<PAGE> 1
As filed with the Securities and Exchange Commission.
'33 Act Registration No. 2-28596
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-3
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933
Post-Effective Amendment No. 39 [x]
SEPARATE ACCOUNT NO. 1
(Exact Name of Registrant)
NATIONWIDE LIFE INSURANCE COMPANY
(Name of Insurance Company)
ONE NATIONWIDE PLAZA, COLUMBUS, OHIO 43215
(Address of Insurance Company's Principal Executive Offices) (Zip Code)
Insurance Company's Telephone Number, including Area Code: (614) 249-7111
DENNIS W. CLICK, SECRETARY, ONE NATIONWIDE PLAZA, COLUMBUS, OHIO 43216
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering Continuously on and after
May 1, 1999.
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X ] on May 1, 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.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Registered: Group Common Stock Variable Annuity
Contracts.
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SEPARATE ACCOUNT NO. 1
REFERENCE TO ITEMS
REQUIRED BY FORM N-3
<TABLE>
<CAPTION>
Part A INFORMATION REQUIRED IN A PROSPECTUS
<S> <C>
Item 1. Cover Page............................................................................. 3
Item 2. Definitions............................................................................ 4
Item 3. Synopsis .............................................................................. 5
Item 4. Condensed Financial Information........................................................ 6
Item 5. General Description of Registrant...................................................... 9
Item 6. Management.............................................................................10
Item 7. Deductions and Expenses................................................................10
Item 8. General Description of Variable Annuity Contracts...................................... 9
Item 9. Annuity Period.........................................................................18
Item 10. Death Benefit.........................................................................N/A
Item 11. Purchases and Contract Value...........................................................18
Item 12. Redemptions............................................................................12
Item 13. Taxes..................................................................................21
Item 14. Legal Proceedings......................................................................22
Item 15. Table of Contents of the Statement of Additional Information...........................24
Part B INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
Item 16. Cover Page.............................................................................25
Item 17. Table of Contents......................................................................25
Item 18. General Information and History........................................................25
Item 19. Investment Objectives and Policies.....................................................25
Item 20. Management.............................................................................25
Item 21. Investment Advisory and Other Services.................................................26
Item 22. Brokerage Allocation...................................................................26
Item 23. Purchase and Pricing of Securities Being Offered.......................................26
Item 24. Underwriters...........................................................................27
Item 25. Calculation of Yield Quotations of Money Market Sub-Accounts...........................27
Item 26. Annuity Payments.......................................................................27
Item 27. Financial Statements...................................................................28
Part C OTHER INFORMATION
Item 28. Financial Statements and Exhibits......................................................59
Item 29. Directors and Officers of the Insurance Company........................................60
Item 30. Persons Controlled by or Under Common Control with the
Insurance Company or Registrant........................................................62
Item 31. Number of Contract Owners..............................................................71
Item 32. Indemnification........................................................................71
Item 33. Business and Other Connections of Investment Adviser...................................71
Item 34. Principal Underwriters.................................................................71
Item 35. Location of Accounts and Records.......................................................71
Item 36. Management Services....................................................................71
Item 37. Undertakings...........................................................................71
</TABLE>
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NATIONWIDE LIFE INSURANCE COMPANY
Group Common Stock Variable Annuity Contracts
Issued by Nationwide Life Insurance Company through its Separate Account - 1
The date of this prospectus is May 1, 1999.
- --------------------------------------------------------------------------------
The Group Common Stock Variable Annuity Contracts (the "Contracts") described in
this prospectus are sold to corporations and unincorporated businesses for use
with pension, profit sharing, and other retirement plans (collectively referred
to as the "Qualified Plan" or "Plan"). The Plan must qualify for special federal
tax treatment under sections 401 or 403(a) of the Internal Revenue Code (see
"Federal Income Tax Status").
The Contracts permit the Contract Owner to accumulate Plan contributions on a
variable basis. Plan contributions will be credited to the Participant Accounts
in the form of Accumulation Units, the value of which will vary to reflect the
results of Separate Account No. 1 (the "Separate Account"). The assets of the
Separate Account will be held for the sole benefit of the holders of, and
persons entitled to benefits under, Contracts issued pursuant to this
prospectus. The investments of the Separate Account are intended to be composed
primarily of common stocks. The value of the interests of Participants under the
Contracts and the dollar amount of the Variable Annuity payments thereunder
will, therefore, vary with the dividends and interest and fluctuations in the
market value of the securities held in the Separate Account, and will be subject
to the same risks as are inherent in the ownership of common stocks. The
composition of the investments held will be determined from the long-term view
of an investor concerned with the preservation of his or her capital and with
the growth of his or her capital in relation to the growth of the economy and
the changing value of the dollar (see "Investment Objectives and Policies" in
this prospectus and in the Statement of Additional Information).
Nationwide Life Insurance Company ("Nationwide") may sell Fixed Dollar Annuity
Contracts (the "Companion Fixed Contracts") and other variable annuity contracts
to the same Contract Owner if the Plan permits investment flexibility to the
Contract Owner or Participants.
This prospectus provides basic information one should know about the Contracts
before investing. This prospectus should be read and kept for future reference.
A Statement of Additional Information dated May 1, 1999, containing additional
information about the Contracts, Nationwide, and the Separate Account has been
filed with the Securities and Exchange Commission ("SEC"). A copy can be
obtained without charge from Nationwide by calling (614) 249-5346, or by writing
P.O. Box 16738, One Nationwide Plaza, Columbus, Ohio 43216.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC NOR HAS THE
SEC PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE STATEMENT OF ADDITIONAL INFORMATION AND OTHER MATERIAL INCORPORATED BY
REFERENCE CAN BE FOUND ON THE SEC WEBSITE AT:
WWW.SEC.GOV
THE STATEMENT OF ADDITIONAL INFORMATION, DATED MAY 1, 1999, IS INCORPORATED
HEREIN BY REFERENCE. THE TABLE OF CONTENTS FOR THE STATEMENT OF ADDITIONAL
INFORMATION APPEARS ON PAGE 22 OF THIS PROSPECTUS.
THE DATE OF THIS PROSPECTUS IS MAY 1, 1999.
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GLOSSARY OF SPECIAL TERMS
ACCUMULATION UNIT- A statistical index measuring the net investment results of
the Separate account. It is the unit of measurement used to determine the value
of a Contract and each Participant's account.
ANNUITANT- The person actually receiving annuity payments and upon whose
continuation of life any annuity payment involving life contingencies depends.
ANNUITY UNIT- An accounting unit of measure used to calculate the value of
Variable annuity payments.
BENEFICIARY- The person named by the Contractholder to receive certain benefits
under the Contract upon the death of the Participant. The Beneficiary can be
changed by the Contractholder as set forth in the Contract.
CONTRACT ANNIVERSARY- The anniversary of the Date of Issue of the Contract.
CONTRIBUTIONS- Amounts paid to Nationwide pursuant to the Contract in order to
provide retirement income benefits.
DISTRIBUTION- Any payment made by Nationwide of part or all of the Participant
account value under the Contract.
PARTICIPANT- An eligible employee who is entitled to benefits under the Plan.
Such persons are determined and reported to Nationwide by the Contract Owner.
PARTICIPANT ACCOUNT- An account established by Nationwide for each Participant
in which all financial transactions occurring with respect to a Participant
under the Contract, other than the purchase and payment of an annuity, are
recorded.
QUALIFIED PLAN OR PLANS- Retirement plans which receive favorable tax treatment
under Section 401 or Section 403(a) of the Internal Revenue Code.
RETIRED PARTICIPANT- A Participant who is receiving retirement income in the
form of an annuity.
SEPARATE ACCOUNT- Separate Account No. 1, a separate investment account of
Nationwide into which contributions are allocated.
VALUATION PERIOD- Each day the New York Stock Exchange is open for business.
VARIABLE ANNUITY- An annuity providing for payments which vary in amount with
the investment experience of the Separate account.
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SUMMARY OF CONTRACT EXPENSES
<TABLE>
<CAPTION>
PARTICIPANT TRANSACTION EXPENSES
<S> <C>
Maximum Contingent Deferred Sales Charge (as a
percentage of contributions).......................6.5%
Surrender Fees (as a percentage
of surrender value)................................7.0%
Exchange Fee.....................................$15.00
Participant Account Charge.......................$15.00
Annual Expenses..................................1.30%
(as a percentage of average account value)
(Contract Maintenance Charge)
Total Annual Expenses............................1.30%
</TABLE>
The following chart depicts the dollar amount of expenses that would be incurred
under this Contract assuming a $1,000 initial Contribution and 5% annual return.
These dollar figures are illustrative only and should not be considered a
representation of past or future expenses. Actual expenses may be greater or
less than those shown below.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
If you cancel your Participant Account at the 79 108 139 163
end of the applicable time period.
If you do not cancel your Participant Account 14 43 74 163
If you annuitize at the end of the applicable 86 121 158 263
time period.
</TABLE>
This Example should not be considered a representation of past or future
expenses. Actual expenses may be greater or lesser than those shown.
The purpose of the preceding table is to assist the Participant in understanding
the various costs and expenses that a Participant will bear directly or
indirectly when investing in the Contract. A contingent deferred sales charge of
not more than 6.5% is imposed only on contributions made within 96 months of the
date of withdrawal. No contingent deferred sales charge is imposed if part or
all of a Participant's account is used for purchase of an annuity, redemption
upon death, or transfer to a companion fixed contract. A Participant account
charge of not more than $15 is deducted from each Participant's account on each
Contract anniversary and upon cancellation of all or part of a Participant's
account unless the cancellation is for the purpose of purchasing an annuity or
making a redemption upon death. The surrender charge is a one-time charge
deducted from the Participant's account upon the purchase of an annuity. In
addition to the expenses shown above, premium taxes may also be charged,
depending upon where the Contract is sold. For a more detailed explanation of
these expenses, see "Charges And Other Deductions."
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CONDENSED FINANCIAL INFORMATION
INCOME AND CAPITAL CHANGES PER ACCUMULATION UNIT*
<TABLE>
<CAPTION>
FROM FROM FROM
JAN. 1, 1989 JAN. 1, 1990 JAN. 1, 1991
TO TO TO
DEC. 31, 1989 DEC. 31, 1990 DEC 31, 1991
<S> <C> <C> <C>
Unit value at beginning of
period 9.1559374 12.2942826 12.2965444
NET INCOME
Investment Income .4314503 .6862452 .4278250
Change to Separate Account
for expenses, taxes and -0- -0- -0-
additions to surplus
Net Income .4314503 .6862452 .4278250
CAPITAL CHANGES
Net realized capital gains 1.0246383 .2962199 1.1910187
(losses)
Net unrealized capital gains
(losses) 1.6822566 (.9802034) 2.3220008
Unit Value at end of period 12.2942826 12.2965444 16.2373889
Number of Accumulation
Units outstanding at end of 1,526,288.77 1,436,543.92 1,251,874.00
period
Increase (decrease) in Unit
Value during period 34.27% .02% 32.05%
RATIOS
Expenses to average net .246% .334% .225%
assets
Net investment income to 5.15% 3.24% 2.95%
average net assets
Portfolio turnover rate 20.4% 8.5% 19.4%
</TABLE>
Due to changes in the Contracts described in this prospectus, the historical
data supplied above should not be relied upon for future trends and results.
