<PAGE> 1
As filed with the Securities and Exchange Commission.
'33 Act File No. 273432
'40 Act File No. 811-2662
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933
Post-Effective Amendment No. 22 [X]
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 23 [X]
MFS VARIABLE ACCOUNT
(Exact Name of Registrant)
NATIONWIDE LIFE INSURANCE COMPANY
(Name of Depositor)
ONE NATIONWIDE PLAZA, COLUMBUS, OHIO 43215
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code: (614) 249-7111
GORDON E. MCCUTCHAN, SECRETARY, ONE NATIONWIDE PLAZA, COLUMBUS, OHIO 43215
(Name and Address of Agent for Service)
This Post-Effective Amendment amends the Registration Statement in
respect of the Prospectus, Statement of Additional Information, and the
Financial Statements.
It is proposed that this filing will become effective (check appropriate space)
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on May 1, 1997 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(i) of Rule 485
[ ] on (date) pursuant to paragraph (a)(i) of Rule 485
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
The Registrant has registered an indefinite number of securities by a
prior registration statement in accordance with Rule 24f-2 under the Investment
Company Act of 1940. Registrant filed its Rule 24f-2 Notice for the fiscal year
ended December 31, 1996, on February 25, 1997.
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MFS VARIABLE ACCOUNT
REFERENCE TO ITEMS REQUIRED BY FORM N-4
<TABLE>
<CAPTION>
N-4 ITEM PAGE
<S> <C> <C>
Part A INFORMATION REQUIRED IN A PROSPECTUS
Item 1. Cover page........................................................................................3
Item 2. Definitions.......................................................................................4
Item 3. Synopsis or Highlights...........................................................................12
Item 4. Condensed Financial Information..................................................................13
Item 5. General Description of Registrant, Depositor, and Portfolio Companies............................28
Item 6. Deductions and Expenses..........................................................................30
Item 7. General Description of Variable Annuity Contracts................................................33
Item 8. Annuity Period...................................................................................36
Item 9. Death Benefit and Distributions..................................................................38
Item 10. Purchases and Contract Value.....................................................................42
Item 11. Redemptions......................................................................................44
Item 12. Taxes............................................................................................45
Item 13. Legal Proceedings................................................................................50
Item 14. Table of Contents of the Statement of Additional Information.....................................50
Part B INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
Item 15. Cover Page.......................................................................................51
Item 16. Table of Contents................................................................................51
Item 17. General Information and History..................................................................51
Item 18. Services.........................................................................................51
Item 19. Purchase of Securities Being Offered.............................................................51
Item 20. Underwriters.....................................................................................52
Item 21. Calculation of Performance Data..................................................................52
Item 22. Annuity Payments.................................................................................52
Item 23. Financial Statements.............................................................................53
Part C OTHER INFORMATION
Item 24. Financial Statements and Exhibits................................................................93
Item 25. Directors and Officers of the Depositor..........................................................95
Item 26. Persons Controlled by or Under Common Control with the Depositor or Registrant...................97
Item 27. Number of Contract Owners.......................................................................107
Item 28. Indemnification.................................................................................107
Item 29. Principal Underwriter...........................................................................107
Item 30. Location of Accounts and Records................................................................110
Item 31. Management Services.............................................................................110
Item 32. Undertakings....................................................................................110
</TABLE>
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NATIONWIDE LIFE INSURANCE COMPANY
Home Office
P.O. Box 16609
Columbus, Ohio 43216-6609
1-800-848-7529, TDD 1-800-238-3035
INDIVIDUAL DEFERRED VARIABLE ANNUITY CONTRACTS
ISSUED BY THE MFS VARIABLE ACCOUNT OF
NATIONWIDE LIFE INSURANCE COMPANY
The Individual Deferred Variable Annuity Contracts described in this
prospectus are flexible Purchase Payment contracts (collectively referred to as
the "Contracts"). The Contracts are sold to individuals for use in retirement
plans which may qualify for special federal tax treatment under the Internal
Revenue Code (the "Code"). Annuity payments under the Contracts are deferred
until a selected later date.
Purchase payments are allocated to the MFS Variable Account ("Variable
Account"), a separate account of Nationwide Life Insurance Company (the
"Company"). The Variable Account uses its assets to purchase shares at net
asset value in one or more of the following series of the underlying Mutual
Fund options:
<TABLE>
<S> <C>
MFS(R) Bond Fund - Class A (Formerly MFS(R) Total Return Fund - Class A (Formerly
Massachusetts Financial Bond Fund) Massachusetts Financial Total Return Trust)
MFS(R) Growth Opportunities Fund - Class A MFS(R) World Governments Fund - Class A
(Formerly MFS(R) Capital Development Fund) (Formerly MFS(R) Worldwide Governments Trust)
MFS(R) Emerging Growth Fund - Class A (Formerly MFS(R) Series Trust IV
Massachusetts Financial Emerging Growth Trust) MFS(R) Money Market Fund
(Formerly Massachusetts Cash
Management Trust - MFS(R) Money
Market Fund)
MFS(R)High Income Fund - Class A Massachusetts Investors Trust - Class A
(Formerly Massachusetts Financial High
Income Trust-I)
MFS(R)Research Fund - Class A Nationwide Separate Account Trust-
Money Market Fund
</TABLE>
This prospectus provides you with the basic information you should know
about the Individual Deferred Variable Annuity Contracts issued by the Variable
Account before investing. You should read it and keep it for future reference.
A Statement of Additional Information dated May 1, 1997, containing further
information about the Contracts and the Variable Account has been filed with
the Securities and Exchange Commission. You can obtain a copy without charge
from Nationwide Life Insurance Company by calling the number listed above, or
writing P. O. Box 16609, Columbus, Ohio 43216-6609.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE STATEMENT OF ADDITIONAL INFORMATION, DATED MAY 1, 1997, IS
INCORPORATED HEREIN BY REFERENCE. THE TABLE OF CONTENTS FOR THE STATEMENT OF
ADDITIONAL INFORMATION APPEARS ON PAGE 48 OF THE PROSPECTUS.
THE DATE OF THIS PROSPECTUS IS MAY 1, 1997.
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GLOSSARY OF SPECIAL TERMS
ACCUMULATION UNIT- An accounting unit of measure used to calculate the Variable
Account Contract Value prior to the Annuitization Date.
ANNUITANT- The person designated to receive annuity payments and upon whose
continuation of life any annuity payment involving life contingencies depends.
The Annuitant is named on the Data Page of the Contract unless changed. No
change of Annuitant may be made without the prior consent of the Company. This
person must be age 78 or younger at the time of contract issuance.
ANNUITIZATION- The period during which annuity payments are actually received.
ANNUITIZATION DATE- The date on which annuity payments actually commence.
ANNUITY COMMENCEMENT DATE-The date on which annuity payments are scheduled to
commence. The Annuity Commencement Date is shown on the Data Page of the
Contract and is subject to change by the Owner.
ANNUITY PAYMENT OPTION-The chosen form of annuity payments. Several options are
available under this Contract. The Annuity Payment Option is named in the
application, unless changed.
ANNUITY UNIT- An accounting unit of measure used to calculate the value of
Variable Annuity payments.
BENEFICIARY-The Beneficiary is the person designated to receive certain
benefits under the Contract upon the death of the Designated Annuitant prior to
the Annuitization Date. The Beneficiary can be changed by the Contract Owner as
set forth in the Contract.
CODE- The Internal Revenue Code of 1986, as amended.
COMPANY- Nationwide Life Insurance Company.
CONTINGENT BENEFICIARY- The Contingent Beneficiary is the person designated to
be the Beneficiary if the named Beneficiary is not living at the time of the
death of the Designated Annuitant.
CONTINGENT DESIGNATED ANNUITANT- The Contingent Designated Annuitant may be the
recipient of certain rights or benefits under this Contract when the Designated
Annuitant dies before the Annuitization Date. If a Contingent Annuitant is
designated, and the Designated Annuitant dies before the Annuitization Date,
the Contingent Designated Annuitant becomes the Designated Annuitant. The
Owner's right to name a Contingent Designated Annuitant may be restricted under
the provisions of any retirement or deferred compensation plan for which this
Contract is issued.
CONTINGENT OWNER- A Contingent Owner succeeds to the right of the Contract
Owner upon the Contract Owner's death before Annuitization. The Owner's right
to name a Contingent Owner may be restricted under the provisions of the
retirement or deferred compensation plan for which this Contract is issued. For
Contracts issued in the state of New York, references throughout this
prospectus to "Contingent Owner" shall mean "Owner's Beneficiary."
CONTRACT- The Individual Deferred Variable Annuity Contract described in this
prospectus.
CONTRACT ANNIVERSARY- An anniversary of the Date of Issue of the Contract.
CONTRACT OWNER (OWNER)-The Contract Owner is the person who possesses all
rights under the Contract, including the right to designate and change any
designations of the Owner, Contingent Owner, Designated Annuitant, (the
Annuitant can not be changed without the consent of the Company), Contingent
Designated Annuitant, Beneficiary, Contingent Beneficiary, Annuity Payment
Option, and the Annuity Commencement Date. If a Joint Owner is named,
references to "Contract Owner" or "Owner" in this prospectus, unless otherwise
indicated, will apply to both the Owner and Joint Owner. The Contract Owner is
the person named on the application, unless changed.
CONTRACT VALUE-The sum of the value of all Accumulation Units attributable to
the Contract plus any amount held under the Contract in the Fixed Account.
CONTRACT YEAR- Each year the Contract remains in force commencing with the Date
of Issue.
DATE OF ISSUE- The date shown as the Date of Issue on the Contract Data Page of
the Contract.
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DEATH BENEFIT- The benefit payable upon the death of the Designated Annuitant
(or the Contingent Designated Annuitant, if applicable). The benefit does not
apply upon the death of the Contract Owner when the Owner and Designated
Annuitant are not the same person. If the Annuitant dies after the
Annuitization Date, any benefit that may be payable shall be as specified in
the Annuity Payment Option elected.
DESIGNATED ANNUITANT- The person designated prior to the Annuitization Date to
receive annuity payments. No change of Designated Annuitant may be made without
the prior consent of the Company.
DISTRIBUTION-Any payment of part or all of the Contract Value.
ERISA- The Employee Retirement Income Security Act of 1974, as amended.
FIXED ACCOUNT- The Fixed Account is made up of all assets of the Company other
than those in the Variable Account or in any other segregated asset account of
the Company.
FIXED ANNUITY- An annuity providing for payments which are guaranteed by the
Company as to dollar amount during Annuitization.
HOME OFFICE- The main office of the Company located in Columbus, Ohio.
INDIVIDUAL RETIREMENT ANNUITY (IRA)-An annuity which qualifies for favorable
tax treatment under Section 408 of the Code.
MUTUAL FUND (FUND)-A registered management investment company in which the
assets of the Sub-Accounts of the variable account will be invested.
NON-QUALIFIED CONTRACT -A Contract which does not qualify for favorable tax
treatment under Sections 401, 408, or 403(b) of the Code.
PURCHASE PAYMENT- A deposit of new value into the Contract. The term "Purchase
Payment" does not include transfers between the Variable Account and the Fixed
Account, or among the Sub-Accounts.
QUALIFIED CONTRACT- A Contract issued to a Qualified Plan.
QUALIFIED PLAN- Retirement plans which receive favorable tax treatment under
the provisions, Sections 401 or 403(a) of the Code.
SEP IRA- A retirement plan which receives favorable tax treatment under the
provisions of Section 408(k) of the Code.
SUB-ACCOUNTS- Separate and distinct divisions of the Variable Account, to which
specific underlying Mutual Fund shares are allocated and for which Accumulation
Units and Annuity Units are separately maintained.
TAX SHELTERED ANNUITY-An annuity which qualifies for favorable tax treatment
under Section 403(b) of the Code.
UNIFIED BILLING AUTHORITY- A program established to collect, and electronically
forward to the Company, Purchase Payments from multiple employers whose
employees have authorized regular Purchase Payments to Tax Sheltered Annuity
Contracts pursuant to a payroll deduction authorization, resulting in the
systematic updating of each Contract Owner's Contract Value and record of
Purchase Payments on a predetermined basis. Unified Billing Authorities may be
established (on a statewide basis) on behalf of school districts and school
district employees within certain states.
VALUATION DATE- Each day the New York Stock Exchange and the Company's Home
Office are open for business or any other day during which there is a
sufficient degree of trading of the Variable Account underlying Mutual Fund
shares that the current net asset value of its Accumulation Units might be
materially affected.
VALUATION PERIOD- The period of time commencing at the close of business of a
Valuation Date and ending at the close of business for the next succeeding
Valuation Date.
VARIABLE ACCOUNT-The MFS Variable Account, a separate investment account of the
Company into which Variable Account Purchase Payments are allocated. The
Variable Account is divided into Sub-Accounts, each of which invests in shares
of a separate underlying Mutual Fund.
VARIABLE ANNUITY- An annuity providing for payments which vary in amount with
the investment experience of the Variable Account.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
GLOSSARY OF SPECIAL TERMS.............................................................................................2
SUMMARY OF CONTRACT EXPENSES..........................................................................................6
UNDERLYING MUTUAL FUND ANNUAL EXPENSES................................................................................6
SYNOPSIS.............................................................................................................10
CONDENSED FINANCIAL INFORMATION......................................................................................11
NATIONWIDE LIFE INSURANCE COMPANY....................................................................................26
THE VARIABLE ACCOUNT.................................................................................................26
Underlying Mutual Fund Options..............................................................................26
Voting Rights...............................................................................................28
VARIABLE ACCOUNT CHARGES, PURCHASE PAYMENTS, AND OTHER DEDUCTIONS....................................................28
Mortality Risk Charge.......................................................................................28
Expense Risk Charge.........................................................................................28
Contingent Deferred Sales Charge............................................................................29
Waiver of Contingent Deferred Sales Charge..................................................................29
Contract Maintenance Charge.................................................................................30
Premium Taxes...............................................................................................30
Expenses of Variable Account................................................................................30
Investments of the Variable Account.........................................................................31
Right to Revoke.............................................................................................31
Transfers...................................................................................................31
Assignment..................................................................................................32
Loan Privilege..............................................................................................32
Beneficiary Provisions......................................................................................33
Ownership Provisions........................................................................................34
Substitution of Securities..................................................................................34
Contract Owner Inquiries....................................................................................34
ANNUITY PAYMENT PERIOD-VARIABLE ACCOUNT..............................................................................34
Value of an Annuity Unit....................................................................................35
Assumed Investment Rate.....................................................................................35
Frequency and Amount of Annuity Payments....................................................................35
Annuity Commencement Date...................................................................................35
Change in Annuity Commencement Date.........................................................................35
Annuity Payment Options.....................................................................................35
Death of Contract Owner.....................................................................................36
Death Benefit Prior to the Annuitization Date...............................................................37
Death Benefit After the Annuitization Date..................................................................37
Required Distribution for Qualified Plans or Tax Sheltered Annuities........................................37
Required Distributions for Individual Retirement Annuities and SEP-IRA's....................................38
Generation-Skipping Transfers...............................................................................39
GENERAL INFORMATION..................................................................................................39
Contract Owner Services.....................................................................................39
Statements and Reports......................................................................................40
Allocation of Purchase Payments and Contract Value..........................................................40
Value of an Accumulation Unit...............................................................................41
Net Investment Factor.......................................................................................41
Valuation of Assets.........................................................................................41
Determining the Contract Value..............................................................................41
Surrender (Redemption)......................................................................................42
Surrenders Under a Qualified Plan or Tax Sheltered Annuity Contract.........................................42
Federal Tax Considerations..................................................................................43
Non-Qualified Contracts - Natural Persons as Owners.........................................................43
Non-Qualified Contracts - Non-Natural Persons as Owners.....................................................45
Qualified Plans, Individual Retirement Annuities, and Tax Sheltered Annuities...............................45
Withholding.................................................................................................46
Non-Resident Aliens.........................................................................................46
Federal Estate, Gift and Generation Skipping Transfer Taxes.................................................46
</TABLE>
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<TABLE>
<S> <C>
Charge for Tax Provisions...................................................................................47
Diversification.............................................................................................47
Tax Changes.................................................................................................47
LEGAL PROCEEDINGS....................................................................................................48
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION.............................................................48
</TABLE>
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SUMMARY OF CONTRACT EXPENSES
<TABLE>
<S> <C>
CONTRACT OWNER TRANSACTION EXPENSES
Maximum Contingent Deferred Sales Charge(1).................................................. 5%
ANNUAL CONTRACT MAINTENANCE CHARGE(2)............................................................... $30
VARIABLE ACCOUNT ANNUAL EXPENSES
Mortality and Expense Risk Charges........................................................... 1.30%
Administration Charge........................................................................ .00%
Total Variable Account Annual Expenses................................................... 1.30%
</TABLE>
1 Starting with the second year, after a Purchase Payment has been made,
the Contract Owner may withdraw without a Contingent Deferred Sales
Charge (CDSC), the greater of (a) an amount equal to 10% of that
Purchase Payment, or (b) any amount withdrawn in order for the Contract
to meet minimum distribution requirements under the Code. Withdrawals
may be restricted for Contracts issued pursuant to the terms of a Tax
Sheltered Annuity or other Qualified Plan. This CDSC-free withdrawal is
non-cumulative; that is, free amounts not taken during any given
Contract Year cannot be taken as free amounts in a subsequent Contract
Year. (see "Contingent Deferred Sales Charge" for additional
provisions).
2 The annual Contract Maintenance Charge is deducted on each Contract
Anniversary and in any year in which the entire Contract Value is
surrendered on the date of Surrender (see "Contract Maintenance
Charge"). For Tax Sheltered Annuity Contracts issued on or after the
later of May 1, 1997, or the date on which state insurance authorities
approve applicable contractual modifications, the Contract Maintenance
Charge shall be waived in those states in which a Unified Billing
Authority Program, or any such similar program, is being utilized to
process Purchase Payments.
UNDERLYING MUTUAL FUND ANNUAL EXPENSES(3)
(AFTER EXPENSE REIMBURSEMENT)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
TOTAL PORTFOLIO
MANAGEMENT OTHER 12B-1 COMPANY
FEES EXPENSES FEES EXPENSES
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MFS(R)BOND FUND - CLASS A 0.40% 0.33% 0.30% 1.03%
- ---------------------------------------------------------------------------------------------------------------
MFS(R)GROWTH OPPORTUNITIES FUND - CLASS A 0.43% 0.29% 0.15% 0.87%
- ---------------------------------------------------------------------------------------------------------------
MFS(R)EMERGING GROWTH FUND - CLASS A 0.75% 0.28% 0.25% 1.28%
- ---------------------------------------------------------------------------------------------------------------
MFS(R)HIGH INCOME FUND - CLASS A 0.45% 0.34% 0.26% 1.05%
- ---------------------------------------------------------------------------------------------------------------
MFS(R)RESEARCH FUND - CLASS A 0.36% 0.23% 0.34% 0.93%
- ---------------------------------------------------------------------------------------------------------------
MFS(R)TOTAL RETURN FUND - CLASS A 0.38% 0.20% 0.35% 0.93%
- ---------------------------------------------------------------------------------------------------------------
MFS(R)WORLD GOVERNMENTS FUND - CLASS A 0.90% 0.36% 0.25% 1.51%
- ---------------------------------------------------------------------------------------------------------------
MFS(R) SERIES TRUST IV
MFS(R)MONEY MARKET FUND 0.48% 0.31% 0.00% 0.79%
- ---------------------------------------------------------------------------------------------------------------
MASSACHUSETTS INVESTORS GROWTH STOCK FUND -
CLASS A 0.31% 0.23% 0.19% 0.73%
- ---------------------------------------------------------------------------------------------------------------
MASSACHUSETTS INVESTORS TRUST - CLASS A 0.26% 0.20% 0.32% 0.78%
- ---------------------------------------------------------------------------------------------------------------
NATIONWIDE SEPARATE ACCOUNT TRUST - MONEY MARKET 0.50% 0.03% 0.00% 0.53%
FUND
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
3 The Mutual Fund expenses shown above are assessed at the underlying Mutual
Fund level and are not direct charges against separate account assets or
reductions from contract values. These underlying Mutual Fund expenses are
taken into consideration in computing each underlying Mutual Fund's net
asset value, which is the share price used to calculate the unit values of
the Variable Account. The following funds are subject to fee waivers or
expense reimbursement arrangements:
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<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
FUND EXPENSES WITHOUT REIMBURSEMENT OR WAVIER
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
MFS(R)Bond Fund - Class A The Fund has an expense offset arrangement which reduces the
Fund's custodian fee based upon the amount of cash maintained
by the Fund with its custodian and dividend disbursing agent,
and may enter into other such arrangements and directed
brokerage arrangements (which would also have the effect of
reducing the Fund's expenses). Any such fee reductions are not
reflected under "Other Expenses."
- ------------------------------------------------------------------------------------------------------------------------
MFS(R)Growth Opportunities Fund - Class A The Fund has adopted a Distribution Plan which provides that it
will pay certain distribution/service fees aggregating up to
0.35% per annum of the average daily net assets. Currently,
0.10% of the distribution/service fee is being waived.
Additionally, absent any expense reductions, the Fund's total
operating expenses would have been 0.96%.
- ------------------------------------------------------------------------------------------------------------------------
MFS(R)Emerging Growth Fund - Class A The Fund has an expense offset arrangement which reduces the
Fund's custodian fee based upon the amount of cash maintained
by the Fund with its custodian and dividend disbursing agent,
and may enter into other such arrangements and directed
brokerage arrangements (which would also have the effect of
reducing the Fund's expenses). Any such fee reductions are not
reflected under "Other Expenses."
- ------------------------------------------------------------------------------------------------------------------------
MFS(R)High Income Fund - Class A The Fund has an expense offset arrangement which reduces the
Fund's custodian fee based upon the amount of cash maintained
by the Fund with its custodian and dividend disbursing agent,
and may enter into other such arrangements and directed
brokerage arrangements (which would also have the effect of
reducing the Fund's expenses). Any such fee reductions are not
reflected under "Other Expenses."
- ------------------------------------------------------------------------------------------------------------------------
MFS(R)Research Fund - Class A The Fund has adopted a Distribution Plan which provides that it
will pay certain distribution/service fees aggregating up to
0.35% per annum of the average daily net assets. The 0.35% per
annum distribution/service fee is reduced to 0.25% per annum
for shares which were purchased prior to March 1, 1991.
Distribution expenses paid under this Plan, together with the
initial sales charge, may cause long-term shareholders to pay
more than the maximum sales charge that would have been
permissible if imposed entirely as an initial sales charge.
- ------------------------------------------------------------------------------------------------------------------------
MFS(R)Total Return Fund - Class A The Fund has adopted a Distribution Plan which provides that it
will pay certain distribution/service fees aggregating up to
0.35% per annum of the average daily net assets. The 0.35% per
annum distribution/service fee is reduced to 0.25% per annum
for shares which were purchased prior to October 1, 1989.
Distribution expenses paid under this Plan, together with the
initial sales charge, may cause long-term shareholders to pay
more than the maximum sales charge that would have been
permissible if imposed entirely as an initial sales charge.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
FUND EXPENSES WITHOUT REIMBURSEMENT OR WAVIER
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
MFS(R)World Governments Fund - Class A The Fund has an expense offset arrangement which reduces the
Fund's custodian fee based upon the amount of cash maintained
by the Fund with its custodian and dividend disbursing agent,
and may enter into other such arrangements and directed
brokerage arrangements (which would also have the effect of
reducing the Fund's expenses). Any such fee reductions are not
reflected under "Other Expenses."
- ------------------------------------------------------------------------------------------------------------------------
Massachusetts Investors Growth Stock Fund - Class A The Fund has an expense offset arrangement which reduces the
Fund's custodian fee based upon the amount of cash maintained
by the Fund with its custodian and dividend disbursing agent,
and may enter into other such arrangements and directed
brokerage arrangements (which would also have the effect of
reducing the Fund's expenses). Any such fee reductions are not
reflected under "Other Expenses."
- ------------------------------------------------------------------------------------------------------------------------
Massachusetts Investors Trust - Class A The Fund has adopted a Distribution Plan which provides that it
will pay distribution/service fees aggregating up to 0.35% per
annum of the average daily net assets attributable to the
Fund's shares. The Fund is currently paying distribution fees
in the amount of 0.075%. The 0.25% per annum service fee is
reduced to 0.15% per annum for shares purchased prior to
January 2, 1991. Additionally, the Fund has an expense offset
arrangement which reduces the Fund's custodian fee based upon
the amount of cash maintained by the Fund with its custodian
and dividend disbursing agent, and may enter into other such
arrangements and directed brokerage arrangements (which would
also have the effect of reducing the Fund's expenses). Any
such fee reductions are not reflected under "Other Expenses."
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The information relating to the underlying Mutual Fund expenses was provided by
the underlying Mutual Fund and was not independently verified by the Company.
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EXAMPLE
The following chart depicts the dollar amount of expenses that would be
incurred under this Contract assuming a $1000 initial Purchase Payment 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 lesser than those shown below. The expense amounts shown below are
derived from a formula which allows the $30 Contract Maintenance Charge to be
expressed as a percentage of the average contract account size for existing
contracts. Since the average contract account size for contracts issued under
this prospectus is greater than $1000, the expense effect of the Contract
Maintenance Charge is reduced accordingly.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
IF YOU SURRENDER YOUR CONTRACT IF YOU DO NOT SURRENDER YOUR IF YOU ANNUITIZE YOUR CONTRACT
AT THE END OF THE APPLICABLE CONTRACT AT THE END OF THE AT THE END OF THE APPLICABLE
TIME PERIOD APPLICABLE TIME PERIOD TIME PERIOD
-----------------------------------------------------------------------------------------------
1 YR. 3 YRS. 5 YRS. 10 YRS. 1 YR. 3 YRS. 5 YRS. 10 YRS. 1 YR. 3 YRS. 5 YRS. 10 YRS.
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MFS(R)Bond 72 114 158 253 22 69 118 253 69 118 253
Fund-Class A *
- -----------------------------------------------------------------------------------------------------------------
MFS(R) Growth
Opportunities 72 113 157 251 22 68 117 251 * 68 117 251
Fund-Class A
- -----------------------------------------------------------------------------------------------------------------
MFS(R) Emerging
Growth 75 123 173 284 25 78 133 284 * 78 133 284
Fund-Class A
- -----------------------------------------------------------------------------------------------------------------
MFS(R) High Income
Fund-Class A 73 116 161 259 23 71 121 259 * 71 121 259
- -----------------------------------------------------------------------------------------------------------------
MFS(R)Research 71 109 150 237 21 64 110 237 64 110 237
Fund-Class A *
- -----------------------------------------------------------------------------------------------------------------
MFS(R) Total
Return 71 109 150 236 21 64 110 236 * 64 110 236
Fund-Class A
- -----------------------------------------------------------------------------------------------------------------
MFS(R) World
Governments 78 130 185 308 28 85 145 308 * 85 145 308
Fund-Class A
- -----------------------------------------------------------------------------------------------------------------
MFS(R) Series
Trust IV - MFS(R)
Money Market Fund 73 116 161 259 23 71 121 259 * 71 121 259
- -----------------------------------------------------------------------------------------------------------------
Mass. Investors
Growth Stock 70 108 148 232 20 63 108 232 * 63 108 232
Fund-Class A
- -----------------------------------------------------------------------------------------------------------------
Mass. Investors 69 105 143 223 19 60 103 223 * 60 103 223
Trust-Class A
- -----------------------------------------------------------------------------------------------------------------
Nationwide 70 107 147 231 20 62 107 231 * 62 107 231
Separate
Account- Money
Market Fund
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
* The Contracts sold under this prospectus do not permit Annuitization during
the first two Contract years.
The purpose of the Summary of Contract Expenses and Example are to assist
the Contract Owner in understanding the various costs and expenses that will
be borne directly or indirectly. The expenses of the MFS Variable Account as
well as those of the underlying Mutual Funds are reflected in the table. For
more complete descriptions of the expenses of the Variable Account, see
"Variable Account Charges, Purchase Payments, and Other Deductions." For
more complete information regarding expenses paid out of the assets of a
particular underlying Mutual Fund option, see the underlying Mutual Fund's
prospectus. Deductions for premium taxes may also apply but are not
reflected in the Example shown on the previous page (see "Premium Taxes").
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<PAGE> 12
SYNOPSIS
The Company does not deduct a sales charge from Purchase Payments made
for these Contracts. However, if any part of the Contract Value of such
Contracts is surrendered, the Company will, with certain exceptions, deduct
from the Contract Owner's Contract Value a Contingent Deferred Sales Charge
equal to 5% of the lesser of the total of all Purchase Payments made within 96
months prior to the date of the request to surrender, or the amount
surrendered. This charge, when applicable, is imposed to permit the Company to
recover sales expenses which have been advanced by the Company (see "Contingent
Deferred Sales Charge").
In addition, on each Contract Anniversary the Company will deduct an
annual Contract Maintenance Charge of $30 from the Contract Value of the
Contracts. The $30 Contract Maintenance Charge will be waived if the Purchase
Payments made under a Tax Sheltered Annuity Contract are processed through a
Unified Billing Authority. (This waiver is available for Tax Sheltered Annuity
Contracts issued on or after the later of May 1, 1997 or the date on which the
insurance authorities in a state having a Unified Billing Authority approve
applicable contract modifications.) This charge is to reimburse the Company for
administrative expenses related to the issue and maintenance of the Contracts.
The Company does not expect to recover from these charges an amount in excess
of accumulated administrative expenses (see "Contract Maintenance Charge").
The Company deducts a Mortality Risk Premium equal to an annual rate of
0.80% of the daily net asset value of the Variable Account for mortality risk
assumed by the Company (see "Mortality Risk Premium").
The Company deducts an Expense Risk Charge equal to an annual rate of
0.50% of the daily net asset value of the Variable Account as compensation for
the Company's risk in undertaking not to increase administrative charges on the
Contracts regardless of the actual administrative costs (see "Expense Risk
Charge").
The initial first year Purchase Payment must be at least $1,500 for
Non-Qualified Contracts. However, if periodic payments are expected by the
Company, this initial first year minimum may be satisfied by Purchase Payments
made on an annualized basis. The cumulative total of all Purchase Payments
under Contracts issued on the life of any one Designated Annuitant may not
exceed $1,000,000 without the prior consent of the Company (see "Allocation of
Purchase Payments and Contract Value").
Upon Annuitization the selected Annuity Payment Option will begin (see
"Annuity Payment Option"). However, if the net amount to be applied to any
Annuity Payment Option the Annuitization Date is less than $500, the Contract
Value may be distributed in one lump sum in lieu of annuity payments. If any
annuity payment would be less than $20, the Company shall have the right to
change the frequency of payments to such intervals as will result in payments
of at least $20. In no event, however, will annuity payments be made less
frequently than annually (see "Frequency and Amount of Annuity Payments").
Premium taxes payable to any governmental entity will be charged against
the Contracts. If any such premium taxes are payable by the Company at the time
Purchase Payments are made, an equal premium tax deduction may be made from the
Contract prior to the allocation of any Purchase Payment to any underlying
Mutual Fund option (see "Premium Taxes").
To be sure that the Contract Owner is satisfied with the Contract, the
Contract Owner has a ten day free look. Within ten days of the day the Contract
is received, it may be returned to the Home Office of the Company, at the
address shown on page 1 of this prospectus. If the Contract is returned to the
Company in a timely manner, the Company will void the Contract and refund the
Contract Value in full, unless otherwise required by state and/or federal law.
State and/or federal law may provide additional free look privileges. All
Individual Retirement Annuity refunds will be a return of Purchase Payments
(see "Right to Revoke").
10
12 of 113
<PAGE> 13
CONDENSED FINANCIAL INFORMATION
Accumulation Unit Values
(For an accumulation unit outstanding throughout the period)
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE UNIT VALUE ACCUMULATION
AT BEGINNING AT END UNITS AT END
FUND OF PERIOD OF PERIOD OF THE PERIOD YEAR
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MFS Series Trust IV 33.101565 34.325389 0 1996
-----------------------------------------------------------------------------
o MFS(R)Money Market 31.765828 33.101565 0 1995
-----------------------------------------------------------------------------
Fund-Q* 30.994333 31.765828 0 1994
-----------------------------------------------------------------------------
30.575287 30.994333 0 1993
-----------------------------------------------------------------------------
29.974326 30.575287 0 1992
-----------------------------------------------------------------------------
28.674122 29.974326 0 1991
-----------------------------------------------------------------------------
26.882238 28.674122 0 1990
-----------------------------------------------------------------------------
24.951768 26.882238 0 1989
-----------------------------------------------------------------------------
23.537669 24.951768 0 1988
-----------------------------------------------------------------------------
22.391979 23.537669 258 1987
-----------------------------------------------------------------------------
MFS Series Trust IV 33.966291 35.222087 4,058 1996
-----------------------------------------------------------------------------
o MFS(R)Money Market 32.595660 33.966291 5,703 1995
-----------------------------------------------------------------------------
Fund-NQ* 31.804010 32.595660 8,788 1994
-----------------------------------------------------------------------------
31.374016 31.804010 10,894 1993
-----------------------------------------------------------------------------
30.757355 31.374016 21,348 1992
-----------------------------------------------------------------------------
29.423184 30.757355 22,044 1991
-----------------------------------------------------------------------------
27.584489 29.423184 34,393 1990
-----------------------------------------------------------------------------
25.603588 27.584489 35,921 1989
-----------------------------------------------------------------------------
24.152548 25.603588 47,516 1988
-----------------------------------------------------------------------------
22.976926 24.152548 38,413 1987
-----------------------------------------------------------------------------
MFS Series Trust IV 29.055232 30.037656 1,343,440 1996
-----------------------------------------------------------------------------
o MFS(R)Money Market 27.967294 29.055232 1,630,393 1995
-----------------------------------------------------------------------------
Fund-QS* 27.370768 27.967294 2,012,165 1994
-----------------------------------------------------------------------------
27.082782 27.370768 2,386,518 1993
-----------------------------------------------------------------------------
26.631168 27.082782 3,346,894 1992
-----------------------------------------------------------------------------
25.553415 26.631168 4,316,381 1991
-----------------------------------------------------------------------------
24.029764 25.553415 5,619,586 1990
-----------------------------------------------------------------------------
22.371742 24.029764 6,212,230 1989
-----------------------------------------------------------------------------
21.167833 22.371742 7,703,094 1988
-----------------------------------------------------------------------------
20.198699 21.167833 8,942,048 1987
- ------------------------------------------------------------------------------------------------------
</TABLE>
* The 7-day yield on the MFS Series Trust IV - MFS(R) Money Market Fund as
of December 31, 1996 was 3.37%.
