<PAGE> 1
NATIONWIDE LIFE INSURANCE COMPANY
Home Office
P.O. Box 16609
Columbus, Ohio 43216-6609, 1-800-848-6331, TDD 1-800-238-3035
DEFERRED VARIABLE ANNUITY CONTRACTS
ISSUED BY THE NATIONWIDE VARIABLE ACCOUNT OF
NATIONWIDE LIFE INSURANCE COMPANY
The Contracts described in this prospectus are Deferred Variable Annuity
Contracts (collectively referred to as the "Contracts"). Contracts issued prior
to January 1, 1993 were issued to the trustees of Qualified Plans as Qualified
Contracts. Contracts issued after January 1, 1993 may be issued to custodians of
Individual Retirement Accounts.
Contracts issued after January 1, 1993 do not qualify for tax-deferral under
federal tax rules governing Non-Qualified Annuities or Individual Retirement
Annuities. Such Contracts are, however, issued to custodians of Individual
Retirement Accounts for the benefit of Individual Retirement Account holders.
Such account holders will be the Annuitant under these Contracts. Annuity
payments under the Contracts are deferred until a selected later date.
Purchase Payments are allocated to Nationwide Variable Account ("Variable
Account"), a separate account of Nationwide Life Insurance Company (the
"Company"). The Variable Account purchases shares at Net Asset Value in one or
more of the following Underlying Mutual Fund options:
FOR CONTRACTS ISSUED ON OR AFTER JANUARY 1, 1993
<TABLE>
<S> <C>
- -American Century: Benham Short-Term Government Fidelity VIP High Income Portfolio* (additional
- -American Century: Income & Growth Purchase Payments or exchanges may not be
- -American Century: Twentieth Century Growth made to this Fund on or after December 1, 1993).
- -American Century: Twentieth Century International Growth -Franklin Mutual Series Fund, Inc. - Mutual Shares Fund:
Class 1
- -American Century: Twentieth Century Ultra -Janus Fund
- -Delchester Fund-Institutional Class -Janus Twenty Fund
- -Dreyfus A Bonds Plus, Inc. -Janus Worldwide Fund
- -Dreyfus Appreciation Fund, Inc. -MFS(R)World Governments Fund
- -Dreyfus Balanced Fund, Inc. -Nationwide(R) Bond Fund
- -Dreyfus S & P 500 Index Fund -Nationwide(R) Fund
- -Dreyfus Third Century Fund, Inc. -Nationwide(R) Growth Fund
- -Evergreen Income and Growth Fund -Nationwide(R) Money Market Fund
- -Federated Bond Fund -Nationwide(R) U.S. Government Income Fund
- -Federated High Yield Trust* -Neuberger & Berman Guardian Fund, Inc.
- -Fidelity Advisor Balanced Fund - Class T -Neuberger & Berman Limited Maturity Bond Fund
- -Fidelity Advisor Equity Income Fund - Class T -Neuberger & Berman Partners Fund, Inc.
- -Fidelity Advisor Growth Opportunities Fund - Class T -Oppenheimer Global Fund
- -Fidelity Advisor High Yield Fund - Class T -Phoenix Balanced Fund Series
- -Fidelity Asset Manager(TM) -Strong Total Return Fund, Inc.
- -Fidelity Equity-Income Fund -Templeton Foreign Fund - Class I
- -Fidelity Magellan(R) Fund -Warburg Pincus Emerging Growth Fund
- -Fidelity Puritan Fund -Warburg Pincus Global Fixed Income Fund
<FN>
*The Fidelity VIP High Income Portfolio and the Federated High Yield Trust may
invest in lower quality debt securities commonly referred to as junk bonds.
</TABLE>
1
<PAGE> 2
FOR PLANS ESTABLISHED PRIOR TO MARCH 6, 1998
Neuberger & Berman Equity Trust(R) - Neuberger & Berman Genesis Trust
FOR CONTRACTS ISSUED PRIOR TO JANUARY 1, 1993
<TABLE>
<S> <C>
- -American Century: Benham Short-Term Government -Fidelity VIP High Income Portfolio(2)
- -American Century: Twentieth Century Growth -MFS(R) World Governments Fund
- -Fidelity Capital & Income Fund(1) -Nationwide(R) Money Market Fund
- -Fidelity Equity - Income Fund
<FN>
(1) Additional Purchase Payments or exchanges may not be made to this Fund on or
after May 1, 1991. Not available for Contracts which were issued on or
after May 1, 1987.
(2) Additional Purchase Payments or exchanges may not be made to this Fund on or
after December 1, 1993.
</TABLE>
This prospectus provides you with the basic information you should know about
the Contracts issued by the Variable Account before investing. You should read
it and keep it for future reference. A Statement of Additional Information dated
May 1, 1998, containing further information about the Contracts and the Variable
Account has been filed with the Securities and Exchange Commission ("SEC"). You
can obtain a copy without charge from the Company by calling 1-800-848-6331, TDD
1-800-238-3035 or writing P.O. Box 16609, Columbus, Ohio 43216-6609.
PLEASE NOTE THAT NOT ALL BENEFITS DESCRIBED IN THIS PROSPECTUS MAY BE AVAILABLE
IN EVERY STATE JURISDICTION.
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.
THE SEC MAINTAINS A WEBSITE, WWW.SEC.GOV, THAT CONTAINS THE STATEMENT OF
ADDITIONAL INFORMATION AS WELL AS MATERIAL INCORPORATED BY REFERENCE RELATING TO
THIS PROSPECTUS.
THE STATEMENT OF ADDITIONAL INFORMATION, DATED MAY 1, 1998, IS INCORPORATED
HEREIN BY REFERENCE. THE TABLE OF CONTENTS FOR THE STATEMENT OF ADDITIONAL
INFORMATION APPEARS ON PAGE 42 OF THE PROSPECTUS.
THE DATE OF THIS PROSPECTUS IS MAY 1, 1998.
2
<PAGE> 3
GLOSSARY OF SPECIAL TERMS
ACCUMULATION UNIT - An accounting unit of measure used to calculate the Variable
Account Contract Value prior to the Annuitization Date.
ANNUITANT - The person designated to receive annuity payments during
Annuitization and upon whose continuation of life any annuity payment involving
life contingencies depends. This person must be age 78 or younger at the time of
Contract issuance. Although not the Owner of the Contract, the Annuitant may
exercise rights of ownership in the Contract if so authorized by the holder of
the Contract (an Individual Retirement Account custodian or Qualified Plan
trustee(s)).
ANNUITIZATION - The period during which annuity payments are actually received.
ANNUITIZATION DATE - The date on which annuity payments commence at
Annuitization.
ANNUITY COMMENCEMENT DATE - The date on which annuity payments are scheduled to
commence. The Annuity Commencement Date is shown on the data page of the
Contract. The Annuity Commencement Date may be changed by the Contract Owner
with the consent of the Company.
ANNUITY PAYMENT OPTION - The chosen form of annuity payments. Several options
are available under this Contract.
ANNUITY UNIT - An accounting unit of measure used to calculate the value of
Variable Annuity payments.
BENEFICIARY - The person designated to receive certain benefits under the
Contract when the Annuitant dies prior to the Annuitization Date. The
Beneficiary can be changed by the Contract Owner as set forth in the Contract.
CODE - The Internal Revenue Code of 1986, as amended.
COMPANY - Nationwide Life Insurance Company.
CONTINGENT BENEFICIARY - The person designated to be the Beneficiary if the
named Beneficiary is not living at the time of the death of the Annuitant.
CONTINGENT DESIGNATED ANNUITANT - The person who may be the recipient of certain
rights or benefits under the Contract when the Annuitant dies before the
Annuitization Date. If a Contingent Designated Annuitant is named, and the
Annuitant dies before the Annuitization Date, the Contingent Designated
Annuitant becomes the Annuitant. A Contingent Designated Annuitant may not be
named for Contracts issued as Qualified Contracts, IRAs, Roth IRAs, SEP IRAs or
Tax Sheltered Annuities.
CONTRACT - The Deferred Variable Annuity Contract described in this prospectus.
CONTRACT ANNIVERSARY - An anniversary of the Date of Issue of the Contract.
CONTRACT OWNER (OWNER) - The person (a Qualified Plan trustee(s), or an
Individual Retirement Account custodian) who possesses all rights under the
Contract. In most cases, Individual Retirement Account custodians and Qualified
Plan trustees will authorize the exercise of ownership rights in the Contract by
the Annuitant, including the right to designate and change any designations of
the Beneficiary, Contingent Beneficiary, Annuity Payment Option, the Annuity
Commencement Date and the right to make exchanges and reallocations among the
investment options available under the Contract. The Contract Owner is the
person named as Owner on the application, unless changed.
CONTRACT VALUE - The sum of the value of all Accumulation Units attributable to
the Contract, plus any amount held under the Contract in the Fixed Account.
CONTRACT YEAR - Each year the Contract remains in force commencing with the Date
of Issue.
DATE OF ISSUE - The date shown as the Date of Issue on the data page of the
Contract.
DEATH BENEFIT - The benefit which is payable upon the death of the Annuitant
prior to the Annuitization Date. If the Annuitant dies after the Annuitization
Date, any benefit payable shall be as specified in the Annuity Payment Option
elected.
DISTRIBUTION - Any payment of part or all of the Contract Value.
ERISA - The Employment Retirement Income Security Act of 1974, as amended.
3
<PAGE> 4
FIXED ACCOUNT - An investment option which is funded by the General Account of
the Company.
FIXED PAYMENT ANNUITY - An annuity providing for payments which are guaranteed
by the Company as to dollar amount during Annuitization.
GENERAL ACCOUNT- All assets of the Company other than those of the Variable
Account or in other separate accounts that have been or may be established by
the Company.
HOME OFFICE - The main office of the Company located in Columbus, Ohio.
INDIVIDUAL RETIREMENT ACCOUNT - An account that qualifies for favorable tax
treatment under Section 408 of the Code, but does not include Roth Individual
Retirement Accounts, which qualify for favorable tax treatment under Section
408A of the Code. No Contracts described in this prospectus were or shall be
sold as Individual Retirement Annuities.
INTEREST RATE GUARANTEE PERIOD - The interval of time during which an interest
rate credited to the Fixed Account under the Contract is guaranteed to remain
the same. For new Purchase Payments to the Fixed Account or transfers from the
Variable Account, this period begins upon the date of deposit or transfer and
ends at the end of the calendar quarter at least one year (but not more than 15
months) from deposit or transfer. At the end of an Interest Rate Guarantee
Period, a new interest rate is declared with an Interest Rate Guarantee Period
starting at the end of the prior period and ending at the end of the calendar
quarter one year later.
NET ASSET VALUE - The worth of one share at the end of a market day or at the
close of the New York Stock Exchange. Net Asset Value is computed by adding the
value of all portfolio holdings and other assets, deducting charges and then
dividing the result by the number of shares outstanding.
NON-QUALIFIED CONTRACT - A Contract which does not qualify for favorable tax
treatment under Sections 401 and 403(a) (Qualified Plans), 408 (IRAs), or 403(b)
(Tax Sheltered Annuities) of the Code.
PLAN PARTICIPANT - A person for whom contributions are being made to a Qualified
Contract or Tax Sheltered Annuity either through employer contributions or
employee salary reduction contributions.
PURCHASE PAYMENT - A deposit of new value into the Contract. The term "Purchase
Payment" does not include transfers between the Variable Account and Fixed
Account, or among the Sub-Accounts.
QUALIFIED CONTRACT - A contract issued to fund a Qualified Plan.
QUALIFIED PLAN - A retirement plan receiving favorable tax treatment under
Sections 401 and 403(a) of the Code.
ROTH IRA - An annuity contract which qualifies for favorable tax treatment under
Section 408A of the Code.
SUB-ACCOUNTS - Separate and distinct divisions of the Variable Account, to which
specific Underlying Mutual Fund shares are allocated and for which Accumulation
Units and Annuity Units are separately maintained.
TAX SHELTERED ANNUITY - An annuity which qualifies for favorable tax treatment
under Section 403(b) of the Code.
UNDERLYING MUTUAL FUND (FUND) - A registered open-end management investment
company in which the assets of the Sub-Accounts will be invested.
VALUATION DATE - Each day the New York Stock Exchange and the Home Office are
open for business, or any other day during which there is a sufficient degree of
trading of the Underlying Mutual Fund shares that the current Variable Account
Contract Value might be materially affected.
VALUATION PERIOD - The period of time commencing at the close of business of a
Valuation Date and ending at the close of business for the next succeeding
Valuation Date.
VARIABLE ACCOUNT - The Nationwide Variable Account, a separate investment
account of the Company into which Variable Account Purchase Payments are
allocated. The Variable Account is divided into Sub-Accounts, each of which
invests in shares of a separate Underlying Mutual Fund.
VARIABLE PAYMENT ANNUITY - An annuity providing for payments which are not
predetermined or guaranteed as to dollar amount and which vary in amount with
the investment experience of the Variable Account.
4
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<S> <C>
GLOSSARY OF SPECIAL TERMS.............................................................3
SUMMARY OF CONTRACT EXPENSES..........................................................7
UNDERLYING MUTUAL FUND ANNUAL EXPENSES................................................7
EXAMPLE..............................................................................10
SYNOPSIS.............................................................................14
CONDENSED FINANCIAL INFORMATION......................................................15
NATIONWIDE LIFE INSURANCE COMPANY....................................................19
NATIONWIDE ADVISORY SERVICES, INC....................................................19
THE VARIABLE ACCOUNT.................................................................20
Underlying Mutual Fund Options..............................................20
Voting Rights...............................................................20
VARIABLE ACCOUNT CHARGES, PURCHASE PAYMENTS, AND OTHER DEDUCTIONS....................21
Mortality Risk Charge.......................................................21
Expense Risk Charge.........................................................21
Contingent Deferred Sales Charge ("CDSC")...................................21
Elimination of CDSC.........................................................22
Contract Maintenance Charge.................................................23
Administration Charge.......................................................23
Premium Taxes...............................................................23
Expenses of Variable Account................................................23
Investments of the Variable Account.........................................23
Right to Revoke.............................................................24
Transfers...................................................................24
Loan Privilege..............................................................24
Beneficiary ................................................................25
Ownership ..................................................................26
Substitution of Securities..................................................26
Inquiries...................................................................26
ANNUITY PAYMENT PERIOD, DEATH BENEFIT AND OTHER DISTRIBUTIONS........................26
Annuity Commencement Date...................................................26
Annuitization...............................................................26
Fixed Payment Annuity - First and Subsequent Payments.......................27
Variable Payment Annuity - First and Subsequent Payments....................27
Variable Payment Annuity - Assumed Investment Rate..........................27
Variable Payment Annuity - Value of an Annuity..............................27
Variable Payment Annuity - Exchanges Among Underlying Mutual Fund Options...27
Frequency and Amount of Annuity Payments....................................27
Death of Contract Owner.....................................................27
Death of Annuitant..........................................................28
Death of a Contract Owner/Annuitant.........................................28
Death Benefit Payment.......................................................28
Death Benefit After the Annuitization Date..................................28
Annuity Payment Options.....................................................29
Change in Form of Annuity...................................................29
Required Distributions for Qualified Plans..................................29
Required Distributions for Individual Retirement Accounts...................30
Required Distributions for Roth IRAs........................................31
Withholding.................................................................31
Federal Estate and Generation Skipping Transfer Taxes.......................31
GENERAL INFORMATION..................................................................32
Contract Owner Services.....................................................32
Statements and Reports......................................................32
Allocation of Purchase Payments and Contract Value..........................33
Value of an Accumulation Unit...............................................33
Net Investment Factor.......................................................33
Determining the Contract Value..............................................34
</TABLE>
5
<PAGE> 6
<TABLE>
<S> <C>
Surrender (Redemption)......................................................34
Surrenders Under a Qualified Plan...........................................34
Taxes.......................................................................34
Qualified Plans and Individual Retirement Accounts..........................35
Roth IRAs...................................................................36
Individual Retirement Accounts..............................................36
Advertising.................................................................36
YEAR 2000 COMPLIANCE ISSUES..........................................................41
LEGAL PROCEEDINGS....................................................................42
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS................................42
APPENDIX A...........................................................................43
APPENDIX B...........................................................................44
</TABLE>
6
<PAGE> 7
SUMMARY OF CONTRACT EXPENSES
(FOR CONTRACTS ISSUED ON OR AFTER JANUARY 1, 1993)
<TABLE>
<S> <C>
CONTRACT TRANSACTION EXPENSES
Maximum Contingent Deferred Sales Charge(1).............7.00%
MAXIMUM ANNUAL CONTRACT MAINTENANCE CHARGES(2)....................$30
VARIABLE ACCOUNT ANNUAL EXPENSES
Mortality and Expense Risk Charge.......................1.25%
Administration Charge...................................0.05%
Total Variable Account Annual Expenses.........1.30%
<FN>
1 For Contracts issued on or after January 1, 1993 the maximum Contingent
Deferred Sales Charge ("CDSC") is the lesser of: 7% of the amount
surrendered; or 7% of the total of all Purchase Payments made within 84
months prior to the date of the surrender request. Starting with the second
year after a Purchase Payment has been made, 10% of that Purchase Payment
may be withdrawn without imposition of a CDSC. The CDSC is waived: (a) for
first year withdrawals of up to 10% of Purchase Payments for Individual
Retirement Account rollover contracts; or (b) for any amount withdrawn from
this Contract required to meet minimum distribution requirements under the
Code. Withdrawals may be restricted for Contracts issued pursuant to the
terms of a Qualified Plan. This free withdrawal privilege is non-cumulative
and must be used in the year available. The CDSC is imposed only against
Purchase Payments.
2 The annual Contract Maintenance Charge is deducted on each Contract
Anniversary and in any year in which the entire Contract Value is
surrendered on the date of surrender (see "Contract Maintenance Charge").
</TABLE>
UNDERLYING MUTUAL FUND ANNUAL EXPENSES(3)
(FOR CONTRACTS ISSUED ON OR AFTER JANUARY 1, 1993)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
Management Other 12b-1 Total Portfolio
Fees Expenses Fees Expenses
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
American Century: Benham Short-Term Government 0.68% 0.00% 0.00% 0.68%
---------------------------------------------------------------------------------------------------------------------
American Century: Income & Growth 0.62% 0.00% 0.00% 0.62%
---------------------------------------------------------------------------------------------------------------------
American Century: Twentieth Century Growth 1.00% 0.00% 0.00% 1.00%
---------------------------------------------------------------------------------------------------------------------
American Century: Twentieth Century International Growth 1.38% 0.00% 0.00% 1.38%
---------------------------------------------------------------------------------------------------------------------
American Century: Twentieth Century Ultra 1.00% 0.00% 0.00% 1.00%
---------------------------------------------------------------------------------------------------------------------
Delchester Fund-Institutional Class 0.49% 0.19% 0.00% 0.68%
---------------------------------------------------------------------------------------------------------------------
Dreyfus A Bonds Plus, Inc. 0.65% 0.31% 0.00% 0.96%
---------------------------------------------------------------------------------------------------------------------
Dreyfus Appreciation Fund, Inc. 0.55% 0.32% 0.00% 0.87%
---------------------------------------------------------------------------------------------------------------------
Dreyfus Balanced Fund, Inc. 0.60% 0.36% 0.00% 0.96%
---------------------------------------------------------------------------------------------------------------------
Dreyfus S & P 500 Index Fund (Formerly Peoples Index 0.25% 0.25% 0.00% 0.50%
Fund(R), Inc.)
---------------------------------------------------------------------------------------------------------------------
The Dreyfus Third Century Fund, Inc. 0.75% 0.28% 0.00% 1.03%
---------------------------------------------------------------------------------------------------------------------
Evergreen Income and Growth Fund 0.98% 0.29% 0.00% 1.27%
---------------------------------------------------------------------------------------------------------------------
Federated Bond Fund 0.60% 0.48% 0.00% 1.08%
---------------------------------------------------------------------------------------------------------------------
Federated High Yield Trust 0.52% 0.36% 0.00% 0.88%
---------------------------------------------------------------------------------------------------------------------
Fidelity Advisor Balanced Fund - Class T 0.45% 0.22% 0.50% 1.17%
---------------------------------------------------------------------------------------------------------------------
Fidelity Advisor Equity Income Fund - Class T 0.50% 0.21% 0.50% 1.21%
---------------------------------------------------------------------------------------------------------------------
Fidelity Advisor Growth Opportunities Fund - Class T 0.47% 0.19% 0.50% 1.18%
---------------------------------------------------------------------------------------------------------------------
Fidelity Advisor High Yield Fund - Class T 0.60% 0.23% 0.25% 1.08%
---------------------------------------------------------------------------------------------------------------------
Fidelity Asset Manager 0.55% 0.24% 0.00% 0.79%
---------------------------------------------------------------------------------------------------------------------
Fidelity Equity-Income Fund 0.47% 0.23% 0.00% 0.70%
---------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 8
UNDERLYING MUTUAL FUND ANNUAL EXPENSES(3)
(FOR CONTRACTS ISSUED ON OR AFTER JANUARY 1, 1993)
(CONTINUED)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
Management Other 12b-1 Total Portfolio
Fees Expenses Fees Expenses
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fidelity Magellan(R)Fund 0.45% 0.21% 0.00% 0.66%
---------------------------------------------------------------------------------------------------------------------
Fidelity Puritan Fund 0.45% 0.22% 0.00% 0.67%
---------------------------------------------------------------------------------------------------------------------
Fidelity VIP High Income Portfolio 0.59% 0.12% 0.00% 0.71%
---------------------------------------------------------------------------------------------------------------------
Franklin Mutual Series Fund Inc. - Mutual Shares Fund: 0.58% 0.12% 0.35% 1.05%
Class 1
---------------------------------------------------------------------------------------------------------------------
Janus Fund 0.65% 0.21% 0.00% 0.86%
---------------------------------------------------------------------------------------------------------------------
Janus Twenty Fund 0.66% 0.25% 0.00% 0.91%
---------------------------------------------------------------------------------------------------------------------
Janus Worldwide Fund 0.65% 0.30% 0.00% 0.95%
---------------------------------------------------------------------------------------------------------------------
MFS(R)World Governments Fund 0.75% 0.38% 0.25% 1.38%
---------------------------------------------------------------------------------------------------------------------
Nationwide(R)Bond Fund - Class D(4) 0.50% 0.29% 0.00% 0.79%
---------------------------------------------------------------------------------------------------------------------
Nationwide(R)Fund - Class D(4) 0.57% 0.15% 0.00% 0.72%
---------------------------------------------------------------------------------------------------------------------
Nationwide(R)Growth Fund - Class D(4) 0.58% 0.20% 0.00% 0.78%
---------------------------------------------------------------------------------------------------------------------
Nationwide(R)Money Market(4) 0.40% 0.20% 0.00% 0.60%
---------------------------------------------------------------------------------------------------------------------
Nationwide(R)Intermediate U.S. Government Bond Fund - Class 0.50% 0.29% 0.00% 0.79%
D(4,5)
---------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Equity Trust(R)- Neuberger & Berman 1.12% 0.13% 0.00% 1.25%
Genesis Trust
---------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Guardian Fund, Inc. 0.70% 0.10% 0.00% 0.80%
---------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Limited Maturity Bond Fund 0.51% 0.19% 0.00% 0.70%
---------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Partners Fund, Inc. 0.72% 0.09% 0.00% 0.81%
---------------------------------------------------------------------------------------------------------------------
Oppenheimer Global Fund 0.70% 0.25% 0.18% 1.13%
---------------------------------------------------------------------------------------------------------------------
Phoenix Balanced Fund Series 0.53% 0.20% 0.25% 0.98%
---------------------------------------------------------------------------------------------------------------------
Strong Total Return Fund, Inc. 0.80% 0.24% 0.00% 1.04%
---------------------------------------------------------------------------------------------------------------------
Templeton Foreign Fund- Class I 0.61% 0.22% 0.25% 1.08%
---------------------------------------------------------------------------------------------------------------------
Warburg Pincus Emerging Growth Fund 0.90% 0.31% 0.00% 1.21%
---------------------------------------------------------------------------------------------------------------------
Warburg Pincus Global Fixed Income Fund 0.50% 0.45% 0.00% 0.95%
---------------------------------------------------------------------------------------------------------------------
<FN>
3 The Mutual Fund expenses shown above are assessed at the Underlying Mutual
Fund level and are not direct charges against Variable Account assets or
reductions from Contract Values. These Underlying Mutual Fund expenses are
taken into consideration in computing each Underlying Mutual Fund's Net
Asset Value, which is the share price used to calculate the unit values of
the Variable Account. The information relating to the Underlying Mutual
Fund expenses was provided by the Underlying Mutual Fund and was not
independently verified by the Company.
4 On May 9, 1998, the assets of the Nationwide Bond Fund, Nationwide Fund,
Nationwide Growth Fund, Nationwide Money Market Fund, and Nationwide U.S.
Government Income Fund (the "Acquired Funds") will be acquired by
corresponding funds in a new Ohio business trust in exchange for the
assumption of the stated liabilities of the Acquired Funds and a number of
full and fractional Class D shares of the applicable new fund (for the
Money Market Fund, shares will be issued without class designation) (the
"Reorganization"). The Reorganization has previously been approved by
shareholders of the Acquired Funds. Prior to the time of the
Reorganization, the Total Portfolio Expenses will be 0.72% for the
Nationwide Bond Fund, 0.60% for the Nationwide Fund, 0.64% for the
Nationwide Growth Fund, 0.59% for the Nationwide Money Market Fund and
1.07% for the Nationwide U.S. Government Income Fund.
5 Pursuant to the Reorganization, the Nationwide U.S. Government Income Fund
will change its name to the Nationwide Intermediate U.S. Government Bond
Fund.
</TABLE>
8
<PAGE> 9
The following Underlying Mutual Funds are subject to fee waivers or expense
reimbursement arrangements:
- --------------------------------------------------------------------------------
FUND EXPENSES WITHOUT REIMBURSEMENT
OR WAIVER
- --------------------------------------------------------------------------------
Federated Bond Fund Absent the waiver of fees by the Fund's
investment advisor, Management Fees, Other
Expenses and Total Portfolio Expenses would
have been 0.75%, 0.50% and 1.25% of average
net assets, respectively.
- --------------------------------------------------------------------------------
Federated High Yield Trust Absent the waiver of fees by the Fund's
investment advisor, Management Fees, Other
Expenses and Total Portfolio Expenses would
have been 0.75%, 0.41% and 1.16% of average
net assets, respectively.
- --------------------------------------------------------------------------------
Franklin Mutual Series Fund, Inc. Absent the waiver of fees by the Fund's
- - Mutual Shares Fund: Class (1) investment advisor, Management Fees, Other
Expenses, 12b-1 Fees and Total Portfolio
Expenses would have been 0.60%, 0.12%,
0.35% and 1.07% of average net assets,
respectively.
- --------------------------------------------------------------------------------
Janus Fund Absent the waiver of fees by the Fund's
investment advisor, Management Fees, Other
Expenses and Total Portfolio Expenses would
have been 0.65%, 0.22% and 0.87% of average
net assets, respectively.
- --------------------------------------------------------------------------------
Janus Twenty Fund Absent the waiver of fees by the Fund's
investment advisor, Management Fees, Other
Expenses and Total Portfolio Expenses would
have been 0.66%, 0.27% and 0.93% of average
net assets, respectively.
- --------------------------------------------------------------------------------
Janus Worldwide Fund Absent the waiver of fees by the Fund's
investment advisor, Management Fees, Other
Expenses and Total Portfolio Expenses would
have been 0.65%, 0.32% and 0.87% of average
net assets, respectively.
- --------------------------------------------------------------------------------
Neuberger & Berman Equity Trust(R) Absent the waiver of fees by the Fund's
- - Neuberger & Berman Genesis Trust investment advisor, Management Fees, Other
Expenses and Total Portfolio Expenses would
have been 1.21%, 0.14% and 1.35% of average
net assets, respectively.
- --------------------------------------------------------------------------------
Warburg Pincus Emerging Absent the waiver of fees by the Fund's
Growth Fund investment advisor, Management Fees, Other
Expenses and Total Portfolio Expenses would
have been 0.90%, 0.32% and 1.22% of average
net assets, respectively.
- --------------------------------------------------------------------------------
Warburg Pincus Global Absent the waiver of fees by the Fund's
Fixed Income Fund investment advisor, Management Fees, Other
Expenses and Total Portfolio Expenses would
have been 1.00%, 0.35% and 1.35% of average
net assets, respectively.
- --------------------------------------------------------------------------------
9
<PAGE> 10
EXAMPLE
(FOR CONTRACTS ISSUED ON OR AFTER JANUARY 1, 1993)
The following chart depicts the dollar amount of expenses that would be incurred
under this Contract assuming a $1000 investment and 5% annual return. These
dollar figures are illustrative only and should not be considered representative
of past or future expenses. Actual expenses may be greater or lesser than those
shown below. The expense amounts presented are derived from a formula which
allows the $30 Contract Maintenance Charge to be expressed as a percentage of
the average Contract account size for existing Contracts. Since the average
Contract account size for Contracts issued under this prospectus is greater than
$1000, the expense effect of the Contract Maintenance Charge is reduced
accordingly.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
IF YOU SURRENDER YOUR IF YOU DO NOT SURRENDER YOUR IF YOU ANNUITIZE YOUR
CONTRACT AT THE END OF THE CONTRACT AT THE END OF THE CONTRACT AT THE END OF THE
APPLICABLE TIME PERIOD APPLICABLE TIME PERIOD APPLICABLE TIME PERIOD
- ---------------------------------------------------------------------------------------------------------------------
1 3 5 10 1 3 5 10 1 3 5 10
YR. YRS. YRS. YRS. YR. YRS. YRS. YRS. YR. YRS. YRS. YRS.
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
American Century: Benham 92 112 141 246 22 67 114 246 * 67 114 246
Short-Term Government
- ---------------------------------------------------------------------------------------------------------------------
American Century: Income & 91 110 138 240 21 65 111 240 * 65 111 240
Growth
- ---------------------------------------------------------------------------------------------------------------------
American Century: Twentieth 95 122 158 280 25 77 131 280 * 77 131 280
Century Growth
- ---------------------------------------------------------------------------------------------------------------------
American Century: Twentieth 99 134 178 319 29 89 151 319 * 89 151 319
Century International Growth
- ---------------------------------------------------------------------------------------------------------------------
American Century: Twentieth 95 122 158 280 25 77 131 280 * 77 131 280
Century Ultra
- ---------------------------------------------------------------------------------------------------------------------
Delchester Fund-Inst'l 92 112 141 246 22 67 114 246 * 67 114 246
- ---------------------------------------------------------------------------------------------------------------------
Dreyfus A Bonds Plus 95 121 156 276 25 76 129 276 * 76 129 276
- ---------------------------------------------------------------------------------------------------------------------
Dreyfus Appreciation Fund, Inc. 94 118 152 266 24 73 125 266 * 73 125 266
- ---------------------------------------------------------------------------------------------------------------------
Dreyfus Balanced Fund, Inc. 95 121 156 276 25 76 129 276 * 76 129 276
- ---------------------------------------------------------------------------------------------------------------------
Dreyfus S & P 500 Index Fund 90 106 132 227 20 61 105 227 * 61 105 227
(Formerly Peoples Index Fund,
Inc.)
- ---------------------------------------------------------------------------------------------------------------------
The Dreyfus Third Century 95 123 160 283 25 78 133 283 * 78 133 283
Fund, Inc.
- ---------------------------------------------------------------------------------------------------------------------
Evergreen Income and Growth 98 130 172 308 28 85 145 308 * 85 145 308
Fund
- ---------------------------------------------------------------------------------------------------------------------
Federated Bond Fund 96 124 163 288 26 79 136 288 * 79 136 288
- ---------------------------------------------------------------------------------------------------------------------
Federated High Yield Trust 94 118 152 267 24 73 125 267 * 73 125 267
- ---------------------------------------------------------------------------------------------------------------------
Fidelity Advisor Balanced Fund 97 127 167 298 27 82 140 298 * 82 140 298
- - Class T
- ---------------------------------------------------------------------------------------------------------------------
Fidelity Advisor Fund Equity 97 128 169 302 27 83 142 302 * 83 142 302
Income Fund -
Class T
- ---------------------------------------------------------------------------------------------------------------------
Fidelity Advisor Fund Growth 97 128 168 299 27 83 141 299 * 83 141 299
Opportunities Fund - Class T
- ---------------------------------------------------------------------------------------------------------------------
Fidelity Advisor High Yield 96 124 163 288 26 79 136 288 * 79 136 288
Fund - Class T
- ---------------------------------------------------------------------------------------------------------------------
Fidelity Asset Manager(TM) 93 115 147 258 23 70 120 258 * 70 120 258
- ---------------------------------------------------------------------------------------------------------------------
Fidelity Equity-Income Fund 92 112 143 248 22 67 116 248 * 67 116 248
- ---------------------------------------------------------------------------------------------------------------------
Fidelity Magellan Fund 91 111 140 244 21 66 113 244 * 66 113 244
- ---------------------------------------------------------------------------------------------------------------------
Fidelity Puritan Fund 92 111 141 245 22 66 114 245 * 66 114 245
- ---------------------------------------------------------------------------------------------------------------------
Fidelity VIP High Income 92 113 143 249 22 68 116 249 * 68 116 249
Portfolio
- ---------------------------------------------------------------------------------------------------------------------
Franklin Mutual Series Fund 96 123 161 285 26 78 134 285 * 78 134 285
Inc.- Mutual Shares Fund:
Class 1
- ---------------------------------------------------------------------------------------------------------------------
Janus Fund 94 117 151 265 24 72 124 265 * 72 124 265
- ---------------------------------------------------------------------------------------------------------------------
Janus Twenty Fund 94 119 154 271 24 74 127 271 * 74 127 271
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
IF YOU SURRENDER YOUR IF YOU DO NOT SURRENDER YOUR IF YOU ANNUITIZE YOUR
CONTRACT AT THE END OF THE CONTRACT AT THE END OF THE CONTRACT AT THE END OF THE
APPLICABLE TIME PERIOD APPLICABLE TIME PERIOD APPLICABLE TIME PERIOD
- ---------------------------------------------------------------------------------------------------------------------
1 3 5 10 1 3 5 10 1 3 5 10
YR. YRS. YRS. YRS. YR. YRS. YRS. YRS. YR. YRS. YRS. YRS.
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Janus Worldwide Fund 94 120 156 275 24 75 129 275 * 75 129 275
- ---------------------------------------------------------------------------------------------------------------------
MFS(R)World Governments Fund 99 134 178 319 29 89 151 319 * 89 151 319
- ---------------------------------------------------------------------------------------------------------------------
Nationwide(R)Bond Fund - Class D 93 115 147 258 23 70 120 258 * 70 120 258
- ---------------------------------------------------------------------------------------------------------------------
Nationwide(R)Fund - Class D 92 113 144 250 22 68 117 250 * 68 117 250
- ---------------------------------------------------------------------------------------------------------------------
Nationwide(R)Growth Fund - 93 115 147 257 23 70 120 257 * 70 120 257
Class D
- ---------------------------------------------------------------------------------------------------------------------
Nationwide(R)Money Market Fund 91 109 137 237 21 64 110 237 * 64 110 237
- ---------------------------------------------------------------------------------------------------------------------
Nationwide(R)Intermediate U.S. 93 115 147 258 23 70 120 258 * 70 120 258
Government Bond Fund - Class D
- ---------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Equity 98 130 171 306 28 85 144 306 * 85 144 306
Trust(R)- Neuberger & Berman
Genesis Trust
- ---------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Guardian 93 116 148 259 23 71 121 259 * 71 121 259
Fund, Inc.