* The product of the ending unit values and the number of Accumulation units
will not balance to the total market value of the assets in the Separate
account. The difference is accounted for by the fact that a portion of the
annuity reserve, and hence the net assets, of the Separate account relate to
Contracts not described in this prospectus.
(CONTINUED ON NEXT PAGE)
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CONDENSED FINANCIAL INFORMATION
INCOME AND CAPITAL CHANGES PER ACCUMULATION UNIT* (CONTINUED)
<TABLE>
<CAPTION>
FROM FROM FROM
JAN. 1, 1992 JAN. 1, 1993 FROM JAN. 1, 1995
TO TO JAN. 1, 1994 TO
DEC. 31, 1992 DEC. 31, 1993 TO DEC. 31, 1995
DEC. 31, 1994
<S> <C> <C> <C> <C>
Unit value at beginning of
period 16.2373889 16.7112913 17.8516259 18.0013570
NET INCOME
Investment Income .4656912 .4731035 .5052127 .5172590
Change to Separate
Account -0- -0- -0- -0-
for expenses, taxes and
additions to surplus
Net Income .4656912 .4731035
.5052127 .5172590
CAPITAL CHANGES
Net realized capital .4577232 .4264519 .0146140 1.5462550
gains
(losses)
Net unrealized capital
gains (.4495120) .2407792 (.3700956) 3.2184629
(losses)
Unit Value at end of 16.7112913 17.8516259
period 18.0013570 23.2833339
Number of Accumulation
Units outstanding at 1,241,981.00 1,313,747.00 1,282,594 1,105,710
end of
period
Increase (decrease) in
Unit 2.92% 6.82% .84% 29.34%
Value during period
RATIOS
Expenses to average net .251% .815% .568% .627%
assets
Net investment income to
average net assets 2.60% 2.74% 2.83% 2.49%
Portfolio turnover rate 6.1% 2.3% 2.1% 4.9%
</TABLE>
Due to changes in the Contracts described in this prospectus, the historical
data supplied above should not be relied upon for future trends and results.
* The product of the ending unit values and the number of Accumulation units
will not balance to the total market value of the assets in the Separate
account. The difference is accounted for by the fact that a portion of the
annuity reserve, and hence the net assets, of the Separate account relate to
Contracts not described in this prospectus.
(CONTINUED ON NEXT PAGE)
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CONDENSED FINANCIAL INFORMATION
INCOME AND CAPITAL CHANGES PER ACCUMULATION UNIT* (CONTINUED)
<TABLE>
<CAPTION>
FROM FROM FROM FROM
JAN. 1, 1996 JAN. 1, 1997 JAN. 1, 1998 JAN. 1, 1998
TO TO TO TO
DEC. 31, 1996 DEC. 31, 1997 DEC. 31, 1998 DEC. 31, 1998
(ANNUAL EXPENSE (ANNUAL EXPENSE
CHARGES WAIVED) CHARGES ASSESSED)
<S> <C> <C> <C> <C>
Unit value at beginning of 23.2833339 29.7602948 38.3244271 38.3244271
period
NET INCOME .5542850 .5787980 .5855306 .5817488
Investment Income
Change to Separate -0- -0- -0- (.5394023)
Account for expenses, taxes
and additions to surplus
Net Income .5542850 .5787980 .5855306 .0423465
CAPITAL CHANGES 1.5943390 3.3926523 5.9728907 5.9419821
Net realized capital
gains (losses)
Net unrealized capital 4.3283369 4.5926820 (.5276753) (.5249447)
gains (losses)
Unit Value at end of 29.7602948 38.3244271 44.3551731 43.7838110
period
Number of Accumulation 1,059,341 1,008,096 545,352 301,003
Units outstanding at
end of period
Increase (decrease) in 27.82% 28.78% 15.74% 14.25%
Unit Value during period
RATIOS
Expenses to average net .435% .430% .058% 1.364%
assets
Net investment income to 2.10% 1.72% 1.42% 1.42%
average net assets
Portfolio turnover rate 9.6% 8.7% 15.46% 15.46%
</TABLE>
Due to changes in the Contracts described in this prospectus, the historical
data supplied above should not be relied upon for future trends and results.
* The product of the ending unit values and the number of Accumulation units
will not balance to the total market value of the assets in the Separate
account. The difference is accounted for by the fact that a portion of the
annuity reserve, and hence the net assets, of the Separate account relate to
Contracts not described in this prospectus.
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GENERAL DESCRIPTION OF THE CONTRACTS
The Contracts described in this prospectus are designed to fund and provide
benefits (which will vary in dollar amount) for the Plans. The Plans include
pension, profit sharing, or other retirement plans receiving favorable tax
treatment under sections 401 or 403(a) of the Internal Revenue Code. Generally,
Plans are maintained by employers for the benefit of eligible employees
("Participants") and their Beneficiaries.
NATIONWIDE LIFE INSURANCE COMPANY
Nationwide is a stock life insurance company organized under the laws of the
State of Ohio in March, 1929. Nationwide is a member of the Nationwide group
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.
THE SEPARATE ACCOUNT
The Separate account, which was established pursuant to Ohio insurance law on
April 1, 1967, is administered and accounted for as part of Nationwide's
business. All contractual obligations arising under the Contracts (e.g., the
making of the manner in which the amount payments will be determined, and the
promise that payments will continue for the lifetime of the Annuitant) will be
general corporate obligations of Nationwide. Nationwide will be responsible for
the safekeeping of the assets of the Separate account.
The Separate account will be legally segregated from Nationwide's other assets,
meaning the assets of the Separate account will not be subject to any claims
except the claims of those investing in the Separate account.
The Contracts described in this prospectus provide for benefits that vary
according to the investment results of a separate investment portfolio. The
assets of the Separate account will be held for the sole benefit of the holders
of, and persons entitled to benefits under, the Contracts described in this
prospectus, and other variable contracts issued by Nationwide which provide for
the dollar amount of payments or values to vary as a direct result the
investments of the Separate account. The Participant has no ability to direct or
change voice in the investment policies of the Separate account.
Participants in the Contracts offered herein do not participate in the
experience of Nationwide, except to the extent described in the "Experience
Credits" provision.
INVESTMENT OBJECTIVES AND POLICIES
The Separate account is an open-end managed separate account of Nationwide. It
is a diversified portfolio of common stock, segregated from the general assets
of Nationwide. The objectives of Nationwide and its policy in making investments
for the Separate account are as follows:
1. The composition of the investments held will be determined from the long-term
view as an investor concerned with the preservation and growth of capital in
relation to the growth of the economy and the changing value of the dollar.
Account will be taken of the combination of current income and the
possibilities of capital appreciation since earned income and realized
capital gains will be compounded through reinvestment.
2. The assets generally will be invested in a diversified portfolio of equities
which will be primarily common stocks. Changes may be advisable from time to
time, to take into account changes in the outlook of particular industries or
companies. A relatively small percentage of the assets may be held in the
form of preferred stocks, government bonds and corporate bonds or debentures,
which may be convertible into stock or with stock warrants. A reserve of cash
and short-term debt securities may be held pending investment in accordance
with investment policies.
3. Purchases will be made for investment and not for trading purposes.
Generally, long-range performance will be emphasized with minor concern for
short-term market fluctuations, except to the extent that such fluctuations
may provide attractive buying or selling levels for the portfolio. However,
Nationwide reserves the right to dispose of any investment however short a
time held, if appreciation possibilities appear to be substantially realized,
or if the market risks
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become such as to make the investment's retention unwise. Nationwide also
reserves the right to dispose of investments whether gains or losses are
realized.
4. All investments with respect to the Separate account must be restricted to
those authorized by the laws of the State of Ohio in effect at the time such
investments are made. Such restrictions include:
(a) not more than 25% of the amounts allocated to the Separate account and the
accumulations earned may be invested in the stocks, notes, debentures,
bonds, or other securities of any one corporation or issuer. (This
restriction does not apply to securities registered under the Investment
Company Act of 1940, annuities or funding agreements issued by life
insurance companies);
(b) not more than 25% of issued and outstanding voting securities of any one
corporation or issuer may be acquired by all separate accounts of
Nationwide;
(c) Nationwide may not allocate to the Separate account the securities of a
subsidiary corporation, or any corporate affiliate through stock ownership;
and
(d) no assets in any separate account may be transferred to or from any other
separate account of Nationwide, or to the general assets of Nationwide
unless:
(i) such a transfer is made solely:
(a) to establish a separate account or support contract guarantees;
(b) to withdraw amounts no longer needed to support guarantees; and
(ii) such transfer is of cash or securities having a readily determinable
market value; or
(iii) such transfer is approved by the state Superintendent of Insurance.
5. Nationwide reserves the right to invest as much as 10% of the assets in real
estate.
6. The Separate account will not engage in:
(i) "short" or "margin" trading in any security;
(ii) commodity trading;
(iii) speculative trading in foreign exchange;
(iv) make loans of cash or of securities to officers or directors of
Nationwide;
(v) the purchase of securities of any type for the purpose of thereby
gaining control or influencing the management of any other company; or
(vi) engaging in underwriting the distribution of securities.
The Separate account is subject to fluctuations in its market value and involves
the assumption of a higher degree of risk as compared to a portfolio investing
in government obligations or instruments guaranteed by agencies of the U.S.
Government.
MANAGEMENT
The Separate account does not have a board of managers, but is managed by the
Investment Department of Nationwide. The Investment Department of Nationwide
acts as its own investment adviser. All individuals working in the Investment
Department are employees of Nationwide, and no investment adviser fees or
brokerage commissions are involved in the operation of the Separate account.
FINANCIAL STATEMENTS
Financial statements for the Separate 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.
CHARGES AND OTHER DEDUCTIONS
The contingent deferred sales charge, Participant's account charge, contract
maintenance charge, and purchase rate charge are deducted from a Participant's
account except for Participant accounts maintained under the Nationwide Agents'
Retirement Plan where such fees are not assessed. All of the
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following charges and deductions apply to other Plans:
CONTINGENT DEFERRED SALES CHARGE
A contingent deferred sales charge, when it is applicable, is used to cover
expenses relating to the sale of the Contracts, including commissions paid to
sales personnel, the costs of sales literature, promotional activity, and other
acquisition expenses. Nationwide expects to recover most of its distribution
costs relating to the sale of these Contracts by this contingent deferred sales
charge. Any shortfall will be paid by Nationwide. Gross commissions paid on the
sale of these Contracts will not be more than 5% of contributions.
If part or all of a Participant's account is canceled for any reason other than
the purchase of an annuity, redemption upon death, or transfer to a companion
fixed contract, Nationwide will deduct from the Participant's account a
contingent deferred sales charge. This charge will be stated in the Contract and
will not be more than the lesser of (i) and (ii) multiplied by 6.5%, where:
(i) total contributions made to this Contract and all companion fixed
contracts, on behalf of the Participant, during the 96-month period
preceding the date of cancellation; or
(ii) the amount canceled.
