<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. 25 [x]
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 26 [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 November 3, 1997 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a) of Rule 485
[ ] on (date) pursuant to paragraph (a) of Rule 485
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
The Registrant has registered an indefinite number of securities by a prior
registration statement in accordance with Rule 24f-2 under the Investment
Company Act of 1940. 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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NATIONWIDE MULTI-FLEX VARIABLE ACCOUNT
REFERENCE TO ITEMS REQUIRED BY FORM N-4
<TABLE>
<CAPTION>
N-4 ITEM PAGE
<S> <C> <C>
Part A INFORMATION REQUIRED IN A PROSPECTUS
Item 1. Cover page......................................................................................3
Item 2. Definitions.....................................................................................5
Item 3. Synopsis or Highlights.........................................................................15
Item 4. Condensed Financial Information................................................................16
Item 5. General Description of Registrant, Depositor, and Portfolio Companies..........................19
Item 6. Deductions and Expenses........................................................................20
Item 7. General Description of Variable Annuity Contracts..............................................23
Item 8. Annuity Period.................................................................................30
Item 9. Death Benefit and Distributions................................................................32
Item 10. Purchases and Contract Value...................................................................23
Item 11. Redemptions....................................................................................26
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.....................................................................................51
Item 16. Table of Contents..............................................................................51
Item 17. General Information and History................................................................51
Item 18. Services.......................................................................................51
Item 19. Purchase of Securities Being Offered...........................................................52
Item 20. Underwriters...................................................................................52
Item 21. Calculation of Performance.....................................................................52
Item 22. Annuity Payments...............................................................................55
Item 23. Financial Statements...........................................................................56
Part C OTHER INFORMATION
Item 24. Financial Statements and Exhibits..............................................................94
Item 25. Directors and Officers of the Depositor........................................................96
Item 26. Persons Controlled by or Under Common Control with the Depositor or Registrant.................98
Item 27. Number of Contract Owners.....................................................................107
Item 28. Indemnification...............................................................................107
Item 29. Principal Underwriter.........................................................................107
Item 30. Location of Accounts and Records..............................................................108
Item 31. Management Services...........................................................................108
Item 32. Undertakings..................................................................................109
</TABLE>
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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:
AIM VARIABLE INSURANCE FUNDS, INC.
- AIM V.I. Capital Appreciation Fund
- AIM V.I. International Equity Fund
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC., A MEMBER OF THE AMERICAN CENTURY(SM)
FAMILY OF INVESTMENTS
- American Century VP Advantage
- American Century VP Capital Appreciation
- American Century VP Income & Growth
DREYFUS STOCK INDEX FUND
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
DREYFUS VARIABLE INVESTMENT FUND
- Capital Appreciation Portfolio
- Small Cap Portfolio
- Quality Bond Portfolio
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
- VIP Fund Equity-Income Portfolio
- VIP Fund High Income Portfolio*
JANUS ASPEN SERIES
- International Growth Portfolio
NATIONWIDE SEPARATE ACCOUNT TRUST
- Government Bond Fund
- Money Market Fund
- Total Return Fund
- Nationwide High Income Bond Fund
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
- Balanced Portfolio
STRONG OPPORTUNITY FUND II, INC. (FORMERLY 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.
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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
November 3, 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.
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 NOVEMBER 3, 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 NOVEMBER 3, 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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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
GLOSSARY OF SPECIAL TERMS...........................................................................................3
SUMMARY OF CONTRACT EXPENSES........................................................................................8
UNDERLYING MUTUAL FUND ANNUAL EXPENSES.............................................................................10
SYNOPSIS...........................................................................................................13
CONDENSED FINANCIAL INFORMATION....................................................................................14
NATIONWIDE LIFE INSURANCE COMPANY..................................................................................17
THE VARIABLE ACCOUNT...............................................................................................17
Underlying Mutual Fund Options..........................................................................17
Voting Rights...........................................................................................18
Substitution of Securities..............................................................................18
VARIABLE ACCOUNT CHARGES AND OTHER DEDUCTIONS......................................................................18
Variable Account Charges................................................................................18
-Mortality Risk, Expense Risk and Administration Charges................................................18
-Actuarial Risk Charge..................................................................................19
Other Charges Which May Be Assessed to the Contract Value...............................................19
Contract Maintenance Charge.............................................................................19
Contingent Deferred Sales Charge........................................................................20
Waiver of the Contingent Deferred Sales Charge..........................................................20
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.....................................................................................22
Determining the Contract Value..........................................................................22
Right to Revoke.........................................................................................22
Transfers...............................................................................................23
Contract Ownership Provisions...........................................................................23
Contingent Ownership Provisions.........................................................................24
Beneficiary Provisions..................................................................................24
Surrender (Redemption)..................................................................................24
Surrenders Under a Qualified Contract or Tax-Sheltered Annuity Contract.................................25
Loan Privilege..........................................................................................25
Assignment..............................................................................................27
Contract Owner Services.................................................................................27
Asset Rebalancing......................................................................................27
Dollar Cost Averaging..................................................................................27
Systematic Withdrawals.................................................................................27
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................................................................................28
Assumed Investment Rate.................................................................................28
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..............................................29
Death of Annuitant Provisions- Non-Qualified Contracts..................................................30
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..................................31
Required Distributions for Individual Retirement Annuities and SEP IRAs.................................32
Generation-Skipping Transfers...........................................................................33
FEDERAL TAX CONSIDERATIONS.........................................................................................33
Federal Income Taxes....................................................................................33
</TABLE>
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<TABLE>
<S> <C> <C>
Puerto Rico.............................................................................................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 A.........................................................................................................42
APPENDIX B.........................................................................................................44
</TABLE>
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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
<TABLE>
<CAPTION>
NUMBER OF COMPLETED YEARS CONTINGENT DEFERRED SALES NUMBER OF COMPLETED YEARS CONTINGENT DEFERRED SALES
FROM DATE OF PURCHASE LOAD PERCENTAGE FROM DATE OF PURCHASE LOAD PERCENTAGE
PAYMENT PAYMENT
<S> <C> <C> <C>
0 7% 4 3%
1 6% 5 2%
2 5% 6 1%
3 4% 7 0%
</TABLE>
MAXIMUM ANNUAL CONTRACT MAINTENANCE CHARGE(2)............................ $30
VARIABLE ACCOUNT ANNUAL EXPENSES
Actuarial Risk Fee(3).......................................... 1.30%
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 corresponding 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. The Contract Maintenance
Charge will be waived for Qualified Plans (as defined by Section 401(k)
of the Code) issued on or after the later of November 3, 1997, or the
date on which state insurance authorities approve corresponding contract
modifications.
3 For Contracts issued before November 3, 1997 or in states which have not
approved the applicable Contract modifications, the Company will assess a
Mortality and Expense Risk Charge equal to an annual rate of 1.25% of the
daily net asset value of the Variable Account and an administration
charge equal to an annual rate of 0.05% of the daily net asset value of
the Variable Account (see "Expenses of the Variable Account for Contracts
Issued Before November 3, 1997").
For Contracts issued on or after the later of November 3, 1997, or the
date on which state insurance authorities approve corresponding Contract
modifications, the Company will assess an Actuarial Risk Fee to the
Variable Account equal to an annual rate of 1.30% of the daily net asset
value of the Variable Account (see "Expenses of the Variable Account for
Contract Issues On or After November 3, 1997").
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MAXIMUM-CONTRACT EXCHANGE FEES (when applicable)4.........................$40
4 When a Contract described in this prospectus is exchanged for another
Contract issued by the Company or any of its affiliated insurance
companies, of the type and class which the Company has determined is
eligible for such exchange, the Company may waive the Contingent Deferred
Sales Charge on the first Contract. A Contingent Deferred Sales Charge may
apply to the contract received in the exchange. In determining which
contracts may be of the same type and class as this Contract, the Company
shall apply its rules and regulations applicable thereto, including
assessing any fees deemed reasonable for processing the exchange. In no
event will such fee exceed $40. This exchange processing fee may be in
addition to any Contract Maintenance Charge which may be applicable upon
the Surrender of a Contract.
MAXIMUM SCHOOL DISTRICT PROCESSING FEES
(when applicable)(5)........Greater of $30 or 0.40% of the Contract Value
5 For Contracts issued on or after the later of November 3, 1997, or the date
on which insurance authorities approve corresponding Contract
modifications, the Company reserves the right to charge against the
Contract Value the amount of any charges assessed by school districts in
connection with the processing of payroll amounts submitted to the Company
as Purchase Payments. Such amounts will not exceed the greater of $30 or
0.40% of the Contract Value. If such charges are assessed, the Company may
deduct such charges at its sole discretion from the Contract Value at
either: (1) the time the Contract is surrendered; (2) annually; (3) at
Annuitization; or (4) at such date as the Company may become subject to
such charges. The Company will not profit from this charge; the Company
will only take amounts billed by school districts out of the Contract
Value. Under no circumstances will such charges be assessed in a
discriminatory manner.
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<TABLE>
<CAPTION>
UNDERLYING MUTUAL FUND ANNUAL EXPENSES(1)
(as a percentage of underlying Mutual Fund average net assets)
- -------------------------------------------------------------------------------------------------
Management Fees Other Expenses Total Mutual
Fund Expenses
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AIM Variable Insurance Funds, Inc. - AIM 0.64% 0.09% 0.73%
- ----------------------------------------- ----- ----- -----
V.I. Capital Appreciation Fund
- -------------------------------------------------------------------------------------------------
AIM Variable Insurance Funds, Inc. - AIM 0.75% 0.21% 0.96%
- ----------------------------------------- ----- ----- -----
V.I. International Equity Fund
- -------------------------------------------------------------------------------------------------
American Century Variable Portfolios, 1.00% 0.00% 1.00%
Inc.-American Century VP Advantage
- -------------------------------------------------------------------------------------------------
American Century Variable Portfolios, 1.00% 0.00% 1.00%
Inc.-American Century VP Capital
Appreciation
- -------------------------------------------------------------------------------------------------
American Century Variable Portfolios, Inc. 0.70% 0.00% 0.70%
- - American Century VP Income & Growth
- -------------------------------------------------------------------------------------------------
Dreyfus Stock Index Fund 0.25% 0.05% 0.30%
- -------------------------------------------------------------------------------------------------
The Dreyfus Socially Responsible Growth Fund 0.72% 0.24% 0.96%
- -------------------------------------------------------------------------------------------------
Dreyfus Variable Investment Fund-Capital 0.75% 0.03% 0.78%
Appreciation Portfolio
- -------------------------------------------------------------------------------------------------
Dreyfus Variable Investment Fund-Quality 0.65% 0.14% 0.79%
Bond Portfolio
- -------------------------------------------------------------------------------------------------
Dreyfus Variable Investment Fund-Small Cap 0.75% 0.04% 0.79%
Portfolio
- -------------------------------------------------------------------------------------------------
Fidelity VIP Fund-Equity-Income Portfolio 0.51% 0.07% 0.58%
- -------------------------------------------------------------------------------------------------
Fidelity VIP Fund-High Income Portfolio 0.59% 0.12% 0.71%
- -------------------------------------------------------------------------------------------------
Janus Aspen Series - International Growth 0.68% 0.26% 0.94%
Portfolio
- -------------------------------------------------------------------------------------------------
NSAT-Government Bond Fund 0.55% 0.02% 0.57%
- -------------------------------------------------------------------------------------------------
NSAT-Money Market Fund 0.45% 0.02% 0.47%
- -------------------------------------------------------------------------------------------------
NSAT-Nationwide High Income Bond Fund 0.80% 0.15% 0.95%
- -------------------------------------------------------------------------------------------------
NSAT-Total Return Fund 0.65% 0.02% 0.67%
- -------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers Management 0.85% 0.23% 1.08%
Trust-Balanced Portfolio
- -------------------------------------------------------------------------------------------------
Strong Opportunity Fund II, Inc. 1.00% 0.17% 1.17%
- -------------------------------------------------------------------------------------------------
Templeton Variable Products Series 0.70% 0.18% 0.88%(2)
Fund-Templeton International Fund Class 1
- -------------------------------------------------------------------------------------------------
</TABLE>
1 The Mutual Fund expenses shown above are assessed at the underlying
Mutual Fund level and are not direct charges against Variable Account
assets or reductions from Contract Values. These underlying Mutual Fund
expenses are taken into consideration in computing each underlying Mutual
Fund's net asset value, which is the share price used to calculate the
unit values under the Variable Account. The management fees and other
expenses are not currently subject to fee waivers or expense
reimbursements.
