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[LOGO]
NATIONWIDE(R)
VARIABLE
ACCOUNT-5
Annual Report
to
Contract Owners
December 31, 1996
NATIONWIDE LIFE INSURANCE COMPANY
HOME OFFICE: COLUMBUS, OHIO
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[NATIONWIDE LOGO]
NATIONWIDE LIFE INSURANCE COMPANY
ONE NATIONWIDE PLAZA, COLUMBUS, OHIO 43215
[PHOTO]
PRESIDENT'S MESSAGE
On behalf of Nationwide Life Insurance Company, we are pleased to bring you the
1996 annual report of the Nationwide Variable Account-5.
The U.S. economy is enjoying the rewards of a stable political system and a
globally competitive business sector. These good times will last, although not
all years will show the stellar performance of the last two years. 1997 may be
the year in which normalcy will return.
The economic expansion has lasted six years already, and all resources are more
or less fully employed. The job market in particular is showing some strains,
and wages are rising a bit faster than before. Also, the competitive pressures
from abroad are increasing due to a sharp rise in the exchange value of our
currency. Business will be hard pressed under those conditions to continue
showing above-average profit increases. For the economy as a whole, inflation
has hit the low point in this business cycle and will slowly but surely be a
more important variable for monetary policy.
In the last few years, and especially in 1996, our economy expanded faster than
the natural rate of growth. This cannot continue without creating bottlenecks
that in turn induce price increases. Either the economy will slow under its own
weight or the Federal Reserve will have to step in. Some indicators point to a
softening of business activity. But whether this is enough will be a close call.
Again, the long-term trend is very positive for the U.S., its business activity,
and its financial markets. However, 1997 might turn out to have some more
surprises than anticipated right now.
/s/ Joseph J. Gasper
Joseph J. Gasper, President
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CONTENTS
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HOW TO READ THE 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
INDEPENDENT AUDITORS' REPORT ............................................................22
<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 ANNUAL REPORT
This 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 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 December 31, 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), mortality, expense and administration charges which are assessed
through the daily unit value calculation, and dividends and capital gains
earnings from the underlying mutual funds.
The Equity transactions section illustrates the receipt of purchase payments by
the Account as new contracts are sold, existing contract owners deposit
additional funds; and deductions from the Account when money is withdrawn,
contracts are canceled, annuity benefits are paid, and annual contract
maintenance charges and contingent deferred sales charges are assessed.
Net change in contract owners' equity equals Investment activity plus Equity
transactions.
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 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
[DREYFUS 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.
[FIDELITY INVESTMENTS LOGO]
VARIABLE INSURANCE PRODUCTS FUND
EQUITY-INCOME PORTFOLIO
OBJECTIVE - To seek reasonable income by investing primarily in income-producing
equity securities.
AN INTERVIEW WITH STEPHEN PETERSON, PORTFOLIO MANAGER
NOTE TO SHAREHOLDERS: Stephen Peterson began managing the fund on January 6,
1997 and did not manage the fund during the past year.
Q. HOW DID THE FUND PERFORM, STEPHEN?
A. While performing well on an absolute basis, the fund underperformed the
Standard &Poor's 500 Index which returned 22.95% for the 12 months ended
December 31, 1996.
Q. WHY WERE THE FUND'S RETURNS DISAPPOINTING DURING THE PAST SIX MONTHS?
A. There are a couple of reasons. Primarily, though, it's because of the equity
income style of investing that this fund follows. Equity income fund managers
seek to own stocks of quality companies that also have attractive dividend
yields equal to or greater than the market average. Having that sort of
orientation attracts equity income style managers to utility stocks, financial
stocks and cyclical stocks such as automobiles and basic industries. As a group,
the industries I just mentioned - with the exception of financial stocks -
performed well on an absolute basis but underperformed the overall market during
the past year. As in 1995, the strong performance of the overall stock market
was primarily concentrated in technology stocks and larger market-capitalization
stocks such as Coca Cola and Gillette.
+"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.
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EQUITY-INCOME PORTFOLIO (CONT'D)
Q. AND THE FUND DIDN'T HAVE LARGE HOLDINGS IN MANY OF THE OUTPERFORMING STOCKS?
A. Exactly. The past 12 months have not really been a stock picker's market, but
one in which the S&P 500 managed to outperform most actively managed mutual
funds such as this one. Also, the fund had a fairly large weighting in mid-cap
stocks that also underperformed the market average.
