<PAGE> 1
As filed with the Securities and Exchange Commission.
'33 Act File No. 2-75174
'40 Act File No. 811-3338
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933
Post-Effective Amendment No. 23 [x]
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 24 [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, Statement of Additional Information, and the Financial
Statements.
[ ] 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 May 1, 1997 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. Pursuant to Paragraph (a)(3) thereof, a non-refundable fee
in the amount of $500 has been paid to the Commission. Registrant filed its Rule
24f-2 Notice for the fiscal year ended December 31, 1996, on February 25, 1997.
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REDLINED
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NATIONWIDE MULTI-FLEX VARIABLE ACCOUNT
REFERENCE TO ITEMS REQUIRED BY FORM N-4
N-4 Item Page
- --- ---- ----
Part A INFORMATION REQUIRED IN A PROSPECTUS
Item 1. Cover page...............................................3
Item 2. Definitions..............................................5
Item 3. Synopsis or Highlights..................................13
Item 4. Condensed Financial Information.........................14
Item 5. General Description of Registrant, Depositor,
and Portfolio Companies.................................17
Item 6. Deductions and Expenses.................................21
Item 7. General Description of Variable Annuity Contracts.......23
Item 8. Annuity Period..........................................30
Item 9. Death Benefit and Distributions.........................30
Item 10. Purchases and Contract Value............................23
Item 11. Redemptions.............................................27
Item 12. Taxes...................................................35
Item 13. Legal Proceedings.......................................43
Item 14. Table of Contents of the Statement of Additional
Information.............................................43
Part B INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
Item 15. Cover Page..............................................46
Item 16. Table of Contents.......................................46
Item 17. General Information and History.........................46
Item 18. Services................................................46
Item 19. Purchase of Securities Being Offered....................47
Item 20. Underwriters............................................47
Item 21. Calculation of Performance..............................47
Item 22. Annuity Payments........................................50
Item 23. Financial Statements....................................51
Part C OTHER INFORMATION
Item 24. Financial Statements and Exhibits.......................88
Item 25. Directors and Officers of the Depositor.................90
Item 26. Persons Controlled by or Under Common Control
with the Depositor or Registrant........................92
Item 27. Number of Contract Owners...............................99
Item 28. Indemnification.........................................99
Item 29. Principal Underwriter...................................99
Item 30. Location of Accounts and Records.......................100
Item 31. Management Services....................................100
Item 32. Undertakings...........................................101
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NATIONWIDE LIFE INSURANCE COMPANY
Home Office
P.O. Box 182437
Columbus, Ohio 43216
1-800-451-0070, TDD 1-800-238-3035
INDIVIDUAL DEFERRED VARIABLE ANNUITY CONTRACTS
ISSUED BY THE NATIONWIDE LIFE INSURANCE COMPANY
THROUGH ITS NATIONWIDE MULTI-FLEX VARIABLE ACCOUNT
The Individual Deferred Variable Annuity Contracts described in this
prospectus are flexible Purchase Payment Contracts (collectively referred to as
the "Contracts"). References throughout the prospectus to Contracts shall also
mean "Certificates" issued under Group Flexible Fund Retirement Contracts. For
group Contracts, references to "Contract Owner" shall mean the "Participant"
unless the Plan otherwise permits or requires the Contract Owner to exercise
such rights under the authority of the Plan terms. 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 Sub-Accounts of the
underlying Mutual Fund options:
American Century Variable Portfolios, Inc., an affiliate of American Century(SM)
Companies, Inc. (formerly TCI Portfolios, Inc., a member of the
Twentieth Century Companies, Inc.)
-American Century VP Capital Appreciation
- American Century VP Advantage
Dreyfus Stock Index Fund
The Dreyfus Socially Responsible Growth Fund, Inc.
Dreyfus Variable Investment Fund
- Small Cap Portfolio
- Quality Bond Portfolio
Fidelity Variable Insurance Products Fund
- Equity-Income Portfolio
- High Income Portfolio*
Nationwide Separate Account Trust
- Money Market Fund
- Government Bond Fund
- Total Return Fund
Neuberger & Berman Advisers Management Trust
- Balanced Portfolio
Strong Special Fund II, Inc.
Templeton Variable Products Series Fund
- International Fund
*The High Income Portfolio may invest in lower quality debt securities commonly
referred to as junk bonds.
This prospectus provides you with the basic information you should know
about the 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 182437,
Columbus, Ohio 43216.
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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 41 OF THE PROSPECTUS.
THE DATE OF THIS PROSPECTUS IS MAY 1, 1997.
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GLOSSARY OF SPECIAL TERMS
Accumulation Unit- An accounting unit of measure used to calculate the Variable
Account Contract Value prior to the Annuitization Date.
Annuitant- The person 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.
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 Annuitant or 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 right of the Contract Owner
upon the Contract Owner's death before Annuitization. The Owner's right to name
a Contingent Owner may be restricted under the provisions of the retirement or
deferred compensation plan for which this Contract is issued. For Contracts
issued in the state of New York, references throughout this prospectus to
"Contingent Owner" shall mean "Owner's Beneficiary."
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
Designated 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 the 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 Data Page of the
Contract.
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Death Benefit- The benefit payable upon the death of the Designated Annuitant.
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.
Designated Annuitant- The person designated prior to the Annuitization 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.
Distribution- Any payment of part or all of the Contract Value.
ERISA- Employee Retirement Income Security Act of 1974, as amended.
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 to the Fixed Account
including interest.
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- An annuity which qualifies for favorable tax
treatment under Section 408 of the Code.
Interest Rate Guarantee Period- An Interest Rate Guarantee Period is the
interval of time during which an interest rate credited to the Fixed Account
under the Contract is guaranteed to remain the same. For new Purchase Payments
allocated to the Fixed Account or transfers from the Variable Account, this
period begins upon the date of deposit or transfer and ends at the end of the
calendar quarter at least one year from deposit or transfer. At the end of an
Interest Rate Guarantee Period, a new interest rate is declared with an Interest
Rate Guarantee Period starting at the end of the prior period and ending at the
end of the calendar quarter one year later.
Mutual Fund- The registered management investment company in which the assets of
the Sub-Accounts of the Variable Account will be invested.
Non-Qualified Contract- A Contract which does not qualify for favorable tax
treatment under Sections 401 and 403(a) (Qualified Plans), 408 (IRAs) or 403(b)
(Tax Sheltered Annuities) of the Code.
Plan Participant- The Plan Participant is the person for whom contributions are
being made to a Qualified Plan or Tax Sheltered Annuity either through employer
contributions or employee salary reduction contributions.
Qualified Contract- A Contract issued to a Qualified Plan.
Qualified Plans- Retirement plans which receive favorable tax treatment under
the provisions of Sections 401 or 403(a) of the Code.
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 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.
Unified Billing Authority- A program established to collect, and electronically
forward to the Company, Purchase Payments from multiple employers whose
employees have authorized regular Purchase Payments to Tax Sheltered Annuity
Contracts pursuant to a payroll deduction authorization, resulting in the
systematic updating of each Contract Owner's Contract Value and record of
Purchase Payments on a predetermined basis. Unified Billing Authorities may be
established (on a statewide basis) on behalf of school districts and school
district employees within certain states.
Valuation Date- Each day the New York Stock Exchange and the Company's Home
Office are open for business or any other day during which there is a sufficient
degree of trading of the Variable Account's underlying Mutual Fund shares that
the current net asset value of its Accumulation Units might be materially
affected.
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Valuation Period- The period of time commencing at the close of a Valuation Date
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 mutual fund.
Variable Account Contract Value- The sum of the value of all Variable Account
Accumulation Units in the Contract.
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> 8
TABLE OF CONTENTS
Page
GLOSSARY OF SPECIAL TERMS......................................................3
SUMMARY OF CONTRACT EXPENSES...................................................8
UNDERLYING MUTUAL FUND ANNUAL EXPENSES.........................................9
SYNOPSIS......................................................................11
CONDENSED FINANCIAL INFORMATION...............................................12
NATIONWIDE LIFE INSURANCE COMPANY.............................................15
THE VARIABLE ACCOUNT..........................................................15
Underlying Mutual Fund Options.....................................15
American Century Variable Portfolios, Inc., member
of the American Century(SM) Investments Family.....................15
Dreyfus Stock Index Fund...........................................16
The Dreyfus Socially Responsible Growth Fund, Inc..................16
Dreyfus Variable Investment Fund...................................16
Fidelity Variable Insurance Products Fund..........................17
Nationwide Separate Account Trust..................................17
Neuberger & Berman Advisers Management Trust.......................18
Strong Special Fund II, Inc........................................18
Templeton Variable Products Series Fund............................18
Voting Rights......................................................18
Substitution of Securities.........................................19
VARIABLE ACCOUNT CHARGES, PURCHASE PAYMENTS, AND OTHER DEDUCTIONS.............19
Expenses of the Variable Account...................................19
Mortality Risk Charge..............................................19
Expense Risk Charge................................................20
Contract Maintenance Charge and Administration Charge..............20
Contingent Deferred Sales Charge...................................20
Waiver of the Contingent Deferred Sales Charge.....................21
Premium Taxes......................................................21
OPERATION OF THE CONTRACT.....................................................21
Investments of the Variable Account................................21
Allocation of Purchase Payments and Contract Value.................21
Value of a Variable Account Accumulation Unit......................22
Net Investment Factor..............................................22
Valuation of Assets................................................23
Determining the Contract Value.....................................23
Right to Revoke....................................................23
Transfers..........................................................23
Contract Ownership Provisions......................................24
Contingent Ownership Provisions....................................24
Beneficiary Provisions.............................................24
Surrender (Redemption).............................................25
Surrenders Under a Qualified Contract or Tax-Sheltered
Annuity Contract...................................................25
Loan Privilege.....................................................26
Assignment.........................................................27
Contract Owner Services............................................28
Dollar Cost Averaging..........................................28
Systematic Withdrawals.........................................28
ANNUITY PAYMENT PERIOD, DEATH BENEFIT, AND OTHER DISTRIBUTIONS................28
Annuity Commencement Date..........................................28
Change in Annuity Commencement Date................................28
Annuity Payment Period-Variable Account............................28
Value of an Annuity Unit...........................................29
Assumed Investment Rate............................................29
Frequency and Amount of Annuity Payments...........................29
Change in Form of Annuity..........................................29
Annuity Payment Options............................................29
Death of Contract Owner Provisions-Non-Qualified Contracts.........30
Death of Annuitant Provisions- Non-Qualified Contracts.............30
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Death of the Contract Owner/Annuitant Provisions...................30
Death Benefit Payment Provisions...................................30
Required Distribution Provisions for Non-Qualified Contracts.......31
Required Distributions For Qualified Plans and Tax
Sheltered Annuities................................................32
Required Distributions for Individual Retirement
Annuities and SEP IRAs.............................................32
Generation-Skipping Transfers......................................33
FEDERAL TAX CONSIDERATIONS....................................................33
Federal Income Taxes...............................................33
Non-Qualified Contracts-Natural Persons as Owners..................34
Non-Qualified Contracts - Non-Natural Persons as Owners............35
Qualified Plans, Individual Retirement Annuities, SEP IRAs,
and Tax Sheltered Annuities........................................35
Withholding........................................................36
Federal Estate, Gift, and Generation Skipping Transfer Taxes.......36
Charge for Tax Provisions..........................................36
Diversification....................................................36
Tax Changes........................................................37
GENERAL INFORMATION...........................................................37
Contract Owner Inquiries...........................................37
Statements and Reports.............................................37
Advertising........................................................37
LEGAL PROCEEDINGS.............................................................41
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION......................41
APPENDIX......................................................................42
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SUMMARY OF CONTRACT EXPENSES
CONTRACT OWNER TRANSACTION EXPENSES
Maximum Contingent Deferred Sales Charge(1)....................... 7%
- --------------------------------------------------------------------------------
Range of Contingent Deferred Sales Charge Over Time
Number of Completed Years Contingent Deferred Sales
from Date of Purchase Payment Load Percentage
0 7%
1 6%
2 5%
3 4%
4 3%
5 2%
6 1%
7 0%
- --------------------------------------------------------------------------------
ANNUAL CONTRACT MAINTENANCE CHARGE(2).................................. $30
(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 in any year in which the entire Contract Value is
surrendered on the date of Surrender (see "Contract Maintenance Charge and
Administration Charge"). For Tax Sheltered Annuity Contracts issued on or
after the later of May 1, 1997, or the date on which state insurance
authorities approve applicable contractual modifications, the Contract
Maintenance Charge shall be waived in those states in which a Unified
Billing Authority Program, or any such similar program, is being utilized
to process Purchase Payments.
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VARIABLE ACCOUNT ANNUAL EXPENSES
Mortality and Expense Risk Charges ......................... 1.25%
Administration Charge ...................................... 0.05%
Total Variable Account Annual Expenses ............... 1.30%
UNDERLYING MUTUAL FUND ANNUAL EXPENSES(3)
- --------------------------------------------------------------------------------
Management Other Total Mutual
Fees Expenses Fund Expenses
- --------------------------------------------------------------------------------
American Century Variable Portfolios,
Inc.-American Century VP Capital
Appreciation 1.00% 0.00% 1.00%
- --------------------------------------------------------------------------------
American Century Variable Portfolios,
Inc.-American Century VP Advantage 1.00% 0.00% 1.00%
- --------------------------------------------------------------------------------
Dreyfus Stock Index Fund 0.25% 0.05% 0.30%
- --------------------------------------------------------------------------------
The Dreyfus Socially Responsible
Growth Fund 0.72% 0.24% .96%
- --------------------------------------------------------------------------------
Dreyfus Variable Investment Fund-Quality
Bond Portfolio 0.65% 0.14% 0.79%
- --------------------------------------------------------------------------------
Dreyfus Variable Investment Fund-
Small Cap Portfolio 0.75% 0.04% 0.79%
- --------------------------------------------------------------------------------
Fidelity VIP Fund-Equity-
Income Portfolio 0.51% 0.07% 0.58%
- --------------------------------------------------------------------------------
Fidelity VIP Fund-High
Income Portfolio 0.59% 0.12% 0.71%
- --------------------------------------------------------------------------------
NSAT-Government Bond Fund 0.50% 0.01% 0.51%
- --------------------------------------------------------------------------------
NSAT-Money Market Fund 0.50% 0.03% 0.53%
- --------------------------------------------------------------------------------
NSAT-Total Return Fund 0.50% 0.02% 0.52%
- --------------------------------------------------------------------------------
Neuberger & Berman Advisers Management
Trust-Balanced Portfolio 0.85% 0.23% 1.08%
- --------------------------------------------------------------------------------
Strong Special Fund II, Inc. 1.00% 0.17% 1.17%
- --------------------------------------------------------------------------------
Templeton Variable Products Series
Fund-Templeton International
Fund Class 1 0.70% 0.18% 0.88%(4)
- --------------------------------------------------------------------------------
(3) The Mutual Fund expenses shown above are assessed at the underlying Mutual
Fund level and are not direct charges against Variable Account assets or
reductions from Contract Values. These underlying Mutual Fund expenses are
taken into consideration in computing each underlying Mutual Fund's net
asset value, which is the share price used to calculate the unit values
under the Variable Account. The management fees and other expenses are not
currently subject to fee waivers or expense reimbursements.