2 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(1)
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 a $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
Contract at the end of Contract at the end of the at the end of the applicable
applicable time period applicable time period 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>
AIM Variable 93 116 149 261 23 71 122 261 * 71 122 261
Insurance Fund, Inc.
AIM V.I. Capital
Appreciation Fund
- --------------------------------------------------------------------------------------------------------------------------
AIM Variable 96 123 161 285 26 78 134 285 * 78 134 285
Insurance Fund, Inc.
AIM V.I
International Equity Fund
- --------------------------------------------------------------------------------------------------------------------------
American Century 96 125 163 289 26 80 136 289 * 80 136 289
Variable Portfolios,
Inc.- American
Century VP Advantage
- --------------------------------------------------------------------------------------------------------------------------
American Century 96 125 163 289 26 80 136 289 * 80 136 289
Variable Portfolios,
Inc.- American
Century VP Capital
Appreciation
- --------------------------------------------------------------------------------------------------------------------------
American Century 93 115 147 258 23 70 120 258 * 70 120 258
Variable Portfolios,
Inc. - American
Century VP Income & Growth
- --------------------------------------------------------------------------------------------------------------------------
Dreyfus Stock Index 89 103 126 214 19 58 99 214 * 58 99 214
Fund
- --------------------------------------------------------------------------------------------------------------------------
Dreyfus Socially 96 123 161 285 26 78 134 285 * 78 134 285
Responsible Growth
Fund, Inc.
- --------------------------------------------------------------------------------------------------------------------------
Dreyfus Variable 94 118 152 266 24 73 125 266 * 73 125 266
Investment
Fund-Capital
Appreciation Portfolio
- --------------------------------------------------------------------------------------------------------------------------
Dreyfus Variable 94 118 152 267 24 73 125 267 * 73 125 307
Investment
Fund-Quality Bond Portfolio
- --------------------------------------------------------------------------------------------------------------------------
Dreyfus Variable 94 118 152 267 24 73 125 267 * 73 125 267
Investment Fund-
Small Cap Portfolio
- --------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund- 92 111 141 245 22 66 114 245 * 66 114 245
Equity-Income
Portfolio
- --------------------------------------------------------------------------------------------------------------------------
Fidelity VIP 93 116 148 259 23 71 121 259 * 71 121 259
Fund-High Income
Portfolio
- --------------------------------------------------------------------------------------------------------------------------
Janus Aspen 95 123 160 283 25 78 133 283 * 78 133 283
Series-International
Growth Portfolio
- --------------------------------------------------------------------------------------------------------------------------
NSAT-Government Bond 91 111 140 244 21 66 113 244 * 66 113 244
Fund
- --------------------------------------------------------------------------------------------------------------------------
NSAT-Money Market Fund 90 108 135 233 20 63 108 233 * 63 108 233
- --------------------------------------------------------------------------------------------------------------------------
NSAT-Nationwide High 95 123 160 284 25 78 133 284 * 78 133 284
Income Bond Fund
- --------------------------------------------------------------------------------------------------------------------------
NSAT-Total Return Fund 92 114 146 255 22 69 119 255 * 69 119 255
- --------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman 97 127 167 298 27 82 140 298 * 82 140 298
Advisers Management
Trust-Balanced Portfolio
- --------------------------------------------------------------------------------------------------------------------------
Opportunity Strong Fund 98 130 172 307 28 85 145 307 * 85 145 307
II, Inc.
- --------------------------------------------------------------------------------------------------------------------------
Templeton Variable 93 116 148 259 23 71 121 259 * 71 121 259
Products Series
Fund-Templeton International
Fund Class 1
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
*The Contracts sold under this prospectus do not permit annuitizations during
the first two Contract Years.
11
13 of 115
<PAGE> 14
1 For certain contracts which are exchanged for other contracts issued by the
Company or an affiliate of the Company, the Contingent Deferred Sales
Charge is waived and a processing fee not to exceed $40 is applied (see
"Contract Exchange Fees"). Under such circumstances, the expenses described
above would be adjusted to reflect the processing fee and the waiver of the
Contingent Deferred Sales Charge.
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").
12
14 of 115
<PAGE> 15
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").
On each Contract Anniversary the Company will deduct an annual Contract
Maintenance Charge of $30 from the Contract Value of the Contracts. This charge
is designed to reimburse the Company for administrative expenses related to the
issue and maintenance of the Contracts. The Company does not expect to recover
from this charge an amount in excess of accumulated administrative expenses (see
"Contract Maintenance Charge"). The Contract Maintenance Charge will be waived
for: (1) Tax Sheltered Annuity Contracts issued on or after the later of May 1,
1997, or the date on which the state insurance authorities in a state having a
Unified Billing Authority approve corresponding contract modifications; or (2)
for Contracts issued as Qualified Plans (as defined by Section 401(k) of the
Code) on or after the later of November 3, 1997, or the date on which state
insurance authorities approve the corresponding Contract modifications.
For Contracts issued before November 3, 1997 or in states which have not
approved the applicable Contract modifications, the Company will assess a
mortality and expense risk charge equal to an annual rate of 1.25% of the daily
net asset value of the Variable Account and an administration charge equal to an
annual rate of 0.05% of the daily net asset value of the Variable Account (see
"Expenses of the Variable Account for Contracts Issued Before November 3,
1997").
For Contracts issued on or after the later of November 3, 1997 or the
date on which state insurance authorities approve corresponding Contract
modifications, the Company will deduct an Actuarial Risk Charge equal to an
annual rate of 1.30% of the daily net asset value of the Variable Account for
actuarial risks assumed by the Company (see "Charges of the Variable Account and
Other Deductions").
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").
13
15 of 115
<PAGE> 16
CONDENSED FINANCIAL INFORMATION*
Accumulation Unit Values for an Accumulation Unit outstanding throughout the
period.
<TABLE>
<CAPTION>
ACCUMULATION UNIT ACCUMULATION NUMBER OF
VALUE UNIT VALUE PERCENT CHANGE ACCUMULATION
AT BEGINNING AT END IN ACCUMULATION UNITS AT END OF
FUND OF PERIOD OF PERIOD UNIT VALUE 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 14.412060 16.255386 12.79% 3,685,628 1996
-----------------------------------------------------------------------------------
Fund-Equity-
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>
* AIM Variable Insurance Funds, Inc.-AIM V.I. Capital Appreciation Fund, AIM
Variable Insurance Fund, Inc.-AIM V.I. International Equity Fund, American
Century Variable Portfolios, Inc.-American Century VP Income & Growth,
Dreyfus Variable Investment Fund-Capital Appreciation Portfolio, NSAT
Nationwide High Income Bond Portfolio and Janus Aspen Series-International
Growth Portfolio were added to the Variable Account effective November 3,
1997, and therefore such investment options are not included in the
"Condensed Financial Information."
14
16 of 115
<PAGE> 17
CONDENSED FINANCIAL INFORMATION (CONTINUED)
Accumulation Unit Values for an Accumulation Unit outstanding throughout the
period.
<TABLE>
<CAPTION>
ACCUMULATION UNIT ACCUMULATION NUMBER OF
VALUE UNIT VALUE PERCENT CHANGE ACCUMULATION
AT BEGINNING AT END IN ACCUMULATION UNITS AT END OF
FUND OF PERIOD OF PERIOD UNIT VALUE 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
------------------- ------------------ ------------------ ----------------- ----------
37.150744 40.671816 9.48% 4,467,810 1993
------------------- ------------------ ------------------ ----------------- ----------
34.794462 37.150744 6.77% 3,578,781 1992
------------------- ------------------ ------------------ ----------------- ----------
25.454897 34.794462 36.69% 2,974,227 1991
------------------- ------------------ ------------------ ----------------- ----------
28.044760 25.454897 -9.23% 2,734,562 1990
------------------- ------------------ ------------------ ----------------- ----------
25.094601 28.044760 11.76% 2,897,067 1989
------------------- ------------------ ------------------ ----------------- ----------
21.178453 25.094601 18.49% 2,746,255 1988
------------------- ------------------ ------------------ ----------------- ----------
21.612441 21.178453 -2.01% 2,885,264 1987
------------------- ------------------ ------------------ ----------------- ----------
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 Opportunity Fund 10.456863 12.193238 16.61% 408,289 1996
------------------- ------------------ ------------------ ----------------- ----------
II, 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, 11.822996 13.802855 16.75% 25,000 1995
Inc.-.
------------------- ------------------ ------------------ ----------------- ----------
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, 12.711014 16.447846 29.40% 956,826 1995
Inc.-.
------------------- ------------------ ------------------ ----------------- ----------
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 14.412060 16.255386 12.79% 1,140,873 1996
Fund-Equity-
------------------- ------------------ ------------------ ----------------- ----------
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>
15
17 of 115
<PAGE> 18
CONDENSED FINANCIAL INFORMATION (CONTINUED)
Accumulation Unit Values for an Accumulation Unit outstanding throughout the
period.
<TABLE>
<CAPTION>
ACCUMULATION UNIT ACCUMULATION NUMBER OF
VALUE UNIT VALUE PERCENT CHANGE ACCUMULATION
AT BEGINNING AT END IN ACCUMULATION UNITS AT END OF
FUND OF PERIOD OF PERIOD UNIT VALUE 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 Opportunity Fund 10.456863 12.193238 16.61% 35,456 1996
------------------ ------------------ ------------------- ------------------ ---------
II, 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%.
16
18 of 115
<PAGE> 19
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
Contract Owners may choose from among a number of different underlying
Mutual Fund Options. (See Appendix B which contains a summary of investment
objectives for each underlying Mutual Fund option.) More detailed information
may be found in the current prospectus for each underlying Mutual Fund offered.
Such 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 1-800-451-0070,
TDD 1-800-238-3035, or writing P.O. Box 182437, Columbus, Ohio 43216.
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.