11
13 of 113
<PAGE> 14
CONDENSED FINANCIAL INFORMATION, Continued
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE UNIT VALUE ACCUMULATION
AT BEGINNING AT END UNITS AT END
FUND OF PERIOD OF PERIOD OF THE PERIOD YEAR
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MFS Series Trust IV 29.075421 30.058530 615,505 1996
-----------------------------------------------------------------------------
o MFS(R)Money Market 27.986728 29.075421 597,925 1995
-----------------------------------------------------------------------------
Fund-NQS* 27.389788 27.986728 823,383 1994
-----------------------------------------------------------------------------
27.101602 27.389788 962,484 1993
-----------------------------------------------------------------------------
26.649674 27.101602 1,251,049 1992
-----------------------------------------------------------------------------
25.571172 26.649674 1,661,279 1991
-----------------------------------------------------------------------------
24.046461 25.571172 2,007,134 1990
-----------------------------------------------------------------------------
22.387287 24.046461 2,137,971 1989
-----------------------------------------------------------------------------
21.182540 22.387287 3,088,244 1988
-----------------------------------------------------------------------------
20.212734 21.182540 4,195,980 1987
- ------------------------------------------------------------------------------------------------------
MFS(R)Bond Fund-Class 48.229836 49.627094 0 1996
-----------------------------------------------------------------------------
A-Q 40.103391 48.229836 0 1995
-----------------------------------------------------------------------------
42.399834 40.103391 254 1994
-----------------------------------------------------------------------------
37.614804 42.399834 255 1993
-----------------------------------------------------------------------------
35.745806 37.614804 255 1992
-----------------------------------------------------------------------------
30.588668 35.745806 256 1991
-----------------------------------------------------------------------------
28.810284 30.588668 261 1990
-----------------------------------------------------------------------------
25.635091 28.810284 261 1989
-----------------------------------------------------------------------------
23.902587 25.635091 460 1988
-----------------------------------------------------------------------------
24.281790 23.902587 835 1987
- ------------------------------------------------------------------------------------------------------
MFS(R)Bond Fund-Class 50.922705 52.397975 3,321 1996
-----------------------------------------------------------------------------
A-NQ 42.342529 50.922705 596 1995
-----------------------------------------------------------------------------
44.767184 42.342529 450 1994
-----------------------------------------------------------------------------
39.714988 44.767184 1,068 1993
-----------------------------------------------------------------------------
37.741633 39.714988 1,400 1992
-----------------------------------------------------------------------------
32.296567 37.741633 2,161 1991
-----------------------------------------------------------------------------
30.418889 32.296567 2,290 1990
-----------------------------------------------------------------------------
27.066400 30.418889 4,117 1989
-----------------------------------------------------------------------------
25.237169 27.066400 3,385 1988
-----------------------------------------------------------------------------
25.637550 25.237169 16,179 1987
- ------------------------------------------------------------------------------------------------------
</TABLE>
12
14 of 113
<PAGE> 15
CONDENSED FINANCIAL INFORMATION, Continued
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE UNIT VALUE ACCUMULATION
AT BEGINNING AT END UNITS AT END
FUND OF PERIOD OF PERIOD OF THE PERIOD YEAR
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MFS(R)Bond Fund-Class 43.808005 44.939826 509,516 1996
-----------------------------------------------------------------------------
A-QS 36.536936 43.808005 613,426 1995
-----------------------------------------------------------------------------
38.746280 36.536936 715,452 1994
-----------------------------------------------------------------------------
34.477915 38.746280 873,520 1993
-----------------------------------------------------------------------------
32.864457 34.477915 1,019,209 1992
-----------------------------------------------------------------------------
28.208302 32.864457 1,231,635 1991
-----------------------------------------------------------------------------
26.649337 28.208302 1,282,139 1990
-----------------------------------------------------------------------------
23.784006 26.649337 1,684,129 1989
-----------------------------------------------------------------------------
22.243883 23.784006 1,982,290 1988
-----------------------------------------------------------------------------
22.665333 22.243883 1,903,237 1987
- ------------------------------------------------------------------------------------------------------
MFS(R) 43.772192 44.903088 208,403 1996
-----------------------------------------------------------------------------
Bond Fund-Class A-NQS 36.507070 43.772192 267,129 1995
-----------------------------------------------------------------------------
38.714601 36.507070 278,445 1994
-----------------------------------------------------------------------------
34.449725 38.714601 341,506 1993
-----------------------------------------------------------------------------
32.837584 34.449725 395,096 1992
-----------------------------------------------------------------------------
28.185248 32.837584 416,135 1991
-----------------------------------------------------------------------------
26.627561 28.185248 423,448 1990
-----------------------------------------------------------------------------
23.764566 26.627561 571,151 1989
-----------------------------------------------------------------------------
22.225695 23.764566 653,935 1988
-----------------------------------------------------------------------------
22.646797 22.225695 772,335 1987
- ------------------------------------------------------------------------------------------------------
MFS(R)Bond Fund-Class 43.943375 45.078692 1,597 1996
-----------------------------------------------------------------------------
A-NQS 36.649839 43.943375 4,145 1995
-----------------------------------------------------------------------------
(81-225) 38.865999 36.649839 4,892 1994
-----------------------------------------------------------------------------
34.584435 38.865999 10,550 1993
-----------------------------------------------------------------------------
32.965982 34.584435 10,644 1992
-----------------------------------------------------------------------------
28.295444 32.965982 13,375 1991
-----------------------------------------------------------------------------
26.731671 28.295444 13,709 1990
-----------------------------------------------------------------------------
23.857482 26.731671 21,797 1989
-----------------------------------------------------------------------------
22.312590 23.857482 26,355 1988
-----------------------------------------------------------------------------
22.735342 22.312590 40,610 1987
- ------------------------------------------------------------------------------------------------------
</TABLE>
13
15 of 113
<PAGE> 16
CONDENSED FINANCIAL INFORMATION, Continued
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE UNIT VALUE ACCUMULATION
AT BEGINNING AT END UNITS AT END
FUND OF PERIOD OF PERIOD OF THE PERIOD YEAR
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Massachusetts Investors 101.007177 125.889283 16 1996
-----------------------------------------------------------------------------
Trust-Class A-Q 73.217470 101.007177 16 1995
-----------------------------------------------------------------------------
74.716077 73.217470 17 1994
-----------------------------------------------------------------------------
68.591640 74.716077 17 1993
-----------------------------------------------------------------------------
64.520969 68.591640 17 1992
-----------------------------------------------------------------------------
51.047405 64.520969 17 1991
-----------------------------------------------------------------------------
51.615906 51.047405 17 1990
-----------------------------------------------------------------------------
38.300069 51.615906 17 1989
-----------------------------------------------------------------------------
35.047213 38.300069 181 1988
-----------------------------------------------------------------------------
32.943205 35.047213 343 1987
- ------------------------------------------------------------------------------------------------------
Massachusetts Investors 95.313498 118.793035 0 1996
-----------------------------------------------------------------------------
Trust-Class A-NQ 69.090265 95.313498 0 1995
-----------------------------------------------------------------------------
70.504398 69.090265 0 1994
-----------------------------------------------------------------------------
64.725197 70.504398 33 1993
-----------------------------------------------------------------------------
60.883987 64.725197 33 1992
-----------------------------------------------------------------------------
48.169920 60.883987 0 1991
-----------------------------------------------------------------------------
48.706376 48.169920 0 1990
-----------------------------------------------------------------------------
36.141141 48.706376 727 1989
-----------------------------------------------------------------------------
33.071646 36.141141 727 1988
-----------------------------------------------------------------------------
31.086228 33.071646 8,861 1987
- ------------------------------------------------------------------------------------------------------
Massachusetts Investors 81.308640 101.029680 331,572 1996
-----------------------------------------------------------------------------
Trust-Class A-QS 59.116939 81.308640 350,277 1995
-----------------------------------------------------------------------------
60.509797 59.116939 373,587 1994
-----------------------------------------------------------------------------
55.718475 60.509797 402,085 1993
-----------------------------------------------------------------------------
52.571200 55.718475 438,578 1992
-----------------------------------------------------------------------------
41.719131 52.571200 470,627 1991
-----------------------------------------------------------------------------
42.312382 41.719131 447,641 1990
-----------------------------------------------------------------------------
31.491587 42.312382 448,766 1989
-----------------------------------------------------------------------------
28.904326 31.491587 481,558 1988
-----------------------------------------------------------------------------
27.251667 28.904326 614,029 1987
- ------------------------------------------------------------------------------------------------------
</TABLE>
14
16 of 113
<PAGE> 17
CONDENSED FINANCIAL INFORMATION, Continued
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE UNIT VALUE ACCUMULATION
AT BEGINNING AT END UNITS AT END
FUND OF PERIOD OF PERIOD OF THE PERIOD YEAR
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Massachusetts Investors 72.953374 90.647891 96,073 1996
-----------------------------------------------------------------------------
Trust-Class A-NQS 53.042089 72.953374 100,239 1995
-----------------------------------------------------------------------------
54.291825 53.042089 87,519 1994
-----------------------------------------------------------------------------
49.992851 54.291825 95,048 1993
-----------------------------------------------------------------------------
47.168983 49.992851 107,558 1992
-----------------------------------------------------------------------------
37.432067 47.168983 390,819 1991
-----------------------------------------------------------------------------
37.964354 37.432067 388,337 1990
-----------------------------------------------------------------------------
28.255508 37.964354 411,620 1989
-----------------------------------------------------------------------------
25.934117 28.255508 408,442 1988
-----------------------------------------------------------------------------
24.451286 25.934117 483,763 1987
- ------------------------------------------------------------------------------------------------------
Massachusetts Investors 77.505736 96.304396 2,037 1996
-----------------------------------------------------------------------------
Trust-Class A-NQS 56.351973 77.505736 2,696 1995
-----------------------------------------------------------------------------
(81-225) 57.679687 56.351973 4,013 1994
-----------------------------------------------------------------------------
53.112457 57.679687 7,320 1993
-----------------------------------------------------------------------------
50.112374 53.112457 8,418 1992
-----------------------------------------------------------------------------
39.767862 50.112374 8,657 1991
-----------------------------------------------------------------------------
40.333366 39.767862 8,698 1990
-----------------------------------------------------------------------------
30.018672 40.333366 9,643 1989
-----------------------------------------------------------------------------
27.552431 30.018672 11,011 1988
-----------------------------------------------------------------------------
25.977075 27.552431 11,213 1987
- ------------------------------------------------------------------------------------------------------
Massachusetts Investors 101.860531 123.869113 0 1996
-----------------------------------------------------------------------------
Growth Stock Fund-Class 80.166185 101.860531 0 1995
-----------------------------------------------------------------------------
A-Q 86.815888 80.166185 0 1994
-----------------------------------------------------------------------------
76.611479 86.815888 0 1993
-----------------------------------------------------------------------------
72.701980 76.611479 582 1992
-----------------------------------------------------------------------------
49.712553 72.701980 583 1991
-----------------------------------------------------------------------------
52.714394 49.712553 584 1990
-----------------------------------------------------------------------------
39.228702 52.714394 584 1989
-----------------------------------------------------------------------------
38.061552 39.228702 585 1988
-----------------------------------------------------------------------------
36.324086 38.061552 586 1987
- ------------------------------------------------------------------------------------------------------
</TABLE>
15
17 of 113
<PAGE> 18
CONDENSED FINANCIAL INFORMATION, Continued
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE UNIT VALUE ACCUMULATION
AT BEGINNING AT END UNITS AT END
FUND OF PERIOD OF PERIOD OF THE PERIOD YEAR
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Massachusetts Investors 77.839871 94.658415 498 1996
-----------------------------------------------------------------------------
Growth Stock Fund-Class 61.261465 77.839871 1,043 1995
-----------------------------------------------------------------------------
A-NQ 66.343035 61.261465 1,043 1994
-----------------------------------------------------------------------------
58.545028 66.343035 2,615 1993
-----------------------------------------------------------------------------
55.557463 58.545028 2,874 1992
-----------------------------------------------------------------------------
37.989389 55.557463 3,000 1991
-----------------------------------------------------------------------------
40.283347 37.989389 2,248 1990
-----------------------------------------------------------------------------
29.977822 40.283347 4,948 1989
-----------------------------------------------------------------------------
29.085907 29.977822 2,751 1988
-----------------------------------------------------------------------------
27.758162 29.085907 3,063 1987
- ------------------------------------------------------------------------------------------------------
Massachusetts Investors 82.628565 100.175691 297,134 1996
-----------------------------------------------------------------------------
Growth Stock Fund-Class 65.227303 82.628565 333,893 1995
-----------------------------------------------------------------------------
A-QS 70.852048 65.227303 375,617 1994
-----------------------------------------------------------------------------
62.713932 70.852048 411,227 1993
-----------------------------------------------------------------------------
59.694705 62.713932 450,956 1992
-----------------------------------------------------------------------------
40.942088 59.694705 472,708 1991
-----------------------------------------------------------------------------
43.546733 40.942088 457,230 1990
-----------------------------------------------------------------------------
32.504355 43.546733 499,859 1989
-----------------------------------------------------------------------------
31.632940 32.504355 526,502 1988
-----------------------------------------------------------------------------
30.280685 31.632940 702,181 1987
- ------------------------------------------------------------------------------------------------------
Massachusetts Investors 70.114570 85.004193 86,801 1996
-----------------------------------------------------------------------------
Growth Stock Fund-Class 55.348697 70.114570 102,114 1995
-----------------------------------------------------------------------------
A-NQS 60.121583 55.348697 116,628 1994
-----------------------------------------------------------------------------
53.215976 60.121583 132,123 1993
-----------------------------------------------------------------------------
50.654002 53.215976 154,986 1992
-----------------------------------------------------------------------------
34.741451 50.654002 119,500 1991
-----------------------------------------------------------------------------
36.951616 34.741451 124,361 1990
-----------------------------------------------------------------------------
27.581591 36.951616 152,198 1989
-----------------------------------------------------------------------------
26.842147 27.581591 148,306 1988
-----------------------------------------------------------------------------
25.694695 26.842147 234,983 1987
- ------------------------------------------------------------------------------------------------------
</TABLE>
16
18 of 113
<PAGE> 19
CONDENSED FINANCIAL INFORMATION, Continued
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE UNIT VALUE ACCUMULATION
AT BEGINNING AT END UNITS AT END
FUND OF PERIOD OF PERIOD OF THE PERIOD YEAR
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Massachusetts Investors 76.380777 92.601102 5,470 1996
-----------------------------------------------------------------------------
Growth Stock Fund-Class 60.295273 76.380777 5,945 1995
-----------------------------------------------------------------------------
A-NQS 65.494712 60.295273 2,505 1994
-----------------------------------------------------------------------------
(81-225) 57.971950 65.494712 3,382 1993
-----------------------------------------------------------------------------
55.181022 57.971950 7,430 1992
-----------------------------------------------------------------------------
37.846336 55.181022 6,225 1991
-----------------------------------------------------------------------------
40.254029 37.846336 6,677 1990
-----------------------------------------------------------------------------
30.046604 40.254029 9,992 1989
-----------------------------------------------------------------------------
29.241076 30.046604 14,248 1988
-----------------------------------------------------------------------------
27.991066 29.241076 23,815 1987
- ------------------------------------------------------------------------------------------------------
MFS(R)Research Fund- 126.019031 155.285363 0 1996
-----------------------------------------------------------------------------
Class A-Q 91.844201 126.019031 0 1995
-----------------------------------------------------------------------------
92.760008 91.844201 0 1994
-----------------------------------------------------------------------------
77.006871 92.760008 0 1993
-----------------------------------------------------------------------------
69.993098 77.006871 0 1992
-----------------------------------------------------------------------------
53.307836 69.993098 0 1991
-----------------------------------------------------------------------------
57.290901 53.307836 0 1990
-----------------------------------------------------------------------------
45.882915 57.290901 0 1989
-----------------------------------------------------------------------------
42.019162 45.882915 0 1988
-----------------------------------------------------------------------------
40.283065 42.019162 80 1987
- ------------------------------------------------------------------------------------------------------
MFS(R)Research Fund- 100.977005 124.427653 110 1996
-----------------------------------------------------------------------------
Class A-NQ 73.593263 100.977005 599 1995
-----------------------------------------------------------------------------
74.327082 73.593263 599 1994
-----------------------------------------------------------------------------
61.704356 74.327082 807 1993
-----------------------------------------------------------------------------
56.084333 61.704356 600 1992
-----------------------------------------------------------------------------
42.714695 56.084333 660 1991
-----------------------------------------------------------------------------
45.906255 42.714695 663 1990
-----------------------------------------------------------------------------
36.765224 45.906255 768 1989
-----------------------------------------------------------------------------
33.669260 36.765224 2,107 1988
-----------------------------------------------------------------------------
32.278146 33.669260 2,381 1987
- ------------------------------------------------------------------------------------------------------
</TABLE>
17
19 of 113
<PAGE> 20
CONDENSED FINANCIAL INFORMATION, Continued
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE UNIT VALUE ACCUMULATION
AT BEGINNING AT END UNITS AT END
FUND OF PERIOD OF PERIOD OF THE PERIOD YEAR
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MFS(R)Research Fund- 100.013750 122.865333 283,320 1996
-----------------------------------------------------------------------------
Class A-QS 73.111959 100.013750 270,229 1995
-----------------------------------------------------------------------------
74.064821 73.111959 285,624 1994
-----------------------------------------------------------------------------
61.673295 74.064821 262,270 1993
-----------------------------------------------------------------------------
56.226647 61.673295 278,528 1992
-----------------------------------------------------------------------------
42.952906 56.226647 308,259 1991
-----------------------------------------------------------------------------
46.303111 42.952906 341,148 1990
-----------------------------------------------------------------------------
37.195214 46.303111 406,916 1989
-----------------------------------------------------------------------------
34.166322 37.195214 490,200 1988
-----------------------------------------------------------------------------
32.854259 34.166322 598,337 1987
- ------------------------------------------------------------------------------------------------------
MFS(R)Research Fund- 87.388917 107.355935 105,263 1996
-----------------------------------------------------------------------------
Class A-NQS 63.882963 87.388917 100,973 1995
-----------------------------------------------------------------------------
64.715547 63.882963 97,012 1994
-----------------------------------------------------------------------------
53.888228 64.715547 87,152 1993
-----------------------------------------------------------------------------
49.129110 53.888228 77,535 1992
-----------------------------------------------------------------------------
37.530937 49.129110 81,372 1991
-----------------------------------------------------------------------------
40.458230 37.530937 87,510 1990
-----------------------------------------------------------------------------
32.500035 40.458230 123,218 1989
-----------------------------------------------------------------------------
29.853469 32.500035 163,490 1988
-----------------------------------------------------------------------------
28.707029 29.853469 249,792 1987
- ------------------------------------------------------------------------------------------------------
MFS(R)Research Fund- 98.846334 121.431177 1,676 1996
-----------------------------------------------------------------------------
Class A-NQS 72.258548 98.846334 1,591 1995
-----------------------------------------------------------------------------
(81-225) 73.200301 72.258548 1,727 1994
-----------------------------------------------------------------------------
60.953415 73.200301 1,975 1993
-----------------------------------------------------------------------------
55.570339 60.953415 1,996 1992
-----------------------------------------------------------------------------
42.451540 55.570339 2,041 1991
-----------------------------------------------------------------------------
45.762638 42.451540 5,210 1990
-----------------------------------------------------------------------------
36.761058 45.762638 5,773 1989
-----------------------------------------------------------------------------
33.767510 36.761058 8,143 1988
-----------------------------------------------------------------------------
32.470754 33.767510 10,087 1987
- ------------------------------------------------------------------------------------------------------
</TABLE>
18
20 of 113
<PAGE> 21
CONDENSED FINANCIAL INFORMATION, Continued
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE UNIT VALUE ACCUMULATION
AT BEGINNING AT END UNITS AT END
FUND OF PERIOD OF PERIOD OF THE PERIOD YEAR
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MFS(R)Total Return Fund- 79.840336 90.602325 131 1996
-----------------------------------------------------------------------------
Class A-Q 63.581031 79.840336 131 1995
-----------------------------------------------------------------------------
65.964662 63.581031 132 1994
-----------------------------------------------------------------------------
57.871052 65.964662 132 1993
-----------------------------------------------------------------------------
53.108093 57.871052 132 1992
-----------------------------------------------------------------------------
44.107591 53.108093 132 1991
-----------------------------------------------------------------------------
45.615581 44.107591 133 1990
-----------------------------------------------------------------------------
37.441206 45.615581 133 1989
-----------------------------------------------------------------------------
32.875946 37.441206 544 1988
-----------------------------------------------------------------------------
32.075563 32.875946 134 1987
- ------------------------------------------------------------------------------------------------------
MFS(R)Total Return Fund- 78.457598 89.033201 0 1996
-----------------------------------------------------------------------------
Class A-NQ 62.479885 78.457598 87 1995
-----------------------------------------------------------------------------
64.822235 62.479885 87 1994
-----------------------------------------------------------------------------
56.868802 64.822235 317 1993
-----------------------------------------------------------------------------
52.188320 56.868802 712 1992
-----------------------------------------------------------------------------
43.343699 52.188320 534 1991
-----------------------------------------------------------------------------
44.825581 43.343699 535 1990
-----------------------------------------------------------------------------
36.792773 44.825581 1,456 1989
-----------------------------------------------------------------------------
32.306577 36.792773 2,385 1988
-----------------------------------------------------------------------------
31.520064 32.306577 2,431 1987
- ------------------------------------------------------------------------------------------------------
MFS(R)Total Return Fund- 73.411912 83.053566 671,118 1996
-----------------------------------------------------------------------------
Class A-QS 58.638949 73.411912 782,272 1995
-----------------------------------------------------------------------------
61.021714 58.638949 902,191 1994
-----------------------------------------------------------------------------
53.697197 61.021714 998,970 1993
-----------------------------------------------------------------------------
49.427627 53.697197 977,013 1992
-----------------------------------------------------------------------------
41.175343 49.427627 950,358 1991
-----------------------------------------------------------------------------
42.712979 41.175343 942,653 1990
-----------------------------------------------------------------------------
35.164779 42.712979 1,082,672 1989
-----------------------------------------------------------------------------
30.970695 35.164779 1,047,263 1988
-----------------------------------------------------------------------------
30.308462 30.970695 1,161,132 1987
- ------------------------------------------------------------------------------------------------------
</TABLE>
19
21 of 113
<PAGE> 22
CONDENSED FINANCIAL INFORMATION, Continued
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE UNIT VALUE ACCUMULATION
AT BEGINNING AT END UNITS AT END
FUND OF PERIOD OF PERIOD OF THE PERIOD YEAR
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MFS(R)Total Return Fund- 71.060281 80.393080 167,776 1996
-----------------------------------------------------------------------------
Class A-NQS 56.760546 71.060281 199,257 1995
-----------------------------------------------------------------------------
59.066983 56.760546 224,713 1994
-----------------------------------------------------------------------------
51.977095 59.066983 272,164 1993
-----------------------------------------------------------------------------
47.844295 51.977095 229,777 1992
-----------------------------------------------------------------------------
39.856354 47.844295 216,586 1991
-----------------------------------------------------------------------------
41.344744 39.856354 234,543 1990
-----------------------------------------------------------------------------
34.038338 41.344744 299,175 1989
-----------------------------------------------------------------------------
29.978604 34.038338 310,907 1988
-----------------------------------------------------------------------------
29.337595 29.978604 385,086 1987
- ------------------------------------------------------------------------------------------------------
MFS(R)Total Return Fund- 72.697711 82.245565 1,979 1996
-----------------------------------------------------------------------------
Class A-NQS 58.068470 72.697711 1,863 1995
-----------------------------------------------------------------------------
(81-225) 60.428053 58.068470 2,258 1994
-----------------------------------------------------------------------------
53.174791 60.428053 3,580 1993
-----------------------------------------------------------------------------
48.946754 53.174791 3,681 1992
-----------------------------------------------------------------------------
40.774760 48.946754 2,990 1991
-----------------------------------------------------------------------------
42.297442 40.774760 3,950 1990
-----------------------------------------------------------------------------
34.822674 42.297442 7,074 1989
-----------------------------------------------------------------------------
30.669397 34.822674 9,076 1988
-----------------------------------------------------------------------------
30.013610 30.669397 9,443 1987
- ------------------------------------------------------------------------------------------------------
MFS(R)Growth 140.810582 169.873726 0 1996
-----------------------------------------------------------------------------
Opportunities Fund- 105.450698 140.810582 0 1995
-----------------------------------------------------------------------------
Class A-Q 111.450698 105.450698 0 1994
-----------------------------------------------------------------------------
96.886717 111.450698 0 1993
-----------------------------------------------------------------------------
90.866062 96.886717 59 1992
-----------------------------------------------------------------------------
74.980776 90.866062 60 1991
-----------------------------------------------------------------------------
79.192602 74.980776 60 1990
-----------------------------------------------------------------------------
62.255086 79.192602 60 1989
-----------------------------------------------------------------------------
57.676664 62.255086 61 1988
-----------------------------------------------------------------------------
56.051797 57.676664 119 1987
- ------------------------------------------------------------------------------------------------------
</TABLE>
2
22 of 113
<PAGE> 23
CONDENSED FINANCIAL INFORMATION, Continued
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE UNIT VALUE ACCUMULATION
AT BEGINNING AT END UNITS AT END
FUND OF PERIOD OF PERIOD OF THE PERIOD YEAR
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MFS(R)Growth 103.553065 124.926291 2,724 1996
-----------------------------------------------------------------------------
Opportunities Fund- 77.773322 103.553065 2,642 1995
-----------------------------------------------------------------------------
Class A-NQ 81.961605 77.773322 2,807 1994
-----------------------------------------------------------------------------
71.251149 81.961605 2,923 1993
-----------------------------------------------------------------------------
66.823526 71.251149 3,217 1992
-----------------------------------------------------------------------------
55.141372 66.823526 3,285 1991
-----------------------------------------------------------------------------
58.238773 55.141372 3,209 1990
-----------------------------------------------------------------------------
45.782811 58.238773 4,173 1989
-----------------------------------------------------------------------------
42.415808 45.782811 5,496 1988
-----------------------------------------------------------------------------
41.220874 42.415808 8,031 1987
- ------------------------------------------------------------------------------------------------------
MFS(R)Growth 96.595726 116.177967 822,246 1996
-----------------------------------------------------------------------------
Opportunities Fund- 72.767772 96.595725 920,477 1995
-----------------------------------------------------------------------------
Class A-QS 76.918993 72.767772 1,029,309 1994
-----------------------------------------------------------------------------
67.070484 76.918993 1,187,377 1993
-----------------------------------------------------------------------------
63.094003 67.070484 1,351,519 1992
-----------------------------------------------------------------------------
52.221717 63.094003 1,533,160 1991
-----------------------------------------------------------------------------
55.323366 52.221717 1,718,069 1990
-----------------------------------------------------------------------------
43.622463 55.323366 2,056,593 1989
-----------------------------------------------------------------------------
40.536877 43.622463 2,481,997 1988
-----------------------------------------------------------------------------
39.514677 40.536877 3,061,737 1987
- ------------------------------------------------------------------------------------------------------
MFS(R)Growth 82.052560 98.686554 182,479 1996
-----------------------------------------------------------------------------
Opportunities Fund- 61.812074 82.052560 206,611 1995
-----------------------------------------------------------------------------
Class A-NQS 65.338300 61.812074 214,829 1994
-----------------------------------------------------------------------------
56.972537 65.338300 241,558 1993
-----------------------------------------------------------------------------
53.594751 56.972537 284,420 1992
-----------------------------------------------------------------------------
44.359372 53.594751 319,081 1991
-----------------------------------------------------------------------------
46.994048 44.359372 322,668 1990
-----------------------------------------------------------------------------
37.054798 46.994048 420,211 1989
-----------------------------------------------------------------------------
34.433775 37.054798 547,737 1988
-----------------------------------------------------------------------------
33.565477 34.433775 741,946 1987
- ------------------------------------------------------------------------------------------------------
</TABLE>
21
23 of 113
<PAGE> 24
CONDENSED FINANCIAL INFORMATION, Continued
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE UNIT VALUE ACCUMULATION
AT BEGINNING AT END UNITS AT END
FUND OF PERIOD OF PERIOD OF THE PERIOD YEAR
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MFS(R)Growth 90.535764 108.889502 14,732 1996
-----------------------------------------------------------------------------
Opportunities Fund- 68.202665 90.535764 15,064 1995
-----------------------------------------------------------------------------
Class A-NQS 72.093454 68.202665 16,083 1994
-----------------------------------------------------------------------------
(81-225) 62.862782 72.093454 20,590 1993
-----------------------------------------------------------------------------
59.135771 62.862782 23,039 1992
-----------------------------------------------------------------------------
48.945558 59.135771 26,387 1991
-----------------------------------------------------------------------------
51.852634 48.945558 32,466 1990
-----------------------------------------------------------------------------
40.885800 51.852634 43,143 1989
-----------------------------------------------------------------------------
37.993791 40.885800 63,217 1988
-----------------------------------------------------------------------------
37.035722 37.993791 82,010 1987
- ------------------------------------------------------------------------------------------------------
MFS(R)High Income Fund- 57.498253 64.068571 0 1996
-----------------------------------------------------------------------------
Class A-Q 49.574586 57.498253 0 1995
-----------------------------------------------------------------------------
51.425517 49.574586 0 1994
-----------------------------------------------------------------------------
43.507773 51.425517 0 1993
-----------------------------------------------------------------------------
37.547955 43.507773 0 1992
-----------------------------------------------------------------------------
25.471529 37.547955 0 1991
-----------------------------------------------------------------------------
30.899937 25.471529 0 1990
-----------------------------------------------------------------------------
31.842604 30.899937 0 1989
-----------------------------------------------------------------------------
28.627030 31.842604 0 1988
-----------------------------------------------------------------------------
28.833132 28.627030 471 1987
- ------------------------------------------------------------------------------------------------------
MFS(R)High Income Fund- 57.870879 64.483775 358 1996
-----------------------------------------------------------------------------
Class A-NQ 49.895862 57.870879 359 1995
-----------------------------------------------------------------------------
51.758789 49.895862 359 1994
-----------------------------------------------------------------------------
43.789729 51.758789 721 1993
-----------------------------------------------------------------------------
37.791286 43.789729 360 1992
-----------------------------------------------------------------------------
25.636591 37.791286 360 1991
-----------------------------------------------------------------------------
31.100170 25.636591 697 1990
-----------------------------------------------------------------------------
32.048950 31.100170 698 1989
-----------------------------------------------------------------------------
28.812532 32.048950 699 1988
-----------------------------------------------------------------------------
29.019971 28.812532 5,039 1987
- ------------------------------------------------------------------------------------------------------
</TABLE>
22
24 of 113
<PAGE> 25
CONDENSED FINANCIAL INFORMATION, Continued
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE UNIT VALUE ACCUMULATION
AT BEGINNING AT END UNITS AT END
FUND OF PERIOD OF PERIOD OF THE PERIOD YEAR
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MFS(R)High Income Fund- 50.886631 56.528677 408,255 1996
-----------------------------------------------------------------------------
Class A-QS 44.007083 50.886631 488,470 1995
-----------------------------------------------------------------------------
45.788518 44.007083 561,209 1994
-----------------------------------------------------------------------------
38.856280 45.788518 709,698 1993
-----------------------------------------------------------------------------
33.635599 38.856280 764,118 1992
-----------------------------------------------------------------------------
22.886614 33.635599 797,975 1991
-----------------------------------------------------------------------------
27.848883 22.886614 914,811 1990
-----------------------------------------------------------------------------
28.785308 27.848883 1,535,254 1989
-----------------------------------------------------------------------------
25.956938 28.785308 1,979,053 1988
-----------------------------------------------------------------------------
26.223147 25.956938 2,331,207 1987
- ------------------------------------------------------------------------------------------------------
MFS(R)High Income Fund- 50.114634 55.671087 176,997 1996
-----------------------------------------------------------------------------
Class A-NQS 43.339456 50.114634 188,820 1995
-----------------------------------------------------------------------------
45.093866 43.339456 200,368 1994
-----------------------------------------------------------------------------
38.266802 45.093866 252,674 1993
-----------------------------------------------------------------------------
33.125330 38.266802 263,452 1992
-----------------------------------------------------------------------------
22.539408 33.125330 268,775 1991
-----------------------------------------------------------------------------
27.426394 22.539408 301,912 1990
-----------------------------------------------------------------------------
28.348616 27.426394 494,597 1989
-----------------------------------------------------------------------------
25.563163 28.348616 708,091 1988
-----------------------------------------------------------------------------
25.825328 25.563163 968,782 1987
- ------------------------------------------------------------------------------------------------------
MFS(R)High Income Fund- 50.886631 56.528677 6,379 1996
-----------------------------------------------------------------------------
Class A-NQS 44.007083 50.886631 6,442 1995
-----------------------------------------------------------------------------
(81-225) 45.788518 44.007083 6,622 1994
-----------------------------------------------------------------------------
38.856280 45.788518 9,385 1993
-----------------------------------------------------------------------------
33.635599 38.856280 9,545 1992
-----------------------------------------------------------------------------
22.886614 33.635599 9,353 1991
-----------------------------------------------------------------------------
27.848883 22.886614 10,384 1990
-----------------------------------------------------------------------------
28.785308 27.848883 25,607 1989
-----------------------------------------------------------------------------
25.956938 28.785308 31,809 1988
-----------------------------------------------------------------------------
26.223147 25.956938 37,240 1987
- ------------------------------------------------------------------------------------------------------
</TABLE>
23
25 of 113
<PAGE> 26
CONDENSED FINANCIAL INFORMATION, Continued
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE UNIT VALUE ACCUMULATION
AT BEGINNING AT END UNITS AT END
FUND OF PERIOD OF PERIOD OF THE PERIOD YEAR
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MFS(R)World 48.914346 50.880072 143,438 1996
-----------------------------------------------------------------------------
Governments Fund- 42.911877 48.914346 184,796 1995
-----------------------------------------------------------------------------
Class A-QS 46.532702 42.911877 229,107 1994
-----------------------------------------------------------------------------
39.821939 46.532702 272,388 1993
-----------------------------------------------------------------------------
39.811131 39.821939 260,769 1992
-----------------------------------------------------------------------------
35.563134 39.811131 271,803 1991
-----------------------------------------------------------------------------
30.561450 35.563134 315,655 1990
-----------------------------------------------------------------------------
28.837079 30.561450 304,967 1989
-----------------------------------------------------------------------------
27.989113 28.837079 371,673 1988
-----------------------------------------------------------------------------
22.769485 27.989113 478,189 1987
- ------------------------------------------------------------------------------------------------------
MFS(R)World 47.688325 49.604787 22,367 1996
-----------------------------------------------------------------------------
Governments Fund- 41.836304 47.688325 36,927 1995
-----------------------------------------------------------------------------
Class A-NQS 45.366368 41.836304 44,619 1994
-----------------------------------------------------------------------------
38.823817 45.366368 57,120 1993
-----------------------------------------------------------------------------
38.813287 38.823817 42,828 1992
-----------------------------------------------------------------------------
34.671762 38.813287 35,166 1991
-----------------------------------------------------------------------------
29.795448 34.671762 54,896 1990
-----------------------------------------------------------------------------
28.114297 29.795448 40,122 1989
-----------------------------------------------------------------------------
27.287568 28.114297 62,275 1988
-----------------------------------------------------------------------------
22.198779 27.287568 102,749 1987
- ------------------------------------------------------------------------------------------------------
MFS(R)World 48.838310 50.800980 1,811 1996
-----------------------------------------------------------------------------
Governments Fund- 42.845163 48.838310 2,763 1995
-----------------------------------------------------------------------------
Class A-NQS 46.460353 42.845163 3,284 1994
-----------------------------------------------------------------------------
(81-225) 39.760030 46.460353 3,684 1993
-----------------------------------------------------------------------------
39.749239 39.760030 4,274 1992
-----------------------------------------------------------------------------
35.507853 39.749239 5,904 1991
-----------------------------------------------------------------------------
30.513949 35.507853 7,450 1990
-----------------------------------------------------------------------------
28.792251 30.513949 8,327 1989
-----------------------------------------------------------------------------
27.945600 28.792251 16,716 1988
-----------------------------------------------------------------------------
22.734095 27.945600 18,919 1987
- ------------------------------------------------------------------------------------------------------
</TABLE>
24
26 of 113
<PAGE> 27
CONDENSED FINANCIAL INFORMATION, Continued
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE UNIT VALUE ACCUMULATION
AT BEGINNING AT END UNITS AT END
FUND OF PERIOD OF PERIOD OF THE PERIOD YEAR
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nationwide Separate 21.961256 22.783414 55,730 1996
-----------------------------------------------------------------------------
Account Trust Money 21.058716 21.961256 60,928 1995
-----------------------------------------------------------------------------
Market Fund-QS*** 20.538004 21.058716 72,621 1994
-----------------------------------------------------------------------------
20.250996 20.538004 98,132 1993
-----------------------------------------------------------------------------
19.842272 20.250996 126,024 1992
-----------------------------------------------------------------------------
18.996144 19.842272 148,883 1991
-----------------------------------------------------------------------------
17.809654 18.996144 178,554 1990
-----------------------------------------------------------------------------
16.542684 17.809654 219,694 1989
-----------------------------------------------------------------------------
15.617124 16.542684 233,421 1988
-----------------------------------------------------------------------------
14.865508 15.617124 279,386 1987
- ------------------------------------------------------------------------------------------------------
Nationwide Separate 21.975540 22.798231 32,499 1996
-----------------------------------------------------------------------------
Account Trust Money 21.072414 21.975540 36,289 1995
-----------------------------------------------------------------------------
Market Fund-NQS*** 20.551361 21.072414 41,143 1994
-----------------------------------------------------------------------------
20.264167 20.551361 57,208 1993
-----------------------------------------------------------------------------
19.855177 20.264167 63,453 1992
-----------------------------------------------------------------------------
19.008499 19.855177 71,910 1991
-----------------------------------------------------------------------------
17.821238 19.008499 92,012 1990
-----------------------------------------------------------------------------
16.553443 17.821238 121,035 1989
-----------------------------------------------------------------------------
15.627283 16.553443 150,709 1988
-----------------------------------------------------------------------------
14.875184 15.627283 180,554 1987
- ------------------------------------------------------------------------------------------------------
MFS(R)Emerging Growth 30.247061 34.264981 437,204 1996
-----------------------------------------------------------------------------
Trust-Class A-QS 21.706658 30.247061 424,049 1995
-----------------------------------------------------------------------------
20.977470 21.706658 400,564 1994
-----------------------------------------------------------------------------
16.755110 20.977490 285,804 1993
-----------------------------------------------------------------------------
15.782125 16.755110 288,500 1992
-----------------------------------------------------------------------------
9.396802 15.782125 222,326 1991
-----------------------------------------------------------------------------
10.753988 9.396802 112,582 1990
-----------------------------------------------------------------------------
8.662733 10.753988 172,308 1989
-----------------------------------------------------------------------------
7.647091 8.662733 183,533 1988
-----------------------------------------------------------------------------
10.000000 7.647091 149,255 1987
- ------------------------------------------------------------------------------------------------------
MFS(R)Emerging Growth 30.247061 34.264981 675 1996
-----------------------------------------------------------------------------
Trust-Class A-NQS 21.706658 30.247061 474 1995
-----------------------------------------------------------------------------
(81-225) 20.977490 21.706658 474 1994
-----------------------------------------------------------------------------
16.755110 20.977490 1,237 1993
-----------------------------------------------------------------------------
15.782125 16.755110 762 1992
-----------------------------------------------------------------------------
9.396802 15.782125 1,140 1991
-----------------------------------------------------------------------------
10.753988 9.396802 0 1990
-----------------------------------------------------------------------------
8.662733 10.753988 2,575 1989
-----------------------------------------------------------------------------
7.647091 8.662733 775 1988
-----------------------------------------------------------------------------
10.000000 7.647091 1,521 1987
- ------------------------------------------------------------------------------------------------------
</TABLE>
*** The 7-day yield on the Nationwide Separate Account Trust-Money Market
Fund as of December 31, 1996, was 3.64%.
25
27 of 113
<PAGE> 28
NATIONWIDE LIFE INSURANCE COMPANY
The Company is a stock life insurance company organized under the laws
of the State of Ohio in March, 1929. The Company is a member of the "Nationwide
Insurance Enterprise", with its Home Office at One Nationwide Plaza, Columbus,
Ohio 43216-6609. The Company offers a complete line of life insurance,
including annuities and accident and health insurance. It is admitted to do
business in all states, the District of Columbia, and Puerto Rico.
The Company is ranked and rated by independent financial rating
services, among which are Moody's, Standard & Poor's, and A.M. Best Company.
The purpose of these ratings is to reflect the financial strength or
claims-paying ability of the Company. The ratings are not intended to reflect
the investment experience or financial strength of the Variable Account. The
Company may advertise these ratings in sales literature from time to time.
THE VARIABLE ACCOUNT
The Variable Account was established by the Company on March 3, 1976,
pursuant to the provisions of Ohio law. The Company has caused the Variable
Account to be registered with the Securities and Exchange Commission as a Unit
Investment Trust pursuant to the provisions of the Investment Company Act of
1940. Such registration does not involve supervision of the management of the
Variable Account or the Company by the Securities and Exchange Commission.
The Variable Account is a separate investment account of the Company and
as such, is not chargeable with liabilities arising out of any other business
the Company may conduct. The Company does not guarantee the investment
performance of the Variable Account. Obligations under the Contracts, however,
are obligations of the Company. Income, gains and losses, whether or not
realized, from the assets of the Variable Account are, in accordance with the
Contracts, credited to or charged against the Variable Account without regard
to other income, gains, or losses of the Company.
