<PAGE> 1
As filed with the Securities and Exchange Commission.
'33 Act File No. 2-75174
'40 Act File No. 811-3338
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933
Post-Effective Amendment No. 28 [x]
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 29 [x]
NATIONWIDE MULTI-FLEX VARIABLE ACCOUNT
(Exact Name of Registrant)
NATIONWIDE LIFE INSURANCE COMPANY
(Name of Depositor)
ONE NATIONWIDE PLAZA, COLUMBUS, OHIO 43215
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code: (614) 249-7111
DENNIS W. CLICK, SECRETARY, ONE NATIONWIDE PLAZA, COLUMBUS, OHIO 43215
(Name and Address of Agent for Service)
This Post-Effective Amendment amends the Registration Statement in respect of
the Prospectus.
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on (September 24, 1999) pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a) of Rule 485
[ ] on (date) pursuant to paragraph (a) of Rule 485
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
================================================================================
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<PAGE> 2
NATIONWIDE MULTI-FLEX VARIABLE ACCOUNT
REFERENCE TO ITEMS REQUIRED BY FORM N-4
<TABLE>
<CAPTION>
N-4 ITEM PAGE
<S> <C> <C>
Part A INFORMATION REQUIRED IN A PROSPECTUS
Item 1. Cover Page...................................................................................3
Item 2. Definitions..................................................................................5
Item 3. Synopsis or Highlights......................................................................12
Item 4. Condensed Financial Information.............................................................14
Item 5. General Description of Registrant, Depositor, and Portfolio Companies.......................21
Item 6. Deductions and Expenses.....................................................................23
Item 7. General Description of Variable Annuity Contracts...........................................27
Item 8. Annuity Period..............................................................................35
Item 9. Death Benefit and Distributions.............................................................37
Item 10. Purchases and Contract Value................................................................27
Item 11. Redemptions.................................................................................30
Item 12. Taxes.......................................................................................42
Item 13. Legal Proceedings...........................................................................49
Item 14. Table of Contents of the Statement of Additional Information................................53
Part B INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
Item 15. Cover Page..................................................................................59
Item 16. Table of Contents...........................................................................59
Item 17. General Information and History.............................................................59
Item 18. Services....................................................................................59
Item 19. Purchase of Securities Being Offered........................................................60
Item 20. Underwriters................................................................................60
Item 21. Calculation of Performance..................................................................60
Item 22. Annuity Payments............................................................................61
Item 23. Financial Statements........................................................................62
Part C OTHER INFORMATION
Item 24. Financial Statements and Exhibits..........................................................103
Item 25. Directors and Officers of the Depositor....................................................105
Item 26. Persons Controlled by or Under Common Control with the Depositor or Registrant.............107
Item 27. Number of Contract Owners..................................................................119
Item 28. Indemnification............................................................................119
Item 29. Principal Underwriter......................................................................119
Item 30. Location of Accounts and Records...........................................................121
Item 31. Management Services........................................................................121
Item 32. Undertakings...............................................................................122
</TABLE>
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SUPPLEMENT DATED SEPTEMBER 24, 1999 TO
PROSPECTUS DATED MAY 1, 1999 FOR
DEFERRED VARIABLE ANNUITY CONTRACTS
ISSUED BY
NATIONWIDE LIFE INSURANCE COMPANY
THROUGH ITS
MULTI-FLEX VARIABLE ACCOUNT
This supplement updates certain information contained in your prospectus. Please
read it and keep it with your prospectus for future reference.
1. An application has been filed with the Securities and Exchange Commission
("SEC") for an Order permitting the substitution of the shares of the
American Century Variable Portfolios, Inc. - American Century VP Advantage
("VP Advantage") currently held in sub-accounts by contract owners with
shares of the American Century Variable Portfolios, Inc. - American
Century VP Balanced ("VP Balanced"). Until an Order is granted by the SEC,
both investment options will be available to all contract owners as
underlying investment options. If an Order is granted, information will be
sent to all contract owners regarding the "Exchange Date" on which VP
Advantage will be eliminated as an investment option and VP Balanced will
be substituted for VP Advantage.
2. The following underlying mutual funds will not be available as investment
options for new annuity applications received on or after September 27,
1999, or applications received by Nationwide's home office prior to
September 27, 1999 that were not received in good order:
American Century Variable Portfolios, Inc. - American Century VP
Capital Appreciation
Current contracts are not affected by this change.
3. Information for the following underlying mutual funds contained in the
"Underlying Mutual Fund Annual Expenses" table located on page 8 of your
prospectus, is amended as follows:
<TABLE>
<CAPTION>
Underlying Mutual Fund Annual Expenses
(as a percentage of underlying mutual fund average net assets, after expense reimbursement)
Management Other 12b-1 Total Mutual
Fees Expenses Fees Fund Expenses
<S> <C> <C> <C> <C>
NSAT Government Bond Fund 0.44% 0.22% 0.00% 0.66%
NSAT Money Market Fund 0.34% 0.21% 0.00% 0.55%
</TABLE>
The expenses shown above are deducted by the underlying mutual fund before it
provides Nationwide with the daily net asset value. Nationwide then deducts
applicable variable account charges from the net asset value to calculate the
unit value of the corresponding sub-account. The management fees and other
expenses are more fully described in the prospectus for each underlying mutual
fund. Information relating to the underlying mutual funds was provided by the
underlying mutual funds and not independently verified by Nationwide.
4. Effective September 1, 1999 "Appendix A: Objectives for Underlying Mutual
Funds" located on pages 52 through 56 of your prospectus is amended as
follows:
NATIONWIDE SEPARATE ACCOUNT TRUST
Nationwide Separate Account Trust ("NSAT") is a diversified open-end
management investment company created under the laws of Massachusetts.
NSAT offers shares in the mutual funds listed below, each with its own
investment objectives. Shares of NSAT will be sold primarily to separate
accounts to fund the benefits under variable life insurance policies and
variable annuity contracts issued by life insurance companies. Effective
September 1, 1999, the investment advisory services previously performed
by Nationwide Advisory Services ("NAS") were transferred to Villanova
Mutual Fund Capital Trust ("VMF"), an affiliate of NAS and an indirect
subsidiary of Nationwide Financial Services, Inc. The portfolio managers
and subadvisers for each of the Funds continue to manage the Funds after
the transfer to VMF.
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<PAGE> 4
Some underlying mutual funds are subject to fee waivers and expense
reimbursements. The following chart shows what the expenses would have been for
such funds without fee waivers and expense reimbursements.
<TABLE>
<CAPTION>
Management Other 12b-1 Total Mutual
Fees Expenses Fees Fund Expenses
<S> <C> <C> <C> <C>
NSAT Government Bond Fund 0.50% 0.22% 0.00% 0.72%
NSAT Money Market Fund 0.40% 0.21% 0.00% 0.61%
</TABLE>
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<PAGE> 5
NATIONWIDE LIFE INSURANCE COMPANY
Deferred Variable Annuity Contracts
Issued by Nationwide Life Insurance Company through its Nationwide
Multi-Flex Variable Account
The date of this prospectus is May 1, 1999.
- --------------------------------------------------------------------------------
This prospectus contains basic information you should know about the contracts
before investing.
Please read it and keep it for future reference.
The following underlying mutual funds are available under the contracts:
AIM VARIABLE INSURANCE FUNDS, INC.
- AIM V.I. Capital Appreciation Fund
- AIM V.I. International Equity Fund
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC., A MEMBER OF THE AMERICAN CENTURYSM
FAMILY OF INVESTMENTS
- American Century VP Advantage
- American Century VP Balanced
- American Century VP Capital Appreciation
- American Century VP Income & Growth
DREYFUS
- Dreyfus Stock Index Fund, Inc.
- The Dreyfus Socially Responsible Growth Fund, Inc.
DREYFUS VARIABLE INVESTMENT FUND
- Capital Appreciation Portfolio
- Quality Bond Portfolio
- Small Cap Portfolio
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
- VIP Equity-Income Portfolio
- VIP High Income Portfolio*
JANUS ASPEN SERIES
- International Growth Portfolio
NATIONWIDE SEPARATE ACCOUNT TRUST
- Government Bond Fund
- Money Market Fund
- Nationwide High Income Bond Fund (subadviser: Federated Investment
Counseling)
- Total Return Fund
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
- AMT Balanced Portfolio
STRONG OPPORTUNITY FUND II, INC.
TEMPLETON VARIABLE PRODUCTS SERIES FUND
- Templeton International Fund: Class A
* These underlying mutual funds may invest in lower quality debt securities
commonly referred to as junk bonds.
Purchase payments not invested in the underlying mutual fund options of the
Nationwide Multi-Flex Variable Account ("variable account") may be allocated to
the fixed account.
The Statement of Additional Information (dated May 1, 1999) which contains
additional information about the contracts and the variable account, has been
filed with the Securities and Exchange Commission ("SEC") and is incorporated
herein by reference. The table of contents for the Statement of Additional
Information is on page 51.
For general information or to obtain FREE copies of the:
- Statement of Additional Information
- prospectus for any underlying mutual fund
- required Nationwide forms,
call: 1-800-451-0070
TDD 1-800-238-3035
or write:
NATIONWIDE LIFE INSURANCE COMPANY
P.O. BOX 182437
COLUMBUS, OHIO 43216
2
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<PAGE> 6
The Statement of Additional Information and other material incorporated by
reference can be found on the SEC website at:
WWW.SEC.GOV
THIS ANNUITY IS NOT:
- - A BANK DEPOSIT - FEDERALLY INSURED
- - ENDORSED BY A BANK OR - AVAILABLE IN EVERY
GOVERNMENT AGENCY STATE
Investors assume certain risks when investing in the contracts, including the
possibility of losing money.
These contracts are offered to customers of various financial institutions and
brokerage firms. No financial institution or brokerage firm is responsible for
the guarantees under the contracts. Guarantees under the contracts are the sole
responsibility of Nationwide.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC, NOR HAS THE
SEC PASSED UPON THE ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<PAGE> 7
GLOSSARY OF SPECIAL TERMS
ACCUMULATION UNIT- An accounting unit of measure used to calculate the contract
value allocated to the variable account before the annuitization date.
ANNUITIZATION DATE- The date on which annuity payments begin.
ANNUITY COMMENCEMENT DATE- The date on which annuity payments are scheduled to
begin. This date may be changed by the contract owner with Nationwide's consent.
ANNUITY UNIT- An accounting unit used to calculate the variable payment annuity
payments.
CONTRACT VALUE- The total of all accumulation units in a contract and any amount
held in the fixed account.
CONTRACT YEAR- Each year the contract is in force beginning with the date the
contract is issued.
ERISA- The Employee Retirement Income Security Act of 1974, as amended.
FIXED ACCOUNT- An investment option that is funded by the general account of
Nationwide.
GENERAL ACCOUNT- All assets of Nationwide other than those of the variable
account or in other separate accounts that have been or may be established by
Nationwide.
INDIVIDUAL RETIREMENT ACCOUNT- An account that qualifies for favorable tax
treatment under Section 408(a) of the Internal Revenue Code, but does not
include Roth IRAs.
INDIVIDUAL RETIREMENT ANNUITY- An annuity contract that qualifies for favorable
tax treatment under Section 408(b) of the Internal Revenue Code, but does not
include Roth IRAs.
NATIONWIDE- Nationwide Life Insurance Company.
NON-QUALIFIED CONTRACT- A contract which does not qualify for favorable tax
treatment as a Qualified Plan, Individual Retirement Annuity, Roth IRA, SEP IRA,
or Tax Sheltered Annuity.
QUALIFIED PLANS- Retirement plans which receive favorable tax treatment under
Section 401 or 403(a) of the Internal Revenue Code.
ROTH IRA- An annuity contract which qualifies for favorable tax treatment under
Section 408A of the Internal Revenue Code.
SEP IRA- An annuity contract which qualifies for favorable tax treatment under
Section 408(k) of the Internal Revenue Code.
SUB-ACCOUNTS- Divisions of the variable account to which underlying mutual fund
shares are allocated and for which accumulation units and annuity units are
separately maintained.
TAX SHELTERED ANNUITY- An annuity that qualifies for favorable tax treatment
under Section 403(b) of the Internal Revenue Code.
VALUATION PERIOD- Each day the New York Stock Exchange is open for business.
VARIABLE ACCOUNT- Nationwide Multi-Flex Variable Account, a separate account of
Nationwide that contains variable account allocations. The variable account is
divided into sub-accounts, each of which invests in shares of a separate
underlying mutual fund.
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<PAGE> 8
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
GLOSSARY OF SPECIAL TERMS.........................3
SUMMARY OF CONTRACT EXPENSES......................6
UNDERLYING MUTUAL FUND ANNUAL EXPENSES............8
EXAMPLE...........................................9
SYNOPSIS OF THE CONTRACTS........................10
FINANCIAL STATEMENTS.............................11
CONDENSED FINANCIAL INFORMATION..................12
NATIONWIDE LIFE INSURANCE COMPANY................19
NATIONWIDE ADVISORY SERVICES, INC................19
INVESTING IN THE CONTRACT........................19
The Variable Account and Underlying
Mutual Funds
The Fixed Account
STANDARD CHARGES AND DEDUCTIONS..................21
Contract Maintenance Charge
Contingent Deferred Sales Charge
Variable Account Charges for Contracts
Issued Before November 3, 1997
Variable Account Charges for Contracts
Issued On or After November 3, 1997
School District Processing Fee
Contract Exchange Fee
Premium Taxes
CONTRACT OWNERSHIP...............................24
Contingent Ownership
Annuitant
Beneficiary and Contingent Beneficiary
OPERATION OF THE CONTRACT........................25
Minimum Initial and Subsequent Purchase
Payments
Pricing
Allocation of Purchase Payments
Determining the Contract Value
Transfers
RIGHT TO REVOKE..................................28
SURRENDER (REDEMPTION)...........................28
Surrenders Under a Texas Optional
Retirement Program
Surrenders Under a Qualified Plan or Tax
Sheltered Annuity
LOAN PRIVILEGE...................................30
Minimum & Maximum Loan Amounts
Loan Processing Fee
How Loan Requests are Processed
Interest
Loan Repayment
Distributions & Annuity Payments
Transferring the Contract
Grace Period & Loan Default
ASSIGNMENT.......................................31
CONTRACT OWNER SERVICES..........................32
Asset Rebalancing
Dollar Cost Averaging
Systematic Withdrawals
ANNUITY COMMENCEMENT DATE........................33
ANNUITIZING THE CONTRACT.........................33
Annuitization Date
Annuitization
Fixed Payment Annuity
Variable Payment Annuity
Frequency and Amount of Annuity
Payments
Annuity Payment Options
DEATH BENEFITS...................................35
Death of Contract Owner - Non-Qualified
Contracts
Death of Annuitant - Non-Qualified
Contracts
Death of Contract Owner/Annuitant
Death Benefit Payment
REQUIRED DISTRIBUTIONS...........................37
Required Distributions for Non-Qualified
Contracts
Required Distributions for Qualified Plans
and Tax Sheltered Annuities
Required Distributions for IRAs and SEP
IRAs
Required Distributions for Roth IRAs
</TABLE>
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<PAGE> 9
<TABLE>
<CAPTION>
<S> <C>
FEDERAL TAX CONSIDERATIONS.......................40
Federal Income Taxes
Qualified Plans, IRAs, SEP IRAs and Tax
Sheltered Annuities
Roth IRAs
Withholding
Non-Resident Aliens
Federal Estate, Gift, and Generation
Skipping Transfer Taxes
Charge for Tax
Diversification
Tax Changes
STATEMENTS AND REPORTS...........................45
YEAR 2000 COMPLIANCE ISSUES......................46
LEGAL PROCEEDINGS................................47
ADVERTISING AND SUB-ACCOUNT PERFORMANCE SUMMARY..48
TABLE OF CONTENTS OF STATEMENT OF
ADDITIONAL INFORMATION .....................51
APPENDIX A: OBJECTIVES FOR UNDERLYING
MUTUAL FUNDS ...............................52
</TABLE>
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<PAGE> 10
SUMMARY OF CONTRACT EXPENSES
The expenses listed below are charged to all contracts unless the contract owner
meets an available exception.
CONTRACT OWNER TRANSACTION EXPENSES
Maximum Contingent Deferred Sales
Charge ("CDSC") (as a percentage of
the lesser of purchase payments or
amounts surrendered)............................7%(1)
Range of CDSC over time:
<TABLE>
<CAPTION>
Number of Completed Years from CDSC
Date of Purchase Payment Percentage
<S> <C>
0 7%
1 6%
2 5%
3 4%
4 3%
5 2%
6 1%
7 0%
</TABLE>
MAXIMUM ANNUAL CONTRACT
MAINTENANCE CHARGE.............................$30(2)
(1) Starting with the second contract year, the contract owner may withdraw
without a CDSC the greater of:
a) 10% of purchase payments made to the contract; or
b) any amount withdrawn to meet minimum distribution requirements under the
Internal Revenue Code.
This free withdrawal privilege is non-cumulative. Free amounts not taken
during any given contract year cannot be taken as free amounts in a
subsequent contract year (see "Contingent Deferred Sales Charge").
Withdrawals may be restricted for contracts issued to fund a Tax Sheltered
Annuity or other Qualified Plan.
(2) Nationwide deducts the Contract Maintenance Charge on each contract
anniversary and on the date of surrender when the contract is surrendered in
full. Nationwide will waive the Contract Maintenance Charge under some
circumstances (see "Contract Maintenance Charge").
VARIABLE ACCOUNT CHARGES(3)
(as a percentage of average account value)
<TABLE>
<CAPTION>
<S> <C>
Actuarial Risk Fee...........................1.30%(4)
Total Variable Account Charges..........1.30%
MAXIMUM CONTRACT EXCHANGE FEE(5)
(when applicable).............................$40
MAXIMUM SCHOOL DISTRICT PROCESSING FEE(6)
(when applicable).................greater of $30 or
0.40% of contract value
</TABLE>
(3) These charges apply only to sub-account allocations. They do not apply to
allocations made to the fixed account. They are charged on a daily basis at
the annual rate noted above.
(4) For contracts issued before November 3, 1997 or in states that have not
approved the applicable contract modifications, Nationwide will deduct:
a) a Mortality and Expense Risk Charge of 1.25% of the daily net assets of
the variable account; and
b) an Administration Charge of 0.05% of the daily net assets of the
variable account
See "Expenses of the Variable Account for Contracts Issued Before November 3,
1997."
For contracts issued on or after the later of November 3, 1997, or the date on
which state insurance authorities approve contract modifications, Nationwide
will deduct an Actuarial Risk Fee equal to 1.30% of the daily net assets of the
variable account (see "Expenses of the Variable Account for Contracts Issued On
or After November 3, 1997").
(5) Nationwide may assess a Contract Exchange Fee upon exchange of the contract
for another Nationwide contract (see "Contract Exchange Fee").
(6) Nationwide may assess a School District Processing fee to reimburse it for
charges assessed to Nationwide by individual school districts for the
processing of employee payroll
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<PAGE> 11
deductions (see "School District Processing Fee").
Nationwide may assess a loan processing fee at the time each new loan is
processed. Loans are only available for contracts issued as Qualified Contracts
and Tax Sheltered Annuities. Loans are not available in all states. In addition,
some states may not allow Nationwide to assess a loan processing fee (see "Loan
Privilege").
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<PAGE> 12
<TABLE>
<CAPTION>
UNDERLYING MUTUAL FUND ANNUAL EXPENSES
(AS A PERCENTAGE OF UNDERLYING MUTUAL FUND NET ASSETS, AFTER EXPENSE REIMBURSEMENT)
Management Other 12b-1 Total Mutual
Fees Expenses Fees Fund Expenses
<S> <C> <C> <C> <C>
AIM Variable Insurance Funds, Inc. - AIM V.I. Capital 0.63% 0.05% 0.00% 0.68%
Appreciation Fund
AIM Variable Insurance Funds, Inc. - AIM V.I. 0.75% 0.18% 0.00% 0.93%
International Equity Fund
American Century Variable Portfolios, Inc. - American 1.00% 0.00% 0.00% 1.00%
Century VP Advantage
American Century Variable Portfolios, Inc. - American 0.97% 0.00% 0.00% 0.97%
Century VP Balanced
American Century Variable Portfolios, Inc. - American 1.00% 0.00% 0.00% 1.00%
Century VP Capital Appreciation
American Century Variable Portfolios, Inc. - American 0.70% 0.00% 0.00% 0.70%
Century VP Income & Growth
Dreyfus Stock Index Fund, Inc. 0.25% 0.01% 0.00% 0.26%
The Dreyfus Socially Responsible Growth Fund, Inc. 0.75% 0.05% 0.00% 0.80%
Dreyfus Variable Investment Fund - Capital 0.75% 0.05% 0.00% 0.80%
Appreciation Portfolio
Dreyfus Variable Investment Fund - Quality Bond 0.65% 0.08% 0.00% 0.73%
Portfolio
Dreyfus Variable Investment Fund - Small Cap Portfolio 0.75% 0.02% 0.00% 0.77%
Fidelity VIP Equity-Income Portfolio 0.49% 0.08% 0.00% 0.57%
Fidelity VIP High Income Portfolio 0.58% 0.12% 0.00% 0.70%
Janus Aspen Series - International Growth Portfolio 0.66% 0.20% 0.00% 0.86%
NSAT Government Bond Fund 0.50% 0.07% 0.00% 0.57%
NSAT Money Market Fund 0.40% 0.06% 0.00% 0.46%
NSAT Nationwide High Income Bond Fund 0.80% 0.15% 0.00% 0.95%
NSAT Total Return Fund 0.59% 0.06% 0.00% 0.65%
Neuberger Berman AMT Balanced Portfolio 0.85% 0.18% 0.00% 1.03%
Strong Opportunity Fund II, Inc. 1.00% 0.16% 0.00% 1.16%
Templeton Variable Products Series Fund - Templeton 0.69% 0.17% 0.00% 0.86%
International Fund: Class A
</TABLE>
The expenses shown above are deducted by the underlying mutual fund before it
provides Nationwide with the daily net asset value. Nationwide then deducts
applicable variable account charges from the net asset value to calculate the
unit value of the corresponding sub-account. The management fees and other
expenses are more fully described in the prospectus for each underlying mutual
fund. Information relating to the underlying mutual funds was provided by the
underlying mutual funds and not independently verified by Nationwide.
Some underlying mutual funds are subject to fee waivers and expense
reimbursements. The following chart shows what the expenses would have been for
such funds without fee waivers and expense reimbursements.
<TABLE>
<CAPTION>
Management Other 12b-1 Total Mutual
Fees Expenses Fees Fund Expenses
<S> <C> <C> <C> <C>
Fidelity VIP Equity-Income Portfolio 0.49% 0.09% 0.00% 0.58%
NSAT Nationwide High Income Bond Fund 0.80% 0.32% 0.00% 1.12%
</TABLE>
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<PAGE> 13
EXAMPLE
The following chart shows the amount of expenses (in dollars) that would be
incurred under this contract assuming a $1,000 investment, 5% annual return, and
no change in expenses. These dollar figures are illustrative only and should not
be considered a representation of past or future expenses. Actual expenses may
be greater or less than those shown below.
The example reflects expenses of both the variable account and the underlying
mutual funds. The example reflects CDSC, variable account charges of 1.30%, and
the Contract Maintenance Charge, expressed as a percentage of average account
value. Since the average contract value is greater than $1,000, the expense
effect of the Contract Maintenance Charge is reduced accordingly. Deductions for
premium taxes are not reflected but may apply.
For certain contracts which are exchanged for other contracts issued by
Nationwide or an affiliate of Nationwide, the CDSC may be waived and a Contract
Exchange Fee not to exceed $40 may be assessed (see "Contract Exchange Fee").
Under such circumstances, the expenses that follow would be adjusted to reflect
the Contract Exchange Fee and the waiver of the CDSC.
The summary of contract expenses and example are to help contract owners
understand the expenses associated with the contract.
<TABLE>
<CAPTION>
If you surrender your contract If you do not surrender your If you annuitize your contract at
the end of the applicable contract at the end of the at the end of the applicable
time period applicable time period time period
1 Yr. 3 Yrs. 5 Yrs. 10 Yrs. 1 Yr. 3 Yrs 5 Yrs. 10 Yrs. 1 Yr. 3 Yrs. 5 Yrs. 10 Yrs.
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AIM Variable Insurance 92 114 146 255 22 69 119 255 * 69 119 255
Funds, Inc. - AIM V.I.
Capital Appreciation Fund
AIM Variable Insurance 95 122 159 281 25 77 132 281 * 77 132 281
Funds, Inc. - AIM V.I.
International Equity Fund
American Century Variable 96 124 163 288 26 79 136 288 * 79 136 288
Portfolios, Inc. - American
Century VP Advantage
American Century Variable 96 123 161 285 26 78 134 285 * 78 134 285
Portfolios, Inc. - American
Century VP Balanced
American Century Variable 96 124 163 288 26 79 136 288 * 79 136 288
Portfolios, Inc. - American
Century VP Capital
Appreciation
American Century Variable 93 115 147 257 23 70 120 257 * 70 120 257
Portfolios, Inc. - American
Century VP Income & Growth
Dreyfus Stock Index Fund, 88 101 123 209 18 56 96 209 * 56 96 209
Inc.
The Dreyfus Socially 94 118 152 267 24 73 125 267 * 73 125 267
Responsible Growth Fund, Inc.
Dreyfus Variable Investment 94 118 152 267 24 73 125 267 * 73 125 267
Fund - Capital Appreciation
Portfolio
Dreyfus Variable Investment 93 116 148 260 23 71 121 260 * 71 121 260
Fund - Quality Bond Portfolio
</TABLE>
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<PAGE> 14
<TABLE>
<CAPTION>
If you surrender your contract If you do not surrender your If you annuitize your contract at
the end of the applicable contract at the end of the at the end of the applicable
time period applicable time period time period
1 Yr. 3 Yrs. 5 Yrs. 10 Yrs. 1 Yr. 3 Yrs 5 Yrs. 10 Yrs. 1 Yr. 3 Yrs. 5 Yrs. 10 Yrs.
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dreyfus Variable Investment 93 117 150 264 23 72 123 264 * 72 123 264
Fund - Small Cap Portfolio
Fidelity VIP Equity-Income 91 111 140 243 21 66 113 243 * 66 113 243
Portfolio
Fidelity VIP High Income 93 115 147 257 23 70 120 257 * 70 120 257
Portfolio
Janus Aspen Series - 94 120 155 274 24 75 128 274 * 75 128 274
International Growth
Portfolio
NSAT Government Bond Fund 91 111 140 243 21 66 113 243 * 66 113 243
NSAT Money Market Fund 90 107 134 231 20 62 107 231 * 62 107 231
NSAT Nationwide High Income 95 123 160 283 25 78 133 283 * 78 133 283
Bond Fund
NSAT Total Return Fund 92 113 144 251 22 68 117 251 * 68 117 251
Neuberger Berman AMT 96 125 164 291 26 80 137 291 * 80 137 291
Balanced Portfolio
Strong Opportunity Fund II, 98 129 171 305 28 84 144 305 * 84 144 305
Inc.
Templeton Variable Products 94 120 155 274 24 75 128 274 * 75 128 274
Series Fund - Templeton
International Fund: Class A
</TABLE>
*The contracts sold under this prospectus do not permit annuitization during
the first two contract years.
SYNOPSIS OF THE CONTRACTS
The contracts described in this prospectus are flexible purchase payment
contracts. The contracts may be issued as either individual or group contracts.
In those states where contracts are issued as group contracts, references
throughout this prospectus to "contract(s)" will also mean "certificate(s)" and
references to "contract owner" will mean "participant" unless otherwise
indicated in the plan.
The contracts can be categorized as:
- Non-Qualified;
- Individual Retirement Annuities;
- Roth IRAs;
- SEP IRAs;
- Tax Sheltered Annuities; and
- Qualified.
MINIMUM INITIAL AND SUBSEQUENT PURCHASE PAYMENTS
<TABLE>
<CAPTION>
MINIMUM INITIAL MINIMUM
CONTRACT PURCHASE SUBSEQUENT
TYPE PAYMENT PAYMENTS
<S> <C> <C>
Non-Qualified $1,500 $10
IRA $ 0 $ 0
Roth IRA $ 0 $ 0
SEP IRA $ 0 $ 0
Tax Sheltered $ 0 $ 0
Annuity
Qualified $ 0 $ 0
</TABLE>
Nationwide may lower the subsequent purchase payment minimum for employer
sponsored deduction programs.
CHARGES AND EXPENSES
For contracts issued before November 3, 1997 or in states which have not
approved applicable contract modifications, Nationwide will deduct:
a) a Mortality and Expense Risk Charge of 1.25% of the daily net assets of
the variable account; and
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<PAGE> 15
b) an Administration Charge of 0.05% of the daily net assets of the variable
account.
See "Expenses of the Variable Account for Contracts Issued Before November 3,
1997."
For contracts issued on or after the later of November 3, 1997 or the date state
insurance authorities approve corresponding contract modifications, Nationwide
will deduct an Actuarial Risk Fee of 1.30% of the daily net assets of the
variable account for actuarial risks assumed by Nationwide (see "Expenses of the
Variable Account for Contracts Issued On or After November 3, 1997").
A maximum Contract Maintenance Charge of $30 is assessed against each contract
on the contract anniversary. This charge reimburses Nationwide for
administrative expenses related to contract issuance and maintenance (see
"Contract Maintenance Charge"). Nationwide will waive the Contract Maintenance
Charge for:
1) Tax Sheltered Annuities issued on or after the later of May 1, 1997, or
the date state insurance authorities in a state having a Unified
Billing Authority approve corresponding contract modifications; or
2) contracts issued to fund Qualified Plans (as defined by Section 401(k)
of the Internal Revenue Code) on or after the later of November 3,
1997, or the date state insurance authorities approve corresponding
contract modifications.
Nationwide does not deduct a sales charge from purchase payments upon deposit
into the contract. However, Nationwide may deduct a CDSC if any amount is
withdrawn from the contract. This CDSC reimburses Nationwide for sales expenses.
The amount of the CDSC will not exceed 7% of purchase payments surrendered.
ANNUITY PAYMENTS
Annuity payments begin on the annuitization date. The payments will be based on
the annuity payment option chosen at the time of application (see "Annuity
Payment Options").
TAXATION
How the contracts are taxed depends on the type of contract issued. Nationwide
will charge against the contract any premium taxes levied by any governmental
authority (see "Federal Tax Considerations" and "Premium Taxes").
TEN DAY FREE LOOK
Contract owners may return the contract for any reason within ten days of
receipt and Nationwide will refund the contract value or the amount required by
law (see "Right to Revoke").
FINANCIAL STATEMENTS
Financial statements for the variable account and Nationwide are located in the
Statement of Additional Information. A current Statement of Additional
Information may be obtained without charge by contacting Nationwide's home
office at the telephone number listed on page 1 of this prospectus.
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<PAGE> 16
CONDENSED FINANCIAL INFORMATION
Accumulation unit values for accumulation units outstanding throughout the
period.
