<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
'33 Act File No. 33-18422
'40 Act File No. 811-5405
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933
Post-Effective Amendment No. 9 /x/
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 10 /x/
NATIONWIDE VARIABLE ACCOUNT-3
(Exact Name of Registrant)
NATIONWIDE LIFE INSURANCE COMPANY
(Name of Depositor)
ONE NATIONWIDE PLAZA, COLUMBUS, OHIO 43216-6609
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code: (614) 249-7111
GORDON E. MCCUTCHAN, SECRETARY, ONE NATIONWIDE PLAZA, COLUMBUS, OHIO 43216-6609
(Name and Address of Agent for Service)
This Post-Effective Amendment amends the Registration Statement in respect
of the Prospectus, the Statement of Additional Information, and the Financial
Statements.
It is proposed that this filing will become effective (check appropriate
space)
/ / immediately upon filing pursuant to paragraph (b) of Rule 485
/X/ on July 1, 1995 pursuant to paragraph (b) of Rule 485
/ / 60 days after filing pursuant to paragraph (a)(i) of Rule 485
/ / on (date) pursuant to paragraph (a)(i) 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, 1994, on February 22, 1995.
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NATIONWIDE VARIABLE ACCOUNT-3
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..................................................................... 4
Item 3. Synopsis or Highlights.......................................................... 10
Item 4. Condensed Financial Information................................................. 11
Item 5. General Description of Registrant, Depositor, and Portfolio Companies........... 13
Item 6. Deductions and Expenses......................................................... 15
Item 7. General Description of Variable Annuity Contracts............................... 17
Item 8. Annuity Period.................................................................. 21
Item 9. Death Benefit and Distributions................................................. 22
Item 10. Purchases and Contract Value.................................................... 26
Item 11. Redemptions..................................................................... 27
Item 12. Taxes........................................................................... 29
Item 13. Legal Proceedings............................................................... 32
Item 14. Table of Contents of the Statement of Additional Information.................... 32
Part B INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
Item 15. Cover Page...................................................................... 35
Item 16. Table of Contents............................................................... 35
Item 17. General Information and History................................................. 35
Item 18. Services........................................................................ 35
Item 19. Purchase of Securities Being Offered............................................ 35
Item 20. Underwriters.................................................................... 36
Item 21. Calculation of Performance...................................................... 36
Item 22. Annuity Payments................................................................ 37
Item 23. Financial Statements............................................................ 38
Part C OTHER INFORMATION
Item 24. Financial Statements and Exhibits............................................... 68
Item 25. Directors and Officers of the Depositor......................................... 70
Item 26. Persons Controlled by or Under Common Control with the Depositor or Registrant.. 72
Item 27. Number of Contract Owners....................................................... 83
Item 28. Indemnification................................................................. 83
Item 29. Principal Underwriter........................................................... 83
Item 30. Location of Accounts and Records................................................ 85
Item 31. Management Services............................................................. 85
Item 32. Undertakings.................................................................... 85
</TABLE>
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<PAGE> 3
NATIONWIDE LIFE INSURANCE COMPANY
HOME OFFICE
P.O. BOX 182030
COLUMBUS, OHIO 43218-2030, 1-800-826-3167, TDD-1-800-238-3035
INDIVIDUAL DEFERRED VARIABLE ANNUITY CONTRACTS
ISSUED BY THE NATIONWIDE VARIABLE ACCOUNT-3
OF NATIONWIDE LIFE INSURANCE COMPANY
The Individual Deferred Variable Annuity Contracts described in this
Prospectus are flexible purchase payment contracts (collectively referred to as
the "Contracts"). The Contracts are sold to individuals for use in retirement
plans which may qualify for special federal tax treatment under the Internal
Revenue Code. Annuity payments under the Contracts are deferred until a selected
later date.
Purchase payments are allocated to the Nationwide Variable Account-3
("Variable Account"), a separate account of Nationwide Life Insurance Company
(the "Company"). The Variable Account uses its assets to purchase shares at net
asset value in one or more of the following series of the underlying Mutual Fund
options:
AMERICAN CAPITAL LIFE INVESTMENT TRUST:
-American Capital Common Stock Portfolio
-American Capital Domestic Strategic Income Portfolio
-American Capital Emerging Growth Portfolio
-American Capital Global Equity Portfolio
-American Capital Government Portfolio
-American Capital Money Market Portfolio
-American Capital Multiple Strategy Portfolio
-American Capital Real Estate Securities Portfolio
This Prospectus provides you with the basic information you should know
about the Individual Deferred Variable Annuity Contracts issued by the
Nationwide Variable Account-3 before investing. You should read it and keep it
for future reference. A Statement of Additional Information dated July 1, 1995,
containing further information about the Contracts and the Nationwide Variable
Account-3 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 182030, Columbus, Ohio 43218-2030.
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 JULY 1, 1995, IS INCORPORATED
HEREIN BY REFERENCE. THE TABLE OF CONTENTS FOR THE STATEMENT OF ADDITIONAL
INFORMATION APPEARS ON PAGE 30 OF THE PROSPECTUS.
THE DATE OF THIS PROSPECTUS IS JULY 1, 1995.
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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 DATE-The date on which annuity payments actually commence.
ANNUITY COMMENCEMENT DATE-The date on which annuity payments are scheduled to
commence, as originally shown on the Contract Data Page of the Contract unless
changed by the Owner.
ANNUITY PAYMENT OPTION-The method for making annuity payments. Several options
are available under this Contract. The Annuity Payment Option is named in the
application, unless changed.
ANNUITY UNIT-An accounting unit of measure used to calculate the value of
Variable Annuity payments.
BENEFICIARY-The Beneficiary is the person designated to receive certain benefits
under the Contract upon the death of the Designated Annuitant. The Beneficiary
can be changed by the Contract Owner as set forth in the Contract.
CODE-The Internal Revenue Code of 1986, as amended.
CONTINGENT BENEFICIARY-The Contingent Beneficiary is the person to be the
Beneficiary if the named Beneficiary is not living at the time of the death of
the Designated Annuitant.
CONTINGENT DESIGNATED ANNUITANT-The Contingent Designated Annuitant, if named,
will become the Designated Annuitant upon the Designated Annuitant's death. With
regard to death benefits and other required distributions upon the death of the
Designated Annuitant, these references will include the later to die of the
Designated Annuitant or Contingent Designated Annuitant, if named.
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 Contingent Owner, Designated Annuitant, Contingent Designated Annuitant,
Beneficiary, Contingent Beneficiary, Annuity Payment Option, and the Annuity
Commencement Date. If a Joint Owner is named, references to "Contract Owner" or
"Owner" in this prospectus, unless otherwise indicated, will apply to both the
Owner and Joint Owner.
CONTRACT VALUE-The sum of the Variable Account Contract Value and the Fixed
Account Contract Value.
CONTRACT YEAR-Each year commencing with either the Date of Issue or the Contract
Anniversary thereafter shall be a Contract Year.
DATE OF ISSUE-The date shown as the Date of Issue on the Contract Data Page of
the Contract.
DEATH BENEFIT-The benefit payable upon the death of the Designated Annuitant.
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. No change of Designated Annuitant may be made without
the prior consent of the Company.
FIXED ACCOUNT-The Fixed Account is made up of all assets of the Company other
than those in any segregated asset account.
FIXED ANNUITY-An annuity providing for payments which are guaranteed by the
Company as to dollar amount during the annuity payment period.
INDIVIDUAL RETIREMENT ANNUITY-An annuity which qualifies for treatment under
Section 408 of the Internal Revenue Code.
INTEREST RATE GUARANTEE PERIOD-An interest rate declared for the Fixed Account
is guaranteed not to change for the duration of the Interest Rate Guarantee
Period. The interest rate declared will expire on the final day of the calendar
quarter during which the one year anniversary of the deposit or transfer into
the Fixed Account
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<PAGE> 5
occurs; therefore, the initial Interest Rate Guarantee Period may continue for
up to three months after a one year period has expired. Subsequent guarantee
periods will be for twelve months.
JOINT OWNER-The Joint Owner, if any named, possesses an undivided interest in
the entire Contract, along with the Owner. When a Joint Owner is named, the
exercise of any ownership right under the Contract shall require written
authorization, signed by both the Owner and Joint Owner, of an intent to
exercise such right, unless the Owner and Joint Owner provide in the application
that the exercise of any such ownership right may be made by either the Owner or
Joint Owner independently of one another. Unless otherwise indicated, references
to "Contract Owner" or "Owner" in this prospectus will apply to both the Owner
and Joint Owner.
MUTUAL FUND-The registered management investment companies in which the assets
of the sub-accounts of the variable account will be invested.
NON-QUALIFIED CONTRACTS-Contracts other than Qualified Contracts, Tax Sheltered
Annuity Plans or Individual Retirement Annuities.
NON-QUALIFIED PLANS-Retirement Plans which do not receive favorable tax
treatment under the provisions of the Internal Revenue 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 CONTRACTS-Contracts issued under Qualified Plans.
QUALIFIED PLANS-Retirement Plans which receive favorable tax treatment under the
provisions of the Internal Revenue Code, including those described in Section
401 and 403(a) of the Internal Revenue Code.
TAX SHELTERED ANNUITY-An annuity which qualifies for treatment under Section
403(b) of the Internal Revenue Code of 1986, as amended.
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 held
by the Variable Account, such that the current net asset value of the Variable
Account's Accumulation Units might be materially affected.
VALUATION PERIOD-The period of time commencing at the close of business of the
New York Stock Exchange and ending at the close of business for the next
succeeding Valuation Date.
VARIABLE ACCOUNT-A separate investment account of the Company into which
Variable Account purchase payments are allocated.
VARIABLE ANNUITY-An annuity providing for payments which vary in amount with
the investment experience of the Variable Account.
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<PAGE> 6
TABLE OF CONTENTS
GLOSSARY OF SPECIAL TERMS................................................. 2
SUMMARY OF CONTRACT EXPENSES.............................................. 5
SYNOPSIS.................................................................. 8
CONDENSED FINANCIAL INFORMATION........................................... 9
NATIONWIDE LIFE INSURANCE COMPANY......................................... 11
THE VARIABLE ACCOUNT...................................................... 11
Underlying Mutual Fund Options...................................... 11
Voting Rights....................................................... 12
VARIABLE ACCOUNT CHARGES, PURCHASE PAYMENTS, AND OTHER DEDUCTIONS......... 13
Mortality Risk Charge............................................... 13
Expense Risk Charge................................................. 13
Contingent Deferred Sales Charge.................................... 13
Elimination of Contingent Deferred Sales Charge..................... 14
Contract Maintenance Charge and Administration Charge............... 14
Premium Taxes....................................................... 15
Expenses of The Variable Account.................................... 15
Investments Of The Variable Account................................. 15
Right To Revoke..................................................... 15
Transfers........................................................... 16
Assignment.......................................................... 16
Loan Privilege...................................................... 17
Beneficiary Provisions.............................................. 18
Ownership Provisions................................................ 18
Substitution of Securities.......................................... 19
Contract Owner Inquiries............................................ 19
ANNUITY PAYMENT PERIOD-VARIABLE ACCOUNT................................... 19
Value Of An Annuity Unit............................................ 19
Assumed Investment Rate............................................. 19
Frequency and Amount Of Annuity Payments............................ 19
Annuity Commencement Date........................................... 19
Change In Annuity Commencement Date................................. 20
Annuity Payment Options............................................. 20
Death of Contract Owner............................................. 20
Death Benefit At Death of Designated Annuitant Prior To The
Annuitization Date................................................ 21
Death Benefit After The Annuitization Date.......................... 21
Required Distribution For Qualified Plans or Tax Sheltered
Annuities......................................................... 21
Required Distributions For Individual Retirement Annuities......... 22
Generation-SkippingTransfers........................................ 23
GENERAL INFORMATION....................................................... 23
Contract Owner Services............................................. 23
Statements and Reports.............................................. 24
Allocation Of Purchase Payments And Contract Value.................. 24
Value of a Variable Account Accumulation Unit....................... 25
NetInvestment Factor................................................ 25
Valuation Of Assets................................................. 25
Determining The Contract Value...................................... 25
Surrender (Redemption).............................................. 25
Surrenders Under a Qualified Plan or Tax Sheltered Annuity
Contract.......................................................... 26
Taxes............................................................... 27
Non-Qualified Contracts............................................. 27
Diversification..................................................... 28
Charge For Tax Provisions........................................... 29
Qualified Plans, Individual Retirement Annuities, Individual
Retirement Accounts and Tax Sheltered Annuities................... 29
Advertising......................................................... 29
LEGAL PROCEEDINGS......................................................... 30
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION.................. 30
APPENDIX.................................................................. 31
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SUMMARY OF CONTRACT EXPENSES
CONTRACT OWNER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum Deferred Sales Charge(1)................................ 6%
</TABLE>
RANGE OF CONTINGENT DEFERRED SALES CHARGE OVER TIME
<TABLE>
<CAPTION>
NUMBER OF COMPLETED YEARS FROM DATE CONTINGENT DEFERRED SALES
OF PURCHASE PAYMENT CHARGE PERCENTAGE
<S> <C>
0 6%
1 6%
2 6%
3 3%
4 3%
5 3%
6 0%
</TABLE>
<TABLE>
<S> <C>
MAXIMUM ANNUAL CONTRACT MAINTENANCE CHARGE(2)...................... $35
VARIABLE ACCOUNT ANNUAL EXPENSES
Mortality and Expense Risk Charge.............................. 1.25%
Administration Charge......................................... 0.05%
Total Variable Account Annual Expenses....................... 1.30%
</TABLE>
(1) Starting with the second Contract year, 10% of the Contract Value may be
withdrawn without imposition of a Contingent Deferred Sales Charge. This
free withdrawal privilege is non-cumulative and must be used in the year
available. Withdrawals may be restricted for Contracts issued pursuant to
the terms of a Tax Sheltered Annuity or other Qualified Plans. The
Contingent Deferred Sales Charge is imposed only against purchase payments
(see "Contingent Deferred Sales Charge").
(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. The Company waives or reduces the
Contract Maintenance fee for certain Qualified Plans (see "Contract
Maintenance Charge and Administration Charge").
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<PAGE> 8
UNDERLYING MUTUAL FUND ANNUAL EXPENSES (After Expense Reimbursements)(3)
<TABLE>
<S> <C>
Common Stock Portfolio
Management Fees ..................................... 0.42 %
Other Expenses ...................................... 0.18 %
Total Mutual Fund Expenses ........................ 0.60 %
Domestic Strategic Income Portfolio
Management Fees ..................................... 0.15 %
Other Expenses ...................................... 0.45 %
Total Mutual Fund Expenses ........................ 0.60 %
Emerging Growth Portfolio
Management Fees...................................... 0.70 %
Other Expenses....................................... 0.00 %
Total Mutual Fund Expenses......................... 0.70 %
Global Equity Portfolio
Management Fees...................................... 1.00 %
Other Expenses....................................... 0.00 %
Total Mutual Fund Expenses......................... 1.00 %
Government Portfolio
Management Fees ..................................... 0.40 %
Other Expenses ...................................... 0.20 %
Total Mutual Fund Expenses ........................ 0.60 %
Money Market Portfolio
Management Fees ..................................... 0.23 %
Other Expenses ...................................... 0.37 %
Total Mutual Fund Expenses ........................ 0.60 %
Multiple Strategy Portfolio
Management Fees ..................................... 0.38 %
Other Expenses ...................................... 0.22 %
Total Mutual Fund Expenses ........................ 0.60 %
Real Estate Securities Portfolio
Management Fees...................................... 1.00 %
Other Expenses....................................... 0.00 %
Total Mutual Fund Expenses......................... 1.00 %
</TABLE>
(3) The Mutual Fund expenses shown above are assessed at the underlying Mutual
Fund level and are not direct charges against separate account assets or
reductions from Contract Values. These underlying Mutual Fund expenses are
taken into consideration in computing each underlying Mutual Fund's net
asset value, which is the share price used to calculate the Variable
Account's unit values of the Variable Account. Absent reimbursement,
management fees and total underlying Mutual Fund annual expenses would be,
respectively: .50% and .87% for the Money Market Portfolio; .50% and .68%
for the Common Stock Portfolio, .50% and .72% for the Multiple Strategy
Portfolio; and .50% and .70% for the Government Portfolio. For the Domestic
Strategic Income Portfolio, after reimbursement, the management fee, other
expenses, and total underlying Mutual Fund annual expenses would be .50%,
.45% and .95%, respectively.
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EXAMPLE
The following chart depicts the dollar amount of expenses that would be incurred
under this Contract assuming a $1000 initial purchase payment and 5% annual
return. These dollar figures are illustrative only and should not be considered
a representation of past or future expenses. Actual expenses may be greater or
lesser than those shown below. The expense amounts presented are derived from a
formula which allows the $35 Contract Maintenance Charge to be expressed as a
percentage of the average Contract account size for existing Contracts. Since
the average Contract account size for Contracts issued under this prospectus is
greater than $1000, the expense effect of the Contract Maintenance Charge is
reduced accordingly.
<TABLE>
<CAPTION>
If you surrender your If you do not surrender your If you annuitize your
Contract at the end of the Contract at the end of the Contract at the end of the
applicable time period applicable time period applicable time period
- ----------------------------------------------------------------------------------------------------------------
1 Yr. 3 Yrs. 5 Yrs. 10 Yrs. 1 Yr. 3 Yrs. 5 Yrs. 10 Yrs. 1 Yr. 3 Yrs. 5 Yrs. 10 Yrs.
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <S> <C> <C> <C> <C> <C> <C> <C> <C>
Common Stock 83 125 144 243 21 66 113 243 * 66 113 243
Portfolio
Domestic 83 125 144 243 21 66 113 243 * 66 113 243
Strategic Income
Portfolio
Emerging Growth 84 128 150 256 23 70 119 256 * 70 119 256
Portfolio
Global Equity 87 137 165 287 26 79 135 287 * 79 135 287
Portfolio
Government 83 125 144 243 21 66 113 243 * 66 113 243
Portfolio
Money Market 83 125 144 243 21 66 113 243 * 66 113 243
Portfolio
Multiple 83 125 144 243 21 66 113 243 * 66 113 243
Strategy
Portfolio
Real Estate 87 137 165 287 26 79 135 287 * 79 135 287
Securities
Portfolio
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
* The Contracts sold under this prospectus do not permit annuitizations during
the first two Contract years.
The purpose of the Summary of Contract Expenses and Example are to assist the
Contract Owner in understanding the various costs and expenses that a Contract
Owner will bear directly or indirectly. The expenses of the Nationwide Variable
Account-3 as well as those of the underlying Mutual Fund options are reflected
in the table. For more and complete descriptions of the expenses of the Variable
Account, see "Variable Account Charges, Purchase Payments, and Other
Deductions." For more and complete information regarding expenses paid out of
the assets of a particular underlying Mutual Fund option, see the underlying
Mutual Fund's prospectus. Deductions for premium taxes may also apply but are
not reflected in the Example shown above (see "Premium Taxes").
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SYNOPSIS
The 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 6% of
the lesser of the total of all purchase payments made, within 72 months prior to
the date of the request to surrender, or the amount surrendered. This charge,
when applicable, is imposed to permit the Company to recover sales expenses
which have been advanced by the Company (see "Contingent Deferred Sales
Charge").
In addition, on each Contract Anniversary the Company will deduct an annual
Contract Maintenance Charge of $35 from the Contract Value of the Contracts. The
Company will also assess an Administration Charge equal to an annual rate of
0.05% of the daily net asset value of the Variable Account. These charges are to
reimburse the Company for administrative expenses related to the issue and
maintenance of the Contracts. The Company does not expect to recover from these
charges an amount in excess of accumulated administrative expenses (see
"Contract Maintenance Charge and Administration Charge").
The Company deducts a Mortality Risk Charge equal to an annual rate of
0.80% of the daily net asset value of the Variable Account for mortality risk
assumed by the Company (see "Mortality Risk Charge").
The Company deducts an Expense Risk Charge equal to an annual rate of 0.45%
of the daily net asset value of the Variable Account as compensation for the
Company's risk by undertaking not to increase administrative charges on the
Contracts regardless of the actual administrative costs (see "Expense Risk
Charge").
The initial first year purchase payment must be at least $1,500 for
Non-Qualified Contracts. However, if periodic payments are expected by the
Company, this initial first year minimum may be satisfied by purchase payments
made on an annualized basis. The cumulative total of all purchase payments under
a Contract may not exceed $1,000,000 without the prior consent of the Company
(see "Allocation of Purchase Payments and Contract Value").
If the Contract Value at the Annuity Commencement 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 (see "Frequency and Amount of Annuity Payments").
Premium taxes payable to any governmental entity will be charged against
the Contracts. If any such premium taxes are payable at the time purchase
payments are made, the premium tax deduction will be made from the Contract
prior to allocation to any underlying mutual fund option (see "Premium Taxes").
To be sure that the Contract Owner is satisfied with the Contract, the
Contract Owner has a ten day free look. Within ten days of the 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. When the Contract is received by the
Company, the Company will void the Contract and refund the Contract Value in
full unless otherwise required by state and/or federal law. All Individual
Retirement Annuities will be a return of purchase payments (see "Right to
Revoke").
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CONDENSED FINANCIAL INFORMATION
Accumulation Unit Values (For an accumulation unit outstanding throughout the
period)
<TABLE>
<CAPTION>
NUMBER OF UNITS
BEGINNING ENDING AT THE END
FUND UNIT VALUE UNIT VALUE OF THE PERIOD YEAR
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
American Capital 12.879003 13.183559 277,679 1994
Money Market 12.709641 12.879003 280,849 1993
Portfolio-Q 12.458190 12.709641 264,988 1992
11.950917 12.458190 209,280 1991
11.217660 11.950917 207,210 1990
10.412806 11.217660 120,394 1989
10.000000 10.412806 1,976 1988
- ------------------------------------------------------------------------------------------------
American Capital 12.879003 13.183559 532,988 1994
Money Market 12.709641 12.879003 583,001 1993
Portfolio-NQ 12.458190 12.709641 374,887 1992
11.950917 12.458190 415,122 1991
11.217660 11.950917 370,884 1990
10.412806 11.217660 188,561 1989
10.000000 10.412806 57,764 1988
- ------------------------------------------------------------------------------------------------
American Capital 19.993094 19.065611 549,470 1994
Common Stock 18.587100 19.993094 530,005 1993
Portfolio-Q 17.522020 18.587100 495,092 1992
13.014276 17.522020 398,318 1991
14.154142 13.014276 218,497 1990
10.682887 14.154142 104,326 1989
10.000000 10.682887 3,717 1988
- ------------------------------------------------------------------------------------------------
American Capital 19.993094 19.065611 1,141,284 1994
Common Stock 18.587100 19.993094 1,146,227 1993
Portfolio-NQ 17.522020 18.587100 926,595 1992
13.014276 17.522020 687,711 1991
14.154142 13.014276 286,980 1990
10.682887 14.154142 141,530 1989
10.000000 10.682887 24,248 1988
- ------------------------------------------------------------------------------------------------
American Capital 17.253369 16.406732 749,168 1994
Multiple Strategy 16.230095 17.253369 841,559 1993
Portfolio-Q 15.327503 16.230095 812,793 1992
12.222570 15.327503 704,818 1991
12.154424 12.222570 577,104 1990
10.451221 12.154424 405,746 1989
10.000000 10.451221 157,320 1988
- ------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 12
CONDENSED FINANCIAL INFORMATION (CONTINUED)
Accumulation Unit Values (For an accumulation unit outstanding throughout the
period)
<TABLE>
<CAPTION>
NUMBER OF UNITS
BEGINNING ENDING AT THE END
FUND UNIT VALUE UNIT VALUE OF THE PERIOD YEAR
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
American Capital 17.253369 16.406732 1,250,980 1994
Multiple Strategy 16.230095 17.253369 1,367,736 1993
Portfolio-NQ 15.327503 16.230095 1,273,695 1992
12.222570 15.327503 1,058,861 1991
12.154424 12.222570 876,452 1990
10.451221 12.154424 672,660 1989
10.000000 10.451221 295,223 1988
- ------------------------------------------------------------------------------------------------
American Capital 14.016253 13.235145 304,564 1994
Domestic Strategic 12.208185 14.016253 363,127 1993
Income Portfolio-Q 10.995055 12.208185 247,610 1992
9.189127 10.995055 175,620 1991
10.036383 9.189127 85,930 1990
10.753229 10.036383 87,598 1989
10.000000 10.753229 21,293 1988
- ------------------------------------------------------------------------------------------------
American Capital 14.016253 13.235145 574,730 1994
Domestic Strategic 12.208185 14.016253 705,552 1993
Income Portfolio-NQ 10.995055 12.208185 707,076 1992
9.189127 10.995055 587,343 1991
10.036383 9.189127 324,341 1990
10.753229 10.036383 311,252 1989
10.000000 10.753229 71,538 1988
- ------------------------------------------------------------------------------------------------
American Capital 13.620968 12.821877 227,201 1994
Government 12.794291 13.620968 293,305 1993
Portfolio-Q 12.260048 12.794291 171,646 1992
10.689640 12.260048 92,681 1991
10.000000 10.689640 34,202 1990
- ------------------------------------------------------------------------------------------------
American Capital 13.620968 12.821877 501,364 1994
Government 12.794291 13.620968 720,049 1993
Portfolio-NQ 12.260048 12.794291 452,081 1992
10.689640 12.260048 257,611 1991
10.000000 10.689640 119,020 1990
- ------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 13
NATIONWIDE LIFE INSURANCE COMPANY
The Company is a stock life insurance company organized under the laws of
the State of Ohio in March, 1929. The Company is a member of the Nationwide
Insurance Enterprise, with its home office at One Nationwide Plaza, Columbus,
Ohio 43216-6609. The Company offers a complete line of life insurance, including
annuities and accident and health insurance. It is admitted to do business in
the District of Columbia, Puerto Rico, and in all states.
The 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 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, 1987,
pursuant to the provisions of Ohio law, as the "Nationwide Variable Account-3".
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(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.
UNDERLYING MUTUAL FUND OPTIONS
Contract Owners may choose from among the following underlying Mutual Fund
options under the Contracts.
A summary of investment objectives is contained in the descriptions of each
underlying Mutual Fund 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) being considered must accompany this
Prospectus and should be read in conjunction herewith. A copy of each prospectus
may be obtained without charge from Nationwide Life Insurance Company by calling
1-800-826-3167, TDD 1-800-238-3035, or writing P.O. Box 182030, One Nationwide
Plaza, Columbus, Ohio 43218-2030.