Purchase payments are allocated within the Variable Account among one or
more Sub-Accounts made up of shares in the underlying Mutual Funds, as
designated by the Contract Owner. There are two or more Sub-Accounts within the
Variable Account for each of the underlying Mutual Fund options which may be
designated by the Contract Owner. Some of these Sub-Accounts contain the
underlying Mutual Fund shares attributable to Accumulation Units under
Qualified Contracts and other Sub-Accounts contain the underlying Mutual Fund
shares attributable to Accumulation Units under Non-Qualified Contracts.
UNDERLYING MUTUAL FUND OPTIONS
Contract Owners may choose from among a number of different underlying
Mutual Fund options. More detailed information may be found in the current
prospectus for each underlying Mutual Fund offered. Such a prospectus for the
underlying Mutual Fund option(s) should be read in conjunction with this
prospectus. A copy of each prospectus may be obtained without charge from
Nationwide Life Insurance Company by calling 1-800-848-7529, TDD 1-800-238-3035
or writing P.O. Box 16609, Columbus, Ohio 43216-6609.
The Investment Adviser for all of the underlying Mutual Fund, except the
Nationwide Separate Account Trust Money Market Fund, is Massachusetts Financial
Service Company, 500 Boylston Street, Boston, Massachusetts 02116.
- - MFS(R) BOND FUND-CLASS A (FORMERLY MASSACHUSETTS FINANCIAL BOND FUND)
Investment Objective: To provide a high level of current income for
distribution to investors as is believed to be consistent with prudent
investment risk. An additional objective is to seek protection of investor's
capital.
- - MFS(R) GROWTH OPPORTUNITIES FUND-CLASS A
(FORMERLY MFS(R) CAPITAL DEVELOPMENT FUND)
Investment Objective: To seek growth of capital. The selection of
securities is made solely on the basis of potential for capital appreciation.
Dividend income, if any, is incidental to the objective of growth capital.
26
28 of 113
<PAGE> 29
- - MFS(R) EMERGING GROWTH FUND-CLASS A (FORMERLY MASSACHUSETTS FINANCIAL
EMERGING GROWTH TRUST)
Investment Objective: To seek long-term growth of capital. The selection
of securities is made solely on the basis of potential for growth of capital.
Dividend and interest income from portfolio securities, if any, is incidental
to the investment objective of long-term growth of capital.
The Contract Owner may allocate to the Fund either new Purchase Payments
or Contract Values attributable to Purchase Payments made on or after January
1, 1981.
- - MFS(R) HIGH INCOME FUND-CLASS A (FORMERLY MASSACHUSETTS FINANCIAL HIGH INCOME
TRUST-SERIES I)
Investment Objective: To seek high current income by investing primarily
in a professionally managed diversified portfolio of fixed income securities,
some of which may involve equity features. Securities offering the high current
income sought by the Fund are ordinarily in the lower rating categories of
recognized rating agencies or are unrated and generally involve greater
volatility of price and risk of principal and income than securities in the
higher rating categories. Capital growth is a consideration incidental to the
investment objective of high current income.
- - MFS(R) RESEARCH FUND-CLASS A
Investment Objective: To provide long-term growth of capital and future
income. As a secondary objective the Fund will attempt to provide more current
dividend income than is normally obtainable from a portfolio of growth stocks
only.
- - MFS(R) TOTAL RETURN FUND-CLASS A (FORMERLY MASSACHUSETTS FINANCIAL TOTAL
RETURN TRUST)
Investment Objective: To obtain above-average income consistent with
what management believes to be prudent employment of capital. While current
income is the primary objective, the Fund believes that there also should be a
reasonable opportunity for growth of capital and income, since many securities
offering a better-than-average yield may possess growth potential.
- - MFS(R) WORLD GOVERNMENTS FUND-CLASS A (FORMERLY MFS(R) WORLDWIDE GOVERNMENTS
TRUST)
Investment Objective: To seek not only preservation, but also growth of
capital, together with moderate current income through a professionally managed
internationally diversified portfolio consisting primarily of debt securities
and, to a lesser extent, equity securities. The Fund is designed for investors
who wish to diversify their investments beyond the United States and who are
prepared to accept the risks entailed in such investments which may be higher
than those associated with certain U.S. investments. See "Special
Considerations" section in the MFI-B Prospectus.
- - MFS SERIES TRUST IV o MFS(R) MONEY MARKET FUND (FORMERLY MASSACHUSETTS CASH
MANAGEMENT TRUST)
Investment Objective: To seek as high a level of current income as is
considered consistent with the preservation of capital and liquidity. The Fund
intends to invest in money market instruments, including United States
government securities, obligations of the larger banks, prime commercial paper
and high-grade, short-term corporate obligations.
- - MASSACHUSETTS INVESTORS GROWTH STOCK FUND-CLASS A
Investment Objective: To provide long-term growth of capital and future
income rather than current income return. To achieve this objective it is the
policy of the Fund to keep its assets invested, except for working cash
balances, in the common stocks, or securities convertible into common stocks,
of companies believed by the management to possess better-than-average
prospects for long-term growth. Emphasis is placed on the selection of
progressive, well-managed companies.
- - MASSACHUSETTS INVESTORS TRUST-CLASS A
Investment Objective: To provide reasonable current income and long-term
growth of capital and income. The Fund is believed to constitute a conservative
medium for that portion of an investor's capital which he wishes to have
invested in common stocks considered to be high or improving investment
quality.
Each of the above Mutual Funds receives investment advice from
Massachusetts Financial Services Company, which is paid for its services by the
Mutual Funds.
27
29 of 113
<PAGE> 30
- - NATIONWIDE SEPARATE ACCOUNT TRUST-MONEY MARKET FUND
Nationwide Separate Account Trust is a diversified open-end management
investment company created under the laws of Massachusetts. The Nationwide
Separate Account Trust Money Market Fund is managed by Nationwide Financial
Services, Inc. of One Nationwide Plaza, Columbus, Ohio 43215, a wholly-owned
subsidiary of the Company. The Fund offers shares in four separate Mutual
Funds, one being the Money Market Fund.
Investment Objective: To seek as high a level of current income as is
considered consistent with the preservation of capital and liquidity by
investing primarily in money market instruments.
The Fund receives investment advice from Nationwide Advisory Services,
Inc., which is paid for its services by the Fund.
VOTING RIGHTS
Voting rights under the Contracts apply ONLY with respect to Purchase
Payments or accumulated amounts allocated to the Variable Account.
In accordance with its view of present applicable law, the Company will
vote the shares of the underlying Mutual Funds held in the Variable Account at
regular and special meetings of the shareholders of the underlying Mutual
Funds. These shares will be voted in accordance with instructions received
from Contract Owners who have an interest in the Variable Account. If the
Investment Company Act of 1940 or any regulation thereunder should be amended
or if the present interpretation thereof should change, and as a result the
Company determines that it is permitted to vote the shares of the underlying
Mutual Funds in its own right, it may elect to do so.
The Contract Owner shall be the person who has the voting interest under
the Contract. The number of underlying Mutual Fund shares attributable to each
Contract Owner is determined by dividing the Contract Owner's interest in each
respective Sub-Account of the Variable Account by the net asset value of the
underlying Mutual Fund corresponding to the Sub-Account. The number of shares
which a person has the right to vote will be determined as of the date to be
chosen by the Company not more than 90 days prior to the meeting of the
underlying Mutual Fund. Each person having a voting interest will receive
periodic reports relating to the underlying Mutual Fund, proxy material and a
form with which to give such voting instructions.
Voting instructions will be solicited by written communication at least
21 days prior to such meeting. Underlying Mutual Fund shares held in the
Variable Account as to which no timely instructions are received will be voted
by the Company in the same proportion as the voting instructions which are
received with respect to all Contracts participating in the Variable Account.
VARIABLE ACCOUNT CHARGES, PURCHASE PAYMENTS, AND OTHER DEDUCTIONS
MORTALITY RISK CHARGE
The Company assumes a "mortality risk" by virtue of annuity rates
incorporated into the Contract which cannot be changed regardless of the death
rates of persons receiving annuity payments or of the general population.
For assuming this mortality risk, the Company assesses a Mortality Risk
Charge through the daily unit value calculation. This amount is equal to an
annual rate of 0.80% of the daily net asset value of the Variable Account. The
Company expects to generate a profit through assessing this charge.
EXPENSE RISK CHARGE
The Company will not increase charges for administration of the
Contracts regardless of its actual expenses. For assuming this expense risk,
the Company assesses an Expense Risk Charge through the daily unit value
calculation. This amount is equal to an annual rate of 0.50% of the daily net
asset value of the Variable Account. The Company expects to generate a profit
through assessing this charge.
28
30 of 113
<PAGE> 31
CONTINGENT DEFERRED SALES CHARGE
No deduction for a sales charge is made from the Purchase Payments for
these Contracts. However, if any part of the Contract Value of such Contracts
is surrendered, the Company will, with certain exceptions (see "Waiver of
Contingent Deferred Sales Charge" section), deduct a Contingent Deferred Sales
Charge not to exceed 5% of the lesser of the total of all Purchase Payments
made within 96 months prior to the date of the request to surrender or the
amount surrendered. The Contingent Deferred Sales Charge, when it is
applicable, will be used to cover expenses relating to the sale of the
Contracts, including commissions paid to sales personnel, the costs of
preparation of sales literature and other promotional activity. The Company
expects to recover most of its distribution costs relating to the sale of the
Contracts from the Contingent Deferred Sales Charge. Any shortfall will be made
up from the General Account of the Company, which may indirectly include
portions of the Mortality and Expense Risk since the Company expects to
generate a profit through these charges. Gross Distribution Allowances which
may be paid on the sale of these Contracts are not more than 5.11% of the
Purchase Payments.
The Contingent Deferred Sales Charge is calculated by multiplying the
applicable Contingent Deferred Sales Charge percentages noted below by the
Purchase Payments that are surrendered. For Purposes of calculating the
Contingent Deferred Sales Charge, surrenders are considered to come first from
the oldest Purchase Payment and so forth. For tax purposes, a surrender is
usually treated as a withdrawal of earnings first.
(a) For all Purchase Payments made after January 1, 1981, the Contract Owner
may, after the first year from the date of each such Purchase Payment,
withdraw without a Contingent Deferred Sales Charge up to 5% of that
Purchase Payment for each year that the Purchase Payment has remained on
deposit on a cumulative basis (less the amount of such Purchase Payment
previously surrendered free of charge).
(b) For Contracts issued prior to July 17, 1981, starting with the third
Contract Year, the Contract Owner may withdraw without a Contingent
Deferred Sales Charge up to 10% of cumulative Purchase Payments made
under the Contract within 96 months immediately prior to the date that
the request for surrender is received by the Company. Once surrenders
equal to 10% of cumulative Purchase Payments made within such 96-month
period have been made, the Contingent Deferred Sales Charge will apply
to all amounts surrendered in excess thereof.
For Contracts issued prior to July 17, 1981, the amount which may be
surrendered at any time without charge is the greater of the amounts determined
under (a) and (b) above. No sales charges are deducted on redemption proceeds
that are transferred to the Fixed Account option of this annuity. The Contract
Owner may be subject to a tax penalty if the Contract Owner withdraws Purchase
Payments prior to age 59 1/2; please refer to "Non-Qualified Contracts" to
determine when the penalty will apply.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The amount of Contingent Deferred Sales Charges on the Contracts may be
eliminated when sales of the Contracts are made to a trustee, employer or
similar entity pursuant to a retirement plan or when sales are made in a
similar arrangement where offering the Contracts to a group of individuals
under such a program results in savings of sales expenses. The entitlement to
such an elimination in Contingent Deferred Sales Charges will be determined by
the Company in the following manner:
1. The size of the group to which such sales are to be made will be
considered. Generally, the sales expenses for a larger group are smaller
than for a smaller group because of the ability to implement a larger
number of Contracts with fewer sales contacts.
2. The total amount of Purchase Payments to be received from a group and
the manner in which Purchase Payments are remitted will be considered.
Per Contract sales expenses are likely to be less on larger Purchase
Payments than on smaller ones. Likewise, sales expenses are usually
lower when Purchase Payments are remitted on a payroll deduction plan.
3. The purpose for which the Contracts are being purchased will be
considered. Certain types of Qualified Plans are more likely to be
stable than are others. Such stability reduces the number of sales
contacts required, reduces sales administration, and results in fewer
Contract terminations. As a result, sales expenses can be reduced.
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4. The nature of the group for which the Contracts are being purchased will
be considered. Certain types of employee and professional groups are
more likely to continue Contract participation for longer periods than
are other groups with more mobile membership. If fewer Contracts are
surrendered in a given group, the Company's sales expenses are reduced.
5. The cost to the Company of the distribution effort will be
considered. Sales without commissions or other standard distribution
expenses can result in eliminated sales charge.
6. There may be other circumstances of which the Company is not presently
aware, which could result in reduced sales expenses.
If, after consideration of the foregoing factors, the Company determines
that a group purchase would result in reduced sales expenses, such a group
would be entitled an elimination of Contingent Deferred Sales Charges.
When a Contract described in this prospectus is exchanged for another
Contract issued by the Company, of the type and class which the Company
determined is eligible for such exchange, the Company will waive the Contingent
Deferred Sales Charge on the first Contract.
The amount of Contingent Deferred Sales Charges will be eliminated when
the Contracts are issued to an officer, director, partner or employee of
Clarendon Insurance Agency, Inc., the general distributor of the Contracts, and
an affiliate of Massachusetts Financial Services Company, or an officer,
director, partner or employee of any firm affiliated with Clarendon Insurance
Agency, Inc.
In no event will the elimination of Contingent Deferred Sales Charges be
permitted where such elimination will be unfairly discriminatory to any person,
or where it is prohibited by state law.
CONTRACT MAINTENANCE CHARGE
Each year on the Contract Anniversary (and on the date of surrender in
any year in which the entire Contract Value is surrendered), the Company
deducts an annual Contract Maintenance Charge of $30 from the Contract Value to
reimburse it for administrative expenses relating to the issuance and
maintenance of the Contract. This charge is designed only to reimburse the
Company for administrative expenses and it does not expect to recover from this
charge any amount in excess of accumulated expenses. In any Contract Year when
a Contract is surrendered for its full value on other than the Contract
Anniversary, the Contract Maintenance Charge will be deducted at the time of
such surrender. The Contract Maintenance Charge will be allocated to the Fixed
and Variable Account in the same percentages as the Purchase Payment
allocations are made. The amount of the Contract Maintenance Charge may not be
increased by the Company. The amount of the Contract Maintenance Charge may,
however, be decreased by the Company in accordance with the considerations set
forth in the preceding section entitled "Elimination of Contingent Deferred
Sales Charge."
PREMIUM TAXES
The Company will charge against the Contract Value the amount of any
premium taxes levied by a state or any other governmental entity upon Purchase
Payments received by the Company. Premium taxes currently imposed by certain
jurisdictions range from 0% to 3.5%. This range is subject to change. The
method used to recoup premium tax expense will be determined by the Company at
its sole discretion and in compliance with applicable state law. The Company
currently deducts such charges from a Contract Owner's Contract Value either:
(1) at the time the Contract is surrendered, (2) at Annuitization, or (3) in
those states which require, at the time Purchase Payments are made to the
Contract.
EXPENSES OF VARIABLE ACCOUNT
The Variable Account is responsible for the following types of expenses:
(1) administrative expenses relating to the issuance and maintenance of the
contracts; (2) mortality risk charge associated with guaranteeing the annuity
purchase rates at issue for the life of the Contracts; and (3) expense risk
charge associated with guaranteeing that the Mortality Risk, Expense Risk,
Contract Maintenance and Administration Charges described in this prospectus
will not be changed regardless of actual expenses. If these charges are
insufficient to cover these expenses, the loss will be borne by the Company.
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For 1996, the Variable Account incurred total expenses equal to 1.44% of
its average net assets relating to the administrative, sales, mortality and
expense risk charges described above for all Contracts outstanding during that
year. Deductions from and expenses paid out of the assets of the underlying
Mutual Fund options are described in each underlying Mutual Funds prospectus.
INVESTMENTS OF THE VARIABLE ACCOUNT
At the time of application each Contract Owner elects to have Purchase
Payments attributable to his or her participation in the Variable Account
allocated among one or more of the Sub-Accounts which consist of shares in the
underlying Mutual Fund options. Shares of the respective underlying Mutual Fund
options specified by the Contract Owner are purchased at net asset value for
the respective Sub-Account(s) and converted into Accumulation Units. The
Contract Owner may change the election as to allocation of Purchase Payments or
may elect to exchange amounts among the Sub-Account Options pursuant to such
terms and conditions applicable to such transactions as may be imposed by each
of the underlying Mutual Fund options, in addition to those set forth in the
Contracts.
RIGHT TO REVOKE
Unless otherwise required by state and/or federal law, the Contract
Owner may revoke the Contract at any time between 10 days after receipt of the
Contract and receive a refund of the Contract Value unless otherwise required
by state and/or federal law. All Individual Retirement Annuity refunds will be
a return of Purchase Payments. In order to revoke the Contract, it must be
mailed or delivered to the Home Office of the Company at the mailing address
shown on page 1 of this prospectus. Mailing or delivery must occur on or before
10 days after receipt of the Contract for revocation to be effective. In order
to revoke the Contract, if it has not been received, written notice must be
mailed or delivered to the Home Office of the Company at the mailing address
shown on page 1 of this prospectus.
The liability of the Variable Account under this provision is limited to
the Contract Value in each Sub-Account on the date of revocation. Any
additional amounts refunded to the Contract Owner will be paid by the Company.
TRANSFERS
Transfers between the Fixed and Variable Account must be made prior to
the Annuitization Date. The Contract Owner may request a transfer of up to 100%
of the Variable Account Contract Value to the Fixed Account without penalty or
adjustment. The Company reserves the right to restrict transfers from the
Variable Account to the Fixed Account to 25% of the Contract Value for any 12
month period. All amounts transferred to the Fixed Account must remain on
deposit in the Fixed Account until the expiration of the Interest Rate
Guarantee Period. In addition, transfers from the Fixed Account may not be made
prior to the end of the then current Interest Rate Guarantee Period. The
Interest Rate Guarantee Period for any amount allocated to the Fixed Account
expires on the final day of a calendar quarter during which the one year
anniversary of the allocation to the Fixed Account occurs. For all transfers
involving the Variable Account, the Contract Owner's value in each Sub-Account
will be determined as of the date the transfer request is received in the Home
Office in good order.
The Contract Owner may at the maturity of an Interest Rate Guarantee
Period transfer a portion of the value of the Fixed Account to the Variable
Account.. The amount that may be transferred from the Fixed Account to the
Variable Account will be determined by the Company at its sole discretion, but
will not be less than 10% of the total value of the portion of the Fixed
Account that is maturing. The amount that may be transferred will be declared
upon the expiration date of the then current Interest Rate Guarantee Period.
Transfers from the Fixed Account must be made within 45 days after the
expiration date of the then current Interest Rate Guarantee Period. Owners who
have entered into a Dollar Cost Averaging Agreement with the Company (see
"Dollar Cost Averaging") may transfer from the Fixed Account to the Variable
Account under the terms of that agreement.
Transfers may be made either in writing or, in states allowing such
transfers, by telephone. This telephone exchange privilege is made available to
Contract Owners automatically without the Contract Owner's election. The
Company will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. Such procedures may include the
following: requesting identifying information, such as name, contract number,
Social Security Number, and/or personal identification number; tape recording
all telephone transactions; and providing written confirmation thereof to both
the Contract Owner and any agent of
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record, at the last address of record; or such other procedures as the Company
may deem reasonable. The Company will not be liable for following instructions
communicated by telephone which it reasonably believes to be genuine. Any losses
incurred pursuant to actions taken by the Company in reliance on telephone
instructions reasonably believed to be genuine shall be borne by the Contract
Owner. The Company may withdraw the telephone exchange privilege upon 30 days'
written notice to Contract Owners.
ASSIGNMENT
Where permitted, the Contract Owner may assign some or all of the rights
under the Contract at any time during the lifetime of the Designated Annuitant
prior to the Annuitization Date. Such assignment will take effect upon receipt
and recording by the Company at its Home Office of a written notice thereof
executed by the Contract Owner. The Company is not responsible for the validity
or tax consequences of any assignment. The Company shall not be liable as to
any payment or other settlement made by the Company before recording of the
assignment. Where necessary for the proper administration of the terms of the
Contract, an assignment will not be recorded until the Company has received
sufficient direction from the Contract Owner and assignee as to the proper
allocation of Contract rights under the assignment.
If this Contract is a Non-Qualified Contract, any portion of Contract
Value attributable to Purchase Payments made after August 13, 1982, which is
pledged or assigned after August 13, 1982, shall be treated as a Distribution
and shall be included in gross income to the extent that the cash value exceeds
the investment in the Contract, for the taxable year in which it was pledged or
assigned. In addition, any Contract Values assigned may, under certain
conditions, be subject to a tax penalty equal to 10% of the assigned amount
which is included in gross income. Assignment of the entire Contract Value may
cause the portion of the Contract Value which exceeds the total investment in
the Contract and previously taxed amounts to be included in gross income for
federal income tax purposes each year that the assignment is in effect.
Individual Retirement Annuities, Tax Sheltered Annuities and Qualified
Contracts may not be assigned, pledged or otherwise transferred except under
such conditions as may be allowed by applicable law.
LOAN PRIVILEGE
Prior to the Annuitization Date, the Owner of a Qualified Contract or
Tax Sheltered Annuity Contract may receive a loan from the Contract Value,
subject to the terms of the Contract, the Plan, and the Code, which may impose
restrictions on loans.
Loans from Qualified Contracts or Tax Sheltered Annuities are available
beginning 30 days after the Date of Issue. The Contract Owner may borrow a
minimum of $1,000. In non-ERISA plans, for Contract Values up to $20,000, the
maximum loan balance which may be outstanding at any time is 80% of the
Contract Value, but not more than $10,000. If the Contract Value is $20,000 or
more, the maximum loan balance which may be outstanding at any time is 50% of
the Contract Value, but not more than $50,000. For ERISA plans, the maximum
loan balance which may be outstanding at any time is 50% of the Contract Value,
but not more than $50,000. The $50,000 limit will be reduced by the highest
loan balance owed during the prior one-year period. Additional loans are
subject to the contract minimum amount. The aggregate of all loans may not
exceed the Contract Value limitations stated above.
For salary reduction Tax Sheltered Annuities, loans may only be secured
by the Contract Value. For loans from Qualified Contracts and other Tax
Sheltered Annuities, the Company reserves the right to limit a loan to 50% of
the Contract Value subject to the acceptance by the Contract Owner of the
Company's loan agreement. Where permitted, the Company may require other named
collateral where the loan from a Contract exceeds 50% of the Contract Value.
All loans are made from a collateral fixed account. An amount equal to
the principal amount of the loan will be transferred to the collateral fixed
account. Unless instructed to the contrary by the Contract Owner, the Company
will first transfer to the collateral fixed account the Variable Account units
from the Contract Owner's investment options in proportion to the assets in
each option until the required balance is reached or all such variable units
are exhausted. The remaining required collateral will next be transferred from
the Fixed Account. No withdrawal charges are deducted at the time of the loan,
or on the transfer from the Variable Account to the collateral fixed account.
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Until the loan has been repaid in full, that portion of the collateral
fixed account equal to the outstanding loan balance shall be credited with
interest at a rate 2.25% less than the loan interest rate fixed by the Company
for the term of the loan. However, the interest rate credited to the collateral
fixed account will never be less than 3.0%. Specific loan terms are disclosed
at the time of loan application or loan issuance.
Loans must be repaid in substantially level payments, not less
frequently than quarterly, within five years. Loans used to purchase the
principal residence of the Contract Owner must be repaid within 15 years.
During the loan term, the outstanding balance of the loan will continue to earn
interest at an annual rate as specified in the loan agreement. Loan repayments
will consist of principal and interest in amounts set forth in the loan
agreement. Loan repayments will be allocated between the Fixed and Variable
Accounts in the same manner as a purchase payment. Both loan repayments and
purchase payments will be allocated to the Contract in accordance with the most
current allocation, unless the Contract Owner and the Company agree otherwise
on a case by case basis.
If the Contract is surrendered while the loan is outstanding, the
surrender value will be reduced by the amount of the loan outstanding plus
accrued interest. If the Contract Owner/Annuitant dies while the loan is
outstanding, the Death Benefit will be reduced by the amount of the loan
outstanding plus accrued interest. If a Contract Owner who is not the Annuitant
dies prior to the Annuitization Date and while the loan is outstanding, the
Distribution will be reduced by the amount of the loan outstanding plus accrued
interest. If annuity payments start while the loan is outstanding, the Contract
Value will be reduced by the amount of the outstanding loan plus accrued
interest. Until the loan is repaid, the Company reserves the right to restrict
any transfer of the Contract which would otherwise qualify as a transfer as
permitted in Section 1035 of the Code.
If a loan payment is not made when due, interest will continue to
accrue. A grace period may be available under the terms of the loan agreement.
If a loan payment is not made when due, or by the end of the applicable grace
period, then that payment, which may be a single periodic payment or payment of
the entire loan, will be treated as a deemed Distribution, as permitted by law,
may be taxable to the borrower, and may be subject to the early withdrawal tax
penalty. Interest which subsequently accrues on defaulted amounts may also be
treated as additional deemed Distributions each year. Any defaulted amounts,
plus accrued interest , will be deducted from the Contract when the participant
becomes eligible for a Distribution of at least that amount, and this amount
may again be treated as a Distribution where required by law. Additional loans
may not be available while a previous loan remains in default.
Loans may also be subject to additional limitations or restrictions
under the terms of the employer's plan. Loans permitted under this Contract may
still be taxable in whole or part if the participant has additional loans from
other plans or contracts. The Company will calculate the maximum nontaxable
loan based on the information provided by the participant or the employer.
Loan repayments must be identified as such or else they will be treated
as Purchase Payments, and will not be used to reduce the outstanding loan
principal or interest due. The Company reserves the right to modify the term or
procedures associated with the loan in the event of a change in the laws or
regulations relating to the treatment of loans. The Company also reserves the
right to assess a loan processing fee. Individual Retirement Annuities, SEP-IRA
accounts and Non-Qualified Contracts are not eligible for loans.
BENEFICIARY PROVISIONS
Subject to the terms of any existing assignment, the Contract Owner may
change the Beneficiary from time to time during the lifetime of the Designated
Annuitant or Annuitant, by written notice to the Company. The change will take
effect, upon receipt by the Company at its Home Office, whether or not the
Designated Annuitant or the Annuitant is living at the time of recording, but
without further liability as to any payment or settlement made by the Company
before receipt of such change.
Unless otherwise provided in the Contract or in an effective change of
Beneficiary designation, all rights and interests of any Beneficiary
predeceasing the Designated Annuitant or the Annuitant shall vest in the
Contingent Beneficiary if designated. If a Contingent Beneficiary is not
designated or predeceases the Beneficiary, all rights and interests of the
Beneficiary will vest in the Contract Owner or the Contract Owner's estate.
The Beneficiary will be the designated person or persons who survive the
Designated Annuitant, and if more than one survive, they will share equally
unless otherwise specified in the Beneficiary designation. In the event that
the Beneficiary dies before the Designated Annuitant or Annuitant, the
Contingent Beneficiary will become the Beneficiary.
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OWNERSHIP PROVISIONS
Unless otherwise provided, the Contract Owner has all rights under the
Contract. IF THE PURCHASER NAMES SOMEONE OTHER THAN HIMSELF OR HERSELF AS
OWNER, THE PURCHASER WILL HAVE NO RIGHTS UNDER THE CONTRACT.
If named, the Joint Owner possesses an undivided interest in the entire
Contract. Prior to the Annuitization Dates, a surviving Joint Owner shall
retain sole rights in the Contract upon the other Joint Owner's death if the
deceased Joint Owner was not also the Annuitant. If the deceased Joint Owner
was also the Annuitant, disposition of the Contract will be determined based on
the "Death Prior to the Annuitization Date" provisions. When a Joint Owner is
named, the exercise of any ownership right in the Contract shall require a
written indication, signed by both the Owner and Joint Owner, of an intent to
exercise such right, unless the Owner and Joint Owner provide in the
application that the exercise of any such ownership right may be made by either
the Owner or Joint owner independently of one another. In this latter
situation, the Company will not be liable for any loss, liability, cost of
expense for acting in accordance with the instructions of either the Owner or
Joint Owner.
The Annuitant may become the Contract Owner on and after the
Annuitization Date subject to the terms elected at Annuitization. If the Owner
dies prior to the Annuitization Date, Contract Ownership will be determined in
accordance with the "Death of Contract Owner" provision. If the Designated
Annuitant does not survive the Contract Owner or if the Designated Annuitant
and the Owner are the same person, Contract Ownership will be determined in
accordance with the "Death Benefit At Death Of Designated Annuitant Prior To
The Annuitization Date" provision. After the Annuitization Date, Ownership will
be determined based on the Annuity Payment Option selected. Ownership rights
under this Contract may be restricted under the provisions of the retirement or
deferred compensation plan under which this Contract may be issued.
Prior to the Annuitization Date, the Contract Owner may name a new
Contract Owner at any time, but such change may be subject to state and federal
gift taxes. Any new choice of Contract Owner will automatically revoke any
prior choice of Contract Owner. Any request for change must be: (1) made in
writing; and (2) received by the Company at its Home Office. A request for
change of Contract Owner must be a "proper written application" and may include
a signature guarantee as specified in the "Surrender" section. The change will
become effective as of the date the written request is recorded. A new choice
of Contract Owner will not apply to any payment made or action taken by the
Company prior to the time it was received.
A change in the Designated Annuitant must comply with the following
conditions: (1) request for such change must be made by the Contract Owner; (2)
request must be made in writing on a form acceptable to the Company; (3)
request must be signed by the Contract Owner; and (4) such change is subject to
underwriting and approval by the Company.
SUBSTITUTION OF SECURITIES
If the shares of the underlying Mutual Fund options should no longer be
available for investment by the Variable Account or, if in the judgment of the
Company's management, further investment in such underlying Mutual Fund shares
should become, the Company may eliminate Sub-Accounts, combine two or more
Sub-Accounts, or substitute shares of one or more underlying Mutual Fund for
other underlying Mutual Fund shares already purchased or to be purchased in the
future with Purchase Payments under the Contract. No substitution of securities
in the Variable Account may take place without prior approval of the Securities
and Exchange Commission and under such requirements as it may impose.
CONTRACT OWNER INQUIRIES
Contract Owner inquiries may be directed to Nationwide Life Insurance
Company by writing P.O. Box 16609, Columbus, Ohio 43216-6609, or calling
1-800-848-7529, TDD 1-800-238-3035.
ANNUITY PAYMENT PERIOD-VARIABLE ACCOUNT
At the Annuitization Date, the Variable Account Contract Value is
applied to the Annuity Payment Option elected and the amount of the first such
payment shall be determined in accordance with the Annuity Table in the
Contract.
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Subsequent Variable Annuity payments vary in amount in accordance with
the investment performance of the Variable Account. The dollar amount of the
first annuity payment determined as above is divided by the value of an Annuity
Unit as of the Annuitization Date to establish the number of Annuity Units
representing each monthly annuity payment. This number of Annuity Units remains
fixed during the annuity payment period. The dollar amount of the second and
subsequent payments is not predetermined and may change from month to month.
The dollar amount of each subsequent payment is determined by multiplying the
fixed number of Annuity Units by the Annuity Unit Value for the Valuation
Period in which the payment is due. The Company guarantees that the dollar
amount of each payment after the first will not be affected by variations in
mortality experience from mortality assumptions used to determine the first
payment.
VALUE OF AN ANNUITY UNIT
The value of an Annuity Unit was arbitrarily set initially at $10 when
the first underlying Mutual Fund shares were purchased. The value of an Annuity
Unit for a Sub-Account for any subsequent Valuation Period is determined by
multiplying the Annuity Unit Value for the immediately preceding Valuation
Period by the Net Investment Factor for the Valuation Period for which the
Annuity Unit Value is being calculated, and multiplying the result by an
interest factor to neutralize the assumed investment rate of 3.5% per annum
built into the Annuity Tables contained in the Contracts (see "Net Investment
Factor").
ASSUMED INVESTMENT RATE
A 3.5% assumed investment rate is built into the Annuity Tables
contained in the Contracts. A higher assumption would mean a higher initial
payment but more slowly rising or more rapidly falling subsequent payments. A
lower assumption would have the opposite effect. If the actual investment rate
is at the annual rate of 3.5%, the annuity payments will be level.
FREQUENCY AND AMOUNT OF ANNUITY PAYMENTS
Annuity payments will be paid as monthly installments. However, if the
net amount available to apply under any Annuity Payment Option is less than
$500, the Company shall have the right to pay such amount in one lump sum in
lieu of the payments otherwise provided for. In addition, if the payments
provided for would be or become less than $20, the Company shall have the right
to change the frequency of payments to such intervals as will result in
payments of at least $20. In no event will the Company make payments under an
annuity option less frequently than annually.
ANNUITY COMMENCEMENT DATE
The Contract Owner selects an Annuity Commencement Date at the time of
application. Such date must be the first day of a calendar month and must be at
least 2 years after the Date of Issue.
Where the Contract is issued pursuant to the terms of a Qualified Plan,
Annuitization may occur during the first two years subject to approval by the
Company.
CHANGE IN ANNUITY COMMENCEMENT DATE
The Contract Owner may, upon prior written notice to the Company, change
the Annuity Commencement Date. The date to which such a change may be made
shall be the first day of a calendar month.
If the Contract Owner requests in writing (see "Ownership Provisions"),
and the Company approves the request, the Annuity Commencement Date may be
deferred. The amount of the Death Benefit will be limited to the Contract Value
if the Annuity Commencement Date is postponed beyond the first day of the
calendar month after the Designated Annuitant's 75th birthday or such other
Annuity Commencement Date provided under the Contract Owner's Qualified Plan.
ANNUITY PAYMENT OPTIONS
The Contract Owner may, upon prior written notice to the Company, at any
time prior to the Annuitization Date, elect one of the Annuity Payment Options.
Option 1 - Life Annuity - An annuity payable periodically, but at least
annually, during the lifetime of the Annuitant, ceasing with the last
payment due prior to the death of the Annuitant. IT WOULD BE POSSIBLE
UNDER THIS OPTION FOR THE ANNUITANT TO RECEIVE ONLY ONE ANNUITY PAYMENT
IF HE OR SHE DIED BEFORE THE SECOND ANNUITY PAYMENT DATE, TWO ANNUITY
PAYMENTS IF HE OR SHE DIED BEFORE THE THIRD ANNUITY PAYMENT DATE, AND SO
ON.
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Option 2 - Joint and Last Survivor Annuity - An annuity payable
periodically, but at least annually, during the joint lifetimes of the
Annuitant and designated second person and continuing thereafter during
the lifetime of the survivor. AS IS THE CASE UNDER OPTION 1 ABOVE, THERE
IS NO MINIMUM NUMBER OF PAYMENTS GUARANTEED UNDER THIS OPTION. PAYMENTS
CEASE UPON THE DEATH OF THE LAST SURVIVING ANNUITANT REGARDLESS OF THE
NUMBER OF PAYMENTS RECEIVED.
Option 3 - Life Annuity With 120 or 240 Monthly Payments Guaranteed - An
annuity payable monthly during the lifetime of the Annuitant with the
guarantee that if at the death of the Annuitant payments have been made
for fewer than 120 or 240 months, as selected, payments will be made as
follows:
(1) Any guaranteed annuity payments will be continued during the
remainder of the selected period to such recipient as chosen by
the Annuitant at the time the Annuity Payment Option was
selected. In the alternative, the recipient may, at any time,
elect to have the present value of the guaranteed number of
annuity payments remaining paid in a lump sum as specified in (2)
below.
(2) If someone other than the Annuitant is payee, the present value,
computed as of the date in which notice of death is received by
the Company at its Home Office, of the guaranteed number of
annuity payments remaining after receipt of such notice and to
which the deceased would have been entitled had he or she not
died, computed at the Assumed Investment Rate effective in
determining the Annuity Tables, shall be paid in a lump sum.
Some of the stated Annuity Options may not be available in all states.
The Owner may request an alternative non-guaranteed option by giving notice in
writing prior to Annuitization. If such a request is approved by the Company,
it will be permitted under the Contract.
If the Contract Owner of a Non-Qualified Contract fails to elect an
Annuity Payment Option, no Distribution will be made until an effective Annuity
Payment Option has been elected. Qualified Plans, Contracts, Tax Sheltered
Annuities, Individual Retirement Annuities and SEP-IRAs are subject to the
minimum Distribution requirements set forth in the Plan, Contract or Code.
DEATH OF CONTRACT OWNER
A. For Non-Qualified Contracts issued on or after January 19, 1985,
in the event the Contract Owner dies, the following rules will apply:
(1) In the event the Contract Owner dies prior to the Annuitization
Date, the entire interest in the Contract, less any applicable
deductions (which may include a Contingent Deferred Sales
Charge), must be distributed within 5 years after the Owner's
death. In the alternative, the Designated Annuitant or Contingent
Owner (where one is named) may elect to receive a Distribution in
the form of a life annuity or an annuity for a period certain not
exceeding his or her life expectancy and such annuity begins
within one year following the date of the Contract Owner's death.
In the event the Designated Annuitant or Contingent Owner is the
Contract Owner's spouse, the Contract may be continued by such
Designated Annuitant or Contingent Owner, treating the spouse as
the Contract Owner. In the event the Designated Annuitant does
not survive the Contract Owner, or if the Designated Annuitant
and the Contract Owner are the same person a Distribution will be
made in accordance with the "Death Benefit At Death of Designated
Annuitant Prior To The Annuitization Date" provision. If the
Contract Owner and the Designated Annuitant are not the same, no
Death Benefit is payable upon the death of the Contract Owner.
(2) In the event the Contract Owner/Annuitant dies on or after the
Annuitization Date, Distribution, if any, must be made to the
Beneficiary at least as rapidly as under the method of
Distribution being used as of the date of the Contract
Owner/Annuitant's death.