<TABLE>
<CAPTION>
UNDERLYING MUTUAL FUND ACCUMULATION ACCUMULATION PERCENTAGE CHANGE NUMBER OF
UNIT VALUE AT UNIT VALUE IN ACCUMULATION
BEGINNING OF AT END OF ACCUMULATION UNITS AT END
PERIOD PERIOD UNIT VALUE OF PERIOD YEAR
<S> <C> <C> <C> <C> <C>
AIM Variable Insurance 9.498576 11.184821 17.75% 75,146 1998
Funds, Inc. - AIM V.I. 10.000000 9.498576 -5.01% 2066 1997**
Capital Appreciation
Fund - Q
AIM Variable Insurance 9.498576 11.184821 17.75% 5,515 1998
Funds, Inc. - AIM V.I. 10.000000 9.498576 -5.01% 626 1997**
Capital Appreciation
Fund - NQ
AIM Variable Insurance 9.913890 11.300603 13.99% 11,832 1998
Funds, Inc. - AIM V.I. 10.000000 9.913890 -0.86% 591 1997**
International Equity
Fund - Q
AIM Variable Insurance 9.913890 11.300603 13.99% 456 1998
Funds, Inc. - AIM V.I. 10.000000 9.913890 -0.86% 0 1997
International Equity
Fund - NQ
American Century 15.651770 18.104123 15.67% 398,890 1998
Variable Portfolios, 14.055040 15.651770 11.36% 442,702 1997
Inc. - American 13.035463 14.055040 7.82% 511,115 1996
Century VP Advantage - Q 11.312248 13.035463 15.23% 513,818 1995
11.343435 11.312248 -0.27% 518,729 1994
10.757355 11.343435 5.45% 467,066 1993
11.325089 10.757355 -5.01% 319,109 1992
10.000000 11.325089 13.25% 10,677 1991
American Century 15.651770 18.104123 15.67% 156,743 1998
Variable Portfolios, 14.055040 15.651770 11.36% 169,301 1997
Inc. - American 13.053463 14.055040 7.82% 199,799 1996
Century VP Advantage - NQ 11.312248 13.035463 15.23% 209,516 1995
11.343435 11.312248 -0.27% 237,606 1994
10.757355 11.343435 5.45% 225,188 1993
11.325089 10.757355 -5.01% 163,922 1992
10.000000 11.325089 13.25% 3,898 1991
</TABLE>
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<PAGE> 17
<TABLE>
<CAPTION>
UNDERLYING MUTUAL FUND ACCUMULATION ACCUMULATION PERCENTAGE CHANGE NUMBER OF
UNIT VALUE AT UNIT VALUE IN ACCUMULATION
BEGINNING OF AT END OF ACCUMULATION UNITS AT END
PERIOD PERIOD UNIT VALUE OF PERIOD YEAR
<S> <C> <C> <C> <C> <C>
American Century 17.013707 19.938436 17.19% 25,000 1998
Variable Portfolios, 15.079515 17.013707 12.83% 25,000 1997
Inc. - American 13.802855 15.079515 9.25% 25,000 1996
Century VP Advantage - 11.822996 13.802855 16.75% 25,000 1995
NQ (Depositor Only) 11.701906 11.822996 1.03% 25,000 1994
10.953160 11.701906 6.84% 25,000 1993
11.380926 10.953160 -3.76% 25,000 1992
10.000000 11.380926 13.81% 25,000 1991
American Century 14.829811 14.321327 -3.43% 1,194,132 1998
Variable Portfolios, 15.531281 14.829811 -4.52% 1,536,676 1997
Inc. - American 16.447846 15.531281 -5.57% 1,991,010 1996
Century VP Capital 12.711014 16.447846 29.40% 1,986,887 1995
Appreciation - Q 13.030369 12.711014 -2.45% 1,855,905 1994
11.967533 13.030369 8.88% 1,492,249 1993
12.290177 11.967533 -2.63% 846,374 1992
10.000000 12.290177 22.90% 18,446 1991
American Century 14.829811 14.321327 -3.43% 509,808 1998
Variable Portfolios, 15.531281 14.829811 -4.52% 643,504 1997
Inc. - American 16.447846 15.531281 -5.57% 896,863 1996
Century VP Capital 12.711014 16.447846 29.40% 956,826 1995
Appreciation - NQ 13.030369 12.711014 -2.45% 1,058,520 1994
11.967533 13.030369 8.88% 984,830 1993
12.290177 11.967533 -2.63% 508,166 1992
10.000000 12.290177 22.90% 25,910 1991
American Century 10.403924 13.027526 25.22% 319,965 1998
Variable Portfolios, 10.000000 10.403924 4.04% 18,598 1997**
Inc. - American
Century VP Income &
Growth - Q
American Century 10.403924 13.027526 25.22% 21,051 1998
Variable Portfolios, 10.000000 10.403924 4.04% 2,246 1997**
Inc. - American
Century VP Income &
Growth - NQ
</TABLE>
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<PAGE> 18
<TABLE>
<CAPTION>
UNDERLYING MUTUAL FUND ACCUMULATION ACCUMULATION PERCENTAGE CHANGE NUMBER OF
UNIT VALUE AT UNIT VALUE IN ACCUMULATION
BEGINNING OF AT END OF ACCUMULATION UNITS AT END
PERIOD PERIOD UNIT VALUE OF PERIOD YEAR
<S> <C> <C> <C> <C> <C>
Dreyfus Stock Index 21.913276 27.730490 26.55% 2,822,344 1998
Fund, Inc. - Q 16.698256 21.913276 31.23% 2,033,357 1997
13.807559 16.698256 20.94% 995,299 1996
10.227308 13.807559 35.01% 489,045 1995
10.271065 10.227308 -0.43% 297,344 1994
10.000000 10.271065 2.71% 65,529 1993
Dreyfus Stock Index 21.913276 27.730490 26.55% 515,394 1998
Fund, Inc. - NQ 16.698256 21.913276 31.23% 456,511 1997
13.807559 16.698256 20.94% 321,661 1996
10.227308 13.807559 35.01% 210,808 1995
10.271065 10.227308 -0.43% 185,724 1994
10.000000 10.271065 2.71% 100,168 1993
The Dreyfus Socially 20.223412 25.825425 27.70% 1,409,837 1998
Responsible Growth 15.953248 20.223412 26.77% 967,914 1997
Fund, Inc. - Q 13.333625 15.953248 19.65% 399,889 1996
10.039093 13.333625 32.82% 94,479 1995
10.000000 10.039093 0.39% 16,111 1994
The Dreyfus Socially 20.223412 25.825425 27.70% 72,378 1998
Responsible Growth 15.953248 20.223412 26.77% 59,654 1997
Fund, Inc. - NQ 13.333625 15.953248 19.65% 30,211 1996
10.039093 13.333625 32.82% 7,847 1995
10.000000 10.039093 0.39% 1,221 1994
Dreyfus Variable 10.244238 13.166473 28.53% 410,871 1998
Investment Fund - 10.000000 10.244238 2.44% 2,752 1997**
Capital Appreciation
Portfolio - Q
Dreyfus Variable 10.244238 13.166473 28.53% 31,894 1998
Investment Fund - 10.000000 10.244238 2.44% 487 1997**
Capital Appreciation
Portfolio - NQ
Dreyfus Variable 11.533218 12.008318 4.12% 529,887 1998
Investment Fund - 10.679640 11.533218 7.99% 377,157 1997
Quality Bond Portfolio - Q 10.493309 10.679640 1.78% 202,913 1996
10.000000 10.493309 4.93% 9,201 1995
</TABLE>
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<PAGE> 19
<TABLE>
<CAPTION>
UNDERLYING MUTUAL FUND ACCUMULATION ACCUMULATION PERCENTAGE CHANGE NUMBER OF
UNIT VALUE AT UNIT VALUE IN ACCUMULATION
BEGINNING OF AT END OF ACCUMULATION UNITS AT END
PERIOD PERIOD UNIT VALUE OF PERIOD YEAR
<S> <C> <C> <C> <C> <C>
Dreyfus Variable 11.533218 12.008318 4.12% 35,289 1998
Investment Fund - 10.679640 11.533218 7.99% 30,747 1997
Quality Bond Portfolio- NQ 10.493309 10.679640 1.78% 13,559 1996
10.000000 10.493309 4.93% 626 1995
Dreyfus Variable 17.567589 16.742421 -4.70% 4,221,501 1998
Investment Fund - 15.245571 17.567589 15.23% 3,392,727 1997
Small Cap Portfolio - Q 13.249127 15.245571 15.07% 1,991,389 1996
10.374796 13.249127 27.70% 709,274 1995
10.000000 10.374796 3.75% 137,041 1994
Dreyfus Variable 17.567589 16.742421 -4.70% 154,139 1998
Investment Fund 15.245571 17.567589 15.23% 173,470 1997
Small Cap Portfolio - NQ 13.249127 15.245571 15.07% 132,109 1996
10.374796 13.249127 27.70% 57,885 1995
10.000000 10.374796 3.75% 21,950 1994
Fidelity VIP 20.553936 22.645632 10.18% 5,377,059 1998
Equity-Income 16.255386 20.553936 26.44% 4,809,504 1997
Portfolio - Q 14.412060 16.255386 12.79% 3,685,628 1996
10.808255 14.412060 33.34% 2,504,171 1995
10.227513 10.808255 5.68% 1,591,113 1994
10.000000 10.227513 2.28% 345,527 1993
Fidelity VIP 20.553936 22.645632 10.18% 1,151,378 1998
Equity-Income 16.255386 20.553936 26.44% 1,235,093 1997
Portfolio - NQ 14.412060 16.255386 12.79% 1,140,873 1996
10.808255 14.412060 33.34% 1,004,513 1995
10.227513 10.808255 5.68% 917,381 1994
10.000000 10.227513 2.28% 368,492 1993
Fidelity VIP High 15.396163 14.538235 -5.57% 1,649,380 1998
Income Portfolio - Q 13.256841 15.396163 16.14% 1,184,586 1997
11.779381 13.256841 12.54% 621,493 1996
9.895223 11.779381 19.04% 210,727 1995
10.000000 9.895223 -1.05% 33,204 1994
Fidelity VIP High 15.396163 14.538235 -5.57% 84,449 1998
Income Portfolio - NQ 13.256841 15.396163 16.14% 70,227 1997
11.779381 13.256841 12.54% 33,405 1996
9.895223 11.779381 19.04% 11,249 1995
10.000000 9.895223 -1.05% 2,726 1994
</TABLE>
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<PAGE> 20
<TABLE>
<CAPTION>
UNDERLYING MUTUAL FUND ACCUMULATION ACCUMULATION PERCENTAGE CHANGE NUMBER OF
UNIT VALUE AT UNIT VALUE IN ACCUMULATION
BEGINNING OF AT END OF ACCUMULATION UNITS AT END
PERIOD PERIOD UNIT VALUE OF PERIOD YEAR
<S> <C> <C> <C> <C> <C>
Janus Aspen Series - 9.952334 11.516019 15.71% 313,231 1998
International Growth 10.000000 9.952334 -0.48% 978 1997**
Portfolio - Q
Janus Aspen Series - 9.952334 11.516019 15.71% 12,850 1998
International Growth 10.000000 9.952334 -0.48% 2,117 1997**
Portfolio - NQ
NSAT Government Bond 32.572519 35.013105 7.49% 2,177,680 1998
Fund - Q 30.092479 32.572519 -8.24% 2,630,778 1997
29.463573 30.092479 2.13% 2,948,795 1996
25.138302 29.463573 17.21% 3,276,421 1995
26.318797 25.138302 -4.49% 3,538,336 1994
24.348055 26.318797 8.09% 3,946,493 1993
22.869936 24.348055 6.46% 2,650,975 1992
19.854919 22.869936 15.19% 1,805,156 1991
18.372987 19.854919 8.07% 1,291,591 1990
16.331709 18.372987 12.50% 1,182,905 1989
NSAT Government Bond 32.584532 35.026017 7.49% 885,231 1998
Fund - NQ 30.103580 32.584532 8.24% 1,136,230 1997
29.474435 30.103580 2.13% 1,371,551 1996
25.147577 29.474435 17.21% 1,618,704 1995
26.328516 25.147577 -4.49% 1,893,807 1994
24.357055 26.328516 8.09% 2,350,137 1993
22.878402 24.357055 6.46% 1,501,470 1992
19.862268 22.878402 15.19% 976,874 1991
18.379796 19.862268 8.07% 750,363 1990
16.337763 18.379796 12.50% 756,058 1989
NSAT Money Market Fund - Q* 21.120495 21.944976 3.90% 1,325,652 1998
20.329483 21.120495 3.89% 1,487,528 1997
19.595876 20.329483 3.74% 1,617,637 1996
18.790546 19.595876 4.29% 1,618,571 1995
18.325918 18.790546 2.54% 1,636,119 1994
18.069824 18.325918 1.42% 1,647,900 1993
17.705124 18.069824 2.06% 1,840,923 1992
16.950132 17.705124 4.45% 2,323,043 1991
15.891433 16.950132 6.66% 2,678,914 1990
14.760926 15.891433 7.66% 2,395,888 1989
</TABLE>
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<PAGE> 21
<TABLE>
<CAPTION>
UNDERLYING MUTUAL FUND ACCUMULATION ACCUMULATION PERCENTAGE CHANGE NUMBER OF
UNIT VALUE AT UNIT VALUE IN ACCUMULATION
BEGINNING OF AT END OF ACCUMULATION UNITS AT END
PERIOD PERIOD UNIT VALUE OF PERIOD YEAR
<S> <C> <C> <C> <C> <C>
NSAT Money Market Fund - NQ* 22.947799 23.843612 3.90% 401,628 1998
22.088348 22.947799 3.89% 476,129 1997
21.291272 22.088348 3.74% 600,726 1996
20.416267 21.291272 4.29% 665,100 1995
19.911440 20.416267 2.54% 831,132 1994
19.633190 19.911440 1.42% 819,892 1993
19.236937 19.633190 2.06% 1,117,454 1992
18.416623 19.236937 4.45% 1,684,322 1991
17.266332 18.416623 6.66% 2,083,996 1990
16.038015 17.266332 7.66% 2,127,690 1989
NSAT Nationwide High 10.206766 10.658111 4.42% 26,163 1998
Income Bond Fund - Q 10.000000 10.206766 2.07% 279 1997**
NSAT Nationwide High 10.206766 10.658111 4.42% 1,104 1998
Income Bond Fund - NQ 10.000000 10.206766 2.07% 0 1997**
NSAT Total Return 79.422176 92.558757 16.54% 4,128,211 1998
Fund - Q 62.170693 79.422176 27.75% 5,163,514 1997
51.701438 62.170693 20.25% 5,119,908 1996
40.575816 51.701438 27.42% 5,049,123 1995
40.671816 40.575816 -0.24% 5,094,417 1994
37.150744 40.671816 9.48% 4,467,810 1993
34.794462 37.150744 6.77% 3,578,781 1992
25.454897 34.794462 36.69% 2,974,227 1991
28.044760 25.454897 -9.23% 2,734,562 1990
25.094601 28.044760 11.76% 2,897,067 1989
NSAT Total Return 77.137765 89.896489 16.54% 1,438,302 1998
Fund - NQ 60.382482 77.137765 27.75% 2,084,153 1997
50.214359 60.382482 20.25% 2,180,633 1996
39.408735 50.214359 27.42% 2,273,685 1995
39.501981 39.408735 -0.24% 2,360,160 1994
36.082181 39.501981 9.48% 2,184,517 1993
33.793676 36.082181 6.77% 1,671,604 1992
24.722750 33.793676 36.69% 1,370,409 1991
27.238121 24.722750 -9.23% 1,268,584 1990
24.372817 27.238121 11.76% 1,476,049 1989
</TABLE>
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<PAGE> 22
<TABLE>
<CAPTION>
UNDERLYING MUTUAL FUND ACCUMULATION ACCUMULATION PERCENTAGE CHANGE NUMBER OF
UNIT VALUE AT UNIT VALUE IN ACCUMULATION
BEGINNING OF AT END OF ACCUMULATION UNITS AT END
PERIOD PERIOD UNIT VALUE OF PERIOD YEAR
<S> <C> <C> <C> <C> <C>
Neuberger Berman AMT 18.349145 20.316082 10.72% 1,672,034 1998
Balanced Portfolio - Q 15.563120 18.349145 17.90% 1,725,578 1997
14.753402 15.563120 5.49% 1,766,421 1996
12.077573 14.753402 22.16% 1,697,674 1995
12.661508 12.077573 -4.61% 1,651,413 1994
12.050347 12.661508 5.07% 1,478,589 1993
11.299008 12.050347 6.65% 743,247 1992
10.000000 11.29008 12.99% 13,232 1991
Neuberger Berman AMT 18.349145 20.316082 10.72% 549,897 1998
Balanced Portfolio - NQ 15.563120 18.349145 17.90% 620,264 1997
14.753402 15.563120 5.49% 702,451 1996
12.077573 14.753402 22.16% 728,876 1995
12.661508 12.077573 -4.61% 844,181 1994
12.050347 12.661508 5.07% 927,960 1993
11.299008 12.050347 6.65% 370,418 1992
10.000000 11.299008 12.99% 14,765 1991
Strong Opportunity 15.098205 16.920120 12.07% 1,309,839 1998
Fund II - Q 12.193238 15.098205 23.82% 897,935 1997
10.456863 12.193238 16.61% 408,289 1996
10.000000 10.456863 4.57% 14,374 1995
Strong Opportunity 15.098205 16.920120 12.07% 70,745 1998
Fund II - NQ 12.193238 15.098205 23.82% 62,437 1997
10.456863 12.193238 16.61% 35,456 1996
10.000000 10.456863 4.57% 1,437 1995
Templeton Variable 15.599596 16.833378 7.91% 2,030,341 1998
Products Series Fund - 13.869569 15.599596 12.47% 1,817,862 1997
Templeton 11.329203 13.869569 22.42% 1,044,821 1996
International Fund: 9.913613 11.329203 14.28% 503,599 1995
Class A - Q 10.000000 9.913613 -0.86% 161,196 1994
</TABLE>
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<PAGE> 23
<TABLE>
<CAPTION>
UNDERLYING MUTUAL FUND ACCUMULATION ACCUMULATION PERCENTAGE CHANGE NUMBER OF
UNIT VALUE AT UNIT VALUE IN ACCUMULATION
BEGINNING OF AT END OF ACCUMULATION UNITS AT END
PERIOD PERIOD UNIT VALUE OF PERIOD YEAR
<S> <C> <C> <C> <C> <C>
Templeton Variable 15.599596 16.833378 7.91% 80,680 1998
Products Series Fund - 13.869569 15.599596 12.47% 96,813 1997
Templeton 11.329203 13.869569 22.42% 66,863 1996
International Fund: 9.913613 11.329203 14.28% 39,371 1995
Class A - NQ 10.000000 9.913613 -0.86% 24,273 1994
</TABLE>
* The 7-day yield on the NSAT Money Market Fund as of December 31, 1998 was
3.52%.
** These underlying mutual funds were added to the variable account on November
3, 1997. Condensed Financial Information for these funds for 1997 reflects
values from November 3, 1997 to December 31, 1997.
The American Century Variable Portfolios, Inc. - American Century VP Balanced
was added to the variable account on May 1, 1999. Therefore, no Condensed
Financial Information is available.
NATIONWIDE LIFE INSURANCE COMPANY
Nationwide is a stock life insurance company organized under Ohio law in March,
1929. Nationwide is a member of the "Nationwide Insurance Enterprise" with its
home office at One Nationwide Plaza, Columbus, Ohio 43215. Nationwide is a
provider of life insurance, annuities and retirement products. It is admitted to
do business in all states, the District of Columbia and Puerto Rico.
NATIONWIDE ADVISORY SERVICES, INC.
The contracts are distributed by the general distributor, Nationwide Advisory
Services, Inc. ("NAS"), Three Nationwide Plaza, Columbus, Ohio 43215. NAS is a
wholly owned subsidiary of Nationwide Life Insurance Company.
INVESTING IN THE CONTRACT
THE VARIABLE ACCOUNT AND UNDERLYING MUTUAL FUNDS
Nationwide Multi-Flex Variable Account is a separate account that invests in the
underlying mutual funds listed in Appendix A. Nationwide established the
separate account on October 7, 1981, pursuant to Ohio law. Although the separate
account is registered with the SEC as a unit investment trust pursuant to the
Investment Company Act of 1940 ("1940 Act"), the SEC does not supervise the
management of Nationwide or the variable account.
Income, gains, and losses credited to, or charged against, the variable account
reflect the variable account's own investment experience and not the investment
experience of Nationwide's other assets. The variable account's assets are held
separately from Nationwide's assets and are not chargeable with liabilities
incurred in any other business of Nationwide. Nationwide is obligated to pay all
amounts promised to contract owners under the contracts.
The variable account is divided into sub-accounts. Nationwide uses the assets of
each sub-account to buy shares of the underlying mutual funds based on contract
owner instructions. There are two sub-accounts for each underlying mutual fund.
One sub-account contains shares attributable to accumulation units under
Non-Qualified Contracts. The other contains shares attributable to accumulation
units under IRAs, Roth IRAs, SEP IRAs, Tax Sheltered Annuities, and Qualified
Contracts.
Each underlying mutual fund's prospectus contains more detailed information
about that fund. Prospectuses for the underlying mutual funds should be read in
conjunction with this prospectus.
20
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<PAGE> 24
Underlying mutual funds in the variable account are NOT publicly traded mutual
funds. They are only available as investment options in variable life insurance
policies or variable annuity contracts issued by life insurance companies, or in
some cases, through participation in certain qualified pension or retirement
plans.
The investment advisers of the underlying mutual funds may manage publicly
traded mutual funds with similar names and investment objectives. However, the
underlying mutual funds are NOT directly related to any publicly traded mutual
fund. Contract owners should not compare the performance of a publicly traded
fund with the performance of underlying mutual funds participating in the
variable account. The performance of the underlying mutual funds could differ
substantially from that of any publicly traded funds.
Voting Rights
Contract owners who have allocated assets to the underlying mutual funds are
entitled to certain voting rights. Nationwide will vote contract owner shares at
special shareholder meetings based on contract owner instructions. However, if
the law changes and Nationwide is allowed to vote in its own right, it may elect
to do so.
Contract owners with voting interests in an underlying mutual fund will be
notified of issues requiring the shareholders' vote as soon as possible before
the shareholder meeting. Notification will contain proxy materials and a form
with which to give Nationwide voting instructions. Nationwide will vote shares
for which no instructions are received in the same proportion as those that are
received.
The number of shares which a contract owner may vote is determined by dividing
the cash value of the amount they have allocated to an underlying mutual fund by
the net asset value of that underlying mutual fund. Nationwide will designate a
date for this determination not more than 90 days before the shareholder
meeting.
Material Conflicts
The underlying mutual funds may be offered through separate accounts of other
insurance companies, as well as through other separate accounts of Nationwide.
Nationwide does not anticipate any disadvantages to this. However, it is
possible that a conflict may arise between the interests of the variable account
and one or more of the other separate accounts in which these underlying mutual
funds participate.
Material conflicts may occur due to a change in law affecting the operations of
variable life insurance policies and variable annuity contracts, or differences
in the voting instructions of the contract owners and those of other companies.
If a material conflict occurs, Nationwide will take whatever steps are necessary
to protect contract owners and variable annuity payees, including withdrawal of
the variable account from participation in the underlying mutual fund(s)
involved in the conflict.
Substitution of Securities
Nationwide may substitute, eliminate, or combine shares of another underlying
mutual fund for shares already purchased or to be purchased in the future if
either of the following occurs:
1) shares of a current underlying mutual fund are no longer available for
investment; or
2) further investment in an underlying mutual fund is inappropriate.
No substitution, elimination, or combination of shares may take place without
the prior approval of the SEC and state insurance departments.
THE FIXED ACCOUNT
The fixed account is an investment option that is funded by assets of
Nationwide's general account. The general account contains all of Nationwide's
assets other than those in other Nationwide separate accounts. It is used to
support Nationwide's annuity and insurance obligations and may contain
compensation for mortality and expense risks.
The general account is not subject to the same laws as the variable account and
the SEC has
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not reviewed material in this prospectus relating to the fixed account. However,
information relating to the fixed account is subject to federal securities laws
relating to accuracy and completeness of prospectus disclosure.
Purchase payments will be allocated to the fixed account by election of the
contract owner.
The investment income earned by the fixed account will be allocated to the
contracts at varying guaranteed interest rates(s) depending on the following
categories of fixed account allocations:
- - New Money Rate - The rate credited on the fixed account allocation when the
contract is purchased or when subsequent purchase payments are made.
Subsequent purchase payments may receive different New Money Rates than the
rate when the contract was issued, since the New Money Rate is subject to
change based on market conditions.
- - Variable Account to Fixed Rate - Allocations transferred from any of the
underlying mutual funds in the variable account to the fixed account may
receive a different rate. The rate may be lower than the New Money Rate.
There may be limits on the amount and frequency of movements from the
variable account to the fixed account.
- - Renewal Rate - The rate available for maturing fixed account allocations
that are entering a new guarantee period. The contract owner will be
notified of this rate in a letter issued with the quarterly statements when
any of the money in the contract owner's fixed account matures. At that
time, the contract owner will have an opportunity to leave the money in the
fixed account and receive the Renewal Rate or the contract owner can move
the money to any of the underlying mutual fund options.
- - Dollar Cost Averaging - From time to time, Nationwide may offer a more
favorable rate for an initial purchase payment into a new contract when used
in conjunction with a Dollar Cost Averaging program.
All of these rates are subject to change on a daily basis; however, once applied
to the fixed account, the interest rates are guaranteed until the end of the
calendar quarter during the 12 month anniversary in which the fixed account
allocation occurs.
Credited interest rates are annualized rates - the effective yield of interest
over a one-year period. Interest is credited to each contract on a daily basis.
As a result, the credited interest rate is compounded daily to achieve the
stated effective yield.
The guaranteed rate for any purchase payment will be effective for not less than
twelve months. Nationwide guarantees that the rate will not be less than 3.0%
per year.
Any interest in excess of 3.0% will be credited to fixed account allocations at
Nationwide's sole discretion. The contract owner assumes the risk that interest
credited to fixed account allocations may not exceed the minimum guarantee of
3.0% for any given year.
Nationwide guarantees that the fixed account contract value will not be less
than the amount of the purchase payments allocated to the fixed account, plus
interest credited as described above, less any applicable charges including
CDSC.
STANDARD CHARGES AND DEDUCTIONS
CONTRACT MAINTENANCE CHARGE
Each contract anniversary (and on the date of surrender upon full surrender of
the contract), Nationwide will deduct a Contract Maintenance Charge of $30 to
reimburse it for administrative expenses relating to contract issuance and
maintenance.
For Tax Sheltered Annuities issued on or after the later of May 1, 1997, or the
date on which state insurance authorities approve corresponding contract
modifications, Nationwide will waive the Contract Maintenance Charge for
contracts issued in those states that use a Unified Billing Authority program
(or any similar program) to process purchase payments.
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Nationwide will also waive the Contract Maintenance Charge for Qualified Plans
(as defined by Section 401(k) of the Internal Revenue Code) issued on or after
the later of November 3, 1997, or the date state insurance authorities approve
corresponding contract modifications.
The deduction of the Contract Maintenance Charge will be taken proportionately
from each sub-account and the fixed account based on the value in each option as
compared to the total contract value.
Nationwide will not increase the Contract Maintenance Charge. Nationwide will
not reduce or eliminate the Contract Maintenance Charge where it would be
discriminatory or unlawful.
CONTINGENT DEFERRED SALES CHARGE
No sales charge deduction is made from the purchase payments when amounts are
deposited into the contracts. However, if any part of the contract is
surrendered, Nationwide will deduct a CDSC. The CDSC will not exceed 7% of the
purchase payments surrendered.
The CDSC is calculated by multiplying the applicable CDSC percentage (noted
below) by the amount of purchase payments surrendered.
For purposes of calculating the CDSC, surrenders are considered to come first
from the oldest purchase payment made to the contract, then the next oldest
purchase payment, and so forth. For tax purposes, a surrender is usually treated
as a withdrawal of earnings first.
The CDSC applies as follows:
<TABLE>
<CAPTION>
Number of Years from Date CDSC
of Purchase Payment Percentage
<S> <C>
0 7%
1 6%
2 5%
3 4%
4 3%
5 2%
6 1%
7 0%
</TABLE>
The CDSC is used to cover sales expenses, including commissions (maximum of 6%
of purchase payments), production of sales material, and other promotional
expenses. If expenses are greater than the CDSC, the shortfall will be made up
from Nationwide's general account, which may indirectly include portions of the
Contract Maintenance Charge and the Mortality and Expense Risk Charge or, if
applicable, the Actuarial Risk Fee, since Nationwide may generate a profit from
these charges.
Contract owners taking withdrawals before age 59 1/2 may be subject to a 10% tax
penalty. In addition, all or a portion of the withdrawal may be subject to
federal income taxes (see "Non-Qualified Contracts - Natural Persons as Contract
Owners").
Waiver of Contingent Deferred Sales Charge
Starting with the second contract year, the contract owner may withdraw without
a CDSC the greater of:
(a) 10% of each purchase payment; or
(b) any amount withdrawn to meet minimum distribution requirements under the
Internal Revenue Code.
This CDSC-free privilege is non-cumulative. Free amounts not taken during any
given contract year cannot be taken as free amounts in a subsequent contract
year.
In addition, no CDSC will be deducted:
(1) upon the annuitization of contracts which have been in force for at
least two years;
(2) upon payment of a death benefit; or
(3) from any values which have been held under a contract for at least 7
years.
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For Tax Sheltered Annuities, Qualified Contracts and SEP IRAs, Nationwide will
waive the CDSC when:
- the plan participant has participated in the contract for 10 years of
active deferrals;
- the plan participant dies;
- the plan participant experiences a hardship (as provided in Internal
Revenue Code Section 403(b) and as defined by Internal Revenue Code
Section 401(k)), provided that any hardship surrender may not include
any income from salary reduction contributions;
- the plan participant annuitizes after completing 2 years in the
contract;
- the plan participant separates from service (as defined in Internal
Revenue Code Section 401(k)(2)(B)) and has participated in the contract
for 5 years; or
- the plan participant becomes disabled (within the meaning of Internal
Revenue Code Section 72(m)(7)).
No CDSC applies to transfers among sub-accounts or between or among the fixed
account and/or the variable account. Nationwide may waive the CDSC if a contract
described in this prospectus is exchanged for another Nationwide contract (or a
contract of any of its affiliated insurance companies). A CDSC may apply to the
contract received in the exchange and Nationwide may assess a Contract Exchange
Fee not to exceed $40 (see "Contract Exchange Fee").
The CDSC will not be eliminated if to do so would be unfairly discriminatory or
prohibited by state law.
VARIABLE ACCOUNT CHARGES FOR CONTRACTS ISSUED BEFORE NOVEMBER 3, 1997 (OR BEFORE
THE DATE STATE INSURANCE AUTHORITIES APPROVE CONTRACT MODIFICATIONS)
Mortality and Expense Risk Charge
Nationwide deducts a Mortality and Expense Risk Charge from the variable
account. This amount is computed on a daily basis and is equal to an annual rate
of 1.25% of the daily net assets of the variable account.
The mortality risk charges (0.80%) compensate Nationwide for guaranteeing the
annuity rate of the contracts. This guarantee ensures that the annuity rates
will not change regardless of the death rates of annuity payees or the general
population.
The expense risk charges (0.45%) compensate Nationwide for guaranteeing that
administration charges will not increase regardless of actual expenses.
If the Mortality and Expense Risk Charge is insufficient to cover actual
expenses, the loss is borne by Nationwide.
Administration Charge
Nationwide deducts an Administration Charge from the variable account. This
amount is computed on a daily basis and is equal to an annual rate of 0.05% of
the daily net assets of the variable account.
The Administration Charge compensates Nationwide for administrative expenses.
If this charge is insufficient to cover actual expenses, the loss is borne by
Nationwide.
VARIABLE ACCOUNT CHARGES FOR CONTRACTS ISSUED ON OR AFTER NOVEMBER 3, 1997 (OR
THE DATE STATE INSURANCE AUTHORITIES APPROVE CONTRACT MODIFICATIONS)
Actuarial Risk Fee
Nationwide deducts an Actuarial Risk Fee from the variable account. This amount
is computed on a daily basis and is equal to an annual rate of 1.30% of the
daily net assets of the variable account.
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The Actuarial Risk Fee compensates Nationwide for actuarial risks, including
administration expenses relating to contract issuance and maintenance, and
mortality risk expenses.
SCHOOL DISTRICT PROCESSING FEE
For contracts issued on or after the later of November 3, 1997 or the date state
insurance authorities approve corresponding contract modifications, Nationwide
may charge against the contract any charges assessed to Nationwide by individual
school districts for the processing of employee payroll deductions.
This charge will not exceed the greater of $30 or 0.40% of the contract value.
This charge will never exceed the exact amount billed to Nationwide by school
districts for this service.
Nationwide will deduct these charges from the contract:
1) at the time the contract is surrendered;
2) annually;
3) at annuitization; or
4) on any other date Nationwide becomes subject to these charges.
Nationwide will determine the method that will be used to recoup these expenses.
It will be at Nationwide's sole discretion and may be changed without notice to
contract owners.
CONTRACT EXCHANGE FEE
If a contract owner chooses to exchange the contract for another Nationwide
contract (or a contract of any of its affiliates), Nationwide will make a
determination as to the eligibility of such an exchange. In making the
determination, Nationwide will apply its rules and regulations, which may
include assessing a reasonable processing fee for the exchange. This fee will
never exceed $40. The Contract Exchange Fee will be in addition to any Contract
Maintenance Charge that may be applicable.
PREMIUM TAXES
Nationwide will charge against the contract value any premium taxes levied by a
state or other government entity. Premium tax rates currently range from 0% to
3.5%. This range is subject to change. The method used to assess premium tax
will be determined by Nationwide at its sole discretion in compliance with state
law.
If applicable, Nationwide will deduct premium taxes from the contract either at:
(1) the time the contract is surrendered;
(2) annuitization; or
(3) such earlier date as Nationwide becomes subject to premium taxes.
Premium taxes may be deducted from death benefit proceeds.
CONTRACT OWNERSHIP
The contract owner has all rights under the contract. Purchasers who name
someone other than themselves as the contract owner will have no rights under
the contract.
Contract owners of Non-Qualified Contracts may name a new contract owner at any
time before the annuitization date. Any change of contract owner automatically
revokes any prior contract owner designation. Changes in contract ownership may
result in federal income taxation and may be subject to state and federal gift
taxes.
A change in contract ownership must be submitted in writing and recorded at
Nationwide's home office. Once recorded, the change will be effective as of the
date signed. However, the change will not affect any payments made or actions
taken by Nationwide before it was recorded.
The contract owner may also request a change in the annuitant, contingent
annuitant, contingent owner, beneficiary, or contingent beneficiary before the
annuitization date. These changes must be:
- on a Nationwide form;
- signed by the contract owner; and
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- received at Nationwide's home office before the annuitization date.
Nationwide must review and approve any change requests. If the contract owner is
not a natural person and there is a change of the annuitant, distributions will
be made as if the contract owner died at the time of the change.
On the annuitization date, the annuitant will become the contract owner.
CONTINGENT OWNERSHIP
The contingent owner is entitled to certain benefits under the contract if a
contract owner who is NOT the annuitant dies before the annuitization date.
The contract owner may name or change a contingent owner at any time before the
annuitization date. To change the contingent owner, a written request must be
submitted to Nationwide. Once Nationwide has recorded the change, it will be
effective as of the date it was signed, whether or not the contract owner was
living at the time it was recorded. The change will not affect any action taken
by Nationwide before the change was recorded.
ANNUITANT
The annuitant is the person who will receive annuity payments and upon whose
continuation of life any annuity payment involving life contingencies depends.
This person must be age 78 or younger at the time of contract issuance, unless
Nationwide approves a request for an annuitant of greater age. The annuitant may
be changed before the annuitization date with Nationwide's consent.
BENEFICIARY AND CONTINGENT BENEFICIARY
The beneficiary is the person(s) who is entitled to the death benefit if the
annuitant dies before the annuitization date. The contract owner can name more
than one beneficiary. Multiple beneficiaries will share the death benefit
equally, unless otherwise specified.
The contract owner may change the beneficiary or contingent beneficiary during
the annuitant's lifetime by submitting a written request to Nationwide. Once
recorded, the change will be effective as of the date it was signed, whether or
not the annuitant was living at the time it was recorded. The change will not
affect any action taken by Nationwide before the change was recorded.
OPERATION OF THE CONTRACT
MINIMUM INITIAL AND SUBSEQUENT PURCHASE PAYMENTS
<TABLE>
<CAPTION>
MINIMUM
CONTRACT MINIMUM INITIAL SUBSEQUENT
TYPE PURCHASE PAYMENT PAYMENTS
<S> <C> <C>
Non-Qualified $1,500 $10
IRA $0 $0
Roth IRA $0 $0
SEP IRA $0 $0
Tax Sheltered $0 $0
Annuity
Qualified $0 $0
</TABLE>
Nationwide may lower the subsequent purchase payment minimum for employer
sponsored deduction programs.
PRICING
Initial purchase payments allocated to sub-accounts will be priced at the
accumulation unit value determined no later than 2 business days after receipt
of an order to purchase if the application and all necessary information are
complete. If the application is not complete, Nationwide may retain a purchase
payment for up to 5 business days while attempting to complete it. If the
application is not completed within 5 business days, the prospective purchaser
will be informed of the reason for the delay. The purchase payment will be
returned unless the prospective purchaser specifically allows Nationwide to hold
the purchase payment until the application is completed.
Subsequent purchase payments will be priced based on the next available
accumulation unit value after the payment is received. The cumulative total of
all purchase payments under contracts on the life of any one annuitant cannot
exceed $1,000,000 without Nationwide's prior consent.
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Purchase payments will not be priced when the New York Stock Exchange is closed
or on the following nationally recognized holidays:
- - New Year's Day - Independence Day
- - Martin Luther King, Jr. Day - Labor Day
- - Presidents Day - Thanksgiving
- - Good Friday - Christmas
- - Memorial Day
Nationwide also will not price purchase payments if:
(1) trading on the New York Stock Exchange is restricted;
(2) an emergency exists making disposal or valuation of securities held in
the variable account impracticable; or
(3) the SEC, by order, permits a suspension or postponement for the
protection of security holders.
Rules and regulations of the SEC will govern as to when the conditions described
in (2) and (3) exist. If Nationwide is closed on days when the New York Stock
Exchange is open, contract value may be affected since the contract owner would
not have access to their account.
ALLOCATION OF PURCHASE PAYMENTS
Nationwide allocates purchase payments to sub-accounts and/or the fixed account
as instructed by the contract owner. Shares of the underlying mutual funds
allocated to the sub-accounts are purchased at net asset value, then converted
into accumulation units. Contract owners can change allocations or make
exchanges among the sub-accounts and the fixed account. However, no change may
be made that would result in an amount less than 1% of the purchase payments
being allocated to any sub-account. Certain transactions may be subject to
conditions imposed by the underlying mutual funds, as well as those set forth in
the contract.
DETERMINING THE CONTRACT VALUE
The contract value is the sum of:
1) the value of amounts allocated to the sub-accounts of the variable
account; and
2) amounts allocated to the fixed account.
If part or all of the contract value is surrendered, or charges are assessed
against the contract value, Nationwide will deduct a proportionate amount from
each sub-account and the fixed account based on current cash values.
Determining Variable Account Value - Valuing an Accumulation Unit
Purchase payments or transfers allocated to sub-accounts are accounted for in
accumulation units. Accumulation unit values (for each sub-account) are
determined by calculating the net investment factor for the underlying mutual
funds for the current valuation period and multiplying that result with the
accumulation unit values determined on the previous valuation period.
Nationwide uses the net investment factor as a way to calculate the investment
performance of a sub-account from valuation period to valuation period. For each
sub-account, the net investment factor shows the investment performance of the
underlying mutual fund in which a particular sub-account invests, including the
charges assessed against that sub-account for a valuation period.
The net investment factor for any particular sub-account is determined by
dividing (a) by (b), and then subtracting (c) from the result, where:
(a) is:
(1) the net asset value of the underlying mutual fund as of the end of
the current valuation period; and
(2) the per share amount of any dividend or income distributions made by
the underlying mutual fund (if the ex-dividend date occurs during
the current valuation period).
(b) is the net asset value of the underlying mutual fund determined as of
the end of the preceding valuation period.
(c) is a factor representing the daily variable account charges. The factor
is equal to an
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annual rate of 1.30% of the daily net assets of the variable account.
Based on the change in the net investment factor, the value of an accumulation
unit may increase or decrease. Changes in the net investment factor may not be
directly proportional to changes in the net asset value of the underlying mutual
fund shares because of the deduction of variable account charges.
Though the number of accumulation units will not change as a result of
investment experience, the value of an accumulation unit may increase or
decrease from valuation period to valuation period.
Determining Fixed Account Value
Nationwide determines the value of the fixed account by:
1) adding all amounts allocated to the fixed account, minus amounts
previously transferred or withdrawn; and
2) adding any interest earned on the amounts allocated.
TRANSFERS
Transfers from the Fixed Account to the Variable Account
Fixed account allocations may be transferred to the variable account only upon
reaching the end of an interest rate guarantee period. Normally, Nationwide will
permit 100% of such fixed account allocations to be transferred to the variable
account; however Nationwide may, under certain economic conditions and at its
discretion, limit the maximum transferable amount. Under no circumstances will
the maximum transferable amount be less than 10% of the fixed account allocation
reaching the end of an interest rate guarantee period. Transfers of the fixed
account allocations must be made within 45 days after reaching the end of an
interest rate guarantee period.
Contract owners who use Dollar Cost Averaging may transfer from the fixed
account to the variable account (but not to Guaranteed Term Options) under the
terms of that program (see "Dollar Cost Averaging").
Transfers to the Fixed Account
Variable account allocations may be transferred to the fixed account at any
time. Normally, Nationwide will not restrict transfers from the variable account
to the fixed account; however, Nationwide may establish a maximum transfer limit
from the variable account to the fixed account. Except as noted below, under no
circumstances will the transfer limit be less than 10% of the current value of
the variable account, less any transfers made in the 12 months preceding the
date the transfer is requested, but not including transfers made prior to the
imposition of the transfer limit. However, where permitted by state law,
Nationwide reserves the right to refuse transfers or purchase payments to the
fixed account when the fixed account value is greater than or equal to 30% of
the contract value at the time the purchase payment is made or the transfer is
requested.
Transfer Requests
Nationwide will accept transfer requests in writing or, in those states that
allow them, over the telephone. Nationwide will use reasonable procedures to
confirm that telephone instructions are genuine and will not be liable for
following telephone instructions that it reasonably determined to be genuine.
Nationwide may withdraw the telephone exchange privilege upon 30 days written
notice to contract owners.
After annuitization, transfers may only be made on the anniversary of the
annuitization date.
Amounts transferred to the variable account will receive the accumulation unit
value next determined after the transfer request is received.
Interest Rate Guarantee Period
The interest rate guarantee period is the period of time that the fixed account
interest rate is guaranteed to remain the same. Within 45 days of the end of an
interest rate guarantee period, transfers may be made from the fixed account to
the variable account. Nationwide will determine the amount that may be
transferred and will declare this amount at the end of the guarantee period.
This amount will not be less than 10%
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of the amount in the fixed account that is maturing.
For new purchase payments allocated to the fixed account, or transfers to the
fixed account from the variable account, this period begins on the date of
deposit or transfer and ends on the one year anniversary of the deposit or
transfer. The guaranteed interest rate period may last for up to 3 months beyond
the 1 year anniversary because guaranteed terms end on the last day of a
calendar quarter.
During an interest rate guarantee period, transfers cannot be made from the
fixed account, and amounts transferred to the fixed account must remain on
deposit.
Market Timing Firms
Some contract owners may use market timing firms or other third parties to make
transfers on their behalf. Generally, in order to take advantage of perceived
market trends, market-timing firms will submit transfer or exchange requests on
behalf of multiple contract owners at the same time. Sometimes this can result
in unusually large transfers of funds. These large transfers might interfere
with the ability of Nationwide or the underlying mutual fund to process
transactions. This can potentially disadvantage contract owners not using
market-timing firms. To avoid this, Nationwide may modify transfer and exchange
rights of contract owners who use market timing firms (or other third parties)
to transfer or exchange funds on their behalf.
The exchange and transfer rights of individual contract owners will not be
modified in any way when instructions are submitted directly by the contract
owner, or by the contract owner's representative (as authorized by the execution
of a valid Nationwide Limited Power of Attorney Form).
To protect contract owners, Nationwide may refuse exchange and transfer
requests:
- - submitted by any agent acting under a power of attorney on behalf of more
than one contract owner; or
- - submitted on behalf of individual contract owners who have executed
pre-authorized exchange forms which are submitted by market timing firms (or
other third parties) on behalf of more than one contract owner at the same
time.
Nationwide will not restrict exchange rights unless Nationwide believes it to be
necessary for the protection of all contract owners.
RIGHT TO REVOKE
Contract owners have a ten day "free look" to examine the contract. The contract
may be returned to Nationwide's home office for any reason within ten days of
receipt and Nationwide will refund the contract value or another amount required
by law. The refunded contract value will reflect the deduction of any contract
charges, unless otherwise required by law. All IRA, SEP IRA and Roth IRA refunds
will be a return of purchase payments. State and/or federal law may provide
additional free look privileges.
Liability of the variable account under this provision is limited to the
contract value in each sub-account on the date of revocation. Any additional
amounts refunded to the contract owner will be paid by Nationwide.
SURRENDER (REDEMPTION)
Contract owners may surrender some or all of their contract value before the
earlier of the annuitization date or the annuitant's death. Surrender requests
must be in writing and Nationwide may require additional information. When
taking a full surrender, the contract must accompany the written request.
Nationwide may require a signature guarantee.
Nationwide will pay any amounts surrendered from the sub-accounts within 7 days.
However, Nationwide may suspend or postpone payment when it is unable to price a
purchase payment or transfer.
PARTIAL SURRENDERS (PARTIAL REDEMPTIONS)
Nationwide will surrender accumulation units from the sub-accounts and an amount
from the
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fixed account. The amount withdrawn from each investment option will be
in proportion to the value in each option at the time of the surrender request.
A CDSC may apply. The contract owner may direct Nationwide to deduct the CDSC
from either:
a) the amount requested; or
b) the contract value remaining after the contract owner has received the
amount requested.
If the contract owner does not make a specific election, any applicable CDSC
will be taken from the contract value remaining after the contract owner has
received the amount requested.
FULL SURRENDERS (FULL REDEMPTIONS)
The contract value upon full surrender may be more or less than the total of all
purchase payments made to the contract. The contract value will reflect variable
account charges, underlying mutual fund charges and the investment performance
of the underlying mutual funds. A CDSC may apply.
SURRENDERS UNDER A TEXAS OPTIONAL RETIREMENT PROGRAM
Redemption restrictions apply to contracts issued under the Texas Optional
Retirement Program.
The Texas Attorney General has ruled that participants in contracts issued under
the Texas Optional Retirement Program may only take withdrawals if:
- - the participant dies;
- - the participant retires;
- - the participant terminates employment due to total disability; or
- - the participant that works in a Texas public institution of higher education
terminates employment.
Due to the restrictions described above, a participant under this plan will not
be able to withdraw cash values from the contract unless one of the applicable
conditions is met. However, contract value may be transferred to other carriers,
subject to any CDSC.
Nationwide issues this contract to participants in the Texas Optional Retirement
Program in reliance upon and in compliance with Rule 6c-7 of the Investment
Company Act of 1940.
SURRENDERS UNDER A QUALIFIED PLAN OR TAX SHELTERED ANNUITY
Contract owners of a Qualified Plan or Tax Sheltered Annuity may surrender part
or all of their contract value before the earlier of the annuitization date or
the annuitant's death, except as provided below:
A. Contract value attributable to contributions made under a qualified cash or
deferred arrangement (within the meaning of Internal Revenue Code Section
402(g)(3)(A)), a salary reduction agreement (within the meaning of Internal
Revenue Code Section 402(g)(3)(C)), or transfers from a Custodial Account
(described in Section 403(b)(7) of the Internal Revenue Code), may be
surrendered only:
1. when the contract owner reaches age 59 1/2, separates from service,
dies, or becomes disabled (within the meaning of Internal Revenue Code
Section 72(m)(7)); or
2. in the case of hardship (as defined for purposes of Internal Revenue
Code Section 401(k)), provided that any such hardship surrender may NOT
include any income earned on salary reduction contributions.
B. The surrender limitations described in Section A also apply to:
1. salary reduction contributions to Tax Sheltered Annuities made for plan
years beginning after December 31, 1988;
2. earnings credited to such contracts after the last plan year beginning
before January 1, 1989, on amounts attributable to salary reduction
contributions; and
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3. all amounts transferred from 403(b)(7) Custodial Accounts (except that
earnings and employer contributions as of December 31, 1988 in such
Custodial Accounts may be withdrawn in the case of hardship).
C. Any distribution other than the above, including a ten day free look
cancellation of the contract (when available) may result in taxes,
penalties, and/or retroactive disqualification of a Qualified Contract or
Tax Sheltered Annuity.
In order to prevent disqualification of a Tax Sheltered Annuity after a ten day
free look cancellation, Nationwide will transfer the proceeds to another Tax
Sheltered Annuity upon proper direction by the contract owner.
