which the annuity unit is being calculated by the immediately preceding valuation period's annuity unit value, and multiplying the result by an interest factor to neutralize the assumed investment rate of 3.5% per annum built into the variable payment annuity purchase rate basis in the contracts. EXCHANGES AMONG UNDERLYING MUTUAL FUNDS Exchanges among underlying mutual funds during annuitization must be in writing. Exchanges will occur on each anniversary of the annuitization date. FREQUENCY AND AMOUNT OF ANNUITY PAYMENTS Payments are made based on the annuity payment option selected, unless: o the amount to be distributed is less than $5,000, in which case Nationwide may make 28 31 of 134 32 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. (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 SEP IRAs 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. If no beneficiary(ies) survive the annuitant, the contingent beneficiaries receives the death benefit. Contingent beneficiaries will share the death benefit equally, unless otherwise specified. If no beneficiaries or contingent beneficiaries survive the annuitant, the contract owner or the last surviving contract owner's estate will receive the death benefit. 29 32 of 134 33 The contract owner may change the beneficiary or contingent beneficiary during the annuitant's lifetime by submitting a written request to Nationwide. Once recorded, the change will be effective as of the date it was signed, whether or not the annuitant was living at the time it was recorded. The change will not affect any action taken by Nationwide before the change was recorded. If the annuitant dies after the annuitization date, any benefit that may be payable will be paid according to the selected annuity payment option. DEATH OF CONTRACT OWNER/ANNUITANT If a contract owner who is also the annuitant dies before the annuitization date, a death benefit is payable according to the "Death of the Annuitant - Non-Qualified Contracts" provision. If the contract owner/annuitant dies after the annuitization date, any benefit that may be payable will be paid according to the selected annuity payment option. HOW THE DEATH BENEFIT VALUE IS DETERMINED The death benefit value is determined as of the date Nationwide receives: (1) proper proof of the annuitant's death; (2) an election specifying the distribution method; and (3) any state required form(s). The beneficiary may elect to receive the death benefit: (1) in a lump sum; (2) as an annuity; or (3) in any other manner permitted by law and approved by Nationwide. The beneficiary must notify Nationwide of this election within 60 days of the annuitant's death. DEATH BENEFIT PAYMENT For contracts issued on or after the later of May 1, 1998 or the date on which state insurance authorities approved applicable contract modifications: o If the annuitant dies prior to his or her 86th birthday, the dollar amount of the death benefit will be the greatest of: 1) the contract value; 2) the sum of all purchase payments, less an adjustment for amounts surrendered; or 3) the contract value as of the most recent five year contract anniversary, less an adjustment for amounts surrendered since that five year contract anniversary. o If the annuitant dies on or after his or her 86th birthday and prior to the annuitization date the dollar amount of the death benefit will be equal to the contract value. 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). For contracts issued prior to May 1, 1998 or a date prior to which state insurance authorities approved applicable contract modifications: o If the annuitant dies prior to his or her 86th birthday, the dollar amount of the death benefit will be the greatest of: 1) the contract value; 2) the sum of all purchase payments, less any amounts surrendered; or 3) the contract value as of the most recent five year contract anniversary, less amounts surrendered since that five year contract anniversary. o If the annuitant dies on or after his or her 86th birthday and prior to annuitization, the death benefit will equal the contract value. 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: 30 33 of 134 34 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 (e.g., a trust or corporation), then, for purposes of these distribution provisions: a) the death of the annuitant will be treated as the death of a contract owner; b) any change of annuitant will be treated as the death of a contract owner; and c) in either case, the appropriate distribution will be made upon the death or change, as the case may be. These distribution provisions do not apply to any contract exempt from Section 72(s) of the Internal Revenue Code by reason of Section 72(s)(5) or any other law or rule. The designated beneficiary must elect a method of distribution and notify Nationwide of this election within 60 days of the contract owner's death. REQUIRED DISTRIBUTIONS FOR INDIVIDUAL RETIREMENT ANNUITIES OR SEP IRAs Distributions from an Individual Retirement Annuity or SEP IRA must begin no later than April 1 of the calendar year following the calendar year in which the contract owner reaches age 70-1/2. Distributions may be paid in a lump sum or in substantially equal payments over: a) the contract owner's life or the lives of the contract owner and his or her spouse or designated beneficiary; or b) a period not longer than the life expectancy of the contract owner or the joint life expectancy of the contract owner and the contract owner's designated beneficiary. If the contract owner dies before distributions begin, the interest in the Individual Retirement Annuity or SEP IRA must be distributed by December 31 of the calendar year in which the fifth anniversary of the contract owner's death occurs, unless: a) the contract owner names his or her surviving spouse as the beneficiary and such spouse chooses to: 1) treat the contract as an Individual Retirement Annuity or SEP IRA established for his or her benefit; or 2) receive distribution of the contract in substantially equal payments over his or her life (or a period not longer than his or her life expectancy) and beginning no later than December 31 of the year in which the contract owner would have reached age 70-1/2; or b) the contract owner names a beneficiary other than his or her surviving spouse and such beneficiary elects to receive a distribution of the contract in substantially equal payments over his or her life (or a period not longer than his or her life expectancy) beginning no later than 31 34 of 134 35 December 31 of the year following the year of the contract owner's death. Required distributions do not have to be withdrawn from this contract if they are being withdrawn from another Individual Retirement Annuity, SEP IRA or Individual Retirement Account of the contract owner. If the contract owner dies after distributions have begun, distributions must continue at least as rapidly as under the schedule being used before the contract owner's death. However, a surviving spouse who is the beneficiary under the annuity payment option may treat the contract as his or her own, in the same manner as is described in section (a)(i) of this provision. If distribution requirements are not met, a penalty tax of 50% is levied on the difference between the amount that should have been distributed for that year and the amount that actually was distributed for that year. A portion of each distribution will be included in the recipient's gross income and taxed at ordinary income tax rates. The portion of a distribution which is taxable is based on the ratio between the amount by which non-deductible purchase payments exceed prior non-taxable distributions and total account balances at the time of the distribution. The owner of an Individual Retirement Annuity or SEP IRA must annually report the amount of non-deductible purchase payments, the amount of any distribution, the amount by which non-deductible purchase payments for all years exceed non-taxable distributions for all years, and the total balance of all Individual Retirement Annuities. Individual Retirement Annuity or SEP IRA distributions will not receive the favorable tax treatment of a lump sum distribution from a Qualified Plan. If the contract owner dies before the entire interest in the contract has been distributed, the balance will also be included in his or her gross estate. Simplified Employee Pensions (SEPS) and Salary Reduction Simplified Employee Pensions (SAR SEPS), described in Internal Revenue Code Section 408(k) are taxed in a manner similar to IRAs, and are subject to similar distribution requirements as IRAs. SAR SEPs cannot be established after 1996. REQUIRED DISTRIBUTIONS FOR ROTH IRAs The rules for Roth IRAs do not require distributions to begin during the contract owner's lifetime. When the contract owner dies, the interest in the Roth IRA must be distributed by December 31 of the calendar year in which the fifth anniversary of his or her death occurs, unless: a) the contract owner names his or her surviving spouse as the beneficiary and the spouse chooses to: 1) treat the contract as a Roth IRA established for his or her benefit; or 2) receive distributions of the contract in substantially equal payments over his or her life (or a period not longer than his or her life expectancy) and beginning no later than December 31 of the year following the year in which the contract owner would have reached age 70-1/2; or b) the contract owner names a beneficiary other than his or her surviving spouse and the beneficiary chooses to receive distribution of the contract in substantially equal payments over his or her life (or a period not longer than his or her life expectancy) beginning no later than December 31 of the year following the year in which the contract owner dies. Distributions from Roth IRAs may be either taxable or nontaxable, depending upon whether they are "qualified distributions" or "nonqualified distributions" (see "Federal Tax Considerations"). FEDERAL TAX CONSIDERATIONS FEDERAL INCOME TAXES Contract owners should consult a financial consultant, legal counsel or tax adviser to discuss in detail the taxation and the use of the contracts. 32 35 of 134 36 Nationwide does not guarantee the tax status of the contracts or any transactions involving the contracts. Section 72 of the Internal Revenue Code governs federal income taxation of annuities in general. That section sets forth different rules for: (1) Individual Retirement Annuities and Individual Retirement Accounts; (2) Roth IRAs; and (3) SEP IRAs. Each type of annuity is discussed below. Individual Retirement Annuities, SEP IRAs and Individual Retirement Accounts Distributions from Individual Retirement Annuities, SEP IRAs and contracts owned by Individual Retirement Accounts are generally taxed when received. The excludable portion of each payment is based on the ratio between the amount by which non-deductible purchase payments to all the contracts exceeds prior non-taxable distributions from the contracts, and the total account balances in the contracts at the time of the distribution. The owner of these Individual Retirement Annuities or SEP IRAs, or the annuitant under contracts held by Individual Retirement Accounts must annually report to the Internal Revenue Service: o the amount of nondeductible purchase payments; o the amount of any distributions; o the amount by which nondeductible purchase payments for all years exceed non-taxable distributions for all years; and o the total balance in all Individual Retirement Annuities, SEP IRAs and Individual Retirement Accounts. Roth IRAs Distributions of earnings from Roth IRAs are taxable or nontaxable, depending upon whether they are "qualified distributions" or "non-qualified distributions." A "qualified distribution" is one that satisfies the five-year rule and meets one of the following requirements: (i) it is made on or after the date on which the contract owner attains age 59-1/2; (ii) it is made to a beneficiary (or the contract owner's estate) on or after the death of the contract owner; (iii) it is attributable to the contract owner's disability; or (iv) it is a qualified first-time homebuyer distribution (as defined in Section 72(t)(2)(F) of the Internal Revenue Code). If the Roth IRA does not have any qualified rollover contributions from a retirement plan other than a Roth IRA (or income allocable thereto), the five year rule is satisfied if the distribution is not made within the five year period beginning with the first contribution to the Roth IRA. If the Roth IRA contains qualified rollover contributions from a retirement plan other than a Roth IRA (or income allocable thereto), the five year rule is satisfied if the distribution is not made within the five taxable year period commencing with the taxable year in which the qualified rollover contribution was made. A non-qualified distribution is any distribution that is not a qualified distribution. A qualified distribution is not included in gross income for federal income tax purposes. A non-qualified distribution is not includible in gross income to the extent that the distribution, when added to all previous distributions, does not exceed the total amount of contributions made to the Roth IRA. Any non-qualified distribution in excess of the aggregate amount of contributions will be included in the contract owner's gross income in the year that is distributed to the contract owner. Taxable distributions will not receive the same favorable tax treatment of a lump sum distribution from a Qualified Plan. If the contract owner dies before the contract is completely distributed, the balance will also be included in the contract owner's gross estate for tax purposes. A change of the annuitant or contingent annuitant may be treated by the Internal Revenue Service as a taxable transaction. 33 36 of 134 37 Non-Qualified Contracts - Natural Persons as Contract Owners The rules applicable to Non-Qualified Contracts provide that a portion of each annuity payment is excludable from taxable income based on the ratio between the contract owner's investment in the contract and the expected return on the contract until the investment has been recovered. Thereafter the entire amount is includible in income. The maximum amount excludable from income is the investment in the contract. If the annuitant dies before the entire investment in the contract has been excluded from income and no additional payments are due after his or her death, then he or she may be entitled to a deduction for the balance of the investment included on his or her final income tax return. Distributions before the annuitization date are taxable to the contract owner to the extent that the cash value of the contract exceeds the contract owner's investment at the time of the distribution. Distributions, for this purpose, include partial surrenders, dividends, loans, or any portion of the contract that is assigned or pledged; or for contracts issued after April 22, 1987, any portion of the contract transferred by gift. For these purposes, a transfer by gift may occur upon annuitization if the contract owner and the annuitant are not the same individual. In determining the taxable amount of a distribution, all annuity contracts issued after October 21, 1988 by the same company to the same contract owner during any 12-month period will be treated as one annuity contract. Additional limitations on the use of multiple contracts may be imposed by Treasury Regulations. Distributions before the annuitization date allocable to a portion of the contract invested prior to August 14, 1982, are treated first as a recovery of the investment in the contract as of that date. A distribution in excess of the amount of the investment in the contract as of August 14, 1982, will be treated as taxable income. The Tax Reform Act of 1986 has changed the tax treatment of certain Non-Qualified Contracts held by entities other than individuals. Such entities are taxed currently on earnings from contributions made to the contract after February 28, 1986. There are exceptions for immediate annuities and certain contracts owned for the benefit of an individual. An immediate annuity, for purposes of this discussion, is a single premium contract on which payments begin within one year of purchase. If this contract is issued as the result of an exchange described in Section 1035 of the Internal Revenue Code, for purposes of determining whether the contract is an immediate annuity, it will generally be considered to have been purchased on the purchase date of the contract given up in the exchange. Internal Revenue Code Section 72 also assesses a penalty tax if a distribution is made before the contract owner reaches age 59-1/2. The amount of the penalty is 10% of the portion of any distribution that is includible in gross income. The penalty tax does not apply if the distribution: 1) is the result of a contract owner's death; 2) is the result of a contract owner's disability; 3) is one of a series of substantially equal periodic payments made over the life or life expectancy of the contract owner (or the joint lives or joint life expectancies of the contract owner and the beneficiary selected by the contract owner to receive payment under the annuity payment option selected by the contract owner), 4) is for the purchase of an immediate annuity; or 5) is allocable to an investment in the contract before August 14, 1982. A contract owner that wants to begin taking distributions to which the 10% tax penalty does not apply should forward a written request to Nationwide. Upon receipt of this written request, Nationwide will inform the contract owner of Nationwide's policies and procedures, as well as contract limitations. An election to begin taking these withdrawals will be irrevocable and may not be amended or changed. 34 37 of 134 38 In order to qualify as an annuity contract under Section 72 of the Internal Revenue Code, the contract must provide for distribution of the entire contract upon a contract owner's death. These rules are described in "Required Distributions for Non-Qualified Contracts." The Internal Revenue Code requires that any election to receive an annuity instead of a lump sum payment be made within 60 days after the lump sum becomes payable (generally, within 60 days of the death of a contract owner or the annuitant). As long as the election is made within the 60 day period, each distribution will be taxable when it is paid. Upon the end of this 60 day period, if no election has been made, the entire amount of the lump sum will be subject to immediate tax, even if the payee decides at a later date to take the distribution as an annuity. Non-Qualified Contracts - Non-Natural Persons as Contract Owners The previous discussion related to the taxation of Non-Qualified Contracts owned (or, pursuant to Section 72(u) of the Internal Revenue Code, deemed to be owned) by individuals. Different rules apply if the contract owner is not a natural person. Generally, contracts owned by corporations, partnerships, trusts, and similar entities ("non-natural persons") are not treated as annuity contracts under the Internal Revenue Code. Specifically, they are not treated as annuity contracts for purposes of Section 72. Therefore, income earned under a Non-Qualified Contract that is owned by a non-natural person is taxed as ordinary income during the taxable year that it is earned. Taxation is not deferred, even if the income is not distributed out of the contract to the contract owner. This non-natural person rule does not apply to all entity-owned contracts. A contract that is owned by a non-natural person as an agent for an individual is treated as owned by the individual. This would put the contract back under Section 72, allowing tax deferral. However, this exception does not apply when the non-natural person is an employer that holds the contract under a non-qualified deferred compensation arrangement for one or more employees. The non-natural person rule also does not apply to contracts that are: a) acquired by the estate of a decedent by reason of the death of the decedent; b) issued in connection with certain qualified retirement plans and individual retirement plans; c) used in connection with certain structured settlements; d) purchased by an employer upon the termination of certain qualified retirement plans; or e) an immediate annuity. INDIVIDUAL RETIREMENT ANNUITIES AND SEP IRAs Contract owners looking for information on eligibility, limitations on permissible amounts of purchase payments, and the tax consequences of distributions from SEP IRAs and Individual Retirement Annuities should contact a qualified adviser. The terms of each plan may limit the rights available under the contracts. The Internal Revenue Code allows most distributions from Qualified Plans to be rolled into other Qualified Plans, SEP IRAs or Individual Retirement Annuities. Most distributions from Tax Sheltered Annuities may be rolled into another Tax Sheltered Annuity, Individual Retirement Annuity, SEP IRA or an Individual Retirement Account. Distributions that may NOT be rolled over are those that are: a) one of a series of substantially equal annual (or more frequent) payments made: 1) over the life (or life expectancy) of the contract owner; 2) over the joint lives (or joint life expectancies) of the contract owner and the contract owner's designated beneficiary; 3) for a specified period of ten years or more; or b) a required minimum distribution. 35 38 of 134 39 Any distribution that is eligible for rollover will be subject to federal tax withholding of 20% if the distribution is not rolled into an appropriate plan as described above. Individual Retirement Accounts, SEP IRAs and Individual Retirement Annuities may not provide life insurance benefits. If the death benefit exceeds the greater of the contract's cash value or the sum of all purchase payments (less any surrenders), the contract could be considered life insurance. Consequently, the Internal Revenue Service could determine that the Individual Retirement Account, SEP IRA or Individual Retirement Annuity does not qualify for the desired tax treatment. ROTH IRAs The contract may be purchased as a Roth IRA. For detailed information on purchasing and holding this contract as a Roth IRA, the contract owner should contact a financial adviser. The Internal Revenue Code allows distributions from Individual Retirement Accounts and Individual Retirement Annuities to be rolled into Roth IRAs. The rollovers are subject to federal income tax as distributions from the Individual Retirement Account or Individual Retirement Annuity. For rollovers from Individual Retirement Accounts and Individual Retirement Annuities, the income from the rollover will be required to be included in income in the year of the rollover distribution from the Individual Retirement Account or Individual Retirement Annuity. A distribution from a Roth IRA that contains the proceeds of a rollover from an Individual Retirement Account or Individual Retirement Annuity within the preceding five years could be subject to a 10% penalty, even if the distribution is not taxable. In addition, if the rollover from the Individual Retirement Account or Individual Retirement Annuity was made in 1998, and the income from that rollover was included in income ratably over a four year period, a distribution from the Roth IRA within four years of the rollover may result in the loss of all or a portion of the four year spread, subjecting the amount deferred under the four year election to current taxation. WITHHOLDING Pre-death distributions from the contracts are subject to federal income tax. Nationwide will withhold the tax from the distributions unless the contract owner requests otherwise. Contract owners may not waive withholding if the distribution is subject to mandatory back-up withholding (if no mandatory taxpayer identification number is given or if the Internal Revenue Service notifies Nationwide that mandatory back-up withholding is required) or if it is an eligible rollover distribution. Mandatory back-up withholding rates are 31% of income that is distributed. NON-RESIDENT ALIENS Generally, a pre-death distribution from a contract to a non-resident alien is subject to 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. 36 39 of 134 40 FEDERAL ESTATE, GIFT, AND GENERATION SKIPPING TRANSFER TAXES The following transfers may be considered a gift for federal gift tax purposes: o a transfer of the contract from one contract owner to another; or o a distribution to someone other than a contract owner. Upon the contract owner's death, the value of the contract may be subject to estate taxes, even if all or a portion of the value is also subject to federal income taxes. Section 2612 of the Internal Revenue Code may require Nationwide to determine whether a death benefit or other distribution is a "direct skip" and the amount of the resulting generation skipping transfer tax, if any. A direct skip is when property is transferred to, or a death benefit or other distribution is made to: a) an individual who is two or more generations younger than the contract owner; or b) certain trusts, as described in Section 2613 of the Internal Revenue Code (generally, trusts that have no beneficiaries who are not 2 or more generations younger than the contract owner). If the contract owner is not an individual, then for this purpose ONLY, "contract owner" refers to any person: o who would be required to include the contract, death benefit, distribution, or other payment in his or her federal gross estate at his or her death; or o who is required to report the transfer of the contract, death benefit, distribution, or other payment for federal gift tax purposes. If a transfer is a direct skip, Nationwide will deduct the amount of the transfer tax from the death benefit, distribution or other payment, and remit it directly to the Internal Revenue Service. PUERTO RICO Under the Puerto Rico tax code, distributions from a Non-Qualified Contract before annuitization are treated as nontaxable return of principal until the principal is fully recovered. Thereafter all distributions are fully taxable. Distributions after annuitization are treated as part taxable income and part nontaxable return of principal. The amount excluded from gross income after annuitization is equal to the amount of the distribution in excess of 3% of the total purchase payments paid, until an amount equal to the total purchase payments paid has been excluded. Thereafter, the entire distribution is included in gross income. Puerto Rico does not impose an early withdrawal penalty tax. Generally, Puerto Rico does not require income tax to be withheld from distributions of income. A personal adviser should be consulted in these situations. 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 37 40 of 134 41 earnings of his or her contract. Nationwide believes that the investments underlying this contract meet these diversification requirements. TAX CHANGES The foregoing tax information is based on Nationwide's understanding of federal tax laws. It is NOT intended as tax advice. All information is subject to change without notice. For more details, contact your personal tax and/or financial adviser. STATEMENTS AND REPORTS Nationwide will mail contract owners statements and reports. Therefore, contract owners should promptly notify Nationwide of any address change. These mailings will contain: o statements showing the contract's quarterly activity; o confirmation statements showing transactions that affect the contract's value. Confirmation statements will not be sent for recurring transactions (i.e., Dollar Cost Averaging or salary reduction programs). Instead, confirmation of recurring transactions will appear in the contract's quarterly statements; o annual and semi-annual reports containing all applicable information and financial statements or their equivalent, which must be sent to the underlying mutual fund beneficial shareholders as required by the rules under the Investment Company Act of 1940 for the variable account. Contract owners should review statements and confirmations carefully. All errors or corrections must be reported to Nationwide immediately to assure proper crediting to the contract. Unless Nationwide is notified within 30 days of receipt of the statement, Nationwide will assume statements and confirmation statements are correct. YEAR 2000 COMPLIANCE ISSUES Nationwide has developed and implemented a plan to address issues related to the Year 2000. The problem relates to many existing computer systems using only two digits to identify a year in a date field. These systems were designed and developed without considering the impact of the upcoming change in the century. If not corrected, many computer systems could fail or create erroneous results when processing information dated after December 31, 1999. Like many organizations, Nationwide is required to renovate or replace many computer systems so that the systems will function properly after December 31, 1999. Nationwide has completed an inventory and assessment of all computer systems and has implemented a plan to renovate or replace all applications that were identified as not Year 2000 compliant. Nationwide has renovated all applications that required renovation. Testing of the renovated programs included running each application in a Year 2000 environment and was completed as planned during 1998. For applications being replaced, Nationwide had all replacement systems in place and functioning as planned by year-end 1998. Conversions of existing traditional life policies will continue through second quarter, 1999. In addition, the shareholder services system that support our mutual fund products will be fully deployed in the first quarter of 1999. Nationwide has completed an inventory and assessment of all vendor products and has tested and certified that each vendor product is Year 2000 compliant. Any vendor products that could not be certified as Year 2000 compliant were replaced or eliminated in 1998. Nationwide has also addressed issues associated with the exchange of electronic data with external organizations. Nationwide has completed an inventory and assessment of all business partners including electronic interfaces. Processes have been put in place and programs initiated to process data irrespective of the format by converting non-compliant data into a Year 2000 compliant format. Systems supporting Nationwide's infrastructure such as telecommunications, voice and networks will be compliant by March 1999. Nationwide's assessment of Year 2000 issues has also included non-information technology systems 38 41 of 134 42 with embedded computer chips. Nationwide's building systems such as fire, security, elevators and escalators supporting facilities in Columbus, Ohio have been tested and are Year 2000 compliant. In addition to resolving internal Year 2000 readiness issues, Nationwide is surveying significant external organizations (business partners) to assess if they will be Year 2000 compliant and be in a position to do business in the Year 2000 and beyond. Specifically, Nationwide has contacted mutual fund organizations that provide funds for our variable annuity and life products. The same action will continue during the first quarter of 1999 with wholesale producers. Nationwide continues its efforts to identify external risk factors and is planning to develop contingency plans as part of its ongoing risk management strategy. Operating expenses in 1998 and 1997 included approximately $44.7 million and $45.4 million, respectively, for technology projects, including costs related to Year 2000. Nationwide anticipates spending approximately $5 million on Year 2000 activities in 1999. These expenses do not have an effect on the assets of the variable account and are not charged through to the contract owner. Management does not anticipate that the completion of Year 2000 renovation and replacement activities will result in a reduction in operating expenses. Rather, personnel and resources currently allocated to Year 2000 issues will be assigned to other technology-related projects. LEGAL PROCEEDINGS Nationwide is a party to litigation and arbitration proceedings in the ordinary course of its business, none of which is expected to have a material adverse effect on Nationwide. The general distributor, Nationwide Advisory Services, Inc. is not engaged in any litigation of any material nature. In recent years, life insurance companies have been named as defendants in lawsuits, including class action lawsuits, relating to life insurance and annuity pricing and sales practices. A number of these lawsuits have resulted in substantial jury awards or settlements. In February 1997, Nationwide was named as a defendant in a lawsuit filed in New York state court related to the sale of whole life policies on a "vanishing premium" basis (John H. Snyder v. Nationwide Life Insurance Company). In April 1998, Nationwide was named as a defendant in a lawsuit filed in Ohio state court similar to the Snyder case (David and Joan Mishler v. Nationwide Life Insurance Company). In August 1998, Nationwide Mutual Insurance Company and Nationwide and the plaintiffs executed a stipulation of settlement and submitted it to the New York state court for approval. On August 20, 1998, the court in the Snyder case signed an order preliminarily approving a class for settlement purposes (which would include the Mishler case) and scheduled a fairness hearing for December 17, 1998. At the hearing, the court reviewed the fairness and reasonableness of the proposed settlement and issued a final order and judgment. The approved settlement provides for dismissal of both the Snyder and Mishler cases, bars class members from pursuing litigation against Nationwide Mutual Insurance Company and its affiliates, including Nationwide and its subsidiaries, relating to the allegations in the Snyder case, and provides class members with a potential value of approximately $100 million in policy adjustments, discounted premiums and discounted products. In November 1997, two plaintiffs, one who was the owner of a variable life insurance policy and the other who was the owner of a variable annuity contract, commenced a lawsuit in a federal court in Texas against Nationwide and the American Century group of defendants (Robert Young and David D. Distad v. Nationwide Life Insurance Company et al.). In this lawsuit, plaintiffs seek to represent a class of variable life insurance policy owners and variable annuity contract owners whom they claim were allegedly misled when purchasing these variable contracts into believing that the performance of their underlying mutual fund option managed by American Century, whose shares may only be purchased by insurance companies, would track the performance of a mutual fund, also managed by American 39 42 of 134 43 Century, whose shares are publicly traded. The amended complaint seeks unspecified compensatory and punitive damages. On April 27, 1998, the district court denied, in part, and granted, in part, Nationwide and American Century's motions to dismiss the complaint. The remaining claims against Nationwide allege securities fraud, common law fraud, civil conspiracy and breach of contract. On December 2, 1998, the district court issued an order denying plaintiffs' motion for class certification. On December 10, 1998, the district court stayed the lawsuit pending plaintiffs' petition to the federal appeals court for interlocutory review of the order denying class certification. On December 14, 1998, plaintiffs filed their petition for interlocutory review, on which the federal appeals court has not yet ruled. Nationwide intends to defend the case vigorously. On October 29, 1998, Nationwide and certain of its subsidiaries were named in a lawsuit filed in Ohio state court related to the sale of deferred annuity products for use as investments in tax-deferred contributory retirement plans (Mercedes Castillo v. Nationwide Financial Services, Inc., Nationwide Life Insurance Company and Nationwide Life and Annuity Insurance Company). The plaintiff in such lawsuit seeks to represent a national class of Nationwide's customers and seeks unspecified compensatory and punitive damages. Nationwide currently is evaluating this lawsuit, which has not been certified as a class. Nationwide intends to defend this lawsuit vigorously. There can be no assurance that any litigation relating to pricing or sales practices will not have a material adverse effect on Nationwide in the future. ADVERTISING AND SUB-ACCOUNT PERFORMANCE SUMMARY ADVERTISING A "yield" and "effective yield" may be advertised for the NSAT-Money Market Fund. "Yield" is a measure of the net dividend and interest income earned over a specific seven-day period (which period will be stated in the advertisement) expressed as a percentage of the offering price of the NSAT-Money Market Fund's units. Yield is an annualized figure, which means that it is assumed that the NSAT-Money Market Fund generates the same level of net income over a 52-week period. The "effective yield" is calculated similarly but includes the effect of assumed compounding, calculated under rules prescribed by the SEC. The effective yield will be slightly higher than the 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; 40 43 of 134 44 o Donoghue's; o magazines such as: => Money; => Forbes; => Kiplinger's Personal Finance Magazine; => Financial World; => Consumer Reports; => Business Week; => Time; => Newsweek; => National Underwriter; and => News and World Report; o LIMRA; o Value; o Best's Agent Guide; o Western Annuity Guide; o Comparative Annuity Reports; o Wall Street Journal; o Barron's; o Investor's Daily; o Standard & Poor's Outlook; and o Variable Annuity Research & Data Service (The VARDS Report). These rating services and publications rank the underlying mutual funds' performance against other funds. These rankings may or may not include the effects of sales charges or other fees. Financial Rating Services Nationwide is also ranked and rated by independent financial rating services, among which are Moody's, Standard & Poor's and A.M. Best Company. Nationwide may advertise these ratings. These ratings reflect Nationwide's financial strength or claims-paying ability. The ratings are not intended to reflect the investment experience or financial strength of the variable account. Some Nationwide advertisements and endorsements may include lists of organizations, individuals or other parties that recommend Nationwide or the contract. Furthermore, Nationwide may occasionally advertise comparisons of currently taxable and tax deferred investment programs, based on selected tax brackets, or discussions of alternative investment vehicles and general economic conditions. Historical Performance of the Sub-Accounts Nationwide will advertise historical performance of the sub-accounts. Nationwide may advertise for the sub-account's standardized "average annual total return," calculated in a manner prescribed by the SEC, and nonstandardized "total return." Average annual total return shows the percentage rate of return of a hypothetical initial investment of $1,000 for the most recent one, five and ten year periods (or for a period covering the time the underlying mutual fund has been available in the variable account if it has not been available for one of the prescribed periods). This calculation reflects the deduction of all charges that could be made to the contracts, except for premium taxes, which may be imposed by certain states. Nonstandardized "total return," calculated similar to standardized "average annual total return," shows the percentage rate of return of a hypothetical initial investment of $10,000 for the most recent one, five and ten year periods (or for a period covering the time the underlying mutual fund has been in existence). For those underlying mutual funds which have not been available for one of the prescribed periods, the nonstandardized total return illustrations will show the investment performance the underlying mutual funds would have achieved (reduced by the same charges) had they been available in the variable account for one of the periods. An initial investment of $10,000 is assumed because that amount is closer to the size of a typical contract than $1,000, which was used in calculating the standardized average annual total return. The standardized average annual total return and nonstandardized total return quotations are calculated using data for the period ended December 31, 1998. However, Nationwide generally provides performance information more frequently. Information relating to performance of the sub-accounts is based on historical earnings and does not represent or guarantee future results. 41 44 of 134 45 SUB-ACCOUNT PERFORMANCE SUMMARY STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
Ten Years or Date Fund Available in Date Fund Added 1 Year to 5 Years to Variable Account to Variable Sub-Account Options 12/31/98 12/31/98 To 12/31/98 Account American Century Variable Portfolios, Inc.- 14.85% 11.99% 6.27% 05-01-92 American Century VP Balanced American Century Variable Portfolios, Inc.- -2.94% 2.43% 7.84% 12-01-87 American Century VP Capital Appreciation American Century Variable Portfolio, Inc.- N/A N/A 13.18% 05-01-98 American Century VP Income & Growth American Century Variable Portfolios, Inc.- 17.81% N/A 11.69% 08-01-94 American Century VP International American Century Variable Portfolios, Inc.- 3.97% N/A 14.69% 12-23-96 American Century VP Value Dreyfus Stock Index Fund, Inc. 27.19% 22.60% 15.67% 09-20-93 Dreyfus Variable Investment Fund-Capital 29.18% N/A 20.85% 07-14-97 Appreciation Portfolio Dreyfus Variable Investment 10.92% N/A 12.87% 12-23-96 Fund - Growth & Income Portfolio The Dreyfus Socially Responsible Growth 28.35% 21.46% 14.46% 10-01-93 Fund, Inc. Fidelity VIP Equity-Income Portfolio 10.37% 17.83% 14.71% 05-01-87 Fidelity VIP Growth Portfolio 38.37% 20.77% 18.45% 12-01-87 Fidelity VIP High Income Portfolio -5.09% 7.93% 10.19% 05-01-87 Fidelity VIP Overseas Portfolio 11.85% 8.82% 9.20% 05-01-87 Fidelity VIP II Asset Manager Portfolio 14.13% 10.91% 5.42% 09-01-89 Fidelity VIP II Contrafund Portfolio 28.94% N/A 21.05% 07-03-95 Fidelity VIP III Growth Opportunities 23.62% N/A 23.02% 07-14-97 Portfolio Morgan Stanley Dean Witter Universal Funds, -28.95% N/A -21.72% 07-14-97 Inc.- Emerging Markets Debt Portfolio NSAT- Capital Appreciation Fund 28.93% 22.11% 13.43% 05-01-92 NSAT- Government Bond Fund 8.04% 6.41% 8.47% 11-15-82 NSAT- Money Market Fund 4.43% 4.20% 4.57% 02-25-82 NSAT-Total Return Fund 17.13% 18.48% 14.52% 11-15-82 NSAT Nationwide Small Cap Value Fund N/A N/A -20.80% 05-01-98 NSAT- Nationwide Small Company Fund 0.20% N/A 16.37% 10-23-95 Neuberger Berman AMT-Growth Portfolio 14.60% 14.36% 12.99% 12-01-87 Neuberger Berman AMT- Guardian Portfolio N/A N/A -10.09% 05-01-98 Neuberger Berman AMT-Limited Maturity Bond 3.56% 4.34% 5.94% 12-01-87 Portfolio Neuberger Berman AMT-Partners Portfolio 3.38% N/A 14.64% 08-01-94 Oppenheimer VAF- Oppenheimer Bond Fund/VA 5.95% 6.15% 2.23% 09-01-89 Oppenheimer VAF- Oppenheimer Global 13.19% 8.79% 9.63% 10-01-93 Securities Fund/VA Oppenheimer VAF- Oppenheimer Capital 23.01% N/A 18.72% 07-14-97 Appreciation Fund/VA (formerly Oppenheimer Growth Fund)