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 Fund options. 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 a conflict, the Company will take any steps necessary to
protect the Contract Owners and variable annuity payees, including withdrawal of
the Variable Account from participation in the underlying Mutual Fund or Mutual
Funds which are involved in the conflict.
AMERICAN CAPITAL LIFE INVESTMENT TRUST
The American Capital Life Investment Trust is an open-end diversified
management investment company organized as a Massachusetts business trust on
June 3, 1985. The Trust offers shares in separate portfolios which are sold only
to insurance companies to provide funding for variable life insurance policies
and
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<PAGE> 14
variable annuity contracts. Van Kampen American Capital Asset Management, Inc.
serves as the Portfolio's investment adviser.
AMERICAN CAPITAL COMMON STOCK PORTFOLIO (the "Common Stock Portfolio")
seeks capital appreciation by investing in a portfolio of securities
consisting principally of common stocks.
AMERICAN CAPITAL DOMESTIC STRATEGIC INCOME PORTFOLIO (the "Domestic
Strategic Income Portfolio") seeks current income as its primary
objective. Capital appreciation is a secondary objective. The Portfolio
attempts to achieve these objectives through investment primarily in a
diversified portfolio of fixed-income securities. The Portfolio may
invest in investment grade securities and lower rated and nonrated
securities. Lower rated securities are regarded by the rating agencies as
predominantly speculative with respect to the issuer's continuing ability
to meet principal and interest payments.
AMERICAN CAPITAL EMERGING GROWTH PORTFOLIO (the "Emerging Growth
Portfolio") seeks capital appreciation by investing in a portfolio of
securities consisting principally of common stocks of small and medium
sized companies considered by Van Kampen American Capital Asset
Management, Inc. ("the Adviser"), to be emerging growth companies. Under
normal market conditions, at least 65% of the Portfolio's total assets
will be invested in common stocks of small and medium sized companies
(less than $2 billion of market capitalization), both domestic and
foreign. The Portfolio may invest up to 20% of its total assets in
securities of foreign issuers. Additionally, the Portfolio may invest up
to 15% of the value of its assets in restricted securities (i.e.,
securities which may not be sold without registration under the
Securities Act of 1933) and in other securities not having readily
available market quotations.
AMERICAN CAPITAL GLOBAL EQUITY PORTFOLIO (the "Global Equity Portfolio")
seeks long term capital growth through investments in an internationally
diversified portfolio of equity securities of companies of any nation
including the United States. The Portfolio intends to be invested in
equity securities of companies of at least three countries including the
United States. Under normal market conditions, at least 65% of the
Portfolio's total assets are so invested. Equity securities include
common stocks, preferred stocks and warrants or options to acquire such
securities.
AMERICAN CAPITAL GOVERNMENT PORTFOLIO (the "Government Portfolio") seeks
to provide investors with a high current return consistent with
preservation of capital. The Government Portfolio invests primarily in
debt securities issued or guaranteed by the U.S. Government, its agencies
or instrumentalities. In order to hedge against changes in interest
rates, the Government Portfolio may also purchase or sell options and
engage in transactions involving interest rate futures contracts and
options on such contracts.
AMERICAN CAPITAL MONEY MARKET PORTFOLIO (the "Money Market Portfolio")
seeks protection of capital and high current income by investing in
short-term money market instruments.
AMERICAN CAPITAL MULTIPLE STRATEGY PORTFOLIO (the "Multiple Strategy
Portfolio") seeks a high total investment return consistent with prudent
risk through a fully managed investment policy utilizing equity
securities, primarily common stocks of large capitalization companies, as
well as investment grade intermediate and long-term debt securities and
money market securities.
AMERICAN CAPITAL REAL ESTATE SECURITIES PORTFOLIO (the "Real Estate
Securities Portfolio") seeks long-term capital growth by investing in a
portfolio of securities of companies operating in the real estate
industry ("Real Estate Securities"). Current income is a secondary
consideration. Real Estate Securities include equity securities,
including common stocks and convertible securities, as well as
non-convertible preferred stocks and debt securities of real estate
industry companies. A "real estate industry company" is a company that
derives at least 50% of its assets (marked to market), gross income or
net profits from the ownership, construction, management or sale of
residential, commercial or industrial real estate. Under normal market
conditions, at least 65% of the Fund's total assets will be invested in
Real Estate Securities, primarily equity securities of real estate
investment trusts. The Fund may invest up to 25% of its total assets in
securities issued by foreign issuers, some or all of which may also be
Real Estate Securities. There can be no assurance that the Fund will
achieve its investment objective.
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
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<PAGE> 15
underlying Mutual Funds in accordance with instructions received from persons
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 person having the voting interest under a Contract shall be the
Contract Owner. The number of shares held in the Variable Account which is
attributable to each Contract Owner is determined by dividing the Contract
Owner's interest in the Variable Account by the net asset value of the
applicable share of the underlying Mutual Funds.
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 and 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.
Each person having the voting interest in the Variable Account will
receive periodic reports relating to the underlying Mutual Fund, proxy material
and a form with which to give such voting instructions with respect to the
proportion of the underlying Mutual Fund shares held in the Variable Account
corresponding to his or her interest in the Variable Account.
VARIABLE ACCOUNT CHARGES, PURCHASE PAYMENTS, AND OTHER DEDUCTIONS
MORTALITY RISK CHARGE
The Company assumes a "mortality risk" that variable annuity payments will
not be affected by the death rates of persons receiving such payments or of the
general population by virtue of annuity rates incorporated in the Contract which
cannot be changed.
For assuming this mortality risk, the Company deducts a Mortality Risk
Charge from the Variable Account which is an amount computed on a daily basis.
This amount 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.
EXPENSE RISK CHARGE
The Company will not increase charges for administration of the Contracts
regardless of its actual expenses. For assuming this expense risk, the Company
deducts an Expense Risk Charge from the Variable Account. This amount is
computed on a daily basis, and is equal to an annual rate of 0.45% of the daily
net asset value of the Variable Account. The Company expects to generate a
profit through assessing this charge.
CONTINGENT DEFERRED SALES CHARGE
No deduction for a sales charge is made from the purchase payments for
these Contracts. However, the Contingent Deferred Sales Charge, referred to
below, when it is applicable, will be used to cover expenses relating to the
sale of the Contracts, including commissions paid to sales personnel, the costs
of preparation of sales literature and other promotional activity. The Company
attempts to recover its distribution costs relating to the sale of the Contracts
from the Contingent Deferred Sales Charge. Any shortfall will be made up from
the General Account of the Company, which may indirectly include portions of the
Mortality and Expense Risk Charges, since the Company expects to generate a
profit from these charges. Gross Distribution Allowances which may be paid on
the sale of these Contracts are not more than 6.00% of purchase payments.
If part or all of the Contract Value is surrendered, a Contingent Deferred
Sales Charge will be made by the Company. For purposes of the Contingent
Deferred Sales Charge, surrenders under a Contract come first from the purchase
payments which have been on deposit under the Contract for the longest time
period. (For tax purposes, a surrender is treated as a withdrawal of earnings
first.) This charge will apply in the amounts set forth below to purchase
payments withdrawn within the time periods set forth. In no event will any
Contingent Deferred Sales Charge be made against any values which have been held
under the Contract for at least 72 months, or to commencement of an annuity
payout under Contracts which have been in effect for at least two years or upon
the death of Designated Annuitant.
The Contingent Deferred Sales Charge applies to the withdrawal of purchase
payments as follows:
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<PAGE> 16
<TABLE>
<CAPTION>
NUMBER OF COMPLETED CONTINGENT DEFERRED
YEARS FROM DATE OF SALES CHARGE
PURCHASE PAYMENT PERCENTAGE
<S> <C>
0 6%
1 6%
2 6%
3 3%
4 3%
5 3%
6 0%
</TABLE>
Starting with the second year, 10% of the Contract Value may be withdrawn
each year without imposition of the Contingent Deferred Sales Charge. This free
withdrawal privilege is non-cumulative and must be used in the year available.
Withdrawals may be restricted for Contracts issued pursuant to the terms of a
Tax Sheltered Annuity or other Qualified Plan. No sales charges are deducted on
redemption proceeds that are transferred to the Fixed Account option of this
annuity.
ELIMINATION OF CONTINGENT DEFERRED SALES CHARGE
For Tax Sheltered Annuities purchased on or after May 1, 1992 and
Qualified Contracts sold in conjunction with 401 cases on or after May 1, 1992,
the Company will waive the Contingent Deferred Sales Charge when:
A. the Plan Participant experiences a case of hardship (as provided in
Code Section 403(b) and as defined for purposes of Code Section
401(k));
B. the Plan Participant becomes disabled (within the meaning of Code
Section 72(m)(7));
C. the Plan Participant attains age 59 1/2 and has participated in the
Contract for at least 5 years, as determined from the Contract
Anniversary date;
D. the Plan Participant has participated in the Contract for at least 15
years as determined from the Contract Anniversary date;
E. the Plan Participant dies; or
F. the Contract is annuitized after 2 years from the inception of the
Contract.
For Non-Qualified Contracts and Individual Retirement Annuities the
Company will waive the Contingent Deferred Sales Charge when:
A. the Designated Annuitant dies; or
B. the Contract Owner annuitizes after 2 years in the Contract.
When a Contract described in this prospectus is exchanged for another
Contract issued by the Company, of the type and class which the Company
determined is eligible for such exchange, the Company will waive the Contingent
Deferred Sales Charge on the first Contract.
Sales without commissions or other standard distribution expenses can
result in the elimination of sales charges.
In no event will the elimination of Contingent Deferred Sales Charges be
permitted where such elimination will be unfairly discriminatory to any person,
or where it is prohibited by state law.
CONTRACT MAINTENANCE CHARGE AND ADMINISTRATION CHARGE
Each year on the Contract Anniversary, the Company deducts an annual
Contract Maintenance Charge from the Contract Value to reimburse it for
administrative expenses relating to the issuance and maintenance of the
Contract. For Tax Sheltered Annuities issued on or after May 1, 1992 the
Contract Maintenance Charges are $12 for Tax Sheltered Annuities and $35 for
Non-Qualified Plans and Individual Retirement Annuities. However, the $12
Contract Maintenance Charge may be lowered to reflect the Company's savings in
administration of the plan. If additional contracts are issued pursuant to a 401
plan funded by the Contracts described in this prospectus, prior to May 1, 1992,
such additional contracts shall have a Contract Maintenance Charge of $35. For
Contracts issued pursuant to 401 plans sold on or after May 1, 1992 and SEP-IRA
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Contracts sold on or after May 1, 1992, the Contract Maintenance Charge varies
from $35 to $0. Variances are based on internal underwriting guidelines which
can result in reductions of charges in incremental amounts of $5. Underwriting
considerations include the size of the group, the average participant account
balance transferred to the Company, if any, and administrative savings. 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. The Company also
assesses an Administration Charge equal on an annual rate to 0.05% of the daily
net asset value of the Variable Account. The deduction of the Administration
Charge is made from each sub-account in the same proportion that the Contract
Value in each sub-account bears to the total Contract Value in the Variable
Account. These charges are designed only to reimburse the Company for
administrative expenses and the Company will monitor these charges to ensure
that they do not exceed annual administration expenses. In any Contract Year
when a Contract is surrendered for its full value on other than the Contract
Anniversary, the Contract Maintenance Charge will be deducted at the time of
such surrender. The amount of the Contract Maintenance Charge may not be
increased by the Company. In no event will reduction or elimination of the
Contract Maintenance Charge be permitted where such reduction or elimination
will be unfairly discriminatory to any person, or where it is 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. To the best of the Company's present
knowledge, 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 Value either (1) at the time the Contract is
surrendered, (2) at annuitization, or (3) in those states which require, at the
time purchase payments are made to the Contract.
EXPENSES OF THE VARIABLE ACCOUNT
Deductions from and expenses paid out of the assets of the underlying
Mutual Fund options are described in each of the underlying Mutual Fund
prospectuses. The Company deducts from the assets of the Variable Account the
types of expenses covered by the charges described above. These total expenses
for the fiscal year ended December 31, 1994, were 1.76% of average net assets.
INVESTMENTS OF THE VARIABLE ACCOUNT
At the time of purchase each Contract Owner elects to have purchase
payments attributable to his participation in the Variable Account allocated
among one or more of the sub-accounts which consist of shares in the underlying
Mutual Funds. 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. At the time of
application, the Contract Owner designates the underlying Mutual Fund options to
which desired purchase payments attributable to his Contract are to be
allocated. Such election is subject to any minimum purchase payment limitations
which may be imposed by the underlying Mutual Funds designated. The election as
to allocation of purchase payments or as to transfers of the Contract Value from
one sub-account to another may be changed by the Contract Owner pursuant to such
terms and conditions applicable to such transactions as may be imposed by each
of the underlying Mutual Funds, in addition to those set forth in the Contracts.
RIGHT TO REVOKE
The Contract Owner may revoke the Contract at any time between the date of
application and the date 10 days after receipt of the Contract and receive a
refund of the Contract Value unless otherwise required by state and/or federal
law. All Individual Retirement Annuity refunds will be a return of purchase
payments.
In order to revoke the Contract, it must be mailed or delivered to the
home office of the Company at the mailing address shown on page 1 of this
prospectus. Mailing or delivery must occur on or before 10 days after receipt of
the Contract for revocation to be effective. In order to revoke the Contract, if
it has not been received, written notice must be mailed or delivered to the home
office of the Company at the mailing address shown on page 1 of this prospectus.
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The liability of the Variable Account under this provision is limited to
the Contract Value in each sub-account on the date of revocation. Any additional
amounts refunded to the Contract Owner will be paid by the Company.
TRANSFERS
The Owner may request a transfer of up to 100% of the Contract Value from
the Variable Account to the Fixed Account without penalty or adjustment. Any
such transfer must remain on deposit in the Fixed Account until the expiration
of the current Interest Rate Guarantee Period. The Interest Rate Guarantee
Period expires on the final day of a calendar quarter; therefore the Interest
Rate Guarantee Period for deposits or transfers to the Fixed Account may
continue for up to three months after a one year period has expired. The Owner's
Value in each sub-account will be determined as of the date the transfer request
is received in the home office in good order. The Company reserves the right to
restrict transfers to 25% of the Contract Value for any 12 month period.
The 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 maximum percentage 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 and will be declared upon the expiration date of the then
current Interest Rate Guarantee Period. Should the Company exercise this right,
the specific percentage will be declared upon the expiration date of the then
current Interest Rate Guarantee Period. Transfers from the Fixed Account must be
made within 45 days after the expiration date of the guarantee period. 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 from the Fixed Account may
not be made prior to the first Contract Anniversary or within 12 months of any
prior transfer. Transfers must also be made prior to the Annuitization Date.
This Contract is not designed for professional market timing organizations
or other entities utilizing programmed and frequent transfers. The Company
reserves the right at any time and without prior notice to any market timer, to
terminate, suspend or modify the transfer privileges regarding transfers among
the sub-accounts.
Transfers among the sub-accounts 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 their having to elect
the privilege. The Company will employ procedures reasonably designed to confirm
that instructions communicated by telephone are genuine. Such procedures may
include any or all of the following, or such other procedures as the Company
may, from time to time, deem reasonable: 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. Although failure to follow such reasonable
procedures may result in the Company's liability for any losses due to
unauthorized or fraudulent telephone transfers, the Company will not be liable
for following instructions communicated by telephone which it reasonably
believes to be genuine. Any losses incurred pursuant to actions taken by the
Company in reliance on telephone instructions reasonably believed to be genuine
shall be borne by the Contract Owner. The Company may withdraw the telephone
exchange privilege upon 30 days' written notice to Contract Owners.
ASSIGNMENT
Where permitted, the Contract Owner may assign the Contract at any time
during the lifetime of the Designated Annuitant. Any assignment will take effect
upon receipt by the Company of a written notice thereof executed by the Contract
Owner. The Company assumes no responsibility for the validity or sufficiency of
any assignment. The Company shall not be liable as to any payment or other
settlement made by the Company before receipt of the assignment. Qualified
Contracts may not be assigned, pledged or otherwise transferred except under
such conditions as may be allowed by applicable law.
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 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 assigned or pledged. In addition, any
Contract Values assigned may, under certain conditions, be subject to a tax
penalty equal to 10% of the amount which is included in gross income. Individual
Retirement Annuities and Tax Sheltered Annuities are not eligible for
assignment.
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<PAGE> 19
LOAN PRIVILEGE
Prior to the Annuitization Date, the Owner of a Qualified Contract or Tax
Sheltered Annuity may receive a loan from their Contract Value, subject to the
terms of the Contract, the Plan, and Section 72 of the Internal Revenue Code
("Code"), which impose restrictions on loans.
Loans from Qualified Contracts or Tax Sheltered Annuities are available
beginning 30 days after the Date of Issue. The Contract Owner may borrow a
minimum of $1,000. In non-ERISA plans, for Contract Values up to $20,000, the
maximum loan balance which may be outstanding at any time is 80% of the Contract
Value, but not more than $10,000. If the Contract Value is $20,000 or more, the
maximum loan balance which may be outstanding at any time is 50% of the Contract
Value, but not more than $50,000. For ERISA plans, the maximum loan balance
which may be outstanding at any time is 50% of the Contract Value, but not more
than $50,000. The $50,000 limit will be reduced by the highest loan balances
owed during the prior one-year period. Additional loans are subject to the
contract minimum amount. The aggregate of all loans may not exceed the Contract
Value limitations stated above.
For salary reduction Tax Sheltered Annuities, loans may only be secured by
the Contract Value. For loans from Qualified Contracts and other Tax Sheltered
Annuities, the Company reserves the right to limit a loan to 50% of the Contract
Value subject to the acceptance by the Contract Owner of the Company's loan
agreement. Where permitted, the Company may require other named collateral where
the loan, from a Contract exceeds 50% of the Contract Value.
All loans are made from a collateral fixed account. An amount equal to the
principal amount of the loan will be transferred to the collateral fixed
account. Unless instructed to the contrary by the Contract Owner, the Company
will first transfer to the collateral fixed account the Variable Account units
from the Contract Owner's investment options in proportion to the assets in each
option until the required balance is reached or all such variable units are
exhausted. The remaining required collateral will next be transferred from the
Fixed Account. No withdrawal charges are deducted at the time of the loan, or on
the transfer from the Variable Account to the collateral fixed account.
Until the loan has been repaid in full, that portion of the collateral
fixed account equal to the outstanding loan balance shall be credited with
interest at a rate 2.25% less than the loan interest rate fixed by the Company
for the term of the loan. However, the interest rate credited to the collateral
fixed account will never be less than 3.0%. Specific loan terms are disclosed at
the time of loan application or loan issuance.
Loans must be repaid in substantially level payments, not less frequently
than quarterly, within five years. Loans used to purchase the principal
residence of the Contract Owner must be repaid within 15 years. During the loan
term, the outstanding balance of the loan will continue to earn interest at an
annual rate as specified in the loan agreement. Loan repayments will consist of
principal and interest in amounts set forth in the loan agreement. Loan
repayments will be allocated between the Fixed and Variable Accounts in the same
proportion as when the loan was made, unless specified otherwise.
If the Contract is surrendered while the loan is outstanding, the
surrender value will be reduced by the amount of the loan outstanding plus
accrued interest. If the Contract Owner/Annuitant dies while the loan is
outstanding, the death benefit will be reduced by the amount of the loan
outstanding plus accrued interest. If a Contract Owner who is not the Annuitant
dies prior to the Annuitization Date and while the loan is outstanding, the
distribution will be reduced by the amount of the loan outstanding plus accrued
interest. If annuity payments start while the loan is outstanding, the Contract
Value will be reduced by the amount of the outstanding loan plus accrued
interest. Until the loan is repaid, the Company reserves the right to restrict
any transfer of the Contract which would otherwise qualify as a transfer as
permitted in the Internal Revenue Code.
If a loan payment is not made when due, interest will continue to accrue.
The defaulted payment plus accrued interest will be deducted from any future
distribution under the Contract and paid to the Company. Any loan payment which
is not made when due, plus interest, will be treated as a distribution, as
permitted by law, may be taxable to the borrower, and may be subject to the
early withdrawal tax penalty.
Loans may also be limited or controlled by the provisions of the
employer's plan.
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
of 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 and SEP-IRA accounts and
Non-Qualified Contracts are not eligible for loans.
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<PAGE> 20
BENEFICIARY PROVISIONS
Subject to the terms of any existing assignment, the Contract Owner may
change the Beneficiary from time to time during the lifetime of the Designated
Annuitant by written notice to the Company. The change will, upon receipt by the
Company at its home office, take effect as of the time the written notice was
signed, 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.
Unless otherwise provided in the Contract or in an effective change of
Beneficiary designation, all rights and interests of any Beneficiary
predeceasing the Designated Annuitant shall vest in the Contingent Beneficiary
if designated. If a Contingent Beneficiary is not designated or predeceases the
Beneficiary, all rights and interests of the Beneficiary will vest in the
Contract Owner or the Contract Owner's estate.
The Beneficiary will be the designated person or persons who survive the
Designated Annuitant, and if more than one survive, they will share equally
unless otherwise specified in the Beneficiary designation. In the event that the
Beneficiary dies before the Designated Annuitant, the Contingent Beneficiary
will become the Beneficiary.
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.
If named, the Joint Owner possesses an undivided interest in the entire
Contract, along with the Owner. When a Joint Owner is named, the exercise of any
ownership right in the Contract shall require a written indication, signed by
both the Owner and Joint Owner, of an intent to exercise such right, unless the
Owner and Joint Owner provide in the application that the exercise of any such
ownership right may be made by either the Owner or Joint Owner independently of
one another. In this latter situation, the Company will not be liable for any
loss, liability, cost, or expense for acting in accordance with the instructions
of either the Owner or Joint Owner. Unless otherwise indicated, references to
"Contract Owner" or "Owner" in this prospectus will apply to both the Owner and
Joint Owner.
The Designated Annuitant may become the Contract Owner on and after the
Annuitization Date, subject to the terms elected at annuitization. Where the
Contract is not issued in connection with a Qualified Plan, Tax Sheltered
Annuity or Individual Retirement Annuity, and the Contract Owner or Joint Owner
dies prior to the Annuitization Date, contract ownership will be determined in
accordance with the "Death of Contract Owner" provision. If the Designated
Annuitant does not survive the Contract Owner or if the Designated Annuitant and
the Owner are the same person, contract ownership will be determined in
accordance with the "Death Benefit At Death of Designated Annuitant Prior To The
Annuitization Date" provision. After the Annuitization Date ownership will be
determined based upon the Annuity Payment Option selected. Ownership rights
under this Contract may be restricted under the provisions of the retirement or
deferred compensation plan for which this Contract may be issued.
Prior to the Annuitization Date, the Contract Owner may name a new
Contract Owner at any time, but such change may be subject to state and federal
gift taxes and may be treated as an assignment of the Contract for income tax
purposes. Such an assignment would result in a deemed distribution of the value
of the Contract. Any new choice of Contract Owner will automatically revoke any
prior choice of Contract Owner. Any request for change must be: (1) made in
writing; and (2) received by the Company at its home office. A request for
change of Contract Owner must be a "Proper Written Application" and the Company
may require a signature guarantee as specified in the "Surrender" section. The
change will become effective as of the date the written request is signed. A new
choice of Contract Owner will not apply to any payment made or action taken by
the Company prior to the time it was received.
A change in the Designated Annuitant must comply with the following
conditions: (1) request for such change must be made by the Contract Owner; (2)
request must be made in writing on a form acceptable to the Company; (3) request
must be signed by the Contract Owner; and (4) such change is subject to
underwriting and approval by the Company. A change of the Annuitant shall be
treated as the death of the Owner for purposes of the "Death of Contract Owner"
provisions if the Owner is not an individual.
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SUBSTITUTION OF SECURITIES
If the shares of the underlying Mutual Fund options described in this
Prospectus should no longer be available for investment by the Variable Account
or if, in the judgment of the Company's management, further investment in such
underlying Mutual Fund shares should become inappropriate in view of the
purposes of the Contract, the Company may substitute shares of another
underlying Mutual Fund for underlying Mutual Fund shares already purchased or to
be purchased in the future with purchase payments under the Contract. No
substitution of securities in the Variable Account may take place without prior
approval of the Securities and Exchange Commission, and under such requirements
as it may impose.
CONTRACT OWNER INQUIRIES
Contract Owner inquiries may be directed to Nationwide Life Insurance
Company by writing P. O. Box 182030, One Nationwide Plaza, Columbus, Ohio
43218-2030, or calling 1-800-826-3167, TDD 1-800-238-3035.
ANNUITY PAYMENT PERIOD-VARIABLE ACCOUNT
At the Annuitization Date the Variable Account Contract Value is applied
to the Annuity Payment Option elected in accordance with the Annuity Table in
the Contract.
Subsequent Variable Annuity payments vary in amount in accordance with the
investment performance of the Variable Account. The dollar amount of the first
annuity payment determined as above is divided by the value of an Annuity Unit
as of the Annuitization Date to establish the number of Annuity Units
representing each monthly annuity payment. This number of Annuity Units remains
fixed during the annuity payment period. The dollar amount of the second and
subsequent payments is not predetermined and may change from month to month. The
dollar amount of each subsequent payment is determined by multiplying the fixed
number of Annuity Units by the Annuity Unit Value for the Valuation Period in
which the payment is due. The Company guarantees that the dollar amount of each
payment after the first will not be affected by variations in mortality
experience from mortality assumptions used to determine the first payment.
VALUE OF AN ANNUITY UNIT
The value of an Annuity Unit was arbitrarily set initially at $10 when the
first underlying Mutual Fund shares were purchased. The value of an Annuity Unit
for a sub-account for any subsequent Valuation Period is determined by
multiplying the Annuity Unit Value for the immediately preceding Valuation
Period by the Net Investment Factor for the Valuation Period for which the
Annuity Unit Value is being calculated, and multiplying the result by an
interest factor to neutralize the assumed investment rate of 3.5% per annum
built into the Annuity Tables contained in the Contracts (See "Net Investment
Factor").
ASSUMED INVESTMENT RATE
A 3.5% Assumed Investment Rate is built into the Annuity Tables contained
in the Contracts. A higher assumption would mean a higher initial payment but
more slowly rising or more rapidly falling subsequent payments. A lower
assumption would have the opposite effect. If the actual investment rate is at
the annual rate of 3.5%, the annuity payments will be level.
FREQUENCY AND AMOUNT OF ANNUITY PAYMENTS
Annuity payments will be paid as monthly installments. However, if the net
amount available to apply under any Annuity Payment Option is less than $500,
the Company shall have the right to pay such amount in one lump sum in lieu of
the payments otherwise provided for. In addition, if the payments provided for
would be or become less than $20, the Company shall have the right to change the
frequency of payments to such intervals as will result in payments of at least
$20.
