<PAGE> 1
As filed with the Securities and Exchange Commission.
Registration No. 33-24434
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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933
Post-Effective Amendment No. 11 [x]
NATIONWIDE VARIABLE ACCOUNT-3
(Exact Name of Registrant)
NATIONWIDE LIFE INSURANCE COMPANY
(Name of Depositor)
ONE NATIONWIDE PLAZA, COLUMBUS, OHIO 43215
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code: (614) 249-7111
GORDON E. MCCUTCHAN, SECRETARY, ONE NATIONWIDE PLAZA, COLUMBUS, OHIO 43215
(Name and Address of Agent for Service)
This Post-Effective Amendment amends the Registration Statement in
respect of the Prospectus, the Statement of Additional Information, and the
Financial Statements.
It is proposed that this filing will become effective (check appropriate
space)
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[ X ] on May 1, 1997 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(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. Registrant filed its Rule 24f-2 Notice for the fiscal year
ended December 31, 1996, on February 25, 1997.
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NATIONWIDE VARIABLE ACCOUNT-3
REFERENCE TO ITEMS REQUIRED BY FORM N-4
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N-4 ITEM PAGE
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Part A INFORMATION REQUIRED IN A PROSPECTUS
Item 1. Cover page........................................................................................3
Item 2. Definitions.......................................................................................4
Item 3. Synopsis or Highlights...........................................................................11
Item 4. Condensed Financial Information..................................................................12
Item 5. General Description of Registrant, Depositor, and Portfolio Companies............................14
Item 6. Deductions and Expenses..........................................................................16
Item 7. General Description of Variable Annuity Contracts................................................19
Item 8. Annuity Period...................................................................................22
Item 9. Death Benefit and Distributions..................................................................24
Item 10. Purchases and Contract Value.....................................................................28
Item 11. Redemptions......................................................................................30
Item 12. Taxes............................................................................................31
Item 13. Legal Proceedings................................................................................37
Item 14. Table of Contents of the Statement of Additional Information.....................................37
Part B INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
Item 15. Cover Page.......................................................................................40
Item 16. Table of Contents................................................................................40
Item 17. General Information and History..................................................................40
Item 18. Services.........................................................................................40
Item 19. Purchase of Securities Being Offered.............................................................40
Item 20. Underwriters.....................................................................................41
Item 21. Calculation of Performance.......................................................................41
Item 22. Annuity Payments.................................................................................42
Item 23. Financial Statements.............................................................................43
Part C OTHER INFORMATION
Item 24 Financial Statements and Exhibits................................................................78
Item 25. Directors and Officers of the Depositor..........................................................80
Item 26. Persons Controlled by or Under Common Control with the Depositor or Registrant...................82
Item 27. Number of Contract Owners........................................................................91
Item 28. Indemnification..................................................................................91
Item 29. Principal Underwriter............................................................................92
Item 30. Location of Accounts and Records.................................................................98
Item 31. Management Services..............................................................................98
Item 32. Undertakings.....................................................................................99
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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 LIFE INSURANCE COMPANY
THROUGH ITS NATIONWIDE VARIABLE ACCOUNT-3
The Individual Deferred Variable Annuity Contracts described in this
prospectus are flexible Purchase Payment contracts (collectively referred to as
the "Contracts"). References throughout the prospectus to Individual Deferred
Variable Annuity Contracts shall also mean certificates issued under Group
Flexible Fund Retirement Contracts. The Contracts are sold to individuals for
use in retirement plans which may qualify for special federal tax treatment
under the Internal Revenue Code. Annuity payments under the Contracts are
deferred until a selected later date.
Purchase payments are allocated to the Nationwide Variable Account-3
("Variable Account"), a separate account of Nationwide Life Insurance Company
(the "Company"). The Variable Account uses its assets to purchase shares at net
asset value in one or more of the following series of the underlying Mutual
Fund options:
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, 1997,
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, 1997, IS INCORPORATED
HEREIN BY REFERENCE. THE TABLE OF CONTENTS FOR THE STATEMENT OF ADDITIONAL
INFORMATION APPEARS ON PAGE 34 THE PROSPECTUS.
THE DATE OF THIS PROSPECTUS IS MAY 1, 1997.
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GLOSSARY OF SPECIAL TERMS
ACCUMULATION UNIT-An accounting unit of measure used to calculate the Variable
Account Contract Value prior to the Annuity Commencement 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 the Contract.
ANNUITY UNIT-An accounting unit of measure used to calculate the value of
Variable Annuity payments.
BENEFICIARY-The Beneficiary is the person who may be the recipient of 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 who may be the
recipient of certain benefits under the Contract if the named Beneficiary is
not living at the time of the death of the Designated Annuitant.
CONTINGENT DESIGNATED ANNUITANT-The Contingent Designated Annuitant may be the
recipient of certain rights or benefits under this Contract when the Designated
Annuitant dies before the Annuity Commencement Date. If a Contingent Designated
Annuitant is named on the application, all provisions of the Contract which are
based on the death of the Designated Annuitant will be based on the death of
the last survivor of the Designated Annuitant and the Contingent Designated
Annuitant. The Owner's right to name a Contingent Designated Annuitant may be
restricted under the provisions of any retirement or deferred compensation plan
for which this Contract is issued. A Contingent Designated Annuitant may be
named only if the Owner and Designated Annuitant are different people or if the
Owner is a non-natural person.
CONTRACT-The Individual Deferred Variable Annuity Contract described in this
prospectus.
CONTRACT ANNIVERSARY-An anniversary of the Date of Issue of the Contract as
shown on the Data Page 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, Owner's Beneficiary, Beneficiary, Designated
Annuitant, Contingent Designated Annuitant, Contingent Beneficiary, Annuity
Payment Option, and the Annuity Commencement Date. The Contract Owner is the
person named on the application, unless changed.
CONTRACT VALUE-The sum of the value of all 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 Continent Designated Annuitant, if applicable). This benefit does not
apply upon the death of the Contract Owner when the Owner and Designated
Annuitant are not the same person. If the Annuitant dies after the
Annuitization Date, any benefit that may be payable shall be as specified in
the Annuity Payment Option elected.
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DESIGNATED ANNUITANT-The person designated prior to the Annuity Commencement
Date to receive annuity payments. The Designated Annuitant is named on the Data
Page, unless changed. The Company reserves the right to reject any change of
the Designated Annuitant which has been made without the prior consent of the
Company. This person must be age 78 or younger at the time of contract
issuance.
DISTRIBUTION- Any payment of part or all of the Contract Value.
ERISA-The 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 a 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
for deposits or transfers to the Fixed Account may continue for up to three
months after a one year period has expired. Subsequent guarantee periods will
be for twelve months.
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 (Qualified Plans), 408 (Individual Retirement
Annuities), or 403(b) (Tax Sheltered Annuities) of the Code.
OWNER'S BENEFICIARY-The Owner's Beneficiary is named in the application and is
subject to change by the Owner. If the Owner wishes to name an Owner's
Beneficiary, he must do so in the application. The Owner's Beneficiary may be
the recipient of certain rights or benefits under this Contract when the Owner
dies before the Annuity Commencement Date. The Owner's right to name an Owner's
Beneficiary may be restricted under the provisions of the retirement or
deferred compensation plan for which this Contract is issued.
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 Fixed
Account, or among the Sub-Accounts.
QUALIFIED CONTRACTS- A Contract issued to fund a Qualified Plan.
QUALIFIED PLANS- Retirement plans which receive favorable tax treatment under
the provisions of Sections 401 or 403(a) of the Code. SUB-ACCOUNTS- Separate
and distinct divisions of the Variable Account, to which specific underlying
Mutual Fund shares are allocated and for which Accumulation Units and Annuity
Units are separately maintained.
TAX SHELTERED ANNUITY-An annuity which qualifies for favorable tax treatment
under Section 403(b) of the Code.
VALUATION DATE-Each day the New York Stock Exchange and the Company's Home
Office 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.
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TABLE OF CONTENTS
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GLOSSARY OF SPECIAL TERMS..............................................................................................2
SUMMARY OF CONTRACT EXPENSES...........................................................................................6
UNDERLYING MUTUAL FUND ANNUAL EXPENSES.................................................................................6
SYNOPSIS...............................................................................................................9
CONDENSED FINANCIAL INFORMATION.......................................................................................10
NATIONWIDE LIFE INSURANCE COMPANY.....................................................................................12
THE VARIABLE ACCOUNT..................................................................................................12
Underlying Mutual Fund Options...............................................................................12
Voting Rights................................................................................................13
VARIABLE ACCOUNT CHARGES, PURCHASE PAYMENTS, AND OTHER DEDUCTIONS.....................................................14
Mortality Risk Charge........................................................................................14
Expense Risk Charge..........................................................................................14
Contingent Deferred Sales Charge.............................................................................14
Elimination of Contingent Deferred Sales Charge..............................................................15
Contract Maintenance Charge and Administration Charge........................................................16
Premium Taxes................................................................................................16
Expenses of the Variable Account.............................................................................16
Investments of the Variable Account..........................................................................17
Right to Revoke..............................................................................................17
Transfers....................................................................................................17
Assignment...................................................................................................18
Loan Privilege...............................................................................................18
Contract Ownership Provisions................................................................................19
Owner's Beneficiary Provisions...............................................................................20
Beneficiary Provisions.......................................................................................20
Substitution of Securities...................................................................................20
Contract Owner Inquiries.....................................................................................20
ANNUITY PAYMENT PERIOD-VARIABLE ACCOUNT...............................................................................20
Value of an Annuity Unit.....................................................................................21
Assumed Investment Rate......................................................................................21
Frequency and Amount of Annuity Payments.....................................................................21
Annuity Commencement Date....................................................................................21
Change in Annuity Commencement Date..........................................................................21
Annuity Payment Options......................................................................................21
Death of Contract Owner Provisions - Non-Qualified Contracts.................................................22
Death of the Designated Annuitiant Provisions - Non-Qualified Contracts......................................22
Death of the Contract Owner/Designated Annuitant Provisions..................................................22
Death Benefit Payment Provisions.............................................................................22
Required Distribution Provisions for Non-Qualified Contracts.................................................23
Required Distribution for Qualified Plans or Tax Sheltered Annuities.........................................23
Required Distributions for Individual Retirement Annuities...................................................24
Generation-Skipping Transfers................................................................................25
GENERAL INFORMATION...................................................................................................25
Contract Owner Services......................................................................................25
Statements and Reports.......................................................................................26
Allocation of Purchase Payments and Contract Value...........................................................26
Value of a Variable Account Accumulation Unit................................................................27
Net Investment Factor........................................................................................27
Valuation of Assets..........................................................................................27
Determining the Contract Value...............................................................................27
Surrender (Redemption).......................................................................................28
Surrenders Under a Qualified Plan or Tax Sheltered Annuity Contract..........................................28
Federal Tax Considerations...................................................................................29
Federal Income Taxes.........................................................................................29
Non-Qualified Contracts - Natural Persons as Owners..........................................................29
Non-Qualified Contracts - Non-Natural Persons as Owners......................................................30
Qualified Plans, Individual Retirement Annuities and Tax Sheltered Annuities.................................31
Withholding..................................................................................................31
Non-Resident Aliens..........................................................................................31
Federal Estate, Gift, and Generation Skipping Transfer Taxes.................................................32
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Charge for Tax Provisions....................................................................................32
Diversification..............................................................................................32
Tax Changes..................................................................................................33
Advertising..................................................................................................33
FUND PERFORMANCE SUMMARY..............................................................................................34
LEGAL PROCEEDINGS.....................................................................................................35
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION..............................................................35
APPENDIX..............................................................................................................36
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SUMMARY OF CONTRACT EXPENSES
CONTRACT OWNER TRANSACTION EXPENSES
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Maximum Deferred Sales Charge(1)................................ 7 %
- --------------------------------------------------------------------------
RANGE OF CONTINGENT DEFERRED SALES CHARGE OVER TIME
Number of Completed Years from Date Contingent Deferred Sales
of Purchase Payment Charege Percentage
0 7%
1 6%
2 5%
3 4%
4 3%
5 2%
6 1%
7 0%
- --------------------------------------------------------------------------
MAXIMUM ANNUAL CONTRACT MAINTENANCE CHARGE(2)....................... $30
VARIABLE ACCOUNT ANNUAL EXPENSES
Mortality and Expense Risk Charge............................... 1.25 %
Administration Charge........................................... 0.05 %
Total Variable Account Annual Expenses.......................... 1.30 %
</TABLE>
1 During the first Contract Year, the Contract Owner may withdraw without a
Contingent Deferred Sales Charge ("CDSC") any amount in order for the
contract to meet minimum distribution requirements under the Code. Starting
with the second year after a Purchase Payment has been made, the Contract
Owner may withdraw without a CDSC, the greater of (a) an amount equal to
10% of that Purchase Payment or (b) any amount withdrawn in order for the
Contract to meet minimum distribution requirements under the Code.
Withdrawals may be restricted for Contracts issued pursuant to the terms of
a Tax Sheltered Annuity Plan or other Qualified Plan. 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" for
additional waiver provisions).
2 The annual Contract Maintenance Charge is deducted on each Contract
Anniversary and in any year in which the entire Contract Value is
surrendered on the date of Surrender. The Company waives or reduces the
Contract Maintenance fee for certain Qualified Plans (see "Contract
Maintenance Charge and Administration Charge").
UNDERLYING MUTUAL FUND ANNUAL EXPENSES
(After Expense Reimbursements)3
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TOTAL UNDERLYING MUTUAL
MANAGEMENT FEES OTHER EXPENSES FUND EXPENSES
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Van Kampen American Capital Life 0.00% 0.60% 0.60%
Investment Trust - Asset Allocation Fund
- ------------------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life 0.00% 0.60% 0.60%
Investment Trust - Domestic Income Fund
- ------------------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life 0.00% 0.85% 0.85%
Investment Trust - Emerging Growth Fund
- ------------------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life 0.37% 0.23% 0.60%
Investment Trust - Enterprise Fund
- ------------------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life 0.00% 1.20% 1.20%
Investment Trust - Global Equity Fund
- ------------------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life 0.33% 0.27% 0.60%
Investment Trust - Government Fund
- ------------------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life 0.00% 0.60% 0.60%
Investment Trust - Money Market Fund
- ------------------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life Investment
Trust - Real Estate Securities Fund 0.83% 0.27% 1.10%
- ------------------------------------------------------------------------------------------------------------------------------
</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 unit values of
the Variable Account. The following funds are subject to fee waivers or
expense reimbursement arrangements:
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FUND EXPENSES WITHOUT REIMBURSEMENT OR WAIVER
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Van Kampen American Capital Life Advisory fees plus the cost of accounting services before
Investment Trust - Asset Allocation Fund expense reimbursement equalled 0.60%. The Funds net total
operating expenses were 0.60%, which is pursuant to an
agreement with the Advisor to limit ordinary business
expenses of the Fund to 0.60% per year of the average net
assets of the Fund by reducing the other expenses in excess
of such limitation.
- ------------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life Advisory fees plus the cost of accounting services before
Investment Trust - Domestic Income Fund expense reimbursement equalled 0.69%. The Funds net total
operating expenses were 0.60%, which is pursuant to an
agreement with the Advisor to limit ordinary business
expenses of the Fund to 0.60% per year of the average net
assets of the Fund by reducing the other expenses in excess
of such limitation.
- ------------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life Advisory fees plus the cost of accounting services before
Investment Trust - Enterprise Fund expense reimbursement equalled 0.58%. The Funds net total
operating expenses were 0.60%, which is pursuant to an
agreement with the Advisor to limit ordinary business
expenses of the Fund to 0.60% per year of the average net
assets of the Fund by reducing the other expenses in excess
of such limitation.
- ------------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life Advisory fees plus the cost of accounting services before
Investment Trust - Government Fund expense reimbursement equalled 0.59%. The Funds net total
operating expenses were 0.60%, which is pursuant to an
agreement with the Advisor to limit ordinary business
expenses of the Fund to 0.60% per year of the average net
assets of the Fund by reducing the other expenses in excess
of such limitation.
- ------------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life Advisory fees plus the cost of accounting services before
Investment Trust - Money Market Fund expense reimbursement equalled 0.70%. The Funds net total
operating expenses were 0.60%, which is pursuant to an
agreement with the Advisor to limit ordinary business
expenses of the Fund to 0.60% per year of the average net
assets of the Fund by reducing the other expenses in excess
of such limitation.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The information relating to the underlying Mutual Fund expenses was provided
by the underlying Mutual Fund and was not independently verified by the
Company.
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EXAMPLE
The following chart depicts the dollar amount of expenses that would be
incurred under this Contract assuming a $1000 initial Purchase Payment and 5%
annual return. These dollar figures are illustrative only and should not be
considered a representation of past or future expenses. Actual expenses may be
greater or lesser than those shown below. The expense amounts presented are
derived from a formula which allows the $30 Contract Maintenance Charge to be
expressed as a percentage of the average Contract account size for existing
Contracts. Since the average Contract account size for Contracts issued under
this prospectus is greater than $1000, the expense effect of the Contract
Maintenance Charge is reduced accordingly.
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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>
Van Kampen American
Capital Life Investment 93 114 142 240 21 65 111 240 * 65 111 240
Trust - Asset Allocation
Fund
- --------------------------------------------------------------------------------------------------------------------------
Van Kampen American
Capital Life
InvestmenttTrust - 93 114 142 240 21 65 111 240 * 65 111 240
Domestic Income Fund
- --------------------------------------------------------------------------------------------------------------------------
Van Kampen American
Capital Life Investment 95 121 155 266 24 73 125 266 * 73 125 266
Trust - Emerging Growth
Fund
- --------------------------------------------------------------------------------------------------------------------------
Van Kampen American
Capital Life Investment 93 114 142 240 21 65 111 240 * 65 111 240
Trust - Enterprise Fund
- --------------------------------------------------------------------------------------------------------------------------
Van Kampen American
Capital Life Investment 99 132 173 303 27 84 143 303 * 84 143 303
Trust - Global Equity Fund
- --------------------------------------------------------------------------------------------------------------------------
Van Kampen American
Capital Life Investment 93 114 142 240 21 65 111 240 * 65 111 240
Trust - Government Fund
- --------------------------------------------------------------------------------------------------------------------------
Van Kampen American
Capital Life Investment 93 114 142 240 21 65 111 240 * 65 111 240
Trust - Money Market Fund
- --------------------------------------------------------------------------------------------------------------------------
Van Kampen American
Capital Life Investment 98 129 168 292 26 81 138 292 * 81 138 292
Trust - Real Estate
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, see the prospectus for the underlying Mutual
Fund. Deductions for premium taxes may also apply but are not reflected in the
Example shown above (see "Premium Taxes").
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SYNOPSIS
The Individual Deferred Variable Annuity Contracts described in this
prospectus are designed for use in connection with the following types of
Contracts (1) Non-Qualified, (2) Individual Retirement Annuities, (3) Tax
Sheltered Annuities, and (4) Qualified.
The Company does not deduct a sales charge from Purchase Payments made
for these Contracts. However, if any part of the Contract Value of such
Contracts is surrendered, the Company will, with certain exceptions, deduct
from the Contract Owner's Contract Value a Contingent Deferred Sales Charge not
to exceed 7% of the lesser of the total of all Purchase Payments made, within
84 months prior to the date of the request to surrender, or the amount
surrendered. This charge, when applicable, is imposed to permit the Company to
recover sales expenses which have been advanced by the Company (see "Contingent
Deferred Sales Charge").
In addition, on each Contract Anniversary the Company will deduct an
annual Contract Maintenance Charge of $30 from the Contract Value of the
Contracts. The Company will also assess an Administration Charge equal to an
annual rate of 0.05% of the daily net asset value of the Variable Account.
These charges are to reimburse the Company for administrative expenses related
to the issue and maintenance of the Contracts. The Company does not expect to
recover from these charges an amount in excess of accumulated administrative
expenses (see "Contract Maintenance Charge and Administration Charge").
The Company deducts a Mortality Risk Charge equal to an annual rate of
0.80% of the daily net asset value of the Sub-Accounts 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-Accounts 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 day the Contract
is received, it may be returned to the Home Office of the Company at the
address shown on page 1 of this prospectus. When the Contract is received by
the Company, the Company will void the Contract and refund the Contract Value
in full unless otherwise required by state and/or federal law. All Individual
Retirement Annuities will be a return of Purchase Payments (see "Right to
Revoke").
9
11 of 102
<PAGE> 12
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>
Van Kampen American Capital 21.272421 23.907038 513,310 1996
Life Investment Trust - ---------------------------------------------------------------------------------
Asset Allocation Fund-Q 16.406732 21.272421 606,415 1995
---------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------------
Van Kampen American Capital 21.272421 23.907038 1,010,988 1996
Life Investment Trust - ---------------------------------------------------------------------------------
Asset Allocation Fund-NQ 16.406732 21.272421 1,070,729 1995
---------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------------
Van Kampen American Capital 15.854864 16.692636 165,684 1996
Life Investment Trust - ---------------------------------------------------------------------------------
Domestic Income Fund-Q 13.235145 15.854864 294,678 1995
---------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------------
Van Kampen American Capital 15.854864 16.692636 486,983 1996
Life Investment Trust - ---------------------------------------------------------------------------------
Domestic Income Fund-NQ 13.235145 15.854864 720,487 1995
---------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------------
Van Kampen American Capital 11.635151 13.395245 91,181 1996
Life Investment Trust - ---------------------------------------------------------------------------------
Emerging Growth Fund-Q 10.000000 11.635151 24,126 1995
- -----------------------------------------------------------------------------------------------------------------
Van Kampen American Capital 11.635151 13.395245 173,307 1996
Life Investment Trust ---------------------------------------------------------------------------------
Emerging Growth Fund-NQ 10.000000 11.635151 79,497 1995
- -----------------------------------------------------------------------------------------------------------------
Van Kampen American Capital 25.778191 31.749417 352,086 1996
Life Investment Trust ---------------------------------------------------------------------------------
Enterprise Fund-Q 19.065611 25.778191 425,489 1995
---------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------------
Van Kampen American Capital 25.778191 31.749417 797,023 1996
Life Investment Trust ---------------------------------------------------------------------------------
Enterprise Fund-NQ 19.065611 25.778191 865,665 1995
---------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
10
12 of 102
<PAGE> 13
CONDENSED FINANCIAL INFORMATION
(CONTINUED)
<TABLE>
<CAPTION>
NUMBER OF UNITS
BEGINNING ENDING AT THE END
FUND UNIT VALUE UNIT VALUE OF THE PERIOD YEAR
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Van Kampen American Capital 10.244062 11.800884 13,264 1996
Life Investment Trust - --------------------------------------------------------------------------------
Global Equity Fund-Q 10.000000 10.244062 4,239 1995
- --------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital 10.244062 11.800884 20,602 1996
Life Investment Trust - ---------------------------------------------------------------------------------
Global Equity Fund-NQ 10.000000 10.244062 5,677 1995
- -------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital 14.827943 14.944372 101,057 1996
Life Investment Trust - ---------------------------------------------------------------------------------
Government Fund-Q 12.821877 14.827943 187,304 1995
---------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital 14.827943 14.944372 315,546 1996
Life Investment Trust - --------------------------------------------------------------------------------
Government Fund-NQ 12.821877 14.827943 427,994 1995
--------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital 13.724323 14.208651 115,165 1996
Life Investment Trust - --------------------------------------------------------------------------------
Money Market Fund-Q* 13.183559 13.724323 147,447 1995
--------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital 13.724323 14.208651 240,045 1996
Life Investment Trust - --------------------------------------------------------------------------------
Money Market Fund-NQ* 13.183559 13.724323 326,438 1995
--------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital 10.765351 14.931303 4,266 1996
Life Investment Trust - --------------------------------------------------------------------------------
Real Estate Securities Fund-Q 10.000000 10.765351 1,762 1995
- -------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital 10.765351 14.931303 5,129 1996
Life Investment Trust - --------------------------------------------------------------------------------
Real Estate Securities Fund-NQ 10.000000 10.765351 2,808 1995
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
*The 7 day yield on the Money Market Fund as of December 31,1996 was 3.57%
11
13 of 102
<PAGE> 14
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. The Company offers a complete line of life insurance, including
annuities and accident and health insurance. It is admitted to do business in
the District of Columbia, Puerto Rico, and in all states.
THE VARIABLE ACCOUNT
The Variable Account was established by the Company on October 7, 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 a number of different underlying
Mutual Fund options. More detailed information may be found in the current
prospectus for each underlying Mutual Fund offered. Such a prospectus for the
underlying Mutual Fund option(s) should be read in conjunction with this
prospectus. A copy of each prospectus may be obtained without charge from
Nationwide Life Insurance Company by calling 1-800-826-3167, TDD
1-800-238-3035, or writing P. O. Box 182030, 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 Funds. A conflict may
occur due to a change in law affecting the operations of variable life and
variable annuity separate accounts, differences in the voting instructions of
the Contract Owners and those of other companies, or some other reason. In the
event of 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
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.
12
14 of 102
<PAGE> 15
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
Fund 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 Fund 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 Fund 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.
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.
13
15 of 102
<PAGE> 16
The person having the voting interest under a Contract shall be the
Contract Owner. The number of shares held in the Variable Account which are
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 a date 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 in the Variable Account will
receive periodic reports relating to the underlying Mutual Funds, proxy
material and a form with which to give such voting instructions.
VARIABLE ACCOUNT CHARGES, PURCHASE PAYMENTS, AND OTHER
DEDUCTIONSPURCHASE PAYMENTS, AND OTHER DEDUCTIONS
MORTALITY RISK CHARGE
The Company assumes a "mortality risk" by virtue of annuity rates
incorporated into the Contract which cannot be changed regardless of the death
rates of persons receiving annuity payments or of the general population.
For assuming this mortality risk, the Company deducts a Mortality Risk
Charge from the Variable Account. This amount is computed on a daily basis, and
is equal to an annual rate of 0.80% of the daily net asset value of the
Sub-Accounts 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-Accounts 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, 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 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.
14
16 of 102
<PAGE> 17
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 7%
1 6%
2 5%
3 4%
4 3%
5 2%
6 1%
7 0%
</TABLE>
During the first Contract Year, the Contract Owner may withdraw without
a CDSC any amount in order to meet minimum distribution requirements under the
Code. Starting with the second year after a Purchase Payment has been made, the
Contract Owner may withdraw without a CDSC, the greater of (a) an amount equal
to 10% of that Purchase Payment 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 the 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, Qualified
Contracts sold in conjunction with 401 cases on or after May 1, 1992 and
SEP-IRA Contracts issued 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.
15
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<PAGE> 18
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 Charges are as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
AMOUNT TYPE OF CONTRACT ISSUED
----------------------------------------------------------------------------
<S> <C>
- Non-Qualified Plans
- Individual Retirement Annuities
$30.00 - Qualified Contracts (issued pursuant
to a 401 plan prior to May 1, 1992).(1)
----------------------------------------------------------------------------
- Tax Sheltered Annuity Contracts issued on
$12.00 or after May 1, 1992.(2)
----------------------------------------------------------------------------
- Qualified Contracts (issued pursuant to a
$30.00 to $0.00 401 plan on or after May 1, 1992.)(3)
-SEP-IRA Contracts sold on or after
May 1, 1992(3)
----------------------------------------------------------------------------
</TABLE>
1 If additional Contracts are or were issued pursuant to a 401 plan funded
by Contracts prior to May 1, 1992, such additional Contracts shall have a
Contract Maintenance Charge of $30.00.
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 basis to 0.05% of the daily net asset value of the Variable
Account. The deduction of the Administration Charge is made from each
Sub-Account in the same proportion that the Contract Value in each Sub-Account
bears to the total Contract Value in the Variable Account. 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 is
currently deducts such charges from a Contract Owner's Contract Value either:
(1) at the time the Contract is surrendered, (2) at Annuitization, or (3) in
those states which require, at the time Purchase Payments are made to the
Contract.
EXPENSES OF THE VARIABLE ACCOUNT
The Variable Account is responsible for the following types of expenses:
(1) administrative expenses relating to the issuance and maintenance of the
Contracts; (2) mortality risk charge associated with guaranteeing the annuity
purchase rates at issue for the life of the Contracts; and (3) expense risk
charge associated with guaranteeing that the Mortality Risk, Expense Risk,
Contract Maintenance and Administration Charges described in this prospectus
will not be changed regardless of actual expenses. If these charges are
insufficient to cover these expenses, the loss will be borne by the Company.
For 1996, the Variable Account incurred total expenses equal to 1.5% of its
average net assets relating to the administrative, sales, mortality and expense
risk charges described above for all Contracts outstanding during that year.
Deductions from and expenses paid out of the assets of the underlying
Mutual Funds are described in each underlying Mutual Fund's prospectus.
16
18 of 102
<PAGE> 19
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 Fund. Shares of the respective underlying Mutual Funds
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 Funds to which
he or she desires to have Purchase Payments 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
Unless otherwise required by state and/or federal law, the Contract
Owner may revoke the Contract at any time between the Date of Issue 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 for any amount
allocated to the Fixed Account 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. 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 Interest Rate Guarantee Period. Transfers from the Fixed Account must be
made within 45 days after the expiration date of the then current Interest Rate
Guarantee Period. Owners who have entered into a Dollar Cost Averaging
agreement with the Company (see "Dollar Cost Averaging") may transfer from the
Fixed Account to the Variable Account under the terms of that agreement.
Transfers may be made 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
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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 assigned 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 loan to 50% of
the Contract Value subject to the acceptance by the Contract Owner of the
Company's loan agreement. Where permitted, the Company may require other named
collateral where the loan from a Contract exceeds 50% of the Contract Value.
All loans are made from a collateral fixed account. An amount equal to
the principal amount of the loan will be transferred to the collateral fixed
account. Unless instructed to the contrary by the Contract Owner, the Company
will first transfer to the collateral fixed account the Variable Account units
from the Contract Owner's investment options in proportion to the assets in
each option until the required balance is reached or all such variable units
are exhausted. The remaining required collateral will next be transferred from
the Fixed Account. No withdrawal charges are deducted at the time of the loan,
or on the transfer from the Variable Account to the collateral fixed account.
Until the loan has been repaid in full, that portion of the collateral
fixed account equal to the outstanding loan balance shall be credited with
interest at a rate 2.25% less than the loan interest rate fixed by the Company
for the term of the loan. However, the interest rate credited to the collateral
fixed account will never be less than 3.0% . Specific loan terms are disclosed
at the time of loan application or loan issuance.
Loans must be repaid in substantially level payments, not less
frequently than quarterly, within five years. Loans used to purchase the
principal residence of the Contract Owner must be repaid within 15 years.
During the loan term, the outstanding balance of the loan will continue to earn
interest at an annual rate as specified in
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the loan agreement. Loan repayments will consist of principal and interest in
amounts set forth in the loan agreement. Loan repayments will be allocated
between the Fixed and Variable Accounts in the same manner as a purchase
payment. Both loan repayments and purchase payments will be allocated to the
Contract in accordance with the most current allocation, unless the Contract
Owner and the Company agree otherwise on a case by case basis.
