<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. 10 [x]
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 11 [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 May 1, 1996 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, 1995, on February 15, 1996.
================================================================================
REDLINED
1 of 96
<PAGE> 2
NATIONWIDE VARIABLE ACCOUNT-3
REFERENCE TO ITEMS REQUIRED BY FORM N-4
<TABLE>
<CAPTION>
N-4 ITEM PAGE
<S> <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........................................... 18
Item 8. Annuity Period.............................................................................. 22
Item 9. Death Benefit and Distributions............................................................. 23
Item 10. Purchases and Contract Value................................................................ 27
Item 11. Redemptions................................................................................. 28
Item 12. Taxes....................................................................................... 30
Item 13. Legal Proceedings........................................................................... 34
Item 14. Table of Contents of the Statement of Additional Information................................ 34
Part B INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
Item 15. Cover Page.................................................................................. 37
Item 16. Table of Contents........................................................................... 37
Item 17. General Information and History............................................................. 37
Item 18. Services.................................................................................... 37
Item 19. Purchase of Securities Being Offered........................................................ 37
Item 20. Underwriters................................................................................ 38
Item 21. Calculation of Performance.................................................................. 38
Item 22. Annuity Payments............................................................................ 39
Item 23. Financial Statements........................................................................ 40
Part C OTHER INFORMATION
Item 24. Financial Statements and Exhibits........................................................... 76
Item 25. Directors and Officers of the Depositor..................................................... 78
Item 26. Persons Controlled by or Under Common Control with the Depositor or Registrant.............. 80
Item 27. Number of Contract Owners................................................................... 88
Item 28. Indemnification............................................................................. 88
Item 29. Principal Underwriter....................................................................... 88
Item 30. Location of Accounts and Records............................................................ 90
Item 31. Management Services......................................................................... 90
Item 32. Undertakings................................................................................ 90
</TABLE>
2 of 96
<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 (the "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:
VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST:
- Asset Allocation Fund (Formerly "Multiple Strategy Fund")
- Domestic Income Fund (Formerly "Domestic Strategic Income Fund")
- Emerging Growth Fund
- Enterprise Fund (Formerly "Common Stock Fund")
- Global Equity Fund
- Government Fund
- Money Market Fund
- Real Estate Securities Fund
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 May 1, 1996,
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 MAY 1, 1996, IS INCORPORATED
HEREIN BY REFERENCE. THE TABLE OF CONTENTS FOR THE STATEMENT OF ADDITIONAL
INFORMATION APPEARS ON PAGE 32 OF THE PROSPECTUS.
THE DATE OF THIS PROSPECTUS IS MAY 1, 1996.
1
3 of 96
<PAGE> 4
GLOSSARY OF SPECIAL TERMS
ACCUMULATION UNIT-An accounting unit of measure used to calculate the Variable
Account Contract Value prior to the Annuitization Date.
ANNUITANT-The person actually receiving annuity payments and upon whose
continuation of life any annuity payment involving life contingencies depends.
The Annuitant is named on the Data Page of the Contract unless changed. No
change of Annuitant may be made without the prior consent of the Company. This
person must be age 78 or younger at the time of Contract issuance.
ANNUITIZATION- The period during which annuity payments are actually received.
ANNUITIZATION DATE-The Date on which annuity payments actually commence.
ANNUITY COMMENCEMENT DATE-The date on which annuity payments are scheduled to
commence. The Annuity Commencement Date is shown on the Data Page of the
Contract and is subject to change by the Owner.
ANNUITY PAYMENT OPTION-The chosen form of annuity payments. Several options are
available under this Contract. The Annuity Payment Option is named in the
application, unless changed.
ANNUITY UNIT-An accounting unit of measure used to calculate the value of
Variable Annuity payments.
BENEFICIARY-The Beneficiary is the person designated to receive certain benefits
under the Contract upon the death of the Designated Annuitant prior to the
Annuitization Date. The Beneficiary can be changed by the Contract Owner as set
forth in the Contract.
CODE-The Internal Revenue Code of 1986, as amended.
COMPANY- Nationwide Life Insurance Company.
CONTINGENT BENEFICIARY-The Contingent Beneficiary is the person 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. A Contingent
Designated Annuitant may not be named for Contracts issued as IRAs or Tax
Sheltered Annuities.
CONTRACT- The Individual Deferred Variable Annuity Contract described in this
prospectus.
CONTRACT ANNIVERSARY-An anniversary of the Date of Issue of the Contract.
CONTRACT OWNER (OWNER)-The Contract Owner is the person who possesses all rights
under the Contract, including the right to designate and change any designations
of the Owner, Contingent Owner, Designated Annuitant, 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. The Contract Owner is the person named on the
application, unless changed.
CONTRACT VALUE-The sum of the value of all Accumulation Units attributable to
the Contract plus any amount held under the Contract in the Fixed Account.
CONTRACT YEAR-Each year the Contract remains in force commencing with the Date
of Issue.
DATE OF ISSUE-The date shown as the Date of Issue on the Contract Data Page of
the Contract.
DEATH BENEFIT-The benefit payable upon the death of the Designated Annuitant (or
the Contingent Designated Annuitant, if applicable). This benefit does not apply
upon the death of the Contract Owner when the Owner and Designated Annuitant are
not the same person. If the Annuitant dies after the Annuitization Date, any
benefit that may be payable shall be as specified in the Annuity Payment Option
elected.
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.
DISTRIBUTION-Any payment of part or all of the Contract Value.
2
4 of 96
<PAGE> 5
ERISA-Employee Retirement Income Security Act of 1974, as amended.
FIXED ACCOUNT-The Fixed Account is made up of all assets of the Company other
than those in the Variable Account or any other segregated asset account.
FIXED ANNUITY-An annuity providing for payments which are guaranteed by the
Company as to dollar amount during Annuitization.
HOME OFFICE- The main office of the Company located in Columbus, Ohio.
INDIVIDUAL RETIREMENT ANNUITY (IRA)-An annuity which qualifies for favorable tax
treatment under Section 408 of the Code.
INTEREST RATE GUARANTEE PERIOD-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 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 (FUND)- A registered management investment company in which the
assets of the Sub-Accounts of the variable account will be invested.
NON-QUALIFIED CONTRACT-A Contract which does not qualify for favorable tax
treatment under Sections 401, 408, or 403(b) of the Code.
PLAN PARTICIPANT-The Plan Participant is the person for whom contributions are
being made to a Qualified Plan or Tax Sheltered Annuity either through employer
contributions or employee salary reduction contributions.
PURCHASE PAYMENT- A deposit of new value into the Contract. The term "Purchase
Payment" does not include transfers between the Variable Account and the Fixed
Account, or among the Sub-Accounts.
QUALIFIED CONTRACTS- A Contract which receives favorable tax treatment under the
provisions of the Code, including those described in Section 401 and 403(a).
SUB-ACCOUNTS- Separate and distinct divisions of the Variable Account, to which
specific underlying Mutual Fund shares are allocated and for which Accumulation
Units and Annuity Units are separately maintained.
TAX SHELTERED ANNUITY-An annuity which qualifies for favorable tax treatment
under Section 403(b) of the Code.
VALUATION DATE-Each day the New York Stock Exchange and the Company's Home
Office 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-The Nationwide Variable Account-3, a separate investment
account of the Company into which Variable Account Purchase Payments are
allocated. The Variable Account is divided into Sub-Accounts, each of which
invests in shares of a separate underlying Mutual Fund.
VARIABLE ANNUITY-An annuity providing for payments which vary in amount with the
investment experience of the Variable Account.
3
5 of 96
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
GLOSSARY OF SPECIAL TERMS............................................................................................ 2
SUMMARY OF CONTRACT EXPENSES......................................................................................... 5
UNDERLYING MUTUAL FUND ANNUAL EXPENSES .............................................................................. 6
SYNOPSIS............................................................................................................. 8
CONDENSED FINANCIAL INFORMATION...................................................................................... 9
NATIONWIDE LIFE INSURANCE COMPANY.................................................................................... 11
THE VARIABLE ACCOUNT................................................................................................. 11
Underlying Mutual Fund Options.............................................................................. 11
Voting Rights............................................................................................... 13
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....................................................... 15
Premium Taxes............................................................................................... 15
Expenses of The Variable Account............................................................................ 15
Investments Of The Variable Account......................................................................... 16
Right To Revoke............................................................................................. 16
Transfers................................................................................................... 16
Assignment.................................................................................................. 17
Loan Privilege.............................................................................................. 17
Beneficiary Provisions...................................................................................... 18
Ownership Provisions........................................................................................ 19
Substitution of Securities.................................................................................. 19
Contract Owner Inquiries.................................................................................... 20
ANNUITY PAYMENT PERIOD-VARIABLE ACCOUNT.............................................................................. 20
Value Of An Annuity Unit.................................................................................... 20
Assumed Investment Rate..................................................................................... 20
Frequency and Amount Of Annuity Payments.................................................................... 20
Annuity Commencement Date................................................................................... 20
Change In Annuity Commencement Date......................................................................... 20
Annuity Payment Options..................................................................................... 21
Death of Contract Owner..................................................................................... 21
Death Benefit At Death of Designated Annuitant Prior To The Annuitization Date.............................. 22
Death Benefit After The Annuitization Date.................................................................. 22
Required Distribution For Qualified Plans or Tax Sheltered Annuities........................................ 22
Required Distributions For Individual Retirement Annuities.................................................. 23
Generation-Skipping Transfers............................................................................... 24
GENERAL INFORMATION.................................................................................................. 24
Contract Owner Services..................................................................................... 24
Statements and Reports...................................................................................... 25
Allocation Of Purchase Payments And Contract Value.......................................................... 25
Value of a Variable Account Accumulation Unit............................................................... 26
Net Investment Factor....................................................................................... 26
Valuation Of Assets......................................................................................... 26
Determining The Contract Value.............................................................................. 26
Surrender (Redemption)...................................................................................... 26
Surrenders Under a Qualified Plan or Tax Sheltered Annuity Contract......................................... 27
Taxes....................................................................................................... 28
Non-Qualified Contracts..................................................................................... 28
Diversification............................................................................................. 29
Charge For Tax Provisions................................................................................... 30
Qualified Plans, Individual Retirement Annuities, Individual Retirement Accounts
and Tax Sheltered Annuities............................................................................. 30
Advertising................................................................................................. 30
LEGAL PROCEEDINGS.................................................................................................... 32
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION............................................................. 32
APPENDIX............................................................................................................. 33
</TABLE>
4
6 of 96
<PAGE> 7
SUMMARY OF CONTRACT EXPENSES
<TABLE>
<S> <C>
CONTRACT OWNER TRANSACTION EXPENSES
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 Charge
of Purchase Payment 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 the Contract Owner may withdraw
without a Contingent Deferred Sales Charge (CDSC) an amount equal to 10% of
the total sum of all Purchase Payments made to the Contract at the time of
withdrawal. In addition, any amount withdrawn in order for the Contract to
meet minimum Distribution requirements under the Code shall be free of
CDSC. Withdrawals may be restricted for Contracts issued pursuant to the
terms of a Tax Sheltered Annuity. This CDSC-free withdrawal privilege is
non-cumulative, that is, free amounts not taken during any given Contract
Year cannot be taken as free amounts in a subsequent Contract Year (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").
5
7 of 96
<PAGE> 8
<TABLE>
<S> <C>
UNDERLYING MUTUAL FUND ANNUAL EXPENSES (After Expense Reimbursements)(3)
Asset Allocation Fund (formerly "Multiple Strategy Fund")
Management Fees ......................................................... 0.36%
Other Expenses........................................................... 0.24%
Total underlying Mutual Fund Expenses.................................. 0.60%
Domestic Income Fund (formerly "Domestic Strategic Income Fund")
Management Fees.......................................................... 0.17%
Other Expenses........................................................... 0.43%
Total underlying Mutual Fund Expenses.................................. 0.60%
Emerging Growth Fund
Management Fees.......................................................... 0.00%
Other Expenses........................................................... 2.50%
Total underlying Mutual Fund Expenses.................................. 2.50%
Enterprise Fund (formerly "Common Stock Fund")
Management Fees ......................................................... 0.42%
Other Expenses........................................................... 0.18%
Total underlying Mutual Fund Expenses.................................. 0.60%
Global Equity Fund
Management Fees.......................................................... 0.00%
Other Expenses........................................................... 4.35%
Total underlying Mutual Fund Expenses.................................. 4.35%
Government Fund
Management Fees.......................................................... 0.38%
Other Expenses........................................................... 0.22%
Total underlying Mutual Fund Expenses.................................. 0.60%
Money Market Fund
Management Fees.......................................................... 0.17%
Other Expenses........................................................... 0.43%
Total underlying Mutual Fund Expenses.................................. 0.60%
Real Estate Securities Fund
Management Fees.......................................................... 0.60%
Other Expenses........................................................... 1.90%
Total underlying Mutual Fund Expenses.................................. 2.50%
</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. The management fees and
other expenses, some of which may be subject to fee waivers or expense
reimbursements, are more fully described in the prospectuses for each
underlying Mutual Fund. The information relating to the underlying Mutual
Fund expenses was provided by the underlying Mutual Fund and was not
independently verified by the Company.
6
8 of 96
<PAGE> 9
EXAMPLE
The following chart depicts the dollar amount of expenses that would be incurred
under this Contract assuming a $1000 initial Purchase Payment and 5% annual
return. These dollar figures are illustrative only and should not be considered
a representation of past or future expenses. Actual expenses may be greater or
lesser than those shown below. The expense amounts presented are derived from a
formula which allows the $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> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Asset Allocation 83 124 143 241 21 65 112 241 * 65 112 241
Fund
- -------------------------------------------------------------------------------------------------------------
Domestic Income 83 124 143 241 21 65 112 241 * 65 112 241
Fund
- -------------------------------------------------------------------------------------------------------------
Emerging Growth 102 180 237 427 41 124 209 427 * 124 209 427
Fund
- -------------------------------------------------------------------------------------------------------------
Enterprise Fund 83 124 143 241 21 65 112 241 * 65 112 241
- -------------------------------------------------------------------------------------------------------------
Global Equity 120 232 322 577 60 180 296 577 * 180 296 577
Fund
- -------------------------------------------------------------------------------------------------------------
Government Fund 83 124 143 241 21 65 112 241 * 65 112 241
- -------------------------------------------------------------------------------------------------------------
Money Market Fund 83 124 143 241 21 65 112 241 * 65 112 241
- -------------------------------------------------------------------------------------------------------------
Real Estate 102 180 237 427 41 124 209 427 * 124 209 427
Securities Fund
- -------------------------------------------------------------------------------------------------------------
</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 will be
borne 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 complete descriptions of the expenses of the Variable Account,
see "Variable Account Charges, Purchase Payments, and Other Deductions." For
more complete information regarding expenses paid out of the assets of a
particular underlying Mutual Fund option, see the underlying Mutual Fund
prospectus. Deductions for premium taxes may also apply but are not
reflected in the Example shown above (see "Premium Taxes").
7
9 of 96
<PAGE> 10
SYNOPSIS
The Company does not deduct a sales charge from Purchase Payments made
for these Contracts. However, if any part of the Contract Value of such
Contracts is surrendered, the Company will, with certain exceptions, deduct from
the Contract Owner's Contract Value a Contingent Deferred Sales Charge not to
exceed 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 Sub-Account 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 Sub-Account 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 Sub-Account of the Variable Account as
compensation for the Company's risk in undertaking not to increase
administrative charges on the Contracts regardless of the actual administrative
costs (see "Expense Risk Charge").
The initial first year Purchase Payment must be at least $1,500 for
Non-Qualified Contracts. However, if periodic payments are expected by the
Company, this initial first year minimum may be satisfied by Purchase Payments
made on an annualized basis. The cumulative total of all Purchase Payments under
Contracts issued on the life of any one Designated Annuitant may not exceed
$1,000,000 without the prior consent of the Company (see "Allocation of Purchase
Payments and Contract Value").
If the Contract Value at the 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. In no event, however, will annuity payments be made
less frequently than annually (see "Frequency and Amount of Annuity Payments").
Premium taxes payable to any governmental entity will be charged against
the Contracts. If any such premium taxes are payable by the Company at the time
Purchase Payments are made, an equal premium tax deduction may be made from the
Contract prior to the allocation of any Purchase Payment to any underlying
Mutual Fund option (see "Premium Taxes").
To be sure that the Contract Owner is satisfied with the Contract, the
Contract Owner has a ten day free look. Within ten days of the 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").
8
10 of 96
<PAGE> 11
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>
Asset Allocation 16.406732 21.272421 606,415 1995
Fund-Q
----------------------------------------------------------------------------------
17.253369 16.406732 749,168 1994
----------------------------------------------------------------------------------
16.230095 17.253369 841,559 1993
----------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------------------------
Asset Allocation 16.406732 21.272421 1,070,729 1995
Fund-NQ
----------------------------------------------------------------------------------
17.253369 16.406732 1,250,980 1994
----------------------------------------------------------------------------------
16.230095 17.253369 1,367,736 1993
----------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------------------------
Domestic Income 13.235145 15.854864 294,678 1995
----------------------------------------------------------------------------------
Fund-Q 14.016253 13.235145 304,564 1994
----------------------------------------------------------------------------------
12.208185 14.016253 363,127 1993
----------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------------------------
Domestic Income 13.235145 15.854864 720,487 1995
----------------------------------------------------------------------------------
Fund-NQ 14.016253 13.235145 574,730 1994
----------------------------------------------------------------------------------
12.208185 14.016253 705,552 1993
----------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------------------------
Emerging Growth 10.000000 11.635151 24,126 1995
----------------------------------------------------------------------------------
Fund-Q
- ---------------------------------------------------------------------------------------------------------
Emerging Growth 10.000000 11.635151 79,497 1995
----------------------------------------------------------------------------------
Fund-NQ
- ---------------------------------------------------------------------------------------------------------
Enterprise 19.065611 25.778191 425,489 1995
----------------------------------------------------------------------------------
Fund-Q 19.993094 19.065611 549,470 1994
----------------------------------------------------------------------------------
18.587100 19.993094 530,005 1993
----------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------------------------
Enterprise 19.065611 25.778191 865,665 1995
----------------------------------------------------------------------------------
Fund-NQ 19.993094 19.065611 1,141,284 1994
----------------------------------------------------------------------------------
18.587100 19.993094 1,146,227 1993
----------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------------------------
Global Equity Fund-Q 10.000000 10.244062 4,239 1995
- ---------------------------------------------------------------------------------------------------------
Global Equity Fund-NQ 10.000000 10.244062 5,677 1995
- ---------------------------------------------------------------------------------------------------------
</TABLE>
9
11 of 96
<PAGE> 12
<TABLE>
<CAPTION>
NUMBER OF UNITS
BEGINNING ENDING AT THE END
FUND UNIT VALUE UNIT VALUE OF THE PERIOD YEAR
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Government 12.821877 14.827943 187,304 1995
----------------------------------------------------------------------------------
Fund-Q 13.620968 12.821877 227,201 1994
----------------------------------------------------------------------------------
12.794291 13.620968 293,305 1993
----------------------------------------------------------------------------------
12.260048 12.794291 171,646 1992
----------------------------------------------------------------------------------
10.689640 12.260048 92,681 1991
----------------------------------------------------------------------------------
10.000000 10.689640 34,202 1990
- ---------------------------------------------------------------------------------------------------------
Government 12.821877 14.827943 427,994 1995
----------------------------------------------------------------------------------
Fund-NQ 13.620968 12.821877 501,364 1994
----------------------------------------------------------------------------------
12.794291 13.620968 720,049 1993
----------------------------------------------------------------------------------
12.260048 12.794291 452,081 1992
----------------------------------------------------------------------------------
10.689640 12.260048 257,611 1991
----------------------------------------------------------------------------------
10.000000 10.689640 119,020 1990
- ---------------------------------------------------------------------------------------------------------
Money Market 13.183559 13.724323 147,447 1995
----------------------------------------------------------------------------------
Fund-Q 12.879003 13.183559 277,679 1994
----------------------------------------------------------------------------------
12.709641 12.879003 280,849 1993
----------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------------------------
Money Market 13.183559 13.724323 326,438 1995
----------------------------------------------------------------------------------
Fund-NQ 12.879003 13.183559 532,988 1994
----------------------------------------------------------------------------------
12.709641 12.879003 583,001 1993
----------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------------------------
Real Estate Securities 10.000000 10.765351 1,762 1995
----------------------------------------------------------------------------------
Fund-Q
- ---------------------------------------------------------------------------------------------------------
Real Estate Securities 10.000000 10.765351 2,808 1995
----------------------------------------------------------------------------------
Fund-NQ
- ---------------------------------------------------------------------------------------------------------
</TABLE>
10
12 of 96
<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.
VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST
The Van Kampen 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 Funds which are sold
only to insurance companies to provide funding for variable life insurance
11
13 of 96
<PAGE> 14
policies and variable annuity contracts. Van Kampen American Capital Asset
Management, Inc. serves as the Fund's investment adviser.
ASSET ALLOCATION FUND (FORMERLY "MULTIPLE STRATEGY FUND") (the "Asset
Allocation Fund") 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.
DOMESTIC INCOME FUND (FORMERLY "DOMESTIC STRATEGIC INCOME FUND") (the
"Domestic Income Fund") seeks current income as its primary objective.
Capital appreciation is a secondary objective. The Fund attempts to
achieve these objectives through investment primarily in a diversified
portfolio of fixed-income securities. The Fund 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.
EMERGING GROWTH FUND (the "Emerging Growth Fund") 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 Fund'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 Fund may invest
up to 20% of its total assets in securities of foreign issuers.
Additionally, the Fund 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.
ENTERPRISE FUND (FORMERLY "COMMON STOCK FUND") (the "Enterprise Fund")
seeks capital appreciation by investing in a portfolio of securities
consisting principally of common stocks.
GLOBAL EQUITY FUND (the "Global Equity Fund") 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 Fund 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 Fund's total assets are so invested.
Equity securities include common stocks, preferred stocks and warrants or
options to acquire such securities.
GOVERNMENT FUND (the "Government Fund") seeks to provide investors with a
high current return consistent with preservation of capital. The
Government Fund 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 Fund may also
purchase or sell options and engage in transactions involving interest
rate futures contracts and options on such contracts.
MONEY MARKET FUND (the "Money Market Fund") seeks protection of capital
and high current income by investing in short-term money market
instruments.
REAL ESTATE SECURITIES FUND (the "Real Estate Securities Fund") 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.
12
14 of 96
<PAGE> 15
VOTING RIGHTS
Voting rights under the Contracts apply ONLY with respect to Purchase
Payments or accumulated amounts allocated to the Variable Account.
In accordance with its view of present applicable law, the Company will
vote the shares of the underlying Mutual Funds held in the Variable Account at
regular and special meetings of the shareholders of the underlying Mutual Funds.
These shares will be voted in accordance with instructions received from
Contract Owners who have an interest in the Variable Account. If the Investment
Company Act of 1940 or any regulation thereunder should be amended or if the
present interpretation thereof should change, and as a result the Company
determines that it is permitted to vote the shares of the underlying Mutual
Funds in its own right, it may elect to do so.
The 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 each respective Sub-Account of the Variable Account by the
net asset value of the underlying Mutual Fund corresponding to the Sub-Account.
The number of shares which a Contract Owner 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 a voting interest will receive periodic reports
relating to the underlying Mutual Fund, proxy material and a form with which to
give such voting instructions.
VARIABLE ACCOUNT CHARGES, PURCHASE PAYMENTS, AND OTHER DEDUCTIONS
MORTALITY RISK CHARGE
The Company assumes a "mortality risk" by virtue of annuity rates
incorporated into the Contract which cannot be changed regardless of the death
rates of persons receiving annuity payments or of the general population.
For assuming this mortality risk, the Company deducts a Mortality Risk
Charge from the Variable Account 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 Sub-Account 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 Sub-Account 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, if any part of the Contract Value of such Contracts is
surrendered, the Company will, with certain exceptions (see "Elimination of
Contingent Deferred Sales Charge" section), deduct a Contingent Deferred Sales
Charge not to exceed 7% of the lesser of the total of all Purchase Payments made
within 84 months prior to the date of the request to surrender, or the amount
surrendered. The Contingent Deferred Sales Charge, 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 deducted by the Company. For purposes of the
Contingent Deferred Sales Charge, surrenders under a Contract come
13
15 of 96
<PAGE> 16
first from the Purchase Payments which have been on deposit under the Contract
for the longest time period. For tax purposes, a surrender is usually treated as
a withdrawal of earnings first. This charge applies to the withdrawal of
Purchase Payments as follows.
The Contingent Deferred Sales Charge applies to the withdrawal of Purchase
Payments as follows:
<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. The Contract Owner may be subject to a tax penalty if the Contract
Owner withdraws Purchase Payments prior to age 59 1/2; please see "Non-Qualified
Contracts" to determine when the penalty will apply.
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,
and SEP-IRA Contracts sold 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 or any of its affiliate insurance companies, of
the type and class which the Company determined is eligible for such exchange,
the Company will waive the Contingent Deferred Sales Charge on the first
Contract.
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.
14
16 of 96
<PAGE> 17
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. The Contract Maintenance Charges are as follows:
<TABLE>
<CAPTION>
AMOUNT TYPE OF CONTRACT ISSUED
- ----------------------------------- ---------------------------------------------
<S> <C>
- Non-Qualified Plans
- Individual Retirement Annuities
- Tax Sheltered Annuities (sold prior to
$35.00 May 1, 1992)
- Qualified Contracts (issued pursuant to a
401 plan prior to May 1, 1992).(1)
- ----------------------------------- ---------------------------------------------
- Tax Sheltered Annuity Contracts sold on
$12.00 or after May 1, 1992.(2)
- ----------------------------------- ---------------------------------------------
- Qualified Contracts sold on or after May
$35.00 to $0.00 1, 1992.(3)
- SEP-IRA Contracts sold on or after May 1,
1992(3)
- ----------------------------------- ---------------------------------------------
</TABLE>
(1) If additional Contracts are or were issued (on or after May 1, 1992)
pursuant to a 401 plan funded by Contracts prior to May 1, 1992, such additional
Contracts shall have a Contract Maintenance Charge of $35.00.
(2) This charge may be lowered to reflect the Company's savings in
administration of the plan.
(3) Variances are based on internal underwriting guidelines which can result in
reductions of charges in incremental amounts of $5.00. 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
allocations are made. 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. 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. 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
The Variable Account is responsible for the following types of
expenses: (1) administrative expenses relating to the issuance and maintenance
of the Contract; (2) mortality risk charge associated with guaranteeing
15
17 of 96
<PAGE> 18
the annuity purchase rates at issue for the life of the Contracts; and (3)
expense risk charge associated with guaranteeing that the Mortality Risk,
Expense Risk, Contract Maintenance and Administration Charges described in this
prospectus will not be changed regardless of actual expenses. If these charges
are insufficient to cover these expenses, the loss will be borne by the Company.
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, 1995 were 1.82% of the average net assets.
Deductions from and expenses paid out of the assets of the underlying
Mutual Funds are described in each underlying Mutual Fund's prospectus.
INVESTMENTS OF THE VARIABLE ACCOUNT
At the time of purchase each Contract Owner elects to have Purchase
Payments attributable to his or her participation in the Variable Account
allocated among one or more of the Sub-Accounts which consist of shares in the
underlying Mutual 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.
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. Transfers from the Fixed Account
may not be made prior to the end of the then current Interest Rate Guarantee
Period. The Interest Rate Guarantee Period expires for any amount allocated to
the Fixed Account 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. Transfers
must also be made prior to the Annuitization Date. For all transfers involving
the Variable Account, 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
Variable Account 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 amount that may be transferred from the Fixed Account to the Variable
Account will be determined by the Company, at its sole discretion, but will not
be less than 10% of the total value of the portion of the Fixed Account that is
maturing. The amount that may be transferred from the Fixed Account will be
declared upon the expiration date of the then current Interest Rate Guarantee
Period. The specific percentage will be declared upon the expiration date of the
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.
16
18 of 96
<PAGE> 19
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 may be made once per Valuation Day and may be made either in
writing or, in states allowing such transfers, by telephone. This telephone
exchange privilege is made available to Contract Owners automatically without
the Owner's election. 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 some or all of the rights
under 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. Where necessary for proper administration of the terms of the
Contract, an assignment will not be recorded until the Company has received
sufficient direction from the Owner and assignee as to the proper allocation of
Contract rights under the assignment.
If this Contract is a Non-Qualified Contract, any portion of Contract
Value attributable to Purchase Payments made after August 13, 1982, which is
pledged or assigned 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.
Assignments of the entire Contract Value may cause amounts to be included in
gross income each year that the assignment is in effect. Individual Retirement
Annuities, Qualified Contracts and Tax Sheltered Annuities are not eligible for
assignment.
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 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
17
19 of 96
<PAGE> 20
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 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/Designated Annuitant dies while the loan
is outstanding, the death benefit will be reduced by the amount of the loan
outstanding plus accrued interest. If a Contract Owner who is not the 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 Code.
If a loan payment is not made when due, interest will continue to
accrue. A grace period may be available under the terms of the loan agreement.
If a loan payment is not made when due, or by the end of the applicable grace
period, then that payment, which may be a single periodic payment or payment of
the entire loan, will be treated as a deemed Distribution, as permitted by law,
may be taxable to the borrower, and may be subject to the early withdrawal tax
penalty. Interest which subsequently accrues on defaulted amounts may also be
treated as additional deemed Distributions each year. Any defaulted amounts,
plus accrued interest, will be deducted from the Contract when the Participant
becomes eligible for a distribution of at least that amount, and this amount may
again be treated as a Distribution where required by law. Additional loans may
not be available while a previous loan remains in default.
Loans may also be subject to additional limitations or restrictions
under the terms of the employer's plan. Loans permitted under this contract may
still be taxable in whole or part if the Participant has additional loans from
other plans or contracts. The Company will calculate the maximum nontaxable loan
based on the information provided by the Participant or the Employer.
Loan repayments must be identified as such or else they will be treated
as Purchase Payment and will not be used to reduce the outstanding loan
principal or interest due. The Company reserves the right to modify the term or
procedures associated with the loan in the event of a change in the laws or
regulations relating to the treatment of loans. The Company also reserves the
right to assess a loan processing fee. Individual Retirement Annuities and
SEP-IRA accounts and Non-Qualified Contracts are not eligible for loans.
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.
18
20 of 96
<PAGE> 21
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. Prior to the Annuitization Date, a surviving
Joint Owner shall retain sole rights in the Contract upon the other Joint
Owner's death if the deceased Joint Owner was not also the Annuitant. If the
deceased Joint Owner was also the Annuitant, disposition of the Contract will be
based on the "Death of Annuitant Prior to the Annuitization Date" section. 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.
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. The Company may be required to tax
report any previously unreported earnings in the Contract on the date of such
exchange.
SUBSTITUTION OF SECURITIES
If the shares of the underlying Mutual Fund options described in this
prospectus should no longer be available for investment by the Variable Account
or if, in the judgment of the Company's management, further investment in such
underlying Mutual Fund shares should become inappropriate the Company may
eliminate Sub-Accounts, combine two or more Sub-Accounts, or substitute shares
of one or more underlying Mutual Fund for other underlying Mutual Fund shares
already purchased or to be purchased in the future with Purchase Payments under
the Contract. No substitution of securities in the Variable Account may take
place without prior approval of the Securities and Exchange Commission, and
under such requirements as it may impose.
19
21 of 96
<PAGE> 22
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 and the amount of the first such payment
shall be determined in accordance with the Annuity Table in the Contract.
Subsequent Variable Annuity payments vary in amount in accordance with
the investment performance of the Variable Account. The dollar amount of the
first annuity payment determined as above is divided by the value of an Annuity
Unit as of the Annuitization Date to establish the number of Annuity Units
representing each monthly annuity payment. This number of Annuity Units remains
fixed during the annuity payment period. The dollar amount of the second and
subsequent payments is not predetermined and may change from month to month. The
dollar amount of each subsequent payment is determined by multiplying the fixed
number of Annuity Units by the Annuity Unit Value for the Valuation Period in
which the payment is due. The Company guarantees that the dollar amount of each
payment after the first will not be affected by variations in mortality
experience from mortality assumptions used to determine the first payment.
VALUE OF AN ANNUITY UNIT
The value of an Annuity Unit was arbitrarily set initially at $10 when
the first underlying Mutual Fund shares were purchased. The value of an Annuity
Unit for a Sub-Account for any subsequent Valuation Period is determined by
multiplying the Annuity Unit Value for the immediately preceding Valuation
Period by the Net Investment Factor for the Valuation Period for which the
Annuity Unit Value is being calculated, and multiplying the result by an
interest factor to neutralize the assumed investment rate of 3.5% per annum
built into the Annuity Tables contained in the Contracts (see "Net Investment
Factor").
ASSUMED INVESTMENT RATE
A 3.5% Assumed Investment Rate is built into the Annuity Tables contained
in the Contracts. A higher assumption would mean a higher initial payment but
more slowly rising or more rapidly falling subsequent payments. A lower
assumption would have the opposite effect. If the actual investment rate is at
the annual rate of 3.5%, the annuity payments will be level.
FREQUENCY AND AMOUNT OF ANNUITY PAYMENTS
Annuity payments will be paid as monthly installments. However, if the
net amount available to apply under any Annuity Payment Option is less than
$500, the Company shall have the right to pay such amount in one lump sum in
lieu of the payments otherwise provided for. In addition, if the payments
provided for would be or become less than $20, the Company shall have the right
to change the frequency of payments to such intervals as will result in payments
of at least $20. In no event will the Company make payments under an annuity
option less frequently than annually.
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.
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. 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
20
22 of 96
<PAGE> 23
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, computed at the Assumed Investment Rate effective in
determining the Annuity Tables, shall be paid in a lump sum.
Some of the stated Annuity Options may not be available in all states.
The Owner may request an alternative non-guaranteed option by giving notice in
writing prior to annuitization. If such a request is approved by the Company, it
will be permitted under the Contract.
If the 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 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 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.
21
23 of 96
<PAGE> 24
(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) of this provsion, 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 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
DATEANNUITIZATION 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 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
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 provided that, for Tax
Sheltered Annuity Contracts, no Distributions will be required from
this Contract if Distributions otherwise required from this
Contract are being withdrawn from another Tax Sheltered Annuity
Contract of the Annuitant.
If the 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
22
24 of 96
<PAGE> 25
governmental plan (as defined in Code Section 414(d)) or a church plan (as
defined in Code Section 401(a)(9)(c)), the Required Beginning Date will be the
later of the dates determined under the preceding sentence or April 1 of the
calendar year following the calendar year in which the Annuitant retires.
If the 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/Annuitant dies after Distribution has commenced,
Distribution must continue at least as rapidly as under the schedule being used
prior to his or her death, except that a surviving spouse may treat a Tax
Sheltered Annuity as his or her own to the extent permitted by law.
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 extending beyond the
life expectancy of the Contract Owner or the joint life expectancy of the
Contract Owner and the Contract Owner's Beneficiary.
If the Owner dies prior to the commencement of his or her Distribution,
the interest in the 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) of this provision.
If the amounts distributed do not satisfy the Distribution rules
mentioned above, a penalty tax of 50% is levied on the amount that should have
been distributed for that year.
A pro-rata portion of all Distributions will be included in the gross
income of the person receiving the Distribution and taxed at ordinary income tax
rates. The portion of the Distribution which is taxable is based on
23
25 of 96
<PAGE> 26
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
other payment constitutes a direct skip as defined in Section 2612 of the Code,
and the amount of the tax on the generation-skipping transfer resulting from
such direct skip. If applicable, the payment will be reduced by any tax the
Company is required to pay by Section 2603 of the Code.
A direct skip may occur when property is transferred to or a Death
Benefit is paid to an individual two or more generations younger than the
Contract Owner.
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 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 the use of Asset Rebalancing in his or her Contract.
The Company reserves the right to discontinue offering Asset Rebalancing
upon 30 days' written notice to the Contract Owners, however, such
discontinuation will not affect Asset Rebalancing programs which have already
commenced. The Company also reserves the right to assess a processing fee for
this service.
DOLLAR COST AVERAGING-The Contract Owner may direct the Company to
automatically transfer 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.
The Company reserves the right to discontinue offering Dollar Cost
Averaging upon 30 days' written notice to Contract Owners, however, such
discontinuation will not affect Dollar Cost Averaging programs already
commenced. The Company also reserves the right to assess a processing fee for
this service.
24
26 of 96
<PAGE> 27
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
discontinuation will 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 accurately reported on quarterly statements or
confirmation statements unless the Contract Owner notifies the Company otherwise
within 30 days after receipt of the statement. The Company will also send to
Contract Owners each year an annual report and a semi-annual report containing
financial statements for the Variable Account, as of December 31 and June 30,
respectively.
ALLOCATION OF PURCHASE PAYMENTS AND CONTRACT VALUE
Purchase payments are allocated to one or more Sub-Accounts within the
Variable Account in accordance with the designation of the underlying Mutual
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. The
Company may, however, retain the Purchase Payment for up to 5 business days
while attempting to complete an incomplete application. If the application
cannot be made complete within 5 days, the prospective purchaser will be
informed of the reasons for the delay and the Purchase Payment will be returned
immediately unless the prospective purchaser specifically consents to the
Company retaining the Purchase Payment until the application is made complete.
Thereafter, subsequent Purchase Payments will be priced on the basis of the
Accumulation Unit Value next computed for the appropriate Sub-Account after the
additional Purchase Payment is received.
25
27 or 96
<PAGE> 28
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 of:
(1) the net asset value per share of the underlying Mutual Fund held
in the Sub-Account determined at the end of the immediately
preceding Valuation Period, plus or minus
(2) the per share charge or credit, if any, for any taxes reserved for
in the immediately preceding Valuation Period (see "Charge For Tax
Provisions").
(c) is a factor representing the 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
Sub-Account 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 Accumulation Units attributable to the
Contract plus any amount 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. If part or all of the Contract Value is
surrendered or charges or deductions are made against the Contract Value, an
appropriate number of Accumulation Units from the Variable Account and an
appropriate amount from the Fixed Account will be deducted in the same
proportion that the Contract Owner's interest in the Variable Account and the
Fixed Account bears to the total Contract Value.
SURRENDER (REDEMPTION)
While the Contract is in force and prior to the earlier of the
Annuitization Date or the death of the Designated Annuitant, the Company will,
upon proper written application by the Contract Owner, deemed by the
26
28 of 96
<PAGE> 29
Company to be in good order, allow the Contract Owner to surrender a portion or
all of the Contract Value. "Proper written application" means that the 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 or other eligible guarantor institutions as defined by the federal
securities laws and regulations. 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 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.
27
29 or 96
<PAGE> 30
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
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. Distributions pursuant to Qualified Domestic
Relations Orders will not be considered to be in violation of the restrictions
stated above.
The contract surrender provisions may also be modified pursuant to the
plan terms and 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 Code governs taxation of annuities in general. That
section sets forth different rules for (1) Qualified Plans; (2) IRAs; (3) Tax
Sheltered Annuities; or (4) Non-Qualified Contracts. Each type of annuity is
discussed below.