Q. WHAT HOLDINGS DID PERFORM WELL?
A. Some of the fund's top holdings performed well. Specifically, General
Electric, IBM and Philip Morris. The fund also was helped by its weighting in
financial stocks such as Aetna, FNMA, Citicorp and American Express. However,
some of the fund's utility stocks and convertible bonds were drags on
performance.
Q. YOU TOOK OVER THE FUND IN EARLY JANUARY 1997. WHAT ARE YOUR PLANS FOR THE
FUND? WHAT CHANGES CAN SHAREHOLDERS EXPECT FROM YOU?
A. As an equity income manager my investment strategy is to look for
better-than-average yielding large-cap stocks with attractive attributes that
will lead to capital appreciation over time. I try to buy stocks that are
currently out-of-favor within this framework, and try to avoid taking large
positions in certain segments of the market, such as mid-cap stocks or
convertible bonds. Once the out-of-favor stocks appreciate, I sell them and buy
other out-of-favor stocks. Mine is a methodical, straight-forward process that
emphasizes individual stock picking more than anything else.
Q. WHAT DO YOU LOOK FOR IN DIVIDEND-YIELDING STOCKS?
A. I usually buy stocks that have dividend yield equal to or above the average
yield of the S&P 500 - currently about 2%. If I own companies with lower yields,
it's because the company has decided to distribute excess capital to
shareholders in other ways such as stock repurchase programs. This is consistent
with my strategy of owning companies that are strong income producers with
higher-than-average dividends, along with stocks of undervalued companies that I
think have the potential to appreciate over time.
Q. DOES THE FUND OWN TURNAROUND STOCKS OR COMPANIES THAT ARE UNDERGOING POSITIVE
CHANGE?
A. Yes. While my goal is to have the fund primarily invested in quality
companies with consistent earnings growth, I would like to own some companies
that haven't performed well in the market recently, and therefore may have lower
valuations and better opportunity for capital appreciation. It's an approach
I've used in the past with some other funds I've managed and it's worked well.
Q. WHAT'S YOUR OUTLOOK FOR THE MONTHS AHEAD?
A. I don't sense that there's been any significant change in the mood of the
market - it still favors consistent earnings growth. Since the market continues
to reward stocks of large-cap, consistent earnings companies, it's quite
difficult to outperform the general market, especially with the equity income
style of investing. However, as everyone knows, the economic recovery has been
underway since 1991 - historically, quite a long period of time for a strong
economy without an interruption or correction. Therefore, I'm trying to
structure the fund so it can perform relatively well when and if the market
changes course. While I think the outlook for this fund remains good, investors
should be cautious after two years of more than 20% returns from the overall
market.
[NATIONWIDE 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 1996 long-term and intermediate-term interest rates were significantly
higher, reversing some of the decline in rates seen in the prior year. Bonds and
bond funds were a relatively uninspiring investment alternative in this
environment, especially given the second consecutive year of outstanding equity
market performance. The price of the Government Bond Fund moved lower reflecting
the move in the broad bond market, although this downward move was mitigated by
investments in areas of the bond market that outperformed during the year.
Inflation always drives bond market values in the long-term, with the value of
fixed coupons being eroded by higher levels of inflation. The expected level of
infla-
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GOVERNMENT BOND FUND (CONT'D)
tion in the future is a key determinant of the direction of bond prices in the
short-term. The actual reported inflation numbers have continued to show stable
or even declining inflation rates in recent months, a positive sign for the bond
markets.
Lower bond prices along with a stable inflation environment has created
additional value in the fixed-income markets. The bond markets should be most
attractive to those investors desiring lower levels of risk and/or higher levels
of income than is available in the equity markets. Government bonds in
particular are often appealing to risk-averse investors still interested in
income.
The Government Bond Fund continues to be invested in sectors of the U.S.
Treasury, government agency, and mortgage-backed markets that are 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. The portfolio also continues to hold several positions in
callable Agency notes. Additional yield compensates the Fund for the risk of the
bonds being redeemed early.
The portfolio manager attempts to add value to the Government Bond Fund by being
invested in sectors of the market that are inexpensive on a relative value
basis, while maintaining market exposure to assure a higher level of income and
to take advantage of potential interest rate declines in the future.
