<PAGE> 1
As filed with the Securities and Exchange Commission.
'33 Act File No. 2-73432
'40 Act File No. 811-2662
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 26 [x]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 27 [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, 2000 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a) of Rule 485
[ ] on (date) pursuant to paragraph (a) of Rule 485
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
================================================================================
<PAGE> 2
MFS VARIABLE ACCOUNT
REFERENCE TO ITEMS REQUIRED BY FORM N-4
<TABLE>
<S> <C>
PART A INFORMATION REQUIRED IN A PROSPECTUS
Item 1. Cover Page.............................................. Cover Page
Item 2. Definitions............................................. Glossary of Special Terms
Item 3. Synopsis or Highlights.................................. Synopsis of the Contracts
Item 4. Condensed Financial Information......................... Condensed Financial Information
Item 5. General Description of Registrant, Depositor, and
Portfolio Companies ............................... Nationwide Life Insurance Company; Investing in the Contract
Item 6. Deductions and Expenses................................. Standard Charges and Deductions
Item 7. General Description of Variable
Annuity Contracts....................................... Contract Ownership; Operation of the Contract
Item 8. Annuity Period.......................................... Annuitizing the Contract
Item 9. Death Benefit and Distributions......................... Death Benefits
Item 10. Purchases and Contract Value............................ Operation of the Contract
Item 11. Redemptions............................................. Surrender (Redemption)
Item 12. Taxes ................................................. Federal Tax Considerations
Item 13. Legal Proceedings....................................... Legal Proceedings
Item 14. Table of Contents of the Statement of Additional
Information........................................ Table of Contents of the Statement of Additional Information
PART B INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL
INFORMATION
Item 15. Cover Page.............................................. Cover Page
Item 16. Table of Contents....................................... Table of Contents
Item 17. General Information and History......................... General Information and History
Item 18. Services................................................ Services
Item 19. Purchase of Securities Being Offered.................... Purchase of Securities Being Offered
Item 20. Underwriters............................................ Underwriters
Item 21. Calculation of Performance Information.................. Calculation of Performance
Item 22. Annuity Payments........................................ Annuity Payments
Item 23. Financial Statements.................................... Financial Statements
PART C OTHER INFORMATION
Item 24. Financial Statements and Exhibits....................... Item 24
Item 25. Directors and Officers of the Depositor................. Item 25
Item 26. Persons Controlled by or Under Common Control with
the Depositor or Registrant........................ Item 26
Item 27. Number of Contract Owners............................... Item 27
Item 28. Indemnification......................................... Item 28
Item 29. Principal Underwriter................................... Item 29
Item 30. Location of Accounts and Records........................ Item 30
Item 31. Management Services..................................... Item 31
Item 32. Undertakings............................................ Item 32
</TABLE>
<PAGE> 3
NATIONWIDE LIFE INSURANCE COMPANY
Deferred Variable Annuity Contracts
Issued by Nationwide Life Insurance Company through its MFS Variable Account
The date of this prospectus is May 1, 2000.
Variable annuities are complex investment products with unique benefits and
advantages that may be particularly useful to many investors in meeting
long-term savings and retirement needs. There are, however, costs and charges
associated with some of these unique benefits-costs and charges that do not
exist or are not present with other investment products. With help from
financial consultants or advisers, investors are encouraged to compare and
contrast the costs and benefits of the variable annuity described in this
prospectus with those of other investment products, including other variable
annuity or variable life insurance products offered by Nationwide Life Insurance
Company and its affiliates. This process will aid in determining whether the
purchase of the contract described in this prospectus is consistent with an
individual's goals, risk tolerance, time horizon, marital status, tax situation,
and other personal characteristics and needs.
THIS PROSPECTUS CONTAINS BASIC INFORMATION YOU SHOULD KNOW ABOUT THE CONTRACTS
BEFORE INVESTING. PLEASE READ THIS PROSPECTUS CAREFULLY AND KEEP IT FOR FUTURE
REFERENCE.
The following underlying mutual funds are available under the contracts:
- - Massachusetts Investors Growth Stock Fund - Class A
- - Massachusetts Investors Trust - Class A
- - MFS(R) Bond Fund - Class A
- - MFS(R) Emerging Growth Fund - Class A
- - MFS(R) Global Governments Fund - Class A
- - MFS(R) Growth Opportunities Fund - Class A
- - MFS(R) High Income Fund - Class A*
- - MFS(R) Research Fund - Class A
- - MFS(R) Series Trust IV - MFS(R) Money Market Fund
- - MFS(R) Total Return Fund - Class A
- - Nationwide Separate Account Trust - Money Market Fund
* This underlying mutual fund may invest in lower quality debt securities
commonly call junk bonds.
Purchase payments not invested in the underlying mutual fund options of the MFS
Variable Account ("variable account") may be allocated to the fixed account.
The Statement of Additional Information (May 1, 2000) which contains additional
information about the contracts and the variable account, is filed with the
Securities and Exchange Commission ("SEC") and is incorporated herein by
reference. The table of contents for the Statement of Additional Information is
on page 36.
For general information or to obtain FREE copies of the:
- - Statement of Additional Information;
- - prospectus, annual or semi-annual report for any underlying mutual fund; or
- - required Nationwide forms,
call: 1-800-243-6295
TDD 1-800-238-3035
or write:
NATIONWIDE LIFE INSURANCE COMPANY
P.O. BOX 182356
COLUMBUS, OHIO 43218-2356
The Statement of Additional Information and other material incorporated by
reference can be found on the SEC website at:
1
<PAGE> 4
WWW.SEC.GOV
THIS ANNUITY IS NOT:
- - A BANK DEPOSIT
- - ENDORSED BY A BANK OR GOVERNMENT AGENCY
- - FEDERALLY INSURED
- - AVAILABLE IN EVERY STATE
Investors assume certain risks when investing in the contracts, including the
possibility of losing money.
These contracts are offered to customers of various financial institutions and
brokerage firms. No financial institution or brokerage firm is responsible for
the guarantees under the contracts. Guarantees under the contracts are the sole
responsibility of Nationwide.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC, NOR HAS THE
SEC PASSED UPON THE ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
2
<PAGE> 5
GLOSSARY OF SPECIAL TERMS
ACCUMULATION UNIT- An accounting unit of measure used to calculate the contract
value allocated to the variable account before the annuitization date.
ANNUITIZATION DATE- The date on which annuity payments begin.
ANNUITY COMMENCEMENT DATE- The date on which annuity payments are scheduled to
begin. This date may be changed by the contract owner with Nationwide's consent.
ANNUITY UNIT- An accounting unit of measure used to calculate the variable
annuity payments.
CONTRACT VALUE- The total of all accumulation units in a contract plus any
amount held in the fixed account.
CONTRACT YEAR- Each year the contract is in force beginning with the date the
contract is issued.
ERISA- The Employee Retirement Income Security Act of 1974, as amended.
FIXED ACCOUNT- An investment option that is funded by the general account of
Nationwide.
GENERAL ACCOUNT- All assets of Nationwide other than those of the variable
account or in other separate accounts that have been or may be established by
Nationwide.
INDIVIDUAL RETIREMENT ACCOUNT- An account that qualifies for favorable tax
treatment under Section 408(a) of the Internal Revenue Code, but does not
include Roth IRAs.
INDIVIDUAL RETIREMENT ANNUITY- An annuity contract that qualifies for favorable
tax treatment under Section 408(b) of the Internal Revenue Code, but does not
include Roth IRAs.
NATIONWIDE- Nationwide Life Insurance Company.
NON-QUALIFIED CONTRACT- A contract which does not qualify for favorable tax
treatment as a Qualified Plan, Individual Retirement Annuity, SEP IRA, or Tax
Sheltered Annuity.
QUALIFIED PLANS- Retirement plans which receive favorable tax treatment under
Section 401 or 403(a) of the Internal Revenue Code.
SEP IRA- An annuity contract which qualifies for favorable tax treatment under
Section 408(k) of the Internal Revenue Code.
SUB-ACCOUNTS- Divisions of the variable account and for which accumulation units
and annuity units are separately maintained - each sub-account corresponds to a
single underlying mutual fund.