These provisions explain Nationwide's understanding of current withdrawal
restrictions. These restrictions may change.
Distributions pursuant to Qualified Domestic Relations Orders will not violate
the restrictions stated above.
When the contract is issued to fund a Qualified Plan, plan terms and the
Internal Revenue Code may modify these surrender provisions.
LOAN PRIVILEGE
The loan privilege is ONLY available to owners of Qualified Contracts and Tax
Sheltered Annuities. These contract owners can take loans from the contract
value beginning 30 days after the contract is issued up to the annuitization
date. Loans are subject to the terms of the contract, the plan, and the Internal
Revenue Code. Nationwide may modify the terms of a loan to comply with changes
in applicable law.
MINIMUM & MAXIMUM LOAN AMOUNTS
Contract owners may borrow a minimum of $1000, unless Nationwide is required by
law to allow a lesser minimum amount. Each loan must individually satisfy the
contract minimum amount.
Nationwide will calculate the maximum nontaxable loan amount based upon
information provided by the participant or the employer. Loans may be taxable if
a participant has additional loans from other plans. The total of all
outstanding loans must not exceed the following limits:
<TABLE>
<CAPTION>
CONTRACT MAXIMUM OUTSTANDING LOAN
VALUES BALANCE ALLOWED
<S> <C> <C>
NON-ERISA up to up to 80% of contract
PLANS $20,000 value (not more than
$10,000)
$20,000 up to 50% of contract
and over value (not more than
$50,000*)
ERISA PLANS All up to 50% of contract
value (not more than
$50,000*)
</TABLE>
* The $50,000 limits will be reduced by the highest outstanding balance owed
during the previous 12 months.
For salary reduction Tax Sheltered Annuities, loans may be secured only by the
contract value.
LOAN PROCESSING FEE
Nationwide may charge a loan processing fee at the time each new loan is
processed. If assessed, this fee compensates Nationwide for expenses related to
administering and processing loans.
The fee is taken from the sub-accounts and the fixed account in proportion to
the contract value at the time the loan is processed.
HOW LOAN REQUESTS ARE PROCESSED
All loans are made from the collateral fixed account. Nationwide transfers
accumulation units in proportion to the assets in each sub-account to the
collateral fixed account until the requested amount is reached. If there are not
enough accumulation units available in the contract to reach the requested loan
amount, Nationwide next transfers contract value from the fixed account. No CDSC
will be deducted on transfers related to loan processing.
INTEREST
The outstanding loan balance in the collateral fixed account is credited with
interest until the loan is repaid in full. The interest rate will be 2.25% less
than the loan interest rate fixed by
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Nationwide. It is guaranteed never to fall below 3.0%.
Specific loan terms are disclosed at the time of loan application or issuance.
LOAN REPAYMENT
Loans must be repaid in five years. However, if the loan is used to purchase the
contract owner's principal residence, the contract owner has 15 years to repay
the loan.
Contract owners must identify loan repayments as loan repayments or they will be
treated as purchase payments and will not reduce the outstanding loan. Payments
must be substantially level and made at least quarterly.
Loan repayments will consist of principal and interest in amounts set forth in
the loan agreement. Repayments are allocated to the sub-accounts in accordance
with the contract, unless Nationwide and the contract owner have agreed to amend
the contract at a later date on a case by case basis.
DISTRIBUTIONS & ANNUITY PAYMENTS
Distributions made from the contract while a loan is outstanding will be reduced
by the amount of the outstanding loan plus accrued interest if:
- - the contract is surrendered;
- - the contract owner/annuitant dies;
- - the contract owner who is not the annuitant dies prior to annuitization; or
- - annuity payments begin.
TRANSFERRING THE CONTRACT
Nationwide reserves the right to restrict any transfer of the contract while the
loan is outstanding.
GRACE PERIOD & LOAN DEFAULT
If a loan payment is not made when due, interest will continue to accrue. A
grace period may be available (please refer to the terms of the loan agreement).
If a loan payment is not made by the end of the applicable grace period, the
entire loan will be treated as a deemed distribution and will be taxable to the
borrower. This deemed distribution may also be subject to an early withdrawal
tax penalty by the Internal Revenue Service.
After default, interest will continue to accrue on the loan. Defaulted amounts,
plus interest, are deducted from the contract value when the participant is
eligible for a distribution of at least that amount. Additional loans are not
available while a previous loan is in default.
ASSIGNMENT
Contract rights are personal to the contract owner and may not be assigned
without Nationwide's written consent.
A Non-Qualified Contract owner may assign some or all rights under the contract.
An assignment must occur before annuitization while the annuitant is alive. Once
proper notice of assignment is recorded by Nationwide's home office, the
assignment will become effective as of the date the written request was signed.
IRAs, Roth IRAs, SEP IRAs, Qualified Contracts, and Tax Sheltered Annuities may
not be assigned, pledged or otherwise transferred except where allowed by law.
Nationwide is not responsible for the validity or tax consequences of any
assignment. Nationwide is not liable for any payment or settlement made before
the assignment is recorded. Assignments will not be recorded until Nationwide
receives sufficient direction from the contract owner and the assignee
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regarding the proper allocation of contract rights.
Amounts pledged or assigned will be treated as distributions and will be
included in gross income to the extent that the cash value exceeds the
investment in the contract for the taxable year in which it was pledged or
assigned. Amounts assigned may be subject to a tax penalty equal to 10% of the
amount included in gross income.
Assignment of the entire contract value may cause the portion of the contract
value exceeding the total investment in the contract and previously taxed
amounts to be included in gross income for federal income tax purposes each year
that the assignment is in effect.
CONTRACT OWNER SERVICES
ASSET REBALANCING
Asset rebalancing is the automatic reallocation of contract values to the
sub-accounts on a predetermined percentage basis. Asset rebalancing is not
available for assets held in the fixed account. Requests for asset rebalancing
must be on a Nationwide form.
Asset rebalancing occurs every three months or on another frequency if permitted
by Nationwide. If the last day of the three-month period falls on a Saturday,
Sunday, recognized holiday, or any other day when the New York Stock Exchange is
closed, asset rebalancing will occur on the next business day.
Asset rebalancing may be subject to employer limitations or restrictions for
contracts issued to a Qualified Plan or Tax Sheltered Annuity plan. Contract
owners should consult a financial adviser to discuss the use of asset
rebalancing.
Nationwide reserves the right to stop establishing new asset rebalancing
programs. Nationwide also reserves the right to assess a processing fee for this
service.
DOLLAR COST AVERAGING
Dollar Cost Averaging is a long-term transfer program that allows you to make
regular, level investments over time. It involves the automatic transfer of a
specified amount from the fixed account and certain sub-accounts into other
sub-accounts. Contract owners may participate in this program if their contract
value is $5,000 or more. Nationwide does not guarantee that this program will
result in profit or protect contract owners from loss.
Contract owners direct Nationwide to automatically transfer specified amounts
from the fixed account and the following underlying mutual funds: Fidelity VIP
High Income Portfolio, NSAT Government Bond Fund, NSAT Nationwide High Income
Bond Fund, and NSAT Money Market Fund to any other underlying mutual fund. The
minimum monthly transfer is $100.
Transfers occur monthly or on another frequency if permitted by Nationwide.
Nationwide will process transfers until either the value in the originating
investment option is exhausted, or the contract owner instructs Nationwide in
writing to stop the transfers.
Nationwide reserves the right to stop establishing new Dollar Cost Averaging
programs. Nationwide also reserves the right to assess a processing fee for this
service.
Dollar Cost Averaging from the Fixed Account
Transfers from the fixed account must be equal to or less than 1/30th of the
fixed account value at the time the program is requested. A Dollar Cost
Averaging program which transfers amounts from the fixed account to the variable
account is not the same as an Enhanced Rate Dollar Cost Averaging program.
Contract owners that wish to utilize Dollar Cost Averaging from the fixed
account should first inquire whether any Enhanced Rate Dollar Cost Averaging
programs are available.
Enhanced Rate Dollar Cost Averaging
Nationwide may, from time to time, offer Enhanced Rate Dollar Cost Averaging
programs. Dollar Cost Averaging transfers for this program may only be made from
the fixed account. Such Enhanced Rate Dollar Cost Averaging programs allow the
contract owner to earn a higher rate of interest on assets in the
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fixed account than would normally be credited when not participating in the
program. Each enhanced interest rate is guaranteed for as long as the
corresponding program is in effect. Nationwide will process transfers until
either amounts in the enhanced rate fixed account are exhausted, or the contract
owner instructs Nationwide in writing to stop the transfers. For this program
only, when a written request to discontinue transfers is received, Nationwide
will automatically transfer the remaining amount in the enhanced rate fixed
account to the NSAT Money Market Fund.
SYSTEMATIC WITHDRAWALS
Systematic withdrawals allow contract owners to receive a specified amount (of
at least $100) on a monthly, quarterly, semi-annual, or annual basis. Requests
for systematic withdrawals and requests to discontinue systematic withdrawals
must be in writing.
The withdrawals will be taken from the sub-accounts and the fixed account
proportionately unless Nationwide is instructed otherwise.
Nationwide will withhold federal income taxes from systematic withdrawals unless
otherwise instructed by the contract owner. The Internal Revenue Service may
impose a 10% penalty tax if the contract owner is under age 59 1/2 unless the
contract owner has made an irrevocable election of distributions of
substantially equal payments. A CDSC may apply.
Nationwide reserves the right to stop establishing new systematic withdrawal
programs. Nationwide also reserves the right to assess a processing fee for this
service. Systematic withdrawals are not available before the end of the ten-day
free look period (see "Right to Revoke").
ANNUITY COMMENCEMENT DATE
The annuity commencement date is the date on which annuity payments are
scheduled to begin. The contract owner may change the annuity commencement date
before annuitization. This change must be in writing and approved by Nationwide.
ANNUITIZING THE CONTRACT
ANNUITIZATION DATE
The annuitization date is the date that annuity payments begin. It will be the
first day of a calendar month unless otherwise agreed, and must be at least 2
years after the contract is issued. If the contract is issued to fund a
Qualified Plan or Tax Sheltered Annuity plan, annuitization may occur during the
first 2 years subject to Nationwide's approval.
ANNUITIZATION
Annuitization is the period during which annuity payments are received. It is
irrevocable once payments have begun. Upon arrival of the annuitization date,
the annuitant must choose:
(1) an annuity payment option; and
(2) either a fixed payment annuity, variable payment annuity, or an
available combination.
Nationwide guarantees that each payment under a fixed payment annuity will be
the same throughout annuitization. Under a variable payment annuity, the amount
of each payment will vary with the performance of the underlying mutual funds
chosen by the contract owner.
FIXED PAYMENT ANNUITY
A fixed payment annuity is an annuity where the amount of the annuity payment
remains level.
The first payment under a fixed payment annuity is determined on the
annuitization date on an age last birthday basis by:
1) deducting applicable premium taxes from the total contract value; then
2) applying the contract value amount specified by the contract owner to
the fixed payment annuity table for the annuity payment option elected.
Subsequent payments will remain level unless the annuity payment option elected
provides otherwise. Nationwide does not credit discretionary interest during
annuitization.
VARIABLE PAYMENT ANNUITY
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A variable payment annuity is an annuity where the amount of the annuity
payments will vary depending on the performance of the underlying mutual funds
selected.
The first payment under a variable payment annuity is determined on the
annuitization date on an age last birthday basis by:
1) deducting applicable premium taxes from the total contract value; then
2) applying the contract value amount specified by the contract owner to
the variable payment annuity table for the annuity payment option
elected.
The dollar amount of the first payment is converted into a set number of annuity
units that will represent each monthly payment. This is done by dividing the
dollar amount of the first payment by the value of an annuity unit as of the
annuitization date. This number of annuity units remains fixed during
annuitization.
The second and subsequent payments are determined by multiplying the fixed
number of annuity units by the annuity unit value for the valuation period in
which the payment is due. The amount of the second and subsequent payments will
vary with the performance of the selected underlying mutual funds. Nationwide
guarantees that variations in mortality experience from assumptions used to
calculate the first payment will not affect the dollar amount of the second and
subsequent payments.
Assumed Investment Rate
An assumed investment rate is the percentage rate of return assumed to determine
the amount of the first payment under a variable payment annuity. Nationwide
uses the assumed investment rate of 3.5% to calculate the first annuity payment
and to calculate the investment performance of an underlying mutual fund in
order to determine subsequent payments under a variable payment annuity. An
assumed investment rate is the percentage rate of return required to maintain
level variable annuity payments. Subsequent variable annuity payments may be
more or less than the first payment based on whether actual investment
performance is higher or lower than the assumed investment rate of 3.5%.
Value of an Annuity Unit
Annuity unit values for sub-accounts are determined by multiplying the net
investment factor for the valuation period for which the annuity unit is being
calculated by the immediately preceding valuation period's annuity unit value,
and multiplying the result by an interest factor to neutralize the assumed
investment rate of 3.5% per annum built into the variable payment annuity
purchase rate basis in the contracts.
Exchanges among Underlying Mutual Funds
Exchanges among underlying mutual funds during annuitization must be in writing.
Exchanges will occur on each anniversary of the annuitization date.
FREQUENCY AND AMOUNT OF ANNUITY PAYMENTS
Payments are made based on the annuity payment option selected, unless:
- the amount to be distributed is less than $500, in which case Nationwide
may make one lump sum payment of the contract value; or
- an annuity payment would be less than $20, in which case Nationwide can
change the frequency of payments to intervals that will result in
payments of at least $20. Payments will be made at least annually.
ANNUITY PAYMENT OPTIONS
Contract owners must elect an annuity payment option before the annuitization
date. The annuity payment options are:
(1) LIFE ANNUITY - An annuity payable periodically, but at least annually, for
the lifetime of the annuitant. Payments will end upon the annuitant's
death. For example, if the annuitant dies before the second annuity payment
date, the annuitant will receive only one annuity payment. The annuitant
will only receive two annuity payments if he or she dies before the third
annuity payment date, and so on.
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(2) JOINT AND LAST SURVIVOR ANNUITY - An annuity payable periodically, but at
least annually, during the joint lifetimes of the annuitant and a
designated second individual. If one of these parties dies, payments will
continue for the lifetime of the survivor. As is the case under option 1,
there is no guaranteed number of payments. Payments end upon the death of
the last surviving party, regardless of the number of payments received.
(3) LIFE ANNUITY WITH 120 OR 240 MONTHLY PAYMENTS GUARANTEED - An annuity
payable monthly during the lifetime of the annuitant. If the annuitant dies
before all of the guaranteed payments have been made, payments will
continue to the end of the guaranteed period and will be paid to a designee
chosen by the annuitant at the time the annuity payment option was elected.
The designee may elect to receive the present value of the remaining
guaranteed payments in a lump sum. The present value will be computed as of
the date Nationwide receives the notice of the annuitant's death.
Not all of the annuity payment options may be available in all states. Contract
owners may request other options before the annuitization date. These options
are subject to Nationwide's approval.
No distribution for Non-Qualified Contracts will be made until an annuity
payment option has been elected. Qualified Contracts, IRAs, SEP IRAs, and Tax
Sheltered Annuities are subject to the "minimum distribution" requirements set
forth in the plan, contract, and the Internal Revenue Code.
DEATH BENEFITS
DEATH OF CONTRACT OWNER - NON-QUALIFIED CONTRACTS
If the contract owner who is not the annuitant dies before the annuitization
date, the contingent owner becomes the contract owner. If no contingent owner is
named, the annuitant becomes the contract owner, unless the contract owner at
the time of application, named his or her estate to receive the contract.
If the contract owner and annuitant are the same, and the contract
owner/annuitant dies before the annuitization date, the contingent owner will
not have any rights in the contract unless the contingent owner is also the
beneficiary.
Distributions under Non-Qualified Contracts will be made pursuant to the
"Required Distributions for Non-Qualified Contracts" provision.
DEATH OF ANNUITANT - NON-QUALIFIED CONTRACTS
If the annuitant who is not the contract owner dies before the annuitization
date, a death benefit is payable to the beneficiary unless a contingent
annuitant is named. If a contingent annuitant is named, the contingent annuitant
becomes the annuitant and no death benefit is payable.
The beneficiary may elect to receive the death benefit:
(1) in a lump sum;
(2) as an annuity; or
(3) in any other manner permitted by law and approved by Nationwide.
The beneficiary must notify Nationwide of this election within 60 days of the
annuitant's death.
If no beneficiaries survive the annuitant, the contingent beneficiary(ies)
receives the death benefit. Contingent beneficiaries will share the death
benefit equally, unless otherwise specified.
If no beneficiaries or contingent beneficiaries survive the annuitant, the
contract owner or the last surviving contract owner's estate will receive the
death benefit.
If the annuitant dies after the annuitization date, any benefit that may be
payable will be paid according to the selected annuity payment option.
DEATH OF CONTRACT OWNER/ANNUITANT
If a contract owner who is also the annuitant dies before the annuitization
date, a death benefit is payable according to the "Death of the Annuitant -
Non-Qualified Contracts" provision.
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If the contract owner/annuitant dies after the annuitization date, any benefit
that may be payable will be paid according to the selected annuity payment
option.
DEATH BENEFIT PAYMENT
The death benefit value is determined as of the date Nationwide receives:
(1) proper proof of the annuitant's death;
(2) an election specifying the distribution method; and
(3) any state required form(s).
For contracts issued on or after the later of November 3, 1997, or the date
state insurance authorities approve contract modifications, if the annuitant
dies before the first day of the calendar month following his or her 75th
birthday, the death benefit will be the greatest of:
1) the contract value;
2) the total of all purchase payments, less an adjustment for amounts
surrendered; or
3) the contract value as of the most recent five year contract anniversary
before the annuitant's 75th birthday, less an adjustment for amounts
surrendered, plus purchase payments received after that five year
contract anniversary.
The adjustment for amounts surrendered will reduce items (2) and (3) above in
the same proportion that the contract value was reduced on the date(s) of the
partial surrenders.
For contracts issued before November 3, 1997 or the date state insurance
authorities approve contract modifications, if the annuitant dies before the
first day of the calendar month after his or her 75th birthday, the death
benefit will be the greater of:
1) the total of all purchase payments, increased at an annual rate of 5%
simple interest from the date of each purchase payment for each full
year the payment has been in force, less any amounts surrendered, or
2) the contract value.
Insurance regulations in the states of New York and North Carolina prohibit the
death benefit described immediately above. For contracts issued in the states of
New York and North Carolina, the death benefit will be the greater of:
1) the sum of all purchase payments, less any amounts previously
surrendered; or
2) the contract value.
For Tax Sheltered Annuities issued on or after the later of May 1, 1997, or the
date state insurance authorities approve applicable contract modifications and
before May 1, 1998, or the date insurance authorities approve applicable
contract modifications, in states the use a Unified Billing Authority to process
purchase payments, the death benefit will be the greater of:
1) the total of all purchase payments, less any amounts surrendered; or
2) the contract value.
For Tax Sheltered Annuities issued on or after May 1, 1998, or the date
insurance authorities approve applicable contract modifications in states that
use a Unified Billing Authority to process purchase payments, the death benefit
will be the greater of;
1) the total of all purchase payments, less an adjustment for amounts
surrendered; or
2) the contract value.
The adjustment for amounts surrendered will reduce item (1) above in the same
proportion that the contract value was reduced on the date(s) of the partial
surrender(s).
If the annuitant dies after the first day of the calendar month after his or her
75th birthday and before the annuitization date, the death benefit will equal
the contract value.
If the annuitant dies after the annuitization date, payment will be determined
according to the selected annuity payment option.
REQUIRED DISTRIBUTIONS
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REQUIRED DISTRIBUTIONS FOR NON-QUALIFIED CONTRACTS
Internal Revenue Code Section 72(s) requires Nationwide to make certain
distributions when a contract owner dies. The following distributions will be
made according to those requirements:
1) If any contract owner dies on or after the annuitization date and before
the entire interest in the contract has been distributed, then the
remaining interest must be distributed at least as rapidly as the
distribution method in effect on the contract owner's death.
2) If any contract owner dies before the annuitization date, then the
entire interest in the contract (consisting of either the death benefit
or the contract value reduced by charges set forth elsewhere in the
contract) will be distributed within 5 years of the contract owner's
death, provided however:
a) any interest payable to or for the benefit of a natural person
(referred to herein as a "designated beneficiary"), may be
distributed over the life of the designated beneficiary or over a
period not longer than the life expectancy of the designated
beneficiary. Payments must begin within one year of the contract
owner's death unless otherwise permitted by federal income tax
regulations;
b) if the designated beneficiary is the surviving spouse of the
deceased contract owner, the spouse can choose to become the
contract owner instead of receiving a death benefit. Any
distributions required under these distribution rules will be made
upon that spouse's death.
In the event that the contract owner is NOT a natural person (e.g., a trust or
corporation), then, for purposes of these distribution provisions:
a) the death of the annuitant will be treated as the death of a contract
owner;
b) any change of annuitant will be treated as the death of a contract
owner; and
c) in either case, the appropriate distribution will be made upon the death
or change, as the case may be.
These distribution provisions do not apply to any contract exempt from Section
72(s) of the Internal Revenue Code by reason of Section 72(s)(5) or any other
law or rule.
The designated beneficiary must elect a method of distribution and notify
Nationwide of this election within 60 days of the contract owner's death.
REQUIRED DISTRIBUTIONS FOR QUALIFIED PLANS AND TAX SHELTERED ANNUITIES
Distributions from Qualified Plans and Tax Sheltered Annuities will be made
according to the Minimum Distribution and Incidental Benefit ("MDIB") provisions
of Section 401(a)(9) of the Internal Revenue Code. Distributions will be made to
the annuitant according to the selected annuity payment option over a period not
longer than
a) the life of the annuitant or the joint lives of the annuitant and the
annuitant's designated beneficiary; or
b) a period not longer than the life expectancy of the annuitant or the
joint life expectancies of the annuitant and the annuitant's designated
beneficiary.
Required distributions do not have to be withdrawn from this contract if they
are being withdrawn from another Tax Sheltered Annuity of the annuitant.
If the annuitant's entire interest in a Qualified Plan or Tax Sheltered Annuity
will be distributed in equal or substantially equal payments over a period
described in a) or b), the payments will begin on the required beginning date.
The required beginning date is the later of:
a) April 1 of the calendar year following the calendar year in which the
annuitant reaches age 70 1/2; or
b) the annuitant's retirement date.
Provision b) does not apply to any employee who is a 5% owner (as defined in
Section 416 of
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the Internal Revenue Code) with respect to the plan year ending in the calendar
year when the employee attains the age of 70 1/2.
Distribution commencing on the required distribution date must satisfy minimum
distribution and incidental benefit provisions set forth in the Internal Revenue
Code. Those provisions require that distributions cannot be less than the amount
determined by dividing the annuitant's interest in the Tax Sheltered Annuity
determined by the end of the previous calendar year by (a) the annuitant's life
expectancy; or, if applicable, (b) the joint and survivor life expectancy of the
annuitant and the annuitant's beneficiary. The life expectancies and joint life
expectancies are determined by reference to Treasury Regulation 1.72-9.
If the annuitant dies before distributions begin, the interest in the Qualified
Plan or Tax Sheltered Annuity must be distributed by December 31 of the calendar
year in which the fifth anniversary of the annuitant's death occurs unless:
a) the annuitant names his or her surviving spouse as the beneficiary and
the spouse chooses to receive distribution of the contract in
substantially equal payments over his or her life (or a period not
longer than his or her life expectancy) and beginning no later than
December 31 of the year in which the annuitant would have attained age
70 1/2; or
b) the annuitant names a beneficiary other than his or her surviving spouse
and the beneficiary elects to receive distribution of the contract in
substantially equal payments over his or her life (or a period not
longer than his or her life expectancy) beginning no later than December
31 of the year following the year in which the annuitant dies.
If the annuitant dies after distributions have begun, distributions must
continue at least as rapidly as under the schedule used before the annuitant's
death.
If distribution requirements are not met, a penalty tax of 50% is levied on the
difference between the amount that should have been distributed for that year
and the amount that actually was distributed for that year.
REQUIRED DISTRIBUTIONS FOR IRAS AND SEP IRAS
Distributions from an IRAs or SEP IRAs must begin no later than April 1 of the
calendar year following the calendar year in which the contract owner reaches
age 70 1/2. Distribution may be paid in a lump sum or in substantially equal
payments over:
a) the contract owner's life or the lives of the contract owner and his or
her spouse or designated beneficiary; or
b) a period not longer than the life expectancy of the contract owner or
the joint life expectancy of the contract owner and the contract owner's
designated beneficiary.
If the contract owner dies before distributions begin, the interest in the
Individual Retirement Annuity must be distributed by December 31 of the calendar
year in which the fifth anniversary of the contract owner's death occurs,
unless:
a) the contract owner names his or her surviving spouse as the beneficiary
and such spouse chooses to:
1) treat the contract as an IRA or SEP IRA established for his or her
benefit; or
2) receive distribution of the contract in substantially equal payments
over his or her life (or a period not longer than his or her life
expectancy) and beginning no later than December 31 of the year in
which the contract owner would have reached age 70 1/2; or
b) the contract owner names a beneficiary other than his or her surviving
spouse and such beneficiary elects to receive a distribution of the
contract in substantially equal payments over his or her life (or a
period not longer than his or her life expectancy) beginning no later
than
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December 31 of the year following the year of the contract owner's
death.
Required distributions do not have to be withdrawn from this contract if they
are being withdrawn from another IRA or SEP IRA of the contract owner.
If the contract owner dies after distributions have begun, distributions must
continue at least as rapidly as under the schedule being used before the
contract owner's death. However, a surviving spouse who is the beneficiary under
the annuity payment option may treat the contract as his or her own, in the same
manner as is described in section (a)(i) of this provision.
If distribution requirements are not met, a penalty tax of 50% is levied on the
difference between the amount that should have been distributed for that year
and the amount that actually was distributed for that year.
A portion of each distribution will be included in the recipient's gross income
and taxed at ordinary income tax rates. The portion of a distribution which is
taxable is based on the ratio between the amount by which non-deductible
purchase payments exceed prior non-taxable distributions and total account
balances at the time of the distribution. The owner of an IRA or SEP IRA must
annually report the amount of non-deductible purchase payments, the amount of
any distribution, the amount by which non-deductible purchase payments for all
years exceed non-taxable distributions for all years, and the total balance of
all IRAs.
IRA and SEP IRA distributions will not receive the favorable tax treatment of a
lump sum distribution from a Qualified Plan. If the contract owner dies before
the entire interest in the contract has been distributed, the balance will also
be included in his or her gross estate.
REQUIRED DISTRIBUTIONS FOR ROTH IRAS
The rules for Roth IRAs do not require distributions to begin during the
contract owner's lifetime.
When the contract owner dies, the interest in the Roth IRA must be distributed
by December 31 of the calendar year in which the fifth anniversary of his or her
death occurs, unless:
a) the contract owner names his or her surviving spouse as the beneficiary
and the spouse chooses to:
1) treat the contract as a Roth IRA established for his or her benefit;
or
2) receive distribution of the contract in substantially equal payments
over his or her life (or a period not longer than his or her life
expectancy) and beginning no later than December 31 of the year
following the year in which the contract owner would have reached
age 70 1/2; or
b) the contract owner names a beneficiary other than his or her surviving
spouse and the beneficiary chooses to receive distribution of the
contract in substantially equal payments over his or her life (or a
period not longer than his or her life expectancy) beginning no later
than December 31 of the year following the year in which the contract
owner dies.
Distributions from Roth IRAs may be either taxable or nontaxable, depending upon
whether they are "qualified distributions" or "nonqualified distributions" (see
"Federal Tax Considerations").
FEDERAL TAX CONSIDERATIONS
FEDERAL INCOME TAXES
Contract owners should consult a financial consultant, legal counsel or tax
advisor to discuss in detail the taxation and the use of the contracts.
Nationwide does not guarantee the tax status of the contracts or any
transactions involving the contracts.
Section 72 of the Internal Revenue Code governs federal income taxation of
annuities in general. That section sets forth different rules for: (1) IRAs,
including SEP IRAs; (2) Roth IRAs; (3) Tax Sheltered Annuities; (4) Qualified
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Contracts; and (5) Non-Qualified Contracts. Each type of annuity is discussed
below.
IRAs, SEP IRAs and Individual Retirement Accounts
Distributions from IRAs, SEP IRAs, and contracts owned by Individual Retirement
Accounts are generally taxed when received. The excludable portion of each
payment is based on the ratio between the amount by which non-deductible
purchase payments to all the contracts exceeds prior non-taxable distributions
from the contracts, and the total account balances in the contracts at the time
of the distribution. The owner of an IRA or SEP IRA, or the annuitant under
contracts held by Individual Retirement Accounts must annually report to the
Internal Revenue Service:
- the amount of nondeductible purchase payments;
- the amount of any distributions;
- the amount by which nondeductible purchase payments for all years exceed
non-taxable distributions for all years; and
- the total balance in all IRAs, SEP IRAs, and Individual Retirement
Accounts.
Roth IRAs
Distributions of earnings from Roth IRAs are taxable or nontaxable, depending
upon whether they are "qualified distributions" or "nonqualified distributions."
A "qualified distribution" is one that satisfies the five-year rule and meets
one of the following requirements:
(i) it is made on or after the date on which the contract owner attains
age 59 1/2;
(ii) it is made to a beneficiary (or the contract owner's estate) on or
after the death of the contract owner;
(iii) it is attributable to the contract owner's disability; or
(iv) it is a qualified first-time homebuyer distribution (as defined in
Section 72(t)(2)(F) of the Internal Revenue Code).
If the Roth IRA does not have any qualified rollover contributions from a
retirement plan other than a Roth IRA (or income allocable thereto), the five
year rule is satisfied if the distribution is not made within the five year
period beginning with the first contribution to the Roth IRA. If the Roth IRA
contains qualified rollover contributions from a retirement plan other than a
Roth IRA (or income allocable thereto), the five year rule is satisfied if the
distribution is not made within the five taxable year period commencing with the
taxable year in which the qualified rollover contribution was made.
A nonqualified distribution is any distribution that is not a qualified
distribution.
A qualified distribution is not included in gross income for federal income tax
purposes. A nonqualified distribution is not includible in gross income to the
extent that the distribution, when added to all previous distributions, does not
exceed that total amount of contributions made to the Roth IRA. Any nonqualified
distribution in excess of the aggregate amount of contributions will be included
in the contract owner's gross income in the year that is distributed to the
contract owner.
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Taxable distributions will not receive the same favorable tax treatment of a
lump sum distribution from a Qualified Plan. If the contract owner dies before
the contract is completely distributed, the balance will also be included in the
contract owner's gross estate for tax purposes.
A change of the annuitant or contingent annuitant may be treated by the Internal
Revenue Service as a taxable transaction.
Qualified Contracts and Tax Sheltered Annuities
Distributions from Qualified Contracts and Tax Sheltered Annuities are generally
taxed when received. A portion of each distribution is excludable from income
based on a formula required by the Internal Revenue Code. The formula excludes
from income the amount invested in the contract divided by the number of
anticipated payments (as determined pursuant to Section 72(d) of the Internal
Revenue Code) until the full investment in the contract is recovered. Thereafter
all distributions are fully taxable.
Non-Qualified Contracts - Natural Persons as Contract Owners
The rules applicable to Non-Qualified Contracts provide that a portion of each
annuity payment is excludable from taxable income based on the ratio between the
contract owner's investment in the contract and the expected return on the
contract until the investment has been recovered. Thereafter the entire amount
is includible in income. The maximum amount excludable from income is the
investment in the contract. If the annuitant dies before the entire investment
in the contract has been excluded from income and no additional payments are due
after his or her death, then he or she may be entitled to a deduction for the
balance of the unrecovered investment in the contract on his or her final income
tax return.
Distributions before the annuitization date are taxable to the contract owner to
the extent that the cash value of the contract exceeds the contract owner's
investment at the time of the distribution. Distributions, for this purpose,
include partial surrenders, dividends, loans, or any portion of the contract
that is assigned or pledged; or for contracts issued after April 22, 1987, any
portion of the contract transferred by gift. For these purposes, a transfer by
gift may occur upon annuitization if the contract owner and the annuitant are
not the same individual.
In determining the taxable amount of a distribution, all annuity contracts
issued after October 21, 1988 by the same company to the same contract owner
during any 12-month period will be treated as one annuity contract. Additional
limitations on the use of multiple contracts may be imposed by Treasury
Regulations.
Distributions before the annuitization date allocable to a portion of the
contract invested prior to August 14, 1982, are treated first as a recovery of
the investment in the contract as of that date. A distribution in excess of the
amount of the investment in the contract as of August 14, 1982, will be treated
as taxable income.
The Tax Reform Act of 1986 has changed the tax treatment of certain
Non-Qualified Contracts held by entities other than individuals. Such entities
are taxed currently on earnings from contributions made to the contract after
February 28, 1986. There are exceptions for immediate annuities and certain
contracts owned for the benefit of an individual. An immediate annuity, for
purposes of this discussion, is a single premium contract on which payments
begin within one year of purchase. If this contract is issued as the result of
an exchange described in Section 1035 of the Internal Revenue Code, for purposes
of determining whether the contract is an immediate annuity, it will generally
be considered to have been purchased on the purchase date of the contract given
up in the exchange.
Internal Revenue Code Section 72 also assesses a penalty tax if a distribution
is made before the contract owner reaches age 59 1/2. The amount of the penalty
is 10% of the portion of any distribution that is includible in gross income.
The penalty tax does not apply if the distribution
1) is the result of a contract owner's death;
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2) is the result of a contract owner's disability;
3) is one of a series of substantially equal periodic payments made over
the life or life expectancy of the contract owner (or the joint lives or
joint life expectancies of the contract owner and the beneficiary
selected by the contract owner to receive payment under the annuity
payment option selected by the contract owner),
4) is for the purchase of an immediate annuity;
5) is allocable to an investment in the contract before August 14, 1982.
A contract owner that wants to begin taking distributions to which the 10% tax
penalty does not apply should forward a written request to Nationwide. Upon
receipt of this written request, Nationwide will inform the contract owner of
Nationwide's policies and procedures, as well as contract limitations. An
election to begin taking these withdrawals will be irrevocable and may not be
amended or changed.
In order to qualify as an annuity contract under Section 72 of the Internal
Revenue Code, the contract must provide for distribution of the entire contract
upon a contract owner's death.
The Internal Revenue Code requires that any election to receive an annuity
instead of a lump sum payment be made within 60 days after the lump sum becomes
payable (generally, within 60 days of the death of a contract owner or the
annuitant). As long as the election is made within the 60 day period, each
distribution will be taxable when it is paid. Upon the end of this 60 day
period, if no election has been made, the entire amount of the lump sum will be
subject to immediate tax, even if the payee decides at a later date to take the
distribution as an annuity.
Non-Qualified Contracts - Non-Natural Persons as Contract Owners
The previous discussion related to the taxation of Non-Qualified Contracts owned
(or, pursuant to Section 72(u) of the Internal Revenue Code, deemed to be owned)
by individuals. Different rules apply if the contract owner is not a natural
person.
Generally, contracts owned by corporations, partnerships, trusts, and similar
entities ("non-natural persons") are not treated as annuity contracts under the
Internal Revenue Code. Specifically, they are not treated as annuity contracts
for purposes of Section 72. Therefore, income earned under a Non-Qualified
Contract that is owned by a non-natural person is taxed as ordinary income
during the taxable year that it is earned. Taxation is not deferred, even if the
income is not distributed out of the contract to the contract owner.
This non-natural person rule does not apply to all entity-owned contracts. A
contract that is owned by a non-natural person as an agent for an individual is
treated as owned by the individual. This would put the contract back under
Section 72, allowing tax deferral. However, this exception does not apply when
the non-natural person is an employer that holds the contract under a
non-qualified deferred compensation arrangement for one or more employees.
The non-natural person rule also does not apply to contracts that are:
a) acquired by the estate of a decedent by reason of the death of the
decedent;
b) issued in connection with certain qualified retirement plans and
individual retirement plans;
c) used in connection with certain structured settlements;
d) purchased by an employer upon the termination of certain qualified
retirement plans; or
e) an immediate annuity.
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QUALIFIED PLANS, IRAS, SEP IRAS, AND TAX SHELTERED ANNUITIES
Contract owners looking for information on eligibility, limitations on
permissible amounts of purchase payments, and the tax consequences of
distributions from Qualified Plans, IRAs, SEP IRAs, and Tax Sheltered Annuities
should contact a qualified adviser. The terms of each plan may limit the rights
available under the contracts.
Section 403(b)(1)(E) of the Internal Revenue Code requires a contract issued as
a Tax Sheltered Annuity to limit purchase payments for any year to an amount
that does not exceed the limit set forth in Section 402(g) of the Internal
Revenue Code. This limit is increased from time to time to reflect increases in
the cost of living. This limit may be reduced by deposits, contributions or
payments made to another Tax Sheltered Annuity or other plan, contract or
arrangement by or on behalf of the contract owner.
The Internal Revenue Code allows most distributions from Qualified Plans to be
rolled into other Qualified Plans, IRAs, or SEP IRAs. Most distributions from
Tax Sheltered Annuities may be rolled into another Tax Sheltered Annuity, IRA or
SEP IRA. Distributions that may NOT be rolled over are those that are:
a) one of a series of substantially equal annual (or more frequent)
payments made:
1) over the life (or life expectancy) of the contract owner;
2) over the joint lives (or joint life expectancies) of the contract
owner and the contract owner's designated beneficiary;
3) for a specified period of ten years or more; or
b) a required minimum distribution.
Any distribution that is eligible for rollover will be subject to federal tax
withholding of 20% if the distribution is not rolled into an appropriate plan as
described above.
IRAs and SEP IRAs may not provide life insurance benefits. If the death benefit
exceeds the greater of the contract's cash value or the sum of all purchase
payments (less any surrenders), the contract could be considered life insurance.
Consequently, the Internal Revenue Service could determine that the IRA or SEP
IRA does not qualify for the desired tax treatment.
ROTH IRAS
The contract may be purchased as a Roth IRA. For detailed information on
purchasing and holding this contract as a Roth IRA, the contract owner should
contact a financial adviser.
The Internal Revenue Code allows distributions from Individual Retirement
Accounts and Individual Retirement Annuities to be rolled into Roth IRAs. The
rollovers are subject to federal income tax as distributions from the Individual
Retirement Account or Individual Retirement Annuity.
For rollovers from Individual Retirement Accounts or Individual Retirement
Annuities, all of the income from the rollover will be required to be included
in income in the year of the rollover distribution from the Individual
Retirement Account or Individual Retirement Annuity.
A distribution from a Roth IRA that contains the proceeds of a rollover from an
Individual Retirement Account or Individual Retirement Annuity within the
preceding five years could be subject to a 10% penalty, even if the distribution
is not taxable. In addition, if the rollover from the Individual Retirement
Account or Individual Retirement Annuity was made in 1998, and the income from
that rollover was included in income ratably over a four year period, a
distribution from the Roth IRA within four years of the rollover may result in
the loss of the four year spread, subject to the amount deferred under the four
year election to be taxed immediately.
WITHHOLDING
Pre-death distributions from the contracts are subject to federal income tax.
Nationwide will
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withhold the tax from the distributions unless the contract owner requests
otherwise. Contract owners may not waive withholding if the distribution is
subject to mandatory back-up withholding (if no mandatory taxpayer
identification number is given or if the Internal Revenue Service notifies
Nationwide that mandatory back-up withholding is required), or of it is an
eligible rollover distribution. Mandatory back-up withholding rates are 31% of
income that is distributed.
NON-RESIDENT ALIENS
Generally, a pre-death distribution from a contract to a non-resident alien is
subject to federal income tax at a rate of 30% of the amount of income that is
distributed. Nationwide is required to withhold this amount and send it to the
Internal Revenue Service. Some distributions to non-resident aliens may be
subject to a lower (or no) tax if a treaty applies. In order to obtain the
benefits of such a treaty, the non-resident alien must:
1) provide Nationwide with proof of residency and citizenship (in
accordance with Internal Revenue Service requirements); and
2) provide Nationwide with an individual taxpayer identification number.
If the non-resident alien does not meet the above conditions, Nationwide will
withhold 30% of income from the distribution.