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
For the last seven sessions the Federal Open Market Committee has left the
Federal Funds rate unchanged. The last time the Federal Reserve changed the
direction of the interest rates was in January 1996 when they lowered the
Federal Funds rate to its current rate of 5.25% from 5.50%. Economic indicators
throughout 1996 suggested that the economy was growing at a modest rate with low
inflationary pressures.
Economists offered a mixed forecast for 1997. Week to week, economic indicators
continue to paint an obscure picture as to the exact state of the economy.
At December 31, 1996, the Separate Account Money Market fund had assets of $984
million with an average maturity of 38 days. 92% of the Fund was invested in
first tier commercial paper. Commercial paper continues to have a yield
advantage over other money market instruments. The remaining 8% was invested in
U.S. Government and Canadian Obligations.
The Fund continues to invest in only the highest rated money market instruments.
An internal credit review is completed on every issuer before investment.
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
The Total Return Fund's performance in 1996 was positively influenced by several
sectors. The technology stocks it holds, such as IBM and Hewlett-Packard had
strong gains. Financial stocks, including all the brokerage stocks, Mellon Bank,
and Allstate Insurance also had good appreciation. The drug stocks, particularly
Warner-Lambert also had good gains, as did several chemical companies, including
DuPont, Monsanto, Air Products and Crompton &Knowles. On the negative side, AT&T
had very poor performance, with Sprint not a great deal better. MCICorp. was
also having a poor year until the announced merger with British Telecom
increased it to a more respectable result. The Fund currently has about an 8%
weighting in these long distance stocks, and although we still think they are
well positioned long term, and undervalued, fear of increased competition, plus
poor reported results for AT&T led to a significant drag on Fund performance
this year. Several other stocks in which we have significant positions, such as
Equitable, Comcast, and PepsiCo, all of which we do like long-term, had either
small losses or minuscule gains versus a very strong market this year, also
inhibiting Fund results.
The Total Return Fund's strategy has always included a strong element of value.
For most of 1995, and all of
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TOTAL RETURN FUND (CONT'D)
1996, this type of strategy has been out of favor in the stock market. Momentum
and indexing strategies have led to stocks with relatively high valuations
performing well by going to even higher valuations. History, and numerous
studies have repeatedly shown that investing in highly valued stocks is a risky
and poor-performing long term strategy. Therefore, the Total Return Fund has
stuck to its approach, and will continue to do so. This approach, especially in
the recent environment of high relative valuations, has included more of buying
stocks we like long-term, on news that disappoints short term investors.
PepsiCo, Comcast and Olsten are examples of this, plus the more recent addition
of Electronic Data Systems. We have also continued to add to our energy stocks,
not because of disappointment but because of good long term fundamentals
combined with still-attractive valuations.
While I would certainly like to see better performance from the Fund versus its
peers and the market indexes, I believe this will come from continuing our
current strategies, which are sound, and by continuing to pursue the Fund's
objectives by taking on less risk, rather than more.
[NEUBERGER & BERMAN 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.
NARRATIVE BY MARK GOLDSTEIN, PORTFOLIO MANAGER
GROWTH PORTION
During 1996 three of our best performing sectors were financial services,
technology and restaurants. One of the best performers was CKE Restaurants,
which was taken over by new management about a year and a half ago. CKE's
earnings have outperformed the estimates as a result of a good advertising
campaign, updated menu selections and remodeling many of their restaurants.
The technology sector provided some winners during the year. In particular,
Intel provided a large contribution to the fund in the third quarter. Its
success can be partly attributed to continued demand by end-users in combination
with lower prices. The second largest position in this sector was KLA, a company
that makes test equipment for semiconductor companies. KLA's earnings held up
well during the year but the psychology of this business weighed down on the
stock. Seagate, a disc drive company, also helped the Portfolio. Seagate was
able to reduce costs, and benefit from continued end-user demand.
In the third quarter, the Portfolio seized an opportunity to purchase Philip
Morris at a low relative valuation after a federal court decertified a class
action suit brought by smokers seeking damages. This case sets a precedent in
the industry and may influence future class-action suits.
In the consumer/retail sector, we added Staples to our portfolio. Staples is a
leading factor in the office superstore segment. We believe that the pending
merger with Office Depot will create significant cost savings, which we believe
should enhance earnings growth over the next two years.
