<PAGE> 1
As filed with the Securities and Exchange Commission.
Registration No. 33-23905
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933
Post-Effective Amendment No. 10 [x]
NATIONWIDE MULTI-FLEX VARIABLE ACCOUNT
(Exact Name of Registrant)
NATIONWIDE LIFE INSURANCE COMPANY
(Name of Depositor)
ONE NATIONWIDE PLAZA, COLUMBUS, OHIO 43215
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code: (614) 249-7111
GORDON E. MCCUTCHAN, SECRETARY, ONE NATIONWIDE PLAZA, COLUMBUS, OHIO 43215
(Name and Address of Agent for Service)
This Post-Effective Amendment amends the Registration Statement in
respect of the Prospectus, the Statement of Additional Information and the
Financial Statements.
It is proposed that this filing will become effective (check appropriate
space):
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on May 1, 1997 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.
The Registrant has registered an indefinite number of securities by a
prior registration statement in accordance with Rule 24f-2 under the Investment
Company Act of 1940. Registrant filed its Rule 24f-2 Notice for the fiscal year
ended December 31, 1996, on February 25, 1997..
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<PAGE> 2
NATIONWIDE VARIABLE ACCOUNT-II
REFERENCE TO ITEMS REQUIRED BY FORM N-4
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
N-4 ITEM
Part A INFORMATION REQUIRED IN A PROSPECTUS
Item 1. Cover page..........................................................................................3
Item 2. Definitions.........................................................................................4
Item 3. Synopsis or Highlights.............................................................................10
Item 4. Condensed Financial Information....................................................................11
Item 5. General Description of Registrant, Depositor, and Portfolio Companies..............................13
Item 6. Deductions and Expenses............................................................................14
Item 7. General Description of Variable Annuity Contracts..................................................16
Item 8. Annuity Period.....................................................................................20
Item 9. Death Benefit and Distributions....................................................................22
Item 10. Purchases and Contract Value.......................................................................25
Item 11. Redemptions........................................................................................26
Item 12. Taxes..............................................................................................28
Item 13. Legal Proceedings..................................................................................33
Item 14. Table of Contents of the Statement of Additional Information.......................................33
Part B INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
Item 15. Cover Page.........................................................................................36
Item 16. Table of Contents..................................................................................36
Item 17. General Information and History....................................................................36
Item 18. Services...........................................................................................36
Item 19. Purchase of Securities Being Offered...............................................................36
Item 20. Underwriters.......................................................................................37
Item 21. Calculation of Performance Information.............................................................37
Item 22. Annuity Payments...................................................................................38
Item 23. Financial Statements...............................................................................39
Part C OTHER INFORMATION
Item 24. Financial Statements and Exhibits..................................................................76
Item 25. Directors and Officers of the Depositor............................................................78
Item 26. Persons Controlled by or Under Common Control with the Depositor or Registrant.....................80
Item 27. Number of Contract Owners..........................................................................89
Item 28. Indemnification....................................................................................89
Item 29. Principal Underwriter..............................................................................89
Item 30. Location of Accounts and Records...................................................................91
Item 31. Management Services................................................................................91
Item 32. Undertakings.......................................................................................91
</TABLE>
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<PAGE> 3
NATIONWIDE LIFE INSURANCE COMPANY
HOME OFFICE
P.O. BOX 182356
COLUMBUS, OHIO 43218-2356
1-800-243-6295, TDD 1-800-238-3035
INDIVIDUAL DEFERRED VARIABLE ANNUITY CONTRACTS
ISSUED BY THE NATIONWIDE MULTI-FLEX VARIABLE ACCOUNT
OF NATIONWIDE LIFE INSURANCE COMPANY
The Individual Deferred Variable Annuity Contracts described in this
prospectus are flexible Purchase Payment contracts (collectively referred to as
the "Contracts"). The Contracts are sold to individuals for use in retirement
plans which may qualify for special federal tax treatment under the Internal
Revenue Code (the "Code"). Annuity payments under the Contracts are deferred
until a selected later date.
Purchase payments are allocated to the Nationwide Multi-Flex Variable
Account ("Variable Account"), a separate account of Nationwide Life Insurance
Company (the "Company"). The Variable Account uses its assets to purchase
shares at net asset value in one or more of the following series of the
underlying Mutual Fund options, within the Nationwide Separate Account Trust:
NATIONWIDE SEPARATE ACCOUNT TRUST:
-Capital Appreciation Fund
-Government Bond Fund
-Money Market Fund
-Total Return Fund
This prospectus provides you with the basic information you should know
about the Individual Deferred Variable Annuity Contracts issued by the
Nationwide Multi-Flex Variable Account before investing. You should read it and
keep it for future reference. A Statement of Additional Information dated May
1, 1997, containing further information about the Contracts and the Nationwide
Multi-Flex Variable Account has been filed with the Securities and Exchange
Commission. You can obtain a copy without charge from Nationwide Life Insurance
Company by calling the number listed above, or writing P. O. Box 182356,
Columbus, Ohio 43218-2356.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE STATEMENT OF ADDITIONAL INFORMATION, DATED MAY 1, 1997, IS INCORPORATED
HEREIN BY REFERENCE. THE TABLE OF CONTENTS FOR THE STATEMENT OF ADDITIONAL
INFORMATION APPEARS ON PAGE 31 OF THE PROSPECTUS.
THE DATE OF THIS PROSPECTUS IS MAY 1, 1997.
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<PAGE> 4
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 actually receiving annuity payments and upon whose
continuation of life any annuity payment involving life contingencies depends.
This person must be age 78 or younger at the time of contract issuance.
ANNUITIZATION-The period during which annuity payments are actually received.
ANNUITIZATION DATE-The date on which annuity payments actually commence.
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 and is subject to change by the Owner.
ANNUITY PAYMENT OPTION-The chosen form of annuity payments. Several options are
available under this Contract. The Annuity Payment Option is named in the
application, unless changed.
ANNUITY UNIT-An accounting unit of measure used to calculate the value of
Variable Annuity payments.
BENEFICIARY-The Beneficiary is the person designated to receive certain
benefits under the Contract upon the death of the Designated Annuitant prior to
the Annuitization Date. The Beneficiary can be changed by the Contract Owner as
set forth in the Contract.
CODE-The Internal Revenue Code of 1986, as amended.
COMPANY-Nationwide Life Insurance Company.
CONTINGENT BENEFICIARY-The Contingent Beneficiary is the person designated to
be the Beneficiary if the named Beneficiary is not living at the time of the
death of the Designated Annuitant.
CONTINGENT DESIGNATED ANNUITANT-The Contingent Designated Annuitant may be the
recipient of certain rights or benefits under this Contract when the Designated
Annuitant dies before the Annuitization Date. If a Contingent Annuitant is
designated, and the Designated Annuitant dies before the Annuitization Date,
the Contingent Designated Annuitant becomes the Designated Annuitant. The
Owner's right to name a Contingent Designated Annuitant may be restricted under
the provisions of any retirement or deferred compensation plan for which this
Contract is issued.
CONTINGENT OWNER-A Contingent Owner succeeds to the rights of Contract Owner
upon the Contract Owner's death before the Annuity Commencement Date. For
Contracts issued in the state of New York, references throughout this
prospectus to "Contingent Owner" shall mean "Owner's Beneficiary." A Contingent
Owner may not be named for contracts issued as IRA's or Tax Sheltered
Annuities.
CONTRACT-The Individual Deferred Variable Annuity Contract described in this
prospectus.
CONTRACT ANNIVERSARY-An anniversary of the Date of Issue of the Contract.
CONTRACT OWNER (OWNER)-The Contract Owner is the person who possesses all
rights under the Contract, including the right to designate and change any
designations of the Owner, Contingent Owner, Designated Annuitant (the
Annuitant can not be changed without the consent of the Company), Contingent
Designated Annuitant, Beneficiary, Contingent Beneficiary, Annuity Payment
Option, and the Annuity Commencement Date. The Contract Owner is the person
named on the application, unless changed.
CONTRACT VALUE-The sum of the value of all Variable Account Accumulation Units
attributable to the Contract plus any amount held under the Contract in the
Fixed Account.
CONTRACT YEAR-Each year the Contract remains in force, commencing with the Date
of Issue.
DATE OF ISSUE-The date shown as the Date of Issue on the Contract Data Page of
the Contract.
DEATH BENEFIT-The benefit payable upon the death of the Designated Annuitant or
the Contingent Designated Annuitant, if applicable. This benefit does not apply
upon the death of the Contract Owner when the Owner and Designated Annuitant
are not the same person. If the Annuitant dies after the Annuitization Date,
any benefit that may be payable shall be as specified in the Annuity Payment
Option elected.
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<PAGE> 5
DESIGNATED ANNUITANT-The person designated prior to the Annuity Commencement
Date to receive annuity payments. The Designated Annuitant is named on the Data
Page, unless changed. No change of Designated Annuitant may be made without the
prior consent of the Company. The Designated Annuitant is the person upon whose
continuation of life any annuity payments involving life contingencies depends.
DISTRIBUTION-Any payment of part or all of the Contract Value.
FIXED ACCOUNT- The Fixed Account is made up of all assets of the Company other
than those in the Variable Account or any other segregated asset account of the
Company.
FIXED ACCOUNT CONTRACT VALUE-The sum of the value credited under the Contract,
including interest, to the Fixed Account.
FIXED ANNUITY-An annuity providing for payments which are guaranteed by the
Company as to dollar amount during Annuitization.
HOME OFFICE- The main office of the Company located in Columbus, Ohio.
INDIVIDUAL RETIREMENT ANNUITY (IRA)-An annuity which qualifies for favorable tax
treatment under Section 408 of the Code.
INTEREST RATE GUARANTEE PERIOD-The Fixed Account interest rate declared is
guaranteed not to change for the duration of the Interest Rate Guarantee
Period. The interest rate declared will expire on the final day of a calendar
quarter during which the one year anniversary of the allocation to the Fixed
Account occurs; therefore, the initial Interest Rate Guarantee Period for
deposits or transfers into the Fixed Account may continue for up to three
months after a one year period has expired. At the end of the 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.
MUTUAL FUND (FUND)-A registered management investment company in which the
assets of the Sub-Accounts of the Variable Account will be invested.
NON-QUALIFIED CONTRACT (NON-QUALIFIED PLAN) -A Contract (Retirement Plan) which
does not qualify for favorable tax treatment under Sections 401 (Qualified
Plans), 408 (IRAs), or 403(b) (Tax Sheltered Annuities) of the Code.
PURCHASE PAYMENT-A deposit of new value into the Contract. The term "Purchase
Payment" does not include transfers between the Variable Account and the Fixed
Account, or among the Sub-Accounts.
QUALIFIED CONTRACT (QUALIFIED PLAN)- A Contract (Retirement Plan) which receives
favorable tax treatment under the provisions of the Code, including those
described in Sections 401 and 403(a).
SEP IRA- A retirement plan which receives favorable tax treatment under the
provisions of Section 408(k) 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.
VALUATION DATE-Each day the New York Stock Exchange and the Company's Home
Office is 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 net asset value of Variable Account Accumulation Units might be
materially affected.
VALUATION PERIOD-The period of time commencing at the close of business of the
New York Stock Exchange and ending at the close of business for the next
succeeding Valuation Date.
VARIABLE ACCOUNT-The Nationwide Multi-Flex Variable
Account, a separate investment account of the Company into which Variable
Account Purchase Payments are allocated. The Variable Account is divided into
Sub-Accounts, each of which invests in shares of a separate underlying Mutual
Fund.
VARIABLE 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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<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<S> <C>
GLOSSARY OF SPECIAL TERMS.............................................................................................2
SUMMARY OF CONTRACT EXPENSES..........................................................................................6
UNDERLYING MUTUAL FUND ANNUAL EXPENSES................................................................................6
SYNOPSIS..............................................................................................................8
CONDENSED FINANCIAL INFORMATION.......................................................................................9
NATIONWIDE LIFE INSURANCE COMPANY....................................................................................11
THE VARIABLE ACCOUNT.................................................................................................11
Nationwide Separate Account Trust...........................................................................11
Voting Rights...............................................................................................12
VARIABLE ACCOUNT CHARGES, PURCHASE PAYMENTS, AND OTHER DEDUCTIONS....................................................12
Mortality Risk Charge.......................................................................................12
Expense Risk Charge.........................................................................................12
Contingent Deferred Sales Charge............................................................................12
Contract Maintenance Charge and Administration Charge.......................................................13
Premium Taxes...............................................................................................14
Expenses of the Variable Account............................................................................14
Investments of the Variable Account.........................................................................14
Right to Revoke.............................................................................................14
Transfers...................................................................................................15
Assignment..................................................................................................15
Loan Privilege..............................................................................................16
Contingent Owner and Beneficiary Provisions................................................................17
Ownership Provisions........................................................................................17
Substitution of Securities..................................................................................18
Contract Owner Inquiries....................................................................................18
ANNUITY PAYMENT PERIOD-VARIABLE ACCOUNT..............................................................................18
Value of an Annuity Unit....................................................................................18
Assumed Investment Rate.....................................................................................18
Frequency and Amount of Annuity Payments....................................................................18
Annuity Commencement Date...................................................................................19
Change in Annuity Commencement Date.........................................................................19
Change in Form of Annuity...................................................................................19
Annuity Payment Options.....................................................................................19
Death of Contract Owner Provision - Non-Qualified Contracts.................................................20
Death Benefit Payment Provisions............................................................................20
Required Distributions for Qualified Plans or Tax Sheltered
Annuities...................................................................................................20
Required Distributions for Individual Retirement Annuities and
SEP-IRAs....................................................................................................21
Generation-Skipping Transfers...............................................................................22
GENERAL INFORMATION..................................................................................................22
Contract Owner Services.....................................................................................22
Statements and Reports......................................................................................23
Allocation of Purchase Payments and Contract Value..........................................................23
Value of a Variable Account Accumulation Unit...............................................................23
Net Investment Factor.......................................................................................24
Valuation of Assets.........................................................................................24
Determining the Contract Value..............................................................................24
Surrender (Redemption)......................................................................................24
Surrenders Under a Qualified Plan or Tax Sheltered Annuity Contract.........................................25
Federal Tax Considerations..................................................................................26
Non-Qualified Contracts - Natural Persons as Owners.........................................................26
Non-Qualified Contracts - Non-Natural Persons as Owners.....................................................27
Qualified Plans, Individual Retirement Annuities and Tax Sheltered
Annuities...................................................................................................27
Withholding.................................................................................................28
Non-Resident Aliens.........................................................................................28
Federal Estate, Gift and Generation Skipping Transfer Taxes.................................................28
Charge for Tax Provisions...................................................................................29
Diversification.............................................................................................29
Tax Changes.................................................................................................29
</TABLE>
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<PAGE> 7
<TABLE>
<S> <C>
Advertising.................................................................................................30
LEGAL PROCEEDINGS....................................................................................................31
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION.............................................................31
APPENDIX.............................................................................................................32
</TABLE>
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<PAGE> 8
SUMMARY OF CONTRACT EXPENSES
CONTRACT OWNER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum Contingent Deferred Sales Charge1..................................................... 7%
</TABLE>
RANGE OF CONTINGENT DEFERRED SALES CHARGE OVER TIME
<TABLE>
<CAPTION>
Number of Completed Years from Date Contingent Deferred Sales
of Purchase Payment Charege Percentage
<S> <C>
0 7%
1 6%
2 5%
3 4%
4 3%
5 2%
6 1%
7 0%
</TABLE>
<TABLE>
<S> <C>
ANNUAL CONTRACT MAINTENANCE CHARGE2.................................................................. $30
VARIABLE ACCOUNT ANNUAL EXPENSES
Mortality and Expense Risk Charges............................................................ 1.25%
Administration Charge......................................................................... 0.05%
Total Variable Account Annual Expenses...................................................... 1.30%
</TABLE>
1 Starting with the second year, after a Purchase Payment has been
made, the Contract Owner may withdraw without a Contingent Deferred
Sales Charge (CDSC), the greater of (a) an amount equal to 10% of that
Purchase Payment, or (b) any amount withdrawn in order for the 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 or other Qualified Plan. This CDSC-free withdrawal is
non-cumulative; that is, free amounts not taken during any given
Contract Year cannot be taken as free amounts in a subsequent Contract
Year. (see "Contingent Deferred Sales Charge" for additional
provisions).
2 The annual Contract Maintenance Charge is deducted on each Contract
Anniversary and on the date of Surrender in any year in which the entire
Contract Value is surrendered (see "Contract Maintenance Charge and
Administration Charge").
UNDERLYING MUTUAL FUND ANNUAL EXPENSES(3)
<TABLE>
<S> <C>
NSAT Capital Appreciation Fund
Management Fees............................................................................... 0.50%
Other Expenses................................................................................ 0.02%
Total underlying Mutual Fund Expenses....................................................... 0.52%
NSAT Money Market Fund
Management Fees .............................................................................. 0.50%
Other Expenses................................................................................ 0.03%
Total underlying Mutual Fund Expenses....................................................... 0.53%
NSAT Government Bond Fund
Management Fees............................................................................... 0.50%
Other Expenses................................................................................ 0.01%
Total underlying Mutual Fund Expenses....................................................... 0.51%
NSAT Total Return Fund
Management Fees .............................................................................. 0.50%
Other Expenses................................................................................ 0.02%
Total underlying Mutual Fund Expenses....................................................... 0.52%
</TABLE>
3 The Mutual Fund expenses shown above are assessed at the underlying
Mutual Fund level and are not direct charges against Variable Account
assets or reductions from Contract Values. These underlying Mutual Fund
expenses are taken into consideration in computing the net asset value
of each underlying Mutual Fund, which is used in calculating unit value
within the Variable Account. None of the above Underlying Mutual Funds
are subject to fee waivers or expense reimbursement arrangements or
12-b-1 fees. The information relating to the underlying Mutual Fund
expenses was provided by the underlying Mutual Fund and was not
independently verified by the Company.
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<PAGE> 9
EXAMPLE
The following chart depicts the dollar amount of expenses that would be
incurred under this Contract assuming a $1000 initial Purchase Payment and 5%
annual return. These dollar figures are illustrative only and should not be
considered a representation of past or future expenses. Actual expenses may be
greater or lesser than those shown below. The expense amounts presented are
derived from a formula which allows the $30 Contract Maintenance Charge to be
expressed as a percentage of the average Contract account size for existing
Contracts. Since the average Contract account size for Contracts issued under
this prospectus is greater than $1000, the expense effect of the Contract
Maintenance Charge is reduced accordingly.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
If you surrender your If you do not surrender your If you annuitize your
Contract at the end of the Contract at the end of the Contract at the end of the
applicable time period applicable time period applicable time period
------------------------------------------------------------------------------------------
1 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>
NSAT Capital 91 110 138 239 21 65 111 239 * 65 111 239
Appreciation Fund
- ------------------------------------------------------------------------------------------------------------
NSAT Government 91 109 137 237 21 64 110 237 * 64 110 237
Bond Fund
- ------------------------------------------------------------------------------------------------------------
NSAT Money 91 110 138 240 21 65 111 240 * 65 111 240
Market Fund
- ------------------------------------------------------------------------------------------------------------
NSAT Total 91 110 138 239 21 65 111 239 * 65 111 239
Return Fund
- ------------------------------------------------------------------------------------------------------------
</TABLE>
* The Contracts sold under this prospectus do not permit Annuitization during
the first two Contract years.
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 Nationwide Multi-Flex Variable Account as well as those of the underlying
Mutual Fund options are reflected in the table. For more complete descriptions
of the expenses of the Variable Account, see "Variable Account Charges,
Purchase Payments, and Other Deductions." For more complete information
regarding expenses paid out of the assets of a particular underlying Mutual
Fund option, see the prospectus for the underlying Mutual Fund. Deductions for
premium taxes may also apply but are not reflected in the Example shown above
(see "Premium Taxes").
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<PAGE> 10
SYNOPSIS
The Company does not deduct a sales charge from Purchase Payments made
for these Contracts. However, if any part of the Contract Value of such
Contracts is surrendered, the Company will, with certain exceptions, deduct
from the Contract Owner's Contract Value a Contingent Deferred Sales Charge not
to exceed 7% of the lesser of the total of all Purchase Payments made within 84
months prior to the date of the request to surrender, or the amount
surrendered. 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").
In addition, on each Contract Anniversary, and in any year in which the
Contract is surrendered the Company will deduct an annual Contract Maintenance
Charge of $30 from the Contract Value of the Contracts. The Company will also
assess an Administration Charge equal to an annual rate of 0.05% of the daily
net asset value of the Variable Account. These charges are to reimburse the
Company for administrative expenses related to the issue and maintenance of the
Contracts. The Company does not expect to recover from these charges an amount
in excess of accumulated administrative expenses (see "Contract Maintenance
Charge and Administration Charge").
The Company deducts a Mortality Risk Charge equal to an annual rate of
0.80% of the daily net asset value of the Variable Account for mortality risk
assumed by the Company (see "Mortality Risk Charge").
The Company deducts an Expense Risk Charge equal to an annual rate of
0.45% of the daily net asset value of the Variable Account as compensation for
the Company's risk in undertaking not to increase administrative charges on the
Contracts regardless of the actual administrative costs (see "Expense Risk
Charge").
The initial first year Purchase Payment must be at least $1,500 for
Non-Qualified Contracts. However, if periodic payments are expected by the
Company, this initial first year minimum may be satisfied by Purchase Payments
made on an annualized basis. The cumulative total of all Purchase Payments
under Contracts issued on the life of any one Designated Annuitant may not
exceed $1,000,000 without the prior consent of the Company (see "Allocation of
Purchase Payments and Contract Value").
If the Contract Value at the Annuitization Date is less than $500, the
Contract Value may be distributed in one lump sum in lieu of annuity payments.
If any annuity payment would be less than $20, the Company shall have the right
to change the frequency of payments to such intervals as will result in
payments of at least $20. In no event, however, will annuity payments be made
less frequently than annually (see "Frequency and Amount of Annuity Payments").
Premium taxes payable to any governmental entity will be charged against
the Contracts. If any such premium taxes are by the Company payable at the time
Purchase Payments are made, an equal premium tax deduction may be made from the
Contract prior to the allocation of any Purchase Payment to any underlying
mutual fund option (see "Premium Taxes").
To be sure that the Contract Owner is satisfied with the Contract, the
Contract Owner has a ten day free look. Within ten days of the day the Contract
is received, it may be returned to the Home Office of the Company, at the
address shown on page 1 of this prospectus. When the Contract is received by
the Company, the Company will void the Contract and refund the Contract Value
in full unless otherwise required by state and/or federal law. All Individual
Retirement Annuity refunds will be return of Purchase Payments (see "Right to
Revoke").
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<PAGE> 11
CONDENSED FINANCIAL INFORMATION
Accumulation Unit Values (for an accumulation unit outstanding throughout the
period)
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION PERCENT NUMBER OF
UNIT VALUE UNIT VALUE CHANGE IN ACCUMULATION
AT BEGINNING AT END ACCUMULATION UNITS AT END
FUND OF PERIOD OF PERIOD UNIT VALUE OF THE PERIOD YEAR
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NSAT-Capital 14.442619 17.979967 24.49% 1,905,248 1996
Appreciation ------------------------------------------------------------------------------------
Fund-Q 11.311683 14.442619 27.68% 1,711,709 1995
------------------------------------------------------------------------------------
11.564256 11.311683 -2.18% 1,788,703 1994
------------------------------------------------------------------------------------
10.689287 11.564256 8.19% 1,249,864 1993
------------------------------------------------------------------------------------
10.000000 10.689297 6.89% 588,851 1992
- -------------------------------------------------------------------------------------------------------------
NSAT-Government Bond 29.463573 30.092479 2.13% 2,948,795 1996
Fund-Q ------------------------------------------------------------------------------------
25.138302 29.463573 17.21% 3,276,421 1995
------------------------------------------------------------------------------------
26.318797 25.138302 -4.49% 3,538,336 1994
------------------------------------------------------------------------------------
24.348055 26.318797 8.09% 3,946,493 1993
------------------------------------------------------------------------------------
22.869936 24.348055 6.46% 2,650,975 1992
------------------------------------------------------------------------------------
19.854919 22.869936 15.19% 1,805,156 1991
------------------------------------------------------------------------------------
18.372987 19.854919 8.07% 1,291,591 1990
------------------------------------------------------------------------------------
16.331709 18.372987 12.50% 1,182,905 1989
------------------------------------------------------------------------------------
15.312739 16.331709 6.65% 1,184,100 1988
------------------------------------------------------------------------------------
15.295126 15.312739 0.12% 1,190,140 1987
- -------------------------------------------------------------------------------------------------------------
NSAT-Money Market 19.595876 20.329483 3.74% 1,617,637 1996
Fund-Q* ------------------------------------------------------------------------------------
18.790546 19.595876 4.29% 1,618,571 1995
------------------------------------------------------------------------------------
18.325918 18.790546 2.54% 1,636,119 1994
------------------------------------------------------------------------------------
18.069824 18.325918 1.42% 1,647,900 1993
------------------------------------------------------------------------------------
17.705124 18.069824 2.06% 1,840,923 1992
------------------------------------------------------------------------------------
16.950132 17.705124 4.45% 2,323,043 1991
------------------------------------------------------------------------------------
15.891433 16.950132 6.66% 2,678,914 1990
------------------------------------------------------------------------------------
14.760926 15.891433 7.66% 2,395,888 1989
------------------------------------------------------------------------------------
13.935064 14.760926 5.93% 2,117,718 1988
------------------------------------------------------------------------------------
13.264408 13.935064 5.06% 1,894,196 1987
- -------------------------------------------------------------------------------------------------------------
NSAT-Total Return 51.701438 62.170693 20.25% 5,119,908 1996
Fund-Q ------------------------------------------------------------------------------------
40.575816 51.701438 27.42% 5,049,123 1995
------------------------------------------------------------------------------------
40.671816 40.575816 -0.24% 5,094,417 1994
------------------------------------------------------------------------------------
37.150744 40.671816 9.48% 4,467,810 1993
------------------------------------------------------------------------------------
34.794462 37.150744 6.77% 3,578,781 1992
------------------------------------------------------------------------------------
25.454897 34.794462 36.69% 2,974,227 1991
------------------------------------------------------------------------------------
28.044760 25.454897 -9.23% 2,734,562 1990
------------------------------------------------------------------------------------
25.094601 28.044760 11.76% 2,897,067 1989
------------------------------------------------------------------------------------
21.178453 25.094601 18.49% 2,746,255 1988
------------------------------------------------------------------------------------
21.612441 21.178453 -2.01% 2,885,264 1987
- -------------------------------------------------------------------------------------------------------------
</TABLE>
*The 7-day yield on the Money Market Fund as of December 31, 1996 was 3.64%.