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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
VARIABLE ACCOUNT CHARGES
EXPENSES OF THE VARIABLE ACCOUNT FOR CONTRACTS ISSUED BEFORE NOVEMBER 3, 1997
(OR BEFORE SUCH DATE ON WHICH INSURANCE AUTHORITIES HAVE APPROVED CORRESPONDING
CONTRACT MODIFICATIONS)
For Contracts issued before November 3, 1997 or before such date on which state
insurance authorities approve corresponding Contract modifications, the Variable
Account is responsible for: (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 such expenses 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.
- -Mortality Risk, Expense Risk and Administration Charges
A "mortality risk" is assumed 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 such risk,
the Company will deduct a mortality risk charge computed on a daily basis from
the Variable Account, which is equal to an annual rate of 0.80% of the daily net
asset value of the Variable Account. The Company expects to generate a profit
through assessing this charge.
An "expense risk" is assumed by the Company for agreeing not to increase charges
for administration of the Contracts regardless of its actual expenses. For
assuming such risk, the Company will deduct an expense risk charge computed on a
daily basis of the Variable Account, which is equal to an annual rate of 0.45%
of the daily net asset value of the Variable Account. The Company expects to
generate a profit through assessing this charge.
An "administration charge" is assessed to the Contract Owner for reimbursing the
Company for administrative expenses incurred in administering such Contracts.
For such expenses, the Company will deduct an administration charge computed on
a daily basis of the Variable Account which is equal to an annual rate of
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0.05% of the daily net asset value of the Variable Account. This charge is
designed only to reimburse the Company for administrative expenses, as such, the
Company will monitor this charge to ensure that it does not exceed annual
administration expenses.
The mortality risk, expense risk and administration charges are made from each
Sub-Account of the Variable Account in the same proportion that the Contract
Value in each Sub-Account bears to the total Contract Value in the Variable
Account.
For 1996, the Variable Account incurred total expenses equal to 1.56% of its
average net assets relating to the administrative, sales, mortality and expense
risk charges described above for all Contracts outstanding during that year.
Deductions from and expenses paid out of the assets of the underlying Mutual
Fund options are described in each underlying Mutual Fund's prospectus.
EXPENSES OF THE VARIABLE ACCOUNT FOR CONTRACTS ISSUED ON OR AFTER NOVEMBER 3,
1997 (OR THE DATE ON WHICH STATE INSURANCE AUTHORITIES APPROVE APPLICABLE
CONTRACT MODIFICATIONS)
- -Actuarial Risk Charge
The Variable Account is responsible for "actuarial risk" expenses which consists
of: (1) administration expenses relating to the issuance and maintenance of the
Contracts and (2) mortality risk charges. For assuming such actuarial risks, the
Company deducts an expense from the Variable Account equal to an annual rate of
1.30% of the daily net asset value. This deduction is made from each Sub-Account
of the Variable 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 is of the opinion that such actuarial risk expense charges, in the
aggregate, are reasonable in relation to the services rendered, the expenses
expected to be incurred, and the risks assumed by the Company.
OTHER CHARGES WHICH MAY BE ASSESSED TO THE CONTRACT VALUE
For Contracts issued on or after the later of November 3, 1997 or the
date on which applicable insurance authorities approve corresponding Contract
modifications, the Company may charge against the Contract Value the amount of
any charges assessed to the Company by individual school districts for the
processing of employee payroll deductions. The Company will deduct such charges
from a Contract Owner's Contract Value at: (1) the time the Contract is
surrendered; (2) annually; (3) at Annuitization; or (4) at such date as the
Company may become subject to such charges. The method used to recoup such
expenses will be determined by the Company at its sole discretion and may be
subject to change without prior notice to Contract Owners. The assessment of
this charge is designed only to reimburse the Company for such expenses levied
by individual school districts, and as such, the Company will not profit by
assessing this charge.
CONTRACT MAINTENANCE CHARGE
Each year on the Contract Anniversary (and on the date of surrender in
any year in which the entire Contract Value is surrendered), the Company deducts
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. For Tax Sheltered Annuity Contracts issued on or
after the later of May 1, 1997, or the date on which state insurance authorities
approve corresponding Contract 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. The
Contract Maintenance Charge will also be waived for Qualified Plans (as defined
by Section 401(k) of the Code) issued on or after the later of November 3, 1997,
or the date on which state insurance authorities approve corresponding contract
modifications. If assessed, 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 Contract Maintenance Charge is 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.
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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, or if applicable, of the Actuarial Risk Charge, since the Company
may 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.
The Contingent Deferred Sales Charge applies to Purchase Payments as follows:
<TABLE>
<CAPTION>
NUMBER OF COMPLETED YEARS CONTINGENT DEFERRED SALES NUMBER OF COMPLETED YEARS CONTINGENT DEFERRED SALES
FROM DATE OF PURCHASE CHARGE PERCENTAGE FROM DATE OF PURCHASE CHARGE PERCENTAGE
PAYMENT PAYMENT
<S> <C> <C> <C> <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.
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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).
No Contingent Deferred Sales Charge will apply upon the transfer of
values among the Sub-Accounts or between the Fixed Account and Variable Account.
When a Contract described in this prospectus is exchanged for another Contract
issued by the Company or any of its affiliated insurance companies, of the type
and class which the Company has determined is eligible for such exchange, the
Company may waive the Contingent Deferred Sales Charge on the first Contract. A
Contingent Deferred Sales Charge may apply to the contract received in the
exchange. In determining which contracts may be of the same type and class as
this Contract, the Company shall apply its rules and regulations applicable
thereto, including assessing any fees deemed reasonable for processing the
exchange. In no event will such fee exceed $40.00. This exchange processing fee
may be in addition to any Contract Maintenance Charge which may be applicable
upon the surrender of a Contract.
In no event will elimination of Contingent Deferred Sales Charges be
permitted where such elimination will be unfairly discriminatory to any person,
or where prohibited by state law.
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.
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
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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.
(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
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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 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
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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 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
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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:
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
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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 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 processed in the same manner as a Purchase Payment. Loan
repayments will be allocated among the Fixed and Variable Accounts in accordance
with the Contract, unless the Contract Owner and the Company agree to amend the
Contract at a later date on a case by case basis.
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.
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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.
CONTRACT OWNER SERVICES
ASSET REBALANCING - The Contract Owner may direct the automatic
reallocation of Contract Values to the underlying Mutual Fund options on a
predetermined percentage basis every three months or based on another frequency
authorized by the Company. If the last day of the three month period falls on a
Saturday, Sunday, recognized holiday or any other day when the New York Stock
Exchange is closed, the Asset Rebalancing exchange will occur on the first
business day after that day. An Asset Rebalancing request must be in writing on
a form provided by the Company. The Contract Owner may want to contact a
financial adviser in order to discuss the use of Asset Rebalancing in his or her
Contract.
Contracts issued to a Qualified Plan or Tax Sheltered Annuity Plan as
defined by the Internal Revenue Code may have superseding plan restrictions with
regard to the frequency and fund exchanges and underlying Mutual Fund options.
The Company reserves the right to discontinue offering Asset Rebalancing
upon 30 days written notice; such discontinuation will not affect Asset
Rebalancing programs which have already commenced. The Company also reserves the
right to assess a processing fee for this service.
DOLLAR COST AVERAGING- The Contract Owner 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
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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 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.
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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.
(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
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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).
For Contracts issued on or after the later of November 3, 1997, or the
date on which state insurance authorities approve the corresponding Contract
modifications, if the Designated Annuitant dies prior to the first day of the
calendar month following his or her 75th birthday, the dollar amount of the
Death Benefit will be the greatest of: (1) the Contract Value; (2) the sum of
all Purchase Payments, less an adjustment for amounts surrendered; or (3) the
Contract Value as of the most recent five year Contract Anniversary occurring
prior to the Designated Annuitant's 75th birthday, less an adjustment for
amounts surrendered, plus Purchase Payments received after that five year
Contract Anniversary Date.
The adjustment for amounts surrendered will reduce items (2) and (3) in
the same proportion that the Contract Value was reduced on the date of the
partial surrender.
For Contracts issued prior to November 3, 1997 and for Contracts issued
in those states where contractual changes outlining the Death Benefit described
above have not been approved, 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. Please note that insurance
regulations in the States of New York and North Carolina do not permit the Death
Benefit as described in the paragraph. Therefore, for those Contracts issued
prior to October 15, 1997 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 previously surrendered; or (2) 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 Death Benefit will be the greater
of; (1) the sum of all Purchase Payments, less any amounts previously
surrendered; or (2) Contract Value.
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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 after the Designated Annuitant's 75th birthday, or if the Designated
Annuitant dies after the first day of the calendar month after his or her 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.
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
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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
(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.
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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 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.
PUERTO RICO
Under the Puerto Rico tax code, Distributions prior to Annuitization
are treated as nontaxable return of principal until the principal is fully
recovered; thereafter, all Distributions are fully taxable. Distributions after
Annuitization are treated as part taxable income and part nontaxable return of
principal. The amount excluded
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from gross income after Annuitization is equal to the amount of the Distribution
in excess of 3% of the total Purchase Payments paid, until an amount equal to
the Purchase Payments paid has been excluded; thereafter, the entire
Distribution is included in gross income. Puerto Rico does not impose an early
withdrawal penalty tax. Generally, Puerto Rico does not require income tax to be
withheld from Distributions of income. A personal tax advisor should be
consulted.
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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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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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 standarized "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 has been
made available through the Nationwide Multi-Flex Variable Account ("Separate
Account"), if the underlying Mutual Fund option has not been available for one
of the prescribed period. 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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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; and will be for at
least the most recent one, five and ten year period (or for a period covering
the time since the underlying Mutual Fund's inception). 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>
10 Years to
12/31/96 (or date
Fund was first Date Fund
available through Available through
SUB-ACCOUNT OPTIONS 1 Year to 5 Years to the Separate the Separate
12/31/96 12/31/96 Account Account
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
American Century Variable -0.58% 0.92% 3.03% 08-15-91
Portfolios, Inc.- American
Century VP Advantage
- ---------------------------------------------------------------------------------------------------------------------
American Century Variable -13.46% 1.48% 4.94% 02-14-91
Portfolios, Inc.- American
Century VP Capital Appreciation
- ---------------------------------------------------------------------------------------------------------------------
Dreyfus Socially Responsible 11.25% N/A 14.56% 05-02-94
Growth Fund
- ---------------------------------------------------------------------------------------------------------------------
Dreyfus Stock Index Fund 12.54% N/A 12.46% 09-20-93
- ---------------------------------------------------------------------------------------------------------------------
Dreyfus Variable Investment -6.55% N/A -3.51% 09-01-95
Fund-Quality Bond Portfolio
- ---------------------------------------------------------------------------------------------------------------------
Dreyfus Variable Investment 6.67% N/A 12.56% 05-02-94
Fund-Small Cap Portfolio
- ---------------------------------------------------------------------------------------------------------------------
Fidelity VIP 4.39% N/A 11.59% 09-20-93
Fund-Equity-Income Portfolio
- ---------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-High Income 4.14% N/A 5.29% 05-02-94
Portfolio
- ---------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers -2.91% 3.43% 4.85% 02-14-91
Management Trust-Balanced
Portfolio
- ---------------------------------------------------------------------------------------------------------------------
NSAT-Government Bond Fund -6.21% 2.47% 4.49% 12-07-82
- ---------------------------------------------------------------------------------------------------------------------
NSAT-Money Market Fund -4.66% -0.61% 1.65% 12-07-82
- ---------------------------------------------------------------------------------------------------------------------
NSAT-Total Return Fund 11.85% 9.31% 8.75% 12-21-82
- ---------------------------------------------------------------------------------------------------------------------
Strong Opportunity Fund II, 8.21% N/A 7.44% 09-01-95
Inc.