- ---------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Limited 92 112 143 248 22 67 116 248 * 67 116 248
Maturity Bond Fund
- ---------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Partners 93 116 148 260 23 71 121 260 * 71 121 260
Fund, Inc.
- ---------------------------------------------------------------------------------------------------------------------
Oppenheimer Global Fund 96 126 165 293 26 81 138 293 * 81 138 293
- ---------------------------------------------------------------------------------------------------------------------
Phoenix Balanced Fund Series 95 121 157 278 25 76 130 278 * 76 130 278
- ---------------------------------------------------------------------------------------------------------------------
Strong Total Return Fund, Inc. 95 123 160 284 25 78 133 284 * 78 133 284
- ---------------------------------------------------------------------------------------------------------------------
Templeton Foreign Fund - Class 96 124 163 288 26 79 136 288 * 79 136 288
I
- ---------------------------------------------------------------------------------------------------------------------
Warburg Pincus Emerging Growth 97 128 169 302 27 83 142 302 * 83 142 302
Fund
- ---------------------------------------------------------------------------------------------------------------------
Warburg Pincus Global Fixed 94 120 156 275 24 75 129 275 * 75 129 275
Income Fund
- ---------------------------------------------------------------------------------------------------------------------
<FN>
*The Contracts sold under this prospectus do not permit Annuitization during the
first two Contract Years.
</TABLE>
The purpose of the Summary of Contract Expenses and Example is to assist the
Contract Owner in understanding the various costs and expenses that will be
borne directly or indirectly. The expenses of the Variable Account, as well as
those of the Underlying Mutual Funds, are reflected in the tables. For more
complete descriptions of the expenses of the Variable Account, see "Variable
Account Charges, Purchase Payments, and Other Deductions." For more complete
information regarding expenses paid out of the assets of a particular Underlying
Mutual Fund, see the prospectus for each Underlying Mutual Fund. Deductions for
premium taxes may also apply but are not reflected in the Example (see "Premium
Taxes").
11
<PAGE> 12
SUMMARY OF CONTRACT EXPENSES
(FOR CONTRACTS ISSUED PRIOR TO JANUARY 1, 1993)
<TABLE>
<CAPTION>
<S> <C>
CONTRACT TRANSACTION EXPENSES
Maximum Contingent Deferred Sales Charge(1)..............5.00%
MAXIMUM ANNUAL CONTRACT MAINTENANCE CHARGES(2).....................$30
VARIABLE ACCOUNT ANNUAL EXPENSES
Mortality and Expense Risk Charge........................1.30%
Total Variable Account Annual Expenses..........1.30%
</TABLE>
The purpose of the Summary of Contract Expenses and Example are to assist the
Contract Owner in understanding the various costs and expenses that will be
borne directly or indirectly. The expenses of the Variable Account as well as
those of the Underlying Mutual Fund Company are reflected in the table. For more
complete descriptions of the expenses of the Variable Account, see "Variable
Account Charges, Purchase Payments, and Other Deductions." For more complete
information regarding expenses paid out of the assets of a particular Underlying
Mutual Fund, see the Underlying Mutual Fund's prospectus. Deductions for premium
taxes may also apply but are not reflected in the Example shown below (see
"Premium Taxes").
UNDERLYING MUTUAL FUND ANNUAL EXPENSES(3)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
Management Other Total Portfolio
Fees Expenses 12b-1 Fees Expenses
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
American Century: Benham Short-Term Government 0.68% 0.00% 0.00% 0.68%
---------------------------------------------------------------------------------------------------------------------
American Century: Twentieth Century Growth 1.00% 0.00% 0.00% 1.00%
---------------------------------------------------------------------------------------------------------------------
Fidelity Capital & Income Fund 0.59% 0.26% 0.00% 0.85%
---------------------------------------------------------------------------------------------------------------------
Fidelity VIP High Income Portfolio 0.59% 0.12% 0.00% 0.71%
---------------------------------------------------------------------------------------------------------------------
MFS(R)World Governments Fund 0.75% 0.38% 0.25% 1.38%
---------------------------------------------------------------------------------------------------------------------
Nationwide(R)Bond Fund - Class D 0.50% 0.29% 0.00% 0.79%
---------------------------------------------------------------------------------------------------------------------
Nationwide(R)Fund - Class D 0.57% 0.15% 0.00% 0.72%
---------------------------------------------------------------------------------------------------------------------
Nationwide(R)Growth Fund - Class D 0.58% 0.20% 0.00% 0.78%
---------------------------------------------------------------------------------------------------------------------
Nationwide(R)Money Market 0.40% 0.20% 0.00% 0.60%
---------------------------------------------------------------------------------------------------------------------
<FN>
1 The Contract Owner may, after the first year from the date of any Purchase
Payment, withdraw 5% of that Purchase Payment without imposition of a CDSC.
2 The annual Contract Maintenance Charge is deducted on each Contract
Anniversary and in any year in which the entire Contract Value is
surrendered on the date of Surrender (see "Contract Maintenance and
Administration Charges").
3 The Mutual Fund expenses shown above are assessed at the Underlying Mutual
Fund level and are not direct charges against separate account assets or
reductions from Contract Values. These Underlying Mutual Fund expenses are
taken into consideration in computing each Underlying Mutual Fund's Net
Asset Value, which is the share price used to calculate the unit values of
the Variable Account. The information relating to the Underlying Mutual
Fund expenses was provided by the Underlying Mutual Fund and was not
independently verified by the Company.
</TABLE>
12
<PAGE> 13
EXAMPLE
(FOR CONTRACTS ISSUED PRIOR TO JANUARY 1, 1993)
The following chart depicts the dollar amount of expenses that would be incurred
under this Contract assuming a $1000 initial Purchase Payment and 5% annual
return. These dollar figures are illustrative only and should not be considered
a representation of past or future expenses. Actual expenses may be greater or
lesser than those shown below. The expense amounts presented are derived from a
formula which allows the $30 Contract Maintenance Charge to be expressed as a
percentage of the average contract account size for existing Contracts. Since
the average contract account size for Contracts issued under this prospectus is
greater than $1000, the expense effect of the Contract Maintenance Charge is
reduced accordingly.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
IF YOU SURRENDER YOUR IF YOU DO NOT SURRENDER YOUR IF YOU ANNUITIZE YOUR
CONTRACT AT THE END OF THE CONTRACT AT THE END OF THE CONTRACT AT THE END OF THE
APPLICABLE TIME PERIOD APPLICABLE TIME PERIOD APPLICABLE TIME PERIOD
- --------------------------------------------------------------------------------------------------------------
1 3 5 10 1 3 5 10 1 3 5 10
YR. YRS. YRS. YRS. YR. YRS. YRS. YRS. YR. YRS. YRS. YRS.
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
American Century: 75 122 171 280 25 77 131 280 * 77 131 280
Twentieth Century
Growth.
- --------------------------------------------------------------------------------------------------------------
American Century: 72 112 154 246 22 67 114 246 * 67 114 246
Benham Short-Term
Government
- --------------------------------------------------------------------------------------------------------------
Fidelity Capital & 73 117 163 264 23 72 123 264 * 72 123 264
Income Fund
- --------------------------------------------------------------------------------------------------------------
Fidelity VIP High 72 113 156 249 22 68 116 249 * 68 116 249
Income Portfolio
- --------------------------------------------------------------------------------------------------------------
MFS(R)World 79 134 191 319 29 89 151 319 * 89 151 319
Governments Fund
- --------------------------------------------------------------------------------------------------------------
Nationwide(R)Money 71 109 150 237 21 64 110 237 * 64 110 237
Market Fund
- --------------------------------------------------------------------------------------------------------------
Nationwide(R)Bond 73 115 160 258 23 70 120 258 * 70 120 258
Fund - Class D
- --------------------------------------------------------------------------------------------------------------
Nationwide(R)Fund - 72 113 157 250 22 68 117 250 * 68 117 250
Class D
- --------------------------------------------------------------------------------------------------------------
Nationwide(R)Growth 73 115 160 257 23 70 120 257 * 70 120 257
Fund - Class D
- --------------------------------------------------------------------------------------------------------------
<FN>
*The Contracts sold under this prospectus do not permit Annuitization during the
first two Contract Years.
</TABLE>
13
<PAGE> 14
SYNOPSIS
The Company does not deduct a sales charge from Purchase Payments made for these
Contracts. However, if any part of the Contract Value is surrendered, the
Company will, with certain exceptions, deduct a Contingent Deferred Sales Charge
("CDSC") not to exceed 7% of the lesser of the total of all Purchase Payments
made within 84 months prior to the date of the request to surrender, or the
amount surrendered. For Contracts issued before January 1, 1993, the Company
will deduct a CDSC not to exceed 5% of the lesser of the total of all Purchase
Payments made within 96 months prior to the date of the request to surrender, or
the amount surrendered. This charge, when applicable, is imposed to permit the
Company to recover sales expenses which have been advanced by the Company (see
"Contingent Deferred Sales Charge").
On each Contract Anniversary, the Company will deduct a Contract Maintenance
Charge of $30 from the Contract Value. For Contracts issued on or after January
1, 1993, the Company will assess an Administration Charge equal to an annual
rate of 0.05% of the daily net assets of the Variable Account. These charges are
to reimburse the Company for administrative expenses related to the issuance and
maintenance of the Contracts (see "Contract Maintenance Charge" and
"Administration Charge").
The Company deducts a Mortality Risk Charge equal to an annual rate of 0.80% of
the daily net assets of the Variable Account for mortality risk assumed by the
Company (see "Mortality Risk Charge").
The Company deducts an Expense Risk Charge equal to an annual rate of 0.45%
(0.50% for Contracts issued prior to January 1, 1993) of the daily net assets of
the Variable Account as compensation for the Company's risk in undertaking not
to increase administrative charges on the Contracts regardless of the actual
administrative costs (see "Expense Risk Charge").
The cumulative total of all purchase payments under contracts issued by the
Company on the life of any one Annuitant may not exceed $1,000,000 without the
prior consent of the Company (see "Allocations of Purchase Payments and Contract
Value").
If the Contract Value at the Annuitization Date is less than $500, the Contract
Value may be distributed in one lump sum in lieu of annuity payments. If any
annuity payment would be less than $20, the Company will have the right to
change the frequency of payments to such intervals as will result in payments of
at least $20. In no event, however, will annuity payments be made less
frequently than annually (see "Frequency and Amount of Annuity Payments").
Taxation of the Contract will depend on the type of Contract issued (see
"Taxes"). Premium taxes payable to any governmental entity will be charged
against the Contracts. If any such premium taxes are payable by the Company at
the time Purchase Payments are made, an equal premium tax deduction may be made
from the Contract prior to the allocation of any Purchase Payment to any
Underlying Mutual Fund option (see "Premium Taxes").
The Contract Owner has a ten day free look to examine the Contract. Within ten
days of the date the Contract is received, it may be returned for any reason to
the Home Office at the address shown on page 1 of this prospectus. If the
Contract is returned to the Company in a timely manner, the Company will void
the Contract and refund the Contract Value in full unless otherwise required by
law. State and/or federal law may provide additional free look privileges. All
IRA, Roth IRA and SEP IRA refunds will be return of Purchase Payments (see
"Right to Revoke").
14
<PAGE> 15
CONDENSED FINANCIAL INFORMATION
Accumulation Unit Values for an Accumulation Unit outstanding throughout the
period
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION PERCENT NUMBER OF
UNIT VALUE UNIT VALUE CHANGE IN ACCUMULATION
AT BEGINNING AT END ACCUMULATION UNITS AT END
FUND OF PERIOD OF PERIOD UNIT VALUE OF THE PERIOD YEAR
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
American Century: Benham 21.012508 21.986961 4.64% 138,808 1997
-------------------------------------------------------------------------------------------
Short-Term Government 20.449954 21.012508 2.75% 157,941 1996
-------------------------------------------------------------------------------------------
18.748399 20.449954 9.08% 216,620 1995
-------------------------------------------------------------------------------------------
19.087872 18.748399 -1.78% 183,649 1994
-------------------------------------------------------------------------------------------
18.563845 19.087872 2.82% 182,484 1993
-------------------------------------------------------------------------------------------
18.018283 18.563845 3.03% 177,970 1992
-------------------------------------------------------------------------------------------
16.352445 18.018283 10.19% 191,264 1991
-------------------------------------------------------------------------------------------
15.400806 16.352445 6.18% 188,328 1990
-------------------------------------------------------------------------------------------
14.188398 15.400806 8.55% 224,117 1989
-------------------------------------------------------------------------------------------
13.608723 14.188398 4.26% 252,401 1988
- ----------------------------------------------------------------------------------------------------------------------
American Century: Income 10.551440 14.002308 32.71% 135,424 1997
-------------------------------------------------------------------------------------------
& Growth 10.000000 10.551440 5.51% 18,133 1996
- ----------------------------------------------------------------------------------------------------------------------
American Century: 51.389039 65.572069 27.60% 158,492 1997
-------------------------------------------------------------------------------------------
Twentieth Century Growth 45.274141 51.389039 13.51% 186,518 1996
-------------------------------------------------------------------------------------------
38.113717 45.274141 18.79% 231,124 1995
-------------------------------------------------------------------------------------------
39.197771 38.113717 -2.77% 324,141 1994
-------------------------------------------------------------------------------------------
38.275689 39.197771 2.41% 335,369 1993
-------------------------------------------------------------------------------------------
40.518750 38.275689 -5.54% 404,811 1992
-------------------------------------------------------------------------------------------
24.287059 40.518750 66.83% 410,440 1991
-------------------------------------------------------------------------------------------
25.592676 24.287059 -5.10% 401,940 1990
-------------------------------------------------------------------------------------------
18.114515 25.592676 41.28% 428,017 1989
-------------------------------------------------------------------------------------------
17.866465 18.114515 1.39% 470,808 1988
- ----------------------------------------------------------------------------------------------------------------------
American Century: 13.268469 15.678789 18.17% 31,799 1997
-------------------------------------------------------------------------------------------
Twentieth Century 11.748911 13.268469 12.93% 7,683 1996
-------------------------------------------------------------------------------------------
International Growth 10.000000 11.748911 17.49% 25,477 1995
- ----------------------------------------------------------------------------------------------------------------------
American Century: 13.807925 16.780808 21.53% 660,821 1997
-------------------------------------------------------------------------------------------
Twentieth Century Ultra 12.289075 13.807925 12.36% 530,842 1996
-------------------------------------------------------------------------------------------
9.043121 12.289075 35.89% 266,570 1995
-------------------------------------------------------------------------------------------
9.505758 9.043121 -4.87% 116,020 1994
-------------------------------------------------------------------------------------------
10.000000 9.505758 -4.94% 2,713 1993
- ----------------------------------------------------------------------------------------------------------------------
Delchester Fund Inst'l 13.618147 15.348845 12.71% 87,319 1997
-------------------------------------------------------------------------------------------
12.257125 13.618147 11.10% 70,363 1996
-------------------------------------------------------------------------------------------
10.867271 12.257125 12.79% 65,214 1995
-------------------------------------------------------------------------------------------
11.511092 10.867271 -5.59% 43,997 1994
-------------------------------------------------------------------------------------------
10.000000 11.511092 15.11% 15,953 1993
- ----------------------------------------------------------------------------------------------------------------------
Dreyfus A Bonds Plus, Inc. 10.958199 11.848519 8.12% 156,006 1997
-------------------------------------------------------------------------------------------
10.819193 10.958199 1.28% 169,248 1996
-------------------------------------------------------------------------------------------
9.110600 10.819193 18.75% 53,005 1995
-------------------------------------------------------------------------------------------
10.000000 9.110600 -8.89% 15,283 1994
- ----------------------------------------------------------------------------------------------------------------------
Dreyfus S & P 500 Index 17.509385 22.921661 30.91% 332,923 1997
-------------------------------------------------------------------------------------------
Fund 14.505515 17.509385 20.71% 187,389 1996
-------------------------------------------------------------------------------------------
10.749166 14.505515 34.95% 33,323 1995
-------------------------------------------------------------------------------------------
10.819026 10.749166 -0.65% 12,668 1994
-------------------------------------------------------------------------------------------
10.000000 10.819026 8.19% 585 1993
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE> 16
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION PERCENT NUMBER OF
UNIT VALUE UNIT VALUE CHANGE IN ACCUMULATION
AT BEGINNING AT END ACCUMULATION UNITS AT END
FUND OF PERIOD OF PERIOD UNIT VALUE OF THE PERIOD YEAR
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
The Dreyfus Third Century 15.742432 20.101260 27.69% 35,892 1997
-------------------------------------------------------------------------------------------
Fund, Inc. 12.829548 15.742432 22.70% 21,194 1996
-------------------------------------------------------------------------------------------
9.570659 12.829548 34.05% 12,292 1995
-------------------------------------------------------------------------------------------
10.477293 9.570659 -8.65% 7,325 1994
-------------------------------------------------------------------------------------------
10.000000 10.477293 4.77% 2,583 1993
- ----------------------------------------------------------------------------------------------------------------------
Evergreen Income and 14.032960 17.394044 23.95% 63,791 1997
-------------------------------------------------------------------------------------------
Growth Fund (formerly 12.594984 14.032960 11.42% 65,357 1996
-------------------------------------------------------------------------------------------
Evergreen Total Return 10.301799 12.594984 22.26% 60,789 1995
-------------------------------------------------------------------------------------------
Fund) 11.153183 10.301799 -7.63% 51,305 1994
-------------------------------------------------------------------------------------------
10.000000 11.153183 11.53% 32,321 1993
- ----------------------------------------------------------------------------------------------------------------------
Federated Bond Fund 10.117861 11.076983 9.48% 33,538 1997
-------------------------------------------------------------------------------------------
10.000000 10.117861 1.18% 9,873 1996
- ----------------------------------------------------------------------------------------------------------------------
Fidelity Advisor Balanced 10.890814 13.150098 20.74% 13,345 1997
-------------------------------------------------------------------------------------------
Fund - Class T 10.177458 10.890814 7.01% 2,740 1996
-------------------------------------------------------------------------------------------
10.000000 10.177458 1.77% 0 1995
- ----------------------------------------------------------------------------------------------------------------------
Fidelity Advisor Equity 11.552736 14.355400 24.26% 84,318 1997
-------------------------------------------------------------------------------------------
Income Fund - Class T 10.213719 11.552736 13.11% 59,163 1996
-------------------------------------------------------------------------------------------
10.000000 10.213719 2.14% 0 1995
- ----------------------------------------------------------------------------------------------------------------------
Fidelity Advisor Growth 11.997760 15.224094 26.89% 315,184 1997
-------------------------------------------------------------------------------------------
Opportunities Fund - 10.325686 11.997760 16.19% 177,245 1996
-------------------------------------------------------------------------------------------
Class - T 10.000000 10.325686 3.26% 0 1995
- ----------------------------------------------------------------------------------------------------------------------
Fidelity Advisor High 11.241941 12.767617 13.57% 195,236 1997
Yield
-------------------------------------------------------------------------------------------
Fund - Class T 10.057673 11.241941 11.77% 70,939 1996
-------------------------------------------------------------------------------------------
10.000000 10.057673 0.58% 0 1995
- ----------------------------------------------------------------------------------------------------------------------
Fidelity Asset Manager 12.442308 15.016191 20.57% 244,272 1997
-------------------------------------------------------------------------------------------
11.183603 12.442308 11.25% 244,667 1996
-------------------------------------------------------------------------------------------
9.589367 11.183603 16.63% 198,546 1995
-------------------------------------------------------------------------------------------
10.415849 9.589367 -7.93% 150,536 1994
-------------------------------------------------------------------------------------------
10.000000 10.415849 4.16% 3,292 1993
- ----------------------------------------------------------------------------------------------------------------------
Fidelity Capital & Income 41.287772 46.743425 13.21% 27,378 1997
-------------------------------------------------------------------------------------------
Fund 37.550944 41.287772 9.95% 29,770 1996
-------------------------------------------------------------------------------------------
32.589111 37.550944 15.23% 37,608 1995
-------------------------------------------------------------------------------------------
34.612981 32.589111 -5.85% 47,236 1994
-------------------------------------------------------------------------------------------
28.076548 34.612981 23.28% 59,521 1993
-------------------------------------------------------------------------------------------
22.214568 28.076548 26.39% 67,342 1992
-------------------------------------------------------------------------------------------
17.337275 22.214568 28.13% 73,366 1991
-------------------------------------------------------------------------------------------
18.269034 17.337275 -5.10% 100,081 1990
-------------------------------------------------------------------------------------------
19.118217 18.269034 -4.44% 181,935 1989
-------------------------------------------------------------------------------------------
17.209582 19.118217 11.09% 209,084 1988
- ----------------------------------------------------------------------------------------------------------------------
Fidelity Equity - Income 55.285184 70.928467 28.30% 245,733 1997
-------------------------------------------------------------------------------------------
Fund 46.285491 55.285184 19.44% 257,747 1996
-------------------------------------------------------------------------------------------
35.576037 46.285491 30.10% 263,736 1995
-------------------------------------------------------------------------------------------
35.955883 35.576037 -1.06% 306,544 1994
-------------------------------------------------------------------------------------------
30.029661 35.955883 19.73% 305,774 1993
-------------------------------------------------------------------------------------------
26.531856 30.029661 13.18% 285,928 1992
-------------------------------------------------------------------------------------------
20.772673 26.531856 27.72% 294,858 1991
-------------------------------------------------------------------------------------------
24.479712 20.772673 -15.14% 330,860 1990
-------------------------------------------------------------------------------------------
20.898784 24.479712 17.13% 408,022 1989
-------------------------------------------------------------------------------------------
17.285651 20.898784 20.90% 399,082 1988
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 17
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION PERCENT NUMBER OF
UNIT VALUE UNIT VALUE CHANGE IN ACCUMULATION
AT BEGINNING AT END ACCUMULATION UNITS AT END
FUND OF PERIOD OF PERIOD UNIT VALUE OF THE PERIOD YEAR
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fidelity Magellan(R) Fund 17.810611 22.253917 24.95% 655,202 1997
-------------------------------------------------------------------------------------------
16.158074 17.810611 10.23% 6,562 1996
-------------------------------------------------------------------------------------------
11.964387 16.158074 35.05% 63,859 1995
-------------------------------------------------------------------------------------------
12.346838 11.964387 -3.10% 07,064 1994
-------------------------------------------------------------------------------------------
10.000000 12.346838 23.47% 9,100 1993
- ----------------------------------------------------------------------------------------------------------------------
Fidelity Puritan Fund 16.377974 19.778111 20.76% 99,590 1997
-------------------------------------------------------------------------------------------
14.410892 16.377974 13.65% 75,617 1996
-------------------------------------------------------------------------------------------
12.020413 14.410892 19.89% 01,466 1995
-------------------------------------------------------------------------------------------
11.972512 12.020413 0.40% 61,179 1994
-------------------------------------------------------------------------------------------
10.000000 11.972512 19.73% 4,320 1993
- ----------------------------------------------------------------------------------------------------------------------
Fidelity VIP High 21.793257 25.310146 16.14% 0,793 1997
-------------------------------------------------------------------------------------------
Income Portfolio 19.364421 21.793257 12.54% 2,382 1996
-------------------------------------------------------------------------------------------
16.267014 19.364421 19.04% 2,970 1995
-------------------------------------------------------------------------------------------
16.739460 16.267014 -2.82% 4,151 1994
-------------------------------------------------------------------------------------------
14.073333 16.739460 18.94% 2,931 1993
-------------------------------------------------------------------------------------------
11.587552 14.073333 21.45% 2,842 1992
-------------------------------------------------------------------------------------------
10.000000 11.587552 15.88% 0,365 1991
- ----------------------------------------------------------------------------------------------------------------------
Janus Fund 12.087447 14.640570 21.12% 35,485 1997
-------------------------------------------------------------------------------------------
10.239338 12.087447 18.05% 33,123 1996
-------------------------------------------------------------------------------------------
10.000000 10.239338 2.39% 0 1995
- ----------------------------------------------------------------------------------------------------------------------
Janus Twenty Fund 14.762398 18.897600 28.01% 12,701 1997
-------------------------------------------------------------------------------------------
11.699046 14.762398 26.18% 30,288 1996
-------------------------------------------------------------------------------------------
8.701036 11.699046 34.46% 6,594 1995
-------------------------------------------------------------------------------------------
9.451097 8.701036 -7.94% 6,135 1994
-------------------------------------------------------------------------------------------
10.000000 9.451097 -5.49% 1,020 1993
- ----------------------------------------------------------------------------------------------------------------------
Janus Worldwide Fund 10.317427 12.268712 18.91% 23,968 1997
-------------------------------------------------------------------------------------------
10.000000 10.317427 3.17% 5,099 1996
- ----------------------------------------------------------------------------------------------------------------------
MFS(R) World 36.879814 36.509244 -1.00% 0,631 1997
-------------------------------------------------------------------------------------------
Governments Fund 35.454983 36.879814 4.02% 8,013 1996
-------------------------------------------------------------------------------------------
31.104159 35.454983 13.99% 4,015 1995
-------------------------------------------------------------------------------------------
33.728667 31.104159 -7.78% 9,642 1994
-------------------------------------------------------------------------------------------
28.864451 33.728667 16.85% 5,016 1993
-------------------------------------------------------------------------------------------
28.856612 28.864451 0.03% 48,580 1992
-------------------------------------------------------------------------------------------
25.777493 28.856612 11.94% 39,397 1991
-------------------------------------------------------------------------------------------
22.152081 25.777493 16.37% 44,525 1990
-------------------------------------------------------------------------------------------
20.902197 22.152081 5.98% 44,572 1989
-------------------------------------------------------------------------------------------
20.287562 20.902197 3.03% 54,351 1988
- ----------------------------------------------------------------------------------------------------------------------
Nationwide(R) Bond Fund 37.842928 40.827520 7.89% 41,735 1997
-------------------------------------------------------------------------------------------
37.782872 37.842928 0.16% 42,476 1996
-------------------------------------------------------------------------------------------
30.832258 37.782872 22.54% 38,843 1995
-------------------------------------------------------------------------------------------
33.991130 30.832258 -9.29% 35,282 1994
-------------------------------------------------------------------------------------------
31.104546 33.991130 9.28% 35,392 1993
-------------------------------------------------------------------------------------------
29.186916 31.104546 6.57% 21,409 1992
-------------------------------------------------------------------------------------------
25.300143 29.186916 15.36% 18,724 1991
-------------------------------------------------------------------------------------------
23.686756 25.300143 6.81% 16,600 1990
-------------------------------------------------------------------------------------------
21.674206 23.686756 9.29% 20,519 1989
-------------------------------------------------------------------------------------------
20.301575 21.674206 6.76% 21,508 1988
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 18
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION PERCENT NUMBER OF
UNIT VALUE UNIT VALUE CHANGE IN ACCUMULATION
AT BEGINNING AT END ACCUMULATION UNITS AT END
FUND OF PERIOD OF PERIOD UNIT VALUE OF THE PERIOD YEAR
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nationwide(R) Fund 70.764576 97.524886 37.82% 45,672 1997
-------------------------------------------------------------------------------------------
57.857937 70.764576 22.31% 34,681 1996
-------------------------------------------------------------------------------------------
45.095466 57.857937 28.30% 30,473 1995
-------------------------------------------------------------------------------------------
45.422888 45.095466 -0.72% 32,311 1994
-------------------------------------------------------------------------------------------
43.104048 45.422888 5.38% 32,770 1993
-------------------------------------------------------------------------------------------
42.418147 43.104048 1.62% 30,648 1992
-------------------------------------------------------------------------------------------
33.001868 42.418147 28.53% 28,864 1991
-------------------------------------------------------------------------------------------
33.337339 33.001868 -1.01% 27,869 1990
-------------------------------------------------------------------------------------------
25.242361 33.337339 32.07% 26,210 1989
-------------------------------------------------------------------------------------------
21.904484 25.242361 15.24% 34,078 1988
- ----------------------------------------------------------------------------------------------------------------------
Nationwide(R) Growth 75.405663 93.947252 24.59% 46,513 1997
-------------------------------------------------------------------------------------------
Fund 65.471148 75.405663 15.17% 48,441 1996
-------------------------------------------------------------------------------------------
51.535806 65.471148 27.04% 48,841 1995
-------------------------------------------------------------------------------------------
51.458079 51.535806 0.15% 48,009 1994
-------------------------------------------------------------------------------------------
46.832151 51.458079 9.88% 48,190 1993
-------------------------------------------------------------------------------------------
44.639577 46.832151 4.91% 48,853 1992
-------------------------------------------------------------------------------------------
33.241418 44.639577 34.29% 42,168 1991
-------------------------------------------------------------------------------------------
36.439953 33.241418 -8.78% 43,789 1990
-------------------------------------------------------------------------------------------
32.118373 36.439953 13.46% 53,223 1989
-------------------------------------------------------------------------------------------
26.557068 32.118373 20.94% 58,604 1988
- ----------------------------------------------------------------------------------------------------------------------
Nationwide(R) Money 19.580907 20.316392 3.76% 325,458 1997
-------------------------------------------------------------------------------------------
Market Fund 18.898613 19.580907 3.61% 327,248 1996
-------------------------------------------------------------------------------------------
18.146709 18.898613 4.14% 424,693 1995
-------------------------------------------------------------------------------------------
17.721943 18.146709 2.40% 326,464 1994
-------------------------------------------------------------------------------------------
17.504831 17.721943 1.24% 294,859 1993
-------------------------------------------------------------------------------------------
17.183173 17.504831 1.87% 303,845 1992
-------------------------------------------------------------------------------------------
16.480790 17.183173 4.26% 450,748 1991
-------------------------------------------------------------------------------------------
15.478296 16.480790 6.48% 548,549 1990
-------------------------------------------------------------------------------------------
14.401492 15.478296 7.48% 568,349 1989
-------------------------------------------------------------------------------------------
13.622887 14.401492 5.72% 731,284 1988
- ----------------------------------------------------------------------------------------------------------------------
Nationwide(R) U.S. 10.324818 11.156351 8.05% 6,737 1997
-------------------------------------------------------------------------------------------
Government Income Fund 10.124709 10.324818 1.98% 6,372 1996
-------------------------------------------------------------------------------------------
10.000000 10.124709 1.25% 0 1995
- ----------------------------------------------------------------------------------------------------------------------
Neuberger & Berman 14.625126 17.024633 16.41% 448,443 1997
-------------------------------------------------------------------------------------------
Guardian Fund 12.571028 14.625126 16.34% 357,346 1996
-------------------------------------------------------------------------------------------
9.640402 12.571028 30.40% 139,046 1995
-------------------------------------------------------------------------------------------
10.000000 9.640402 -3.60% 25,549 1994
- ----------------------------------------------------------------------------------------------------------------------
Neuberger & Berman 11.068501 11.672986 5.46% 67,262 1997
-------------------------------------------------------------------------------------------
Limited Maturity Bond 10.735070 11.068501 3.11% 74,163 1996
-------------------------------------------------------------------------------------------
Fund 9.833352 10.735070 9.17% 91,976 1995
-------------------------------------------------------------------------------------------
9.995028 9.833352 -1.62% 89,231 1994
-------------------------------------------------------------------------------------------
10.000000 9.995028 -0.05% 423 1993
- ----------------------------------------------------------------------------------------------------------------------
Neuberger & Berman 18.631249 23.764888 27.55% 312,513 1997
-------------------------------------------------------------------------------------------
Partners Fund 14.924653 18.631249 24.84% 222,551 1996
-------------------------------------------------------------------------------------------
11.183371 14.924653 33.45% 73,504 1995
-------------------------------------------------------------------------------------------
11.548721 11.183371 -3.16% 38,329 1994
-------------------------------------------------------------------------------------------
10.000000 11.548721 15.49% 9,926 1993
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 19
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION PERCENT NUMBER OF
UNIT VALUE UNIT VALUE CHANGE IN ACCUMULATION
AT BEGINNING AT END ACCUMULATION UNITS AT END
FUND OF PERIOD OF PERIOD UNIT VALUE OF THE PERIOD YEAR
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Oppenheimer Global Fund 18.022572 21.669822 20.24% 262,844 1997
-------------------------------------------------------------------------------------------
15.538850 18.022572 15.98% 228,413 1996
-------------------------------------------------------------------------------------------
13.503390 15.538850 15.07% 160,871 1995
-------------------------------------------------------------------------------------------
14.119303 13.503390 -4.36% 87,590 1994
-------------------------------------------------------------------------------------------
10.000000 14.119303 41.19% 5,128 1993
- ----------------------------------------------------------------------------------------------------------------------
Phoenix Balanced Fund 12.187868 14.235004 16.80% 46,629 1997
-------------------------------------------------------------------------------------------
Series 11.373217 12.187868 7.16% 43,659 1996
-------------------------------------------------------------------------------------------
9.338434 11.373217 21.79% 23,786 1995
-------------------------------------------------------------------------------------------
10.000000 9.338434 -6.62% 9,028 1994
- ----------------------------------------------------------------------------------------------------------------------
Strong Total Return 16.766964 20.549313 22.56% 78,495 1997
-------------------------------------------------------------------------------------------
Fund, Inc. 14.893186 16.766964 12.58% 63,801 1996
-------------------------------------------------------------------------------------------
11.881033 14.893186 25.35% 41,291 1995
-------------------------------------------------------------------------------------------
12.205201 11.881033 -2.66% 19,727 1994
-------------------------------------------------------------------------------------------
10.000000 12.205201 22.05% 3,939 1993
- ----------------------------------------------------------------------------------------------------------------------
Templeton Foreign 12.923758 13.604014 5.26% 354,769 1997
-------------------------------------------------------------------------------------------
Fund - Class I 11.097523 12.923758 16.46% 266,477 1996
-------------------------------------------------------------------------------------------
10.000000 11.097523 10.98% 69,083 1995
- ----------------------------------------------------------------------------------------------------------------------
Warburg Pincus Emerging 11.814248 14.140391 19.69% 316,835 1997
-------------------------------------------------------------------------------------------
Growth Fund 10.895016 11.814248 8.44% 250,912 1996
-------------------------------------------------------------------------------------------
10.000000 10.895016 8.95% 0 1995
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Accumulation Unit value information is not provided for the following funds:
Dreyfus Appreciation Fund, Inc., Dreyfus Balanced Fund, Inc., Federated High
Yield Trust, Franklin Mutual Series Fund Inc. - Mutual Shares Fund: Class 1,
Neuberger & Berman Equity Trust(R) - Neuberger & Berman Genesis Trust, Warburg
Pincus Global Fixed Income Fund. These Underlying Mutual Funds were added to the
Variable Account effective January 2, 1998, and therefore have no unit value
histories prior to that time.