42 45 of 134 46 STANDARDIZED AVERAGE ANNUAL TOTAL RETURN (CONTINUED)
Ten Years or Date Fund Available in Date Fund Added 1 Year to 5 Years to Variable Account to Variable Sub-Account Options 12/31/98 12/31/98 To 12/31/98 Account Oppenheimer VAF- Oppenheimer Multiple 5.80% 10.54% 4.08% 09-01-89 Strategies Fund/VA Strong Opportunity Fund II, Inc. 12.63% 16.08% 8.68% 05-08-92 Strong Variable Insurance Funds, Inc.- 6.40% 8.17% 3.17% 05-08-92 Discovery Fund II, Inc. Strong Variable Insurance Funds, Inc.- -5.54% N/A -3.15% 10-23-95 International Stock II Van Eck Worldwide Insurance Trust- 11.85% 5.65% 1.68% 09-01-89 Worldwide Bond Fund Van Eck Worldwide Insurance Trust- -34.66% N/A -23.79% 12-23-96 Worldwide Emerging Markets Fund Van Eck Worldwide Insurance Trust- -31.52% -4.05% -1.54% 09-01-89 Worldwide Hard Assets Fund Van Kampen Life Investment Trust- Morgan -12.33% N/A 13.58% 07-03-95 Stanley Real Estate Securities Portfolio Warburg Pincus Trust- International Equity 4.50% N/A 3.97% 07-03-95 Portfolio Warburg Pincus Trust - 5.66% N/A 9.78% 12-23-96 Post-Venture Capital Portfolio Warburg Pincus Trust-Small Company Growth -3.63% N/A 9.96% 07-03-95 Portfolio
NON-STANDARDIZED TOTAL RETURN
10 Years To 1 Year To 5 Years To 12/31/98 or Date Fund Sub-Account Options 12/31/98 12/31/98 Life of Fund Effective American Century Variable Portfolios, Inc.- 14.85% 11.99% 10.76% 05-01-91 American Century VP Balanced American Century Variable Portfolios, Inc.- -2.94% 2.43% 7.39% 11-20-87 American Century VP Capital Appreciation American Century Variable Products, Inc.- 25.85% N/A 29.66% 10-30-97 American Century VP Income & Growth American Century Variable Portfolios, Inc.- 17.81% N/A 11.40% 05-01-94 American Century VP International American Century Variable Portfolios, Inc.- 3.97% N/A 15.02% 05-01-96 American Century VP Value Dreyfus Stock Index Fund, Inc. 27.19% 22.60% 16.20% 09-29-89 Dreyfus Variable Investment Fund-Capital 29.18% 22.59% 20.66% 04-05-93 Appreciation Portfolio Dreyfus Variable Investment 10.92% N/A 20.36% 05-02-94 Fund - Growth & Income Portfolio The Dreyfus Socially Responsible Growth 28.35% 21.46% 22.00% 10-06-93 Fund, Inc. Fidelity VIP Equity-Income Portfolio 10.37% 17.83% 13.51% 10-09-86 Fidelity VIP Growth Portfolio 38.37% 20.77% 16.43% 10-09-86 Fidelity VIP High Income Portfolio -5.09% 7.93% 10.20% 09-19-85
43 46 of 134 47 NON-STANDARDIZED TOTAL RETURN (CONTINUED)
10 Years To 1 Year To 5 Years To 12/31/98 or Date Fund Sub-Account Options 12/31/98 12/31/98 Life of Fund Effective Fidelity VIP Overseas Portfolio 11.85% 8.82% 7.73% 01-28-87 Fidelity VIP II Asset Manager Portfolio. 14.13% 10.91% 12.07% 09-06-89 Fidelity VIP II Contrafund Portfolio 28.94% N/A 27.47% 01-03-95 Fidelity VIP III Growth Opportunities 23.62% N/A 25.28% 01-03-95 Portfolio Morgan Stanley Dean Witter Universal Funds, -28.95% N/A -19.71% 06-16-97 Inc.- Emerging Markets Debt Portfolio NSAT- Capital Appreciation Fund 28.93% 22.11% 18.40% 04-15-92 NSAT- Government Bond Fund 8.04% 6.41% 8.66% 11-08-82 NSAT- Money Market Fund 4.43% 4.20% 6.09% 11-10-81 NSAT-Total Return Fund 17.13% 18.48% 15.42% 11-08-82 NSAT Nationwide Small Cap Value Fund -3.84% N/A -4.75% 10-31-97 NSAT- Nationwide Small Company Fund 0.20% N/A 16.40% 10-23-95 Neuberger Berman AMT - Growth Portfolio 14.60% 14.36% 13.17% 09-10-84 Neuberger Berman AMT - Guardian Portfolio 30.62% N/A 31.43% 11-03-97 Neuberger Berman AMT - Limited Maturity Bond 3.56% 4.34% 7.06% 09-10-84 Portfolio Neuberger Berman AMT - Partners Portfolio 3.38% N/A 18.77% 03-22-94 Oppenheimer VAF- Oppenheimer Bond Fund/VA 5.95% 6.15% 8.67% 04-30-85 Oppenheimer VAF- Oppenheimer Global 13.19% 8.79% 11.59% 11-12-90 Securities Fund/VA Oppenheimer VAF- Oppenheimer Capital 23.01% 21.13% 15.11% 04-03-85 Appreciation Fund/VA (formerly Oppenheimer Growth Fund) Oppenheimer VAF - Oppenheimer Multiple 5.80% 10.54% 10.69% 02-09-87 Strategies Fund/VA Strong Opportunity Fund II, Inc. 12.63% 16.08% 18.12% 05-08-92 Strong Variable Insurance Funds, Inc.- 6.40% 8.17% 10.50% 05-08-92 Discovery Fund II, Inc. Strong Variable Insurance Funds, Inc.- -5.54% N/A -2.94% 10-20-95 International Stock II Van Eck Worldwide Insurance Trust- Worldwide 11.85% 5.65% 6.00% 09-01-89 Bond Fund Van Eck Worldwide Insurance Trust- Worldwide -34.66% N/A -10.60% 12-27-95 Emerging Markets Fund Van Eck Worldwide Insurance Trust- Worldwide -31.52% -4.05% 1.28% 09-01-89 Hard Assets Fund Van Kampen Life Investment Trust- Morgan -12.33% N/A 14.17% 07-03-95 Stanley Real Estate Securities Portfolio Warburg Pincus Trust- International Equity 4.50% N/A 4.87% 06-30-95 Portfolio Warburg Pincus Trust - 5.66% N/A 6.78% 09-30-96 Post-Venture Capital Portfolio Warburg Pincus Trust-Small Company Growth -3.63% N/A 13.46% 06-30-95 Portfolio
44 47 of 134 48 TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION PAGE General Information and History...............................................1 Services......................................................................1 Purchase of Securities Being Offered..........................................2 Underwriters..................................................................2 Calculations of Performance...................................................2 Annuity Payments..............................................................3 Financial Statements..........................................................4 45 48 of 134 49 APPENDIX A: OBJECTIVES FOR UNDERLYING MUTUAL FUNDS The underlying mutual funds listed below are designed primarily as investments for variable annuity contracts and variable life insurance policies issued by insurance companies. There is no guarantee that the investment objectives will be met. AMERICAN CENTURY VARIABLE PORTFOLIOS, INC., MEMBER OF THE AMERICAN CENTURY(SM) FAMILY OF INVESTMENTS. American Century Variable Portfolios, Inc. was organized as a Maryland corporation in 1987. It is a diversified, open-end investment management company which offers its shares only as investment vehicles for variable annuity and variable life insurance products of insurance companies. American Century Variable Portfolios, Inc. is managed by American Century Investment Management, Inc. o AMERICAN CENTURY VP BALANCED Investment Objective: Capital growth and current income. The Fund will seek to achieve its objective by maintaining approximately 60% of the assets of the Fund in common stocks (including securities convertible into common stocks and other equity equivalents) that are considered by management to have better-than-average prospects for appreciation and approximately 40% in fixed income securities. A minimum of 25% of the fixed income portion of the Fund will be invested in fixed income senior securities. There can be no assurance that the Fund will achieve its investment objective. o AMERICAN CENTURY VP CAPITAL APPRECIATION Investment Objective: Capital growth. The Fund will seek to achieve its objective by investing in common stocks (including securities convertible into common stocks and other equity equivalents) that meet certain fundamental and technical standards of selection and have, in the opinion of the Fund's investment manager, better than average potential for appreciation. The Fund tries to stay fully invested in such securities, regardless of the movement of stock prices generally. The Fund may invest in cash and cash equivalents temporarily or when it is unable to find common stocks meeting its criteria of selection. It may purchase securities only of companies that have a record of at least three years continuous operation. There can be no assurance that the Fund will achieve its investment objective. o AMERICAN CENTURY VP INCOME & GROWTH Investment Objective: Dividend growth, current income and capital appreciation. The Fund seeks to achieve its investment objective by investing in common stocks. The investment manager constructs the portfolio to match the risk characteristics of the S&P 500 Stock Index and then optimizes each portfolio to achieve the desired balance of risk and return potential. This includes targeting a dividend yield that exceeds that of the S&P 500. Such a management technique known as "portfolio optimization" may cause the Fund to be more heavily invested in some industries than in others. However, the Fund may not invest more than 25% of its total assets in companies whose principal business activities are in the same industry. o AMERICAN CENTURY VP INTERNATIONAL Investment Objective: To seek capital growth. The Fund will seek to achieve its investment objective by investing primarily in securities of foreign companies that meet certain fundamental and technical standards of selection and, in the opinion of the investment manager, have potential for appreciation. Under normal conditions, the Fund will invest at least 65% of its assets in common stocks or other equity securities of issuers from at least three countries outside the United States. While securities of United States issuers may be included in the portfolio from time to time, 46 49 of 134 50 it is the primary intent of the manager to diversify investments across a broad range of foreign issuers. Although the primary investment of the Fund will be common stocks (defined to include depository receipts for common stock and other equity equivalents), the Fund may also invest in other types of securities consistent with the Fund's objective. When the manager believes that the total capital growth potential of other securities equals or exceeds the potential return of common stocks, the Fund may invest up to 35% of its assets in such other securities. There can be no assurance that the Fund will achieve its objectives. o AMERICAN CENTURY VP VALUE Investment Objective: The investment objective of the Fund is long-term capital growth; income is a secondary objective. The equity securities in which the Fund will invest will be primarily securities of well-established companies with intermediate-to-large market capitalizations that are believed by management to be undervalued at the time of purchase. Under normal market conditions, the Fund expects to invest at least 80% of the value of its total asset in equity securities, including common and preferred stock, convertible preferred stock and convertible debt obligations. DREYFUS STOCK INDEX FUND, INC. The Dreyfus Stock Index Fund, Inc. ("Fund") is an open-end, non-diversified, management investment company incorporated under Maryland law on January 24, 1989 and commenced operations on September 29, 1989. The Fund offers its shares only as investment vehicles for variable annuity and variable life insurance products of insurance companies. The Dreyfus Corporation ("Dreyfus") serves as the Fund's manager, while Mellon Equity Associates, an affiliate of Dreyfus, serves as the Fund's index manager. Dreyfus is a wholly-owned subsidiary of Mellon Bank, N.A., which is a wholly-owned subsidiary of Mellon Bank Corporation. Investment Objective: To provide investment results that correspond to the price and yield performance of publicly traded common stocks in the aggregate, as represented by the Standard & Poor's 500 Composite Stock Price Index. The Fund is neither sponsored by nor affiliated with Standard & Poor's Corporation. DREYFUS VARIABLE INVESTMENT FUND Dreyfus Variable Investment Fund ("Fund") is an open-end, management investment company. It was organized as an unincorporated business trust under the laws of the Commonwealth of Massachusetts on October 29, 1986 and commenced operations on August 31, 1990. The Fund offers its shares only as investment vehicles for variable annuity and variable life insurance products of insurance companies. Dreyfus serves as the Fund's manager. Fayez Sarofim & Company serves as the Capital Appreciation Portfolio's subadviser and provides day-to-day management of this Portfolio. o CAPITAL APPRECIATION PORTFOLIO Investment Objective: The Portfolio's primary investment objective is to provide long-term capital growth consistent with the preservation of capital; current income is a secondary investment objective. This Portfolio invests primarily in the common stocks of domestic and foreign issuers. o GROWTH & INCOME PORTFOLIO Investment Objective: To provide long-term capital growth, current income and growth of income, consistent with reasonable investment risk. The Portfolio invests in equity securities, debt securities and money market instruments of domestic and foreign issuers. The proportion of the Portfolio's assets invested in each type of security will vary from time to time in accordance with Dreyfus' assessment of economic conditions and investment opportunities. In purchasing equity securities, Dreyfus will invest in common stocks, preferred stocks and securities convertible into common stocks, particularly those which offer opportunities for capital appreciation and growth of earnings, while paying current dividends. The Portfolio will generally invest in investment-grade debt obligations, except that it may invest up to 35% of the value of its 47 50 of 134 51 net assets in convertible debt securities rated not lower than Caa by Moody's Investor Service, Inc. or CCC by Standard & Poor's Ratings Group, Fitch Investors Service, L.P. or Duff & Phelps Credit Rating Co., or if unrated, deemed to be of comparable quality by Dreyfus. These securities are considered to have predominantly speculative characteristics with respect to capacity to pay interest and repay principal and are considered to be of poor standing. See "Investment Considerations and Risks-Lower Rated Securities" in the Portfolio's prospectuses. THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC. The Dreyfus Socially Responsible Growth Fund, Inc. is an open-end, diversified, management investment company incorporated under Maryland law on July 20, 1992 and commenced operations on October 7, 1993. The Fund offers its shares only as investment vehicles for variable annuity and variable life insurance products of insurance companies. The Dreyfus Corporation serves as the Fund's investment adviser. NCM Capital Management Group, Inc. serves as the Fund's sub-investment adviser and provides day-to-day management of the Fund's portfolio. Investment Objective: Capital growth through equity investment in companies that, in the opinion of the Fund's advisers, not only meet traditional investment standards, but which also show evidence that they conduct their business in a manner that contributes to the enhancement of the quality of life in America. Current income is secondary to the primary goal. FIDELITY VARIABLE INSURANCE PRODUCTS FUND The Fidelity Variable Insurance Products Fund (VIP) is an open-end, diversified, management investment company organized as a Massachusetts business trust on November 13, 1981. Shares of VIP are purchased by insurance companies to fund benefits under variable life insurance policies and variable annuity contracts. Fidelity Management & Research Company ("FMR") is the manager for VIP and its portfolios. o VIP EQUITY-INCOME PORTFOLIO Investment Objective: Reasonable income by investing primarily in income-producing equity securities. In choosing these securities FMR also will consider the potential for capital appreciation. The Portfolio's goal is to achieve a yield which exceeds the composite yield on the securities comprising the Standard & Poor's 500 Composite Stock Price Index. o VIP GROWTH PORTFOLIO Investment Objective: Capital appreciation. This Portfolio will invest in the securities of both well-known and established companies, and smaller, less well-known companies which may have a narrow product line or whose securities are thinly traded. These latter securities will often involve greater risk than may be found in the ordinary investment security. FMR's analysis and expertise plays an integral role in the selection of securities and, therefore, the performance of the Portfolio. Many securities which FMR believes would have the greatest potential may be regarded as speculative, and investment in the Portfolio may involve greater risk than is inherent in other underlying mutual funds. It is also important to point out that this Portfolio makes most sense for you if you can afford to ride out changes in the stock market, because it invests primarily in common stocks. FMR can also make temporary investments in securities such as investment-grade bonds, high-quality preferred stocks and short-term notes, for defensive purposes when it believes market conditions warrant. o VIP HIGH INCOME PORTFOLIO Investment Objective: High level of current income by investing primarily in high-risk, lower-rated, high-yielding, fixed-income securities, while also considering growth of capital. FMR will seek high current income normally by investing the Portfolio's assets as follows: - at least 65% in income-producing debt securities and preferred stocks, including convertible securities, and 48 51 of 134 52 - 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. o 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. o VIP II ASSET MANAGER PORTFOLIO Investment Objective: To seek high total return with reduced risk over the long-term by allocating its assets among domestic and foreign stocks, bonds and short-term fixed income instruments. o VIP II CONTRAFUND PORTFOLIO Investment Objective: To seek capital appreciation by investing primarily in companies that the FMR believes to be undervalued due to an overly pessimistic appraisal by the public. This strategy can lead to investments in domestic or foreign companies, small and large, many of which may not be well known. The Portfolio primarily invests in common stock and securities convertible into common stock, but it has the flexibility to invest in any type of security that may produce capital appreciation. FIDELITY VARIABLE INSURANCE PRODUCTS FUND III The Fidelity Variable Insurance Products Fund III (VIP III) is an open-end, diversified, management investment company organized as a Massachusetts business trust on July 14, 1994. VIP III's shares are purchased by insurance companies to fund benefits under variable life insurance policies and variable annuity contracts. FMR is the manager of VIP III and its portfolios. o VIP III GROWTH OPPORTUNITIES PORTFOLIO Investment Objective: Capital growth by investing primarily in common stocks and securities convertible into common stocks. The Portfolio, under normal conditions, will invest at least 65% of its total assets in securities of companies that FMR believes have long-term growth potential. Although the Portfolio invests primarily in common stock and securities convertible into common stock, it has the ability to purchase other securities, such as preferred stock and bonds, that may produce capital growth. The Portfolio may invest in foreign securities without limitation. MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC. Morgan Stanley Dean Witter Universal Funds, Inc. is a mutual fund designed to provide investment vehicles for variable annuity contracts and variable life insurance policies and for certain tax-qualified investors. Its Emerging Markets Debt Portfolio is managed by Morgan Stanley Dean Witter Investment Management, Inc. 49 52 of 134 53 o EMERGING MARKETS DEBT PORTFOLIO Investment Objective: High total return by investing primarily in dollar and non-dollar denominated fixed income securities of government and government-related issuers located in emerging market countries, which securities provide a high level of current income, while at the same time holding the potential for capital appreciation if the perceived creditworthiness of the issuer improves due to improving economic, financial, political, social or other conditions in the country in which the issuer is located. NATIONWIDE SEPARATE ACCOUNT TRUST Nationwide Separate Account Trust ("NSAT") is a diversified open-end management investment company created under the laws of Massachusetts. NSAT offers shares in the funds listed below, each with its own investment objectives. Shares of NSAT will be sold primarily to life insurance company separate accounts to fund the benefits under variable life insurance policies and variable annuity contracts issued by life insurance companies. The assets of NSAT are managed by Nationwide Advisory Services, Inc. ("NAS"), a wholly-owned subsidiary of Nationwide Life Insurance Company. o NSAT - CAPITAL APPRECIATION FUND Investment Objective: The Capital Appreciation Fund seeks long-term capital appreciation. o NSAT-GOVERNMENT BOND FUND Investment Objective: As high a level of income as is consistent with the preservation of capital by investing in a diversified portfolio of securities issued or backed by the U.S. Government, its agencies or instrumentalities. o NSAT - MONEY MARKET FUND Investment Objective: The Fund seeks as high a level of current income as is consistent with the preservation of capital and maintenance of liquidity. o NSAT - NATIONWIDE SMALL CAP VALUE FUND Subadviser: The Dreyfus Corporation Investment Objective: Capital appreciation through investment in a diversified portfolio of equity securities of companies with a median market capitalization of approximately $1 billion. The Fund intends to pursue its investment objective by investing, under normal market conditions, at least 75% of the Fund's total assets in equity securities of companies whose equity market capitalizations at the time of investment are similar to the market capitalizations of companies in the Russell 2000 Small Stock Index. The Fund will invest in equity securities of domestic and foreign issuers characterized as "value" companies according to criteria established by The Dreyfus Corporation, the Fund's subadviser. o NSAT-NATIONWIDE SMALL COMPANY FUND Subadvisers: The Dreyfus Corporation, Neuberger Berman, LLC, Lazard Asset Management, Strong Capital Management, Inc. and Warburg Pincus Asset Management, Inc. Investment Objective Under normal market conditions, the Fund will invest at least 65% of its total assets in equity securities of investment are similar to the market capitalizations of companies in the Russell 2000 Small Stock Index. NAS, the Fund's adviser, has contracted with a group of sub-advisers, each of which will manage a portion of the Fund's portfolio. These sub-advisers are Dreyfus, Neuberger Berman, LLC, Lazard Asset Management, Strong Capital Management, Inc. and Warburg Pincus Asset Management, Inc. The sub-advisers were chosen because they utilize a number of different investment styles when investing in small company stocks. By utilizing a number of investment styles, NAS hopes to increase prospects for investment return and to reduce market risk and volatility. 50 53 of 134 54 o NSAT-TOTAL RETURN FUND Investment Objective: The investment objective of the Fund is to obtain a reasonable, long-term total return on invested capital. NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST Neuberger and Berman Advisers Management Trust ("Neuberger Berman AMT") is an open-end, diversified management investment company consisting of several series. Shares of the series of Neuberger Berman AMT are offered in connection with certain variable annuity contracts and variable life insurance policies issued through life insurance company separate accounts and are also offered directly to qualified pension and retirement plans outside of the separate account context. The Guardian and Partners Portfolios of Neuberger Berman AMT invest all of their investable assets in a corresponding series of Advisers Managers Trust managed by Neuberger Berman Management Incorporated ("Neuberger Berman Management"). Each series then invests in securities in accordance with an investment objective, policies and limitations identical to those of the Portfolio. This "master/feeder fund" structure is different from that of many other investment companies which directly acquire and manage their own portfolios of securities. (For more information regarding "master/feeder fund" structure, see "Special Information Regarding Organization, Capitalization and Other Matters" in the underlying mutual fund prospectus.) The investment advisor for all the portfolios is Neuberger Berman Management. o AMT GROWTH PORTFOLIO Investment Objective: Seeks capital growth through investments in common stocks of companies that the investment adviser believes will have above average earnings or otherwise provide investors with above average potential for capital appreciation. To maximize this potential, the investment adviser may also utilize, from time to time, securities convertible into common stocks, warrants and options to purchase such stocks. o AMT GUARDIAN PORTFOLIO Investment Objective: Capital appreciation and secondarily, current income. The Portfolio and its corresponding series seek to achieve these objectives by investing in common stocks of long-established, high-quality companies. Neuberger Berman Management uses a value-oriented investment approach in selecting securities, looking for low price-to-earnings ratios, strong balance sheets, solid management, and consistent earnings. o AMT LIMITED MATURITY BOND PORTFOLIO Investment Objective: To provide high level of current income, consistent with low risk to principal and liquidity. As a secondary objective, it also seeks to enhance its total return through capital appreciation when market factors, such as falling interest rates and rising bond prices, indicate that capital appreciation may be available without significant risk to principal. It seeks to achieve its objectives through investments in a diversified portfolio of limited maturity debt securities. o AMT PARTNERS PORTFOLIO Investment Objective: Capital growth by investing primarily in the common stock of established companies. Its investment program seeks securities believed to be undervalued based on fundamentals such as low price-to-earnings ratios, consistent cash flows, and the company's track record through all parts of the market cycle. OPPENHEIMER VARIABLE ACCOUNT FUNDS The Oppenheimer Variable Account Funds are an open-end, diversified management investment company organized as a Massachusetts business trust in 1984. Shares of the Funds are sold only to provide benefits under variable life insurance policies and variable annuity contracts. OppenheimerFunds, Inc. is investment adviser. o OPPENHEIMER BOND FUND/VA Investment Objective: Primarily seeks a high level of current income by investing at least 65% of its total assets in investment grade 51 54 of 134 55 debt securities, U.S. government securities and money market instruments. Investment grade debt securities would include those rated in one of the four highest ranking categories by any nationally recognized rating organization or if unrated or split-rated (rated investment grade and below investment grade by different rating organizations), determined by OppenheimerFunds, Inc. to be of comparable quality. The Fund may invest up to 35% of its total assets in debt securities rated less than investment grade when consistent with the Fund's investment objectives. The Fund seeks capital growth as a secondary objective when consistent with its primary objective. o OPPENHEIMER GLOBAL SECURITIES FUND/VA Investment Objective: To seek long-term capital appreciation by investing a substantial portion of assets in securities of foreign issuers, "growth-type" companies, cyclical industries and special situations which are considered to have appreciation possibilities. Current income is not an objective. These securities may be considered to be speculative. o OPPENHEIMER CAPITAL APPRECIATION FUND/VA (FORMERLY "OPPENHEIMER GROWTH FUND") Investment Objective: Capital appreciation by investing in securities of well-known established companies. Such securities generally have a history of earnings and dividends and are issued by seasoned companies (companies which have an operating history of at least five years including predecessors). Current income is a secondary consideration in the selection of the Fund's portfolio securities. o OPPENHEIMER MULTIPLE STRATEGIES FUND/VA Investment Objective: To seek a total investment return (which includes current income and capital appreciation in the value of its shares) from investments in common stocks and other equity securities, bonds and other debt securities, and "money market" securities. STRONG OPPORTUNITY FUND II, INC. (FORMERLY "STRONG SPECIAL FUND II, INC.") Strong Opportunity Fund II, Inc. is a diversified, open-end management company commonly called a Mutual Fund. Strong Opportunity Fund II, Inc. was incorporated in Wisconsin and may only be purchased by the separate accounts of insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Strong Capital Management Inc. is the investment advisor for the Fund. Investment Objective: To seek capital appreciation through investments in a diversified portfolio of equity securities. STRONG VARIABLE INSURANCE FUNDS, INC. Strong Variable Insurance Funds, Inc. ("Corporation") is an open-end management investment company commonly referred to as a mutual fund. Incorporated in the State of Wisconsin, the Corporation has been authorized to issue shares of common stock and series and classes of series of common stock. The International Stock Fund II and The Strong Discovery Fund II, Inc. ("Funds") are offered by the Corporation to insurance company separate accounts for the purpose of funding variable life insurance policies and variable annuity contracts. Strong Capital Management, Inc. is the investment advisor to the Funds. o DISCOVERY FUND II, INC. Investment Objective: To seek maximum capital appreciation through investments in a diversified portfolio of securities. The Fund normally emphasizes investment in equity securities and may invest up to 100% of its total assets in equity securities including common stocks, preferred stocks and securities convertible into common or preferred stocks. Although the Fund normally emphasizes investment in equity securities, the Fund has the flexibility to invest in any type of security that the Advisor believes has the potential for capital appreciation including up to 100% of its total assets in debt obligations, including intermediate to long-term corporate or U.S. government debt securities. 52 55 of 134 56 o INTERNATIONAL STOCK FUND II Investment Objective: To seek capital growth by investing primarily in the equity securities of issuers located outside the United States. VAN ECK WORLDWIDE INSURANCE TRUST Van Eck Worldwide Insurance Trust ("Van Eck Trust") is an open-end management investment company organized as a business trust under the laws of the Commonwealth of Massachusetts on January 7, 1987. Shares of Van Eck Trust are offered only to separate accounts of various insurance companies to fund the benefits of life insurance policies and variable annuity contracts. The investment advisor and manager is Van Eck Associates Corporation. o WORLDWIDE BOND FUND Investment Objective: To seek high total return through a flexible policy of investing globally, primarily in debt securities. o WORLDWIDE EMERGING MARKETS FUND Investment Objective: Seeks long-term capital appreciation by investing primarily in equity securities in emerging markets around the world. The Fund specifically emphasizes investment in countries that compared to the world's major economies, exhibit relatively low gross national product per capita, as well as the potential for rapid economic growth. o WORLDWIDE HARD ASSETS FUND Investment Description: Seeks long-term capital appreciation by investing, primarily in "Hard Assets Securities." For the Fund's purpose, "Hard Assets" are real estate, energy, timber, and industrial and precious metals. Income is a secondary consideration. VAN KAMPEN LIFE INVESTMENT TRUST Van Kampen Life Investment Trust is an open-end diversified management investment company organized as a Delaware business trust. Shares are offered in separate portfolios which are sold only to insurance companies to provide funding for variable life insurance policies and variable annuity contracts. Van Kampen Asset Management, Inc. serves as the Portfolio's investment adviser. o MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO Investment Objective: Long-term capital growth by investing principally in a diversified portfolio of securities of companies operating in the real estate industry ("Real Estate Securities"). Current income is a secondary consideration. Real Estate Securities include equity securities, including common stocks and convertible securities, as well as non-convertible preferred stocks and debt securities of real estate industry companies. A "real estate industry company" is a company that derives at least 50% of its assets (marked to market), gross income or net profits from the ownership, construction, management or sale of residential, commercial or industrial real estate. Under normal market conditions, at least 65% of the Portfolio's total assets will be invested in Real Estate Securities, primarily equity securities of real estate investment trusts. The Portfolio may invest up to 25% of its total assets in securities issued by foreign issuers, some or all of which may also be Real Estate Securities. WARBURG PINCUS TRUST The Warburg Pincus Trust is an open-end management investment company organized in March 1995 as a business trust under the laws of The Commonwealth of Massachusetts. The Trust offers its shares to insurance companies for allocation to separate accounts for the purpose of funding variable annuity and variable life contracts. The Portfolios are managed by Warburg Pincus Asset Management, Inc. ("Warburg"). o INTERNATIONAL EQUITY PORTFOLIO Investment Objective: Long-term capital appreciation by investing primarily in a broadly diversified portfolio of equity securities of companies, wherever organized, that in the judgment of Warburg have their principal business activities and interests outside the United States. The Portfolio will ordinarily invest substantially all of its assets, but no less than 65% of its total assets, in common stocks, warrants and securities convertible into or exchangeable for common 53 56 of 134 57 stocks. The Portfolio intends to invest principally in the securities of financially strong companies with opportunities for growth within growing international economies and markets through increased earning power and improved utilization or recognition of assets. o POST-VENTURE CAPITAL PORTFOLIO Investment Objective: Long-term growth of capital by investing primarily in equity securities of issuers in their post-venture capital stage of development and pursues an aggressive investment strategy. Under normal market conditions, the Portfolio will invest at least 65% of its total assets in equity securities of "post-venture capital companies." A post-venture capital company is one that has received venture capital financing either: (a) during the early stages of the company's existence or the early stages of the development of a new product or service; or (b) as part of a restructuring or recapitalization of the company. The Portfolio may invest up to 10% of its assets in venture capital and other investment funds. o SMALL COMPANY GROWTH PORTFOLIO Investment Objective: Capital growth by investing in a portfolio of equity securities of small-sized domestic companies. The Portfolio ordinarily will invest at least 65% of its total assets in common stocks or warrants of small-sized companies (i.e., companies having stock market capitalizations of between $25 million and $1 billion at the time of purchase) that represent attractive opportunities for capital growth. The Portfolio intends to invest primarily in companies whose securities are traded on domestic stock exchanges or in the over-the-counter market. The Portfolio's investments will be made on the basis of their equity characteristics and securities ratings generally will not be a factor in the selection process. 54 57 of 134 58 STATEMENT OF ADDITIONAL INFORMATION MAY 1, 1999 DEFERRED VARIABLE ANNUITY CONTRACTS ISSUED BY NATIONWIDE LIFE INSURANCE COMPANY THROUGH ITS NATIONWIDE VARIABLE ACCOUNT-II This Statement of Additional Information is not a prospectus. It contains information in addition to and in some respects more detailed than set forth in the prospectus and should be read in conjunction with the prospectus dated May 1, 1999. The prospectus may be obtained from Nationwide Life Insurance Company by writing P. O. Box 16609, Columbus, Ohio 43216-6609, or calling 1-800-848-6331, TDD 1-800-238-3035. TABLE OF CONTENTS PAGE General Information and History..............................................1 Services.....................................................................1 Purchase of Securities Being Offered.........................................2 Underwriters.................................................................2 Calculations of Performance..................................................2 Annuity Payments.............................................................3 Financial Statements.........................................................4 GENERAL INFORMATION AND HISTORY Nationwide Variable Account-II is a separate investment account of Nationwide Life Insurance Company ("Nationwide"). All of Nationwide's common stock is owned by Nationwide Financial Services, Inc. ("NFS"), a holding company. NFS has two classes of common stock outstanding with different voting rights enabling Nationwide Corporation (the holder of all of the outstanding Class B Common Stock) to control NFS. Nationwide Corporation is a holding company, as well. All of its common stock is held by Nationwide Mutual Insurance Company (95.24%) and Nationwide Mutual Fire Insurance Company (4.76%), the ultimate controlling persons of Nationwide Insurance Enterprise. The Nationwide Insurance Enterprise is one of America's largest insurance and financial services family of companies, with combined assets of over $98.28 billion as of December 31, 1998. SERVICES Nationwide, which has responsibility for administration of the contracts and the variable account maintains records of the name, address, taxpayer identification number, and other pertinent information for each contract owner and the number and type of contract issued to each contract owner and records with respect to the contract value of each contract. Nationwide is custodian of the assets of the variable account. Nationwide will maintain a record of all purchases and redemptions of shares of the underlying mutual funds. Nationwide, or affiliates of Nationwide may have entered into agreements with either the investment adviser or distributor for several of the underlying mutual funds. The agreements relate to administrative services furnished by Nationwide or an affiliate of Nationwide and provide for an annual fee based on the average aggregate net assets of the variable account (and other separate accounts of Nationwide or life insurance company subsidiaries of Nationwide) invested in particular underlying mutual funds. These fees in no way affect the net asset value of the underlying mutual funds or fees paid by the contract owner. The audited financial statements have been included herein in reliance upon the reports of KPMG LLP, independent certified public accountants, Two Nationwide Plaza, Columbus, Ohio 43215, and upon the authority of said firm as experts in accounting and auditing. 1 58 of 134 59 PURCHASE OF SECURITIES BEING OFFERED The contracts are sold by licensed insurance agents in the states where the contracts may be lawfully sold. Agents are registered representatives of broker-dealers registered under the Securities Exchange Act of 1934 who are members of the National Association of Securities Dealers, Inc. ("NASD"). UNDERWRITERS The contracts, which are offered continuously, are distributed by Nationwide Advisory Services, Inc. ("NAS"), One Nationwide Plaza, Columbus, Ohio, 43215, a wholly owned subsidiary of Nationwide. During the fiscal years ended December 31, 1998, 1997 and 1996, no underwriting commissions were paid by Nationwide to NAS. CALCULATIONS OF PERFORMANCE Any current yield quotations of the NSAT Money Market Fund, subject to Rule 482 of the Securities Act of 1933, will consist of a seven calendar day historical yield, carried at least to the nearest hundredth of a percent. The yield will be calculated by determining the net change, exclusive of capital changes, in the value of a hypothetical pre-existing account having a balance of one accumulation unit at the beginning of the base period, subtracting a hypothetical charge reflecting deductions from contract owner accounts, and dividing the net change in account value by the value of the account at the beginning of the period to obtain a base period return, and multiplying the base period return by (365/7) or (366/7) in a leap year. At December 31, 1998, the NSAT- Money Market Fund's seven-day current unit value yield was 4.02%. The NSAT-Money Market Fund effective yield is computed similarly but includes the effect of assumed compounding on an annualized basis of the current unit value yield quotations of the Fund. At December 31, 1998, the seven-day effective yield was 4.10%. The NSAT-Money Market Fund yield and effective yield will fluctuate daily. Actual yields will depend on factors such as the type of instruments in the Fund's portfolio, portfolio quality and average maturity, changes in interest rates, and the Fund's expenses. Although the NSAT-Money Market Fund determines its yield on the basis of a seven calendar day period, it may use a different time period on occasion. The yield quotes may reflect the expense limitation described "Investment Manager and Other Services" in the NSAT-Money Market Fund's Statement of Additional Information. There is no assurance that the yields quoted on any given occasion will remain in effect for any period of time and there is no guarantee that the net asset values will remain constant. It should be noted that a contract owner's investment in the NSAT-Money Market Fund is not guaranteed or insured. Yields of other money market funds may not be comparable if a different base period or another method of calculation is used. All performance advertising will include quotations of standardized average annual total return, calculated in accordance with a standard method prescribed by rules of the SEC. Standardized average annual return is found by taking a hypothetical $1,000 investment in each of the Sub-Accounts' units on the first day of the period at the offering price, which is the accumulation unit value per unit ("initial investment") and computing the ending redeemable value ("redeemable value") of that investment at the end of the period. The redeemable value is then divided by the initial investment and this quotient is taken to the Nth root (N represents the number of years in the period) and 1 is subtracted from the result which is then expressed as a percentage, carried to at least the nearest hundredth of a percent. Standardized average annual total return reflects the deduction of a 0.80% Mortality and Expense Risk Charge. No deduction is made for premium taxes which may be assessed by certain states. Nonstandardized total return may also be advertised, and is calculated in a manner similar to standardized average annual total return except the nonstandardized total return is based on a hypothetical initial investment of $10,000. An assumed initial investment of $10,000 will be used because that figure more closely approximates the size of a typical contract than does the $1,000 figure used in calculating the standardized average annual total return quotations. The standardized average annual total return and nonstandardized average annual total return quotations will be current to the last day of the calendar quarter preceding the date on which an advertisement is submitted for publication. The standardized average annual return will be based on rolling calendar quarters and will cover 2 59 of 134 60 periods of one, five, and ten years, or a period covering the time the underlying mutual fund has been available in the variable account if the underlying mutual fund has not been available for one of the prescribed periods. Nonstandardized annual total return will be based on rolling calendar quarters and will cover periods of one, five and ten years, or a period covering the time the underlying mutual fund has been in existence. Quotations of average annual total return and total return are based upon historical earnings and will fluctuate. Any quotation of performance is not a guarantee of future performance. Factors affecting a sub-account's performance include general market conditions, operating expenses and investment management. A contract owner's account when redeemed may be more or less than the original cost. ANNUITY PAYMENTS See "Frequency and Amount of Annuity Payments", located in the prospectus. 3 60 of 134 61 1 Independent Auditors' Report The Board of Directors of Nationwide Life Insurance Company and Contract Owners of Nationwide Variable Account-II: We have audited the accompanying statement of assets, liabilities and contract owners' equity of Nationwide Variable Account-II as of December 31, 1998, and the related statements of operations and changes in contract owners' equity for each of the years in the two year period then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1998, by correspondence with the transfer agents of the underlying mutual funds. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Nationwide Variable Account-II as of December 31, 1998, and the results of its operations and its changes in contract owners' equity for each of the years in the two year period then ended in conformity with generally accepted accounting principles. KPMG LLP Columbus, Ohio February 5, 1999 2 NATIONWIDE VARIABLE ACCOUNT-II STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY DECEMBER 31, 1998 ASSETS: Investments at market value: American Century VP - American Century VP Balanced (ACVPBal) 24,984,966 shares (cost $190,756,295) ................................. $ 208,374,617 American Century VP - American Century VP Capital Appreciation (ACVPCapAp) 27,823,053 shares (cost $277,807,389) 250,963,941 American Century VP Income & Growth (ACVPIncGr) 5,709,110 shares (cost $34,930,762) ................................... 38,707,768 American Century VP - American Century VP International (ACVPInt) 38,320,974 shares (cost $281,911,111) ................................. 292,005,825 American Century VP - American Century VP Value (ACVPValue) 10,228,464 shares (cost $70,690,312) .................................. 68,837,561 American VI Series - Growth Fund (AVISGro) 593,794 shares (cost $24,347,204) ..................................... 31,132,606 American VI Series - High-Yield Bond Fund (AVISHiYld) 197,661 shares (cost $2,826,142) ...................................... 2,628,890 American VI Series - U.S. Government/AAA-Rated Securities Fund (AVISGvt) 396,291 shares (cost $4,410,275) ...................................... 4,482,056 The Dreyfus Socially Responsible Growth Fund, Inc. (DrySRGro) 8,538,487 shares (cost $237,250,934) .................................. 265,376,179 Dreyfus Stock Index Fund (DryStkIx) 52,976,258 shares (cost $1,395,628,578) ............................... 1,722,787,919 Dreyfus VIF - Capital Appreciation Portfolio (DryCapAp) 4,630,292 shares (cost $153,742,536) .................................. 167,199,862 Dreyfus VIF - Growth and Income Portfolio (DryGrInc) 3,555,974 shares (cost $76,690,000) ................................... 80,471,698 Fidelity VIP - Equity-Income Portfolio (FidVIPEI) 106,939,269 shares (cost $2,068,776,990) .............................. 2,718,396,211 Fidelity VIP - Growth Portfolio (FidVIPGr) 61,825,003 shares (cost $2,036,600,808) ............................... 2,774,087,868 Fidelity VIP - High Income Portfolio (FidVIPHI) 63,292,085 shares (cost $776,014,269) ................................. 729,757,734 Fidelity VIP - Overseas Portfolio (FidVIPOv) 28,866,621 shares (cost $559,532,122) ................................. 578,775,761 Fidelity VIP-II - Asset Manager Portfolio (FidVIPAM) 62,696,568 shares (cost $942,679,555) ................................. 1,138,569,676