If the Contract Owner is not a natural person, the death of the
Annuitant (or a change of the Annuitant) will be treated like a death of the
Contract Owner and will result in a Distribution pursuant to Section (1) above,
regardless of whether a Contingent Annuitant has also been named. The
Distribution will take the form of either:
(a) the Death Benefit described under "Death Benefit of Designated
Annuitant Prior to the Annuitization Date" (if the Annuitant has
died and there is no Contingent Annuitant), or in all other
cases,
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(b) the benefit described in the "Death of Contract Owner" provision
except that in the event of a change of the Annuitant, the
benefit will be paid to the Contract Owner if the Annuitant is
living, or to the Beneficiary upon the death of the Annuitant
(and the Contingent Annuitant, if any) prior to the expiration of
the period described in the "Death of Contract Owner" provision.
B. Contracts issued in connection with Qualified Plans, Individual
Retirement Annuities or Tax Sheltered Annuities will be subject to
specific rules, set forth in the Plan, Contract, or Code concerning
distributions upon the death of the Owner or Designated Annuitant (see
the "Required Distribution for Qualified Plans or Tax Sheltered
Annuities" provision).
DEATH BENEFIT PRIOR TO THE ANNUITIZATION DATE
The Death Benefit is payable to the Beneficiary unless the Owner has
named a Contingent Designated Annuitant. In such case, the Death Benefit
is payable to the Beneficiary upon the death of the last survivor of the
Designated Annuitant and Contingent Designated Annuitant. The value of the
Death Benefit will be determined as of the Valuation Date coincident with or
next following the date the Company receives both 1) due proof of death and
2) an election for a) a single sum payment or b) Annuity Payment Option.
If a single sum settlement is requested, payment will be made in
accordance with any applicable laws and regulations governing the payment of
Death Benefits. If an Annuity Payment Option is desired, election may be made
by the Beneficiary during the 90-day period commencing with the date written
notice is received by the Company. If no election has been made by the end of
such 90-day period, the Death Benefit will be paid to the Beneficiary in a
single sum. The amount of the Death Benefit will be the greater of (i) the sum
of all Purchase Payments, less any amounts surrendered, or (ii) the Contract
Value.
The amount of the Death Benefit will be limited to the Contract Value if
the Annuitization Date is deferred beyond the Designated Annuitant's 75th
birthday.
DEATH BENEFIT AFTER THE ANNUITIZATION DATE
If the Annuitant dies after the Annuitization Date, the Death Benefit
shall be as specified in the Annuity Payment Option elected.
REQUIRED DISTRIBUTIONS FOR QUALIFIED PLANS OR TAX SHELTERED ANNUITIES
The entire interest of an Annuitant under a Qualified Contract or Tax
Sheltered Annuity Contract will be distributed in a manner consistent with the
Minimum Distribution Incidental Benefit (MDIB) provisions of Section 401(a)(9)
of the Code and regulations thereunder, as applicable, and will be paid,
notwithstanding anything else contained herein, to the Owner/Annuitant under
the Annuity Payments Option selected, over a period not exceeding:
A. the life of the Owner/Annuitant or the lives of the
Owner/Annuitant and the Owner/Annuitant's designated
Beneficiary; or
B. a period not extending beyond the life expectancy of the
Owner/Annuitant or the life expectancy of the Owner/Annuitant and
the Owner/Annuitant's designated Beneficiary, provided that, for
Tax Sheltered Annuity Contracts, no Distributions will be
required from this Contract if Distributions otherwise required
from the Contract are being withdrawn from another Tax Sheltered
Annuity Contract of the Annuitant.
If the Owner/Annuitant's entire interest is to be distributed in equal
or substantially equal payments over a period described in A or B, such
payments will commence not later than the first day of April following the
calendar year in which the Owner/Annuitant attains age 70 1/2 (the Required
Beginning Date). In the case of a governmental plan (as defined in Code
Section 414(d)) or a church plan (as defined in Code Section 401(a)(9)(c)), the
Required Beginning Date will be the later of the dates determined under the
preceding sentence or April 1 of the calendar year following the calendar year
in which the Annuitant retires.
If the Owner dies prior to the commencement of his or her Distribution,
the interest in the Qualified Contract or Tax Sheltered Annuity must be
distributed by December 31 of the year during which the fifth anniversary of
his or her death occurs unless:
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(a) In the case of a Tax Sheltered Annuity the Owner names his or her
surviving spouse as the Beneficiary and such spouse elects to (i) treat
the annuity as a Tax Sheltered Annuity established for his or her
benefit; or (ii) receive Distribution of the account in nearly equal
payments over his or her life (or a period not exceeding his or her life
expectancy) and commencing not later than December 31 of the year in
which the Owner would have attained age 70 1/2; or
(b) In the case of a Tax Sheltered Annuity or a Qualified Contract the Owner
names a Beneficiary other than his or her surviving spouse and such
Beneficiary elects to receive a Distribution of the account in nearly
equal payments over his or her life (or a period not exceeding his or
her life expectancy) commencing not later than December 31 of the year
following the year in which the Annuitant dies.
If the Owner/Annuitant dies after Distribution has commenced,
Distribution must continue at least as rapidly as under the schedule being used
prior to his or her death, except that a surviving spouse may treat a Tax
Sheltered Annuity as his or her own to the extent permitted by law.
Payments commencing on the Required Beginning Date will not be less than
the lesser of the quotient obtained by dividing the entire interest of the
Owner/Annuitant by the life expectancy of the Owner/Annuitant, or the joint and
last survivor expectancy of the Owner/Annuitant and the Owner/Annuitant's
designated Beneficiary (whichever is applicable under the applicable Minimum
Distribution or MDIB provisions). Life expectancy and joint and last survivor
expectancy are computed by the use of return multiples contained in Section
1.72-9 of the Treasury Regulations.
REQUIRED DISTRIBUTIONS FOR INDIVIDUAL RETIREMENT ANNUITIES AND SEP IRAS
Distribution from an Individual Retirement Annuity must begin not later
than April 1 of the calendar year following the calendar year in which the
Owner attains age 70 1/2. Distribution may be accepted in a lump sum or in
substantially equal payments over: (a) the Owner's life or the lives of the
Owner and his or her spouse or designated Beneficiary, or (b) a period not
extending beyond the Owner's life expectancy or the joint life expectancy of
the Owner and the Owner's designated Beneficiary.
If the Owner dies prior to the commencement of his or her Distribution,
the interest in the Individual Retirement Annuity must be distributed by
December 31 of the year during which the fifth anniversary of his or her death
occurs unless:
(a) The Contract Owner names his or her surviving spouse as the Beneficiary and
such spouse elects to:
(i) treat the annuity as an Individual Retirement Annuity established
for his or her benefit; or
(ii) receive Distribution of the account in substantially equal
payments over his or her life (or a period not exceeding his or
her life expectancy) and commencing not later than December 31 of
the year in which the Contract Owner would have attained age 70
1/2; or
(b) The Contract Owner names a Beneficiary other than his or her surviving
spouse and such Beneficiary elects to receive a Distribution of the
account in substantially equal payments over his or her life (or a
period not exceeding his or her life expectancy) commencing not later
than December 31 of the year following the year in which the Contract
Owner dies.
No Distribution will be required from this Contract if Distributions
otherwise required from this Contract are being withdrawn from another
Individual Retirement Annuity or Individual Annuity Account of the Contract
Owner.
If the Contract Owner dies after Distribution has commenced,
Distribution must continue at least as rapidly as under the schedule being used
prior to his or her death, except to the extent that a surviving spouse who is
the beneficiary under the Annuity Payment Option, may elect to treat the
Contract as his or her own, in the same manner as described in Section (a)(i)
of this provision.
If the amounts distributed to the Contract Owner are less than those
mentioned above, penalty tax of 50% is levied on the excess of the amount that
should have been distributed for that year over the amount that actually was
distributed for that year.
A pro-rata portion of all distributions will be included in the gross
income of the person receiving the Distribution and taxed at ordinary income
tax rates. The portion of the Distribution which is taxable is based on the
ratio between the amount by which non-deductible Purchase Payments exceed prior
non-taxable distributions and total account balances at the time of the
Distribution. The Contract Owner of an Individual
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Retirement Annuity must annually report the amount of non-deductible Purchase
Payments, the amount of any Distribution, the amount by which non-deductible
Purchase Payments for all years exceed non-taxable distributions for all years,
and the total balance of all Individual Retirement Annuities.
Individual Retirement Annuity Distributions will not receive the benefit
of the tax treatment of a lump sum Distribution from a Qualified Plan. If the
Owner dies prior to the time Distribution of his or her interest in the annuity
is completed, the balance will also be included in his or her gross estate.
GENERATION-SKIPPING TRANSFERS
The Company may be required to determine whether the Death Benefit or
any other payment constitutes a direct skip as defined in Section 2612 of the
Code, and the amount of the tax on the generation-skipping transfer resulting
from such direct skip. If applicable, payment will be reduced by any tax the
Company is required to pay by Section 2603 of the Code.
A direct skip may occur when property is transferred to or a Death
Benefit is paid to an individual two or more generations younger than the
Contract Owner.
GENERAL INFORMATION
CONTRACT OWNER SERVICES
ASSET REBALANCING - The Contract Owner may direct the automatic
reallocation of contract values to the underlying Mutual Fund options on a
predetermined percentage basis every three months. If the last day of the three
month period falls on a Saturday, Sunday, recognized holiday, or any other day
when the New York Stock Exchange is closed, the Asset Rebalancing exchange will
occur on the last business day before that day. Asset Rebalancing will not
affect future allocations of Purchase Payments. An Asset Rebalancing request
must be in writing on a form provided by the Company. Contracts issued to a
Qualified Plan or a Tax Sheltered Annuity Plan as defined by the Code may have
superseding plan restrictions with regard to the frequency of underlying Mutual
Fund exchanges and underlying Mutual Fund options. The Contract Owner may want
to contact a financial adviser in order to discuss the use of Asset Rebalancing
in his or her Contract.
The Company reserves the right to discontinue offering Asset Rebalancing
upon 30 days written notice to the Contract Owner, however, any discontinuation
will not affect Asset Rebalancing programs which have already commenced.
The Company also reserves the right to assess a processing fee for this
service.
DOLLAR COST AVERAGING - The Contract Owner may direct the Company to
automatically transfer from the Money Market Sub-Account or the Fixed Account
to any other Sub-Account within the Variable Account on a monthly or as
frequently as otherwise authorized by the Company. This service is intended to
allow the Contract Owner to utilize Dollar Cost Averaging, a long-term
investment program which provides for regular, level investments over time. The
Company makes no guarantees that Dollar Cost Averaging will result in a profit
or protect against loss. To qualify for Dollar Cost Averaging there must be a
minimum total Contract Value of $15,000. Transfers for purposes of Dollar Cost
Averaging can only be made from the Money Market Sub-Account or the Fixed
Account. The minimum monthly Dollar Cost Averaging transfer is $100. In
addition, Dollar Cost Averaging monthly transfers from the Fixed Account must
be equal to or less than 1/30th of the Fixed Account value when the Dollar Cost
Averaging program is requested. Transfers out of the Fixed Account, other than
for Dollar Cost Averaging, may be subject to certain additional restrictions
(see "Transfers"). A written election of this service, on a form provided by
the Company, must be completed by the Contract Owner in order to begin
transfers. Once elected, transfers from the Money Market Sub-Account or the
Fixed Account will be processed monthly until either the value in the Money
Market Sub-Account or the Fixed Account is completely depleted or the Contract
Owner instructs the Company in writing to cancel the transfers.
The Company reserves the right to discontinue offering Dollar Cost
Averaging upon 30 days written notice to Contract Owners however, any
discontinuation will not affect Dollar Cost Averaging programs already
commenced. The Company also reserves the right to assess a processing fee for
this service.
SYSTEMATIC WITHDRAWALS - A Contract Owner may elect in writing on a form
provided by the Company to take Systematic Withdrawals by surrendering a
specified dollar amount (of at least $100) on a monthly, quarterly,
semi-annual, or annual basis. The Company will process the withdrawals as
directed by surrendering on a pro-rata basis Accumulation Units from all
Sub-Accounts in which the Contract Owner has an interest, and the Fixed
Account. A Contingent Deferred Sales Charge may apply to Systematic Withdrawals
in accordance with the considerations set forth in the "Contingent Deferred
Sales Charge" section. Each Systematic
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Withdrawal is subject to federal income taxes on the taxable portion. In
addition, a 10% federal penalty tax may be assessed on Systematic Withdrawals if
the Contract Owner is under age 59 1/2. The Company is required to withhold tax
from certain Distributions to the extent that such Distribution would constitute
income to the Contract Owner. The Contract Owner is entitled to elect not to
have federal income tax withheld from any such Distribution, but may be subject
to penalties in the event insufficient federal income tax is withheld during a
calendar year. If directed by the Contract Owner, the Company will withhold
federal income taxes from each Systematic Withdrawal. The Contract Owner may
discontinue Systematic Withdrawals at any time by notifying the Company in
writing.
The Company reserves the right to discontinue offering Systematic
Withdrawals upon 30 days written notice to Contract Owners however, any
discontinuation will not affect any Systematic Withdrawal programs already
commenced. The Company also reserves the right to assess a processing fee for
this service.
STATEMENTS AND REPORTS
The Company will mail to Contract Owners, at their last known address of
record, any statements and reports required by applicable law or regulation.
Contract Owners should therefore give the Company prompt notice of any address
change. The Company will send a confirmation statement to Contract Owners each
time a transaction is made affecting the Owners' Variable Account Contract
Value, such as making additional Purchase Payments, transfers, exchanges or
withdrawals. Quarterly statements are also mailed detailing the Contract
activity during the calendar quarter. Instead of receiving an immediate
confirmation of transactions made pursuant to some types of periodic payment
plan (such as a Dollar Cost Averaging program) or salary reduction arrangement,
the Contract Owner may receive confirmation of such transactions in their
quarterly statements. The Contract Owner should review the information in these
statements carefully. All errors or corrections must be reported to the Company
immediately to assure proper crediting to the Owner's Contract. The Company
will assume all transactions are accurately reported on quarterly statements or
confirmation statements unless the Contract Owner notifies the Company
otherwise within 30 days after receipt of the statement. The Company will also
send to Contract Owners each year an annual report and a semi-annual report
containing financial statements for the Variable Account, as of December 31 and
June 30, respectively.
ALLOCATION OF PURCHASE PAYMENTS AND CONTRACT VALUE
Purchase payments are allocated to one or more Sub-Accounts within the
Variable Account in accordance with the designation of the underlying Mutual
Fund options by the Contract Owner, and converted into Accumulation Units.
The initial first year Purchase Payment must be at least $1,500 for
Non-Qualified Contracts. Subsequent Purchase Payments, if any, after the first
Contract Year must be at least $10 each. However, if periodic payments are
expected by the Company, this initial first year minimum may be satisfied by
Purchase Payments made on an annualized basis. Purchase payments, if any, after
the first Contract Year must be at least $10 each. The Contract Owner may
increase or decrease Purchase Payments or change the frequency of payment. The
Contract Owner is not obligated to continue Purchase Payments in the amount or
at the frequency elected. There are no penalties for failure to continue
Purchase Payments.
For Contracts issued on and after May 1, 1981, the cumulative total of
all Purchase Payments under Contracts issued on the life of any one Designated
Annuitant may not exceed $1,000,000 without prior consent of the Company.
THE PURCHASER IS CAUTIONED THAT INVESTMENT RETURN ON SMALL INITIAL AND
SUBSEQUENT PURCHASE PAYMENTS MAY BE LESS THAN CHARGES ASSESSED BY THE COMPANY.
The initial Purchase Payment allocated to designated Sub-Accounts of the
Variable Account will be priced not later than 2 business days after receipt of
an order to purchase, if the application and all information necessary for
processing the purchase order are complete upon receipt by the Company. The
Company may, however, retain the Purchase Payment for up to 5 business days
while attempting to complete an incomplete application. If the application
cannot be made complete within 5 days, the prospective purchaser will be
informed of the reasons for the delay and the Purchase Payment will be returned
immediately unless the prospective purchaser specifically consents to the
Company retaining the Purchase Payment until the application is made complete.
Thereafter, Purchase Payments will be prices on the basis of the Accumulation
Unit Value next computed for the appropriate Sub-Account after the additional
Purchase Payment is received.
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Purchase payments will not be priced on the following nationally
recognized holidays: New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving and Christmas.
VALUE OF AN ACCUMULATION UNIT
The value of an Accumulation Unit for each Sub-Account was arbitrarily
set initially at $10 when underlying Mutual Fund shares in that Sub-Account
were available for purchase. The value for any subsequent Valuation Period is
determined by multiplying the Accumulation Unit value for each Sub-Account for
the immediately preceding Valuation Period by the Net Investment Factor for the
Sub-Account during the subsequent Valuation Period. The value of an
Accumulation Unit may increase or decrease from Valuation Period to Valuation
Period. The number of Accumulation Units will not change as a result of
investment experience.
NET INVESTMENT FACTOR
The Net Investment Factor for any Valuation Period is determined by
dividing (a) by (b) and subtracting (c) from the result where:
(a) is the net of:
(1) the net asset value per share of the underlying Mutual Fund held
in the Sub-Account determined at the end of the current Valuation
Period, plus
(2) the per share amount of any dividend or capital gain
distributions made by the underlying Mutual Fund held in the
Sub-Account if the "ex-dividend" date occurs during the current
Valuation Period.
(b) is the net of:
(1) the net asset value per share of the underlying Mutual Fund held
in the Sub-Account determined at the end of the immediately
preceding Valuation Period, plus or minus
(2) the per share charge or credit, if any, for any taxes reserved
for in the immediately preceding Valuation Period (see "Charge
For Tax Provisions").
(c) is a factor representing the daily Mortality Risk Charge and Expense
Risk Charge deducted from the Variable Account. Such factor is equal to
an annual rate of 1.30% of the daily net asset value of the Variable
Account.
For underlying Mutual Fund options that credit dividends on a daily
basis and pay such dividends once each month or quarter (such as money market
funds and certain bond funds), the Net Investment Factor allows for the monthly
or quarterly reinvestment of these daily dividends.
The Net Investment Factor may be greater or less than one; therefore,
the value of an Accumulation Unit may increase or decrease. It should be noted
that changes in the Net Investment Factor may not be directly proportional to
changes in the net asset value of underlying Mutual Fund shares, because of the
deduction for Mortality Risk Charge and Expense Risk Charge, and any charge or
credit for tax reserves.
VALUATION OF ASSETS
Underlying Mutual Fund shares in the Variable Account will be valued at
their net asset value.
DETERMINING THE CONTRACT VALUE
The sum of the value of all Accumulation Units attributable to the
Contract plus any amounts credited to the Fixed Account is the Contract Value.
The number of Accumulation Units credited per each Sub-Account is determined by
dividing the net amount allocated to the Sub-Account by the Accumulation Unit
Value for the Sub-Account for the Valuation Period during which the Purchase
Payment is received by the Company. If part or all of the Contract Value is
surrendered or charges or deductions are made against the Contract Value, an
appropriate number of Accumulation Units from the Variable Account and an
appropriate amount from the Fixed Account will be deducted in the same
proportion that the Contract Owner's interest in the Variable Account and Fixed
Account bears to the total Contract Value.
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SURRENDER (REDEMPTION)
While the Contract is in force and prior to the earlier of the
Annuitization Date or the death of the Designated Annuitant, the Company will,
upon proper written application by the Contract Owner, deemed by the Company to
be in good order, allow the Contract Owner to surrender a portion or all of the
Contract Value. "Proper written application" means that the Contract Owner must
request the surrender in writing and include the Contract. The Company may
require that the signature(s) be guaranteed by a member firm of a major stock
exchange or other depository institution qualified to give such a guaranty. In
some cases, (for example, requests by a corporation, partnership, agent,
fiduciary, or surviving spouse), the Company will require additional
documentation of a customary nature.
The Company will, upon receipt of any such written request, surrender a
number of Accumulation Units from the Variable Account and an amount from the
Fixed Account necessary to equal the gross dollar amount requested, less any
applicable Contingent Deferred Sales Charge (see "Contingent Deferred Sales
Charge"). In the event of a partial surrender, the Company will, unless
instructed to the contrary, surrender Accumulation Units from all Sub-Accounts
in which the Contract Owner has an interest, and the Fixed Account. The number
of Accumulation Units surrendered from each Sub-Account and the amount
surrendered from the Fixed Account will be in the same proportion that the
Contract Owner's interest in the Sub-Accounts and Fixed Account bears to the
total Contract Value.
The Company will pay any funds applied for from the Variable Account
within 7 days of receipt of such application in the Company's Home Office.
However, the Company reserves the right to suspend or postpone the date of any
payment of any benefit or values for any Valuation Period (1) when the New York
Stock Exchange ("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 Variable Account is not reasonably practicable or it is
not reasonably practicable to determine the value of the Variable Account's net
assets, or (4) during any other period when the Securities and Exchange
Commission, by order, so permits for the protection of security holders;
provided that applicable rules and regulations of the Securities and Exchange
Commission shall govern as to whether the conditions prescribed in (2) and (3)
exist. The Contract Value on surrender may be more or less than the total of
Purchase Payments made by a Contract Owner, depending on the market value of
the underlying Mutual Fund shares.
With respect to Contracts issued under the Texas Optional Retirement
Program, the Texas Attorney General has ruled that withdrawal benefits are
available only in the event of a participant's death, retirement, termination
of employment due to total disability, or other termination of employment in a
Texas public institution of higher education. A participant will not,
therefore, be entitled to the right of withdrawal in order to receive the cash
values credited to such participant under the Contract unless one of the
foregoing conditions has been satisfied. The value of such Contracts may,
however, be transferred to other contracts or other carriers during the period
of participation in the Optional Retirement Program. The Company issues this
Contract to participants in the Optional Retirement Program in reliance upon,
and in compliance with, Rule 6c-7 of the Investment Company Act of 1940.
SURRENDERS UNDER QUALIFIED PLAN OR TAX SHELTERED ANNUITY CONTRACT
Except as provided below, the Contract Owner may Surrender part or all
of the Contract Value at any time this Contract is in force prior to the
earlier of the Annuitization Date or the death of the Designated Annuitant:
A. The surrender of Contract Value attributable to contributions made
pursuant to a salary reduction agreement (within the meaning of Code
Section 402(g)(3)(A) or (C)), or transfers from a Custodial Account
described in Section 403(b)(7) of the Code(403(b)(7) Custodial
Accounts), may be executed only:
1. when the Contract Owner attains age 59 1/2, separates from
service, dies, or becomes disabled (within the meaning of Code
Section 72(m)(7)); or
2. in the case of hardship (as defined for purposes of Code Section
401(k)), provided that any surrender of Contract Value in the
case of hardship may not include any income attributable
to salary reduction contributions.
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B. The surrender limitations described in A. above also applies to:
1. salary reduction contributions to Tax Sheltered Annuities made
for plan years beginning after December 31, 1988;
2. earnings credited to such contracts after the last plan year
beginning before January 1, 1989, on amounts attributable to
salary reduction contributions; and
3. all amounts transferred from 403(b)(7) Custodial Accounts (except
that earnings, and employer contributions as of December 31,
1988 in such Custodial Accounts may be withdrawn in the case of
hardship).
C. Any Distribution other than the above, including exercise of a
contractual ten-day free look provision (when available) may result in
the immediate application of taxes and penalties of a Qualified Contract
or Tax Sheltered Annuity.
A premature Distribution may not be eligible for rollover treatment.
To assist in preventing disqualification in the event of a ten-day free look,
the Company will agree to transfer the proceeds to another contract which meets
the requirements of Section 403(b) of the Code, upon proper direction by the
Contract Owner. The foregoing is the Company's understanding of the withdrawal
restrictions which are currently applicable under Code Section 403(b)(11) and
Revenue Ruling 90-24. Such restrictions are subject to legislative change
and/or reinterpretation from time to time. Distributions pursuant to a
Qualified Domestic Relations Order will not be considered to be in violation of
restrictions stated in this provision.
The Contract surrender provisions may also be modified pursuant to the
plan terms and Code tax provisions when the Contract is issued to fund a
Qualified Plan.
FEDERAL TAX CONSIDERATIONS
FEDERAL INCOME TAXES
The Company does not make any guarantee regarding the tax status for any
Contract or any transaction involving the Contracts. Contract Owners should
consult a financial consultant, legal counsel or tax advisor to discuss in
detail the taxation and the use of the Contracts.
Section 72 of the Code governs federal income taxation of annuities in
general. That section sets forth different rules for: (1) Qualified Contracts;
(2) Individual Retirement Annuities, (3) Tax Sheltered Annuities; and (4)
Non-Qualified Contracts. Each type of annuity is discussed below.
Distributions to participants from Qualified Contracts or Tax Sheltered
Annuities are generally taxed when received. A portion of each Distribution is
excludable from income based on the ratio between the after tax investment of
the Owner/Annuitant in the Contract and the value of the Contract at the time
of the withdrawal or Annuitization.
Distributions from Individual Retirement Annuities and Contracts owned
by Individual Retirement Accounts are also generally taxed when received. The
portion of each such payment which is excludable is based on the ratio between
the amount by which nondeductible Purchase Payments to all such Contracts
exceeds prior non-taxable Distributions from such Contracts, and the total
account balances in such Contracts at the time of the Distribution. The Owner
of such Individual Retirement Annuities or the Annuitant under Contracts held
by Individual Retirement Accounts must annually report to the Internal Revenue
Service the amount of nondeductible Purchase Payments, the amount of any
Distribution, the amount by which nondeductible Purchase Payments for all years
exceed non-taxable Distributions for all years, and the total balance in all
Individual Retirement Annuities and Accounts.
A change of the Annuitant or Contingent Annuitant may be treated by the
Internal Revenue Service as a taxable transaction.
NON-QUALIFIED CONTRACTS - NATURAL PERSONS AS OWNERS
The rules applicable to Non-Qualified Contracts provide that a portion
of each annuity payment received is excludable from taxable income based on the
ratio between the Contract Owner's investment in the Contract and the expected
return on the Contract until the investment has been recovered; thereafter the
entire amount is includable in income. The maximum amount excludable from
income is the investment in the Contract. If the Annuitant dies prior to
excluding from income the entire investment in the Contract, the Annuitant's
final tax return may reflect a deduction for the balance of the investment in
the Contract.
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Distributions made from the Contract prior to the Annuitization Date are
taxable to the Contract Owner to the extent that the cash value of the Contract
exceeds the Contract Owner's investment at the time of the Distribution.
Distributions, for this purpose, include partial surrenders, dividends, loans,
or any portion of the Contract which is assigned or pledged; or for Contracts
issued after April 22, 1987, any portion of the Contract transferred by gift.
For these purposes, a transfer by gift may occur upon Annuitization if the
Contract Owner and the Annuitant are not the same individual. In determining
the taxable amount of a Distribution, all annuity contracts issued after
October 21, 1988, by the same company to the same contract owner during any 12
month period, will be treated as one annuity contract. Additional limitations
on the use of multiple contracts may be imposed by Treasury Regulations.
Distributions prior to the Annuitization Date with respect to that portion of
the Contract invested prior to August 14, 1982, are treated first as a recovery
of the investment in the Contract as of that date. A Distribution in excess of
the amount of the investment in the Contract as of August 14, 1982, will be
treated as taxable income.
The Tax Reform Act of 1986 has changed the tax treatment of certain
Non-Qualified Contracts held by entities other than individuals. Such entities
are taxed currently on the earnings on the Contract which are attributable to
contributions made to the Contract after February 28, 1986. There are
exceptions for immediate annuities and certain Contracts owned for the benefit
of an individual. An immediate annuity, for purposes of this discussion, is a
single premium Contract on which payments begin within one year of purchase. If
this Contract is issued as the result of an exchange described in Section 1035
of the Code, for purposes of determining whether the Contract is an immediate
annuity, it will generally be considered to have been purchased on the purchase
date of the contract given up in the exchange.
Code Section 72 also provides for a penalty tax, equal to 10% of the
portion of any Distribution that is includable in gross income, if such
Distribution is made prior to attaining age 59 1/2. The penalty tax does not
apply if the Distribution is attributable to the Contract Owner's death,
disability or is one of a series of substantially equal periodic payments made
over the life or life expectancy of the Contract Owner (or the joint lives or
joint life expectancies of the Contract Owner and the beneficiary selected by
the Contract Owner to receive payment under the Annuity Payment Option selected
by the Contract Owner) or for the purchase of an immediate annuity, or is
allocable to an investment in the Contract before August 14, 1982. A Contract
Owner wishing to begin taking Distributions to which the 10% tax penalty does
not apply should forward a written request to the Company. Upon receipt of a
written request from the Contract Owner, the Company will inform the Contract
Owner of the procedures pursuant to Company policy and subject to limitations
of the Contract including but not limited to first year withdrawals. Such
election shall be irrevocable and may not be amended or changed.
In order to qualify as an annuity contract under Section 72 of the Code,
the contract must provide for Distribution of the entire contract to be made
upon the death of a Contract Owner. If a Contract Owner dies prior to the
Annuitization Date, then the Joint Contract Owner, the Contingent Owner or
other named recipient must receive the Distribution within 5 years of the
Contract Owner's death. However, the recipient may elect for payments to be
made over his/her life or life expectancy provided that such payments begin
within one year from the death of the Contract Owner. If the Joint Contract
Owner, Contingent Owner or other named recipient is the surviving spouse, such
spouse may be treated as the Contract Owner and the Contract may be continued
throughout the life of the surviving spouse. In the event the Contract Owner
dies on or after the Annuitization Date and before the entire interest has been
distributed, the remaining portion must be distributed at least as rapidly as
under the method of Distribution being used as of the date of the Contract
Owner's death (see "Required Distribution For Qualified Plans and Tax Sheltered
Annuities"). If the Contract Owner is not an individual, the death of the
Annuitant (or a change in the Annuitant) will result in a Distribution pursuant
to these rules, regardless of whether a Contingent Annuitant is named.
The Code requires that any election to receive an annuity rather than a
lump sum payment must be made within 60 days after the lump sum becomes payable
(generally, the election must be made within 60 days after the death of an
Owner or the Annuitant). If the election is made more than 60 days after the
lump sum first becomes payable, the election would be ignored for tax purposes,
and the entire amount of the lump sum would be subject to immediate tax. If the
election is made within the 60 day period, each Distribution would be taxable
when it is paid.
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NON-QUALIFIED CONTRACTS - NON-NATURAL PERSONS AS OWNERS
The foregoing discussion of the taxation of Non-Qualified Contracts
applies to Contracts owned (or, pursuant to Section 72(u) of the Code, deemed
to be owned) by individuals; it does not apply to Contracts where one or more
non-individuals is an Owner.
Persons"), rather than by one or more individuals, are not treated as
annuity contracts for most purposes under the Code; in particular, they are not
treated as annuity contracts for purposes of Section 72. Therefore, the
taxation rules for Distributions, as described above, do not apply to
Non-Qualified Contracts owned by Non-Natural Persons. Rather, the following
rules will apply:
The income earned under a Non-Qualified Contract that is owned by a
Non-Natural Person is taxed as ordinary income during the taxable year that it
is earned, and is not deferred, even if the income is not distributed out of
the Contract to the Owner.
The foregoing Non-Natural Person rule does not apply to all entity-owned
contracts. First, for this purpose, a Contract that is owned by a Non-Natural
Person as an agent for an individual is treated as owned by the individual.
This exception does not apply, however, to a Non-Natural Person who is an
employer that holds the Contract under a non-qualified deferred compensation
arrangement for one or more employees.
The Non-Natural Person rules also do not apply to a Contract that is (a)
acquired by the estate of a decedent by reason of the death of the decedent;
(b) issued in connection with certain qualified retirement plans and individual
retirement plans; (c) used in connection with certain structured settlements;
(d) purchased by an employer upon the termination of certain qualified
retirement plans; or (e) an immediate annuity.
QUALIFIED PLANS, INDIVIDUAL RETIREMENT ANNUITIES AND TAX SHELTERED ANNUITIES
The Contract may be purchased as a Qualified Contract, an Individual
Retirement Annuity or a Tax Sheltered Annuity. The Contract Owner should seek
competent advice as to the tax consequences associated with the use of a
Contract as an Individual Retirement Annuity.
For information regarding eligibility, limitations on permissible
amounts of Purchase Payments, and the tax consequences of distributions from
Qualified Plans, Tax Sheltered Annuities, Individual Retirement Annuities and
other plans that receive favorable tax treatment, the purchasers of such
contracts should seek competent advice. The terms of such plans may limit the
rights available under the Contracts.
Pursuant to Section 403(b)(1)(E) Code, a Contract that is issued as a
Tax-Sheltered Annuity is required to limit the amount of the Purchase Payment
for any year to an amount that does not exceed the limit set forth in Section
402(g) of the Code ($7,000), as it is from time to time increased to reflect
increases in the cost of living. This limit may be reduced by any deposits,
contributions or payments made to any other Tax-Sheltered Annuity or other
plan, contract or arrangement by or on behalf of the Owner.
The Code permits the rollover of most Distributions from Qualified Plans
to other Qualified Plans or Individual Retirement Annuities. Most Distributions
from Tax-Sheltered Annuities may be rolled into another Tax-Sheltered Annuity,
Individual Retirement Annuity, or an Individual Retirement Account.
Distributions that 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 Contract Owner, (b) over the joint lives
(or joint life expectancies) of the Contract Owner and the
Contract Owner's designated Beneficiary, or (c) for a
specified period of ten years or more, or
2. a required minimum distribution.
Any Distribution eligible for rollover will be subject to federal tax
withholding at a rate of twenty percent (20%) unless the Distribution is
transferred directly to an appropriate plan as described above.
The Contract is available for Qualified Plans electing to comply with
section 404(c) of ERISA. It is the responsibility of the plan and its
fiduciaries to determine and satisfy the requirements of section 404(c).
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<PAGE> 48
WITHHOLDING
The Company is required to withhold tax from certain Distributions to
the extent that such Distribution would constitute income to the Contract Owner
or other payee. The Contract Owner or other payee is entitled to elect not to
have federal income tax withheld from any such Distribution, but may be subject
to penalties in the event insufficient federal income tax is withheld during a
calendar year. However, if the Internal Revenue Service notifies the Company
that the Contract Owner or other payee has furnished an incorrect taxpayer
identification number, or if the Contract Owner or other payee fails to provide
a taxpayer identification number, the Distributions may be subject to back-up
withholding at the statutory rate, which is presently 31%, and which cannot be
waived by the Contract Owner or other payee.
NON-RESIDENT ALIENS
Distributions to nonresident aliens (NRAs) are generally subject to
federal income tax and tax withholding, at a statutory rate of thirty percent
(30%) of the amount of income that is distributed. The Company may be required
to withhold such amount from the Distribution and remit it to the Internal
Revenue Service. Distributions to certain NRAs may be subject to lower, or in
certain instances, zero tax and withholding rates, if the United States has
entered into an applicable treaty. However, in order to obtain the benefits of
such treaty provisions, the NRA must give to the Company sufficient proof of
his or her residency and citizenship in the form and manner prescribed by the
Internal Revenue Service. In addition, for any Distribution made after December
31, 1997, the NRA must obtain an Individual Taxpayer Identification Number from
the Internal Revenue Service, and furnish that number to the Company prior to
the Distribution. If the Company does not have the proper proof of citizenship
or residency and (for Distributions after December 31, 1997) a proper
Individual Taxpayer Identification Number prior to any Distribution, the
Company will be required to withhold 30% of the income, regardless of any
treaty provision.
A payment may not be subject to withholding where the recipient
sufficiently establishes to the Company that such payment is effectively
connected to the recipient's conduct of a trade or business in the United
States and that such payment is includable in the recipient's gross income for
United States federal income tax purposes. Any such Distributions will be
subject to the rules set forth in the section entitled "Withholding."
FEDERAL ESTATE, GIFT, AND GENERATION SKIPPING TRANSFER TAXES
A transfer of the Contract from one Contract Owner to another, or the
payment of a Distribution under the Contract to someone other than a Contract
Owner, may constitute a gift for federal gift tax purposes. Upon the death of
the Contract Owner, the value of the Contract may be included in his or her
gross estate, even if a all or a portion of the value is also subject to
federal income taxes.
The Company may be required to determine whether the Death Benefit or
any other payment or Distribution constitutes a "direct skip" as defined in
Section 2612 of the Code, and the amount of the generation skipping transfer
tax, if any, resulting from such direct skip. A direct skip may occur when
property is transferred to, or a Death Benefit or other Distribution is made to
(a) an individual who is two or more generations younger than the Owner; or (b)
certain trusts, as described in Section 2613 of the Code (generally, trusts
that have no beneficiaries who are not 2 or more generations younger than the
Owner). If the Owner is not an individual, then for this purpose only, "Owner"
refers to any person who would be required to include the Contract, Death
Benefit, Distribution, or other payment in his federal gross estate at his
death, or who is required to report the transfer of the Contract, Death
Benefit, Distribution, or other payment for federal gift tax purposes.
If the Company determines that a generation skipping transfer tax is
required to be paid by reason of such direct skip, the Company is required to
reduce the amount of such Death Benefit, Distribution, or other payment by such
tax liability, and pay the tax liability directly to the Internal Revenue
Service.
Federal estate, gift and generation skipping transfer tax consequences,
and state and local estate, inheritance, succession, generation skipping
transfer, and other tax consequences, of owning or transferring a Contract, and
of receiving a Distribution, Death Benefit, or other payment, depend on the
circumstances of the person owning or transferring the Contract, or receiving a
Distribution, Death Benefit, or other payment.
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<PAGE> 49
CHARGE FOR TAX PROVISIONS
The Company is no longer required to maintain a capital gain reserve
liability on Non-Qualified Contracts since capital gains attributable to assets
held in the Company's Variable Account for such Contracts are not taxable to
the Company. However, the Company reserves the right to implement and adjust
the tax charge in the future, if the tax laws change.
DIVERSIFICATION
The Internal Revenue Service has promulgated regulations under Section
817(h) of the Code relating to diversification standards for the investments
underlying a variable annuity contract. The regulations provide that a variable
annuity contract which does not satisfy the diversification standards will not
be treated as an annuity contract, unless the failure to satisfy the
regulations was inadvertent, the failure is corrected, and the Owner or the
Company pays an amount to the Internal Revenue Service. The amount will be
based on the tax that would have been paid by the Owner if the income, for the
period the contract was not diversified, had been received by the Owner. If the
failure to diversify is not corrected in this manner, the Owner of an annuity
contract will be deemed the Owner of the underlying securities and will be
taxed on the earnings of his or her account. The Company believes, under its
interpretation of the Code and regulations thereunder, that the investments
underlying this Contract meet these diversification standards.
