<PAGE> 1
As filed with the Securities and Exchange Commission.
'33 Act File No. 2-73432
'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. 23 [x]
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 24 [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
DENNIS W. CLICK
SECRETARY
ONE NATIONWIDE PLAZA, COLUMBUS, OHIO 43215
(Name and Address of Agent for Service)
This Post-Effective Amendment amends the Registration Statement in
respect of the Prospectus, 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, 1998 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.
================================================================================
Page 1 of 107
<PAGE> 2
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............................................................................9
Item 4. Condensed Financial Information..................................................................11
Item 5. General Description of Registrant, Depositor, and Portfolio Companies............................26
Item 6. Deductions and Expenses..........................................................................28
Item 7. General Description of Variable Annuity Contracts................................................34
Item 8. Annuity Period...................................................................................36
Item 9. Death Benefit and Distributions..................................................................37
Item 10. Purchases and Contract Value.....................................................................40
Item 11. Redemptions......................................................................................41
Item 12. Taxes............................................................................................42
Item 13. Legal Proceedings................................................................................47
Item 14. Table of Contents of the Statement of Additional Information.....................................48
Part B INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
Item 15. Cover Page.......................................................................................49
Item 16. Table of Contents................................................................................49
Item 17. General Information and History..................................................................49
Item 18. Services.........................................................................................49
Item 19. Purchase of Securities Being Offered.............................................................49
Item 20. Underwriters.....................................................................................49
Item 21. Calculation of Performance Data..................................................................50
Item 22. Annuity Payments.................................................................................50
Item 23. Financial Statements.............................................................................51
Part C OTHER INFORMATION
Item 24. Financial Statements and Exhibits................................................................85
Item 25. Directors and Officers of the Depositor..........................................................87
Item 26. Persons Controlled by or Under Common Control with the Depositor or Registrant...................89
Item 27. Number of Contract Owners........................................................................99
Item 28. Indemnification..................................................................................99
Item 29. Principal Underwriter............................................................................99
Item 30. Location of Accounts and Records................................................................100
Item 31. Management Services.............................................................................100
Item 32. Undertakings....................................................................................100
</TABLE>
Page 2 of 107
<PAGE> 3
NATIONWIDE LIFE INSURANCE COMPANY
Home Office
P.O. Box 16609
Columbus, Ohio 43216-6609
1-800-848-7529, TDD 1-800-238-3035
DEFERRED VARIABLE ANNUITY CONTRACTS
ISSUED BY THE MFS VARIABLE ACCOUNT OF
NATIONWIDE LIFE INSURANCE COMPANY
The Contracts described in this prospectus are Flexible Purchase Payment
Contracts (collectively referred to as the "Contracts"). The Contracts are sold
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"). Shares of the Underlying Mutual Fund Options are issued only for the
purpose of funding benefits for variable annuity contracts and variable life
insurance policies issued by insurance companies. The Variable Account uses its
assets to purchase shares at Net Asset Value in one or more of the following
Underlying Mutual Fund options:
<TABLE>
<S> <C>
MFS(R) Bond Fund - Class A (formerly Massachusetts MFS(R) Total Return Fund - Class A (formerly
Financial Bond Fund) Massachusetts Financial Total Return Trust)
MFS(R) Growth Opportunities Fund - Class A MFS(R) World Governments Fund - Class A (formerly
(formerly MFS(R) Capital Development Fund) 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 Growth Stock Fund - Class A
(formerly Massachusetts Financial High
Income Trust-I) Massachusetts Investors Trust - Class A
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 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, 1998, containing further information about the Contracts and the Variable
Account has been filed with the Securities and Exchange Commission ("SEC") . You
can obtain a copy without charge from the Company by calling 1-800-848-7529, TDD
1-800-238-3035, or by writing P. O. Box 16609, Columbus, Ohio 43216-6609.
THE BENEFITS DESCRIBED IN THIS PROSPECTUS MAY NOT BE AVAILABLE IN EVERY
JURISDICTION. PLEASE REFER TO YOUR CONTRACT FOR SPECIFIC BENEFIT INFORMATION.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC NOR HAS THE
SEC PASSED UPON THE ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE STATEMENT OF ADDITIONAL INFORMATION, DATED MAY 1, 1998, 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, 1998.
1
Page 3 of 107
<PAGE> 4
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 during
annuitization and upon whose continuation of life any annuity payment involving
life contingencies depends. This person must be age 78 or younger at the time of
contract issuance. The Annuitant may be changed prior to the Annuitization Date
with the consent of the Company.
ANNUITIZATION- The period during which annuity payments are received.
ANNUITIZATION DATE- The date on which annuity payments 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. The Annuity Commencement Date may be changed by the Contract Owner
with the consent of the Company.
ANNUITY PAYMENT OPTION- The chosen form of annuity payments. Several options are
available under this Contract.
ANNUITY UNIT- An accounting unit of measure used to calculate the value of
Variable Annuity payments.
BENEFICIARY- The person designated to receive certain benefits under the
Contract when the Annuitant dies 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 ANNUITANT- The person who may be the recipient of certain rights or
benefits under the Contract when the Annuitant dies before the Annuitization
Date. If a Contingent Annuitant is designated, and the Annuitant dies before the
Annuitization Date, the Contingent Annuitant becomes the Annuitant. The Contract
Owner's right to name a Contingent Annuitant may be restricted under the
provisions of any retirement or deferred compensation plan for which this
Contract is issued.
CONTINGENT BENEFICIARY- The person designated to be the Beneficiary if the named
Beneficiary is not living at the time of the death of the Annuitant.
CONTINGENT OWNER- A Contingent Owner succeeds to the rights of the Contract
Owner upon the Contract Owner's death before Annuitization. The Contract 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" will mean "Owner's Beneficiary."
CONTRACT- The Deferred Variable Annuity Contract described in this prospectus.
CONTRACT ANNIVERSARY- An anniversary of the Date of Issue of the Contract.
CONTRACT OWNER- The person who possesses all rights under the Contract,
including the right to designate and change any designations of the Contract
Owner, Contingent Owner, Annuitant, Contingent Annuitant, Beneficiary,
Contingent Beneficiary, Annuity Payment Option, and the Annuity Commencement
Date. The Contract Owner is the person named as Owner on the application, unless
changed.
CONTRACT VALUE- The sum of the value of all Accumulation Units plus any amount
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 Data Page of the
Contract.
DEATH BENEFIT- The benefit payable upon the death of the Annuitant or the
Contingent Annuitant, if applicable. This benefit does not apply upon the death
of the Contract Owner when the Contract Owner and Annuitant are not the same. If
the Annuitant dies after the Annuitization Date, any benefit that may be payable
will be as specified in the Annuity Payment Option elected.
DISTRIBUTION- Any payment of part or all of the Contract Value.
ERISA- The Employee Retirement Income Security Act of 1974, as amended.
2
Page 4 of 107
<PAGE> 5
FIXED ACCOUNT- An investment option which is funded by the General Account of
the Company.
FIXED ANNUITY- An annuity providing for payments which are guaranteed by the
Company as to dollar amount during Annuitization.
GENERAL ACCOUNT- All assets of the Company other than those of the Variable
Account or in other separate accounts that have been or may be established by
the Company.
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, but does not include Roth IRAs,
which qualify for favorable tax treatment under 408A of the Code.
JOINT OWNER- The Joint Owner possesses an undivided interest in the entire
Contract in conjunction with the Contract Owner. If a Joint Owner is named,
references to "Contract Owner" or "Joint Owner" will apply to both the Contract
Owner and Joint Owner or either of them. Joint Owners must be spouses at the
time Joint Ownership is requested unless otherwise allowed by state law. Joint
Ownership may be selected only for Non-Qualified Contracts.
NET ASSET VALUE- The value of one share of an Underlying Mutual Fund at the end
of a market day or at the close of the New York Stock Exchange. Net Asset Value
is computed by adding the value of all portfolio holdings plus other assets,
deducting charges and then dividing the result by the number of shares
outstanding.
NON-QUALIFIED CONTRACT- A Contract which does not qualify for favorable tax
treatment under Sections 401 (Qualified Plans), 408 (IRAs) or 403(b) (Tax
Sheltered Annuities) 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 fund a Qualified Plan.
QUALIFIED PLAN- Retirement plans which receive favorable tax treatment under
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.
UNDERLYING MUTUAL FUND- A registered open-end management investment company in
which the assets of the Sub-Accounts will be invested.
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 Home Office are
open for business or any other day during which there is a sufficient degree of
trading of the Underlying Mutual Fund shares that the current Cash Value 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 are not predetermined
or guaranteed as to dollar amount and which vary in amount with the investment
experience of the Variable Account.
3
Page 5 of 107
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<S> <C>
GLOSSARY OF SPECIAL TERMS.......................................................................2
SUMMARY OF CONTRACT EXPENSES....................................................................6
UNDERLYING MUTUAL FUND ANNUAL EXPENSES..........................................................6
EXAMPLE.........................................................................................7
SYNOPSIS........................................................................................7
CONDENSED FINANCIAL INFORMATION.................................................................8
NATIONWIDE LIFE INSURANCE COMPANY..............................................................24
THE VARIABLE ACCOUNT...........................................................................24
Underlying Mutual Fund Options........................................................24
Voting Rights.........................................................................26
VARIABLE ACCOUNT CHARGES AND OTHER DEDUCTIONS..................................................26
Expenses of the Variable Account......................................................26
Mortality Risk Charge.................................................................27
Expense Risk Charge...................................................................27
Contingent Deferred Sales Charge......................................................27
Waiver of Contingent Deferred Sales Charge............................................27
Contract Maintenance Charge...........................................................28
Premium Taxes.........................................................................28
Investments of the Variable Account...................................................29
Right to Revoke.......................................................................29
Transfers.............................................................................29
Assignment............................................................................30
Loan Privilege........................................................................30
Beneficiary...........................................................................31
Contract Ownership....................................................................32
Joint Ownership.......................................................................32
Substitution of Securities............................................................32
Contract Owner Inquiries..............................................................32
OPERATION OF THE CONTRACT......................................................................32
Annuitization.........................................................................32
Fixed Payment Annuity - First and Subsequent Payments.................................33
Variable Payment Annuity - First and Subsequent Payments..............................33
Variable Payment Annuity - Assumed Investment Rate....................................33
Variable Payment Annuity - Value of an Annuity Unit...................................33
Variable Payment Annuity - Exchanges Among Underlying Mutual Fund Options.............33
Frequency and Amount of Annuity Payments..............................................33
Annuity Commencement Date.............................................................34
Annuity Payment Options...............................................................34
Death of Contract Owner...............................................................34
Death Benefit Prior to the Annuitization Date.........................................35
Death Benefit after the Annuitization Date............................................35
Required Distribution for Qualified Plans or Tax Sheltered Annuities..................35
Required Distributions for IRAs and SEP-IRAs..........................................36
GENERAL INFORMATION............................................................................37
Contract Owner Services...............................................................37
Statements and Reports................................................................38
Allocation of Purchase Payments and Contract Value....................................38
Value of an Accumulation Unit.........................................................38
Net Investment Factor.................................................................39
Determining the Contract Value........................................................39
Surrender (Redemption)................................................................39
Surrenders Under a Qualified Plan or Tax Sheltered Annuity Contract...................40
Federal Tax Considerations............................................................40
Federal Income Taxes..................................................................40
</TABLE>
4
Page 6 of 107
<PAGE> 7
<TABLE>
<S> <C>
Non-Qualified Contracts - Natural Persons as Contract Owners..........................41
Non-Qualified Contracts - Non-Natural Persons as Contract Owners......................42
Qualified Plans, IRAs, and Tax Sheltered Annuities....................................42
Withholding...........................................................................43
Non-Resident Aliens...................................................................43
Federal Estate, Gift and Generation Skipping Transfer Taxes...........................43
Charge for Tax........................................................................44
Diversification.......................................................................44
Tax Changes...........................................................................44
YEAR 2000 COMPLIANCE ISSUES....................................................................44
LEGAL PROCEEDINGS..............................................................................45
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION...................................45
</TABLE>
5
Page 7 of 107
<PAGE> 8
SUMMARY OF CONTRACT EXPENSES
CONTRACT OWNER TRANSACTION EXPENSES
Maximum Contingent Deferred Sales Charge ("CSDC")(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%
1 Starting with the second year, after a Purchase Payment has been made,
the Contract Owner may withdraw without a 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. 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").
2 The Contract Maintenance Charge is deducted on each Contract Anniversary
and on the date of surrender in any year in which the entire Contract
Value is surrendered (see "Contract Maintenance Charge").
UNDERLYING MUTUAL FUND ANNUAL EXPENSES(3)
<TABLE>
<CAPTION>
(as a percentage of Underlying Mutual Fund net assets, after expense reimbursement)
- ---------------------------------------------------------------------------------------------------------------
TOTAL
MANAGEMENT OTHER 12B-1 PORTFOLIO
FEES EXPENSES FEES COMPANY
EXPENSES
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MFS(R)BOND FUND - CLASS A 0.40% 0.34% 0.30% 1.04%
- ---------------------------------------------------------------------------------------------------------------
MFS(R)GROWTH OPPORTUNITIES FUND - CLASS A 0.42% 0.26% 0.16% 0.84%
- ---------------------------------------------------------------------------------------------------------------
MFS(R)EMERGING GROWTH FUND - CLASS A 0.73% 0.24% 0.25% 1.22%
- ---------------------------------------------------------------------------------------------------------------
MFS(R)HIGH INCOME FUND - CLASS A 0.48% 0.28% 0.30% 1.06%
- ---------------------------------------------------------------------------------------------------------------
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 0.75% 0.38% 0.25% 1.38%
- ---------------------------------------------------------------------------------------------------------------
MFS(R) SERIES TRUST IV
MFS(R)MONEY MARKET FUND 0.48% 0.32% 0.00% 0.80%
- ---------------------------------------------------------------------------------------------------------------
CLASS A MASSACHUSETTS INVESTORS GROWTH STOCK
FUND - 0.30% 0.21% 0.21% 0.72%
- ---------------------------------------------------------------------------------------------------------------
MASSACHUSETTS INVESTORS TRUST - CLASS A 0.23% 0.23% 0.33% 0.79%
- ---------------------------------------------------------------------------------------------------------------
NATIONWIDE SEPARATE ACCOUNT TRUST - MONEY 0.40% 0.08% 0.00% 0.48%
MARKET FUND
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
3 The Mutual Fund expenses shown above are assessed at the Underlying Mutual
Fund level and are not direct charges against Variable 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 Management Fees and Other Expenses are more fully
described in the prospectus for each individual Underlying Mutual Fund. The
information relating to the Underlying Mutual Fund expenses was provided by
the Underlying Mutual Fund and was not independently verified by the
Company. Except as otherwise noted, the Management Fees and Other Expenses
are not currently subject to fee waivers or expense reimbursements.
6
Page 8 of 107
<PAGE> 9
EXAMPLE
The following chart depicts the dollar amount of expenses that would be incurred
under this Contract assuming a $1000 investment 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 maximum $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 72 113 157 251 22 68 117 251 68 117 251
Fund-Class A *
- -----------------------------------------------------------------------------------------------------------------
MFS(R)Growth 72 111 154 245 22 66 114 245 66 114 245
Opportunities *
Fund-Class A
- -----------------------------------------------------------------------------------------------------------------
MFS(R)Emerging 75 121 169 276 25 76 129 276 76 129 276
Growth *
Fund-Class A
- -----------------------------------------------------------------------------------------------------------------
MFS(R)High Income 72 114 158 254 22 69 118 254 69 118 254
Fund-Class A *
- -----------------------------------------------------------------------------------------------------------------
MFS(R)Research 71 109 149 235 21 64 109 235 64 109 235
Fund-Class A *
- -----------------------------------------------------------------------------------------------------------------
MFS(R)Total 70 108 149 234 20 63 109 234 63 109 234
Return *
Fund-Class A
- -----------------------------------------------------------------------------------------------------------------
MFS(R)World 76 126 178 292 26 81 138 292 81 138 292
Governments *
Fund-Class A
- -----------------------------------------------------------------------------------------------------------------
MFS(R)Series 73 115 160 258 23 70 120 258 70 120 258
Trust IV - MFS(R)
Money Market Fund *
- -----------------------------------------------------------------------------------------------------------------
Mass. Investors 70 106 145 227 20 61 105 227 61 105 227
Growth Stock
Fund-Class A *
- -----------------------------------------------------------------------------------------------------------------
Mass. Investors 69 104 142 221 19 59 102 221 59 102 221
Trust-Class A *
- -----------------------------------------------------------------------------------------------------------------
Nationwide 69 105 143 223 19 60 103 223 60 103 223
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 is to assist the
Contract Owner in understanding the various costs and expenses that will be
borne directly or indirectly when investing in the Contract. The expenses of
the Variable Account as well as those of the Underlying Mutual Funds are
reflected in the Example. For more complete descriptions of the expenses of
the Variable Account, see "Variable Account Charges and Other Deductions."
For more complete information regarding expenses paid out of the assets, of
the Underlying Mutual Fund options, see the prospectus for each Underlying
Mutual Fund. Deductions for premium taxes may also apply but are not
reflected in the Example shown above (see "Premium Taxes").
9
Page 11 of 107
<PAGE> 10
SYNOPSIS
The Contracts can be categorized as follows: (1) Non-Qualified; (2) IRAs; (3)
SEP IRAs; (4) Tax Sheltered Annuities; and (5) Qualified. The Company does not
deduct a sales charge from Purchase Payments made for these Contracts. However,
if any part of the Contract Value is surrendered, the Company will, with certain
exceptions, deduct from the Contract Value a CDSC 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").
On each Contract Anniversary the Company will deduct an annual Contract
Maintenance Charge of $30 from the Contract Value. The 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 (see "Contract Maintenance Charge").
The Company deducts a Mortality Risk Charge equal to an annual rate of 0.80% of
the daily net assets of the Variable Account for mortality risks assumed by the
Company (see "Mortality Risk charge"). The Company deducts an Expense Risk
Charge equal to an annual rate of 0.50% of the daily net assets 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 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 on 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 will have the right to change the
frequency of payments to intervals that 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").
Taxation of the Contracts will depend on the type of Contract issued (see
"Federal Tax Considerations"). In addition, the Company will charge against the
Purchase Payments or the Contract Value the amount of any premium taxes levied
by a state or any other governmental entity (see "premium Taxes").
The Contract Owner has a ten day free look to examine the Contract. Within ten
days of the date the Contract is received, it may be returned for any reason to
the Home Office 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
law. State and/or federal law may provide additional free look privileges.
All IRAs will be a return of Purchase Payments (see "Right to Revoke").
10
Page 12 of 107
<PAGE> 11
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 PERIOD YEAR
======================================================================================================
<S> <C> <C> <C> <C>
MFS Series Trust IV 34.325389 31.101395 0 1997
-----------------------------------------------------------------------------
MFS(R)Money Market 33.101565 34.325389 0 1996
-----------------------------------------------------------------------------
Fund-Q* 31.765828 33.101565 0 1995
-----------------------------------------------------------------------------
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
======================================================================================================
MFS Series Trust IV 35.222087 36.580276 6,828 1997
-----------------------------------------------------------------------------
MFS(R)Money Market 33.966291 35.222087 4,058 1996
-----------------------------------------------------------------------------
Fund-NQ* 32.595660 33.966291 5,703 1995
-----------------------------------------------------------------------------
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
======================================================================================================
MFS Series Trust IV 30.037656 31.101395 1,143,756 1997
-----------------------------------------------------------------------------
MFS(R)Money Market 29.055232 30.037656 1,343,440 1996
-----------------------------------------------------------------------------
Fund-QS* 27.967294 29.055232 1,630,393 1995
-----------------------------------------------------------------------------
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
======================================================================================================
</TABLE>
* The 7-day yield on the MFS Series Trust IV - MFS(R) Money Market Fund as of
December 31, 1997 was 3.78%.