(4) Management Fees and total operating expenses have been adjusted to reflect
the management fee schedule approved by shareholders effective May 1, 1997.
See underlying mutual fund prospectus for details
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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>
American Century
Variable Portfolios, Inc.-
American Century VP
Advantage 96 125 163 289 26 80 136 289 * 80 136 289
American Century
Variable Portfolios, Inc.-
American Century VP
Capital Appreciation 96 125 163 289 26 80 136 289 * 80 136 289
Dreyfus Stock Index
Fund 89 103 126 214 19 58 99 214 * 58 99 214
Dreyfus Socially
Responsible Growth
Fund, Inc. 96 123 161 285 26 78 134 285 * 78 134 285
Dreyfus Variable
Investment
Fund-Quality Bond
Portfolio 94 118 152 267 24 73 125 267 * 73 125 307
Dreyfus Variable
Investment Fund-
Small Cap Portfolio 94 118 152 267 24 73 125 267 * 73 125 267
Fidelity VIP Fund-
Equity-Income
Portfolio 92 111 141 245 22 66 114 245 * 66 114 245
Fidelity VIP
Fund-High Income
Portfolio 93 116 148 259 23 71 121 259 * 71 121 259
NSAT-Government Bond
Fund 91 109 137 237 21 64 110 237 * 64 110 237
NSAT-Money Market Fund 91 110 138 240 21 65 111 240 * 65 111 240
NSAT-Total Return Fund 91 110 138 239 21 65 111 239 * 65 111 239
Neuberger & Berman
Advisers Management
Trust-Balanced
Portfolio 97 127 167 298 27 82 140 298 * 82 140 298
Strong Special Fund
II, Inc. 98 130 172 307 28 85 145 307 * 85 145 307
Templeton Variable
Products Series
Fund-Templeton
International Fund
Class 1 93 116 148 259 23 71 121 259 * 71 121 259
</TABLE>
* The Contracts sold under this prospectus do not permit annuitizations
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
Funds 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 underlying
Mutual Fund's prospectus. Deductions for premium taxes may also apply but are
not reflected in the Example shown above (see "Premium Taxes").
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SYNOPSIS
The Individual Deferred Variable Annuity Contracts described in this
prospectus are designed for use in connection with the following types of
Contracts: (1) Non-Qualified Annuities; (2) Individual Retirement Annuities, (3)
Tax Sheltered Annuities, (4) SEP-IRAs, and (5) Qualified Annuities.
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. The Company will waive the Contingent
Deferred Sales Charge under Tax Sheltered Annuity (403(b)) Contracts and 401
Contracts when the Contract Owner separates from service and has participated in
the Contract for 5 years or has participated in the Contract for 10 years with
active deferrals, dies, becomes disabled, experiences a hardship; or annuitizes
after completing 2 years in the Contract (see "Contingent Deferred Sales
Charge").
In addition, on each Contract Anniversary the Company will deduct an annual
Contract Maintenance Charge of $30 from the Contract Value of the Contracts. The
$30 Contract Maintenance Charge will be waived if the Purchase Payments made
under a Tax Sheltered Annuity Contract are processed through a Unified Billing
Authority. (This waiver is available for Tax Sheltered Annuity Contracts issued
on or after the later of May 1, 1997 or the date on which the insurance
authorities in a state having a Unified Billing Authority approve applicable
contract modifications.) 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 by 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").
Upon Annuitization the selected Annuity Payment Option will begin (see
"Annuity Payment Option"). However, if the net amount to be applied to any
Annuity Payment Option 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").
The Company will charge against the Purchase Payments or the Contract
Value, the amount of any premium taxes levied by a state or any other
governmental entity (see "Premium Taxes").
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 date 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. If the Contract is returned to the
Company in a timely manner, the Company will void the Contract and refund the
Contract Value in full, unless otherwise required by state and/or federal law.
State and/or federal law may provide additional free look privileges. All
Individual Retirement Annuity refunds will be return of Purchase Payments (see
"Right to Revoke").
11
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<PAGE> 14
CONDENSED FINANCIAL INFORMATION
Accumulation Unit Values for an Accumulation Unit outstanding throughout the
period.
<TABLE>
<CAPTION>
Accumulation Accumulation Percent Number Of
Unit Value Unit Value Change in Accumulation
At Beginning At End Accumulation Units At End
Fund Of Period Of Period Unit Value Of The Period Year
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
American Century.- 13.035463 14.055040 7.82% 511,115 1996
Variable Portfolios, Inc. 11.312248 13.035463 15.23% 513,818 1995
American Century VP 11.343435 11.312248 -0.27% 518,729 1994
Advantage-Q 10.757355 11.343435 5.45% 467,066 1993
11.325089 10.757355 -5.01% 319,109 1992
10.000000 11.325089 13.25% 10,677 1991
- ----------------------------------------------------------------------------------------------------------------------
American Century.- 16.447846 15.531281 -5.57% 1,991,010 1996
Variable Portfolios, Inc. 12.711014 16.447846 29.40% 1,986,887 1995
American Century VP 13.030369 12.711014 -2.45% 1,855,905 1994
Capital Appreciation-Q 11.967533 13.030369 8.88% 1,492,249 1993
12.290177 11.967533 -2.63% 846,374 1992
10.000000 12.290177 22.90% 18,446 1991
- ----------------------------------------------------------------------------------------------------------------------
Dreyfus Socially 13.333625 15.953248 19.65% 399,889 1996
Responsible Growth 10.039093 13.333625 32.82% 94,479 1995
Fund-Q 10.000000 10.039093 0.39% 16,111 1994
- ----------------------------------------------------------------------------------------------------------------------
Dreyfus Stock Index 13.807559 16.698256 20.94% 995,299 1996
Fund - Q 10.227308 13.807559 35.01% 489,045 1995
10.271065 10.227308 -0.43% 297,344 1994
10.000000 10.271065 2.71% 65,529 1993
- ----------------------------------------------------------------------------------------------------------------------
Dreyfus Variable 10.493309 10.67964 1.78% 202,913 1996
Investment Fund-Quality 10.000000 10.493309 4.93% 9,201 1995
Bond Portfolio-Q
- ----------------------------------------------------------------------------------------------------------------------
Dreyfus Variable 13.249127 15.245571 15.07% 1,991,389 1996
Investment Fund-Small 10.374796 13.249127 27.70% 709,274 1995
Cap Portfolio-Q 10.000000 10.374796 3.75% 137,041 1994
- ----------------------------------------------------------------------------------------------------------------------
Fidelity VIP
Fund-Equity- 14.412060 16.255386 12.79% 3,685,628 1996
Income Portfolio-Q 10.808255 14.412060 33.34% 2,504,171 1995
10.227513 10.808255 5.68% 1,591,113 1994
10.000000 10.227513 2.28% 345,527 1993
- ----------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund -High 11.779381 13.256841 12.54% 621,493 1996
Income Portfolio-Q 9.895223 11.779381 19.04% 210,727 1995
10.000000 9.895223 -1.05% 33,204 1994
- ----------------------------------------------------------------------------------------------------------------------
NSAT-Government 29.463573 30.092479 2.13% 2,948,795 1996
Bond 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
13.449373 15.295126 13.72% 948,476 1986
- ----------------------------------------------------------------------------------------------------------------------
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
12.611459 13.264408 5.18% 1,403,782 1986
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
12
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<PAGE> 15
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-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
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
18.212306 21.612441 18.67% 2,541,305 1986
- ----------------------------------------------------------------------------------------------------------------------
Neuberger & Berman 14.753402 15.563120 5.49% 1,766,421 1996
Advisers Management 12.077573 14.753402 22.16% 1,697,674 1995
Trust - Balanced 12.661508 12.077573 -4.61% 1,651,413 1994
Portfolio - Q 12.050347 12.661508 5.07% 1,478,589 1996
11.299008 12.050347 6.65% 743,247 1992
10.000000 11.29008 12.99% 13,232 1991
- ----------------------------------------------------------------------------------------------------------------------
Strong Special Fund II, 10.456863 12.193238 16.61% 408,289 1996
Inc.-Q 10.000000 10.456863 4.57% 14,374 1995
- ----------------------------------------------------------------------------------------------------------------------
Templeton Variable 11.329203 13.869569 22.42% 1,044,821 1996
Products Series Fund- 9.913613 11.329203 14.28% 503,599 1995
International Fund-Q 10.000000 9.913613 -0.86% 161,196 1994
- ----------------------------------------------------------------------------------------------------------------------
American Century 13.053463 14.055040 7.82% 199,799 1996
Variable Portfolios, 11.312248 13.035463 15.23% 209,516 1995
Inc.-
American Century VP 11.343435 11.312248 -0.27% 237,606 1994
Advantage-NQ 10.757355 11.343435 5.45% 225,188 1993
11.325089 10.757355 -5.01% 163,922 1992
10.000000 11.325089 13.25% 3,898 1991
- ----------------------------------------------------------------------------------------------------------------------
American Century 13.802855 15.079515 9.25% 25,000 1996
Variable Portfolios, Inc.- 11.822996 13.802855 16.75% 25,000 1995
American Century VP 11.701906 11.822996 1.03% 25,000 1994
Advantage 10.953160 11.701906 6.84% 25,000 1993
NQ (Depositor Only) 11.380926 10.953160 -3.76% 25,000 1992
10.000000 11.380926 13.81% 25,000 1991
- ----------------------------------------------------------------------------------------------------------------------
American Century 16.447846 15.531281 -5.57% 896,863 1996
Variable Portfolios, Inc.- 12.711014 16.447846 29.40% 956,826 1995
American Century VP 13.030369 12.711014 -2.45% 1,058,520 1994
Capital Appreciation-NQ 11.967533 13.030369 8.88% 984,830 1993
12.290177 11.967533 -2.63% 508,166 1992
10.000000 12.290177 22.90% 25,910 1991
- ----------------------------------------------------------------------------------------------------------------------
Dreyfus Socially 13.333625 15.953248 19.65% 30,211 1996
Responsible Growth 10.039093 13.333625 32.82% 7,847 1995
Fund-NQ 10.000000 10.039093 0.39% 1,221 1994
- ----------------------------------------------------------------------------------------------------------------------
Dreyfus Stock Index 13.807559 16.698256 20.94% 321,661 1996
Fund - NQ 10.227308 13.807559 35.01% 210,808 1995
10.271065 10.227308 -0.43% 185,724 1994
10.000000 10.271065 2.71% 100,168 1993
- ----------------------------------------------------------------------------------------------------------------------
Dreyfus Variable 10.493309 10.679640 1.78% 13,559 1996
Investment Fund-Quality 10.000000 10.493309 4.93% 626 1995
Bond Portfolio-NQ
- ----------------------------------------------------------------------------------------------------------------------
Dreyfus Variable 13.249127 15.245571 15.07% 132,109 1996
Investment Fund-Small 10.374796 13.249127 27.70% 57,885 1995
Cap Portfolio-NQ 10.000000 10.374796 3.75% 21,950 1994
- ----------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-Equity- 14.412060 16.255386 12.79% 1,140,873 1996
Income Portfolio-NQ 10.808255 14.412060 33.34% 1,004,513 1995
10.227513 10.808255 5.68% 917,381 1994
10.000000 10.227513 2.28% 368,492 1993
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
13
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<PAGE> 16
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>
Fidelity VIP-Fund-High 11.779381 13.256841 12.54% 33,405 1996
Income Portfolio-NQ 9.895223 11.779381 19.04% 11,249 1995
10.000000 9.895223 -1.05% 2,726 1994
- ----------------------------------------------------------------------------------------------------------------------
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
13.454359 15.300795 13.72% 985,017 1986
- ----------------------------------------------------------------------------------------------------------------------
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 Fund 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
17.688466 20.990807 18.67% 1,823,424 1986
- ----------------------------------------------------------------------------------------------------------------------
Neuberger & Berman 14.753402 15.563120 5.49% 702,451 1996
Advisers Management 12.077573 14.753402 22.16% 728,876 1995
Trust-Balanced 12.661508 12.077573 -4.61% 844,181 1994
Portfolio-NQ 12.050347 12.661508 5.07% 927,960 1993
11.299008 12.050347 6.65% 370,418 1992
10.000000 11.299008 12.99% 14,765 1991
- ----------------------------------------------------------------------------------------------------------------------
Strong Special Fund II, 10.456863 12.193238 16.61% 35,456 1996
Inc.-NQ 10.000000 10.456863 4.57% 1,437 1995
- ----------------------------------------------------------------------------------------------------------------------
Templeton Variable 11.329203 13.869569 22.42% 66,863 1996
Products Series Fund- 9.913613 11.329203 14.28% 39,371 1995
Templeton International 10.000000 9.913613 -0.86% 24,273 1994
Fund Class 1-NQ
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
* The 7-day yield on the Nationwide Separate Account Trust Money Market Fund
as of December 31, 1996 was 3.64%.
14
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<PAGE> 17
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
all states, the District of Columbia, and Puerto Rico.
The Company is ranked and rated by independent financial rating services,
among which are Moody's Standard and Poor's, and A.M. Best Company. The purpose
of these ratings is to reflect the financial strength or claims-paying ability
of the Company. The ratings are not intended to reflect the investment
experience or financial strength of the Variable Account. The Company may
advertise these ratings in sales literature from time to time.
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 option(s)
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 Fund
shares attributable to Accumulation Units under Qualified Contracts and one such
Sub-Account contains the underlying Mutual Fund 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. More detailed information may be found in the current prospectus for each
underlying Mutual Fund offered. Such a prospectus for the underlying Mutual Fund
option(s) should be read in conjunction with this prospectus. A copy of each
prospectus may be obtained without charge from Nationwide Life Insurance Company
by calling 1-800-325-6434, TDD 1-800-238-3035 or writing P.O. Box 182437,
Columbus, Ohio 43216.
Underlying Mutual Fund Options
The underlying Mutual Fund options may also be available to registered
separate accounts offering variable annuity and variable life products of other
participating insurance companies, as well as to the Variable Account and other
separate accounts of the Company. Although the Company does not anticipate any
disadvantages to this, there is a possibility that a material conflict may arise
between the interest of the Variable Account and one or more of the other
separate accounts participating in the underlying Mutual Funds. A conflict may
occur due to a change in law affecting the operations of variable life and
variable annuity separate accounts, differences in the voting instructions of
the Contract Owners and those of other companies, or some other reason. In the
event of conflict, the Company will take any steps necessary to protect Contract
Owners and variable annuity payees, including withdrawal of the Variable Account
from participation in the underlying Mutual Funds or Mutual Funds which are
involved in the conflict.
American Century Variable Portfolios, Inc., Member of the American Century(SM)
Investments (Formerly TCI Portfolios, Inc.)
American Century Variable Portfolios, Inc. was organized as a Maryland
corporation in 1987 as Twentieth Century Investments Portfolios, Inc. It is a
diversified, open-end management company, designed only to provide investment
vehicles for variable annuity and variable life insurance products of insurance
companies. A member of the American Century(SM) Investments, American Century
Variable Portfolios is managed by Investors Research Corporation.