NATIONWIDE LIFE INSURANCE COMPANY
The Company is a stock life insurance company organized under the laws of the
state of Ohio in March 1929. The Company is a member of the Nationwide Insurance
Enterprise, with its Home Office at One Nationwide Plaza, Columbus, Ohio 43215.
The Company is a leading provider of life insurance, annuities, and retirement
products. It is admitted to do business in all states, the District of Columbia,
and Puerto Rico. The Contracts are distributed by the General Distributor,
Nationwide Advisory Services, Inc.
The Company is ranked and rated by independent financial rating services, among
which are Moody's, Standard and Poor's, and A.M. Best Company. The purpose of
these ratings is to reflect the financial strength or claims-paying ability of
the Company. The ratings are not intended to reflect the investment experience
or financial strength of the Variable Account. The Company may advertise these
ratings in sales literature from time to time.
NATIONWIDE ADVISORY SERVICES, INC.
The Contracts are distributed by the General Distributor, Nationwide Advisory
Services, Inc. ("NAS"), Three Nationwide Plaza, Columbus, Ohio 43215. NAS is a
wholly-owned subsidiary of Nationwide Life Insurance Company.
19
<PAGE> 20
THE VARIABLE ACCOUNT
The Variable Account was established by the Company on March 3, 1976, pursuant
to the provisions of Ohio law. The Company has caused the Variable Account to be
registered with the SEC as a unit investment trust pursuant to the provisions of
the Investment Company Act of 1940 ("1940 Act"). Such registration does not
involve supervision of the management of the Variable Account or the Company by
the SEC.
The Variable Account is a separate investment account of the Company and as
such, is not chargeable with liabilities arising out of any other business the
Company may conduct. The Company does not guarantee the investment performance
of the Variable Account. Obligations under the Contracts, however, are
obligations of the Company. Income, gains, and losses, whether or not realized,
from the assets of the Variable Account are, in accordance with the Contracts,
credited to or charged against the Variable Account without regard to other
income, gains, or losses of the Company.
Purchase Payments are allocated within the Variable Account among one or more
Sub-Accounts made up of shares in the Underlying Mutual Fund option(s).
Currently (and at all times after January 1, 1993), the Contracts are issued to
Individual Retirement Account custodians for the benefit of Individual
Retirement Account holders.
UNDERLYING MUTUAL FUND OPTIONS
Contract Owners (or Annuitants, if Annuitants have been authorized to exercise
ownership rights under the Contract) may choose from among a number of different
Underlying Mutual Fund options (see Appendix B which contains a summary of
investment objectives for each Underlying Mutual Fund option). More detailed
information may be found in the current prospectus for each Underlying Mutual
Fund option offered. Such a prospectus for the Underlying Mutual Fund option(s)
being considered must accompany this prospectus and should be read in
conjunction herewith. A copy of each prospectus may be obtained without charge
from Nationwide Life Insurance Company by calling 1-800-848-6331, TDD
1-800-238-3035 or writing P.O. Box 16609, Columbus, Ohio 43216-6609.
The Underlying Mutual Fund options may also be available to registered separate
accounts offering variable annuity and variable life products of other
participating insurance companies, as well as to the Variable Account and other
separate accounts of the Company. Although the Company does not anticipate any
disadvantages to this, there is a possibility that a material conflict may arise
between the interest of the Variable Account and one or more of the other
separate accounts participating in the Underlying Mutual Funds. A conflict may
occur due to a number of reasons, including a change in law affecting the
operations of variable life and variable annuity separate accounts or
differences in the voting instructions of the Contract Owners and those of other
companies. In the event of conflict, the Company will take any steps necessary
to protect Contract Owners and variable annuity payees, including withdrawal of
the Variable Account from participation in the Underlying Mutual Fund(s)
involved in the conflict.
For Contracts issued after January 1, 1993, the Underlying Mutual Fund options
offered are also available to the general public. (Based on the Company's
marketing plan for the Contracts, the Company does not anticipate any
disadvantages to this.) There is, however, a possibility that a material
conflict may arise between those with interests in the Contracts, the Variable
Account and the various individuals and entities holding shares of the Funds. A
conflict may occur due to a number of reasons, including a change in law
affecting the operations of variable annuity separate accounts or differences in
the voting instructions of the Owners and others maintaining a voting interest
in the Underlying Mutual Funds. In the event of conflict, the Company will take
any steps necessary to protect those with interests in the Contracts.
VOTING RIGHTS
Voting rights under the Contracts apply ONLY with respect to Purchase Payments
or accumulated amounts allocated to the Variable Account.
In accordance with its view of applicable law, the Company will vote the shares
of the Underlying Mutual Funds at regular and special meetings of the
shareholders. These shares will be voted in accordance with instructions
received from Contract Owners. If the 1940 Act or any regulation thereunder
should be amended, or if the present interpretation changes, whereby the Company
is permitted to vote the shares of the Underlying Mutual Funds in its own right,
it may elect to do so.
20
<PAGE> 21
The number of shares held in the Variable Account which are attributable to each
Contract Owner is determined by dividing the Contract Owner's interest in each
respective Sub-Account by the Net Asset Value of the Underlying Mutual Fund
corresponding to the Sub-Account. The number of shares which may be voted will
be determined as of a date chosen by the Company not more than 90 days prior to
the meeting of the Underlying Mutual Fund. Each person having a voting interest
in the Variable Account will receive periodic reports relating to the Underlying
Mutual Fund, proxy material and a form with which to give such voting
instructions. In those cases in which the Annuitant has been authorized to
exercise ownership rights, the Company will accept voting instructions from the
Annuitant and provide all necessary information to the Annuitant as if he or she
were the Contract Owner.
Voting instructions will be solicited by written communication at least 21 days
prior to such meeting. Underlying Mutual Fund shares to which no timely
instructions are received will be voted by the Company in the same proportion as
the voting instructions which are received with respect to all Contracts
participating in the Variable Account.
VARIABLE ACCOUNT CHARGES, PURCHASE PAYMENTS, AND OTHER DEDUCTIONS
MORTALITY RISK CHARGE
The Company deducts a Mortality Risk Charge from the Variable Account. This
amount is computed on a daily basis, and is equal to an annual rate of 0.80% of
the daily net assets of the Variable Account. By guaranteeing the Contract's
annuity rate, the Company assumes the Mortality Risk. These guarantees cannot
change regardless of the death rates of persons receiving annuity payments or of
the general population. The Company expects to generate a profit from this
charge.
EXPENSE RISK CHARGE
The Company deducts an Expense Risk Charge from the Variable Account. This
amount is computed on a daily basis, and is equal to an annual rate of 0.45%
(0.50% for Contracts issued prior to January 1, 1993) of the daily net assets of
the Variable Account. By guaranteeing the Contract's annuity rate, the Company
assumes the Expense Risk. These guarantees cannot change regardless of its
annual expenses. The Company expects to generate profit from this charge.
CONTINGENT DEFERRED SALES CHARGE ("CDSC")
No deduction for a sales charge is made from the Purchase Payments for this
Contract. However, if any part of the Contract Value of such Contracts is
surrendered, the Company will, with certain exceptions (see "Elimination of
CDSC"), deduct a CDSC. The CDSC will not exceed the lesser of:
(1) 7% of the amount surrendered; or
(2) 7% of the total of all Purchase Payments made within 84 months prior
to the date of the surrender request.
The Contingent Deferred Sales Charge, when it is applicable, will be used to
cover expenses relating to the sale of the Contract, including commissions paid
to sales personnel, the costs of preparation of sales literature and other
promotional activity. The Company attempts to recover its distribution costs
relating to the sale of the Contract from the CDSC. Any shortfall will be made
up from the General Account of the Company, which may indirectly include
portions of the Mortality Risk Charge and Expense Risk Charge since the Company
expects to generate a profit through these charges. Gross distribution
allowances which may be paid on the sale of these Contracts are not more than
5.25% of the Purchase Payments.
If part or all of the Contract Value is surrendered, a CDSC will be deducted by
the Company. For purposes of the CDSC, surrenders under a Contract come first
from the Purchase Payments which have been on deposit under the Contract for the
longest time period. (For tax purposes, a surrender is usually treated as a
withdrawal of earnings first.)
For Contracts issued on or after January 1, 1993, the CDSC will apply in the
amounts set forth below. In no event will any CDSC be made against any values
which have been held under the Contract for at least 84 months, or to
commencement of an annuity payout under Contracts which have been in effect for
at least two years or upon the death of the Annuitant.
21
<PAGE> 22
<TABLE>
<CAPTION>
NUMBER OF COMPLETED YEARS CONTINGENT DEFERRED SALES NUMBER OF COMPLETED YEARS CONTINGENT DEFERRED SALES
FROM DATE OF PURCHASE CHARGE PERCENTAGE FROM DATE OF PURCHASE CHARGE PERCENTAGE
PAYMENT PAYMENT
<S> <C> <C> <C>
0 7% 4 3%
1 6% 5 2%
2 5% 6 1%
3 4% 7 0%
</TABLE>
Starting with the second year after a Purchase Payment has been made under the
Contract, 10% of that Purchase Payment may be withdrawn each year without
imposition of the CDSC. This free withdrawal privilege is non-cumulative and
will not exceed 10% of the Purchase Payment in any year. The CDSC is waived:
(a) for first year withdrawals of up to 10% of Purchase Payments for
Individual Retirement Account rollover contracts; or
(b) for any amount withdrawn from this Contract in order to meet minimum
distribution requirements under the Code.
Withdrawals may be restricted for Contracts issued pursuant to the terms of a
Qualified Plan. No sales charges are deducted on redemption proceeds that are
transferred to the Fixed Account option of this annuity. The Contract Owner may
be subject to a tax penalty if withdrawals are taken prior to age 59 1/2.
For Contracts issued before January 1, 1993 a CDSC will be deducted by the
Company equal to 5% of the lesser of the total of all Purchase Payments made
within 96 months prior to the date of the request for surrender, or the amount
surrendered. In no event will any CDSC be made against any values which have
been held under the Contract for at least 96 months. Certain partial surrenders
may be requested for which no CDSC will be assessed. For any Purchase Payments
made, the Contract Owner (or Annuitant, if applicable) may, after the first year
from the date of each such Purchase Payment, withdraw without a CDSC, up to 5%
of that Purchase Payment for each year that the Purchase Payment has remained on
deposit (less the amount of such Purchase Payment previously surrendered free of
charge).
ELIMINATION OF CDSC
For Contracts sold pursuant to Qualified Plans established on or after January
1, 1993, as described in Section 401 of the Code, SEP-IRA Contracts sold on or
after January 1, 1993, and Roth IRAs, the Company will waive the CDSC when:
(1) the Plan Participant experiences a case of hardship (as defined for
purposes of Code Section 401(k));
(2) the Plan Participant becomes disabled (within the meaning of Code
Section 72(m)(7));
(3) the Plan Participant attains age 59 1/2 and has participated in the
Contract for at least 5 years, as determined from the Contract
Anniversary date;
(4) the Plan Participant has participated in the Contract for at least 15
years as determined from the Contract Anniversary date;
(5) the Plan Participant dies; or
(6) the Plan Participant annuitizes after 2 years in the Contract.
For Individual Retirement Accounts, the Company will waive the CDSC when:
(1) the Designated Annuitant dies; or
(2) the Contract Owner annuitizes after 2 years in the Contract.
When a Contract is exchanged for another contract issued by the Company or any
of its affiliate insurance companies, of the type and class which the Company
determined is eligible for such exchange, the Company will waive the Contingent
Deferred Sales Charge on the first Contract.
In no event will elimination of Contingent Deferred Sales Charges be permitted
where such elimination would be unfairly discriminatory to any person, or where
it is prohibited by law.
22
<PAGE> 23
CONTRACT MAINTENANCE CHARGE
Each year on the Contract Anniversary (and on the date of surrender in any year
in which the entire Contract Value is surrendered), the Company deducts a
Contract Maintenance Charge of $30 from the Contract Value to reimburse it for
the administrative expenses relating to the issuance and maintenance of the
Contract. For Contracts issued pursuant to Qualified Plans described in Section
401 of the Code, established on or after January 1, 1993 and SEP-IRA Contracts
established on or after January 1, 1993 and before August 1, 1994, the Contract
Maintenance Charge varies from $30 to $0. Underwriting considerations include
the size of the group, the average participant account balance transferred to
the Company, if any, and administrative savings. For Contracts issued to
Qualified Plans described in Section 401 of the Code and SEP-IRA Contracts
established on or after August 1, 1994, the Contract Maintenance Charge varies
from $12 to $0. Variances are based on internal underwriting guidelines. The
Contract Maintenance Charge will be allocated between the Fixed Account and
Variable Account in the same percentages as the purchase payment investment
allocations are to the Fixed Account and Variable Account.
ADMINISTRATION CHARGE
The Company deducts an Administration Charge from the Variable Account. This
amount is computed on a daily basis, and is equal to an annual rate of 0.05% of
the daily net assets of the Variable Account for Contracts issued after January
1, 1993. The Administration Charge is designed only to reimburse the Company for
administrative expenses. The Company will monitor this charge to ensure that it
does not exceed annual administration expenses.
PREMIUM TAXES
The Company will charge against the Contract Value the amount of any premium
taxes levied by a state or any other governmental entity upon Purchase Payments
received by the Company. Premium tax rates currently range from 0% to 3.5%. This
range is subject to change. The method used to recoup premium tax expense will
be determined by the Company at its sole discretion in compliance with state
law. The Company currently deducts such charges from the Contract Value either
at:
(1) the time the Contract is surrendered;
(2) Annuitization; or
(3) such earlier date as the Company may become subject to such taxes.
EXPENSES OF VARIABLE ACCOUNT
The Variable Account is responsible for the following charges:
(1) Administrative Charge associated with the issuance and maintenance of
the Contract;
(2) Mortality Risk Charge associated with guaranteeing the annuity
purchase rates at issue for the life of the Contract; and
(3) Expense Risk Charge associated with guaranteeing that the Mortality
Risk Charge, Expense Risk Charge, Contract Maintenance Charge and
Administration Charge will not be changed regardless of actual
expenses.
If these charges are insufficient to cover the actual expenses, the loss will be
borne by the Company.
All of the charges described in this section apply to Variable Account
allocations. Allocations to the Fixed Account are subject to CDSC and premium
tax deductions, if applicable, but are not subject to charges exclusive to the
Variable Account; e.g., the Mortality Risk Charge, the Expense Risk Charge, and
the Administration Charge.
INVESTMENTS OF THE VARIABLE ACCOUNT
The Contract Owner (or Annuitant, if applicable) may elect to have Purchase
Payments allocated among one or more of the Sub-Accounts. Shares of the
respective Underlying Mutual Fund option(s) specified are purchased at Net Asset
Value for the respective Sub-Account(s) and converted into Accumulation Units.
The Contract Owner (or Annuitant, if applicable) may change the allocation of
Purchase Payments or may exchange amounts among the Sub-Accounts. Such
transactions are subject to conditions imposed by the Underlying Mutual Funds,
as well as those set forth in the Contract.
23
<PAGE> 24
RIGHT TO REVOKE
Unless a longer period is required by state law, the Contract Owner (or
Annuitant, if so authorized) may revoke the Contract within 10 days of receipt
of the Contract and receive a refund of the Contract Value. In order to revoke,
the Contract must be mailed or delivered to the Home Office at the mailing
address shown on page 1 of this prospectus. Mailing or delivery must occur on or
before 10 days after receipt of the Contract for revocation to be effective. In
order to revoke the Contract, if it has not been received, written notice must
be mailed or delivered to the Home Office at the mailing address shown on page 1
of this prospectus.
The 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 the Company.
TRANSFERS
Up to 100% of the value of the Variable Account may be transferred to the Fixed
Account without penalty or adjustment. All amounts transferred to the Fixed
Account must remain on deposit in the Fixed Account until the expiration of the
Interest Rate Guarantee Period. Transfers from the Fixed Account may not be made
prior to the end of the then current Interest Rate Guarantee Period. The
Interest Rate Guarantee Period for any amount allocated to the Fixed Account
expires on the final day of a calendar quarter during which the one year
anniversary of the allocation to the Fixed Account occurs. For all transfers
involving the Variable Account, the Contract Owner's value in each Sub-Account
will be determined as of the date the transfer request is received in the Home
Office in good order. The Company reserves the right to restrict transfers from
the Variable Account to the Fixed Account to 25% of the Contract Value for any
12 month period. Once the Contract has been annuitized, transfers may only be
made on each anniversary of the Annuitization Date.
At the expiration of an Interest Rate Guarantee Period, a portion of the value
of the Fixed Account may be transferred to the Variable Account. The amount that
may be transferred from the Fixed Account to the Variable Account will be
determined by the Company, at its sole discretion, but will not be less than 10%
of the total value of the portion of the Fixed Account that is maturing. The
amount that may be transferred from the Fixed Account will be declared upon the
expiration date of the then current Interest Rate Guarantee Period. The specific
percentage will be declared upon the expiration date of the guaranteed period.
Transfers from the Fixed Account must be made within 45 days after the
expiration date of the guarantee period. If a Dollar Cost Averaging agreement
with the Company (see "Dollar Cost Averaging") has been established, transfers
from the Fixed Account to the Variable Account will be determined under the
terms of that agreement.
Transfers may be made either in writing or, in states allowing such transfers,
by telephone. This telephone exchange privilege is made available automatically
without the need of any affirmative election. The Company will employ reasonable
procedures to confirm that instructions communicated by telephone are genuine.
Such procedures may include the following: requesting identifying information,
such as name, contract number, Social Security Number, and/or personal
identification number; tape recording all telephone transactions and providing
written confirmation thereof to the person authorized to make exchanges and any
agent of record at the last address of record; or such other procedures as the
Company may deem reasonable. The Company will not be liable for following
instructions communicated by telephone which it reasonably believes to be
genuine. Losses incurred pursuant to actions taken by the Company in reliance on
telephone instructions reasonably believed to be genuine shall be borne by the
Contract Owner. The Company may withdraw the telephone exchange privilege upon
30 days written notice to Contract Owners.
LOAN PRIVILEGE
Loans are available only for Contracts issued on or before January 1, 1993.
Prior to the Annuitization Date, the Owner of a Qualified Contract may receive a
loan from their Contract Value, subject to the terms of the Contract, the Plan,
and the Code, which may impose restrictions on loans. Individual Retirement
Accounts, Roth IRAs and SEP-IRAs are not eligible for loans.
Loans from Qualified Contracts are available beginning 30 days after the Date of
Issue. The Contract Owner may borrow a minimum of $1,000, unless a lower minimum
amount is mandated by state law. In non-ERISA plans, for Contract Values up to
$20,000, the maximum loan balance which may be outstanding at any time is 80% of
the Contract Value, but not more than $10,000. If the Contract Value is $20,000
or more, the maximum loan balance which may be outstanding at any time is 50% of
the Contract Value, but not more than $50,000. For ERISA plans, the maximum loan
balance which may be outstanding at any time is 50% of the Contract Value, but
not more than $50,000. The $50,000 limit will be reduced by the highest loan
balances owed during the prior one-year period. Additional loans are subject to
the Contract minimum amount. The aggregate of all loans may not exceed the
Contract Value limitations stated above.
24
<PAGE> 25
All loans are made from a collateral fixed account. An amount equal to the
principal amount of the loan will be transferred to the collateral fixed
account. The Company will first transfer to the collateral fixed account the
Sub-Account's Accumulation Units in proportion to the assets in each option
until the required balance is reached or all such Accumulation Units are
exhausted. The remaining required collateral will be transferred from the Fixed
Account. No withdrawal charges are deducted at the time of the loan, or on the
transfer from the Variable Account to the collateral fixed account.
Until the loan has been repaid in full, that portion of the collateral fixed
account equal to the outstanding loan balance will be credited with interest at
a rate 2.25% less than the loan interest rate fixed by the Company for the term
of the loan. However, the interest rate credited to the collateral fixed account
will never be less than 3.0%. Specific loan terms are disclosed at the time of
loan application or loan issuance.
Loans must be repaid in substantially level payments, not less frequently than
quarterly, within five years. Loans used to purchase the principal residence of
the Contract Owner must be repaid within 15 years. During the loan term, the
outstanding balance of the loan will continue to earn interest at an annual rate
as specified in the loan agreement. Loan repayments will be processed in the
same manner as a Purchase Payment; they will be allocated among the Sub-Accounts
in accordance with the Contract, unless the Contract Owner and the Company agree
to amend the Contract at a later date on a case by case basis.
Distributions will be reduced by the amount of the loan outstanding, plus
accrued interest if:
(1) the Contract is surrendered;
(2) the Contract Owner/Annuitant dies; or
(3) the Contract Owner who is not the Annuitant dies prior to
Annuitization.
In addition, the Contract Value will be reduced by the amount of any outstanding
loans plus accrued interest if the annuity payments begin while the loan is
outstanding. Until the loan is repaid, the Company reserves the right to
restrict any transfer of the Contract which would otherwise qualify as a
transfer as permitted in the Code
If a loan payment is not made when due, interest will continue to accrue. A
grace period may be available under the terms of the loan agreement. If a loan
payment is not made when due, or by the end of the applicable grace period, the
entire loan will be treated as a deemed Distribution, will be taxable to the
borrower, and may be subject to the early withdrawal tax penalty. Interest will
continue to accrue on the loan after default. Any defaulted amounts, plus
accrued interest, will be deducted from the Contract when the participant
becomes eligible for a Distribution of at least that amount. Additional loans
may not be available while a previous loan remains in default.
Loans may also be subject to additional limitations or restrictions under the
terms of the employer's plan. Loans permitted under this Contract may still be
taxable in whole or part if the Participant has additional loans from other
plans or contracts. The Company will calculate the maximum nontaxable loan based
on the information provided by the Participant or the employer.
Loan repayments must be identified as such or else they will be treated as
Purchase Payments, and will not be used to reduce the outstanding loan principal
or interest due. The Company reserves the right to modify the loan's term or
procedures if there is a change in applicable law. The Company also reserves the
right to assess a loan processing fee.
BENEFICIARY
The Beneficiary is the person who may receive certain benefits under the
Contract in the event the Annuitant dies prior to the Annuitization Date. If
more than one Beneficiary survives the Annuitant, each will share equally unless
otherwise specified in the Beneficiary designation. If no Beneficiary survives
the Annuitant, all rights and interest of the Beneficiary will vest in the
Contingent Beneficiary. If more than one Contingent Beneficiary survives, each
will share equally unless otherwise specified in the Contingent Beneficiary
designation. If no Contingent Beneficiary survives the Annuitant, all rights and
interest of the Contingent Beneficiary will vest with the Contract Owner or the
estate of the last surviving Contract Owner.
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Subject to the terms of any existing assignment, the Contract Owner (or
Annuitant, if so authorized) may change the Beneficiary or the Contingent
Beneficiary during the lifetime of the Annuitant by written notice to the
Company. The change will take effect as of the time the written notice was
signed, whether or not the Annuitant is living at the time of recording, but
without further liability as to any payment or settlement made by the Company
before receipt of such change.
CONTRACT OWNERSHIP
Unless the Contract otherwise provides, the Contract Owner has all rights under
the Contract. Ownership rights may be exercised by the Annuitant if the Contract
Owner has authorized the Annuitant to exercise such rights. PURCHASERS NAMING
SOMEONE OTHER THAN THEMSELVES AS OWNER WILL HAVE NO RIGHTS UNDER THE CONTRACT.
If the Annuitant does not survive the Contract Owner or if the Annuitant and the
Owner are the same person, Contract ownership will be determined in accordance
with the "Death Of Annuitant Prior To The Annuitization Date" provision. After
the Annuitization Date, ownership will be determined based on the Annuity
Payment Option selected. Ownership rights under this Contract may be restricted
under the provisions of the retirement or deferred compensation plan under which
this Contract may be issued.
SUBSTITUTION OF SECURITIES
If the shares of the Underlying Mutual Fund options described in this prospectus
should no longer be available for investment by the Variable Account or, if in
the judgment of the Company's management, further investment in such Underlying
Mutual Fund shares should become inappropriate, the Company may substitute
shares of another Underlying Mutual Fund for shares already purchased or to be
purchased in the future by Purchase Payments under the Contract. No substitution
of securities in the Variable Account may take place without prior approval of
the SEC and under such requirements as it may impose.
INQUIRIES
Inquiries may be directed to 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.
ANNUITY PAYMENT PERIOD, DEATH BENEFIT AND OTHER DISTRIBUTIONS
ANNUITY COMMENCEMENT DATE
An Annuity Commencement Date will be selected. Such date will be the first day
of a calendar month unless otherwise agreed upon. The date must be at least 2
years after the Date of Issue. In the event the Contract is issued subject to
the terms of a Qualified Plan or Tax Sheltered Annuity Plan, Annuitization may
occur during the first 2 years subject to approval by the Company.
The Annuity Commencement Date may be changed by the Contract Owner in writing
subject to approval by the Company.
ANNUITIZATION
Annuitization is irrevocable once payments have begun. When making an
Annuitization election, the Annuitant must choose:
(1) an Annuity Payout Option; and
(2) either a Fixed Payment Annuity, a Variable Payment Annuity, or an
available combination.
If a Variable Payment Annuity is elected, all amounts in the Fixed Account must
be transferred to the Sub-Accounts prior to the Annuitization Date.
Payments under a Fixed Payment Annuity are guaranteed by the Company as to the
dollar amount during the annuity payment period. The dollar amount of each
payment under a Variable Payment Annuity will vary depending on the performance
of the selected Underlying Mutual Fund options. The dollar amount of each
variable payment could be higher or lower than a previous payment.
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FIXED PAYMENT ANNUITY - FIRST AND SUBSEQUENT PAYMENTS
The first payment under a Fixed Payment Annuity will be determined by applying
the portion of the total Contract Value specified by the Contract Owner to the
Fixed Payment Annuity table then in effect for the Annuity Payment Option
elected, after deducting any applicable premium taxes from the total Contract
Value. This will be done at the Annuitization Date on an age last birthday
basis. Subsequent payments will remain level unless the Annuity Payment Option
elected provides otherwise. The Company does not credit discretionary interest
paid by the Company to payments during the annuity payment period.
VARIABLE PAYMENT ANNUITY - FIRST AND SUBSEQUENT PAYMENTS
The first payment under a Variable Payment Annuity will be determined by
applying the portion of the total Contract Value specified by the Contract Owner
to the Variable Payment Annuity table then in effect for the Annuity Payment
Option elected, after deducting any applicable premium taxes from the total
Contract Value. This will be done at the Annuitization Date on an age last
birthday basis. The dollar amount of the first payment is divided by the value
of an Annuity Unit as of the Annuitization Date to establish the number of
Annuity Units representing each monthly annuity payment. This number of Annuity
Units remains fixed during the annuity payment period. The dollar amount of the
second and subsequent payments is not predetermined and may change from month to
month. The dollar amount of each subsequent payment is 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 Company guarantees that the dollar
amount of each payment after the first will not be affected by variations in
mortality experience from mortality assumptions used to determine the first
payment.
VARIABLE PAYMENT ANNUITY - ASSUMED INVESTMENT RATE
A 3.5% assumed investment rate is built into the variable payment annuity
purchase rate basis in the Contracts. A higher assumption would mean a higher
initial payment but more slowly rising or more rapidly falling subsequent
payments. A lower assumption would have the opposite effect. If the actual net
investment rate is at the annual rate of 3.5%, the annuity payments will be
level.
VARIABLE PAYMENT ANNUITY - VALUE OF AN ANNUITY UNIT
The value of an Annuity Unit for a Sub-Account for any subsequent Valuation
Period is determined by multiplying the Annuity Unit value from the immediately
preceding Valuation Period by the net investment factor for the Valuation Period
for which the Annuity Unit value is being calculated, 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 (see "Net Investment Factor").
VARIABLE PAYMENT ANNUITY - EXCHANGES AMONG UNDERLYING MUTUAL FUND OPTIONS
During the annuity payment period, exchanges among the Underlying Mutual Fund
options must be made in writing and the exchange will take place on the
anniversary of the Annuitization Date.
FREQUENCY AND AMOUNT OF ANNUITY PAYMENTS
Payments will be made based on the Annuity Payment Option selected. However, if
the net amount available under any Annuity Payment Option is less than $500, the
Company will have the right to pay such amount in one lump sum in lieu of
periodic annuity payments. In addition, if the payments to be provided would be
or become less than $20, the Company will have the right to change the frequency
of payments to such intervals as will result in payments of at least $20. In no
event will the Company make payments under an annuity option less frequently
than annually.
DEATH OF CONTRACT OWNER
If the Contract Owner and the Annuitant are not the same person and the Contract
Owner dies prior to the Annuitization Date, then the Annuitant becomes the
Contract Owner. In such event, the entire interest in the Contract Value, less
any applicable deductions (which may include a CDSC), must be distributed in
accordance with the appropriate "Required Distributions" section.
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DEATH OF ANNUITANT
If the Contract Owner and Annuitant are not the same person, and the Annuitant
dies prior to the Annuitization Date, then the Contingent Annuitant becomes the
Annuitant and no Death Benefit is payable. In the event there is no living
Contingent Annuitant, then, upon the Annuitant's death, a Death Benefit will be
payable to the Beneficiary, the Contingent Beneficiary, the Contract Owner, or
the Contract Owner's estate, as specified in the "Beneficiary" section.
The recipient of the Death Benefit may elect to receive such Death Benefit in
the form of:
(1) a lump sum distribution;
(2) an annuity payout; or
(3) any Distribution that is permitted under state and federal regulations
and is acceptable by the Company.
Such election must be received by the Company within 60 days of the Annuitant's
death.
DEATH OF CONTRACT OWNER/ANNUITANT
If any Contract Owner and the Annuitant are the same person, and such person
dies before the Annuitization Date, a Death Benefit will be payable to the
Beneficiary, Contingent Beneficiary, or the last surviving Contract Owner's
estate, as specified in the "Beneficiary" section and in accordance with the
appropriate "Required Distributions" section.
DEATH BENEFIT PAYMENT
For Contracts issued on or after the later of May 1, 1998 or a date on which
state insurance authorities approve applicable Contract modifications, if the
Annuitant dies prior to his or her 75th birthday and prior to the Annuitization
Date, the dollar amount of the Death Benefit will be the greater of:
(1) the Contract Value; or
(2) the sum of all Purchase Payments, less an adjustment for amounts
surrendered.
The adjustment for amounts surrendered will reduce item (2) above in the same
proportion that the Contract Value was reduced on the date(s) of the partial
surrender(s).
For Contracts issued prior to May 1, 1998 or a date prior to approval of
applicable Contract modifications by state insurance authorities, if the
Annuitant dies prior to his or her 75th birthday and prior to the Annuitization
Date, the dollar amount of the Death Benefit will be the greater of:
(1) the Contract Value; or
(2) the sum of all Purchase Payments, less any amounts surrendered.
If the Annuitant dies on or after his or her 75th birthday and prior to the
Annuitization Date, the dollar amount of the Death Benefit will be equal to the
Contract Value, if the Contract Owner has:
(1) requested an Annuity Commencement Date later than the first day of the
calendar month after the Annuitant's 75th birthday; and
(2) the Company approved the request.
The value of the Death Benefit will be determined as of the Valuation Date
coincident with or next following the date the Company receives in good order at
the Home Office the following three items in writing:
(1) proper proof of the Annuitant's death;
(2) an election specifying the Distribution method; and
(3) any applicable state required form(s).
DEATH BENEFIT AFTER THE ANNUITIZATION DATE
If the Annuitant dies after the Annuitization Date, any benefit that may be
payable shall be as specified in the Annuity Payment Option elected.
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ANNUITY PAYMENT OPTIONS
Any one of the following Annuity Payment Options may be elected:
(1) Life Annuity - An annuity payable monthly during the lifetime of the
Annuitant, ceasing with the last payment due prior to the death of the
Annuitant. IT WOULD BE POSSIBLE UNDER THIS OPTION FOR THE ANNUITANT TO
RECEIVE ONLY ONE ANNUITY PAYMENT IF HE OR SHE DIED BEFORE THE SECOND
ANNUITY PAYMENT DATE, TWO ANNUITY PAYMENTS IF HE OR SHE DIED BEFORE
THE THIRD ANNUITY PAYMENT DATE, AND SO ON.
(2) Joint and Last Survivor Annuity - An annuity payable monthly during
the joint lifetimes of the Annuitant and designated second person, and
continuing thereafter during the lifetime of the survivor. AS IS THE
CASE UNDER OPTION 1 ABOVE, THERE IS NO MINIMUM NUMBER OF PAYMENTS
GUARANTEED UNDER THIS OPTION. PAYMENTS CEASE UPON THE DEATH OF THE
LAST SURVIVING ANNUITANT 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 be made for the remainder of the selected guaranteed
period to a designee chosen by the Contract Owner at the time the
Annuity Payment Option was elected.
Alternatively, the designee may elect to receive the present value of
any remaining guaranteed payments in a lump sum. The present value
will be computed as of the date on which the Company receives notice
of the Annuitant's death.
Some of the stated Annuity Payment Options may not be available in all states.
The Owner (or Annuitant, if so authorized) may request an alternative option by
sending written notice to the Home Office prior to Annuitization. If such a
request is approved by the Company, it will be permitted under the Contract.
Qualified Plan Contracts or Individual Retirement Annuities are subject to the
minimum Distribution requirements set forth in the Plan, Contract, or the Code.
CHANGE IN FORM OF ANNUITY
The Contract Owner (or Annuitant, if so authorized) may, upon prior written
notice to the Company, at any time prior to the Annuitization Date, elect one of
the Annuity Payment Options.
REQUIRED DISTRIBUTIONS FOR QUALIFIED PLANS
The entire interest of an Annuitant under a Qualified Contract will be
distributed in a manner consistent with the Minimum Distribution and Incidental
Benefit (MDIB) provisions of Section 401(a)(9) of the Code, and applicable
regulations, and will be paid, notwithstanding anything else contained herein,
to the Owner/Annuitant under the Annuity Payment Option selected, over a period
not exceeding:
(A) the life of the Owner/Annuitant or the lives of the Owner/Annuitant
and the Owner/Annuitant's designated beneficiary under the selected
Annuity Payment Option; or
(B) a period not extending beyond the life expectancy of the
Owner/Annuitant or the life expectancy of the Owner/Annuitant and the
Owner/Annuitant's designated beneficiary under the selected Annuity
Payment Option.
If the Owner/Annuitant's entire interest is to be distributed in equal or
substantially equal payments over a period described in A or B, such payments
will commence on the required beginning date, which is the later of :
(A) the first day of April following the calendar year in which the
Annuitant attains age 70 1/2; or
(B) when the Annuitant retires;
However, provision (B) does not apply to any employee who is a 5% owner (as
defined in section 416 of the Code) with respect to the plan year ending in the
calendar year in which the employee attains age 70 1/2.