If the Contract is surrendered while the loan is outstanding, the
surrender value will be reduced by the amount of the loan outstanding plus
accrued interest. If the Contract Owner/Designated Annuitant dies while the
loan is outstanding, the death benefit will be reduced by the amount of the
loan outstanding plus accrued interest. If a Contract Owner who is not the
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, the entire loan will be treated as a deemed Distribution, may be
taxable to the borrower, and may be subject to the early withdrawal tax
penalty. Interest that subsequently accrues on defaulted amounts may also be
treated as additional deemed Distributions each year. Any defaulted amounts,
plus accrued interest, will be deducted from the Contract when the participant
becomes eligible for a Distribution of at least that amount, and this amount
may again be treated as a Distribution where required by law. Additional loans
may not be available while a previous loan remains in default.
Loans may also be subject to additional limitations or restrictions
under the terms of the employer's plan. Loans permitted under this contract may
still be taxable in whole or part if the Participant has additional loans from
other plans or contracts. The Company will calculate the maximum nontaxable
loan based on the information provided by the Participant or the Employer.
Loan repayments must be identified as such or else they will be treated
as Purchase Payments, and will not be used to reduce the outstanding loan
principal or interest due. The Company reserves the right to modify the term or
procedures associated with the loan in the event of a change in the laws or
regulations relating to the treatment of loans. The Company also reserves the
right to assess a loan processing fee. Individual Retirement Annuities and
Non-Qualified Contracts are not eligible for loans.
CONTRACT OWNERSHIP PROVISIONS
Unless otherwise provided, the Contract Owner has all rights under the
Contract. IF THE PURCHASER NAMES SOMEONE OTHER THAN HIMSELF OR HERSELF AS
OWNER, THE PURCHASER WILL HAVE NO RIGHTS UNDER THE CONTRACT. Prior to the
Annuitization Date, the Contract Owner may name a new Contract Owner in
Non-Qualified Contracts. Such change may be subject to state and federal gift
taxes and may also result in federal income taxation. Any change of Contract
Owner designation will automatically revoke any prior Contract Owner
designation. Once proper notice of the change is received and recorded by the
Company, the change will become effective as of the date the written request is
recorded. A change of Owner will not apply and will not be effective with
respect to any payment made or action taken by the Company prior to the time
that the change was received and recorded by the Company.
Prior to the Annuitization Date, the Contract Owner may request a change
in the Designated Annuitant, the Contingent Annuitant, Owner's Beneficiary,
Beneficiary, or Contingent Beneficiary. Such a request must be made in writing
on a form acceptable to the Company and must be signed by both the Contract
Owner and the person to be named as Designated Annuitant, Contingent Annuitant,
or Owner's Beneficiary, as applicable. Such request must be received by the
Company at its Home Office prior to the Annuitization Date. Any such change is
subject to underwriting and approval by the Company. If the Contract Owner is
not a natural person and there is a change of the Annuitant, such change shall
be treated as the death of a Contract Owner and Distributions shall be made as
if the Contract Owner died at the time of such change.
On and after the Annuitization Date, the Annuitant shall become the
Contract Owner.
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OWNER'S BENEFICIARY PROVISIONS
Either the owner's estate or the Owner's Beneficiary may receive certain
benefits under the Contract if the Contract Owner, who is not the Annuitant,
dies prior to the Annuitization Date. In order for a distribution to be paid to
either the Owner's estate or the Owner's Beneficiary, the Owner must have
elected such choice. If more than one Owner's Beneficiary survives the Contract
Owner, each will share equally unless otherwise specified in the Owner's
Beneficiary designation. If no Owner's Beneficiary is named or if no Owner's
Beneficiary survives a Contract Owner, and the Contract Owner has not elected
to have his estate receive the distribution, a distribution will be paid to the
Designated Annuitant. If a Contract Owner, who is also the Designated
Annuitant, dies before the Annuitization Date, then the Owner's Beneficiary
does not have any rights in the Contract; however, if the Owner's Beneficiary
is also the Beneficiary, the Owner's Beneficiary will have all the rights of a
beneficiary.
Subject to the terms of any existing assignment, the Contract Owner may
change the Owner's Beneficiary prior to the Annuitization Date by written
notice to the Company. The change will take effect, upon receipt and recording
by the Company at its Home Office, whether or not the Contract Owner is living
at the time of recording, but without further liability as to any payment or
settlement made by the Company before receipt of such change.
BENEFICIARY PROVISIONS
The Beneficiary is the person or persons who may receive certain
benefits under the Contract in the event the Annuitant dies prior to the
Annuitization Date. If more than one Beneficiary survives the Annuitant, each
will share equally unless otherwise specified in the Beneficiary designation.
If no Beneficiary survives the Designated Annuitant, all rights and interest of
the Beneficiary shall vest in the Contingent Beneficiary, and if more than one
Contingent Beneficiary survives, each will share equally unless otherwise
specified in the Contingent Beneficiary designation. If no Contingent
Beneficiaries survive the Designated Annuitant, all rights and interest of the
Contingent Beneficiary will vest with the Contract Owner or the estate of the
last surviving Contract Owner.
Subject to the terms of any existing assignment, the Contract Owner may
change the Beneficiary or Contingent Beneficiary during the lifetime of the
Designated Annuitant, by written notice to the Company. The change will take
effect, upon receipt and recording by the Company at its Home Office, whether
or not the 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.
SUBSTITUTION OF SECURITIES
If the shares of the underlying Mutual Fund options described in this
prospectus should no longer be available for investment by the Variable Account
or if, in the judgment of the Company's management, further investment in such
underlying Mutual Fund shares should become inappropriate, the Company may
eliminate Sub-Accounts, combine two or more Sub-Accounts, or substitute shares
of one or more underlying Mutual Fund for other underlying Mutual Fund shares
already purchased or to be purchased in the future with Purchase Payments under
the Contract. No substitution of securities in the Variable Account may take
place without prior approval of the Securities and Exchange Commission, and
under such requirements as it may impose.
CONTRACT OWNER INQUIRIES
Contract Owner inquiries may be directed to Nationwide Life Insurance
Company by writing P. O. Box 182030, Columbus, Ohio 43218-2030, or calling
1-800-826-3167, TDD 1-800-238-3035.
ANNUITY PAYMENT PERIOD-VARIABLE ACCOUNT
At the Annuity Commencement Date the Variable Account Contract Value is
applied to the Annuity Payment Option elected and the amount of the first such
payment shall be made 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 Annuity Commencement 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.
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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. In the event 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 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 Annuity Commencement Date, elect one of the following Annuity
Payment Options.
Option 1-Life Annuity-An annuity payable monthly during the lifetime of
the Designated Annuitant, ceasing with the last payment due prior to the
death of the Designated Annuitant. IT WOULD BE POSSIBLE UNDER THIS
OPTION FOR THE DESIGNATED ANNUITANT TO RECEIVE ONLY ONE ANNUITY PAYMENT
IF HE OR SHE DIED BEFORE THE SECOND ANNUITY PAYMENT DATE, TWO ANNUITY
PAYMENTS IF HE OR SHE DIED BEFORE THE THIRD ANNUITY PAYMENT DATE, AND SO
ON.
Option 2-Joint and Last Survivor Annuity-An annuity payable monthly
during the joint lifetimes of the Designated Annuitant and designated
second person and continuing thereafter during the lifetime of the
survivor. AS IS THE CASE UNDER OPTION 1 ABOVE, THERE IS NO MINIMUM
NUMBER OF PAYMENTS GUARANTEED UNDER THIS OPTION. PAYMENTS CEASE UPON THE
DEATH OF THE LAST SURVIVING ANNUITANT REGARDLESS OF THE NUMBER OF
PAYMENTS RECEIVED.
Option 3-Life Annuity With 120 or 240 Monthly Payments Guaranteed-An
annuity payable monthly during the lifetime of the Designated Annuitant
with the guarantee that if at the death of the Designated Annuitant
payments have been made for fewer than 120 or 240 months, as selected,
payments will be made as follows:
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(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 on which notice of
death is received by the Company at its Home Office, of the
guaranteed number of annuity payments remaining after receipt of
such notice and to which the deceased would have been entitled
had he or she not died, computed at the Assumed Investment Rate
effective in determining the Annuity Tables, shall be paid in a
lump sum.
Some of the stated Annuity Options may not be available in all states.
The owner may request an alternative non-guaranteed option by giving notice in
writing prior to annuitization. If such a request is approved by the Company,
it will be permitted under the Contract.
If the Owner of a Non-Qualified Contract fails to elect an Annuity
Payment Option no distribution will be made until an effective Annuity Payment
Option has been elected. 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 PROVISIONS - NON-QUALIFIED CONTRACTS
For Non-Qualified Contracts, if the Contract Owner and the Designated
Annuitant are not the same person and such Contract Owner dies prior to the
Annuitization Date, then the Owner's Beneficiary, or the Owner's estate, as the
Owner may elect, receives the distribution. If there is no surviving Owner's
Beneficiary or the Owner has not elected to have the Owner's estate or an
Owner's Beneficiary to receive the distribution, the Designated Annuitant
receives the distribution. The entire interest in the Contract Value, less any
applicable deductions (which may include a Contingent Deferred Sales Charge),
must be distributed in accordance with the "Required Distribution Provisions-
Non-Qualified Contracts" provisions.
DEATH OF THE DESIGNATED ANNUITANT PROVISIONS - NON-QUALIFIED CONTRACTS
If the Contract Owner and Designated Annuitant are not the same person,
and the Designated Annuitant dies prior to the Annuitization Date, a Death
Benefit will be payable to the Beneficiary or the Contingent Beneficiary, as
specified in the "Beneficiary Provisions", unless there is a surviving
Contingent Annuitant. In such case, the Contingent Annuitant becomes the
Annuitant and no Death Benefit is payable.
The Beneficiary may elect to receive such Death Benefits in the form of:
(1) a lump sum distribution; (2) election of an annuity payout; or (3) any
distribution that is permitted under state and federal regulations and is
acceptable by the Company. Such election must be received by the Company within
90 days of the Annuitant's death. The Code requires that any election to
receive an annuity rather than a lump sum payment must be made within 60 days
after the lump sum becomes payable (generally, the election must be made within
60 days after the death of an Owner or the Designated Annuitant). If the
election is made more than 60 days after the lump sum first becomes payable,
the election would be ignored for tax purposes, and the entire amount of the
lump sum would be subject to immediate tax. If the election is made within the
60 day period, each Distribution would be taxable when it is paid.
If the Annuitant dies after the Annuitization Date, any benefit that may
be payable shall be paid according to the Annuity Payment Option selected.
DEATH OF THE CONTRACT OWNER/ DESIGNATED ANNUITANT PROVISIONS
If any Contract Owner and Designated Annuitant are the same person, and
such person dies before the Annuitization Date, a Death Benefit will be payable
to the Beneficiary, the Contingent Beneficiary, the Contract Owner, or the last
surviving Contract Owner's estate, as specified in the Beneficiary Provisions
and in accordance with the appropriate "Required Distributions Provisions."
If the Designated Annuitant dies after the Annuitization Date, any
benefit that may be payable shall be paid according to the Annuity Payment
Option selected.
DEATH BENEFIT PAYMENT PROVISIONS
The value of the Death Benefit will be determined as of the Valuation
Date coincident with or next following the date the Company receives in writing
at the Home Office the following three items: (1) proper proof of the
Annuitant's death; (2) an election specifying the distribution method; and (3)
any applicable state required form(s).
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If the Designated Annuitant dies prior to the first day of the calendar
month after his 75th birthday the dollar amount of the death benefit will be
the greater of: (1) the Contract Value; or, (2) the sum of all purchase
payments, less any amounts surrendered.
If the Contract Owner has (1) requested an Annuity Commencement Date
later than the first day of the calendar month after the Designated Annuitant's
75th birthday; (2) the Company has approved the request; and (3) the Annuitant
dies after his or her 75th birthday, the dollar amount of the Death Benefit
will be equal to the Contract Value.
If the Annuitant dies after the Annuitization Date, any payment that may
be payable will be determined according to the selected Annuity Payment Option.
REQUIRED DISTRIBUTION PROVISIONS FOR NON-QUALIFIED CONTRACTS
Upon the death of any Owner or Contract Owner or (including an
Designated Annuitant who becomes the Owner of the Contract on the Annuitization
Date) (each of the foregoing "a deceased Owner"), certain distributions for
Non-Qualified Contracts issued on or after January 19, 1985, are required by
Section 72(s) of the Code. Notwithstanding any provision of the Contract to the
contrary, the following distributions shall be made in accordance with such
requirements:
1. If any deceased Owner died on or after the Annuitization Date and
before the entire interest under the Contract has been distributed,
then the remaining portion of such interest shall be distributed at
least as rapidly as under the method of distribution in effect as of
the date of such deceased Owner's death.
2. If any deceased Owner died prior to the Annuitization Date, then
the entire interest in the Contract (consisting of either the Death
Benefit or the Contract Value reduced by certain charges as set
forth elsewhere in the Contract) shall be distributed within 5
years of the death of the deceased Owner, provided however:
(a) If any portion of such interest is payable to or for the
benefit of a natural person who is a surviving Contract
Owner, Owner's Beneficiary, Designated Annuitant, Contingent
Annuitant, Beneficiary, or Contingent Beneficiary as the case
may be (each a "designated beneficiary"), such portion may,
at the election of the designated beneficiary, be distributed
over the life of such designated beneficiary, or over a
period not extending beyond the life expectancy of such
designated beneficiary, provided that payments begin within
one year of the date of the deceased Owner's death (or such
longer period as may be permitted by federal income tax
regulations), and
(b) If the designated beneficiary is the surviving spouse of the
deceased Owner, such spouse may elect to become the Owner of
this Contract, in lieu of a Death Benefit, and the
distributions required under these distribution rules will be
made upon the death of such spouse.
In the event that this Contract is owned by a person that is not a
natural person (e.g., a trust or corporation), then, for purposes of these
distribution provisions, (i) the death of the Designated Annuitant shall be
treated as the death of any Owner, (ii) any change of the Designated Annuitant
shall be treated as the death of any Owner, and (iii) in either case the
appropriate distribution required under these distribution rules shall be made
upon such death or change, as the case may be. The Designated Annuitant is the
primary annuitant as defined in Section 72(s)(6)(B) of the Code.
These distribution provisions shall not be applicable to any Contract
that is not required to be subject to the provisions of 72(s) of the Code by
reason of Section 72(s)(5) or any other law or rule (including Tax Sheltered
Annuities, Individual Retirement Annuities, and Qualified Plans.)
Upon the death of a "deceased Owner", the designated beneficiary must
elect a method of distribution which complies with these above distribution
provisions and which is acceptable to the Company. Such election must be
received by the Company within 90 days of the deceased Owner's death. The Code
requires that any election to receive an annuity rather than a lump sum payment
must be made within 60 days after the lump sum becomes payable (generally, the
election must be made within 60 days after the death of an Owner or the
Annuitant). If the election is made more than 90 days after the lump sum first
becomes payable, the election would be ignored for tax purposes, and the entire
amount of the lump sum would be subject to immediate tax. If the election is
made within the 60 day period, each Distribution would be taxable when it is
paid.
REQUIRED DISTRIBUTIONS FOR QUALIFIED PLANS OR TAX SHELTERED ANNUITIES
The entire interest of an Designated Annuitant under a Qualified
Contract or Tax Sheltered Annuity Contract will be distributed in a manner
consistent with the Minimum Distribution Incidental Benefit (MDIB)
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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 Designated Annuitant under the Annuity Payments Option selected, over a
period not exceeding:
A. the life of the Designated Annuitant or the lives of the
Designated Annuitant and the Designated Annuitant's Designated
Beneficiary; or
B. a period not extending beyond the life expectancy of the
Designated Annuitant or the life expectancy of the Designated
Annuitant and the Designated Annuitant's Designated Beneficiary.
If the Designated Annuitant's entire interest in a Qualified Plan or Tax
Sheltered Annuity is to be distributed in equal or substantially equal payments
over a period described in (A) or (B), above, such payments will commence no
later than (i) the first day of April following the calendar year in which the
Designated Annuitant attains age 70 1/2 or (ii) when the Designated Annuitant
retires, whichever is later (the "required beginning date"). However, provision
(ii) does not apply to any employee who is a 5% Owner (as defined in Section
416 of the Code) with respect to the plan year ending in the calendar year in
which the employee attains the age of 70 1/2.
If the Designated Annuitant dies prior to the commencement of his or her
Distribution, the entire interest in the Contract must be distributed by
December 31 of the calendar year in which the fifth anniversary of his or her
death occurs unless:
(a) the Designated Annuitant names his or her surviving spouse as the
Beneficiary and such spouse elects to receive Distribution of the
account in substantially equal payments over his or her life (or a
period not exceeding his or her life expectancy) and commencing
not later than December 31 of the year in which the Designated
Annuitant would have attained age 70-1/2; or
(b) the Designated Annuitant names a Beneficiary other than his or
her surviving spouse and such Beneficiary elects to receive a
Distribution of the account in substantially equal payments over
his or her life (or a period not exceeding his or her life
expectancy) commencing not later than December 31 of the year
following the year in which the Annuitant dies.
If the 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 extend 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
Designated Annuitant by the life expectancy of the Designated Annuitant, or the
joint and last survivor expectancy of the Designated Annuitant and the
Designated 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.
If the amounts distributed to the Designated Annuitant are less than
those mentioned above, a penalty tax of 50% is levied on the excess of the
amount that should have been distributed for that year over the amount that was
actually distributed for that year.
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 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 calendar 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
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not exceeding his or her life expectancy) commencing not later than
December 31 of the year following the year in which the Owner dies.
No Distribution will be required from this Contract if Distributions
otherwise required from this Contract are being withdrawn from another
Individual Retirement Annuity or Individual Annuity Account of the Contract
Owner.
If the Owner dies after Distribution has commenced, Distribution must
continue at least as rapidly as under the schedule being used prior to his or
her death, except to the extent that a surviving spouse who is the beneficiary
under the Annuity Payment Option, elects to treat the Contract as his or her
own, in the same manner as is described in section (a)(i) of this provision.
If the amounts distributed to the Owner's Beneficiary are less than
those mentioned above, a penalty tax of 50% is levied on the excess of the
amount that should have been distributed for that year over the amount that
actually was distributed for that year.
A pro-rata portion of all distributions will be included in the gross
income of the person receiving the Distribution and taxed at ordinary income
tax rates. The portion of the Distribution which is taxable is based on the
ratio between the amount by which non-deductible Purchase Payments exceed prior
non-taxable distributions and total account balances at the time of the
Distribution. The 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 dies prior to the time distribution of his or her interest in the annuity
is completed, the balance will also be included in his or her gross estate.
GENERATION-SKIPPING TRANSFERS
The Company may 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 on the last business day before that day. Asset Rebalancing will not
affect future allocations of Purchase Payments. An Asset Rebalancing request
must be in writing on a form provided by the Company.
Contracts issued to a Qualified Plan or a Tax Sheltered Annuity Plan as
defined by the Code may have superseding plan restrictions with regard to the
frequency of fund exchanges and underlying Mutual Fund options. The Contract
Owner may want to contact a financial adviser in order to discuss the use of
Asset Rebalancing in his or her contract.
The Company reserves the right to discontinue offering Asset Rebalancing
upon 30 days written notice to the Contract Owner, however, any discontinuation
will not affect Asset Rebalancing programs which have already commenced. The
Company also reserves the right to assess a processing fee for this service.
DOLLAR COST AVERAGING-The Contract Owner may direct the Company to
automatically transfer funds from the Money Market Sub-Account or the Fixed
Account to any other Sub-Account within the Variable Account on a monthly basis
or as frequently as otherwise authorized by the Company. This service is
intended to allow the Contract Owner to utilize Dollar Cost Averaging, a
long-term investment program which provides for regular, level investments over
time. The Company makes no guarantees that Dollar Cost Averaging will result in
a profit or protect against loss. 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
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"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 transfers.
The Company reserves the right to discontinue offering Dollar Cost
Averaging upon 30 days written notice to Contract Owners however, any
discontinuation will not affect Dollar Cost Averaging programs already
commenced. The Company also reserves the right to assess a processing fee for
this service.
SYSTEMATIC WITHDRAWALS-A Contract Owner may elect in writing on a form
provided by the Company to take Systematic Withdrawals by surrendering a
specified dollar amount (of at least $100) on a monthly, quarterly,
semi-annual, or annual basis. The Company will process the withdrawals as
directed by surrendering on a pro-rata basis Accumulation Units from all
Sub-Accounts in which the Contract Owner has an interest, and the Fixed
Account. A Contingent Deferred Sales Charge may apply to Systematic Withdrawals
in accordance with the considerations set forth in the "Contingent Deferred
Sales Charge" section. Each Systematic Withdrawal is subject to federal income
taxes on the taxable portion. In addition, a 10% federal penalty tax may be
assessed on Systematic Withdrawals if the Contract Owner is under age 59 1/2.
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, and the
Company may retain the Purchase Payment for up to 5 business days while
attempting to complete an incomplete application. If the application cannot be
made complete within 5 days, the prospective purchaser will be
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informed of the reasons for the delay and the Purchase Payment will be returned
immediately unless the prospective purchaser specifically consents to the
Company retaining the Purchase Payment until the application is made complete.
Thereafter, subsequent Purchase Payments will be priced on the basis of the
Accumulation Unit Value next computed for the appropriate Sub-Account after the
additional Purchase Payment is received.
Purchase payments will not be priced on the following nationally
recognized holidays: New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving and Christmas.
VALUE OF A VARIABLE ACCOUNT ACCUMULATION UNIT
The value of a Variable Account Accumulation Unit for each Sub-Account
was arbitrarily set initially at $10 when 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.
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SURRENDER (REDEMPTION)
While the Contract is in force and prior to the earlier of the Annuity
Commencement Date or the death of the Designated Annuitant, the Company will,
upon proper written application by the Contract Owner, deemed by the Company to
be in good order, allow the Contract Owner to surrender a portion or all of the
Contract Value. "proper written application" means that the 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.
SURRENDERS UNDER A QUALIFIED PLAN OR TAX SHELTERED ANNUITY CONTRACT
Except as provided below, the Owner may Surrender part or all of the
Contract Value at any time this Contract is in force prior to the earlier of
the Annuitization Date or the death of the Designated Annuitant:
A. The surrender of Contract Value attributable to contributions made
pursuant to a salary reduction agreement (within the meaning of Code
Section 402(g)(3)(A) or (C)), or transfers from a Custodial Account
described in Section 403(b)(7) of the Code (403(b)(7) Custodial
Accounts), may be executed only:
1. when the Contract Owner attains age 59/1/2, separates from
service, dies, or becomes disabled (within the meaning of Code
Section 72(m)(7)); or
2. in the case of hardship (as defined for purposes of Code Section
401(k)), provided that any surrender of Contract Value in the
case of hardship may not include any income attributable to
salary reduction contributions.
B. The surrender limitations described in A. for Tax Sheltered Annuities
apply to:
1. salary reduction contributions to Tax Sheltered Annuities made
for plan years beginning after December 31, 1988;
2. earnings credited to such contracts after the last plan year
beginning before January 1, 1989, on amounts attributable to
salary reduction contributions; and
3. all amounts transferred from 403(b)(7) Custodial Accounts (except
that earnings, and employer contributions as of December 31, 1988
in such Custodial Accounts may be withdrawn in the case of
hardship).
C. Any Distribution other than the above, including exercise of a
contractual ten-day free look provision (when available) may result in
the immediate application of taxes and penalties of a Qualified Contract
or Tax Sheltered Annuity.
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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.
FEDERAL TAX CONSIDERATIONS
FEDERAL INCOME TAXES
The Company does not make any guarantee regarding the tax status for any
Contract or any transaction involving the Contracts. Contract Owners should
consult a financial consultant, legal counsel or tax advisor to discuss in
detail the taxation and the use of the Contracts.
Section 72 of the Code governs federal income taxation of annuities in
general. That section sets forth different rules for: (1) Qualified Contracts;
(2) Individual Retirement Annuities; (3) Tax Sheltered Annuities; and (4)
Non-Qualified Contracts. Each type of annuity is discussed below.
Distributions to participants from Qualified Contracts or Tax Sheltered
Annuities are generally taxed when received. A portion of each Distribution is
excludable from income based on the ratio between the after tax investment of
the Owner/Designated Annuitant in the Contract and the value of the Contract at
the time of the withdrawal or Annuitization.
Distributions from Individual Retirement Annuities and Contracts owned
by Individual Retirement Accounts are also generally taxed when received. The
portion of each such payment which is excludable is based on the ratio between
the amount by which nondeductible Purchase Payments to all such Contracts
exceeds prior non-taxable Distributions from such Contracts, and the total
account balances in such Contracts at the time of the Distribution. The Owner
of such Individual Retirement Annuities or the Designated Annuitant under
Contracts held by Individual Retirement Accounts must annually report to the
Internal Revenue Service the amount of nondeductible Purchase Payments, the
amount of any Distribution, the amount by which nondeductible Purchase Payments
for all years exceed non-taxable Distributions for all years, and the total
balance in all Individual Retirement Annuities and Accounts.
A change of the Designated Annuitant or Contingent Annuitant may be
treated by the Internal Revenue Service as a taxable transaction.
NON-QUALIFIED CONTRACTS - NATURAL PERSONS AS OWNERS
The rules applicable to Non-Qualified Contracts provide that a portion
of each annuity payment received is excludable from taxable income based on the
ratio between the Contract Owner's investment in the Contract and the expected
return on the Contract until the investment has been recovered; thereafter the
entire amount is includable in income. The maximum amount excludable from
income is the investment in the Contract. If the Designated Annuitant dies
prior to excluding from income the entire investment in the Contract, the
Annuitant's final tax return may reflect a deduction for the balance of the
investment in the Contract.
Distributions made from the Contract prior to the Annuitization Date are
taxable to the Contract Owner to the extent that the cash value of the Contract
exceeds the Contract Owner's investment at the time of the Distribution.
Distributions, for this purpose, include partial surrenders, dividends, loans,
or any portion of the Contract which is assigned or pledged; or for Contracts
issued after April 22, 1987, any portion of the Contract transferred by gift.
For these purposes, a transfer by gift may occur upon Annuitization if the
Contract Owner and the Designated Annuitant are not the same individual. In
determining the taxable amount of a Distribution, all annuity contracts issued
after October 21, 1988, by the same company to the same contract owner during
any 12 month period, will be treated as one annuity contract. Additional
limitations on the use of multiple contracts may be imposed by Treasury
Regulations. Distributions prior to the Annuitization Date with respect to that
portion of the Contract invested prior to August 14, 1982, are treated first as
a recovery of the investment 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.
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The Tax Reform Act of 1986 has changed the tax treatment of certain
Non-Qualified Contracts held by entities other than individuals. Such entities
are taxed currently on the earnings on the Contract which are attributable to
contributions made to the Contract after February 28, 1986. There are
exceptions for immediate annuities and certain Contracts owned for the benefit
of an individual. An immediate annuity, for purposes of this discussion, is a
single premium Contract on which payments begin within one year of purchase. If
this Contract is issued as the result of an exchange described in Section 1035
of the Code, for purposes of determining whether the Contract is an immediate
annuity, it will generally be considered to have been purchased on the purchase
date of the contract given up in the exchange.
Code Section 72 also provides for a penalty tax, equal to 10% of the
portion of any Distribution that is includable in gross income, if such
Distribution is made prior to attaining age 59/1/2. The penalty tax does not
apply if the Distribution is attributable to the Contract Owner's death,
disability or is one of a series of substantially equal periodic payments made
over the life or life expectancy of the Contract Owner (or the joint lives or
joint life expectancies of the Contract Owner and the beneficiary selected by
the Contract Owner to receive payment under the Annuity Payment Option selected
by the Contract Owner) or for the purchase of an immediate annuity, or is
allocable to an investment in the Contract before August 14, 1982. A Contract
Owner wishing to begin taking Distributions to which the 10% tax penalty does
not apply should forward a written request to the Company. Upon receipt of a
written request from the Contract Owner, the Company will inform the Contract
Owner of the procedures pursuant to Company policy and subject to limitations
of the Contract including but not limited to first year withdrawals. Such
election shall be irrevocable and may not be amended or changed.
In order to qualify as an annuity contract under Section 72 of the Code,
the contract must provide for Distribution of the entire contract to be made
upon the death of a Contract Owner. If a Contract Owner dies prior to the
Annuitization Date, then the Contingent Owner or other named recipient must
receive the Distribution within 5 years of the Contract Owner's death. However,
the recipient may elect for payments to be made over his/her life or life
expectancy provided that such payments begin within one year from the death of
the Contract Owner. If the Contingent Owner or other named recipient is the
surviving spouse, such spouse may be treated as the Contract Owner and the
Contract may be continued throughout the life of the surviving spouse. In the
event the Contract Owner dies on or after the Annuitization Date and before the
entire interest has been distributed, the remaining portion must be distributed
at least as rapidly as under the method of Distribution being used as of the
date of the Contract Owner's death (see "Required Distribution For Qualified
Plans and Tax Sheltered Annuities"). If the Contract Owner is not an
individual, the death of the Annuitant (or a change in the Annuitant) will
result in a Distribution pursuant to these rules, regardless of whether a
Contingent Annuitant is named.
The Code requires that any election to receive an annuity rather than a
lump sum payment must be made within 60 days after the lump sum becomes payable
(generally, the election must be made within 60 days after the death of an
Owner or the Annuitant). If the election is made more than 60 days after the
lump sum first becomes payable, the election would be ignored for tax purposes,
and the entire amount of the lump sum would be subject to immediate tax. If the
election is made within the 60 day period, each Distribution would be taxable
when it is paid.
NON-QUALIFIED CONTRACTS - NON-NATURAL PERSONS AS OWNERS
The foregoing discussion of the taxation of Non-Qualified Contracts
applies to Contracts owned (or, pursuant to Section 72(u) of the Code, deemed
to be owned) by individuals; it does not apply to Contracts where one or more
non-individuals is an Owner.
As a general rule, contracts owned by corporations, partnerships,
trusts, and similar entities ("Non-Natural Persons"), rather than by one or
more individuals, are not treated as annuity contracts for most purposes under
the Code; in particular, they are not treated as annuity contracts for purposes
of Section 72. Therefore, the taxation rules for Distributions, as described
above, do not apply to Non-Qualified Contracts owned by Non-Natural Persons.
Rather, the following rules will apply:
The income earned under a Non-Qualified Contract that is owned by a
Non-Natural Person is taxed as ordinary income during the taxable year that it
is earned, and is not deferred, even if the income is not distributed out of
the Contract to the Owner.
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The foregoing Non-Natural Person rule does not apply to all entity-owned
contracts. First, for this purpose, a Contract that is owned by a Non-Natural
Person as an agent for an individual is treated as owned by the individual.
