<PAGE> 1
As filed with the Securities and Exchange Commission.
'33 Act File No. 33-89560
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES [X]
ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 3
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [ ]
NATIONWIDE FIDELITY ADVISOR VARIABLE ACCOUNT
(EXACT NAME OF REGISTRANT)
NATIONWIDE LIFE INSURANCE COMPANY
(NAME OF DEPOSITOR)
ONE NATIONWIDE PLAZA, COLUMBUS, OHIO 43216-6609
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code: (614) 249-7111
DENNIS W. CLICK, SECRETARY, ONE NATIONWIDE PLAZA, COLUMBUS, OHIO 43216-6609
(Name and Address of Agent for Service)
This Post-Effective Amendment amends the Registration Statement in respect of
the Prospectus, Statement of Additional Information and the Financial
Statements.
It is proposed that this filing will become effective (check appropriate space):
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[ X ] on May 1, 1998 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a) of Rule 485
[ ] on (date) pursuant to paragraph (a) of Rule 485
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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NATIONWIDE FIDELITY ADVISOR VARIABLE ACCOUNT
REFERENCE TO ITEMS REQUIRED BY FORM N-4
Caption in Prospectus and Statement of Additional Information and Other
Information
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N-4 ITEM PAGE
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Part A INFORMATION REQUIRED IN A PROSPECTUS
Item 1. Cover page................................................................................3
Item 2. Definitions...............................................................................5
Item 3. Synopsis or Highlights...................................................................13
Item 4. Condensed Financial Information.........................................................N/A
Item 5. General Description of Registrant, Depositor, and Portfolio Companies....................14
Item 6. Deductions and Expenses..................................................................15
Item 7. General Description of Variable Annuity Contracts........................................17
Item 8. Annuity Period...........................................................................25
Item 9. Death Benefit and Distributions..........................................................27
Item 10. Purchases and Contract Value.............................................................17
Item 11. Redemptions..............................................................................21
Item 12. Taxes....................................................................................32
Item 13. Legal Proceedings........................................................................38
Item 14. Table of Contents of the Statement of Additional Information.............................39
Part B INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
Item 15. Cover Page...............................................................................44
Item 16. Table of Contents........................................................................44
Item 17. General Information and History..........................................................44
Item 18. Services.................................................................................44
Item 19. Purchase of Securities Being Offered.....................................................44
Item 20. Underwriters.............................................................................45
Item 21. Calculation of Performance Information...................................................45
Item 22. Annuity Payments.........................................................................46
Item 23. Financial Statements.....................................................................47
Part C OTHER INFORMATION
Item 24. Financial Statements and Exhibits........................................................85
Item 25. Directors and Officers of the Depositor..................................................87
Item 26. Persons Controlled by or Under Common Control with the Depositor or Registrant...........89
Item 27. Number of Contract Owners................................................................99
Item 28. Indemnification..........................................................................99
Item 29. Principal Underwriter....................................................................99
Item 30. Location of Accounts and Records........................................................100
Item 31. Management Services.....................................................................100
Item 32. Undertakings............................................................................100
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NATIONWIDE LIFE INSURANCE COMPANY
HOME OFFICE
P.O. BOX 182610
COLUMBUS, OHIO 43218-2610, 1-800-573-5775
VOICE RESPONSE (AVAILABLE 24 HOURS) 1-800-573-2447, TDD 1-800-238-3035
MODIFIED SINGLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACTS
ISSUED BY NATIONWIDE LIFE INSURANCE COMPANY
THROUGH ITS NATIONWIDE FIDELITY ADVISOR VARIABLE ACCOUNT
The Contracts described in this prospectus are Modified Single Purchase Payment
Contracts (collectively referred to as the "Contracts"). References throughout
the prospectus to such Contracts will mean individual or group Contracts. In
those states where Contracts are issued as group Contracts, references
throughout the prospectus to "Contract(s)" will also mean "Certificate(s)."
The Contracts are sold for use in retirement plans which may qualify for special
federal tax treatment under the Code. The Contracts are sold as either:
Non-Qualified Contracts; Investment-Only Contracts issued to Qualified Pension,
Profit-sharing, or Stock Bonus Plans as defined by Section 401(a) of the
Internal Revenue Code of 1986, as amended ("Code"); IRAs with contributions
rolled-over from certain tax-qualified plans such as Tax Sheltered Annuity plans
or IRAs; Roth IRAs; or as Tax Sheltered Annuity Plans with contributions rolled
over or transferred from other Tax Sheltered Annuity Plans. Annuity payments
under the Contracts are deferred until a selected later date.
Purchase Payments are allocated to the Nationwide Fidelity Advisor Variable
Account ("Variable Account"), a separate account of Nationwide Life Insurance
Company (the "Company"). Shares of the Underlying Mutual Fund options are issued
for the purpose of funding benefits of variable annuity contracts and variable
life insurance policies issued by life insurance companies or, in some cases,
through participation in certain qualified pension or retirement plans. The
Variable Account uses its assets to purchase shares at Net Asset Value in one or
more of the following Underlying Mutual Fund options:
VARIABLE INSURANCE PRODUCTS FUNDS
VIP Equity-Income Portfolio: Service Class
VIP Growth Portfolio: Service Class
VIP High Income Portfolio: Service Class*
VIP Money Market Portfolio
VIP Overseas Portfolio: Service Class
VARIABLE INSURANCE PRODUCTS FUNDS II
VIP II Asset Manager Portfolio: Service Class
VIP II Asset Manager: Growth Portfolio: Service Class
VIP II Contrafund Portfolio: Service Class
VIP II Investment Grade Bond Portfolio
VIP II Index 500 Portfolio
VARIABLE INSURANCE PRODUCTS FUND III
VIP III Balanced Portfolio: Service Class
VIP III Growth & Income Portfolio: Service Class
VIP III Growth Opportunities Portfolio: Service Class
*The VIP High Income Portfolio may invest in lower quality debt securities
commonly referred to as junk bonds.
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 the number listed
above, or writing P.O. Box 182610, Columbus, Ohio 43218-2610.
Purchase Payments not allocated to the Variable Account may be allocated to
either the Fixed Account or to Guaranteed Term Options ("GTOs"). GTOs are
available under the Contracts described in this prospectus and provide for
crediting of a guaranteed interest rate over a selected period (three, five
seven or ten years), so long as no Distributions occur prior to the end of the
period. Prospectuses for the GTOs, as well as each of the Underlying Mutual Fund
options identified above, can be obtained without charge by calling the number
listed above or by writing P.O. Box 182610, Columbus, Ohio 43216. PLEASE NOTE
THAT GTOS AND OTHER BENEFITS DESCRIBED IN THIS PROSPECTUS MAY NOT BE AVAILABLE
IN EVERY JURISDICTION. PLEASE REFER TO YOUR CONTRACT FOR SPECIFIC BENEFIT
INFORMATION.
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INVESTMENTS IN THESE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, AND ARE NOT
GUARANTEED OR ENDORSED BY, ANY ADVISER OF ANY OF THE UNDERLYING MUTUAL FUNDS
IDENTIFIED ABOVE, THE U.S. GOVERNMENT, OR ANY BANK OR BANK AFFILIATE.
INVESTMENTS ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY.
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 WEB SITE, www.sec.gov, THAT CONTAINS THE STATEMENT OF
ADDITIONAL INFORMATION AS WELL AS ANY 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 37 OF THE PROSPECTUS.
THE DATE OF THIS PROSPECTUS IS MAY 1, 1998.
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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 85 or younger at the time of
Contract issuance unless the Company has approved a request for an Annuitant of
greater age. The Annuitant may be changed prior to the Annuitization Date with
the consent of the Company.
ANNUITIZATION- The period during which annuity payments are 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 the 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 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 Annuitant is designated and the Annuitant dies before the
Annuitization Date, the Contingent Annuitant becomes the Annuitant. A Contingent
Annuitant may not be named for Contracts issued as IRAs, Roth IRAs or Tax
Sheltered Annuities.
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 OWNER- The person or entity which succeeds to the rights of Contract
Owner upon the Contract Owner's death before Annuitization. For Contracts issued
in the State of New York, references throughout this prospectus to "Contingent
Owner" will mean "Owner's Beneficiary." A Contingent Owner may not be named for
Contracts issued as IRAs, Roth IRAs or Tax Sheltered Annuities.
CONTRACT- The Modified Single Premium Deferred Variable Annuity Contract
described in this prospectus.
CONTRACT ANNIVERSARY- The anniversary of the Date of Issue of the Contract.
CONTRACT OWNER- The person or entity who possesses all rights under the
Contract, including the right to designate and change any designations of the
Contract Owner, Contingent Owner, Annuitant, Contingent Annuitant, Beneficiary,
Contingent Beneficiary, Annuity Payment Option, and the Annuity Commencement
Date. The Contract Owner is the person or entity named on the Contract Data
Page, unless changed.
CONTRACT VALUE- The sum of the value of all Accumulation Units attributable to
the Contract, plus any amount in the Fixed Account, plus any amount held under
the GTOs, which may be subject to a Market Value Adjustment.
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 payable upon the death of the Annuitant or Contingent
Annuitant, if applicable. This benefit does not apply upon the death of the
Contract Owner when the Contract Owner and Annuitant are not the same person. If
the Annuitant dies after the Annuitization Date, any benefit that may be payable
will be as specified in the Annuity Payment Option elected.
DISTRIBUTION- Any payment of part or all of the Contract Value.
FIXED ACCOUNT- An investment option which is funded by the General Account of
the Company.
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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.
GUARANTEED TERM OPTION ("GTO")- An investment option offered under the Contract
which provides a guaranteed interest rate period over certain maturity durations
(three, five, seven and ten years) so long as certain conditions are met.
Amounts allocated to a GTO may be subject to a Market Value Adjustment if
distributed for any reason prior to the end of the selected term, resulting in
an upward or downward adjustment in the Distributions proceeds. GTOs are not
part of the Variable Account (or the Fixed Account) and are not subject to
Variable Account charges but may be subject to CDSC if otherwise applicable.
GTOs are not available during the Annuitization phase of the Contracts and may
not be available in every state jurisdiction. The minimum amount which may be
allocated to a GTO is $1,000.
HOME OFFICE- The main office of the Company located in Columbus, Ohio.
HOSPITAL- A state licensed facility which is operated as Hospital according to
the laws of the jurisdiction in which it is located.
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.
INDIVIDUAL RETIREMENT ANNUITY ("IRA")- An annuity which qualifies for favorable
tax treatment under Section 408 of the Code, but does not include Roth IRAs,
which qualify for favorable tax treatment under Section 408A of the Code.
INVESTMENT-ONLY CONTRACT- A contract purchased by a Qualified Plan which does
not, by its terms, comply with Section 401 or 403(a) of the Code. The Qualified
Plan purchasing the Investment-Only Contract may impose limitations or
restrictions on benefits discussed in this prospectus.
INTEREST RATE GUARANTEE PERIOD- The interval of time during which an interest
rate credited to the Fixed Account is guaranteed to remain the same. For new
Purchase Payments allocated to the Fixed Account or transfers from the Variable
Account or a GTO, 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. The Interest Rate Guarantee Period does not in any way
refer to interest rate crediting practices employed by the Company with respect
to GTO.
JOINT OWNER- The Joint Owner possesses an undivided interest in the entire
Contract in conjunction with the Contract Owner. If a Joint Owner is named,
references to "Contract Owner" or "Joint Owner" will apply to both the Contract
Owner and Joint Owner or either of them. Joint Owners must be spouses at the
time Joint Ownership is requested, unless otherwise allowed by state law. Joint
Ownership may be selected only for Non-Qualified Contracts.
LONG TERM CARE FACILITY- A state licensed skilled nursing facility or
intermediate care facility.
MARKET VALUE ADJUSTMENT ("MVA")- The upward or downward adjustment in value or
amounts allocated to a GTO, which are distributed prior to maturity for any
reason.
NET ASSET VALUE- The value of one share of an Underlying Mutual Fund 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 plus other assets,
deducting liabilities and then dividing the result by the number of shares
outstanding.
NON-QUALIFIED CONTRACTS- A contract which does not qualify for favorable tax
treatment under Sections 401 or 403(a) (Qualified Plans), 408 (IRAs), 408A (Roth
IRAs) or 403(b) (Tax Sheltered Annuities) of the Code.
PHYSICIAN- A person who is a state licensed Medical Doctor or Doctor of
Osteopathic Medicine providing medical care or treatment within the scope of
that license.
PURCHASE PAYMENT- A deposit of new value into the Contract. The term "Purchase
Payment" does not include transfers among the Sub-Accounts, or between the
Sub-Accounts and the Fixed Account or GTOs.
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QUALIFIED PLANS- Retirement plans which receive favorable tax treatment under
Section 401 or 403(a) of the Code.
ROTH IRA- An annuity contract which receives 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.
TERMINAL ILLNESS- A diagnosis of an illness by a Physician which is expected to
result in death within 12 months of diagnosis. The diagnosis of "Terminal
Illness" must occur after the Contract has been issued.
UNDERLYING MUTUAL 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 Variable Account's 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- Nationwide Fidelity Advisor 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 the 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.
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TABLE OF CONTENTS
<TABLE>
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GLOSSARY OF SPECIAL TERMS.............................................................................................3
SUMMARY OF CONTRACT EXPENSES..........................................................................................8
UNDERLYING MUTUAL FUND ANNUAL EXPENSES................................................................................9
EXAMPLE..............................................................................................................10
SYNOPSIS.............................................................................................................11
NATIONWIDE LIFE INSURANCE COMPANY....................................................................................12
THE VARIABLE ACCOUNT.................................................................................................12
Underlying Mutual Fund Options..............................................................................12
Voting Rights...............................................................................................12
Substitution of Securities..................................................................................13
GTO ALLOCATIONS......................................................................................................13
VARIABLE ACCOUNT CHARGES AND OTHER DEDUCTIONS........................................................................13
Expenses of Variable Account................................................................................13
Mortality Risk Charge.......................................................................................14
Expense Risk Charge.........................................................................................14
Optional Long Term Care Facility and Death Benefit Rider Charges............................................14
Contingent Deferred Sales Charge ("CDSC")...................................................................14
Waiver of CDSC..............................................................................................15
Premium Taxes...............................................................................................15
OPERATION OF THE CONTRACT............................................................................................15
Investments of the Variable Account.........................................................................15
Allocation of Purchase Payments and Contract Value..........................................................15
Value of an Accumulation Unit...............................................................................16
Net Investment Factor.......................................................................................16
Determining the Contract Value..............................................................................17
Right to Revoke.............................................................................................17
Transfers...................................................................................................17
Contract Ownership..........................................................................................18
Joint Ownership.............................................................................................18
Contingent Ownership........................................................................................18
Beneficiary.................................................................................................19
Surrender (Redemption)......................................................................................19
Surrenders Under a Tax Sheltered Annuity Contract...........................................................20
Loan Privilege..............................................................................................20
Assignment..................................................................................................21
CONTRACT OWNER SERVICES..............................................................................................22
Asset Rebalancing...........................................................................................22
Dollar Cost Averaging.......................................................................................22
Systematic Withdrawals......................................................................................22
ANNUITY PAYMENT PERIOD, DEATH BENEFIT, AND OTHER DISTRIBUTIONS.......................................................23
Annuity Commencement Date.................................................................................23
Annuitization.............................................................................................23
Fixed Payment Annuity-First and Subsequent Payments.......................................................23
Variable Payment Annuity-First and Subsequent Payments....................................................24
Variable Payment Annuity -Assumed Investment Rate.........................................................24
Variable Payment Annuity -Value of an Annuity Unit........................................................24
Variable Payment Annuity -Exchanges Among Underlying Mutual Fund Options..................................24
Frequency and Amount of Annuity Payments..................................................................24
Annuity Payment Options...................................................................................24
Death of Contract Owner -Non-Qualified Contracts..........................................................25
Death of Annuitant - Non-Qualified Contracts..............................................................25
Death of the Contract Owner/Annuitant.....................................................................25
Death Benefit Payment.....................................................................................25
Five-Year Reset Death Benefit (Standard Contractual Death Benefit).................................25
One-Year Step Up Death Benefit (Option 1)..........................................................26
5% Enhanced Death Benefit (Option 2)...............................................................26
</TABLE>
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<TABLE>
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Long Term Care Facility...................................................................................27
Required Distributions for Non-Qualified Contracts........................................................27
Required Distributions for Tax Sheltered Annuities........................................................28
Required Distributions for IRAs...........................................................................28
Required Distributions for Roth IRAs......................................................................29
FEDERAL TAX CONSIDERATIONS...........................................................................................30
Federal Income Taxes......................................................................................30
Puerto Rico...............................................................................................30
Non-Qualified Contracts-Natural Persons as Contract Owners................................................31
Non-Qualified Contracts-Non-Natural Persons as Contract Owners............................................32
IRAs and Tax Sheltered Annuities..........................................................................32
Roth IRAs.................................................................................................33
Withholding...............................................................................................33
Non-Resident Aliens.......................................................................................33
Federal Estate, Gift, and Generation Skipping Transfer Taxes..............................................33
Charge for Tax............................................................................................34
Diversification...........................................................................................34
Tax Changes...............................................................................................34
GENERAL INFORMATION..................................................................................................35
Contract Owner Inquiries..................................................................................35
Statements and Reports....................................................................................35
Advertising...............................................................................................35
YEAR 2000 COMPLIANCE ISSUES..........................................................................................36
LEGAL PROCEEDINGS....................................................................................................36
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION.............................................................37
APPENDIX A...........................................................................................................38
APPENDIX B...........................................................................................................39
</TABLE>
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SUMMARY OF CONTRACT EXPENSES
CONTRACT OWNER TRANSACTION EXPENSES
Maximum Contingent Deferred Sales Charge ("CDSC")(1).........................7%
Range of CDSC Over Time
Number of Completed Years from CDSC Percentage
Date of Purchase Payment
0 7%
1 7%
2 6%
3 5%
4 4%
5 3%
6 2%
7 0%
VARIABLE ACCOUNT ANNUAL EXPENSES(2)
Mortality and Expense Risk Charges............................ 0.95%
Administration Charge......................................... 0.00%
Total Variable Account Annual Expenses...................... 0.95%(3)
OPTIONAL LONG TERM CARE FACILITY AND DEATH BENEFIT RIDERS(4)
<TABLE>
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Optional Long Term Care Facility and One-Year Stepped
Up Death Benefit (Rider Option 1) ................................................................0.05%
Total Variable Account Annual Expenses (Including Rider Option 1)........................1.00%
Optional Long Term Care Facility and 5% Enhanced Death
Benefit (Rider Option 2)..........................................................................0.10%
Total Variable Account Annual Expenses (Including Rider Option 2)........................1.05%
</TABLE>
(1) Each Contract Year, the Contract Owner may withdraw without a CDSC the
greater of:
(a) an amount equal to 10% of the total of all Purchase Payments made
to this Contract; or
(b) any amount withdrawn in order for this Contract to meet minimum
distribution requirements under the Code.
Withdrawals may be restricted for Contracts issued pursuant to the terms
of a Tax Sheltered Annuity Plan. This CDSC-free withdrawal privilege is
non-cumulative. Free amounts not taken during any given year cannot be
taken as free amounts in a subsequent year (see "Waiver of CDSC").
(2) The Variable Account charges apply exclusively to allocations made to the
Sub-Account(s). Such charges do not apply to, and will not be assessed
against, allocations made to the Fixed Account or GTO(s).
(3) The Total Variable Account Annual Expenses shown include the Five-Year Reset
Death Benefit ("Standard Contractual Death Benefit") (see "Death Benefit
Payment Provisions").
(4) At the time of application, the applicant may choose one of two Long Term
Care Facility and Death Benefit Riders in lieu of receiving the Standard
Contractual Death Benefit. Should the applicant choose a Rider Option, the
Company will deduct an additional charge equal to an annual rate of 0.05%
for Rider Option 1, or 0.10% for Rider Option 2 of the daily net assets of
the Variable Account (see "Death Benefit Payment" provision).
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UNDERLYING MUTUAL FUND ANNUAL EXPENSES(1)
(AFTER EXPENSE REIMBURSEMENT)
(AS A PERCENTAGE OF UNDERLYING MUTUAL FUND AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Management Other Expenses 12b-1 Expenses Total Mutual
Fees Fund Expenses
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
VIP Equity-Income Portfolio: Service
Class* 0.50% 0.05% 0.10% 0.65%
- ----------------------------------------------------------------------------------------------------------------------
VIP Growth Portfolio: Service Class* 0.60% 0.07% 0.10% 0.77%
- ----------------------------------------------------------------------------------------------------------------------
VIP High Income Portfolio: Service Class* 0.59% 0.11% 0.10% 0.80%
- ----------------------------------------------------------------------------------------------------------------------
VIP Money Market Portfolio 0.21% 0.10% 0.00% 0.31%
- -----------------------------------------------------------------------------------------------------------------------
VIP Overseas Portfolio: Service Class* 0.75% 0.16% 0.10% 1.01%
- -----------------------------------------------------------------------------------------------------------------------
VIP II Asset Manager Portfolio: Service
Class 0.55% 0.10% 0.10% 0.75%
- ----------------------------------------------------------------------------------------------------------------------
VIP II Asset Manager: Growth Portfolio:
Service Class 0.60% 0.17% 0.10% 0.87%
- ----------------------------------------------------------------------------------------------------------------------
VIP II Contrafund Portfolio: Service
Class* 0.60% 0.08% 0.10% 0.78%
- ----------------------------------------------------------------------------------------------------------------------
VIP II Investment Grade Bond Portfolio 0.44% 0.14% 0.00% 0.58%
- ----------------------------------------------------------------------------------------------------------------------
VIP II Index 500 Portfolio* 0.24% 0.04% 0.00% 0.28%
- ----------------------------------------------------------------------------------------------------------------------
VIP III Balanced Portfolio: Service Class 0.45% 0.16% 0.10% 0.71%
- ----------------------------------------------------------------------------------------------------------------------
VIP III Growth & Income Portfolio:
Service Class 0.49% 0.21% 0.10% 0.80%
- ----------------------------------------------------------------------------------------------------------------------
VIP III Growth Opportunities Portfolio:
Service Class* 0.60% 0.13% 0.10% 0.83%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) 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 unit values of the
Variable Account. The management fees and other expenses are more fully
described in the prospectus for each individual Underlying Mutual Fund. The
information relating to the Underlying Mutual Fund expenses was provided by
the Underlying Mutual Fund and was not independently verified by the
Company. Except as otherwise noted below, the Management Fees and Other
Expenses are not currently subject to fee waivers or expenses
reimbursements.
* Fidelity Management & Research Company (the adviser for the Underlying
Mutual Funds) has voluntarily agreed to reimburse a portion of the
management fees and/or operating expenses resulting in a reduction of total
expenses. Absent any partial reimbursement, "Management Fees" and "Other
Expenses" would have been 0.50% and 0.08 for the VIP Equity-Income
Portfolio, 0.60% and 0.09% for VIP Growth Portfolio, 0.59% and 0.12%
for VIP High Income Portfolio, 0.75% and 0.17% for VIP Overseas
Portfolio, 0.60% and 0.11% for VIP II Contrafund Portfolio, 0.27% and
0.13% for VIP II Index 500 Portfolio, 0.49% and 0.22% for VIP III Growth &
Income Portfolio, and 0.60% and 0.14% for VIP III Growth Opportunities
Portfolio.
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EXAMPLE
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 a
representation of past or future expenses. Actual expenses may be greater or
lesser than those shown below.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
If you surrender your If you do not surrender If you annuitize your
Contract your Contract at the end Contract
at the end of the of the applicable time at the end of the
applicable period applicable
time period time period
- ---------------------------------------------------------------------------------------------------------------
1 Yr. 3 Yrs. 5 Yrs. 10 Yrs. 1 Yr. 3 Yrs 5 Yrs. 10 Yrs. 1 Yr. 3 Yrs. 5 Yrs. 10 Yrs.
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
VIP Equity-Income 81 109 131 207 18 55 95 207 * 55 95 207
Portfolio: Service Class
- ---------------------------------------------------------------------------------------------------------------
VIP Growth 82 113 138 220 19 59 102 220 * 59 102 220
Portfolio: Service Class
- ---------------------------------------------------------------------------------------------------------------
VIP High Income 82 114 139 223 19 60 103 223 * 60 103 223
Portfolio: Service Class
- ---------------------------------------------------------------------------------------------------------------
VIP Money Market 77 98 113 168 14 44 77 168 * 44 77 168
Portfolio
- ---------------------------------------------------------------------------------------------------------------
VIP Overseas 85 121 150 246 22 67 114 246 * 67 114 246
Portfolio: Service Class
- ---------------------------------------------------------------------------------------------------------------
VIP II Asset 82 112 137 218 19 58 101 218 * 58 101 218
Manager Portfolio:
Service Class
- ---------------------------------------------------------------------------------------------------------------
VIP II Asset 83 116 143 231 20 62 107 231 * 62 107 231
Manager: Growth
Portfolio: Service Class
- ---------------------------------------------------------------------------------------------------------------
VIP II Contrafund 82 113 138 221 19 59 102 221 * 59 102 221
Portfolio: Service Class
- ---------------------------------------------------------------------------------------------------------------
VIP II Investment 80 107 127 199 17 53 91 199 * 53 91 199
Grade Bond Portfolio
- ---------------------------------------------------------------------------------------------------------------
VIP II Index 500 77 97 111 165 14 43 75 165 * 43 75 165
Portfolio
- ---------------------------------------------------------------------------------------------------------------
VIP III Balanced 81 111 134 213 18 57 98 213 * 57 98 213
Portfolio: Service Class
- ---------------------------------------------------------------------------------------------------------------
VIP III Growth & 82 114 139 223 19 60 103 223 * 60 103 223
Income Portfolio: Service
Class
- ---------------------------------------------------------------------------------------------------------------
VIP III Growth 83 115 141 227 20 61 105 227 * 61 105 227
Opportunities Portfolio:
Service Class
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
*The Contracts sold under this prospectus do not permit Annuitizations during
the first two Contract Years.
The Example takes into consideration the maximum amount which could be assessed
to a Contract (1.05%), for the election of the Long Term Care Facility and 5%
Enhanced Death Benefit Rider (Rider Option 2) (see "Long Term Care Facility and
Death Benefit Rider Charge" and "Death Benefit Payment" provisions). For those
Contracts under which no Long Term Care Facility and 5% Enhanced Death Benefit
has been elected, the expenses in the Example will be reduced accordingly.
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 when investing in the Contract. The expenses of the
Variable Account as well as those of the Underlying Mutual Fund options are
reflected in the Example. For more complete descriptions of the expenses of the
Variable Account, see "Variable Account Charges and Other Deductions." For more
complete information regarding expenses paid out of the assets of the Underlying
Mutual Fund options, see the prospectus for each Underlying Mutual Fund.
Deductions for premium taxes may also apply, but are not reflected in the
Example shown above (see "Premium Taxes").