9
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<PAGE> 12
CONDENSED FINANCIAL INFORMATION
CONTINUED
Accumulation Unit Values (For an accumulation unit outstanding throughout
the period).
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION PERCENT NUMBER OF
UNIT VALUE UNIT VALUE CHANGE IN ACCUMULATION
AT BEGINNING AT END ACCUMULATION UNITS AT END
FUND OF PERIOD OF PERIOD UNIT VALUE OF THE PERIOD YEAR
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NSAT-Capital 14.442619 17.979967 24.49% 779,474 1996
Appreciation ------------------------------------------------------------------------------------
Fund-NQ 11.311683 14.442619 27.68% 739,691 1995
------------------------------------------------------------------------------------
11.564256 11.311683 -2.18% 821,411 1994
------------------------------------------------------------------------------------
10.689287 11.564256 8.19% 602,710 1993
------------------------------------------------------------------------------------
10.000000 10.689297 6.89% 263,516 1992
- -------------------------------------------------------------------------------------------------------------
NSAT-Government Bond 29.474435 30.103580 2.13% 1,371,551 1996
Fund-NQ ------------------------------------------------------------------------------------
25.147577 29.474435 17.21% 1,618,704 1995
------------------------------------------------------------------------------------
26.328516 25.147577 -4.49% 1,893,807 1994
------------------------------------------------------------------------------------
24.357055 26.328516 8.09% 2,350,137 1993
------------------------------------------------------------------------------------
22.878402 24.357055 6.46% 1,501,470 1992
------------------------------------------------------------------------------------
19.862268 22.878402 15.19% 976,874 1991
------------------------------------------------------------------------------------
18.379796 19.862268 8.07% 750,363 1990
------------------------------------------------------------------------------------
16.337763 18.379796 12.50% 756,058 1989
------------------------------------------------------------------------------------
15.318418 16.337763 6.65% 845,602 1988
------------------------------------------------------------------------------------
15.300795 15.318418 0.12% 1,034,597 1987
- -------------------------------------------------------------------------------------------------------------
NSAT-Money Market 21.291272 22.088348 3.74% 600,726 1996
Fund-NQ* ------------------------------------------------------------------------------------
20.416267 21.291272 4.29% 665,100 1995
------------------------------------------------------------------------------------
19.911440 20.416267 2.54% 831,132 1994
------------------------------------------------------------------------------------
19.633190 19.911440 1.42% 819,892 1993
------------------------------------------------------------------------------------
19.236937 19.633190 2.06% 1,117,454 1992
------------------------------------------------------------------------------------
18.416623 19.236937 4.45% 1,684,322 1991
------------------------------------------------------------------------------------
17.266332 18.416623 6.66% 2,083,996 1990
------------------------------------------------------------------------------------
16.038015 17.266332 7.66% 2,127,690 1989
------------------------------------------------------------------------------------
15.140691 16.038015 5.93% 2,219,382 1988
------------------------------------------------------------------------------------
14.412005 15.140691 5.06% 2,567,315 1987
- -------------------------------------------------------------------------------------------------------------
NSAT-Total Return 50.214359 60.382482 20.25% 2,180,633 1996
Fund-NQ ------------------------------------------------------------------------------------
39.408735 50.214359 27.42% 2,273,685 1995
------------------------------------------------------------------------------------
39.501981 39.408735 -0.24% 2,360,160 1994
------------------------------------------------------------------------------------
36.082181 39.501981 9.48% 2,184,517 1993
------------------------------------------------------------------------------------
33.793676 36.082181 6.77% 1,671,604 1992
------------------------------------------------------------------------------------
24.722750 33.793676 36.69% 1,370,409 1991
------------------------------------------------------------------------------------
27.238121 24.722750 -9.23% 1,268,584 1990
------------------------------------------------------------------------------------
24.372817 27.238121 11.76% 1,476,049 1989
------------------------------------------------------------------------------------
20.569309 24.372817 18.49% 1,458,246 1988
------------------------------------------------------------------------------------
20.990807 20.569309 -2.01% 1,853,494 1987
- -------------------------------------------------------------------------------------------------------------
</TABLE>
*The 7-day yield on the Money Market Fund as of December 31, 1996 was 3.64%.
10
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<PAGE> 13
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 offers a complete line of life insurance, including
annuities and accident and health insurance. It is admitted to do business in
the District of Columbia, Puerto Rico and in all states.
THE VARIABLE ACCOUNT
The Variable Account was established by the Company on October 7, 1981,
pursuant to the provisions of Ohio law. The Company has caused the Variable
Account to be registered with the Securities and Exchange Commission as a unit
investment trust pursuant to the provisions of the Investment Company Act of
1940. Such registration does not involve supervision of the management of the
Variable Account or the Company by the Securities and Exchange Commission.
The Variable Account is a separate investment account of the Company and
as such, is not chargeable with liabilities arising out of any other business
the Company may conduct. The Company does not guarantee the investment
performance of the Variable Account. Obligations under the Contracts, however,
are obligations of the Company. Income, gains and losses, whether or not
realized, from the assets of the Variable Account are, in accordance with the
Contracts, credited to or charged against the Variable Account without regard
to other income, gains, or losses of the Company.
Purchase payments are allocated within the Variable Account among one or
more Sub-Accounts made up of shares in the underlying Mutual Fund options
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 Qualified
Contracts and one such Sub-Account contains the underlying Mutual Funds shares
attributable to Accumulation Units under Non-Qualified Contracts. A summary of
investment objectives is contained in the description of each underlying Mutual
Fund option below.
NATIONWIDE SEPARATE ACCOUNT TRUST
Nationwide Separate Account Trust (NSAT) is a diversified open-end
management investment company created under the laws of Massachusetts. The
Trust offers five funds, of which, four are available and listed below, each
with its own investment objectives. Currently, shares of the Trust will be sold
only to life insurance company separate accounts to fund the benefits under
variable life insurance or annuity policies issued by life insurance companies.
The assets of the Trust are managed by Nationwide Advisory Services,
Inc., One Nationwide Plaza, Columbus, Ohio 43216, a wholly-owned subsidiary of
Nationwide Life Insurance Company. More detailed information may be found in
the current prospectus for each Mutual Fund offered. Such a prospectus for the
Mutual Fund or funds being considered must accompany this prospectus and should
be read in conjunction herewith. A copy of each prospectus may be obtained
without charge from Nationwide Life Insurance Company by calling
1-800-243-6295, TDD 1-800-238-3035 or by writing P.O. Box 182356, Columbus,
Ohio 43218-2356.
- -CAPITAL APPRECIATION FUND
Investment Objective: The Fund is designed for investors who are interested in
long-term growth. The Fund seeks to meet its objective primarily through a
diversified portfolio of the common stock of companies which the investment
manager determines have a better-than-average potential for sustained capital
growth over the long term.
- -GOVERNMENT BOND FUND
Investment Objective: To provide as high a level of income as is consistent
with the preservation of capital. It seeks to achieve its objective by
investing in a diversified portfolio of securities issued or backed by the
U.S. Government, its agencies or instrumentalities.
- -MONEY MARKET FUND
Investment Objective: To seek as high a level of current income as is
considered consistent with the preservation of capital and liquidity by
investing primarily in money market instruments.
11
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<PAGE> 14
- -TOTAL RETURN FUND
Investment Objective: To obtain a reasonable long-term total return (i.e.,
earnings growth plus potential dividend yield) on invested capital from a
flexible combination of current return and capital gains through investments in
common stocks, convertible issues, money market instruments and bonds with a
primary emphasis on common stocks.
VOTING RIGHTS
Voting rights under the Contracts apply ONLY with respect to Purchase
Payments or accumulated amounts allocated to the Variable Account.
In accordance with its view of present applicable law, the Company will
vote the shares of the underlying Mutual Funds held in the Variable Account at
regular and special meetings of the shareholders of the underlying Mutual
Funds. These shares will be voted in accordance with instructions received
from Contract Owners who have an interest in the variable Account. If the
Investment Company Act of 1940 or any regulation thereunder should be amended
or if the present interpretation thereof should change, and as a result the
Company determines that it is permitted to vote the shares of the underlying
Mutual Funds in its own right, it may elect to do so.
The Contract Owner shall be 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 of the Variable Account by the net asset value of the
underlying Mutual Fund corresponding to the Sub-Account. The number of shares
which a person has the right to vote 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 held in the
Variable Account as to which no timely instructions are received will be voted
by the Company in the same proportion as the voting instructions which are
received with respect to all Contracts participating in the Variable Account.
VARIABLE ACCOUNT CHARGES, PURCHASE PAYMENTS, AND OTHER DEDUCTIONS
MORTALITY RISK CHARGE
The Company assumes a "mortality risk" by virtue of annuity rates
incorporated into the Contract which cannot be changed regardless of the death
rates of persons receiving annuity payments or of the general population.
For assuming this mortality risk, the Company deducts a Mortality Risk
Charge from the Variable Account. This amount is computed on a daily basis and
is equal on an annual rate to 0.80% of the daily net asset value of the
Variable Account. The Company expects to generate a profit through assessing
this charge.
EXPENSE RISK CHARGE
The Company will not increase charges for administration of the
Contracts regardless of its actual expenses. For assuming this expense risk,
the Company deducts an Expense Risk Charge from the Variable Account. This
amount is computed on a daily basis and is equal to an annual rate of 0.45% of
the daily net asset value of the Variable Account. The Company expects to
generate a profit through assessing this charge.
CONTINGENT DEFERRED SALES CHARGE
No sales charge deduction is assessed when Purchase Payments for these
Contracts are made. However, if any part of the Contract Value of such
Contracts is surrendered, the Company will, with certain exceptions, deduct a
Contingent Deferred Sales Charge not to exceed 7% of the lesser of the total of
all Purchase Payments made within 84 months prior to the date of the request to
surrender, or the amount surrendered. The Contingent Deferred Sales Charge,
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 Contingent Deferred Sales Charge. 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 gross Distribution allowance which
may be paid on the sale of these Contracts are 6.0% of Purchase Payments.
12
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<PAGE> 15
The Contingent Deferred Sales Charge is calculated by multiplying the
applicable Contingent Deferred Sales Charge percentages noted below by the
Purchase Payments that are surrendered. For Purposes of calculating the
Contingent Deferred Sales Charge, surrenders are considered to come first from
the oldest Purchase Payment and so forth. For tax purposes, a surrender is
usually treated as a withdrawal of earnings first.
The Contingent Deferred Sales Charge applies to Purchase Payments as follows:
CONTINGENT DEFERRED SALES CHARGE
TABLE FOR CONTRACTS ISSUED ON OR AFTER FEBRUARY 1, 1989
<TABLE>
<CAPTION>
NUMBER OF COMPLETED CONTINGENT DEFERRED NUMBER OF COMPLETED CONTINGENT DEFERRED
YEARS FROM DATE OF SALES CHARGE YEARS FROM DATE OF SALES CHARGE
PURCHASE PAYMENT PERCENTAGE PURCHASE PAYMENT PERCENTAGE
---------------- ---------- ---------------- ----------
<S> <C> <C> <C>
0 7% 4 3%
1 6% 5 2%
2 5% 6 1%
3 4% 7 0%
</TABLE>
Starting with the second year after a Purchase Payment has been made,
the Contract Owner may withdraw without a Contingent Deferred Sales Charge
(CDSC) the greater of (a) an amount equal to 10% of that Purchase Payment ; or
(b) any amount withdrawn from the Contract to meet minimum distribution
requirements under the Code. This free withdrawal privilege is non-cumulative;
that is, free amounts not taken during any given Contract Year cannot be taken
as free amounts in a subsequent Contract Year. Withdrawals may be restricted
for Contracts issued pursuant to the terms of a Tax Sheltered Annuity or other
Qualified Plan.
For Contracts issued prior to February 1, 1989, a Contingent Deferred
Sales Charge will be deducted by the Company equal to 5% of the lesser of the
total of all Purchase Payments made within 96 months prior to the date of the
request for surrender, or the amount surrendered. For Contracts issued prior to
February 1, 1989, the Contract Owner may, after the first year from the date of
each Purchase Payment, withdraw without a Contingent Deferred Sales Charge, up
to 5% of that Purchase Payment for each year that the Purchase Payment has
remained on deposit (less the amount of such Purchase Payment previously
surrendered free of charge).
The Contingent Deferred Sales Charge will not be assessed against the
withdrawal of Purchase Payments made to Contracts issued under the Nationwide
Enterprise Multi-Flex Account (NEMA), available to officers, directors, agents,
employees, independent contract or agents, employees of Nationwide agents,
retirees, their spouses, children, and immediate relatives of any employee of
the Nationwide Insurance Enterprise.
When a Contract described in this prospectus is exchanged for another
Contract issued by the Company or any of its affiliate insurance companies, of
the type and class which the Company determined is eligible for such exchange,
the Company will waive the Contingent Deferred Sales Charge on the first
Contract.
In no event will elimination of Contingent Deferred Sales Charges be
permitted where such elimination will be unfairly discriminatory to any person,
or where prohibited by state law.
CONTRACT MAINTENANCE CHARGE AND ADMINISTRATION CHARGE
Each year on the Contract Anniversary (and on the date of surrender in
any year in which the entire Contract Value is surrendered), the Company
deducts an annual Contract Maintenance Charge of $30 from the Contract Value to
reimburse it for administrative expenses relating to the issuance and
maintenance of the Contract. The Contract Maintenance Charge will be allocated
between the Fixed Account and Variable Account in the same percentages as the
Purchase Payment investment allocations are to the Fixed Account and Variable
Account. In any Contract Year when A Contract is surrendered for its full value
on any date other than the Contract Anniversary, the Contract Maintenance
Charge will be deducted at the time of each surrender. The amount of the
Contract Maintenance Charge may not be increased by the Company. In no event
will the reduction or elimination of the Contract Maintenance Charge be
permitted where such reduction or elimination would be unfairly discriminatory
to any person, or where it is prohibited by state law.
13
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<PAGE> 16
The Company also assesses an Administration Charge equal on an annual
basis to 0.05% of the daily net asset value of the Variable Account. The
deduction of the Administration Charge is made from each Sub-Account in the
same proportion that the Contract Value in each Sub-Account bears to the total
Contract Value in the Variable Account. The Contract Maintenance Charge and
Administrative Charge are designed only to reimburse the Company for
administrative expenses and the Company will monitor these charges to ensure
that they do not exceed annual administration expenses. The deduction of the
Administration Charge is made from each Sub-Account in the same proportion that
the Contract Value in each Sub-Account bears to the total Contract Value in the
Variable Account. These charges are designed only to reimburse the Company for
administrative expenses and the Company will monitor these charges to ensure
that they do not exceed annual administration expenses.
PREMIUM TAXES
The Company will charge against the Contract Value the amount of any
premium taxes levied by a state or any other governmental entity upon Purchase
Payments received by the Company. Premium taxes currently imposed by certain
jurisdictions range from 0% to 3.5%. This range is subject to change. The
method used to recoup premium tax expense will be determined by the Company at
its sole discretion and in compliance with applicable state law. The Company
currently deducts such charges from a Contract Owner's Contract Value either:
(1) at the time the Contract is surrendered, (2) at Annuitization, or (3) in
those states which require, at the time Purchase Payments are made to the
Contract.
EXPENSES OF THE VARIABLE ACCOUNT
The Variable Account is responsible for the following types of expenses:
(1) administrative expenses related to the issuance and maintenance of the
Contracts; (2) mortality risk charge associated with guaranteeing the annuity
purchase rates at issue for the life of the Contracts; and (3) expense risk
charge associated with guaranteeing that the Mortality Risk, Expense Risk,
Contract Maintenance and Administration Charges described in this prospectus
will not be changed regardless of actual expenses. If these charges are
insufficient to cover these expenses, the loss will be borne by the Company.
For 1996, the Variable Account incurred total expenses equal to 1.56% of
its average net assets relating to the administrative, sales, mortality and
expense risk charges described above for all Contracts outstanding during that
year. Deductions from and expenses paid out of the assets of the underlying
Mutual Fund options are described in each underlying Mutual Fund's prospectus.
INVESTMENTS OF THE VARIABLE ACCOUNT
At the time of application each Contract Owner elects to have Purchase
Payments attributable to his or her participation in the Variable Account
allocated among one or more of the Sub-Accounts which consist of shares in the
underlying Mutual Fund options. Shares of the respective 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 election as to allocation of Purchase Payments or
may elect to exchange amounts among the Sub-Account Options pursuant to such
terms and conditions applicable to such transactions as may be imposed by each
of the underlying Mutual Fund options, in addition to those set forth in the
Contracts.
RIGHT TO REVOKE
Unless otherwise required by state and/or federal law, the Contract
Owner may revoke the Contract 10 days after receipt of the Contract and receive
a refund of Contract Value. All Individual Retirement Annuity refunds will be
return of Purchase Payments. In order to revoke the Contract, the Contract must
be mailed or delivered to the Home Office of the Company at the mailing address
shown on page 1 of this prospectus. Mailing or delivery must occur on or before
10 days after receipt of the Contract for revocation to be effective. In order
to revoke the Contract, if it has not been received, written notice must be
mailed or delivered to the Home Office of the Company at the mailing address
shown on page 1 of this prospectus.
The liability of the Variable Account under this provision is limited to
the Contract Value in each Sub-Account on the date of revocation. Any
additional amounts refunded to the Contract Owner will be paid by the Company.
14
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<PAGE> 17
TRANSFERS
Transfers between the Fixed and Variable Account must be made prior to
the Annuitization Date. The Contract Owner may request a transfer of up to 100%
of the Variable Account Contract Value to the Fixed Account without penalty or
adjustment. The Company reserves the right to restrict transfers from the
Variable Account to the Fixed Account to 25% of the Contract Value for any 12
month period. All amounts transferred to the Fixed Account must remain on
deposit in the Fixed Account until the expiration of the 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. Transfers must also
be made prior to the Annuitization Date. 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 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. The amount that may be transferred from the Fixed Account to the
Variable Account will be determined by the Company at its sole discretion, but
will not be less than 10% of the total value of the portion of the Fixed
Account that is maturing. The amount that may be transferred 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 then current Interest Rate Guarantee Period. Owners who
have entered into a Dollar Cost Averaging Agreement with the Company (see
"Dollar Cost Averaging") may transfer from the Fixed Account to the Variable
Account under the terms of that agreement.
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 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. The Company will not
be liable for following 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 shall be borne by the Contract Owner. The Company may withdraw
the telephone exchange privilege upon 30 days' written notice to Contract
Owners.
ASSIGNMENT
Where permitted, the Contract Owner may assign some or all of the rights
under the Contract at any time during the lifetime of the Designated Annuitant
prior to the Annuitization Date. Such assignment will take effect upon receipt
and recording by the Company at its Home Office of a written notice thereof
executed by the Contract Owner. The Company is not responsible for the validity
or tax consequences of any assignment. The Company shall not be liable as to
any payment or other settlement made by the Company before the 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.
If this Contract is a Non-Qualified Contract, any portion of Contract
Value attributable to Purchase Payments made after August 13, 1982, which is
pledged or assigned after August 13, 1982, shall be treated as a Distribution
and shall be included in gross income to the extent that the cash value exceeds
the investment in the Contract, for the taxable year in which it was pledged or
assigned. In addition, any Contract Values assigned may, under certain
conditions, be subject to a tax penalty equal to 10% of the assigned amount
which is included in gross income. 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.
Individual Retirement Annuities, Tax Sheltered Annuities and Qualified
Contracts may not be assigned, pledged or otherwise transferred except under
such conditions as may be allowed by applicable law.
15
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<PAGE> 18
LOAN PRIVILEGE
Prior to the Annuitization Date, the Owner of a Qualified Contract or
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 Qualified Contracts or Tax Sheltered Annuities are available
beginning 30 days after the Date of Issue. The Contract Owner may borrow a
minimum of $1,000. 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 balance owed during the prior one-year period. Additional loans are
subject to the Contract minimum amount. The aggregate of all loans may not
exceed the Contract Value limitations stated above.
For salary reduction Tax Sheltered Annuities loans may only be secured
by the Contract Value. For loans from Qualified Contracts and other Tax
Sheltered Annuities, the Company reserves the right to limit a loan to 50% of
the Contract Value subject to the acceptance by the Contract Owner of the
Company's loan agreement. Where permitted, the Company may require other named
collateral where the loan from a Contract exceeds 50% of the Contract Value.
All loans are made from a collateral fixed account. An amount equal to
the principal amount of the loan will be transferred to the collateral fixed
account. Unless instructed to the contrary by the Contract Owner, the Company
will first transfer to the collateral fixed account the Variable Account units
from the Contract Owner's investment options in proportion to the assets in
each option until the required balance is reached or all such variable units
are exhausted. The remaining required collateral will next be transferred from
the Fixed Account. No withdrawal charges are deducted at the time of the loan,
or on the transfer from the Variable Account to the collateral fixed account.
Until the loan has been repaid in full, that portion of the collateral
fixed account equal to the outstanding loan balance shall 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 between the Fixed and Variable
Accounts in the same manner as a purchase payment. Both loan repayments and
purchase payments will be allocated to the Contract in accordance with the most
current allocation, unless the Contract Owner and the Company agree otherwise
on a case by case basis.
If the Contract is surrendered while the loan is outstanding, the
surrender value will be reduced by the amount of the loan outstanding plus
accrued interest. If the Contract Owner/Designated Annuitant dies while the
loan is outstanding, the death benefit will be reduced by the amount of the
loan outstanding plus accrued interest. If a Contract Owner who is not the
Designated Annuitant dies while the loan is still outstanding, the Distribution
will be reduced by the amount of the loan outstanding plus accrued interest. If
annuity payments start while the loan is outstanding, the Contract Value will
be reduced by the amount of the outstanding loan plus accrued interest. 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, then that payment, which may be a single periodic payment or payment of
the entire loan, will be treated as a deemed distribution, as permitted by law,
may be taxable to the borrower, and may be subject to the early withdrawal tax
penalty. Interest which subsequently accrues on defaulted amounts may also be
treated as additional deemed distributions each year. 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, and this amount
may again be treated as a Distribution where required by law. Additional loans
may not be available while a previous loan remains in default.
16
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<PAGE> 19
Loans may also be subject to additional limitations or restrictions
under the terms of the employer's plan. Loans permitted under this Contract may
still be taxable in whole or part if the Participant has additional loans from
other plans or contracts. The Company will calculate the maximum nontaxable
loan based on the information provided by the Participant or the Employer.
Loan repayments must be identified as such or else they will be treated
as Purchase Payments, and will not be used to reduce the outstanding loan
principal or interest due. The Company reserves the right to modify the term or
procedures associated with the loan in the event of a change in the laws or
regulations relating to the treatment of loans. The Company also reserves the
right to assess a loan processing fee. Individual Retirement Annuities, SEP-IRA
accounts and Non-Qualified Contracts are not eligible for loans.
CONTINGENT OWNER AND BENEFICIARY PROVISIONS
The Contingent Owner is the person (or persons) who may receive certain
benefits under the Contract if the Contract Owner dies before the Annuitization
Date. If more than one Contingent Owner survives the Contract Owner, each will
share equally unless otherwise specified in the Contingent Owner designation.
If a Contingent Owner is not named or predeceases the Contract Owner, all
rights and interest of the Contingent owner will vest in the Contract Owner's
estate. Subject to the terms of any existing assignment, the Contract Owner
may change the Contingent Owner from time to time prior to the Annuitization
Date by written notice to the Company. The change will take effect, upon
receipt and recording by the Company at its Home Office, 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. Unless the Contingent Owner (or Joint Owner) is also named
Beneficiary (or Contingent Beneficiary, if applicable), the Contingent Owner
(or Joint Owner) shall have no rights in the Contract if the Contract
Owner/Annuitant dies. If a Contract Owner/Annuitant dies, disposition of the
Contract shall be determined based on the "Death of Annuitant Prior to the
Annuitization Date" provisions.
The Beneficiary is the person (or persons) who may receive certain
benefits under the Contract in the event the Designated Annuitant dies prior to
the Annuitization Date. If more than one Beneficiary survives the Designated
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 shall vest in the Contingent Beneficiary and if
more than one Contingent Beneficiary survives, each will share equally unless
otherwise specified in the Contingent Beneficiary designation. If a Contingent
Beneficiary is not named or predeceases the Annuitant, all rights and interest
of the Contingent Beneficiary will vest with the Contract Owner or the Contract
Owner's estate. Subject to the terms of any existing assignment, the Contract
Owner may change the Beneficiary or Contingent Beneficiary from time to time
during the lifetime of the Designated Annuitant, by written notice to the
Company. The change will take effect, upon receipt by the Company at its Home
Office, whether or not the Designated 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.
OWNERSHIP PROVISIONS
Unless otherwise provided, the Contract Owner has all rights under the
Contract. IF THE PURCHASER NAMES SOMEONE OTHER THAN HIMSELF OR HERSELF AS
OWNER, THE PURCHASER WILL HAVE NO RIGHTS UNDER THE CONTRACT. The Designated
Annuitant may become the Contract Owner on and after the Annuitization Date
subject to the Annuity Payout Option elected. Ownership rights under this
Contract may be restricted under the provisions of the retirement or deferred
compensation plan for which this Contract may be issued.
If the Owner dies prior to the Annuitization Date, contract ownership
will be determined in accordance with the "Death of Contract Owner" provision.
If the Designated Annuitant does not survive the Contract Owner or if the
Designated Annuitant and the Owner are the same person, Contract ownership will
be determined in accordance with the "Death Benefit At Death of Designated
Annuitant Prior To The Annuitization Date" provision. After the Annuitization
Date, ownership will be determined based on the Annuity Payment Option.
Prior to the Annuitization Date, the Contract Owner may name a new
Contract Owner at any time, but such change may be subject to state and federal
gift taxes and may be treated as an assignment for federal income tax purposes.
Such an assignment would result in a deemed distribution at the value of the
Contract. Any new choice of Contract Owner will automatically revoke any prior
choice of Contract Owner. Any request for change must be: (1) made in writing;
and (2) received by the Company at its Home Office. A request for change of
Contract Owner must be a proper written application and may include a signature
guarantee as specified in the "Surrender" section. The change will become
effective as of the date the written request is recorded. A new choice of
Contract Owner will not apply to any payment made or action taken by the
Company prior to the time it was received.
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The Contract Owner may request a change in the Designated Annuitant
before the Annuitization Date under the following conditions: (1) request for
such change must be made by the Contract Owner; (2) request must be made in
writing on a form acceptable to the Company; (3) request must be signed by the
Contract Owner; and (4) such change is subject to underwriting and approval by
the Company. The Company may be required to tax report any previously
unreported earnings in the Contract on the date of such change.
SUBSTITUTION OF SECURITIES
If the shares of the underlying Mutual Fund options described in this
prospectus should no longer be available for investment by the Variable Account
or if, in the judgment of the Company's management, further investment in such
underlying Mutual Fund shares should become inappropriate the Company may
eliminate Sub-Accounts, combine two or more Sub-Accounts, or substitute shares
of one or more underlying Mutual Fund for other 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 Securities and Exchange Commission, and
under such requirements as it may impose.