Two lagging sectors during the year were Communications and Healthcare. These
two sectors made up for about 8%-10% of the Portfolio during most of the year.
Cable stocks went through their lowest valuations in 1996 due to worries about
competition from the satellite industry. As a result, the Portfolio reduced its
positions in TCI and sold out of TimeWarner. One exception is UK Cable, a
telephone, cable and Internet company based in the United Kingdom. They recently
consolidated with Comcast, forming Comcast UK Cable Partners Ltd., which we
believe should help the company's valuations.
The Portfolio increased its exposure to HMOs during the year. Overall, this
industry did not contribute positively to the Portfolio during the year.
Exceptions were PacifiCare, a Medicare HMO, and United Healthcare, a
conventional HMO. Both of these positions were increased during the period and
have experienced an upswing since June 30. While enrollment in HMOs continues to
rise, their challenge will be to manage rising costs in a flat premium
environment.
LIMITED MATURITY BOND PORTION
1996 ended on an upbeat note for the bond market and the debt securities portion
of the Portfolio as
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BALANCED PORTFOLIO (CONT'D)
yields across the curve fell during the last four months of the year. Yields
that we focus on, in the 1- to 5-year part of the curve, ended the year higher
than at the start of the year. In between, however, the bond market was on a
roller coaster ride with interest rates falling early in the period, then rising
very rapidly, and finally reversing its course once again for the final rally.
The management of our weighted average portfolio duration ("duration" is a
measure of a portfolio's exposure to interest rate risk) during this period of
volatility remained consistent with our trend-following style, and the
Portfolio's risk level remained low compared to longer-duration bond funds. In
the early portion of the year our duration was a relatively long 2.9 years on
average as we took advantage of the falling rates at the end of 1995 and into
the beginning of 1996. When the trend reversed in February and March as a result
of signs of increased economic growth, higher inflation expectations and
comments by Fed Chairman Alan Greenspan, we shortened duration several times to
a low for the year of 2.3 years in June. By September, the market had
overreacted to the economic signals and, from a technical and fundamental
standpoint, appeared undervalued. We then lengthened the Portfolio to just over
2.5 years in duration. Yields fell from this point through the end of the year
which benefited the Portfolio due to the longer duration.
Corporate bonds remained the largest sector in the Portfolio as we continue to
find value through our bottom-up bond selection process (looking at individual
bonds rather than average sector prices) despite a generally expensive corporate
market. The below investment grade segment of our holdings outperformed all
other sectors due to the healthy market conditions in high yield as well as
excellent individual security selection. Our research staff identified several
bonds during the period which were underpriced relative to their credit
fundamentals and which we added to the Portfolio. These included Tenet
Healthcare, a leading hospital firm, which was placed on watch for potential
upgrade by both S&P and Moody's. This caused the market to price these bonds at
a tighter spread to treasuries resulting in significant outperformance versus
the market. This segment of the portfolio ended the year at about 8% of the
overall Fund. Investment grade bonds also performed well. Restructuring at firms
such as Tenneco Inc. and Alco Capital Resource, Inc. resulted in higher bond
prices relative to comparable duration Treasuries.
Investments in mortgage-backed and asset-backed securities accounted for
the majority of the remainder of the Portfolio. The asset-backed securities are
all rated `AAA' and are backed by pools of credit card receivables, auto loans
and leases, or equipment loans. While the increase in consumer delinquencies on
credit cards has received a lot of media attention, the asset-backed securities
in our Portfolio are of the highest quality. The bonds in our Portfolio have
outperformed comparable duration treasury securities since the collateral
backing of these securities performed well throughout the second half of the
year within the bond market's and the ratings agencies' expectations. In
addition, our commitment to 15-year and 7-year Agency Pass Through Mortgages
added to the funds' return.
[AMERICAN CENTURY LOGO]
A MEMBER OF THE AMERICAN CENTURYSM FAMILY OF MUTUAL FUNDS.
TCI ADVANTAGE
OBJECTIVE - To seek capital growth and current income.
NARRATIVE BY AMERICAN CENTURY(SM) COMPANIES, INC.