3 Fidelity VIP-II - Contrafund Portfolio (FidVIPCon) 50,110,361 shares (cost $887,363,469) ................................. 1,224,697,230 Fidelity VIP-III - Growth Opportunities Portfolio (FidVIPGrOp) 6,940,901 shares (cost $139,001,337) .................................. 158,807,810 Morgan Stanley - Emerging Markets Debt Portfolio (MSEmMkt) 1,431,487 shares (cost $9,455,686) .................................... 8,732,068 Nationwide SAT - Capital Appreciation Fund (NSATCapAp) 26,262,417 shares (cost $585,599,581) ................................. 698,317,658 Nationwide SAT - Government Bond Fund (NSATGvtBd) 37,800,382 shares (cost $440,372,627) ................................. 441,886,466 Nationwide SAT - Money Market Fund (NSATMyMkt) 975,757,697 shares (cost $975,757,697) ................................ 975,757,697 Nationwide SAT - Small Cap Value Fund (NSATSmCapV) 1,436,294 shares (cost $13,054,983) ................................... 13,630,430 Nationwide SAT - Small Company Fund (NSATSmCo) 17,578,192 shares (cost $273,509,275) ................................. 281,426,849 Nationwide SAT - Total Return Fund (NSATTotRe) 66,939,068 shares (cost $920,336,374) ................................. 1,231,678,853 Neuberger & Berman AMT - Growth Portfolio (NBAMTGro) 18,427,382 shares (cost $471,929,009) ................................. 484,455,880 Neuberger & Berman AMT - Guardian Portfolio (NBAMTGuard) 2,735,564 shares (cost $36,637,640) ................................... 37,860,204 Neuberger & Berman AMT - Limited Maturity Bond Portfolio (NBAMTLMat) 12,929,046 shares (cost $177,217,512) ................................. 178,679,416 Neuberger & Berman AMT - Partners Portfolio (NBAMTPart) 35,130,413 shares (cost $669,344,481) ................................. 665,018,717 Oppenheimer VAF - Bond Fund (OppBdFd) 27,474,513 shares (cost $324,228,724) ................................. 338,486,000 Oppenheimer VAF - Global Securities Fund (OppGlSec) 24,564,354 shares (cost $469,720,671) ................................. 542,135,299 Oppenheimer VAF - Growth Fund (OppGro) 1,734,324 shares (cost $57,683,239) ................................... 63,597,652 Oppenheimer VAF - Multiple Strategies Fund (OppMult) 19,503,709 shares (cost $292,442,547) ................................. 332,538,233 Strong Opportunity Fund II, Inc. (StOpp2) 36,204,565 shares (cost $696,008,998) ................................. 786,363,158 Strong VIF - Strong Discovery Fund II (StDisc2) 13,750,240 shares (cost $160,852,259) ................................. 174,903,056 Strong VIF - Strong International Stock Fund II (StIntStk2) 4,245,694 shares (cost $40,375,762) ................................... 37,277,194
(Continued) 4 Van Eck WIT - Worldwide Bond Fund (VEWrldBd) 8,098,069 shares (cost $92,706,860) ................................... 99,444,284 Van Eck WIT - Worldwide Emerging Markets Fund (VEWrldEMkt) 4,914,872 shares (cost $32,134,508) ................................... 34,993,890 Van Eck WIT - Worldwide Hard Assets Fund (VEWrldHAs) 6,942,747 shares (cost $74,086,315) ................................... 63,873,268 Van Kampen American Capital LIT - Morgan Stanley Real Estate Securities Portfolio (MSRESec) 11,597,104 shares (cost $181,924,838) ................................. 159,576,147 Warburg Pincus Trust - International Equity Portfolio (WPIntEq) 20,718,167 shares (cost $243,432,886) ................................. 227,692,653 Warburg Pincus Trust - Post Venture Capital Portfolio (WPPVenCap) 1,883,351 shares (cost $21,778,605) ................................... 22,185,876 Warburg Pincus Trust - Small Company Growth Portfolio (WPSmCoGr) 20,046,401 shares (cost $323,913,551) ................................. 320,942,882 -------------- Total assets ....................................................... 20,677,515,042 ACCOUNTS PAYABLE ............................................................... 4,840,634 -------------- CONTRACT OWNERS' EQUITY (NOTE 4) ............................................... $ 20,672,674,408 ==============
See accompanying notes to financial statements. 5 NATIONWIDE VARIABLE ACCOUNT-II STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY YEARS ENDED DECEMBER 31, 1998 AND 1997
TOTAL ACVPBal -------------------------------- ------------------------------- 1998 1997 1998 1997 --------------- -------------- -------------- -------------- Investment activity: Reinvested dividends ............................. $ 315,567,353 296,368,036 3,098,368 1,574,816 Mortality, expense and administration charges (note 2): BOA .......................................... (145,540,567) (126,406,070) (1,354,760) (1,191,850) BOA Vision ................................... (114,290,967) (83,760,749) (1,180,401) (875,039) BOA Enterprise ............................... (199,407) (118,491) (2,018) (876) --------------- -------------- -------------- -------------- Net investment activity ........................ 55,536,412 86,082,726 561,189 (492,949) --------------- -------------- -------------- -------------- Proceeds from mutual fund shares sold ............ 9,502,638,819 6,440,464,106 48,804,378 33,424,138 Cost of mutual fund shares sold .................. (8,727,995,326) (5,862,745,516) (37,362,868) (24,057,900) --------------- -------------- -------------- -------------- Realized gain (loss) on investments ............ 774,643,493 577,718,590 11,441,510 9,366,238 Change in unrealized gain (loss) on investments .. 440,618,096 1,250,486,745 (5,900,979) 5,524,757 --------------- -------------- -------------- -------------- Net gain (loss) on investments ................. 1,215,261,589 1,828,205,335 5,540,531 14,890,995 --------------- -------------- -------------- -------------- Reinvested capital gains ......................... 1,177,995,583 616,932,003 19,212,723 6,097,662 --------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations ........... 2,448,793,584 2,531,220,064 25,314,443 20,495,708 --------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners ................................ 2,214,889,447 3,614,758,515 22,317,530 31,207,874 Transfers between funds .......................... - - 8,865,047 (4,226,209) Redemptions ...................................... (1,806,663,808) (1,198,352,163) (16,523,412) (10,189,550) Annuity benefits ................................. (1,988,285) (1,097,690) (9,922) (2,437) Annual contract maintenance charge (note 2) ...... (8,003,092) (7,187,524) (76,599) (70,234) Contingent deferred sales charges (note 2) ....... (23,748,555) (18,196,002) (246,178) (187,816) Adjustments to maintain reserves ................. (406,310) (692,928) (1,729) (30,715) --------------- -------------- -------------- -------------- Net equity transactions ...................... 374,079,397 2,389,232,208 14,324,737 16,500,913 --------------- -------------- -------------- -------------- Net change in contract owners' equity ............ 2,822,872,981 4,920,452,272 39,639,180 36,996,621 Contract owners' equity beginning of period ...... 17,849,801,427 12,929,349,155 168,733,833 131,737,212 --------------- -------------- -------------- -------------- Contract owners' equity end of period ............ $20,672,674,408 17,849,801,427 208,373,013 168,733,833 =============== ============== ============== ==============
ACVPCapAp ACVPincGr ------------------------------- ------------------------------- 1998 1997 1998 1997 -------------- -------------- -------------- -------------- Investment activity: Reinvested dividends ............................. $ - - 181,416 - Mortality, expense and administration charges (note 2): BOA .......................................... (2,818,233) (4,037,524) (95,126) - BOA Vision ................................... (857,721) (1,103,836) (75,918) - BOA Enterprise ............................... (1,256) (1,623) (117) - -------------- -------------- -------------- -------------- Net investment activity ........................ (3,677,210) (5,142,983) 10,255 - -------------- -------------- -------------- -------------- Proceeds from mutual fund shares sold ............ 114,736,720 226,050,085 25,325,017 - Cost of mutual fund shares sold .................. (136,788,804) (249,168,854) (26,300,565) - -------------- -------------- -------------- -------------- Realized gain (loss) on investments ............ (22,052,084) (23,118,769) (975,548) - Change in unrealized gain (loss) on investments .. (264,722) 2,545,749 3,777,007 - -------------- -------------- -------------- -------------- Net gain (loss) on investments ................. (22,316,806) (20,573,020) 2,801,459 - -------------- -------------- -------------- -------------- Reinvested capital gains ......................... 15,700,848 8,369,061 - - -------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations ........... (10,293,168) (17,346,942) 2,811,714 - -------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners ................................ 23,389,103 46,091,043 2,843,288 - Transfers between funds .......................... (66,469,516) (101,140,496) 34,214,351 - Redemptions ...................................... (34,901,415) (38,900,571) (1,148,357) - Annuity benefits ................................. (44,914) (49,144) - - Annual contract maintenance charge (note 2) ...... (233,324) (323,047) (4,110) - Contingent deferred sales charges (note 2) ....... (447,727) (640,085) (9,116) - Adjustments to maintain reserves ................. 65,167 1,134 6,300 - -------------- -------------- -------------- -------------- Net equity transactions ...................... (78,642,626) (94,961,166) 35,902,356 - -------------- -------------- -------------- -------------- Net change in contract owners' equity ............ (88,935,794) (112,308,108) 38,714,070 - Contract owners' equity beginning of period ...... 339,991,098 452,299,206 - - -------------- -------------- -------------- -------------- Contract owners' equity end of period ............ $ 251,055,304 339,991,098 38,714,070 - ============== ============== ============== ==============
(Continued) 6 NATIONWIDE VARIABLE ACCOUNT-II STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY YEARS ENDED DECEMBER 31, 1998 AND 1997
ACVPint ACVPValue -------------------------------- ------------------------------- 1998 1997 1998 1997 --------------- -------------- -------------- -------------- Investment activity: Reinvested dividends ............................. $ 1,241,910 1,256,182 491,657 77,961 Mortality, expense and administration charges (note 2): BOA .......................................... (1,733,033) (1,015,749) (427,970) (236,395) BOA Vision ................................... (1,962,632) (1,073,332) (588,525) (228,347) BOA Enterprise ............................... (2,034) (1,174) (1,181) (559) --------------- -------------- -------------- -------------- Net investment activity ........................ (2,455,789) (834,073) (526,019) (387,340) --------------- -------------- -------------- -------------- Proceeds from mutual fund shares sold ............ 361,873,253 134,023,354 49,075,920 32,856,963 Cost of mutual fund shares sold .................. (348,435,933) (112,395,449) (49,213,498) (27,872,971) --------------- -------------- -------------- -------------- Realized gain (loss) on investments ............ 13,437,320 21,627,905 (137,578) 4,983,992 Change in unrealized gain (loss) on investments .. 4,337,447 (1,464,913) (3,517,470) 1,666,087 --------------- -------------- -------------- -------------- Net gain (loss) on investments ................. 17,774,767 20,162,992 (3,655,048) 6,650,079 --------------- -------------- -------------- -------------- Reinvested capital gains ......................... 12,749,123 2,422,638 5,869,944 151,154 --------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations ........... 28,068,101 21,751,557 1,688,877 6,413,893 --------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners ................................ 27,075,201 40,115,028 15,060,446 18,394,894 Transfers between funds .......................... 76,963,986 39,235,433 (9,597,717) 44,252,062 Redemptions ...................................... (21,143,253) (8,333,537) (6,581,279) (1,702,361) Annuity benefits ................................. (13,625) (1,590) (21,465) - Annual contract maintenance charge (note 2) ...... (79,895) (50,442) (19,679) (7,615) Contingent deferred sales charges (note 2) ....... (250,396) (133,437) (100,776) (15,377) Adjustments to maintain reserves ................. (18,968) 1,318 (51,138) (157) --------------- -------------- -------------- -------------- Net equity transactions ...................... 82,533,050 70,832,773 (1,311,608) 60,921,446 --------------- -------------- -------------- -------------- Net change in contract owners' equity ............ 110,601,151 92,584,330 377,269 67,335,339 Contract owners' equity beginning of period ...... 181,376,626 88,792,296 68,407,922 1,072,583 --------------- -------------- -------------- -------------- Contract owners' equity end of period ............ $ 291,977,777 181,376,626 68,785,191 68,407,922 =============== ============== ============== ==============
AVISGro AVISHiYld ------------------------------- ------------------------------- 1998 1997 1998 1997 -------------- -------------- -------------- -------------- Investment activity: Reinvested dividends ............................. $ 104,724 144,798 252,109 253,822 Mortality, expense and administration charges (note 2): BOA .......................................... (365,360) (329,103) (39,297) (38,276) BOA Vision ................................... - - - - BOA Enterprise ............................... - - - - -------------- -------------- -------------- -------------- Net investment activity ........................ (260,636) (184,305) 212,812 215,546 -------------- -------------- -------------- -------------- Proceeds from mutual fund shares sold ............ 7,115,941 6,487,233 1,134,719 736,561 Cost of mutual fund shares sold .................. (3,771,756) (3,240,097) (1,075,993) (655,361) -------------- -------------- -------------- -------------- Realized gain (loss) on investments ............ 3,344,185 3,247,136 58,726 81,200 Change in unrealized gain (loss) on investments .. 1,042,218 21,117 (303,262) (32,967) -------------- -------------- -------------- -------------- Net gain (loss) on investments ................. 4,386,403 3,268,253 (244,536) 48,233 -------------- -------------- -------------- -------------- Reinvested capital gains ......................... 4,170,092 3,172,499 36,591 33,142 -------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations ........... 8,295,859 6,256,447 4,867 296,921 -------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners ................................ 511,282 597,163 116,063 75,598 Transfers between funds .......................... (964,009) (973,320) (107,348) 264,205 Redemptions ...................................... (3,204,144) (2,781,554) (566,909) (409,603) Annuity benefits ................................. (444) (946) (5,289) (1,226) Annual contract maintenance charge (note 2) ...... (14,895) (16,365) (1,991) (2,453) Contingent deferred sales charges (note 2) ....... (9,981) (10,780) (3,772) (1,609) Adjustments to maintain reserves ................. 578 998 (2,332) 271 -------------- -------------- -------------- -------------- Net equity transactions ...................... (3,681,613) (3,184,804) (571,578) (74,817) -------------- -------------- -------------- -------------- Net change in contract owners' equity ............ 4,614,246 3,071,643 (566,711) 222,104 Contract owners' equity beginning of period ...... 26,518,943 23,447,300 3,193,216 2,971,112 -------------- -------------- -------------- -------------- Contract owners' equity end of period ............ $ 31,133,189 26,518,943 2,626,505 3,193,216 ============== ============== ============== ==============
7 NATIONWIDE VARIABLE ACCOUNT-II STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY YEARS ENDED DECEMBER 31, 1998 AND 1997
AVISGvt DrySRGro -------------------------------- ------------------------------- 1998 1997 1998 1997 --------------- -------------- -------------- -------------- Investment activity: Reinvested dividends ............................. $ 270,372 369,310 409,775 623,680 Mortality, expense and administration charges (note 2): BOA .......................................... (60,816) (72,106) (1,451,837) (927,006) BOA Vision ................................... - - (1,439,799) (837,713) BOA Enterprise ............................... - - (2,748) (1,418) --------------- -------------- -------------- -------------- Net investment activity ........................ 209,556 297,204 (2,484,609) (1,142,457) --------------- -------------- -------------- -------------- Proceeds from mutual fund shares sold ............ 1,748,263 1,786,834 143,677,649 79,140,012 Cost of mutual fund shares sold .................. (1,871,313) (1,861,559) (117,379,825) (67,423,514) --------------- -------------- -------------- -------------- Realized gain (loss) on investments ............ (123,050) (74,725) 26,297,824 11,716,498 Change in unrealized gain (loss) on investments .. 209,910 140,996 14,964,682 12,405,500 --------------- -------------- -------------- -------------- Net gain (loss) on investments ................. 86,860 66,271 41,262,506 24,121,998 --------------- -------------- -------------- -------------- Reinvested capital gains ......................... - - 9,504,871 4,861,060 --------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations ........... 296,416 363,475 48,282,768 27,840,601 --------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners ................................ 143,640 127,889 34,640,924 50,107,726 Transfers between funds .......................... (143,468) (309,384) 17,779,620 36,729,046 Redemptions ...................................... (894,059) (1,207,471) (16,450,256) (14,091,480) Annuity benefits ................................. (3,938) (536) (5,152) (4,381) Annual contract maintenance charge (note 2) ...... (3,913) (4,847) (112,389) (67,753) Contingent deferred sales charges (note 2) ....... (3,582) (4,252) (243,228) (365,621) Adjustments to maintain reserves ................. (1,962) 51 1,747 2,732 --------------- -------------- -------------- -------------- Net equity transactions ...................... (907,282) (1,398,550) 35,611,266 72,310,269 --------------- -------------- -------------- -------------- Net change in contract owners' equity ............ (610,866) (1,035,075) 83,894,034 100,150,870 Contract owners' equity beginning of period ...... 5,090,894 6,125,969 181,485,180 81,334,310 --------------- -------------- -------------- -------------- Contract owners' equity end of period ............ $ 4,480,028 5,090,894 265,379,214 181,485,180 =============== ============== ============== ==============
DryStkix DryCapAp ------------------------------- ------------------------------- 1998 1997 1998 1997 -------------- -------------- -------------- -------------- Investment activity: Reinvested dividends ............................. $ 18,675,816 13,324,202 862,672 72,902 Mortality, expense and administration charges (note 2): BOA .......................................... (7,978,285) (4,928,324) (524,245) (12,311) BOA Vision ................................... (10,844,564) (6,128,921) (571,382) (24,419) BOA Enterprise ............................... (17,348) (8,919) (873) (17) -------------- -------------- -------------- -------------- Net investment activity ........................ (164,381) 2,258,038 (233,828) 36,155 -------------- -------------- -------------- -------------- Proceeds from mutual fund shares sold ............ 443,376,469 196,995,162 74,053,794 5,083,147 Cost of mutual fund shares sold .................. (301,499,093) (145,321,824) (68,960,812) (5,096,505) -------------- -------------- -------------- -------------- Realized gain (loss) on investments ............ 141,877,376 51,673,338 5,092,982 (13,358) Change in unrealized gain (loss) on investments .. 179,528,535 113,272,914 13,393,944 63,381 -------------- -------------- -------------- -------------- Net gain (loss) on investments ................. 321,405,911 164,946,252 18,486,926 50,023 -------------- -------------- -------------- -------------- Reinvested capital gains ......................... 3,418,338 30,917,521 14,955 6,103 -------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations ........... 324,659,868 198,121,811 18,268,053 92,281 -------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners ................................ 214,991,310 302,375,457 15,138,079 3,431,579 Transfers between funds .......................... 190,453,913 185,055,283 130,801,206 6,774,363 Redemptions ...................................... (101,442,520) (44,011,999) (6,949,302) (246,314) Annuity benefits ................................. (151,728) (20,897) - - Annual contract maintenance charge (note 2) ...... (444,587) (248,202) (22,248) (468) Contingent deferred sales charges (note 2) ....... (1,522,122) (796,708) (81,927) (2,852) Adjustments to maintain reserves ................. (10,118) 1,320 (907) (701) -------------- -------------- -------------- -------------- Net equity transactions ...................... 301,874,148 442,354,254 138,884,901 9,955,607 -------------- -------------- -------------- -------------- Net change in contract owners' equity ............ 626,534,016 640,476,065 157,152,954 10,047,888 Contract owners' equity beginning of period ...... 1,096,238,216 455,762,151 10,047,888 - -------------- -------------- -------------- -------------- Contract owners' equity end of period ............ $1,722,772,232 1,096,238,216 167,200,842 10,047,888 ============== ============== ============== ==============
(Continued) 8 NATIONWIDE VARIABLE ACCOUNT-II STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY YEARS ENDED DECEMBER 31, 1998 AND 1997
DryGrinc FidVIPEI -------------------------------- ------------------------------- 1998 1997 1998 1997 --------------- -------------- -------------- -------------- Investment activity: Reinvested dividends ............................. $ 691,042 403,974 36,741,162 31,564,284 Mortality, expense and administration charges (note 2): BOA .......................................... (350,592) (148,142) (20,689,256) (18,215,213) BOA Vision ................................... (598,700) (237,804) (15,778,209) (11,859,942) BOA Enterprise ............................... (3,387) (1,115) (15,123) (9,194) --------------- -------------- -------------- -------------- Net investment activity ........................ (261,637) 16,913 258,574 1,479,935 --------------- -------------- -------------- -------------- Proceeds from mutual fund shares sold ............ 30,513,353 7,332,820 360,627,004 137,267,016 Cost of mutual fund shares sold .................. (28,500,253) (6,945,321) (227,981,252) (91,126,170) --------------- -------------- -------------- -------------- Realized gain (loss) on investments ............ 2,013,100 387,499 132,645,752 46,140,846 Change in unrealized gain (loss) on investments .. 3,889,051 (107,097) (11,150,576) 306,220,297 --------------- -------------- -------------- -------------- Net gain (loss) on investments ................. 5,902,151 280,402 121,495,176 352,361,143 --------------- -------------- -------------- -------------- Reinvested capital gains ......................... 1,182,628 3,333,581 130,755,312 158,698,207 --------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations ........... 6,823,142 3,630,896 252,509,062 512,539,285 --------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners ................................ 20,276,212 31,096,853 244,737,638 395,432,535 Transfers between funds .......................... 2,527,467 21,834,332 (147,382,926) (6,514,287) Redemptions ...................................... (4,679,160) (1,113,904) (223,884,295) (152,832,877) Annuity benefits ................................. - - (277,211) (151,789) Annual contract maintenance charge (note 2) ...... (24,697) (5,976) (1,076,592) (987,195) Contingent deferred sales charges (note 2) ....... (79,324) (21,429) (2,878,268) (2,099,197) Adjustments to maintain reserves ................. (1,898) 558 (72,439) (20,082) --------------- -------------- -------------- -------------- Net equity transactions ...................... 18,018,600 51,790,434 (130,834,093) 232,827,108 --------------- -------------- -------------- -------------- Net change in contract owners' equity ............ 24,841,742 55,421,330 121,674,969 745,366,393 Contract owners' equity beginning of period ...... 55,629,567 208,237 2,596,523,771 1,851,157,378 --------------- -------------- -------------- -------------- Contract owners' equity end of period ............ $ 80,471,309 55,629,567 2,718,198,740 2,596,523,771 =============== ============== ============== ==============
FidVIPGr FidVIPHI ------------------------------- ------------------------------- 1998 1997 1998 1997 -------------- -------------- -------------- -------------- Investment activity: Reinvested dividends ............................. $ 10,166,752 11,151,243 62,256,993 47,561,883 Mortality, expense and administration charges (note 2): BOA .......................................... (20,216,127) (17,002,784) (5,314,746) (5,147,050) BOA Vision ................................... (10,214,372) (7,588,917) (5,818,593) (4,584,647) BOA Enterprise ............................... (14,330) (8,279) (5,086) (3,838) -------------- -------------- -------------- -------------- Net investment activity ........................ (20,278,077) (13,448,737) 51,118,568 37,826,348 -------------- -------------- -------------- -------------- Proceeds from mutual fund shares sold ............ 582,531,833 361,048,888 423,878,325 311,819,193 Cost of mutual fund shares sold .................. (421,522,045) (231,057,958) (424,592,843) (295,085,798) -------------- -------------- -------------- -------------- Realized gain (loss) on investments ............ 161,009,788 129,990,930 (714,518) 16,733,395 Change in unrealized gain (loss) on investments .. 330,693,565 186,810,844 (127,578,300) 45,290,142 -------------- -------------- -------------- -------------- Net gain (loss) on investments ................. 491,703,353 316,801,774 (128,292,818) 62,023,537 -------------- -------------- -------------- -------------- Reinvested capital gains ......................... 265,940,840 49,915,087 39,559,131 5,878,435 -------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations ........... 737,366,116 353,268,124 (37,615,119) 105,728,320 -------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners ................................ 181,501,856 253,081,701 84,716,749 139,864,147 Transfers between funds .......................... 58,879,586 (129,238,876) (63,945,106) (19,876,856) Redemptions ...................................... (194,431,314) (141,496,031) (79,994,258) (51,389,595) Annuity benefits ................................. (254,430) (128,135) (64,108) (44,670) Annual contract maintenance charge (note 2) ...... (1,169,401) (1,099,317) (250,706) (245,933) Contingent deferred sales charges (note 2) ....... (2,499,712) (2,350,994) (968,813) (744,127) Adjustments to maintain reserves ................. (85,859) (37,457) 34,738 12,025 -------------- -------------- -------------- -------------- Net equity transactions ...................... 41,940,726 (21,269,109) (60,471,504) 67,574,991 -------------- -------------- -------------- -------------- Net change in contract owners' equity ............ 779,306,842 331,999,015 (98,086,623) 173,303,311 Contract owners' equity beginning of period ...... 1,994,796,761 1,662,797,746 827,837,454 654,534,143 -------------- -------------- -------------- -------------- Contract owners' equity end of period ............ $2,774,103,603 1,994,796,761 729,750,831 827,837,454 ============== ============== ============== ==============
9 NATIONWIDE VARIABLE ACCOUNT-II STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY YEARS ENDED DECEMBER 31, 1998 AND 1997
FidVIPOv FidVIPAM -------------------------------- ------------------------------- 1998 1997 1998 1997 --------------- -------------- -------------- -------------- Investment activity: Reinvested dividends ............................. $ 11,424,188 9,616,272 34,225,218 32,069,538 Mortality, expense and administration charges (note 2): BOA .......................................... (5,767,471) (6,016,329) (10,568,738) (9,994,932) BOA Vision ................................... (2,267,521) (2,010,362) (4,231,809) (3,404,754) BOA Enterprise ............................... (762) (497) (2,407) (1,229) --------------- -------------- -------------- -------------- Net investment activity ........................ 3,388,434 1,589,084 19,422,264 18,668,623 --------------- -------------- -------------- -------------- Proceeds from mutual fund shares sold ............ 448,515,931 325,866,496 111,473,351 64,155,222 Cost of mutual fund shares sold .................. (408,495,774) (271,581,444) (90,494,053) (50,691,840) --------------- -------------- -------------- -------------- Realized gain (loss) on investments ............ 40,020,157 54,285,052 20,979,298 13,463,382 Change in unrealized gain (loss) on investments .. (11,007,004) (34,908,260) (3,096,910) 61,763,112 --------------- -------------- -------------- -------------- Net gain (loss) on investments ................. 29,013,153 19,376,792 17,882,388 75,226,494 --------------- -------------- -------------- -------------- Reinvested capital gains ......................... 33,671,290 38,173,687 102,675,653 80,445,621 --------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations ........... 66,072,877 59,139,563 139,980,305 174,340,738 --------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners ................................ 35,783,097 59,588,290 83,198,673 111,981,451 Transfers between funds .......................... (47,526,193) (49,688,118) (45,694,699) (50,915,784) Redemptions ...................................... (59,779,420) (45,181,274) (117,229,468) (79,250,445) Annuity benefits ................................. (122,919) (81,666) (210,178) (154,671) Annual contract maintenance charge (note 2) ...... (315,146) (348,798) (577,324) (604,024) Contingent deferred sales charges (note 2) ....... (694,542) (640,146) (1,488,964) (1,221,254) Adjustments to maintain reserves ................. (2,419) (19,734) (21,188) 20,989 --------------- -------------- -------------- -------------- Net equity transactions ...................... (72,657,542) (36,371,446) (82,023,148) (20,143,738) --------------- -------------- -------------- -------------- Net change in contract owners' equity ............ (6,584,665) 22,768,117 57,957,157 154,197,000 Contract owners' equity beginning of period ...... 585,358,058 562,589,941 1,080,601,131 926,404,131 --------------- -------------- -------------- -------------- Contract owners' equity end of period ............ $ 578,773,393 585,358,058 1,138,558,288 1,080,601,131 =============== ============== ============== ==============
FidVIPCon FidVIPGrOp ------------------------------- ------------------------------- 1998 1997 1998 1997 -------------- -------------- -------------- -------------- Investment activity: Reinvested dividends ............................. $ 6,336,699 4,746,178 757,412 - Mortality, expense and administration charges (note 2): BOA .......................................... (6,038,275) (4,517,986) (623,486) (60,777) BOA Vision ................................... (7,641,255) (5,308,985) (837,609) (90,378) BOA Enterprise ............................... (5,816) (3,863) (1,084) (205) -------------- -------------- -------------- -------------- Net investment activity ........................ (7,348,647) (5,084,656) (704,767) (151,360) -------------- -------------- -------------- -------------- Proceeds from mutual fund shares sold ............ 156,614,980 79,785,498 46,907,717 13,987,376 Cost of mutual fund shares sold .................. (103,037,324) (62,047,221) (43,276,275) (13,645,097) -------------- -------------- -------------- -------------- Realized gain (loss) on investments ............ 53,577,656 17,738,277 3,631,442 342,279 Change in unrealized gain (loss) on investments .. 165,270,018 115,299,306 17,973,839 1,832,634 -------------- -------------- -------------- -------------- Net gain (loss) on investments ................. 218,847,674 133,037,583 21,605,281 2,174,913 -------------- -------------- -------------- -------------- Reinvested capital gains ......................... 46,619,997 12,543,472 2,632,909 - -------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations ........... 258,119,024 140,496,399 23,533,423 2,023,553 -------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners ................................ 117,785,191 205,780,604 34,421,791 14,171,862 Transfers between funds .......................... 21,712,329 60,354,302 61,633,353 32,032,277 Redemptions ...................................... (69,506,982) (35,225,735) (8,308,180) (564,541) Annuity benefits ................................. (85,161) (26,879) (8,900) - Annual contract maintenance charge (note 2) ...... (362,629) (255,108) (28,889) (2,292) Contingent deferred sales charges (note 2) ....... (1,098,841) (633,851) (90,979) (5,479) Adjustments to maintain reserves ................. (190,380) 19,885 20,282 1,844 -------------- -------------- -------------- -------------- Net equity transactions ...................... 68,253,527 230,013,218 87,638,478 45,633,671 -------------- -------------- -------------- -------------- Net change in contract owners' equity ............ 326,372,551 370,509,617 111,171,901 47,657,224 Contract owners' equity beginning of period ...... 898,176,376 527,666,759 47,657,224 - -------------- -------------- -------------- -------------- Contract owners' equity end of period ............ $1,224,548,927 898,176,376 158,829,125 47,657,224 ============== ============== ============== ==============
(Continued) 10 NATIONWIDE VARIABLE ACCOUNT-II STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY YEARS ENDED DECEMBER 31, 1998 AND 1997
MSEmMkt NSATCapAp -------------------------------- ------------------------------- 1998 1997 1998 1997 --------------- -------------- -------------- -------------- Investment activity: Reinvested dividends ............................. $ 896,541 215,622 4,224,848 2,726,088 Mortality, expense and administration charges (note 2): BOA .......................................... (58,296) (15,348) (3,700,716) (1,856,637) BOA Vision ................................... (62,351) (17,202) (3,266,685) (1,437,155) BOA Enterprise ............................... (123) (104) (21,628) (6,787) --------------- -------------- -------------- -------------- Net investment activity ........................ 775,771 182,968 (2,764,181) (574,491) --------------- -------------- -------------- -------------- Proceeds from mutual fund shares sold ............ 34,386,517 9,201,428 133,708,074 62,546,657 Cost of mutual fund shares sold .................. (37,579,962) (9,604,273) (90,629,019) (46,273,238) --------------- -------------- -------------- -------------- Realized gain (loss) on investments ............ (3,193,445) (402,845) 43,079,055 16,273,419 Change in unrealized gain (loss) on investments .. (588,871) (134,747) 63,140,856 40,948,774 --------------- -------------- -------------- -------------- Net gain (loss) on investments ................. (3,782,316) (537,592) 106,219,911 57,222,193 --------------- -------------- -------------- -------------- Reinvested capital gains ......................... - 93,569 19,370,613 7,703,943 --------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations ........... (3,006,545) (261,055) 122,826,343 64,351,645 --------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners ................................ 1,603,596 3,095,151 79,993,702 79,512,984 Transfers between funds .......................... 2,595,520 5,390,535 176,934,765 95,314,794 Redemptions ...................................... (600,107) (69,221) (44,265,008) (14,345,113) Annuity benefits ................................. - - (8,859) (292) Annual contract maintenance charge (note 2) ...... (2,449) (458) (187,439) (90,956) Contingent deferred sales charges (note 2) ....... (8,579) (349) (603,195) (235,192) Adjustments to maintain reserves ................. 3,560 (7,793) 31,933 8,193 --------------- -------------- -------------- -------------- Net equity transactions ...................... 3,591,541 8,407,865 211,895,899 160,164,418 --------------- -------------- -------------- -------------- Net change in contract owners' equity ............ 584,996 8,146,810 334,722,242 224,516,063 Contract owners' equity beginning of period ...... 8,146,810 - 363,605,489 139,089,426 --------------- -------------- -------------- -------------- Contract owners' equity end of period ............ $ 8,731,806 8,146,810 698,327,731 363,605,489 =============== ============== ============== ==============
NSATGvtBd NSATMyMkt ------------------------------- ------------------------------- 1998 1997 1998 1997 -------------- -------------- -------------- -------------- Investment activity: Reinvested dividends ............................. $ 20,283,271 17,136,024 49,803,790 46,200,443 Mortality, expense and administration charges (note 2): BOA .......................................... (3,112,323) (2,631,037) (7,311,860) (6,719,210) BOA Vision ................................... (1,819,228) (1,049,731) (5,795,865) (5,441,823) BOA Enterprise ............................... (4,150) (1,876) (7,805) (7,890) -------------- -------------- -------------- -------------- Net investment activity ........................ 15,347,570 13,453,380 36,688,260 34,031,520 -------------- -------------- -------------- -------------- Proceeds from mutual fund shares sold ............ 207,789,615 91,300,089 3,220,375,906 2,446,735,002 Cost of mutual fund shares sold .................. (193,984,368) (88,341,190) (3,220,375,906) (2,446,735,002) -------------- -------------- -------------- -------------- Realized gain (loss) on investments ............ 13,805,247 2,958,899 - - Change in unrealized gain (loss) on investments .. (6,851,480) 4,971,271 - - -------------- -------------- -------------- -------------- Net gain (loss) on investments ................. 6,953,767 7,930,170 - - -------------- -------------- -------------- -------------- Reinvested capital gains ......................... 2,132,513 - - - -------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations ........... 24,433,850 21,383,550 36,688,260 34,031,520 -------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners ................................ 39,548,416 36,656,330 264,092,504 574,163,215 Transfers between funds .......................... 121,987,540 (6,550,198) 69,584,573 (398,798,940) Redemptions ...................................... (43,099,055) (32,967,846) (235,028,324) (176,620,083) Annuity benefits ................................. (24,316) (22,811) (33,165) (29,991) Annual contract maintenance charge (note 2) ...... (162,551) (161,508) (329,944) (338,131) Contingent deferred sales charges (note 2) ....... (471,441) (449,182) (3,229,365) (2,442,204) Adjustments to maintain reserves ................. (20,225) 2,293 124,919 11,382 -------------- -------------- -------------- -------------- Net equity transactions ...................... 117,758,368 (3,492,922) 95,181,198 (4,054,752) -------------- -------------- -------------- -------------- Net change in contract owners' equity ............ 142,192,218 17,890,628 131,869,458 29,976,768 Contract owners' equity beginning of period ...... 299,681,912 281,791,284 839,446,497 809,469,729 -------------- -------------- -------------- -------------- Contract owners' equity end of period ............ $ 441,874,130 299,681,912 971,315,955 839,446,497 ============== ============== ============== ==============
