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[NATIONWIDE MULTI-FLEX ANNUITY LOGO]
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SEMI-ANNUAL REPORT
JUNE 30, 1996
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NATIONWIDE(R)
MULTI-FLEX [NATIONWIDE INSURANCE LOGO]
VARIABLE ACCOUNT Nationwide is on your side
Columbus, Ohio
APO-724-U (6/96)
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[NATIONWIDE LIFE INSURANCE LOGO]
NATIONWIDE LIFE INSURANCE COMPANY
ONE NATIONWIDE PLAZA, COLUMBUS, OHIO 43215
[PICTURE]
PRESIDENT'S MESSAGE
We are pleased to present the 1996 semi-annual report of the Nationwide
Multi-Flex Variable Account.
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
---------------------------
Joseph J. Gasper, President
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Contents
<S> <C>
HOW TO READ THE SEMI-ANNUAL REPORT .....................................4
Explanation on how to read and understand
the various financial reports
A FEW WORDS ABOUT OUR FUNDS ............................................6
Fund Objectives and Narratives
written by the fund managers*
FUND PERFORMANCES .....................................................20
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY ..........22
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY ............................................24
NOTES TO FINANCIAL STATEMENTS .........................................25
SCHEDULES OF CHANGES IN UNIT VALUE ....................................28
<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.
</TABLE>
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How to Read the Semi-Annual Report
This Semi-Annual Report is sent to all customers who own one of the following
contracts:
- Nationwide Multi-Flex Variable Annuity
- NEAValuebuilder Annuity
- Nationwide Variable Annuity - Citibank New York
All or some of the funds in the Nationwide Multi-Flex Variable Account (the
Account) are available through these contracts. The Account is a separate
account trust which offers investment options in fifteen mutual funds from seven
mutual fund houses. An explanation of the funds and their objectives can be
found on pages 6 through 18.
The Semi-Annual Report has three major financial sections.
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY
This statement, found on page 22, 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 23.
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
These statements, found on page 24, show the activity in the Account from
January 1 to June 30, 1996, 1995 and 1994.
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 contracts 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 26
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 on page 25 will also help explain and clarify the various
statements and schedules.
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A FEW WORDS ABOUT OUR FUNDS
[DREYFUS LOGO]
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
OBJECTIVE - To provide capital growth by investing in stocks that enhance the
quality of life in America.
NARRATIVE BY DREYFUS CORPORATION
We have been pleased with the performance of several of the Fund's sectors
during the past six months. Strong returns from the Consumer Cyclicals,
Technology and Financial Services sectors have been key drivers of the Fund's
performance. Sears and Consolidated Stores are two holdings in the Consumer
Cyclicals sector that have acted well, driven by investor belief that consumer
debt levels, although high, would not hamper spending. Other stocks in the
sector with strong performance include Nike, an athletic shoe and apparel
manufacturer, Jones New York, a woman's apparel maker, and CUC International, a
consumer buying group membership company.
Continued strong demand for PCs, computer networking systems and software has
helped the performance of the Fund's technology sector. Winners in this area
include BMC Software, a maker of business software, Computer Associates, in the
network software business, Hewlett-Packard, a PC and peripherals manufacturer
and the software giant Microsoft.
Financial Services stocks were also decent performers for most of the last six
months, supported by speculation that a better interest rate environment was
approaching. Citicorp, Bank America and Green Tree Financial all performed well
in this sector.
We have also increased the Fund's exposure to small-capitalization stocks. While
it is uncertain that small-cap names will continue to outperform the market as
they have recently, we will continue to look for opportunities in this area,
while maintaining a solid position in larger-capitalization companies, some of
which are mentioned above.
In terms of the Fund's social investment criteria, we feel that the present
holdings are well within the objectives of the Fund's special considerations.
We were particularly pleased that two of the Fund's holdings, Hewlett-Packard
and the Federal National Mortgage Association, America's largest mortgage
guarantor, were among the recipients of the Council on Economic Priorities'
prestigious America's Corporate Conscience Award for 1996. The Fund is
continually engaged in a process of identifying companies that meet the Fund's
goal of enhancing the quality of life in America, along with adhering to
traditional financial standards.
Going forward, we expect the market to undergo a 5-10% correction from its
current levels. At the same time, we see a continuation of modest economic
growth during the medium term. Given these expectations, the Federal Reserve is
likely, in our opinion, to keep interest rates at a level favorable to the
markets. At some point over the coming twelve months, we do expect some economic
weakness, leading to falling Fed rates and an increasingly positive market
environment, though we will most likely see some bumps along the way as economic
data and market sector corrections come along. At this point we do, however,
express cautious optimism for the future, and we have positioned the Fund
accordingly.
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.
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DREYFUS STOCK INDEX FUND++ (CONT'D)
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.
DREYFUS VARIABLE INVESTMENT FUND -
QUALITY BOND PORTFOLIO
OBJECTIVE - Seek to provide the maximum current income to the extent consistent
with the preservation of capital and the maintenance of liquidity.
(Not offered in Nationwide Multi-Flex Variable Annuity and Nationwide Variable
Annuity - Citibank, New York)
NARRATIVE BY DREYFUS CORPORATION
So far this year, the economic story has been upbeat: solid growth, strong gains
in employment and low inflation. Yet along with this good news has come the fear
the the Federal Reserve Board ("Fed") will tighten monetary policy lest the
continued economic expansion bring a resurgence in inflation. The growth in the
economy has resulted in strong gains in employment. Over recent months, these
reports of new jobs have been accompanied by rises in long-term interest rates,
a reflection of the market's concern that inflation perceptions by the Fed would
result in its acting to cool down an economy that risks overheating. To date,
the Fed has refrained from any overt tightening moves. (The Fed has cut rates
three times between July of `95 and January of `96, and has since held the
Federal Funds rate steady at 5.25%, even as long-term rates in the bond market
have risen more than a full percentage point.)
The interplay between job growth and economic growth has become the dominant
force affecting the outlook of investors for inflation and the possibility that
the Fed will raise short-term interest rates. Along with handsome increases in
new jobs have come solid gains in retail sales, although many economists feel
that heavy consumer debt burdens will act as a constraint against any
acceleration in growth. Automobile sales remain strong, the third year in a row
of steady growth for auto manufacturers. Yet, what investors focus on and what
concerns the Fed may be two different things. On June 19th, the Fed's Beige
Book, a survey of business conditions in the 12 districts of the Federal
Reserve, reported that the economy was growing at a moderate pace and that
despite the tightening labor markets "indications of rising wages remain
scattered". Recent statements by officials of the Federal Reserve Board have
suggested that "sustained moderate growth" is the most likely path for the
economy and that labor markets, while tightening, do not yet indicate
significant inflationary pressures.