The TCI Advantage fund lost some ground in the fourth quarter as the equity
portion, which is invested in rapidly growing companies of all capitalization
sizes, failed to keep pace with the large cap dominated S&P 500. TCI Advantage
continued to follow a two tiered approach to its equity holdings, maintaining a
core position in high quality, large cap growth stocks, augmented by a more
opportunistic weighting in rapidly growing mid cap stocks. The equity portion of
TCI Advantage benefited from companies in the oil service and drilling industry,
positions in large money center banks, and holdings in some of the larger
pharmaceutical makers - all of which added value to fund performance for both
the quarter and the year. The foreign weighting was cut down to just over 5% of
the portfolio, as the portfolio team found more attractive growth opportunities
domestically. At year end, the fund was 39% invested in equity securities.
The fixed income portion of the fund is invested in high quality intermediate
term bonds, maintaining a defensive stature. Currently, the fund holds, and is
overweighted in investment grade corporate bonds to
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TCI ADVANTAGE (CONT'D)
help boost the yield. The duration of the fixed-income is positioned neutral
compared with the intermediate benchmark. At year end, 39% of the fund was
invested in bonds, with the remaining 22% in cash.
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 AMERICAN CENTURY(SM) COMPANIES, INC.
During the past year, TCI Growth has been the focus of considerable attention at
the highest levels of American CenturySM Investments. TCI Growth, a growth
equity option is among our largest and most important funds.
We fully expect the fund to show greater volatility than the market in general,
but to have the potential for greater returns. That this potential has not been
met has been the source of deep concern for us. As a result of these concerns,
we have taken steps we believe will improve the performance of the fund.
MANAGEMENT CHANGE: On June 30, 1996, the former lead manager of TCI Growth
resigned the firm, and the fund's management was transferred to a portfolio team
headed by Glenn Fogle, with oversight by Jim Stowers III, the lead manager for
Ultra. The new team has been, and continues to be, responsible for managing
Vista and Giftrust, two of American Century's more aggressive and well-known
retail funds.
PORTFOLIO CHANGES:
SMALLER, FASTER GROWING COMPANIES: Almost immediately the new team began the
process of restructuring the portfolio with an emphasis on smaller and faster
growing companies. The average earnings growth rate of the portfolio increased
to 74% on December 31 from a level of 7.6% on June 30 when the new team assumed
responsibility.
INCREASED PORTFOLIO CONCENTRATION: The total number of stocks in the portfolio
has been decreased - 74 companies present in TCI Growth on June 30, 1996 are no
longer held. At the same time, the concentration on our best prospects has
increased, with the top-10 holdings representing 34% of the fund's assets. This
concentration is in line with our traditional portfolio management strategy at
American Century.
Although these changes did not immediately improve fund performance, as the U.S.
stock market environment in 1996 continued to favor larger companies with more
predictable earnings, we believe the new team has repositioned the fund to be in
a better position to meet expectations in the long term.
We hope you'll recognize that these changes in the fund demonstrate our
commitment to seeing it live up to its full performance potential. We hope you
will give the revitalized TCI Growth a renewed consideration in light of the
expertise, commitment and discipline that Twentieth Century - now American
Century - has demonstrated over the years. If, as some have predicted, there is
to be a reversal away from the favor of large index names and toward smaller
companies with increasing, quality earnings growth, then shareholders in TCI
Growth may finally reap just rewards.
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FUND PERFORMANCES
<TABLE>
<CAPTION>
TOTAL RETURN: ASSUMING CONTRACT NOT SURRENDERED* (NON-STANDARDIZED)
APPROXIMATE PERCENT CHANGE IN NET ASSETS WITH CAPITAL GAINS AND INCOME DIVIDENDS REINVESTED
NON-ANNUALIZED PERCENT CHANGE** ANNUALIZED PERCENT CHANGE**
INCEPTION 1 YR. TO 5 YR. TO INCEPTION TO 5 YR. TO INCEPTION TO
FUNDS++ DATE*+ 12/31/96 12/31/96+ 12/31/96+ 12/31/96 12/31/96
<S> <C> <C> <C> <C> <C> <C>
DREYFUS CORPORATION
Stock Index Fund 09/29/89 20.94% 85.46% 130.54% 13.15% 12.20%
FIDELITY VIP FUND
Equity-Income Portfolio 10/09/86 12.79% 114.09% 217.61% 16.44% 11.96%
NATIONWIDE SEPARATE ACCOUNT TRUST
Government Bond Fund 11/08/82 2.13% 31.58% 202.88% 5.64% 8.15%
Money Market Fund 11/10/81 3.74% 14.82% 133.28% 2.80% 5.75%
Total Return Fund 11/08/82 20.25% 78.68% 527.39% 12.31% 13.86%
NEUBERGER &BERMAN ADVISERS
MANAGEMENT TRUST
Balanced Portfolio 02/28/89 5.49% 37.74% 93.22% 6.61% 8.77%
TCIPORTFOLIOS, INC.