Another way to avoid the 30% withholding is for the non-resident alien to
provide Nationwide with sufficient evidence that:
1) the distribution is connected to the non-resident alien's conduct of
business in the United States; and
2) the distribution is includible in the non-resident alien's gross income
for United States federal income tax purposes.
Note that these distributions may be subject to back-up withholding, currently
31%, if a correct taxpayer identification number is not provided.
FEDERAL ESTATE, GIFT, AND GENERATION SKIPPING TRANSFER TAXES
The following transfers may be considered a gift for federal gift tax purposes:
- a transfer of the contract from one contract owner to another; or
- a distribution to someone other than a contract owner.
Upon the contract owner's death, the value of the contract may be subject to
estate taxes, even if all or a portion of the value is also subject to federal
income taxes.
Section 2612 of the Internal Revenue Code may require Nationwide to determine
whether a death benefit or other distribution is a "direct skip" and the amount
of the resulting generation skipping transfer tax, if any. A direct skip is when
property is transferred to, or a death benefit or other distribution is made to:
a) an individual who is two or more generations younger than the contract
owner; or
b) certain trusts, as described in Section 2613 of the Internal Revenue
Code (generally, trusts that have no beneficiaries who are not 2 or more
generations younger than the contract owner).
If the contract owner is not an individual, then for this purpose ONLY,
"contract owner" refers to any person:
- who would be required to include the contract, death benefit,
distribution, or other payment in his or her federal gross estate at his
or her death; or
- who is required to report the transfer of the contract, death benefit,
distribution, or other payment for federal gift tax purposes.
If a transfer is a direct skip, Nationwide will deduct the amount of the
transfer tax from the death benefit, distribution or other payment, and remit it
directly to the Internal Revenue Service.
PUERTO RICO
Under the Puerto Rico tax code, distributions from a Non-Qualified Contract
before
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annuitization are treated as nontaxable return of principal until the principal
is fully recovered. Thereafter all distributions are fully taxable.
Distributions after annuitization are treated as part taxable income and part
nontaxable return of principal. The amount excluded from gross income after
annuitization is equal to the amount of the distribution in excess of 3% of the
total purchase payments paid, until an amount equal to the total purchase
payments paid has been excluded. Thereafter, the entire distribution is included
in gross income. Puerto Rico does not impose an early withdrawal penalty tax.
Generally, Puerto Rico does not require income tax to be withheld from
distributions of income. A personal adviser should be consulted in these
situations.
CHARGE FOR TAX
Nationwide is not required to maintain a capital gain reserve liability on
Non-Qualified Contracts. If tax laws change requiring a reserve, Nationwide may
implement and adjust a tax charge.
DIVERSIFICATION
Internal Revenue Code Section 817(h) contains rules on diversification
requirements for variable annuity contracts. A variable annuity contract that
does not meet these diversification requirements will not be treated as an
annuity, unless
- the failure to diversify was accidental;
- the failure is corrected; and
- a fine is paid to the Internal Revenue Service.
The amount of the fine will be the amount of tax that would have been paid by
the contract owner if the income, for the period the contract was not
diversified, had been received by the contract owner.
If the violation is not corrected, the contract owner will be considered the
owner of the underlying securities and will be taxed on the earnings of his or
her contract. Nationwide believes that the investments underlying this contract
meet these diversification requirements.
TAX CHANGES
The foregoing tax information is based on Nationwide's understanding of federal
tax laws. It is NOT intended as tax advice. All information is subject to change
without notice. For more details, contact your personal tax and/or financial
advisor.
STATEMENTS AND REPORTS
Nationwide will mail contract owners statements and reports. Therefore, contract
owners should promptly notify Nationwide of any address change.
These mailings will contain:
- statements showing the contract's quarterly activity;
- confirmation statements showing transactions that affect the contract's
value. Confirmation statements will not be sent for recurring
transactions (i.e., Dollar Cost Averaging or salary reduction programs).
Instead, confirmation of recurring transactions will appear in the
contract's quarterly statements;
- annual and semi-annual reports containing all applicable information and
financial statements or their equivalent, which must be sent to the
underlying mutual fund beneficial shareholders as required by the rules
under the Investment Company Act of 1940 for the variable account.
Contract owners should review statements and confirmations carefully. All errors
or corrections must be reported to Nationwide immediately to assure proper
crediting to the contract. Unless Nationwide is notified within 30 days of
receipt of the statement, Nationwide will assume statements and confirmation
statements are correct.
YEAR 2000 COMPLIANCE ISSUES
Nationwide has developed and implemented a plan to address issues related to the
Year 2000. The problem relates to many existing computer systems using only two
digits to identify a year
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in a date field. These systems were designed and developed without considering
the impact of the upcoming change in the century. If not corrected, many
computer systems could fail or create erroneous results when processing
information dated after December 31, 1999. Like many organizations, Nationwide
is required to renovate or replace computer systems so that the systems will
function properly after December 31, 1999.
Nationwide has completed an inventory and assessment of all computer systems and
has implemented a plan to renovate or replace all applications that were
identified as not Year 2000 compliant. Nationwide has renovated all applications
that required renovation. Testing of the renovated programs included running
each application in a Year 2000 environment and was completed as planned during
1998. For applications being replaced, Nationwide had all replacement systems in
place and functioning as planned by year-end 1998. Conversions of existing
traditional life policies will continue through second quarter, 1999. In
addition, the shareholder services system that supports our mutual fund products
will be fully deployed in the first quarter of 1999.
Nationwide has completed an inventory and assessment of all vendor products and
has tested and certified that each vendor product is Year 2000 compliant. Any
vendor products that could not be certified as Year 2000 compliant were replaced
or eliminated in 1998.
Nationwide has also addressed issues associated with the exchange of electronic
data with external organizations. Nationwide has completed an inventory and
assessment of all business partners including electronic interfaces. Processes
have been put into place and programs initiated to process data irrespective of
the format by converting non-compliant data into a Year 2000 compliant format.
Systems supporting Nationwide's infrastructure such as telecommunications, voice
and networks will be compliant by March 1999. Nationwide's assessment of Year
2000 issues has also included non-information technology systems with embedded
computer chips. Nationwide's building systems such as fire, security, and
elevators and escalators supporting facilities in Columbus, Ohio have been
tested and are Year 2000 compliant.
In addition to resolving internal Year 2000 readiness issues, Nationwide is
surveying significant external organizations (business partners) to assess if
they will be Year 2000 compliant and be in a position to do business in the Year
2000 and beyond. Specifically, nationwide has contacted mutual fund
organizations that provide funds for our variable annuity and life products. The
same action will continue during the first quarter of 1999 with wholesale
producers. Nationwide continues its efforts to identify external risk factors
and is planning to develop contingency plans as part of its ongoing risk
management strategy.
Operating expenses in 1998 and 1997 included approximately $44.7 million and
$45.4 million, respectively, for technology projects, including costs related to
Year 2000. Nationwide anticipates spending approximately $5 million on Year 2000
activities in 1999. These expenses do not have an effect on the assets of the
variable account and are not charged through to the contract owner.
Management does not anticipate that the completion of Year 2000 renovation and
replacement activities will result in a reduction in operating expenses. Rather,
personnel and resources currently allocated to Year 2000 issues will be assigned
to other technology-related projects.
LEGAL PROCEEDINGS
Nationwide Life Insurance Company ("Nationwide") is a party to litigation and
arbitration proceedings in the ordinary course of its business, none of which is
expected to have a material adverse effect on Nationwide.
In recent years, life insurance companies have been named as defendants in
lawsuits, including class action lawsuits, relating to life insurance and
annuity pricing and sales practices. A
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number of these lawsuits have resulted in substantial jury awards or
settlements.
In February 1997, Nationwide was named as a defendant in a lawsuit filed in New
York state court related to the sale of whole life policies on a "vanishing
premium" basis (John H. Snyder v. Nationwide Life Insurance Co.). In April 1998,
Nationwide was named as a defendant in a lawsuit filed in Ohio state court
similar to the Snyder case (David and Joan Mishler v. Nationwide Life Insurance
Co.). In August 1998, Nationwide Mutual Insurance Company and Nationwide and the
plaintiffs executed a stipulation of settlement and submitted it to the New York
state court for approval. On August 20, 1998, the court in the Snyder case
signed an order preliminarily approving a class for settlement purposes (which
would include the Mishler case) and scheduled a fairness hearing for December
17, 1998. At that hearing, the court reviewed the fairness and reasonableness of
the proposed settlement and issued a final order and judgment. The approved
settlement provides for dismissal of both the Snyder and Mishler cases, bars
class members from pursuing litigation against Nationwide Mutual Insurance
Company and its affiliates, including Nationwide and its subsidiaries, relating
to the allegations in the Snyder case, and provides class members with a
potential value of approximately $100 million in policy adjustments, discounted
premiums and discounted products.
In November 1997, two plaintiffs, one who was the owner of a variable life
insurance policy and the other who was the owner of a variable annuity contract,
commenced a lawsuit in a federal court in Texas against Nationwide and the
American Century group of defendants (Robert Young and David D. Distad v.
Nationwide Life Insurance Company et al.). In this lawsuit, plaintiffs seek to
represent a class of variable life insurance policy owners and variable annuity
contract owners whom they claim were allegedly misled when purchasing these
variable contracts into believing that the performance of their underlying
mutual fund option managed by American Century, whose shares may only be
purchased by insurance companies, would track the performance of a mutual fund,
also managed by American Century, whose shares are publicly traded. The amended
complaint seeks unspecified compensatory and punitive damages. On April 27,
1998, the district court denied, in part, and granted, in part, Nationwide and
American Century's motions to dismiss the complaint. The remaining claims
against Nationwide allege securities fraud, common law fraud, civil conspiracy
and breach of contract. On December 2, 1998, the district court issued an order
denying plaintiffs' motion for class certification. On December 10, 1998, the
district court stayed the lawsuit pending plaintiffs' petition to the federal
appeals court for interlocutory review of the order denying class certification.
On December 14, 1998, plaintiffs filed their petition for interlocutory review,
on which the federal appeals court has not yet ruled. Nationwide intends to
defend the case vigorously.
On October 29, 1998, Nationwide and certain of its subsidiaries were named in a
lawsuit filed in Ohio state court related to the sale of deferred annuity
products for use as investments in tax-deferred contributory retirement plans
(Mercedes Castillo v. Nationwide Financial Services, Inc., Nationwide Life
Insurance Company and Nationwide Life and Annuity Insurance Company). The
plaintiff in such lawsuit seeks to represent a national class of Nationwide's
customers and seeks unspecified compensatory and punitive damages. Nationwide
currently is evaluating this lawsuit, which has not been certified as a class.
Nationwide intends to defend this lawsuit vigorously.
There can be no assurance that any litigation relating to pricing or sales
practices will not have a material adverse effect on Nationwide in the future.
The general distributor, Nationwide Advisory Services, Inc., is not engaged in
any litigation of any material nature.
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ADVERTISING AND SUB-ACCOUNT PERFORMANCE SUMMARY ADVERTISING
A "yield" and "effective yield" may be advertised for the NSAT Money Market
Fund. "Yield" is a measure of the net dividend and interest income earned over a
specific seven-day period (which period will be stated in the advertisement)
expressed as a percentage of the offering price of the NSAT Money Market Fund's
units. Yield is an annualized figure, which means that it is assumed that the
NSAT Money Market Fund generates the same level of net income over a 52-week
period. The "effective yield" is calculated similarly but includes the effect of
assumed compounding, calculated under rules prescribed by the SEC. The effective
yield will be slightly higher than yield due to this compounding effect.
Nationwide may advertise the performance of a sub-account in relation to the
performance of other variable annuity sub-accounts, underlying mutual fund
options with similar or different objectives, or the investment industry as a
whole. Other investments to which the sub-accounts may be compared include, but
are not limited to:
- precious metals;
- real estate;
- stocks and bonds;
- closed-end funds;
- bank money market deposit accounts and passbook savings;
- CDs; and
- the Consumer Price Index.
Market Indexes
The sub-accounts will be compared to certain market indexes, such as:
- S&P 500;
- Shearson/Lehman Intermediate Government/Corporate Bond Index;
- Shearson/Lehman Long-Term Government/Corporate Bond Index;
- Donoghue Money Fund Average;
- U.S. Treasury Note Index;
- Bank Rate Monitor National Index of 2 1/2 Year CD Rates; and
- Dow Jones Industrial Average.
Tracking & Rating Services; Publications
Nationwide's rankings and ratings are sometimes published by other services,
such as:
- Lipper Analytical Services, Inc.;
- CDA/Wiesenberger;
- Morningstar;
- Donoghue's;
- magazines such as:
- Money;
- Forbes;
- Kiplinger's Personal Finance Magazine;
- Financial World;
- Consumer Reports;
- Business Week;
- Time;
- Newsweek;
- National Underwriter; and
- News and World Report;
- LIMRA;
- Value;
- Best's Agent Guide;
- Western Annuity Guide;
- Comparative Annuity Reports;
- Wall Street Journal;
- Barron's;
- Investor's Daily;
- Standard & Poor's Outlook; and
- Variable Annuity Research & Data Service (The VARDS Report).
These rating services and publications rank the underlying mutual funds'
performance against other funds. These rankings may or may not include the
effects of sales charges or other fees.
Financial Rating Services
Nationwide is also ranked and rated by independent financial rating services,
among which are Moody's, Standard & Poor's and A.M. Best Company. Nationwide may
advertise these ratings. These ratings reflect Nationwide's financial strength
or claims-paying ability. The ratings are not intended to reflect the investment
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experience or financial strength of the variable account.
Some Nationwide advertisements and endorsements may include lists of
organizations, individuals or other parties that recommend Nationwide or the
contract. Furthermore, Nationwide may occasionally advertise comparisons of
currently taxable and tax deferred investment programs, based on selected tax
brackets, or discussions of alternative investment vehicles and general economic
conditions.
Historical Performance of the Sub-Accounts
Nationwide will advertise historical performance of the sub-accounts. Nationwide
may advertise for the sub-account's standardized "average annual total return,"
calculated in a manner prescribed by the SEC, and nonstandardized "total
return." Average annual total return shows the percentage rate of return of a
hypothetical initial investment of $1,000 for the most recent one, five and ten
year periods (or for a period covering the time the underlying mutual fund has
been available in the variable account if it has not been available for one of
the prescribed periods). This calculation reflects the deduction of all charges
that could be made to the contract, except for premium taxes, which may be
imposed by certain states.
Nonstandardized "total return," calculated similar to standardized "average
annual total return," shows the percentage rate of return of a hypothetical
initial investment of $10,000 for the most recent one, five and ten year periods
(or for a period covering the time the underlying mutual fund has been in
existence). For those underlying mutual funds which have not been available for
one of the prescribed periods, the nonstandardized total return illustrations
will show the investment performance the underlying mutual funds would have
achieved (reduced by the same charges except the CDSC) had they been available
in the variable account for one of the periods. The CDSC is not reflected
because the contracts are designed for long term investment. The CDSC, if
reflected, would decrease the level of performance shown. An initial investment
of $10,000 is assumed because that amount is closer to the size of a typical
contract than $1,000, which was used in calculating the standardized average
annual total return.
The standardized average annual total return and nonstandardized total return
quotations are calculated using data for the period ended December 31, 1998.
However, Nationwide generally provides performance information more frequently.
Information relating to performance of the sub-accounts is based on historical
earnings and does not represent or guarantee future results.
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SUB-ACCOUNT PERFORMANCE SUMMARY
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
10 Years
or Date Fund
Available in Date Fund
the Variable Available in
1 Year 5 Years Account the Variable
Sub-Account Option to 12/31/98 to 12/31/98 to 12/31/98 Account
<S> <C> <C> <C> <C>
AIM Variable Insurance Funds, Inc. - AIM V.I. 7.75% N/A -0.85% 11/03/97
Capital Appreciation Fund
AIM Variable Insurance Funds, Inc. - AIM V.I. 3.99% N/A 0.25% 11/03/97
International Equity Fund
American Century Variable Portfolios, Inc. - 5.67% 6.59% 5.28% 08/15/91
American Century VP Advantage
American Century Variable Portfolios, Inc. - -12.98% -1.51% 2.04% 02/14/91
American Century VP Capital Appreciation
American Century Variable Portfolios, Inc. - 15.22% N/A 14.70% 11/03/97
American Century VP Income & Growth
Dreyfus Stock Index Fund, Inc. 16.55% 19.27% 18.09% 09/20/93
The Dreyfus Socially Responsible Growth Fund, Inc. 17.70% N/A 19.48% 05/02/94
Dreyfus Variable Investment Fund - Capital 18.53% N/A 15.79% 11/03/97
Appreciation Portfolio
Dreyfus Variable Investment Fund - Quality Bond -5.88% N/A 0.79% 09/01/95
Portfolio
Dreyfus Variable Investment Fund - Small Cap -14.16% N/A 8.46% 05/02/94
Portfolio
Fidelity VIP Equity-Income Portfolio 0.18% 14.55% 13.56% 09/02/93
Fidelity VIP High Income Portfolio -14.97% N/A 4.82% 05/02/94
Janus Aspen Series - International Growth Portfolio 5.71% N/A 2.06% 11/03/97
NSAT Government Bond Fund -2.51% 2.45% 5.64% 12/17/82
NSAT Money Market Fund -6.10% 0.17% 1.27% 12/07/82
NSAT Nationwide High Income Bond Fund -5.58% N/A -5.07% 11/03/97
NSAT Total Return Fund 6.54% 15.06% 11.71% 12/21/82
Neuberger Berman AMT Balanced Portfolio 0.72% 6.71% 6.77% 02/14/91
Strong Opportunity Fund II, Inc. 2.07% N/A 12.79% 09/01/95
Templeton Variable Products Series Fund - Templeton -2.09% N/A 8.34% 05/02/94
International Fund: Class A
</TABLE>
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NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
10 Years
to 12/31/98
1 Year 5 Years or Life of Date Fund
Sub-Account Option to 12/31/98 to 12/31/98 Fund Effective
<S> <C> <C> <C> <C>
AIM Variable Insurance Funds, Inc. - AIM V.I. 17.45% 15.49% 17.01% 05/05/93
Capital Appreciation Fund
AIM Variable Insurance Funds, Inc. - AIM V.I. 13.69% 9.62% 11.65% 05/05/93
International Equity Fund
American Century Variable Portfolios, Inc. - 15.37% 9.53% 8.06% 08/01/91
American Century VP Advantage
American Century Variable Portfolios, Inc. - -3.73% 1.63% 7.11% 11/20/87
American Century VP Capital Appreciation
American Century Variable Portfolios, Inc. - 24.92% N/A 28.46% 10/30/97
American Century VP Income & Growth
Dreyfus Stock Index Fund, Inc. 26.25% 21.74% 15.36% 09/29/89
The Dreyfus Socially Responsible Growth Fund, Inc. 27.40% 20.61% 21.11% 10/06/93
Dreyfus Variable Investment Fund - Capital 28.23% 21.49% 19.59% 04/05/93
Appreciation Portfolio
Dreyfus Variable Investment Fund - Quality Bond 3.82% 4.80% 7.43% 08/31/90
Portfolio
Dreyfus Variable Investment Fund - Small Cap -5.00% 11.18% 35.40% 08/31/90
Portfolio
Fidelity VIP Equity-Income Portfolio 9.88% 17.00% 13.92% 10/09/86
Fidelity VIP High Income Portfolio -5.87% 7.12% 9.41% 09/19/85
Janus Aspen Series - International Growth Portfolio 15.41% N/A 17.08% 05/02/94
NSAT Government Bond Fund 7.19% 5.60% 7.71% 11/08/82
NSAT Money Market Fund 3.60% 3.39% 3.80% 11/10/81
NSAT Nationwide High Income Bond Fund 4.12% N/A 5.09% 10/31/97
NSAT Total Return Fund 16.24% 17.63% 13.74% 11/08/82
Neuberger Berman AMT Balanced Portfolio 10.42% 9.65% 9.65% 02/28/89
Strong Opportunity Fund II, Inc. 11.77% 15.25% 17.30% 05/08/92
Templeton Variable Products Series Fund - Templeton 7.61% 10.12% 12.45% 05/01/92
International Fund: Class A
</TABLE>
The American Century Variable Portfolios, Inc. - American Century VP Balanced
was added to the variable account on May 1, 1999. Therefore, no sub-account
performance is available.
<TABLE>
<CAPTION>
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
PAGE
<S> <C>
General Information and History...................................................................................1
Services..........................................................................................................1
Purchase of Securities Being Offered..............................................................................2
Underwriters......................................................................................................2
Calculations of Performance.......................................................................................2
Annuity Payments..................................................................................................3
Financial Statements..............................................................................................4
</TABLE>
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APPENDIX A: OBJECTIVES FOR UNDERLYING MUTUAL FUNDS
The underlying mutual funds listed below are designed primarily as investments
for variable annuity contracts and variable life insurance policies issued by
insurance companies.
There is no guarantee that the investment objectives will be met.
AIM VARIABLE INSURANCE FUNDS, INC.
AIM Variable Insurance Funds, Inc. is an open-end, series, management investment
company. Shares of the Funds are currently offered to insurance company separate
accounts to fund benefits of variable annuity contracts and variable life
insurance policies. A I M Advisors, Inc. ("AIM"), the investment advisor for
each Fund, continuously reviews and, from time to time, changes the portfolio
holdings of each Fund in pursuit of each Fund's objective.
AIM V.I. CAPITAL APPRECIATION FUND
The Fund's investment objective is growth of capital through investment in
common stocks, with emphasis on medium and small sized growth
opportunities.
AIM V.I. INTERNATIONAL EQUITY FUND
The Fund's investment objective is to provide long-term growth of capital
by investing in a diversified portfolio of international equity securities
whose issuers are considered to have strong earnings momentum.
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC., A MEMBER OF THE AMERICAN CENTURY(SM)
FAMILY OF INVESTMENTS
American Century Variable Portfolios, Inc. was organized as a Maryland
corporation in 1987. It is a diversified, open-end management investment
company, which offers its shares only as investment vehicles for variable
annuity and variable life insurance products of insurance companies. American
Century Variable Portfolios, Inc. is managed by American Century Investment
Management, Inc.
AMERICAN CENTURY VP ADVANTAGE
Investment Objective: Current income and capital growth. The Fund will seek
to achieve its objective by investing in three types of securities. The
Fund's investment manager intends to invest approximately (i) 20% of the
Fund's assets in securities of the United States government and its
agencies and instrumentalities and repurchase agreements collateralized by
such securities with a weighted average maturity of six months or less,
i.e., cash or cash equivalents; (ii) 40% of the Fund's assets in fixed
income securities of the United States government and its agencies and
instrumentalities with a weighted average maturity of three to ten years;
and (iii) 40% of the Fund's assets in equity securities that are considered
by management to have better-than-average prospects for appreciation.
Assets will be purchased or sold, as the case may be, as is necessary in
response to changes in market value to maintain the asset mix of the Fund's
portfolio at approximately 60% cash, cash equivalents and fixed income
securities and 40% equity securities. There can be no assurance that the
Fund will achieve its investment objective.
AMERICAN CENTURY VP BALANCED
Investment Objective: Capital growth and current income. The Fund will seek
to achieve its objective by maintaining approximately 60% of the assets of
the Fund in common stocks (including securities convertible into common
stocks and other equity equivalents) that are considered by management to
have better-than-average prospects for appreciation and approximately 40%
in fixed income securities. A minimum of 25% of the fixed income portion of
the Fund will be invested in fixed income senior securities. There can be
no assurance that the Fund will achieve its investment objective.
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AMERICAN CENTURY VP CAPITAL APPRECIATION
Investment Objective: Capital growth. The Fund will seek to achieve its
objective by investing in common stocks (including securities convertible
into common stocks and other equity equivalents) that meet certain
fundamental and technical standards of selection and have, in the opinion
of the Fund's investment manager, better than average potential for
appreciation. The Fund tries to stay fully invested in such securities,
regardless of the movement of stock prices generally.
The Fund may invest in cash and cash equivalents temporarily or when it is
unable to find common stocks meeting its criteria of selection. It may
purchase securities only of companies that have a record of at least three
years continuous operation. There can be no assurance that the Fund will
achieve its investment objective.
AMERICAN CENTURY VP INCOME & GROWTH
Investment Objective: Dividend growth, current income and capital
appreciation. The Fund seeks to achieve its investment objective by
investing primarily in common stocks. The investment manager constructs the
portfolio to match the risk characteristics of the S&P 500 Stock Index and
then optimizes each portfolio to achieve the desired balance of risk and
return potential. This includes targeting a dividend yield that exceeds
that of the S&P 500. Such a management technique, known as portfolio
optimization, may cause the Fund to be more heavily invested in some
industries than in others. However, the Fund may not invest more than 25%
of its total assets in companies whose principal business activities are in
the same industry.
DREYFUS STOCK INDEX FUND
The Dreyfus Stock Index Fund, Inc. ("Fund") is an open-end, non-diversified,
management investment company incorporated under Maryland law on January 24,
1989 and commenced operations on September 29, 1989. The Fund offers its shares
only as investment vehicles for variable annuity and variable life insurance
products of insurance companies. The Dreyfus Corporation ("Dreyfus") serves as
the Fund's manager, while Mellon Equity Associates, an affiliate of Dreyfus,
serves as the Fund's index manager.
Investment Objective: 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 Stock
Price Index. The Fund is neither sponsored by nor affiliated with Standard
& Poor's Corporation.
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
The Dreyfus Socially Responsible Growth Fund, Inc. is an open-end, diversified,
management investment company incorporated under Maryland law on July 20, 1992
and commenced operations on October 7, 1993. The Fund offers its share only as
investment vehicles for variable annuity and variable life insurance products of
insurance companies. The Dreyfus Corporation serves as the Fund's investment
adviser. NCM Capital Management Group, Inc. serves as the Fund's sub-investment
adviser and provides day-to-day management of the Fund's portfolio.
Investment Objective: Capital growth through equity investment in companies
that, in the opinion of the Fund's advisers, not only meet traditional
investment standards, but which also show evidence that they conduct their
business in a manner that contributes to the enhancement of the quality of
life in America. Current income is secondary to the primary goal.
DREYFUS VARIABLE INVESTMENT FUND
Dreyfus Variable Investment Fund ("Fund") is an open-end, management investment
company. It was organized as an unincorporated business trust under the laws of
the Commonwealth of Massachusetts on October 29, 1986 and commenced operations
on August 31, 1990. The Fund offers its shares only as investment vehicles for
variable annuity and variable life insurance products of insurance companies.
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The Dreyfus Corporation ("Dreyfus") serves as the Fund's manager. Dreyfus is a
wholly-owned subsidiary of Mellon Bank, N.A., which is a wholly-owned subsidiary
of Mellon Bank Corporation.
CAPITAL APPRECIATION PORTFOLIO
Investment Objective: The Portfolio's primary investment objective is to
provide long-term capital growth consistent with the preservation of
capital; current income is a secondary investment objective. This Portfolio
invests primarily in the common stocks of domestic and foreign issuers.
QUALITY BOND PORTFOLIO
Investment Objective: To provide the maximum amount of current income to
the extent consistent with the preservation of capital and the maintenance
of liquidity. The Portfolio invests in debt obligations of corporations,
the U.S. Government and its agencies and instrumentalities, and major U.S.
banking institutions. At least 80% of the value of the Portfolio's net
assets will consist of obligation of securities issued or guaranteed as to
principal and interest by the U.S. Government or its agencies or
instrumentalities and corporations which, at the time of purchase by the
Portfolio's, are rated at least A by Moody's or Standard & Poor's, or
determined to be of comparable quality by The Dreyfus Corporation. The
Quality Bond Portfolio also may invest in Municipal Obligations. In
addition, at least 65% of the value of the Series assets (except when
maintaining a temporary defensive position) will be invested in bond,
debentures and other debt instruments.
SMALL CAP PORTFOLIO
Investment Objective: Seeks to maximize capital appreciation. The Portfolio
invests principally in common stocks. This Portfolio will be particularly
alert to companies which Dreyfus considers to be emerging smaller-sized
companies believed to be characterized by new or innovative products,
services or processes which should enhance prospects for growth in future
earnings.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
The Fidelity Variable Insurance Products Fund (VIP) is an open-end, diversified,
management investment company organized as a Massachusetts business trust on
November 13, 1981. Shares of VIP are purchased by insurance companies to fund
benefits under variable life insurance policies and variable annuity contracts.
Fidelity Management & Research Company ("FMR") is the manager for VIP Fund and
its portfolios.
VIP EQUITY-INCOME PORTFOLIO
Investment Objective: Reasonable income by investing primarily in
income-producing equity securities. In choosing these securities FMR also
will consider the potential for capital appreciation. The Portfolio's goal
is to achieve a yield which exceeds the composite yield on the securities
comprising the Standard & Poor's 500 Composite Stock Price Index.
VIP HIGH INCOME PORTFOLIO
Investment Objective: High level of current income by investing primarily
in high-risk, lower-rated, high-yielding, fixed-income securities, while
also considering growth of capital. FMR will seek high current income
normally by investing the Portfolio's assets as follows:
- at least 65% in income-producing debt securities and preferred
stocks, including convertible securities
- up to 20% in common stocks and other equity securities when
consistent with the Portfolio's primary objective or acquired as
part of a unit combining fixed-income and equity securities
Higher yields are usually available on securities that are lower-rated or
that are unrated. Lower-rated securities are usually defined as Ba or lower
by Moody's Investor Services, Inc. ("Moody's"); BB or lower by Standard &
Poor's and may be deemed to be of a speculative nature. The Portfolio may
also purchase lower-quality bonds such as those rated Ca3 by Moody's or C-
by Standard & Poor's which provide poor
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protection for payment of principal and interest (commonly referred to as
"junk bonds"). For a further discussion of lower-rated securities, please
see the "Risks of Lower-Rated Debt Securities" section of the Portfolio's
prospectus.
JANUS ASPEN SERIES
The Janus Aspen Series is an open-end, management investment company whose
shares are offered in connection with investment in and payments under variable
annuity contracts and variable life insurance policies, as well as certain
qualified retirement plans. Janus Capital Corporation serves as investment
adviser to each Portfolio.
INTERNATIONAL GROWTH PORTFOLIO
Investment Objective: Seeks long-term growth of capital. It pursues this
objective primarily through investments in common stocks of issuers located
outside the United States. The Portfolio has the flexibility to invest in a
worldwide basis in companies and other organizations of any size,
regardless of country of organization or place of principal business
activity. The Portfolio normally invests at least 65% of its total assets
in securities of issuers from at least five different countries, excluding
the United States. Although the Portfolio intends to invest substantially
all of its assets in issuers located outside the United States, it may at
times invest in U.S. issuers, and it may at times invest all of its assets
in fewer than five countries or even in a single country.
NATIONWIDE SEPARATE ACCOUNT TRUST
Nationwide Separate Account Trust ("NSAT") is a diversified open-end management
investment company created under the laws of Massachusetts. NSAT offers shares
in the funds listed below, each with its own investment objectives. Shares of
NSAT will be sold primarily to life insurance company separate accounts to fund
the benefits under variable life insurance policies and variable annuity
contracts issued by life insurance companies. The assets of NSAT are managed by
Nationwide Advisory Services, Inc. ("NAS"), a wholly-owned subsidiary of
Nationwide Life Insurance Company.
GOVERNMENT BOND FUND
Investment Objective: As high a level of income as is consistent with the
preservation of capital by investing in a diversified portfolio of
securities issued or backed by the U.S. Government, its agencies or
instrumentalities.
MONEY MARKET FUND
Investment Objective: As high a level of current income as is consistent
with the preservation of capital and maintenance of liquidity.
NATIONWIDE HIGH INCOME BOND FUND
Subadviser: Federated Investment Counseling
Investment Objective: Seeks to provide high current income by investing
primarily in a professionally managed, diversified portfolio of fixed
income securities. To meet its objective, the Fund intends to invest at
least 65% of its assets in lower-rated fixed income securities such as
preferred stocks, bonds, debentures, notes, equipment lease certificates
and equipment trust certificates which are rated BBB or lower by S&P or
Fitch Investors Service or Baa or lower by Moody's (or if not rated, are
determined by the Fund's subadviser to be of a comparable quality). Such
investments are commonly referred to as "junk bonds." For a further
discussion of lower-rated securities, please see the "High Yield
Securities" section of the Fund's prospectus. Federated Investment
Counseling serves as the Fund's subadviser.
TOTAL RETURN FUND
Investment Objective: To obtain a reasonable, long-term total return on
invested capital.
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
Neuberger Berman Advisers Management Trust ("NB AMT") is an open-end diversified
management investment company established as a Massachusetts business trust on
December 14,
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1983. Shares of the NB Trust are offered in connection with certain variable
annuity contracts and variable life insurance policies issued through life
insurance company separate accounts and are also offered directly to qualified
pension and retirement plans outside of the separate account context. The
investment adviser is Neuberger Berman Management Incorporated ("NB
Management").
AMT BALANCED PORTFOLIO
Investment Objective: Long-term capital growth and reasonable current
income without undue risk to principal. The Portfolio will seek to achieve
its objective through investment of a portion of its assets in common
stocks and a portion of its assets in debt securities. NB Management
anticipates that the Portfolio's investments will normally be managed so
that approximately 60% of the Portfolio's total assets will be invested in
common stocks and the remaining assets will be invested in debt securities.
However, depending on the NB Management's views regarding current market
trends, the common stock portion of the Portfolio's investments may be
adjusted downward as low as 50% or upward as high as 70%. At least 25% of
the Portfolio's assets will be invested in fixed income senior securities.
STRONG OPPORTUNITY FUND II, INC.
Strong Opportunity Fund II, Inc. is a diversified, open-end management company
commonly called a Mutual Fund. The Strong Opportunity Fund II, Inc. was
incorporated in Wisconsin and may only be purchased by the separate accounts of
insurance companies for the purpose of funding variable annuity contracts and
variable life insurance policies. Strong Capital Management Inc. serves as
investment advisor for the Fund.
Investment Objective: Capital appreciation through investments in a
diversified portfolio of equity securities.
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Templeton Variable Products Series Fund is an open-end, diversified management
investment company organized as a business trust under the laws of Massachusetts
on February 25, 1988. The Trust was organized primarily as an investment vehicle
for use in connection with variable annuity contracts and variable life
insurance policies offered by life insurance companies. The investment manager
is Templeton Investment Counsel, Inc.
TEMPLETON INTERNATIONAL FUND - CLASS A
Investment 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. Any income realized will be
incidental.
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STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1999
DEFERRED VARIABLE ANNUITY CONTRACTS
ISSUED BY NATIONWIDE LIFE INSURANCE COMPANY
THROUGH ITS NATIONWIDE MULTI-FLEX VARIABLE ACCOUNT
This Statement of Additional Information is not a prospectus. It contains
information in addition to and more detailed than set forth in the prospectus
and should be read in conjunction with the prospectus dated May 1, 1999. The
prospectus may be obtained from Nationwide Life Insurance Company by writing
P.O. Box 182437, One Nationwide Plaza, Columbus, Ohio 43216, or calling
1-800-451-0070, TDD 1-800-238-3035.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
General Information and History..................................................................................1
Services.........................................................................................................1
Purchase of Securities Being Offered.............................................................................2
Underwriters.....................................................................................................2
Calculation of Performance.......................................................................................2
Annuity Payments.................................................................................................3
Financial Statements.............................................................................................4
</TABLE>
GENERAL INFORMATION AND HISTORY
Nationwide Multi-Flex Variable Account is a separate investment account of
Nationwide Life Insurance Company ("Nationwide"). Nationwide is a member of the
Nationwide Insurance Enterprise. All of Nationwide's common stock is owned by
Nationwide Financial Services, Inc. ("NFS"), a holding company. NFS has two
classes of common stock outstanding with different voting rights enabling
Nationwide Corporation (the holder of all of the outstanding Class B Common
Stock) to control NFS. Nationwide Corporation is a holding company, as well. All
of its common stock is held by Nationwide Mutual Insurance Company (95.24%) and
Nationwide Mutual Fire Insurance Company (4.76%), the ultimate controlling
persons of Nationwide Insurance Enterprise. The Nationwide Insurance Enterprise
is one of America's largest insurance and financial services family of
companies, with combined assets of over $98.28 billion as of December 31, 1998.
SERVICES
Nationwide, which has responsibility for administration of the contracts and the
variable account, maintains records of the name, address, taxpayer
identification number, and other pertinent information for each contract owner
and the number and type of contract issued to each such contract owner and
records with respect to the contract value of each contract.
The custodian of the assets of the variable account is Nationwide. Nationwide
will maintain a record of all purchases and redemptions of shares of the
underlying mutual fund options. Nationwide, or affiliates of Nationwide, may
have entered into agreements with either the investment adviser or distributor
for several of the underlying mutual funds. The agreements relate to
administrative services furnished by Nationwide or an affiliate of Nationwide
and provide for an annual fee based on the average aggregate net assets of the
variable account (and other separate accounts of Nationwide or life insurance
company subsidiaries of Nationwide) invested in particular underlying mutual
funds. These fees in no way affect the net asset value of the underlying mutual
funds or fees paid by the contract owner.
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The audited financial statements have been included herein in reliance upon the
reports of KPMG LLP, independent certified public accountants, Two Nationwide
Plaza, Columbus, Ohio 43215, and upon the authority of said firm as experts in
accounting and auditing.
PURCHASE OF SECURITIES BEING OFFERED
The contracts will be sold by licensed insurance agents in the states where the
contracts may be lawfully sold. Such agents will be registered representatives
of broker-dealers registered under the Securities Exchange Act of 1934 who are
members of the National Association of Securities Dealers, Inc. ("NASD").
UNDERWRITERS
The contracts, which are offered continuously, are distributed by Nationwide
Advisory Services, Inc. ("NAS"), Three Nationwide Plaza, Columbus, Ohio 43215, a
wholly owned subsidiary of Nationwide. During the fiscal years ended December
31, 1998, 1997, and 1996, no underwriting commissions were paid by Nationwide to
NAS.
CALCULATION OF PERFORMANCE
Any current yield quotations of the NSAT Money Market Fund, subject to Rule 482
of the Securities Act of 1933, will consist of a seven calendar day historical
yield, carried at least to the nearest hundredth of a percent. The yield will be
calculated by determining the net change, exclusive of capital changes, in the
value of a hypothetical pre-existing account having a balance of one
accumulation unit at the beginning of the base period, subtracting a
hypothetical charge reflecting deductions from contract owner accounts, and
dividing the net change in account value by the value of the account at the
beginning of the period to obtain a base period return, and multiplying the base
period return by (365/7) or (366/7) in a leap year. At December 31, 1998, the
NSAT Money Market Fund's seven-day current unit value yield was 3.52%. The NSAT
Money Market Fund effective yield is computed similarly but includes the effect
of assumed compounding on an annualized basis of the current unit value yield
quotations of the fund. At December 31, 1998 the seven-day effective yield was
3.58%.
The NSAT Money Market Fund yield and effective yield will fluctuate daily.
Actual yields will depend on factors such as the type of instruments in the
fund's portfolio, portfolio quality and average maturity, changes in interest
rates, and the fund's expenses. Although the NSAT Money Market Fund determines
its yield on the basis of a seven calendar day period, it may use a different
time period on occasion. The yield quotes may reflect the expense limitation
described "Investment Manager and Other Services" in the NSAT Money Market
Fund's Statement of Additional Information. There is no assurance that the
yields quoted on any given occasion will remain in effect for any period of time
and there is no guarantee that the net asset values will remain constant. It
should be noted that a contract owner's investment in the NSAT Money Market Fund
is not guaranteed or insured. Yields of other money market funds may not be
comparable if a different base period or another method of calculation is used.
All performance advertising will include quotations of standardized average
annual total return, calculated in accordance with a standard method prescribed
by rules of the SEC. Standardized average annual return is found by taking a
hypothetical $1,000 investment in each of the sub-accounts' units on the first
day of the period at the offering price, which is the accumulation unit value
per unit ("initial investment") and computing the ending redeemable value
("redeemable value") of that investment at the end of the period. The redeemable
value is then divided by the initial investment and this quotient is taken to
the Nth root (N represents the number of years in the period) and 1 is
subtracted from the result which is then expressed as a percentage, carried to
at least the nearest hundredth of a percent. Standardized average annual total
return reflects the deduction of a maximum $30 Contract Maintenance Charge and a
1.30% Mortality and Expense Risk Charge (or, if applicable, Actuarial Risk Fee).