- ---------------------------------------------------------------------------------------------------------------------
Templeton Variable Products 14.02% N/A 8.18% 05-02-94
Series Fund-Templeton
International Fund Class 1
======================================================================================================================
</TABLE>
* AIM Variable Insurance Funds, Inc.-AIM V.I. Capital Appreciation Fund, AIM
Variable Insurance Fund, Inc.-AIM V.I. International Equity Fund, American
Century Variable Portfolios, Inc.-American Century VP Income & Growth,
Dreyfus Variable Investment Fund-Capital Appreciation Portfolio, NSAT
Nationwide High Income Bond Portfolio and Janus Aspen Series-International
Growth Portfolio were added to the Variable Account effective November 3,
1997, and therefore such investment options are not included in the
"UNDERLYING MUTUAL FUND PERFORMANCE SUMMARY."
39
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<PAGE> 42
UNDERLYING MUTUAL FUND PERFORMANCE SUMMARY*
NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
SUB-ACCOUNT OPTIONS 10 years or Date
1 Year to 5 Years to of Fund's Date Fund
12/31/96 12/31/96 Inception 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 Opportunity Fund II, 16.31% N/A 17.14% 09-01-95
Inc.
- --------------------------------------------------------------------------------------------------------------------
Templeton Variable Products 22.12% N/A 13.50% 05-01-92
Series Fund-Templeton
International Fund Class 1
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
* AIM Variable Insurance Funds, Inc.-AIM V.I. Capital Appreciation Fund, AIM
Variable Insurance Fund, Inc.-AIM V.I. International Equity Fund, American
Century Variable Portfolios, Inc.-American Century VP Income & Growth,
Dreyfus Variable Investment Fund-Capital Appreciation Portfolio, NSAT
Nationwide High Income Bond Portfolio and Janus Aspen Series-International
Growth Portfolio were added to the Variable Account effective November 3,
1997, and therefore such investment options are not included in the
"UNDERLYING MUTUAL FUND PERFORMANCE SUMMARY."
** 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 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
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<PAGE> 44
APPENDIX A
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.
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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%.
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<PAGE> 46
APPENDIX B
PARTICIPATING UNDERLYING MUTUAL FUNDS
BELOW ARE THE INVESTMENT OBJECTIVES OF EACH UNDERLYING MUTUAL FUND AVAILABLE
THROUGH THE VARIABLE ACCOUNT. THERE CAN BE NO ASSURANCE THAT THE INVESTMENT
OBJECTIVES WILL BE ACHIEVED.
AIM VARIABLE INSURANCE FUNDS, INC.
AIM Variable Insurance Funds, Inc. is an open-end, series, management
investment company. Shares of the Funds are currently offered to insurance
company separate accounts to fund benefits of variable annuity contracts and
variable life insurance policies. AIM Advisors, Inc. ("AIM"), serves as
investment adviser for each Fund.
- AIM V.I. CAPITAL APPRECIATION FUND
Investment Objective: Seeks to provide capital appreciation through
investments in common stocks, with emphasis on medium-sized and smaller
emerging growth companies. The Fund's portfolio is primarily comprised of
securities of two basic categories of companies: (1) "core" companies,
which AIM considers to have experienced above-average and consistent
long-term growth in earnings and to have excellent prospects for
outstanding future growth; and (2) "earnings acceleration" companies
which AIM believes are currently enjoying a dramatic increase in profits.
Any income received from such securities held by the Fund is incidental.
- AIM V.I. INTERNATIONAL EQUITY FUND
Investment Objective: Seeks to provide long-term growth of capital by
investing in international equity securities, the issuers of which are
considered by AIM to have strong earnings momentum. It is expected that
the Fund's portfolio when fully invested, will generally be comprised of
two basic categories of foreign companies: (1) "core" companies which AIM
considers to have experienced consistent long-term growth, and (2)
companies that AIM believes are currently experiencing a greater than
anticipated increase in earnings. Any income realized by the Fund will be
incidental and will not be an important criterion in the selection of
portfolio securites.
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC., A MEMBER OF THE AMERICAN CENTURYSM
FAMILY OF INVESTMENTS
American Century Variable Portfolios, Inc. was organized as a Maryland
corporation in 1987. It is a diversified, open-end management investment
company, which offers its shares only as investment vehicles for variable
annuity and variable life insurance products of insurance companies. American
Century Variable Portfolios, Inc. is managed by American Century Investment
Management, Inc.
- AMERICAN CENTURY VP 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
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.
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<PAGE> 47
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.)
- AMERICAN CENTURY VP INCOME & GROWTH
Investment Objective: Dividend growth, current income and capital
appreciation. The Fund seeks to achieve its investment objective by
investing primarily in common stocks. The investment manager constructs
the portfolio to match the risk characteristics of the S&P 500 Stock
Index and then optimizes each portfolio to achieve the desired balance of
risk and return potential. This includes targeting a dividend yield that
exceeds that of the S&P 500. Such a management technique, known as
portfolio optimization, may cause the Fund to be more heavily invested in
some industries than in others. However, the Fund may not invest more
than 25% of its total assets in companies whose principal business
activities are in the same industry.
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. It was organized as an unincorporated business trust under
the laws of the Commonwealth of Massachusetts on October 29, 1986 and commenced
operations on August 31, 1990. Dreyfus serves as the investment manager.
- CAPITAL APPRECIATION PORTFOLIO
Investment Objective: The Long-term capital growth consistent with the
preservation of capital; current income is a secondary objective. This
Portfolio invests primarily in the common stocks of domestic and foreign
issuers.
- 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
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<PAGE> 48
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 ("Fidelity VIP") is an
open-end, diversified, management investment company organized as a
Massachusetts business trust on November 13, 1981. Shares of Fidelity VIP are
purchased by insurance companies to fund benefits under variable insurance and
annuity policies. Fidelity Management & Research Company ("FMR") is the manager
for Fidelity VIP and its portfolios.
- VIP FUND EQUITY-INCOME PORTFOLIO
Investment Objective: Reasonable income by investing primarily in
income-producing equity securities. In choosing these securities FMR will
also 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.
- VIP FUND HIGH INCOME PORTFOLIO
Investment Objective: High level of current income by investing primarily
in high-risk, lower-rated, high-yielding, fixed-income securities, while
also considering growth of capital. FMR will seek high current income
normally by investing the Portfolio's assets as follows:
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.
JANUS ASPEN SERIES
The Janus Aspen Series is an open-end, management investment company
whose shares are offered in connection with investment in and payments under
variable annuity contracts and variable life insurance policies, as well as
certain qualified retirement plans. Janus Capital Corporation serves as
investment adviser to each Portfolio.
- INTERNATIONAL GROWTH PORTFOLIO
Investment Objective: Seeks long-term growth of capital. It pursues this
objective primarily through investments in common stocks of issuers
located outside the United States. The Portfolio has the flexibility to
invest in a worldwide basis in companies and other organizations of any
size, regardless of country of organization or place of principal
business activity. The Portfolio normally invests at least 65% of its
total assets in securities of issuers from at least five different
countries, excluding the United States. Although the Portfolio intends to
invest substantially all of its assets in issuers located outside the
United States, it may at times invest in U.S. issuers, and it may at
times invest all of its assets in fewer than five countries or even in a
single country.
NATIONWIDE SEPARATE ACCOUNT TRUST
Nationwide Separate Account Trust ("NSAT") is a diversified, open-end
management investment company created under the laws of Massachusetts. NSAT
offers shares in the mutual funds listed below, each with its own investment
objectives. Shares of NSAT will be sold primarily to life insurance company
separate accounts to fund the benefits under variable life insurance policies or
variable annuity contracts. The assets of
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<PAGE> 49
NSAT are managed by Nationwide Advisory Services, Inc., a wholly-owned
subsidiary of Nationwide Life Insurance Company.
- GOVERNMENT BOND FUND
Investment Objective: As high a level of income as is consistent with
the preservation of capital by investing in a diversified portfolio of
securities issued or backed by the U.S. Government, its agencies or
instrumentalities.
- MONEY MARKET FUND
Investment Objective: 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.
- TOTAL RETURN FUND
Investment Objective: Capital growth by investing in common stocks of
companies that NAS believes will have above-average earnings or otherwise
provide investors with above-average potential for capital appreciation.
To maximize this potential NAS may also utilize, from time to time,
securities convertible into common stocks, warrants and options to
purchase such stocks.
- NATIONWIDE HIGH INCOME BOND FUND
Investment Objective: Seeks to provide high current income by investing
primarily in a professionally managed, diversified portfolio of fixed
income securities. To meet its objective, the Fund intends to invest at
least 65% of its assets in lower-rated fixed income securities such as
preferred stocks, bonds, debentures, notes, equipment lease certificates
and equipment trust certificates which are rated BBB or lower by S&P or
Fitch Investors Service or Baa or lower by Moody's (or if not rated, are
determined by the Fund's subadviser to be of a comparable quality). Such
investments are commonly referred to as "junk bonds." For a further
discussion of lower-rated securities, please see the "High Yield
Securities" section of the Fund's prospectus. Federated Investment
Counseling serves as the Fund's subadviser.
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
Neuberger & Berman Advisers Management Trust ("N&B AMT") 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 ("N&B Management").
- BALANCED PORTFOLIO
Investment Objective: 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. N&B
Management 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 N&B Management'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 OPPORTUNITY FUND II, INC. (FORMERLY "STRONG SPECIAL FUND II, INC.")
Strong Opportunity Fund II, Inc. is a diversified, open-end management
company incorporated in Wisconsin. Shares of the Fund 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") serves as investment advisor for the Fund.
Investment Objective: Capital appreciation through investments in a
diversified portfolio of equity securities.
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<PAGE> 50
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> 51
STATEMENT OF ADDITIONAL INFORMATION
NOVEMBER 3, 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 November 3, 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
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<PAGE> 52
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, or if
applicable, an Actuarial Risk 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 has been offered through the separate account or
has been in existence (as applicable), when one of the prescribed periods does
not correspond with the underlying Mutual Fund options availability or
inception. 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> 53
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 10 Years to 12/31/96 Date Fund
(or date Fund was first Available through
1 Year to 5 Years to available through the Separate
12/31/96 12/31/96 the Separate Account) Account
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
American Century Variable -0.58% 0.92% 3.03% 08-15-91
Portfolios, Inc.- American
Century VP Advantage
- -----------------------------------------------------------------------------------------------------------------------
American Century Variable -13.46% 1.48% 4.94% 02-14-91
Portfolios, Inc.- American
Century VP Capital Appreciation
- -----------------------------------------------------------------------------------------------------------------------
Dreyfus Socially Responsible 11.25% N/A 14.56% 05-02-94
Growth Fund
- -----------------------------------------------------------------------------------------------------------------------
Dreyfus Stock Index Fund 12.54% N/A 12.46% 09-20-93
- -----------------------------------------------------------------------------------------------------------------------
Dreyfus Variable Investment -6.55% N/A -3.51% 09-01-95
Fund-Quality Bond Portfolio
- -----------------------------------------------------------------------------------------------------------------------
Dreyfus Variable Investment 6.67% N/A 12.56% 05-02-94
Fund-Small Cap Portfolio
- -----------------------------------------------------------------------------------------------------------------------
Fidelity VIP 4.39% N/A 11.59% 09-20-93
Fund-Equity-Income Portfolio
- -----------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-High Income 4.14% N/A 5.29% 05-02-94
Portfolio
- -----------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers -2.91% 3.43% 4.58% 02-14-91
Management Trust-Balanced
Portfolio
- -----------------------------------------------------------------------------------------------------------------------
NSAT-Government Bond Fund -6.21% 2.47% 4.49% 12-07-82
- -----------------------------------------------------------------------------------------------------------------------
NSAT-Money Market Fund -4.56% -0.61% 1.65% 12-07-82
- -----------------------------------------------------------------------------------------------------------------------
NSAT-Total Return Fund 11.85% 9.31% 8.75% 12-21-82
- -----------------------------------------------------------------------------------------------------------------------
Strong Opportunity Fund II, 8.21% N/A 7.44% 09-01-95
Inc.