10
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<PAGE> 13
SYNOPSIS
The Contracts can be categorized as follows: (1) Non-Qualified; (2)
Investment-Only Contracts issued to Qualified Pension, Profit-sharing or Stock
Bonus Plans as defined by Section 401(a) of the Code; (3) IRAs, with
contributions rolled-over or transferred from certain tax-qualified plans such
as Tax Sheltered Annuity Plans, Qualified Plans or IRAs; (4) Roth IRAs; and (5)
Tax Sheltered Annuities, with contributions rolled-over or transferred from
other Tax Sheltered Annuity Plans.
The initial first year Purchase Payment for Contracts issued as Non-Qualified
Contracts, IRAs, Roth IRAs or Tax-Sheltered Annuities must be at least $15,000
and subsequent Purchase Payments, if any, must be at least $1,000. In addition,
any amounts allocated to the GTO(s) must be at least $1,000. Please refer to the
prospectus for the GTO(s) for additional details regarding Purchase Payments
made to the GTO(s). For Investment-Only Contracts issued to Qualified Pension,
Profit-sharing, or Stock Bonus Plans as defined by Section 401(a) of the Code,
the initial Purchase Payment must be at least $100,000, and subsequent Purchase
Payments, if any, at least $15,000. Subsequent Purchase Payments are not
permitted for Contracts issued in the State of Oregon and may not be permitted
in other states under certain circumstances. 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 "Allocation of Purchase Payments and Contract Value").
The Company does not deduct a sales charge from Purchase Payments made for these
Contracts. However, if any part of the Contract Value of the Contracts is
surrendered, the Company will, with certain exceptions, deduct from the Contract
Value 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. 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").
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 risks assumed by the
Company (see "Mortality Risk Charge"). The Company deducts an Expense Risk
Charge equal to an annual rate of 0.15% of the daily net assets of the Variable
Account as compensation for the Company's risk in undertaking not to increase
administrative charges regardless of the actual administrative costs (see
"Expense Risk Charge"). If the Contract Owner has elected a Rider Option at the
time of application, the Company deducts: (1) a Long Term Care Facility and
One-Year Step Up Death Benefit (Rider Option 1) charge equal to an annual rate
of 0.05% of the daily net assets of the Variable Account; or (2) a Long Term
Care Facility and 5% Enhanced Death Benefit (Rider Option 2) charge equal to an
annual rate of 0.10% of the daily net assets of the Variable Account, depending
on which Rider Option was chosen (see "Long Term Care Facility and Death Benefit
Charges", "Long Term Care Facility" and "Death Benefit Payment" for additional
information.)
Upon Annuitization, the selected Annuity Payment Option will begin (see "Annuity
Payment Option"). However, if the net amount to be applied to any Annuity
Payment Option on the Annuitization Date is less than $5,000, the Contract Value
may be distributed in lump sum in lieu of annuity payments. If any annuity
payment would be less than $50, the Company will have the right to change the
frequency of payments to such intervals as will result in payments of at least
$50. In no event, however, will annuity payments be made less frequently than
annually (see "Frequency and Amount of Annuity Payments").
Taxation of the Contracts will depend on the type of Contract issued (see
"FEDERAL TAX CONSIDERATIONS"). In addition, the Company will charge against the
Purchase Payments or the Contract Value the amount of any premium taxes levied
by a state or any other governmental entity (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 and Roth IRA refunds will be return of Purchase Payments (see "Right to
Revoke").
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<PAGE> 14
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 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, Fidelity Investments Institutional Services Company, Inc.
THE VARIABLE ACCOUNT
The Variable Account was established by the Company on July 22, 1994, pursuant
to 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 of 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 among one or more Sub-Accounts corresponding to
one or more of the Underlying Mutual Funds designated by the Contract Owner.
There are two Sub-Accounts within the Variable Account for each of the
Underlying Mutual Fund options which may be designated by the Contract Owner.
One such Sub-Account contains the Underlying Mutual Funds shares attributable to
Accumulation Units under IRAs, Roth IRAs and Tax Sheltered Annuities and one
such Sub-Account contains the Underlying Mutual Funds shares attributable to
Accumulation Units under Non-Qualified Contracts.
UNDERLYING MUTUAL FUND OPTIONS
A Contract Owner 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. More detailed information may be found in the
current prospectus for each Underlying Mutual Fund. Prospectuses for the
Underlying Mutual Funds should be read in conjunction with this prospectus.
The Underlying Mutual Fund options are NOT available to the general public
directly. The Underlying Mutual Funds are available as investment options in
variable life insurance policies or variable annuity contracts issued by life
insurance companies or, in some cases, through participation in certain
qualified pension or retirement plans.
Some of the Underlying Mutual Funds have been established by investment advisers
which manage publicly traded mutual funds having similar names and investment
objectives. While some of the Underlying Mutual Funds may be similar to, and may
in fact be modeled after publicly traded mutual funds, Contract purchasers
should understand that the Underlying Mutual Funds are not otherwise directly
related to any publicly traded mutual fund. Consequently, the investment
performance of publicly traded mutual funds and any corresponding Underlying
Mutual Funds may differ substantially.
The Underlying Mutual Funds 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
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 in which the Underlying Mutual Funds participate. A conflict
may occur due to a number of reasons including a change in law affecting the
operations of variable life insurance policies and variable annuity contracts or
differences in the voting instructions of the Contract Owners and those of other
companies. In the event of conflict, the Company will take any steps necessary
to protect the Contract Owners and variable annuity payees, including withdrawal
of the Variable Account from participation in the Underlying Mutual Fund(s)
involved in the conflict.
VOTING RIGHTS
Voting rights under the Contracts apply ONLY with respect to amounts allocated
to the Sub-Accounts.
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
12
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<PAGE> 15
received from Contract Owners. If the 1940 Act or any regulation thereunder
should be amended or if the present interpretation changes permitting the
Company to vote the shares of the Underlying Mutual Funds in its own right, it
may elect to do so.
The Contract Owner is the person who has the voting interest under the Contract.
The number of Underlying Mutual Fund shares 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 the date to be chosen by the Company not more than 90 days prior to the
meeting of the Underlying Mutual Fund. Each person having a voting interest will
receive periodic reports relating to the Underlying Mutual Fund, proxy material
and a form with which to give such voting instructions.
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.
SUBSTITUTION OF SECURITIES
If shares of the Underlying Mutual Fund options are no longer 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 is
inappropriate, the Company may eliminate Sub-Accounts, combine two or more
Sub-Accounts, or substitute shares of another underlying mutual fund for
underlying mutual fund shares already purchased or to be purchased in the future
with Purchase Payments under the Contract. No substitution of securities in the
Variable Account may take place without prior approval of the SEC.
GTO ALLOCATIONS
GTOs are separate investment options under the Contract. GTOs provide a
guaranteed rate of interest over four different maturity durations of three (3),
five (5), seven (7) or ten (10) years. A guaranteed interest rate, determined
and declared by the Company for any maturity duration selected, will be credited
unless a Distribution from the GTO occurs for any reason. If a Distribution
occurs, the proceeds will be subject to a MVA, resulting in either an upward or
downward adjustment in the value of the distributed proceeds, depending on
interest rate fluctuations. No MVA will be applied if GTO allocations are held
to maturity. Because every guaranteed term will end on the final day of a
calendar quarter, the guaranteed term may last for up to 3 months beyond the 3,
5, 7 or 10 year anniversary of the allocation to the GTO.
The minimum amount of any allocation made to a GTO must be at least $1,000.
Allocations to the GTOs are not subject to Variable Account Charges.
Generally, the MVA will reduce the value of distributed proceeds when prevailing
interest rates are higher than the GTO rate in effect for the maturity duration
elected. Conversely, when prevailing rates are lower than the GTO rate in
effect, distribution proceeds will increase in value. The effect of a MVA should
be carefully considered prior to surrender or transfer from allocations to a
GTO.
GTOs are available only during the accumulation phase of a Contract and are not
available as investment options during the Annuitization phase of a Contract. In
addition, GTOs are not available for use in conjunction with Asset Rebalancing,
Dollar Cost Averaging or Systematic Withdrawals.
A prospectus describing the GTOs must be read with this prospectus in the same
manner that prospectuses for Underlying Mutual Fund options must be read with
this prospectus. A prospectus for the GTOs may be obtained without charge by
calling 1-800-573-2447, TDD 1-800-238-3035, or writing P.O. Box 182610,
Columbus, Ohio 43218-2610. GTOs MAY NOT BE AVAILABLE IN EVERY STATE
JURISDICTION.
VARIABLE ACCOUNT CHARGES AND OTHER DEDUCTIONS
EXPENSES OF VARIABLE ACCOUNT
The Variable Account is responsible for the following types of expenses: (1) a
mortality risk charge associated with guaranteeing the annuity purchase rates at
issue for the life of the Contracts; and (2) an expense risk charge associated
with guaranteeing that the Mortality Risk and Expense Risk Charges described in
this prospectus will not change regardless of actual expenses. In addition, a
charge will be deducted for those
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<PAGE> 16
Contracts which have elected a Long Term Care Facility and Death Benefit Rider.
If these charges are insufficient to cover these 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 or to the GTOs are subject to CDSC
and premium tax deductions, if applicable, but are not subject to charges
exclusive to the Variable Account; i.e., the Mortality Risk Charge and Expense
Risk Charge and if applicable, the Death Benefit Option Rider Charge.
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.
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 0.15% of
the daily net assets of the Variable Account. The Company will not increase
charges for administration of the Contracts regardless of its actual expenses.
OPTIONAL LONG TERM CARE FACILITY AND DEATH BENEFIT RIDER CHARGES
If a Long Term Care Facility and Death Benefit Rider is chosen, the Company will
deduct a charge equal to an annual rate of either 0.05% or 0.10% of the daily
net assets of the Variable Account depending upon which Long Term Care Facility
and Death Benefit Rider was chosen (see "Death Benefit Payment"). These charges
are designed to reimburse the Company for increased expenses and mortality
risks.
CONTINGENT DEFERRED SALES CHARGE ("CDSC")
No deduction for sales charges is made from the Purchase Payments for these
Contracts. However, if any part of the Contract Value is surrendered, the
Company will, with certain exceptions, deduct a CDSC (see "Waiver of 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 CDSC, when it is applicable, will be used to cover
expenses relating to the sale of the Contracts, 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 Contracts from the CDSC. Any shortfall will be made
up from the General Account of the Company, which may indirectly include
portions of the Mortality and Expense Risk Charges, since the Company expects to
generate a profit from these charges. The maximum amount that may be paid to a
selling agent on the sale of these Contracts is 6% of Purchase Payments.
The CDSC is calculated by multiplying the applicable CDSC percentages noted
below by the Purchase Payments that are surrendered. For purposes of calculating
the CDSC, surrenders are considered to come first from the oldest Purchase
Payment made to the Contract, then the next oldest Purchase Payment and so
forth. For tax purposes, a surrender is usually treated as a withdrawal of
earnings first.
The CDSC applies to Purchase Payments as follows:
<TABLE>
<CAPTION>
NUMBER OF COMPLETED CDSC NUMBER OF COMPLETED CDSC
YEARS FROM DATE OF PERCENTAGE YEARS FROM DATE OF PERCENTAGE
PURCHASE PAYMENT PURCHASE PAYMENT
<S> <C> <C> <C>
0 7% 4 4%
1 7% 5 3%
2 6% 6 2%
3 5% 7 0%
</TABLE>
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<PAGE> 17
WAIVER OF CDSC
Each Contract Year, the Contract Owner may withdraw without a CDSC:
(a) any amount in order for the Contract to meet minimum distribution
requirements under the Code; or
(b) an amount equal to 10% if the total of all Purchase Payments.
This CDSC-free withdrawal privilege is non-cumulative. Free amounts not taken
during any given Contract Year cannot be taken as free amounts in a subsequent
Contract Year.
In addition, no CDSC will be deducted:
(1) upon Annuitization of Contracts which have been in force for at least
two years;
(2) upon payment of a Death Benefit; or
(3) from any values which have been held in a Contract for at least 84
months.
No CDSC applies upon the transfer of values among the Sub-Accounts or between or
among the GTOs, the Fixed Account and the Variable Account. When a Contract
described in this prospectus is exchanged for another contract issued by the
Company or any of its affiliated insurance companies, of the type and class
which the Company determines is eligible for such an exchange, the Company may
waive the CDSC on the first Contract. A CDSC may apply to the contract received
in the exchange.
When a Contract is held by a Charitable Remainder Trust, the amount which may be
withdrawn from this Contract without application of a CDSC, will be the larger
of (a) or (b), where:
(a) is the amount which would otherwise be available for withdrawal
without application of a CDSC; and
(b) is the difference between the total Purchase Payments made to the
Contract as of the date of the withdrawal (reduced by previous
withdrawals of such Purchase Payments), and the Contract Value at the
close of the day prior to the date of the withdrawal.
The Contract Owner may be subject to income tax on all or a portion of any such
withdrawals and to a tax penalty if the Contract Owner takes withdrawals prior
to age 59-1/2 (see "Non-Qualified Contracts- Natural Persons as Contract
Owners").
In no event will elimination of CDSC be permitted where such elimination will be
unfairly discriminatory to any person, or where it is prohibited by law.
PREMIUM TAXES
The Company will charge against the Contract Value any premium taxes levied by a
state or any other government 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 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.
OPERATION OF THE CONTRACT
INVESTMENTS OF THE VARIABLE ACCOUNT
The Contract Owner may have Purchase Payments allocated among one or more of the
Sub-Accounts. Shares of the Underlying Mutual Fund options specified by the
Contract Owner are purchased at Net Asset Value for the respective
Sub-Account(s) and converted into Accumulation Units. The Contract Owner may
change the allocation of Purchase Payments or may exchange amounts among the
Sub-Accounts. Such transactions may be subject to conditions imposed by the
Underlying Mutual Funds, as well those set forth in the Contract.
ALLOCATION OF PURCHASE PAYMENTS AND CONTRACT VALUE
Purchase Payments are allocated to the Fixed Account, GTOs or to one or more
Sub-Accounts in accordance with the designation of the Underlying Mutual Funds
by the Contract Owner and converted into Accumulation Units.
The initial first year Purchase Payment for Contracts issued as Non-Qualified
Contracts, IRAs, Roth IRAs or Tax Sheltered Annuities must be at least $15,000
and subsequent Purchase Payments, if any, must be at least
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<PAGE> 18
$1,000. In addition, any amounts allocated to the GTO(s) must be at least
$1,000. Please refer to the prospectus for the GTO(s) for additional details
regarding Purchase Payments made to the GTO(s). For Investment-Only Contracts
issued to Qualified Pension, Profit-sharing or Stock Bonus Plans as defined by
Section 401(a) of the Code, the initial Purchase Payment must be at least
$100,000, and subsequent Purchase Payments, if any, at least $15,000. Subsequent
Purchase Payments are not permitted for Contracts issued in the state of Oregon
and may not be permitted in other states under certain circumstances.
The Contract Owner may increase or decrease Purchase Payments or change the
frequency of payment. The Contract Owner is not obligated to continue Purchase
Payments in the amount or at the frequency elected. There are no penalties for
failure to continue Purchase Payments. The cumulative total of all purchase
payments under contracts issued by the Company on the life of any Annuitant may
not exceed $1,000,000 without prior consent of the Company.
The initial Purchase Payment allocated to designated Sub-Accounts will be priced
no 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, however, 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 business 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
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 Accumulation Unit value for any 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. Though the number of Accumulation Units
will not change as a result of investment experience, the value of an
Accumulation Unit may increase or decrease from Valuation Period to Valuation
Period.
NET INVESTMENT FACTOR
The net investment factor for any Valuation Period is determined by dividing (a)
by (b) and subtracting (c) from the result 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 and Expense
Risk Charge. Such factor is equal to an annual rate of 0.95% of the
daily net assets of the Variable Account (1.00% or 1.05% if one of
the Long Term Care Facility & Death Benefit Riders is chosen).
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 and Expense Risk Charge.
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<PAGE> 19
DETERMINING THE CONTRACT VALUE
The Contract Value is the sum of the value of all Accumulation Units and amounts
allocated and credited to the Fixed Account, and amounts allocated and credited
to a GTO which may be subject to a Market Value Adjustment. The number of
Accumulation Units credited to each Sub-Account is determined by dividing the
net amount allocated to the Sub-Account by the Accumulation Unit value for the
Sub-Account for the Valuation Period during which the Purchase Payment is
received by the Company. 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 and an appropriate amount from the Fixed Account will be
deducted in the same proportion that the Contract Owner's interest in each of
the Variable Account and Fixed Account bears to the total Contract Value. If the
amount requested exceeds the amounts available in the Variable Account and the
Fixed Account, the Company will surrender any remaining amount from the GTO(s)
which may be subject to a Market Value Adjustment. All surrenders are subject to
any applicable CDSC.
RIGHT TO REVOKE
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 and Roth IRA refunds will be return of Purchase Payments.
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
The Contract Owner may request a transfer of up to 100% of the combined value of
any GTO allocation and the Variable Account value to the Fixed Account, without
penalty or adjustment. Transfers from a GTO prior to maturity are subject to a
Market Value Adjustment. The Company reserves the right to restrict transfers
from the Variable Account to the Fixed Account to 10% of the combined value of
any GTO allocation and the Variable Account Contract Value for any 12 month
period. All amounts transferred to the Fixed Account must remain on deposit in
the Fixed Account until the expiration of the current Interest Rate Guarantee
Period. In addition, 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 refuse transfers or Purchase Payments into the
Fixed Account if the Fixed Account is greater than or equal to 30% of the total
Contract Value. Once the Contract has been Annuitized, transfers may only be
made on each anniversary of the Annuitization Date.
The Contract Owner may at the maturity of an Interest Rate Guarantee Period,
transfer a portion of the value of the Fixed Account to the Variable Account or
to a GTO. The amount that may be transferred from the Fixed Account to the
Variable Account or to a GTO 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. Transfers from the Fixed Account must be made
within 45 days after the expiration date of the guarantee period. Contract
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 (but not to GTOs) 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 to Contract
Owners automatically without the Contract Owner's election. The Company will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. Such procedures may include any or all of 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 both the
Contract Owner and any agent of record, at the last address of record; or such
other procedures as the Company may deem reasonable. Although the Company's
failure to follow reasonable procedures may result in the Company's liability
for any losses due to unauthorized or fraudulent telephone transfers, the
Company will not be liable for following
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instructions communicated by telephone which it reasonably believes to be
genuine. Any losses incurred pursuant to actions taken by the Company in
reliance on telephone instructions reasonably believed to be genuine will be
borne by the Contract Owner.
Contracts described in this prospectus may be sold to individuals who
independently utilize the services of a firm or individual engaged in market
timing. Generally, such firms or individuals obtain authorization from multiple
Contract Owners to make transfers and exchanges among the Sub-Accounts on the
basis of perceived market trends. Because of the unusually large transfers of
funds associated with some of these transactions, the ability of the Company or
Underlying Mutual Funds to process such transactions may be compromised, and the
execution of such transactions may possibly disadvantage or work to the
detriment of other Contract Owners not utilizing market timing services.
Accordingly, the right to exchange Contract Values among the Sub-Accounts may be
subject to modification if such rights are exercised by a market timing firm or
any other third party authorized to initiate transfer or exchange transactions
on behalf of multiple Contract Owners. THE RIGHTS OF INDIVIDUAL CONTRACT OWNERS
TO EXCHANGE CONTRACT VALUES, WHEN INSTRUCTIONS ARE SUBMITTED DIRECTLY BY THE
CONTRACT OWNER, OR BY THE CONTRACT OWNER'S REPRESENTATIVE OF RECORD AS
AUTHORIZED BY THE EXECUTION OF A VALID NATIONWIDE LIMITED POWER OF ATTORNEY
FORM, WILL NOT BE MODIFIED IN ANY WAY. In modifying such rights, the Company
may, among other things, not accept:
(1) the transfer or exchange instructions of any agent acting under a
power of attorney on behalf of more than one Contract Owner, or
(2) the transfer or exchange instructions of individual Contract Owners
who have executed preauthorized transfer or exchange forms which are
submitted by market timing firms or other third parties on behalf of
more than one Contract Owner at the same time.
The Company will not impose any such restrictions or otherwise modify exchange
rights unless such action is reasonably intended to prevent the use of such
rights in a manner that will disadvantage or potentially impair the contract
rights of other Contract Owners.
CONTRACT OWNERSHIP
Unless the Contract otherwise provides, the Contract Owner has all rights under
the Contract. PURCHASERS NAMING SOMEONE OTHER THAN THEMSELVES AS OWNER WILL HAVE
NO RIGHTS UNDER THE CONTRACT. Prior to the Annuitization Date, the Contract
Owner may name a new Contract Owner in Non-Qualified Contracts. Such change may
be subject to state and federal gift taxes and may also result in federal income
taxation. Any change of Contract Owner designation will automatically revoke any
prior Contract Owner designation. Once proper notice of the change is recorded
by the Home Office, the change will become effective as of the date the written
request was signed. A change of Contract Owner will not apply and will not be
effective with respect to any payment made or action taken by the Company prior
to the time that the change was recorded by the Home Office.
Prior to the Annuitization Date, the Contract Owner may request a change in the
Annuitant, the Contingent Annuitant, Contingent Owner, Beneficiary, or
Contingent Beneficiary. Such a request must be made in writing on a form
acceptable to the Company and must be signed by the Contract Owner. Such request
must be received at the Home Office prior to the Annuitization Date. Any such
change is subject to review and approval by the Company. If the Contract Owner
is not a natural person and there is a change of the Annuitant, Distributions
will be made as if the Contract Owner died at the time of such change.
On the Annuitization Date, the Annuitant will become the Contract Owner.
JOINT OWNERSHIP
Joint Owners must be spouses at the time joint ownership is requested, unless
otherwise required by law. If a Joint Owner is named, the Joint Owner will
possess an undivided interest in the Contract. The exercise of any ownership
right in the Contract will require a written request signed by both Joint
Owners. The Company will not be liable for any loss, liability, cost, or expense
for acting in accordance with the instructions of either Joint Owner.
CONTINGENT OWNERSHIP
The Contingent Owner is the person who may receive certain benefits under the
Contract if a Contract Owner, who is not the Annuitant, dies prior to the
Annuitization Date and there is no surviving Joint Owner. If no Contingent Owner
survives a Contract Owner and there is no surviving Joint Owner, all rights and
interest of the Contingent
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Owner will vest in the Contract Owner's estate. If a Contract Owner, who is also
the Annuitant, dies before the Annuitization Date, the Contingent Owner will not
have any rights in the Contract, unless the Contingent Owner is also the named
Beneficiary.
Subject to the terms of any existing assignment, the Contract Owner may change
the Contingent Owner prior to the Annuitization Date by written notice to the
Company. Once proper notice of the change is recorded by the Home Office, the
change will become effective as of the date the written request was signed,
whether or not the Contract Owner 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.
BENEFICIARY
The Beneficiary is the person(s) 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 Beneficiaries survive 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.
Subject to the terms of any existing assignment, the Contract Owner may change
the Beneficiary or Contingent Beneficiary during the lifetime of the Annuitant
by written notice to the Company. Once proper notice of the change is recorded
by the Home Office, the change will become effective as of the date the written
request 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.
SURRENDER (REDEMPTION)
Prior to the earlier of the Annuitization Date or the death of the Annuitant,
the Company will, allow the Contract Owner to surrender a portion or all of the
Contract Value. The request for surrender must be made in writing and must
include the Contract when surrendering the Contract in full. In some cases the
Company will require additional documentation. The Company may require that the
signature(s) be guaranteed by a member firm of a major stock exchange or other
depository institution qualified to give such a guaranty.
When requested, the Company will surrender a number of Accumulation Units from
the Variable Account and an amount from the Fixed Account to equal the gross
dollar amount requested, less any applicable CDSC (see "Contingent Deferred
Sales Charge"). The number of Accumulation Units surrendered from each
Sub-Account and the amount surrendered from the Fixed Account will be in the
same proportion that the Contract Owner's interest in the Sub-Accounts and Fixed
Account bears to the total Contract Value. If the gross amount requested exceeds
the amount available in the Variable Account and in the Fixed Account, the
Company will surrender any remaining amount from the GTO(s) which may be subject
to a Market Value Adjustment. All surrenders are subject to any applicable CDSC
(see "Contingent Deferred Sales Charge").
The Company will pay any amounts surrendered from the Sub-Accounts within 7
days. However, the Company reserves the right to suspend or postpone the date of
any payment 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
net assets; or
(4) the SEC, by order, permits such suspension or postponement for the
protection of security holders.
The applicable rules and regulations of the SEC will govern as to whether the
conditions prescribed in (2) and (3) exist.
The Contract Value on surrender may be more or less than the total of Purchase
Payments made by a Contract Owner, depending on the market value of the
Underlying Mutual Fund shares.
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SURRENDERS UNDER A TAX SHELTERED ANNUITY CONTRACT
Except as provided below, the Contract Owner may surrender part or all of the
Contract Value at any time this Contract is in force prior to the earlier of the
Annuitization Date or the death of the Annuitant:
A. The surrender of Contract Value attributable to contributions made
pursuant to a qualified cash or deferred arrangement (within the
meaning of Code Section 402(g)(3)(A)), a salary reduction agreement
(within the meaning of Code Section 402(g)(3)(C)), or transfers from
a Custodial Account (described in Section 403(b)(7) of the Code),
may be executed only:
1. when the Contract Owner attains age 59-1/2, separates from
service, dies, or becomes disabled (within the meaning of Code
Section 72(m)(7)); or
2. in the case of hardship (as defined for purposes of Code Section
401(k)), provided that any surrender of Contract Value in the
case of hardship may not include any income attributable to
salary reduction contributions.
B. The surrender limitations described in Section A above also apply
to:
1. salary reduction contributions to Tax Sheltered Annuities made
for plan years beginning after December 31, 1988;
2. earnings credited to such contracts after the last plan year
beginning before January 1, 1989, on amounts attributable to
salary reduction contributions; and
3. all amounts transferred from 403(b)(7) Custodial Accounts
(except that earnings, and employer contributions as of December
31, 1988 in such Custodial Accounts, may be withdrawn in the
case of hardship).
C. Any Distribution other than the above, including exercise of a
contractual ten day free look provision (when available) may result
in the immediate application of taxes and penalties and/or
retroactive disqualification of a Qualified Contract or Tax
Sheltered Annuity.
A premature Distribution may not be eligible for rollover treatment. To assist
in preventing disqualification of a Tax Sheltered Annuity in the event of a ten
day free look, the Company will agree to transfer the proceeds to another
contract which meets the requirements of Section 403(b) of the Code, upon proper
direction by the Contract Owner. The foregoing is the Company's understanding of
the withdrawal restrictions which are currently applicable under Code Section
401(k)(2)(B), Code Section 403(b)(11) and Revenue Ruling 90-24. Such
restrictions are subject to legislative change and/or reinterpretation.