The redeemable value also reflects the effect of any applicable CDSC that may be
imposed at the end of the
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period (see "Contingent Deferred Sales Charge" located in the prospectus). No
deduction is made for premium taxes which may be assessed by certain states.
Nonstandardized total return may also be advertised, and is calculated in a
manner similar to standardized average annual total return except the
nonstandardized total return is based on a hypothetical initial investment of
$10,000 and does not reflect the deduction of any applicable CDSC. Reflecting
the CDSC would decrease the level of the performance advertised. The CDSC is not
reflected because the contract is designed for long term investment. An assumed
initial investment of $10,000 will be used because that figure more closely
approximates the size of a typical contract than does the $1,000 figure used in
calculating the standardized average annual total return quotations. The amount
of the hypothetical initial investment used affects performance because the
Contract Maintenance Charge is fixed per contract charge.
The standardized average annual total return and nonstandardized average annual
total return quotations will be current to the last day of the calendar quarter
preceding the date on which an advertisement is submitted for publication. The
standardized average annual return will be based on rolling calendar quarters
and will cover periods of one, five, and ten years, or a period covering the
time the underlying mutual fund has been available in the variable account if
the underlying mutual fund has not been available for one of the prescribed
periods. The nonstandardized annual total return will be based on rolling
calendar quarters and will cover periods of one, five and ten years, or a period
covering the time the underlying mutual fund has been in existence.
ANNUITY PAYMENTS
See "Frequency and Amount of Annuity Payments" located in the prospectus.
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<PAGE> 1
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INDEPENDENT AUDITORS' REPORT
The Board of Directors of Nationwide Life Insurance Company and
Contract Owners of Nationwide Multi-Flex Variable Account:
We have audited the accompanying statement of assets, liabilities and
contract owners' equity of Nationwide Multi-Flex Variable Account as of December
31, 1998, and the related statements of operations and changes in contract
owners' equity for each of the years in the two year period then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1998, by correspondence with
the transfer agents of the underlying mutual funds. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Nationwide Multi-Flex
Variable Account as of December 31, 1998, and the results of its operations and
its changes in contract owners' equity for each of the years in the two year
period then ended in conformity with generally accepted accounting principles.
KPMG LLP
Columbus, Ohio
February 5, 1999
- ----------------------------------------------------------------------------
<PAGE> 2
NATIONWIDE MULTI-FLEX VARIABLE ACCOUNT
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments at market value:
AIM VI -- Capital Appreciation Fund (AIMCapAp)
35,801 shares (cost $824,260) ............................ $ 902,180
AIM VI -- International Equity Fund (AIMIntEq)
7,078 shares (cost $141,544) ............................. 138,867
American Century VP -- American Century
VP Advantage (ACVPAdv)
1,521,309 shares (cost $8,871,864) ....................... 10,557,883
American Century VP -- American Century
VP Capital Appreciation (ACVPCapAp)
2,706,430 shares (cost $26,986,527) ...................... 24,412,001
American Century VP -- American Century
VP Income & Growth (ACVPIncGr)
655,206 shares (cost $3,929,447) ......................... 4,442,295
The Dreyfus Socially Responsible Growth Fund, Inc.
(DrySRGro)
1,231,609 shares (cost $29,684,353) ...................... 38,278,394
Dreyfus Stock Index Fund (DryStkIx)
2,846,471 shares (cost $64,611,510) ...................... 92,567,233
Dreyfus VIF -- Capital Appreciation Portfolio (DryCapAp)
161,441 shares (cost $5,323,592) ......................... 5,829,639
Dreyfus VIF -- Quality Bond Portfolio (DryQualBd)
590,148 shares (cost $6,872,826) ......................... 6,786,701
Dreyfus VIF -- Small Cap Portfolio (DrySmCap)
1,358,914 shares (cost $71,085,983) ...................... 73,259,081
Fidelity VIP -- Equity-Income Portfolio (FidVIPEI)
5,816,138 shares (cost $112,082,448) ..................... 147,846,236
Fidelity VIP -- High Income Portfolio (FidVIPHI)
2,186,201 shares (cost $26,831,321) ..................... 25,206,895
Janus AS -- Janus Aspen International Growth
Portfolio (JanASIntGr)
176,546 shares (cost $3,757,661) ......................... 3,755,142
Nationwide SAT -- Capital Appreciation Fund (NSATCapAp)
2,347,644 shares (cost $36,660,018) ...................... 62,423,858
Nationwide SAT -- Government Bond Fund (NSATGvtBd)
9,184,632 shares (cost $102,920,860) ..................... 107,368,353
Nationwide SAT -- High Income Bond Fund (NSATHIncBd)
28,946 shares (cost $286,837) ............................ 290,622
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
Nationwide SAT -- Money Market Fund (NSATMyMkt)
38,784,037 shares (cost $38,784,037) ..................... 38,784,037
Nationwide SAT -- Total Return Fund (NSATTotRe)
27,821,663 shares (cost $318,169,401) .................... 511,918,605
Neuberger & Berman AMT -- Balanced Portfolio (NBAMTBal)
2,762,700 shares (cost $42,351,459) ...................... 45,142,521
Strong Opportunity Fund II, Inc. (StOpp2)
1,075,487 shares (cost $21,481,784) ...................... 23,359,584
Templeton VPS -- Templeton International Fund --
Class I (TemIntFd)
1,717,540 shares (cost $31,351,488) ...................... 35,535,906
--------------
Total investments ..................................... 1,258,806,033
Accounts receivable .......................................... 6,371
--------------
Total assets .......................................... 1,258,812,404
Accounts payable ............................................... 94,948
--------------
Contract owners' equity (note 4) ...............................$1,258,717,456
==============
</TABLE>
See accompanying notes to financial statements.
- -------------------------------------------------------------------------------
<PAGE> 4
NATIONWIDE MULTI-FLEX VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNER'S EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
TOTAL AIMCAPAP AIMINTEQ ACVPADV
----------------------- -------------- ------------ ----------------
1998 1997 1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment activity:
Reinvested dividends................... $ 20,842,641 22,670,838 1,303 5 1,210 1 216,901 158,735
Mortality, expense and administration
charges (note 2)..................... (16,314,807) (14,230,283) (6,208) (12) (891) (2) (124,133) (128,515)
-------------- ------------- ------- ------ --------- --- ---------- ----------
Net investment activity.............. 4,527,834 8,440,555 (4,905) (7) 319 (1) 92,768 30,220
-------------- ------------- ------- ------ --------- --- ---------- ----------
Proceeds from mutual fund shares sold.. 270,437,065 93,597,620 43,627 -- 25,294 -- 1,825,984 1,974,464
Cost of mutual fund shares sold........ (162,114,095) (74,653,108) (39,795) -- (24,275) -- (1,514,576) (1,635,650)
-------------- ------------- ------- ------ --------- --- ---------- ----------
Realized gain (loss) on investments.. 108,322,970 18,944,512 3,832 -- 1,019 -- 311,408 338,814
Change in unrealized gain (loss)
on investments....................... (2,435,061) 143,730,354 77,316 603 (2,795) 118 252,847 195,541
-------------- ------------- ------- ------ --------- --- ---------- ----------
Net gain (loss) on investments....... 105,887,909 162,674,866 81,148 603 (1,776) 118 564,255 534,355
-------------- ------------- ------- ------ --------- --- ---------- ----------
Reinvested capital gains............... 45,381,013 36,308,617 23,090 66 -- 4 816,147 548,350
-------------- ------------- ------- ------ --------- --- ---------- ----------
Net increase (decrease) in contract
owners' equity resulting from
operations......................... 155,796,756 207,424,038 99,333 662 (1,457) 121 1,473,170 1,112,925
-------------- ------------- ------- ------ --------- --- ---------- ----------
Equity transactions:
Purchase payments received from
contract owners...................... 171,010,136 173,043,544 454,482 6,451 46,314 5,619 572,977 764,476
Transfers between funds................ -- -- 374,739 18,462 93,540 120 (351,854) (1,266,044)
Redemptions............................ (285,564,514) (97,519,435) (51,115) -- (5,180) -- (1,112,420) (944,093)
Annuity benefits....................... (113,703) (99,001) -- -- -- -- (23) (7)
Annual contract maintenance charge
(note 2)............................. (1,959,464) (1,743,035) (633) (2) (171) -- (15,231) (16,700)
Contingent deferred sales charges
(note 2)............................. (944,022) (824,723) (200) -- (39) -- (13,255) (14,965)
Adjustments to maintain reserves....... 5,561 22,836 3 (3) (4) (1) 77 12
-------------- ------------- ------- ------ --------- --- ---------- -----------
Net equity transactions.............. (117,566,006) 72,880,186 777,276 24,908 134,460 5,738 (919,729) (1,477,321)
-------------- ------------- ------- ------ --------- --- ---------- ----------
Net change in contract owners' equity.... 38,230,750 280,304,224 876,609 25,570 133,003 5,859 553,441 (364,366)
Contract owners' equity beginning
of period.............................. 1,220,486,706 940,182,482 25,570 -- 5,859 -- 10,004,517 10,368,913
-------------- ------------- ------- ------ --------- --- ---------- ----------
Contract owners' equity end of period.... $1,258,717,456 1,220,486,706 902,179 25,570 138,862 5,859 10,557,958 10,004,517
============== ============= ======= ====== ========= === ========== ==========
</TABLE>
<PAGE> 5
NATIONWIDE MULTI-FLEX VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
ACVPCapAp ACVPIncGr DrySRGro Drystklx
---------------- ----------------- ----------------- --------------------
1998 1997 1998 1997 1998 1997 1998 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment activity:
Reinvested dividends.............$ -- -- 22,466 -- 59,690 75,046 990,158 633,022
Mortality, expense
and administration
charges (note 2)............... (347,914) (488,542) (28,528) (77) (377,408) (179,325) (955,725) (504,354)
----------- ---------- ---------- ------- ----------- ----------- ----------- ----------
Net investment activity........ (347,914) (488,542) (6,062) (77) (317,718) (104,279) 34,433 128,668
----------- ---------- ---------- ------- ----------- ----------- ----------- ----------
Proceeds form mutual
fund shares sold................ 7,431,160 11,459,625 247,808 557 863,412 421,736 1,666,853 707,521
Cost of mutual fund
shares sold..................... (7,063,514) (9,640,042) (230,017) (538) (500,142) (251,714) (804,459) (457,827)
----------- ---------- ---------- ------- ----------- ----------- ----------- ----------
Realized gain (loss)
on investments................ 367,646 1,819,583 17,791 19 363,270 170,022 862,394 249,694
Change in unrealized
gain (loss) on investments..... (2,548,105) (3,909,793) 511,807 1,041 5,900,793 2,221,298 16,211,739 7,644,619
----------- ---------- ---------- ------- ----------- ----------- ----------- ----------
Net gain (loss) on
investments.................. (2,180,459) (2,090,210) 529,598 1,060 6,264,063 2,391,320 17,074,133 7,894,313
----------- ---------- ---------- ------- ----------- ----------- ----------- ----------
Reinvested capital gains........ 1,515,406 818,434 2,123 -- 1,386,849 585,969 182,250 1,507,200
----------- ---------- ---------- ------- ----------- ----------- ----------- ----------
Net increase (decrease) in
contract owners'
equity resulting
from operations........... (1,012,967) (1,760,318) 525,659 983 7,333,194 2,873,010 17,290,816 9,530,181
----------- ---------- ---------- ------- ----------- ----------- ----------- ----------
Equity transactions:
Purchase payments received from
contract owners................. 2,220,641 3,208,021 1,844,875 22,410 10,576,613 8,956,132 19,460,169 15,881,608
Transfers between funds.......... (5,465,509) (9,312,700) 2,112,196 193,474 1,465,431 2,728,693 7,196,900 9,231,643
Redemptions...................... (3,562,186) (4,504,076) (254,487) -- (1,776,381) (588,429) (5,731,400) (1,971,994)
Annuity benefits................. (190) (7) -- -- -- -- (2,559) --
Annual contract maintenance
charge (note 2)................. (50,076) (72,900) (2,425) (17) (83,289) (41,768) (145,678) (80,253)
Contingent deferred sales
charges (note 2)................ (49,503) (78,351) (342) -- (18,094) (8,178) (62,149) (22,485)
Adjustment to maintain reserves.. 513 (174) 259 9 428 (21) 2,514 1,530
----------- ---------- ---------- ------- ----------- ----------- ----------- ----------
Net equity transactions..... (6,906,310)(10,760,187) 3,700,076 215,876 10,164,708 11,046,429 20,717,797 23,040,049
----------- ---------- ---------- ------- ----------- ----------- ----------- ----------
Net change in contract
owners' equity.................. (7,919,277)(12,520,505) 4,225,735 216,859 17,497,902 13,919,439 38,008,613 32,570,230
Contract owners' equity
beginning of period ............ 32,331,863 44,852,368 216,859 -- 20,780,931 6,861,492 54,561,165 21,990,935
----------- ---------- ---------- ------- ----------- ----------- ----------- ----------
Contract owners' equity
end of period................... $24,412,586 32,331,863 4,442,594 216,859 38,278,833 20,780,931 92,569,778 54,561,165
=========== ========== ========== ======= =========== =========== =========== ==========
</TABLE>
(Continued)
<PAGE> 6
NATIONWIDE MULTI-FLEX VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
DryCapAp DryQualBd DrySmCap FidVIPEI
------------------ -------------------- ---------------------- ------------------------
1998 1997 1998 1997 1998 1997 1998 1997
---------- ------ --------- --------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment activity:
Reinvested dividends ................ $ 29,273 205 336,884 214,911 252 66,440 1,767,643 1,376,653
Mortality, expense and
administration charges (note 2) .. (28,062) (16) (76,197) (43,572) (883,862) (618,547) (1,811,344) (1,336,938)
---------- ------ --------- --------- ---------- ---------- ----------- -----------
Net investment activity ........... 1,211 189 260,687 171,339 (883,610) (552,107) (43,701) 39,715
---------- ------ --------- --------- ---------- ---------- ----------- -----------
Proceeds from mutual fund shares
sold .............................. 232,731 -- 794,218 376,870 2,151,154 577,816 6,079,485 1,484,034
Cost of mutual fund shares sold ..... (209,881) -- (762,578) (380,850) (1,434,829) (353,809) (3,887,729) (998,925)
---------- ------ --------- --------- ---------- ---------- ----------- -----------
Realized gain (loss) on
investments ..................... 22,850 -- 31,640 (3,980) 716,325 224,007 2,191,756 485,109
Change in unrealized gain (loss)
on investments .................... 506,293 (245) (184,062) 83,709 (4,434,714) 3,539,427 4,573,114 15,867,413
---------- ------ --------- --------- ---------- ---------- ----------- -----------
Net gain (loss) on investments .... 529,143 (245) (152,422) 79,729 (3,718,389) 3,763,434 6,764,870 16,352,522
---------- ------ --------- --------- ---------- ---------- ----------- -----------
Reinvested capital gains ............ 186 17 103,635 29,382 1,336,663 3,506,010 6,290,729 6,921,505
---------- ------ --------- --------- ---------- ---------- ----------- -----------
Net increase (decrease) in
contract owners' equity
resulting from operations ..... 530,540 (39) 211,900 280,450 (3,265,336) 6,717,337 13,011,898 23,313,742
---------- ------ --------- --------- ---------- ---------- ----------- -----------
Equity transactions:
Purchase payments received from
contract owners ................... 2,080,221 11,423 2,019,788 2,268,714 23,152,760 24,803,583 23,845,625 25,054,542
Transfers between funds ............. 3,450,453 21,796 517,074 (54,361) (3,926,582) 2,005,819 279,782 4,912,332
Redemptions ......................... (261,044) -- (643,999) (90,499) (5,065,492) (3,029,006) (13,156,692) (7,187,817)
Annuity benefits .................... -- -- -- -- -- -- (1,823) (998)
Annual contract maintenance
charge (note 2) ................... (2,389) (4) (14,669) (10,521) (220,760) (190,393) (238,894) (217,473)
Contingent deferred sales
charges (note 2) .................. (1,172) -- (7,839) (1,276) (64,756) (31,745) (141,165) (84,502)
Adjustments to maintain reserves .... (137) 5 113 96 (511) (50) 409 1,072
---------- ------ --------- --------- ---------- ---------- ----------- -----------
Net equity transactions ......... 5,265,932 33,220 1,870,468 2,112,153 13,874,659 23,558,208 10,587,242 22,477,156
---------- ------ --------- --------- ---------- ---------- ----------- -----------
Net change in contract owners' equity . 5,796,472 33,181 2,082,368 2,392,603 10,609,323 30,275,545 23,599,140 45,790,898
Contract owners' equity beginning
of period ........................... 33,181 -- 4,704,446 2,311,843 62,649,484 32,373,939 124,247,535 78,456,637
---------- ------ --------- --------- ---------- ---------- ----------- -----------
Contract owners' equity end of period . $5,829,653 33,181 6,786,814 4,704,446 73,258,807 62,649,484 147,846,675 124,247,535
========== ====== ========= ========= ========== ========== =========== ===========
</TABLE>
<PAGE> 7
NATIONWIDE MULTI-FLEX VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
FidVIPHI JanASIntGr NSATCapAp NSATGvtBd
----------------------- ----------------- ----------------------- ------------------------
1998 1997 1998 1997 1998 1997 1998 1997
----------- ---------- --------- ------ ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
----------- ---------- --------- ------ ----------- ---------- ----------- -----------
Investment activity:
Reinvested dividends............... $ 1,423,227 662,094 22,540 33 520,711 621,889 5,973,305 7,524,704
Mortality, expense and
administration charges (note 2).. (303,847) (177,447) (22,121) (22) (871,653) (771,115) (1,492,699) (1,616,047)
----------- ---------- --------- ------ ----------- ---------- ----------- -----------
Net investment activity.......... 1,119,380 484,647 419 11 (350,942) (149,226) 4,480,606 5,908,657
----------- ---------- --------- ------ ----------- ---------- ----------- -----------
Proceeds from mutual fund shares
sold............................. 487,817 328,986 260,312 -- 27,191,128 4,734,284 30,298,498 19,995,640
Cost of mutual fund shares sold.... (433,912) (284,239) (262,817) -- (12,328,964) (2,574,052) (29,393,218) (20,441,064)
----------- ---------- --------- ------ ----------- ---------- ----------- -----------
Realized gain (loss) on
investments.................... 53,905 44,747 (2,505) -- 14,862,164 2,160,232 905,280 (445,424)
Change in unrealized gain (loss) on
investments...................... (3,585,376) 1,402,718 (2,299) (219) (11,772) 12,931,948 2,221,884 4,216,681
----------- ---------- --------- ------ ----------- ---------- ----------- -----------
Net gain (loss) on investments... (3,531,471) 1,447,465 (4,804) (219) 14,850,392 15,092,180 3,127,164 3,773,257
----------- ---------- --------- ------ ----------- ---------- ----------- -----------
Reinvested capital gains........... 904,342 81,832 3,054 -- 1,743,763 1,431,110 515,384 --
----------- ---------- --------- ------ ----------- ---------- ----------- -----------
Net increase (decrease) in
contract owners' equity
resulting from operations...... (1,507,749) 2,013,944 (1,331) (208) 16,243,213 16,374,064 8,123,154 9,681,914
----------- ---------- --------- ------ ----------- ---------- ----------- -----------
Equity transactions:
Purchase payments received from
contract owners.................. 8,511,396 7,922,442 1,682,674 4,995 4,344,587 3,933,159 6,311,434 6,432,559
Transfers between funds............ 506,824 1,346,162 2,201,050 26,016 1,551,729 3,829,604 2,143,077 (8,165,800)
Redemptions........................ (1,543,731) (594,910) (155,078) -- (27,248,088) (4,705,611) (31,796,007) (14,959,843)
Annuity benefits................... -- -- -- -- (5,545) (4,444) (18,715) (18,506)
Annual contract maintenance charge
(note 2)......................... (62,035) (42,994) (2,187) -- (69,163) (61,538) (143,045) (159,430)
Contingent deferred sales charges
(note 2)......................... (17,150) (7,262) (787) -- (37,866) (36,519) (91,476) (128,121)
Adjustments to maintain reserves... (47) 44 12 (1) 829 1,147 (2,276) 2,917
----------- ---------- --------- ------ ----------- ---------- ----------- -----------
Net equity transactions.......... 7,395,257 8,623,482 3,725,684 31,010 (21,463,517) 2,955,798 (23,597,008) (16,996,224)
----------- ---------- --------- ------ ----------- ---------- ----------- -----------
Net change in contract owners'
equity............................. 5,887,508 10,637,426 3,724,353 30,802 (5,220,304) 19,329,862 (15,473,854) (7,314,310)
Contract owners' equity beginning of
period............................. 19,319,305 8,681,879 30,802 -- 67,645,086 48,315,224 122,839,668 130,153,978
----------- ---------- --------- ------ ----------- ---------- ----------- -----------
Contract owners' equity end of
period............................. $25,206,813 19,319,305 3,755,155 30,802 62,424,782 67,645,086 107,365,814 122,839,668
=========== ========== ========= ====== =========== ========== =========== ===========
</TABLE>
(Continued)
<PAGE> 8
NATIONWIDE MULTI-FLEX VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
NSATHIncBd NSATMyMkt NSATTotRe NBAMTBal
---------------- ----------------- ----------------- --------------------
1998 1997 1998 1997 1998 1997 1998 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment activity:
Reinvested dividends............ $ 12,442 30 2,073,211 2,286,364 5,590,811 7,841,110 1,016,529 704,341
Mortality, expense and
administration charges
(note 2)........................ (2,277) (4) (527,889) (583,593) (7,193,698) (6,817,098) (569,585) (534,476)
--------- ----- ----------- ----------- ----------- ----------- ---------- ---------
Net investment activity....... 10,165 26 1,545,322 1,702,771 (1,602,887) 1,024,012 446,944 169,865
--------- ----- ----------- ----------- ----------- ----------- ---------- ----------
Proceeds from mutual fund shares
sold........................... 232,973 -- 27,802,187 22,275,683 155,161,671 24,399,427 4,701,654 4,206,979
Cost of mutual fund shares
sold........................... (238,033) -- (27,802,187) (22,275,683) (68,662,100) (11,146,678) (4,516,095) (3,740,040)
--------- ----- ----------- ----------- ----------- ----------- ---------- -----------
Realized gain (loss)
on investments................ (5,060) -- -- -- 86,499,571 13,252,549 185,559 466,939
Change in unrealized
gain (loss) on investments.... 3,767 18 -- -- (18,444,180) 92,265,314 (3,399,106) 4,192,554
--------- ----- ----------- ----------- ----------- ----------- ---------- ----------
Net gain (loss) on
investments.................. (1,293) 18 -- -- 68,055,391 105,517,863 (3,213,547) 4,659,493
--------- ----- ----------- ----------- ----------- ----------- ---------- ----------
Reinvested capital gains........ -- -- -- -- 19,993,831 18,191,970 7,139,906 1,807,809
-------- ----- ----------- ----------- ----------- ----------- ---------- ---------
Net increase (decrease) in
contract owners' equity
resulting from operations.... 8,872 44 1,545,322 1,702,771 86,446,335 124,733,845 4,373,303 6,637,167
--------- ----- ----------- ----------- ---------- ----------- ---------- ----------
Equity transactions:
Purchase payments received from
contract owners................. 231,833 70 9,331,757 16,515,995 32,910,520 35,235,957 4,215,700 3,791,197
Transfers between funds.......... 61,586 2,734 (720,419) (13,814,402) (7,086,137) 7,251,400 (1,509,657) (2,569,977)
Redemptions...................... (14,158) -- (13,718,112) (8,106,654) (170,647,039) (45,327,124) (4,853,908) (3,117,346)
Annuity benefits................. -- -- (4,505) (4,656) (80,283) (70,375) (60) (8)
Annual contract maintenance
charge (note 2)................. (230) -- (53,369) (59,936) (657,048) (623,664) (65,141) (67,133)
Contingent deferred sales
charges (note 2)................ (128) -- (61,733) (47,539) (272,491) (290,852) (61,893) (53,200)
Adjustment to maintain reserves.. (8) -- 3,489 (112) 37 17,772 72 402
--------- ----- ----------- ----------- ----------- ----------- ---------- -----------
Net equity transactions...... 278,895 2,804 (5,222,892) (5,517,304) (145,832,441) (3,806,886) (2,274,887) (2,016,065)
--------- ----- ---------- ----------- ----------- ----------- ---------- -----------
Net change in contract owners'
equity......................... 287,767 2,848 (3,677,570) (3,814,533) (59,386,106) 120,926,959 2,098,416 4,621,102
Contract owners' equity
beginning of period............. 2,848 -- 42,366,073 46,180,606 571,309,010 450,382,051 43,044,453 38,423,351
--------- ----- ----------- ----------- ----------- ----------- ---------- -----------
Contract owners' equity end of
period.......................... $ 290,615 2,848 38,688,503 42,366,073 511,922,904 571,309,010 45,142,869 43,044,453
========== ===== ========== =========== =========== =========== ========== ==========
</TABLE>
<PAGE> 9
NATIONWIDE MULTI-FLEX VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
StOpp2 TemIntFd
------------------- ------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Investment activity:
Reinvested dividends..................... $ 52,459 38,347 731,626 466,908
Mortality, expense and administration
charges (note 2)...................... (248,876) (128,404) (441,890) (302,177)
----------- ---------- ---------- ----------
Net investment activity............... (196,417) (90,057) 289,736 164,731
----------- ---------- ---------- ----------
Proceeds from mutual fund shares sold.... 569,604 82,371 2,369,495 571,627
Cost of mutual fund shares sold.......... (457,623) (69,365) (1,547,351) (402,432)
----------- ---------- ---------- ----------
Realized gain (loss) on investments... 111,981 13,006 822,144 169,195
Change in unrealized gain (loss) on
investments............................ 46,665 1,422,166 (128,877) 1,653,443
----------- ---------- ---------- ----------
Net gain (loss) on investments........ 158,646 1,435,172 693,267 1,822,638
----------- ---------- ---------- ----------
Reinvested capital gains................. 2,115,597 691,280 1,308,058 187,679
----------- ---------- ---------- ----------
Net increase (decrease) in contract
owners' equity resulting from
operations....................... 2,077,826 2,036,395 2,291,061 2,175,048
----------- ---------- ---------- ----------
Equity transactions:
Purchase payments received from
contract owners....................... 7,498,780 6,100,729 9,696,990 12,123,462
Transfers between funds................. 495,807 1,528,491 (3,390,030) 2,086,538
Redemptions............................. (1,150,570) (534,715) (2,817,427) (1,857,318)
Annuity benefits........................ - - - -
Annual contract maintenance charge
(note 2).............................. (51,449) (34,063) (81,582) (64,246)
Contingent deferred sales charges
(note 2).............................. (10,724) (7,263) (31,260) (12,465)
Adjustments to maintain reserves........ 83 (368) (294) (1,440)
----------- ---------- ---------- ----------
Net equity transactions.............. 6,781,927 7,052,811 3,376,397 12,274,531
----------- ---------- ---------- ----------
Net change in contract owners' equity..... 8,859,753 9,089,206 5,667,458 14,449,579
Contract owners' equity beginning of
period.................................. 14,499,894 5,410,688 29,868,157 15,418,578
----------- ---------- ---------- ----------
Contract owners' equity end of period..... $23,359,647 14,499,894 35,535,615 29,868,157
=========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 10
NATIONWIDE MULTI-FLEX VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997
(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 American Century VP -- American Century
VP 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:
Funds of the AIM Variable Insurance Funds, Inc. (AIM VI);
AIM VI -- Capital Appreciation Fund (AIMCapAp)*
AIM VI -- International Equity Fund (AIMIntEq)*
Portfolios of the American Century Variable Portfolios, Inc.
(American Century VP);
American Century VP -- American Century VP Advantage (ACVPAdv)*
American Century VP -- American Century VP Capital Appreciation
(ACVPCapAP)*
American Century VP -- American Century VP Income & Growth (ACVPIncGr)*
The Dreyfus Socially Responsible Growth Fund, Inc. (DrySRGro)*
Dreyfus Stock Index Fund (DryStkIx)*
Portfolios of the Dreyfus Variable Investment Fund (Dreyfus VIF);
Dreyfus VIF -- Capital Appreciation Portfolio (DryCapAp)*
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)*
Portfolio of the Janus Aspen Series (Janus AS);
Janus AS -- Janus Aspen International Growth Portfolio (JanASIntGr)*
Funds of the Nationwide Separate Account Trust (Nationwide SAT)
(managed for a fee by an affiliated investment advisor);
Nationwide SAT -- Capital Appreciation Fund (NSATCapAp)
(not available to contracts established under NEA Valuebuilder)
Nationwide SAT -- Government Bond Fund (NSATGvtBd)
Nationwide SAT -- High Income Bond Fund (NSATHIncBd)*
Nationwide SAT -- Money Market Fund (NSATMyMkt)
Nationwide SAT -- Total Return Fund (NSATTotRe)
<PAGE> 11
Portfolio of the Neuberger & Berman Advisers Management Trust
(Neuberger & Berman AMT);
Neuberger & Berman AMT -- Balanced Portfolio (NBAMTBal)*
Strong Opportunity Fund II, Inc. (StOpp2)*
Portfolio of the Templeton Variable Products Series Fund
(Templeton VPS);
Templeton VPS -- Templeton International Fund -- Class I (TemIntFd)*
At December 31, 1998, 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.
A contract owner may choose from among a number of different underlying
mutual fund options. The underlying mutual fund options are not
available to the general public directly. The underlying mutual funds
are available as investment options in variable life insurance policies
or variable annuity contracts issued by life insurance companies or, in
some cases, through participation in certain qualified pension or
retirement plans.
Some of the underlying mutual funds have been established by investment
advisers which manage publicly traded mutual funds having similar names
and investment objectives. While some of the underlying mutual funds may
be similar to, and may in fact be modeled after, publicly traded mutual
funds, the underlying mutual funds are not otherwise directly related to
any publicly traded mutual fund. Consequently, the investment
performance of publicly traded mutual funds and any corresponding
underlying mutual funds may differ substantially.
(c) Security Valuation, Transactions and Related Investment Income
The market value of the underlying mutual funds is based on the closing
net asset value per share at December 31, 1998. 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.
<PAGE> 12
The following contract charges are deducted by the Company: (a) an annual
contract maintenance charge of up to $30, dependent upon contract type and
issue date, 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; for NEA Valuebuilder Annuity
contracts issued before November 3, 1997, or in states which have not
approved the applicable contract modifications, a mortality and expense risk
charge and an administrative charge assessed through the daily unit value
calculation equal to an annual rate of 1.25% and .05%, respectively; for NEA
Valuebuilder Annuity contracts issued on or after the later of November 3,
1997, or the date on which state insurance authorities approve corresponding
contract modifications, an actuarial risk charge assessed through the daily
unit value calculation equal to an annual rate of 1.30%. No charges were
deducted from the initial funding, or from earnings thereon.
(3) RELATED PARTY TRANSACTIONS
The Company performs various services on behalf of the Mutual Fund Companies
in which the Account invests and may receive fees for the services
performed. These services include, among other things, shareholder
communications, preparation, postage, fund transfer agency and various other
record keeping and customer service functions. These fees are paid to an
affiliate of the Company.
*This fund is only available for contracts issued to Plans established under the
NEA Valuebuilder Annuity.
<PAGE> 13
(4) Components of Contract owners' equity
The following is a summary of contract owners' equity at December 31, 1998,
for each series, in both the accumulation and payout phases.
Contract owners' equity represented by:
<TABLE>
<CAPTION>
Contracts in accumulation phase: Units Unit Value Annual Return*
----- ---------- -------------------------
<S> <C> <C> <C> <C>
AIM VI -- Capital Appreciation Fund:
Tax qualified.......................... 75,146 $11.184821 $ 840,495 18%
Non-tax qualified...................... 5,515 11.184821 61,684 18%
AIM VI -- International Equity Fund:
Tax qualified......................... 11,832 11.300603 133,709 14%
Non-tax qualified..................... 456 11.300603 5,153 14%
American Century VP -- American Century
VP Advantage:
Tax qualified......................... 398,890 18.104123 7,221,554 16%
Non-tax qualified..................... 156,743 18.104123 2,837,695 16%
Initial Funding By Depositor.......... 25,000 19.938436 498,461 17%
American Century VP -- American Century
VP Capital Appreciation:
Tax qualified......................... 1,194,132 14.321327 17,101,555 (3)%
Non-tax qualified..................... 509,808 14.321327 7,301,127 (3)%
American Century VP -- American Century
VP Income & Growth:
Tax qualified......................... 319,965 13.027526 4,168,352 25%
Non-tax qualified..................... 21,051 13.027526 274,242 25%
The Dsryfus Socially Responsible
Growth Fund, Inc.:
Tax qualified......................... 1,409,837 25.825425 36,409,640 28%
Non-tax qualified..................... 72,378 25.825425 1,869,193 28%
Dreyfus Stock Index Fund:
Tax qualified......................... 2,822,344 27.730490 78,264,982 27%
Non-tax qualified..................... 515,394 27.730490 14,292,128 27%
Dreyfus VIF -- Capital Appreciation
Portfolio:
Tax qualified......................... 410,871 13.166473 5,409,722 29%
Non-tax qualified..................... 31,894 13.166473 419,931 29%
Dreyfus VIF -- Quality Bond Portfolio:
Tax qualified......................... 529,887 12.008318 6,363,052 4%
Non-tax qualified..................... 35,289 12.008318 423,762 4%
Dreyfus VIF -- Small Cap Portfolio:
Tax qualified......................... 4,221,501 16.742421 70,678,147 (5)%
Non-tax qualified..................... 154,139 16.742421 2,580,660 (5)%
Fidelity VIP -- Equity-Income Portfolio:
Tax qualified......................... 5,377,059 22.645632 121,766,899 10%
Non-tax qualified..................... 1,151,378 22.645632 26,073,682 10%
Fidelity VIP -- High Income Portfolio:
Tax qualified......................... 1,649,380 14.538235 23,979,074 (6)%
Non-tax qualified..................... 84,449 14.538235 1,227,739 (6)%
Janus AS -- Janus Aspen
International Growth Portfolio:
Tax qualified......................... 313,231 11.516019 3,607,174 16%
Non-tax qualified..................... 12,850 11.516019 147,981 16%
</TABLE>
(Continued)
<PAGE> 14
<TABLE>
<S> <C> <C> <C> <C>
Nationwide SAT -- Capital Appreciation Fund:
Tax qualified................................ 1,478,599 30.616503 45,269,531 28%
Non-tax qualified............................ 558,311 30.616503 17,093,530 28%
Nationwide SAT -- Government Bond Fund:
Tax qualified................................ 2,177,680 35.013105 76,247,338 7%
Non-tax qualified............................ 885,231 35.026017 31,006,116 7%
Nationwide SAT -- High Income Bond Fund:
Tax qualified................................ 26,163 10.658111 278,848 4%
Non-tax qualified............................ 1,104 10.658111 11,767 4%
Nationwide SAT -- Money Market Fund:
Tax qualified................................ 1,325,652 21.944976 29,091,401 4%
Non-tax qualified............................ 401,628 23.843612 9,576,262 4%
Nationwide SAT -- Total Return Fund:
Tax qualified................................ 4,128,211 92.558757 382,102,079 17%
Non-tax qualified............................ 1,438,302 89.896489 129,298,300 17%
Neuberger & Berman AMT -- Balanced Portfolio:
Tax qualified................................ 1,672,034 20.316082 33,969,180 11%
Non-tax qualified............................ 549,897 20.316082 11,171,753 11%
Strong Opportunity Fund II, Inc.:
Tax qualified................................ 1,309,839 16.920120 22,162,633 12%
Non-tax qualified............................ 70,745 16.920120 1,197,014 12%
Templeton VPS -- Templeton International Fund:
Tax qualified................................ 2,030,341 16.833378 34,177,498 8%
Non-tax qualified............................ 80,680 16.833378 1,358,117 8%
========= =========
Reserves for annuity contracts in payout phase:
Tax qualified................................ 460,852
Non-tax qualified............................ 287,444
--------------
$1,258,717,456
==============
</TABLE>
* The annual return does not include contract charges satisfied by surrendering
units.
16
<PAGE> 65
<PAGE> 1
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Nationwide Life Insurance Company:
We have audited the accompanying consolidated balance sheets of Nationwide Life
Insurance Company and subsidiaries (collectively the Company), a wholly owned
subsidiary of Nationwide Financial Services, Inc., as of December 31, 1998 and
1997, and the related consolidated statements of income, shareholder's equity
and cash flows for each of the years in the three-year period ended December 31,
1998. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Nationwide Life
Insurance Company and subsidiaries as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally accepted
accounting principles.