ANNUITY COMMENCEMENT DATE
The Contract Owner selects an Annuity Commencement Date at the time of
Application. Such date must be the first day of a calendar month and must be at
least 2 years after the Date of Issue.
Where the Contract is issued subject to the terms of a Qualified Plan,
Annuitization may occur during the first 2 years subject to approval by the
Company.
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CHANGE IN ANNUITY COMMENCEMENT DATE
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.
If the Contract Owner requests in writing (See "Ownership Provisions"),
and the Company approves the request, the Annuity Commencement Date may be
deferred. No further changes in the Designated Annuitant will be permitted under
the Contract. The amount of the Death Benefit will be limited to the Contract
Value if the Annuity Commencement Date is postponed beyond the first day of the
calendar month after the Designated Annuitant's 75th birthday or such other
Annuity Commencement Date provided under the Contract Owner's Qualified Plan.
ANNUITY PAYMENT OPTIONS
The Contract Owner may, upon prior written notice to the Company, at any
time prior to the Annuitization Date, elect one of the following Annuity Payment
Options.
Option 1-Life Annuity-An annuity payable monthly during the lifetime of
the Annuitant, ceasing with the last payment due prior to the death of the
Annuitant. IT WOULD BE POSSIBLE UNDER THIS OPTION FOR THE ANNUITANT TO
RECEIVE ONLY ONE ANNUITY PAYMENT IF HE OR SHE DIED BEFORE THE SECOND
ANNUITY PAYMENT DATE, TWO ANNUITY PAYMENTS IF HE OR SHE DIED BEFORE THE
THIRD ANNUITY PAYMENT DATE, AND SO ON.
Option 2-Joint and Last Survivor Annuity-An annuity payable monthly during
the joint lifetimes of the Annuitant and designated second person and
continuing thereafter during the lifetime of the survivor. AS IS THE CASE
UNDER OPTION 1 ABOVE, THERE IS NO MINIMUM NUMBER OF PAYMENTS GUARANTEED
UNDER THIS OPTION. PAYMENTS CEASE UPON THE DEATH OF THE LAST SURVIVING
ANNUITANT REGARDLESS OF THE NUMBER OF PAYMENTS RECEIVED.
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 Annuitant payments have been made
for fewer than 120 or 240 months, as selected, payments will be made as
follows:
(1) Any guaranteed annuity payments will be continued during the
remainder of the selected period to the Beneficiary or the
Beneficiary 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 (2) below.
(2) The present value, computed as of the date in 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, commuted at the Assumed Investment Rate effective in
determining the Annuity Tables, shall be paid in a lump sum.
Some of the stated Annuity Options may not be available in all states. The
Owner may request an alternative non-guaranteed option by giving notice in
writing prior to annuitization. If such a request is approved by the Company, it
will be permitted under the Contract.
If the Owner of a Non-Qualified Contract fails to elect an Annuity Payment
Option, the Contract Value will continue to accumulate. Contracts issued in
connection with Qualified Plans, Individual Retirement Annuities or Tax
Sheltered Annuities are subject to the minimum distribution requirements set
forth in the plan, Contract, or Internal Revenue Code.
DEATH OF CONTRACT OWNER
A. In the event the Contract Owner or Joint Owner dies, the following rules
will apply for Non-Qualified Contracts:
(1) In the event death occurs prior to the Annuitization Date, the entire
interest in the Contract, less any applicable deductions (which may
include Contingent Deferred Sales Charges), must be distributed within 5
years after the Owner's death. In the alternative, the party entitled to
receive the distribution may elect to receive distribution in the form of
a life annuity or an annuity for a period certain not exceeding his or her
life expectancy and such annuity begins within one year from the date of
the Contract Owner's death. In the event the party entitled to receive the
distribution is the Contract Owner's spouse, the Contract may be continued
by such spouse, treating the spouse as the Contract Owner without
compliance with the distribution rules set forth herein. In the event the
Designated Annuitant does not survive the Contract Owner, or if the
Designated Annuitant and the Owner are the same person a distribution will
be made in
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accordance with the "Death Benefit At Death of Designated Annuitant Prior
To The Annuitization Date" provision following provided, however, that all
distributions made as a result of the death of an Owner shall be made
within the time limits set forth in this paragraph. If the Contract Owner
and the Designated Annuitant are not the same, no Death Benefit is payable
upon the death of the Contract Owner. If the deceased Owner and the
Annuitant are not the same person, the distribution described above will
be paid to the Joint Owner, if any. If no Joint Owner is named, the
Annuitant will receive the distribution.
(2) If the Contract Owner/Annuitant dies on or after the Annuitization Date,
distribution, if any, must be made to the Beneficiary at least as rapidly
as under the method of distribution being used as of the date of the
Contract Owner/Annuitant's death.
If the Contract Owner is not a natural person, the death of the Annuitant
(or a change of the Annuitant) will be treated like a death of the Contract
Owner and will result in a distribution pursuant to Section (1), regardless of
whether a Contingent Annuitant has also been named. The distribution will take
the form of either:
(a) the Death Benefit described below (if the Annuitant has died and
there is no Contingent Annuitant), or in all other cases,
(b) the benefit described in Section (1) above, except that in the event
of a change of Annuitant, the benefit will be paid to the Contract
Owner if the Annuitant is living, or as a Death Benefit to the
Beneficiary upon the death of the Annuitant (and the Contingent
Annuitant) prior to the expiration of the period described in Section
(1) above.
B. Contracts issued in connection with Qualified Plans, Individual Retirement
Annuities or Tax Sheltered Annuities will be subject to specific rules,
set forth in the plan, Contract, or Internal Revenue Code concerning
distributions upon the death of the Owner or the Designated Annuitant (See
the "Required Distribution for Qualified Plans or Tax Sheltered Annuities"
provision).
DEATH BENEFIT AT DEATH OF DESIGNATED ANNUITANT PRIOR TO THE ANNUITIZATION DATE
If the Designated Annuitant dies prior to the Annuitization Date, a Death
Benefit will be payable upon receipt of due proof of death of the Designated
Annuitant. The Death Benefit is payable to the Beneficiary unless the Owner has
named a Contingent Designated Annuitant, in which 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 both 1) due proof of death and 2) an election for
a) a single sum payment or b) Annuity Payment Option.
If a single sum settlement is requested, payment will be made in
accordance with any applicable laws and regulations governing the payment of
Death Benefits. If an Annuity Payment Option is desired, election may be made by
the Beneficiary during the 90-day period commencing with the date written notice
is received by the Company. If no election has been made by the end of such
90-day period, the Death Benefit will be paid to the Beneficiary in a single
sum. The amount of the Death Benefit will be the greater of (i) the sum of all
purchase payments, less any amounts surrendered, or (ii) the Contract Value.
The amount of the Death Benefit will be limited to the Contract Value if
the Annuitization Date is deferred beyond the Designated Annuitant's 75th
birthday.
DEATH BENEFIT AFTER THE ANNUITIZATION DATE
If the Annuitant dies after the Annuitization Date, the Death Benefit
shall be as specified in the Annuity Payment Option elected.
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 Incidental Benefit (MDIB) provisions of Section 401(a)(9)
of the Internal Revenue Code and regulations thereunder, as applicable, and will
be paid, notwithstanding anything else contained herein, to the Owner/Annuitant
under the Annuity Payments Option selected, over a period not exceeding:
A the life of the Owner/Annuitant or the lives of the Owner/Annuitant
and the Owner/Annuitant's designated Beneficiary; or
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B a period not extending beyond the life expectancy of the
Owner/Annuitant or the life expectancy of the Owner/Annuitant and the
Owner/Annuitant's designated Beneficiary.
If the Owner/Annuitant's entire interest is to be distributed in equal or
substantially equal payments over a period described in A or B, such payments
will commence not later than the first day of April following the calendar year
in which the Owner/Annuitant attains age 70 1/2 (the Required Beginning Date).
In the case of a governmental plan or church plan (as those terms are used 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 Owner 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 year during which the fifth anniversary of his
or her death occurs unless:
(a) In the case of a Tax Sheltered Annuity the Owner names his or her
surviving spouse as the Beneficiary and such spouse elects to (i) treat
the annuity as a Tax Sheltered Annuity established for his or her benefit;
or (ii) receive distribution of the account in nearly equal payments over
his or her life (or a period not exceeding his or her life expectancy) and
commencing not later than December 31 of the year in which the Owner would
have attained age 70 1/2; or
(b) In the case of the Tax Sheltered Annuity or a Qualified Contract the Owner
names a Beneficiary other than his or her surviving spouse and such
Beneficiary elects to receive a distribution of the account in nearly
equal payments over his or her life (or a period not exceeding his or her
life expectancy) commencing not later than December 31 of the year
following the year in which the Owner dies.
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.
Payments commencing on the Required Beginning Date will not be less than
the lesser of the quotient obtained by dividing the entire interest of the
Owner/Annuitant by the life expectancy of the Owner/Annuitant, or the joint and
last survivor expectancy of the Owner/Annuitant and the Owner/Annuitant's
designated Beneficiary (whichever is applicable under the applicable Minimum
Distribution or MDIB provisions). Life expectancy and joint and last survivor
expectancy are computed by the use of return multiples contained in Section
1.72-9 of the Treasury Regulations.
REQUIRED DISTRIBUTIONS FOR INDIVIDUAL RETIREMENT ANNUITIES
Distribution 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. Distribution may be accepted in a lump sum or in nearly
equal payments over: (a) the Owner's life or the lives of the Owner and his or
her spouse or designated Beneficiary, or (b) a period not exceeding the Owner's
life expectancy or the life expectancy of the Owner and the Owner's spouse or
designated Beneficiary.
If the Owner 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 year during which the fifth anniversary of his
or her death occurs unless:
(a) The Owner names his or her surviving spouse as the Beneficiary and such
spouse elects to:
(i) treat the annuity as an Individual Retirement Annuity established
for his or her benefit; or
(ii) receive distribution of the account in nearly equal payments over
his or her life (or a period not exceeding his or her life
expectancy) and commencing not later than December 31 of the year in
which the Owner would have attained age 70 1/2; or
(b) The Owner names a Beneficiary other than his or her surviving spouse and
such Beneficiary elects to receive a distribution of the account in nearly
equal payments over his or her life (or a period not exceeding his or her
life expectancy) commencing not later than December 31 of the year
following the year in which the Owner dies.
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 beneficiary elects to
treat the contract as his or her own, in the same manner as described in section
(a)(i) in this provision.
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If the amounts distributed do not satisfy the distribution rules mentioned
above, a penalty tax of 50% is levied on the amount that should have been
distributed for that year.
A pro-rata portion of all distributions will be included in the gross
income of the person receiving the distribution and taxed at ordinary income tax
rates. The portion of the distribution which is taxable is based on the ratio
between the amount by which non-deductible purchase payments exceed prior
non-taxable distributions and total account balances at the time of the
distribution. The Owner must annually report the amount of non-deductible
purchase payments, the amount of any distribution, the amount by which
non-deductible purchase payments for all years exceed non-taxable distributions
for all years, and the total balance of all Individual Retirement Accounts and
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 die 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
ther payment constitutes a direct skip as defined in Section 2612 of the
Internal Revenue Code, and the amount of the tax on the generation-skipping
transfer resulting from such direct skip. If applicable, the payment will be
reduced by any tax the Company is required to pay by Section 2603 of the
Internal Revenue Code.
A direct skip may occur when property is transferred to or a Death Benefit
is paid to an individual two or more generations younger than the Contract
Owner.
GENERAL INFORMATION
CONTRACT OWNER SERVICES
ASSET REBALANCING-The Contract Owner may direct the automatic reallocation
of contract values to the underlying Mutual Fund options on a predetermined
percentage basis every three months. If the last day of the three month period
falls on a Saturday, Sunday, recognized holiday, or any other day when the New
York Stock Exchange is closed, the Asset Rebalancing exchange will occur the
last business day before that day. Asset Rebalancing will not affect future
allocations of purchase payments. An Asset Rebalancing request must be made in
writing on a form provided by the Company.
Contracts issued to a Qualified Plan or a Tax Sheltered Annuity Plan as
defined by the Internal Revenue Code may have superseding plan restrictions with
regard to the frequency of underlying Mutual Fund exchanges and underlying
Mutual Fund options. The Contract Owner may want to contact a financial adviser
in order to discuss a specific Contract.
The Company reserves the right to discontinue offering Asset Rebalancing
upon 30 days' written notice to the Contract Owners, however, any such
discontinuation would 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 funds from the Money Market sub-account or the Fixed
Account to any other sub-account within the Variable Account on a monthly basis.
This service is intended to allow the Contract Owner to utilize Dollar Cost
Averaging, a long-term investment program which provides for regular, level
investments over time. The Company makes no guarantees that Dollar Cost
Averaging will result in a profit or protect against loss. To qualify for Dollar
Cost Averaging, there must be a minimum total Contract Value of $15,000.
Transfers for purposes of Dollar Cost Averaging can only be made from the Money
Market sub-account or the Fixed Account. The minimum monthly Dollar Cost
Averaging transfer is $100. In addition, Dollar Cost Averaging monthly transfers
from the Fixed Account must be equal to or less than 1/30th of the Fixed Account
value when the Dollar Cost Averaging program is requested. Transfers out of the
Fixed Account, other than for Dollar Cost Averaging, may be subject to certain
additional restrictions. (See "Transfers"). A written election of this service,
on a form provided by the Company, must be completed by the Contract Owner in
order to begin transfers. Once elected, transfers from the Money Market
sub-account or the Fixed Account will be processed monthly until either the
value in the Money Market sub-account or the Fixed Account is completely
depleted or the Contract Owner instructs the Company in writing to cancel the
monthly transfers.
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The Company reserves the right to discontinue offering Dollar Cost
Averaging upon 30 days' written notice to Contract Owners however, any such
discontinuation would not affect Dollar Cost Averaging programs already
commenced. The Company also reserves the right to assess a processing fee for
this service.
SYSTEMATIC WITHDRAWALS-A Contract Owner may elect in writing on a form
provided by the Company to take Systematic Withdrawals by surrendering a
specified dollar amount (of at least $100) on a monthly, quarterly, semi-annual,
or annual basis. The Company will process the withdrawals as directed by
surrendering on a pro-rata basis Accumulation Units from all sub-accounts in
which the Contract Owner has an interest, and the Fixed Account. A Contingent
Deferred Sales Charge may apply to Systematic Withdrawals in accordance with the
considerations set forth in the "Contingent Deferred Sales Charge" section. Each
Systematic Withdrawal is subject to federal income taxes on the taxable portion.
In addition, a 10% federal penalty tax may be assessed on Systematic Withdrawals
if the Contract Owner is under age 59 1/2. If directed by the Contract Owner,
the Company will withhold federal income taxes from each Systematic Withdrawal.
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 to Contract Owners; however, any such
discontinuation would not affect Systematic Withdrawal programs already
commenced. The Company also reserves the right to assess a processing fee for
this service.
STATEMENTS AND REPORTS
The Company will mail to Contract Owners, at their last known address of
record, any statements and reports required by applicable law or regulation.
Contract Owners should therefore give the Company prompt notice of any address
change. The Company will send a confirmation statement to Contract Owners each
time a transaction is made affecting the Owners' Variable Account Contract
Value, such as making additional purchase payments, transfers, exchanges or
withdrawals. Quarterly statements are also mailed detailing the Contract
activity during the calendar quarter. Instead of receiving an immediate
confirmation of transactions made pursuant to some types of periodic payment
plan (such as a dollar cost averaging program) or salary reduction arrangement,
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 accurate unless the Contract Owner notifies the
Company otherwise within 30 days after receipt of the statement. The Company
will also send to Contract Owners each year an annual report and a semi-annual
report containing financial statements for the Variable Account, as of December
31 and June 30, respectively.
ALLOCATION OF PURCHASE PAYMENTS AND CONTRACT VALUE
Purchase payments are allocated to one or more sub-accounts within the
Variable Account in accordance with the designation of the underlying Mutual
Fund options by the Contract Owner, and converted into Accumulation Units.
The initial first year purchase payment must be at least $1,500 for
Non-Qualified Contracts. However, if periodic payments are expected by the
Company, this initial first year minimum may be satisfied by purchase payments
made on an annualized basis. Purchase payments, if any, after the first Contract
Year must be at least $10 each. The Company, however, reserves the right to
lower this $10 purchase payment minimum for certain employer sponsored programs.
The Contract Owner may increase or decrease purchase payments or change the
frequency of payment. The Contract Owner is not obligated to continue purchase
payments in the amount or at the frequency elected. There are no penalties for
failure to continue purchase payments.
The cumulative total of all purchase payments under Contracts issued on
the life of any one Designated Annuitant may not exceed $1,000,000 without prior
consent of the Company.
THE PURCHASER IS CAUTIONED THAT INVESTMENT RETURN ON SMALL INITIAL AND
SUBSEQUENT PURCHASE PAYMENTS MAY BE LESS THAN CHARGES ASSESSED BY THE COMPANY.
The initial purchase payment allocated to designated sub-accounts of the
Variable Account will be priced not later than 2 business days after receipt of
an order to purchase, if the application and all information necessary for
processing the purchase order are complete upon receipt by the Company, and the
Company may retain the purchase payment for up to 5 business days while
attempting to complete an incomplete application. If the application cannot be
made complete within 5 days, the prospective purchaser will be informed of the
reasons for the delay and the purchase payment will be returned immediately
unless the
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prospective purchaser specifically consents to the Company retaining the
purchase payment until the application is made complete. After the application
is complete, the purchase payment will be priced within two business days.
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 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 asset value per share of the underlying Mutual Fund held in the
sub-account determined as of the end of the immediately preceding
Valuation Period.
(c) is a factor representing the Mortality Risk Charge, Expense Risk Charge
and Administration Charge deducted from the Variable Account. Such factor
is equal on an annual basis to 1.30% of the daily net asset value of the
Variable Account.
For underlying Mutual Funds that credit dividends on a daily basis and pay
such dividends once a month 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, and any charge or credit for tax reserves.
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.
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.
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"Proper Written Application" means that the surrender must be requested in
writing by the Contract Owner, and the Company may require that the signature(s)
be guaranteed by a member firm of the New York, American, Boston, Midwest,
Philadelphia, or Pacific Stock Exchange, or by a Commercial Bank or a Savings
and Loan, which is a member of the Federal Deposit Insurance Corporation. In
some cases (for example, requests by a corporation, partnership, agent,
fiduciary, or surviving Joint Owner), the Company will require additional
documentation of a customary nature.
The Company will, upon receipt of any such written request, surrender a
number of Accumulation Units from the Variable Account and an amount from the
Fixed Account necessary to equal the gross dollar amount requested, less any
applicable Contingent Deferred Sales Charge. (See "Contingent Deferred Sales
Charge"). In the event of a partial surrender, the Company will, unless
instructed to the contrary, surrender Accumulation Units from all sub-accounts
in which the Contract Owner has an interest, and the Fixed Account. The number
of Accumulation Units surrendered from each sub-account and the amount
surrendered from the Fixed Account will be in the same proportion that the
Contract Owner's interest in the sub-accounts and Fixed Account bears to the
total Contract Value.
The Company will pay any funds applied for from the Variable Account
within 7 days of receipt of such application in the Company's home office.
However, the Company reserves the right to suspend or postpone the date of any
payment of any benefit or values for any Valuation Period (1) when the New York
Stock Exchange ("Exchange") is closed, (2) when trading on the Exchange is
restricted, (3) when an emergency exists as a result of which disposal of
securities held in the Variable Account is not reasonably practicable or it is
not reasonably practicable to determine the value of the Variable Account's net
assets, or (4) during any other period when the Securities and Exchange
Commission, by order, so permits for the protection of security holders;
provided that applicable rules and regulations of the Securities and Exchange
Commission shall govern as to whether the conditions prescribed in (2)and (3)
exist. The Contract Value on surrender may be more or less than the total of
purchase payments made by a Contract Owner, depending on the market value of the
underlying Mutual Fund shares.
With respect to Contracts issued under the Texas Optional Retirement
Program, the Texas Attorney General has ruled that withdrawal benefits are
available only in the event of a participant's death, retirement, termination of
employment due to total disability, or other termination of employment in a
Texas public institution of higher education. A participant will not, therefore,
be entitled to receive the right of withdrawal in order to receive the cash
values credited to such participant under the Contract unless one of the
foregoing conditions has been satisfied. The value of such Contracts may,
however, be transferred to other contracts or other carriers during the period
of participation in the Optional Retirement Program. The Company issues this
Contract to participants in the Optional Retirement Program in reliance upon,
and in compliance with, Rule 6c-7 of the Investment Company Act of 1940.
SURRENDERS UNDER A QUALIFIED PLAN OR TAX SHELTERED ANNUITY CONTRACT
Except as provided below, the Owner may surrender part or all of the
Contract Value at any time this Contract is in force prior to the earlier of the
Annuitization Date or the death of the Designated Annuitant:
A. The surrender of Contract Value attributable to contributions made
pursuant to a salary reduction agreement (within the meaning of Code
Section 402(g)(3)(A) or (C) of the Internal Revenue Code of 1986, as
amended, (the Code)), 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 for Tax Sheltered
Annuities apply to:
1. salary reduction contributions to Tax Sheltered Annuities made for
plan years beginning after December 31, 1988;
2. earnings credited to such contracts after the last plan year beginning
before January 1, 1989, on amounts attributable to salary reduction
contributions; and
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3. all amounts transferred from 403(b)(7) Custodial Accounts (except that
earnings, and employer contributions as of December 31, 1988 in such
Custodial Accounts may be withdrawn in the case of hardship).
C. Any distribution other than the above, including exercise of a
contractual ten-day free look provision (when available) may result in the
immediate application of taxes and penalties and/or retroactive
disqualification of a Qualified Contract or Tax Sheltered Annuity.
A premature distribution may not be eligible for rollover treatment. To
assist in preventing disqualification 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.
The contract surrender provisions may also be modified pursuant to the
plan terms and Internal Revenue Code tax provisions when the contract is issued
to fund a Qualified Plan.
INFORMATION CONTAINED HEREIN SHOULD NOT BE SUBSTITUTED FOR THE ADVICE OF A
PERSONAL TAX ADVISER.
TAXES
The Company does not make any guarantee regarding the tax status of any
Contract or any transaction involving the Contracts.
Section 72 of the Internal Revenue Code of 1986, as amended (the "Code")
governs taxation of annuities in general. That section sets forth different
rules for annuities purchased by (1) Qualified Plans (corporate pension and
profit sharing plans, simplified employee pension-individual retirement
accounts, plans, and retirement plans for self-employed individuals), Individual
Retirement Annuities and Accounts, and Tax Sheltered Annuities and (2) annuities
which are not purchased by such plans. Each type of annuity is discussed
separately below.
The Tax Reform Act of 1986 and subsequent legislation changed some of the
rules regarding the tax treatment of distributions from Qualified Plans and
annuities purchased by Qualified Plans. You should consult your financial
consultant or legal or tax advisor to discuss in detail your particular tax
situation and the use of the Contracts.
Generally the amount of any payment of items of interest to a nonresident
alien of the United States shall be subject to withholding of a tax equal to
thirty percent (30%) of such amount or, if applicable, a lower treaty rate. A
payment may not be subject to withholding where the recipient sufficiently
establishes that such payment is effectively connected to the recipient's
conduct of a trade or business in the United States and such payment is
includable in the recipient's gross income.
NON-QUALIFIED CONTRACTS
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. The maximum amount excludable from income is the
investment in the Contract. If the Designated Annuitant dies prior to excluding
from income the entire investment in the Contract, the Designated 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 Designated 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
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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 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 Qualified Contracts, Individual Retirement Annuities and Tax Sheltered
Annuities; 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.
Internal Revenue Code Section 72 also provides for a penalty, equal to 10%
of any distribution which is includable in gross income, if such distribution is
made prior to attaining age 59 1/2, the death or disability of the Contract
Owner. The penalty does not apply if the distribution is one of a series of
substantially equal periodic payments made over the life or life expectancy (or
joint lives or life expectancies) of the Designated Annuitant (and the
Annuitant's Beneficiary), or is made from 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. If the Designated
Annuitant selects an annuity for life or life expectancy and changes the method
of payment before the expiration of 5 years and the attainment of age 59 1/2,
the early withdrawal penalty will apply. The penalty will be equal to that which
would have been imposed had no exception applied from the outset, and the
Designated Annuitant will also pay interest on the amount of the penalty from
the date it would have originally applied until it is actually paid.
In order to qualify as an Annuity Contract under Section 72 of the Code,
the Contract must provide for distribution to be made upon the death of the
Contract Owner or Joint Owner. In such case the Designated Annuitant,
Beneficiary or other named recipient must receive the distribution within 5
years of the Owner's death. However, the recipient may elect for payments to be
made over his or her life or life expectancy if such payments begin within one
year of the death of the Contract Owner. If the Contract Owner's Beneficiary 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 Annuity Commencement 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. If the Contract Owner is not an
individual, the death of the Annuitant (or a change of the Annuitant) will
result in a distribution pursuant to these rules, regardless of whether a
Contingent Annuitant has been named (See "Required Distribution for Qualified
Plans or Tax Sheltered Annuities").
The Company is required to withhold tax from certain distributions to the
extent that such distribution would constitute income to the Contract Owner. The
Contract Owner 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.
Payment of a benefit or transfer of any property to an individual two or
more generations younger than the Contract Owner may constitute a
generation-skipping transfer, subject to taxation under Section 2601 et seq. of
the Internal Revenue Code.
DIVERSIFICATION
The Internal Revenue Service has promulgated regulations under Section
817(h) of the Internal Revenue Code ("Code") relating to diversification
standards for the investments underlying a variable annuity contract. The
regulations provide that a variable annuity contract which does not satisfy the
diversification standards will not be treated as an annuity contract, unless the
failure to satisfy the regulations was inadvertent, the failure is corrected,
and the Owner or the Company pays an amount to the Internal Revenue Service. The
amount will be based on the tax that would have been paid by the Owner if the
income, for the period the contract was not diversified, had been received by
the Owner. If the failure to diversify is not corrected in this manner, the
Owner of an annuity contract will be deemed the Owner of the underlying
securities and will be taxed on the earnings of his account. The Company
believes, under its interpretation of the Code and regulations thereunder, that
the investments underlying this Contract meet these diversification standards.
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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.