There seem to be few signs of inflation. Commodity and producer prices remain
subdued. Anecdotal reports from companies continue to attest to their lack of
ability to raise prices. Another measure of potential inflation, delivery lead
times - one of Chairman Greenspan's favorite indicators - has been little
changed for months. Furthermore, some of the inflationary consequences of
running large budget deficits have eased due to the growth in the economy.
Higher than expected tax payments - a result of economic growth - have reduced
the Federal budget deficit to the $130 billion level, the lowest since the early
1980s.
Nevertheless, there are limits to non-inflationary economic expansion. As
always, we remain watchful for signs of price pressures that could lead to a
resurgence of inflation. For now, there are few indications of that. In fact,
there also appears to be a growing consensus that the rate of economic growth
could taper off in the second half of the year due to the effect of higher
long-term interest rates on certain key sectors of the economy like housing and
consumer spending.
For the first half of 1996, we have been in a rising rate environment. Negative
returns have been the rule in securities with longer maturities. As an example,
the 10-year Treasury Note began the year yielding 5.6%. As of June 30, the same
note was yielding 6.7%, that is an increase of more than 110 basis points.
Similarly, the 30-year Treasury bond yield increased from 6% to 6.9%. The
question regarding the direction of interest rates going forward rests with the
market's perception of economic growth and inflation.
+ "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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QUALITY BOND PORTFOLIO (CONT'D)
During the course of the last six months, we have attempted to place a more
defensive emphasis in managing the Portfolio. Last year, the Portfolio's
duration was a half to three quarters of year longer than the Merrill Lynch
Domestic Master Index (subindex D010). This year we have attempted to maintain a
duration about a half-year shorter than that index. In a rising rate
environment, which is what we have been in, the Portfolio's performance has
benefited from such a tactical move.
With a total return during the reporting period of -1.90%, the Portfolio
outperformed the average of the Lipper Category. The average total return of all
funds in the Portfolio's Lipper Category during the reporting period was -2.18%.
We managed to outperform the average fund by .28%. From a standpoint of
transactions we have sold a 4% position in Generalitat de Catalunya and
reinvested those proceeds in GNMA 71/2% securities. With new cash flows, we have
continued to invest in another 5% position of GNMA 61/2% securities and about
15% in 71/2% securities. We have also added General Electric and General Motors
Acceptance Corp. to our holdings.
DREYFUS VARIABLE INVESTMENT FUND -
SMALL CAP PORTFOLIO
OBJECTIVE - To maximize capital appreciation by investing in common stocks of
emerging smaller sized companies.
(Not offered in Nationwide Multi-Flex Variable Annuity and Nationwide Variable
Annuity - Citibank, New York)
NARRATIVE BY DREYFUS CORPORATION
We are pleased to report that the Small Cap Portfolio of Dreyfus Variable
Investment Fund outperformed its benchmark market indexes for the first six
months of this year, the fiscal period ended June 30, 1996.
In this letter we review the economic environment for the first half of the
year, and conditions in the equity markets, then conclude with details about the
Portfolio holdings.
The U.S. economy appears to be rebounding in 1996 following its mid-cycle growth
slowdown of last year, yet overall corporate profit growth is slowing this year.
Although actual inflation remains steady, faster eco nomic growth has reignited
fears of higher future inflation. This has pushed bond yields higher and built
expectations for a Federal Reserve Board tightening in coming months. This is
the sixth expansion year for this business cycle, and we believe that it will
prove a long cycle.
Economic growth has accelerated since year-end. The first quarter's 2.2% real
GDP growth brought with it a demand rebound that depleted inventories. Even
stronger second quarter growth is apparent, led by manufacturers' attempts to
rebuild inventories. In addition, steady job creation continues to support
growth in consumer incomes and spending. As yet, there are few indications of
economic cooling. Some previously strong capital goods sectors may now be
slowing, but overall economic growth appears to be broadening to more
industries. Despite better economic performance this year than last, profit
growth may have peaked last year.
Non-oil price inflation has remained tame this year, although surging oil prices
boosted overall inflation temporarily this spring. Nevertheless, signs of a
faster economic pace have reignited fears of higher future inflation, especially
coming from upward pressure on wages as the labor market tightens. Thus, bond
yields have risen substantially this year. Short-term market rates are also
higher on expectations for Federal Reserve tightening in coming months. So far,
long-term rates have risen much more than short-term rates, forcing the yield
curve to steepen. A steep yield curve is usually supportive of sustained growth
in the real economy. As we look forward, the question arises whether the higher
interest rates already in place and those in prospect will effectively cool the
economy. At present, however, any advance signs of an eventual cooling off are
hard to discern. The preoccupation at present is with the economy's impressive
strength, and the problems such growth could create.
The broad trend of the stock market was strongly upward during the six months
under review. However, there were many cross-currents at work. Not all stock
groups benefited equally. The blue chips in the Dow Jones Industrial Average
enjoyed solid advances for the six months, as did the broader market as
represented by the NASDAO Composite and the Standard & Poor's 500. However, as
spring turned into summer, the S&P 500 receded from its May high, technology
stocks began to lag, and small capitalization stocks were unable to maintain the
very fast growth pace of earlier months.
From time to time, unexpected signs of economic strength, particularly
employment and unemployment numbers, jolted the equity markets with the fear of
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SMALL CAP PORTFOLIO (CONT'D)
renewed inflation. Especially in the latter part of the half-year, concern about
inflation and higher interest rates restrained market performance in a number of
industry categories.
Profits, always a major element in stock performance, continued strong for a
good part of the period. However, fear of rising labor costs and intensified
competition at home and abroad have cast some shadows over the profit outlook.
This has been balanced, however, by the very large sum of money that continues
to be invested in equity mutual funds, much of it from people planning for their
retirement.
As the half-year ended, broad market averages were still solidly above where
they stood when the year began. This, however, was prior to the downdraft in
stock prices that occurred in mid-July.
The companies in which the Portfolio is invested have by and large produced
above-average returns during the six-month period. In fact, for the first time
in two years, small cap stocks in general slightly outperformed their larger
compatriots. In the final analysis, as you know, it is good products, good
management and good business fundamentals that drive investment results. We
believe we have assembled companies with these characteristics in your
Portfolio.
Your Portfolio's performance was also helped by some external factors. First, a
record number of new companies were born during this period, and these dynamic
companies were getting an especially warm reception in the initial public
offering arena. We owned a number of these issues. Second, in an economic
environment of positive growth, accompanied with a rising dollar, the companies
in which we invest tend to perform relatively better than the large, U.S. based
multinationals that comprise a large part of the S&P 500 Index. Last, after two
years of relative dormancy in the small cap marketplace, our style of investing
re-emerged into fashion. By the end of the second quarter, however, it become
apparent to us that the investment landscape may once again have shifted.