Distributions from Qualified Contracts or Tax Sheltered Annuities are
generally taxed when received. A portion of each Distribution is excludable from
income based on the ratio between (a) and (b), where (a): equals the after tax
investment on the Contract of the Owner/Annuitant and where (b) equals the value
of the Contract at the time of withdrawal or at Annuitization.
Distributions from Individual Retirement Annuities and Individual
Retirement Accounts are generally taxed when received. A portion of each
Distribution is likewise excludable from income based on the ratio between (a)
and (b) where (a) is the amount by which nondeductible Purchase Payments to all
Contracts exceed prior non-taxable Distributions from all Contracts and where
(b) is the total account balances in all contracts at the time of Distribution.
The Owner of an Individual Retirement Annuity or the Annuitant under a
Contract held by and Individual Retirement Account must annually report to the
Internal Revenue Service any or all of the following: (1) the amount of any
Distribution; (2) the amount by which nondeductible Purchase Payments for all
years exceed non-taxable Distributions for all years; and (3) the total balance
in all Individual Retirement Annuities or Individual Retirement Accounts.
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,
28
30 of 96
<PAGE> 31
all annuity contracts issued after October 21, 1988, by the same company to the
same Contract Owner during any 12 month period, will be treated as one annuity
Contract. (Additional limitations on the use of multiple Contracts may be
imposed by Treasury regulations). Distributions prior to the Annuitization Date
with respect to that portion of the Contract invested prior to August 14, 1982,
are treated first as a recovery of the investment in the Contract as of that
date. A Distribution in excess of the amount of the investment in the Contract
as of August 14, 1982, will be treated as taxable income.
The Tax Reform Act of 1986 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. If
this Contract is issued as a result of an exchange described in Section 1035 of
the Code, it will generally be considered to have been purchased on the purchase
date of the Contract given up in the exchange.
Code Section 72 also provides for a penalty, 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 "Death of the Contract Owner").
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.
Generally the the taxable portion of any distribution from a Contract to
a nonresident alien of the United States is subject to tax withholding at a rate
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.
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 Code.
DIVERSIFICATION
The Internal Revenue Service has promulgated regulations under Section
817(h) of the Code relating to diversification standards for the investments
underlying a variable annuity contract. The regulations provide that a variable
annuity contract which does not satisfy the diversification standards will not
be treated as an annuity contract, unless the failure to satisfy the regulations
was inadvertent, the failure is corrected, and the Owner or the Company pays an
amount to the Internal Revenue Service. The amount will be based on the tax that
would have been paid by the Owner if the income, for the period the Contract was
not diversified, had been
29
31 of 96
<PAGE> 32
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.
Representatives of the Internal Revenue Service have suggested, from time
to time, that the number of funds available or the number of transfer
opportunities available under a variable product may be relevant in determining
whether the product qualifies for the desired tax treatment. No formal guidance
has been issued in this area. Should the Secretary of the Treasury issue
additional rules or regulations limiting the number of underlying Mutual Funds,
transfers between underlying Mutual Funds, exchanges of underlying Mutual Funds
or changes in investment objectives of underlying Mutual Funds such that the
Contract would no longer qualify as an annuity under Section 72 of the Code, the
Company will take whatever steps are available to remain in compliance.
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 Code permits the rollover of most 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 in this provision.
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
30
32 of 96
<PAGE> 33
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 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.
31
33 of 96
<PAGE> 34
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>
32
34 of 96
<PAGE> 35
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.
Transfers 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.
33
35 of 96
<PAGE> 36
ANNUITY PAYMENT PERIOD-FIXED ACCOUNT
FIRST AND SUBSEQUENT PAYMENTS
A Fixed Annuity is an annuity with payments which are guaranteed by the
Company as to dollar amount during the annuity payment period. The first Fixed
Annuity payment will be determined by applying the Fixed Account Contract Value
to the applicable Annuity Table in accordance with the Annuity Payment Option
elected. This will be done at the Annuitization Date on an age last birthday
basis. Fixed Annuity payments after the first will not be less than the first
Fixed Annuity payment.
The Company does not credit discretionary interest to Fixed Annuity
payments during the annuity payment period for annuity options based on life
contingencies. The Annuitant must rely on the Annuity Tables applicable to the
Contracts to determine the amount of such Fixed Annuity payments.
ANNUITY TABLES AND ASSUMED INTEREST RATE
The Annuity Tables contained in the Contracts are based on the 1971
Individual Annuity Mortality Table (set back one year) and an assumed interest
rate of 3.5%.
34
36 of 96
<PAGE> 37
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1996
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 May 1, 1996. 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 schedules have been included herein in
reliance upon the reports of KPMG Peat Marwick LLP, independent certified public
accountants, Two Nationwide Plaza, Columbus, Ohio 43215, and upon the authority
of said firm as experts in accounting and auditing.
PURCHASE OF SECURITIES BEING OFFERED
The Contracts will be sold by licensed insurance agents in the states
where the Contracts may be lawfully sold. Such agents will be registered
representatives of broker-dealers registered under the Securities Exchange Act
of 1934 who are members of the National Association of Securities Dealers, Inc.
("NASD").
The Contract Owner may transfer up to 100% of the Contract Value from the
Variable Account to the Fixed Account. However, the Company, at its sole
discretion, reserves the right to limit such transfers to 25% of the Contract
Value for any 12 month period. Contract Owners may at the maturity of an
Interest Rate Guarantee Period transfer a portion of the Contract Value of the
Fixed Account to the Variable Account. Such portion will be determined by the
Company at its sole discretion (but will not be less than 10% of the total value
of the portion of the Fixed Account that is maturing), and will be declared upon
the expiration date of the then current Interest Rate Guarantee Period. The
Interest Rate Guarantee Period expires on the final day of a calendar quarter;
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 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.
35
37 of 96
<PAGE> 38
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, 1995, the Money Market Portfolio Sub-Account's seven-day
current unit value yield was 3.71%. 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, 1995 was 3.78%.
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
36
38 of 96
<PAGE> 39
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 to Variable
SUB-ACCOUNT OPTIONS 12/31/95 12/31/95 12/31/95 Account
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Asset Allocation Fund 20.76% 8.38% 7.65% 5-6-88
- ----------------------------------------------------------------------------------------------------------
Domestic Income Fund 10.89% 8.24% 7.65% 5-6-88
- ----------------------------------------------------------------------------------------------------------
Emerging Growth Fund N/A N/A 0.50% 7-1-95
- ----------------------------------------------------------------------------------------------------------
Enterprise Fund 26.31% 11.54% 7.65% 5-6-88
- ----------------------------------------------------------------------------------------------------------
Global Equity Fund N/A N/A 0.50% 7-1-95
- ----------------------------------------------------------------------------------------------------------
Government Fund 6.75% 3.08% 5.99% 1-2-90
- ----------------------------------------------------------------------------------------------------------
Money Market Fund -4.80% -1.28% 7.65% 5-6-88
- ----------------------------------------------------------------------------------------------------------
Real Estate Securities Fund N/A N/A 0.50% 7-1-95
==========================================================================================================
</TABLE>
NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
==========================================================================================================
Date Fund
Added to
1 Year to 5 Years to Life of Fund to Variable
SUB-ACCOUNT OPTIONS 12/31/95 12/31/95 12/31/95 Account
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Asset Allocation Fund 29.31% 11.44% 7.65% 5-6-88
- ----------------------------------------------------------------------------------------------------------
Domestic Income Fund -5.92% 5.37% 3.96% 5-6-88
- ----------------------------------------------------------------------------------------------------------
Emerging Growth Fund N/A N/A 0.50% 7-1-95
- ----------------------------------------------------------------------------------------------------------
Enterprise Fund 34.86% 14.38% 7.65% 5-6-88
- ----------------------------------------------------------------------------------------------------------
Global Equity Fund N/A N/A 0.50% 7-1-95
- ----------------------------------------------------------------------------------------------------------
Government Fund 15.30% 6.46% 5.99% 1-2-90
- ----------------------------------------------------------------------------------------------------------
Money Market Fund 3.75% 2.47% 7.65% 5-6-88
- ----------------------------------------------------------------------------------------------------------
Real Estate Securities Fund N/A N/A 0.50% 7-1-95
==========================================================================================================
</TABLE>
ANNUITY PAYMENTS
See "Frequency and Amount of Annuity Payments" located in the prospectus.
37
39 of 96
<PAGE> 40
<PAGE> 1
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,
1995, and the related statements of operations and changes in contract owners'
equity and schedules of changes in unit value for each of the years in the three
year period then ended. These financial statements and schedules of changes in
unit value are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements of changes
in unit value based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedules of
changes in unit value are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1995, 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 and schedules of changes in
unit value referred to above present fairly, in all material respects, the
financial position of Nationwide Variable Account-3 as of December 31, 1995, and
the results of its operations and its changes in contract owners' equity and the
schedules of changes in unit value for each of the years in the three year
period then ended in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Columbus, Ohio
February 6, 1996
- --------------------------------------------------------------------------------
<PAGE> 2
NATIONWIDE VARIABLE ACCOUNT-3
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY
DECEMBER 31, 1995
<TABLE>
<S> <C>
ASSETS:
Investments at market value:
Van Kampen American Capital - Common Stock Fund
2,266,671 shares (cost $32,118,444)............................. $ 33,297,403
Van Kampen American Capital - Domestic Strategic Income Fund
1,962,643 shares (cost $15,504,893)............................. 16,113,302
Van Kampen American Capital - Emerging Growth Fund
102,966 shares (cost $1,148,376)................................ 1,205,731
Van Kampen American Capital - Global Equity Fund
9,854 shares (cost $99,547)..................................... 101,593
Van Kampen American Capital - Government Fund
1,011,302 shares (cost $9,045,490).............................. 9,162,395
Van Kampen American Capital - Money Market Fund
6,529,366 shares (cost $6,529,366).............................. 6,529,366
Van Kampen American Capital - Multiple Strategy Fund
3,067,275 shares (cost $35,504,768)............................. 35,703,077
Van Kampen American Capital - Real Estate Securities Fund
4,582 shares (cost $47,403)..................................... 49,209
------------
Total assets............................................... 102,162,076
ACCOUNTS PAYABLE...................................................... 1,021
------------
CONTRACT OWNERS' EQUITY............................................... $102,161,055
============
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Contract owners' equity represented by: Units Unit Value
--------- ----------
<S> <C> <C> <C>
Contracts in accumulation phase:
Van Kampen American Capital -
Common Stock Fund:
Tax qualified............................... 425,489 $25.778191 $10,968,337
Non-tax qualified........................... 865,665 25.778191 22,315,278
Van Kampen American Capital -
Domestic Strategic Income Fund:
Tax qualified............................... 294,678 15.854864 4,672,080
Non-tax qualified........................... 720,487 15.854864 11,423,223
Van Kampen American Capital -
Emerging Growth Fund:
Tax qualified............................... 24,126 11.635151 280,710
Non-tax qualified........................... 79,497 11.635151 924,960
Van Kampen American Capital -
Global Equity Fund:
Tax qualified............................... 4,239 10.244062 43,425
Non-tax qualified........................... 5,677 10.244062 58,156
Van Kampen American Capital -
Government Fund:
Tax qualified............................... 187,304 14.827943 2,777,333
Non-tax qualified........................... 427,994 14.827943 6,346,271
Van Kampen American Capital -
Money Market Fund:
Tax qualified............................... 147,447 13.724323 2,023,610
Non-tax qualified........................... 326,438 13.724323 4,480,141
Van Kampen American Capital -
Multiple Strategy Fund:
Tax qualified............................... 606,415 21.272421 12,899,915
Non-tax qualified........................... 1,070,729 21.272421 22,776,998
Van Kampen American Capital -
Real Estate Securities Fund:
Tax qualified............................... 1,762 10.765351 18,969
Non-tax qualified........................... 2,808 10.765351 30,229
========= =========
Reserves for annuity contracts in payout phase:
Non-tax qualified........................... 121,420
------------
$102,161,055
============
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
<PAGE> 4
NATIONWIDE VARIABLE ACCOUNT-3
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ----------- -----------
<S> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested capital gains and dividends.................... $ 10,887,325 10,126,858 6,943,526
------------ ----------- -----------
Gain (loss) on investments:
Proceeds from redemptions of mutual fund shares......... 40,426,461 46,483,900 43,408,325
Cost of mutual fund shares sold......................... (40,641,053) (45,783,206) (39,734,553)
------------ ----------- -----------
Realized gain (loss) on investments..................... (214,592) 700,694 3,673,772
Change in unrealized gain (loss) on investments......... 13,497,708 (14,166,680) (2,060,761)
------------ ----------- -----------
Net gain (loss) on investments........................ 13,283,116 (13,465,986) 1,613,011
------------ ----------- -----------
Net investment activity....................... 24,170,441 (3,339,128) 8,556,537
------------ ----------- -----------
EQUITY TRANSACTIONS:
Purchase payments received from contract owners........... 3,278,740 5,550,286 25,974,374
Redemptions............................................... (20,264,414) (15,199,321) (9,340,200)
Annuity benefits.......................................... (14,594) (9,959) (8,803)
Adjustments to maintain reserves.......................... (2,440) (215) (4,228)
------------ ----------- -----------
Net equity transactions....................... (17,002,708) (9,659,209) 16,621,143
------------ ----------- -----------
EXPENSES (NOTE 2):
Contract charges.......................................... (1,402,772) (1,494,001) (1,446,876)
Contingent deferred sales charges......................... (405,272) (342,156) (204,793)
------------ ----------- -----------
Total expenses................................ (1,808,044) (1,836,157) (1,651,669)
------------ ----------- -----------
NET CHANGE IN CONTRACT OWNERS' EQUITY....................... 5,359,689 (14,834,494) 23,526,011
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD................. 96,801,366 111,635,860 88,109,849
------------ ----------- -----------
CONTRACT OWNERS' EQUITY END OF PERIOD....................... $102,161,055 96,801,366 111,635,860
============ =========== ===========
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
<PAGE> 5
NATIONWIDE VARIABLE ACCOUNT-3
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Nature of Operations
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.
The Company offers tax qualified and non-tax qualified Individual Deferred
Variable Annuity Contracts through the Account. The primary distribution for the
contracts is through the brokerage community; however, other distributors may be
utilized.
(b) The Contracts
Only contracts without a front-end sales charge, but with a contingent
deferred sales charge and certain other fees, are offered for purchase. See note
2 for a discussion of contract expenses.
Contract owners in either the accumulation or the payout phase may invest in
the following funds of the Van Kampen American Capital Life Investment Trust
(Van Kampen American Capital):
Van Kampen American Capital - Common Stock Fund
Van Kampen American Capital - Domestic Strategic Income Fund
(formerly American Capital - Corporate Bond Portfolio)
Van Kampen American Capital - Emerging Growth Fund
Van Kampen American Capital - Global Equity Fund
Van Kampen American Capital - Government Fund
Van Kampen American Capital - Money Market Fund
Van Kampen American Capital - Multiple Strategy Fund
Van Kampen American Capital - Real Estate Securities Fund
At December 31, 1995, contract owners have invested in all of the above
funds. The contract owners' equity is affected by the investment results of each
fund, equity transactions by contract owners and certain contract expenses (see
note 2). The accompanying financial statements include only contract owners'
purchase payments pertaining to the variable portions of their contracts and
exclude any purchase payments for fixed dollar benefits, the latter being
included in the accounts of the Company.
(c) Security Valuation, Transactions and Related Investment Income
The market value of the underlying mutual funds is based on the closing net
asset value per share at December 31, 1995. 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.
<PAGE> 6
(e) Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles may require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities, if any, at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
(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
underlying mutual funds.)
- 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.
- --------------------------------------------------------------------------------
<PAGE> 7
SCHEDULE I
NATIONWIDE VARIABLE ACCOUNT-3
TAX QUALIFIED AND NON-TAX QUALIFIED
SCHEDULES OF CHANGES IN UNIT VALUE
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(UNDERLYING MUTUAL FUNDS OF VAN KAMPEN AMERICAN CAPITAL)
<TABLE>
<CAPTION>
DOMESTIC
COMMON STRATEGIC EMERGING GLOBAL
STOCK INCOME GROWTH EQUITY
FUND FUND FUND FUND
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
1995
Beginning unit value - Jan. 1 $19.065611 13.235145 10.000000 10.000000
-----------------------------------------------------------------------------------------------------------------------
Reinvested capital gains and dividends 3.443612 1.250586 .000000 .000000
-----------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 3.564450 1.560777 1.705967 .309001
-----------------------------------------------------------------------------------------------------------------------
Contract charges (.295482) (.191644) (.070816) (.064939)
-----------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $25.778191 15.854864 11.635151 10.244062
-----------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 35% 20% 16%(b) 2%(b)
=======================================================================================================================
1994
Beginning unit value - Jan. 1 $19.993094 14.016253 ** **
-----------------------------------------------------------------------------------------------------------------------
Reinvested capital gains and dividends 2.272837 1.376728
-----------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (2.944375) (1.981901)
-----------------------------------------------------------------------------------------------------------------------
Contract charges (.255945) (.175935)
-----------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $19.065611 13.235145
-----------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) (5)% (6)%
=======================================================================================================================
1993
Beginning unit value - Jan. 1 $18.587100 12.208185 ** **
-----------------------------------------------------------------------------------------------------------------------
Reinvested capital gains and dividends 1.141359 1.091003
-----------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .514295 .892204
-----------------------------------------------------------------------------------------------------------------------
Contract charges (.249660) (.175139)
-----------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $19.993094 14.016253
-----------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 8% 15%
=======================================================================================================================
<CAPTION>
MONEY MULTIPLE REAL ESTATE
GOVERNMENT MARKET STRATEGY SECURITIES
FUND FUND FUND FUND
--------- --------- --------- -----------
<S> <C> <C> <C> <C>
1995
Beginning unit value - Jan. 1 12.821877 13.183559 16.406732 10.000000
-----------------------------------------------------------------------------------------------------------------------
Reinvested capital gains and dividends .953483 .716291 2.391189 .091958
-----------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 1.235082 .000000 2.721948 .739393
-----------------------------------------------------------------------------------------------------------------------
Contract charges (.182499) (.175527) (.247448) (.066000)
-----------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 14.827943 13.724323 21.272421 10.765351
-----------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 16% 4% 30% 8%(b)
=======================================================================================================================
1994
Beginning unit value - Jan. 1 13.620968 12.879003 17.253369 **
-----------------------------------------------------------------------------------------------------------------------
Reinvested capital gains and dividends .835320 .474206 1.980194
-----------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (1.464669) .000000 (2.608938)
-----------------------------------------------------------------------------------------------------------------------
Contract charges (.169742) (.169650) (.217893)
-----------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 12.821877 13.183559 16.406732
-----------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) (6)% 2% (5)%
=======================================================================================================================
1993
Beginning unit value - Jan. 1 12.794291 12.709641 16.230095 **
-----------------------------------------------------------------------------------------------------------------------
Reinvested capital gains and dividends .824185 .336808 1.370959
-----------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .178307 .000000 (.127808)
-----------------------------------------------------------------------------------------------------------------------
Contract charges (.175815) (.167446) (.219877)
-----------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 13.620968 12.879003 17.253369
-----------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 6% 1% 6%
=======================================================================================================================
</TABLE>
* An annualized rate of return cannot be determined as:
(a) Contract charges do not include the annual contract maintenance charge
discussed in note 2; and
(b) This investment option was not utilized for the entire year indicated.
** This investment option was not being utilized or was not available.
See note 3.