Distributions pursuant to Qualified Domestic Relations Orders will not be
considered to be a violation of the restrictions stated in this provision.
LOAN PRIVILEGE
Prior to the Annuitization Date, the Contract Owner of a Tax Sheltered Annuity
Contract may receive a loan from the Contract Value subject to the terms of the
Contract, the Plan, and the Code, which may impose restrictions on loans.
Loans from Tax Sheltered Annuities 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 in this provision. For salary
reduction Tax Sheltered Annuities, loans may only be secured by the Contract
Value.
All loans are made from the collateral fixed account. An amount equal to the
principal amount of the loan will be transferred to the collateral fixed
account. The Company will transfer to the collateral fixed account the
Sub-Account's Accumulation Units in proportion to the asset in each option until
the required balance is reached or all such Accumulation Units are exhausted.
Any additional requested collateral will next be transferred from the Fixed
Account. Any remaining required collateral will be transferred from the GTO
which may be subject to
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Market Value Adjustment. No withdrawal charges are deducted at the time of the
loan, or on any transfers 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 consist of principal
and interest in amounts set forth in the loan agreement. Loan repayments 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. No loan repayments less than $1,000 are permitted into the
GTOs. If the proportional share of the loan repayment to the GTOs is less than
$1,000, that portion of the loan repayment will be allocated to the NSAT Money
Market-Fund, unless the Contract Owner directs the loan repayments to be
directed to the Fixed Account or another available investment option under the
Variable Account.
Amounts distributed 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 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 accrued 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 a Tax Sheltered Annuity 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 terms or
procedures if there is a change in applicable law. The Company also reserves the
right to assess a loan processing fee.
IRAs, Roth IRAs and Non-Qualified Contracts are not eligible for loans.
ASSIGNMENT
The Contract Owner of a Non-Qualified Contract may assign some or all of the
rights under the Contract at any time during the lifetime of the Annuitant prior
to the Annuitization Date. Once proper notice of assignment is recorded by the
Home Office, the assignment will become effective as of the date the written
request was signed. The Company is not responsible for the validity or tax
consequences of any assignment. The Company will not be liable for any payment
or other settlement made by the Company before recording of the assignment.
Where necessary for the proper administration of the terms of the Contract, an
assignment will not be recorded until the Company has received sufficient
direction from the Contract Owner and assignee as to the proper allocation of
Contract rights under the assignment.
Any portion of Contract Value which is pledged or assigned will be treated as a
Distribution and will be included in gross income to the extent that the cash
value exceeds the investment in the Contract for the taxable year in
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which it was pledged or assigned. In addition, any Contract Values assigned may,
under certain conditions, be subject to a tax penalty equal to 10% of the amount
which is included in gross income. All rights in the Contract are personal to
the Contract Owner and may not be assigned without written consent of the
Company. Assignment of the entire Contract Value may cause the portion of the
Contract Value which exceeds the total investment in the Contract and previously
taxed amounts to be included in gross income for federal income tax purposes
each year that the assignment is in effect.
IRAs, Roth IRAs and Tax Sheltered Annuities may not be assigned, pledged or
otherwise transferred except under such conditions as may be allowed by law.
CONTRACT OWNER SERVICES
ASSET REBALANCING- The Contract Owner may direct the automatic reallocation of
Contract Values to the Sub-Accounts on a predetermined percentage basis. Asset
Rebalancing will occur every three months or on another frequency authorized by
the Company. 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 reallocation will occur on the first business day
after that day. Asset Rebalancing requests must be in writing on a form provided
by the Company. The Contract Owner may want to contact a financial adviser to
discuss the use of Asset Rebalancing.
Asset Rebalancing may be subject to employer imposed limitations or restrictions
for Contracts issued to a Tax Sheltered Annuity Plan.
Asset Rebalancing is not available for assets held in the GTO(s). Amounts
transferred from the GTO prior to the expiration of a specified term are subject
to the Market Value Adjustment.
The Company reserves the right to discontinue establishing new Asset Rebalancing
programs. The Company also reserves the right to assess a processing fee for
this service.
DOLLAR COST AVERAGING- If the Contract Value is $15,000 or more, the Contract
Owner may direct the Company to automatically transfer a specified amount from
the VIP High Income Portfolio, VIP Money Market Portfolio or the Fixed Account
to any other Sub-Account. Dollar Cost Averaging will occur on a monthly basis or
on another frequency permitted by the Company. Dollar Cost Averaging is a
long-term investment program which provides for regular, level investments over
time. There is no guarantee that Dollar Cost Averaging will result in a profit
or protect against loss. The minimum monthly transfer is $100. Monthly transfers
from the Fixed Account must be equal to or less than 1/30th of the Fixed Account
when the program is requested. Transfers will be processed until either the
value in the originating Sub-Account or the Fixed Account is exhausted or the
Contract Owner instructs the Home Office in writing to cancel the transfers.
The Company reserves the right to discontinue establishing new Dollar Cost
Averaging programs. The Company also reserves the right to assess a processing
fee for this service.
Dollar Cost Averaging transfers may not be directed to GTOs.
SYSTEMATIC WITHDRAWALS- A Contract Owner may elect in writing to begin receiving
withdrawals of a specified dollar amount (of at least $100) on a monthly,
quarterly, semi-annual, or annual basis. Unless otherwise instructed, the
withdrawals will be taken from the Sub-Accounts and the Fixed Account on a
prorated basis. Systematic Withdrawals are not available from the GTOs. A CDSC
may apply (see "Contingent Deferred Sales Charge"). Unless directed otherwise by
the Contract Owner, the Company will withhold federal income taxes. In addition,
a 10% penalty tax may be assessed by the IRS if the Contract Owner is under age
59-1/2, unless the Contract Owner has made an irrevocable election of
Distributions of substantially equal payments. Withdrawals may be discontinued
at any time by notifying the Home Office in writing.
If the Contract Owner withdraws amounts pursuant to a Systematic Withdrawal
program, then the Contract Owner may withdraw each Contract Year without a CDSC
an amount up to the greatest of: (1) 10% of the total sum of all Purchase
Payments made to the Contract at the time of withdrawal; (2) an amount withdrawn
in order to meet minimum Distribution requirements; or (3) the specified
percentage of the Contract Value based on the Contract Owner's age, as shown in
the following table:
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Contract Owner's Percentage of
Age Contract Value
---------------- --------------
Under Age 59-1/2 5%
Age 59-1/2 through Age 61 7%
Age 62 through Age 64 8%
Age 65 through Age 74 10%
Age 75 and Over 13%
If the total amounts withdrawn in any Contract Year exceed the CDSC-free amount
as calculated under the Systematic Withdrawal method described above, then such
total withdrawn amounts will be eligible only for the 10% of Purchase Payment
CDSC-free withdrawal privilege described in the "Contingent Deferred Sales
Charge" section, and the total amount of CDSC charged during the Contract Year
will be determined in accordance with that provision.
The Contract Value and the Contract Owner's age for purposes of applying the
CDSC-free withdrawal percentage described in this provision are determined as of
the date the request for a Systematic Withdrawal program is received and
recorded by the Home Office. (In the case of Joint Owners, the older Contract
Owner's age will be used.) Furthermore, this CDSC-free withdrawal privilege for
Systematic Withdrawals is non-cumulative. Free amounts not taken during any
given Contract Year cannot be taken as free amounts in a subsequent Contract
Year.
The Company reserves the right to discontinue establishing new Systematic
Withdrawal programs. The Company also reserves the right to assess a processing
fee for this service. Systematic Withdrawals are not available prior to the
expiration of the ten day free look provision of the Contract (see "Right to
Revoke").
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 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, 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.
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.
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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 $5,000,
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 $50, the Company will have the right to change the frequency
of payments to such intervals as will result in payments of at least $50. In no
event will the Company make payments under an annuity option less frequently
than annually.
ANNUITY PAYMENT OPTIONS
The Contract Owner may, upon prior written notice to the Company, at any time
prior to the Annuitization Date, elect one of the following Annuity Payment
Options:
Option 1-Life Annuity-An annuity payable periodically, but at least
annually, during the lifetime of the Annuitant, ending with the last
payment due prior to the death of the Annuitant. FOR EXAMPLE, IF THE
ANNUITANT DIES BEFORE THE SECOND ANNUITY PAYMENT DATE, THE ANNUITANT WILL
RECEIVE ONLY ONE ANNUITY PAYMENT. THE ANNUITANT WILL ONLY RECEIVE TWO
ANNUITY PAYMENTS IF HE OR SHE DIES BEFORE THE THIRD ANNUITY PAYMENT DATE,
AND SO ON.
Option 2-Joint and Last Survivor Annuity-An annuity payable periodically,
but at least annually, during the joint lifetimes of the Annuitant and
designated second individual 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.
Option 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,
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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 the notice of the
Annuitant's death.
Some of the stated Annuity Options may not be available in all states. The
Contract Owner may request an alternative option prior to Annuitization subject
to approval by the Company.
If the Contract Owner of a Non-Qualified Contract fails to elect an Annuity
Payment Option, no Distribution will be made until an effective Annuity Payment
Option has been elected. Individual Retirement Annuities or Tax Sheltered
Annuities are subject to the minimum Distribution requirements set forth in the
Plan, Contract or Code.
DEATH OF CONTRACT OWNER - NON-QUALIFIED CONTRACTS
For Non-Qualified Contracts, if the Contract Owner and the Annuitant are not the
same and a Contract Owner dies prior to the Annuitization Date, then the Joint
Owner, if any, becomes the new Contract Owner. If there is no surviving Joint
Owner, the Contingent Owner becomes the new Contract Owner. If there is no
surviving Contingent Owner, the last surviving Contract Owner's estate becomes
the Contract Owner. The entire interest in the Contract Value, less any
applicable deductions (which may include a CDSC), must be distributed in
accordance with the "Required Distributions for Non-Qualified Contracts"
provision.
DEATH OF THE ANNUITANT - NON-QUALIFIED CONTRACTS
If the Contract Owner and Annuitant are not the same, and the Annuitant dies
prior to the Annuitization Date, a Death Benefit will be payable to the
Beneficiary, the Contingent Beneficiary, the Contract Owner, or the last
surviving Contract Owner's estate, as specified in the "Beneficiary" provision,
unless there is a surviving Contingent Annuitant. In such case, the Contingent
Annuitant becomes the Annuitant and no Death Benefit is payable.
The Beneficiary may elect to receive the Death Benefit:
(1) in a lump sum Distribution;
(2) as an annuity payout; or
(3) any Distribution permitted by law and approved by the Company.
An election must be received by the Company within 60 days of the Annuitant's
death. If the Annuitant dies after the Annuitization Date, any benefit that may
be payable will be paid according to the selected Annuity Payment Option.
DEATH OF THE CONTRACT OWNER/ANNUITANT
If any Contract Owner and Annuitant are the same, and the Annuitant dies before
the Annuitization Date, a Death Benefit will be payable to the Beneficiary, the
Contingent Beneficiary, the Contract Owner, or the last surviving Contract
Owner's estate, as specified in the "Beneficiary" provision and in accordance
with the appropriate "Required Distributions" provisions.
If the Annuitant dies after the Annuitization Date, any benefit that may be
payable will be paid according to the selected Annuity Payment Option.
DEATH BENEFIT PAYMENT
At the time of application, Contract Owners may select one of three death
benefits available under the Contract as listed below (not all death benefit
options riders may be available in all states at the time of application). If no
selection is made at the time of application, the Death Benefit will be the
Five-Year Reset Death Benefit (Standard Contractual Death Benefit).
FIVE-YEAR RESET DEATH BENEFIT (STANDARD CONTRACTUAL DEATH BENEFIT)
If the Annuitant dies at any time prior to the Annuitization Date, the dollar
amount of the death benefit will be the greatest of:
(1) the Contract Value;
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(2) the total of all Purchase Payments made to the Contract, less an
adjustment for amounts surrendered; or
(3) the Contract Value as of the most recent five year Contract
Anniversary before the Annuitant's 86th birthday, less an
adjustment for amounts surrendered, plus Purchase Payments
received after that Contract Anniversary.
The adjustment for amounts surrendered will reduce items (2) and (3) above in
the same proportion that the Contract Value was reduced on the date(s) of the
partial surrender(s).
No additional charge will be assessed to the Contract Owner for election of the
Five-Year Reset (Standard Contractual Death Benefit).
ONE-YEAR STEP UP DEATH BENEFIT (OPTION 1)
If the Annuitant dies at any time prior to the Annuitization Date, the dollar
amount of the death benefit will be the greatest of:
(1) the Contract Value;
(2) the total of all Purchase Payments, less an adjustment for amounts
surrendered; or
(3) the highest Contract Value on any Anniversary Date before the
Annuitant's 86th birthday, less an adjustment for amounts
surrendered, plus Purchase Payments received after that Contract
Anniversary.
The adjustment for amounts surrendered will reduce items (2) and (3) above in
the same proportion that the Contract Value was reduced on the date(s) of the
partial surrender(s).
For this Death Benefit Option, the Company deducts a charge at an annual rate of
0.05% of the daily net assets of the Variable Account. This charge is designed
only to reimburse the Company for increases in the mortality and expense risks,
and consequently the Company may lower this charge at any time without prior
notice to the Contract Owner. However, the Company may generate a profit through
assessing this charge.
5% ENHANCED DEATH BENEFIT (OPTION 2)
If the Annuitant dies at any time prior to Annuitization Date, the dollar amount
of the death benefit will be the greater of:
(1) the Contract Value; or
(2) the total of all Purchase Payments, less any amounts surrendered,
accumulated at 5% simple interest from the date of each Purchase
Payment or surrender to the most recent Contract Anniversary Date
prior to the Annuitant's 86th birthday, less an adjustment for
amounts surrendered, plus Purchase Payments received since that
anniversary.
Such total accumulated amount will not exceed 200% of the net of Purchase
Payments and amounts surrendered. The adjustment for amounts subsequently
surrendered after the most recent Contract Anniversary Date will reduce the 5%
interest anniversary value in the same proportion that the Contract Value was
reduced on the date(s) of the partial surrender(s).
For this Death Benefit Option, the Company deducts a charge at an annual rate of
0.10% of the daily net assets of the Variable Account. This charge is designed
only to reimburse the Company for increases in the mortality and expense risks,
and consequently, the Company may lower this charge at any time without prior
notice to the Contract Owner. However, the Company may generate a profit through
assessing this charge.
FOR ANY DEATH BENEFIT OPTION SELECTED, IF THE ANNUITANT DIES AFTER THE
ANNUITIZATION DATE, ANY PAYMENT THAT MAY BE PAYABLE WILL BE DETERMINED ACCORDING
TO THE SELECTED ANNUITY PAYMENT OPTION.
The Death Benefit value is determined as of the Valuation Date at or next
following the date the Home Office receives:
(1) proper proof of the Annuitant's death;
(2) an election specifying the Distribution method; and
(3) any state required form(s).
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If the Annuitant dies after the Annuitization Date, payment will be determined
according to the selected annuity payment option.
LONG TERM CARE FACILITY
For those Contracts which have elected a Long Term Care Facility and Death
Benefit Rider at the time of application, the following Long Term Care Facility
provisions also apply. Beginning at the third Contract Anniversary Date,
surrender charges on withdrawals will not apply if a Contract Owner has been
confined to a Long Term Care Facility or Hospital for a continuous 90 day period
which has commenced at any time after the Contract Issue Date. In addition, upon
receipt of a Physician's letter at the Home Office, no surrender charges will be
deducted upon withdrawals if any Contract Owner has been diagnosed by that
Physician to have a Terminal Illness.
For those Contracts which have established a non-natural person as Contract
Owner for the benefit of a natural person, the Annuitant may exercise the rights
as Contract Owner for the purposes described in this provision. IF THE
NON-NATURAL CONTRACT OWNER HAS NOT BEEN ESTABLISHED FOR THE BENEFIT OF A PERSON
(E.G., THE CONTRACT OWNER IS A CORPORATION OR A TRUST FOR THE BENEFIT OF AN
ENTITY), THE ANNUITANT MAY NOT EXERCISE THE RIGHTS DESCRIBED IN THIS PROVISION.
The Contract Owner may be subject to income tax on all or a portion of any such
withdrawals and to a tax penalty if the Contract Owner takes withdrawals prior
to age 59-1/2 (Non-Qualified Contracts - Natural Persons as Contract Owners").
REQUIRED DISTRIBUTIONS FOR NON-QUALIFIED CONTRACTS
Upon the death of any Contract Owner or Joint Owner (including an Annuitant who
becomes the Contract Owner on the Annuitization Date), certain distributions for
Non-Qualified Contracts are required by Section 72(s) of the Code.
Notwithstanding any provision of the Contract to the contrary, the following
distributions will be made in accordance with such requirements:
1. If any Contract Owner dies on or after the Annuitization Date and
before the entire interest under the Contract has been distributed,
then the remaining interest will be distributed at least as rapidly
as under the method of distribution in effect as of the date of the
Contract Owner's death.
2. If any Contract Owner dies prior to the Annuitization Date, then the
entire interest in the Contract (consisting of either the Death
Benefit or the Contract Value reduced by certain charges as set forth
elsewhere in the Contract) will be distributed within 5 years of the
death of the Contract Owner, provided however:
(a) any interest payable to or for the benefit of a natural person
(referred to herein as a "designated beneficiary"), may be
distributed over the life of the designated beneficiary or
over a period not extending beyond the life expectancy of the
designated beneficiary. Payments must begin within one year of
the date of the Contract Owner's death unless otherwise
permitted by federal income tax regulations; and
(b) if the designated beneficiary is the surviving spouse of the
deceased Contract Owner, the spouse may elect to become the
Contract Owner in lieu of receiving a Death Benefit, and any
distributions required under these distribution rules will be
made upon the death of the spouse.
In the event that this Contract is owned by a person that is not a natural
person (e.g., a trust or corporation), then, for purposes of these distribution
provisions:
(a) the death of the Annuitant will be treated as the death of any
Contract Owner;
(b) any change of the Annuitant will be treated as the death of
any Contract Owner; and
(c) in either case the appropriate distribution required under
these distribution rules will be made upon the death or
change, as the case may be. The Annuitant is the primary
annuitant as defined in Section 72(s)(6)(B) of the Code.
These distribution provisions will not be applicable to any Contract that is not
required to be subject to the provisions of 72(s) of the Code by reason of
Section 72(s)(5) or any other law or rule.
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Upon the death of a Contract Owner, the designated beneficiary must elect a
method of distribution which complies with the above distribution provisions and
which is acceptable to the Company. Such election must be received by the
Company within 60 days of the Contract Owner's death.
REQUIRED DISTRIBUTIONS FOR TAX SHELTERED ANNUITIES
Amounts in a Tax Sheltered Annuity 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. Amounts
will be paid, notwithstanding anything else contained herein, to the Annuitant
under the Annuity Payments Option selected, over a period not exceeding:
(a) the life of the Annuitant or the joint lives of the Annuitant
and the Annuitant's designated beneficiary under the selected
Annuity Payment Option; or
(b) a period not extending beyond the life expectancy of the
Annuitant or the joint life expectancies of the Annuitant and
the Annuitant's designated beneficiary under the selected
annuity Payment Option.
No Distributions will be required from this Contract if Distributions otherwise
required from this Contract are being withdrawn from another Tax Sheltered
Annuity Contract of the Annuitant.
If the Annuitant's entire interest in a Tax Sheltered Annuity is to be
distributed in equal or substantially equal payments over a period described in
(a) or (b) above, 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 the age of 70-1/2.
If the Annuitant dies prior to the commencement of his or her Distribution, the
interest in the Tax Sheltered Annuity must be distributed by December 31 of the
calendar year in which the fifth anniversary of his or her death occurs unless:
(a) the Annuitant names his or her surviving spouse as the
Beneficiary and the spouse elects to receive Distribution of the
Contract 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 Annuitant names a Beneficiary other than his or her
surviving spouse and the Beneficiary elects to receive a
Distribution of the Contract in substantially 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 Annuitant dies.
If the Annuitant dies after Distribution has commenced, the 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 Annuitant
by the life expectancy of the Annuitant, or the joint life expectancies of the
Annuitant and the Annuitant's designated beneficiary (if the Annuitant dies
prior to the required beginning date) or the Beneficiary under the selected
Annuity Payment Option (if the Annuitant dies after the required beginning date)
whichever is applicable under the applicable minimum distribution or MDIB
provisions. Life expectancy and joint life expectancies are computed by the use
of return multiples contained in Section 1.72-9 of the Treasury Regulations.
If amounts distributed to the 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.
REQUIRED DISTRIBUTIONS FOR IRAS
Distributions from an IRA must begin no later than April 1 of the calendar year
following the calendar year in which the Contract Owner attains age 70-1/2.
Distribution may be accepted in a lump sum or in substantially equal
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payments over: (a) the Contract Owner's life or the lives of the Contract Owner
and his or her spouse or designated beneficiary; or (b) a period not extending
beyond the life expectancy of the Contract Owner or the joint life expectancy of
the Contract Owner and the Contract Owner's designated beneficiary.
If the Contract Owner dies prior to the commencement of his or her Distribution,
the interest in the 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 an IRA established for his or her benefit;
or
(ii) receive Distribution of the Contract 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 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 year following the year
in which the Contract Owner dies.
No Distribution will be required from this Contract if Distributions otherwise
required from this Contract are being withdrawn from another Individual
Retirement Annuity or IRA of the Contract Owner.
If the Contract Owner 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 that a surviving spouse who is the beneficiary under the
Annuity Payment Option, may treat the Contract as his or her own, in the same
manner as is described in section (a)(i) of this provision.
If the amounts distributed to the Contract Owner 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 of an IRA must annually report the amount of non-deductible Purchase
Payments, the amount of any Distribution, the amount by which non-deductible
Purchase Payments for all years exceed non-taxable Distributions for all years,
and the total balance of all IRAs.
IRA 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
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.
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Distributions from Roth IRAs may be either taxable or nontaxable, depending upon
whether they are "qualified distributions" or "nonqualified distributions" (see
"Federal Income Taxes").
FEDERAL TAX CONSIDERATIONS
FEDERAL INCOME TAXES
The Company does not make any guarantee regarding the tax status for any
Contract or any transaction involving the Contracts. Contract Owners should
consult a financial consultant, legal counsel or tax advisor to discuss in
detail the taxation and the use of the Contracts.
Section 72 of the Code governs federal income taxation of annuities in general.
That section sets forth different rules for: (1) IRAs; (2) Roth IRAs; (3) Tax
Sheltered Annuities; and (4) Non-Qualified Contracts. Each type of annuity is
discussed below.
Distributions to participants from Tax Sheltered Annuities are generally taxed
when received. A portion of each Distribution is excludable from income based on
a formula required by the Code. The formula required by the Code excludes from
income an amount equal to the investment in the Contract divided by the number
of anticipated payments, as determined pursuant to Section 72(d) of the Code,
until the full investment in the Contract is recovered; thereafter, all
Distributions are fully taxable.
Distributions from IRAs and 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 the Contracts exceeds prior non-taxable Distributions
from such Contracts, and the total account balances in such Contracts at the
time of the Distribution. The owner of such IRAs or 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 IRAs 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) on or after the death of the
Contract Owner; (iii) it is attributable to the Contract Owner's disability; or
(iv) it is a qualified first-time homebuyer distribution (as defined in Section
72(t)(2)(F) of the 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.
A change of the Annuitant or Contingent Annuitant may be treated by the IRS as a
taxable transaction.
PUERTO RICO
Under the Puerto Rico tax code, Distributions from a Non-Qualified Contract
prior to Annuitization are treated as nontaxable return of principal until the
principal is fully recovered; thereafter, all Distributions are fully taxable.
Distributions after Annuitization are treated as part taxable income and part
nontaxable return of principal. The amount excluded from gross income after
Annuitization is equal to the amount of the Distribution in excess of 3% of the
total Purchase Payments paid, until an amount equal to the total Purchase
Payments paid has been excluded; thereafter, the entire Distribution is included
in gross income. Puerto Rico does not impose an early withdrawal penalty tax.
Generally, Puerto Rico does not require income tax to be withheld from
Distributions of income. A personal adviser should be consulted.
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NON-QUALIFIED CONTRACTS- NATURAL PERSONS AS CONTRACT OWNERS
The rules applicable to Non-Qualified Contracts provide that a portion of each
annuity payment received is excludable from taxable income based on the ratio
between the Contract Owner's investment in the Contract and the expected return
on the Contract until the investment has been recovered; thereafter the entire
amount is includible in income. The maximum amount excludable from income is the
investment in the Contract. If the Annuitant dies prior to excluding from income
the entire investment in the Contract, the Annuitant's final tax return may
reflect a deduction for the balance of the investment in the Contract.
Distributions made from the Contract prior to the Annuitization Date are taxable
to the Contract Owner to the extent that the cash value of the Contract exceeds
the Contract Owner's investment at the time of the Distribution. Distributions,
for this purpose, include partial surrenders, dividends, loans, or any portion
of the Contract which is assigned or pledged; or for Contracts issued after
April 22, 1987, any portion of the Contract transferred by gift. For these
purposes, a transfer by gift may occur upon Annuitization if the Contract Owner
and the Annuitant are not the same individual. In determining the taxable amount
of a Distribution, all annuity contracts issued after October 21, 1988 by the
same company to the same contract owner during any 12 month period will be
treated as one annuity contract. Additional limitations on the use of multiple
contracts may be imposed by Treasury Regulations. Distributions prior to the
Annuitization Date with respect to that portion of the Contract invested prior
to August 14, 1982, are treated first as a recovery of the investment in the
Contract as of that date. A Distribution in excess of the amount of the
investment in the Contract as of August 14, 1982, will be treated as taxable
income.
The Tax Reform Act of 1986 has changed the tax treatment of certain
Non-Qualified Contracts held by entities other than individuals. Such entities
are taxed currently on the earnings on the Contract which are attributable to
contributions made to the Contract after February 28, 1986. There are exceptions
for immediate annuities and certain Contracts owned for the benefit of an
individual. An immediate annuity, for purposes of this discussion, is a single
premium Contract on which payments begin within one year of purchase. If this
Contract is issued as the result of an exchange described in Section 1035 of the
Code, for purposes of determining whether the Contract is an immediate annuity,
it will generally be considered to have been purchased on the purchase date of
the contract given up in the exchange.
Code Section 72 also provides for a penalty tax, equal to 10% of the portion of
any Distribution that is includible in gross income, if such Distribution is
made prior to attaining age 59-1/2. The penalty tax does not apply if the
Distribution is attributable to the Contract Owner's death, disability or one of
a series of substantially equal periodic payments made over the life or life
expectancy of the Contract Owner (or the joint lives or joint life expectancies
of the Contract Owner and the beneficiary selected by the Contract Owner to
receive payment under the Annuity Payment Option selected by the Contract Owner)
or for the purchase of an immediate annuity, or is allocable to an investment in
the Contract before August 14, 1982. A Contract Owner wishing to begin taking
Distributions to which the 10% tax penalty does not apply should forward a
written request to the Company. Upon receipt of a written request from the
Contract Owner, the Company will inform the Contract Owner of the procedures
pursuant to Company policy and subject to limitations of the Contract including
but not limited to first year withdrawals. Such election shall be irrevocable
and may not be amended or changed.