Technology, health care and recent IPO darlings were unceremoniously dumped. Of
course, wholesale liquidation provides opportunities, and we will be, as usual,
vigilant in uncovering oversold situations in the coming months.
From the beginning of the year, your managers have been reducing the weighting
in technology, where a lot of the excitement had occurred, but where a lot of
the recent earnings disappointments and reality checks have been centered. We
remain enthusiastic about McAfee Associates, a utility software company;
Vanstar, a systems integrator, and PictureTel Corporation, a supplier of video
conferencing equipment. We had redeployed some of the proceeds from technology
into the healthcare sector in order to seek the growth in earnings usually
attributed to technology. Stocks that we continue to like are Mentor, a plastic
surgery products company; Universal Health Services, C.I.B., a hospital
management company; and CorVel, a healthcare information systems company.
We continue to be sanguine as the health of the industrial economy in the U.S.
and abroad. Companies in the materials and processing sectors that we are
enthusiastic about include Cambrex, which sells bulk additives to the
pharmaceutical industry, Culligan Water Technologies, and USA Waste Service.
Machinery stocks we favor include Albany International, C.I.A., the dominant
worldwide manufacturer of paper machine clothing; Titan Wheel International, a
manufacturer of wheels and tires; and Keystone International, a producer of
valves for fluid handling. As a sector approach to global markets, a major theme
continues to be commercial aerospace, where the suppliers to the largest U.S.
export company, Boeing, are small cap firms. The Portfolio owns Rohr, Coltec
Industries, Thiokol, and Crane.
Capital goods stocks have outperformed consumer stocks for the past two years.
We expect this trend to continue and therefore continue to underweight the
consumer segment of the economy. Still, there are always exceptions. Those
exceptions include Tiffany &Co. and Stein Mart. Meredith Corp. is a publishing
favorite.
As the interest rate outlook remains uncertain, we think a continued
underweighting in financial services is appropriate. The exception here,
however, is niche insurance companies. Although characterized as interest
rate-sensitive, we believe their growth prospects transcend the macroeconomic
environment. Examples include Everest Re Holdings, FINOVA Group, Executive Risk
and Frontier Insurance Group.
The workhorse sector of the Portfolio has been the energy companies. Our early
and contrary commitment to this sector has added value to your Portfolio in
almost every month of 1996. Names we like are exploration and production
companies Parker & Parsley Petroleum, Devon Energy, Ranger Oil and Cairn Energy,
as well as Global Industries, an offshore energy construction corporation. We
look for even better things to come from this sector for the balance of the
year.
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SMALL CAP PORTFOLIO (CONT'D)
As we conclude, it has once again become fashionable to spend a great deal of
time and energy trying to forecast macroeconomics and Federal Reserve policy. We
want to assure the shareholders of the Small Cap Portfolio that we will not be
participants in this current vogue. We know from experience that good,
consistent long-term performance comes from uncovering companies with good
business fundamentals at reasonable valuation. We will not stray from this
pursuit.
[FIDELITY INVESTMENTS(R) 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 to 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.
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 -
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EQUITY-INCOME PORTFOLIO (CONT'D)
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.
HIGH INCOME PORTFOLIO
OBJECTIVE - Seeks to obtain a high level of current income by investing
primarily in high risk, lower-rated, high-yielding, fixed income securities,
while also considering growth of capital.
AN INTERVIEW WITH BARRY COFFMAN,
PORTFOLIO MANAGER
Q. BARRY, HOW DID THE FUND PERFORM?
A. It did quite well compared to its peers, and significantly outperformed its
benchmark. The Merrill Lynch High Yield Master Index had a total return of 2.85%
for the six months ended June 30, 1996, and 9.37% for the 12-month period.
Q. WHAT CONTRIBUTED TO THE FUND'S PERFORMANCE?
A. Well, a primary difference between the fund and its index is that the index
tends to have a much higher weighting of BB-rated bonds than the fund, which is
more concentrated in B-rated issues. That makes the index generally more
sensitive to changes in interest rates, while the fund responds more to changes
in credit spreads. Simply put, when the credit status of companies in the
high-yield market is improving, the fund tends to outperform the index, and
that's what we saw over the period.
Q. HOW DID INTEREST RATES FACTOR INTO THIS EQUATION?
A. They went hand-in-hand with the credit story. As the economy's strength
exceeded most people's expectations, the Federal Reserve tried to moderate
growth by raising interest rates. Within the high-yield market, the higher-rated
securities that dominate the index and are most sensitive to rate changes
performed poorly. Meanwhile, the rise in rates had less of a negative impact on
the fund, and the economy's strength improved credit conditions and helped
generate good performance for the fund.
Q. WHAT WAS BEHIND THE FUND'S INCREASE IN MEDIA AND TELECOMMUNICATIONS
SECURITIES?
A. First of all, coming into the period, the fund already had significant
investments in those sectors. That's because I had seen opportunities in
emerging areas such as satellite and paging companies, as well as other
broadcast-related securities. These areas had been dominating the new issuance
market, and investors were receptive to the high coupon rates offered by many of
these companies. Several of the fund's large holdings in these kinds of
companies - for example, PanAmSat, the fund's largest holding at the end of the
period - as well as Echostar, a company that offers a satellite/cable service,
were strong contributors to performance during the period. They benefited from
the market's perception that they had good growth prospects regardless of the
economy's strength.
Q. IN THE LAST REPORT, YOU MENTIONED THAT YOU HAD BEEN ADDING SOME SMALLER,
LESS VISIBLE COMPANIES TO THE PORTFOLIO. HOW DID THOSE INVESTMENTS WORK OUT?
A. Many of them also were solid contributors to performance during the period.
The fund benefited from investing in securities which I was able to purchase on
what I viewed as very favorable terms. Harcor Energy is an excellent example. We
bought a sizable number of its bonds and received warrants for equity in the
company as well. Harcor subsequently announced a secondary stock offering,
boosting its stock price and creating significant value for the warrants the
fund had received. In the specialty retail area, the fund also was helped by
some regional retailers such as Stage
11
<PAGE> 12
HIGH INCOME PORTFOLIO (CONT'D)
Apparel and Mother's Work, a maternity clothes company I've discussed before and
which continued to perform well over the period.
Q. STILL, THERE MUST HAVE BEEN SOME DISAPPOINTMENTS . . .
A. Right, but nothing that negatively impacted the fund very much. Somewhat
ironically, one of the higher quality positions in the fund, Viacom, was one of
the poorer performers. After acquiring Paramount and Blockbuster, Viacom planned
to sell some cable systems, which I thought would result in a credit upgrade.