This exception does not apply, however, to a Non-Natural Person who is an
employer that holds the Contract under a non-qualified deferred compensation
arrangement for one or more employees.
The Non-Natural Person rules also do not apply to a Contract that is (a)
acquired by the estate of a decedent by reason of the death of the decedent;
(b) issued in connection with certain qualified retirement plans and individual
retirement plans; (c) used in connection with certain structured settlements;
(d) purchased by an employer upon the termination of certain qualified
retirement plans; or (e) an immediate annuity.
QUALIFIED PLANS, INDIVIDUAL RETIREMENT ANNUITIES AND TAX SHELTERED ANNUITIES
The Contract may be purchased as a Qualified Contract, an Individual
Retirement Annuity or a Tax Sheltered Annuity. The Contract Owner should seek
competent advice as to the tax consequences associated with the use of a
Contract as an Individual Retirement Annuity.
For information regarding eligibility, limitations on permissible
amounts of Purchase Payments, and the tax consequences of distributions from
Qualified Plans, Tax Sheltered Annuities, Individual Retirement Annuities and
other plans that receive favorable tax treatment, the purchasers of such
contracts should seek competent advice. The terms of such plans may limit the
rights available under the Contracts.
Pursuant to Section 403(b)(1)(E) Code, a Contract that is issued as a
Tax-Sheltered Annuity is required to limit the amount of the Purchase Payment
for any year to an amount that does not exceed the limit set forth in Section
402(g) of the Code ($7,000), as it is from time to time increased to reflect
increases in the cost of living. This limit may be reduced by any deposits,
contributions or payments made to any other Tax-Sheltered Annuity or other
plan, contract or arrangement by or on behalf of the Owner.
The Code permits the rollover of most Distributions from Qualified Plans
to other Qualified Plans or Individual Retirement Annuities. Most Distributions
from Tax-Sheltered Annuities may be rolled into another Tax-Sheltered Annuity,
Individual Retirement Annuity, or an Individual Retirement Account.
Distributions that may not be rolled over are those which are:
1. one of a series of substantially equal annual (or more frequent)
payments made: (a) over the life (or life expectancy) of the
Contract Owner, (b) over the joint lives (or joint life
expectancies) of the Contract Owner and the Contract Owner's
designated beneficiary, or (c) for a specified period of ten
years or more, or
2. a required minimum distribution.
Any Distribution eligible for rollover will be subject to federal tax
withholding at a rate of twenty percent (20%) unless the Distribution is
transferred directly to an appropriate plan as described above.
The Contract is available for Qualified Plans electing to comply with
section 404(c) of ERISA. It is the responsibility of the plan and its
fiduciaries to determine and satisfy the requirements of section 404(c).
WITHHOLDING
The Company is required to withhold tax from certain Distributions to
the extent that such Distribution would constitute income to the Contract Owner
or other payee. The Contract Owner or other payee is entitled to elect not to
have federal income tax withheld from any such Distribution, but may be subject
to penalties in the event insufficient federal income tax is withheld during a
calendar year. However, if the Internal Revenue Service notifies the Company
that the Contract Owner or other payee has furnished an incorrect taxpayer
identification number, or if the Contract Owner or other payee fails to provide
a taxpayer identification number, the Distributions may be subject to back-up
withholding at the statutory rate, which is presently 31%, and which cannot be
waived by the Contract Owner or other payee.
NON-RESIDENT ALIENS
Distributions to nonresident aliens (NRAs) are generally subject to
federal income tax and tax withholding, at a statutory rate of thirty percent
(30%) of the amount of income that is distributed. The Company may be required
to withhold such amount from the Distribution and remit it to the Internal
Revenue Service. Distributions to certain NRAs may be subject to lower, or in
certain instances, zero tax and withholding rates, if the United States has
entered into an applicable treaty. However, in order to obtain the benefits of
such treaty provisions, the NRA must give to the Company sufficient proof of
his or her residency and citizenship in the form and manner prescribed by the
Internal Revenue Service. In addition, for any Distribution made after December
31, 1997, the NRA must obtain an Individual Taxpayer Identification Number from
the Internal Revenue Service, and furnish that number to the Company prior to
the Distribution. If the
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<PAGE> 34
Company does not have the proper proof of citizenship or residency and (for
Distributions after December 31, 1997) a proper Individual Taxpayer
Identification Number prior to any Distribution, the Company will be required
to withhold 30% of the income, regardless of any treaty provision.
A payment may not be subject to withholding where the recipient
sufficiently establishes to the Company that such payment is effectively
connected to the recipient's conduct of a trade or business in the United
States and that such payment is includable in the recipient's gross income for
United States federal income tax purposes. Any such Distributions will be
subject to the rules set forth in the section entitled "Withholding."
FEDERAL ESTATE, GIFT, AND GENERATION SKIPPING TRANSFER TAXES
A transfer of the Contract from one Contract Owner to another, or the
payment of a Distribution under the Contract to someone other than a Contract
Owner, may constitute a gift for federal gift tax purposes. Upon the death of
the Contract Owner, the value of the Contract may be included in his or her
gross estate, even if a all or a portion of the value is also subject to
federal income taxes.
The Company may be required to determine whether the Death Benefit or
any other payment or Distribution constitutes a "direct skip" as defined in
Section 2612 of the Code, and the amount of the generation skipping transfer
tax, if any, resulting from such direct skip. A direct skip may occur when
property is transferred to, or a Death Benefit or other Distribution is made to
(a) an individual who is two or more generations younger than the Owner; or (b)
certain trusts, as described in Section 2613 of the Code (generally, trusts
that have no beneficiaries who are not 2 or more generations younger than the
Owner). If the Owner is not an individual, then for this purpose only, "Owner"
refers to any person who would be required to include the Contract, Death
Benefit, Distribution, or other payment in his federal gross estate at his
death, or who is required to report the transfer of the Contract, Death
Benefit, Distribution, or other payment for federal gift tax purposes.
If the Company determines that a generation skipping transfer tax is
required to be paid by reason of such direct skip, the Company is required to
reduce the amount of such Death Benefit, Distribution, or other payment by such
tax liability, and pay the tax liability directly to the Internal Revenue
Service.
Federal estate, gift and generation skipping transfer tax consequences,
and state and local estate, inheritance, succession, generation skipping
transfer, and other tax consequences, of owning or transferring a Contract, and
of receiving a Distribution, Death Benefit, or other payment, depend on the
circumstances of the person owning or transferring the Contract, or receiving a
Distribution, Death Benefit, or other payment.
CHARGE FOR TAX PROVISIONS
The Company is no longer required to maintain a capital gain reserve
liability on Non-Qualified Contracts since capital gains attributable to assets
held in the Company's Variable Account for such Contracts are not taxable to
the Company. However, the Company reserves the right to implement and adjust
the tax charge in the future, if the tax laws change.
DIVERSIFICATION
The Internal Revenue Service has promulgated regulations under Section
817(h) of the Code relating to diversification standards for the investments
underlying a variable annuity contract. The regulations provide that a variable
annuity contract which does not satisfy the diversification standards will not
be treated as an annuity contract, unless the failure to satisfy the
regulations was inadvertent, the failure is corrected, and the Owner or the
Company pays an amount to the Internal Revenue Service. The amount will be
based on the tax that would have been paid by the Owner if the income, for the
period the contract was not diversified, had been received by the Owner. If the
failure to diversify is not corrected in this manner, the Owner of an annuity
contract will be deemed the Owner of the underlying securities and will be
taxed on the earnings of his or her account. The Company believes, under its
interpretation of the Code and regulations thereunder, that the investments
underlying this Contract meet these diversification standards.
Representatives of the Internal Revenue Service have suggested, from
time to time, that the number of underlying Mutual Funds available or the
number of transfer opportunities available under a variable product may be
relevant in determining whether the product qualifies for the desired tax
treatment. No formal guidance has been issued in this area. Should the
Secretary of the Treasury issue additional rules or regulations limiting the
number of underlying Mutual Funds, transfers between underlying Mutual Funds,
exchanges of underlying Mutual Funds or changes in investment objectives of
underlying Mutual Funds such that the Contract would no longer qualify as an
annuity under Section 72 of the Code, the Company will take whatever steps are
available to remain in compliance.
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<PAGE> 35
TAX CHANGES
In the recent past, the Code has been subjected to numerous amendments
and changes, and it is reasonable to believe that it will continue to be
revised. The United States Congress has, in the past, considered numerous
legislative proposals that, if enacted, could change the tax treatment of the
Contracts. It is reasonable to believe that such proposals, and other proposals
will be considered in the future, and some of them may be enacted into law. In
addition, the Treasury Department may amend existing regulations, issue new
regulations, or adopt new interpretations of existing law that may be in
variance with its current positions on these matters. In addition, current
state law (which is not discussed herein), and future amendments to state law,
may affect the tax consequences of the Contract.
The foregoing discussion, which is based on the Company's understanding
of federal tax laws as they are currently interpreted by the Internal Revenue
Service, is general and is not intended as tax advice. Statutes, regulations,
and rulings are subject to interpretation by the courts. The courts may
determine that a different interpretation than the currently favored
interpretation is appropriate, thereby changing the operation of the rules that
are applicable to annuity contracts.
Any of the foregoing may change from time to time without any notice,
and the tax consequences arising out of a Contract may be changed
retroactively. There is no way of predicting whether, when, and to what extent
any such change may take place. No representation is made as to the likelihood
of the continuation of these current laws, interpretations, and policies.
THE FOREGOING IS A GENERAL EXPLANATION AS TO CERTAIN TAX MATTERS PERTAINING TO
ANNUITY CONTRACTS. IT IS NOT INTENDED TO BE LEGAL OR TAX ADVICE, AND SHOULD NOT
TAKE THE PLACE OF YOUR INDEPENDENT LEGAL, TAX AND/OR FINANCIAL ADVISOR.
ADVERTISING
The Company may from time to time advertise several types of historical
performance for the Sub-Accounts of the Variable Account.
The Company may advertise for the Sub-Accounts standardized "average
annual total return," calculated in a manner prescribed by the Securities and
Exchange Commission, and nonstandardized "total return." "Average annual total
return" will show the percentage rate of return of a hypothetical initial
investment of $1,000 for at least the cumulative calendar year and the most
recent one, five and ten year period, or for a period covering the time the
underlying Mutual Fund has been available within the Variable Account, if the
underlying Mutual Fund has not been available within the Variable Account for
one of the prescribed periods. This calculation reflects the deduction of all
applicable charges made to the Contracts except for premium taxes, which may be
imposed by certain states.
Nonstandardized "total return" will be calculated in a similar manner
and for the same time periods as will average annual total return except total
return will assume an initial investment of $10,000 and will not reflect the
deduction of any applicable Contingent Deferred Sales Charge, which, if
reflected, would decrease the level of performance shown. The Contingent
Deferred Sales Charge is not reflected because the Contracts are designed for
long term investment. An assumed initial investment of $10,000 will be used
because that figure more closely approximates the size of a typical Contract
than does the $1,000 figure used in calculating the standardized average annual
total return quotations. The amount of the hypothetical initial investment
assumed affects performance because the Contract Maintenance Charge is a fixed
per Contract charge.
A "yield" and "effective yield" may also be advertised for the Money
Market Portfolio Sub-Account. "Yield" is a measure of the net dividend and
interest income earned over a specific seven-day period (which period will 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 underlying Mutual Fund options with similar or
different objectives, or the investment industry as a whole. Other investments
to which the Sub-Accounts may be compared include, but are not limited to:
precious metals; real estate; stocks and bonds; closed-end funds; CDs; bank
money market deposit accounts and passbook savings; and the Consumer Price
Index.
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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 funds based
upon total return performance. These rating services and publications rank the
performance of the underlying Mutual Fund options against all underlying Mutual
Fund options over specified periods and against underlying Mutual Fund options
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.
FUND PERFORMANCE SUMMARY
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Date Fund
Added to
1 Year to 5 Years to Life of Fund Variable
SUB-ACCOUNT OPTIONS 12/31/96 12/31/96 to 12/31/96 Account
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Van Kampen American Capital Life 3.99% 6.16% 8.11% 5-6-88
Investment Trust - Asset Allocation Fund
- --------------------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life -3.12% 5.77% 3.05% 5-6-88
Investment Trust - Domestic Income Fund
- --------------------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life 6.73% N/A 14.26% 7-3-95
Investment Trust - Emerging Growth Fund
- --------------------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life 14.76% 9.55% 12.04% 5-6-88
Investment Trust - Enterprise Fund
- --------------------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life 6.80% N/A 4.07% 7-3-95
Investment Trust - Global Equity Fund
- --------------------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life -7.48% 0.74% 3.17% 1-2-90
Investment Trust - Government Fund
- --------------------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life -4.87% -0.75% 1.23% 5-6-88
Investment Trust - Money Market Fund
- --------------------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life 30.30% N/A 23.24% 7-3-95
Investment Trust - Real Estate
Securities Fund
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Date Fund
Added to
1 Year to 5 Years to Life of Fund Variable
SUB-ACCOUNT OPTIONS 12/31/96 12/31/96 to 12/31/96 Account
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Van Kampen American Capital Life 12.09% 9.03% 10.37% 5-6-88
Investment Trust - Asset Allocation Fund
- --------------------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life 4.98% 8.46% 5.82% 5-6-88
Investment Trust - Domestic Income Fund
- --------------------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life 14.83% N/A 21.16% 7-3-95
Investment Trust - Emerging Growth Fund
- --------------------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life 22.86% 12.35% 14.07% 5-6-88
Investment Trust - Enterprise Fund
- --------------------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life 14.90% N/A 11.28% 7-3-95
Investment Trust - Global Equity Fund
- --------------------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life 0.49% 3.76% 5.66% 1-2-90
Investment Trust - Government Fund
- --------------------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life 3.23% 2.37% 3.88% 5-6-88
Investment Trust - Money Market Fund
- --------------------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life 38.40% N/A 30.27% 7-3-95
Investment Trust - Real Estate
Securities Fund
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
LEGAL PROCEEDINGS
From time to time the Company is a party to litigation and arbitration
proceedings in the ordinary course of its business, none of which is expected
to have a material adverse effect on the Company.
In recent years, life insurance companies have been named as defendants
in lawsuits, including class action lawsuits, relating to life insurance
pricing and sales practices. A number of these lawsuits have resulted in
substantial jury awards or settlements. In October, 1996, a policyholder of
Nationwide Life filed a complaint in Alabama state court against Nationwide
Life and an agent of Nationwide Life (Wayne M. King v. Nationwide Life
Insurance Company and Danny Nix) related to the sale of a whole life policy on
a "vanishing premium" basis and seeking unspecified compensatory and punitive
damages. In February, 1997, Nationwide Life was named as a defendant in a
lawsuit filed in New York Supreme Court also related to the sale of whole life
policies on a "vanishing premium" basis (John H. Snyder v. Nationwide Mutual
Insurance Company, Nationwide Mutual Insurance Co. and Nationwide Life
Insurance Co.). The plaintiff in such lawsuit seeks to represent a national
class of Nationwide Life policyholders and claims unspecified compensatory and
punitive damages. This lawsuit is in an early state and has not been certified
as a class action. Nationwide Life intends to defend these cases vigorously.
There can be no assurance that any future litigation relating to pricing and
sales practices will not have a material adverse effect on the Company.
The General Distributor, Van Kampen American Capital Distributors, Inc.,
is not engaged in any litigation of any material nature.
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
<S> <C>
General Information and History..............................................................1
Services.....................................................................................1
Purchase of Securities Being Offered.........................................................1
Underwriters.................................................................................2
Calculation of Performance...................................................................2
Annuity Payments.............................................................................3
Financial Statements.........................................................................4
</TABLE>
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APPENDIX
Purchase payments allocated to the Fixed Account portion of the Contract
and transfers to the Fixed Account portion become part of the general account
of the Company, which support insurance and annuity obligations. Because of
exemptive and exclusionary provisions, interests in the general account have
not been registered under the Securities Act of 1933 ("1933 Act"), nor is the
general account registered as an investment company under the Investment
Company Act of 1940 ("1940 Act"). Accordingly, neither the general account nor
any interest therein are generally subject to the provisions of the 1933 or
1940 Acts, and we have been advised that the staff of the Securities and
Exchange Commission has not reviewed the disclosures in this prospectus which
related to the Fixed Account portion. Disclosures regarding the Fixed Account
portion of the Contract and the general account, however, may be subject to
certain generally applicable provisions of the federal securities laws relating
to the accuracy and completeness of statements made in prospectuses.
FIXED ACCOUNT ALLOCATIONS
THE FIXED ACCOUNT
The Fixed Account is made up of all the general assets of the Company,
other than those in the Nationwide 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, less the sum of all administrative
charges, any applicable premium taxes, and less any amounts surrendered. If the
Contract Owner effects a surrender, the amount available from the Fixed Account
will be reduced by any applicable Contingent Deferred Sales Charge (see
"Contingent Deferred Sales Charge").
TRANSFERS
Contract Owners may at the maturity of an Interest Rate Guarantee
Period, transfer a portion of the value of the Fixed Account to the Variable
Account. The maximum percentage that may be transferred will be determined by
the Company at its sole discretion, but will not be less than 10% of the total
value of the portion of the Fixed Account that is maturing and will be declared
upon the expiration date of the then current Interest Rate Guarantee Period.
The Interest Rate Guarantee Period expires on the final day of a calendar
quarter; therefore the Interest Rate Guarantee Period for deposits or transfers
in the Fixed Account may continue for up to three months after a one year
period has expired. Transfer must be made within 45 days after the expiration
date of the guarantee period. Owners who have entered into a Dollar Cost
Averaging Agreement with the Company (see "Dollar Cost Averaging") may transfer
from the Fixed Account to the Variable Account under the terms of that
agreement.
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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.
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<PAGE> 40
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1997
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,
1997. 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
Calculation of Performance..........................................................................................2
Annuity Payments....................................................................................................3
Financial Statements................................................................................................4
</TABLE>
GENERAL INFORMATION AND HISTORY
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 Financial Services, Inc. ("NFS"), a holding company. NFS
has two classes of common stock outstanding with different voting rights
enabling Nationwide Corporation (the holder of all of the outstanding Class B
Common Stock) to control NFS. Nationwide Corporation is a holding company as
well. All of its common stock is held by Nationwide Mutual Insurance Company
(95.3%) and Nationwide Mutual Fire Insurance Company (4.7%), the ultimate
controlling persons of Nationwide Insurance Enterprise. The Nationwide
Insurance Enterprise is one of America's largest insurance and financial
services family of companies, with combined assets of over $67.5 billion as of
December 31, 1996.
SERVICES
The Company, which has responsibility for administration of the
Contracts and the Variable Account, maintains records of the name, address,
taxpayer identification number, and other pertinent information for each
Contract Owner and the number and type of Contract issued to each such Contract
Owner and records with respect to the Contract Value of each Contract.
The Custodian of the assets of the Variable Account is the Company. The
Company will maintain a record of all purchases and redemptions of shares of
the underlying Mutual Funds.
The financial statements and schedules have been included herein in
reliance upon the reports of KPMG Peat Marwick LLP, independent certified
public accountants, Two Nationwide Plaza, Columbus, Ohio 43215, and upon the
authority of said firm as experts in accounting and auditing.
PURCHASE OF SECURITIES BEING OFFERED
The Contracts will be sold by licensed insurance agents in the states
where the Contracts may be lawfully sold. Such agents will be registered
representatives of broker-dealers registered under the Securities Exchange Act
of 1934 who are members of the National Association of Securities Dealers, Inc.
("NASD").
The Contract Owner may transfer up to 100% of the Contract Value from
the Variable Account to the Fixed Account. However, the Company, at its sole
discretion, reserves the right to limit such transfers to 25% of the Contract
Value for any 12 month period. Contract Owners may at the maturity of an
Interest Rate Guarantee Period transfer a portion of the Contract Value of the
Fixed Account to the Variable Account. Such portion will be determined by the
Company at its sole discretion (but will not be less than 10% of the total
value of the portion of the Fixed Account that is maturing), and will be
declared upon the expiration date of the then current Interest Rate Guarantee
Period. The Interest Rate Guarantee Period expires on the final day of a
calendar quarter; therefore the Interest Rate Guarantee Period for deposits or
transfers to the Fixed Account may continue for up to three months after a one
year period has expired. Transfer under this provision must be made within 45
days after the termination date of the guarantee period. Owners who have
entered into a Dollar Cost Averaging agreement with the Company may transfer
from the Fixed Account under the terms of that agreement.
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Transfers from the Fixed and Variable Accounts may not be made prior to
the first Contract Anniversary. Transfers must also be made prior to the
Annuity Commencement Date.
UNDERWRITERS
The Contracts, which are offered continuously, are distributed by
American Capital Marketing Inc., 2800 Post Oak Blvd., Houston, Texas 77056. No
underwriting commissions are paid by the Company to the Distributor, only sales
commissions.
CALCULATION 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, 1996, the Money Market Portfolio Sub-Account's seven-day
current unit value yield was 3.57%. 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 the period ending December 31, 1996 was 3.63%.
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's 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 different base 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 and 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-Account' 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 $30 Contract
Maintenance Charge and a 1.30% Mortality, Expense Risk and Administration
Charge. The redeemable value also reflects the effect of any applicable
Contingent Deferred Sales Charge that 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 total return is based on a hypothetical initial
investment of $10,000 and does not reflect the deduction of any applicable
Contingent Deferred Sales Charge. Reflecting the Contingent Deferred Sales
Charge would decrease the level of the performance advertised. The Contingent
Deferred Sales Charge is not reflected because the Contract is designed for
long term investment. An assumed initial investment of $10,000 will be used
because that figure more closely approximates the size of a typical Contract
than does the $1,000 figure used in calculating the standardized average annual
total return quotations. The amount of the hypothetical initial investment used
affects performance because the Contract Maintenance Charge is a fixed per
contract charge.
The standardized average annual total return and nonstandardized average
annual total return quotations will be current to the last day of the calendar
quarter preceding the date on which an advertisement is submitted for
publication. Both the standardized average annual 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
periods of one, five, and ten years, or a period covering the time the
underlying Mutual Fund has been
2
41 of 102
<PAGE> 42
available within the Variable Account, if the underlying Mutual Fund has not
been available with the Variable Account for one of the prescribed periods.
Quotations of average annual total return and total return are based
upon historical earnings and will fluctuate. Any quotation of performance,
therefore, should not be considered a guarantee of future performance. Factors
affecting a Sub-Account's performance include general market conditions,
operating expenses and investment management. A Contract Owner's account when
redeemed may be more or less than original cost.
Below are the quotations of standardized average annual total return and
non-standardized total return for each of the Sub-Accounts available within the
Variable Account.
FUND PERFORMANCE SUMMARY
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Date Fund
Added to
1 Year to 5 Years to Life of Fund Variable
SUB-ACCOUNT OPTIONS 12/31/96 12/31/96 to 12/31/96 Account
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Van Kampen American Capital Life 3.99% 6.16% 8.11% 5-6-88
Investment Trust - Asset
Allocation Fund
- ------------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life -3.12% 5.77% 3.05% 5-6-88
Investment Trust - Domestic Income
Fund
- ------------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life 6.73% N/A 14.26% 7-3-95
Investment Trust - Emerging Growth
Fund
- ------------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life 14.76% 9.55% 12.04% 5-6-88
Investment Trust - Enterprise Fund
- ------------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life 6.80% N/A 4.07% 7-3-95
Investment Trust - Global Equity
Fund
- ------------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life -7.48% 0.74% 3.17% 1-2-90
Investment Trust - Government Fund
- ------------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life -4.87% -0.75% 1.23% 5-6-88
Investment Trust - Money Market
Fund
- ------------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life 30.30% N/A 23.24% 7-3-95
Investment Trust - Real Estate
Securities Fund
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Date Fund
Added to
1 Year to 5 Years to Life of Fund Variable
SUB-ACCOUNT OPTIONS 12/31/96 12/31/96 to 12/31/96 Account
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Van Kampen American Capital Life 12.09% 9.03% 10.37% 5-6-88
Investment Trust - Asset
Allocation Fund
- ------------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life 4.98% 8.46% 5.82% 5-6-88
Investment Trust - Domestic Income
Fund
- ------------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life 14.83% N/A 21.16% 7-3-95
Investment Trust - Emerging Growth
Fund
- ------------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life 22.86% 12.35% 14.07% 5-6-88
Investment Trust - Enterprise Fund
- ------------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life 14.90% N/A 11.28% 7-3-95
Investment Trust - Global Equity
Fund
- ------------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life 0.49% 3.76% 5.66% 1-2-90
Investment Trust - Government Fund
- ------------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life 3.23% 2.37% 3.88% 5-6-88
Investment Trust - Money Market
Fund
- ------------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life 38.40% N/A 30.27% 7-3-95
Investment Trust - Real Estate
Securities Fund
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
ANNUITY PAYMENTS
See "Frequency and Amount of Annuity Payments" located in the prospectus.
3
42 of 102
<PAGE> 43
<PAGE> 1
Independent Auditors' Report
----------------------------
The Board of Directors of Nationwide Life Insurance Company and
Contract Owners of Nationwide Variable Account-3:
We have audited the accompanying statement of assets, liabilities and
contract owners' equity of Nationwide Variable Account-3 as of December 31,
1996, and the related statements of operations and changes in contract
owners' equity and schedules of changes in unit value for each of the years in
the three year period then ended. These financial statements and schedules
of changes in unit value are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedules of changes in unit value based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
schedules of changes in unit value are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1996, by correspondence
with the transfer agents of the underlying mutual funds. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and schedules of changes in
unit value referred to above present fairly, in all material respects, the
financial position of Nationwide Variable Account-3 as of December 31, 1996,
and the results of its operations and its changes in contract owners'
equity and the schedules of changes in unit value for each of the years in the
three year period then ended in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Columbus, Ohio
February 7, 1997
<PAGE> 2
NATIONWIDE VARIABLE ACCOUNT-3
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS# EQUITY
December 31, 1996
<TABLE>
<S> <C>
Assets:
Investments at market value:
Van Kampen American Capital LIT - Asset Allocation Fund
3,212,716 shares (cost $37,037,288) $36,464,328
Van Kampen American Capital LIT - Domestic Income Fund
1,362,055 shares (cost $10,945,612) 10,910,059
Van Kampen American Capital LIT - Emerging Growth Fund
259,361 shares (cost $3,425,148) 3,542,872
Van Kampen American Capital LIT - Enterprise Fund
2,244,657 shares (cost $32,594,775) 36,498,130
Van Kampen American Capital LIT - Global Equity Fund
34,275 shares (cost $388,090) 399,643
Van Kampen American Capital LIT - Government Fund
722,861 shares (cost $6,246,071) 6,259,977
Van Kampen American Capital LIT - Money Market Fund
5,073,275 shares (cost $5,073,275) 5,073,275
Van Kampen American Capital LIT - Real Estate Securities Fund
9,542 shares (cost $124,612) 141,026
-----------
Total investments 99,289,310
Accounts receivable 404
-----------
Total assets 99,289,714
===========
Contract owners' equity $99,289,714
===========
</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 LIT -
Asset Allocation Fund:
Tax qualified 513,310 $23.907038 $12,271,722
Non-tax qualified 1,010,988 23.907038 24,169,729
Van Kampen American Capital LIT -
Domestic Income Fund:
Tax qualified 165,684 16.692636 2,765,703
Non-tax qualified 486,983 16.692636 8,129,030
Van Kampen American Capital LIT -
Emerging Growth Fund:
Tax qualified 91,181 13.395245 1,221,392
Non-tax qualified 173,307 13.395245 2,321,490
Van Kampen American Capital LIT -
Enterprise Fund:
Tax qualified 352,086 31.749417 11,178,525
Non-tax qualified 797,023 31.749417 25,305,016
Van Kampen American Capital LIT -
Global Equity Fund:
Tax qualified 13,264 11.800884 156,527
Non-tax qualified 20,602 11.800884 243,122
Van Kampen American Capital LIT -
Government Fund:
Tax qualified 101,057 14.944372 1,510,233
Non-tax qualified 315,546 14.944372 4,715,637
Van Kampen American Capital LIT -
Money Market Fund:
Tax qualified 115,165 14.208651 1,636,339
Non-tax qualified 240,045 14.208651 3,410,716
Van Kampen American Capital LIT -
Real Estate Securities Fund:
Tax qualified 4,266 14.931303 63,697
Non-tax qualified 5,179 14.931303 77,329
========== =========
Reserves for annuity contracts in payout phase:
Non-tax qualified 113,507
-----------
$99,289,714
===========
</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, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ---------- -----------
<S> <C> <C> <C>
Investment activity:
Reinvested capital gains and dividends $11,250,803 10,887,325 10,126,858
Mortality, expense and administration charges (note 2) (1,335,708) (1,294,825) (1,377,454)
----------- ---------- -----------
Net investment activity 9,915,095 9,592,500 8,749,404
----------- ---------- -----------
Proceeds from mutual fund shares sold 44,991,214 40,426,461 46,483,900
Cost of mutual fund shares sold (43,680,536) (40,641,053) (45,783,206)
----------- ---------- -----------
Realized gain (loss) on investments 1,310,678 (214,592) 700,694
Change in unrealized gain (loss) on investments 1,290,651 13,497,708 (14,166,680)
----------- ---------- -----------
Net gain (loss) on investments 2,601,329 13,283,116 (13,465,986)
----------- ---------- -----------
Net increase (decrease) in contract owners'
equity resulting from operations 12,516,424 22,875,616 (4,716,582)
----------- ---------- -----------
Equity transactions:
Purchase payments received from contract owners 4,521,793 3,278,740 5,550,286
Redemptions (19,642,633) (20,264,414) (15,199,321)
Annuity benefits (15,629) (14,594) (9,959)
Annual contract maintenance charge (note 2) (97,006) (107,947) (116,547)
Contingent deferred sales charges (note 2) (155,505) (405,272) (342,156)
Adjustments to maintain reserves 1,215 (2,440) (215)
----------- ---------- -----------
Net equity transactions (15,387,765) (17,515,927) (10,117,912)
----------- ---------- -----------
Net change in contract owners' equity (2,871,341) 5,359,689 (14,834,494)
Contract owners' equity beginning of period 102,161,055 96,801,366 111,635,860
----------- ---------- -----------
Contract owners' equity end of period $ 99,289,714 102,161,055 96,801,366
============ =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 5
NATIONWIDE VARIABLE ACCOUNT-3
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(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 LIT):
Van Kampen American Capital LIT - Asset Allocation Fund
(formerly Van Kampen American Capital - Multiple Strategy Fund)
Van Kampen American Capital LIT - Domestic Income Fund
(formerly Van Kampen American Capital - Domestic Strategic
Income Fund)
Van Kampen American Capital LIT - Emerging Growth Fund
Van Kampen American Capital LIT - Enterprise Fund
(formerly Van Kampen American Capital - Common Stock Fund)
Van Kampen American Capital LIT - Global Equity Fund
Van Kampen American Capital LIT - Government Fund
Van Kampen American Capital LIT - Money Market Fund
Van Kampen American Capital LIT - Real Estate Securities Fund
At December 31, 1996, contract owners have invested in all of the
above funds. The contract owners' equity is affected by the
investment results of each fund, equity transactions by contract
owners and certain contract expenses (see note 2). The accompanying
financial statements include only contract owners' purchase
payments pertaining to the variable portions of their contracts
and exclude any purchase payments for fixed dollar benefits, the
latter being included in the accounts of the Company.