- -----------------------------------------------------------------------------------------------------------------------
Templeton Variable Products 14.02% N/A 8.18% 05-02-94
Series Fund-Templeton
International Fund Class 1
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
* AIM Variable Insurance Funds, Inc.-AIM V.I. Capital Appreciation Fund, AIM
Variable Insurance Fund, Inc.-AIM V.I. International Equity Fund, American
Century Variable Portfolios, Inc.-American Century VP Income & Growth,
Dreyfus Variable Investment Fund-Capital Appreciation Portfolio, NSAT
Nationwide High Income Bond Portfolio and Janus Aspen Series-International
Growth Portfolio were added to the Variable Account effective November 3,
1997, and therefore such investment options are not included in the
"UNDERLYING MUTUAL FUND PERFORMANCE SUMMARY."
3
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<PAGE> 54
UNDERLYING MUTUAL FUND PERFORMANCE SUMMARY*
NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
======================================================================================================================
SUB-ACCOUNT OPTIONS 10 Years or Date
1 Year to 5 Years to of Fund's Date Fund
12/31/96 12/31/96 Inception Effective
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <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 Opportunity Fund II, 16.31% N/A 17.14% 09-01-95
Inc.
- ---------------------------------------------------------------------------------------------------------------------
Templeton Variable Products 22.12% N/A 13.50% 05-01-92
Series Fund-Templeton
International Fund Class 1
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* AIM Variable Insurance Funds, Inc.-AIM V.I. Capital Appreciation Fund, AIM
Variable Insurance Fund, Inc.-AIM V.I. International Equity Fund, American
Century Variable Portfolios, Inc.-American Century VP Income & Growth,
Dreyfus Variable Investment Fund-Capital Appreciation Portfolio, NSAT
Nationwide High Income Bond Portfolio and Janus Aspen Series-International
Growth Portfolio were added to the Variable Account effective November 3,
1997, and therefore such investment options are not included in the
"UNDERLYING MUTUAL FUND PERFORMANCE SUMMARY."
**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
4
54 of 115
<PAGE> 55
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.
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
55 of 115
<PAGE> 56
<PAGE> 1
================================================================================
Independent Auditors' Report
----------------------------
The Board of Directors of Nationwide Life Insurance Company and
Contract Owners of Nationwide Multi-Flex Variable Account:
We have audited the accompanying statement of assets, liabilities and
contract owners' equity of Nationwide Multi-Flex Variable Account as of December
31, 1996, and the related statements of operations and changes in contract
owners' equity and schedules of changes in unit value for each of the years in
the three year period then ended. These financial statements and schedules of
changes in unit value are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules of changes in unit value based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedules of
changes in unit value are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures include confirmation of securities
owned as of December 31, 1996, by correspondence with the transfer agents of the
underlying mutual funds. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and schedules of changes in unit
value referred to above present fairly, in all material respects, the financial
position of Nationwide Multi-Flex Variable Account as of December 31, 1996, and
the results of its operations and its changes in contract owners' equity and the
schedules of changes in unit value for each of the years in the three year
period then ended in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Columbus, Ohio
February 7, 1997
================================================================================
<PAGE> 2
<TABLE>
<CAPTION>
NATIONWIDE MULTI-FLEX VARIABLE ACCOUNT
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY
December 31, 1996
ASSETS:
Investments at market value:
<S> <C>
The Dreyfus Socially Responsible Growth Fund, Inc. (DrySRGro)
341,534 shares (cost $6,389,466) ......................... $ 6,861,416
Dreyfus Stock Index Fund (DryStkIx)
1,084,344 shares (cost $17,891,133) ...................... 21,990,497
Dreyfus VIF - Quality Bond Portfolio (DryQualBd)
200,080 shares (cost $2,286,692) ......................... 2,300,920
Dreyfus VIF - Small Cap Portfolio (DrySmCap)
621,611 shares (cost $29,305,097) ........................ 32,373,482
Fidelity VIP - Equity-Income Portfolio (FidVIPEI)
3,730,625 shares (cost $63,131,778) ...................... 78,455,038
Fidelity VIP - High Income Portfolio (FidVIPHI)
693,430 shares (cost $8,123,518) ......................... 8,681,750
Nationwide SAT - Capital Appreciation Fund (NSATCapAp)
2,967,603 shares (cost $35,468,907) ...................... 48,312,570
Nationwide SAT - Government Bond Fund (NSATGvtBd)
11,788,842 shares (cost $132,141,892) .................... 130,148,820
Nationwide SAT - Money Market Fund (NSATMyMkt)
46,229,642 shares (cost $46,229,642) ..................... 46,229,642
Nationwide SAT - Total Return Fund (NSATTotRe)
33,938,583 shares (cost $330,436,923) .................... 450,364,994
Neuberger &Berman - Balanced Portfolio (NBAMTBal)
2,413,487 shares (cost $36,425,096) ...................... 38,422,710
Strong Special Fund II, Inc. (StSpec2)
281,216 shares (cost $5,001,628) ......................... 5,410,598
TCI Portfolios - TCI Advantage (TCIAdv)
1,648,442 shares (cost $9,131,066) ....................... 10,368,698
TCI Portfolios - TCI Growth (TCIGro)
4,380,090 shares (cost $40,968,483) ...................... 44,852,127
Templeton VPS - Templeton International Fund (TemIntFd)
837,949 shares (cost $12,758,410) ........................ 15,418,263
------------
Total investments ..................................... 940,191,525
Accounts receivable ............................................ 42,036
------------
Total assets .......................................... 940,233,561
ACCOUNTS PAYABLE .................................................. 51,079
------------
CONTRACT OWNERS' EQUITY ........................................... $940,182,482
============
</TABLE>
<PAGE> 3
<TABLE>
Contract owners' equity represented by:
<CAPTION>
UNITS UNIT VALUE
----- -----------
Contracts in accumulation phase:
<S> <C> <C> <C>
The Dreyfus Socially Responsible Growth Fund, Inc.:
Tax qualified ............................................. 399,889 $ 15.953248 $ 6,379,528
Non-tax qualified ......................................... 30,211 15.953248 481,964
Dreyfus Stock Index Fund:
Tax qualified ............................................. 995,299 16.698256 16,619,757
Non-tax qualified ......................................... 321,661 16.698256 5,371,178
Dreyfus VIF - Quality Bond Portfolio:
Tax qualified ............................................. 202,913 10.679640 2,167,038
Non-tax qualified ......................................... 13,559 10.679640 144,805
Dreyfus VIF - Small Cap Portfolio:
Tax qualified ............................................. 1,991,389 15.245571 30,359,862
Non-tax qualified ......................................... 132,109 15.245571 2,014,077
Fidelity VIP - Equity-Income Portfolio:
Tax qualified ............................................. 3,685,628 16.255386 59,911,306
Non-tax qualified ......................................... 1,140,873 16.255386 18,545,331
Fidelity VIP - High Income Portfolio:
Tax qualified ............................................. 621,493 13.256841 8,239,034
Non-tax qualified ......................................... 33,405 13.256841 442,845
Nationwide SAT - Capital Appreciation Fund:
Tax qualified ............................................. 1,905,248 17.979967 34,256,296
Non-tax qualified ......................................... 779,474 17.979967 14,014,917
Nationwide SAT - Government Bond Fund:
Tax qualified ............................................. 2,948,795 30.092479 88,736,552
Non-tax qualified ......................................... 1,371,551 30.103580 41,288,595
Nationwide SAT - Money Market Fund:
Tax qualified ............................................. 1,617,637 20.329483 32,885,724
Non-tax qualified ......................................... 600,726 22.088348 13,269,045
Nationwide SAT - Total Return Fund:
Tax qualified ............................................. 5,119,908 62.170693 318,308,228
Non-tax qualified ......................................... 2,180,633 60.382482 131,672,033
Neuberger & Berman - Balanced Portfolio:
Tax qualified ............................................. 1,766,421 15.563120 27,491,022
Non-tax qualified ......................................... 702,451 15.563120 10,932,329
Strong Special Fund II, Inc.:
Tax qualified ............................................. 408,289 12.193238 4,978,365
Non-tax qualified ......................................... 35,456 12.193238 432,323
TCI Portfolios - TCI Advantage:
Tax qualified ............................................. 511,115 14.055040 7,183,742
Non-tax qualified ......................................... 199,799 14.055040 2,808,183
Initial Funding by Depositor (note 1a) .................... 25,000 15.079515 376,988
TCI Portfolios - TCI Growth:
Tax qualified ............................................. 1,991,010 15.531281 30,922,936
Non-tax qualified ......................................... 896,863 15.531281 13,929,431
Templeton VPS - Templeton International Fund:
Tax qualified ............................................. 1,044,821 13.869569 14,491,217
Non-tax qualified ......................................... 66,863 13.869569 927,361
============ ============
Reserves for annuity contracts in payout phase:
Tax qualified ............................................. 338,428
Non-tax qualified ......................................... 262,042
------------
$940,182,482
============
</TABLE>
See accompanying notes to financial statements.
================================================================================
<PAGE> 4
<TABLE>
<CAPTION>
NATIONWIDE MULTI-FLEX VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested capital gains and dividends ........................... $ 54,005,529 46,393,801 29,703,314
Mortality, expense and administration charges (note 2) ........... (11,142,442) (9,125,823) (8,122,349)
------------- ------------- -------------
Net investment activity ....................................... 42,863,087 37,267,978 21,580,965
------------- ------------- -------------
Proceeds from mutual fund shares sold ............................ 74,149,404 88,238,390 76,838,985
Cost of mutual fund shares sold .................................. (63,374,669) (75,818,878) (73,196,125)
------------- ------------- -------------
Realized gain (loss) on investments ........................... 10,774,735 12,419,512 3,642,860
Change in unrealized gain (loss) on investments .................. 53,497,947 96,906,383 (34,476,283)
------------- ------------- -------------
Net gain (loss) on investments ................................ 64,272,682 109,325,895 (30,833,423)
------------- ------------- -------------
Net increase (decrease) in contract owners'
equity resulting from operations ........................ 107,135,769 146,593,873 (9,252,458)
------------- ------------- -------------
EQUITY TRANSACTIONS:
Purchase payments received from contract owners .................. 133,336,058 83,073,876 116,273,060
Redemptions ...................................................... (74,091,271) (77,469,618) (60,979,679)
Annuity benefits ................................................. (88,867) (70,923) (64,720)
Annual contract maintenance charge (note 2) ...................... (1,406,646) (1,225,487) (1,015,180)
Contingent deferred sales charges (note 2) ....................... (829,238) (817,609) (948,537)
Adjustments to maintain reserves ................................. 38,880 (11,132) (9,850)
------------- ------------- -------------
Net equity transactions .................................... 56,958,916 3,479,107 53,255,094
------------- ------------- -------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ............................... 164,094,685 150,072,980 44,002,636
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ......................... 776,087,797 626,014,817 582,012,181
------------- ------------- -------------
CONTRACT OWNERS' EQUITY END OF PERIOD ............................... $ 940,182,482 776,087,797 626,014,817
============= ============= =============
</TABLE>
See accompanying notes to financial statements.