But a combination of regulatory delays and weakness in the Treasury market - the
bonds are not priced in terms of dollars, they instead trade on a spread basis
relative to the price of Treasuries - hurt the securities.
Q. WHAT'S YOUR OUTLOOK FOR THE NEXT SEVERAL MONTHS?
A. I'd say that I'm a bit more cautious now than I was a few months ago. In the
high-yield market, you need to be especially alert to any weakness in the
economy. Given its recent continued strength, economic softening is not only
inevitable, but probably closer today than it was six months ago. Still, I'll
continue to look for companies that I think can prosper independent of the
economy and, within those companies, I'll invest in whichever aspect of their
capital structure looks most promising.
[NATIONWIDE LOGO]
NATIONWIDE(R) SEPARATE ACCOUNT TRUST
CAPITAL APPRECIATION FUND
OBJECTIVE - To obtain long-term growth.
NARRATIVE BY CHARLES BATH, FUND MANAGER
The Capital Appreciation Fund benefited from the strong performance of the
pharmaceutical sector. The drug stocks now comprise the largest industry weight
ing in the Capital Appreciation Fund. These companies are financially strong
world-dominant franchises. These are the type of investments I would continue to
expect will dominate the portfolio. Currently one of the largest weightings is
in Allergan, a small opthalmic drug company. Allergan is dominate in its niche
and has an important new drug which should accelerate its growth. This growth
potential combined with a reasonable valuation makes Allergan an attractive
investment.
Another large investment in the Capital Appreciation Fund is Horace Mann. This
is a unique insurance company which dominates the personal lines insurance
market for educators. Horace Mann has remained very profitable by focusing on
one narrow market niche and dominating that market. Despite its attractive
financial characteristics Horace Mann sells at a discount to the market and to
its insurance industry peers. I anticipate this will be a good long-term
investment with the opportunity for both attractive earnings growth and an
upward revaluation of the earnings multiple.
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 increase market exposure
slightly, investing cash at higher rates as the market declined, thus allowing
shareholders to benefit from future decreases in interest rates.
12
<PAGE> 13
GOVERNMENT BOND FUND (CONT'D)
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.
[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.
(Not offered in Nationwide Multi-Flex Variable Annuity)
13
<PAGE> 14
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
14
<PAGE> 15
BALANCED PORTFOLIO (CONT'D)
multiple in the portfolio is equal to the market on 1996 earnings and 10%-15%
less than the market based on 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 the
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 from 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.
[STRONG FUNDS LOGO]
STRONG VARIABLE INSURANCE FUNDS, INC.
STRONG SPECIAL FUND II
OBJECTIVE - To seek capital appreciation through investments in a diversified
portfolio of equity securities.
15
<PAGE> 16
STRONG SPECIAL FUND II (CONT'D)
(Not offered in Nationwide Multi-Flex Variable Annuity and Nationwide Variable
Annuity - Citibank, New York)
NARRATIVE BY RICHARD WEISS & MARINA CARLSON, FUND MANAGERS
In pursuit of capital growth, the Strong Special Fund II invests at least 80% of
its total assets in equity securities. It currently emphasizes medium-sized
companies that the Fund's advisor believes are under-researched and attractively
valued.
Despite a difficult June, the stock market turned in a good performance over the
first half of the year. The broad market, as measured by the S&P 500 Index,
gained 10.10% for the six months ended June 30, while the S&P 400 MidCap Index
posted a slightly lower gain of 9.21%
A slow-growing economy early in the year prompted the Federal Reserve Board to
lower short-term interest rates in January, but the announcement of February's
unexpectedly large increase in jobs set the slow-growth scenario on its head.
Other signs of renewed growth followed - including price increases in several
key commodities - and prompted some economists to predict the return of higher
inflation. The Fed, however, declined subsequent opportunities to increase rates
further, and signs of renewed inflation have been elusive.
Given this scenario, we entered the second quarter with a slightly more
defensive portfolio. Consequently, the Fund did not realize the gains that many
higher priced growth stocks produced in April and May - when small- and mid-cap
stocks produced some very impressive gains. However, our defensive stance
protected the Fund from some of the sharp price declines experienced in June.
The Fund also benefited from an overweighted position in the energy sector, as
many oil service and oil and gas exploration and production companies performed
well during this period.
We believe that much of this market's increase has been momentum-driven,
stimulated by a surge of cash into mutual funds. Despite the momentum, we remain
committed to a consistent investment approach and will continue to evaluate
existing and prospective holdings by analyzing their "private value". That
simply means that we evaluate companies as if we were private buyers -
determining how much we would be willing to pay to own the entire company. In
doing so, we have a disciplined way to view the company's inherent value and
impartially evaluate potential winners and losers.
We look at underfollowed stocks - those with low institutional ownership and low
analyst coverage - because we believe they tend to be undervalued by the market.
We look at unpopular, or "quiet", sectors because we think that, in a market
increasingly dominated by institutions, unpopular sectors can yield superior
returns. And now, more than ever - given higher stock valuations - we believe it
is essential to thoroughly understand the dynamics of each individual stock.
We are somewhat cautious going into the second half of the year as the general
market appears to be fairly valued, and we don't expect to see stock valuations
rise across the board. We look for corporate profit margins to begin to get
squeezed, and believe that only the best management teams will be rewarded with
higher stock prices.
Consequently, the quality of management will be increasingly important to a
company's ability to perform well during the second half of the year. We intend
to focus on individual stock selection, and to place emphasis on underfollowed,
growing firms selling at significant discounts to their private-market values.
[TWENTIETH CENTURY LOGO]
A MEMBER OF THE TWENTIETH CENTURY FAMILY OF MUTUAL FUNDS.
TCI ADVANTAGE
OBJECTIVE - To seek capital growth and current income.
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.
16
<PAGE> 17
TCI ADVANTAGE (CONT'D)
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.
[FRANKLIN TEMPLETON LOGO]
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON INTERNATIONAL FUND
OBJECTIVE - To seek long-term capital growth through a flexible policy of
investing in stocks and debt obligations of companies and governments outside
the United States.
(Not offered in Nationwide Multi-Flex Variable Annuity and Nationwide Variable
Annuity - Citibank, New York)
17
<PAGE> 18
TEMPLETON INTERNATIONAL FUND (CONT'D)
NARRATIVE BY FRANKLIN TEMPLETON
The Templeton International Fund seeks long-term capital growth through a
flexible policy of investing in stocks and debt obligations of companies and
governments outside the United States.
We are pleased to report that the Fund outperformed its benchmark, the unmanaged
Morgan Stanley Capital International Europe, Australia, Far East (EAFE) Index,
which posted a total return of 4.67% for the same period. The Fund's strong
performance was primarily the result of our bottom-up, value style of investing
and our relative overweighting in markets that performed exceptionally well
during the period.
