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NATIONWIDE(R)
VARIABLE
ACCOUNT-5
SEMI-ANNUAL REPORT
TO
CONTRACT OWNERS
JUNE 30, 1996
APO-2750-D(6/96)
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[LOGO]
NATIONWIDE LIFE INSURANCE COMPANY
ONE NATIONWIDE PLAZA, COLUMBUS, OHIO 43215
PRESIDENT'S MESSAGE
We are pleased to present the 1996 semi-annual report of the Nationwide
Variable Account-5.
Equity investments provided a respectable return for the first half of 1996
with the major market indices holding comfortably in double digits.
Fixed-income investments, however, did not perform as well with the average
bond fund showing slightly negative performance for the period. This was due to
rising interest rates and lingering inflation fears.
The U.S. economy showed signs of increasing strength during the first half of
the year. The question remains: will growth fall back to the perceived
inflation-free path by itself or will the Federal Reserve have to step in and
enforce moderation? Recent economic statistics, such as the July unemployment
report, point in the direction of some moderation. Also, fierce competition in
all consumer-goods markets make inflationary price increases very difficult.
One way or the other, we expect slower economic growth in the near future.
Financial assets will remain the preferred individual investment option
because they will continue providing security, liquidity, and income and
growth.
We appreciate your confidence in the Nationwide Insurance Enterprise and in
our life and annuity products. You have our assurance that your personal
satisfaction with our products and service is our highest priority.
/s/ Joseph J. Gasper, President
-------------------------------
Joseph J. Gasper, President
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Contents
<S> <C>
HOW TO READ THE SEMI-ANNUAL REPORT ........................................ 6
Explanation on how to read and understand
the various financial reports
A FEW WORDS ABOUT OUR FUNDS ............................................... 8
Fund Objectives and Narratives
written by the fund managers*
FUND PERFORMANCES ......................................................... 14
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY .............. 16
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY ................................................ 18
NOTES TO FINANCIAL STATEMENTS ............................................. 19
SCHEDULES OF CHANGES IN UNIT VALUE ........................................ 21
<FN>
*The discussions refer to a stock market index. The Standard & Poor's 500
Index (S&P 500) is an unmanaged index of 500 U.S. common stocks and the
historical performance assumes the reinvestment of dividends.
The performance figures quoted by the fund managers do not include the
annual mortality, expense and administration charges of the annuity
contract. The Fund's portfolio is subject to change.
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HOW TO READ THE SEMI-ANNUAL REPORT
This Semi-Annual Report is sent to all customers who own a Nationwide annuity
with all or some of the funds in the Nationwide Variable Account-5 (the
Account). The Account is a separate account trust which offers investment
options in eight mutual funds from five mutual fund houses. An explanation of
the funds and their objectives can be found on pages 8 through 13.
The Semi-Annual Report has three major financial sections.
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY
This statement, beginning on page 16, lists all the funds in the Account, the
number of shares owned, the amount paid for the shares (i.e., cost) and their
market value on June 30, 1996. The funds are presented in alphabetical order by
investment company. The market value of the assets change as the underlying
mutual fund shares change in value. As contract owners make exchanges between
the funds, the number of shares in each fund increases and decreases. When money
is deposited (withdrawn) by contract owners, shares of the mutual funds are
bought (sold) by the Account. The total market value of the funds is equal to
the Total investments.
Accounts receivable, if applicable, is an asset of the Account for money market
fund shares added to the contract owners' accounts, but not yet added to Total
investments. Total investments plus Accounts receivable equals Total assets.
Accounts payable, if applicable, is a liability of the Account for money market
fund shares deducted from the contract owners' accounts, but not yet deducted
from Total investments.
Total assets minus Accounts payable equals Contract owners' equity. For a
summary of Contract owners' equity by fund series turn to page 17.
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
These statements, found on page 18, show the activity in the Account for the
periods stated herein.
The Investment activity section shows the changes in unrealized gain (loss) of
the mutual funds in the Account, realized gain (loss) as shares of the funds are
bought (sold), and dividends and capital gains earnings from the underlying
mutual funds.
The Equity transactions section illustrates the
purchase payments received by the Account as new contracts are sold, existing
contract owners deposit additional funds, money is withdrawn, contracts are
canceled and annuity benefits are paid.
Expenses are the charges associated with the contract. Note 2 on page 20
outlines these charges.
Net change in contract owners' equity equals Investment activity plus Equity
transactions minus Expenses.
The Contract owners' equity at the beginning of the period plus the Net change
in contract owners' equity equals the Contract owners' equity at the end of the
period. Contract owners' equity at the end of the calendar year will equal the
Contract owners' equity at the beginning of the next year.
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SCHEDULES OF CHANGES IN UNIT VALUE
As a contract owner, you invest in the mutual funds offered in your annuity
contract. However, you do not buy shares of the mutual fund. Instead, the
Account buys shares of the fund and you in turn purchase units of the Account.
Except for the units surrendered for the annual contract maintenance charge, the
number of units you own will not change unless you contribute to or withdraw
money from your account. The value of your contract can change based on the
value of the units you own. For example, if you purchase 100 units at $10 per
unit, the value of your contract is $1,000. If the value of the units increases
to $12 per unit, your contract value increases to $1,200. Therefore, to
determine the value of your account, multiply the number of units of each fund
you own by the fund's unit value.
The Schedules of Changes in Unit Value show you the unit value at the beginning
of the period and at the end of the period. The percentage increase (decrease)
in unit value shows how it changed in value. This is computed by subtracting the
beginning unit value from the ending unit value and dividing the difference by
the beginning unit value. This can be used as a measure of the performance of
the funds over the periods reported herein.
As you review the following pages of the Semi-Annual Report, the Notes to
Financial Statements beginning on page 19 will also help explain and clarify the
various statements and schedules.