- --------------------------------------------------------------------------------
<PAGE> 41
<PAGE> 1
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors
Nationwide Life Insurance Company:
We have audited the consolidated financial statements of Nationwide Life
Insurance Company (a wholly owned subsidiary of Nationwide Corporation) and
subsidiaries as listed in the accompanying index. In connection with our audits
of the consolidated financial statements, we also have audited the financial
statement schedules as listed in the accompanying index. These consolidated
financial statements and financial statement schedules are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements and financial statement schedules 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 12. 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, 1995 and 1994, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1995, in conformity with generally
accepted accounting principles. Also in our opinion, the related financial
statement schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly, in all material
respects, the information set forth therein.
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 26, 1996
<PAGE> 2
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Consolidated Balance Sheets
December 31, 1995 and 1994
(000's omitted)
<TABLE>
<CAPTION>
ASSETS 1995 1994
------ ----------------- ----------------
<S> <C> <C>
Investments (notes 5, 8 and 9):
Securities available-for-sale, at fair value:
Fixed maturities (cost $13,438,630 in 1995; $8,318,865 in 1994) $ 14,167,377 8,045,906
Equity securities (cost $27,362 in 1995; $18,372 in 1994) 33,718 24,713
Fixed maturities held-to-maturity, at amortized cost (fair value $3,602,310 in 1994) - 3,688,787
Mortgage loans on real estate 4,786,599 4,222,284
Real estate 239,089 252,681
Policy loans 370,908 340,491
Other long-term investments 67,280 63,914
Short-term investments (note 13) 45,732 131,643
----------- -----------
19,710,703 16,770,419
----------- -----------
Cash 10,485 7,436
Accrued investment income 239,881 220,540
Deferred policy acquisition costs 1,094,195 1,064,159
Deferred Federal income tax -- 36,515
Other assets 795,169 790,603
Assets held in Separate Accounts (note 8) 18,763,678 12,222,461
----------- -----------
$40,614,111 31,112,133
=========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
Future policy benefits and claims (notes 6 and 8) 18,200,128 16,321,461
Policyholders' dividend accumulations 353,554 338,058
Other policyholder funds 71,155 72,770
Accrued Federal income tax (note 7):
Current 34,064 13,126
Deferred 238,877 -
----------- -----------
272,941 13,126
----------- -----------
Other liabilities 284,143 235,778
Liabilities related to Separate Accounts (note 8) 18,763,678 12,222,461
----------- -----------
37,945,599 29,203,654
----------- -----------
Shareholder's equity (notes 3, 4, 5, 7, 12 and 13):
Capital shares, $1 par value. Authorized 5,000 shares, issued and
outstanding 3,815 shares 3,815 3,815
Additional paid-in capital 673,782 622,753
Retained earnings 1,606,607 1,401,579
Unrealized gains (losses) on securities available-for-sale, net 384,308 (119,668)
----------- -----------
2,668,512 1,908,479
----------- -----------
Commitments and contingencies (notes 9 and 15)
$40,614,111 31,112,133
=========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 3
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Consolidated Statements of Income
Years ended December 31, 1995, 1994 and 1993
(000's omitted)
<TABLE>
<CAPTION>
1995 1994 1993
--------------- -------------- -------------
<S> <C> <C> <C>
Revenues (note 16):
Traditional life insurance premiums $ 274,957 209,538 215,715
Accident and health insurance premiums 509,658 324,524 312,655
Universal life and investment product policy charges 307,676 239,021 188,057
Net investment income (note 5) 1,482,980 1,289,501 1,204,426
Realized gains (losses) on investments (notes 5 and 13) 836 (16,384) 113,673
---------- ---------- ----------
2,576,107 2,046,200 2,034,526
---------- ---------- ----------
Benefits and expenses:
Benefits and claims 1,656,287 1,279,763 1,236,906
Provision for policyholders' dividends on participating policies (note 12) 48,074 46,061 53,189
Amortization of deferred policy acquisition costs 93,044 94,744 102,134
Other operating costs and expenses 458,970 352,402 329,396
---------- ---------- ----------
2,256,375 1,772,970 1,721,625
---------- ---------- ----------
Income before Federal income tax expense and cumulative effect of
changes in accounting principles 319,732 273,230 312,901
---------- ---------- ----------
Federal income tax expense (note 7):
Current 103,464 79,847 75,124
Deferred 3,790 9,657 31,634
---------- ---------- ----------
107,254 89,504 106,758
---------- ---------- ----------
Income before cumulative effect of changes in accounting principles 212,478 183,726 206,143
Cumulative effect of changes in accounting principles, net (note 3) -- -- 5,365
---------- ---------- ----------
Net income $ 212,478 183,726 211,508
========== ========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 4
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Consolidated Statements of Shareholder's Equity
Years ended December 31, 1995, 1994 and 1993
(000's omitted)
<TABLE>
<CAPTION>
Unrealized
gains (losses)
Additional on securities Total
Capital paid-in Retained available-for- shareholder's
shares capital earnings sale, net equity
----------- ----------- ----------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
1993:
Balance, beginning of year $ 3,815 311,753 1,024,150 90,524 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 -- -- -- (83,777) (83,777)
---------- ---------- ---------- ---------- ----------
Balance, end of year $ 3,815 422,753 1,217,853 6,747 1,651,168
========== ========== ========= ========== ==========
1994:
Balance, beginning of year 3,815 422,753 1,217,853 6,747 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 (note 3) -- -- -- 216,915 216,915
Unrealized losses on securities available-
for-sale, net -- -- -- (343,330) (343,330)
---------- ---------- ---------- ---------- ----------
Balance, end of year $ 3,815 622,753 1,401,579 (119,668) 1,908,479
========== ========== ========== ========== ==========
1995:
Balance, beginning of year 3,815 622,753 1,401,579 (119,668) 1,908,479
Capital contribution (note 13) -- 51,029 -- (4,111) 46,918
Dividends paid to shareholder -- -- (7,450) -- (7,450)
Net income -- -- 212,478 -- 212,478
Unrealized gains on securities available-
for-sale, net -- -- -- 508,087 508,087
---------- ---------- ---------- ---------- ----------
Balance, end of year $ 3,815 673,782 1,606,607 384,308 2,668,512
========== ========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 5
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Consolidated Statements of Cash Flows
Years ended December 31, 1995, 1994 and 1993
(000's omitted)
<TABLE>
<CAPTION>
1995 1994 1993
-------------- ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 212,478 183,726 211,508
Adjustments to reconcile net income to net cash provided by operating
activities:
Capitalization of deferred policy acquisition costs (349,456) (264,434) (191,994)
Amortization of deferred policy acquisition costs 93,044 94,744 102,134
Amortization and depreciation 10,319 6,207 11,156
Realized losses (gains) on invested assets, net 717 15,949 (113,648)
Deferred Federal income tax expense (benefit) 4,023 (2,166) (6,006)
Increase in accrued investment income (19,341) (29,654) (4,218)
Increase in other assets (3,227) (112,566) (549,277)
Increase in policy liabilities 198,200 1,038,641 509,370
Increase in policyholders' dividend accumulations 15,496 15,372 17,316
Increase in accrued Federal income tax payable 20,938 832 16,838
Increase in other liabilities 48,365 17,826 26,958
Other, net (20,556) (19,303) (11,745)
----------- ----------- ------------
Net cash provided by operating activities 211,000 945,174 18,392
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from maturity of securities available-for-sale 706,442 579,067 --
Proceeds from sale of securities available-for-sale 131,420 247,876 247,502
Proceeds from maturity of fixed maturities held-to-maturity 633,173 516,003 1,192,093
Proceeds from sale of fixed maturities -- -- 33,959
Proceeds from repayments of mortgage loans on real estate 215,134 220,744 146,047
Proceeds from sale of real estate 48,477 46,713 23,587
Proceeds from repayments of policy loans and sale of other invested assets 79,620 134,998 59,643
Cost of securities available-for-sale acquired (2,232,047) (2,569,672) (12,550)
Cost of fixed maturities held-to-maturity acquired (669,449) (675,835) (2,016,831)
Cost of mortgage loans on real estate acquired (821,078) (627,025) (475,336)
Cost of real estate acquired (10,970) (15,962) (8,827)
Policy loans issued and other invested assets acquired (92,904) (118,012) (76,491)
----------- ----------- ------------
Net cash used in investing activities (2,012,182) (2,261,105) (887,204)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from capital contributions 46,918 200,000 111,000
Dividends paid to shareholder (7,450) -- (17,805)
Increase in universal life and investment product account balances 3,202,135 3,640,958 2,249,740
Decrease in universal life and investment product account balances (1,523,283) (2,449,580) (1,458,504)
----------- ----------- -----------
Net cash provided by financing activities 1,718,320 1,391,378 884,431
----------- ----------- -----------
Net (decrease) increase in cash and cash equivalents (82,862) 75,447 15,619
Cash and cash equivalents, beginning of year 139,079 63,632 48,013
----------- ----------- -----------
Cash and cash equivalents, end of year $ 56,217 139,079 63,632
=========== =========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 6
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
(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
Nationwide Life and Annuity Insurance Company (NLAIC) (formerly known as
Financial Horizons Life Insurance Company), West Coast Life Insurance
Company (WCLIC), Employers Life Insurance Company of Wausau and
subsidiaries (ELICW), National Casualty Company (NCC) and Nationwide
Financial Services, Inc. (NFS). NLIC and its subsidiaries are
collectively referred to as "the Company."
NLIC, NLAIC, 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 insurance, health insurance
and annuity products through exclusive agents, brokers 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 currently recorded in the consolidated financial statements. The
Company mitigates this risk by offering a wide range of products and
by operating throughout the United States, thus reducing its exposure
to any single product or jurisdiction, and also by employing
underwriting practices which identify and minimize the adverse impact
of this risk.
CREDIT RISK is the risk that issuers of securities owned by the
Company or mortgagors on mortgage loans on real estate owned by the
Company will default or that other parties, including reinsurers,
which owe the Company money, will not pay. The Company minimizes this
risk by adhering to a conservative investment strategy, by maintaining
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.
<PAGE> 7
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
In preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosures of contingent assets and liabilities as of the
date of the consolidated financial statements and the reported amounts of
revenues and expenses for the reporting period. Actual results could differ
significantly from those estimates.
The most significant estimates include those used in determining deferred
policy acquisition costs, valuation allowances for mortgage loans on real
estate and real estate investments and the liability for future policy benefits
and claims. Although some variability is inherent in these estimates,
management believes the amounts provided are adequate.
(a) CONSOLIDATION POLICY
The December 31, 1995 consolidated financial statements include the
accounts of NLIC and its wholly owned subsidiaries NLAIC, WCLIC, ELICW, NCC
and NFS. The December 31, 1994 and 1993 consolidated financial statements
include the accounts of NLIC, NLAIC, 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 13. All
significant intercompany balances and transactions have been eliminated.
(b) VALUATION OF INVESTMENTS AND RELATED GAINS AND LOSSES
The Company is required to classify its fixed maturity securities and
equity securities as either held-to-maturity, available-for-sale or
trading. Fixed maturity securities are classified as held-to-maturity when
the Company has the positive intent and ability to hold the securities to
maturity and are stated at amortized cost. Fixed maturity securities not
classified as held-to-maturity and all equity securities are classified as
available-for-sale and are stated at fair value, with the unrealized gains
and losses, net of adjustments to deferred policy acquisition costs and
deferred Federal income tax, reported as a separate component of
shareholder's equity. The adjustment to deferred policy acquisition costs
represents the change in amortization of deferred policy acquisition costs
that would have been required as a charge or credit to operations had such
unrealized amounts been realized. The Company has no fixed maturity
securities classified as held-to-maturity or trading as of
December 31, 1995.
Mortgage loans on real estate are carried at the unpaid principal balance
less valuation allowances. The Company provides valuation allowances for
impairments of mortgage loans on real estate based on a review by portfolio
managers. The measurement of impaired loans is based on the present value
of expected future cash flows discounted at the loan's effective interest
rate or, as a practical expedient, at the fair value of the collateral, if
the loan is collateral dependent. Loans in foreclosure and loans considered
to be impaired are placed on non-accrual status. Interest received on
non-accrual status mortgage loans on real estate are included in interest
income in the period received.
Real estate is carried at cost less accumulated depreciation and valuation
allowances. Other long-term investments are carried on the equity basis,
adjusted for valuation allowances.
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 March, 1995, the Financial Accounting Standards Board (FASB) issued
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 121 - ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF
(SFAS 121). SFAS 121 requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are
present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. SFAS 121 also addresses
the accounting for long-lived assets that are expected to be disposed of.
The statement is effective for fiscal years beginning after December 15,
1995 and earlier application is permitted. Previously issued consolidated
financial statements shall not be restated. The Company will adopt SFAS 121
in 1996 and the impact on the consolidated financial statements is not
expected to be material.
<PAGE> 8
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.
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 asset fees, cost of insurance, policy administration
and surrender charges that have been earned and assessed against policy
account balances during the period. Policy benefits and claims that are
charged to expense include 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 policy acquisition
costs are predominantly being amortized with interest over the premium
paying period of the related policies in proportion to the ratio of actual
annual premium revenue to the anticipated total premium revenue. Such
anticipated premium revenue was estimated using the same assumptions as
were used for computing liabilities for future policy benefits. 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, asset fees, cost of insurance, policy
administration and surrender charges. For years in which gross profits are
negative, deferred policy acquisition costs are amortized based on the
present value of gross revenues. Deferred policy acquisition costs are
adjusted to reflect the impact of unrealized gains and losses on fixed
maturity securities available-for-sale as described in note 2(b).
(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
insurance policies have been calculated using a net level premium method
based on estimates of mortality, morbidity, investment yields and
withdrawals which were used or which were being experienced at the time the
policies were issued, rather than the assumptions prescribed by state
regulatory authorities. See note 6.
Future policy benefits 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.
<PAGE> 9
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
Future policy benefits and claims for collectively renewable long-term
disability policies (primarily discounted at 5.2%) and group long-term
disability policies (primarily discounted at 5.5%) are the present value of
amounts not yet due on reported claims and an estimate of amounts to be
paid on incurred but unreported claims. The impact of reserve discounting
is not material. Future policy benefits and claims on other
group health insurance policies are not discounted.
(g) PARTICIPATING BUSINESS
Participating business represents approximately 45% (45% in 1994 and
48% in 1993) of the Company's ordinary life insurance in force, 72% (72% in
1994 and 1993) of the number of policies in force, and 39% (41% in 1994 and
45% in 1993) 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 12.
(h) FEDERAL INCOME TAX
NLIC, NLAIC, 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 files 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.
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.
<PAGE> 10
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
(k) RECLASSIFICATION
Certain items in the 1994 and 1993 consolidated financial
statements have been reclassified to conform to the 1995
presentation.
(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 STATEMENT OF FINANCIAL ACCOUNTING
STANDARDS NO. 115 - ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND
EQUITY SECURITIES. As of January 1, 1994, the Company classified fixed
maturity securities with amortized cost and fair value of $6,593,844
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>
<CAPTION>
<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
=========
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:
Asset/liability method of recognizing income tax (note 2(h)) $ 26,344
Accrual method of recognizing postretirement benefits other
than pensions (net of tax benefit of $11,296) (note 11) (20,979)
--------
$ 5,365
========
</TABLE>
(4) BASIS OF PRESENTATION
The consolidated financial statements have been prepared in accordance
with GAAP. Annual Statements for NLIC and NLAIC, WCLIC, ELICW and NCC,
filed with the Department of Insurance of the State of Ohio (the
Department), 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 statutory capital shares and surplus of NLIC as reported to
regulatory authorities as of December 31, 1995, 1994 and 1993 was
$1,363,031, $1,262,861 and $992,631, respectively. The statutory net
income of NLIC as reported to regulatory authorities for the years
ended December 31, 1995, 1994 and 1993 was $86,529, $76,532 and
$185,943, respectively.
<PAGE> 11
LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
(5) INVESTMENTS
An analysis of investment income by investment type follows for the
years ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------ ------------
<S> <C> <C> <C>
Gross investment income:
Securities available-for-sale:
Fixed maturities $ 772,589 674,346 --
Equity securities 1,436 550 7,230
Fixed maturities held-to-maturity 232,692 193,009 800,255
Mortgage loans on real estate 410,965 376,783 364,810
Real estate 39,222 40,280 39,684
Short-term investments 12,249 6,990 5,080
Other 61,701 42,831 33,832
---------- ---------- ----------
Total investment income 1,530,854 1,334,789 1,250,891
Less investment expenses 47,874 45,288 46,465
---------- ---------- ----------
Net investment income $1,482,980 1,289,501 1,204,426
========== ========== ==========
</TABLE>
An analysis of realized gains (losses) on investments, net of
valuation allowances, by investment type follows for the years ended
December 31:
<TABLE>
<CAPTION>
1995 1994 1993
--------------- ------------- --------------
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturities $ 6,792 (7,120) --
Equity securities 3,435 1,427 129,728
Fixed maturities -- -- 20,225
Mortgage loans on real estate (7,312) (20,462) (28,241)
Real estate and other (2,079) 9,771 (8,039)
-------- -------- --------
$ 836 (16,384) 113,673
======== ======== ========
</TABLE>
The components of unrealized gains (losses) on securities
available-for-sale, net, were as follows as of December 31:
<TABLE>
<CAPTION>
1995 1994
--------------- -------------
<S> <C> <C>
Gross unrealized gains (losses) $ 735,103 (266,618)
Adjustment to deferred policy acquisition costs (143,851) 82,525
Deferred Federal income tax (206,944) 64,425
--------- ---------
$ 384,308 (119,668)
========= =========
</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>
1995 1994 1993
--------------- ------------- -------------
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturities $ 1,001,706 (703,851) --
Equity securities 15 (1,990) (128,837)
Fixed maturities held-to-maturity 86,477 (421,427) 223,392
----------- ----------- -----------
$ 1,088,198 (1,127,268) 94,555
=========== =========== ===========
</TABLE>
<PAGE> 12
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 securities available-for-sale
were as follows as of December 31, 1995:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
-------------- ------------ ------------- ---------------
<S> <C> <C> <C> <C>
Fixed maturities:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies $ 438,109 36,714 (53) 474,770
Obligations of states and political subdivisions 9,742 1,252 (1) 10,993
Debt securities issued by foreign governments 162,442 9,641 (66) 172,017
Corporate securities 8,902,494 524,796 (30,561) 9,396,729
Mortgage-backed securities 3,925,843 196,645 (9,620) 4,112,868
--------- ----------- ----------- -----------
Total fixed maturities 13,438,630 769,048 (40,301) 14,167,377
Equity securities 27,362 6,441 (85) 33,718
---------- ----------- ----------- -----------
$13,465,992 775,489 (40,386) 14,201,095
=========== =========== ============ ===========
</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:
U.S. Treasury securities and obligations of U.S.
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 18,372 6,637 (296) 24,713
---------- ---------- ---------- ---------
$8,337,237 77,888 (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>
<PAGE> 13
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 fixed maturity securities
available-for-sale as of December 31, 1995, 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 $ 641,490 647,639
Due after one year through five years 5,365,703 5,623,126
Due after five years through ten years 2,477,457 2,609,262
Due after ten years 1,028,137 1,174,482
----------- -----------
9,512,787 10,054,509
Mortgage-backed securities 3,925,843 4,112,868
----------- -----------
$13,438,630 14,167,377
=========== ===========
</TABLE>
Proceeds from the sale of securities available-for-sale during 1995 and 1994
were $131,420 and $247,876, respectively, while proceeds from sales of
investments in fixed maturity securities during 1993 were $33,959. Gross gains
of $7,197 ($3,406 in 1994 and $2,413 in 1993) and gross losses of $2,309
($21,866 in 1994 and $39 in 1993) were realized on those sales.