The amount of the contingent deferred sales charge will be reduced when the sale
of a Contract to a Plan results in savings of acquisition expenses. Entitlement
to a reduction in contingent deferred sales charges will be determined by
Nationwide in the following manner:
1. The number of Participants will be considered. Generally, the sales
expenses for a larger group are less than those of a smaller group
because of the ability to cover a larger number of Participants with
fewer sales contacts.
2. The total amount of contributions to be received from the Plan will be
considered. The Contract sales expenses are likely to be less on
larger contributions than on smaller ones.
3. The nature of the employee group covered by the Plan will be
considered. Certain types of employee groups are more likely to
continue Plan and Contract participation for longer periods than are
other groups. Such stability reduces the number of sales contacts
required; thus, sales expenses are reduced.
There may be other circumstances of which Nationwide is not presently aware
which could result in reduced sales expenses.
No contingent deferred sales charge will be assessed against any Contribution
made to Contracts issued by Nationwide prior to May 1, 1982, and subsequently
transferred to this class of Contracts. No contingent deferred sales charge will
be assessed when an annuity is purchased; the purchase rate charge is assessed.
PARTICIPANT ACCOUNT CHARGE
Each year on the Contract anniversary, Nationwide deducts a charge from each
Participant account. This charge will not exceed $15 a year. This participant
account charge is to reimburse Nationwide for expenses incurred in maintaining
the Participant accounts and reporting the values thereof to Participants. The
Participant account charge will also be deducted upon cancellation of all or
part of a Participant account unless the cancellation is for the purpose of
purchasing an annuity or making a redemption upon death.
The Participant account charge may be reduced to the extent that the Contract
Owner assumes the responsibility for maintaining Participant account records and
reporting values thereof to Participants.
The amount of the Participant account charge assessed is stated in the Contract.
CONTRACT MAINTENANCE CHARGE
A contract maintenance charge will be deducted from each Participant account
daily at an annual rate not to exceed 1.30% of the value of such Participant
account. The amounts charged will be used to cover Nationwide's expenses
incurred in administering the Contract, the Separate account, and the Plan.
The contract maintenance charge may be reduced to the extent that the Contract
owner assumes responsibility for Plan administration services. Generally, these
services include drafting Plan documents, preparation of Plan descriptions for
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Participants, and completion of government filings and reports.
The amount of the contract maintenance charge assessed is stated in the
Contract.
PURCHASE RATE CHARGE
A purchase rate charge of not more than 7% is charged against the annuity
purchase rates. The purchase rate charge covers Nationwide's expense of
processing and paying annuities, calculating and reporting amounts payable under
various annuity forms, calculating and reporting taxable income, and sales
commissions paid on the purchase of an annuity which are not more than 3% of the
amount applied to purchase the annuity.
The purchase rate charge may be reduced to the extent that sales commissions are
less than 3%. The charge may also be reduced to the extent that the Contract
owner assumes responsibility for calculating and reporting amounts payable under
various annuity forms, and calculating and reporting taxable income.
The purchase rate charge is a part of the purchase rate and is not separately
stated in the Contract. It is a one-time charge deducted from the Participant's
account upon the purchase of an annuity.
PREMIUM TAXES
Nationwide will charge against the Contract value the amount of any premium
taxes levied by a state or any other government entity upon contributions
received. Premium taxes currently imposed by certain states range from 0% to
3.5%. Nationwide is currently deducting such taxes from the Participant account
value at the time of annuitization, except in those states which require such
taxes to be paid during the accumulation phase.
FEDERAL INCOME TAXES AND STATE EXCISE TAXES
The operation of the Separate account may result in taxable income to
Nationwide. Nationwide reserves the right to deduct from the Separate account an
amount necessary to reimburse for all or a portion of its federal income and
state excise tax liability. Any deductions made will occur when the tax is
incurred by Nationwide.
No charges other than those described in this prospectus will be made under
Contracts. If the amounts charged are in excess of allocated expenses, then
after providing for a surplus, the excess may be used to provide additional
benefits (see "Experience Credits"). The surplus retained will be sufficient to
provide adequately for the fulfillment of Nationwide's contractual obligations.
If the amounts charged are insufficient to defray the expenses and to provide
for the fulfillment of the contractual obligations, the deficiency will be met
out of Nationwide's general surplus.
The charges, as well as other Contract provisions, may be changed by Nationwide
after the Contracts have been in effect, (see "Additional Contractual
Obligations of Nationwide and Changes Which May Be Made Without the Consent of
the Contractholder, Participant, or Participating Employer").
If the Plan permits, the Contract owner or an employer may pay, in addition to
contributions, any or all of the expense charges directly to Nationwide. In this
event, the charges so paid will not be deducted from the Participant's account.
SURRENDER (REDEMPTION)
If the Plan permits, redemption of a Participant account will be made:
(a) upon the death of a Participant before an annuity is purchased; or
(b) upon the request of the Contract owner for the benefit of the
Participant.
Upon the death of a Participant, the amount redeemed will be the dollar value of
the Participant account. Timing of the redemption will be determined by the
terms of the Plan, but not before Nationwide's receipt of proof of death. Some
Plans may permit the Beneficiary to elect annuity payments in lieu of surrender.
If a Beneficiary elects, the Participant account may be applied to the purchase
of a variable annuity.
Upon request for surrender by the Contract owners for the benefit of a
Participant, all or a portion of a Participant account will be redeemed usually
within 7 days of Nationwide's receipt of the request, by canceling a number of
Accumulation units in the Participant account, deducting to any applicable
charges.
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<PAGE> 13
Restrictions and penalties are imposed on some Qualified Plan withdrawals. There
are also possible adverse tax consequences resulting from withdrawals. Contract
Owner, employers, and Participants are advised to consult a tax advisor before
requesting a withdrawal.
No redemption may be made after an annuity is purchased. Nationwide reserves the
right to suspend or postpone the date of any redemption beyond the usual 7-day
period during any period:
(1) when the New York Stock Exchange is closed,
(2) when trading on the Exchange is restricted;
(3) when an emergency exists as a result of which disposal of securities
held in the Separate Account is not reasonably practicable or it is
not reasonably practicable to determine the value of the Separate
Account's net assets; or
(4) during any other period when the SEC, by order, so permits for the
protection of security holders; provided that applicable rules and
regulations of the SEC shall govern as to whether the conditions
prescribed in (2) and (3) exist.
ADDITIONAL CONTRACTUAL OBLIGATIONS OF NATIONWIDE AND CHANGES WHICH MAY BE MADE
WITHOUT THE CONSENT OF THE CONTRACT OWNER, PARTICIPANT, OR PARTICIPATING
EMPLOYER
The Contract does not contain a promise that the dollar value of a Participant
account will be equal to or more than the sum of the contributions made to the
Participant account. The Contracts provide that certain provisions cannot be
changed during the first 5 years. Such provisions are:
(1) the basis for crediting Accumulation units;
(2) the basis for determining the Accumulation unit value and the Annuity
unit value; and
(3) the tables of annuity purchase rates, expense charges, and the basis
for determining the amount of single-sum payments and transfer
payments.
After the Contracts have been in effect for 5 years, Nationwide reserves the
right to make changes in the amount of the charges and in the annuity purchase
rate.
EXPERIENCE CREDITS
In the event that Participant account charges and contract maintenance charges
made under this Contract accrue to Nationwide in excess of an amount deemed
necessary, such excess may be allocated to the Contract by purchasing additional
Accumulation units and crediting such additional units to the Participant
accounts. There have not been any experience credits to date. Nationwide cannot
offer any assurance that there will be experience credits in the future.
THE ROLE OF THE CONTRACTS IN FUNDING AND PROVIDING RETIREMENT INCOME PAYMENTS
UNDER QUALIFIED PLANS
The Contracts are designed to provide retirement income that varies with
changing economic conditions. Under the Contracts, periodic payments do not
remain fixed in dollar amount, but vary according to the investment results of a
designated portfolio of securities. There is no assurance that the Contracts
will accomplish this goal.
Contracts provide for the accumulation of contributions primarily in common
stock investments to provide variable retirement income payments. Under the
Contracts, Nationwide assumes mortality risk. The mortality risk is that
estimated mortality rates of Participants under the Contracts may prove higher
than the mortality actually experienced. Nationwide promises that the annuity
payments payable under such contracts will continue for the lifetimes of the
Participants. Under these Contracts, the promised payments will be equal to the
varying value of a specified number of Annuity units per month, varying to
reflect the performance of the investments of the Separate account.
HOW ACCUMULATION UNITS ARE CREDITED
The minimum initial contribution to a Participant Account is $250. There are no
minimum requirements for subsequent contributions. The Accumulation unit is the
basis on which records under the Contracts will be kept and the payments
thereunder determined. When a Contribution is made by or on behalf of a
Participant, 100% of that amount
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<PAGE> 14
will be credited to the Participant account in the form of Accumulation units.
The number of Accumulation Units credited will be determined by dividing the
amount credited by an Accumulation Unit Value for the date on which the
Accumulation Units are credited. Accumulation Units will be credited on the
business day coinciding with or next following the date the Contribution is
received by Nationwide. "Business Day" means any day on which Nationwide's home
office, and the New York Stock Exchange are both open for business. Accumulation
units will not be credited on the following nationally recognized holidays: New
Year's Day, Presidents' Day, Martin Luther King, Jr. Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving and Christmas.
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.
ACCUMULATION UNIT VALUE
The Accumulation Unit Value is calculated by multiplying the Accumulation Change
Factor for that Valuation period by the Accumulation Unit Value for the
preceding Valuation period. The Accumulation Change Factor for a Valuation
period represents the change in market value of the underlying securities
between the preceding and second preceding Valuation period.
The Accumulation Unit Value increases or decreases each Valuation period based
on the investment results of the Separate account.
Nationwide values Separate account assets based upon the value of the underlying
portfolio securities at the end of the prior valuation period.
The factors taken into account in determining the investment results of the
Separate account are investment income and realized and unrealized capital gains
and losses.
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<PAGE> 15
The Accumulation unit values shown below, for each quarter, were calculated to
reflect hypothetical investment results of the Separate account since March,
1975. While this period was one of generally rising common stock prices, it also
included some interim periods of substantial market decline. It should not be
assumed that the results shown are representative of those that might be
realized upon contributions made today and in the future. There is no assurance
that favorable investment results will be attained in the future. The
Accumulation unit value is likely to fall when common stock value declines
generally.