15
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<PAGE> 18
- - American Century VP Advantage (Formerly TCI Advantage)
Investment Objective: Current income and capital growth. The Fund will seek
to achieve its objective by investing in three types of securities. The
Fund's investment manager intends to invest approximately (i) 20% of the
Fund's assets in securities of the United States government and its
agencies and instrumentalities and repurchase agreements collateralized by
such securities with a weighted average maturity of six months or less,
i.e., cash or cash equivalents; (ii) 40% of the Fund's assets in fixed
income securities of the United States government and its agencies and
instrumentalities with a weighted average maturity of three to ten years;
and (iii) 40% of the Fund's assets in equity securities that are considered
by management to have better-than-average prospects for appreciation.
Assets will be purchased or sold, as the case may be, as is necessary in
response to changes in market value to maintain the asset mix of the Fund's
portfolio at approximately 60% cash, cash equivalents and fixed income
securities and 40% equity securities. There can be no assurance that the
Fund will achieve its investment objective.
- - American Century VP Capital Appreciation (Formerly TCI Growth)
Investment Objective: Capital growth. The Fund will seek to achieve its
objective by investing in common stocks (including securities convertible
into common stocks and other equity equivalents) that meet certain
fundamental and technical standards of selection and have, in the opinion
of the Fund's investment manager, better than average potential for
appreciation. The Fund tries to stay fully invested in such securities,
regardless of the movement of stock prices generally.
The Fund may invest in cash and cash equivalents temporarily or when it is
unable to find common stocks meeting its criteria of selection. It may
purchase securities only of companies that have a record of at least three
years continuous operation. There can be no assurance that the Fund will
achieve its investment objective.
(Although the Statement of Additional Information concerning American
Century Variable Portfolios, Inc. refers to redemptions of securities in
kind under certain conditions, all surrendering or redeeming Contract
Owners will receive cash from the Company.)
Dreyfus Stock Index Fund
The Dreyfus Stock Index Fund is an open-end, non-diversified, management
investment company. It was incorporated under Maryland law on January 24, 1989,
and commenced operations on September 29, 1989. The Dreyfus Corporation
("Dreyfus") serves as the Fund's manager while Mellon Equity Associates, an
affiliate of Dreyfus, serves as the Fund's index manager. Dreyfus is a
wholly-owned subsidiary of Mellon Bank N.A., which is a wholly-owned subsidiary
of Mellon Bank Corporation.
Investment Objective: To provide investment results that correspond to the
price and yield performance of publicly traded common stocks in the
aggregate, as represented by the Standard & Poor's 500 Composite Stock
Price Index. The Fund is neither sponsored by nor affiliated with Standard
& Poor's Corporation.
The Dreyfus Socially Responsible Growth Fund, Inc.
The Dreyfus Socially Responsible Growth Fund, Inc. is an open-end,
diversified, management investment company. It was incorporated under Maryland
law on July 20, 1992, and commenced operations on October 7, 1993. Dreyfus
serves as the Fund's investment advisor. NCM Capital Management Group, Inc.
serves as the Fund's sub-investment adviser and provides day-to-day management
of the Fund's portfolio.
Investment Objective: The Fund's primary goal is to provide capital growth
through equity investment in companies that, in the opinion of the Fund's
management, not only meet traditional investment standards, but which also
show evidence that they conduct their business in a manner that contributes
to the enhancement of the quality of life in America. Current income is
secondary to the primary goal.
Dreyfus Variable Investment Fund
Dreyfus Variable Investment Fund is an open-end, diversified management
investment company, that is intended to be a funding vehicle for variable
annuity contracts and variable life insurance policies to be offered by the
separate accounts of life insurance companies. Dreyfus serves as the Fund's
investment adviser.
16
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<PAGE> 19
- - The Dreyfus Quality Bond Portfolio
Investment Objective: To provide the maximum amount of current income to
the extent consistent with the preservation of capital and the maintenance
of liquidity. The Portfolio invests in debt obligations of corporations,
the U.S. Government and its agencies and instrumentalities, and major U.S.
banking institutions. At least 80% of the value of the Portfolio's net
assets will consist of obligation of securities issued or guaranteed as to
principal and interest by the U.S. Government or its agencies or
instrumentalities and corporations which, at the time of purchase by the
Portfolio's, are rated at least A by Moody's or Standard & Poor's, or
determined to be of comparable quality by The Dreyfus Corporation. The
Quality Bond Portfolio also may invest in Municipal Obligations. In
addition, at least 65% of the value of the Series assets (except when
maintaining a temporary defensive position) will be invested in bond,
debentures and other debt instruments.
- - Small Cap Portfolio
Investment Objective: Seeks to maximize capital appreciation. The Portfolio
invests principally in common stocks. This Portfolio will be particularly
alert to companies which Dreyfus considers to be emerging smaller-sized
companies believed to be characterized by new or innovative products,
services or processes which should enhance prospects for growth in future
earnings.
Fidelity Variable Insurance Products Fund
Fidelity Variable Insurance Products Fund is an open-end, diversified,
management investment company organized as a Massachusetts business trust on
November 13, 1981. The Fund's shares are purchased by insurance companies to
fund benefits under variable insurance and annuity policies. Fidelity Management
& Research Company ("FMR") is the Fund's manager.
- - Equity-Income Portfolio
Investment Objective: To seek reasonable income by investing primarily in
income-producing equity securities. In choosing these securities FMR also
will consider the potential for capital appreciation. The Portfolio's goal
is to achieve a yield which exceeds the composite yield on the securities
comprising the Standard & Poor's 500 Composite Stock Price index.
- - High Income Portfolio
Investment Objective: Seeks to obtain a high level of current income by
investing primarily in high-risk, lower-rated, high-yielding, fixed-income
securities, while also considering growth of capital. The Portfolio's
manager will seek high current income normally by investing the Portfolio's
assets as follows:
o at least 65% in income-producing debt securities and preferred stocks,
including convertible securities
o up to 20% in common stocks and other equity securities when consistent
with the Portfolio's primary objective or acquired as part of a unit
combining fixed-income and equity securities
Higher yields are usually available on securities that are lower-rated or
that are unrated. Lower-rated securities are usually defined as Ba or lower
by Moody's; BB or lower by Standard & Poor's and may be deemed to be of a
speculative nature. The Portfolio may also purchase lower-quality bonds
such as those rated Ca3 by Moody's or C- by Standard & Poor's which provide
poor protection for payment of principal and interest (commonly referred to
as "junk bonds"). For a further discussion of lower-rated securities,
please see the "Risks of Lower-Rated Debt Securities" section of the
Portfolio's prospectus.
Nationwide Separate Account Trust
Nationwide Separate Account Trust ("NSAT") is a diversified open-end
management investment company organized under the laws of Massachusetts. Three
separate NSAT Mutual Funds listed below, each with its own investment objectives
are offered in the Contract. Currently, shares of the Trust will be sold only to
life insurance company separate accounts to fund the benefits under variable
life insurance policies or variable annuity Contracts issued by life insurance
companies. The assets of NSAT are managed by Nationwide Advisory Services, Inc.
of One Nationwide Plaza, Columbus, Ohio 43215, a wholly-owned subsidiary of
Nationwide Life Insurance Company.
17
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<PAGE> 20
- - 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.
- - Government Bond Fund
Investment Objective: The investment objective of the Government Bond Fund
is to provide as high a level of income as is consistent with the
preservation of capital. The Fund 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.
- - 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.
Neuberger & Berman Advisers Management Trust
Neuberger & Berman Advisers Management Trust ("N&B Trust") is an open-end
diversified management investment company established as a Massachusetts
business trust on December 14, 1983. Shares of the N&B Trust are offered in
connection with certain variable annuity contracts and variable life insurance
policies issued through life insurance company separate accounts and are also
offered directly to qualified pension and retirement plans outside of the
separate account context. The investment adviser is Neuberger & Berman
Management Incorporated.
- - Balanced Portfolio
Investment Objective: To provide long-term capital growth and reasonable
current income without undue risk to principal. The Portfolio will seek to
achieve its objective through investment of a portion of its assets in
common stocks and a portion of its assets in debt securities. The
Investment Adviser anticipates that the Portfolio's investments will
normally be managed so that approximately 60% of the Portfolio's total
assets will be invested in common stocks and the remaining assets will be
invested in debt securities. However, depending on the Investment Adviser's
views regarding current market trends, the common stock portion of the
Portfolio's investments may be adjusted downward as low as 50% or upward as
high as 70%. At least 25% of the Portfolio's assets will be invested in
fixed income senior securities.
Strong Special Fund II, Inc.
The Strong Special Fund II, Inc. is a diversified, open-end management
company commonly called a Mutual Fund. The Strong Special Fund II, Inc. was
incorporated in Wisconsin and may only be purchased by the separate accounts of
insurance companies for the purpose of funding variable annuity contracts and
variable life insurance policies. Strong Capital Management Inc. (the "Advisor")
is the investment advisor for the Fund.
Investment Objective: To seek capital appreciation through investments in a
diversified portfolio of equity securities.
Templeton Variable Products Series Fund
Templeton Variable Products Series Fund is an open-end, diversified
management investment company organized as a business trust under the laws of
Massachusetts on February 25, 1988. The Trust was organized primarily as an
investment vehicle for use in connection with variable annuity contracts and
variable life insurance policies offered by life insurance companies The
investment manager is Templeton Investment Counsel, Inc.
- - International Fund
Investment Objective: To seek long-term capital growth through a flexible
policy of investing in stocks and debt obligations of companies and
governments outside the United States. Any income realized will be
incidental.
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<PAGE> 21
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
in accordance with instructions received from Contract Owners whose Contract
Value is measured by Accumulation Units in the Variable Account. However, 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.
Substitution Of Securities
If the shares of the underlying Mutual Funds 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 one or
more underlying Mutual Funds for other underlying Mutual Funds 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, under such requirements as
it may impose.
VARIABLE ACCOUNT CHARGES AND OTHER DEDUCTIONS
Expenses of the Variable Account
The Variable Account is responsible for the following types of expenses:
(1) administration expenses relating 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 change 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 Funds prospectus.
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 which is an amount computed on a daily basis,
which is equal on an annual rate of 0.80% of the daily net asset value of the
Variable Account. The deduction of the Mortality Risk 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 Company expects
to generate a profit through assessing this charge.
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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 deduction of the Expense Risk
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 Company expects to generate a profit through assessing this charge.
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.
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. For Tax Sheltered Annuity Contracts issued on or after
the later of May 1, 1997, or the date on which insurance authorities (in a state
having a Unified Billing Authority) approve applicable Contract modifications,
the Contract Maintenance Charge will be waived if the purchase Payments made
under the Contract are processed though a Unified Billing Authority. 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.
Contingent Deferred Sales Charge
No deduction for a sales charge is made from the Purchase Payments for
these Contracts. However, if any part of the Contract Value of such Contracts is
surrendered, the Company will, with certain exceptions, (see "Waiver of the
Contingent Deferred Sales Charge" section), 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 is 6.0% of Purchase Payments.
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.
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The Contingent Deferred Sales Charge applies to Purchase Payments as follows:
<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.
Waiver of the Contingent Deferred Sales Charge
The Company will waive the Contingent Deferred Sales Charges under Tax
Sheltered Annuity Contracts and Qualified Contracts and SEP-IRA Contracts when:
1. The Plan Participant has participated in the Contract for 10 years of
active deferrals;
2. The Plan Participant dies;
3. The Plan Participant experiences a hardship (as defined by 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;
4. The Plan Participant annuitizes after completing 2 years in the Contract;
5. The Plan Participant has separated from service (as defined in Code Section
401(k)(2)(B)) and participated in this Contract for 5 years; or
6. The Plan Participant becomes disabled (within the meaning of Code Section
72(m)(7)).
For Non-Qualified Contracts and IRA Contracts other than SEP-IRA Contracts,
the Company will waive the Contingent Deferred Sales Charge when:
1. the Designated Annuitant dies; or
2. the Contract Owner annuitizes after 2 years in the Contract.
The Contract Owner may be subject to income tax on all or a portion of any
such withdrawals and to a 10% tax penalty if the Contract Owner takes
withdrawals prior to age 59 1/2 (see "FEDERAL TAX CONSIDERATIONS- Non Qualified
Contracts -Natural Persons as Owners).
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.
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.
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OPERATION OF THE CONTRACT
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.
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. Subsequent Purchase Payments, if any, after the first
Contract Year must be at least $10 each. 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 Company, however, reserves
the right to lower the subsequent Purchase Payment minimum for employer
sponsored deduction programs. 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 no later than 2 business days after receipt of
an order to purchase, if the application and all information necessary for
processing the purchase order are complete. The Company may however, retain the
Purchase Payment for up to 5 business days while attempting to complete an
incomplete application. If the application cannot be made complete within 5
days, the prospective purchaser will be informed of the reasons for the delay
and the Purchase Payment will be returned immediately unless the prospective
purchaser specifically consents to the Company retaining the Purchase Payment
until the application is complete. Thereafter, subsequent Purchase Payments will
be priced on the basis of the Accumulation Unit Value next computed for the
appropriate Sub-Account after the additional Purchase Payment is received.
Purchase Payments will not be priced on the following nationally recognized
holidays: New Year's Day, 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.
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.
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(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 NSAT 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
are 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. In the event 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.
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.
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
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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. The specific
percentage will be declared upon the expiration date of the guaranteed period.
Transfers from the Fixed Account must be made within 45 days after the
expiration date of the 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 any or all of the following:
requesting identifying information, such as name, contract number, Social
Security Number, and/or personal identification number; tape recording all
telephone transactions, and providing written confirmation thereof to both the
Contract Owner and any agent of record, at the last address of record; or such
other procedures as the Company may deem reasonable. 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.
Contract 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. Prior to the Annuitization
Date, the Contract Owner may name a new Contract Owner in Non-Qualified
Contracts. Such change may be subject to state and federal gift taxes and may
also result in federal income taxation. Any change of Contract Owner designation
will automatically revoke any prior Contract Owner designation. Once proper
notice of the change is received and recorded by the Company, the change will
become effective as of the date the written request is recorded. A change of
Owner will not apply and will not be effective with respect to any payment made
or action taken by the Company prior to the time that the change was received
and recorded by the Company.
Prior to the Annuitization Date, the Contract Owner may request a change in
the Designated Annuitant, the Contingent Designated Annuitant, Contingent Owner,
Beneficiary, or Contingent Beneficiary. Such a request must be made in writing
on a form acceptable to the Company and must be signed by both the Contract
Owner and the person to be named as Annuitant, Contingent Annuitant, or
Contingent Owner, as applicable. Such request must be received by the Company at
its Home Office prior to the Annuitization Date. Any such change is subject to
underwriting and approval by the Company. If the Contract Owner is not a natural
person and there is a change of the Designated Annuitant, such change shall be
treated as the death of a Contract Owner and Distributions shall be made as if
the Contract Owner died at the time of such change.
On and after the Annuitization Date, the Annuitant shall become the
Contract Owner.