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If the Owner/Annuitant dies prior to the commencement of his or her
Distribution, the interest in the Qualified Contract must be distributed by
December 31 of the calendar year during which the fifth anniversary of his or
her death occurs unless:
(A) the Owner/Annuitant names his or her surviving spouse as the
Beneficiary and such spouse elects to receive Distribution of the
account in substantially equal payments over his or her life (or a
period not exceeding his or her life expectancy) and commencing not
later than December 31 of the year in which the Annuitant would have
attained age 70 1/2; or
(B) the Owner/Annuitant names a Beneficiary other than his or her
surviving spouse and such Beneficiary elects to receive a Distribution
of the account in nearly equal payments over his or her life (or a
period not exceeding his or her life expectancy) commencing not later
than December 31 of the year following the year in which the
Owner/Annuitant dies.
If the Owner/Annuitant dies after Distribution has commenced, Distribution must
continue at least as rapidly as under the schedule being used prior to his or
her death.
Payments commencing on the required beginning date will not be less than the
lesser of the quotient obtained by dividing the entire interest of the
Owner/Annuitant by the life expectancy of the Owner/Annuitant, or the joint and
last survivor expectancy of the Owner/Annuitant and the Owner/Annuitant's
designated Beneficiary (whichever is applicable under the applicable Minimum
Distribution or MDIB provisions). Life expectancy and joint and last survivor
expectancy are computed by the use of return multiples contained in Section
1.72-9 of the Treasury Regulations.
REQUIRED DISTRIBUTIONS FOR INDIVIDUAL RETIREMENT ACCOUNTS
Distributions from an Individual Retirement Account must begin not later than
April 1 of the calendar year following the calendar year in which the
Owner/Annuitant attains age 70 1/2. Distribution may be accepted in a lump sum
or in nearly equal payments over:
(A) the Owner/Annuitant's life or the lives of the Owner/Annuitant and his
or her spouse or designated beneficiary; or
(B) a period not extending beyond the life expectancy of the
Owner/Annuitant and his or her spouse or designated beneficiary.
If the Owner/Annuitant dies prior to the commencement of Distribution, the
interest in the Contract must be distributed by December 31 of the calendar year
in which the fifth anniversary of his or her death occurs unless:
(a) The Owner/Annuitant has named his or her surviving spouse as the
Beneficiary and such spouse elects to:
(i) treat the annuity as an Individual Retirement Account established
for his or her benefit; or
(ii) receive Distribution of the account in substantially equal
payments over his or her life (or a period not exceeding his or
her life expectancy) and commencing not later than December 31 of
the year in which the Owner/ Annuitant would have attained age 70
1/2; or
(b) The Owner/Annuitant has named a Beneficiary other than his or her
surviving spouse and such Beneficiary elects to receive a Distribution
of the account in nearly equal payments over his or her life (or a
period not exceeding his or her life expectancy) commencing not later
than December 31 of the year following the year in which the
Owner/Annuitant dies.
If the Owner/Annuitant dies after Distribution has commenced, Distribution must
continue at least as rapidly as under the schedule being used prior to his or
her death, except to the extent that a surviving spouse who is the beneficiary
under the Annuity Payment Option, may elect to treat the Contract as his or her
own, in the same manner as is described in section (a)(i) above.
If the amounts Distributed to the Owner/Annuitant are less than those mentioned
above, a penalty tax of 50% is levied on the excess of the amount that should
have been distributed for that year, over the amount that actually was
distributed for that year.
A pro-rata portion of all Distributions will be included in the gross income of
the person receiving the Distribution and taxed at ordinary income tax rates.
The portion of the 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/Annuitant must annually report to the Internal Revenue Service the amount
of non-deductible contributions, the amount of any Distribution, the amount by
which non-deductible contributions for all years exceed non-taxable
Distributions for all years, and the total balance of all Individual Retirement
Annuities and Individual Retirement Accounts.
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Individual Retirement Account Distributions will not receive the benefit of the
tax treatment of a lump sum Distribution from a Qualified Plan. If the
Owner/Annuitant dies prior to the time Distribution of his or her interest in
the annuity is completed, the balance will also be included in his or her gross
estate.
REQUIRED DISTRIBUTIONS FOR ROTH IRAs
Distributions from a Roth IRA, unlike other IRAs, are not required to commence
during the lifetime of the Contract Owner.
Upon the death of the Contract Owner, the Contract Owner's 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 such spouse elects to:
(i) treat the annuity as a Roth IRA established for his or her
benefit; or
(ii) receive Distribution of the account in substantially equal
payments over his or her life (or a period not exceeding his or
her life expectancy) and commencing not later than December 31 of
the year following the year in which the Contract Owner would
have attained 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 nearly equal payments over his or her life (or a period
not exceeding his or her life expectancy) commencing not later than
December 31 of the following year in which the Contract Owner dies.
Distribution from Roth IRAs may be either taxable or nontaxable, depending upon
whether they are "qualified distributions" or "nonqualified distributions" see
"Federal Income Taxes."
WITHHOLDING
The Company is required to withhold tax from certain Distributions to the extent
that such Distribution would constitute income to the Contract Owner or other
payee. The Contract Owner or other payee is entitled to elect not to have
federal income tax withheld from any such Distribution, but may be subject to
penalties in the event insufficient federal income tax is withheld during a
calendar year. However, if the Internal Revenue Service notifies the Company
that the Contract Owner or other payee has furnished an incorrect taxpayer
identification number, or if the Contract Owner or other payee fails to provide
a taxpayer identification number, the Distributions may be subject to back-up
withholding at the statutory rate, which is presently 31%, and which cannot be
waived by the Contract Owner or other payee.
FEDERAL ESTATE AND GENERATION SKIPPING TRANSFER TAXES
Upon the death of the Contract Owner, the value of the Contract may be included
in his or her gross estate, even if all or a portion of the value is also
subject to federal income taxes.
The Company may be required to determine whether the Death Benefit or any other
payment or Distribution constitutes a "direct skip" as defined in Section 2612
of the Code, and the amount of the generation skipping transfer tax, if any,
resulting from such direct skip. A direct skip may occur 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 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 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 who is required to report the
transfer of the Contract, Death Benefit, Distribution, or other payment for
federal gift tax purposes.
If the Company determines that a generation skipping transfer tax is required to
be paid by reason of such direct skip, the Company is required to reduce the
amount of such Death Benefit, Distribution, or other payment by such tax
liability, and pay the tax liability directly to the Internal Revenue Service.
Federal estate, gift and generation skipping transfer tax consequences, and
state and local estate, inheritance, succession, generation skipping transfer,
and other tax consequences, of owning or transferring a Contract, and of
receiving a Distribution, Death Benefit, or other payment, depend on the
circumstances of the person owning or transferring the Contract, or receiving a
Distribution, Death Benefit, or other payment.
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GENERAL INFORMATION
CONTRACT OWNER SERVICES
ASSET REBALANCING - The Contract Owner (or Annuitant, if so authorized) may
direct the automatic reallocation of Contract Values to the Sub-Accounts on a
predetermined percentage basis every three months. 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, the Asset Rebalancing exchange will
occur on the last business day before that day. Asset Rebalancing will not
affect future allocations of Purchase Payments. An Asset Rebalancing request
must be in writing on a form provided by the Company.
Contracts issued to a Qualified Plan may have superseding plan restrictions with
regard to the frequency of Fund exchanges and Underlying Mutual Fund options.
The Contract Owner may want to contact a financial adviser in order to discuss
the use of Asset Rebalancing in his or her Contract.
The Company reserves the right to discontinue offering Asset Rebalancing upon 30
days written notice; such discontinuation will not affect Asset Rebalancing
programs which have already commenced. The Company also reserves the right to
assess a processing fee for this service.
DOLLAR COST AVERAGING - The Contract Owner (or Annuitant, if so authorized) may
direct the Company to automatically transfer a specified amount from the Money
Market Sub-Account or the Fixed Account to any other Sub-Account within the
Variable Account on a monthly basis. This service is intended to allow the
Contract Owner to utilize Dollar Cost Averaging, a long-term investment program
which provides for regular, level investments over time. The Company makes no
guarantees that Dollar Cost Averaging will result in a profit or protect against
loss in a declining market. To qualify for Dollar Cost Averaging, there must be
a minimum total Contract Value of $15,000. Transfers for purposes of Dollar Cost
Averaging can only be made from the Money Market Sub-Account or the Fixed
Account. The minimum monthly Dollar Cost Averaging transfer is $100. In
addition, Dollar Cost Averaging monthly transfers from the Fixed Account must be
equal to or less than 1/30th of the Fixed Account value when the Dollar Cost
Averaging program is requested. Transfers out of the Fixed Account, other than
for Dollar Cost Averaging, may be subject to certain additional restrictions
(see "Transfers"). A written election of this service, on a form provided by the
Company, must be completed by the Contract Owner (or Annuitant, if so
authorized) in order to begin transfers. Once elected, transfers from the Money
Market Sub-Account or the Fixed Account will be processed monthly until either
the value in the Money Market Sub-Account or the Fixed Account is completely
depleted, or the Contract Owner (or Annuitant, if so authorized) instructs the
Company in writing to cancel the monthly transfers.
The Company reserves the right to discontinue offering Dollar Cost Averaging
upon 30 days written notice; such discontinuation will not affect Dollar Cost
Averaging programs already commenced. The Company also reserves the right to
assess a processing fee for this service.
SYSTEMATIC WITHDRAWALS - A Contract Owner (or Annuitant, if so authorized) may
elect, in writing on a form provided by the Company, to take Systematic
Withdrawals by surrendering a specified dollar amount (of at least $100) on a
monthly, quarterly, semi-annual, or annual basis. The Company will process the
withdrawals as directed by surrendering on a pro-rata basis, Accumulation Units
from all Sub-Accounts and the Fixed Account. A Contingent Deferred Sales Charge
may also apply to Systematic Withdrawals in accordance with the considerations
set forth in the "Contingent Deferred Sales Charge" section. Each Systematic
Withdrawal is subject to federal income taxes on the taxable portion. In
addition, a 10% federal penalty tax may be assessed on Systematic Withdrawals if
the recipient is under age 59 1/2. If directed by the Contract Owner, the
Company will withhold federal income taxes from each Systematic Withdrawal. The
Contract Owner (or Annuitant, if so authorized) may discontinue Systematic
Withdrawals at any time by notifying the Company in writing.
The Company reserves the right to discontinue offering Systematic Withdrawals
upon 30 days written notice; such discontinuation will not affect any Systematic
Withdrawal programs already commenced. The Company also reserves the right to
assess a processing fee for this service.
STATEMENTS AND REPORTS
The Company will mail to the Contract Owner (or Annuitant if so authorized to
receive statements), at the last known address of record, any statements and
reports required by applicable law. The Company must, therefore, be given prompt
notice of any address change. The Company will send a confirmation statement
each time a transaction is made affecting the Variable Account Contract Value,
such as making additional Purchase Payments, transfers, exchanges or
withdrawals. Quarterly statements are also mailed detailing the Contract
activity during the calendar quarter. Instead of receiving an immediate
confirmation of transactions made pursuant to some types of periodic payment
plan (such as a dollar cost averaging program) or salary reduction arrangement,
the Contract Owner (or Annuitant) will receive confirmation of such transactions
in their quarterly
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statements. The Contract Owner should review the information in these statements
carefully. All errors or corrections must be reported to the Company immediately
to assure proper crediting to the Contract. The Company will assume all
transactions are accurately reported on quarterly statements or confirmation
statements unless the Company is otherwise notified within 30 days after receipt
of the statement. The Company will also send an annual report and a semi-annual
report containing financial statements for the Variable Account, as of December
31 and June 30, respectively.
ALLOCATION OF PURCHASE PAYMENTS AND CONTRACT VALUE
Purchase Payments are allocated to one or more Sub-Accounts within the Variable
Account in accordance with the designation of the Underlying Mutual Fund options
by the Contract Owner (or Annuitant, if so authorized), and converted into
Accumulation Units.
The cumulative total of all purchase payments under contracts issued by the
Company on the life of any one Annuitant may not exceed $1,000,000 without prior
consent of the Company.
THE PURCHASER IS CAUTIONED THAT INVESTMENT RETURN ON SMALL INITIAL AND
SUBSEQUENT PURCHASE PAYMENTS MAY BE LESS THAN CHARGES ASSESSED BY THE COMPANY.
The initial Purchase Payment allocated to designated Sub-Accounts will be priced
not later than 2 business days after receipt of an order to purchase, if the
application and all information necessary for processing the purchase order are
complete. The Company may retain the Purchase Payment for up to 5 business days
while attempting to complete an incomplete application. If the application
cannot be made complete within 5 days, the prospective purchaser will be
informed of the reasons for the delay and the Purchase Payment will be returned
immediately unless the prospective purchaser specifically consents to the
Company retaining the Purchase Payment until the application is made complete.
Thereafter, subsequent Purchase Payments will be priced on the basis of the
Accumulation Unit value next computed for the appropriate Sub-Account after the
additional Purchase Payment is received.
Purchase Payments will not be priced on the following nationally recognized
holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas.
VALUE OF AN ACCUMULATION UNIT
The value of an Accumulation Unit for each Sub-Account was arbitrarily set at
$10 when the Underlying Mutual Fund shares in that Sub-Account were initially
available for purchase. The value for any subsequent Valuation Period is
determined by multiplying the Accumulation Unit value for each Sub-Account for
the immediately preceding Valuation Period by the net investment factor for the
Sub-Account during the subsequent Valuation Period. The value of an Accumulation
Unit may increase or decrease from Valuation Period to Valuation Period. The
number of Accumulation Units will not change as a result of investment
experience.
NET INVESTMENT FACTOR
The net investment factor for any Valuation Period is determined by
dividing (a) by (b), and then subtracting (c) where:
(A) is the net of:
(1) the Net Asset Value per share of the Underlying Mutual Fund held
in the Sub-Account determined at 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 held in the Sub-Account if the
ex-dividend date occurs during the current Valuation Period.
(B) is the Net Asset Value per share of the Underlying Mutual Fund held in
the Sub-Account determined at the end of the immediately preceding
Valuation Period.
(C) is a factor representing the daily Mortality Risk Charge, Expense Risk
Charge and, if applicable, an Administration Charge. Such factor is
equal to an annual rate of 1.30% of the daily net assets of the
Variable Account.
The net investment factor may be greater or less than one; therefore, the value
of an Accumulation Unit may increase or decrease. It should be noted that
changes in the net investment factor may not be directly proportional to changes
in the Net Asset Value of Underlying Mutual Fund shares, because of the
deduction for Mortality Risk Charge, Expense Risk Charge and, if applicable,
Administration Charge, and any charge or credit for tax reserves.
33
<PAGE> 34
DETERMINING THE CONTRACT VALUE
The Contract Value is the sum of the value of all Variable Account Accumulation
Units attributable to the Contract and amounts credited to the Fixed Account. If
part or all of the Contract Value is surrendered, or charges or deductions are
made against the Contract Value, an appropriate number of Accumulation Units
from the Variable Account and an appropriate amount from the Fixed Account will
be deducted in the same proportion that the Contract Owner's (or Annuitant's)
interest in the Variable Account and the Fixed Account bears to the total
Contract Value.
SURRENDER (REDEMPTION)
While the Contract is in force and prior to the earlier of the Annuitization
Date or the death of the Annuitant, the Company will, upon proper written
application by the Contract Owner (or Annuitant, if so authorized) deemed by the
Company to be in good order, allow the surrender of a portion or all of the
Contract Value. "Proper written application" means that the Contract Owner (or
Annuitant, if so authorized), must request the surrender in writing and include
the Contract. The Company may require that signature(s) be guaranteed by a
member firm of the New York, American, Boston, Midwest, Philadelphia, or Pacific
Stock Exchange, or by a commercial bank or a savings and loan, which is a member
of the Federal Deposit Insurance Corporation. In some cases (for example,
requests by a corporation, partnership, agent or fiduciary), the Company will
require additional documentation of a customary nature.
The Company will, upon receipt of any such written request, surrender a number
of Accumulation Units from the Variable Account and an amount from the Fixed
Account necessary to equal the gross dollar amount requested, less any
applicable CDSC (see "Contingent Deferred Sales Charge").
The Company will pay any funds applied for from the Sub-Accounts within 7 days
of receipt of such application at the Home Office. However, the Company reserves
the right to suspend or postpone the date of any payment of any benefit or
values for any Valuation Period when:
(1) the New York Stock Exchange ("Exchange") is closed;
(2) trading on the Exchange is restricted;
(3) an emergency exists as a result of which disposal of securities held
in the Variable Account is not reasonably practicable or it is not
reasonably practicable to determine the value of the Variable
Account's net assets; or
(4) the SEC, by order, so permits for the protection of security holders.
Applicable rules and regulations of the SEC will govern as to whether the
conditions prescribed in (2) and (3) exist. The Contract Value upon surrender
may be more or less than the total of Purchase Payments made, depending on the
market value of the Underlying Mutual Fund shares.
SURRENDERS UNDER A QUALIFIED PLAN
The Contract surrender provisions may be modified pursuant to the plan terms and
Code provisions when the Contract is issued to fund a Qualified Plan.
TAXES
INFORMATION CONTAINED HEREIN SHOULD NOT BE SUBSTITUTED FOR THE ADVICE OF A
PERSONAL TAX ADVISER.
The Company does not make any guarantee regarding the tax status of any Contract
or any transaction involving the Contracts.
Section 72 of the Code governs federal income taxation of annuities in general.
That section sets forth different rules for:
(1) Qualified Contracts;
(2) Individual Retirement Accounts; and
(3) Roth IRAs.
Distributions to Plan Participants from Qualified Contracts are generally taxed
when received. A portion of each Distribution is excludable from income based on
a formula required by the Code. The formula required by the Code excludes from
income an amount equal to the investment in the Contract by the number of
anticipated payments, as determined pursuant to Section 72(d) of the Code.
34
<PAGE> 35
Distributions from Contracts owned by Individual Retirement Accounts are
generally taxed when received. The portion of each such payment which is
excludable is based on the ratio between the amount by which nondeductible
Purchase Payments to all such Contracts exceeds prior non-taxable Distributions
from the Contracts, and the total account balances in the Contracts at the time
of the Distribution. The Annuitant under Contracts held by Individual Retirement
Accounts must annually report to the IRS the amount of nondeductible Purchase
Payments, the amount of any Distribution, the amount by which nondeductible
Purchase Payments for all years exceed non-taxable Distributions for all years,
and the total balance in all Individual Retirement Annuities and Individual
Retirement Accounts.
Distributions of earnings from Roth IRAs are taxable or nontaxable, depending
upon whether they are "qualified distributions" or "nonqualified distributions."
A "qualified distribution" is one that satisfies the five year rule and meets
one of the following four requirements: (i) it is made on or after the date on
which the Contract Owner attains the age of 59 1/2; (ii) it is made to a
Beneficiary (or the Contract Owner's estate); (iii) it is attributable to the
Contract Owner's disability; and (iv) it is a qualified first-time homebuyer
distribution (as defined in Section 72(t)(2)(F) of the 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 has 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 taxable year period commencing with the taxable year in which the
qualified rollover contribution was made.
A nonqualified distribution is any Distribution that is not a qualified
distribution.
A qualified distribution is not included in gross income for federal income tax
purposes. A nonqualified distribution is not includible in gross income to the
extent that such Distribution, when added to all previous Distributions, does
not exceed that aggregate amount of contributions made to the Roth IRA. Any
nonqualified distribution in excess of the aggregate amount of contributions
will be included in the Contract Owner's gross income in the year that is
distributed to the Contract Owner.
Taxable Distributions will not receive the benefit of the tax treatment of a
lump sum Distribution from a qualified plan. If the Contract Owner dies prior to
the complete Distribution of the Contract, the balance will also be included in
the Contract Owner's gross estate for federal estate tax purposes.
QUALIFIED PLANS AND INDIVIDUAL RETIREMENT ACCOUNTS
The Contracts may be purchased as Qualified Plans (Contracts issued on or before
January 1, 1993), Individual Retirement Accounts (funded after January 1, 1993),
and other plans receiving favorable tax treatment. For information regarding
eligibility, limitations on permissible amounts of Purchase Payments, and tax
consequences on Distribution from such plans, the purchasers of such Contracts
should seek competent advice. The terms of such plans may limit the rights
available under the Contracts.
The Code permits the rollover of most Distributions from Qualified Plans to
other Qualified Plans or Individual Retirement Accounts. Distributions which may
not be rolled over are those which are:
(1) one of a series of substantially equal annual (or more frequent)
payments made:
(a) over the life (or life expectancy) of the employee;
(b) over the joint lives (or joint life expectancies) of the employee
and the employee's designated Beneficiary; or
(c) for a specified period of ten years or more, and
(2) a required minimum distribution.
Any Distribution eligible for rollover will be subject to federal tax
withholding at a twenty percent (20%) rate unless the Distribution is
transferred directly to an appropriate plan as described above.
The Contract is available for Qualified Plans electing to comply with section
404(c) of ERISA. It is the responsibility of the plan and its fiduciaries to
determine and satisfy section 404(c) requirements.
35
<PAGE> 36
ROTH IRAs
The Contract may be purchased as a Roth IRA. The Contract Owner should seek
competent advice as to the tax consequences associated with the use of a
Contract as a Roth IRA, for information regarding eligibility to invest in a
Roth IRA, for limitations on permissible amounts of Purchase Payments that may
be made to a Roth IRA, and as to the tax consequences of Distributions from Roth
IRAs.
The Code permits the rollover of most Distributions from Individual Retirement
Accounts or IRAs to Roth IRAs. The rollovers are subject to federal income tax
as Distributions from the Individual Retirement Account or IRA. For rollovers
that take place in 1998, the income from rollover is included in income ratably
over the four year period commencing in 1998. For rollovers in subsequent years,
the entire amount of 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 IRA.
A Distribution from a Roth IRA that received the proceeds of a rollover from an
Individual Retirement Account or IRA within the previous 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 IRA 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 be subject to an additional 10% penalty.
INDIVIDUAL RETIREMENT ACCOUNTS
The Internal Revenue Service issued a ruling on September 25, 1981 that
Individual Retirement Annuities could not be established using variable annuity
contracts that allocated assets to separate accounts of life insurance
companies, if the separate account purchased shares of publicly available Mutual
Funds. The owner of such a contract is treated as the owner of the Underlying
Mutual Fund shares purchased and is taxed on any dividends accruing or
recognized gains.
It is possible to establish an Individual Retirement Account funded with such a
variable annuity contract, by depositing the funds in a trust or custodial
account which qualifies under Section 408 of the Code, and having the trustee or
custodian purchase the contract. Such an Individual Retirement Account is
subject to rules which are comparable to those which apply to Individual
Retirement Annuities. The trustee or custodian is treated as the owner of the
underlying mutual fund shares, and the individual establishing the account is
taxed in the manner described in "Required Distributions For Individual
Retirement Annuities And Individual Retirement Accounts."
ADVERTISING
A "yield" and "effective yield" may be advertised for the Nationwide 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 Nationwide
Money Market Fund's units. Yield is an annualized figure, which means that it is
assumed that the Nationwide Money Market Fund generates the same level of net
income over a 52-week period. The "effective yield" is calculated similarly but
includes the effect of assumed compounding, calculated under rules prescribed by
the SEC. The effective yield will be slightly higher than yield due to this
compounding effect.
The Company may also from time to time advertise the performance of a
Sub-Account of the Variable Account relative to the performance of other
variable annuity sub-accounts or 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:
precious metals; real estate; stocks and bonds; closed-end funds; CDs; bank
money market deposit accounts and passbook savings; and the Consumer Price
Index.
The Sub-Accounts may also be compared to certain market indexes, which may
include, but are not limited to: S&P 500; Shearson/Lehman Intermediate
Government/Corporate Bond Index; Shearson/Lehman Long-Term Government/Corporate
Bond Index; Donoghue Money Fund Average; U.S. Treasury Note Index; Bank Rate
Monitor National Index of 2 1/2 Year CD Rates; and Dow Jones Industrial Average.
Normally these rankings and ratings are published by independent tracking
services and publications of general interest including, but not limited to:
Lipper Analytical Services, Inc., CDA/Wiesenberger, Morningstar, Donoghue's,
magazines such as Money, Forbes, Kiplinger's Personal Finance Magazine,
Financial World, Consumer Reports, Business Week, Time, Newsweek, National
Underwriter, U.S. News and World Report; rating services such as LIMRA, Value,
Best's Agent Guide, Western Annuity Guide, Comparative Annuity Reports; and
other publications such as the Wall Street Journal, Barron's, Investor's Daily,
and Standard &
36
<PAGE> 37
Poor's Outlook. In addition, Variable Annuity Research & Data Service (The VARDS
Report) is an independent rating service that ranks over 500 variable annuity
funds based upon total return performance. These rating services and
publications rank the performance of the underlying Mutual Fund options against
all underlying mutual funds over specified periods and against underlying mutual
funds in specified categories. The rankings may or may not include the effects
of sales charges or other fees.
The Company is also ranked and rated by independent financial rating services,
among which are Moody's, Standard & Poor's and A.M. Best Company. The purpose of
these ratings is to reflect the financial strength or claims-paying ability of
the Company. The ratings are not intended to reflect the investment experience
or financial strength of the Variable Account. The Company may advertise these
ratings from time to time. In addition, the Company may include in certain
advertisements, endorsements in the form of a list of organizations, individuals
or other parties which recommend the Company or the Contracts. Furthermore, the
Company may occasionally include in advertisements comparisons of currently
taxable and tax deferred investment programs, based on selected tax brackets, or
discussions of alternative investment vehicles and general economic conditions.
The Company may, from time to time, advertise several types of historical
performance of the Sub-Accounts. The Company 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"
illustrates the percentage rate or 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 the underlying Mutual Fund option has not been available for the
prescribed periods. THIS CALCULATION REFLECTS THE DEDUCTION OF ALL APPLICABLE
CHARGES 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," illustrates 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
option has been in existence. For those underlying Mutual Fund options which
have not been held as Sub-Accounts for one of the prescribed periods, the
nonstandardized total return illustrations will show the investment performance
such underlying Mutual Fund options would have achieved (reduced by the same
charges except the CDSC) had such underlying Mutual Fund options been available
in the Variable Account for the periods quoted. THE CDSC IS NOT REFLECTED
BECAUSE THE CONTRACTS ARE DESIGNED FOR LONG TERM INVESTMENT. THE CDSC, IF
REFLECTED, WOULD DECREASE THE LEVEL OF PERFORMANCE SHOWN. AN INITIAL INVESTMENT
OF $10,000 IS ASSUMED BECAUSE THAT AMOUNT MORE CLOSELY APPROXIMATES THE SIZE OF
A TYPICAL CONTRACT THAN DOES THE $1,000 ASSUMPTION USED IN CALCULATING THE
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN QUOTATIONS.
The standardized average annual total return and nonstandardized total return
quotations reflected below are calculated as described in this section using
underlying Mutual Fund performance for the periods ended December 31, 1997.
However, the Company generally provides performance quotations on a more
frequent basis, the results of which could reflect better or worse results than
shown below. The quotations and other comparative material advertised by the
Company are based upon historical earnings and are not intended to represent or
guarantee future results. A Contract Owner's Contract Value at redemption may be
more or less than the original cost.
37
<PAGE> 38
UNDERLYING MUTUAL FUND PERFORMANCE SUMMARY
NON-STANDARDIZED TOTAL RETURN
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
10 Years To
1 Year To 5 Years To 12/31/97 or Date Fund
Sub-Account Options 12/31/97 12/31/97 Life of Fund Effective
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
American Century: Benham Short-Term Government 4.34% 3.15% 4.66% 12/15/82
- ----------------------------------------------------------------------------------------------------------------------------
American Century: Income & Growth 32.41% 18.76% 19.10% 12/17/90
- ----------------------------------------------------------------------------------------------------------------------------
American Century: Twentieth Century Growth 27.30% 11.09% 13.70% 10/31/58
- ----------------------------------------------------------------------------------------------------------------------------
American Century: Twentieth Century International Growth 17.87% 14.08% 12.35% 05/01/91
- ----------------------------------------------------------------------------------------------------------------------------
American Century: Twentieth Century Ultra 21.23% 16.01% 20.20% 11/02/81
- ----------------------------------------------------------------------------------------------------------------------------
Delchester Fund-Institutional Class 12.41% 8.69% 9.22% 08/20/70
- ----------------------------------------------------------------------------------------------------------------------------
Dreyfus A Bonds Plus, Inc. 7.82% 6.18% 7.72% 06/25/76
- ----------------------------------------------------------------------------------------------------------------------------
Dreyfus Appreciation Fund, Inc. 25.93% 16.47% 15.48% 01/31/84
- ----------------------------------------------------------------------------------------------------------------------------
Dreyfus Balanced Fund, Inc. 15.62% 11.65% 11.56% 09/30/92
- ----------------------------------------------------------------------------------------------------------------------------
Dreyfus S & P 500 Index Fund 30.61% 17.77% 14.13% 01/02/90
- ----------------------------------------------------------------------------------------------------------------------------
Dreyfus Third Century Fund, Inc. 27.39% 14.53% 14.50% 03/29/72
- ----------------------------------------------------------------------------------------------------------------------------
Evergreen Income and Growth Fund 23.65% 11.45% 10.62% 08/31/78
- ----------------------------------------------------------------------------------------------------------------------------
Federated Bond Fund 9.82% 7.89% 8.60% 05/20/87
- ----------------------------------------------------------------------------------------------------------------------------
Federated High Yield Trust 11.39% 10.05% 10.21% 08/23/84
- ----------------------------------------------------------------------------------------------------------------------------
Fidelity Advisor Balanced Fund - Class T 20.44% 9.72% 12.28% 01/31/87
- ----------------------------------------------------------------------------------------------------------------------------
Fidelity Advisor Equity Income Fund - Class T 23.96% 17.43% 18.02% 09/30/92
- ----------------------------------------------------------------------------------------------------------------------------
Fidelity Advisor Growth Opportunities Fund - Class T 26.59% 18.61% 19.33% 11/30/87
- ----------------------------------------------------------------------------------------------------------------------------
Fidelity Advisor High Yield Fund - Class T 13.27% 11.21% 13.11% 01/31/87
- ----------------------------------------------------------------------------------------------------------------------------
Fidelity Asset Manager(TM) 20.39% 11.57% 11.91% 12/28/88
- ----------------------------------------------------------------------------------------------------------------------------
Fidelity Equity-Income Fund 28.00% 18.52% 14.97% 05/16/66
- ----------------------------------------------------------------------------------------------------------------------------
Fidelity Magellan(R)Fund 24.65% 17.03% 17.14% 05/02/63
- ----------------------------------------------------------------------------------------------------------------------------
Fidelity Puritan Fund 20.46% 14.41% 13.31% 04/16/47
- ----------------------------------------------------------------------------------------------------------------------------
Franklin Mutual Series Fund, Inc. -
Mutual Shares Fund: Class 1 24.10% 18.16% 15.62% 01/31/68
- ----------------------------------------------------------------------------------------------------------------------------
Janus Fund 20.82% 14.05% 16.64% 12/31/85
- ----------------------------------------------------------------------------------------------------------------------------
Janus Twenty Fund 27.71% 15.06% 19.40% 04/26/85
- ----------------------------------------------------------------------------------------------------------------------------
Janus Worldwide Fund 18.61% 18.06% 18.18% 05/15/91
- ----------------------------------------------------------------------------------------------------------------------------
MFS(R)World Governments Fund -1.30% 4.55% 5.83% 02/25/81
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
38
<PAGE> 39
NON-STANDARDIZED TOTAL RETURN
(CONTINUED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
10 Years To
1 Year To 5 Years To 12/31/97 or Date Fund
Sub-Account Options 12/31/97 12/31/97 Life of Fund Effective
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nationwide(R)Bond Fund(1) 7.59% 5.30% 6.93% 03/01/80
Nationwide(R)Fund(1) 37.52% 17.47% 15.89% 05/30/33
Nationwide(R)Growth Fund(1) 24.29% 14.67% 13.23% 02/27/61
Nationwide(R)Money Market Fund(1) 3.46% 2.74% 3.78% 03/01/80
Nationwide(R)U.S. Government Income Fund(1) 7.75% 5.40% 5.49% 02/28/92
Neuberger & Berman Equity Trust(R)- Neuberger & Berman
Genesis Trust 32.85% 18.39% 14.92% 09/26/88
Neuberger & Berman Guardian Fund, Inc. 16.11% 14.40% 15.80% 06/01/50
Neuberger & Berman Limited Maturity Bond Fund 5.16% 3.97% 5.53% 06/09/86
Neuberger & Berman Partners Fund, Inc. 27.25% 18.55% 15.46% 07/16/68
Oppenheimer Global Fund 19.94% 16.43% 13.64% 12/08/69
Phoenix Balanced Fund Series 16.50% 8.29% 9.91% 01/30/81
Strong Total Return Fund, Inc. 22.26% 15.03% 10.69% 12/30/81
Templeton Foreign Fund - Class I 4.96% 12.08% 11.66% 10/05/82
Warburg Pincus Emerging Growth Fund 19.39% 16.03% 16.09% 01/31/88
Warburg Pincus Global Fixed Income Fund 0.54% 5.41% 6.27% 11/01/90
<FN>
1 As discussed above, each of these will become Class D shares of a corresponding fund in the Reorganization (Nationwide
Money Market shares will be without class designation). At that time, the Nationwide U.S. Government Income Fund will
become the Nationwide Intermediate U.S. Government Bond Fund.