<TABLE>
<CAPTION>
ACCUMULATION UNIT VALUES* AT THE END OF EACH QUARTER
<S> <C> <C> <C> <C> <C> <C> <C>
Mar. 1975 1.2323180 Mar. 1982 2.6983907 Mar. 1989 9.9636435 Mar. 1996 24.7848955
June 1975 1.3904027 June 1982 2.7121107 June 1989 10.6742854 June 1996 25.3255737
Sept. 1975 1.2246980 Sept. 1982 3.0397381 Sept. 1989 11.9347701 Sept. 1996 26.8565096
Dec. 1975 1.3423913 Dec. 1982 3.4783376 Dec. 1989 12.2942826 Dec. 1996 29.7602948
Mar. 1976 1.5106830 Mar. 1983 3.8214250 Mar. 1990 11.7646683 Mar. 1997 30.5405969
June 1976 1.5671775 June 1983 4.1514343 June 1990 12.5345438 June 1997 35.4949453
Sept. 1976 1.6226746 Sept. 1983 4.2253097 Sept. 1990 11.1707863 Sept. 1997 37.7161659
Dec. 1976 1.6520855 Dec. 1983 4.3025179 Dec. 1990 12.2965444 Dec. 1997 38.3244271
Mar. 1977 1.6014589 Mar. 1984 4.2234741 Mar. 1991 14.2006556 Mar. 1998 42.9374211
June 1977 1.6487669 June 1984 4.1987538 June 1991 14.0854417 June 1998 43.8169700
Sept. 1977 1.6345287 Sept. 1984 4.5821032 Sept. 1991 14.5603900 Sept. 1998 38.4826075
Dec. 1977 1.6612530 Dec. 1984 4.6253768 Dec. 1991 16.2373889 Dec. 1998 44.3551731
Mar. 1978 1.6161771 Mar. 1985 5.1569491 Mar. 1992 15.3685232
June 1978 1.7508039 June 1985 5.6386079 June 1992 15.4486637
Sept. 1978 1.8934789 Sept. 1985 5.5241146 Sept. 1992 15.9783810
Dec. 1978 1.8241798 Dec. 1985 6.5259213 Dec. 1992 16.7112913
Mar. 1979 1.9317751 Mar. 1986 7.5932573 Mar. 1993 16.3132491
June 1979 2.0099303 June 1986 8.0905822 June 1993 16.6761553
Sept. 1979 2.1456834 Sept. 1986 7.3220521 Sept. 1993 16.9286930
Dec. 1979 2.1093074 Dec. 1986 7.6185156 Dec. 1993 17.8516259
Mar. 1980 2.0179971 Mar. 1987 9.1073826 Mar. 1994 17.0998701
June 1980 2.2449442 June 1987 9.4745614 June 1994 17.3439309
Sept. 1980 2.4343502 Sept. 1987 9.9845837 Sept. 1994 18.2996496
Dec. 1980 2.5509427 Dec. 1987 7.7663472 Dec. 1994 18.0013570
Mar. 1981 2.7120916 Mar. 1988 8.3888862 Mar. 1995 19.0619759
June 1981 2.7593172 June 1988 8.8571798 June 1995 20.3702707
Sept. 1981 2.5313853 Sept. 1988 8.9607960 Sept. 1995 21.8627328
Dec. 1981 2.7659801 Dec. 1988 9.1559374 Dec. 1995 23.2833339
</TABLE>
* Hypothetical unit values if a Group Common Stock Variable Annuity Contract
had been issued March 31, 1975.
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<PAGE> 16
HISTORICAL TABLE SHOWING HYPOTHETICAL VALUES OF $1,000 DEPOSITED
TO A PARTICIPANT ACCOUNT EACH YEAR IF A GROUP COMMON STOCK
VARIABLE ANNUITY CONTRACT HAD BEEN ISSUED APRIL 1, 1967
<TABLE>
<CAPTION>
Contract Accumulated Value* Of
Accumulated Maintenance Participant Deposits Account
Date Deposits Charge Account Accumulated Less Expense On Date
Charge Charges Charges Shown
$1,000 Deposit Made April 1, 1967 and Each March 31 thereafter
<S> <C> <C> <C> <C> <C> <C>
Apr. 1, 1967 $1,000.00 -0- -0- -0- 1,000.00 1,000.00
Mar. 31, 1968 2,000.00 13.17 30.00 43.17 1,956.83 1,969.84
Mar. 31, 1969 3,000.00 29.38 30.00 102.55 2,897.45 3,200.73
Mar. 31, 1970 4,000.00 39.34 30.00 171.89 3,828.11 3,956.81
Mar. 31, 1971 5,000.00 62.02 30.00 263.91 4,736.09 5,679.02
Mar. 31, 1972 6,000.00 85.29 30.00 379.20 5,620.80 7,445.13
Mar. 31, 1973 7,000.00 100.72 30.00 509.92 6,490.08 8,616.88
Mar. 31, 1974 8,000.00 90.34 30.00 630.26 7,369.74 7,828.57
Mar. 31, 1975 9,000.00 97.64 30.00 757.90 8,242.10 8,382.77
Mar. 31, 1976 10,000.00 133.59 30.00 921.49 9,078.51 11,112.71
Mar. 31, 1977 11,000.00 153.15 30.00 1,104.64 9,895.36 12,597.32
Mar. 31, 1978 12,000.00 165.27 30.00 1,299.91 10,700.09 13,517.82
Mar. 31, 1979 13,000.00 210.04 30.00 1,539.95 11,460.05 16,917.46
Mar. 31, 1980 14,000.00 229.75 30.00 1,799.70 12,200.30 18,412.79
Mar. 31, 1981 15,000.00 321.71 30.00 2,151.41 12,848.59 25,394.21
Mar. 31, 1982 16,000.00 328.45 30.00 2,509.86 13,490.14 25,907.46
Mar. 31, 1983 17,000.00 476.95 30.00 3,016.81 13,983.19 37,182.85
Mar. 31, 1984 18,000.00 534.23 30.00 3,581.04 14,418.96 41,530.60
Mar. 31, 1985 19,000.00 659.21 30.00 4,270.25 14,729.75 51,020.53
</TABLE>
* IN THE EVENT OF A REFUND TO A PARTICIPANT OR TRANSFER TO FUNDING SUCCESSOR,
THE VALUE IS REDUCED BY THE CONTINGENT DEFERRED SALES CHARGE.
(CONTINUED ON NEXT PAGE)
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<PAGE> 17
HISTORICAL TABLE SHOWING HYPOTHETICAL VALUES OF $1,000 DEPOSITED
TO A PARTICIPANT ACCOUNT EACH YEAR IF A GROUP COMMON STOCK
VARIABLE ANNUITY CONTRACT HAD BEEN ISSUED APRIL 1, 1967
<TABLE>
<CAPTION>
Accumulated Value* Of
Contract Participant Deposits Account
Accumulated Maintenance Account Accumulated Less Expense On Date
Date Deposits Charge Charge Charges Charges Shown
<S> <C> <C> <C> <C> <C> <C>
Mar. 31, 1986 20,000.00 976.64 30.00 5,276.89 14,723.11 75,117.59
Dec. 31, 1986 same -0- -0- -0- same 75,367.46
Mar. 31, 1987 21,000.00 1,171.21 30.00 6,478.10 14,521.90 89,895.15
Dec. 31, 1987 same -0- -0- -0- same 76,658.35
Mar. 31, 1988 22,000.00 1,076.46 30.00 7,584.56 14,415.44 82,696.72
Dec. 31, 1988 same -0- -0- -0- same 90,258.22
Mar. 31, 1989 23,000.00 1,275.15 30.00 8,889.71 14,110.29 97,913.62
Dec. 31, 1989 same -0- -0- -0- same 120,817.02
Mar. 31, 1990 24,000.00 1,515.52 30.00 10,435.23 13,564.77 115,066.93
Dec. 31, 1990 same -0- -0- -0- same 120,269.06
Mar. 31, 1991 25,000.00 1,841.97 30.00 12,307.20 12,692.80 139,850.04
Dec. 31, 1991 same -0- -0- -0- same 159,908.08
Mar. 31, 1992 26,000.00 1,961.31 30.00 14,268.51 11,731.49 148,431.81
Dec. 31, 1992 same -0- -0- -0- same 161,400.49
Mar. 31, 1993 27,000.00 2,060.85 30.00 16,359.36 10,640.64 156,465.27
Dec. 31, 1993 same -0- -0- -0- same 171,220.30
Mar. 31, 1994 28,000.00 2,144.67 30.00 18,534.03 9,465.97 162,835.39
Dec. 31, 1994 same -0- -0- -0- same 171,316.13
Mar. 31, 1995 29,000.00 2,389.42 30.00 20,953.45 8,046.55 181,409.77
Dec. 31, 1995 same -0- -0- -0- same 221,583.76
Mar. 31, 1996 30,000.00 3,119.67 15.00 24,088.12 5,911.88 236,845.95
Dec. 31, 1996 same -0- -0- -0- same 284,391.16
Mar. 31, 1997 31,000.00 3,841.09 15.00 27,944.21 3,055.79 291,622.08
Dec. 31, 1997 same -0- -0- -0- same 365,947.31
Mar. 31, 1998 32,000.00 5,342.70 15.00 33,301.91 (1,301.91) 405,637.55
Dec. 31, 1998 same -0- -0- -0- same 419,031.30
</TABLE>
* IN THE EVENT OF A REFUND TO A PARTICIPANT OR TRANSFER TO FUNDING SUCCESSOR,
THE VALUE IS REDUCED BY THE CONTINGENT DEFERRED SALES CHARGE.
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<PAGE> 18
PARTICIPANT ACCOUNT VALUE
A Participant's account value is calculated by the total number of Accumulation
units credited to a Participant's account, as of any date, multiplied by the
Accumulation unit value less any applicable charges and taxes.
There is no assurance that the value of any Participant interest in the Contract
will equal or exceed the contributions made to the Participant account.
TRANSFERS
A Contract owner may transfer a portion of investments in the Contract to a
companion fixed contract or to another investment option under the Plan. Such
transfers are permitted once per year, so long as at least $1,000 remains in the
Contract on behalf of such Contract owner. Nationwide will deduct a $15 charge
against the amount transferred.
Transfers to the Contracts from a Companion Fixed contract can be made at 25% of
the value of such companion fixed contract. If $500 or less would remain in the
companion fixed contract after such transfer, the entire value of the companion
fixed contract will be transferred to the Contract.
The Plan determines the number, amount, and timing of transfers permitted to
each Participant.
PURCHASE OF VARIABLE ANNUITY
When a retired Participant wishes to have a variable annuity purchased to
provide retirement income payments under the Plan, written notice must be mailed
to Nationwide's home office at the address on page 1. Retired Participants must
specify:
(1) the date on which annuity payments are to begin;
(2) the form of annuity;
(3) proof of the Participant's date of birth; and
(4) proof of date of birth of any other person on whose life the
continuation of payments may be conditioned.
The Contracts contain four standard options which may be selected by a
Participant:
- - Straight Life Annuity. Under this option, an amount will be paid monthly
for the lifetime of the retired Participant;
- - Life Annuity with Period Certain. Under this option, an amount will be paid
monthly during the lifetime of the retired Participant, but with a minimum
period of 10 years. If the retired Participant should die prior to the end
of the 10-year period, the unpaid monthly annuity payments for the
remainder of the 10-year period will be payable to a named Beneficiary. If
the Beneficiary is other than a natural person or is an estate, the
commuted value of the unpaid monthly annuity payments will be payable in
one sum;
- - Joint and Survivor Annuity. Under this option an amount or a portion of the
amount will be paid monthly so long as either the retired Participant or
another designated individual is living; or
- - Annuity for a 10-year Period Certain. Under this option, an amount will be
payable for a 10-year period. The monthly annuity payments will differ
depending upon the option selected, and the investment results of the
Separate account.