KPMG LLP
Columbus, Ohio
January 29, 1999
<PAGE> 2
<TABLE>
<CAPTION>
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Balance Sheets
(in millions of dollars, except per share amounts)
December 31,
-----------------------
Assets 1998 1997
------ --------- ---------
<S> <C> <C>
Investments:
Securities available-for-sale, at fair value:
Fixed maturity securities $14,245.1 $13,204.1
Equity securities 127.2 80.4
Mortgage loans on real estate, net 5,328.4 5,181.6
Real estate, net 243.6 311.4
Policy loans 464.3 415.3
Other long-term investments 44.0 25.2
Short-term investments 289.1 358.4
--------- ---------
20,741.7 19,576.4
--------- ---------
Cash 3.4 175.6
Accrued investment income 218.7 210.5
Deferred policy acquisition costs 2,022.2 1,665.4
Other assets 420.3 438.4
Assets held in separate accounts 50,935.8 37,724.4
--------- ---------
$74,342.1 $59,790.7
========= =========
Liabilities and Shareholder's Equity
------------------------------------
Future policy benefits and claims $19,767.1 $18,702.8
Other liabilities 866.1 885.6
Liabilities related to separate accounts 50,935.8 37,724.4
--------- ---------
71,569.0 57,312.8
--------- ---------
Commitments and contingencies (notes 7 and 12)
Shareholder's equity:
Common stock, $1 par value. Authorized 5.0 million shares;
3.8 million shares issued and outstanding 3.8 3.8
Additional paid-in capital 914.7 914.7
Retained earnings 1,579.0 1,312.3
Accumulated other comprehensive income 275.6 247.1
--------- ---------
2,773.1 2,477.9
--------- ---------
$74,342.1 $59,790.7
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 3
<TABLE>
<CAPTION>
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Statements of Income
(in millions of dollars)
Years ended December 31,
-----------------------------------
1998 1997 1996
-------- -------- ---------
<S> <C> <C> <C>
Revenues:
Policy charges $ 698.9 $ 545.2 $ 400.9
Life insurance premiums 200.0 205.4 198.6
Net investment income 1,481.6 1,409.2 1,357.8
Realized gains (losses) on investments 28.4 11.1 (0.3)
Other 66.8 46.5 35.9
-------- -------- --------
2,475.7 2,217.4 1,992.9
-------- -------- --------
Benefits and expenses:
Interest credited to policyholder account balances 1,069.0 1,016.6 982.3
Other benefits and claims 175.8 178.2 178.3
Policyholder dividends on participating policies 39.6 40.6 41.0
Amortization of deferred policy acquisition costs 214.5 167.2 133.4
Other operating expenses 419.7 384.9 342.4
-------- -------- --------
1,918.6 1,787.5 1,677.4
-------- -------- --------
Income from continuing operations before federal income tax expense 557.1 429.9 315.5
Federal income tax expense 190.4 150.2 110.9
-------- -------- --------
Income from continuing operations 366.7 279.7 204.6
Income from discontinued operations (less federal income tax expense
of $4.5 in 1996) -- -- 11.3
-------- -------- --------
Net income $ 366.7 $ 279.7 $ 215.9
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 4
<TABLE>
<CAPTION>
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Statements of Shareholder's Equity
Years ended December 31, 1998, 1997 and 1996
(in millions of dollars)
Accumulated
Additional other Total
Common paid-in Retained comprehensive shareholder's
stock capital earnings income equity
----- ------- -------- ------ ------
<S> <C> <C> <C> <C> <C>
December 31, 1995 $ 3.8 $ 657.2 $1,583.2 $ 384.3 $2,628.5
Comprehensive income:
Net income -- -- 215.9 -- 215.9
Net unrealized losses on securities
available-for-sale arising during
the year -- -- -- (170.9) (170.9)
--------
Total comprehensive income 45.0
--------
Dividends to shareholder -- (129.3) (366.5) (39.8) (535.6)
------ ------- -------- ------- --------
December 31, 1996 3.8 527.9 1,432.6 173.6 2,137.9
Comprehensive income:
Net income -- -- 279.7 -- 279.7
Net unrealized gains on securities
available-for-sale arising during
the year -- -- -- 73.5 73.5
--------
Total comprehensive income 353.2
--------
Capital contribution -- 836.8 -- -- 836.8
Dividend to shareholder -- (450.0) (400.0) -- (850.0)
------ ------- -------- ------- --------
December 31, 1997 3.8 914.7 1,312.3 247.1 2,477.9
Comprehensive income:
Net income -- -- 366.7 -- 366.7
Net unrealized gains on securities
available-for-sale arising during
the year -- -- -- 28.5 28.5
--------
Total comprehensive income 395.2
--------
Dividend to shareholder -- -- (100.0) -- (100.0)
------ ------- -------- ------- --------
December 31, 1998 $ 3.8 $ 914.7 $1,579.0 $ 275.6 $2,773.1
====== ======= ======== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
<TABLE>
<CAPTION>
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Statements of Cash Flows
(in millions of dollars)
Years ended December 31,
---------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 366.7 $ 279.7 $ 215.9
Adjustments to reconcile net income to net cash provided by operating
activities:
Interest credited to policyholder account balances 1,069.0 1,016.6 982.3
Capitalization of deferred policy acquisition costs (584.2) (487.9) (422.6)
Amortization of deferred policy acquisition costs 214.5 167.2 133.4
Amortization and depreciation (8.5) (2.0) 7.0
Realized gains on invested assets, net (28.4) (11.1) (0.3)
(Increase) decrease in accrued investment income (8.2) (0.3) 2.8
(Increase) decrease in other assets 16.4 (12.7) (38.9)
Decrease in policy liabilities (8.3) (23.1) (151.0)
(Decrease) increase in other liabilities (34.8) 230.6 191.4
Other, net (11.3) (10.9) (61.7)
--------- --------- ---------
Net cash provided by operating activities 982.9 1,146.1 858.3
--------- --------- ---------
Cash flows from investing activities:
Proceeds from maturity of securities available-for-sale 1,557.0 993.4 1,162.8
Proceeds from sale of securities available-for-sale 610.5 574.5 299.6
Proceeds from repayments of mortgage loans on real estate 678.2 437.3 309.0
Proceeds from sale of real estate 103.8 34.8 18.5
Proceeds from repayments of policy loans and sale of other invested assets 23.6 22.7 22.8
Cost of securities available-for-sale acquired (3,182.8) (2,828.1) (1,573.6)
Cost of mortgage loans on real estate acquired (829.1) (752.2) (972.8)
Cost of real estate acquired (0.8) (24.9) (7.9)
Policy loans issued and other invested assets acquired (88.4) (62.5) (57.7)
Short-term investments, net 69.3 (354.8) 28.0
--------- --------- ---------
Net cash used in investing activities (1,058.7) (1,959.8) (771.3)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from capital contributions -- 836.8 --
Cash dividends paid (100.0) -- (50.0)
Increase in investment product and universal life insurance
product account balances 2,682.1 2,488.5 1,781.8
Decrease in investment product and universal life insurance
product account balances (2,678.5) (2,379.8) (1,784.5)
--------- --------- ---------
Net cash (used in) provided by financing activities (96.4) 945.5 (52.7)
--------- --------- ---------
Net (decrease) increase in cash (172.2) 131.8 34.3
Cash, beginning of year 175.6 43.8 9.5
--------- --------- ---------
Cash, end of year $ 3.4 $ 175.6 $ 43.8
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 6
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(1) Organization and Description of Business
----------------------------------------
Prior to January 27, 1997, Nationwide Life Insurance Company (NLIC) was
wholly owned by Nationwide Corporation (Nationwide Corp.). On that
date, Nationwide Corp. contributed the outstanding shares of NLIC's
common stock to Nationwide Financial Services, Inc. (NFS), a holding
company formed by Nationwide Corp. in November 1996 for NLIC and the
other companies within the Nationwide Insurance Enterprise that offer
or distribute long-term savings and retirement products. On March 11,
1997, NFS completed an initial public offering of its Class A common
stock.
During 1996 and 1997, Nationwide Corp. and NFS completed certain
transactions in anticipation of the initial public offering that
focused the business of NFS on long-term savings and retirement
products. On September 24, 1996, NLIC declared a dividend payable to
Nationwide Corp. on January 1, 1997 consisting of the outstanding
shares of common stock of certain subsidiaries that do not offer or
distribute long-term savings or retirement products. In addition,
during 1996, NLIC entered into two reinsurance agreements whereby all
of NLIC's accident and health and group life insurance business was
ceded to two affiliates effective January 1, 1996. These subsidiaries,
through December 31, 1996, and all accident and health and group life
insurance business have been accounted for as discontinued operations
for all periods presented. See notes 10 and 14. Additionally, NLIC paid
$900.0 million of dividends, $50.0 million to Nationwide Corp. on
December 31, 1996 and $850.0 million to NFS, which then made an
equivalent dividend to Nationwide Corp., on February 24, 1997.
NFS contributed $836.8 million to the capital of NLIC during March
1997.
Wholly owned subsidiaries of NLIC include Nationwide Life and Annuity
Insurance Company (NLAIC), Nationwide Advisory Services, Inc.,
Nationwide Investment Services Corporation and NWE, Inc. NLIC and its
subsidiaries are collectively referred to as "the Company."
The Company is a leading provider of long-term savings and retirement
products, including variable annuities, fixed annuities and life
insurance.
(2) Summary of Significant Accounting Policies
------------------------------------------
The significant accounting policies followed by the Company that
materially affect financial reporting are summarized below. The
accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles, which differ
from statutory accounting practices prescribed or permitted by
regulatory authorities. Annual Statements for NLIC and NLAIC, filed
with the Department of Insurance of the State of Ohio (the Department),
are prepared on the basis of accounting practices prescribed or
permitted by the Department. Prescribed statutory accounting practices
include a variety of publications of the National Association of
Insurance Commissioners (NAIC), as well as state laws, regulations and
general administrative rules. Permitted statutory accounting practices
encompass all accounting practices not so prescribed. The Company has
no material permitted statutory accounting practices.
<PAGE> 7
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosures of contingent
assets and liabilities as of the date of the consolidated financial
statements and the reported amounts of revenues and expenses for the
reporting period. Actual results could differ significantly from those
estimates.
The most significant estimates include those used in determining
deferred policy acquisition costs, valuation allowances for mortgage
loans on real estate and real estate investments and the liability for
future policy benefits and claims. Although some variability is
inherent in these estimates, management believes the amounts provided
are adequate.
(a) Consolidation Policy
--------------------
The consolidated financial statements include the accounts of NLIC
and its wholly owned subsidiaries. Operations that are classified
and reported as discontinued operations are not consolidated but
rather are reported as "Income from discontinued operations" in
the accompanying consolidated statements of income. All
significant intercompany balances and transactions have been
eliminated.
(b) Valuation of Investments and Related Gains and Losses
-----------------------------------------------------
The Company is required to classify its fixed maturity securities
and equity securities as either held-to-maturity,
available-for-sale or trading. Fixed maturity securities are
classified as held-to-maturity when the Company has the positive
intent and ability to hold the securities to maturity and are
stated at amortized cost. Fixed maturity securities not classified
as held-to-maturity and all equity securities are classified as
available-for-sale and are stated at fair value, with the
unrealized gains and losses, net of adjustments to deferred policy
acquisition costs and deferred federal income tax, reported as a
separate component of shareholder's equity. The adjustment to
deferred policy acquisition costs represents the change in
amortization of deferred policy acquisition costs that would have
been required as a charge or credit to operations had such
unrealized amounts been realized. The Company has no fixed
maturity securities classified as held-to-maturity or trading as
of December 31, 1998 or 1997.
Mortgage loans on real estate are carried at the unpaid principal
balance less valuation allowances. The Company provides valuation
allowances for impairments of mortgage loans on real estate based
on a review by portfolio managers. The measurement of impaired
loans is based on the present value of expected future cash flows
discounted at the loan's effective interest rate or, as a
practical expedient, at the fair value of the collateral, if the
loan is collateral dependent. Loans in foreclosure and loans
considered to be impaired are placed on non-accrual status.
Interest received on non-accrual status mortgage loans on real
estate is included in interest income in the period received.
Real estate is carried at cost less accumulated depreciation and
valuation allowances. Other long-term investments are carried on
the equity basis, adjusted for valuation allowances. Impairment
losses are recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the
assets' carrying amount.
Realized gains and losses on the sale of investments are
determined on the basis of specific security identification.
Estimates for valuation allowances and other than temporary
declines are included in realized gains and losses on investments.
<PAGE> 8
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(c) Revenues and Benefits
---------------------
Investment Products and Universal Life Insurance Products:
Investment products consist primarily of individual and group
variable and fixed deferred annuities. Universal life insurance
products include universal life insurance, variable universal life
insurance, corporate owned life insurance and other
interest-sensitive life insurance policies. Revenues for
investment products and universal life insurance products consist
of net investment income, asset fees, cost of insurance, policy
administration and surrender charges that have been earned and
assessed against policy account balances during the period. Policy
benefits and claims that are charged to expense include interest
credited to policy account balances and benefits and claims
incurred in the period in excess of related policy account
balances.
Traditional Life Insurance Products: Traditional life insurance
products include those products with fixed and guaranteed premiums
and benefits and consist primarily of whole life insurance,
limited-payment life insurance, term life insurance and certain
annuities with life contingencies. Premiums for traditional life
insurance products are recognized as revenue when due. Benefits
and expenses are associated with earned premiums so as to result
in recognition of profits over the life of the contract. This
association is accomplished by the provision for future policy
benefits and the deferral and amortization of policy acquisition
costs.
(d) Deferred Policy Acquisition Costs
---------------------------------
The costs of acquiring new business, principally commissions,
certain expenses of the policy issue and underwriting department
and certain variable sales expenses have been deferred. For
investment products and universal life insurance products,
deferred policy acquisition costs are being amortized with
interest over the lives of the policies in relation to the present
value of estimated future gross profits from projected interest
margins, asset fees, cost of insurance, policy administration and
surrender charges. For years in which gross profits are negative,
deferred policy acquisition costs are amortized based on the
present value of gross revenues. For traditional life insurance
products, these deferred policy acquisition costs are
predominantly being amortized with interest over the premium
paying period of the related policies in proportion to the ratio
of actual annual premium revenue to the anticipated total premium
revenue. Such anticipated premium revenue was estimated using the
same assumptions as were used for computing liabilities for future
policy benefits. Deferred policy acquisition costs are adjusted to
reflect the impact of unrealized gains and losses on fixed
maturity securities available-for-sale as described in note 2(b).
(e) Separate Accounts
-----------------
Separate account assets and liabilities represent contractholders'
funds which have been segregated into accounts with specific
investment objectives. For all but $743.9 million of separate
account assets, the investment income and gains or losses of these
accounts accrue directly to the contractholders. The activity of
the separate accounts is not reflected in the consolidated
statements of income and cash flows except for the fees the
Company receives.
(f) Future Policy Benefits
----------------------
Future policy benefits for investment products in the accumulation
phase, universal life insurance and variable universal life
insurance policies have been calculated based on participants'
contributions plus interest credited less applicable contract
charges. The average interest rate credited on investment product
policy reserves was 6.0%, 6.1% and 6.3% for the years ended
December 31, 1998, 1997 and 1996, respectively.
Future policy benefits for traditional life insurance policies
have been calculated by the net level premium method using
interest rates varying from 6.0% to 10.5% and estimates of
mortality, morbidity, investment yields and withdrawals which were
used or which were being experienced at the time the policies were
issued, rather than the assumptions prescribed by state regulatory
authorities.
<PAGE> 9
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(g) Participating Business
----------------------
Participating business represents approximately 40% in 1998 (50%
in 1997 and 52% in 1996) of the Company's life insurance in force,
74% in 1998 (77% in 1997 and 78% in 1996) of the number of life
insurance policies in force, and 14% in 1998 (27% in 1997 and 40%
in 1996) of life insurance statutory premiums. The provision for
policyholder dividends is based on current dividend scales and is
included in "Future policy benefits and claims" in the
accompanying consolidated balance sheets.
(h) Federal Income Tax
------------------
The Company files a consolidated federal income tax return with
Nationwide Mutual Insurance Company (NMIC), the majority
shareholder of Nationwide Corp. The members of the consolidated
tax return group have a tax sharing arrangement which provides, in
effect, for each member to bear essentially the same federal
income tax liability as if separate tax returns were filed.
The Company utilizes the asset and liability method of accounting
for income tax. Under this method, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be
recovered or settled. Under this method, the effect on deferred
tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.
Valuation allowances are established when necessary to reduce the
deferred tax assets to the amounts expected to be realized.
(i) Reinsurance Ceded
-----------------
Reinsurance premiums ceded and reinsurance recoveries on benefits
and claims incurred are deducted from the respective income and
expense accounts. Assets and liabilities related to reinsurance
ceded are reported on a gross basis. All of the Company's accident
and health and group life insurance business is ceded to
affiliates and is accounted for as discontinued operations. See
notes 10 and 14.
<PAGE> 10
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(j) Recently Issued Accounting Pronouncements
-----------------------------------------
On January 1, 1998 the Company adopted SFAS No. 131 - Disclosures
about Segments of an Enterprise and Related Information (SFAS
131). SFAS 131 supersedes SFAS No. 14 - Financial Reporting for
Segments of a Business Enterprise. SFAS 131 establishes standards
for public business enterprises to report information about
operating segments in annual financial statements and selected
information about operating segments in interim financial reports.
SFAS 131 also establishes standards for related disclosures about
products and services, geographic areas, and major customers. The
adoption of SFAS 131 did not affect results of operations or
financial position, nor did it affect the manner in which the
Company defines its operating segments. The segment information
required for annual financial statements is included in note 13.
On January 1, 1998, the Company adopted SFAS No. 132 - Employers'
Disclosures about Pensions and Other Postretirement Benefits (SFAS
132). SFAS 132 revises employers' disclosures about pension and
other postretirement benefit plans. The Statement does not change
the measurement or recognition of benefit plans in the financial
statements. The revised disclosures required by SFAS 132 are
included in note 8.
In June 1998, the FASB issued SFAS No. 133 - Accounting for
Derivative Instruments and Hedging Activities (SFAS 133). SFAS 133
establishes accounting and reporting standards for derivative
instruments and for hedging activities. Contracts that contain
embedded derivatives, such as certain insurance contracts, are
also addressed by the Statement. SFAS 133 requires that an entity
recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at
fair value. The Statement is effective for fiscal years beginning
after June 15, 1999. It may be implemented earlier provided
adoption occurs as of the beginning of any fiscal quarter after
issuance. The Company plans to adopt this Statement in first
quarter 2000 and is currently evaluating the impact on results of
operations and financial condition.
In March 1998, The American Institute of Certified Public
Accountant's Accounting Standards Executive Committee issued
Statement of Position 98-1 - Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use (SOP 98-1). SOP
98-1 provides guidance intended to standardize accounting
practices for costs incurred to develop or obtain computer
software for internal use. Specifically, SOP 98-1 provides
guidance for determining whether computer software is for internal
use and when costs incurred for internal use software are to be
capitalized. SOP 98-1 is effective for financial statements for
fiscal years beginning after December 15, 1998. The Company does
not expect the adoption of SOP 98-1, which occurred on January 1,
1999, to have a material impact on the Company's financial
statements.
(k) Reclassification
----------------
Certain items in the 1997 and 1996 consolidated financial
statements have been reclassified to conform to the 1998
presentation.
<PAGE> 11
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(3) Investments
-----------
The amortized cost, gross unrealized gains and losses and estimated
fair value of securities available-for-sale as of December 31, 1998 and
1997 were:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
(in millions of dollars) cost gains losses fair value
------------------------ ---- ----- ------ ----------
<S> <C> <C> <C> <C>
December 31, 1998:
Fixed maturity securities:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies $ 255.9 $ 13.0 $ -- $ 268.9
Obligations of states and political subdivisions 1.6 -- -- 1.6
Debt securities issued by foreign governments 106.5 4.5 -- 111.0
Corporate securities 9,899.6 423.2 (18.7) 10,304.1
Mortgage-backed securities 3,457.7 104.2 (2.4) 3,559.5
--------- ------ ------ ---------
Total fixed maturity securities 13,721.3 544.9 (21.1) 14,245.1
Equity securities 110.4 18.3 (1.5) 127.2
--------- ------ ------ ---------
$13,831.7 $563.2 $(22.6) $14,372.3
========= ====== ====== =========
December 31, 1997:
Fixed maturity securities:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies $ 305.1 $ 8.6 $ -- $ 313.7
Obligations of states and political subdivisions 1.6 -- -- 1.6
Debt securities issued by foreign governments 93.3 2.7 (0.2) 95.8
Corporate securities 8,698.7 355.5 (11.5) 9,042.7
Mortgage-backed securities 3,634.2 118.6 (2.5) 3,750.3
--------- ------ ------ ---------
Total fixed maturity securities 12,732.9 485.4 (14.2) 13,204.1
Equity securities 67.8 12.9 (0.3) 80.4
--------- ------ ------ ---------
$12,800.7 $498.3 $(14.5) $13,284.5
========= ====== ====== =========
</TABLE>
As of December 31, 1998 the Company had entered into S&P 500 futures
contracts with a notional amount of $20.0 million to reduce the risk of
changes in the fair market value of certain investments classified as
equity securities. These contracts had an unrealized loss of $1.3
million as of December 31, 1998 which is included in the recorded
amount of the equity securities and in accumulated other comprehensive
income, net of tax, similar to other unrealized gains and losses on
securities available-for-sale.
<PAGE> 12
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
The amortized cost and estimated fair value of fixed maturity
securities available-for-sale as of December 31, 1998, by expected
maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Estimated
(in millions of dollars) cost fair value
---- ----------
<S> <C> <C>
Fixed maturity securities available for sale:
Due in one year or less $ 2,019.9 $ 2,048.0
Due after one year through five years 8,169.1 8,470.6
Due after five years through ten years 2,795.0 2,927.7
Due after ten years 737.3 798.8
--------- ---------
$13,721.3 $14,245.1
========= =========
</TABLE>
The components of unrealized gains on securities available-for-sale,
net, were as follows as of December 31:
<TABLE>
<CAPTION>
(in millions of dollars) 1998 1997
---- ----
<S> <C> <C>
Gross unrealized gains $ 540.6 $ 483.8
Adjustment to deferred policy acquisition costs (116.6) (103.7)
Deferred federal income tax (148.4) (133.0)
------- -------
$ 275.6 $ 247.1
======= =======
</TABLE>
An analysis of the change in gross unrealized gains (losses) on
securities available-for-sale and fixed maturity securities
held-to-maturity follows for the years ended December 31:
<TABLE>
<CAPTION>
(in millions of dollars) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturity securities $52.6 $137.5 $(289.2)
Equity securities 4.2 (2.7) 8.9
----- ------ -------
$56.8 $134.8 $(280.3)
===== ====== =======
</TABLE>
Proceeds from the sale of securities available-for-sale during 1998,
1997 and 1996 were $610.5 million, $574.5 million and $299.6 million,
respectively. During 1998, gross gains of $9.0 million ($9.9 million
and $6.6 million in 1997 and 1996, respectively) and gross losses of
$7.6 million ($18.0 million and $6.9 million in 1997 and 1996,
respectively) were realized on those sales. In addition, gross gains of
$15.1 million and gross losses of $0.7 million were realized in 1997
when the Company paid a dividend to NFS, which then made an equivalent
dividend to Nationwide Corp., consisting of securities having an
aggregate fair value of $850.0 million.
The recorded investment of mortgage loans on real estate considered to
be impaired as of December 31, 1998 was $3.7 million. No valuation
allowance has been recorded for these loans as of December 31, 1998.
The recorded investment of mortgage loans on real estate considered to
be impaired as of December 31, 1997 was $19.9 million which includes
$3.9 million of impaired mortgage loans on real estate for which the
related valuation allowance was $0.1 million and $16.0 million of
impaired mortgage loans on real estate for which there was no valuation
allowance. During 1998, the average recorded investment in impaired
mortgage loans on real estate was approximately $9.1 million ($31.8
million in 1997) and interest income recognized on those loans was $0.3
million ($1.0 million in 1997), which is equal to interest income
recognized using a cash-basis method of income recognition.
<PAGE> 13
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Activity in the valuation allowance account for mortgage loans on real
estate is summarized for the years ended December 31:
<TABLE>
<CAPTION>
(in millions of dollars) 1998 1997
---- ----
<S> <C> <C>
Allowance, beginning of year $42.5 $51.0
Reductions credited to operations (0.1) (1.2)
Direct write-downs charged against the allowance -- (7.3)
----- -----
Allowance, end of year $42.4 $42.5
===== =====
</TABLE>
Real estate is presented at cost less accumulated depreciation of $21.5
million as of December 31, 1998 ($45.1 million as of December 31, 1997)
and valuation allowances of $5.4 million as of December 31, 1998 ($11.1
million as of December 31, 1997).
Investments that were non-income producing for the twelve month period
preceding December 31, 1998 amounted to $42.4 million ($19.4 million
for 1997) and consisted of $32.7 million ($3.0 million in 1997) in
securities available-for-sale and $9.7 million ($16.4 million in 1997)
in real estate.
An analysis of investment income by investment type follows for the
years ended December 31:
<TABLE>
<CAPTION>
(in millions of dollars) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Gross investment income:
Securities available-for-sale:
Fixed maturity securities $ 982.5 $ 911.6 $ 917.1
Equity securities 0.8 0.8 1.3
Mortgage loans on real estate 458.9 457.7 432.8
Real estate 40.4 42.9 44.3
Short-term investments 17.8 22.7 4.2
Other 30.7 21.0 4.0
-------- -------- --------
Total investment income 1,531.1 1,456.7 1,403.7
Less investment expenses 49.5 47.5 45.9
-------- -------- --------
Net investment income $1,481.6 $1,409.2 $1,357.8
======== ======== ========
</TABLE>
An analysis of realized gains (losses) on investments, net of valuation
allowances, by investment type follows for the years ended December 31:
<TABLE>
<CAPTION>
(in millions of dollars) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturity securities $(0.7) $ 3.6 $(3.5)
Equity securities 2.1 2.7 3.2
Mortgage loans on real estate 3.9 1.6 (4.1)
Real estate and other 23.1 3.2 4.1
----- ----- -----
$28.4 $11.1 $(0.3)
===== ===== =====
</TABLE>
Fixed maturity securities with an amortized cost of $6.5 million and
$6.2 million as of December 31, 1998 and 1997, respectively, were on
deposit with various regulatory agencies as required by law.
<PAGE> 14
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(4) Federal Income Tax
------------------
The Company's current federal income tax liability was $72.8 million
and $60.1 million as of December 31, 1998 and 1997, respectively.
The tax effects of temporary differences that give rise to significant
components of the net deferred tax liability as of December 31, 1998
and 1997 are as follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1998 1997
---- ----
<S> <C> <C>
Deferred tax assets:
Future policy benefits $207.7 $200.1
Liabilities in Separate Accounts 319.9 242.0
Mortgage loans on real estate and real estate 17.5 19.0
Other assets and other liabilities 58.9 59.2
------ ------
Total gross deferred tax assets 604.0 520.3
Less valuation allowance (7.0) (7.0)
------ ------
Net deferred tax assets 597.0 513.3
------ ------
Deferred tax liabilities:
Deferred policy acquisition costs 568.7 480.5
Fixed maturity securities 212.2 193.3
Deferred tax on realized investment gains 34.8 40.1
Equity securities and other long-term investments 9.6 7.5
Other 21.6 22.2
------ ------
Total gross deferred tax liabilities 846.9 743.6
------ ------
Net deferred tax liability $249.9 $230.3
====== ======
</TABLE>
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion of the
total gross deferred tax assets will not be realized. Nearly all future
deductible amounts can be offset by future taxable amounts or recovery
of federal income tax paid within the statutory carryback period. There
has been no change in the valuation allowance for the years ended
December 31, 1998, 1997 and 1996.
Federal income tax expense attributable to income from continuing
operations for the years ended December 31 was as follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Currently payable $186.1 $121.7 $116.5
Deferred tax expense (benefit) 4.3 28.5 (5.6)
------ ------ ------
$190.4 $150.2 $110.9
====== ====== ======
</TABLE>
<PAGE> 15
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Total federal income tax expense for the years ended December 31, 1998,
1997 and 1996 differs from the amount computed by applying the U.S.
federal income tax rate to income before tax as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(in millions of dollars) Amount % Amount % Amount %
------ - ------ - ------ -
<S> <C> <C> <C> <C> <C> <C>
Computed (expected) tax expense $195.0 35.0 $150.5 35.0 $110.4 35.0
Tax exempt interest and dividends
received deduction (4.9) (0.9) - 0.0 (0.2) (0.1)
Other, net 0.3 0.1 (0.3) (0.1) 0.7 0.3
------ ---- ------ ---- ------ ----
Total (effective rate of each year) $190.4 34.2 $150.2 34.9 $110.9 35.2
====== ==== ====== ==== ====== ====
</TABLE>
Total federal income tax paid was $173.4 million, $91.8 million and
$115.8 million during the years ended December 31, 1998, 1997 and 1996,
respectively.
(5) Comprehensive Income
--------------------
Pursuant to SFAS No. 130 - Reporting Comprehensive Income, which the
Company adopted January 1, 1998, the Consolidated Statements of
Shareholder's Equity include a new measure called "Comprehensive
Income". Comprehensive Income includes net income as well as certain
items that are reported directly within separate components of
shareholders' equity that bypass net income. Currently, the Company's
only component of Other Comprehensive Income is unrealized gains
(losses) on securities available-for-sale. The related before and after
federal tax amounts are as follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Unrealized gains (losses) on securities
available-for-sale arising during the period:
Gross $ 58.2 $141.1 $(272.4)
Adjustment to deferred policy acquisition costs (12.9) (21.8) 57.0
Related federal income tax (expense) benefit (15.9) (41.7) 44.0
------ ------ ------
Net 29.4 77.6 (171.4)
------ ------ ------
Reclassification adjustment for net (gains) losses
on securities available-for-sale realized
during the period:
Gross (1.4) (6.3) 0.7
Related federal income tax expense (benefit) 0.5 2.2 (0.2)
------ ------ -------
Net (0.9) (4.1) 0.5
------ ------ -------
Total Other Comprehensive Income $ 28.5 $ 73.5 $(170.9)
====== ====== =======
</TABLE>
(6) Fair Value of Financial Instruments
-----------------------------------
The following disclosures summarize the carrying amount and estimated
fair value of the Company's financial instruments. Certain assets and
liabilities are specifically excluded from the disclosure requirements
of financial instruments. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Company.
<PAGE> 16
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
The fair value of a financial instrument is defined as the amount at
which the financial instrument could be exchanged in a current
transaction between willing parties. In cases where quoted market
prices are not available, fair value is to be based on estimates using
present value or other valuation techniques. Many of the Company's
assets and liabilities subject to the disclosure requirements are not
actively traded, requiring fair values to be estimated by management
using present value or other valuation techniques. These techniques are
significantly affected by the assumptions used, including the discount
rate and estimates of future cash flows. Although fair value estimates
are calculated using assumptions that management believes are
appropriate, changes in assumptions could cause these estimates to vary
materially. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases,
could not be realized in the immediate settlement of the instruments.
Although insurance contracts, other than policies such as annuities
that are classified as investment contracts, are specifically exempted
from the disclosure requirements, estimated fair value of policy
reserves on life insurance contracts is provided to make the fair value
disclosures more meaningful.
The tax ramifications of the related unrealized gains and losses can
have a significant effect on fair value estimates and have not been
considered in the estimates.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures:
Fixed maturity and equity securities: The fair value for fixed
maturity securities is based on quoted market prices, where
available. For fixed maturity securities not actively traded, fair
value is estimated using values obtained from independent pricing
services or, in the case of private placements, is estimated by
discounting expected future cash flows using a current market rate
applicable to the yield, credit quality and maturity of the
investments. The fair value for equity securities is based on
quoted market prices. The carrying amount and fair value for
equity securities exclude the fair value of futures contracts
designated as hedges of equity securities.
Mortgage loans on real estate, net: The fair value for mortgage
loans on real estate is estimated using discounted cash flow
analyses, using interest rates currently being offered for similar
loans to borrowers with similar credit ratings. Loans with similar
characteristics are aggregated for purposes of the calculations.
Fair value for mortgage loans in default is the estimated fair
value of the underlying collateral.
Policy loans, short-term investments and cash: The carrying amount
reported in the consolidated balance sheets for these instruments
approximates their fair value.
Separate account assets and liabilities: The fair value of assets
held in separate accounts is based on quoted market prices. The
fair value of liabilities related to separate accounts is the
amount payable on demand, which is net of certain surrender
charges.
Investment contracts: The fair value for the Company's liabilities
under investment type contracts is disclosed using two methods.
For investment contracts without defined maturities, fair value is
the amount payable on demand. For investment contracts with known
or determined maturities, fair value is estimated using discounted
cash flow analysis. Interest rates used are similar to currently
offered contracts with maturities consistent with those remaining
for the contracts being valued.
<PAGE> 17
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Policy reserves on life insurance contracts: Included are
disclosures for individual life insurance, universal life
insurance and supplementary contracts with life contingencies for
which the estimated fair value is the amount payable on demand.
Also included are disclosures for the Company's limited payment
policies, which the Company has used discounted cash flow analyses
similar to those used for investment contracts with known
maturities to estimate fair value.
Commitments to extend credit: Commitments to extend credit have
nominal fair value because of the short-term nature of such
commitments. See note 7.
Futures contracts: The fair value for futures contracts is based
on quoted market prices.
Carrying amount and estimated fair value of financial instruments
subject to disclosure requirements and policy reserves on life
insurance contracts were as follows as of December 31:
<TABLE>
<CAPTION>
1998 1997
------------------------- --------------------------
Carrying Estimated Carrying Estimated
(in millions of dollars) amount fair value amount fair value
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Assets:
Investments:
Securities available-for-sale:
Fixed maturity securities $14,245.1 $14,245.1 $13,204.1 $13,204.1
Equity securities 128.5 128.5 80.4 80.4
Mortgage loans on real estate, net 5,328.4 5,527.6 5,181.6 5,509.7
Policy loans 464.3 464.3 415.3 415.3
Short-term investments 289.1 289.1 358.4 358.4
Cash 3.4 3.4 175.6 175.6
Assets held in separate accounts 50,935.8 50,935.8 37,724.4 37,724.4
Liabilities:
Investment contracts 15,468.7 15,158.6 14,708.2 14,322.1
Policy reserves on life insurance contracts 3,914.0 3,768.9 3,345.4 3,182.4
Liabilities related to separate accounts 50,935.8 49,926.5 37,724.4 36,747.0
Futures contracts 1.3 1.3 -- --
</TABLE>
(7) Risk Disclosures
----------------
The following is a description of the most significant risks facing
life insurers and how the Company mitigates those risks:
Credit Risk: The risk that issuers of securities owned by the Company
or mortgagors on mortgage loans on real estate owned by the Company
will default or that other parties, including reinsurers, which owe the
Company money, will not pay. The Company minimizes this risk by
adhering to a conservative investment strategy, by maintaining
reinsurance and credit and collection policies and by providing for any
amounts deemed uncollectible.
Interest Rate Risk: The risk that interest rates will change and cause
a decrease in the value of an insurer's investments. This change in
rates may cause certain interest-sensitive products to become
uncompetitive or may cause disintermediation. The Company mitigates
this risk by charging fees for non-conformance with certain policy
provisions, by offering products that transfer this risk to the
purchaser, and/or by attempting to match the maturity schedule of its
assets with the expected payouts of its liabilities. To the extent that
liabilities come due more quickly than assets mature, an insurer would
have to borrow funds or sell assets prior to maturity and potentially
recognize a gain or loss.
<PAGE> 18
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Legal/Regulatory Risk: The risk that changes in the legal or regulatory
environment in which an insurer operates will result in increased
competition, reduced demand for a company's products, or create
additional expenses not anticipated by the insurer in pricing its
products. The Company mitigates this risk by offering a wide range of
products and by operating throughout the United States, thus reducing
its exposure to any single product or jurisdiction, and also by
employing underwriting practices which identify and minimize the
adverse impact of this risk.
Financial Instruments with Off-Balance-Sheet Risk: The Company is a
party to financial instruments with off-balance-sheet risk in the
normal course of business through management of its investment
portfolio. These financial instruments include commitments to extend
credit in the form of loans. These instruments involve, to varying
degrees, elements of credit risk in excess of amounts recognized on the
consolidated balance sheets.
Commitments to fund fixed rate mortgage loans on real estate are
agreements to lend to a borrower, and are subject to conditions
established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment
of a deposit. Commitments extended by the Company are based on
management's case-by-case credit evaluation of the borrower and the
borrower's loan collateral. The underlying mortgage property represents
the collateral if the commitment is funded. The Company's policy for
new mortgage loans on real estate is to lend no more than 75% of
collateral value. Should the commitment be funded, the Company's
exposure to credit loss in the event of nonperformance by the borrower
is represented by the contractual amounts of these commitments less the
net realizable value of the collateral. The contractual amounts also
represent the cash requirements for all unfunded commitments.
Commitments on mortgage loans on real estate of $156.0 million
extending into 1999 were outstanding as of December 31, 1998. The
Company also had $40.0 million of commitments to purchase fixed
maturity securities outstanding as of December 31, 1998.
Significant Concentrations of Credit Risk: The Company grants mainly
commercial mortgage loans on real estate to customers throughout the
United States. The Company has a diversified portfolio with no more
than 22% (20% in 1997) in any geographic area and no more than 2% (2%
in 1997) with any one borrower as of December 31, 1998. As of December
31, 1998, 42% (46% in 1997) of the remaining principal balance of the
Company's commercial mortgage loan portfolio financed retail
properties.
Reinsurance: The Company has entered into a reinsurance contract to
cede a portion of its general account individual annuity business to
The Franklin Life Insurance Company (Franklin). Total recoveries due
from Franklin were $187.9 million and $220.2 million as of December 31,
1998 and 1997, respectively. The contract is immaterial to the
Company's results of operations. The ceding of risk does not discharge
the original insurer from its primary obligation to the policyholder.
Under the terms of the contract, Franklin has established a trust as
collateral for the recoveries. The trust assets are invested in
investment grade securities, the market value of which must at all
times be greater than or equal to 102% of the reinsured reserves.
(8) Pension Plan and Postretirement Benefits Other Than Pensions
------------------------------------------------------------
The Company is a participant, together with other affiliated companies,
in a pension plan covering all employees who have completed at least
one year of service. The Company funds pension costs accrued for direct
employees plus an allocation of pension costs accrued for employees of
affiliates whose work efforts benefit the Company. Assets of the
Retirement Plan are invested in group annuity contracts of NLIC and
Employers Life Insurance Company of Wausau (ELICW).
Pension costs charged to operations by the Company during the years
ended December 31, 1998, 1997 and 1996 were $2.0 million, $7.5 million
and $7.4 million, respectively. The Company has recorded a prepaid
pension asset of $5.0 million as of December 31, 1998 and no prepaid or
accrued pension asset or expense as of December 31, 1997.
<PAGE> 19
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
In addition to the defined benefit pension plan, the Company, together
with other affiliated companies, participates in life and health care
defined benefit plans for qualifying retirees. Postretirement life and
health care benefits are contributory and generally available to full
time employees who have attained age 55 and have accumulated 15 years
of service with the Company after reaching age 40. Postretirement
health care benefit contributions are adjusted annually and contain
cost-sharing features such as deductibles and coinsurance. In addition,
there are caps on the Company's portion of the per-participant cost of
the postretirement health care benefits. These caps can increase
annually, but not more than three percent. The Company's policy is to
fund the cost of health care benefits in amounts determined at the
discretion of management. Plan assets are invested primarily in group
annuity contracts of NLIC.
The Company elected to immediately recognize its estimated accumulated
postretirement benefit obligation (APBO), however, certain affiliated
companies elected to amortize their initial transition obligation over
periods ranging from 10 to 20 years.
The Company's accrued postretirement benefit expense as of December 31,
1998 and 1997 was $40.1 million and $36.5 million, respectively, and
the net periodic postretirement benefit cost (NPPBC) for 1998, 1997 and
1996 was $4.1 million, $3.0 million and $3.3 million, respectively.
Information regarding the funded status of the pension plan as a whole
and the postretirement life and health care benefit plan as a whole as
of December 31, 1998 and 1997 follows:
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
--------------------- -----------------------
(in millions of dollars) 1998 1997 1998 1997
--------------------------------------------------------- -------- -------- -------- -------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $2,033.8 $1,847.8 $237.9 $ 200.7
Service cost 87.6 77.3 9.8 7.0
Interest cost 123.4 118.6 15.4 14.0
Actuarial loss 123.2 60.0 15.6 24.4
Plan curtailment in 1998/merger in 1997 (107.2) 1.5 - -
Benefits paid (75.8) (71.4) (8.6) (8.2)
-------- -------- ------- -------
Benefit obligation at end of year 2,185.0 2,033.8 270.1 237.9
-------- -------- ------- -------
Change in plan assets:
Fair value of plan assets at beginning of year 2,212.9 1,947.9 69.2 63.0
Actual return on plan assets 300.7 328.1 5.0 3.6
Employer contribution 104.1 7.2 12.1 10.6
Plan merger - 1.1 - -
Benefits paid (75.8) (71.4) (8.4) (8.0)
-------- -------- ------- -------
Fair value of plan assets at end of year 2,541.9 2,212.9 77.9 69.2
-------- -------- ------- -------
Funded status 356.9 179.1 (192.2) (168.7)
Unrecognized prior service cost 31.5 34.7 - -
Unrecognized net (gains) losses (345.7) (330.7) 16.0 1.6
Unrecognized net (asset) obligation at transition (11.0) 33.3 1.3 1.5
-------- -------- ------- -------
Prepaid (accrued) benefit cost $ 31.7 $ (83.6) $(174.9) $(165.6)
======== ======== ======= =======
</TABLE>
<PAGE> 20
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Basis for measurements, funded status of the pension plan and
postretirement life and health care benefit plan:
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
-------------------- -----------------------
1998 1997 1998 1997
-------- ------ -------- --------
<S> <C> <C> <C> <C>
Weighted average discount rate 5.50% 6.00% 6.65% 6.70%
Rate of increase in future compensation levels 3.75% 4.25% -- --
Assumed health care cost trend rate:
Initial rate -- -- 15.00% 12.13%
Ultimate rate -- -- 8.00% 6.12%
Uniform declining period -- -- 15 Years 12 Years
</TABLE>
The net periodic pension cost for the pension plan as a whole for the
years ended December 31, 1998, 1997 and 1996 follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1998 1997 1996
-------------------------------------------------------------------------------- ---- ----
<S> <C> <C>
Service cost (benefits earned during the period) $ 87.6 $ 77.3 $ 75.5
Interest cost on projected benefit obligation 123.4 118.6 105.5
Expected return on plan assets (159.0) (139.0) (116.1)
Recognized gains (3.8) - -
Amortization of prior service cost 3.2 3.2 3.2
Amortization of unrecognized transition obligation 4.2 4.2 4.1
------- ------- -------
$ 55.6 $ 64.3 $ 72.2
======= ======= =======
</TABLE>
Effective December 31, 1998, Wausau Service Corporation (WSC) ended its
affiliation with the Nationwide Insurance Enterprise and employees of
WSC ended participation in the plan. A curtailment gain of $67.1
million resulted (consisting of a $107.2 million reduction in the
projected benefit obligation, net of the write-off of the $40.1 million
remaining unamortized transition obligation related to WSC). The
Company anticipates that the plan will settle the obligation related to
WSC employees with a transfer of assets during 1999.