(c) Security Valuation, Transactions and Related Investment Income
The market value of the underlying mutual funds is based on the
closing net asset value per share at December 31, 1996. The cost of
investments sold is determined on a specific identification basis.
Investment transactions are accounted for on the trade date (date the
order to buy or sell is executed) and dividend income is recorded
on the ex-dividend date.
(d) Federal Income Taxes
Operations of the Account form a part of, and are taxed with,
operations of the Company which is taxed as a life insurance company
under the Internal Revenue Code.
The Company does not provide for income taxes within the Account.
Taxes are the responsibility of the contract owner upon termination
or withdrawal.
<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.
(f) Reclassifications
Certain 1995 and 1994 amounts have been reclassified to conform with
the current year presentation.
(2) Expenses
The Company does not deduct a sales charge from purchase payments received
from the contract owners. However, if any part of the contract value of
such contracts is surrendered, the Company will, with certain
exceptions, deduct from 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 contract 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, 1996, 1995 and 1994
(Underlying Mutual Funds of Van Kampen American Capital LIT)
<TABLE>
<CAPTION>
Asset Domestic Emerging Global Money Real Estate
Allocation Income Growth Enterprise Equity Government Market Securities
Fund Fund Fund Fund Fund Fund Fund Fund
---------- -------- -------- ---------- ------ ---------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996
Beginning unit value -
Jan. 1 $21.272421 15.854864 11.635151 25.778191 10.244062 14.827943 13.724323 10.765351
- ----------------------------------------------------------------------------------------------------------------------------------
Reinvested capital
gains and dividends 3.405803 1.422257 .000000 3.485963 .356685 .956297 .667515 .287350
- ----------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (.478818) (.376119) 1.929521 2.865166 1.346052 (.648124) .000000 4.033978
- ----------------------------------------------------------------------------------------------------------------------------------
Contract charges (.292368) (.208366) (.169427) (.379903) (.145915) (.191744) (.183187) (.155376)
- ----------------------------------------------------------------------------------------------------------------------------------
Ending unit value -
Dec. 31 $23.907038 16.692636 13.395245 31.749417 11.800884 14.944372 14.208651 14.931303
- ----------------------------------------------------------------------------------------------------------------------------------
Percentage increase
(decrease) in unit
value*(a) 12% 5% 15% 23% 15% 1% 4% 39%
==================================================================================================================================
1995
Beginning unit value -
Jan. 1 $16.406732 13.235145 10.000000 19.065611 10.000000 12.821877 13.183559 10.000000
- ----------------------------------------------------------------------------------------------------------------------------------
Reinvested capital
gains and dividends 2.391189 1.250586 .000000 3.443612 .000000 .953483 .716291 .091958
- ----------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 2.721948 1.560777 1.705967 3.564450 .309001 1.235082 .000000 .739393
- ----------------------------------------------------------------------------------------------------------------------------------
Contract charges (.247448) (.191644) (.070816) (.295482) (.064939) (.182499) (.175527) (.066000)
- ----------------------------------------------------------------------------------------------------------------------------------
Ending unit value -
Dec. 31 $21.272421 15.854864 11.635151 25.778191 10.244062 14.827943 13.724323 10.765351
- ----------------------------------------------------------------------------------------------------------------------------------
Percentage increase
(decrease) in unit
value*(a) 30% 20% 16%(b) 35% 2%(b) 16% 4% 8%(b)
==================================================================================================================================
1994
Beginning unit value -
Jan. 1 $17.253369 14.016253 ** 19.993094 ** 13.620968 12.879003 **
- ----------------------------------------------------------------------------------------------------------------------------------
Reinvested capital
gains and dividends 1.980194 1.376728 2.272837 .835320 .474206
- ----------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (2.608938) (1.981901) (2.944375) (1.464669) .000000
- ----------------------------------------------------------------------------------------------------------------------------------
Contract charges (.217893) (.175935) (.255945) (.169742) (.169650)
- ----------------------------------------------------------------------------------------------------------------------------------
Ending unit value -
Dec. 31 $16.406732 13.235145 19.065611 12.821877 13.183559
- ----------------------------------------------------------------------------------------------------------------------------------
Percentage increase
(decrease) in unit
value*(a) (5)% (6)% (5)% (6)% 2%
==================================================================================================================================
</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 being utilized for
the entire year indicated.
**This investment option was not being utilized or was not available.
See note 3.
<PAGE> 44
<PAGE> 1
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors
Nationwide Life Insurance Company:
We have audited the accompanying consolidated balance sheets of Nationwide Life
Insurance Company and subsidiaries (collectively the Company) as of December 31,
1996 and 1995, and the related consolidated statements of income, shareholder's
equity and cash flows for each of the years in the three-year period ended
December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Nationwide Life
Insurance Company and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally accepted
accounting principles.
In 1994, the Company adopted the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities.
KPMG Peat Marwick LLP
Columbus, Ohio
January 31, 1997
<PAGE> 2
<TABLE>
<CAPTION>
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1996 and 1995
($000's omitted)
Assets 1996 1995
------ ----------------- ----------------
<S> <C> <C>
Investments (notes 5, 8 and 9):
Securities available-for-sale, at fair value:
Fixed maturity securities (cost $11,970,878 in 1996; $11,862,556 in 1995) $12,304,639 12,485,564
Equity securities (cost $43,890 in 1996; $23,617 in 1995) 59,131 29,953
Mortgage loans on real estate, net 5,272,119 4,602,764
Real estate, net 265,759 229,442
Policy loans 371,816 336,356
Other long-term investments 28,668 61,989
Short-term investments (note 13) 4,789 32,792
----------------- ----------------
18,306,921 17,778,860
----------------- ----------------
Cash 43,784 9,455
Accrued investment income 210,182 212,963
Deferred policy acquisition costs 1,366,509 1,020,356
Investment in subsidiaries classified as discontinued operations (notes 1 and 2) 485,707 506,677
Other assets (note 6) 426,441 388,214
Assets held in Separate Accounts (note 8) 26,926,702 18,591,108
----------------- ----------------
$47,766,246 38,507,633
================= ================
Liabilities and Shareholder's Equity
------------------------------------
Future policy benefits and claims (notes 6 and 8) $17,179,060 16,358,614
Policyholders' dividend accumulations 361,401 348,027
Other policyholder funds 60,073 65,297
Accrued federal income tax (note 7):
Current 30,170 35,301
Deferred 162,212 246,627
----------------- ----------------
192,382 281,928
----------------- ----------------
Dividend payable to shareholder (notes 1 and 2) 485,707 -
Other liabilities 423,047 234,147
Liabilities related to Separate Accounts (note 8) 26,926,702 18,591,108
----------------- ----------------
45,628,372 35,879,121
----------------- ----------------
Commitments and contingencies (notes 6, 9 and 15)
Shareholder's equity (notes 3, 4, 5, 12 and 13):
Capital shares, $1 par value. Authorized 5,000,000 shares, issued and
outstanding 3,814,779 shares 3,815 3,815
Additional paid-in capital 527,874 657,118
Retained earnings 1,432,593 1,583,275
Unrealized gains on securities available-for-sale, net 173,592 384,304
----------------- ----------------
2,137,874 2,628,512
----------------- ----------------
$47,766,246 38,507,633
================= ================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 3
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 1996, 1995 and 1994
($000's omitted)
<TABLE>
<CAPTION>
1996 1995 1994
--------------- -------------- -------------
<S> <C> <C> <C>
Revenues (note 16):
Investment product and universal life insurance product policy charges $ 400,902 286,534 217,245
Traditional life insurance premiums 198,642 199,106 176,658
Net investment income (note 5) 1,357,759 1,294,033 1,210,811
Realized losses on investments (note 5) (326) (1,724) (16,527)
Other income 35,861 20,702 11,312
--------------- -------------- -------------
1,992,838 1,798,651 1,599,499
--------------- -------------- -------------
Benefits and expenses:
Benefits and claims 1,160,580 1,115,493 992,667
Provision for policyholders' dividends on participating policies (note 12) 40,973 39,937 38,754
Amortization of deferred policy acquisition costs 133,394 82,695 85,568
Other operating expenses (note 13) 342,394 272,954 240,652
--------------- -------------- -------------
1,677,341 1,511,079 1,357,641
--------------- -------------- -------------
Income from continuing operations before federal income tax expense 315,497 287,572 241,858
--------------- -------------- -------------
Federal income tax expense (benefit) (note 7):
Current 116,512 88,700 73,559
Deferred (5,623) 11,108 5,030
--------------- -------------- -------------
110,889 99,808 78,589
--------------- -------------- -------------
Income from continuing operations 204,608 187,764 163,269
Income from discontinued operations (less federal income tax expense of
$4,453, $7,446 and $10,915 in 1996, 1995 and 1994, respectively) (note 2) 11,324 24,714 20,459
--------------- -------------- -------------
Net income $ 215,932 212,478 183,728
=============== ============== =============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 4
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Shareholder's Equity
Years ended December 31, 1996, 1995 and 1994
($000's omitted)
<TABLE>
<CAPTION>
Unrealized
gains (losses)
Additional on securities Total
Capital paid-in Retained available-for- shareholder's
shares capital earnings sale, net equity
----------- ------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
1994:
Balance, beginning of year $3,815 406,089 1,194,519 6,745 1,611,168
Capital contribution - 200,000 - - 200,000
Net income - - 183,728 - 183,728
Adjustment for change in accounting for
certain investments in debt and equity
securities, net (note 4) - - - 212,553 212,553
Unrealized losses on securities available-
for-sale, net - - - (338,971) (338,971)
----------- ------------- --------------- ----------------- ---------------
Balance, end of year $3,815 606,089 1,378,247 (119,673) 1,868,478
=========== ============= =============== ================= ===============
1995:
Balance, beginning of year 3,815 606,089 1,378,247 (119,673) 1,868,478
Capital contribution (note 13) - 51,029 - (4,111) 46,918
Dividends to shareholder - - (7,450) - (7,450)
Net income - - 212,478 - 212,478
Unrealized gains on securities available-
for-sale, net - - - 508,088 508,088
----------- ------------- --------------- ----------------- ---------------
Balance, end of year $3,815 657,118 1,583,275 384,304 2,628,512
=========== ============= =============== ================= ===============
1996:
Balance, beginning of year 3,815 657,118 1,583,275 384,304 2,628,512
Capital contribution (note 13) - 25 5 - 30
Dividends to shareholder - (129,269) (366,619) (39,819) (535,707)
Net income - - 215,932 - 215,932
Unrealized losses on securities available-
for-sale, net - - - (170,893) (170,893)
----------- ------------- --------------- ----------------- ---------------
Balance, end of year $3,815 527,874 1,432,593 173,592 2,137,874
=========== ============= =============== ================= ===============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
($000's omitted)
<TABLE>
<CAPTION>
1996 1995 1994
---------------- --------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 215,932 212,478 183,728
Adjustments to reconcile net income to net cash provided by operating
activities:
Capitalization of deferred policy acquisition costs (422,572) (321,327) (242,431)
Amortization of deferred policy acquisition costs 133,394 82,695 85,568
Amortization and depreciation 6,962 10,234 3,603
Realized (gains) losses on invested assets, net (284) 3,250 16,094
Deferred federal income tax expense (benefit) 7,603 (30,673) 9,946
Decrease (increase) in accrued investment income 2,781 (16,999) (12,808)
(Increase) decrease in other assets (38,876) 39,880 (102,676)
Increase in policy liabilities 305,755 135,937 118,361
Increase in policyholders' dividend accumulations 13,374 12,639 15,298
(Decrease) increase in accrued federal income tax payable (5,131) 30,836 (5,714)
Increase in other liabilities 188,900 26,851 506
Other, net (61,679) 1,832 (29,595)
--------------- --------------- ---------------
Net cash provided by operating activities 346,159 187,633 39,880
---------------- --------------- ---------------
Cash flows from investing activities:
Proceeds from maturity of securities available-for-sale 1,162,766 634,553 544,843
Proceeds from sale of securities available-for-sale 299,558 107,345 228,308
Proceeds from maturity of fixed maturity securities held-to-maturity - 564,450 491,862
Proceeds from repayments of mortgage loans on real estate 309,050 207,832 190,574
Proceeds from sale of real estate 18,519 48,331 46,713
Proceeds from repayments of policy loans and sale of other invested assets 22,795 53,587 120,506
Cost of securities available-for-sale acquired (1,573,640) (1,942,413) (1,816,370)
Cost of fixed maturity securities held-to-maturity acquired - (593,636) (410,379)
Cost of mortgage loans on real estate acquired (972,776) (796,026) (471,570)
Cost of real estate acquired (7,862) (10,928) (6,385)
Policy loans issued and other invested assets acquired (57,740) (75,910) (65,302)
Short-term investments, net 28,003 77,837 (89,376)
Purchase of affiliate (note 13) - - (155,000)
---------------- --------------- ---------------
Net cash used in investing activities (771,327) (1,724,978) (1,391,576)
---------------- --------------- ---------------
Cash flows from financing activities:
Proceeds from capital contributions 30 - 200,000
Dividends paid to shareholder (50,000) (7,450) -
Increase in investment product and universal life insurance
product account balances 2,293,933 2,809,385 3,547,976
Decrease in investment product and universal life insurance
product account balances (1,784,466) (1,258,758) (2,412,595)
---------------- --------------- --------------
Net cash provided by financing activities 459,497 1,543,177 1,335,381
---------------- --------------- --------------
Net increase (decrease) in cash 34,329 5,832 (16,315)
---------------- --------------- ---------------
Cash, beginning of year 9,455 3,623 19,938
---------------- --------------- ---------------
Cash, end of year $ 43,784 9,455 3,623
================ =============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 6
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
($000's omitted)
(1) Organization and Description of Business
----------------------------------------
Nationwide Life Insurance Company (NLIC) is a wholly owned subsidiary
of Nationwide Corporation (Nationwide Corp.). Wholly owned subsidiaries
of NLIC include Nationwide Life and Annuity Insurance Company (NLAIC),
Employers Life Insurance Company of Wausau and subsidiaries (ELICW),
National Casualty Company (NCC), West Coast Life Insurance Company
(WCLIC), Nationwide Advisory Services, Inc. (formerly Nationwide
Financial Services, Inc.), Nationwide Investment Services Corporation
(formerly PEBSCO Securities Corporation) (NISC) and NWE, Inc. NLIC and
its subsidiaries are collectively referred to as "the Company."
Nationwide Corp. formed Nationwide Financial Services, Inc. (NFS) in
November 1996 as a holding company for NLIC and the other companies of
the Nationwide Insurance Enterprise that offer or distribute long-term
savings and retirement products. On January 27, 1997, Nationwide Corp.
contributed to NFS the common stock of NLIC and three marketing and
distribution companies. NFS is planning an initial public offering of
its Class A common stock during the first quarter of 1997.
In anticipation of the restructuring described above, on September 24,
1996, NLIC's Board of Directors declared a dividend payable January 1,
1997 to Nationwide Corp. consisting of the outstanding shares of common
stock of certain subsidiaries (ELICW, NCC and WCLIC) that do not offer
or distribute long-term savings and retirement products. In addition,
during 1996, NLIC entered into two reinsurance agreements whereby all
of NLIC's accident and health and group life insurance business was
ceded to ELICW and another affiliate effective January 1, 1996. These
subsidiaries and all accident and health and group life insurance
business have been accounted for as discontinued operations for all
periods presented. See notes 2 and 13.
In addition, as part of the restructuring described above, NLIC intends
to make an $850,000 distribution to NFS which will then make an
equivalent distribution to Nationwide Corp.
The Company is a leading provider of long-term savings and retirement
products to retail and institutional customers and is subject to
competition from other financial services providers throughout the
United States. The Company is subject to regulation by the Insurance
Departments of states in which it is licensed, and undergoes periodic
examinations by those departments.
The following is a description of the most significant risks facing
life insurers and how the Company mitigates those risks:
LEGAL/REGULATORY RISK is the risk that changes in the legal or
regulatory environment in which an insurer operates will create
additional expenses not anticipated by the insurer in pricing its
products. That is, regulatory initiatives, new legal theories or
insurance company insolvencies through guaranty fund assessments
may create costs for the insurer beyond those currently recorded
in the consolidated financial statements. The Company mitigates
this risk by offering a wide range of products and by operating
throughout the United States, thus reducing its exposure to any
single product or jurisdiction, and also by employing underwriting
practices which identify and minimize the adverse impact of this
risk.
CREDIT RISK is the risk that issuers of securities owned by the
Company or mortgagors on mortgage loans on real estate owned by
the Company will default or that other parties, including
reinsurers, which owe the Company money, will not pay. The Company
minimizes this risk by adhering to a conservative investment
strategy, by maintaining reinsurance and credit and collection
policies and by providing for any amounts deemed uncollectible.
<PAGE> 7
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
INTEREST RATE RISK is the risk that interest rates will change and
cause a decrease in the value of an insurer's investments. This
change in rates may cause certain interest-sensitive products to
become uncompetitive or may cause disintermediation. The Company
mitigates this risk by charging fees for non-conformance with
certain policy provisions, by offering products that transfer this
risk to the purchaser, and/or by attempting to match the maturity
schedule of its assets with the expected payouts of its
liabilities. To the extent that liabilities come due more quickly
than assets mature, an insurer would have to borrow funds or sell
assets prior to maturity and potentially recognize a gain or loss.
(2) Discontinued Operations
-----------------------
As discussed in note 1, NFS is a holding company for NLIC and certain
other companies that offer or distribute long-term savings and
retirement products. Prior to the contribution by Nationwide Corp. to
NFS of the outstanding common stock of NLIC and other companies, NLIC
effected certain transactions with respect to certain subsidiaries and
lines of business that were unrelated to long-term savings and
retirement products.
On September 24, 1996, NLIC's Board of Directors declared a dividend to
Nationwide Corp. consisting of the outstanding shares of common stock
of three subsidiaries: ELICW, NCC and WCLIC. ELICW writes group
accident and health and group life insurance business and maintains it
offices in Wausau, Wisconsin. NCC is a property and casualty company
that serves as a fronting company for a property and casualty
subsidiary of Nationwide Mutual Insurance Company (NMIC), an affiliate.
NCC maintains its offices in Scottsdale, Arizona. WCLIC writes high
dollar term life insurance policies and is located in San Francisco,
California. ELICW, NCC and WCLIC have been accounted for as
discontinued operations for all periods presented. NLIC did not
recognize any gain or loss on the disposal of these subsidiaries.
A summary of the combined results of operations, including the results
of the accident and health and group life insurance business ELICW
assumed from NLIC in 1996, and assets and liabilities of ELICW, NCC and
WCLIC as of and for the years ended December 31, 1996, 1995 and 1994 is
as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Revenues $ 668,870 422,149 84,226
Net income 11,324 26,456 11,753
Assets, consisting primarily of investments 3,029,293 2,967,326 2,537,692
Liabilities, consisting primarily of policy benefits and claims 2,543,586 2,460,649 2,179,263
</TABLE>
During 1996, NLIC entered into two reinsurance agreements whereby all
of NLIC's accident and health and group life insurance business was
ceded to ELICW and NMIC, effective January 1, 1996. See note 13 for a
complete discussion of the reinsurance agreements. NLIC has
discontinued its accident and health and group life insurance business
and in connection therewith has entered into reinsurance agreements to
cede all existing and any future writings to other affiliated companies
and will cease writing any new business prior to December 31, 1997.
NLIC's accident and health and group life insurance business is
accounted for as discontinued operations for all periods presented.
NLIC did not recognize any gain or loss on the disposal of the accident
and health and group life insurance business. The assets, liabilities,
results of operations and activities of discontinued operations are
distinguished physically, operationally and for financial reporting
purposes from the remaining assets, liabilities, results of operations
and activities of NLIC.
<PAGE> 8
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
A summary of the results of operations, net of amounts ceded to ELICW
and NMIC in 1996, and assets and liabilities of NLIC's accident and
health and group life insurance business as of and for the years ended
December 31, 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Revenues $ - 354,788 362,476
Net income (loss) - (1,742) 8,706
Assets, consisting primarily of investments 259,185 239,426 234,082
Liabilities, consisting primarily of policy benefits and claims 259,185 239,426 234,082
</TABLE>
(3) Summary of Significant Accounting Policies
------------------------------------------
The significant accounting policies followed by the Company that
materially affect financial reporting are summarized below. The
accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles (GAAP) which
differ from statutory accounting practices prescribed or permitted by
regulatory authorities. Annual Statements for NLIC and its insurance
subsidiaries, filed with the department of insurance of each insurance
company's state of domicile, are prepared on the basis of accounting
practices prescribed or permitted by each department. Prescribed
statutory accounting practices include a variety of publications of the
National Association of Insurance Commissioners (NAIC), as well as
state laws, regulations and general administrative rules. Permitted
statutory accounting practices encompass all accounting practices not
so prescribed. The Company has no material permitted statutory
accounting practices.
In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosures of contingent
assets and liabilities as of the date of the consolidated financial
statements and the reported amounts of revenues and expenses for the
reporting period. Actual results could differ significantly from those
estimates.
The most significant estimates include those used in determining
deferred policy acquisition costs, valuation allowances for mortgage
loans on real estate and real estate investments and the liability for
future policy benefits and claims. Although some variability is
inherent in these estimates, management believes the amounts provided
are adequate.
(a) Consolidation Policy
--------------------
The consolidated financial statements include the accounts of NLIC
and its wholly owned subsidiaries. Subsidiaries that are
classified and reported as discontinued operations are not
consolidated but rather are reported as "Investment in
Subsidiaries Classified as Discontinued Operations" in the
accompanying consolidated balance sheets and "Income for
Discontinued Operations" in the accompanying consolidated
statements of income. All significant intercompany balances and
transactions have been eliminated.
(b) Valuation of Investments and Related Gains and Losses
-----------------------------------------------------
The Company is required to classify its fixed maturity securities
and equity securities as either held-to-maturity,
available-for-sale or trading. Fixed maturity securities are
classified as held-to-maturity when the Company has the positive
intent and ability to hold the securities to maturity and are
stated at amortized cost. Fixed maturity securities not classified
as held-to-maturity and all equity securities are classified as
available-for-sale and are stated at fair value, with the
unrealized gains and losses, net of adjustments to deferred policy
acquisition costs and deferred federal income tax, reported as a
separate component of shareholder's equity. The adjustment to
deferred policy acquisition costs represents the change in
amortization of deferred policy acquisition costs that would have
been required as a charge or credit to operations had such
unrealized amounts been realized. The Company has no fixed
maturity securities classified as held-to-maturity or trading as
of December 31, 1996 or 1995.
<PAGE> 9
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Mortgage loans on real estate are carried at the unpaid principal
balance less valuation allowances. The Company provides valuation
allowances for impairments of mortgage loans on real estate based
on a review by portfolio managers. The measurement of impaired
loans is based on the present value of expected future cash flows
discounted at the loan's effective interest rate or, as a
practical expedient, at the fair value of the collateral, if the
loan is collateral dependent. Loans in foreclosure and loans
considered to be impaired are placed on non-accrual status.
Interest received on non-accrual status mortgage loans on real
estate are included in interest income in the period received.
Real estate is carried at cost less accumulated depreciation and
valuation allowances. Other long-term investments are carried on
the equity basis, adjusted for valuation allowances. Impairment
losses are recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the
assets' carrying amount.
Realized gains and losses on the sale of investments are
determined on the basis of specific security identification.
Estimates for valuation allowances and other than temporary
declines are included in realized gains and losses on investments.
(c) Revenues and Benefits
---------------------
INVESTMENT PRODUCTS AND UNIVERSAL LIFE INSURANCE PRODUCTS:
Investment products consist primarily of individual and group
variable and fixed annuities, annuities without life contingencies
and guaranteed investment contracts. Universal life insurance
products include universal life insurance, variable universal life
insurance and other interest-sensitive life insurance policies.
Revenues for investment products and universal life insurance
products consist of net investment income, asset fees, cost of
insurance, policy administration and surrender charges that have
been earned and assessed against policy account balances during
the period. Policy benefits and claims that are charged to expense
include interest credited to policy account balances and benefits
and claims incurred in the period in excess of related policy
account balances.
TRADITIONAL LIFE INSURANCE PRODUCTS: Traditional life insurance
products include those products with fixed and guaranteed premiums
and benefits and consist primarily of whole life insurance,
limited-payment life insurance, term life insurance and certain
annuities with life contingencies. Premiums for traditional life
insurance products are recognized as revenue when due. Benefits
and expenses are associated with earned premiums so as to result
in recognition of profits over the life of the contract. This
association is accomplished by the provision for future policy
benefits and the deferral and amortization of policy acquisition
costs.
ACCIDENT AND HEALTH INSURANCE PRODUCTS: Accident and health
insurance premiums are recognized as revenue over the terms of the
policies. Policy claims are charged to expense in the period that
the claims are incurred. All accident and health insurance
business is accounted for as discontinued operations. See note 2.
(d) Deferred Policy Acquisition Costs
---------------------------------
The costs of acquiring new business, principally commissions,
certain expenses of the policy issue and underwriting department
and certain variable agency expenses have been deferred. For
investment products and universal life insurance products,
deferred policy acquisition costs are being amortized with
interest over the lives of the policies in relation to the present
value of estimated future gross profits from projected interest
margins, asset fees, cost of insurance, policy administration and
surrender charges. For years in which gross profits are negative,
deferred policy acquisition costs are amortized based on the
present value of gross revenues. For traditional life products,
these deferred policy acquisition costs are predominantly being
amortized with interest over the premium paying period of the
related policies in proportion to the ratio of actual annual
premium revenue to the anticipated total premium revenue. Such
anticipated premium revenue was estimated using the same
assumptions as were used for computing liabilities for future
policy benefits. Deferred policy acquisition costs are adjusted to
reflect the impact of unrealized gains and losses on fixed
maturity securities available-for-sale as described in note 3(b).
<PAGE> 10
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(e) Separate Accounts
-----------------
Separate Account assets and liabilities represent contractholders'
funds which have been segregated into accounts with specific
investment objectives. The investment income and gains or losses
of these accounts accrue directly to the contractholders. The
activity of the Separate Accounts is not reflected in the
consolidated statements of income and cash flows except for the
fees the Company receives.
(f) Future Policy Benefits
----------------------
Future policy benefits for investment products in the accumulation
phase, universal life insurance and variable universal life
insurance policies have been calculated based on participants'
contributions plus interest credited less applicable contract
charges.
Future policy benefits for traditional life insurance policies
have been calculated using a net level premium method based on
estimates of mortality, morbidity, investment yields and
withdrawals which were used or which were being experienced at the
time the policies were issued, rather than the assumptions
prescribed by state regulatory authorities. See note 6.
Future policy benefits and claims for collectively renewable
long-term disability policies and group long-term disability
policies are the present value of amounts not yet due on reported
claims and an estimate of amounts to be paid on incurred but
unreported claims. The impact of reserve discounting is not
material. Future policy benefits and claims on other group health
insurance policies are not discounted. All health insurance
business is accounted for as discontinued operations. See note 2.
(g) Participating Business
----------------------
Participating business represents approximately 52% in 1996 (54%
in 1995 and 55% in 1994) of the Company's life insurance in force,
78% in 1996 (79% in 1995 and 79% in 1994) of the number of life
insurance policies in force, and 40% in 1996 (47% in 1995 and 51%
in 1994) of life insurance premiums. The provision for
policyholder dividends is based on current dividend scales. Future
dividends are provided for ratably in future policy benefits based
on dividend scales in effect at the time the policies were issued.
(h) Federal Income Tax
------------------
The Company, with the exception of ELICW, files a consolidated
federal income tax return with NMIC, the majority shareholder of
Nationwide Corp. The members of the consolidated tax return group
have a tax sharing arrangement which provides, in effect, for each
member to bear essentially the same federal income tax liability
as if separate tax returns were filed. Through 1994, ELICW filed a
consolidated federal income tax return with Employers Insurance of
Wausau A Mutual Company, an affiliate. Beginning in 1995, ELICW
files a separate federal income tax return.
The Company utilizes the asset and liability method of accounting
for income tax. Under this method, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be
recovered or settled. Under this method, the effect on deferred
tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.
Valuation allowances are established when necessary to reduce the
deferred tax assets to the amounts expected to be realized.
<PAGE> 11
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(i) Reinsurance Ceded
-----------------
Reinsurance premiums ceded and reinsurance recoveries on benefits
and claims incurred are deducted from the respective income and
expense accounts. Assets and liabilities related to reinsurance
ceded are reported on a gross basis. All of the Company's accident
and health and group life insurance business is ceded to
affiliates and is accounted for as discontinued operations. See
notes 2 and 13.
(j) Reclassification
----------------
Certain items in the 1995 and 1994 consolidated financial
statements have been reclassified to conform to the 1996
presentation.