European holdings continued to comprise our largest geographic exposure,
representing 59.1% of the Fund's total net assets, up from 56.9% on December 31,
1995. Compared to the EAFE Index, the Fund was overweighted in Sweden, Norway,
and the Netherlands - three countries whose markets posted double-digit returns
during the period. These overweightings helped offset the relatively lackluster
returns of core European countries such as Germany and the United Kingdom.
Spain's equity market also performed well, with large gains in the banking and
telecommunications industries. The share price of Telefonica de Espana SA, one
of Spain's largest telephone companies and the Fund's fifth largest holding,
appreciated 33% during the period. Although Switzerland's equity market lagged
behind other European markets, our investments in Swiss pharmaceutical company
Ciba-Geigy AG, electricity company ABB AG (formerly BBC Brown Boveri Ltd.), and
food manufacturer Nestle SA all outperformed the overall Swiss market. Following
strong performance by the company's stock, we sold our shares of Nestle for a
gain.
Latin American equity markets rebounded strongly as a result of improved
economic fundamentals and renewed interest by foreign investors. The
telecommunications and electric utility industries performed well as demand for
their services continued to grow throughout many Latin American countries. This
growth led to higher stock prices for Compania de Telecomunicaciones de Chile
SA, a large Chilean telephone company and Telebras-Telecomunicacoes Brasileiras
SA, Brazil's largest phone company. We believe that Latin American utilities
markets should continue to grow rapidly due to upcoming regulatory changes. For
example, Brazil is expected to deregulate its telephone industry over the next
few years, which should provide Telebras with significant growth potential.
Many Asian stock markets strengthened during the first four months of 1996, but
then declined in May and June as a result of profit taking and growing concerns
about economic fundamentals. We took advantage of this weakness by adding to our
holdings of Consolidated Electric Power Asia Ltd., a Hong Kong-based electric
utility company, and initiating a position in Asia Pulp &Paper Co. Ltd., a large
Indonesian paper company. We continued to limit our exposure to Japan, whose
stock market ended the period with only a slight gain in U.S. dollar terms. This
was beneficial to the Fund's performance because as of June 30, 1996, our
Japanese holdings represented just 0.9% of total net assets, compared with
nearly a 40% weighting in the EAFE Index. Although price/earnings ratios have
come down since 1994, we believe Japanese stocks remain very expensive by global
standards.
This discussion reflects the strategies we employed for the Fund during the
six-month reporting period, and includes our opinions as of the close of the
period. Since economic and market conditions are constantly changing, our
strategies, and our evaluations, conclusions and decisions regarding portfolio
holdings, may change as new circumstances arise. Although past performance of a
specific investment or sector cannot guarantee future performance, such
information can be useful in analyzing securities we purchase or sell for the
Fund.
There are, of course, special risks involved with global investing related to
market, currency, economic, political, and other factors; developing markets
involve similar but heightened risks. These risks are discussed in the
prospectus.
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[THIS PAGE LEFT BLANK INTENTIONALLY]
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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***
Funds++ Inception 1 Yr. to 5 Yr. to Inception to 5 Yr. to Inception to
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
Socially Responsible Growth Fund, Inc. 10/06/93 22.82% NA* 54.06% NA* 17.14%
Stock Index Fund 09/29/89 23.88% 89.52% 108.27% 13.64% 11.48%
VIF - Quality Bond Portfolio 08/31/90 3.19% 51.26% 57.79% 8.63% 8.13%
VIF - Small Cap Portfolio 08/31/90 23.03% 601.56% 994.98% 47.64% 50.74%
FIDELITY VIP FUND
Equity-Income Portfolio 10/09/86 20.50% 123.09% 196.16% 17.41% 11.81%
High Income Portfolio 09/19/85 14.04% 99.76% 193.22% 14.84% 10.50%
NATIONWIDE SEPARATE ACCOUNT TRUST
Capital Appreciation Fund 04/15/92 27.91% NA* 55.10% NA* 10.99%
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%
STRONG VIF FUNDS
Strong Special Fund II 05/08/92 17.76% NA* 92.58% NA* 17.13%
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%
TEMPLETON VPS FUND
Templeton International Fund 05/01/92 17.29% NA* 64.43% NA* 12.68%
<FN>
* Performance information is not available for the fund for part or all 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>
20
<PAGE> 21
<TABLE>
<CAPTION>
Total Return: Assuming Contract Surrendered (Standardized)
Approximate Percent Change in Net Assets with Capital Gains and Income Dividends Reinvested
Funds++ Inception 1 Yr. to 5 Yr. to 10 Yr. to Inception to
Date*+ 6/30/96 6/30/96 6/30/96 6/30/96
<S> <C> <C> <C> <C> <C>
DREYFUS CORPORATION
Socially Responsible Growth Fund, Inc. 10/06/93 14.42% NA* NA* 12.66%
Stock Index Fund 09/29/89 15.48% 10.76% NA* 8.61%
VIF - Quality Bond Portfolio 08/31/90 -5.21% 5.78% NA* 5.20%
VIF - Small Cap Portfolio 08/31/90 14.63% 46.33% NA* 49.50%
FIDELITY VIP FUND
Equity-Income Portfolio 10/09/86 12.10% 14.86% NA* 9.39%
High Income Portfolio 09/19/85 5.64% 12.37% 7.04% 8.22%
NATIONWIDE SEPARATE ACCOUNT TRUST
Capital Appreciation Fund 04/15/92 19.51% NA* NA* 6.83%
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%
STRONG VIF FUNDS
Strong Special Fund II 05/08/92 9.36% NA* NA* 13.45%
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%
TEMPLETON VPS FUND
Templeton International Fund 05/01/92 8.89% NA* NA* 8.70%
<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 the fund for part or all 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>
21
<PAGE> 22
<TABLE>
<CAPTION>
NATIONWIDE MULTI-FLEX VARIABLE ACCOUNT
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY
June 30, 1996
(UNAUDITED)
ASSETS:
<S> <C>
Investments at market value:
The Dreyfus Socially Responsible Growth Fund, Inc. (DrySRGro)
167,117 shares (cost $2,886,784) ......................... $ 3,150,150
Dreyfus Stock Index Fund (DryStkIx)
785,304 shares (cost $12,023,396) ........................ 14,700,885
Dreyfus VIF - Quality Bond Portfolio (DryQualBd)
96,022 shares (cost $1,101,267) .......................... 1,086,971
Dreyfus VIF - Small Cap Portfolio (DrySmCap)
379,536 shares (cost $16,883,904) ........................ 19,375,318
Fidelity VIP - Equity-Income Portfolio (FidVIPEI)
3,299,827 shares (cost $54,458,169) ...................... 64,280,639
Fidelity VIP - High Income Portfolio (FidVIPHI)
432,224 shares (cost $4,948,025) ......................... 5,091,598
Nationwide SAT - Capital Appreciation Fund (NSATCapAp)
2,756,399 shares (cost $31,631,730) ...................... 40,629,320