================================================================================
<PAGE> 5
================================================================================
NATIONWIDE MULTI-FLEX VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Nature of Operations
The Nationwide Multi-Flex Variable Account (the Account) was established
pursuant to a resolution of the Board of Directors of Nationwide Life Insurance
Company (the Company) on October 7, 1981. The Account has been registered as a
unit investment trust under the Investment Company Act of 1940. On August 21,
1991, the Company (the Depositor) transferred to the Account 50,000 shares of
the TCI Portfolios, Inc. - TCI Advantage fund for which the Account was credited
with 25,000 accumulation units. The value of the accumulation units purchased by
the Company on August 21, 1991 was $250,000.
The Company offers tax qualified and non-tax qualified Individual Deferred
Variable Annuity Contracts through the Account. The primary distributions for
the contracts is through Company Agents and an affiliated sales organization;
however, other distributors may be utilized.
(b) The Contracts
Only contracts without a front-end sales charge, but with a contingent
deferred sales charge and certain other fees, are offered for purchase. See note
2 for a discussion of contract expenses. With certain exceptions, contract
owners in either the accumulation or payout phase may invest in any of the
following:
The Dreyfus Socially Responsible Growth Fund, Inc. (DrySRGro)
Dreyfus Stock Index Fund (DryStkIx)
Portfolios of the Dreyfus Variable Investment Fund (Dreyfus VIF);
Dreyfus VIF - Quality Bond Portfolio (DryQualBd)
Dreyfus VIF - Small Cap Portfolio (DrySmCap)
Portfolios of the Fidelity Variable Insurance Products Fund
(Fidelity VIP);
Fidelity VIP - Equity-Income Portfolio (FidVIPEI)
Fidelity VIP - High Income Portfolio (FidVIPHI)
Funds of the Nationwide Separate Account Trust (Nationwide SAT)
(managed for a fee by an affiliated investment advisor);
Nationwide SAT - Capital Appreciation Fund (NSATCapAp)
Nationwide SAT - Government Bond Fund (NSATGvtBd)
Nationwide SAT - Money Market Fund (NSATMyMkt)
Nationwide SAT - Total Return Fund (NSATTotRe)
Portfolio of the Neuberger & Berman Advisers Management Trust
(Neuberger &Berman);
Neuberger & Berman - Balanced Portfolio (NBAMTBal)
Strong Special Fund II, Inc. (StSpec2)
Portfolios of the TCIPortfolios, Inc. (TCI Portfolios);
TCIPortfolios - TCI Advantage (TCIAdv)
TCIPortfolios - TCI Growth (TCIGro)
Portfolio of the Templeton Variable Products Series Fund
(Templeton VPS);
Templeton VPS - Templeton International Fund (TemIntFd)
<PAGE> 6
At December 31, 1996, contract owners have invested in all of the above
funds. The contract owners' equity is affected by the investment results of each
fund, equity transactions by contract owners and certain contract expenses (see
note 2). The accompanying financial statements include only contract owners'
purchase payments pertaining to the variable portions of their contracts and
exclude any purchase payments for fixed dollar benefits, the latter being
included in the accounts of the Company.
(c) Security Valuation, Transactions and Related Investment Income
The market value of the underlying mutual funds is based on the closing
net asset value per share at December 31, 1996. The cost of investments sold is
determined on a specific identification basis. Investment transactions are
accounted for on the trade date (date the order to buy or sell is executed) and
dividend income is recorded on the ex-dividend date.
(d) Federal Income Taxes
Operations of the Account form a part of, and are taxed with, operations
of the Company which is taxed as a life insurance company under the Internal
Revenue Code.
The Company does not provide for income taxes within the Account. Taxes
are the responsibility of the contract owner upon termination or withdrawal.
(e) Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles may require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities, if any, at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
(f) Reclassifications
Certain 1995 and 1994 amounts have been reclassified to conform with the
current year presentation.
(2) EXPENSES
The Company does not deduct a sales charge from purchase payments received
from the contract owners. However, if any part of the contract value of such
contracts is surrendered, the Company will, with certain exceptions, deduct from
a contract owner's contract value a contingent deferred sales charge. For
contracts issued prior to February 1, 1989, the contingent deferred sales charge
will be equal to 5% of the lesser of the total of all purchase payments made
within 96 months prior to the date of the request for surrender or the amount
surrendered. For contracts issued on or after February 1, 1989, the Company will
deduct a contingent deferred sales charge not to exceed 7% of the lesser of
purchase payments or the amount surrendered, such charge declining 1% per year,
to 0%, after the purchase payment has been held in the contract for 84 months.
No sales charges are deducted on redemptions used to purchase units in the fixed
investment options of the Company.
The following contract charges are deducted by the Company: (a) an annual
contract maintenance charge of $30, with certain exceptions, which is satisfied
by surrendering units; and (b) for contracts issued prior to February 1, 1989, a
charge for mortality and expense risk assessed through the daily unit value
calculation equal to an annual rate of 0.80% and 0.50%, respectively; for
contracts issued on or after February 1, 1989, a mortality risk charge, an
expense risk charge and an administration charge assessed through the daily unit
value calculation equal to an annual rate of 0.80%, 0.45% and 0.05%,
respectively. No charges were deducted from the initial funding, or from
earnings thereon.
<PAGE> 7
(3) SHEDULE I
Schedule I presents the components of the change in the unit values, which
are the basis for contract owners' equity. This schedule is presented for each
series, as applicable, in the following format:
- Beginning unit value - Jan. 1
- Reinvested capital gains and dividends
(This amount reflects the increase in the unit value due to
capital gains and dividend distributions from the underlying
mutual funds.)
- Unrealized gain (loss)
(This amount reflects the increase (decrease) in the unit value
resulting from the market appreciation (depreciation) of the
underlying mutual funds.)
- Contract charges
(This amount reflects the decrease in the unit value due to the
mortality risk charge, expenses risk charge and administration
charge discussed in note 2.)
- Ending unit value - Dec. 31
- Percentage increase (decrease) in unit value.
For contracts in the payout phase, an assumed investment return of 3.5%,
used in the calculation of the annuity benefit payment amount, results in a
corresponding reduction in the components of the unit values as shown in
Schedule I.
================================================================================
<PAGE> 8
<TABLE>
========================================================================================================================
SCHEDULE I
NATIONWIDE MULTI-FLEX VARIABLE ACCOUNT
TAX QUALIFIED and NON-TAX QUALIFIED
SCHEDULES OF CHANGES IN UNIT VALUE
Years Ended December 31, 1996, 1995 and 1994
<CAPTION>
DrySRGro DrySTkix DryQualBd DrySmCap FidVIPEI FidVIPHI
-------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
1996
Beginning unit value - Jan. 1 $13.333625 13.807559 10.493309 13.249127 14.412060 11.779381
- -------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .688836 .595405 .595052 .478471 .664825 1.073991
- -------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 2.122234 2.493107 (.272588) 1.704904 1.377615 .567992
- -------------------------------------------------------------------------------------------------------------------------
Contract charges (.191447) (.197815) (.136133) (.186931) (.199114) (.164523)
- -------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $15.953248 16.698256 10.679640 15.245571 16.255386 13.256841
- -------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 20% 21% 2% 15% 13% 13%
=========================================================================================================================
1995
Beginning unit value - Jan. 1 $10.039093 10.227308 10.000000 10.374796 10.808255 9.895223
- -------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .367042 .366275 .300901 .305817 .845166 .716438
- -------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 3.080069 3.371719 .235955 2.722323 2.923160 1.310923
- -------------------------------------------------------------------------------------------------------------------------
Contract charges (.152579) (.157743) (.043547) (.153809) (.164521) (.143203)
- -------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $13.333625 13.807559 10.493309 13.249127 14.412060 11.779381
- -------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 33% 35% 5%(b) 28% 33% 19%
=========================================================================================================================
1994
Beginning unit value - Jan. 1 $10.000000 10.271065 ** 10.000000 10.227513 10.000000
- -------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .258763 .287154 .168745 .767502 .000000
- -------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (.132737) (.197934) .294439 (.048719) (.018339)
- -------------------------------------------------------------------------------------------------------------------------
Contract charges (.086933) (.132977) (.088388) (.138041) (.086438)
- -------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $10.039093 10.227308 10.374796 10.808255 9.895223
- -------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) (0)%(b) 0% (4)%(b) 6% (1)%(b)
=========================================================================================================================
<CAPTION>
NSATGvtBd NSATGvtBd
NSATCapAP Qual Non-Qual
--------- ---- --------
<S> <C> <C> <C>
1996
Beginning unit value - Jan. 1 14.442619 29.463573 29.474435
- ----------------------------------------------------------------------------------
Reinvested capital gains
and dividends .749106 1.822953 1.823626
- ----------------------------------------------------------------------------------
Unrealized gain (loss) 2.998126 (.811577) (.811863)
- ----------------------------------------------------------------------------------
Contract charges (.209884) (.382470) (.382618)
- ----------------------------------------------------------------------------------
Ending unit value - Dec. 31 17.979967 30.092479 30.103580
- ----------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 24% 2% 2%
==================================================================================
1995
Beginning unit value - Jan. 1 11.311683 25.138302 25.147577
- ----------------------------------------------------------------------------------
Reinvested capital gains
and dividends .642190 1.778825 1.779480
- ----------------------------------------------------------------------------------
Unrealized gain (loss) 2.653706 2.904595 2.905666
- ----------------------------------------------------------------------------------
Contract charges (.164960) (.358149) (.358288)
- ----------------------------------------------------------------------------------
Ending unit value - Dec. 31 14.442619 29.463573 29.474435
- ----------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 28% 17% 17%
==================================================================================
1994
Beginning unit value - Jan. 1 11.564256 26.318797 26.328516
- ----------------------------------------------------------------------------------
Reinvested capital gains
and dividends .182737 1.651042 1.651652
- ----------------------------------------------------------------------------------
Unrealized gain (loss) (.286833) (2.499476) (2.500401)
- ----------------------------------------------------------------------------------
Contract charges (.148477) (.332061) (.332190)
- ----------------------------------------------------------------------------------
Ending unit value - Dec. 31 11.311683 25.138302 25.147577
- ----------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) (2)% (4)% (4)%
===================================================================================
<FN>
* An annualized rate of return cannot be determined as:
(a)Contract charges do not include the annual contract maintenance charge discussed in note 2; and
(b)This investment option was not being utilized
for the entire year indicated.