(4) Change in Accounting Principle
------------------------------
Effective January 1, 1994, the Company changed its method of accounting
for certain investments in debt and equity securities in connection
with the issuance of STATEMENT OF FINANCIAL ACCOUNTING STANDARDS (SFAS)
NO. 115 - ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY
SECURITIES. As of January 1, 1994, the Company classified fixed
maturity securities with amortized cost and fair value of $6,299,665
and $6,721,714, respectively, as available-for-sale and recorded the
securities at fair value. Previously, these securities were recorded at
amortized cost. The effect as of January 1, 1994 has been recorded as a
direct credit to shareholder's equity as follows:
<TABLE>
<CAPTION>
<S> <C>
Excess of fair value over amortized cost of fixed maturity
securities available-for-sale $ 422,049
Adjustment to deferred policy acquisition costs (95,044)
Deferred federal income tax (114,452)
--------------
$ 212,553
==============
</TABLE>
(5) Investments
-----------
The amortized cost and estimated fair value of securities
available-for-sale were as follows as of December 31, 1996:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
------------ ---------- ----------- -----------
<S> <C> <C> <C> <C>
1996:
Fixed maturity securities:
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $ 275,696 4,795 (1,340) 279,151
Obligations of states and political subdivisions 6,242 450 (2) 6,690
Debt securities issued by foreign governments 100,656 2,141 (857) 101,940
Corporate securities 7,999,310 285,946 (33,686) 8,251,570
Mortgage-backed securities 3,588,974 91,438 (15,124) 3,665,288
------------ ---------- ------------ ------------
Total fixed maturity securities 11,970,878 384,770 (51,009) 12,304,639
Equity securities 43,890 15,571 (330) 59,131
------------ ---------- ------------ ------------
$12,014,768 400,341 (51,339) 12,363,770
============ ========== ============ ============
</TABLE>
<PAGE> 12
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The amortized cost and estimated fair value of securities
available-for-sale were as follows as of December 31, 1995:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
------------ ---------- ----------- ---------------
<S> <C> <C> <C> <C>
1995:
Fixed maturity securities:
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $ 310,186 12,764 (1) 322,949
Obligations of states and political subdivisions 8,655 1,205 (1) 9,859
Debt securities issued by foreign governments 101,414 4,387 (66) 105,735
Corporate securities 7,888,440 473,681 (25,742) 8,336,379
Mortgage-backed securities 3,553,861 165,169 (8,388) 3,710,642
------------ ---------- ----------- ---------------
Total fixed maturity securities 11,862,556 657,206 (34,198) 12,485,564
Equity securities 23,617 6,382 (46) 29,953
------------ ---------- ----------- ---------------
$11,886,173 663,588 (34,244) 12,515,517
============ ========== =========== ===============
</TABLE>
The amortized cost and estimated fair value of fixed maturity
securities available-for-sale as of December 31, 1996, by contractual
maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Estimated
cost fair value
--------------- --------------
<S> <C> <C>
Fixed maturity securities available-for-sale:
Due in one year or less $ 440,235 444,214
Due after one year through five years 3,937,010 4,053,152
Due after five years through ten years 2,809,813 2,871,806
Due after ten years 1,194,846 1,270,179
--------------- --------------
8,381,904 8,639,351
Mortgage-backed securities 3,588,974 3,665,288
--------------- --------------
$11,970,878 12,304,639
=============== ==============
</TABLE>
The components of unrealized gains on securities available-for-sale,
net, were as follows as of December 31:
<TABLE>
<CAPTION>
1996 1995
--------------- --------------
<S> <C> <C>
Gross unrealized gains $349,002 629,344
Adjustment to deferred policy acquisition costs (81,939) (138,914)
Deferred federal income tax (93,471) (171,649)
--------------- --------------
173,592 318,781
Unrealized gains on securities available-for-sale, net, of
subsidiaries classified as discontinued operations (note 2) - 65,523
--------------- --------------
$173,592 384,304
=============== ==============
</TABLE>
<PAGE> 13
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
An analysis of the change in gross unrealized gains (losses) on
securities available-for-sale and fixed maturity securities
held-to-maturity follows for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
--------------- ------------- --------------
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturity securities $(289,247) 876,332 (675,373)
Equity securities 8,905 (26) (1,927)
Fixed maturity securities held-to-maturity - 75,626 (398,183)
--------------- ------------- --------------
$(280,342) 951,932 (1,075,483)
=============== ============= ==============
</TABLE>
Proceeds from the sale of securities available-for-sale during 1996,
1995 and 1994 were $299,558, $107,345 and $228,308, respectively.
During 1996, gross gains of $6,606 ($4,838 and $3,045 in 1995 and 1994,
respectively) and gross losses of $6,925 ($2,147 and $21,280 in 1995
and 1994, respectively) were realized on those sales.
During 1995, the Company transferred fixed maturity securities
classified as held-to-maturity with amortized cost of $25,429 to
available-for-sale securities due to evidence of a significant
deterioration in the issuer's creditworthiness. The transfer of those
fixed maturity securities resulted in a gross unrealized loss of
$3,535.
As permitted by the Financial Accounting Standards Board's Special
Report, A GUIDE TO IMPLEMENTATION OF STATEMENT 115 ON ACCOUNTING FOR
CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES, issued in November
1995 the Company transferred all of its fixed maturity securities
previously classified as held-to-maturity to available-for-sale. As of
December 14, 1995, the date of transfer, the fixed maturity securities
had amortized cost of $3,320,093, resulting in a gross unrealized gain
of $155,940.
Investments that were non-income producing for the twelve month period
preceding December 31, 1996 amounted to $26,805 ($27,712 in 1995) and
consisted of $248 ($6,982 in 1995) in fixed maturity securities,
$20,633 ($14,740 in 1995) in real estate and $5,924 ($5,990 in 1995) in
other long-term investments.
Real estate is presented at cost less accumulated depreciation of
$30,338 as of December 31, 1996 ($30,482 as of December 31, 1995) and
valuation allowances of $15,219 as of December 31, 1996 ($25,819 as of
December 31, 1995).
The recorded investment of mortgage loans on real estate considered to
be impaired (under SFAS NO. 114 - ACCOUNTING BY CREDITORS FOR
IMPAIRMENT OF A LOAN as amended by SFAS NO. 118 - ACCOUNTING BY
CREDITORS FOR IMPAIRMENT OF A LOAN-INCOME RECOGNITION AND DISCLOSURE)
as of December 31, 1996 was $51,765 ($44,409 as of December 31, 1995),
which includes $41,663 ($23,975 as of December 31, 1995) of impaired
mortgage loans on real estate for which the related valuation allowance
was $8,485 ($5,276 as of December 31, 1995) and $10,102 ($20,434 as of
December 31, 1995) of impaired mortgage loans on real estate for which
there was no valuation allowance. During 1996, the average recorded
investment in impaired mortgage loans on real estate was approximately
$39,674 ($22,181 in 1995) and interest income recognized on those loans
was $2,103 ($387 in 1995), which is equal to interest income recognized
using a cash-basis method of income recognition.
Activity in the valuation allowance account for mortgage loans on real
estate is summarized for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995
------------- --------------
<S> <C> <C>
Allowance, beginning of year $49,128 46,381
Additions charged to operations 4,497 7,433
Direct write-downs charged against the allowance (2,587) (4,686)
------------- -------------
Allowance, end of year $51,038 49,128
============= ==============
</TABLE>
<PAGE> 14
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
An analysis of investment income by investment type follows for the
years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
--------------- ------------- ------------
<S> <C> <C> <C>
Gross investment income:
Securities available-for-sale:
Fixed maturity securities $ 917,135 685,787 647,927
Equity securities 1,291 1,330 509
Fixed maturity securities held-to-maturity - 201,808 185,938
Mortgage loans on real estate 432,815 395,478 372,734
Real estate 44,332 38,344 40,170
Short-term investments 4,155 10,576 6,141
Other 3,998 7,239 2,121
--------------- ------------- --------------
Total investment income 1,403,726 1,340,562 1,255,540
Less investment expenses 45,967 46,529 44,729
--------------- ------------- ---------------
Net investment income $1,357,759 1,294,033 1,210,811
=============== ============= ==============
</TABLE>
An analysis of realized gains (losses) on investments, net of valuation
allowances, by investment type follows for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturity securities $(3,462) 4,213 (7,296)
Equity securities 3,143 3,386 1,422
Mortgage loans on real estate (4,115) (7,091) (20,446)
Real estate and other 4,108 (2,232) 9,793
------------ ------------ ------------
$ (326) (1,724) (16,527)
============ ============ ============
</TABLE>
Fixed maturity securities with an amortized cost of $6,161 and $5,592
as of December 31, 1996 and 1995, respectively, were on deposit with
various regulatory agencies as required by law.
(6) Future Policy Benefits and Claims
---------------------------------
The liability for future policy benefits for investment contracts
represents approximately 87% and 87% of the total liability for future
policy benefits as of December 31, 1996 and 1995, respectively. The
average interest rate credited on investment product policies was
approximately 6.3%, 6.6% and 6.5% for the years ended December 31,
1996, 1995 and 1994, respectively.
The liability for future policy benefits for traditional life insurance
policies has been established based upon the following assumptions:
Interest rates: Interest rates vary as follows:
--------------
<TABLE>
<CAPTION>
Year of issue Interest rates
----------------- ----------------------------------------
<S> <C>
1996 6.6%, not graded
1984-1995 6.0% to 10.5%, not graded
1966-1983 6.0% to 8.1%, graded over 20 years to 4.0% to 6.6%
1965 and prior generally lower than post 1965 issues
</TABLE>
<PAGE> 15
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
WITHDRAWALS: Rates, which vary by issue age, type of coverage
and policy duration, are based on Company experience.
MORTALITY: Mortality and morbidity rates are based on
published tables, modified for the Company's actual
experience.
The Company has entered into a reinsurance contract to cede a portion
of its general account individual annuity business to The Franklin Life
Insurance Company (Franklin). Total recoveries due from Franklin were
$240,451 and $245,255 as of December 31, 1996 and 1995, respectively.
The contract is immaterial to the Company's results of operations. The
ceding of risk does not discharge the original insurer from its primary
obligation to the policyholder. Under the terms of the contract,
Franklin has established a trust as collateral for the recoveries. The
trust assets are invested in investment grade securities, the market
value of which must at all times be greater than or equal to 102% of
the reinsured reserves.
The Company has reinsurance agreements with certain affiliates as
described in note 13. All other reinsurance agreements are not material
to either premiums or reinsurance recoverables.
(7) Federal Income Tax
-------------------
The tax effects of temporary differences that give rise to significant
components of the net deferred tax liability as of December 31, 1996
and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
----------------- ---------------
<S> <C> <C>
Deferred tax assets:
Future policy benefits $175,571 149,192
Liabilities in Separate Accounts 188,426 129,120
Mortgage loans on real estate and real estate 23,366 25,165
Other policyholder funds 7,407 7,424
Other assets and other liabilities 53,757 41,847
----------------- ---------------
Total gross deferred tax assets 448,527 352,748
Less valuation allowances (7,000) (7,000)
----------------- ---------------
Net deferred tax assets 441,527 345,748
================= ===============
Deferred tax liabilities:
Deferred policy acquisition costs 399,345 299,579
Fixed maturity securities 133,210 227,345
Deferred tax on realized investment gains 37,597 40,634
Equity securities and other long-term investments 8,210 3,780
Other 25,377 21,037
----------------- ---------------
Total gross deferred tax liabilities 603,739 592,375
----------------- ---------------
$162,212 246,627
================= ===============
</TABLE>
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion of the
total gross deferred tax assets will not be realized. Nearly all future
deductible amounts can be offset by future taxable amounts or recovery
of federal income tax paid within the statutory carryback period. There
has been no change in the valuation allowance for the years ended
December 31, 1996, 1995 and 1994.
<PAGE> 16
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Total federal income tax expense for the years ended December 31, 1996,
1995 and 1994 differs from the amount computed by applying the U.S.
federal income tax rate to income before tax as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------- ---------------------- ----------------------
Amount % Amount % Amount %
---------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Computed (expected) tax expense $110,424 35.0 $100,650 35.0 $84,650 35.0
Tax exempt interest and dividends
received deduction (212) (0.1) (18) (0.0) (130) (0.1)
Other, net 677 0.3 (824) (0.3) (5,931) (2.5)
------------ -------- ------------- -------- ------------- --------
Total (effective rate of each year) $110,889 35.2 $ 99,808 34.7 $78,589 32.5
============ ======== ============= ======== ============= ========
</TABLE>
Total federal income tax paid was $115,839, $51,840 and $83,239
during the years ended December 31, 1996, 1995 and 1994,
respectively.
(8) Disclosures about Fair Value of Financial Instruments
-----------------------------------------------------
SFAS NO. 107 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
(SFAS 107) requires disclosure of fair value information about existing
on and off-balance sheet financial instruments. SFAS 107 defines the
fair value of a financial instrument as the amount at which the
financial instrument could be exchanged in a current transaction
between willing parties. In cases where quoted market prices are not
available, fair value is based on estimates using present value or
other valuation techniques.
These techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows.
Although fair value estimates are calculated using assumptions that
management believes are appropriate, changes in assumptions could cause
these estimates to vary materially. In that regard, the derived fair
value estimates cannot be substantiated by comparison to independent
markets and, in many cases, could not be realized in the immediate
settlement of the instruments. SFAS 107 excludes certain assets and
liabilities from its disclosure requirements. Accordingly, the
aggregate fair value amounts presented do not represent the underlying
value of the Company.
Although insurance contracts, other than policies such as annuities
that are classified as investment contracts, are specifically exempted
from SFAS 107 disclosures, estimated fair value of policy reserves on
life insurance contracts is provided to make the fair value disclosures
more meaningful.
The tax ramifications of the related unrealized gains and losses can
have a significant effect on fair value estimates and have not been
considered in the estimates.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures:
CASH, SHORT-TERM INVESTMENTS AND POLICY LOANS: The carrying amount
reported in the consolidated balance sheets for these instruments
approximates their fair value.
FIXED MATURITY AND EQUITY SECURITIES: Fair value for fixed
maturity securities is based on quoted market prices, where
available. For fixed maturity securities not actively traded, fair
value is estimated using values obtained from independent pricing
services or, in the case of private placements, is estimated by
discounting expected future cash flows using a current market rate
applicable to the yield, credit quality and maturity of the
investments. The fair value for equity securities is based on
quoted market prices.
SEPARATE ACCOUNT ASSETS AND LIABILITIES: The fair value of assets
held in Separate Accounts is based on quoted market prices. The
fair value of liabilities related to Separate Accounts is the
amount payable on demand, which includes certain surrender
charges.
<PAGE> 17
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
MORTGAGE LOANS ON REAL ESTATE: The fair value for mortgage loans
on real estate is estimated using discounted cash flow analyses,
using interest rates currently being offered for similar loans to
borrowers with similar credit ratings. Loans with similar
characteristics are aggregated for purposes of the calculations.
Fair value for mortgages in default is the estimated fair value of
the underlying collateral.
INVESTMENT CONTRACTS: Fair value for the Company's liabilities
under investment type contracts is disclosed using two methods.
For investment contracts without defined maturities, fair value is
the amount payable on demand. For investment contracts with known
or determined maturities, fair value is estimated using discounted
cash flow analyses. Interest rates used are similar to currently
offered contracts with maturities consistent with those remaining
for the contracts being valued.
POLICY RESERVES ON LIFE INSURANCE CONTRACTS: Included are
disclosures for individual life insurance, universal life
insurance and supplementary contracts with life contingencies for
which the estimated fair value is the amount payable on demand.
Also included are disclosures for the Company's limited payment
policies, which the Company has used discounted cash flow analyses
similar to those used for investment contracts with known
maturities to estimate fair value.
POLICYHOLDERS' DIVIDEND ACCUMULATIONS AND OTHER POLICYHOLDER
FUNDS: The carrying amount reported in the consolidated balance
sheets for these instruments approximates their fair value.
COMMITMENTS TO EXTEND CREDIT: Commitments to extend credit have
nominal fair value because of the short-term nature of such
commitments. See note 9.
Carrying amount and estimated fair value of financial instruments
subject to SFAS 107 and policy reserves on life insurance contracts
were as follows as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------------------------------ -------------------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
------------------------------ --------------- ---------------
<S> <C> <C> <C> <C>
Assets
------
Investments:
Securities available-for-sale:
Fixed maturity securities $12,304,639 12,304,639 12,485,564 12,485,564
Equity securities 59,131 59,131 29,953 29,953
Mortgage loans on real estate, net 5,272,119 5,397,865 4,602,764 4,961,655
Policy loans 371,816 371,816 336,356 336,356
Short-term investments 4,789 4,789 32,792 32,792
Cash 43,784 43,784 9,455 9,455
Assets held in Separate Accounts 26,926,702 26,926,702 18,591,108 18,591,108
Liabilities
-----------
Investment contracts 13,914,441 13,484,526 13,229,360 12,876,798
Policy reserves on life insurance contracts 2,971,337 2,775,991 2,836,323 2,733,486
Policyholders' dividend accumulations 361,401 361,401 348,027 348,027
Other policyholder funds 60,073 60,073 65,297 65,297
Liabilities related to Separate Accounts 26,926,702 26,164,213 18,591,108 18,052,362
</TABLE>
(9) Additional Financial Instruments Disclosures
--------------------------------------------
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK: The Company is a
party to financial instruments with off-balance-sheet risk in the
normal course of business through management of its investment
portfolio. These financial instruments include commitments to extend
credit in the form of loans. These instruments involve, to varying
degrees, elements of credit risk in excess of amounts recognized on the
consolidated balance sheets.
<PAGE> 18
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Commitments to fund fixed rate mortgage loans on real estate are
agreements to lend to a borrower, and are subject to conditions
established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment
of a deposit. Commitments extended by the Company are based on
management's case-by-case credit evaluation of the borrower and the
borrower's loan collateral. The underlying mortgage property represents
the collateral if the commitment is funded. The Company's policy for
new mortgage loans on real estate is to lend no more than 75% of
collateral value. Should the commitment be funded, the Company's
exposure to credit loss in the event of nonperformance by the borrower
is represented by the contractual amounts of these commitments less the
net realizable value of the collateral. The contractual amounts also
represent the cash requirements for all unfunded commitments.
Commitments on mortgage loans on real estate of $327,456 extending into
1997 were outstanding as of December 31, 1996.
SIGNIFICANT CONCENTRATIONS OF CREDIT RISK: The Company grants mainly
commercial mortgage loans on real estate to customers throughout the
United States. The Company has a diversified portfolio with no more
than 21% (20% in 1995) in any geographic area and no more than 2% (2%
in 1995) with any one borrower as of December 31, 1996.
The Company had a significant reinsurance recoverable balance from one
reinsurer as of December 31, 1996 and 1995. See note 6.
The summary below depicts loans by remaining principal balance as of
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
Apartment
Office Warehouse Retail & other Total
------------ ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
1996:
East North Central $139,518 119,069 549,064 215,038 1,022,689
East South Central 33,267 22,252 172,968 90,623 319,110
Mountain 17,972 43,027 113,292 73,390 247,681
Middle Atlantic 129,077 54,046 160,833 18,498 362,454
New England 33,348 43,581 161,960 - 238,889
Pacific 202,562 325,046 424,295 110,108 1,062,011
South Atlantic 103,889 134,492 482,934 385,185 1,106,500
West North Central 126,467 2,441 75,180 40,529 244,617
West South Central 104,877 120,314 197,090 304,256 726,537
------------- ------------- ------------- -------------- ------------
$890,977 864,268 2,337,616 1,237,627 5,330,488
============ ============= ============= =============
Less valuation allowances and unamortized discount 58,369
--------------
Total mortgage loans on real estate, net $5,272,119
==============
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
1995:
East North Central $138,965 101,925 514,995 175,213 931,098
East South Central 21,329 13,053 180,858 82,383 297,623
Mountain - 17,219 138,220 45,274 200,713
Middle Atlantic 116,187 64,813 158,252 10,793 350,045
New England 9,559 39,525 148,449 1 197,534
Pacific 183,206 233,186 374,915 105,419 896,726
South Atlantic 106,246 73,541 446,800 278,265 904,852
West North Central 133,899 14,205 78,065 36,651 262,820
West South Central 69,140 92,594 190,299 267,268 619,301
------------ ------------ ------------- ------------- --------------
$778,531 650,061 2,230,853 1,001,267 4,660,712
============ ============= ============= =============
Less valuation allowances and unamortized discount 57,948
--------------
Total mortgage loans on real estate, net $4,602,764
==============
</TABLE>
<PAGE> 19
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(10) Pension Plan
------------
The Company is a participant, together with other affiliated companies,
in a pension plan covering all employees who have completed at least
one thousand hours of service within a twelve-month period and who have
met certain age requirements. Benefits are based upon the highest
average annual salary of a specified number of consecutive years of the
last ten years of service. The Company funds pension costs accrued for
direct employees plus an allocation of pension costs accrued for
employees of affiliates whose work efforts benefit the Company.
Effective January 1, 1995, the plan was amended to provide enhanced
benefits for participants who met certain eligibility requirements and
elected early retirement no later than March 15, 1995. The entire cost
of the enhanced benefit was borne by NMIC and certain of its property
and casualty insurance company affiliates.
Effective December 31, 1995, the Nationwide Insurance Companies and
Affiliates Retirement Plan was merged with the Farmland Mutual
Insurance Company Employees' Retirement Plan and the Wausau Insurance
Companies Pension Plan to form the Nationwide Insurance Enterprise
Retirement Plan. Immediately prior to the merger, the plans were
amended to provide consistent benefits for service after January 1,
1996. These amendments had no significant impact on the accumulated
benefit obligation or projected benefit obligation as of December 31,
1995.
Pension costs charged to operations by the Company during the years
ended December 31, 1996, 1995 and 1994 were $7,381, $10,478 and
$10,063, respectively.
The Company's net accrued pension expense as of December 31, 1996 and
1995 was $1,075 and $1,392, respectively.
The net periodic pension cost for the Nationwide Insurance Enterprise
Retirement Plan as a whole for the year ended December 31, 1996 and for
the Nationwide Insurance Companies and Affiliates Retirement Plan as a
whole for the years ended December 31, 1995 and 1994 follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
Service cost (benefits earned during the period) $ 75,466 64,524 64,740
Interest cost on projected benefit obligation 105,511 95,283 73,951
Actual return on plan assets (210,583) (249,294) (21,495)
Net amortization and deferral 101,795 143,353 (62,150)
--------------- --------------- ---------------
$ 72,189 53,866 55,046
=============== =============== ===============
</TABLE>
Basis for measurements, net periodic pension cost:
<TABLE>
<CAPTION>
1996 1995 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
Weighted average discount rate 6.00% 7.50% 5.75%
Rate of increase in future compensation levels 4.25% 6.25% 4.50%
Expected long-term rate of return on plan assets 6.75% 8.75% 7.00%
</TABLE>
<PAGE> 20
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Information regarding the funded status of the Nationwide Insurance
Enterprise Retirement Plan as a whole as of December 31, 1996 and 1995
follows:
<TABLE>
<CAPTION>
1996 1995
--------------- ---------------
<S> <C> <C>
Accumulated benefit obligation:
Vested $1,338,554 1,236,730
Nonvested 11,149 26,503
--------------- ---------------
$1,349,703 1,263,233
=============== ===============
Net accrued pension expense:
Projected benefit obligation for services rendered to
date $1,847,828 1,780,616
Plan assets at fair value 1,947,933 1,738,004
--------------- ---------------
Plan assets in excess of (less than) projected benefit
obligation 100,105 (42,612)
Unrecognized prior service cost 37,870 42,845
Unrecognized net gains (201,952) (63,130)
Unrecognized net asset at transition 37,158 41,305
--------------- ---------------
$ (26,819) (21,592)
=============== ===============
</TABLE>
Basis for measurements, funded status of plan:
<TABLE>
<CAPTION>
1996 1995
--------------- ---------------
<S> <C> <C>
Weighted average discount rate 6.50% 6.00%
Rate of increase in future compensation levels 4.75% 4.25%
</TABLE>
Assets of the Nationwide Insurance Enterprise Retirement Plan are
invested in group annuity contracts of NLIC and ELICW.
(11) Postretirement Benefits Other Than Pensions
-------------------------------------------
In addition to the defined benefit pension plan, the Company, together
with other affiliated companies, participates in life and health care
defined benefit plans for qualifying retirees. Postretirement life and
health care benefits are contributory and generally available to full
time employees who have attained age 55 and have accumulated 15 years
of service with the Company after reaching age 40. Postretirement
health care benefit contributions are adjusted annually and contain
cost-sharing features such as deductibles and coinsurance. In addition,
there are caps on the Company's portion of the per-participant cost of
the postretirement health care benefits. These caps can increase
annually, but not more than three percent. The Company's policy is to
fund the cost of health care benefits in amounts determined at the
discretion of management. Plan assets are invested primarily in group
annuity contracts of NLIC.
The Company elected to immediately recognize its estimated accumulated
postretirement benefit obligation; however, certain affiliated
companies elected to amortize their initial transition obligation over
periods ranging from 10 to 20 years.
The Company's accrued postretirement benefit expense as of December 31,
1996 and 1995 was $34,884 and $33,537, respectively, and the net
periodic postretirement benefit cost (NPPBC) for 1996, 1995 and 1994
was $3,286, $3,132 and $4,284, respectively.
<PAGE> 21
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The amount of NPPBC for the plan as a whole for the years ended
December 31, 1996, 1995 and 1994 was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Service cost (benefits attributed to employee service during the year) $ 6,541 6,235 8,586
Interest cost on accumulated postretirement benefit obligation 13,679 14,151 14,011
Actual return on plan assets (4,348) (2,657) (1,622)
Amortization of unrecognized transition obligation of affiliates 173 2,966 568
Net amortization and deferral 1,830 (1,619) 1,622
----------- ----------- -----------
$17,875 19,076 23,165
=========== =========== ===========
</TABLE>
Information regarding the funded status of the plan as a whole as of
December 31, 1996 and 1995 follows:
<TABLE>
<CAPTION>
1996 1995
--------------- ---------------
<S> <C> <C>
Accrued postretirement benefit expense:
Retirees $ 92,954 88,680
Fully eligible, active plan participants 23,749 28,793
Other active plan participants 83,986 90,375
--------------- ---------------
Accumulated postretirement benefit obligation (APBO) 200,689 207,848
Plan assets at fair value 63,044 54,325
--------------- ---------------
Plan assets less than accumulated postretirement benefit obligation (137,645) (153,523)
Unrecognized transition obligation of affiliates 1,654 1,827
Unrecognized net gains (23,225) (1,038)
--------------- ---------------
$(159,216) (152,734)
=============== ===============
</TABLE>
Actuarial assumptions used for the measurement of the APBO as of
December 31, 1996 and 1995 and the NPPBC for 1996, 1995 and 1994 were
as follows:
<TABLE>
<CAPTION>
1996 1996 1995 1995 1994
APBO NPPBC APBO NPPBC NPPBC
------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Discount rate 7.25% 6.65% 6.75% 8.00% 7.00%
Long-term rate of return on plan
assets, net of tax - 4.80% - 8.00% N/A
Assumed health care cost trend rate:
Initial rate 11.00% 11.00% 11.00% 10.00% 12.00%
Ultimate rate 6.00% 6.00% 6.00% 6.00% 6.00%
Uniform declining period 12 Years 12 Years 12 Years 12 Years 12 Years
</TABLE>
The health care cost trend rate assumption has an effect on the amounts
reported. For the plan as a whole, a one percentage point increase in
the assumed health care cost trend rate would increase the APBO as of
December 31, 1996 by $701 and the NPPBC for the year ended December 31,
1996 by $83.
(12) Shareholder's Equity, Regulatory Risk-Based Capital, Retained Earnings
and Dividend Restrictions
---------------------------------------------------------------------
Each insurance company's state of domicile imposes minimum risk-based
capital requirements that were developed by the NAIC. The formulas for
determining the amount of risk-based capital specify various weighting
factors that are applied to financial balances or various levels of
activity based on the perceived degree of risk. Regulatory compliance
is determined by a ratio of the company's regulatory total adjusted
capital, as defined by the NAIC, to its authorized control level
risk-based capital, as defined by the NAIC. Companies below specific
trigger points or ratios are classified within certain levels, each of
which requires specified corrective action. NLIC and each of its
insurance company subsidiaries exceed the minimum risk-based capital
requirements.
<PAGE> 22
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The statutory capital shares and surplus of NLIC as of December 31,
1996, 1995 and 1994 was $1,000,647, $1,363,031 and $1,262,861,
respectively. The statutory net income of NLIC for the years ended
December 31, 1996, 1995 and 1994 was $73,218, $86,529 and $76,532,
respectively.
NLIC is limited in the amount of shareholder dividends it may pay
without prior approval by the Department of Insurance of the State of
Ohio (the Department). NLIC's dividend of the outstanding shares of
common stock of certain companies which was declared on September 24,
1996 and the anticipated $850,000 dividend (as discussed in note 1) are
deemed extraordinary under Ohio insurance laws. As a result of such
dividends, any dividend paid by NLIC during the 12-month period
immediately following the $850,000 dividend would also be an
extraordinary dividend under Ohio insurance laws. Accordingly, no such
dividend could be paid without prior regulatory approval.
In addition, the payment of dividends by NLIC may also be subject to
restrictions set forth in the insurance laws of New York that limit the
amount of statutory profits on NLIC's participating policies (measured
before dividends to policyholders) that can inure to the benefit of the
Company and its stockholder.
The Company currently does not expect such regulatory requirements to
impair its ability to pay operating expenses and stockholder dividends
in the future.
(13) Transactions With Affiliates
----------------------------
The Company leases office space from NMIC and certain of its
subsidiaries. For the years ended December 31, 1996, 1995 and 1994, the
Company made lease payments to NMIC and its subsidiaries of $9,065,
$8,986 and $8,133, respectively.
Pursuant to a cost sharing agreement among NMIC and certain of its
direct and indirect subsidiaries, including the Company, NMIC provides
certain operational and administrative services, such as sales support,
advertising, personnel and general management services, to those
subsidiaries. Expenses covered by this agreement are subject to
allocation among NMIC, the Company and other affiliates. Amounts
allocated to the Company were $101,584, $107,112, and $100,601 in 1996,
1995 and 1994, respectively. The allocations are based on techniques
and procedures in accordance with insurance regulatory guidelines.
Measures used to allocate expenses among companies include individual
employee estimates of time spent, special cost studies, salary expense,
commissions expense and other methods agreed to by the participating
companies that are within industry guidelines and practices. The
Company believes these allocation methods are reasonable. In addition,
the Company does not believe that expenses recognized under the
intercompany agreements are materially different than expenses that
would have been recognized had the Company operated on a stand alone
basis. Amounts payable to NMIC from the Company under the cost sharing
agreement were $15,111 and $1,186 as of December 31, 1996 and 1995,
respectively.
The Company also participates in intercompany repurchase agreements
with affiliates whereby the seller will transfer securities to the
buyer at a stated value. Upon demand or a stated period, the securities
will be repurchased by the seller at the original sales price plus a
price differential. Transactions under the agreements during 1996 and
1995 were not material. The Company believes that the terms of the
repurchase agreements are materially consistent with what the Company
could have obtained with unaffiliated parties.
<PAGE> 23
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Intercompany reinsurance contracts exist between NLIC and, respectively
NMIC and ELICW whereby all of NLIC's accident and health and group life
insurance business is ceded on a modified coinsurance basis. NLIC
entered into the reinsurance agreements during 1996 because the
accident and health and group life insurance business was unrelated to
NLIC's long-term savings and retirement products. Accordingly, the
accident and health and group life insurance business has been
accounted for as discontinued operations for all periods presented.
Under modified coinsurance agreements, invested assets are retained by
the ceding company and investment earnings are paid to the reinsurer.
Under the terms of NLIC's agreements, the investment risk associated
with changes in interest rates is borne by NMIC or ELICW, as the case
may be. Risk of asset default is retained by NLIC, although a fee is
paid by NMIC or ELICW, as the case may be, to NLIC for the NLIC's
retention of such risk. The agreements will remain in force until all
policy obligations are settled. However, with respect to the agreement
between NLIC and NMIC, either party may terminate the contract on
January 1 of any year with prior notice. The ceding of risk does not
discharge the original insurer from its primary obligation to the
policyholder. NLIC believes that the terms of the modified coinsurance
agreements are consistent in all material respects with what NLIC could
have obtained with unaffiliated parties.