</FN>
</TABLE>
39
<PAGE> 40
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
10 Years or
Date Fund
Available in
Variable Date Fund
1 Year To 5 Years To Account Added to
Sub-Account Options 12/31/97 12/31/97 To 12/31/97 Variable Account
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
American Century: Benham Short-Term Government -3.76% 0.06% 2.25% 04/30/84
- -------------------------------------------------------------------------------------------------------------------------------
American Century: Income & Growth 24.31% NA 23.28% 10/31/96
- -------------------------------------------------------------------------------------------------------------------------------
American Century: Twentieth Century Growth 19.20% 8.18% 11.94% 01/28/83
- -------------------------------------------------------------------------------------------------------------------------------
American Century: Twentieth Century International Growth 9.77% NA 12.72% 02/01/95
- -------------------------------------------------------------------------------------------------------------------------------
American Century: Twentieth Century Ultra 13.13% NA 8.96% 10/15/93
- -------------------------------------------------------------------------------------------------------------------------------
Delchester Fund-Institutional Class 4.31% 5.92% 5.03% 12/31/92
- -------------------------------------------------------------------------------------------------------------------------------
Dreyfus A Bonds Plus, Inc. -0.28% NA 0.37% 01/31/94
- -------------------------------------------------------------------------------------------------------------------------------
Dreyfus Appreciation Fund, Inc. N/A N/A 165.70% 01/05/98
- -------------------------------------------------------------------------------------------------------------------------------
Dreyfus Balanced Fund, Inc. N/A N/A 51.47% 01/05/98
- -------------------------------------------------------------------------------------------------------------------------------
Dreyfus S & P 500 Index Fund 22.51% NA 15.15% 01/04/93
- -------------------------------------------------------------------------------------------------------------------------------
Dreyfus Third Century Fund, Inc. 19.29% NA 11.84% 01/04/93
- -------------------------------------------------------------------------------------------------------------------------------
Evergreen Income and Growth Fund 15.55% NA 8.56% 01/04/93
- -------------------------------------------------------------------------------------------------------------------------------
Federated Bond Fund 1.72% NA -0.80% 11/01/96
- -------------------------------------------------------------------------------------------------------------------------------
Federated High Yield Trust NA NA NA 12/31/97
- -------------------------------------------------------------------------------------------------------------------------------
Fidelity Advisor Balanced Fund - Class T 12.34% NA 7.79% 12/18/95
- -------------------------------------------------------------------------------------------------------------------------------
Fidelity Advisor Equity Income Fund - Class T 15.86% NA 12.93% 12/18/95
- -------------------------------------------------------------------------------------------------------------------------------
Fidelity Advisor Growth Opportunities Fund - Class T 18.49% NA 16.51% 12/18/95
- -------------------------------------------------------------------------------------------------------------------------------
Fidelity Advisor High Yield Fund - Class T 5.17% NA 6.17% 12/18/95
- -------------------------------------------------------------------------------------------------------------------------------
Fidelity Asset Manager(TM) 12.29% NA 6.00% 10/15/93
- -------------------------------------------------------------------------------------------------------------------------------
Fidelity Equity-Income Fund 19.90% 16.11% 13.11% 03/16/83
- -------------------------------------------------------------------------------------------------------------------------------
Fidelity Magellan(R)Fund 16.55% NA% 14.67% 01/04/93
- -------------------------------------------------------------------------------------------------------------------------------
Fidelity Puritan Fund 12.36% NA 11.80% 01/04/93
- -------------------------------------------------------------------------------------------------------------------------------
Franklin Mutual Series Fund, Inc. - Mutual Shares Fund: Class 1 N/A N/A -7.79% 01/05/98
- -------------------------------------------------------------------------------------------------------------------------------
Janus Fund 12.72% NA 14.17% 12/18/95
- -------------------------------------------------------------------------------------------------------------------------------
Janus Twenty Fund 19.61% NA 12.15% 10/15/93
- -------------------------------------------------------------------------------------------------------------------------------
Janus Worldwide Fund 10.51% NA 9.15% 11/01/96
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
40
<PAGE> 41
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
(CONTINUED)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
10 Years or
Date Fund
Available in
Variable Date Fund
1 Year To 5 Years To Account Added to
Sub-Account Options 12/31/97 12/31/97 To 12/31/97 Variable Account
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MFS(R)World Governments Fund -9.16% 1.71% 3.58% 02/15/83
- -------------------------------------------------------------------------------------------------------------------------------
Nationwide(R)Bond Fund(1) -0.51% 2.35% 4.73% 01/29/81
- -------------------------------------------------------------------------------------------------------------------------------
Nationwide(R)Fund(1) 29.42% 14.78% 14.16% 01/29/81
- -------------------------------------------------------------------------------------------------------------------------------
Nationwide(R)Growth Fund(1) 16.19% 12.06% 11.36% 01/29/81
- -------------------------------------------------------------------------------------------------------------------------------
Nationwide(R)Money Market Fund(1) -4.64% -0.38% 1.27% 01/29/81
- -------------------------------------------------------------------------------------------------------------------------------
Nationwide(R) U.S. Government Income Fund(1) -0.35% NA -1.23% 12/18/95
- -------------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Equity Trust(R)- Neuberger & Berman Genesis Trust N/A N/A -55.37% 01/05/98
- -------------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Guardian Fund, Inc. 8.01% NA 11.06% 01/31/94
- -------------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Limited Maturity Bond Fund -2.94% NA -0.58% 09/30/93
- -------------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Partners Fund, Inc. 19.15% NA 16.12% 01/04/93
- -------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Global Fund 11.84% NA 14.18% 01/04/93
- -------------------------------------------------------------------------------------------------------------------------------
Phoenix Balanced Fund Series 8.40% NA 5.63% 01/31/94
- -------------------------------------------------------------------------------------------------------------------------------
Strong Total Return Fund, Inc. 14.16% NA 12.74% 01/04/93
- -------------------------------------------------------------------------------------------------------------------------------
Templeton Foreign Fund - Class I -3.14% NA 6.98% 02/01/95
- -------------------------------------------------------------------------------------------------------------------------------
Warburg Pincus Emerging Growth Fund 11.29% NA 12.20% 12/18/95
- -------------------------------------------------------------------------------------------------------------------------------
Warburg Pincus Global Fixed Income Fund N/A N/A 30.26% 01/05/98
- -------------------------------------------------------------------------------------------------------------------------------
<FN>
1 As discussed above, each of these will become Class D shares of a corresponding fund in the Reorganization (Nationwide
Money Market shares will be without class designation). At that time, the Nationwide U.S. Government Income Fund will
become the Nationwide Intermediate U.S. Government Bond Fund.
</FN>
</TABLE>
YEAR 2000 COMPLIANCE ISSUES
The Company has developed a plan to address issues related to the Year 2000. The
problem relates to many existing computer programs using only two digits to
identify a year in the date field. These programs were designed and developed
without considering the impact of the upcoming change in the century. If not
corrected, many computer applications could fail or create erroneous results by
or at the Year 2000. The Company has been evaluating its exposure to the Year
2000 issue through a review of all of its operating systems as well as
dependencies on the systems of others since 1996. The Company expects all system
changes and replacements needed to achieve Year 2000 compliance to be completed
by the end of 1998. Compliance testing will be completed in the first quarter of
1999. The Company charges all costs associated with these system changes as the
costs are incurred.
Operating expenses in 1997 include approximately $45 million on technology
projects, which includes costs related to Year 2000 and the development of a new
policy administration system for traditional life insurance products and other
system enhancements. The Company anticipates spending a comparable amount in
1998 on technology projects, including Year 2000 initiatives. These expenses do
not have an effect on the assets of the Variable Account and are not charged
through to the Contract Owner.
41
<PAGE> 42
LEGAL PROCEEDINGS
The Company 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 the Company.
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 pricing
and sales practices. A number of these lawsuits have resulted in substantial
jury awards or settlements. In February 1997, Nationwide Life Insurance Company
was named as a defendant in a lawsuit filed in New York Supreme Court related to
the sale of whole life policies on a "vanishing premium" basis (John H. Snyder
v. Nationwide Life Insurance Co.). The plaintiff in such lawsuit seeks to
represent a national class of Nationwide Life policyholders and claims
unspecified compensatory and punitive damages. This lawsuit has not been
certified as a class action. In April, 1997, a motion to dismiss the Snyder
complaint in its entirety was filed by the defendants, and the plaintiff has
opposed such motion.
In November 1997, two plaintiffs, one who was the owner of a variable life
insurance contract and the other who was the owner of a variable annuity
contract, commenced an action against Nationwide Life Insurance Company and the
American Century group of defendants (Robert Young and David D. Distad v.
Nationwide Life Insurance Company et al.). In this action, plaintiffs seek to
represent a class of variable life insurance contract owners and variable
annuity contract owners whom they claim were allegedly misled when purchasing
these variable contracts into believing that some portion of their premiums were
invested in a publicly traded mutual fund when, in fact, the premium monies were
invested in a mutual fund whose shares may only be purchased by insurance
companies. The complaint seeks unspecified compensatory, treble and punitive
damages. In January 1998, both Nationwide Life Insurance Company and American
Century filed motions to dismiss the entire complaint. Plaintiffs' counsel have
opposed these motions and the federal court in Texas heard arguments on the
motions to dismiss in April, 1998. This lawsuit is in an early stage and has not
been certified as a class action.
Nationwide Life Insurance Company intends to defend this case vigorously.
There can be no assurance that any litigation relating to pricing and sales
practices will not have a material adverse effect on the Company in the future.
<TABLE>
<CAPTION>
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
PAGE
<S> <C>
General Information and History.........................................1
Services................................................................1
Purchase of Securities Being Offered....................................1
Underwriters............................................................2
Advertising.............................................................2
Annuity Payments........................................................3
Financial Statements....................................................4
</TABLE>
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APPENDIX A
Purchase Payments and transfers allocated to the Fixed Account portion of the
Contract become part of the general account of the Company supporting insurance
and annuity obligations. Under exemptive and exclusionary provisions, interests
in the general account have not been registered under the Securities Act of 1933
("1933 Act"), nor is the general account registered as an investment company
under the Investment Company Act of 1940 ("1940 Act"). Accordingly, neither the
general account nor any interest therein is generally subject to the provisions
of the 1933 or 1940 Acts, and we have been advised that the staff of the SEC has
not reviewed the disclosures in this prospectus related to the guaranteed
interest portion. Disclosures regarding the Fixed Account portion of the
Contract and the general account, however, may be subject to certain generally
applicable provisions of the federal securities laws concerning the accuracy and
completeness of statements made in prospectuses.
FIXED ACCOUNT ALLOCATIONS
THE FIXED ACCOUNT
The Fixed Account is made up of all the general assets of the Company, other
than those in the Nationwide Variable Account and other segregated asset
accounts. Fixed Account Purchase Payments will be allocated to the Fixed Account
by election of the Contract Owner at the time of purchase.
The Company will invest the assets of the Fixed Account in those assets chosen
by the Company and allowed by applicable law. Investment income from Fixed
Account assets will be allocated by the Company between itself and the Contracts
participating in the Fixed Account.
The level of annuity payments made to Annuitants under the Contracts will not be
affected by the mortality experience (death rate) of persons receiving such
payments or of the general population. The Company assumes this "mortality risk"
by virtue of annuity rates incorporated in the Contract which cannot be changed.
In addition, the Company guarantees that it will not increase charges for
maintenance of the Contracts, regardless of its actual expenses.
Investment income from the Fixed Account allocated to the Company includes
compensation for mortality and expense risks borne by the Company in connection
with Fixed Account Contracts. The amount of such investment income allocated to
the Contracts will vary from year to year in the sole discretion of the Company
at such rates as the Company prospectively declares from time to time. Any rates
so determined will remain effective for a period of not less than twelve months,
and remain at such rate unless changed. The Company guarantees that it will
credit interest at not less than 3.0% per year (as otherwise required under
state law, or at such minimum rate as stated in the Contract when sold). ANY
INTEREST CREDITED TO AMOUNTS ALLOCATED TO THE FIXED ACCOUNT IN EXCESS OF 3.0%
PER YEAR WILL BE DETERMINED IN THE SOLE DISCRETION OF THE COMPANY. 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. New Purchase
Payments which are allocated to the Fixed Account may receive a different rate
of interest than money transferred from the Sub-Accounts to the Fixed Account
and amounts maturing in the Fixed Account after the expiration of an Interest
Rate Guarantee Period.
The Company guarantees that, at any time, 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 the sum of all
administrative charges, any applicable premium taxes, and less any amounts
surrendered. If the Contract Owner effects a surrender, the amount available
from the Fixed Account will be reduced by any applicable Contingent Deferred
Sales Charge (see "Contingent Deferred Sales Charge").
TRANSFERS
Contract Owners (or Annuitants, if so authorized) may, at the maturity of an
Interest Rate Guarantee Period, transfer a portion of the value of the Fixed
Account to the Variable Account. The maximum percentage that may be transferred
will be determined by the Company at its sole discretion, but will not be less
than 10% of the total value of the portion of the Fixed Account that is
maturing, and will be declared upon the expiration of the then current Interest
Rate Guarantee Period. The Interest Rate Guarantee Period expires on the final
day of a calendar quarter. Transfers must be made within 45 days after the
expiration date of the guarantee period. Owners who have entered into a Dollar
Cost Averaging Agreement with the Company (see "Dollar Cost Averaging") may
transfer from the Fixed Account to the Variable Account under the terms of that
agreement.
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APPENDIX B
PARTICIPATING FUNDS
UNDERLYING MUTUAL FUND OPTIONS
(AVAILABLE FOR CONTRACTS ISSUED ON OR AFTER JANUARY 1, 1993)
For Contracts issued on or after January 1, 1993, Variable Account Purchase
Payments may be allocated only to the Sub-Accounts which consist of shares of
the Underlying Mutual Fund options listed below:
AMERICAN CENTURY: BENHAM SHORT-TERM GOVERNMENT
Investment Objective: To seek current income and limited price volatility by
maintaining an average weighted portfolio maturity of four years or less. U.S.
Governments invests in securities of the United States government and its
agencies. American Century Investment Management, Inc. serves as the Fund's
investment adviser.
AMERICAN CENTURY: INCOME & GROWTH
Investment Objective: Seeks dividend growth, current income and capital
appreciation by investing in common stocks. The Fund may buy securities
convertible into common stock, such as convertible bonds, convertible preferred
stocks or warrants. The Fund may also, for liquidity purposes, invest in
high-quality money market instruments with remaining maturities of one year or
less. The Fund may also enter into repurchase agreements, collateralized by U.S.
government securities, with banks or broker-dealers deemed to present minimal
credit risk. American Century Investment Management, Inc. serves as the Fund's
investment adviser.
AMERICAN CENTURY: TWENTIETH CENTURY GROWTH
Investment Objective: Seeks capital growth through investment in securities
which the management considers to have better than average prospects for
appreciation of value. The Fund's investment approach identifies companies with
accelerating earnings and revenues. As part of its strategy, the Fund remains
essentially fully invested in stocks at all times. American Century Investment
Management, Inc. serves as the Fund's investment adviser.
AMERICAN CENTURY: TWENTIETH CENTURY INTERNATIONAL GROWTH
Investment Objective: Seeks capital growth by investing in an international
portfolio of common stocks, primarily in developed markets; stocks considered by
the investment manager to have prospects for appreciation. The Fund will invest
primarily in common stocks (defined to include depository receipts for common
stocks) and other equity equivalents of such companies. American Century
Investment Management, Inc. serves as the Fund's investment adviser.
AMERICAN CENTURY: TWENTIETH CENTURY ULTRA
Investment Objective: The investment objective of the Fund is to seek capital
growth by investing primarily in common stocks that are considered by management
to have better-than-average prospects for appreciation. American Century
Investment Management, Inc. serves as the Fund's investment adviser.
DELCHESTER FUND-INSTITUTIONAL CLASS
Investment Objective: Seeks to provide high current income by investing
principally in corporate bonds, and also in U.S. Government securities and
commercial paper. This Fund invests primarily in high-yield securities (junk
bonds) and greater risks may be involved with an investment in the Fund than an
investment in a Mutual Fund comprised primarily of investment grade bonds.
Delaware Management Company, Inc. serves as the Fund's investment adviser.
DREYFUS A BONDS PLUS, INC.
Investment Objective: The Fund's goal is to provide the maximum amount of
current income to the extent consistent with the preservation of capital and the
maintenance of liquidity. The Fund invests principally in debt obligations of
corporations, the U.S. Government and its agencies and instrumentalities, and
major U.S. banking institutions. The Fund's investment objective cannot be
changed without approval by the holders of a majority (as defined in the
Investment Company Act of 1940) of the Fund's outstanding voting shares. There
can be no assurance that the Fund's investment objective will be achieved. The
Dreyfus Corporation serves as the Fund's investment adviser.
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<PAGE> 45
DREYFUS APPRECIATION FUND, INC.
Investment Objective: To provide long-term capital growth consistent with the
preservation of capital. Current income is a secondary investment objective. The
Fund seeks to meet its objective by investing primarily in the common stocks of
domestic and foreign issuers. The Dreyfus Corporation serves as the Fund's
investment adviser.
DREYFUS BALANCED FUND, INC.
Investment Objective: To provide long-term capital growth and current income,
consistent with reasonable investment risk. The Fund is managed as a balanced
fund and invests in equity and debt securities, the proportion of which will
vary from time to time in accordance the fund manager's assessment of economic
conditions and investment opportunities. The Dreyfus Corporation serves as the
Fund's investment adviser.
DREYFUS S & P 500 INDEX FUND
Investment Objective: Seeks to provide investment results that correspond to the
price and yield performance of publicly-traded common stocks in the aggregate,
as represented by the Standard & Poor's 500 Composite Stock Price Index. The
Fund's investment objective cannot be changed without approval by the holders of
a majority of the Fund's outstanding voting shares. The Dreyfus Corporation
serves as the Fund's investment adviser.
THE DREYFUS THIRD CENTURY FUND, INC.
Investment Objective: Primarily seeks to provide capital growth through equity
investment in companies that, in the opinion of the Fund's management, not only
meet traditional investment standards but which also show evidence that they
conduct their business, in a manner that contributes to the enhancement of the
quality of life in America. Current income is secondary to the primary goal. The
Dreyfus Corporation serves as the Fund's investment adviser.
EVERGREEN INCOME AND GROWTH FUND (formerly The Evergreen Total Return Fund)
Investment Objective: Seeks to achieve a return consisting of current income and
capital appreciation in the value of its shares. The emphasis on current income
and capital appreciation will be relatively equal although, over time, changes
in the outlook for market conditions and the level of interest rates will cause
the Fund to vary its emphasis between these two elements in its search for the
optimum return for its shareholders. The Fund seeks to achieve its investment
objective through investments in common stocks, preferred stocks, securities
convertible into or exchangeable for common stocks and fixed income securities.
The Fund may also write covered call options.
Evergreen Asset Management Corp. serves as the Fund's investment adviser.
FEDERATED BOND FUND
Investment Objective: To provide as high a level of current income as is
consistent with the preservation of capital. The Fund invests primarily in a
professionally managed, diversified portfolio of bonds. Under normal
circumstances, at least 65% of the Fund's net assets will be invested in
investment grade securities, including repurchase agreements collateralized by
investment grade securities. The Fund may invest in corporate debt obligations,
U.S. Government obligations, municipal securities, asset-backed securities,
adjustable rate mortgage securities, collateralized mortgage obligations, and
other securities which are deemed to be consistent with the Fund's investment
objective. Federated Advisers serves as the Fund's investment adviser.
FEDERATED HIGH YIELD TRUST
Investment Objective: Seeks high current income by investing primarily in a
professionally managed, diversified portfolio of fixed income securities. Such
securities are expected to be lower-rated corporate debt obligations commonly
referred to as "junk bonds." Investments of this type are subject to a greater
risk of loss of principal and interest than investments in higher rated
securities. The Trust's investment adviser will endeavor to limit these risks
through diversifying the portfolio and through careful credit analysis of
individual issuers. Federated Advisers serves as the Fund's investment adviser.
FIDELITY ADVISOR BALANCED FUND - CLASS T
Investment Objective: Seeks income and growth potential by investing in
securities including U.S. government and corporate bonds, and a diversified
selection of common stocks. Fidelity Management & Research Company serves as the
Fund's investment adviser.
FIDELITY ADVISOR EQUITY INCOME FUND - CLASS T
Investment Objective: Seeks to obtain reasonable income from a portfolio
consisting primarily of income-producing equity securities, with a secondary
emphasis on growth potential. Fidelity Management & Research Company serves as
the Fund's investment adviser.
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<PAGE> 46
FIDELITY ADVISOR GROWTH OPPORTUNITIES FUND - CLASS T
Investment Objective: Pursues capital growth that exceeds market performance
through investments in growth, cyclical, and value stocks, and securities
convertible to common stocks. Fidelity Management & Research Company serves as
the Fund's investment adviser.
FIDELITY ADVISOR HIGH YIELD FUND - CLASS T
Investment Objective: A bond Fund designed to meet the needs of the long-term
investor, seeking above-average monthly income and potential capital growth by
investing in lower-rated, high-yielding, fixed income securities. Fidelity
Management & Research Company serves as the Fund's investment adviser.
FIDELITY ASSET MANAGER(TM)
Investment Objective: Seeks high total return with reduced risk over the long
term by allocating its assets among stocks, bonds and short-term instruments.
Fidelity Management & Research Company serves as the Fund's investment adviser.
FIDELITY EQUITY-INCOME FUND
Investment Objective: Seeks to obtain reasonable income from a portfolio
consisting primarily of income-producing equity securities. The Fund seeks a
yield which exceeds the composite yield on the securities comprising the
Standard & Poor's 500 Composite Stock Price index. In addition, consistent with
the above objective, in managing its portfolio, the Fund will consider the
potential for achieving capital appreciation. Fidelity Management & Research
Company serves as the Fund's investment adviser.
FIDELITY MAGELLAN(R) FUND
Investment Objective: Seeks capital appreciation by investing primarily in
common stock and securities convertible into common stock. Up to 20% of the
Fund's assets may also be invested in debt securities of all types and qualities
issued by foreign and domestic issuers if the Fund's management believes that
doing so will result in capital appreciation. No emphasis is placed on dividend
income except when the Fund's management believes that this income will have a
favorable influence on the market value of the security. Because the Fund has no
limitation on the quality of debt securities in which it may invest, the debt
securities in its portfolio may be of poor quality and may present the risk of
default or may be in default. Fidelity Management & Research Company serves as
the Fund's investment adviser.
FIDELITY PURITAN FUND
Investment Objective: Seeks to obtain as much income as possible, consistent
with the preservation and conservation of capital, by investing in a broadly
diversified portfolio of high-yielding securities, including common stocks,
preferred stocks, and bonds. While emphasis on income is an important objective,
this does not preclude growth in capital since some securities offering a better
than average yield may also possess some growth possibilities. Fidelity
Management & Research Company serves as the Fund's investment adviser.
FIDELITY VIP HIGH INCOME PORTFOLIO
Investment Objective: Seeks to obtain a high level of current income by
investing primarily in high-risk, lower rated, high-yielding, fixed-income
securities, while also considering growth of capital. The Fund's manager will
seek high current income normally by investing the Portfolio's assets as
follows:
* at least 80% in income-producing debt securities and preferred stocks,
including convertible securities; and
* up to 20% in common stocks and other equity securities when consistent
with the Portfolio's primary objective or acquired as part of a unit
combining fixed-income and equity securities.
Higher yields are usually available on securities that are lower-rated or that
are unrated. Lower-rated securities are usually defined as Ba or lower by
Moody's; BB or lower by Standard & Poor's and may be deemed to be of a
speculative nature. The Portfolio may also purchase lower-quality bonds such as
those rated Ca3 by Moody's or C- by Standard & Poor's which provide poor
protection for payment of principal and interest (commonly referred to as "junk
bonds"). For a further discussion of lower-rated securities, please see the
"Risks of Lower-Rated Debt Securities" section of the Portfolio's prospectus.
Fidelity Management & Research Company serves as the Fund's investment adviser.
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<PAGE> 47
FRANKLIN MUTUAL SERIES FUND, INC. - MUTUAL SHARES FUND: CLASS 1
Investment Objective: Seeks capital appreciation, which may occasionally be
short-term. Income is a secondary objective. The Fund seeks to meet its
objectives by primarily investing in common stock, preferred stock and corporate
debt securities which may be convertible into common stock. Franklin Mutual
serves as the Fund's investment adviser.
JANUS FUND
Investment Objective: Seeks long-term growth of capital by investing primarily
in common stocks of a large number of issuers of any size. Generally this Fund
emphasizes issuers with larger market capitalizations. Janus Capital Corporation
serves as the Fund's investment adviser.
JANUS TWENTY FUND
Investment Objective: Seeks growth of capital in a manner consistent with the
preservation of capital. Under normal conditions, the Fund will concentrate its
investments in a core position of 20-30 common stocks. However, the percentage
of the Fund's assets invested in common stocks will vary, depending upon its
investment adviser's opinion of prevailing market, financial and economic
conditions. Consequently, the Fund may at times hold substantial positions in
cash, or interest bearing securities. Janus Capital Corporation serves as the
Fund's investment adviser.
JANUS WORLDWIDE FUND
Investment Objective: To seek long-term growth of capital in a manner consistent
with the preservation of capital. The objective is pursued primarily through
investments in common stocks of foreign and domestic issuers. The Fund may
invest on a worldwide basis in companies and organizations of any size,
regardless of country of organization or place of principal business activity.
The Fund normally invests in issuers from at least five different countries.
Janus Capital Corporation serves as the Fund's investment adviser.
MFS(R) WORLD GOVERNMENTS FUND
Investment Objective: To seek not only preservation, but also growth of capital,
together with moderate current income through a professionally managed
internationally diversified portfolio consisting primarily of debt securities
and, to a lesser extent, equity securities. The Fund is designed for investors
who wish to diversify their investments beyond the United States and who are
prepared to accept the risks entailed in such investments which may be higher
than those associated with certain U.S. Investments. Massachusetts Financial
Services Company serves as the Fund's investment adviser.
NATIONWIDE(R) BOND FUND (UNTIL MAY 9, 1998)
Investment Objective: Seeks to generate a high level of income consistent with
capital preservation through investments in high quality bonds and other fixed
income securities. Through investment in long-term income obligations, including
corporate debt securities, United States and Canadian government obligations and
commercial paper, this Fund seeks to serve those who are less willing to accept
the greater risk and higher volatility of a common stock portfolio. Nationwide
Advisory Services, Inc. serves as the Fund's investment adviser.
NATIONWIDE BOND FUND - CLASS D (BEGINNING MAY 9, 1998)
Investment Objective: Seeks as high a level of income as is consistent with
preservation of capital. The Fund invests primarily in fixed-income securities
and currently focuses on corporate debt investments and U.S. Government
mortgage-backed securities. Under normal market conditions, the dollar-weighted
average portfolio maturity of the Fund will be intermediate, which is defined as
being between six and ten years.
NATIONWIDE(R) FUND (UNTIL MAY 9, 1998)
Investment Objective: Seeks to obtain a reasonable current income on invested
capital and possible growth of such income through timely investments in common
stocks, convertible issues or bonds. Major emphasis in the selection of
investments for this Fund is placed on securities which will provide a
reasonable current return. Though growth of capital considerations is secondary,
an effort is made to select those securities which, while paying a reasonable
current return, also hold some promise of long-term growth as well as
possibilities of growth of income. Nationwide Advisory Services, Inc. serves as
the Fund's investment adviser.
NATIONWIDE FUND - CLASS D (BEGINNING MAY 9, 1998)
Investment Objective: Seeks total return through a flexible combination of
current income and capital appreciation. The Fund invests primarily in common
stocks, but also in convertible securities, other equity securities, bonds and
money market obligations.
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NATIONWIDE(R) GROWTH FUND (UNTIL MAY 9, 1998)
Investment Objective: Seeks to achieve reasonable growth of capital through
selective participation in the long-term progress of business without emphasis
on current return on invested capital. Major emphasis in the selection of
securities for this Fund is placed on strong companies which have capable
management, and are in fields where social and economic trends, technical
developments and new processes or products indicate greater than average growth.
Nationwide Advisory Services, Inc. serves as the Fund's investment adviser.
NATIONWIDE GROWTH FUND - CLASS D (BEGINNING MAY 9, 1998)
Investment Objective: Seeks long-term capital appreciation. The Fund invests
primarily in equity securities of companies of all sizes. Major emphasis in the
selection of securities is placed on companies which have capable management,
and are in fields where social and economic trends, technological developments,
and new processes or products indicate a potential for greater-than-average
growth.
NATIONWIDE(R) MONEY MARKET FUND (UNTIL MAY 9, 1998)
Investment Objective: Seeks to provide as high a level of current income as is
consistent with the preservation of capital and maintenance of liquidity,
through a diversified portfolio of high quality money market instruments
maturing in one year or less. Nationwide Advisory Services, Inc. serves as the
Fund's investment adviser.
NATIONWIDE MONEY MARKET FUND (BEGINNING MAY 9, 1998)
Investment Objective: Seeks as high a level of current income as is consistent
with the preservation of capital and maintenance of liquidity. The Fund invests
in high-quality money market instruments maturing in 397 days or less.
NATIONWIDE(R) U.S. GOVERNMENT INCOME FUND (UNTIL MAY 9, 1998)
Investment Objective: Seeks to provide as high a level of current income as is
consistent with the preservation of capital by investing in securities of the
U.S. Government, its agencies and instrumentalities. The average dollar-weighted
maturity of the Fund will be maintained at between 3 and 10 years. Nationwide
Advisory Services, Inc. serves as the Fund's investment adviser.
NATIONWIDE INTERMEDIATE U.S. GOVERNMENT BOND FUND - CLASS D (BEGINNING MAY 9,
1998)
Investment Objective: Seeks as high a level of current income as is consistent
with the preservation of capital. The Fund invests in securities of the U.S.
Government and its agencies and instrumentalities. The average duration of the
Fund will be between three and a half and six years.
NEUBERGER & BERMAN EQUITY TRUST(R) - NEUBERGER & BERMAN GENESIS TRUST
Investment Objective: Seeks capital appreciation by investing primarily in
stocks of companies with small market capitalizations (usually up to $1.5
billion). The portfolio manager seeks to buy the stocks of strong companies with
a history of solid performance and a proven management team, which are selling
at attractive prices. Neuberger&Berman Management Incorporated serves as the
Fund's investment adviser. THIS FUND IS NOT AVAILABLE FOR PLANS ESTABLISHED ON
OR AFTER MARCH 6, 1998.
NEUBERGER & BERMAN GUARDIAN FUND, INC.
Investment Objective: Seeks capital appreciation through investments generally
in dividend-paying issues of established companies that its investment officers
believe are well managed. The emphasis of the Fund's investments is on common
stock. The Fund diversifies its holdings among different industries and
different companies in light of conditions prevailing at any given time. Current
income is a secondary objective. (This fund is not available for Plans
established on or after March 6, 1998). Neuberger&Berman Management Incorporated
serves as the Fund's investment adviser.
NEUBERGER & BERMAN LIMITED MATURITY BOND FUND
Investment Objective: Seeks highest current income consistent with low risk to
principal and liquidity. The Fund invests in a diversified portfolio of short-to
intermediate-term debt securities and other debt securities with special
features producing similar price characteristics. Total return is a secondary
objective.
Neuberger&Berman Management Incorporated serves as the Fund's investment
adviser.
NEUBERGER & BERMAN PARTNERS FUND, INC.
Investment Objective: Seeks capital growth. The Fund invests in securities
solely on the basis of management's evaluation of their investment merit and
potential for growth using a value-oriented approach to the selection of
individual securities. The Fund's management believes that the Fund is an
attractive investment vehicle for conservative investors who are interested in
long-term appreciation from stock investments, but who have a low tolerance for
risk. Neuberger&Berman Management Incorporated serves as the Fund's investment
adviser.
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OPPENHEIMER GLOBAL FUND
Investment Objective: Seeks capital appreciation. The Fund emphasizes investment
in foreign and domestic securities considered by the Fund's investment manager
to have appreciation possibilities, primarily common stocks or securities having
investment characteristics of common stocks (such as convertible securities) of
"growth-type" companies. As a matter of fundamental policy, under normal market
conditions, the Fund will invest its total assets in securities of issuers
traded in markets in at least three different countries (which may include the
United States). The portfolio may also emphasize securities of cyclical
industries and "special situations" when the Fund's manager believes that they
present opportunities for capital growth. The remainder of the Fund's invested
assets will be invested in securities for liquidity purposes.
OppenheimerFunds, Inc. serves as the Fund's investment adviser.
PHOENIX BALANCED FUND SERIES
Investment Objective: The Fund seeks reasonable income, long-term capital growth
and conservation of capital. It is intended that the Fund will invest in common
stocks and fixed income securities, with emphasis on income-producing securities
which appear to have some potential for capital enhancement. Phoenix Investment
Counsel serves as the Fund's investment adviser.
STRONG TOTAL RETURN FUND, INC.
Investment Objective: Seeks a combination of income and capital appreciation
which will produce the highest total return while assuming reasonable risks.
"Reasonable risks" refers to the advisor's judgment that the risks of investing
in the securities in the Total Return Fund's portfolio are no greater than
normal. The Total Return Fund invests in common stocks and other equity-type
securities; corporate bonds, debentures, and notes; and short-term money market
instruments. Common stocks may be either growth or income oriented. Other
equity-type securities are limited to convertible bonds, preferred stocks,
warrants, and convertible preferred shares. Short-term money market instruments
include U.S. Treasury obligations, bank certificates of deposit, commercial
paper, and variable-rate master demand notes (floating-rate debt instruments
without a fixed maturity). The Total Return Fund may also invest in debt
securities issued or guaranteed by the U.S. government and its agencies or
instrumentalities. Strong Capital Management, Inc. serves as the Fund's
investment adviser.
TEMPLETON FOREIGN FUND - CLASS I
Investment Objective: Seeks long-term capital growth through a flexible policy
of investing in stocks and debt obligations of companies and governments outside
the United States. Any income realized will be incidental. Templeton Investment
Counsel, Inc. serves as the Fund's investment adviser.
WARBURG PINCUS EMERGING GROWTH FUND
Investment Objective: Seeks maximum capital appreciation by investing in equity
securities of small- to medium-sized companies in the United States with
emerging or renewed growth potential. Warburg, Pincus Counsellors, Inc., serves
as the Fund's investment adviser.
WARBURG PINCUS GLOBAL FIXED INCOME FUND
Investment Objective: Seeks to maximize total investment return consistent with
prudent investment management, consisting of a combination of interest income,
currency gains and capital appreciation. The Fund will pursue its objective by
investing in a portfolio principally consisting of investment grade fixed income
securities of governmental and corporate issuers denominated id various
currencies, including U.S. dollars. Warburg, Pincus Counsellors, Inc., serves as
the Fund's investment adviser.
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UNDERLYING MUTUAL FUND OPTIONS
(AVAILABLE FOR CONTRACTS ISSUED ON OR AFTER DECEMBER 25, 1982
AND BEFORE JANUARY 1, 1993)
For Contracts issued on or after December 25, 1982, and before January 1, 1993
Variable Account Purchase Payments may be allocated only to the Sub-Accounts
which consist of shares of the Underlying Mutual Fund options listed below:
AMERICAN CENTURY: BENHAM SHORT-TERM GOVERNMENT
Investment Objective: To seek current income and limited price volatility by
maintaining an average weighted portfolio maturity of four years or less. U.S.
Governments invests in securities of the United States government and its
agencies. American Century Investment Management, Inc. serves as the Fund's
investment adviser.
AMERICAN CENTURY: TWENTIETH CENTURY GROWTH
Investment Objective: To seek capital growth through investment in securities
which the management considers to have better than average prospects for
appreciation of value. The Fund's investment approach identifies companies with
accelerating earnings and revenues. As part of it strategy, the Fund remains
essentially fully invested in stocks at all times. American Century Investment
Management, Inc. serves as the Fund's investment adviser.
FIDELITY CAPITAL & INCOME FUND
Investment Objective: Seeks to provide a combination of income and capital
growth by investing primarily in debt instruments and common and preferred
stocks, with a focus on lower-quality debt securities of companies with
uncertain financial positions. Fidelity Management & Research Company serves as
the Fund's investment adviser.