Representatives of the Internal Revenue Service have suggested, from
time to time, that the number of underlying Mutual Funds available or the
number of transfer opportunities available under a variable product may be
relevant in determining whether the product qualifies for the desired tax
treatment. No formal guidance has been issued in this area. Should the
Secretary of the Treasury issue additional rules or regulations limiting the
number of underlying Mutual Funds, transfers between underlying Mutual Funds,
exchanges of underlying Mutual Funds or changes in investment objectives of
underlying Mutual Funds such that the Contract would no longer qualify as an
annuity under Section 72 of the Code, the Company will take whatever steps are
available to remain in compliance.
TAX CHANGES
In the recent past, the Code has been subjected to numerous amendments
and changes, and it is reasonable to believe that it will continue to be
revised. The United States Congress has, in the past, considered numerous
legislative proposals that, if enacted, could change the tax treatment of the
Contracts. It is reasonable to believe that such proposals, and other proposals
will be considered in the future, and some of them may be enacted into law. In
addition, the Treasury Department may amend existing regulations, issue new
regulations, or adopt new interpretations of existing law that may be in
variance with its current positions on these matters. In addition, current
state law (which is not discussed herein), and future amendments to state law,
may affect the tax consequences of the Contract.
The foregoing discussion, which is based on the Company's understanding
of federal tax laws as they are currently interpreted by the Internal Revenue
Service, is general and is not intended as tax advice. Statutes, regulations,
and rulings are subject to interpretation by the courts. The courts may
determine that a different interpretation than the currently favored
interpretation is appropriate, thereby changing the operation of the rules that
are applicable to annuity contracts.
Any of the foregoing may change from time to time without any notice,
and the tax consequences arising out of a Contract may be changed
retroactively. There is no way of predicting whether, when, and to what extent
any such change may take place. No representation is made as to the likelihood
of the continuation of these current laws, interpretations, and policies.
THE FOREGOING IS A GENERAL EXPLANATION AS TO CERTAIN TAX MATTERS PERTAINING TO
ANNUITY CONTRACTS. IT IS NOT INTENDED TO BE LEGAL OR TAX ADVICE, AND SHOULD NOT
TAKE THE PLACE OF YOUR INDEPENDENT LEGAL, TAX AND/OR FINANCIAL ADVISOR.
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<PAGE> 50
LEGAL PROCEEDINGS
From time to time the Company 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 the Company.
In recent years, life insurance companies have been named as defendants
in lawsuits, including class action lawsuits, relating to life insurance
pricing and sales practices. A number of these lawsuits have resulted in
substantial jury awards or settlements. In October, 1996, a policyholder of
Nationwide Life filed a complaint in Alabama state court against Nationwide
Life and an agent of Nationwide Life (Wayne M. King v. Nationwide Life
Insurance Company and Danny Nix) related to the sale of a whole life policy on
a "vanishing premium" basis and seeking unspecified compensatory and punitive
damages. In February, 1997, Nationwide Life was named as a defendant in a
lawsuit filed in New York Supreme Court also related to the sale of whole life
policies on a "vanishing premium" basis (John H. Snyder v. Nationwide Mutual
Insurance Company, Nationwide Mutual Insurance Co. and Nationwide Life
Insurance Co.). The plaintiff in such lawsuit seeks to represent a national
class of Nationwide Life policyholders and claims unspecified compensatory and
punitive damages. This lawsuit is in an early state and has not been certified
as a class action. Nationwide Life intends to defend these cases vigorously.
There can be no assurance that any future litigation relating to pricing and
sales practices will not have a material adverse effect on the Company.
The General Distributor, Clarendon Insurance Agency, Inc., is not
engaged in any litigation of any material nature.
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
<S> <C>
General Information and History............................................................................1
Services...................................................................................................1
Purchase of Securities Being Offered.......................................................................1
Underwriters...............................................................................................2
Calculation of Yield Quotations of Money Market Sub-Accounts...............................................2
Annuity Payments...........................................................................................2
Financial Statements.......................................................................................3
</TABLE>
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<PAGE> 51
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1997
INDIVIDUAL DEFERRED VARIABLE ANNUITY CONTRACTS ISSUED
BY THE MFS VARIABLE ACCOUNT OF
NATIONWIDE LIFE INSURANCE COMPANY
This Statement of Additional Information is not a prospectus. It
contains information in addition to and more detailed than set forth in the
prospectus and should be read in conjunction with the prospectus dated May 1,
1997. The prospectus may be obtained from Nationwide Life Insurance Company by
writing P. O. Box 16609, Columbus, Ohio 43216-6609, or calling 1-800-848-7529,
TDD 1-800-238-3035.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
General Information and History.......................................................................................1
Services..............................................................................................................1
Purchase of Securities Being Offered..................................................................................1
Underwriters..........................................................................................................2
Calculation of Yield Quotations of Money Market Sub-Accounts..........................................................2
Annuity Payments......................................................................................................2
Financial Statements..................................................................................................3
</TABLE>
GENERAL INFORMATION AND HISTORY
The MFS Variable Account is a separate investment account of Nationwide
Life Insurance Company ("Company"). The Company is a member of the Nationwide
Insurance Enterprise and all of the Company's common stock is owned by
Nationwide Financial Services, Inc. ("NFS"), a holding company. NFS has two
classes of common stock outstanding with different voting rights enabling
Nationwide Corporation (the holder of all of the outstanding Class B Common
Stock) to control NFS. Nationwide Corporation is a holding company as well. All
of its common stock is held by Nationwide Mutual Insurance Company (95.3%) and
Nationwide Mutual Fire Insurance Company (4.7%), the ultimate controlling
persons of Nationwide Insurance Enterprise. The Nationwide Insurance Enterprise
is one of America's largest insurance and financial services family of
companies, with combined assets of over $67.5 billion as of December 31, 1996.
SERVICES
The Company, which has responsibility for administration of the
Contracts and the Variable Account, maintains records of the name, address,
taxpayer identification number, and other pertinent information for each
Contract Owner and the number and type of Contract issued to each such Contract
Owner and records with respect to the Contract Value of each Contract.
The Custodian of the assets of the Variable Account is the Company. The
Company will maintain a record of all purchases and redemptions of shares of
the underlying Mutual Funds.
The financial statements and schedules have been included herein in
reliance upon the reports of KPMG Peat Marwick LLP, independent certified
public accountants, Two Nationwide Plaza, Columbus, Ohio 43215, and upon the
authority of said firm as experts in accounting and auditing.
PURCHASE OF SECURITIES BEING OFFERED
The Contracts will be sold by licensed insurance agents in the states
where the Contracts may be lawfully sold. Such agents will be registered
representatives of broker-dealers registered under the Securities Exchange Act
of 1934 who are members of the National Association of Securities Dealers, Inc.
("NASD").
The Contract Owner may, on written request, transfer part or all of the
Variable Account Values to the Fixed Account, or part or all of the Fixed
Account Values to the Variable Account. Such transfers must be made prior to
the earlier of the Annuitization Date or the death of the Designated Annuitant.
However, no such transfers will be permitted prior to the first Contract
Anniversary, or within 6 months of any prior transfer, for Contracts issued
prior to May 1, 1981. For Contracts issued on or after May 1, 1981, no
transfers will be allowed within 6 months of any prior transfer, and the
Company reserves the right to limit the amount transferred from the Fixed
Account to the Variable Account within any 12-month period to 25% of the total
Contract Value. Owners who have entered into a Dollar Cost Averaging Agreement
with the Company may transfer from the Fixed Account to the Variable Account
under the terms of that agreement.
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<PAGE> 52
UNDERWRITERS
The Contracts, which are offered continuously, are distributed by
Clarendon Insurance Agency, Inc. ("CIA"), 200 Berkeley Street, Boston,
Massachusetts 02116, an affiliate of Massachusetts Financial Services Company.
During the fiscal years ended December 31, 1996, 1995 and 1994, no underwriting
commissions were paid by the Company to CIA.
CALCULATIONS OF YIELD QUOTATIONS OF MONEY MARKET SUB-ACCOUNTS
MFS(R) Series Trust IV-MFS(R) Money Market FUND
Any current yield quotation of the Money Market Fund which is used in
such a manner as to be subject to the provisions of Rule 482 under the
Securities Act of 1933, as amended, shall consist of an annualized historical
yield, carried at least to the nearest hundredth of one percent, based on a
specific seven calendar day period and shall be calculated by dividing the net
change in the value of an account having a balance of one share at the
beginning of the period by the value of the account at the beginning of the
period and multiplying the quotient by 365/7 (366/7 in a leap year). For this
purpose the net change in account value would reflect the value of additional
shares purchased with dividends declared on the original share and dividends
declared on both the original share and any such additional shares, but would
not reflect any realized gains or losses from the sale of securities or any
unrealized appreciation or depreciation on portfolio securities. In addition,
any effective yield quotation of the Fund so used shall be calculated by
compounding the current yield quotation for such period by multiplying such
quotation by 7/365, adding 1 to the product, raising the sum to a power equal
to 365/7 (366/7 in a leap year), and subtracting 1 from the result.
Nationwide Separate Account Trust-Money Market Fund
Any current Money Market Fund yield quotations, subject to Rule 482
under the Securities Act of 1933, shall consist of a seven calendar day
historical yield, carried at least to the nearest hundredth of a percent. The
yield shall be calculated by determining the net change, excluding realized and
unrealized gains and losses, in value of a hypothetical pre-existing account
having a balance of one share at the beginning of the period, dividing the net
change in account value by the value of the account at the beginning of the
base period to obtain the base period return, and multiplying the base period
return by 365/7 (366/7 in a leap year). For purposes of this calculation, the
net change in account value reflects the value of additional shares purchased
with dividends from the original share, and dividends declared on both the
original share and any such additional shares. The Fund's effective yield
represents an annualization of the current seven day return with all dividends
reinvested.
The Money Market Fund's yield will fluctuate daily. Actual yield will
depend on factors such as the type of instruments in the Money Market Fund's
portfolio, portfolio quality and average maturity, changes in interest rates,
and the Money Market Fund's expenses. There is no assurance that the yield
quoted on any given occasion will remain in effect for any period of time and
there is no guarantee that the net asset value will remain constant. An
investment in the Money Market Fund is not guaranteed or insured. Yields of
other money market funds may not be comparable if a different base period or
another method of calculation is used.
ANNUITY PAYMENTS
See "Frequency and Amount of Annuity Payments" located in the
prospectus.
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<PAGE> 1
- --------------------------------------------------------------------------------
Independent Auditors' Report
----------------------------
The Board of Directors of Nationwide Life Insurance Company and
Contract Owners of MFS Variable Account:
We have audited the accompanying statement of assets, liabilities and
contract owners' equity of MFS Variable Account as of December 31, 1996, and the
related statements of operations and changes in contract owners' equity and
schedules of changes in unit value for each of the years in the three year
period then ended. These financial statements and schedules of changes in unit
value are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements and schedules of changes in
unit value based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedules of
changes in unit value are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures include confirmation of securities
owned as of December 31, 1996, by correspondence with the transfer agents of the
underlying mutual funds. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and schedules of changes in unit
value referred to above present fairly, in all material respects, the financial
position of MFS Variable Account as of December 31, 1996, and the results of its
operations and its changes in contract owners' equity and the schedules of
changes in unit value for each of the years in the three year period then ended
in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Columbus, Ohio
February 7, 1997
- --------------------------------------------------------------------------------
<PAGE> 2
- --------------------------------------------------------------------------------
MFS VARIABLE ACCOUNT
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY
DECEMBER 31, 1996
<TABLE>
<CAPTION>
ASSETS:
Investments at market value:
<S> <C>
MFS Series Trust IV - MFS(R) Money Market Fund (MFSMyMkt)
59,614,178 shares (cost $59,614,178) ....................... $ 59,614,178
Massachusetts Investors Growth Stock Fund - Class A (MFSGrStk)
3,796,104 shares (cost $41,344,359) ........................ 37,885,116
Massachusetts Investors Trust - Class A (MFSInvTr)
2,695,746 shares (cost $33,220,819) ........................ 38,980,489
MFS(R) Bond Fund - Class A (MFSBdFd)
2,488,582 shares (cost $33,159,970) ........................ 32,923,937
MFS(R) Emerging Growth Fund - Class A (MFSEmGro)
495,823 shares (cost $11,353,009) .......................... 15,018,474
MFS(R) Growth Opportunities Fund - Class A (MFSGrOpp)
7,983,708 shares (cost $90,144,901) ........................ 103,548,687
MFS(R) High Income Fund - Class A (MFSHiInc)
6,338,632 shares (cost $32,642,867) ........................ 33,848,293
MFS(R) Research Fund - Class A (MFSRsrch)
2,516,471 shares (cost $35,420,324) ........................ 46,605,048
MFS(R) Total Return Fund - Class A (MFSTotRe)
4,709,336 shares (cost $61,243,523) ........................ 69,651,081
MFS(R) World Governments Fund - Class A (MFSWdGvt)
757,919 shares (cost $8,607,896) ........................... 8,564,486
Nationwide Separate Account Trust-Money Market Fund (NSATMyMkt)
2,010,734 shares (cost $2,010,734) ......................... 2,010,734
-------------
Total investments ....................................... 448,650,523
Accounts receivable ............................................. 16,754,754
------------
Total assets ........................................... 465,405,277
Accounts payable .................................................. 4,249
------------
Contract owners' equity (note 4) .................................. $465,401,028
============
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
<PAGE> 3
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MFS VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------- ----------- -----------
Investment activity:
<S> <C> <C> <C>
Reinvested capital gains and dividends $ 45,028,420 41,437,779 29,599,574
Mortality and expense charges (note 2) (6,079,619) (5,701,022) (5,853,289)
------------- ----------- -----------
Net investment activity 38,948,801 35,736,757 23,746,285
------------- ----------- -----------
Proceeds from mutual fund shares sold 117,272,138 103,288,834 115,051,876
Cost of mutual fund shares sold (107,685,553) (99,147,354) (112,843,920)
------------- ----------- -----------
Realized gain loss) on investments 9,586,585 4,141,480 2,207,956
Change in unrealized gain (loss) on investments 13,552,160 51,182,271 (41,633,519)
------------- ----------- -----------
Net gain (loss) on investments 23,138,745 55,323,751 (39,425,563)
------------- ----------- -----------
Net increase (decrease) in contract owners'
equity resulting from operations 62,087,546 91,060,508 (15,679,278)
------------- ----------- -----------
Equity transactions:
Purchase payments received from contract owners 19,727,032 16,996,001 15,834,294
Redemptions (70,243,669) (69,066,775) (73,513,222)
Annuity benefits (569,003) (582,314) (569,906)
Annual contract maintenance charge (note 2) (365,726) (405,553) (459,826)
Contingent deferred sales charges (note 2) (157,482) (185,166) (201,021)
Adjustments to maintain reserves 160,437 42,627 (3,929)
------------- ----------- -----------
Net equity transactions (51,448,411) (53,201,180) (58,913,610)
------------- ----------- -----------
Net change in contract owners' equity 10,639,135 37,859,328 (74,592,888)
Contract owners' equity beginning of period 454,761,893 416,902,565 491,495,453
------------- ----------- -----------
Contract owners' equity end of period $ 465,401,028 454,761,893 416,902,565
============= =========== ===========
</TABLE>
See accompanying notes to financial statements.
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<PAGE> 4
- --------------------------------------------------------------------------------
MFS VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Nature of Operations
MFS Variable Account (the Account) was established by resolution of the
Board of Directors of Nationwide Life Insurance Company (the Company) on March
3, 1976. The Account has been registered as a unit investment trust under the
Investment Company Act of 1940.
The Company offers tax qualified and non-tax qualified Individual Deferred
Variable Annuity Contracts through the Account. The primary distribution for the
contracts is through Massachusetts Financial Services. Presently, the contracts
are not actively marketed.
(b) The Contracts
Prior to February 12, 1979, the contracts purchased provided for a
front-end sales charge and certain other fees. Beginning February 12, 1979, only
contracts (Spectrum) without a front-end sales charge but with a contingent
deferred sales charge and certain other fees were offered for purchase. See note
2 for a discussion of contract expenses.
With certain exceptions, contract owners in either the accumulation or
payout phase may invest in any of the following funds:
MFS Series Trust IV - MFS(R) Money Market Fund (MFSMyMkt)
Massachusetts Investors Growth Stock Fund - Class A (MFSGrStk)
Massachusetts Investors Trust - Class A (MFSInvTr)
MFS(R) Bond Fund - Class A (MFSBdFd)
MFS(R) Emerging Growth Fund - Class A (MFSEmGro)
MFS(R) Growth Opportunities Fund - Class A (MFSGrOpp)
MFS(R) High Income Fund Class A (MFSHiInc)
MFS(R) Research Fund - Class A (MFSRsrch)
MFS(R) Total Return Fund - Class A (MFSTotRe)
MFS(R) World Governments Fund - Class A (MFSWdGvt)
Nationwide Separate Account Trust-Money Market Fund (NSATMyMkt)
(managed for a fee by an affiliated investment advisor)
At December 31, 1996, contract owners have invested in all of the above
funds. The contract owners' equity is affected by the investment results of each
fund, equity transactions by contract owners and certain contract expenses (see
note 2). The accompanying financial statements include only contract owners'
purchase payments pertaining to the variable portions of their contracts and
exclude any purchase payments for fixed dollar benefits, the latter being
included in the accounts of the Company.
(c) Security Valuation, Transactions and Related Investment Income
The market value of the underlying mutual funds is based on the closing
net asset value per share at December 31, 1996. The cost of investments sold is
determined on the specific identification basis. Investment transactions are
accounted for on the trade date (date the order to buy or sell is executed) and
dividend income is recorded on the ex-dividend date.
<PAGE> 5
(d) Federal Income Taxes
Operations of the Account form a part of, and are taxed with, operations
of the Company which is taxed as a life insurance company under the Internal
Revenue Code.
The Internal Revenue Service issued Rev. Rul. 81-225 on September 25, 1981
and IR-82-19 on February 3, 1982. The effect of Rev. Rul. 81-225 was to treat
non-tax qualified contract holders, who purchased contracts or made purchase
payments after December 31, 1980, as the owners of the underlying mutual fund
shares for Federal income tax purposes. However, for 1981, IR-82-19 did provide
limited relief from the ruling. Therefore, the Company maintained a capital gain
reserve liability, for all realized and unrealized capital gains existing on or
before December 31, 1981.
During 1982 and most of 1983, the Company continued to maintain contract
values which reflected a capital gain reserve liability for those contracts and
contract values affected by Rev. Rul. 81-225. On December 16, 1983, the Company
adjusted the affected (81-225) contract values in order to treat the respective
contract owners as the owners of the underlying shares for Federal income tax
purposes, as intended by the ruling. As a result of this adjustment, contract
owners' equity was restored with amounts previously deducted to maintain the
capital gain reserve liability.
Because of the aforementioned, the Company no longer provides for income
taxes within the Account. Presently, taxes are the responsibility of the
contract owner upon termination or withdrawal.
(e) Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles may require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities, if any, at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
(f) Reclassifications
Certain 1995 and 1994 amounts have been reclassified to conform with the
current year presentation.
(2) EXPENSES
Net purchase payments received on contracts issued before February 12,
1979 represent gross contributions by the contract owners less a charge of 7.75%
by the Company to cover sales expenses.The Company does not deduct a sales
charge from purchase payments made for contracts issued beginning February 12,
1979. However, if any part of the contract value of such contracts is
surrendered the Company will, with certain exceptions, deduct from the owner's
contract value a contingent deferred sales charge equal to 5% of the lesser of
the total of all purchase payments made within 96 months prior to the date of
the request for surrender, or the amount surrendered; no sales charges are
deducted on redemptions used to purchase units in the fixed investment options
of the Company.
The following contract charges are deducted by the Company on each
contract issued prior to February 12, 1979: (a) a contract issue charge of $15
assessed against the initial purchase payment and a $15 annual contract
maintenance charge assessed against each contract by surrendering units; and (b)
a charge for mortality and expense risk assessed through the daily unit value
calculation equal to an annual rate of 0.80% and 0.20%, respectively. Contract
charges on contracts issued beginning February 12, 1979 include: (a) an annual
contract maintenance charge of $30 which is satisfied by surrendering units; and
(b) a charge for mortality and expense risk assessed through the daily unit
value calculation equal to an annual rate of 0.80% and 0.50%, respectively.
<PAGE> 6
(3) SCHEDULE I
Schedule I presents the components of the change in the unit values, which
are the basis for contract owners' equity. This schedule is presented for each
series, as applicable, in the following format:
- Beginning unit value - Jan. 1
- Reinvested capital gains and dividends
(This amount reflects the increase in the unit value due to
capital gains and dividend distributions from the underlying
mutual funds.)
- Unrealized gain (loss)
(This amount reflects the increase (decrease) in the unit value
resulting from the market appreciation (depreciation) of the
underlying mutual funds.)
- Contract charges
(This amount reflects the decrease in the unit value due to the
mortality and expense risk fee discussed in note 2.)
- Ending unit value - Dec. 31
- Percentage increase (decrease) in unit value.
For contracts in the payout phase, an assumed investment return of 3.5%,
used in the calculation of the annuity benefit payment amount, results in a
corresponding reduction in the components of the unit values as shown in
Schedule I.
<PAGE> 7
(4) COMPONENTS OF CONTRACT OWNERS' EQUITY
The following is a summary of contract owners' equity at December 31,
1996, for each series, in both the accumulation and payout phases. Due to the
nature of money market funds, an 81-225 adjustment (See note 1(d)) was not
required for either the MFS Series Trust IV - MFS(R) Money Market Fund or the
Nationwide Separate Account Trust - Money Market Fund.
Contract owners' equity represented by:
<TABLE>
<CAPTION>
UNITS UNIT VALUE
--------- -----------
<S> <C> <C> <C>
Contracts in accumulation phase:
MFS Series Trust IV - MFS(R) Money Market Fund:
Non-tax qualified ..................................... 4,058 $ 35.222087 $ 142,931
Tax qualified spectrum ................................ 1,343,440 30.037656 40,353,789
Non-tax qualified spectrum ............................ 615,505 30.058530 18,501,176
Massachusetts Investors Growth Stock Fund - Class A:
Non-tax qualified ..................................... 498 94.658415 47,140
Tax qualified spectrum ................................ 297,134 100.175691 29,765,604
Non-tax qualified spectrum ............................ 86,801 85.004193 7,378,449
Non-tax qualified spectrum (81-225) ................... 5,470 92.601102 506,528
Massachusetts Investors Trust - Class A:
Tax qualified ......................................... 16 125.889283 2,014
Tax qualified spectrum ................................ 331,572 101.029680 33,498,613
Non-tax qualified spectrum ............................ 96,073 90.647891 8,708,815
Non-tax qualified spectrum (81-225) ................... 2,037 96.304396 196,172
MFS(R) Bond Fund - Class A:
Non-tax qualified ..................................... 3,321 52.397975 174,014
Tax qualified spectrum ................................ 509,516 44.939826 22,897,560
Non-tax qualified spectrum ............................ 208,403 44.903088 9,357,938
Non-tax qualified spectrum (81-225) ................... 1,597 45.078692 71,991
MFS(R) Emerging Growth Fund - Class A:
Tax qualified spectrum ................................ 437,204 34.264981 14,980,787
Non-tax qualified spectrum (81-225) ................... 675 34.264981 23,129
MFS(R) Growth Opportunities Fund - Class A:
Non-tax qualified ..................................... 2,724 124.926291 340,299
Tax qualified spectrum ................................ 822,246 116.177967 95,526,869
Non-tax qualified spectrum ............................ 182,479 98.686554 18,008,224
Non-tax qualified spectrum (81-225) ................... 14,732 108.889502 1,604,160
MFS(R) High Income Fund - Class A:
Non-tax qualified ..................................... 358 64.483775 23,085
Tax qualified spectrum ................................ 408,255 56.528677 23,078,115
Non-tax qualified spectrum ............................ 176,997 55.671087 9,853,615
Non-tax qualified spectrum (81-225) ................... 6,379 56.528677 360,596
MFS(R) Research Fund - Class A:
Non-tax qualified ..................................... 110 124.427653 13,687
Tax qualified spectrum ................................ 283,320 122.865333 34,810,206
Non-tax qualified spectrum ............................ 105,263 107.355935 11,300,608
Non-tax qualified spectrum (81-225) ................... 1,676 121.431177 203,519
MFS(R) Total Return Fund - Class A:
Tax qualified ......................................... 131 90.602325 11,869
Tax qualified spectrum ................................ 671,118 83.053566 55,738,743
Non-tax qualified spectrum ............................ 167,776 80.393080 13,488,029
Non-tax qualified spectrum (81-225) ................... 1,979 82.245565 162,764
MFS(R) World Governments Fund - Class A:
Tax qualified spectrum ................................ 143,438 50.880072 7,298,136
Non-tax qualified spectrum ............................ 22,367 49.604787 1,109,510
Non-tax qualified spectrum (81-225) ................... 1,811 50.800980 92,001
Nationwide Separate Account Trust - Money Market Fund:
Tax qualified spectrum ................................ 55,730 22.783414 1,269,720
Non-tax qualified spectrum ............................ 32,499 22.798231 740,920
====== =========
Reserves for annuity contracts in payout phase:
Tax qualified 52,535
Non-tax qualified 70,050
Tax qualified spectrum 2,541,149
Non-tax qualified spectrum 1,090,226
Non-tax qualified spectrum (81-225) 5,743
-------------
$ 465,401,028
=============
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 8
- --------------------------------------------------------------------------------
SCHEDULE I
MFS VARIABLE ACCOUNT
TAX QUALIFIED
SCHEDULES OF CHANGES IN UNIT VALUE
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
MFSINVTR MFSBDFD MFSTOTRE
-------- ------- --------
1996***
<S> <C> <C> <C>
Beginning unit value - Jan. 1 $101.007177 ** 79.840336
- ----------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 12.151296 9.492656
- ----------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 13.860085 2.119334
- ----------------------------------------------------------------------------------------------------------------------
Contract charges (1.129275) (.850001)
- ----------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $125.889283 90.602325
- ----------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 25% 13%
======================================================================================================================
1995***
Beginning unit value - Jan. 1 $ 73.217470 ** 63.581031
- ----------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 9.389953 6.796396
- ----------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 19.267126 10.187101
- ----------------------------------------------------------------------------------------------------------------------
Contract charges (.867372) (.724192)
- ----------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $101.007177 79.840336
- ----------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 38% 26%
======================================================================================================================
1994***
Beginning unit value - Jan. 1 $ 74.716077 42.399834 65.964662
- ----------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 8.586372 2.862666 2.763915
- ----------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (9.338645) (4.752106) (4.502426)
- ----------------------------------------------------------------------------------------------------------------------
Contract charges (.746334) (.407003) (.645120)
- ----------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $ 73.217470 40.103391 63.581031
- ----------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (2)% (5)% (4)%
======================================================================================================================
<FN>
* An annualized rate of return cannot be determined as contract charges do not
include the annual contract maintenance charge discussed in note 2.
** This investment option was not being utilized.
*** No other investment options were being utilized.
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 9
- --------------------------------------------------------------------------------
SCHEDULE I, CONTINUED
MFS VARIABLE ACCOUNT
NON-TAX QUALIFIED
SCHEDULES OF CHANGES IN UNIT VALUE
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
MFSMYMKT MFSGRSTK MFSBDFD MFSGROPP MFSHIINC MFSRSRCH MFSTOTRE
-------- -------- ------- -------- -------- -------- --------
1996***
<S> <C> <C> <C> <C> <C> <C>
Beginning unit value - Jan. 1 $33.966291 77.839871 50.922705 103.553065 57.870879 100.977005 **
- ---------------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 1.605064 22.453848 3.611265 13.480974 5.309675 6.050177
- ---------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .000000 (4.761510) (1.629887) 9.045917 1.918782 18.541253
- ---------------------------------------------------------------------------------------------------------------------------------
Contract charges (.349268) (.873794) (.506108) (1.153665) (.615561) (1.140782)
- ---------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $35.222087 94.658415 52.397975 124.926291 64.483775 124.427653
- ---------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 4% 22% 3% 21% 11% 23%
================================================================================================================================
1995***
Beginning unit value - Jan. 1 $32.595660 61.261465 42.342529 77.773322 49.895862 73.593263 62.479885
- ---------------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 1.704937 10.252961 3.454391 13.011382 4.720108 6.201200 6.678704
- ---------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .000000 7.033136 5.596005 13.690716 3.805299 22.049861 10.010672
- ---------------------------------------------------------------------------------------------------------------------------------
Contract charges (.334306) (.707691) (.470220) (.922355) (.550390) (.867319) (.711663)
- ---------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $33.966291 77.839871 50.922705 103.553065 57.870879 100.977005 78.457598
- ---------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 4% 27% 20% 33% 16% 37% 26%
================================================================================================================================
1994***
Beginning unit value - Jan. 1 $31.804010 66.343035 44.767184 81.961605 51.758789 74.327082 64.822235
- ---------------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 1.114091 6.245985 3.022499 6.380267 4.381074 7.237361 2.716055
- ---------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .000000 (10.708702) (5.017439) (9.773345) (5.737464) (7.223674) (4.424461)
- ---------------------------------------------------------------------------------------------------------------------------------
Contract charges (.322441) (.618853) (.429715) (.795205) (.506537) (.747506) (.633944)
- ---------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $32.595660 61.261465 42.342529 77.773322 49.895862 73.593263 62.479885
- ---------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 2% (8)% (5)% (5)% (4)% (1)% (4)%
================================================================================================================================
<FN>
* An annualized rate of return cannot be determined as contract charges do not
include the annual contract maintenance charge discussed in note 2.
** This investment option was not being utilized.
*** No other investment options were being utilized.
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 10
- --------------------------------------------------------------------------------
SCHEDULE I, CONTINUED
MFS VARIABLE ACCOUNT
TAX QUALIFIED SPECTRUM
SCHEDULES OF CHANGES IN UNIT VALUE
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
MFSMYMKT MFSGRSTK MFSINVTR MFSBDFD MFSEMGRO MFSGROPP
-------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
1996
Beginning unit value - Jan. 1 $29.055232 82.628565 81.308640 43.808005 30.247061 96.595726
- -----------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 1.370810 23.764772 9.754053 3.102317 .411401 12.538074
- -----------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .000000 (5.011899) 11.148678 (1.404493) 4.043215 8.443093
- -----------------------------------------------------------------------------------------------------------------
Contract charges (.388386) (1.205747) (1.181691) (.566003) (.436696) (1.398926)
- -----------------------------------------------------------------------------------------------------------------
Ending unit value -Dec. 31 $30.037656 100.175691 101.029680 44.939826 34.264981 116.177967
- -----------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 3% 21% 24% 3% 13% 20%
=================================================================================================================
1995
Beginning unit value - Jan. 1 $27.967294 65.227303 59.116939 36.536936 21.706658 72.767772
- -----------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 1.460813 10.883902 7.560531 2.976527 .000000 12.137397
- -----------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .000000 7.496845 15.541527 4.821993 8.878016 12.812372
- -----------------------------------------------------------------------------------------------------------------
Contract charges (.372875) (.979485) (.910357) (.527451) (.337613) (1.121815)
- -----------------------------------------------------------------------------------------------------------------
Ending unit value -Dec. 31 $29.055232 82.628565 81.308640 43.808005 30.247061 96.595726
- -----------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 4% 27% 38% 20% 39% 33%
=================================================================================================================
1994
Beginning unit value - Jan. 1 $27.370768 70.852048 60.509797 38.746280 20.977490 76.918993
- -----------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .957264 6.650437 6.934388 2.612018 .436556 5.969728
- -----------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .000000 (11.415978) (7.541473) (4.337835) .566606 (9.150770)
- -----------------------------------------------------------------------------------------------------------------
Contract charges (.360738) (.859204) (.785773) (.483527) (.273994) (.970179)
- -----------------------------------------------------------------------------------------------------------------
Ending unit value -Dec. 31 $27.967294 65.227303 59.116939 36.536936 21.706658 72.767772
- -----------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 2% (8)% (2)% (6)% 3% (5)%
=================================================================================================================
MFSHIINC MFSRSRCH MFSTOTRE MFSWDGVT NSATMYMKT
-------- -------- -------- -------- ---------
1996
Beginning unit value - Jan. 1 50.886631 100.013750 73.411912 48.914346 21.961256
- -----------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 4.662173 5.974756 8.708448 1.375200 1.116295
- -----------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 1.683533 18.345600 1.949204 1.232657 .000000
- -----------------------------------------------------------------------------------------------------------------
Contract charges (.703660) (1.468773) (1.015998) (.642131) (.294137)
- -----------------------------------------------------------------------------------------------------------------
Ending unit value -Dec. 31 56.528677 122.865333 83.053566 50.880072 22.783414
- -----------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 11% 23% 13% 4% 4%
=================================================================================================================
1995
Beginning unit value - Jan. 1 44.007083 73.111959 58.638949 42.911877 21.058716
- -----------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 4.157163 6.142147 6.254848 6.115071 1.183897
- -----------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 3.353463 21.879706 9.386344 .495697 .000000
- -----------------------------------------------------------------------------------------------------------------
Contract charges (.631078) (1.120062) (.868229) (.608299) (.281357)
- -----------------------------------------------------------------------------------------------------------------
Ending unit value -Dec. 31 50.886631 100.013750 73.411912 48.914346 21.961256
- -----------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 16% 37% 25% 14% 4%
=================================================================================================================
1994
Beginning unit value - Jan. 1 45.788518 74.064821 61.021714 46.532702 20.538004
- -----------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 3.870377 7.195425 2.553354 2.288468 .791945
- -----------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (5.069261) (7.179946) (4.160311) (5.345421) .000000
- -----------------------------------------------------------------------------------------------------------------
Contract charges (.582551) (.968341) (.775808) (.563872) (.271233)
- -----------------------------------------------------------------------------------------------------------------
Ending unit value -Dec. 31 44.007083 73.111959 58.638949 42.911877 21.058716
- -----------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (4)% (1)% (4)% (8)% 3%
=================================================================================================================
<FN>
* An annualized rate of return cannot be determined as contract charges do not
include the annual contract maintenance charge discussed in note 2.
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 11
- --------------------------------------------------------------------------------
SCHEDULE I, CONTINUED
MFS VARIABLE ACCOUNT
NON-TAX QUALIFIED SPECTRUM
SCHEDULES OF CHANGES IN UNIT VALUE
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
MFSMYMKT MFSGRSTK MFSINVTR MFSBDFD MFSGROPP
-------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
1996
Beginning unit value - Jan 1 $29.075421 70.114570 72.953374 43.772192 82.052560
- ------------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 1.371771 20.165623 8.751729 3.099782 10.650379
- ------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .000000 (4.252868) 10.003041 (1.403340) 7.171939
- ------------------------------------------------------------------------------------------------------------------------------
Contract charges (.388662) (1.023132) (1.060253) (.565546) (1.188324)
- ------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $30.058530 85.004193 90.647891 44.903088 98.686554
- ------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 3% 21% 24% 3% 20%
==============================================================================================================================
1995
Beginning unit value - Jan 1 $27.986728 55.348697 53.042089 36.507070 61.812074
- ------------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 1.461834 9.235549 6.783611 2.974097 10.310027
- ------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .000000 6.361465 13.944489 4.818039 10.883379
- ------------------------------------------------------------------------------------------------------------------------------
Contract charges (.373141) (.831141) (.816815) (.527014) (.952920)
- ------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $29.075421 70.114570 72.953374 43.772192 82.052560
- ------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 4% 27% 38% 20% 33%
==============================================================================================================================
1994
Beginning unit value - Jan 1 $27.389788 60.121583 54.291825 38.714601 65.338300
- ------------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .957927 5.643236 6.221811 2.609884 5.070943
- ------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .000000 (9.687046) (6.766521) (4.334289) (7.773057)
- ------------------------------------------------------------------------------------------------------------------------------
Contract charges (.360987) (.729076) (.705026) (.483126) (.824112)
- ------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $27.986728 55.348697 53.042089 36.507070 61.812074
- ------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 2% (8)% (2)% (6)% (5)%
==============================================================================================================================
MFSHIINC MFSRSRCH MFSTOTRE MFSWDGVT NSATMYMKT
-------- -------- -------- -------- ---------
1996
Beginning unit value - Jan 1 50.114634 87.388917 71.060281 47.688325 21.975540
- ------------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 4.591407 5.220557 8.429455 1.340731 1.117024
- ------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 1.658007 16.029828 1.886778 1.201751 .000000
- ------------------------------------------------------------------------------------------------------------------------------
Contract charges (.692961) (1.283367) (.983434) (.626020) (.294333)
- ------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 55.671087 107.355935 80.393080 49.604787 22.798231
- ------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 11% 23% 13% 4% 4%
==============================================================================================================================
1995
Beginning unit value - Jan 1 43.339456 63.882963 56.760546 41.836304 21.072414
- ------------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 4.094062 5.366818 6.054479 5.961799 1.184666
- ------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 3.302603 19.117811 9.085680 .483276 .000000
- ------------------------------------------------------------------------------------------------------------------------------
Contract charges (.621487) (.978675) (.840424) (.593054) (.281540)
- ------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 50.114634 87.388917 71.060281 47.688325 21.975540
- ------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 16% 37% 25% 14% 4%
==============================================================================================================================
1994
Beginning unit value - Jan 1 45.093866 64.715547 59.066983 45.366368 20.551361
- ------------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 3.811643 6.287139 2.471571 2.231109 .792462
- ------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (4.992348) (6.273621) (4.027043) (5.211428) .000000
- ------------------------------------------------------------------------------------------------------------------------------
Contract charges (.573705) (.846102) (.750965) (.549745) (.271409)
- ------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 43.339456 63.882963 56.760546 41.836304 21.072414
- ------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (4)% (1)% (4)% (8)% 3%
==============================================================================================================================
<FN>
* An annualized rate of return cannot be determined as contract charges do not
include the annual contract maintenance charge discussed in note 2.