Amounts ceded to ELICW in 1996 are included in ELICW's results of
operations for 1996 which, combined with the results of WCLIC and NCC,
are summarized in note 2. Amounts ceded to ELICW in 1996 include
premiums of $224,224, net investment income and other revenue of
$14,833, and benefits, claims and other expenses of $246,641. Amounts
ceded to NMIC in 1996 include premiums of $97,331, net investment
income of $10,890, and benefits, claims and other expenses of $100,476.
The Company and various affiliates entered into agreements with
Nationwide Cash Management Company (NCMC) and California Cash
Management Company (CCMC), both affiliates, under which NCMC and CCMC
act as common agents in handling the purchase and sale of short-term
securities for the respective accounts of the participants. Amounts on
deposit with NCMC and CCMC were $4,789 and $9,654 as of December 31,
1996 and 1995, respectively, and are included in short-term investments
on the accompanying consolidated balance sheets.
On April, 5 1996, Nationwide Corp. contributed all of the outstanding
shares, with shareholder equity value of $30, of NISC to NLIC. NLIC
contributed an additional $500 to NISC on August 30, 1996.
On March 1, 1995, Nationwide Corp. contributed all of the outstanding
shares of common stock of Farmland Life Insurance Company (Farmland) to
NLIC. Farmland merged into WCLIC effective June 30, 1995. The
contribution resulted in a direct increase to consolidated
shareholder's equity of $46,918. As discussed in note 2, WCLIC is
accounted for as discontinued operations.
Effective December 31, 1994, NLIC purchased all of the outstanding
shares of common stock of ELICW from Wausau Service Corporation (WSC)
for $155,000. NLIC transferred fixed maturity securities and cash with
a fair value of $155,000 to WSC on December 28, 1994, which resulted in
a realized loss of $19,239 on the disposition of the securities. The
purchase price approximated both the historical cost basis and fair
value of net assets of ELICW. ELICW has and will continue to share home
office, other facilities, equipment and common management and
administrative services with WSC. As discussed in note 2, ELICW is
accounted for as discontinued operations.
Certain annuity products are sold through three affiliated companies
which are also subsidiaries of Nationwide Corp. Total commissions and
fees paid to these affiliates for the years ended December 31, 1996,
1995 and 1994 were $76,922, $57,280 and $50,168, respectively.
(14) Bank Lines of Credit
--------------------
In August 1996, NLIC, along with NMIC, established a $600,000 revolving
credit facility which provides for a $600,000 loan over a five year
term on a fully revolving basis with a group of national financial
institutions. The credit facility provides for several and not joint
liability with respect to any amount drawn by either NLIC or NMIC. NLIC
and NMIC pay facility and usage fees to the financial institutions to
maintain the revolving credit facility. All previously existing line of
credit agreements were canceled.
<PAGE> 24
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(15) Contingencies
-------------
The Company is a defendant in various lawsuits. In the opinion of
management, the effects, if any, of such lawsuits are not expected to
be material to the Company's financial position or results of
operations.
(16) Segment Information
-------------------
The Company has three primary segments: Variable Annuities, Fixed
Annuities and Life Insurance. The Variable Annuities segment consists
of annuity contracts that provide the customer with the opportunity to
invest in mutual funds managed by the Company and independent
investment managers, with the investment returns accumulating on a
tax-deferred basis. The Fixed Annuities segment consists of annuity
contracts that generate a return for the customer at a specified
interest rate, fixed for a prescribed period, with returns accumulating
on a tax-deferred basis. The Life Insurance segment consists of
insurance products that provide a death benefit and may also allow the
customer to build cash value on a tax-deferred basis. In addition, the
Company reports corporate expenses and investments, and the related
investment income supporting capital not specifically allocated to its
product segments in a Corporate and Other segment. In addition, all
realized gains and losses, investment management fees and other revenue
earned from mutual funds, other than the portion allocated to the
variable annuities and life insurance segments, are reported in the
Corporate and Other segment.
During 1996, the Company changed its reporting segments to better
reflect the way the businesses are managed. Prior periods have been
restated to reflect these changes.
The following table summarizes the revenues and income from continuing
operations before federal income tax expense for the years ended
December 31, 1996, 1995 and 1994 and assets as of December 31, 1996,
1995 and 1994, by business segment.
<TABLE>
<CAPTION>
1996 1995 1994
----------------- --------------- ---------------
<S> <C> <C> <C>
Revenues:
Variable Annuities $ 284,638 189,071 132,687
Fixed Annuities 1,092,566 1,051,970 939,868
Life Insurance 435,657 409,135 383,150
Corporate and Other 179,977 148,475 143,794
----------------- --------------- ---------------
$ 1,992,838 1,798,651 1,599,499
================= =============== ===============
Income from continuing operations before federal income tax
expense:
Variable Annuities 90,244 50,837 24,574
Fixed Annuities 135,405 137,000 138,950
Life Insurance 67,242 67,590 53,046
Corporate and Other 22,606 32,145 25,288
----------------- --------------- ---------------
$ 315,497 287,572 241,858
================= =============== ===============
Assets:
Variable Annuities 25,069,725 17,333,039 11,146,465
Fixed Annuities 13,994,715 13,250,359 11,668,973
Life Insurance 3,353,286 3,027,420 2,752,283
Corporate and Other 5,348,520 4,896,815 3,678,303
----------------- --------------- ---------------
$47,766,246 38,507,633 29,246,024
================= =============== ===============
</TABLE>
<PAGE> 25
<TABLE>
SCHEDULE I
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Summary of Investments -
Other Than Investments in Related Parties
As of December 31, 1996
($000's omitted)
<CAPTION>
- --------------------------------------------------------------- --------------- -------------- -----------------
Column A Column B Column C Column D
- --------------------------------------------------------------- --------------- -------------- -----------------
Amount at which
shown in the
consolidated
Type of Investment Cost Market value balance sheet
- --------------------------------------------------------------- --------------- -------------- -----------------
<S> <C> <C> <C>
Fixed maturity securities available-for-sale:
Bonds:
U.S. Government and government agencies and authorities $ 3,757,887 3,834,762 3,834,762
States, municipalities and political subdivisions 6,242 6,690 6,690
Foreign governments 100,656 101,940 101,940
Public utilities 1,798,736 1,843,938 1,843,938
All other corporate 6,307,357 6,517,309 6,517,309
--------------- -------------- -----------------
Total fixed maturity securities available-for-sale 11,970,878 12,304,639 12,304,639
--------------- -------------- -----------------
Equity securities available-for-sale:
Common stocks:
Industrial, miscellaneous and all other 43,501 50,405 50,405
Non-redeemable preferred stock 389 8,726 8,726
--------------- -------------- -----------------
Total equity securities available-for-sale 43,890 59,131 59,131
--------------- -------------- -----------------
Mortgage loans on real estate, net 5,327,317 5,272,119 (1)
Real estate, net:
Investment properties 253,383 217,611 (1)
Acquired in satisfaction of debt 57,933 48,148 (1)
Policy loans 371,816 371,816
Other long-term investments 27,370 28,668 (2)
Short-term investments 4,789 4,789
--------------- ----------------
Total investments $18,057,376 18,306,921
=============== ================
<FN>
- ----------
(1) Difference from Column B is primarily due to valuation allowances due to
impairments on mortgage loans on real estate and due to accumulated
depreciation and valuation allowances due to impairments on real estate.
See note 5 to the consolidated financial statements.
(2) Difference from Column B is primarily due to operating gains of investments
in limited partnerships.
</TABLE>
See accompanying independent auditors' report.
<PAGE> 26
<TABLE>
<CAPTION>
SCHEDULE III
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Supplemental Insurance Information
As of December 31, 1996, 1995 and 1994
and for each of the years then ended
($000's omitted)
- ----------------------------------- -------------- ------------------ ----------------- ------------------ ---------------
Column A Column B Column C Column D Column E Column F
- ----------------------------------- -------------- ------------------ ----------------- ----------------- ---------------
Deferred Future policy Other policy
policy benefits, losses, claims and
acquisition claims and Unearned premiums benefits payable Premium
Segment costs loss expenses (1) (2) revenue
- ----------------------------------- -------------- ------------------ ----------------- ---------------- --------------
<C> <C> <C> <C> <C> <C>
1996: Variable Annuities $ 791,611 - - -
Fixed Annuities 242,421 14,952,877 687 24,030
Life Insurance 414,417 1,995,802 395,739 174,612
Corporate and Other (81,940) 230,381 25,048 -
-------------- ------------------ ---------------- --------------
Total $1,366,509 17,179,060 421,474 198,642
============== ================== ================ ==============
1995: Variable Annuities 571,283 - - -
Fixed Annuities 221,111 14,221,622 455 32,774
Life Insurance 366,876 1,898,641 383,983 166,332
Corporate and Other (138,914) 238,351 28,886 -
-------------- ------------------ ---------------- --------------
Total $1,020,356 16,358,614 413,324 199,106
============== ================== ================ ==============
1994: Variable Annuities 395,397 - - -
Fixed Annuities 198,639 12,633,253 240 20,134
Life Insurance 327,079 1,806,762 371,984 156,524
Corporate and Other 74,445 233,569 26,927 -
-------------- ------------------ ---------------- --------------
Total $ 995,560 14,673,584 399,151 176,658
============== ================== ================ ==============
<CAPTION>
- ----------------------------------- -------------- ------------------- ----------------- ---------------- --------------
Column A Column G Column H Column I Column J Column K
- ----------------------------------- -------------- ------------------- ----------------- ---------------- --------------
Net Amortization Other
investment Benefits, claims, of deferred operating
income losses and policy expenses Premiums
Segment (3) settlement expenses acquisition costs (3) written
- ----------------------------------- -------------- ------------------- ----------------- ----------------- --------------
1996: Variable Annuities $ (21,449) 4,624 57,412 132,357
Fixed Annuities 1,050,557 838,533 38,635 79,737
Life Insurance 174,002 211,386 37,347 78,965
Corporate and Other 154,649 106,037 - 51,335
-------------- ------------------- ----------------- -----------------
Total $1,357,759 1,160,580 133,394 342,394
============== =================== ================= =================
1995: Variable Annuities (17,640) 2,881 26,264 109,089
Fixed Annuities 1,002,718 804,980 29,499 80,260
Life Insurance 171,255 201,986 31,021 68,832
Corporate and Other 137,700 105,646 (4,089) 14,773
-------------- ------------------- ----------------- -----------------
Total $1,294,033 1,115,493 82,695 272,954
============== =================== ================= =================
1994: Variable Annuities (13,415) 2,277 22,135 83,701
Fixed Annuities 903,572 702,082 29,849 69,975
Life Insurance 166,329 191,006 29,495 69,861
Corporate and Other 154,325 97,302 4,089 17,115
-------------- ------------------- ----------------- -----------------
Total $1,210,811 992,667 85,568 240,652
============== =================== ================= =================
<FN>
- ----------
(1) Unearned premiums are included in Column C amounts.
(2) Column E agrees to the sum of the Balance Sheet captions, Policyholders'
dividend accumulations and Other policyholder funds.
(3) Allocations of net investment income and certain general expenses are based
on a number of assumptions and estimates, and reported operating results
would change by segment if different methods were applied.
</TABLE>
See accompanying independent auditors' report.
<PAGE> 27
SCHEDULE IV
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Reinsurance
As of December 31, 1996, 1995 and 1994
and for each of the years then ended
($000's omitted)
<TABLE>
<CAPTION>
- ------------------------------- ----------------- ----------------- ---------------- ---------------- ---------------
Column A Column B Column C Column D Column E Column F
- ------------------------------- ----------------- ----------------- ---------------- ---------------- ---------------
Percentage
Ceded to Assumed from of amount
Gross amount other companies other companies Net amount assumed to net
----------------- ----------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
1996:
Life insurance in force $47,071,264 6,633,567 288,593 40,726,290 0.7%
================= ================= ================ ================ ===============
Premiums:
Life insurance 225,615 29,282 2,309 198,642 1.2%
Accident and health insurance 291,871 305,789 13,918 - N/A
----------------- ----------------- ---------------- ---------------- ---------------
Total $ 517,486 335,071 16,227 198,642 8.2%
================= ================= ================ ================ ===============
1995:
Life Insurance in force $41,087,025 8,935,743 391,174 32,542,456 1.2%
================= ================= ================ ================ ===============
Premiums:
Life insurance 221,257 24,360 2,209 199,106 1.1%
Accident and health insurance 298,058 313,036 14,978 - N/A
----------------- ----------------- ---------------- ---------------- ---------------
Total $ 519,315 337,396 17,187 199,106 8.6%
================= ================= ================ ================ ===============
1994:
Life Insurance in force $35,926,633 7,550,623 829,742 29,205,752 2.8%
================= ================= ================ ================ ===============
Premiums:
Life insurance 198,705 24,912 2,865 176,658 1.6%
Accident and health insurance 303,435 321,696 18,261 - N/A
----------------- ----------------- ---------------- ---------------- ---------------
Total $ 502,140 346,608 21,126 176,658 12.0%
================= ================= ================ ================ ===============
<FN>
- ----------
Note: The life insurance caption represents principally premiums from
traditional life insurance and life-contingent immediate annuities and
excludes deposits on invesment products and universal life insurance
products.
</TABLE>
See accompanying independent auditors' report.
<PAGE> 28
<TABLE>
<CAPTION>
SCHEDULE V
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended December 31, 1996, 1995 and 1994
($000's omitted)
- ------------------------------------------------- ------------ ----------------------------- ------------ -------------
Column A Column B Column C Column D Column E
- ------------------------------------------------- ------------ ----------------------------- ------------ -------------
Balance at Charged to Balance at
beginning of costs and Charged to Deductions end of
Description period expenses other accounts (1) period
- ------------------------------------------------- ------------ ------------ -------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
1996:
Valuation allowances - mortgage loans on real
estate $49,128 4,497 - 2,587 51,038
Valuation allowances - real estate 25,819 (10,600) - - 15,219
------------ ------------ -------------- ------------ -------------
Total $74,947 (6,103) - 2,587 66,257
============ ============ ============== ============ =============
1995:
Valuation allowances - fixed maturity securities - 8,908 - 8,908 -
Valuation allowances - mortgage loans on real
estate 46,381 7,433 - 4,686 49,128
Valuation allowances - real estate 27,330 (1,511) - - 25,819
------------ ------------ -------------- ------------ -------------
Total $73,711 14,830 - 13,594 74,947
============ ============ ============== ============ =============
1994:
Valuation allowances - fixed maturity securities 4,800 (4,800) - - -
Valuation allowances - mortgage loans on real
estate 42,150 20,445 - 16,214 46,381
Valuation allowances - real estate 31,357 (4,027) - - 27,330
------------ ------------ -------------- ------------ -------------
Total $78,307 11,618 - 16,214 73,711
============ ============ ============== ============ =============
<FN>
- ----------
(1) Amounts represent direct write-downs charged against the valuation allowance.
</TABLE>
See accompanying independent auditors' report.
<PAGE> 45
PART C. OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
<TABLE>
<CAPTION>
(a) Financial Statements:
<S> <C>
(1) Financial statements and schedule included Page
in prospectus
(Part A):
Condensed Financial Information. 12
(2) Financial statements and schedule included
in Part B:
Those financial statements and schedule 42
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. 42
Statement of Assets, Liabilities and Contract 43
Owners' Equity as of December 31, 1996.
Statements of Operations and Changes in 45
Contract Owners' Equity for the years ended
December 31, 1996, 1995 and 1994.
Notes to Financial Statements. 46
Schedules of Changes in Unit Value. 48
Nationwide Life Insurance Company:
Independent Auditors' Report. 49
Consolidated Balance Sheets as of December 50
31, 1996 and 1995.
Consolidated Statements of Income for the 51
years ended December 31, 1996, 1995 and
1994.
Consolidated Statements of Shareholder's 52
Equity for the years ended December 31,
1996, 1995 and 1994.
Consolidated Statements of Cash Flows for 53
the years ended December 31, 1996, 1995
and 1994.
Notes to Consolidated Financial Statements. 54
Schedule I - Consolidated Summary of Investments -
Other Than Investments in Related Parties 73
Schedule III - Supplementary Insurance 74
Information
Schedule IV - Reinsurance 75
Schedule V - Valuation and Qualifying Accounts 76
</TABLE>
78 of 102
<PAGE> 46
Item 24. (b) Exhibits
<TABLE>
<S> <C>
(1) Resolution of the Depositor's Board of
Directors authorizing the establishment of the
Registrant, adopted October 7, 1987- Filed with
pre-effective amendment no. 1 to the
registration statement, and hereby incorporated
by reference.
(2) Not Applicable
(3) Underwriting or Distribution contract
between the Registrant and Principal
Underwriter - Filed with pre-effective
amendment no. 1 to the registration
statement, and hereby incorporated by
reference.
(4) The form of the variable annuity contract -
Filed with post-effective amendment no. 1
to the registration statement, and hereby
incorporated by reference.
(5) Variable Annuity Application - Filed with
pre-effective amendment no. 1 to the
registration statement, and hereby
incorporated by reference.
(6) Articles of Incorporation of Depositor -
Filed with pre-effective amendment no. 1
to the registration statement, and hereby
incorporated by reference.
(7) Not Applicable
(8) Not Applicable
(9) Opinion of Counsel - Filed with pre-
effective amendment no. 1 to the
registration statement, and hereby
incorporated by reference.
(10) Not Applicable
(11) Not Applicable
(12) Not Applicable
(13) Performance Advertising Calculation Schedule -
Filed previously with registration statement,
and hereby incorporated by reference.
</TABLE>
79 of 102
<PAGE> 47
Item 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS WITH DEPOSITOR
<S> <C>
Lewis J. Alphin Director
519 Bethel Church Road
Mount 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 Board
1247 Stafford Road and Director
Darlington, MD 21034
Dimon Richard McFerson Chairman and Chief Executive Officer-
One Nationwide Plaza Nationwide Insurance Enterprise
Columbus, OH 43215 and Director
David O. Miller Director
115 Sprague Drive
Hebron, OH 43025
C. Ray Noecker Director
2770 Winchester Southern S.
Ashville, OH 43103
James F. Patterson Director
8765 Mulberry Road
Chesterland, OH 44026
</TABLE>
80 of 102
<PAGE> 48
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS WITH DEPOSITOR
<S> <C>
Arden L. Shisler Director
1356 North Wenger Road
Dalton, OH 44618
Robert L. Stewart Director
88740 Fairview Road
Jewett, OH 43986
Nancy C. Thomas Director
10835 Georgetown Street NE
Louisville, OH 44641
Harold W. Weihl Director
14282 King Road
Bowling Green, OH 43402
Gordon E. McCutchan Executive Vice President,
One Nationwide Plaza Law and Corporate Services
Columbus, OH 43215 and Secretary
Robert A. Oakley Executive Vice President-
One Nationwide Plaza Chief Financial Officer
Columbus, OH 43215
Robert J. Woodward, Jr. Executive Vice President -
One Nationwide Plaza Chief Investment Officer
Columbus, OH 43215
James E. Brock Senior Vice President -
One Nationwide Plaza Life Company Operations
Columbus, OH 43215
W. Sidney Druen Senior Vice President and General
One Nationwide Plaza Counsel and Assistant Secretary
Columbus, OH 43215
Harvey S. Galloway, Jr. Senior Vice President-Chief Actuary-
One Nationwide Plaza Life, Health and Annuities
Columbus, OH 43215
Richard A. Karas Senior Vice President - Sales -
One Nationwide Plaza Financial Services
Columbus, OH 43215
Michael D. Bleiweiss Vice President-
One Nationwide Plaza Individual Annuity Operations
Columbus, OH 43215
</TABLE>
81 of 102
<PAGE> 49
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS WITH DEPOSITOR
<S> <C>
Matthew S. Easley Vice President -
One Nationwide Plaza Life Marketing and Administrative Service
Columbus, OH 43215
Ronald L. Eppley Vice President-
One Nationwide Plaza Applications Services
Columbus, OH 43215
Timothy E. Murphy Vice President-
One Nationwide Plaza Strategic Marketing
Columbus, Ohio 43215
R. Dennis Noice Vice President-
One Nationwide Plaza Retail Operations
Columbus, OH 43215
Joseph P. Rath Vice President -
One Nationwide Plaza Associate General Counsel
Columbus, OH 43215
</TABLE>
Item 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR
OR REGISTRANT.
* Subsidiaries for which separate financial statements are
filed
** Subsidiaries included in the respective consolidated
financial statements
*** Subsidiaries included in the respective group financial
statements filed for unconsolidated subsidiaries
**** other subsidiaries
82 of 102
<PAGE> 50
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
(SEE ATTACHED
CHART) UNLESS
STATE OTHERWISE
COMPANY OF ORGANIZATION INDICATED PRINCIPAL BUSINESS
<S> <C> <C>
Affiliate Agency, Inc. Delaware Life Insurance Agency
Affiliate Agency of Ohio, Inc. Ohio Life Insurance Agency
Allnations, Inc. Ohio Promotes cooperative insurance corporations
worldwide
American Marine Underwriters, Inc. Florida Underwriting Manager
Auto Direkt Insurance Company Germany Insurance Company
The Beak and Wire Corporation Ohio Radio Tower Joint Venture
California Cash Management Company California Investment Securities Agent
Colonial County Mutual insurance Texas Insurance Company
Company
Colonial Insurance Company of California Insurance Company
California
Columbus Insurance Brokerage and Germany Insurance Broker
Service GMBH
Companies Agency, Inc. Wisconsin Insurance Broker
Companies Agency Insurance Services California Insurance Broker
of California
Companies Agency of Alabama, Inc. Alabama Insurance Broker
Companies Agency of Idaho, Inc. Idaho Insurance Broker
Companies Agency of Illinois, Inc. Illinois Acts as Collection Agent for Policies placed
through Brokers
Companies Agency of Kentucky, Inc. Kentucky Insurance Broker
Companies Agency of Massachusetts, Massachusetts Insurance Broker
Inc.
Companies Agency of New York, Inc. New York Insurance Broker
Companies Agency of Pennsylvania, Inc. Pennsylvania Insurance Broker
Companies Agency of Phoenix, Inc. Arizona Insurance Broker
Companies Agency of Texas, Inc. Texas Insurance Broker
Companies Annuity Agency of Texas, Texas Insurance Broker
Inc.
Countrywide Services Corporation Delaware Products Liability, Investigative and Claims
Management Services
</TABLE>
83 of 102
<PAGE> 51
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
(SEE ATTACHED
CHART) UNLESS
STATE OTHERWISE
COMPANY OF ORGANIZATION INDICATED PRINCIPAL BUSINESS
<S> <C> <C>
Employers Insurance of Wausau A Wisconsin Insurance Company
Mutual Company
** Employers Life Insurance Company of Wisconsin Life Insurance Company
Wausau
F & B, Inc. Iowa Insurance Agency
Farmland Mutual Insurance Company Iowa Insurance Company
Financial Horizons Distributors Alabama Life Insurance Agency
Agency of Alabama, Inc.
Financial Horizons Distributors Ohio Life Insurance Agency
Agency of Ohio, Inc.
Financial Horizons Distributors Oklahoma Life Insurance Agency
Agency of Oklahoma, Inc.
Financial Horizons Distributors Texas Life Insurance Agency
Agency of Texas, Inc.
* Financial Horizons Investment Trust Massachusetts Investment Company
Financial Horizons Securities Oklahoma Broker Dealer
Corporation
Gates, McDonald & Company Ohio Cost Control Business
Gates, McDonald & Company of Nevada Nevada Self-Insurance Administration Claims
Examinations and Data Processing Services
Gates, McDonald & Company of New New York Workers Compensation Claims Administration
York, Inc.
Gates, McDonald Health Plus, Inc. Ohio Managed Care Organization
Greater La Crosse Health Plans, Inc. Wisconsin Writes Commercial Health and Medicare
Supplement Insurance
Insurance Intermediaries, Inc. Ohio Insurance Broker and Insurance Agency
Key Health Plan, Inc. California Pre-paid health plans
Landmark Financial Services of New New York Life Insurance Agency
York, Inc.
Leben Direkt Insurance Company Germany Life Insurance Company
Lone Star General Agency, Inc. Texas Insurance Agency
** MRM Investments, Inc. Ohio Owns and operates a Recreational Ski Facility
** National Casualty Company Michigan Insurance Company
National Casualty Company of America, Great Britain Insurance Company
Ltd.
** National Premium and Benefit Delaware Insurance Administrative Services
Administration Company
</TABLE>
84 of 102
<PAGE> 52
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
(SEE ATTACHED
CHART) UNLESS
STATE OTHERWISE
COMPANY OF ORGANIZATION INDICATED PRINCIPAL BUSINESS
<S> <C> <C>
** Nationwide Advisory Services, Inc. Ohio Registered Broker-Dealer, Investment Manager
and Administrator
Nationwide Agency, Inc. Ohio Insurance Agency
Nationwide Agribusiness Insurance Iowa Insurance Company
Company
* Nationwide Asset Allocation Trust Massachusetts Investment Company
Nationwide Cash Management Company Ohio Investment Securities Agent
Nationwide Communications, Inc. Ohio Radio Broadcasting Business
Nationwide Community Urban Ohio Redevelopment of blighted areas within the
Redevelopment Corporation City of Columbus, Ohio
Nationwide Corporation Ohio Organized for the purpose of acquiring,
holding, encumbering, transferring,
or otherwise disposing of shares, bonds,
and other evidences of indebtedness,
securities, and contracts of other
persons, associations, corporations,
domestic or foreign and to form or
acquire the control of other
corporations
Nationwide Development Company Ohio Owns, leases and manages commercial real
estate
Nationwide Financial Institution Delaware Insurance Agency
Distributors Agency, Inc.
Nationwide Financial Services, Inc. Delaware Holding Company
Nationwide General Insurance Company Ohio Insurance Company
Nationwide HMO, Inc. Ohio Health Maintenance Organization
* Nationwide Indemnity Company Ohio Reinsurance Company
Nationwide Insurance Enterprise Ohio Membership Non-Profit Corporation
Foundation
Nationwide Insurance Golf Charities, Ohio Membership Non-Profit Corporation
Inc.
Nationwide Investing Foundation Michigan Investment Company
* Nationwide Investing Massachusetts Investment Company
Foundation II
Nationwide Investment Services Oklahoma Registered Broker-Dealer in Deferred
Corporation Compensation Market
Nationwide Investors Services, Inc. Ohio Stock Transfer Agent
** Nationwide Life and Annuity Insurance Ohio Life Insurance Company
Company
** Nationwide Life Insurance Company Ohio Life Insurance Company
Nationwide Lloyds Texas Texas Lloyds Company
Nationwide Management Systems, Inc. Ohio Develops and operates Managed Care Delivery
System
Nationwide Mutual Fire Insurance Ohio Insurance Company
Company
</TABLE>
85 of 102
<PAGE> 53
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
(SEE ATTACHED
CHART) UNLESS
STATE OTHERWISE
COMPANY OF ORGANIZATION INDICATED PRINCIPAL BUSINESS
<S> <C> <C>
Nationwide Mutual Insurance Company Ohio Insurance Company
Nationwide Properties, Ltd. Ohio Develops, owns and operates real estate and
real estate investments.
Nationwide Property and Casualty Ohio Insurance Company
Insurance Company
Nationwide Realty Investors, Ltd. Ohio Develops, owns and operates real estate and
real estate investments.
* Nationwide Separate Account Trust Massachusetts Investment Company
NEA Valuebuilder Investor Services, Delaware Life Insurance Agency
Inc.
NEA Valuebuilder Investor Services of Alabama Life Insurance Agency
Alabama, Inc.
NEA Valuebuilder Investor Services of Arizona Life Insurance Agency
Arizona, Inc.
NEA Valuebuilder Investor Services of Montana Life Insurance Agency
Montana, Inc.
NEA Valuebuilder Investor Services of Nevada Life Insurance Agency
Nevada, Inc.
NEA Valuebuilder Investor Services of Ohio Life Insurance Agency
Ohio, Inc.
NEA Valuebuilder Investor Services of Oklahoma Life Insurance Agency
Oklahoma, Inc.
NEA Valuebuilder Investor Services of Texas Life Insurance Agency
Texas, Inc.
NEA Valuebuilder Investor Services of Wyoming Life Insurance Agency
Wyoming, Inc.
NEA Valuebuilder Services Insurance Massachusetts Life Insurance Agency
Agency, Inc.