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A FEW WORDS ABOUT OUR FUNDS
[LOGO]
DREYFUS STOCK INDEX FUND++
OBJECTIVE - To provide investment results that correspond to the price and yield
performance of the S&P 500.+
NARRATIVE BY DREYFUS CORPORATION
The objective of the Stock Index Fund is to provide investment results that
correspond to the price and yield performance of publicly traded common stocks
in the aggregate, as represented by the Standard & Poor's 500 Composite Price
Index, better known as the S&P 500.
The manager generally selects stocks for the Fund's portfolio in the order of
their weightings in the S&P 500, beginning with the heaviest weighted stocks.
With respect to the Fund's assets invested in the stocks in the S&P 500, the
percentage of such assets invested in each stock is approximately the same as
the percentage it represents in the S&P 500.
The Fund will attempt to achieve a correlation between the performance of its
portfolio and that of the S&P 500 of at least 0.95, without taking into account
expenses. The Fund's ability to correlate its performance with the S&P 500 may
be affected by, among other things, changes in securities markets, the manner in
which the S&P 500 is calculated by Standard & Poor's Corporation, the timing of
purchases and redemptions, the size of the Fund's portfolio, and the size of
cash flow into and out of the Fund. There can be no assurance that the Fund's
investment objective will be achieved and an investment in the Fund involves
risks similar to those of investing in common stocks.
[LOGO]
VARIABLE INSURANCE PRODUCTS FUND
EQUITY-INCOME PORTFOLIO
OBJECTIVE - To seek reasonable income by investing primarily in income-producing
equity securities.
AN INTERVIEW WITH ANDY OFFIT, PORTFOLIO MANAGER
Q. HOW DID THE FUND PERFORM, ANDY?
A. It's been disappointing.The fund trailed its benchmark index, The Standard
& Poor's 500 Index, which returned 10.10% for the six-month and 26.00% for the
12-month periods.
Q. WHY DID THE FUND LAG ITS BENCHMARK DURING THE PAST SIX MONTHS?
A. Simply put, the fund didn't own some of the stocks in the S&P that have
performed well during the past couple of months. That's been disappointing to me
because since I started managing the fund in March I've worked hard to implement
some investment strategies that I think will benefit the fund in the long run.
The fund was also hurt by a large investment in Philip Morris that lost value
during the period.
Q. CAN YOU EXPLAIN WHAT CHANGES YOU'VE MADE TO THE FUND SINCE YOU TOOK OVER?
A. Yes. But before I describe what's changed, I'd like to explain what stayed
the same. The fund continued in invest mainly in U.S. stocks - mostly large-cap,
growth stocks. I also began to make selective investments in mid-cap growth
stocks of companies with between $2 billion and $6 billion in market
capitalization. As for the income portion, the fund no longer owns bonds.
Instead, I've begun to accumulate a position in convertible bond securities.
+"Standard & Poor's 500", "S&P 500(R)" are trademarks of the Standard & Poor's
Corporation and have been licensed for use. The fund is not sponsored,
endorsed, sold or promoted by Standard & Poor's Corporation.
++Formerly the Dreyfus Life and Annuity Index Fund.
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EQUITY-INCOME PORTFOLIO (CONT'D)
Q. WHY DO YOU FIND CONVERTIBLE BONDS ATTRACTIVE?
A. First of all, I managed a convertible bond fund for three years and am very
familiar with and comfortable with convertible bonds. I believe that convertible
bonds have the potential to add value to the fund on the upside while minimizing
risk. Secondly, the fund's prospectus says that the fund should seek a yield
higher than the S&P 500, and I think that strategic investments in convertible
bonds can add a lot of yield to the fund. I also think that convertible bonds
can lower the fund's volatility since they don't necessarily move in sync with
the market. At the end of the period the fund had a 13% position in convertible
bonds.
Q. WHAT ABOUT THE FUND'S HOLDINGS IN MID-CAP STOCKS . . .
A. Although investments in mid-cap stocks is a strategy that I'm enthusiastic
about, I don't expect to make it a very large percentage of the fund's
investments. That said, I think the fund can benefit from prudent investments in
medium-sized companies that have a lot of room to grow and I think it's an area
of the market with a lot of potential. Mid-cap stocks can be more risky than
large-cap stocks, but sometimes the reward can make the risk worthwhile. At the
end of the period, the portion of the fund's investments in mid-cap stocks was
less than three percent.
Q. WHAT OTHER CHANGES HAVE YOU MADE TO THE FUND'S STRATEGY?
A. I reduced the concentration in the fund's top holdings. At the end of the
last period, the fund had 24% of its investments in the top 10 stocks. By June
30, 1996, that number was reduced to about 17%. I wanted to distribute the
fund's holdings a bit more evenly in order to help reduce volatility; I'm not
eager to have 5% or 6% of the fund's assets invested in any one stock.
Q. WHERE DID YOU FIND INVESTMENT OPPORTUNITIES DURING THE PERIOD?
A. Nearly four percent of the fund's investments are in casinos. I find gaming
and casinos an attractive place to invest because the industry continues to be
very strong despite increasing competition. Las Vegas is the top vacation
destination in the United States - beating out Disneyland and Disney World.
Families are starting to vacation in Las Vegas because of good weather,
affordable prices and the allure of the hotels - which are tourist attractions
in themselves. I think the fund's holdings in Mirage, Circus Circus and Hilton
could benefit from this trend.
Q. WHAT'S BEEN MOST DISAPPOINTING DURING THE PAST SIX MONTHS?
A. That the fund hasn't performed better. I can't point toward one investment
that really hurt performance, I simply owned too many stocks that didn't go up
as much as the market, and too few stocks that did.
Q. WHAT'S YOUR OUTLOOK GOING FORWARD, ANDY?
A. My overall outlook is positive. I'm very comfortable with the changes I've
made to the fund's investment strategy. Though the fund's performance was
disappointing during the past six months, I'm pleased with its growth stock and
convertible bond holdings and am looking forward to continuing with this
strategy during the next six months.