11
Page 13 of 107
<PAGE> 12
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 PERIOD YEAR
======================================================================================================
<S> <C> <C> <C> <C>
MFS Series Trust IV 30.058530 31.123008 556,766 1997
-----------------------------------------------------------------------------
MFS(R)Money Market 29.075421 30.058530 615,505 1996
-----------------------------------------------------------------------------
Fund-NQS* 27.986728 29.075421 597,925 1995
-----------------------------------------------------------------------------
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
======================================================================================================
MFS(R)Bond Fund-Class 49.627094 48.946623 0 1997
-----------------------------------------------------------------------------
A-Q 48.229836 49.627094 0 1996
-----------------------------------------------------------------------------
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
======================================================================================================
MFS(R)Bond Fund-Class 52.397975 57.243116 595 1997
-----------------------------------------------------------------------------
A-NQ 50.922705 52.397975 3,321 1996
-----------------------------------------------------------------------------
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
======================================================================================================
</TABLE>
12
Page 14 of 107
<PAGE> 13
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 PERIOD YEAR
======================================================================================================
<S> <C> <C> <C> <C>
MFS(R)Bond Fund-Class 44.939826 48.946623 453,678 1997
-----------------------------------------------------------------------------
A-QS 43.808005 44.939826 509,516 1996
-----------------------------------------------------------------------------
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
======================================================================================================
MFS(R) 44.903088 48.906597 147,342 1997
-----------------------------------------------------------------------------
Bond Fund-Class A-NQS 43.772192 44.903088 208,403 1996
-----------------------------------------------------------------------------
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
======================================================================================================
MFS(R)Bond Fund-Class 45.078692 49.097863 789 1997
-----------------------------------------------------------------------------
A-NQS 43.943375 45.078692 1,597 1996
-----------------------------------------------------------------------------
(81-225) 36.649839 43.943375 4,145 1995
-----------------------------------------------------------------------------
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
======================================================================================================
</TABLE>
13
Page 15 of 107
<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 PERIOD YEAR
======================================================================================================
<S> <C> <C> <C> <C>
Massachusetts Investors 125.889283 164.129808 16 1997
-----------------------------------------------------------------------------
Trust-Class A-Q 101.007177 125.889283 16 1996
-----------------------------------------------------------------------------
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
======================================================================================================
Massachusetts Investors 118.793035 154.878002 289 1997
-----------------------------------------------------------------------------
Trust-Class A-NQ 95.313498 118.793035 0 1996
-----------------------------------------------------------------------------
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
======================================================================================================
Massachusetts Investors 101.029680 131.320106 312,848 1997
-----------------------------------------------------------------------------
Trust-Class A-QS 81.308640 101.029680 331,572 1996
-----------------------------------------------------------------------------
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
======================================================================================================
</TABLE>
14
Page 16 of 107
<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 PERIOD YEAR
======================================================================================================
<S> <C> <C> <C> <C>
Massachusetts Investors 90.647891 117.825672 103,123 1997
-----------------------------------------------------------------------------
Trust-Class A-NQS 72.953374 90.647891 96,073 1996
-----------------------------------------------------------------------------
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
======================================================================================================
Massachusetts Investors 96.304396 125.178102 1,827 1997
-----------------------------------------------------------------------------
Trust-Class A-NQS 77.505736 96.304396 2,037 1996
-----------------------------------------------------------------------------
(81-225) 56.351973 77.505736 2,696 1995
-----------------------------------------------------------------------------
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
======================================================================================================
Massachusetts Investors 123.869113 146.486721 0 1997
-----------------------------------------------------------------------------
Growth Stock Fund-Class 101.860531 123.869113 0 1996
-----------------------------------------------------------------------------
A-Q 80.166185 101.860531 0 1995
-----------------------------------------------------------------------------
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
======================================================================================================
</TABLE>
15
Page 17 of 107
<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 PERIOD YEAR
======================================================================================================
<S> <C> <C> <C> <C>
Massachusetts Investors 94.658415 138.838952 850 1997
-----------------------------------------------------------------------------
Growth Stock Fund-Class 77.839871 94.658415 498 1996
-----------------------------------------------------------------------------
A-NQ 61.261465 77.839871 1,043 1995
-----------------------------------------------------------------------------
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
======================================================================================================
Massachusetts Investors 100.175691 146.486721 289,531 1997
-----------------------------------------------------------------------------
Growth Stock Fund-Class 82.628565 100.175691 297,134 1996
-----------------------------------------------------------------------------
A-QS 65.227303 82.628565 333,893 1995
-----------------------------------------------------------------------------
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
======================================================================================================
Massachusetts Investors 85.004193 124.301472 88,204 1997
-----------------------------------------------------------------------------
Growth Stock Fund-Class 70.114570 85.004193 86,801 1996
-----------------------------------------------------------------------------
A-NQS 55.348697 70.114570 102,114 1995
-----------------------------------------------------------------------------
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
======================================================================================================
</TABLE>
16
Page 18 of 107
<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 PERIOD YEAR
======================================================================================================
<S> <C> <C> <C> <C>
Massachusetts Investors 92.601102 135.410415 4,090 1997
-----------------------------------------------------------------------------
Growth Stock Fund-Class 76.380777 92.601102 5,470 1996
-----------------------------------------------------------------------------
A-NQS 60.295273 76.380777 5,945 1995
-----------------------------------------------------------------------------
(81-225) 65.494712 60.295273 2,505 1994
-----------------------------------------------------------------------------
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
======================================================================================================
MFS(R)Research Fund- 155.285363 146.156474 0 1997
-----------------------------------------------------------------------------
Class A-Q 126.019031 155.285363 0 1996
-----------------------------------------------------------------------------
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
======================================================================================================
MFS(R)Research Fund- 124.427653 148.464541 390 1997
-----------------------------------------------------------------------------
Class A-NQ 100.977005 124.427653 110 1996
-----------------------------------------------------------------------------
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
======================================================================================================
</TABLE>
17
Page 19 of 107
<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 PERIOD YEAR
======================================================================================================
<S> <C> <C> <C> <C>
MFS(R)Research Fund- 122.865333 146.156474 265,836 1997
-----------------------------------------------------------------------------
Class A-QS 100.013750 122.865333 283,320 1996
-----------------------------------------------------------------------------
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
======================================================================================================
MFS(R)Research Fund- 107.355935 127.707031 93,659 1997
-----------------------------------------------------------------------------
Class A-NQS 87.388917 107.355935 105,263 1996
-----------------------------------------------------------------------------
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
======================================================================================================
MFS(R)Research Fund- 121.431177 144.450450 1,318 1997
-----------------------------------------------------------------------------
Class A-NQS 98.846334 121.431177 1,676 1996
-----------------------------------------------------------------------------
(81-225) 72.258548 98.846334 1,591 1995
-----------------------------------------------------------------------------
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
======================================================================================================
</TABLE>
18
Page 20 of 107
<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 PERIOD YEAR
======================================================================================================
<S> <C> <C> <C> <C>
MFS(R)Total Return Fund- 90.602325 108.143295 131 1997
-----------------------------------------------------------------------------
Class A-Q 79.840336 90.602325 131 1996
-----------------------------------------------------------------------------
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
======================================================================================================
MFS(R)Total Return Fund- 89.033201 98.832664 0 1997
-----------------------------------------------------------------------------
Class A-NQ 78.457598 89.033201 0 1996
-----------------------------------------------------------------------------
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
======================================================================================================
MFS(R)Total Return Fund- 83.053566 98.832664 570,631 1997
-----------------------------------------------------------------------------
Class A-QS 73.411912 83.053566 671,118 1996
-----------------------------------------------------------------------------
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
======================================================================================================
</TABLE>
19
Page 21 of 107
<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 PERIOD YEAR
======================================================================================================
<S> <C> <C> <C> <C>
MFS(R)Total Return Fund- 80.393080 95.666722 145,316 1997
-----------------------------------------------------------------------------
Class A-NQS 71.060281 80.393080 167,776 1996
-----------------------------------------------------------------------------
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
======================================================================================================
MFS(R)Total Return Fund- 82.245565 97.871152 805 1997
-----------------------------------------------------------------------------
Class A-NQS 72.697711 82.245565 1,979 1996
-----------------------------------------------------------------------------
(81-225) 58.068470 72.697711 1,863 1995
-----------------------------------------------------------------------------
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
======================================================================================================
MFS(R)Growth 169.873726 152.474948 0 1997
-----------------------------------------------------------------------------
Opportunities Fund- 140.810582 169.873726 0 1996
-----------------------------------------------------------------------------
Class A-Q 105.450698 140.810582 0 1995
-----------------------------------------------------------------------------
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
======================================================================================================
</TABLE>
20
Page 22 of 107
<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 PERIOD YEAR
======================================================================================================
<S> <C> <C> <C> <C>
MFS(R)Growth 124.926291 152.474948 1,008 1997
-----------------------------------------------------------------------------
Opportunities Fund- 103.553065 124.926291 2,724 1996
-----------------------------------------------------------------------------
Class A-NQ 77.773322 103.553065 2,642 1995
-----------------------------------------------------------------------------
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
======================================================================================================
MFS(R)Growth 116.177967 141.368069 732,936 1997
-----------------------------------------------------------------------------
Opportunities Fund- 96.595726 116.177967 822,246 1996
-----------------------------------------------------------------------------
Class A-QS 72.767772 96.595725 920,477 1995
-----------------------------------------------------------------------------
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
======================================================================================================
MFS(R)Growth 98.686554 120.084102 172,812 1997
-----------------------------------------------------------------------------
Opportunities Fund- 82.052560 98.686554 182,479 1996
-----------------------------------------------------------------------------
Class A-NQS 61.812074 82.052560 206,611 1995
-----------------------------------------------------------------------------
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
======================================================================================================
</TABLE>
21
Page 23 of 107
<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 PERIOD YEAR
======================================================================================================
<S> <C> <C> <C> <C>
MFS(R)Growth 108.889502 132.499304 12,840 1997
-----------------------------------------------------------------------------
Opportunities Fund- 90.535764 108.889502 14,732 1996
-----------------------------------------------------------------------------
Class A-NQS 68.202665 90.535764 15,064 1995
-----------------------------------------------------------------------------
(81-225) 72.093454 68.202665 16,083 1994
-----------------------------------------------------------------------------
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
======================================================================================================
MFS(R)High Income Fund- 64.068571 62.966234 0 1997
-----------------------------------------------------------------------------
Class A-Q 57.498253 64.068571 0 1996
-----------------------------------------------------------------------------
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
======================================================================================================
MFS(R)High Income Fund- 64.483775 72.045586 358 1997
-----------------------------------------------------------------------------
Class A-NQ 57.870879 64.483775 358 1996
-----------------------------------------------------------------------------
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
======================================================================================================
</TABLE>
22
Page 24 of 107
<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 PERIOD YEAR
======================================================================================================
<S> <C> <C> <C> <C>
MFS(R)High Income Fund- 56.528677 62.966234 332,136 1997
-----------------------------------------------------------------------------
Class A-QS 50.886631 56.528677 408,255 1996
-----------------------------------------------------------------------------
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
======================================================================================================
MFS(R)High Income Fund- 55.671087 62.010978 154,453 1997
-----------------------------------------------------------------------------
Class A-NQS 50.114634 55.671087 176,997 1996
-----------------------------------------------------------------------------
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
======================================================================================================
MFS(R)High Income Fund- 56.528677 62.966234 4,996 1997
-----------------------------------------------------------------------------
Class A-NQS 50.886631 56.528677 6,379 1996
-----------------------------------------------------------------------------
(81-225) 44.007083 50.886631 6,442 1995
-----------------------------------------------------------------------------
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
======================================================================================================
</TABLE>
23
Page 25 of 107
<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 PERIOD YEAR
======================================================================================================
<S> <C> <C> <C> <C>
MFS(R)World 50.880072 50.368842 115,417 1997
-----------------------------------------------------------------------------
Governments Fund- 48.914346 50.880072 143,438 1996
-----------------------------------------------------------------------------
Class A-QS 42.911877 48.914346 184,796 1995
-----------------------------------------------------------------------------
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
======================================================================================================
MFS(R)World 49.604787 49.106357 15,550 1997
-----------------------------------------------------------------------------
Governments Fund- 47.688325 49.604787 22,367 1996
-----------------------------------------------------------------------------
Class A-NQS 41.836304 47.688325 36,927 1995
-----------------------------------------------------------------------------
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
======================================================================================================
MFS(R)World 50.800980 50.290543 666 1997
-----------------------------------------------------------------------------
Governments Fund- 48.838310 50.800980 1,811 1996
-----------------------------------------------------------------------------
Class A-NQS 42.845163 48.838310 2,763 1995
-----------------------------------------------------------------------------
(81-225) 46.460353 42.845163 3,284 1994
-----------------------------------------------------------------------------
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
======================================================================================================
</TABLE>
24
Page 26 of 107
<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 PERIOD YEAR
======================================================================================================
<S> <C> <C> <C> <C>
Nationwide Separate 22.783414 23.669908 41,782 1997
-----------------------------------------------------------------------------
Account Trust Money 21.961256 22.783414 55,730 1996
-----------------------------------------------------------------------------
Market Fund-QS*** 21.058716 21.961256 60,928 1995
-----------------------------------------------------------------------------
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
======================================================================================================
Nationwide Separate 22.798231 23.685302 26,117 1997
-----------------------------------------------------------------------------
Account Trust Money 21.975540 22.798231 32,499 1996
-----------------------------------------------------------------------------
Market Fund-NQS*** 21.072414 21.975540 36,289 1995
-----------------------------------------------------------------------------
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
======================================================================================================
MFS(R)Emerging Growth 34.264981 40.798757 385,073 1997
-----------------------------------------------------------------------------
Trust-Class A-QS 30.247061 34.264981 437,204 1996
-----------------------------------------------------------------------------
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
======================================================================================================
MFS(R)Emerging Growth 34.264981 40.798757 674 1997
-----------------------------------------------------------------------------
Trust-Class A-NQS 30.247061 34.264981 675 1996
-----------------------------------------------------------------------------
(81-225) 21.706658 30.247061 474 1995
-----------------------------------------------------------------------------
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
======================================================================================================
</TABLE>
***The 7-day yield on the Nationwide Separate Account Trust-Money Market
Fund as of December 31, 1997, was 4.05%.
25
Page 27 of 107
<PAGE> 26
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 43215. The Company is a provider of life insurance, annuities and
retirement products. It is admitted to do business in all states, the District
of Columbia and Puerto Rico. The Contracts are distributed by the General
Distributor, Clarendon Insurance Agency, Inc.
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 Ohio law. The Company has caused the Variable Account to be registered with
the SEC as a unit investment trust pursuant to the provisions of the Investment
Company Act of 1940 (the "1940 Act"). Registration does not involve supervision
of the management of the Variable Account or of the Company by the SEC.
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 of the Variable Account,
whether or not realized, are credited to or charged against the Variable Account
without regard to other income, gains or losses of the Company.
Purchase payments are allocated among one or more Sub-Accounts corresponding to
one or more of the Underlying Mutual Funds 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.
One such Sub-Account contains the Underlying Mutual Fund shares attributable to
Accumulation Units under Qualified Contracts and one such Sub-Account contains
the Underlying Mutual Fund shares attributable to Accumulation Units under
Non-Qualified Contracts.
UNDERLYING MUTUAL FUND OPTIONS
A Contract Owner may choose from among a number of different Underlying Mutual
Fund options. The Underlying Mutual Fund options are NOT available to the
general public directly. The Underlying Mutual Funds are available as investment
options in variable life insurance policies or variable annuity contracts issued
by life insurance companies or, in some cases, through participation in certain
qualified pension or retirement plans.
Some of the Underlying Mutual Funds have been established by investment advisers
which manage publicly traded mutual funds having similar names and investment
objectives. While some of the Underlying Mutual Funds may be similar to, and may
in fact be modeled after publicly traded mutual funds, Contract purchasers
should understand that the Underlying Mutual Funds are not otherwise directly
related to any publicly traded mutual fund. Consequently, the investment
performance of publicly traded mutual funds and any corresponding Underlying
Mutual Funds may differ substantially.
Shares of the Underlying Mutual Fund options available in the Variable Account
are issued only for the purpose of funding benefits for variable annuity
contracts and variable life insurance policies issued by insurance companies.
The Underlying Mutual Funds may also be available to registered separate
accounts offering variable annuity and variable life products of other
participating insurance companies, as well as to the Variable Account and other
separate accounts of the Company. Although the Company does not anticipate any
disadvantages to this, there is a possibility that a material conflict may arise
between the interests of the Variable account and one or more of the other
separate accounts in which the Underlying Mutual Funds participate. A conflict
may occur due to a number of reasons including a change in law affecting the
operations of variable life insurance policies and variable annuity contracts or
differences in the voting instructions of the Contract Owners and those of other
companies. In the event of a conflict, the Company will take any steps necessary
to protect Contract Owners and variable annuity payees, including withdrawal of
the Variable Account from participation in the Underlying Mutual Fund(s)
involved in the conflict.
26
Page 28 of 107
<PAGE> 27
The Investment Adviser for all of the Underlying Mutual Funds, except the
Nationwide Separate Account Trust Money Market Fund, is Massachusetts Financial
Service Company, 500 Boylston Street, Boston, Massachusetts 02116. More detailed
information may be found in the current prospectus for each Underlying Mutual
Fund. Prospectuses for the Underlying Mutual Funds should be read in conjunction
with this prospectus. A copy of each prospectus may be obtained without charge
from the Company by calling 1-800-848-7529, TDD 1-800-238-3035 or by writing
P.O. Box 16609, Columbus, Ohio 43216-6609. THERE CAN BE NO ASSURANCE THAT THE
INVESTMENT OBJECTIVES WILL BE ACHIEVED.
- - 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.
- - 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 - 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.
27
Page 29 of 107
<PAGE> 28
- - 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 Service Company, which is paid for its services by the Underlying
Mutual Funds.
- - NATIONWIDE SEPARATE ACCOUNT TRUST-MONEY MARKET FUND
Nationwide Separate Account Trust ("NSAT") is a diversified open-end management
investment company created under the laws of Massachusetts. The NSAT Money
Market Fund is managed by Nationwide Advisory Services, Inc., ("NAS"), a wholly
owned subsidiary of the Company, One Nationwide Plaza, Columbus, Ohio 43215. The
NSAT Money Market Fund offers shares in four separate Mutual Funds, one being
the NSAT Money Market Fund.
Investment Objective: 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 NSAT Money Market Fund receives investment advice from Nationwide Advisory
Services, Inc., which is paid for its services by the NSAT Money Market Fund.
VOTING RIGHTS
Voting rights under the Contracts apply ONLY with respect to amounts allocated
to the Sub-Accounts.
In accordance with its view of applicable law, the Company will vote the shares
of the Underlying Mutual Funds at regular and special meetings of the
shareholders. These shares will be voted in accordance with instructions
received from Contract Owners. If the 1940 Act or any regulation thereunder
should be amended or if the present interpretation changes permitting the
Company to vote the shares of the Underlying Mutual Funds in its own right, the
Company may elect to do so.
The Contract Owner is 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 by the Net Asset Value of the Underlying Mutual Fund. The number of
shares which may be voted will be determined as of the date 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 voting instructions.
Voting instructions will be solicited by written communication at least 21 days
prior to such meeting. Underlying Mutual Fund shares 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 AND OTHER DEDUCTIONS
EXPENSES OF VARIABLE THE 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 and
Contract Maintenance Charge 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.
28
Page 30 of 107
<PAGE> 29
Deductions from and expenses paid out of the assets of the Underlying Mutual
Fund options are described in the prospectus for each Underlying Mutual Fund.
All of the charges described in this section apply to Variable Account
allocations. Allocations to the Fixed Account are subject to CDSCs and Premium
Tax deductions, if applicable, but are not subject to charges exclusive to the
Variable Account; the Mortality Risk Charge and the Expense Risk Charge.
MORTALITY RISK CHARGE
The Company deducts a Mortality Risk Charge from the Variable Account. This
amount is computed on a daily basis, and is equal to an annual rate of 0.80% of
the daily net assets of the Variable Account. By guaranteeing the Contract's
annuity rate, the Company assumes the Mortality Risk. These guarantees cannot
change regardless of the death rates of persons receiving annuity payments or of
the general population.
EXPENSE RISK CHARGE
The Company deducts an Expense Risk Charge from the Variable Account. This
amount is computed on a daily basis, and is equal to an annual rate of 0.50% of
the daily net assets of the Variable Account. The Company will not increase
charges for administration of the Contracts regardless of its actual expenses.
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 is surrendered, the
Company will, with certain exceptions deduct a CDSC (see "Waiver of CDSC"
section). The CDSC will not exceed the lesser of:
1. 5% of the amount surrendered; or
2. 5% of the total of all Purchase Payments made within 96 months
prior to the date of the surrender request.
The CDSC, 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 CDSC. Any shortfall will be made up from the General Account
of the Company, which may indirectly include portions of the Mortality and
Expense Risk Charges. Gross Distribution Allowances which may be paid on the
sale of these Contracts are not more than 5.11% of Purchase Payments.
The CDSC is calculated by multiplying the applicable CDSC percentages noted
below by the Purchase Payments that are surrendered. For purposes of calculating
the CDSC, 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 Purchase Payment,
withdraw without a CDSC 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 CDSC 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 CDSC 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 (see "Non-Qualified Contracts-Natural Persons as Contract
Owners").
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The amount of CDSC on the Contracts may be waived 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
Page 31 of 107
<PAGE> 30
offering the Contracts to a group of individuals under a program results in
savings of sales expenses. Entitlement to a waiver of the CDSC in will be
determined by the Company in the following manner:
1. The size of the group to which 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. 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.
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 waived sales charges.
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, the group would be
entitled to a waiver of the CDSC.
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 CDSC on the first
Contract.
The CDSC will be waived 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 waiver of the CDSC be permitted where the waiver 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 from the Contract Value to reimburse it for
administrative expenses relating to the issuance and maintenance of the
Contract. 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 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 "Waiver of CDSC."
PREMIUM TAXES
The Company will charge against the Contract Value any premium taxes levied by a
state or any other government entity upon Purchase Payments received by the
Company. Premium tax rates currently 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 in compliance with state law.
The Company currently deducts
30
Page 32 of 107
<PAGE> 31
such charges from the Contract Value either at: (1) the time the Contract is
surrendered; (2) Annuitization; or (3) such earlier date as the Company may
become subject to such taxes.
INVESTMENTS OF THE VARIABLE ACCOUNT
The Contract Owner may have Purchase Payments allocated among one or more of the
Sub-Accounts. 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 allocation of Purchase Payments or may exchange amounts among the
Sub-Accounts. Such transactions may be subject to conditions imposed by the
Underlying Mutual Funds, as well as those set forth in the Contract.
RIGHT TO REVOKE
The Contract Owner has a ten day free look to examine the Contract. Within ten
days of the date the Contract is received, it may be returned for any reason to
the Home Office 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
law. State and/or federal law may provide additional free look privileges.
All IRAs will be a return of Purchase Payments.
TRANSFERS
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 good order at the Home Office. Once the Contract has been
Annuitized, transfers may only be made on each anniversary of the Annuitization
Date.
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. Contract 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 record, at the last address of record; or other
procedures as the Company may deem reasonable. Although the Company's failure to
follow reasonable procedures may result in the Company's liability for any
losses due to unauthorized or fraudulent telephone transfers, 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 will be borne by the Contract Owner.
Contracts described in this prospectus may be sold to individuals who
independently utilize the services of a firm or individual engaged in market
timing. Generally, such firms or individuals obtain authorization from multiple
Contract Owners to make transfers and exchanges among the Sub-Accounts on the
basis of perceived market trends. Because of the unusually large transfers of
funds associated with some of these transactions, the ability
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of the Company or Underlying Mutual Funds to process such transactions may be
compromised, and the execution of such transactions may possibly disadvantage or
work to the detriment of other Contract Owners not utilizing market timing
services.
Accordingly, the right to exchange Contract Values among the Sub-Accounts may be
subject to modification if such rights are exercised by a market timing firm or
any other third party authorized to initiate transfer or exchange transactions
on behalf of multiple Contract Owners. THE RIGHTS OF INDIVIDUAL CONRACT OWNERS
TO EXCHANGE CONTRACT VALUES, WHEN INSTRUCTIONS ARE SUBMITTED DIRECTLY BY THE
CONTRACT OWNER, OR BY THE CONTRACT OWNER'S REPRESENTATIVE OF RECORD AS
AUTHORIZED BY THE EXECUTION OF A VALID NATIONWIDE LIMITED POWER OF ATTORNEY
FORM, WILL NOT BE MODIFIED IN ANY WAY. In modifying such rights, the Company
may, among other things, not accept:
(1) the transfer or exchange instructions of any agent acting under a
power of attorney on behalf of more than one Contract Owner; or
(2) the transfer or exchange instructions of individual Contract
Owners who have executed preauthorized transfer or exchange forms
which are submitted by market timing firms or other third parties
on behalf of more than one Contract Owner at the same time.
The Company will not impose any such restrictions or otherwise modify exchange
rights unless such action is reasonably intended to prevent the use of such
rights in a manner that will disadvantage or potentially impair the contract
rights of other Contract Owners.
ASSIGNMENT
The Contract Owner of a Non-Qualified Contract may assign some or all of the
rights under the Contract at any time during the lifetime of the Annuitant prior
to the Annuitization Date. Once proper notice of assignment is recorded by the
Home Office, the assignment will become effective as of the date the written
request was signed. The Company is not responsible for the validity or tax
consequences of any assignment. The Company will not be liable for 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.
Any portion of the Contract Value, which is pledged or assigned, will be treated
as a Distribution and will be included in gross income to the extent that the
cash value exceeds the investment in the Contract for the taxable year in which
it was pledged or assigned. In addition, any Contract Value assigned may be
subject to a tax penalty equal to 10% of the amount which is included in gross
income. All rights in the Contract are personal to the Contract Owner and may
not be assigned without written consent of the Company. Assignment of the entire
Contract Value my cause the portion of the contract Value exceeding the total
investment in the Contract and previously taxed amounts to be included in gross
income for federal income tax purposes each year that the assignment is in
effect.
IRAs, SEP IRAs, Qualified Contracts and Tax Sheltered Annuities may not be
assigned, pledged or otherwise transferred except under conditions as may be
allowed by law.
LOAN PRIVILEGE
Prior to the Annuitization Date, the Contract 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, unless a lower minimum amount is mandated by state law. 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 balances owed during the prior
one-year period. Additional loans are subject to the contract
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minimum amount. The aggregate of all loans may not exceed the Contract Value
limitations stated in this provision. For salary reduction Tax Sheltered
Annuities, loans may only be secured by 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. The Company will transfer to the collateral fixed account the
Sub-Account's Accumulation Units in proportion to the assets in each option
until the required balance is reached or all such Accumulation 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.
Until the loan has been repaid in full, that portion of the collateral fixed
account equal to the outstanding loan balance will 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.
Any amounts distributed will be reduced by the amount of the loan outstanding,
plus accrued interest if:
(1) the Contract is surrendered;
(2) the Contract Owner/Annuitant dies; or
(3) the Contract Owner who is not the Annuitant dies prior to
Annuitization.
In addition, the Contract Value will be reduced by the amount of any outstanding
loans plus accrued interest if annuity payments begin while the loan is
outstanding. 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 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, the
entire loan will be treated as a deemed Distribution, will be taxable to the
borrower, and may be subject to the early withdrawal tax penalty. Interest will
continue to accrue on the loan after default. 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. 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 a Qualified Plan or Tax Sheltered Annuity 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 loan's terms or
procedures if there is a change in applicable law. The Company also reserves the
right to assess a loan processing fee.
IRAs, SEP-IRAs and Non-Qualified Contracts are not eligible for loans.
BENEFICIARY
The Beneficiary is the person(s) who may receive certain benefits under the
Contract in the event the Annuitant dies prior to the Annuitization Date. If
more than one Beneficiary survives the Annuitant, each will share equally unless
otherwise specified in the Beneficiary designation. If no Beneficiary survives
the Annuitant, all rights and interest of the Beneficiary will vest in the
Contingent Beneficiary. If more than one Contingent Beneficiary survives, each
will share equally unless otherwise specified in the Contingent Beneficiary
designation. If no Contingent Beneficiaries survive the Annuitant, all rights
and interest of the Contingent Beneficiary will vest with the Contract Owner or
the estate of the last surviving Contract Owner.
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Subject to the terms of any existing assignment, the Contract Owner may change
the Beneficiary or Contingent Beneficiary during the lifetime of the Annuitant,
by written notice to the Company. Once proper notice of the change is recorded
by the Home Office, the change will become effective as of the date the written
request was signed, whether or not 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 the change.