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 12
- --------------------------------------------------------------------------------
SCHEDULE I, CONTINUED
MFS VARIABLE ACCOUNT
NON-TAX QUALIFIED SPECTRUM (81-225)
SCHEDULES OF CHANGES IN UNIT VALUE
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
MFSGRSTK MFSINVTR MFSBDFD MFSEMGRO MFSGROPP MFSHIINC
-------- -------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
1996
Beginning unit value - Jan. 1 $76.380777 77.505736 43.943375 30.247061 90.535764 50.886631
- -----------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 21.967845 9.297843 3.111902 .411401 11.751494 4.662173
- -----------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (4.632952) 10.627246 (1.408823) 4.043215 7.913421 1.683533
- -----------------------------------------------------------------------------------------------------------------------
Contract charges (1.114568) (1.126429) (.567762) (.436696) (1.311177) (.703660)
- -----------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $92.601102 96.304396 45.078692 34.264981 108.889502 56.528677
- -----------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 21% 24% 3% 13% 20% 11%
=======================================================================================================================
1995
Beginning unit value - Jan. 1 $60.295273 56.351973 36.649839 21.706658 68.202665 44.007083
- -----------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 10.060939 7.206917 2.985727 .000000 11.375954 4.157163
- -----------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 6.929991 14.814629 4.836885 8.878016 12.008582 3.353463
- -----------------------------------------------------------------------------------------------------------------------
Contract charges (.905426) (.867783) (.529076) (.337613) (1.051437) (.631078)
- -----------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $76.380777 77.505736 43.943375 30.247061 90.535764 50.886631
- -----------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 27% 38% 20% 39% 33% 16%
=======================================================================================================================
1994
Beginning unit value - Jan. 1 $65.494712 57.679687 38.865999 20.977490 72.093454 45.788518
- -----------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends . 6.147578 6.610058 2.620091 .436556 5.595215 3.870377
- -----------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (10.552777) (7.188748) (4.351232) .566606 (8.576687) (5.069261)
- -----------------------------------------------------------------------------------------------------------------------
Contract charges (.794240) (.749024) (.485019) (.273994) (.909317) (.582551)
- -----------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $60.295273 56.351973 36.649839 21.706658 68.202665 44.007083
- -----------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (8)% (2)% (6)% 3% (5)% (4)%
=======================================================================================================================
MFSRSRCH MFSTOTRE MFSWDGVT
-------- -------- --------
1996
Beginning unit value - Jan. 1 98.846334 72.697711 48.838310
- --------------------------------------------------------------------------------
Reinvested capital gains
and dividends 5.905015 8.623693 1.373062
- --------------------------------------------------------------------------------
Unrealized gain (loss) 18.131463 1.930268 1.230738
- --------------------------------------------------------------------------------
Contract charges (1.451635) (1.006107) (.641130)
- --------------------------------------------------------------------------------
Ending unit value - Dec. 31 121.431177 82.245565 50.800980
- --------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 23% 13% 4%
================================================================================
1995
Beginning unit value - Jan. 1 72.258548 58.068470 42.845163
- --------------------------------------------------------------------------------
Reinvested capital gains
and dividends 6.070452 6.194025 6.105566
- --------------------------------------------------------------------------------
Unrealized gain (loss) 21.624321 9.294998 .494930
- --------------------------------------------------------------------------------
Contract charges (1.106987) (.859782) (.607349)
- --------------------------------------------------------------------------------
Ending unit value - Dec. 31 98.846334 72.697711 48.838310
- --------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 37% 25% 14%
================================================================================
1994
Beginning unit value - Jan. 1 73.200301 60.428053 46.460353
- --------------------------------------------------------------------------------
Reinvested capital gains
and dividends 7.111436 2.528526 2.284911
- --------------------------------------------------------------------------------
Unrealized gain (loss) (7.096145) (4.119853) (5.337099)
- --------------------------------------------------------------------------------
Contract charges (.957044) (.768256) (.563002)
- --------------------------------------------------------------------------------
Ending unit value - Dec. 31 72.258548 58.068470 42.845163
- --------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (1)% (4)% (8)%
================================================================================
<FN>
* An annualized rate of return cannot be determined as contract charges do not
include the annual contract maintenance charge discussed in note 2.
See note 3.
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 54
<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) as of December 31,
1996 and 1995, 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, 1996. 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, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally accepted
accounting principles.
In 1994, the Company adopted the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities.
KPMG Peat Marwick LLP
Columbus, Ohio
January 31, 1997
<PAGE> 2
<TABLE>
<CAPTION>
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1996 and 1995
($000's omitted)
Assets 1996 1995
------ ----------------- ----------------
<S> <C> <C>
Investments (notes 5, 8 and 9):
Securities available-for-sale, at fair value:
Fixed maturity securities (cost $11,970,878 in 1996; $11,862,556 in 1995) $12,304,639 12,485,564
Equity securities (cost $43,890 in 1996; $23,617 in 1995) 59,131 29,953
Mortgage loans on real estate, net 5,272,119 4,602,764
Real estate, net 265,759 229,442
Policy loans 371,816 336,356
Other long-term investments 28,668 61,989
Short-term investments (note 13) 4,789 32,792
----------------- ----------------
18,306,921 17,778,860
----------------- ----------------
Cash 43,784 9,455
Accrued investment income 210,182 212,963
Deferred policy acquisition costs 1,366,509 1,020,356
Investment in subsidiaries classified as discontinued operations (notes 1 and 2) 485,707 506,677
Other assets (note 6) 426,441 388,214
Assets held in Separate Accounts (note 8) 26,926,702 18,591,108
----------------- ----------------
$47,766,246 38,507,633
================= ================
Liabilities and Shareholder's Equity
------------------------------------
Future policy benefits and claims (notes 6 and 8) $17,179,060 16,358,614
Policyholders' dividend accumulations 361,401 348,027
Other policyholder funds 60,073 65,297
Accrued federal income tax (note 7):
Current 30,170 35,301
Deferred 162,212 246,627
----------------- ----------------
192,382 281,928
----------------- ----------------
Dividend payable to shareholder (notes 1 and 2) 485,707 -
Other liabilities 423,047 234,147
Liabilities related to Separate Accounts (note 8) 26,926,702 18,591,108
----------------- ----------------
45,628,372 35,879,121
----------------- ----------------
Commitments and contingencies (notes 6, 9 and 15)
Shareholder's equity (notes 3, 4, 5, 12 and 13):
Capital shares, $1 par value. Authorized 5,000,000 shares, issued and
outstanding 3,814,779 shares 3,815 3,815
Additional paid-in capital 527,874 657,118
Retained earnings 1,432,593 1,583,275
Unrealized gains on securities available-for-sale, net 173,592 384,304
----------------- ----------------
2,137,874 2,628,512
----------------- ----------------
$47,766,246 38,507,633
================= ================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 3
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 1996, 1995 and 1994
($000's omitted)
<TABLE>
<CAPTION>
1996 1995 1994
--------------- -------------- -------------
<S> <C> <C> <C>
Revenues (note 16):
Investment product and universal life insurance product policy charges $ 400,902 286,534 217,245
Traditional life insurance premiums 198,642 199,106 176,658
Net investment income (note 5) 1,357,759 1,294,033 1,210,811
Realized losses on investments (note 5) (326) (1,724) (16,527)
Other income 35,861 20,702 11,312
--------------- -------------- -------------
1,992,838 1,798,651 1,599,499
--------------- -------------- -------------
Benefits and expenses:
Benefits and claims 1,160,580 1,115,493 992,667
Provision for policyholders' dividends on participating policies (note 12) 40,973 39,937 38,754
Amortization of deferred policy acquisition costs 133,394 82,695 85,568
Other operating expenses (note 13) 342,394 272,954 240,652
--------------- -------------- -------------
1,677,341 1,511,079 1,357,641
--------------- -------------- -------------
Income from continuing operations before federal income tax expense 315,497 287,572 241,858
--------------- -------------- -------------
Federal income tax expense (benefit) (note 7):
Current 116,512 88,700 73,559
Deferred (5,623) 11,108 5,030
--------------- -------------- -------------
110,889 99,808 78,589
--------------- -------------- -------------
Income from continuing operations 204,608 187,764 163,269
Income from discontinued operations (less federal income tax expense of
$4,453, $7,446 and $10,915 in 1996, 1995 and 1994, respectively) (note 2) 11,324 24,714 20,459
--------------- -------------- -------------
Net income $ 215,932 212,478 183,728
=============== ============== =============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 4
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Shareholder's Equity
Years ended December 31, 1996, 1995 and 1994
($000's omitted)
<TABLE>
<CAPTION>
Unrealized
gains (losses)
Additional on securities Total
Capital paid-in Retained available-for- shareholder's
shares capital earnings sale, net equity
----------- ------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
1994:
Balance, beginning of year $3,815 406,089 1,194,519 6,745 1,611,168
Capital contribution - 200,000 - - 200,000
Net income - - 183,728 - 183,728
Adjustment for change in accounting for
certain investments in debt and equity
securities, net (note 4) - - - 212,553 212,553
Unrealized losses on securities available-
for-sale, net - - - (338,971) (338,971)
----------- ------------- --------------- ----------------- ---------------
Balance, end of year $3,815 606,089 1,378,247 (119,673) 1,868,478
=========== ============= =============== ================= ===============
1995:
Balance, beginning of year 3,815 606,089 1,378,247 (119,673) 1,868,478
Capital contribution (note 13) - 51,029 - (4,111) 46,918
Dividends to shareholder - - (7,450) - (7,450)
Net income - - 212,478 - 212,478
Unrealized gains on securities available-
for-sale, net - - - 508,088 508,088
----------- ------------- --------------- ----------------- ---------------
Balance, end of year $3,815 657,118 1,583,275 384,304 2,628,512
=========== ============= =============== ================= ===============
1996:
Balance, beginning of year 3,815 657,118 1,583,275 384,304 2,628,512
Capital contribution (note 13) - 25 5 - 30
Dividends to shareholder - (129,269) (366,619) (39,819) (535,707)
Net income - - 215,932 - 215,932
Unrealized losses on securities available-
for-sale, net - - - (170,893) (170,893)
----------- ------------- --------------- ----------------- ---------------
Balance, end of year $3,815 527,874 1,432,593 173,592 2,137,874
=========== ============= =============== ================= ===============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
($000's omitted)
<TABLE>
<CAPTION>
1996 1995 1994
---------------- --------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 215,932 212,478 183,728
Adjustments to reconcile net income to net cash provided by operating
activities:
Capitalization of deferred policy acquisition costs (422,572) (321,327) (242,431)
Amortization of deferred policy acquisition costs 133,394 82,695 85,568
Amortization and depreciation 6,962 10,234 3,603
Realized (gains) losses on invested assets, net (284) 3,250 16,094
Deferred federal income tax expense (benefit) 7,603 (30,673) 9,946
Decrease (increase) in accrued investment income 2,781 (16,999) (12,808)
(Increase) decrease in other assets (38,876) 39,880 (102,676)
Increase in policy liabilities 305,755 135,937 118,361
Increase in policyholders' dividend accumulations 13,374 12,639 15,298
(Decrease) increase in accrued federal income tax payable (5,131) 30,836 (5,714)
Increase in other liabilities 188,900 26,851 506
Other, net (61,679) 1,832 (29,595)
--------------- --------------- ---------------
Net cash provided by operating activities 346,159 187,633 39,880
---------------- --------------- ---------------
Cash flows from investing activities:
Proceeds from maturity of securities available-for-sale 1,162,766 634,553 544,843
Proceeds from sale of securities available-for-sale 299,558 107,345 228,308
Proceeds from maturity of fixed maturity securities held-to-maturity - 564,450 491,862
Proceeds from repayments of mortgage loans on real estate 309,050 207,832 190,574
Proceeds from sale of real estate 18,519 48,331 46,713
Proceeds from repayments of policy loans and sale of other invested assets 22,795 53,587 120,506
Cost of securities available-for-sale acquired (1,573,640) (1,942,413) (1,816,370)
Cost of fixed maturity securities held-to-maturity acquired - (593,636) (410,379)
Cost of mortgage loans on real estate acquired (972,776) (796,026) (471,570)
Cost of real estate acquired (7,862) (10,928) (6,385)
Policy loans issued and other invested assets acquired (57,740) (75,910) (65,302)
Short-term investments, net 28,003 77,837 (89,376)
Purchase of affiliate (note 13) - - (155,000)
---------------- --------------- ---------------
Net cash used in investing activities (771,327) (1,724,978) (1,391,576)
---------------- --------------- ---------------
Cash flows from financing activities:
Proceeds from capital contributions 30 - 200,000
Dividends paid to shareholder (50,000) (7,450) -
Increase in investment product and universal life insurance
product account balances 2,293,933 2,809,385 3,547,976
Decrease in investment product and universal life insurance
product account balances (1,784,466) (1,258,758) (2,412,595)
---------------- --------------- --------------
Net cash provided by financing activities 459,497 1,543,177 1,335,381
---------------- --------------- --------------
Net increase (decrease) in cash 34,329 5,832 (16,315)
---------------- --------------- ---------------
Cash, beginning of year 9,455 3,623 19,938
---------------- --------------- ---------------
Cash, end of year $ 43,784 9,455 3,623
================ =============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 6
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
($000's omitted)
(1) Organization and Description of Business
----------------------------------------
Nationwide Life Insurance Company (NLIC) is a wholly owned subsidiary
of Nationwide Corporation (Nationwide Corp.). Wholly owned subsidiaries
of NLIC include Nationwide Life and Annuity Insurance Company (NLAIC),
Employers Life Insurance Company of Wausau and subsidiaries (ELICW),
National Casualty Company (NCC), West Coast Life Insurance Company
(WCLIC), Nationwide Advisory Services, Inc. (formerly Nationwide
Financial Services, Inc.), Nationwide Investment Services Corporation
(formerly PEBSCO Securities Corporation) (NISC) and NWE, Inc. NLIC and
its subsidiaries are collectively referred to as "the Company."
Nationwide Corp. formed Nationwide Financial Services, Inc. (NFS) in
November 1996 as a holding company for NLIC and the other companies of
the Nationwide Insurance Enterprise that offer or distribute long-term
savings and retirement products. On January 27, 1997, Nationwide Corp.
contributed to NFS the common stock of NLIC and three marketing and
distribution companies. NFS is planning an initial public offering of
its Class A common stock during the first quarter of 1997.
In anticipation of the restructuring described above, on September 24,
1996, NLIC's Board of Directors declared a dividend payable January 1,
1997 to Nationwide Corp. consisting of the outstanding shares of common
stock of certain subsidiaries (ELICW, NCC and WCLIC) that do not offer
or distribute long-term savings and 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 ELICW and another affiliate effective January 1, 1996. These
subsidiaries and all accident and health and group life insurance
business have been accounted for as discontinued operations for all
periods presented. See notes 2 and 13.
In addition, as part of the restructuring described above, NLIC intends
to make an $850,000 distribution to NFS which will then make an
equivalent distribution to Nationwide Corp.
The Company is a leading provider of long-term savings and retirement
products to retail and institutional customers and is subject to
competition from other financial services providers throughout the
United States. The Company is subject to regulation by the Insurance
Departments of states in which it is licensed, and undergoes periodic
examinations by those departments.
The following is a description of the most significant risks facing
life insurers and how the Company mitigates those risks:
LEGAL/REGULATORY RISK is the risk that changes in the legal or
regulatory environment in which an insurer operates will create
additional expenses not anticipated by the insurer in pricing its
products. That is, regulatory initiatives, new legal theories or
insurance company insolvencies through guaranty fund assessments
may create costs for the insurer beyond those currently recorded
in the consolidated financial statements. 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.
CREDIT RISK is 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.
<PAGE> 7
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
INTEREST RATE RISK is 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.
(2) Discontinued Operations
-----------------------
As discussed in note 1, NFS is a holding company for NLIC and certain
other companies that offer or distribute long-term savings and
retirement products. Prior to the contribution by Nationwide Corp. to
NFS of the outstanding common stock of NLIC and other companies, 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 to
Nationwide Corp. 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
that serves as a fronting company for a property and casualty
subsidiary of Nationwide Mutual Insurance Company (NMIC), an affiliate.
NCC maintains its offices in Scottsdale, Arizona. 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 for all periods presented. NLIC did not
recognize any gain or loss on the disposal of these subsidiaries.
A summary of the combined results of operations, including the results
of the accident and health and group life insurance business ELICW
assumed from NLIC in 1996, and assets and liabilities of ELICW, NCC and
WCLIC as of and for the years ended December 31, 1996, 1995 and 1994 is
as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Revenues $ 668,870 422,149 84,226
Net income 11,324 26,456 11,753
Assets, consisting primarily of investments 3,029,293 2,967,326 2,537,692
Liabilities, consisting primarily of policy benefits and claims 2,543,586 2,460,649 2,179,263
</TABLE>
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 13 for a
complete discussion of the reinsurance agreements. NLIC 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
and will cease writing any new business prior to December 31, 1997.
NLIC's accident and health and group life insurance business is
accounted for as discontinued operations for all periods presented.
NLIC 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 NLIC.
<PAGE> 8
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
A summary of the results of operations, net of amounts ceded to ELICW
and NMIC in 1996, and assets and liabilities of NLIC's accident and
health and group life insurance business as of and for the years ended
December 31, 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Revenues $ - 354,788 362,476
Net income (loss) - (1,742) 8,706
Assets, consisting primarily of investments 259,185 239,426 234,082
Liabilities, consisting primarily of policy benefits and claims 259,185 239,426 234,082
</TABLE>
(3) 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 (GAAP) which
differ from statutory accounting practices prescribed or permitted by
regulatory authorities. Annual Statements for NLIC and its insurance
subsidiaries, filed with the department of insurance of each insurance
company's state of domicile, are prepared on the basis of accounting
practices prescribed or permitted by each 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.
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. Subsidiaries that are
classified and reported as discontinued operations are not
consolidated but rather are reported as "Investment in
Subsidiaries Classified as Discontinued Operations" in the
accompanying consolidated balance sheets and "Income for
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, 1996 or 1995.
<PAGE> 9
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
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 are 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.
(c) Revenues and Benefits
---------------------
INVESTMENT PRODUCTS AND UNIVERSAL LIFE INSURANCE PRODUCTS:
Investment products consist primarily of individual and group
variable and fixed annuities, annuities without life contingencies
and guaranteed investment contracts. Universal life insurance
products include universal life insurance, variable universal 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.
ACCIDENT AND HEALTH INSURANCE PRODUCTS: Accident and health
insurance premiums are recognized as revenue over the terms of the
policies. Policy claims are charged to expense in the period that
the claims are incurred. All accident and health insurance
business is accounted for as discontinued operations. See note 2.
(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 agency 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 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 3(b).
<PAGE> 10
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(e) Separate Accounts
-----------------
Separate Account assets and liabilities represent contractholders'
funds which have been segregated into accounts with specific
investment objectives. 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.
Future policy benefits for traditional life insurance policies
have been calculated using a net level premium method based on
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. See note 6.
Future policy benefits and claims for collectively renewable
long-term disability policies and group long-term disability
policies are the present value of amounts not yet due on reported
claims and an estimate of amounts to be paid on incurred but
unreported claims. The impact of reserve discounting is not
material. Future policy benefits and claims on other group health
insurance policies are not discounted. All health insurance
business is accounted for as discontinued operations. See note 2.
(g) Participating Business
----------------------
Participating business represents approximately 52% in 1996 (54%
in 1995 and 55% in 1994) of the Company's life insurance in force,
78% in 1996 (79% in 1995 and 79% in 1994) of the number of life
insurance policies in force, and 40% in 1996 (47% in 1995 and 51%
in 1994) of life insurance premiums. The provision for
policyholder dividends is based on current dividend scales. Future
dividends are provided for ratably in future policy benefits based
on dividend scales in effect at the time the policies were issued.
(h) Federal Income Tax
------------------
The Company, with the exception of ELICW, files a consolidated
federal income tax return with 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. Through 1994, ELICW filed a
consolidated federal income tax return with Employers Insurance of
Wausau A Mutual Company, an affiliate. Beginning in 1995, ELICW
files a separate federal income tax return.
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.
<PAGE> 11
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(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 2 and 13.
(j) Reclassification
----------------
Certain items in the 1995 and 1994 consolidated financial
statements have been reclassified to conform to the 1996
presentation.
(4) Change in Accounting Principle
------------------------------
Effective January 1, 1994, the Company changed its method of accounting
for certain investments in debt and equity securities in connection
with the issuance of STATEMENT OF FINANCIAL ACCOUNTING STANDARDS (SFAS)
NO. 115 - ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY
SECURITIES. As of January 1, 1994, the Company classified fixed
maturity securities with amortized cost and fair value of $6,299,665
and $6,721,714, respectively, as available-for-sale and recorded the
securities at fair value. Previously, these securities were recorded at
amortized cost. The effect as of January 1, 1994 has been recorded as a
direct credit to shareholder's equity as follows:
<TABLE>
<CAPTION>
<S> <C>
Excess of fair value over amortized cost of fixed maturity
securities available-for-sale $ 422,049
Adjustment to deferred policy acquisition costs (95,044)
Deferred federal income tax (114,452)
--------------
$ 212,553
==============
</TABLE>
(5) Investments
-----------
The amortized cost and estimated fair value of securities
available-for-sale were as follows as of December 31, 1996:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
------------ ---------- ----------- -----------
<S> <C> <C> <C> <C>
1996:
Fixed maturity securities:
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $ 275,696 4,795 (1,340) 279,151
Obligations of states and political subdivisions 6,242 450 (2) 6,690
Debt securities issued by foreign governments 100,656 2,141 (857) 101,940
Corporate securities 7,999,310 285,946 (33,686) 8,251,570
Mortgage-backed securities 3,588,974 91,438 (15,124) 3,665,288
------------ ---------- ------------ ------------
Total fixed maturity securities 11,970,878 384,770 (51,009) 12,304,639
Equity securities 43,890 15,571 (330) 59,131
------------ ---------- ------------ ------------
$12,014,768 400,341 (51,339) 12,363,770
============ ========== ============ ============
</TABLE>
<PAGE> 12
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The amortized cost and estimated fair value of securities
available-for-sale were as follows as of December 31, 1995:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
------------ ---------- ----------- ---------------
<S> <C> <C> <C> <C>
1995:
Fixed maturity securities:
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $ 310,186 12,764 (1) 322,949
Obligations of states and political subdivisions 8,655 1,205 (1) 9,859
Debt securities issued by foreign governments 101,414 4,387 (66) 105,735
Corporate securities 7,888,440 473,681 (25,742) 8,336,379
Mortgage-backed securities 3,553,861 165,169 (8,388) 3,710,642
------------ ---------- ----------- ---------------
Total fixed maturity securities 11,862,556 657,206 (34,198) 12,485,564
Equity securities 23,617 6,382 (46) 29,953
------------ ---------- ----------- ---------------
$11,886,173 663,588 (34,244) 12,515,517
============ ========== =========== ===============
</TABLE>
The amortized cost and estimated fair value of fixed maturity
securities available-for-sale as of December 31, 1996, by contractual
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
cost fair value
--------------- --------------
<S> <C> <C>
Fixed maturity securities available-for-sale:
Due in one year or less $ 440,235 444,214
Due after one year through five years 3,937,010 4,053,152
Due after five years through ten years 2,809,813 2,871,806
Due after ten years 1,194,846 1,270,179
--------------- --------------
8,381,904 8,639,351
Mortgage-backed securities 3,588,974 3,665,288
--------------- --------------
$11,970,878 12,304,639
=============== ==============
</TABLE>
The components of unrealized gains on securities available-for-sale,
net, were as follows as of December 31:
<TABLE>
<CAPTION>
1996 1995
--------------- --------------
<S> <C> <C>
Gross unrealized gains $349,002 629,344
Adjustment to deferred policy acquisition costs (81,939) (138,914)
Deferred federal income tax (93,471) (171,649)
--------------- --------------
173,592 318,781
Unrealized gains on securities available-for-sale, net, of
subsidiaries classified as discontinued operations (note 2) - 65,523
--------------- --------------
$173,592 384,304
=============== ==============
</TABLE>
<PAGE> 13
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
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>
1996 1995 1994
--------------- ------------- --------------
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturity securities $(289,247) 876,332 (675,373)
Equity securities 8,905 (26) (1,927)
Fixed maturity securities held-to-maturity - 75,626 (398,183)
--------------- ------------- --------------
$(280,342) 951,932 (1,075,483)
=============== ============= ==============
</TABLE>
Proceeds from the sale of securities available-for-sale during 1996,
1995 and 1994 were $299,558, $107,345 and $228,308, respectively.
During 1996, gross gains of $6,606 ($4,838 and $3,045 in 1995 and 1994,
respectively) and gross losses of $6,925 ($2,147 and $21,280 in 1995
and 1994, respectively) were realized on those sales.
During 1995, the Company transferred fixed maturity securities
classified as held-to-maturity with amortized cost of $25,429 to
available-for-sale securities due to evidence of a significant
deterioration in the issuer's creditworthiness. The transfer of those
fixed maturity securities resulted in a gross unrealized loss of
$3,535.
As permitted by the Financial Accounting Standards Board's Special
Report, A GUIDE TO IMPLEMENTATION OF STATEMENT 115 ON ACCOUNTING FOR
CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES, issued in November
1995 the Company transferred all of its fixed maturity securities
previously classified as held-to-maturity to available-for-sale. As of
December 14, 1995, the date of transfer, the fixed maturity securities
had amortized cost of $3,320,093, resulting in a gross unrealized gain
of $155,940.
Investments that were non-income producing for the twelve month period
preceding December 31, 1996 amounted to $26,805 ($27,712 in 1995) and
consisted of $248 ($6,982 in 1995) in fixed maturity securities,
$20,633 ($14,740 in 1995) in real estate and $5,924 ($5,990 in 1995) in
other long-term investments.
Real estate is presented at cost less accumulated depreciation of
$30,338 as of December 31, 1996 ($30,482 as of December 31, 1995) and
valuation allowances of $15,219 as of December 31, 1996 ($25,819 as of
December 31, 1995).
The recorded investment of mortgage loans on real estate considered to
be impaired (under SFAS NO. 114 - ACCOUNTING BY CREDITORS FOR
IMPAIRMENT OF A LOAN as amended by SFAS NO. 118 - ACCOUNTING BY
CREDITORS FOR IMPAIRMENT OF A LOAN-INCOME RECOGNITION AND DISCLOSURE)
as of December 31, 1996 was $51,765 ($44,409 as of December 31, 1995),
which includes $41,663 ($23,975 as of December 31, 1995) of impaired
mortgage loans on real estate for which the related valuation allowance
was $8,485 ($5,276 as of December 31, 1995) and $10,102 ($20,434 as of
December 31, 1995) of impaired mortgage loans on real estate for which
there was no valuation allowance. During 1996, the average recorded
investment in impaired mortgage loans on real estate was approximately
$39,674 ($22,181 in 1995) and interest income recognized on those loans
was $2,103 ($387 in 1995), which is equal to interest income recognized
using a cash-basis method of income recognition.
Activity in the valuation allowance account for mortgage loans on real
estate is summarized for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995
------------- --------------
<S> <C> <C>
Allowance, beginning of year $49,128 46,381
Additions charged to operations 4,497 7,433
Direct write-downs charged against the allowance (2,587) (4,686)
------------- -------------
Allowance, end of year $51,038 49,128
============= ==============
</TABLE>
<PAGE> 14
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
An analysis of investment income by investment type follows for the
years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
--------------- ------------- ------------
<S> <C> <C> <C>
Gross investment income:
Securities available-for-sale:
Fixed maturity securities $ 917,135 685,787 647,927
Equity securities 1,291 1,330 509
Fixed maturity securities held-to-maturity - 201,808 185,938
Mortgage loans on real estate 432,815 395,478 372,734
Real estate 44,332 38,344 40,170
Short-term investments 4,155 10,576 6,141
Other 3,998 7,239 2,121
--------------- ------------- --------------
Total investment income 1,403,726 1,340,562 1,255,540
Less investment expenses 45,967 46,529 44,729
--------------- ------------- ---------------
Net investment income $1,357,759 1,294,033 1,210,811
=============== ============= ==============
</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>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturity securities $(3,462) 4,213 (7,296)
Equity securities 3,143 3,386 1,422
Mortgage loans on real estate (4,115) (7,091) (20,446)
Real estate and other 4,108 (2,232) 9,793
------------ ------------ ------------
$ (326) (1,724) (16,527)
============ ============ ============
</TABLE>
Fixed maturity securities with an amortized cost of $6,161 and $5,592
as of December 31, 1996 and 1995, respectively, were on deposit with
various regulatory agencies as required by law.
(6) Future Policy Benefits and Claims
---------------------------------
The liability for future policy benefits for investment contracts
represents approximately 87% and 87% of the total liability for future
policy benefits as of December 31, 1996 and 1995, respectively. The
average interest rate credited on investment product policies was
approximately 6.3%, 6.6% and 6.5% for the years ended December 31,
1996, 1995 and 1994, respectively.
The liability for future policy benefits for traditional life insurance
policies has been established based upon the following assumptions:
Interest rates: Interest rates vary as follows:
--------------
<TABLE>
<CAPTION>
Year of issue Interest rates
----------------- ----------------------------------------
<S> <C>
1996 6.6%, not graded
1984-1995 6.0% to 10.5%, not graded
1966-1983 6.0% to 8.1%, graded over 20 years to 4.0% to 6.6%
1965 and prior generally lower than post 1965 issues
</TABLE>
<PAGE> 15
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
WITHDRAWALS: Rates, which vary by issue age, type of coverage
and policy duration, are based on Company experience.
MORTALITY: Mortality and morbidity rates are based on
published tables, modified for the Company's actual
experience.
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
$240,451 and $245,255 as of December 31, 1996 and 1995, 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.
The Company has reinsurance agreements with certain affiliates as
described in note 13. All other reinsurance agreements are not material
to either premiums or reinsurance recoverables.
(7) Federal Income Tax
-------------------
The tax effects of temporary differences that give rise to significant
components of the net deferred tax liability as of December 31, 1996
and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
----------------- ---------------
<S> <C> <C>
Deferred tax assets:
Future policy benefits $175,571 149,192
Liabilities in Separate Accounts 188,426 129,120
Mortgage loans on real estate and real estate 23,366 25,165
Other policyholder funds 7,407 7,424
Other assets and other liabilities 53,757 41,847
----------------- ---------------
Total gross deferred tax assets 448,527 352,748
Less valuation allowances (7,000) (7,000)
----------------- ---------------
Net deferred tax assets 441,527 345,748
================= ===============
Deferred tax liabilities:
Deferred policy acquisition costs 399,345 299,579
Fixed maturity securities 133,210 227,345
Deferred tax on realized investment gains 37,597 40,634
Equity securities and other long-term investments 8,210 3,780
Other 25,377 21,037
----------------- ---------------
Total gross deferred tax liabilities 603,739 592,375
----------------- ---------------
$162,212 246,627
================= ===============
</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, 1996, 1995 and 1994.
<PAGE> 16
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Total federal income tax expense for the years ended December 31, 1996,
1995 and 1994 differs from the amount computed by applying the U.S.
federal income tax rate to income before tax as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------- ---------------------- ----------------------
Amount % Amount % Amount %
---------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Computed (expected) tax expense $110,424 35.0 $100,650 35.0 $84,650 35.0
Tax exempt interest and dividends
received deduction (212) (0.1) (18) (0.0) (130) (0.1)
Other, net 677 0.3 (824) (0.3) (5,931) (2.5)
------------ -------- ------------- -------- ------------- --------
Total (effective rate of each year) $110,889 35.2 $ 99,808 34.7 $78,589 32.5
============ ======== ============= ======== ============= ========
</TABLE>
Total federal income tax paid was $115,839, $51,840 and $83,239
during the years ended December 31, 1996, 1995 and 1994,
respectively.
(8) Disclosures about Fair Value of Financial Instruments
-----------------------------------------------------
SFAS NO. 107 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
(SFAS 107) requires disclosure of fair value information about existing
on and off-balance sheet financial instruments. SFAS 107 defines the
fair value of a financial instrument 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 based on estimates 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. SFAS 107 excludes certain assets and
liabilities from its disclosure requirements. Accordingly, the
aggregate fair value amounts presented do not represent the underlying
value of the Company.
Although insurance contracts, other than policies such as annuities
that are classified as investment contracts, are specifically exempted
from SFAS 107 disclosures, 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:
CASH, SHORT-TERM INVESTMENTS AND POLICY LOANS: The carrying amount
reported in the consolidated balance sheets for these instruments
approximates their fair value.
FIXED MATURITY AND EQUITY SECURITIES: 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.
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 includes certain surrender
charges.
<PAGE> 17
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
MORTGAGE LOANS ON REAL ESTATE: 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 mortgages in default is the estimated fair value of
the underlying collateral.
INVESTMENT CONTRACTS: 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 analyses. Interest rates used are similar to currently
offered contracts with maturities consistent with those remaining
for the contracts being valued.
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.
POLICYHOLDERS' DIVIDEND ACCUMULATIONS AND OTHER POLICYHOLDER
FUNDS: The carrying amount reported in the consolidated balance
sheets for these instruments approximates their 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 9.
Carrying amount and estimated fair value of financial instruments
subject to SFAS 107 and policy reserves on life insurance contracts
were as follows as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------------------------------ -------------------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
------------------------------ --------------- ---------------
<S> <C> <C> <C> <C>
Assets
------
Investments:
Securities available-for-sale:
Fixed maturity securities $12,304,639 12,304,639 12,485,564 12,485,564
Equity securities 59,131 59,131 29,953 29,953
Mortgage loans on real estate, net 5,272,119 5,397,865 4,602,764 4,961,655
Policy loans 371,816 371,816 336,356 336,356
Short-term investments 4,789 4,789 32,792 32,792
Cash 43,784 43,784 9,455 9,455
Assets held in Separate Accounts 26,926,702 26,926,702 18,591,108 18,591,108
Liabilities
-----------
Investment contracts 13,914,441 13,484,526 13,229,360 12,876,798
Policy reserves on life insurance contracts 2,971,337 2,775,991 2,836,323 2,733,486
Policyholders' dividend accumulations 361,401 361,401 348,027 348,027
Other policyholder funds 60,073 60,073 65,297 65,297
Liabilities related to Separate Accounts 26,926,702 26,164,213 18,591,108 18,052,362
</TABLE>
(9) Additional Financial Instruments Disclosures
--------------------------------------------
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.
<PAGE> 18
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
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 $327,456 extending into
1997 were outstanding as of December 31, 1996.
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 21% (20% in 1995) in any geographic area and no more than 2% (2%
in 1995) with any one borrower as of December 31, 1996.
The Company had a significant reinsurance recoverable balance from one
reinsurer as of December 31, 1996 and 1995. See note 6.
The summary below depicts loans by remaining principal balance as of
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
Apartment
Office Warehouse Retail & other Total
------------ ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
1996:
East North Central $139,518 119,069 549,064 215,038 1,022,689
East South Central 33,267 22,252 172,968 90,623 319,110
Mountain 17,972 43,027 113,292 73,390 247,681
Middle Atlantic 129,077 54,046 160,833 18,498 362,454
New England 33,348 43,581 161,960 - 238,889
Pacific 202,562 325,046 424,295 110,108 1,062,011
South Atlantic 103,889 134,492 482,934 385,185 1,106,500
West North Central 126,467 2,441 75,180 40,529 244,617
West South Central 104,877 120,314 197,090 304,256 726,537
------------- ------------- ------------- -------------- ------------
$890,977 864,268 2,337,616 1,237,627 5,330,488
============ ============= ============= =============
Less valuation allowances and unamortized discount 58,369
--------------
Total mortgage loans on real estate, net $5,272,119
==============
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
1995:
East North Central $138,965 101,925 514,995 175,213 931,098
East South Central 21,329 13,053 180,858 82,383 297,623
Mountain - 17,219 138,220 45,274 200,713
Middle Atlantic 116,187 64,813 158,252 10,793 350,045
New England 9,559 39,525 148,449 1 197,534
Pacific 183,206 233,186 374,915 105,419 896,726
South Atlantic 106,246 73,541 446,800 278,265 904,852
West North Central 133,899 14,205 78,065 36,651 262,820
West South Central 69,140 92,594 190,299 267,268 619,301
------------ ------------ ------------- ------------- --------------
$778,531 650,061 2,230,853 1,001,267 4,660,712
============ ============= ============= =============
Less valuation allowances and unamortized discount 57,948
--------------
Total mortgage loans on real estate, net $4,602,764
==============
</TABLE>
<PAGE> 19
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(10) Pension Plan
------------
The Company is a participant, together with other affiliated companies,
in a pension plan covering all employees who have completed at least
one thousand hours of service within a twelve-month period and who have
met certain age requirements. Benefits are based upon the highest
average annual salary of a specified number of consecutive years of the
last ten years 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.
Effective January 1, 1995, the plan was amended to provide enhanced
benefits for participants who met certain eligibility requirements and
elected early retirement no later than March 15, 1995. The entire cost
of the enhanced benefit was borne by NMIC and certain of its property
and casualty insurance company affiliates.
Effective December 31, 1995, the Nationwide Insurance Companies and
Affiliates Retirement Plan was merged with the Farmland Mutual
Insurance Company Employees' Retirement Plan and the Wausau Insurance
Companies Pension Plan to form the Nationwide Insurance Enterprise
Retirement Plan. Immediately prior to the merger, the plans were
amended to provide consistent benefits for service after January 1,
1996. These amendments had no significant impact on the accumulated
benefit obligation or projected benefit obligation as of December 31,
1995.
Pension costs charged to operations by the Company during the years
ended December 31, 1996, 1995 and 1994 were $7,381, $10,478 and
$10,063, respectively.
The Company's net accrued pension expense as of December 31, 1996 and
1995 was $1,075 and $1,392, respectively.