Each option selected will have varying advantages and disadvantages.
Participants are urged to consult a qualified tax advisor prior to selecting a
payment option.
The basis for determining the amount of each monthly payment is the Annuity
unit. Like the Accumulation unit, the Annuity unit has an Annuity unit. The
Participant's accumulation units will be converted into the equivalent in
"premium units" by multiplying the number of Accumulation units by the ratio of
the Accumulation unit value to the Annuity unit value for the last Business Day
of the second calendar month preceding the date of conversion.
Premium units will be applied to purchase a Variable annuity in the form
selected, with the first monthly payment made on the date on which the premium
units are applied. The number of Annuity units in each monthly annuity payment
will depend upon the number of premium units applied and the appropriate annuity
rate which is determined from tables set forth in the Contracts, taking into
account:
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<PAGE> 19
(1) the option selected; and
(2) the age of the Annuitant and any other designated individual.
The dollar amount of each monthly payment of the Variable annuity will be equal
to the number of Annuity units in each Variable annuity payment multiplied by
the Annuity unit value for the second calendar month preceding the month in
which the payment is payable. The Annuity rate tables for any particular
Contract are also subject to a percentage charge, which is made once, when an
annuity is purchased, and reduces the annuity purchase rates. These tables may
be changed after the Contracts have been in effect for 5 years.
ANNUITY UNIT VALUE
The Annuity unit value for any subsequent month is determined by multiplying the
annuity change factor for that month by the Annuity unit value for the preceding
month. The annuity change factor for any month reflects the extent to which the
investment return of the Separate account for that month differs from an assumed
effective investment return at the rate of 3.5% per year. Accordingly, the
Annuity unit value will go up or down each month depending upon whether the
actual effective investment return in that month is at an annual rate greater or
less than the 3.5% assumption.
If the 3.5% investment increment assumption were changed to some other
assumption, such as 2% or 5% (with an equal change in the 3.5% assumption used
to determine the annuity change factor), this would result in changing both the
amount of the initial payment and the manner in which the subsequent payments
would vary. A higher assumption would mean a higher initial payment, but a more
slowly rising series of subsequent payments (or a more rapidly falling series,
if there were adverse investment results). A lower assumption would have the
opposite effect. If a Contract owner wishes to adopt an assumption different
from the 3.5% assumption described above, Nationwide is willing to issue a
Contract with an assumption which is higher or lower than the 3.5% assumption.
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<PAGE> 20
<TABLE>
<CAPTION>
ANNUITY UNIT VALUES* AT THE END OF EACH QUARTER
<S> <C> <C> <C> <C> <C> <C> <C>
Mar. 1975 .9739300 Mar. 1982 1.7359408 Mar. 1989 5.4933407 Mar. 1996 10.7448305
June 1975 1.0908130 June 1982 1.7305361 June 1989 5.8356153 June 1996 10.8852039
Sept. 1975 .9537858 Sept. 1982 1.9229774 Sept. 1989 6.4688440 Sept. 1996 11.4443637
Dec. 1975 1.0377989 Dec. 1982 2.1815971 Dec. 1989 6.6076882 Dec. 1996 12.5731502
Mar. 1976 1.1593476 Mar. 1983 2.3762545 Mar. 1990 6.2688926 Mar. 1997 12.7923164
June 1976 1.1938913 June 1983 2.5593550 June 1990 6.6219279 June 1997 14.7401862
Sept. 1976 1.2271288 Sept. 1983 2.5825910 Sept. 1990 5.8517062 Sept. 1997 15.5284743
Dec. 1976 1.2402329 Dec. 1983 2.6072616 Dec. 1990 6.3862002 Dec. 1997 15.6437791
Mar. 1977 1.1934020 Mar. 1984 2.5374442 Mar. 1991 7.2568733 Mar. 1998 17.3766783
June 1977 1.2196532 June 1984 2.5009891 June 1991 7.1903870 June 1998 17.5807721
Sept. 1977 1.2002773 Sept. 1984 2.7059580 Sept. 1991 7.3691860 Sept. 1998 15.3082284
Dec. 1977 1.2109632 Dec. 1984 2.7081212 Dec. 1991 8.0818179 Dec. 1998 17.4932070
Mar. 1978 1.1694732 Mar. 1985 2.9934951 Mar. 1992 7.6455389
June 1978 1.2576072 June 1985 3.2450574 June 1992 7.6195924
Sept. 1978 1.3501253 Sept. 1985 3.1519399 Sept. 1992 7.8133694
Dec. 1978 1.2911817 Dec. 1985 3.6916616 Dec. 1992 8.1017796
Mar. 1979 1.3573209 Mar. 1986 4.2586598 Mar. 1993 7.8410758
June 1979 1.4018878 June 1986 4.4987245 June 1993 7.9468659
Sept. 1979 1.4856076 Sept. 1986 4.0365210 Sept. 1993 7.9981244
Dec. 1979 1.4497808 Dec. 1986 4.1639886 Dec. 1993 8.3619441
Mar. 1980 1.3768583 Mar. 1987 4.9351179 Mar. 1994 7.9412180
June 1980 1.5204793 June 1987 5.0901180 June 1994 7.9855824
Sept. 1980 1.6367040 Sept. 1987 5.3181853 Sept. 1994 8.3040963
Dec. 1980 1.7025496 Dec. 1987 4.1012392 Dec. 1994 8.1469286
Mar. 1981 1.7968159 Mar. 1988 4.3916141 Mar. 1995 8.5530561
June 1981 1.8147096 June 1988 5.0036811 June 1995 9.0618110
Sept. 1981 1.6526309 Sept. 1988 5.0188653 Sept. 1995 9.6424504
Dec. 1981 1.7925811 Dec. 1988 5.0916250 Dec. 1995 10.1810574
</TABLE>
* Hypothetical unit values if a Group Common Stock Variable Annuity Contract
had been issued March 31, 1975.
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<PAGE> 21
FEDERAL INCOME TAX STATUS
Nationwide does not make any guarantee regarding the tax status of any Contract
or any transaction involving the Contracts. Section 72 of the Internal Revenue
Code governs taxation of annuities in general.
Section 72 sets forth specific rules for annuities purchased by Qualified Plans
(including corporate pension and profit sharing plans and retirement plans for
proprietorships and partnerships). The Contracts are designed for use with
Qualified Plans. The tax rules applicable to Participants in these Plans vary
based on the terms and conditions of the Plan. Participants under these Plans,
as well as Contract owners, employers, and Beneficiaries, are cautioned that the
rights of any person to any benefits under these Plans are subject to its terms
and conditions, without regard to the terms and conditions of the Contracts.
The Tax Reform Act of 1986 and subsequent legislation changed some of the rules
regarding the tax treatment of distributions from Qualified Plans and of
annuities purchased by Qualified Plans. A financial consultant, legal or tax
adviser should be consulted to discuss in detail particular tax situations and
the use of the Contracts. For additional information regarding eligibility,
limitations on permissible amounts of purchase payments, and tax consequences on
distribution from Qualified Plans, the purchasers of the Contracts should seek
competent tax advice.
The Internal Revenue Code permits the rollover of most distributions from
Qualified Plans and Tax Sheltered Annuities to other Qualified Plans, Individual
Retirement Accounts, or Individual Retirement Annuities. Distributions which may
not be rolled over are those which are:
1. one of a series of substantially equal annual (or more frequent) payments
made:
(a) over the life (or life expectancy) of the employee;
(b) the joint lives (or joint life expectancies) of the employee and the
employee's designated beneficiary; or
(c) for a specified period of ten years or more; and
2. a required minimum Distribution.
Any eligible rollover distribution will be subject to federal tax withholding at
a 20% rate unless the distribution is transferred directly to a Qualified Plan,
Individual Retirement Account or Individual Retirement Annuity.
Contracts issued in Puerto Rico are subject to rules which vary from those
described above. Legal advice should be obtained.
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 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 many 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 has 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 support 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
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<PAGE> 22
inventory and assessment of all business partners including electronic
interfaces. Processes have been put in 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, 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
Separate account and are not charged through to the Plan.
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 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 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
20
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<PAGE> 23
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.
21
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<PAGE> 24
<TABLE>
<CAPTION>
TABLE OF CONTENTS OF STATEMENT
OF ADDITIONAL INFORMATION
<S> <C>
General Information and History........................................................................1
Investment Objectives and Policies.....................................................................1
Management.............................................................................................1
Investment Advisory and Other Services.................................................................2
Brokerage Allocation...................................................................................2
Purchase and Pricing of Securities Being Offered.......................................................2
Underwriters...........................................................................................3
Calculation of Yield Quotations of Money Market Sub-Accounts ................................3
Annuity Payments.......................................................................................3
Financial Statements...................................................................................4
</TABLE>
22
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<PAGE> 25
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1999
GROUP COMMON STOCK VARIABLE ANNUITY CONTRACTS
ISSUED BY
NATIONWIDE LIFE INSURANCE COMPANY
This Statement of Additional Information is not a prospectus. It contains
additional information 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 16766, One
Nationwide Plaza, Columbus, Ohio 43216, or by calling 1-800-545-4730.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
General Information and History..............................................1
Investment Objectives and Policies...........................................1
Management...................................................................1
Investment Advisory and Other Services.......................................2
Brokerage Allocation.........................................................2
Purchase and Pricing of Securities Being Offered.............................2
Underwriters.................................................................3
Calculation of Yield Quotations of Money Market Sub-Accounts.................3
Annuity Payments.............................................................3
Financial Statements.........................................................4
</TABLE>
GENERAL INFORMATION AND HISTORY
Separate Account No. 1 is a separate investment account of Nationwide Life
Insurance Company ("Nationwide"). Nationwide is a member of the Nationwide
group. 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 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 (95.2%) and Nationwide Mutual Fire Insurance
Company (4.8%), the ultimate controlling persons of the Nationwide group.
INVESTMENT OBJECTIVES AND POLICIES
During fiscal years 1998, 1997 and 1996, the portfolio turnover rates were
40.9%, 8.7% and 9.6%, respectively. A portfolio turnover rate of 100% would
occur if all the portfolio securities were replaced in one fiscal year. The
turnover rates experienced in the years ending December 31, 1998, December 31,
1997 and December 31, 1996, were based upon the replacement of existing stocks
with stocks of higher investment quality, and buying and selling to take
advantage of favorable market conditions.
MANAGEMENT
The Separate account is managed by the Investment Department of Nationwide, and
all involved individuals are employees of Nationwide. There is no board of
managers associated with the Separate Account.
23
25 of 78
<PAGE> 26
INVESTMENT ADVISORY AND OTHER SERVICES
Nationwide acts as its own investment adviser and pays no fees for investment
advisory services to any non-affiliated entity. All individuals involved in any
advisory capacity are full-time employees of Nationwide without other
affiliation.
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.
BROKERAGE ALLOCATION
Transactions in portfolio securities are not conducted through brokerage
concerns, therefore no brokerage commissions are paid in such transactions. The
full-time employees of the Investment Department of Nationwide constantly
evaluate the relative values of the investments of the Separate Account.