CONTRACT OWNERSHIP
Unless the Contract otherwise provides, the Contract Owner has all rights under
the Contract. PURCHASERS NAMING SOMEONE OTHER THAN THEMSELVES AS OWNER WILL HAVE
NO RIGHTS UNDER THE CONTRACT. Prior to the Annuitization Date, the Contract
Owner may name a new Contract Owner in Non-Qualified Contracts. Such change may
be subject to state and federal gift taxes and may also result in federal income
taxation. Any change of Contract Owner designation will automatically revoke any
prior Contract Owner designation. Once proper notice of the change is recorded
by the Home Office, the change will become effective as of the date the written
request was signed. A change of Contract Owner will not apply and will not be
effective with respect to any payment made or action taken by the Company prior
to the time that the change was recorded by the Home Office.
Prior to the Annuitization Date, the Contract Owner may request a change in the
Annuitant, the Contingent Annuitant, Contingent Owner, Beneficiary, or
Contingent Beneficiary. The request must be made in writing on a form acceptable
to the Company and must be signed by the Contract Owner. The request must be
received at the Home Office prior to the Annuitization Date. Any change is
subject to review and approval by the Company. If the Contract Owner is not a
natural person and there is a change of the Annuitant, Distributions will be
made as if the Contract Owner died at the time of the change.
On the Annuitization Date, the Annuitant will become the Contract Owner.
Contract 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.
JOINT OWNERSHIP
Joint Owners must be spouses at the time joint ownership is requested, unless
otherwise required by law. If a Joint Owner is named, the Joint Owner will
possess an undivided interest in the Contract. The exercise of any ownership
right in the Contract will require a written request signed by both Joint
Owners. The Company will not be liable for any loss, liability, cost, or expense
for acting in accordance with the instructions of either Joint Owner.
SUBSTITUTION OF SECURITIES
If the shares of the Underlying Mutual Fund options are no longer available for
investment by the Variable Account or, if in the judgment of the Company's
management, further investment in the Underlying Mutual Fund shares is
inappropriate, the Company may eliminate Sub-Accounts, combine two or more
Sub-Accounts, or substitute shares of another Underlying Mutual Fund for
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 SEC.
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 by calling 1-800-848-7529,
TDD 1-800-238-3035.
OPERATION OF THE CONTRACT
ANNUITIZATION
Annuitization is irrevocable once payments have begun. When making an
Annuitization election, the Annuitant must choose:
(1) an annuity Payout Option; and
(2) either a Fixed Payment Annuity, Variable Payment Annuity or an
available combination.
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If a Variable payment option is chosen, all amounts in the Fixed Account must be
moved to a Variable Sub-Account prior to the Annuitization Date.
Payments under a fixed payment annuity are guaranteed by the Company as to the
dollar amount during the annuity payment period. The dollar amount of each
payment under a variable payment annuity will vary depending on the performance
of the Underlying Mutual Fund option the Contract Owner has selected. The dollar
amount of each variable payment could be higher or lower than a previous
payment.
FIXED PAYMENT ANNUITY - FIRST AND SUBSEQUENT PAYMENTS
The first Fixed Annuity payment will be determined by applying the portion of
the total Contract Value specified by the Contract Owner to the Fixed Annuity
table then in effect for the Annuity Payment Option elected, after deducting any
applicable premium taxes from the total Contract Value. This will be done at the
Annuitization Date on an age last birthday basis. Subsequent Fixed Annuity
payments will remain level unless the Annuity Payment Option elected provides
otherwise. The Company does not credit discretionary interest to Fixed Annuity
payments during the annuity payment period.
VARIABLE PAYMENT ANNUITY - FIRST AND SUBSEQUENT PAYMENTS
The first Variable Annuity payment will be determined by applying the portion of
the total Contract Value specified by the Contract Owner to the variable annuity
table then in effect for the Annuity Payment Option elected, after deducting any
applicable premium taxes from the total Contract Value. This will be done at the
Annuitization Date on an age last birthday basis. The dollar amount of the first
Variable Annuity payment 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 mount of the second and subsequent variable
annuity 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 determined the first payment.
VARIABLE PAYMENT ANNUITY - ASSUMED INVESTMENT RATE
A 3.5% assumed investment rate is built into the Variable Payment Annuity
purchase rate basis 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.
VARIABLE PAYMENT ANNUITY - VALUE OF AN ANNUITY UNIT
The value of an Annuity Unit for a Sub-Account for any subsequent Valuation
Period is determined by multiplying the Annuity Unit value from 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 Variable Payment Annuity purchase rate basis in the
Contracts (see "Net Investment Factor").
VARIABLE PAYMENT ANNUITY - EXCHANGES AMONG UNDERLYING MUTUAL FUND OPTIONS
During the annuity payment period, exchanges among the Underlying Mutual Fund
Options may only be made by written request and the exchange will take place on
the Anniversary of the Annuity Commencement Date.
FREQUENCY AND AMOUNT OF ANNUITY PAYMENTS
Annuity payments will be made based on the Annuity Payment Option selected.
However, if the net amount available to apply under any Annuity Payment Option
is less than $500, the Company will have the right to pay the amount in one lump
sum in lieu of periodic annuity payments. In addition, if the payments to be
provided would be or become less than $20, the Company will have the right to
change the frequency of payments to intervals that will result in payments of at
least $20. In no event will the Company make payments under an annuity option
less frequently than annually.
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ANNUITY COMMENCEMENT DATE
An Annuity Commencement Date will be selected. Such date will be the first day
of a calendar month unless otherwise agreed upon. The date must be at least 2
years after the Date of Issue. In the event the Contract is issued subject to
the terms of a Qualified Plan or Tax Sheltered Annuity Plan, Annuitization may
occur during the first 2 years subject to approval by the Company.
The Annuity Commencement Date may be changed by the Contract Owner in writing
subject to approval by the Company.
The Annuity Commencement Date may be deferred in writing subject to approval by
the Company. 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 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 following Annuity Payment
Options:
(1) Life Annuity- An annuity payable periodically, but at least annually,
during the lifetime of the Annuitant, ending with the last payment due prior
to the death of the Annuitant. FOR EXAMPLE, IF THE ANNUITANT DIES BEFORE THE
SECOND ANNUITY PAYMENT DATE, THE ANNUITANT WILL RECEIVE ONLY ONE ANNUITY
PAYMENT. THE ANNUITANT WILL ONLY RECEIVE TWO ANNUITY PAYMENTS IF HE OR SHE
DIES BEFORE THE THIRD ANNUITY PAYMENT DATE AND SO ON.
(2) Joint and Last Survivor Annuity- An annuity payable periodically, but at
least annually, during the joint lifetimes of the Annuitant and designated
second individual 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.
(3) Life Annuity With 120 or 240 Monthly Payments Guaranteed- An annuity
payable monthly during the lifetime of the Annuitant. If the Annuitant dies
before all of the guaranteed payments have been made, payments will continue
to be made for the remainder of the selected guaranteed period to a designee
chosen by the Contract Owner at the time the Annuity Payment Option was
elected.
Alternatively, the designee may elect to receive the present value of any
remaining guaranteed payments in a lump sum. The present value will be
computed as of the date on which the Company receives notice of the
Annuitant's death.
Some of the stated Annuity Options may not be available in all states. The
Contract Owner may request an alternative option by giving notice in writing
prior to Annuitization.
For Non-Qualified Contracts no Distribution will be made until an effective
Annuity Payment Option has been elected. Qualified Contracts, Tax Sheltered
Annuities, IRAs 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 CDSC), must be distributed within
5 years after the Contract Owner's death. In the alternative, the
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
the annuity begins within one year following the date of the
Contract Owner's death. In the event the Annuitant or Contingent
Owner is the Contract Owner's spouse, the Contract may be
continued by the Annuitant or Contingent Owner, treating the
spouse as the Contract Owner. In the event the Annuitant does not
survive the Contract Owner, or if the Annuitant and the Contract
Owner are the same person a Distribution will be made in
accordance with the "Death Benefit Prior to the Annuitization
Date" provision. If the Contract
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Owner and the 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 Prior to the
Annuitization Date" (if the Annuitant has died and there is no
Contingent Annuitant); or in all other cases,
(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, IRAs 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
Contract Owner or 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 Contract Owner has
named a Contingent Annuitant. In such case, the Death Benefit is payable to the
Beneficiary upon the death of the last survivor of the Annuitant and Contingent
Annuitant. The Death Benefit value is determined as of the Valuation Date at or
next following the date the Home Office receives:
(1) proper proof of the Annuitant's death;
(2) an election specifying the distribution method; and
(3) any state required forms(s).
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 at
the Home Office. If no election has been made by the end of the 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:
(1) the sum of all purchase payments less any amounts surrendered; or
(2) the Contract Value.
The amount of the Death Benefit will be limited to the Contract Value if the
Annuitization Date is deferred beyond the Annuitant's 75th birthday.
DEATH BENEFIT AFTER THE ANNUITIZATION DATE
If the Annuitant dies after the Annuitization Date, the Death Benefit will be
paid according to the selected Annuity Payment Option.
REQUIRED DISTRIBUTIONS FOR QUALIFIED PLANS OR TAX SHELTERED ANNUITIES
Amounts in 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 applicable
regulations. Amounts will be paid, notwithstanding anything else contained
herein, to the Annuitant under the Annuity Payments Option selected, over a
period not exceeding:
(a) the life of the Annuitant or the joint lives of the Annuitant and
the Annuitant's designated beneficiary; or
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(b) a period not extending beyond the life expectancy of the Annuitant
or the joint life expectancies of the Annuitant and the
Annuitant's designated beneficiary under the selected Annuity
Payment Option.
For Tax Sheltered Annuity Contracts, no Distributions will be required from this
Contract if Distributions otherwise required from this 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 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 Contract 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:
(a) In the case of a Tax Sheltered Annuity the Contract Owner names his or
her surviving spouse as the Beneficiary and the spouse elects to: (i)
treat the annuity as a Tax Sheltered Annuity established for his or her
benefit; or (ii) receive Distribution of the Contract 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) In the case of a Tax Sheltered Annuity or a Qualified Contract the
Contract Owner names a Beneficiary other than his or her surviving spouse
and the Beneficiary elects to receive a Distribution of the Contract 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 Annuitant dies.
If the 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.
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 Annuitant
by the life expectancy of the Annuitant, or the joint life expectancies of the
Annuitant and the Annuitant's designated beneficiary (whichever is applicable
under the applicable Minimum Distribution or MDIB provisions). Life expectancy
and joint life expectancies are computed by the use of return multiples
contained in Section 1.72-9 of the Treasury Regulations.
REQUIRED DISTRIBUTIONS FOR IRAS AND SEP IRAS
Distribution from an IRA or SEP IRA must begin not later than April 1 of the
calendar year following the calendar year in which the Contract Owner attains
age 70 1/2. Distribution may be payable in a lump sum or in substantially equal
payments over: (a) the Contract Owner's life or the joint lives of the Contract
Owner and his or her spouse or designated beneficiary; or (b) a period not
extending beyond the life expectancy of Contract Owner or the joint life
expectancy of the Contract Owner and the Contract Owner's designated
beneficiary.
If the Contract Owner dies prior to the commencement of his or her Distribution,
the interest in the IRA or SEP IRA must be distributed by December 31 of the
calendar 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 the spouse elects to:
(i) treat the annuity as an IRA or SEP IRA established for his or her
benefit; or
(ii) receive Distribution of the Contract 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 the Beneficiary elects to receive a Distribution of the
Contract in substantially equal payments over his or her life (or a
period not
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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 IRA or SEP IRA 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 that a surviving spouse who is the beneficiary under the
Annuity Payment Option, may treat the Contract as his or her own, in the same
manner as described in Section (a)(i) of this provision.
If the amounts distributed to the Contract Owner are less than those mentioned
above, a 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 IRA or SEP IRA must annually report the amount of
non-deductible Purchase Payments, the amount of any Distribution, the amount by
which non-deductible Purchase Payments for all years exceed non-taxable
Distributions for all years, and the total balance of all IRAs.
IRA and SEP IRA Distributions will not receive the benefit of the tax treatment
of a lump sum Distribution from a Qualified Plan. If the Contract 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.
GENERAL INFORMATION
CONTRACT OWNER SERVICES
ASSET REBALANCING - The Contract Owner may direct the automatic reallocation of
Contract Values to the Sub-Accounts on a predetermined percentage basis. Asset
Rebalancing will occur every three months or on another frequency authorized by
the Company. 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 reallocation will occur on the first business day
after that day. Asset Rebalancing requests must be in writing on a form provided
by the Company. The Contract Owner may want to contact a financial adviser to
discuss the use of Asset Rebalancing.
Asset Rebalancing may be subject to employer imposed limitations or restrictions
for Contracts issued to a Qualified Plan or Tax Sheltered Annuity Plan.
The Company reserves the right to discontinue establishing new Asset Rebalancing
programs. The Company also reserves the right to assess a processing fee for
this service.
DOLLAR COST AVERAGING- If the Contract Value is $15,000 or more, the Contract
Owner may direct the Company to automatically transfer amounts from the NSAT
Money Market Fund or the Fixed Account to any other Sub-Account. Dollar Cost
Averaging will occur on a monthly basis or on another frequency permitted by the
Company. Dollar Cost Averaging is a long-term investment program which provides
for regular, level investments over time. There is no guarantee that Dollar Cost
Averaging will result in a profit or protect against loss. The minimum monthly
transfer is $100. Transfers will be processed until either the value in the
originating funds is exhausted or the Contract Owner instructs the Home Office
to cancel the transfers.
The Company reserves the right to discontinue establishing new Dollar Cost
Averaging programs. The Company also reserves a right to assess a processing fee
for this service.
SYSTEMATIC WITHDRAWALS- A Contract Owner may elect in writing to begin receiving
withdrawals of a specified dollar amount (of at least $100) on a monthly,
quarterly, semi-annual, or annual basis. Unless otherwise instructed, the
withdrawals will be taken from the Sub-Accounts and the Fixed Account on a
prorated basis. Unless otherwise directed by the Contract Owner, the Company
will withhold any applicable federal income taxes. The IRS may assess a 10%
penalty tax if the Contract Owner is under 59 1/2, unless the Contract Owner
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has made an irrevocable election of distributions of substantially equal
payments. Withdrawals may be discontinued at any time by notifying the Home
Office in writing.
The Company reserves the right to discontinue establishing new Systematic
Withdrawal programs. The Company also reserves the right to assess a processing
fee for this service. Systematic Withdrawals are not available prior to the
expiration of the ten day free look provision of the Contract (see "Right to
Revoke").
STATEMENTS AND REPORTS
The Company will mail to Contract Owners, at their last known address, any
statements and reports required by law. Contract Owners should promptly notify
the Company of any address change. Statements are mailed detailing the
Contract's quarterly activity. The Company will also send a confirmation
statement to Contract Owners each time a transaction is made affecting the
Contract Value. However, instead of receiving an immediate confirmation of
transactions made pursuant to some types of recurring payments plans (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 Contract. The Company will assume all
transactions are accurately reported on quarterly statements or confirmation
statements unless the Contract Owner notifies the Home Office within 30 days
after receipt of the statement. The Company will also send to Contract Owners a
semi-annual report as of June 30 and an annual report as of December 31,
containing financial statements for the Variable Account.
ALLOCATION OF PURCHASE PAYMENTS AND CONTRACT VALUE
Purchase payments are allocated to one or more Sub-Accounts in accordance with
the designation of the Underlying Mutual Funds 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, 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 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 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. 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 business 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
complete. Thereafter, Purchase Payments will be priced on the basis of the
Accumulation Unit value next computed for the appropriate Sub-Account after the
additional Purchase Payment is received.
Purchase payments will not be priced on the following nationally recognized
holidays: New Year's Day; Martin Luther King, Jr. Day; Presidents' Day; Good
Friday; Memorial Day; Independence Day; Labor Day; Thanksgiving; and Christmas.
VALUE OF AN ACCUMULATION UNIT
The Accumulation Unit value for any 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. Though the number of Accumulation Units
will not change as a result of investment experience, the value of an
Accumulation Unit may increase or decrease from Valuation Period to Valuation
Period.
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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; and
(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) 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.
(c) a factor representing the daily Mortality Risk Charge and Expense Risk
Charge deducted from the Variable Account. The factor is equal to an
annual rate of 1.30% of the daily net assets of the Variable Account.
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.
DETERMINING THE CONTRACT VALUE
The Contract Value is the sum of all Accumulation Units attributable to the
Contract plus any amounts credited to the Fixed Account. The number of
Accumulation Units credited to 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.
SURRENDER (REDEMPTION)
Prior to the earlier of the Annuitization Date or the death of the Annuitant,
the Company will allow the Contract Owner to Surrender a portion or all of the
Contract Value. The request for surrender must be made in writing and must
include the Contract when surrendering the Contract in full. In some cases the
Company will require additional documentation. 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.
When requested, the Company will 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 CDSC (see "Contingent
Deferred Sales Charge"). 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 amounts surrendered from the Sub-Accounts within 7
days. However, the Company reserves the right to suspend or postpone the date of
any payment for any Valuation Period when: (1) the New York Stock Exchange
("Exchange") is closed; (2) trading on the Exchange is restricted; (3) 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)
the SEC, by order, permits such suspension or postponement for the protection of
security holders. The applicable rules and regulations of the SEC will 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
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education. A participant will not, therefore, be entitled to the right of
withdrawal in order to receive the cash values credited to the participant under
the Contract unless one of the foregoing conditions has been satisfied. The
value of the 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 Annuitant:
A. The surrender of Contract Value attributable to contributions made
pursuant to a qualified cash or deferred arrangement (within the meaning
of Code Section 402(g)(3)(A)), a salary reduction agreement (within the
meaning of Code Section 402(g)(3)(C)), or transfers from a Custodial
Account described in Code Section 403(b)(7) 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.
B. The surrender limitations described in Section A above also apply to:
1. salary reduction contributions to Tax Sheltered Annuities made for
plan years beginning after December 31, 1988;
2. earnings credited to such contracts after the last plan year
beginning before January 1, 1989, on amounts attributable to salary
reduction contributions; and
3. all amounts transferred from 403(b)(7) Custodial Accounts (except
that earnings, and employer contributions as of December 31, 1988 in
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 and/or retroactive
disqualification of a Qualified Contract or Tax Sheltered Annuity.
A premature Distribution may not be eligible for rollover treatment. To assist
in preventing disqualification of a Tax Sheltered Annuity 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
401(k)(2)(B), Code Section 403(b)(11) and Revenue Ruling 90-24. These
restrictions are subject to legislative change and/or reinterpretation.
Distributions pursuant to a Qualified Domestic Relations Order will not be
considered to be a violation of restrictions stated in this provision. The
Contract surrender provisions may also be modified pursuant to the plan terms
and tax provisions of the Code 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) IRAs,
including SEP IRAs; (3) Tax Sheltered Annuities; and (4) Non-Qualified
Contracts. Each type of annuity is discussed below.
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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 a formula required by the Code. The formula
required by the Code excludes from income an amount equal to the investment in
the Contract divided by the number of anticipated payments, as determined
pursuant to Section 72 (d) of the Code, until the full investment in the
Contract is recovered; thereafter, all Distributions are fully taxable.
Distributions from IRAs and SEP IRAs and Contracts owned by Individual
Retirement Accounts are generally taxed when received. The portion of each
payment which is excludable is based on the ratio between the amount by which
nondeductible Purchase Payments to all Contracts exceeds prior non-taxable
Distributions from the Contracts, and the total account balances in the
Contracts at the time of the Distribution. The owner of such IRAs or SEP IRAs or
the Annuitant under Contracts held by Individual Retirement Accounts must
annually report to the IRS 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 IRAs, SEP IRAs and Individual Retirement Accounts.
A change of the Annuitant or Contingent Annuitant may be treated by the IRS as a
taxable transaction.
NON-QUALIFIED CONTRACTS - NATURAL PERSONS AS CONTRACT 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.
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 the 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
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Owner of the procedures pursuant to Company policy and subject to limitations of
the Contract including but not limited to first year withdrawals. The election
will 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 payments begin within one year
from the death of the Contract Owner. If the Joint Owner, Contingent Owner or
other named recipient is the surviving spouse, the 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 on the date of the Contract Owner's death (see "Required
Distribution for Qualified Plans and Tax Sheltered Annuities"). If the Contract
Owner is not a natural person, 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 in lieu of 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 a
Contract Owner or the Annuitant). If the election is made more than 60 days
after the lump sum first becomes payable, the election will be ignored for tax
purposes, and the entire amount of the lump sum will be subject to immediate
tax. If the election is made within the 60 day period, each Distribution will be
taxable when it is paid.
NON-QUALIFIED CONTRACTS - NON-NATURAL PERSONS AS CONTRACT 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.
As a general rule, contracts owned by corporations, partnerships, trusts, and
similar entities ("non-natural 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
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 Contract Owner.
The foregoing non-natural person rule does not apply to all entity-owned
contracts. A Contract that is owned by a non-natural person as an agent for an
individual is treated as owned by the individual. This 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, IRAS AND TAX SHELTERED ANNUITIES
Contract Owner's seeking information regarding eligibility, limitations on
permissible amounts of Purchase Payments, and the tax consequences of
distributions from Qualified Plans, Tax Sheltered Annuities, IRAs and other
plans that receive favorable tax treatment, 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) of the 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 Contract Owner.
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The Code permits the rollover of most Distributions from Qualified Plans to
other Qualified Plans or IRAs. Most Distributions from Tax-Sheltered Annuities
may be rolled into another Tax-Sheltered Annuity, IRA, or an Individual
Retirement Account. Distributions that may not be rolled over are those which
are:
(a) one of a series of substantially equal annual (or more frequent)
payments made:
(i) over the life (or life expectancy) of the Contract Owner;
(ii) over the joint lives or (joint life expectancies) of the
Contract Owner and the Contract Owner's designated Beneficiary;
or
(iii) for a specified period of ten years or more; or
(b) 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).
WITHHOLDING
The Company is required to withhold tax from certain Distributions to the extent
that the 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 certain types of Distributions, but may be
subject to penalties in the event insufficient federal income tax is withheld
during a calendar year. However, if IRS 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
Predeath distributions from Modified Endowment Contracts 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 this amount from the
distribution and remit it to the IRS. 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 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 IRS. For distributions, the NRA must obtain an Individual
Taxpayer Identification Number from the IRS 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 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 the payment is effectively connected to the
recipient's conduct of a trade or business in the United States and that the
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 for
federal estate tax purposes even if all, a portion, or none 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 there determine the amount of the generation skipping transfer
tax, if any, resulting from the direct skip. A direct skip may occur when
property is
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transferred to, or a Death Benefit or other Distribution is made to: (a) an
individual who is two or more generations younger than the Contract Owner; or
(b) certain trusts, as described in Section 2613 of the Code (generally, trusts
that have no beneficiaries who are not 2 or more generations younger than the
Contract Owner). If the Contract Owner is not an individual, then for this
purpose only, "Contract Owner" refers to any person who would be required to
include the Contract, Death Benefit, Distribution, or other payment in his or
her federal gross estate at his or her death, or who is required to report the
transfer of the Contract, Death Benefit, Distribution, or other payment for
federal gift tax purposes. If the Company determines that a generation skipping
transfer tax is required to be paid by reason of a direct skip, the Company is
required by 2603 of the Code to reduce the amount of the Death Benefit,
Distribution, or other payment by the tax liability, and pay the tax liability
directly to the IRS. 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 person receiving a Distribution, Death Benefit, or other payment.
CHARGE FOR TAX
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
Sub-Accounts 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 IRS 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 Contract Owner or the Company pays an amount to
the IRS. The amount will be based on the tax that would have been paid by the
Contract Owner if the income, for the period the contract was not diversified,
had been received by the Contract Owner. If the failure to diversify is not
corrected in this manner, the Contract Owner 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 IRS 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
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 considered numerous legislative proposals that, if enacted, could
change the tax treatment of the Contracts. It is reasonable to believe that such
proposals 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, state law (which is not discussed herein), 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 IRS, 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.
46
Page 48 of 107
<PAGE> 47
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 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.