In order to qualify as an annuity contract under Section 72 of the Code, the
contract must provide for Distribution of the entire contract to be made upon
the death of a Contract Owner. If a Contract Owner dies prior to the
Annuitization Date, then the Joint Owner, the Contingent Owner or other named
recipient must receive the Distribution within 5 years of the Contract Owner's
death. However, the recipient may elect for payments to be made over his or her
life or life expectancy provided that such payments begin within one year from
the death of the Contract Owner. If the Joint Owner, Contingent Owner or other
named recipient is the surviving spouse, the spouse may be treated as the
Contract Owner and the Contract may be continued throughout the life of the
surviving spouse. In the event the Contract Owner dies on or after the
Annuitization Date and before the entire interest has been distributed, the
remaining portion must be distributed at least as rapidly as under the method of
Distribution being used on the date of the Contract Owner's death (see "Required
Distribution For Qualified Plans and Tax Sheltered Annuities"). If the Contract
Owner is not a natural person, the death of the Annuitant (or a change in the
Annuitant) will result in a Distribution pursuant to these rules, regardless of
whether a Contingent Annuitant is named.
The Code requires that any election to receive an annuity in lieu of a lump sum
payment must be made within 60 days after the lump sum becomes payable
(generally, the election must be made within 60 days after the death of an Owner
or the Annuitant). If the election is made more than 60 days after the lump sum
first becomes
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payable, the election will be ignored for tax purposes, and the entire amount of
the lump sum will be subject to immediate tax. If the election is made within
the 60 day period, each Distribution will be taxable when it is paid.
NON-QUALIFIED CONTRACTS- NON-NATURAL PERSONS AS CONTRACT OWNERS
The foregoing discussion of the taxation of Non-Qualified Contracts applies to
Contracts owned (or, pursuant to Section 72(u) of the Code, deemed to be owned)
by individuals.
As a general rule, contracts owned by corporations, partnerships, trusts, and
similar entities ("non-natural persons"), rather than by one or more
individuals, are not treated as annuity contracts for most purposes under the
Code; in particular, they are not treated as annuity contracts for purposes of
Section 72. Therefore, the taxation rules for Distributions, as described above,
do not apply to Non-Qualified Contracts owned by non-natural persons. Rather the
income earned under a Non-Qualified Contract that is owned by a non-natural
person is taxed as ordinary income during the taxable year that it is earned,
and is not deferred, even if the income is not distributed out of the Contract
to the Contract Owner.
The foregoing non-natural person rule does not apply to all entity-owned
contracts. A Contract that is owned by a non-natural person as an agent for an
individual is treated as owned by the individual. This exception does not apply,
however, to a non-natural person who is an employer that holds the Contract
under a non-qualified deferred compensation arrangement for one or more
employees.
The non-natural person rules also do not apply to a Contract that is:
(a) acquired by the estate of a decedent by reason of the death of the
decedent;
(b) issued in connection with certain qualified retirement plans and
individual retirement plans;
(c) used in connection with certain structured settlements;
(d) purchased by an employer upon the termination of certain qualified
retirement plans; or
(e) an immediate annuity.
IRAS AND TAX SHELTERED ANNUITIES
Contract Owners seeking information regarding eligibility, limitations on
permissible amounts of Purchase Payments, and the tax consequences of
distributions from IRAs and Tax Sheltered Annuities should seek competent
advice; the terms of such plans may limit the rights available under the
Contracts.
Pursuant to Section 403(b)(1)(E) Code, a Contract that is issued as a
Tax-Sheltered Annuity is required to limit the amount of the Purchase Payment
for any year to an amount that does not exceed the limit set forth in Section
402(g) of the Code, as it is from time to time increased to reflect increases in
the cost of living. This limit may be reduced by any deposits, contributions or
payments made to any other Tax-Sheltered Annuity or other plan, contract or
arrangement by or on behalf of the Contract Owner.
The Code permits the rollover of most Distributions from Qualified Plans to
IRAs. Most Distributions from Tax-Sheltered Annuities may be rolled into another
Tax-Sheltered Annuity, IRAs, or an Individual Retirement Account. Distributions
that may not be rolled over are those which are:
(a) one of a series of substantially equal annual (or more frequent)
payments made:
(i) over the life (or life expectancy) of the Contract Owner;
(ii) over the joint lives (or joint life expectancies) of the
Contract Owner and the Contract Owner's designated Beneficiary;
or
(iii) for a specified period of ten years or more; or
(b) a required minimum distribution.
Any Distribution eligible for rollover will be subject to federal tax
withholding at a rate of twenty percent (20%) unless the Distribution is
transferred directly to an appropriate plan as described above.
Individual Retirement Accounts and IRAs may not provide life insurance benefits.
If the Death Benefit exceeds the greater of the cash value of the Contract or
the sum of all Purchase Payments (less any surrenders), it is possible the IRS
could determine that the Individual Retirement Account or IRA did not qualify
for the desired tax treatment.
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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.
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 certain types of Distributions, but may be
subject to penalties in the event insufficient federal income tax is withheld
during a calendar year. However, if the IRS 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.
NON-RESIDENT ALIENS
Distributions to nonresident aliens (NRAs) are generally subject to federal
income tax and tax withholding at a statutory rate of thirty percent (30%) of
the amount of income that is distributed. The Company may be required to
withhold such amount from the Distribution and remit it to the IRS.
Distributions to certain NRAs may be subject to lower, or in certain instances,
zero tax and withholding rates if the United States has entered into an
applicable treaty. However, in order to obtain the benefits of such treaty
provisions, the NRA must give to the Company sufficient proof of his or her
residency and citizenship in the form and manner prescribed by the IRS. For
Distributions, the NRA must obtain an Individual Taxpayer Identification Number
from the IRS and furnish that number to the Company prior to the Distribution.
If the Company does not have the proper proof of citizenship or residency and a
proper Individual Taxpayer Identification Number prior to any Distribution, the
Company will be required to withhold 30% of the income, regardless of any treaty
provision.
A payment may not be subject to withholding where the recipient sufficiently
establishes to the Company that such payment is effectively connected to the
recipient's conduct of a trade or business in the United States and that such
payment is includible in the recipient's gross income for United States federal
income tax purposes. Any such Distributions will be subject to the rules set
forth in the section entitled "Withholding."
FEDERAL ESTATE, GIFT, AND GENERATION-SKIPPING TRANSFER TAXES
A transfer of the Contract from one Contract Owner to another, or the payment of
a Distribution under the Contract to someone other than a Contract Owner, may
constitute a gift for federal gift tax purposes. Upon the death of the Contract
Owner, the value of the Contract may be included in his or her gross estate for
federal tax purposes, 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
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(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 a direct skip, the Company is required by Section 2603 of
the Code to reduce the amount of the Death Benefit, Distribution, or other
payment by the tax liability, and pay the tax liability directly to the IRS.
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 person
receiving a Distribution, Death Benefit or other payment.
CHARGE FOR TAX
The Company is no longer required to maintain a capital gain reserve liability
on Non-Qualified Contracts since capital gains attributable to assets held in
Sub-Accounts for such Contracts are not taxable to the Company. However, the
Company reserves the right to implement and adjust the tax charge in the future
if the tax laws change.
DIVERSIFICATION
The IRS has promulgated regulations under Section 817(h) of the Code relating to
diversification standards for the investments underlying a variable annuity
contract. The regulations provide that a variable annuity contract which does
not satisfy the diversification standards will not be treated as an annuity
contract unless the failure to satisfy the regulations was inadvertent, the
failure is corrected, and the Contract Owner or the Company pays an amount to
the IRS. The amount will be based on the tax that would have been paid by the
Contract Owner if the income, for the period the contract was not diversified,
had been received by the Contract Owner. If the failure to diversify is not
corrected in this manner, the Contract Owner will be deemed the owner of the
underlying securities and will be taxed on the earnings of his or her account.
The Company believes, under its interpretation of the Code and regulations
thereunder, that the investments underlying this Contract meet these
diversification standards.
Representatives of the IRS have suggested, from time to time, that the number of
Underlying Mutual Funds available or the number of transfer opportunities
available under a variable product may be relevant in determining whether the
product qualifies for the desired tax treatment. No formal guidance has been
issued in this area. Should the Secretary of the Treasury issue additional rules
or regulations limiting the number of Underlying Mutual Funds, transfers between
Underlying Mutual Funds, exchanges of Underlying Mutual Funds or changes in
investment objectives of Underlying Mutual Funds such that the Contract would no
longer qualify as an annuity under Section 72 of the Code, the Company will take
whatever steps are available to remain in compliance.
TAX CHANGES
The Code has been subjected to numerous amendments and changes and it is
reasonable to believe that it will continue to be revised. The United States
Congress has considered numerous legislative proposals that, if enacted, could
change the tax treatment of the Contracts. It is reasonable to believe that such
proposals may be enacted into law. In addition, the Treasury Department may
amend existing regulations, issue new regulations, or adopt new interpretations
of existing law that may be in variance with its current positions on these
matters. In addition, state law (which is not discussed herein), may affect the
tax consequences of the Contract.
The foregoing discussion, which is based on the Company's understanding of
federal tax laws as they are currently interpreted by the IRS, is general and is
not intended as tax advice. Statutes, regulations, and rulings are subject to
interpretation by the courts. The courts may determine that a different
interpretation than the currently favored interpretation is appropriate, thereby
changing the operation of the rules that are applicable to annuity contracts.
Any of the foregoing may change from time to time without any notice, and the
tax consequences arising out of a Contract may be changed retroactively. There
is no way of predicting whether, when, and to what extent any
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such change may take place. No representation is made as to the likelihood of
the continuation of these current laws, interpretations, and policies.
THE FOREGOING IS A GENERAL EXPLANATION AS TO CERTAIN TAX MATTERS PERTAINING TO
ANNUITY CONTRACTS. IT IS NOT INTENDED TO BE LEGAL OR TAX ADVICE, AND SHOULD NOT
TAKE THE PLACE OF YOUR INDEPENDENT LEGAL, TAX AND/OR FINANCIAL ADVISOR.
GENERAL INFORMATION
CONTRACT OWNER INQUIRIES
Contract Owner inquiries may be directed to the Company by writing P.O. Box
182610, Columbus, Ohio 43218-2610, or calling 1-800-573-5775, TDD
1-800-238-3035.
STATEMENTS AND REPORTS
The Company will mail to Contract Owners, at their last known address, any
statements and reports required by law. Contract Owners should promptly notify
the Company of any address change. Statements are mailed detailing the
Contract's quarterly activity. The Company will also send a confirmation
statement to Contract Owners each time a transaction is made affecting the
Contract Value. However, instead of receiving an immediate confirmation of
transactions made pursuant to some types of recurring payment plans (such as a
dollar cost averaging program or salary reduction arrangement), the Contract
Owner may receive confirmation of such transactions in their quarterly
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 Contract Owner notifies the Home Office within 30 days
after receipt of the statement. The Company will also send to Contract Owners a
semi-annual report as of June 30 and an annual report as of December 31,
containing financial statements for the Variable Account.
ADVERTISING
A "yield" and "effective yield" may be advertised for the VIP Money Market
Portfolio. "Yield" is a measure of the net dividend and interest income earned
over a specific seven-day period (which period will be stated in the
advertisement) expressed as a percentage of the offering price of the VIP Money
Market Portfolio's units. Yield is an annualized figure, which means that it is
assumed that the VIP Money Market Portfolio generates the same level of net
income over a 52-week period. The "effective yield" is calculated similarly but
includes the effect of assumed compounding, calculated under rules prescribed by
the SEC. The effective yield will be slightly higher than yield due to this
compounding effect.
The Company may also advertise the performance of a Sub-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 or
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 the 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.
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The Company is 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-Accounts
standardized "average annual total return," calculated in a manner prescribed by
the SEC, and nonstandardized "total return." "Average annual total return" will
show the percentage rate of return of a hypothetical initial investment of
$1,000 for the most recent one, five and ten year periods, or for a period
covering the time the Underlying Mutual Fund option 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 $25,000 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) had such Underlying Mutual Fund options been available in the Variable
Account for the periods quoted. AN INITIAL INVESTMENT OF $25,000 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.
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 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.
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, Fidelity Investment Institutional Services Company,
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
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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 OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
PAGE
General Information and History.............................................1
Services....................................................................1
Purchase of Securities Being Offered........................................1
Underwriters................................................................2
Calculations of Performance.................................................2
Annuity Payments............................................................3
Financial Statements........................................................4
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APPENDIX A
FIXED ACCOUNT
Purchase Payments under the Fixed Account of the Contract and transfers to the
Fixed Account become part of the general account of the Company, which support
insurance and annuity obligations. Because of exemptive and exclusionary
provisions, interests in the general account have not been registered under the
"1933 Act" nor is the general account registered as an investment company under
the "1940 Act." Accordingly, neither the general account nor any interest
therein are 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 which relate to the Fixed Account. Disclosures regarding the Fixed
Account and the general account may be subject to certain provisions of the
federal securities law relating to 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 Variable Account and any other segregated asset account.
Purchase Payments will be allocated to the Fixed Account by election of the
Contract Owner.
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 such assets
will be allocated by the Company between itself and the Contracts participating
in the Fixed Account.
Investment income from the Fixed Account 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
at the sole discretion of the Company at such rate(s) as the Company
prospectively declares. The guaranteed rate for any Purchase Payment will remain
in effect for a period not less than twelve months. However, the Company
guarantees that it will credit interest at not less than 3.0% per year. ANY
INTEREST CREDITED TO AMOUNTS ALLOCATED TO THE FIXED ACCOUNT IN EXCESS OF 3.0%
PER YEAR WILL BE DETERMINED AT 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 deposited to the Contract 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 at
the expiration of an Interest Rate Guarantee Period.
The Company guarantees that the Fixed Account Contract Value will not be less
than the amount of the Purchase Payments allocated to the Fixed Account, plus
interest credited as described above, less any applicable charges including
CDSC.
TRANSFERS
For transfers from the Fixed Account to the Variable Account, refer to the
"Transfers" provision of the prospectus.
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APPENDIX B
OBJECTIVES FOR PARTICIPATING UNDERLYING MUTUAL FUNDS
THE UNDERLYING MUTUAL FUNDS LISTED BELOW ARE DESIGNED AS INVESTMENT OPTIONS FOR
VARIABLE ANNUITY CONTRACTS AND VARIABLE LIFE INSURANCE POLICIES ISSUED BY
INSURANCE COMPANIES. THERE CAN BE NO ASSURANCE THAT THE INVESTMENT OBJECTIVES
WILL BE ACHIEVED.
VARIABLE INSURANCE PRODUCTS FUND
The Variable Insurance Products Fund (VIP) is an open-end, diversified,
management investment company organized as a Massachusetts business trust on
November 13, 1981. Shares of VIP are purchased by insurance companies
to fund benefits under variable life insurance policies and variable annuity
contracts. Fidelity Management & Research Company ("FMR") is the manager for
VIP and its portfolios.
-VIP EQUITY - INCOME PORTFOLIO: SERVICE CLASS
Investment Objective: To seek reasonable income by investing primarily in
income-producing equity securities. When choosing these securities, FMR
will also consider the potential for capital appreciation. The
Portfolio's goal is to achieve a yield that exceeds the composite yield
on the securities comprising the Standard & Poors Composite Stock Price
Index.
-VIP GROWTH PORTFOLIO: SERVICE CLASS
Investment Objective: To seek to achieve capital appreciation. This
Portfolio will invest in the securities of both well-known and
established companies, and smaller, less well-known companies which may
have a narrow product line or whose securities are thinly traded. These
latter securities will often involve greater risk than may be found in
the ordinary investment security. FMR's analysis and expertise plays an
integral role in the selection of securities and, therefore, the
performance of the Portfolio. Many securities which FMR believes would
have the greatest potential may be regarded as speculative, and
investment in the Portfolio may involve greater risk than is inherent in
other mutual funds. It is also important to point out that the Portfolio
makes most sense for you if you can afford to ride out changes in the
stock market, because it invests primarily in common stocks. FMR also can
make temporary investments in securities such as investment-grade bonds,
high-quality preferred stocks and short-term notes, for defensive
purposes when it believes market conditions warrant.
-VIP HIGH INCOME PORTFOLIO: SERVICE CLASS
Investment Objective: Seeks high current income by investing primarily in
all types of income-producing debt securities, preferred stocks, and
convertible securities. FMR normally invests at least 65% of the
Portfolio's total assets in these securities. In choosing investments,
the Portfolio also considers growth of capital.
-VIP MONEY MARKET PORTFOLIO: SERVICE CLASS
Investment Objective: Seeks to obtain as high a level of current income
as is consistent with preserving capital and providing liquidity. The
Portfolio will invest only in high quality U.S. dollar-denominated money
market securities of domestic and foreign issuers while seeking to
maintain a stable $1.00 share price. Investments in the Money market
Portfolio are neither insured nor guaranteed by the U.S. Government and
there can be no assurance that the Portfolio will maintain a stable $1.00
share price.
-VIP OVERSEAS PORTFOLIO: SERVICE CLASS
Investment Objective: Seeks long-term growth of capital by investing
primarily in securities of issuers whose principal activities are outside
of the U.S. FMR normally invests at least 65% of the Portfolio's total
assets in securities of issuers from at least three different countries
outside of North America (the U.S., Canada, Mexico, and Central America).
The Portfolio expects to invest a majority of its assets in equity
securities, but may also invest in debt securities of any quality.
VARIABLE INSURANCE PRODUCTS FUND II
The Variable Insurance Products Fund II (VIP II) is an open-end,
diversified, management investment company organized as a Massachusetts business
trust on March 21, 1988. VIP II's shares are purchased
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by insurance companies to fund benefits under variable life insurance policies
and variable annuity contracts. FMR is the manager of VIP Fund II and its
portfolios.
-VIP II ASSET MANAGER PORTFOLIO: SERVICE CLASS
Investment Objective: Seeks high total return with reduced risk over the
long term by allocating its assets among the following classes or types
of investments in a neutral mix: stock class, the bond class, and
short-term class/money market class.
Asset Manager Range Neutral Mix
Stock Class 30-70% 50%
Bond Class 20-60% 40%
Short-term Class 0-50% 10%
-VIP II ASSET MANAGER: GROWTH PORTFOLIO: SERVICE CLASS
Investment Objective: Seeks maximum total return over the long-term by
allocating assets among the following classes or types of investment in a
neutral mix: the stock class, the bond class, short-term class/ money
market class. The Portfolio's more aggressive approach focuses primarily
on stocks for high potential returns.
Asset Manager: Growth Range Neutral Mix
Stock Class 50-100% 75%
Bond Class 0-50% 25%
Short-term Class 0-50% 5%
-VIP II CONTRAFUND PORTFOLIO: SERVICE CLASS
Investment Objective: To seek capital appreciation by investing primarily
in companies that the Portfolio manager believes to be undervalued due to
an overly pessimistic appraisal by the public. This strategy can lead to
investments in domestic or foreign stock, and securities convertible into
common stock.
-VIP II INDEX 500 PORTFOLIO: SERVICE CLASS
Investment Objective: To seek investment results that correspond to the
total return of common stocks that comprise the Standard & Poor's 500
Composite Stock Price Index (S&P 500). Normally, at least 80% of the
Portfolio's assets will be invested in equity securities of companies
that comprise the S&P 500. Although the Portfolio tries to allocate its
assets similarly to those of the S&P 500, the Portfolio's composition may
not always be identical to that of the S&P. In seeking a 98% or better
long-term correlation of the fund's FMR may choose, if extraordinary
circumstances warrant, to exclude a stock held in the S&P 500 and include
a similar stock in its place if doing so will help the Portfolio achieve
its objective.
-VIP II INVESTMENT GRADE BOND PORTFOLIO: SERVICE CLASS
Investment Objective: Seeks a high level of current income as is
consistent with preservation of capital by investing primarily in
obligations issued or guaranteed by the U.S. government or any of its
agencies or instrumentalities. Under normal circumstances, at least 65%
of the Portfolio's total assets will be invested in investment-grade
fixed-income securities such as debentures, bonds and notes. government
securities.
VARIABLE INSURANCE PRODUCTS FUND III
The Variable Insurance Products Fund III (VIP III) is an open-end,
diversified, management investment company organized as a Massachusetts business
trust on July 14, 1994. VIP III's shares are purchased by insurance companies to
fund benefits under variable life insurance policies and variable annuity
contracts. FMR is the manager of VIP III and it's portfolios.
-VIP III BALANCED PORTFOLIO: SERVICE CLASS
Investment Objective: Seeks both income and growth of capital using a
balanced approach to provide the best possible total return from
investments in a diversified portfolio of equity and fixed-income
securities with income, growth of income and capital appreciation
potential. FMR manages the Portfolio to maintain a balance between stocks
and bonds. When FMR's outlook is neutral, it will invest approximately
60% of
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the Funds assets in stocks or other equity securities and the remainder
in bonds. The Portfolio will always invest at least 25% of its total
assets in fixed-income senior securities.
-VIP III GROWTH & INCOME PORTFOLIO: SERVICE CLASS
Investment Objective: Seeks high total return through a combination of
current income and capital appreciation by investing mainly in equity
securities.
-VIP III GROWTH OPPORTUNITIES PORTFOLIO: SERVICE CLASS
Investment Objective: Seeks long-term capital growth by investing
primarily in common stocks and securities convertible into common stocks.
Under normal circumstances, at least 65% of the Portfolio's total assets
will be invested in securities of companies that FMR believes have
long-term growth potential. The Portfolio has the ability to purchase
foreign securities, and preferred stock and bonds that may produce
capital appreciation.
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STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1998
MODIFIED SINGLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACTS
ISSUED BY NATIONWIDE LIFE INSURANCE COMPANY
THROUGH ITS NATIONWIDE FIDELITY ADVISOR VARIABLE ACCOUNT
This Statement of Additional Information is not a prospectus. It contains
information in addition to and more detailed than set forth in the prospectus
and should be read in conjunction with the prospectus dated May 1, 1998. The
prospectus may be obtained from Nationwide Life Insurance Company by writing
P.O. Box 182610, Columbus, Ohio 43218-2610, or calling 1-800-573-5775, Voice
Response (available 24 hours) 1-800-573-2447, TDD 1-800-238-3035.
TABLE OF CONTENTS
PAGE
General Information and History...........................................1
Services..................................................................1
Purchase of Securities Being Offered......................................1
Underwriters..............................................................2
Calculations of Performance...............................................2
Annuity Payments..........................................................3
Financial Statements......................................................4
GENERAL INFORMATION AND HISTORY
The Nationwide Fidelity Advisor 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. The Nationwide
Insurance Enterprise is one of America's largest insurance and financial
services family of companies, with combined assets of over $83.2 billion as of
December 31, 1997.
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 Funds. The Company has entered into an agreement with the
adviser of the Underlying Mutual Funds. The agreement relates to administrative
services furnished by the Company and provides 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").
1
44 of 107
<PAGE> 45
When a Contract described in the prospectus is exchanged for another contract
issued by the Company or any of its affiliated insurance companies of the type
and class which the Company determines is eligible for such an exchange, the
Company may waive any remaining Contingent Deferred Sales Charges on the first
Contract. A Contingent Deferred Sales Charge may apply to the Contract received
in the exchange.
UNDERWRITERS
The Contracts, which are offered continuously, are distributed by Fidelity
Investments Institutional Services Company, Inc. ("Fidelity"), 82 Devonshire
Street, Boston, Massachusetts 02109. The Company has paid no underwriting
commission to Fidelity.
CALCULATIONS OF PERFORMANCE
Any current yield quotations of the Variable Insurance Products Fund-Money
Market Portfolio, subject to Rule 482 of the Securities Act of 1933, will
consist of a seven calendar day historical yield, carried at least to the
nearest hundredth of a percent. The yield shall be calculated by determining the
net change, exclusive of capital changes, in the value of hypothetical
pre-existing account having a balance of one accumulation unit at the beginning
of the base period, subtracting a hypothetical charge reflecting deductions from
Contract Owner accounts, and dividing the net change in account value by the
value of the account at the beginning of the period to obtain a base period
return, and multiplying the base period return by (365/7) or (366/7) in a leap
year. The Variable Insurance Products Fund-Money Market Portfolio's effective
yield will be computed similarly but includes the effect of assumed compounding
on an annualized basis of the current unit value yield quotations of the
Portfolio.
The Variable Insurance Products Fund-Money Market Portfolio's yield and
effective yield will fluctuate daily. Actual yields will depend on factors such
as the type of instruments in the portfolio, portfolio quality and average
maturity, changes in interest rates, and the Portfolio's expenses. Although the
Portfolio determines its yield on the basis of a seven calendar day period, it
may use a different time period on occasion. The yield quotes may reflect the
expense limitation described in the Portfolio's Statement of Additional
Information. There is no assurance that the yields quoted on any given occasion
will remain in effect for any period of time and there is no guarantee that the
Net Asset Values will remain constant. It should be noted that a Contract
Owner's investment in the Variable Insurance Products Fund-Money Market
Portfolio is not guaranteed or insured. Yield of other money market funds may
not be comparable if a different base period or another method of calculation is
used.
All performance advertising will include quotations of standardized average
annual total return, calculated in accordance with a standard method prescribed
by rules of the SEC. Standardized average annual return is found by taking a
hypothetical $1,000 investment in each of the Sub-Accounts' units on the first
day of the period at the offering price, which is the Accumulation Unit Value
per unit ("initial investment") and computing the ending redeemable value
("redeemable value") of that investment at the end of the period. The redeemable
value is then divided by the initial investment and this quotient is taken to
the Nth root (N represents the number of years in the period) and 1 is
subtracted from the result which is then expressed as a percentage, carried to
at least the nearest hundredth of a percent. Standardized average annual total
return reflects the deduction of a 1.05% Mortality, Expense Risk and
Administration Charge. The redeemable value also reflects the effect of any
applicable CDSC that may be imposed at the end of the period (see "Contingent
Deferred Sales Charge" located in the prospectus). No deduction is made for
premium taxes which may be assessed by certain states. Nonstandardized total
return may also be advertised, and is calculated in a manner similar to
standardized average annual total return except the nonstandardized total return
is based on a hypothetical initial investment of $25,000 and does not reflect
the deduction of any applicable CDSC. Reflecting the CDSC would decrease the
level of the performance advertised. The CDSC is not reflected because the
Contract is designed for long term investment. An assumed initial investment of
$25,000 will be used because that figure more closely approximates the size of a
typical Contract than does the $1,000 figure used in calculating the
standardized average annual total return quotations.