Contingent Owner Provisions
The Contingent Owner is the person who may receive certain benefits under
the Contract if the Contract Owner, who is not the Designated Annuitant, 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 no Contingent Owner survives the Contract
Owner, all rights and interest of the Contingent Owner will vest in the Contract
Owner's estate. If a Contract Owner who is also the Designated Annuitant dies
before the Annuitization Date, then the Contingent Owner does not have any
rights in the Contract; however, if the Contingent Owner is also the
Beneficiary, the Contingent Owner will have all the rights of the Beneficiary.
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, upon receipt and recording by the
Company at its Home Office, will take effect as of the time the written notice
was recorded, whether or not the Contract Owner is living at the time of
recording, but without further liability as to any payment or settlement made by
the Company before receipt of such change.
Beneficiary 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 Designated Annuitant, all rights and
interest of the Beneficiary shall vest in the
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Contingent Beneficiary, and if more than one Contingent Beneficiary survives,
each will share equally unless otherwise specified in the Contingent Beneficiary
designation.
If no Contingent Beneficiary survives the Designated Annuitant, all rights
and interest of the Contingent Beneficiary will vest with the Contract Owner or
the estate of the last surviving Contract Owner. Subject to the terms of any
existing assignment, the Contract Owner may change the Beneficiary or Contingent
Beneficiary from time to time during the lifetime of the Designated Annuitant,
by written notice to the Company. The change, upon receipt by the Company at its
Home Office, will take effect as of the time the written notice was received,
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.
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 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 Contract Owner may Surrender part or all of
the Contract Value at any time this Contract is in force prior to the earlier of
the Annuitization Date or the death of the 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:
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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 A. above also applies 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 Code, upon proper direction by the
Contract Owner. The foregoing is the Company's understanding of the withdrawal
restrictions which are currently applicable under Code Section 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 a Qualified
Domestic Relations Order will not be considered to be in violation of
restrictions stated in this provision.
The Contract surrender provisions may also be modified pursuant to the plan
terms and Code tax provisions when the Contract is issued to fund a Qualified
Plan.
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 in this provision.
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
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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.
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/Annuitant dies while the loan is outstanding,
the Death Benefit 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
the entire loan will be treated as a deemed Distribution, 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.
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, Non Qualified Contracts and SEP-IRA
accounts are not eligible for loans.
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.
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Contract Owner Services
Dollar Cost Averaging- The Contract Owner may direct the Company to
automatically transfer a specified amount from the NSAT Money Market Fund 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 NSAT Money Market Fund or the
Fixed Account will be processed monthly or on another approved frequency until
either the value in the NSAT Money Market Fund 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 tax penalty 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 Contract Owner may
discontinue Systematic Withdrawals at any time by notifying the Company in
writing.
The Company reserves the right to discontinue offering Systematic
Withdrawals upon 30 days' written notice; such discontinuation will not affect
Systematic Withdrawal programs already commenced. The Company also reserves the
right to assess a processing fee for this service. Systematic Withdrawals are
not available prior to the expiration of the ten day free look provision of the
Contract or of applicable state or federal law.
ANNUITY PAYMENT PERIOD, DEATH BENEFIT, AND OTHER DISTRIBUTIONS
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 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.
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
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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. Once Variable Annuity
payments begin, the Owner may exchange amounts among the Sub-Account options
once per year.
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 less frequently
than annually.
Change In Form Of Annuity
The Contract Owner may, upon prior written notice to the Company, at any
time prior to the Annuitization 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 Annuitant, ceasing with the last
payment due prior to the death of the 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 Annuitant and
designated second person and continuing thereafter during the lifetime of
the survivor. AS IS THE CASE UNDER OPTION 1 OF THIS PROVISION, THERE IS NO
MINIMUM NUMBER OF PAYMENTS GUARANTEED UNDER THIS OPTION. PAYMENTS CEASE
UPON THE DEATH OF THE LAST SURVIVING ANNUITANT REGARDLESS OF THE NUMBER OF
PAYMENTS RECEIVED.
Option 3-Life Annuity With 120 or 240 Monthly Payments Guaranteed-An
annuity payable monthly during the lifetime of the Annuitant 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 Annuitant is payee, any guaranteed annuity payments will be
continued during the remainder of the selected period to 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.
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(2) If someone other than the Annuitant 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
Contract 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 Plan Contracts, Tax Sheltered Annuities,
Individual Retirement Annuities and SEP IRAs are subject to the minimum
Distribution requirements set forth in the Plan, Contract, or Code.
Death of Contract Owner Provisions- 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 a Contingent Owner
is not named or predeceases the Contract Owner, then Distribution of the
Contract will be made to the Designated Annuitant, unless the Contract Owner has
named his or her estate at the time of Application to receive the Distribution.
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 of the Annuitant Provisions - Non-Qualified Contracts
If the Contract Owner and Designated Annuitant are not the same person, and
the Designated Annuitant dies prior to the Annuitization Date, a Death Benefit
will be payable to the Beneficiary, the Contingent Beneficiary, the Contract
Owner, or the last surviving Contract Owner's estate, as specified in the
"Beneficiary Provisions", unless there is a surviving Contingent Annuitant. In
such case, the Contingent Annuitant becomes the Annuitant and no Death Benefit
is payable.
The Beneficiary may elect to receive such Death Benefits in the form of:
(1) a lump sum distribution; (2) election of an annuity payout; or (3) any
distribution that is permitted under state and federal regulations and is
acceptable by the Company. Such election must be received by the Company within
60 days of the Annuitant's death. 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.
If the Annuitant dies after the Annuitization Date, any benefit that may be
payable shall be paid according to the Annuity Payment Option selected.
Death of the Contract Owner/Annuitant Provisions
If any Contract Owner and Designated Annuitant are the same person, and
such person dies before the Annuitization Date, a Death Benefit will be payable
to the Beneficiary, the Contingent Beneficiary, the Contract Owner, or the last
surviving Contract Owner's estate, as specified in the Beneficiary Provisions
and in accordance with the appropriate "Required Distributions Provisions."
If the Annuitant dies after the Annuitization Date, any benefit that may be
payable shall be paid according to the Annuity Payment Option selected.
Death Benefit Payment Provisions
Upon the death of the Designated Annuitant, a Death Benefit is payable to
the Beneficiary unless the Contract 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.
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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 later than the first day of the calendar month following his or
her 75th birthday, the dollar amount of the Death Benefit 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. Likewise, the Death Benefit will be the greater of
(1) the sum of all Purchase Payments, less any amounts surrendered, or (2) the
Contract Value, for Tax Sheltered Annuity Contracts issued on or after the later
of May 1, 1997 or the date on which insurance authorities approve applicable
Contract modifications in state jurisdictions in which a Unified Billing
Authority is utilized in processing Purchase Payments.
The amount of the Death Benefit will be limited to the Contract Value if
the Annuity Commencement Date is deferred beyond the first day of the calendar
month following 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 Distribution Provisions For Non-Qualified Contracts
Upon the death of any Contract Owner (including an Annuitant who becomes
the Owner of the Contract on the Annuitization Date) (each of the foregoing "a
deceased Owner"), certain distributions for Non-Qualified Contracts issued on or
after January 19, 1985, are required by Section 72(s) of the Code.
Notwithstanding any provision of the Contract to the contrary, the following
Distributions shall be made in accordance with such requirements:
1. If any deceased Contract Owner died on or after the Annuitization Date
and before the entire interest under the Contract has been
distributed, then the remaining portion of such interest shall be
distributed at least as rapidly as under the method of distribution in
effect as of the date of such deceased Owner's death.
2. If any deceased Contract Owner died prior to the Annuitization Date,
then the entire interest in the Contract (consisting of either the
Death Benefit or the Contract Value reduced by certain charges as set
forth elsewhere in the Contract) shall be distributed within 5 years
of the death of the deceased Contract Owner, provided however:
(a) if any portion of such interest is payable to or for the benefit
of a natural person who is a surviving Contract Owner, Contingent
Owner, Designated Annuitant, Contingent Annuitant, Beneficiary,
or Contingent Beneficiary as the case may be (each a "designated
beneficiary"), such portion may, at the election of the
designated Beneficiary, be distributed over the life of such
designated Beneficiary, or over a period not extending beyond the
life expectancy of such designated Beneficiary, provided that
payments begin within one year of the date of the deceased
Contract Owner's death (or such longer period as may be permitted
by federal income tax regulations), and
(b) if the designated Beneficiary is the surviving spouse of the
deceased Contract Owner, such spouse may elect to become the
Contract Owner of this Contract, in lieu of a Death Benefit, and
the distributions required under these distribution rules will be
made upon the death of such spouse.
In the event that this Contract is owned by a person that is not a natural
person (e.g., a trust or corporation), then, for purposes of these Distribution
provisions: (1) the death of the Annuitant shall be treated as the death of any
Contract Owner; (2) any change of the Designated Annuitant shall be treated as
the death of any Contract Owner, and (3) in either case the appropriate
Distribution required under these distribution rules shall be made upon such
death or change, as the case may be. The Designated Annuitant is the primary
annuitant as defined in Section 72(s)(6)(B) of the Code.
These Distribution provisions shall not be applicable to any Contract that
is not required to be subject to the provisions of 72(s) of the Code by reason
of Section 72(s)(5) or any other law or rule (including Tax Sheltered Annuities,
Individual Retirement Annuities, Qualified Plans and SEP IRAs).
Upon the death of a "deceased Owner", the designated Beneficiary must elect
a method of Distribution which complies with these above Distribution provisions
and which is acceptable to the Company. Such election must be received by the
Company within 90 days of the deceased Contract Owner's death. 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 a Contract Owner or the
Designated 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.
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Required Distribution 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 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.
If the 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 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
Distributions from an Individual Retirement Annuity must begin not later
than April 1 of the calendar year following the calendar year in which the Owner
attains age 70 1/2. Distributions 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 spouse or designated Beneficiary, or (b) a period not extending
beyond the life expectancy of the Owner or the joint life expectancy of the
Owner and the Owner's designated 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 calendar year which includes 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
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(ii) receive Distribution of the account in substantially equal payments
over his or her life (or a period not exceeding his or her life
expectancy) and commencing not later than December 31 of the year in
which the Contract Owner would have attained age 70 1/2; or
(b) The Contract Owner names a Beneficiary other than his or her surviving
spouse and such Beneficiary elects to receive a Distribution of the 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 Contract Owner dies.
No Distribution will be required from this Contract if Distributions
otherwise required from this Contract are being withdrawn from another
Individual Retirement Annuity or Individual Annuity Account of the Contract
Owner.
If the 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 spouse who is the Beneficiary
under the Annuity Payment Option, may elect to treat the Contract as his or her
own, in the same manner as is described in section (a)(i) of this provision.
If the amounts distributed to the Contract Owner are less than those
mentioned above, a penalty tax of 50% is levied on the excess of the amount that
should have been distributed for that year over the amount that actually was
distributed for that year.
A pro-rata portion of all Distributions will be included in the gross
income of the person receiving the Distribution and taxed at ordinary income tax
rates. The portion of the Distribution which is taxable is based on the ratio
between the amount by which non-deductible Purchase Payments exceed prior
non-taxable Distributions and total account balances at the time of the
Distribution. The Contract Owner of an Individual Retirement Annuity must
annually report the amount of non-deductible Purchase Payments, the amount of
any Distribution, the amount by which non-deductible Purchase Payments for all
years 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.
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 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 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.
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 including SEP IRAs; (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
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<PAGE> 36
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 Designated 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 immediate annuity, or is
allocable to an investment in the Contract before August 14, 1982. A Contract
Owner wishing to begin taking Distributions to which the 10% tax penalty does
not apply should forward a written request to the Company. Upon receipt of a
written request from the Contract Owner, the Company will inform the Contract
Owner of the procedures pursuant to Company policy and subject to limitations of
the Contract including but not limited to first year withdrawals. Such election
shall be irrevocable and may not be amended or changed.
In order to qualify as an annuity contract under Section 72 of the Code,
the contract must provide for Distribution of the entire contract to be made
upon the death of a Contract Owner. If a Contract Owner dies prior to the
Annuitization Date, then the 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.
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<PAGE> 37
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 Owner 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, SEP IRAs and Tax Sheltered
Annuities
The Contract may be purchased as a Qualified Contract, an Individual
Retirement Annuity, SEP IRA, 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, SEP IRAs 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.
Pursuant to Section 403(b)(1)(E) of the 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 Individual Retirement Accounts. 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.
Individual Retirement Annuities may not provide life insurance benefits. If
the Death Benefit exceeds the greater of the cash value of the Contract or the
sum of all Purchase Payments (less any surrenders), it is possible the Internal
Revenue Service could determine that the Individual Retirement Annuity did not
qualify for the desired tax treatment. 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).
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Withholding
The Company is required to withhold tax from certain Distributions to the
extent that such Distribution would constitute income to the Contract Owner or
other payee. The Contract Owner or other payee is entitled to elect not to have
federal income tax withheld from any such Distribution, but may be subject to
penalties in the event insufficient federal income tax is withheld during a
calendar year. However, if the Internal Revenue Service notifies the Company
that the Contract Owner or other payee has furnished an incorrect taxpayer
identification number, or if the Contract Owner or other payee fails to provide
a taxpayer identification number, the Distributions may be subject to back-up
withholding at the statutory rate, which is presently 31%, and which cannot be
waived by the Contract Owner or other payee.
Federal Estate, 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 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 Contract 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 Contract Owner if the income, for the
period the Contract was not diversified, had been received by the Contract
Owner. If the failure to diversify is not corrected in this manner, the Contract
Owner 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.
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<PAGE> 39
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.
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.
GENERAL INFORMATION
Contract Owner Inquiries
Contract Owner inquiries may be directed to Nationwide Life Insurance
Company by writing P.O. Box 182437, Columbus, Ohio 43216, or calling
1-800-451-0070, TDD 1-800-238-3035.
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. 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 at the end of each calendar quarter
detailing the Contract activity during the calendar quarter. Instead of
receiving an immediate confirmation of transactions made pursuant to some types
of periodic payment plans (such as a dollar cost averaging program) or salary
reduction arrangement, the Contract Owner may receive confirmation of such
transactions in their quarterly statements. The Contract Owner should review the
information in these statements carefully. All errors or corrections must be
reported to the Company immediately to assure proper crediting to the Owner's
Contract. The Company will assume all transactions are accurately reported in
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.
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 option held in the
Sub-Account has been in existence, if the underlying Mutual Fund option 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.
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<PAGE> 40
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. "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, National
Underwriter, U.S. News and World Report; rating services such as LIMRA, Value,
Best's Agent Guide, Western Annuity Guide, Comparative Annuity Reports; and
other publications such as the Wall Street Journal, Barron's, 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 underlying Mutual Funds over specified periods and
against underlying Mutual Funds in specified categories. The rankings may or may
not include the effects of sales 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.