The net periodic pension cost for the Nationwide Insurance Enterprise
Retirement Plan as a whole for the year ended December 31, 1996 and for
the Nationwide Insurance Companies and Affiliates Retirement Plan as a
whole for the years ended December 31, 1995 and 1994 follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
Service cost (benefits earned during the period) $ 75,466 64,524 64,740
Interest cost on projected benefit obligation 105,511 95,283 73,951
Actual return on plan assets (210,583) (249,294) (21,495)
Net amortization and deferral 101,795 143,353 (62,150)
--------------- --------------- ---------------
$ 72,189 53,866 55,046
=============== =============== ===============
</TABLE>
Basis for measurements, net periodic pension cost:
<TABLE>
<CAPTION>
1996 1995 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
Weighted average discount rate 6.00% 7.50% 5.75%
Rate of increase in future compensation levels 4.25% 6.25% 4.50%
Expected long-term rate of return on plan assets 6.75% 8.75% 7.00%
</TABLE>
<PAGE> 20
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Information regarding the funded status of the Nationwide Insurance
Enterprise Retirement Plan as a whole as of December 31, 1996 and 1995
follows:
<TABLE>
<CAPTION>
1996 1995
--------------- ---------------
<S> <C> <C>
Accumulated benefit obligation:
Vested $1,338,554 1,236,730
Nonvested 11,149 26,503
--------------- ---------------
$1,349,703 1,263,233
=============== ===============
Net accrued pension expense:
Projected benefit obligation for services rendered to
date $1,847,828 1,780,616
Plan assets at fair value 1,947,933 1,738,004
--------------- ---------------
Plan assets in excess of (less than) projected benefit
obligation 100,105 (42,612)
Unrecognized prior service cost 37,870 42,845
Unrecognized net gains (201,952) (63,130)
Unrecognized net asset at transition 37,158 41,305
--------------- ---------------
$ (26,819) (21,592)
=============== ===============
</TABLE>
Basis for measurements, funded status of plan:
<TABLE>
<CAPTION>
1996 1995
--------------- ---------------
<S> <C> <C>
Weighted average discount rate 6.50% 6.00%
Rate of increase in future compensation levels 4.75% 4.25%
</TABLE>
Assets of the Nationwide Insurance Enterprise Retirement Plan are
invested in group annuity contracts of NLIC and ELICW.
(11) Postretirement Benefits Other Than Pensions
-------------------------------------------
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; 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,
1996 and 1995 was $34,884 and $33,537, respectively, and the net
periodic postretirement benefit cost (NPPBC) for 1996, 1995 and 1994
was $3,286, $3,132 and $4,284, respectively.
<PAGE> 21
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The amount of NPPBC for the plan as a whole for the years ended
December 31, 1996, 1995 and 1994 was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Service cost (benefits attributed to employee service during the year) $ 6,541 6,235 8,586
Interest cost on accumulated postretirement benefit obligation 13,679 14,151 14,011
Actual return on plan assets (4,348) (2,657) (1,622)
Amortization of unrecognized transition obligation of affiliates 173 2,966 568
Net amortization and deferral 1,830 (1,619) 1,622
----------- ----------- -----------
$17,875 19,076 23,165
=========== =========== ===========
</TABLE>
Information regarding the funded status of the plan as a whole as of
December 31, 1996 and 1995 follows:
<TABLE>
<CAPTION>
1996 1995
--------------- ---------------
<S> <C> <C>
Accrued postretirement benefit expense:
Retirees $ 92,954 88,680
Fully eligible, active plan participants 23,749 28,793
Other active plan participants 83,986 90,375
--------------- ---------------
Accumulated postretirement benefit obligation (APBO) 200,689 207,848
Plan assets at fair value 63,044 54,325
--------------- ---------------
Plan assets less than accumulated postretirement benefit obligation (137,645) (153,523)
Unrecognized transition obligation of affiliates 1,654 1,827
Unrecognized net gains (23,225) (1,038)
--------------- ---------------
$(159,216) (152,734)
=============== ===============
</TABLE>
Actuarial assumptions used for the measurement of the APBO as of
December 31, 1996 and 1995 and the NPPBC for 1996, 1995 and 1994 were
as follows:
<TABLE>
<CAPTION>
1996 1996 1995 1995 1994
APBO NPPBC APBO NPPBC NPPBC
------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Discount rate 7.25% 6.65% 6.75% 8.00% 7.00%
Long-term rate of return on plan
assets, net of tax - 4.80% - 8.00% N/A
Assumed health care cost trend rate:
Initial rate 11.00% 11.00% 11.00% 10.00% 12.00%
Ultimate rate 6.00% 6.00% 6.00% 6.00% 6.00%
Uniform declining period 12 Years 12 Years 12 Years 12 Years 12 Years
</TABLE>
The health care cost trend rate assumption has an effect on the amounts
reported. For the plan as a whole, a one percentage point increase in
the assumed health care cost trend rate would increase the APBO as of
December 31, 1996 by $701 and the NPPBC for the year ended December 31,
1996 by $83.
(12) Shareholder's Equity, Regulatory Risk-Based Capital, Retained Earnings
and Dividend Restrictions
---------------------------------------------------------------------
Each insurance company'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 each of its
insurance company subsidiaries exceed the minimum risk-based capital
requirements.
<PAGE> 22
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The statutory capital shares and surplus of NLIC as of December 31,
1996, 1995 and 1994 was $1,000,647, $1,363,031 and $1,262,861,
respectively. The statutory net income of NLIC for the years ended
December 31, 1996, 1995 and 1994 was $73,218, $86,529 and $76,532,
respectively.
NLIC is limited in the amount of shareholder dividends it may pay
without prior approval by the Department of Insurance of the State of
Ohio (the Department). NLIC's dividend of the outstanding shares of
common stock of certain companies which was declared on September 24,
1996 and the anticipated $850,000 dividend (as discussed in note 1) are
deemed extraordinary under Ohio insurance laws. As a result of such
dividends, any dividend paid by NLIC during the 12-month period
immediately following the $850,000 dividend would also be an
extraordinary dividend under Ohio insurance laws. Accordingly, no such
dividend could be paid without prior regulatory approval.
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 stockholder.
The Company currently does not expect such regulatory requirements to
impair its ability to pay operating expenses and stockholder dividends
in the future.
(13) Transactions With Affiliates
----------------------------
The Company leases office space from NMIC and certain of its
subsidiaries. For the years ended December 31, 1996, 1995 and 1994, the
Company made lease payments to NMIC and its subsidiaries of $9,065,
$8,986 and $8,133, 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 $101,584, $107,112, and $100,601 in 1996,
1995 and 1994, 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
intercompany 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 $15,111 and $1,186 as of December 31, 1996 and 1995,
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 1996 and
1995 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
Notes to Consolidated Financial Statements, Continued
Intercompany reinsurance contracts 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
NLIC'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 NLIC's agreements, the investment risk associated
with changes in interest rates is borne by NMIC or ELICW, as the case
may be. Risk of asset default is retained by NLIC, although a fee is
paid by NMIC or ELICW, as the case may be, to NLIC for the NLIC'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. NLIC believes that the terms of the modified coinsurance
agreements are consistent in all material respects with what NLIC could
have obtained with unaffiliated parties.
Amounts ceded to ELICW in 1996 are included in ELICW's results of
operations for 1996 which, combined with the results of WCLIC and NCC,
are summarized in note 2. Amounts ceded to ELICW in 1996 include
premiums of $224,224, net investment income and other revenue of
$14,833, and benefits, claims and other expenses of $246,641. Amounts
ceded to NMIC in 1996 include premiums of $97,331, net investment
income of $10,890, and benefits, claims and other expenses of $100,476.
The Company and various affiliates entered into agreements with
Nationwide Cash Management Company (NCMC) and California Cash
Management Company (CCMC), both affiliates, under which NCMC and CCMC
act as common agents in handling the purchase and sale of short-term
securities for the respective accounts of the participants. Amounts on
deposit with NCMC and CCMC were $4,789 and $9,654 as of December 31,
1996 and 1995, respectively, and are included in short-term investments
on the accompanying consolidated balance sheets.
On April, 5 1996, Nationwide Corp. contributed all of the outstanding
shares, with shareholder equity value of $30, of NISC to NLIC. NLIC
contributed an additional $500 to NISC on August 30, 1996.
On March 1, 1995, Nationwide Corp. contributed all of the outstanding
shares of common stock of Farmland Life Insurance Company (Farmland) to
NLIC. Farmland merged into WCLIC effective June 30, 1995. The
contribution resulted in a direct increase to consolidated
shareholder's equity of $46,918. As discussed in note 2, WCLIC is
accounted for as discontinued operations.
Effective December 31, 1994, NLIC purchased all of the outstanding
shares of common stock of ELICW from Wausau Service Corporation (WSC)
for $155,000. NLIC transferred fixed maturity securities and cash with
a fair value of $155,000 to WSC on December 28, 1994, which resulted in
a realized loss of $19,239 on the disposition of the securities. The
purchase price approximated both the historical cost basis and fair
value of net assets of ELICW. ELICW has and will continue to share home
office, other facilities, equipment and common management and
administrative services with WSC. As discussed in note 2, ELICW is
accounted for as discontinued operations.
Certain annuity products are sold through three affiliated companies
which are also subsidiaries of Nationwide Corp. Total commissions and
fees paid to these affiliates for the years ended December 31, 1996,
1995 and 1994 were $76,922, $57,280 and $50,168, respectively.
(14) Bank Lines of Credit
--------------------
In August 1996, NLIC, along with NMIC, established a $600,000 revolving
credit facility which provides for a $600,000 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.
<PAGE> 24
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(15) Contingencies
-------------
The Company is a defendant in various lawsuits. In the opinion of
management, the effects, if any, of such lawsuits are not expected to
be material to the Company's financial position or results of
operations.
(16) Segment Information
-------------------
The Company has three primary 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 the Company and independent
investment managers, with the investment returns accumulating on a
tax-deferred basis. 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. The Life Insurance segment consists of
insurance products that provide a death benefit and may also allow the
customer to build cash value on a tax-deferred basis. In addition, the
Company reports corporate expenses and investments, and the related
investment income supporting capital not specifically allocated to its
product segments in a Corporate and Other segment. In addition, all
realized gains and losses, investment management fees and other revenue
earned from mutual funds, other than the portion allocated to the
variable annuities and life insurance segments, are reported in the
Corporate and Other segment.
During 1996, the Company changed its reporting segments to better
reflect the way the businesses are managed. Prior periods have been
restated to reflect these changes.
The following table summarizes the revenues and income from continuing
operations before federal income tax expense for the years ended
December 31, 1996, 1995 and 1994 and assets as of December 31, 1996,
1995 and 1994, by business segment.
<TABLE>
<CAPTION>
1996 1995 1994
----------------- --------------- ---------------
<S> <C> <C> <C>
Revenues:
Variable Annuities $ 284,638 189,071 132,687
Fixed Annuities 1,092,566 1,051,970 939,868
Life Insurance 435,657 409,135 383,150
Corporate and Other 179,977 148,475 143,794
----------------- --------------- ---------------
$ 1,992,838 1,798,651 1,599,499
================= =============== ===============
Income from continuing operations before federal income tax
expense:
Variable Annuities 90,244 50,837 24,574
Fixed Annuities 135,405 137,000 138,950
Life Insurance 67,242 67,590 53,046
Corporate and Other 22,606 32,145 25,288
----------------- --------------- ---------------
$ 315,497 287,572 241,858
================= =============== ===============
Assets:
Variable Annuities 25,069,725 17,333,039 11,146,465
Fixed Annuities 13,994,715 13,250,359 11,668,973
Life Insurance 3,353,286 3,027,420 2,752,283
Corporate and Other 5,348,520 4,896,815 3,678,303
----------------- --------------- ---------------
$47,766,246 38,507,633 29,246,024
================= =============== ===============
</TABLE>
<PAGE> 25
<TABLE>
SCHEDULE I
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Summary of Investments -
Other Than Investments in Related Parties
As of December 31, 1996
($000's omitted)
<CAPTION>
- --------------------------------------------------------------- --------------- -------------- -----------------
Column A Column B Column C Column D
- --------------------------------------------------------------- --------------- -------------- -----------------
Amount at which
shown in the
consolidated
Type of Investment Cost Market value balance sheet
- --------------------------------------------------------------- --------------- -------------- -----------------
<S> <C> <C> <C>
Fixed maturity securities available-for-sale:
Bonds:
U.S. Government and government agencies and authorities $ 3,757,887 3,834,762 3,834,762
States, municipalities and political subdivisions 6,242 6,690 6,690
Foreign governments 100,656 101,940 101,940
Public utilities 1,798,736 1,843,938 1,843,938
All other corporate 6,307,357 6,517,309 6,517,309
--------------- -------------- -----------------
Total fixed maturity securities available-for-sale 11,970,878 12,304,639 12,304,639
--------------- -------------- -----------------
Equity securities available-for-sale:
Common stocks:
Industrial, miscellaneous and all other 43,501 50,405 50,405
Non-redeemable preferred stock 389 8,726 8,726
--------------- -------------- -----------------
Total equity securities available-for-sale 43,890 59,131 59,131
--------------- -------------- -----------------
Mortgage loans on real estate, net 5,327,317 5,272,119 (1)
Real estate, net:
Investment properties 253,383 217,611 (1)
Acquired in satisfaction of debt 57,933 48,148 (1)
Policy loans 371,816 371,816
Other long-term investments 27,370 28,668 (2)
Short-term investments 4,789 4,789
--------------- ----------------
Total investments $18,057,376 18,306,921
=============== ================
<FN>
- ----------
(1) Difference from Column B is primarily due to valuation allowances due to
impairments on mortgage loans on real estate and due to accumulated
depreciation and valuation allowances due to impairments on real estate.
See note 5 to the consolidated financial statements.
(2) Difference from Column B is primarily due to operating gains of investments
in limited partnerships.
</TABLE>
See accompanying independent auditors' report.
<PAGE> 26
<TABLE>
<CAPTION>
SCHEDULE III
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Supplemental Insurance Information
As of December 31, 1996, 1995 and 1994
and for each of the years then ended
($000's omitted)
- ----------------------------------- -------------- ------------------ ----------------- ------------------ ---------------
Column A Column B Column C Column D Column E Column F
- ----------------------------------- -------------- ------------------ ----------------- ----------------- ---------------
Deferred Future policy Other policy
policy benefits, losses, claims and
acquisition claims and Unearned premiums benefits payable Premium
Segment costs loss expenses (1) (2) revenue
- ----------------------------------- -------------- ------------------ ----------------- ---------------- --------------
<C> <C> <C> <C> <C> <C>
1996: Variable Annuities $ 791,611 - - -
Fixed Annuities 242,421 14,952,877 687 24,030
Life Insurance 414,417 1,995,802 395,739 174,612
Corporate and Other (81,940) 230,381 25,048 -
-------------- ------------------ ---------------- --------------
Total $1,366,509 17,179,060 421,474 198,642
============== ================== ================ ==============
1995: Variable Annuities 571,283 - - -
Fixed Annuities 221,111 14,221,622 455 32,774
Life Insurance 366,876 1,898,641 383,983 166,332
Corporate and Other (138,914) 238,351 28,886 -
-------------- ------------------ ---------------- --------------
Total $1,020,356 16,358,614 413,324 199,106
============== ================== ================ ==============
1994: Variable Annuities 395,397 - - -
Fixed Annuities 198,639 12,633,253 240 20,134
Life Insurance 327,079 1,806,762 371,984 156,524
Corporate and Other 74,445 233,569 26,927 -
-------------- ------------------ ---------------- --------------
Total $ 995,560 14,673,584 399,151 176,658
============== ================== ================ ==============
<CAPTION>
- ----------------------------------- -------------- ------------------- ----------------- ---------------- --------------
Column A Column G Column H Column I Column J Column K
- ----------------------------------- -------------- ------------------- ----------------- ---------------- --------------
Net Amortization Other
investment Benefits, claims, of deferred operating
income losses and policy expenses Premiums
Segment (3) settlement expenses acquisition costs (3) written
- ----------------------------------- -------------- ------------------- ----------------- ----------------- --------------
1996: Variable Annuities $ (21,449) 4,624 57,412 132,357
Fixed Annuities 1,050,557 838,533 38,635 79,737
Life Insurance 174,002 211,386 37,347 78,965
Corporate and Other 154,649 106,037 - 51,335
-------------- ------------------- ----------------- -----------------
Total $1,357,759 1,160,580 133,394 342,394
============== =================== ================= =================
1995: Variable Annuities (17,640) 2,881 26,264 109,089
Fixed Annuities 1,002,718 804,980 29,499 80,260
Life Insurance 171,255 201,986 31,021 68,832
Corporate and Other 137,700 105,646 (4,089) 14,773
-------------- ------------------- ----------------- -----------------
Total $1,294,033 1,115,493 82,695 272,954
============== =================== ================= =================
1994: Variable Annuities (13,415) 2,277 22,135 83,701
Fixed Annuities 903,572 702,082 29,849 69,975
Life Insurance 166,329 191,006 29,495 69,861
Corporate and Other 154,325 97,302 4,089 17,115
-------------- ------------------- ----------------- -----------------
Total $1,210,811 992,667 85,568 240,652
============== =================== ================= =================
<FN>
- ----------
(1) Unearned premiums are included in Column C amounts.
(2) Column E agrees to the sum of the Balance Sheet captions, Policyholders'
dividend accumulations and Other policyholder funds.
(3) Allocations of net investment income and certain general expenses are based
on a number of assumptions and estimates, and reported operating results
would change by segment if different methods were applied.
</TABLE>
See accompanying independent auditors' report.
<PAGE> 27
SCHEDULE IV
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Reinsurance
As of December 31, 1996, 1995 and 1994
and for each of the years then ended
($000's omitted)
<TABLE>
<CAPTION>
- ------------------------------- ----------------- ----------------- ---------------- ---------------- ---------------
Column A Column B Column C Column D Column E Column F
- ------------------------------- ----------------- ----------------- ---------------- ---------------- ---------------
Percentage
Ceded to Assumed from of amount
Gross amount other companies other companies Net amount assumed to net
----------------- ----------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
1996:
Life insurance in force $47,071,264 6,633,567 288,593 40,726,290 0.7%
================= ================= ================ ================ ===============
Premiums:
Life insurance 225,615 29,282 2,309 198,642 1.2%
Accident and health insurance 291,871 305,789 13,918 - N/A
----------------- ----------------- ---------------- ---------------- ---------------
Total $ 517,486 335,071 16,227 198,642 8.2%
================= ================= ================ ================ ===============
1995:
Life Insurance in force $41,087,025 8,935,743 391,174 32,542,456 1.2%
================= ================= ================ ================ ===============
Premiums:
Life insurance 221,257 24,360 2,209 199,106 1.1%
Accident and health insurance 298,058 313,036 14,978 - N/A
----------------- ----------------- ---------------- ---------------- ---------------
Total $ 519,315 337,396 17,187 199,106 8.6%
================= ================= ================ ================ ===============
1994:
Life Insurance in force $35,926,633 7,550,623 829,742 29,205,752 2.8%
================= ================= ================ ================ ===============
Premiums:
Life insurance 198,705 24,912 2,865 176,658 1.6%
Accident and health insurance 303,435 321,696 18,261 - N/A
----------------- ----------------- ---------------- ---------------- ---------------
Total $ 502,140 346,608 21,126 176,658 12.0%
================= ================= ================ ================ ===============
<FN>
- ----------
Note: The life insurance caption represents principally premiums from
traditional life insurance and life-contingent immediate annuities and
excludes deposits on invesment products and universal life insurance
products.
</TABLE>
See accompanying independent auditors' report.
<PAGE> 28
<TABLE>
<CAPTION>
SCHEDULE V
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended December 31, 1996, 1995 and 1994
($000's omitted)
- ------------------------------------------------- ------------ ----------------------------- ------------ -------------
Column A Column B Column C Column D Column E
- ------------------------------------------------- ------------ ----------------------------- ------------ -------------
Balance at Charged to Balance at
beginning of costs and Charged to Deductions end of
Description period expenses other accounts (1) period
- ------------------------------------------------- ------------ ------------ -------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
1996:
Valuation allowances - mortgage loans on real
estate $49,128 4,497 - 2,587 51,038
Valuation allowances - real estate 25,819 (10,600) - - 15,219
------------ ------------ -------------- ------------ -------------
Total $74,947 (6,103) - 2,587 66,257
============ ============ ============== ============ =============
1995:
Valuation allowances - fixed maturity securities - 8,908 - 8,908 -
Valuation allowances - mortgage loans on real
estate 46,381 7,433 - 4,686 49,128
Valuation allowances - real estate 27,330 (1,511) - - 25,819
------------ ------------ -------------- ------------ -------------
Total $73,711 14,830 - 13,594 74,947
============ ============ ============== ============ =============
1994:
Valuation allowances - fixed maturity securities 4,800 (4,800) - - -
Valuation allowances - mortgage loans on real
estate 42,150 20,445 - 16,214 46,381
Valuation allowances - real estate 31,357 (4,027) - - 27,330
------------ ------------ -------------- ------------ -------------
Total $78,307 11,618 - 16,214 73,711
============ ============ ============== ============ =============
<FN>
- ----------
(1) Amounts represent direct write-downs charged against the valuation allowance.
</TABLE>
See accompanying independent auditors' report.
<PAGE> 55
PART C. OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
<TABLE>
<CAPTION>
Page
<S> <C>
(a) Financial Statements:
(1) Financial statements and schedule included
PAGE in Prospectus
(Part A):
Condensed Financial Information. 13
(2) Financial statements and schedule included
in Part B:
Those financial statements and schedule 53
required by Item 23 to be included in Part B
have been incorporated therein by reference to the
Prospectus (Part A).
MFS Variable Account:
Independent Auditors' Report. 53
Statement of Assets, Liabilities and Contract 54
Owners' Equity as of December 31, 1996.
Statements of Operations and Changes in 55
Contract Owners' Equity for the years ended
December 31, 1996, 1995 and 1994.
Notes to Financial Statements. 56
Schedules of Changes in Unit Value. 60
Nationwide Life Insurance Company:
Independent Auditors' Report. 65
Consolidated Balance Sheets as of December 66
31, 1996 and 1995.
Consolidated Statements of Income for the 67
years ended December 31, 1996, 1995 and
1994.
Consolidated Statements of Shareholder's 68
Equity for the years ended December 31,
1996, 1995 and 1994.
Consolidated Statements of Cash Flows for 69
the years ended December 31, 1996, 1995
and 1994.
Notes to Consolidated Financial Statements. 70
Schedule I - Consolidated Summary of Investments - 89
Other Than Investments in Related Parties.
Schedule III - Supplementary Insurance 90
Information.
Schedule IV - Reinsurance. 91
Schedule V - Valuation and Qualifying Accounts. 92
</TABLE>
93 of 113
<PAGE> 56
Item 24. (b) Exhibits
(1) Resolution of the Depositor's Board of Directors
authorizing the establishment of the Registrant -
Filed previously with the Registration Statement,
and hereby incorporated by reference.
(2) Not Applicable
(3) Underwriting or Distribution of contracts between
the Registrant and Principal Underwriter - Filed
previously with the Registration Statement, and
hereby incorporated by reference.
(4) The form of the variable annuity contract -
Filed previously with Post-Effective
Amendment No. 19 to the Registration
Statement and hereby incorporated by
reference.
(5) Variable Annuity Application - Filed previously
with the Registration Statement, and hereby
incorporated by reference.
(6) Articles of Incorporation of Depositor Filed
previously with the Registration Statement, and
hereby incorporated by reference.
(7) Not Applicable
(8) Not Applicable
(9) Opinion of Counsel - Filed previously with the
Registration Statement, and hereby incorporated by
reference.
(10) Not Applicable
(11) Not Applicable
(12) Not Applicable
(13) Not Applicable
94 of 113
<PAGE> 57
Item 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS WITH DEPOSITOR
<S> <C>
Lewis J. Alphin Director
519 Bethel Church Road
Mount Olive, NC 28365
Keith W. Eckel Director
1647 Falls Road
Clarks Summit, PA 18411
Willard J. Engel Director
1100 East Main Street
Marshall, MN 56258
Fred C. Finney Director
1558 West Moreland Road
Wooster, OH 44691
Charles L. Fuellgraf, Jr. Director
600 South Washington Street
Butler, PA 16001
Joseph J. Gasper President and Chief Operating Officer
One Nationwide Plaza and Director
Columbus, OH 43215
Henry S. Holloway Chairman of the Board
1247 Stafford Road and Director
Darlington, MD 21034
Dimon Richard McFerson Chairman and Chief Executive Officer-
One Nationwide Plaza Nationwide Insurance Enterprise
Columbus, OH 43215 and Director
David O. Miller Director
115 Sprague Drive
Hebron, OH 43025
C. Ray Noecker Director
2770 Winchester Southern S.
Ashville, OH 43103
James F. Patterson Director
8765 Mulberry Road
Chesterland, OH 44026
</TABLE>
95 of 113
<PAGE> 58
<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
10835 Georgetown Street NE
Louisville, OH 44641
Harold W. Weihl Director
14282 King Road
Bowling Green, OH 43402
Gordon E. McCutchan Executive Vice President,
One Nationwide Plaza Law and Corporate Services
Columbus, OH 43215 and Secretary
Robert A. Oakley Executive Vice President-
One Nationwide Plaza Chief Financial Officer
Columbus, Ohio 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 Life Company Operations
Columbus, OH 43215
W. Sidney Druen Senior Vice President and General
One Nationwide Plaza Counsel and Assistant Secretary
Columbus, OH 43215
Harvey S. Galloway, Jr. Senior Vice President-Chief Actuary-
One Nationwide Plaza Life, Health and Annuities
Columbus, OH 43215
Richard A. Karas Senior Vice President - Sales -
One Nationwide Plaza Financial Services
Columbus, OH 43215
Michael D. Bleiweiss Vice President-
One Nationwide Plaza Individual Annuity Operations
Columbus, OH 43215
</TABLE>
96 of 113
<PAGE> 59
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS WITH DEPOSITOR
<S> <C>
Matthew S. Easley Vice President -
One Nationwide Plaza Life Marketing and Administrative Services
Columbus, OH 43215
Ronald L. Eppley Vice President-
One Nationwide Plaza Applications Services
Columbus, OH 43215
Timothy E. Murphy Vice President-
One Nationwide Plaza Strategic Marketing
Columbus, Ohio 43215
R. Dennis Noice Vice President-
One Nationwide Plaza Retail Operations
Columbus, OH 43215
Joseph P. Rath Vice President -
One Nationwide Plaza Associate General Counsel
Columbus, OH 43215
</TABLE>
Item 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR
OR REGISTRANT.
* Subsidiaries for which separate financial statements are filed
** Subsidiaries included in the respective consolidated financial statements
*** Subsidiaries included in the respective group financial statements filed
for unconsolidated subsidiaries
**** other subsidiaries
97 of 113
<PAGE> 60
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
STATE (SEE ATTACHED
OF ORGANIZATION CHART) UNLESS
COMPANY OTHERWISE PRINCIPAL BUSINESS
INDICATED
<S> <C> <C> <C>
Affiliate Agency, Inc. Delaware Life Insurance Agency
Affiliate Agency of Ohio, Inc. Ohio Life Insurance Agency
Allnations, Inc. Ohio Promotes cooperative insurance corporations
worldwide
American Marine Underwriters, Inc. Florida Underwriting Manager
Auto Direkt Insurance Company Germany Insurance Company
The Beak and Wire Corporation Ohio Radio Tower Joint Venture
California Cash Management Company California Investment Securities Agent
Colonial County Mutual insurance Texas Insurance Company
Company
Colonial Insurance Company of California Insurance Company
California
Columbus Insurance Brokerage and Germany Insurance Broker
Service GMBH
Companies Agency, Inc. Wisconsin Insurance Broker
Companies Agency Insurance Services California Insurance Broker
of California
Companies Agency of Alabama, Inc. Alabama Insurance Broker
Companies Agency of Idaho, Inc. Idaho Insurance Broker
Companies Agency of Illinois, Inc. Illinois Acts as Collection Agent for Policies placed
through Brokers
Companies Agency of Kentucky, Inc. Kentucky Insurance Broker
Companies Agency of Massachusetts, Massachusetts Insurance Broker
Inc.
Companies Agency of New York, Inc. New York Insurance Broker
Companies Agency of Pennsylvania, Inc. Pennsylvania Insurance Broker
Companies Agency of Phoenix, Inc. Arizona Insurance Broker
Companies Agency of Texas, Inc. Texas Insurance Broker
Companies Annuity Agency of Texas, Texas Insurance Broker
Inc.
Countrywide Services Corporation Delaware Products Liability, Investigative and Claims
Management Services
Employers Insurance of Wausau A Wisconsin Insurance Company
Mutual Company
</TABLE>
98 of 113
<PAGE> 61
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
STATE (SEE ATTACHED
OF ORGANIZATION CHART) UNLESS
COMPANY OTHERWISE PRINCIPAL BUSINESS
INDICATED
<S> <C> <C> <C>
** Employers Life Insurance Company of Wisconsin Life Insurance Company
Wausau
F & B, Inc. Iowa Insurance Agency
Farmland Mutual Insurance Company Iowa Insurance Company
Financial Horizons Distributors Alabama Life Insurance Agency
Agency of Alabama, Inc.
Financial Horizons Distributors Ohio Life Insurance Agency
Agency of Ohio, Inc.
Financial Horizons Distributors Oklahoma Life Insurance Agency
Agency of Oklahoma, Inc.
Financial Horizons Distributors Texas Life Insurance Agency
Agency of Texas, Inc.
* Financial Horizons Investment Trust Massachusetts Investment Company
Financial Horizons Securities Oklahoma Broker Dealer
Corporation
Gates, McDonald & Company Ohio Cost Control Business
Gates, McDonald & Company of Nevada Nevada Self-Insurance Administration Claims
Examinations and Data Processing Services
Gates, McDonald & Company of New York Workers Compensation Claims Administration
New York, Inc.
Gates, McDonald Health Plus, Inc. Ohio Managed Care Organization
Greater La Crosse Health Plans, Inc. Wisconsin Writes Commercial Health and Medicare
Supplement Insurance
Insurance Intermediaries, Inc. Ohio Insurance Broker and Insurance Agency
Key Health Plan, Inc. California Pre-paid health plans
Landmark Financial Services of New York Life Insurance Agency
New York, Inc.
Leben Direkt Insurance Company Germany Life Insurance Company
Lone Star General Agency, Inc. Texas Insurance Agency
** MRM Investments, Inc. Ohio Owns and operates a Recreational Ski Facility
** National Casualty Company Michigan Insurance Company
National Casualty Company of America, Great Britain Insurance Company
Ltd.
** National Premium and Benefit Delaware Insurance Administrative Services
Administration Company
** Nationwide Advisory Services, Inc. Ohio Registered Broker-Dealer, Investment Manager
and Administrator
Nationwide Agency, Inc. Ohio Insurance Agency
* Nationwide Asset Allocation Trust Massachusetts Investment Company
Nationwide Agribusiness Insurance Iowa Insurance Company
Company
</TABLE>
99 of 113
<PAGE> 62
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
STATE (SEE ATTACHED
OF ORGANIZATION CHART) UNLESS
COMPANY OTHERWISE PRINCIPAL BUSINESS
INDICATED
<C> <C> <C>
Nationwide Cash Management Company Ohio Investment Securities Agent
Nationwide Communications, Inc. Ohio Radio Broadcasting Business
Nationwide Community Urban Ohio Redevelopment of blighted areas within the
Redevelopment Corporation City of Columbus, Ohio
Nationwide Corporation Ohio Organized for the purpose of acquiring,
holding, encumbering, transferring, or
otherwise disposing of shares, bonds, and
other evidences of indebtedness,
securities, and contracts of other persons,
associations, corporations, domestic or
foreign and to form or acquire the control
of other corporations
Nationwide Development Company Ohio Owns, leases and manages commercial real estate
Nationwide Financial Institution Delaware Insurance Agency
Distributors Agency, Inc.
Nationwide Financial Services, Inc. Delaware Holding Company
Nationwide General Insurance Company Ohio Insurance Company
Nationwide HMO, Inc. Ohio Health Maintenance Organization
* Nationwide Indemnity Company Ohio Reinsurance Company
Nationwide Insurance Enterprise Ohio Membership Non-Profit Corporation
Foundation
Nationwide Insurance Golf Charities, Ohio Membership Non-Profit Corporation
Inc.
Nationwide Investing Foundation Michigan Investment Company
* Nationwide Investing Massachusetts Investment Company
Foundation II
Nationwide Investment Services Oklahoma Registered Broker-Dealer in Deferred
Corporation 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 Texas Lloyds Company
Nationwide Management Systems, Inc. Ohio Develops and operates Managed Care Delivery
System
Nationwide Mutual Fire Insurance Ohio Insurance Company
Company
Nationwide Mutual Insurance Company Ohio Insurance Company
Nationwide Properties, Ltd. Ohio Develops, owns and operates real estate and
real estate investments.
</TABLE>
100 of 113
<PAGE> 63
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
STATE (SEE ATTACHED
OF ORGANIZATION CHART) UNLESS
COMPANY OTHERWISE PRINCIPAL BUSINESS
INDICATED
<C> <C> <C>
Nationwide Property and Casualty Ohio Insurance Company
Insurance Company
Nationwide Realty Investors, Ltd. Ohio Develops, owns and operates real estate and
real estate investments.
* Nationwide Separate Account Trust Massachusetts Investment Company
NEA Valuebuilder Investor Services, Delaware Life Insurance Agency
Inc.
NEA Valuebuilder Investor Services of Alabama Life Insurance Agency
Alabama, Inc.
NEA Valuebuilder Investor Services of Arizona Life Insurance Agency
Arizona, Inc.
NEA Valuebuilder Investor Services of Montana Life Insurance Agency
Montana, Inc.
NEA Valuebuilder Investor Services of Nevada Life Insurance Agency
Nevada, Inc.
NEA Valuebuilder Investor Services of Ohio Life Insurance Agency
Ohio, Inc.
NEA Valuebuilder Investor Services of Oklahoma Life Insurance Agency
Oklahoma, Inc.
NEA Valuebuilder Investor Services of Texas Life Insurance Agency
Texas, Inc.
NEA Valuebuilder Investor Services of Wyoming Life Insurance Agency
Wyoming, Inc.
NEA Valuebuilder Services Insurance Massachusetts Life Insurance Agency
Agency, Inc.