YEAR 2000 COMPLIANCE ISSUES
The Company has developed a plan to address issues related to the year 2000. The
problem relates to many existing computer programs using only two digits to
identify a year in the date field. These programs were designed and developed
without considering the impact of the upcoming change in the century. If not
corrected, many computer applications could fail or create erroneous results by
or at the Year 2000. The Company has been evaluating its exposure to the Year
2000 issue through a review of all of its operating systems as well as
dependencies on the systems of other users since 1996. The Company expects all
system changes and replacements needed to achieve Year 2000 compliance to be
completed by the end of 1998. Compliance testing will be completed in the first
quarter of 1999. The Company charges all costs associated with these system
changes as the costs are incurred.
Operating expenses in 1997 include approximately $45 million on technology
projects, which includes costs related to Year 2000 and the development of a new
policy administration system for traditional life insurance products and other
system enhancements. The Company anticipates spending a comparable amount in
1998 on technology projects, including Year 2000 initiatives. These expenses do
not have an effect on the assets of the Variable Account and are not charged
through to the Contract Owner.
LEGAL PROCEEDINGS
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.
The General Distributor, Clarendon Insurance Agency, Inc., is not engaged in any
litigation of any material nature.
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 February, 1997, Nationwide Life was named as a
defendant in a lawsuit filed in New York Supreme Court related to the sale of
whole life policies on a "vanishing premium" basis (John H. Snyder v. Nationwide
Life Insurance Co.). The plaintiff in the lawsuit seeks to represent a national
class of Nationwide Life policyholders and claims unspecified compensatory and
punitive damages. In April, 1997, a motion to dismiss the Snyder complaint in
its entirety was filed by the defendants, and the plaintiff has opposed such
motion.
In November 1997, two plaintiffs, one who was the owner of a variable life
insurance contract and another who was the owner of a variable annuity contract,
commenced an action against Nationwide life Insurance Company and the American
Century group of defendants (Robert Young and David D. Distad v. Nationwide Life
Insurance Company et al.). In this action, plaintiffs seek to represent a class
of variable insurance contract owners and variable annuity contract owners whom
they claim were allegedly misled when purchasing these variable contracts into
believing that some portion of their premiums were invested in a publicly traded
mutual fund when, in fact, the premium monies were invested in a mutual fund
whose shares may only be purchased by insurance companies. The complaint seeks
unspecified compensatory, treble and punitive damages. In January 1998, both
Nationwide Life Insurance Company and American Century filed motions to dismiss
the entire complaint. Plaintiff's counsel have opposed these motions and the
federal court in Texas heard arguments on the motions to dismiss in April, 1998.
This lawsuit is in an early stage and has not been certified as a class action.
Nationwide Life Insurance Company intends to defend this case vigorously.
47
Page 49 of 107
<PAGE> 48
There can be no assurance that any litigation relating to pricing and sales
practices will not have a material adverse effect on the Company in the future.
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
- ------------------------------------------------------------
<TABLE>
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>
48
Page 50 of 107
<PAGE> 49
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1998
DEFERRED VARIABLE ANNUITY CONTRACTS ISSUED
BY NATIONWIDE LIFE INSURANCE COMPANY THROUGH ITS
MFS VARIABLE ACCOUNT
This Statement of Additional Information is not a prospectus. It contains
additional information than set forth in the prospectus and should be read in
conjunction with the prospectus dated May 1, 1998. The prospectus may be
obtained from Nationwide Life Insurance Company by writing P. O. Box 16609,
Columbus, Ohio 43216-6609, or by 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...............................................................1
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 $83.2 billion as of December 31, 1997.
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 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 audited financial statements 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. The agents will be registered representatives of
broker-dealers registered under the Securities Exchange Act of 1934 who are
members of the National Association of Securities Dealers, Inc. ("NASD").
UNDERWRITERS
The Contracts, which are offered continuously, are distributed by Clarendon
Insurance Agency, Inc. (Clarendon") 200 Berkeley Street, Boston, Massachusetts
02116, an affiliate of Massachusetts Financial Services Company. During the
fiscal years ended December 31, 1997, 1996 and 1995, no underwriting commissions
were paid by the Company to Clarendon.
1
Page 51 of 107
<PAGE> 50
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 a manner
as to be subject to the provisions of Rule 482 under the 1933 Act, as amended,
will 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 will
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 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 will
be calculated by compounding the current yield quotation for the period by
multiplying the 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 ("NSAT Money Market Fund")
Any current yield quotations of the NSAT Money Market Fund, subject to Rule 482
under the 1933 Act, will consist of a seven calendar day historical yield,
carried at least to the nearest hundredth of a percent. The yield will be
calculated by determining the net change, 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 NSAT 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 NSAT 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 NSAT Money Market Fund is not guaranteed or insured. Yields of
other money market funds may not be comparable if a different base period or
another method of calculation is used.
ANNUITY PAYMENTS
See "Frequency and Amount of Annuity Payments" located in the prospectus.
2
Page 52 of 107
<PAGE> 51
<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, 1997, and the
related statements of operations and changes in contract owners' equity for each
of the years in the two year period then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1997, by correspondence with
the transfer agents of the underlying mutual funds. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of MFS Variable Account as of
December 31, 1997, and the results of its operations and its changes in contract
owners' equity for each of the years in the two year period then ended in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Columbus, Ohio
February 6, 1998
<PAGE> 2
MFS VARIABLE ACCOUNT
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY
DECEMBER 31, 1997
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments at market value:
MFS Series Trust IV - MFS(R) Money Market Fund (MFSMyMkt)
53,689,665 shares (cost $53,689,665) ......................... $ 53,689,665
Massachusetts Investors Growth Stock Fund - Class A (MFSGrStk)
4,371,929 shares (cost $48,464,267) .......................... 54,299,363
Massachusetts Investors Trust - Class A (MFSInvTr)
3,072,042 shares (cost $40,805,788) .......................... 53,822,174
MFS(R) Bond Fund - Class A (MFSBdFd)
2,194,589 shares (cost $28,488,439) .......................... 29,890,295
MFS(R) Emerging Growth Fund - Class A (MFSEmGro)
435,385 shares (cost $11,786,584) ............................ 15,752,245
MFS(R) Growth Opportunities Fund - Class A (MFSGrOpp)
9,156,563 shares (cost $108,717,258) ......................... 127,459,362
MFS(R) High Income Fund - Class A (MFSHiInc)
5,666,868 shares (cost $29,472,950) .......................... 31,337,778
MFS(R) Research Fund - Class A (MFSRsrch)
2,412,329 shares (cost $36,906,073) .......................... 51,358,491
MFS(R) Total Return Fund - Class A (MFSTotRe)
4,474,201 shares (cost $61,023,567) .......................... 70,781,856
MFS(R) World Governments Fund - Class A (MFSWdGvt)
615,543 shares (cost $6,947,062) ............................. 6,672,487
Nationwide Separate Account Trust - Money Market Fund (NSATMyMkt)
1,607,744 shares (cost $1,607,744) ........................... 1,607,744
------------
Total investments ......................................... 496,671,460
Accounts receivable ................................................ --
------------
Total assets .............................................. 496,671,460
ACCOUNTS PAYABLE ...................................................... 230,806
------------
CONTRACT OWNERS' EQUITY (NOTE 4) ...................................... $496,440,654
============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 3
MFS VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
TOTAL MFSMyMkt
----------------------------- -------------------------
1997 1996 1997 1996
-------------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .......................... $ 11,168,972 12,293,761 2,705,836 2,921,530
Mortality, expense and administration
charges (note 2) ............................ (6,386,611) (6,079,619) (745,699) (829,089)
-------------- ------------ ----------- -----------
Net investment activity ..................... 4,782,361 6,214,142 1,960,137 2,092,441
-------------- ------------ ----------- -----------
Proceeds from mutual fund shares sold ......... 110,071,003 117,272,138 20,610,321 23,793,433
Cost of mutual fund shares sold ............... (93,780,092) (107,685,553) (20,610,321) (23,793,433)
-------------- ------------ ----------- -----------
Realized gain (loss) on investments ......... 16,290,911 9,586,585 - -
Change in unrealized gain (loss) on investments 28,874,119 13,552,160 - -
-------------- ------------ ----------- -----------
Net gain (loss) on investments .............. 45,165,030 23,138,745 - -
-------------- ------------ ----------- -----------
Reinvested capital gains ...................... 35,833,931 32,734,659 - -
-------------- ------------ ----------- -----------
Net increase (decrease) in contract owners'
equity resulting from operations ........ 85,781,322 62,087,546 1,960,137 2,092,441
-------------- ------------ ----------- -----------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ............................. 20,353,980 19,727,032 1,100,898 1,178,079
Transfers between funds - - 415,137 2,176,153
Redemptions ................................... (73,887,620) (70,243,669) (9,257,435) (11,269,674)
Annuity benefits .............................. (575,900) (569,003) (93,817) (108,113)
Annual contract maintenance charge (note 2) ... (313,759) (365,726) (52,111) (66,445)
Contingent deferred sales charges (note 2) .... (110,645) (157,482) (18,363) (42,224)
Adjustments to maintain reserves .............. (207,752) 160,437 (61,628) 21,273
-------------- ------------ ----------- -----------
Net equity transactions ................... (54,741,696) (51,448,411) (7,967,319) (8,110,951)
-------------- ------------ ----------- -----------
NET CHANGE IN CONTRACT OWNERS' EQUITY ......... 31,039,626 10,639,135 (6,007,182) (6,018,510)
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ... 465,401,028 454,761,893 59,634,697 65,653,207
-------------- ------------ ----------- -----------
CONTRACT OWNERS' EQUITY END OF PERIOD ......... $ 496,440,654 465,401,028 53,627,515 59,634,697
============== ============ =========== ===========
</TABLE>
<TABLE>
<CAPTION>
MFSGrStk MFSInvTr
----------------------- -----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .......................... 24,246 - 539,189 555,368
Mortality, expense and administration
charges (note 2) ............................ (611,886) (489,752) (654,656) (508,389)
---------- ---------- ---------- ----------
Net investment activity ..................... (587,640) (489,752) (115,467) 46,979
---------- ---------- ---------- ----------
Proceeds from mutual fund shares sold ......... 9,529,571 9,842,454 8,177,991 7,763,408
Cost of mutual fund shares sold ............... (9,428,903) (9,788,967) (6,155,456) (7,533,000)
---------- ---------- ---------- ----------
Realized gain (loss) on investments ......... 100,668 53,487 2,022,535 230,408
Change in unrealized gain (loss) on investments 9,294,338 (1,684,051) 7,256,714 4,567,977
---------- ---------- ---------- ----------
Net gain (loss) on investments .............. 9,395,006 (1,630,564) 9,279,249 4,798,385
---------- ---------- ---------- ----------
Reinvested capital gains ...................... 8,263,416 9,112,937 3,629,713 3,580,811
---------- ---------- ---------- ----------
Net increase (decrease) in contract owners'
equity resulting from operations ........ 17,070,782 6,992,621 12,793,495 8,426,175
---------- ---------- ---------- ----------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ............................. 3,635,654 2,472,324 1,942,537 2,139,513
Transfers between funds 2,687,926 (1,005,928) 2,765,560 1,308,452
Redemptions ................................... (6,922,257) (5,914,727) (6,309,234) (5,322,645)
Annuity benefits .............................. (28,863) (15,882) (29,288) (30,577)
Annual contract maintenance charge (note 2) ... (23,238) (25,468) (23,465) (24,452)
Contingent deferred sales charges (note 2) .... (7,888) (11,194) (6,896) (14,774)
Adjustments to maintain reserves .............. (5,034) 509 11,801 (16,165)
---------- ---------- ---------- ----------
Net equity transactions ................... (663,700) (4,500,366) (1,648,985) (1,960,648)
---------- ---------- ---------- ----------
NET CHANGE IN CONTRACT OWNERS' EQUITY ......... 16,407,082 2,492,255 11,144,510 6,465,527
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ... 37,885,509 35,393,254 42,689,756 36,224,229
---------- ---------- ---------- ----------
CONTRACT OWNERS' EQUITY END OF PERIOD ......... 54,292,591 37,885,509 53,834,266 42,689,756
========== ========== ========== ==========
</TABLE>
(Continued)
<PAGE> 4
MFS VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
MFSBdFd MFSEmGro
---------------------------- -----------------------
1997 1996 1997 1996
-------------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends ........................... $ 2,107,121 2,546,610 - -
Mortality, expense and administration
charges (note 2) ............................. (396,702) (462,241) (203,090) (190,970)
-------------- ----------- ---------- ----------
Net investment activity ...................... 1,710,419 2,084,369 (203,090) (190,970)
-------------- ----------- ---------- ----------
Proceeds from mutual fund shares sold .......... 9,333,099 11,825,895 5,262,476 3,875,747
Cost of mutual fund shares sold ................ (10,135,867) (12,672,918) (2,905,959) (2,507,651)
-------------- ----------- ---------- ----------
Realized gain (loss) on investments .......... (802,768) (847,023) 2,356,517 1,368,096
Change in unrealized gain (loss) on investments 1,637,890 (507,048) 300,196 344,788
-------------- ----------- ---------- ----------
Net gain (loss) on investments ............... 835,122 (1,354,071) 2,656,713 1,712,884
-------------- ----------- ---------- ----------
Reinvested capital gains ....................... - - 146,983 180,030
-------------- ----------- ---------- ----------
Net increase (decrease) in contract owners'
equity resulting from operations ......... 2,545,541 730,298 2,600,606 1,701,944
-------------- ----------- ---------- ----------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners .............................. 1,559,363 1,625,769 1,031,633 453,322
Transfers between funds ........................ (108,298) (3,044,250) (178,233) 1,349,623
Redemptions .................................... (6,948,653) (5,846,431) (2,704,987) (1,307,775)
Annuity benefits ............................... (60,635) (76,135) (2,476) (1,786)
Annual contract maintenance charge (note 2) .... (18,981) (23,688) (12,951) (12,957)
Contingent deferred sales charges (note 2) ..... (10,920) (6,283) (2,146) (3,876)
Adjustments to maintain reserves ............... (51,904) 8,954 2,834 (1,277)
-------------- ----------- ---------- ----------
Net equity transactions .................... (5,640,028) (7,362,064) (1,866,326) 475,274
-------------- ----------- ---------- ----------
NET CHANGE IN CONTRACT OWNERS' EQUITY .......... (3,094,487) (6,631,766) 734,280 2,177,218
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD .... 32,932,598 39,564,364 15,017,791 12,840,573
-------------- ----------- ---------- ----------
CONTRACT OWNERS' EQUITY END OF PERIOD .......... $ 29,838,111 32,932,598 15,752,071 15,017,791
============== =========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
MFSGrOpp MFSHiInc
------------------------- -------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends ........................... - - 2,822,103 3,009,796
Mortality, expense and administration
charges (note 2) ............................. (1,647,663) (1,513,781) (429,925) (451,033)
----------- ----------- ----------- -----------
Net investment activity ...................... (1,647,663) (1,513,781) 2,392,178 2,558,763
----------- ----------- ----------- -----------
Proceeds from mutual fund shares sold .......... 18,780,010 22,640,718 11,960,059 12,380,392
Cost of mutual fund shares sold ................ (13,831,419) (18,764,003) (11,497,057) (12,023,351)
----------- ----------- ----------- -----------
Realized gain (loss) on investments .......... 4,948,591 3,876,715 463,002 357,041
Change in unrealized gain (loss) on investments 5,338,318 5,741,545 659,402 658,890
----------- ----------- ----------- -----------
Net gain (loss) on investments ............... 10,286,909 9,618,260 1,122,404 1,015,931
----------- ----------- ----------- -----------
Reinvested capital gains ....................... 15,812,829 12,866,449 - -
----------- ----------- ----------- -----------
Net increase (decrease) in contract owners'
equity resulting from operations ......... 24,452,075 20,970,928 3,514,582 3,574,694
----------- ----------- ----------- -----------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners .............................. 4,422,563 6,515,933 2,014,240 1,043,677
Transfers between funds ........................ (1,615,174) (1,363,214) (1,592,252) (511,982)
Redemptions .................................... (16,045,965) (17,851,175) (6,332,971) (5,362,523)
Annuity benefits ............................... (146,801) (145,869) (96,044) (88,866)
Annual contract maintenance charge (note 2) .... (88,671) (103,450) (25,213) (29,914)
Contingent deferred sales charges (note 2) ..... (30,681) (29,103) (9,241) (10,977)
Adjustments to maintain reserves ............... (82,131) 89,876 19,507 15,088
----------- ----------- ----------- -----------
Net equity transactions .................... (13,586,860) (12,887,002) (6,021,974) (4,945,497)
----------- ----------- ----------- -----------
NET CHANGE IN CONTRACT OWNERS' EQUITY .......... 10,865,215 8,083,926 (2,507,392) (1,370,803)
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD .... 116,502,318 108,418,392 33,862,351 35,233,154
----------- ----------- ----------- -----------
CONTRACT OWNERS' EQUITY END OF PERIOD .......... 127,367,533 116,502,318 31,354,959 33,862,351
=========== =========== =========== ===========
</TABLE>
<PAGE> 5
MFS VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
MFSRsrch MFSTotRe
------------------------ -------------------------
1997 1996 1997 1996
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends ................................. $ - 59,553 2,616,792 2,910,060
Mortality, expense and administration
charges (note 2) ................................... (653,983) (555,936) (921,609) (925,017)
----------- ---------- ----------- -----------
Net investment activity ............................ (653,983) (496,383) 1,695,183 1,985,043
----------- ---------- ----------- -----------
Proceeds from mutual fund shares sold ................ 8,666,290 5,601,511 13,549,787 13,306,729
Cost of mutual fund shares sold ...................... (4,983,282) (3,453,854) (9,954,406) (10,003,074)
----------- ---------- ----------- -----------
Realized gain (loss) on investments ................ 3,683,008 2,147,657 3,595,381 3,303,655
Change in unrealized gain (loss) on investments ...... 3,267,694 4,681,987 1,350,731 (1,367,319)
----------- ---------- ----------- -----------
Net gain (loss) on investments ..................... 6,950,702 6,829,644 4,946,112 1,936,336
----------- ---------- ----------- -----------
Reinvested capital gains ............................. 2,277,894 2,232,263 5,669,396 4,711,473
----------- ---------- ----------- -----------
Net increase (decrease) in contract owners'
equity resulting from operations ............... 8,574,613 8,565,524 12,310,691 8,632,852
----------- ---------- ----------- -----------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners .................................... 2,733,275 2,534,860 979,319 901,538
Transfers between funds .............................. (25,300) 4,574,639 (1,533,328) (3,481,107)
Redemptions .......................................... (6,469,698) (5,317,309) (10,543,599) (8,249,907)
Annuity benefits ..................................... (47,531) (41,066) (61,621) (51,710)
Annual contract maintenance charge (note 2) .......... (22,942) (23,769) (37,178) (43,179)
Contingent deferred sales charges (note 2) ........... (6,702) (8,038) (15,080) (27,258)
Adjustments to maintain reserves ..................... 8,745 16,472 (50,752) 24,541
----------- ---------- ----------- -----------
Net equity transactions .......................... (3,830,153) 1,735,789 (11,262,239) (10,927,082)
----------- ---------- ----------- -----------
NET CHANGE IN CONTRACT OWNERS' EQUITY ................ 4,744,460 10,301,313 1,048,452 (2,294,230)
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD .......... 46,619,691 36,318,378 69,680,071 71,974,301
----------- ---------- ----------- -----------
CONTRACT OWNERS' EQUITY END OF PERIOD ................ $51,364,151 46,619,691 70,728,523 69,680,071
=========== ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
MFSWdGvt NSATMyMkt
----------------------- ----------------------
1997 1996 1997 1996
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends ................................. 260,144 186,391 93,541 104,453
Mortality, expense and administration
charges (note 2) ................................... (97,514) (125,846) (23,884) (27,565)
---------- ---------- ---------- ---------
Net investment activity ............................ 162,630 60,545 69,657 76,888
---------- ---------- ---------- ---------
Proceeds from mutual fund shares sold ................ 2,902,749 5,905,156 1,298,650 336,695
Cost of mutual fund shares sold ...................... (2,978,772) (6,808,607) (1,298,650) (336,695)
---------- ---------- ---------- ---------
Realized gain (loss) on investments ................ (76,023) (903,451) - -
Change in unrealized gain (loss) on investments ...... (231,164) 1,115,391 - -
---------- ---------- ---------- ---------
Net gain (loss) on investments ..................... (307,187) 211,940 - -
---------- ---------- ---------- ---------
Reinvested capital gains ............................. 33,700 50,696 - -
---------- ---------- ---------- ---------
Net increase (decrease) in contract owners'
equity resulting from operations ............... (110,857) 323,181 69,657 76,888
---------- ---------- ---------- ---------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners .................................... 860,719 826,946 73,779 35,071
Transfers between funds .............................. (784,407) (22,534) (31,631) 20,148
Redemptions .......................................... (1,841,069) (3,547,879) (511,752) (253,624)
Annuity benefits ..................................... (8,824) (8,999) - -
Annual contract maintenance charge (note 2) .......... (6,389) (9,283) (2,620) (3,121)
Contingent deferred sales charges (note 2) ........... (2,323) (3,492) (405) (263)
Adjustments to maintain reserves ..................... 913 1,150 (103) 16
---------- ---------- ---------- ---------
Net equity transactions .......................... (1,781,380) (2,764,091) (472,732) (201,773)
---------- ---------- ---------- ---------
NET CHANGE IN CONTRACT OWNERS' EQUITY ................ (1,892,237) (2,440,910) (403,075) (124,885)
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD .......... 8,565,606 11,006,516 2,010,640 2,135,525
---------- ---------- ---------- ---------
CONTRACT OWNERS' EQUITY END OF PERIOD ................ 6,673,369 8,565,606 1,607,565 2,010,640
========== ========== ========== =========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 6
MFS VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(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, 1997, 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.
<PAGE> 7
(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, 1997. 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.
(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 1996 amounts have been reclassified to conform with the current
period presentation.
<PAGE> 8
(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
(Non-Spectrum) 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 (Spectrum)
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.
The following provides mortality, expense and administration charges by
contract type:
<TABLE>
<CAPTION>
TOTAL MFSMyMkt MFSGrStk MFSInvTr MFSBdFd MFSEmGro
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Non-Spectrum.......... $ 7,145 1,774 981 390 457 -
Spectrum.............. $ 6,379,466 743,925 610,905 654,266 396,245 203,090
----------------------------------------------------------------------
Total............. $ 6,386,611 745,699 611,886 654,656 396,702 203,090
======================================================================
</TABLE>
<TABLE>
<CAPTION>
MFSGrOpp MFSHiInc MFSRsrch MFSTotRe MFSWdGvt SATMyMkt
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Non-Spectrum.......... $ 2,660 245 508 130 - -
Spectrum.............. $ 1,645,003 429,680 653,475 921,479 97,514 23,884
----------------------------------------------------------------------
Total............. $ 1,647,663 429,925 653,983 921,609 97,514 23,884
======================================================================
</TABLE>
(3) RELATED PARTY TRANSACTIONS
The Company performs various services on behalf of the Mutual Fund
Companies in which the Account invests and may receive fees for the
services performed. These services include, among other things, shareholder
communications, preparation, postage, fund transfer agency and various
other record keeping and customer service functions. These fees are paid to
an affiliate of the Company.
<PAGE> 9
(4) COMPONENTS OF CONTRACT OWNERS' EQUITY
The following is a summary of contract owners' equity at December 31, 1997,
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.