TAX SHELTERED ANNUITY- An annuity that qualifies for favorable tax treatment
under Section 403(b) of the Internal Revenue Code.
VALUATION PERIOD- Each day the New York Stock Exchange is open for business.
VARIABLE ACCOUNT- MFS Variable Account, a separate account of Nationwide that
contains variable account allocations. The variable account is divided into
sub-accounts, each of which invests in shares of a separate underlying mutual
fund.
3
<PAGE> 6
TABLE OF CONTENTS
GLOSSARY OF SPECIAL TERMS..........................
SUMMARY OF CONTRACT EXPENSES.......................
UNDERLYING MUTUAL FUND ANNUAL
EXPENSES .......................................
EXAMPLE............................................
SYNOPSIS OF THE CONTRACTS..........................
CONDENSED FINANCIAL INFORMATION....................
NATIONWIDE LIFE INSURANCE COMPANY..................
GENERAL DISTRIBUTOR................................
TYPES OF CONTRACTS.................................
INVESTING IN THE CONTRACT..........................
The Variable Account and Underlying Mutual Funds
The Fixed Account
STANDARD CHARGES AND DEDUCTIONS....................
Contract Maintenance Charge
Mortality and Expense Risk Charges
Contingent Deferred Sales Charge
Premium Taxes
CONTRACT OWNERSHIP.................................
Joint Ownership
Contingent Ownership
Annuitant
Beneficiary and Contingent Beneficiary
OPERATION OF THE CONTRACT..........................
Minimum Initial and Subsequent Purchase Payments
Pricing
Allocation of Purchase Payments
Value of an Accumulation Unit
Net Investment Factor
Determining the Contract Value
Transfers
RIGHT TO REVOKE....................................
SURRENDER (REDEMPTION).............................
Surrenders Under a Qualified Plan or Tax Sheltered Annuity
LOAN PRIVILEGE.....................................
Minimum & Maximum Loan Amounts
Loan Processing Fee
How Loan Requests are Processed
Interest
Loan Repayment
Distributions & Annuity Payments
Transferring the Contract
Grace Period & Loan Default
ASSIGNMENT.........................................
CONTRACT OWNER SERVICES............................
Asset Rebalancing
Dollar Cost Averaging
Systematic Withdrawals
ANNUITY COMMENCEMENT DATE..........................
ANNUITIZING THE CONTRACT...........................
Annuitization Date
Annuitization
Fixed Payment Annuity - First and Subsequent Payments
Variable Payment Annuity - First and Subsequent Payments
Variable Payment Annuity - Assumed Investment Rate
Variable Payment Annuity - Value of an Annuity Unit
Variable Payment Annuity - Exchanges among Underlying Mutual Funds
Frequency and Amount of Annuity Payments
Annuity Payment Options
DEATH BENEFITS.....................................
Death of Contract Owner - Non-Qualified Contracts
Death of Annuitant - Non-Qualified Contracts
Death of Contract Owner/Annuitant
Death Benefit Payment
REQUIRED DISTRIBUTIONS.............................
Required Distributions for Non-Qualified Contracts
Required Distributions for Qualified Plans and Tax Sheltered Annuities
4
<PAGE> 7
Required Distributions for Individual Retirement Annuities and SEP IRAs
FEDERAL TAX CONSIDERATIONS.........................
Federal Income Taxes
Qualified Plans, IRAs, SEP IRAs, and Tax Sheltered Annuities
Withholding
Non-Resident Aliens
Federal Estate, Gift, and Generation Skipping Transfer Taxes
Charge for Tax
Diversification
Tax Changes
STATEMENTS AND REPORTS.............................
LEGAL PROCEEDINGS..................................
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
APPENDIX A: OBJECTIVES FOR UNDERLYING MUTUAL FUNDS.
5
<PAGE> 8
SUMMARY OF CONTRACT EXPENSES
The expenses listed below are charged to all contracts unless the contract owner
meets an available exception under the contract.
CONTRACT OWNER TRANSACTION EXPENSES
Maximum Contingent Deferred Sales
Charge ("CDSC") (as a percentage of
the lesser of purchase payments or
amount surrendered)............................. 5%(1)
(1)Starting with the second contract year, the contract owner may withdraw
without a CDSC the greater of:
a) 10% of all purchase payments made to the contract; or
b) any amount withdrawn to meet minimum distribution requirements under the
Internal Revenue Code.
This free withdrawal privilege is non-cumulative. Free amounts not taken during
any given contract year cannot be taken as free amounts in a subsequent contract
year (see "Contingent Deferred Sales Charge").
Withdrawals may be restricted for contracts issued as Tax Sheltered Annuities.
ANNUAL CONTRACT
MAINTENANCE CHARGE............................. $30(2)
VARIABLE ACCOUNT CHARGES(3)
(as a percentage of daily net assets of the variable account.)
Mortality and Expense Risk Charges............ 1.30%
Total Variable Account Charges........... 1.30%
(2) The Contract Maintenance Charge is deducted on each contract anniversary
and on the date of surrender upon full surrender of the contract.
(3) These charges apply only to sub-account allocations. They do not apply to
allocations made to the fixed account. They are charged on a daily basis
at the annual rate period noted above.
LOAN PROCESSING FEE
Nationwide may assess a loan processing fee at the time each new loan is
processed. Loans are only available for contracts issued as Tax Sheltered
Annuities. Loans are not available in all states. In addition, some states may
not permit Nationwide to assess a loan processing fee (see "Loan Privilege").
6
<PAGE> 9
UNDERLYING MUTUAL FUND ANNUAL EXPENSES
(AS A PERCENTAGE OF UNDERLYING MUTUAL FUND NET ASSETS, AFTER EXPENSE
REIMBURSEMENT)
<TABLE>
<CAPTION>
Management Other 12b-1 Total Mutual
Fees Expenses Fees Fund Expenses
---- -------- ---- -------------
<S> <C> <C> <C> <C>
Massachusetts Investors Growth Stock Fund - Class A 0.33% 0.00% 0.35% 0.68%
Massachusetts Investors Trust - Class A 0.33% 0.00% 0.35% 0.68%
MFS(R) Bond Fund - Class A 0.38% 0.00% 0.30% 0.68%
MFS(R) Emerging Growth Fund - Class A 0.69% 0.00% 0.25% 0.94%
MFS(R) Global Governments Fund - Class A 0.75% 0.00% 0.23% 0.98%
MFS(R) Growth Opportunities Fund - Class A 0.42% 0.00% 0.19% 0.61%
MFS(R) High Income Fund - Class A 0.44% 0.00% 0.30% 0.74%
MFS(R) Research Fund - Class A 0.42% 0.00% 0.35% 0.77%
MFS(R) Series Trust IV - MFS(R) Money Market Fund 0.45% 0.00% 0.00% 0.45%
MFS(R) Total Return Fund - Class A 0.35% 0.00% 0.35% 0.70%
Nationwide Separate Account Trust - Money Market Fund 0.39% 0.15% 0.00% 0.54%
</TABLE>
The expenses shown above are deducted by the underlying mutual fund before it
provides Nationwide with the daily net asset value. Nationwide then deducts
applicable variable account charges from the net asset value in calculating the
unit value of the corresponding sub-account. The management fees and other
expenses are more fully described in the prospectus for each underlying mutual
fund. Information relating to the underlying mutual funds was provided by the
underlying mutual funds and not independently verified by Nationwide.
The Management Fees and Other Expenses are not currently subject to fee waivers
or expense reimbursements.
7
<PAGE> 10
EXAMPLE
The following chart shows the amount of expenses (in dollars) that would be
incurred under this contract assuming a $1,000 investment, 5% annual return, and
no change in expenses. These dollar figures are illustrative only and should not
be considered a representation of past or future expenses. Actual expenses may
be greater or less than those shown below.
The example reflects expenses of both the variable account and the underlying
mutual funds. The example reflects a 5% CDSC charge and variable account charges
of 1.30% of the daily net assets of the variable account. The example reflects
the Contract Maintenance Charge, expressed as a percentage of average account
value. Since the average contract value is greater than $1,000, the expense
effect of the Contract Maintenance Charge is reduced accordingly. Deductions for
premium taxes are not reflected but may apply.