During 1995, the Company transferred fixed maturity securities classified as
held-to-maturity with amortized cost of $27,929 to available-for-sale
securities due to evidence of a significant deterioration in the issuer's
creditworthiness. The transfer of those fixed maturity securities resulted in
a gross unrealized loss of $4,285.
As permitted by the FASB's Special Report, A GUIDE TO IMPLEMENTATION OF
STATEMENT 115 ON ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY
SECURITIES, issued in November, 1995, the Company transferred all of its fixed
maturity securities previously classified as held-to-maturity to
available-for-sale. As of December 14, 1995, the date of transfer, the fixed
maturity securities had amortized cost of $3,705,644, resulting in a gross
unrealized gain of $171,531.
Investments that were non-income producing for the twelve month period
preceding December 31, 1995 amounted to $28,958 ($11,513 for 1994) and
consisted of $8,228 (none in 1994) in fixed maturity securities, $14,740
($11,111 in 1994) in real estate and $5,990 ($402 in 1994) in other long-term
investments.
Real estate is presented at cost less accumulated depreciation of $30,931 in
1995 ($29,275 in 1994) and valuation allowances of $26,250 in 1995 ($27,330 in
1994).
Other long-term investments are presented net of valuation allowances of $457
as of December 31, 1995. There were no such valuation allowances as of December
31, 1994.
As of December 31, 1995, the recorded investment of mortgage loans on real
estate considered to be impaired (under STATEMENT OF FINANCIAL ACCOUNTING
STANDARDS NO. 114, ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN as amended
by STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 118, ACCOUNTING BY CREDITORS
FOR IMPAIRMENT OF A LOAN - INCOME RECOGNITION AND DISCLOSURE) was $44,995,
which includes $23,975 of impaired mortgage loans on real estate for which the
related valuation allowance was $5,276 and $21,020 of impaired mortgage loans
on real estate for which there was no valuation allowance. During 1995, the
average recorded investment in impaired mortgage loans on real estate was
approximately $22,621 and interest income recognized on those loans was $416,
which is equal to interest income recognized using a cash-basis method of
income recognition.
<PAGE> 14
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
Activity in the valuation allowance account for mortgage loans on real
estate is summarized for the year ended December 31, 1995:
<TABLE>
<CAPTION>
1995
--------
<S> <C>
Allowance, beginning year $ 47,892
Additions charged to operations 7,653
Direct write-downs charged against the allowance (4,850)
--------
Allowance, end of year $ 50,695
========
</TABLE>
Foresclosures of mortgage loans on real estate were $37,187 in 1994 and
mortgage loans on real estate in process of foreclosure or in-substance
foreclosed as of December 31, 1994 totaled $19,878, which approximated fair
value.
Fixed maturity securities with an amortized cost of $13,982 and $11,137 as
of December 31, 1995 and 1994, respectively, were on deposit with various
regulatory agencies as required by law.
(6) FUTURE POLICY BENEFITS AND CLAIMS
The liability for future policy benefits for investment contracts represents
approximately 82% and 81% of the total liability for future policy benefits
as of December 31, 1995 and 1994, respectively. The average interest rate
credited on investment product policies was approximately 6.5%, 6.5% and
7.0% for the years ended December 31, 1995, 1994 and 1993, respectively.
The liability for future policy benefits for traditional life insurance and
individual health insurance policies has been established based upon the
following assumptions:
INTEREST RATES: Interest rates vary as follows:
<TABLE>
<CAPTION>
Health
Year of issue Life Insurance insurance
-------------- ------------------------------------------------------------ ---------------
<S> <C> <C>
1995 7.6%, not graded - permanent contracts with loan provisions 4.5%
7.7%, not graded - all other contracts
1984-1994 6.0% to 10.5%, not graded 5.0% to 6.0%
1966-1983 6.0% to 8.1%, graded over 20 years to 4.0% to 6.6% 3.5% to 6.0%
1965 and prior generally lower than post 1965 issues 3.5% to 4.0%
</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.
<PAGE> 15
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
Activity in the liability for unpaid claims and claim adjustment expenses is
summarized for the years ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ---------
<S> <C> <C> <C>
Balance, beginning of year $ 637,998 592,180 760,209
Less reinsurance recoverables 438,761 430,720 547,683
--------- --------- ---------
Net balance, beginning of year 199,237 161,460 212,526
--------- --------- ---------
Incurred related to:
Current year 425,907 273,299 309,721
Prior years (17,203) (26,156) (26,248)
--------- --------- ---------
Total incurred 408,704 247,143 283,473
--------- --------- ---------
Paid related to:
Current year 290,605 175,700 208,978
Prior years 111,353 73,889 125,561
--------- --------- ---------
Total paid 401,958 249,589 334,539
--------- --------- ---------
Unpaid claims of acquired companies 2,542 40,223 --
--------- --------- ---------
Net balance, end of year 208,525 199,237 161,460
Plus reinsurance recoverables 491,321 438,761 430,720
--------- --------- ---------
Balance, end of year $ 699,846 637,998 592,180
========= ========= =========
</TABLE>
Reinsurance recoverables include amounts from affiliates, as discussed in
note 13, of $477,912, $430,936, $430,278 and $534,983 as of December 31,
1995, 1994, 1993 and 1992, respectively.
The provision for claims and claim adjustment expenses for prior years
decreased in each of the three years ended December 31, 1995 due to
lower-than-anticipated costs to settle accident and health insurance claims.
(7) FEDERAL INCOME TAX
The tax effects of temporary differences that give rise to significant
components of the net deferred tax asset (liability) as of December 31,
1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Deferred tax assets:
Future policy benefits $ 179,916 124,044
Fixed maturity securities available-for-sale -- 95,536
Liabilities in Separate Accounts 129,120 94,783
Mortgage loans on real estate and real estate 26,062 25,632
Other policyholder funds 7,752 7,137
Other assets and other liabilities 47,215 57,528
--------- ---------
Total gross deferred tax assets 390,065 404,660
--------- ---------
Deferred tax liabilities:
Deferred policy acquisition costs 312,616 317,224
Fixed maturity securities available-for-sale 266,184 --
Equity securities available-for-sale and other
long-term investments 3,431 3,620
Other 46,711 47,301
--------- ---------
Total gross deferred tax liabilities 628,942 368,145
--------- ---------
$(238,877) 36,515
========= =========
</TABLE>
<PAGE> 16
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
The Company has determined that valuation allowances are not necessary as
of December 31, 1995, 1994 and 1993 based on its analysis of future
deductible amounts. In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that some portion
of the total gross deferred tax assets will not be realized. 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.
<TABLE>
Total Federal income tax expense for the years ended December 31, 1995,
1994 and 1993 differs from the amount computed by applying the U.S.
Federal income tax rate to income before tax as follows:
<CAPTION>
1995 1994 1993
---------------------- ---------------------- ----------------------
Amount % Amount % Amount %
--------------- ----- -------------- ------ ------------- -------
<S> <C> <C> <C> <C> <C> <C>
Computed (expected) tax expense $ 111,906 35.0 $ 95,631 35.0 $ 109,515 35.0
Tax exempt interest and dividends
received deduction (137) (0.1) (194) (0.1) (2,322) (0.7)
Current year increase in U.S. Federal
income tax rate -- -- -- -- 1,704 0.5
Other, net (4,515) (1.4) (5,933) (2.1) (2,139) (0.7)
--------- ---- --------- ---- --------- ----
Total (effective rate of each year) $ 107,254 33.5 $ 89,504 32.8 $ 106,758 34.1
========= ==== ========= ==== ========= ====
</TABLE>
Total Federal income tax paid was $75,309, $87,576 and $58,286 during the
years ended December 31, 1995, 1994 and 1993, respectively.
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 was approximately $35,344 as of December 31, 1995.
(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. SFAS 107 defines the fair value of a financial instrument as
the amount at which the financial instrument could be exchanged in a
current transaction between willing parties. In cases where quoted market
prices are not available, fair value is based on estimates using present
value or other valuation techniques.
These techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows. Although
fair value estimates are calculated using assumptions that management
believes are appropriate, changes in assumptions could cause these
estimates to vary materially. In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent markets
and,in many cases, could not be realized in the immediate settlement of
the instruments. SFAS 107 excludes certain assets and liabilities from its
disclosure requirements. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Company.
<PAGE> 17
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
Although insurance contracts, other than policies such as annuities
that are classified as investment contracts, are specifically exempted
from SFAS 107 disclosures, estimated fair value of policy reserves on
life insurance contracts 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 consolidated balance sheets for these
instruments approximates their fair value.
FIXED MATURITY AND EQUITY SECURITIES: Fair value for fixed
maturity securities is based on quoted market prices, where available.
For fixed maturity securities not actively traded, fair value is
estimated using values obtained from independent pricing services or,
in the case of private placements, is estimated by discounting
expected future cash flows using a current market rate applicable to
the yield, credit quality and maturity of the investments. The fair
value for equity securities is based on quoted market prices.
SEPARATE ACCOUNT ASSETS AND LIABILITIES: The fair value of
assets held in Separate Accounts is based on quoted market prices. The
fair value of liabilities related to Separate Accounts is the
amount payable on demand.
MORTGAGE LOANS ON REAL ESTATE: The fair value for mortgage
loans on real estate is estimated using discounted cash flow analyses,
using interest rates currently being offered for similar loans to
borrowers with similar credit ratings. Loans with similar
characteristics are aggregated for purposes of the calculations. Fair
value for mortgages in default is the estimated fair value of the
underlying collateral.
INVESTMENT CONTRACTS: Fair value for the Company's liabilities under
investment type contracts is disclosed using two methods. For
investment contracts without defined maturities, fair value is the
amount payable on demand. For investment contracts with known or
determined maturities, fair value is estimated using discounted cash
flow analysis. Interest rates used are similar to currently offered
contracts with maturities consistent with those remaining for the
contracts being valued.
POLICY RESERVES ON LIFE INSURANCE CONTRACTS: Included are disclosures
for individual life, 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.
<PAGE> 18
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
Carrying amount and estimated fair value of financial instruments
subject to SFAS 107 and policy reserves on life insurance contracts were
as follow as of December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
-------------------------- -------------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
- ------
Investments:
Securities available-for-sale:
Fixed maturities $14,167,377 14,167,377 8,045,906 8,045,906
Equity securities 33,718 33,718 24,713 24,713
Fixed maturities held-to-maturity -- -- 3,688,787 3,602,310
Mortgage loans on real estate 4,786,599 5,169,805 4,222,284 4,173,284
Policy loans 370,908 370,908 340,491 340,491
Short-term investments 45,732 45,732 131,643 131,643
Cash 10,485 10,485 7,436 7,436
Assets held in Separate Accounts 18,763,678 18,763,678 12,222,461 12,222,461
LIABILITIES
- -----------
Investment contracts 13,561,943 13,221,724 12,189,894 11,657,556
Policy reserves on life insurance contacts 3,695,814 3,659,074 3,170,085 2,934,384
Policyholders' dividend accumulations 353,554 353,554 338,058 338,058
Other policyholder funds 71,155 71,155 72,770 72,770
Liabilities related to Separate Accounts 18,763,678 18,224,933 12,222,461 11,807,331
</TABLE>
(9) ADDITIONAL FINANCIAL INSTRUMENTS DISCLOSURES
--------------------------------------------
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK: The Company is a party to
financial instruments with off-balance-sheet risk in the normal course of
business through management of its investment portfolio. These financial
instruments include commitments to extend credit in the form of loans. These
instruments involve, to varying degrees, elements of credit risk in excess
of amounts recognized on the consolidated balance sheets.
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 $361,974 extending into 1996 were
outstanding as of December 31, 1995.
SIGNIFICANT CONCENTRATIONS OF CREDIT RISK: The Company grants mainly
commercial mortgage loans on real estate to customers throughout the United
States. The Company has a diversified portfolio with no more than 20% (22%
in 1994) in any geographic area and no more than 2% (2% in 1994) with any
one borrower.
<PAGE> 19
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
The summary below depicts loans by remaining principal balance as of
December 31, 1995 and 1994:
<TABLE>
<CAPTION>
Apartment
Office Warehouse Retail & other Total
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1995:
East North Central $ 140,732 110,361 534,814 184,201 970,108
East South Central 23,978 15,653 183,790 84,588 308,009
Mountain -- 18,940 144,156 48,727 211,823
Middle Atlantic 124,079 72,201 183,562 18,383 398,225
New England 9,594 39,526 153,644 1 202,765
Pacific 190,628 239,687 395,914 107,650 933,879
South Atlantic 101,904 74,731 458,355 279,692 914,682
West North Central 134,866 14,205 81,521 37,586 268,178
West South Central 69,143 99,618 194,717 272,323 635,801
--------- --------- --------- --------- ---------
$ 794,924 684,922 2,330,473 1,033,151 4,843,470
========= ========= ========= =========
Less valuation allowances and unamortized discount 56,871
---------
Total mortgage loans on real estate, net $4,786,599
=========
</TABLE>
<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
=========
</TABLE>
(10) PENSION PLAN
------------
The Company is a participant, together with other affiliated companies,
in a pension plan covering all employees who have completed at least one
thousand hours of service within a twelve-month period and who have met
certain age requirements. Benefits are based upon the highest average
annual salary of a specified number of consecutive years of the last ten
years of service. The Company funds pension costs accrued for direct
employees plus an allocation of pension costs accrued for employees of
affiliates whose work efforts benefit the Company.
Effective January 1, 1995, the plan was amended to provide enhanced
benefits for participants who met certain eligibility requirements and
elected early retirement no later than March 15, 1995. The entire cost of
the enhanced benefit was borne by NMIC and certain of its property and
casualty insurance company affiliates.
<PAGE> 20
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
Effective December 31, 1995, the Nationwide Insurance Companies and
Affiliates Retirement Plan was merged with the Farmland Mutual Insurance
Company Employees' Retirement Plan and the Wausau Insurance Companies
Pension Plan to form the Nationwide Insurance Enterprise Retirement
Plan. Immediately prior to the merger, the plans were amended to provide
consistent benefits for service after January 1, 1996. These amendments had
no significant impact on the accumulated benefit obligation or projected
benefit obligation as of December 31, 1995.
Pension costs charged to operations by the Company during the years ended
December 31, 1995, 1994 and 1993 were $14,105, $10,451 and $6,702,
respectively.
The Company's net accrued pension expense as of December 31, 1995 and
1994 was $1,376 and $1,836, respectively.
The net periodic pension cost for the Nationwide Insurance Companies and
Affiliates Retirement Plan as a whole for the years ended December 31,
1995, 1994 and 1993 follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Service cost (benefits earned during the period) $ 64,524 64,740 47,694
Interest cost on projected benefit obligation 95,283 73,951 70,543
Actual return on plan assets (249,294) (21,495) (105,002)
Net amortization and deferral 143,353 (62,150) 20,832
--------- --------- ---------
$ 53,866 55,046 34,067
========= ========= =========
</TABLE>
Basis for measurements, net periodic pension cost:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Weighted average discount rate 7.50% 5.75% 6.75%
Rate of increase in future compensation levels 6.25% 4.50% 4.75%
Expected long-term rate of return on plan assets 8.75% 7.00% 7.50%
</TABLE>
Information regarding the funded status of the Nationwide Insurance
Enterprise Retirement Plan as a whole as of December 31, 1995
(post-merger) and the Nationwide Insurance Companies and Affiliates
Retirement Plan as of December 31, 1995 (pre-merger) and 1994 follows:
<TABLE>
<CAPTION>
Post-merger Pre-merger
1995 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Accumulated benefit obligation:
Vested $ 1,236,730 1,002,079 914,850
Nonvested 26,503 8,998 7,570
----------- ----------- -----------
$ 1,263,233 1,011,077 922,420
=========== =========== ===========
Net accrued pension expense:
Projected benefit obligation for services rendered
to date $ 1,780,616 1,447,522 1,305,547
Plan assets at fair value 1,738,004 1,508,781 1,241,771
----------- ----------- -----------
Plan assets (less than) in excess of projected
benefit obligation (42,612) 61,259 (63,776)
Unrecognized prior service cost 42,845 42,850 46,201
Unrecognized net (gains) losses (63,130) (86,195) 39,408
Unrecognized net obligation (asset) at transition 41,305 (19,841) (21,994)
----------- ----------- -----------
$ (21,592) (1,927) (161)
=========== =========== ===========
</TABLE>
<PAGE> 21
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
Basis for measurements, funded status of plan:
<TABLE>
<CAPTION>
Post-merger Pre-merger
1995 1995 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
Weighed average discount rate 6.00% 6.00% 7.50%
Rate of increase in future compensation levels 4.25% 4.25% 6.25%
</TABLE>
Assets of the Nationwide Insurance Enterprise Retirement Plan are invested
in group annuity contracts of NLIC and ELICW. Prior to the merger, the
assets of the Nationwide Insurance Companies and Affiliates Retirement
Plan were invested in a group annuity contract of NLIC.
(11) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
-------------------------------------------
In addition to the defined benefit pension plan, the Company, together
with other affiliated companies, participates in life and health care
defined benefit plans for qualifying retirees. Postretirement life and
health care benefits are contributory and generally available to full
time employees who have attained age 55 and have accumulated 15 years of
service with the Company after reaching age 40. Postretirement health
care benefit contributions are adjusted annually and contain cost-sharing
features such as deductibles and coinsurance. In addition, there are caps
on the Company's portion of the per-participant cost of the postretirement
health care benefits. These caps can increase annually, but not more than
three percent. The Company's policy is to fund the cost of health care
benefits in amounts determined at the discretion of management. Plan
assets are invested primarily in group annuity contracts of NLIC.
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.
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 1993 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. Certain affiliated companies elected to amortize their
initial transition obligation over periods ranging from 10 to 20 years.
The Company's accrued postretirement benefit expense as of
December 31, 1995 and 1994 was $51,490 and $36,001, respectively, and the
net periodic postretirement benefit cost (NPPBC) for 1995 and 1994 was
$8,269 and $4,627, respectively.
The amount of NPPBC for the plan as a whole for the years ended
December 31, 1995, 1994 and 1993 was as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Service cost - benefits attributed to employee service during the year $ 6,235 8,586 7,090
Interest cost on accumulated postretirement benefit obligation 14,151 14,011 13,928
Actual return on plan assets (2,657) (1,622) --
Amortization of unrecognized transition obligation of affiliates 2,966 568 568
Net amortization and deferral (1,619) 1,622 --
-------- -------- --------
$ 19,076 23,165 21,586
======== ======== ========
</TABLE>
<PAGE> 22
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
Information regarding the funded status of the plan as a whole as of
December 31, 1995 and 1994 follows:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Accrued postretirement benefit expense:
Retirees $ 88,680 76,677
Fully eligible, active plan participants 28,793 22,013
Other active plan participants 90,375 59,089
--------- ---------
Accumulated postretirement benefit obligation (APBO) 207,848 157,779
Plan assets at fair value 54,325 49,012
--------- ---------
Plan assets less than accumulated postretirement benefit obligation (153,523) (108,767)
Unrecognized transition obligation of affiliates 1,827 6,577
Unrecognized net gains (1,038) (41,497)
--------- ---------
$(152,734) (143,687)
========= =========
</TABLE>
Actuarial assumptions used for the measurement of the APBO as of
December 31, 1995 and 1994 and the NPPBC for 1995, 1994 and 1993 were
as follows:
<TABLE>
<CAPTION>
1995 1995 1994 1994 1993
APBO NPPBC APBO NPPBC NPPBC
----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Discount rate 6.75% 8% 8% 7% 8%
Assumed health care cost trend rate:
Initial rate 11% 10% 11% 12% 14%
Ultimate rate 6% 6% 6% 6% 6%
Uniform declining period 12 Years 12 Years 12 Years 12 Years 12 Years
</TABLE>
The health care cost trend rate assumption has an effect on the amounts
reported. For the plan as a whole, a one percentage point increase in
the assumed health care cost trend rate would increase the APBO as of
December 31, 1995 by $641 and the NPPBC for the year ended December 31,
1995 by $107.