The standardized average annual total return and nonstandardized average annual
total return quotations will be current to the last day of the calendar quarter
preceding the date on which an advertisement is submitted for publication. The
standardized average annual return will be based on rolling calendar quarters
and will cover periods of one, five, and ten years, or a period covering the
time the Underlying Mutual Fund has been available in the Variable Account if
the Underlying Mutual Fund has not been available for one of the prescribed
periods. The nonstandardized annual total return will be based on rolling
calendar quarters and will cover periods of one, five and ten years, or a period
covering the time the Underlying Mutual Fund has been in existence.
2
45 of 107
<PAGE> 46
Quotations of average annual total return and total return are based upon
historical earnings and will fluctuate. Any quotation of performance is not a
guarantee of future performance. Factors affecting a Sub-Account's performance
include general market conditions, operating expenses and investment management.
A Contract Owner's account when redeemed may be more or less than original cost.
ANNUITY PAYMENTS
See "Frequency and Amount of Annuity Payments" located in the prospectus.
- --------------------------------------------------------------------------------
The Fidelity Advisor Generations Annuity(SM) commenced sales in January, 1998.
Therefore, the following Financial Statements do not reflect performance for the
Fidelity Advisor Generations Annuity. However, the Financial Statements do
reflect performance for other annuity contracts issued through the Fidelity
Advisor Annuity Variable Account.
- --------------------------------------------------------------------------------
3
46 of 107
<PAGE> 47
<PAGE> 1
Independent Auditors' Report
The Board of Directors of Nationwide Life Insurance Company and Contract Owners
of Nationwide Fidelity Advisor Variable Account:
We have audited the accompanying statement of assets, liabilities and
contract owners' equity of Nationwide Fidelity Advisor Variable Account as of
December 31, 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 Fidelity Advisor
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 FIDELITY ADVISOR VARIABLE ACCOUNT
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments at market value:
Fidelity VIP - Equity-Income Portfolio
1,599,038 shares (cost $35,248,681) ............................... $ 38,824,634
Fidelity VIP - Growth Portfolio
640,125 shares (cost $22,206,927) ................................. 23,748,634
Fidelity VIP - High Income Portfolio
10,995,541 shares (cost $132,833,923) ............................. 149,319,451
Fidelity VIP - Money Market Portfolio
43,662,630 shares (cost $43,662,630) .............................. 43,662,630
Fidelity VIP - Overseas Portfolio
3,584,762 shares (cost $65,258,243) ............................... 68,827,431
Fidelity VIP-II - Asset Manager Portfolio
558,030 shares (cost $9,279,565) .................................. 10,050,112
Fidelity VIP-II - Asset Manager: Growth Portfolio
505,876 shares (cost $7,473,921) .................................. 8,276,124
Fidelity VIP-II - Contrafund Portfolio
2,583,928 shares (cost $46,279,142) ............................... 51,523,515
Fidelity VIP-II - Index 500 Portfolio
251,026 shares (cost $25,844,659) ................................. 28,714,885
Fidelity VIP-II - Investment Grade Bond Portfolio
2,272,129 shares (cost $26,465,418) ............................... 28,537,938
Fidelity VIP-III - Balanced Portfolio
9,766,299 shares (cost $112,089,702) .............................. 142,392,642
Fidelity VIP-III - Growth and Income Portfolio
2,081,025 shares (cost $23,761,073) ............................... 26,075,242
Fidelity VIP-III - Growth Opportunities Portfolio
32,098,555 shares (cost $448,021,663) ............................. 618,539,161
--------------
Total investments .............................................. 1,238,492,399
Accounts receivable ..................................................... 15,691
--------------
Total assets ................................................... 1,238,508,090
ACCOUNTS PAYABLE ........................................................... -
--------------
CONTRACT OWNERS' EQUITY (NOTE 4) ........................................... $1,238,508,090
==============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 3
NATIONWIDE FIDELITY ADVISOR VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
GOVERNMENT
TOTAL INVESTMENT FUND
----------------------------- -----------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends ............................. $ 13,779,569 9,453,706 287,288 977,630
Mortality, expense and administration
charges (note 2) ............................... (13,519,814) (7,056,063) (56,693) (219,745)
--------------- ------------- ------------- -------------
Net investment activity ........................ 259,755 2,397,643 230,595 757,885
--------------- ------------- ------------- -------------
Proceeds from mutual fund shares sold ............ 287,881,219 45,891,295 20,683,351 784,643
Cost of mutual fund shares sold .................. (283,840,344) (44,457,369) (21,543,654) (750,095)
--------------- ------------- ------------- -------------
Realized gain (loss) on investments ............ 4,040,875 1,433,926 (860,303) 34,548
Change in unrealized gain (loss) on investments .. 165,223,943 62,292,552 502,588 (479,363)
--------------- ------------- ------------- -------------
Net gain (loss) on investments ................. 169,264,818 63,726,478 (357,715) (444,815)
--------------- ------------- ------------- -------------
Reinvested capital gains ......................... 17,399,176 1,903,631 - -
--------------- ------------- ------------- -------------
Net increase (decrease) in contract owners'
equity resulting from operations ........... 186,923,749 68,027,752 (127,120) 313,070
--------------- ------------- ------------- -------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ................................ 429,777,841 326,836,927 703,479 12,167,493
Transfers between funds .......................... - - (20,346,585) 162,562
Redemptions ...................................... (51,393,337) (20,699,510) (279,350) (957,625)
Annuity benefits ................................. (2,059) - - -
Annual contract maintenance charge (note 2) ...... (99,391) (54,534) (386) (810)
Contingent deferred sales charges (note 2) ....... (1,101,526) (402,606) (11,183) (18,984)
Adjustments to maintain reserves ................. 5,922 36,535 13 438
--------------- ------------- ------------- -------------
Net equity transactions ...................... 377,187,450 305,716,812 (19,934,012) 11,353,074
--------------- ------------- ------------- -------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ............ 564,111,199 373,744,564 (20,061,132) 11,666,144
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ...... 674,396,891 300,652,327 20,061,132 8,394,988
--------------- ------------- ------------- -------------
CONTRACT OWNERS' EQUITY END OF PERIOD ............ $ 1,238,508,090 674,396,891 - 20,061,132
=============== ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
HIGH YIELD FUND MONEY MARKET FUND
------------------------------ ------------------------------
1997 1996 1997 1996
------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends ............................. 1,664,977 6,331,250 290,239 1,690,430
Mortality, expense and administration
charges (note 2) ............................... (265,500) (945,208) (81,263) (462,483)
------------- -------------- -------------- -------------
Net investment activity ........................ 1,399,477 5,386,042 208,976 1,227,947
------------- -------------- -------------- -------------
Proceeds from mutual fund shares sold ............ 97,566,593 2,719,663 34,287,294 36,765,530
Cost of mutual fund shares sold .................. (98,450,573) (2,339,519) (34,287,294) (36,765,530)
------------- -------------- -------------- -------------
Realized gain (loss) on investments ............ (883,980) 380,144 - -
Change in unrealized gain (loss) on investments .. (2,411,864) 2,035,510 - -
------------- -------------- -------------- -------------
Net gain (loss) on investments ................. (3,295,844) 2,415,654 - -
------------- -------------- -------------- -------------
Reinvested capital gains ......................... 3,446,055 38,004 - -
------------- -------------- -------------- -------------
Net increase (decrease) in contract owners'
equity resulting from operations ........... 1,549,688 7,839,700 208,976 1,227,947
------------- -------------- -------------- -------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ................................ 5,965,726 42,194,826 5,893,573 41,393,976
Transfers between funds .......................... (97,185,398) 4,859,831 (35,384,849) (38,807,936)
Redemptions ...................................... (1,335,478) (3,134,966) (643,822) (2,833,508)
Annuity benefits ................................. - - - -
Annual contract maintenance charge (note 2) ...... (1,254) (4,524) (196) (1,592)
Contingent deferred sales charges (note 2) ....... (37,325) (78,197) (8,540) (21,113)
Adjustments to maintain reserves ................. 352 2,682 2,487 (8,090)
------------- -------------- -------------- -------------
Net equity transactions ...................... (92,593,377) 43,839,652 (30,141,347) (278,263)
------------- -------------- -------------- -------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ............ (91,043,689) 51,679,352 (29,932,371) 949,684
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ...... 91,043,689 39,364,337 29,932,371 28,982,687
------------- -------------- -------------- -------------
CONTRACT OWNERS' EQUITY END OF PERIOD ............ - 91,043,689 - 29,932,371
============= ============== ============== =============
</TABLE>
(Continued)
<PAGE> 4
NATIONWIDE FIDELITY ADVISOR VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
OVERSEAS FUND EQUITY-INCOME PORTFOLIO
----------------------------- -----------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends ............................. $ 53,871 452,482 15,751 -
Mortality, expense and administration
charges (note 2) ............................... (128,292) (456,932) (242,173) -
------------- ------------- ------------- -------------
Net investment activity ........................ (74,421) (4,450) (226,422) -
------------- ------------- ------------- -------------
Proceeds from mutual fund shares sold ............ 48,228,759 1,489,407 22,507 -
Cost of mutual fund shares sold .................. (48,637,341) (1,345,257) (21,016) -
------------- ------------- ------------- -------------
Realized gain (loss) on investments ............ (408,582) 144,150 1,491 -
Change in unrealized gain (loss) on investments .. (2,797,481) 2,436,624 3,575,954 -
------------- ------------- ------------- -------------
Net gain (loss) on investments ................. (3,206,063) 2,580,774 3,577,445 -
------------- ------------- ------------- -------------
Reinvested capital gains ......................... 4,309,141 941,567 79,191 -
------------- ------------- ------------- -------------
Net increase (decrease) in contract owners'
equity resulting from operations ........... 1,028,657 3,517,891 3,430,214 -
------------- ------------- ------------- -------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ................................ 2,025,184 19,990,667 28,876,880 -
Transfers between funds .......................... (47,818,089) 6,205,243 7,018,612 -
Redemptions ...................................... (425,271) (973,327) (494,788) -
Annuity benefits ................................. - - - -
Annual contract maintenance charge (note 2) ...... (821) (3,284) (203) -
Contingent deferred sales charges (note 2) ....... (9,277) (23,667) (7,134) -
Adjustments to maintain reserves ................. 1,590 1,314 1,397 -
------------- ------------- ------------- -------------
Net equity transactions ...................... (46,226,684) 25,196,946 35,394,764 -
------------- ------------- ------------- -------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ............ (45,198,027) 28,714,837 38,824,978 -
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ...... 45,198,027 16,483,190 - -
------------- ------------- ------------- -------------
CONTRACT OWNERS' EQUITY END OF PERIOD ............ $ - 45,198,027 38,824,978 -
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
GROWTH PORTFOLIO HIGH INCOME PORTFOLIO
------------------------------ ------------------------------
1997 1996 1997 1996
------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends ............................. 4,508 - 105,786 -
Mortality, expense and administration
charges (note 2) ............................... (145,297) - (1,409,930) (112)
------------- -------------- -------------- -------------
Net investment activity ........................ (140,789) - (1,304,144) (112)
------------- -------------- -------------- -------------
Proceeds from mutual fund shares sold ............ 701,523 - 9,990,931 51,577
Cost of mutual fund shares sold .................. (663,222) - (9,469,396) (51,480)
------------- -------------- -------------- -------------
Realized gain (loss) on investments ............ 38,301 - 521,535 97
Change in unrealized gain (loss) on investments .. 1,541,707 - 16,484,146 1,382
------------- -------------- -------------- -------------
Net gain (loss) on investments ................. 1,580,008 - 17,005,681 1,479
------------- -------------- -------------- -------------
Reinvested capital gains ......................... 20,178 - 13,075 -
------------- -------------- -------------- -------------
Net increase (decrease) in contract owners'
equity resulting from operations ........... 1,459,397 - 15,714,612 1,367
------------- -------------- -------------- -------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ................................ 17,228,215 - 40,442,027 57,687
Transfers between funds .......................... 5,458,035 - 98,072,875 109,940
Redemptions ...................................... (389,446) - (4,965,856) (595)
Annuity benefits ................................. - - (520) -
Annual contract maintenance charge (note 2) ...... (174) - (6,797) (12)
Contingent deferred sales charges (note 2) ....... (7,662) - (105,011) -
Adjustments to maintain reserves ................. 387 - 1,793 1
------------- -------------- -------------- -------------
Net equity transactions ...................... 22,289,355 - 133,438,511 167,021
------------- -------------- -------------- -------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ............ 23,748,752 - 149,153,123 168,388
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ...... - - 168,388 -
------------- -------------- -------------- -------------
CONTRACT OWNERS' EQUITY END OF PERIOD ............ 23,748,752 - 149,321,511 168,388
============= ============== ============== =============
</TABLE>
<PAGE> 5
NATIONWIDE FIDELITY ADVISOR VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO OVERSEAS PORTFOLIO
----------------------------- -----------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .................................. $ 2,138,816 1,914 13,050 -
Mortality, expense and administration
charges (note 2) .................................... (560,839) (512) (730,502) (341)
------------- ------------- ------------- -------------
Net investment activity ............................. 1,577,977 1,402 (717,452) (341)
------------- ------------- ------------- -------------
Proceeds from mutual fund shares sold ................. 50,465,388 14,704 6,692,136 297
Cost of mutual fund shares sold ....................... (50,465,388) (14,704) (6,194,942) (288)
------------- ------------- ------------- -------------
Realized gain (loss) on investments ................. - - 497,194 9
Change in unrealized gain (loss) on investments ....... - - 3,564,616 4,572
------------- ------------- ------------- -------------
Net gain (loss) on investments ...................... - - 4,061,810 4,581
------------- ------------- ------------- -------------
Reinvested capital gains .............................. - - 51,803 -
------------- ------------- ------------- -------------
Net increase (decrease) in contract owners' .......
equity resulting from operations ................ 1,577,977 1,402 3,396,161 4,240
------------- ------------- ------------- -------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ..................................... 53,240,636 1,297,033 19,142,453 23,854
Transfers between funds ............................... (8,324,168) 115,682 48,946,911 202,834
Redemptions ........................................... (4,162,215) - (2,818,245) (151)
Annuity benefits ...................................... - - - -
Annual contract maintenance charge (note 2) ........... (1,833) - (5,435) (3)
Contingent deferred sales charges (note 2) ............ (81,918) - (65,968) -
Adjustments to maintain reserves ...................... (128) (6) 3,181 (8)
------------- ------------- ------------- -------------
Net equity transactions ........................... 40,670,374 1,412,709 65,202,897 226,526
------------- ------------- ------------- -------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ................. 42,248,351 1,414,111 68,599,058 230,766
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ........... 1,414,111 - 230,766 -
------------- ------------- ------------- -------------
CONTRACT OWNERS' EQUITY END OF PERIOD ................. $ 43,662,462 1,414,111 68,829,824 230,766
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
ASSET MANAGER:
ASSET MANAGER PORTFOLIO GROWTH PORTFOLIO
------------------------------ ------------------------------
1997 1996 1997 1996
------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .................................. 5,034 - - -
Mortality, expense and administration
charges (note 2) .................................... (63,622) - (60,894) -
------------- -------------- -------------- -------------
Net investment activity ............................. (58,588) - (60,894) -
------------- -------------- -------------- -------------
Proceeds from mutual fund shares sold ................. 167,650 - 608,370 -
Cost of mutual fund shares sold ....................... (169,948) - (526,461) -
------------- -------------- -------------- -------------
Realized gain (loss) on investments ................. (2,298) - 81,909 -
Change in unrealized gain (loss) on investments ....... 770,547 - 802,203 -
------------- -------------- -------------- -------------
Net gain (loss) on investments ...................... 768,249 - 884,112 -
------------- -------------- -------------- -------------
Reinvested capital gains .............................. 12,628 - 620 -
------------- -------------- -------------- -------------
Net increase (decrease) in contract owners' .......
equity resulting from operations ................ 722,289 - 823,838 -
------------- -------------- -------------- -------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ..................................... 6,537,589 - 5,851,889 -
Transfers between funds ............................... 2,915,117 - 1,816,591 -
Redemptions ........................................... (124,289) - (210,136) -
Annuity benefits ...................................... - - - -
Annual contract maintenance charge (note 2) ........... (65) - (56) -
Contingent deferred sales charges (note 2) ............ (642) - (5,660) -
Adjustments to maintain reserves ...................... 169 - (319) -
------------- -------------- -------------- -------------
Net equity transactions ........................... 9,327,879 - 7,452,309 -
------------- -------------- -------------- -------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ................. 10,050,168 - 8,276,147 -
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ........... - - - -
------------- -------------- -------------- -------------
CONTRACT OWNERS' EQUITY END OF PERIOD ................. 10,050,168 - 8,276,147 -
============= ============== ============== =============
</TABLE>
(Continued)
<PAGE> 6
NATIONWIDE FIDELITY ADVISOR VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
CONTRAFUND PORTFOLIO INDEX 500 PORTFOLIO
----------------------------- -----------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends ............................. $ 24,653 - 9,636 -
Mortality, expense and administration
charges (note 2) ............................... (369,125) - (190,547) -
------------- ------------- ------------- -------------
Net investment activity ........................ (344,472) - (180,911) -
------------- ------------- ------------- -------------
Proceeds from mutual fund shares sold ............ 565,018 - 965,594 -
Cost of mutual fund shares sold .................. (487,291) - (889,248) -
------------- ------------- ------------- -------------
Realized gain (loss) on investments ............ 77,727 - 76,346 -
Change in unrealized gain (loss) on investments .. 5,244,373 - 2,870,226 -
------------- ------------- ------------- -------------
Net gain (loss) on investments ................. 5,322,100 - 2,946,572 -
------------- ------------- ------------- -------------
Reinvested capital gains ......................... 65,154 - 19,553 -
------------- ------------- ------------- -------------
Net increase (decrease) in contract owners'
equity resulting from operations ........... 5,042,782 - 2,785,214 -
------------- ------------- ------------- -------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ................................ 36,229,846 - 20,344,888 -
Transfers between funds .......................... 11,100,887 - 6,144,151 -
Redemptions ...................................... (814,886) - (540,303) -
Annuity benefits ................................. - - - -
Annual contract maintenance charge (note 2) ...... (692) - (330) -
Contingent deferred sales charges (note 2) ....... (18,768) - (17,514) -
Adjustments to maintain reserves ................. (15,272) - (1,008) -
------------- ------------- ------------- -------------
Net equity transactions ...................... 46,481,115 - 25,929,884 -
------------- ------------- ------------- -------------
NET CHANGE IN CONTRACT OWNERS' EQUITY 51,523,897 - 28,715,098 -
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ...... - - - -
------------- ------------- ------------- -------------
CONTRACT OWNERS' EQUITY END OF PERIOD ............ $ 51,523,897 - 28,715,098 -
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT GRADE
BOND PORTFOLIO BALANCED PORTFOLIO
------------------------------ ------------------------------
1997 1996 1997 1996
------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends ............................. 21,628 - 2,651,503 -
Mortality, expense and administration
charges (note 2) ............................... (279,791) (140) (1,746,213) (1,051,093)
------------- -------------- -------------- -------------
Net investment activity ........................ (258,163) (140) 905,290 (1,051,093)
------------- -------------- -------------- -------------
Proceeds from mutual fund shares sold ............ 2,093,567 309 4,520,541 727,396
Cost of mutual fund shares sold .................. (2,017,251) (307) (3,490,030) (656,256)
------------- -------------- -------------- -------------
Realized gain (loss) on investments ............ 76,316 2 1,030,511 71,140
Change in unrealized gain (loss) on investments .. 2,072,932 (411) 20,657,622 8,506,461
------------- -------------- -------------- -------------
Net gain (loss) on investments ................. 2,149,248 (409) 21,688,133 8,577,601
------------- -------------- -------------- -------------
Reinvested capital gains ......................... - - - 218,962
------------- -------------- -------------- -------------
Net increase (decrease) in contract owners'
equity resulting from operations ........... 1,891,085 (549) 22,593,423 7,745,470
------------- -------------- -------------- -------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ................................ 6,750,960 27,814 23,981,267 50,651,260
Transfers between funds .......................... 21,294,182 70,964 (1,028,043) 4,814,234
Redemptions ...................................... (1,465,723) (258) (6,165,682) (3,143,740)
Annuity benefits ................................. - - (296) -
Annual contract maintenance charge (note 2) ...... (1,273) - (13,901) (7,597)
Contingent deferred sales charges (note 2) ....... (29,247) - (126,607) (65,894)
Adjustments to maintain reserves ................. 222 5 1,693 6,349
------------- -------------- -------------- -------------
Net equity transactions ...................... 26,549,121 98,525 16,648,431 52,254,612
------------- -------------- -------------- -------------
NET CHANGE IN CONTRACT OWNERS' EQUITY 28,440,206 97,976 39,241,854 60,000,082
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ...... 97,976 - 103,152,198 43,152,116
------------- -------------- -------------- -------------
CONTRACT OWNERS' EQUITY END OF PERIOD ............ 28,538,182 97,976 142,394,052 103,152,198
============= ============== ============== =============
</TABLE>
<PAGE> 7
NATIONWIDE FIDELITY ADVISOR VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
GROWTH AND INCOME GROWTH OPPORTUNITIES
PORTFOLIO PORTFOLIO
----------------------------- -----------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends ............................. $ 157,740 - 6,335,089 -
Mortality, expense and administration
charges (note 2) ............................... (166,292) - (7,022,841) (3,919,497)
------------- ------------- ------------- -------------
Net investment activity ........................ (8,552) - (687,752) (3,919,497)
------------- ------------- ------------- -------------
Proceeds from mutual fund shares sold ............ 45,518 - 10,276,479 3,337,769
Cost of mutual fund shares sold .................. (40,650) - (6,486,639) (2,533,933)
------------- ------------- ------------- -------------
Realized gain (loss) on investments ............ 4,868 - 3,789,840 803,836
Change in unrealized gain (loss) on investments .. 2,314,169 - 110,032,205 49,787,777
------------- ------------- ------------- -------------
Net gain (loss) on investments ................. 2,319,037 - 113,822,045 50,591,613
------------- ------------- ------------- -------------
Reinvested capital gains ......................... 512,654 - 8,869,124 705,098
------------- ------------- ------------- -------------
Net increase (decrease) in contract owners'
equity resulting from operations ........... 2,823,139 - 122,003,417 47,377,214
------------- ------------- ------------- -------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ................................ 18,613,704 - 137,949,525 159,032,317
Transfers between funds .......................... 5,163,722 - 2,156,049 22,266,646
Redemptions ...................................... (510,742) - (26,047,105) (9,655,340)
Annuity benefits ................................. - - (1,243) -
Annual contract maintenance charge (note 2) ...... (188) - (65,787) (36,712)
Contingent deferred sales charges (note 2) ....... (14,424) - (554,646) (194,751)
Adjustments to maintain reserves ................. 235 - 9,130 33,850
------------- ------------- ------------- -------------
Net equity transactions ...................... 23,252,307 - 113,445,923 171,446,010
------------- ------------- ------------- -------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ............ 26,075,446 - 235,449,340 218,823,224
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ...... - - 383,098,233 164,275,009
------------- ------------- ------------- -------------
CONTRACT OWNERS' EQUITY END OF PERIOD ............ $ 26,075,446 - 618,547,573 383,098,233
============= ============= ============= =============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 8
NATIONWIDE FIDELITY ADVISOR VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Nature of Operations
Nationwide Fidelity Advisor Variable Account (the Account) was
established pursuant to a resolution of the Board of Directors of
Nationwide Life Insurance Company (the Company) on July 22, 1994. The
Account has been registered as a unit investment trust under the
Investment Company Act of 1940.
The Company offers tax qualified and non-tax qualified Individual
Deferred Variable Annuity Contracts, and Individual Modified Single
Premium Deferred Variable Annuity Contracts through the Account. The
primary distribution for the contracts is through Fidelity
Investments(R).
(b) The Contracts
Only contracts without a front-end sales charge, but with a contingent
deferred sales charge and certain other fees, are offered for purchase.
See note 2 for a discussion of contract expenses.
Contract owners in either the accumulation or the payout phase may
invest in any of the following:
Funds of Fidelity Advisor Annuity Fund (effective January 20,
1997, the following funds are no longer available);
Fidelity Advisor Annuity Government Investment Fund
Fidelity Advisor Annuity High Yield Fund
Fidelity Advisor Annuity Money Market Fund
Fidelity Advisor Annuity Overseas Fund
Portfolios of the Fidelity Variable Insurance Products Fund
(Fidelity VIP);
Fidelity VIP - Equity-Income Portfolio
Fidelity VIP - Growth Portfolio
Fidelity VIP - High Income Portfolio
Fidelity VIP - Money Market Portfolio
Fidelity VIP - Overseas Portfolio
Portfolios of the Fidelity Variable Insurance Products Fund II
(Fidelity VIP-II);
Fidelity VIP-II - Asset Manager Portfolio
Fidelity VIP-II - Asset Manager: Growth Portfolio
Fidelity VIP-II - Contrafund Portfolio
Fidelity VIP-II - Index 500 Portfolio
Fidelity VIP-II - Investment Grade Bond Portfolio
Portfolios of the Fidelity Variable Insurance Products Fund III
(Fidelity VIP-III);
Fidelity VIP-III - Balanced Portfolio
(formerly Fidelity Advisor Annuity Income & Growth Fund)
Fidelity VIP-III - Growth and Income Portfolio
Fidelity VIP-III - Growth Opportunities Portfolio
(formerly Fidelity Advisor Annuity Growth Opportunities Fund)
At December 31, 1997, except as noted, contract owners have invested in
all of the above funds. The contract owners' equity is affected by the
investment results of each fund, equity transactions by contract owners
and certain contract expenses (see note 2). The accompanying financial
statements include only contract owners' purchase payments pertaining
to the variable portions of their contracts and exclude any purchase
payments for fixed dollar benefits, the latter being included in the
accounts of the Company.
<PAGE> 9
(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 a specific identification basis. Investment
transactions are accounted for on the trade date (date the order to buy
or sell is executed) and dividend income is recorded on the ex-dividend
date.
(d) Federal Income Taxes
Operations of the Account form a part of, and are taxed with,
operations of the Company which is taxed as a life insurance company
under the Internal Revenue Code.
The Company does not provide for income taxes within the Account. Taxes
are the responsibility of the contract owner upon termination or
withdrawal.
(e) Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles may require management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities, if
any, at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
(f) Reclassifications
Certain 1996 amounts have been reclassified to conform with the current
period presentation.
(2) EXPENSES
The Company does not deduct a sales charge from purchase payments received
from the contract owners. However, if any part of the contract value of
such contracts is surrendered, the Company will, with certain exceptions,
deduct from a contract owner's contract value a contingent deferred sales
charge, not to exceed 7% of the lesser of purchase payments or the amount
surrendered, such charge declining 1% per year, to 0%, after the purchase
payment has been held in the contract for 84 months. No sales charges are
deducted on redemptions used to purchase units in the fixed investment
options of the Company.