<TABLE>
<CAPTION>
ANNUAL
Contract owners' equity represented by: UNITS UNIT VALUE RETURN
--------- ------------ ------
<S> <C> <C> <C> <C>
Contracts in accumulation phase:
MFS Series Trust IV -
MFS(R) Money Market Fund:
Non-tax qualified ........................... 6,828 $ 36.580276 $ 249,770 4%
Tax qualified spectrum ...................... 1,143,756 31.101395 35,572,407 4%
Non-tax qualified spectrum .................. 556,766 31.123008 17,328,233 4%
Massachusetts Investors Growth
Stock Fund - Class A:
Non-tax qualified ........................... 850 138.838952 118,013 47%
Tax qualified spectrum ...................... 289,531 146.486721 42,412,447 46%
Non-tax qualified spectrum .................. 88,204 124.301472 10,963,887 46%
Non-tax qualified spectrum (81-225) ......... 4,090 135.410415 553,829 46%
Massachusetts Investors Trust - Class A:
Tax qualified ............................... 16 164.129808 2,626 30%
Non-tax qualified ........................... 289 154.878002 44,760 30%
Tax qualified spectrum ...................... 312,848 131.320106 41,083,233 30%
Non-tax qualified spectrum .................. 103,123 117.825672 12,150,537 30%
Non-tax qualified spectrum (81-225) ......... 1,827 125.178102 228,700 30%
MFS(R) Bond Fund - Class A:
Non-tax qualified ........................... 595 57.243116 34,060 9%
Tax qualified spectrum ...................... 453,678 48.946623 22,206,006 9%
Non-tax qualified spectrum .................. 147,342 48.906597 7,205,996 9%
Non-tax qualified spectrum (81-225) ......... 789 49.097863 38,738 9%
MFS(R) Emerging Growth Fund - Class A:
Tax qualified spectrum ...................... 385,073 40.798757 15,710,500 19%
Non-tax qualified spectrum (81-225) ......... 674 40.798757 27,498 19%
MFS(R) Growth Opportunities Fund - Class A:
Non-tax qualified ........................... 1,008 152.474948 153,695 22%
Tax qualified spectrum ...................... 732,936 141.368069 103,613,747 22%
Non-tax qualified spectrum .................. 172,812 120.084102 20,751,974 22%
Non-tax qualified spectrum (81-225) ......... 12,840 132.499304 1,701,291 22%
MFS(R) High Income Fund - Class A:
Non-tax qualified ........................... 358 72.045586 25,792 12%
Tax qualified spectrum ...................... 332,136 62.966234 20,913,353 11%
Non-tax qualified spectrum .................. 154,453 62.010978 9,577,782 11%
Non-tax qualified spectrum (81-225) ......... 4,996 62.966234 314,579 11%
</TABLE>
(Continued)
<PAGE> 10
<TABLE>
<S> <C> <C> <C> <C>
MFS(R) Research Fund - Class A:
Non-tax qualified ............................. 390 148.464541 57,901 19%
Tax qualified spectrum ........................ 265,836 146.156474 38,853,652 19%
Non-tax qualified spectrum .................... 93,659 127.707031 11,960,913 19%
Non-tax qualified spectrum (81-225) ........... 1,318 144.450450 190,386 19%
MFS(R) Total Return Fund - Class A:
Tax qualified ................................. 131 108.143295 14,167 19%
Tax qualified spectrum ........................ 570,631 98.832664 56,396,982 19%
Non-tax qualified spectrum .................... 145,316 95.666722 13,901,905 19%
Non-tax qualified spectrum (81-225) ........... 805 97.871152 78,786 19%
MFS(R) World Governments Fund - Class A:
Tax qualified spectrum ........................ 115,417 50.368842 5,813,421 (1)%
Non-tax qualified spectrum .................... 15,550 49.106357 763,604 (1)%
Non-tax qualified spectrum (81-225) ........... 666 50.290543 33,494 (1)%
Nationwide Separate Account Trust -
Money Market Fund:
Tax qualified spectrum ........................ 41,782 23.669908 988,976 4%
Non-tax qualified spectrum .................... 26,117 23.685302 618,589 4%
======== ==========
Reserves for annuity contracts in payout phase:
Tax qualified ................................. 57,958
Non-tax qualified ............................. 59,810
Tax qualified spectrum ........................ 2,494,828
Non-tax qualified spectrum .................... 1,166,344
Non-tax qualified spectrum (81-225) ........... 5,485
------------
$496,440,654
============
</TABLE>
<PAGE> 52
<PAGE> 1
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Nationwide Life Insurance Company:
We have audited the accompanying consolidated balance sheets of Nationwide Life
Insurance Company and subsidiaries (collectively the Company), a wholly owned
subsidiary of Nationwide Financial Services, Inc., as of December 31, 1997 and
1996, 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,
1997. 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, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Columbus, Ohio
January 30, 1998
<PAGE> 2
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Balance Sheets
(in millions of dollars)
<TABLE>
<CAPTION>
December 31,
-----------------------------------
ASSETS 1997 1996
------
----------------- ---------------
<S> <C> <C>
Investments:
Securities available-for-sale, at fair value:
Fixed maturity securities $13,204.1 $12,304.6
Equity securities 80.4 59.1
Mortgage loans on real estate, net 5,181.6 5,272.1
Real estate, net 311.4 265.8
Policy loans 415.3 371.8
Other long-term investments 25.2 28.7
Short-term investments 358.4 4.8
---------- ---------
19,576.4 18,306.9
---------- ---------
Cash 175.6 43.8
Accrued investment income 210.5 210.2
Deferred policy acquisition costs 1,665.4 1,366.5
Investment in subsidiaries classified as discontinued operations - 485.7
Other assets 438.4 426.5
Assets held in Separate Accounts 37,724.4 26,926.7
---------- ---------
$59,790.7 $47,766.3
========== =========
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
Future policy benefits and claims $18,702.8 $17,600.6
Other liabilities 885.6 1,101.1
Liabilities related to Separate Accounts 37,724.4 26,926.7
---------- ---------
57,312.8 45,628.4
---------- ---------
Commitments and contingencies (notes 7 and 13)
Shareholder's equity:
Common stock, $1 par value. Authorized 5.0 million shares;
3.8 million shares issued and outstanding 3.8 3.8
Additional paid-in capital 914.7 527.9
Retained earnings 1,312.3 1,432.6
Unrealized gains on securities available-for-sale, net 247.1 173.6
---------- ---------
2,477.9 2,137.9
---------- ---------
$59,790.7 $47,766.3
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 3
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Statements of Income
(in millions of dollars)
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------------
1997 1996 1995
------------- ------------- --------------
<S> <C> <C> <C>
Revenues:
Investment product and universal life insurance product policy charges $ 545.2 $ 400.9 $ 286.6
Traditional life insurance premiums 205.4 198.6 199.1
Net investment income 1,409.2 1,357.8 1,294.0
Realized gains (losses) on investments 11.1 (0.3) (1.7)
Other 46.5 35.9 20.7
---------- ---------- ----------
2,217.4 1,992.9 1,798.7
---------- ---------- ----------
Benefits and expenses:
Interest credited to policyholder account balances 1,016.6 982.3 950.3
Other benefits and claims 178.2 178.3 165.2
Policyholder dividends on participating policies 40.6 41.0 39.9
Amortization of deferred policy acquisition costs 167.2 133.4 82.7
Other operating expenses 384.9 342.4 273.0
---------- ---------- ----------
1,787.5 1,677.4 1,511.1
---------- ---------- ----------
Income from continuing operations before federal income tax expense 429.9 315.5 287.6
Federal income tax expense 150.2 110.9 99.8
---------- ---------- ----------
Income from continuing operations 279.7 204.6 187.8
Income from discontinued operations (less federal income tax expense
of $4.5 and $7.4 in 1996 and 1995, respectively) - 11.3 24.7
---------- ---------- ----------
Net income $ 279.7 $ 215.9 $ 212.5
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 4
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Statements of Shareholder's Equity
(in millions of dollars)
<TABLE>
<CAPTION>
Unrealized
gains
(losses)
Additional on securities Total
Common paid-in Retained available- shareholder's
stock capital earnings for-sale, net equity
----------- ------------- -------------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
December 31, 1994 $3.8 $ 606.2 $1,378.2 $(119.7) $1,868.5
Capital contribution - 51.0 - (4.1) 46.9
Net income - - 212.5 - 212.5
Dividends to shareholder - - (7.5) - (7.5)
Unrealized gains on securities available-
for-sale, net - - - 508.1 508.1
-------- -------- -------- -------- ---------
December 31, 1995 3.8 657.2 1,583.2 384.3 2628.5
Net income - - 215.9 - 215.9
Dividends to shareholder - (129.3) (366.5) (39.8) (535.6)
Unrealized losses on securities available-
for-sale, net - - - (170.9) (170.9)
-------- -------- -------- -------- ---------
December 31, 1996 3.8 527.9 1,432.6 173.6 2,137.9
Capital contribution - 836.8 - - 836.8
Net income - - 279.7 - 279.7
Dividends to shareholder - (450.0) (400.0) - (850.0)
Unrealized gains on securities available-
for-sale, net - - - 73.5 73.5
-------- -------- -------- -------- ---------
December 31, 1997 $3.8 $ 914.7 $1,312.3 $ 247.1 $2,477.9
======== ======== ======== ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Statements of Cash Flows
(in millions of dollars)
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------------
1997 1996 1995
------------------------------ ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 279.7 $ 215.9 $ 212.5
Adjustments to reconcile net income to net cash provided by operating
activities:
Interest credited to policyholder account balances 1,016.6 982.3 950.3
Capitalization of deferred policy acquisition costs (487.9) (422.6) (321.3)
Amortization of deferred policy acquisition costs 167.2 133.4 82.7
Amortization and depreciation (2.0) 7.0 10.2
Realized (gains) losses on invested assets, net (11.1) (0.3) 3.3
(Increase) decrease in accrued investment income (0.3) 2.8 (16.9)
(Increase) decrease in other assets (12.7) (38.9) 39.9
(Decrease) increase in policy liabilities (23.1) (151.0) 123.9
Increase in other liabilities 230.6 191.4 27.0
Other, net (10.9) (61.7) 1.8
----------- --------- --------
Net cash provided by operating activities 1,146.1 858.3 1,113.4
----------- --------- --------
Cash flows from investing activities:
Proceeds from maturity of securities available-for-sale 993.4 1,162.8 634.6
Proceeds from sale of securities available-for-sale 574.5 299.6 107.3
Proceeds from maturity of fixed maturity securities held-to-maturity - - 564.4
Proceeds from repayments of mortgage loans on real estate 437.3 309.0 207.8
Proceeds from sale of real estate 34.8 18.5 48.3
Proceeds from repayments of policy loans and sale of other invested assets 22.7 22.8 53.6
Cost of securities available-for-sale acquired (2,828.1) (1,573.6) (1,942.4)
Cost of fixed maturity securities held-to-maturity acquired - - (593.6)
Cost of mortgage loans on real estate acquired (752.2) (972.8) (796.0)
Cost of real estate acquired (24.9) (7.9) (10.9)
Policy loans issued and other invested assets acquired (62.5) (57.7) (75.9)
Short-term investments, net (354.8) 28.0 77.8
----------- --------- --------
Net cash used in investing activities (1,959.8) (771.3) (1,725.0)
----------- --------- --------
Cash flows from financing activities:
Proceeds from capital contributions 836.8 - -
Cash dividends paid - (50.0) (7.5)
Increase in investment product and universal life insurance
product account balances 2,488.5 1,781.8 1,883.7
Decrease in investment product and universal life insurance
product account balances (2,379.8) (1,784.5) (1,258.7)
----------- --------- --------
Net cash provided by (used in) financing activities 945.5 (52.7) 617.5
----------- --------- --------
Net increase in cash 131.8 34.3 5.9
Cash, beginning of year 43.8 9.5 3.6
----------- --------- --------
Cash, end of year $ 175.6 $ 43.8 $ 9.5
=========== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 6
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
(1) ORGANIZATION AND DESCRIPTION OF BUSINESS
Prior to January 27, 1997, Nationwide Life Insurance Company (NLIC) was
wholly owned by Nationwide Corporation (Nationwide Corp.). On that
date, Nationwide Corp. contributed the outstanding shares of NLIC's
common stock to Nationwide Financial Services, Inc. (NFS), a holding
company formed by Nationwide Corp. in November 1996 for NLIC and the
other companies within the Nationwide Insurance Enterprise that offer
or distribute long-term savings and retirement products. On March 11
1997, NFS completed an initial public offering of its Class A common
stock.
During 1996 and 1997, Nationwide Corp. and NFS completed certain
transactions in anticipation of the initial public offering that
focused the business of NFS on long-term savings and retirement
products. On September 24, 1996, NLIC declared a dividend payable to
Nationwide Corp. on January 1, 1997 consisting of the outstanding
shares of common stock of certain subsidiaries that do not offer or
distribute long-term savings or retirement products. In addition,
during 1996, NLIC entered into two reinsurance agreements whereby all
of NLIC's accident and health and group life insurance business was
ceded to two affiliates effective January 1, 1996. These subsidiaries,
through December 31, 1996, and all accident and health and group life
insurance business have been accounted for as discontinued operations
for all periods presented. See notes 11 and 15. Additionally, NLIC paid
$900.0 million of dividends, $50.0 million to Nationwide Corp. on
December 31, 1996 and $850.0 million to NFS, which then made an
equivalent dividend to Nationwide Corp., on February 24, 1997.
NFS contributed $836.8 million to the capital of NLIC during March
1997.
Wholly owned subsidiaries of NLIC include Nationwide Life and Annuity
Insurance Company (NLAIC), Nationwide Advisory Services, Inc.,
Nationwide Investment Services Corporation and NWE, Inc. NLIC and its
subsidiaries are collectively referred to as "the Company."
The Company is a leading provider of long-term savings and retirement
products. The Company is subject to regulation by the Insurance
Departments of states in which it is licensed, and undergoes periodic
examinations by those departments.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed by the Company that
materially affect financial reporting are summarized below. The
accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles, which differ
from statutory accounting practices prescribed or permitted by
regulatory authorities. Annual Statements for NLIC and NLAIC, filed
with the Department of Insurance of the State of Ohio (the Department),
are prepared on the basis of accounting practices prescribed or
permitted by the Department. Prescribed statutory accounting practices
include a variety of publications of the National Association of
Insurance Commissioners (NAIC), as well as state laws, regulations and
general administrative rules. Permitted statutory accounting practices
encompass all accounting practices not so prescribed. The Company has
no material permitted statutory accounting practices.
<PAGE> 7
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosures of contingent
assets and liabilities as of the date of the consolidated financial
statements and the reported amounts of revenues and expenses for the
reporting period. Actual results could differ significantly from those
estimates.
The most significant estimates include those used in determining
deferred policy acquisition costs, valuation allowances for mortgage
loans on real estate and real estate investments and the liability for
future policy benefits and claims. Although some variability is
inherent in these estimates, management believes the amounts provided
are adequate.
(a) CONSOLIDATION POLICY
The consolidated financial statements include the accounts of NLIC
and its wholly owned subsidiaries. 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 from
discontinued operations" in the accompanying consolidated
statements of income. All significant intercompany balances and
transactions have been eliminated.
(b) VALUATION OF INVESTMENTS AND RELATED GAINS AND LOSSES
The Company is required to classify its fixed maturity securities
and equity securities as either held-to-maturity,
available-for-sale or trading. Fixed maturity securities are
classified as held-to-maturity when the Company has the positive
intent and ability to hold the securities to maturity and are
stated at amortized cost. Fixed maturity securities not classified
as held-to-maturity and all equity securities are classified as
available-for-sale and are stated at fair value, with the
unrealized gains and losses, net of adjustments to deferred policy
acquisition costs and deferred federal income tax, reported as a
separate component of shareholder's equity. The adjustment to
deferred policy acquisition costs represents the change in
amortization of deferred policy acquisition costs that would have
been required as a charge or credit to operations had such
unrealized amounts been realized. The Company has no fixed
maturity securities classified as held-to-maturity or trading as
of December 31, 1997 or 1996.
Mortgage loans on real estate are carried at the unpaid principal
balance less valuation allowances. The Company provides valuation
allowances for impairments of mortgage loans on real estate based
on a review by portfolio managers. The measurement of impaired
loans is based on the present value of expected future cash flows
discounted at the loan's effective interest rate or, as a
practical expedient, at the fair value of the collateral, if the
loan is collateral dependent. Loans in foreclosure and loans
considered to be impaired are placed on non-accrual status.
Interest received on non-accrual status mortgage loans on real
estate is included in interest income in the period received.
Real estate is carried at cost less accumulated depreciation and
valuation allowances. Other long-term investments are carried on
the equity basis, adjusted for valuation allowances. Impairment
losses are recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the
assets' carrying amount.
Realized gains and losses on the sale of investments are
determined on the basis of specific security identification.
Estimates for valuation allowances and other than temporary
declines are included in realized gains and losses on investments.
<PAGE> 8
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(c) REVENUES AND BENEFITS
INVESTMENT PRODUCTS AND UNIVERSAL LIFE INSURANCE PRODUCTS:
Investment products consist primarily of individual and group
variable and fixed annuities. 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.
(d) DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new business, principally commissions,
certain expenses of the policy issue and underwriting department
and certain variable sales expenses have been deferred. For
investment products and universal life insurance products,
deferred policy acquisition costs are being amortized with
interest over the lives of the policies in relation to the present
value of estimated future gross profits from projected interest
margins, asset fees, cost of insurance, policy administration and
surrender charges. For years in which gross profits are negative,
deferred policy acquisition costs are amortized based on the
present value of gross revenues. Deferred policy acquisition costs
are adjusted to reflect the impact of unrealized gains and losses
on fixed maturity securities available-for-sale as described in
note 2(b). For traditional life insurance products, these deferred
policy acquisition costs are predominantly being amortized with
interest over the premium paying period of the related policies in
proportion to the ratio of actual annual premium revenue to the
anticipated total premium revenue. Such anticipated premium
revenue was estimated using the same assumptions as were used for
computing liabilities for future policy benefits.
(e) SEPARATE ACCOUNTS
Separate Account assets and liabilities represent contractholders'
funds which have been segregated into accounts with specific
investment objectives. For all but $365.5 million of separate
account assets, the investment income and gains or losses of these
accounts accrue directly to the contractholders. The activity of
the Separate Accounts is not reflected in the consolidated
statements of income and cash flows except for the fees the
Company receives.
(f) FUTURE POLICY BENEFITS
Future policy benefits for investment products in the accumulation
phase, universal life insurance and variable universal life
insurance policies have been calculated based on participants'
contributions plus interest credited less applicable contract
charges.
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 4.
<PAGE> 9
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(g) PARTICIPATING BUSINESS
Participating business represents approximately 50% in 1997 (52%
in 1996 and 54% in 1995) of the Company's life insurance in force,
77% in 1997 (78% in 1996 and 79% in 1995) of the number of life
insurance policies in force, and 27% in 1997 (40% in 1996 and 47%
in 1995) of life insurance statutory premiums. The provision for
policyholder dividends is based on current dividend scales and is
included in "Future policy benefits and claims" in the
accompanying consolidated balance sheets.
(h) FEDERAL INCOME TAX
The Company files a consolidated federal income tax return with
Nationwide Mutual Insurance Company (NMIC), the majority
shareholder of Nationwide Corp. The members of the consolidated
tax return group have a tax sharing arrangement which provides, in
effect, for each member to bear essentially the same federal
income tax liability as if separate tax returns were filed.
The Company utilizes the asset and liability method of accounting
for income tax. Under this method, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be
recovered or settled. Under this method, the effect on deferred
tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.
Valuation allowances are established when necessary to reduce the
deferred tax assets to the amounts expected to be realized.
(i) REINSURANCE CEDED
Reinsurance premiums ceded and reinsurance recoveries on benefits
and claims incurred are deducted from the respective income and
expense accounts. Assets and liabilities related to reinsurance
ceded are reported on a gross basis. All of the Company's accident
and health and group life insurance business is ceded to
affiliates and is accounted for as discontinued operations. See
notes 11 and 15.
(j) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 130 - REPORTING
COMPREHENSIVE INCOME was issued in June 1997 and is effective for
fiscal years beginning after December 15, 1997. The statement
establishes standards for reporting and display of comprehensive
income and its components in a full set of financial statements.
Comprehensive income includes all changes in equity during a
period except those resulting from investments by shareholders and
distributions to shareholders and includes net income.
Comprehensive income would be reported in addition to earnings
amounts currently presented. The Company will adopt the statement
and begin reporting comprehensive income in the first quarter of
1998.
(k) RECLASSIFICATION
Certain items in the 1996 and 1995 consolidated financial
statements have been reclassified to conform to the 1997
presentation.
<PAGE> 10
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(3) INVESTMENTS
The amortized cost, gross unrealized gains and losses and estimated
fair value of securities available-for-sale as of December 31, 1997 and
1996 were:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
(in millions of dollars) cost gains losses fair value
-------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
December 31, 1997:
Fixed maturity securities:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies $ 305.1 $ 8.6 $ - $ 313.7
Obligations of states and political subdivisions 1.6 - - 1.6
Debt securities issued by foreign governments 93.3 2.7 (0.2) 95.8
Corporate securities 8,698.7 355.5 (11.5) 9,042.7
Mortgage-backed securities 3,634.2 118.6 (2.5) 3,750.3
------------ --------- --------- -----------
Total fixed maturity securities 12,732.9 485.4 (14.2) 13,204.1
Equity securities 67.8 12.9 (0.3) 80.4
------------ --------- --------- -----------
$ 12,800.7 $ 498.3 $ (14.5) $ 13,284.5
============ ========= ========= ===========
December 31, 1996:
Fixed maturity securities:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies $ 275.7 $ 4.8 $ (1.3) $ 279.2
Obligations of states and political subdivisions 6.2 0.5 - 6.7
Debt securities issued by foreign governments 100.7 2.1 (0.9) 101.9
Corporate securities 7,999.3 285.9 (33.7) 8,251.5
Mortgage-backed securities 3,589.0 91.4 (15.1) 3,665.3
------------ --------- --------- -----------
Total fixed maturity securities 11,970.9 384.7 (51.0) 12,304.6
Equity securities 43.9 15.6 (0.4) 59.1
------------ --------- --------- -----------
$ 12,014.8 $ 400.3 $ (51.4) $ 12,363.7
============ ========= ========= ===========
</TABLE>
The amortized cost and estimated fair value of fixed maturity
securities available-for-sale as of December 31, 1997, 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
(in millions of dollars) cost fair value
-------------- ----------
<S> <C> <C>
Fixed maturity securities available for sale:
Due in one year or less $ 419.2 $ 422.1
Due after one year through five years 4,573.5 4,708.4
Due after five years through ten years 2,772.6 2,879.7
Due after ten years 1,333.4 1,443.6
----------- -----------
9,098.7 9,453.8
Mortgage-backed securities 3,634.2 3,750.3
----------- -----------
$ 12,732.9 $ 13,204.1
=========== ===========
</TABLE>
<PAGE> 11
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
The components of unrealized gains on securities available-for-sale,
net, were as follows as of December 31:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996
----------- ----------
<S> <C> <C>
Gross unrealized gains $ 483.8 $349.0
Adjustment to deferred policy acquisition costs (103.7) (81.9)
Deferred federal income tax (133.0) (93.5)
-------- -------
$ 247.1 $173.6
======== =======
</TABLE>
An analysis of the change in gross unrealized gains (losses) on
securities available-for-sale and fixed maturity securities
held-to-maturity follows for the years ended December 31:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996 1995
----------- ------------- -----------
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturity securities $137.5 $(289.2) $876.3
Equity securities (2.7) 8.9 -
Fixed maturity securities held-to-maturity - - 75.6
------- ------- -------
$134.8 $(280.3) $ 951.9
======= ======= =======
</TABLE>
Proceeds from the sale of securities available-for-sale during 1997,
1996 and 1995 were $574.5 million, $299.6 million and $107.3 million,
respectively. During 1997, gross gains of $9.9 million ($6.6 million
and $4.8 million in 1996 and 1995, respectively) and gross losses of
$18.0 million ($6.9 million and $2.1 million in 1996 and 1995,
respectively) were realized on those sales. In addition, gross gains of
$15.1 million and gross losses of $0.7 million were realized in 1997
when the Company paid a dividend to NFS, which then made an equivalent
dividend to Nationwide Corp., consisting of securities having an
aggregate fair value of $850.0 million.
During 1995, the Company transferred fixed maturity securities
classified as held-to-maturity with amortized cost of $25.4 million 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 $3.5
million.
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 nearly 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 $3.32 billion,
resulting in a gross unrealized gain of $155.9 million.