[LOGO]
NATIONWIDE SEPARATE ACCOUNT TRUST
GOVERNMENT BOND FUND
OBJECTIVE - To provide as high a level of income as is consistent with the
preservation of capital.
NARRATIVE BY WAYNE FRISBEE, FUND MANAGER
During the past six months long-term and intermediate-term interest rates have
increased by approximately 100 basis points. The yield curve steepened as
short-term rates were up less than long-term rates. The price of the Government
Bond Fund moved lower reflecting the move in the broad bond market.
Inflation and expectations for future inflation always drive the bond market in
the long run, with the value of fixed coupons being eroded by higher levels of
inflation. Currently, higher interest rates are generally being blamed on fears
of a stronger economy and thus higher inflation rates in the future. Actual
reported numbers however have continued to show stable or even declining
inflation rates in recent months.
Lower bond prices with the recent move to higher interest rates and a stable
inflation environment creates additional value in the fixed-income markets. The
portfolio manager has used this opportunity to
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GOVERNMENT BOND FUND (CONT'D)
increase market exposure slightly, investing cash at higher rates as the market
declined, thus allowing shareholders to benefit from future decreases in
interest rates.
The Government Bond fund continues to be invested in sectors of the U.S.
Treasury, government agency, and mortgage-backed markets perceived to be
undervalued. Approximately one-third of portfolio assets are invested in the
Collateralized Mortgage Obligation (CMO) market. The yield on these
conservatively structured investments continues to make them attractive
portfolio holdings.
MONEY MARKET FUND
OBJECTIVE - To seek as high a level of current income as is considered
consistent with the preservation of capital and liquidity by investing primarily
in money market instruments.
NARRATIVE BY KAREN MADER, FUND MANAGER
In January 1996 the Federal Reserve lowered the fed funds rate to 5.25% from
5.50% due to the perception that the economy was continuing a slow growth
pattern with low inflation. This represented the third cut in the fed funds rate
since July 1995. Since January, economic indicators have signaled a growing
economy with low unemployment. The next two FOMC meetings will be held in July
and August. At this time the Federal Reserve will decide the direction of
interest rates based on their perceptions of economic growth and inflation.
The Fund continues to invest in only the highest rated money market securities.
An internal credit review is completed on every company that the Fund invests
in.
TOTAL RETURN FUND
OBJECTIVE - To obtain a reasonable long term total return (i.e., earnings growth
plus potential dividend yield) on invested capital from a flexible combination
of current return and capital gains through investments in common stocks,
convertible issues, money market instruments and bonds with a primary emphasis
on common stocks.
NARRATIVE BY JOHN M. SCHAFFNER, FUND MANAGER
In the first half of 1996, the Total Return Fund's performance was positively
impacted by its holdings in technology stocks, as well as strength in the
financial sector, particularly brokerage stocks. The Fund's holdings in
consumer-related issues, particularly food and drug stocks, have not kept up
with gains in the overall markets, hindering performance.
The Fund continued to shift its emphasis in the financial sector away from banks
towards insurance companies, selling First-Chicago NBD Corp. and adding holdings
in Chubb, Equitable Companies, and Allstate Corp. Telecommunications holdings
were also boosted, with additions to MCI and 360 Communications, both companies
with strong franchises and solid long term growth prospects.
Part of the Total Return Fund's investment strategy has been to look for
reasonable yields coupled with rising dividend streams in most of the stocks it
buys. However, many companies are now focused on share repurchase programs in
lieu of dividend increases. This, in addition to the strength in the market, has
resulted in both lower "reasonable" yields (at least on an absolute basis), and
a less certain outlook for rising dividends. As a result, the Fund has sold some
stocks, such as Hanson PLC, Lubrizol Corp., and Sonat, which have fairly high
yields, but unclear growth potential. The Fund has also bought some stocks with
fairly low yields, but strong growth potential. These purchases have included,
besides MCI and 360 Communications, Monsanto, Comcast Corp., and Seagram
Company.
The Fund is not abandoning its strategy of seeking reasonable and growing
yields. Indeed, the majority of the Fund's current holdings fit that
description. However, in the long run, reasonable and growing income depends on
the quality of the business generating it. Currently, many of the strongest and
best-positioned companies, as well as some of the most undervalued stocks, do
not follow dividend policies that strictly fit the "reasonable and growing"
description. To the extent that better quality and more undervalued
opportunities continue to exist somewhat outside of that description, the Fund
will continue to pursue them.
[LOGO]
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
BALANCED PORTFOLIO
OBJECTIVE - The Portfolio seeks long-term capital growth and reasonable current
income without undue risk to principal.
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BALANCED PORTFOLIO (CONT'D)
NARRATIVE BY MARK GOLDSTEIN, PORTFOLIO MANAGER
With approximately 60% of its assets in growth stocks and 40% in short- to
intermediate-term bonds, the Balanced Portfolio experienced mixed results during
the first half of 1996 due to a strong stock market coinciding with a very weak
bond market.
GROWTH PORTION
During the Semi-Annual Report period between January 1, 1996 and June 30, 1996
our best-performing sectors were financial services, restaurants, and selected
consumer/retail stocks. One of our best performers was CKE Restaurants, which
enjoyed strong earnings growth due to robust sales of several new menu items.
Other strong performers in the restaurant sector were Cheesecake Factory,
HomeTown Buffet, and Sonic Corp. The common theme of our restaurant investments
was the very high quality of food/service consumers felt they received for a
reasonable price.
The financial sector provided many good performers, in spite of rising interest
rates. Bear Stearns and Morgan Stanley Group benefited from strong securities
markets, and an increase in business which included a high level of merger
transactions. First USA and Capital One Financial enjoyed very strong earnings
growth, as receivables continued to grow and costs were moderated.