11 NATIONWIDE VARIABLE ACCOUNT-II STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY YEARS ENDED DECEMBER 31, 1998 AND 1997
NSATSmCapV NSATSmCo -------------------------------- ------------------------------- 1998 1997 1998 1997 --------------- -------------- -------------- -------------- Investment activity: Reinvested dividends ............................. $ - - - - Mortality, expense and administration charges (note 2): BOA .......................................... (31,885) - (1,700,513) (1,428,117) BOA Vision ................................... (35,054) - (2,059,122) (1,497,619) BOA Enterprise ............................... (83) - (8,482) (8,023) --------------- -------------- -------------- -------------- Net investment activity ........................ (67,022) - (3,768,117) (2,933,759) --------------- -------------- -------------- -------------- Proceeds from mutual fund shares sold ............ 43,832,595 - 261,860,480 136,575,863 Cost of mutual fund shares sold .................. (42,411,426) - (254,018,492) (116,663,809) --------------- -------------- -------------- -------------- Realized gain (loss) on investments ............ 1,421,169 - 7,841,988 19,912,054 Change in unrealized gain (loss) on investments .. 575,447 - (2,212,959) 4,818,936 --------------- -------------- -------------- -------------- Net gain (loss) on investments ................. 1,996,616 - 5,629,029 24,730,990 --------------- -------------- -------------- -------------- Reinvested capital gains ......................... - - - 7,911,895 --------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations ........... 1,929,594 - 1,860,912 29,709,126 --------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners ................................ 859,632 - 36,933,858 68,338,674 Transfers between funds .......................... 11,542,676 - (26,891,714) 46,335,002 Redemptions ...................................... (691,704) - (20,592,877) (12,078,315) Annuity benefits ................................. - - (24,125) (1,773) Annual contract maintenance charge (note 2) ...... (1,173) - (105,259) (76,406) Contingent deferred sales charges (note 2) ....... (8,593) - (293,623) (198,899) Adjustments to maintain reserves ................. 87 - (19,321) 9,979 --------------- -------------- -------------- -------------- Net equity transactions ...................... 11,700,925 - (10,993,061) 102,328,262 --------------- -------------- -------------- -------------- Net change in contract owners' equity ............ 13,630,519 - (9,132,149) 132,037,388 Contract owners' equity beginning of period ...... - - 290,550,223 158,512,835 --------------- -------------- -------------- -------------- Contract owners' equity end of period ............ $ 13,630,519 - 281,418,074 290,550,223 =============== ============== ============== ==============
NSATTotRe NBAMTGro ------------------------------- ------------------------------- 1998 1997 1998 1997 -------------- -------------- -------------- -------------- Investment activity: Reinvested dividends ............................. $ 12,035,844 12,556,764 - - Mortality, expense and administration charges (note 2): BOA .......................................... (8,914,235) (6,944,503) (4,492,337) (4,438,181) BOA Vision ................................... (6,595,435) (3,970,444) (1,605,250) (1,315,545) BOA Enterprise ............................... (44,307) (24,485) (2,546) (1,945) -------------- -------------- -------------- -------------- Net investment activity ........................ (3,518,133) 1,617,332 (6,100,133) (5,755,671) -------------- -------------- -------------- -------------- Proceeds from mutual fund shares sold ............ 98,753,814 36,066,433 232,023,189 177,857,355 Cost of mutual fund shares sold .................. (54,160,507) (22,601,600) (234,618,122) (151,296,684) -------------- -------------- -------------- -------------- Realized gain (loss) on investments ............ 44,593,307 13,464,833 (2,594,933) 26,560,671 Change in unrealized gain (loss) on investments .. 82,128,581 139,386,896 (55,314,235) 47,617,333 -------------- -------------- -------------- -------------- Net gain (loss) on investments ................. 126,721,888 152,851,729 (57,909,168) 74,178,004 -------------- -------------- -------------- -------------- Reinvested capital gains ......................... 48,037,783 32,893,745 124,274,598 32,577,604 -------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations ........... 171,241,538 187,362,806 60,265,297 100,999,937 -------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners ................................ 144,141,140 234,728,766 28,776,863 44,470,540 Transfers between funds .......................... (18,161,876) 82,492,350 (34,982,287) (3,323,065) Redemptions ...................................... (98,751,498) (51,176,329) (46,230,014) (39,592,901) Annuity benefits ................................. (194,097) (152,880) (83,808) (60,735) Annual contract maintenance charge (note 2) ...... (517,264) (390,286) (257,911) (269,972) Contingent deferred sales charges (note 2) ....... (1,246,430) (714,965) (499,129) (523,316) Adjustments to maintain reserves ................. 49,874 38,731 (42,003) 12,128 -------------- -------------- -------------- -------------- Net equity transactions ...................... 25,319,849 264,825,387 (53,318,289) 712,679 -------------- -------------- -------------- -------------- Net change in contract owners' equity ............ 196,561,387 452,188,193 6,947,008 101,712,616 Contract owners' equity beginning of period ...... 1,035,147,551 582,959,358 477,494,040 375,781,424 -------------- -------------- -------------- -------------- Contract owners' equity end of period ............ $1,231,708,938 1,035,147,551 484,441,048 477,494,040 ============== ============== ============== ==============
(Continued) 12 NATIONWIDE VARIABLE ACCOUNT-II STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY YEARS ENDED DECEMBER 31, 1998 AND 1997
NBAMTGuard NBAMTLMat -------------------------------- ------------------------------- 1998 1997 1998 1997 --------------- -------------- -------------- -------------- Investment activity: Reinvested dividends ............................. $ - - 11,658,274 11,734,100 Mortality, expense and administration charges (note 2): BOA .......................................... (101,891) - (1,461,067) (1,495,421) BOA Vision ................................... (175,876) - (1,044,829) (1,132,335) BOA Enterprise ............................... (340) - (942) (568) --------------- -------------- -------------- -------------- Net investment activity ........................ (278,107) - 9,151,436 9,105,776 --------------- -------------- -------------- -------------- Proceeds from mutual fund shares sold ............ 27,174,222 - 67,231,619 57,634,002 Cost of mutual fund shares sold .................. (30,893,655) - (69,328,641) (58,656,885) --------------- -------------- -------------- -------------- Realized gain (loss) on investments ............ (3,719,433) - (2,097,022) (1,022,883) Change in unrealized gain (loss) on investments .. 1,222,564 - (1,610,865) 1,972,323 --------------- -------------- -------------- -------------- Net gain (loss) on investments ................. (2,496,869) - (3,707,887) 949,440 --------------- -------------- -------------- -------------- Reinvested capital gains ......................... - - - - --------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations ........... (2,774,976) - 5,443,549 10,055,216 --------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners ................................ 2,669,820 - 23,144,819 56,406,502 Transfers between funds .......................... 40,976,322 - (13,621,857) (64,818,071) Redemptions ...................................... (2,970,574) - (24,447,184) (16,675,074) Annuity benefits ................................. - - (19,554) (15,225) Annual contract maintenance charge (note 2) ...... (4,885) - (61,292) (65,787) Contingent deferred sales charges (note 2) ....... (35,504) - (209,330) (209,825) Adjustments to maintain reserves ................. (191) - 5,646 372 --------------- -------------- -------------- -------------- Net equity transactions ...................... 40,634,988 - (15,208,752) (25,377,108) --------------- -------------- -------------- -------------- Net change in contract owners' equity ............ 37,860,012 - (9,765,203) (15,321,892) Contract owners' equity beginning of period ...... - - 188,450,178 203,772,070 --------------- -------------- -------------- -------------- Contract owners' equity end of period ............ $ 37,860,012 - 178,684,975 188,450,178 =============== ============== ============== ==============
NBAMTPart OppBdFd ------------------------------- ------------------------------- 1998 1997 1998 1997 -------------- -------------- -------------- -------------- Investment activity: Reinvested dividends ............................. $ 3,116,604 1,231,708 4,888,363 14,915,295 Mortality, expense and administration charges (note 2): BOA .......................................... (4,534,910) (3,649,443) (1,946,480) (1,630,280) BOA Vision ................................... (5,859,017) (4,169,214) (2,306,525) (1,603,881) BOA Enterprise ............................... (9,661) (6,318) (2,200) (864) -------------- -------------- -------------- -------------- Net investment activity ........................ (7,286,984) (6,593,267) 633,158 11,680,270 -------------- -------------- -------------- -------------- Proceeds from mutual fund shares sold ............ 323,653,191 239,929,783 72,961,916 30,992,706 Cost of mutual fund shares sold .................. (285,611,423) (184,398,144) (68,091,867) (30,503,439) -------------- -------------- -------------- -------------- Realized gain (loss) on investments ............ 38,041,768 55,531,639 4,870,049 489,267 Change in unrealized gain (loss) on investments .. (112,673,667) 71,315,949 6,100,995 5,495,496 -------------- -------------- -------------- -------------- Net gain (loss) on investments ................. (74,631,899) 126,847,588 10,971,044 5,984,763 -------------- -------------- -------------- -------------- Reinvested capital gains ......................... 98,173,016 18,968,301 4,423,968 738,909 -------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations ........... 16,254,133 139,222,622 16,028,170 18,403,942 -------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners ................................ 106,356,098 178,218,856 38,178,922 55,252,898 Transfers between funds .......................... (179,019,279) 138,729,962 20,835,559 19,335,126 Redemptions ...................................... (54,732,674) (32,375,861) (27,001,741) (16,712,535) Annuity benefits ................................. (14,950) (1,195) (62,643) (54,502) Annual contract maintenance charge (note 2) ...... (238,809) (163,783) (96,177) (89,653) Contingent deferred sales charges (note 2) ....... (785,338) (453,932) (362,728) (268,113) Adjustments to maintain reserves ................. (732) 1,670 1,178 (3,694) -------------- -------------- -------------- -------------- Net equity transactions ...................... (128,435,684) 283,955,717 31,492,370 57,459,527 -------------- -------------- -------------- -------------- Net change in contract owners' equity ............ (112,181,551) 423,178,339 47,520,540 75,863,469 Contract owners' equity beginning of period ...... 777,189,563 354,011,224 290,966,291 215,102,822 -------------- -------------- -------------- -------------- Contract owners' equity end of period ............ $ 665,008,012 777,189,563 338,486,831 290,966,291 ============== ============== ============== ==============
13 NATIONWIDE VARIABLE ACCOUNT-II STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY YEARS ENDED DECEMBER 31, 1998 AND 1997
OppGISec OppGro -------------------------------- ------------------------------- 1998 1997 1998 1997 --------------- -------------- -------------- -------------- Investment activity: Reinvested dividends ............................. $ 10,856,886 4,353,191 188,351 - Mortality, expense and administration charges (note 2): BOA .......................................... (3,496,341) (2,979,200) (275,168) (18,845) BOA Vision ................................... (3,604,162) (2,689,657) (239,248) (22,068) BOA Enterprise ............................... (1,733) (1,095) (731) (42) --------------- -------------- -------------- -------------- Net investment activity ........................ 3,754,650 (1,316,761) (326,796) (40,955) --------------- -------------- -------------- -------------- Proceeds from mutual fund shares sold ............ 125,576,767 76,448,017 17,011,520 738,091 Cost of mutual fund shares sold .................. (88,844,140) (62,463,469) (17,085,617) (732,690) --------------- -------------- -------------- -------------- Realized gain (loss) on investments ............ 36,732,627 13,984,548 (74,097) 5,401 Change in unrealized gain (loss) on investments .. (21,261,831) 60,986,819 6,064,468 (150,054) --------------- -------------- -------------- -------------- Net gain (loss) on investments ................. 15,470,796 74,971,367 5,990,371 (144,653) --------------- -------------- -------------- -------------- Reinvested capital gains ......................... 40,867,407 - 2,272,563 - --------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations ........... 60,092,853 73,654,606 7,936,138 (185,608) --------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners ................................ 51,559,320 90,024,052 16,030,396 5,815,873 Transfers between funds .......................... (20,304,286) 43,312,410 26,102,066 10,665,183 Redemptions ...................................... (37,751,898) (23,014,747) (2,687,765) (104,041) Annuity benefits ................................. (42,320) (4,941) (3,335) - Annual contract maintenance charge (note 2) ...... (192,525) (173,863) (13,027) (799) Contingent deferred sales charges (note 2) ....... (520,846) (394,896) (30,325) (619) Adjustments to maintain reserves ................. (20,237) (691,837) 31,362 125 --------------- -------------- -------------- -------------- Net equity transactions ...................... (7,272,792) 109,056,178 39,429,372 16,375,722 --------------- -------------- -------------- -------------- Net change in contract owners' equity ............ 52,820,061 182,710,784 47,365,510 16,190,114 Contract owners' equity beginning of period ...... 489,322,678 306,611,894 16,190,114 - --------------- -------------- -------------- -------------- Contract owners' equity end of period ............ $ 542,142,739 489,322,678 63,555,624 16,190,114 =============== ============== ============== ==============
OppMult StOpp2 ------------------------------- ------------------------------- 1998 1997 1998 1997 -------------- -------------- -------------- -------------- Investment activity: Reinvested dividends ............................. $ 3,212,145 10,986,747 1,848,130 2,534,711 Mortality, expense and administration charges (note 2): BOA .......................................... (2,450,308) (2,272,557) (6,768,918) (5,943,611) BOA Vision ................................... (2,206,025) (1,628,568) (3,890,877) (3,119,935) BOA Enterprise ............................... (2,886) (1,491) (5,469) (2,861) -------------- -------------- -------------- -------------- Net investment activity ........................ (1,447,074) 7,084,131 (8,817,134) (6,531,696) -------------- -------------- -------------- -------------- Proceeds from mutual fund shares sold ............ 41,801,113 8,146,767 193,720,998 148,226,419 Cost of mutual fund shares sold .................. (33,330,835) (6,105,557) (137,667,518) (109,705,183) -------------- -------------- -------------- -------------- Realized gain (loss) on investments ............ 8,470,278 2,041,210 56,053,480 38,521,236 Change in unrealized gain (loss) on investments .. (9,193,583) 22,703,778 (62,980,528) 53,401,226 -------------- -------------- -------------- -------------- Net gain (loss) on investments ................. (723,305) 24,744,988 (6,927,048) 91,922,462 -------------- -------------- -------------- -------------- Reinvested capital gains ......................... 18,630,439 9,159,579 101,358,207 57,079,292 -------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations ........... 16,460,060 40,988,698 85,614,025 142,470,058 -------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners ................................ 36,934,558 67,724,310 61,374,281 89,723,233 Transfers between funds .......................... (27,844,235) 15,591,000 (62,713,711) (29,207,063) Redemptions ...................................... (33,380,272) (20,273,082) (60,899,142) (40,126,673) Annuity benefits ................................. (41,603) (8,967) (63,802) (34,707) Annual contract maintenance charge (note 2) ...... (137,253) (128,063) (360,713) (341,773) Contingent deferred sales charges (note 2) ....... (425,530) (313,339) (814,460) (633,525) Adjustments to maintain reserves ................. (12,023) 2,876 3,809 (51,000) -------------- -------------- -------------- -------------- Net equity transactions ...................... (24,906,358) 62,594,735 (63,473,738) 19,328,492 -------------- -------------- -------------- -------------- Net change in contract owners' equity ............ (8,446,298) 103,583,433 22,140,287 161,798,550 Contract owners' equity beginning of period ...... 340,972,204 237,388,771 764,227,770 602,429,220 -------------- -------------- -------------- -------------- Contract owners' equity end of period ............ $ 332,525,906 340,972,204 786,368,057 764,227,770 ============== ============== ============== ==============
(Continued) 14 NATIONWIDE VARIABLE ACCOUNT-II STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY YEARS ENDED DECEMBER 31, 1998 AND 1997
StDisc2 StintStk2 -------------------------------- ------------------------------- 1998 1997 1998 1997 --------------- -------------- -------------- -------------- Investment activity: Reinvested dividends ............................. $ - - 531,928 1,173,377 Mortality, expense and administration charges (note 2): BOA .......................................... (1,451,734) (1,607,469) (263,007) (440,839) BOA Vision ................................... (935,260) (996,834) (348,046) (479,748) BOA Enterprise ............................... (477) (520) (326) (503) --------------- -------------- -------------- -------------- Net investment activity ........................ (2,387,471) (2,604,823) (79,451) 252,287 --------------- -------------- -------------- -------------- Proceeds from mutual fund shares sold ............ 81,516,149 123,823,006 52,143,627 39,269,990 Cost of mutual fund shares sold .................. (73,384,284) (138,054,663) (61,140,929) (40,207,464) --------------- -------------- -------------- -------------- Realized gain (loss) on investments ............ 8,131,865 (14,231,657) (8,997,302) (937,474) Change in unrealized gain (loss) on investments .. 1,124,195 35,647,182 6,694,716 (9,982,351) --------------- -------------- -------------- -------------- Net gain (loss) on investments ................. 9,256,060 21,415,525 (2,302,586) (10,919,825) --------------- -------------- -------------- -------------- Reinvested capital gains ......................... 2,856,579 - - 1,762,973 --------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations ........... 9,725,168 18,810,702 (2,382,037) (8,904,565) --------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners ................................ 13,493,166 22,742,374 4,412,210 16,108,665 Transfers between funds .......................... (28,949,271) (42,069,763) (10,811,583) (22,926,232) Redemptions ...................................... (14,296,989) (12,584,675) (3,576,372) (4,298,166) Annuity benefits ................................. (10,191) (9,675) (4,776) (1,862) Annual contract maintenance charge (note 2) ...... (92,275) (105,512) (17,559) (23,552) Contingent deferred sales charges (note 2) ....... (225,995) (239,340) (55,830) (69,910) Adjustments to maintain reserves ................. (15,647) 2,840 (5,143) 5,043 --------------- -------------- -------------- -------------- Net equity transactions ...................... (30,097,202) (32,263,751) (10,059,053) (11,206,014) --------------- -------------- -------------- -------------- Net change in contract owners' equity ............ (20,372,034) (13,453,049) (12,441,090) (20,110,579) Contract owners' equity beginning of period ...... 195,266,423 208,719,472 49,718,321 69,828,900 --------------- -------------- -------------- -------------- Contract owners' equity end of period ............ $ 174,894,389 195,266,423 37,277,231 49,718,321 =============== ============== ============== ==============
VEWrldBd VEWrldEMkt ------------------------------- ------------------------------- 1998 1997 1998 1997 -------------- -------------- -------------- -------------- Investment activity: Reinvested dividends ............................. $ 874,183 3,428,399 606,759 154,979 Mortality, expense and administration charges (note 2): BOA .......................................... (780,003) (866,795) (339,625) (699,280) BOA Vision ................................... (569,654) (470,930) (355,352) (592,796) BOA Enterprise ............................... (230) (130) (728) (1,071) -------------- -------------- -------------- -------------- Net investment activity ........................ (475,704) 2,090,544 (88,946) (1,138,168) -------------- -------------- -------------- -------------- Proceeds from mutual fund shares sold ............ 69,501,826 36,100,931 93,885,231 85,151,405 Cost of mutual fund shares sold .................. (64,533,774) (37,747,713) (142,305,956) (84,005,535) -------------- -------------- -------------- -------------- Realized gain (loss) on investments ............ 4,968,052 (1,646,782) (48,420,725) 1,145,870 Change in unrealized gain (loss) on investments .. 6,347,948 311,663 27,275,773 (24,512,682) -------------- -------------- -------------- -------------- Net gain (loss) on investments ................. 11,316,000 (1,335,119) (21,144,952) (23,366,812) -------------- -------------- -------------- -------------- Reinvested capital gains ......................... - - 539,341 - -------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations ........... 10,840,296 755,425 (20,694,557) (24,504,980) -------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners ................................ 5,953,441 13,446,356 8,718,923 39,216,218 Transfers between funds .......................... (2,334,954) (16,903,125) (25,081,916) 58,762,770 Redemptions ...................................... (12,034,561) (9,117,586) (5,537,310) (7,729,327) Annuity benefits ................................. (11,719) (11,204) (2,591) (1,090) Annual contract maintenance charge (note 2) ...... (39,304) (44,515) (24,163) (31,176) Contingent deferred sales charges (note 2) ....... (134,345) (111,505) (76,401) (109,502) Adjustments to maintain reserves ................. (57,710) 3,411 (41,405) (6,833) -------------- -------------- -------------- -------------- Net equity transactions ...................... (8,659,152) (12,738,168) (22,044,863) 90,101,060 -------------- -------------- -------------- -------------- Net change in contract owners' equity ............ 2,181,144 (11,982,743) (42,739,420) 65,596,080 Contract owners' equity beginning of period ...... 97,264,864 109,247,607 77,776,313 12,180,233 -------------- -------------- -------------- -------------- Contract owners' equity end of period ............ $ 99,446,008 97,264,864 35,036,893 77,776,313 ============== ============== ============== ==============
15 NATIONWIDE VARIABLE ACCOUNT-II STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY YEARS ENDED DECEMBER 31, 1998 AND 1997
VEWrldHAs MSRESec -------------------------------- ------------------------------- 1998 1997 1998 1997 --------------- -------------- -------------- -------------- Investment activity: Reinvested dividends ............................. $ 711,661 2,942,339 393,097 6,929,835 Mortality, expense and administration charges (note 2): BOA .......................................... (800,231) (1,330,754) (1,314,258) (1,477,443) BOA Vision ................................... (438,740) (670,086) (1,509,947) (1,377,066) BOA Enterprise ............................... (892) (1,080) (2,421) (2,322) --------------- -------------- -------------- -------------- Net investment activity ........................ (528,202) 940,419 (2,433,529) 4,073,004 --------------- -------------- -------------- -------------- Proceeds from mutual fund shares sold ............ 110,716,383 180,226,702 109,606,337 87,738,533 Cost of mutual fund shares sold .................. (157,079,801) (178,928,373) (107,603,836) (67,567,070) --------------- -------------- -------------- -------------- Realized gain (loss) on investments ............ (46,363,418) 1,298,329 2,002,501 20,171,463 Change in unrealized gain (loss) on investments .. (5,019,280) (10,420,493) (34,053,106) (8,041,235) --------------- -------------- -------------- -------------- Net gain (loss) on investments ................. (51,382,698) (9,122,164) (32,050,605) 12,130,228 --------------- -------------- -------------- -------------- Reinvested capital gains ......................... 17,475,241 3,986,394 3,868,070 22,876,677 --------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations ........... (34,435,659) (4,195,351) (30,616,064) 39,079,909 --------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners ................................ 6,023,164 16,547,301 22,405,804 63,961,156 Transfers between funds .......................... (25,954,967) (24,931,349) (84,189,451) 26,781,688 Redemptions ...................................... (8,770,856) (11,775,774) (16,396,178) (11,168,996) Annuity benefits ................................. (8,819) (2,890) (23,453) (1,202) Annual contract maintenance charge (note 2) ...... (51,034) (76,665) (65,816) (56,589) Contingent deferred sales charges (note 2) ....... (112,511) (187,910) (213,235) (156,322) Adjustments to maintain reserves ................. (61,663) (7,728) (13,239) 4,138 --------------- -------------- -------------- -------------- Net equity transactions ...................... (28,936,686) (20,435,015) (78,495,568) 79,363,873 --------------- -------------- -------------- -------------- Net change in contract owners' equity ............ (63,372,345) (24,630,366) (109,111,632) 118,443,782 Contract owners' equity beginning of period ...... 127,190,392 151,820,758 268,677,705 150,233,923 --------------- -------------- -------------- -------------- Contract owners' equity end of period ............ $ 63,818,047 127,190,392 159,566,073 268,677,705 =============== ============== ============== ==============
WPintEq WPPVenCap ------------------------------- ------------------------------- 1998 1997 1998 1997 -------------- -------------- -------------- -------------- Investment activity: Reinvested dividends ............................. $ 1,248,393 2,335,080 - 2,289 Mortality, expense and administration charges (note 2): BOA .......................................... (1,543,369) (1,892,289) (124,501) (135,993) BOA Vision ................................... (2,099,581) (2,323,574) (121,909) (167,588) BOA Enterprise ............................... (1,148) (1,546) (383) (252) -------------- -------------- -------------- -------------- Net investment activity ........................ (2,395,705) (1,882,329) (246,793) (301,544) -------------- -------------- -------------- -------------- Proceeds from mutual fund shares sold ............ 175,012,080 94,815,826 41,505,314 46,674,220 Cost of mutual fund shares sold .................. (175,381,602) (87,661,494) (41,036,519) (44,520,920) -------------- -------------- -------------- -------------- Realized gain (loss) on investments ............ (369,522) 7,154,332 468,795 2,153,300 Change in unrealized gain (loss) on investments .. 16,362,407 (34,790,695) 652,131 (396,347) -------------- -------------- -------------- -------------- Net gain (loss) on investments ................. 15,992,885 (27,636,363) 1,120,926 1,756,953 -------------- -------------- -------------- -------------- Reinvested capital gains ......................... - 16,160,192 - - -------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations ........... 13,597,180 (13,358,500) 874,133 1,455,409 -------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners ................................ 24,541,336 69,542,854 2,630,810 6,835,129 Transfers between funds .......................... (77,448,000) (17,704,103) 5,896,486 (463,676) Redemptions ...................................... (19,392,829) (16,226,024) (1,865,017) (2,561,771) Annuity benefits ................................. (14,068) (8,123) - - Annual contract maintenance charge (note 2) ...... (86,940) (95,572) (6,719) (5,950) Contingent deferred sales charges (note 2) ....... (269,510) (245,953) (22,616) (29,935) Adjustments to maintain reserves ................. (7,444) 4,927 (184) 975 -------------- -------------- -------------- -------------- Net equity transactions ...................... (72,677,455) 35,268,006 6,632,760 3,774,772 -------------- -------------- -------------- -------------- Net change in contract owners' equity ............ (59,080,275) 21,909,506 7,506,893 5,230,181 Contract owners' equity beginning of period ...... 286,776,025 264,866,519 14,678,793 9,448,612 -------------- -------------- -------------- -------------- Contract owners' equity end of period ............ $ 227,695,750 286,776,025 22,185,686 14,678,793 ============== ============== ============== ==============
(Continued) 16 NATIONWIDE VARIABLE ACCOUNT-II STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY YEARS ENDED DECEMBER 31, 1998 AND 1997
WPSmCoGr -------------------------------- 1998 1997 --------------- -------------- Investment activity: Reinvested dividends ............................. $ - - Mortality, expense and administration charges (note 2): BOA .......................................... (2,148,938) (2,040,961) BOA Vision ................................... (2,437,919) (2,229,554) BOA Enterprise ............................... (4,146) (3,912) --------------- -------------- Net investment activity ........................ (4,591,003) (4,274,427) --------------- -------------- Proceeds from mutual fund shares sold ............ 234,905,719 206,418,883 Cost of mutual fund shares sold .................. (206,336,848) (190,696,238) --------------- -------------- Realized gain (loss) on investments ............ 28,568,871 15,722,645 Change in unrealized gain (loss) on investments .. (37,572,573) 32,994,104 --------------- -------------- Net gain (loss) on investments ................. (9,003,702) 48,716,749 --------------- -------------- Reinvested capital gains ......................... - - --------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations ........... (13,594,705) 44,442,322 --------------- -------------- Equity transactions: Purchase payments received from contract owners ................................ 35,864,595 78,705,384 Transfers between funds .......................... (60,145,996) 21,336,792 Redemptions ...................................... (24,045,876) (17,829,181) Annuity benefits ................................. (16,707) (4,658) Annual contract maintenance charge (note 2) ...... (131,597) (116,486) Contingent deferred sales charges (note 2) ....... (375,448) (332,255) Adjustments to maintain reserves ................. (8,986) 12,595 --------------- -------------- Net equity transactions ...................... (48,860,015) 81,772,191 --------------- -------------- Net change in contract owners' equity ............ (62,454,720) 126,214,513 Contract owners' equity beginning of period ...... 383,397,113 257,182,600 --------------- -------------- Contract owners' equity end of period ............ $ 320,942,393 383,397,113 =============== ==============
See accompanying notes to financial statements. 17 NATIONWIDE VARIABLE ACCOUNT-II NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Organization and Nature of Operations The Nationwide Variable Account-II (the Account) was established pursuant to a resolution of the Board of Directors of Nationwide Life Insurance Company (the Company) on October 7, 1981. The Account has been registered as a unit investment trust under the Investment Company Act of 1940. The Company offers tax qualified and non-tax qualified Individual Deferred Variable Annuity Contracts, and Individual Modified Single Premium Deferred Variable Annuity Contracts through the Account. The primary distribution for the contracts is through the brokerage community; however, other distributors are utilized. (b) The Contracts Only contracts without a front-end sales charge, but with a contingent deferred sales charge and certain other fees are offered for purchase. See note 2 for a discussion of contract expenses. With certain exceptions, contract owners in either the accumulation or the payout phase may invest in the following: Portfolios of the American Century Variable Portfolios, Inc. (American Century VP); American Century VP - American Century VP Balanced (ACVPBal) American Century VP - American Century VP Capital Appreciation (ACVPCapAp) American Century VP - American Century VP Income & Growth (ACVPIncGr) American Century VP - American Century VP International (ACVPInt) American Century VP - American Century VP Value (ACVPValue) Funds of the American Variable Insurance Series (American VI Series) (available only for contracts issued on or after May 1, 1987 and before September 1, 1989); American VISeries - Growth Fund (AVISGro) American VISeries - High-Yield Bond Fund (AVISHiYld) American VISeries - U.S. Government/AAA-Rated Securities Fund (AVISGvt) The Dreyfus Socially Responsible Growth Fund, Inc. (DrySRGro) Dreyfus Stock Index Fund (DryStkIx) Portfolios of the Dreyfus Variable Investment Fund (Dreyfus VIF); Dreyfus VIF - Capital Appreciation Portfolio (DryCapAp) Dreyfus VIF - Growth and Income Portfolio (DryGrInc) Portfolios of the Fidelity Variable Insurance Products Fund (Fidelity VIP); Fidelity VIP - Equity-Income Portfolio (FidVIPEI) Fidelity VIP - Growth Portfolio (FidVIPGr) Fidelity VIP - High Income Portfolio (FidVIPHI) Fidelity VIP - Overseas Portfolio (FidVIPOv) Portfolios of the Fidelity Variable Insurance Products Fund II (Fidelity VIP-II); Fidelity VIP-II - Asset Manager Portfolio (FidVIPAM) Fidelity VIP-II - Contrafund Portfolio (FidVIPCon) Portfolio of the Fidelity Variable Insurance Products Fund III (Fidelity VIP-III); Fidelity VIP-III - Growth Opportunities Portfolio (FidVIPGrOp) 18 Portfolio of the Morgan Stanley Universal Funds, Inc. (Morgan Stanley); Morgan Stanley - Emerging Markets Debt Portfolio (MSEmMkt) Funds of the Nationwide Separate Account Trust (Nationwide SAT) (managed for a fee by an affiliated investment advisor); Nationwide SAT - Capital Appreciation Fund (NSATCapAp) Nationwide SAT - Government Bond Fund (NSATGvtBd) Nationwide SAT - Money Market Fund (NSATMyMkt) Nationwide SAT - Small Cap Value Fund (NSATSmCapV) Nationwide SAT - Small Company Fund (NSATSmCo) Nationwide SAT - Total Return Fund (NSATTotRe) Portfolios of the Neuberger & Berman Advisers Management Trust (Neuberger &Berman AMT); Neuberger & Berman AMT - Growth Portfolio (NBAMTGro) Neuberger & Berman AMT - Guardian Portfolio (NBAMTGuard) Neuberger & Berman AMT - Limited Maturity Bond Portfolio (NBAMTLMat) Neuberger & Berman AMT - Partners Portfolio (NBAMTPart) Funds of the Oppenheimer Variable Account Funds (Oppenheimer VAF); Oppenheimer VAF - Bond Fund (OppBdFd) Oppenheimer VAF - Global Securities Fund (OppGlSec) Oppenheimer VAF - Growth Fund (OppGro) Oppenheimer VAF - Multiple Strategies Fund (OppMult) Strong Opportunity Fund II, Inc. (StOpp2) Funds of the Strong Variable Insurance Funds, Inc. (Strong VIF); Strong VIF - Strong Discovery Fund II (StDisc2) Strong VIF - Strong International Stock Fund II (StIntStk2) Funds of the Van Eck Worldwide Insurance Trust (Van Eck WIT); Van Eck WIT - Worldwide Bond Fund (VEWrldBd) Van Eck WIT - Worldwide Emerging Markets Fund (VEWrldEMkt) Van Eck WIT - Worldwide Hard Assets Fund (VEWrldHAs) Portfolio of the Van Kampen American Capital Life Investment Trust (Van Kampen American Capital LIT); Van Kampen American Capital LIT - Morgan Stanley Real Estate Securities Portfolio (MSRESec) Portfolios of the Warburg Pincus Trust; Warburg Pincus Trust - International Equity Portfolio (WPIntEq) Warburg Pincus Trust - Post Venture Capital Portfolio (WPPVenCap) Warburg Pincus Trust - Small Company Growth Portfolio (WPSmCoGr) At December 31, 1998, contract owners have invested in all of the above funds. The contract owners' equity is affected by the investment results of each fund, equity transactions by contract owners and certain contract expenses (see note 2). The accompanying financial statements include only contract owners' purchase payments pertaining to the variable portions of their contracts and exclude any purchase payments for fixed dollar benefits, the latter being included in the accounts of the Company. A contract owner may choose from among a number of different underlying mutual fund options. The underlying mutual fund options are not available to the general public directly. The underlying mutual funds are available as investment options in variable life insurance policies or variable annuity contracts issued by life insurance companies or, in some cases, through participation in certain qualified pension or retirement plans. Some of the underlying mutual funds have been established by investment advisers which manage publicly traded mutual funds having similar names and investment objectives. While some of the underlying mutual funds may be similar to, and may in fact be modeled after, publicly traded mutual funds, the underlying mutual funds are not otherwise directly related to any publicly traded mutual fund. Consequently, the investment performance of publicly traded mutual funds and any corresponding underlying mutual funds may differ substantially. 19 (c) Security Valuation, Transactions and Related Investment Income The market value of the underlying mutual funds is based on the closing net asset value per share at December 31, 1998. The cost of investments sold is determined on the specific identification basis. Investment transactions are accounted for on the trade date (date the order to buy or sell is executed) and dividend income is recorded on the ex-dividend date. (d) Federal Income Taxes Operations of the Account form a part of, and are taxed with, operations of the Company which is taxed as a life insurance company under the Internal Revenue Code. The Company does not provide for income taxes within the Account. Taxes are the responsibility of the contract owner upon termination or withdrawal. (e) Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles may require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, if any, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (2) EXPENSES The Company does not deduct a sales charge from purchase payments received from the contract owners. However, if any part of the contract value of such contracts is surrendered the Company will, with certain exceptions, deduct from a contract owner's contract value a contingent deferred sales charge. For contracts issued prior to December 15, 1988, the contingent deferred sales charge will be equal to 5% of the lesser of the total of all purchase payments made within 96 months prior to the date of the request for surrender or the amount surrendered. For contracts issued on or after December 15, 1988, the Company will deduct a contingent deferred sales charge not to exceed 7% of the lesser of purchase payments or the amount surrendered, such charge declining 1% per year, to 0%, after the purchase payment has been held in the contract for 84 months. No sales charges are deducted on redemptions used to purchase units in the fixed investment options of the Company. The following contract charges are deducted by the Company: (a) for The BEST OF AMERICA(R) contracts, an annual contract maintenance charge of up to $30, dependent on contract type and issue date, which is satisfied by surrendering units; and (b) for The BEST OF AMERICA(R) contracts issued prior to December 15, 1988, a charge for mortality and expense risk assessed through the daily unit value calculation equal to an annual rate of 0.80% and 0.50%, respectively; for The BEST OF AMERICA(R) contracts issued on or after December 15, 1988, a mortality risk charge, an expense risk charge and an administration charge assessed through the daily unit value calculation equal to an annual rate of 0.80%, 0.45% and 0.05%, respectively; for The BEST OF AMERICA(R) America's Vision AnnuitySM contracts, a mortality risk charge, an expense risk charge and an administration charge assessed through the daily unit value calculation equal to an annual rate of 0.80%, 0.45% and 0.15%, respectively; and for The BEST OF AMERICA(R) Nationwide Insurance Enterprise Annuity contracts, a mortality risk charge assessed through the daily unit value calculation equal to an annual rate of 0.80%. (3) RELATED PARTY TRANSACTIONS The Company performs various services on behalf of the Mutual Fund Companies in which the Account invests and may receive fees for the services performed. These services include, among other things, shareholder communications, preparation, postage, fund transfer agency and various other record keeping and customer service functions. These fees are paid to an affiliate of the Company. 20 (4) COMPONENTS OF CONTRACT OWNERS' EQUITY The following is a summary of contract owners' equity at December 31, 1998, for each series, in both the accumulation and payout phases.