TCIAdvantage 08/01/91 7.82% 24.11% 40.55% 4.41% 6.48%
TCIGrowth 11/20/87 -5.57% 26.37% 126.27% 4.79% 9.37%
<FN>
* 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
FUND PERFORMANCES
<TABLE>
<CAPTION>
TOTAL RETURN: ASSUMING CONTRACT SURRENDERED (STANDARDIZED)
APPROXIMATE PERCENT CHANGE IN NET ASSETS WITH CAPITAL GAINS AND INCOME DIVIDENDS REINVESTED
INCEPTION 1 YR. TO 5 YR. TO 10 YR. TO INCEPTION TO
FUNDS++ DATE*+ 12/31/96 12/31/96 12/31/96 12/31/96
<S> <C> <C> <C> <C> <C>
DREYFUS CORPORATION
Stock Index Fund 09/29/89 12.54% 10.13% NA* 9.20%
FIDELITY VIP FUND
Equity-Income Portfolio 10/09/86 4.39% 13.82% 9.90% 9.25%
NATIONWIDE SEPARATE ACCOUNT TRUST
Government Bond Fund 11/08/82 -6.21% 2.47% 4.49% 5.85%
Money Market Fund 11/10/81 -4.66% -0.61% 1.65% 3.35%
Total Return Fund 11/08/82 11.85% 9.31% 8.75% 12.12%
NEUBERGER &BERMAN ADVISERS
MANAGEMENT TRUST
Balanced Portfolio 02/28/89 -2.91% 3.43% NA* 6.30%
TCI PORTFOLIOS, INC.
TCI Advantage 08/01/91 -0.58% 0.92% NA* 3.01%
TCI Growth 11/20/87 -13.46% 1.48% NA* 6.80%
</TABLE>
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.
15
<PAGE> 15
NATIONWIDE VARIABLE ACCOUNT-5
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY
December 31, 1996
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments at market value:
Dreyfus Stock Index Fund (DryStkIx)
51,656 shares (cost $803,674) ......................... $ 1,047,574
Fidelity VIP - Equity-Income Portfolio (FidVIPEI)
179,616 shares (cost $2,983,890) ...................... 3,777,322
Nationwide SAT - Government Bond Fund (NSATGvtBd)
64,129 shares (cost $687,408) ......................... 707,986
Nationwide SAT - Money Market Fund (NSATMyMkt)
391,307 shares (cost $391,307) ........................ 391,307
Nationwide SAT - Total Return Fund (NSATTotRe)
142,953 shares (cost $1,567,768) ...................... 1,896,983
Neuberger &Berman - Balanced Portfolio (NBAMTBal)
52,442 shares (cost $807,255) ......................... 834,877
TCI Portfolios - TCI Advantage (TCIAdv)
38,991 shares (cost $223,144) ......................... 245,254
TCI Portfolios - TCI Growth (TCIGro)
139,011 shares (cost $1,388,354) ...................... 1,423,471
-----------
Total investments .................................. 10,324,774
Accounts receivable ......................................... 644
-----------
Total assets ....................................... 10,325,418
===========
CONTRACT OWNERS' EQUITY ........................................ $10,325,418
===========
</TABLE>
16
<PAGE> 16
<TABLE>
<CAPTION>
Contract owners' equity represented by:
UNITS UNIT VALUE
------- ----------
<S> <C> <C> <C>
Dreyfus Stock Index Fund:
Tax qualified ...................... 48,939 $16.698256 $ 817,196
Non-tax qualified .................. 13,798 16.698256 230,403
Fidelity VIP - Equity-Income Portfolio:
Tax qualified ...................... 193,347 16.255386 3,142,930
Non-tax qualified .................. 39,032 16.255386 634,480
Nationwide SAT - Government Bond Fund:
Tax qualified ...................... 13,708 30.092479 412,508
Non-tax qualified .................. 9,816 30.103580 295,497
Nationwide SAT - Money Market Fund:
Tax qualified ...................... 18,943 20.329483 385,101
Non-tax qualified .................. 300 22.088348 6,627
Nationwide SAT - Total Return Fund:
Tax qualified ...................... 25,126 62.170693 1,562,101
Non-tax qualified .................. 5,547 60.382482 334,942
Neuberger &Berman - Balanced Portfolio:
Tax qualified ...................... 47,651 15.563120 741,598
Non-tax qualified .................. 5,995 15.563120 93,301
TCI Portfolios - TCI Advantage:
Tax qualified ...................... 9,351 14.055040 131,429
Non-tax qualified .................. 8,099 14.055040 113,832
TCI Portfolios - TCI Growth:
Tax qualified ...................... 77,626 15.531281 1,205,631
Non-tax qualified .................. 14,026 15.531281 217,842
====== ========= ===========
$10,325,418
===========
<FN>
See accompanying notes to financial statements.