The following contract charges are deducted by the Company: (a) for the
Fidelity Advisor Annuity Classic contracts an annual contract maintenance
charge of $30, with certain exceptions, which is satisfied by surrendering
units; and (b) for the Fidelity Advisor Annuity Classic contracts a
mortality risk charge, an expense risk charge and an administration charge
assessed through the daily unit value calculation equal to an annual rate
of 0.80%, 0.45% and 0.05%, respectively; for the Fidelity Advisor Annuity
Select contracts a mortality risk charge, an expense risk charge and an
administration charge assessed through the daily unit value calculations
equal to an annual rate of 0.80%, 0.45% and 0.15%, respectively. Optional
long term care facility with a one-year stepped up death benefit rider is
offered at an additional annual rate of 0.05% (Rider Option 1). Optional
long care facility with a 5% enhanced death benefit rider is offered at an
additional annual rate of 0.10% (Rider Option 2).
<PAGE> 10
The following table provides mortality, expense and administration charges
by contract type for the period ended December 31, 1997:
<TABLE>
<CAPTION>
GOVERNMENT HIGH MONEY
INVESTMENT YIELD MARKET OVERSEAS
TOTAL FUND FUND FUND FUND
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Classic......................... $ 1,083,010 3,971 16,813 3,845 10,730
Select.......................... 12,435,476 52,722 248,687 77,418 117,562
Select (Rider Opt. 1)........... 1,046 - - - -
Select (Rider Opt. 2)........... 282 - - - -
------------ ------------ ------------ ------------ ------------
Total....................... $ 13,519,814 56,693 265,500 81,263 128,292
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
EQUITY- HIGH MONEY
INCOME GROWTH INCOME MARKET OVERSEAS
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Classic......................... $ 10,689 8,415 79,502 20,370 60,043
Select.......................... 231,323 136,613 1,330,341 540,448 670,326
Select (Rider Opt. 1)........... 126 254 45 21 105
Select (Rider Opt. 2)........... 35 15 42 - 28
------------ ------------ ------------ ------------ ------------
Total....................... $ 242,173 145,297 1,409,930 560,839 730,502
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
ASSET INVESTMENT
ASSET MANAGER INDEX GRADE
MANAGER GROWTH CONTRAFUND 500 BOND
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Classic......................... $ 2,325 3,230 23,334 10,070 18,691
Select.......................... 61,279 57,643 345,666 180,444 261,060
Select (Rider Opt. 1)........... 18 13 95 24 -
Select (Rider Opt. 2)........... - 8 30 9 40
------------ ------------ ------------ ------------ ------------
Total....................... $ 63,622 60,894 369,125 190,547 279,791
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
GROWTH AND GROWTH
BALANCED INCOME OPPORTUNITIES
PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------
<S> <C> <C> <C>
Classic......................... $ 153,146 6,903 650,933
Select.......................... 1,593,030 159,344 6,371,570
Select (Rider Opt. 1)........... 28 13 304
Select (Rider Opt. 2)........... 9 32 34
------------ ------------ ------------
Total....................... $ 1,746,213 166,292 7,022,841
============ ============ ============
</TABLE>
(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> 11
(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>
FIDELITY ADVISOR ANNUITY CLASSIC CONTRACTS:
Fidelity VIP - Equity-Income Portfolio:
Tax qualified ........................... 85,072 $ 12.257123 $1,042,738 23%(a)
Non-tax qualified ....................... 68,943 12.257123 845,043 23%(a)
Fidelity VIP - Growth Portfolio:
Tax qualified ........................... 72,191 11.621651 838,979 16%(a)
Non-tax qualified ....................... 55,100 11.621651 640,353 16%(a)
Fidelity VIP - High Income Portfolio:
Tax qualified ........................... 385,182 11.873382 4,573,413 16%
Non-tax qualified ....................... 335,906 11.873382 3,988,340 16%
Fidelity VIP - Money Market Portfolio:
Tax qualified ........................... 208,431 10.478255 2,183,993 4%
Non-tax qualified ....................... 63,314 10.478255 663,420 4%
Fidelity VIP - Overseas Portfolio:
Tax qualified ........................... 278,008 11.583345 3,220,263 10%
Non-tax qualified ....................... 233,174 11.583345 2,700,935 10%
Fidelity VIP-II - Asset Manager Portfolio:
Tax qualified ........................... 16,173 11.662002 188,610 17%(a)
Non-tax qualified ....................... 17,854 11.662002 208,213 17%(a)
Fidelity VIP-II - Asset Manager:
Growth Portfolio:
Tax qualified ........................... 24,630 11.951807 294,373 20%(a)
Non-tax qualified ....................... 15,156 11.951807 181,142 20%(a)
Fidelity VIP-II - Contrafund Portfolio:
Tax qualified ........................... 166,852 11.743945 1,959,501 17%(a)
Non-tax qualified ....................... 111,999 11.743945 1,315,310 17%(a)
Fidelity VIP-II - Index 500 Portfolio:
Tax qualified ........................... 83,194 12.506255 1,040,445 25%(a)
Non-tax qualified ....................... 51,803 12.506255 647,862 25%(a)
Fidelity VIP-II - Investment Grade
Bond Portfolio:
Tax qualified ........................... 114,654 10.829778 1,241,677 8%
Non-tax qualified ....................... 64,921 10.829778 703,080 8%
Fidelity VIP-III - Balanced Portfolio:
Tax qualified ........................... 502,946 14.720075 7,403,403 21%
Non-tax qualified ....................... 389,668 14.720075 5,735,942 21%
Fidelity VIP-III - Growth and
Income Portfolio:
Tax qualified ........................... 56,646 12.362549 700,289 24%(a)
Non-tax qualified ....................... 35,101 12.362549 433,938 24%(a)
Fidelity VIP-III - Growth Opportunities
Portfolio:
Tax qualified ........................... 1,496,661 19.586347 29,314,122 28%
Non-tax qualified ....................... 1,474,036 19.586347 28,870,981 28%
</TABLE>
(Continued)
<PAGE> 12
FIDELITY ADVISOR ANNUITY SELECT CONTRACTS:
<TABLE>
<S> <C> <C> <C> <C>
Fidelity VIP - Equity-Income Portfolio:
Tax qualified ......................... 1,102,775 12.245396 13,503,917 22%(a)
Non-tax qualified ..................... 1,900,080 12.245396 23,267,232 22%(a)
Fidelity VIP - Growth Portfolio:
Tax qualified ......................... 711,162 11.610523 8,256,963 16%(a)
Non-tax qualified ..................... 1,186,843 11.610523 13,779,868 16%(a)
Fidelity VIP - High Income Portfolio:
Tax qualified ......................... 3,723,025 11.859397 44,152,832 16%
Non-tax qualified ..................... 8,132,611 11.859397 96,447,862 16%
Fidelity VIP - Money Market Portfolio:
Tax qualified ......................... 1,517,808 10.465899 15,885,225 4%
Non-tax qualified ..................... 2,372,121 10.465899 24,826,379 4%
Fidelity VIP - Overseas Portfolio:
Tax qualified ......................... 1,594,615 11.569690 18,449,201 10%
Non-tax qualified ..................... 3,828,801 11.569690 44,298,041 10%
Fidelity VIP-II - Asset Manager Portfolio:
Tax qualified ......................... 234,516 11.650850 2,732,311 17%(a)
Non-tax qualified ..................... 585,920 11.650850 6,826,466 17%(a)
Fidelity VIP-II - Asset Manager:
Growth Portfolio:
Tax qualified ......................... 236,306 11.940378 2,821,583 19%(a)
Non-tax qualified ..................... 412,776 11.940378 4,928,701 19%(a)
Fidelity VIP-II - Contrafund Portfolio:
Tax qualified ......................... 1,484,705 11.732706 17,419,607 17%(a)
Non-tax qualified ..................... 2,614,941 11.732706 30,680,334 17%(a)
Fidelity VIP-II - Index 500 Portfolio:
Tax qualified ......................... 687,172 12.494291 8,585,727 25%(a)
Non-tax qualified ..................... 1,471,434 12.494291 18,384,525 25%(a)
Fidelity VIP-II - Investment Grade
Bond Portfolio:
Tax qualified ......................... 881,781 10.817010 9,538,234 8%
Non-tax qualified ..................... 1,572,576 10.817010 17,010,570 8%
Fidelity VIP-III - Balanced Portfolio:
Tax qualified ......................... 2,672,535 14.675543 39,220,902 20%
Non-tax qualified ..................... 6,127,776 14.675543 89,928,440 20%
Fidelity VIP-III - Growth and
Income Portfolio:
Tax qualified ......................... 641,220 12.350709 7,919,522 24%(a)
Non-tax qualified ..................... 1,370,152 12.350709 16,922,349 24%(a)
Fidelity VIP-III - Growth Opportunities
Portfolio:
Tax qualified ......................... 8,514,753 19.527096 166,268,399 28%
Non-tax qualified ..................... 20,154,563 19.527096 393,560,087 28%
</TABLE>
<PAGE> 13
FIDELITY ADVISOR ANNUITY SELECT (RIDER OPTION 1):
<TABLE>
<S> <C> <C> <C> <C>
Fidelity VIP - Equity-Income Portfolio:
Tax qualified ......................... 1,233 10.334399 12,742 3%(a)
Non-tax qualified ..................... 9,973 10.334399 103,065 3%(a)
Fidelity VIP - Growth Portfolio:
Tax qualified ......................... 1,555 10.025497 15,590 0%(a)
Non-tax qualified ..................... 19,167 10.025497 192,159 0%(a)
Fidelity VIP - High Income Portfolio:
Tax qualified ......................... 1,197 10.125956 12,121 1%(a)
Non-tax qualified ..................... 6,913 10.125956 70,001 1%(a)
Fidelity VIP - Money Market Portfolio:
Non-tax qualified ..................... 10,276 10.066783 103,446 1%(a)
Fidelity VIP - Overseas Portfolio:
Tax qualified ......................... 63 9.894400 623 (1)%(a)
Non-tax qualified ..................... 12,510 9.894400 123,779 (1)%(a)
Fidelity VIP-II - Asset Manager Portfolio:
Non-tax qualified ..................... 9,263 10.209261 94,568 2%(a)
Fidelity VIP-II - Asset Manager
Growth Portfolio:
Non-tax qualified ..................... 3,686 10.239737 37,744 2%(a)
Fidelity VIP-II - Contrafund Portfolio:
Tax qualified ......................... 913 9.951886 9,086 0%(a)
Non-tax qualified ..................... 9,371 9.951886 93,259 0%(a)
Fidelity VIP-II - Index 500 Portfolio:
Tax qualified ......................... 61 10.330898 630 3%(a)
Non-tax qualified ..................... 3,644 10.330898 37,646 3%(a)
Fidelity VIP-III - Balanced Portfolio:
Non-tax qualified ..................... 8,383 10.272783 86,117 3%(a)
Fidelity VIP-III - Growth and
Income Portfolio:
Non-tax qualified ..................... 6,119 10.404380 63,664 4%(a)
Fidelity VIP-III - Growth Opportunities
Portfolio:
Tax qualified ......................... 2,407 10.392122 25,014 4%(a)
Non-tax qualified ..................... 37,507 10.392122 389,777 4%(a)
</TABLE>
(Continued)
<PAGE> 14
FIDELITY ADVISOR ANNUITY SELECT (RIDER OPTION 2):
<TABLE>
<S> <C> <C> <C> <C>
Fidelity VIP - Equity-Income Portfolio:
Tax qualified ...................... 2,158 10.333567 22,300 3%(a)
Non-tax qualified .................. 2,704 10.333567 27,942 3%(a)
Fidelity VIP - Growth Portfolio:
Tax qualified ...................... 1,085 10.024687 10,877 0%(a)
Non-tax qualified .................. 1,393 10.024687 13,964 0%(a)
Fidelity VIP - High Income Portfolio:
Tax qualified ...................... 2,387 10.125138 24,169 1%(a)
Non-tax qualified .................. 4,150 10.125138 42,019 1%(a)
Fidelity VIP - Overseas Portfolio:
Tax qualified ...................... 400 9.893604 3,957 (1)%(a)
Non-tax qualified .................. 3,338 9.893604 33,025 (1)%(a)
Fidelity VIP-II - Asset Manager:
Growth Portfolio:
Non-tax qualified .................. 1,231 10.238907 12,604 2%(a)
Fidelity VIP-II - Contrafund Portfolio:
Tax qualified ...................... 1,148 9.951081 11,424 0%(a)
Non-tax qualified .................. 3,555 9.951081 35,376 0%(a)
Fidelity VIP-II - Index 500 Portfolio:
Tax qualified ...................... 386 10.330070 3,987 3%(a)
Non-tax qualified .................. 1,382 10.330070 14,276 3%(a)
Fidelity VIP-II - Investment Grade
Bond Portfolio:
Tax qualified ...................... 1,718 10.145651 17,430 1%(a)
Non-tax qualified .................. 2,680 10.145651 27,190 1%(a)
Fidelity VIP-III - Balanced Portfolio:
Non-tax qualified .................. 1,363 10.271954 14,001 3%(a)
Fidelity VIP-III - Growth and
Income Portfolio:
Non-tax qualified .................. 3,430 10.403545 35,684 4%(a)
Fidelity VIP-III - Growth Opportunities
Portfolio:
Tax qualified ...................... 1,056 10.391285 10,973 4%(a)
Non-tax qualified .................. 7,724 10.391285 80,262 4%(a)
======= =========
Reserves for annuity contracts
in payout phase:
Tax qualified 43,957
---------------
$ 1,238,508,090
===============
</TABLE>
(a) This investment option was not being utilized for the entire period.
<PAGE> 48
<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>
<PAGE> 49
PART C. OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS PAGE
(a) Financial Statements:
(1) Financial statements included
in Prospectus
(Part A):
Condensed Financial Information. N/A
(2) Financial statements included in Part B:
Those financial statements required by Item 23
to be included in Part B have been incorporated
therein by reference to the Prospectus (Part A). 47
Nationwide Fidelity Advisor Variable Account:
Independent Auditors' Report. 47
Statement of Assets, Liabilities and Contract 48
Owners' Equity as of December 31, 1997.
Statements of Operations and Changes in Contract 49
Owners' Equity for Years ended December 31,
1997 and 1996.
Notes to Financial Statements. 54
Nationwide Life Insurance Company:
Independent Auditors' Report. 61
Consolidated Balance Sheets as of December 31, 62
1997 and 1996.
Consolidated Statements of Income for the 63
years ended December 31, 1997, 1996 and 1995.
Consolidated Statements of Shareholder's 64
Equity for the years ended December 31,
1997, 1996 and 1995.
Consolidated Statements of Cash Flows for 65
the years ended December 31, 1997, 1996 and 1995.
Notes to Consolidated Financial Statements. 66
Schedule I - Consolidated Summary of Investments Other
Than Investments in Related Parties. 103
Schedule III - Supplementary Insurance Information. 104
Schedule IV - Reinsurance. 105
Schedule V - Valuation and Qualifying Accounts. 106
85 of 107
<PAGE> 50
Item 24. (b) Exhibits
(1) Resolution of Depositor's Board of Directors authorizing
the establishment of the Registrant. - Filed previously
with the Registration Statement (File No. 33-82174) on
November 8, 1994, and hereby incorporated by reference.
(2) Not Applicable
(3) Form of the Underwriting or Distribution contracts between
the Registrant and the Principal Underwriter. - Filed
previously with the Registration Statement (File No.
33-82174) on November 8, 1994, and hereby incorporated by
reference.
(4) The form of the variable annuity contract. - Filed
previously with Registration Statement (File No. 33-89560)
on October 31, 1997, and hereby incorporated by reference.
(5) The variable annuity application. - Filed previously with
Registration Statement (File No. 33-89560) on October 31,
1997, and hereby incorporated by reference.
(6) Articles of Incorporation of the Depositor. - Filed
previously with the Registration Statement (File No.
33-82174) on November 8, 1994, and hereby incorporated by
reference.
(7) Not Applicable
(8) Not Applicable
(9) Opinion of Counsel - Filed previously with the Registration
Statement (File No. 33-89560) and is hereby incorporated by
reference.
(10) Not Applicable
(11) Not Applicable
(12) Not Applicable
(13) Computation of Performance Quotations - Filed previously
with the Registration Statement (File No. 33-82174) on
November 8, 1994, and hereby incorporated by reference.
86 of 107
<PAGE> 51
Item 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS WITH DEPOSITOR
<S> <C>
Lewis J. Alphin Director
519 Bethel Church Road
Mount Olive, NC 28365
A. I. Bell Director
4121 North River Road West
Zanesville, OH 43701
Keith W. Eckel Director
1647 Falls Road
Clarks Summit, PA 18411
Willard J. Engel Director
300 East Marshall Street
Marshall, MN 56258
Fred C. Finney Director
1558 West Moreland Road
Wooster, OH 44691
Charles L. Fuellgraf, Jr. Director
600 South Washington Street
Butler, PA 16001
Joseph J. Gasper President and Chief Operating Officer
One Nationwide Plaza and Director
Columbus, OH 43215
Dimon R. McFerson Chairman and Chief Executive Officer-
One Nationwide Plaza Nationwide Insurance Enterprise
Columbus, OH 43215 and Director
David O. Miller Chairman of the Board and Director
115 Sprague Drive
Hebron, OH 43025
Yvonne L. Montgomery Director
2859 Paces Ferry Road
Atlanta, GA 30339
C. Ray Noecker Director
2770 Winchester Southern S.
Ashville, OH 43103
James F. Patterson Director
8765 Mulberry Road
Chesterland, OH 44026
</TABLE>
87 of 107
<PAGE> 52
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS WITH DEPOSITOR
<S> <C>
Arden L. Shisler Director
1356 North Wenger Road
Dalton, OH 44618
Robert L. Stewart Director
88740 Fairview Road
Jewett, OH 43986
Nancy C. Thomas Director
10835 Georgetown Street NE
Louisville, OH 44641
Harold W. Weihl Director
14282 King Road
Bowling Green, OH 43402
Dennis W. Click Vice President and Secretary
One Nationwide Plaza
Columbus, OH 43215
Robert A. Oakley Executive Vice President-
One Nationwide Plaza Chief Financial Officer
Columbus, OH 43215
Robert J. Woodward Jr. Executive Vice President
One Nationwide Plaza Chief Investment Officer
Columbus, OH 43215
W. Sidney Druen Senior Vice President and General
One Nationwide Plaza Counsel and Assistant Secretary
Columbus, OH 43215
Harvey S. Galloway, Jr. Senior Vice President-Chief Actuary-
One Nationwide Plaza Life, Health and Annuities
Columbus, OH 43215
Richard A. Karas Senior Vice President - Sales -
One Nationwide Plaza Financial Services
Columbus, OH 43215
Susan A. Wolken Senior Vice President - Life
One Nationwide Plaza Company Operations
Columbus, OH 43215
Michael D. Bleiweiss Vice President-
One Nationwide Plaza Individual Annuity Operations
Columbus, OH 43215
</TABLE>
88 of 107
<PAGE> 53
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS WITH DEPOSITOR
<S> <C>
Matthew S. Easley Vice President -
One Nationwide Plaza Life Marketing and Administrative Services
Columbus, OH 43215
Timothy E. Murphy Vice President-
One Nationwide Plaza Strategic Marketing
Columbus, Ohio 43215
R. Dennis Noice Vice President-
One Nationwide Plaza Retail Operations
Columbus, OH 43215
Joseph P. Rath
One Nationwide Plaza Vice President
Columbus, OH 43215
</TABLE>
Item 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR
OR REGISTRANT.
* Subsidiaries for which separate financial statements are filed
** Subsidiaries included in the respective consolidated financial
statements
*** Subsidiaries included in the respective group financial
statements filed for unconsolidated subsidiaries
89 of 107
<PAGE> 54
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
STATE (SEE ATTACHED
OF ORGANIZATION CHART) UNLESS
COMPANY OTHERWISE PRINCIPAL BUSINESS
INDICATED
<S> <C> <C> <C>
Affiliate Agency, Inc. Delaware Life Insurance Agency
Affiliate Agency of Ohio, Inc. Ohio Life Insurance Agency
Allnations, Inc. Ohio Promotes cooperative insurance corporations
worldwide
American Marine Underwriters, Inc. Florida Underwriting Manager
Auto Direkt Insurance Company Germany Insurance Company
The Beak and Wire Corporation Ohio Radio Tower Joint Venture
California Cash Management Company California Inactive
Colonial County Mutual Insurance Texas Insurance Company
Company
Colonial Insurance Company of Wisconsin Insurance Company
Wisconsin
Columbus Insurance Brokerage and Germany Insurance Broker
Service GMBH
Companies Agency, Inc. Wisconsin Insurance Broker
Companies Agency Insurance Services California Insurance Broker
of California
Companies Agency of Alabama, Inc. Alabama Insurance Broker
Companies Agency of Georgia, Inc. Georgia Insurance Broker
Companies Agency of Idaho, Inc. Idaho Insurance Broker
Companies Agency of Kentucky, Inc. Kentucky Insurance Broker
Companies Agency of Massachusetts, Massachusetts Insurance Broker
Inc.
Companies Agency of New York, Inc. New York Insurance Broker
Companies Agency of Pennsylvania, Inc. Pennsylvania Insurance Broker
Companies Agency of Phoenix, Inc. Arizona Insurance Broker
Companies Agency of Texas, Inc. Texas Local Recording Agent (P&C)
Companies Annuity Agency of Texas, Texas Group and Variable Contract Agent
Inc.
Cooperative Service Company Nebraska Insurance Agency
Countrywide Services Corporation Delaware Products Liability, Investigative and Claims
Management Services
EMPLOYERS INSURANCE OF WAUSAU A Wisconsin Mutual Insurance Company
Mutual Company
</TABLE>
90 of 107
<PAGE> 55
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
STATE (SEE ATTACHED
OF ORGANIZATION CHART) UNLESS
COMPANY OTHERWISE PRINCIPAL BUSINESS
INDICATED
<S> <C> <C> <C>
** Employers Life Insurance Company of Wisconsin Life Insurance Company
Wausau
F & B, Inc. Iowa Insurance Agency
Farmland Mutual Insurance Company Iowa Mutual Insurance Company
Financial Horizons Distributors Alabama Life Insurance Agency
Agency of Alabama, Inc.
Financial Horizons Distributors Ohio Life Insurance Agency
Agency of Ohio, Inc.
Financial Horizons Distributors Oklahoma Life Insurance Agency
Agency of Oklahoma, Inc.
Financial Horizons Distributors Texas Life Insurance Agency
Agency of Texas, Inc.
* Financial Horizons Investment Trust Massachusetts Investment Company
Financial Horizons Securities Oklahoma Broker Dealer
Corporation
Gates, McDonald & Company Ohio Cost Control Business
Gates, McDonald & Company of Nevada Nevada Self-Insurance Administration Claims
Examinations and Data Processing Services
Gates, McDonald & Company of New New York Workers Compensation Claims Administration
York, Inc.
Gates McDonald Health Plus, Inc. Ohio Managed Care Organization
Greater La Crosse Health Plans, Inc. Wisconsin Commercial Health and Medicare Supplement
Insurance
Insurance Intermediaries, Inc. Ohio Insurance Broker and Insurance Agency
Irvin L. Schwartz and Associates, Inc. Ohio Insurance Agency
Key Health Plan, Inc. California Pre-paid Health Plans
Landmark Financial Services of New York Life Insurance Agency
New York, Inc.
Leben Direkt Insurance Company Germany Life Insurance Company
Lone Star General Agency, Inc. Texas Insurance Agency
** MRM Investments, Inc. Ohio Owns and Operates a Recreational Ski Facility
** National Casualty Company Wisconsin Insurance Company
National Casualty Company of America, Great Britain Insurance Company
Ltd.
** National Premium and Benefit Delaware Insurance Administrative Services
Administration Company
** Nationwide Advisory Services, Inc. Ohio Registered Broker-Dealer, Investment Manager
and Administrator
</TABLE>
91 of 107
<PAGE> 56
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
STATE (SEE ATTACHED
OF ORGANIZATION CHART) UNLESS
COMPANY OTHERWISE PRINCIPAL BUSINESS
INDICATED
<S> <C> <C> <C>
Nationwide Agency, Inc. Ohio Insurance Agency
Nationwide Agribusiness Insurance Iowa Insurance Company
Company
Nationwide Asset Allocation Trust Massachusetts Investment Company
Nationwide Cash Management Company Ohio Investment Securities Agent
Nationwide Community Urban Ohio Redevelopment of blighted areas within the
Redevelopment Corporation City of Columbus, Ohio
Nationwide Corporation Ohio Organized for the purpose of acquiring,
holding, encumbering, transferring, or
otherwise disposing of shares, bonds,
and other evidences of indebtedness,
securities, and contracts of other persons,
associations, corporations, domestic or
foreign and to form or acquire the control
of other corporations
Nationwide/Dispatch LLC Ohio Engaged in related Arena development Activity
Nationwide Financial Institution Delaware Insurance Agency
Distributors Agency, Inc.
Nationwide Financial Services Capital Delaware Statutory Business Trust
Trust
Nationwide Financial Services, Inc. Delaware Organized for the purpose of acquiring,
holding, encumbering, transferring, or
otherwise disposing of shares, bonds,
and other evidences of indebtedness,
securities, and contracts of other persons,
associations, corporations, domestic or
foreign and to form or acquire the control
of other corporations
Nationwide General Insurance Company Ohio Insurance Company
Nationwide Global Holdings, Inc. Ohio Holding Company for Enterprise International
Operations
Nationwide Health Plans, Inc. Ohio Health Maintenance Organization
* Nationwide Indemnity Company Ohio Reinsurance Company
Nationwide Insurance Enterprise Ohio Membership Non-Profit Corporation
Foundation
Nationwide Insurance Enterprise Ohio Performs shares services functions for the
Services, Ltd. Enterprise
Nationwide Insurance Golf Charities, Ohio Membership Non-Profit Corporation
Inc.
Nationwide Investing Foundation Michigan Investment Company
* Nationwide Investing Massachusetts Investment Company
Foundation II
Nationwide Investing Foundation III Ohio Investment Company
</TABLE>
92 of 107
<PAGE> 57
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
STATE (SEE ATTACHED
OF ORGANIZATION CHART) UNLESS
COMPANY OTHERWISE PRINCIPAL BUSINESS
INDICATED
<S> <C> <C> <C>
Nationwide Investment Services Oklahoma Registered Broker-Dealer in Deferred
Corporation Compensation Market
Nationwide Investors Services, Inc. Ohio Stock Transfer Agent
** Nationwide Life and Annuity Insurance Ohio Life Insurance Company
Company
** Nationwide Life Insurance Company Ohio Life Insurance Company
Nationwide Lloyds Texas Texas Lloyds Company
Nationwide Management Systems, Inc. Ohio Offers Preferred Provider Organization and
Other Related Products and Services
Nationwide Mutual Fire Insurance Ohio Mutual Insurance Company
Company
Nationwide Mutual Insurance Company Ohio Mutual Insurance Company
Nationwide Properties, Ltd. Ohio Develops, owns and operates real estate and
real estate investments
Nationwide Property and Casualty Ohio Insurance Company
Insurance Company
Nationwide Realty Investors, Ltd. Ohio Develops, owns and operates real estate and
real estate investments
* Nationwide Separate Account Trust Massachusetts Investment Company
NEA Valuebuilder Investor Services, Delaware Life Insurance Agency
Inc.