Neckura General Insurance Company Germany Insurance Company
Neckura Holding Company Germany Administrative Service for Neckura Insurance
Group
Neckura Insurance Company Germany Insurance Company
Neckura Life Insurance Company Germany Life Insurance Company
NWE, Inc. Ohio Special Investments
PEBSCO of Massachusetts Insurance Massachusetts Markets and Administers Deferred Compensation
Agency, Inc. Plans for Public Employees
PEBSCO of Texas, Inc. Texas Markets and Administers Deferred Compensation
Plans for Public Employees
Pension Associates of Wausau, Inc. Wisconsin Pension plan administration, record keeping
and consulting and compensation consulting
Physicians Plus Insurance Corporation Wisconsin Health Maintenance organization
</TABLE>
86 of 102
<PAGE> 54
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
(SEE ATTACHED
CHART) UNLESS
STATE OTHERWISE
COMPANY OF ORGANIZATION INDICATED PRINCIPAL BUSINESS
<S> <C> <C>
Prevea Health Insurance Plan, Inc. Wisconsin Health Maintenance organization
Public Employees Benefit Services Delaware Markets and Administers Deferred Compensation
Corporation Plans for Public Employees
Public Employees Benefit Services Alabama Markets and Administers Deferred Compensation
Corporation of Alabama Plans for Public Employees
Public Employees Benefit Services Arkansas Markets and Administers Deferred Compensation
Corporation of Arkansas Plans for Public Employees
Public Employees Benefit Services Montana Markets and Administers Deferred Compensation
Corporation of Montana Plans for Public Employees
Public Employees Benefit Services New Mexico Markets and Administers Deferred Compensation
Corporation of New Mexico Plans for Public Employees
Scottsdale Indemnity Company Ohio Insurance Company
Scottsdale Insurance Company Ohio Excess and surplus lines insurance company
Scottsdale Surplus Lines Insurance Arizona Excess and surplus lines insurance company
Company
SVM Sales GmbH, Neckura Insurance Germany Sales support for Neckura Insurance Group
Group
Wausau Business Insurance Company Wisconsin Insurance Company
Wausau General Insurance Company Illinois Insurance Company
Wausau Insurance Company (U.K.) United Kingdom Insurance and Reinsurance Company
Limited
Wausau International Underwriters California Special Risks, Excess and Surplus Lines
Insurance Underwriting Manager
** Wausau Preferred Health Insurance Wisconsin Insurance and Reinsurance Company
Company
Wausau Service Corporation Wisconsin Holding Company
Wausau Underwriters Insurance Company Wisconsin Insurance Company
** West Coast Life Insurance Company California Life Insurance Company
</TABLE>
87 of 102
<PAGE> 55
<TABLE>
<CAPTION>
NO. VOTING SECURITIES
(SEE ATTACHED CHART)
UNLESS OTHERWISE
COMPANY STATE OF ORGANIZATION INDICATED PRINCIPAL BUSINESS
<S> <C> <C> <C>
* MFS Variable Account Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Multi-Flex Variable Account Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Variable Account-II Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Variable Account Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide DC Variable Account Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide DCVA II Ohio Nationwide Life Issuer of Annuity
Separate Account Contracts
* Separate Account No. 1 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide VLI Separate Account Ohio Nationwide Life Separate Issuer of Life Insurance
Account Policies
* Nationwide Variable Account-3 Ohio Nationwide Life Separate Issuer of Life Insurance
Account Policies
* Nationwide VLI Separate Account-2 Ohio Nationwide Life Separate Issuer of Life Insurance
Account Policies
* Nationwide VA Separate Account-A Ohio Nationwide Life and Issuer of Annuity Contracts
Annuity Separate Account
* Nationwide Variable Account-4 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Variable Account-5 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* NACo Variable Account Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide VLI Separate Account-3 Ohio Nationwide Life Separate Issuer of Life Insurance
Account Policies
* Nationwide VL Separate Account-A Ohio Nationwide Life and Issuer of Life Insurance
Annuity Separate Account Policies
* Nationwide VL Separate Account-B Ohio Nationwide Life and Issuer of Life Insurance
Annunity Separate Policies
Account
* Nationwide Variable Account-6 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Fidelity Advisor Variable Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account Account
* Nationwide VA Separate Account-B Ohio Nationwide Life and Issuer of Annuity Policies
Annuity Separate Account
* Nationwide VA Separate Account-C Ohio Nationwide Life and Issuer of Annuity Contracts
Annuity Separate Account
* Nationwide VA Separate Account-Q Ohio Nationwide Life and Issuer of Annuity Contracts
Annuity Separate Account
* Nationwide Variable Account-8 Ohio Nationwide Life Separate Issuer off Annuity Contracts
Account
</TABLE>
88 of 102
<PAGE> 56
<TABLE>
<CAPTION>
NATIONWIDE INSURANCE ENTERPRISE(R) (left side)
<S> <C> <C> <C>
- ------------------------
| NATIONWIDE INSURANCE |
| GOLF CHARITIES, INC. |
| |
| MEMBERSHIP |
| NONPROFIT |
| CORPORATION |
- ------------------------
------------------------------------------
| EMPLOYERS INSURANCE OF WAUSAU |
| A MUTUAL COMPANY |
| (EMPLOYERS) |
| |========================================
| Contribution Note Cost |
| ----------------- ---- |
| Casualty $400,000,000 |
------------------------------------------
|
-----------------------------------------------------------------------
| | |
- --------------------------- --------------------------- ---------------------------- ---------------------------
| SAN DIEGO LOTUS | | WAUSAU INSURANCE CO. | | WAUSAU SERVICE | | |
| CORPORATION | | (U.K.) LIMITED | | CORPORATION (WSC) | | NATIONWIDE LLOYDS |
|Common Stock: 748,212 | |Common Stock: 8,506,800 | |Common Stock: 1,000 Shares| | |
|------------ Shares | |------------ Shares | |------------ | | |
| | | | | |=========| |
| Cost | | Cost | | Cost | || | A TEXAS LLOYDS |
| ---- | | ---- | | ---- | || | |
|Employers- | |Employers- | |Employers- | || | |
|100% $29,000,000| |100% $18,683,300| |100% $176,763,000| || | |
- --------------------------- --------------------------- ---------------------------- || ---------------------------
| ||
--------------------------------------------------------------------- ||
| | | ||
- --------------------------- | --------------------------- | ---------------------------- | || ---------------------------
| WAUSAU BUSINESS | | | COMPANIES AGENCY | | | COUNTRYWIDE SERVICES | | || | |
| INSURANCE COMPANY | | | OF KENTUCKY, INC. | | | CORPORATION | | || | |
|Common Stock: 10,900,000 | | |Common Stock: 1,000 | | |Common Stock: 100 Shares | | || | COMPANIES |
|------------ Shares | | |------------ Shares | | |------------ | | || | AGENCY OF |
| |---|---| | |---| | | ||==| TEXAS, INC. |
| Cost | | | Cost | | | Cost | | || | |
| ---- | | | ---- | | | ---- | | || | |
|WSC-100% $33,800,000| | |WSC-100% $1,000 | | |WSC-100% $145,852 | | || | |
- --------------------------- | --------------------------- | ---------------------------- | || ---------------------------
| | | ||
- --------------------------- | --------------------------- | ---------------------------- | || ---------------------------
| WAUSAU UNDERWRITERS | | | COMPANIES AGENCY | | | WAUSAU GENERAL | | || | |
| INSURANCE COMPANY | | | OF MASSACHUSETTS, INC. | | | INSURANCE COMPANY | | || | |
|Common Stock: 8,750 | | |Common Stock: 1,000 | | |Common Stock: 200,000 | | || | COMPANIES ANNUITY |
|------------ Shares | | |------------ Shares | | |------------ Shares | | || | AGENCY OF |
| |---|---| | |---| | | ====| TEXAS, INC. |
| Cost | | | Cost | | | Cost | | | |
| ---- | | | ---- | | | ---- | | | |
|WSC-100% $69,560,006| | |WSC-100% $1,000 | | |WSC-100% $39,000,000 | | | |
- --------------------------- | --------------------------- | ---------------------------- | ---------------------------
| | |
- --------------------------- | --------------------------- | ---------------------------- | ---------------------------
| GREATER LA CROSSE | | | COMPANIES AGENCY | | | WAUSAU INTERNATIONAL | | | AMERICAN MARINE |
| HEALTH PLANS, INC. | | | OF NEW YORK, INC. | | | UNDERWRITERS | | | UNDERWRITERS, INC. |
|Common Stock: 3,000 | | |Common Stock: 1,000 | | |Common Stock: 1,000 | | |Common Stock: 20 |
|------------ Shares | | |------------ Shares | | |------------ Shares | | |------------ Shares |
| |---|---| | |---| | |------| |
| Cost | | | Cost | | | Cost | | | Cost |
| ---- | | | ---- | | | ---- | | | ---- |
|WSC-33.3% $861,761 | | |WSC-100% $1,000 | | |WSC-100% $10,000 | | |WSC-100% $248,222 |
- --------------------------- | --------------------------- | ---------------------------- | ---------------------------
| | |
- --------------------------- | --------------------------- | ---------------------------- | ---------------------------
| COMPANIES AGENCY | | | COMPANIES AGENCY | | | COMPANIES AGENCY | | | COMPANIES AGENCY |
| OF ALABAMA, INC. | | | OF PENNSYLVANIA, INC. | | | INSURANCE SERVICES | | | OF ILLINOIS, INC. |
| | | | | | | OF CALIFORNIA | | | |
|Common Stock: 1,000 | | |Common Stock: 1,000 | | |Common Stock: 1,000 | | |Common Stock: 250 |
|------------ Shares | | |------------ Shares | |---|------------ Shares | |------|------------ Shares |
| |---|---| | | | | | | |
| Cost | | | Cost | | | Cost | | | Cost |
| ---- | | | ---- | | | ---- | | | ---- |
|WSC-100% $100 | | |WSC-100% $100 | | |WSC-100% $1,000 | | |WSC-100% $2,500 |
- --------------------------- | --------------------------- | ---------------------------- | ---------------------------
| | |
- --------------------------- | --------------------------- | ---------------------------- | ---------------------------
| COMPANIES AGENCY | | | COMPANIES AGENCY | | | PHYSICIANS PLUS | | | COMPANIES |
| OF IDAHO, INC. | | | OF PHOENIX, INC. | | | INSURANCE | | | AGENCY, INC. |
| | | | | | | CORPORATION | | | |
|Common Stock: 1,000 | | |Common Stock: 1,000 | | |Common Stock: 7,150 | | |Common Stock: 100 |
|------------ Shares | | |------------ Shares | | |------------ Shares | | |------------ Shares |
| |-------| | |---|Preferred Stock: 11,540 | |------| |
| | | | | |--------------- Shares | | | |
| | | | | | | | | |
| Cost | | Cost | | | Cost | | | Cost |
| ---- | | ---- | | | ---- | | | ---- |
|WSC-100% $1,000 | |WSC-100% $1,000 | | |WSC-33 1/3% $6,215,459| | |WSC-100% $10,000 |
- --------------------------- --------------------------- | ---------------------------- | ---------------------------
| |
| ---------------------------- | ---------------------------
| | PREVEA HEALTH | | | PENSION ASSOCIATES |
| | INSURANCE PLAN, INC. | | | OF WAUSAU, INC. |
| |Common Stock: 3,000 Shares| | |Common Stock: 1,000 |
| |------------ | | |------------ Shares |
----| | -------| |
| | | |
| Cost | |Companies Cost |
| ---- | |Agency, Inc. ---- |
|WSC-33 1/3% $500,000 | |(Wisconsin)-100% $10,000 |
---------------------------- ---------------------------
</TABLE>
<PAGE> 57
<TABLE>
<CAPTION>
NATIONWIDE INSURANCE ENTERPRISE(R) (middle)
<S> <C> <C>
-----------------------------------------------------------------------------
| |
| |
| NATIONWIDE MUTUAL |
=======| INSURANCE COMPANY |================================================
| (CASUALTY) |
| |
| |
-----------------------------------------------------------------------------
| || |
| || -------------------------------------------------------------
| || ---------------------------------------------------------------------------------------
| || | |
- -------------------------------- || | -------------------------------- --------------------------------
| ALLNATIONS, INC. | || | | NATIONWIDE GENERAL | | NECKURA HOLDING |
|Common Stock: 3,136 Shares | || | | INSURANCE COMPANY | | COMPANY (NECKURA) |
|------------ | || | | | | |
| Cost | || | |Common Stock: 20,000 | |Common Stock: 10,000 |
| ---- | || | |------------ Shares | |------------ Shares |
|Casualty-24.5% $88,320 | || | | Cost | | Cost |
|Fire-24.5% $88,463 | || | | ---- | | ---- |
|Preferred Stock: 1,466 Shares | || |----|Casualty-100% $5,944,422 | ---------|Casualty-100% $87,943,140 |
|--------------- | || | | | | | |
| Cost | || | | | | | |
| ---- | || | | | | | |
|Casualty-7.7% $100,000 | || | | | | | |
|Fire-7.7% $100,000 | || | | | | | |
- -------------------------------- || | -------------------------------- | --------------------------------
|| | |
- -------------------------------- || | -------------------------------- | --------------------------------
| FARMLAND MUTUAL | || | | NATIONWIDE PROPERTY | | | NECKURA |
| INSURANCE COMPANY | || | | AND CASUALTY | | | INSURANCE COMPANY |
|Guaranty Fund | || | | INSURANCE COMPANY | | | |
|------------ |========= |----|Common Stock: 60,000 | |--------|Common Stock: 6,000 |
|Certificate | | |------------ Shares | | |------------ Shares |
|----------- Cost | | | Cost | | | Cost |
| ---- | | | ---- | | |Neckura- ---- |
|Casualty $500,000 | | |Casualty-100% $6,000,000 | | |100% DM 6,000,000 |
- -------------------------------- | -------------------------------- | --------------------------------
| | |
- -------------------------------- | -------------------------------- | --------------------------------
| F & B, INC. | | | COLONIAL INSURANCE | | | NECKURA LIFE |
| | | | COMPANY OF CALIFORNIA | | | INSURANCE COMPANY |
|Common Stock: 1 Share | | | (COLONIAL) | | | |
|------------ | |----|Common Stock: 1,750 | |--------|Common Stock: 4,000 |
| Cost | | |------------ Shares | | |------------ Shares |
| ---- | | | Cost | | | Cost |
|Farmland | | | ---- | | | ---- |
|Mutual-100% $10 | | |Casualty-100% $11,750,000 | | |Neckura-100% DM 15,825,681 |
- -------------------------------- | -------------------------------- | --------------------------------
| |
- -------------------------------- | -------------------------------- | --------------------------------
| NATIONWIDE AGRIBUSINESS | | | SCOTTSDALE | | | NECKURA GENERAL |
| INSURANCE COMPANY | | | INSURANCE COMPANY | | | INSURANCE COMPANY |
|Common Stock: 1,000,000 | | | | | | |
|------------ Shares | | |Common Stock: 30,136 | | |Common Stock: 1,500 |
| Cost |------------------|------------ Shares | |--------|------------ Shares |
| ---- | | Cost | | | Cost |
|Casualty-99.9% $26,714,335 | | ---- | | | ---- |
|Other Capital: | |Casualty-100% $150,000,000 | | |Neckura-100% DM 1,656,925 |
|------------- | | | | | |
|Casualty-Ptd. $ 713,567 | | | | | |
- -------------------------------- -------------------------------- | --------------------------------
| |
-------------------------------- | --------------------------------
| SCOTTSDALE | | | COLUMBUS INSURANCE |
| SURPLUS LINES | | | BROKERAGE AND SERVICE |
| INSURANCE COMPANY | | | GmbH |
| | | |Common Stock: 1 Share |
| | |--------|------------ |
| "NEWLY FORMED" | | | Cost |
| | | | ---- |
| | | |Neckura-100% DM 51,639 |
| | | | |
| | | | |
-------------------------------- | --------------------------------
| |
-------------------------------- | --------------------------------
| NATIONAL PREMIUM & | | | LEBEN DIREKT |
| BENEFIT ADMINISTRATION | | | INSURANCE COMPANY |
| COMPANY | | | |
|Common Stock: 10,000 | | |Common Stock: 4,000 Shares |
|------------ Shares |------------------|------------ |
| Cost | | Cost |
| ---- | | ---- |
|Scottsdale-100% $10,000 | |Neckura-100% DM 4,000,000 |
| | | |
| | | |
-------------------------------- --------------------------------
-------------------------------- --------------------------------
| SVM SALES | | AUTO DIREKT |
| GmbH | | INSURANCE COMPANY |
| | | |
|Common Stock: 50 Shares | |Common Stock: 1,500 Shares |
|------------ | |------------ |
| Cost | | Cost |
| ---- | | ---- |
|Neckura-100% DM 50,000 | |Neckura-100% DM 1,643,149 |
| | | |
| | | |
-------------------------------- --------------------------------
</TABLE>
<PAGE> 58
<TABLE>
<CAPTION>
NATIONWIDE INSURANCE ENTERPRISE(R) (right side)
<S> <C> <C> <C>
------------------------
| NATIONWIDE INSURANCE |
| ENTERPRISE FOUNDATION|
| |
| MEMBERSHIP |
| NONPROFIT |
| CORPORATION |
------------------------
-----------------------------------------------------------------------------
| |
| |
| NATIONWIDE MUTUAL |
=======| FIRE INSURANCE COMPANY |
| (FIRE) |
| |
| |
-----------------------------------------------------------------------------
|
- --------------- --------------------------------------------------
| |
- ----------------------------------------------------------------------------------------------------------------- |
| | | |
| -------------------------------- | -------------------------------- ----------------------------------
| | SCOTTSDALE | | | NATIONWIDE | | NATIONWIDE |
| | INDEMNITY COMPANY | | | COMMUNITY URBAN | | CORPORATION |
| | | | | REDEVELOPMENT | | |
| | | | | CORPORATION | |Common Stock: Control: |
| |Common Stock: 50,000 | | |Common Stock: 10 Shares | |------------ ------- |
|-----|------------ Shares | |----|------------ | |$13,642,432 100% |
| | Cost | | | Cost | | Shares Cost |
| | ---- | | | ---- | | ------ ---- |
| |Casualty-100% $8,800,000 | | |Casualty-100% $1,000 | |Casualty 12,992,922 $751,352,485|
| | | | | | |Fire 649,510 24,007,936|
| | | | | | | (See Page 2) |
| -------------------------------- | -------------------------------- ----------------------------------
| |
| -------------------------------- | --------------------------------
| | NATIONWIDE | | | INSURANCE |
| | INDEMNITY COMPANY | | | INTERMEDIARIES, INC. |
| | | | | |
|-----|Common Stock: 28,000 | |----|Common Stock: 1,615 |
| |------------ Shares | | |------------ Shares |
| | Cost | | | Cost |
| | ---- | | | ---- |
| |Casualty-100% $294,529,000 | | |Casualty-100% $1,615,000 |
| -------------------------------- | --------------------------------
| |
| -------------------------------- | --------------------------------
| | LONE STAR | | | NATIONWIDE CASH |
| | GENERAL AGENCY, INC. | | | MANAGEMENT COMPANY |
| | | | |Common Stock: 100 Shares |
------|Common Stock: 1,000 | |----|------------ |
|------------ Shares | | | Cost |
| Cost | | | ---- |
| ---- | | |Casualty-90% $9,000 |
|Casualty-100% $5,000,000 | | |NW Adv. Serv. 1,000 |
-------------------------------- | --------------------------------
|| |
-------------------------------- | --------------------------------
| COLONIAL COUNTY MUTUAL | | | CALIFORNIA CASH |
| INSURANCE COMPANY | | | MANAGEMENT |
| | | | |
|Surplus Debentures | | |Common Stock: 90 Shares |
|------------------ | |----|------------ |
| Cost | | | Cost |
| ---- | | | ---- |
|Colonial $500,000 | | |Casualty-100% $9,000 |
|Lone Star 150,000 | | | |
-------------------------------- | --------------------------------
|
| -------------------------------- --------------------------------
| | NATIONWIDE | | THE BEAK AND |
| | COMMUNICATIONS, INC. | | WIRE CORPORATION |
| |Common Stock: 14,750 | | |
| |------------ Shares | |Common Stock: 750 Shares |
-----| Cost |------------------|------------ |
| ---- | | Cost |
|Casualty-100% $11,510,000 | | ---- |
|Other Capital: | |NW Comm-100% $531,000 |
|------------- | | |
|Casualty-Ptd. 1,000,000 | | |
-------------------------------- --------------------------------
Subsidiary Companies -- Solid Line
Contractual Association -- Double Lines
March 6, 1997
</TABLE>
<PAGE> 59
<TABLE>
<CAPTION>
(Left Side)
NATIONWIDE INSURANCE ENTERPRISE(R)
------------------------------------------------
| EMPLOYERS INSURANCE |
| OF WAUSAU |==========================================
| A MUTUAL COMPANY |
------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------
| | |
--------------------------- --------------------------- ---------------------------
| NATIONWIDE LIFE INSURANCE | | NATIONWIDE | | NATIONWIDE FINANCIAL |
| COMPANY (NW LIFE) | | FINANCIAL SERVICES | | INSTITUTION DISTRIBUTORS |
| | | CAPITAL TRUST | | AGENCY, INC. (NFIDAI) |
| Common Stock: 3,814,779 | | Preferred Stock: | | Common Stock: 1,000 |
| ------------ Shares | | --------------- | | ------------ Shares |
| | | | | |
| NFS--100% | | NFS--100% | | NFS--100% |
--------------------------- --------------------------- ---------------------------
| ||
--------------------------- | --------------------------- --------------------------- || --------------------------
| NATIONWIDE LIFE AND | | | NATIONWIDE | | FINANCIAL HORIZONS | || | |
| ANNUITY INSURANCE COMPANY | | | ADVISORY SERVICES | | DISTRIBUTORS AGENCY | || | |
| (NW LIFE) | | | (NW ADV. SERV.) | | OF ALABAMA, INC. | || | |
| Common Stock: 68,000 | | | Common Stock: 7,676 | | Common Stock: 10,000 | || | FINANCIAL HORIZONS |
| ------------ Shares |--|--| ------------ Shares |==|| | ------------ Shares |--||==| DISTRIBUTORS AGENCY |
| | | | | || | | || | OF OHIO, INC. |
| Cost | | | Cost | || | Cost | || | |
| ---- | | | ---- | || | ---- | || | |
| NW Life--100% $58,070,003 | | | NW Life--100% $5,996,261 | || | NFIDIA--100% $100 | || | |
--------------------------- | --------------------------- || --------------------------- || --------------------------
| || ||
--------------------------- | --------------------------- || --------------------------- || --------------------------
| NWE, INC. | | | NATIONWIDE | || | LANDMARK FINANCIAL | || | |
| | | | INVESTOR SERVICES, INC. | || | SERVICES OF | || | |
| | | | | || | NEW YORK, INC. | || | |
| Common Stock: 100 | | | Common Stock: 5 | || | Common Stock: 10,000 | || | FINANCIAL HORIZONS |
| ------------ Shares |--| | ------------ Shares |==|| | ------------ Shares | ||==| DISTRIBUTORS AGENCY |
| | | | | || | | || | OF OKLAHOMA, INC. |
| Cost | | | Cost | || | Cost | || | |
| ---- | | | ---- | || | ---- | || | |
| NW Life--100% $35,971,375 | | | NW Adv. Serv.--100% $5,000| || | NFIDIA--100% $10,100 | || | |
--------------------------- | --------------------------- || --------------------------- || --------------------------
| || ||
--------------------------- | --------------------------- || --------------------------- || --------------------------
| NATIONWIDE INVESTMENT | | | FINANCIAL HORIZONS | || | FINANCIAL HORIZONS | || | |
| SERVICES CORPORATION | | | INVESTMENT TRUST | || | SECURITIES CORP. | || | |
| | | | | || | | || | |
| Common Stock: 5,000 | | | | || | Common Stock: 10,000 | || | FINANCIAL HORIZONS |
| ------------ Shares |--| | |==|| | ------------ Shares | ||==| DISTRIBUTORS AGENCY |
| | | | | || | | || | OF TEXAS, INC. |
| Cost | | | | || | Cost | || | |
| ---- | | | | || | ---- | || | |
| NW Life--100% $529,728 | | | COMMON LAW TRUST | || | NFIDIA--100% $153,000 | || | |
--------------------------- | --------------------------- || --------------------------- || --------------------------
| || ||
--------------------------- | --------------------------- || --------------------------- || --------------------------
| NATIONWIDE LIFE INSURANCE | | | NATIONWIDE | || | AFFILIATE AGENCY, INC. | || | |
| COMPANY OF NEW YORK | | | INVESTING | || | | || | |
| | | | FOUNDATION | || | | || | |
| Common Stock: | | | | || | Common Stock: 100 | || | AFFILIATE |
| ------------ Shares |--| | |==|| | ------------ Shares |__||==| AGENCY OF |
| Cost | | | | || | | | OHIO, INC. |
| ---- | | | | || | Cost | | |
| NW Life--100% | | | | || | ---- | | |
| (Proposed) | | | COMMON LAW TRUST | || | NFIDIA--100% $100 | | |
--------------------------- | --------------------------- || --------------------------- --------------------------
| ||
--------------------------- | --------------------------- ||
| NATIONWIDE REALTY | | | NATIONWIDE | ||
| INVESTORS, LTD. | | | INVESTING | ||
| | | | FOUNDATION II | ||
| Units: | | | | ||
| ------ | | | |==||
| | | | | ||
| | | | | ||
| NW Life--90% | | | | ||
| NW Mutual--10% | | | COMMON LAW TRUST | ||
--------------------------- | --------------------------- ||
| ||
--------------------------- | --------------------------- ||
| NATIONWIDE REALTY | | | NATIONWIDE | ||
| INVESTORS, LTD. | | | SEPARATE ACCOUNT | ||
| | | | TRUST | ||
| Units: | | | | ||
| ------ |__| | |__||
| | | |
| | | |
| NW Life--97.6% | | |
| NW Mutual--2.4% | | COMMON LAW TRUST |
--------------------------- ---------------------------
</TABLE>
<PAGE> 60
<TABLE>
<CAPTION>
(Center)
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------
| NATIONWIDE MUTUAL |
========================================| INSURANCE COMPANY |==========================================
| (CASUALTY) |
------------------------------------------------
|
| ----------------------------------------------------
| |
---------------------------------------
| NATIONWIDE CORPORATION (NW CORP) |
| Common Stock: Control |
| ------------ ------- |
| 13,642,432 100% |
| Shares Cost |
| ------ ---- |
| Casualty 12,992,922 $751,352,485 |
| Fire 649,510 24,007,936 |
---------------------------------------
|
----------------------------------------------------------------------------------------------------------------------
| | | |
--------------------------- -------------------------- ----------------------------- ----------------------------
| NATIONWIDE FINANCIAL | | MRM INVESTMENTS, INC. | | WEST COAST LIFE | | NATIONAL CASUALTY |
| SERVICES, INC. (NFS) | | | | INSURANCE COMPANY | | COMPANY |
| | | | | | | (NC) |
| Common Stock: Control | | Common Stock: 1 | | Common Stock: 1,000,000 | | Common Stock: 100 |
| ------------ ------- | | ------------ Share | | ------------ Shares | | ------------ Shares |
| | | | | | | |
| | | Cost | | Cost | | Cost |
| Class A Public--100% | | ---- | | ---- | | ---- |
| Class B NW Corp--100% | | NW Corp.--100% $1,339,218 | | NW Corp.--100% $152,946,930 | | NW Corp.--100% $73,442,439 |
--------------------------- --------------------------- ----------------------------- ----------------------------
| |
- -------------------------------------------------------------------------------- |
| | |
--------------------------- --------------------------- ----------------------------
| PUBLIC EMPLOYEES BENEFIT | | NEA VALUEBUILDER | | NCC OF AMERICA, INC. |
| SERVICES CORPORATION | | INVESTOR SERVICES, INC. | | (INACTIVE) |
| (PEBSCO) | | (NEA) | | |
| Common Stock: 236,494 |==|| | Common Stock: 500 | | |
| ------------ Shares | || | ------------ Shares | | |
| | || | | | |
| NFS--100% | || | NFS--100% | | NFS--100% |
--------------------------- || ----------------------------- ----------------------------
|| ||
--------------------------- || --------------------------- ||
| PEBSCO OF | || | NEA VALUEBUILDER | ||
| ALABAMA | || | INVESTOR SERVICES | ||
| | || | OF ALABAMA, INC. | ||
| Common Stock: 100,000 | || | Common Stock: 500 | ||
| ------------ Shares |--|| | ------------ Shares |--||
| | || | | ||
| Cost | || | Cost | ||
| ---- | || | ---- | ||
| PEBSCO--100% $1,000 | || | NEA--100% $5,000 | ||
--------------------------- || --------------------------- ||
|| ||
--------------------------- || --------------------------- ||
| PEBSCO OF | || | NEA VALUEBUILDER | ||
| ARKANSAS | || | INVESTOR SERVICES | ||
| | || | OF ARIZONA, INC | ||
| Common Stock: 50,000 | || | Common Stock: 100 | ||
| ------------ Shares |--|| | ------------ Shares |--||
| | || | | ||
| Cost | || | Cost | ||
| ---- | || | ---- | ||
| PEBSCO--100% $500 | || | NEA--100% $1,000 | ||
--------------------------- || --------------------------- ||
|| ||
--------------------------- || --------------------------- ||
| PEBSCO OF MASSACHUSETTS | || | NEA VALUEBUILDER | ||
| INSURANCE AGENCY, INC. | || | INVESTOR SERVICES | ||
| | || | OF MONTANA, INC. | ||
| Common Stock: 1,000 | || | Common Stock: 500 | ||
| ------------ Shares |--|| | ------------ Shares |--||
| | || | | ||
| Cost | || | Cost | ||
| ---- | || | ---- | ||
| PEBSCO--100% $1,000 | || | NEA--100% $500 | ||
--------------------------- || --------------------------- ||
|| ||
--------------------------- || --------------------------- || ---------------------------
| PEBSCO OF | || | NEA VALUEBUILDER | || | |
| MONTANA | || | INVESTOR SERVICES | || | |
| | || | OF NEVADA, INC. | || | NEA VALUEBUILDER |
| Common Stock: 500 | || | Common Stock: 500 | || | INVESTOR SERVICES |
| ------------ Shares |--|| | ------------ Shares | ||==| OF OHIO, INC. |
| | || | | || | |
| Cost | || | Cost | || | |
| ---- | || | ---- | || | |
| PEBSCO--100% $500 | || | NEA--100% $500 | || | |
--------------------------- || --------------------------- || ---------------------------
|| ||
--------------------------- || --------------------------- || ---------------------------
| PEBSCO OF | || | NEA VALUEBUILDER | || | |
| NEW MEXICO | || | INVESTOR SERVICES | || | |
| | || | OF WYOMING, INC. | || | NEA VALUEBUILDER |
| Common Stock: 1,000 | || | Common Stock: 500 | || | INVESTOR SERVICES |
| ------------ Shares |--|| | ------------ Shares | ||==| OF OKLAHOMA, INC. |
| | || | | || | |
| Cost | || | Cost | || | |
| ---- | || | ---- | || | |
| PEBSCO--100% $1,000 | || | NEA--100% $500 | || | |
--------------------------- || --------------------------- || ---------------------------
|| ||
--------------------------- || --------------------------- || ----------------------------
| | || | NEA VALUEBUILDER | || | |
| | || | SERVICES INSURANCE | || | |
| PEBSCO OF | || | AGENCY, INC. | || | NEA VALUEBUILDER |
| TEXAS, INC. | || | Common Stock: 100 | || | INVESTOR SERVICES |
| |==|| | ------------ Shares |__||==| OF TEXAS, INC. |
| | | | | |
| | | Cost | | |
| | | ---- | | |
| | | NEA--100% $1,000 | | |
--------------------------- --------------------------- ----------------------------
</TABLE>
<PAGE> 61
<TABLE>
<CAPTION>
(Right)
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------
| NATIONWIDE MUTUAL |
========================================| FIRE INSURANCE COMPANY |
| (FIRE) |
------------------------------------------------
|
- -----------------------------------------------------------------|
- ----------------------------------------------------------------------------------------------
| | |
--------------------------- ------------------------------ ------------------------------
| GATES, MCDONALD | | EMPLOYERS LIFE INSURANCE | | NATIONWIDE HMO, INC. |
| & COMPANY (GATES) | | OF WAUSAU (ELIOW) | | (NW HMO) |
| | | | | |
| Common Stock: 254 | | Common Stock: 250,000 | | Common Stock: 100 |
|-- | ------------ Shares | |--| ------------ Shares | |--| ------------ Shares |
| | | | | | | | |
| | Cost | | | Cost | | | Cost |
| | ---- | | | ---- | | | ---- |
| | NW CORP.--100% $25,683,532 | | | NW CORP.--100% $126,509,480 | | | NW CORP.--100% $14,603,732 |
| ----------------------------- | ------------------------------ | ------------------------------
| | |
| --------------------------- | ------------------------------ | ------------------------------
| | GATES, MCDONALD & COMPANY | | | WAUSAU PREFERRED | | | NATIONWIDE MANAGEMENT |
| | OF NEW YORK, INC. | | | HEALTH INSURANCE CO. | | | SYSTEMS, INC. |
| | | | | | | | |
| | Common Stock: 3 | | | Common Stock: 250,000 | | | Common Stock: 100 |
|-- | ------------ Shares | |--| ------------ Shares | |--| ------------ Shares |
| | | | | | | | |
| | Cost | | | Cost | | | NW HMO Cost |
| | ---- | | | ---- | | | ---- |
| | GATES--100% $106,947 | | | NW CORP.--100% $57,413,193 | | | Inc.--100% $25,149 |
| ----------------------------- | ------------------------------ | ------------------------------
| | |
| ----------------------------- | ------------------------------ | ------------------------------
| | GATES, MCDONALD & COMPANY | | | KEY HEALTH PLAN, INC. | | | NATIONWIDE |
| | OF NEVADA | | | | | | AGENCY, INC. |
| | | | | | | | |
| | Common Stock: 40 | | | Common Stock: 1,000 | | | Common Stock: 100 |
|-- | ------------ Shares | |--| ------------ Shares | |--| ------------ Shares |
| | | | | | | |
| | Cost | | Cost | | | NW HMO Cost |
| | ---- | | ---- | | | ---- |
| | Gates--100% $93,750 | | ELIOPW--80% $2,700,000 | | | Inc.--99% $116,077 |
| ----------------------------- ------------------------------ | ------------------------------
|
| -----------------------------
| | GATES, MCDONALD |
| | HEALTH PLUS, INC. |
| | |
| | Common Stock: 200 |
|-- | ------------ Shares |
| |
| Cost |
| ---- |
| NW CORP.--100% $2,000,000 |
-----------------------------
Subsidiary Companies -- Solid Line
Contractual Association -- Double Line
Partnership Interest -- Dotted Line
March 6, 1997
Page 2
</TABLE>
<PAGE> 62
Item 27. NUMBER OF CONTRACT OWNERS
The number of contract Owners of Qualified and Non-Qualified
Contracts as of February 28, 1997 was 210 and 214, 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.