QUALIFIED PLANS, INDIVIDUAL RETIREMENT ANNUITIES, INDIVIDUAL RETIREMENT ACCOUNTS
AND TAX SHELTERED ANNUITIES
The Contracts may be used with Qualified Plans, Individual Retirement
Annuities, Individual Retirement Accounts, Tax Sheltered Annuities and other
plans receiving favorable tax treatment. For information regarding eligibility,
limitations on permissible amounts of purchase payments, and tax consequences on
distribution from such plans, the purchasers of such Contracts should seek
competent advice. The terms of such plans may limit the rights available under
the Contracts.
The Internal Revenue Code of 1986, as amended, permits the rollover of ost
distributions from Qualified Plans to other Qualified Plans, Individual
Retirement Accounts, or Individual Retirement Annuities. Most distributions from
Tax Sheltered Annuities may be rolled into another Tax Sheltered Annuity, an
Individual Retirement Account, or an Individual Retirement Annuity.
Distributions which may not be rolled over are those which are:
1. on of a series of substantially equal annual (or more frequent)
payments made: a) over the life (or life expectancy) of the
employee, b) the joint lives (or joint life expectancies) of the
employee and the employee's designated beneficiary, or c) for a
specified period of ten years or more, or
2. a required minimum distribution
Any distribution eligible for rollover will be subject to federal tax
withholding at a 20 percent rate unless the distribution is transferred directly
to an appropriate plan as described above.
Individual Retirement Annuities and Individual Retirement Accounts 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 Account or 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 the Employee Retirement Income Security Act (ERISA). It is the
responsibility of the plan and its fiduciaries to determine and satisfy section
404(c) requirements.
ADVERTISING
The Company may from time to time advertise several types of historical
performance for the sub-accounts of the Variable Account.
The Company may advertise for the sub-accounts standardized "average
annual total return," calculated in a manner prescribed by the Securities and
Exchange Commission, and nonstandardized "total return." "Average annual total
return" will show the percentage rate of return of a hypothetical initial
investment of $1,000 for at least the cumulative calendar year and the most
recent one, five and ten year period, or for a period covering the time the
underlying Mutual Fund has been available within the Variable Account, if the
underlying Mutual Fund has not been available within the Variable Account for
one of the prescribed periods. This calculation reflects the deduction of all
applicable charges made to the Contracts except for premium taxes, which may be
imposed by certain states.
Nonstandardized "total return" will be calculated in a similar manner and
for the same time periods as will average annual total return except total
return will assume an initial investment of $10,000 and will not reflect the
deduction of any applicable Contingent Deferred Sales Charge, which, if
reflected, would decrease the level of performance shown. The Contingent
Deferred Sales Charge is not reflected because the Contracts are designed for
long term investment. An assumed initial investment of $10,000 will be used
because that figure more closely approximates the size of a typical Contract
than does the $1,000 figure used in calculating the standardized average annual
total return quotations. The amount of the hypothetical initial investment
assumed affects performance because the Contract Maintenance Charge is a fixed
per Contract charge.
A "yield" and "effective yield" may also be advertised for the Money
Market Portfolio sub-account. "Yield" is a measure of the net dividend and
interest income earned over a specific seven-day period (which period will
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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 a
sub-account of the Variable Account relative to the performance of other
variable annuity sub-accounts or mutual funds with similar or different
objectives, or the investment industry as a whole. Other investments to which
the sub-accounts may be compared include, but are not limited to: precious
metals; real estate; stocks and bonds; closed-end funds; CDs; bank money market
deposit accounts and passbook savings; and the Consumer Price Index.
The sub-accounts of the Variable Account may also be compared to certain
market indexes, which may include, but are not limited to: S&P 500;
Shearson/Lehman Intermediate Government/Corporate Bond Index; Shearson/Lehman
Long-Term Government/Corporate Bond Index; Donoghue Money Fund Average; U.S.
Treasury Note Index; Bank Rate Monitor National Index of 2 1/2 Year CD Rates;
and Dow Jones Industrial Average.
Normally these rankings and ratings are published by independent tracking
services and publications of general interest including, but not limited to:
Lipper Analytical Services, Inc., CDA/Wiesenberger, Morningstar, Donoghue's,
magazines such as Money, Forbes, Kiplinger's Personal Finance Magazine,
Financial World, Consumer Reports, Business Week, Time, Newsweek, U.S. News and
World Report, National Underwriter; 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 Mutual 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 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 contract.
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.
ALL PERFORMANCE INFORMATION AND COMPARATIVE MATERIAL ADVERTISED BY THE COMPANY
IS HISTORICAL IN NATURE AND IS NOT INTENDED TO REPRESENT OR GUARANTEE FUTURE
RESULTS. A CONTRACT OWNER'S CONTRACT VALUE AT REDEMPTION MAY BE MORE OR LESS
THAN ORIGINAL COST.
LEGAL PROCEEDINGS
There are no material legal proceedings, other than ordinary routine
litigation incidental to the business to which the Company and the Variable
Account are parties or to which any of their property is the subject.
The General Distributor, American Capital Marketing, Inc., is not engaged
in any litigation of any material nature.
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
<S> <C>
General Information and History................................... 1
Services.......................................................... 1
Purchase of Securities Being Offered.............................. 1
Underwriters...................................................... 2
Calculations of Performance....................................... 2
Annuity Payments.................................................. 3
Financial Statements.............................................. 4
</TABLE>
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APPENDIX
Purchase Payments allocated to the Fixed Account portion of the Contract
and transfers to the Fixed Account portion become part of the general account of
the Company, which supports insurance and annuity obligations. Because of
exemptive and exclusionary provisions, interests in the general account have not
been registered under the Securities Act of 1933 ("1933 Act"), nor is the
general account registered as an investment company under the Investment Company
Act of 1940 ("1940 Act"). Accordingly, neither the general account nor any
interest therein 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 portion. Disclosures regarding the Fixed Account portion of the Contract and
the Fixed Account 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 Variable Account-3 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 to the Variable Account.
The maximum percentage that may be transferred will be determined by the Company
at its sole discretion, but will not be less than 10% of the total value of the
portion of the Fixed Account that is maturing and will be declared upon the
expiration date of the then current Interest Rate Guarantee Period. The Interest
Rate Guarantee Period expires on the final day of a calendar quarter; therefore
the Interest Rate Guarantee Period for deposits or transfers in the Fixed
Account may continue for up to three months after a one year period has expired.
Transfer 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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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
The Annuity Tables contained in the Contracts are based on the 1971
Individual Annuity Mortality Table (set back one year).
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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STATEMENT OF ADDITIONAL INFORMATION
JULY 1, 1995
INDIVIDUAL DEFERRED VARIABLE ANNUITY CONTRACTS ISSUED
BY THE NATIONWIDE VARIABLE ACCOUNT-3
OF NATIONWIDE LIFE INSURANCE COMPANY
This Statement of Additional Information is not a prospectus. It contains
information in addition to and more detailed than set forth in the Prospectus
and should be read in conjunction with the Prospectus dated July 1, 1995. The
Prospectus may be obtained from Nationwide Life Insurance Company by writing P.
O. Box 182030, Columbus, Ohio 43218-2030, or calling 1-800-826-3167, TDD
1-800-238-3035.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
General Information and History............................... 1
Services...................................................... 1
Purchase of Securities Being Offered.......................... 1
Underwriters.................................................. 2
Calculations of Performance................................... 2
Annuity Payments.............................................. 3
Financial Statements.......................................... 4
</TABLE>
GENERAL INFORMATION AND HISTORY
The Nationwide Variable Account-3 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 Corporation. Nationwide Corporation is a holding company. All of
its common stock is held by Nationwide Mutual Insurance Company (95.3%) and
Nationwide Mutual Fire Insurance Company (4.7%).
SERVICES
The Company, which has responsibility for administration of the Contracts
and the Variable Account, maintains records of the name, address, taxpayer
identification number, and other pertinent information for each Contract Owner
and the number and type of Contract issued to each such Contract Owner and
records with respect to the Contract Value of each Contract.
The Custodian of the assets of the Variable Account is the Company. The
Company will maintain a record of all purchases and redemptions of shares of the
underlying Mutual Funds.
The financial statements and schedule have been included herein in
reliance upon the reports of KPMG Peat Marwick LLP, independent certified public
accountants, Two Nationwide Plaza, Columbus, Ohio 43215, and upon the authority
of said firm as experts in accounting and auditing.
PURCHASE OF SECURITIES BEING OFFERED
The Contracts will be sold by licensed insurance agents in the states
where the Contracts may be lawfully sold. Such agents will be registered
representatives of broker-dealers registered under the Securities Exchange Act
of 1934 who are members of the National Association of Securities Dealers, Inc.
("NASD").
The Contract Owner may transfer up to 100% of the Contract Value from the
Variable Account to the Fixed Account. However, the Company, at its sole
discretion, reserves the right to limit such transfers to 25% of the Contract
Value for any 12 month period. Contract Owners may at the maturity of an
Interest Rate Guarantee Period transfer a portion of the Contract Value of the
Fixed Account to the Variable Account. Such portion will be determined by the
Company at its sole discretion (but will not be less than 10% of the total value
of the portion of the Fixed Account that is maturing), and will be declared upon
the expiration date of the then current Interest Rate Guarantee Period. The
Interest Rate Guarantee Period expires on the final day of a calendar quarter;
therefore the Interest Rate Guarantee Period for deposits or transfers to the
Fixed Account may continue for up to three months after a one year period has
expired. Transfer under this provision must be made within 45 days after the
termination date of the guarantee period. Owners who have entered into a Dollar
Cost Averaging agreement with the Company may transfer from the Fixed Account
under the terms of that agreement.
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Transfers from the Fixed and Variable Accounts may not be made prior to
the first Contract Anniversary. Transfers must also be made prior to the Annuity
Commencement Date.
UNDERWRITERS
The Contracts, which are offered continuously, are distributed by American
Capital Marketing Inc., 2800 Post Oak Blvd., Houston, Texas 77056. No
underwriting commissions are paid by the Company to the Distributor, only sales
commissions.
CALCULATIONS OF PERFORMANCE
Any current yield quotations of the Money Market Portfolio sub-account,
subject to Rule 482 of the Securities Act of 1933, shall consist of a seven
calendar day historical yield, carried at least to the nearest hundredth of a
percent. The yield shall be calculated by determining the net change, exclusive
of capital changes, in the value of hypothetical pre-existing account having a
balance of one accumulation unit at the beginning of the base period,
subtracting a hypothetical charge reflecting deductions from Contract Owner
accounts, and dividing the net change in account value by the value of the
account at the beginning of the period to obtain a base period return, and
multiplying the base period return by 365/7 (366/7) or (366/7) in a leap year.
As of December 31, 1992, the Money Market Portfolio sub-account's seven-day
current unit value yield was 1.32%. The Money Market Portfolio sub-account's
effective yield is computed similarly but includes the effect of assumed
compounding on an annualized basis of the current unit value yield quotations of
the Fund, and for the period ending December 31, 1994 was 4.04%.
The Money Market Portfolio sub-account's yield and effective yield will
fluctuate daily. Actual yields will depend on factors such as the type of
instruments in the Money Market Portfolio, portfolio quality and average
maturity, changes in interest rates, and the Money Market Portfolio'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. There is no
assurance that the yields quoted on any given occasion will remain in effect for
any period of time and there is not guarantee that the net asset values will
remain constant. It should be noted that a Contract Owner's investment in the
money market Portfolio sub-account is not guaranteed or insured. Yield of other
money market funds may not be comparable if a difference vase period or another
method of calculation is used.
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 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 $35 Contract maintenance
Charge and a 1.30% Mortality, Expense Risk and Administration Charge. The
redeemable value also reflects the effect of any applicable Contingent Deferred
Sales Charge that my 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 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 total return and the nonstandardized average
annual total return will be based on the rolling calendar quarters and will
cover at least the cumulative calendar year and
2
36 of 87
<PAGE> 37
periods of one, five, and ten years, or a period covering the time the
underlying Mutual Fund option has been available within the Variable Account, if
the underlying Mutual Fund option has not been available within the Variable
Account for one of the prescribed periods.
Quotations of average annual total return and total average annual 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 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>
Date Fund
Added to
1 Year to 5 Years to Life of Fund Variable
SUB-ACCOUNT OPTIONS 12/31/94 12/31/94 to 12/31/94 Account
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
American Capital Common -13.05% 2.41% 7.35% 5-6-88
Stock Portfolio
American Capital Domestic -13.93% 1.80% 0.53% 5-6-88
Strategic Income Portfolio
American Capital -14.20% N/A 1.43% 1-2-90
Government Portfolio
American Capital Money -6.47% -0.70% 0.74% 5-6-88
Market Portfolio
American Capital Multiple -13.30% 2.56% 4.62% 5-6-88
Strategy Portfolio
</TABLE>
NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
Date Fund
Added to
1 Year to 5 Years to Life of Fund Variable
SUB-ACCOUNT OPTIONS 12/31/94 12/31/94 to 12/31/94 Account
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
American Capital Common -4.99% 5.83% 9.92% 5-6-88
Stock Portfolio
American Capital Domestic -5.92% 5.37% 3.96% 5-6-88
Strategic Income Portfolio
American Capital -6.22% N/A 4.80% 1-2-90
Government Portfolio
American Capital Money 2.01% 2.96% 3.92% 5-6-88
Market Portfolio
American Capital Multiple -5.26% 5.89% 7.44% 5-6-88
Strategy Portfolio
</TABLE>
ANNUITY PAYMENTS
See "Frequency and Amount of Annuity Payments" located in the prospectus.
3
37 of 87
<PAGE> 38
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Contract Owners of
Nationwide Variable Account-3
Nationwide Life Insurance Company:
We have audited the accompanying statement of assets, liabilities and contract
owners' equity of Nationwide Variable Account-3 as of December 31, 1994, and
the related statements of operations and changes in contract owners' equity for
each of the years in the three year period then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1994,
by correspondence with the custodian and the transfer agents of the underlying
mutual funds. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Nationwide Variable Account-3
as of December 31, 1994, and the results of its operations and its changes in
contract owners' equity for each of the years in the three year period then
ended in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplementary information included
in Schedule I is presented for purposes of additional analysis and is not a
required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
KPMG Peat Marwick LLP
Columbus, Ohio
February 3, 1995
4
38 of 87
<PAGE> 39
NATIONWIDE VARIABLE ACCOUNT-3
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY
DECEMBER 31, 1994
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments at market value:
American Capital -- Common Stock Portfolio
2,602,644 shares (cost $36,245,793) . . . . . . . . . . . . . . . . . . . . . . . . . . . $32,246,764
American Capital -- Domestic Strategic Income Portfolio
1,583,394 shares (cost $13,315,943) . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,637,943
American Capital -- Government Portfolio
1,132,768 shares (cost $10,331,642) . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,379,322
American Capital -- Money Market Portfolio
10,697,654 shares (cost $10,697,654) . . . . . . . . . . . . . . . . . . . . . . . . . . 10,697,654
American Capital -- Multiple Strategy Portfolio
3,287,334 shares (cost $37,545,033) . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,840,462
----------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96,802,145
ACCOUNTS PAYABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 779
-----------
CONTRACT OWNERS' EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $96,801,366
===========
</TABLE>
<TABLE>
<CAPTION>
Contract owners' equity represented by: UNITS UNIT VALUE
--------- ----------
<S> <C> <C> <C>
Contracts in accumulation phase:
American Capital -- Common Stock Portfolio:
Tax qualified . . . . . . . . . . . . . . . . . 549,470 $19.065611 $10,475,981
Non-tax qualified . . . . . . . . . . . . . . . 1,141,284 19.065611 21,759,277
American Capital -- Domestic Strategic Income
Portfolio:
Tax qualified . . . . . . . . . . . . . . . . . 304,564 13.235145 4,030,949
Non-tax qualified . . . . . . . . . . . . . . 574,730 13.235145 7,606,635
American Capital -- Government Portfolio:
Tax qualified . . . . . . . . . . . . . . . . . 227,201 12.821877 2,913,143
Non-tax qualified . . . . . . . . . . . . . . . 501,364 12.821877 6,428,428
American Capital -- Money Market Portfolio:
Tax qualified . . . . . . . . . . . . . . . . . 277,679 13.183559 3,660,797
Non-tax qualified . . . . . . . . . . . . . . . 532,988 13.183559 7,026,679
American Capital -- Multiple Strategy Portfolio:
Tax qualified . . . . . . . . . . . . . . . . . 749,168 16.406732 12,291,399
Non-tax qualified . . . . . . . . . . . . . . . 1,250,980 16.406732 20,524,494
========= =========
Reserves for annuity contracts in payout phase:
Non-tax qualified . . . . . . . . . . . . . . . 83,584
-----------
$96,801,366
===========
</TABLE>
See accompanying notes to financial statements.
39 of 87
<PAGE> 40
NATIONWIDE VARIABLE ACCOUNT-3
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
1994 1993 1992
------------ ----------- -----------
<S> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested capital gains and dividends . . . . . . . . . . $ 10,126,858 6,943,526 4,729,510
------------ ----------- -----------
Gain (loss) on investments:
Proceeds from redemptions of mutual fund shares . . . . 46,483,900 43,408,325 29,325,055
Cost of mutual fund shares sold . . . . . . . . . . . . (45,783,206) (39,734,553) (27,271,650)
------------ ----------- -----------
Realized gain on investments . . . . . . . . . . . . . 700,694 3,673,772 2,053,405
Change in unrealized (loss) on investments . . . . . . (14,166,680) (2,060,761) (890,429)
------------ ----------- -----------
Net gain (loss) on investments . . . . . . . . . . . (13,465,986) 1,613,011 1,162,976
------------ ----------- -----------
Net investment activity . . . . . . . . . . (3,339,128) 8,556,537 5,892,486
------------ ----------- -----------
EQUITY TRANSACTIONS:
Purchase payments received from contract owners . . . . . 5,550,286 25,974,374 21,460,235
Redemptions . . . . . . . . . . . . . . . . . . . . . . . (15,199,321) (9,340,200) (4,649,969)
Annuity benefits . . . . . . . . . . . . . . . . . . . . . (9,959) (8,803) (6,694)
Adjustments to maintain reserves . . . . . . . . . . . . . (215) (4,228) 1,183
------------ ----------- -----------
Net equity transactions . . . . . . . . . . (9,659,209) 16,621,143 16,804,755
------------ ----------- -----------
EXPENSES (NOTE 2):
Contract charges . . . . . . . . . . . . . . . . . . . . (1,494,001) (1,446,876) (1,080,280)
Contingent deferred sales charges . . . . . . . . . . . . (342,156) (204,793) (88,908)
------------ ----------- -----------
Total expenses . . . . . . . . . . . . . . (1,836,157) (1,651,669) (1,169,188)
------------ ----------- -----------
NET CHANGE IN CONTRACT OWNERS' EQUITY . . . . . . . . . . . . (14,834,494) 23,526,011 21,528,053
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD . . . . . . . . 111,635,860 88,109,849 66,581,796
------------ ----------- -----------
CONTRACT OWNERS' EQUITY END OF PERIOD . . . . . . . . . . . . $ 96,801,366 111,635,860 88,109,849
============ =========== ===========
</TABLE>
See accompanying notes to financial statements.
40 of 87
<PAGE> 41
NATIONWIDE VARIABLE ACCOUNT-3
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization
Nationwide Variable Account-3 (the Account) was established pursuant to a
resolution of the Board of Directors of Nationwide Life Insurance Company (the
Company) on October 7, 1987. The Account has been registered as a unit
investment trust under the Investment Company Act of 1940.
(b) The Contracts
Only flexible purchase payment contracts without a front-end sales charge,
but with a contingent deferred sales charge and certain other fees, are offered
for purchase. See note 2 for a discussion of contract expenses.
Contract owners in either the accumulation or the payout phase may invest
in the following portfolios of the American Capital Life Investment Trust
(American Capital):
American Capital -- Common Stock Portfolio
American Capital -- Domestic Strategic Income Portfolio
(formerly American Capital -- Corporate Bond Portfolio)
American Capital -- Government Portfolio
American Capital -- Money Market Portfolio
American Capital -- Multiple Strategy Portfolio
At December 31, 1994, contract owners have invested in all of the above
funds. The contract owners' equity is affected by the investment results of
each fund 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 investments is based on the closing bid prices at
December 31, 1994. 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.
41 of 87
<PAGE> 42
(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 the contract owner's contract value a contingent deferred sales charge,
not to exceed 6% (3% after 36 months) of the lesser of the total of all
purchase payments made within 72 months prior to the date of the request for
surrender, or the amount surrendered. (For contracts issued in the State of New
York, the contingent deferred sales charge will not exceed 7% of purchase
payments, such charge declining 1% per year, to 0%, after the purchase payment
has been held in the contract for seven years.) No sales charges are deducted
on redemptions used to purchase units in the fixed investment options of the
Company.
The following administrative charges are deducted by the Company: (a) an
annual contract maintenance charge of $35 ($30 for contracts issued in the
State of New York) which is satisfied by surrendering units; and (b) a
mortality risk charge, an expense risk charge and an administration charge
assessed through the daily unit value calculation equal to an annual rate of
0.80%, 0.45% and 0.05%, respectively.
(3) SCHEDULE I
Schedule I presents the components of the change in the unit values, which
are the basis for contract owners' equity. This schedule is presented 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
fund.)
* Contract charges
(This amount reflects the decrease in the unit value due to the
mortality risk charge, expense 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.
42 of 87
<PAGE> 43
SCHEDULE I
NATIONWIDE VARIABLE ACCOUNT-3
TAX QUALIFIED AND NON-TAX QUALIFIED
SCHEDULES OF CHANGES IN UNIT VALUE
YEARS ENDED DECEMBER 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
DOMESTIC
COMMON STRATEGIC MONEY MULTIPLE
STOCK INCOME GOVERNMENT MARKET STRATEGY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1994
Beginning unit value - Jan. 1 $19.993094 14.016253 13.620968 12.879003 17.253369
- ---------------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains and dividends 2.272837 1.376728 .835320 .474206 1.980194
- ---------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (2.944375) (1.981901) (1.464669) .000000 (2.608938)
- ---------------------------------------------------------------------------------------------------------------------------------
Contract charges (.255945) (.175935) (.169742) (.169650) (.217893)
- ---------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $19.085611 13.235145 12.821877 13.183559 16.406732
- ---------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease) in unit value* (5)% (6)% (6)% 2% (5)%
=================================================================================================================================
1993
Beginning unit value - Jan. 1 $18.587100 12.208185 12.794291 12.709641 16.230095
- ---------------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains and dividends 1.141359 1.091003 .824185 .336808 1.370959
- ---------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .514295 .892204 .178307 .000000 (.127808)
- ---------------------------------------------------------------------------------------------------------------------------------
Contract charges (.249660) (.175139) (.175815) (.167446) (.219877)
- ---------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $19.993094 14.016253 13.620968 12.879003 17.253369
- ---------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease) in unit value* 8% 15% 6% 1% 8%
=================================================================================================================================
1992
Beginning unit value - Jan. 1 $17.522020 10.995055 12.260048 12.458190 15.327503
- ---------------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains and dividends .296708 .986223 .905816 .416521 1.285901
- ---------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .995195 .379693 (.208840) .000000 (.183974)
- ---------------------------------------------------------------------------------------------------------------------------------
Contract charges (.226823) (.152786) (.162733) (.165070) (.199335)
- ---------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $18.587100 12.208185 12.794291 12.709641 16.230095
- ---------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease) in unit value* 6% 11% 4% 2% 6%
=================================================================================================================================
* An annualized rate of return cannot be determined as contract charges do not include the annual contract maintenance charge
discussed in note 2.
</TABLE>
See accompanying independent auditors' report.
43 of 87
<PAGE> 44
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Nationwide Life Insurance Company:
We have audited the accompanying consolidated balance sheets of Nationwide Life
Insurance Company (a wholly owned subsidiary of Nationwide Corporation) and
subsidiaries as of December 31, 1994 and 1993, 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, 1994. 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.
Participating insurance and the related surplus are discussed in note 13. The
Company and its counsel are of the opinion that the ultimate ownership of the
participating surplus in excess of the contemplated equitable policyholder
dividends belongs to the shareholder. The accompanying consolidated financial
statements are presented on such basis.
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, 1994 and 1993, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1994, in conformity with generally
accepted accounting principles.
As discussed in note 2 to the consolidated financial statements, in 1994 the
Company adopted the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for
Certain Investments in Debt and Equity Securities.
In 1993, the Company adopted the provisions of SFAS No. 109, Accounting for
Income Taxes and SFAS No. 106, Employers' Accounting for Postretirement
Benefits Other Than Pensions.