(12) 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, as of the year-end shall
inure to the benefit of the shareholder. 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.
<PAGE> 23
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
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.
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
$2,664,697, $1,904,664 and $1,647,353 as of December 31, 1995, 1994 and
1993, respectively. The amount thereof not presently available for
dividends to the shareholder due to the New York restrictions was
$1,503,241, $929,934 and $954,037 as of December 31, 1995, 1994 and 1993,
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 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, $2,468,687
of shareholder's equity, as presented in the accompanying consolidated
financial statements, is so restricted as to dividend payments in 1996.
Each of NLIC's insurance company subsidiaries are limited in their
payment of dividends by the state insurance department of their
respective state of domicile. As of December 31, 1995, the maximum amount
of shareholder's equity available for dividend payment to NLIC in 1996 by
its insurance company subsidiaries without prior approval are:
<TABLE>
<S> <C>
Nationwide Life and Annuity Insurance Company $10,143
West Coast Life Insurance Company 13,153
Employers Life Insurance Company of Wausau 10,132
National Casualty Company --
-------
$33,428
=======
</TABLE>
(13) TRANSACTIONS WITH AFFILIATES
----------------------------
On March 1, 1995, Corp. contributed all of the outstanding shares of
Farmland Life Insurance Company (Farmland) to NLIC, which then merged
Farmland into WCLIC effective June 30, 1995. The contribution resulted in
a direct increase to consolidated shareholder's equity of $46,918. The
contribution of Farmland has been accounted for in a manner similar to a
pooling of interests and accordingly, Farmland's results are included in
the consolidated statements of income beginning January 1, 1995. However,
prior period consolidated financial statements have not been restated due
to the impact of Farmland being immaterial.
Effective December 31, 1994, NLIC purchased all of the outstanding shares
of ELICW from Wausau Service Corporation (WSC) for $155,000. NLIC
transferred fixed maturity securities and cash with a fair value of
$155,000 to WSC on December 28, 1994, which resulted in a realized loss
of $19,239 on the disposition of the securities. The purchase price
approximated both the historical cost basis and fair value of net assets
of ELICW. ELICW has and will continue to share home office, other
facilities, equipment and common management and administrative services
with WSC.
Certain annuity products are sold through three affiliated companies
which are also subsidiaries of Corp. Total commissions and fees paid to
these affiliates for the three years ended December 31, 1995 were
$57,969, $50,470 and $44,577, respectively.
<PAGE> 24
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
The Company shares home office, other facilities, equipment and common
management and administrative services with affiliates.
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 1995 and
1994 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, 1995. These contracts are immaterial to the consolidated financial
statements.
NCC participates in several 100% quota share reinsurance agreements with
NMIC and Nationwide Mutual Fire Insurance Company, the minority
shareholder of Corp. As a result of these agreements, the following
assets and (liabilities) are included in the consolidated financial
statements as of December 31, 1995 and 1994 for reinsurance ceded:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Reinsurance recoverable $ 590,379 541,289
Unearned premium reserves (112,467) (110,353)
Liability for unpaid claims and claim adjustment expense (477,912) (430,936)
</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.
ELICW assumes certain accident and health insurance business from
Employers Insurance of Wausau A Mutual Company, an affiliate. During
1995, total premiums assumed by ELICW under the reinsurance
agreement were $150,622.
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 $21,644 and $92,531 as of December 31, 1995 and 1994,
respectively, and are included in short-term investments on the
accompanying consolidated balance sheets.
(14) BANK LINES OF CREDIT
--------------------
As of December 31, 1995 and 1994, NLIC had $120,000 of confirmed but
unused bank lines of credit which support a $100,000 commercial paper
borrowing authorization.
(15) CONTINGENCIES
-------------
The Company is a defendant in various lawsuits. In the opinion of
management, the effects, if any, of such lawsuits are not expected to be
material to the Company's financial position or results of operations.
<PAGE> 25
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
(16) SEGMENT INFORMATION
-------------------
The Company operates in the long-term savings, life insurance and
accident and health insurance lines of business in the life insurance and
property and casualty insurance industries. Long-term savings operations
include both qualified and non-qualified annuity contracts issued to both
individuals and groups. Life insurance operations include whole life,
universal life, variable universal life and endowment and term life
insurance issued to individuals and groups. Accident and health insurance
operations also provide coverage to individuals and groups. Corporate
primarily includes investments, and the related investment income, which
are not specifically allocated to one of the three operating segments. In
addition, realized gains and losses on all general account investments
are reported as a component of the corporate segment.
During 1995, the Company changed its reporting segments to better reflect
the way the businesses are managed. Prior periods have been restated to
reflect these changes.
The following table summarizes the revenues and income (loss) before
Federal income tax expense and cumulative effect of changes in accounting
principles for the years ended December 31, 1995, 1994 and 1993 and
assets as of December 31, 1995, 1994 and 1993, by business segment.
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Long-term savings $ 1,406,241 1,125,013 1,048,045
Life insurance 502,885 452,795 432,343
Accident and health insurance 532,383 345,545 339,764
Corporate 134,598 122,847 214,374
------------ ------------ ------------
$ 2,576,107 2,046,200 2,034,526
============ ============ ============
Income (loss) before Federal income tax expense and
cumulative effect of changes in accounting principles:
Long-term savings 129,475 95,530 47,966
Life insurance 63,169 46,119 36,383
Accident and health insurance (12,521) 13,221 15,041
Corporate 139,609 118,360 213,511
------------ ------------ ------------
$ 319,732 273,230 312,901
============ ============ ============
Assets:
Long-term savings 34,634,892 25,815,273 20,695,598
Life insurance 3,675,581 3,231,651 2,897,574
Accident and health insurance 307,643 291,296 297,200
Corporate 1,995,995 1,773,913 1,515,989
------------ ------------ ------------
$ 40,614,111 31,112,133 25,406,361
============ ============ ============
</TABLE>
<PAGE> 26
Schedule I
-----------
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Summary of Investments - Other Than Investments in Related Parties
December 31, 1995
(000's omitted)
<TABLE>
<CAPTION>
----------------- --------------- ------------------
Column B Column C Column D
----------------- --------------- ---------------
Amount at which
shown in the
consolidated
Cost Market value balance sheet
----------------- ---------------- -------------------
<S> <C> <C> <C>
Fixed maturities available-for-sale:
Bonds and notes:
U.S. Government and government agencies and authorities $ 3,913,961 4,116,744 4,116,744
States, municipalities and political subdivisions 9,742 10,993 10,993
Foreign governments 162,442 172,016 172,016
Public utilities 2,053,701 2,146,000 2,146,000
All other corporate 7,298,784 7,721,624 7,721,624
----------------- ---------------- -------------------
Total fixed maturities available-for-sale 13,438,630 14,167,377 14,167,377
----------------- ---------------- -------------------
Equity securities available-for-sale:
Common stocks:
Industrial, miscellaneous and all other 26,037 32,474 32,474
Non-redeemable preferred stock 1,325 1,244 1,244
----------------- ---------------- -------------------
Total equity securities available-for-sale 27,362 33,718 33,718
----------------- ---------------- -------------------
Mortgage loans on real estate 4,838,432 4,786,599*
Real estate:
Investment properties 213,340 171,739*
Acquired in satisfaction of debt 82,930 67,350*
Policy loans 370,908 370,908
Other long-term investments 73,190 67,280#
Short-term investments 45,732 45,732
----------------- -------------------
Total investments $19,090,524 19,710,703
================= ===================
</TABLE>
* Difference from Column B is primarily due to accumulated depreciation
and valuation allowances due to impairments on real estate and
valuation allowances due to impairments on mortgage loans on real
estate. See Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations and note 5 to the consolidated
financial statements.
# Difference from Column B is primarily due to operating losses of
investments in limited partnerships.
See accompanying independent auditors' report.
<PAGE> 27
Schedule III
------------
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Supplementary Insurance Information
December 31, 1995, 1994 and 1993
(000's omitted)
<TABLE>
<CAPTION>
- ----------------------------------- -------------- -------------------- ------------------- ------------------ ---------------
Column A Column B Column C Column D Column E Column F
- ----------------------------------- -------------- -------------------- ------------------- ------------------ ---------------
Deferred Future policy Other policy
policy benefits, losses, claims and
Segment acquisition claims and Unearned premiums benefits payable Premium
costs loss expenses (1) (2) revenue
- ----------------------------------- -------------- -------------------- ------------------- ------------------ ---------------
<S> <C> <C> <C> <C> <C>
1995: Long-term savings $ 668,784 14,847,449 455 -
Life insurance 416,209 2,494,344 408,990 274,957
Accident and health
insurance 9,202 858,335 15,264 509,658
Corporate - - - -
-------------- --------------------- ------------------ ---------------
Total $1,094,195 18,200,128 424,709 784,615
============== ===================== ================== ===============
1994: Long-term savings 663,696 13,300,015 240 -
Life insurance 387,486 2,245,375 397,174 209,538
Accident and health
insurance 12,977 776,071 13,414 324,524
Corporate - - - -
-------------- --------------------- ------------------ ---------------
Total $1,064,159 16,321,461 410,828 534,062
============== ===================== ================== ===============
1993: Long-term savings 506,243 11,308,024 1,262 -
Life insurance 291,683 2,047,844 378,788 215,715
Accident and health
insurance 14,018 736,387 14,595 312,655
Corporate - - - -
-------------- --------------------- ------------------ ---------------
Total $ 811,944 14,092,255 394,645 528,370
============== ===================== ================== ===============
- ----------------------------------- -------------- -------------------- ------------------ ----------------- --------------
Column A Column G Column H Column I Column J Column K
- ----------------------------------- -------------- -------------------- ------------------- ------------------ ---------------
Net Amortization Other
investment Benefits, claims, of deferred operating
Segment income losses and policy expenses Premiums
(3) settlement expenses acquisition costs (3) written
- ----------------------------------- -------------- -------------------- ------------------- ------------------ ---------------
1995: Long-term savings $1,124,207 1,009,632 51,998 210,525
Life insurance 202,285 267,123 34,124 94,461
Accident and health
insurance 22,725 379,532 6,922 153,984 473,513
Corporate 133,763 - - -
-------------- -------------------- ------------------- ------------------
Total $1,482,980 1,656,287 93,044 458,970
============== ==================== =================== ==================
1994: Long-term savings 945,318 807,756 56,236 171,038
Life insurance 183,933 237,125 33,394 90,535
Accident and health
insurance 21,020 234,882 5,114 90,829 315,688
Corporate 139,230 - - -
-------------- -------------------- ------------------- ------------------
Total $1,289,501 1,279,763 94,744 352,402
============== ==================== =================== ==================
1993: Long-term savings 897,639 800,385 43,291 157,046
Life insurance 178,978 227,786 35,220 89,496
Accident and health
insurance 27,108 208,735 23,623 82,854 263,117
Corporate 100,701 - - -
-------------- -------------------- ------------------- ------------------
Total $1,204,426 1,236,906 102,134 329,396
============== ==================== =================== ==================
<FN>
(1) Unearned premiums are included in Column C amounts. (3) Allocations of net investment income and certain general
(2) Column E agrees to the sum of the consolidated balance expenses are based on a number of assumptions and
sheet captions, "Policyholders' dividend estimates, and reported operating results would
accumulations" and "Other policyholder funds". change by segment if different methods were applied.
</TABLE>
See accompanying independent auditors' report.
<PAGE> 28
Schedule IV
-----------
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Reinsurance
Years ended December 31, 1995, 1994 and 1993
(000's omitted)
<TABLE>
<CAPTION>
Percentage
Ceded to Assumed from of amount
Gross amount other companies other companies Net amount assumed to net
------------------- ------------------ ----------------- ------------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
1995:
Life insurance in force $51,613,116 6,865,011 742,451 45,490,556 1.6%
=================== ================== ================= ================== ===============
Premiums:
Life insurance 281,687 12,817 6,087 274,957 2.2%
Accident and health
insurance 427,943 73,131 154,846 509,658 30.4%
------------------- ------------------ ----------------- ------------------ ---------------
Total $ 709,630 85,948 160,933 784,615 20.5%
=================== ================== ================= ================== ===============
1994:
Life insurance in force $46,262,595 5,289,259 819,799 41,793,135 2.0%
=================== ================== ================= ================== ===============
Premiums:
Life insurance 209,918 7,551 7,171 209,538 3.4%
Accident and health
insurance 389,573 69,095 4,046 324,524 1.2%
------------------- ------------------ ----------------- ------------------ ---------------
Total $ 599,491 76,646 11,217 534,062 2.1%
=================== ================== ================= ================== ===============
1993:
Life insurance in force $39,417,116 4,352,071 180,739 35,245,784 0.5%
=================== ================== ================= ================== ===============
Premiums:
Life insurance 218,764 6,161 3,112 215,715 1.4%
Accident and health
insurance 398,289 88,506 2,872 312,655 0.9%
------------------- ------------------ ----------------- ------------------ ---------------
Total $ 617,053 94,667 5,984 528,370 1.1%
=================== ================== ================= ================== ===============
</TABLE>
See accompanying independent auditors' report.
<PAGE> 29
Schedule V
----------
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended December 31, 1995, 1994 and 1993
(000's omitted)
<TABLE>
<CAPTION>
- ------------------------------------------------- ---------------- ----------------------------- ------------- -------------
Column A Column B Column C Column D Column E
- ------------------------------------------------- ---------------- ----------------------------- ------------- -------------
Balance at Charged to Balance at
beginning of costs and Charged to Deductions end of
Description period expenses other accounts (1) period
- ------------------------------------------------- ---------------------------------------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
1995:
Valuation allowances - fixed maturity securities $ - 10,153 - 10,153 -
Valuation allowances - mortgage loans on real
estate 47,892 7,653 - 4,850 50,695
Valuation allowances - real estate 27,330 (1,080) - - 26,250
Valuation allowances - other long-term
investments - 457 - - 457
1994:
Valuation allowances - fixed maturity securities 6,680 (6,680) - - -
Valuation allowances - mortgage loans on real
estate 42,350 21,672 - 16,130 47,892
Valuation allowances - real estate 31,357 (4,027) - - 27,330
1993:
Valuation allowances - fixed maturity securities 5,746 934 - - 6,680
Valuation allowances - mortgage loans on real
estate 31,872 28,241 - 17,763 42,350
Valuation allowances - real estate 35,471 (4,114) - - 31,357
Valuation allowances - other long-term
investments 700 (700) - - -
<FN>
(1) Amounts represent direct write-downs charged against the valuation
allowance.
</TABLE>
See accompanying independent auditors' report.
<PAGE> 42
PART C. OTHER INFORMATION
Item 24. FINANCIAL INFORMATION
(a) Financial Statements:
<TABLE>
<CAPTION>
(1) Financial statements and schedule included PAGE
in Prospectus
(Part A):
<S> <C>
Condensed Financial Information. 11
(2) Financial statements and schedule included
in Part B:
Those financial statements and schedules 40
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. 40
Statement of Assets, Liabilities and Contract 41
Owners' Equity as of December 31, 1995.
Statements of Operations and Changes in 43
Contract Owners' Equity for the years ended
December 31, 1995, 1994 and 1993.
Notes to Financial Statements. 44
Schedules of Changes in Unit Value. 46
Nationwide Life Insurance Company:
Independent Auditors' Report. 47
Consolidated Balance Sheets as of December 48
31, 1995 and 1994.
Consolidated Statements of Income for the 49
years ended December 31, 1995, 1994 and
1993.
Consolidated Statements of Shareholder's 50
Equity for the years ended December 31,
1995, 1994 and 1993.
Consolidated Statements of Cash Flows for 51
the years ended December 31, 1995, 1994
and 1993.
Notes to Consolidated Financial Statements. 52
Schedule I - Summary of Investments - Other 72
Than Investments in Related Parties.
Schedule III - Supplementary Insurance 73
Information.
Schedule IV - Reinsurance. 74
Schedule V - Valuation and Qualifying Accounts. 75
</TABLE>
76 of 96
<PAGE> 43
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 -
Filed previously with registration statement and
hereby incorporated by reference.
77 of 96
<PAGE> 44
Item 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS WITH DEPOSITOR
Lewis J. Alphin Director
519 Bethel Church Road
Mount Olives, NC 28365
Keith W. Eckel
1647 Falls Road
Clarks Summit, PA 18411 Director
Willard J. Engel Director
1100 East Main Street
Marshall, MN 56258
Fred C. Finney Director
1558 West Moreland Road
Wooster, OH 44691
Charles L. Fuellgraf, Jr. Director
600 South Washington Street
Butler, PA 16001
Joseph J. Gasper President and Chief Operating Officer
One Nationwide Plaza and Director
Columbus, OH 43215
Henry S. Holloway Chairman of the
1247 Stafford Road Board
Darlington, MD 21034
D. Richard McFerson Chairman and Chief Executive Officer-
One Nationwide Plaza Nationwide Insurance Enterprise
Columbus, OH 43215 and Director
David O. Miller Director
115 Sprague Drive
Hebron, Ohio 43025
C. Ray Noecker Director
2770 State Route 674 South
Ashville, OH 43103
James F. Patterson Director
8765 Mulberry Road
Chesterland, OH 44026
78 of 96
<PAGE> 45
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS WITH DEPOSITOR
Arden L. Shisler Director
1356 North Wenger Road
Dalton, OH 44618
Robert L. Stewart Director
88740 Fairview Road
Jewett, OH 43986
Nancy C. Thomas Director
10835 Georgetown Street NE
Louisville, OH 44641
Harold W. Weihl Director
14282 King Road
Bowling Green, OH 43402
Gordon E. McCutchan Executive Vice President,
One Nationwide Plaza Law and Corporate Services
Columbus, OH 43215 and Secretary
Robert A. Oakley Executive Vice President-
One Nationwide Plaza Chief Financial Officer
Columbus, Ohio 43215
James E. Brock Senior Vice President -
One Nationwide Plaza Life Company Operations
Columbus, OH 43215
W. Sidney Druen Senior Vice President and General
One Nationwide Plaza Counsel and Assistant Secretary
Columbus, OH 43215
Harvey S. Galloway, Jr. Senior Vice President-Chief Actuary-
One Nationwide Plaza Life, Health and Annuities
Columbus, OH 43215
Richard A. Karas Senior Vice President - Sales -
One Nationwide Plaza Financial Services
Columbus, OH 43215
Michael D. Bleiweiss Vice President-
One Nationwide Plaza Deferred Compensation
Columbus, OH 43215
79 of 96
<PAGE> 46
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS WITH DEPOSITOR
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-
One Nationwide Plaza Strategic 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
Item 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT.
* Subsidiaries for which separate financial statements are filed
** Subsidiaries included in the respective consolidated financial
statements
*** Subsidiaries included in the respective group financial
statements filed for unconsolidated subsidiaries
**** other subsidiaries
80 of 96
<PAGE> 47
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
STATE (SEE ATTACHED
OF ORGANIZATION CHART) UNLESS
COMPANY OTHERWISE PRINCIPAL BUSINESS
INDICATED
<S> <C> <C> <C>
Affiliate Agency of Ohio, Inc. Ohio Life Insurance Agency
Affiliate Agency, Inc. Delaware Life Insurance Agency
Allnations, Inc. Ohio Promotes cooperative insurance corporations
worldwide
American Marine Underwriters, Inc. Florida Underwriting Manager
Auto Direkt Insurance Company Germany Insurance Company
The Beak and Wire Corporation Ohio Radio Tower Joint Venture
California Cash Management Company California Investment Securities Agent
Colonial County Mutual insurance Texas Insurance Company
Company
Colonial Insurance Company of California Insurance Company
California
Columbus Insurance Brokerage and Germany Insurance Broker
Service GMBH
Companies Agency Insurance Services California Insurance Broker
of California
Companies Agency of Alabama, Inc. Alabama Insurance Broker
Companies Agency of Idaho, Inc. Idaho Insurance Broker
Companies Agency of Illinois, Inc. Illinois Acts as Collection Agent for Policies placed
through Brokers
Companies Agency of Kentucky, Inc. Kentucky Insurance Broker
Companies Agency of Massachusetts, Massachusetts Insurance Broker
Inc.