CONTRACT OWNER INQUIRIES
Contract Owner inquiries may be directed to Nationwide Life Insurance
Company by writing P.O. Box 182356, Columbus, Ohio 43218-2356, or calling
1-800-243-6295, TDD 1-800-238-3035.
ANNUITY PAYMENT PERIOD-VARIABLE ACCOUNT
At the Annuitization Date the Variable Account Contract Value is applied
to the Annuity Payment Option elected and the amounts of the first such payment
shall be determined in accordance with the Annuity Table in the Contract.
Subsequent Variable Annuity payments vary in amount in accordance with
the investment performance of the Variable Account. The dollar amount of the
first annuity payment determined as above 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.
VALUE OF AN ANNUITY UNIT
The value of an Annuity Unit was arbitrarily set initially at $10 when
the first underlying Mutual Fund shares were purchased. The value of an Annuity
Unit for a Sub-Account for any subsequent Valuation Period is determined by
multiplying the Annuity Unit Value for 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 Annuity Tables contained in the Contracts (see "Net Investment
Factor").
ASSUMED INVESTMENT RATE
A 3.5% Assumed Investment Rate is built into the Annuity Tables
contained 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 investment rate
is at the annual rate of 3.5%, the annuity payments will be level.
FREQUENCY AND AMOUNT OF ANNUITY PAYMENTS
Annuity payments will be paid as monthly installments. However, if the
net amount available to apply under any Annuity Payment Option is less than
$500, the Company shall have the right to pay such amount in one lump sum in
lieu of the payments otherwise provided for. In addition, if the payments
provided for would be or become less than $20, the Company shall have the right
to change the frequency of payments to such intervals as will result in
payments of at least $20. In no event will the Company make payments under an
annuity option less frequently than annually.
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ANNUITY COMMENCEMENT DATE
The Contract Owner selects an Annuity Commencement Date at the time of
application. In addition, the Contract Owner may, upon prior written notice to
the Company, change the Annuity Commencement Date. The date to which such a
change may be made shall be the first day of a calendar month. Such date must
be the first day of a calendar month and must be at least 2 years after the
Date of Issue. In the event the Contract is issued subject to the terms of a
Qualified Plan or Tax Sheltered Annuity, Annuitization may occur during the
first 2 years subject to approval by the Company.
CHANGE IN ANNUITY COMMENCEMENT DATE
If the Contract Owner requests in writing, and the Company approves the
request, the Annuity Commencement Date may be deferred. The new date must
comply with the Annuity Date provisions above.
CHANGE IN FORM OF ANNUITY
The Contract Owner may, upon prior written notice to the Company, at any
time prior to the Annuity Commencement Date, elect one of the Annuity Payment
Options.
ANNUITY PAYMENT OPTIONS
Any of the following Annuity Payment Options may be elected:
Option 1-Life Annuity-An annuity payable periodically, but at least
annually, during the lifetime of the Designated Annuitant, ceasing with
the last payment due prior to the death of the Designated Annuitant. IT
WOULD BE POSSIBLE UNDER THIS OPTION FOR THE DESIGNATED ANNUITANT TO
RECEIVE ONLY ONE ANNUITY PAYMENT IF HE OR SHE DIED BEFORE THE SECOND
ANNUITY PAYMENT DATE, TWO ANNUITY PAYMENTS IF HE OR SHE DIED BEFORE THE
THIRD ANNUITY PAYMENT DATE, AND SO ON.
Option 2-Joint and Last Survivor Annuity-An annuity payable
periodically, but at least annually, during the joint lifetimes of the
Designated Annuitant and designated second person and continuing
thereafter during the lifetime of the survivor. AS IS THE CASE UNDER
OPTION 1 ABOVE, THERE IS NO MINIMUM NUMBER OF PAYMENTS GUARANTEED UNDER
THIS OPTION. PAYMENTS CEASE UPON THE DEATH OF THE LAST SURVIVING
ANNUITANT REGARDLESS OF THE NUMBER OF PAYMENTS RECEIVED.
Option 3-Life Annuity With 120 or 240 Monthly Payments Guaranteed-An
annuity payable monthly during the lifetime of the Designated Annuitant
with the guarantee that if at the death of the Designated Annuitant
payments have been made for fewer than 120 or 240 months, as selected,
payments will be made as follows:
(1) If the Designated Annuitant is payee, any guaranteed annuity
payments will be continued during the remainder of the selected
period such recipient as chosen by the Annuitant at the time the
Annuity Payment Option was selected. In the alternative, the
recipient may, at any time, elect to have the present value of the
guaranteed number of annuity payments remaining paid in a lump sum
as specified in section (2) below.
(2) If someone other than the Beneficiary is payee, the present value,
computed as of the date on which notice of death is received by the
Company at its Home Office, of the guaranteed number of annuity
payments remaining after receipt of such notice and to which the
deceased would have been entitled had he or she not died, computed
at the Assumed Investment Rate effective in determining the Annuity
Tables, shall be paid in a lump sum.
Some of the stated Annuity Options may not be available in all states.
The Owner may request an alternative non-guaranteed option by giving notice in
writing prior to Annuitization. If such a request is approved by the Company,
it will be permitted under the Contract.
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. Qualified Plans, Contracts, Tax Sheltered
Annuities and Individual Retirement Annuities, and SEP IRAs are subject to the
minimum Distribution requirements set forth in the Plan, Contract, or Code.
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DEATH OF CONTRACT OWNER PROVISION - NON-QUALIFIED CONTRACTS
For Non-Qualified Contracts, if the Contract Owner and the Annuitant are
not the same person and such Contract Owner dies prior to the Annuitization
Date, the Contingent Owner becomes the new Contract Owner. IF there is no
surviving Contingent Owner, the Annuitant becomes the Contract Owner. The
entire interest in the Contract Value less any applicable deductions (which may
include a Contingent Deferred Sales Charge) must be distributed in accordance
with "Required Distributions Provisions-Non-Qualified Contracts" provisions.
DEATH BENEFIT PAYMENT PROVISIONS
The Death Benefit is payable to the Beneficiary unless the Owner has
named a Contingent Designated Annuitant. In such case, the Death Benefit is
payable to the Beneficiary upon the death of the last survivor of the
Designated Annuitant and Contingent Designated Annuitant. The value of the
Death Benefit will be determined as of the Valuation Date coincident with or
next following the date the Company receives the following three items: (1) due
proof of death; (2) an election specifying the Distribution method; and (3) any
applicable state required form(s).
If the Designated Annuitant dies prior to the first day of the calendar
month after his or her 75th birthday, the dollar amount of the Death Benefit
will be the greater of: (1) the sum of all Purchase Payments, increased at an
annual rate of 5% simple interest from the date of each Purchase Payment, for
each full year the payment has been in force, less any amounts surrendered, or
(2) the Contract Value.
If (1) the Contract Owner has requested an Annuity Commencement Date
later than the first day of the calendar month after the Designated Annuitant's
75th birthday; (2) the Company has approved the request, and (3) the Designated
Annuitant dies after his or her 75th birthday, the dollar amount of the Death
Benefits will be equal to the Contract Value.
Insurance regulations in the States of New York and North Carolina do
not permit the Death Benefit as described above. For Contracts issued in the
states of New York and North Carolina the amount of the Death Benefit will be
the greater of: (1) the sum of all Purchase Payments, less any amounts
surrendered, or (2) the Contract Value.
The amount of the Death Benefit will be limited to the Contract Value if
the Annuity Commencement Date is deferred beyond the Designated Annuitant's
75th birthday.
If the Annuitant dies after the Annuitization Date, any benefit that may
be payable will be determined according to the Annuity Payment Option elected.
REQUIRED DISTRIBUTIONS FOR QUALIFIED PLANS OR TAX SHELTERED ANNUITIES
The entire interest of an Annuitant under a Qualified Contract or 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 thereunder and will be paid,
notwithstanding anything else contained herein, to the Owner/Annuitant under
the Annuity Payments Option selected, over a period not exceeding:
A. the life of the Annuitant or the 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 life expectancy of the Annuitant and the Annuitant's designated
Beneficiary under the Annuity Payment Option.
For Tax Sheltered Annuity Contracts, 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 Qualified Plan or 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 no later than (1)
the first day of April following the calendar year in which the Annuitant
attains age 70 1/2; or (2) when the Annuitant retires, whichever is later (the
"required beginning date"). However, provision (2) 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 70 1/2. In the case of a governmental plan (as defined in Code Section
414(d)), or church plan (as defined in Code Section 401(a)(9)(C)), the Required
Beginning Date will be the later of the dates determined under the preceding
sentence or April 1 of the calendar year following the calendar year in which
the Annuitant retires.
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If the Designated Annuitant dies prior to the commencement of his or her
Distribution, the interest in the Qualified Contract or Tax Sheltered Annuity
must be distributed by December 31 of the calendar year which includes the
fifth anniversary of his or her death occurs, unless:
(A) The Annuitant names his or her surviving spouse as the Beneficiary and
such spouse elects to:
(a) receive Distribution of the account in substantially equal
payments over his or her life (or a period not exceeding his or
her life expectancy) and commencing not later than December 31 of
the year in which the Annuitant would have attained age 70 1/2;
or
(b) Annuitant names a Beneficiary other than his or her surviving
spouse and such Beneficiary elects to receive a Distribution of
the account 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, 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 and last
survivor expectancy of the Annuitant and the Annuitant's designated Beneficiary
(whichever is applicable under the applicable Minimum Distribution or MDIB
provisions). Life expectancy and joint and last survivor expectancy are
computed by the use of return multiples contained in Section 1.72-9 of the
Treasury Regulations.
REQUIRED DISTRIBUTIONS FOR INDIVIDUAL RETIREMENT ANNUITIES AND SEP-IRAS
Distribution from an Individual Retirement Annuity (IRA) must begin not
later than April 1 of the calendar year following the calendar year in which
the Owner attains age 70 1/2. Distribution may be accepted in a lump sum or in
substantially equal payments over: (a) the Owner's life or the lives of the
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 Beneficiary.
If the Owner dies prior to the commencement of his or her Distribution,
the interest in the Individual Retirement Annuity must be distributed by
December 31 of the 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 Individual Retirement Annuity established
for his or her benefit; or
(ii) receive Distribution of the account in nearly equal payments over
his or her life (or a period not exceeding his or her life
expectancy) and commencing not later than December 31 of the year
in which the Owner 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
account 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 Owner dies.
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 to the extent that a surviving souse
beneficiary elects to treat the Contract as his or her own, in the same manner
as described in Section (a)(i) in this provision.
If the amounts distributed do not satisfy the Distribution rules
mentioned above, a penalty tax of 50% is levied on the amount that should have
been 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 must annually report the amount of non-deductible
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 of all Individual Retirement Annuities.
Individual Retirement Annuity Distributions will not receive the benefit
of the tax treatment of a lump sum Distribution from a Qualified Plan. If the
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.
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GENERATION-SKIPPING TRANSFERS
The Company may be required to determine whether the Death Benefit or
any other payment constitutes a direct skip as defined in Section 2612 of the
Internal Revenue Code, and the amount of the tax on the generation-skipping
transfer resulting from such direct skip. If applicable, such payment will be
reduced by any tax the Company is required to pay by Section 2603 of the
Internal Revenue Code.
A direct skip may occur when property is transferred to or a Death
Benefit is paid to an individual two or more generations younger than the
Contract Owner.
GENERAL INFORMATION
CONTRACT OWNER SERVICES
ASSET REBALANCING- The Contract Owner may direct the automatic
reallocation of the underlying Mutual Fund options on a predetermined
percentage basis every three months. If the last day of the three month period
falls on a Saturday, Sunday, recognized holiday or any other day when the New
York Stock Exchange is closed, the Asset Rebalancing exchange will occur on the
last business day before that day. Asset Rebalancing will not affect future
allocations of Purchase Payments. An Asset Rebalancing request must be in
writing on a form provided by the Company.
Contracts issued to a Qualified Plan or a Tax Sheltered Annuity Plan as
defined by the Code may have superseding plan restrictions with regard to the
frequency of fund exchanges and underlying Mutual Fund options. The Contract
Owner may want to contact a financial adviser in order to discuss the use of
Asset Rebalancing in his or her contract.
The Company reserves the right to discontinue offering Asset Rebalancing
upon 30 days written notice to the Contract Owners, however, any
discontinuation will not affect Asset Rebalancing programs which have already
commenced. The Company also reserves the right to assess a processing fee for
this service.
DOLLAR COST AVERAGING- The Contract Owner may direct the Company to
automatically transfer a specified amount from the Money Market Fund
Sub-Account or the Fixed Account to any other Sub-Account within the Variable
Account on a monthly basis or as frequently as otherwise authorized by the
Company. This service is intended to allow the Contract Owner to utilize Dollar
Cost Averaging, a long-term investment program which provides for regular,
level investments over time. The Company makes no guarantees that Dollar Cost
Averaging, will result in a profit or protect against loss in a declining
market. The minimum monthly Dollar Cost Averaging transfer is $100. To qualify
for Dollar Cost Averaging, there must be a minimum total Contract Value of
$5,000.
In addition, Dollar Cost Averaging monthly transfers from the Fixed
Account must be equal to or less than 1/30th of the Fixed Account value when
the Dollar Cost Averaging program is requested. Transfers out of the Fixed
Account, other than for Dollar Cost Averaging, may be subject to certain
additional restrictions (see "Transfers"). A written election of this service,
on a form provided by the Company, must be completed by the Contract Owner in
order to begin transfers. Once elected, transfers from the Money Market
Sub-Account or the Fixed Account will be processed monthly or another approved
frequency until either the value in the Money Market Sub-Account or the Fixed
Account is depleted or the Contract Owner instructs the Company in writing to
cancel the transfers.
The Company reserves the right to discontinue offering Dollar Cost
Averaging upon 30 days' written notice to Contract Owners, however, such
discontinuation will not affect Dollar Cost Averaging programs already
commenced. The Company also reserves the right to assess a processing fee for
this service.
SYSTEMATIC WITHDRAWALS- A Contract Owner may elect in writing on a form
provided by the Company to take Systematic Withdrawals by surrendering a
specified dollar amount (of at least $100) on a monthly, quarterly,
semi-annual, or annual basis. The Company will process the withdrawals as
directed by surrendering on a pro-rata basis Accumulation Units from all
Sub-Accounts in which the Contract Owner has an interest, and the Fixed
Account. A Contingent Deferred Sales Charge may apply to Systematic Withdrawals
in accordance with the considerations set forth in the "Contingent Deferred
Sales Charge" section. Each Systematic Withdrawal is subject to federal income
taxes on the taxable portion. In addition, a 10% federal penalty tax may be
assessed on Systematic Withdrawals if the Contract Owner is under age 59 1/2.
Unless directed by the Contract Owner, the Company will withhold federal income
taxes from each Systematic Withdrawal. Unless the Contract Owner has made an
irrevocable election of distributions of substantially equal payments, the
Systematic Withdrawals, may discontinue Systematic Withdrawals at any time by
notifying the Company in writing.
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The Company reserves the right to discontinue offering Systematic
Withdrawals upon 30 days written notice; discontinuation will not affect
Systematic Withdrawal programs which have already commenced. The Company also
reserves the right to assess a processing fee for this service.
STATEMENTS AND REPORTS
The Company will mail to Contract Owners, at their last known address of
record, any statements and reports required by applicable law or regulation.
Contract Owners should therefore give the Company prompt notice of any address
change. The Company will send a confirmation statement to Contract Owners each
time a transaction is made affecting the Owners' Variable Account Contract
Value, such as making additional Purchase Payments, transfers, exchanges or
withdrawals. Quarterly statements are also mailed detailing the Contract
activity during the calendar quarter. Instead of receiving an immediate
confirmation of transactions made pursuant to some types of periodic payment
plan (such as a dollar cost averaging program) or salary reduction arrangement,
Contract Owners may receive confirmation of such transactions in their
quarterly statements. Contract Owners 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 Owner's Contract. The Company
will assume all transactions are accurately reported on quarterly statements or
confirmation statements unless the Contract Owner notifies the Company
otherwise within 30 days after receipt of the statement. The Company will also
send to Contract Owners each year an annual report and a semi-annual report
containing financial statements for the Variable Account, as of December 31 and
June 30, respectively.
ALLOCATION OF PURCHASE PAYMENTS AND CONTRACT VALUE
Purchase payments are allocated to one or more Sub-Accounts within the
Variable Account in accordance with the designation of the underlying Mutual
Funds by the Contract Owner, and converted into Accumulation Units.
The initial first year Purchase Payment must be at least $1,500 for
Non-Qualified Contracts. However, if periodic payments are expected by the
Company, this initial first year minimum may be satisfied by Purchase Payments
made on an annualized basis. Purchase payments, if any, after the first
Contract Year must be at least $10 each. The Company, however, reserves the
right to lower this $10 Purchase Payment minimum for certain employer sponsored
programs. 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 on
the life of any one Designated Annuitant may not exceed $1,000,000 without
prior consent of the Company.
THE PURCHASER IS CAUTIONED THAT INVESTMENT RETURN ON SMALL INITIAL AND
SUBSEQUENT PURCHASE PAYMENTS MAY BE LESS THAN CHARGES ASSESSED BY THE COMPANY.
The initial Purchase Payment allocated to designated Sub-Accounts of the
Variable Account will be priced not later than 2 business days after receipt of
an order to purchase if the Application and all information necessary for
processing the purchase order are complete upon receipt by the Company. 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 days, the prospective purchaser will be
informed of the reasons for the delay and the Purchase Payment will be returned
immediately unless the prospective purchaser specifically consents to the
Company retaining the Purchase Payment until the application is made complete.
Thereafter, subsequent Purchase Payments will be priced on the basis of the
Accumulation Unit Value next computed for the appropriate Sub-Account after the
additional Purchase Payment is received
Purchase payments will not be priced on the following nationally
recognized holidays: New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving and Christmas.
VALUE OF A VARIABLE ACCOUNT ACCUMULATION UNIT
The value of a Variable Account Accumulation Unit for each Sub-Account
was arbitrarily set initially at $10 when the underlying Mutual Fund shares in
that Sub-Account were available for purchase. The value for any subsequent
Valuation Period is determined by multiplying the Accumulation Unit value for
each Sub-Account for the immediately preceding Valuation Period by the Net
Investment Factor for the Sub-Account during the subsequent Valuation Period.
The value of an Accumulation Unit may increase or decrease from Valuation
Period to Valuation Period. The number of Accumulation Units will not change as
a result of investment experience.
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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, plus
(2) the per share amount of any dividend or capital gain
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 of:
(1) 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, plus or minus
(2) the per share charge or credit, if any, for any taxes reserved
for in the immediately preceding Valuation Period (see "Charge
For Tax Provisions").
(c) is a factor representing the daily Mortality Risk Charge, Expense Risk
Charge and Administration Charge deducted from the Variable Account.
Such factor is equal to an annual rate of 1.30% of the daily net asset
value of the Variable Account.
For underlying Mutual Fund options that credit dividends on a daily
basis and pay such dividends once a month (the Nationwide Separate Account
Trust Money Market Fund), the Net Investment Factor allows for the monthly
reinvestment of these daily dividends.
The Net Investment Factor may be greater or less than one; therefore,
the value of an Accumulation Unit may increase or decrease. It should be noted
that changes in the Net Investment Factor may not be directly proportional to
changes in the net asset value of underlying Mutual Fund shares, because of the
deduction for Mortality Risk Charge, Expense Risk Charge and Administration
Charge.
VALUATION OF ASSETS
Underlying Mutual Fund shares in the Variable Account will be valued at
their net asset value.
DETERMINING THE CONTRACT VALUE
The sum of the value of all Variable Account Accumulation Units
attributable to the Contract and amounts credited to the Fixed Account is the
Contract Value. The number of Accumulation Units credited per 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 from the Variable
Account and an appropriate amount from the Fixed Account will be deducted in
the same proportion that the Contract Owner's interest in the Variable Account
and the Fixed Account bears to the total Contract Value.
SURRENDER (REDEMPTION)
While the Contract is in force and prior to the earlier of the
Annuitization Date or the death of the Designated Annuitant, the Company will,
upon proper written application by the Contract Owner, deemed by the Company to
be in good order, allow the Contract Owner to surrender a portion or all of the
Contract Value. "Proper written application" means that the Contract Owner must
request the surrender in writing and include the Contract. 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. In
some cases, (for example, requests by a corporation, partnership, agent,
fiduciary, or surviving spouse), the Company will require additional
documentation of a customary nature.
The Company will, upon receipt of any such written request, surrender a
number of Accumulation Units from the Variable Account and an amount from the
Fixed Account necessary to equal the gross dollar amount requested, less any
applicable Contingent Deferred Sales Charge (see "Contingent Deferred Sales
Charge"). In the event of a partial surrender, the Company will, unless
instructed to the contrary, surrender Accumulation Units from all Sub-Accounts
in which the Contract Owner has an interest, and the Fixed Account. 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.
The Company will pay any funds applied for from the Variable Account
within 7 days of receipt of such application in the Company's Home Office.
However, the Company reserves the right to suspend or postpone the date of any
payment of any benefit or values for any Valuation Period (1) when the New York
Stock
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Exchange ("Exchange") is closed, (2) when trading on the Exchange is
restricted, (3) when an emergency exists as a result of which disposal of
securities held in the Variable Account is not reasonably practicable or it is
not reasonably practicable to determine the value of the Variable Account's net
assets, or (4) during any other period when the Securities and Exchange
Commission, by order, so permits for the protection of security holders;
provided that applicable rules and regulations of the Securities and Exchange
Commission shall 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.
With respect to Contracts issued under the Texas Optional Retirement
Program, the Texas Attorney General has ruled that withdrawal benefits are
available only in the event of a participant's death, retirement, termination
of employment due to total disability, or other termination of employment in a
Texas public institution of higher education. A participant will not,
therefore, be entitled to the right of withdrawal in order to receive the cash
values credited to such participant under the Contract unless one of the
foregoing conditions has been satisfied. The value of such Contracts may,
however, be transferred to other contracts or other carriers during the period
of participation in the Optional Retirement Program. The Company issues this
Contract to participants in the Optional Retirement Program in reliance upon,
and in compliance with, Rule 6c-7 of the Investment Company Act of 1940.
SURRENDERS UNDER A QUALIFIED PLAN OR TAX SHELTERED ANNUITY CONTRACT
Except as provided below, the 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 Designated Annuitant:
A. The surrender of Contract Value attributable to contributions made
pursuant to a salary reduction agreement (within the meaning of Code
Section 402(g)(3)(A) or (C)), or transfers from a Custodial Account
described in Section 403(b)(7) of the Code (403(b)(7) Custodial
Accounts), 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 for Tax Sheltered
Annuities 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 of a Qualified Contract
or Tax Sheltered Annuity.
A premature distribution may not be eligible for rollover treatment. To
assist in preventing disqualification 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 Internal Revenue Code, upon proper
direction by the Contract Owner. The foregoing is the Company's understanding
of the withdrawal restrictions which are currently applicable under Section
403(b)(11) and Revenue Ruling 90-24. Such restrictions are subject to
legislative change and/or reinterpretation from time to time. Distributions
pursuant to Qualified Domestic Relations Orders will not be considered to be in
violation of the restrictions stated above.
The contract surrender provisions may also be modified pursuant to the
plan terms and Internal Revenue Code tax provisions when the Contract is issued
to fund a Qualified Plan.
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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) Qualified Contracts;
(2) Individual Retirement Annuities, (3) Tax Sheltered Annuities; and (4)
Non-Qualified Contracts. Each type of annuity is discussed below.
Distributions to participants from Qualified Contracts or Tax Sheltered
Annuities are generally taxed when received. A portion of each Distribution is
excludable from income based on the ratio between the after tax investment of
the Owner/Annuitant in the Contract and the value of the Contract at the time
of the withdrawal or Annuitization.
Distributions from Individual Retirement Annuities and Contracts owned
by Individual Retirement Accounts are also generally taxed when received. The
portion of each such payment which is excludable is based on the ratio between
the amount by which nondeductible Purchase Payments to all such Contracts
exceeds prior non-taxable Distributions from such Contracts, and the total
account balances in such Contracts at the time of the Distribution. The Owner
of such Individual Retirement Annuities or the Annuitant under Contracts held
by Individual Retirement Accounts must annually report to the Internal Revenue
Service the amount of nondeductible Purchase Payments, the amount of any
Distribution, the amount by which nondeductible Purchase Payments for all years
exceed non-taxable Distributions for all years, and the total balance in all
Individual Retirement Annuities and Accounts.
A change of the Annuitant or Contingent Annuitant may be treated by the
Internal Revenue Service as a taxable transaction.
NON-QUALIFIED CONTRACTS - NATURAL PERSONS AS 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 includable 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 includable 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 is one of a series of substantially equal periodic payments made
over the life or life expectancy of the Contract Owner (or the joint lives or
joint life expectancies of the Contract Owner and the beneficiary selected by
the Contract Owner to receive payment under the Annuity Payment Option selected
by the Contract Owner) or for the purchase of an
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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, 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/her life or life
expectancy provided that such payments begin within one year from the death of
the Contract Owner. If the Contingent Owner or other named recipient is the
surviving spouse, such 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 as of the
date of the Contract Owner's death (see "Required Distribution For Qualified
Plans and Tax Sheltered Annuities"). If the Contract Owner is not an
individual, 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 rather than 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 payable, the election would be ignored for tax purposes,
and the entire amount of the lump sum would be subject to immediate tax. If the
election is made within the 60 day period, each Distribution would be taxable
when it is paid.
NON-QUALIFIED CONTRACTS - NON-NATURAL PERSONS AS 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; it does not apply to Contracts where one or more
non-individuals is an Owner.
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 following rules will apply:
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 Owner.
The foregoing Non-Natural Person rule does not apply to all entity-owned
contracts. First, for this purpose, 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.
QUALIFIED PLANS, INDIVIDUAL RETIREMENT ANNUITIES AND TAX SHELTERED ANNUITIES
The Contract may be purchased as a Qualified Contract, an Individual
Retirement Annuity or a Tax Sheltered Annuity. The Contract Owner should seek
competent advice as to the tax consequences associated with the use of a
Contract as an Individual Retirement Annuity.
For information regarding eligibility, limitations on permissible
amounts of Purchase Payments, and the tax consequences of distributions from
Qualified Plans, Tax Sheltered Annuities, Individual Retirement Annuities and
other plans that receive favorable tax treatment, the purchasers of such
contracts should seek competent advice. The terms of such plans may limit the
rights available under the Contracts.
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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 ($7,000), 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 Owner.