Within the consumer/retail sector, Nine West and Viking Office Products were
superior performers. Nine West has consolidated its position as the dominant
factor in the shoe market with its recent acquisition of U.S. Shoe. Viking
Office Products is the leading company in the mail order office supply business.
Its growth accelerated as it expanded its operations into Europe.
Two lagging sectors were health care and technology. The HMO (Health Maintenance
Organization) industry was our major concentration in health care. After
rebounding 50% from mid-year 1995 lows into February 1996, the group fell from
25%-35% off its 1996 price levels through June due to concerns regarding
increased medical costs and pricing competition. First quarter earnings were
slightly below expectations for most companies. HMO member growth continued at a
15%-18% rate, and our HMO companies were growing at a 20%-25% annual rate over
the first half of 1996. Through July, those same companies were still selling at
only 13 to 14 times their estimated 1997 earnings. This is a very compelling
valuation in our opinion.
The technology sector rebounded from its January 1996 lows into April but
retested those earlier low prices toward the end of the Semi-Annual Report
period as memory pricing continued to weaken. End-user demand for many
subsectors of the broad technology industry remains robust as lower prices
stimulate demand. Valuation is very compelling relative to growth in this
sector. Based on this assumption, we added to some of our positions in
semiconductor equipment and client server software companies.
Another addition to the Portfolio, pharmaceuticals manufacturer Warner-Lambert,
has been plagued by a scarcity of new products over the last few years. This
could change next year with the launches of Atorvastatin, a new
cholesterol-lowering agent, and Troglitzone, a new diabetes treatment. In
addition to bringing sales momentum to Warner-Lambert's product line, we look
for these drugs to add significant profit margins to the company. Furthermore,
in this consolidating industry, we feel that Warner-Lambert is an attractive
acquisition candidate.
On the sell side, we made a number of changes to the portfolio over the
Semi-Annual Report period. Both Life Partners Group and U.S. Healthcare were
sold only after they reached prices that we felt fully reflected the upside in
both stocks. We sold Mannesmann AG after it became evident that the company was
not inclined to recognize the value in the cellular part of its business, which
we believed was attractive; the industrial operations that made up the rest of
the company were not growing businesses. We also sold our position in Time
Warner. We felt the company had not acted on management's promises to
shareholders to reduce its debt and focus the company on the more attractive
programming side of the business. We felt that other companies in the cable
business, such as Comcast, which we still owned at the end of June, were more
committed to recognizing the value of their assets that were not reflected in
the market. Furthermore, we have built up positions in the United Kingdom cable
market with stocks such as Comcast UK. These companies are introducing the cable
business to British subscribers for the first time, and offering phone service
that we feel is exceedingly competitive with the rival British Telcom offering.
We continue to believe that stock prices follow earnings over time. We have
positioned the portfolio based upon our belief that the earnings growth of the
companies in the portfolio may exceed that of the overall market. Additionally,
the average stock valuation multiple in the portfolio is equal to the market on
1996 earnings and 10%-15% less than the market based on
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BALANCED PORTFOLIO (CONT'D)
1997 projected earnings. Over time, we feel the market has generally recognized
such inconsistencies.
LIMITED MATURITY BOND PORTION
The bond market suffered through a rather dismal six-month period ended June 30,
1996 as the "bears" took over. Interest rates rose dramatically across the yield
curve as U.S. economic growth rebounded, rekindling fears of future inflationary
pressures. Rates on Treasury securities with maturities of 2 through 30 years
rose approximately 1.0%, resulting in negative total returns for any bonds
longer than 3 years. The bulk of the rise in rates occurred during a
two-and-a-half week period beginning in mid-February. The sell-off was initially
triggered by Federal Reserve Board Chairman Alan Greenspan's comments that
economic growth was probably stronger than the market was anticipating. The
subsequent Labor Department report that over 700,000 new jobs were created in
February confirmed the market's fears and drove yields higher. The Portfolio's
return was impacted most heavily by the sharp rise in rates, despite the fact
that we shortened the portfolio's duration (duration is a measure of the
portfolio's exposure to interest rate risk) during the first quarter. The
positions in corporate bonds, asset-backed securities and mortgage securities
outperformed Treasuries and offset some of the poor results from Treasury
securities.
We lowered the bond portion of the Portfolio's average portfolio duration from
2.9 years to 2.5 years during February, and shortened it again to 2.3 years
before the end of the first quarter. These moves were made in response to our
view that the positive bond market environment that prevailed in 1995 had come
to an end with the dramatic turnaround form the economy's weak fourth quarter
1995 performance. Our view this Summer is that while it is yet to be seen if
inflation will re-ignite, the market may continue to push rates higher until
growth slows and some slack in both labor and industrial capacity is created.
With that view in mind, we ended the first half of 1996 with a cautious duration
position of 2.2 years.
We added significantly to our corporate position, increasing our allocation to
50% from 26% of the bond portion of the Portfolio. While the corporate bond
market as a whole remained relatively expensive, we were still able to find
individual bonds that offered good relative value. These attractive names tended
to be lower investment grade or just below investment grade credit quality. Our
more optimistic view of the economy was also a key factor in our decision to
increase the corporate allocation in the portfolio, since we felt many
corporations would experience higher earnings which in turn would ensure bond
payments to investors (and perhaps credit-quality upgrades), reducing the
probability of defaults. We maintained a relatively heavy 23% weighting of the
bond portion in asset-backed securities which provided incremental yield and
AAA-rated credit quality. We closely followed the rise in consumer delinquencies
on the collateral backing for these bonds and were convinced that the credit
risk on these issues was extremely low.
Our mortgage position was doubled to 4% of the bond portion of the portfolio by
the end of June in response to our changed view of interest rates in February.
Mortgage bonds tend to hold up better in rising rate environments because
homeowners are less-tempted to refinance their mortgages, a consumer action that
often causes mortgage bonds to prepay and lose value.