FIDELITY EQUITY-INCOME FUND
Investment Objective: Seeks to obtain reasonable income from a portfolio
consisting primarily of income-producing equity securities. The Fund seeks a
yield which exceeds the composite yield on the securities comprising the
Standard & Poor's 500 Composite Stock Price index. In addition, consistent with
the above objective, in managing its portfolio, the Fund will consider the
potential for achieving capital appreciation. Fidelity Management & Research
Company serves as the Fund's investment adviser.
FIDELITY VIP HIGH INCOME PORTFOLIO
Investment Objective: Seeks to obtain a high level of current income by
investing primarily in high-risk, lower rated, high-yielding, fixed-income
securities, while also considering growth of capital. The Fund's manager will
seek high current income normally by investing the Portfolio's assets as
follows:
* at least 80% in income-producing debt securities and preferred stocks,
including convertible securities; and
* up to 20% in common stocks and other equity securities when consistent
with the Portfolio's primary objective or acquired as part of a unit
combining fixed-income and equity securities.
Higher yields are usually available on securities that are lower-rated or that
are unrated. Lower-rated securities are usually defined as Ba or lower by
Moody's; BB or lower by Standard & Poor's and may be deemed to be of a
speculative nature. The Portfolio may also purchase lower-quality bonds such as
those rated Ca3 by Moody's or C- by Standard & Poor's which provide poor
protection for payment of principal and interest (commonly referred to as "junk
bonds"). For a further discussion of lower-rated securities, please see the
"Risks of Lower-Rated Debt Securities" section of the Portfolio's prospectus.
Fidelity Management & Research Company serves as the Fund's investment adviser.
MFS(R) WORLD GOVERNMENTS FUND
Investment Objective: To seek not only preservation, but also growth of capital,
together with moderate current income through a professionally managed
internationally diversified portfolio consisting primarily of debt securities
and, to a lesser extent, equity securities. The Fund is designed for investors
who wish to diversify their investments beyond the United States and who are
prepared to accept the risks entailed in such investments which may be higher
than those associated with certain U.S. Investments. Massachusetts Financial
Services Company serves as the Fund's investment adviser.
50
<PAGE> 51
NATIONWIDE(R) MONEY MARKET FUND (UNTIL MAY 9, 1998)
Investment Objective: To provide as high a level of current income as is
consistent with the preservation of capital and maintenance of liquidity,
through a diversified portfolio of high quality money market instruments
maturing in one year or less. Nationwide Advisory Services, Inc. serves as the
Fund's investment adviser.
NATIONWIDE MONEY MARKET FUND (BEGINNING MAY 9, 1998)
Investment Objective: Seeks as high a level of current income as is consistent
with the preservation of capital and maintenance of liquidity. The Fund invests
in high-quality money market instruments maturing in 397 days or less.
51
<PAGE> 52
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1998
DEFERRED VARIABLE ANNUITY CONTRACTS ISSUED
BY THE NATIONWIDE VARIABLE ACCOUNT OF
NATIONWIDE LIFE INSURANCE COMPANY
This Statement of Additional Information is not a prospectus. It contains
information in addition to and more detailed than set forth in the prospectus
and should be read in conjunction with the prospectus dated May 1, 1998. The
prospectus may be obtained from Nationwide Life Insurance Company by writing P.
O. Box 16609, Columbus, Ohio 43216-6609, or calling 1-800-848-6631, TDD
1-800-238-3035.
TABLE OF CONTENTS
PAGE
General Information and History..............................................1
Services.....................................................................1
Purchase of Securities Being Offered.........................................1
Underwriters.................................................................2
Advertising..................................................................2
Annuity Payments.............................................................3
Financial Statements.........................................................4
GENERAL INFORMATION AND HISTORY
Nationwide Variable Account ("Variable Account") is a separate investment
account of Nationwide Life Insurance Company ("Company"). The Company is a
member of the Nationwide Insurance Enterprise and all of the Company'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
(95.3%) and Nationwide Mutual Fire Insurance Company (4.7%), the ultimate
controlling persons of Nationwide Insurance Enterprise.
SERVICES
The Company, which has responsibility for administration of the Contracts and
the Variable Account, maintains records of the name, address, taxpayer
identification number, and other pertinent information for each Contract Owner
and the number and type of Contract issued to each such Contract Owner and
records with respect to the Contract Value of each Contract.
The Custodian of the assets of the Variable Account is the Company. The Company
will maintain a record of all purchases and redemptions of shares of the
Underlying Mutual Fund options. The Company, or affiliates of the Company 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 the Company or an affiliate of the Company
and provide for an annual fee based on the average aggregate net assets of the
Variable Account (and other separate accounts of the Company or life insurance
company subsidiaries of the Company) 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 Peat Marwick LLP, independent certified public accountants, Two
Nationwide Plaza, Columbus, Ohio 43215, and upon the authority of said firm as
experts in accounting and auditing.
PURCHASE OF SECURITIES BEING OFFERED
The Contracts will be sold by licensed insurance agents in the states where the
Contracts may be lawfully sold. Such agents will be registered representatives
of broker-dealers registered under the Securities Exchange Act of 1934 who are
members of the National Association of Securities Dealers, Inc. ("NASD").
52
<PAGE> 53
The Contract Owner may, on written request, transfer up to 100% of the Contract
Value from the Variable Account to the Fixed Account. However, the Company
reserves the right to restrict transfers from the Variable Account to 25% of
Contract Value in any 12 month period. Such transfers must be made prior to the
earlier of the Annuitization Date or the death of the Designated Annuitant.
However, no such transfers will be permitted prior to the first Contract
Anniversary, or within 12 months of any prior transfer. Contract Owners may at
the maturity of an Interest Rate Guarantee Period transfer a portion of the
Contract Value of the Fixed Account to the Variable Account.
Such portion will be determined by the Company at its sole discretion, but will
not be less than 10% of the total value of the portion of the Fixed Account that
is maturing, and will be declared upon the expiration date of the then current
interest rate guarantee period. The Interest Rate Guarantee Period expires on
the final day of a calendar quarter; therefore the Interest Rate Guarantee
Period for deposits or transfers in the Fixed Account may continue for up to
three months after a one year period has expired. Transfers under this provision
must be made within 30 days after the expiration date of the guarantee period.
Owners who have entered into a Dollar Cost Averaging Agreement with the Company
may transfer from the Fixed Account to the Variable Account under the terms of
that agreement.
UNDERWRITERS
The Contracts, which are offered continuously, are distributed by Nationwide
Advisory Services, Inc. ("NAS"), One Nationwide Plaza, Columbus, Ohio 43216, a
wholly owned subsidiary of the Company. During the fiscal years ended December
31, 1995, 1994 and 1993 no underwriting commissions were paid by the Company to
NAS.
ADVERTISING
A "yield" and "effective yield" may be advertised for the Nationwide 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 Nationwide
Money Market Fund's units. Yield is an annualized figure, which means that it is
assumed that the Nationwide Money Market Fund generates the same level of net
income over a 52-week period. The "effective yield" is calculated similarly but
includes the effect of assumed compounding, calculated under rules prescribed by
the SEC. The effective yield will be slightly higher than yield due to this
compounding effect.
The Company may also from time to time advertise the performance of a
Sub-Account of the Variable Account relative to the performance of other
variable annuity sub-accounts or 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:
precious metals; real estate; stocks and bonds; closed-end funds; CDs; bank
money market deposit accounts and passbook savings; and the Consumer Price
Index.
The Sub-Accounts may also be compared to certain market indexes, which may
include, but are not limited to: S&P 500; Shearson/Lehman Intermediate
Government/Corporate Bond Index; Shearson/Lehman Long-Term Government/Corporate
Bond Index; Donoghue Money Fund Average; U.S. Treasury Note Index; Bank Rate
Monitor National Index of 2-1/2 Year CD Rates; and Dow Jones Industrial Average.
Normally these rankings and ratings are published by independent tracking
services and publications of general interest including, but not limited to:
Lipper Analytical Services, Inc., CDA/Wiesenberger, Morningstar, Donoghue's,
magazines such as Money, Forbes, Kiplinger's Personal Finance Magazine,
Financial World, Consumer Reports, Business Week, Time, Newsweek, National
Underwriter, U.S. News and World Report; rating services such as LIMRA, Value,
Best's Agent Guide, Western Annuity Guide, Comparative Annuity Reports; and
other publications such as the Wall Street Journal, Barron's, Investor's Daily,
and Standard & Poor's Outlook. In addition, Variable Annuity Research & Data
Service (The VARDS Report) is an independent rating service that ranks over 500
variable annuity funds based upon total return performance. These rating
services and publications rank the performance of the underlying Mutual Fund
options against all underlying mutual funds over specified periods and against
underlying mutual funds in specified categories. The rankings may or may not
include the effects of sales charges or other fees.
The Company is also ranked and rated by independent financial rating services,
among which are Moody's, Standard & Poor's and A.M. Best Company. The purpose of
these ratings is to reflect the financial strength or claims-paying ability of
the Company. The ratings are not intended to reflect the investment experience
or financial strength of the Variable Account. The Company may advertise these
ratings from time to time. In
53
<PAGE> 54
addition, the Company may include in certain advertisements, endorsements in the
form of a list of organizations, individuals or other parties which recommend
the Company or the Contracts. Furthermore, the Company may occasionally include
in advertisements comparisons of currently taxable and tax deferred investment
programs, based on selected tax brackets, or discussions of alternative
investment vehicles and general economic conditions.
The Company may, from time to time, advertise several types of historical
performance of the Sub-Accounts. The Company 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"
illustrates the percentage rate or 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 the underlying Mutual Fund option has not been available for the
prescribed periods. THIS CALCULATION REFLECTS THE DEDUCTION OF ALL APPLICABLE
CHARGES 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," illustrates 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
option has been in existence. For those underlying Mutual Fund options which
have not been held as Sub-Accounts for one of the prescribed periods, the
nonstandardized total return illustrations will show the investment performance
such underlying Mutual Fund options would have achieved (reduced by the same
charges except the CDSC) had such underlying Mutual Fund options been available
in the Variable Account for the periods quoted. THE CDSC IS NOT REFLECTED
BECAUSE THE CONTRACTS ARE DESIGNED FOR LONG TERM INVESTMENT. THE CDSC, IF
REFLECTED, WOULD DECREASE THE LEVEL OF PERFORMANCE SHOWN. AN INITIAL INVESTMENT
OF $10,000 IS ASSUMED BECAUSE THAT AMOUNT MORE CLOSELY APPROXIMATES THE SIZE OF
A TYPICAL CONTRACT THAN DOES THE $1,000 ASSUMPTION USED IN CALCULATING THE
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN QUOTATIONS.
The standardized average annual total return and nonstandardized total return
quotations reflected below are calculated as described in this section using
underlying Mutual Fund performance for the periods ended December 31, 1997.
However, the Company generally provides performance quotations on a more
frequent basis, the results of which could reflect better or worse results than
shown below. The quotations and other comparative material advertised by the
Company are based upon historical earnings and are not intended to represent or
guarantee future results. A Contract Owner's Contract Value at redemption may be
more or less than the original cost.
ANNUITY PAYMENTS
See "Frequency and Amount of Annuity Payments" located in the prospectus.
3
56 of 127
<PAGE> 55
<PAGE> 1
Independent Auditors' Report
The Board of Directors of Nationwide Life Insurance Company and Contract Owners
of Nationwide Variable Account:
We have audited the accompanying statement of assets, liabilities and
contract owners' equity of Nationwide Variable Account as of December 31, 1997,
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, 1997, by correspondence with
the transfer agents of the underlying mutual funds. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Nationwide Variable Account
as of December 31, 1997, 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 Peat Marwick LLP
Columbus, Ohio
February 6, 1998
<PAGE> 2
NATIONWIDE VARIABLE ACCOUNT
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY
DECEMBER 31, 1997
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments at market value:
American Century: Benham Short-Term Government Fund (ACBenSTGvt)
322,728 shares (cost $3,063,751) ..................................................... $ 3,059,462
American Century: Income & Growth Fund (ACIncGro)
78,031 shares (cost $1,985,279) ...................................................... 1,896,148
American Century: Twentieth Century Growth Fund (ACTCGro)
437,633 shares (cost $9,177,412) ..................................................... 10,507,571
American Century: Twentieth Century International Growth Fund (ACTCIntlGr)
60,876 shares (cost $534,608) ........................................................ 498,575
American Century: Twentieth Century Ultra Fund (ACTCUltra)
406,190 shares (cost $11,493,162) .................................................... 11,089,000
Delaware Group Delchester High-Yield Bond Fund, Inc. -
Delchester Fund Institutional Class (DeHYBd)
202,610 shares (cost $1,276,667) ..................................................... 1,337,226
Dreyfus A Bonds Plus, Inc. (DryABds)
125,915 shares (cost $1,809,206) ..................................................... 1,848,437
Dreyfus S&P 500 Index Fund (Dry500Ix)
265,889 shares (cost $6,920,293) ..................................................... 7,631,005
The Dreyfus Third Century Fund, Inc. (Dry3dCen)
68,646 shares (cost $687,467) ........................................................ 721,470
Evergreen Income and Growth Fund - Class Y (EvIncGro)
46,367 shares (cost $928,011) ........................................................ 1,109,571
Federated Investment Series Funds, Inc. - Federated Bond Fund - Class F (FedBdFd)
36,894 shares (cost $360,585) ........................................................ 371,518
Fidelity Advisor Balanced Fund - Class T (FABal)
9,643 shares (cost $172,352) ......................................................... 175,498
Fidelity Advisor Equity Income Fund - Class T (FAEqInc)
46,988 shares (cost $1,069,908) ...................................................... 1,210,399
Fidelity Advisor Growth Opportunities Fund - Class T (FAGrOpp)
113,035 shares (cost $4,374,500) ..................................................... 4,798,327
Fidelity Advisor High Yield Fund - Class T (FAHiYld)
198,168 shares (cost $2,480,669) ..................................................... 2,492,962
Fidelity Asset Manager(TM) (FidAsMgr)
199,890 shares (cost $3,256,694) ..................................................... 3,667,988
Fidelity Capital & Income Fund (FidCapInc)
128,863 shares (cost $1,176,433) ..................................................... 1,289,914
Fidelity Equity-Income Fund (FidEqInc)
332,832 shares (cost $12,537,481) .................................................... 17,443,710
Fidelity Magellan(R) Fund (FidMgln)
153,045 shares (cost $12,884,011) .................................................... 14,580,637
Fidelity Puritan(R) Fund (FidPurtn)
611,901 shares (cost $10,708,661) .................................................... 11,858,632
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
Fidelity VIP - High Income Portfolio (FidVIPHI)
20,130 shares (cost $225,352) ........................................................ 273,365
Janus Fund (JanFund)
138,458 shares (cost $3,583,124) ..................................................... 3,447,601
Janus Twenty Fund (Jan20Fd)
190,683 shares (cost $5,958,137) ..................................................... 5,909,259
Janus Worldwide Fund (JanWrldwde)
105,205 shares (cost $4,027,859) ..................................................... 3,974,631
MFS(R) World Governments Fund - Class A (MFSWdGvt)
69,856 shares (cost $788,900) ........................................................ 757,242
Nationwide(R) Bond Fund (NWBdFd)
179,767 shares (cost $1,663,450) ..................................................... 1,713,181
Nationwide(R) Fund (NWFund)
170,126 shares (cost $3,419,578) ..................................................... 4,506,644
Nationwide(R) Growth Fund (NWGroFd)
300,984 shares (cost $3,688,337) ..................................................... 4,406,402
Nationwide(R) Money Market Fund (NWMyMkt)
7,768,484 shares (cost $7,768,484) ................................................... 7,768,484
Nationwide(R) U.S. Government Income Fund (NWUSGvt)
7,277 shares (cost $73,266) .......................................................... 75,166
Neuberger & Berman Guardian Fund (NBGuard)
294,771 shares (cost $7,497,897) ..................................................... 7,634,559
Neuberger & Berman Limited Maturity Bond Fund (NBLtdMat)
78,435 shares (cost $782,440) ........................................................ 785,132
Neuberger & Berman Partners Fund (NBPartFd)
282,386 shares (cost $7,386,546) ..................................................... 7,426,740
Oppenheimer Global Fund - Class A (OppGlob)
138,920 shares (cost $5,554,092) ..................................................... 5,695,730
Phoenix Balanced Fund Series - Class A (PhxBalFd)
42,603 shares (cost $703,006) ........................................................ 663,762
Strong Total Return Fund, Inc. (StTotRet)
60,960 shares (cost $1,746,436) ...................................................... 1,613,008
Templeton Foreign Fund - Class I (TemForFd)
485,053 shares (cost $4,979,238) ..................................................... 4,826,279
Warburg Pincus Emerging Growth Fund - Common Shares (WPEmGro)
118,616 shares (cost $4,016,254) ..................................................... 4,480,138
-----------
Total investments ................................................................. 163,545,373
Accounts receivable ........................................................................ 13,985
-----------
Total assets ...................................................................... 163,559,358
ACCOUNTS PAYABLE .............................................................................. 4,632
-----------
CONTRACT OWNERS' EQUITY (NOTE 4) .............................................................. $163,554,726
============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 4
NATIONWIDE VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
TOTAL ACBenSTGvt
------------------------------ ------------------------------
1997 1996 1997 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends ............................. $ 2,943,209 2,538,255 177,782 227,106
Mortality, expense and administration
charges (note 2) ............................... (1,849,500) (1,250,216) (42,118) (55,192)
-------------- -------------- -------------- --------------
Net investment activity ........................ 1,093,709 1,288,039 135,664 171,914
-------------- -------------- -------------- --------------
Proceeds from mutual fund shares sold ............ 47,219,466 32,882,395 925,121 1,811,725
Cost of mutual fund shares sold .................. (41,630,262) (30,480,861) (914,401) (1,849,476)
-------------- -------------- -------------- --------------
Realized gain (loss) on investments ............ 5,589,204 2,401,534 10,720 (37,751)
Change in unrealized gain (loss) on investments .. 6,076,074 2,414,112 (2,838) (23,552)
-------------- -------------- -------------- --------------
Net gain (loss) on investments ................. 11,665,278 4,815,646 7,882 (61,303)
-------------- -------------- -------------- --------------
Reinvested capital gains ......................... 13,114,383 5,820,660 - -
-------------- -------------- -------------- --------------
Net increase (decrease) in contract owners'
equity resulting from operations ........... 25,873,370 11,924,345 143,546 110,611
-------------- -------------- -------------- --------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ................................ 36,040,726 36,936,853 178,490 219,736
Transfers between funds .......................... - - (53,232) 76,052
Redemptions ...................................... (12,768,924) (11,033,070) (517,635) (1,489,133)
Annuity benefits ................................. (17,520) (22,282) (938) (934)
Annual contract maintenance charge (note 2) ...... (108,625) (82,641) (1,865) (2,716)
Contingent deferred sales charges (note 2) ....... (262,567) (162,303) (15,741) (24,112)
Adjustments to maintain reserves ................. 9,849 1,139 301 (1,096)
-------------- -------------- -------------- --------------
Net equity transactions ...................... 22,892,939 25,637,696 (410,620) (1,222,203)
-------------- -------------- -------------- --------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ............ 48,766,309 37,562,041 (267,074) (1,111,592)
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ...... 114,788,417 77,226,376 3,326,872 4,438,464
-------------- -------------- -------------- --------------
CONTRACT OWNERS' EQUITY END OF PERIOD ............ $ 163,554,726 114,788,417 3,059,798 3,326,872
============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
ACIncGro ACTCGro
------------------------------ -------------------------------
1997 1996 1997 1996
------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends ............................. 15,209 524 - 80,898
Mortality, expense and administration
charges (note 2) ............................... (12,374) (238) (134,498) (131,009)
------------- -------------- -------------- --------------
Net investment activity ........................ 2,835 286 (134,498) (50,111)
------------- -------------- -------------- --------------
Proceeds from mutual fund shares sold ............ 1,753,420 4,547 2,899,543 3,327,649
Cost of mutual fund shares sold .................. (1,566,771) (4,407) (2,626,829) (3,631,285)
------------- -------------- -------------- --------------
Realized gain (loss) on investments ............ 186,649 140 272,714 (303,636)
Change in unrealized gain (loss) on investments .. (79,760) (9,371) 768,718 1,519,093
------------- -------------- -------------- --------------
Net gain (loss) on investments ................. 106,889 (9,231) 1,041,432 1,215,457
------------- -------------- -------------- --------------
Reinvested capital gains ......................... 150,836 11,052 1,546,715 108,746
------------- -------------- -------------- --------------
Net increase (decrease) in contract owners'
equity resulting from operations ........... 260,560 2,107 2,453,649 1,274,092
------------- -------------- -------------- --------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ................................ 589,787 30,775 482,037 546,891
Transfers between funds .......................... 869,824 159,628 (543,754) (531,981)
Redemptions ...................................... (14,946) - (1,535,818) (2,126,066)
Annuity benefits ................................. - - (4,775) (10,768)
Annual contract maintenance charge (note 2) ...... (224) (3) (16,461) (18,458)
Contingent deferred sales charges (note 2) ....... (78) - (16,969) (10,179)
Adjustments to maintain reserves ................. (3) (1,176) 9,189 (5,131)
------------- -------------- -------------- --------------
Net equity transactions ...................... 1,444,360 189,224 (1,626,551) (2,155,692)
------------- -------------- -------------- --------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ............ 1,704,920 191,331 827,098 (881,600)
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ...... 191,331 - 9,690,046 10,571,646
------------- -------------- -------------- --------------
CONTRACT OWNERS' EQUITY END OF PERIOD ............ 1,896,251 191,331 10,517,144 9,690,046
============= ============== ============== ==============
</TABLE>
<PAGE> 5
NATIONWIDE VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
ACTCIntlGr ACTCUltra
------------------------------ ------------------------------
1997 1996 1997 1996
--------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends ............................... $ 1,451 - 4,160 -
Mortality, expense and administration
charges (note 2) ................................. (7,272) (5,767) (122,017) (71,928)
-------------- -------------- -------------- --------------
Net investment activity .......................... (5,821) (5,767) (117,857) (71,928)
-------------- -------------- -------------- --------------
Proceeds from mutual fund shares sold .............. 411,368 425,002 1,635,447 706,950
Cost of mutual fund shares sold .................... (361,201) (404,052) (1,055,134) (499,670)
-------------- -------------- -------------- --------------
Realized gain (loss) on investments .............. 50,167 20,950 580,313 207,280
Change in unrealized gain (loss) on investments .... (27,035) (19,547) (936,614) 90,742
-------------- -------------- -------------- --------------
Net gain (loss) on investments ................... 23,132 1,403 (356,301) 298,022
-------------- -------------- -------------- --------------
Reinvested capital gains ........................... 65,811 51,779 2,211,772 411,800
-------------- -------------- -------------- --------------
Net increase (decrease) in contract owners'
equity resulting from operations ............. 83,122 47,415 1,737,614 637,894
-------------- -------------- -------------- --------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners .................................. 154,962 185,670 3,371,633 3,378,867
Transfers between funds ............................ (81,095) (28,602) (589,520) 447,098
Redemptions ........................................ (151,902) (3,375) (729,493) (392,197)
Annuity benefits ................................... - - - -
Annual contract maintenance charge (note 2) ........ (269) (161) (7,543) (3,604)
Contingent deferred sales charges (note 2) ......... (6,228) (145) (23,504) (15,448)
Adjustments to maintain reserves ................... (16) (135) 96 1,318
-------------- -------------- -------------- --------------
Net equity transactions ........................ (84,548) 153,252 2,021,669 3,416,034
-------------- -------------- -------------- --------------
NET CHANGE IN CONTRACT OWNERS' EQUITY .............. (1,426) 200,667 3,759,283 4,053,928
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ........ 499,994 299,327 7,329,827 3,275,899
-------------- -------------- -------------- --------------
CONTRACT OWNERS' EQUITY END OF PERIOD .............. $ 498,568 499,994 11,089,110 7,329,827
============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
DeHYBd DryABds
------------------------------ ------------------------------
1997 1996 1997 1996
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends ............................... 116,418 85,291 109,727 73,586
Mortality, expense and administration
charges (note 2) ................................. (16,476) (11,099) (23,480) (15,178)
------------- -------------- -------------- --------------
Net investment activity .......................... 99,942 74,192 86,247 58,408
------------- -------------- -------------- --------------
Proceeds from mutual fund shares sold .............. 192,668 264,389 870,811 288,783
Cost of mutual fund shares sold .................... (185,268) (297,932) (874,737) (273,418)
------------- -------------- -------------- --------------
Realized gain (loss) on investments .............. 7,400 (33,543) (3,926) 15,365
Change in unrealized gain (loss) on investments .... 43,399 48,108 38,180 (28,436)
------------- -------------- -------------- --------------
Net gain (loss) on investments ................... 50,799 14,565 34,254 (13,071)
------------- -------------- -------------- --------------
Reinvested capital gains ........................... - - 21,033 -
------------- -------------- -------------- --------------
Net increase (decrease) in contract owners'
equity resulting from operations ............. 150,741 88,757 141,534 45,337
------------- -------------- -------------- --------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners .................................. 236,070 229,635 592,080 1,339,139
Transfers between funds ............................ 143,298 (148,730) (506,273) 935
Redemptions ........................................ (144,393) (10,114) (228,961) (102,373)
Annuity benefits ................................... - - - -
Annual contract maintenance charge (note 2) ........ (393) (262) (1,091) (321)
Contingent deferred sales charges (note 2) ......... (3,311) (193) (3,508) (1,874)
Adjustments to maintain reserves ................... 20 (215) 6 340
------------- -------------- -------------- --------------
Net equity transactions ........................ 231,291 70,121 (147,747) 1,235,846
------------- -------------- -------------- --------------
NET CHANGE IN CONTRACT OWNERS' EQUITY .............. 382,032 158,878 (6,213) 1,281,183
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ........ 958,214 799,336 1,854,654 573,471
------------- -------------- -------------- --------------
CONTRACT OWNERS' EQUITY END OF PERIOD .............. 1,340,246 958,214 1,848,441 1,854,654
============= ============== ============== ==============
</TABLE>
(Continued)
<PAGE> 6
NATIONWIDE VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Dry500Ix Dry3dCen
------------------------------ ------------------------------
1997 1996 1997 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends ................................ $ 76,946 53,154 1,186 571
Mortality, expense and administration
charges (note 2) .................................. (65,774) (22,204) (7,462) (2,808)
-------------- -------------- -------------- --------------
Net investment activity ........................... 11,172 30,950 (6,276) (2,237)
-------------- -------------- -------------- --------------
Proceeds from mutual fund shares sold ............... 2,535,120 1,229,204 479,349 95,093
Cost of mutual fund shares sold ..................... (2,054,865) (1,059,622) (427,821) (76,566)
-------------- -------------- -------------- --------------
Realized gain (loss) on investments ............... 480,255 169,582 51,528 18,527
Change in unrealized gain (loss) on investments ..... 604,315 64,429 39,050 (16,879)
-------------- -------------- -------------- --------------
Net gain (loss) on investments .................... 1,084,570 234,011 90,578 1,648
-------------- -------------- -------------- --------------
Reinvested capital gains ............................ 117,343 93,693 53,383 39,845
-------------- -------------- -------------- --------------
Net increase (decrease) in contract owners'
equity resulting from operations .............. 1,213,085 358,654 137,685 39,256
-------------- -------------- -------------- --------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ................................... 1,991,411 1,713,219 338,691 112,512
Transfers between funds ............................. 1,332,333 776,445 41,154 32,794
Redemptions ......................................... (182,233) (48,257) (125,882) (8,148)
Annuity benefits .................................... - - - -
Annual contract maintenance charge (note 2) ......... (2,126) (481) (358) (235)
Contingent deferred sales charges (note 2) .......... (2,808) (1,927) (3,494) (242)
Adjustments to maintain reserves .................... 420 48 33 6
-------------- -------------- -------------- --------------
Net equity transactions ......................... 3,136,997 2,439,047 250,144 136,687
-------------- -------------- -------------- --------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ............... 4,350,082 2,797,701 387,829 175,943
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ......... 3,281,068 483,367 333,644 157,701
-------------- -------------- -------------- --------------
CONTRACT OWNERS' EQUITY END OF PERIOD ............... $ 7,631,150 3,281,068 721,473 333,644
-============= ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
EvIncGro FeDBdFd
------------------------------ ------------------------------
1997 1996 1997 1996
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends ................................ 46,100 43,829 21,641 1,179
Mortality, expense and administration
charges (note 2) .................................. (12,752) (10,732) (3,878) (168)
------------- -------------- -------------- --------------
Net investment activity ........................... 33,348 33,097 17,763 1,011
------------- -------------- -------------- --------------
Proceeds from mutual fund shares sold ............... 124,635 90,034 36,495 228
Cost of mutual fund shares sold ..................... (118,286) (91,449) (36,293) (227)
------------- -------------- -------------- --------------
Realized gain (loss) on investments ............... 6,349 (1,415) 202 1
Change in unrealized gain (loss) on investments ..... 103,540 58,637 11,825 (893)
------------- -------------- -------------- --------------
Net gain (loss) on investments .................... 109,889 57,222 12,027 (892)
------------- -------------- -------------- --------------
Reinvested capital gains ............................ 68,181 - - -
------------- -------------- -------------- --------------
Net increase (decrease) in contract owners'
equity resulting from operations .............. 211,418 90,319 29,790 119
------------- -------------- -------------- --------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ................................... 60,014 68,887 42,403 10,437
Transfers between funds ............................. (27,145) 9,067 206,842 89,302
Redemptions ......................................... (50,285) (16,005) (7,402) -
Annuity benefits .................................... - - - -
Annual contract maintenance charge (note 2) ......... (423) (376) (21) (3)
Contingent deferred sales charges (note 2) .......... (1,158) (404) - -
Adjustments to maintain reserves .................... 10 26 (6) 39
------------- -------------- -------------- --------------
Net equity transactions ......................... (18,987) 61,195 241,816 99,775
------------- -------------- -------------- --------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ............... 192,431 151,514 271,606 99,894
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ......... 917,150 765,636 99,894 -
------------- -------------- -------------- --------------
CONTRACT OWNERS' EQUITY END OF PERIOD ............... 1,109,581 917,150 371,500 99,894
============= ============== ============== ==============
</TABLE>
<PAGE> 7
NATIONWIDE VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
FABal FAEqInc
------------------------------ ------------------------------
1997 1996 1997 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends ................................ $ 3,087 424 9,331 4,675
Mortality, expense and administration
charges (note 2) .................................. (1,279) (137) (12,553) (3,469)
-------------- -------------- -------------- --------------
Net investment activity ........................... 1,808 287 (3,222) 1,206
-------------- -------------- -------------- --------------
Proceeds from mutual fund shares sold ............... 20,257 14,622 146,787 82,721
Cost of mutual fund shares sold ..................... (18,774) (15,104) (121,404) (81,561)
-------------- -------------- -------------- --------------
Realized gain (loss) on investments ............... 1,483 (482) 25,383 1,160
Change in unrealized gain (loss) on investments ..... 2,888 258 113,836 26,654
-------------- -------------- -------------- --------------
Net gain (loss) on investments .................... 4,371 (224) 139,219 27,814
-------------- -------------- -------------- --------------
Reinvested capital gains ............................ 9,912 190 67,192 17,689
-------------- -------------- -------------- --------------
Net increase (decrease) in contract owners'
equity resulting from operations .............. 16,091 253 203,189 46,709
-------------- -------------- -------------- --------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ................................... 115,578 28,643 197,077 346,990