The Code permits the rollover of most Distributions from Qualified Plans
to other Qualified Plans or Individual Retirement Annuities. Most Distributions
from Tax-Sheltered Annuities may be rolled into another Tax-Sheltered Annuity,
Individual Retirement Annuity, or an Individual Retirement Account.
Distributions that may not be rolled over are those which are:
1. one of a series of substantially equal annual (or more frequent)
payments made: (a) over the life (or life expectancy) of the
Contract Owner, (b) over the joint lives (or joint life
expectancies) of the Contract Owner and the Contract Owner's
designated Beneficiary, or (c) for a specified period of ten
years or more, or
2. 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.
The Contract is available for Qualified Plans electing to comply with
section 404(c) of ERISA. It is the responsibility of the plan and its
fiduciaries to determine and satisfy the requirements of section 404(c).
WITHHOLDING
The Company is required to withhold tax from certain Distributions to
the extent that such Distribution would constitute income to the Contract Owner
or other payee. The Contract Owner or other payee is entitled to elect not to
have federal income tax withheld from any such Distribution, but may be subject
to penalties in the event insufficient federal income tax is withheld during a
calendar year. However, if the Internal Revenue Service notifies the Company
that the Contract Owner or other payee has furnished an incorrect taxpayer
identification number, or if the Contract Owner or other payee fails to provide
a taxpayer identification number, the Distributions may be subject to back-up
withholding at the statutory rate, which is presently 31%, and which cannot be
waived by the Contract Owner or other payee.
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 Internal
Revenue Service. 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
Internal Revenue Service. In addition, for any Distribution made after December
31, 1997, the NRA must obtain an Individual Taxpayer Identification Number from
the Internal Revenue Service, 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 (for Distributions after December 31, 1997) 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 includable 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, even if a 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
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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 Owner; or (b) certain trusts, as described in Section 2613 of
the Code (generally, trusts that have no beneficiaries who are not 2 or more
generations younger than the Owner). If the Owner is not an individual, then
for this purpose only, "Owner" refers to any person who would be required to
include the Contract, Death Benefit, Distribution, or other payment in his
federal gross estate at his death, or who is required to report the transfer of
the Contract, Death Benefit, Distribution, or other payment for federal gift
tax purposes.
If the Company determines that a generation skipping transfer tax is
required to be paid by reason of such direct skip, the Company is required to
reduce the amount of such Death Benefit, Distribution, or other payment by such
tax liability, and pay the tax liability directly to the Internal Revenue
Service.
Federal estate, gift and generation skipping transfer tax consequences,
and state and local estate, inheritance, succession, generation skipping
transfer, and other tax consequences, of owning or transferring a Contract, and
of receiving a Distribution, Death Benefit, or other payment, depend on the
circumstances of the person owning or transferring the Contract, or receiving a
Distribution, Death Benefit, or other payment.
CHARGE FOR TAX PROVISIONS
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 the Company's Variable Account 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 Internal Revenue Service 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 Owner or the
Company pays an amount to the Internal Revenue Service. The amount will be
based on the tax that would have been paid by the Owner if the income, for the
period the contract was not diversified, had been received by the Owner. If the
failure to diversify is not corrected in this manner, the Owner of an annuity
contract 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 Internal Revenue Service 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
In the recent past, 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, in the past, considered numerous
legislative proposals that, if enacted, could change the tax treatment of the
Contracts. It is reasonable to believe that such proposals, and other proposals
will be considered in the future, and some of them 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, current
state law (which is not discussed herein), and future amendments to state law,
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
Internal Revenue Service, 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.
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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 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.
ADVERTISING
The Company may from time to time advertise several types of historical
performance for the Sub-Accounts of the Variable Account.
The Company may advertise for the Sub-Accounts standardized "average
annual total return," calculated in a manner prescribed by the Securities and
Exchange Commission, and nonstandardized "total return." "Average annual total
return" will show the percentage rate of return of a hypothetical initial
investment of $1,000 for at least the most recent one, five and ten year
period, or for a period covering the time the underlying Mutual Fund held in
the Sub-Account has been in existence, if the underlying Mutual Fund has not
been in existence for one of 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" will be calculated in a similar manner
and for the same time periods as will average annual total return except total
return will assume an initial investment of $10,000 and will not reflect the
deduction of any applicable Contingent Deferred Sales Charge, which, if
reflected, would decrease the level of performance shown. The Contingent
Deferred Sales Charge is not reflected because the Contracts are designed for
long term investment. An assumed initial investment of $10,000 will be used
because that figure more closely approximates the size of a typical Contract
than does the $1,000 figure used in calculating the standardized average annual
total return quotations. The amount of the hypothetical initial investment
assumed affects performance because the Contract Maintenance Charge is a fixed
per Contract charge.
For those underlying Mutual Fund options which have not been held as
Sub-Accounts within the Variable Account for one of the quoted periods, the
standardized average annual total return and nonstandardized total return
quotations will show the investment performance such underlying Mutual Fund
options would have achieved (reduced by the applicable charges) had they been
held as Sub-Accounts within the Variable Account for the period quoted.
A "yield" and "effective yield" may also be advertised for the
Nationwide Separate Account Trust Money Market Fund Sub-Account. "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 Sub-Account's units. Yield is an
annualized figure, which means that it is assumed that the Sub-Account
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 Securities and Exchange Commission.
The effective yield will be slightly higher than yield due to this compounding
effect.
The Company may also from time to time advertise the performance of the
Sub-Account of the Variable Account relative to the performance of other
variable annuity Sub-Accounts or underlying Mutual Fund options with similar or
different objectives, or the investment industry as a whole. Other investments
to which the Sub-Accounts may be compared include, but are not limited to:
precious metals; real estate; stocks and bonds; closed-end funds; CDs; bank
money market deposit accounts and passbook savings; and the Consumer Price
Index.
The Sub-Accounts of the Variable Account may also be compared to certain
market indexes, which may include, but are not limited to: S&P 500;
Shearson/Lehman Intermediate Government/Corporate Bond Index; Shearson/Lehman
Long-Term Government/Corporate Bond Index; Donoghue Money Fund Average; U.S.
Treasury Note Index; Bank Rate Monitor National Index of 2 1/2 Year CD Rates;
and Dow Jones Industrial Average.
Normally these rankings and ratings are published by independent
tracking services and publications of general interest including, but not
limited to: Lipper Analytical Services, Inc., CDA/Wiesenberger, Morningstar,
Donoghue's; magazines such as Money, Forbes, Kiplinger's Personal Finance
Magazine, Financial World, Consumer Reports, Business Week, Time, Newsweek,
U.S. News and World Report, National Underwriter;
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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, Columbus Dispatch, 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 Funds against all
mutual funds over specified periods and against funds in specified categories.
The rankings may or may not include the effects of sales or other charges.
The Company is also ranked and rated by independent financial rating
services, among which are Moody's, Standard & Poor's and A.M. Best Company. The
purpose of these ratings is to reflect the financial strength or claims-paying
ability of the Company. The ratings are not intended to reflect the investment
experience or financial strength of the Variable Account. The Company may
advertise these ratings from time to time. In addition, the Company may include
in certain advertisements, endorsements in the form of a list of organizations,
individuals or other parties which recommend the Company or the Contracts.
Furthermore, the Company may occasionally include in advertisements comparisons
of currently taxable and tax deferred investment programs, based on selected
tax brackets, or discussions of alternative investment vehicles and general
economic conditions.
The Statement of Additional Information contains additional information about
performance including examples of standardized average annual total return and
nonstandard total return for each of the Sub-Accounts available within the
Variable Account.
ALL PERFORMANCE INFORMATION AND COMPARATIVE MATERIAL ADVERTISED BY THE COMPANY
IS HISTORICAL IN NATURE AND IS NOT INTENDED TO REPRESENT OR GUARANTEE FUTURE
RESULTS. A CONTRACT OWNER'S CONTRACT VALUE AT REDEMPTION MAY BE MORE OR LESS
THAN ORIGINAL COST.
LEGAL PROCEEDINGS
From time to time 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.
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 October, 1996, a policyholder of
Nationwide Life filed a complaint in Alabama state court against Nationwide
Life and an agent of Nationwide Life (Wayne M. King v. Nationwide Life
Insurance Company and Danny Nix) related to the sale of a whole life policy on
a "vanishing premium" basis and seeking unspecified compensatory and punitive
damages. In February, 1997, Nationwide Life was named as a defendant in a
lawsuit filed in New York Supreme Court also related to the sale of whole life
policies on a "vanishing premium" basis (John H. Snyder v. Nationwide Mutual
Insurance Company, Nationwide Mutual Insurance Co. and Nationwide Life
Insurance Co.). The plaintiff in such lawsuit seeks to represent a national
class of Nationwide Life policyholders and claims unspecified compensatory and
punitive damages. This lawsuit is in an early state and has not been certified
as a class action. Nationwide Life intends to defend these cases vigorously.
There can be no assurance that any future litigation relating to pricing and
sales practices will not have a material adverse effect on the Company.
The General Distributor, Nationwide Advisory Services, Inc., is not
engaged in any litigation of any material nature.
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
<S> <C>
General Information and History............................................................................1
Services...................................................................................................1
Purchase of Securities Being Offered.......................................................................1
Underwriters...............................................................................................2
Calculation of Performance.................................................................................2
Annuity Payments...........................................................................................3
Financial Statements.......................................................................................4
</TABLE>
31
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<PAGE> 34
APPENDIX
Purchase payments under the Fixed Account portion of the Contract and
transfers to the Fixed Account portion become part of the general account of
the Company, which supports insurance and annuity obligations. Because of
exemptive and exclusionary provisions, interests in the general account have
not been registered under the Securities Act of 1933 ("1933 Act"), nor is the
general account registered as an investment company under the Investment
Company Act of 1940 ("1940 Act"). Accordingly, neither the general account nor
any interest therein is generally subject to the provisions of the 1933 or 1940
Acts, and we have been advised that the staff of the Securities and Exchange
Commission has not reviewed the disclosures in this prospectus which relate to
the guaranteed interest portion. Disclosures regarding the Fixed Account
portion of the Contract and the general account, however, may be subject to
certain generally applicable provisions of the federal securities laws 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 Nationwide Multi-Flex Variable Account and any other
segregated asset account. Fixed Account Purchase Payments will be allocated to
the Fixed Account by election of the Contract Owner at the time of purchase.
The Company will invest the assets of the Fixed Account in those assets
chosen by the Company and allowed by applicable law. Investment income from
such Fixed Account assets will be allocated by the Company between itself and
the Contracts participating in the Fixed Account.
The level of annuity payments made to Annuitants under the Contracts
will not be affected by the mortality experience (death rate) of persons
receiving such payments or of the general population. The Company assumes this
"mortality risk" by virtue of annuity rates incorporated in the Contract which
cannot be changed. In addition, the Company guarantees that it will not
increase charges for maintenance of the Contracts regardless of its actual
expenses.
Investment income from the Fixed Account allocated to the Company
includes compensation for mortality and expense risks borne by the Company in
connection with Fixed Account Contracts. The amount of such investment income
allocated to the Contracts will vary from year to year in the sole discretion
of the Company at such rate or rates as the Company prospectively declares from
time to time. Any such rate or rates so determined will remain effective for a
period of not less than twelve months, and remain at such rate unless changed.
However, the Company guarantees that it will credit interest at not less than
3.0% per year (or as otherwise required under state law, or at such minimum
rate as stated in the Contract when sold). ANY INTEREST CREDITED TO AMOUNTS
ALLOCATED TO THE FIXED ACCOUNT IN EXCESS OF 3.0% PER YEAR WILL BE DETERMINED IN
THE SOLE DISCRETION OF THE COMPANY. THE CONTRACT OWNER ASSUMES THE RISK THAT
INTEREST CREDITED TO FIXED ACCOUNT ALLOCATIONS MAY NOT EXCEED THE MINIMUM
GUARANTEE OF 3.0% FOR ANY GIVEN YEAR.
New Purchase Payments deposited to the Contract which are allocated to
the Fixed Account may receive a different rate of interest than money
transferred from the Variable 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, at any time, the Fixed Account Contract
Value will not be less than the amount of the Purchase Payments allocated to
the Fixed Account, plus interest credited as described above, less the sum of
all administrative charges, any applicable premium taxes, and less any amounts
surrendered. If the Contract Owner effects a surrender, the amount available
from the Fixed Account will be reduced by any applicable Contingent Deferred
Sales Charge (see "Contingent Deferred Sales Charge").
TRANSFERS
Contract Owners may at the maturity of an Interest Rate Guarantee
Period, transfer a portion of the value of the Fixed Account to the Variable
Account. The maximum percentage that may be transferred will be determined by
the Company at its sole discretion, but will not be less than 10% of the total
value of the portion of the Fixed Account that is maturing and will be declared
upon the expiration date of the then current Interest Rate Guarantee Period.
The Interest Rate Guarantee Period expires on the final day of a calendar
quarter; therefore the Interest Rate Guarantee Period for deposits or transfers
in the Fixed Account may continue for up to three months after a one year
period has expired. Transfer must be made within 45 days after the expiration
date of the guarantee period. Owners who have entered into a Dollar Cost
Averaging Agreement with the Company (see "Dollar Cost Averaging") may transfer
from the Fixed Account to the Variable Account under the terms of that
agreement.
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<PAGE> 35
ANNUITY PAYMENT PERIOD-FIXED ACCOUNT
FIRST AND SUBSEQUENT PAYMENTS
A Fixed Annuity is an annuity with payments which are guaranteed by the
Company as to dollar amount during the annuity payment period. The first Fixed
Annuity payment will be determined by applying the Fixed Account Contract Value
to the applicable Annuity Table in accordance with the Annuity Payment Option
elected. This will be done at the Annuitization Date on an age last birthday
basis. Fixed Annuity payments after the first will not be less than the first
Fixed Annuity payment.
The Company does not credit discretionary interest to Fixed Annuity
payments during the annuity payment period for annuity options based on life
contingencies. The Annuitant must rely on the Annuity Tables applicable to the
Contracts to determine the amount of such Fixed Annuity payments.
33
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<PAGE> 36
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1997
INDIVIDUAL DEFERRED VARIABLE ANNUITY CONTRACTS ISSUED
BY THE NATIONWIDE MULTI-FLEX VARIABLE ACCOUNT-II
OF NATIONWIDE LIFE INSURANCE COMPANY
This Statement of Additional Information is not a prospectus. It
contains information in addition to and in some respects more detailed than set
forth in the prospectus and should be read in conjunction with the prospectus
dated May 1, 1997. The prospectus may be obtained from Nationwide Life
Insurance Company by writing P. O. Box 182356, Columbus, Ohio 43218-2356, or
calling 1-800-243-6295, TDD 1-800-238-3035.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
General Information and History.......................................................................................1
Services..............................................................................................................1
Purchase of Securities Being Offered..................................................................................1
Underwriters..........................................................................................................2
Calculations of Performance...........................................................................................2
Annuity Payments......................................................................................................3
Financial Statements..................................................................................................4
</TABLE>
GENERAL INFORMATION AND HISTORY
The Nationwide Multi-Flex Variable Account ("Variable Account") is a
separate investment account of Nationwide Life Insurance Company ("Company").
The Company is a member of the Nationwide Insurance Enterprise and all of the
Company's common stock is owned by Nationwide Financial Services, Inc. ("NFS"),
a holding company. NFS has two classes of common stock outstanding with
different voting rights enabling Nationwide Corporation (the holder of all of
the outstanding Class B Common Stock) to control NFS. Nationwide Corporation is
a holding company as well. All of its common stock is held by Nationwide Mutual
Insurance Company (95.3%) and Nationwide Mutual Fire Insurance Company (4.7%),
the ultimate controlling persons of Nationwide Insurance Enterprise. The
Nationwide Insurance Enterprise is one of America's largest insurance and
financial services family of companies, with combined assets of over $67.5
billion as of December 31, 1996.
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 financial statements and schedules 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").
The Contract Owner may transfer up to 100% of the Contract Value from
the Variable Account to the Fixed Account. However, the Company, at its sole
discretion, reserves the right to limit such transfers to 25% of the Contract
Value for any 12 month period. Contract Owners may at the maturity of an
Interest Rate Guarantee Period transfer a portion of the Contract Value of the
Fixed Account to the Variable Account. Such portion will be determined by the
Company at its sole discretion (but will not be less than 10% of the total
value of the portion of the Fixed Account that is maturing), and will be
declared upon the expiration date of the then current Interest Rate Guarantee
Period. The Interest Rate Guarantee Period expires on the final day of a
calendar quarter. Transfer must be made within 45 days after the termination
date of the guarantee period. Owners who have entered into a Dollar Cost
Averaging agreement with the Company may transfer from the Fixed Account under
the terms of that agreement.
1
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<PAGE> 37
Transfers from the Fixed and Variable Accounts may not be made prior to
the first Contract Anniversary. Transfers from the Fixed Account may not be
made within 12 months of any prior Transfer. Transfers must also be made prior
to the Annuitization Date.
UNDERWRITERS
The Contracts, which are offered continuously, are distributed by
Nationwide Advisory Services, Inc. ("NAS"), One Nationwide Plaza, Columbus,
Ohio 43216, a wholly owned subsidiary of the Company. During the fiscal years
ended December 31, 1996, 1995 and 1994, no underwriting commissions were paid
by the Company to NAS.
CALCULATIONS OF PERFORMANCE
All performance advertising shall also include quotations of
standardized average annual total return, calculated in accordance with a
standard method prescribed by rules of the Securities and Exchange Commission,
to facilitate comparison with standardized average annual total return
advertised for a specific period is found by first 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 maximum $30 Contract Maintenance Charge and a 1.30% Mortality,
Expense Risk and Administration Charge. The redeemable value also reflects the
effect of any applicable Contingent Deferred Sales Charge 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
$10,000 and does not reflect the deduction of any applicable Contingent
Deferred Sales Charge. Reflecting the Contingent Deferred Sales Charge would
decrease the level of the performance advertised. The Contingent Deferred Sales
Charge is not reflected because the Contract is designed for long term
investment. An assumed initial investment of $10,000 will be used because that
figure more closely approximates the size of a typical Contract than does the
$1,000 figure used in calculating the standardized average annual total return
quotations. The amount of the hypothetical initial investment used affects
performance because the Contract Maintenance Charge is fixed per Contract
charge.
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. Both the standardized average annual return and the
nonstandardized average 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 held in the Sub-Account has been
in existence, if the underlying Mutual Fund has not been in existence for one
of the prescribed periods. For those underlying Mutual Funds which have not
been held as Sub-Accounts within the Variable Account for one of the quoted
periods, the average annual total return and nonstandardized total return
quotations will show the investment performance such underlying Mutual Funds
would have achieved (reduced by the applicable charges) had they been held as
Sub-Accounts within the Variable Account for the period quoted.
Quotations of average annual total return and total return are based
upon historical earnings and will fluctuate. Any quotation of performance,
therefore, would not be considered 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.
2
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<PAGE> 38
Below are quotations of standardized average annual total return and
nonstandardized average annual total return calculated as described above, for
each of the Sub-Accounts available within the Variable Account.
UNDERLYING MUTUAL FUND PERFORMANCE SUMMARY
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
1 Year To 5 Years To Life of Fund Date Fund
SUB-ACCOUNT OPTIONS 12/31/96 12/31/96 To 12/31/96 Effective
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NSAT-Capital Appreciation Fund 16.09% N/A 9.35% 4-15-92
- ------------------------------------------------------------------------------------------------------
NSAT-Government Bond Fund -6.21% 2.47% 5.85% 11-08-82
- ------------------------------------------------------------------------------------------------------
NSAT-Total Return Fund 11.85% 9.31% 12.12% 11-08-82
- ------------------------------------------------------------------------------------------------------
NSAT-Money Market Fund -4.66% -0.61% 3.35% 11-10-81
- ------------------------------------------------------------------------------------------------------
</TABLE>
NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
1 Year To 5 Years To Life of Fund Date Fund
SUB-ACCOUNT OPTIONS 12/31/96 12/31/96 To 12/31/96 Effective
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NSAT-Capital Appreciation Fund 24.19% N/A 12.50% 4-15-92
- ------------------------------------------------------------------------------------------------------
NSAT-Government Bond Fund 1.83% 5.37% 7.95% 11-08-82
- ------------------------------------------------------------------------------------------------------
NSAT-Total Return Fund 19.95% 12.05% 13.70% 11-08-82
- ------------------------------------------------------------------------------------------------------
NSAT-Money Market Fund 3.44% 2.51% 5.55% 11-10-81
- ------------------------------------------------------------------------------------------------------
</TABLE>
Any current yield quotations of the Nationwide Separate Account Trust
Money Market Fund Sub-Account, subject to Rule 482 of the Securities Act of
1933, shall 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 Nationwide Separate Account Trust Money Market Fund
Sub-Account's effective yield is computed similarly but includes the effect of
assumed compounding on an annualized basis of the current unit value yield
quotations of the Fund, and for the period ending December 31, 1996 was 3.64%
and 3.70% respectively.
The Nationwide Separate Account Trust Money Market Fund Sub-Account's
yield and effective yield will fluctuate daily. Actual yields will depend on
factors such as the type of instruments in the Fund's portfolio, portfolio
quality and average maturity, changes in interest rates, and the Fund's
expenses. Although the Sub-Account determines its yield on the basis of a seven
calendar day period, it may use a different time period on occasion. The yield
quotes may reflect the expense limitation described "Investment Manager and
Other Services" in the Fund's Statement of Additional Information. There is no
assurance that the yields quoted on any given occasion will remain in effect
for any period of time and there is no guarantee that the net asset values will
remain constant. It should be noted that a Contract Owner's investment in the
Nationwide Separate Account Trust Money Market Fund Sub-Account 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.
ANNUITY PAYMENTS
See "Frequency and Amount of Annuity Payments" located in the
prospectus.
3
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<PAGE> 39
<PAGE> 1
================================================================================
Independent Auditors' Report
----------------------------
The Board of Directors of Nationwide Life Insurance Company and
Contract Owners of Nationwide Multi-Flex Variable Account:
We have audited the accompanying statement of assets, liabilities and
contract owners' equity of Nationwide Multi-Flex Variable Account as of December
31, 1996, and the related statements of operations and changes in contract
owners' equity and schedules of changes in unit value for each of the years in
the three year period then ended. These financial statements and schedules of
changes in unit value are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules of changes in unit value 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 and schedules of
changes in unit value 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 include confirmation of securities
owned as of December 31, 1996, 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 and schedules of changes in unit
value referred to above present fairly, in all material respects, the financial
position of Nationwide Multi-Flex Variable Account as of December 31, 1996, and
the results of its operations and its changes in contract owners' equity and the
schedules of changes in unit value for each of the years in the three year
period then ended in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Columbus, Ohio
February 7, 1997
================================================================================
<PAGE> 2
<TABLE>
<CAPTION>
NATIONWIDE MULTI-FLEX VARIABLE ACCOUNT
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY
December 31, 1996
ASSETS:
Investments at market value:
<S> <C>
The Dreyfus Socially Responsible Growth Fund, Inc. (DrySRGro)
341,534 shares (cost $6,389,466) ......................... $ 6,861,416
Dreyfus Stock Index Fund (DryStkIx)
1,084,344 shares (cost $17,891,133) ...................... 21,990,497
Dreyfus VIF - Quality Bond Portfolio (DryQualBd)
200,080 shares (cost $2,286,692) ......................... 2,300,920
Dreyfus VIF - Small Cap Portfolio (DrySmCap)
621,611 shares (cost $29,305,097) ........................ 32,373,482
Fidelity VIP - Equity-Income Portfolio (FidVIPEI)
3,730,625 shares (cost $63,131,778) ...................... 78,455,038
Fidelity VIP - High Income Portfolio (FidVIPHI)
693,430 shares (cost $8,123,518) ......................... 8,681,750
Nationwide SAT - Capital Appreciation Fund (NSATCapAp)
2,967,603 shares (cost $35,468,907) ...................... 48,312,570
Nationwide SAT - Government Bond Fund (NSATGvtBd)
11,788,842 shares (cost $132,141,892) .................... 130,148,820
Nationwide SAT - Money Market Fund (NSATMyMkt)
46,229,642 shares (cost $46,229,642) ..................... 46,229,642
Nationwide SAT - Total Return Fund (NSATTotRe)
33,938,583 shares (cost $330,436,923) .................... 450,364,994
Neuberger &Berman - Balanced Portfolio (NBAMTBal)
2,413,487 shares (cost $36,425,096) ...................... 38,422,710
Strong Special Fund II, Inc. (StSpec2)
281,216 shares (cost $5,001,628) ......................... 5,410,598
TCI Portfolios - TCI Advantage (TCIAdv)
1,648,442 shares (cost $9,131,066) ....................... 10,368,698
TCI Portfolios - TCI Growth (TCIGro)
4,380,090 shares (cost $40,968,483) ...................... 44,852,127
Templeton VPS - Templeton International Fund (TemIntFd)
837,949 shares (cost $12,758,410) ........................ 15,418,263
------------
Total investments ..................................... 940,191,525
Accounts receivable ............................................ 42,036
------------
Total assets .......................................... 940,233,561
ACCOUNTS PAYABLE .................................................. 51,079
------------
CONTRACT OWNERS' EQUITY ........................................... $940,182,482
============
</TABLE>
<PAGE> 3
<TABLE>
Contract owners' equity represented by:
<CAPTION>
UNITS UNIT VALUE
----- -----------
Contracts in accumulation phase:
<S> <C> <C> <C>
The Dreyfus Socially Responsible Growth Fund, Inc.:
Tax qualified ............................................. 399,889 $ 15.953248 $ 6,379,528
Non-tax qualified ......................................... 30,211 15.953248 481,964
Dreyfus Stock Index Fund:
Tax qualified ............................................. 995,299 16.698256 16,619,757
Non-tax qualified ......................................... 321,661 16.698256 5,371,178
Dreyfus VIF - Quality Bond Portfolio:
Tax qualified ............................................. 202,913 10.679640 2,167,038
Non-tax qualified ......................................... 13,559 10.679640 144,805
Dreyfus VIF - Small Cap Portfolio:
Tax qualified ............................................. 1,991,389 15.245571 30,359,862
Non-tax qualified ......................................... 132,109 15.245571 2,014,077
Fidelity VIP - Equity-Income Portfolio:
Tax qualified ............................................. 3,685,628 16.255386 59,911,306
Non-tax qualified ......................................... 1,140,873 16.255386 18,545,331
Fidelity VIP - High Income Portfolio:
Tax qualified ............................................. 621,493 13.256841 8,239,034
Non-tax qualified ......................................... 33,405 13.256841 442,845
Nationwide SAT - Capital Appreciation Fund:
Tax qualified ............................................. 1,905,248 17.979967 34,256,296
Non-tax qualified ......................................... 779,474 17.979967 14,014,917
Nationwide SAT - Government Bond Fund:
Tax qualified ............................................. 2,948,795 30.092479 88,736,552
Non-tax qualified ......................................... 1,371,551 30.103580 41,288,595
Nationwide SAT - Money Market Fund:
Tax qualified ............................................. 1,617,637 20.329483 32,885,724
Non-tax qualified ......................................... 600,726 22.088348 13,269,045
Nationwide SAT - Total Return Fund:
Tax qualified ............................................. 5,119,908 62.170693 318,308,228
Non-tax qualified ......................................... 2,180,633 60.382482 131,672,033
Neuberger & Berman - Balanced Portfolio:
Tax qualified ............................................. 1,766,421 15.563120 27,491,022
Non-tax qualified ......................................... 702,451 15.563120 10,932,329
Strong Special Fund II, Inc.:
Tax qualified ............................................. 408,289 12.193238 4,978,365
Non-tax qualified ......................................... 35,456 12.193238 432,323
TCI Portfolios - TCI Advantage:
Tax qualified ............................................. 511,115 14.055040 7,183,742
Non-tax qualified ......................................... 199,799 14.055040 2,808,183
Initial Funding by Depositor (note 1a) .................... 25,000 15.079515 376,988
TCI Portfolios - TCI Growth:
Tax qualified ............................................. 1,991,010 15.531281 30,922,936
Non-tax qualified ......................................... 896,863 15.531281 13,929,431
Templeton VPS - Templeton International Fund:
Tax qualified ............................................. 1,044,821 13.869569 14,491,217
Non-tax qualified ......................................... 66,863 13.869569 927,361
============ ============
Reserves for annuity contracts in payout phase:
Tax qualified ............................................. 338,428
Non-tax qualified ......................................... 262,042
------------
$940,182,482
============
</TABLE>
See accompanying notes to financial statements.