Nationwide SAT - Government Bond Fund (NSATGvtBd)
12,324,692 shares (cost $138,288,415) .................... 133,476,418
Nationwide SAT - Money Market Fund (NSATMyMkt)
42,962,886 shares (cost $42,962,886) ..................... 42,962,886
Nationwide SAT - Total Return Fund (NSATTotRe)
32,876,390 shares (cost $311,535,696) .................... 407,667,240
Neuberger &Berman - Balanced Portfolio (NBAMTBal)
2,447,113 shares (cost $36,806,140) ...................... 37,563,192
Strong VIF - Strong Special Fund II (StSpec2)
86,718 shares (cost $1,526,574) .......................... 1,519,300
TCI Portfolios - TCI Advantage (TCIAdv)
1,663,745 shares (cost $9,167,326) ....................... 10,015,747
TCI Portfolios - TCI Growth (TCIGro)
4,565,624 shares (cost $42,241,412) ...................... 49,537,021
Templeton VPS - Templeton International Fund (TemIntFd)
607,209 shares (cost $8,810,643) ......................... 9,988,594
------------
Total investments ..................................... 841,045,279
Accounts receivable ............................................ 10,107
------------
Total assets .......................................... 841,055,386
ACCOUNTS PAYABLE .................................................. 129,269
------------
CONTRACT OWNERS' EQUITY ........................................... $840,926,117
============
</TABLE>
22
<PAGE> 23
<TABLE>
<CAPTION>
Contract owners' equity represented by:
UNITS UNIT VALUE
----- ----------
Contracts in accumulation phase:
<S> <C> <C> <C>
The Dreyfus Socially Responsible Growth Fund, Inc.:
Tax qualified .................................. 200,730 $ 14.425765 $ 2,895,684
Non-tax qualified .............................. 17,642 14.425765 254,499
Dreyfus Stock Index Fund:
Tax qualified .................................. 703,689 15.085076 10,615,202
Non-tax qualified .............................. 270,855 15.085076 4,085,868
Dreyfus VIF - Quality Bond Portfolio:
Tax qualified .................................. 97,138 10.227600 993,489
Non-tax qualified .............................. 9,141 10.227600 93,490
Dreyfus VIF - Small Cap Portfolio:
Tax qualified .................................. 1,236,730 14.567165 18,015,650
Non-tax qualified .............................. 93,350 14.567165 1,359,845
Fidelity VIP - Equity-Income Portfolio:
Tax qualified .................................. 3,136,136 15.157742 47,536,740
Non-tax qualified .............................. 1,104,691 15.157742 16,744,621
Fidelity VIP - High Income Portfolio:
Tax qualified .................................. 380,665 12.556479 4,779,812
Non-tax qualified .............................. 24,834 12.556479 311,828
Nationwide SAT - Capital Appreciation Fund:
Tax qualified .................................. 1,799,732 15.819141 28,470,214
Non-tax qualified .............................. 766,180 15.819141 12,120,309
Nationwide SAT - Government Bond Fund:
Tax qualified .................................. 3,144,643 28.798325 90,560,451
Non-tax qualified .............................. 1,485,386 28.808946 42,792,405
Nationwide SAT - Money Market Fund:
Tax qualified .................................. 1,489,390 19.957494 29,724,492
Non-tax qualified .............................. 603,328 21.684177 13,082,671
Nationwide SAT - Total Return Fund:
Tax qualified .................................. 5,123,874 55.758124 285,697,602
Non-tax qualified .............................. 2,245,373 54.154359 121,596,736
Neuberger & Berman - Balanced Portfolio:
Tax qualified .................................. 1,751,841 15.106044 26,463,387
Non-tax qualified .............................. 734,815 15.106044 11,100,148
Strong VIF - Strong Special Fund II:
Tax qualified .................................. 126,205 11.143510 1,406,367
Non-tax qualified .............................. 10,135 11.143510 112,939
TCI Portfolios - TCI Advantage:
Tax qualified .................................. 514,410 13.438531 6,912,915
Non-tax qualified .............................. 204,254 13.438531 2,744,874
Initial Funding by Depositor (note 1a) ......... 25,000 14.322518 358,063
TCI Portfolios - TCI Growth:
Tax qualified .................................. 2,051,800 16.566503 33,991,151
Non-tax qualified .............................. 938,418 16.566503 15,546,305
Templeton VPS - Templeton International Fund:
Tax qualified .................................. 747,007 12.482371 9,324,419
Non-tax qualified .............................. 53,217 12.482371 664,274
--------- ----------------
Reserves for annuity contracts in payout phase:
Tax qualified .................................. 313,138
Non-tax qualified .............................. 256,529
------------
$840,926,117
============
<FN>
See accompanying notes to financial statements.
</TABLE>
23
<PAGE> 24
NATIONWIDE MULTI-FLEX VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
Six Month Periods Ended June 30, 1996, 1995 and 1994
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------ ------------
INVESTMENT ACTIVITY:
<S> <C> <C> <C>
Reinvested capital gains and dividends ........... $ 24,340,896 13,550,783 11,455,848
------------- ---------- ----------
Gain (loss) on investments:
Proceeds from redemptions of mutual fund shares 35,397,943 45,491,116 31,233,141
Cost of mutual fund shares sold ............... (30,821,926) (41,538,838) (29,588,048)
------------- ---------- ----------
Realized gain (loss) on investments ........... 4,576,017 3,952,278 1,645,093
Change in unrealized gain (loss) on investments 14,769,068 69,304,533 (26,425,042)
------------- ---------- ----------
Net gain (loss) on investments ............. 19,345,085 73,256,811 (24,779,949)
------------- ---------- ----------
Net investment activity ................. 43,685,981 86,807,594 (13,324,101)
------------- ---------- ----------
EQUITY TRANSACTIONS:
Purchase payments received from contract owners .. 66,301,994 36,752,204 84,782,422
Redemptions ...................................... (38,613,230) (43,031,272) (26,780,063)
Annuity benefits ................................. (44,463) (33,440) (34,294)
Adjustments to maintain reserves ................. 17,791 (1,816) (11,088)
------------- ---------- ----------
Net equity transactions ................. 27,662,092 (6,314,324) 57,956,977
------------- ---------- ----------
EXPENSES (NOTE 2):
Contract charges ................................. (6,089,324) (5,031,931) (4,571,965)
Contingent deferred sales charges ................ (420,429) (502,375) (462,092)
------------- ---------- ----------
Total expenses .......................... (6,509,753) (5,534,306) (5,034,057)
------------- ---------- ----------
NET CHANGE IN CONTRACT OWNERS' EQUITY ............... 64,838,320 74,958,964 39,598,819
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ......... 776,087,797 626,014,817 582,012,184
----------- ----------- -----------
CONTRACT OWNERS' EQUITY END OF PERIOD ............... $ 840,926,117 700,973,781 621,611,003
============= =========== ===========
<FN>
See accompanying notes to financial statements.