The use of futures to manage interest rate risk was our main use of derivatives
within the portfolio over the Semi-Annual Report period. We wanted to offset
some of the interest rate risk in our heavy corporate bond weighting. We
accomplished this hedging strategy by holding a short position in the futures
contracts of 5- and 10-year Treasuries.
We believe the U.S. economy is still in excellent shape, and corporate credit
quality may remain at a relatively high level, supporting corporate bond values.
We also believe that interest rates could continue to rise over the near term in
response to what might be a cyclical upturn in inflation. However, we believe
the long-term secular disinflationary trend that we've seen in recent years
remains intact, and eventually bonds should once again provide income and total
return solidly above the levels of inflation.
[LOGO]
A MEMBER OF THE TWENTIETH CENTURY FAMILY OF MUTUAL FUNDS.
TCI ADVANTAGE
OBJECTIVE - To seek capital growth and current income.
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TCI ADVANTAGE (CONT'D)
NARRATIVE BY TWENTIETH CENTURY COMPANIES, INC.
A retreat to defensive stocks in June weakened returns in TCI Advantage as
investors anticipated earnings reports that were lower than expected. In such an
environment, the growth stocks in TCI Advantage's stock portfolio have
underperformed the U.S. stock market in general. TCI Advantage slightly trailed
for the six months ended June 30, 1996, the 4.53% return for the blended index
that is its benchmark. The benchmark index is made up of the S&P 500, the Lehman
Brothers Intermediate Government Index and the three-month Treasury Bill index.
TCI Advantage is a blended portfolio. Its approximate 40% stock position is
compiled using Twentieth Century's focus on accelerating earnings and revenue
growth and is managed to provide long-term opportunities for capital growth.
Income is derived from an approximate 40% stake in intermediate-term government
bonds. Finally, share price consistency is aided by a near 20% weighting in
money market securities. The goal of this mix is to provide income to
conservative investors while still providing the long-term share-price growth
investors need to outpace inflation.
TCI Advantage found recent earnings growth in the pharmaceutical and energy
sectors, where its holdings at June 30, 1996, topped 21%, more than double six
months earlier. Pharmaceutical stocks are benefitting from the introduction of
new, patented products while oil service companies are growing due to an
increase in off-shore energy exploration.
The fund's bond portion reflected recent declines in U.S. bond prices. During
the first six months of 1996, bonds traded up to their highest prices since this
latest interest rate cycle began, then reversed course. Bond prices at the
beginning of the year had anticipated in the deflationary benefits of a federal
balanced-budget agreement and rate-cutting moves by the Federal Reserve. Neither
was forthcoming.
During declining markets, the duration of the bond portion is shortened in a
defensive move. Accordingly, the fund's management team shortened the duration
of the bond portfolio in February and have kept it short since then.
TCI Advantage continues to pursue its goal: to provide shareholders with the
opportunity to invest in conservative government bonds and money market
securities and a portfolio of stocks with earnings and revenue acceleration. We
remain confident that the fund has the potential to provide investors with a
long-term rate of return that could outpace the rate of inflation, although
there is no assurance it will do so.
TCI GROWTH
OBJECTIVE - To seek capital growth by investing in common stocks (including
securities convertible into common stocks) that meet certain fundamental and
technical standards of selection and, in the opinion of the Fund's management,
have better than average potential for appreciation.
NARRATIVE BY TWENTIETH CENTURY COMPANIES, INC.
The performance of TCI Growth during the six months ended June 30, 1996, has
lagged both the market and Twentieth Century's expectations for its growth
funds. Accordingly, a new management team assumed responsibility for the fund
effective July 1.
The team is led by Glenn Fogle, vice president and portfolio manager, who has
been with Twentieth Century since 1990. In addition to TCI Growth, this team
also manages Giftrust Investors and Vista Investors, two Twentieth Century funds
that have notable long-term records.
In our view, TCI Growth's lagging performance can be attributed to inconsistent
implementation of our investment process. Proper execution of our time-tested
approach demands an emphasis on accelerating growth stocks. Additionally, our
portfolio construction process is based on the notion of adding to "winners" and
quickly selling "losers." It is our belief that if our stock selection is
accurate, these more concentrated portfolios should be able to generate more
robust performance than a more broadly diversified portfolio would. The new
management team will be much more focused on these critical variables.
TCI Growth's mission remains the same - to continue to invest in growing
companies of all sizes for investors seeking capital growth. To meet that
objective, the fund identifies companies with earnings and revenue acceleration.
We believe that such an approach has the potential to provide attractive returns
over the long run. We are confident that the measures we have taken to
reinvigorate this fund will make a noticeable difference over time.
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FUND PERFORMANCES
TOTAL RETURN: ASSUMING CONTRACT NOT SURRENDERED** (NON-STANDARDIZED)
APPROXIMATE PERCENT CHANGE IN NET ASSETS WITH CAPITAL GAINS AND INCOME DIVIDENDS REINVESTED
<CAPTION>
NON-ANNUALIZED PERCENT CHANGE*** ANNUALIZED PERCENT CHANGE***
-------------------------------- ----------------------------
INCEPTION 1 YR. TO 5 YR. TO INCEPTION TO 5 YR. TO INCEPTION TO
FUNDS++ DATE*+ 6/30/96 6/30/96+ 6/30/96+ 6/30/96 6/30/96
<S> <C> <C> <C> <C> <C> <C>
DREYFUS CORPORATION
Stock Index Fund 09/29/89 23.88% 89.52% 108.27% 13.64% 11.48%
FIDELITY VIP FUND
Equity-Income Portfolio 10/09/86 20.50% 123.09% 196.16% 17.41% 11.81%
NATIONWIDE SEPARATE ACCOUNT TRUST
Government Bond Fund 11/08/82 3.06% 40.40% 189.86% 7.02% 8.11%
Money Market Fund 11/10/81 3.96% 14.94% 129.01% 2.82% 5.82%
Total Return Fund 11/08/82 19.20% 93.22% 462.68% 14.08% 13.50%
NEUBERGER & BERMAN ADVISERS
MANAGEMENT TRUST
Balanced Portfolio 02/28/89 8.61% 49.13% 87.55% 8.32% 8.95%
TCI PORTFOLIOS, INC.