** This investment option was not being utilized or was not available.
</TABLE>
<PAGE> 9
<TABLE>
SCHEDULE I, CONTINUED
NATIONWIDE MULTI-FLEX VARIABLE ACCOUNT
TAX QUALIFIED and NON-TAX QUALIFIED
SCHEDULES OF CHANGES IN UNIT VALUE
Years Ended December 31, 1996, 1995 and 1994
<CAPTION>
NSATMyMkt NSATMyMkt NSATTotRe NSATTotRe
Qual Non-Qual Qual Non-Qual NBAMTBal StSpec2
---- -------- ---- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
1996
Beginning unit value - Jan. 1 $19.595876 21.291272 51.701438 50.214359 14.753402 10.456863
- ---------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .996061 1.082246 3.444695 3.345616 2.260284 .491408
- ---------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .000000 .000000 7.759641 7.536444 (1.253279) 1.391802
- ---------------------------------------------------------------------------------------------------------------------------
Contract charges (.262454) (.285170) (.735081) (.713937) (.197287) (.146835)
- ---------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $20.329483 22.088348 62.170693 60.382482 15.563120 12.193238
- ---------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 4% 4% 20% 20% 5% 17%
===========================================================================================================================
1995
Beginning unit value - Jan. 1 $18.790546 20.416267 40.575816 39.408735 12.077573 10.000000
- ---------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 1.056381 1.147773 4.020137 3.904506 .307323 .046668
- ---------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .000000 .000000 7.711672 7.489864 2.548627 .453424
- ---------------------------------------------------------------------------------------------------------------------------
Contract charges (.251051) (.272768) (.606187) (.588746) (.180121) (.043229)
- ---------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $19.595876 21.291272 51.701438 50.214359 14.753402 10.456863
- ---------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 4% 4% 27% 27% 22% 5%(b)
===========================================================================================================================
1994
Beginning unit value - Jan. 1 $18.325918 19.911440 40.671816 39.501981 12.661508 **
- ---------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .706658 .767804 2.052197 1.993171 .493737
- ---------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .000000 .000000 (1.612762) (1.566374) (.917170)
- ---------------------------------------------------------------------------------------------------------------------------
Contract charges (.242030) (.262977) (.535435) (.520043) (.160502)
- ---------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $18.790546 20.416267 40.575816 39.408735 12.077573
- ---------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 3% 3% 0% 0% (5)%
===========================================================================================================================
<CAPTION>
TCIAdv TCIGro TemintFd TCIAdv+
------ ------ -------- -------
<S> <C> <C> <C> <C>
1996
Beginning unit value - Jan. 1 13.035463 16.447846 11.329203 13.802855
- ------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .938763 1.843419 .231661 .998314
- ------------------------------------------------------------------------------------------
Unrealized gain (loss) .257308 (2.545876) 2.470934 .278346
- ------------------------------------------------------------------------------------------
Contract charges (.176494) (.214108) (.162229) .000000
- ------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 14.055040 15.531281 13.869569 15.079515
- ------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 8% (6)% 22% 9%
==========================================================================================
1995
Beginning unit value - Jan. 1 11.312248 12.711014 9.913613 11.822996
- ------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .409891 .014626 .112246 .431938
- ------------------------------------------------------------------------------------------
Unrealized gain (loss) 1.472626 3.917671 1.440756 1.547921
- ------------------------------------------------------------------------------------------
Contract charges (.159302) (.195465) (.137412) .000000
- ------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 13.035463 16.447846 11.329203 13.802855
- ------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 15% 29% 14% 17%
==========================================================================================
1994
Beginning unit value - Jan. 1 11.343435 13.030369 10.000000 11.701906
- ------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .297949 .001393 .000000 .309969
- ------------------------------------------------------------------------------------------
Unrealized gain (loss) (.181282) (.154144) .001766 (.188879)
- ------------------------------------------------------------------------------------------
Contract charges (.147854) (.166604) (.088153) .000000
- ------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 11.312248 12.711014 9.913613 11.822996
- ------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 0% (2)% (1)%(b) 1%
==========================================================================================
<FN>
* An annualized rate of return cannot be determined as:
(a)Contract charges do not include the annual contract maintenance charge discussed in note 2; and
(b)This investment option was not being utilized for the entire year indicated.
** This investment option was not being utilized or was not available.
+ For Depositor, see note 1a.
See note 3.
</TABLE>
<PAGE> 57
<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> 58
<TABLE>
<CAPTION>
PART C. OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
<S> <C> <C>
(a) To be filed by Financial Statements:
(1) Financial statements and schedule included PAGE
in Prospectus
(Part A):
Condensed Financial Information. 16
(2) Financial statements included 56
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. 56
Statements of Assets, Liabilities 57
and Contract Owners' Equity as of December 31, 1996.
Statements of Operations and Changes 59
in Contract Owners Equity for the years ended
December 31, 1996, 1995, and 1994.
Notes to Financial Statements. 60
Schedules of Changes In Unit Value. 63
Nationwide Life Insurance Company:
Independent Auditors' Report. 65
Consolidated Balance Sheets as of December 31, 1996 66
and 1995.
Consolidated Statements of Income for the years 67
ended December 31, 1996, 1995 and 1994
Consolidated Statements of Shareholder's Equity for the 68
years ended December 31, 1996, 1995 and
1994.
Consolidated Statements of Cash Flows for the years 69
ended December 31, 1996, 1995 and 1994.
Notes to Consolidated Financial Statements. 70
Consolidated Balance Sheets (unaudited) for six months 89
ended June 30, 1997 and 1996
Consolidated Statements of Income (unaudited) for three 90
and six months ended June 30, 1997
Consolidated Statements of Shareholder's Equity (unaudited) 91
for six months ended June 30, 1997 and 1996
Consolidated Statements of Cash Flows (unaudited) 92
for six months ended June 30, 1997 and 1996
Notes to Unaudited Consolidated Financial Statements 93
for six months ended June 30, 1997
Schedule I - Consolidated Summary of Investments - Other 111
Than Investments in Related Parties
Schedule III - Supplementary Insurance Information 112
Schedule IV - Reinsurance 113
Schedule V - Valuation and Qualifying Accounts 114
</TABLE>
94 of 115
<PAGE> 59
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 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.
95 of 115
<PAGE> 60
<TABLE>
<CAPTION>
Item 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
<S> <C> <C>
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
</TABLE>
96 of 115
<PAGE> 61
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS WITH DEPOSITOR
<S> <C> <C>
Arden L. Shisler Director
1356 North Wenger Road
Dalton, OH 44618
Robert L. Stewart Director
88740 Fairview Road
Jewett, OH 43986
Nancy C. Thomas Director
10835 Georgetown Street NE
Louisville, OH 44641
Harold W. Weihl Director
14282 King Road
Bowling Green, OH 43402
Gordon E. McCutchan Executive Vice President,
One Nationwide Plaza Law and Corporate Services
Columbus, OH 43215 and Secretary
Robert A. Oakley Executive Vice President-
One Nationwide Plaza Chief Financial Officer
Columbus, OH 43215
Robert J. Woodward Jr. Executive Vice President
One Nationwide Plaza Chief Investment Officer
Columbus, OH 43215
James E. Brock Senior Vice President -
One Nationwide Plaza Life Company Operations
Columbus, OH 43215
W. Sidney Druen Senior Vice President and General
One Nationwide Plaza Counsel and Assistant Secretary
Columbus, OH 43215
Harvey S. Galloway, Jr. Senior Vice President-Chief Actuary-
One Nationwide Plaza Life, Health and Annuities
Columbus, OH 43215
Richard A. Karas Senior Vice President - Sales -
One Nationwide Plaza Financial Services
Columbus, OH 43215
Michael D. Bleiweiss Vice President-
One Nationwide Plaza Individual Annuity Operations
Columbus, OH 43215
</TABLE>
97 of 115
<PAGE> 62
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS WITH DEPOSITOR
<S> <C> <C>
Matthew S. Easley Vice President -
One Nationwide Plaza Life Marketing and Administration Services
Columbus, OH 43215
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
One Nationwide Plaza Vice President -
Columbus, OH 43215 Product and Market Compliance
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
</TABLE>
98 of 115
<PAGE> 63
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
STATE (SEE ATTACHED
OF ORGANIZATION CHART) UNLESS
COMPANY OTHERWISE PRINCIPAL BUSINESS
INDICATED
<S> <C> <C> <C>
Affiliate Agency, Inc. Delaware Life Insurance Agency
Affiliate Agency of Ohio, Inc. Ohio Life Insurance Agency
Allnations, Inc. Ohio Promotes cooperative insurance
corporations worldwide
American Marine Underwriters, Inc. Florida Underwriting Manager
Auto Direkt Insurance Company Germany Insurance Company
The Beak and Wire Corporation Ohio Radio Tower Joint Venture
California Cash Management Company California Investment Securities Agent
Colonial County Mutual Insurance Texas Insurance Company
Company
Colonial Insurance Company of California Insurance Company
California
Columbus Insurance Brokerage and Germany Insurance Broker
Service GMBH
Companies Agency, Inc. Wisconsin Insurance Broker
Companies Agency Insurance Services California Insurance Broker
of California
Companies Agency of Alabama, Inc. Alabama Insurance Broker
Companies Agency of Idaho, Inc. Idaho Insurance Broker
Companies Agency of Illinois, Inc. Illinois Acts as Collection Agent
for policies placed
through Brokers
Companies Agency of Kentucky, Inc. Kentucky Insurance Broker
Companies Agency of Massachusetts, Massachusetts Insurance Broker
Inc.
Companies Agency of New York, Inc. New York Insurance Broker
Companies Agency of Pennsylvania, Inc. Pennsylvania Insurance Broker
Companies Agency of Phoenix, Inc. Arizona Insurance Broker
Companies Agency of Texas, Inc. Texas Insurance Broker
Companies Annuity Agency of Texas, Texas Insurance Broker
Inc.
Countrywide Services Corporation Delaware Products Liability,
Investigative and Claims
Management Services
Employers Insurance of Wausau Wisconsin Insurance Company
A Mutual Company
</TABLE>
99 of 115
<PAGE> 64
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
STATE (SEE ATTACHED
OF ORGANIZATION CHART) UNLESS
COMPANY OTHERWISE PRINCIPAL BUSINESS
INDICATED
<S> <C> <C> <C>
** Employers Life Insurance Company of Wisconsin Life Insurance Company
Wausau
F & B, Inc. Iowa Insurance Agency
Farmland Mutual Insurance Company Iowa Insurance Company
Financial Horizons Distributors Alabama Life Insurance Agency
Agency of Alabama, Inc.
Financial Horizons Distributors Ohio Life Insurance Agency
Agency of Ohio, Inc.
Financial Horizons Distributors Oklahoma Life Insurance Agency
Agency of Oklahoma, Inc.
Financial Horizons Distributors Texas Life Insurance Agency
Agency of Texas, Inc.
* Financial Horizons Investment Trust Massachusetts Investment Company
Financial Horizons Securities Oklahoma Broker Dealer
Corporation
Gates, McDonald & Company Ohio Cost Control Business
Gates, McDonald & Company of Nevada Nevada Self-Insurance Administration Claims
Examinations and Data Processing Services
Gates, McDonald & Company of New New York Workers Compensation Claims Administration
York, Inc.