The summary of contract expenses and example are to help contract owners
understand the expenses associated with the contract.
<TABLE>
<CAPTION>
If you surrender your Contract If you do not surrender your If you annuitize your
at the end of the applicable Contract at the end of the Contract
time period applicable time period at the end of the applicable
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>
Massachusetts Investors 71 110 152 242 21 65 112 242 * 65 112 242
Growth Stock Fund - Class A
Massachusetts Investors Trust 71 110 152 242 21 65 112 242 * 65 112 242
- - Class A
MFS(R) Bond Fund - Class A 71 110 152 242 21 65 112 242 * 65 112 242
MFS(R) Emerging Growth Fund - 74 119 166 270 24 74 126 270 * 74 126 270
Class A
MFS(R) Global Governments 74 120 168 274 24 75 128 274 * 75 128 274
Fund - Class A
MFS(R) Growth Opportunities 70 108 149 234 20 63 109 234 * 63 109 234
Fund - Class A
MFS(R) High Income Fund - 72 112 156 248 22 67 116 248 * 67 116 248
Class A
MFS(R) Research Fund - Class A 72 113 157 251 22 68 117 251 * 68 117 251
MFS(R) Series Trust IV - 69 103 140 217 19 58 100 217 * 58 100 217
MFS(R) Money Market Fund
MFS(R) Total Return Fund - 71 111 153 244 21 66 113 244 * 66 113 244
Class A
Nationwide Separate Account 70 106 145 227 20 61 105 227 * 61 105 227
Trust - Money Market Fund
</TABLE>
* The contracts sold under this prospectus do not permit annuitization during
the first two contract years.
8
<PAGE> 11
SYNOPSIS OF THE CONTRACTS
The contracts described in this prospectus are flexible purchase payment
contracts.
The contracts can be categorized as:
- - Non-Qualified Plans;
- - Individual Retirement Annuities;
- - SEP IRAs;
- - Tax Sheltered Annuities; and
- - Qualified Plans.
For more detailed information with regard to the differences in contract types,
please see "Types of Contracts" later in this prospectus.
MINIMUM INITIAL AND SUBSEQUENT PURCHASE PAYMENTS
<TABLE>
<CAPTION>
MINIMUM
CONTRACT MINIMUM INITIAL SUBSEQUENT
TYPE PURCHASE PAYMENT PAYMENTS
---- ---------------- --------
<S> <C> <C>
Non-Qualified $1,500 $0
IRA $ 0 $0
SEP IRA $ 0 $0
Tax Sheltered $ 0 $0
Annuity
Qualified $ 0 $0
</TABLE>
CHARGES AND EXPENSES
Nationwide deducts a mortality and expense risk charge equal to an annual rate
of 1.30% of the daily net assets of the variable account. Nationwide assesses
these charges in return for bearing certain mortality and administrative risks.
Nationwide assesses a $30 Contract Maintenance Charge for each contract on every
contract anniversary and on the date of surrender upon full surrender of the
contract (see "Contract Maintenance Charge").
Nationwide does not deduct a sales charge from purchase payments upon deposit
into the contract. However, Nationwide may deduct a CDSC if any amount is
withdrawn from the contract. This CDSC reimburses Nationwide for sales expenses.
The amount of the CDSC will not exceed the lesser of: (1) 5% of the amount
surrendered; or (2) 5% of the total of all purchase payments made within 8 years
of the surrender date.
ANNUITY PAYMENTS
Annuity payments begin on the annuitization date. The payments will be based on
the annuity payment option chosen at the time of application (see "Annuity
Payment Options").
TAXATION
How a contract is taxed depends on the type of contract issued and the purpose
for which the contract is purchased. Nationwide will charge against the contract
any premium taxes levied by any governmental authority (see "Federal Tax
Considerations" and "Premium Taxes").
TEN DAY FREE LOOK
Contract owners may return the contract for any reason within ten days of
receipt and Nationwide will refund the contract value or other amounts required
by law (see "Right to Revoke").
FINANCIAL STATEMENTS
Financial statements for the variable account and Nationwide are located in the
Statement of Additional Information. A current Statement of Additional
Information may be obtained, without charge, by contacting Nationwide's home
office at the telephone number listed on page 1 of this prospectus.
9
<PAGE> 12
CONDENSED FINANCIAL INFORMATION
Accumulation unit values for accumulation units outstanding throughout the
period.
<TABLE>
<CAPTION>
UNDERLYING MUTUAL FUND ACCUMULATION UNIT ACCUMULATION UNIT PERCENT CHANGE IN NUMBER OF YEAR
VALUE AT VALUE AT END OF ACCUMULATION UNIT ACCUMULATION UNITS
BEGINNING OF PERIOD VALUE AT END OF PERIOD
PERIOD
<S> <C> <C> <C> <C> <C>
Massachusetts Investors 251.811030 345.910511 37.37% 0 1999
Growth Stock Fund - 181.683346 251.811030 38.60% 0 1998
Class A - Q 123.869113 181.683346 46.65% 0 1997
101.860531 123.869113 21.61% 0 1996
80.166185 101.860531 27.06% 0 1995
86.815888 80.166185 -7.66% 0 1994
76.611479 86.815888 13.32% 0 1993
72.701980 76.611479 5.38% 582 1992
49.712553 72.701980 46.24% 583 1991
52.714394 49.712553 -5.69% 584 1990
Massachusetts Investors 192.429178 264.338201 37.37% 706 1999
Growth Stock Fund - 138.838952 192.429178 38.60% 825 1998
Class A - NQ 94.658415 138.838952 46.67% 850 1997
77.839871 94.658415 21.61% 498 1996
61.261465 77.839871 27.06% 1,043 1995
66.343035 61.261465 -7.66% 1,043 1994
58.545028 66.343035 13.32% 2,615 1993
55.557463 58.545028 5.38% 2,874 1992
37.989389 55.557463 46.24% 3,000 1991
40.283347 37.989389 -5.69% 2,248 1990
Massachusetts Investors 202.414393 277.213327 36.95% 281,457 1999
Growth Stock Fund - 146.486721 202.414393 38.18% 280,157 1998
Class A - QS 100.175691 146.486721 46.23% 289,531 1997
82.628565 100.175691 21.24% 297,134 1996
65.227303 82.628565 26.68% 333,893 1995
70.852048 65.227303 -7.94% 375,617 1994
62.713932 70.852048 12.98% 411,227 1993
59.694705 62.713932 5.06% 450,956 1992
40.942088 59.694705 45.80% 472,708 1991
43.546733 40.942088 -5.98% 457,230 1990
</TABLE>
10
<PAGE> 13
<TABLE>