ANNUAL Contract owners' equity represented by: UNITS UNIT VALUE RETURN(b) --------- ----------- --------- Contracts in accumulation phase: The BEST OF AMERICA(R) contracts: American Century VP - American Century VP Balanced: Tax qualified 3,311,879 $ 18.677491 $ 61,857,590 14% Non-tax qualified 2,684,128 18.677491 50,132,777 14% American Century VP - American Century VP Capital Appreciation: Tax qualified 5,691,252 21.832994 124,257,071 (3)% Non-tax qualified 3,199,790 21.832994 69,860,996 (3)% American Century VP - American Century VP Income & Growth: Tax qualified 851,923 10.825822 9,222,767 8%(a) Non-tax qualified 1,195,005 10.825822 12,936,911 8%(a) American Century VP - American Century VP International: Tax qualified 4,804,748 16.121219 77,458,395 17% Non-tax qualified 3,904,415 16.121219 62,943,929 17% American Century VP - American Century VP Value: Tax qualified 1,289,505 13.057214 16,837,343 3% Non-tax qualified 1,042,979 13.057214 13,618,400 3% American VI Series - Growth Fund: Tax qualified 371,663 42.056137 15,630,710 34% Non-tax qualified 368,482 42.056137 15,496,929 34% American VI Series - High-Yield Bond Fund: Tax qualified 62,435 25.475118 1,590,539 (1)% Non-tax qualified 38,541 25.475118 981,837 (1)% American VI Series - U.S. Government/ AAA-Rated Securities Fund: Tax qualified 129,959 21.026607 2,732,597 7% Non-tax qualified 81,141 21.026607 1,706,120 7% The Dreyfus Socially Responsible Growth Fund, Inc.: Tax qualified 3,208,339 27.580026 88,486,073 28% Non-tax qualified 1,734,954 27.580026 47,850,076 28% Dreyfus Stock Index Fund: Tax qualified 16,760,500 27.352140 458,435,542 27% Non-tax qualified 11,496,653 27.352140 314,458,062 27% Dreyfus VIF - Capital Appreciation Portfolio: Tax qualified 3,218,773 13.099410 42,164,027 29% Non-tax qualified 3,158,512 13.099410 41,374,644 29% Dreyfus VIF - Growth and Income Portfolio: Tax qualified 1,530,286 12.641927 19,345,764 10% Non-tax qualified 1,010,647 12.641927 12,776,526 10%
21 Fidelity VIP - Equity-Income Portfolio: Tax qualified 23,119,147 39.068090 903,220,916 10% Non-tax qualified 17,190,931 39.068090 671,616,839 10% Fidelity VIP - Growth Portfolio: Tax qualified 17,532,628 64.597153 1,132,557,853 38% Non-tax qualified 11,328,287 64.597153 731,775,089 38% Fidelity VIP - High Income Portfolio: Tax qualified 6,464,105 26.926873 174,058,134 (6)% Non-tax qualified 6,457,997 26.926873 173,893,665 (6)% Fidelity VIP - Overseas Portfolio: Tax qualified 11,283,013 20.307878 229,134,051 11% Non-tax qualified 9,318,467 20.307878 189,238,291 11% Fidelity VIP-II - Asset Manager Portfolio: Tax qualified 18,785,187 27.616728 518,785,400 14% Non-tax qualified 10,977,395 27.616728 303,159,732 14% Fidelity VIP-II - Contrafund Portfolio: Tax qualified 15,609,123 20.836167 325,234,294 28% Non-tax qualified 11,340,649 20.836167 236,295,656 28% Fidelity VIP-III - Growth Opportunities Portfolio: Tax qualified 2,942,745 13.446025 39,568,223 23% Non-tax qualified 2,183,868 13.446025 29,364,344 23% Morgan Stanley - Emerging Markets Debt Portfolio: Tax qualified 417,556 6.934889 2,895,705 (29)% Non-tax qualified 283,779 6.934889 1,967,976 (29)% Nationwide SAT - Capital Appreciation Fund: Tax qualified 6,725,123 30.616503 205,899,749 28% Non-tax qualified 5,812,770 30.616503 177,966,690 28% Nationwide SAT - Government Bond Fund: Tax qualified 4,202,514 35.250995 148,142,800 7% Non-tax qualified 3,353,428 35.157882 117,899,426 7% Nationwide SAT - Money Market Fund: Tax qualified 10,938,889 23.891623 261,347,812 4% Non-tax qualified 12,513,821 23.891623 298,975,494 4% Nationwide SAT - Small Cap Value Fund: Tax qualified 405,997 8.528787 3,462,662 (15)%(a) Non-tax qualified 600,393 8.528787 5,120,624 (15)%(a) Nationwide SAT - Small Company Fund: Tax qualified 4,961,782 15.971964 79,249,403 0% Non-tax qualified 3,151,728 15.971964 50,339,286 0% Nationwide SAT - Total Return Fund: Tax qualified 4,459,090 93.358149 416,292,389 17% Non-tax qualified 3,296,114 90.954119 299,795,145 17% Neuberger & Berman AMT Growth Portfolio: Tax qualified 4,739,527 43.203987 204,766,463 14% Non-tax qualified 3,535,046 43.203987 152,728,081 14% Neuberger & Berman AMT - Guardian Portfolio: Tax qualified 928,355 9.282422 8,617,383 (7)%(a) Non-tax qualified 782,161 9.282422 7,260,348 (7)%(a)
(Continued) 22 Neuberger & Berman AMT - Limited Maturity Bond Portfolio: Tax qualified 3,027,892 18.227259 55,190,172 3% Non-tax qualified 2,828,271 18.227259 51,551,628 3% Neuberger & Berman AMT Partners Portfolio: Tax qualified 7,610,496 22.992724 174,986,034 3% Non-tax qualified 5,337,515 22.992724 122,724,009 3% Oppenheimer VAF - Bond Fund: Tax qualified 4,366,241 19.729274 86,142,765 5% Non-tax qualified 3,654,118 19.729274 72,093,095 5% Oppenheimer VAF - Global Securities Fund: Tax qualified 9,503,851 18.054116 171,583,628 13% Non-tax qualified 5,697,473 18.054116 102,862,838 13% Oppenheimer VAF - Growth Fund: Tax qualified 1,553,053 12.762568 19,820,945 22% Non-tax qualified 1,122,440 12.762568 14,325,217 22% Oppenheimer VAF - Multiple Strategies Fund: Tax qualified 4,734,705 21.978211 104,060,346 5% Non-tax qualified 3,383,989 21.978211 74,374,024 5% Strong Opportunity Fund II, Inc.: Tax qualified 10,757,453 29.241637 314,565,536 12% Non-tax qualified 6,829,157 29.241637 199,695,730 12% Strong VIF - Strong Discovery Fund II: Tax qualified 3,330,945 18.773240 62,532,630 6% Non-tax qualified 2,561,304 18.773240 48,083,975 6% Strong VIF - Strong International Stock Fund II: Tax qualified 1,115,317 8.937224 9,967,838 (6)% Non-tax qualified 824,150 8.937224 7,365,613 (6)% Van Eck WIT - Worldwide Bond Fund: Tax qualified 1,824,058 16.424717 29,959,636 11% Non-tax qualified 1,736,777 16.424717 28,526,071 11% Van Eck WIT - Worldwide Emerging Markets Fund: Tax qualified 1,862,823 5.716175 10,648,222 (35)% Non-tax qualified 1,394,148 5.716175 7,969,194 (35)% Van Eck WIT - Worldwide Hard Assets Fund: Tax qualified 1,976,563 10.743036 21,234,287 (32)% Non-tax qualified 1,953,375 10.743036 20,985,178 (32)% Van Kampen American Capital LIT - Morgan Stanley Real Estate Securities Portfolio: Tax qualified 2,429,141 15.615675 37,932,676 (13)% Non-tax qualified 2,423,893 15.615675 37,850,725 (13)% Warburg Pincus Trust - International Equity Portfolio: Tax qualified 4,923,915 11.608185 57,157,716 4% Non-tax qualified 3,738,519 11.608185 43,397,420 4% Warburg Pincus Trust - Post Venture Capital Portfolio: Tax qualified 531,483 11.952364 6,352,478 5% Non-tax qualified 448,154 11.952364 5,356,500 5%
23 Warburg Pincus Trust - Small Company Growth Portfolio: Tax qualified 5,715,162 15.294249 87,409,111 (4)% Non-tax qualified 4,595,026 15.294249 70,277,472 (4)% The BEST OF AMERICA(R) Nationwide Insurance Enterprise Annuity contracts: American Century VP - American Century VP Balanced: Tax qualified 10,841 15.003357 162,651 15% Non-tax qualified 12,689 15.003357 190,378 15% American Century VP - American Century VP Capital Appreciation: Tax qualified 6,953 8.734621 60,732 (3)% Non-tax qualified 11,266 8.734621 98,404 (3)% American Century VP - American Century VP Income & Growth: Tax qualified 109 10.862433 1,184 9%(a) Non-tax qualified 2,432 10.862433 26,417 9%(a) American Century VP - American Century VP International: Tax qualified 4,492 16.294485 73,195 18% Non-tax qualified 11,501 16.294485 187,403 18% American Century VP - American Century VP Value: Tax qualified 997 13.191239 13,152 4% Non-tax qualified 10,800 13.191239 142,465 4% The Dreyfus Socially Responsible Growth Fund, Inc.: Tax qualified 12,450 20.314721 252,918 28% Non-tax qualified 8,800 20.314721 178,770 28% Dreyfus Stock Index Fund: Tax qualified 73,693 21.564450 1,589,149 27% Non-tax qualified 57,396 21.564450 1,237,713 27% Dreyfus VIF - Capital Appreciation Portfolio: Tax qualified 8,555 13.196658 112,897 29% Non-tax qualified 11,092 13.196658 146,377 29% Dreyfus VIF Growth and Income Portfolio: Tax qualified 19,404 12.771671 247,822 11% Non-tax qualified 14,677 12.771671 187,450 11% Fidelity VIP - Equity-Income Portfolio: Tax qualified 63,894 17.117556 1,093,709 11% Non-tax qualified 58,459 17.117556 1,000,675 11% Fidelity VIP - Growth Portfolio: Tax qualified 67,118 18.598337 1,248,283 38% Non-tax qualified 72,186 18.598337 1,342,540 38% Fidelity VIP - High Income Portfolio: Tax qualified 20,159 12.725625 256,536 (5)% Non-tax qualified 29,302 12.725625 372,886 (5)% Fidelity VIP - Overseas Portfolio: Tax qualified 1,306 14.574887 19,035 12% Non-tax qualified 3,352 14.574887 48,855 12%
(Continued) 24 Fidelity VIP-II - Asset Manager Portfolio: Tax qualified 9,570 16.357953 156,546 14% Non-tax qualified 13,208 16.357953 216,056 14% Fidelity VIP-II - Contrafund Portfolio: Tax qualified 25,061 19.503885 488,787 29% Non-tax qualified 21,809 19.503885 425,360 29% Fidelity VIP-III - Growth Opportunities Portfolio: Tax qualified 5,578 13.545866 75,559 24% Non-tax qualified 9,045 13.545866 122,522 24% Morgan Stanley - Emerging Markets Debt Portfolio: Tax qualified 50 6.986517 349 (29)% Non-tax qualified 126 6.986517 880 (29)% Nationwide SAT - Capital Appreciation Fund: Tax qualified 89,909 23.165130 2,082,754 29% Non-tax qualified 83,268 23.165130 1,928,914 29% Nationwide SAT - Government Bond Fund: Tax qualified 38,202 12.382040 473,019 8% Non-tax qualified 35,508 12.382040 439,661 8% Nationwide SAT - Money Market Fund: Tax qualified 47,932 11.457526 549,182 4% Non-tax qualified 57,997 11.457526 664,502 4% Nationwide SAT - Small Cap Value Fund: Tax qualified 672 8.557673 5,751 (14)%(a) Non-tax qualified 1,602 8.557673 13,709 (14)%(a) Nationwide SAT - Small Company Fund: Tax qualified 21,106 16.217601 342,289 0% Non-tax qualified 32,785 16.217601 531,694 0% Nationwide SAT - Total Return Fund: Tax qualified 175,958 19.086420 3,358,408 17% Non-tax qualified 165,625 19.086420 3,161,188 17% Neuberger & Berman AMT - Growth Portfolio: Tax qualified 8,454 15.832511 133,848 15% Non-tax qualified 13,157 15.832511 208,308 15% Neuberger & Berman AMT - Guardian Portfolio: Tax qualified 1,169 9.313837 10,888 (7)%(a) Non-tax qualified 10,424 9.313837 97,087 (7)%(a) Neuberger & Berman AMT - Limited Maturity Bond Portfolio: Tax qualified 2,556 11.550378 29,523 4% Non-tax qualified 6,843 11.550378 79,039 4% Neuberger & Berman AMT - Partners Portfolio: Tax qualified 27,924 18.285622 510,608 3% Non-tax qualified 25,730 18.285622 470,489 3% Oppenheimer VAF - Bond Fund: Tax qualified 17,438 12.279322 214,127 6% Non-tax qualified 19,590 12.279322 240,552 6%
25 Oppenheimer VAF - Global Securities Fund: Tax qualified 7,037 16.204214 114,029 13% Non-tax qualified 5,896 16.204214 95,540 13% Oppenheimer VAF - Growth Fund: Tax qualified 7,443 12.857366 95,697 23% Non-tax qualified 2,581 12.857366 33,185 23% Oppenheimer VAF - Multiple Strategies Fund: Tax qualified 14,316 14.521876 207,895 6% Non-tax qualified 16,138 14.521876 234,354 6% Strong Opportunity Fund II, Inc.: Tax qualified 19,114 17.394278 332,474 13% Non-tax qualified 19,791 17.394278 344,250 13% Strong VIF - Strong Discovery Fund II: Tax qualified 756 12.307345 9,304 6% Non-tax qualified 3,184 12.307345 39,187 6% Strong VIF - Strong International Stock Fund II: Tax qualified 3,271 9.029694 29,536 (6)% Non-tax qualified 704 9.029694 6,357 (6)% Van Eck WIT - Worldwide Bond Fund: Tax qualified 1,169 11.685439 13,660 12% Non-tax qualified 1,060 11.685439 12,387 12% Van Eck WIT - Worldwide Emerging Markets Fund: Tax qualified 6,729 5.774938 38,860 (35)% Non-tax qualified 4,464 5.774938 25,779 (35)% Van Eck WIT - Worldwide Hard Assets Fund: Tax qualified 1,662 8.651833 14,379 (32)% Non-tax qualified 9,030 8.651833 78,126 (32)% Van Kampen American Capital LIT - Morgan Stanley Real Estate Securities Portfolio: Tax qualified 5,144 15.607765 80,286 (12)% Non-tax qualified 11,844 15.607765 184,858 (12)% Warburg Pincus Trust - International Equity Portfolio: Tax qualified 3,803 11.456500 43,569 5% Non-tax qualified 3,149 11.456500 36,077 5% Warburg Pincus Trust - Post Venture Capital Portfolio: Tax qualified 411 12.075066 4,963 6% Non-tax qualified 3,383 12.075066 40,850 6% Warburg Pincus Trust - Small Company Growth Portfolio: Tax qualified 11,973 13.935312 166,847 (4)% Non-tax qualified 24,274 13.935312 338,266 (4)% The BEST OF AMERICA(R) America's Vision Annuity(SM) contracts: American Century VP - American Century VP Balanced: Tax qualified 2,324,877 17.180551 39,942,668 14% Non-tax qualified 3,259,024 17.180551 55,991,828 14%
(Continued) 26 American Century VP - American Century VP Capital Appreciation: Tax qualified 2,096,618 11.105046 23,283,039 (4)% Non-tax qualified 2,997,998 11.105046 33,292,906 (4)% American Century VP - American Century VP Income & Growth: Tax qualified 660,409 10.818483 7,144,624 8%(a) Non-tax qualified 867,235 10.818483 9,382,167 8%(a) American Century VP - American Century VP International: Tax qualified 3,867,971 16.049229 62,077,952 17% Non-tax qualified 5,549,022 16.049229 89,057,525 17% American Century VP - American Century VP Value: Tax qualified 1,368,433 13.030493 17,831,357 3% Non-tax qualified 1,555,893 13.030493 20,274,053 3% The Dreyfus Socially Responsible Growth Fund, Inc.: Tax qualified 2,233,140 25.996040 58,052,797 28% Non-tax qualified 2,713,732 25.996040 70,546,286 28% Dreyfus Stock Index Fund: Tax qualified 14,729,959 27.128900 399,607,585 26% Non-tax qualified 20,136,222 27.128900 546,273,553 26% Dreyfus VIF - Capital Appreciation Portfolio: Tax qualified 2,552,942 13.079978 33,392,425 28% Non-tax qualified 3,823,437 13.079978 50,010,472 28% Dreyfus VIF - Growth and Income Portfolio: Tax qualified 1,631,617 12.616052 20,584,565 10% Non-tax qualified 2,166,223 12.616052 27,329,182 10% Fidelity VIP - Equity-Income Portfolio: Tax qualified 21,218,396 22.453988 476,437,609 10% Non-tax qualified 29,521,717 22.453988 662,880,279 10% Fidelity VIP - Growth Portfolio: Tax qualified 14,762,454 25.487577 376,259,183 38% Non-tax qualified 20,736,972 25.487577 528,535,171 38% Fidelity VIP - High Income Portfolio: Tax qualified 10,344,737 14.405141 149,017,395 (6)% Non-tax qualified 16,093,648 14.405141 231,831,269 (6)% Fidelity VIP - Overseas Portfolio: Tax qualified 4,021,152 15.553060 62,541,218 11% Non-tax qualified 6,251,077 15.553060 97,223,376 11% Fidelity VIP-II - Asset Manager Portfolio: Tax qualified 8,121,780 16.832250 136,707,831 13% Non-tax qualified 10,607,282 16.832250 178,544,422 13% Fidelity VIP-II - Contrafund Portfolio: Tax qualified 13,726,215 20.762500 284,990,539 28% Non-tax qualified 18,136,001 20.762500 376,548,721 28% Fidelity VIP-III - Growth Opportunities Portfolio: Tax qualified 2,717,672 13.426082 36,487,687 23% Non-tax qualified 3,950,006 13.426082 53,033,104 23%
27 Morgan Stanley - Emerging Markets Debt Portfolio: Tax qualified 168,941 6.924574 1,169,844 (29)% Non-tax qualified 389,490 6.924574 2,697,052 (29)% Nationwide SAT - Capital Appreciation Fund: Tax qualified 4,940,669 27.075632 133,771,736 28% Non-tax qualified 6,517,824 27.075632 176,474,204 28% Nationwide SAT - Government Bond Fund: Tax qualified 5,568,798 13.264325 73,866,347 7% Non-tax qualified 7,612,211 13.264325 100,970,841 7% Nationwide SAT - Money Market Fund: Tax qualified 14,205,644 11.927856 169,442,876 4% Non-tax qualified 20,133,168 11.927856 240,145,529 4% Nationwide SAT - Small Cap Value Fund: Tax qualified 192,359 8.523007 1,639,477 (15)%(a) Non-tax qualified 397,547 8.523007 3,388,296 (15)%(a) Nationwide SAT - Small Company Fund: Tax qualified 4,237,223 15.920417 67,458,357 0% Non-tax qualified 5,235,907 15.920417 83,357,823 0% Nationwide SAT - Total Return Fund: Tax qualified 10,125,826 22.849095 231,365,960 16% Non-tax qualified 12,095,557 22.849095 276,372,531 16% Neuberger & Berman AMT - Growth Portfolio: Tax qualified 2,485,942 19.155589 47,619,683 14% Non-tax qualified 4,103,790 19.155589 78,610,515 14% Neuberger & Berman AMT - Guardian Portfolio: Tax qualified 1,202,225 9.276124 11,151,988 (7)%(a) Non-tax qualified 1,155,905 9.276124 10,722,318 (7)%(a) Neuberger & Berman AMT - Limited Maturity Bond Portfolio: Tax qualified 2,286,137 12.016412 27,471,164 3% Non-tax qualified 3,686,363 12.016412 44,296,857 3% Neuberger & Berman AMT - Partners Portfolio: Tax qualified 6,708,322 22.890094 153,554,121 3% Non-tax qualified 9,288,228 22.890094 212,608,412 3% Oppenheimer VAF - Bond Fund: Tax qualified 5,838,014 13.161293 76,835,813 5% Non-tax qualified 7,806,181 13.161293 102,739,435 5% Oppenheimer VAF - Global Securities Fund: Tax qualified 7,043,429 16.529444 116,423,965 13% Non-tax qualified 9,123,582 16.529444 150,807,738 13% Oppenheimer VAF - Growth Fund: Tax qualified 959,141 12.743636 12,222,944 22% Non-tax qualified 1,331,146 12.743636 16,963,640 22% Oppenheimer VAF - Multiple Strategies Fund: Tax qualified 4,320,161 16.281980 70,340,775 5% Non-tax qualified 5,100,007 16.281980 83,038,212 5%
(Continued) 28 Strong Opportunity Fund II, Inc.: Tax qualified 5,406,908 21.434632 115,895,083 12% Non-tax qualified 7,229,174 21.434632 154,954,684 12% Strong VIF - Strong Discovery Fund II: Tax qualified 1,694,881 15.507147 26,282,769 6% Non-tax qualified 2,442,361 15.507147 37,874,051 6% Strong VIF - Strong International Stock Fund II: Tax qualified 905,955 8.908351 8,070,565 (6)% Non-tax qualified 1,324,589 8.908351 11,799,904 (6)% Van Eck WIT - Worldwide Bond Fund: Tax qualified 1,351,072 13.016609 17,586,376 11% Non-tax qualified 1,789,762 13.016609 23,296,632 11% Van Eck WIT - Worldwide Emerging Markets Fund: Tax qualified 1,171,528 5.704452 6,682,925 (35)% Non-tax qualified 1,694,210 5.704452 9,664,540 (35)% Van Eck WIT - Worldwide Hard Assets Fund: Tax qualified 870,452 8.796887 7,657,268 (32)% Non-tax qualified 1,571,084 8.796887 13,820,648 (32)% Van Kampen American Capital LIT - Morgan Stanley Real Estate Securities Portfolio: Tax qualified 3,044,098 15.560452 47,367,541 (13)% Non-tax qualified 2,317,641 15.560452 36,063,542 (13)% Warburg Pincus Trust - International Equity Portfolio: Tax qualified 4,110,213 11.567145 47,543,430 4% Non-tax qualified 6,861,319 11.567145 79,365,872 4% Warburg Pincus Trust - Post Venture Capital Portfolio: Tax qualified 416,468 11.927880 4,967,580 5% Non-tax qualified 458,029 11.927880 5,463,315 5% Warburg Pincus Trust - Small Company Growth Portfolio: Tax qualified 4,139,966 15.240137 63,093,649 (4)% Non-tax qualified 6,531,391 15.240137 99,539,294 (4)% =========== =========== Reserves for annuity contracts in payout phase: Tax qualified 3,839,879 Non-tax qualified 9,491,453 ----------- $ 20,672,674,408 ================
(a) This investment option was not being utilized for the entire period. Accordingly, the annual return was computed for such period as the investment option was utilized. (b) The annual return does not include contract charges satisfied by surrendering units. 62 1 INDEPENDENT AUDITORS' REPORT The Board of Directors Nationwide Life Insurance Company: We have audited the accompanying consolidated balance sheets of Nationwide Life Insurance Company and subsidiaries (collectively the Company), a wholly owned subsidiary of Nationwide Financial Services, Inc., as of December 31, 1998 and 1997, and the related consolidated statements of income, shareholder's equity and cash flows for each of the years in the three-year period ended December 31, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Nationwide Life Insurance Company and subsidiaries as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1998, in conformity with generally accepted accounting principles. KPMG LLP Columbus, Ohio January 29, 1999 2
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Consolidated Balance Sheets (in millions of dollars, except per share amounts) December 31, ----------------------- Assets 1998 1997 ------ --------- --------- Investments: Securities available-for-sale, at fair value: Fixed maturity securities $14,245.1 $13,204.1 Equity securities 127.2 80.4 Mortgage loans on real estate, net 5,328.4 5,181.6 Real estate, net 243.6 311.4 Policy loans 464.3 415.3 Other long-term investments 44.0 25.2 Short-term investments 289.1 358.4 --------- --------- 20,741.7 19,576.4 --------- --------- Cash 3.4 175.6 Accrued investment income 218.7 210.5 Deferred policy acquisition costs 2,022.2 1,665.4 Other assets 420.3 438.4 Assets held in separate accounts 50,935.8 37,724.4 --------- --------- $74,342.1 $59,790.7 ========= ========= Liabilities and Shareholder's Equity ------------------------------------ Future policy benefits and claims $19,767.1 $18,702.8 Other liabilities 866.1 885.6 Liabilities related to separate accounts 50,935.8 37,724.4 --------- --------- 71,569.0 57,312.8 --------- --------- Commitments and contingencies (notes 7 and 12) Shareholder's equity: Common stock, $1 par value. Authorized 5.0 million shares; 3.8 million shares issued and outstanding 3.8 3.8 Additional paid-in capital 914.7 914.7 Retained earnings 1,579.0 1,312.3 Accumulated other comprehensive income 275.6 247.1 --------- --------- 2,773.1 2,477.9 --------- --------- $74,342.1 $59,790.7 ========= =========
See accompanying notes to consolidated financial statements. 3
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Consolidated Statements of Income (in millions of dollars) Years ended December 31, ----------------------------------- 1998 1997 1996 -------- -------- --------- Revenues: Policy charges $ 698.9 $ 545.2 $ 400.9 Life insurance premiums 200.0 205.4 198.6 Net investment income 1,481.6 1,409.2 1,357.8 Realized gains (losses) on investments 28.4 11.1 (0.3) Other 66.8 46.5 35.9 -------- -------- -------- 2,475.7 2,217.4 1,992.9 -------- -------- -------- Benefits and expenses: Interest credited to policyholder account balances 1,069.0 1,016.6 982.3 Other benefits and claims 175.8 178.2 178.3 Policyholder dividends on participating policies 39.6 40.6 41.0 Amortization of deferred policy acquisition costs 214.5 167.2 133.4 Other operating expenses 419.7 384.9 342.4 -------- -------- -------- 1,918.6 1,787.5 1,677.4 -------- -------- -------- Income from continuing operations before federal income tax expense 557.1 429.9 315.5 Federal income tax expense 190.4 150.2 110.9 -------- -------- -------- Income from continuing operations 366.7 279.7 204.6 Income from discontinued operations (less federal income tax expense of $4.5 in 1996) -- -- 11.3 -------- -------- -------- Net income $ 366.7 $ 279.7 $ 215.9 ======== ======== ========
See accompanying notes to consolidated financial statements. 4
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Consolidated Statements of Shareholder's Equity Years ended December 31, 1998, 1997 and 1996 (in millions of dollars) Accumulated Additional other Total Common paid-in Retained comprehensive shareholder's stock capital earnings income equity ----- ------- -------- ------ ------ December 31, 1995 $ 3.8 $ 657.2 $1,583.2 $ 384.3 $2,628.5 Comprehensive income: Net income -- -- 215.9 -- 215.9 Net unrealized losses on securities available-for-sale arising during the year -- -- -- (170.9) (170.9) -------- Total comprehensive income 45.0 -------- Dividends to shareholder -- (129.3) (366.5) (39.8) (535.6) ------ ------- -------- ------- -------- December 31, 1996 3.8 527.9 1,432.6 173.6 2,137.9 Comprehensive income: Net income -- -- 279.7 -- 279.7 Net unrealized gains on securities available-for-sale arising during the year -- -- -- 73.5 73.5 -------- Total comprehensive income 353.2 -------- Capital contribution -- 836.8 -- -- 836.8 Dividend to shareholder -- (450.0) (400.0) -- (850.0) ------ ------- -------- ------- -------- December 31, 1997 3.8 914.7 1,312.3 247.1 2,477.9 Comprehensive income: Net income -- -- 366.7 -- 366.7 Net unrealized gains on securities available-for-sale arising during the year -- -- -- 28.5 28.5 -------- Total comprehensive income 395.2 -------- Dividend to shareholder -- -- (100.0) -- (100.0) ------ ------- -------- ------- -------- December 31, 1998 $ 3.8 $ 914.7 $1,579.0 $ 275.6 $2,773.1 ====== ======= ======== ======= ========
See accompanying notes to consolidated financial statements. 5
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Consolidated Statements of Cash Flows (in millions of dollars) Years ended December 31, --------------------------------------- 1998 1997 1996 --------- --------- --------- Cash flows from operating activities: Net income $ 366.7 $ 279.7 $ 215.9 Adjustments to reconcile net income to net cash provided by operating activities: Interest credited to policyholder account balances 1,069.0 1,016.6 982.3 Capitalization of deferred policy acquisition costs (584.2) (487.9) (422.6) Amortization of deferred policy acquisition costs 214.5 167.2 133.4 Amortization and depreciation (8.5) (2.0) 7.0 Realized gains on invested assets, net (28.4) (11.1) (0.3) (Increase) decrease in accrued investment income (8.2) (0.3) 2.8 (Increase) decrease in other assets 16.4 (12.7) (38.9) Decrease in policy liabilities (8.3) (23.1) (151.0) (Decrease) increase in other liabilities (34.8) 230.6 191.4 Other, net (11.3) (10.9) (61.7) --------- --------- --------- Net cash provided by operating activities 982.9 1,146.1 858.3 --------- --------- --------- Cash flows from investing activities: Proceeds from maturity of securities available-for-sale 1,557.0 993.4 1,162.8 Proceeds from sale of securities available-for-sale 610.5 574.5 299.6 Proceeds from repayments of mortgage loans on real estate 678.2 437.3 309.0 Proceeds from sale of real estate 103.8 34.8 18.5 Proceeds from repayments of policy loans and sale of other invested assets 23.6 22.7 22.8 Cost of securities available-for-sale acquired (3,182.8) (2,828.1) (1,573.6) Cost of mortgage loans on real estate acquired (829.1) (752.2) (972.8) Cost of real estate acquired (0.8) (24.9) (7.9) Policy loans issued and other invested assets acquired (88.4) (62.5) (57.7) Short-term investments, net 69.3 (354.8) 28.0 --------- --------- --------- Net cash used in investing activities (1,058.7) (1,959.8) (771.3) --------- --------- --------- Cash flows from financing activities: Proceeds from capital contributions -- 836.8 -- Cash dividends paid (100.0) -- (50.0) Increase in investment product and universal life insurance product account balances 2,682.1 2,488.5 1,781.8 Decrease in investment product and universal life insurance product account balances (2,678.5) (2,379.8) (1,784.5) --------- --------- --------- Net cash (used in) provided by financing activities (96.4) 945.5 (52.7) --------- --------- --------- Net (decrease) increase in cash (172.2) 131.8 34.3 Cash, beginning of year 175.6 43.8 9.5 --------- --------- --------- Cash, end of year $ 3.4 $ 175.6 $ 43.8 ========= ========= =========
See accompanying notes to consolidated financial statements. 6 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements December 31, 1998, 1997 and 1996 (1) Organization and Description of Business ---------------------------------------- Prior to January 27, 1997, Nationwide Life Insurance Company (NLIC) was wholly owned by Nationwide Corporation (Nationwide Corp.). On that date, Nationwide Corp. contributed the outstanding shares of NLIC's common stock to Nationwide Financial Services, Inc. (NFS), a holding company formed by Nationwide Corp. in November 1996 for NLIC and the other companies within the Nationwide Insurance Enterprise that offer or distribute long-term savings and retirement products. On March 11, 1997, NFS completed an initial public offering of its Class A common stock. During 1996 and 1997, Nationwide Corp. and NFS completed certain transactions in anticipation of the initial public offering that focused the business of NFS on long-term savings and retirement products. On September 24, 1996, NLIC declared a dividend payable to Nationwide Corp. on January 1, 1997 consisting of the outstanding shares of common stock of certain subsidiaries that do not offer or distribute long-term savings or retirement products. In addition, during 1996, NLIC entered into two reinsurance agreements whereby all of NLIC's accident and health and group life insurance business was ceded to two affiliates effective January 1, 1996. These subsidiaries, through December 31, 1996, and all accident and health and group life insurance business have been accounted for as discontinued operations for all periods presented. See notes 10 and 14. Additionally, NLIC paid $900.0 million of dividends, $50.0 million to Nationwide Corp. on December 31, 1996 and $850.0 million to NFS, which then made an equivalent dividend to Nationwide Corp., on February 24, 1997. NFS contributed $836.8 million to the capital of NLIC during March 1997. Wholly owned subsidiaries of NLIC include Nationwide Life and Annuity Insurance Company (NLAIC), Nationwide Advisory Services, Inc., Nationwide Investment Services Corporation and NWE, Inc. NLIC and its subsidiaries are collectively referred to as "the Company." The Company is a leading provider of long-term savings and retirement products, including variable annuities, fixed annuities and life insurance. (2) Summary of Significant Accounting Policies ------------------------------------------ The significant accounting policies followed by the Company that materially affect financial reporting are summarized below. The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles, which differ from statutory accounting practices prescribed or permitted by regulatory authorities. Annual Statements for NLIC and NLAIC, filed with the Department of Insurance of the State of Ohio (the Department), are prepared on the basis of accounting practices prescribed or permitted by the Department. Prescribed statutory accounting practices include a variety of publications of the National Association of Insurance Commissioners (NAIC), as well as state laws, regulations and general administrative rules. Permitted statutory accounting practices encompass all accounting practices not so prescribed. The Company has no material permitted statutory accounting practices. 7 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses for the reporting period. Actual results could differ significantly from those estimates. The most significant estimates include those used in determining deferred policy acquisition costs, valuation allowances for mortgage loans on real estate and real estate investments and the liability for future policy benefits and claims. Although some variability is inherent in these estimates, management believes the amounts provided are adequate. (a) Consolidation Policy -------------------- The consolidated financial statements include the accounts of NLIC and its wholly owned subsidiaries. Operations that are classified and reported as discontinued operations are not consolidated but rather are reported as "Income from discontinued operations" in the accompanying consolidated statements of income. All significant intercompany balances and transactions have been eliminated. (b) Valuation of Investments and Related Gains and Losses ----------------------------------------------------- The Company is required to classify its fixed maturity securities and equity securities as either held-to-maturity, available-for-sale or trading. Fixed maturity securities are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity and are stated at amortized cost. Fixed maturity securities not classified as held-to-maturity and all equity securities are classified as available-for-sale and are stated at fair value, with the unrealized gains and losses, net of adjustments to deferred policy acquisition costs and deferred federal income tax, reported as a separate component of shareholder's equity. The adjustment to deferred policy acquisition costs represents the change in amortization of deferred policy acquisition costs that would have been required as a charge or credit to operations had such unrealized amounts been realized. The Company has no fixed maturity securities classified as held-to-maturity or trading as of December 31, 1998 or 1997. Mortgage loans on real estate are carried at the unpaid principal balance less valuation allowances. The Company provides valuation allowances for impairments of mortgage loans on real estate based on a review by portfolio managers. The measurement of impaired loans is based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the fair value of the collateral, if the loan is collateral dependent. Loans in foreclosure and loans considered to be impaired are placed on non-accrual status. Interest received on non-accrual status mortgage loans on real estate is included in interest income in the period received. Real estate is carried at cost less accumulated depreciation and valuation allowances. Other long-term investments are carried on the equity basis, adjusted for valuation allowances. Impairment losses are recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Realized gains and losses on the sale of investments are determined on the basis of specific security identification. Estimates for valuation allowances and other than temporary declines are included in realized gains and losses on investments. 8 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued (c) Revenues and Benefits --------------------- Investment Products and Universal Life Insurance Products: Investment products consist primarily of individual and group variable and fixed deferred annuities. Universal life insurance products include universal life insurance, variable universal life insurance, corporate owned life insurance and other interest-sensitive life insurance policies. Revenues for investment products and universal life insurance products consist of net investment income, asset fees, cost of insurance, policy administration and surrender charges that have been earned and assessed against policy account balances during the period. Policy benefits and claims that are charged to expense include interest credited to policy account balances and benefits and claims incurred in the period in excess of related policy account balances. Traditional Life Insurance Products: Traditional life insurance products include those products with fixed and guaranteed premiums and benefits and consist primarily of whole life insurance, limited-payment life insurance, term life insurance and certain annuities with life contingencies. Premiums for traditional life insurance products are recognized as revenue when due. Benefits and expenses are associated with earned premiums so as to result in recognition of profits over the life of the contract. This association is accomplished by the provision for future policy benefits and the deferral and amortization of policy acquisition costs. (d) Deferred Policy Acquisition Costs --------------------------------- The costs of acquiring new business, principally commissions, certain expenses of the policy issue and underwriting department and certain variable sales expenses have been deferred. For investment products and universal life insurance products, deferred policy acquisition costs are being amortized with interest over the lives of the policies in relation to the present value of estimated future gross profits from projected interest margins, asset fees, cost of insurance, policy administration and surrender charges. For years in which gross profits are negative, deferred policy acquisition costs are amortized based on the present value of gross revenues. For traditional life insurance products, these deferred policy acquisition costs are predominantly being amortized with interest over the premium paying period of the related policies in proportion to the ratio of actual annual premium revenue to the anticipated total premium revenue. Such anticipated premium revenue was estimated using the same assumptions as were used for computing liabilities for future policy benefits. Deferred policy acquisition costs are adjusted to reflect the impact of unrealized gains and losses on fixed maturity securities available-for-sale as described in note 2(b). (e) Separate Accounts ----------------- Separate account assets and liabilities represent contractholders' funds which have been segregated into accounts with specific investment objectives. For all but $743.9 million of separate account assets, the investment income and gains or losses of these accounts accrue directly to the contractholders. The activity of the separate accounts is not reflected in the consolidated statements of income and cash flows except for the fees the Company receives. (f) Future Policy Benefits ---------------------- Future policy benefits for investment products in the accumulation phase, universal life insurance and variable universal life insurance policies have been calculated based on participants' contributions plus interest credited less applicable contract charges. The average interest rate credited on investment product policy reserves was 6.0%, 6.1% and 6.3% for the years ended December 31, 1998, 1997 and 1996, respectively. Future policy benefits for traditional life insurance policies have been calculated by the net level premium method using interest rates varying from 6.0% to 10.5% and estimates of mortality, morbidity, investment yields and withdrawals which were used or which were being experienced at the time the policies were issued, rather than the assumptions prescribed by state regulatory authorities. 9 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued (g) Participating Business ---------------------- Participating business represents approximately 40% in 1998 (50% in 1997 and 52% in 1996) of the Company's life insurance in force, 74% in 1998 (77% in 1997 and 78% in 1996) of the number of life insurance policies in force, and 14% in 1998 (27% in 1997 and 40% in 1996) of life insurance statutory premiums. The provision for policyholder dividends is based on current dividend scales and is included in "Future policy benefits and claims" in the accompanying consolidated balance sheets. (h) Federal Income Tax ------------------ The Company files a consolidated federal income tax return with Nationwide Mutual Insurance Company (NMIC), the majority shareholder of Nationwide Corp. The members of the consolidated tax return group have a tax sharing arrangement which provides, in effect, for each member to bear essentially the same federal income tax liability as if separate tax returns were filed. The Company utilizes the asset and liability method of accounting for income tax. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under this method, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce the deferred tax assets to the amounts expected to be realized. (i) Reinsurance Ceded ----------------- Reinsurance premiums ceded and reinsurance recoveries on benefits and claims incurred are deducted from the respective income and expense accounts. Assets and liabilities related to reinsurance ceded are reported on a gross basis. All of the Company's accident and health and group life insurance business is ceded to affiliates and is accounted for as discontinued operations. See notes 10 and 14. 10 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued (j) Recently Issued Accounting Pronouncements ----------------------------------------- On January 1, 1998 the Company adopted SFAS No. 131 - Disclosures about Segments of an Enterprise and Related Information (SFAS 131). SFAS 131 supersedes SFAS No. 14 - Financial Reporting for Segments of a Business Enterprise. SFAS 131 establishes standards for public business enterprises to report information about operating segments in annual financial statements and selected information about operating segments in interim financial reports. SFAS 131 also establishes standards for related disclosures about products and services, geographic areas, and major customers. The adoption of SFAS 131 did not affect results of operations or financial position, nor did it affect the manner in which the Company defines its operating segments. The segment information required for annual financial statements is included in note 13. On January 1, 1998, the Company adopted SFAS No. 132 - Employers' Disclosures about Pensions and Other Postretirement Benefits (SFAS 132). SFAS 132 revises employers' disclosures about pension and other postretirement benefit plans. The Statement does not change the measurement or recognition of benefit plans in the financial statements. The revised disclosures required by SFAS 132 are included in note 8. In June 1998, the FASB issued SFAS No. 133 - Accounting for Derivative Instruments and Hedging Activities (SFAS 133). SFAS 133 establishes accounting and reporting standards for derivative instruments and for hedging activities. Contracts that contain embedded derivatives, such as certain insurance contracts, are also addressed by the Statement. SFAS 133 requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The Statement is effective for fiscal years beginning after June 15, 1999. It may be implemented earlier provided adoption occurs as of the beginning of any fiscal quarter after issuance. The Company plans to adopt this Statement in first quarter 2000 and is currently evaluating the impact on results of operations and financial condition. In March 1998, The American Institute of Certified Public Accountant's Accounting Standards Executive Committee issued Statement of Position 98-1 - Accounting for the Costs of Computer Software Developed or Obtained for Internal Use (SOP 98-1). SOP 98-1 provides guidance intended to standardize accounting practices for costs incurred to develop or obtain computer software for internal use. Specifically, SOP 98-1 provides guidance for determining whether computer software is for internal use and when costs incurred for internal use software are to be capitalized. SOP 98-1 is effective for financial statements for fiscal years beginning after December 15, 1998. The Company does not expect the adoption of SOP 98-1, which occurred on January 1, 1999, to have a material impact on the Company's financial statements. (k) Reclassification ---------------- Certain items in the 1997 and 1996 consolidated financial statements have been reclassified to conform to the 1998 presentation. 11 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued (3) Investments ----------- The amortized cost, gross unrealized gains and losses and estimated fair value of securities available-for-sale as of December 31, 1998 and 1997 were:
Gross Gross Amortized unrealized unrealized Estimated (in millions of dollars) cost gains losses fair value ------------------------ ---- ----- ------ ---------- December 31, 1998: Fixed maturity securities: U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 255.9 $ 13.0 $ -- $ 268.9 Obligations of states and political subdivisions 1.6 -- -- 1.6 Debt securities issued by foreign governments 106.5 4.5 -- 111.0 Corporate securities 9,899.6 423.2 (18.7) 10,304.1 Mortgage-backed securities 3,457.7 104.2 (2.4) 3,559.5 --------- ------ ------ --------- Total fixed maturity securities 13,721.3 544.9 (21.1) 14,245.1 Equity securities 110.4 18.3 (1.5) 127.2 --------- ------ ------ --------- $13,831.7 $563.2 $(22.6) $14,372.3 ========= ====== ====== ========= December 31, 1997: Fixed maturity securities: U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 305.1 $ 8.6 $ -- $ 313.7 Obligations of states and political subdivisions 1.6 -- -- 1.6 Debt securities issued by foreign governments 93.3 2.7 (0.2) 95.8 Corporate securities 8,698.7 355.5 (11.5) 9,042.7 Mortgage-backed securities 3,634.2 118.6 (2.5) 3,750.3 --------- ------ ------ --------- Total fixed maturity securities 12,732.9 485.4 (14.2) 13,204.1 Equity securities 67.8 12.9 (0.3) 80.4 --------- ------ ------ --------- $12,800.7 $498.3 $(14.5) $13,284.5 ========= ====== ====== =========
As of December 31, 1998 the Company had entered into S&P 500 futures contracts with a notional amount of $20.0 million to reduce the risk of changes in the fair market value of certain investments classified as equity securities. These contracts had an unrealized loss of $1.3 million as of December 31, 1998 which is included in the recorded amount of the equity securities and in accumulated other comprehensive income, net of tax, similar to other unrealized gains and losses on securities available-for-sale. 12 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued The amortized cost and estimated fair value of fixed maturity securities available-for-sale as of December 31, 1998, by expected maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Amortized Estimated (in millions of dollars) cost fair value ---- ---------- Fixed maturity securities available for sale: Due in one year or less $ 2,019.9 $ 2,048.0 Due after one year through five years 8,169.1 8,470.6 Due after five years through ten years 2,795.0 2,927.7 Due after ten years 737.3 798.8 --------- --------- $13,721.3 $14,245.1 ========= =========
The components of unrealized gains on securities available-for-sale, net, were as follows as of December 31:
(in millions of dollars) 1998 1997 ---- ---- Gross unrealized gains $ 540.6 $ 483.8 Adjustment to deferred policy acquisition costs (116.6) (103.7) Deferred federal income tax (148.4) (133.0) ------- ------- $ 275.6 $ 247.1 ======= =======
An analysis of the change in gross unrealized gains (losses) on securities available-for-sale and fixed maturity securities held-to-maturity follows for the years ended December 31:
(in millions of dollars) 1998 1997 1996 ---- ---- ---- Securities available-for-sale: Fixed maturity securities $52.6 $137.5 $(289.2) Equity securities 4.2 (2.7) 8.9 ----- ------ ------- $56.8 $134.8 $(280.3) ===== ====== =======
Proceeds from the sale of securities available-for-sale during 1998, 1997 and 1996 were $610.5 million, $574.5 million and $299.6 million, respectively. During 1998, gross gains of $9.0 million ($9.9 million and $6.6 million in 1997 and 1996, respectively) and gross losses of $7.6 million ($18.0 million and $6.9 million in 1997 and 1996, respectively) were realized on those sales. In addition, gross gains of $15.1 million and gross losses of $0.7 million were realized in 1997 when the Company paid a dividend to NFS, which then made an equivalent dividend to Nationwide Corp., consisting of securities having an aggregate fair value of $850.0 million. The recorded investment of mortgage loans on real estate considered to be impaired as of December 31, 1998 was $3.7 million. No valuation allowance has been recorded for these loans as of December 31, 1998. The recorded investment of mortgage loans on real estate considered to be impaired as of December 31, 1997 was $19.9 million which includes $3.9 million of impaired mortgage loans on real estate for which the related valuation allowance was $0.1 million and $16.0 million of impaired mortgage loans on real estate for which there was no valuation allowance. During 1998, the average recorded investment in impaired mortgage loans on real estate was approximately $9.1 million ($31.8 million in 1997) and interest income recognized on those loans was $0.3 million ($1.0 million in 1997), which is equal to interest income recognized using a cash-basis method of income recognition. 13 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued Activity in the valuation allowance account for mortgage loans on real estate is summarized for the years ended December 31:
(in millions of dollars) 1998 1997 ---- ---- Allowance, beginning of year $42.5 $51.0 Reductions credited to operations (0.1) (1.2) Direct write-downs charged against the allowance -- (7.3) ----- ----- Allowance, end of year $42.4 $42.5 ===== =====
Real estate is presented at cost less accumulated depreciation of $21.5 million as of December 31, 1998 ($45.1 million as of December 31, 1997) and valuation allowances of $5.4 million as of December 31, 1998 ($11.1 million as of December 31, 1997). Investments that were non-income producing for the twelve month period preceding December 31, 1998 amounted to $42.4 million ($19.4 million for 1997) and consisted of $32.7 million ($3.0 million in 1997) in securities available-for-sale and $9.7 million ($16.4 million in 1997) in real estate. An analysis of investment income by investment type follows for the years ended December 31:
(in millions of dollars) 1998 1997 1996 ---- ---- ---- Gross investment income: Securities available-for-sale: Fixed maturity securities $ 982.5 $ 911.6 $ 917.1 Equity securities 0.8 0.8 1.3 Mortgage loans on real estate 458.9 457.7 432.8 Real estate 40.4 42.9 44.3 Short-term investments 17.8 22.7 4.2 Other 30.7 21.0 4.0 -------- -------- -------- Total investment income 1,531.1 1,456.7 1,403.7 Less investment expenses 49.5 47.5 45.9 -------- -------- -------- Net investment income $1,481.6 $1,409.2 $1,357.8 ======== ======== ========
An analysis of realized gains (losses) on investments, net of valuation allowances, by investment type follows for the years ended December 31:
(in millions of dollars) 1998 1997 1996 ---- ---- ---- Securities available-for-sale: Fixed maturity securities $(0.7) $ 3.6 $(3.5) Equity securities 2.1 2.7 3.2 Mortgage loans on real estate 3.9 1.6 (4.1) Real estate and other 23.1 3.2 4.1 ----- ----- ----- $28.4 $11.1 $(0.3) ===== ===== =====
Fixed maturity securities with an amortized cost of $6.5 million and $6.2 million as of December 31, 1998 and 1997, respectively, were on deposit with various regulatory agencies as required by law. 14 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued (4) Federal Income Tax ------------------ The Company's current federal income tax liability was $72.8 million and $60.1 million as of December 31, 1998 and 1997, respectively. The tax effects of temporary differences that give rise to significant components of the net deferred tax liability as of December 31, 1998 and 1997 are as follows:
(in millions of dollars) 1998 1997 ---- ---- Deferred tax assets: Future policy benefits $207.7 $200.1 Liabilities in Separate Accounts 319.9 242.0 Mortgage loans on real estate and real estate 17.5 19.0 Other assets and other liabilities 58.9 59.2 ------ ------ Total gross deferred tax assets 604.0 520.3 Less valuation allowance (7.0) (7.0) ------ ------ Net deferred tax assets 597.0 513.3 ------ ------ Deferred tax liabilities: Deferred policy acquisition costs 568.7 480.5 Fixed maturity securities 212.2 193.3 Deferred tax on realized investment gains 34.8 40.1 Equity securities and other long-term investments 9.6 7.5 Other 21.6 22.2 ------ ------ Total gross deferred tax liabilities 846.9 743.6 ------ ------ Net deferred tax liability $249.9 $230.3 ====== ======
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion of the total gross deferred tax assets will not be realized. Nearly all future deductible amounts can be offset by future taxable amounts or recovery of federal income tax paid within the statutory carryback period. There has been no change in the valuation allowance for the years ended December 31, 1998, 1997 and 1996. Federal income tax expense attributable to income from continuing operations for the years ended December 31 was as follows:
(in millions of dollars) 1998 1997 1996 ---- ---- ---- Currently payable $186.1 $121.7 $116.5 Deferred tax expense (benefit) 4.3 28.5 (5.6) ------ ------ ------ $190.4 $150.2 $110.9 ====== ====== ======
15 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued Total federal income tax expense for the years ended December 31, 1998, 1997 and 1996 differs from the amount computed by applying the U.S. federal income tax rate to income before tax as follows:
1998 1997 1996 ----------------- ---------------- ----------------- (in millions of dollars) Amount % Amount % Amount % ------ - ------ - ------ - Computed (expected) tax expense $195.0 35.0 $150.5 35.0 $110.4 35.0 Tax exempt interest and dividends received deduction (4.9) (0.9) - 0.0 (0.2) (0.1) Other, net 0.3 0.1 (0.3) (0.1) 0.7 0.3 ------ ---- ------ ---- ------ ---- Total (effective rate of each year) $190.4 34.2 $150.2 34.9 $110.9 35.2 ====== ==== ====== ==== ====== ====
Total federal income tax paid was $173.4 million, $91.8 million and $115.8 million during the years ended December 31, 1998, 1997 and 1996, respectively. (5) Comprehensive Income -------------------- Pursuant to SFAS No. 130 - Reporting Comprehensive Income, which the Company adopted January 1, 1998, the Consolidated Statements of Shareholder's Equity include a new measure called "Comprehensive Income". Comprehensive Income includes net income as well as certain items that are reported directly within separate components of shareholders' equity that bypass net income. Currently, the Company's only component of Other Comprehensive Income is unrealized gains (losses) on securities available-for-sale. The related before and after federal tax amounts are as follows:
(in millions of dollars) 1998 1997 1996 ---- ---- ---- Unrealized gains (losses) on securities available-for-sale arising during the period: Gross $ 58.2 $141.1 $(272.4) Adjustment to deferred policy acquisition costs (12.9) (21.8) 57.0 Related federal income tax (expense) benefit (15.9) (41.7) 44.0 ------ ------ ------ Net 29.4 77.6 (171.4) ------ ------ ------ Reclassification adjustment for net (gains) losses on securities available-for-sale realized during the period: Gross (1.4) (6.3) 0.7 Related federal income tax expense (benefit) 0.5 2.2 (0.2) ------ ------ ------- Net (0.9) (4.1) 0.5 ------ ------ ------- Total Other Comprehensive Income $ 28.5 $ 73.5 $(170.9) ====== ====== =======
(6) Fair Value of Financial Instruments ----------------------------------- The following disclosures summarize the carrying amount and estimated fair value of the Company's financial instruments. Certain assets and liabilities are specifically excluded from the disclosure requirements of financial instruments. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company. 16 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued The fair value of a financial instrument is defined as the amount at which the financial instrument could be exchanged in a current transaction between willing parties. In cases where quoted market prices are not available, fair value is to be based on estimates using present value or other valuation techniques. Many of the Company's assets and liabilities subject to the disclosure requirements are not actively traded, requiring fair values to be estimated by management using present value or other valuation techniques. These techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Although fair value estimates are calculated using assumptions that management believes are appropriate, changes in assumptions could cause these estimates to vary materially. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in the immediate settlement of the instruments. Although insurance contracts, other than policies such as annuities that are classified as investment contracts, are specifically exempted from the disclosure requirements, estimated fair value of policy reserves on life insurance contracts is provided to make the fair value disclosures more meaningful. The tax ramifications of the related unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates. The following methods and assumptions were used by the Company in estimating its fair value disclosures: Fixed maturity and equity securities: The fair value for fixed maturity securities is based on quoted market prices, where available. For fixed maturity securities not actively traded, fair value is estimated using values obtained from independent pricing services or, in the case of private placements, is estimated by discounting expected future cash flows using a current market rate applicable to the yield, credit quality and maturity of the investments. The fair value for equity securities is based on quoted market prices. The carrying amount and fair value for equity securities exclude the fair value of futures contracts designated as hedges of equity securities. Mortgage loans on real estate, net: The fair value for mortgage loans on real estate is estimated using discounted cash flow analyses, using interest rates currently being offered for similar loans to borrowers with similar credit ratings. Loans with similar characteristics are aggregated for purposes of the calculations. Fair value for mortgage loans in default is the estimated fair value of the underlying collateral. Policy loans, short-term investments and cash: The carrying amount reported in the consolidated balance sheets for these instruments approximates their fair value. Separate account assets and liabilities: The fair value of assets held in separate accounts is based on quoted market prices. The fair value of liabilities related to separate accounts is the amount payable on demand, which is net of certain surrender charges. Investment contracts: The fair value for the Company's liabilities under investment type contracts is disclosed using two methods. For investment contracts without defined maturities, fair value is the amount payable on demand. For investment contracts with known or determined maturities, fair value is estimated using discounted cash flow analysis. Interest rates used are similar to currently offered contracts with maturities consistent with those remaining for the contracts being valued. 17 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued Policy reserves on life insurance contracts: Included are disclosures for individual life insurance, universal life insurance and supplementary contracts with life contingencies for which the estimated fair value is the amount payable on demand. Also included are disclosures for the Company's limited payment policies, which the Company has used discounted cash flow analyses similar to those used for investment contracts with known maturities to estimate fair value. Commitments to extend credit: Commitments to extend credit have nominal fair value because of the short-term nature of such commitments. See note 7. Futures contracts: The fair value for futures contracts is based on quoted market prices. Carrying amount and estimated fair value of financial instruments subject to disclosure requirements and policy reserves on life insurance contracts were as follows as of December 31:
1998 1997 ------------------------- -------------------------- Carrying Estimated Carrying Estimated (in millions of dollars) amount fair value amount fair value --------- ---------- --------- ---------- Assets: Investments: Securities available-for-sale: Fixed maturity securities $14,245.1 $14,245.1 $13,204.1 $13,204.1 Equity securities 128.5 128.5 80.4 80.4 Mortgage loans on real estate, net 5,328.4 5,527.6 5,181.6 5,509.7 Policy loans 464.3 464.3 415.3 415.3 Short-term investments 289.1 289.1 358.4 358.4 Cash 3.4 3.4 175.6 175.6 Assets held in separate accounts 50,935.8 50,935.8 37,724.4 37,724.4 Liabilities: Investment contracts 15,468.7 15,158.6 14,708.2 14,322.1 Policy reserves on life insurance contracts 3,914.0 3,768.9 3,345.4 3,182.4 Liabilities related to separate accounts 50,935.8 49,926.5 37,724.4 36,747.0 Futures contracts 1.3 1.3 -- --
(7) Risk Disclosures ---------------- The following is a description of the most significant risks facing life insurers and how the Company mitigates those risks: Credit Risk: The risk that issuers of securities owned by the Company or mortgagors on mortgage loans on real estate owned by the Company will default or that other parties, including reinsurers, which owe the Company money, will not pay. The Company minimizes this risk by adhering to a conservative investment strategy, by maintaining reinsurance and credit and collection policies and by providing for any amounts deemed uncollectible. Interest Rate Risk: The risk that interest rates will change and cause a decrease in the value of an insurer's investments. This change in rates may cause certain interest-sensitive products to become uncompetitive or may cause disintermediation. The Company mitigates this risk by charging fees for non-conformance with certain policy provisions, by offering products that transfer this risk to the purchaser, and/or by attempting to match the maturity schedule of its assets with the expected payouts of its liabilities. To the extent that liabilities come due more quickly than assets mature, an insurer would have to borrow funds or sell assets prior to maturity and potentially recognize a gain or loss. 18 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued Legal/Regulatory Risk: The risk that changes in the legal or regulatory environment in which an insurer operates will result in increased competition, reduced demand for a company's products, or create additional expenses not anticipated by the insurer in pricing its products. The Company mitigates this risk by offering a wide range of products and by operating throughout the United States, thus reducing its exposure to any single product or jurisdiction, and also by employing underwriting practices which identify and minimize the adverse impact of this risk. Financial Instruments with Off-Balance-Sheet Risk: The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business through management of its investment portfolio. These financial instruments include commitments to extend credit in the form of loans. These instruments involve, to varying degrees, elements of credit risk in excess of amounts recognized on the consolidated balance sheets. Commitments to fund fixed rate mortgage loans on real estate are agreements to lend to a borrower, and are subject to conditions established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a deposit. Commitments extended by the Company are based on management's case-by-case credit evaluation of the borrower and the borrower's loan collateral. The underlying mortgage property represents the collateral if the commitment is funded. The Company's policy for new mortgage loans on real estate is to lend no more than 75% of collateral value. Should the commitment be funded, the Company's exposure to credit loss in the event of nonperformance by the borrower is represented by the contractual amounts of these commitments less the net realizable value of the collateral. The contractual amounts also represent the cash requirements for all unfunded commitments. Commitments on mortgage loans on real estate of $156.0 million extending into 1999 were outstanding as of December 31, 1998. The Company also had $40.0 million of commitments to purchase fixed maturity securities outstanding as of December 31, 1998. Significant Concentrations of Credit Risk: The Company grants mainly commercial mortgage loans on real estate to customers throughout the United States. The Company has a diversified portfolio with no more than 22% (20% in 1997) in any geographic area and no more than 2% (2% in 1997) with any one borrower as of December 31, 1998. As of December 31, 1998, 42% (46% in 1997) of the remaining principal balance of the Company's commercial mortgage loan portfolio financed retail properties. Reinsurance: The Company has entered into a reinsurance contract to cede a portion of its general account individual annuity business to The Franklin Life Insurance Company (Franklin). Total recoveries due from Franklin were $187.9 million and $220.2 million as of December 31, 1998 and 1997, respectively. The contract is immaterial to the Company's results of operations. The ceding of risk does not discharge the original insurer from its primary obligation to the policyholder. Under the terms of the contract, Franklin has established a trust as collateral for the recoveries. The trust assets are invested in investment grade securities, the market value of which must at all times be greater than or equal to 102% of the reinsured reserves. (8) Pension Plan and Postretirement Benefits Other Than Pensions ------------------------------------------------------------ The Company is a participant, together with other affiliated companies, in a pension plan covering all employees who have completed at least one year of service. The Company funds pension costs accrued for direct employees plus an allocation of pension costs accrued for employees of affiliates whose work efforts benefit the Company. Assets of the Retirement Plan are invested in group annuity contracts of NLIC and Employers Life Insurance Company of Wausau (ELICW). Pension costs charged to operations by the Company during the years ended December 31, 1998, 1997 and 1996 were $2.0 million, $7.5 million and $7.4 million, respectively. The Company has recorded a prepaid pension asset of $5.0 million as of December 31, 1998 and no prepaid or accrued pension asset or expense as of December 31, 1997. 19 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued In addition to the defined benefit pension plan, the Company, together with other affiliated companies, participates in life and health care defined benefit plans for qualifying retirees. Postretirement life and health care benefits are contributory and generally available to full time employees who have attained age 55 and have accumulated 15 years of service with the Company after reaching age 40. Postretirement health care benefit contributions are adjusted annually and contain cost-sharing features such as deductibles and coinsurance. In addition, there are caps on the Company's portion of the per-participant cost of the postretirement health care benefits. These caps can increase annually, but not more than three percent. The Company's policy is to fund the cost of health care benefits in amounts determined at the discretion of management. Plan assets are invested primarily in group annuity contracts of NLIC. The Company elected to immediately recognize its estimated accumulated postretirement benefit obligation (APBO), however, certain affiliated companies elected to amortize their initial transition obligation over periods ranging from 10 to 20 years. The Company's accrued postretirement benefit expense as of December 31, 1998 and 1997 was $40.1 million and $36.5 million, respectively, and the net periodic postretirement benefit cost (NPPBC) for 1998, 1997 and 1996 was $4.1 million, $3.0 million and $3.3 million, respectively. Information regarding the funded status of the pension plan as a whole and the postretirement life and health care benefit plan as a whole as of December 31, 1998 and 1997 follows:
Pension Benefits Postretirement Benefits --------------------- ----------------------- (in millions of dollars) 1998 1997 1998 1997 --------------------------------------------------------- -------- -------- -------- ------- Change in benefit obligation: Benefit obligation at beginning of year $2,033.8 $1,847.8 $237.9 $ 200.7 Service cost 87.6 77.3 9.8 7.0 Interest cost 123.4 118.6 15.4 14.0 Actuarial loss 123.2 60.0 15.6 24.4 Plan curtailment in 1998/merger in 1997 (107.2) 1.5 - - Benefits paid (75.8) (71.4) (8.6) (8.2) -------- -------- ------- ------- Benefit obligation at end of year 2,185.0 2,033.8 270.1 237.9 -------- -------- ------- ------- Change in plan assets: Fair value of plan assets at beginning of year 2,212.9 1,947.9 69.2 63.0 Actual return on plan assets 300.7 328.1 5.0 3.6 Employer contribution 104.1 7.2 12.1 10.6 Plan merger - 1.1 - - Benefits paid (75.8) (71.4) (8.4) (8.0) -------- -------- ------- ------- Fair value of plan assets at end of year 2,541.9 2,212.9 77.9 69.2 -------- -------- ------- ------- Funded status 356.9 179.1 (192.2) (168.7) Unrecognized prior service cost 31.5 34.7 - - Unrecognized net (gains) losses (345.7) (330.7) 16.0 1.6 Unrecognized net (asset) obligation at transition (11.0) 33.3 1.3 1.5 -------- -------- ------- ------- Prepaid (accrued) benefit cost $ 31.7 $ (83.6) $(174.9) $(165.6) ======== ======== ======= =======
20 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued Basis for measurements, funded status of the pension plan and postretirement life and health care benefit plan:
Pension Benefits Postretirement Benefits -------------------- ----------------------- 1998 1997 1998 1997 -------- ------ -------- -------- Weighted average discount rate 5.50% 6.00% 6.65% 6.70% Rate of increase in future compensation levels 3.75% 4.25% -- -- Assumed health care cost trend rate: Initial rate -- -- 15.00% 12.13% Ultimate rate -- -- 8.00% 6.12% Uniform declining period -- -- 15 Years 12 Years
The net periodic pension cost for the pension plan as a whole for the years ended December 31, 1998, 1997 and 1996 follows:
(in millions of dollars) 1998 1997 1996 -------------------------------------------------------------------------------- ---- ---- Service cost (benefits earned during the period) $ 87.6 $ 77.3 $ 75.5 Interest cost on projected benefit obligation 123.4 118.6 105.5 Expected return on plan assets (159.0) (139.0) (116.1) Recognized gains (3.8) - - Amortization of prior service cost 3.2 3.2 3.2 Amortization of unrecognized transition obligation 4.2 4.2 4.1 ------- ------- ------- $ 55.6 $ 64.3 $ 72.2 ======= ======= =======
Effective December 31, 1998, Wausau Service Corporation (WSC) ended its affiliation with the Nationwide Insurance Enterprise and employees of WSC ended participation in the plan. A curtailment gain of $67.1 million resulted (consisting of a $107.2 million reduction in the projected benefit obligation, net of the write-off of the $40.1 million remaining unamortized transition obligation related to WSC). The Company anticipates that the plan will settle the obligation related to WSC employees with a transfer of assets during 1999. Basis for measurements, net periodic pension cost for the pension plan:
1998 1997 1996 ---- ---- ---- Weighted average discount rate 6.00% 6.50% 6.00% Rate of increase in future compensation levels 4.25% 4.75% 4.25% Expected long-term rate of return on plan assets 7.25% 7.25% 6.75%
21 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued The amount of NPPBC for the postretirement benefit plan as a whole for the years ended December 31, 1998, 1997 and 1996 was as follows:
(in millions of dollars) 1998 1997 1996 ---- ---- ---- Service cost (benefits attributed to employee service during the year) $ 9.8 $ 7.0 $ 6.5 Interest cost on accumulated postretirement benefit obligation 15.4 14.0 13.7 Actual return on plan assets (5.0) (3.6) (4.3) Amortization of unrecognized transition obligation of affiliates 0.2 0.2 0.2 Net amortization and deferral 1.2 (0.5) 1.8 ----- ----- ----- $21.6 $17.1 $17.9 ===== ===== =====
Actuarial assumptions used for the measurement of the accumulated postretirement benefit obligation (APBO) and the NPPBC for the postretirement benefit plan for 1998, 1997 and 1996 were as follows:
1998 1997 1996 ----- ----- ---- NPPBC: Discount rate 6.70% 7.25% 6.65% Long term rate of return on plan assets, net of tax 5.83% 5.89% 4.80% Assumed health care cost trend rate: Initial rate 12.00% 11.00% 11.00% Ultimate rate 6.00% 6.00% 6.00% Uniform declining period 12 Years 12 Years 12 Years
For the postretirement benefit plan as a whole, a one percentage point increase or decrease in the assumed health care cost trend rate would have no impact on the APBO as of December 31, 1998 and have no impact on the NPPBC for the year ended December 31, 1998. (9) Shareholder's Equity, Regulatory Risk-Based Capital, Retained Earnings ---------------------------------------------------------------------- and Dividend Restrictions ------------------------- Ohio, NLIC's and NLAIC's state of domicile, imposes minimum risk-based capital requirements that were developed by the NAIC. The formulas for determining the amount of risk-based capital specify various weighting factors that are applied to financial balances or various levels of activity based on the perceived degree of risk. Regulatory compliance is determined by a ratio of the company's regulatory total adjusted capital, as defined by the NAIC, to its authorized control level risk-based capital, as defined by the NAIC. Companies below specific trigger points or ratios are classified within certain levels, each of which requires specified corrective action. NLIC and NLAIC each exceed the minimum risk-based capital requirements. The statutory capital and surplus of NLIC as of December 31, 1998, 1997 and 1996 was $1.32 billion, $1.13 billion and $1.00 billion, respectively. The statutory net income of NLIC for the years ended December 31, 1998, 1997 and 1996 was $171.0 million, $111.7 million and $73.2 million, respectively. The Company is limited in the amount of shareholder dividends it may pay without prior approval by the Department. As of December 31, 1998, the maximum amount available for dividend payment from the Company to its shareholder without prior approval of the Department was $71.0 million. 22 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued In addition, the payment of dividends by NLIC may also be subject to restrictions set forth in the insurance laws of New York that limit the amount of statutory profits on NLIC's participating policies (measured before dividends to policyholders) that can inure to the benefit of the Company and its shareholder. The Company currently does not expect such regulatory requirements to impair its ability to pay operating expenses and shareholder dividends in the future. (10) Transactions With Affiliates ---------------------------- As part of the restructuring described in note 1, NLIC paid a dividend valued at $485.7 million to Nationwide Corp. on January 1, 1997 consisting of the outstanding shares of common stock of ELICW, National Casualty Company (NCC) and West Coast Life Insurance Company (WCLIC). Also, on February 24, 1997, NLIC paid a dividend to NFS, and NFS paid an equivalent dividend to Nationwide Corp., consisting of securities having an aggregate fair value of $850.0 million. The Company recognized a gain of $14.4 million on the transfer of securities. The Company leases office space from NMIC and certain of its subsidiaries. For the years ended December 31, 1998, 1997 and 1996, the Company made lease payments to NMIC and its subsidiaries of $8.0 million, $8.4 million and $9.1 million, respectively. Pursuant to a cost sharing agreement among NMIC and certain of its direct and indirect subsidiaries, including the Company, NMIC provides certain operational and administrative services, such as sales support, advertising, personnel and general management services, to those subsidiaries. Expenses covered by this agreement are subject to allocation among NMIC, the Company and other affiliates. Amounts allocated to the Company were $95.0 million, $85.8 million and $101.6 million in 1998, 1997 and 1996, respectively. The allocations are based on techniques and procedures in accordance with insurance regulatory guidelines. Measures used to allocate expenses among companies include individual employee estimates of time spent, special cost studies, salary expense, commissions expense and other methods agreed to by the participating companies that are within industry guidelines and practices. The Company believes these allocation methods are reasonable. In addition, the Company does not believe that expenses recognized under the inter-company agreements are materially different than expenses that would have been recognized had the Company operated on a stand alone basis. Amounts payable to NMIC from the Company under the cost sharing agreement were $31.9 million and $20.5 million as of December 31, 1998 and 1997, respectively. The Company also participates in intercompany repurchase agreements with affiliates whereby the seller will transfer securities to the buyer at a stated value. Upon demand or a stated period, the securities will be repurchased by the seller at the original sales price plus a price differential. Transactions under the agreements during 1998 and 1997 were not material. The Company believes that the terms of the repurchase agreements are materially consistent with what the Company could have obtained with unaffiliated parties. 23 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued Intercompany reinsurance agreements exist between NLIC and, respectively, NMIC and ELICW whereby all of NLIC's accident and health and group life insurance business is ceded on a modified coinsurance basis. NLIC entered into the reinsurance agreements during 1996 because the accident and health and group life insurance business was unrelated to the Company's long-term savings and retirement products. Accordingly, the accident and health and group life insurance business has been accounted for as discontinued operations for all periods presented. Under modified coinsurance agreements, invested assets are retained by the ceding company and investment earnings are paid to the reinsurer. Under the terms of the Company's agreements, the investment risk associated with changes in interest rates is borne by ELICW or NMIC, as the case may be. Risk of asset default is retained by the Company, although a fee is paid by ELICW or NMIC, as the case may be, to the Company for the Company's retention of such risk. The agreements will remain in force until all policy obligations are settled. However, with respect to the agreement between NLIC and NMIC, either party may terminate the contract on January 1 of any year with prior notice. The ceding of risk does not discharge the original insurer from its primary obligation to the policyholder. The Company believes that the terms of the modified coinsurance agreements are consistent in all material respects with what the Company could have obtained with unaffiliated parties. Amounts ceded to NMIC and ELICW for the years ended December 31, 1998, 1997 and 1996 were:
1998 1997 1996 ------------------------------------------------------------------------------------ (in millions of dollars) NMIC ELICW NMIC ELICW NMIC ELICW ----------------------------------------------------------------------------------------------------------------------- Premiums $90.1 $106.3 $ 91.4 $199.8 $ 97.3 $224.2 Net investment income and other revenue $11.1 $ 9.4 $ 10.7 $ 13.4 $ 10.9 $ 14.8 Benefits, claims and expenses $98.8 $160.5 $100.7 $225.9 $100.5 $246.6
The Company and various affiliates entered into agreements with Nationwide Cash Management Company (NCMC), an affiliate, under which NCMC acts as a common agent in handling the purchase and sale of short-term securities for the respective accounts of the participants. Amounts on deposit with NCMC were $248.4 million and $211.0 million as of December 31, 1998 and 1997, respectively, and are included in short-term investments on the accompanying consolidated balance sheets. Certain annuity products are sold through three affiliated companies, which are also subsidiaries of NFS. Total commissions and fees paid to these affiliates for the three years ended December 31, 1998 were $60.0 million, $66.1 million and $76.9 million, respectively. (11) Bank Lines of Credit -------------------- In August 1996, NLIC, along with NMIC, entered into a $600.0 million revolving credit facility which provides for a $600.0 million loan over a five year term on a fully revolving basis with a group of national financial institutions. The credit facility provides for several and not joint liability with respect to any amount drawn by either NLIC or NMIC. NLIC and NMIC pay facility and usage fees to the financial institutions to maintain the revolving credit facility. All previously existing line of credit agreements were canceled. In September 1997, the credit agreement was amended to include NFS as a party to and borrower under the agreement. As of December 31, 1998 the Company had no amounts outstanding under the agreement. 24 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued (12) Contingencies ------------- On October 29, 1998, the Company and certain of its affiliates were named in a lawsuit filed in the Common Pleas Court of Franklin County, Ohio related to the sale of deferred annuity products for use as investments in tax-deferred contributory retirement plans (Mercedes Castillo v. Nationwide Financial Services, Inc., Nationwide Life Insurance Company and Nationwide Life and Annuity Insurance Company). The plaintiff in such lawsuit seeks to represent a national class of the Company's customers and seeks unspecified compensatory and punitive damages. The Company is currently evaluating this lawsuit, which is in an early stage and has not been certified as a class. The Company intends to defend this lawsuit vigorously. (13) Segment Information ------------------- The Company uses differences in products as the basis for defining its reportable segments. The Company reports three product segments: Variable Annuities, Fixed Annuities and Life Insurance. The Variable Annuities segment consists of annuity contracts that provide the customer with the opportunity to invest in mutual funds managed by independent investment managers and the Company, with investment returns accumulating on a tax-deferred basis. The Company's variable annuity products consist almost entirely of flexible premium deferred variable annuity contracts. The Fixed Annuities segment consists of annuity contracts that generate a return for the customer at a specified interest rate, fixed for a prescribed period, with returns accumulating on a tax-deferred basis. Such contracts consist of single premium deferred annuities, flexible premium deferred annuities and single premium immediate annuities. The Fixed Annuities segment includes the fixed option under variable annuity contracts. The Life Insurance segment consists of insurance products, including variable universal life insurance and corporate-owned life insurance products, that provide a death benefit and may also allow the customer to build cash value on a tax-deferred basis. In addition to the product segments, the Company reports corporate revenue and expenses, investments and related investment income supporting capital not specifically allocated to its product segments, revenues and expenses of its investment advisor subsidiary (other than the portion allocated to the Variable Annuities and Life Insurance segments), revenues and expenses related to group annuity contracts sold to Nationwide Insurance Enterprise employee and agent benefit plans and all realized gains and losses on investments in a Corporate and Other segment. 25 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued The following table summarizes the financial results of the Company's business segments for the years ended December 31, 1998, 1997 and 1996.