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UNDERLYING MUTUAL FUND PERFORMANCE SUMMARY
Standardized Average Annual Total Return
<TABLE>
<CAPTION>
==============================================================================================================
SUB-ACCOUNT OPTIONS 1 Year to 5 Years to Life of Fund to Date Fund
12/31/96 12/31/96 12/31/96 Effective
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
American Century Variable
Portfolios, Inc.- American
Century VP Advantage -0.58% 0.92% 3.01% 08-01-91
- --------------------------------------------------------------------------------------------------------------
American Century Variable
Portfolios, Inc.- American
Century VP Capital Appreciation -13.46% 1.48% 6.80% 11-20-87
- --------------------------------------------------------------------------------------------------------------
Dreyfus Socially Responsible
Growth Fund 11.25% N/A 13.50% 10-06-93
- --------------------------------------------------------------------------------------------------------------
Dreyfus Stock Index Fund 12.54% 10.13% 9.20% 09-29-89
- --------------------------------------------------------------------------------------------------------------
Dreyfus Variable Investment
Fund-Quality Bond Portfolio -6.55% 4.51% 5.18% 08-31-90
- --------------------------------------------------------------------------------------------------------------
Dreyfus Variable Investment
Fund-Small Cap Portfolio 6.67% 32.88% 45.47% 08-31-90
- --------------------------------------------------------------------------------------------------------------
Fidelity VIP
Fund-Equity-Income Portfolio 4.39% 13.82% 9.90%* 10-09-86
- --------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-High Income
Portfolio 4.14% 10.84% 7.08%* 09-19-85
- --------------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers
Management Trust-Balanced
Portfolio -2.91% 3.43% 6.30% 02-28-89
- --------------------------------------------------------------------------------------------------------------
NSAT-Government Bond Fund -6.21% 2.47% 4.49%* 11-08-82
- --------------------------------------------------------------------------------------------------------------
NSAT-Money Market Fund -4.66% -0.61% 1.65%* 11-10-81
- --------------------------------------------------------------------------------------------------------------
NSAT-Total Return Fund 11.85% 9.31% 8.75%* 11-08-82
- --------------------------------------------------------------------------------------------------------------
Strong Special Fund II, Inc. 8.21% N/A 14.45% 05-08-92
- --------------------------------------------------------------------------------------------------------------
Templeton Variable Products
Series Fund-Templeton
International Fund Class 1 14.02% N/A 10.47% 05-01-92
==============================================================================================================
</TABLE>
* Represents 10 years to 12-31-96
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<PAGE> 42
UNDERLYING MUTUAL FUND PERFORMANCE SUMMARY
Non-Standardized Average Annual Total Return
<TABLE>
<CAPTION>
==============================================================================================================
SUB-ACCOUNT OPTIONS 1 Year to 5 Years to Life of Fund to Date Fund
12/31/96 12/31/96 12/31/96 Effective
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
American Century Variable 7.52% 4.12% 6.18% 08-01-91
Portfolios, Inc.- American
Century VP Advantage
- --------------------------------------------------------------------------------------------------------------
American Century Variable -5.87% 4.51% 9.14% 11-20-87
Portfolios, Inc.- American
Century VP Capital Appreciation
- --------------------------------------------------------------------------------------------------------------
Dreyfus Socially Responsible 19.35% N/A 17.55% 10-06-93
Growth Fund
- --------------------------------------------------------------------------------------------------------------
Dreyfus Stock Index Fund 20.64% 12.88% 11.92% 09-29-89
- --------------------------------------------------------------------------------------------------------------
Dreyfus Variable Investment 1.48% 7.23% 7.93% 09-01-95
Fund-Quality Bond Portfolio
- --------------------------------------------------------------------------------------------------------------
Dreyfus Variable Investment 14.77% 34.31% 46.81% 08-31-90
Fund-Small Cap Portfolio
- --------------------------------------------------------------------------------------------------------------
Fidelity VIP 12.49% 16.21% 12.04%* 10-09-86
Fund-Equity-Income Portfolio
- --------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-High Income 12.24% 13.24% 9.45%* 09-19-85
Portfolio
- --------------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers 5.19% 6.34% 8.54% 02-28-89
Management Trust-Balanced
Portfolio
- --------------------------------------------------------------------------------------------------------------
NSAT-Government Bond Fund 1.83% 5.37% 6.77%* 11-08-82
- --------------------------------------------------------------------------------------------------------------
NSAT-Money Market Fund 3.44% 2.51% 4.12%* 11-10-81
- --------------------------------------------------------------------------------------------------------------
NSAT-Total Return Fund 19.95% 12.05% 10.92%* 11-08-82
- --------------------------------------------------------------------------------------------------------------
Strong Special Fund II, Inc. 16.31% N/A 17.14% 09-01-95
- --------------------------------------------------------------------------------------------------------------
Templeton Variable Products 22.12% N/A 13.50% 05-01-92
Series Fund-Templeton
International Fund Class 1
==============================================================================================================
</TABLE>
* Represents 10 years to 12-31-96.
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<PAGE> 43
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 stage
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.
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
Page
General Information and History.............................................1
Services....................................................................1
Purchase of Securities Being Offered........................................2
Underwriters................................................................2
Calculation of Performance..................................................2
Underlying Mutual Fund Performance Summary..................................3
Annuity Payments............................................................5
Financial Statements........................................................6
41
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<PAGE> 44
APPENDIX
Purchase Payments under the guaranteed interest portion of the Contract and
transfers to the Fixed Account portion become part of the general account of the
Company, which support insurance and annuity obligations. Because of exemptive
and exclusionary provisions, interests in the general account have not been
registered under the 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 are 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 related to the Fixed
Account 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.
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. 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 amount of the Fixed Account
that is maturing and will be declared upon the expiration date of the then
current Interest Rate Guarantee Period (see "Interest Rate Guarantee Period").
Transfers under this provision 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.
42
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<PAGE> 45
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.
Annuity Tables and Assumed Interest Rate
The Annuity Tables contained in the Contracts are based on the 1971
Individual Annuity Mortality Table (set back one year) and an assumed interest
rate of 3.5%.
43
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<PAGE> 46
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1997
INDIVIDUAL DEFERRED VARIABLE ANNUITY CONTRACTS ISSUED
BY THE NATIONWIDE LIFE INSURANCE COMPANY
THROUGH ITS NATIONWIDE MULTI-FLEX VARIABLE ACCOUNT
This Statement of Additional Information is not a prospectus. It contains
information in addition to and more detailed than set forth in the prospectus
and should be read in conjunction with the prospectus dated May 1, 1997. The
prospectus may be obtained from Nationwide Life Insurance Company by writing
P.O. Box 182437, One Nationwide Plaza, Columbus, Ohio 43216, or calling
1-800-451-0070, TDD 1-800-238-3035.
TABLE OF CONTENTS
Page
General Information and History...............................................1
Services......................................................................1
Purchase of Securities Being Offered..........................................2
Underwriters..................................................................2
Calculation of Performance....................................................2
Underlying Mutual Fund Performance History....................................3
Annuity Payments..............................................................5
Financial Statements..........................................................6
General Information and History
The Nationwide Multi-Flex 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.
The Company is the largest annuity provider in the United States for public
sector deferred compensation programs, and has received the exclusive
endorsement to provide annuity products in connection with the deferred
compensation programs sponsored by the National Association of Counties (NACo)
and the United States Conference of Mayors (USCM). In addition, the Company is
the only annuity provider for the National Education Association (NEA) members
endorsed by the NEA.
Services
The Company, which has responsibility for administration of the Contracts
and the Variable Account, maintains records of the name, address, taxpayer
identification number, and other pertinent information for each Contract Owner
and the number and type of Contract issued to each such Contract Owner and
records with respect to the Contract Value of each Contract.
The Custodian of the assets of the Variable Account is the Company. The
Company will maintain a record of all purchases and redemptions of shares of the
underlying Mutual Fund options. The Company, or affiliates of the Company, may
have entered into agreements with either the investment adviser or distributor
for several of the underlying Mutual Funds. The agreements relate to
administrative services furnished by the Company or an affiliate of the Company
and provide for an annual fee based on the average aggregate net assets of the
Variable Account (and other separate accounts of the Company or life insurance
company subsidiaries of the Company) invested in particular underlying Mutual
Funds. These fees in no way affect the net asset value of the underlying Mutual
Funds or fees paid by the Contract Owner.
The 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.
1
46 of 106
<PAGE> 47
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, reserves the right
to restrict transfers to the Fixed Account to 25% for any 12 month period.
Contract Owners may 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 (see
"Interest Rate Guarantee Period" located in the prospectus). Transfers under
this provision must be made within 45 days after the expiration date of the
guarantee period.
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
43215, 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.
Calculation of Performance
All performance advertising shall include quotations of standardized
average annual total return, calculated in accordance with standard method
prescribed by rules of the Securities and Exchange Commission, to facilitate
comparison with standardized total return advertised by other variable annuity
separate accounts. 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. 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 average annual total return may also be advertised, and is
calculated in a manner similar to standardized average annual total return
except the nonstandardized average annual 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 a
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
total return will be based on the rolling calendar quarters and will cover at
least periods of one, five, and ten years, or a period covering the time the
underlying Mutual Fund option held in the Sub-Account has been in existence, if
the underlying Mutual Fund option has not been in existence for one of the
prescribed periods. 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 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.
2
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<PAGE> 48
Quotations of average annual total return and total return are based upon
historical earnings and will fluctuate. Any quotation of performance, therefore,
should 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.
Below are the quotations of standardized average annual total return and
non-standardized 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>
==============================================================================================================
SUB-ACCOUNT OPTIONS 1 Year to 5 Years to Life of Fund to Date Fund
12/31/96 12/31/96 12/31/96 Effective
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
American Century Variable
Portfolios, Inc.- American
Century VP Advantage -0.58% 0.92% 3.01% 08-01-91
- --------------------------------------------------------------------------------------------------------------
American Century Variable
Portfolios, Inc.- American
Century VP Capital Appreciation -13.46% 1.48% 6.80% 11-20-87
- --------------------------------------------------------------------------------------------------------------
Dreyfus Socially Responsible
Growth Fund 11.25% N/A 13.50% 10-06-93
- --------------------------------------------------------------------------------------------------------------
Dreyfus Stock Index Fund 12.54% 10.13% 9.20% 09-29-89
- --------------------------------------------------------------------------------------------------------------
Dreyfus Variable Investment
Fund-Quality Bond Portfolio -6.55% 4.51% 5.18% 08-31-90
- --------------------------------------------------------------------------------------------------------------
Dreyfus Variable Investment
Fund-Small Cap Portfolio 6.67% 32.88% 45.47% 08-31-90
- --------------------------------------------------------------------------------------------------------------
Fidelity VIP
Fund-Equity-Income Portfolio 4.39% 13.82% 9.90%* 10-09-86
- --------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-High Income
Portfolio 4.14% 10.84% 7.08%* 09-19-85
- --------------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers
Management Trust-Balanced
Portfolio -2.91% 3.43% 6.30% 02-28-89
- --------------------------------------------------------------------------------------------------------------
NSAT-Government Bond Fund -6.21% 2.47% 4.49%* 11-08-82
- --------------------------------------------------------------------------------------------------------------
NSAT-Money Market Fund -4.66% -0.61% 1.65%* 11-10-81
- --------------------------------------------------------------------------------------------------------------
NSAT-Total Return Fund 11.85% 9.31% 8.75%* 11-08-82
- --------------------------------------------------------------------------------------------------------------
Strong Special Fund II, Inc. 8.21% N/A 14.45% 05-08-92
- --------------------------------------------------------------------------------------------------------------
Templeton Variable Products
Series Fund-Templeton
International Fund Class 1 14.02% N/A 10.47% 05-01-92
==============================================================================================================
</TABLE>
* Represents 10 years to 12-31-96
3
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<PAGE> 49
UNDERLYING MUTUAL FUND PERFORMANCE SUMMARY
Non-Standardized Average Annual Total Return
<TABLE>
<CAPTION>
==============================================================================================================
SUB-ACCOUNT OPTIONS 1 Year to 5 Years to Life of Fund to Date Fund
12/31/96 12/31/96 12/31/96 Effective
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
American Century Variable 7.52% 4.12% 6.18% 08-01-91
Portfolios, Inc.- American
Century VP Advantage
- --------------------------------------------------------------------------------------------------------------
American Century Variable -5.87% 4.51% 9.14% 11-20-87
Portfolios, Inc.- American
Century VP Capital Appreciation
- --------------------------------------------------------------------------------------------------------------
Dreyfus Socially Responsible 19.35% N/A 17.55% 10-06-93
Growth Fund
- --------------------------------------------------------------------------------------------------------------
Dreyfus Stock Index Fund 20.64% 12.88% 11.92% 09-29-89
- --------------------------------------------------------------------------------------------------------------
Dreyfus Variable Investment 1.48% 7.23% 7.93% 09-01-95
Fund-Quality Bond Portfolio
- --------------------------------------------------------------------------------------------------------------
Dreyfus Variable Investment 14.77% 34.31% 46.81% 08-31-90
Fund-Small Cap Portfolio
- --------------------------------------------------------------------------------------------------------------
Fidelity VIP 12.49% 16.21% 12.04%* 10-09-86
Fund-Equity-Income Portfolio
- --------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-High Income 12.24% 13.24% 9.45%* 09-19-85
Portfolio
- --------------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers 5.19% 6.34% 8.54% 02-28-89
Management Trust-Balanced
Portfolio
- --------------------------------------------------------------------------------------------------------------
NSAT-Government Bond Fund 1.83% 5.37% 6.77%* 11-08-82
- --------------------------------------------------------------------------------------------------------------
NSAT-Money Market Fund 3.44% 2.51% 4.12%* 11-10-81
- --------------------------------------------------------------------------------------------------------------
NSAT-Total Return Fund 19.95% 12.05% 10.92%* 11-08-82
- --------------------------------------------------------------------------------------------------------------
Strong Special Fund II, Inc. 16.31% N/A 17.14% 09-01-95
- --------------------------------------------------------------------------------------------------------------
Templeton Variable Products 22.12% N/A 13.50% 05-01-92
Series Fund-Templeton
International Fund Class 1
==============================================================================================================
</TABLE>
* Represents 10 years to 12-31-96.
Any current yield quotations of the NSAT Money Market Fund, 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 NSAT Money Market Fund's
effective yield is computed similarly but includes the effect of assumed
compounding on an annualized basis of the current yield quotations of the Fund.
For the period ended December 31, 1996, the NSAT Money Market Fund's unit value
yield and effective unit value yield were 3.64% and 3.70% respectively.
4
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<PAGE> 50
The NSAT Money Market Fund'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 NSAT Money Market Fund is not guaranteed or insured.
Yield of other money market funds may not be comparable if a different base or
another method of calculation is used.
Annuity Payments
See "Frequency and Amount of Annuity Payments" located in the prospectus.