KPMG Peat Marwick LLP
Columbus, Ohio
February 27, 1995
44 of 87
<PAGE> 45
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
<TABLE>
Consolidated Balance Sheets
December 31, 1994 and 1993
(000's omitted)
<CAPTION>
Assets 1994 1993
------ ----------- ----------
<S> <C> <C>
Investments (notes 5, 8 and 9):
Securities available-for-sale, at fair value:
Fixed maturities (cost $8,318,865 in 1994) $ 8,045,906 -
Equity securities (cost $18,373 in 1994; $8,263 in 1993) 24,713 16,593
Fixed maturities held-to-maturity, at amortized cost (fair value $3,602,310
in 1994; $10,886,820 in 1993) 3,688,787 10,120,978
Mortgage loans on real estate 4,222,284 3,871,560
Real estate 252,681 253,831
Policy loans 340,491 315,898
Other long-term investments 63,914 118,490
Short-term investments (note 14) 131,643 41,797
----------- -----------
16,770,419 14,739,147
----------- -----------
Cash 7,436 21,835
Accrued investment income 220,540 190,886
Deferred policy acquisition costs 1,064,159 811,944
Deferred Federal income tax 36,515 -
Other assets 790,603 636,161
Assets held in Separate Accounts (note 8) 12,222,461 9,006,388
----------- -----------
$31,112,133 25,406,361
=========== ===========
Liabilities and Shareholder's Equity
------------------------------------
Future policy benefits and claims (notes 6 and 8) 16,321,461 14,092,255
Policyholders' dividend accumulations 338,058 322,686
Other policyholder funds 72,770 71,959
Accrued Federal income tax (note 7):
Current 13,126 12,294
Deferred - 31,659
----------- -----------
13,126 43,953
----------- -----------
Other liabilities 235,778 217,952
Liabilities related to Separate Accounts (note 8) 12,222,461 9,006,388
----------- -----------
29,203,654 23,755,193
----------- -----------
Shareholder's equity (notes 3, 4, 7 and 13):
Capital shares, $1 par value. Authorized 5,000 shares, issued and
outstanding 3,815 shares 3,815 3,815
Paid-in additional capital 622,753 422,753
Unrealized gains (losses) on securities available-for-sale, net of adjustment
to deferred policy acquisition costs of $82,525 ($0 in 1993) and net of
deferred Federal income tax benefit of $64,425 ($1,583 expense in 1993) (119,668) 6,747
Retained earnings 1,401,579 1,217,853
----------- -----------
1,908,479 1,651,168
----------- -----------
Commitments and contingencies (notes 9 and 16)
$31,112,133 25,406,361
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
45 of 87
<PAGE> 46
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Consolidated Statements of Income
Years ended December 31, 1994, 1993 and 1992
(000's omitted)
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Revenues (note 17):
Traditional life insurance premiums $ 209,538 215,715 226,888
Accident and health insurance premiums 324,524 312,655 430,009
Universal life and investment product policy charges 239,021 188,057 148,464
Net investment income (note 5) 1,289,501 1,204,426 1,120,157
Net ceded commissions from disposition of credit life and
credit accident and health business (note 12) - - 27,115
Realized gains (losses) on investments (notes 5 and 14) (16,384) 113,673 (19,315)
---------- ---------- ----------
2,046,200 2,034,526 1,933,318
---------- ---------- ----------
Benefits and expenses:
Benefits and claims 1,279,763 1,236,906 1,319,735
Provision for policyholders' dividends on participating
policies (note 13) 46,061 53,189 61,834
Amortization of deferred policy acquisition costs 94,744 102,134 99,197
Other operating costs and expenses 352,402 329,396 321,993
---------- ---------- ----------
1,772,970 1,721,625 1,802,759
---------- ---------- ----------
Income before Federal income tax and cumulative
effect of changes in accounting principles 273,230 312,901 130,559
---------- ---------- ----------
Federal income tax (note 7):
Current expense 79,847 75,124 47,402
Deferred expense (benefit) 9,657 31,634 (13,660)
---------- ---------- ----------
89,504 106,758 33,742
---------- ---------- ----------
Income before cumulative effect of changes in
accounting principles 183,726 206,143 96,817
Cumulative effect of changes in accounting principles,
net of tax (note 3) - 5,365 -
---------- ---------- ----------
Net income $ 183,726 211,508 96,817
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
46 of 87
<PAGE> 47
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Consolidated Statements of Shareholder's Equity
Years ended December 31, 1994, 1993 and 1992
(000's omitted)
<TABLE>
<CAPTION>
Unrealized
gains (losses)
Paid-in on securities Total
Capital additional available-for- Retained shareholder's
shares capital sale, net earnings equity
--------- ----------- -------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
1992:
Balance, beginning of year $ 3,815 311,753 96,048 933,179 1,344,795
Dividends paid to shareholder - - - (5,846) (5,846)
Net income - - - 96,817 96,817
Unrealized losses on equity
securities, net of deferred
Federal income tax - - (5,524) - (5,524)
--------- ----------- -------------- ---------- -------------
Balance, end of year $ 3,815 311,753 90,524 1,024,150 1,430,242
========= =========== ============== ========== =============
1993:
Balance, beginning of year 3,815 311,753 90,524 1,024,150 1,430,242
Capital contributions - 111,000 - - 111,000
Dividends paid to shareholder - - - (17,805) (17,805)
Net income - - - 211,508 211,508
Unrealized losses on equity
securities, net of deferred
Federal income tax - - (83,777) - (83,777)
--------- ----------- -------------- ---------- -------------
Balance, end of year $ 3,815 422,753 6,747 1,217,853 1,651,168
========= =========== ============== ========== =============
1994:
Balance, beginning of year 3,815 422,753 6,747 1,217,853 1,651,168
Capital contribution - 200,000 - - 200,000
Net income - - - 183,726 183,726
Adjustment for change in
accounting for certain
investments in debt and
equity securities, net of
adjustment to deferred policy
acquisition costs and deferred
Federal income tax (note 3) - - 216,915 - 216,915
Unrealized losses on securities
available-for-sale, net of
adjustment to deferred policy
acquisition costs and deferred
Federal income tax - - (343,330) - (343,330)
--------- ----------- -------------- ---------- -------------
Balance, end of year $ 3,815 622,753 (119,668) 1,401,579 1,908,479
========= =========== ============== ========== =============
</TABLE>
See accompanying notes to consolidated financial statements.
47 of 87
<PAGE> 48
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Consolidated Statements of Cash Flows
Years ended December 31, 1994, 1993 and 1992
(000's omitted)
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 183,726 211,508 96,817
Adjustments to reconcile net income to net cash provided by
operating activities:
Capitalization of deferred policy acquisition costs (264,434) (191,994) (177,928)
Amortization of deferred policy acquisition costs 94,744 102,134 99,197
Amortization and depreciation 6,207 11,156 5,607
Realized losses (gains) on invested assets, net 15,949 (113,648) 19,092
Deferred Federal income tax benefit (2,166) (6,006) (13,105)
Increase in accrued investment income (29,654) (4,218) (11,518)
(Increase) decrease in other assets (112,566) (549,277) 6,132
Increase in policyholder account balances 1,038,641 509,370 19,087
Increase in policyholders' dividend accumulations 15,372 17,316 18,708
Increase (decrease) in accrued Federal income tax payable 832 16,838 (15,723)
Increase in other liabilities 17,826 26,958 73,512
Other, net (19,303) (11,745) (10,586)
---------- ---------- ----------
Net cash provided by operating activities 945,174 18,392 109,292
---------- ---------- ----------
Cash flows from investing activities:
Proceeds from maturity of securities available-for-sale 579,067 - -
Proceeds from sale of securities available-for-sale 247,876 247,502 27,844
Proceeds from maturity of fixed maturities held-to-maturity 516,003 1,192,093 1,030,397
Proceeds from sale of fixed maturities - 33,959 123,422
Proceeds from repayments of mortgage loans on real estate 220,744 146,047 259,659
Proceeds from sale of real estate 46,713 23,587 22,682
Proceeds from repayments of policy loans and
sale of other invested assets 134,998 59,643 99,189
Cost of securities available-for-sale acquired (2,569,672) (12,550) (12,718)
Cost of fixed maturities held-to-maturity acquired (675,835) (2,016,831) (2,687,975)
Cost of mortgage loans on real estate acquired (627,025) (475,336) (654,403)
Cost of real estate acquired (15,962) (8,827) (137,843)
Policy loans issued and other invested assets acquired (118,012) (76,491) (97,491)
---------- ---------- ----------
Net cash used in investing activities (2,261,105) (887,204) (2,027,620)
---------- ---------- ----------
Cash flows from financing activities:
Proceeds from capital contributions 200,000 111,000 -
Dividends paid to shareholder - (17,805) (5,846)
Increase in universal life and investment product account balances 3,640,958 2,249,740 2,468,236
Decrease in universal life and investment product account balances (2,449,580) (1,458,504) (575,180)
---------- ---------- ----------
Net cash provided by financing activities 1,391,378 884,431 1,887,210
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 75,447 15,619 (31,118)
Cash and cash equivalents, beginning of year 63,632 48,013 79,131
---------- ---------- ----------
Cash and cash equivalents, end of year $ 139,079 63,632 48,013
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
48 of 87
<PAGE> 49
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements
December 31, 1994, 1993 and 1992
(000 s omitted)
(1) Organization and Description of Business
----------------------------------------
Nationwide Life Insurance Company (NLIC) is a wholly owned
subsidiary of Nationwide Corporation (Corp.). Wholly-owned
subsidiaries of NLIC include Financial Horizons Life Insurance
Company (FHLIC), West Coast Life Insurance Company (WCLIC), National
Casualty Company and subsidiaries (NCC), Nationwide Financial
Services, Inc. (NFS), and effective December 31, 1994, Employers Life
Insurance Company of Wausau and subsidiary (ELICW). NLIC and its
subsidiaries are collectively referred to as "the Company".
NLIC, FHLIC, WCLIC and ELICW are life and accident and health
insurers and NCC is a property and casualty insurer. The Company is
licensed in all 50 states, the District of Columbia, the Virgin
Islands and Puerto Rico. The Company offers a full range of life,
health and annuity products through exclusive agents and other
distribution channels and is subject to competition from other
insurers 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 and health 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 designed to
reduce insurer profits, new legal theories or insurance
company insolvencies through guaranty fund assessments may create
costs for the insurer beyond those 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 sound reinsurance and credit and collection policies
and by providing for any amounts deemed uncollectible.
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) 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. See note 4.
In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities as of the date of the consolidated
financial statements and revenues and expenses for the period. Actual
results could differ significantly from those estimates.
The estimates susceptible to significant change are those used in
determining the liability for future policy benefits and claims and
those used in determining valuation allowances for mortgage loans on
real estate and real estate. Although some variability is inherent in
these estimates, management believes the amounts provided are adequate.
49 of 87
<PAGE> 50
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
(a) Consolidation Policy
--------------------
The December 31, 1994, 1993 and 1992 consolidated
financial statements include the accounts of NLIC and its
wholly owned subsidiaries FHLIC, WCLIC, NCC and NFS. The
December 31, 1994 consolidated balance sheet also
includes the accounts of ELICW, which was acquired by
NLIC effective December 31, 1994. See Note 14. All
significant intercompany balances and transactions have
been eliminated.
(b) Valuation of Investments and Related Gains and Losses
-----------------------------------------------------
Prior to January 1, 1994, the Company classified fixed
maturities in accordance with the then existing accounting
standards, and accordingly, fixed maturity securities were
carried at amortized cost, adjusted for amortization of
premium or discount, since the Company had both the
ability and intent to hold those securities until
maturity. Equity securities were carried at fair value
with the unrealized gains and losses, net of deferred
Federal income tax, reported as a separate component of
shareholder's equity.
In May 1993, the Financial Accounting Standards Board
(FASB) issued STATEMENT OF FINANCIAL ACCOUNTING
STANDARDS NO. 115 - ACCOUNTING FOR CERTAIN INVESTMENTS IN
DEBT AND EQUITY SECURITIES (SFAS 115). SFAS 115
requires fixed maturities and equity securities to be
classified as either held-to-maturity, available-for-sale,
or trading. The Company has no trading securities. The
Company adopted SFAS 115 as of January 1, 1994, with no
effect on consolidated net income. See note 3 regarding
the effect on consolidated shareholder's equity.
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.
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. Loans in foreclosure and loans
considered in-substance foreclosed as of the balance
sheet date are placed on non-accrual status and written
down to the fair value of the existing property to
derive a new cost basis. 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.
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.
In May, 1993, the FASB issued STATEMENT OF FINANCIAL
ACCOUNTING STANDARDS NO. 114 - ACCOUNTING BY CREDITORS
FOR IMPAIRMENT OF A LOAN (SFAS 114). SFAS 114, which
was amended by STATEMENT OF FINANCIAL ACCOUNTING
STANDARDS NO. 118 - ACCOUNTING BY CREDITORS FOR
IMPAIRMENT OF A LOAN - INCOME RECOGNITION AND
DISCLOSURE in October, 1994, requires the measurement of
impaired loans be 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
loan's observable market price or the fair value of the
collateral if the loan is collateral dependent. The
impact on the consolidated financial statements of
adopting SFAS 114 as amended is not expected to be
material. Previously issued consolidated financial
statements shall not be restated. The Company will adopt
SFAS 114 as amended in 1995.
50 of 87
<PAGE> 51
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
(c) Revenues and Benefits
---------------------
TRADITIONAL LIFE INSURANCE PRODUCTS: Traditional life
insurance products include those products with fixed and
guaranteed premiums and benefits and consist primarily of
whole life, limited-payment life, term life and certain
annuities with life contingencies. Premiums for
traditional life insurance products are recognized as
revenue when due and collected. 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.
UNIVERSAL LIFE AND INVESTMENT PRODUCTS: Universal life
products include universal life, variable universal life
and other interest-sensitive life insurance policies.
Investment products consist primarily of individual and
group deferred annuities, annuities without life
contingencies and guaranteed investment contracts.
Revenues for universal life and investment products
consist of 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 benefits and claims incurred in the period in
excess of related policy account balances and interest
credited to policy account balances.
ACCIDENT AND HEALTH INSURANCE: 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.
(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 traditional
life and individual health insurance products, these
deferred 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. For
universal life and investment 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, 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. Beginning January 1, 1994,
deferred policy acquisition costs are adjusted to
reflect the impact of unrealized gains and losses on
fixed maturity securities available-for-sale. See note
2(b).
(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 for administrative
services and risks assumed.
(f) Future Policy Benefits
----------------------
Future policy benefits for traditional life and individual
health 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 for annuity policies in the
accumulation phase, universal life and variable universal
life policies have been calculated based on participants'
contributions plus interest credited less applicable
contract charges.
Future policy benefits and claims for group long-term
disability policies are the present value (primarily
discounted at 5.5%) 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 policies are not discounted.
51 of 87
<PAGE> 52
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
(g) Participating Business
----------------------
Participating business represents approximately 45%
(48% in 1993 and 1992) of the Company's ordinary
life insurance in force, 72% (72% in 1993; 71% in 1992)
of the number of policies in force, and 41% (45% in 1993
and 1992) 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. Dividend scales are
approved by the Board of Directors.
Income attributable to participating policies in excess
of policyholder dividends is accounted for as belonging to
the shareholder. See note 13.
(h) Federal Income Tax
------------------
NLIC, FHLIC, WCLIC and NCC file a consolidated Federal
income tax return with Nationwide Mutual Insurance Company
(NMIC), the majority shareholder of Corp. Through 1994,
ELICW filed a consolidated Federal income tax return with
Employers Insurance of Wausau A Mutual Company.
Beginning in 1995, ELICW will file a separate Federal
income tax return.
In 1993, the Company adopted STATEMENT OF FINANCIAL
ACCOUNTING STANDARDS NO. 109 - ACCOUNTING FOR INCOME
TAXES, which required a change from the deferred method
of accounting for income tax of APB Opinion 11 to the
asset and liability method of accounting for income tax.
Under the asset and liability 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.
Prior to 1993, the Company applied the deferred method
of accounting for income tax which recognized deferred
income tax for income and expense items that are reported
in different years for financial reporting purposes and
income tax purposes using the tax rate applicable for
the year of calculation. Under the deferred method,
deferred tax is not adjusted for subsequent changes in tax
rates. See note 7.
The Company has reported the cumulative effect of the
change in method of accounting for income tax in the
1993 consolidated statement of income. See note 3.
(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.
(j) Cash Equivalents
----------------
For purposes of the consolidated statements of cash
flows, the Company considers all short-term investments
with original maturities of three months or less to be
cash equivalents.
(k) Reclassification
----------------
Certain items in the 1993 and 1992 consolidated financial
statements have been reclassified to conform to the 1994
presentation.
52 of 87
<PAGE> 53
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
(3) Changes in Accounting Principles
--------------------------------
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 a new accounting standard by the FASB
as described in Note 2(b). As of January 1, 1994, the company
classified fixed maturity securities with amortized cost and fair value
of $6,593,844 and $7,024,736, 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>
<S> <C>
Excess of fair value over amortized cost of fixed maturity
securities available-for-sale $430,892
Adjustment to deferred policy acquisition costs (97,177)
Deferred Federal income tax (116,800)
--------
$216,915
========
</TABLE>
During 1993, the Company adopted accounting principles in
connection with the issuance of two accounting standards by the FASB.
The effect as of January 1, 1993, the date of adoption, has been
recognized in the 1993 consolidated statement of income as the
cumulative effect of changes in accounting principles, as follows:
<TABLE>
<S> <C>
Asset/liability method of recognizing income tax (note 7) $ 26,344
Accrual method of recognizing postretirement benefits other
than pensions (net of tax benefit of $11,296), (note 11) (20,979)
--------
Net cumulative effect of changes in accounting principles $ 5,365
========
</TABLE>
(4) Basis of Presentation
---------------------
The consolidated financial statements have been prepared in
accordance with GAAP. Annual Statements for NLIC and FHLIC, WCLIC,
ELICW and NCC, filed with the Department ofInsurance of the State of
Ohio, California Department of Insurance, Wisconsin Insurance
Department and Michigan Bureau of Insurance, respectively, are prepared
on the basis of accounting practices prescribed or permitted by
such regulatory authorities. 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.
The following reconciles the statutory net income of NLIC as
reported to regulatory authorities to the net income as shown
in the accompanying consolidated financial statements:
<TABLE>
<CAPTION>
1994 1993 1992
-------- ------- -------
<S> <C> <C> <C>
Statutory net income $ 76,532 185,943 33,812
Adjustments to restate to the basis of GAAP:
Consolidating statutory net income of subsidiaries 14,350 19,545 21,519
Increase in deferred policy acquisition costs, net 167,166 89,860 78,731
Future policy benefits (76,310) (70,640) (63,355)
Deferred Federal income tax (expense) benefit (9,657) (31,634) 13,660
Equity in earnings of affiliates 1,013 7,121 4,618
Valuation allowances and other than temporary
declines accounted for directly in surplus 6,275 (6,638) 3,402
Interest maintenance reserve (7,332) 13,754 7,588
Cumulative effect of changes in accounting principles,
net of tax - 5,365 -
Other, net 11,689 (1,168) (3,158)
-------- ------- -------
Net income per accompanying consolidated
statements of income $183,726 211,508 96,817
======== ======= =======
</TABLE>
53 of 87
<PAGE> 54
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
The following reconciles the statutory capital shares and
surplus of NLIC as reported to regulatory authorities to the
shareholder's equity as shown in the accompanying consolidated
financial statements:
<TABLE>
<CAPTION>
1994 1993 1992
---------- -------- --------
<S> <C> <C> <C>
Statutory capital shares and surplus $1,262,861 992,631 647,307
Add (deduct) cumulative effect of adjustments:
Deferred policy acquisition costs 1,064,159 811,944 722,084
Nonadmitted assets and furniture and equipment charged to
income in the year of acquisition, net of accumulated
depreciation 16,120 22,573 15,712
Asset valuation reserve 153,387 105,596 138,727
Interest maintenance reserve 18,843 21,069 7,315
Future policy benefits (310,302) (238,231) (167,591)
Deferred Federal income tax, including effect of changes in
accounting principles in 1993 36,515 (31,659) (82,724)
Cumulative effect of change in accounting principles for
postretirement benefits other than pensions, gross - (32,275) -
Difference between amortized cost and fair value of fixed
maturity securities available-for-sale, gross (272,959) - -
Other, net (60,145) (480) 149,412
---------- ---------- ----------
Shareholder's equity per accompanying consolidated
balance sheets $1,908,479 1,651,168 1,430,242
========== ========== ==========
</TABLE>
(5) Investments
-----------
An analysis of investment income by investment type follows for the
years ended December 31:
<TABLE>
<CAPTION>
1994 1993 1992
---------- -------- --------
<S> <C> <C> <C>
Gross investment income:
Securities available-for-sale:
Fixed maturities $ 674,346 - -
Equity securities 550 7,230 6,949
Fixed maturities held-to-maturity 193,009 800,255 754,876
Mortgage loans on real estate 376,783 364,810 334,769
Real estate 40,280 39,684 27,410
Short-term 6,990 5,080 7,298
Other 42,831 33,832 30,717
---------- -------- --------
Total investment income 1,334,789 1,250,891 1,162,019
Less investment expenses 45,288 46,465 41,862
---------- ---------- ----------
Net investment income $1,289,501 1,204,426 1,120,157
========== ========== ==========
</TABLE>
An analysis of the change in gross unrealized gains (losses) on
securities available-for-sale and fixed maturities held-to-maturity
follows for the years ended December 31:
<TABLE>
<CAPTION>
1994 1993 1992
---------- -------- --------
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturities $ (703,851) - -
Equity securities (1,990) (128,837) (9,195)
Fixed maturities held-to-maturity (421,427) 223,392 17,774
----------- -------- --------
$(1,127,268) 94,555 8,579
=========== ======== ========
</TABLE>
54 of 87
<PAGE> 55
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
An analysis of realized gains (losses) on investments by investment
type follows for the years ended December 31:
<TABLE>
<CAPTION>
1994 1993 1992
---------- -------- --------
<S> <C> <C> <C>
Realized on disposition of investments:
Securities available-for-sale:
Fixed maturities $(13,720) - -
Equity securities 1,427 129,728 7,215
Fixed maturities - 21,159 13,399
Mortgage loans on real estate (16,130) (17,763) (30,334)
Real estate and other 5,765 (12,813) (12,997)
---------- -------- --------
(22,658) 120,311 (22,717)
---------- -------- --------
Valuation allowances:
Securities available-for-sale:
Fixed maturities 6,600 - -
Fixed maturities - (934) 1,792
Mortgage loans on real estate (4,332) (10,478) (5,969)
Real estate and other 4,006 4,774 7,579
---------- -------- --------
6,274 (6,638) 3,402
---------- -------- --------
$(16,384) 113,673 (19,315)
========== ======== ========
</TABLE>
The amortized cost and estimated fair value of securities
available-for-sale and fixed maturities held-to-maturity were as
follows as of December 31, 1994:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Securities available-for-sale
-----------------------------
Fixed maturities:
US Treasury securities and obligations of US
government corporations and agencies $ 393,156 1,794 (18,941) 376,009
Obligations of states and political
subdivisions 2,202 55 (21) 2,236
Debt securities issued by foreign governments 177,910 872 (9,205) 169,577
Corporate securities 4,201,738 50,405 (128,698) 4,123,445
Mortgage-backed securities 3,543,859 18,125 (187,345) 3,374,639
----------- ---------- ---------- ----------
Total fixed maturities 8,318,865 71,251 (344,210) 8,045,906
Equity securities 18,373 6,636 (296) 24,713
----------- ---------- ---------- ----------
$8,337,238 77,887 (344,506) 8,070,619
=========== ========== ========== ==========
Fixed maturity securities held-to-maturity
------------------------------------------
Obligations of states and political
subdivisions $ 11,613 92 (255) 11,450
Debt securities issued by foreign governments 16,131 111 (39) 16,203
Corporate securities 3,661,043 34,180 (120,566) 3,574,657
----------- ---------- ---------- ----------
$3,688,787 34,383 (120,860) 3,602,310
=========== ========== ========== ==========
</TABLE>
55 of 87
<PAGE> 56
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
The amortized cost and estimated fair value of investments of fixed
maturity securities were as follows as of December 31, 1993:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
US Treasury securities and obligations of US
government corporations and agencies $ 287,738 18,204 (392) 305,550
Obligations of states and political
subdivisions 16,519 2,700 (5) 19,214
Debt securities issued by foreign governments 137,092 7,719 (1,213) 143,598
Corporate securities 6,819,355 647,778 (15,648) 7,451,485
Mortgage-backed securities 2,860,274 121,721 (15,022) 2,966,973
----------- ---------- ---------- ----------
$10,120,978 798,122 (32,280) 10,886,820
=========== ========== ========== ==========
</TABLE>
As of December 31, 1993 the net unrealized gain on equity
securities, before providing for deferred Federal income tax, was
$8,330, comprised of gross unrealized gains of $8,345 and gross
unrealized losses of $15.
The amortized cost and estimated fair value of fixed maturity
securities available-for-sale and fixed maturity securities
held-to-maturity as of December 31, 1994, 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 $ 294,779 294,778
Due after one year through five years 2,553,825 2,490,886
Due after five years through ten years 1,382,311 1,327,089
Due after ten years 544,091 558,514
---------- -----------
4,775,006 4,671,267
Mortgage-backed securities 3,543,859 3,374,639
---------- -----------
$8,318,865 8,045,906
========== ===========
Fixed maturity securities held-to-maturity
------------------------------------------
Due in one year or less $ 333,517 333,000
Due after one year through five years 1,953,179 1,942,260
Due after five years through ten years 1,080,069 1,013,083
Due after ten years 322,022 313,967
---------- -----------
$3,688,787 3,602,310
========== ===========
</TABLE>
Proceeds from the sale of securities available-for-sale during
1994 were $247,876, while proceeds from sales of investments in
fixed maturity securities during 1993 were $33,959 ($123,422 during
1992). Gross gains of $3,406 ($2,413 in 1993 and $3,194 in 1992) and
gross losses of $21,866 ($39 in 1993 and $513 in 1992) were realized
on those sales.
Investments that were non-income producing for the twelve month
period preceding December 31, 1994 amounted to $11,513 ($13,158 for
1993) and consisted of $11,111 ($10,907 in 1993) in real estate and
$402 ($2,251 in 1993) in other long-term investments.
Real estate is presented at cost less accumulated depreciation of
$29,275 in 1994 ($24,717 in 1993) and valuation allowances of $27,330
in 1994 ($31,357 in 1993). Other valuation allowances are $0 in 1994
($6,680 in 1993) on fixed maturities and $47,892 in 1994 ($42,350 in
1993) on mortgage loans on real estate.
56 of 87
<PAGE> 57
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
The Company generally initiates foreclosure proceedings on all
mortgage loans on real estate delinquent sixty days. Foreclosures
of mortgage loans on real estate were $37,187 in 1994 ($39,281 in
1993) and mortgage loans on real estate in process of foreclosure or
in-substance foreclosed as of December 31, 1994 totaled $19,878
($24,658 as of December 31, 1993), which approximates fair value.
Investments with an amortized cost of $11,137 and $11,383 as of
December 31, 1994 and 1993, 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 traditional life and
individual health policies has been established based upon the
following assumptions:
Interest rates: Interest rates vary as follows:
<TABLE>
<CAPTION>
Year of issue Life Health
------------- ---- ------
<S> <C> <C>
1994 7.2 %, not graded - permanent contracts with loan provisions; 5.0%
6.0%, not graded - all other contracts
1984-1993 7.4% to 10.5%, not graded 5.0% to 6%
1966-1983 6% to 8.1%, graded over 20 years to 4% to 6.6% 3.5% to 6%
1965 and prior generally lower than post 1965 issues 3.5% to 4%
</TABLE>
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 liability for future policy benefits for investment contracts
(approximately 81% and 80% of the total liability for future policy
benefits as of December 31, 1994 and 1993, respectively) has been
established based on policy term, interest rates and various contract
provisions. The average interest rate credited on investment product
policies was 6.5%, 7.0% and 7.5% for the years ended December 31, 1994,
1993 and 1992, respectively.
Future policy benefits and claims for group long-term disability
policies are the present value (primarily discounted at 5.5%) 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 policies are not discounted.