================================================================================
<PAGE> 4
<TABLE>
<CAPTION>
NATIONWIDE MULTI-FLEX VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested capital gains and dividends ........................... $ 54,005,529 46,393,801 29,703,314
Mortality, expense and administration charges (note 2) ........... (11,142,442) (9,125,823) (8,122,349)
------------- ------------- -------------
Net investment activity ....................................... 42,863,087 37,267,978 21,580,965
------------- ------------- -------------
Proceeds from mutual fund shares sold ............................ 74,149,404 88,238,390 76,838,985
Cost of mutual fund shares sold .................................. (63,374,669) (75,818,878) (73,196,125)
------------- ------------- -------------
Realized gain (loss) on investments ........................... 10,774,735 12,419,512 3,642,860
Change in unrealized gain (loss) on investments .................. 53,497,947 96,906,383 (34,476,283)
------------- ------------- -------------
Net gain (loss) on investments ................................ 64,272,682 109,325,895 (30,833,423)
------------- ------------- -------------
Net increase (decrease) in contract owners'
equity resulting from operations ........................ 107,135,769 146,593,873 (9,252,458)
------------- ------------- -------------
EQUITY TRANSACTIONS:
Purchase payments received from contract owners .................. 133,336,058 83,073,876 116,273,060
Redemptions ...................................................... (74,091,271) (77,469,618) (60,979,679)
Annuity benefits ................................................. (88,867) (70,923) (64,720)
Annual contract maintenance charge (note 2) ...................... (1,406,646) (1,225,487) (1,015,180)
Contingent deferred sales charges (note 2) ....................... (829,238) (817,609) (948,537)
Adjustments to maintain reserves ................................. 38,880 (11,132) (9,850)
------------- ------------- -------------
Net equity transactions .................................... 56,958,916 3,479,107 53,255,094
------------- ------------- -------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ............................... 164,094,685 150,072,980 44,002,636
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ......................... 776,087,797 626,014,817 582,012,181
------------- ------------- -------------
CONTRACT OWNERS' EQUITY END OF PERIOD ............................... $ 940,182,482 776,087,797 626,014,817
============= ============= =============
</TABLE>
See accompanying notes to financial statements.
================================================================================
<PAGE> 5
================================================================================
NATIONWIDE MULTI-FLEX VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Nature of Operations
The Nationwide Multi-Flex Variable Account (the Account) was established
pursuant to a resolution of the Board of Directors of Nationwide Life Insurance
Company (the Company) on October 7, 1981. The Account has been registered as a
unit investment trust under the Investment Company Act of 1940. On August 21,
1991, the Company (the Depositor) transferred to the Account 50,000 shares of
the TCI Portfolios, Inc. - TCI Advantage fund for which the Account was credited
with 25,000 accumulation units. The value of the accumulation units purchased by
the Company on August 21, 1991 was $250,000.
The Company offers tax qualified and non-tax qualified Individual Deferred
Variable Annuity Contracts through the Account. The primary distributions for
the contracts is through Company Agents and an affiliated sales organization;
however, other distributors may be utilized.
(b) The Contracts
Only contracts without a front-end sales charge, but with a contingent
deferred sales charge and certain other fees, are offered for purchase. See note
2 for a discussion of contract expenses. With certain exceptions, contract
owners in either the accumulation or payout phase may invest in any of the
following:
The Dreyfus Socially Responsible Growth Fund, Inc. (DrySRGro)
Dreyfus Stock Index Fund (DryStkIx)
Portfolios of the Dreyfus Variable Investment Fund (Dreyfus VIF);
Dreyfus VIF - Quality Bond Portfolio (DryQualBd)
Dreyfus VIF - Small Cap Portfolio (DrySmCap)
Portfolios of the Fidelity Variable Insurance Products Fund
(Fidelity VIP);
Fidelity VIP - Equity-Income Portfolio (FidVIPEI)
Fidelity VIP - High Income Portfolio (FidVIPHI)
Funds of the Nationwide Separate Account Trust (Nationwide SAT)
(managed for a fee by an affiliated investment advisor);
Nationwide SAT - Capital Appreciation Fund (NSATCapAp)
Nationwide SAT - Government Bond Fund (NSATGvtBd)
Nationwide SAT - Money Market Fund (NSATMyMkt)
Nationwide SAT - Total Return Fund (NSATTotRe)
Portfolio of the Neuberger & Berman Advisers Management Trust
(Neuberger &Berman);
Neuberger & Berman - Balanced Portfolio (NBAMTBal)
Strong Special Fund II, Inc. (StSpec2)
Portfolios of the TCIPortfolios, Inc. (TCI Portfolios);
TCIPortfolios - TCI Advantage (TCIAdv)
TCIPortfolios - TCI Growth (TCIGro)
Portfolio of the Templeton Variable Products Series Fund
(Templeton VPS);
Templeton VPS - Templeton International Fund (TemIntFd)
<PAGE> 6
At December 31, 1996, contract owners have invested in all of the above
funds. The contract owners' equity is affected by the investment results of each
fund, equity transactions by contract owners and certain contract expenses (see
note 2). The accompanying financial statements include only contract owners'
purchase payments pertaining to the variable portions of their contracts and
exclude any purchase payments for fixed dollar benefits, the latter being
included in the accounts of the Company.
(c) Security Valuation, Transactions and Related Investment Income
The market value of the underlying mutual funds is based on the closing
net asset value per share at December 31, 1996. 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 1995 and 1994 amounts have been reclassified to conform with the
current year 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. For
contracts issued prior to February 1, 1989, the contingent deferred sales charge
will be equal to 5% of the lesser of the total of all purchase payments made
within 96 months prior to the date of the request for surrender or the amount
surrendered. For contracts issued on or after February 1, 1989, the Company will
deduct a contingent deferred sales charge not to exceed 7% of the lesser of
purchase payments or the amount surrendered, such charge declining 1% per year,
to 0%, after the purchase payment has been held in the contract for 84 months.
No sales charges are deducted on redemptions used to purchase units in the fixed
investment options of the Company.
The following contract charges are deducted by the Company: (a) an annual
contract maintenance charge of $30, with certain exceptions, which is satisfied
by surrendering units; and (b) for contracts issued prior to February 1, 1989, a
charge for mortality and expense risk assessed through the daily unit value
calculation equal to an annual rate of 0.80% and 0.50%, respectively; for
contracts issued on or after February 1, 1989, 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. No charges were deducted from the initial funding, or from
earnings thereon.
<PAGE> 7
(3) SHEDULE I
Schedule I presents the components of the change in the unit values, which
are the basis for contract owners' equity. This schedule is presented for each
series, as applicable, in the following format:
- Beginning unit value - Jan. 1
- Reinvested capital gains and dividends
(This amount reflects the increase in the unit value due to
capital gains and dividend distributions from the underlying
mutual funds.)
- Unrealized gain (loss)
(This amount reflects the increase (decrease) in the unit value
resulting from the market appreciation (depreciation) of the
underlying mutual funds.)
- Contract charges
(This amount reflects the decrease in the unit value due to the
mortality risk charge, expenses risk charge and administration
charge discussed in note 2.)
- Ending unit value - Dec. 31
- Percentage increase (decrease) in unit value.
For contracts in the payout phase, an assumed investment return of 3.5%,
used in the calculation of the annuity benefit payment amount, results in a
corresponding reduction in the components of the unit values as shown in
Schedule I.
================================================================================
<PAGE> 8
<TABLE>
========================================================================================================================
SCHEDULE I
NATIONWIDE MULTI-FLEX VARIABLE ACCOUNT
TAX QUALIFIED and NON-TAX QUALIFIED
SCHEDULES OF CHANGES IN UNIT VALUE
Years Ended December 31, 1996, 1995 and 1994
<CAPTION>
DrySRGro DrySTkix DryQualBd DrySmCap FidVIPEI FidVIPHI
-------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
1996
Beginning unit value - Jan. 1 $13.333625 13.807559 10.493309 13.249127 14.412060 11.779381
- -------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .688836 .595405 .595052 .478471 .664825 1.073991
- -------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 2.122234 2.493107 (.272588) 1.704904 1.377615 .567992
- -------------------------------------------------------------------------------------------------------------------------
Contract charges (.191447) (.197815) (.136133) (.186931) (.199114) (.164523)
- -------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $15.953248 16.698256 10.679640 15.245571 16.255386 13.256841
- -------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 20% 21% 2% 15% 13% 13%
=========================================================================================================================
1995
Beginning unit value - Jan. 1 $10.039093 10.227308 10.000000 10.374796 10.808255 9.895223
- -------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .367042 .366275 .300901 .305817 .845166 .716438
- -------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 3.080069 3.371719 .235955 2.722323 2.923160 1.310923
- -------------------------------------------------------------------------------------------------------------------------
Contract charges (.152579) (.157743) (.043547) (.153809) (.164521) (.143203)
- -------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $13.333625 13.807559 10.493309 13.249127 14.412060 11.779381
- -------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 33% 35% 5%(b) 28% 33% 19%
=========================================================================================================================
1994
Beginning unit value - Jan. 1 $10.000000 10.271065 ** 10.000000 10.227513 10.000000
- -------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .258763 .287154 .168745 .767502 .000000
- -------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (.132737) (.197934) .294439 (.048719) (.018339)
- -------------------------------------------------------------------------------------------------------------------------
Contract charges (.086933) (.132977) (.088388) (.138041) (.086438)
- -------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $10.039093 10.227308 10.374796 10.808255 9.895223
- -------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) (0)%(b) 0% (4)%(b) 6% (1)%(b)
=========================================================================================================================
<CAPTION>
NSATGvtBd NSATGvtBd
NSATCapAP Qual Non-Qual
--------- ---- --------
<S> <C> <C> <C>
1996
Beginning unit value - Jan. 1 14.442619 29.463573 29.474435
- ----------------------------------------------------------------------------------
Reinvested capital gains
and dividends .749106 1.822953 1.823626
- ----------------------------------------------------------------------------------
Unrealized gain (loss) 2.998126 (.811577) (.811863)
- ----------------------------------------------------------------------------------
Contract charges (.209884) (.382470) (.382618)
- ----------------------------------------------------------------------------------
Ending unit value - Dec. 31 17.979967 30.092479 30.103580
- ----------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 24% 2% 2%
==================================================================================
1995
Beginning unit value - Jan. 1 11.311683 25.138302 25.147577
- ----------------------------------------------------------------------------------
Reinvested capital gains
and dividends .642190 1.778825 1.779480
- ----------------------------------------------------------------------------------
Unrealized gain (loss) 2.653706 2.904595 2.905666
- ----------------------------------------------------------------------------------
Contract charges (.164960) (.358149) (.358288)
- ----------------------------------------------------------------------------------
Ending unit value - Dec. 31 14.442619 29.463573 29.474435
- ----------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 28% 17% 17%
==================================================================================
1994
Beginning unit value - Jan. 1 11.564256 26.318797 26.328516
- ----------------------------------------------------------------------------------
Reinvested capital gains
and dividends .182737 1.651042 1.651652
- ----------------------------------------------------------------------------------
Unrealized gain (loss) (.286833) (2.499476) (2.500401)
- ----------------------------------------------------------------------------------
Contract charges (.148477) (.332061) (.332190)
- ----------------------------------------------------------------------------------
Ending unit value - Dec. 31 11.311683 25.138302 25.147577
- ----------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) (2)% (4)% (4)%
===================================================================================
<FN>
* An annualized rate of return cannot be determined as:
(a)Contract charges do not include the annual contract maintenance charge discussed in note 2; and
(b)This investment option was not being utilized
for the entire year indicated.
** This investment option was not being utilized or was not available.
</TABLE>
<PAGE> 9
<TABLE>
SCHEDULE I, CONTINUED
NATIONWIDE MULTI-FLEX VARIABLE ACCOUNT
TAX QUALIFIED and NON-TAX QUALIFIED
SCHEDULES OF CHANGES IN UNIT VALUE
Years Ended December 31, 1996, 1995 and 1994
<CAPTION>
NSATMyMkt NSATMyMkt NSATTotRe NSATTotRe
Qual Non-Qual Qual Non-Qual NBAMTBal StSpec2
---- -------- ---- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
1996
Beginning unit value - Jan. 1 $19.595876 21.291272 51.701438 50.214359 14.753402 10.456863
- ---------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .996061 1.082246 3.444695 3.345616 2.260284 .491408
- ---------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .000000 .000000 7.759641 7.536444 (1.253279) 1.391802
- ---------------------------------------------------------------------------------------------------------------------------
Contract charges (.262454) (.285170) (.735081) (.713937) (.197287) (.146835)
- ---------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $20.329483 22.088348 62.170693 60.382482 15.563120 12.193238
- ---------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 4% 4% 20% 20% 5% 17%
===========================================================================================================================
1995
Beginning unit value - Jan. 1 $18.790546 20.416267 40.575816 39.408735 12.077573 10.000000
- ---------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 1.056381 1.147773 4.020137 3.904506 .307323 .046668
- ---------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .000000 .000000 7.711672 7.489864 2.548627 .453424
- ---------------------------------------------------------------------------------------------------------------------------
Contract charges (.251051) (.272768) (.606187) (.588746) (.180121) (.043229)
- ---------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $19.595876 21.291272 51.701438 50.214359 14.753402 10.456863
- ---------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 4% 4% 27% 27% 22% 5%(b)
===========================================================================================================================
1994
Beginning unit value - Jan. 1 $18.325918 19.911440 40.671816 39.501981 12.661508 **
- ---------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .706658 .767804 2.052197 1.993171 .493737
- ---------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .000000 .000000 (1.612762) (1.566374) (.917170)
- ---------------------------------------------------------------------------------------------------------------------------
Contract charges (.242030) (.262977) (.535435) (.520043) (.160502)
- ---------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $18.790546 20.416267 40.575816 39.408735 12.077573
- ---------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 3% 3% 0% 0% (5)%
===========================================================================================================================
<CAPTION>
TCIAdv TCIGro TemintFd TCIAdv+
------ ------ -------- -------
<S> <C> <C> <C> <C>
1996
Beginning unit value - Jan. 1 13.035463 16.447846 11.329203 13.802855
- ------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .938763 1.843419 .231661 .998314
- ------------------------------------------------------------------------------------------
Unrealized gain (loss) .257308 (2.545876) 2.470934 .278346
- ------------------------------------------------------------------------------------------
Contract charges (.176494) (.214108) (.162229) .000000
- ------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 14.055040 15.531281 13.869569 15.079515
- ------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 8% (6)% 22% 9%
==========================================================================================
1995
Beginning unit value - Jan. 1 11.312248 12.711014 9.913613 11.822996
- ------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .409891 .014626 .112246 .431938
- ------------------------------------------------------------------------------------------
Unrealized gain (loss) 1.472626 3.917671 1.440756 1.547921
- ------------------------------------------------------------------------------------------
Contract charges (.159302) (.195465) (.137412) .000000
- ------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 13.035463 16.447846 11.329203 13.802855
- ------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 15% 29% 14% 17%
==========================================================================================
1994
Beginning unit value - Jan. 1 11.343435 13.030369 10.000000 11.701906
- ------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .297949 .001393 .000000 .309969
- ------------------------------------------------------------------------------------------
Unrealized gain (loss) (.181282) (.154144) .001766 (.188879)
- ------------------------------------------------------------------------------------------
Contract charges (.147854) (.166604) (.088153) .000000
- ------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 11.312248 12.711014 9.913613 11.822996
- ------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 0% (2)% (1)%(b) 1%
==========================================================================================
<FN>
* An annualized rate of return cannot be determined as:
(a)Contract charges do not include the annual contract maintenance charge discussed in note 2; and
(b)This investment option was not being utilized for the entire year indicated.
** This investment option was not being utilized or was not available.
+ For Depositor, see note 1a.
See note 3.
</TABLE>
<PAGE> 40
<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) as of December 31,
1996 and 1995, 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, 1996. 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, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally accepted
accounting principles.
In 1994, the Company adopted the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities.
KPMG Peat Marwick LLP
Columbus, Ohio
January 31, 1997
<PAGE> 2
<TABLE>
<CAPTION>
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1996 and 1995
($000's omitted)
Assets 1996 1995
------ ----------------- ----------------
<S> <C> <C>
Investments (notes 5, 8 and 9):
Securities available-for-sale, at fair value:
Fixed maturity securities (cost $11,970,878 in 1996; $11,862,556 in 1995) $12,304,639 12,485,564
Equity securities (cost $43,890 in 1996; $23,617 in 1995) 59,131 29,953
Mortgage loans on real estate, net 5,272,119 4,602,764
Real estate, net 265,759 229,442
Policy loans 371,816 336,356
Other long-term investments 28,668 61,989
Short-term investments (note 13) 4,789 32,792
----------------- ----------------
18,306,921 17,778,860
----------------- ----------------
Cash 43,784 9,455
Accrued investment income 210,182 212,963
Deferred policy acquisition costs 1,366,509 1,020,356
Investment in subsidiaries classified as discontinued operations (notes 1 and 2) 485,707 506,677
Other assets (note 6) 426,441 388,214
Assets held in Separate Accounts (note 8) 26,926,702 18,591,108
----------------- ----------------
$47,766,246 38,507,633
================= ================
Liabilities and Shareholder's Equity
------------------------------------
Future policy benefits and claims (notes 6 and 8) $17,179,060 16,358,614
Policyholders' dividend accumulations 361,401 348,027
Other policyholder funds 60,073 65,297
Accrued federal income tax (note 7):
Current 30,170 35,301
Deferred 162,212 246,627
----------------- ----------------
192,382 281,928
----------------- ----------------
Dividend payable to shareholder (notes 1 and 2) 485,707 -
Other liabilities 423,047 234,147
Liabilities related to Separate Accounts (note 8) 26,926,702 18,591,108
----------------- ----------------
45,628,372 35,879,121
----------------- ----------------
Commitments and contingencies (notes 6, 9 and 15)
Shareholder's equity (notes 3, 4, 5, 12 and 13):
Capital shares, $1 par value. Authorized 5,000,000 shares, issued and
outstanding 3,814,779 shares 3,815 3,815
Additional paid-in capital 527,874 657,118
Retained earnings 1,432,593 1,583,275
Unrealized gains on securities available-for-sale, net 173,592 384,304
----------------- ----------------
2,137,874 2,628,512
----------------- ----------------
$47,766,246 38,507,633
================= ================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 3
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 1996, 1995 and 1994
($000's omitted)
<TABLE>
<CAPTION>
1996 1995 1994
--------------- -------------- -------------
<S> <C> <C> <C>
Revenues (note 16):
Investment product and universal life insurance product policy charges $ 400,902 286,534 217,245
Traditional life insurance premiums 198,642 199,106 176,658
Net investment income (note 5) 1,357,759 1,294,033 1,210,811
Realized losses on investments (note 5) (326) (1,724) (16,527)
Other income 35,861 20,702 11,312
--------------- -------------- -------------
1,992,838 1,798,651 1,599,499
--------------- -------------- -------------
Benefits and expenses:
Benefits and claims 1,160,580 1,115,493 992,667
Provision for policyholders' dividends on participating policies (note 12) 40,973 39,937 38,754
Amortization of deferred policy acquisition costs 133,394 82,695 85,568
Other operating expenses (note 13) 342,394 272,954 240,652
--------------- -------------- -------------
1,677,341 1,511,079 1,357,641
--------------- -------------- -------------
Income from continuing operations before federal income tax expense 315,497 287,572 241,858
--------------- -------------- -------------
Federal income tax expense (benefit) (note 7):
Current 116,512 88,700 73,559
Deferred (5,623) 11,108 5,030
--------------- -------------- -------------
110,889 99,808 78,589
--------------- -------------- -------------
Income from continuing operations 204,608 187,764 163,269
Income from discontinued operations (less federal income tax expense of
$4,453, $7,446 and $10,915 in 1996, 1995 and 1994, respectively) (note 2) 11,324 24,714 20,459
--------------- -------------- -------------
Net income $ 215,932 212,478 183,728
=============== ============== =============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 4
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Shareholder's Equity
Years ended December 31, 1996, 1995 and 1994
($000's omitted)
<TABLE>
<CAPTION>
Unrealized
gains (losses)
Additional on securities Total
Capital paid-in Retained available-for- shareholder's
shares capital earnings sale, net equity
----------- ------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
1994:
Balance, beginning of year $3,815 406,089 1,194,519 6,745 1,611,168
Capital contribution - 200,000 - - 200,000
Net income - - 183,728 - 183,728
Adjustment for change in accounting for
certain investments in debt and equity
securities, net (note 4) - - - 212,553 212,553
Unrealized losses on securities available-
for-sale, net - - - (338,971) (338,971)
----------- ------------- --------------- ----------------- ---------------
Balance, end of year $3,815 606,089 1,378,247 (119,673) 1,868,478
=========== ============= =============== ================= ===============
1995:
Balance, beginning of year 3,815 606,089 1,378,247 (119,673) 1,868,478
Capital contribution (note 13) - 51,029 - (4,111) 46,918
Dividends to shareholder - - (7,450) - (7,450)
Net income - - 212,478 - 212,478
Unrealized gains on securities available-
for-sale, net - - - 508,088 508,088
----------- ------------- --------------- ----------------- ---------------
Balance, end of year $3,815 657,118 1,583,275 384,304 2,628,512
=========== ============= =============== ================= ===============
1996:
Balance, beginning of year 3,815 657,118 1,583,275 384,304 2,628,512
Capital contribution (note 13) - 25 5 - 30
Dividends to shareholder - (129,269) (366,619) (39,819) (535,707)
Net income - - 215,932 - 215,932
Unrealized losses on securities available-
for-sale, net - - - (170,893) (170,893)
----------- ------------- --------------- ----------------- ---------------
Balance, end of year $3,815 527,874 1,432,593 173,592 2,137,874
=========== ============= =============== ================= ===============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
($000's omitted)
<TABLE>
<CAPTION>
1996 1995 1994
---------------- --------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 215,932 212,478 183,728
Adjustments to reconcile net income to net cash provided by operating
activities:
Capitalization of deferred policy acquisition costs (422,572) (321,327) (242,431)
Amortization of deferred policy acquisition costs 133,394 82,695 85,568
Amortization and depreciation 6,962 10,234 3,603
Realized (gains) losses on invested assets, net (284) 3,250 16,094
Deferred federal income tax expense (benefit) 7,603 (30,673) 9,946
Decrease (increase) in accrued investment income 2,781 (16,999) (12,808)
(Increase) decrease in other assets (38,876) 39,880 (102,676)
Increase in policy liabilities 305,755 135,937 118,361
Increase in policyholders' dividend accumulations 13,374 12,639 15,298
(Decrease) increase in accrued federal income tax payable (5,131) 30,836 (5,714)
Increase in other liabilities 188,900 26,851 506
Other, net (61,679) 1,832 (29,595)
--------------- --------------- ---------------
Net cash provided by operating activities 346,159 187,633 39,880
---------------- --------------- ---------------
Cash flows from investing activities:
Proceeds from maturity of securities available-for-sale 1,162,766 634,553 544,843
Proceeds from sale of securities available-for-sale 299,558 107,345 228,308
Proceeds from maturity of fixed maturity securities held-to-maturity - 564,450 491,862
Proceeds from repayments of mortgage loans on real estate 309,050 207,832 190,574
Proceeds from sale of real estate 18,519 48,331 46,713
Proceeds from repayments of policy loans and sale of other invested assets 22,795 53,587 120,506
Cost of securities available-for-sale acquired (1,573,640) (1,942,413) (1,816,370)
Cost of fixed maturity securities held-to-maturity acquired - (593,636) (410,379)
Cost of mortgage loans on real estate acquired (972,776) (796,026) (471,570)
Cost of real estate acquired (7,862) (10,928) (6,385)
Policy loans issued and other invested assets acquired (57,740) (75,910) (65,302)
Short-term investments, net 28,003 77,837 (89,376)
Purchase of affiliate (note 13) - - (155,000)
---------------- --------------- ---------------
Net cash used in investing activities (771,327) (1,724,978) (1,391,576)
---------------- --------------- ---------------
Cash flows from financing activities:
Proceeds from capital contributions 30 - 200,000
Dividends paid to shareholder (50,000) (7,450) -
Increase in investment product and universal life insurance
product account balances 2,293,933 2,809,385 3,547,976
Decrease in investment product and universal life insurance
product account balances (1,784,466) (1,258,758) (2,412,595)
---------------- --------------- --------------
Net cash provided by financing activities 459,497 1,543,177 1,335,381
---------------- --------------- --------------
Net increase (decrease) in cash 34,329 5,832 (16,315)
---------------- --------------- ---------------
Cash, beginning of year 9,455 3,623 19,938
---------------- --------------- ---------------
Cash, end of year $ 43,784 9,455 3,623
================ =============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 6
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
($000's omitted)
(1) Organization and Description of Business
----------------------------------------
Nationwide Life Insurance Company (NLIC) is a wholly owned subsidiary
of Nationwide Corporation (Nationwide Corp.). Wholly owned subsidiaries
of NLIC include Nationwide Life and Annuity Insurance Company (NLAIC),
Employers Life Insurance Company of Wausau and subsidiaries (ELICW),
National Casualty Company (NCC), West Coast Life Insurance Company
(WCLIC), Nationwide Advisory Services, Inc. (formerly Nationwide
Financial Services, Inc.), Nationwide Investment Services Corporation
(formerly PEBSCO Securities Corporation) (NISC) and NWE, Inc. NLIC and
its subsidiaries are collectively referred to as "the Company."