</TABLE>
17
<PAGE> 17
NATIONWIDE VARIABLE ACCOUNT-5
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 ............... $ 597,570 317,443 93,544
Mortality, expense and administration charges (note 2) (119,165) (81,453) (31,825)
------------ --------- ---------
Net investment activity ........................... 478,405 235,990 61,719
------------ --------- ---------
Proceeds from mutual fund shares sold ................ 577,153 1,005,681 644,960
Cost of mutual fund shares sold ...................... (483,424) (961,009) (638,042)
------------ --------- ---------
Realized gain (loss) on investments ............... 93,729 44,672 6,918
Change in unrealized gain (loss) on investments ...... 292,389 1,187,526 (7,940)
------------ --------- ---------
Net gain (loss) on investments .................... 386,118 1,232,198 (1,022)
------------ --------- ---------
Net increase (decrease) in contract owners'
equity resulting from operations ............ 864,523 1,468,188 60,697
------------ --------- ---------
EQUITY TRANSACTIONS:
Purchase payments received from contract owners ...... 2,289,111 2,249,760 4,745,746
Redemptions .......................................... (520,971) (465,975) (293,339)
Annual contract maintenance charge (note 2) .......... (17,468) (11,455) (191)
Contingent deferred sales charges (note 2) ........... (18,614) (13,677) (11,290)
Adjustments to maintain reserves ..................... 393 (76) 56
------------ --------- ---------
Net equity transactions ........................ 1,732,451 1,758,577 4,440,982
------------ --------- ---------
NET CHANGE IN CONTRACT OWNERS' EQUITY ................... 2,596,974 3,226,765 4,501,679
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ............. 7,728,444 4,501,679 --
------------ --------- ---------
CONTRACT OWNERS' EQUITY END OF PERIOD ................... $ 10,325,418 7,728,444 4,501,679
============ ========= =========
<FN>
See accompanying notes to financial statements.
</TABLE>
18
<PAGE> 18
NATIONWIDE VARIABLE ACCOUNT-5
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-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)
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. (TCIPortfolios);
TCI Portfolios - TCI Advantage (TCIAdv)
TCI Portfolios - TCI Growth (TCIGro)
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.
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.
(f) Reclassifications
Certain 1995 and 1994 amounts have been reclassified to conform with the
current year presentation.
(2) EXPENSES
The Company does not deduct a sales charge from purchase payments received
from the contract owners. However, if any part of the contract value of such
contracts is surrendered, the Company will, with certain exceptions, deduct from
a contract owner's contract value a contingent deferred sales charge not to
exceed 7% of the lesser of purchase payments or the amount surrendered, such
charge declining 1% per year, to 0%, after the purchase payment has been held in
the contract for 84 months. No sales charges are deducted on redemptions used to
purchase units in the fixed investment options of the Company.
The following contract charges are deducted by the Company: (a) an annual
contract maintenance charge of $30, with certain exceptions, which is satisfied
by surrendering units; and (b) 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:
- 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.