Transfers between funds ............................. 23,256 949 169,371 291,300
Redemptions ......................................... (8,828) - (41,115) (1,480)
Annuity benefits .................................... - - - -
Annual contract maintenance charge (note 2) ......... (76) - (369) (20)
Contingent deferred sales charges (note 2) .......... (348) - (1,252) (19)
Adjustments to maintain reserves .................... (26) (4) 23 16
-------------- -------------- -------------- --------------
Net equity transactions ......................... 129,556 29,588 323,735 636,787
-------------- -------------- -------------- --------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ............... 145,647 29,841 526,924 683,496
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ......... 29,841 - 683,496 -
-------------- -------------- -------------- --------------
CONTRACT OWNERS' EQUITY END OF PERIOD ............... $ 175,488 29,841 1,210,420 683,496
-============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
FAGrOpp FAHiYld
------------------------------ ------------------------------
1997 1996 1997 1996
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends ................................ 48,467 31,619 148,014 49,036
Mortality, expense and administration
charges (note 2) .................................. (46,701) (11,429) (20,450) (6,363)
------------- -------------- -------------- --------------
Net investment activity ........................... 1,766 20,190 127,564 42,673
------------- -------------- -------------- --------------
Proceeds from mutual fund shares sold ............... 1,220,774 259,241 321,627 411,083
Cost of mutual fund shares sold ..................... (997,920) (242,540) (303,939) (411,934)
------------- -------------- -------------- --------------
Realized gain (loss) on investments ............... 222,854 16,701 17,688 (851)
Change in unrealized gain (loss) on investments ..... 375,374 48,453 5,965 6,328
------------- -------------- -------------- --------------
Net gain (loss) on investments .................... 598,228 65,154 23,653 5,477
------------- -------------- -------------- --------------
Reinvested capital gains ............................ 246,460 84,317 51,990 3,761
------------- -------------- -------------- --------------
Net increase (decrease) in contract owners'
equity resulting from operations .............. 846,454 169,661 203,207 51,911
------------- -------------- -------------- --------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ................................... 1,354,651 1,166,900 743,205 549,115
Transfers between funds ............................. 633,126 825,046 829,565 205,361
Redemptions ......................................... (155,973) (33,117) (78,562) (8,317)
Annuity benefits .................................... - - - -
Annual contract maintenance charge (note 2) ......... (1,594) (200) (449) (157)
Contingent deferred sales charges (note 2) .......... (4,894) (1,783) (1,423) (302)
Adjustments to maintain reserves .................... 78 37 (337) (119)
------------- -------------- -------------- --------------
Net equity transactions ......................... 1,825,394 1,956,883 1,491,999 745,581
------------- -------------- -------------- --------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ............... 2,671,848 2,126,544 1,695,206 797,492
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ......... 2,126,544 - 797,492 -
------------- -------------- -------------- --------------
CONTRACT OWNERS' EQUITY END OF PERIOD ............... 4,798,392 2,126,544 2,492,698 797,492
============= ============== ============== ==============
</TABLE>
(Continued)
<PAGE> 8
NATIONWIDE VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
FidAsMgr FidCapInc
------------------------------ ------------------------------
1997 1996 1997 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends ................................ $ 110,938 103,229 87,131 108,809
Mortality, expense and administration
charges (note 2) .................................. (42,804) (34,887) (15,505) (16,861)
-------------- -------------- -------------- --------------
Net investment activity ........................... 68,134 68,342 71,626 91,948
-------------- -------------- -------------- --------------
Proceeds from mutual fund shares sold ............... 821,473 529,976 119,208 340,631
Cost of mutual fund shares sold ..................... (677,732) (477,442) (102,280) (256,941)
-------------- -------------- -------------- --------------
Realized gain (loss) on investments ............... 143,741 52,534 16,928 83,690
Change in unrealized gain (loss) on investments ..... 197,082 47,147 66,754 (55,028)
-------------- -------------- -------------- --------------
Net gain (loss) on investments .................... 340,823 99,681 83,682 28,662
-------------- -------------- -------------- --------------
Reinvested capital gains ............................ 205,712 130,557 - -
-------------- -------------- -------------- --------------
Net increase (decrease) in contract owners'
equity resulting from operations .............. 614,669 298,580 155,308 120,610
-------------- -------------- -------------- --------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ................................... 634,370 906,115 - 892
Transfers between funds ............................. (301,774) (238,183) (2,573) (19,968)
Redemptions ......................................... (313,159) (137,123) (97,708) (280,462)
Annuity benefits .................................... - - (1,097) (1,021)
Annual contract maintenance charge (note 2) ......... (2,060) (1,359) (2,112) (2,622)
Contingent deferred sales charges (note 2) .......... (8,276) (4,221) (281) (714)
Adjustments to maintain reserves .................... 43 (48) (550) 324
-------------- -------------- -------------- --------------
Net equity transactions ......................... 9,144 525,181 (104,321) (303,571)
-------------- -------------- -------------- --------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ............... 623,813 823,761 50,987 (182,961)
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ......... 3,044,221 2,220,460 1,238,341 1,421,302
-------------- -------------- -------------- --------------
CONTRACT OWNERS' EQUITY END OF PERIOD ............... $ 3,668,034 3,044,221 1,289,328 1,238,341
-============= ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
FidEqInc FidMgln
------------------------------ ------------------------------
1997 1996 1997 1996
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends ................................ 309,641 334,251 180,615 145,843
Mortality, expense and administration
charges (note 2) .................................. (206,648) (176,134) (171,071) (137,518)
------------- -------------- -------------- --------------
Net investment activity ........................... 102,993 158,117 9,544 8,325
------------- -------------- -------------- --------------
Proceeds from mutual fund shares sold ............... 2,893,495 2,793,431 2,718,430 3,331,197
Cost of mutual fund shares sold ..................... (1,851,804) (1,765,517) (2,272,279) (2,829,565)
------------- -------------- -------------- --------------
Realized gain (loss) on investments ............... 1,041,691 1,027,914 446,151 501,632
Change in unrealized gain (loss) on investments ..... 2,069,323 635,621 1,660,947 (964,298)
------------- -------------- -------------- --------------
Net gain (loss) on investments .................... 3,111,014 1,663,535 2,107,098 (462,666)
------------- -------------- -------------- --------------
Reinvested capital gains ............................ 658,912 593,489 753,138 1,520,319
------------- -------------- -------------- --------------
Net increase (decrease) in contract owners'
equity resulting from operations .............. 3,872,919 2,415,141 2,869,780 1,065,978
------------- -------------- -------------- --------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ................................... 1,025,601 1,125,283 2,893,931 4,354,101
Transfers between funds ............................. 20,535 514,925 (1,898,187) (2,225,713)
Redemptions ......................................... (1,703,965) (1,981,946) (939,188) (584,278)
Annuity benefits .................................... (3,737) (3,044) - -
Annual contract maintenance charge (note 2) ......... (16,868) (16,817) (12,358) (8,079)
Contingent deferred sales charges (note 2) .......... (14,857) (11,964) (27,286) (20,796)
Adjustments to maintain reserves .................... 293 474 349 1,683
------------- -------------- -------------- --------------
Net equity transactions ......................... (692,998) (373,089) 17,261 1,516,918
------------- -------------- -------------- --------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ............... 3,179,921 2,042,052 2,887,041 2,582,896
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ......... 14,264,105 12,222,053 11,693,771 9,110,875
------------- -------------- -------------- --------------
CONTRACT OWNERS' EQUITY END OF PERIOD ............... 17,444,026 14,264,105 14,580,812 11,693,771
============= ============== ============== ==============
</TABLE>
<PAGE> 9
NATIONWIDE VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
FiDPurtn FidVIPHI
----------------------------- -----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .......................... $ 361,432 227,708 18,061 33,607
Mortality, expense and administration
charges (note 2) ............................ (129,814) (81,242) (3,314) (4,459)
------------ ------------ ------------ ------------
Net investment activity ..................... 231,618 146,466 14,747 29,148
------------ ------------ ------------ ------------
Proceeds from mutual fund shares sold ......... 1,265,875 900,439 39,981 220,128
Cost of mutual fund shares sold ............... (1,040,109) (824,408) (37,078) (219,606)
------------ ------------ ------------ ------------
Realized gain (loss) on investments ......... 225,766 76,031 2,903 522
Change in unrealized gain (loss) on investments 821,043 55,936 20,298 4,464
------------ ------------ ------------ ------------
Net gain (loss) on investments .............. 1,046,809 131,967 23,201 4,986
------------ ------------ ------------ ------------
Reinvested capital gains ...................... 536,381 570,984 2,232 6,575
------------ ------------ ------------ ------------
Net increase (decrease) in contract owners'
equity resulting from operations ........ 1,814,808 849,417 40,180 40,709
------------ ------------ ------------ ------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ............................. 3,077,343 3,171,521 -- --
Transfers between funds ....................... (390,612) (290,667) (4,194) (129,328)
Redemptions ................................... (414,158) (274,189) (32,145) (85,944)
Annuity benefits .............................. -- -- -- --
Annual contract maintenance charge (note 2) ... (6,296) (3,644) (222) (335)
Contingent deferred sales charges (note 2) .... (12,075) (7,982) (95) (65)
Adjustments to maintain reserves .............. 105 794 (196) 6
------------ ------------ ------------ ------------
Net equity transactions.................... 2,254,307 2,595,833 (36,852) (215,666)
------------ ------------ ------------ ------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ......... 4,069,115 3,445,250 3,328 (174,957)
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ... 7,789,644 4,344,394 269,844 444,801
------------ ------------ ------------ ------------
CONTRACT OWNERS' EQUITY END OF PERIOD.......... $ 11,858,759 7,789,644 273,172 269,844
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
JanFund Jan20Fd
----------------------------- -----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .......................... 26,556 12,161 16,202 18,788
Mortality, expense and administration
charges (note 2) ............................ (36,518) (9,962) (64,389) (28,235)
------------ ------------ ------------ ------------
Net investment activity ..................... (9,962) 2,199 (48,187) (9,447)
------------ ------------ ------------ ------------
Proceeds from mutual fund shares sold ......... 441,921 89,607 2,411,435 497,240
Cost of mutual fund shares sold ............... (403,087) (76,986) (2,113,928) (390,729)
------------ ------------ ------------ ------------
Realized gain (loss) on investments ......... 38,834 12,621 297,507 106,511
Change in unrealized gain (loss) on investments (64,982) (70,542) 127,847 (186,194)
------------ ------------ ------------ ------------
Net gain (loss) on investments .............. (26,148) (57,921) 425,354 (79,683)
------------ ------------ ------------ ------------
Reinvested capital gains ...................... 543,614 170,001 734,575 549,938
------------ ------------ ------------ ------------
Net increase (decrease) in contract owners'
equity resulting from operations ........ 507,504 114,279 1,111,742 460,808
------------ ------------ ------------ ------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ............................. 1,003,807 803,970 1,839,757 1,262,560
Transfers between funds ....................... 441,173 702,464 185,607 688,287
Redemptions ................................... (111,066) (11,138) (607,222) (139,312)
Annuity benefits .............................. -- -- -- --
Annual contract maintenance charge (note 2) ... (1,046) (108) (2,887) (1,303)
Contingent deferred sales charges (note 2) .... (1,859) (382) (17,382) (3,587)
Adjustments to maintain reserves .............. 5 31 80 2,093
------------ ------------ ------------ ------------
Net equity transactions.................... 1,331,014 1,494,837 1,397,953 1,808,738
------------ ------------ ------------ ------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ......... 1,838,518 1,609,116 2,509,695 2,269,546
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ... 1,609,116 -- 3,399,604 1,130,058
------------ ------------ ------------ ------------
CONTRACT OWNERS' EQUITY END OF PERIOD ......... 3,447,634 1,609,116 5,909,299 3,399,604
============ ============ ============ ============
</TABLE>
(Continued)
<PAGE> 10
NATIONWIDE VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
JanWrldwde MFSWdGvt
----------------------------- -----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .......................... $ 19,023 1,937 29,388 22,183
Mortality, expense and administration (31,612) (725) (11,467) (14,487)
charges (note 2) ............................ ---------- ---------- ---------- ----------
(12,589) 1,212 17,921 7,696
Net investment activity ..................... ---------- ---------- ---------- ----------
584,448 158,261 436,153 342,660
Proceeds from mutual fund shares sold ......... (530,660) (157,152) (460,939) (381,186)
Cost of mutual fund shares sold ............... ---------- ---------- ---------- ----------
53,788 1,109 (24,786) (38,526)
Realized gain (loss) on investments ......... (29,732) (23,496) (14,028) 64,504
Change in unrealized gain (loss) on investments ---------- ---------- ---------- ----------
24,056 (22,387) (38,814) 25,978
Net gain (loss) on investments .............. ---------- ---------- ---------- ----------
252,002 25,819 3,807 6,033
Reinvested capital gains ...................... ---------- ---------- ---------- ----------
Net increase (decrease) in contract owners' 263,469 4,644 (17,086) 39,707
equity resulting from operations ........ ---------- ---------- ---------- ----------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners 1,462,110 118,957 35,762 115,330
Transfers between funds ....................... 1,864,319 341,828 (134,039) (165,073)
Redemptions ................................... (78,572) -- (161,551) (159,881)
Annuity benefits .............................. -- -- (2,597) (2,645)
Annual contract maintenance charge (note 2) ... (773) (3) (1,293) (1,872)
Contingent deferred sales charges (note 2) .... (1,044) -- (1,956) (655)
Adjustments to maintain reserves .............. (145) (119) 156 21
---------- ---------- ---------- ----------
Net equity transactions.................... 3,245,895 460,663 (265,518) (214,775)
---------- ---------- ---------- ----------
NET CHANGE IN CONTRACT OWNERS' EQUITY ......... 3,509,364 465,307 (282,604) (175,068)
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ... 465,307 -- 1,044,393 1,219,461
---------- ---------- ---------- ----------
CONTRACT OWNERS' EQUITY END OF PERIOD ......... $3,974,671 465,307 761,789 1,044,393
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
NWBdFd NWFund
----------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .......................... 99,663 101,205 42,568 36,818
Mortality, expense and administration (20,516) (20,217) (43,646) (27,690)
charges (note 2) ............................ ---------- ---------- ---------- ----------
79,147 80,988 (1,078) 9,128
Net investment activity ..................... ---------- ---------- ---------- ----------
485,789 340,199 422,079 138,210
Proceeds from mutual fund shares sold ......... (527,157) (353,001) (247,136) (88,454)
Cost of mutual fund shares sold ............... ---------- ---------- ---------- ----------
(41,368) (12,802) 174,943 49,756
Realized gain (loss) on investments ......... 78,384 (55,076) 627,149 213,562
Change in unrealized gain (loss) on investments ---------- ---------- ---------- ----------
37,016 (67,878) 802,092 263,318
Net gain (loss) on investments .............. ---------- ---------- ---------- ----------
-- -- 218,982 149,374
Reinvested capital gains ...................... ---------- ---------- ---------- ----------
Net increase (decrease) in contract owners' 116,163 13,110 1,019,996 421,820
equity resulting from operations ........ ---------- ---------- ---------- ----------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners 218,598 385,228 613,432 168,174
Transfers between funds ....................... (104,705) (245,517) 548,513 118,657
Redemptions ................................... (130,239) (27,871) (165,231) (6,221)
Annuity benefits .............................. (203) (200) (1,292) (1,007)
Annual contract maintenance charge (note 2) ... (1,055) (961) (1,864) (1,455)
Contingent deferred sales charges (note 2) .... (2,203) (233) (600) (224)
Adjustments to maintain reserves .............. 8 9 (1,053) 294
---------- ---------- ---------- ----------
Net equity transactions.................... (19,799) 110,455 991,905 278,218
---------- ---------- ---------- ----------
NET CHANGE IN CONTRACT OWNERS' EQUITY ......... 96,364 123,565 2,011,901 700,038
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ... 1,616,821 1,493,256 2,488,829 1,788,791
---------- ---------- ---------- ----------
CONTRACT OWNERS' EQUITY END OF PERIOD ......... 1,713,185 1,616,821 4,500,730 2,488,829
========== ========== ========== ==========
</TABLE>
<PAGE> 11
NATIONWIDE VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
NWGroFd NWMyMkt
----------------------------- -----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .......................... $ 31,889 37,290 427,521 399,919
Mortality, expense and administration (53,875) (44,458) (111,984) (108,268)
charges (note 2) ............................ ----------- ----------- ----------- -----------
(21,986) (7,168) 315,537 291,651
Net investment activity ..................... ----------- ----------- ----------- -----------
615,042 595,060 14,140,604 10,486,315
Proceeds from mutual fund shares sold ......... (367,660) (396,338) (14,140,604) (10,486,315)
Cost of mutual fund shares sold ............... ----------- ----------- ----------- -----------
247,382 198,722 -- --
Realized gain (loss) on investments ......... 124,155 51,672 -- --
Change in unrealized gain (loss) on investments ----------- ----------- ----------- -----------
371,537 250,394 -- --
Net gain (loss) on investments .............. ----------- ----------- ----------- -----------
533,665 242,965 -- --
Reinvested capital gains ...................... ----------- ----------- ----------- -----------
Net increase (decrease) in contract owners' 883,216 486,191 315,537 291,651
equity resulting from operations ........ ----------- ----------- ----------- -----------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners 163,823 234,644 4,503,576 4,557,491
Transfers between funds ....................... 2,896 156,837 (3,008,782) (4,773,897)
Redemptions ................................... (318,735) (406,105) (1,686,416) (1,642,884)
Annuity benefits .............................. (1,330) (1,115) (1,551) (1,548)
Annual contract maintenance charge (note 2) ... (2,546) (2,353) (7,909) (7,524)
Contingent deferred sales charges (note 2) .... (4,373) (2,588) (24,598) (12,111)
Adjustments to maintain reserves .............. 396 341 309 (112)
----------- ----------- ----------- -----------
Net equity transactions.................... (159,869) (20,339) (225,371) (1,880,585)
----------- ----------- ----------- -----------
NET CHANGE IN CONTRACT OWNERS' EQUITY ......... 723,347 465,852 90,166 (1,588,934)
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ... 3,683,392 3,217,540 7,675,384 9,264,318
----------- ----------- ----------- -----------
CONTRACT OWNERS' EQUITY END OF PERIOD ......... $ 4,406,739 3,683,392 7,765,550 7,675,384
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
NWUSGvt NBGuard
----------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .......................... 2,659 596 43,637 44,627
Mortality, expense and administration (600) (133) (90,339) (45,782
charges (note 2) ............................ ----------- ----------- ----------- -----------
2,059 463 (46,702) (1,155
Net investment activity ..................... ----------- ----------- ----------- -----------
49,603 2,308 852,547 413,254
Proceeds from mutual fund shares sold ......... (49,605) (2,295) (629,818) (316,770
Cost of mutual fund shares sold ............... ----------- ----------- ----------- -----------
(2) 13 222,729 96,484
Realized gain (loss) on investments ......... 1,852 48 (237,797) 272,403
Change in unrealized gain (loss) on investments ----------- ----------- ----------- -----------
1,850 61 (15,068) 368,887
Net gain (loss) on investments .............. ----------- ----------- ----------- -----------
-- -- 1,010,701 239,815
Reinvested capital gains ...................... ----------- ----------- ----------- -----------
Net increase (decrease) in contract owners' 3,909 524 948,931 607,547
equity resulting from operations ........ ----------- ----------- ----------- -----------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners 34,673 3,097 1,854,345 2,567,921
Transfers between funds ....................... (23,833) 62,393 13,046 432,199
Redemptions ................................... (5,095) (218) (394,887) (124,328
Annuity benefits .............................. -- -- -- --
Annual contract maintenance charge (note 2) ... (40) (6) (3,499) (1,188
Contingent deferred sales charges (note 2) .... (238) -- (9,677) (4,314
Adjustments to maintain reserves .............. (6) -- 88 440
----------- ----------- ----------- -----------
Net equity transactions.................... 5,461 65,266 1,459,416 2,870,730
----------- ----------- ----------- -----------
NET CHANGE IN CONTRACT OWNERS' EQUITY ......... 9,370 65,790 2,408,347 3,478,277
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ... 65,790 -- 5,226,228 1,747,951
----------- ----------- ----------- -----------
CONTRACT OWNERS' EQUITY END OF PERIOD ......... 75,160 65,790 7,634,575 5,226,228
=========== =========== =========== ===========
</TABLE>
(Continued)
<PAGE> 12
NATIONWIDE VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
NBLtdMat NBPartFd
---------------------------- ----------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends ............................... $ 51,322 64,419 42,968 32,492
Mortality, expense and administration
charges (note 2) ................................. (10,612) (13,935) (75,592) (32,837)
---------- ---------- ---------- ----------
Net investment activity .......................... 40,710 50,484 (32,624) (345)
---------- ---------- ---------- ----------
Proceeds from mutual fund shares sold .............. 512,384 907,042 893,439 234,164
Cost of mutual fund shares sold .................... (510,665) (904,453) (640,676) (193,062)
---------- ---------- ---------- ----------
Realized gain (loss) on investments .............. 1,719 2,589 252,763 41,102
Change in unrealized gain (loss) on investments .... 1,619 (16,333) (202,544) 214,725
---------- ---------- ---------- ----------
Net gain (loss) on investments ................... 3,338 (13,744) 50,219 255,827
---------- ---------- ---------- ----------
Reinvested capital gains ........................... -- -- 1,320,713 385,470
---------- ---------- ---------- ----------
Net increase (decrease) in contract owners'
equity resulting from operations ............. 44,048 36,740 1,338,308 640,952
---------- ---------- ---------- ----------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners .................................. 352,479 456,997 1,735,386 1,605,433
Transfers between funds ............................ (302,390) (105,744) 616,650 889,496
Redemptions ........................................ (126,409) (531,646) (393,918) (82,839)
Annuity benefits -- -- -- --
Annual contract maintenance charge (note 2) ........ (256) (230) (3,385) (1,688)
Contingent deferred sales charges (note 2) ......... (3,195) (22,311) (12,603) (3,238)
Adjustments to maintain reserves ................... (2) (302) (5) 1,265
---------- ---------- ---------- ----------
Net equity transactions ........................ (79,773) (203,236) 1,942,125 2,408,429
---------- ---------- ---------- ----------
NET CHANGE IN CONTRACT OWNERS' EQUITY .............. (35,725) (166,496) 3,280,433 3,049,381
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ........ 820,873 987,369 4,146,403 1,097,022
---------- ---------- ---------- ----------
CONTRACT OWNERS' EQUITY END OF PERIOD .............. $ 785,148 820,873 7,426,836 4,146,403
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
OppGlob PhxBalFd
---------------------------- ----------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends ...................................... 96,072 52,770 15,090 13,623
Mortality, expense and administration
charges (note 2) ........................................ (65,639) (43,092) (7,320) (6,272)
---------- ---------- ---------- ----------
Net investment activity ................................. 30,433 9,678 7,770 7,351
---------- ---------- ---------- ----------
Proceeds from mutual fund shares sold ..................... 1,614,192 472,608 215,973 227,295
Cost of mutual fund shares sold ........................... (1,233,355) (455,144) (218,348) (206,471)
---------- ---------- ---------- ----------
Realized gain (loss) on investments ..................... 380,837 17,464 (2,375) 20,824
Change in unrealized gain (loss) on investments ........... (186,375) 328,475 (8,166) (44,493)
---------- ---------- ---------- ----------
Net gain (loss) on investments .......................... 194,462 345,939 (10,541) (23,669)
---------- ---------- ---------- ----------
Reinvested capital gains .................................. 665,438 137,384 93,626 55,938
---------- ---------- ---------- ----------
Net increase (decrease) in contract owners'
equity resulting from operations .................... 890,333 493,001 90,855 39,620
---------- ---------- ---------- ----------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ......................................... 1,205,785 1,385,557 213,816 301,358
Transfers between funds ................................... (95,415) (94,161) (146,863) (37,418)
Redemptions ............................................... (404,533) (158,963) (24,836) (40,155)
Annuity benefits .......................................... -- -- -- --
Annual contract maintenance charge (note 2) ............... (3,916) (2,538) (292) (96)
Contingent deferred sales charges (note 2) ................ (13,137) (6,142) (1,026) (1,719)
Adjustments to maintain reserves .......................... 76 85 -- (3)
---------- ---------- ---------- ----------
Net equity transactions ............................... 688,860 1,123,838 40,799 221,967
---------- ---------- ---------- ----------
NET CHANGE IN CONTRACT OWNERS' EQUITY ..................... 1,579,193 1,616,839 131,654 261,587
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ............... 4,116,589 2,499,750 532,110 270,523
---------- ---------- ---------- ----------
CONTRACT OWNERS' EQUITY END OF PERIOD ..................... 5,695,782 4,116,589 663,764 532,110
========== ========== ========== ==========
</TABLE>
<PAGE> 13
NATIONWIDE VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
StTotRet TemForFd WPEmGro
------------------------- ------------------------- -------------------------
1997 1996 1997 1996 1997 1996
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .......................... $ 9,509 13,647 141,805 80,441 -- --
Mortality, expense and administration
charges (note 2) ............................ (18,949) (11,311) (59,161) (28,515) (49,041) (15,475)
----------- ----------- ----------- ----------- ----------- -----------
Net investment activity ..................... (9,440) 2,336 82,644 51,926 (49,041) (15,475)
----------- ----------- ----------- ----------- ----------- -----------
Proceeds from mutual fund shares sold ......... 383,941 273,516 662,819 199,143 1,065,213 378,440
Cost of mutual fund shares sold ............... (343,668) (217,249) (572,838) (178,360) (995,193) (364,174)
----------- ----------- ----------- ----------- ----------- -----------
Realized gain (loss) on investments ......... 40,273 56,267 89,981 20,783 70,020 14,266
Change in unrealized gain (loss) on investments (72,806) (104,974) (364,660) 217,950 399,868 64,015
----------- ----------- ----------- ----------- ----------- -----------
Net gain (loss) on investments .............. (32,533) (48,707) (274,679) 238,733 469,888 78,281
----------- ----------- ----------- ----------- ----------- -----------
Reinvested capital gains ...................... 333,588 157,730 373,056 49,305 263,613 6,092
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in contract owners'
equity resulting from operations ........ 291,615 111,359 181,021 339,964 684,460 68,898
----------- ----------- ----------- ----------- ----------- -----------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ............................. 396,146 248,080 1,244,024 1,679,003 1,083,873 1,557,725
Transfers between funds ....................... 39,129 120,833 175,787 705,535 57,962 1,387,551
Redemptions ................................... (178,732) (24,476) (209,477) (45,681) (298,254) (48,828)
Annuity benefits .............................. -- -- -- -- -- --
Annual contract maintenance charge (note 2) ... (635) (400) (2,245) (786) (1,806) (277)
Contingent deferred sales charges (note 2) .... (4,415) (626) (6,278) (1,257) (10,397) (546)
Adjustments to maintain reserves .............. 161 22 (47) 71 (4) (184)
----------- ----------- ----------- ----------- ----------- -----------
Net equity transactions ................... 251,654 343,433 1,201,764 2,336,885 831,374 2,895,441
----------- ----------- ----------- ----------- ----------- -----------
NET CHANGE IN CONTRACT OWNERS' EQUITY ......... 543,269 454,792 1,382,785 2,676,849 1,515,834 2,964,339
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ... 1,069,747 614,955 3,443,499 766,650 2,964,339 --
----------- ----------- ----------- ----------- ----------- -----------
CONTRACT OWNERS' EQUITY END OF PERIOD ......... $ 1,613,016 1,069,747 4,826,284 3,443,499 4,480,173 2,964,339
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 14
NATIONWIDE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Nature of Operations
The Nationwide Variable Account (the Account) was established pursuant
to a resolution of the Board of Directors of Nationwide Life Insurance
Company (the Company) on March 3, 1976. The Account has been registered
as a unit investment trust under the Investment Company Act of 1940.
The Company offers Individual Deferred Variable Annuity Contracts
through the Account. As of December 25, 1982, only tax qualified
contracts are issued. The primary distribution for the contract is
through the Company for Individual Retirement Account rollovers;
however, other distributors may be utilized.
(b) The Contracts
Only contracts without a front-end sales charge, but with a contingent
deferred sales charge and certain other fees, are offered for purchase.
See note 2 for a discussion of contract charges.
With certain exceptions, contract owners in either the accumulation or
the payout phase may invest in the following:
American Century: Benham Short-Term Government Fund (ACBenSTGvt)
(formerly Twentieth Century Investors, Inc. - U.S. Governments
Short-Term (TCUSGvt))
American Century: Income & Growth Fund (ACIncGro)
American Century: Twentieth Century Growth Fund (ACTCGro)
(formerly Twentieth Century Investors, Inc. - Growth Investors
(TCGroInv))
American Century: Twentieth Century International Growth Fund
(ACTCIntlGr) (formerly Twentieth Century World Investors, Inc.-
International Equity (TCIntlEq))
American Century: Twentieth Century Ultra Fund (ACTCUltra)
(formerly Twentieth Century Investors, Inc. - Ultra Investors
(TCUltra))
Delaware Group Delchester High-Yield Bond Fund, Inc. -
Delchester Fund Institutional Class (DeHYBd)
Dreyfus A Bonds Plus, Inc. (DryABds)
Dreyfus S&P 500 Index Fund (Dry500Ix)
The Dreyfus Third Century Fund, Inc. (Dry3dCen)
Evergreen Income and Growth Fund - Class Y (EvIncGro)
(formerly The Evergreen Total Return Fund - Class Y (EvTotRet))
Federated Investment Series Funds, Inc. - Federated Bond Fund -
Class F (FedBdFd)
Fidelity Advisor Balanced Fund - Class T (FABal)
(formerly Fidelity Advisor Income & Growth Fund - Class T
(FAIncGr))
Fidelity Advisor Equity Income Fund - Class T (FAEqInc)
Fidelity Advisor Growth Opportunities Fund - Class T (FAGrOpp)
Fidelity Advisor High Yield Fund - Class T (FAHiYld)
Fidelity Asset Manager(TM) (FidAsMgr)
Fidelity Capital & Income Fund (FidCapInc)
(not available for additional purchase payments or exchanges
after May 1, 1991)
Fidelity Equity-Income Fund (FidEqInc)
<PAGE> 15
Fidelity Magellan(R) Fund (FidMgln)
Fidelity Puritan(R) Fund (FidPurtn)
Portfolio of the Fidelity Variable Insurance Products Fund
(Fidelity VIP); Fidelity VIP - High Income Portfolio (FidVIPHI)
(not available for additional purchase payments or exchanges
after December 1, 1993)
Janus Fund (JanFund)
Janus Twenty Fund (Jan20Fd)
Janus Worldwide Fund (JanWrldwde)
MFS(R) World Governments Fund - Class A (MFSWdGvt)
Nationwide(R) Bond Fund (NWBdFd) (managed for a fee by an
affiliated investment advisor)
Nationwide(R) Fund (NWFund) (managed for a fee by an affiliated
investment advisor)
Nationwide(R) Growth Fund (NWGroFd) (managed for a fee by an
affiliated investment advisor)
Nationwide(R) Money Market Fund
(NWMyMkt) (managed for a fee by an affiliated investment advisor)
Nationwide(R) U.S. Government Income Fund (NWUSGvt)
(managed for a fee by an affiliated investment advisor)
Neuberger & Berman Guardian Fund (NBGuard)
Neuberger & Berman Limited Maturity Bond Fund (NBLtdMat)
Neuberger & Berman Partners Fund (NBPartFd)
Oppenheimer Global Fund - Class A (OppGlob)
Phoenix Balanced Fund Series - Class A (PhxBalFd)
Strong Total Return Fund, Inc. (StTotRet)
Templeton Foreign Fund - Class I (TemForFd)
Warburg Pincus Emerging Growth Fund - Common Shares (WPEmGro)
At December 31, 1997, 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.
(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, 1997. 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.
(f) Reclassifications
Certain 1996 amounts have been reclassified to conform with the current
period presentation.
<PAGE> 16
(2) EXPENSES
The Company does not deduct a sales charge from purchase payments received
from the contract owners. However, if any part of the contract value of
such contracts is surrendered, the Company will, with certain exceptions,
deduct from a contract owner's contract value a contingent deferred sales
charge. For contracts issued prior to January 1, 1993, the contingent
deferred sales charge will be equal to 5% of the lesser of the total of all
purchase payments made within 96 months prior to the date of the request
for surrender or the amount surrendered. For contracts issued on or after
January 1, 1993, the Company will deduct a contingent deferred sales charge
not to exceed 7% of the lesser of purchase payments or the amount
surrendered, such charge declining 1% per year, to 0%, after the purchase
payment has been held in the contract for 84 months. No sales charges are
deducted on redemptions used to purchase units in the fixed investment
options of the Company.
The following contract charges are deducted by the Company: (a) an annual
contract maintenance charge of $30, with certain exceptions, which is
satisfied by surrendering units; and (b) for contracts issued prior to
January 1, 1993, a charge for mortality and expense risk assessed through
the daily unit value calculation equal to an annual rate of 0.80% and
0.50%, respectively; for contracts issued on or after January 1, 1993, a
mortality risk charge, an expense risk charge and an administration charge
assessed through the daily unit value calculation equal to an annual rate
of 0.80%, 0.45% and 0.05%, respectively.
(3) RELATED PARTY TRANSACTIONS
The Company performs various services on behalf of the Mutual Fund
Companies in which the Account invests and may receive fees for the
services performed. These services include, among other things, shareholder
communications, preparation, postage, fund transfer agency and various
other record keeping and customer service functions. These fees are paid to
an affiliate of the Company.
<PAGE> 17
(4) COMPONENTS OF CONTRACT OWNERS' EQUITY
The following is a summary of contract owners' equity at December 31, 1997,
for each series, in both the accumulation and payout phases.