The recorded investment of mortgage loans on real estate considered to
be impaired as of December 31, 1997 was $19.9 million ($51.8 million as
of December 31, 1996), which includes $3.9 million ($41.7 million as of
December 31, 1996) of impaired mortgage loans on real estate for which
the related valuation allowance was $0.1 million ($8.5 million as of
December 31, 1996) and $16.0 million ($10.1 million as of December 31,
1996) of impaired mortgage loans on real estate for which there was no
valuation allowance. During 1997, the average recorded investment in
impaired mortgage loans on real estate was approximately $31.8 million
($39.7 million in 1996) and interest income recognized on those loans
was $1.0 million ($2.1 million in 1996), which is equal to interest
income recognized using a cash-basis method of income recognition.
<PAGE> 12
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Activity in the valuation allowance account for mortgage loans on real
estate is summarized for the years ended December 31:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996
------------- -------------
<S> <C> <C>
Allowance, beginning of year $51.0 $49.1
(Reductions) additions charged to operations (1.2) 4.5
Direct write-downs charged against the allowance (7.3) (2.6)
------ ------
Allowance, end of year $42.5 $51.0
====== ======
</TABLE>
Real estate is presented at cost less accumulated depreciation of $45.1
million as of December 31, 1997 ($30.3 million as of December 31, 1996)
and valuation allowances of $11.1 million as of December 31, 1997
($15.2 million as of December 31, 1996).
Investments that were non-income producing for the twelve month period
preceding December 31, 1997 amounted to $19.4 million ($26.8 million
for 1996) and consisted of $3.0 million ($0.2 million in 1996) in
securities available-for-sale, $16.4 million ($20.6 million in 1996) in
real estate and none ($5.9 million in 1996) in other long-term
investments.
An analysis of investment income by investment type follows for the
years ended December 31:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996 1995
----------- --------- ---------
<S> <C> <C> <C>
Gross investment income:
Securities available-for-sale:
Fixed maturity securities $ 911.6 $ 917.1 $ 685.8
Equity securities 0.8 1.3 1.3
Fixed maturity securities held-to-maturity - - 201.8
Mortgage loans on real estate 457.7 432.8 395.5
Real estate 42.9 44.3 38.3
Short-term investments 22.7 4.2 10.6
Other 21.0 4.0 7.2
-------- -------- --------
Total investment income 1,456.7 1,403.7 1,340.5
Less investment expenses 47.5 45.9 46.5
-------- -------- --------
Net investment income $1,409.2 $1,357.8 $1,294.0
======== ======== ========
</TABLE>
An analysis of realized gains (losses) on investments, net of valuation
allowances, by investment type follows for the years ended December 31:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturity securities $ 3.6 $(3.5) $ 4.2
Equity securities 2.7 3.2 3.4
Mortgage loans on real estate 1.6 (4.1) (7.1)
Real estate and other 3.2 4.1 (2.2)
------ ------ ------
$11.1 $(0.3) $(1.7)
====== ====== ======
</TABLE>
Fixed maturity securities with an amortized cost of $6.2 million as
of December 31, 1997 and 1996 were on deposit with various
regulatory agencies as required by law.
<PAGE> 13
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(4) FUTURE POLICY BENEFITS AND CLAIMS
The liability for future policy benefits for investment contracts
represents approximately 86% and 87% of the total liability for future
policy benefits as of December 31, 1997 and 1996, respectively. The
average interest rate credited on investment product policies was
approximately 6.1%, 6.3% and 6.6% for the years ended December 31,
1997, 1996 and 1995, 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 by issue year and were 6.9%
and 6.6% in 1997 and 1996, respectively. Interest rates have
generally ranged from 6.0% to 10.5% for previous issue years.
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
$220.2 million and $240.5 million as of December 31, 1997 and 1996,
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 11. All other reinsurance agreements are not material
to either premiums or reinsurance recoverables.
(5) FEDERAL INCOME TAX
The Company's current federal income tax liability was $60.1 million
and $30.2 million as of December 31, 1997 and 1996, respectively.
<PAGE> 14
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
The tax effects of temporary differences that give rise to significant
components of the net deferred tax liability as of December 31, 1997
and 1996 are as follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996
---------- ----------
<S> <C> <C>
Deferred tax assets:
Future policy benefits $200.1 $183.0
Liabilities in Separate Accounts 242.0 188.4
Mortgage loans on real estate and real estate 19.0 23.4
Other assets and other liabilities 59.2 53.7
------- ------
Total gross deferred tax assets 520.3 448.5
Less valuation allowance (7.0) (7.0)
------- ------
Net deferred tax assets 513.3 441.5
------- ------
Deferred tax liabilities:
Deferred policy acquisition costs 480.5 399.3
Fixed maturity securities 193.3 133.2
Deferred tax on realized investment gains 40.1 37.6
Equity securities and other long-term investments 7.5 8.2
Other 22.2 25.4
------- ------
Total gross deferred tax liabilities 743.6 603.7
------- ------
Net deferred tax liability $230.3 $162.2
======= ======
</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, 1997, 1996 and 1995.
Federal income tax expense attributable to income from continuing
operations for the years ended December 31 was as follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Currently payable $121.7 $116.5 $88.7
Deferred tax expense (benefit) 28.5 (5.6) 11.1
------ ------ ------
$150.2 $110.9 $99.8
====== ====== ======
</TABLE>
Total federal income tax expense for the years ended December 31, 1997,
1996 and 1995 differs from the amount computed by applying the U.S.
federal income tax rate to income before tax as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------- ---------------------- ----------------------
(in millions of dollars) Amount % Amount % Amount %
---------------------- ------------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Computed (expected) tax expense $150.5 35.0 $110.4 35.0 $100.6 35.0
Tax exempt interest and dividends
received deduction - 0.0 (0.2) (0.1) - 0.0
Other, net (0.3) (0.1) 0.7 0.3 (0.8) (0.3)
------ ---- ------ ---- ------ ----
Total (effective rate of each year) $150.2 34.9 $110.9 35.2 $ 99.8 34.7
====== ==== ====== ==== ====== ====
</TABLE>
Total federal income tax paid was $91.8 million, $115.8 million and
$51.8 million during the years ended December 31, 1997, 1996 and 1995,
respectively.
<PAGE> 15
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(6) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures summarize the carrying amount and estimated
fair value of the Company's financial instruments. Certain assets and
liabilities are specifically excluded from the disclosure requirements
of financial instruments. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Company.
The fair value of a financial instrument is defined as the amount at
which the financial instrument could be exchanged in a current
transaction between willing parties. In cases where quoted market
prices are not available, fair value is to be based on estimates using
present value or other valuation techniques. Many of the Company's
assets and liabilities subject to the disclosure requirements are not
actively traded, requiring fair values to be estimated by management
using present value or other valuation techniques. These techniques are
significantly affected by the assumptions used, including the discount
rate and estimates of future cash flows. Although fair value estimates
are calculated using assumptions that management believes are
appropriate, changes in assumptions could cause these estimates to vary
materially. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases,
could not be realized in the immediate settlement of the instruments.
Although insurance contracts, other than policies such as annuities
that are classified as investment contracts, are specifically exempted
from the disclosure requirements, estimated fair value of policy
reserves on life insurance contracts is provided to make the fair value
disclosures more meaningful.
The tax ramifications of the related unrealized gains and losses can
have a significant effect on fair value estimates and have not been
considered in the estimates.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures:
FIXED MATURITY AND EQUITY SECURITIES: The fair value for fixed
maturity securities is based on quoted market prices, where
available. For fixed maturity securities not actively traded, fair
value is estimated using values obtained from independent pricing
services or, in the case of private placements, is estimated by
discounting expected future cash flows using a current market rate
applicable to the yield, credit quality and maturity of the
investments. The fair value for equity securities is based on
quoted market prices.
MORTGAGE LOANS ON REAL ESTATE, NET: The fair value for mortgage
loans on real estate is estimated using discounted cash flow
analyses, using interest rates currently being offered for similar
loans to borrowers with similar credit ratings. Loans with similar
characteristics are aggregated for purposes of the calculations.
Fair value for mortgage loans in default is the estimated fair
value of the underlying collateral.
POLICY LOANS, SHORT-TERM INVESTMENTS AND CASH: The carrying amount
reported in the consolidated balance sheets for these instruments
approximates their fair value.
SEPARATE ACCOUNT ASSETS AND LIABILITIES: The fair value of assets
held in Separate Accounts is based on quoted market prices. The
fair value of liabilities related to Separate Accounts is the
amount payable on demand, which includes certain surrender
charges.
INVESTMENT CONTRACTS: The fair value for the Company's liabilities
under investment type contracts is disclosed using two methods.
For investment contracts without defined maturities, fair value is
the amount payable on demand. For investment contracts with known
or determined maturities, fair value is estimated using discounted
cash flow analysis. Interest rates used are similar to currently
offered contracts with maturities consistent with those remaining
for the contracts being valued.
<PAGE> 16
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
POLICY RESERVES ON LIFE INSURANCE CONTRACTS: Included are
disclosures for individual life insurance, universal life
insurance and supplementary contracts with life contingencies for
which the estimated fair value is the amount payable on demand.
Also included are disclosures for the Company's limited payment
policies, which the Company has used discounted cash flow analyses
similar to those used for investment contracts with known
maturities to estimate fair value.
COMMITMENTS TO EXTEND CREDIT: Commitments to extend credit have
nominal fair value because of the short-term nature of such
commitments. See note 13.
Carrying amount and estimated fair value of financial instruments
subject to disclosure requirements and policy reserves on life
insurance contracts were as follows as of December 31:
<TABLE>
<CAPTION>
1997 1996
------------------------------ -------------------------------
Carrying Estimated Carrying Estimated
(in millions of dollars) amount fair value amount fair value
------------------------------ --------------- ---------------
<S> <C> <C> <C> <C>
Assets:
Investments:
Securities available-for-sale:
Fixed maturity securities $13,204.1 $13,204.1 $12,304.6 $12,304.6
Equity securities 80.4 80.4 59.1 59.1
Mortgage loans on real estate, net 5,181.6 5,509.7 5,272.1 5,397.9
Policy loans 415.3 415.3 371.8 371.8
Short-term investments 358.4 358.4 4.8 4.8
Cash 175.6 175.6 43.8 43.8
Assets held in Separate Accounts 37,724.4 37,724.4 26,926.7 26,926.7
Liabilities:
Investment contracts 14,708.2 14,322.1 13,914.4 13,484.5
Policy reserves on life insurance contracts 3,345.4 3,182.4 3,392.8 3,197.5
Liabilities related to Separate Accounts 37,724.4 36,747.0 26,926.7 26,164.2
</TABLE>
(7) RISK DISCLOSURES
The following is a description of the most significant risks facing
life insurers and how the Company mitigates those risks:
LEGAL/REGULATORY RISK: The risk that changes in the legal or regulatory
environment in which an insurer operates will result in increased
competition, reduce demand for a company's products, or create
additional expenses not anticipated by the insurer in pricing its
products. The Company mitigates this risk by offering a wide range of
products and by operating throughout the United States, thus reducing
its exposure to any single product or jurisdiction, and also by
employing underwriting practices which identify and minimize the
adverse impact of this risk.
CREDIT RISK: The risk that issuers of securities owned by the Company
or mortgagors on mortgage loans on real estate owned by the Company
will default or that other parties, including reinsurers, which owe the
Company money, will not pay. The Company minimizes this risk by
adhering to a conservative investment strategy, by maintaining
reinsurance and credit and collection policies and by providing for any
amounts deemed uncollectible.
<PAGE> 17
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
INTEREST RATE RISK: The risk that interest rates will change and cause
a decrease in the value of an insurer's investments. This change in
rates may cause certain interest-sensitive products to become
uncompetitive or may cause disintermediation. The Company mitigates
this risk by charging fees for non-conformance with certain policy
provisions, by offering products that transfer this risk to the
purchaser, and/or by attempting to match the maturity schedule of its
assets with the expected payouts of its liabilities. To the extent that
liabilities come due more quickly than assets mature, an insurer would
have to borrow funds or sell assets prior to maturity and potentially
recognize a gain or loss.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK: The Company is a
party to financial instruments with off-balance-sheet risk in the
normal course of business through management of its investment
portfolio. These financial instruments include commitments to extend
credit in the form of loans. These instruments involve, to varying
degrees, elements of credit risk in excess of amounts recognized on the
consolidated balance sheets.
Commitments to fund fixed rate mortgage loans on real estate are
agreements to lend to a borrower, and are subject to conditions
established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment
of a deposit. Commitments extended by the Company are based on
management's case-by-case credit evaluation of the borrower and the
borrower's loan collateral. The underlying mortgage property represents
the collateral if the commitment is funded. The Company's policy for
new mortgage loans on real estate is to lend no more than 75% of
collateral value. Should the commitment be funded, the Company's
exposure to credit loss in the event of nonperformance by the borrower
is represented by the contractual amounts of these commitments less the
net realizable value of the collateral. The contractual amounts also
represent the cash requirements for all unfunded commitments.
Commitments on mortgage loans on real estate of $341.4 million
extending into 1998 were outstanding as of December 31, 1997. The
Company also had $63.9 million of commitments to purchase fixed
maturity securities outstanding as of December 31, 1997.
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 20% (21% in 1996) in any geographic area and no more than 2% (2%
in 1996) with any one borrower as of December 31, 1997. As of December
31, 1997, 46% (44% in 1996) of the remaining principal balance of the
Company's commercial mortgage loan portfolio financed retail
properties.
The Company had a significant reinsurance recoverable balance from one
reinsurer as of December 31, 1997 and 1996. See note 4.
(8) 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 year of service. 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.
<PAGE> 18
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
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 (the 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, 1997, 1996 and 1995 were $7.5 million, $7.4
million and $10.5 million, respectively.
The Company had no net accrued pension expense as of December 31, 1997
($1.1 million as of December 31, 1996).
The net periodic pension cost for the Retirement Plan as a whole for
the years ended December 31, 1997 and 1996 and for the Nationwide
Insurance Companies and Affiliates Retirement Plan as a whole for the
year ended December 31, 1995 follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Service cost (benefits earned during the period) $ 77.3 $ 75.5 $ 64.5
Interest cost on projected benefit obligation 118.6 105.5 95.3
Actual return on plan assets (328.0) (210.6) (249.3)
Net amortization and deferral 196.4 101.8 143.4
-------- -------- --------
$ 64.3 $ 72.2 $ 53.9
======== ======== ========
</TABLE>
Basis for measurements, net periodic pension cost:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Weighted average discount rate 6.50% 6.00% 7.50%
Rate of increase in future compensation levels 4.75% 4.25% 6.25%
Expected long-term rate of return on plan assets 7.25% 6.75% 8.75%
</TABLE>
Information regarding the funded status of the Retirement Plan as a
whole as of December 31, 1997 and 1996 follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996
----------- -----------
<S> <C> <C>
Accumulated benefit obligation:
Vested $1,547.5 $1,338.6
Nonvested 13.5 11.1
-------- ---------
$1,561.0 $1,349.7
======== =========
Net accrued pension expense:
Projected benefit obligation for services rendered to date $2,033.8 $1,847.8
Plan assets at fair value 2,212.9 1,947.9
--------- ---------
Plan assets in excess of projected benefit obligation 179.1 100.1
Unrecognized prior service cost 34.7 37.9
Unrecognized net gains (330.7) (202.0)
Unrecognized net asset at transition 33.3 37.2
--------- ---------
$ (83.6) $ (26.8)
========= =========
</TABLE>
<PAGE> 19
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Basis for measurements, funded status of plan:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Weighted average discount rate 6.00% 6.50%
Rate of increase in future compensation levels 4.25% 4.75%
</TABLE>
Assets of the Retirement Plan are invested in group annuity contracts
of NLIC and Employers Life Insurance Company of Wausau (ELICW).
(9) 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 (APBO), however, certain affiliated
companies elected to amortize their initial transition obligation over
periods ranging from 10 to 20 years.
The Company's accrued postretirement benefit expense as of December 31,
1997 and 1996 was $36.5 million and $34.9 million, respectively, and
the net periodic postretirement benefit cost (NPPBC) for 1997, 1996 and
1995 was $3.0 million, $3.3 million and $3.1 million, respectively.
Information regarding the funded status of the plan as a whole as of
December 31, 1997 and 1996 follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996
----------- -----------
<S> <C> <C>
Accrued postretirement benefit expense:
Retirees $ 93.3 $ 93.0
Fully eligible, active plan participants 31.6 23.7
Other active plan participants 113.0 84.0
-------- --------
Accumulated postretirement benefit obligation 237.9 200.7
Plan assets at fair value 69.2 63.0
-------- --------
Plan assets less than accumulated postretirement benefit obligation (168.7) (137.7)
Unrecognized transition obligation of affiliates 1.5 1.7
Unrecognized net losses (gains) 1.6 (23.2)
-------- --------
$(165.6) $(159.2)
======== ========
</TABLE>
<PAGE> 20
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
The amount of NPPBC for the plan as a whole for the years ended
December 31, 1997, 1996 and 1995 was as follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996 1995
----------- ------------ ------------
<S> <C> <C> <C>
Service cost (benefits attributed to employee
service during the year) $ 7.0 $ 6.5 $ 6.2
Interest cost on accumulated postretirement
benefit obligation 14.0 13.7 14.2
Actual return on plan assets (3.6) (4.3) (2.7)
Amortization of unrecognized transition
obligation of affiliates 0.2 0.2 3.0
Net amortization and deferral (0.5) 1.8 (1.6)
------- ------ ------
$17.1 $17.9 $19.1
======= ====== ======
</TABLE>
Actuarial assumptions used for the measurement of the APBO and the
NPPBC for 1997, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
APBO:
Discount rate 6.70% 7.25% 6.75%
Assumed health care cost trend rate:
Initial rate 12.13% 11.00% 11.00%
Ultimate rate 6.12% 6.00% 6.00%
Uniform declining period 12 Years 12 Years 12 Years
NPPBC:
Discount rate 7.25% 6.65% 8.00%
Long term rate of return on plan
assets, net of tax 5.89% 4.80% 8.00%
Assumed health care cost trend rate:
Initial rate 11.00% 11.00% 10.00%
Ultimate rate 6.00% 6.00% 6.00%
Uniform declining period 12 Years 12 Years 12 Years
</TABLE>
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,
1997 by $0.4 million and have no impact on the NPPBC for the year ended
December 31, 1997.
(10) SHAREHOLDER'S EQUITY, REGULATORY RISK-BASED CAPITAL, RETAINED EARNINGS
AND DIVIDEND RESTRICTIONS
Ohio, NLIC's and NLAIC's state of domicile, imposes minimum risk-based
capital requirements that were developed by the NAIC. The formulas for
determining the amount of risk-based capital specify various weighting
factors that are applied to financial balances or various levels of
activity based on the perceived degree of risk. Regulatory compliance
is determined by a ratio of the company's regulatory total adjusted
capital, as defined by the NAIC, to its authorized control level
risk-based capital, as defined by the NAIC. Companies below specific
trigger points or ratios are classified within certain levels, each of
which requires specified corrective action. NLIC and NLAIC each exceed
the minimum risk-based capital requirements.
<PAGE> 21
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
The statutory capital and surplus of NLIC as of December 31, 1997, 1996
and 1995 was $1.13 billion, $1.00 billion and $1.36 billion,
respectively. The statutory net income of NLIC for the years ended
December 31, 1997, 1996 and 1995 was $111.7 million, $73.2 million and
$86.5 million, respectively.
As a result of the $850.0 million dividend paid on February 24, 1997,
any dividend paid by NLIC during the twelve-month period immediately
following the $850.0 million dividend would be an extraordinary
dividend under Ohio insurance laws. Accordingly, no such dividend could
be paid without prior regulatory approval. The Company has no reason to
believe that any reasonably foreseeable dividend to be paid by NLIC
would not receive the required 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 shareholder.
The Company currently does not expect such regulatory requirements to
impair its ability to pay operating expenses and shareholder dividends
in the future.
(11) TRANSACTIONS WITH AFFILIATES
As part of the restructuring described in note 1, NLIC paid a dividend
valued at $485.7 million to Nationwide Corp. on January 1, 1997
consisting of the outstanding shares of common stock of ELICW, National
Casualty Company (NCC) and West Coast Life Insurance Company (WCLIC).
Also, on February 24, 1997, NLIC paid a dividend to NFS, and NFS paid
an equivalent dividend to Nationwide Corp., consisting of securities
having an aggregate fair value of $850.0 million. The Company
recognized a gain of $14.4 million on the transfer of securities.
The Company leases office space from NMIC and certain of its
subsidiaries. For the years ended December 31, 1997, 1996 and 1995, the
Company made lease payments to NMIC and its subsidiaries of $8.4
million, $9.1 million and $9.0 million, respectively.
Pursuant to a cost sharing agreement among NMIC and certain of its
direct and indirect subsidiaries, including the Company, NMIC provides
certain operational and administrative services, such as sales support,
advertising, personnel and general management services, to those
subsidiaries. Expenses covered by this agreement are subject to
allocation among NMIC, the Company and other affiliates. Amounts
allocated to the Company were $85.8 million, $101.6 million and $107.1
million in 1997, 1996 and 1995, respectively. The allocations are based
on techniques and procedures in accordance with insurance regulatory
guidelines. Measures used to allocate expenses among companies include
individual employee estimates of time spent, special cost studies,
salary expense, commissions expense and other methods agreed to by the
participating companies that are within industry guidelines and
practices. The Company believes these allocation methods are
reasonable. In addition, the Company does not believe that expenses
recognized under the inter-company agreements are materially different
than expenses that would have been recognized had the Company operated
on a stand alone basis. Amounts payable to NMIC from the Company under
the cost sharing agreement were $20.5 million and $15.1 million as of
December 31, 1997 and 1996, 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 1997 and
1996 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> 22
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Intercompany reinsurance agreements exist between NLIC and,
respectively, NMIC and ELICW whereby all of NLIC's accident and health
and group life insurance business is ceded on a modified coinsurance
basis. NLIC entered into the reinsurance agreements during 1996 because
the accident and health and group life insurance business was unrelated
to the Company's long-term savings and retirement products.
Accordingly, the accident and health and group life insurance business
has been accounted for as discontinued operations for all periods
presented. Under modified coinsurance agreements, invested assets are
retained by the ceding company and investment earnings are paid to the
reinsurer. Under the terms of the Company's agreements, the investment
risk associated with changes in interest rates is borne by ELICW or
NMIC, as the case may be. Risk of asset default is retained by the
Company, although a fee is paid by ELICW or NMIC, as the case may be,
to the Company for the Company's retention of such risk. The agreements
will remain in force until all policy obligations are settled. However,
with respect to the agreement between NLIC and NMIC, either party may
terminate the contract on January 1 of any year with prior notice. The
ceding of risk does not discharge the original insurer from its primary
obligation to the policyholder. The Company believes that the terms of
the modified coinsurance agreements are consistent in all material
respects with what the Company could have obtained with unaffiliated
parties. Amounts ceded to NMIC and ELICW for the years ended December
31, 1997 and 1996 were:
<TABLE>
<CAPTION>
1997 1996
---------------------------- ----------------------------
(in millions of dollars) NMIC ELICW NMIC ELICW
-------------- ------------- ----------------------------
<S> <C> <C> <C> <C>
Premiums $ 91.4 $199.8 $ 97.3 $224.2
Net investment income and other revenue $ 10.7 $ 13.4 $ 10.9 $ 14.8
Benefits, claims and other expenses $100.7 $225.9 $100.5 $246.6
</TABLE>
The Company and various affiliates entered into agreements with
Nationwide Cash Management Company (NCMC), an affiliate, under which
NCMC acts as a common agent in handling the purchase and sale of
short-term securities for the respective accounts of the participants.
Amounts on deposit with NCMC were $211.0 million and $4.8 million as of
December 31, 1997 and 1996, respectively, and are included in
short-term investments on the accompanying consolidated balance sheets.
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 $46.9 million. As discussed in note 15, WCLIC
is accounted for as discontinued operations.
Certain annuity products are sold through three affiliated companies,
which are also subsidiaries of NFS. Total commissions and fees paid to
these affiliates for the three years ended December 31, 1997 were $66.1
million, $76.9 million and $57.3 million, respectively.