Nationwide Corp. formed Nationwide Financial Services, Inc. (NFS) in
November 1996 as a holding company for NLIC and the other companies of
the Nationwide Insurance Enterprise that offer or distribute long-term
savings and retirement products. On January 27, 1997, Nationwide Corp.
contributed to NFS the common stock of NLIC and three marketing and
distribution companies. NFS is planning an initial public offering of
its Class A common stock during the first quarter of 1997.
In anticipation of the restructuring described above, on September 24,
1996, NLIC's Board of Directors declared a dividend payable January 1,
1997 to Nationwide Corp. consisting of the outstanding shares of common
stock of certain subsidiaries (ELICW, NCC and WCLIC) that do not offer
or distribute long-term savings and 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 ELICW and another affiliate effective January 1, 1996. These
subsidiaries and all accident and health and group life insurance
business have been accounted for as discontinued operations for all
periods presented. See notes 2 and 13.
In addition, as part of the restructuring described above, NLIC intends
to make an $850,000 distribution to NFS which will then make an
equivalent distribution to Nationwide Corp.
The Company is a leading provider of long-term savings and retirement
products to retail and institutional customers and is subject to
competition from other financial services providers throughout the
United States. The Company is subject to regulation by the Insurance
Departments of states in which it is licensed, and undergoes periodic
examinations by those departments.
The following is a description of the most significant risks facing
life insurers and how the Company mitigates those risks:
LEGAL/REGULATORY RISK is the risk that changes in the legal or
regulatory environment in which an insurer operates will create
additional expenses not anticipated by the insurer in pricing its
products. That is, regulatory initiatives, new legal theories or
insurance company insolvencies through guaranty fund assessments
may create costs for the insurer beyond those currently recorded
in the consolidated financial statements. 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 is 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> 7
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
INTEREST RATE RISK is 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.
(2) Discontinued Operations
-----------------------
As discussed in note 1, NFS is a holding company for NLIC and certain
other companies that offer or distribute long-term savings and
retirement products. Prior to the contribution by Nationwide Corp. to
NFS of the outstanding common stock of NLIC and other companies, 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 to
Nationwide Corp. 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
that serves as a fronting company for a property and casualty
subsidiary of Nationwide Mutual Insurance Company (NMIC), an affiliate.
NCC maintains its offices in Scottsdale, Arizona. 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 for all periods presented. NLIC did not
recognize any gain or loss on the disposal of these subsidiaries.
A summary of the combined results of operations, including the results
of the accident and health and group life insurance business ELICW
assumed from NLIC in 1996, and assets and liabilities of ELICW, NCC and
WCLIC as of and for the years ended December 31, 1996, 1995 and 1994 is
as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Revenues $ 668,870 422,149 84,226
Net income 11,324 26,456 11,753
Assets, consisting primarily of investments 3,029,293 2,967,326 2,537,692
Liabilities, consisting primarily of policy benefits and claims 2,543,586 2,460,649 2,179,263
</TABLE>
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 13 for a
complete discussion of the reinsurance agreements. NLIC 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
and will cease writing any new business prior to December 31, 1997.
NLIC's accident and health and group life insurance business is
accounted for as discontinued operations for all periods presented.
NLIC 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 NLIC.
<PAGE> 8
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
A summary of the results of operations, net of amounts ceded to ELICW
and NMIC in 1996, and assets and liabilities of NLIC's accident and
health and group life insurance business as of and for the years ended
December 31, 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Revenues $ - 354,788 362,476
Net income (loss) - (1,742) 8,706
Assets, consisting primarily of investments 259,185 239,426 234,082
Liabilities, consisting primarily of policy benefits and claims 259,185 239,426 234,082
</TABLE>
(3) 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 (GAAP) which
differ from statutory accounting practices prescribed or permitted by
regulatory authorities. Annual Statements for NLIC and its insurance
subsidiaries, filed with the department of insurance of each insurance
company's state of domicile, are prepared on the basis of accounting
practices prescribed or permitted by each 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.
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 for
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, 1996 or 1995.
<PAGE> 9
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
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 are 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.
(c) Revenues and Benefits
---------------------
INVESTMENT PRODUCTS AND UNIVERSAL LIFE INSURANCE PRODUCTS:
Investment products consist primarily of individual and group
variable and fixed annuities, annuities without life contingencies
and guaranteed investment contracts. 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.
ACCIDENT AND HEALTH INSURANCE PRODUCTS: Accident and health
insurance premiums are recognized as revenue over the terms of the
policies. Policy claims are charged to expense in the period that
the claims are incurred. All accident and health insurance
business is accounted for as discontinued operations. See note 2.
(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 agency expenses have been deferred. For
investment products and universal life insurance products,
deferred policy acquisition costs are being amortized with
interest over the lives of the policies in relation to the present
value of estimated future gross profits from projected interest
margins, asset fees, cost of insurance, policy administration and
surrender charges. For years in which gross profits are negative,
deferred policy acquisition costs are amortized based on the
present value of gross revenues. For traditional life products,
these deferred policy acquisition costs are predominantly being
amortized with interest over the premium paying period of the
related policies in proportion to the ratio of actual annual
premium revenue to the anticipated total premium revenue. Such
anticipated premium revenue was estimated using the same
assumptions as were used for computing liabilities for future
policy benefits. Deferred policy acquisition costs are adjusted to
reflect the impact of unrealized gains and losses on fixed
maturity securities available-for-sale as described in note 3(b).
<PAGE> 10
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(e) Separate Accounts
-----------------
Separate Account assets and liabilities represent contractholders'
funds which have been segregated into accounts with specific
investment objectives. 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 6.
Future policy benefits and claims for collectively renewable
long-term disability policies and group long-term disability
policies are the present value of amounts not yet due on reported
claims and an estimate of amounts to be paid on incurred but
unreported claims. The impact of reserve discounting is not
material. Future policy benefits and claims on other group health
insurance policies are not discounted. All health insurance
business is accounted for as discontinued operations. See note 2.
(g) Participating Business
----------------------
Participating business represents approximately 52% in 1996 (54%
in 1995 and 55% in 1994) of the Company's life insurance in force,
78% in 1996 (79% in 1995 and 79% in 1994) of the number of life
insurance policies in force, and 40% in 1996 (47% in 1995 and 51%
in 1994) of life insurance premiums. The provision for
policyholder dividends is based on current dividend scales. Future
dividends are provided for ratably in future policy benefits based
on dividend scales in effect at the time the policies were issued.
(h) Federal Income Tax
------------------
The Company, with the exception of ELICW, files a consolidated
federal income tax return with 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. Through 1994, ELICW filed a
consolidated federal income tax return with Employers Insurance of
Wausau A Mutual Company, an affiliate. Beginning in 1995, ELICW
files a separate federal income tax return.
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.
<PAGE> 11
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(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 2 and 13.
(j) Reclassification
----------------
Certain items in the 1995 and 1994 consolidated financial
statements have been reclassified to conform to the 1996
presentation.
(4) Change in Accounting Principle
------------------------------
Effective January 1, 1994, the Company changed its method of accounting
for certain investments in debt and equity securities in connection
with the issuance of STATEMENT OF FINANCIAL ACCOUNTING STANDARDS (SFAS)
NO. 115 - ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY
SECURITIES. As of January 1, 1994, the Company classified fixed
maturity securities with amortized cost and fair value of $6,299,665
and $6,721,714, respectively, as available-for-sale and recorded the
securities at fair value. Previously, these securities were recorded at
amortized cost. The effect as of January 1, 1994 has been recorded as a
direct credit to shareholder's equity as follows:
<TABLE>
<CAPTION>
<S> <C>
Excess of fair value over amortized cost of fixed maturity
securities available-for-sale $ 422,049
Adjustment to deferred policy acquisition costs (95,044)
Deferred federal income tax (114,452)
--------------
$ 212,553
==============
</TABLE>
(5) Investments
-----------
The amortized cost and estimated fair value of securities
available-for-sale were as follows as of December 31, 1996:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
------------ ---------- ----------- -----------
<S> <C> <C> <C> <C>
1996:
Fixed maturity securities:
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $ 275,696 4,795 (1,340) 279,151
Obligations of states and political subdivisions 6,242 450 (2) 6,690
Debt securities issued by foreign governments 100,656 2,141 (857) 101,940
Corporate securities 7,999,310 285,946 (33,686) 8,251,570
Mortgage-backed securities 3,588,974 91,438 (15,124) 3,665,288
------------ ---------- ------------ ------------
Total fixed maturity securities 11,970,878 384,770 (51,009) 12,304,639
Equity securities 43,890 15,571 (330) 59,131
------------ ---------- ------------ ------------
$12,014,768 400,341 (51,339) 12,363,770
============ ========== ============ ============
</TABLE>
<PAGE> 12
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The amortized cost and estimated fair value of securities
available-for-sale were as follows as of December 31, 1995:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
------------ ---------- ----------- ---------------
<S> <C> <C> <C> <C>
1995:
Fixed maturity securities:
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $ 310,186 12,764 (1) 322,949
Obligations of states and political subdivisions 8,655 1,205 (1) 9,859
Debt securities issued by foreign governments 101,414 4,387 (66) 105,735
Corporate securities 7,888,440 473,681 (25,742) 8,336,379
Mortgage-backed securities 3,553,861 165,169 (8,388) 3,710,642
------------ ---------- ----------- ---------------
Total fixed maturity securities 11,862,556 657,206 (34,198) 12,485,564
Equity securities 23,617 6,382 (46) 29,953
------------ ---------- ----------- ---------------
$11,886,173 663,588 (34,244) 12,515,517
============ ========== =========== ===============
</TABLE>
The amortized cost and estimated fair value of fixed maturity
securities available-for-sale as of December 31, 1996, 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
cost fair value
--------------- --------------
<S> <C> <C>
Fixed maturity securities available-for-sale:
Due in one year or less $ 440,235 444,214
Due after one year through five years 3,937,010 4,053,152
Due after five years through ten years 2,809,813 2,871,806
Due after ten years 1,194,846 1,270,179
--------------- --------------
8,381,904 8,639,351
Mortgage-backed securities 3,588,974 3,665,288
--------------- --------------
$11,970,878 12,304,639
=============== ==============
</TABLE>
The components of unrealized gains on securities available-for-sale,
net, were as follows as of December 31:
<TABLE>
<CAPTION>
1996 1995
--------------- --------------
<S> <C> <C>
Gross unrealized gains $349,002 629,344
Adjustment to deferred policy acquisition costs (81,939) (138,914)
Deferred federal income tax (93,471) (171,649)
--------------- --------------
173,592 318,781
Unrealized gains on securities available-for-sale, net, of
subsidiaries classified as discontinued operations (note 2) - 65,523
--------------- --------------
$173,592 384,304
=============== ==============
</TABLE>
<PAGE> 13
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
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>
1996 1995 1994
--------------- ------------- --------------
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturity securities $(289,247) 876,332 (675,373)
Equity securities 8,905 (26) (1,927)
Fixed maturity securities held-to-maturity - 75,626 (398,183)
--------------- ------------- --------------
$(280,342) 951,932 (1,075,483)
=============== ============= ==============
</TABLE>
Proceeds from the sale of securities available-for-sale during 1996,
1995 and 1994 were $299,558, $107,345 and $228,308, respectively.
During 1996, gross gains of $6,606 ($4,838 and $3,045 in 1995 and 1994,
respectively) and gross losses of $6,925 ($2,147 and $21,280 in 1995
and 1994, respectively) were realized on those sales.
During 1995, the Company transferred fixed maturity securities
classified as held-to-maturity with amortized cost of $25,429 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
$3,535.
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 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 $3,320,093, resulting in a gross unrealized gain
of $155,940.
Investments that were non-income producing for the twelve month period
preceding December 31, 1996 amounted to $26,805 ($27,712 in 1995) and
consisted of $248 ($6,982 in 1995) in fixed maturity securities,
$20,633 ($14,740 in 1995) in real estate and $5,924 ($5,990 in 1995) in
other long-term investments.
Real estate is presented at cost less accumulated depreciation of
$30,338 as of December 31, 1996 ($30,482 as of December 31, 1995) and
valuation allowances of $15,219 as of December 31, 1996 ($25,819 as of
December 31, 1995).
The recorded investment of mortgage loans on real estate considered to
be impaired (under SFAS NO. 114 - ACCOUNTING BY CREDITORS FOR
IMPAIRMENT OF A LOAN as amended by SFAS NO. 118 - ACCOUNTING BY
CREDITORS FOR IMPAIRMENT OF A LOAN-INCOME RECOGNITION AND DISCLOSURE)
as of December 31, 1996 was $51,765 ($44,409 as of December 31, 1995),
which includes $41,663 ($23,975 as of December 31, 1995) of impaired
mortgage loans on real estate for which the related valuation allowance
was $8,485 ($5,276 as of December 31, 1995) and $10,102 ($20,434 as of
December 31, 1995) of impaired mortgage loans on real estate for which
there was no valuation allowance. During 1996, the average recorded
investment in impaired mortgage loans on real estate was approximately
$39,674 ($22,181 in 1995) and interest income recognized on those loans
was $2,103 ($387 in 1995), which is equal to interest income recognized
using a cash-basis method of income recognition.
Activity in the valuation allowance account for mortgage loans on real
estate is summarized for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995
------------- --------------
<S> <C> <C>
Allowance, beginning of year $49,128 46,381
Additions charged to operations 4,497 7,433
Direct write-downs charged against the allowance (2,587) (4,686)
------------- -------------
Allowance, end of year $51,038 49,128
============= ==============
</TABLE>
<PAGE> 14
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
An analysis of investment income by investment type follows for the
years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
--------------- ------------- ------------
<S> <C> <C> <C>
Gross investment income:
Securities available-for-sale:
Fixed maturity securities $ 917,135 685,787 647,927
Equity securities 1,291 1,330 509
Fixed maturity securities held-to-maturity - 201,808 185,938
Mortgage loans on real estate 432,815 395,478 372,734
Real estate 44,332 38,344 40,170
Short-term investments 4,155 10,576 6,141
Other 3,998 7,239 2,121
--------------- ------------- --------------
Total investment income 1,403,726 1,340,562 1,255,540
Less investment expenses 45,967 46,529 44,729
--------------- ------------- ---------------
Net investment income $1,357,759 1,294,033 1,210,811
=============== ============= ==============
</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>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturity securities $(3,462) 4,213 (7,296)
Equity securities 3,143 3,386 1,422
Mortgage loans on real estate (4,115) (7,091) (20,446)
Real estate and other 4,108 (2,232) 9,793
------------ ------------ ------------
$ (326) (1,724) (16,527)
============ ============ ============
</TABLE>
Fixed maturity securities with an amortized cost of $6,161 and $5,592
as of December 31, 1996 and 1995, respectively, were on deposit with
various regulatory agencies as required by law.
(6) Future Policy Benefits and Claims
---------------------------------
The liability for future policy benefits for investment contracts
represents approximately 87% and 87% of the total liability for future
policy benefits as of December 31, 1996 and 1995, respectively. The
average interest rate credited on investment product policies was
approximately 6.3%, 6.6% and 6.5% for the years ended December 31,
1996, 1995 and 1994, 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 as follows:
--------------
<TABLE>
<CAPTION>
Year of issue Interest rates
----------------- ----------------------------------------
<S> <C>
1996 6.6%, not graded
1984-1995 6.0% to 10.5%, not graded
1966-1983 6.0% to 8.1%, graded over 20 years to 4.0% to 6.6%
1965 and prior generally lower than post 1965 issues
</TABLE>
<PAGE> 15
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
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
$240,451 and $245,255 as of December 31, 1996 and 1995, 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 13. All other reinsurance agreements are not material
to either premiums or reinsurance recoverables.
(7) Federal Income Tax
-------------------
The tax effects of temporary differences that give rise to significant
components of the net deferred tax liability as of December 31, 1996
and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
----------------- ---------------
<S> <C> <C>
Deferred tax assets:
Future policy benefits $175,571 149,192
Liabilities in Separate Accounts 188,426 129,120
Mortgage loans on real estate and real estate 23,366 25,165
Other policyholder funds 7,407 7,424
Other assets and other liabilities 53,757 41,847
----------------- ---------------
Total gross deferred tax assets 448,527 352,748
Less valuation allowances (7,000) (7,000)
----------------- ---------------
Net deferred tax assets 441,527 345,748
================= ===============
Deferred tax liabilities:
Deferred policy acquisition costs 399,345 299,579
Fixed maturity securities 133,210 227,345
Deferred tax on realized investment gains 37,597 40,634
Equity securities and other long-term investments 8,210 3,780
Other 25,377 21,037
----------------- ---------------
Total gross deferred tax liabilities 603,739 592,375
----------------- ---------------
$162,212 246,627
================= ===============
</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, 1996, 1995 and 1994.
<PAGE> 16
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Total federal income tax expense for the years ended December 31, 1996,
1995 and 1994 differs from the amount computed by applying the U.S.
federal income tax rate to income before tax as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------- ---------------------- ----------------------
Amount % Amount % Amount %
---------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Computed (expected) tax expense $110,424 35.0 $100,650 35.0 $84,650 35.0
Tax exempt interest and dividends
received deduction (212) (0.1) (18) (0.0) (130) (0.1)
Other, net 677 0.3 (824) (0.3) (5,931) (2.5)
------------ -------- ------------- -------- ------------- --------
Total (effective rate of each year) $110,889 35.2 $ 99,808 34.7 $78,589 32.5
============ ======== ============= ======== ============= ========
</TABLE>
Total federal income tax paid was $115,839, $51,840 and $83,239
during the years ended December 31, 1996, 1995 and 1994,
respectively.
(8) Disclosures about Fair Value of Financial Instruments
-----------------------------------------------------
SFAS NO. 107 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
(SFAS 107) requires disclosure of fair value information about existing
on and off-balance sheet financial instruments. SFAS 107 defines the
fair value of a financial instrument 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 based on estimates 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. SFAS 107 excludes certain assets and
liabilities from its disclosure requirements. Accordingly, the
aggregate fair value amounts presented do not represent the underlying
value of the Company.
Although insurance contracts, other than policies such as annuities
that are classified as investment contracts, are specifically exempted
from SFAS 107 disclosures, 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:
CASH, SHORT-TERM INVESTMENTS AND POLICY LOANS: The carrying amount
reported in the consolidated balance sheets for these instruments
approximates their fair value.
FIXED MATURITY AND EQUITY SECURITIES: 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.
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.
<PAGE> 17
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
MORTGAGE LOANS ON REAL ESTATE: 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 mortgages in default is the estimated fair value of
the underlying collateral.
INVESTMENT CONTRACTS: 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 analyses. Interest rates used are similar to currently
offered contracts with maturities consistent with those remaining
for the contracts being valued.
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.
POLICYHOLDERS' DIVIDEND ACCUMULATIONS AND OTHER POLICYHOLDER
FUNDS: The carrying amount reported in the consolidated balance
sheets for these instruments approximates their 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 9.
Carrying amount and estimated fair value of financial instruments
subject to SFAS 107 and policy reserves on life insurance contracts
were as follows as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------------------------------ -------------------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
------------------------------ --------------- ---------------
<S> <C> <C> <C> <C>
Assets
------
Investments:
Securities available-for-sale:
Fixed maturity securities $12,304,639 12,304,639 12,485,564 12,485,564
Equity securities 59,131 59,131 29,953 29,953
Mortgage loans on real estate, net 5,272,119 5,397,865 4,602,764 4,961,655
Policy loans 371,816 371,816 336,356 336,356
Short-term investments 4,789 4,789 32,792 32,792
Cash 43,784 43,784 9,455 9,455
Assets held in Separate Accounts 26,926,702 26,926,702 18,591,108 18,591,108
Liabilities
-----------
Investment contracts 13,914,441 13,484,526 13,229,360 12,876,798
Policy reserves on life insurance contracts 2,971,337 2,775,991 2,836,323 2,733,486
Policyholders' dividend accumulations 361,401 361,401 348,027 348,027
Other policyholder funds 60,073 60,073 65,297 65,297
Liabilities related to Separate Accounts 26,926,702 26,164,213 18,591,108 18,052,362
</TABLE>
(9) Additional Financial Instruments Disclosures
--------------------------------------------
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.
<PAGE> 18
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
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 $327,456 extending into
1997 were outstanding as of December 31, 1996.
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 21% (20% in 1995) in any geographic area and no more than 2% (2%
in 1995) with any one borrower as of December 31, 1996.
The Company had a significant reinsurance recoverable balance from one
reinsurer as of December 31, 1996 and 1995. See note 6.
The summary below depicts loans by remaining principal balance as of
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
Apartment
Office Warehouse Retail & other Total
------------ ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
1996:
East North Central $139,518 119,069 549,064 215,038 1,022,689
East South Central 33,267 22,252 172,968 90,623 319,110
Mountain 17,972 43,027 113,292 73,390 247,681
Middle Atlantic 129,077 54,046 160,833 18,498 362,454
New England 33,348 43,581 161,960 - 238,889
Pacific 202,562 325,046 424,295 110,108 1,062,011
South Atlantic 103,889 134,492 482,934 385,185 1,106,500
West North Central 126,467 2,441 75,180 40,529 244,617
West South Central 104,877 120,314 197,090 304,256 726,537
------------- ------------- ------------- -------------- ------------
$890,977 864,268 2,337,616 1,237,627 5,330,488
============ ============= ============= =============
Less valuation allowances and unamortized discount 58,369
--------------
Total mortgage loans on real estate, net $5,272,119
==============
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
1995:
East North Central $138,965 101,925 514,995 175,213 931,098
East South Central 21,329 13,053 180,858 82,383 297,623
Mountain - 17,219 138,220 45,274 200,713
Middle Atlantic 116,187 64,813 158,252 10,793 350,045
New England 9,559 39,525 148,449 1 197,534
Pacific 183,206 233,186 374,915 105,419 896,726
South Atlantic 106,246 73,541 446,800 278,265 904,852
West North Central 133,899 14,205 78,065 36,651 262,820
West South Central 69,140 92,594 190,299 267,268 619,301
------------ ------------ ------------- ------------- --------------
$778,531 650,061 2,230,853 1,001,267 4,660,712
============ ============= ============= =============
Less valuation allowances and unamortized discount 57,948
--------------
Total mortgage loans on real estate, net $4,602,764
==============
</TABLE>
<PAGE> 19
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(10) 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 thousand hours of service within a twelve-month period and who have
met certain age requirements. 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.
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. 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, 1996, 1995 and 1994 were $7,381, $10,478 and
$10,063, respectively.
The Company's net accrued pension expense as of December 31, 1996 and
1995 was $1,075 and $1,392, respectively.
The net periodic pension cost for the Nationwide Insurance Enterprise
Retirement Plan as a whole for the year ended December 31, 1996 and for
the Nationwide Insurance Companies and Affiliates Retirement Plan as a
whole for the years ended December 31, 1995 and 1994 follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
Service cost (benefits earned during the period) $ 75,466 64,524 64,740
Interest cost on projected benefit obligation 105,511 95,283 73,951
Actual return on plan assets (210,583) (249,294) (21,495)
Net amortization and deferral 101,795 143,353 (62,150)
--------------- --------------- ---------------
$ 72,189 53,866 55,046
=============== =============== ===============
</TABLE>
Basis for measurements, net periodic pension cost:
<TABLE>
<CAPTION>
1996 1995 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
Weighted average discount rate 6.00% 7.50% 5.75%
Rate of increase in future compensation levels 4.25% 6.25% 4.50%
Expected long-term rate of return on plan assets 6.75% 8.75% 7.00%
</TABLE>
<PAGE> 20
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Information regarding the funded status of the Nationwide Insurance
Enterprise Retirement Plan as a whole as of December 31, 1996 and 1995
follows:
<TABLE>
<CAPTION>
1996 1995
--------------- ---------------
<S> <C> <C>
Accumulated benefit obligation:
Vested $1,338,554 1,236,730
Nonvested 11,149 26,503
--------------- ---------------
$1,349,703 1,263,233
=============== ===============
Net accrued pension expense:
Projected benefit obligation for services rendered to
date $1,847,828 1,780,616
Plan assets at fair value 1,947,933 1,738,004
--------------- ---------------
Plan assets in excess of (less than) projected benefit
obligation 100,105 (42,612)
Unrecognized prior service cost 37,870 42,845
Unrecognized net gains (201,952) (63,130)
Unrecognized net asset at transition 37,158 41,305
--------------- ---------------
$ (26,819) (21,592)
=============== ===============
</TABLE>
Basis for measurements, funded status of plan:
<TABLE>
<CAPTION>
1996 1995
--------------- ---------------
<S> <C> <C>
Weighted average discount rate 6.50% 6.00%
Rate of increase in future compensation levels 4.75% 4.25%
</TABLE>
Assets of the Nationwide Insurance Enterprise Retirement Plan are
invested in group annuity contracts of NLIC and ELICW.
(11) 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; 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,
1996 and 1995 was $34,884 and $33,537, respectively, and the net
periodic postretirement benefit cost (NPPBC) for 1996, 1995 and 1994
was $3,286, $3,132 and $4,284, respectively.
<PAGE> 21
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The amount of NPPBC for the plan as a whole for the years ended
December 31, 1996, 1995 and 1994 was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Service cost (benefits attributed to employee service during the year) $ 6,541 6,235 8,586
Interest cost on accumulated postretirement benefit obligation 13,679 14,151 14,011
Actual return on plan assets (4,348) (2,657) (1,622)
Amortization of unrecognized transition obligation of affiliates 173 2,966 568
Net amortization and deferral 1,830 (1,619) 1,622
----------- ----------- -----------
$17,875 19,076 23,165
=========== =========== ===========
</TABLE>
Information regarding the funded status of the plan as a whole as of
December 31, 1996 and 1995 follows:
<TABLE>
<CAPTION>
1996 1995
--------------- ---------------
<S> <C> <C>
Accrued postretirement benefit expense:
Retirees $ 92,954 88,680
Fully eligible, active plan participants 23,749 28,793
Other active plan participants 83,986 90,375
--------------- ---------------
Accumulated postretirement benefit obligation (APBO) 200,689 207,848
Plan assets at fair value 63,044 54,325
--------------- ---------------
Plan assets less than accumulated postretirement benefit obligation (137,645) (153,523)
Unrecognized transition obligation of affiliates 1,654 1,827
Unrecognized net gains (23,225) (1,038)
--------------- ---------------
$(159,216) (152,734)
=============== ===============
</TABLE>
Actuarial assumptions used for the measurement of the APBO as of
December 31, 1996 and 1995 and the NPPBC for 1996, 1995 and 1994 were
as follows:
<TABLE>
<CAPTION>
1996 1996 1995 1995 1994
APBO NPPBC APBO NPPBC NPPBC
------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Discount rate 7.25% 6.65% 6.75% 8.00% 7.00%
Long-term rate of return on plan
assets, net of tax - 4.80% - 8.00% N/A
Assumed health care cost trend rate:
Initial rate 11.00% 11.00% 11.00% 10.00% 12.00%
Ultimate rate 6.00% 6.00% 6.00% 6.00% 6.00%
Uniform declining period 12 Years 12 Years 12 Years 12 Years 12 Years
</TABLE>
The health care cost trend rate assumption has an effect on the amounts
reported. 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, 1996 by $701 and the NPPBC for the year ended December 31,
1996 by $83.