NEA Valuebuilder Investor Services of Alabama Life Insurance Agency
Alabama, Inc.
NEA Valuebuilder Investor Services of Arizona Life Insurance Agency
Arizona, Inc.
NEA Valuebuilder Investor Services of Montana Life Insurance Agency
Montana, Inc.
NEA Valuebuilder Investor Services of Nevada Life Insurance Agency
Nevada, Inc.
NEA Valuebuilder Investor Services of Ohio Life Insurance Agency
Ohio, Inc.
NEA Valuebuilder Investor Services of Oklahoma Life Insurance Agency
Oklahoma, Inc.
NEA Valuebuilder Investor Services of Texas Life Insurance Agency
Texas, Inc.
NEA Valuebuilder Investor Services of Wyoming Life Insurance Agency
Wyoming, Inc.
NEA Valuebuilder Services Insurance Massachusetts Life Insurance Agency
Agency, Inc.
Neckura General Insurance Company Germany Insurance Company
Neckura Holding Company Germany Administrative Service for Neckura Insurance
Group
Neckura Insurance Company Germany Insurance Company
Neckura Life Insurance Company Germany Life Insurance Company
</TABLE>
93 of 107
<PAGE> 58
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
STATE (SEE ATTACHED
OF ORGANIZATION CHART) UNLESS
COMPANY OTHERWISE PRINCIPAL BUSINESS
INDICATED
<S> <C> <C> <C>
NWE, Inc. Ohio Special Investments
PEBSCO of Massachusetts Insurance Massachusetts Markets and Administers Deferred Compensation
Agency, Inc. Plans for Public Employees
PEBSCO of Texas, Inc. Texas Markets and Administers Deferred Compensation
Plans for Public Employees
Pension Associates of Wausau, Inc. Wisconsin Pension plan administration, record keeping
and consulting and compensation consulting
Physicians Plus Insurance Corporation Wisconsin Health Maintenance Organization
Prevea Health Insurance Plan, Inc. Wisconsin Health Maintenance Organization
Public Employees Benefit Services Delaware Markets and Administers Deferred Compensation
Corporation Plans for Public Employees
Public Employees Benefit Services Alabama Markets and Administers Deferred Compensation
Corporation of Alabama Plans for Public Employees
Public Employees Benefit Services Arkansas Markets and Administers Deferred Compensation
Corporation of Arkansas Plans for Public Employees
Public Employees Benefit Services Montana Markets and Administers Deferred Compensation
Corporation of Montana Plans for Public Employees
Public Employees Benefit Services New Mexico Markets and Administers Deferred Compensation
Corporation of New Mexico Plans for Public Employees
Scottsdale Indemnity Company Ohio Insurance Company
Scottsdale Insurance Company Ohio Insurance Company
Scottsdale Surplus Lines Insurance Arizona Excess and Surplus Lines Insurance Company
Company
SVM Sales GmbH, Neckura Insurance Germany Sales support for Neckura Insurance Group
Group
TIG Countrywide Insurance Group California Independent Agency Personal Lines Underwriter
Wausau (Bermuda) Ltd. Bermuda Rent-a-captive Reinsurer
Wausau Business Insurance Company Wisconsin Insurance Company
Wausau General Insurance Company Illinois Insurance Company
Wausau Insurance Company (U.K.) United Kingdom Insurance and Reinsurance Company
Limited
Wausau International Underwriters California Special Risks, Excess and Surplus Lines
Insurance Underwriting Manager
** Wausau Preferred Health Insurance Wisconsin Insurance and Reinsurance Company
Company
Wausau Service Corporation Wisconsin Holding Company
Wausau Underwriters Insurance Company Wisconsin Insurance Company
</TABLE>
94 of 107
<PAGE> 59
<TABLE>
<CAPTION>
NO. VOTING SECURITIES
(SEE ATTACHED CHART) UNLESS
STATE OTHERWISE INDICATED
OF ORGANIZATION
COMPANY PRINCIPAL BUSINESS
<S> <C> <C> <C>
* MFS Variable Account Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* NACo Variable Account Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide DC Variable Account Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
Nationwide DCVA II Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Separate Account No. 1 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Multi-Flex Variable Account Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide VA Separate Account-A Ohio Nationwide Life and Annuity Issuer of Annuity Contracts
Separate Account
* Nationwide VA Separate Account-B Ohio Nationwide Life and Annuity Issuer of Annuity Contracts
Separate Account
* Nationwide VA Separate Account-C Ohio Nationwide Life and Annuity Issuer of Annuity Contracts
Separate Account
Nationwide VA Separate Account-Q Ohio Nationwide Life and Annuity Issuer of Annuity Contracts
Separate Account
* Nationwide Variable Account Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Variable Account-II Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Variable Account-3 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Variable Account-4 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Variable Account-5 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Fidelity Advisor Variable Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account Account
* Nationwide Variable Account-6 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Variable Account-8 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Variable Account-9 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide VL Separate Ohio Nationwide Life and Annuity Issuer of Life Insurance Policies
Account-A Separate Account
Nationwide VL Separate Ohio Nationwide Life and Annuity Issuer of Life Insurance Policies
Account-B Separate Account
</TABLE>
95 of 107
<PAGE> 60
<TABLE>
<S> <C> <C> <C>
Nationwide VL Separate Ohio Nationwide Life and Annuity Issuer of Life Insurance Policies
Account-C Separate Account
* Nationwide VLI Separate Account Ohio Nationwide Life Separate Issuer of Life Insurance Policies
Account
* Nationwide VLI Separate Account-2 Ohio Nationwide Life Separate Issuer of Life Insurance Policies
Account
* Nationwide VLI Separate Account-3 Ohio Nationwide Life Separate Issuer of Life Insurance Policies
Account
Nationwide VLI Separate Account-4 Ohio Nationwide Life Separate Issuer of Life Insurance Policies
Account
</TABLE>
96 of 107
<PAGE> 61
<TABLE>
<CAPTION>
(left side)
<S> <C> <C> <C>
- ------------------------
| NATIONWIDE INSURANCE |
| GOLF CHARITIES, INC. |
| |
| MEMBERSHIP |
| NONPROFIT |
| CORPORATION |
- ------------------------
------------------------------------------
| EMPLOYERS INSURANCE OF WAUSAU |
| A MUTUAL COMPANY |
| (EMPLOYERS) |
| |========================================
| Contribution Note Cost |
| ----------------- ---- |
| Casualty $400,000,000 |
------------------------------------------
|
-----------------------------------------------------------------------
| | |
- --------------------------- --------------------------- ---------------------------- ---------------------------
| KEY HEALTH PLAN, INC. | | WAUSAU INSURANCE CO. | | WAUSAU SERVICE | | |
| | | (U.K.) LIMITED | | CORPORATION (WSC) | | NATIONWIDE LLOYDS |
|Common Stock: 1,000 | |Common Stock: 8,506,800 | |Common Stock: 1,000 Shares| | |
|------------ Shares | |------------ Shares | |------------ | | |
| | | | | |=========| |
| Cost | | Cost | | Cost | || | A TEXAS LLOYDS |
| ---- | | ---- | | ---- | || | |
|Employers- | |Employers- | |Employers- | || | |
| 80% $1,828,478 | |100% $18,683,300| |100% $176,763,000| || | |
- --------------------------- --------------------------- ---------------------------- || ---------------------------
| ||
--------------------------------------------------------------------- ||
| | | ||
- --------------------------- | --------------------------- | ---------------------------- | || ---------------------------
| WAUSAU BUSINESS | | | COMPANIES AGENCY | | | COUNTRYWIDE SERVICES | | || | |
| INSURANCE COMPANY | | | OF KENTUCKY, INC. | | | CORPORATION | | || | |
|Common Stock: 10,900,000 | | |Common Stock: 1,000 | | |Common Stock: 100 Shares | | || | COMPANIES |
|------------ Shares | | |------------ Shares | | |------------ | | || | AGENCY OF |
| |---|---| | |---| | | ||==| TEXAS, INC. |
| Cost | | | Cost | | | Cost | | || | |
| ---- | | | ---- | | | ---- | | || | |
|WSC-100% $33,800,000| | |WSC-100% $1,000 | | |WSC-100% $145,852 | | || | |
- --------------------------- | --------------------------- | ---------------------------- | || ---------------------------
| | | ||
- --------------------------- | --------------------------- | ---------------------------- | || ---------------------------
| WAUSAU UNDERWRITERS | | | COMPANIES AGENCY | | | WAUSAU GENERAL | | || | |
| INSURANCE COMPANY | | | OF MASSACHUSETTS, INC. | | | INSURANCE COMPANY | | || | |
|Common Stock: 8,750 | | |Common Stock: 1,000 | | |Common Stock: 200,000 | | || | COMPANIES ANNUITY |
|------------ Shares | | |------------ Shares | | |------------ Shares | | || | AGENCY OF |
| |---|---| | |---| | | ====| TEXAS, INC. |
| Cost | | | Cost | | | Cost | | | |
| ---- | | | ---- | | | ---- | | | |
|WSC-100% $69,560,006| | |WSC-100% $1,000 | | |WSC-100% $39,000,000 | | | |
- --------------------------- | --------------------------- | ---------------------------- | ---------------------------
| | |
- --------------------------- | --------------------------- | ---------------------------- | ---------------------------
| GREATER LA CROSSE | | | COMPANIES AGENCY | | | WAUSAU INTERNATIONAL | | | AMERICAN MARINE |
| HEALTH PLANS, INC. | | | OF NEW YORK, INC. | | | UNDERWRITERS | | | UNDERWRITERS, INC. |
|Common Stock: 3,000 | | |Common Stock: 1,000 | | |Common Stock: 1,000 | | |Common Stock: 20 |
|------------ Shares | | |------------ Shares | | |------------ Shares | | |------------ Shares |
| |---|---| | |---| | |------| |
| Cost | | | Cost | | | Cost | | | Cost |
| ---- | | | ---- | | | ---- | | | ---- |
|WSC-33.3% $1,461,761 | | |WSC-100% $1,000 | | |WSC-100% $10,000 | | |WSC-100% $248,222 |
- --------------------------- | --------------------------- | ---------------------------- | ---------------------------
| | |
- --------------------------- | --------------------------- | ---------------------------- | ---------------------------
| COMPANIES AGENCY | | | COMPANIES AGENCY | | | COMPANIES AGENCY | | | COMPANIES |
| OF ALABAMA, INC. | | | OF PENNSYLVANIA, INC. | | | INSURANCE SERVICES | | | AGENCY, INC. |
| | | | | | | OF CALIFORNIA | | | |
|Common Stock: 1,000 | | |Common Stock: 1,000 | | |Common Stock: 1,000 | | |Common Stock: 100 |
|------------ Shares | | |------------ Shares | |---|------------ Shares | |------|------------ Shares |
| |---|---| | | | | | |
| Cost | | | Cost | | | Cost | | Cost |
| ---- | | | ---- | | | ---- | | ---- |
|WSC-100% $100 | | |WSC-100% $100 | | |WSC-100% $1,000 | |WSC-100% $10,000 |
- --------------------------- | --------------------------- | ---------------------------- ---------------------------
| | |
- --------------------------- | --------------------------- | ---------------------------- ---------------------------
| COMPANIES AGENCY | | | COMPANIES AGENCY | | | PHYSICIANS PLUS | | PENSION ASSOCIATES |
| OF IDAHO, INC. | | | OF PHOENIX, INC. | | | INSURANCE | | OF WAUSAU, INC. |
| | | | | | | CORPORATION | |Common Stock: 1,000 |
|Common Stock: 1,000 | | |Common Stock: 1,000 | | |Common Stock: 7,150 | |------------ Shares |
|------------ Shares | | |------------ Shares | | |------------ Shares | | |
| |-------| | |---|Preferred Stock: 11,540 | | |
| | | | | | |--------------- Shares | |Companies Cost |
| | | | | | | | |Agency, Inc. ---- |
| Cost | | | Cost | | | Cost | |(Wisconsin)-100% $10,000 |
| ---- | | | ---- | | | ---- | | |
|WSC-100% $1,000 | | |WSC-100% $1,000 | | |WSC-33-1/3% $6,215,459| | |
- --------------------------- | --------------------------- | ---------------------------- ---------------------------
| |
| --------------------------- | ----------------------------
| | WAUSAU | | | PREVEA HEALTH |
| | (BERMUDA) LTD. | | | INSURANCE PLAN, INC. |
| | Common Stock: 120,000 | | |Common Stock: 3,000 Shares|
| | ------------- Shares | | |------------ |
----| | ----| |
| | | |
| Cost | | Cost |
| ---- | | ---- |
| WSC-100% $5,000,000| |WSC-33-1/3% $500,000 |
--------------------------- ----------------------------
</TABLE>
<PAGE> 62
<TABLE>
<CAPTION>
NATIONWIDE INSURANCE ENTERPRISE(R) (middle)
<S> <C> <C>
-----------------------------------------------------------------------------
| |
| |
| NATIONWIDE MUTUAL |
=======| INSURANCE COMPANY |================================================
| (CASUALTY) |
| |
| |
-----------------------------------------------------------------------------
| || |
| || -------------------------------------------------------------
| || ---------------------------------------------------------------------------------------
| || | |
- -------------------------------- || | -------------------------------- --------------------------------
| ALLNATIONS, INC. | || | | NATIONWIDE GENERAL | | NECKURA HOLDING |
|Common Stock: 10,330 Shares | || | | INSURANCE COMPANY | | COMPANY (NECKURA) |
|------------ | || | | | | |
| Cost | || | |Common Stock: 20,000 | |Common Stock: 10,000 |
| ---- | || | |------------ Shares | |------------ Shares |
|Casualty-18.6% $88,320 | || | | Cost | | Cost |
|Fire-18.6% $88,463 | || | | ---- | | ---- |
|Preferred Stock: 1,466 Shares | || |----|Casualty-100% $5,944,422 | ---------|Casualty-100% $87,943,140 |
|--------------- | || | | | | | |
| Cost | || | | | | | |
| ---- | || | | | | | |
|Casualty-6.8% $100,000 | || | | | | | |
|Fire-6.8% $100,000 | || | | | | | |
- -------------------------------- || | -------------------------------- | --------------------------------
|| | |
- -------------------------------- || | -------------------------------- | --------------------------------
| FARMLAND MUTUAL | || | | NATIONWIDE PROPERTY | | | NECKURA |
| INSURANCE COMPANY | || | | AND CASUALTY | | | INSURANCE COMPANY |
|Guaranty Fund | || | | INSURANCE COMPANY | | | |
|------------ |========= |----|Common Stock: 60,000 | |--------|Common Stock: 6,000 |
|Certificate |-------- | |------------ Shares | | |------------ Shares |
|----------- Cost | | | | Cost | | | Cost |
| ---- | | | | ---- | | |Neckura- ---- |
|Casualty $500,000 | | | |Casualty-100% $6,000,000 | | |100% DM 6,000,000 |
- -------------------------------- | | -------------------------------- | --------------------------------
| | | |
- -------------------------------- | | -------------------------------- | --------------------------------
| F & B, INC. | | | | COLONIAL INSURANCE | | | NECKURA LIFE |
| | | | | COMPANY OF WINCONSIN | | | INSURANCE COMPANY |
|Common Stock: 1 Share | | | | (COLONIAL) | | | |
|------------ | ------| |----|Common Stock: 1,750 | |--------|Common Stock: 4,000 |
| Cost | | | |------------ Shares | | |------------ Shares |
| ---- | | | | Cost | | | Cost |
|Farmland | | | | ---- | | | ---- |
|Mutual-100% $10 | | | |Casualty-100% $41,750,000 | | |Neckura-100% DM 15,825,681 |
- -------------------------------- | | -------------------------------- | --------------------------------
| | |
- -------------------------------- | | -------------------------------- | --------------------------------
| COOPERATIVE SERVICE | | | | SCOTTSDALE | | | NECKURA GENERAL |
| COMPANY | | | | INSURANCE COMPANY | | | INSURANCE COMPANY |
|Common Stock: 600 Shares | | | | (SIC) | | | |
|------------ | | | |Common Stock: 30,136 | | |Common Stock: 1,500 |
| Cost |-------- |----|------------ Shares | ---- |--------|------------ Shares |
| ---- | | | Cost | | | | Cost |
|Farmland $3,506,173 | | | ---- | | | | ---- |
|Mutual-100% | | |Casualty-100% $150,000,000 | | | |Neckura-100% DM 1,656,925 |
| | | | | | | | |
| | | | | | | | |
- -------------------------------- | -------------------------------- | | --------------------------------
| | |
- -------------------------------- | -------------------------------- | | --------------------------------
| NATIONWIDE AGRIBUSINESS | | | SCOTTSDALE | | | | COLUMBUS INSURANCE |
| INSURANCE COMPANY | | | SURPLUS LINES | | | | BROKERAGE AND SERVICE |
|Common Stock: 1,000,000 | | | INSURANCE COMPANY | | | | GmbH |
|------------ Shares |------------ | | Common Stock: 100,000 | | | |Common Stock: 1 Share |
| | | | ------------ Shares | ---| |--------|------------ |
| Cost | | | | | | | Cost |
|Casualty-99.9% ---- | | | Cost | | | | ---- |
|Other Capital: $26,714,335 | | | ---- | | | |Neckura-100% DM 51,639 |
|------------- | | | SIC-100% $6,000,000 | | | | |
|Casualty-Ptd. $ 713,576 | | | | | | | |
- -------------------------------- | -------------------------------- | | --------------------------------
| | |
- -------------------------------- | -------------------------------- | | --------------------------------
| NATIONAL CASUALTY | | | NATIONAL PREMIUM & | | | | LEBEN DIREKT |
| COMPANY | | | BENEFIT ADMINISTRATION | | | | INSURANCE COMPANY |
| (NC) | | | COMPANY | | | | |
|Common Stock: 100 Shares | | |Common Stock: 10,000 | | | |Common Stock: 4,000 Shares |
|------------ |------------- |------------ Shares |----- ---------|------------ |
| Cost | | Cost | | | Cost |
| ---- | | ---- | | | ---- |
|Casualty-100% $67,442,439 | |Scottsdale-100% $10,000 | | |Neckura-100% DM 4,000,000 |
| | | | | | |
| | | | | | |
- -------------------------------- -------------------------------- | --------------------------------
| |
- -------------------------------- -------------------------------- | --------------------------------
| NCC OF AMERICA, LTD. | | SVM SALES | | | AUTO DIREKT |
| (INACTIVE) | | GmbH | | | INSURANCE COMPANY |
| | | | | | |
| | |Common Stock: 50 Shares | | |Common Stock: 1,500 Shares |
| | |------------ |----------------- |------------ |
| | | Cost | | Cost |
|NC-100% | | ---- | | ---- |
| | |Neckura-100% DM 50,000 | |Neckura-100% DM 1,643,149 |
| | | | | |
| | | | | |
- -------------------------------- -------------------------------- --------------------------------
</TABLE>
<PAGE> 63
<TABLE>
<CAPTION>
(right side)
<S> <C> <C> <C>
------------------------
| NATIONWIDE INSURANCE |
| ENTERPRISE FOUNDATION|
| |
| MEMBERSHIP |
| NONPROFIT |
| CORPORATION |
------------------------
-----------------------------------------------------------------------------
| |
| |
| NATIONWIDE MUTUAL |
=======| FIRE INSURANCE COMPANY |
| (FIRE) |
| |
| |
-----------------------------------------------------------------------------
|
- --------------- --------------------------------------------------
| |
- ----------------------------------------------------------------------------------------------------------------- |
| | | |
| -------------------------------- | -------------------------------- ----------------------------------
| | SCOTTSDALE | | | NATIONWIDE | | NATIONWIDE |
| | INDEMNITY COMPANY | | | COMMUNITY URBAN | | CORPORATION |
| | | | | REDEVELOPMENT | | |
| | | | | CORPORATION | |Common Stock: Control: |
| |Common Stock: 50,000 | | |Common Stock: 10 Shares | |------------ ------- |
|-----|------------ Shares | |----|------------ | |$13,642,432 100% |
| | Cost | | | Cost | | Shares Cost |
| | ---- | | | ---- | | ------ ---- |
| |Casualty-100% $8,800,000 | | |Casualty-100% $1,000 | |Casualty 12,992,922 $751,352,485|
| | | | | | |Fire 649,510 24,007,936|
| | | | | | | (See Page 2) |
| -------------------------------- | -------------------------------- ----------------------------------
| |
| -------------------------------- | --------------------------------
| | NATIONWIDE | | | INSURANCE |
| | INDEMNITY COMPANY | | | INTERMEDIARIES, INC. |
| | | | | |
|-----|Common Stock: 28,000 | |----|Common Stock: 1,615 |
| |------------ Shares | | |------------ Shares |
| | Cost | | | Cost |
| | ---- | | | ---- |
| |Casualty-100% $294,529,000 | | |Casualty-100% $1,615,000 |
| -------------------------------- | --------------------------------
| |
| -------------------------------- | --------------------------------
| | LONE STAR | | | NATIONWIDE CASH |
| | GENERAL AGENCY, INC. | | | MANAGEMENT COMPANY |
| | | | |Common Stock: 100 Shares |
------|Common Stock: 1,000 | |----|------------ |
| |------------ Shares | | | Cost |
| | Cost | | | ---- |
| | ---- | | |Casualty-90% $9,000 |
| |Casualty-100% $5,000,000 | | |NW Adv. Serv. 1,000 |
| -------------------------------- | --------------------------------
| || |
| -------------------------------- | --------------------------------
| | COLONIAL COUNTY MUTUAL | | | CALIFORNIA CASH |
| | INSURANCE COMPANY | | | MANAGEMENT |
| | | | | (Inactive) |
| |Surplus Debentures | | | |
| |------------------ | |----| |
| | Cost | | | |
| | ---- | | | |
| |Colonial $500,000 | | |Casualty-100% |
| |Lone Star 150,000 | | | |
| -------------------------------- | --------------------------------
| |
| -------------------------------- | --------------------------------
| | TIG COUNTRYWIDE | | | THE BEAK AND |
| | INSURANCE COMPANY | | | WIRE CORPORATION |
| |Common Stock 12,500 | | | |
-----|------------ Shares | | |Common Stock: 750 Shares |
| | | -----|------------ |
| | Cost | | | Cost |
| | ---- | | | ---- |
| |Casualty-100% $215,273,000 | | |Casualty-100% $1,419,000 |
| | | | | |
| -------------------------------- | | |
| | --------------------------------
| |
| -------------------------------- | --------------------------------
| | NATIONWIDE INSURANCE | | | NATIONWIDE/DISPATCH LLC |
| | ENTERPRISE SERVICES, LTD. | | | |
| | | | | |
| |Single Member Limited | | | |
- - - |Liability Company | - - -| |
| | | |
| | | |
|Casualty-100% | |Casualty-90% |
| | | |
-------------------------------- | |
--------------------------------
Subsidiary Companies -- Solid Line
Contractual Association -- Double Lines
Limited Liability Company -- Dotted Line
December 31, 1997
</TABLE>
<PAGE> 64
<TABLE>
<CAPTION>
(Left Side)
------------------------------------------------
| EMPLOYERS INSURANCE |
| OF WAUSAU |==========================================
| A MUTUAL COMPANY |
------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------
| | |
--------------------------- --------------------------- ---------------------------
| NATIONWIDE LIFE INSURANCE | | NATIONWIDE | | NATIONWIDE FINANCIAL |
| COMPANY (NW LIFE) | | FINANCIAL SERVICES | | INSTITUTION DISTRIBUTORS |
| | | CAPITAL TRUST | | AGENCY, INC. (NFIDAI) |
| Common Stock: 3,814,779 | | Preferred Stock: | | Common Stock: 1,000 |
| ------------ Shares | | --------------- | | ------------ Shares |
| | | | | |
| NFS--100% | | NFS--100% | | NFS--100% |
--------------------------- --------------------------- ---------------------------
| ||
--------------------------- | --------------------------- --------------------------- || --------------------------
| NATIONWIDE LIFE AND | | | NATIONWIDE | | FINANCIAL HORIZONS | || | |
| ANNUITY INSURANCE COMPANY | | | ADVISORY SERVICES, INC. | | DISTRIBUTORS AGENCY | || | |
| | | | (NW ADV. SERV.) | | OF ALABAMA, INC. | || | |
| Common Stock: 66,000 | | | Common Stock: 7,676 | | Common Stock: 10,000 | || | FINANCIAL HORIZONS |
| ------------ Shares |--|--| ------------ Shares |==|| | ------------ Shares |--||==| DISTRIBUTORS AGENCY |
| | | | | || | | || | OF OHIO, INC. |
| Cost | | | Cost | || | Cost | || | |
| ---- | | | ---- | || | ---- | || | |
| NW Life -100% $58,070,003 | | | NW Life -100% $5,996,261 | || | NFIDAI -100% $100 | || | |
--------------------------- | --------------------------- || --------------------------- || --------------------------
| || ||
--------------------------- | --------------------------- || --------------------------- || --------------------------
| NWE, INC. | | | NATIONWIDE | || | LANDMARK FINANCIAL | || | |
| | | | INVESTORS SERVICES, INC. | || | SERVICES OF | || | |
| | | | | || | NEW YORK, INC. | || | |
| Common Stock: 100 | | | Common Stock: 5 Shares | || | Common Stock: 10,000 | || | FINANCIAL HORIZONS |
| ------------ Shares |--| | ------------ |==|| | ------------ Shares |--||==| DISTRIBUTORS AGENCY |
| | | | | || | | || | OF OKLAHOMA, INC. |
| Cost | | | Cost | || | Cost | || | |
| ---- | | | ---- | || | ---- | || | |
| NW Life -100% $35,971,375 | | | NW Adv. Serv. -100% $5,000| || | NFIDAI -100% $10,100 | || | |
--------------------------- | --------------------------- || --------------------------- || --------------------------
| || ||
--------------------------- | --------------------------- || --------------------------- || --------------------------
| NATIONWIDE INVESTMENT | | | FINANCIAL HORIZONS | || | FINANCIAL HORIZONS | || | |
| SERVICES CORPORATION | | | INVESTMENT TRUST | || | SECURITIES CORP. | || | |
| | | | | || | | || | |
| Common Stock: 5,000 | | | | || | Common Stock: 10,000 | || | FINANCIAL HORIZONS |
| ------------ Shares |--| | |==|| | ------------ Shares |--||==| DISTRIBUTORS AGENCY |
| | | | | || | | || | OF TEXAS, INC. |
| Cost | | | | || | Cost | || | |
| ---- | | | | || | ---- | || | |
| NW Life -100% $529,728 | | | COMMON LAW TRUST | || | NFIDAI -100% $153,000 | || | |
--------------------------- | --------------------------- || --------------------------- || --------------------------
| || ||
--------------------------- | --------------------------- || --------------------------- || --------------------------
| NATIONWIDE REALTY | | | NATIONWIDE | || | AFFILIATE AGENCY, INC. | || | |
| PROPERTIES, LTD. | | | INVESTING | || | | || | |
| | | | FOUNDATION | || | | || | |
| Units: | | | | || | Common Stock: 100 | || | AFFILIATE |
| ------ - -| | |==|| | ------------ Shares |--||==| AGENCY OF |
| | | | | || | | | OHIO, INC. |
| | | | | || | Cost | | |
| NW Life -90% | | | | || | ---- | | |
| NW Mutual-10% | | | COMMON LAW TRUST | || | NFIDAI -100% $100 | | |