</TABLE>
24
<PAGE> 25
NATIONWIDE MULTI-FLEX VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
June 30, 1996, 1995 and 1994
(UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Nature of Operations
The Nationwide Multi-Flex Variable Account (the Account) was established
pursuant to a resolution of the Board of Directors of Nationwide Life Insurance
Company (the Company) on October 7, 1981. The Account has been registered as a
unit investment trust under the Investment Company Act of 1940. On August 21,
1991, the Company (the Depositor) transferred to the Account 50,000 shares of
the TCI Portfolios, Inc. - TCI Advantage fund for which the Account was credited
with 25,000 accumulation units. The value of the accumulation units purchased by
the Company on August 21, 1991 was $250,000.
The Company offers tax qualified and non-tax qualified Individual Deferred
Variable Annuity Contracts through the Account. The primary distributions for
the contracts is through Company Agents and an affiliated sales organization;
however, other distributors may be utilized.
(b) The Contracts
Only contracts without a front-end sales charge, but with a contingent
deferred sales charge and certain other fees, are offered for purchase. See note
2 for a discussion of contract expenses. With certain exceptions, contract
owners in either the accumulation or payout phase may invest in any of the
following:
The Dreyfus Socially Responsible Growth Fund, Inc. (DrySRGro)
Dreyfus Stock Index Fund (DryStkIx) (formerly Dreyfus Life and Annuity
Index Fund, Inc. (DLAI))
Portfolios of the Dreyfus Variable Investment Fund (Dreyfus VIF);
Dreyfus VIF - Quality Bond Portfolio (DryQualBd)
Dreyfus VIF - Small Cap Portfolio (DrySmCap)
Portfolios of the Fidelity Variable Insurance Products Fund (Fidelity VIP);
Fidelity VIP - Equity-Income Portfolio (FidVIPEI)
Fidelity VIP - High Income Portfolio (FidVIPHI)
Funds of the Nationwide Separate Account Trust (Nationwide SAT) (managed
for a fee by an affiliated investment advisor);
Nationwide SAT - Capital Appreciation Fund (NSATCapAp)
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)
Funds of the Strong Variable Insurance Funds, Inc. (Strong VIF);
Strong VIF - Strong Special Fund II (StSpec2)
Portfolios of the TCIPortfolios, Inc. (TCI Portfolios);
TCIPortfolios - TCI Advantage (TCIAdv)
TCIPortfolios - TCI Growth (TCIGro)
Portfolio of the Templeton Variable Products Series Fund (Templeton VPS);
Templeton VPS - Templeton International Fund (TemIntFd)
25
<PAGE> 26
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.
(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. For
contracts issued prior to February 1, 1989, the contingent deferred sales charge
will be equal to 5% of the lesser of the total of all purchase payments made
within 96 months prior to the date of the request for surrender or the amount
surrendered. For contracts issued on or after February 1, 1989, the Company will
deduct 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) for contracts issued prior to February
1, 1989, a charge for mortality and expense risk assessed through the daily unit
value calculation equal to an annual rate of 0.80% and 0.50%, respectively; for
contracts issued on or after February 1, 1989, 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. No charges were deducted from the initial funding, or from
earnings thereon.
26
<PAGE> 27
(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, expenses risk charge and administration
charge discussed in note 2.)
- Ending unit value - June 30
- 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.
27
<PAGE> 28
SCHEDULE I
NATIONWIDE MULTI-FLEX VARIABLE ACCOUNT
TAX QUALIFIED AND NON-TAX QUALIFIED
SCHEDULES OF CHANGES IN UNIT VALUE
SIX MONTH PERIODS ENDED JUNE 30, 1996, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
DRYSRGRO DRYSTKIX DRYQUALBD DRYSMCAP FIDVIPEI FIDVIPHI
<S> <C> <C> <C> <C> <C> <C>
1996
Beginning unit value - Jan. 1 $13.333625 13.807559 10.493309 13.249127 14.412060 11.779381
- ------------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .000000 .152174 .238629 .000000 .664825 1.073991
- ------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 1.183434 1.219334 (.437713) 1.408151 .177697 (.217784)
- ------------------------------------------------------------------------------------------------------------------------------
Contract charges (.091294) (.093991) (.066625) (.090113) (.096840) (.079109)
- ------------------------------------------------------------------------------------------------------------------------------
Ending unit value - June 30 $14.425765 15.085076 10.227600 14.567165 15.157742 12.556479
- ------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 8% 9% (3)% 10% 5% 7%
==============================================================================================================================
1995
Beginning unit value - Jan. 1 $10.039093 10.227308 ** 10.374796 10.808255 9.895223
- ------------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .000000 .126203 .000000 .696469 .716438
- ------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 1.776256 1.896381 1.535865 1.151231 .466968
- ------------------------------------------------------------------------------------------------------------------------------
Contract charges (.069843) (.072977) (.070737) (.076499) (.068372)
- ------------------------------------------------------------------------------------------------------------------------------
Ending unit value - June 30 $11.745506 12.176915 11.839924 12.579456 11.010257
- ------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 17% 19% 14% 16% 11%
==============================================================================================================================
1994
Beginning unit value - Jan. 1 $10.000000 10.271065 ** 10.000000 10.227513 10.000000
- ------------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .000000 .054292 .000000 .641584 .000000
- ------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (.096807) (.417159) (.087337) (.523924) (.009174)
- ------------------------------------------------------------------------------------------------------------------------------
Contract charges (.021070) (.065924) (.021030) (.067007) (.021215)
- ------------------------------------------------------------------------------------------------------------------------------
Ending unit value - June 30 $ 9.882123 9.842274 9.891633 10.278166 9.969611
- ------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) (1)%(B) (4)% (1)%(B) 0% 0%(B)
==============================================================================================================================
NSATGVTBd NSATGVTBd
NSATCAPAP QUAL NON-QUAL
<S> <C> <C> <C>
1996
Beginning unit value - Jan. 1 14.442619 29.463573 29.474435
- --------------------------------------------------------------------------------
Reinvested capital gains
and dividends .128194 .897462 .897793
- --------------------------------------------------------------------------------
Unrealized gain (loss) 1.348024 (1.376190) (1.376684)
- --------------------------------------------------------------------------------
Contract charges (.099696) (.186520) (.186598)
- --------------------------------------------------------------------------------
Ending unit value - June 30 15.819141 28.798325 28.808946
- --------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 10% (2)% (2)%
================================================================================
1995
Beginning unit value - Jan. 1 11.311683 25.138302 25.147577
- --------------------------------------------------------------------------------
Reinvested capital gains
and dividends .108494 .865541 .865860
- --------------------------------------------------------------------------------
Unrealized gain (loss) 1.024511 2.110894 2.111676
- --------------------------------------------------------------------------------
Contract charges (.077176) (.172829) (.172902)
- --------------------------------------------------------------------------------
Ending unit value - June 30 12.367512 27.941908 27.952211
- --------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 9% 11% 11%
================================================================================
1994
Beginning unit value - Jan. 1 11.564256 26.318797 26.328516
- --------------------------------------------------------------------------------
Reinvested capital gains
and dividends .072046 .785221 .785511
- --------------------------------------------------------------------------------
Unrealized gain (loss) (.647961) (1.826612) (1.827284)
- --------------------------------------------------------------------------------
Contract charges (.073837) (.167004) (.167073)
- --------------------------------------------------------------------------------
Ending unit value - June 30 10.914504 25.110402 25.119670
- --------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) (6)% (5)% (5)%
================================================================================
<FN>
* This is not an annualized rate of return as it is the change for a six
month period and:
(a) Contract charges do not include the annual contract maintenance charge
discussed in note 2; and
(b) This investment option was not utilized for the entire six month
period indicated.