TCI Advantage 08/01/91 8.89% NA* 34.39% NA* 6.20%
TCI Growth 11/20/87 9.81% 65.75% 141.35% 10.63% 10.77%
<FN>
* Performance information is not available for all or part of the period indicated (See Fund Inception Date).
** SEC and NASD regulations require that any reporting of product performance be accompanied by standardized data and
the disclosures are on the following page. Please review this information and a product prospectus before investing.
*** Percent change in unit value price represents total return after the deduction of a 1.3% annual asset fee.
+ Numbers in this column represent the total percentage change in the unit value for the period indicated. This is not
an annual return figure.
++ Funds are neither insured nor guaranteed by the U.S. Government. For the Money Market Fund, there is no assurance
that a stable $1 fund NAV (used to calculate Unit Value) can be maintained. Figures quoted represent past
performance and returns can fluctuate.
*+ Performance for some funds reflects performance for periods before the fund was actually available in the separate
account. That hypothetical performance is calculated by imposing contract charges on actual fund performance, to
determine how the fund would have performed if it had been available in the separate account.
</TABLE>
14
<PAGE> 14
<TABLE>
TOTAL RETURN: ASSUMING CONTRACT SURRENDERED (STANDARDIZED)
APPROXIMATE PERCENT CHANGE IN NET ASSETS WITH CAPITAL GAINS AND INCOME DIVIDENDS REINVESTED
<CAPTION>
INCEPTION 1 YR. TO 5 YR. TO 10 YR. TO INCEPTION TO
FUNDS++ DATE*+ 6/30/96 6/30/96 6/30/96 6/30/96
<S> <C> <C> <C> <C> <C>
DREYFUS CORPORATION
Stock Index Fund 09/29/89 15.48% 10.76% NA* 8.61%
FIDELITY VIP FUND
Equity-Income Portfolio 10/09/86 12.10% 14.86% NA* 9.39%
NATIONWIDE SEPARATE ACCOUNT TRUST
Government Bond Fund 11/08/82 -5.34% 4.06% 4.56% 5.91%
Money Market Fund 11/10/81 -4.44% -0.57% 1.69% 3.81%
Total Return Fund 11/08/82 10.80% 11.41% 7.22% 11.94%
NEUBERGER & BERMAN ADVISERS
MANAGEMENT TRUST
Balanced Portfolio 02/28/89 0.21% 5.29% NA* 6.19%
TCI PORTFOLIOS, INC.
TCI Advantage 08/01/91 0.49% NA* NA* 2.75%
TCI Growth 11/20/87 1.41% 7.71% NA* 8.35%
<FN>
The above illustration represents past fund performance based on a $1,000
hypothetical investment. The performance figures reflect the deduction of a
1.3% annual asset fee, a $30 annual administrative charge, and a maximum of a
6.0% contingent deferred sales charge (after one year, declining thereafter).
They also reflect the application of an annual 10% free withdrawal privilege
available after the first year. Investment principal and investment returns
are not guaranteed under these variable options. Account values at the time of
redemption may be more or less than the purchase payment, due to market
fluctuations and any specific charges that may apply. This is neither an offer
to sell nor a solicitation to buy securities. The results shown are not a
representation of future investment performance. Any comparisons should be
made only after a recognition of the differences in the investment policies
and objectives of the funds' investments. This report is authorized for
distribution to prospective investors only when preceded or accompanied by
prospectuses containing more complete information, which should be read
carefully before investing or sending money.
* Performance information is not available for all or part of the period indicated (See Fund Inception Date).
++ Funds are neither insured nor guaranteed by the U.S. Government. For the Money Market Fund, there is no assurance
that a stable $1 fund NAV (used to calculate Unit Value) can be maintained. Figures quoted represent past performance and
returns can fluctuate.
*+ Performance for some funds reflects performance for periods before the fund was actually available in the separate
account. That hypothetical performance is calculated by imposing contract charges on actual fund performance, to
determine how the fund would have performed if it had been available in the separate account.
</TABLE>
15
<PAGE> 15
<TABLE>
NATIONWIDE VARIABLE ACCOUNT-5
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY
June 30, 1996
(UNAUDITED)
<S> <C>
ASSETS:
Investments at market value:
Dreyfus Stock Index Fund (DryStkIx)
44,421 shares (cost $653,955) ................ $ 831,567
Fidelity VIP - Equity-Income Portfolio (FidVIPEI)
168,150 shares (cost $2,744,081) ............. 3,275,559
Nationwide SAT - Government Bond Fund (NSATGvtBd)
61,671 shares (cost $659,660) ................ 667,895
Nationwide SAT - Money Market Fund (NSATMyMkt)
333,894 shares (cost $333,894) ............... 333,894
Nationwide SAT - Total Return Fund (NSATTotRe)
128,905 shares (cost $1,377,924) ............. 1,598,421
Neuberger &Berman - Balanced Portfolio (NBAMTBal)
50,189 shares (cost $771,633) ................ 770,408
TCIPortfolios - TCI Advantage (TCIAdv)
39,036 shares (cost $221,800) ................ 234,995
TCI Portfolios - TCI Growth (TCIGro)
129,601 shares (cost $1,280,043) ............. 1,406,172
----------
Total investments ......................... 9,118,911
Accounts receivable ................................ 70
----------
Total assets .............................. 9,118,981
==========
CONTRACT OWNERS' EQUITY ............................... $9,118,981
==========
</TABLE>
16
<PAGE> 16
<TABLE>
<CAPTION>
Contract owners' equity represented by:
UNITS UNIT VALUE
------- ----------
<S> <C> <C> <C>
Dreyfus Stock Index Fund:
Tax qualified ...................... 41,565 $15.085076 $ 627,011
Non-tax qualified .................. 13,561 15.085076 204,569
Fidelity VIP - Equity-Income Portfolio:
Tax qualified ...................... 178,425 15.157742 2,704,520
Non-tax qualified .................. 37,676 15.157742 571,083
Nationwide SAT - Government Bond Fund:
Tax qualified ...................... 13,446 28.798325 387,222
Non-tax qualified .................. 9,743 28.808946 280,686
Nationwide SAT - Money Market Fund:
Tax qualified ...................... 16,401 19.957494 327,323
Non-tax qualified .................. 300 21.684177 6,505
Nationwide SAT - Total Return Fund:
Tax qualified ...................... 23,322 55.758124 1,300,391
Non-tax qualified .................. 5,504 54.154359 298,066
Neuberger &Berman - Balanced Portfolio:
Tax qualified ...................... 44,669 15.106044 674,772
Non-tax qualified .................. 6,332 15.106044 95,651
TCI Portfolios - TCI Advantage:
Tax qualified ...................... 9,201 13.438531 123,648
Non-tax qualified .................. 8,286 13.438531 111,352
TCI Portfolios - TCI Growth:
Tax qualified ...................... 72,389 16.566503 1,199,233
Non-tax qualified .................. 12,492 16.566503 206,949
------- --------- ----------
$9,118,981
----------
</TABLE>
See accompanying notes to financial statements.