--------------------------- | --------------------------- || --------------------------- --------------------------
| ||
--------------------------- | --------------------------- ||
| NATIONWIDE | | | NATIONWIDE | ||
| PROPERTIES, LTD. | | | INVESTING | ||
| | | | FOUNDATION II | ||
| Units: - -| | | ||
| ------ | | |==||
| | | | ||
| | | | ||
| NW Life -97.6% | | | ||
| NW Mutual -2.4% | | COMMON LAW TRUST | ||
--------------------------- --------------------------- ||
||
--------------------------- ||
| NATIONWIDE | ||
| SEPARATE ACCOUNT | ||
| TRUST | ||
| | ||
| |__||
| |
| |
| |
| COMMON LAW TRUST |
---------------------------
</TABLE>
<PAGE> 65
<TABLE>
<CAPTION>
(Center)
NATIONWIDE INSURANCE ENTERPRISE (R)
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------
| NATIONWIDE MUTUAL |
========================================| INSURANCE COMPANY |==========================================
| (CASUALTY) |
------------------------------------------------
|
| ----------------------------------------------------------
| |
---------------------------------------
| NATIONWIDE CORPORATION (NW CORP) |
| Common Stock: Control |
| ------------ ------- |
| 13,642,432 100% |
| Shares Cost |
| ------ ---- |
| Casualty 12,992,922 $751,352,485 |
| Fire 649,510 24,007,936 |
---------------------------------------
|-----------------------------------------------------------------
--------------------------- |
| NATIONWIDE FINANCIAL | |
| SERVICES, INC. (NFS) | |
| | |
| Common Stock: Control | |
| ------------ ------- | |
| | |
| | |
| Class A Public--100% | |
| Class B NW Corp--100% | |
--------------------------- |
| |
---------------------------------------------------------------------- |
| | | |
--------------------------- --------------------------- --------------------------- | -------------------------
| IRVIN L. SCHWARTZ | | PUBLIC EMPLOYEES BENEFIT | | NEA VALUEBUILDER | | | NATIONWIDE GLOBAL |
| & ASSOCIATES | | SERVICES CORPORATION | | INVESTOR SERVICES, INC. | | | HOLDINGS, INC. |
| | | (PEBSCO) | | (NEA) | | | |
| Common Stock: Control | | Common Stock: 236,494 |==|| | Common Stock: 500 |= || | | Common Stock: 1 Share |
| ------------ ------- | | ------------ Shares | || | ------------ Shares | || |--| ------------ |
| | | | || | | || | | |
| | | | || | | || | | Cost |
| Class A Other -100% | | | || | | || | | ---- |
| Class B NFS -100% | | NFS -100% | || | NFS -100% | || | | NW Corp-100% $7,000,00 |
- ---------------------------- ---------------------------- || ---------------------------- || | --------------------------
--------------------------- || --------------------------- || |
| PEBSCO OF | || | NEA VALUEBUILDER | || | --------------------------
| ALABAMA | || | INVESTOR SERVICES | || | | MRM INVESTMENT, INC. |
| | || | OF ALABAMA, INC. | || | | |
| Common Stock: 100,000 | || | Common Stock: 500 | || | | |
| ------------ Shares |--|| | ------------ Shares |--|| __ | Common Stock: 1 Share |
| | || | | || | ----------- |
| Cost | || | Cost | || | |
| ---- | || | ---- | || | Cost |
| PEBSCO -100% $1,000 | || | NEA -100% $5,000 | || | ---- |
--------------------------- || --------------------------- || | NW Corp.-100% $7,000,000|
|| || --------------------------
--------------------------- || --------------------------- ||
| PEBSCO OF | || | NEA VALUEBUILDER | ||
| ARKANSAS | || | INVESTOR SERVICES | ||
| | || | OF ARIZONA, INC. | ||
| Common Stock: 50,000 | || | Common Stock: 100 | ||
| ------------ Shares |--|| | ------------ Shares |--||
| | || | | ||
| Cost | || | Cost | ||
| ---- | || | ---- | ||
| PEBSCO -100% $500 | || | NEA -100% $1,000 | ||
--------------------------- || --------------------------- ||
|| ||
--------------------------- || --------------------------- ||
| PEBSCO OF MASSACHUSETTS | || | NEA VALUEBUILDER | ||
| INSURANCE AGENCY, INC. | || | INVESTOR SERVICES | ||
| | || | OF MONTANA, INC. | ||
| Common Stock: 1,000 | || | Common Stock: 500 | ||
| ------------ Shares |--|| | ------------ Shares |--||
| | || | | ||
| Cost | || | Cost | ||
| ---- | || | ---- | ||
| PEBSCO -100% $1,000 | || | NEA -100% $500 | ||
--------------------------- || --------------------------- ||
|| ||
--------------------------- || --------------------------- || -------------------------
| PEBSCO OF | || | NEA VALUEBUILDER | || | NEA VALUEBUILDER |
| MONTANA | || | INVESTOR SERVICES | || | INVESTOR SERVICES |
| | || | OF NEVADA, INC. | || | OF OHIO, INC. |
| Common Stock: 500 | || | Common Stock: 500 | || | |
| ------------ Shares |--|| | ------------ Shares |--||====| |
| | || | | || | |
| Cost | || | Cost | || | |
| ---- | || | ---- | || | |
| PEBSCO -100% $500 | || | NEA -100% $500 | || | |
--------------------------- || --------------------------- || --------------------------
|| ||
--------------------------- || --------------------------- || -------------------------
| PEBSCO OF | || | NEA VALUEBUILDER | || | NEA VALUEBUILDER |
| NEW MEXICO | || | INVESTOR SERVICES | || | INVESTOR SERVICES |
| | || | OF WYOMING, INC. | || | OF OKLAHOMA, INC. |
| Common Stock: 1,000 | || | Common Stock: 500 | || | |
| ------------ Shares |--|| | ------------ Shares |--||====| |
| | || | | || | |
| Cost | || | Cost | || | |
| ---- | || | ---- | || | |
| PEBSCO -100% $1,000 | || | NEA -100% $500 | || | |
--------------------------- || --------------------------- || --------------------------
|| ||
--------------------------- || --------------------------- || --------------------------
| | || | NEA VALUEBUILDER | || | NEA VALUEBUILDER |
| | || | SERVICES INSURANCE | || | INVESTOR SERVICES |
| PEBSCO OF | || | AGENCY, INC. | || | OF TEXAS, INC. |
| TEXAS, INC. | || | Common Stock: 100 | || | |
| |==|| | ------------ Shares |--||=== | |
| | | | | |
| | | Cost | | |
| | | ---- | | |
| | | NEA -100% $1,000 | | |
--------------------------- --------------------------- --------------------------
</TABLE>
<PAGE> 66
<TABLE>
<CAPTION>
(Right)
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------
| NATIONWIDE MUTUAL |
========================================| FIRE INSURANCE COMPANY |
| (FIRE) |
------------------------------------------------
|
- -----------------------------------------------------------------|
- ----------------------------------------------------------------------------------------------
| | |
--------------------------- ------------------------------ ------------------------------
| GATES, MCDONALD | | EMPLOYERS LIFE INSURANCE | | NATIONWIDE |
| & COMPANY (GATES) | | OF WAUSAU (ELIOW) | | HEALTH PLANS, INC. (NHP) |
| | | | | |
| Common Stock: 254 | | Common Stock: 250,000 | | Common Stock: 100 |
|-- | ------------ Shares | |--| ------------ Shares | |--| ------------ Shares |
| | | | | | | | |
| | Cost | | | Cost | | | Cost |
| | ---- | | | ---- | | | ---- |
| | NW CORP. -100% $25,683,532 | | | NW CORP. -100% $126,509,480 | | | NW CORP. -100% $14,603,732 |
| ----------------------------- | ------------------------------ | ------------------------------
| | |
| --------------------------- | ------------------------------ | ------------------------------
| | GATES, MCDONALD & COMPANY | | | WAUSAU PREFERRED | | | NATIONWIDE MANAGEMENT |
| | OF NEW YORK, INC. | | | HEALTH INSURANCE CO. | | | SYSTEMS, INC. |
| | | | | | | | |
| | Common Stock: 3 | | | Common Stock: 200 | | | Common Stock: 100 |
|-- | ------------ Shares | |--| ------------ Shares | |--| ------------ Shares |
| | | | | | | |
| | Cost | | Cost | | | NHP Cost |
| | ---- | | ---- | | | ---- |
| | GATES -100% $106,947 | | ELIOW -100% $57,413,193 | | | Inc. -100% $25,149 |
| ----------------------------- ------------------------------ | ------------------------------
| |
| ----------------------------- | ------------------------------
| | GATES, MCDONALD & COMPANY | | | NATIONWIDE |
| | OF NEVADA | | | AGENCY, INC. |
| | | | | |
| | Common Stock: 40 | | | Common Stock: 100 |
|-- | ------------ Shares | |--| ------------ Shares |
| | | | |
| | Cost | | Cost |
| | ---- | | NHP ---- |
| | Gates -100% $93,750 | | Inc. -99% $116,077 |
| ----------------------------- ------------------------------
|
| -----------------------------
| | GATESMCDONALD |
| | HEALTH PLUS, INC. |
| | |
| | Common Stock: 200 |
|-- | ------------ Shares |
| |
| Cost |
| ---- |
| Gates -100% $2,000,000 |
-----------------------------
Subsidiary Companies -- Solid Line
Contractual Association -- Double Line
Limited Liability Company -- Dotted Line
December 31, 1997
Page 2
</TABLE>
<PAGE> 67
Item 27. NUMBER OF CONTRACT OWNERS
Not Applicable.
Item 28. INDEMNIFICATION
Provision is made in the Company's Amended Code of Regulations and
expressly authorized by the General Corporation Law of the State
of Ohio, for indemnification by the Company of any person who was
or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative by reason
of the fact that such person is or was a director, officer or
employee of the Company, against expenses, including attorneys'
fees, judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action,
suit or proceeding, to the extent and under the circumstances
permitted by the General Corporation Law of the State of Ohio.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 ("Act") may be permitted to directors,
officers or persons controlling the Company pursuant to the
foregoing provisions, the Company has been informed that in the
opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 29. PRINCIPAL UNDERWRITER
(a) The principal underwriter is Fidelity Investments
Institutional Services Company, Inc. which does not act as
principal underwriter, depositor, sponsor, or investment adviser
to any other investment company.
(b)
<TABLE>
<CAPTION>
NAME AND PRINCIPAL
BUSINESS ADDRESS POSITIONS AND OFFICES WITH UNDERWRITER
<S> <C>
Edward C. Johnson 3d Director
Kevin J. Kelly Director
Robert L. Reynolds Director
Kevin J. Kelly President and Chief Executive Officer
Kenneth A. Rathgeber Executive Vice President and Chief of Operations
Cornelia Boyle Vice President
John T. Hailer Vice President
Michael W. Kellogg Vice President
Douglas R. Manchester Vice President
Raymond J. Marcinowski Vice President
Jude C. Metcalf Vice President
Timothy P. Moran Vice President and Chief Financial Officer
William F. O'Grady Vice President
Eric Roiter Vice President
Gary E. Stevens Assistant Vice President
Stephen E. Tibbetts Treasurer
Jay Freedman Clerk
</TABLE>
99 of 107
<PAGE> 68
Elizabeth L. Baker Compliance Officer
(c) Not applicable
The address for each person named in Item 29 is 82 Devonshire
Street, Boston, Massachusetts 02109
Item 30. LOCATION OF ACCOUNTS AND RECORDS
Robert O. Cline
Nationwide Life Insurance Company
One Nationwide Plaza
Columbus, OH 43216
Item 31. MANAGEMENT SERVICES
Not Applicable
Item 32. UNDERTAKINGS
The Registrant hereby undertakes to:
(a) file a post-effective amendment to this registration statement
as frequently as is necessary to ensure that the audited
financial statements in the registration statement are never
more than 16 months old for so long as payments under the
variable annuity contracts may be accepted;
(b) include either (1) as part of any application to purchase a
contract offered by the prospectus, a space that an applicant
can check to request a Statement of Additional Information, or
(2) a post card or similar written communication affixed to or
included in the prospectus that the applicant can remove to
send for a Statement of Additional Information; and
(c) deliver any Statement of Additional Information and any
financial statements required to be made available under this
form promptly upon written or oral request.
The Registrant represents that any of the Contracts which are
issued pursuant to Section 403(b) of the Code, are issued by the
Company through the Registrant in reliance upon, and in compliance
with, a no-action letter issued by the Staff of the Securities and
Exchange Commission to the American Council of Life Insurance
(publicly available November 28, 1988) permitting withdrawal
restrictions to the extent necessary to comply with Section
403(b)(11) of the Code.
The Company represents that the fees and charges deducted under
the Contract in the aggregate are reasonable in relation to the
services rendered, the expenses expected to be incurred and risks
assumed by the Company.
100 of 107
<PAGE> 69
OFFERED BY
NATIONWIDE LIFE INSURANCE COMPANY
NATIONWIDE LIFE INSURANCE COMPANY
NATIONWIDE FIDELITY ADVISOR VARIABLE ACCOUNT
MODIFIED SINGLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT
PROSPECTUS
MAY 1, 1998
101 of 107
<PAGE> 70
INDEPENDENT AUDITORS' CONSENT AND REPORT ON FINANCIAL STATEMENT SCHEDULES
The Board of Directors of Nationwide Life Insurance Company and
Contract Owners of the Nationwide Fidelity Advisor Variable Account:
The audits referred to in our report on Nationwide Life Insurance Company (the
Company) dated January 30, 1998 included the related financial statement
schedules as of December 31, 1997, and for each of the years in the three-year
period ended December 31, 1997, included in the registration statement. These
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statement schedules based on our audits. In our opinion, such financial
statement schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Services" in the Statement of Additional Information.
KPMG Peat Marwick LLP
Columbus, Ohio
April 20, 1998
102 of 107
<PAGE> 71
<PAGE> 1
SCHEDULE I
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED SUMMARY OF INVESTMENTS -
OTHER THAN INVESTMENTS IN RELATED PARTIES
(in millions of dollars)
As of December 31, 1997
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------- ------------- -------------- ---------------
Column A Column B Column C Column D
- ----------------------------------------------------------------------------- ------------- -------------- ---------------
Amount at
which shown
in the
Market consolidated
Type of Investment Cost value balance sheet
- ----------------------------------------------------------------------------- ------------- -------------- ---------------
Fixed maturity securities available-for-sale:
Bonds:
<S> <C> <C> <C>
U.S. Government and government agencies and authorities $ 3,859.7 $ 3,981.7 $ 3,981.7
States, municipalities and political subdivisions 1.6 1.6 1.6
Foreign governments 93.3 95.8 95.8
Public utilities 1,555.3 1,609.8 1,609.8
All other corporate 7,223.0 7,515.2 7,515.2
---------- ---------- ----------
Total fixed maturity securities available-for-sale 12,732.9 13,204.1 13,204.1
---------- ---------- ----------
Equity securities available-for-sale:
Common stocks:
Industrial, miscellaneous and all other 67.8 78.0 78.0
Non-redeemable preferred stock - 2.4 2.4
---------- ---------- ----------
Total equity securities available-for-sale 67.8 80.4 80.4
---------- ---------- ----------
Mortgage loans on real estate, net 5,228.1 5,181.6 (1)
Real estate, net:
Investment properties 254.9 235.7 (1)
Acquired in satisfaction of debt 82.6 75.7 (1)
Policy loans 415.3 415.3
Other long-term investments 27.9 25.2 (2)
Short-term investments 358.4 358.4
---------- ----------
Total investments $19,167.9 $19,576.4
========== ==========
</TABLE>
- ----------
(1) Difference from Column B is primarily due to valuation allowances due to
impairments on mortgage loans on real estate and due to accumulated
depreciation and valuation allowances due to impairments on real estate.
See note 3 to the consolidated financial statements.
(2) Difference from Column B is primarily due to operating gains (losses) of
investments in limited partnerships.
See accompanying independent auditors' report.
<PAGE> 2
SCHEDULE III
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
(in millions of dollars)
As of December 31, 1997, 1996 and 1995 and for each of the years then ended
<TABLE>
<CAPTION>
- -------------------------------- ----------------- -------------------- ------------------- ------------------ ---------------
Column A Column B Column C Column D Column E Column F
- -------------------------------- ----------------- -------------------- ------------------- ------------------ ---------------
Deferred Future policy Other policy
policy benefits, losses, Unearned claims and
acquisition claims and premiums benefits payable Premium
Segment costs loss expenses (1) (1) revenue
- ------------------------------- ------------------ -------------------- ------------------- ------------------ ---------------
1997: Variable Annuities $1,018.4 $ - $ -
Fixed Annuities 277.9 14,103.1 27.3
Life Insurance 472.9 2,683.4 178.1
Corporate and Other (103.8) 1,916.3 -
-------- ------------- ---------
Total $1,665.4 $18,702.8 $ 205.4
======== ============= =========
1996: Variable Annuities $ 792.1 $ - $ -
Fixed Annuities 242.0 13,388.9 24.0
Life Insurance 414.4 2,391.5 174.6
Corporate and Other (82.0) 1,820.2 -
-------- ------------- ---------
Total $1,366.5 $17,600.6 $ 198.6
======== ============= =========
1995: Variable Annuities $ 569.8 $ - $ -
Fixed Annuities 220.7 12,759.3 32.8
Life Insurance 366.9 2,282.6 166.3
Corporate and Other (136.9) 1,730.0 -
-------- ------------- ---------
Total $1,020.5 $ 16,771.9 $ 199.1
======== ============= =========
- ---------------------------------------------------- -------------------- ------------------- ------------------ ---------------
Column A Column G Column H Column I Column J Column K
- ---------------------------------------------------- -------------------- ------------------- ------------------ ----------------
Net investment Benefits, claims, Amortization Other
income losses and of deferred policy operating Premiums
Segment (2) settlement expenses acquisition costs expenses written
(2)
- ---------------------------------------------------- -------------------- ------------------- ------------------ ---------------
<C> <C> <C> <C> <C>
1997: Variable Annuities $ (26.8) $ 5.9 $ 87.8 $ 159.4
Fixed Annuities 1,098.2 846.7 39.8 85.4
Life Insurance 189.1 227.5 39.6 94.5
Corporate and Other 148.7 114.7 - 45.6
-------- ---------- ------- -------
Total $1,409.2 $ 1,194.8 $ 167.2 $ 384.9
======== ========== ======= =======
1996: Variable Annuities $ (21.4) $ 4.6 $ 57.4 $ 132.3
Fixed Annuities 1,050.6 838.5 38.6 79.7
Life Insurance 174.0 211.4 37.4 79.0
Corporate and Other 154.6 106.1 - 51.4
-------- ---------- ------- -------
Total $1,357.8 $ 1,160.6 $ 133.4 $ 342.4
======== ========== ======= =======
1995: Variable Annuities $ (17.6) $ 2.9 $ 26.3 $ 109.1
Fixed Annuities 1,002.7 805.0 29.5 80.3
Life Insurance 171.2 202.0 31.0 68.8
Corporate and Other 137.7 105.6 (4.1) 14.8
-------- ---------- ------- -------
Total $1,294.0 $ 1,115.5 $ 82.7 $ 273.0
======== ========== ======= =======
</TABLE>
- ----------
(1) Unearned premiums and other policy claims and benefits payable are included
in Column C amounts.
(2) Allocations of net investment income and certain operating expenses are
based on a number of assumptions and estimates, and reported operating
results would change by segment if different methods were applied.
See accompanying independent auditors' report.
<PAGE> 3
SCHEDULE IV
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
REINSURANCE
(in millions of dollars)
As of December 31, 1997, 1996 and 1995 and for each of the years then ended
<TABLE>
<CAPTION>
- ----------------------------------------------- --------------- -------------- ------------- ------------- ------------
Column A Column B Column C Column D Column E Column F
- ----------------------------------------------- --------------- -------------- ------------- ------------- ------------
Percentage
Ceded to Assumed of amount
Gross other from other Net assumed
amount companies companies amount to net
--------------- -------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
1997:
Life insurance in force $ 52,648.4 $13,678.7 $ 289.7 $ 39,259.4 0.7%
=========== ========= ======== =========== =======
Premiums:
Life insurance $ 235.9 $ 32.7 $ 2.2 $ 205.4 1.1%
Accident and health insurance 261.2 272.6 11.4 - N/A
----------- ---------- --------- ----------- -------
Total $ 497.1 $ 305.3 $ 13.6 $ 205.4 6.6%
=========== ========= ========= =========== =======
1996:
Life insurance in force $47,150.6 $11,164.6 $ 288.6 $ 36,274.6 0.8%
=========== ========= ======== =========== =======
Premiums:
Life insurance $ 225.6 $ 29.3 $ 2.3 $ 198.6 1.2%
Accident and health insurance 291.9 305.8 13.9 - N/A
----------- --------- -------- ----------- -------
Total $ 517.5 $ 335.1 $ 16.2 $ 198.6 8.2%
=========== ========= ======== =========== =======
1995:
Life Insurance in force $41,087.9 $ 8,935.7 $ 391.2 $ 32,543.4 1.2%
=========== ========= ======== =========== =======
Premiums:
Life insurance $ 221.3 $ 24.4 $ 2.2 $ 199.1 1.1%
Accident and health insurance 298.0 313.0 15.0 - N/A
----------- --------- -------- ----------- -------
Total $ 519.3 $ 337.4 $ 17.2 $ 199.1 8.6%
=========== ========= ======== =========== =======
</TABLE>
- ----------
Note: The life insurance caption represents principally premiums from
traditional life insurance and life-contingent immediate annuities and
excludes deposits on investment products and universal life insurance
products.
See accompanying independent auditors' report.
<PAGE> 4
SCHEDULE V
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(in millions of dollars)
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------- ------------- -------------
Column A Column B Column C Column D Column E
- --------------------------------------------------- ----------------------------------------------- ------------- -------------
Balance at Charged to Charged to Balance at
beginning costs and other Deductions end of
Description of period expenses accounts (1) period
- --------------------------------------------------- -------------------------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
1997:
Valuation allowances - fixed maturity securities $ - $ 16.2 $ - $ 16.2 $ -
Valuation allowances - mortgage loans on real estate 51.0 (1.2) - 7.3 42.5
Valuation allowances - real estate 15.2 (4.1) - - 11.1
-------- ------ ------- ------- -------
Total $ 66.2 $ 10.9 $ - $ 23.5 $ 53.6
======== ====== ======= ======= =======
1996:
Valuation allowances - mortgage loans on real estate $ 49.1 $ 4.5 $ - $ 2.6 $ 51.0
Valuation allowances - real estate 25.8 (10.6) - - 15.2
-------- ------ ------- ------- -------
Total $ 74.9 $ (6.1) $ - $ 2.6 $ 66.2
======== ====== ======= ======= =======
1995:
Valuation allowances - fixed maturity securities $ - $ 8.9 $ - $ 8.9 $ -
Valuation allowances - mortgage loans on real estate 46.4 7.4 - 4.7 49.1
Valuation allowances - real estate 27.3 (1.5) - - 25.8
-------- ------ ------- ------- -------
Total $ 73.7 $ 14.8 $ - $ 13.6 $ 74.9
======== ====== ======= ======= =======
</TABLE>
- ----------
(1) Amounts represent direct write-downs charged against the valuation
allowance.
See accompanying independent auditors' report.
<PAGE> 72
SIGNATURES
As required by the Securities Act of 1933, the Registrant, NATIONWIDE FIDELITY
ADVISOR VARIABLE ACCOUNT, certifies that the requirements of the Securities Act
Rule 485 for effectiveness of the Post-Effective Amendment and has caused this
Post-Effective Amendment to be signed on its behalf in the City of Columbus, and
State of Ohio, on this 20th day of April, 1998.
NATIONWIDE FIDELITY ADVISOR VARIABLE ACCOUNT
--------------------------------------------
(Registrant)
NATIONWIDE LIFE INSURANCE COMPANY
--------------------------------------------
(Depositor)
By/s/JOSEPH P. RATH
--------------------------------------------
Joseph P. Rath
Vice President - Product and Market Compliance
As required by the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities indicated on the 20th day of
April, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C> <C>
LEWIS J. ALPHIN Director
- ------------------------------------
Lewis J. Alphin
A. I. BELL Director
- ------------------------------------
A. I. Bell
KEITH W. ECKEL Director
- ------------------------------------
Keith W. Eckel
WILLARD J. ENGEL Director
- ------------------------------------
Willard J. Engel
FRED C. FINNEY Director
- ------------------------------------
Fred C. Finney
CHARLES L. FUELLGRAF, JR. Director
- ------------------------------------
Charles L. Fuellgraf, Jr.
JOSEPH J. GASPER President and Chief
- ------------------------------------ Operating Office and Director
Joseph J. Gasper
DIMON R. McFERSON Chairman and Chief Executive Officer
- ------------------------------------ Nationwide Insurance Enterprise and Director
Dimon R. McFerson
DAVID O. MILLER Chairman of the Board and Director
- ------------------------------------
David O. Miller
YVONNE L. MONTGOMERY Director
- ------------------------------------
Yvonne L. Montgomery
C. RAY NOECKER Director
- ------------------------------------
C. Ray Noecker
ROBERT A. OAKLEY Executive Vice President-
- ------------------------------------ Chief Financial Officer
Robert A. Oakley
JAMES F. PATTERSON Director By/s/JOSEPH P. RATH
- ------------------------------------ -------------------
James F. Patterson Joseph P. Rath
Attorney-in-Fact
ARDEN L. SHISLER Director
- ------------------------------------
Arden L. Shisler
ROBERT L. STEWART Director
- ------------------------------------
Robert L. Stewart
NANCY C. THOMAS Director
- ------------------------------------
Nancy C. Thomas
HAROLD W. WEIHL Director
- ------------------------------------
Harold W. Weihl
</TABLE>
107 of 107