<CAPTION>
UNDERLYING MUTUAL FUND ACCUMULATION UNIT ACCUMULATION UNIT PERCENT CHANGE IN NUMBER OF YEAR
VALUE AT VALUE AT END OF ACCUMULATION UNIT ACCUMULATION UNITS
BEGINNING OF PERIOD VALUE AT END OF PERIOD
PERIOD
<S> <C> <C> <C> <C> <C>
Massachusetts Investors 171.758959 235.229678 36.95% 98,328 1999
Growth Stock Fund - 124.301472 171.758959 38.18% 95,701 1998
Class A - NQS 85.004193 124.301472 46.23% 88,204 1997
70.114570 85.004193 21.24% 86,801 1996
55.348697 70.114570 26.68% 102,114 1995
60.121583 55.348697 -7.94% 116,628 1994
53.215976 60.121583 12.98% 132,123 1993
50.654002 53.215976 5.06% 154,986 1992
34.741451 50.654002 45.80% 119,500 1991
36.951616 34.741451 -5.98% 124,361 1990
Massachusetts Investors 187.109241 256.252391 36.95% 3,994 1999
Growth Stock Fund - 135.410415 187.109241 38.18% 3,999 1998
Class A - NQS 92.601102 135.410415 46.23% 4,090 1997
(81-225) 76.380777 92.601102 21.24% 5,470 1996
60.295273 76.380777 26.68% 5,945 1995
65.494712 60.295273 -7.94% 2,505 1994
57.971950 65.494712 12.98% 3,382 1993
55.181022 57.971950 5.06% 7,430 1992
37.846336 55.181022 45.80% 6,225 1991
40.254029 37.846336 -5.98% 6,677 1990
Massachusetts Investors 199.782164 211.541786 5.89% 0 1999
Trust - Class A - Q 164.129808 199.782164 21.72% 0 1998
125.889283 164.129808 30.38% 16 1997
101.007177 125.889283 24.63% 16 1996
73.217470 101.007177 37.96% 16 1995
74.716077 73.217470 -2.01% 17 1994
68.591640 74.716077 8.93% 17 1993
64.520969 68.591640 6.31% 17 1992
51.047405 64.520969 26.39% 17 1991
51.615906 51.047405 -6.53% 17 1990
</TABLE>
11
<PAGE> 14
<TABLE>
<CAPTION>
UNDERLYING MUTUAL FUND ACCUMULATION UNIT ACCUMULATION UNIT PERCENT CHANGE IN NUMBER OF YEAR
VALUE AT VALUE AT END OF ACCUMULATION UNIT ACCUMULATION UNITS
BEGINNING OF PERIOD VALUE AT END OF PERIOD
PERIOD
<S> <C> <C> <C> <C> <C>
Massachusetts Investors 188.520679 199.617423 5.89% 289 1999
Trust - Class A - NQ 154.878002 188.520679 21.72% 259 1998
118.793035 154.878002 30.38% 289 1997
95.313498 118.793035 24.63% 0 1996
69.090265 95.313498 37.96% 0 1995
70.504398 69.090265 -2.01% 0 1994
64.725197 70.504398 8.93% 33 1993
60.883987 64.725197 6.31% 33 1992
48.169920 60.883987 26.39% 0 1991
48.706376 48.169920 -1.10% 0 1990
Massachusetts Investors 159.361559 168.230713 5.57% 235,642 1999
Trust - Class A - QS 131.320106 159.361559 21.35% 278,446 1998
101.029680 131.320106 29.98% 312,848 1997
81.308640 101.029680 24.25% 331,572 1996
59.116939 81.308640 37.54% 350,277 1995
60.509797 59.116939 -2.30% 373,587 1994
55.718475 60.509797 8.60% 402,085 1993
52.571200 55.718475 5.99% 438,578 1992
41.719131 52.571200 26.01% 470,627 1991
42.312382 41.719131 -1.40% 447,641 1990
Massachusetts Investors 142.985600 150.943364 5.57% 63,779 1999
Trust - Class A - NQS 117.825672 142.985600 21.35% 83,119 1998
90.647891 117.825672 29.98% 103,123 1997
72.953374 90.647891 24.25% 96,073 1996
53.042089 72.953374 37.54% 100,239 1995
54.291825 53.042089 -2.30% 87,519 1994
49.992851 54.291825 8.60% 95,048 1993
47.168983 49.992851 5.99% 107,558 1992
37.432067 47.168983 26.01% 390,819 1991
37.964354 37.432067 -1.40% 388,337 1990
</TABLE>
12
<PAGE> 15
<TABLE>
<CAPTION>
UNDERLYING MUTUAL FUND ACCUMULATION UNIT ACCUMULATION UNIT PERCENT CHANGE IN NUMBER OF YEAR
VALUE AT VALUE AT END OF ACCUMULATION UNIT ACCUMULATION UNITS
BEGINNING OF PERIOD VALUE AT END OF PERIOD
PERIOD
<S> <C> <C> <C> <C> <C>
Massachusetts Investors 151.908034 160.362369 5.57% 982 1999
Trust - Class A - NQS 125.178102 151.908034 21.35% 1,004 1998
(81-225) 96.304396 125.178102 29.98% 1,827 1997
77.505736 96.304396 24.25% 2,037 1996
56.351973 77.505736 37.54% 2,696 1995
57.679687 56.351973 -2.30% 4,013 1994
53.112457 57.679687 8.60% 7,320 1993
50.112374 53.112457 5.99% 8,418 1992
39.767862 50.112374 26.01% 8,657 1991
40.333366 39.767862 -1.40% 8,698 1990
MFS(R) Bond Fund - 56.075022 54.419210 -2.95% 0 1999
Class A - Q 54.216028 56.075022 3.43% 0 1998
49.627094 54.216028 9.25% 0 1997
48.229836 49.627094 2.90% 0 1996
40.103391 48.229836 20.26% 0 1995
42.399834 40.103391 -5.42% 254 1994
37.614804 42.399834 12.72% 255 1993
35.745806 37.614804 5.23% 255 1992
30.588668 35.745806 16.86% 256 1991
28.810284 30.588668 6.17% 261 1990
MFS(R) Bond Fund - 59.205904 57.457644 -2.95% 56 1999
Class A - NQ 57.243116 59.205904 3.43% 342 1998
52.397975 57.243116 9.25% 595 1997
50.922705 52.397975 2.90% 3,321 1996
42.342529 50.922705 20.26% 596 1995
44.767184 42.342529 -5.42% 450 1994
39.714988 44.767184 12.72% 1,068 1993
37.741633 39.714988 5.23% 1,400 1992
32.296567 37.741633 16.86% 2,161 1991
30.418889 32.296567 6.17% 2,290 1990
</TABLE>
13
<PAGE> 16
<TABLE>
<CAPTION>
UNDERLYING MUTUAL FUND ACCUMULATION UNIT ACCUMULATION UNIT PERCENT CHANGE IN NUMBER OF YEAR
VALUE AT VALUE AT END OF ACCUMULATION UNIT ACCUMULATION UNITS
BEGINNING OF PERIOD VALUE AT END OF PERIOD
PERIOD
<S> <C> <C> <C> <C> <C>
MFS(R) Bond Fund - 50.471558 48.832757 -3.25% 296,161 1999
Class A - QS 48.946623 50.471558 3.12% 402,734 1998
44.939826 48.946623 8.92% 453,678 1997
43.808005 44.939826 2.58% 509,516 1996
36.536936 43.808005 19.90% 613,426 1995
38.746280 36.536936 -5.70% 715,452 1994
34.477915 38.746280 12.38% 873,520 1993
32.864457 34.477915 4.91% 1,019,209 1992
28.208302 32.864457 16.51% 1,231,635 1991
26.649337 28.208302 5.85% 1,282,139 1990
MFS(R) Bond Fund - 50.430297 48.792845 -3.25% 124,805 1999
Class A - NQS 48.906597 50.430297 3.12% 144,138 1998
44.903088 48.906597 8.92% 147,342 1997
43.772192 44.903088 2.58% 208,403 1996
36.507070 43.772192 19.90% 267,129 1995
38.714601 36.507070 -5.70% 278,445 1994
34.449725 38.714601 12.38% 341,506 1993
32.837584 34.449725 4.91% 395,096 1992
28.185248 32.837584 16.51% 416,135 1991
26.627561 28.185248 5.85% 423,448 1990
MFS(R) Bond Fund - 50.627514 48.983649 -3.25% 784 1999