17
<PAGE> 17
<TABLE>
NATIONWIDE VARIABLE ACCOUNT-5
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
SIX MONTH PERIODS ENDED JUNE 30, 1996, 1995 AND 1994
(UNAUDITED)
<CAPTION>
1996 1995 1994
----------- --------- ---------
<S> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested capital gains and dividends ........... $ 450,191 163,556 19,130
----------- --------- ---------
Gain (loss) on investments:
Proceeds from redemptions of mutual fund shares 300,290 725,286 86,531
Cost of mutual fund shares sold ............... (253,053) (718,871) (86,309)
----------- --------- ---------
Realized gain (loss) on investments ........... 47,237 6,415 222
Change in unrealized gain (loss) on investments (103,666) 641,750 (64,481)
----------- --------- ---------
Net gain (loss) on investments ............. (56,429) 648,165 (64,259)
----------- --------- ---------
Net investment activity ................. 393,762 811,721 (45,129)
----------- --------- ---------
EQUITY TRANSACTIONS:
Purchase payments received from contract owners .. 1,359,879 1,151,176 3,372,915
Redemptions ...................................... (285,692) (201,277) (8,965)
Adjustments to maintain reserves ................. 320 (47) 33
----------- --------- ---------
Net equity transactions ................. 1,074,507 949,852 3,363,983
----------- --------- ---------
EXPENSES (NOTE 2):
Contract charges ................................. (66,342) (42,107) (4,826)
Contingent deferred sales charges ................ (11,390) (7,994) (333)
----------- --------- ---------
Total expenses .......................... (77,732) (50,101) (5,159)
----------- --------- ---------
NET CHANGE IN CONTRACT OWNERS' EQUITY ............... 1,390,537 1,711,472 3,313,695
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ......... 7,728,444 4,501,679 --
----------- --------- ---------
CONTRACT OWNERS' EQUITY END OF PERIOD ............... $ 9,118,981 6,213,151 3,313,695
============ ========= =========
</TABLE>
See accompanying notes to financial statements.
18
<PAGE> 18
NATIONWIDE VARIABLE ACCOUNT-5
NOTES TO FINANCIAL STATEMENTS
June 30, 1996, 1995 and 1994
(UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Nature of Operations
Nationwide Variable Account-5 (the Account) was established pursuant to a
resolution of the Board of Directors of Nationwide Life Insurance Company (the
Company) on November 1, 1989. The Account has been registered as a unit
investment trust under the Investment Company Act of 1940. On December 31, 1993,
the accumulation unit values for each fund sub-account of Nationwide Variable
Account-5 were established at a unit value equal to the accumulation unit values
of the corresponding fund sub-account of the Nationwide Multi-Flex Variable
Account. The first deposits were received by the Account on May 4, 1994.
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 banks and other financial institutions.
(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 payout phase may invest in any of the following:
Dreyfus Stock Index Fund (DryStkIx) (formerly Dreyfus Life and Annuity
Index Fund, Inc. (DLAI))
Portfolio of the Fidelity Variable Insurance Products Fund (Fidelity
VIP);
Fidelity VIP - Equity-Income Portfolio (FidVIPEI)
Funds of the Nationwide Separate Account Trust (Nationwide SAT)
(managed for a fee by an affiliated investment advisor);
Nationwide SAT - Government Bond Fund (NSATGvtBd)
Nationwide SAT - Money Market Fund (NSATMyMkt)
Nationwide SAT - Total Return Fund (NSATTotRe)
Portfolio of the Neuberger & Berman Advisers Management Trust
(Neuberger &Berman);
Neuberger &Berman - Balanced Portfolio (NBAMTBal)
Portfolios of the TCI Portfolios, Inc. (TCI Portfolios);
TCI Portfolios - TCI Advantage (TCI Adv)
TCI Portfolios - TCI Growth (TCI Gro)
At June 30, 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 June 30, 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.
19
<PAGE> 19
(d) Federal Income Taxes
Operations of the Account form a part of, and are taxed with, operations
of the Company which is taxed as a life insurance company under the Internal
Revenue Code.
The Company does not provide for income taxes within the Account. Taxes
are the responsibility of the contract owner upon termination or withdrawal.
(e) Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles may require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities, if any, at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
(2) EXPENSES
The Company does not deduct a sales charge from purchase payments received
from the contract owners. However, if any part of the contract value of such
contracts is surrendered, the Company will, with certain exceptions, deduct from
a contract owner's contract value a contingent deferred sales charge not to
exceed 7% of the lesser of purchase payments or the amount surrendered, such
charge declining 1% per year, to 0%, after the purchase payment has been held in
the contract for 84 months. No sales charges are deducted on redemptions used to
purchase units in the fixed investment options of the Company.