Activity in the liability for unpaid claims and claim adjustment
expenses is summarized for the years ended December 31:
<TABLE>
<CAPTION>
1994 1993 1992
--------- -------- --------
<S> <C> <C> <C>
Balance as of January 1 $591,258 760,312 672,581
Less reinsurance recoverables 429,798 547,786 445,934
--------- -------- --------
Net balance as of January 1 161,460 212,526 226,647
--------- -------- --------
Incurred related to:
Current year 273,299 309,721 360,545
Prior years (26,156) (26,248) (17,433)
--------- -------- --------
Total incurred 247,143 283,473 343,112
--------- -------- --------
Paid related to:
Current year 175,700 208,978 226,886
Prior years 73,889 125,561 130,347
--------- -------- --------
Total paid 249,589 334,539 357,233
--------- -------- --------
Unpaid claims of ELICW (note 14) 40,223 - -
--------- -------- --------
Net balance as of December 31 199,237 161,460 212,526
Plus reinsurance recoverables 457,694 429,798 547,786
--------- -------- --------
Balance as of December 31 $656,931 591,258 760,312
======== ======== ========
</TABLE>
57 of 87
<PAGE> 58
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
As a result of changes in estimates for insured events of prior
years, the provision for claims and claim adjustment expenses
decreased in each of the three years ended December 31, 1994 due to
lower-than-anticipated costs to settle accident and health claims.
(7) Federal Income Tax
------------------
Prior to 1984, the Life Insurance Company Income Tax Act of 1959 as
amended by the Deficit Reduction Act of 1984 (DRA), permitted the
deferral from taxation of a portion of statutory income under certain
circumstances. In these situations, the deferred income was
accumulated in the Policyholders' Surplus Account (PSA). Management
considers the likelihood of distributions from the PSA to be remote;
therefore, no Federal income tax has been provided for such
distributions in the consolidated financial statements. The DRA
eliminated any additional deferrals to the PSA. Any distributions
from the PSA, however, will continue to be taxable at the then current
tax rate. The balance of the PSA is approximately $35,344 as of
December 31, 1994.
The Company adopted STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO.
109 - ACCOUNTING FOR INCOME TAXES (SFAS 109), as of January 1, 1993.
See note 3. The 1992 consolidated financial statements have not
been restated to apply the provisions of SFAS 109.
The significant components of deferred income tax expense for the years
ended December 31 are as follows:
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
Deferred income tax expense (exclusive of the
effects of other components listed below) $9,657 29,930
Adjustments to deferred income tax assets and
liabilities for enacted changes in tax laws
and rates - 1,704
------ ------
$9,657 31,634
====== ======
</TABLE>
For the year ended December 31, 1992, the deferred income tax
benefit results from timing differences in the recognition of
income and expense for income tax and financial reporting purposes.
The primary sources of those timing differences were deferred policy
acquisition costs (deferred expense of $16,457) and reserves for future
policy benefits (deferred benefit of $32,045).
Total Federal income tax expense for the years ended December 31,
1994, 1993 and 1992 differs from the amount computed by applying the
U.S. Federal income tax rate to income before tax as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
Amount % Amount % Amount %
------- ---- -------- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Computed (expected) tax expense $95,631 35.0 $109,515 35.0 $44,390 34.0
Tax exempt interest and dividends
received deduction (194) (0.1) (2,322) (0.7) (4,172) (3.2)
Current year increase in U.S. Federal
income tax rate - - 1,704 0.5 - -
Real estate valuation allowance
adjustment - - - - (3,463) (2.7)
Other, net (5,933) (2.1) (2,139) (0.7) (3,013) (2.3)
------- ---- -------- ---- ------- ----
Total (effective rate of each
year) $89,504 32.8 $106,758 34.1 $33,742 25.8
======= ==== ======== ==== ======= ====
</TABLE>
Total Federal income tax paid was $87,576, $58,286 and $63,124 during
the years ended December 31, 1994, 1993 and 1992, respectively.
58 of 87
<PAGE> 59
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
The tax effects of temporary differences that give rise to significant
components of the net deferred tax asset (liability) as of December 31,
1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1994 1993
-------- ---------
<S> <C> <C>
Deferred tax assets:
Future policy benefits $124,044 129,995
Fixed maturity securities available-for-sale 95,536 -
Liabilities in Separate Accounts 94,783 64,722
Mortgage loans on real estate and real estate 25,632 24,020
Other policyholder funds 7,137 7,759
Other assets and other liabilities 57,528 41,390
-------- ---------
Total gross deferred tax assets 404,660 267,886
-------- ---------
Deferred tax liabilities:
Deferred policy acquisition costs 317,224 243,731
Fixed maturities, equity securities and other
long-term investments 3,620 11,137
Other 47,301 44,677
-------- ---------
Total gross deferred tax liabilities 368,145 299,545
-------- ---------
Net deferred tax asset (liability) $ 36,515 (31,659)
======== =========
</TABLE>
The Company has determined that valuation allowances are not
necessary as of December 31, 1994 and 1993 and January 1, 1993 (date of
adoption of SFAS 109) based on its analysis of future deductible
amounts. All future deductible amounts can be offset by future
taxable amounts or recovery of Federal income tax paid within the
statutory carryback period. In addition, for future deductible
amounts for securities available-for-sale, affiliates of the Company
which are included in the same consolidated Federal income tax return
hold investments that could be sold for capital gains that could offset
capital losses realized by the Company should securities
available-for-sale be sold at a loss.
(8) Disclosures about Fair Value of Financial Instruments
-----------------------------------------------------
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS 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. 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
insurance contracts are 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 balance sheets for these instruments
approximate their fair value.
59 of 87
<PAGE> 60
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
INVESTMENT 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.
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 valued at 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 analysis. Interest rates used are similar
to currently offered contracts with maturities consistent with
those remaining for the contracts being valued.
POLICY RESERVES ON INSURANCE CONTRACTS: Included are disclosures
for individual life, universal life 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.
Carrying amount and estimated fair value of financial instruments
subject to SFAS 107 and policy reserves on insurance contracts were as
follows as of December 31:
<TABLE>
<CAPTION>
1994 1993
---- ----
Carrying Estimated Carrying Estimated
amount fair value amount fair value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Assets
------
Investments:
Securities available-for-sale:
Fixed maturities $ 8,045,906 8,045,906 - -
Equity securities 24,713 24,713 16,593 16,593
Fixed maturities held-to-maturity 3,688,787 3,602,310 10,120,978 10,886,820
Mortgage loans on real estate 4,222,284 4,173,284 3,871,560 4,175,271
Policy loans 340,491 340,491 315,898 315,898
Short-term investments 131,643 131,643 41,797 41,797
Cash 7,436 7,436 21,835 21,835
Assets held in Separate Accounts 12,222,461 12,222,461 9,006,388 9,006,388
Liabilities
-----------
Investment contracts 12,189,894 11,657,556 10,332,661 10,117,288
Policy reserves on insurance contracts 3,170,085 2,934,384 2,945,120 2,873,503
Policyholders' dividend accumulations 338,058 338,058 322,686 322,686
Other policyholder funds 72,770 72,770 71,959 71,959
Liabilities related to Separate Accounts 12,222,461 11,807,331 9,006,388 8,714,586
</TABLE>
60 of 87
<PAGE> 61
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
(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.
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
80% 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 $243,200 extending into 1995 were outstanding as of December 31,
1994.
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 22% (23% in 1993) in any geographic area and no more than 2%
(2% in 1993) with any one borrower. The summary below depicts loans
by remaining principal balance as of each December 31:
<TABLE>
<CAPTION>
Apartment
Office Warehouse Retail & other Total
-------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
1994:
East North Central $109,233 103,499 540,686 191,489 944,907
East South Central 24,298 10,803 127,845 76,897 239,843
Mountain 3,150 13,770 140,358 39,682 196,960
Middle Atlantic 61,299 53,285 140,847 30,111 285,542
New England 10,536 43,282 139,131 4 192,953
Pacific 195,393 210,930 397,911 68,768 873,002
South Atlantic 87,150 81,576 424,150 210,354 803,230
West North Central 127,760 11,766 80,854 4,738 225,118
West South Central 51,013 84,796 184,923 194,788 515,520
-------- --------- --------- --------- ----------
$669,832 613,707 2,176,705 816,831 4,277,075
======== ========= ========= =========
Less valuation allowances and unamortized discount 54,791
----------
Total mortgage loans on real estate, net $4,222,284
==========
1993:
East North Central $109,208 108,478 470,755 158,964 847,405
East South Central 27,562 1,460 117,341 69,991 216,354
Mountain 3,228 4,742 105,560 23,065 136,595
Middle Atlantic 56,664 52,766 132,821 15,414 257,665
New England 10,565 48,398 142,530 8 201,501
Pacific 174,409 185,116 389,428 65,497 814,450
South Atlantic 112,640 58,165 391,102 238,337 800,244
West North Central 104,933 13,458 78,408 3,917 200,716
West South Central 50,955 47,103 183,420 161,033 442,511
-------- --------- ------- --------- ----------
$650,164 519,686 2,011,365 736,226 3,917,441
======== ========= ========= =========
Less valuation allowances and unamortized discount 45,881
----------
Total mortgage loans on real estate, net $3,871,560
==========
</TABLE>
61 of 87
<PAGE> 62
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
(10) Pension Plan
------------
NLIC, FHLIC, WCLIC, NCC, and NFS participate 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. Plan
contributions are invested in a group annuity contract of NLIC.
Benefits are based upon the highest average annual salary of any
three 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.
Pension costs charged to operations by the Company during the years
ended December 31, 1994, 1993 and 1992 were $10,451, $6,702 and
$4,613, respectively.
The Company's net accrued pension expense as of December 31, 1994
and 1993 was $1,836 and $1,472, respectively.
The net periodic pension cost for the plan as a whole for the years
ended December 31, 1994, 1993 and 1992 follows:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Service cost (benefits earned during the period) $64,740 47,694 44,343
Interest cost on projected benefit obligation 73,951 70,543 68,215
Actual return on plan assets (21,495) (105,002) (62,307)
Net amortization and deferral (62,150) 20,832 (24,281)
-------- -------- --------
Net periodic pension cost $55,046 34,067 25,970
======== ======== ========
Basis for measurements, net periodic pension cost:
Weighted average discount rate 5.75% 6.75% 7.25%
Rate of increase in future compensation levels 4.50% 4.75% 5.25%
Expected long-term rate of return on plan assets 7.00% 7.50% 8.00%
</TABLE>
Information regarding the funded status of the plan as a whole as of
December 31, 1994 and 1993 follows:
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Accumulated benefit obligation:
Vested $ 914,850 972,475
Nonvested 7,570 10,227
---------- ----------
$ 922,420 982,702
========== ==========
Projected benefit obligation for
services rendered to date 1,305,547 1,292,477
Plan assets at fair value 1,241,771 1,208,007
---------- ----------
Plan assets less than projected benefit
obligation (63,776) (84,470)
Unrecognized prior service cost 46,201 49,551
Unrecognized net losses 39,408 55,936
Unrecognized net assets at January 1, 1987 (21,994) (24,146)
---------- ----------
Net accrued pension expense $ (161) (3,129)
========== ==========
Basis for measurements, funded status of plan:
Weighted average discount rate 7.50% 5.75%
Rate of increase in future compensation levels 6.75% 4.50%
</TABLE>
62 of 87
<PAGE> 63
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
(11) Postretirement Benefits Other Than Pensions
-------------------------------------------
In addition to the defined benefit pension plan, NLIC, FHLIC, WCLIC,
NCC and NFS participate with other affiliated companies in life and
health care defined benefit plans for qualifying retirees.
Postretirement life and health care benefits are contributory and
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 life insurance contributions are based on age
and coverage amount of each retiree. Postretirement health care
benefit contributions are adjusted annually and contain cost-sharing
features such as deductibles and coinsurance. The accounting for the
health care plan anticipates future cost-sharing changes to the
written plan that are consistent with the Company's expressed intent
to increase the retiree contribution amount annually for expected
health care inflation. The Company's policy is to fund the cost of
health care benefits in amounts determined at the discretion of
management. The Company began funding in 1994. Plan assets are
invested in group annuity contracts of NLIC.
Effective January 1, 1993, the Company adopted the provisions of
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 106 - EMPLOYERS'
ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (SFAS 106),
which requires the accrual method of accounting for postretirement
life and health care insurance benefits based on actuarially
determined costs to be recognized over the period from the date of
hire to the full eligibility date of employees who are expected to
qualify for such benefits. Postretirement benefit cost for 1992, which
was recorded on a cash basis, has not been restated.
The Company elected to immediately recognize its estimated accumulated
postretirement benefit obligation as of January 1, 1993. Accordingly,
a noncash charge of $32,275 ($20,979 net of related income tax
benefit) was recorded in the consolidated statement of income as a
cumulative effect of a change in accounting principle. See note 3.
The adoption of SFAS 106, including the cumulative effect of the
change in accounting principle, increased the expense for
postretirement benefits by $35,277 to $36,544 in 1993. Net periodic
postretirement benefit cost for 1994 was $4,627. The Company's
accrued postretirement benefit obligation as of December 31, 1994 and
1993 was $36,001 and $35,277, respectively.
Actuarial assumptions for the measurement of the December 31, 1994
accumulated postretirement benefit obligation include a discount rate
of 8% and an assumed health care cost trend rate of 11%, uniformly
declining to an ultimate rate of 6% over 12 years.
Actuarial assumptions for the measurement of the December 31, 1993
accumulated postretirement benefit obligation and the 1994 net
periodic postretirement benefit cost include a discount rate of 7% and
an assumed health care cost trend rate of 12%, uniformly declining to
an ultimate rate of 6% over 12 years.
Actuarial assumptions used to determine the accumulated postretirement
benefit obligation as of January 1, 1993 and the 1993 net periodic
postretirement benefit cost include a discount rate of 8% and an
assumed health care cost trend rate of 14%, uniformly declining to an
ultimate rate of 6% over 12 years.
Information regarding the funded status of the plan as a whole as of
December 31, 1994 and 1993 follows:
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ 76,677 90,312
Fully eligible, active plan participants 22,013 24,833
Other active plan participants 59,089 84,103
--------- ---------
Accumulated postretirement benefit obligation 157,779 199,248
Plan assets at fair value 49,012 -
--------- ---------
Plan assets less than accumulated postretirement benefit
obligation (108,767) (199,248)
Unrecognized net (gains) losses (41,497) 15,128
--------- ---------
Accrued postretirement benefit obligation $(150,264) (184,120)
========= =========
</TABLE>
63 of 87
<PAGE> 64
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
The amount of net periodic postretirement benefit cost for the plan as
a whole for the years ended December 31, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Net periodic postretirement benefit cost:
Service cost - benefits attributed to employee service during the year $ 8,586 7,090
Interest cost on accumulated postretirement benefit obligation 14,011 13,928
Actual return on plan assets (1,622) -
Net amortization and deferral 1,622 -
------- ------
Net periodic postretirement benefit cost $22,597 21,018
======= ======
</TABLE>
The health care cost trend rate assumption has a significant effect
on the amounts reported. A one percentage point increase in the
assumed health care cost trend rate would increase the accumulated
postretirement benefit obligation as of December 31, 1994 and 1993 by
$8,109 and $15,621, respectively, and the net periodic postretirement
benefit cost for the years ended December 31, 1994 and 1993 by $866 and
$2,377, respectively.
(12) Portfolio Transfer of Credit Life and Credit Accident and Health
----------------------------------------------------------------
On March 13, 1992, WCLIC entered into an assignment and assumption
agreement with American Bankers Life Assurance Company of Florida
(ABLAC) under which ABLAC assumed, by portfolio transfer, substantially
all of WCLIC's credit life and accident and health policies in force as
of January 1, 1992. A pre-tax loss of approximately $15,000 was
recognized from this transaction in 1992. The loss represents
approximately $34,000 of amortization of deferred policy acquisition
costs, less approximately $27,000 in ceded commissions earned, plus
death benefits incurred and other expenses. Under the terms defined in
the assignment and assumption agreement, WCLIC is contingently liable
for adverse development of claims activity up to a defined limit. As
of December 31, 1994, WCLIC has provided for a contingent liability
based on the development of claims experience through December 31,
1994. As of December 31, 1993, WCLIC had provided for the maximum
contingent liability in the absence of conclusive claims experience
development.
(13) 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 subsidiaries exceed the minimum
risk-based capital requirements.
In accordance with the requirements of the New York statutes, the
Company has agreed with the Superintendent of Insurance of that state
that so long as participating policies and contracts are held by
residents of New York, no profits on participating policies and
contracts in excess of the larger of (a) ten percent of such profits or
(b) fifty cents per year per thousand dollars of participating life
insurance in force, exclusive of group term, at the year-end shall
inure to the benefit of the shareholders. Such New York statutes
further provide that so long as such agreement is in effect, such
excess of profits shall be exhibited as "participating policyholders'
surplus" in annual statements filed with the Superintendent and shall be
used only for the payment or apportionment of dividends to participating
policyholders at least to the extent required by statute or for the
purpose of making up any loss on participating policies.
In the opinion of counsel for the Company, the ultimate ownership of
the entire surplus, however classified, of the Company resides with the
shareholder, subject to the usual requirements under state laws and
regulations that certain deposits, reserves and minimum surplus be
maintained for the protection of the policyholders until all policy
contracts are discharged.
64 of 87
<PAGE> 65
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
Based on the opinion of counsel with respect to the ownership of its
surplus, the Company is of the opinion that the earnings attributable
to participating policies in excess of the amounts paid as dividends
to policyholders belong to the shareholder rather than the
policyholders, and such earnings are so treated by the Company.
The amount of shareholder's equity other than capital shares
was $1,904,664, $1,647,353, and $1,426,427 as of December 31,
1994, 1993 and 1992, respectively. The amount thereof not
presently available for dividends to the shareholder due to the New
York restrictions and to adjustments relating to GAAP was $929,934,
$954,037 and $841,583 as of December 31, 1994, 1993 and 1992,
respectively.
Ohio law limits the payment of dividends to shareholders. The
maximum dividend that may be paid by the Company without prior
approval of the Director of the Department of Insurance of the State
of Ohio is limited to the greater of statutory gain from operations of
the preceding calendar year or 10% of statutory shareholder's surplus
as of the prior December 31. Therefore, $1,707,110, of shareholder's
equity, as presented in the accompanying consolidated financial
statements, is restricted as to dividend payments in 1995.
California law limits the payment of dividends to shareholders of
WCLIC. The maximum dividend that may be paid by WCLIC without
prior approval of the Commissioner of the State of California
Department of Insurance is limited to the greater of WCLIC's
statutory net income of the preceding calendar year or 10% of
WCLIC's statutory shareholder's surplus as of the prior December 31.
Therefore, $126,489 of WCLIC's shareholder's equity is restricted as
to dividend payments in 1995.
Wisconsin law limits the payment of dividends to shareholders of ELICW.
The maximum dividend that may be paid by ELICW without prior approval
of the Commissioner of the State of Wisconsin is limited to the greater
of ELICW's statutory net income of the preceding calendar year or 10%
of ELICW s statutory surplus as of the prior December 31, Therefore,
$135,369 of ELICW's shareholder's equity is restricted as to dividend
payments in 1995.
Michigan law limits the payment of dividends to shareholders of NCC.
The maximum dividend that may be paid by NCC without prior approval
of the Commissioner of the State of Michigan Bureau of Insurance is
limited to the greater of NCC's statutory net income, not including
realized capital gains, of the preceding calendar year or 10% of
NCC's statutory shareholder's surplus as of the prior December 31.
Therefore, $66,564 of NCC's shareholder's equity is restricted as to
dividend payments in 1995. In addition, prior approval is not required
for a dividend which does not increase gross leverage to a point in
excess of the United States consolidated industry average for the most
recent available year.
(14) Transactions With Affiliates
----------------------------
Effective December 31, 1994, NLIC purchased all of the outstanding
shares of ELICW from Wausau Service Corporation (WSC) for an
amount approximating $165,000, subject to specified adjustments, if
any, subsequent to year end. 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. An accrual approximating $10,000
is reflected in the accompanying consolidated balance sheet. 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.
The deferred compensation annuity line of business of the Company
is primarily sold through Public Employees Benefit Services
Corporation (PEBSCO). The Company paid PEBSCO commissions and
administrative fees of $26,699, $22,681 and $20,146 in 1994, 1993 and
1992, respectively. PEBSCO is a wholly owned subsidiary of Corp.
The Company and NEA Valuebuilder Investor Services, Inc. (NEAVIS) have
contracted with the National Education Association (NEA) to provide
individual annuity contracts to be marketed exclusively to members of
the NEA. The Company paid NEAVIS a marketing development fee of
$11,095, $9,229 and $6,426 in 1994, 1993 and 1992, respectively.
NEAVIS is a wholly owned subsidiary of Corp.
The Company shares home office, other facilities, equipment and
common management and administrative services with affiliates.
65 of 87
<PAGE> 66
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
The Company 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 1994 and 1993 were not material.
During 1993, the Company sold equity securities with a market value
$194,515 to NMIC, resulting in a realized gain of $122,823. With the
proceeds, the Company purchased securities with a market value of
$194,139 and cash of $376 from NMIC.
Intercompany reinsurance contracts exist between NLIC and NMIC,
NLIC and WCLIC, NLIC and NCC, WCLIC and NMIC and WCLIC and
ELICW as of December 31, 1994. These contracts are immaterial to
the consolidated financial statements.
NCC participates in several 100% quota share reinsurance agreements
with NMIC. NCC serves as the licensed insurer as required for an
affiliated excess and surplus lines company and cedes 100% of direct
written premiums to NMIC. In 1989, NCC transferred 100% of assets and
unearned premiums and loss reserves related to a discontinued block of
assumed reinsurance to NMIC (95.3%) and Nationwide Mutual Fire
Insurance Company (4.7%). Effective January 1, 1993, NCC entered into
a 100% quota share reinsurance agreement to cede to NMIC 100% of all
written premiums not subject to any other reinsurance agreements.
As a result of these agreements, and in accordance with STATEMENT OF
FINANCIAL ACCOUNTING STANDARDS NO. 113 - ACCOUNTING AND REPORTING FOR
REINSURANCE OF SHORT-DURATION AND LONG-DURATION CONTRACTS, the
following amounts are included in the consolidated financial statements
as of December 31, 1994 and 1993 for reinsurance ceded:
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Reinsurance recoverable $575,721 533,401
Unearned premium reserves (118,092) (102,644)
Loss and claim reserves (371,974) (352,303)
Loss and expense reserves (85,655) (78,454)
-------- --------
$ 0 0
======== ========
</TABLE>
The ceding of reinsurance does not discharge the original insurer
from primary liability to its policyholder. The insurer which assumes
the coverage assumes the related liability and it is the practice of
insurers to treat insured risks, to the extent of reinsurance ceded,
as though they were risks for which the original insurer is not liable.
Management believes the financial strength of NMIC reduces to an
acceptable level any risk to NCC under these intercompany reinsurance
agreements.
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 $92,531 and $28,683 at December 31,
1994 and 1993, respectively, and are included in short-term
investments on the accompanying consolidated balance sheets.
(15) Bank Lines of Credit
--------------------
As of December 31, 1994 and 1993, NLIC had $120,000 of confirmed but
unused bank lines of credit which support a $100,000 commercial paper
borrowing authorization. Additionally, NFS had $27,000 of confirmed
but unused bank lines of credit.
66 of 87
<PAGE> 67
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
(16) 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.
(17) Major Lines of Business
-----------------------
The Company operates in the life and accident and health lines of
business in the life insurance and property and casualty insurance
industries. Life insurance operations include whole life, universal
life, variable universal life, endowment and term life insurance and
annuity contracts issued to individuals and groups. Accident and
health operations also provide coverage to individuals and groups.
The following table summarizes the revenues and income before Federal
income tax and cumulative effect of changes in accounting principles
for the years ended December 31, 1994, 1993 and 1992 and assets as of
December 31, 1994, 1993 and 1992, by line of business.
<TABLE>
<CAPTION>
1994 1993 1992
----------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Life insurance $ 1,577,809 1,479,956 1,406,417
Accident and health 345,544 339,764 475,290
Investment income allocated to capital and surplus 122,847 214,806 51,611
----------- --------- ---------
Total $ 2,046,200 2,034,526 1,933,318
=========== ========= =========
Income before Federal income tax and cumulative
effect of changes in accounting principles:
Life insurance 141,650 83,917 78,627
Accident and health 13,220 15,043 436
Investment income allocated to capital and surplus 118,360 213,941 51,496
----------- --------- ---------
Total $ 273,230 312,901 130,559
=========== ========= =========
Assets:
Life insurance 28,351,628 22,982,186 19,180,561
Accident and health 852,026 773,007 343,535
Capital and surplus 1,908,479 1,651,168 1,430,242
----------- --------- ---------
Total $31,112,133 25,406,361 20,954,338
=========== ========= =========
</TABLE>
Included in life insurance revenues are premiums from certain annuities
with life contingencies of $20,134 ($35,341 and $54,066 for the years
ended December 31, 1993 and 1992, respectively) as well as universal
life and investment product policy charges of $239,021 ($188,057 and
$148,464 for the years ended December 31, 1993 and 1992 respectively)
for the year ended December 31, 1994.
Allocations of investment income and certain general expenses were
based on a number of assumptions and estimates, and reported operating
results would change by line if different methods were applied.
Investment income and realized gains allocable to policyholders in 1994
were $1,193,292 and $1,775, respectively.
(18) Subsequent Event
----------------
On January 30, 1995, FHLIC received approval from the Ohio Secretary of
State to change its name to Nationwide Life and Annuity Insurance
Company.
67 of 87
<PAGE> 68
PART C. OTHER INFORMATION
Item 24. FINANCIAL INFORMATION
(a) Financial Statements:
(1) Financial statements and schedule included PAGE
in Prospectus (Part A): Condensed Financial
Information 11
(2) Financial statements and schedule included
in Part B:
Those financial statements and schedule 38
38 required by Item 23 to be included in
Part B have been incorporated therein by
reference to the Prospectus (Part A).
Nationwide Variable Account-3:
Independent Auditors' Report. 38
Statement of Assets, Liabilities and Contract 39
Owners' Equity as of December 31, 1994.
Statements of Operations and Changes in 40
Contract Owners' Equity for the years ended
December 31, 1994, 1993 and 1992.
Notes to Financial Statements. 41
Schedule 1. 43
Nationwide Life Insurance Company:
Independent Auditors' Report. 44
Consolidated Balance Sheets as of December 45
31, 1994 and 1993.
Consolidated Statements of Income for the 46
years ended December 31, 1994, 1993 and
1992.
Consolidated Statements of Shareholder's 47
Equity for the years ended December 31,
1994, 1993 and 1992.
Consolidated Statements of Cash Flows for 48
the years ended December 31, 1994, 1993
and 1992.