91 of 102
<PAGE> 63
Item 29. PRINCIPAL UNDERWRITER
(a) INVESTMENT COMPANIES FOR WHICH VAN KAMPEN AMERICAN
CAPITAL DISTRIBUTORS INC. ACTS AS PRINCIPAL UNDERWRITER
OR DEPOSITOR AS OF APRIL 1, 1997
<TABLE>
<S> <C>
Van Kampen American Capital U.S. Government Trust
Van Kampen American Capital U.S. Government Fund
Van Kampen American Capital Tax Free Trust
Van Kampen American Capital Insured Tax Free Income Fund
Van Kampen American Capital Tax Free High Income Fund
Van Kampen American Capital California Insured Tax Free Fund
Van Kampen American Capital Municipal Income Fund
Van Kampen American Capital Intermediate Term Municipal Income Fund
Van Kampen American Capital Florida Insured Tax Free Income Fund
Van Kampen American Capital New Jersey Tax Free Income Fund
Van Kampen American Capital New York Tax Free Income Fund
Van Kampen American Capital Trust
Van Kampen American Capital High Yield Fund
Van Kampen American Capital Short-Term Global Income Fund
Van Kampen American Capital Strategic Income Fund
Van Kampen American Capital Equity Trust
Van Kampen American Capital Utility Fund
Van Kampen American Capital Balanced Fund
Van Kampen American Capital Value Fund
Van Kampen American Capital Great American Companies Fund
Van Kampen American Capital Growth Fund
Van Kampen American Capital Prospector Fund
Van Kampen American Capital Aggressive Growth Fund
Van Kampen American Capital Foreign Securities Fund
Van Kampen American Capital Pennsylvania Tax Free Income Fund
Van Kampen American Capital Tax Free Money Fund
Van Kampen American Capital Prime Rate Income Trust
Van Kampen American Capital Comstock Fund
Van Kampen American Capital Corporate Bond Fund
Van Kampen American Capital Emerging Growth Fund
Van Kampen American Capital Enterprise Fund
Van Kampen American Capital Equity Income Fund
Van Kampen American Capital Limited Maturity Government Fund
Van Kampen American Capital Global Managed Assets Fund
Van Kampen American Capital Government Securities Fund
Van Kampen American Capital Government Target Fund
Van Kampen American Capital Growth and Income Fund
Van Kampen American Capital Harbor Fund
Van Kampen American Capital High Income Corporate Bond Fund
</TABLE>
92 of 102
<PAGE> 64
Van Kampen American Capital Life Investment Trust
Van Kampen American Capital Enterprise Portfolio
Van Kampen American Capital Domestic Income Portfolio
Van Kampen American Capital Emerging Growth Portfolio
Van Kampen American Capital Global Equity Portfolio
Van Kampen American Capital Government Portfolio
Van Kampen American Capital Money Market Portfolio
Van Kampen American Capital Asset Allocation Portfolio
Van Kampen American Capital Real Estate Securities Portfolio
Van Kampen American Capital Growth and Income Portfolio
Van Kampen American Capital Pace Fund
Van Kampen American Capital Real Estate Securities Fund
Van Kampen American Capital Reserve Fund
Van Kampen American Capital Tax -Exempt Trust
Van Kampen American Capital High Yield Municipal Fund
Van Kampen American Capital U.S. Government Trust for Income
Van Kampen American Capital World Portfolio Series Trust
Van Kampen American Capital Global Equity Fund
Van Kampen American Capital Global Government Securities Fund
<TABLE>
<S> <C>
Emerging Markets Municipal Income Trust Series 1
Insured Municipals Income Trust Series 1 through 387
Insured Municipals Income Trust (Discount) Series 5 through 13
Insured Municipals Income Trust (Short Intermediate Term) Series 1 through 106
1009 Insured Municipals Income Trust (Intermediate Term) Series 5 through 89
Insured Municipals Income Trust (Limited Term) Series 9 through 86
Insured Municipals Income Trust (Premium Bond Series) Series 1 through 3
Insured Municipals Income Trust (Intermediate Laddered Maturity) Series 1 and 2
Insured Tax Free Bond Trust Series 1 through 6
Insured Tax Free Bond Trust (Limited Term) Series 1
Investors' Quality Tax-Exempt Trust Series 1 through 93
Investors' Quality Tax-Exempt Trust-Intermediate Series 1
Investors' Corporate Income Trust Series 1 through 12
Investors' Governmental Securities Income Trust Series 1 through 7
Van Kampen Merritt International Bond Income Trust Series 1 through 21
Alabama Investors' Quality Tax-Exempt Trust Series 1
Alabama Insured Municipals Income Trust Series 1 through 9
Arizona Investors' Quality Tax-Exempt Trust Series 1 through 16
Arizona Insured Municipals Income Trust Series 1 through 18
Arkansas Insured Municipals Income Trust Series 1 through 2
Arkansas Investors' Quality Tax-Exempt Trust Series 1
California Insured Municipals Income Trust Series 1 through 164
California Insured Municipals Income Trust (Premium Bond Series) Series 1
California Insured Municipals Income Trust (1st Intermediate Series) Series 1 through 3
California Investors' Quality Tax-Exempt Trust Series 1 through 21
California Insured Municipals Income Trust (Intermediate Laddered) Series 1 through 22
Colorado Insured Municipals Income Trust Series 1 through 83
Colorado Investors' Quality Tax-Exempt Trust Series 1 through 18
Connecticut Insured Municipals Income Trust Series 1 through 34
Connecticut Investors' Quality Tax-Exempt Trust Series 1
Delaware Investor's Quality Tax-Exempt Trust Series 1 and 2
Florida Insured Municipal Income Trust - Intermediate Series 1 and 2
Florida Insured Municipals Income Trust Series 1 through 113
Florida Investors' Quality Tax-Exempt Trust Series 1 and 2
</TABLE>
93 of 102
<PAGE> 65
<TABLE>
<S> <C>
Florida Insured Municipals Income Trust (Intermediate Laddered) Series 1 through 13
Georgia Insured Municipals Income Trust Series 1 through 83
Georgia Investors' Quality Tax-Exempt Trust Series 1 through 16
Hawaii Investors' Quality Tax-Exempt Trust Series 1
Indiana Insured Municipals Income Trust Series 1
Investors' Quality Municipals Trust (AMT) Series 1 through 9
Kansas Investors' Quality Tax-Exempt Trust Series 1 through 11
Kentucky Investors' Quality Tax-Exempt Trust Series 1 through 59
Louisiana Insured Municipals Income Trust Series 1 through 17
Maine Investor's Quality Tax-Exempt Trust Series 1
Maryland Investors' Quality Tax-Exempt Trust Series 1 through 81
Massachusetts Insured Municipals Income Trust Series 1 through 34
Massachusetts Insured Municipals Income Trust (Premium Bond Series) Series 1
Michigan Financial Institutions Trust Series 1
Michigan Insured Municipals Income Trust Series 1 through 143
Michigan Insured Municipals Income Trust (Premium Bond Series) Series 1
Michigan Insured Municipals Income Trust (1st Intermediate Series) Series 1 through 3
Michigan Investors' Quality Tax-Exempt Trust Series 1 through 30
Michigan Select Trust Series 1
Minnesota Insured Municipals Income Trust Series 1 through 60
Minnesota Investors' Quality Tax-Exempt Trust Series 1 through 21
Mississippi Insured Municipals Income Trust Series 1
Missouri Insured Municipals Income Trust Series 1 through 100
Missouri Insured Municipals Income Trust (Premium Bond Series) Series 1
Missouri Investors' Quality Tax-Exempt Trust Series 1 through 15
Missouri Insured Municipals Income Trust
(Intermediate Laddered Maturity) Series 1
Nebraska Investors' Quality Tax-Exempt Trust Series 1 through 9
New Mexico Insured Municipals Income Trust Series 1 through 18
New Jersey Insured Municipals Income Trust Series 1 through 118
New Jersey Investors' Quality Tax-Exempt Trust Series 1 through 22
New Jersey Insured Municipals Income Trust
(Intermediate Laddered Maturity) Series 1 and 4
New York Insured Municipals Income Trust-Intermediate Series 1 through 6
New York Insured Municipals Income Trust (Limited Term) Series 1
New York Insured Municipals Income Trust Series 1 through 140
New York Insured Tax-Free Bond Trust Series 1
New York Insured Municipals Income Trust
(Intermediate Laddered Maturity) Series 1 through 17
New York Investors' Quality Tax-Exempt Trust Series 1
North Carolina Investors' Quality Tax-Exempt Trust Series 1 through 91
Ohio Insured Municipals Income Trust Series 1 through 106
Ohio Insured Municipals Income Trust (Premium Bond Series) Series 1 and 2
Ohio Insured Municipals Income Trust (Intermediate Term) Series 1
Ohio Insured Municipals Income Trust
(Intermediate Laddered Maturity) Series 3 through 6
Ohio Investors' Quality Tax-Exempt Trust Series 1 through 16
Oklahoma Insured Municipal Income Trust Series 1 through 17
Oregon Investors' Quality Tax-Exempt Trust Series 1 through 53
Pennsylvania Insured Municipals Income Trust - Intermediate Series 1 through 6
Pennsylvania Insured Municipals Income Trust Series 1 through 228
Pennsylvania Insured Municipals Income Trust (Premium Bond Series) Series 1
Pennsylvania Investors' Quality Tax-Exempt Trust Series 1 through 14
South Carolina Investors' Quality Tax-Exempt Trust Series 1 through 85
Stepstone Growth Equity and Treasury Securities Trust Series 1
</TABLE>
94 of 102
<PAGE> 66
<TABLE>
<S> <C>
Tennessee Insured Municipals Income Trust Series 1-3 and 5-39
Texas Insured Municipals Income Trust Series 1 through 40
Texas Insured Municipal Income Trust (Intermediate Ladder) Series 1
Virginia Investors' Quality Tax-Exempt Trust Series 1 through 76
Van Kampen American Capital Equity Opportunity Trust Series 1 through 56
Van Kampen American Capital Utility Income Trust Series 1 through 8
Van Kampen American Capital Insured Income Trust Series 1 through 66
Van Kampen American Capital Insured Income Trust (Intermediate Term) Series 1 through 65
Van Kampen Merritt Select Equity Trust Series 1
Van Kampen Merritt Select Equity and Treasury Trust Series 1
Washington Insured Municipals Income Trust Series 1
West Virginia Insured Municipals Income Trust Series 1 through 7
Principal Financial Institutions Trust Series 1
Internet Trust Series 1 through 5
Michigan Real Estate Income and Growth Trust Series 1
Strategic Ten Trust, United States Series 1 through 15
Strategic Ten Trust, United Kingdom Series 1 through 13
Strategic Ten Trust, Hong Kong Series 1 through 13
Strategic Five Trust, United States Series 1 through 9
Global Fifteen Trust Series 1 through 2
Global Thirty Trust Series 1 through 4
Great International Firms Trust Series 1 through 4
Undervalued Growth Opportunities Trust Series 1
Emerging Growth and Treasury Series 1
Global Blue Chip Trust Series 1
Renaissance Trust Series 1
Blue Chip Opportunity and Treasury Trust Series 1 through 4
Wheat First Strategic Opportunity Unit Trust Series 1
Baby Boomer Opportunity Trust Series 1 through 2
Global Energy Trust Series 1 through 3
Latin American Trust Series 1
Brand Name Equity Trust Series 1 through 3
Global Health Care Trust Series 1
Global Precious Metals Trust Series 1
</TABLE>
OFFICERS
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
<TABLE>
<CAPTION>
NAME OFFICE LOCATION
---- ------ --------
<S> <C> <C>
Don G. Powell Chairman & Chief Executive Officer Houston, TX
William R. Molinari President & Chief Operating Oakbrook Terrace, IL
Officer
Ronald A. Nyberg Executive Vice President & General Oakbrook Terrace, IL
Counsel
William R. Rybak Executive Vice President & Chief Oakbrook Terrace, IL
Financial Officer
Paul R. Wolkenberg Executive Vice President Houston, TX
Robert A. Broman Sr. Vice President Oakbrook Terrace, IL
Gary R. DeMoss Sr. Vice President Oakbrook Terrace, IL
Keith K. Furlong Sr. Vice President Oakbrook Terrace, IL
Douglas B. Gehrman Sr. Vice President Houston, TX
</TABLE>
95 of 102
<PAGE> 67
<TABLE>
<S> <C> <C>
Richard D. Humphrey Sr. Vice President Houston, TX
Scott E. Martin Sr. Vice President, Deputy General Oakbrook Terrace, IL
Counsel & Secretary
Debra A. Nichols Sr. Vice President Houston, TX
Charles G. Millington Sr. Vice President & Treasurer Oakbrook Terrace, IL
Robert S. West Sr. Vice President Oakbrook Terrace, IL
John H. Zimmermann, III Sr. Vice President Oakbrook Terrace, IL
Timothy K. Brown 1st Vice President Laguna Niguel, CA
James S. Fosdick 1st Vice President Oakbrook Terrace, IL
Edward F. Lynch 1st Vice President Oakbrook Terrace, IL
Mark R. McClure 1st Vice President Oakbrook Terrace, IL
Mark T. McGannon 1st Vice President Oakbrook Terrace, IL
James J. Ryan 1st Vice President Oakbrook Terrace, IL
Michael L. Stallard 1st Vice President Oakbrook Terrace, IL
David M. Swanson 1st Vice President Oakbrook Terrace, IL
Laurence J. Althoff Vice President & Controller Oakbrook Terrace, IL
James K. Ambrosio Vice President Massapequa, NY
Patricia A. Bettlach Vice President St. Louis, MO
Carol S. Biegel Vice President Oakbrook Terrace, IL
Linda Mae Brown Vice President Oakbrook Terrace, IL
William F. Burke, Jr. Vice President Mendham, NJ
Loren Burket Vice President Plymouth, MN
Thomas M. Byron Vice President Oakbrook Terrace, IL
Glenn M. Cackovic Vice President Laguna Niguel, CA
Joseph N. Caggiano Vice President New York, NY
Richard J. Charlino Vice President Oakbrook Terrace, IL
Eleanor M. Cloud Vice President Oakbrook Terrace, IL
Dominick Cogliandro Vice President & Asst. Treasurer New York, NY
Michael Colston Vice President Louisville, KY
Suzanne Cummings Vice President Houston, TX
David B. Dibo Vice President Oakbrook Terrace, IL
Howard A. Doss Vice President Tampa, FL
Jonathan Eckhard Vice President Boulder, CO
Charles Edward Fisher Vice President Oakbrook Terrace, IL
William J. Fow Vice President Redding, CT
Charles Friday Vice President Gibsonia, PA
Nori L. Gabert Vice President, Assoc. General Houston, TX
Counsel & Asst. Secretary
Erich P. Gerth Vice President Dallas, TX
Daniel Hamilton Vice President Houston, TX
John A. Hanhauser Vice President Philadelphia, PA
Eric J. Hargens Vice President Orlando, FL
J. Christopher Jackson Vice President, Assoc. General Oakbrook Terrace, IL
Counsel & Asst. Secretary
Lowell Jackson Vice President Norcross, GA
Dana R. Klein Vice President Oakbrook Terrace, IL
Ann Marie Klingenhagen Vice President Oakbrook Terrace, IL
Frederick Kohly Vice President Miami, FL
David R. Kowalski Vice President & Director Oakbrook Terrace, IL
of Compliance
S. William Lehew III Vice President Charlotte, NC
Robert C. Lodge Vice President Philadelphia, PA
</TABLE>
96 of 102
<PAGE> 68
<TABLE>
<S> <C> <C>
Walter Lynn Vice President Flower Mound, TX
Michele L. Manley Vice President Oakbrook Terrace, IL
Kevin S. Marsh Vice President Bellevue, WA
Carl Mayfield Vice President Lakewood, CO
Ruth L. McKeel Vice President Oakbrook Terrace, IL
John Mills Vice President Kenner, LA
Robert Muller, Jr. Vice President Houston, TX
Ronald E. Pratt Vice President Marietta, GA
Craig S. Prichard Vice President Oakbrook Terrace, IL
Walter E. Rein Vice President Oakbrook Terrace, IL
Michael W. Rohr Vice President Oakbrook Terrace, IL
James B. Ross Vice President Oakbrook Terrace, IL
Heather R. Sabo Vice President Richmond, Va
Stephanie Scarlata Vice President Lynbrook, NY
Lisa A. Schomer Vice President Oakbrook Terrace, IL
Ronald J. Schuster Vice President Tampa, FL
Kimberly M. Spangler Vice President Atlanta, GA
Darren D. Stabler Vice President Phoenix, AZ
Christopher J. Staniforth Vice President Leawood, KS
William C. Strafford Vice President Granger, IN
James C. Taylor Vice President Oakbrook Terrace, IL
John F. Tierney Vice President Oakbrook Terrace, IL
Curtis L. Ulvestad Vice President Red Wing, MN
Sandra A. Waterworth Vice President and Assistant Oakbrook Terrace, IL
Secretary
Steven T. West Vice President Wayne, PA
Weston B. Wetherell Vice President, Assoc. General Oakbrook Terrace, IL
Counsel & Asst. Secretary
James R. Yount Vice President Seattle, WA
Richard P. Zgonina Vice President Oakbrook Terrace, IL
James J. Boyne Asst. Vice President & Asst. Oakbrook Terrace, IL
Secretary
Eric J. Bridges Asst. Vice President Oakbrook Terrace, IL
Richard B. Callaghan Asst. Vice President Oakbrook Terrace, IL
Stephen M. Cutka Asst. Vice President Oakbrook Terrace, IL
Nicholas Dalmaso Asst. Vice President & Asst. Oakbrook Terrace, IL
Secretary
Gerald A. Davis Asst. Vice President Oakbrook Terrace, IL
Jerome M. Dybzinski Asst. Vice President Oakbrook Terrace, IL
Melissa B. Epstein Asst. Vice President Houston, TX
Huey P. Falgout, Jr. Asst. Vice President & Asst. Secretary Houston, TX
Rocco Fiordelisi III Asst. Vice President St. Louis, MO
Robert D. Gorski Asst. Vice President Oakbrook Terrace, IL
Walter C. Gray Asst. Vice President Oakbrook Terrace, IL
Joseph Hays Asst. Vice President Philadelphia, PA
Susan J. Hill Asst. Vice President Oakbrook Terrace, IL
Hunter Knapp Asst. Vice President Laguna, CA
Natalie N. Hurdle Asst. Vice President New York, NY
Laurie L. Jones Asst. Vice President Houston, TX
Brian T. Levinson Asst. Vice President Houston, TX
Peggy E. Moro Asst. Vice President Oakbrook Terrace, IL
David R. Niemi Asst. Vice President Oakbrook Terrace, IL
Daniel J. O'Keefe Asst. Vice President Oakbrook Terrace, IL
Allison Okun Asst. Vice President Oakbrook Terrace, IL
</TABLE>
97 of 102
<PAGE> 69
<TABLE>
<S> <C> <C>
David B. Partain Asst. Vice President Oakbrook Terrace, IL
Christine K. Putong Asst. Vice President & Asst. Secretary Oakbrook Terrace, IL
Michael Quinn Asst. Vice President Oakbrook Terrace, IL
David P. Robbins Asst. Vice President Oakbrook Terrace, IL
Thomas J. Sauerborn Asst. Vice President New York, NY
Andrew J. Scherer Asst. Vice President Oakbrook Terrace, IL
Jeffrey C. Shirk Asst. Vice President Philadelphia, PA
Traci T. Sorensen Asst. Vice President Oakbrook Terrace, IL
Gary Steele Asst. Vice President Philadelphia, PA
David H. Villarreal Asst. Vice President Oakbrook Terrace, IL
Kathleen M. Wennerstrum Asst. Vice President Oakbrook Terrace, IL
Barbara A. Withers Asst. Vice President Oakbrook Terrace, IL
Melinda K. Yeager Asst. Vice President Houston, TX
David C. Goodwin Asst. Secretary Oakbrook Terrace, IL
Gina M. Scumaci Asst. Secretary Oakbrook Terrace, IL
Elizabeth M. Brown Officer Houston, TX
John Browning Officer Oakbrook Terrace, IL
Leticia George Officer Houston, TX
Gina Grippo Officer Houston, TX
Sarah Kessler Officer Oakbrook Terrace, IL
Francis McGarvey Officer Houston, TX
William D. McLaughlin Officer Houston, TX
Becky Newman Officer Houston, TX
Rosemary Pretty Officer Houston, TX
Colette Saucedo Officer Houston, TX
Frederick Shepherd Officer Houston, TX
Larry Vickrey Officer Houston, TX
John Yovanovic Officer Houston, TX
</TABLE>
DIRECTORS
---------
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
<TABLE>
<CAPTION>
NAME OFFICE LOCATION
- ---- ------ --------
<S> <C> <C>
Don G. Powell Chairman & CEO 2800 Post Oak Blvd.
Houston, TX 77056
William R. Molinari President & COO One Parkview Plaza
Oakbrook Terrace, IL 60181
Ronald A. Nyberg Executive Vice President One Parkview Plaza
& General Counsel Oakbrook Terrace, IL 60181
William R. Rybak Executive Vice President One Parkview Plaza
& CFO Oakbrook Terrace, IL 60181
</TABLE>
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
98 of 102
<PAGE> 70
Item 32. UNDERTAKINGS
The Registrant hereby undertakes to:
(a) file a post-effective amendment to this registration
statement as frequently as is necessary to ensure that the
audited financial statements in the registration statement
are never more than 16 months old for so long as payments
under the variable annuity contracts may be accepted;
(b) include either (1) as part of any application to purchase a
Contract offered by the prospectus, a space that an
applicant can check to request a Statement of Additional
Information, or (2) a post card or similar written
communication affixed to or included in the prospectus that
the applicant can remove to send for a Statement of
Additional Information; and
(c) deliver any Statement of Additional Information and any
financial statements required to be made available under
this form promptly upon written or oral request.
The Registrant represents that any of the Contracts which are
issued pursuant to Section 403(b) of the Code are issued by the
Company through the Registrant in reliance upon, and in
compliance with, a no-action letter issued by the Staff of the
Securities and Exchange Commission to the American Council of
Life Insurance (publicly available November 28, 1988) permitting
withdrawal restrictions to the extent necessary to comply with
Section 403(b)(11) of the Code.
The Depositor represents that the fees and the charges deducted
under the Contract in the aggregate are reasonable in relation to
the services rendered, the expenses expected to be incurred, and
the risks assumed by the Company.
99 of 102
<PAGE> 71
Offered by
Nationwide Life Insurance Company
NATIONWIDE
LIFE INSURANCE COMPANY
NATIONWIDE
VARIABLE ACCOUNT - 3
INDIVIDUAL DEFERRED
VARIABLE ANNUITY CONTRACT
PROSPECTUS
MAY 1, 1997
100 of 102
<PAGE> 72
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 January 31, 1997 included the related financial statement
schedules as of December 31, 1996, and for each of the years in the three-year
period ended December 31, 1996, included in the registration statement. These
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statement schedules based on our audits. In our opinion, such financial
statement schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
We consent to the use of our reports included herein and to the reference to
our firm under the heading "Services" in the Statement of Additional
Information.
KPMG Peat Marwick LLP
Columbus, Ohio
April 22, 1997
101 of 102
<PAGE> 73
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 22nd
day of April, 1997.
NATIONWIDE VARIABLE ACCOUNT-3
------------------------------------------------
(Registrant)
NATIONWIDE LIFE INSURANCE COMPANY
-----------------------------------------------
(Depositor)
By /s/ JOSEPH P. RATH
------------------------------------------------
Joseph P. Rath
Vice President
As required by the Securities Act of 1933, this Post-Effective Amendment has
been signed by the following persons in the capacities indicated on the 22nd
day of April, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C> <C>
LEWIS J. ALPHIN Director
- -------------------------------------------------
Lewis J. Alphin
KEITH W. ECKEL Director
- -------------------------------------------------
Keith W. Eckel
WILLARD J. ENGEL Director
- -------------------------------------------------
Willard J. Engel
FRED C. FINNEY Director
- -------------------------------------------------
Fred C. Finney
CHARLES L. FUELLGRAF, JR. Director
- -------------------------------------------------
Charles L. Fuellgraf, Jr.
JOSEPH J. GASPER President and Chief
- -------------------------------------------------
Joseph J. Gasper Operating Office and Director
HENRY S. HOLLOWAY Chairman of the Board
- -------------------------------------------------
Henry S. Holloway and Director
DIMON RICHARD McFERSON Chairman and Chief Executive Officer-
- -------------------------------------------------
Dimon Richard McFerson Nationwide Insurance Enterprise and Director
DAVID O. MILLER Director
- -------------------------------------------------
David O. Miller
C. RAY NOECKER Director
- -------------------------------------------------
C. Ray Noecker
ROBERT A. OAKLEY Executive Vice President-
- -------------------------------------------------
Robert A. Oakley Chief Financial Officer
JAMES F. PATTERSON Director By /s/ JOSEPH P. RATH
- ------------------------------------------------- -----------------------
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>
102 of 102
<PAGE> 74
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that each of the undersigned as
directors and/or officers of NATIONWIDE LIFE INSURANCE COMPANY, and NATIONWIDE
LIFE AND ANNUITY INSURANCE COMPANY, both Ohio corporations, which have filed or
will file with the U.S. Securities and Exchange Commission under the provisions
of the Securities Act of 1933, as amended, various Registration Statements and
amendments thereto for the registration under said Act of Individual Deferred
Variable Annuity Contracts in connection with MFS Variable Account, Nationwide
Variable Account, Nationwide Variable Account-II, Nationwide Variable Account-3,
Nationwide Variable Account-4, Nationwide Variable Account-5, Nationwide
Variable Account-6, Nationwide Fidelity Advisor Variable Account, Nationwide
Multi-Flex Variable Account, Nationwide Variable Account-8, Nationwide VA
Separate Account-A, Nationwide VA Separate Account-B, Nationwide VA Separate
Account-C and Nationwide VA Separate Account-Q; and the registration of fixed
interest rate options subject to a market value adjustment offered under some or
all of the aforementioned individual Variable Annuity Contracts in connection
with Nationwide Multiple Maturity Separate Account and Nationwide Multiple
Maturity Separate Account-A, and the registration of Group Flexible Fund
Retirement Contracts in connection with Nationwide DC Variable Account,
Nationwide DCVA-II, and NACo Variable Account; and the registration of Group
Common Stock Variable Annuity Contracts in connection with Separate Account No.
1; and the registration of variable life insurance policies in connection with
Nationwide VLI Separate Account, Nationwide VLI Separate Account-2, Nationwide
VLI Separate Account-3, Nationwide VL Separate Account-A and Nationwide VL
Separate Account-B, hereby constitutes and appoints Dimon Richard McFerson,
Joseph J. Gasper, W. Sidney Druen, and Joseph P. Rath, and each of them with
power to act without the others, his/her attorney, with full power of
substitution and resubstitution, for and in his/her name, place and stead, in
any and all capacities, to approve, and sign such Registration Statements and
any and all amendments thereto, with power to affix the corporate seal of said
corporation thereto and to attest said seal and to file the same, with all
exhibits thereto and other documents in connection therewith, with the U.S.
Securities and Exchange Commission, hereby granting unto said attorneys, and
each of them, full power and authority to do and perform all and every act and
thing requisite to all intents and purposes as he/she might or could do in
person, hereby ratifying and confirming that which said attorneys, or any of
them, may lawfully do or cause to be done by virtue hereof. This instrument may
be executed in one or more counterparts.
IN WITNESS WHEREOF, the undersigned have herewith set their names and
seals as of this 2nd day of April, 1997.
<TABLE>
<CAPTION>
<S> <C>
/s/ Lewis J. Alphin /s/ David O. Miller
- ------------------------------------------------- --------------------------------------------------
Lewis J. Alphin, Director David O. Miller, Director
/s/ Keith W. Eckel /s/ C. Ray Noecker
- ------------------------------------------------- -------------------------------------------------
Keith W. Eckel, Director C. Ray Noecker, Director
/s/ Willard J. Engel /s/ Robert A. Oakley
- ------------------------------------------------- --------------------------------------------------
Willard J. Engel, Director Robert A. Oakley, Executive Vice President and Chief
Financial Officer
/s/ Fred C. Finney /s/ James F. Patterson
- ------------------------------------------------- --------------------------------------------------
Fred C. Finney, Director James F. Patterson, Director
/s/ Charles L. Fuellgraf /s/ Arden L. Shisler
- ------------------------------------------------- --------------------------------------------------
Charles L. Fuellgraf, Jr., Director Arden L. Shisler, Director
/s/ Joseph J. Gasper /s/ Robert L. Stewart
- ------------------------------------------------- --------------------------------------------------
Joseph J. Gasper, President and Chief Operating Officer Robert L. Stewart, Director
and Director
/s/ Henry S. Holloway /s/ Nancy C. Thomas
- ------------------------------------------------- --------------------------------------------------
Henry S. Holloway, Chairman of the Board, Director Nancy C. Thomas, Director
/s/ Dimon Richard McFerson /s/ Harold W. Weihl
- ------------------------------------------------- --------------------------------------------------
Dimon Richard McFerson, Chairman and Chief Executive Harold W. Weihl, Director
Officer-Nationwide Insurance Enterprise and Director
</TABLE>