Companies Agency of New York, Inc. New York Insurance Broker
Companies Agency of Pennsylvania, Inc. Pennsylvania Insurance Broker
Companies Agency of Phoenix, Inc. Arizona Insurance Broker
Companies Agency of Texas, Inc. Texas Insurance Broker
Companies Annuity Agency of Texas, Texas Insurance Broker
Inc.
Companies Agency, Inc. Wisconsin Insurance Broker
Companies Annuity Agency of Texas, Texas Insurance Broker
Inc.
Countrywide Services Corporation Delaware Products Liability, Investigative and Claims
Management Services
Employers Insurance of Wausau A Wisconsin Insurance Company
Mutual Company
</TABLE>
81 of 96
<PAGE> 48
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
STATE (SEE ATTACHED
OF ORGANIZATION CHART) UNLESS
COMPANY OTHERWISE PRINCIPAL BUSINESS
INDICATED
<S> <C> <C> <C>
** Employers Life Insurance Company of Wisconsin Life Insurance Company
Wausau
F & B, Inc. Iowa Insurance Agency
Farmland Mutual Insurance Company Iowa Insurance Company
Financial Horizons Distributors Alabama Life Insurance Agency
Agency of Alabama, Inc.
Financial Horizons Distributors Ohio Insurance Agency
Agency of Ohio, Inc.
Financial Horizons Distributors Oklahoma Life Insurance Agency
Agency of Oklahoma, Inc.
Financial Horizons Distributors Texas Life Insurance Agency
Agency of Texas, Inc.
* Financial Horizons Investment Trust Massachusetts Investment Company
Financial Horizons Securities Oklahoma Broker Dealer
Corporation
Gates, McDonald & Company Ohio Cost Control Business
Gates, McDonald & Company of Nevada Nevada Self-Insurance Administration Claims
Examinations and Data Processing Services
Gates, McDonald & Company of New New York Workers Compensation Claims Administration
York, Inc.
Greater La Crosse Health Plans, Inc. Wisconsin Writes Commercial Health and Medicare
Supplement Insurance
InHealth Agency, Inc. Ohio Insurance Agency
InHealth Management Systems, Inc. Ohio Develops and operates Managed Care Delivery
System
Insurance Intermediaries, Inc. Ohio Insurance Broker and Insurance Agency
Key Health Plan, Inc. California Pre-paid health plans
Landmark Financial Services of New New York Life Insurance Agency
York, Inc.
Leben Direkt Insurance Company Germany Life Insurance Company
Lone Star General Agency, Inc. Texas Insurance Agency
** MRM Investments, Inc. Ohio Owns and operates a Recreational Ski Facility
** National Casualty Company Michigan Insurance Company
National Casualty Company of America, Great Britain Insurance Company
Ltd.
** National Premium and Benefit Delaware Insurance Administrative Services
Administration Company
Nationwide Agribusiness Insurance Iowa Insurance Company
Company
Nationwide Cash Management Company Ohio Investment Securities Agent
</TABLE>
82 of 96
<PAGE> 49
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
STATE (SEE ATTACHED
OF ORGANIZATION CHART) UNLESS
COMPANY OTHERWISE PRINCIPAL BUSINESS
INDICATED
<S> <C> <C> <C>
Nationwide Communications, Inc. Ohio Radio Broadcasting Business
Nationwide Community Urban Ohio Redevelopment of blighted areas within the
Redevelopment Corporation City of Columbus, Ohio
Nationwide Corporation Ohio Organized for the purpose of acquiring,
holding, encumbering, transferring, or
otherwise disposing of shares, bonds, and
other evidences of indebtedness, securities,
and contracts of other persons, associations,
corporations, domestic or foreign and to form
or acquire the control of other corporations
Nationwide Development Company Ohio Owns, leases and manages commercial real estate
Nationwide Financial Institution Delaware Insurance Agency
Distributors Agency, Inc.
** Nationwide Financial Services, Inc. Ohio Registered Broker-Dealer, Investment Manager
and Administrator
Nationwide General Insurance Company Ohio Insurance Company
Nationwide HMO, Inc. Ohio Health Maintenance Organization
* Nationwide Indemnity Company Ohio Reinsurance Company
Nationwide Insurance Enterprise Ohio Membership Non-Profit Corporation
Foundation
Nationwide Insurance Golf Charities, Ohio Membership Non-Profit Corporation
Inc.
Nationwide Investing Foundation Michigan Investment Company
* Nationwide Investing Massachusetts Investment Company
Foundation II
Nationwide Investment Services Oklahoma Registered Broker-Dealer in Deferred
Corporation Compensation Market
Nationwide Investors Services, Inc. Ohio Stock Transfer Agent
** Nationwide Life and Annuity Insurance Ohio Life Insurance Company
Company
** Nationwide Life Insurance Company Ohio Life Insurance Company
Nationwide Lloyds Texas Texas Lloyds Company
Nationwide Mutual Fire Insurance Ohio Insurance Company
Company
Nationwide Mutual Insurance Company Ohio Insurance Company
Nationwide Property and Casualty Ohio Insurance Company
Insurance Company
** Nationwide Property Management, Inc. Ohio Owns, leases, manages and deals in Real
Property
</TABLE>
83 of 96
<PAGE> 50
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
STATE (SEE ATTACHED
OF ORGANIZATION CHART) UNLESS
COMPANY OTHERWISE PRINCIPAL BUSINESS
INDICATED
<S> <C> <C> <C>
* Nationwide Separate Account Trust Massachusetts Investment Company
NEA Valuebuilder Investor Services of Alabama Life Insurance Agency
Alabama, Inc.
NEA Valuebuilder Investor Services of Arizona Life Insurance Agency
Arizona, Inc.
NEA Valuebuilder Investor Services of Massachusetts Life Insurance Agency
Massachusetts, Inc.
NEA Valuebuilder Investor Services of Montana Life Insurance Agency
Montana, Inc.
NEA Valuebuilder Investor Services of Nevada Life Insurance Agency
Nevada, Inc.
NEA Valuebuilder Investor Services of Ohio Life Insurance Agency
Ohio, Inc.
NEA Valuebuilder Investor Services of Oklahoma Life Insurance Agency
Oklahoma, Inc.
NEA Valuebuilder Investor Services of Texas Life Insurance Agency
Texas, Inc.
NEA Valuebuilder Investor Services of Wyoming Life Insurance Agency
Wyoming
NEA Valuebuilder Investor Services, Delaware Life Insurance Agency
Inc.
NEA Valuebuilder Services Insurance Massachusetts Life Insurance Agency
Agency, Inc.
Neckura General Insurance Company Germany Insurance Company
Neckura Holding Company Germany Administrative Service for Neckura Insurance
Group
Neckura Insurance Company Germany Insurance Company
Neckura Life Insurance Company Germany Life Insurance Company
NWE, Inc. Ohio Special Investments
PEBSCO of Massachusetts Insurance Massachusetts Markets and Administers Deferred Compensation
Agency, Inc. Plans for Public Employees
PEBSCO of Texas, Inc. Texas Markets and Administers Deferred Compensation
Plans for Public Employees
Pension Associates of Wausau, Inc. Wisconsin Pension plan administration, record keeping
and consulting and compensation consulting
Public Employees Benefit Services Delaware Marketing and Administration of Deferred
corporation Employee Compensation Plans for Public
Employees
Public Employees Benefit Services Alabama Markets and Administers Deferred Compensation
Corporation of Alabama Plans for Public Employees
</TABLE>
84 of 96
<PAGE> 51
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
STATE (SEE ATTACHED
OF ORGANIZATION CHART) UNLESS
COMPANY OTHERWISE PRINCIPAL BUSINESS
INDICATED
<S> <C> <C> <C>
Public Employees Benefit Services Arkansas Markets and Administers Deferred Compensation
Corporation of Arkansas Plans for Public Employees
Public Employees Benefit Services Montana Markets and Administers Deferred Compensation
Corporation of Montana Plans for Public Employees
Public Employees Benefit Services New Mexico Markets and Administers Deferred Compensation
Corporation of New Mexico Plans for Public Employees
Scottsdale Indemnity Company Ohio Insurance Company
Scottsdale Insurance Company Ohio Insurance Company
SVM Sales GmbH, Neckura Insurance Germany Sales support for Neckura Insurance Group
Group
Wausau Business Insurance Company Illinois Insurance Company
Wausau General Insurance Company Illinois Insurance Company
Wausau Insurance Company (U.K.) United Kingdom Insurance and Reinsurance Company
Limited
Wausau International Underwriters California Special Risks, Excess and Surplus Lines
Insurance Underwriting Manager
** Wausau Preferred Health Insurance Wisconsin Insurance and Reinsurance Company
Company
Wausau Service Corporation Wisconsin Holding Company
Wausau Underwriters Insurance Company Wisconsin Insurance Company
** West Coast Life Insurance Company California Life Insurance Company
</TABLE>
85 of 96
<PAGE> 52
<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 |
| (EMPLOYERS) |_________________________________
| Contribution Note Cost |_________________________________
| ----------------- ---- |
| Casualty $400,000,000 |
|________________________________________________________________________________________________|
| |
_____________|_________________ _____________|__________________ _____________________ __________________
| WAUSAU INSURANCE CO. | | WAUSAU SERVICE | | | | |
| (U.K.) LIMITED | | CORPORATION (WSC) | | | | |
| | | | | NATIONWIDE LLOYDS | | COMPANIES |
| Common Stock: 8,506,800 | | Common Stock: 1,000 | | | | |
| ------------- Shares | | ------------- Shares |_____| |_____| AGENCY OF |
| | | |_____| |_____| |
| Cost | | Cost | | | | TEXAS, INC. |
| ---- | | ---- | | A TEXAS LLOYDS | | |
| Employers-- | | Employers-- | | | | |
| 100% $15,683,300 | | 100% $106,763,000 | | | | |
|_______________________________| |________________________________| |_____________________| |__________________|
|
| ______________________________
| | WAUSAU BUSINESS |
| | INSURANCE COMPANY |
| | |
| | Common Stock: 10,900,000 |
|____| ------------- Shares |
| | |
| | Cost |
| | ----- |
| | WSC-100% $21,800,000 |
| |______________________________|
|
| ______________________________
| | WAUSAU UNDERWRITERS |
| | INSURANCE COMPANY |
| | |
| | Common Stock: 8,750 |
|____| ------------- Shares |
| | |
| | Cost |
| | ---- |
| | WSC-100% $44,560,006 |
| |______________________________|
|
| ______________________________
| | 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 PHOENIX, 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 |
| |______________________________|
|
|
| ______________________________
| | 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. |
| | |
| | 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 |
| | | | 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>
86 of 96
<PAGE> 53
<TABLE>
<CAPTION>
NATIONWIDE INSURANCE ENTERPRISE (right side)
<S> <C> <C> <C>
_________________________________
| |
| NATIONWIDE INSURANCE |
| ENTERPRISE FOUNDATION |
| |
| MEMBERSHIP |
| NONPROFIT |
| CORPORATION |
|_________________________________|
_________________________________________ ___________________________
| | | |
___| NATIONWIDE MUTUAL |_____________________________________________| NATIONWIDE MUTUAL |
___| INSURANCE COMPANY |_____________________________________________| FIRE INSURANCE COMPANY |
| (CASUALTY) | | (FIRE) |
|_________________________________________| |___________________________|
| || |________________________________________________________________ |
| || | | |
______________|_______________ || | _____________________________ _____________|_______|______________
| | || | | | | |
| ALLNATIONS, INC. | || | | NATIONWIDE GENERAL | | NATIONWIDE |
| | || | | INSURANCE COMPANY | | CORPORATION |
| Common Stock: 2,936 | || | | | | |
| ------------- Shares | || | | Common Stock: 20,000 Shares | | Common Stock: Control |
| Cost | || |___| ------------- | | ------------- ------- |
| ---- | || | | | | $13,642,432 100% |
| Casualty-26% $88,320 | || | | Cost | | |
| Fire-26% $88,463 | || | | ---- | | Shares Cost |
| Preferred Stock: 1,466 Shares| || | | Casualty-100% $5,944,422 | | ----- ---- |
| ---------------- | || | |_____________________________| | Casualty 12,992,922 $751,352,485 |
| Cost | || | | Fire 649,510 24,007,936 |
| ---- | || | | |
| Casualty-6.8% $100,000 | || | | (See Page 2) |
| Fire-6.8% $100,000 | || | |____________________________________|
|______________________________| || |
|| |
_________________________ || | _____________________________
| | || | | |
| FARMLAND MUTUAL | || | | NATIONWIDE PROPERTY |
| INSURANCE COMPANY | || | | AND CASUALTY |
| | || | | INSURANCE COMPANY |
| Guaranty Fund |______|| | | |
| ------------- |_______| | | Common Stock: 60,000 Shares |
| Certificate | | | ------------- |
| ----------- | | | Cost |
| | | | ---- |
| Cost | | | Casualty-100% $6,000,000 |
| ---- | | |_____________________________|
| Casualty $500,000 | |
|_________________________| | _____________________________
| | | |
| | | COLONIAL INSURANCE |
_______________|___________ | | COMPANY OF CALIFORNIA |
| F & B, INC. | | | (COLONIAL) |
| | | | |
| Common Stock: 1 Share | |___| Common Stock: 1,750 Shares |
| ------------- | | | ------------- |
| | | | Cost |
| Cost | | | ---- |
| ---- | | | Casualty-100% $11,750,000 |
| Farmland Mutual- $10 | | |_____________________________|
| 100% | |
|___________________________| | _____________________________ __________________________
____________________________ | | | | |
| | | | SCOTTSDALE | | NATIONAL PREMIUM & |
| NATIONWIDE AGRIBUSINESS | | | INSURANCE COMPANY | | BENEFIT ADMINISTRATION |
| INSURANCE COMPANY | | | | | COMPANY |
| | | | Common Stock: 30,136 Shares | | |
| Common Stock: 1,000,000 |___|___| ------------- |______| Common Stock: 10,000 |
| ------------- Shares | | | | | ------------ Shares |
| | | | Cost | | |
| | | | ---- | | Cost |
| | | | Casualty-100% $150,000,000 | | ---- |
| Casualty-99.9% $26,714,335 | | |_____________________________| | Scottsdale-100% $10,000 |
| | | |__________________________|
| Other Capital: | |
| -------------- | |
| Casualty-Ptd. $ 713,567 | |
|____________________________| |
|
|
|
|
| _____________________________ ______________________________
| | NECKURA HOLDING | | NECKURA |
| | COMPANY (NECKURA) | | INSURANCE COMPANY |
| | | | |
| | 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 |
| | | INSURANCE COMPANY |
| | | |
| | | Common Stock: 4,000 Shares |
| |_____| ------------- |
| | | |
| | | Cost |
| | | ---- |
| | | Neckura-100% DM 15,825,681 |
| | |_____________________________|
| |
| | _____________________________
| | | NECKURA GENERAL |
| | | INSURANCE COMPANY |
| | | |
| | | Common Stock: 1,500 Shares |
| |_____| ------------ |
| | | |
| | | Cost |
| | | ---- |
| | | Neckura-100% DM 1,656,925 |
| | |_____________________________|
| |
| | _____________________________
| | | COLUMBUS INSURANCE |
| | | BROKERAGE AND SERVICE |
| | | GmbH |
| | | |
| | | Common Stock: 1 Share |
| |_____| ------------- |
| | | |
| | | Cost |
| | | ----- |
| | | Neckura-100% DM 51,639 |
| | |_____________________________|
| |
| | _____________________________
| | | AUTO DIREKT |
| | | INSURANCE COMPANY |
| | | |
| | | Common Stock: 1,500 Shares |
| | | ------------- |
| |_____| |
| | | Cost |
| | | ---- |
| | | Neckura-100% DM 1,643,149 |
| | |_____________________________|
| |
| _____________________________ | ____________________________
| | NATIONWIDE | | | SVM SALES |
| | DEVELOPMENT COMPANY | | | 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 COMPANY |
| | |
|___| Common Stock: 50,000 Shares |
| | ------------- |
| | |
| | Cost |
| | ---- |
| | Casualty-100% $8,800,000 |
| |_____________________________|
|
| _____________________________
| | NATIONWIDE |
| | INDEMNITY COMPANY |
| | |
| | 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-100% $5,000,000 | | Colonial $500,000 |
| |_____________________________| | Lone Star 150,000 |
| |__________________________|
|
| _____________________________
| | NATIONWIDE |
| | COMMUNITY URBAN |
| | REDEVELOPMENT |
| | CORPORATION |
| | |
| | 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 COMPANY |
| | |
| | Common Stock: 100 Shares |
| | ------------- |
|___| |
| | Cost |
| | ---- |
| | Casualty-90% $9,000 |
| | NW Fin Serv- 1,000 |
| | 10% |
| |_____________________________|
|
|
| _____________________________
| | CALIFORNIA CASH |
| | MANAGEMENT COMPANY |
| | |
| | Common Stock: 90 Shares |
|___| ------------- |
| | |
| | Cost |
| | ---- |
| | Casualty-100% $9,000 |
| |_____________________________|
|
|
| _____________________________ __________________________
| | NATIONWIDE | | THE BEAK AND |
| | COMMUNICATIONS, INC. | | WIRE CORPORATION |
| | | | |
| | Common Stock: 14,750 Shares | | Common Stock: 750 Shares |
|___| ------------- |_____| ------------- |
| | | |
| Cost | | Cost |
| ---- | | ---- |
| Casualty-100% $11,510,000 | | NW Comm- $531,000 |
| | | 100% |
| Other Capital: | |__________________________|
| -------------- |
| Casualty-Ptd. 1,000,000 |
|_____________________________|
<FN>
Subsidiary Companies - Solid Line
Contractual Association - Double Line
December 31, 1995
</TABLE>
86 of 96
<PAGE> 54
<TABLE>
<CAPTION>
NATIONWIDE INSURANCE ENTERPRISE (left side)
<S> <C> <C>
_______________________________________
| |
| EMPLOYERS INSURANCE |___________________________________________
| OF WAUSAU |___________________________________________
| A MUTUAL COMPANY |
|_______________________________________|
__________________________
|
____________|_________________
| NATIONWIDE LIFE INSURANCE |
| COMPANY (NW LIFE) |
|Common Stock: 3,814,779 Shares|
| ------------- |
| |
| NW Corp.- Cost |
| 100% ---- |
| $950,226,915 |
|______________________________|
_________________________________________________________________________________|
____________|_____________ ___________|_______________ | ______________________________
| NATIONWIDE | | NATIONAL CASUALTY | | | NATIONWIDE LIFE AND |
| FINANCIAL SERVICES, INC. | | COMPANY (NC) | | | ANNUITY INSURANCE COMPANY |
| (NW FIN. SERV.) | | Common Stock: 100 Shares | | | |
______|Common Stock: 7,676 Shares| | ------------- | | | Common Stock: 66,000 Shares |
| ____|------------- | | | |_______| ------------- |
| | | Cost | | Cost | | | NW Life- Cost |
| | | ---- | | ---- | | | 100% ---- |
| | | NW Life-100% $5,996,261 | | NW Life-100% $66,132,811 | | | $58,070,003 |
| | |__________________________| |___________________________| | |______________________________|
| | __________________________ ___________|_______________ | ________________________________
| | | NATIONWIDE | | | | | WEST COAST LIFE |
| | | INVESTOR SERVICES, INC. | | | | | INSURANCE COMPANY |
| | | Common Stock: 5 Shares | | NCC OF AMERICA, INC. | | | Common Stock: 1,000,000 Shares|
| |___| ------------- | | (INACTIVE) | |_______| ------------- |
| | | NW Fin. Serv.-100% | | | | | |
| | | Cost | | NC-100% | | | Cost |
| | | ---- | | | | | ---- |
| | | $5,000 | | | | | NW Life-100% $133,809,265 |