Class A - NQS 49.097863 50.627514 3.12% 786 1998
(81-225) 45.078692 49.097863 8.92% 789 1997
43.943375 45.078692 2.58% 1,597 1996
36.649839 43.943375 19.90% 4,145 1995
38.865999 36.649839 -5.70% 4,892 1994
34.584435 38.865999 12.38% 10,550 1993
32.965982 34.584435 4.91% 10,644 1992
28.295444 32.965982 16.51% 13,375 1991
26.731671 28.295444 5.85% 13,709 1990
</TABLE>
14
<PAGE> 17
<TABLE>
<CAPTION>
UNDERLYING MUTUAL FUND ACCUMULATION UNIT ACCUMULATION UNIT PERCENT CHANGE IN NUMBER OF YEAR
VALUE AT VALUE AT END OF ACCUMULATION UNIT ACCUMULATION UNITS
BEGINNING OF PERIOD VALUE AT END OF PERIOD
PERIOD
<S> <C> <C> <C> <C> <C>
MFS(R) Emerging Growth 50.131190 74.260820 48.13% 276,955 1999
Fund - Class A - QS 40.798757 50.131190 22.87% 320,469 1998
34.264981 40.798757 19.07% 385,073 1997
30.247061 34.264981 13.28% 437,204 1996
21.706658 30.247061 39.34% 424,049 1995
20.977470 21.706658 3.48% 400,564 1994
16.755110 20.977490 25.20% 285,804 1993
15.782125 16.755110 6.17% 288,500 1992
9.396802 15.782125 67.95% 222,326 1991
10.753988 9.396802 -12.62% 112,582 1990
MFS(R) Emerging Growth 50.131190 74.260820 48.13% 0 1999
Fund - Class A - NQS 40.798757 50.131190 22.87% 779 1998
(81-225) 34.264981 40.798757 19.07% 674 1997
30.247061 34.264981 13.28% 675 1996
21.706658 30.247061 39.34% 474 1995
20.977490 21.706658 3.48% 474 1994
16.755110 20.977490 25.20% 1,237 1993
15.782125 16.755110 6.17% 762 1992
9.396802 15.782125 67.95% 1,140 1991
10.753988 9.396802 -12.62% 0 1990
MFS(R) Global Governments 51.773614 49.309941 -4.76% 63,386 1999
Fund - Class A - QS 50.368842 51.773614 2.79% 85,861 1998
50.880072 50.368842 -1.00% 115,417 1997
48.914346 50.880072 4.02% 143,438 1996
42.911877 48.914346 13.99% 184,796 1995
46.532702 42.911877 -7.78% 229,107 1994
39.821939 46.532702 16.85% 272,388 1993
39.811131 39.821939 0.03% 260,769 1992
35.563134 39.811131 11.94% 271,803 1991
30.561450 35.563134 16.37% 315,655 1990
</TABLE>
15
<PAGE> 18
<TABLE>
<CAPTION>
UNDERLYING MUTUAL FUND ACCUMULATION UNIT ACCUMULATION UNIT PERCENT CHANGE IN NUMBER OF YEAR
VALUE AT VALUE AT END OF ACCUMULATION UNIT ACCUMULATION UNITS
BEGINNING OF PERIOD VALUE AT END OF PERIOD
PERIOD
<S> <C> <C> <C> <C> <C>
MFS(R) Global Governments 50.475906 48.073994 -4.76% 8,381 1999
Fund - Class A - NQS 49.106357 50.475906 2.79% 16,423 1998
49.604787 49.106357 -1.00% 15,550 1997
47.688325 49.604787 4.02% 22,367 1996
41.836304 47.688325 13.99% 36,927 1995
45.366368 41.836304 -7.78% 44,619 1994
38.823817 45.366368 16.85% 57,120 1993
38.813287 38.823817 0.03% 42,828 1992
34.671762 38.813287 11.94% 35,166 1991
29.795448 34.671762 16.37% 54,896 1990
MFS(R) Global Governments 51.693122 49.233289 -4.76% 367 1999
Fund - Class A - NQS 50.290543 51.693122 2.79% 709 1998
(81-225) 50.800980 50.290543 -1.00% 666 1997
48.838310 50.800980 4.02% 1,811 1996
42.845163 48.838310 13.99% 2,763 1995
46.460353 42.845163 -7.78% 3,284 1994
39.760030 46.460353 16.85% 3,684 1993
39.749239 39.760030 0.03% 4,274 1992
35.507853 39.749239 11.94% 5,904 1991
30.513949 35.507853 16.37% 7,450 1990
MFS(R) Growth 265.137821 348.647800 31.50% 0 1999
Opportunities Fund - 207.334157 265.137821 27.88% 0 1998
Class A - Q 169.873726 207.334157 22.05% 0 1997
140.810582 169.873726 20.64% 0 1996
105.450698 140.810582 33.15% 0 1995
111.450698 105.450698 -5.11% 0 1994
96.886717 111.450698 15.03% 0 1993
90.866062 96.886717 6.63% 59 1992
74.980776 90.866062 21.19% 60 1991
79.192602 74.980776 -5.32% 60 1990
</TABLE>
16
<PAGE> 19
<TABLE>
<CAPTION>
UNDERLYING MUTUAL FUND ACCUMULATION UNIT ACCUMULATION UNIT PERCENT CHANGE IN NUMBER OF YEAR
VALUE AT VALUE AT END OF ACCUMULATION UNIT ACCUMULATION UNITS
BEGINNING OF PERIOD VALUE AT END OF PERIOD
PERIOD
<S> <C> <C> <C> <C> <C>
MFS(R) Growth 194.984157 256.397950 31.50% 1,102 1999
Opportunities Fund - 152.474948 194.984157 27.88% 830 1998
Class A - NQ 124.926291 152.474948 22.05% 1,008 1997
103.553065 124.926291 20.64% 2,724 1996
77.773322 103.553065 33.15% 2,642 1995
81.961605 77.773322 -5.11% 2,807 1994
71.251149 81.961605 15.03% 2,923 1993
66.823526 71.251149 6.63% 3,217 1992
55.141372 66.823526 21.19% 3,285 1991
58.238773 55.141372 -5.32% 3,209 1990
MFS(R) Growth 180.233377 236.283783 31.10% 540,025 1999
Opportunities Fund - 141.368069 180.233377 27.49% 633,469 1998
Class A - QS 116.177967 141.368069 21.68% 732,936 1997
96.595726 116.177967 20.27% 822,246 1996
72.767772 96.595725 32.75% 920,477 1995
76.918993 72.767772 -5.40% 1,029,309 1994
67.070484 76.918993 14.68% 1,187,377 1993
63.094003 67.070484 6.30% 1,351,519 1992
52.221717 63.094003 20.82% 1,533,160 1991
55.323366 52.221717 -5.61% 1,718,069 1990
MFS(R) Growth 153.097965 200.709590 31.10% 114,789 1999
Opportunities Fund - 120.084102 153.097965 27.49% 152,136 1998
Class A - NQS 98.686554 120.084102 21.68% 172,812 1997
82.052560 98.686554 20.27% 182,479 1996
61.812074 82.052560 32.75% 206,611 1995
65.338300 61.812074 -5.40% 214,829 1994
56.972537 65.338300 14.68% 241,558 1993
53.594751 56.972537 6.30% 284,420 1992
44.359372 53.594751 20.82% 319,081 1991
46.994048 44.359372 -5.61% 322,668 1990
</TABLE>
17
<PAGE> 20
<TABLE>
<CAPTION>
UNDERLYING MUTUAL FUND ACCUMULATION UNIT ACCUMULATION UNIT PERCENT CHANGE IN NUMBER OF YEAR
VALUE AT VALUE AT END OF ACCUMULATION UNIT ACCUMULATION UNITS
BEGINNING OF PERIOD VALUE AT END OF PERIOD
PERIOD
<S> <C> <C> <C> <C> <C>
MFS(R) Growth 168.926385 221.460448 31.10% 9,598 1999
Opportunities Fund - 132.499304 168.926385 27.49% 11,929 1998
Class A - NQS 108.889502 132.499304 21.68% 12,840 1997
(81-225) 90.535764 108.889502 20.27% 14,732 1996
68.202665 90.535764 32.75% 15,064 1995
72.093454 68.202665 -5.40% 16,083 1994
62.862782 72.093454 14.68% 20,590 1993
59.135771 62.862782 6.30% 23,039 1992