Neckura General Insurance Company Germany Insurance Company
Neckura Holding Company Germany Administrative Service for Neckura Insurance
Group
Neckura Insurance Company Germany Insurance Company
Neckura Life Insurance Company Germany Life Insurance Company
NWE, Inc. Ohio Special Investments
PEBSCO of Massachusetts Massachusetts Markets and Administers Deferred Compensation
Insurance Agency, Inc. Plans for Public Employees
PEBSCO of Texas, Inc. Texas Markets and Administers Deferred Compensation
Plans for Public Employees
Pension Associates of Wausau, Inc. Wisconsin Pension plan administration, record keeping
and consulting and compensation consulting
Physicians Plus Insurance Corporation Wisconsin Health Maintenance organization
Prevea Health Insurance Plan, Inc. Wisconsin Health Maintenance organization
</TABLE>
101 of 113
<PAGE> 64
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
STATE (SEE ATTACHED
OF ORGANIZATION CHART) UNLESS
COMPANY OTHERWISE PRINCIPAL BUSINESS
INDICATED
<S> <C> <C> <C>
Public Employees Benefit Services Delaware Markets and Administers Deferred Compensation
Corporation Plans for Public Employees
Public Employees Benefit Services Alabama Markets and Administers Deferred Compensation
Corporation of Alabama Plans for Public Employees
Public Employees Benefit Services Arkansas Markets and Administers Deferred Compensation
Corporation of Arkansas Plans for Public Employees
Public Employees Benefit Services Montana Markets and Administers Deferred Compensation
Corporation of Montana Plans for Public Employees
Public Employees Benefit Services New Mexico Markets and Administers Deferred Compensation
Corporation of New Mexico Plans for Public Employees
Scottsdale Indemnity Company Ohio Insurance Company
Scottsdale Insurance Company Ohio Excess and surplus lines insurance company
Scottsdale Surplus Lines Insurance Arizona Excess and surplus lines insurance company
Company
SVM Sales GmbH, Neckura Insurance Germany Sales support for Neckura Insurance Group
Group
Wausau Business Insurance Company Wisconsin Insurance Company
Wausau General Insurance Company Illinois Insurance Company
Wausau Insurance Company (U.K.) United Kingdom Insurance and Reinsurance Company
Limited
Wausau International Underwriters California Special Risks, Excess and Surplus Lines
Insurance Underwriting Manager
** Wausau Preferred Health Insurance Wisconsin Insurance and Reinsurance Company
Company
Wausau Service Corporation Wisconsin Holding Company
Wausau Underwriters Insurance Company Wisconsin Insurance Company
** West Coast Life Insurance Company California Life Insurance Company
</TABLE>
102 of 113
<PAGE> 65
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
STATE (SEE ATTACHED
OF ORGANIZATION CHART) UNLESS
OTHERWISE PRINCIPAL BUSINESS
COMPANY INDICATED
<S> <C> <C> <C>
o MFS Variable Account Ohio Nationwide Life Issuer of Annuity Contracts
Separate Account
o NACo Variable Account Ohio Nationwide Life Issuer of Annuity Contracts
Separate Account
o Nationwide DC Variable Account Ohio Nationwide Life Issuer of Annuity Contracts
Separate Account
o Nationwide Life Separate Ohio Nationwide Life Issuer of Annuity Contracts
Account No. 1 Separate Account
o Nationwide Multi-Flex Ohio Nationwide Life Issuer of Annuity Contracts
Variable Account Separate Account
o Nationwide VA Separate Ohio Nationwide Life Issuer of Annuity Contracts
Account-A and Annuity
Separate Account
o Nationwide VA Separate Ohio Nationwide Life Issuer of Annuity Contracts
Account-B and Annuity
Separate Account
o Nationwide VA Separate Ohio Nationwide Life Issuer of Annuity Contracts
Account-C and Annuity
Separate Account
o Nationwide VA Separate Ohio Nationwide Life Issuer of Annuity Contracts
Account -Q and Annuity
Separate Account
o Nationwide Variable Account Ohio Nationwide Life Issuer of Annuity Contracts
Separate Account
o Nationwide Variable Account-II Ohio Nationwide Life Issuer of Annuity Contracts
Separate Account
o Nationwide Variable Account-3 Ohio Nationwide Life Issuer of Annuity Contracts
Separate Account
o Nationwide Variable Account-4 Ohio Nationwide Life Issuer of Annuity Contracts
Separate Account
</TABLE>
103 of 113
<PAGE> 66
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
STATE (SEE ATTACHED
OF ORGANIZATION CHART) UNLESS
OTHERWISE PRINCIPAL BUSINESS
COMPANY INDICATED
<S> <C>
* Nationwide Variable Account-5 Ohio Nationwide Life Issuer of Annuity Contracts
Separate Account
* Nationwide Fidelity Advisor Ohio Nationwide Life Issuer of Annuity Contracts
Variable Account Separate Account
* Nationwide Variable Account-6 Ohio Nationwide Life Issuer of Annuity Contracts
Separate Account
* Nationwide Variable Account-6 Ohio Nationwide Life Issuer of Annuity Contracts
Separate Account
Nationwide DCVA-II Ohio Nationwide Life Issuer of Annuity Contracts
Separate Account
* Nationwide VL Separate Ohio Nationwide Life Issuer of Life Insurance Policies
ACCOUNT - A and Annuity
Separate Account
* Nationwide VLI Separate Account Ohio Nationwide Life Issuer of Life Insurance Policies
Separate Account
* Nationwide VLI Separate Ohio Nationwide Life Issuer of Life Insurance Policies
ACCOUNT - 2 Separate Account
* Nationwide VL Separate Ohio Nationwide Life Issuer of Life Insurance Policies
Account-B Separate Account
* Nationwide VLI Separate Ohio Nationwide Life Issuer of Life Insurance Policies
Account-3 Separate Account
</TABLE>
104 of 113
<PAGE> 67
<TABLE>
<CAPTION>
NATIONWIDE INSURANCE ENTERPRISE(R) (left side)
<S> <C> <C> <C>
- ------------------------
| NATIONWIDE INSURANCE |
| GOLF CHARITIES, INC. |
| |
| MEMBERSHIP |
| NONPROFIT |
| CORPORATION |
- ------------------------
------------------------------------------
| EMPLOYERS INSURANCE OF WAUSAU |
| A MUTUAL COMPANY |
| (EMPLOYERS) |
| |========================================
| Contribution Note Cost |
| ----------------- ---- |
| Casualty $400,000,000 |
------------------------------------------
|
-----------------------------------------------------------------------
| | |
- --------------------------- --------------------------- ---------------------------- ---------------------------
| SAN DIEGO LOTUS | | WAUSAU INSURANCE CO. | | WAUSAU SERVICE | | |
| CORPORATION | | (U.K.) LIMITED | | CORPORATION (WSC) | | NATIONWIDE LLOYDS |
|Common Stock: 748,212 | |Common Stock: 8,506,800 | |Common Stock: 1,000 Shares| | |
|------------ Shares | |------------ Shares | |------------ | | |
| | | | | |=========| |
| Cost | | Cost | | Cost | || | A TEXAS LLOYDS |
| ---- | | ---- | | ---- | || | |
|Employers- | |Employers- | |Employers- | || | |
|100% $29,000,000| |100% $18,683,300| |100% $176,763,000| || | |
- --------------------------- --------------------------- ---------------------------- || ---------------------------
| ||
--------------------------------------------------------------------- ||
| | | ||
- --------------------------- | --------------------------- | ---------------------------- | || ---------------------------
| WAUSAU BUSINESS | | | COMPANIES AGENCY | | | COUNTRYWIDE SERVICES | | || | |
| INSURANCE COMPANY | | | OF KENTUCKY, INC. | | | CORPORATION | | || | |
|Common Stock: 10,900,000 | | |Common Stock: 1,000 | | |Common Stock: 100 Shares | | || | COMPANIES |
|------------ Shares | | |------------ Shares | | |------------ | | || | AGENCY OF |
| |---|---| | |---| | | ||==| TEXAS, INC. |
| Cost | | | Cost | | | Cost | | || | |
| ---- | | | ---- | | | ---- | | || | |
|WSC-100% $33,800,000| | |WSC-100% $1,000 | | |WSC-100% $145,852 | | || | |
- --------------------------- | --------------------------- | ---------------------------- | || ---------------------------
| | | ||
- --------------------------- | --------------------------- | ---------------------------- | || ---------------------------
| WAUSAU UNDERWRITERS | | | COMPANIES AGENCY | | | WAUSAU GENERAL | | || | |
| INSURANCE COMPANY | | | OF MASSACHUSETTS, INC. | | | INSURANCE COMPANY | | || | |
|Common Stock: 8,750 | | |Common Stock: 1,000 | | |Common Stock: 200,000 | | || | COMPANIES ANNUITY |
|------------ Shares | | |------------ Shares | | |------------ Shares | | || | AGENCY OF |
| |---|---| | |---| | | ====| TEXAS, INC. |
| Cost | | | Cost | | | Cost | | | |
| ---- | | | ---- | | | ---- | | | |
|WSC-100% $69,560,006| | |WSC-100% $1,000 | | |WSC-100% $39,000,000 | | | |
- --------------------------- | --------------------------- | ---------------------------- | ---------------------------
| | |
- --------------------------- | --------------------------- | ---------------------------- | ---------------------------
| GREATER LA CROSSE | | | COMPANIES AGENCY | | | WAUSAU INTERNATIONAL | | | AMERICAN MARINE |
| HEALTH PLANS, INC. | | | OF NEW YORK, INC. | | | UNDERWRITERS | | | UNDERWRITERS, INC. |
|Common Stock: 3,000 | | |Common Stock: 1,000 | | |Common Stock: 1,000 | | |Common Stock: 20 |
|------------ Shares | | |------------ Shares | | |------------ Shares | | |------------ Shares |
| |---|---| | |---| | |------| |
| Cost | | | Cost | | | Cost | | | Cost |
| ---- | | | ---- | | | ---- | | | ---- |
|WSC-33.3% $861,761 | | |WSC-100% $1,000 | | |WSC-100% $10,000 | | |WSC-100% $248,222 |
- --------------------------- | --------------------------- | ---------------------------- | ---------------------------
| | |
- --------------------------- | --------------------------- | ---------------------------- | ---------------------------
| COMPANIES AGENCY | | | COMPANIES AGENCY | | | COMPANIES AGENCY | | | COMPANIES AGENCY |
| OF ALABAMA, INC. | | | OF PENNSYLVANIA, INC. | | | INSURANCE SERVICES | | | OF ILLINOIS, INC. |
| | | | | | | OF CALIFORNIA | | | |
|Common Stock: 1,000 | | |Common Stock: 1,000 | | |Common Stock: 1,000 | | |Common Stock: 250 |
|------------ Shares | | |------------ Shares | |---|------------ Shares | |------|------------ Shares |
| |---|---| | | | | | | |
| Cost | | | Cost | | | Cost | | | Cost |
| ---- | | | ---- | | | ---- | | | ---- |
|WSC-100% $100 | | |WSC-100% $100 | | |WSC-100% $1,000 | | |WSC-100% $2,500 |
- --------------------------- | --------------------------- | ---------------------------- | ---------------------------
| | |
- --------------------------- | --------------------------- | ---------------------------- | ---------------------------
| COMPANIES AGENCY | | | COMPANIES AGENCY | | | PHYSICIANS PLUS | | | COMPANIES |
| OF IDAHO, INC. | | | OF PHOENIX, INC. | | | INSURANCE | | | AGENCY, INC. |
| | | | | | | CORPORATION | | | |
|Common Stock: 1,000 | | |Common Stock: 1,000 | | |Common Stock: 7,150 | | |Common Stock: 100 |
|------------ Shares | | |------------ Shares | | |------------ Shares | | |------------ Shares |
| |-------| | |---|Preferred Stock: 11,540 | |------| |
| | | | | |--------------- Shares | | | |
| | | | | | | | | |
| Cost | | Cost | | | Cost | | | Cost |
| ---- | | ---- | | | ---- | | | ---- |
|WSC-100% $1,000 | |WSC-100% $1,000 | | |WSC-33 1/3% $6,215,459| | |WSC-100% $10,000 |
- --------------------------- --------------------------- | ---------------------------- | ---------------------------
| |
| ---------------------------- | ---------------------------
| | PREVEA HEALTH | | | PENSION ASSOCIATES |
| | INSURANCE PLAN, INC. | | | OF WAUSAU, INC. |
| |Common Stock: 3,000 Shares| | |Common Stock: 1,000 |
| |------------ | | |------------ Shares |
----| | -------| |
| | | |
| Cost | |Companies Cost |
| ---- | |Agency, Inc. ---- |
|WSC-33 1/3% $500,000 | |(Wisconsin)-100% $10,000 |
---------------------------- ---------------------------
</TABLE>
<PAGE> 68
<TABLE>
<CAPTION>
NATIONWIDE INSURANCE ENTERPRISE(R) (middle)
<S> <C> <C>
-----------------------------------------------------------------------------
| |
| |
| NATIONWIDE MUTUAL |
=======| INSURANCE COMPANY |================================================
| (CASUALTY) |
| |
| |
-----------------------------------------------------------------------------
| || |
| || -------------------------------------------------------------
| || ---------------------------------------------------------------------------------------
| || | |
- -------------------------------- || | -------------------------------- --------------------------------
| ALLNATIONS, INC. | || | | NATIONWIDE GENERAL | | NECKURA HOLDING |
|Common Stock: 3,136 Shares | || | | INSURANCE COMPANY | | COMPANY (NECKURA) |
|------------ | || | | | | |
| Cost | || | |Common Stock: 20,000 | |Common Stock: 10,000 |
| ---- | || | |------------ Shares | |------------ Shares |
|Casualty-24.5% $88,320 | || | | Cost | | Cost |
|Fire-24.5% $88,463 | || | | ---- | | ---- |
|Preferred Stock: 1,466 Shares | || |----|Casualty-100% $5,944,422 | ---------|Casualty-100% $87,943,140 |
|--------------- | || | | | | | |
| Cost | || | | | | | |
| ---- | || | | | | | |
|Casualty-7.7% $100,000 | || | | | | | |
|Fire-7.7% $100,000 | || | | | | | |
- -------------------------------- || | -------------------------------- | --------------------------------
|| | |
- -------------------------------- || | -------------------------------- | --------------------------------
| 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 CALIFORNIA | | | 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% $11,750,000 | | |Neckura-100% DM 15,825,681 |
- -------------------------------- | -------------------------------- | --------------------------------
| |
- -------------------------------- | -------------------------------- | --------------------------------
| NATIONWIDE AGRIBUSINESS | | | SCOTTSDALE | | | NECKURA GENERAL |
| INSURANCE COMPANY | | | INSURANCE COMPANY | | | INSURANCE COMPANY |
|Common Stock: 1,000,000 | | | | | | |
|------------ Shares | | |Common Stock: 30,136 | | |Common Stock: 1,500 |
| Cost |------------------|------------ Shares | |--------|------------ Shares |
| ---- | | Cost | | | Cost |
|Casualty-99.9% $26,714,335 | | ---- | | | ---- |
|Other Capital: | |Casualty-100% $150,000,000 | | |Neckura-100% DM 1,656,925 |
|------------- | | | | | |
|Casualty-Ptd. $ 713,567 | | | | | |
- -------------------------------- -------------------------------- | --------------------------------
| |
-------------------------------- | --------------------------------
| SCOTTSDALE | | | COLUMBUS INSURANCE |
| SURPLUS LINES | | | BROKERAGE AND SERVICE |
| INSURANCE COMPANY | | | GmbH |
| | | |Common Stock: 1 Share |
| | |--------|------------ |
| "NEWLY FORMED" | | | Cost |
| | | | ---- |
| | | |Neckura-100% DM 51,639 |
| | | | |
| | | | |
-------------------------------- | --------------------------------
| |
-------------------------------- | --------------------------------
| NATIONAL PREMIUM & | | | LEBEN DIREKT |
| BENEFIT ADMINISTRATION | | | INSURANCE COMPANY |
| COMPANY | | | |
|Common Stock: 10,000 | | |Common Stock: 4,000 Shares |
|------------ Shares |------------------|------------ |
| Cost | | Cost |
| ---- | | ---- |
|Scottsdale-100% $10,000 | |Neckura-100% DM 4,000,000 |
| | | |
| | | |
-------------------------------- --------------------------------
-------------------------------- --------------------------------
| SVM SALES | | AUTO DIREKT |
| GmbH | | INSURANCE COMPANY |
| | | |
|Common Stock: 50 Shares | |Common Stock: 1,500 Shares |
|------------ | |------------ |
| Cost | | Cost |
| ---- | | ---- |
|Neckura-100% DM 50,000 | |Neckura-100% DM 1,643,149 |
| | | |
| | | |
-------------------------------- --------------------------------
</TABLE>
<PAGE> 69
<TABLE>
<CAPTION>
NATIONWIDE INSURANCE ENTERPRISE(R) (right side)
<S> <C> <C> <C>
------------------------
| NATIONWIDE INSURANCE |
| ENTERPRISE FOUNDATION|
| |
| MEMBERSHIP |
| NONPROFIT |
| CORPORATION |
------------------------
-----------------------------------------------------------------------------
| |
| |
| NATIONWIDE MUTUAL |
=======| FIRE INSURANCE COMPANY |
| (FIRE) |
| |
| |
-----------------------------------------------------------------------------
|
- --------------- --------------------------------------------------
| |
- ----------------------------------------------------------------------------------------------------------------- |
| | | |
| -------------------------------- | -------------------------------- ----------------------------------
| | 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 |
| | INDEMNITY COMPANY | | | INTERMEDIARIES, INC. |
| | | | | |
|-----|Common Stock: 28,000 | |----|Common Stock: 1,615 |
| |------------ Shares | | |------------ Shares |
| | Cost | | | Cost |
| | ---- | | | ---- |
| |Casualty-100% $294,529,000 | | |Casualty-100% $1,615,000 |
| -------------------------------- | --------------------------------
| |
| -------------------------------- | --------------------------------
| | LONE STAR | | | NATIONWIDE CASH |
| | GENERAL AGENCY, INC. | | | MANAGEMENT COMPANY |
| | | | |Common Stock: 100 Shares |
------|Common Stock: 1,000 | |----|------------ |
|------------ Shares | | | Cost |
| Cost | | | ---- |
| ---- | | |Casualty-90% $9,000 |
|Casualty-100% $5,000,000 | | |NW Adv. Serv. 1,000 |
-------------------------------- | --------------------------------
|| |
-------------------------------- | --------------------------------
| COLONIAL COUNTY MUTUAL | | | CALIFORNIA CASH |
| INSURANCE COMPANY | | | MANAGEMENT |
| | | | |
|Surplus Debentures | | |Common Stock: 90 Shares |
|------------------ | |----|------------ |
| Cost | | | Cost |
| ---- | | | ---- |
|Colonial $500,000 | | |Casualty-100% $9,000 |
|Lone Star 150,000 | | | |
-------------------------------- | --------------------------------
|
| -------------------------------- --------------------------------
| | NATIONWIDE | | THE BEAK AND |
| | COMMUNICATIONS, INC. | | WIRE CORPORATION |
| |Common Stock: 14,750 | | |
| |------------ Shares | |Common Stock: 750 Shares |
-----| Cost |------------------|------------ |
| ---- | | Cost |
|Casualty-100% $11,510,000 | | ---- |
|Other Capital: | |NW Comm-100% $531,000 |
|------------- | | |
|Casualty-Ptd. 1,000,000 | | |
-------------------------------- --------------------------------
Subsidiary Companies -- Solid Line
Contractual Association -- Double Lines
March 6, 1997
</TABLE>
<PAGE> 70
<TABLE>
<CAPTION>
(Left Side)
NATIONWIDE INSURANCE ENTERPRISE(R)
------------------------------------------------
| EMPLOYERS INSURANCE |
| OF WAUSAU |==========================================
| A MUTUAL COMPANY |
------------------------------------------------
<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 | | DISTRIBUTORS AGENCY | || | |
| (NW LIFE) | | | (NW ADV. SERV.) | | OF ALABAMA, INC. | || | |
| Common Stock: 68,000 | | | 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 | || | NFIDIA--100% $100 | || | |
--------------------------- | --------------------------- || --------------------------- || --------------------------
| || ||
--------------------------- | --------------------------- || --------------------------- || --------------------------
| NWE, INC. | | | NATIONWIDE | || | LANDMARK FINANCIAL | || | |
| | | | INVESTOR SERVICES, INC. | || | SERVICES OF | || | |
| | | | | || | NEW YORK, INC. | || | |
| Common Stock: 100 | | | Common Stock: 5 | || | Common Stock: 10,000 | || | FINANCIAL HORIZONS |
| ------------ Shares |--| | ------------ Shares |==|| | ------------ Shares | ||==| DISTRIBUTORS AGENCY |
| | | | | || | | || | OF OKLAHOMA, INC. |
| Cost | | | Cost | || | Cost | || | |
| ---- | | | ---- | || | ---- | || | |
| NW Life--100% $35,971,375 | | | NW Adv. Serv.--100% $5,000| || | NFIDIA--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 | || | NFIDIA--100% $153,000 | || | |
--------------------------- | --------------------------- || --------------------------- || --------------------------
| || ||
--------------------------- | --------------------------- || --------------------------- || --------------------------
| NATIONWIDE LIFE INSURANCE | | | NATIONWIDE | || | AFFILIATE AGENCY, INC. | || | |
| COMPANY OF NEW YORK | | | INVESTING | || | | || | |
| | | | FOUNDATION | || | | || | |
| Common Stock: | | | | || | Common Stock: 100 | || | AFFILIATE |
| ------------ Shares |--| | |==|| | ------------ Shares |__||==| AGENCY OF |
| Cost | | | | || | | | OHIO, INC. |
| ---- | | | | || | Cost | | |
| NW Life--100% | | | | || | ---- | | |
| (Proposed) | | | COMMON LAW TRUST | || | NFIDIA--100% $100 | | |
--------------------------- | --------------------------- || --------------------------- --------------------------
| ||
--------------------------- | --------------------------- ||
| NATIONWIDE REALTY | | | NATIONWIDE | ||
| INVESTORS, LTD. | | | INVESTING | ||
| | | | FOUNDATION II | ||
| Units: | | | | ||
| ------ | | | |==||
| | | | | ||
| | | | | ||
| NW Life--90% | | | | ||
| NW Mutual--10% | | | COMMON LAW TRUST | ||
--------------------------- | --------------------------- ||
| ||
--------------------------- | --------------------------- ||
| NATIONWIDE REALTY | | | NATIONWIDE | ||
| INVESTORS, LTD. | | | SEPARATE ACCOUNT | ||
| | | | TRUST | ||
| Units: | | | | ||
| ------ |__| | |__||
| | | |
| | | |
| NW Life--97.6% | | |
| NW Mutual--2.4% | | COMMON LAW TRUST |
--------------------------- ---------------------------
</TABLE>
<PAGE> 71
<TABLE>
<CAPTION>
(Center)
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------
| NATIONWIDE MUTUAL |
========================================| INSURANCE COMPANY |==========================================
| (CASUALTY) |
------------------------------------------------
|
| ----------------------------------------------------
| |
---------------------------------------
| 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 | | MRM INVESTMENTS, INC. | | WEST COAST LIFE | | NATIONAL CASUALTY |
| SERVICES, INC. (NFS) | | | | INSURANCE COMPANY | | COMPANY |
| | | | | | | (NC) |
| Common Stock: Control | | Common Stock: 1 | | Common Stock: 1,000,000 | | Common Stock: 100 |
| ------------ ------- | | ------------ Share | | ------------ Shares | | ------------ Shares |
| | | | | | | |
| | | Cost | | Cost | | Cost |
| Class A Public--100% | | ---- | | ---- | | ---- |
| Class B NW Corp--100% | | NW Corp.--100% $1,339,218 | | NW Corp.--100% $152,946,930 | | NW Corp.--100% $73,442,439 |
--------------------------- --------------------------- ----------------------------- ----------------------------
| |
- -------------------------------------------------------------------------------- |
| | |
--------------------------- --------------------------- ----------------------------
| PUBLIC EMPLOYEES BENEFIT | | NEA VALUEBUILDER | | NCC OF AMERICA, INC. |
| SERVICES CORPORATION | | INVESTOR SERVICES, INC. | | (INACTIVE) |
| (PEBSCO) | | (NEA) | | |
| Common Stock: 236,494 |==|| | Common Stock: 500 | | |
| ------------ Shares | || | ------------ Shares | | |
| | || | | | |
| NFS--100% | || | NFS--100% | | NFS--100% |
--------------------------- || ----------------------------- ----------------------------
|| ||
--------------------------- || --------------------------- ||
| PEBSCO OF | || | NEA VALUEBUILDER | ||
| ALABAMA | || | INVESTOR SERVICES | ||
| | || | OF ALABAMA, INC. | ||
| Common Stock: 100,000 | || | Common Stock: 500 | ||
| ------------ Shares |--|| | ------------ Shares |--||
| | || | | ||
| Cost | || | Cost | ||
| ---- | || | ---- | ||
| PEBSCO--100% $1,000 | || | NEA--100% $5,000 | ||
--------------------------- || --------------------------- ||
|| ||
--------------------------- || --------------------------- ||
| PEBSCO OF | || | NEA VALUEBUILDER | ||
| ARKANSAS | || | INVESTOR SERVICES | ||
| | || | OF ARIZONA, INC | ||
| Common Stock: 50,000 | || | Common Stock: 100 | ||
| ------------ Shares |--|| | ------------ Shares |--||
| | || | | ||
| Cost | || | Cost | ||
| ---- | || | ---- | ||
| PEBSCO--100% $500 | || | NEA--100% $1,000 | ||
--------------------------- || --------------------------- ||
|| ||
--------------------------- || --------------------------- ||
| PEBSCO OF MASSACHUSETTS | || | NEA VALUEBUILDER | ||
| INSURANCE AGENCY, INC. | || | INVESTOR SERVICES | ||
| | || | OF MONTANA, INC. | ||
| Common Stock: 1,000 | || | Common Stock: 500 | ||
| ------------ Shares |--|| | ------------ Shares |--||
| | || | | ||
| Cost | || | Cost | ||
| ---- | || | ---- | ||
| PEBSCO--100% $1,000 | || | NEA--100% $500 | ||
--------------------------- || --------------------------- ||
|| ||
--------------------------- || --------------------------- || ---------------------------
| PEBSCO OF | || | NEA VALUEBUILDER | || | |
| MONTANA | || | INVESTOR SERVICES | || | |
| | || | OF NEVADA, INC. | || | NEA VALUEBUILDER |
| Common Stock: 500 | || | Common Stock: 500 | || | INVESTOR SERVICES |
| ------------ Shares |--|| | ------------ Shares | ||==| OF OHIO, INC. |
| | || | | || | |
| Cost | || | Cost | || | |
| ---- | || | ---- | || | |
| PEBSCO--100% $500 | || | NEA--100% $500 | || | |
--------------------------- || --------------------------- || ---------------------------
|| ||
--------------------------- || --------------------------- || ---------------------------
| PEBSCO OF | || | NEA VALUEBUILDER | || | |
| NEW MEXICO | || | INVESTOR SERVICES | || | |
| | || | OF WYOMING, INC. | || | NEA VALUEBUILDER |
| Common Stock: 1,000 | || | Common Stock: 500 | || | INVESTOR SERVICES |
| ------------ Shares |--|| | ------------ Shares | ||==| OF OKLAHOMA, INC. |
| | || | | || | |
| Cost | || | Cost | || | |
| ---- | || | ---- | || | |
| PEBSCO--100% $1,000 | || | NEA--100% $500 | || | |
--------------------------- || --------------------------- || ---------------------------
|| ||
--------------------------- || --------------------------- || ----------------------------
| | || | NEA VALUEBUILDER | || | |
| | || | SERVICES INSURANCE | || | |
| PEBSCO OF | || | AGENCY, INC. | || | NEA VALUEBUILDER |
| TEXAS, INC. | || | Common Stock: 100 | || | INVESTOR SERVICES |
| |==|| | ------------ Shares |__||==| OF TEXAS, INC. |
| | | | | |
| | | Cost | | |
| | | ---- | | |
| | | NEA--100% $1,000 | | |
--------------------------- --------------------------- ----------------------------
</TABLE>
<PAGE> 72
<TABLE>
<CAPTION>
(Right)
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------
| NATIONWIDE MUTUAL |
========================================| FIRE INSURANCE COMPANY |
| (FIRE) |
------------------------------------------------
|
- -----------------------------------------------------------------|
- ----------------------------------------------------------------------------------------------
| | |
--------------------------- ------------------------------ ------------------------------
| GATES, MCDONALD | | EMPLOYERS LIFE INSURANCE | | NATIONWIDE HMO, INC. |
| & COMPANY (GATES) | | OF WAUSAU (ELIOW) | | (NW HMO) |
| | | | | |
| Common Stock: 254 | | Common Stock: 250,000 | | Common Stock: 100 |
|-- | ------------ Shares | |--| ------------ Shares | |--| ------------ Shares |
| | | | | | | | |
| | Cost | | | Cost | | | Cost |
| | ---- | | | ---- | | | ---- |
| | NW CORP.--100% $25,683,532 | | | NW CORP.--100% $126,509,480 | | | NW CORP.--100% $14,603,732 |
| ----------------------------- | ------------------------------ | ------------------------------
| | |
| --------------------------- | ------------------------------ | ------------------------------
| | GATES, MCDONALD & COMPANY | | | WAUSAU PREFERRED | | | NATIONWIDE MANAGEMENT |
| | OF NEW YORK, INC. | | | HEALTH INSURANCE CO. | | | SYSTEMS, INC. |
| | | | | | | | |
| | Common Stock: 3 | | | Common Stock: 250,000 | | | Common Stock: 100 |
|-- | ------------ Shares | |--| ------------ Shares | |--| ------------ Shares |
| | | | | | | | |
| | Cost | | | Cost | | | NW HMO Cost |
| | ---- | | | ---- | | | ---- |
| | GATES--100% $106,947 | | | NW CORP.--100% $57,413,193 | | | Inc.--100% $25,149 |
| ----------------------------- | ------------------------------ | ------------------------------
| | |
| ----------------------------- | ------------------------------ | ------------------------------
| | GATES, MCDONALD & COMPANY | | | KEY HEALTH PLAN, INC. | | | NATIONWIDE |
| | OF NEVADA | | | | | | AGENCY, INC. |
| | | | | | | | |
| | Common Stock: 40 | | | Common Stock: 1,000 | | | Common Stock: 100 |
|-- | ------------ Shares | |--| ------------ Shares | |--| ------------ Shares |
| | | | | | | |
| | Cost | | Cost | | | NW HMO Cost |
| | ---- | | ---- | | | ---- |
| | Gates--100% $93,750 | | ELIOPW--80% $2,700,000 | | | Inc.--99% $116,077 |
| ----------------------------- ------------------------------ | ------------------------------
|
| -----------------------------
| | GATES, MCDONALD |
| | HEALTH PLUS, INC. |
| | |
| | Common Stock: 200 |
|-- | ------------ Shares |
| |
| Cost |
| ---- |
| NW CORP.--100% $2,000,000 |
-----------------------------
Subsidiary Companies -- Solid Line
Contractual Association -- Double Line
Partnership Interest -- Dotted Line
March 6, 1997
Page 2
</TABLE>
<PAGE> 73
Item 27. NUMBER OF CONTRACT OWNERS
The number of contract Owners of Qualified and Non-Qualified
Contracts as of February 28, 1997 was 8,462 and 1,995,
respectively.
Item 28. INDEMNIFICATION
Provision is made in the Company's Amended Code of Regulations
and expressly authorized by the General Corporation Law of the
State of Ohio, for indemnification by the Company 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 the Company, 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 the Company pursuant to the
foregoing provisions, the Company has been informed that in the
opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 29. PRINCIPAL UNDERWRITER
(a) Clarendon Insurance Agency, Inc. acts as general
distributor for the MFS Variable Account, a separate
account of the Company, and for certain Sun Life (US) and
Sun Life (N.Y.) Annuity Contracts.
107 of 113
<PAGE> 74
(b) CLARENDON INSURANCE AGENCY, INC.
DIRECTORS
<TABLE>
<CAPTION>
POSITIONS AND OFFICES
NAME AND BUSINESS ADDRESS WITH UNDERWRITER
<S> <C>
A. Keith Brodkin Director
500 Boylston Street
Boston, MA 02116
Arnold D. Scott Director
500 Boylston Street
Boston, MA 02116
Jeffrey L. Shames Director
500 Boylston Street
Boston, MA 02116
</TABLE>
CLARENDON INSURANCE AGENCY, INC.
OFFICERS
<TABLE>
<CAPTION>
POSITIONS AND OFFICES
NAME AND BUSINESS ADDRESS WITH UNDERWRITER
<S> <C>
A. Keith Brodkin Chairman
500 Boylston Street
Boston, MA 02116
Cynthia Orcutt President
One Sun Life Executive Park
Wellesley Hills, MA 02181
Stephen E. Cavan Secretary
500 Boylston Street and Clerk
Boston, MA 02116
</TABLE>
108 of 113
<PAGE> 75
(b) CLARENDON INSURANCE AGENCY, INC.
OFFICERS (CONTINUED)
<TABLE>
<S> <C>
James E. Russell Treasurer
500 Boylston Street
Boston, MA 02116
Bruce C. Avery Vice President
500 Boylston Street
Boston, MA 02116
</TABLE>
<TABLE>
<CAPTION>
(c) NAME OF NET UNDERWRITING COMPENSATION ON
PRINCIPAL DISCOUNTS AND REDEMPTION OR BROKERAGE
UNDERWRITER COMMISSIONS ANNUITIZATION COMMISSIONS COMPENSATION
<S> <C> <C> <C> <C>
Clarendon N/A N/A N/A N/A
Insurance
Agency,
Inc.
</TABLE>
109 of 113
<PAGE> 76
Item 30. LOCATION OF ACCOUNTS AND RECORDS
Robert O. Cline
Nationwide Life Insurance Company
One Nationwide Plaza
Columbus, OH 43216
Item 31. MANAGEMENT SERVICES
Not Applicable
Item 32. UNDERTAKINGS
The Registrant hereby undertakes to:
(a) file a post-effective amendment to this registration
statement as frequently as is necessary to ensure that the
audited financial statements in the registration statement
are never more than 16 months old for so long as payments
under the variable annuity contracts may be accepted;
(b) include either (1) as part of any application to purchase a
contract offered by the prospectus, a space that an
applicant can check to request a Statement of Additional
Information, or (2) a post card or similar written
communication affixed to or included in the prospectus that
the applicant can remove to send for a Statement of
Additional Information; and
(c) deliver any Statement of Additional Information and any
financial statements required to be made available under
this form promptly upon written or oral request.
The Registrant represents that any of the Contracts which are
issued pursuant to Section 403(b) of the Code are issued by the
Company through the Registrant in reliance upon, and in
compliance with, a no-action letter issued by the Staff of the
Securities and Exchange Commission to the American Council of
Life Insurance (publicly available November 28, 1988) permitting
withdrawal restrictions to the extent necessary to comply with
Section 403(b)(11) of the Code.
The Company represents that the fees and the 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 the Company.
110 of 113
<PAGE> 77
Offered by
NATIONWIDE
LIFE INSURANCE COMPANY
and its
MFS VARIABLE ACCOUNT
INDIVIDUAL DEFERRED
VARIABLE ANNUITY CONTRACTS
PROSPECTUS
MAY 1, 1997
111 of 113
<PAGE> 78
ACCOUNTANTS' CONSENT AND INDEPENDENT AUDITORS'
REPORT ON FINANCIAL STATEMENT SCHEDULES
The Board of Directors of Nationwide Life Insurance Company and
Contract Owners of the MFS Variable Account:
The audits referred to in our report on Nationwide Life Insurance Company (the
Company) dated January 31, 1997 included the related financial statement
schedules as of December 31, 1996, and for each of the years in the three-year
period ended December 31, 1996, 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.
We consent to the use of our reports included herein and to the reference to
our firm under the heading "Services" in the Statement of Additional
Information.
KPMG Peat Marwick LLP
Columbus, Ohio
April 22, 1997
112 of 113
<PAGE> 79
SIGNATURES
As required by the Securities Act of 1933, and the Investment Company
Act of 1940, the Registrant, MFS VARIABLE ACCOUNT, 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 22nd
day of April, 1997.
MFS VARIABLE ACCOUNT
-------------------------------------
(Registrant)
NATIONWIDE LIFE INSURANCE COMPANY
----------------------------------------
(Depositor)
By /s/ JOSEPH P. RATH
----------------------------------------
Joseph P. Rath
Vice President
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 22nd
day of April, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C>
/s/ LEWIS J. ALPHIN Director
- -------------------------------------------------
Lewis J. Alphin
/s/ KEITH W. ECKEL Director
- -------------------------------------------------
Keith W. Eckel
/s/ WILLARD J. ENGEL Director
- -------------------------------------------------
Willard J. Engel
/s/ FRED C. FINNEY Director
- -------------------------------------------------
Fred C. Finney
/s/ CHARLES L. FUELLGRAF, JR. Director
- -------------------------------------------------
Charles L. Fuellgraf, Jr.
/s/ JOSEPH J. GASPER President and Chief
- ------------------------------------------------- Operating Office and Director
Joseph J. Gasper
/s/ HENRY S. HOLLOWAY Chairman of the Board
- ------------------------------------------------- and Director
Henry S. Holloway
/s/ DIMON RICHARD McFERSON Chairman and Chief Executive Officer
- ------------------------------------------------- Nationwide Insurance Enterprise and Director
Dimon Richard McFerson
/s/ DAVID O. MILLER Director
- -------------------------------------------------
David O. Miller
/s/ C. RAY NOECKER Director
- -------------------------------------------------
C. Ray Noecker
/s/ ROBERT A. OAKLEY Executive Vice President-
- ------------------------------------------------- Chief Financial Officer
Robert A. Oakley
/s/ JAMES F. PATTERSON Director By /s/ JOSEPH P. RATH
- ------------------------------------------------- ----------------------------
James F. Patterson Joseph P. Rath
Attorney-in-Fact
/s/ ARDEN L. SHISLER Director
- -------------------------------------------------
Arden L. Shisler
/s/ ROBERT L. STEWART Director
- -------------------------------------------------
Robert L. Stewart
/s/ NANCY C. THOMAS Director
- -------------------------------------------------
Nancy C. Thomas
/s/ HAROLD W. WEIHL Director
- -------------------------------------------------
Harold W. Weihl
</TABLE>
113 of 113
<PAGE> 80
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that each of the undersigned as
directors and/or officers of NATIONWIDE LIFE INSURANCE COMPANY, and NATIONWIDE
LIFE AND ANNUITY INSURANCE COMPANY, both Ohio corporations, which have filed or
will file with the U.S. Securities and Exchange Commission under the provisions
of the Securities Act of 1933, as amended, various Registration Statements and
amendments thereto for the registration under said Act of Individual Deferred
Variable Annuity Contracts in connection with MFS Variable Account, Nationwide
Variable Account, Nationwide Variable Account-II, Nationwide Variable Account-3,
Nationwide Variable Account-4, Nationwide Variable Account-5, Nationwide
Variable Account-6, Nationwide Fidelity Advisor Variable Account, Nationwide
Multi-Flex Variable Account, Nationwide Variable Account-8, Nationwide VA
Separate Account-A, Nationwide VA Separate Account-B, Nationwide VA Separate
Account-C and Nationwide VA Separate Account-Q; and the registration of fixed
interest rate options subject to a market value adjustment offered under some or
all of the aforementioned individual Variable Annuity Contracts in connection
with Nationwide Multiple Maturity Separate Account and Nationwide Multiple
Maturity Separate Account-A, and the registration of Group Flexible Fund
Retirement Contracts in connection with Nationwide DC Variable Account,
Nationwide DCVA-II, and NACo Variable Account; and the registration of Group
Common Stock Variable Annuity Contracts in connection with Separate Account No.
1; and the registration of variable life insurance policies in connection with
Nationwide VLI Separate Account, Nationwide VLI Separate Account-2, Nationwide
VLI Separate Account-3, Nationwide VL Separate Account-A and Nationwide VL
Separate Account-B, hereby constitutes and appoints Dimon Richard McFerson,
Joseph J. Gasper, W. Sidney Druen, and Joseph P. Rath, and each of them with
power to act without the others, his/her attorney, with full power of
substitution and resubstitution, for and in his/her name, place and stead, in
any and all capacities, to approve, and sign such Registration Statements and
any and all amendments thereto, with power to affix the corporate seal of said
corporation thereto and to attest said seal and to file the same, with all
exhibits thereto and other documents in connection therewith, with the U.S.
Securities and Exchange Commission, hereby granting unto said attorneys, and
each of them, full power and authority to do and perform all and every act and
thing requisite to all intents and purposes as he/she might or could do in
person, hereby ratifying and confirming that which said attorneys, or any of
them, may lawfully do or cause to be done by virtue hereof. This instrument may
be executed in one or more counterparts.
IN WITNESS WHEREOF, the undersigned have herewith set their names and
seals as of this 2nd day of April, 1997.
<TABLE>
<CAPTION>
<S> <C>
/s/ Lewis J. Alphin /s/ David O. Miller
- ------------------------------------------------- --------------------------------------------------
Lewis J. Alphin, Director David O. Miller, Director
/s/ Keith W. Eckel /s/ C. Ray Noecker
- ------------------------------------------------- -------------------------------------------------
Keith W. Eckel, Director C. Ray Noecker, Director
/s/ Willard J. Engel /s/ Robert A. Oakley
- ------------------------------------------------- --------------------------------------------------
Willard J. Engel, Director Robert A. Oakley, Executive Vice President and Chief
Financial Officer
/s/ Fred C. Finney /s/ James F. Patterson
- ------------------------------------------------- --------------------------------------------------
Fred C. Finney, Director James F. Patterson, Director
/s/ Charles L. Fuellgraf /s/ Arden L. Shisler
- ------------------------------------------------- --------------------------------------------------
Charles L. Fuellgraf, Jr., Director Arden L. Shisler, Director
/s/ Joseph J. Gasper /s/ Robert L. Stewart
- ------------------------------------------------- --------------------------------------------------
Joseph J. Gasper, President and Chief Operating Officer Robert L. Stewart, Director
and Director
/s/ Henry S. Holloway /s/ Nancy C. Thomas
- ------------------------------------------------- --------------------------------------------------
Henry S. Holloway, Chairman of the Board, Director Nancy C. Thomas, Director
/s/ Dimon Richard McFerson /s/ Harold W. Weihl
- ------------------------------------------------- --------------------------------------------------
Dimon Richard McFerson, Chairman and Chief Executive Harold W. Weihl, Director
Officer-Nationwide Insurance Enterprise and Director
</TABLE>