20
<PAGE> 20
SCHEDULED 1
NATIONWIDE VARIABLE ACCOUNT - 5
TAX QUALIFIED and NON-TAX QUALIFIED
SCHEDULES OF CHANGES IN UNIT VALUE
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<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 .595405 .664825 1.822953 1.823626 .996061 1.082246
- ----------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 2.493107 1.377615 (.811577) (.811863) .000000 .000000
- ----------------------------------------------------------------------------------------------------------------------------------
Contract charges (.197815) (.199114) (.382470) (.382618) (.262454) (.285170)
- ----------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $ 16.698256 16.255386 30.092479 30.103580 20.329483 22.088348
- ----------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 21% 13% 2% 2% 4% 4%
==================================================================================================================================
1995
Beginning unit value - Jan. 1 $ 10.227308 10.808255 25.138302 25.147577 18.790546 20.416267
- ----------------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .366275 .845166 1.778825 1.779480 1.056381 1.147773
- ----------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 3.371719 2.923160 2.904595 2.905666 .000000 .000000
- ----------------------------------------------------------------------------------------------------------------------------------
Contract charges (.157743) (.164521) (.358149) (.358288) (.251051) (.272768)
- ----------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $ 13.807559 14.412060 29.463573 29.474435 19.595876 21.291272
- ----------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 35% 33% 17% 17% 4% 4%
==================================================================================================================================
1994
Beginning unit value - Jan. 1 $ 10.271065 10.227513 26.318797 26.328516 18.325918 **
- ----------------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .287154 .767502 1.651042 1.651652 .706658
- ----------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (.197934) (.048719) (2.499476) (2.500401) .000000
- ----------------------------------------------------------------------------------------------------------------------------------
Contract charges (.132977) (.138041) (.332061) (.332190) (.242030)
- ----------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $ 10.227308 10.808255 25.138302 25.147577 18.790546
- ----------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 0% 6% (4)% (4)% 3%
==================================================================================================================================
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 3.444695 3.345616 2.260284 .938763 1.843419
- ----------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 7.759641 7.536444 (1.253279) .257308 (2.545876)
- ----------------------------------------------------------------------------------------------------------------------------
Contract charges (.735081) (.713937) (.197287) (.176494) (.214108)
- ----------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 62.170693 60.382482 15.563120 14.055040 15.531281
- ----------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 20% 20% 5% 8% (6)%
============================================================================================================================
1995
Beginning unit value - Jan. 1 40.575816 39.408735 12.077573 11.312248 12.711014
- ----------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 4.020137 3.904506 .307323 .409891 .014626
- ----------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 7.711672 7.489864 2.548627 1.472626 3.917671
- ----------------------------------------------------------------------------------------------------------------------------
Contract charges (.606187) (.588746) (.180121) (.159302) (.195465)
- ----------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 51.701438 50.214359 14.753402 13.035463 16.447846
- ----------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 27% 27% 22% 15% 29%
============================================================================================================================
1994
Beginning unit value - Jan. 1 40.671816 39.501981 12.661508 11.343435 13.030369
- ----------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 2.052197 1.993171 .493737 .297949 .001393
- ----------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (1.612762) (1.566374) (.917170) (.181282) (.154144)
- ----------------------------------------------------------------------------------------------------------------------------
Contract charges (.535435) (.520043) (.160502) (.147854) (.166604)
- ----------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 40.575816 39.408735 12.077573 11.312248 12.711014
- ----------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 0% 0% (5)% 0% (2)%
============================================================================================================================
<FN>
* An annualized rate of return cannot be determined as 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>
<PAGE> 21
Independent Auditors' Report
----------------------------
The Board of Directors of Nationwide Life Insurance Company and
Contract Owners of Nationwide Variable Account-5:
We have audited the accompanying statement of assets, liabilities and
contract owners' equity of Nationwide Variable Account-5 as of December 31,
1996, and the related statements of operations and changes in contract owners'
equity and schedules of changes in unit value for each of the years in the three
year period then ended. These financial statements and schedules of changes in
unit value are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules of changes in unit value based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedules of
changes in unit value are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures include confirmation of securities
owned as of December 31, 1996, by correspondence with the transfer agents of the
underlying mutual funds. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and schedules of changes in unit
value referred to above present fairly, in all material respects, the financial
position of Nationwide Variable Account-5 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
22
<PAGE> 22
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 March 31, 1997, 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.
23
<PAGE> 23
NATIONWIDE LIFE INSURANCE COMPANY Bulk Rate
HOME OFFICE: ONE NATIONWIDE PLAZA - U.S. Postage
COLUMBUS, OHIO 43215-2220 PAID
Columbus, Ohio
Permit No. 521
Nationwide(R) is a registered federal service mark of Nationwide Mutual
Insurance Company