48.945558 59.135771 20.82% 26,387 1991
51.852634 48.945558 -5.61% 32,466 1990
MFS(R) High Income Fund - 71.596334 75.842999 5.93% 0 1999
Class A - Q 71.581692 71.596334 0.02% 0 1998
64.068571 71.581692 11.73% 0 1997
57.498253 64.068571 11.43% 0 1996
49.574586 57.498253 15.98% 0 1995
51.425517 49.574586 -3.60% 0 1994
43.507773 51.425517 18.20% 0 1993
37.547955 43.507773 15.87% 0 1992
25.471529 37.547955 47.41% 0 1991
30.899937 25.471529 -17.57% 0 1990
MFS(R) High Income Fund - 72.060325 76.334509 5.93% 217 1999
Class A - NQ 72.045586 72.060325 0.02% 217 1998
64.483775 72.045586 11.73% 358 1997
57.870879 64.483775 11.43% 358 1996
49.895862 57.870879 15.98% 359 1995
51.758789 49.895862 -3.60% 359 1994
43.789729 51.758789 18.20% 721 1993
37.791286 43.789729 15.87% 360 1992
25.636591 37.791286 47.41% 360 1991
31.100170 25.636591 -17.57% 697 1990
</TABLE>
18
<PAGE> 21
<TABLE>
<CAPTION>
UNDERLYING MUTUAL FUND ACCUMULATION UNIT ACCUMULATION UNIT PERCENT CHANGE IN NUMBER OF YEAR
VALUE AT VALUE AT END OF ACCUMULATION UNIT ACCUMULATION UNITS
BEGINNING OF PERIOD VALUE AT END OF PERIOD
PERIOD
<S> <C> <C> <C> <C> <C>
MFS(R) High Income Fund - 62.788270 66.310941 5.61% 214,222 1999
Class A - QS 62.966234 62.788270 -0.28% 279,479 1998
56.528677 62.966234 11.39% 332,136 1997
50.886631 56.528677 11.09% 408,255 1996
44.007083 50.886631 15.63% 488,470 1995
45.788518 44.007083 -3.89% 561,209 1994
38.856280 45.788518 17.84% 709,698 1993
33.635599 38.856280 15.52% 764,118 1992
22.886614 33.635599 46.97% 797,975 1991
27.848883 22.886614 -17.82% 914,811 1990
MFS(R) High Income Fund - 61.835712 65.304939 5.61% 91,528 1999
Class A - NQS 62.010978 61.835712 -0.28% 119,105 1998
55.671087 62.010978 11.39% 154,453 1997
50.114634 55.671087 11.09% 176,997 1996
43.339456 50.114634 15.63% 188,820 1995
45.093866 43.339456 -3.89% 200,368 1994
38.266802 45.093866 17.84% 252,674 1993
33.125330 38.266802 15.52% 263,452 1992
22.539408 33.125330 46.97% 268,775 1991
27.426394 22.539408 -17.82% 301,912 1990
MFS(R) High Income Fund - 62.788270 66.310941 5.61% 4,190 1999
Class A - NQS 62.966234 62.788270 -0.28% 4,449 1998
(81-225) 56.528677 62.966234 11.39% 4,996 1997
50.886631 56.528677 11.09% 6,379 1996
44.007083 50.886631 15.63% 6,442 1995
45.788518 44.007083 -3.89% 6,622 1994
38.856280 45.788518 17.84% 9,385 1993
33.635599 38.856280 15.52% 9,545 1992
22.886614 33.635599 46.97% 9,353 1991
27.848883 22.886614 -17.82% 10,384 1990
</TABLE>
19
<PAGE> 22
<TABLE>
<CAPTION>
UNDERLYING MUTUAL FUND ACCUMULATION UNIT ACCUMULATION UNIT PERCENT CHANGE IN NUMBER OF YEAR
VALUE AT VALUE AT END OF ACCUMULATION UNIT ACCUMULATION UNITS
BEGINNING OF PERIOD VALUE AT END OF PERIOD
PERIOD
<S> <C> <C> <C> <C> <C>
MFS(R) Research Fund - 225.478933 276.393850 22.58% 0 1999
Class A - Q 185.283325 225.478933 21.69% 0 1998
155.285363 185.283325 19.32% 0 1997
126.019031 155.285363 23.22% 0 1996
91.844201 126.019031 37.21% 0 1995
92.760008 91.844201 -0.99% 0 1994
77.006871 92.760008 20.46% 0 1993
69.993098 77.006871 32.53% 0 1992
53.307836 69.993098 44.46% 0 1991
57.290901 53.307836 -6.95% 0 1990
MFS(R) Research Fund - 180.672640 221.469939 22.58% 434 1999
Class A - NQ 148.464541 180.672640 21.69% 390 1998
124.427653 148.464541 19.32% 390 1997
100.977005 124.427653 23.22% 110 1996
73.593263 100.977005 37.21% 599 1995
74.327082 73.593263 -0.99% 599 1994
61.704356 74.327082 20.46% 807 1993
56.084333 61.704356 32.53% 600 1992
42.714695 56.084333 44.46% 660 1991
45.906255 42.714695 -6.95% 663 1990
MFS(R) Research Fund - 177.325237 216.708566 22.21% 186,365 1999
Class A - QS 146.156474 177.325237 21.33% 225,728 1998
122.865333 146.156474 18.96% 265,836 1997
100.013750 122.865333 22.85% 283,320 1996
73.111959 100.013750 36.80% 270,229 1995
74.064821 73.111959 -1.29% 285,624 1994
61.673295 74.064821 20.09% 262,270 1993
56.226647 61.673295 9.69% 278,528 1992
42.952906 56.226647 30.90% 308,259 1991
46.303111 42.952906 -7.24% 341,148 1990
</TABLE>
20
<PAGE> 23
<TABLE>
<CAPTION>
UNDERLYING MUTUAL FUND ACCUMULATION UNIT ACCUMULATION UNIT PERCENT CHANGE IN NUMBER OF YEAR
VALUE AT VALUE AT END OF ACCUMULATION UNIT ACCUMULATION UNITS
BEGINNING OF PERIOD VALUE AT END OF PERIOD
PERIOD
<S> <C> <C> <C> <C> <C>
MFS(R) Research Fund - 154.941343 189.3532857 22.21% 62,991 1999
Class A - NQS 127.707031 154.941343 21.33% 81,260 1998
107.355935 127.707031 18.96% 93,659 1997
87.388917 107.355935 22.85% 105,263 1996
63.882963 87.388917 36.80% 100,973 1995
64.715547 63.882963 -1.29% 97,012 1994
53.888228 64.715547 20.09% 87,152 1993
49.129110 53.888228 9.69% 77,535 1992
37.530937 49.129110 30.90% 81,372 1991
40.458230 37.530937 -7.24% 87,510 1990
MFS(R) Research Fund - 175.255390 214.179022 22.21% 1,216 1999
Class A - NQS 144.450450 175.255390 21.33% 1,280 1998
(81-225) 121.431177 144.450450 18.96% 1,318 1997
98.846334 121.431177 22.85% 1,676 1996
72.258548 98.846334 36.80% 1,591 1995
73.200301 72.258548 -1.29% 1,727 1994
60.953415 73.200301 20.09% 1,975 1993
55.570339 60.953415 9.69% 1,996 1992
42.451540 55.570339 30.90% 2,041 1991
45.762638 42.451540 -7.24% 5,210 1990
MFS(R) Series Trust IV - 37.041140 38.386185 3.63% 0 1999
MFS(R) Money Market Fund 35.649000 37.041140 3.91% 0 1998
- - Q* 34.325389 35.649000 3.86% 0 1997
33.101565 34.325389 3.70% 0 1996
31.765828 33.101565 4.20% 0 1995
30.994333 31.765828 2.49% 0 1994
30.575287 30.994333 1.37% 0 1993
29.974326 30.575287 2.00% 0 1992
28.674122 29.974326 4.53% 0 1991
26.882238 28.674122 6.67% 0 1990
</TABLE>
21
<PAGE> 24
<TABLE>
<CAPTION>
UNDERLYING MUTUAL FUND ACCUMULATION UNIT ACCUMULATION UNIT PERCENT CHANGE IN NUMBER OF YEAR
VALUE AT VALUE AT END OF ACCUMULATION UNIT ACCUMULATION UNITS
BEGINNING OF PERIOD VALUE AT END OF PERIOD
PERIOD
<S> <C> <C> <C> <C> <C>