5
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<PAGE> 51
<PAGE> 1
- --------------------------------------------------------------------------------
Independent Auditors' Report
----------------------------
The Board of Directors of Nationwide Life Insurance Company and
Contract Owners of MFS Variable Account:
We have audited the accompanying statement of assets, liabilities and
contract owners' equity of MFS 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 MFS 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
- --------------------------------------------------------------------------------
MFS VARIABLE ACCOUNT
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY
DECEMBER 31, 1996
<TABLE>
<CAPTION>
ASSETS:
Investments at market value:
<S> <C>
MFS Series Trust IV - MFS(R) Money Market Fund (MFSMyMkt)
59,614,178 shares (cost $59,614,178) ....................... $ 59,614,178
Massachusetts Investors Growth Stock Fund - Class A (MFSGrStk)
3,796,104 shares (cost $41,344,359) ........................ 37,885,116
Massachusetts Investors Trust - Class A (MFSInvTr)
2,695,746 shares (cost $33,220,819) ........................ 38,980,489
MFS(R) Bond Fund - Class A (MFSBdFd)
2,488,582 shares (cost $33,159,970) ........................ 32,923,937
MFS(R) Emerging Growth Fund - Class A (MFSEmGro)
495,823 shares (cost $11,353,009) .......................... 15,018,474
MFS(R) Growth Opportunities Fund - Class A (MFSGrOpp)
7,983,708 shares (cost $90,144,901) ........................ 103,548,687
MFS(R) High Income Fund - Class A (MFSHiInc)
6,338,632 shares (cost $32,642,867) ........................ 33,848,293
MFS(R) Research Fund - Class A (MFSRsrch)
2,516,471 shares (cost $35,420,324) ........................ 46,605,048
MFS(R) Total Return Fund - Class A (MFSTotRe)
4,709,336 shares (cost $61,243,523) ........................ 69,651,081
MFS(R) World Governments Fund - Class A (MFSWdGvt)
757,919 shares (cost $8,607,896) ........................... 8,564,486
Nationwide Separate Account Trust-Money Market Fund (NSATMyMkt)
2,010,734 shares (cost $2,010,734) ......................... 2,010,734
-------------
Total investments ....................................... 448,650,523
Accounts receivable ............................................. 16,754,754
------------
Total assets ........................................... 465,405,277
Accounts payable .................................................. 4,249
------------
Contract owners' equity (note 4) .................................. $465,401,028
============
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
<PAGE> 3
- --------------------------------------------------------------------------------
MFS VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------- ----------- -----------
Investment activity:
<S> <C> <C> <C>
Reinvested capital gains and dividends $ 45,028,420 41,437,779 29,599,574
Mortality and expense charges (note 2) (6,079,619) (5,701,022) (5,853,289)
------------- ----------- -----------
Net investment activity 38,948,801 35,736,757 23,746,285
------------- ----------- -----------
Proceeds from mutual fund shares sold 117,272,138 103,288,834 115,051,876
Cost of mutual fund shares sold (107,685,553) (99,147,354) (112,843,920)
------------- ----------- -----------
Realized gain loss) on investments 9,586,585 4,141,480 2,207,956
Change in unrealized gain (loss) on investments 13,552,160 51,182,271 (41,633,519)
------------- ----------- -----------
Net gain (loss) on investments 23,138,745 55,323,751 (39,425,563)
------------- ----------- -----------
Net increase (decrease) in contract owners'
equity resulting from operations 62,087,546 91,060,508 (15,679,278)
------------- ----------- -----------
Equity transactions:
Purchase payments received from contract owners 19,727,032 16,996,001 15,834,294
Redemptions (70,243,669) (69,066,775) (73,513,222)
Annuity benefits (569,003) (582,314) (569,906)
Annual contract maintenance charge (note 2) (365,726) (405,553) (459,826)
Contingent deferred sales charges (note 2) (157,482) (185,166) (201,021)
Adjustments to maintain reserves 160,437 42,627 (3,929)
------------- ----------- -----------
Net equity transactions (51,448,411) (53,201,180) (58,913,610)
------------- ----------- -----------
Net change in contract owners' equity 10,639,135 37,859,328 (74,592,888)
Contract owners' equity beginning of period 454,761,893 416,902,565 491,495,453
------------- ----------- -----------
Contract owners' equity end of period $ 465,401,028 454,761,893 416,902,565
============= =========== ===========
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
<PAGE> 4
- --------------------------------------------------------------------------------
MFS VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Nature of Operations
MFS Variable Account (the Account) was established by resolution of the
Board of Directors of Nationwide Life Insurance Company (the Company) on March
3, 1976. The Account has been registered as a unit investment trust under the
Investment Company Act of 1940.
The Company offers tax qualified and non-tax qualified Individual Deferred
Variable Annuity Contracts through the Account. The primary distribution for the
contracts is through Massachusetts Financial Services. Presently, the contracts
are not actively marketed.
(b) The Contracts
Prior to February 12, 1979, the contracts purchased provided for a
front-end sales charge and certain other fees. Beginning February 12, 1979, only
contracts (Spectrum) without a front-end sales charge but with a contingent
deferred sales charge and certain other fees were 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 funds:
MFS Series Trust IV - MFS(R) Money Market Fund (MFSMyMkt)
Massachusetts Investors Growth Stock Fund - Class A (MFSGrStk)
Massachusetts Investors Trust - Class A (MFSInvTr)
MFS(R) Bond Fund - Class A (MFSBdFd)
MFS(R) Emerging Growth Fund - Class A (MFSEmGro)
MFS(R) Growth Opportunities Fund - Class A (MFSGrOpp)
MFS(R) High Income Fund Class A (MFSHiInc)
MFS(R) Research Fund - Class A (MFSRsrch)
MFS(R) Total Return Fund - Class A (MFSTotRe)
MFS(R) World Governments Fund - Class A (MFSWdGvt)
Nationwide Separate Account Trust-Money Market Fund (NSATMyMkt)
(managed for a fee by an affiliated investment advisor)
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 the specific identification basis. Investment transactions are
accounted for on the trade date (date the order to buy or sell is executed) and
dividend income is recorded on the ex-dividend date.
<PAGE> 5
(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 Internal Revenue Service issued Rev. Rul. 81-225 on September 25, 1981
and IR-82-19 on February 3, 1982. The effect of Rev. Rul. 81-225 was to treat
non-tax qualified contract holders, who purchased contracts or made purchase
payments after December 31, 1980, as the owners of the underlying mutual fund
shares for Federal income tax purposes. However, for 1981, IR-82-19 did provide
limited relief from the ruling. Therefore, the Company maintained a capital gain
reserve liability, for all realized and unrealized capital gains existing on or
before December 31, 1981.
During 1982 and most of 1983, the Company continued to maintain contract
values which reflected a capital gain reserve liability for those contracts and
contract values affected by Rev. Rul. 81-225. On December 16, 1983, the Company
adjusted the affected (81-225) contract values in order to treat the respective
contract owners as the owners of the underlying shares for Federal income tax
purposes, as intended by the ruling. As a result of this adjustment, contract
owners' equity was restored with amounts previously deducted to maintain the
capital gain reserve liability.
Because of the aforementioned, the Company no longer provides for income
taxes within the Account. Presently, 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
Net purchase payments received on contracts issued before February 12,
1979 represent gross contributions by the contract owners less a charge of 7.75%
by the Company to cover sales expenses.The Company does not deduct a sales
charge from purchase payments made for contracts issued beginning February 12,
1979. However, if any part of the contract value of such contracts is
surrendered the Company will, with certain exceptions, deduct from the owner's
contract value a contingent deferred sales charge 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; 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 on each
contract issued prior to February 12, 1979: (a) a contract issue charge of $15
assessed against the initial purchase payment and a $15 annual contract
maintenance charge assessed against each contract by surrendering units; and (b)
a charge for mortality and expense risk assessed through the daily unit value
calculation equal to an annual rate of 0.80% and 0.20%, respectively. Contract
charges on contracts issued beginning February 12, 1979 include: (a) an annual
contract maintenance charge of $30 which is satisfied by surrendering units; and
(b) 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.
<PAGE> 6
(3) SCHEDULE 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 and expense risk fee 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> 7
(4) COMPONENTS OF CONTRACT OWNERS' EQUITY
The following is a summary of contract owners' equity at December 31,
1996, for each series, in both the accumulation and payout phases. Due to the
nature of money market funds, an 81-225 adjustment (See note 1(d)) was not
required for either the MFS Series Trust IV - MFS(R) Money Market Fund or the
Nationwide Separate Account Trust - Money Market Fund.
Contract owners' equity represented by:
<TABLE>
<CAPTION>
UNITS UNIT VALUE
--------- -----------
<S> <C> <C> <C>
Contracts in accumulation phase:
MFS Series Trust IV - MFS(R) Money Market Fund:
Non-tax qualified ..................................... 4,058 $ 35.222087 $ 142,931
Tax qualified spectrum ................................ 1,343,440 30.037656 40,353,789
Non-tax qualified spectrum ............................ 615,505 30.058530 18,501,176
Massachusetts Investors Growth Stock Fund - Class A:
Non-tax qualified ..................................... 498 94.658415 47,140
Tax qualified spectrum ................................ 297,134 100.175691 29,765,604
Non-tax qualified spectrum ............................ 86,801 85.004193 7,378,449
Non-tax qualified spectrum (81-225) ................... 5,470 92.601102 506,528
Massachusetts Investors Trust - Class A:
Tax qualified ......................................... 16 125.889283 2,014
Tax qualified spectrum ................................ 331,572 101.029680 33,498,613
Non-tax qualified spectrum ............................ 96,073 90.647891 8,708,815
Non-tax qualified spectrum (81-225) ................... 2,037 96.304396 196,172
MFS(R) Bond Fund - Class A:
Non-tax qualified ..................................... 3,321 52.397975 174,014
Tax qualified spectrum ................................ 509,516 44.939826 22,897,560
Non-tax qualified spectrum ............................ 208,403 44.903088 9,357,938
Non-tax qualified spectrum (81-225) ................... 1,597 45.078692 71,991
MFS(R) Emerging Growth Fund - Class A:
Tax qualified spectrum ................................ 437,204 34.264981 14,980,787
Non-tax qualified spectrum (81-225) ................... 675 34.264981 23,129
MFS(R) Growth Opportunities Fund - Class A:
Non-tax qualified ..................................... 2,724 124.926291 340,299
Tax qualified spectrum ................................ 822,246 116.177967 95,526,869
Non-tax qualified spectrum ............................ 182,479 98.686554 18,008,224
Non-tax qualified spectrum (81-225) ................... 14,732 108.889502 1,604,160
MFS(R) High Income Fund - Class A:
Non-tax qualified ..................................... 358 64.483775 23,085
Tax qualified spectrum ................................ 408,255 56.528677 23,078,115
Non-tax qualified spectrum ............................ 176,997 55.671087 9,853,615
Non-tax qualified spectrum (81-225) ................... 6,379 56.528677 360,596
MFS(R) Research Fund - Class A:
Non-tax qualified ..................................... 110 124.427653 13,687
Tax qualified spectrum ................................ 283,320 122.865333 34,810,206
Non-tax qualified spectrum ............................ 105,263 107.355935 11,300,608
Non-tax qualified spectrum (81-225) ................... 1,676 121.431177 203,519
MFS(R) Total Return Fund - Class A:
Tax qualified ......................................... 131 90.602325 11,869
Tax qualified spectrum ................................ 671,118 83.053566 55,738,743
Non-tax qualified spectrum ............................ 167,776 80.393080 13,488,029
Non-tax qualified spectrum (81-225) ................... 1,979 82.245565 162,764
MFS(R) World Governments Fund - Class A:
Tax qualified spectrum ................................ 143,438 50.880072 7,298,136
Non-tax qualified spectrum ............................ 22,367 49.604787 1,109,510
Non-tax qualified spectrum (81-225) ................... 1,811 50.800980 92,001
Nationwide Separate Account Trust - Money Market Fund:
Tax qualified spectrum ................................ 55,730 22.783414 1,269,720
Non-tax qualified spectrum ............................ 32,499 22.798231 740,920
====== =========
Reserves for annuity contracts in payout phase:
Tax qualified 52,535
Non-tax qualified 70,050
Tax qualified spectrum 2,541,149
Non-tax qualified spectrum 1,090,226
Non-tax qualified spectrum (81-225) 5,743
-------------
$ 465,401,028
=============
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 8
- --------------------------------------------------------------------------------
SCHEDULE I
MFS VARIABLE ACCOUNT
TAX QUALIFIED
SCHEDULES OF CHANGES IN UNIT VALUE
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
MFSINVTR MFSBDFD MFSTOTRE
-------- ------- --------
1996***
<S> <C> <C> <C>
Beginning unit value - Jan. 1 $101.007177 ** 79.840336
- ----------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 12.151296 9.492656
- ----------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 13.860085 2.119334
- ----------------------------------------------------------------------------------------------------------------------
Contract charges (1.129275) (.850001)
- ----------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $125.889283 90.602325
- ----------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 25% 13%
======================================================================================================================
1995***
Beginning unit value - Jan. 1 $ 73.217470 ** 63.581031
- ----------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 9.389953 6.796396
- ----------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 19.267126 10.187101
- ----------------------------------------------------------------------------------------------------------------------
Contract charges (.867372) (.724192)
- ----------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $101.007177 79.840336
- ----------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 38% 26%
======================================================================================================================
1994***
Beginning unit value - Jan. 1 $ 74.716077 42.399834 65.964662
- ----------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 8.586372 2.862666 2.763915
- ----------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (9.338645) (4.752106) (4.502426)
- ----------------------------------------------------------------------------------------------------------------------
Contract charges (.746334) (.407003) (.645120)
- ----------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $ 73.217470 40.103391 63.581031
- ----------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (2)% (5)% (4)%
======================================================================================================================
<FN>
* An annualized rate of return cannot be determined as contract charges do not
include the annual contract maintenance charge discussed in note 2.
** This investment option was not being utilized.
*** No other investment options were being utilized.
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 9
- --------------------------------------------------------------------------------
SCHEDULE I, CONTINUED
MFS VARIABLE ACCOUNT
NON-TAX QUALIFIED
SCHEDULES OF CHANGES IN UNIT VALUE
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
MFSMYMKT MFSGRSTK MFSBDFD MFSGROPP MFSHIINC MFSRSRCH MFSTOTRE
-------- -------- ------- -------- -------- -------- --------
1996***
<S> <C> <C> <C> <C> <C> <C>
Beginning unit value - Jan. 1 $33.966291 77.839871 50.922705 103.553065 57.870879 100.977005 **
- ---------------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 1.605064 22.453848 3.611265 13.480974 5.309675 6.050177
- ---------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .000000 (4.761510) (1.629887) 9.045917 1.918782 18.541253
- ---------------------------------------------------------------------------------------------------------------------------------
Contract charges (.349268) (.873794) (.506108) (1.153665) (.615561) (1.140782)
- ---------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $35.222087 94.658415 52.397975 124.926291 64.483775 124.427653
- ---------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 4% 22% 3% 21% 11% 23%
================================================================================================================================
1995***
Beginning unit value - Jan. 1 $32.595660 61.261465 42.342529 77.773322 49.895862 73.593263 62.479885
- ---------------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 1.704937 10.252961 3.454391 13.011382 4.720108 6.201200 6.678704
- ---------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .000000 7.033136 5.596005 13.690716 3.805299 22.049861 10.010672
- ---------------------------------------------------------------------------------------------------------------------------------
Contract charges (.334306) (.707691) (.470220) (.922355) (.550390) (.867319) (.711663)
- ---------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $33.966291 77.839871 50.922705 103.553065 57.870879 100.977005 78.457598
- ---------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 4% 27% 20% 33% 16% 37% 26%
================================================================================================================================
1994***
Beginning unit value - Jan. 1 $31.804010 66.343035 44.767184 81.961605 51.758789 74.327082 64.822235
- ---------------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 1.114091 6.245985 3.022499 6.380267 4.381074 7.237361 2.716055
- ---------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .000000 (10.708702) (5.017439) (9.773345) (5.737464) (7.223674) (4.424461)
- ---------------------------------------------------------------------------------------------------------------------------------
Contract charges (.322441) (.618853) (.429715) (.795205) (.506537) (.747506) (.633944)
- ---------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $32.595660 61.261465 42.342529 77.773322 49.895862 73.593263 62.479885
- ---------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 2% (8)% (5)% (5)% (4)% (1)% (4)%
================================================================================================================================
<FN>
* An annualized rate of return cannot be determined as contract charges do not
include the annual contract maintenance charge discussed in note 2.