(12) BANK LINES OF CREDIT
In August 1996, NLIC, along with NMIC, entered into a $600.0 million
revolving credit facility which provides for a $600.0 million loan over
a five year term on a fully revolving basis with a group of national
financial institutions. The credit facility provides for several and
not joint liability with respect to any amount drawn by either NLIC or
NMIC. NLIC and NMIC pay facility and usage fees to the financial
institutions to maintain the revolving credit facility. All previously
existing line of credit agreements were canceled. In September 1997,
the credit agreement was amended to include NFS as a party to and
borrower under the agreement.
<PAGE> 23
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(13) 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.
(14) SEGMENT INFORMATION
The Company has three product segments: Variable Annuities, Fixed
Annuities and Life Insurance. The Variable Annuities segment consists
of annuity contracts that provide the customer with the opportunity to
invest in mutual funds managed by 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 Fixed Annuities segment also includes the
fixed option under the Company's variable annuity contracts. 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 and
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.
The following table summarizes revenues and income from continuing
operations before federal income tax expense for the years ended
December 31, 1997, 1996 and 1995 and assets as of December 31, 1997,
1996 and 1995, by segment.
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996 1995
------------- ------------ ------------
<S> <C> <C> <C>
Revenues:
Variable Annuities $ 404.0 $ 284.6 $ 189.1
Fixed Annuities 1,141.4 1,092.6 1,052.0
Life Insurance 473.1 435.6 409.1
Corporate and Other 198.9 180.1 148.5
----------- ---------- ----------
$ 2,217.4 $ 1,992.9 $ 1,798.7
=========== ========== ==========
Income from continuing operations before federal income tax
expense:
Variable Annuities $ 150.9 $ 90.3 $ 50.8
Fixed Annuities 169.5 135.4 137.0
Life Insurance 70.9 67.2 67.6
Corporate and Other 38.6 22.6 32.2
----------- ---------- ----------
$ 429.9 $ 315.5 $ 287.6
=========== ========== ==========
Assets:
Variable Annuities $ 35,278.7 $ 25,069.7 $ 17,333.0
Fixed Annuities 14,436.3 13,994.7 13,250.4
Life Insurance 3,901.4 3,353.3 3,027.4
Corporate and Other 6,174.3 5,348.6 4,896.8
----------- ---------- ----------
$ 59,790.7 $ 47,766.3 $ 38,507.6
=========== ========== ==========
</TABLE>
<PAGE> 24
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(15) DISCONTINUED OPERATIONS
As discussed in note 1, NFS is a holding company for NLIC and certain
other companies within the Nationwide Insurance Enterprise that offer
or distribute long-term savings and retirement products. Prior to the
contribution by Nationwide Corp. of the outstanding common stock of
NLIC to NFS, NLIC effected certain transactions with respect to certain
subsidiaries and lines of business that were unrelated to long-term
savings and retirement products.
On September 24, 1996, NLIC's Board of Directors declared a dividend
payable to Nationwide Corp. on January 1, 1997 consisting of the
outstanding shares of common stock of three subsidiaries: ELICW, NCC
and WCLIC. ELICW writes group accident and health and group life
insurance business and maintains it offices in Wausau, Wisconsin. NCC
is a property and casualty company with offices in Scottsdale, Arizona
that serves as a fronting company for a property and casualty
subsidiary of NMIC. WCLIC writes high dollar term life insurance
policies and is located in San Francisco, California. ELICW, NCC and
WCLIC have been accounted for as discontinued operations in the
accompanying consolidated financial statements through December 31,
1996. The Company did not recognize any gain or loss on the disposal of
these subsidiaries.
Also, during 1996, NLIC entered into two reinsurance agreements whereby
all of NLIC's accident and health and group life insurance business was
ceded to ELICW and NMIC, effective January 1, 1996. See note 11 for a
complete discussion of the reinsurance agreements. The Company has
discontinued its accident and health and group life insurance business
and in connection therewith has entered into reinsurance agreements to
cede all existing and any future writings to other affiliated
companies. NLIC's accident and health and group life insurance business
is accounted for as discontinued operations for all periods presented.
The Company did not recognize any gain or loss on the disposal of the
accident and health and group life insurance business. The assets,
liabilities, results of operations and activities of discontinued
operations are distinguished physically, operationally and for
financial reporting purposes from the remaining assets, liabilities,
results of operations and activities of the Company.
A summary of the results of operations of discontinued operations for
the years ended December 31, 1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996 1995
-------------- ------------- ------------
<S> <C> <C> <C>
Revenues $ - $ 668.9 $ 776.9
Net income $ - $ 11.3 $ 24.7
</TABLE>
A summary of the assets and liabilities of discontinued operations as
of December 31, 1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996 1995
-------------- ------------- -------------
<S> <C> <C> <C>
Assets, consisting primarily of investments $247.3 $3,288.5 $3,206.7
Liabilities, consisting primarily of policy benefits and claims $247.3 $2,802.8 $2,700.0
</TABLE>
<PAGE> 53
PART C. OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
<TABLE>
(a) Financial Statements:
(1) Financial statements included PAGE
in Prospectus
(Part A):
<S> <C>
Condensed Financial Information. 13
(2) Financial statements included
in Part B:
Those financial statements 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, 1997.
Statements of Operations and Changes in 55
Contract Owners' Equity for the years ended
December 31, 1997 and 1996.
Notes to Financial Statements. 56
Nationwide Life Insurance Company:
Independent Auditors' Report. 65
Consolidated Balance Sheets as of December 66
31, 1997 and 1996.
Consolidated Statements of Income for the 67
years ended December 31, 1997, 1996 and
1995.
Consolidated Statements of Shareholder's 68
Equity for the years ended December 31,
1997, 1996 and 1995.
Consolidated Statements of Cash Flows for 69
the years ended December 31, 1997, 1996
and 1995.
Notes to Consolidated Financial Statements. 70
Schedule I - Consolidated Summary of Investments - 107
Other Than Investments in Related Parties.
Schedule III - Supplementary Insurance 108
Information.
Schedule IV - Reinsurance. 109
Schedule V - Valuation and Qualifying Accounts. 110
</TABLE>
Page 87 of 107
<PAGE> 54
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
Page 88 of 107
<PAGE> 55
Item 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS WITH DEPOSITOR
<S> <C>
Lewis J. Alphin Director
519 Bethel Church Road
Mount Olive, NC 28365
A. I. Bell Director
4121 North River Road West
Zanesville, OH 43701
Keith W. Eckel Director
1647 Falls Road
Clarks Summit, PA 18411
Willard J. Engel Director
300 East Marshall Street
Marshall, MN 56258
Fred C. Finney Director
1558 West Moreland Road
Wooster, OH 44691
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
Dimon R. McFerson Chairman and Chief Executive Officer-
One Nationwide Plaza Nationwide Insurance Enterprise
Columbus, OH 43215 and Director
David O. Miller Chairman of the Board and Director
115 Sprague Drive
Hebron, OH 43025
Yvonne L. Montgomery Director
2859 Paces Ferry Road
Atlanta, GA 30339
C. Ray Noecker Director
2770 Winchester Southern S.
Ashville, OH 43103
James F. Patterson Director
8765 Mulberry Road
Chesterland, OH 44026
</TABLE>
Page 89 of 107
<PAGE> 56
<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
Robert A. Oakley Executive Vice President-
One Nationwide Plaza Chief Financial Officer
Columbus, OH 43215
Robert J. Woodward Jr. Executive Vice President
One Nationwide Plaza Chief Investment Officer
Columbus, OH 43215
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
Susan A. Wolken Senior Vice President - Life
One Nationwide Plaza Company Operations
Columbus, OH 43215
Michael D. Bleiweiss Vice President-
One Nationwide Plaza Individual Annuity Operations
Columbus, OH 43215
Dennis W. Click Vice President and Secretary
One Nationwide Plaza
Columbus, OH 43215
</TABLE>
Page 90 of 107
<PAGE> 57
<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
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
One Nationwide Plaza Vice President
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
Page 91 of 107
<PAGE> 58
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
STATE (SEE ATTACHED
OF ORGANIZATION CHART) UNLESS
COMPANY OTHERWISE PRINCIPAL BUSINESS
INDICATED
<S> <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 Inactive
Colonial County Mutual Insurance Texas Insurance Company
Company
Colonial Insurance Company of Wisconsin Insurance Company
Wisconsin
Columbus Insurance Brokerage and Germany Insurance Broker
Service GMBH
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 Georgia, Inc. Georgia Insurance Broker
Companies Agency of Idaho, Inc. Idaho Insurance Broker
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 Local Recording Agent (P&C)
Companies Annuity Agency of Texas, Texas Group and Variable Contract Agent
Inc.
Cooperative Service Company Nebraska Insurance Agency
Countrywide Services Corporation Delaware Products Liability, Investigative and Claims
Management Services
EMPLOYERS INSURANCE OF WAUSAU A Wisconsin Mutual Insurance Company
Mutual Company
</TABLE>
Page 92 of 107
<PAGE> 59
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
STATE (SEE ATTACHED
OF ORGANIZATION CHART) UNLESS
COMPANY OTHERWISE PRINCIPAL BUSINESS
INDICATED
<S> <C> <C>
** Employers Life Insurance Company of Wisconsin Life Insurance Company
Wausau
F & B, Inc. Iowa Insurance Agency
Farmland Mutual Insurance Company Iowa Mutual 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 New York Workers Compensation Claims Administration
York, Inc.
Gates McDonald Health Plus, Inc. Ohio Managed Care Organization
Greater La Crosse Health Plans, Inc. Wisconsin Commercial Health and Medicare Supplement
Insurance
Insurance Intermediaries, Inc. Ohio Insurance Broker and Insurance Agency
Irvin L. Schwartz and Associates, Inc. Ohio Insurance Agency
Key Health Plan, Inc. California Pre-paid Health Plans
Landmark Financial Services of New New York Life Insurance Agency
York, Inc.
Leben Direkt Insurance Company Germany Life Insurance Company
Lone Star General Agency, Inc. Texas Insurance Agency
** MRM Investments, Inc. Ohio Owns and Operates a Recreational Ski Facility
** National Casualty Company Wisconsin Insurance Company
National Casualty Company of America, Great Britain Insurance Company
Ltd.
** National Premium and Benefit Delaware Insurance Administrative Services
Administration Company
** Nationwide Advisory Services, Inc. Ohio Registered Broker-Dealer, Investment Manager
and Administrator
</TABLE>
Page 93 of 107
<PAGE> 60
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
STATE (SEE ATTACHED
OF ORGANIZATION CHART) UNLESS
COMPANY OTHERWISE PRINCIPAL BUSINESS
INDICATED
<S> <C> <C>
Nationwide Agency, Inc. Ohio Insurance Agency
Nationwide Agribusiness Insurance Iowa Insurance Company
Company
Nationwide Asset Allocation Trust Massachusetts Investment Company
Nationwide Cash Management Company Ohio Investment Securities Agent
Nationwide Community Urban Ohio 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/Dispatch LLC Ohio Engaged in related Arena development Activity
Nationwide Financial Institution Delaware Insurance Agency
Distributors Agency, Inc.
Nationwide Financial Services Capital Delaware Statutory Business Trust
Trust
Nationwide Financial Services, Inc. Delaware 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 General Insurance Company Ohio Insurance Company
Nationwide Global Holdings, Inc. Ohio Holding Company for Enterprise International
Operations
Nationwide Health Plans, Inc. Ohio Health Maintenance Organization
* Nationwide Indemnity Company Ohio Reinsurance Company
Nationwide Insurance Enterprise Ohio Membership Non-Profit Corporation
Foundation
Nationwide Insurance Enterprise Ohio Performs shares services functions for the
Services, Ltd. Enterprise
Nationwide Insurance Golf Charities, Ohio Membership Non-Profit Corporation
Inc.
Nationwide Investing Foundation Michigan Investment Company
* Nationwide Investing Massachusetts Investment Company
Foundation II
Nationwide Investing Foundation III Ohio Investment Company
</TABLE>
Page 94 of 107
<PAGE> 61
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
STATE (SEE ATTACHED
OF ORGANIZATION CHART) UNLESS
COMPANY OTHERWISE PRINCIPAL BUSINESS
INDICATED
<S> <C> <C>
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 Offers Preferred Provider Organization and
Other Related Products and Services
Nationwide Mutual Fire Insurance Ohio Mutual Insurance Company
Company
Nationwide Mutual Insurance Company Ohio Mutual Insurance Company
Nationwide Properties, Ltd. Ohio Develops, owns and operates real estate and
real estate investments
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
</TABLE>
Page 95 of 107
<PAGE> 62
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
STATE (SEE ATTACHED
OF ORGANIZATION CHART) UNLESS
COMPANY OTHERWISE PRINCIPAL BUSINESS
INDICATED
<S> <C> <C>
NWE, Inc. Ohio Special Investments
PEBSCO of Massachusetts Insurance Massachusetts Markets and Administers Deferred Compensation
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
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 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
TIG Countrywide Insurance Group California Independent Agency Personal Lines Underwriter
Wausau (Bermuda) Ltd. Bermuda Rent-a-captive Reinsurer
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
</TABLE>
Page 96 of 107
<PAGE> 63
<TABLE>
<CAPTION>
NO. VOTING SECURITIES
STATE (SEE ATTACHED CHART) UNLESS
OF ORGANIZATION OTHERWISE INDICATED
COMPANY PRINCIPAL BUSINESS
<S> <C> <C> <C>
* MFS Variable Account Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* NACo Variable Account Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide DC Variable Account Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
Nationwide DCVA-II Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Separate Account No. 1 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Multi-Flex Variable Account Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide VA Separate Account-A Ohio Nationwide Life and Annuity Issuer of Annuity Contracts
Separate Account
* Nationwide VA Separate Account-B Ohio Nationwide Life and Annuity Issuer of Annuity Contracts
Separate Account
* Nationwide VA Separate Account-C Ohio Nationwide Life and Annuity Issuer of Annuity Contracts
Separate Account
Nationwide VA Separate Account-Q Ohio Nationwide Life and Annuity Issuer of Annuity Contracts
Separate Account
* Nationwide Variable Account Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Variable Account-II Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Variable Account-3 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Variable Account-4 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Variable Account-5 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Fidelity Advisor Variable Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account Account
* Nationwide Variable Account-6 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
Nationwide Variable Account-8 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Variable Account-9 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide VL Separate Ohio Nationwide Life and Annuity Issuer of Life Insurance Policies
Account-A Separate Account
Nationwide VL Separate Ohio Nationwide Life and Annuity Issuer of Life Insurance Policies
Account-B Separate Account
Nationwide VL Separate Ohio Nationwide Life and Annuity Issuer of Life Insurance Policies
Account-C Separate Account
* Nationwide VLI Separate Account Ohio Nationwide Life Separate Issuer of Life Insurance Policies
Account
* Nationwide VLI Separate Account-2 Ohio Nationwide Life Separate Issuer of Life Insurance
Account Policies
</TABLE>
Page 97 of 107
<PAGE> 64
<TABLE>
<S> <C> <C> <C>
* Nationwide VLI Separate Account-3 Ohio Nationwide Life Separate Issuer of Life Insurance Policies
Account
Nationwide VLI Separate Account-4 Ohio Nationwide Life Separate Issuer of Life Insurance Policies
Account
</TABLE>
Page 98 of 107
<PAGE> 65
<TABLE>
<CAPTION>
(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 |
------------------------------------------
|
-----------------------------------------------------------------------
| | |
- --------------------------- --------------------------- ---------------------------- ---------------------------
| KEY HEALTH PLAN, INC. | | WAUSAU INSURANCE CO. | | WAUSAU SERVICE | | |
| | | (U.K.) LIMITED | | CORPORATION (WSC) | | NATIONWIDE LLOYDS |
|Common Stock: 1,000 | |Common Stock: 8,506,800 | |Common Stock: 1,000 Shares| | |
|------------ Shares | |------------ Shares | |------------ | | |
| | | | | |=========| |
| Cost | | Cost | | Cost | || | A TEXAS LLOYDS |
| ---- | | ---- | | ---- | || | |
|Employers- | |Employers- | |Employers- | || | |
| 80% $1,828,478 | |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% $1,461,761 | | |WSC-100% $1,000 | | |WSC-100% $10,000 | | |WSC-100% $248,222 |
- --------------------------- | --------------------------- | ---------------------------- | ---------------------------
| | |
- --------------------------- | --------------------------- | ---------------------------- | ---------------------------
| COMPANIES AGENCY | | | COMPANIES AGENCY | | | COMPANIES AGENCY | | | COMPANIES |
| OF ALABAMA, INC. | | | OF PENNSYLVANIA, INC. | | | INSURANCE SERVICES | | | AGENCY, INC. |
| | | | | | | OF CALIFORNIA | | | |
|Common Stock: 1,000 | | |Common Stock: 1,000 | | |Common Stock: 1,000 | | |Common Stock: 100 |
|------------ Shares | | |------------ Shares | |---|------------ Shares | |------|------------ Shares |
| |---|---| | | | | | |
| Cost | | | Cost | | | Cost | | Cost |
| ---- | | | ---- | | | ---- | | ---- |
|WSC-100% $100 | | |WSC-100% $100 | | |WSC-100% $1,000 | |WSC-100% $10,000 |
- --------------------------- | --------------------------- | ---------------------------- ---------------------------
| | |
- --------------------------- | --------------------------- | ---------------------------- ---------------------------
| COMPANIES AGENCY | | | COMPANIES AGENCY | | | PHYSICIANS PLUS | | PENSION ASSOCIATES |
| OF IDAHO, INC. | | | OF PHOENIX, INC. | | | INSURANCE | | OF WAUSAU, INC. |
| | | | | | | CORPORATION | |Common Stock: 1,000 |
|Common Stock: 1,000 | | |Common Stock: 1,000 | | |Common Stock: 7,150 | |------------ Shares |
|------------ Shares | | |------------ Shares | | |------------ Shares | | |
| |-------| | |---|Preferred Stock: 11,540 | | |
| | | | | | |--------------- Shares | |Companies Cost |
| | | | | | | | |Agency, Inc. ---- |
| Cost | | | Cost | | | Cost | |(Wisconsin)-100% $10,000 |
| ---- | | | ---- | | | ---- | | |
|WSC-100% $1,000 | | |WSC-100% $1,000 | | |WSC-33-1/3% $6,215,459| | |
- --------------------------- | --------------------------- | ---------------------------- ---------------------------
| |
| --------------------------- | ----------------------------
| | WAUSAU | | | PREVEA HEALTH |
| | (BERMUDA) LTD. | | | INSURANCE PLAN, INC. |
| | Common Stock: 120,000 | | |Common Stock: 3,000 Shares|
| | ------------- Shares | | |------------ |
----| | ----| |
| | | |
| Cost | | Cost |
| ---- | | ---- |
| WSC-100% $5,000,000| |WSC-33-1/3% $500,000 |
--------------------------- ----------------------------
</TABLE>
<PAGE> 66
<TABLE>
<CAPTION>
NATIONWIDE INSURANCE ENTERPRISE(R) (middle)
<S> <C> <C>
-----------------------------------------------------------------------------
| |
| |
| NATIONWIDE MUTUAL |
=======| INSURANCE COMPANY |================================================
| (CASUALTY) |
| |
| |
-----------------------------------------------------------------------------
| || |
| || -------------------------------------------------------------
| || ---------------------------------------------------------------------------------------
| || | |
- -------------------------------- || | -------------------------------- --------------------------------
| ALLNATIONS, INC. | || | | NATIONWIDE GENERAL | | NECKURA HOLDING |
|Common Stock: 10,330 Shares | || | | INSURANCE COMPANY | | COMPANY (NECKURA) |
|------------ | || | | | | |
| Cost | || | |Common Stock: 20,000 | |Common Stock: 10,000 |
| ---- | || | |------------ Shares | |------------ Shares |
|Casualty-18.6% $88,320 | || | | Cost | | Cost |
|Fire-18.6% $88,463 | || | | ---- | | ---- |
|Preferred Stock: 1,466 Shares | || |----|Casualty-100% $5,944,422 | ---------|Casualty-100% $87,943,140 |
|--------------- | || | | | | | |
| Cost | || | | | | | |
| ---- | || | | | | | |
|Casualty-6.8% $100,000 | || | | | | | |
|Fire-6.8% $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 WINCONSIN | | | INSURANCE COMPANY |
|Common Stock: 1 Share | | | | (COLONIAL) | | | |
|------------ | ------| |----|Common Stock: 1,750 | |--------|Common Stock: 4,000 |
| Cost | | | |------------ Shares | | |------------ Shares |
| ---- | | | | Cost | | | Cost |
|Farmland | | | | ---- | | | ---- |
|Mutual-100% $10 | | | |Casualty-100% $41,750,000 | | |Neckura-100% DM 15,825,681 |
- -------------------------------- | | -------------------------------- | --------------------------------
| | |
- -------------------------------- | | -------------------------------- | --------------------------------
| COOPERATIVE SERVICE | | | | SCOTTSDALE | | | NECKURA GENERAL |
| COMPANY | | | | INSURANCE COMPANY | | | INSURANCE COMPANY |
|Common Stock: 600 Shares | | | | (SIC) | | | |
|------------ | | | |Common Stock: 30,136 | | |Common Stock: 1,500 |
| Cost |-------- |----|------------ Shares | ---- |--------|------------ Shares |
| ---- | | | Cost | | | | Cost |
|Farmland $3,506,173 | | | ---- | | | | ---- |
|Mutual-100% | | |Casualty-100% $150,000,000 | | | |Neckura-100% DM 1,656,925 |
| | | | | | | | |
| | | | | | | | |
- -------------------------------- | -------------------------------- | | --------------------------------
| | |
- -------------------------------- | -------------------------------- | | --------------------------------
| NATIONWIDE AGRIBUSINESS | | | SCOTTSDALE | | | | COLUMBUS INSURANCE |
| INSURANCE COMPANY | | | SURPLUS LINES | | | | BROKERAGE AND SERVICE |
|Common Stock: 1,000,000 | | | INSURANCE COMPANY | | | | GmbH |
|------------ Shares |------------ | | Common Stock: 100,000 | | | |Common Stock: 1 Share |
| | | | ------------ Shares | ---| |--------|------------ |
| Cost | | | | | | | Cost |
|Casualty-99.9% ---- | | | Cost | | | | ---- |
|Other Capital: $26,714,335 | | | ---- | | | |Neckura-100% DM 51,639 |
|------------- | | | SIC-100% $6,000,000 | | | | |
|Casualty-Ptd. $ 713,576 | | | | | | | |
- -------------------------------- | -------------------------------- | | --------------------------------
| | |
- -------------------------------- | -------------------------------- | | --------------------------------
| NATIONAL CASUALTY | | | NATIONAL PREMIUM & | | | | LEBEN DIREKT |
| COMPANY | | | BENEFIT ADMINISTRATION | | | | INSURANCE COMPANY |
| (NC) | | | COMPANY | | | | |
|Common Stock: 100 Shares | | |Common Stock: 10,000 | | | |Common Stock: 4,000 Shares |
|------------ |------------- |------------ Shares |----- ---------|------------ |
| Cost | | Cost | | | Cost |
| ---- | | ---- | | | ---- |
|Casualty-100% $67,442,439 | |Scottsdale-100% $10,000 | | |Neckura-100% DM 4,000,000 |
| | | | | | |
| | | | | | |
- -------------------------------- -------------------------------- | --------------------------------
| |
- -------------------------------- -------------------------------- | --------------------------------