MFS(R) Series Trust IV - 38.008785 39.388969 3.63% 1,494 1999
MFS(R) Money Market Fund 36.580276 38.008785 3.91% 6,827 1998
- - NQ 35.222087 36.580276 3.86% 6,828 1997
33.966291 35.222087 3.70% 4,058 1996
32.595660 33.966291 4.20% 5,703 1995
31.804010 32.595660 2.49% 8,788 1994
31.374016 31.804010 1.37% 10,894 1993
30.757355 31.374016 2.00% 21,348 1992
29.423184 30.757355 4.53% 22,044 1991
27.584489 29.423184 6.67% 34,393 1990
MFS(R) Series Trust IV - 32.218020 33.286752 3.32% 836,061 1999
MFS(R) Money Market Fund 31.101395 32.218020 3.59% 1,006,298 1998
- - QS 30.037656 31.101395 3.54% 1,143,756 1997
29.055232 30.037656 3.38% 1,343,440 1996
27.967294 29.055232 3.89% 1,630,393 1995
27.370768 27.967294 2.18% 2,012,165 1994
27.082782 27.370768 1.06% 2,386,518 1993
26.631168 27.082782 1.70% 3,346,894 1992
25.553415 26.631168 4.22% 4,316,381 1991
24.029764 25.553415 6.34% 5,619,586 1990
MFS(R) Series Trust IV - 32.240409 33.309883 3.32% 499,340 1999
MFS(R) Money Market Fund 31.123008 32.240409 3.59% 568,052 1998
- - NQS 30.058530 31.123008 3.54% 556,766 1997
29.075421 30.058530 3.38% 615,505 1996
27.986728 29.075421 3.89% 597,925 1995
27.389788 27.986728 2.18% 823,383 1994
27.101602 27.389788 1.06% 962,484 1993
26.649674 27.101602 1.70% 1,251,049 1992
25.571172 26.649674 4.22% 1,661,279 1991
24.046461 25.571172 6.34% 2,007,134 1990
</TABLE>
22
<PAGE> 25
<TABLE>
<CAPTION>
UNDERLYING MUTUAL FUND ACCUMULATION UNIT ACCUMULATION UNIT PERCENT CHANGE IN NUMBER OF YEAR
VALUE AT VALUE AT END OF ACCUMULATION UNIT ACCUMULATION UNITS
BEGINNING OF PERIOD VALUE AT END OF PERIOD
PERIOD
<S> <C> <C> <C> <C> <C>
MFS(R) Total Return Fund 119.502472 121.008100 1.26% 0 1999
- - Class A - Q 108.143295 119.502472 10.50% 0 1998
90.602325 108.143295 19.36% 131 1997
79.840336 90.602325 13.48% 131 1996
63.581031 79.840336 25.57% 131 1995
65.964662 63.581031 -3.61% 132 1994
57.871052 65.964662 13.99% 132 1993
53.108093 57.871052 8.97% 132 1992
44.107591 53.108093 20.41% 132 1991
45.615581 44.107591 -2.32% 133 1990
MFS(R) Total Return Fund 117.432831 118.912382 1.26% 0 1999
- - Class A - NQ 106.270381 117.432831 10.50% 146 1998
89.033201 106.270381 19.36% 0 1997
78.457598 89.033201 13.48% 0 1996
62.479885 78.457598 25.57% 87 1995
64.822235 62.479885 -3.61% 87 1994
56.868802 64.822235 13.99% 317 1993
52.188320 56.868802 8.97% 712 1992
43.343699 52.188320 20.41% 534 1991
44.825581 43.343699 -3.31% 535 1990
MFS(R) Total Return Fund 108.882919 109.920643 0.95% 359,370 1999
- - Class A - QS 98.832664 108.882919 10.17% 465,417 1998
83.053566 98.832664 19.00% 570,631 1997
73.411912 83.053566 13.13% 671,118 1996
58.638949 73.411912 25.19% 782,272 1995
61.021714 58.638949 -3.90% 902,191 1994
53.697197 61.021714 13.64% 998,970 1993
49.427627 53.697197 8.64% 977,013 1992
41.175343 49.427627 20.04% 950,358 1991
42.712979 41.175343 -3.60% 942,653 1990
</TABLE>
23
<PAGE> 26
<TABLE>
<CAPTION>
UNDERLYING MUTUAL FUND ACCUMULATION UNIT ACCUMULATION UNIT PERCENT CHANGE IN NUMBER OF YEAR
VALUE AT VALUE AT END OF ACCUMULATION UNIT ACCUMULATION UNITS
BEGINNING OF PERIOD VALUE AT END OF PERIOD
PERIOD
<S> <C> <C> <C> <C> <C>
MFS(R) Total Return Fund 105.395033 106.399516 0.95% 109,211 1999
- - Class A - NQS 95.666722 105.395033 10.17% 127,066 1998
80.393080 95.666722 19.00% 145,316 1997
71.060281 80.393080 13.13% 167,776 1996
56.760546 71.060281 25.19% 199,257 1995
59.066983 56.760546 -3.90% 224,713 1994
51.977095 59.066983 13.64% 272,164 1993
47.844295 51.977095 8.64% 229,777 1992
39.856354 47.844295 20.04% 216,586 1991
41.344744 39.856354 -3.60% 234,543 1990
MFS(R) Total Return Fund 107.823630 108.851257 0.95% 1,014 1999
- - Class A - NQS 97.871152 107.823630 10.17% 1,118 1998
(81-225) 82.245565 97.871152 19.00% 805 1997
72.697711 82.245565 13.13% 1,979 1996
58.068470 72.697711 25.19% 1,863 1995
60.428053 58.068470 -3.90% 2,258 1994
53.174791 60.428053 13.64% 3,580 1993
48.946754 53.174791 8.64% 3,681 1992
40.774760 48.946754 20.04% 2,990 1991
42.297442 40.774760 -3.60% 3,950 1990
Nationwide Separate 24.593912 25.451018 3.49% 20,531 1999
Account Trust - Money 23.669908 24.593912 3.90% 32,830 1998
Market Fund - QS** 22.783414 23.669908 3.89% 41,782 1997
21.961256 22.783414 3.74% 55,730 1996
21.058716 21.961256 4.29% 60,928 1995
20.538004 21.058716 2.54% 72,621 1994
20.250996 20.538004 1.42% 98,132 1993
19.842272 20.250996 2.06% 126,024 1992
18.996144 19.842272 4.45% 148,883 1991
17.809654 18.996144 6.66% 178,554 1990
</TABLE>
24
<PAGE> 27
<TABLE>
<CAPTION>
UNDERLYING MUTUAL FUND ACCUMULATION UNIT ACCUMULATION UNIT PERCENT CHANGE IN NUMBER OF YEAR
VALUE AT VALUE AT END OF ACCUMULATION UNIT ACCUMULATION UNITS
BEGINNING OF PERIOD VALUE AT END OF PERIOD
PERIOD
<S> <C> <C> <C> <C> <C>
Nationwide Separate 24.609906 25.467570 3.49% 22,201 1999
Account Trust - Money 23.685302 24.609906 3.90% 22,624 1998
Market Fund - NQS 22.798231 23.685302 3.89% 26,117 1997
21.975540 22.798231 3.74% 32,499 1996
21.072414 21.975540 4.29% 36,289 1995
20.551361 21.072414 2.54% 41,143 1994
20.264167 20.551361 -0.44% 57,208 1993
19.855177 20.264167 3.96% 63,453 1992
19.008499 19.855177 4.45% 71,910 1991
17.821238 19.008499 6.66% 92,012 1990
</TABLE>
* The 7-day yield on the MFS(R) Series Trust IV - MFS(R) Money Market Fund as
of December 31, 1999 was 3.70%.
** The 7-day yield on the Nationwide Separate Account Trust - Money Market
Fund as of December 31, 1999, was 4.08%.
NATIONWIDE LIFE INSURANCE COMPANY
Nationwide is a stock life insurance company organized under Ohio law in March,
1929 with its home office at One Nationwide Plaza, Columbus, Ohio 43215.
Nationwide is a provider of life insurance, annuities and retirement products.
It is admitted to do business in all states, the District of Columbia and Puerto
Rico.