** This investment option was not being utilized.
*** No other investment options were being utilized.
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 10
- --------------------------------------------------------------------------------
SCHEDULE I, CONTINUED
MFS VARIABLE ACCOUNT
TAX QUALIFIED SPECTRUM
SCHEDULES OF CHANGES IN UNIT VALUE
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
MFSMYMKT MFSGRSTK MFSINVTR MFSBDFD MFSEMGRO MFSGROPP
-------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
1996
Beginning unit value - Jan. 1 $29.055232 82.628565 81.308640 43.808005 30.247061 96.595726
- -----------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 1.370810 23.764772 9.754053 3.102317 .411401 12.538074
- -----------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .000000 (5.011899) 11.148678 (1.404493) 4.043215 8.443093
- -----------------------------------------------------------------------------------------------------------------
Contract charges (.388386) (1.205747) (1.181691) (.566003) (.436696) (1.398926)
- -----------------------------------------------------------------------------------------------------------------
Ending unit value -Dec. 31 $30.037656 100.175691 101.029680 44.939826 34.264981 116.177967
- -----------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 3% 21% 24% 3% 13% 20%
=================================================================================================================
1995
Beginning unit value - Jan. 1 $27.967294 65.227303 59.116939 36.536936 21.706658 72.767772
- -----------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 1.460813 10.883902 7.560531 2.976527 .000000 12.137397
- -----------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .000000 7.496845 15.541527 4.821993 8.878016 12.812372
- -----------------------------------------------------------------------------------------------------------------
Contract charges (.372875) (.979485) (.910357) (.527451) (.337613) (1.121815)
- -----------------------------------------------------------------------------------------------------------------
Ending unit value -Dec. 31 $29.055232 82.628565 81.308640 43.808005 30.247061 96.595726
- -----------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 4% 27% 38% 20% 39% 33%
=================================================================================================================
1994
Beginning unit value - Jan. 1 $27.370768 70.852048 60.509797 38.746280 20.977490 76.918993
- -----------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .957264 6.650437 6.934388 2.612018 .436556 5.969728
- -----------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .000000 (11.415978) (7.541473) (4.337835) .566606 (9.150770)
- -----------------------------------------------------------------------------------------------------------------
Contract charges (.360738) (.859204) (.785773) (.483527) (.273994) (.970179)
- -----------------------------------------------------------------------------------------------------------------
Ending unit value -Dec. 31 $27.967294 65.227303 59.116939 36.536936 21.706658 72.767772
- -----------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 2% (8)% (2)% (6)% 3% (5)%
=================================================================================================================
MFSHIINC MFSRSRCH MFSTOTRE MFSWDGVT NSATMYMKT
-------- -------- -------- -------- ---------
1996
Beginning unit value - Jan. 1 50.886631 100.013750 73.411912 48.914346 21.961256
- -----------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 4.662173 5.974756 8.708448 1.375200 1.116295
- -----------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 1.683533 18.345600 1.949204 1.232657 .000000
- -----------------------------------------------------------------------------------------------------------------
Contract charges (.703660) (1.468773) (1.015998) (.642131) (.294137)
- -----------------------------------------------------------------------------------------------------------------
Ending unit value -Dec. 31 56.528677 122.865333 83.053566 50.880072 22.783414
- -----------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 11% 23% 13% 4% 4%
=================================================================================================================
1995
Beginning unit value - Jan. 1 44.007083 73.111959 58.638949 42.911877 21.058716
- -----------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 4.157163 6.142147 6.254848 6.115071 1.183897
- -----------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 3.353463 21.879706 9.386344 .495697 .000000
- -----------------------------------------------------------------------------------------------------------------
Contract charges (.631078) (1.120062) (.868229) (.608299) (.281357)
- -----------------------------------------------------------------------------------------------------------------
Ending unit value -Dec. 31 50.886631 100.013750 73.411912 48.914346 21.961256
- -----------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 16% 37% 25% 14% 4%
=================================================================================================================
1994
Beginning unit value - Jan. 1 45.788518 74.064821 61.021714 46.532702 20.538004
- -----------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 3.870377 7.195425 2.553354 2.288468 .791945
- -----------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (5.069261) (7.179946) (4.160311) (5.345421) .000000
- -----------------------------------------------------------------------------------------------------------------
Contract charges (.582551) (.968341) (.775808) (.563872) (.271233)
- -----------------------------------------------------------------------------------------------------------------
Ending unit value -Dec. 31 44.007083 73.111959 58.638949 42.911877 21.058716
- -----------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (4)% (1)% (4)% (8)% 3%
=================================================================================================================
<FN>
* An annualized rate of return cannot be determined as contract charges do not
include the annual contract maintenance charge discussed in note 2.
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 11
- --------------------------------------------------------------------------------
SCHEDULE I, CONTINUED
MFS VARIABLE ACCOUNT
NON-TAX QUALIFIED SPECTRUM
SCHEDULES OF CHANGES IN UNIT VALUE
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
MFSMYMKT MFSGRSTK MFSINVTR MFSBDFD MFSGROPP
-------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
1996
Beginning unit value - Jan 1 $29.075421 70.114570 72.953374 43.772192 82.052560
- ------------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 1.371771 20.165623 8.751729 3.099782 10.650379
- ------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .000000 (4.252868) 10.003041 (1.403340) 7.171939
- ------------------------------------------------------------------------------------------------------------------------------
Contract charges (.388662) (1.023132) (1.060253) (.565546) (1.188324)
- ------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $30.058530 85.004193 90.647891 44.903088 98.686554
- ------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 3% 21% 24% 3% 20%
==============================================================================================================================
1995
Beginning unit value - Jan 1 $27.986728 55.348697 53.042089 36.507070 61.812074
- ------------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 1.461834 9.235549 6.783611 2.974097 10.310027
- ------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .000000 6.361465 13.944489 4.818039 10.883379
- ------------------------------------------------------------------------------------------------------------------------------
Contract charges (.373141) (.831141) (.816815) (.527014) (.952920)
- ------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $29.075421 70.114570 72.953374 43.772192 82.052560
- ------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 4% 27% 38% 20% 33%
==============================================================================================================================
1994
Beginning unit value - Jan 1 $27.389788 60.121583 54.291825 38.714601 65.338300
- ------------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .957927 5.643236 6.221811 2.609884 5.070943
- ------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .000000 (9.687046) (6.766521) (4.334289) (7.773057)
- ------------------------------------------------------------------------------------------------------------------------------
Contract charges (.360987) (.729076) (.705026) (.483126) (.824112)
- ------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $27.986728 55.348697 53.042089 36.507070 61.812074
- ------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 2% (8)% (2)% (6)% (5)%
==============================================================================================================================
MFSHIINC MFSRSRCH MFSTOTRE MFSWDGVT NSATMYMKT
-------- -------- -------- -------- ---------
1996
Beginning unit value - Jan 1 50.114634 87.388917 71.060281 47.688325 21.975540
- ------------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 4.591407 5.220557 8.429455 1.340731 1.117024
- ------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 1.658007 16.029828 1.886778 1.201751 .000000
- ------------------------------------------------------------------------------------------------------------------------------
Contract charges (.692961) (1.283367) (.983434) (.626020) (.294333)
- ------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 55.671087 107.355935 80.393080 49.604787 22.798231
- ------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 11% 23% 13% 4% 4%
==============================================================================================================================
1995
Beginning unit value - Jan 1 43.339456 63.882963 56.760546 41.836304 21.072414
- ------------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 4.094062 5.366818 6.054479 5.961799 1.184666
- ------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 3.302603 19.117811 9.085680 .483276 .000000
- ------------------------------------------------------------------------------------------------------------------------------
Contract charges (.621487) (.978675) (.840424) (.593054) (.281540)
- ------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 50.114634 87.388917 71.060281 47.688325 21.975540
- ------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 16% 37% 25% 14% 4%
==============================================================================================================================
1994
Beginning unit value - Jan 1 45.093866 64.715547 59.066983 45.366368 20.551361
- ------------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 3.811643 6.287139 2.471571 2.231109 .792462
- ------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (4.992348) (6.273621) (4.027043) (5.211428) .000000
- ------------------------------------------------------------------------------------------------------------------------------
Contract charges (.573705) (.846102) (.750965) (.549745) (.271409)
- ------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 43.339456 63.882963 56.760546 41.836304 21.072414
- ------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (4)% (1)% (4)% (8)% 3%
==============================================================================================================================
<FN>
* An annualized rate of return cannot be determined as contract charges do not
include the annual contract maintenance charge discussed in note 2.
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 12
- --------------------------------------------------------------------------------
SCHEDULE I, CONTINUED
MFS VARIABLE ACCOUNT
NON-TAX QUALIFIED SPECTRUM (81-225)
SCHEDULES OF CHANGES IN UNIT VALUE
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
MFSGRSTK MFSINVTR MFSBDFD MFSEMGRO MFSGROPP MFSHIINC
-------- -------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
1996
Beginning unit value - Jan. 1 $76.380777 77.505736 43.943375 30.247061 90.535764 50.886631
- -----------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 21.967845 9.297843 3.111902 .411401 11.751494 4.662173
- -----------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (4.632952) 10.627246 (1.408823) 4.043215 7.913421 1.683533
- -----------------------------------------------------------------------------------------------------------------------
Contract charges (1.114568) (1.126429) (.567762) (.436696) (1.311177) (.703660)
- -----------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $92.601102 96.304396 45.078692 34.264981 108.889502 56.528677
- -----------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 21% 24% 3% 13% 20% 11%
=======================================================================================================================
1995
Beginning unit value - Jan. 1 $60.295273 56.351973 36.649839 21.706658 68.202665 44.007083
- -----------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 10.060939 7.206917 2.985727 .000000 11.375954 4.157163
- -----------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 6.929991 14.814629 4.836885 8.878016 12.008582 3.353463
- -----------------------------------------------------------------------------------------------------------------------
Contract charges (.905426) (.867783) (.529076) (.337613) (1.051437) (.631078)
- -----------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $76.380777 77.505736 43.943375 30.247061 90.535764 50.886631
- -----------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 27% 38% 20% 39% 33% 16%
=======================================================================================================================
1994
Beginning unit value - Jan. 1 $65.494712 57.679687 38.865999 20.977490 72.093454 45.788518
- -----------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends . 6.147578 6.610058 2.620091 .436556 5.595215 3.870377
- -----------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (10.552777) (7.188748) (4.351232) .566606 (8.576687) (5.069261)
- -----------------------------------------------------------------------------------------------------------------------
Contract charges (.794240) (.749024) (.485019) (.273994) (.909317) (.582551)
- -----------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $60.295273 56.351973 36.649839 21.706658 68.202665 44.007083
- -----------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (8)% (2)% (6)% 3% (5)% (4)%
=======================================================================================================================
MFSRSRCH MFSTOTRE MFSWDGVT
-------- -------- --------
1996
Beginning unit value - Jan. 1 98.846334 72.697711 48.838310
- --------------------------------------------------------------------------------
Reinvested capital gains
and dividends 5.905015 8.623693 1.373062
- --------------------------------------------------------------------------------
Unrealized gain (loss) 18.131463 1.930268 1.230738
- --------------------------------------------------------------------------------
Contract charges (1.451635) (1.006107) (.641130)
- --------------------------------------------------------------------------------
Ending unit value - Dec. 31 121.431177 82.245565 50.800980
- --------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 23% 13% 4%
================================================================================
1995
Beginning unit value - Jan. 1 72.258548 58.068470 42.845163
- --------------------------------------------------------------------------------
Reinvested capital gains
and dividends 6.070452 6.194025 6.105566
- --------------------------------------------------------------------------------
Unrealized gain (loss) 21.624321 9.294998 .494930
- --------------------------------------------------------------------------------
Contract charges (1.106987) (.859782) (.607349)
- --------------------------------------------------------------------------------
Ending unit value - Dec. 31 98.846334 72.697711 48.838310
- --------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 37% 25% 14%
================================================================================
1994
Beginning unit value - Jan. 1 73.200301 60.428053 46.460353
- --------------------------------------------------------------------------------
Reinvested capital gains
and dividends 7.111436 2.528526 2.284911
- --------------------------------------------------------------------------------
Unrealized gain (loss) (7.096145) (4.119853) (5.337099)
- --------------------------------------------------------------------------------
Contract charges (.957044) (.768256) (.563002)
- --------------------------------------------------------------------------------
Ending unit value - Dec. 31 72.258548 58.068470 42.845163
- --------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (1)% (4)% (8)%
================================================================================
<FN>
* An annualized rate of return cannot be determined as contract charges do not
include the annual contract maintenance charge discussed in note 2.
See note 3.
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 52
<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> 53
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) To be filed by Financial Statements:
(1) Financial statements and schedule included Page
in Prospectus
(Part A):
Condensed Financial Information. N/A
(2) Financial statements included 38
in Part B:
Those financial statements required by Item 23
to be included in Part B have been incorporated
therein by reference to the Statement of
Additional Information
(Part A).
Nationwide Multi-Flex Separate Account:
Independent Auditors' Report. 38
Statements of Assets, Liabilities
and Contract Owners' Equity as of
December 31, 1996. 39
Statements of Operations and Changes
in Contract Owners Equity for the years ended
December 31, 1996, 1995, and 1994. 41
Notes to Financial Statements. 42
Schedules of Changes In Unit Value. 44
Nationwide Life Insurance Company:
Independent Auditors' Report. 45
Consolidated Balance Sheets as of December 31,
1996 and 1995.
Consolidated Statements of Income for the years
ended December 31, 1996, 1995 and 1994 47
Consolidated Statements of Shareholder's Equity for the
years ended December 31, 1996, 1995 and
1994. 48
Consolidated Statements of Cash Flows for the
years 49 ended December 31, 1996, 1995 and
1994.
Notes to Consolidated Financial Statements. 50
Schedule I - Consolidated Summary of Investments -
Other Than Investments in Related Parties 84
Schedule III - Supplementary Insurance Information 85
Schedule IV - Reinsurance 86
Schedule V - Valuation and Qualifying Accounts 87
84 of 106
<PAGE> 54
Item 24. (b) Exhibits
(1) Resolution of the Depositor's Board of Directors authorizing
the establishment of the Registrant - Filed previously with
this Registration Statement File No. (2-75174) and hereby
incorporated by reference.