(12) Shareholder's Equity, Regulatory Risk-Based Capital, Retained Earnings
and Dividend Restrictions
---------------------------------------------------------------------
Each insurance company'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 each of its
insurance company subsidiaries exceed the minimum risk-based capital
requirements.
<PAGE> 22
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The statutory capital shares and surplus of NLIC as of December 31,
1996, 1995 and 1994 was $1,000,647, $1,363,031 and $1,262,861,
respectively. The statutory net income of NLIC for the years ended
December 31, 1996, 1995 and 1994 was $73,218, $86,529 and $76,532,
respectively.
NLIC is limited in the amount of shareholder dividends it may pay
without prior approval by the Department of Insurance of the State of
Ohio (the Department). NLIC's dividend of the outstanding shares of
common stock of certain companies which was declared on September 24,
1996 and the anticipated $850,000 dividend (as discussed in note 1) are
deemed extraordinary under Ohio insurance laws. As a result of such
dividends, any dividend paid by NLIC during the 12-month period
immediately following the $850,000 dividend would also be an
extraordinary dividend under Ohio insurance laws. Accordingly, no such
dividend could be paid without prior regulatory 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 stockholder.
The Company currently does not expect such regulatory requirements to
impair its ability to pay operating expenses and stockholder dividends
in the future.
(13) Transactions With Affiliates
----------------------------
The Company leases office space from NMIC and certain of its
subsidiaries. For the years ended December 31, 1996, 1995 and 1994, the
Company made lease payments to NMIC and its subsidiaries of $9,065,
$8,986 and $8,133, 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 $101,584, $107,112, and $100,601 in 1996,
1995 and 1994, 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
intercompany 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 $15,111 and $1,186 as of December 31, 1996 and 1995,
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 1996 and
1995 were not material. The Company believes that the terms of the
repurchase agreements are materially consistent with what the Company
could have obtained with unaffiliated parties.
<PAGE> 23
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Intercompany reinsurance contracts 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
NLIC'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 NLIC's agreements, the investment risk associated
with changes in interest rates is borne by NMIC or ELICW, as the case
may be. Risk of asset default is retained by NLIC, although a fee is
paid by NMIC or ELICW, as the case may be, to NLIC for the NLIC'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. NLIC believes that the terms of the modified coinsurance
agreements are consistent in all material respects with what NLIC could
have obtained with unaffiliated parties.
Amounts ceded to ELICW in 1996 are included in ELICW's results of
operations for 1996 which, combined with the results of WCLIC and NCC,
are summarized in note 2. Amounts ceded to ELICW in 1996 include
premiums of $224,224, net investment income and other revenue of
$14,833, and benefits, claims and other expenses of $246,641. Amounts
ceded to NMIC in 1996 include premiums of $97,331, net investment
income of $10,890, and benefits, claims and other expenses of $100,476.
The Company and various affiliates entered into agreements with
Nationwide Cash Management Company (NCMC) and California Cash
Management Company (CCMC), both affiliates, under which NCMC and CCMC
act as common agents in handling the purchase and sale of short-term
securities for the respective accounts of the participants. Amounts on
deposit with NCMC and CCMC were $4,789 and $9,654 as of December 31,
1996 and 1995, respectively, and are included in short-term investments
on the accompanying consolidated balance sheets.
On April, 5 1996, Nationwide Corp. contributed all of the outstanding
shares, with shareholder equity value of $30, of NISC to NLIC. NLIC
contributed an additional $500 to NISC on August 30, 1996.
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 $46,918. As discussed in note 2, WCLIC is
accounted for as discontinued operations.
Effective December 31, 1994, NLIC purchased all of the outstanding
shares of common stock of ELICW from Wausau Service Corporation (WSC)
for $155,000. NLIC transferred fixed maturity securities and cash with
a fair value of $155,000 to WSC on December 28, 1994, which resulted in
a realized loss of $19,239 on the disposition of the securities. The
purchase price approximated both the historical cost basis and fair
value of net assets of ELICW. ELICW has and will continue to share home
office, other facilities, equipment and common management and
administrative services with WSC. As discussed in note 2, ELICW is
accounted for as discontinued operations.
Certain annuity products are sold through three affiliated companies
which are also subsidiaries of Nationwide Corp. Total commissions and
fees paid to these affiliates for the years ended December 31, 1996,
1995 and 1994 were $76,922, $57,280 and $50,168, respectively.
(14) Bank Lines of Credit
--------------------
In August 1996, NLIC, along with NMIC, established a $600,000 revolving
credit facility which provides for a $600,000 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.
<PAGE> 24
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(15) 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.
(16) Segment Information
-------------------
The Company has three primary 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 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, 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.
During 1996, the Company changed its reporting segments to better
reflect the way the businesses are managed. Prior periods have been
restated to reflect these changes.
The following table summarizes the revenues and income from continuing
operations before federal income tax expense for the years ended
December 31, 1996, 1995 and 1994 and assets as of December 31, 1996,
1995 and 1994, by business segment.
<TABLE>
<CAPTION>
1996 1995 1994
----------------- --------------- ---------------
<S> <C> <C> <C>
Revenues:
Variable Annuities $ 284,638 189,071 132,687
Fixed Annuities 1,092,566 1,051,970 939,868
Life Insurance 435,657 409,135 383,150
Corporate and Other 179,977 148,475 143,794
----------------- --------------- ---------------
$ 1,992,838 1,798,651 1,599,499
================= =============== ===============
Income from continuing operations before federal income tax
expense:
Variable Annuities 90,244 50,837 24,574
Fixed Annuities 135,405 137,000 138,950
Life Insurance 67,242 67,590 53,046
Corporate and Other 22,606 32,145 25,288
----------------- --------------- ---------------
$ 315,497 287,572 241,858
================= =============== ===============
Assets:
Variable Annuities 25,069,725 17,333,039 11,146,465
Fixed Annuities 13,994,715 13,250,359 11,668,973
Life Insurance 3,353,286 3,027,420 2,752,283
Corporate and Other 5,348,520 4,896,815 3,678,303
----------------- --------------- ---------------
$47,766,246 38,507,633 29,246,024
================= =============== ===============
</TABLE>
<PAGE> 25
<TABLE>
SCHEDULE I
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Summary of Investments -
Other Than Investments in Related Parties
As of December 31, 1996
($000's omitted)
<CAPTION>
- --------------------------------------------------------------- --------------- -------------- -----------------
Column A Column B Column C Column D
- --------------------------------------------------------------- --------------- -------------- -----------------
Amount at which
shown in the
consolidated
Type of Investment Cost Market value balance sheet
- --------------------------------------------------------------- --------------- -------------- -----------------
<S> <C> <C> <C>
Fixed maturity securities available-for-sale:
Bonds:
U.S. Government and government agencies and authorities $ 3,757,887 3,834,762 3,834,762
States, municipalities and political subdivisions 6,242 6,690 6,690
Foreign governments 100,656 101,940 101,940
Public utilities 1,798,736 1,843,938 1,843,938
All other corporate 6,307,357 6,517,309 6,517,309
--------------- -------------- -----------------
Total fixed maturity securities available-for-sale 11,970,878 12,304,639 12,304,639
--------------- -------------- -----------------
Equity securities available-for-sale:
Common stocks:
Industrial, miscellaneous and all other 43,501 50,405 50,405
Non-redeemable preferred stock 389 8,726 8,726
--------------- -------------- -----------------
Total equity securities available-for-sale 43,890 59,131 59,131
--------------- -------------- -----------------
Mortgage loans on real estate, net 5,327,317 5,272,119 (1)
Real estate, net:
Investment properties 253,383 217,611 (1)
Acquired in satisfaction of debt 57,933 48,148 (1)
Policy loans 371,816 371,816
Other long-term investments 27,370 28,668 (2)
Short-term investments 4,789 4,789
--------------- ----------------
Total investments $18,057,376 18,306,921
=============== ================
<FN>
- ----------
(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 5 to the consolidated financial statements.
(2) Difference from Column B is primarily due to operating gains of investments
in limited partnerships.
</TABLE>
See accompanying independent auditors' report.
<PAGE> 26
<TABLE>
<CAPTION>
SCHEDULE III
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Supplemental Insurance Information
As of December 31, 1996, 1995 and 1994
and for each of the years then ended
($000's omitted)
- ----------------------------------- -------------- ------------------ ----------------- ------------------ ---------------
Column A Column B Column C Column D Column E Column F
- ----------------------------------- -------------- ------------------ ----------------- ----------------- ---------------
Deferred Future policy Other policy
policy benefits, losses, claims and
acquisition claims and Unearned premiums benefits payable Premium
Segment costs loss expenses (1) (2) revenue
- ----------------------------------- -------------- ------------------ ----------------- ---------------- --------------
<C> <C> <C> <C> <C> <C>
1996: Variable Annuities $ 791,611 - - -
Fixed Annuities 242,421 14,952,877 687 24,030
Life Insurance 414,417 1,995,802 395,739 174,612
Corporate and Other (81,940) 230,381 25,048 -
-------------- ------------------ ---------------- --------------
Total $1,366,509 17,179,060 421,474 198,642
============== ================== ================ ==============
1995: Variable Annuities 571,283 - - -
Fixed Annuities 221,111 14,221,622 455 32,774
Life Insurance 366,876 1,898,641 383,983 166,332
Corporate and Other (138,914) 238,351 28,886 -
-------------- ------------------ ---------------- --------------
Total $1,020,356 16,358,614 413,324 199,106
============== ================== ================ ==============
1994: Variable Annuities 395,397 - - -
Fixed Annuities 198,639 12,633,253 240 20,134
Life Insurance 327,079 1,806,762 371,984 156,524
Corporate and Other 74,445 233,569 26,927 -
-------------- ------------------ ---------------- --------------
Total $ 995,560 14,673,584 399,151 176,658
============== ================== ================ ==============
<CAPTION>
- ----------------------------------- -------------- ------------------- ----------------- ---------------- --------------
Column A Column G Column H Column I Column J Column K
- ----------------------------------- -------------- ------------------- ----------------- ---------------- --------------
Net Amortization Other
investment Benefits, claims, of deferred operating
income losses and policy expenses Premiums
Segment (3) settlement expenses acquisition costs (3) written
- ----------------------------------- -------------- ------------------- ----------------- ----------------- --------------
1996: Variable Annuities $ (21,449) 4,624 57,412 132,357
Fixed Annuities 1,050,557 838,533 38,635 79,737
Life Insurance 174,002 211,386 37,347 78,965
Corporate and Other 154,649 106,037 - 51,335
-------------- ------------------- ----------------- -----------------
Total $1,357,759 1,160,580 133,394 342,394
============== =================== ================= =================
1995: Variable Annuities (17,640) 2,881 26,264 109,089
Fixed Annuities 1,002,718 804,980 29,499 80,260
Life Insurance 171,255 201,986 31,021 68,832
Corporate and Other 137,700 105,646 (4,089) 14,773
-------------- ------------------- ----------------- -----------------
Total $1,294,033 1,115,493 82,695 272,954
============== =================== ================= =================
1994: Variable Annuities (13,415) 2,277 22,135 83,701
Fixed Annuities 903,572 702,082 29,849 69,975
Life Insurance 166,329 191,006 29,495 69,861
Corporate and Other 154,325 97,302 4,089 17,115
-------------- ------------------- ----------------- -----------------
Total $1,210,811 992,667 85,568 240,652
============== =================== ================= =================
<FN>
- ----------
(1) Unearned premiums are included in Column C amounts.
(2) Column E agrees to the sum of the Balance Sheet captions, Policyholders'
dividend accumulations and Other policyholder funds.
(3) Allocations of net investment income and certain general expenses are based
on a number of assumptions and estimates, and reported operating results
would change by segment if different methods were applied.
</TABLE>
See accompanying independent auditors' report.
<PAGE> 27
SCHEDULE IV
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Reinsurance
As of December 31, 1996, 1995 and 1994
and for each of the years then ended
($000's omitted)
<TABLE>
<CAPTION>
- ------------------------------- ----------------- ----------------- ---------------- ---------------- ---------------
Column A Column B Column C Column D Column E Column F
- ------------------------------- ----------------- ----------------- ---------------- ---------------- ---------------
Percentage
Ceded to Assumed from of amount
Gross amount other companies other companies Net amount assumed to net
----------------- ----------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
1996:
Life insurance in force $47,071,264 6,633,567 288,593 40,726,290 0.7%
================= ================= ================ ================ ===============
Premiums:
Life insurance 225,615 29,282 2,309 198,642 1.2%
Accident and health insurance 291,871 305,789 13,918 - N/A
----------------- ----------------- ---------------- ---------------- ---------------
Total $ 517,486 335,071 16,227 198,642 8.2%
================= ================= ================ ================ ===============
1995:
Life Insurance in force $41,087,025 8,935,743 391,174 32,542,456 1.2%
================= ================= ================ ================ ===============
Premiums:
Life insurance 221,257 24,360 2,209 199,106 1.1%
Accident and health insurance 298,058 313,036 14,978 - N/A
----------------- ----------------- ---------------- ---------------- ---------------
Total $ 519,315 337,396 17,187 199,106 8.6%
================= ================= ================ ================ ===============
1994:
Life Insurance in force $35,926,633 7,550,623 829,742 29,205,752 2.8%
================= ================= ================ ================ ===============
Premiums:
Life insurance 198,705 24,912 2,865 176,658 1.6%
Accident and health insurance 303,435 321,696 18,261 - N/A
----------------- ----------------- ---------------- ---------------- ---------------
Total $ 502,140 346,608 21,126 176,658 12.0%
================= ================= ================ ================ ===============
<FN>
- ----------
Note: The life insurance caption represents principally premiums from
traditional life insurance and life-contingent immediate annuities and
excludes deposits on invesment products and universal life insurance
products.
</TABLE>
See accompanying independent auditors' report.
<PAGE> 28
<TABLE>
<CAPTION>
SCHEDULE V
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended December 31, 1996, 1995 and 1994
($000's omitted)
- ------------------------------------------------- ------------ ----------------------------- ------------ -------------
Column A Column B Column C Column D Column E
- ------------------------------------------------- ------------ ----------------------------- ------------ -------------
Balance at Charged to Balance at
beginning of costs and Charged to Deductions end of
Description period expenses other accounts (1) period
- ------------------------------------------------- ------------ ------------ -------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
1996:
Valuation allowances - mortgage loans on real
estate $49,128 4,497 - 2,587 51,038
Valuation allowances - real estate 25,819 (10,600) - - 15,219
------------ ------------ -------------- ------------ -------------
Total $74,947 (6,103) - 2,587 66,257
============ ============ ============== ============ =============
1995:
Valuation allowances - fixed maturity securities - 8,908 - 8,908 -
Valuation allowances - mortgage loans on real
estate 46,381 7,433 - 4,686 49,128
Valuation allowances - real estate 27,330 (1,511) - - 25,819
------------ ------------ -------------- ------------ -------------
Total $73,711 14,830 - 13,594 74,947
============ ============ ============== ============ =============
1994:
Valuation allowances - fixed maturity securities 4,800 (4,800) - - -
Valuation allowances - mortgage loans on real
estate 42,150 20,445 - 16,214 46,381
Valuation allowances - real estate 31,357 (4,027) - - 27,330
------------ ------------ -------------- ------------ -------------
Total $78,307 11,618 - 16,214 73,711
============ ============ ============== ============ =============
<FN>
- ----------
(1) Amounts represent direct write-downs charged against the valuation allowance.
</TABLE>
See accompanying independent auditors' report.
<PAGE> 41
PART C. OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
(1) Financial statements and schedule included PAGE
in Prospectus
(Part A):
Condensed Financial Information. 11
(2) Financial statements and schedule included
in Part B:
Those financial statements and schedule 39
required by Item 23 to be included in Part B
have been incorporated therein by reference to the
Prospectus (Part A).
Nationwide Multi-Flex Variable Account:
Independent Auditors' Report. 39
Statement of Assets, Liabilities and Contract
Owners' Equity as of December 31, 1996. 40
Statements of Operations and Changes in
Contract Owners' Equity for the years ended 42
December 31, 1996, 1995 and 1994.
Notes to Financial Statements. 43
Schedules of Changes in Unit Value. 46
Nationwide Life Insurance Company:
Independent Auditors' Report. 48
Consolidated Balance Sheets as of December
31, 1996 and 1995. 49
Consolidated Statements of Income for the 50
years ended December 31, 1996, 1995 and
1994.
Consolidated Statements of Shareholder's 51
Equity for the years ended December 31,
1996, 1995 and 1994.
Consolidated Statements of Cash Flows for 52
the years ended December 31, 1996, 1995
and 1994.
Notes to Consolidated Financial Statements. 53
Schedule I - Consolidated Summary of Investments - 72
Other Than Investments in Related Parties
Schedule III - Supplementary Insurance 73
Information
Schedule IV - Reinsurance 74
Schedule V - Valuation and Qualifying Accounts 75
76 of 94
<PAGE> 42
Item 24. (b) Exhibits
(1) Resolution of the Depositor's Board of Directors
authorizing the establishment of the Registrant -
Filed previously with the Registration Statement,
and hereby incorporated by reference.
(2) Not Applicable
(3) Underwriting or Distribution of contracts between
the Registrant and Principal Underwriter - Filed
previously with the Registration Statement, and
hereby incorporated by reference.
(4) The form of the variable annuity contract - Filed
previously with the Registration Statement, and
hereby incorporated by reference.
(5) Variable Annuity Application -Filed previously
with the Registration Statement, and hereby
incorporated by reference.
(6) Articles of Incorporation of Depositor Filed
previously with the Registration Statement, and
hereby incorporated by reference.
(7) Not Applicable
(8) Not Applicable
(9) Opinion of Counsel - Filed previously with the
Registration Statement, and hereby incorporated by
reference.
(10) Not Applicable
(11) Not Applicable
(12) Not Applicable
(13) Performance Advertising Calculation Schedule -
Filed previously with Post- Effective Amendment
No. 9 14 to the Registration Statement, and hereby
incorporated by reference.
77 of 94
<PAGE> 43
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
Keith W. Eckel Director
1647 Falls Road
Clarks Summit, PA 18411
Willard J. Engel Director
1100 East Main 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
Henry S. Holloway Chairman of the Board
1247 Stafford Road and Director
Darlington, MD 21034
Dimon Richard McFerson Chairman and Chief Executive Officer-
One Nationwide Plaza Nationwide Insurance Enterprise
Columbus, OH 43215 and Director
David O. Miller Director
115 Sprague Drive
Hebron, OH 43025
C. Ray Noecker Director
2770 Winchester Southern S.
Ashville, OH 43103
James F. Patterson Director
8765 Mulberry Road
Chesterland, OH 44026
</TABLE>
78 of 94
<PAGE> 44
<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
Gordon E. McCutchan Executive Vice President,
One Nationwide Plaza Law and Corporate Services
Columbus, OH 43215 and Secretary
Robert A. Oakley Executive Vice President-
One Nationwide Plaza Chief Financial Officer
Columbus, OH 43215
Robert J. Woodward, Jr. Executive Vice President -
One Nationwide Plaza Chief Investment Officer
Columbus, OH 43215
James E. Brock Senior Vice President -
One Nationwide Plaza Life Company Operations
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
Michael D. Bleiweiss Vice President-
One Nationwide Plaza Individual Annuity Operations
Columbus, OH 43215
</TABLE>
79 of 94
<PAGE> 45
<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
Ronald L. Eppley Vice President-
One Nationwide Plaza Applications 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 Vice President -
One Nationwide Plaza Associate General Counsel
Columbus, OH 43215
</TABLE>
Item 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT.
* Subsidiaries for which separate financial statements are filed
** Subsidiaries included in the respective consolidated financial
statements
*** Subsidiaries included in the respective group financial
statements filed for unconsolidated subsidiaries
**** other subsidiaries
80 of 94
<PAGE> 46
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
STATE (SEE ATTACHED
OF ORGANIZATION CHART) UNLESS
COMPANY OTHERWISE PRINCIPAL BUSINESS
INDICATED
<S> <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 Investment Securities Agent
Colonial County Mutual insurance Texas Insurance Company
Company
Colonial Insurance Company of California Insurance Company
California
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 Idaho, Inc. Idaho Insurance Broker
Companies Agency of Illinois, Inc. Illinois Acts as Collection Agent for Policies placed
through Brokers
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 Insurance Broker
Companies Annuity Agency of Texas, Texas Insurance Broker
Inc.
Countrywide Services Corporation Delaware Products Liability, Investigative and Claims
Management Services
Employers Insurance of Wausau A Wisconsin Insurance Company
Mutual Company
</TABLE>
81 of 94
<PAGE> 47
<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 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 Writes Commercial Health and Medicare
Supplement Insurance
Insurance Intermediaries, Inc. Ohio Insurance Broker and Insurance Agency
Key Health Plan, Inc. California Pre-paid health plans
Landmark Financial Services of New New York Life Insurance Agency
York, Inc.
Leben Direkt Insurance Company Germany Life Insurance Company
Lone Star General Agency, Inc. Texas Insurance Agency
** MRM Investments, Inc. Ohio Owns and operates a Recreational Ski Facility
** National Casualty Company Michigan 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
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
</TABLE>
82 of 94
<PAGE> 48
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
STATE (SEE ATTACHED
OF ORGANIZATION CHART) UNLESS
COMPANY OTHERWISE PRINCIPAL BUSINESS
INDICATED
<S> <C> <C> <C>
Nationwide Communications, Inc. Ohio Radio Broadcasting Business
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 Development Company Ohio Owns, leases and manages commercial real
estate
Nationwide Financial Institution Delaware Insurance Agency
Distributors Agency, Inc.
Nationwide Financial Services, Inc. Delaware Holding Company
Nationwide General Insurance Company Ohio Insurance Company
Nationwide HMO, Inc. Ohio Health Maintenance Organization
* Nationwide Indemnity Company Ohio Reinsurance Company
Nationwide Insurance Enterprise Ohio Membership Non-Profit Corporation
Foundation
Nationwide Insurance Golf Charities, Ohio Membership Non-Profit Corporation
Inc.