| NCC OF AMERICA, LTD. | | SVM SALES | | | AUTO DIREKT |
| (INACTIVE) | | GmbH | | | INSURANCE COMPANY |
| | | | | | |
| | |Common Stock: 50 Shares | | |Common Stock: 1,500 Shares |
| | |------------ |----------------- |------------ |
| | | Cost | | Cost |
|NC-100% | | ---- | | ---- |
| | |Neckura-100% DM 50,000 | |Neckura-100% DM 1,643,149 |
| | | | | |
| | | | | |
- -------------------------------- -------------------------------- --------------------------------
</TABLE>
<PAGE> 67
<TABLE>
<CAPTION>
(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 |
| | | | | (Inactive) |
| |Surplus Debentures | | | |
| |------------------ | |----| |
| | Cost | | | |
| | ---- | | | |
| |Colonial $500,000 | | |Casualty-100% |
| |Lone Star 150,000 | | | |
| -------------------------------- | --------------------------------
| |
| -------------------------------- | --------------------------------
| | TIG COUNTRYWIDE | | | THE BEAK AND |
| | INSURANCE COMPANY | | | WIRE CORPORATION |
| |Common Stock 12,500 | | | |
-----|------------ Shares | | |Common Stock: 750 Shares |
| | | -----|------------ |
| | Cost | | | Cost |
| | ---- | | | ---- |
| |Casualty-100% $215,273,000 | | |Casualty-100% $1,419,000 |
| | | | | |
| -------------------------------- | | |
| | --------------------------------
| |
| -------------------------------- | --------------------------------
| | NATIONWIDE INSURANCE | | | NATIONWIDE/DISPATCH LLC |
| | ENTERPRISE SERVICES, LTD. | | | |
| | | | | |
| |Single Member Limited | | | |
- - - |Liability Company | - - -| |
| | | |
| | | |
|Casualty-100% | |Casualty-90% |
| | | |
-------------------------------- | |
--------------------------------
Subsidiary Companies -- Solid Line
Contractual Association -- Double Lines
Limited Liability Company -- Dotted Line
December 31, 1997
</TABLE>
<PAGE> 68
<TABLE>
<CAPTION>
(Left Side)
------------------------------------------------
| 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, INC. | | DISTRIBUTORS AGENCY | || | |
| | | | (NW ADV. SERV.) | | OF ALABAMA, INC. | || | |
| Common Stock: 66,000 | | | Common Stock: 7,676 | | Common Stock: 10,000 | || | FINANCIAL HORIZONS |
| ------------ Shares |--|--| ------------ Shares |==|| | ------------ Shares |--||==| DISTRIBUTORS AGENCY |
| | | | | || | | || | OF OHIO, INC. |
| Cost | | | Cost | || | Cost | || | |
| ---- | | | ---- | || | ---- | || | |
| NW Life -100% $58,070,003 | | | NW Life -100% $5,996,261 | || | NFIDAI -100% $100 | || | |
--------------------------- | --------------------------- || --------------------------- || --------------------------
| || ||
--------------------------- | --------------------------- || --------------------------- || --------------------------
| NWE, INC. | | | NATIONWIDE | || | LANDMARK FINANCIAL | || | |
| | | | INVESTORS SERVICES, INC. | || | SERVICES OF | || | |
| | | | | || | NEW YORK, INC. | || | |
| Common Stock: 100 | | | Common Stock: 5 Shares | || | Common Stock: 10,000 | || | FINANCIAL HORIZONS |
| ------------ Shares |--| | ------------ |==|| | ------------ Shares |--||==| DISTRIBUTORS AGENCY |
| | | | | || | | || | OF OKLAHOMA, INC. |
| Cost | | | Cost | || | Cost | || | |
| ---- | | | ---- | || | ---- | || | |
| NW Life -100% $35,971,375 | | | NW Adv. Serv. -100% $5,000| || | NFIDAI -100% $10,100 | || | |
--------------------------- | --------------------------- || --------------------------- || --------------------------
| || ||
--------------------------- | --------------------------- || --------------------------- || --------------------------
| NATIONWIDE INVESTMENT | | | FINANCIAL HORIZONS | || | FINANCIAL HORIZONS | || | |
| SERVICES CORPORATION | | | INVESTMENT TRUST | || | SECURITIES CORP. | || | |
| | | | | || | | || | |
| Common Stock: 5,000 | | | | || | Common Stock: 10,000 | || | FINANCIAL HORIZONS |
| ------------ Shares |--| | |==|| | ------------ Shares |--||==| DISTRIBUTORS AGENCY |
| | | | | || | | || | OF TEXAS, INC. |
| Cost | | | | || | Cost | || | |
| ---- | | | | || | ---- | || | |
| NW Life -100% $529,728 | | | COMMON LAW TRUST | || | NFIDAI -100% $153,000 | || | |
--------------------------- | --------------------------- || --------------------------- || --------------------------
| || ||
--------------------------- | --------------------------- || --------------------------- || --------------------------
| NATIONWIDE REALTY | | | NATIONWIDE | || | AFFILIATE AGENCY, INC. | || | |
| PROPERTIES, LTD. | | | INVESTING | || | | || | |
| | | | FOUNDATION | || | | || | |
| Units: | | | | || | Common Stock: 100 | || | AFFILIATE |
| ------ - -| | |==|| | ------------ Shares |--||==| AGENCY OF |
| | | | | || | | | OHIO, INC. |
| | | | | || | Cost | | |
| NW Life -90% | | | | || | ---- | | |
| NW Mutual-10% | | | COMMON LAW TRUST | || | NFIDAI -100% $100 | | |
--------------------------- | --------------------------- || --------------------------- --------------------------
| ||
--------------------------- | --------------------------- ||
| NATIONWIDE | | | NATIONWIDE | ||
| PROPERTIES, LTD. | | | INVESTING | ||
| | | | FOUNDATION II | ||
| Units: - -| | | ||
| ------ | | |==||
| | | | ||
| | | | ||
| NW Life -97.6% | | | ||
| NW Mutual -2.4% | | COMMON LAW TRUST | ||
--------------------------- --------------------------- ||
||
--------------------------- ||
| NATIONWIDE | ||
| SEPARATE ACCOUNT | ||
| TRUST | ||
| | ||
| |__||
| |
| |
| |
| COMMON LAW TRUST |
---------------------------
</TABLE>
<PAGE> 69
<TABLE>
<CAPTION>
(Center)
NATIONWIDE INSURANCE ENTERPRISE (R)
<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 | |
| SERVICES, INC. (NFS) | |
| | |
| Common Stock: Control | |
| ------------ ------- | |
| | |
| | |
| Class A Public--100% | |
| Class B NW Corp--100% | |
--------------------------- |
| |
---------------------------------------------------------------------- |
| | | |
--------------------------- --------------------------- --------------------------- | -------------------------
| IRVIN L. SCHWARTZ | | PUBLIC EMPLOYEES BENEFIT | | NEA VALUEBUILDER | | | NATIONWIDE GLOBAL |
| & ASSOCIATES | | SERVICES CORPORATION | | INVESTOR SERVICES, INC. | | | HOLDINGS, INC. |
| | | (PEBSCO) | | (NEA) | | | |
| Common Stock: Control | | Common Stock: 236,494 |==|| | Common Stock: 500 |= || | | Common Stock: 1 Share |
| ------------ ------- | | ------------ Shares | || | ------------ Shares | || |--| ------------ |
| | | | || | | || | | |
| | | | || | | || | | Cost |
| Class A Other -100% | | | || | | || | | ---- |
| Class B NFS -100% | | NFS -100% | || | NFS -100% | || | | NW Corp-100% $7,000,00 |
- ---------------------------- ---------------------------- || ---------------------------- || | --------------------------
--------------------------- || --------------------------- || |
| PEBSCO OF | || | NEA VALUEBUILDER | || | --------------------------
| ALABAMA | || | INVESTOR SERVICES | || | | MRM INVESTMENT, INC. |
| | || | OF ALABAMA, INC. | || | | |
| Common Stock: 100,000 | || | Common Stock: 500 | || | | |
| ------------ Shares |--|| | ------------ Shares |--|| __ | Common Stock: 1 Share |
| | || | | || | ----------- |
| Cost | || | Cost | || | |
| ---- | || | ---- | || | Cost |
| PEBSCO -100% $1,000 | || | NEA -100% $5,000 | || | ---- |
--------------------------- || --------------------------- || | NW Corp.-100% $7,000,000|
|| || --------------------------
--------------------------- || --------------------------- ||
| 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 | || | NEA VALUEBUILDER |
| MONTANA | || | INVESTOR SERVICES | || | INVESTOR SERVICES |
| | || | OF NEVADA, INC. | || | OF OHIO, INC. |
| Common Stock: 500 | || | Common Stock: 500 | || | |
| ------------ Shares |--|| | ------------ Shares |--||====| |
| | || | | || | |
| Cost | || | Cost | || | |
| ---- | || | ---- | || | |
| PEBSCO -100% $500 | || | NEA -100% $500 | || | |
--------------------------- || --------------------------- || --------------------------
|| ||
--------------------------- || --------------------------- || -------------------------
| PEBSCO OF | || | NEA VALUEBUILDER | || | NEA VALUEBUILDER |
| NEW MEXICO | || | INVESTOR SERVICES | || | INVESTOR SERVICES |
| | || | OF WYOMING, INC. | || | OF OKLAHOMA, INC. |
| Common Stock: 1,000 | || | Common Stock: 500 | || | |
| ------------ Shares |--|| | ------------ Shares |--||====| |
| | || | | || | |
| Cost | || | Cost | || | |
| ---- | || | ---- | || | |
| PEBSCO -100% $1,000 | || | NEA -100% $500 | || | |
--------------------------- || --------------------------- || --------------------------
|| ||
--------------------------- || --------------------------- || --------------------------
| | || | NEA VALUEBUILDER | || | NEA VALUEBUILDER |
| | || | SERVICES INSURANCE | || | INVESTOR SERVICES |
| PEBSCO OF | || | AGENCY, INC. | || | OF TEXAS, INC. |
| TEXAS, INC. | || | Common Stock: 100 | || | |
| |==|| | ------------ Shares |--||=== | |
| | | | | |
| | | Cost | | |
| | | ---- | | |
| | | NEA -100% $1,000 | | |
--------------------------- --------------------------- --------------------------
</TABLE>
<PAGE> 70
<TABLE>
<CAPTION>
(Right)
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------
| NATIONWIDE MUTUAL |
========================================| FIRE INSURANCE COMPANY |
| (FIRE) |
------------------------------------------------
|
- -----------------------------------------------------------------|
- ----------------------------------------------------------------------------------------------
| | |
--------------------------- ------------------------------ ------------------------------
| GATES, MCDONALD | | EMPLOYERS LIFE INSURANCE | | NATIONWIDE |
| & COMPANY (GATES) | | OF WAUSAU (ELIOW) | | HEALTH PLANS, INC. (NHP) |
| | | | | |
| 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: 200 | | | Common Stock: 100 |
|-- | ------------ Shares | |--| ------------ Shares | |--| ------------ Shares |
| | | | | | | |
| | Cost | | Cost | | | NHP Cost |
| | ---- | | ---- | | | ---- |
| | GATES -100% $106,947 | | ELIOW -100% $57,413,193 | | | Inc. -100% $25,149 |
| ----------------------------- ------------------------------ | ------------------------------
| |
| ----------------------------- | ------------------------------
| | GATES, MCDONALD & COMPANY | | | NATIONWIDE |
| | OF NEVADA | | | AGENCY, INC. |
| | | | | |
| | Common Stock: 40 | | | Common Stock: 100 |
|-- | ------------ Shares | |--| ------------ Shares |
| | | | |
| | Cost | | Cost |
| | ---- | | NHP ---- |
| | Gates -100% $93,750 | | Inc. -99% $116,077 |
| ----------------------------- ------------------------------
|
| -----------------------------
| | GATESMCDONALD |
| | HEALTH PLUS, INC. |
| | |
| | Common Stock: 200 |
|-- | ------------ Shares |
| |
| Cost |
| ---- |
| Gates -100% $2,000,000 |
-----------------------------
Subsidiary Companies -- Solid Line
Contractual Association -- Double Line
Limited Liability Company -- Dotted Line
December 31, 1997
Page 2
</TABLE>
<PAGE> 71
Item 27. NUMBER OF CONTRACT OWNERS
The number of contract Owners of Qualified and Non-Qualified
Contracts as of January 31, 1998 was 7,609 and 1,867,
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.
(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
CLARENDON INSURANCE AGENCY, INC.
OFFICERS
POSITIONS AND OFFICES
NAME AND BUSINESS ADDRESS WITH UNDERWRITER
A. Keith Brodkin Chairman
500 Boylston Street
Boston, MA 02116
Cynthia Orcutt President
One Sun Life Executive Park
Wellesley Hills, MA 02181
</TABLE>
Page 101 of 107
<PAGE> 72
<TABLE>
<CAPTION>
(b) CLARENDON INSURANCE AGENCY, INC.
OFFICERS (CONTINUED)
<S> <C>
Stephen E. Cavan Secretary
500 Boylston Street and Clerk
Boston, MA 02116
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>
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.
Page 103 of 107
<PAGE> 73
Offered by
NATIONWIDE
LIFE INSURANCE COMPANY
and its
MFS VARIABLE ACCOUNT
DEFERRED
VARIABLE ANNUITY CONTRACTS
PROSPECTUS
MAY 1, 1998
Page 105 of 107
<PAGE> 74
INDEPENDENT AUDITORS' CONSENT AND 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 30, 1998 included the related financial statement
schedules as of December 31, 1997, and for each of the years in the three-year
period ended December 31, 1997, 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 , 1998
Page 106 of 107
<PAGE> 75
<PAGE> 1
SCHEDULE I
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED SUMMARY OF INVESTMENTS -
OTHER THAN INVESTMENTS IN RELATED PARTIES
(in millions of dollars)
As of December 31, 1997
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------- ------------- -------------- ---------------
Column A Column B Column C Column D
- ----------------------------------------------------------------------------- ------------- -------------- ---------------
Amount at
which shown
in the
Market consolidated
Type of Investment Cost value balance sheet
- ----------------------------------------------------------------------------- ------------- -------------- ---------------
Fixed maturity securities available-for-sale:
Bonds:
<S> <C> <C> <C>
U.S. Government and government agencies and authorities $ 3,859.7 $ 3,981.7 $ 3,981.7
States, municipalities and political subdivisions 1.6 1.6 1.6
Foreign governments 93.3 95.8 95.8
Public utilities 1,555.3 1,609.8 1,609.8
All other corporate 7,223.0 7,515.2 7,515.2
---------- ---------- ----------
Total fixed maturity securities available-for-sale 12,732.9 13,204.1 13,204.1
---------- ---------- ----------
Equity securities available-for-sale:
Common stocks:
Industrial, miscellaneous and all other 67.8 78.0 78.0
Non-redeemable preferred stock - 2.4 2.4
---------- ---------- ----------
Total equity securities available-for-sale 67.8 80.4 80.4
---------- ---------- ----------
Mortgage loans on real estate, net 5,228.1 5,181.6 (1)
Real estate, net:
Investment properties 254.9 235.7 (1)
Acquired in satisfaction of debt 82.6 75.7 (1)
Policy loans 415.3 415.3
Other long-term investments 27.9 25.2 (2)
Short-term investments 358.4 358.4
---------- ----------
Total investments $19,167.9 $19,576.4
========== ==========
</TABLE>
- ----------
(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 3 to the consolidated financial statements.
(2) Difference from Column B is primarily due to operating gains (losses) of
investments in limited partnerships.
See accompanying independent auditors' report.
<PAGE> 2
SCHEDULE III
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
(in millions of dollars)
As of December 31, 1997, 1996 and 1995 and for each of the years then ended
<TABLE>
<CAPTION>
- -------------------------------- ----------------- -------------------- ------------------- ------------------ ---------------
Column A Column B Column C Column D Column E Column F
- -------------------------------- ----------------- -------------------- ------------------- ------------------ ---------------
Deferred Future policy Other policy
policy benefits, losses, Unearned claims and
acquisition claims and premiums benefits payable Premium
Segment costs loss expenses (1) (1) revenue
- ------------------------------- ------------------ -------------------- ------------------- ------------------ ---------------
1997: Variable Annuities $1,018.4 $ - $ -
Fixed Annuities 277.9 14,103.1 27.3
Life Insurance 472.9 2,683.4 178.1
Corporate and Other (103.8) 1,916.3 -
-------- ------------- ---------
Total $1,665.4 $18,702.8 $ 205.4
======== ============= =========
1996: Variable Annuities $ 792.1 $ - $ -
Fixed Annuities 242.0 13,388.9 24.0
Life Insurance 414.4 2,391.5 174.6
Corporate and Other (82.0) 1,820.2 -
-------- ------------- ---------
Total $1,366.5 $17,600.6 $ 198.6
======== ============= =========
1995: Variable Annuities $ 569.8 $ - $ -
Fixed Annuities 220.7 12,759.3 32.8
Life Insurance 366.9 2,282.6 166.3
Corporate and Other (136.9) 1,730.0 -
-------- ------------- ---------
Total $1,020.5 $ 16,771.9 $ 199.1
======== ============= =========
- ---------------------------------------------------- -------------------- ------------------- ------------------ ---------------
Column A Column G Column H Column I Column J Column K
- ---------------------------------------------------- -------------------- ------------------- ------------------ ----------------
Net investment Benefits, claims, Amortization Other
income losses and of deferred policy operating Premiums
Segment (2) settlement expenses acquisition costs expenses written
(2)
- ---------------------------------------------------- -------------------- ------------------- ------------------ ---------------
<C> <C> <C> <C> <C>
1997: Variable Annuities $ (26.8) $ 5.9 $ 87.8 $ 159.4
Fixed Annuities 1,098.2 846.7 39.8 85.4
Life Insurance 189.1 227.5 39.6 94.5
Corporate and Other 148.7 114.7 - 45.6
-------- ---------- ------- -------
Total $1,409.2 $ 1,194.8 $ 167.2 $ 384.9
======== ========== ======= =======
1996: Variable Annuities $ (21.4) $ 4.6 $ 57.4 $ 132.3
Fixed Annuities 1,050.6 838.5 38.6 79.7
Life Insurance 174.0 211.4 37.4 79.0
Corporate and Other 154.6 106.1 - 51.4
-------- ---------- ------- -------
Total $1,357.8 $ 1,160.6 $ 133.4 $ 342.4
======== ========== ======= =======
1995: Variable Annuities $ (17.6) $ 2.9 $ 26.3 $ 109.1
Fixed Annuities 1,002.7 805.0 29.5 80.3
Life Insurance 171.2 202.0 31.0 68.8
Corporate and Other 137.7 105.6 (4.1) 14.8
-------- ---------- ------- -------
Total $1,294.0 $ 1,115.5 $ 82.7 $ 273.0
======== ========== ======= =======
</TABLE>
- ----------
(1) Unearned premiums and other policy claims and benefits payable are included
in Column C amounts.
(2) Allocations of net investment income and certain operating expenses are
based on a number of assumptions and estimates, and reported operating
results would change by segment if different methods were applied.
See accompanying independent auditors' report.
<PAGE> 3
SCHEDULE IV
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
REINSURANCE
(in millions of dollars)
As of December 31, 1997, 1996 and 1995 and for each of the years then ended
<TABLE>
<CAPTION>
- ----------------------------------------------- --------------- -------------- ------------- ------------- ------------
Column A Column B Column C Column D Column E Column F
- ----------------------------------------------- --------------- -------------- ------------- ------------- ------------
Percentage
Ceded to Assumed of amount
Gross other from other Net assumed
amount companies companies amount to net
--------------- -------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
1997:
Life insurance in force $ 52,648.4 $13,678.7 $ 289.7 $ 39,259.4 0.7%
=========== ========= ======== =========== =======
Premiums:
Life insurance $ 235.9 $ 32.7 $ 2.2 $ 205.4 1.1%
Accident and health insurance 261.2 272.6 11.4 - N/A
----------- ---------- --------- ----------- -------
Total $ 497.1 $ 305.3 $ 13.6 $ 205.4 6.6%
=========== ========= ========= =========== =======
1996:
Life insurance in force $47,150.6 $11,164.6 $ 288.6 $ 36,274.6 0.8%
=========== ========= ======== =========== =======
Premiums:
Life insurance $ 225.6 $ 29.3 $ 2.3 $ 198.6 1.2%
Accident and health insurance 291.9 305.8 13.9 - N/A
----------- --------- -------- ----------- -------
Total $ 517.5 $ 335.1 $ 16.2 $ 198.6 8.2%
=========== ========= ======== =========== =======
1995:
Life Insurance in force $41,087.9 $ 8,935.7 $ 391.2 $ 32,543.4 1.2%
=========== ========= ======== =========== =======
Premiums:
Life insurance $ 221.3 $ 24.4 $ 2.2 $ 199.1 1.1%
Accident and health insurance 298.0 313.0 15.0 - N/A
----------- --------- -------- ----------- -------
Total $ 519.3 $ 337.4 $ 17.2 $ 199.1 8.6%
=========== ========= ======== =========== =======
</TABLE>
- ----------
Note: The life insurance caption represents principally premiums from
traditional life insurance and life-contingent immediate annuities and
excludes deposits on investment products and universal life insurance
products.
See accompanying independent auditors' report.
<PAGE> 4
SCHEDULE V
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(in millions of dollars)
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------- ------------- -------------
Column A Column B Column C Column D Column E
- --------------------------------------------------- ----------------------------------------------- ------------- -------------
Balance at Charged to Charged to Balance at
beginning costs and other Deductions end of
Description of period expenses accounts (1) period
- --------------------------------------------------- -------------------------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
1997:
Valuation allowances - fixed maturity securities $ - $ 16.2 $ - $ 16.2 $ -
Valuation allowances - mortgage loans on real estate 51.0 (1.2) - 7.3 42.5
Valuation allowances - real estate 15.2 (4.1) - - 11.1
-------- ------ ------- ------- -------
Total $ 66.2 $ 10.9 $ - $ 23.5 $ 53.6
======== ====== ======= ======= =======
1996:
Valuation allowances - mortgage loans on real estate $ 49.1 $ 4.5 $ - $ 2.6 $ 51.0
Valuation allowances - real estate 25.8 (10.6) - - 15.2
-------- ------ ------- ------- -------
Total $ 74.9 $ (6.1) $ - $ 2.6 $ 66.2
======== ====== ======= ======= =======
1995:
Valuation allowances - fixed maturity securities $ - $ 8.9 $ - $ 8.9 $ -
Valuation allowances - mortgage loans on real estate 46.4 7.4 - 4.7 49.1
Valuation allowances - real estate 27.3 (1.5) - - 25.8
-------- ------ ------- ------- -------
Total $ 73.7 $ 14.8 $ - $ 13.6 $ 74.9
======== ====== ======= ======= =======
</TABLE>
- ----------
(1) Amounts represent direct write-downs charged against the valuation
allowance.
See accompanying independent auditors' report.
<PAGE> 76
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 29th
day of April, 1998.
MFS VARIABLE ACCOUNT
------------------------------------------------
(Registrant)
NATIONWIDE LIFE INSURANCE COMPANY
------------------------------------------------
(Depositor)
By/s/JOSEPH P. RATH
------------------------------------------------
Joseph P. Rath
Vice President- Product and Market Compliance
As required by the Securities Act of 1933, this Post-Effective Amendment has
been signed by the following persons in the capacities indicated on the 29th day
of April, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C>
LEWIS J. ALPHIN Director
- -------------------------------------------------
Lewis J. Alphin
A. I. BELL Director
- -------------------------------------------------
A. I. Bell
KEITH W. ECKEL Director
- -------------------------------------------------
Keith W. Eckel
WILLARD J. ENGEL Director
- -------------------------------------------------
Willard J. Engel
FRED C. FINNEY Director
- -------------------------------------------------
Fred C. Finney
CHARLES L. FUELLGRAF, JR. Director
- -------------------------------------------------
Charles L. Fuellgraf, Jr.
JOSEPH J. GASPER President and Chief
- ------------------------------------------------- Operating Office and Director
Joseph J. Gasper
DIMON R. McFERSON Chairman and Chief Executive Officer
- ------------------------------------------------- Nationwide Insurance Enterprise and Director
Dimon R. McFerson
DAVID O. MILLER Chairman of the Board and Director
- -------------------------------------------------
David O. Miller
YVONNE L. MONTGOMERY Director
- -------------------------------------------------
Yvonne L. Montgomery
C. RAY NOECKER Director
- -------------------------------------------------
C. Ray Noecker
ROBERT A. OAKLEY Executive Vice President-
- ------------------------------------------------- Chief Financial Officer
Robert A. Oakley
JAMES F. PATTERSON Director By/s/JOSEPH P. RATH
- ------------------------------------------------- ----------------------------
James F. Patterson Joseph P. Rath
Attorney-in-Fact
ARDEN L. SHISLER Director
- -------------------------------------------------
Arden L. Shisler
ROBERT L. STEWART Director
- -------------------------------------------------
Robert L. Stewart
NANCY C. THOMAS Director
- -------------------------------------------------
Nancy C. Thomas
HAROLD W. WEIHL Director
- -------------------------------------------------
Harold W. Weihl
</TABLE>
Page 107 of 107