| | |__________________________| |___________________________| | |________________________________|
| | __________________________ ______________________________ | ____________________________
| | | NATIONWIDE | | EMPLOYERS LIFE INSURANCE CO. | | | NATIONWIDE PROPERTY |
| | | INVESTING | | OF WAUSAU (ELIOW) | | | MANAGEMENT, INC. |
| | | FOUNDATION | | | | | Common Stock: 59 Shares |
| |___| | ______| Common Stock: 250,000 Shares |____|_______| ------------ |
| ___| | | | ------------- Cost | | | Cost |
| | | | | | ---- | | | ---- |
| | | | | | NW Life-100% $155,000,000 | | | NW Life-100% $1,907,896 |
| | | COMMON LAW TRUST | | |______________________________| | |__________________________ |
| | |__________________________| | | |
| | | _____________________________ | __________|_______________
| | __________________________ | | WAUSAU PREFERRED | | | MRM INVESTMENTS, INC. |
| | | NATIONWIDE | | | HEALTH INSURANCE CO. | | | |
| | | INVESTING | | | | | | Common Stock: 1 Share |
| |___| FOUNDATION II | |______| Common Stock: 200 Shares | | | ------------ |
| ___| | | | ------------- | | | |
| | | | | | Cost | | | Cost |
| | | | | | ---- | | | Nat. Prop. ---- |
| | | COMMON LAW TRUST | | | ELIOW -- 100% $57,413,193 | | | Mgmt.-100% $550,000 |
| | |__________________________| | |_____________________________| | |___________________________|
| | | |
| | | _____________________________ | ___________________________
| | __________________________ | | KEY HEALTH PLAN, INC. | | | NWE, INC. |
| | | NATIONWIDE | | | | | | |
| | | SEPARATE ACCOUNT | |______| Common Stock: 1,000 Shares | |______| Common Stock: 100 Shares |
| | | TRUST | | ------------- | | ------------ |
| |___| | | Cost | | Cost |
| ___| | | ---- | | ---- |
| | | COMMON LAW TRUST | | ELIOW-80% $2,700,000 | | NW Life-100% $35,971,375 |
| | | | |_____________________________| |___________________________|
| | |__________________________|
| |
| | __________________________
| | | FINANCIAL HORIZONS |
| | | INVESTMENT TRUST |
| |___| |
|_____| |
| COMMON LAW TRUST |
|__________________________|
</TABLE>
<PAGE> 55
<TABLE>
<CAPTION>
NATIONWIDE INSURANCE ENTERPRISE (middle)
<S> <C> <C> <C>
_______________________________________
| |
________________________________| NATIONWIDE MUTUAL |___________________________________________________________
________________________________| INSURANCE COMPANY |___________________________________________________________
| (CASUALTY) |
|_______________________________________|
| _______________________________________________________________
__________________|______________|___
| NATIONWIDE CORPORATION (NW Corp) |
| Common Stock: Control: |
| ------------- ------- |
| 13,642,432 100% |
| |
| Shares Cost |
| ------ ---- |
| Casualty 12,992,922 $751,352,485 |
| Fire 649,510 24,007,936 |
|_____________________________________|
|
____________________________________________________|______________________________________________________________________________
| | |
___________|_________________ _____________|_____________ ____________|______________
| PUBLIC EMPLOYEES BENEFIT | | GATES, McDONALD | | NATIONWIDE FINANCIAL |
|SERVICES CORPORATION (PEBSCO) | | & COMPANY (GATES) | | INSTITUTION DISTRIBUTORS |
______| Common Stock: 236,494 Shares | | Common Stock: 254 Shares | | AGENCY, INC. (NFIDAI)|
| ____| ------------- | | ------------- |___ _____| Common Stock: 1,000 Shares|
| | | Cost | | | | | ___| ------------- |
| | | NW Corp.- ---- | | Cost | | | | | Cost |
| | | 100% $ 7,830,936 | | ---- | | | | | NW Corp. ---- |
| | |______________________________| | NW Corp.- $25,683,532 | | | | | 100% $19,501,000 |
| | | 100% | | | | |___________________________|
| | |___________________________| | | |
| | | | |
| | ___________________________ | | |
| | ____________________________ | GATES, McDONALD & COMPANY| | | | ___________________________
| | | PEBSCO SECURITIES | | OF NEW YORK, INC. | | | | | FINANCIAL HORIZONS |
| | | CORP. | | Common Stock: 3 Shares | | | | | DISTRIBUTORS AGY. |
| |____| Common Stock: 5,000 Shares | | ------------- |___| | | | OF ALABAMA, INC. |
| | | ------------- | | | | | |___|Common Stock: 10,000 Shares|
| | | Cost | | Cost | | | | |----------- |
| | | ---- | | ---- | | | | | Cost |
| | | PEBSCO-100% $25,000 | | Gates-100% $106,947 | | | | | ---- |
| | |____________________________| | | | | | | NFIDAI-100% $100 |
| | |___________________________| | | | |___________________________|
| | | | |
| | | | |
| | ___________________________ | | |
| | ____________________________ | GATES, McDONALD & COMPANY| | | |
| | | PEBSCO OF | | OF NEVADA | | | | ___________________________
| | | ALABAMA | | | | | | | LANDMARK FINANCIAL |
| | |Common Stock: 100,000 Shares| | Common Stock: 40 Shares |___| | | | SERVICES OF |
| |____|------------- | | | | | | NEW YORK, INC. |
| | | Cost | | Gates-100% Cost | | |___|Common Stock: 10,000 Shares|
| | | ---- | | ---- | | | |------------- |
| | | PEBSCO-100% $1,000 | | $93,750 | | | | Cost |
| | |____________________________| |___________________________| | | | ---- |
| | | | | NFIDAI-100% $10,100 |
| | | | |___________________________|
| | | |
| | | |
| | ____________________________ | |
| | | PEBSCO OF | | |
| | | ARKANSAS | | | ___________________________
| | | Common Stock: 50,000 Shares| | | | FINANCIAL HORIZONS |
| |____| ------------- | | | | SECURITIES CORP. |
| | | Cost | ________________________________|_|___|Common Stock: 10,000 Shares|
| | | ---- | | AFFILIATE AGENCY, INC. | | | |------------- |
| | | PEBSCO-100% $500 | | | | | | Cost |
| | |____________________________| | Common Stock: 100 Shares | | | | ---- |
| | | | | | | NFIDAI-100% $153,000 |
| | | NFIDAI-100% Cost | | | |___________________________|
| | | ---- | | |
| | ___________________________ | $100 | | |
| | | PEBSCO OF MASSACHUSETTS | |___________________________| | |
| | | INSURANCE AGENCY, INC. | | | ___________________________
| |____| Common Stock: 1,000 Shares| | | | |
| | | ------------- | | | | FINANCIAL HORIZONS |
| | | Cost | | |___| DISTRIBUTORS |
| | | ---- | | ___| AGENCY OF OHIO, |
| | | PEBSCO-100% $1,000 | | | | INC. |
| | |___________________________| | | |___________________________|
| | | |
| | | |
| | | |
| | ___________________________ | | ___________________________
| | | PEBSCO OF | | | | |
| | | MONTANA | | |___| FINANCIAL HORIZONS |
| |____| Common Stock: 500 Shares | | ___| DISTRIBUTORS AGENCY |
| | | ------------- | | | | OF OKLAHOMA, INC. |
| | | Cost | | | |___________________________|
| | | ---- | | |
| | | PEBSCO-100% $500 | | |
| | |___________________________| | |
| | | |
| | ___________________________ | |
| | | PEBSCO OF | | | ___________________________
| | | NEW MEXICO | | | | |
| | | | | |___| FINANCIAL HORIZONS |
| |____|Common Stock: 1,000 Shares | | ___| DISTRIBUTORS AGENCY |
| | |------------- | | | | OF TEXAS, INC. |
| | | Cost | | | |___________________________|
| | | ----- | | |
| | | PEBSCO-100% $1,000 | | |
| | |___________________________| | | ___________________________
| | | | | |
| | ___________________________ | |___| AFFILIATE |
| |____| | |_____| AGENCY OF |
|______| PEBSCO OF | | OHIO, INC. |
| TEXAS, INC. | | |
|___________________________| |___________________________|
</TABLE>
<PAGE> 56
<TABLE>
<CAPTION>
NATIONWIDE INSURANCE ENTERPRISE (right side)
<S> <C> <C>
_______________________________________
| |
______________________| NATIONWIDE MUTUAL |
______________________| FIRE INSURANCE COMPANY |
| (FIRE) |
|_______________________________________|
________________________________________|
____________________________________________________________________
| | |
_____________|_____________ | ____________|______________
| NEA VALUEBUILDER | | | NATIONWIDE HMO, INC. |
| INVESTOR SERVICES, INC. | | | (NW HMO) |
| (NEA) | | | Common Stock: 100 Shares |
_______| Common Stock: 500 Shares | |_____| ------------ |
| _____| ------------- | | | Cost |
| | | Cost | | | ---- |
| | | NW Corp.- ---- | | | NW Corp.- |
| | | 100% $5,000 | | | 100% $14,603,732 |
| | |___________________________| | |___________________________|
| | |
| | ___________________________ | ___________________________
| | | NEA VALUEBUILDER | | | INHEALTH MANAGEMENT |
| | | INVESTOR SERVICES | | | SYSTEMS, INC. |
| |_____| OF ALABAMA, INC. | | | Common Stock: 100 Shares |
| | | Common Stock: 500 Shares | |_____| ------------- |
| | | ------------- | | | |
| | | Cost | | | Cost |
| | | ---- | | | NW HMO ---- |
| | | NEA-100% $5,000 | | | INC.-100% $25,149 |
| | |___________________________| | |___________________________|
| | |
| | ___________________________ | ___________________________
| | | NEA VALUEBUILDER | | | INHEALTH |
| | | INVESTOR SERVICES | | | AGENCY, INC. |
| | | OF MONTANA, INC. | | | Common Stock: 100 Shares |
| |_____| Common Stock: 500 Shares | |_____| ------------- |
| | | ------------- | | Cost |
| | | Cost | | NW HMO ---- |
| | | ----- | | INC.-99% $116,077 |
| | | NEA-100% $500 | |___________________________|
| | |___________________________|
| |
| | ___________________________
| | | NEA VALUEBUILDER |
| | | INVESTOR SERVICES |
| |_____| OF NEVADA, INC. |
| | | Common Stock: 500 Shares |
| | | ------------- Cost |
| | | ---- |
| | | NEA-100% $500 |
| | |___________________________|
| |
| | ___________________________
| | | NEA VALUEBUILDER |
| | | INVESTOR SERVICES |
| |_____| OF OHIO, INC. |
| | | Common Stock: 100 Shares |
| | | ------------- Cost |
| | | ---- |
| | | NEA-91% $5,000 |
| | |___________________________|
| |
| | ___________________________
| | | NEA VALUEBUILDER |
| | | INVESTOR SERVICES |
| |_____| OF WYOMING, INC. |
| | | Common Stock: 500 Shares |
| | | ------------- Cost |
| | | ---- |
| | | NEA-100% $500 |
| | |___________________________|
| |
| | ___________________________
| | | |
| | | NEA VALUEBUILDER |
| |_____| INVESTOR SERVICES |
| | | OF TEXAS, INC. |
| | | |
| | |___________________________|
| |
| | ___________________________
| | | |
| |_____| NEA VALUEBUILDER |
|_______| INVESTOR SERVICES |
| OF OKLAHOMA, INC. |
| |
|___________________________|
</TABLE>
Subsidiary Companies -- Solid Line
Contractual Association -- Double Line
December 31, 1995
Page 2
87 of 96
<PAGE> 57
Item 27. NUMBER OF CONTRACT OWNERS
The number of Contract Owners of Qualified and Non-Qualified Contracts
as of February 22, 1996 was 1,467 and 1,411, 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) Van Kampen American Capital Marketing, Inc. acts as principal
underwriter for the following registered investment companies in
addition to Nationwide Variable Account-3:
Van Kampen American Capital Comstock Fund, Inc.
Van Kampen American Capital Corporate Bond Fund, Inc.
Van Kampen American Capital Emerging Growth Fund, Inc.
Van Kampen American Capital Enterprise Fund, Inc.
Van Kampen American Capital Equity Income Fund, Inc.
Van Kampen American Capital Federal Mortgage Trust
Van Kampen American Capital Government Securities, Inc.
Van Kampen American Capital Government Target Series
Van Kampen American Capital Growth and Income Fund, Inc.
Van Kampen American Capital Harbor Fund, Inc.
Van Kampen American Capital High Yield Investments, Inc.
Van Kampen American Capital Life Investment Trust
Van Kampen American Capital Municipal Bond Fund, Inc.
Van Kampen American Capital Pace Fund, Inc.
Van Kampen American Capital Reserve Fund, Inc.
Van Kampen American Capital Tax Exempt Trust
Van Kampen American Capital Texas Municipal Securities Fund,
Inc.
Van Kampen American Capital U.S. Government Trust for Income
Van Kampen American Capital Utilities Income Fund, Inc.
Van Kampen American Capital World Portfolio Services, Inc.
* In dissolution
Van Kampen American Capital Marketing, Inc. also acts as
depositor for Van Kampen American Capital Monthly Accumulation
Plans, a registered unit investment trust.
91 of 96
<PAGE> 58
(b) The following information is furnished with respect to each
officer and director of Van Kampen 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
92 of 96
<PAGE> 59
Item 30. LOCATION OF ACCOUNTS AND RECORDS
Robert O. Cline
Nationwide Life Insurance Company
One Nationwide Plaza
Columbus, OH 43216
Item 31. MANAGEMENT SERVICES
Not Applicable
Item 32. UNDERTAKINGS
The Registrant hereby undertakes to:
(a) file a post-effective amendment to this registration statement
as frequently as is necessary to ensure that the audited
financial statements in the registration statement are never
more than 16 months old for so long as payments under the
variable annuity contracts may be accepted;
(b) include either (1) as part of any application to purchase a
Contract offered by the prospectus, a space that an applicant
can check to request a Statement of Additional Information, or
(2) a post card or similar written communication affixed to or
included in the prospectus that the applicant can remove to send
for a Statement of Additional Information; and
(c) deliver any Statement of Additional Information and any
financial statements required to be made available under this
form promptly upon written or oral request.
The Registrant hereby represents that any Contract offered by the
prospectus and which is issued pursuant to Section 403(b) of the Code
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).
93 of 96
<PAGE> 60
Offered by
Nationwide Life Insurance Company
NATIONWIDE LIFE INSURANCE COMPANY
Nationwide Variable Account - 3
Individual Deferred Variable Annuity Contract
PROSPECTUS
May 1, 1996
94 of 96
<PAGE> 61
ACCOUNTANTS' CONSENT AND INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT
SCHEDULES
The Board of Directors of Nationwide Life Insurance Company and
Contract Owners of the Nationwide Variable Account-3:
The audits referred to in our report on Nationwide Life Insurance Company (the
Company) dated February 26, 1996 included the related financial statement
schedules as of December 31, 1995, and for each of the years in the three-year
period ended December 31, 1995, included in the registration statement. These
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statement schedules based on our audits. In our opinion, such financial
statement schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Services" in the prospectus.
KPMG Peat Marwick LLP
Columbus, Ohio
April 26, 1996
95 of 96
<PAGE> 62
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 April, 1996.
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 April, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C>
LEWIS J. ALPHIN Director
- -------------------------------------------------
Lewis J. Alphin
KEITH W. ECKEL Director
- -------------------------------------------------
Keith W. Eckel
WILLARD J. ENGEL Director
- -------------------------------------------------
Willard J. Engel
FRED C. FINNEY Director
- -------------------------------------------------
Fred C. Finney
CHARLES L. FUELLGRAF, JR. Director
- -------------------------------------------------
Charles L. Fuellgraf, Jr.
JOSEPH J. GASPER President/Chief
- ------------------------------------------------- Operating Office and Director
Joseph J. Gasper
HENRY S. HOLLOWAY Chairman of the Board
- ------------------------------------------------- and Director
Henry S. Holloway
D. RICHARD McFERSON Chairman and Chief Executive Officer
- ------------------------------------------------- Nationwide Insurance Enterprise and Director
D. Richard McFerson
DAVID O. MILLER Director
- -------------------------------------------------
David O. Miller
C. RAY NOECKER Director
- -------------------------------------------------
C. Ray Noecker
ROBERT A. OAKLEY Executive Vice President-
- ------------------------------------------------- Chief Financial Officer
Robert A. Oakley
JAMES F. PATTERSON Director By: JOSEPH P. RATH
- ------------------------------------------------- --------------------------------
James F. Patterson Joseph P. Rath, Attorney-in-Fact
ARDEN L. SHISLER Director
- -------------------------------------------------
Arden L. Shisler
ROBERT L. STEWART Director
- -------------------------------------------------
Robert L. Stewart
NANCY C. THOMAS Director
- -------------------------------------------------
Nancy C. Thomas
HAROLD W. WEIHL Director
- -------------------------------------------------
Harold W. Weihl
</TABLE>
96 of 96
<PAGE> 63
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 1993, 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, Nationwide Multi-Flex Variable Account and
Nationwide Variable Account-8; 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, Nationwide DCVA III, 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 VLI Separate Account, Nationwide
VLI Separate Account-2, Nationwide VLI Separate Account-3 of Nationwide Life
Insurance Company, hereby constitutes and appoints D. Richard McFerson, Joseph
J. Gasper, 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 4th day of April, 1996.
/s/ Lewis J. Alphin /s/ David O. Miller
- ------------------------------------- -------------------------------------
Lewis J. Alphin, Director David O. Miller, Director
/s/ Keith W. Eckel /s/ C. Ray Noecker
- ------------------------------------- -------------------------------------
Keith W. Eckel, Director C. Ray Noecker, Director
/s/ Willard P. Engel /s/ Robert A. Oakley
- ------------------------------------- -------------------------------------
Willard P. Engel, Director Robert A. Oakley, Executive Vice
President and Chief Financial Officer
/s/ Fred C. Finney
- ------------------------------------- /s/ James F. Patterson
Fred C. Finney, Director -------------------------------------
James F. Patterson, Director
/s/ Charles L. Fuellgraf
- ------------------------------------- /s/ Arden L. Shisler
Charles L. Fuellgraf, Director -------------------------------------
Arden L. Shisler, Director
/s/ Joseph J. Gasper
- ------------------------------------- /s/ Robert L. Stewart
Joseph J. Gasper, President and Chief -------------------------------------
Operating Officer and Director Robert L. Stewart, Director
/s/ Henry S. Holloway /s/ Nancy C. Thomas
- ------------------------------------- -------------------------------------
Henry S. Holloway, Chairman of the Nancy C. Thomas, Director
Board, Director
/s/ Harold W. Weihl
/s/ D. Richard McFerson -------------------------------------
- ------------------------------------- Harold W. Weihl, Director
D. Richard McFerson, Chairman and
Chief Executive Officer-Nationwide
Insurance Enterprise and Director