Investments of the Separate account are placed where, in the judgment of the
Investment Department, the best price and executions can be obtained. The
objective results of this process are measured quarterly by Nationwide against
the investment objectives of the Separate account. Although brokers are not used
for purposes of investment advice, brokers are used to place orders once the
Investment Department determines its purchases.
PURCHASE AND PRICING 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").
A Participant under a Plan which utilizes the contracts and one or more
companion fixed contracts as the funding media will, at the outset, inform
Nationwide of the proportion of contributions that are to be paid under the
Contracts. The remainder, less any amount applied toward insurance coverage,
will be credited under the companion fixed contracts. This proportion may be
changed, as new contributions are made, by notice to Nationwide.
Transfers of amounts accumulated under the contracts may be made to the
companion fixed contracts. Similarly, transfers may be made into the contracts
from a companion fixed contract. The number, amount, and timing of such
transfers permitted to each Participant are determined by the Plan. However,
Nationwide reserves the right not to issue a Contract in any case where, the
transfer provisions of the Plan appear to Nationwide to be inconsistent with
long-term retirement objectives. The transfer arrangement would permit a
Participant to adjust the balance between the Contracts and companion fixed
contract balances to take account of changes in the Participant's financial
circumstances. It might also enable the Participant to split contributions among
the Contracts during the period before retirement, but at retirement to elect to
receive retirement income under the Contracts in the form of either a variable
annuity or a fixed-dollar annuity, or any reasonable combination of both. If the
Plan so provides, a Participant may elect to receive retirement benefits in the
form of a single lump sum payment. A single lump sum payment could create
possible adverse tax consequences. Some employers may not wish their employees
to have this much flexibility. If so, employers may design their Plans
accordingly. Any request to transfer part of a Participant's account under the
Contracts which would leave a balance less than $500 will be treated as a
request for a complete transfer.
The Contracts give the Contract owner or a participating employer the right to
notify Nationwide that future contributions under the Plan involved are to be
paid instead to another funding agency (such as a trustee or another insurance
company), in which case no further contributions will be due or payable on
behalf of the Participants affected thereby unless otherwise agreed to by
Nationwide and the Contract owner. Following the receipt of such a
2
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<PAGE> 27
notice, the value of the accumulations of affected Participants will continue to
reflect the investment results of the Separate account until they are paid to
the persons entitled thereto in accordance with the Plan and the Contract.
The Contracts also provide that the Contract owner or a participating employer
may transfer the value of the accumulation of all the Participants under a Plan
to another funding agency. Such transfer payments will commence on a Transfer
Date, which is the later to occur of: (a) the first Business Day of the calendar
month specified in the request; or (b) the first Business Day of the first
calendar month which begins at least thirty days after receipt of the request by
Nationwide. Nationwide reserves the right, if such a request is made by a
Contract owner, to transfer, in any one-month period commencing on the transfer
date, no more than $1,000,000 or 5% of the value on the transfer date of all
Accumulation units under the Contract on that date, whichever is greater. It may
be advisable to consult tax counsel before making such a transfer. The amount of
any transfer payment will be equal to the product of the number of Accumulation
units allocated for transfer and the Accumulation unit value as of the Business
Day on which any transfer is made, less any applicable contingent deferred sales
charge.
UNDERWRITERS
Nationwide is the principal underwriter of the Contracts which are offered
continuously. No underwriting commissions are paid.
CALCULATION OF YIELD QUOTATIONS OF MONEY MARKET SUB-ACCOUNTS
The Separate account does not include money market sub-accounts.
ANNUITY PAYMENTS
See "Purchase of Variable Annuity" and "Annuity Unit Value" in the prospectus.
3
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<PAGE> 28
<PAGE> 1
INDEPENDENT AUDITORS' REPORT
The Board of Directors of Nationwide Life Insurance
Company and Contract Owners of
Nationwide Life Insurance Company
Separate Account No. 1:
We have audited the accompanying statement of assets, liabilities and contract
owners' equity of Nationwide Life Insurance Company Separate Account No. 1,
including the schedule of portfolio investments, 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 audit.
We conducted our audit 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 audit provides 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 Life Insurance
Company Separate Account No. 1 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
March 12, 1999
<PAGE> 2
NATIONWIDE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT NO. 1
<TABLE>
Statement of Assets, Liabilities
and Contract Owners' Equity
December 31, 1998
<S> <C>
Assets:
Cash $ 3,961
Investments in securities at market value, per accompanying
schedule of portfolio investments (cost $21,723,171) 48,980,248
Dividends receivable 32,297
Accounts receivable 296,819
-----------
Total assets 49,313,325
-----------
Liabilities:
Accounts payable to Nationwide Life Insurance Company 126,338
-----------
Contract owners' equity (note 3) $49,186,987
===========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 3
NATIONWIDE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT NO. 1
<TABLE>
Statements of Operations and Changes
in Contract Owners' Equity
Years ended December 31, 1998 and 1997
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Investment activity:
Dividends and interest $ 700,601 788,152
Mortality and expense charges (note 2):
AOCS (29,830) (29,468)
RACS (38,994) (38,611)
HACS (168,374) --
VACS (428) (535)
----------- -----------
Net investment activity 462,975 719,538
----------- -----------
Proceeds from sales of investments 15,722,970 8,216,571
Cost of investments sold 8,259,292 3,374,802
----------- -----------
Realized gain on investments 7,463,678 4,841,769
Change in unrealized gain on investments (659,379) 6,554,372
----------- -----------
Net gain on investments 6,804,299 11,396,141
----------- -----------
Net increase in contract owners' equity resulting
from operations 7,267,274 12,115,679
----------- -----------
Equity transactions:
Deposits received from contract owners 571,678 1,265,980
Contract withdrawals and transfers (7,952,617) (5,663,274)
Annuity payments (89,410) (89,084)
Adjustment to maintain annuity reserves 125,211 (370,185)
Contract charges (note 2) (28,737) (196,773)
----------- -----------
Net equity transactions (7,373,875) (5,053,336)
----------- -----------
Net change in contract owners' equity (106,601) 7,062,343
Contract owners' equity:
At beginning of year 49,293,588 42,231,245
----------- -----------
At end of year $49,186,987 49,293,588
=========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 4
NATIONWIDE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT NO. 1
Notes to Financial Statements
December 31, 1998 and 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) ACCOUNTING ENTITY AND NATURE OF OPERATIONS
Effective April 1, 1967, Separate Account No. 1 (Separate Account) of
Nationwide Life Insurance Company (NLIC) was established in accordance
with the laws of the State of Ohio. The Separate Account is the
accounting entity wherein all segregated variable annuity account
transactions of the contract owners are to be reflected. This account
contains the contract owners' equity and reflects the variable annuity
reserves of the contract owners receiving variable annuity payments.
The assets and liabilities of the Separate Account are clearly
identifiable and distinguished from the other assets and liabilities of
NLIC.
NLIC offers a tax qualified group common stock variable annuity
contract through the Separate Account. The primary distribution for the
contracts is with corporate pension plans through Pension Plan
Administrators.
(B) ANNUITY CONTRACTS
As of December 31, 1998, the Separate Account has five annuity
contracts (two fixed-dollar annuity benefit contracts and three
variable-dollar annuity benefit contracts). During the accumulation
phase, no guarantees are made regarding amounts which will ultimately
be available in the form of annuity payments to participants under the
fixed-dollar or variable-dollar annuity benefit contracts.
(C) SECURITY VALUATION, TRANSACTIONS AND RELATED INVESTMENT INCOME
Common stocks are valued at market prices which are based on published
quotations on December 31, 1998. Short-term investments through
Nationwide Cash Management Company (NCMC), an affiliate of NLIC, are
valued at amortized cost, which approximates market. Security
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
Under current IRC statutes, no federal income taxes are provided on the
earnings or appreciation of funds held for qualified plans in the
Separate Account. Taxes are the responsibility of the contract owner
receiving payments.
(E) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles may require management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities, if
any, at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results
could differ from those estimates
(F) RECLASSIFICATIONS
Certain prior year information has been reclassified to conform with
current year presentation.
(Continued)
<PAGE> 5
NATIONWIDE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT NO. 1
Notes to Financial Statements, Continued
(2) CONTRACT CHARGES
Contracts participating in the Separate Account currently provide for
contract expenses that vary depending on the type of contract issued within
the Separate Account. Only one contract type, the group common stock
variable annuity contract, is registered with the Securities and Exchange
Commission (SEC) under the Securities Act of 1933 (1933 Act). The remaining
contract types that are named below qualify for exemption under Section
3(a)(2) of the 1933 Act and are therefore not registered with the SEC. The
charges for each contract type are assessed to cover expenses associated
with administering the contracts available in the Separate Account. The
charges listed below may be deducted from participants' contracts or paid
directly to NLIC by participants:
(A) FIXED-DOLLAR ANNUITY BENEFIT CONTRACTS
Fixed-dollar annuity benefit contracts provide for periodic charges for
expenses established under each contract. There are two types of
fixed-dollar annuity benefit contracts issued under the Separate
Account: deposit administration contracts (AOCS) and retirement
accumulation contracts (RACS). AOCS contracts assess a charge equal to
the annual effective rate of 0.35% of each participant's account. RACS
contracts assess a charge equal to the annual effective rate of 1.44%
of each participant's account.
(B) VARIABLE-DOLLAR ANNUITY BENEFIT CONTRACTS ISSUED PRIOR TO MAY 1, 1982
Variable-dollar annuity benefit contracts issued prior to May 1, 1982
(VACS) provide for a percentage of each participant's contributions to
be used to cover expenses (including commissions paid to the sales
representatives) and contingencies. The contingency percentage is 5% of
contributions for participants whose employers adopted the contract
prior to May 1, 1973 and 6.5% of contributions for participants whose
employers adopted the contract on May 1, 1973 and before May 1, 1982.
For all VACS contracts, a charge equal to the annual effective rate of
0.50% of each participant's account balance will be assessed. In
addition, an annual charge of not more than $25 for the first year of
participation in the contract and $10 thereafter may be assessed to
the contracts.
(C) VARIABLE-DOLLAR ANNUITY BENEFIT CONTRACTS ISSUED ON OR AFTER MAY 1,
1982
For variable-dollar annuity benefit contracts issued on or after May 1,
1982 (group common stock variable annuity contracts), the Separate
Account does not deduct a sales charge from contributions received from
the participants. However, if any part of the contract is surrendered,
the Separate Account will, with certain exceptions, deduct from a
participant's contract value a contingent deferred sales charge to be
used to cover expenses (including commissions paid to the sales
representatives) and contingencies not to exceed 6.5% of contributions,
such charge declining to 0% after the contribution has been held in the
contract for 96 months. Surrenders are applied to the earliest
contributions held in the contract.