Basis for measurements, net periodic pension cost for the pension plan:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Weighted average discount rate 6.00% 6.50% 6.00%
Rate of increase in future compensation levels 4.25% 4.75% 4.25%
Expected long-term rate of return on plan assets 7.25% 7.25% 6.75%
</TABLE>
<PAGE> 21
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
The amount of NPPBC for the postretirement benefit plan as a whole for
the years ended December 31, 1998, 1997 and 1996 was as follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Service cost (benefits attributed to employee service during the year) $ 9.8 $ 7.0 $ 6.5
Interest cost on accumulated postretirement benefit obligation 15.4 14.0 13.7
Actual return on plan assets (5.0) (3.6) (4.3)
Amortization of unrecognized transition obligation of affiliates 0.2 0.2 0.2
Net amortization and deferral 1.2 (0.5) 1.8
----- ----- -----
$21.6 $17.1 $17.9
===== ===== =====
</TABLE>
Actuarial assumptions used for the measurement of the accumulated
postretirement benefit obligation (APBO) and the NPPBC for the
postretirement benefit plan for 1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- ----
<S> <C> <C> <C>
NPPBC:
Discount rate 6.70% 7.25% 6.65%
Long term rate of return on plan
assets, net of tax 5.83% 5.89% 4.80%
Assumed health care cost trend rate:
Initial rate 12.00% 11.00% 11.00%
Ultimate rate 6.00% 6.00% 6.00%
Uniform declining period 12 Years 12 Years 12 Years
</TABLE>
For the postretirement benefit plan as a whole, a one percentage point
increase or decrease in the assumed health care cost trend rate would
have no impact on the APBO as of December 31, 1998 and have no impact
on the NPPBC for the year ended December 31, 1998.
(9) Shareholder's Equity, Regulatory Risk-Based Capital, Retained Earnings
----------------------------------------------------------------------
and Dividend Restrictions
-------------------------
Ohio, NLIC's and NLAIC's state of domicile, imposes minimum risk-based
capital requirements that were developed by the NAIC. The formulas for
determining the amount of risk-based capital specify various weighting
factors that are applied to financial balances or various levels of
activity based on the perceived degree of risk. Regulatory compliance
is determined by a ratio of the company's regulatory total adjusted
capital, as defined by the NAIC, to its authorized control level
risk-based capital, as defined by the NAIC. Companies below specific
trigger points or ratios are classified within certain levels, each of
which requires specified corrective action. NLIC and NLAIC each exceed
the minimum risk-based capital requirements.
The statutory capital and surplus of NLIC as of December 31, 1998, 1997
and 1996 was $1.32 billion, $1.13 billion and $1.00 billion,
respectively. The statutory net income of NLIC for the years ended
December 31, 1998, 1997 and 1996 was $171.0 million, $111.7 million and
$73.2 million, respectively.
The Company is limited in the amount of shareholder dividends it may
pay without prior approval by the Department. As of December 31, 1998,
the maximum amount available for dividend payment from the Company to
its shareholder without prior approval of the Department was $71.0
million.
<PAGE> 22
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
In addition, the payment of dividends by NLIC may also be subject to
restrictions set forth in the insurance laws of New York that limit the
amount of statutory profits on NLIC's participating policies (measured
before dividends to policyholders) that can inure to the benefit of the
Company and its shareholder.
The Company currently does not expect such regulatory requirements to
impair its ability to pay operating expenses and shareholder dividends
in the future.
(10) Transactions With Affiliates
----------------------------
As part of the restructuring described in note 1, NLIC paid a dividend
valued at $485.7 million to Nationwide Corp. on January 1, 1997
consisting of the outstanding shares of common stock of ELICW, National
Casualty Company (NCC) and West Coast Life Insurance Company (WCLIC).
Also, on February 24, 1997, NLIC paid a dividend to NFS, and NFS paid
an equivalent dividend to Nationwide Corp., consisting of securities
having an aggregate fair value of $850.0 million. The Company
recognized a gain of $14.4 million on the transfer of securities.
The Company leases office space from NMIC and certain of its
subsidiaries. For the years ended December 31, 1998, 1997 and 1996, the
Company made lease payments to NMIC and its subsidiaries of $8.0
million, $8.4 million and $9.1 million, respectively.
Pursuant to a cost sharing agreement among NMIC and certain of its
direct and indirect subsidiaries, including the Company, NMIC provides
certain operational and administrative services, such as sales support,
advertising, personnel and general management services, to those
subsidiaries. Expenses covered by this agreement are subject to
allocation among NMIC, the Company and other affiliates. Amounts
allocated to the Company were $95.0 million, $85.8 million and $101.6
million in 1998, 1997 and 1996, respectively. The allocations are based
on techniques and procedures in accordance with insurance regulatory
guidelines. Measures used to allocate expenses among companies include
individual employee estimates of time spent, special cost studies,
salary expense, commissions expense and other methods agreed to by the
participating companies that are within industry guidelines and
practices. The Company believes these allocation methods are
reasonable. In addition, the Company does not believe that expenses
recognized under the inter-company agreements are materially different
than expenses that would have been recognized had the Company operated
on a stand alone basis. Amounts payable to NMIC from the Company under
the cost sharing agreement were $31.9 million and $20.5 million as of
December 31, 1998 and 1997, respectively.
The Company also participates in intercompany repurchase agreements
with affiliates whereby the seller will transfer securities to the
buyer at a stated value. Upon demand or a stated period, the securities
will be repurchased by the seller at the original sales price plus a
price differential. Transactions under the agreements during 1998 and
1997 were not material. The Company believes that the terms of the
repurchase agreements are materially consistent with what the Company
could have obtained with unaffiliated parties.
<PAGE> 23
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Intercompany reinsurance agreements exist between NLIC and,
respectively, NMIC and ELICW whereby all of NLIC's accident and health
and group life insurance business is ceded on a modified coinsurance
basis. NLIC entered into the reinsurance agreements during 1996 because
the accident and health and group life insurance business was unrelated
to the Company's long-term savings and retirement products.
Accordingly, the accident and health and group life insurance business
has been accounted for as discontinued operations for all periods
presented. Under modified coinsurance agreements, invested assets are
retained by the ceding company and investment earnings are paid to the
reinsurer. Under the terms of the Company's agreements, the investment
risk associated with changes in interest rates is borne by ELICW or
NMIC, as the case may be. Risk of asset default is retained by the
Company, although a fee is paid by ELICW or NMIC, as the case may be,
to the Company for the Company's retention of such risk. The agreements
will remain in force until all policy obligations are settled. However,
with respect to the agreement between NLIC and NMIC, either party may
terminate the contract on January 1 of any year with prior notice. The
ceding of risk does not discharge the original insurer from its primary
obligation to the policyholder. The Company believes that the terms of
the modified coinsurance agreements are consistent in all material
respects with what the Company could have obtained with unaffiliated
parties. Amounts ceded to NMIC and ELICW for the years ended December
31, 1998, 1997 and 1996 were:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------------------------------------------------------------------
(in millions of dollars) NMIC ELICW NMIC ELICW NMIC ELICW
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Premiums $90.1 $106.3 $ 91.4 $199.8 $ 97.3 $224.2
Net investment income and other
revenue $11.1 $ 9.4 $ 10.7 $ 13.4 $ 10.9 $ 14.8
Benefits, claims and expenses $98.8 $160.5 $100.7 $225.9 $100.5 $246.6
</TABLE>
The Company and various affiliates entered into agreements with
Nationwide Cash Management Company (NCMC), an affiliate, under which
NCMC acts as a common agent in handling the purchase and sale of
short-term securities for the respective accounts of the participants.
Amounts on deposit with NCMC were $248.4 million and $211.0 million as
of December 31, 1998 and 1997, respectively, and are included in
short-term investments on the accompanying consolidated balance sheets.
Certain annuity products are sold through three affiliated companies,
which are also subsidiaries of NFS. Total commissions and fees paid to
these affiliates for the three years ended December 31, 1998 were $60.0
million, $66.1 million and $76.9 million, respectively.
(11) Bank Lines of Credit
--------------------
In August 1996, NLIC, along with NMIC, entered into a $600.0 million
revolving credit facility which provides for a $600.0 million loan over
a five year term on a fully revolving basis with a group of national
financial institutions. The credit facility provides for several and
not joint liability with respect to any amount drawn by either NLIC or
NMIC. NLIC and NMIC pay facility and usage fees to the financial
institutions to maintain the revolving credit facility. All previously
existing line of credit agreements were canceled. In September 1997,
the credit agreement was amended to include NFS as a party to and
borrower under the agreement. As of December 31, 1998 the Company had
no amounts outstanding under the agreement.
<PAGE> 24
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(12) Contingencies
-------------
On October 29, 1998, the Company and certain of its affiliates were
named in a lawsuit filed in the Common Pleas Court of Franklin County,
Ohio related to the sale of deferred annuity products for use as
investments in tax-deferred contributory retirement plans (Mercedes
Castillo v. Nationwide Financial Services, Inc., Nationwide Life
Insurance Company and Nationwide Life and Annuity Insurance Company).
The plaintiff in such lawsuit seeks to represent a national class of
the Company's customers and seeks unspecified compensatory and punitive
damages. The Company is currently evaluating this lawsuit, which is in
an early stage and has not been certified as a class. The Company
intends to defend this lawsuit vigorously.
(13) Segment Information
-------------------
The Company uses differences in products as the basis for defining its
reportable segments. The Company reports three product segments:
Variable Annuities, Fixed Annuities and Life Insurance.
The Variable Annuities segment consists of annuity contracts that
provide the customer with the opportunity to invest in mutual funds
managed by independent investment managers and the Company, with
investment returns accumulating on a tax-deferred basis. The Company's
variable annuity products consist almost entirely of flexible premium
deferred variable annuity contracts.
The Fixed Annuities segment consists of annuity contracts that generate
a return for the customer at a specified interest rate, fixed for a
prescribed period, with returns accumulating on a tax-deferred basis.
Such contracts consist of single premium deferred annuities, flexible
premium deferred annuities and single premium immediate annuities. The
Fixed Annuities segment includes the fixed option under variable
annuity contracts.
The Life Insurance segment consists of insurance products, including
variable universal life insurance and corporate-owned life insurance
products, that provide a death benefit and may also allow the customer
to build cash value on a tax-deferred basis.
In addition to the product segments, the Company reports corporate
revenue and expenses, investments and related investment income
supporting capital not specifically allocated to its product segments,
revenues and expenses of its investment advisor subsidiary (other than
the portion allocated to the Variable Annuities and Life Insurance
segments), revenues and expenses related to group annuity contracts
sold to Nationwide Insurance Enterprise employee and agent benefit
plans and all realized gains and losses on investments in a Corporate
and Other segment.
<PAGE> 25
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
The following table summarizes the financial results of the Company's business
segments for the years ended December 31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
Variable Fixed Life Corporate
(in millions of dollars) Annuities Annuities Insurance and Other Total
- ------------------------------------ --------- --------- --------- --------- -----
<S> <C> <C> <C> <C> <C>
1998:
Net investment income (1) $ (31.3) $ 1,116.6 $ 231.6 $ 164.7 $ 1,481.6
Other operating revenue 560.8 35.7 319.6 49.6 965.7
--------- --------- -------- -------- ---------
Total operating revenue (2) 529.5 1,152.3 551.2 214.3 2,447.3
--------- --------- -------- -------- ---------
Interest credited to policyholder
account balances -- 828.6 115.4 125.0 1,069.0
Amortization of deferred policy
acquisition costs 123.9 44.2 46.4 -- 214.5
Other benefits and expenses 187.2 104.2 294.6 49.1 635.1
--------- --------- -------- -------- ---------
Total expenses 311.1 977.0 456.4 174.1 1,918.6
--------- --------- -------- -------- ---------
Operating income (loss) before
federal income tax 218.4 175.3 94.8 40.2 528.7
Realized gains on investments -- -- -- 28.4 28.4
--------- --------- -------- -------- ---------
Consolidated income before
federal tax expense $ 218.4 $ 175.3 $ 94.8 $ 68.6 $ 557.1
========= ========= ======== ======== =========
Assets as of year end $47,668.7 $15,215.7 $5,187.6 $6,270.1 $74,342.1
========= ========= ======== ======== =========
1997:
Net investment income (1) $ (26.9) $ 1,098.2 $ 189.1 $ 148.8 $ 1,409.2
Other operating revenue 430.9 43.2 284.0 39.0 797.1
--------- --------- -------- -------- ---------
Total operating revenue (2) 404.0 1,141.4 473.1 187.8 2,206.3
--------- --------- -------- -------- ---------
Interest credited to policyholder
account balances -- 823.4 78.5 114.7 1,016.6
Amortization of deferred policy
acquisition costs 87.8 39.8 39.6 -- 167.2
Other benefits and expenses 165.3 108.7 284.1 45.6 603.7
--------- --------- -------- -------- ---------
Total expenses 253.1 971.9 402.2 160.3 1,787.5
--------- --------- -------- -------- ---------
Operating income before federal
income tax 150.9 169.5 70.9 27.5 418.8
Realized gains on investments -- -- -- 11.1 11.1
--------- --------- -------- -------- ---------
Consolidated income before
federal tax expense $ 150.9 $ 169.5 $ 70.9 $ 38.6 $ 429.9
========= ========= ======== ======== =========
Assets as of year end $35,278.7 $14,436.3 $3,901.4 $6,174.3 $59,790.7
========= ========= ======== ======== =========
</TABLE>
<PAGE> 26
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
<TABLE>
<CAPTION>
Variable Fixed Life Corporate
(in millions of dollars) Annuities Annuities Insurance and Other Total
------------------------------------ ---------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1996:
Net investment income (1) $ (21.5) $ 1,050.6 $ 174.0 $ 154.7 $ 1,357.8
Other operating revenue 306.1 42.0 261.6 25.7 635.4
---------- ---------- --------- --------- ---------
Total operating revenue (2) 284.6 1,092.6 435.6 180.4 1,993.2
---------- ---------- --------- --------- ---------
Interest credited to policyholder
account balances -- 805.0 70.2 107.1 982.3
Amortization of deferred policy
acquisition costs 57.4 38.6 37.4 -- 133.4
Benefits and expenses 136.9 113.6 260.8 50.4 561.7
---------- ---------- --------- --------- ---------
Total expenses 194.3 957.2 368.4 157.5 1,677.4
---------- ---------- --------- --------- ---------
Operating income before federal
income tax 90.3 135.4 67.2 22.9 315.8
Realized losses on investments -- -- -- (0.3) (0.3)
---------- ---------- --------- --------- ---------
Consolidated income from
continuing operations before
federal tax expense $ 90.3 $ 135.4 $ 67.2 $ 22.6 $ 315.5
========== ========== ======== ======== =========
Assets as of year end $ 25,069.7 $ 13,994.7 $3,353.3 $5,348.5 $47,766.2
========== ========== ======== ======== =========
</TABLE>
-----------
(1) The Company's method of allocating net investment income results
in a charge (negative net investment income) to the Variable
Annuities segment which is recognized in the Corporate and Other
segment. The charge relates to non-invested assets which support
this segment on a statutory basis.
(2) Excludes realized gains and losses on investments.
The Company has no significant revenue from customers located outside
of the United States nor does the Company have any significant
long-lived assets located outside the United States.
(14) Discontinued Operations
-----------------------
As discussed in note 1, NFS is a holding company for NLIC and certain
other companies within the Nationwide Insurance Enterprise that offer
or distribute long-term savings and retirement products. Prior to the
contribution by Nationwide Corp. of the outstanding common stock of
NLIC to NFS, NLIC effected certain transactions with respect to certain
subsidiaries and lines of business that were unrelated to long-term
savings and retirement products.
On September 24, 1996, NLIC's Board of Directors declared a dividend
payable to Nationwide Corp. on January 1, 1997 consisting of the
outstanding shares of common stock of three subsidiaries: ELICW, NCC
and WCLIC. ELICW writes group accident and health and group life
insurance business and maintains it offices in Wausau, Wisconsin. NCC
is a property and casualty company with offices in Scottsdale, Arizona
that serves as a fronting company for a property and casualty
subsidiary of NMIC. WCLIC writes high dollar term life insurance
policies and is located in San Francisco, California. ELICW, NCC and
WCLIC have been accounted for as discontinued operations in the
accompanying consolidated financial statements through December 31,
1996. The Company did not recognize any gain or loss on the disposal of
these subsidiaries.
<PAGE> 27
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Also, during 1996, NLIC entered into two reinsurance agreements whereby
all of NLIC's accident and health and group life insurance business was
ceded to ELICW and NMIC, effective January 1, 1996. See note 10 for a
complete discussion of the reinsurance agreements. The Company has
discontinued its accident and health and group life insurance business
and in connection therewith has entered into reinsurance agreements to
cede all existing and any future writings to other affiliated
companies. NLIC's accident and health and group life insurance business
is accounted for as discontinued operations for all periods presented.
The Company did not recognize any gain or loss on the disposal of the
accident and health and group life insurance business. The assets,
liabilities, results of operations and activities of discontinued
operations are distinguished physically, operationally and for
financial reporting purposes from the remaining assets, liabilities,
results of operations and activities of the Company.
A summary of the results of operations of discontinued operations for
the years ended December 31, 1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1998 1997 1996
---- ---- ----
<S> <C> <C>
Revenues $ -- $ -- $ 668.9
Net income $ -- $ -- $ 11.3
</TABLE>
A summary of the assets and liabilities of discontinued operations as
of December 31, 1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Assets, consisting primarily of investments $221.5 $247.3 $3,288.5
Liabilities, consisting primarily of policy benefits and claims $221.5 $247.3 $2,802.8
</TABLE>
<PAGE> 66
PART C. OTHER INFORMATION
<TABLE>
<CAPTION>
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
<S> <C> <C>
(a) To be filed by Financial Statements:
(1) Financial statements included PAGE
in Prospectus
(Part A):
Condensed Financial Information.
(2) Financial statements included
in Part B:
Those financial statements required by N/A Item
23 to be included in Part B have been
incorporated therein by reference to the
Statement of Additional Information
(Part A).
Nationwide Multi-Flex Separate Account:
Independent Auditors' Report. 63
Statements of Assets, Liabilities
and Contract Owners' Equity as of December 31, 1998. 64
Statements of Operations and Changes
in Contract Owners Equity for the years ended
December 31, 1998 and 1997. 65
Notes to Financial Statements. 66
Nationwide Life Insurance Company and Subsidiaries:
Independent Auditors' Report. 76
Consolidated Balance Sheets as of December 31, 1998
and 1997. 77
Consolidated Statements of Income for the years
ended December 31, 1998, 1997 and 1996. 78
Consolidated Statements of Shareholder's Equity for the
years ended December 31, 1998, 1997 and
1996. 79
Consolidated Statements of Cash Flows for the years
ended December 31, 1998, 1997 and 1996. 80
Notes to Consolidated Financial Statements. 81
</TABLE>
104 of 126
<PAGE> 67
Item 24. (b) Exhibits
(1) Resolution of the Depositor's Board of
Directors authorizing the establishment of
the Registrant - Filed previously with
this Registration Statement File No.
(2-75174) and hereby incorporated by
reference.
(2) Not Applicable
(3) Underwriting or Distribution contracts
between the Registrant and Principal
Underwriter - Filed previously with this
Registration Statement File No. (2-75174)
and hereby incorporated by reference.
(4) The form of the variable annuity contract
Filed previously with this Registration
Statement File No. (2-75174) and hereby
incorporated herein by reference.
(5) Variable Annuity Application - Filed
previously with this Registration
Statement File No. (2-75174) and hereby
incorporated by reference.
(6) Articles of Incorporation of Depositor
Filed previously with this Registration
Statement File No. (2-75174) and hereby
incorporated herein by reference.
(7) Not Applicable
(8) Not Applicable
(9) Opinion of Counsel - Filed previously with
this Registration Statement File
No. (2-75174) and hereby
incorporated herein by reference.
(10) Not Applicable
(11) Not Applicable
(12) Not Applicable
(13) Performance Advertising Calculation
Schedule - Filed previously with this
Registration Statement File No. (2-75174)
and hereby incorporated herein by
reference.
105 of 126
<PAGE> 68
Item 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS WITH DEPOSITOR
<S> <C>
Lewis J. Alphin Director
519 Bethel Church Road
Mount Olive, NC 28365
A. I. Bell Director
4121 North River Road West
Zanesville, OH 43701
Kenneth D. Davis Director
7229 Woodmansee Road
Leesburg, OH 45135
Keith W. Eckel Director
1647 Falls Road
Clarks Summit, PA 18411
Willard J. Engel Director
300 East Marshall Street
Marshall, MN 56258
Fred C. Finney Director
1558 West Moreland Road
Wooster, OH 44691
Joseph J. Gasper President and Chief Operating Officer
One Nationwide Plaza and Director
Columbus, OH 43215
Dimon R. McFerson Chairman and Chief Executive Officer
One Nationwide Plaza and Director
Columbus, OH 43215
David O. Miller Chairman of the Board and Director
115 Sprague Drive
Hebron, OH 43025
Yvonne L. Montgomery Director
2859 Paces Ferry Road
Atlanta, GA 30339
Ralph M. Paige, Executive Director Director
Federation of Southern
Cooperatives/Land Assistance Fund
2769 Church Street
East Point, GA 30344
James F. Patterson Director
8765 Mulberry Road
Chesterland, OH 44026
</TABLE>
106 of 126
<PAGE> 69
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS WITH DEPOSITOR
<S> <C>
Arden L. Shisler Director
1356 North Wenger Road
Dalton, OH 44618
Robert L. Stewart Director
88740 Fairview Road
Jewett, OH 43986
Nancy C. Thomas Director
1733A Westwood Avenue
Alliance, OH 44601
Robert A. Oakley Executive Vice President-
One Nationwide Plaza Chief Financial Officer
Columbus, OH 43215
Robert J. Woodward Jr. Executive Vice President
One Nationwide Plaza Chief Investment Officer
Columbus, OH 43215
James E. Brock Senior Vice President - Corporate
One Nationwide Plaza Development
Columbus, OH 43215
John R. Cook, Jr. Senior Vice President -
One Nationwide Plaza Chief Communications Officer
Columbus, OH 43215
Phillip C. Gath Senior Vice President -
One Nationwide Plaza Chief Actuary
Columbus, OH 43215
Richard D. Headley Senior Vice President - Chief
One Nationwide Plaza Information Technology Officer
Columbus, OH 43215
Donna A James Senior Vice President - Human
One Nationwide Plaza Resources
Columbus, OH 43215
Richard A. Karas Senior Vice President - Sales -
One Nationwide Plaza Financial Services
Columbus, OH 43215
</TABLE>
107 of 126
<PAGE> 70
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS WITH DEPOSITOR
<S> <C>
Douglas C. Robinette Senior Vice President-
One Nationwide Plaza Marketing and Product
Columbus, OH 43215 Management Nationwide
Financial Services of the
Nationwide Insurance Enterprise
Susan A. Wolken Senior Vice President - Life
One Nationwide Plaza Company Operations
Columbus, OH 43215
Bruce C. Barnes Vice President - Technology
One Nationwide Plaza Strategy and Planning
Columbus, OH 43215
Dennis W. Click Vice President - Secretary
One Nationwide Plaza
Columbus, OH 43215
David A. Diamond Vice President - Enterprise
One Nationwide Plaza Controller
Columbus, OH 43215
Matthew S. Easley Vice President -
One Nationwide Plaza Investment Life Actuarial
Columbus, OH 43215
R. Dennis Noice Vice President - Systems
One Nationwide Plaza
Columbus, OH 43215
Joseph P. Rath
One Nationwide Plaza Vice President - Product
Columbus, OH 43215 and Market Compliance
Mark Thresher Vice President - Finance and
One Nationwide Plaza Treasurer
Columbus, OH 43215
</TABLE>
Item 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR
OR REGISTRANT.
* Subsidiaries for which separate financial statements are
filed
** Subsidiaries included in the respective consolidated
financial statements
*** Subsidiaries included in the respective group financial
statements filed for unconsolidated subsidiaries
**** other subsidiaries
108 of 126
<PAGE> 71
<TABLE>
<CAPTION>
COMPANY STATE/COUNTRY OF NO. VOTING PRINCIPAL BUSINESS
ORGANIZATION SECURITIES
(SEE ATTACHED
CHART UNLESS
OTHERWISE
INDICATED)
<S> <C> <C> <C>
The 401K Companies, Inc. Texas Holding Company
The 401(K) Company Texas Third-party administrator for 401(k)
plans
401K Investment Advisors, Inc. Texas Investment Advisor registered with the
SEC
401K Investments Services, Inc. Texas NASD registered Broker-Dealer
Affiliate Agency, Inc. Delaware Life Insurance Agency
Affiliate Agency of Ohio, Inc. Ohio Life Insurance Agency
AID Finance Services, Inc. Iowa Holding Company
ALLIED General Agency Company Iowa Managing General Agent and Surplus
Lines Broker (P&C)
ALLIED Group, Inc. Iowa Holding Company
ALLIED Group Insurance Marketing Iowa Direct Marketer (P&C)
Company
ALLIED Group Merchant Banking Iowa Broker-Dealer
Corporation
ALLIED Group Mortgage Company Iowa Mortgage Lender
ALLIED Life Brokerage Agency, Inc. Iowa Insurance Broker
ALLIED Life Financial Corporation Iowa Holding Company
ALLIED Life Insurance Company Iowa Insurance Company
ALLIED Property and Casualty Iowa Underwrites General P&C Insurance
Insurance Company
Allnations, Inc. Ohio Promotes international cooperative
insurance organizations
AMCO Insurance Company Iowa Underwrites General P&C Insurance
American Marine Underwriters, Inc. Florida Underwriting Manager
Auto Direkt Insurance Company Germany Insurance Company
CalFarm Insurance Company California Stock Corporation
Caliber Funding Corporation Delaware Stock Corporation
Colonial County Mutual Insurance Texas Insurance Company
Company
Colonial Insurance Company of Wisconsin Insurance Company
Wisconsin
Columbus Insurance Brokerage and Germany Insurance Broker
Service GmbH
</TABLE>
109 of 126
<PAGE> 72
<TABLE>
<CAPTION>
COMPANY STATE/COUNTRY OF NO. VOTING PRINCIPAL BUSINESS
ORGANIZATION SECURITIES
(SEE ATTACHED
CHART UNLESS
OTHERWISE
INDICATED)
<S> <C> <C> <C>
Cooperative Service Company Nebraska Insurance Agency
Depositors Insurance Company Iowa Underwrites P&C insurance
*Employers Life Insurance Company Wisconsin Life Insurance Company
of Wausau
Excaliber Funding Corporation Delaware Limited purpose corporation
F&B, Inc. Iowa Insurance Agency
Farmland Mutual Insurance Company Iowa Mutual Insurance Company
Financial Horizons Distributors Alabama Insurance Agency
Agency of Alabama, Inc.
Financial Horizons Distributors Ohio Insurance Agency
Agency of Ohio, Inc.
Financial Horizons Distributors Oklahoma Insurance Agency
Agency of Oklahoma, Inc.
Financial Horizons Distributors Texas Insurance Agency
Agency of Texas, Inc.
*Financial Horizons Investment Trust Massachusetts Investment Company
Financial Horizons Securities Oklahoma Broker-Dealer
Corporation
GatesMcDonald Health Plus, Inc. Ohio Managed Care Organization
Gates, McDonald & Company Ohio Cost Control
Gates, McDonald & Company of Nevada Nevada Self-insurance administration, claims
examinations and data processing
services
Gates, McDonald & Company of New New York Workers' compensation claims
York, Inc. administration
MedPro Solutions, Inc. Massachusetts Third-party administration services
for workers' compensation, automobile
injury and disability claims
Insurance Intermediaries, Inc. Ohio Insurance Broker and Insurance Agency
Irvin L. Schwartz and Associates, Ohio Insurance Agency
Inc.
Landmark Financial Services of New New York Life Insurance Agency
York, Inc.
Leben Direkt Insurance Company Germany Life Insurance Company
</TABLE>
110 of 126
<PAGE> 73
<TABLE>
<CAPTION>
COMPANY STATE/COUNTRY OF NO. VOTING PRINCIPAL BUSINESS
ORGANIZATION SECURITIES
(SEE ATTACHED
CHART UNLESS
OTHERWISE
INDICATED)
<S> <C> <C> <C>
Lone Star General Agency, Inc. Texas Insurance Agency
Midwest Printing Services, Inc. Iowa General Printing Services
Morley & Associates Oregon Insurance Broker
Morley Capital Management, Inc. Oregon Investment Adviser and stable value
money management
Morley Financial Services, Inc. Oregon Holding Company
Morley Research Associates, Ltd. Delaware Credit research consulting
**MRM Investments, Inc. Ohio Owns and operates a recreational ski
facility
**National Casualty Company Wisconsin Insurance Company
National Casualty Company of America, Great Britain Insurance Company
Ltd.
National Deferred Compensation, Inc. Ohio Administers deferred compensation
plans for public employees
**National Premium and Benefit Delaware Insurance Administrative Services
Administration Company
Nationwide Advisory Services, Inc. Ohio Investment Management and
Administrative Services
**Nationwide Agency, Inc. Ohio Insurance Agency
Nationwide Agribusiness Insurance Iowa Insurance Company
Company
Nationwide Asset Allocation Trust Massachusetts Investment Company
Nationwide Cash Management Company Ohio Investment Securities Agent
Nationwide Community Urban Ohio Special purpose real estate corporation
Redevelopment Corporation
Nationwide Corporation Ohio Holding Company
Nationwide Financial Institution Delaware Insurance Agency
Distributors Agency, Inc.
Nationwide Financial Services Bermuda Life Insurance Company
(Bermuda) Ltd.
Nationwide Financial Services Delaware Statutory Business Trust
Capital Trust
Nationwide Financial Services Delaware Statutory Business Trust
Capital Trust II
</TABLE>
111 of 126
<PAGE> 74
<TABLE>
<CAPTION>
COMPANY STATE/COUNTRY OF NO. VOTING PRINCIPAL BUSINESS
ORGANIZATION SECURITIES
(SEE ATTACHED
CHART UNLESS
OTHERWISE
INDICATED)
<S> <C> <C> <C>
Nationwide Financial Services, Inc. Delaware Holding Company
Nationwide General Insurance Company Ohio Insurance Company
Nationwide Global Holdings, Inc. Ohio Holding Company for International
Operations
Nationwide Health Plans, Inc. Ohio Health Maintenance Organization
*Nationwide Indemnity Company Ohio Reinsurance Company
Nationwide Insurance Company of California Underwriter
America
Nationwide Insurance Company of Ohio Insurance Company
Florida
Nationwide Insurance Enterprise Ohio Membership Non-Profit Corporation
Foundation
Nationwide Services Company, LCC Ohio Shared services functions
Nationwide Insurance Golf Charities, Ohio Membership Non-Profit Corporation
Inc.