Variable Fixed Life Corporate (in millions of dollars) Annuities Annuities Insurance and Other Total - ------------------------------------ --------- --------- --------- --------- ----- 1998: Net investment income (1) $ (31.3) $ 1,116.6 $ 231.6 $ 164.7 $ 1,481.6 Other operating revenue 560.8 35.7 319.6 49.6 965.7 --------- --------- -------- -------- --------- Total operating revenue (2) 529.5 1,152.3 551.2 214.3 2,447.3 --------- --------- -------- -------- --------- Interest credited to policyholder account balances -- 828.6 115.4 125.0 1,069.0 Amortization of deferred policy acquisition costs 123.9 44.2 46.4 -- 214.5 Other benefits and expenses 187.2 104.2 294.6 49.1 635.1 --------- --------- -------- -------- --------- Total expenses 311.1 977.0 456.4 174.1 1,918.6 --------- --------- -------- -------- --------- Operating income (loss) before federal income tax 218.4 175.3 94.8 40.2 528.7 Realized gains on investments -- -- -- 28.4 28.4 --------- --------- -------- -------- --------- Consolidated income before federal tax expense $ 218.4 $ 175.3 $ 94.8 $ 68.6 $ 557.1 ========= ========= ======== ======== ========= Assets as of year end $47,668.7 $15,215.7 $5,187.6 $6,270.1 $74,342.1 ========= ========= ======== ======== ========= 1997: Net investment income (1) $ (26.9) $ 1,098.2 $ 189.1 $ 148.8 $ 1,409.2 Other operating revenue 430.9 43.2 284.0 39.0 797.1 --------- --------- -------- -------- --------- Total operating revenue (2) 404.0 1,141.4 473.1 187.8 2,206.3 --------- --------- -------- -------- --------- Interest credited to policyholder account balances -- 823.4 78.5 114.7 1,016.6 Amortization of deferred policy acquisition costs 87.8 39.8 39.6 -- 167.2 Other benefits and expenses 165.3 108.7 284.1 45.6 603.7 --------- --------- -------- -------- --------- Total expenses 253.1 971.9 402.2 160.3 1,787.5 --------- --------- -------- -------- --------- Operating income before federal income tax 150.9 169.5 70.9 27.5 418.8 Realized gains on investments -- -- -- 11.1 11.1 --------- --------- -------- -------- --------- Consolidated income before federal tax expense $ 150.9 $ 169.5 $ 70.9 $ 38.6 $ 429.9 ========= ========= ======== ======== ========= Assets as of year end $35,278.7 $14,436.3 $3,901.4 $6,174.3 $59,790.7 ========= ========= ======== ======== =========
26 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued
Variable Fixed Life Corporate (in millions of dollars) Annuities Annuities Insurance and Other Total ------------------------------------ ---------- ---------- --------- --------- --------- 1996: Net investment income (1) $ (21.5) $ 1,050.6 $ 174.0 $ 154.7 $ 1,357.8 Other operating revenue 306.1 42.0 261.6 25.7 635.4 ---------- ---------- --------- --------- --------- Total operating revenue (2) 284.6 1,092.6 435.6 180.4 1,993.2 ---------- ---------- --------- --------- --------- Interest credited to policyholder account balances -- 805.0 70.2 107.1 982.3 Amortization of deferred policy acquisition costs 57.4 38.6 37.4 -- 133.4 Benefits and expenses 136.9 113.6 260.8 50.4 561.7 ---------- ---------- --------- --------- --------- Total expenses 194.3 957.2 368.4 157.5 1,677.4 ---------- ---------- --------- --------- --------- Operating income before federal income tax 90.3 135.4 67.2 22.9 315.8 Realized losses on investments -- -- -- (0.3) (0.3) ---------- ---------- --------- --------- --------- Consolidated income from continuing operations before federal tax expense $ 90.3 $ 135.4 $ 67.2 $ 22.6 $ 315.5 ========== ========== ======== ======== ========= Assets as of year end $ 25,069.7 $ 13,994.7 $3,353.3 $5,348.5 $47,766.2 ========== ========== ======== ======== =========
----------- (1) The Company's method of allocating net investment income results in a charge (negative net investment income) to the Variable Annuities segment which is recognized in the Corporate and Other segment. The charge relates to non-invested assets which support this segment on a statutory basis. (2) Excludes realized gains and losses on investments. The Company has no significant revenue from customers located outside of the United States nor does the Company have any significant long-lived assets located outside the United States. (14) Discontinued Operations ----------------------- As discussed in note 1, NFS is a holding company for NLIC and certain other companies within the Nationwide Insurance Enterprise that offer or distribute long-term savings and retirement products. Prior to the contribution by Nationwide Corp. of the outstanding common stock of NLIC to NFS, NLIC effected certain transactions with respect to certain subsidiaries and lines of business that were unrelated to long-term savings and retirement products. On September 24, 1996, NLIC's Board of Directors declared a dividend payable to Nationwide Corp. on January 1, 1997 consisting of the outstanding shares of common stock of three subsidiaries: ELICW, NCC and WCLIC. ELICW writes group accident and health and group life insurance business and maintains it offices in Wausau, Wisconsin. NCC is a property and casualty company with offices in Scottsdale, Arizona that serves as a fronting company for a property and casualty subsidiary of NMIC. WCLIC writes high dollar term life insurance policies and is located in San Francisco, California. ELICW, NCC and WCLIC have been accounted for as discontinued operations in the accompanying consolidated financial statements through December 31, 1996. The Company did not recognize any gain or loss on the disposal of these subsidiaries. 27 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued Also, during 1996, NLIC entered into two reinsurance agreements whereby all of NLIC's accident and health and group life insurance business was ceded to ELICW and NMIC, effective January 1, 1996. See note 10 for a complete discussion of the reinsurance agreements. The Company has discontinued its accident and health and group life insurance business and in connection therewith has entered into reinsurance agreements to cede all existing and any future writings to other affiliated companies. NLIC's accident and health and group life insurance business is accounted for as discontinued operations for all periods presented. The Company did not recognize any gain or loss on the disposal of the accident and health and group life insurance business. The assets, liabilities, results of operations and activities of discontinued operations are distinguished physically, operationally and for financial reporting purposes from the remaining assets, liabilities, results of operations and activities of the Company. A summary of the results of operations of discontinued operations for the years ended December 31, 1998, 1997 and 1996 is as follows:
(in millions of dollars) 1998 1997 1996 ---- ---- ---- Revenues $ -- $ -- $ 668.9 Net income $ -- $ -- $ 11.3
A summary of the assets and liabilities of discontinued operations as of December 31, 1998, 1997 and 1996 is as follows:
(in millions of dollars) 1998 1997 1996 ---- ---- ---- Assets, consisting primarily of investments $221.5 $247.3 $3,288.5 Liabilities, consisting primarily of policy benefits and claims $221.5 $247.3 $2,802.8
63 PART C. OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS PAGE (a) Financial Statements: (1) Financial statements included in Prospectus (Part A): Condensed Financial Information. 15 (2) Financial statements included in Part B: Those financial statements required by 60 Item 23 to be included in Part B have been incorporated therein by reference to the Prospectus (Part A). Nationwide Variable Account-II: Independent Auditors' Report. 60 Statement of Assets, Liabilities and Contract 61 Owners' Equity as of December 31, 1998. Statements of Operations and Changes in 64 Contract Owners' Equity for the years ended December 31, 1998 and 1997. Notes to Financial Statements. 65 Nationwide Life Insurance Company and subsidiaries: Independent Auditors' Report. 78 Consolidated Balance Sheets as of December 81 31, 1998 and 1997. Consolidated Statements of Income for the 82 years ended December 31, 1998, 1997 and 1996. Consolidated Statements of Shareholder's 83 Equity for the years ended December 31, 1998, 1997 and 1996. Consolidated Statements of Cash Flows for 84 the years ended December 31, 1998, 1997 and 1996. Notes to Consolidated Financial Statements. 85
116 of 134 64 Item 24. (b) Exhibits (1) Resolution of the Depositor's Board of Directors authorizing the establishment of the Registrant - Filed previously with the Registration Statement and hereby incorporated by reference. (2) Not Applicable (3) Underwriting or Distribution of contracts between the Registrant and Principal Underwriter - Filed previously with the Registration Statement and hereby incorporated by reference. (4) The form of the variable annuity contract- Filed previously with the Registration Statement and hereby incorporated by reference. (5) Variable Annuity Application -Filed previously by Post Effective Amendment and hereby incorporated by reference. (6) Articles of Incorporation of Depositor- Filed previously with the Registration Statement and hereby incorporated by reference. (7) Not Applicable (8) Not Applicable (9) Opinion of Counsel - Filed previously with the Registration Statement and hereby incorporated by reference. (10) Not Applicable (11) Not Applicable (12) Not Applicable (13) Performance Advertising Calculation Schedule- Filed previously with the Registration Statement and hereby incorporated by reference 117 of 134 65 Item 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR NAME AND PRINCIPAL POSITIONS AND OFFICES BUSINESS ADDRESS WITH DEPOSITOR Lewis J. Alphin Director 519 Bethel Church Road Mount Olive, NC 28365 A. I. Bell Director 4121 North River Road West Zanesville, OH 43701 Kenneth D. Davis Director 7229 Woodmansee Road Leesburg, OH 45135 Keith W. Eckel Director 1647 Falls Road Clarks Summit, PA 18411 Willard J. Engel Director 300 East Marshall Street Marshall, MN 56258 Fred C. Finney Director 1558 West Moreland Road Wooster, OH 44691 Joseph J. Gasper President and Chief Operating Officer One Nationwide Plaza and Director Columbus, OH 43215 Dimon R. McFerson Chairman and Chief Executive Officer- One Nationwide Plaza and Director Columbus, OH 43215 David O. Miller Chairman of the Board and Director 115 Sprague Drive Hebron, OH 43025 Yvonne L. Montgomery Director 2859 Paces Ferry Road Atlanta, GA 30339 Ralph M. Paige, Executive Director Director Federation of Southern Cooperatives/Land Assistance Fund 2769 Church Street East Point, GA 30344 James F. Patterson Director 8765 Mulberry Road Chesterland, OH 44026 Arden L. Shisler Director 1356 North Wenger Road Dalton, OH 44618 118 of 134 66 NAME AND PRINCIPAL POSITIONS AND OFFICES BUSINESS ADDRESS WITH DEPOSITOR Robert L. Stewart Director 88740 Fairview Road Jewett, OH 43986 Nancy C. Thomas Director 1733A Westwood Avenue Alliance, OH 44601 Robert A. Oakley Executive Vice President- One Nationwide Plaza Chief Financial Officer Columbus, OH 43215 Robert J. Woodward Jr. Executive Vice President One Nationwide Plaza Chief Investment Officer Columbus, OH 43215 James E. Brock Senior Vice President - Corporate One Nationwide Plaza Development Columbus, OH 43215 John R. Cook, Jr. Senior Vice President - One Nationwide Plaza Chief Communications Officer Columbus, OH 43215 Phillip C. Gath Senior Vice President - One Nationwide Plaza Chief Actuary Columbus, OH 43215 Richard D. Headley Senior Vice President - Chief One Nationwide Plaza Information Technology Columbus, OH 43215 Donna A. James Senior Vice President - One Nationwide Plaza Human Resources Columbus, OH 43215 Richard A. Karas Senior Vice President - Sales - One Nationwide Plaza Financial Services Columbus, OH 43215 Douglas C. Robinette Senior Vice President- One Nationwide Plaza Marketing and Product Columbus, OH 43215 Management Susan A. Wolken Senior Vice President - Life One Nationwide Plaza Company Operations Columbus, OH 43215 Bruce C. Barnes Vice President - Technology One Nationwide Plaza Strategy and Planning Columbus, OH 43215 119 of 134 67 NAME AND PRINCIPAL POSITIONS AND OFFICES BUSINESS ADDRESS WITH DEPOSITOR Dennis W. Click Vice President - Secretary One Nationwide Plaza Columbus, OH 43215 David A. Diamond Vice President - Enterprise One Nationwide Plaza Controller of Nationwide Columbus, OH 43215 Financial Services Matthew S. Easley Vice President - One Nationwide Plaza Investment Life Actuarial Columbus, OH 43215 R. Dennis Noice Vice President - Systems One Nationwide Plaza Columbus, OH 43215 Joseph P. Rath One Nationwide Plaza Vice President - Product Columbus, OH 43215 and Market Compliance Mark R. Thresher Vice President - Finance and Treasurer One Nationwide Plaza Columbus, OH 43215 Item 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR REGISTRANT. * Subsidiaries for which separate financial statements are filed ** Subsidiaries included in the respective consolidated financial statements *** Subsidiaries included in the respective group financial statements filed for unconsolidated subsidiaries **** other subsidiaries 120 of 134 68
NO. VOTING SECURITIES (SEE ATTACHED CHART UNLESS COMPANY STATE/COUNTRY OF OTHERWISE ORGANIZATION INDICATED) PRINCIPAL BUSINESS The 401K Companies, Inc. Texas Holding Company The 401(K) Company Texas Third-party administrator for 401(k) plans 401K Investment Advisors, Inc. Texas Investment Advisor registered with the SEC 401K Investments Services, Inc. Texas NASD registered Broker-Dealer Affiliate Agency, Inc. Delaware Life Insurance Agency Affiliate Agency of Ohio, Inc. Ohio Life Insurance Agency AID Finance Services, Inc. Iowa Holding Company ALLIED General Agency Company Iowa Managing General Agent and Surplus Lines Broker (P&C) ALLIED Group, Inc. Iowa Holding Company ALLIED Group Insurance Marketing Iowa Direct Marketer (P&C) Company ALLIED Group Merchant Banking Iowa Broker-Dealer Corporation ALLIED Group Mortgage Company Iowa Mortgage Lender ALLIED Life Brokerage Agency, Inc. Iowa Insurance Broker ALLIED Life Financial Corporation Iowa Holding Company ALLIED Life Insurance Company Iowa Insurance Company ALLIED Property and Casualty Insurance Iowa Underwrites General P&C Company Insurance Allnations, Inc. Ohio Promotes international cooperative insurance organizations AMCO Insurance Company Iowa Underwrites General P&C Insurance American Marine Underwriters, Inc. Florida Underwriting Manager Auto Direkt Insurance Company Germany Insurance Company CalFarm Insurance Company California Stock Corporation Caliber Funding Corporation Delaware Stock Corporation Colonial County Mutual Insurance Texas Insurance Company Company Colonial Insurance Company of Wisconsin Insurance Company Wisconsin Columbus Insurance Brokerage and Germany Insurance Broker Service GmbH Cooperative Service Company Nebraska Insurance Agency Depositors Insurance Company Iowa Underwrites P&C insurance *Employers Life Insurance Company of Wisconsin Life Insurance Company Wausau Excaliber Funding Corporation Delaware Limited purpose corporation F&B, Inc. Iowa Insurance Agency Farmland Mutual Insurance Company Iowa Mutual Insurance Company Financial Horizons Distributors Agency of Alabama Insurance Agency Alabama, Inc.
121 of 134 69
NO. VOTING SECURITIES (SEE ATTACHED CHART UNLESS COMPANY STATE/COUNTRY OF OTHERWISE ORGANIZATION INDICATED) PRINCIPAL BUSINESS Financial Horizons Distributors Agency of Ohio Insurance Agency Ohio, Inc. Financial Horizons Distributors Agency of Oklahoma Insurance Agency Oklahoma, Inc. Financial Horizons Distributors Agency of Texas Insurance Agency Texas, Inc. *Financial Horizons Investment Trust Massachusetts Investment Company Financial Horizons Securities Corporation Oklahoma Broker-Dealer GatesMcDonald Health Plus, Inc. Ohio Managed Care Organization Gates, McDonald & Company Ohio Cost Control Gates, McDonald & Company of Nevada Nevada Self-insurance administration, claims examinations and data processing services Gates, McDonald & Company of New New York Workers' compensation claims York, Inc. administration MedPro Solutions, Inc. Massachusetts Third-party administration services for workers' compensation, automobile injury and disability claims Insurance Intermediaries, Inc. Ohio Insurance Broker and Insurance Agency Irvin L. Schwartz and Associates, Inc. Ohio Insurance Agency Landmark Financial Services of New New York Life Insurance Agency York, Inc. Leben Direkt Insurance Company Germany Life Insurance Company Lone Star General Agency, Inc. Texas Insurance Agency Midwest Printing Services, Inc. Iowa General Printing Services Morley & Associates Oregon Insurance Broker Morley Capital Management, Inc. Oregon Investment Adviser and stable value money management Morley Financial Services, Inc. Oregon Holding Company Morley Research Associates, Ltd. Delaware Credit research consulting **MRM Investments, Inc. Ohio Owns and operates a recreational ski facility **National Casualty Company Wisconsin Insurance Company National Casualty Company of America, Great Britain Insurance Company Ltd. National Deferred Compensation, Inc. Ohio Administers deferred compensation plans for public employees **National Premium and Benefit Delaware Insurance Administrative Administration Company Services Nationwide Advisory Services, Inc. Ohio Investment Management and Administrative Services
122 of 134 70
NO. VOTING SECURITIES (SEE ATTACHED CHART UNLESS COMPANY STATE/COUNTRY OF OTHERWISE ORGANIZATION INDICATED) PRINCIPAL BUSINESS **Nationwide Agency, Inc. Ohio Insurance Agency Nationwide Agribusiness Insurance Iowa Insurance Company Company Nationwide Asset Allocation Trust Massachusetts Investment Company Nationwide Cash Management Company Ohio Investment Securities Agent Nationwide Community Urban Ohio Special purpose real estate Redevelopment Corporation corporation Nationwide Corporation Ohio Holding Company Nationwide Financial Institution Delaware Insurance Agency Distributors Agency, Inc. Nationwide Financial Services (Bermuda) Bermuda Life Insurance Company Ltd. Nationwide Financial Services Capital Delaware Statutory Business Trust Trust Nationwide Financial Services Capital Delaware Statutory Business Trust Trust II Nationwide Financial Services, Inc. Delaware Holding Company Nationwide General Insurance Company Ohio Insurance Company Nationwide Global Holdings, Inc. Ohio Holding Company for International Operations Nationwide Health Plans, Inc. Ohio Health Maintenance Organization *Nationwide Indemnity Company Ohio Reinsurance Company Nationwide Insurance Company of California Underwriter America Nationwide Insurance Company of Florida Ohio Insurance Company Nationwide Insurance Enterprise Ohio Membership Non-Profit Foundation Corporation Nationwide Services Company, LCC Ohio Shared services functions Nationwide Insurance Golf Charities, Inc. Ohio Membership Non-Profit Corporation Nationwide International Underwriters California Underwriting Manager Nationwide Investing Foundation Michigan Provide investors with continuous source of investment *Nationwide Investing Foundation II Massachusetts Common Law Trust Nationwide Investment Services Oklahoma Registered Broker-Dealer in Corporation deferred compensation market Nationwide Investors Services, Inc. Ohio Stock Transfer Agent **Nationwide Life and Annuity Insurance Ohio Life Insurance Company Company **Nationwide Life Insurance Company Ohio Life Insurance Company Nationwide Lloyds Texas Property Insurance
123 of 134 71
NO. VOTING SECURITIES (SEE ATTACHED CHART UNLESS COMPANY STATE/COUNTRY OF OTHERWISE ORGANIZATION INDICATED) PRINCIPAL BUSINESS Nationwide Management Systems, Inc. Ohio Preferred provider organization, products and related services Nationwide Mutual Fire Insurance Ohio Mutual Insurance Company Company Nationwide Mutual Funds Ohio Investment Company Nationwide Mutual Insurance Company Ohio Mutual Insurance Company Nationwide Properties, Ltd. Ohio Develop, own and operate real estate and real estate investments Nationwide Property and Casualty Ohio Insurance Company Insurance Company Nationwide Realty Investors, Inc. Ohio Develop, own and operate real estate and real estate investments Nationwide Retirement Solutions, Inc. Delaware Market and administer deferred compensation plans for public employees Nationwide Retirement Solutions, Inc. of Alabama Market and administer deferred Alabama compensation plans for public employees Nationwide Retirement Solutions, Inc. of Arizona Market and administer deferred Arizona compensation plans for public employees Nationwide Retirement Solutions, Inc. of Arkansas Market and administer deferred Arkansas compensation plans for public employees Nationwide Retirement Solutions, Inc. Montana Market and administer deferred of Montana compensation plans for public employees Nationwide Retirement Solutions, Inc. Nevada Market and administer deferred of Nevada compensation plans for public employees Nationwide Retirement Solutions, Inc. New Mexico Market and administer deferred of New Mexico compensation plans for public employees Nationwide Retirement Solutions, Inc. Ohio Market variable annuity of Ohio contracts to members of the National Education Association in the state of Ohio Nationwide Retirement Solutions, Inc. Oklahoma Market variable annuity of Oklahoma contracts to members of the National Education Association in the state of Oklahoma Nationwide Retirement Solutions, Inc. South Dakota Market and administer deferred of South Dakota compensation plans for public employees Nationwide Retirement Solutions, Inc. Texas Market and administer deferred of Texas compensation plans for public employees Nationwide Retirement Solutions, Inc. Wyoming Market variable annuity of Wyoming contracts to members of the National Education Association in the state of Wyoming Nationwide Retirement Solutions Massachusetts Market and administer deferred Insurance Agency Inc. compensation plans for public employees
124 of 134 72
NO. VOTING SECURITIES (SEE ATTACHED CHART UNLESS COMPANY STATE/COUNTRY OF OTHERWISE ORGANIZATION INDICATED) PRINCIPAL BUSINESS *Nationwide Separate Account Trust Massachusetts Investment Company Nationwide Trust Company, FSB United States of Federal Savings Bank America Neckura Holding Company Germany Administrative services for Neckura Insurance Group Neckura Insurance Company Germany Insurance Company Neckura Life Insurance Company Germany Life Insurance Company Nevada Independent Companies- Nevada Workers' compensation Construction administrative services Nevada Independent Companies-Health Nevada Workers' compensation and Nonprofit administrative services Nevada Independent Companies- Nevada Workers' compensation Hospitality and Entertainment administrative services Nevada Independent Companies- Nevada Workers' compensation Manufacturing administrative services NFS Distributors, Inc. Delaware Holding Company NWE, Inc. Ohio Special Investments PanEuroLife Luxembourg Life Insurance Pension Associates, Inc. Wisconsin Pension plan administration Portland Investment Services, Inc. Oregon NASD Registered Broker-Dealer Premier Agency, Inc. Iowa Insurance Agency Riverview Agency, Inc. Texas Stock Corporation Scottsdale Indemnity Company Ohio Insurance Company Scottsdale Insurance Company Ohio Insurance Company Scottsdale Surplus Lines Insurance Arizona Excess and Surplus Lines Company Insurance Company SVM Sales GmbH, Neckura Germany Sales support for Neckura Insurance Group Insurance Group Union Bond and Trust Company Oregon Oregon state bank with trust powers Villanova Capital, Inc. Delaware Holding Company Villanova Mutual Fund Capital Trust Delaware Business Trust Villanova SA Capital Trust Delaware Business Trust **Wausau Preferred Health Insurance Wisconsin Insurance and Reinsurance Company Company Western Heritage Insurance Company Arizona Excess and Surplus Lines Insurance Company
125 of 134 73
NO. VOTING SECURITIES STATE/COUNTRY (SEE ATTACHED CHART) UNLESS COMPANY OF ORGANIZATION OTHERWISE INDICATED PRINCIPAL BUSINESS * MFS Variable Account Ohio Nationwide Life Separate Issuer of Annuity Contracts Account * NACo Variable Account Ohio Nationwide Life Separate Issuer of Annuity Contracts Account * Nationwide DC Variable Account Ohio Nationwide Life Separate Issuer of Annuity Contracts Account Nationwide DCVA-II Ohio Nationwide Life Separate Issuer of Annuity Contracts Account * Separate Account No. 1 Ohio Nationwide Life Separate Issuer of Annuity Contracts Account * Nationwide Multi-Flex Variable Account Ohio Nationwide Life Separate Issuer of Annuity Contracts Account * Nationwide VA Separate Account-A Ohio Nationwide Life and Annuity Issuer of Annuity Contracts Separate Account * Nationwide VA Separate Account-B Ohio Nationwide Life and Annuity Issuer of Annuity Contracts Separate Account * Nationwide VA Separate Account-C Ohio Nationwide Life and Annuity Issuer of Annuity Contracts Separate Account Nationwide VA Separate Account-Q Ohio Nationwide Life and Annuity Issuer of Annuity Contracts Separate Account * Nationwide Variable Account Ohio Nationwide Life Separate Issuer of Annuity Contracts Account * Nationwide Variable Account-II Ohio Nationwide Life Separate Issuer of Annuity Contracts Account * Nationwide Variable Account-3 Ohio Nationwide Life Separate Issuer of Annuity Contracts Account * Nationwide Variable Account-4 Ohio Nationwide Life Separate Issuer of Annuity Contracts Account * Nationwide Variable Account-5 Ohio Nationwide Life Separate Issuer of Annuity Contracts Account * Nationwide Fidelity Advisor Variable Ohio Nationwide Life Separate Issuer of Annuity Contracts Account Account * Nationwide Variable Account-6 Ohio Nationwide Life Separate Issuer of Annuity Contracts Account Nationwide Variable Account-8 Ohio Nationwide Life Separate Issuer of Annuity Contracts Account * Nationwide Variable Account-9 Ohio Nationwide Life Separate Issuer of Annuity Contracts Account Nationwide Variable Account-10 Ohio Nationwide Life Separate Issuer of Annuity Contracts Account * Nationwide VL Separate Ohio Nationwide Life and Annuity Issuer of Life Insurance Policies Account-A Separate Account Nationwide VL Separate Ohio Nationwide Life and Annuity Issuer of Life Insurance Policies Account-B Separate Account * Nationwide VL Separate Ohio Nationwide Life and Annuity Issuer of Life Insurance Policies Account-C Separate Account
126 of 134 74
NO. VOTING SECURITIES STATE/COUNTRY (SEE ATTACHED CHART) UNLESS COMPANY OF ORGANIZATION OTHERWISE INDICATED PRINCIPAL BUSINESS Nationwide VL Separate Account-D Ohio Nationwide Life and Annuity Issuer of Life Insurance Policies Separate Account * Nationwide VLI Separate Account Ohio Nationwide Life Separate Issuer of Life Insurance Policies Account * Nationwide VLI Separate Account-2 Ohio Nationwide Life Separate Issuer of Life Insurance Account Policies * Nationwide VLI Separate Account-3 Ohio Nationwide Life Separate Issuer of Life Insurance Policies Account * Nationwide VLI Separate Account-4 Ohio Nationwide Life Separate Issuer of Life Insurance Policies Account Nationwide VLI Separate Account-5 Ohio Nationwide Life Separate Issuer of Life Insurance Policies Account
127 of 134 75
(left side) - ------------------------ | NATIONWIDE INSURANCE | | GOLF CHARITIES, INC. | | | | MEMBERSHIP | | NONPROFIT | | CORPORATION | - ------------------------ ------------------------------------------------------------------------------------------------------------------------- | | | - --------------------------- --------------------------- ---------------------------- | ALLIED LIFE | | ALLIED | | AID FINANCE | | FINANCIAL | | GROUP, INC. | | SERVICES, INC. | | CORPORATION | | (AGI) | | (AID FINANCE) | | (ALFC) | | | | | |Common Stock: 850 | |Common Stock: 850 Shares | |Common Stock: 10,000 | |------------ Shares | |------------ | |------------ Shares | | |---| | |---| | | | Cost | | | Cost | | | Cost | | ---- | | | ---- | | | ---- | |Casualty- | | |Casualty- | | |Casualty- | |100% $47,286,429 | | |100% $1,049,237,226| | |100% $19,545,634 | - --------------------------- | --------------------------- | ---------------------------- | | | - --------------------------- | --------------------------- | ---------------------------- | ALLIED GROUP | | | AMCO | | | ALLIED | | MERCHANT BANKING | | | INSURANCE COMPANY | | | GROUP INSURANCE | | CORPORATION | | | (AMCO) | | | MARKETING COMPANY | |Common Stock: 10,000 | | |Common Stock: 155,991 | | |Common Stock: 20,000 | |------------ Shares | | |------------ Shares | | |------------ Shares | | |---| |----| |---| | | | Cost | | | | Cost | | | Cost | | ---- | | | | ---- | | | ---- | | | | | | | | |Aid Finance- | |AFLC-100% $100,000 | | | |AGI-100% $95,925,450| | |100% $16,059,469 | - --------------------------- | | --------------------------- | ---------------------------- | | | - --------------------------- | | --------------------------- | ---------------------------- | ALLIED LIFE | | | | WESTERN | | | DEPOSITORS | | BROKERAGE | | | | HERITAGE INSURANCE | | | INSURANCE COMPANY | | AGENCY, INC. | | | | COMPANY | | | (DEPOSITORS) | |Common Stock: 500,000 | | | |Common Stock: 4,776,076 | | |Common Stock: 199,991 | |------------ Shares | | | |------------ Shares | | |------------ Shares | | |---| |----| | |---| | | Cost | | | | Cost | | | Cost | | ---- | | | | ---- | | | ---- | |AFLC-100% $442,695 | | | |AMCO-100% $11,686,037| | |AGI-100% $15,251,842 | - --------------------------- | | --------------------------- | ---------------------------- | | | - --------------------------- | | --------------------------- | ---------------------------- | ALLIED LIFE | | | | ALLIED | | | ALLIED PROPERTY | | INSURANCE | | | | GENERAL AGENCY | | | AND CASUALTY | | COMPANY | | | | COMPANY | | | INSURANCE COMPANY | |Common Stock: 250,000 | | | |Common Stock: 5,000 | | |Common Stock: 156,822 | |------------ Shares | | | |------------ Shares | | |------------ Shares | | |---| |----| | |---| | | Cost | | Cost | | | Cost | | ---- | | ---- | | | ---- | |AFLC-100% $41,732,343| |AMCO-100% $135,342 | | |AGI-100% $33,018,634 | - --------------------------- --------------------------- | ---------------------------- | --------------------------- | ---------------------------- | PREMIER | | | ALLIED | | AGENCY, | | | GROUP MORTGAGE | | INC. | | | COMPANY | |Common Stock: 100,000 | | |Common Stock: 9,500 | |------------ Shares | | |------------ Shares | | |---|---| | | Cost | | | Cost | | ---- | | | ---- | |AGI-100% $100,000 | | |AGI-100% $213,976 | --------------------------- | ---------------------------- | | ---------------------------- | | MIDWEST | | | PRINTING SERVICES | | | LTD. | | |Common Stock: 10,000 | | |------------ Shares | |---| | | Cost | | ---- | |AFLC-100% $610,000 | ----------------------------
76