A charge equal to the annual effective rate of 1.3% of each
participant's account balance may be assessed. In 1998 and 1997, NLIC
waived the 1.3% charge for contracts issued to NLIC agents (HRCS) due
to savings realized by NLIC with regard to sales commissions and
administrative costs. For contracts issued to all other participants
(HACS), effective January 1, 1998, the Separate Account began assessing
the 1.3% charge through a reduction in the unit value. Prior to January
1, 1998, the charge was assessed as a reduction of the contract owners'
accumulation units. In addition, an annual charge not to exceed $15 of
each participant's account may also be assessed to all group common
stock variable annuity contracts.
(Continued)
<PAGE> 6
NATIONWIDE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT NO. 1
Notes to Financial Statements, Continued
(3) ACCUMULATION AND EQUITY UNITS
The number of accumulation and equity units, reserve value per unit and
related amount of contract owners' equity in annuity reserve (including
$567,235 for annuities in the payout phase) as of December 31, 1998 are:
<TABLE>
<CAPTION>
Reserve Contact owners'
Accumulation Equity value equity in
Contracts units units per unit* annuity reserves
--------- ----- ----- --------- ----------------
<S> <C> <C> <C> <C>
AOCS (100% reserve) -- 147,629 43.491803 $ 6,420,651
AOCS (95% reserve) -- 57,225 43.491803 2,488,818
RACS -- 76,291 37.206308 2,838,506
HRCS 545,352 -- 44.355173 24,189,182
HACS 301,049 -- 43.783811 13,181,073
VACS 1,685 -- 40.805156 68,757
======= ======= ========= ===========
$49,186,987
===========
</TABLE>
* Reserve value per unit represents redemption value.
The components of each of these unit values are as follows:
<TABLE>
<CAPTION>
AOCS RACS HRCS HACS VACS
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
1998:
Beginning unit value - Jan. 1 $37.710356 32.613242 38.324427 38.324427 35.433862
Reinvested dividends and interest 0.575530 0.495325 0.585531 0.581749 0.538311
Realized and unrealized gain 5.349493 4.605826 5.445215 5.417037 5.025565
Mortality and expense charges (0.143576) (0.508085) 0.000000 (0.539402) (0.192582)
---------- --------- --------- --------- ---------
Ending unit value - Dec. 31 $43.491803 37.206308 44.355173 43.783811 40.805156
========== ========= ========= ========= =========
Percentage increase in unit value 15% 14% 16% 14% 15%
1997:
Beginning unit value - Jan. 1 $29.386238 25.692205 29.760295 -- 27.653613
Reinvested dividends and interest 0.571081 0.499970 0.578798 -- 0.540347
Realized and unrealized gain 7.870978 6.842901 7.985334 -- 7.398331
Mortality and expense charges (0.117941) (0.421834) 0.000000 -- (0.158429)
---------- --------- --------- --------- ---------
Ending unit value - Dec. 31 $37.710356 32.613242 38.324427 -- 35.433862
========== ========= ========= ========= =========
Percentage increase in unit value 28% 27% 29% -- 28%
</TABLE>
(4) RELATED PARTY TRANSACTIONS
In 1982, the Separate Account entered into an agreement with 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. The following represents funds invested in NCMC throughout
1998 and is included in the investments in the accompanying financial
statements:
<TABLE>
<S> <C>
Investment in NCMC, beginning of year $ 191,799
Purchases 16,839,025
Sales (13,839,597)
------------
Investment in NCMC, end of year $ 3,191,227
============
</TABLE>
<PAGE> 7
NATIONWIDE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT NO. 1
<TABLE>
Schedule of Portfolio Investments
December 31, 1998
<CAPTION>
Number Market
Name of issuer and title of issue of shares Cost(1) Value
--------------------------------- --------- ------- ------
<S> <C> <C> <C>
COMMON STOCKS (93.5%)
BROADCASTING (2.8%)
Cox Communications, Inc., Class A (2) 20,130 $ 674,941 $ 1,391,486
------- ----------- -----------
20,130 674,941 1,391,486
------- ----------- -----------
BUILDING MATERIALS (4.8%)
Vulcan Materials Co. 18,000 87,908 2,368,125
------- ----------- -----------
18,000 87,908 2,368,125
------- ----------- -----------
CABLE SERVICES (2.2%)
MediaOne Group, Inc. 22,500 754,832 1,057,500
------- ----------- -----------
22,500 754,832 1,057,500
------- ----------- -----------
CHEMICAL (1.9%)
Monsanto Company 20,000 150,271 950,000
------- ----------- -----------
20,000 150,271 950,000
------- ----------- -----------
COMMERCIAL BANK (2.8%)
Bank One Corporation 27,225 561,807 1,390,177
------- ----------- -----------
27,225 561,807 1,390,177
------- ----------- -----------
COMPUTERS AND SEMICONDUCTORS (10.1%)
Cisco Systems, Inc. (2) 14,775 546,514 1,371,305
Intel Corporation 8,500 241,978 1,007,781
International Business Machines Corporation 14,000 830,493 2,581,250
------- ----------- -----------
37,275 1,618,985 4,960,336
------- ----------- -----------
COMPUTER SERVICES (0.7%)
IMS Health, Inc. 4,400 87,652 331,925
------- ----------- -----------
4,400 87,652 331,925
------- ----------- -----------
DRUGS AND COSMETICS (19.7%)
American Home Products Corp. 32,000 593,720 1,804,000
Bristol-Myers Squibb Company 18,000 257,293 2,408,625
Pfizer, Inc. 10,000 179,266 1,250,000
Schering-Plough Corporation 31,600 106,328 1,745,900
Warner-Lambert Company 32,400 270,933 2,436,074
------- ----------- -----------
124,000 1,407,540 9,644,599
------- ----------- -----------
</TABLE>
(Continued)
<PAGE> 8
NATIONWIDE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT NO. 1
<TABLE>
Schedule of Portfolio Investments, Continued
December 31, 1998
<CAPTION>
Number Market
Name of issuer and title of issue of shares Cost(1) Value
--------------------------------- --------- ------- ------
<S> <C> <C> <C>
Common Stocks, Continued
ENTERTAINMENT (1.8%)
Walt Disney Company 30,000 $ 241,875 $ 900,000
------- ----------- -----------
30,000 241,875 900,000
------- ----------- -----------
FINANCIAL SERVICES (8.7%)
Chubb Corporation 20,800 287,872 1,346,800
Citigroup, Inc. 32,500 574,665 1,614,844
Wells Fargo Co. 32,000 931,392 1,278,000
------- ----------- -----------
85,300 1,793,929 4,239,644
------- ----------- -----------
FOODS AND BEVERAGES (4.1%)
Pepsico, Inc. 32,000 374,959 1,308,000
Ralston Purina Group 22,287 302,732 715,970
------- ----------- -----------
54,287 677,691 2,023,970
------- ----------- -----------
HEALTH CARE (1.4%)
Healthsouth Corporation 44,740 1,218,941 690,674
------- ----------- -----------
44,740 1,218,941 690,674
------- ----------- -----------
HEALTH SERVICES (0.2%)
Baxter International, Inc. 1,600 42,409 102,900
------- ----------- -----------
1,600 42,409 102,900
------- ----------- -----------
HOUSEHOLD PRODUCTS (10.8%)
Avon Products, Inc. 44,000 503,535 1,947,000
Gillette Company 30,400 267,648 1,453,500
Procter & Gamble Company 20,400 432,384 1,862,775
------- ----------- -----------
94,800 1,203,567 5,263,275
------- ----------- -----------
INSURANCE (2.5%)
American International Group, Inc. 12,500 920,281 1,207,813
------- ----------- -----------
12,500 920,281 1,207,813
------- ----------- -----------
MISCELLANEOUS (4.8%)
Caterpillar, Inc. 14,000 469,140 644,000
Corning, Inc. 23,000 650,652 1,035,000
IKON Office Solutions, Inc. 39,400 1,037,249 337,363
Mattel, Inc. 15,140 60,448 355,790
------- ----------- -----------
91,540 2,217,489 2,372,153
------- ----------- -----------
</TABLE>
(Continued)
<PAGE> 9
NATIONWIDE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT NO. 1
<TABLE>
Schedule of Portfolio Investments, Continued
December 31, 1998
<CAPTION>
Number Market
Name of issuer and title of issue of shares Cost(1) Value
--------------------------------- --------- ------- ------
<S> <C> <C> <C>
Common Stocks, Continued
MEDICAL EQUIPMENT (4.6%)
Medtronic, Inc. 19,800 $ 613,893 $ 1,470,769
Millipore Corp. 27,200 1,185,394 770,100
------- ----------- -----------
47,000 1,799,287 2,240,869
------- ----------- -----------
OIL AND GAS (1.8%)
Mobil Corporation 4,800 166,464 418,200
Schlumberger Limited 10,000 278,830 463,750
------- ----------- -----------
14,800 445,294 881,950
------- ----------- -----------
PRINTING AND PUBLISHING (6.5%)
American Greetings Corp., Class A 19,000 318,142 780,187
Gannett, Inc. 24,000 405,748 1,548,000
Gibson Greetings, Inc. (2) 27,500 614,062 326,563
Knight-Ridder, Inc. 10,000 215,969 511,250
------- ----------- -----------
80,500 1,553,921 3,166,000
------- ----------- -----------
RETAIL (1.3%)
Consolidated Stores Corporation 30,000 1,073,324 605,625
------- ----------- -----------
30,000 1,073,324 605,625
------- ----------- -----------
860,597 18,531,944 45,789,021
------- ----------- -----------
SHORT-TERM SECURITIES (6.5%)
Nationwide Cash Management Company
Participation (affiliated entity, see note 4) 3,191,227 3,191,227
----------- -----------
$21,723,171 $48,980,248
=========== ===========
</TABLE>
(1) Also represents cost for federal income tax purposes.
(2) Denotes non-income producing securities.
See accompanying notes to financial statements.