<TABLE>
<CAPTION>
ANNUAL
Contract owners' equity represented by: UNITS UNIT VALUE RETURN
------- ---------- -------
<S> <C> <C> <C> <C>
Contracts in accumulation phase:
American Century: Benham
Short-Term Government Fund:
Tax qualified 138,808 $ 21.986961 $ 3,051,966 5%
American Century: Income & Growth Fund:
Tax qualified 135,424 14.002308 1,896,249 33%
American Century: Twentieth Century
Growth Fund:
Tax qualified 158,492 65.572069 10,392,648 28%
American Century: Twentieth Century
International Growth Fund:
Tax qualified 31,799 15.678789 498,570 18%
American Century: Twentieth Century
Ultra Fund:
Tax qualified 660,821 16.780808 11,089,110 22%
Delaware Group Delchester High-Yield
Bond Fund, Inc. - Delchester Fund
Institutional Class:
Tax qualified 87,319 15.348845 1,340,246 13%
Dreyfus A Bonds Plus, Inc.:
Tax qualified 156,006 11.848519 1,848,440 8%
Dreyfus S&P 500 Index Fund:
Tax qualified 332,923 22.921661 7,631,148 31%
The Dreyfus Third Century Fund, Inc.:
Tax qualified 35,892 20.101260 721,474 28%
Evergreen Income and Growth
Fund - Class Y:
Tax qualified 63,791 17.394044 1,109,583 24%
Federated Investment Series Funds, Inc. -
Federated Bond Fund - Class F:
Tax qualified 33,538 11.076983 371,500 9%
Fidelity Advisor Balanced Fund - Class T:
Tax qualified 13,345 13.150098 175,488 21%
Fidelity Advisor Equity Income
Fund - Class T:
Tax qualified 84,318 14.355400 1,210,419 24%
Fidelity Advisor Growth Opportunities
Fund - Class T:
Tax qualified 315,184 15.224094 4,798,391 27%
</TABLE>
(Continued)
<PAGE> 18
<TABLE>
<S> <C> <C> <C> <C>
Fidelity Advisor High Yield Fund - Class T:
Tax qualified 195,236 12.767617 2,492,698 14%
Fidelity Asset Manager(TM):
Tax qualified 244,272 15.016191 3,668,035 21%
Fidelity Capital & Income Fund:
Tax qualified 27,378 46.743425 1,279,741 13%
Fidelity Equity-Income Fund:
Tax qualified 245,733 70.928467 17,429,465 28%
Fidelity Magellan(R) Fund:
Tax qualified 655,202 22.253917 14,580,811 25%
Fidelity Puritan(R) Fund:
Tax qualified 599,590 19.778111 11,858,758 21%
Fidelity VIP - High Income Portfolio:
Tax qualified 10,793 25.310146 273,172 16%
Janus Fund:
Tax qualified 235,485 14.640570 3,447,635 21%
Janus Twenty Fund:
Tax qualified 312,701 18.897600 5,909,298 28%
Janus Worldwide Fund:
Tax qualified 323,968 12.268712 3,974,670 19%
MFS(R) World Governments Fund - Class A:
Tax qualified 20,631 36.509244 753,222 (1)%
Nationwide(R) Bond Fund:
Tax qualified 41,735 40.827520 1,703,937 8%
Non-tax qualified 176 40.652493 7,155 8%
Nationwide(R) Fund:
Tax qualified 45,672 97.524886 4,454,157 38%
Non-tax qualified 314 101.582074 31,897 38%
Nationwide(R) Growth Fund:
Tax qualified 46,513 93.947252 4,369,769 25%
Non-tax qualified 229 99.196488 22,716 25%
Nationwide(R) Money Market Fund:
Tax qualified - Pre 12/25/82 43,632 25.582330 1,116,208 4%
Tax qualified 325,458 20.316392 6,612,132 4%
Non-tax qualified 844 25.744006 21,728 4%
Nationwide(R) U.S. Government
Income Fund:
Tax qualified 6,737 11.156351 75,160 8%
Neuberger & Berman Guardian Fund:
Tax qualified 448,443 17.024633 7,634,577 16%
Neuberger & Berman Limited Maturity
Bond Fund:
Tax qualified 67,262 11.672986 785,148 5%
</TABLE>
<PAGE> 19
<TABLE>
<S> <C> <C> <C> <C>
Neuberger & Berman Partners Fund:
Tax qualified 312,513 23.764888 7,426,836 28%
Oppenheimer Global Fund - Class A:
Tax qualified 262,844 21.669822 5,695,783 20%
Phoenix Balanced Fund Series - Class A:
Tax qualified 46,629 14.235004 663,764 17%
Strong Total Return Fund, Inc.:
Tax qualified 78,495 20.549313 1,613,018 23%
Templeton Foreign Fund - Class I:
Tax qualified 354,769 13.604014 4,826,282 5%
Warburg Pincus Emerging Growth
Fund - Common Shares:
Tax qualified 316,835 14.140391 4,480,171 20%
======= =========
Reserves for annuity contracts in payout phase:
Tax qualified 211,551
------------
$163,554,726
============
</TABLE>
<PAGE> 56
<PAGE> 1
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Nationwide Life Insurance Company:
We have audited the accompanying consolidated balance sheets of Nationwide Life
Insurance Company and subsidiaries (collectively the Company), a wholly owned
subsidiary of Nationwide Financial Services, Inc., as of December 31, 1997 and
1996, 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,
1997. 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, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Columbus, Ohio
January 30, 1998
<PAGE> 2
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Balance Sheets
(in millions of dollars)
<TABLE>
<CAPTION>
December 31,
-----------------------------------
ASSETS 1997 1996
------
----------------- ---------------
<S> <C> <C>
Investments:
Securities available-for-sale, at fair value:
Fixed maturity securities $13,204.1 $12,304.6
Equity securities 80.4 59.1
Mortgage loans on real estate, net 5,181.6 5,272.1
Real estate, net 311.4 265.8
Policy loans 415.3 371.8
Other long-term investments 25.2 28.7
Short-term investments 358.4 4.8
---------- ---------
19,576.4 18,306.9
---------- ---------
Cash 175.6 43.8
Accrued investment income 210.5 210.2
Deferred policy acquisition costs 1,665.4 1,366.5
Investment in subsidiaries classified as discontinued operations - 485.7
Other assets 438.4 426.5
Assets held in Separate Accounts 37,724.4 26,926.7
---------- ---------
$59,790.7 $47,766.3
========== =========
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
Future policy benefits and claims $18,702.8 $17,600.6
Other liabilities 885.6 1,101.1
Liabilities related to Separate Accounts 37,724.4 26,926.7
---------- ---------
57,312.8 45,628.4
---------- ---------
Commitments and contingencies (notes 7 and 13)
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 914.7 527.9
Retained earnings 1,312.3 1,432.6
Unrealized gains on securities available-for-sale, net 247.1 173.6
---------- ---------
2,477.9 2,137.9
---------- ---------
$59,790.7 $47,766.3
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 3
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Statements of Income
(in millions of dollars)
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------------
1997 1996 1995
------------- ------------- --------------
<S> <C> <C> <C>
Revenues:
Investment product and universal life insurance product policy charges $ 545.2 $ 400.9 $ 286.6
Traditional life insurance premiums 205.4 198.6 199.1
Net investment income 1,409.2 1,357.8 1,294.0
Realized gains (losses) on investments 11.1 (0.3) (1.7)
Other 46.5 35.9 20.7
---------- ---------- ----------
2,217.4 1,992.9 1,798.7
---------- ---------- ----------
Benefits and expenses:
Interest credited to policyholder account balances 1,016.6 982.3 950.3
Other benefits and claims 178.2 178.3 165.2
Policyholder dividends on participating policies 40.6 41.0 39.9
Amortization of deferred policy acquisition costs 167.2 133.4 82.7
Other operating expenses 384.9 342.4 273.0
---------- ---------- ----------
1,787.5 1,677.4 1,511.1
---------- ---------- ----------
Income from continuing operations before federal income tax expense 429.9 315.5 287.6
Federal income tax expense 150.2 110.9 99.8
---------- ---------- ----------
Income from continuing operations 279.7 204.6 187.8
Income from discontinued operations (less federal income tax expense
of $4.5 and $7.4 in 1996 and 1995, respectively) - 11.3 24.7
---------- ---------- ----------
Net income $ 279.7 $ 215.9 $ 212.5
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 4
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Statements of Shareholder's Equity
(in millions of dollars)
<TABLE>
<CAPTION>
Unrealized
gains
(losses)
Additional on securities Total
Common paid-in Retained available- shareholder's
stock capital earnings for-sale, net equity
----------- ------------- -------------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
December 31, 1994 $3.8 $ 606.2 $1,378.2 $(119.7) $1,868.5
Capital contribution - 51.0 - (4.1) 46.9
Net income - - 212.5 - 212.5
Dividends to shareholder - - (7.5) - (7.5)
Unrealized gains on securities available-
for-sale, net - - - 508.1 508.1
-------- -------- -------- -------- ---------
December 31, 1995 3.8 657.2 1,583.2 384.3 2628.5
Net income - - 215.9 - 215.9
Dividends to shareholder - (129.3) (366.5) (39.8) (535.6)
Unrealized losses on securities available-
for-sale, net - - - (170.9) (170.9)
-------- -------- -------- -------- ---------
December 31, 1996 3.8 527.9 1,432.6 173.6 2,137.9
Capital contribution - 836.8 - - 836.8
Net income - - 279.7 - 279.7
Dividends to shareholder - (450.0) (400.0) - (850.0)
Unrealized gains on securities available-
for-sale, net - - - 73.5 73.5
-------- -------- -------- -------- ---------
December 31, 1997 $3.8 $ 914.7 $1,312.3 $ 247.1 $2,477.9
======== ======== ======== ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 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)
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------------
1997 1996 1995
------------------------------ ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 279.7 $ 215.9 $ 212.5
Adjustments to reconcile net income to net cash provided by operating
activities:
Interest credited to policyholder account balances 1,016.6 982.3 950.3
Capitalization of deferred policy acquisition costs (487.9) (422.6) (321.3)
Amortization of deferred policy acquisition costs 167.2 133.4 82.7
Amortization and depreciation (2.0) 7.0 10.2
Realized (gains) losses on invested assets, net (11.1) (0.3) 3.3
(Increase) decrease in accrued investment income (0.3) 2.8 (16.9)
(Increase) decrease in other assets (12.7) (38.9) 39.9
(Decrease) increase in policy liabilities (23.1) (151.0) 123.9
Increase in other liabilities 230.6 191.4 27.0
Other, net (10.9) (61.7) 1.8
----------- --------- --------
Net cash provided by operating activities 1,146.1 858.3 1,113.4
----------- --------- --------
Cash flows from investing activities:
Proceeds from maturity of securities available-for-sale 993.4 1,162.8 634.6
Proceeds from sale of securities available-for-sale 574.5 299.6 107.3
Proceeds from maturity of fixed maturity securities held-to-maturity - - 564.4
Proceeds from repayments of mortgage loans on real estate 437.3 309.0 207.8
Proceeds from sale of real estate 34.8 18.5 48.3
Proceeds from repayments of policy loans and sale of other invested assets 22.7 22.8 53.6
Cost of securities available-for-sale acquired (2,828.1) (1,573.6) (1,942.4)
Cost of fixed maturity securities held-to-maturity acquired - - (593.6)
Cost of mortgage loans on real estate acquired (752.2) (972.8) (796.0)
Cost of real estate acquired (24.9) (7.9) (10.9)
Policy loans issued and other invested assets acquired (62.5) (57.7) (75.9)
Short-term investments, net (354.8) 28.0 77.8
----------- --------- --------
Net cash used in investing activities (1,959.8) (771.3) (1,725.0)
----------- --------- --------
Cash flows from financing activities:
Proceeds from capital contributions 836.8 - -
Cash dividends paid - (50.0) (7.5)
Increase in investment product and universal life insurance
product account balances 2,488.5 1,781.8 1,883.7
Decrease in investment product and universal life insurance
product account balances (2,379.8) (1,784.5) (1,258.7)
----------- --------- --------
Net cash provided by (used in) financing activities 945.5 (52.7) 617.5
----------- --------- --------
Net increase in cash 131.8 34.3 5.9
Cash, beginning of year 43.8 9.5 3.6
----------- --------- --------
Cash, end of year $ 175.6 $ 43.8 $ 9.5
=========== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 6
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
(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 11 and 15. 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. The Company is subject to regulation by the Insurance
Departments of states in which it is licensed, and undergoes periodic
examinations by those departments.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed by the Company that
materially affect financial reporting are summarized below. The
accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles, which differ
from statutory accounting practices prescribed or permitted by
regulatory authorities. Annual Statements for NLIC and NLAIC, filed
with the Department of Insurance of the State of Ohio (the Department),
are prepared on the basis of accounting practices prescribed or
permitted by the Department. Prescribed statutory accounting practices
include a variety of publications of the National Association of
Insurance Commissioners (NAIC), as well as state laws, regulations and
general administrative rules. Permitted statutory accounting practices
encompass all accounting practices not so prescribed. The Company has
no material permitted statutory accounting practices.
<PAGE> 7
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosures of contingent
assets and liabilities as of the date of the consolidated financial
statements and the reported amounts of revenues and expenses for the
reporting period. Actual results could differ significantly from those
estimates.
The most significant estimates include those used in determining
deferred policy acquisition costs, valuation allowances for mortgage
loans on real estate and real estate investments and the liability for
future policy benefits and claims. Although some variability is
inherent in these estimates, management believes the amounts provided
are adequate.
(a) CONSOLIDATION POLICY
The consolidated financial statements include the accounts of NLIC
and its wholly owned subsidiaries. Subsidiaries that are
classified and reported as discontinued operations are not
consolidated but rather are reported as "Investment in
subsidiaries classified as discontinued operations" in the
accompanying consolidated balance sheets and "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, 1997 or 1996.
Mortgage loans on real estate are carried at the unpaid principal
balance less valuation allowances. The Company provides valuation
allowances for impairments of mortgage loans on real estate based
on a review by portfolio managers. The measurement of impaired
loans is based on the present value of expected future cash flows
discounted at the loan's effective interest rate or, as a
practical expedient, at the fair value of the collateral, if the
loan is collateral dependent. Loans in foreclosure and loans
considered to be impaired are placed on non-accrual status.
Interest received on non-accrual status mortgage loans on real
estate is included in interest income in the period received.
Real estate is carried at cost less accumulated depreciation and
valuation allowances. Other long-term investments are carried on
the equity basis, adjusted for valuation allowances. Impairment
losses are recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the
assets' carrying amount.
Realized gains and losses on the sale of investments are
determined on the basis of specific security identification.
Estimates for valuation allowances and other than temporary
declines are included in realized gains and losses on investments.
<PAGE> 8
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(c) REVENUES AND BENEFITS
INVESTMENT PRODUCTS AND UNIVERSAL LIFE INSURANCE PRODUCTS:
Investment products consist primarily of individual and group
variable and fixed annuities. Universal life insurance products
include universal life insurance, variable universal 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. 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). 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.
(e) SEPARATE ACCOUNTS
Separate Account assets and liabilities represent contractholders'
funds which have been segregated into accounts with specific
investment objectives. For all but $365.5 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.
Future policy benefits for traditional life insurance policies
have been calculated using a net level premium method based on
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. See note 4.
<PAGE> 9
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(g) PARTICIPATING BUSINESS
Participating business represents approximately 50% in 1997 (52%
in 1996 and 54% in 1995) of the Company's life insurance in force,
77% in 1997 (78% in 1996 and 79% in 1995) of the number of life
insurance policies in force, and 27% in 1997 (40% in 1996 and 47%
in 1995) 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 11 and 15.
(j) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 130 - REPORTING
COMPREHENSIVE INCOME was issued in June 1997 and is effective for
fiscal years beginning after December 15, 1997. The statement
establishes standards for reporting and display of comprehensive
income and its components in a full set of financial statements.
Comprehensive income includes all changes in equity during a
period except those resulting from investments by shareholders and
distributions to shareholders and includes net income.
Comprehensive income would be reported in addition to earnings
amounts currently presented. The Company will adopt the statement
and begin reporting comprehensive income in the first quarter of
1998.
(k) RECLASSIFICATION
Certain items in the 1996 and 1995 consolidated financial
statements have been reclassified to conform to the 1997
presentation.
<PAGE> 10
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, 1997 and
1996 were:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
(in millions of dollars) cost gains losses fair value
-------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
December 31, 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
============ ========= ========= ===========
December 31, 1996:
Fixed maturity securities:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies $ 275.7 $ 4.8 $ (1.3) $ 279.2
Obligations of states and political subdivisions 6.2 0.5 - 6.7
Debt securities issued by foreign governments 100.7 2.1 (0.9) 101.9
Corporate securities 7,999.3 285.9 (33.7) 8,251.5
Mortgage-backed securities 3,589.0 91.4 (15.1) 3,665.3
------------ --------- --------- -----------
Total fixed maturity securities 11,970.9 384.7 (51.0) 12,304.6
Equity securities 43.9 15.6 (0.4) 59.1
------------ --------- --------- -----------
$ 12,014.8 $ 400.3 $ (51.4) $ 12,363.7
============ ========= ========= ===========
</TABLE>
The amortized cost and estimated fair value of fixed maturity
securities available-for-sale as of December 31, 1997, by contractual
maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Estimated
(in millions of dollars) cost fair value
-------------- ----------
<S> <C> <C>
Fixed maturity securities available for sale:
Due in one year or less $ 419.2 $ 422.1
Due after one year through five years 4,573.5 4,708.4
Due after five years through ten years 2,772.6 2,879.7
Due after ten years 1,333.4 1,443.6
----------- -----------
9,098.7 9,453.8
Mortgage-backed securities 3,634.2 3,750.3
----------- -----------
$ 12,732.9 $ 13,204.1
=========== ===========
</TABLE>
<PAGE> 11
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
The components of unrealized gains on securities available-for-sale,
net, were as follows as of December 31:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996
----------- ----------
<S> <C> <C>
Gross unrealized gains $ 483.8 $349.0
Adjustment to deferred policy acquisition costs (103.7) (81.9)
Deferred federal income tax (133.0) (93.5)
-------- -------
$ 247.1 $173.6
======== =======
</TABLE>
An analysis of the change in gross unrealized gains (losses) on
securities available-for-sale and fixed maturity securities
held-to-maturity follows for the years ended December 31:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996 1995
----------- ------------- -----------
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturity securities $137.5 $(289.2) $876.3
Equity securities (2.7) 8.9 -
Fixed maturity securities held-to-maturity - - 75.6
------- ------- -------
$134.8 $(280.3) $ 951.9
======= ======= =======
</TABLE>
Proceeds from the sale of securities available-for-sale during 1997,
1996 and 1995 were $574.5 million, $299.6 million and $107.3 million,
respectively. During 1997, gross gains of $9.9 million ($6.6 million
and $4.8 million in 1996 and 1995, respectively) and gross losses of
$18.0 million ($6.9 million and $2.1 million in 1996 and 1995,
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.
During 1995, the Company transferred fixed maturity securities
classified as held-to-maturity with amortized cost of $25.4 million to
available-for-sale securities due to evidence of a significant
deterioration in the issuer's creditworthiness. The transfer of those
fixed maturity securities resulted in a gross unrealized loss of $3.5
million.
As permitted by the Financial Accounting Standards Board's Special
Report, A GUIDE TO IMPLEMENTATION OF STATEMENT 115 ON ACCOUNTING FOR
CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES, issued in November
1995, the Company transferred nearly all of its fixed maturity
securities previously classified as held-to-maturity to
available-for-sale. As of December 14, 1995, the date of transfer, the
fixed maturity securities had amortized cost of $3.32 billion,
resulting in a gross unrealized gain of $155.9 million.
The recorded investment of mortgage loans on real estate considered to
be impaired as of December 31, 1997 was $19.9 million ($51.8 million as
of December 31, 1996), which includes $3.9 million ($41.7 million as of
December 31, 1996) of impaired mortgage loans on real estate for which
the related valuation allowance was $0.1 million ($8.5 million as of
December 31, 1996) and $16.0 million ($10.1 million as of December 31,
1996) of impaired mortgage loans on real estate for which there was no
valuation allowance. During 1997, the average recorded investment in
impaired mortgage loans on real estate was approximately $31.8 million
($39.7 million in 1996) and interest income recognized on those loans
was $1.0 million ($2.1 million in 1996), which is equal to interest
income recognized using a cash-basis method of income recognition.
<PAGE> 12
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Activity in the valuation allowance account for mortgage loans on real
estate is summarized for the years ended December 31:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996
------------- -------------
<S> <C> <C>
Allowance, beginning of year $51.0 $49.1
(Reductions) additions charged to operations (1.2) 4.5
Direct write-downs charged against the allowance (7.3) (2.6)
------ ------
Allowance, end of year $42.5 $51.0
====== ======
</TABLE>
Real estate is presented at cost less accumulated depreciation of $45.1
million as of December 31, 1997 ($30.3 million as of December 31, 1996)
and valuation allowances of $11.1 million as of December 31, 1997
($15.2 million as of December 31, 1996).
Investments that were non-income producing for the twelve month period
preceding December 31, 1997 amounted to $19.4 million ($26.8 million
for 1996) and consisted of $3.0 million ($0.2 million in 1996) in
securities available-for-sale, $16.4 million ($20.6 million in 1996) in
real estate and none ($5.9 million in 1996) in other long-term
investments.
An analysis of investment income by investment type follows for the
years ended December 31:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996 1995
----------- --------- ---------
<S> <C> <C> <C>
Gross investment income:
Securities available-for-sale:
Fixed maturity securities $ 911.6 $ 917.1 $ 685.8
Equity securities 0.8 1.3 1.3
Fixed maturity securities held-to-maturity - - 201.8
Mortgage loans on real estate 457.7 432.8 395.5
Real estate 42.9 44.3 38.3
Short-term investments 22.7 4.2 10.6
Other 21.0 4.0 7.2
-------- -------- --------
Total investment income 1,456.7 1,403.7 1,340.5
Less investment expenses 47.5 45.9 46.5
-------- -------- --------
Net investment income $1,409.2 $1,357.8 $1,294.0
======== ======== ========
</TABLE>
An analysis of realized gains (losses) on investments, net of valuation
allowances, by investment type follows for the years ended December 31:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturity securities $ 3.6 $(3.5) $ 4.2
Equity securities 2.7 3.2 3.4
Mortgage loans on real estate 1.6 (4.1) (7.1)
Real estate and other 3.2 4.1 (2.2)
------ ------ ------
$11.1 $(0.3) $(1.7)
====== ====== ======
</TABLE>
Fixed maturity securities with an amortized cost of $6.2 million as
of December 31, 1997 and 1996 were on deposit with various
regulatory agencies as required by law.
<PAGE> 13
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(4) FUTURE POLICY BENEFITS AND CLAIMS
The liability for future policy benefits for investment contracts
represents approximately 86% and 87% of the total liability for future
policy benefits as of December 31, 1997 and 1996, respectively. The
average interest rate credited on investment product policies was
approximately 6.1%, 6.3% and 6.6% for the years ended December 31,
1997, 1996 and 1995, respectively.
The liability for future policy benefits for traditional life insurance
policies has been established based upon the following assumptions:
INTEREST RATES: Interest rates vary by issue year and were 6.9%
and 6.6% in 1997 and 1996, respectively. Interest rates have
generally ranged from 6.0% to 10.5% for previous issue years.
WITHDRAWALS: Rates, which vary by issue age, type of coverage and
policy duration, are based on Company experience.
MORTALITY: Mortality and morbidity rates are based on published
tables, modified for the Company's actual experience.
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
$220.2 million and $240.5 million as of December 31, 1997 and 1996,
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.
The Company has reinsurance agreements with certain affiliates as
described in note 11. All other reinsurance agreements are not material
to either premiums or reinsurance recoverables.
(5) FEDERAL INCOME TAX
The Company's current federal income tax liability was $60.1 million
and $30.2 million as of December 31, 1997 and 1996, respectively.
<PAGE> 14
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
The tax effects of temporary differences that give rise to significant
components of the net deferred tax liability as of December 31, 1997
and 1996 are as follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996
---------- ----------
<S> <C> <C>
Deferred tax assets:
Future policy benefits $200.1 $183.0
Liabilities in Separate Accounts 242.0 188.4
Mortgage loans on real estate and real estate 19.0 23.4
Other assets and other liabilities 59.2 53.7
------- ------
Total gross deferred tax assets 520.3 448.5
Less valuation allowance (7.0) (7.0)
------- ------
Net deferred tax assets 513.3 441.5
------- ------
Deferred tax liabilities:
Deferred policy acquisition costs 480.5 399.3
Fixed maturity securities 193.3 133.2
Deferred tax on realized investment gains 40.1 37.6
Equity securities and other long-term investments 7.5 8.2
Other 22.2 25.4
------- ------
Total gross deferred tax liabilities 743.6 603.7
------- ------
Net deferred tax liability $230.3 $162.2
======= ======
</TABLE>
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion of the
total gross deferred tax assets will not be realized. Nearly all future
deductible amounts can be offset by future taxable amounts or recovery
of federal income tax paid within the statutory carryback period. There
has been no change in the valuation allowance for the years ended
December 31, 1997, 1996 and 1995.
Federal income tax expense attributable to income from continuing
operations for the years ended December 31 was as follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Currently payable $121.7 $116.5 $88.7
Deferred tax expense (benefit) 28.5 (5.6) 11.1
------ ------ ------
$150.2 $110.9 $99.8
====== ====== ======
</TABLE>
Total federal income tax expense for the years ended December 31, 1997,
1996 and 1995 differs from the amount computed by applying the U.S.
federal income tax rate to income before tax as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------- ---------------------- ----------------------
(in millions of dollars) Amount % Amount % Amount %
---------------------- ------------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Computed (expected) tax expense $150.5 35.0 $110.4 35.0 $100.6 35.0
Tax exempt interest and dividends
received deduction - 0.0 (0.2) (0.1) - 0.0
Other, net (0.3) (0.1) 0.7 0.3 (0.8) (0.3)
------ ---- ------ ---- ------ ----
Total (effective rate of each year) $150.2 34.9 $110.9 35.2 $ 99.8 34.7
====== ==== ====== ==== ====== ====
</TABLE>
Total federal income tax paid was $91.8 million, $115.8 million and
$51.8 million during the years ended December 31, 1997, 1996 and 1995,
respectively.
<PAGE> 15
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(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.
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.
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 includes certain surrender
charges.
INVESTMENT CONTRACTS: The fair value for the Company's liabilities
under investment type contracts is disclosed using two methods.
For investment contracts without defined maturities, fair value is
the amount payable on demand. For investment contracts with known
or determined maturities, fair value is estimated using discounted
cash flow analysis. Interest rates used are similar to currently
offered contracts with maturities consistent with those remaining
for the contracts being valued.
<PAGE> 16
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 13.
Carrying amount and estimated fair value of financial instruments
subject to disclosure requirements and policy reserves on life
insurance contracts were as follows as of December 31:
<TABLE>
<CAPTION>
1997 1996
------------------------------ -------------------------------
Carrying Estimated Carrying Estimated
(in millions of dollars) amount fair value amount fair value
------------------------------ --------------- ---------------
<S> <C> <C> <C> <C>
Assets:
Investments:
Securities available-for-sale:
Fixed maturity securities $13,204.1 $13,204.1 $12,304.6 $12,304.6
Equity securities 80.4 80.4 59.1 59.1
Mortgage loans on real estate, net 5,181.6 5,509.7 5,272.1 5,397.9
Policy loans 415.3 415.3 371.8 371.8
Short-term investments 358.4 358.4 4.8 4.8
Cash 175.6 175.6 43.8 43.8
Assets held in Separate Accounts 37,724.4 37,724.4 26,926.7 26,926.7
Liabilities:
Investment contracts 14,708.2 14,322.1 13,914.4 13,484.5
Policy reserves on life insurance contracts 3,345.4 3,182.4 3,392.8 3,197.5
Liabilities related to Separate Accounts 37,724.4 36,747.0 26,926.7 26,164.2
</TABLE>
(7) RISK DISCLOSURES
The following is a description of the most significant risks facing
life insurers and how the Company mitigates those risks:
LEGAL/REGULATORY RISK: The risk that changes in the legal or regulatory
environment in which an insurer operates will result in increased
competition, reduce 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.
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.
<PAGE> 17
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
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.
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 $341.4 million
extending into 1998 were outstanding as of December 31, 1997. The
Company also had $63.9 million of commitments to purchase fixed
maturity securities outstanding as of December 31, 1997.
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 20% (21% in 1996) in any geographic area and no more than 2% (2%
in 1996) with any one borrower as of December 31, 1997. As of December
31, 1997, 46% (44% in 1996) of the remaining principal balance of the
Company's commercial mortgage loan portfolio financed retail
properties.
The Company had a significant reinsurance recoverable balance from one
reinsurer as of December 31, 1997 and 1996. See note 4.
(8) PENSION PLAN
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. Benefits are based upon the highest average annual
salary of a specified number of consecutive years of the last ten years
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.
Effective January 1, 1995, the plan was amended to provide enhanced
benefits for participants who met certain eligibility requirements and
elected early retirement no later than March 15, 1995. The entire cost
of the enhanced benefit was borne by NMIC and certain of its property
and casualty insurance company affiliates.
<PAGE> 18
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Effective December 31, 1995, the Nationwide Insurance Companies and
Affiliates Retirement Plan was merged with the Farmland Mutual
Insurance Company Employees' Retirement Plan and the Wausau Insurance
Companies Pension Plan to form the Nationwide Insurance Enterprise
Retirement Plan (the Retirement Plan). Immediately prior to the merger,
the plans were amended to provide consistent benefits for service after
January 1, 1996. These amendments had no significant impact on the
accumulated benefit obligation or projected benefit obligation as of
December 31, 1995.
Pension costs charged to operations by the Company during the years
ended December 31, 1997, 1996 and 1995 were $7.5 million, $7.4
million and $10.5 million, respectively.
The Company had no net accrued pension expense as of December 31, 1997
($1.1 million as of December 31, 1996).
The net periodic pension cost for the Retirement Plan as a whole for
the years ended December 31, 1997 and 1996 and for the Nationwide
Insurance Companies and Affiliates Retirement Plan as a whole for the
year ended December 31, 1995 follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Service cost (benefits earned during the period) $ 77.3 $ 75.5 $ 64.5
Interest cost on projected benefit obligation 118.6 105.5 95.3
Actual return on plan assets (328.0) (210.6) (249.3)
Net amortization and deferral 196.4 101.8 143.4
-------- -------- --------
$ 64.3 $ 72.2 $ 53.9
======== ======== ========
</TABLE>
Basis for measurements, net periodic pension cost:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Weighted average discount rate 6.50% 6.00% 7.50%
Rate of increase in future compensation levels 4.75% 4.25% 6.25%
Expected long-term rate of return on plan assets 7.25% 6.75% 8.75%
</TABLE>
Information regarding the funded status of the Retirement Plan as a
whole as of December 31, 1997 and 1996 follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996
----------- -----------
<S> <C> <C>
Accumulated benefit obligation:
Vested $1,547.5 $1,338.6
Nonvested 13.5 11.1
-------- ---------
$1,561.0 $1,349.7
======== =========
Net accrued pension expense:
Projected benefit obligation for services rendered to date $2,033.8 $1,847.8
Plan assets at fair value 2,212.9 1,947.9
--------- ---------
Plan assets in excess of projected benefit obligation 179.1 100.1
Unrecognized prior service cost 34.7 37.9
Unrecognized net gains (330.7) (202.0)
Unrecognized net asset at transition 33.3 37.2
--------- ---------
$ (83.6) $ (26.8)
========= =========
</TABLE>
<PAGE> 19
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 plan:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Weighted average discount rate 6.00% 6.50%
Rate of increase in future compensation levels 4.25% 4.75%
</TABLE>
Assets of the Retirement Plan are invested in group annuity contracts
of NLIC and Employers Life Insurance Company of Wausau (ELICW).
(9) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
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,
1997 and 1996 was $36.5 million and $34.9 million, respectively, and
the net periodic postretirement benefit cost (NPPBC) for 1997, 1996 and
1995 was $3.0 million, $3.3 million and $3.1 million, respectively.
Information regarding the funded status of the plan as a whole as of
December 31, 1997 and 1996 follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996
----------- -----------
<S> <C> <C>
Accrued postretirement benefit expense:
Retirees $ 93.3 $ 93.0
Fully eligible, active plan participants 31.6 23.7
Other active plan participants 113.0 84.0
-------- --------
Accumulated postretirement benefit obligation 237.9 200.7
Plan assets at fair value 69.2 63.0
-------- --------
Plan assets less than accumulated postretirement benefit obligation (168.7) (137.7)
Unrecognized transition obligation of affiliates 1.5 1.7
Unrecognized net losses (gains) 1.6 (23.2)
-------- --------
$(165.6) $(159.2)
======== ========
</TABLE>
<PAGE> 20
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 plan as a whole for the years ended
December 31, 1997, 1996 and 1995 was as follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996 1995
----------- ------------ ------------
<S> <C> <C> <C>
Service cost (benefits attributed to employee
service during the year) $ 7.0 $ 6.5 $ 6.2
Interest cost on accumulated postretirement
benefit obligation 14.0 13.7 14.2
Actual return on plan assets (3.6) (4.3) (2.7)
Amortization of unrecognized transition
obligation of affiliates 0.2 0.2 3.0
Net amortization and deferral (0.5) 1.8 (1.6)
------- ------ ------
$17.1 $17.9 $19.1
======= ====== ======
</TABLE>
Actuarial assumptions used for the measurement of the APBO and the
NPPBC for 1997, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
APBO:
Discount rate 6.70% 7.25% 6.75%
Assumed health care cost trend rate:
Initial rate 12.13% 11.00% 11.00%
Ultimate rate 6.12% 6.00% 6.00%
Uniform declining period 12 Years 12 Years 12 Years
NPPBC:
Discount rate 7.25% 6.65% 8.00%
Long term rate of return on plan
assets, net of tax 5.89% 4.80% 8.00%
Assumed health care cost trend rate:
Initial rate 11.00% 11.00% 10.00%
Ultimate rate 6.00% 6.00% 6.00%
Uniform declining period 12 Years 12 Years 12 Years
</TABLE>
For the plan as a whole, a one percentage point increase in the assumed
health care cost trend rate would increase the APBO as of December 31,
1997 by $0.4 million and have no impact on the NPPBC for the year ended
December 31, 1997.
(10) 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.
<PAGE> 21
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
The statutory capital and surplus of NLIC as of December 31, 1997, 1996
and 1995 was $1.13 billion, $1.00 billion and $1.36 billion,
respectively. The statutory net income of NLIC for the years ended
December 31, 1997, 1996 and 1995 was $111.7 million, $73.2 million and
$86.5 million, respectively.
As a result of the $850.0 million dividend paid on February 24, 1997,
any dividend paid by NLIC during the twelve-month period immediately
following the $850.0 million dividend would be an extraordinary
dividend under Ohio insurance laws. Accordingly, no such dividend could
be paid without prior regulatory approval. The Company has no reason to
believe that any reasonably foreseeable dividend to be paid by NLIC
would not receive the required approval.
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.
(11) 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, 1997, 1996 and 1995, the
Company made lease payments to NMIC and its subsidiaries of $8.4
million, $9.1 million and $9.0 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 $85.8 million, $101.6 million and $107.1
million in 1997, 1996 and 1995, 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 $20.5 million and $15.1 million as of
December 31, 1997 and 1996, 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 1997 and
1996 were not material. The Company believes that the terms of the
repurchase agreements are materially consistent with what the Company
could have obtained with unaffiliated parties.
<PAGE> 22
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, 1997 and 1996 were:
<TABLE>
<CAPTION>
1997 1996
---------------------------- ----------------------------
(in millions of dollars) NMIC ELICW NMIC ELICW
-------------- ------------- ----------------------------
<S> <C> <C> <C> <C>
Premiums $ 91.4 $199.8 $ 97.3 $224.2
Net investment income and other revenue $ 10.7 $ 13.4 $ 10.9 $ 14.8
Benefits, claims and other expenses $100.7 $225.9 $100.5 $246.6
</TABLE>
The Company and various affiliates entered into agreements with
Nationwide Cash Management Company (NCMC), an affiliate, under which
NCMC acts as a common agent in handling the purchase and sale of
short-term securities for the respective accounts of the participants.
Amounts on deposit with NCMC were $211.0 million and $4.8 million as of
December 31, 1997 and 1996, respectively, and are included in
short-term investments on the accompanying consolidated balance sheets.
On March 1, 1995, Nationwide Corp. contributed all of the outstanding
shares of common stock of Farmland Life Insurance Company (Farmland) to
NLIC. Farmland merged into WCLIC effective June 30, 1995. The
contribution resulted in a direct increase to consolidated
shareholder's equity of $46.9 million. As discussed in note 15, WCLIC
is accounted for as discontinued operations.
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, 1997 were $66.1
million, $76.9 million and $57.3 million, respectively.
(12) 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.
<PAGE> 23
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(13) CONTINGENCIES
The Company is a defendant in various lawsuits. In the opinion of
management, the effects, if any, of such lawsuits are not expected to
be material to the Company's financial position or results of
operations.
(14) SEGMENT INFORMATION
The Company has 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 the Company and independent
investment managers, with the investment returns accumulating on a
tax-deferred basis. 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. The Fixed Annuities segment also includes the
fixed option under the Company's variable annuity contracts. The Life
Insurance segment consists of insurance products that provide a death
benefit and may also allow the customer to build cash value on a
tax-deferred basis. In addition, the Company reports corporate expenses
and investments, and the related investment income supporting capital
not specifically allocated to its product segments in a Corporate and
Other segment. In addition, all realized gains and losses and
investment management fees and other revenue earned from mutual funds,
other than the portion allocated to the variable annuities and life
insurance segments, are reported in the Corporate and Other segment.
The following table summarizes revenues and income from continuing
operations before federal income tax expense for the years ended
December 31, 1997, 1996 and 1995 and assets as of December 31, 1997,
1996 and 1995, by segment.
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996 1995
------------- ------------ ------------
<S> <C> <C> <C>
Revenues:
Variable Annuities $ 404.0 $ 284.6 $ 189.1
Fixed Annuities 1,141.4 1,092.6 1,052.0
Life Insurance 473.1 435.6 409.1
Corporate and Other 198.9 180.1 148.5
----------- ---------- ----------
$ 2,217.4 $ 1,992.9 $ 1,798.7
=========== ========== ==========
Income from continuing operations before federal income tax
expense:
Variable Annuities $ 150.9 $ 90.3 $ 50.8
Fixed Annuities 169.5 135.4 137.0
Life Insurance 70.9 67.2 67.6
Corporate and Other 38.6 22.6 32.2
----------- ---------- ----------
$ 429.9 $ 315.5 $ 287.6
=========== ========== ==========
Assets:
Variable Annuities $ 35,278.7 $ 25,069.7 $ 17,333.0
Fixed Annuities 14,436.3 13,994.7 13,250.4
Life Insurance 3,901.4 3,353.3 3,027.4
Corporate and Other 6,174.3 5,348.6 4,896.8
----------- ---------- ----------
$ 59,790.7 $ 47,766.3 $ 38,507.6
=========== ========== ==========
</TABLE>
<PAGE> 24
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(15) 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.
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 11 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, 1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996 1995
-------------- ------------- ------------
<S> <C> <C> <C>
Revenues $ - $ 668.9 $ 776.9
Net income $ - $ 11.3 $ 24.7
</TABLE>
A summary of the assets and liabilities of discontinued operations as
of December 31, 1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996 1995
-------------- ------------- -------------
<S> <C> <C> <C>
Assets, consisting primarily of investments $247.3 $3,288.5 $3,206.7
Liabilities, consisting primarily of policy benefits and claims $247.3 $2,802.8 $2,700.0
</TABLE>