The following administrative charges are deducted by the Company: (a) an
annual contract maintenance charge of $30, with certain exceptions, which is
satisfied by surrendering units; and (b) 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 for each
series, as applicable, in the following format:
o Beginning unit value - Jan. 1
o 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.)
o Unrealized gain (loss)
(This amount reflects the increase (decrease) in the unit value
resulting from the market appreciation (depreciation) of the
underlying mutual funds.)
o 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.)
o Ending unit value - June 30
o 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.
20
<PAGE> 20
<TABLE>
SCHEDULE I
NATIONWIDE VARIABLE ACCOUNT - 5
TAX QUALIFIED and NON-TAX QUALIFIED
SCHEDULES OF CHANGES IN UNIT VALUE
Six Month Periods Ended June 30, 1996, 1995 and 1994
(UNAUDITED)
<CAPTION>
NSATGVTBD NSATGVTBD NSATMYMKT NSATMYMKT
DRYSTKIX FIDVIPEI QUAL. NON-QUAL. QUAL. NON-QUAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1996
Beginning unit value - Jan. 1 $13.807559 14.412060 29.463573 29.474435 19.595876 21.291272
Reinvested capital gains
and dividends .152174 .664825 .897462 .897793 .489849 .532231
Unrealized gain (loss) 1.219334 .177697 (1.376190) (1.376684) .000000 .000000
Contract charges (.093991) (.096840) (.186520) (.186598) (.128231) (.139326)
Ending unit value - June 30 $15.085076 15.157742 28.798325 28.808946 19.957494 21.684177
Percentage increase (decrease)
in unit value* 9% 5% (2)% (2)% 2% 2%
1995
Beginning unit value - Jan. 1 $10.227308 10.808255 25.138302 25.147577 18.790546 **
Reinvested capital gains
and dividends .126203 .696469 .865541 .865860 .531125
Unrealized gain (loss) 1.896381 1.151231 2.110894 2.111676 .000000
Contract charges (.072977) (.076499) (.172829) (.172902) (.124212)
Ending unit value - June 30 $12.176915 12.579456 27.941908 27.952211 19.197459
Percentage increase (decrease)
in unit value* 19% 16% 11% 11% 2%
1994
Beginning unit value - Jan. 1 $10.271065 10.227513 26.318797 26.328516 18.325918 **
Reinvested capital gains
and dividends .054292 .641584 .785221 .785511 .289499
Unrealized gain (loss) (.417159) (.523924) (1.826612) (1.827284) .000000
Contract charges (.065924) (.067007) (.167004) (.167073) (.119563)
Ending unit value - June 30 $ 9.842274 10.278166 25.110402 25.119670 18.495854
Percentage increase (decrease)
in unit value* (4)% 0% (5)% (5)% 1%
<CAPTION>
NSATTOTRE NSATTOTRE
QUAL. NON-QUAL. NBAMTBAL TCIADV TCIGRO
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996
Beginning unit value - Jan. 1 51.701438 50.214359 14.753402 13.035463 16.447846
Reinvested capital gains
and dividends .558786 .542714 2.260284 .834626 1.843419
Unrealized gain (loss) 3.848890 3.738176 (1.809687) (.346233) (1.617178)
Contract charges (.350990) (.340890) (.097955) (.085325) (.107584)
Ending unit value - June 30 55.758124 54.154359 15.106044 13.438531 16.566503
Percentage increase (decrease)
in unit value* 8% 8% 2% 3% 1%
1995
Beginning unit value - Jan. 1 40.575816 39.408735 12.077573 11.312248 12.711014
Reinvested capital gains
and dividends .626675 .608650 .307323 .175923 .014626
Unrealized gain (loss) 5.859308 5.690781 1.608511 .929239 2.449089
Contract charges (.284368) (.276186) (.084297) (.076213) (.088080)
Ending unit value - June 30 46.777431 45.431980 13.909110 12.341197 15.086649
Percentage increase (decrease)
in unit value* 15% 15% 15% 9% 19%
1994
Beginning unit value - Jan. 1 40.671816 39.501981 12.661508 11.343435 13.030369
Reinvested capital gains
and dividends .502500 .488047 .493737 .129050 .001393
Unrealized gain (loss) (.596269) (.579116) (1.369729) (.304900) (.916849)
Contract charges (.264556) (.256951) (.080910) (.073870) (.084356)
Ending unit value - June 30 40.313491 39.153961 11.704606 11.093715 12.030557
Percentage increase (decrease)
in unit value* (1)% (1)% (8)% (2)% (8)%
<FN>
* This is not an annualized rate of return as it is the change for a six month
period and contract charges do not include the annual contract maintenance
charge discussed in note 2.
** This investment option was not being utilized or was not available.
See note 3.
</TABLE>
21
<PAGE> 21
This report is for the information of contract owners with funds in the
Nationwide Variable Account-5. It may also be used, from time to time, as sales
literature, but only when accompanied or preceded by the current prospectus,
which contains complete information about the contracts which invest in the
separate account, and their fees, charges and expenses. If this report is used
as sales literature after September 30, 1996, it must be accompanied by the
fund performance report reflecting performances for the most recently completed
calendar quarter. Prospective investors should read the prospectus carefully
before investing.
22
<PAGE> 22
[THIS PAGE LEFT BLANK INTENTIONALLY]
23
<PAGE> 23
NATIONWIDE LIFE INSURANCE COMPANY
HOME OFFICE: ONE NATIONWIDE PLAZA o COLUMBUS, OHIO 43215-2220
Bulk Rate
U.S. Postage
PAID
Columbus, Ohio
Permit No. 521
Nationwide(R) is a registered federal service mark of Nationwide Mutual
Insurance Company