Nationwide International Underwriters California Underwriting Manager
Nationwide Investing Foundation Michigan Provide investors with continuous
source of investment
*Nationwide Investing Foundation II Massachusetts Common Law Trust
Nationwide Investment Services Oklahoma Registered Broker-Dealer in deferred
Corporation compensation market
Nationwide Investors Services, Inc. Ohio Stock Transfer Agent
**Nationwide Life and Annuity Ohio Life Insurance Company
Insurance Company
**Nationwide Life Insurance Company Ohio Life Insurance Company
Nationwide Lloyds Texas Property Insurance
Nationwide Management Systems, Inc. Ohio Preferred provider organization,
products and related services
Nationwide Mutual Fire Insurance Ohio Mutual Insurance Company
Company
Nationwide Mutual Funds Ohio Investment Company
Nationwide Mutual Insurance Company Ohio Mutual Insurance Company
</TABLE>
112 of 126
<PAGE> 75
<TABLE>
<CAPTION>
COMPANY STATE/COUNTRY OF NO. VOTING PRINCIPAL BUSINESS
ORGANIZATION SECURITIES
(SEE ATTACHED
CHART UNLESS
OTHERWISE
INDICATED)
<S> <C> <C> <C>
Nationwide Properties, Ltd. Ohio Develop, own and operate real estate
and real estate investments
Nationwide Property and Casualty Ohio Insurance Company
Insurance Company
Nationwide Realty Investors, Inc. Ohio Develop, own and operate real estate
and real estate investments
Nationwide Retirement Solutions, Inc. Delaware Market and administer deferred
compensation plans for public employees
Nationwide Retirement Solutions, Alabama Market and administer deferred
Inc. of Alabama compensation plans for public employees
Nationwide Retirement Solutions, Arizona Market and administer deferred
Inc. of Arizona compensation plans for public employees
Nationwide Retirement Solutions, Arkansas Market and administer deferred
Inc. of Arkansas compensation plans for public employees
Nationwide Retirement Solutions, Montana Market and administer deferred
Inc. of Montana compensation plans for public employees
Nationwide Retirement Solutions, Nevada Market and administer deferred
Inc. of Nevada compensation plans for public employees
Nationwide Retirement Solutions, New Mexico Market and administer deferred
Inc. of New Mexico compensation plans for public employees
Nationwide Retirement Solutions, Ohio Market variable annuity contracts to
Inc. of Ohio members of the National Education
Association in the state of Ohio
Nationwide Retirement Solutions, Oklahoma Market variable annuity contracts to
Inc. of Oklahoma members of the National Education
Association in the state of Oklahoma
Nationwide Retirement Solutions, South Dakota Market and administer deferred
Inc. of South Dakota compensation plans for public employees
Nationwide Retirement Solutions, Texas Market and administer deferred
Inc. of Texas compensation plans for public employees
Nationwide Retirement Solutions, Wyoming Market variable annuity contracts to
Inc. of Wyoming members of the National Education
Association in the state of Wyoming
</TABLE>
113 of 126
<PAGE> 76
<TABLE>
<CAPTION>
COMPANY STATE/COUNTRY OF NO. VOTING PRINCIPAL BUSINESS
ORGANIZATION SECURITIES
(SEE ATTACHED
CHART UNLESS
OTHERWISE
INDICATED)
<S> <C> <C> <C>
Nationwide Retirement Solutions Massachusetts Market and administer deferred
Insurance Agency Inc. compensation plans for public employees
*Nationwide Separate Account Trust Massachusetts Investment Company
Nationwide Trust Company, FSB United States of America Federal Savings Bank
Neckura Holding Company Germany Administrative services for Neckura
Insurance Group
Neckura Insurance Company Germany Insurance Company
Neckura Life Insurance Company Germany Life Insurance Company
Nevada Independent Nevada Workers' compensation administrative
Companies-Construction services
Nevada Independent Companies-Health Nevada Workers' compensation administrative
and Nonprofit services
Nevada Independent Companies- Nevada Workers' compensation administrative
Hospitality and Entertainment services
Nevada Independent Companies- Nevada Workers' compensation administrative
Manufacturing services
NFS Distributors, Inc. Delaware Holding Company
NWE, Inc. Ohio Special Investments
PanEuroLife Luxembourg Life Insurance
Pension Associates, Inc. Wisconsin Pension plan administration
Portland Investment Services, Inc. Oregon NASD Registered Broker-Dealer
Premier Agency, Inc. Iowa Insurance Agency
Riverview Agency, Inc. Texas Stock Corporation
Scottsdale Indemnity Company Ohio Insurance Company
Scottsdale Insurance Company Ohio Insurance Company
Scottsdale Surplus Lines Insurance Arizona Excess and Surplus Lines Insurance
Company Company
SVM Sales GmbH, Neckura Insurance Germany Sales support for Neckura Insurance
Group Group
Union Bond and Trust Company Oregon Oregon state bank with trust powers
Villanova Capital, Inc. Delaware Holding Company
</TABLE>
114 of 126
<PAGE> 77
<TABLE>
<CAPTION>
COMPANY STATE/COUNTRY OF NO. VOTING PRINCIPAL BUSINESS
ORGANIZATION SECURITIES
(SEE ATTACHED
CHART UNLESS
OTHERWISE
INDICATED)
<S> <C> <C> <C>
Villanova Mutual Fund Capital Trust Delaware Business Trust
Villanova SA Capital Trust Delaware Business Trust
**Wausau Preferred Health Insurance Wisconsin Insurance and Reinsurance Company
Company
Western Heritage Insurance Company Arizona Excess and Surplus Lines Insurance
Company
</TABLE>
115 of 126
<PAGE> 78
<TABLE>
<CAPTION>
COMPANY STATE/COUNTRY OF NO. VOTING SECURITIES PRINCIPAL BUSINESS
ORGANIZATION (SEE ATTACHED CHART)
UNLESS OTHERWISE INDICATED
<S> <C> <C> <C>
* MFS Variable Account Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* NACo Variable Account Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide DC Variable Account Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
Nationwide DCVA-II Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Separate Account No. 1 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Multi-Flex Variable Account Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide VA Separate Account-A Ohio Nationwide Life and Annuity Issuer of Annuity Contracts
Separate Account
* Nationwide VA Separate Account-B Ohio Nationwide Life and Annuity Issuer of Annuity Contracts
Separate Account
* Nationwide VA Separate Account-C Ohio Nationwide Life and Annuity Issuer of Annuity Contracts
Separate Account
Nationwide VA Separate Account-Q Ohio Nationwide Life and Annuity Issuer of Annuity Contracts
Separate Account
* Nationwide Variable Account Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Variable Account-II Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Variable Account-3 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Variable Account-4 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Variable Account-5 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Variable Account-6 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Fidelity Advisor Variable Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account Account
Nationwide Variable Account-8 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Variable Account-9 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
Nationwide Variable Account-10 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide VL Separate Account-A Ohio Nationwide Life and Annuity Issuer of Life Insurance
Separate Account Policies
</TABLE>
116 of 126
<PAGE> 79
<TABLE>
<CAPTION>
COMPANY STATE/COUNTRY OF NO. VOTING SECURITIES PRINCIPAL BUSINESS
ORGANIZATION (SEE ATTACHED CHART)
UNLESS OTHERWISE INDICATED
<S> <C> <C> <C>
Nationwide VL Separate Account-B Ohio Nationwide Life and Annuity Issuer of Life Insurance
Separate Account Policies
* Nationwide VL Separate Account-C Ohio Nationwide Life and Annuity Issuer of Life Insurance
Separate Account Policies
Nationwide VL Separate Account -D Ohio Nationwide Life and Annuity Issuer of Life Insurance
Separate Account Policies
* Nationwide VLI Separate Account Ohio Nationwide Life Separate Issuer of Life Insurance
Account Policies
* Nationwide VLI Separate Account-2 Ohio Nationwide Life Separate Issuer of Life Insurance
Account Policies
* Nationwide VLI Separate Account-3 Ohio Nationwide Life Separate Issuer of Life Insurance
Account Policies
* Nationwide VLI Separate Account-4 Ohio Nationwide Life Separate Issuer of Life Insurance
Account Policies
Nationwide VLI Separate Account-5 Ohio Nationwide Life Separate Issuer of Life Insurance
Account Policies
</TABLE>
117 of 126
<PAGE> 80
<TABLE>
<CAPTION>
(left side)
<S> <C> <C> <C>
- ------------------------
| NATIONWIDE INSURANCE |
| GOLF CHARITIES, INC. |
| |
| MEMBERSHIP |
| NONPROFIT |
| CORPORATION |
- ------------------------
-------------------------------------------------------------------------------------------------------------------------
| | |
- --------------------------- --------------------------- ----------------------------
| ALLIED LIFE | | ALLIED | | AID FINANCE |
| FINANCIAL | | GROUP, INC. | | SERVICES, INC. |
| CORPORATION | | (AGI) | | (AID FINANCE) |
| (ALFC) | | | | |
|Common Stock: 850 | |Common Stock: 850 Shares | |Common Stock: 10,000 |
|------------ Shares | |------------ | |------------ Shares |
| |---| | |---| | |
| Cost | | | Cost | | | Cost |
| ---- | | | ---- | | | ---- |
|Casualty- | | |Casualty- | | |Casualty- |
|100% $47,286,429 | | |100% $1,049,237,226| | |100% $19,545,634 |
- --------------------------- | --------------------------- | ----------------------------
| | |
- --------------------------- | --------------------------- | ----------------------------
| ALLIED GROUP | | | AMCO | | | ALLIED |
| MERCHANT BANKING | | | INSURANCE COMPANY | | | GROUP INSURANCE |
| CORPORATION | | | (AMCO) | | | MARKETING COMPANY |
|Common Stock: 10,000 | | |Common Stock: 155,991 | | |Common Stock: 20,000 |
|------------ Shares | | |------------ Shares | | |------------ Shares |
| |---| |----| |---| | |
| Cost | | | | Cost | | | Cost |
| ---- | | | | ---- | | | ---- |
| | | | | | | |Aid Finance- |
|AFLC-100% $100,000 | | | |AGI-100% $95,925,450| | |100% $16,059,469 |
- --------------------------- | | --------------------------- | ----------------------------
| | |
- --------------------------- | | --------------------------- | ----------------------------
| ALLIED LIFE | | | | WESTERN | | | DEPOSITORS |
| BROKERAGE | | | | HERITAGE INSURANCE | | | INSURANCE COMPANY |
| AGENCY, INC. | | | | COMPANY | | | (DEPOSITORS) |
|Common Stock: 500,000 | | | |Common Stock: 4,776,076 | | |Common Stock: 199,991 |
|------------ Shares | | | |------------ Shares | | |------------ Shares |
| |---| |----| | |---| |
| Cost | | | | Cost | | | Cost |
| ---- | | | | ---- | | | ---- |
|AFLC-100% $442,695 | | | |AMCO-100% $11,686,037| | |AGI-100% $15,251,842 |
- --------------------------- | | --------------------------- | ----------------------------
| | |
- --------------------------- | | --------------------------- | ----------------------------
| ALLIED LIFE | | | | ALLIED | | | ALLIED PROPERTY |
| INSURANCE | | | | GENERAL AGENCY | | | AND CASUALTY |
| COMPANY | | | | COMPANY | | | INSURANCE COMPANY |
|Common Stock: 250,000 | | | |Common Stock: 5,000 | | |Common Stock: 156,822 |
|------------ Shares | | | |------------ Shares | | |------------ Shares |
| |---| |----| | |---| |
| Cost | | Cost | | | Cost |
| ---- | | ---- | | | ---- |
|AFLC-100% $41,732,343| |AMCO-100% $135,342 | | |AGI-100% $33,018,634 |
- --------------------------- --------------------------- | ----------------------------
|
--------------------------- | ----------------------------
| PREMIER | | | ALLIED |
| AGENCY, | | | GROUP MORTGAGE |
| INC. | | | COMPANY |
|Common Stock: 100,000 | | |Common Stock: 9,500 |
|------------ Shares | | |------------ Shares |
| |---|---| |
| Cost | | | Cost |
| ---- | | | ---- |
|AGI-100% $100,000 | | |AGI-100% $213,976 |
--------------------------- | ----------------------------
|
| ----------------------------
| | MIDWEST |
| | PRINTING SERVICES |
| | LTD. |
| |Common Stock: 10,000 |
| |------------ Shares |
|---| |
| Cost |
| ---- |
|AFLC-100% $610,000 |
----------------------------
</TABLE>
<PAGE> 81
<TABLE>
<CAPTION>
NATIONWIDE INSURANCE ENTERPRISE(R) (middle)
<S> <C> <C>
------------------------------------------ ------------------------------------------
| | | |
| NATIONWIDE MUTUAL | | NATIONWIDE MUTUAL |
| INSURANCE COMPANY |============================| FIRE INSURANCE COMPANY |
| (CASUALTY) | | (FIRE) |
| | | |
------------------------------------------ ------------------------------------------
| || | |
| || |--------------------------------------------------------------------| |--------------------------
- --| || |
|| |--------------------------------------------------------------|----------------
|| | |
|| -------------------------------- | -------------------------------- --------------------------------
|| | | | | NATIONWIDE GENERAL | | NECKURA HOLDING |
|| | | | | INSURANCE COMPANY | | COMPANY (NECKURA) |
|| | NATIONWIDE LLOYDS | | | | | |
|| | | | |Common Stock: 20,000 | |Common Stock: 10,000 |
||==| | |---|------------ Shares | |--|------------ Shares |
|| | A TEXAS LLOYDS | | | | | | |
|| | | | | Cost | | | Cost |
|| | | | | ---- | | | ---- |
|| | | | |Casualty-100% $5,944,422 | | |Casualty-100% $87,943,140 |
|| -------------------------------- | -------------------------------- | --------------------------------
|| | |
|| -------------------------------- | -------------------------------- | --------------------------------
|| | FARMLAND MUTUAL | | | NATIONWIDE PROPERTY | | | NECKURA |
|| | INSURANCE COMPANY | | | AND CASUALTY | | | INSURANCE COMPANY |
|| |Guaranty Fund | | | INSURANCE COMPANY | | | |
|| |------------ | | |Common Stock: 60,000 | |--|Common Stock: 6,000 |
||==|Certificate |---| |---|------------ Shares | | |------------ Shares |
|----------- Cost | | | | Cost | | | Cost |
| ---- | | | | ---- | | |Neckura- ---- |
|Casualty $500,000 | | | |Casualty-100% $6,000,000 | | |100% DM 6,000,000 |
-------------------------------- | | -------------------------------- | --------------------------------
| | |
-------------------------------- | | -------------------------------- | --------------------------------
| F & B, INC. | | | | COLONIAL INSURANCE | | | NECKURA LIFE |
| | | | | COMPANY OF WISCONSIN | | | INSURANCE COMPANY |
|Common Stock: 1 Share | | | | (COLONIAL) | | | |
|------------ |---- |---|Common Stock: 1,750 | |--|Common Stock: 4,000 |
| Cost | | | |------------ Shares | | |------------ Shares |
| ---- | | | | Cost | | | Cost |
|Farmland | | | | ---- | | | ---- |
|Mutual-100% $10 | | | |Casualty-100% $41,750,000 | | |Neckura-100% DM 15,825,681 |
-------------------------------- | | -------------------------------- | --------------------------------
| | |
-------------------------------- | | -------------------------------- | --------------------------------
| COOPERATIVE SERVICE | | | | SCOTTSDALE | | | NECKURA GENERAL |
| COMPANY | | | | INSURANCE COMPANY | | | INSURANCE COMPANY |
|Common Stock: 600 Shares | | | | (SIC) | | | |
|------------ | | | |Common Stock: 30,136 | | |Common Stock: 1,500 |
| Cost |---- |---|------------ Shares | ---- |--|------------ Shares |
| ---- | | | Cost | | | | Cost |
|Farmland $3,506,173 | | | ---- | | | | ---- |
|Mutual-100% | | |Casualty-100% $150,000,000 | | | |Neckura-100% DM 1,656,925 |
-------------------------------- | -------------------------------- | | --------------------------------
| | |
-------------------------------- | -------------------------------- | | --------------------------------
| NATIONWIDE AGRIBUSINESS | | | SCOTTSDALE | | | | COLUMBUS INSURANCE |
| INSURANCE COMPANY | | | SURPLUS LINES | | | | BROKERAGE AND SERVICE |
|Common Stock: 1,000,000 | | | INSURANCE COMPANY | | | | GmbH |
|------------ Shares | | | Common Stock: 10,000 | | | |Common Stock: 1 Share |
| |--------| | ------------ Shares | ---| |--|------------ |
| Cost | | | | | | | |
|Casualty-99.9% ---- | | | Cost | | | | Cost |
|Other Capital: $26,714,335 | | | ---- | | | | ---- |
|------------- | | | SIC-100% $6,000,000 | | | |Neckura-100% DM 51,639 |
|Casualty-Ptd. $ 713,576 | | | | | | | |
-------------------------------- | -------------------------------- | | --------------------------------
| | |
-------------------------------- | -------------------------------- | | --------------------------------
| NATIONAL CASUALTY | | | NATIONAL PREMIUM & | | | | LEBEN DIREKT |
| COMPANY | | | BENEFIT ADMINISTRATION | | | | INSURANCE COMPANY |
| (NC) | | | COMPANY | | | | |
|Common Stock: 100 Shares | | |Common Stock: 10,000 | | | |Common Stock: 4,000 Shares |
|------------ |--------| |------------ Shares |----| |--|------------ |
| Cost | | Cost | | | Cost |
| ---- | | ---- | | | ---- |
|Casualty-100% $67,442,439 | |Scottsdale-100% $10,000 | | |Neckura-100% DM 4,000,000 |
-------------------------------- -------------------------------- | --------------------------------
| |
-------------------------------- -------------------------------- | --------------------------------
| NCC OF AMERICA, LTD. | | SVM SALES | | | AUTO DIREKT |
| (INACTIVE) | | GmbH | | | INSURANCE COMPANY |
| | | | | | |
| | |Common Stock: 50 Shares | | |Common Stock: 1500 Shares |
| | |------------ |------------|------------ |
| | | Cost | | Cost |
|NC-100% | | ---- | | ---- |
| | |Neckura-100% DM 50,000 | |Neckura-100% DM 1,643,149 |
| | | | | |
| | | | | |
-------------------------------- -------------------------------- --------------------------------
</TABLE>
<PAGE> 82
<TABLE>
<CAPTION>
(right side)
<S> <C> <C> <C>
------------------------
| NATIONWIDE INSURANCE |
| ENTERPRISE FOUNDATION|
| |
| MEMBERSHIP |
| NONPROFIT |
| CORPORATION |
------------------------
- -----------------------------------------------------------------------|
|
- --------------- --------------------------------------------------
| |
- -----------------------------------------------------------------------------------------|----------------------- |
| | | | |
| -------------------------------- | -------------------------------- | ----------------------------------
| | SCOTTSDALE | | | NATIONWIDE | | | NATIONWIDE |
| | INDEMNITY COMPANY | | | COMMUNITY URBAN | | | CORPORATION |
| | | | | REDEVELOPMENT | | | |
| | | | | CORPORATION | | |Common Stock: Control: |
| |Common Stock: 50,000 | | |Common Stock: 10 Shares | | |------------ ------- |
|-----|------------ Shares | |----|------------ | | |$13,642,432 100% |
| | Cost | | | Cost | | | Shares Cost |
| | ---- | | | ---- | | | ------ ---- |
| |Casualty-100% $8,800,000 | | |Casualty-100% $1,000 | | |Casualty 12,992,922 $751,352,485|
| | | | | | | |Fire 649,510 24,007,936|
| | | | | | | | (See Page 2) |
| -------------------------------- | -------------------------------- | ----------------------------------
| | |
| -------------------------------- | -------------------------------- | ----------------------------------
| | NATIONWIDE | | | INSURANCE | | | ALLNATIONS, INC. |
| | INDEMNITY COMPANY | | | INTERMEDIARIES, INC. | | |Common Stock: 10,330 Shares |
| | | | | | | |------------- Cost |
|-----|Common Stock: 28,000 | |----|Common Stock: 1,615 | |--------| ---- |
| |------------ Shares | | |------------ Shares | | |Casualty-18.6% $88,320 |
| | Cost | | | Cost | | |Fire-18.6% $88,463 |
| | ---- | | | ---- | | |Preferred Stock 1466 Shares |
| |Casualty-100% $294,529,000 | | |Casualty-100% $1,615,000 | | |--------------- Cost |
| | | | | | | | ---- |
| | | | | | | |Casualty-6.8% $100,000 |
| | | | | | | |Fire-6.8% $100,000 |
| -------------------------------- | -------------------------------- | ----------------------------------
| | |
| -------------------------------- | -------------------------------- | ----------------------------------
| | LONE STAR | | | NATIONWIDE CASH | | | PENSION ASSOCIATES |
| | GENERAL AGENCY, INC. | | | MANAGEMENT COMPANY | | | OF WAUSAU, INC. |
| | | | |Common Stock: 100 Shares | | |Common Stock: 1,000 Shares |
------|Common Stock: 1,000 | |----|------------ | |--------|------------- |
| |------------ Shares | | | Cost | | | Cost |
| | Cost | | | ---- | | | ---- |
| | ---- | | |Casualty-90% $9,000 | | | |
| |Casualty-100% $5,000,000 | | |NW Adv. Serv. 1,000 | | |Casualty-100% $2,839,392 |
| -------------------------------- | -------------------------------- | ----------------------------------
| || | |
| -------------------------------- | -------------------------------- | ----------------------------------
| | COLONIAL COUNTY MUTUAL | | | NATIONWIDE INSURANCE | | | AMERCIAN MARINE |
| | INSURANCE COMPANY | | | COMPANY OF FLORIDA | | | UNDERWRITERS, INC. |
| | | | |Common Stock: 10,000 | | |Common Stock: 20 Shares |
| |Surplus Debentures | | |------------- Shares | | |------------- |
| |------------------ | |----| | |--------| Cost |
| | Cost | | | Cost | | ---- |
| | ---- | | | ---- | | |
| |Colonial $500,000 | | |Casualty-100% $300,000,000 | |Casualty-100% $5,020 |
| |Lone Star 150,000 | | | | | |
| -------------------------------- | -------------------------------- ----------------------------------
| |
| -------------------------------- | --------------------------------
| | TIG COUNTRYWIDE | | | WAUSAU INTERNATIONAL |
| | INSURANCE COMPANY | | | UNDERWRITERS |
| |Common Stock 12,000 | | | |
| |------------ Shares | | |Common Stock: 1,000 Shares |
|-----| | -----|------------ |
| | Cost | | | Cost |
| | ---- | | | ---- |
| |Casualty-100% $215,273,000 | | |Casualty-100% $10,000 |
| | | | | |
| -------------------------------- | | |
| | --------------------------------
| |
| -------------------------------- | --------------------------------
| | NATIONWIDE INSURANCE | | | NATIONWIDE |
| | ENTERPRISE SERVICES, LTD. | | | ARENA LLC |
| | | | | |
| |Single Member Limited | | | |
|.....|Liability Company | |....| |
| | | |
| | | |
|Casualty-100% | |Casualty-90% |
| | | |
-------------------------------- --------------------------------
Subsidiary Companies -- Solid Line
Contractual Association -- Double Line
Limited Liability Company -- Dotted Line
December 31, 1998
</TABLE>
Page 1
<PAGE> 83
<TABLE>
<CAPTION>
(Left Side)
<S> <C> <C> <C> <C> <C> <C>
|----------------------------------|-----------------------------------|-------------------------------
| | |
----------------------------- ----------------------------- -----------------------------
| NATIONWIDE LIFE INSURANCE | | NATIONWIDE | | NATIONWIDE FINANCIAL |
| COMPANY (NW LIFE) | | FINANCIAL SERVICES | | INSTITUTION DISTRIBUTORS |
| | | CAPITAL TRUST | | AGENCY, INC. (NFIDAI) |
| Common Stock: 3,814,779 | | Preferred Stock: | | Common Stock: 1,000 |
| ------------ Shares | | --------------- | | ------------ Shares |
| | | | | |
| NFS--100% | | NFS--100% | | NFS--100% |
----------------|------------ ----------------------------- ---------------||------------
| ||
- ----------------------------- | ----------------------------- ----------------------------- || ----------------------------
| NATIONWIDE LIFE AND | | | NATIONWIDE | | FINANCIAL HORIZONS | || | |
| ANNUITY INSURANCE COMPANY | | | ADVISORY SERVICES, INC. | | DISTRIBUTORS AGENCY | || | |
| | | | (NW ADV. SERV.) | | OF ALABAMA, INC. | || | |
| Common Stock: 66,000 | | | Common Stock: 7,676 | | Common Stock: 10,000 | || | FINANCIAL HORIZONS |
| ------------ Shares |--|--| ------------ Shares |==|| | ------------ Shares |--||==| DISTRIBUTORS AGENCY |
| | | | | || | | || | OF OHIO, INC. |
| Cost | | | Cost | || | Cost | || | |
| ---- | | | ---- | || | ---- | || | |
| NW Life -100% $58,070,003 | | | NW Life -100% $5,996,261 | || | NFIDAI -100% $100 | || | |
- ----------------------------- | ----------------------------- || ----------------------------- || ----------------------------
| || ||
- ----------------------------- | ----------------------------- || ----------------------------- || ----------------------------
| NWE, INC. | | | NATIONWIDE | || | LANDMARK FINANCIAL | || | |
| | | | INVESTORS SERVICES, INC. | || | SERVICES OF | || | |
| | | | | || | NEW YORK, INC. | || | |
| Common Stock: 100 | | | Common Stock: 5 Shares | || | Common Stock: 10,000 | || | FINANCIAL HORIZONS |
| ------------ Shares |--| | ------------ |--|| | ------------ Shares |--||==| DISTRIBUTORS AGENCY |
| | | | | || | | || | OF OKLAHOMA, INC. |
| Cost | | | Cost | || | Cost | || | |
| ---- | | | ---- | || | ---- | || | |
| NW Life -100% $35,971,375 | | | NW Adv. Serv. -100% $5,000| || | NFIDAI -100% $10,100 | || | |
- ----------------------------- | ----------------------------- || ----------------------------- || ----------------------------
| || ||
- ----------------------------- | ----------------------------- || ----------------------------- || ----------------------------
| NATIONWIDE INVESTMENT | | | FINANCIAL HORIZONS | || | FINANCIAL HORIZONS | || | |
| SERVICES CORPORATION | | | INVESTMENT TRUST | || | SECURITIES CORP. | || | |
| | | | | || | | || | |
| Common Stock: 5,000 | | | | || | Common Stock: 10,000 | || | FINANCIAL HORIZONS |
| ------------ Shares |--| | |==|| | ------------ Shares |--||==| DISTRIBUTORS AGENCY |
| | | | | || | | || | OF TEXAS, INC. |
| Cost | | | | || | Cost | || | |
| ---- | | | | || | ---- | || | |
| NW Life -100% $529,728 | | | COMMON LAW TRUST | || | NFIDAI -100% $153,000 | || | |
- ----------------------------- | ----------------------------- || ----------------------------- || ----------------------------
| || ||
- ----------------------------- | ----------------------------- || ----------------------------- || ----------------------------
| NATIONWIDE REALTY | | | NATIONWIDE | || | AFFILIATE AGENCY, INC. | || | |
| INVESTORS, LTD. | | | INVESTING | || | | || | |
| | | | FOUNDATION | || | | || | |
| Units: | | | | || | Common Stock: 100 | || | AFFILIATE |
| ------ |..| | |==|| | ------------ Shares |--||==| AGENCY OF |
| | | | | || | | | OHIO, INC. |
| | | | | || | Cost | | |
| NW Life -90% | | | | || | ---- | | |
| NW Mutual-10% | | | COMMON LAW TRUST | || | NFIDAI -100% $100 | | |
- ----------------------------- | ----------------------------- || ----------------------------- ----------------------------
| ||
- ----------------------------- | ----------------------------- || -----------------------------
| NATIONWIDE | | | NATIONWIDE | || | NATIONWIDE |
| PROPERTIES, LTD. | | | INVESTING | || | INVESTING |
| | | | FOUNDATION II | || | FOUNDATION III |
| Units: |..| | | || | |
| ------ | | |==||==| |
| | | | || | |
| | | | || | | ----------------------
| NW Life -97.6% | | | || | | | MORLEY RESEARCH |
| NW Mutual -2.4% | | COMMON LAW TRUST | || | OHIO BUSINESS TRUST | | ASSOCIATES, LTD. |
- ----------------------------- ----------------------------- || ----------------------------- | |
|| |Common Stock: 1,000 |
----------------------------- || ----------------------------- |------------- Shares|------
| NATIONWIDE | || | NATIONWIDE | | Cost |
| SEPARATE ACCOUNT | || | ASSET ALLOCATION TRUST | | ---- |
| TRUST | || | | |Morley-100% $1,000|
| | || | | ----------------------
| |==||==| |
| | | |
| | | |
| | | MASSACHUSETTS |
| COMMON LAW TRUST | | BUSINESS TRUST |
----------------------------- -----------------------------
</TABLE>
<PAGE> 84
<TABLE>
<CAPTION>
(Center)
NATIONWIDE INSURANCE ENTERPRISE (R)
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------- --------------------------------------------------
| NATIONWIDE MUTUAL | | NATIONWIDE MUTUAL |
| INSURANCE COMPANY |================================| FIRE INSURANCE COMPANY |
| (CASUALTY) | | | (FIRE) |
- -------------------------------------------------- | --------------------------------------------------
|
-----------------------------------------
| NATIONWIDE CORPORATION (NW CORP) |
| Common Stock: Control: |
| ------------ ------- |
| 13,642,432 100% |
| Shares Cost |
| ------ ---- |
|Casualty 12,992,922 $751,352,485 |
|Fire 649,510 24,007,936 |
-------------------|---------------------
|--------------------------------------------------------------
---------------|-------------
| NATIONWIDE FINANCIAL |
| SERVICES, INC. (NFS) |
| |
|Common Stock: Control: |
|------------ ------- |
| |
| |
|Class A Public--100% |
|Class B NW Corp--100% |
---------------|-------------
|
- -----------------|-------------------------------|-------------------|--------------------------------|-----------------------------
| | | |
-------------|--------------- --------------|-------------- | ---------------|-------------
| MORLEY FINANCIAL | | THE 401(k) COMPANIES, INC.| | | NATIONWIDE RETIREMENT |
| SERVICES, INC. (MORLEY) | | (401(k)) | | | SOLUTIONS, INC. |
|Common Stock: 82,343 | |Common Stock: Control: | | |Common Stock: 236,494 |
|---|------------- Shares | |------------- ------- |--| | |------------- Shares |
| | | |Class A Other-100% | | | | |
| |NFS-100% | |Class B NFS -100% | | | |NRS-100% |
| ----------------------------- ----------------------------- | | ---------------|-------------
| | | |
| ----------------------------- ----------------------------- | | ----------------------------- | ---------------------------
| | MORLEY & | | 401(k) INVESTMENT | | | | NATIONWIDE RETIREMENT | | | NATIONWIDE RETIREMENT |
| | ASSOCIATES, INC. | | SERVICES, INC. | | | | SOLUTIONS, INC. OF | | | SOLUTIONS, INC. OF NEW |
| | | | | | | | ALABAMA | | | MEXICO |
| |Common Stock: 3,500 | | Common Stock: 1,000,000 | | | | Common Stock: 10,000 | | | Common Stock: 1,000 |
|---|------------- Shares | | ------------- Shares |--| | | ------------- Shares |--|--| ------------- Shares |
| | Cost | | Cost | | | | Cost | | | Cost |
| | ---- | | ---- | | | | ---- | | | ---- |
| |Morley-100% $1,000 | |401(k)-100% $7,800 | | | |NRS-100% $1,000 | | |NRS-100% $1,000 |
| ----------------------------- ----------------------------- | | ----------------------------- | ---------------------------
| | | |
| ----------------------------- ----------------------------- | | ----------------------------- | ---------------------------
| | MORLEY CAPITAL | | 401(k) INVESTMENT | | | | NATIONWIDE RETIREMENT | | | NATIONWIDE RETIREMENT |
| | MANAGEMENT | | ADVISORS, INC. | | | | SOLUTIONS, INC. OF | | | SOLUTIONS, INC. OF |
| | | | | | | | ARIZONA | | | SO. DAKOTA |
| |Common Stock: 500 | |Common Stock: 1,000 | | | |Common Stock: 1,000 | | |Common Stock: 1,000 |
|---|------------- Shares | |------------- Shares |--| | |------------- Shares |--|--|------------- Shares |
| | Cost | | Cost | | | | Cost | | | Cost |
| | ---- | | ---- | | | | ---- | | | ---- |
| |Morley-100% $5,000 | |401(k)-100% $1,000 | | | |NRS-100% $1,000 | | |NRS-100% $1,000 |
| ----------------------------- ----------------------------- | | ----------------------------- | ---------------------------
| | | |
| ----------------------------- ----------------------------- | | ----------------------------- | ---------------------------
| | UNION BOND | | 401(k) ICOMPANY | | | | NATIONWIDE RETIREMENT | | | NATIONWIDE RETIREMENT |
| | & TRUST COMPANY | | | | | | SOLUTIONS, INC. OF | | | SOLUTIONS, INC. OF |
| | | | | | | | ARKANSAS | | | WYOMING |
| |Common Stock: 2,000 | |Common Stock: 855,000 | | | |Common Stock: 50,000 | | |Common Stock: 500 |
|---|------------- Shares | |------------- Shares |--| | |------------- Shares |--|--|------------- Shares |
| | Cost | | Cost | | | Cost | | | Cost |
| | ---- | | ---- | | | ---- | | | ---- |
| |Morley-100% $50,000 | |401(k)-100% $1,000 | | |NRS-100% $500 | | |NRS-100% $500 |
| ----------------------------- ----------------------------- | ----------------------------- | ---------------------------
| | |
| ----------------------------- ----------------------------- | ----------------------------- | ---------------------------
| | PORTLAND INVESTMENT | | NATIONWIDE TRUST | | | NATIONWIDE RETIREMENT | | | NATIONWIDE RETIREMENT |
| | SERVICES, INC. | | COMPANY, FSB | | | SOLUTIONS, INS. AGENCY, | | | SOLUTIONS, INC. OF |
| | | | | | | INC. | | | OHIO |
| |Common Stock: 1,000 | |Common Stock: 2,800,000 | | |Common Stock: 1,000 | | | |
|---|------------- Shares | |------------- Shares |-----| |------------- Shares |--|==| |
| | Cost | | Cost | | | Cost | | | |
| | ---- | | ---- | | | ---- | | | |
| |Morley-100% $25,000 | |NFS-100% $3,500,000 | | |NRS -100% $1,000 | | | |
| ----------------------------- ----------------------------- | ----------------------------- | ---------------------------
| | |
| ----------------------------- ----------------------------- | ---------------------------- | ---------------------------
| | EXCALIBER FUNDING | | NATIONWIDE FINANCIAL | | | NATIONWIDE RETIREMENT | | | NATIONWIDE RETIREMENT |
| | CORPORATION | | SERVICES CAPITAL TRUST II | | | SOLUTIONS, INC. OF | | | SOLUTIONS, INC. OF |
| | | | | | | MONTANA | | | OKLAHOMA |
| |Common Stock: 1,000 | | | | |Common Stock: 500 | | | |
|---|------------- Shares | | |-----| |------------- Shares |--|==| |
| | Cost | | | | | Cost | | | |
| | ---- | | | | | ---- | | | |
| |Morley-100% $1,000 | |NFS-100% | | |NRS-100% $500 | | | |
| ----------------------------- ----------------------------- | ----------------------------- | ---------------------------
| | |
| ----------------------------- ----------------------------- | ----------------------------- | ---------------------------
| | CALIBER FUNDING | | NFS DISTRIBUTORS INC. | | | NATIONWIDE RETIREMENT | | | NATIONWIDE RETIREMENT |
| | CORPORATION | | | | | SOLUTIONS, INC. OF | | | SOLUTIONS, INC. OF |
| | | | | | | NEVADA | | | TEXAS |
| | | | | | | Common Stock: 1,000 | | | |
|---| | | |-----| | ------------- Shares |--|==| |
| | | | | Cost | | |
| | | | | ---- | | |
|Morley-100% | |NFS-100% | | NRS-100% $1,000 | | |
----------------------------- ----------------------------- ----------------------------- ---------------------------
</TABLE>
<PAGE> 85
<TABLE>
<CAPTION>
(Right)
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------|--------------------|---------------------------------------|
| | |
| ---------------|---------------- --------------|----------------
| | EMPLOYERS LIFE INSURANCE CO. | | GATES MCDONALD |
| | OF WAUSAU (ELIOW) | | & COMPANY (GATES) |
| | | | |
| |Common Stock: 250,000 | |Common Stock: 254 |
| |--|------------- Shares | |--|------------- Shares |
| | | | | | |
| | | Cost | | | Cost |
| | | ---- | | | ---- |
| | |NW CORP. -100% $126,509,480 | | |NW CORP. -100% $25,683,532 |
| | -------------------------------- | -------------------------------
- ------------ | | |
| -------------------------------- | | -------------------------------- | --------------------------------
| | NATIONWIDE TRUST | | | | WAUSAU PREFERRED | | | HEALTHCARE |
| | COMPANY | | | | HEALTH INSURANCE CO. | | | FIRST, INC. |
| | | | | | | | | |
| |Common Stock: 2,800,000 | | | |Common Stock: 200 | | | |
|--|------------- Shares | | |--|------------- Shares | |--| |
| | | | | | | | |
| | Cost | | | Cost | | | Cost |
| | ---- | | | ---- | | | ---- |
| |NFS-100% $3,500,000 | | |ELIOW -100% $57,413,193 | | |Gates-100% $6,700,000 |
| -------------------------------- | -------------------------------- | --------------------------------
| | |
| -------------------------------- | -------------------------------- | -------------------------------
| | NATIONWIDE FINANCIAL | | | NATIONWIDE GLOBAL | | | GATES MCDONALD & COMPANY |
| | SERVICES (BERMUDA) INC. | | | HOLDINGS, INC. (NGH) | | | OF NEW YORK, INC. |
| | | | | | | | |
| |Common Stock: 250,000 | | |Common Stock: 1 | | |Common Stock: 3 |
|--|------------- Shares | |-----|------------- Share | |--|------------- Shares |
| | | | | | | | |
| | Cost | | | Cost | | | Cost |
| | ---- | | | ---- | | | ---- |
| |NFS-100% $3,500,000 | | |NW CORP.-100% $7,000,000 | | |Gates-100% $106,947 |
| -------------------------------- | -------------------------------- | -------------------------------
| | | |
| -------------------------------- | -------------------------------- | -------------------------------
| | NATIONWIDE DEFERRED | | | NATIONWIDE GLOBAL HOLDINGS | | | GATES MCDONALD & COMPANY |
| | COMPENSATION, INC. | | | -HONG KONG, LIMITED | | | OF NEVADA |
| | | | | | | | |
| | | | |Common Stock: 2 | | |Common Stock: 40 |
|--| | | |------------- Shares | |--|------------- Shares |
| | | | | | | | |
| | | | | | | | Cost |
| | | | | | | | ---- |
| |NFS-100% | | |NGH-100% | | |Gates-100% $93,750 |
| -------------------------------- | -------------------------------- | -------------------------------
| | |
| -------------------------------- | -------------------------------- | -------------------------------
| | IRVIN L. SCHWARTZ | | | NATIONWIDE | | | GATES McDONALD |
| | AND ASSOCIATES, INC. | | | HEALTH PLANS, INC. (NHP) | | | HEALTH PLUS, INC. |
| | | | | | | | |
| |Common Stock: Control | | |Common Stock: 100 | | |Common Stock: 200 |
|--|------------- ------- | |-----|------------- Shares |--| |--|------------- Shares |
| | | | | | | |
| | | | Cost | | | Cost |
|Class A Other-100% | | | ---- | | | ---- |
|Class B NFS -100% | | |NW CORP.-100% $14,603,732 | | |Gates-100% $2,000,000 |
-------------------------------- | -------------------------------- | -------------------------------
| |
-------------------------------- | -------------------------------- |
| MRM INVESTMENTS, INC. | | | NATIONWIDE MANAGEMENT | |
| | | | SYSTEMS, INC. | |
| | | | | |
|Common Stock: 1 | | |Common Stock: 100 | |
|------------- Share |--| |------------- Shares |--|
| | | | |
| Cost | | Cost | |
| ---- | | ---- | |
|NW CORP.-100% $7,000,000 | |NHP Inc.-100% $25,149 | |
-------------------------------- -------------------------------- |
|
-------------------------------- |
| NATIONWIDE | |
| AGENCY, INC. | |
| | |
|Common Stock: 100 | |
|------------ Shares |--|
| |
| Cost |
| ---- |
|NHP Inc.-99% $116,077 |
--------------------------------
Subsidiary Companies -- Solid Line
Contractual Association -- Double Line
Limited Liability Company -- Dotted Line
December 31, 1998
Page 2
</TABLE>
<PAGE> 86
Item 27. NUMBER OF CONTRACT OWNERS
The number of contract owners of Qualified and Non-Qualified
Contracts as of January 31, 1999 was 49,026 and 1,331
respectively.
Item 28. INDEMNIFICATION
Provision is made in Nationwide's Amended and Restated Code of
Regulations and expressly authorized by the General Corporation
Law of the State of Ohio, for indemnification by Nationwide of any
person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or
investigative by reason of the fact that such person is or was a
director, officer or employee of Nationwide, against expenses,
including attorneys fees, judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, to the extent and
under the circumstances permitted by the General Corporation Law
of the State of Ohio. Insofar as indemnification for liabilities
arising under the Securities Act of 1933 ("Act") may be permitted
to directors, officers or persons controlling Nationwide pursuant
to the foregoing provisions, Nationwide has been informed that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 29. PRINCIPAL UNDERWRITER
(a) Nationwide Advisory Services, Inc. ("NAS") acts as
principal underwriter and general distributor for the
Nationwide Variable Account, Nationwide Multi-Flex Variable
Account, Nationwide Variable Account-II, Nationwide
Variable Account-5, Nationwide Variable Account-6,
Nationwide Variable Account-8, Nationwide Variable
Account-9, Nationwide VA Separate Account-A, Nationwide VA
Separate Account-B, Nationwide VA Separate Account-C,
Nationwide VL Separate Account-A, Nationwide VL Separate
Account-B, Nationwide VL Separate Account-C, Nationwide VL
Separate Account-D, Nationwide VLI Separate Account-2,
Nationwide VLI Separate Account-3, Nationwide VLI Separate
Account-4, and the Nationwide VLI Separate Account-5, all
of which are separate investment accounts of Nationwide or
its affiliates.
NAS also acts as principal underwriter for Nationwide
Mutual Funds, Nationwide Separate Account Trust, and
Nationwide Asset Allocation Trust, which are open-end
management investment companies.
120 of 126
<PAGE> 87
(b) NATIONWIDE ADVISORY SERVICES, INC.
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
POSITIONS AND OFFICES
NAME AND BUSINESS ADDRESS WITH UNDERWRITER
<S> <C>
Joseph J. Gasper President and Director
One Nationwide Plaza
Columbus, OH 43215
Dimon R. McFerson Chairman of the Board of Directors and Chairman and Chief Executive
One Nationwide Plaza Officer and Director
Columbus, OH 43215
Robert A. Oakley Executive Vice President - Chief Financial Officer and Director
One Nationwide Plaza
Columbus, OH 43215
Susan A. Wolken Director
One Nationwide Plaza
Columbus, OH 43215
Paul J. Hondros Director
One Nationwide Plaza
Columbus, OH 43215
Robert J. Woodward, Jr. Executive Vice President - Chief Investment Officer and Director
One Nationwide Plaza
Columbus, OH 43215
Edwin P. McCausland, Jr. Senior Vice President-Fixed Income Securities
One Nationwide Plaza
Columbus, OH 43215
Charles S. Bath Vice President - Investments
One Nationwide Plaza
Columbus, OH 43215
Alan A. Todryk Vice President - Taxation
One Nationwide Plaza
Columbus, OH 43215
Dennis W. Click Vice President and Secretary
One Nationwide Plaza
Columbus, OH 43215
William G. Goslee Vice President
One Nationwide Plaza
Columbus, OH 43215
James F. Laird, Jr. Vice President and General Manager
One Nationwide Plaza
Columbus, OH 43215
Joseph P. Rath Vice President - Compliance
One Nationwide Plaza
Columbus, OH 43215
Christopher A. Cray Treasurer
One Nationwide Plaza
Columbus, OH 43215
</TABLE>
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<PAGE> 88
<TABLE>
<CAPTION>
POSITIONS AND OFFICES
NAME AND BUSINESS ADDRESS WITH UNDERWRITER
<S> <C>
Elizabeth A. Davin Assistant Secretary
One Nationwide Plaza
Columbus, OH 43215
David E. Simaitis Assistant Secretary
One Nationwide Plaza
Columbus, OH 43215
Patricia J. Smith Assistant Secretary
One Nationwide Plaza
Columbus, OH 43215
</TABLE>
<TABLE>
<CAPTION>
(c)
NAME OF PRINCIPAL UNDERWRITER NET UNDERWRITING COMPENSATION ON BROKERAGE COMPENSATION
DISCOUNTS AND REDEMPTION OR COMMISSIONS
COMMISSIONS ANNUITIZATION
<S> <C> <C> <C> <C>
Nationwide Advisory N/A N/A N/A N/A
Services, Inc.
</TABLE>
Item 30. LOCATION OF ACCOUNTS AND RECORDS
John Davis
Nationwide Life Insurance Company
One Nationwide Plaza
Columbus, OH 43215
Item 31. MANAGEMENT SERVICES
Not Applicable
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<PAGE> 89
Item 32. UNDERTAKINGS
The Registrant hereby undertakes to:
(a) File a post-effective amendment to this registration
statement as frequently as is necessary to ensure that the
audited financial statements in the registration statement
are never more than 16 months old for so long as payments
under the variable annuity contracts may be accepted;
(b) Include either (1) as part of any application to purchase a
contract offered by the prospectus, a space that an
applicant can check to request a Statement of Additional
Information, or (2) a post card or similar written
communication affixed to or included in the prospectus that
the applicant can remove to send for a Statement of
Additional Information; and
(c) Deliver any Statement of Additional Information and any
financial statements required to be made available under
this form promptly upon written or oral request.
The Registrant represents that any of the contracts which are
issued pursuant to Section 403(b) of the Internal Revenue Code are
issued by Nationwide through the Registrant in reliance upon, and
in compliance with a no-action letter issued by the staff of the
Securities and Exchange Commission to the American Council of Life
Insurance (publicly available November 28, 1988) permitting
withdrawal restrictions to the extent necessary to comply with
Section 403(b)(11) of the Internal Revenue Code.
Nationwide represents that the fees and charges deducted under the
contract in the aggregate are reasonable in relation to the
services rendered, the expenses expected to be incurred, and the
risks assumed by Nationwide.
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<PAGE> 90
Offered by
Nationwide Life Insurance Company
NATIONWIDE LIFE INSURANCE COMPANY
Nationwide Multi-Flex Variable Account
Deferred Variable Annuity Contract
PROSPECTUS
May 1, 1999
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<PAGE> 91
INDEPENDENT AUDITORS' CONSENT
The Board of Directors of Nationwide Life Insurance Company and Contract Owners
of the Nationwide Multi-Flex Variable Account:
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Services" in the Statement of Additional Information.
KPMG LLP
Columbus, Ohio
April 29, 1999
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<PAGE> 92
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of 1940
the Registrant, NATIONWIDE MULTIFLEX VARIABLE ACCOUNT certifies that the
requirements of the Securities Act Rule 485(b) for effectiveness of the
Post-Effective Amendment and has caused this Post-Effective Amendment to be
signed on its behalf in the City of Columbus, and State of Ohio, on this 17th
day of September, 1999.
NATIONWIDE MULTI-FLEX VARIABLE ACCOUNT
------------------------------------------
(Registrant)
NATIONWIDE LIFE INSURANCE COMPANY
------------------------------------------
(Depositor)
By/s/JOSEPH P. RATH
------------------------------------------
Joseph P. Rath
Vice President- Product and Market Compliance
As required by the Securities Act of 1933, this Post-Effective Amendment has
been signed by the following persons in the capacities indicated on the 17th day
of September, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C> <C>
LEWIS J. ALPHIN Director
- ---------------------------------------
Lewis J. Alphin
A. I. BELL Director
- ---------------------------------------
A. I. Bell
KENNETH D. DAVIS Director
- ---------------------------------------
Kenneth D. Davis
KEITH W. ECKEL Director
- ---------------------------------------
Keith W. Eckel
WILLARD J. ENGEL Director
- ---------------------------------------
Willard J. Engel
FRED C. FINNEY Director
- ---------------------------------------
Fred C. Finney
JOSEPH J. GASPER President and Chief Operating
- --------------------------------------- Officer and Director
Joseph J. Gasper
DIMON R. MCFERSON Chairman and Chief Executive
- --------------------------------------- Officer and Director
Dimon R. McFerson
DAVID O. MILLER Chairman of the Board and
- --------------------------------------- Director
David O. Miller
YVONNE L. MONTGOMERY Director
- ---------------------------------------
Yvonne L. Montgomery
ROBERT A. OAKLEY Executive Vice President and Chief
- --------------------------------------- Financial Officer
Robert A. Oakley
RALPH M. PAIGE Director
- ---------------------------------------
Ralph M. Paige
JAMES F. PATTERSON Director
- ---------------------------------------
James F. Patterson
ARDEN L. SHISLER Director By /s/ JOSEPH P. RATH
- --------------------------------------- --------------------------------------
Arden L. Shisler Joseph P. Rath
Attorney-in-Fact
ROBERT L. STEWART Director
- ---------------------------------------
Robert L. Stewart
NANCY C. THOMAS Director
- ---------------------------------------
Nancy C. Thomas
</TABLE>
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