Gates, McDonald Health Plus, Inc. Ohio Managed Care Organization
Greater La Crosse Health Plans, Inc. Wisconsin Writes Commercial Health and Medicare
Supplement Insurance
Insurance Intermediaries, Inc. Ohio Insurance Broker and Insurance Agency
Key Health Plan, Inc. California Pre-paid health plans
Landmark Financial Services of New New York Life Insurance Agency
York, Inc.
Leben Direkt Insurance Company Germany Life Insurance Company
Lone Star General Agency, Inc. Texas Insurance Agency
** MRM Investments, Inc. Ohio Owns and operates a Recreational
Ski Facility
** National Casualty Company Michigan Insurance Company
National Casualty Company of America, Great Britain Insurance Company
Ltd.
** National Premium and Benefit Delaware Insurance Administrative Services
Administration Company
** Nationwide Advisory Services, Inc. Ohio Registered Broker-Dealer,
Investment Manager
and Administrator
</TABLE>
100 of 115
<PAGE> 65
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
STATE (SEE ATTACHED
OF ORGANIZATION CHART) UNLESS
COMPANY OTHERWISE PRINCIPAL BUSINESS
INDICATED
<S> <C> <C> <C>
Nationwide Agency, Inc. Ohio Insurance Agency
Nationwide Agribusiness Insurance Iowa Insurance Company
Company
Nationwide Asset Allocation Trust Massachusetts Investment Company
Nationwide Cash Management Company Ohio Investment Securities Agent
Nationwide Communications, Inc. Ohio Radio Broadcasting Business
Nationwide Community Urban Ohio Redevelopment of blighted areas within the
Redevelopment Corporation City of Columbus, Ohio
Nationwide Corporation Ohio Organized for the purpose of acquiring,
holding, encumbering, transferring, or
otherwise disposing of shares, bonds,
and other evidences of indebtedness,
securities, and contracts of other
persons, associations, corporations,
domestic or foreign and to form or
acquire the control of other
corporations
Nationwide Development Company Ohio Owns, leases and manages commercial real
Nationwide Financial Institution Delaware estate 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 Ohio Membership Non-Profit Corporation
Foundation
Nationwide Insurance Golf Charities, Ohio Membership Non-Profit Corporation
Inc.
Nationwide Investing Foundation Michigan Investment Company
* Nationwide Investing Massachusetts Investment Company
Foundation II
Nationwide Investment Services Oklahoma Registered Broker-Dealer in Deferred
Corporation Compensation Market
Nationwide Investors Services, Inc. Ohio Stock Transfer Agent
** Nationwide Life and Annuity Insurance Ohio Life Insurance Company
Company
</TABLE>
101 of 115
<PAGE> 66
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
STATE (SEE ATTACHED
OF ORGANIZATION CHART) UNLESS
COMPANY OTHERWISE PRINCIPAL BUSINESS
INDICATED
<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 Ohio Insurance Company
Company
Nationwide Mutual Insurance Company Ohio Insurance Company
Nationwide Properties, Ltd. Ohio Develops, owns and operates real estate and
real estate investments
Nationwide Property and Casualty Ohio Insurance Company
Insurance Company
Nationwide Realty Investors, Ltd. Ohio Develops, owns and operates real estate and
real estate investments
* Nationwide Separate Account Trust Massachusetts Investment Company
NEA Valuebuilder Investor Services, Delaware Life Insurance Agency
Inc.
NEA Valuebuilder Investor Services of Alabama Life Insurance Agency
Alabama, Inc.
NEA Valuebuilder Investor Services of Arizona Life Insurance Agency
Arizona, Inc.
NEA Valuebuilder Investor Services of 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>
102 of 115
<PAGE> 67
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
STATE (SEE ATTACHED
OF ORGANIZATION CHART) UNLESS
COMPANY OTHERWISE PRINCIPAL BUSINESS
INDICATED
<S> <C> <C> <C>
PEBSCO of Massachusetts Insurance Massachusetts Markets and Administers Deferred Compensation
Agency, Inc. Plans for Public Employees
PEBSCO of Texas, Inc. Texas Markets and Administers Deferred Compensation
Plans for Public Employees
Pension Associates of Wausau, Inc. Wisconsin Pension plan administration, record keeping
and consulting and compensation consulting
Physicians Plus Insurance Corporation Wisconsin Health Maintenance Organization
Public Employees Benefit Services Delaware Marketing and Administration of Deferred
Corporation Employee Compensation Plans for Public
Employees
Public Employees Benefit Services Alabama Markets and Administers Deferred Compensation
Corporation of Alabama Plans for Public Employees
Public Employees Benefit Services Arkansas Markets and Administers Deferred Compensation
Corporation of Arkansas Plans for Public Employees
Public Employees Benefit Services Montana Markets and Administers Deferred Compensation
Corporation of Montana Plans for Public Employees
Public Employees Benefit Services New Mexico Markets and Administers Deferred Compensation
Corporation of New Mexico Plans for Public Employees
Scottsdale Indemnity Company Ohio Insurance Company
Scottsdale Insurance Company Ohio Insurance Company
Scottsdale Surplus Lines Insurance Arizona Excess and Surplus Lines Insurance Company
Company
SVM Sales GmbH, Neckura Insurance Germany Sales support for Neckura Insurance Group
Group
Wausau Business Insurance Company Illinois Insurance Company
Wausau General Insurance Company Illinois Insurance Company
Wausau Insurance Company (U.K.) United Kingdom Insurance and Reinsurance Company
Limited
Wausau International Underwriters California Special Risks, Excess and Surplus Lines
Insurance Underwriting Manager
** Wausau Preferred Health Insurance Wisconsin Insurance and Reinsurance Company
Company
Wausau Service Corporation Wisconsin Holding Company
Wausau Underwriters Insurance Company Wisconsin Insurance Company
** West Coast Life Insurance Company California Life Insurance Company
</TABLE>
103 of 115
<PAGE> 68
<TABLE>
<CAPTION>
NO. VOTING SECURITIES
(SEE ATTACHED CHART) UNLESS
STATE OTHERWISE INDICATED
OF ORGANIZATION
COMPANY PRINCIPAL BUSINESS
<S> <C> <C> <C>
* MFS Variable Account Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* NACo Variable Account Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide DC Variable Account Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide DCVA-II Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Separate Account No. 1 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Multi-Flex Variable Account Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide VA Separate Account-A Ohio Nationwide Life and Annuity Issuer of Annuity Contracts
Separate Account
* Nationwide VA Separate Account-B Ohio Nationwide Life and Annuity Issuer of Annuity Contracts
Separate Account
Nationwide VA Separate Account-C Ohio Nationwide Life and Annuity Issuer of Annuity Contracts
Separate Account
* Nationwide VA Separate Account-Q Ohio Nationwide Life and Annuity Issuer of Annuity Contracts
Separate Account
* Nationwide Variable Account Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Variable Account-II Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Variable Account-3 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Variable Account-4 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Variable Account-5 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Fidelity Advisor Variable Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account Account
* Nationwide Variable Account-6 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Variable Account-8 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Variable Account-9 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide VL Separate Ohio Nationwide Life and Annuity Issuer of Life Insurance
Account-A Separate Account Policies
* Nationwide VL Separate Ohio Nationwide Life and Annuity Issuer of Life Insurance
Account-B Separate Account Policies
* Nationwide VL Separate Ohio Nationwide Life and Annuity Issuer of Life Insurance
Account C Separate Account Policies
* Nationwide VLI Separate Account Ohio Nationwide Life Separate Issuer of Life Insurance
Account Policies
* Nationwide VLI Separate Account-2 Ohio Nationwide Life Separate Issuer of Life Insurance
Account Policies
* Nationwide VLI Separate Account-3 Ohio Nationwide Life Separate Issuer of Life Insurance
Account Policies
* Nationwide VLI Separate Account-4 Ohio Nationwide Life Separate Issuer of Life Insurance
Account Policies
</TABLE>
104 of 115
<PAGE> 69
<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> 70
<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> 71
<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> 72
<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> 73
<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> 74
<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> 75
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
Variable Account-9, Nationwide VA Separate
Account-A, Nationwide VA Separate Account-B,
Nationwide VL Separate Account-C, 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, Nationwide VLI Separate
Account-4, 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, OH 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
107 of 115
<PAGE> 76
<TABLE>
<S> <C>
Robert A. Oakley Executive Vice President - Chief Financial
One Nationwide Plaza Officer and Director
Columbus, OH 43215
Robert J. Woodward, Jr. Executive Vice President - Chief Investment
One Nationwide Plaza 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>
<TABLE>
<S> <C> <C> <C> <C>
(c) NAME OF NET UNDERWRITING COMPENSATION ON
PRINCIPAL DISCOUNTS AND REDEMPTION OR BROKERAGE
UNDERWRITER COMMISSIONS ANNUITIZATION COMMISSIONS COMPENSATION
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
108 of 115
<PAGE> 77
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.
109 of 115
<PAGE> 78
Offered by
Nationwide Life Insurance Company
NATIONWIDE LIFE INSURANCE COMPANY
Nationwide Multi-Flex Variable Account
Individual Deferred Variable Annuity Contract
PROSPECTUS
November 3, 1997
110 of 115
<PAGE> 79
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 3rd day of November, 1997.
NATIONWIDE MULTI-FLEX VARIABLE ACCOUNT
----------------------------------------
(Registrant)
NATIONWIDE LIFE INSURANCE COMPANY
----------------------------------------
(Depositor)
By/s/W. SIDNEY DRUEN
----------------------------------------
W. Sidney Druen
Senior Vice President and General Counsel
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 3rd day
of November, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C>
LEWIS J. ALPHIN Director
- ------------------------------------------
Lewis J. Alphin
KEITH W. ECKEL Director
- ------------------------------------------
Keith W. Eckel
WILLARD J. ENGEL Director
- ------------------------------------------
Willard J. Engel
FRED C. FINNEY Director
- ------------------------------------------
Fred C. Finney
CHARLES L. FUELLGRAF, JR. Director
- ------------------------------------------
Charles L. Fuellgraf, Jr.
JOSEPH J. GASPER President/Chief Operating Officer and Director
- ------------------------------------------
Joseph J. Gasper
HENRY S. HOLLOWAY Chairman of the Board and Director
- -----------------------------------------
Henry S. Holloway
Chairman and Chief Executive Officer - Nationwide
DIMON RICHARD MCFERSON Insurance Enterprise and Director
- ------------------------------------------
Dimon Richard McFerson
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/W. SIDNEY DRUEN
- ------------------------------------------ ------------------------------------------
James F. Patterson W. Sidney Druen
Attorney-in-Fact
ARDEN L. SHISLER Director
- ------------------------------------------
Arden L. Shisler
ROBERT L. STEWART Director
- ------------------------------------------
Robert L. Stewart
Director
NANCY C. THOMAS
- ------------------------------------------
Nancy C. Thomas
HAROLD W. WEIHL Director
- ------------------------------------------
Harold W. Weihl
</TABLE>
115 of 115
<PAGE> 80
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 Variable
Account-9, 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, Mark R. Thresher, 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 22nd day of May, 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>