Notes to Consolidated Financial Statements. 49
68 of 87
<PAGE> 69
Item 24. (b) Exhibits
(1) Resolution of the Depositor's Board of
Directors authorizing the establishment of the
Registrant, adopted October 7, 1987- Filed
previously with registration
(2) Not Applicable
(3) Underwriting or Distribution contract between
the Registrant and Principal Underwriter -
Filed previously with pre-effective amendment
no. 1 to the registration statement, and hereby
incorporated by reference.
(4) The form of the variable annuity contract -
Filed previously with registration
statement, and hereby incorporated by
reference.
(5) Variable Annuity Application - Filed previously
with registration statement, and hereby
incorporated by reference.
(6) Articles of Incorporation of Depositor -
Filed previously with registration
statement, and hereby incorporated by
reference.
(7) Not Applicable
(8) Not Applicable
(9) Opinion of Counsel - Filed previously with
registration statement, and hereby incorporated
by reference.
(10) Not Applicable
(11) Not Applicable
(12) Not Applicable
(13) Performance Advertising Calculation
Schedule - Attached hereto
69 of 87
<PAGE> 70
Item 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS WITH DEPOSITOR
<S> <C>
Lewis J. Alphin Director
519 Bethel Church Road
Mount Olivet, NC 28365
Willard J. Engel Director
1100 East Main Street
Marshall, MN 56258
Fred C. Finney Director
1558 West Moreland Road
Wooster, OH 44691
Peter F. Frenzer President and Chief Operating Officer
One Nationwide Plaza and Director
Columbus, OH 43215
Charles L. Fuellgraf, Jr. Director
600 South Washington Street
Butler, PA 16001
Henry S. Holloway Chairman of the
1247 Stafford Road Board
Darlington, MD 21034
D. Richard McFerson President and Chief Executive Officer-
One Nationwide Plaza Nationwide Insurance Enterprise
Columbus, OH 43215 and Director
David O. Miller Director
115 Sprague Drive
Hebron, Ohio 43025
C. Roy Noecker Director
2770 State Route 674 South
Ashville, OH 43103
James F. Patterson Director
8765 Mulberry Road
Chesterland, OH 44026
Robert H. Rickel Director
P.O. Box 319
Bayview, ID 83803
</TABLE>
70 of 87
<PAGE> 71
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS WITH DEPOSITOR
<S> <C>
Arden L. Shisler Director
2724 West Lebanon 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
James E. Brock Senior Vice President -
One Nationwide Plaza Investment Product 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
Robert A. Oakley Executive Vice President-
One Nationwide Plaza Chief Financial Officer
Columbus, Ohio 43215
Carl J. Santillo Senior Vice President
One Nationwide Plaza Life and Health Operations
Columbus, OH 43215
Michael D. Bleiweiss Vice President-
One Nationwide Plaza Deferred Compensation
Columbus, OH 43215
Joseph F. Ciminero Vice President-
One Nationwide Plaza Financial Operations
Columbus, OH 43215
</TABLE>
71 of 87
<PAGE> 72
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS WITH DEPOSITOR
<S> <C>
Matthew S. Easley Vice President -
One Nationwide Plaza Annuity and Pension Actuarial
Columbus, OH 43215
Ronald L. Eppley Vice President-
One Nationwide Plaza Pensions
Columbus, OH 43215
Timothy E. Murphy Vice President-Strategic
One Nationwide Plaza Planning/Marketing
Columbus, Ohio 43215
R. Dennis Noice Vice President-
One Nationwide Plaza Individual Investment Products
Columbus, OH 43215
Joseph P. Rath Vice President -
One Nationwide Plaza Associate General Counsel
Columbus, OH 43215
</TABLE>
Item 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT.
* Subsidiaries for which separate financial statements are filed
** Subsidiaries included in the respective consolidated financial
statements
*** Subsidiaries included in the respective group financial
statements filed for unconsolidated subsidiaries
**** other subsidiaries
72 of 87
<PAGE> 73
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
(SEE ATTACHED CHART)
STATE OF UNLESS OTHERWISE
COMPANY ORGANIZATION INDICATED PRINCIPAL BUSINESS
<S> <C> <C> <C>
Nationwide Mutual Insurance Ohio Insurance Company
Company (Casualty)
Nationwide Mutual Fire Insurance Ohio Insurance Company
Company
Nationwide Investing Foundation Michigan Investment Company
Nationwide Insurance Enterprise Ohio Membership Non-Profit
Foundation Corporation
Nationwide Insurance Golf Charities, Ohio Membership Non-Profit
Inc. Corporation
Farmland Mutual Insurance Company Iowa Insurance Company
F & B, Inc. Iowa Insurance Agency
Farmland Life Insurance Company Iowa Life Insurance Company
Nationwide Agribusiness Insurance Iowa Insurance Company
Company
Colonial Insurance Company of California Insurance Company
California
Nationwide General Insurance Ohio Insurance Company
Company
Nationwide Property & Casualty Ohio Insurance Company
Insurance Company
** Nationwide Life and Annuity Insurance Ohio Life Insurance Company
Company
Scottsdale Insurance Company Ohio Insurance Company
Scottsdale Indemnity Company Ohio Insurance Company
Neckura Insurance Company Germany Insurance Company
Neckura Life Insurance Company Germany Life Insurance Company
Neckura General Insurance Company Germany Insurance Company
Columbus Service, GMBH Germany Insurance Broker
Auto-Direkt Insurance Company Germany Insurance Company
Neckura Holding Company Germany Administrative service for
Neckura Insurance Group
SVM Sales GMBH, Neckura Insurance Germany Sales support for
Group Neckura Insurance Group
</TABLE>
73 of 87
<PAGE> 74
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
(SEE ATTACHED CHART)
STATE OF UNLESS OTHERWISE
COMPANY ORGANIZATION INDICATED PRINCIPAL BUSINESS
<S> <C> <C> <C>
Lone Star General Agency, Inc. Texas Insurance Agency
Colonial County Mutual Insurance Company Texas Insurance Company
Nationwide Communications Inc. Ohio Radio Broadcasting Business
Nationwide Community Urban Redevelopment Ohio Redevelopment of blighted
Corporation areas within the City of
Columbus, Ohio
Insurance Intermediaries, Inc. Ohio Insurance Broker and
Insurance Agency
Nationwide Cash Management Company Ohio Investment Securities Agent
California Cash Management Company California Investment Securities Agent
Nationwide Development Company Ohio Owns, leases and manages
commercial real estate
Allnations, Inc. Ohio Promotes cooperative
insurance corporations
worldwide
Gates, McDonald & Company of New York New York Workers Compensation Claims
Administration
Nationwide Indemnity Company Ohio Reinsurance Company
NWE, Inc. Ohio Special Investments
</TABLE>
74 or 87
<PAGE> 75
<TABLE>
<CAPTION>
NO. VOTING SECURITIES
(SEE ATTACHED CHART)
UNLESS OTHERWISE
COMPANY STATE OF ORGANIZATION INDICATED PRINCIPAL BUSINESS
<S> <C> <C> <C>
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 Health Care Corporation Ohio Develops and operates
Managed Care Delivery System
InHealth, Inc. Ohio Health Maintenance
Organization (HMO)
InHealth Agency, Inc. Ohio Insurance Agency
InHealth Management Systems, Inc. Ohio Develops and operates
Managed Care Delivery System
**West Coast Life Insurance Company California Life Insurance Company
Gates, McDonald & Company Ohio Cost Control Business
Gates, McDonald & Company of Nevada Nevada Self-Insurance
Administration, Claims
Examining, and Data
Processing Services
Nationwide Investors Services, Inc. Ohio Stock Transfer Agent
Leber Direkt Insurance Company Germany Life Insurance Company
**Nationwide Life Insurance Company Ohio Life Insurance Company
</TABLE>
75 of 87
<PAGE> 76
<TABLE>
<CAPTION>
NO. VOTING SECURITIES
(SEE ATTACHED CHART)
UNLESS OTHERWISE
COMPANY STATE OF ORGANIZATION INDICATED PRINCIPAL BUSINESS
<S> <C> <C> <C>
** Nationwide Property Management, Inc. Ohio Owns, leases, manages and
deals in Real Property.
** MRM Investments, Inc. Ohio Owns and operates a
Recreational Ski Facility
** National Casualty Company Michigan Insurance Company
** Nationwide Financial Services, Inc. Ohio Registered Broker-Dealer,
Investment Manager and
Administrator
* Nationwide Separate Account Trust Massachusetts Investment Company
* Nationwide Investing Foundation II Massachusetts Investment Company
* Financial Horizons Investment Trust Massachusetts Investment Company
PEBSCO Securities Corp. Oklahoma Registered Broker-Dealer in
Deferred Compensation Market
** National Premium and Benefit Delaware Insurance Administrative
Administration Company Services
Public Employees Benefit Services Delaware Marketing and Administration
Corporation of Deferred Employee
Compensation Plans for
Public Employees
PEBSCO of Massachusetts Insurance Agency, Massachusetts Markets and Administers
Inc. Deferred Compensation Plans
for Public Employees
</TABLE>
76 of 87
<PAGE> 77
<TABLE>
<CAPTION>
NO. VOTING SECURITIES
(SEE ATTACHED CHART)
UNLESS OTHERWISE
COMPANY STATE OF ORGANIZATION INDICATED PRINCIPAL BUSINESS
<S> <C> <C> <C>
Public Employees Benefit Services Alabama Markets and Administers
Corporation of Alabama Deferred Compensation Plans
for Public Employees
Public Employees Benefit Services Montana Markets and Administers
Corporation of Montana Deferred Compensation Plans
for Public Employees
PEBSCO of Texas, Inc. Texas Markets and Administers
Deferred Compensation Plans
for Public Employees
Public Employees Benefit Services Arkansas Markets and Administers
Corporation of Arkansas Deferred Compensation Plans
for Public Employees
Public Employees Benefit Services New Mexico Markets and Administers
Corporation of New Mexico Deferred Compensation Plans
for Public Employees
Wausau Lloyds Texas Texas Lloyds Company
Wausau Service Corporation Wisconsin Holding Company
American Marine Underwriters, Inc. Florida Underwriting Manager
Greater La Crosse Health Plans, Inc. Wisconsin Writes Commercial Health and
Medicare Supplement Insurance
Wausau Business Insurance Company Illinois Insurance Company
Wausau Preferred Health Insurance Company Wisconsin Insurance and Reinsurance
Company
Wausau Insurance Co. Limited (U.K.) United Kingdom Insurance and Reinsurance
Company
Wausau Underwriters Insurance Company Wisconsin Insurance Company
Employers Life Insurance Company of Wausau Wisconsin Life Insurance Company
</TABLE>
77 of 87
<PAGE> 78
<TABLE>
<CAPTION>
NO. VOTING SECURITIES
(SEE ATTACHED CHART)
UNLESS OTHERWISE
COMPANY STATE OF ORGANIZATION INDICATED PRINCIPAL BUSINESS
<S> <C> <C> <C>
Employers Insurance of Wausau Wisconsin Insurance Company
A Mutual Company
Wausau General Insurance Company Illinois Insurance Company
Countrywide Services Corporation Delaware Products Liability,
Investigative and Claims
Management Services
Wausau International Underwriters California Special Risks, Excess and
Surplus Lines Insurance
Underwriting Manager
Companies Agency, Inc. (Wisconsin) Wisconsin Insurance Broker
Companies Agency Insurance Services of California Insurance Broker
California, Inc.
Companies Agency of Idaho, Inc. Idaho Insurance Broker
Key Health Plan, Inc. California Pre-paid health plans
Pension Associates of Wausau, Inc. Wisconsin Pension plan administration,
record keeping and
consulting and compensation
consulting
Companies Agency of Phoenix, Inc. Arizona 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 Alabama, Inc. Alabama Insurance Broker
Companies Agency of Pennsylvania, Inc. Pennsylvania Insurance Broker
Companies Agency of Massachusetts, Inc. Massachusetts Insurance Broker
</TABLE>
78 of 87
<PAGE> 79
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
(SEE ATTACHED CHART)
UNLESS OTHERWISE
COMPANY STATE OF ORGANIZATION INDICATED PRINCIPAL BUSINESS
<S> <C> <C> <C>
Companies Agency of New York, Inc. New York Insurance Broker
Financial Horizons Distributors Agency of Oklahoma Life Insurance Agency
Oklahoma, Inc.
Financial Horizons Distributors Agency, Inc. Delaware Insurance Agency
Financial Horizons Distributors Agency of Ohio Insurance Agency
Ohio, Inc.
Landmark Financial Services of New York, New York Life Insurance Agency
Inc.
Financial Horizons Distributors Agency of Alabama Life Insurance Agency
Alabama, Inc.
Financial Horizons Securities Corporation Oklahoma Broker Dealer
Affiliate Agency of Ohio, Inc. Ohio Life Insurance Agency
Affiliate Agency, Inc. Delaware Life Insurance Agency
NEA Valuebuilder Investor Services, Inc. Delaware Life Insurance Agency
NEA Valuebuilder Investor Services of Alabama Life Insurance Agency
Alabama, Inc.
NEA Valuebuilder Investor Services of Massachusetts Life Insurance Agency
Massachusetts, Inc.
NEA Valuebuilder Investor Services of Ohio, Ohio Life Insurance Agency
Inc.
NEA Valuebuilder Investor Services of Texas Life Insurance Agency
Texas, Inc.
NEA Valuebuilder Investor Services of Oklahoma Life Insurance Agency
Oklahoma, Inc.
Financial Horizons Distributors Agency of Texas Life Insurance Agency
Texas, Inc.
Colonial General Insurance Agency, Inc. Arizona Insurance Agency
The Beak and Wire Corporation Ohio Radio Tower Joint Venture
Video Eagle, Inc. Ohio Operates Several Video Cable
Systems
</TABLE>
79 of 87
<PAGE> 80
<TABLE>
<CAPTION>
NO. VOTING SECURITIES
(SEE ATTACHED CHART)
UNLESS OTHERWISE
COMPANY STATE OF ORGANIZATION INDICATED PRINCIPAL BUSINESS
<S> <C> <C> <C>
* MFS Variable Account Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Multi-Flex 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 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide DC Variable Account Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Separate Account No. 1 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide VLI Separate Account Ohio Nationwide Life Separate Issuer of Life Insurance
Account Contracts
* Nationwide Variable Account-3 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide VLI Separate Account-2 Ohio Nationwide Life Separate Issuer of Life Insurance
Account Contracts
* Nationwide VA Separate Account-A Ohio Nationwide Life and Issuer of Annuity Contracts
Annuity Separate 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
* NACo Variable Account Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide VLI Separate Account-3 Ohio Nationwide Life Separate Issuer of Life Insurance
Account Contracts
* Nationwide VL Separate Account-A Ohio Nationwide Life and Issuer of Life Insurance
Annuity Separate Account Contracts
* Nationwide Variable Account-6 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Fidelity Advisor Variable Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account Account
* Nationwide VA Separate Account-C Ohio Nationwide Life and Issuer of Annuity Contracts
Annuity Separate Account
* Nationwide VA Separate Account-B Ohio Nationwide Life and Issuer of Annuity Contracts
Annuity Separate Account
* Nationwide VA Separate Account-Q Ohio Nationwide Life and Issuer of Annuity Contracts
Annuity Separate Account
</TABLE>
80 of 87
<PAGE> 81
<TABLE>
<CAPTION>
NATIONWIDE INSURANCE ENTERPRISE (left side}
______________________
| NATIONWIDE INSURANCE |
| GOLF CHARITIES, INC. |
| |
| MEMBERSHIP |
| NONPROFIT |
| CORPORATION |
|______________________|
<S> <C> <C>
________________________________________________________________________________________________
| EMPLOYERS INSURANCE OF WAUSAU |
| A MUTUAL COMPANY |
| |=================================
| Contribution Note Cost |
| ----------------- ---- |
| Casualty $400,000,000 |
|________________________________________________________________________________________________|
| |
_____________|_________________ _____________|__________________ _____________________
| WAUSAU INSURANCE CO. | | WAUSAU SERVICE | | |
| (U.K.) LIMITED | | CORPORATION (WSC) | | |
| | | | | WAUSAU LLOYDS |
| Common Stock: 8,506,800 | | Common Stock: 1,000 | | |
| ------------- Shares | | ------------- Shares |=============| |
| | | | | |
| Cost | | Cost | | |
| ---- | | ---- | | A TEXAS LLOYDS |
| Employers-- | | Employers-- | | |
| 100% $15,683,300 | | 100% $106,763,000 | | |
|_______________________________| |________________________________| |_____________________|
|
| ______________________________
| | WAUSAU BUSINESS |
| | INSURANCE COMPANY |
| | |
| | Common Stock: 5,900,000 |
|____| ------------- Shares |
| | |
| | Cost |
| | ----- |
| | WSC-100% $11,800,000 |
| |______________________________|
|
| ______________________________
| | WAUSAU UNDERWRITERS |
| | INSURANCE COMPANY |
| | |
| | Common Stock: 8,750 |
|____| ------------- Shares |
| | |
| | Cost |
| | ---- |
| | WSC-100% $24,560,006 |
| |______________________________|
|
| ______________________________
| | GREATER LA CROSSE |
| | HEALTH PLANS, INC. |
| | |
| | Common Stock: 3,000 |
|____| ------------- Shares |
| | |
| | Cost |
| | ---- |
| | WSC-33.3% $861,761 |
| |______________________________|
|
| ______________________________
| | COMPANIES AGENCY |
| | OF ALABAMA, INC. |
| | |
| | Common Stock: 1,000 |
|____| ------------- Shares |
| | |
| | Cost |
| | ---- |
| | WSC-100% $100 |
| |______________________________|
|
|
|
| ______________________________
| | COMPANIES AGENCY |
| | OF KENTUCKY, INC. |
| | |
| | Common Stock: 1,000 |
|____| ------------ Shares |
| | |
| | Cost |
| | ---- |
| | WSC-100% $1,000 |
| |______________________________|
|
|
| ______________________________
| | COMPANIES AGENCY |
| | OF PENNSYLVANIA, INC. |
| | |
| | Common Stock: 1,000 |
|____| ------------- Shares |
| | |
| | Cost |
| | ---- |
| | WSC-100% $100 |
| |______________________________|
|
|
| ______________________________
| | COMPANIES AGENCY |
| | OF MASSACHUSETTS, INC. |
| | |
| | Common Stock: 1,000 |
|____| ------------- Shares |
| | |
| | Cost |
| | ---- |
| | WSC-100% $1,000 |
| |______________________________|
|
|
| ______________________________
| | COMPANIES AGENCY |
| | OF NEW YORK, INC. |
| | |
| | Common Stock: 1,000 |
|____| ------------- Shares |
| | |
| | Cost |
| | ---- |
| | WSC-100% $1,000 |
| |______________________________|
|
|
| ______________________________
| | COMPANIES AGENCY |
| | OF IDAHO, INC. |
| | |
| | Common Stock: 1,000 |
|____| ------------- Shares |
| | |
| | Cost |
| | ---- |
| | WSC-100% $1,000 |
| |______________________________|
|
|
| ______________________________
| | COMPANIES AGENCY |
| | OF PHOENIX |
| | |
| | Common Stock: 1,000 |
|____| ------------- Shares |
| | |
| | Cost |
| | ---- |
| | WSC-100% $1,000 |
| |______________________________|
|
|
| ______________________________
| | COUNTRYWIDE SERVICES |
| | CORPORATION |
| | |
| | Common Stock: 100 |
|____| ------------- Shares |
| | |
| | Cost |
| | ---- |
| | WSC-100% $145,852 |
| |______________________________|
|
|
| ______________________________
| | WAUSAU GENERAL |
| | INSURANCE COMPANY |
| | |
| | Common Stock: 200,000 |
|____| ------------ Shares |
| | |
| | Cost |
| | ---- |
| | WSC-100% $31,000,000 |
| |______________________________|
|
| ______________________________
| | WAUSAU INTERNATIONAL |
| | UNDERWRITERS |
| | |
| | Common Stock: 1,000 |
|____| ------------- Shares |
| | |
| | Cost |
| | ---- |
| | WSC-100% $10,000 |
| |______________________________|
|
| ______________________________
| | COMPANIES AGENCY |
| | INSURANCE SERVICES |
| | OF CALIFORNIA |
| | |
|____| Common Stock: 1,000 |
| | ------------- Shares |
| | |
| | Cost |
| | ---- |
| | WSC-100% $1,000 |
| |______________________________|
|
| ______________________________
| | AMERICAN MARINE |
| | UNDERWRITERS, INC. (AMU) |
| | |
| | Common Stock: 20 |
|____| ------------- Shares |
| | |
| | Cost |
| | ---- |
| | WSC-100% $248,222 |
| |______________________________|
|
| ______________________________
| | COMPANIES AGENCY |
| | OF ILLINOIS, INC. |
| | |
| | Common Stock: 250 |
|____| ------------- Shares |
| | |
| | Cost |
| | ---- |
| | WSC-100% $2,500 |
| |______________________________|
|
| ______________________________ _____________________________
| | COMPANIES AGENCY, INC. | | PENSION ASSOCIATES |
| | (WISCONSIN) | | OF WAUSAU, INC. |
| | | | |
| | Common Stock: 100 | | Common Stock: 1,000 |
|____| ------------- Shares |____| ------------- Shares |
| | | |
| Cost | | Companies Cost |
| ---- | | Agency, Inc. ---- |
| WSC-100% $10,000 | | (Wisconsin) -- $10,000 |
|______________________________| | 100% |
|_____________________________|
</TABLE>
<PAGE> 82
<TABLE>
<CAPTION>
NATIONWIDE INSURANCE ENTERPRISE (right side)
<S> <C> <C> <C>
_________________________________
| NATIONWIDE ENTERPRISE INSURANCE |
| FOUNDATION |
| |
| MEMBERSHIP |
| NONPROFIT |
| CORPORATION |
|_________________________________|
_________________________________________ ___________________________
| | | |
===| NATIONWIDE MUTUAL |=============================================| NATIONWIDE MUTUAL |
| (CASUALTY) | | FIRE |
|_________________________________________| |___________________________|
| | | |__________________________________________________________________ :
| | | | | :
______________|__________ | | | _____________________________ _____________|_:____________________
| ALLNATIONS | | | | | NATIONWIDE | | NATIONWIDE |
| | | | | | GENERAL | | CORPORATION |
| Common Stock: 2,939 | | | | | | | |
| ------------- Shares | | | | | Common Stock: 20,000 Shares | | Common Stock: Control |
| | | | |___| ------------- | | ------------- ------- |
| Cost | | | | | | | $13,092,790 100% |
| ---- | | | | | Cost | | |
| Casualty-26% $88,320 | | | | | ---- | | Shares Cost |
| Fire-26% $88,463 | | | | | Casualty-100% $5,944,422 | | ----- ---- |
|_________________________| | | | |_____________________________| | Casualty $12,443,280 $710,293,557 |
| | | | Fire 649,510 24,007,936 |
_________________________ | | | _____________________________ | |
| FARMLAND MUTUAL | | | | | NATIONWIDE PROPERTY | | (See Page 2) |
| INSURANCE COMPANY | | | | | AND CASUALTY | |____________________________________|
| | | | | | |
| Guaranty Fund |____| | | | Common Stock: 60,000 Shares |
| ------------- |______| |___| ------------- |
| Certificate | | | |
| ----------- | | | Cost |
| | | | ---- |
| Cost | | | Casualty-100% $6,000,000 |
| ---- | | |_____________________________|
| Casualty $500,000 | |
|_________________________| | _____________________________
| | | COLONIAL INS. CO. |
_______________|___________ | | OF CALIFORNIA |
| F & B, INC. | | | |
| | | | Common Stock: 1,750 Shares |
| Common Stock: 1 Share | |___| ------------- |
| ------------- | | | |
| | | | Cost |
| Cost | | | ---- |
| ---- | | | Casualty-100% $11,750,000 |
| Farmland Mutual- $10 | | |_____________________________|
| 100% | |
|___________________________| | _____________________________ __________________________
____________________________ | | SCOTTSDALE | | COLONIAL GENERAL |
| FARMLAND LIFE | | | INSURANCE COMPANY | | INSURANCE AGENCY, INC. |
| INSURANCE COMPANY | | | | | |
| | | | Common Stock: 30,136 Shares | | Common Stock: 1 Share |
| Common Stock: 1,000,000 |___|___| ------------- |______| ------------ |
| ------------- Shares | | | | | |
| | | | Cost | | Cost |
| Cost | | | ---- | | ---- |
| ---- | | | Casualty-100% $150,000,000 | | Scottsdale- $1,082,336 |
| Casualty-100% $23,826,196 | | |_____________________________| | 100% |
|____________________________| | |__________________________|
| _____________________________
| | NATIONWIDE AGRIBUSINESS |
| | INS. CO. |
| | |
| | Common Stock: 1,000,000 |
| | ------------- Shares |
| | |
|___| Casualty- Cost |
| | 99.9% ---- |
| | $26,300,981 |
| | Other Capital: |
| | Casualty- |
| | Ptd. $713,567 |
| |_____________________________|
|
| _____________________________ ______________________________
| | NECKURA HOLDING CO. | | NECKURA |
| | (NECKURA) | | INSURANCE CO. |
| | | | |
| | Common Stock: 10,000 Shares | | Common Stock: 6,000 Shares |
|___| ------------- |____________________| ------------- |
| | | | | |
| | Cost | | | Cost |
| | --- | | | ---- |
| | Casualty-100% $87,943,140 | | | Neckura-100% DM 6,000,000 |
| |_____________________________| | |______________________________|
| |
| | _____________________________
| | | NECKURA LIFE |
| | | |
| | | Common Stock: 4,000 Shares |
| |_____| ------------- |
| | | |
| | | Cost |
| | | ---- |
| | | Neckura-100% DM 15,825,681 |
| | |_____________________________|
| |
| | _____________________________
| | | NECKURA GENERAL |
| | | AUTO INSURANCE CO. |
| | | |
| | | Common Stock: 1,500 Shares |
| |_____| ------------ |
| | | |
| | | Cost |
| | | ---- |
| | | Neckura-100% DM 1,656,925 |
| | |_____________________________|
| |
| | _____________________________
| | | COLUMBUS SERVICE |
| | | GmbH |
| | | |
| | | Common Stock: 1 Share |
| |_____| ------------- |
| | | |
| | | Cost |
| | | ----- |
| | | Neckura-100% DM 51,639 |
| | |_____________________________|
| |
| | _____________________________
| | | AUTO DIRECT |
| | | INSURANCE CO. |
| | | |
| | | Common Stock: 1,500 Shares |
| | | ------------- |
| |_____| |
| | | Cost |
| | | ---- |
| | | Neckura-100% DM 1,643,149 |
| | |_____________________________|
| |
| _____________________________ | ____________________________
| | NATIONWIDE | | | SVM SALES |
| | DEVELOPMENT | | | GmbH |
| | | | | |
| | Common Stock: 99,000 Shares | | | Common Stock: 50 Shares |
| | ------------- | |_____| ------------- |
| | | | |
|___| Cost | | Cost |
| | --- | | ---- |
| | Casualty-100% $15,100,000 | | Neckura-100% DM 50,000 |
| | Other Capital: | |____________________________|
| | -------------- |
| | Casualty-Ptd. $ 2,796,100 |
| |_____________________________|