** This investment option was not being utilized or was not available.
</TABLE>
28
<PAGE> 29
SCHEDULE I, CONTINUED
NATIONWIDE MULTI-FLEX VARIABLE ACCOUNT
TAX QUALIFIED AND NON-TAX QUALIFIED
SCHEDULES OF CHANGES IN UNIT VALUE
SIX MONTH PERIODS ENDED JUNE 30, 1996, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
NSATMYMKT NSATMYMKT NSATTOTRE NSATTOTRE
QUAL NON-QUAL QUAL NON-QUAL NBAMTBAL STSPEC2
<S> <C> <C> <C> <C> <C> <C>
1996
Beginning unit value Jan 1 $19.595876 21.291272 51.701438 50.214359 14.753402 10.456863
- ---------------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .489849 .532231 .558786 .542714 2.260284 .456263
- ---------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .000000 .000000 3.848890 3.738176 (1.809687) .301635
- ---------------------------------------------------------------------------------------------------------------------------------
Contract charges (.128231) (.139326) (.350990) (.340890) (.097955) (.071251)
- ---------------------------------------------------------------------------------------------------------------------------------
Ending unit value - June 30 $ 19.957494 21.684177 55.758124 54.154359 15.106044 11.143510
- ---------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 2% 2% 8% 8% 2% 7%
=================================================================================================================================
1995
Beginning unit value - Jan 1 $18.790546 20.416267 40.575816 39.408735 12.077573 **
- ---------------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .531125 .577076 .626675 .608650 .307323
- ---------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .000000 .000000 5.859308 5.690781 1.608511
- ---------------------------------------------------------------------------------------------------------------------------------
Contract charges (.124212) (.134958) (.284368) (.276186) (.084297)
- ---------------------------------------------------------------------------------------------------------------------------------
Ending unit value - June 30 $ 19.197459 20.858385 46.777431 45.431980 13.909110
- ---------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 2% 2% 15% 15% 15%
=================================================================================================================================
1994
Beginning unit value - Jan 1 $ 18.325918 19.911440 40.671816 39.501981 12.661508 **
- ---------------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .289499 .314549 .502500 .488047 .493737
- ---------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .000000 .000000 (.596269) (.579116) (1.369729)
- ---------------------------------------------------------------------------------------------------------------------------------
Contract charges (.119563) (.129912) (.264556) (.256951) (.080910)
- ---------------------------------------------------------------------------------------------------------------------------------
Ending unit value - June 30 $ 18.495854 20.096077 40.313491 39.153961 11.704606
- ---------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 1% 1% (1)% (1)% (8)%
=================================================================================================================================
TCIADV TCIGRO TEMINTFD TCIADV+
<S> <C> <C> <C> <C>
1996
Beginning unit value Jan 1 13.035463 16.447846 11.329203 13.802855
- ------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .834626 1.843419 .231661 .886970
- ------------------------------------------------------------------------------------------------
Unrealized gain (loss) (.346233) (1.617178) .998816 (.367307)
- ------------------------------------------------------------------------------------------------
Contract charges (.085325) (.107584) (.077309) .000000
- ------------------------------------------------------------------------------------------------
Ending unit value - June 30 13.438531 16.566503 12.482371 14.322518
- ------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 3% 1% 10% 4%
================================================================================================
1995
Beginning unit value - Jan 1 11.312248 12.711014 9.913613 11.822996
- ------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .175923 .014626 .112246 .184730
- ------------------------------------------------------------------------------------------------
Unrealized gain (loss) .929239 2.449089 .681740 .975046
- ------------------------------------------------------------------------------------------------
Contract charges (.076213) (.088080) (.065494) .000000
- ------------------------------------------------------------------------------------------------
Ending unit value - June 30 12.341197 15.086649 10.642105 12.982772
- ------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 9% 19% 7% 10%
================================================================================================
1994
Beginning unit value - Jan 1 11.343435 13.030369 10.000000 11.701906
- ------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .129050 .001393 .000000 .133775
- ------------------------------------------------------------------------------------------------
Unrealized gain (loss) (.304900) (.916849) (302152) (.316874)
- ------------------------------------------------------------------------------------------------
Contract charges (.073870) (.084356) (.020942) .000000
- ------------------------------------------------------------------------------------------------
Ending unit value - June 30 11.093715 12.030557 9.676906 11.518807
- ------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) (2)% (8)% (3)%(b) (2)%
================================================================================================
</TABLE>
* This is not an annualized rate of return as it is the change for a six
month period and:
(a) Contract charges do not include the annual contract maintenance
charge discussed in note 2; and
(b) This investment option was not utilized for the entire six month
period indicated.
** This investment option was not being utilized or was not available.
+ For Depositor, see note 1a.
See note 3.
29
<PAGE> 30
This report is for the information of contract owners with funds in the
Nationwide Multi-Flex Variable Account. 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.
30
<PAGE> 31
[THIS PAGE LEFT BLANK INTENTIONALLY]
31
<PAGE> 32
NATIONWIDE LIFE INSURANCE COMPANY Bulk Rate
HOME OFFICE: ONE NATIONWIDE PLAZA - COLUMBUS, OHIO 43215-2220 U.S. Postage
PAID
Columbus, Ohio
Permit No. 521
Nationwide(R) is a registered federal service mark of Nationwide Mutual
Insurance Company