(2) Not Applicable
(3) Underwriting or Distribution contracts between the
Registrant and Principal Underwriter - Filed previously with
this Registration Statement File No. (2-75174) and hereby
incorporated by reference.
(4) The form of the variable annuity contract Filed previously
with this Registration Statement File No. (2-75174) and
hereby incorporated herein by reference.
(5) Variable Annuity Application - Filed previously with this
Registration Statement File No. (2-75174) and hereby
incorporated herein by reference.
(6) Articles of Incorporation of Depositor - Filed previously
with this Registration Statement File No. (2-75174) and
hereby incorporated herein by reference.
(7) Not Applicable
(8) Not Applicable
(9) Opinion of Counsel - Filed previously with this Registration
Statement File No. (2-75174) and hereby incorporated herein
by reference.
(10) Not Applicable
(11) Not Applicable
(12) Not Applicable
(13) Performance Advertising Calculation Schedule - Filed
previously with this Registration Statement File No.
(2-75174) and hereby incorporated herein by reference.
85 of 106
<PAGE> 55
Item 25. Directors and Officers of the Depositor
Name and Principal Positions and Offices
Business Address With Depositor
Lewis J. Alphin Director
519 Bethel Church Road
Mount Olive, NC 28365
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
1247 Stafford Road Board 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
86 of 106
<PAGE> 56
Name and Principal Positions and Offices
Business Address With Depositor
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
87 of 106
<PAGE> 57
Name and Principal Positions and Offices
Business Address With Depositor
Matthew S. Easley Vice President -
One Nationwide Plaza Life Marketing and Administration
Columbus, OH 43215 Services
Ronald L. Eppley Vice President-
One Nationwide Plaza Pensions
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
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
88 of 106
<PAGE> 58
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
STATE (see Attached
OF Chart) unless
COMPANY ORGANIZATION otherwise indicated PRINCIPAL BUSINESS
<S> <C> <C> <C>
Affiliate Agency, Inc. Delaware Life Insurance Agency
Affiliate Agency of Ohio, Inc. Ohio Life Insurance Agency
Allnations, Inc. Ohio Promotes cooperative insurance
corporations worldwide
American Marine Underwriters, Inc. Florida Underwriting Manager
Auto Direkt Insurance Company Germany Insurance Company
The Beak and Wire Corporation Ohio Radio Tower Joint Venture
California Cash Management Company California Investment Securities Agent
Colonial County Mutual insurance Company Texas Insurance Company
Colonial Insurance Company of California California Insurance Company
Columbus Insurance Brokerage and Service Germany Insurance Broker
GMBH
Companies Agency, Inc. Wisconsin Insurance Broker
Companies Agency Insurance Services of California Insurance Broker
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, Inc. Massachusetts Insurance Broker
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, Inc. Texas Insurance Broker
Countrywide Services Corporation Delaware Products Liability, Investigative and
Claims Management Services
Employers Insurance of Wausau Wisconsin Insurance Company
A Mutual Company
</TABLE>
89 of 106
<PAGE> 59
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
STATE (see Attached
OF Chart) unless
COMPANY ORGANIZATION otherwise indicated PRINCIPAL BUSINESS
<S> <C> <C> <C>
** Employers Life Insurance Company of Wausau Wisconsin Life Insurance Company
F & B, Inc. Iowa Insurance Agency
Farmland Mutual Insurance Company Iowa Insurance Company
Financial Horizons Distributors Agency of Alabama Life Insurance Agency
Alabama, Inc.
Financial Horizons Distributors Agency of Ohio Life Insurance Agency
Ohio, Inc.
Financial Horizons Distributors Agency of Oklahoma Life Insurance Agency
Oklahoma, Inc.
Financial Horizons Distributors Agency of Texas Life Insurance Agency
Texas, Inc.
* Financial Horizons Investment Trust Massachusetts Investment Company
Financial Horizons Securities Corporation Oklahoma Broker Dealer
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 York, Inc. New York Workers Compensation Claims
Administration
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 York, New York Life Insurance Agency
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, Ltd. Great Britain Insurance Company
** National Premium and Benefit Delaware Insurance Administrative Services
Administration Company
** Nationwide Advisory Services, Inc. Ohio Registered Broker-Dealer, Investment
Manager and Administrator
</TABLE>
90 of 106
<PAGE> 60
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
STATE (see Attached
OF Chart) unless
COMPANY ORGANIZATION otherwise indicated PRINCIPAL BUSINESS
<S> <C> <C> <C>
Nationwide Agency, Inc. Ohio Insurance Agency
Nationwide Agribusiness Insurance Company Iowa Insurance Company
Nationwide Asset Allocation Trust Massachusetts Investment Company
Nationwide Cash Management Company Ohio Investment Securities Agent
Nationwide Communications, Inc. Ohio Radio Broadcasting Business
Nationwide Community Urban Redevelopment Ohio Redevelopment of blighted areas
Corporation within the 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 Organized for the purpose of
acquiring, holding, encumbering,
transferring, or otherwise disposing
of shares, bonds, and other
evidences of indebtedness,
securities, and contracts of other
persons, associations, corporations,
domestic or foreign and to form or
acquire the control of other
corporations
Nationwide General Insurance Company Ohio Insurance Company
Nationwide HMO, Inc. Ohio Health Maintenance Organization
* Nationwide Indemnity Company Ohio Reinsurance Company
Nationwide Insurance Enterprise Foundation Ohio Membership Non-Profit Corporation
Nationwide Insurance Golf Charities, Inc. Ohio Membership Non-Profit Corporation
Nationwide Investing Foundation Michigan Investment Company
* Nationwide Investing Massachusetts Investment Company
Foundation II
Nationwide Investment Services Corporation Oklahoma Registered Broker-Dealer in Deferred
Compensation Market
Nationwide Investors Services, Inc. Ohio Stock Transfer Agent
** Nationwide Life and Annuity Insurance Ohio Life Insurance Company
Company
</TABLE>
91 of 106
<PAGE> 61
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
STATE (see Attached
OF Chart) unless
COMPANY ORGANIZATION otherwise indicated PRINCIPAL BUSINESS
<S> <C> <C> <C>
** 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 Company Ohio Insurance 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 Insurance Ohio Insurance Company
Company
Nationwide Realty Investors, Ltd. Ohio Develops, owns and operates real
estate and real estate investments
* Nationwide Separate Account Trust Massachusetts Investment Company
NEA Valuebuilder Investor Services, Inc. Delaware Life Insurance Agency
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 Massachusetts Life Insurance Agency
Massachusetts, 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
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
</TABLE>
92 of 106
<PAGE> 62
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
STATE (see Attached
OF Chart) unless
COMPANY ORGANIZATION otherwise indicated PRINCIPAL BUSINESS
<S> <C> <C> <C>
PEBSCO of Massachusetts Insurance Agency, Massachusetts Markets and Administers Deferred
Inc. Compensation Plans for Public
Employees
PEBSCO of Texas, Inc. Texas Markets and Administers Deferred
Compensation Plansfor 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
Public Employees Benefit Services Delaware Marketing and Administration of
corporation Deferred Employee Compensation Plans
for Public Employees
Public Employees Benefit Services Alabama Markets and Administers Deferred
Corporation of Alabama Compensation Plans for Public
Employees
Public Employees Benefit Services Arkansas Markets and Administers Deferred
Corporation of Arkansas Compensation Plans for Public
Employees
Public Employees Benefit Services Montana Markets and Administers Deferred
Corporation of Montana Compensation Plans for Public
Employees
Public Employees Benefit Services New Mexico Markets and Administers Deferred
Corporation of New Mexico Compensation Plans for Public
Employees
Scottsdale Indemnity Company Ohio Insurance Company
Scottsdale Insurance Company Ohio Insurance Company
Scottsdale Surplus Lines Insurance Company Arizona Excess and Surplus Lines Insurance
Company
SVM Sales GmbH, Neckura Insurance Group Germany Sales support for Neckura Insurance
Group
Wausau Business Insurance Company Illinois Insurance Company
Wausau General Insurance Company Illinois Insurance Company
Wausau Insurance Company (U.K.) Limited United Kingdom Insurance and Reinsurance Company
Wausau International Underwriters California Special Risks, Excess and Surplus
Lines Insurance Underwriting Manager
** Wausau Preferred Health Insurance Company Wisconsin Insurance and Reinsurance Company
Wausau Service Corporation Wisconsin Holding Company
Wausau Underwriters Insurance Company Wisconsin Insurance Company
** West Coast Life Insurance Company California Life Insurance Company
</TABLE>
93 of 106
<PAGE> 63
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
STATE (see Attached
OF Chart) unless
COMPANY ORGANIZATION otherwise indicated PRINCIPAL BUSINESS
<S> <C> <C> <C>
* MFS Variable Account Ohio Nationwide Life Separate Account Issuer of Annuity Contracts
* NACo Variable Account Ohio Nationwide Life Separate Account Issuer of Annuity Contracts
* Nationwide DC Variable Account Ohio Nationwide Life Separate Account Issuer of Annuity Contracts
* Nationwide DCVA-II Ohio Nationwide Life Separate Account Issuer of Annuity Contracts
* Separate Account No. 1 Ohio Nationwide Life Separate Account Issuer of Annuity Contracts
* Nationwide Multi-Flex Variable Account Ohio Nationwide Life Separate Account Issuer of Annuity Contracts
* 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 Account Issuer of Annuity Contracts
* Nationwide Variable Account-II Ohio Nationwide Life Separate Account Issuer of Annuity Contracts
* Nationwide Variable Account-3 Ohio Nationwide Life Separate Account Issuer of Annuity Contracts
* Nationwide Variable Account-4 Ohio Nationwide Life Separate Account Issuer of Annuity Contracts
* Nationwide Variable Account-5 Ohio Nationwide Life Separate Account Issuer of Annuity Contracts
* Nationwide Fidelity Advisor Variable Ohio Nationwide Life Separate Account Issuer of Annuity Contracts
Account
* Nationwide Variable Account-6 Ohio Nationwide Life Separate Account Issuer of Annuity Contracts
* Nationwide Variable Account-8 Ohio Nationwide Life Separate Account Issuer of Annuity Contracts
* Nationwide VL Separate Ohio Nationwide Life and Annuity Issuer of Life Insurance Policies
Account-A Separate Account
* Nationwide VL Separate Ohio Nationwide Life and Annuity Issuer of Life Insurance Policies
Account-B Separate Account
* Nationwide VLI Separate Account Ohio Nationwide Life Separate Account Issuer of Life Insurance Policies
* Nationwide VLI Separate Account-2 Ohio Nationwide Life Separate Account Issuer of Life Insurance Policies
* Nationwide VLI Separate Account-3 Ohio Nationwide Life Separate Account Issuer of Life Insurance Policies
</TABLE>
94 of 106
<PAGE> 64
<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> 65
<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> 66
<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> 67
<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> 68
<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> 69
<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> 70
Item 27. Number of Contract Owners
The number of contract Owners of Qualified and Non-Qualified Contracts
as of February 28, 1997 was 32,443 and 995, respectively.
Item 28. Indemnification
Provision is made in the Company's Amended and Restated 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 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.
(b) NATIONWIDE ADVISORY SERVICES, INC.
DIRECTORS AND OFFICERS
Positions and offices
Name and Business Address with Underwriter
Joseph J. Gasper President and Director
One Nationwide Plaza
Columbus, Ohio 43215
Dimon 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
One Nationwide Plaza Financial Officer and Director
Columbus, OH 43215
97 of 106
<PAGE> 71
Robert J. Woodward, Jr. Executive Vice President - Chief
One Nationwide Plaza Investment Officer and Director
Columbus, Ohio 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 & Acting Treasurer
Columbus, OH 43215
Edwin P. McCausland
One Nationwide Plaza
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
William G. Goslee Vice President
One Nationwide Plaza
Columbus, OH 43215
Joseph P. Rath Vice President
One Nationwide Plaza
Columbus, OH 43215
Rae M. Pollina Secretary
One Nationwide Plaza
Columbus, OH 43215
<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
Advisory N/A N/A N/A N/A
Services,
Inc.
</TABLE>
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
98 of 106
<PAGE> 72
Item 32. Undertakings
The Registrant hereby undertakes to:
(a) File a post-effective amendment to this registration statement as
frequently as is necessary to ensure that the audited financial
statements in the registration statement are never more than 16
months old for so long as payments under the variable annuity
contracts may be accepted;
(b) Include either (1) as part of any application to purchase a
contract offered by the prospectus, a space that an applicant can
check to request a Statement of Additional Information, or (2) a
post card or similar written communication affixed to or included
in the prospectus that the applicant can remove to send for a
Statement of Additional Information; and
(c) Deliver any Statement of Additional Information and any financial
statements required to be made available under this form promptly
upon written or oral request.
The Registrant represents that any of the Contracts which are issued
pursuant to Section 403(b) of the Code are issued by the Company
through the Registrant in reliance upon, and in compliance with a
no-action letter issued by the staff of the Securities and Exchange
Commission to the American Council of Life Insurance (publicly
available November 28, 1988) permitting withdrawal restrictions to the
extent necessary to comply with Section 403(b)(11) of the Code.
The Company represents that the fees and charges deducted under the
Contract in the aggregate are reasonable in relation to the services
rendered, the expenses expected to be incurred, and the risks assumed
by the Company.
99 of 106
<PAGE> 73
Offered by
Nationwide Life Insurance Company
NATIONWIDE LIFE INSURANCE COMPANY
Nationwide Multi-Flex Variable Account
Individual Deferred Variable Annuity Contract
PROSPECTUS
May 1, 1997
100 of 106
<PAGE> 74
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 herein.
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 24, 1997
101 of 106
<PAGE> 75
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act
of 1940 the Registrant, NATIONWIDE MULTIFLEX VARIABLE ACCOUNT has caused this
Post-Effective Amendment to be signed on its behalf in the City of Columbus, and
State of Ohio, on this 24th 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 24th day
of April, 1997.
Signature Title
Signature Title
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 Operating
- ----------------------------- Office and Director
Joseph J. Gasper
HENRY S. HOLLOWAY Chairman of the Board
- ----------------------------- and Director
Henry S. Holloway
DIMON RICHARD McFERSON Chairman and Chief Executive
- ----------------------------- Officer-Nationwide Insurance
Dimon Richard McFerson Enterprise and Director
DAVID O. MILLER Director
- -----------------------------
David O. Miller
C. RAY NOECKER Director
- -----------------------------
C. Ray Noecker
ROBERT A. OAKLEY Executive Vice President-
- ----------------------------- Chief Financial Officer
Robert A. Oakley
JAMES F. PATTERSON Director By /s/JOSEPH P. RATH
- ----------------------------- --------------------
James F. Patterson Joseph P. Rath
Attorney-in-Fact
ARDEN L. SHISLER Director
- -----------------------------
Arden L. Shisler
ROBERT L. STEWART Director
- -----------------------------
Robert L. Stewart
NANCY C. THOMAS Director
- -----------------------------
Nancy C. Thomas
HAROLD W. WEIHL Director
- -----------------------------
Harold W. Weihl
106 of 106
<PAGE> 76
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>