<PAGE> 29
<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> 30
PART C. OTHER INFORMATION
<TABLE>
<CAPTION>
Item 28. FINANCIAL STATEMENTS AND EXHIBITS
<S> <C>
(a)Financial Statements:
(1) Financial statements included PAGE
in Prospectus (Part A):
Condensed Financial Information. 6
(2) Financial statements and schedule included
in Part B:
Those financial statements and schedule required by Item
27 to be included in Part B have been incorporated therein
by reference to the Prospectus (Part A). 28
Nationwide Life Insurance Company Separate Account No. 1:
Independent Auditors' Report. 28
Statement of Assets, Liabilities and Contract
Owners' Equity as of December 31, 1998. 29
Statements of Operations and Changes in
Contract Owners' Equity for the years ended
December 31, 1998 and 1997. 30
Notes to Financial Statements. 31
Schedule of Portfolio Investments. 34
Nationwide Life Insurance Company and Subsidiaries:
Independent Auditors' Report. 37
Consolidated Balance Sheets as of December
31, 1998 and 1997. 38
Consolidated Statements of Income for the years ended
December 31, 1998, 1997 and 1996. 39
Consolidated Statements of Shareholders Equity for the
years ended December 31, 1998, 1997 and 1996. 40
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996. 41
Notes to Consolidated Financial Statements. 42
</TABLE>
61 of 78
<PAGE> 31
Item 29. 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
301 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 South Cooperatives/
Land Assistance Fund
2769 Church Street
East Point, GA 30344
James F. Patterson Director
8765 Mulberry Road
Chesterland, OH 44026
</TABLE>
62 OF 78
<PAGE> 32
<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 44061
Dennis W. Click Vice President - Secretary
One Nationwide Plaza
Columbus, OH 43215
Robert A. Oakley Executive Vice President-
One Nationwide Plaza Chief Financial Officer
Columbus, OH 43215
Robert J. Woodward, Jr. Executive Vice President -
One Nationwide Plaza Chief Investment Officer
Columbus, OH 43215
James E. Brock Senior Vice President -
One Nationwide Plaza Corporate Development
Columbus, OH 43215
John R. Cook, Jr. Senior Vice President - Chief
One Nationwide Plaza Communications Officer
Columbus, OH 43215
Philip L. Gath Senior Vice President - Chief Actuary
One Nationwide Plaza
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
Douglas C. Robinette Senior Vice President-
One Nationwide Plaza Marketing and Product Management
Columbus, OH 43215
</TABLE>
63 of 78
<PAGE> 33
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS WITH DEPOSITOR
<S> <C>
Susan A. Wolken Senior Vice President - Life Company Operations
One Nationwide Plaza
Columbus, OH 43215
Bruce C. Barnes Vice President - Technology Strategy
One Nationwide Plaza and Planning
Columbus, OH 43215
David A. Diamond Vice President - Enterprise Controller
One Nationwide Plaza
Columbus, OH 43215
Matthew S. Easley Vice President -
One Nationwide Plaza Investment Life Actuarial
Columbus, OH 43215
R. Dennis Noice Vice President-
One Nationwide Plaza Systems - Nationwide Financial Services
Columbus, OH 43215
Joseph P. Rath Vice President - Product and
One Nationwide Plaza Market Compliance
Columbus, OH 43215
Mark R. Thresher Vice President - Controller
One Nationwide Plaza
Columbus, OH 43215
</TABLE>
Item 30. 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
64 of 78
<PAGE> 34
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
COMPANY STATE/COUNTRY OF (SEE ATTACHED PRINCIPAL BUSINESS
ORGANIZATION 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 Insurance Iowa Underwrites General P&C
Company Insurance
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
Cooperative Service Company Nebraska Insurance Agency
Depositors Insurance Company Iowa Underwrites P&C insurance
</TABLE>
65 OF 78
<PAGE> 35
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
COMPANY STATE/COUNTRY OF (SEE ATTACHED PRINCIPAL BUSINESS
ORGANIZATION CHART UNLESS
OTHERWISE
INDICATED)
<S> <C> <C> <C>
*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 Agency Oklahoma Insurance Agency
of Oklahoma, Inc.
Financial Horizons Distributors Agency Texas Insurance 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, Inc. Ohio Insurance Agency
Landmark Financial Services of New New York Life Insurance Agency
York, Inc.
Leben Direkt Insurance Company Germany Life Insurance Company
Lone Star General Agency, Inc. Texas Insurance Agency
Midwest Printing Services, Inc. Iowa General Printing Services
Morley & Associates Oregon Insurance Broker
</TABLE>
66 of 78
<PAGE> 36
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
COMPANY STATE/COUNTRY OF (SEE ATTACHED PRINCIPAL BUSINESS
ORGANIZATION CHART UNLESS
OTHERWISE
INDICATED)
<S> <C> <C> <C>
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
Administration Company Services
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
Redevelopment Corporation 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 Capital Delaware Statutory Business Trust
Trust
Nationwide Financial Services Capital Delaware Statutory Business Trust
Trust II
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
</TABLE>
67 of 78
<PAGE> 37
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
COMPANY STATE/COUNTRY OF (SEE ATTACHED PRINCIPAL BUSINESS
ORGANIZATION CHART UNLESS
OTHERWISE
INDICATED)
<S> <C> <C> <C>
Nationwide Insurance Company of California Underwriter
America
Nationwide Insurance Company of Florida Ohio Insurance Company
Nationwide Insurance Enterprise Ohio Membership Non-Profit
Foundation Corporation
Nationwide Services Company, LCC Ohio Shared services functions
Nationwide Insurance Golf Charities, Inc. Ohio Membership Non-Profit
Corporation
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
Corporation deferred compensation market
Nationwide Investors Services, Inc. Ohio Stock Transfer Agent
**Nationwide Life and Annuity Insurance Ohio Life Insurance Company
Company
**Nationwide Life Insurance Company Ohio Life Insurance Company
Nationwide Lloyds Texas 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
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
</TABLE>
68 of 78
<PAGE> 38
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
COMPANY STATE/COUNTRY OF (SEE ATTACHED PRINCIPAL BUSINESS
ORGANIZATION CHART UNLESS
OTHERWISE
INDICATED)
<S> <C> <C>
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, Inc. Montana Market and administer deferred
of Montana compensation plans for public
employees
Nationwide Retirement Solutions, Inc. Nevada Market and administer deferred
of Nevada compensation plans for public
employees
Nationwide Retirement Solutions, Inc. New Mexico Market and administer deferred
of New Mexico compensation plans for public
employees
Nationwide Retirement Solutions, Inc. Ohio Market variable annuity
of Ohio contracts to members of the
National Education Association
in the state of Ohio
Nationwide Retirement Solutions, Inc. Oklahoma Market variable annuity
of Oklahoma contracts to members of the
National Education Association
in the state of Oklahoma
Nationwide Retirement Solutions, Inc. South Dakota Market and administer deferred
of South Dakota compensation plans for public
employees
Nationwide Retirement Solutions, Inc. Texas Market and administer deferred
of Texas compensation plans for public
employees
Nationwide Retirement Solutions, Inc. Wyoming Market variable annuity
of Wyoming contracts to members of the
National Education Association
in the state of Wyoming
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 Federal Savings Bank
America
Neckura Holding Company Germany Administrative services for
Neckura Insurance Company Germany Insurance Company
Neckura Life Insurance Company Germany Life Insurance Company
</TABLE>
69 of 78
<PAGE> 39
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
COMPANY STATE/COUNTRY OF (SEE ATTACHED PRINCIPAL BUSINESS
ORGANIZATION CHART UNLESS
OTHERWISE
INDICATED)
<S> <C> <C> <C>
Nevada Independent Companies- Nevada Workers' compensation
Construction administrative services
Nevada Independent Companies-Health Nevada Workers' compensation
and Nonprofit administrative services
Nevada Independent Companies- Nevada Workers' compensation
Hospitality and Entertainment administrative services
Nevada Independent Companies- Nevada Workers' compensation
Manufacturing administrative 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
Company Insurance Company
SVM Sales GmbH, Neckura Germany Sales support for Neckura
Insurance Group Insurance Group
Union Bond and Trust Company Oregon Oregon state bank with trust
powers
Villanova Capital, Inc. Delaware Holding Company
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>
70 of 78
<PAGE> 40
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
COMPANY STATE/COUNTRY OF (SEE ATTACHED PRINCIPAL BUSINESS
ORGANIZATION 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 Fidelity Advisor Variable Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account Account
* Nationwide Variable Account-6 Ohio Nationwide Life Separate Issuer of Annuity Contracts
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 Ohio Nationwide Life and Annuity Issuer of Life Insurance
Account-A Separate Account Policies
Nationwide VL Separate Ohio Nationwide Life and Annuity Issuer of Life Insurance
Account-B Separate Account Policies
</TABLE>
71 of 78
<PAGE> 41
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
COMPANY STATE/COUNTRY OF (SEE ATTACHED PRINCIPAL BUSINESS
ORGANIZATION CHART UNLESS
OTHERWISE
INDICATED)
<S> <C> <C> <C>
* Nationwide VL Separate Ohio Nationwide Life and Annuity Issuer of Life Insurance
- Account-C Separate Account
Nationwide VL Separate Ohio Nationwide Life and Annuity Issuer of Life Insurance
Account -D 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>
72 OF 78
<PAGE> 42
<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> 43
<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> 44
<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> 45
<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> 46
<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> 47
<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> 48
Item 31. NUMBER OF CONTRACT OWNERS
The number of contract Owners of Qualified and Non-Qualified
Contracts as of April 20, 1999, was 5 and 1, respectively.
Item 32. INDEMNIFICATION
Provision is made in Nationwide's Amended 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
Item 33. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISERS
Not Applicable.
Item 34. PRINCIPAL UNDERWRITER
Not Applicable.
Item 35. LOCATION OF ACCOUNTS AND RECORDS
John Davis
Nationwide Life Insurance Company
One Nationwide Plaza
Columbus, OH 43215
Item 36. MANAGEMENT SERVICES
Not Applicable
Item 37. 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.
(d) Represent 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.
75 of 78
<PAGE> 49
OFFERED BY
NATIONWIDE
LIFE INSURANCE COMPANY
Group Common Stock
Variable Annuity Contracts
Separate Account No. 1
PROSPECTUS
MAY 1, 1999
76 of 78
<PAGE> 50
INDEPENDENT AUDITORS' CONSENT
The Board of Directors of Nationwide Life Insurance Company and
Contract Owners of Nationwide Life Insurance Company Separate Account No. 1:
The audits referred to in our report on Nationwide Life Insurance Company (the
Company) dated January 29, 1999, included the related financial statement
schedules as of December 31, 1998 and for each of the years in the three-year
period ended December 31, 1998, included in the registration statement. These
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statement schedules based on our audits. In our opinion, such financial
statement schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
The audits referred to in our report on Nationwide Life Insurance Company
Separate Account No. 1 dated May 12, 1999, included the related condensed
financial information as of December 31 1998, and for each of the years in the
five-year period ended December 31, 1998, included in the registration
statement. The condensed financial information is the responsibility of the
Company's management. Our responsibility is to express an opinion on the
condensed financial information based on our audits. In our opinion, such
condensed financial information when considered in relation to the basic
financial statements takes as a whole, present fairly in all material respects
the information as set forth therein.
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Investment Advisory and Other Services" in the Statement
of Additional Information.
KPMG LLP
Columbus, Ohio
April 27, 1999
77 of 78
<PAGE> 51
SIGNATURES
As required by the Securities Act of 1933, the Registrant, SEPARATE ACCOUNT NO.
1, certifies that it meets the requirements of Securities Act Rule 485(b) for
effectiveness of this Post-Effective Amendment and has caused this
Post-Effective Amendment to be signed on its behalf in the City of Columbus, and
State of Ohio, on this 27th day of April, 1999.
SEPARATE ACCOUNT NO. 1
------------------------------------------------
(Registrant)
NATIONWIDE LIFE INSURANCE COMPANY
------------------------------------------------
(Insurance Company)
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 27th day
of April, 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 Office 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 By/s/JOSEPH P. RATH
- ------------------------------------------------- ----------------------------
James F. Patterson Joseph P. Rath
Attorney-in-Fact
ARDEN L. SHISLER Director
- -------------------------------------------------
Arden L. Shisler
ROBERT L. STEWART Director
- -------------------------------------------------
Robert L. Stewart
NANCY C. THOMAS Director
- -------------------------------------------------
Nancy C. Thomas
</TABLE>
78 OF 78