|
|
| _____________________________
| | SCOTTSDALE |
| | INDEMNITY |
| | |
|___| Common Stock: 50,000 Shares |
| | ------------- |
| | |
| | Cost |
| | ---- |
| | Casualty-100% $8,800,000 |
| |_____________________________|
|
| _____________________________
| | NATIONWIDE INDEMNITY |
| | |
| | Common Stock: 28,000 Shares |
|___| ------------- |
| | |
| | Cost |
| | ---- |
| | Casualty-100% $294,529,000 |
| |_____________________________|
|
| _____________________________ __________________________
| | LONE STAR | | COLONIAL COUNTY MUTUAL |
| | GENERAL AGENCY, INC. | | INSURANCE COMPANY |
| | | | |
| | Common Stock: 1,000 Shares | | Surplus Debentures: |
|___| ------------- |______| ------------------- |
| | |______| |
| | Cost | | Cost |
| | ---- | | ---- |
| | Casualty $5,000,000 | | Colonial $500,000 |
| | 100% | | Lone Star 150,000 |
| |_____________________________| |__________________________|
|
| _____________________________
| | NATIONWIDE |
| | COMMUNITY URBAN |
| | REDEVELOPMENT |
| | |
| | Common Stock: 10 Shares |
|___| ------------- |
| | |
| | Cost |
| | ---- |
| | Casualty-100% $1,000 |
| |_____________________________|
|
| _____________________________
| | INSURANCE |
| | INTERMEDIARIES, INC. |
| | |
| | Common Stock: 1,615 Shares |
|___| ------------- |
| | |
| | Cost |
| | ---- |
| | Casualty-100% $1,615,000 |
| |_____________________________|
|
| _____________________________
| | NATIONWIDE |
| | CASH MANAGEMENT |
| | |
| | Common Stock: 100 Shares |
| | ------------- |
|___| |
| | Cost |
| | ---- |
| | Casualty-90% $9,000 |
| | NW Fin Serv- 1,000 |
| | 10% |
| |_____________________________|
|
|
| _____________________________ __________________________
| | CALIFORNIA | | VIDEO EAGLE INC. |
| | CASH MANAGEMENT | | |
| | | | Common Stock: 750 Shares |
| | Common Stock: 90 Shares | | ------------- |
|___| ------------- | ____| |
| | | | | Cost |
| | Cost | | | ---- |
| | ---- | | | NW Comm.- $0 |
| | Casualty-100% $9,000 | | | 100% |
| |_____________________________| | |__________________________|
| |
| |
| |
| _____________________________ | __________________________
| | NATIONWIDE | | | THE BEAK AND |
| | COMMUNICATIONS INC. | | | WIRE CORPORATION |
| | | | | |
| | Common Stock: 14,750 Shares | | | Common Stock: 750 Shares |
|___| ------------- |__|___| ------------- |
| | | |
| Cost | | Cost |
| ---- | | ---- |
| Casualty-100% $11,510,000 | | NW Comm- $531,000 |
| | | 100% |
| Other Capital: | |__________________________|
| -------------- |
| Casualty-Ptd. 1,000,000 |
|_____________________________|
<FN>
Subsidiary Companies - Solid Line
Associated Companies - Dotted Line
Contractural Association - Double Line
December 31, 1994
</TABLE>
<PAGE> 83
<TABLE>
<CAPTION>
NATIONWIDE INSURANCE ENTERPRISE (left side)
<S> <C> <C>
_______________________________________
| |
| EMPLOYERS INSURANCE |___________________________________________
| OF WAUSAU |___________________________________________
| A MUTUAL COMPANY |
|_______________________________________|
__________________________
|
____________|__________________
| NATIONWIDE LIFE |
| Common Stock: 3,814,779 |
| ------------- Shares |
| |
| NW Corp.- Cost |
| 100% ---- |
| $909,179,664 |
|______________________________|
|
_________________________________________________________________________________|
| | |
____________|____________ ___________|_______________ | ______________________________
| NATIONWIDE | | NATIONAL CASUALTY | | | FINANCIAL HORIZONS |
| FINANCIAL SERVICES | | Common Stock: 100 Shares | | | LIFE |
| Common Stock: 7,676 | | ------------- | | | Common Stock: 66,000 |
______| ------------- Shares | _____| | |_______| ------------- Shares |
| ____| Cost | | | Cost | | | NW Life- Cost |
| | | ---- | | | ---- | | | 100% ---- |
| | | NW Life-100% $5,996,261 | | | NW Life-100% $66,132,811 | | | $58,070,003 |
| | |_________________________| | |___________________________| | |______________________________|
| | | | | |
| | _________________________ | ___________|_|_____________ |
| | | NATIONWIDE | | | | |
| | | INVESTOR SERVICES | | | | |
| | | Common Stock: 5 Shares | | | NCC OF AMERICA, | |
| |____| ------------- | | | INC. (INACTIVE) | | ______________________________
| | | | | | | | | WEST COAST LIFE |
| | | NW Fin. Serv.- Cost | | | | | | Common Stock: 1,000,000 |
| | | 100% ---- | | | | | | ------------- Shares |
| | | $5,000 | | | | |_______| Cost |
| | |_________________________| | |___________________________| | | ---- |
| | | | | NW Life-100% $92,762,014 |
| | _________________________ | ___________________________ | |______________________________|
| | | NATIONWIDE | | | HICKEY-MITCHELL | |
| | | INVESTING | | | INSURANCE AGENCY | |
| | | FOUNDATION | | | Common Stock: 101 Shares | |
| |____| | |_____| ----------- | |
| ____| | | | | ______________________________
| | | | | Cost | | | EMPLOYERS LIFE INSURANCE CO. |
| | | | | ---- | | | OF WAUSAU (EL) |
| | | COMMON LAW TRUST | | Nat. Cas.-100% $4,701,200 | | | |
| | |_________________________| |___________________________| | | Common Stock: 250,000 Shares |
| | | |_______| ------------- |
| | _________________________ ____________|______________ | | ---- |
| | | NATIONWIDE | | NATIONAL PREMIUM & | | | NW Life-100% $165,627,416 |
| | | INVESTING | | BENEFIT ADMINISTRATION | | |______________________________|
| |____| FOUNDATION II | | Common Stock: 10,000 | | |
| ____| | | ------------ Shares | | |
| | | | | Cost | | |
| | | | | Hickey- ---- | | ___________|_________________
| | | COMMON LAW TRUST | | Mitchell-100% $1,319,469 | | | WAUSAU PREFERRED |
| | |_________________________| |___________________________| | | HEALTH INS. CO. |
| | | | |
| | | | Common Stock: 200 Shares |
| | _________________________ | | ------------- |
| | | NATIONWIDE | | | EL -- 100% Cost |
| |____| SEPARATE ACCOUNT | | | ---- |
| ____| TRUST | | | $51,413,193 |
| | | COMMON LAW TRUST | | |_____________________________|
| | |_________________________| |
| | |
| | |
| | _________________________ |
| | | FINANCIAL HORIZONS | | ______________________________
| |____| INVESTMENT TRUST | | | NATIONWIDE |
|______| TRUST | | | PROPERTY MANAGEMENT |
| COMMON LAW TRUST | | | Common Stock: 59 Shares |
|_________________________| |_______| ------------- |
| | |
| | Cost |
| | ---- |
| | NW Life-100% $1,907,896 |
| |______________________________|
| |
| |
| |
| |
| ____________|_________________
| | MRM INVESTMENTS, INC. |
| | Common Stock: 1 Share |
| | ------------ |
| | |
| | Cost |
| | Nat. Prop. ---- |
| | Mgmt.-100% $550,000 |
| |______________________________|
|
|
| ___________________________
| | NWE, INC. |
| | |
| | Common Stock: 100 Shares |
|_______| |
| NW Life-100% Cost |
| ---- |
| $35,971,375 |
|___________________________|
</TABLE>
<PAGE> 84
<TABLE>
<CAPTION>
NATIONWIDE INSURANCE ENTERPRISE (middle)
<S> <C> <C> <C>
_______________________________________
| |
________________________________| NATIONWIDE MUTUAL |___________________________________________________________
________________________________| (CASUALTY) |___________________________________________________________
| |
|_______________________________________|
| _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
__________________|______________|___
| NATIONWIDE CORPORATION |
| Common Stock: Control: |
| ------------- ------- |
| 13,092,790 100% |
| |
| Shares Cost |
| ------ ---- |
| Casualty $12,443,280 $710,293,557 |
| Fire 649,510 24,007,936 |
|_____________________________________|
|
____________________________________________________|______________________________________________________________________________
| | |
___________|_______________ _____________|_____________ ____________|______________
| PUBLIC EMPLOYEES | | GATES, McDONALD | | FINANCIAL HORIZONS |
| BENEFIT SERV. CORP. | | & COMPANY (GATES) | | DISTRIBUTORS AGY., INC. |
______| Common Stock: 236,494 | | Common Stock: 254 Shares | | Common Stock: 1,000 Shares|
| ____| ------------- Shares | | ------------- |___ _____| ------------- |
| | | Cost | | | | | ___| |
| | | NW Corp.- ---- | | Cost | | | | | Cost |
| | | 100% $12,830,936 | | ---- | | | | | NW Corp. ---- |
| | |___________________________| | MW Corp.- $22,126,323 | | | | | 100% $19,501,000 |
| | | 100% | | | | |___________________________|
| | |___________________________| | | |
| | | | |
| | ___________________________ | | |
| | ___________________________ | GATES, McDONALD & Co. | | | | ___________________________
| | | PEBSCO SECURITIES | | OF NEW YORK | | | | | FINANCIAL HORIZONS |
| | | CORP. | | Common Stock: 3 Shares | | | | | DISTRIBUTORS AGY. |
| |____| Common Stock: 5,000 | | ------------- |___| | | | OF ALABAMA, INC. |
| | | ------------- Shares | | | | | |___| Common Stock: 10,000 |
| | | Cost | | Cost | | | | | ----------- Shares |
| | | Pub. Emp. Ben. ---- | | ---- | | | | | Cost |
| | | Serv.Corp.-100% $25,000 | | Gates-100% $106,947 | | | | | ---- |
| | |___________________________| | | | | | | FHDAI-100% $100 |
| | |___________________________| | | | |___________________________|
| | | | |
| | | | |
| | ___________________________ | | |
| | ___________________________ | GATES, McDONALD & Co. | | | |
| | | PEBSCO OF | | OF NEVADA | | | | ___________________________
| | | NEW MEXICO | | | | | | | LANDMARK FINANCIAL |
| | | Common Stock: 1,000 | | Common Stock: 40 Shares |___| | | | SERVICES OF |
| |____| ------------- Shares | | | | | | NEW YORK, INC. |
| | | Cost | | Gates-100% Cost | | |___| Common Stock: 10,000 |
| | | Pub. Emp. Ben. ---- | | ---- | | | | ------------- Shares |
| | | Serv.Corp.-100% $1,000 | | $93,750 | | | | Cost |
| | |___________________________| |___________________________| | | | ---- |
| | | | | FHDAI-100% $10,100 |
| | | | |___________________________|
| | | |
| | | |
| | ___________________________ | |
| | | PEBSCO OF | | |
| | | ARKANSAS | | | ___________________________
| | | Common Stock: 50,000 | | | | FINANCIAL HORIZONS |
| |____| ------------- Shares | | | | SECURITIES CORP. |
| | | Cost | | |___| Common Stock: 10,000 |
| | | Pub. Emp. Ben. ---- | | | | ------------- Shares |
| | | Serv.Corp. 100% $500 | | | | Cost |
| | |___________________________| | | | ---- |
| | | | | FHDAI-100% $153,000 |
| | | | |___________________________|
| | | |
| | ___________________________ | |
| | | PEBSCO OF | ___________________________ | |
| | | MONTANA | | AFFILIATE AGENCY, INC. | | | ___________________________
| |____| Common Stock: 500 | | | | | | |
| | | ------------- Shares | | Common Stock: 100 Shares |__ | | | FINANCIAL HORIZONS |
| | | Cost | | | | |___| DISTRIBUTORS |
| | | Pub. Emp. Ben. ---- | | FHDAI-100% Cost | | ___| AGENCY OF TEXAS, |
| | | Serv.Corp.-100% $500 | | ---- | | | | INC. |
| | |___________________________| | $100 | | | |___________________________|
| | |___________________________| | |
| | | |
| | | |
| | ___________________________ | | ___________________________
| | | PEBSCO OF | | | | |
| | | ALABAMA | | |___| FINANCIAL HORIZONS |
| |____| Common Stock: 100,000 | | ___| DISTRIBUTORS AGY. |
| | | ------------- Shares | | | | OF OHIO, INC. |
| | | Cost | | | |___________________________|
| | | Pub. Emp. Ben. ---- | | |
| | | Serv.Corp.-100% $1,000 | | |
| | |___________________________| | |
| | | |
| | ___________________________ | |
| | | PEBSCO OF | | | ___________________________
| | | MASSACHUSETTS | | | | |
| | | INSURANCE AGENCY, INC. | | |___| FINANCIAL HORIZONS |
| |____| Common Stock: 1,000 | | ___| DISTRIBUTORS AGY. |
| | | ------------- Shares | | | | OF OKLAHOMA, INC. |
| | | Cost | | | |___________________________|
| | | Pub. Emp. Ben. ----- | | |
| | | Serv.Corp.-100% $1,000 | | |
| | |___________________________| | | ___________________________
| | | | | |
| | ___________________________ | |___| AFFILIATE |
| |____| | |_____ AGENCY OF |
|______| PEBSCO OF | | OHIO, INC. |
| TEXAS | | |
|___________________________| |___________________________|
</TABLE>
<PAGE> 85
<TABLE>
<CAPTION>
NATIONWIDE INSURANCE ENTERPRISE (right side)
<S> <C> <C>
_______________________________________
| |
______________________| NATIONWIDE MUTUAL |
______________________| FIRE (FIRE) |
| |
|_______________________________________|
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _|
____________________________________________________________________
| | |
_____________|_____________ | ____________|______________
| NEA VALUEBUILDER | | | INHEALTH, INC. |
| INVESTOR SERVICES, INC. | | | Common Stock: 100 |
_______| Common Stock: 500 | | | ------------ Shares |
| _____| ------------- Shares | | | Cost |
| | | Cost | | | ---- |
| | | NW Corp.- ---- | | | NW Corp.- |
| | | 100% $5,000 | | | 100% $12,046,413 |
| | |___________________________| | |___________________________|
| | |
| | ___________________________ | ___________________________
| | | NEA VALUEBUILDER | | | NATIONWIDE |
| | | INVESTOR SERVICES | | | HEALTH CARE |
| |_____| OF ALABAMA, INC. | |_____| Common Stock: 15 Shares |
| | | Common Stock: 500 | _____| ------------ |
| | | ------------- Shares | | | |
| | | Cost | | | Cost |
| | | ---- | | | NW Corp.- ---- |
| | | NEA-100% $5,000 | | | 100% $16,850,000 |
| | |___________________________| | |___________________________|
| | |
| | ___________________________ | ___________________________
| | | NEA VALUEBUILDER | | | INHEALTH MGT. |
| | | INVESTOR SERVICES | | | SYSTEMS, INC. |
| | | OF OHIO, INC. | | | Common Stock: 100 Shares |
| |_____| Common Stock: 100 | |_____| ------------- |
| | | ------------- Shares | | | |
| | | Cost | | | Cost |
| | | ----- | | | NW Health ---- |
| | | NEA-91% $5,000 | | | Care-100% $25,149 |
| | |___________________________| | |___________________________|
| | |
| | ___________________________ | ___________________________
| | | | | | INHEALTH |
| | | | | | AGENCY, INC. |
| | | NEA VALUEBUILDER | | | Common Stock: 99 Shares |
| |_____| INVESTOR SERVICES | |_____| ------------- |
| | | OF TEXAS, INC. | | Cost |
| | | | | NW Health ---- |
| | | | | Corp.-99% $116,077 |
| | |___________________________| |___________________________|
| |
| | ___________________________
| | | |
| | | |
| |_____| NEA VALUEBUILDER |
|_______| INVESTOR SERVICES |
| OF OKLAHOMA, INC. |
| |
|___________________________|
<FN>
Subsidiary Companies -- Solid Line
Associated Companies -- Dotted Line
Contractual Association -- Double Line
December 31, 1994
</TABLE>
<PAGE> 86
Item 27. NUMBER OF CONTRACT OWNERS
The number of contract Owners of Qualified and Non-Qualified
Contracts as of February 28, 1995 was 1,824 and 1,809, respectively.
Item 28. INDEMNIFICATION
Provision is made in the Company's Amended Code of Regulations and
expressly authorized by the General Corporation Law of the State of
Ohio, for indemnification by the Company of any person who was or is
a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative by reason of the fact that
such person is or was a director, officer or employee of the Company,
against expenses, including attorneys' fees, judgments, fines and
amounts paid in settlement actually and reasonably incurred by such
person in connection with such action, suit or proceeding, to the
extent and under the circumstances permitted by the General
Corporation Law of the State of Ohio.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 ("Act") may be permitted to directors,
officers or persons controlling the Company pursuant to the foregoing
provisions, the Company has been informed that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of
expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
Item 29. PRINCIPAL UNDERWRITERS
(a) American Capital Marketing, Inc. acts as principal
underwriter for the following registered investment companies
in addition to Nationwide Variable Account-3:
American Capital Comstock Fund, Inc.
American Capital Corporate Bond Fund, Inc.
American Capital Emerging Growth Fund, Inc.
American Capital Enterprise Fund, Inc.
American Capital Equity Income Fund, Inc.
American Capital Federal Mortgage Trust
American Capital Government Securities, Inc.
American Capital Government Target Series
American Capital Growth and Income Fund, Inc.
American Capital Harbor Fund, Inc.
American Capital High Yield Investments, Inc.
American Capital Life Investment Trust
American Capital Municipal Bond Fund, Inc.
American Capital Pace Fund, Inc.
American Capital Reserve Fund, Inc.
American Capital Tax Exempt Trust
American Capital Texas Municipal Securities Fund, Inc.
American Capital U.S. Government Trust for Income
American Capital Utilities Income Fund, Inc.
American Capital World Portfolio Services, Inc.
* In dissolution
American Capital Marketing, Inc. also acts as depositor for American
Capital Monthly Accumulation Plans, a registered unit investment
trust.
83 of 87
<PAGE> 87
(b) The following information is furnished with respect to each
officer and director of American Capital Marketing, Inc.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS WITH PRINCIPAL UNDERWRITER WITH REGISTRANT
<S> <C> <C>
Donald A. McMullen, Jr. President and -----
(1) Chief Executive Officer
Don G. Powell Executive Vice President -----
(1)
Paul R. Wolkenberg Executive Vice President and -----
(1) Chief Operating Officer
Jeff Etheredge Senior Vice President, -----
(1) National Sales Manager
Peter M. Harvey Senior Vice President and -----
(1) National Sales Manager, Banking
Sheila Horn Senior Vice President, Market Promotion -----,
(1) Public Relations and Planning
Richard Humphrey Senior Vice President, Product & -----
(1) Market Development
Debra A. Nichols Senior Vice President -----
(1)
William N. Brown Vice President and -----
(1) Chief Financial Officer
Paul A. Hilstad Vice President -----
(1)
Ofelia Mayo Vice President, Corporate Secretary -----
(1) and Counsel
Donald J. Meyers Vice President -----
(1)
Fred Shepherd Vice President -----
(1)
Lea S. Zeitman Vice President -----
(1)
Nori L. Gabert Assistant Corporate Secretary -----
(1)
Donald A. McMullen, Jr. Director -----
(1)
Don G. Powell Director -----
(1)
Paul R. Wolkenberg Director -----
(1)
</TABLE>
(1) 2800 Post Oak Blvd., Houston, Texas 77056
84 of 87
<PAGE> 88
Item 30. LOCATION OF ACCOUNTS AND RECORDS
Joseph F. Ciminero
Nationwide Life Insurance Company
One Nationwide Plaza
Columbus, OH 43216
Item 31. MANAGEMENT SERVICES
Not Applicable
Item 32. UNDERTAKINGS
The Registrant hereby undertakes to:
(a) file a post-effective amendment to this registration statement
as frequently as is necessary to ensure that the audited
financial statements in the registration statement are never
more than 16 months old for so long as payments under the
variable annuity contracts may be accepted;
(b) include either (1) as part of any application to purchase a
contract offered by the prospectus, a space that an applicant
can check to request a Statement of Additional Information, or
(2) a post card or similar written communication affixed to or
included in the prospectus that the applicant can remove to send
for a Statement of Additional Information; and
(c) deliver any Statement of Additional Information and any
financial statements required to be made available under this
form promptly upon written or oral request.
The Registrant hereby represents that any contract offered by the
prospectus and which is issued pursuant to Section 403(b) of the
Internal Revenue Code of 1986, as amended, is issued by the Registrant
in reliance upon, and in compliance with, the Securities and Exchange
Commission's no-action letter to the American Council of Life
Insurance (publicly available November 28, 1988) which permits
withdrawal restrictions to the extent necessary to comply with IRC
Section 403(b)(11).
85 of 87
<PAGE> 89
Offered by
Nationwide Life Insurance Company
NATIONWIDE LIFE INSURANCE COMPANY
Nationwide Variable Account - 3
Individual Deferred Variable Annuity Contract
PROSPECTUS
July 1, 1995
86 of 87
<PAGE> 90
SIGNATURES
As required by the Securities Act of 1933, and the Investment Company Act
of 1940, the Registrant, NATIONWIDE VARIABLE ACCOUNT-3, certifies that it meets
the requirements of Securities Act Rule 485(b) for effectiveness of this
Post-Effective Amendment and has caused this Post-Effective Amendment to be
signed on its behalf in the City of Columbus, and State of Ohio, on this 26th
day of June 1995.
NATIONWIDE VARIABLE ACCOUNT-3
----------------------------------------
(Registrant)
NATIONWIDE LIFE INSURANCE COMPANY
----------------------------------------
(Depositor)
By/s/JOSEPH P. RATH
----------------------------------------
Joseph P. Rath
Vice President and
Associate 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 26th day
of June, 1995.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C>
LEWIS J. ALPHIN Director
- ------------------------------
Lewis J. Alphin
WILLARD J. ENGEL Director
- ------------------------------
Willard J. Engel
FRED C. FINNEY Director
- ------------------------------
Fred C. Finney
PETER F. FRENZER President/Chief Operating
- ------------------------------ Officer and Director
Peter F. Frenzer
CHARLES L. FUELLGRAF, JR. Director
- ------------------------------
Charles L. Fuellgraf, Jr.
HENRY S. HOLLOWAY Chairman of the Board
- ------------------------------ and Director
Henry S. Holloway
D. RICHARD MCFERSON Chief Executive Officer and Director
- ------------------------------
D. Richard McFerson
DAVID O. MILLER Director
- ------------------------------
David O. Miller
ROBERT A. OAKLEY Executive Vice President-
- ------------------------------- Chief Financial Officer
Robert A. Oakley
C. RAY NOECKER Director
- --------------------------------
C. Ray Noecker
JAMES F. PATTERSON Director By/s/JOSEPH P. RATH
- -------------------------------- -------------------------
James F. Patterson Joseph P. Rath
Attorney-in-Fact
ROBERT H. RICKEL Director
- --------------------------------
Robert H. Rickel
ARDEN L. SHISLER Director
- --------------------------------
Arden L. Shisler
ROBERT L. STEWART Director
- --------------------------------
Robert L. Stewart
NANCY C. THOMAS Director
- --------------------------------
Nancy C. Thomas
HAROLD W. WEIHL Director
- ---------------------------------
Harold W. Weihl
</TABLE>
87 of 87
<PAGE> 1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned as
directors and/or officers of NATIONWIDE LIFE INSURANCE COMPANY, an Ohio
corporation, which has filed or will file with the 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 the 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 and Nationwide Multi-Flex Variable Account;
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 the Nationwide Multiple Maturity Separate
Account; and the registration of Group Flexible Fund Retirement Contracts in
connection with the Nationwide DC Variable Account and the 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 the Nationwide VU Separate Account,
Nationwide VU Separate Account-2 and Nationwide VU Separate Account-3 of
Nationwide Life Insurance Company, hereby constitutes and appoints D. Richard
McFerson, Peter F. Frenzer, Gordon E. McCutchan, W. Sidney Druen, and Joseph P.
Rath, and each of them with power to act without the others, his/her attorney,
with full power of substitution and resubstitution, for and in his/her name,
place and stead, in any and all capacities, to approve, and sign such
Registration Statements and any and all amendments thereto, with power to affix
the corporate seal of said corporation thereto and to attest said seal and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the 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 fifth day of April, 1995.
/s/ Lewis J. Alphin /s/ C. Ray Noecker
- ------------------------------------- --------------------------------------
Lewis J. Alphin, Director C. Ray Noecker, Director
/s/ Willard J. Engel /s/ Robert A. Oakley
- ------------------------------------- --------------------------------------
Willard J. Engel, Director Robert A. Oakley, Senior Vice
President and Chief Financial Officer
/s/ Fred C. Finney
- ------------------------------------- /s/ James F. Patterson
Fred C. Finney, Director --------------------------------------
James F. Patterson, Director
/s/ Peter F. Frenzer
- ------------------------------------- /s/ Robert H. Rickel
Peter F. Frenzer, President/Chief -------------------------------------
Operating Officer and Director Robert H. Rickel, Director
/s/ Charles L. Fuellgraf, Jr. /s/ Arden L. Shisler
- ------------------------------------- --------------------------------------
Charles L. Fuellgraf, Jr., Director Arden L. Shisler, Director
/s/ Henry S. Holloway /s/ Robert L. Stewart
- ------------------------------------- --------------------------------------
Henry S. Holloway, Chairman of the Robert L. Stewart, Director
Board, Director
/s/ Nancy C. Thomas
/s/ D. Richard McFerson --------------------------------------
- ------------------------------------- Nancy C. Thomas, Director
D. Richard McFerson, Chief Executive
Officer and Director /s/ Harold W. Weihl
-------------------------------------
/s/ David O. Miller Harold W. Weihl, Director
- -------------------------------------
David O. Miller, Director