NATIONWIDE INSURANCE ENTERPRISE(R) (middle) ------------------------------------------ ------------------------------------------ | | | | | NATIONWIDE MUTUAL | | NATIONWIDE MUTUAL | | INSURANCE COMPANY |============================| FIRE INSURANCE COMPANY | | (CASUALTY) | | (FIRE) | | | | | ------------------------------------------ ------------------------------------------ | || | | | || |--------------------------------------------------------------------| |-------------------------- - --| || | || |--------------------------------------------------------------|---------------- || | | || -------------------------------- | -------------------------------- -------------------------------- || | | | | NATIONWIDE GENERAL | | NECKURA HOLDING | || | | | | INSURANCE COMPANY | | COMPANY (NECKURA) | || | NATIONWIDE LLOYDS | | | | | | || | | | |Common Stock: 20,000 | |Common Stock: 10,000 | ||==| | |---|------------ Shares | |--|------------ Shares | || | A TEXAS LLOYDS | | | | | | | || | | | | Cost | | | Cost | || | | | | ---- | | | ---- | || | | | |Casualty-100% $5,944,422 | | |Casualty-100% $87,943,140 | || -------------------------------- | -------------------------------- | -------------------------------- || | | || -------------------------------- | -------------------------------- | -------------------------------- || | FARMLAND MUTUAL | | | NATIONWIDE PROPERTY | | | NECKURA | || | INSURANCE COMPANY | | | AND CASUALTY | | | INSURANCE COMPANY | || |Guaranty Fund | | | INSURANCE COMPANY | | | | || |------------ | | |Common Stock: 60,000 | |--|Common Stock: 6,000 | ||==|Certificate |---| |---|------------ Shares | | |------------ Shares | |----------- Cost | | | | Cost | | | Cost | | ---- | | | | ---- | | |Neckura- ---- | |Casualty $500,000 | | | |Casualty-100% $6,000,000 | | |100% DM 6,000,000 | -------------------------------- | | -------------------------------- | -------------------------------- | | | -------------------------------- | | -------------------------------- | -------------------------------- | F & B, INC. | | | | COLONIAL INSURANCE | | | NECKURA LIFE | | | | | | COMPANY OF WISCONSIN | | | INSURANCE COMPANY | |Common Stock: 1 Share | | | | (COLONIAL) | | | | |------------ |---- |---|Common Stock: 1,750 | |--|Common Stock: 4,000 | | Cost | | | |------------ Shares | | |------------ Shares | | ---- | | | | Cost | | | Cost | |Farmland | | | | ---- | | | ---- | |Mutual-100% $10 | | | |Casualty-100% $41,750,000 | | |Neckura-100% DM 15,825,681 | -------------------------------- | | -------------------------------- | -------------------------------- | | | -------------------------------- | | -------------------------------- | -------------------------------- | COOPERATIVE SERVICE | | | | SCOTTSDALE | | | NECKURA GENERAL | | COMPANY | | | | INSURANCE COMPANY | | | INSURANCE COMPANY | |Common Stock: 600 Shares | | | | (SIC) | | | | |------------ | | | |Common Stock: 30,136 | | |Common Stock: 1,500 | | Cost |---- |---|------------ Shares | ---- |--|------------ Shares | | ---- | | | Cost | | | | Cost | |Farmland $3,506,173 | | | ---- | | | | ---- | |Mutual-100% | | |Casualty-100% $150,000,000 | | | |Neckura-100% DM 1,656,925 | -------------------------------- | -------------------------------- | | -------------------------------- | | | -------------------------------- | -------------------------------- | | -------------------------------- | NATIONWIDE AGRIBUSINESS | | | SCOTTSDALE | | | | COLUMBUS INSURANCE | | INSURANCE COMPANY | | | SURPLUS LINES | | | | BROKERAGE AND SERVICE | |Common Stock: 1,000,000 | | | INSURANCE COMPANY | | | | GmbH | |------------ Shares | | | Common Stock: 10,000 | | | |Common Stock: 1 Share | | |--------| | ------------ Shares | ---| |--|------------ | | Cost | | | | | | | | |Casualty-99.9% ---- | | | Cost | | | | Cost | |Other Capital: $26,714,335 | | | ---- | | | | ---- | |------------- | | | SIC-100% $6,000,000 | | | |Neckura-100% DM 51,639 | |Casualty-Ptd. $ 713,576 | | | | | | | | -------------------------------- | -------------------------------- | | -------------------------------- | | | -------------------------------- | -------------------------------- | | -------------------------------- | NATIONAL CASUALTY | | | NATIONAL PREMIUM & | | | | LEBEN DIREKT | | COMPANY | | | BENEFIT ADMINISTRATION | | | | INSURANCE COMPANY | | (NC) | | | COMPANY | | | | | |Common Stock: 100 Shares | | |Common Stock: 10,000 | | | |Common Stock: 4,000 Shares | |------------ |--------| |------------ Shares |----| |--|------------ | | Cost | | Cost | | | Cost | | ---- | | ---- | | | ---- | |Casualty-100% $67,442,439 | |Scottsdale-100% $10,000 | | |Neckura-100% DM 4,000,000 | -------------------------------- -------------------------------- | -------------------------------- | | -------------------------------- -------------------------------- | -------------------------------- | NCC OF AMERICA, LTD. | | SVM SALES | | | AUTO DIREKT | | (INACTIVE) | | GmbH | | | INSURANCE COMPANY | | | | | | | | | | |Common Stock: 50 Shares | | |Common Stock: 1500 Shares | | | |------------ |------------|------------ | | | | Cost | | Cost | |NC-100% | | ---- | | ---- | | | |Neckura-100% DM 50,000 | |Neckura-100% DM 1,643,149 | | | | | | | | | | | | | -------------------------------- -------------------------------- --------------------------------
77
(right side) ------------------------ | NATIONWIDE INSURANCE | | ENTERPRISE FOUNDATION| | | | MEMBERSHIP | | NONPROFIT | | CORPORATION | ------------------------ - -----------------------------------------------------------------------| | - --------------- -------------------------------------------------- | | - -----------------------------------------------------------------------------------------|----------------------- | | | | | | | -------------------------------- | -------------------------------- | ---------------------------------- | | SCOTTSDALE | | | NATIONWIDE | | | NATIONWIDE | | | INDEMNITY COMPANY | | | COMMUNITY URBAN | | | CORPORATION | | | | | | REDEVELOPMENT | | | | | | | | | CORPORATION | | |Common Stock: Control: | | |Common Stock: 50,000 | | |Common Stock: 10 Shares | | |------------ ------- | |-----|------------ Shares | |----|------------ | | |$13,642,432 100% | | | Cost | | | Cost | | | Shares Cost | | | ---- | | | ---- | | | ------ ---- | | |Casualty-100% $8,800,000 | | |Casualty-100% $1,000 | | |Casualty 12,992,922 $751,352,485| | | | | | | | |Fire 649,510 24,007,936| | | | | | | | | (See Page 2) | | -------------------------------- | -------------------------------- | ---------------------------------- | | | | -------------------------------- | -------------------------------- | ---------------------------------- | | NATIONWIDE | | | INSURANCE | | | ALLNATIONS, INC. | | | INDEMNITY COMPANY | | | INTERMEDIARIES, INC. | | |Common Stock: 10,330 Shares | | | | | | | | |------------- Cost | |-----|Common Stock: 28,000 | |----|Common Stock: 1,615 | |--------| ---- | | |------------ Shares | | |------------ Shares | | |Casualty-18.6% $88,320 | | | Cost | | | Cost | | |Fire-18.6% $88,463 | | | ---- | | | ---- | | |Preferred Stock 1466 Shares | | |Casualty-100% $294,529,000 | | |Casualty-100% $1,615,000 | | |--------------- Cost | | | | | | | | | ---- | | | | | | | | |Casualty-6.8% $100,000 | | | | | | | | |Fire-6.8% $100,000 | | -------------------------------- | -------------------------------- | ---------------------------------- | | | | -------------------------------- | -------------------------------- | ---------------------------------- | | LONE STAR | | | NATIONWIDE CASH | | | PENSION ASSOCIATES | | | GENERAL AGENCY, INC. | | | MANAGEMENT COMPANY | | | OF WAUSAU, INC. | | | | | |Common Stock: 100 Shares | | |Common Stock: 1,000 Shares | ------|Common Stock: 1,000 | |----|------------ | |--------|------------- | | |------------ Shares | | | Cost | | | Cost | | | Cost | | | ---- | | | ---- | | | ---- | | |Casualty-90% $9,000 | | | | | |Casualty-100% $5,000,000 | | |NW Adv. Serv. 1,000 | | |Casualty-100% $2,839,392 | | -------------------------------- | -------------------------------- | ---------------------------------- | || | | | -------------------------------- | -------------------------------- | ---------------------------------- | | COLONIAL COUNTY MUTUAL | | | NATIONWIDE INSURANCE | | | AMERCIAN MARINE | | | INSURANCE COMPANY | | | COMPANY OF FLORIDA | | | UNDERWRITERS, INC. | | | | | |Common Stock: 10,000 | | |Common Stock: 20 Shares | | |Surplus Debentures | | |------------- Shares | | |------------- | | |------------------ | |----| | |--------| Cost | | | Cost | | | Cost | | ---- | | | ---- | | | ---- | | | | |Colonial $500,000 | | |Casualty-100% $300,000,000 | |Casualty-100% $5,020 | | |Lone Star 150,000 | | | | | | | -------------------------------- | -------------------------------- ---------------------------------- | | | -------------------------------- | -------------------------------- | | TIG COUNTRYWIDE | | | WAUSAU INTERNATIONAL | | | INSURANCE COMPANY | | | UNDERWRITERS | | |Common Stock 12,000 | | | | | |------------ Shares | | |Common Stock: 1,000 Shares | |-----| | -----|------------ | | | Cost | | | Cost | | | ---- | | | ---- | | |Casualty-100% $215,273,000 | | |Casualty-100% $10,000 | | | | | | | | -------------------------------- | | | | | -------------------------------- | | | -------------------------------- | -------------------------------- | | NATIONWIDE INSURANCE | | | NATIONWIDE | | | ENTERPRISE SERVICES, LTD. | | | ARENA LLC | | | | | | | | |Single Member Limited | | | | |.....|Liability Company | |....| | | | | | | | | | |Casualty-100% | |Casualty-90% | | | | | -------------------------------- -------------------------------- Subsidiary Companies -- Solid Line Contractual Association -- Double Line Limited Liability Company -- Dotted Line December 31, 1998
Page 1 78
(Left Side) |----------------------------------|-----------------------------------|------------------------------- | | | ----------------------------- ----------------------------- ----------------------------- | NATIONWIDE LIFE INSURANCE | | NATIONWIDE | | NATIONWIDE FINANCIAL | | COMPANY (NW LIFE) | | FINANCIAL SERVICES | | INSTITUTION DISTRIBUTORS | | | | CAPITAL TRUST | | AGENCY, INC. (NFIDAI) | | Common Stock: 3,814,779 | | Preferred Stock: | | Common Stock: 1,000 | | ------------ Shares | | --------------- | | ------------ Shares | | | | | | | | NFS--100% | | NFS--100% | | NFS--100% | ----------------|------------ ----------------------------- ---------------||------------ | || - ----------------------------- | ----------------------------- ----------------------------- || ---------------------------- | NATIONWIDE LIFE AND | | | NATIONWIDE | | FINANCIAL HORIZONS | || | | | ANNUITY INSURANCE COMPANY | | | ADVISORY SERVICES, INC. | | DISTRIBUTORS AGENCY | || | | | | | | (NW ADV. SERV.) | | OF ALABAMA, INC. | || | | | Common Stock: 66,000 | | | Common Stock: 7,676 | | Common Stock: 10,000 | || | FINANCIAL HORIZONS | | ------------ Shares |--|--| ------------ Shares |==|| | ------------ Shares |--||==| DISTRIBUTORS AGENCY | | | | | | || | | || | OF OHIO, INC. | | Cost | | | Cost | || | Cost | || | | | ---- | | | ---- | || | ---- | || | | | NW Life -100% $58,070,003 | | | NW Life -100% $5,996,261 | || | NFIDAI -100% $100 | || | | - ----------------------------- | ----------------------------- || ----------------------------- || ---------------------------- | || || - ----------------------------- | ----------------------------- || ----------------------------- || ---------------------------- | NWE, INC. | | | NATIONWIDE | || | LANDMARK FINANCIAL | || | | | | | | INVESTORS SERVICES, INC. | || | SERVICES OF | || | | | | | | | || | NEW YORK, INC. | || | | | Common Stock: 100 | | | Common Stock: 5 Shares | || | Common Stock: 10,000 | || | FINANCIAL HORIZONS | | ------------ Shares |--| | ------------ |--|| | ------------ Shares |--||==| DISTRIBUTORS AGENCY | | | | | | || | | || | OF OKLAHOMA, INC. | | Cost | | | Cost | || | Cost | || | | | ---- | | | ---- | || | ---- | || | | | NW Life -100% $35,971,375 | | | NW Adv. Serv. -100% $5,000| || | NFIDAI -100% $10,100 | || | | - ----------------------------- | ----------------------------- || ----------------------------- || ---------------------------- | || || - ----------------------------- | ----------------------------- || ----------------------------- || ---------------------------- | NATIONWIDE INVESTMENT | | | FINANCIAL HORIZONS | || | FINANCIAL HORIZONS | || | | | SERVICES CORPORATION | | | INVESTMENT TRUST | || | SECURITIES CORP. | || | | | | | | | || | | || | | | Common Stock: 5,000 | | | | || | Common Stock: 10,000 | || | FINANCIAL HORIZONS | | ------------ Shares |--| | |==|| | ------------ Shares |--||==| DISTRIBUTORS AGENCY | | | | | | || | | || | OF TEXAS, INC. | | Cost | | | | || | Cost | || | | | ---- | | | | || | ---- | || | | | NW Life -100% $529,728 | | | COMMON LAW TRUST | || | NFIDAI -100% $153,000 | || | | - ----------------------------- | ----------------------------- || ----------------------------- || ---------------------------- | || || - ----------------------------- | ----------------------------- || ----------------------------- || ---------------------------- | NATIONWIDE REALTY | | | NATIONWIDE | || | AFFILIATE AGENCY, INC. | || | | | INVESTORS, LTD. | | | INVESTING | || | | || | | | | | | FOUNDATION | || | | || | | | Units: | | | | || | Common Stock: 100 | || | AFFILIATE | | ------ |..| | |==|| | ------------ Shares |--||==| AGENCY OF | | | | | | || | | | OHIO, INC. | | | | | | || | Cost | | | | NW Life -90% | | | | || | ---- | | | | NW Mutual-10% | | | COMMON LAW TRUST | || | NFIDAI -100% $100 | | | - ----------------------------- | ----------------------------- || ----------------------------- ---------------------------- | || - ----------------------------- | ----------------------------- || ----------------------------- | NATIONWIDE | | | NATIONWIDE | || | NATIONWIDE | | PROPERTIES, LTD. | | | INVESTING | || | INVESTING | | | | | FOUNDATION II | || | FOUNDATION III | | Units: |..| | | || | | | ------ | | |==||==| | | | | | || | | | | | | || | | ---------------------- | NW Life -97.6% | | | || | | | MORLEY RESEARCH | | NW Mutual -2.4% | | COMMON LAW TRUST | || | OHIO BUSINESS TRUST | | ASSOCIATES, LTD. | - ----------------------------- ----------------------------- || ----------------------------- | | || |Common Stock: 1,000 | ----------------------------- || ----------------------------- |------------- Shares|------ | NATIONWIDE | || | NATIONWIDE | | Cost | | SEPARATE ACCOUNT | || | ASSET ALLOCATION TRUST | | ---- | | TRUST | || | | |Morley-100% $1,000| | | || | | ---------------------- | |==||==| | | | | | | | | | | | | MASSACHUSETTS | | COMMON LAW TRUST | | BUSINESS TRUST | ----------------------------- -----------------------------
79
(Center) NATIONWIDE INSURANCE ENTERPRISE (R) - -------------------------------------------------- -------------------------------------------------- | NATIONWIDE MUTUAL | | NATIONWIDE MUTUAL | | INSURANCE COMPANY |================================| FIRE INSURANCE COMPANY | | (CASUALTY) | | | (FIRE) | - -------------------------------------------------- | -------------------------------------------------- | ----------------------------------------- | NATIONWIDE CORPORATION (NW CORP) | | Common Stock: Control: | | ------------ ------- | | 13,642,432 100% | | Shares Cost | | ------ ---- | |Casualty 12,992,922 $751,352,485 | |Fire 649,510 24,007,936 | -------------------|--------------------- |-------------------------------------------------------------- ---------------|------------- | NATIONWIDE FINANCIAL | | SERVICES, INC. (NFS) | | | |Common Stock: Control: | |------------ ------- | | | | | |Class A Public--100% | |Class B NW Corp--100% | ---------------|------------- | - -----------------|-------------------------------|-------------------|--------------------------------|----------------------------- | | | | -------------|--------------- --------------|-------------- | ---------------|------------- | MORLEY FINANCIAL | | THE 401(k) COMPANIES, INC.| | | NATIONWIDE RETIREMENT | | SERVICES, INC. (MORLEY) | | (401(k)) | | | SOLUTIONS, INC. | |Common Stock: 82,343 | |Common Stock: Control: | | |Common Stock: 236,494 | |---|------------- Shares | |------------- ------- |--| | |------------- Shares | | | | |Class A Other-100% | | | | | | |NFS-100% | |Class B NFS -100% | | | |NRS-100% | | ----------------------------- ----------------------------- | | ---------------|------------- | | | | | ----------------------------- ----------------------------- | | ----------------------------- | --------------------------- | | MORLEY & | | 401(k) INVESTMENT | | | | NATIONWIDE RETIREMENT | | | NATIONWIDE RETIREMENT | | | ASSOCIATES, INC. | | SERVICES, INC. | | | | SOLUTIONS, INC. OF | | | SOLUTIONS, INC. OF NEW | | | | | | | | | ALABAMA | | | MEXICO | | |Common Stock: 3,500 | | Common Stock: 1,000,000 | | | | Common Stock: 10,000 | | | Common Stock: 1,000 | |---|------------- Shares | | ------------- Shares |--| | | ------------- Shares |--|--| ------------- Shares | | | Cost | | Cost | | | | Cost | | | Cost | | | ---- | | ---- | | | | ---- | | | ---- | | |Morley-100% $1,000 | |401(k)-100% $7,800 | | | |NRS-100% $1,000 | | |NRS-100% $1,000 | | ----------------------------- ----------------------------- | | ----------------------------- | --------------------------- | | | | | ----------------------------- ----------------------------- | | ----------------------------- | --------------------------- | | MORLEY CAPITAL | | 401(k) INVESTMENT | | | | NATIONWIDE RETIREMENT | | | NATIONWIDE RETIREMENT | | | MANAGEMENT | | ADVISORS, INC. | | | | SOLUTIONS, INC. OF | | | SOLUTIONS, INC. OF | | | | | | | | | ARIZONA | | | SO. DAKOTA | | |Common Stock: 500 | |Common Stock: 1,000 | | | |Common Stock: 1,000 | | |Common Stock: 1,000 | |---|------------- Shares | |------------- Shares |--| | |------------- Shares |--|--|------------- Shares | | | Cost | | Cost | | | | Cost | | | Cost | | | ---- | | ---- | | | | ---- | | | ---- | | |Morley-100% $5,000 | |401(k)-100% $1,000 | | | |NRS-100% $1,000 | | |NRS-100% $1,000 | | ----------------------------- ----------------------------- | | ----------------------------- | --------------------------- | | | | | ----------------------------- ----------------------------- | | ----------------------------- | --------------------------- | | UNION BOND | | 401(k) ICOMPANY | | | | NATIONWIDE RETIREMENT | | | NATIONWIDE RETIREMENT | | | & TRUST COMPANY | | | | | | SOLUTIONS, INC. OF | | | SOLUTIONS, INC. OF | | | | | | | | | ARKANSAS | | | WYOMING | | |Common Stock: 2,000 | |Common Stock: 855,000 | | | |Common Stock: 50,000 | | |Common Stock: 500 | |---|------------- Shares | |------------- Shares |--| | |------------- Shares |--|--|------------- Shares | | | Cost | | Cost | | | Cost | | | Cost | | | ---- | | ---- | | | ---- | | | ---- | | |Morley-100% $50,000 | |401(k)-100% $1,000 | | |NRS-100% $500 | | |NRS-100% $500 | | ----------------------------- ----------------------------- | ----------------------------- | --------------------------- | | | | ----------------------------- ----------------------------- | ----------------------------- | --------------------------- | | PORTLAND INVESTMENT | | NATIONWIDE TRUST | | | NATIONWIDE RETIREMENT | | | NATIONWIDE RETIREMENT | | | SERVICES, INC. | | COMPANY, FSB | | | SOLUTIONS, INS. AGENCY, | | | SOLUTIONS, INC. OF | | | | | | | | INC. | | | OHIO | | |Common Stock: 1,000 | |Common Stock: 2,800,000 | | |Common Stock: 1,000 | | | | |---|------------- Shares | |------------- Shares |-----| |------------- Shares |--|==| | | | Cost | | Cost | | | Cost | | | | | | ---- | | ---- | | | ---- | | | | | |Morley-100% $25,000 | |NFS-100% $3,500,000 | | |NRS -100% $1,000 | | | | | ----------------------------- ----------------------------- | ----------------------------- | --------------------------- | | | | ----------------------------- ----------------------------- | ---------------------------- | --------------------------- | | EXCALIBER FUNDING | | NATIONWIDE FINANCIAL | | | NATIONWIDE RETIREMENT | | | NATIONWIDE RETIREMENT | | | CORPORATION | | SERVICES CAPITAL TRUST II | | | SOLUTIONS, INC. OF | | | SOLUTIONS, INC. OF | | | | | | | | MONTANA | | | OKLAHOMA | | |Common Stock: 1,000 | | | | |Common Stock: 500 | | | | |---|------------- Shares | | |-----| |------------- Shares |--|==| | | | Cost | | | | | Cost | | | | | | ---- | | | | | ---- | | | | | |Morley-100% $1,000 | |NFS-100% | | |NRS-100% $500 | | | | | ----------------------------- ----------------------------- | ----------------------------- | --------------------------- | | | | ----------------------------- ----------------------------- | ----------------------------- | --------------------------- | | CALIBER FUNDING | | NFS DISTRIBUTORS INC. | | | NATIONWIDE RETIREMENT | | | NATIONWIDE RETIREMENT | | | CORPORATION | | | | | SOLUTIONS, INC. OF | | | SOLUTIONS, INC. OF | | | | | | | | NEVADA | | | TEXAS | | | | | | | | Common Stock: 1,000 | | | | |---| | | |-----| | ------------- Shares |--|==| | | | | | | Cost | | | | | | | | ---- | | | |Morley-100% | |NFS-100% | | NRS-100% $1,000 | | | ----------------------------- ----------------------------- ----------------------------- ---------------------------
80
(Right) - ------------------------------------------------|--------------------|---------------------------------------| | | | | ---------------|---------------- --------------|---------------- | | EMPLOYERS LIFE INSURANCE CO. | | GATES MCDONALD | | | OF WAUSAU (ELIOW) | | & COMPANY (GATES) | | | | | | | |Common Stock: 250,000 | |Common Stock: 254 | | |--|------------- Shares | |--|------------- Shares | | | | | | | | | | | Cost | | | Cost | | | | ---- | | | ---- | | | |NW CORP. -100% $126,509,480 | | |NW CORP. -100% $25,683,532 | | | -------------------------------- | ------------------------------- - ------------ | | | | -------------------------------- | | -------------------------------- | -------------------------------- | | NATIONWIDE TRUST | | | | WAUSAU PREFERRED | | | HEALTHCARE | | | COMPANY | | | | HEALTH INSURANCE CO. | | | FIRST, INC. | | | | | | | | | | | | |Common Stock: 2,800,000 | | | |Common Stock: 200 | | | | |--|------------- Shares | | |--|------------- Shares | |--| | | | | | | | | | | | | Cost | | | Cost | | | Cost | | | ---- | | | ---- | | | ---- | | |NFS-100% $3,500,000 | | |ELIOW -100% $57,413,193 | | |Gates-100% $6,700,000 | | -------------------------------- | -------------------------------- | -------------------------------- | | | | -------------------------------- | -------------------------------- | ------------------------------- | | NATIONWIDE FINANCIAL | | | NATIONWIDE GLOBAL | | | GATES MCDONALD & COMPANY | | | SERVICES (BERMUDA) INC. | | | HOLDINGS, INC. (NGH) | | | OF NEW YORK, INC. | | | | | | | | | | | |Common Stock: 250,000 | | |Common Stock: 1 | | |Common Stock: 3 | |--|------------- Shares | |-----|------------- Share | |--|------------- Shares | | | | | | | | | | | | Cost | | | Cost | | | Cost | | | ---- | | | ---- | | | ---- | | |NFS-100% $3,500,000 | | |NW CORP.-100% $7,000,000 | | |Gates-100% $106,947 | | -------------------------------- | -------------------------------- | ------------------------------- | | | | | -------------------------------- | -------------------------------- | ------------------------------- | | NATIONWIDE DEFERRED | | | NATIONWIDE GLOBAL HOLDINGS | | | GATES MCDONALD & COMPANY | | | COMPENSATION, INC. | | | -HONG KONG, LIMITED | | | OF NEVADA | | | | | | | | | | | | | | |Common Stock: 2 | | |Common Stock: 40 | |--| | | |------------- Shares | |--|------------- Shares | | | | | | | | | | | | | | | | | | Cost | | | | | | | | | ---- | | |NFS-100% | | |NGH-100% | | |Gates-100% $93,750 | | -------------------------------- | -------------------------------- | ------------------------------- | | | | -------------------------------- | -------------------------------- | ------------------------------- | | IRVIN L. SCHWARTZ | | | NATIONWIDE | | | GATES McDONALD | | | AND ASSOCIATES, INC. | | | HEALTH PLANS, INC. (NHP) | | | HEALTH PLUS, INC. | | | | | | | | | | | |Common Stock: Control | | |Common Stock: 100 | | |Common Stock: 200 | |--|------------- ------- | |-----|------------- Shares |--| |--|------------- Shares | | | | | | | | | | | | | Cost | | | Cost | |Class A Other-100% | | | ---- | | | ---- | |Class B NFS -100% | | |NW CORP.-100% $14,603,732 | | |Gates-100% $2,000,000 | -------------------------------- | -------------------------------- | ------------------------------- | | -------------------------------- | -------------------------------- | | MRM INVESTMENTS, INC. | | | NATIONWIDE MANAGEMENT | | | | | | SYSTEMS, INC. | | | | | | | | |Common Stock: 1 | | |Common Stock: 100 | | |------------- Share |--| |------------- Shares |--| | | | | | | Cost | | Cost | | | ---- | | ---- | | |NW CORP.-100% $7,000,000 | |NHP Inc.-100% $25,149 | | -------------------------------- -------------------------------- | | -------------------------------- | | NATIONWIDE | | | AGENCY, INC. | | | | | |Common Stock: 100 | | |------------ Shares |--| | | | Cost | | ---- | |NHP Inc.-99% $116,077 | -------------------------------- Subsidiary Companies -- Solid Line Contractual Association -- Double Line Limited Liability Company -- Dotted Line December 31, 1998 Page 2
81 Item 27. NUMBER OF CONTRACT OWNERS The number of Contract Owners of Qualified and Non-Qualified Contracts as of January 31, 1999 was 707 and 523, respectively. Item 28. INDEMNIFICATION Provision is made in Nationwide's Amended and Restated Code of Regulations and expressly authorized by the General Corporation Law of the State of Ohio, for indemnification by Nationwide of any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative by reason of the fact that such person is or was a director, officer or employee of Nationwide, against expenses, including attorneys fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, to the extent and under the circumstances permitted by the General Corporation Law of the State of Ohio. Insofar as indemnification for liabilities arising under the Securities Act of 1933 ("Act") may be permitted to directors, officers or persons controlling Nationwide pursuant to the foregoing provisions, Nationwide has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. Item 29. PRINCIPAL UNDERWRITER (a) Nationwide Advisory Services, Inc. ("NAS") acts as principal underwriter and general distributor for the Nationwide Multi-Flex Variable Account, Nationwide Variable Account-II, Nationwide Variable Account-5, Nationwide Variable Account-6, Nationwide Variable Account-8, Nationwide Variable Account-9, Nationwide Variable Account-10, Nationwide VA Separate Account-A, Nationwide VL Separate Account-B, Nationwide VA Separate Account-B, Nationwide VA Separate Account-C, Nationwide VL Separate Account-D, Nationwide VL Separate Account-A, Nationwide VL Separate Account B, Nationwide VL Separate Account C, Nationwide VLI Separate Account-2, Nationwide VLI Separate Account-3, Nationwide VLI Separate Account-4, Nationwide VLI Separate Account-5, and the Nationwide Variable Account, all of which are separate investment accounts of Nationwide or its affiliates. NAS also acts as principal underwriter for Nationwide Separate Account Trust, Nationwide Asset Allocation Trust and Nationwide Mutual Funds which are open-end management investment companies. 130 of 134 82 (b) NATIONWIDE ADVISORY SERVICES, INC. DIRECTORS AND OFFICERS NATIONWIDE ADVISORY SERVICES, INC. - DIRECTORS AND OFFICERS NAME AND POSITIONS AND OFFICES BUSINESS ADDRESS WITH UNDERWRITER Joseph J. Gasper President and Director One Nationwide Plaza Columbus, OH 43215 Dimon R. McFerson Chairman and One Nationwide Plaza Chief Executive Officer and Director Columbus, OH 43215 Robert A. Oakley Executive Vice President - Chief One Nationwide Plaza Financial Officer and Director Columbus, OH 43215 Paul J. Hondros One Nationwide Plaza Director Columbus, OH 43215 Susan A. Wolken Director One Nationwide Plaza Columbus, OH 43215 Robert J. Woodward, Jr. Executive Vice President - Chief One Nationwide Plaza Investment Officer and Director Columbus, OH 43215 Edwin P. McCausland, Jr. Senior Vice President-Fixed Income One Nationwide Plaza Securities Columbus, OH 43215 Charles S. Bath One Nationwide Plaza Vice President - Investments Columbus, OH 43215 Dennis W. Click Vice President and Secretary One Nationwide Plaza Columbus, OH 43215 William G. Goslee One Nationwide Plaza Vice President Columbus, OH 43215 James F. Laird, Jr. Vice President and General One Nationwide Plaza Manager Columbus, OH 43215 Joseph P. Rath Vice President - Office of Product One Nationwide Plaza and Market Compliance Columbus, OH 43215 Alan A. Todryk Vice President - Taxation One Nationwide Plaza Columbus, OH 43215 Christopher A. Cray Treasurer One Nationwide Plaza Columbus, OH 43215 Elizabeth A. Davin Assistant Secretary One Nationwide Plaza Columbus, OH 43215 David E. Simaitis Assistant Secretary One Nationwide Plaza Columbus, OH 43215 Patricia J. Smith Assistant Secretary One Nationwide Plaza Columbus, OH 43215 131 of 134 83
(c) NAME OF NET UNDERWRITING COMPENSATION ON PRINCIPAL DISCOUNTS AND REDEMPTION OR BROKERAGE UNDERWRITER COMMISSIONS ANNUITIZATION COMMISSIONS COMPENSATION Nationwide N/A N/A N/A N/A Advisory Services, Inc.
Item 30. LOCATION OF ACCOUNTS AND RECORDS John Davis Nationwide Life Insurance Company One Nationwide Plaza Columbus, OH 43215 Item 31. MANAGEMENT SERVICES Not Applicable Item 32. UNDERTAKINGS The Registrant hereby undertakes to: (a) file a post-effective amendment to this registration statement as frequently as is necessary to ensure that the audited financial statements in the registration statement are never more than 16 months old for so long as payments under the variable annuity contracts may be accepted; (b) include either (1) as part of any application to purchase a contract offered by the prospectus, a space that an applicant can check to request a Statement of Additional Information, or (2) a post card or similar written communication affixed to or included in the prospectus that the applicant can remove to send for a Statement of Additional Information; and (c) deliver any Statement of Additional Information and any financial statements required to be made available under this form promptly upon written or oral request. The Registrant represents that any of the contracts which are issued pursuant to Section 403(b) of the Internal Revenue Code is issued by Nationwide through the Registrant in reliance upon, and in compliance with, a no-action letter issued by the Staff of the Securities and Exchange Commission to the American Council of Life Insurance (publicly available November 28, 1988) permitting withdrawal restrictions to the extent necessary to comply with Section 403(b)(11) of the Internal Revenue Code. Nationwide represents that the fees and charges deducted under the contract in the aggregate are reasonable in relation to the services rendered, the expenses expected to be incurred and risks assumed by Nationwide. 132 of 134 84 INDEPENDENT AUDITORS' CONSENT The Board of Directors of Nationwide Life Insurance Company and Contract Owners of the Nationwide Variable Account-II: We consent to the use of our reports included herein and to the reference to our firm under the heading "Services" in the Statement of Additional Information. KPMG LLP Columbus, Ohio April 29, 1999 133 of 134 85 SIGNATURES As required by the Securities Act of 1933, the Registrant, NATIONWIDE VARIABLE ACCOUNT-II, certifies that it meets the requirements of Securities Act 485 for effectiveness of this Post-Effective Amendment and has caused this Post-Effective Amendment to be signed on its behalf in the City of Columbus, and State of Ohio, on this 17th day of September, 1999. NATIONWIDE VARIABLE ACCOUNT-II ------------------------------------------------------ (Registrant) NATIONWIDE LIFE INSURANCE COMPANY ------------------------------------------------------ (Depositor) By/s/JOSEPH P. RATH ------------------------------------------------------ Joseph P. Rath Vice President-Office of Product and Market Compliance As required by the Securities Act of 1933, this Post-Effective Amendment has been signed by the following persons in the capacities indicated on this 17th day of September, 1999. SIGNATURE TITLE LEWIS J. ALPHIN Director - -------------------- Lewis J. Alphin A. I. BELL Director - -------------------- A. I. Bell KENNETH D. DAVIS Director - -------------------- Kenneth D. Davis KEITH W. ECKEL Director - -------------------- Keith W. Eckel WILLARD J. ENGEL Director - -------------------- Willard J. Engel FRED C. FINNEY Director - -------------------- Fred C. Finney JOSEPH J. GASPER President and Chief - -------------------- Operating Office and Director Joseph J. Gasper DIMON R. McFERSON Chairman and Chief Executive Officer - -------------------- and Director Dimon R. McFerson DAVID O. MILLER Chairman of the Board and Director - -------------------- David O. Miller YVONNE L. MONTGOMERY Director - -------------------- Yvonne L. Montgomery ROBERT A. OAKLEY Executive Vice President- - -------------------- Chief Financial Officer Robert A. Oakley ROBERT M. PAIGE Director - -------------------- Robert M. Paige JAMES F. PATTERSON Director - -------------------- James F. Patterson ARDEN L. SHISLER Director - -------------------- Arden L. Shisler ROBERT L. STEWART Director - -------------------- Robert L. Stewart NANCY C. THOMAS Director - -------------------- Nancy C. Thomas By/s/JOSEPH P. RATH ----------------------------------- Joseph P. Rath Attorney-in-Fact 134 of 134 -----END PRIVACY-ENHANCED MESSAGE-----