Nationwide Investing Foundation Michigan Investment Company
* Nationwide Investing Massachusetts Investment Company
Foundation II
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 Develops and operates Managed Care Delivery
System
Nationwide Mutual Fire Insurance Ohio Insurance Company
Company
Nationwide Mutual Insurance Company Ohio 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
</TABLE>
83 of 94
<PAGE> 49
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
STATE (SEE ATTACHED
OF ORGANIZATION CHART) UNLESS
COMPANY OTHERWISE PRINCIPAL BUSINESS
INDICATED
<S> <C> <C>
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
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
</TABLE>
84 of 94
<PAGE> 50
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
STATE (SEE ATTACHED
OF ORGANIZATION CHART) UNLESS
COMPANY OTHERWISE PRINCIPAL BUSINESS
INDICATED
<S> <C> <C> <C>
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 Excess and surplus lines 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
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
** West Coast Life Insurance Company California Life Insurance Company
</TABLE>
85 of 94
<PAGE> 51
<TABLE>
<CAPTION>
NO. VOTING SECURITIES
(SEE ATTACHED CHART) UNLESS
STATE OTHERWISE INDICATED
COMPANY OF ORGANIZATION PRINCIPAL BUSINESS
<S><C> <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
* Nationwide Life 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 VL Separate Ohio Nationwide Life and Annuity Issuer of Life Insurance
Account-A Separate Account Policies
* Nationwide VLI Separate Account Ohio Nationwide Life Separate Issuer of Life Insurance
Account Policies
* Nationwide VLI Separate Account-2 Ohio Nationwide Life Separate Issuer of Life Insurance
Account Policies
* Nationwide VLI Separate Account-3 Ohio Nationwide Life Separate Issuer of Life Insurance
Account Policies
* Nationwide VL Separate Account-B Ohio Nationwide Life and Annuity Issuer of Annuity Contracts
Separate Account
</TABLE>
86 of 94
<PAGE> 52
<TABLE>
<CAPTION>
NATIONWIDE INSURANCE ENTERPRISE(R) (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 |
------------------------------------------
|
-----------------------------------------------------------------------
| | |
- --------------------------- --------------------------- ---------------------------- ---------------------------
| SAN DIEGO LOTUS | | WAUSAU INSURANCE CO. | | WAUSAU SERVICE | | |
| CORPORATION | | (U.K.) LIMITED | | CORPORATION (WSC) | | NATIONWIDE LLOYDS |
|Common Stock: 748,212 | |Common Stock: 8,506,800 | |Common Stock: 1,000 Shares| | |
|------------ Shares | |------------ Shares | |------------ | | |
| | | | | |=========| |
| Cost | | Cost | | Cost | || | A TEXAS LLOYDS |
| ---- | | ---- | | ---- | || | |
|Employers- | |Employers- | |Employers- | || | |
|100% $29,000,000| |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% $861,761 | | |WSC-100% $1,000 | | |WSC-100% $10,000 | | |WSC-100% $248,222 |
- --------------------------- | --------------------------- | ---------------------------- | ---------------------------
| | |
- --------------------------- | --------------------------- | ---------------------------- | ---------------------------
| COMPANIES AGENCY | | | COMPANIES AGENCY | | | COMPANIES AGENCY | | | COMPANIES AGENCY |
| OF ALABAMA, INC. | | | OF PENNSYLVANIA, INC. | | | INSURANCE SERVICES | | | OF ILLINOIS, INC. |
| | | | | | | OF CALIFORNIA | | | |
|Common Stock: 1,000 | | |Common Stock: 1,000 | | |Common Stock: 1,000 | | |Common Stock: 250 |
|------------ Shares | | |------------ Shares | |---|------------ Shares | |------|------------ Shares |
| |---|---| | | | | | | |
| Cost | | | Cost | | | Cost | | | Cost |
| ---- | | | ---- | | | ---- | | | ---- |
|WSC-100% $100 | | |WSC-100% $100 | | |WSC-100% $1,000 | | |WSC-100% $2,500 |
- --------------------------- | --------------------------- | ---------------------------- | ---------------------------
| | |
- --------------------------- | --------------------------- | ---------------------------- | ---------------------------
| COMPANIES AGENCY | | | COMPANIES AGENCY | | | PHYSICIANS PLUS | | | COMPANIES |
| OF IDAHO, INC. | | | OF PHOENIX, INC. | | | INSURANCE | | | AGENCY, INC. |
| | | | | | | CORPORATION | | | |
|Common Stock: 1,000 | | |Common Stock: 1,000 | | |Common Stock: 7,150 | | |Common Stock: 100 |
|------------ Shares | | |------------ Shares | | |------------ Shares | | |------------ Shares |
| |-------| | |---|Preferred Stock: 11,540 | |------| |
| | | | | |--------------- Shares | | | |
| | | | | | | | | |
| Cost | | Cost | | | Cost | | | Cost |
| ---- | | ---- | | | ---- | | | ---- |
|WSC-100% $1,000 | |WSC-100% $1,000 | | |WSC-33 1/3% $6,215,459| | |WSC-100% $10,000 |
- --------------------------- --------------------------- | ---------------------------- | ---------------------------
| |
| ---------------------------- | ---------------------------
| | PREVEA HEALTH | | | PENSION ASSOCIATES |
| | INSURANCE PLAN, INC. | | | OF WAUSAU, INC. |
| |Common Stock: 3,000 Shares| | |Common Stock: 1,000 |
| |------------ | | |------------ Shares |
----| | -------| |
| | | |
| Cost | |Companies Cost |
| ---- | |Agency, Inc. ---- |
|WSC-33 1/3% $500,000 | |(Wisconsin)-100% $10,000 |
---------------------------- ---------------------------
</TABLE>
<PAGE> 53
<TABLE>
<CAPTION>
NATIONWIDE INSURANCE ENTERPRISE(R) (middle)
<S> <C> <C>
-----------------------------------------------------------------------------
| |
| |
| NATIONWIDE MUTUAL |
=======| INSURANCE COMPANY |================================================
| (CASUALTY) |
| |
| |
-----------------------------------------------------------------------------
| || |
| || -------------------------------------------------------------
| || ---------------------------------------------------------------------------------------
| || | |
- -------------------------------- || | -------------------------------- --------------------------------
| ALLNATIONS, INC. | || | | NATIONWIDE GENERAL | | NECKURA HOLDING |
|Common Stock: 3,136 Shares | || | | INSURANCE COMPANY | | COMPANY (NECKURA) |
|------------ | || | | | | |
| Cost | || | |Common Stock: 20,000 | |Common Stock: 10,000 |
| ---- | || | |------------ Shares | |------------ Shares |
|Casualty-24.5% $88,320 | || | | Cost | | Cost |
|Fire-24.5% $88,463 | || | | ---- | | ---- |
|Preferred Stock: 1,466 Shares | || |----|Casualty-100% $5,944,422 | ---------|Casualty-100% $87,943,140 |
|--------------- | || | | | | | |
| Cost | || | | | | | |
| ---- | || | | | | | |
|Casualty-7.7% $100,000 | || | | | | | |
|Fire-7.7% $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 CALIFORNIA | | | 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% $11,750,000 | | |Neckura-100% DM 15,825,681 |
- -------------------------------- | -------------------------------- | --------------------------------
| |
- -------------------------------- | -------------------------------- | --------------------------------
| NATIONWIDE AGRIBUSINESS | | | SCOTTSDALE | | | NECKURA GENERAL |
| INSURANCE COMPANY | | | INSURANCE COMPANY | | | INSURANCE COMPANY |
|Common Stock: 1,000,000 | | | | | | |
|------------ Shares | | |Common Stock: 30,136 | | |Common Stock: 1,500 |
| Cost |------------------|------------ Shares | |--------|------------ Shares |
| ---- | | Cost | | | Cost |
|Casualty-99.9% $26,714,335 | | ---- | | | ---- |
|Other Capital: | |Casualty-100% $150,000,000 | | |Neckura-100% DM 1,656,925 |
|------------- | | | | | |
|Casualty-Ptd. $ 713,567 | | | | | |
- -------------------------------- -------------------------------- | --------------------------------
| |
-------------------------------- | --------------------------------
| SCOTTSDALE | | | COLUMBUS INSURANCE |
| SURPLUS LINES | | | BROKERAGE AND SERVICE |
| INSURANCE COMPANY | | | GmbH |
| | | |Common Stock: 1 Share |
| | |--------|------------ |
| "NEWLY FORMED" | | | Cost |
| | | | ---- |
| | | |Neckura-100% DM 51,639 |
| | | | |
| | | | |
-------------------------------- | --------------------------------
| |
-------------------------------- | --------------------------------
| NATIONAL PREMIUM & | | | LEBEN DIREKT |
| BENEFIT ADMINISTRATION | | | INSURANCE COMPANY |
| COMPANY | | | |
|Common Stock: 10,000 | | |Common Stock: 4,000 Shares |
|------------ Shares |------------------|------------ |
| Cost | | Cost |
| ---- | | ---- |
|Scottsdale-100% $10,000 | |Neckura-100% DM 4,000,000 |
| | | |
| | | |
-------------------------------- --------------------------------
-------------------------------- --------------------------------
| SVM SALES | | AUTO DIREKT |
| GmbH | | INSURANCE COMPANY |
| | | |
|Common Stock: 50 Shares | |Common Stock: 1,500 Shares |
|------------ | |------------ |
| Cost | | Cost |
| ---- | | ---- |
|Neckura-100% DM 50,000 | |Neckura-100% DM 1,643,149 |
| | | |
| | | |
-------------------------------- --------------------------------
</TABLE>
<PAGE> 54
<TABLE>
<CAPTION>
NATIONWIDE INSURANCE ENTERPRISE(R) (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 |
| | | | |
|Surplus Debentures | | |Common Stock: 90 Shares |
|------------------ | |----|------------ |
| Cost | | | Cost |
| ---- | | | ---- |
|Colonial $500,000 | | |Casualty-100% $9,000 |
|Lone Star 150,000 | | | |
-------------------------------- | --------------------------------
|
| -------------------------------- --------------------------------
| | NATIONWIDE | | THE BEAK AND |
| | COMMUNICATIONS, INC. | | WIRE CORPORATION |
| |Common Stock: 14,750 | | |
| |------------ Shares | |Common Stock: 750 Shares |
-----| Cost |------------------|------------ |
| ---- | | Cost |
|Casualty-100% $11,510,000 | | ---- |
|Other Capital: | |NW Comm-100% $531,000 |
|------------- | | |
|Casualty-Ptd. 1,000,000 | | |
-------------------------------- --------------------------------
Subsidiary Companies -- Solid Line
Contractual Association -- Double Lines
March 6, 1997
</TABLE>
<PAGE> 55
<TABLE>
<CAPTION>
(Left Side)
NATIONWIDE INSURANCE ENTERPRISE(R)
------------------------------------------------
| 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 | | DISTRIBUTORS AGENCY | || | |
| (NW LIFE) | | | (NW ADV. SERV.) | | OF ALABAMA, INC. | || | |
| Common Stock: 68,000 | | | 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 | || | NFIDIA--100% $100 | || | |
--------------------------- | --------------------------- || --------------------------- || --------------------------
| || ||
--------------------------- | --------------------------- || --------------------------- || --------------------------
| NWE, INC. | | | NATIONWIDE | || | LANDMARK FINANCIAL | || | |
| | | | INVESTOR SERVICES, INC. | || | SERVICES OF | || | |
| | | | | || | NEW YORK, INC. | || | |
| Common Stock: 100 | | | Common Stock: 5 | || | Common Stock: 10,000 | || | FINANCIAL HORIZONS |
| ------------ Shares |--| | ------------ Shares |==|| | ------------ Shares | ||==| DISTRIBUTORS AGENCY |
| | | | | || | | || | OF OKLAHOMA, INC. |
| Cost | | | Cost | || | Cost | || | |
| ---- | | | ---- | || | ---- | || | |
| NW Life--100% $35,971,375 | | | NW Adv. Serv.--100% $5,000| || | NFIDIA--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 | || | NFIDIA--100% $153,000 | || | |
--------------------------- | --------------------------- || --------------------------- || --------------------------
| || ||
--------------------------- | --------------------------- || --------------------------- || --------------------------
| NATIONWIDE LIFE INSURANCE | | | NATIONWIDE | || | AFFILIATE AGENCY, INC. | || | |
| COMPANY OF NEW YORK | | | INVESTING | || | | || | |
| | | | FOUNDATION | || | | || | |
| Common Stock: | | | | || | Common Stock: 100 | || | AFFILIATE |
| ------------ Shares |--| | |==|| | ------------ Shares |__||==| AGENCY OF |
| Cost | | | | || | | | OHIO, INC. |
| ---- | | | | || | Cost | | |
| NW Life--100% | | | | || | ---- | | |
| (Proposed) | | | COMMON LAW TRUST | || | NFIDIA--100% $100 | | |
--------------------------- | --------------------------- || --------------------------- --------------------------
| ||
--------------------------- | --------------------------- ||
| NATIONWIDE REALTY | | | NATIONWIDE | ||
| INVESTORS, LTD. | | | INVESTING | ||
| | | | FOUNDATION II | ||
| Units: | | | | ||
| ------ | | | |==||
| | | | | ||
| | | | | ||
| NW Life--90% | | | | ||
| NW Mutual--10% | | | COMMON LAW TRUST | ||
--------------------------- | --------------------------- ||
| ||
--------------------------- | --------------------------- ||
| NATIONWIDE REALTY | | | NATIONWIDE | ||
| INVESTORS, LTD. | | | SEPARATE ACCOUNT | ||
| | | | TRUST | ||
| Units: | | | | ||
| ------ |__| | |__||
| | | |
| | | |
| NW Life--97.6% | | |
| NW Mutual--2.4% | | COMMON LAW TRUST |
--------------------------- ---------------------------
</TABLE>
<PAGE> 56
<TABLE>
<CAPTION>
(Center)
<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 | | MRM INVESTMENTS, INC. | | WEST COAST LIFE | | NATIONAL CASUALTY |
| SERVICES, INC. (NFS) | | | | INSURANCE COMPANY | | COMPANY |
| | | | | | | (NC) |
| Common Stock: Control | | Common Stock: 1 | | Common Stock: 1,000,000 | | Common Stock: 100 |
| ------------ ------- | | ------------ Share | | ------------ Shares | | ------------ Shares |
| | | | | | | |
| | | Cost | | Cost | | Cost |
| Class A Public--100% | | ---- | | ---- | | ---- |
| Class B NW Corp--100% | | NW Corp.--100% $1,339,218 | | NW Corp.--100% $152,946,930 | | NW Corp.--100% $73,442,439 |
--------------------------- --------------------------- ----------------------------- ----------------------------
| |
- -------------------------------------------------------------------------------- |
| | |
--------------------------- --------------------------- ----------------------------
| PUBLIC EMPLOYEES BENEFIT | | NEA VALUEBUILDER | | NCC OF AMERICA, INC. |
| SERVICES CORPORATION | | INVESTOR SERVICES, INC. | | (INACTIVE) |
| (PEBSCO) | | (NEA) | | |
| Common Stock: 236,494 |==|| | Common Stock: 500 | | |
| ------------ Shares | || | ------------ Shares | | |
| | || | | | |
| NFS--100% | || | NFS--100% | | NFS--100% |
--------------------------- || ----------------------------- ----------------------------
|| ||
--------------------------- || --------------------------- ||
| PEBSCO OF | || | NEA VALUEBUILDER | ||
| ALABAMA | || | INVESTOR SERVICES | ||
| | || | OF ALABAMA, INC. | ||
| Common Stock: 100,000 | || | Common Stock: 500 | ||
| ------------ Shares |--|| | ------------ Shares |--||
| | || | | ||
| Cost | || | Cost | ||
| ---- | || | ---- | ||
| PEBSCO--100% $1,000 | || | NEA--100% $5,000 | ||
--------------------------- || --------------------------- ||
|| ||
--------------------------- || --------------------------- ||
| 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 | || | |
| MONTANA | || | INVESTOR SERVICES | || | |
| | || | OF NEVADA, INC. | || | NEA VALUEBUILDER |
| Common Stock: 500 | || | Common Stock: 500 | || | INVESTOR SERVICES |
| ------------ Shares |--|| | ------------ Shares | ||==| OF OHIO, INC. |
| | || | | || | |
| Cost | || | Cost | || | |
| ---- | || | ---- | || | |
| PEBSCO--100% $500 | || | NEA--100% $500 | || | |
--------------------------- || --------------------------- || ---------------------------
|| ||
--------------------------- || --------------------------- || ---------------------------
| PEBSCO OF | || | NEA VALUEBUILDER | || | |
| NEW MEXICO | || | INVESTOR SERVICES | || | |
| | || | OF WYOMING, INC. | || | NEA VALUEBUILDER |
| Common Stock: 1,000 | || | Common Stock: 500 | || | INVESTOR SERVICES |
| ------------ Shares |--|| | ------------ Shares | ||==| OF OKLAHOMA, INC. |
| | || | | || | |
| Cost | || | Cost | || | |
| ---- | || | ---- | || | |
| PEBSCO--100% $1,000 | || | NEA--100% $500 | || | |
--------------------------- || --------------------------- || ---------------------------
|| ||
--------------------------- || --------------------------- || ----------------------------
| | || | NEA VALUEBUILDER | || | |
| | || | SERVICES INSURANCE | || | |
| PEBSCO OF | || | AGENCY, INC. | || | NEA VALUEBUILDER |
| TEXAS, INC. | || | Common Stock: 100 | || | INVESTOR SERVICES |
| |==|| | ------------ Shares |__||==| OF TEXAS, INC. |
| | | | | |
| | | Cost | | |
| | | ---- | | |
| | | NEA--100% $1,000 | | |
--------------------------- --------------------------- ----------------------------
</TABLE>
<PAGE> 57
<TABLE>
<CAPTION>
(Right)
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------
| NATIONWIDE MUTUAL |
========================================| FIRE INSURANCE COMPANY |
| (FIRE) |
------------------------------------------------
|
- -----------------------------------------------------------------|
- ----------------------------------------------------------------------------------------------
| | |
--------------------------- ------------------------------ ------------------------------
| GATES, MCDONALD | | EMPLOYERS LIFE INSURANCE | | NATIONWIDE HMO, INC. |
| & COMPANY (GATES) | | OF WAUSAU (ELIOW) | | (NW HMO) |
| | | | | |
| 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: 250,000 | | | Common Stock: 100 |
|-- | ------------ Shares | |--| ------------ Shares | |--| ------------ Shares |
| | | | | | | | |
| | Cost | | | Cost | | | NW HMO Cost |
| | ---- | | | ---- | | | ---- |
| | GATES--100% $106,947 | | | NW CORP.--100% $57,413,193 | | | Inc.--100% $25,149 |
| ----------------------------- | ------------------------------ | ------------------------------
| | |
| ----------------------------- | ------------------------------ | ------------------------------
| | GATES, MCDONALD & COMPANY | | | KEY HEALTH PLAN, INC. | | | NATIONWIDE |
| | OF NEVADA | | | | | | AGENCY, INC. |
| | | | | | | | |
| | Common Stock: 40 | | | Common Stock: 1,000 | | | Common Stock: 100 |
|-- | ------------ Shares | |--| ------------ Shares | |--| ------------ Shares |
| | | | | | | |
| | Cost | | Cost | | | NW HMO Cost |
| | ---- | | ---- | | | ---- |
| | Gates--100% $93,750 | | ELIOPW--80% $2,700,000 | | | Inc.--99% $116,077 |
| ----------------------------- ------------------------------ | ------------------------------
|
| -----------------------------
| | GATES, MCDONALD |
| | HEALTH PLUS, INC. |
| | |
| | Common Stock: 200 |
|-- | ------------ Shares |
| |
| Cost |
| ---- |
| NW CORP.--100% $2,000,000 |
-----------------------------
Subsidiary Companies -- Solid Line
Contractual Association -- Double Line
Partnership Interest -- Dotted Line
March 6, 1997
Page 2
</TABLE>
<PAGE> 58
Item 27. NUMBER OF CONTRACT OWNERS
The number of Contract Owners of Qualified and Non-Qualified
Contracts as of February 28, 1997 was 28,632 and 10,103
respectively.
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) Nationwide Advisory Services, Inc. ("NAS") acts as general
distributor for the Nationwide Multi-Flex Variable Account,
Nationwide DC Variable Account, Nationwide DCVA-II,
Nationwide Variable Account-II, Nationwide Variable
Account-5, Nationwide Variable Account-6, Nationwide
Variable Account-8, Nationwide VA Separate Account-A,
Nationwide VA Separate Account-B, Nationwide VA Separate
Account-C, Nationwide VL Separate Account-A, Nationwide VL
Separate Account-B, Nationwide VLI Separate Account-2,
Nationwide VLI Separate Account-3, NACo Variable Account
and the Nationwide Variable Account, all of which are
separate investment accounts of the Company or its
affiliates. NAS also acts as principal underwriter for the
Nationwide Investing Foundation, Nationwide Separate
Account Trust, Financial Horizons Investment Trust,
Nationwide Asset Allocation Trust and Nationwide Investing
Foundation II, which are open-end management investment
companies.
89 of 94
<PAGE> 59
(b) NATIONWIDE ADVISORY SERVICES, INC.
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
POSITIONS AND OFFICES
NAME AND BUSINESS ADDRESS WITH UNDERWRITER
<S> <C>
Joseph J. Gasper President and Director
One Nationwide Plaza
Columbus, OH 43215
D. Richard McFerson Chairman of the Board of Directors and
One Nationwide Plaza Chairman and
Columbus, OH 43215 Chief Executive Officer--Nationwide
Insurance Enterprise and Director
Gordon E. McCutchan
One Nationwide Plaza Executive Vice President-Law and
Columbus, OH 43215 Corporate Services and Director
Robert A. Oakley Executive Vice President - Chief Financial
One Nationwide Plaza Officer and Director
Columbus, OH 43215
Robert J. Woodward Executive Vice President - Chief Investment
One Nationwide Plaza Officer and Director
Columbus, OH 43215
W. Sidney Druen Senior Vice President and
One Nationwide Plaza General Counsel and
Columbus, OH 43215 Assistant Secretary
James F. Laird, Jr. Vice President and General
One Nationwide Plaza Manager and Treasurer
Columbus, OH 43215
Peter J. Neckermann Vice President
One Nationwide Plaza
Columbus, OH 43215
Harry S. Schermer Vice President - Investments
One Nationwide Plaza
Columbus, OH 43215
Rae I. Mercer Secretary
One Nationwide Plaza
Columbus, OH 43215
William G. Goslee Treasurer
One Nationwide Plaza
Columbus, Ohio 43215
</TABLE>
<TABLE>
<CAPTION>
(c) NAME OF NET UNDERWRITING COMPENSATION ON
PRINCIPAL DISCOUNTS AND REDEMPTION OR BROKERAGE
UNDERWRITER COMMISSIONS ANNUITIZATION COMMISSIONS COMPENSATION
<S> <C> <C> <C> <C>
Nationwide N/A N/A N/A N/A
Advisory
Services,
Inc.
</TABLE>
90 of 94
<PAGE> 60
Item 30. LOCATION OF ACCOUNTS AND RECORDS
Robert O. Cline
Nationwide Life Insurance Company
One Nationwide Plaza
Columbus, OH 43215
Item 31. MANAGEMENT SERVICES
Not Applicable
Item 32. UNDERTAKINGS
The Registrant hereby undertakes to:
(a) file a post-effective amendment to this registration
statement as frequently as is necessary to ensure that the
audited financial statements in the registration statement
are never more than 16 months old for so long as payments
under the variable annuity contracts may be accepted;
(b) include either (1) as part of any application to purchase a
Contract offered by the prospectus, a space that an
applicant can check to request a Statement of Additional
Information, or (2) a post card or similar written
communication affixed to or included in the prospectus that
the applicant can remove to send for a Statement of
Additional Information; and
(c) deliver any Statement of Additional Information and any
financial statements required to be made available under
this form promptly upon written or oral request.
The Registrant represents that any of the Contract which are
issued pursuant to Section 403(b) of the Code is 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 the charges deducted
under the Contract in the aggregate are reasonable in relation to
the services rendered, the expenses expected to be incurred, and
the risks assumed by the Company.
91 of 94
<PAGE> 61
Offered by
Nationwide Life Insurance Company
NATIONWIDE LIFE INSURANCE COMPANY
Multi-Flex Variable Account
Individual Deferred Variable Annuity Contract
PROSPECTUS
May 1, 1997
92 of 94
<PAGE> 62
ACCOUNTANTS' CONSENT AND INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT
SCHEDULES
The Board of Directors of Nationwide Life Insurance Company and
Contract Owners of the Nationwide Multi-Flex Variable Account:
The audits referred to in our report on Nationwide Life Insurance Company (the
Company) dated January 31, 1997 included the related financial statement
schedules as of December 31, 1996, and for each of the years in the three-year
period ended December 31, 1996, 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 22, 1997
93 of 94
<PAGE> 63
SIGNATURES
As required by the Securities Act of 1933, and the Investment Company Act
of 1940, the Registrant, NATIONWIDE MULTI-FLEX VARIABLE ACCOUNT, certifies that
it meets the requirements of Securities Act Rule 485(b) for effectiveness of
this Post-Effective Amendment and has caused this Post-Effective Amendment to
be signed on its behalf in the City of Columbus, and State of Ohio, on this
22nd day of April, 1997.
NATIONWIDE MULTI-FLEX VARIABLE ACCOUNT
------------------------------------------
(Registrant)
NATIONWIDE LIFE INSURANCE COMPANY
------------------------------------------
(Depositor)
By /s/ JOSEPH P. RATH
------------------------------------------
Joseph P. Rath
Vice President
As required by the Securities Act of 1933, this Post-Effective Amendment has
been signed by the following persons in the capacities indicated on the 22nd
day of April, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C> <C>
LEWIS J. ALPHIN Director
- ----------------------------
Lewis J. Alphin
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/Chief
- ----------------------------
Joseph J. Gasper Operating Office and Director
HENRY S. HOLLOWAY Chairman of the Board
- ----------------------------
Henry S. Holloway and Director
DIMON RICHARD McFERSON Chairman and Chief Executive Officer
- ----------------------------
Dimon Richard McFerson Nationwide Insurance Enterprise and Director
DAVID O. MILLER Director
- ----------------------------
David O. Miller
C. RAY NOECKER Director
- ----------------------------
C. Ray Noecker
ROBERT A. OAKLEY Executive Vice President-
- ----------------------------
Robert A. Oakley Chief Financial Officer
JAMES F. PATTERSON Director By/s/JOSEPH P. RATH
- ---------------------------- Joseph P. Rath
James F. Patterson 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>
94 of 94
<PAGE> 64
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that each of the undersigned as
directors and/or officers of NATIONWIDE LIFE INSURANCE COMPANY, and NATIONWIDE
LIFE AND ANNUITY INSURANCE COMPANY, both Ohio corporations, which have filed or
will file with the U.S. Securities and Exchange Commission under the provisions
of the Securities Act of 1933, as amended, various Registration Statements and
amendments thereto for the registration under said Act of Individual Deferred
Variable Annuity Contracts in connection with MFS Variable Account, Nationwide
Variable Account, Nationwide Variable Account-II, Nationwide Variable Account-3,
Nationwide Variable Account-4, Nationwide Variable Account-5, Nationwide
Variable Account-6, Nationwide Fidelity Advisor Variable Account, Nationwide
Multi-Flex Variable Account, Nationwide Variable Account-8, Nationwide VA
Separate Account-A, Nationwide VA Separate Account-B, Nationwide VA Separate
Account-C and Nationwide VA Separate Account-Q; and the registration of fixed
interest rate options subject to a market value adjustment offered under some or
all of the aforementioned individual Variable Annuity Contracts in connection
with Nationwide Multiple Maturity Separate Account and Nationwide Multiple
Maturity Separate Account-A, and the registration of Group Flexible Fund
Retirement Contracts in connection with Nationwide DC Variable Account,
Nationwide DCVA-II, and NACo Variable Account; and the registration of Group
Common Stock Variable Annuity Contracts in connection with Separate Account No.
1; and the registration of variable life insurance policies in connection with
Nationwide VLI Separate Account, Nationwide VLI Separate Account-2, Nationwide
VLI Separate Account-3, Nationwide VL Separate Account-A and Nationwide VL
Separate Account-B, hereby constitutes and appoints Dimon Richard McFerson,
Joseph J. Gasper, W. Sidney Druen, and Joseph P. Rath, and each of them with
power to act without the others, his/her attorney, with full power of
substitution and resubstitution, for and in his/her name, place and stead, in
any and all capacities, to approve, and sign such Registration Statements and
any and all amendments thereto, with power to affix the corporate seal of said
corporation thereto and to attest said seal and to file the same, with all
exhibits thereto and other documents in connection therewith, with the U.S.
Securities and Exchange Commission, hereby granting unto said attorneys, and
each of them, full power and authority to do and perform all and every act and
thing requisite to all intents and purposes as he/she might or could do in
person, hereby ratifying and confirming that which said attorneys, or any of
them, may lawfully do or cause to be done by virtue hereof. This instrument may
be executed in one or more counterparts.
IN WITNESS WHEREOF, the undersigned have herewith set their names and
seals as of this 2nd day of April, 1997.
<TABLE>
<CAPTION>
<S> <C>
/s/ Lewis J. Alphin /s/ David O. Miller
- ------------------------------------------------- --------------------------------------------------
Lewis J. Alphin, Director David O. Miller, Director
/s/ Keith W. Eckel /s/ C. Ray Noecker
- ------------------------------------------------- -------------------------------------------------
Keith W. Eckel, Director C. Ray Noecker, Director
/s/ Willard J. Engel /s/ Robert A. Oakley
- ------------------------------------------------- --------------------------------------------------
Willard J. Engel, Director Robert A. Oakley, Executive Vice President and Chief
Financial Officer
/s/ Fred C. Finney /s/ James F. Patterson
- ------------------------------------------------- --------------------------------------------------
Fred C. Finney, Director James F. Patterson, Director
/s/ Charles L. Fuellgraf /s/ Arden L. Shisler
- ------------------------------------------------- --------------------------------------------------
Charles L. Fuellgraf, Jr., Director Arden L. Shisler, Director
/s/ Joseph J. Gasper /s/ Robert L. Stewart
- ------------------------------------------------- --------------------------------------------------
Joseph J. Gasper, President and Chief Operating Officer Robert L. Stewart, Director
and Director
/s/ Henry S. Holloway /s/ Nancy C. Thomas
- ------------------------------------------------- --------------------------------------------------
Henry S. Holloway, Chairman of the Board, Director Nancy C. Thomas, Director
/s/ Dimon Richard McFerson /s/ Harold W. Weihl
- ------------------------------------------------- --------------------------------------------------
Dimon Richard McFerson, Chairman and Chief Executive Harold W. Weihl, Director
Officer-Nationwide Insurance Enterprise and Director
</TABLE>