GENERAL DISTRIBUTOR
The contracts are distributed by the general distributor, Clarendon Insurance
Agency, Inc., 200 Berkeley Street, Boston, Massachusetts, 02116, an affiliate of
Massachusetts Financial Services Company.
TYPES OF CONTRACTS
The following is a general description of the types of annuity contracts, and is
intended to provide only general information of the various types of contracts;
it is not intended to be comprehensive. The eligibility requirements, tax
benefits, limitations, and other features of these contracts differ one from the
other.
Non-Qualified Annuity Contracts
A Non-Qualified Annuity Contract is a contract that does not qualify for certain
tax benefits under the Internal Revenue Code, and which is not an IRA, a Roth
IRA, a SEP IRA, or a Tax Sheltered Annuity.
Upon the death of the owner of a Non-Qualified Annuity Contract, mandatory
distribution requirements are imposed to ensure distribution of the entire
balance in the contract within the statutory period.
Non-Qualified Annuity contracts that are owned by natural persons can defer the
incidence of taxation on the income earned in the contract until it is
distributed or deemed to be distributed.
Individual Retirement Annuities (IRAs)
Individual Retirement Annuities are contracts that are issued by insurance
companies and satisfy the following requirements:
25
<PAGE> 28
- - the contract is not transferable by the owner;
- - the premiums are not fixed; o the annual premium cannot exceed $2,000
(although rollovers of greater amounts from qualified plans, tax-sheltered
annuities and other IRAs can be received);
- - certain minimum distribution requirements must be satisfied after the owner
attains the age of 70-1/2;
- - the entire interest of the owner in the contract is nonforfeitable; and
- - after the death of the owner, additional distribution requirements may be
imposed to ensure distribution of the entire balance in the contract within
the statutory period of time.
Depending on the circumstance of the owner, all or a portion of the
contributions made to the account may be deducted for federal income tax
purposes.
Failure to make the mandatory distributions can result in an additional penalty
tax of 50% of the excess of the amount required to be distributed over the
amount that was actually distributed.
IRAs may receive rollover contribution from other IRAs, from Tax Sheltered
Annuities, and from qualified retirement plans, including 401(k) plans.
For further details regarding IRAs, please refer to the disclosure statement
that should have been received when the IRA was established.
Simplified Employee Pension IRAs (SEP IRAs)
A SEP IRA is a written plan established by an employer for the benefit of
employees, which permits the employer to make contributions to an IRA
established for the benefit of each employee.
An employee may make deductible contributions to a SEP IRA in the same way, and
with the same restrictions and limitations, as for an IRA. In addition, the
employer may make contributions to the SEP IRA, subject to dollar and percentage
limitations imposed by both the Internal Revenue Code and the written plan.
A SEP IRA plan must satisfy the following requirements:
- - minimum participation rules;
- - top-heavy contribution rules;
- - nondiscriminatory allocation rules; and
- - requirements regarding a written allocation formula.
In addition, the plan cannot restrict withdrawals of non-elective contributions,
and must restrict withdrawals of elective contributions before March 15th of the
following year.
Roth IRAs
Roth IRA contracts are contracts that are issued by insurance companies and
satisfy the following requirements:
- - the contract is not transferable by the owner;
- - the premiums are not fixed;
- - the annual premium cannot exceed $2000 (although rollovers of greater
amounts from other Roth IRAs and IRAs can be received);
26
<PAGE> 29
- - the entire interest of the owner in the contract is nonforfeitable; and
- - after the death of the owner, certain distribution requirements may be
imposed to ensure distribution of the entire balance in the contract within
the statutory period of time.
A Roth IRA can receive a rollover from an IRA; however, the amount rolled over
from the IRA to the Roth IRA is required to be included in the owner's federal
gross income at the time of the rollover, and will be subject to federal income
tax.
There are income limitations on eligibility to participate in a Roth IRA and
additional income limitations for eligibility to roll over amounts from an IRA
to a Roth IRA. For further details regarding Roth IRAs, please refer to the
disclosure statement that should have been received when the Roth IRA was
established.
Tax Sheltered Annuities
Certain tax-exempt organizations (described in section 501(c)(3) of the Internal
Revenue Code) and public school systems may establish a plan under which annuity
contracts can be purchased for their employees. These annuity contracts are
often referred to as Tax Sheltered Annuities.
Purchase payments made to Tax Sheltered Annuities are excludible from the income
of the employee, up to statutory maximum amounts. These amounts should be set
forth in the plan adopted by the employer.
The owner's interest in the contract is nonforfeitable (except for failure to
pay premiums) and cannot be transferred. Certain minimum distribution
requirements must be satisfied after the owner attains the age of 70-1/2, and
after the death of the owner, additional distribution requirements may be
imposed to ensure distribution of the entire balance in the contract within the
statutory period of time.
Qualified Plans
Contracts that are owned by Qualified Plans are not intended to confer tax
benefits on the beneficiaries of the plan; they are used as investment vehicles
for the plan. The income tax consequences to the beneficiary of a Qualified Plan
are controlled by the operation of the plan, not by operation of the assets in
which the plan invests.
Beneficiaries of Qualified Plans should contact their employer and/or trustee of
the plan to obtain and review the plan, trust, summary plan description and
other documents for the tax and other consequences of being a participant in a
qualified plan.
INVESTING IN THE CONTRACT
THE VARIABLE ACCOUNT AND UNDERLYING MUTUAL FUNDS
MFS Variable Account is a variable account that invests in the underlying mutual
funds listed in Appendix A. Nationwide established the variable account on March
3, 1976, pursuant to Ohio law. Although the variable account is registered with
the SEC as a unit investment trust pursuant to the Investment Company Act of
1940 ("1940 Act"), the SEC does not supervise the management of Nationwide or
the variable account.
Income, gains, and losses credited to, or charged against, the variable account
reflect the variable account's own investment experience and not the investment
experience of Nationwide's other assets. The variable account's assets are held
separately from Nationwide's assets and are not chargeable with liabilities
incurred in any other business of Nationwide. Nationwide is obligated to pay all
amounts promised to contract owners under the contracts.
The variable account is divided into sub-accounts each corresponds to a single
underlying mutual fund. Nationwide uses the assets of each sub-account to buy
shares of the underlying mutual funds based on contract owner instructions.
There are two sub-accounts
27
<PAGE> 30
for each underlying mutual fund. One sub-account contains shares attributable to
accumulation units under Non-Qualified Contracts. The other contains shares
attributable to accumulation units under Individual Retirement Accounts, SEP
IRAs, Tax Sheltered Annuities, and Qualified Contracts.
Each underlying mutual fund's prospectus contains more detailed information
about that fund. Prospectuses for the underlying mutual funds should be read in
conjunction with this prospectus.
Underlying mutual funds in the variable account are NOT publicly traded mutual
funds. They are only available as investment options in variable life insurance
policies or variable annuity contracts issued by life insurance companies, or in
some cases, through participation in certain qualified pension or retirement
plans.
The investment advisers of the underlying mutual funds may manage publicly
traded mutual funds with similar names and investment objectives. However, the
underlying mutual funds are NOT directly related to any publicly traded mutual
fund. Contract owners should not compare the performance of a publicly traded
fund with the performance of underlying mutual funds participating in the
variable account. The performance of the underlying mutual funds could differ
substantially from that of any publicly traded funds.
Voting Rights
Contract owners who have allocated assets to the underlying mutual funds are
entitled to certain voting rights. Nationwide will vote contract owner shares at
special shareholder meetings based on contract owner instructions. However, if
the law changes and Nationwide is allowed to vote in its own right, it may elect
to do so.
Contract owners with voting interests in an underlying mutual fund will be
notified of issues requiring the shareholders' vote as soon as possible before
the shareholder meeting. Notification will contain proxy materials and a form
with which to give Nationwide voting instructions. Nationwide will vote shares
for which no instructions are received in the same proportion as those that are
received.
The number of shares which a contract owner may vote is determined by dividing
the cash value of the amount they have allocated to an underlying mutual fund by
the net asset value of that underlying mutual fund. Nationwide will designate a
date for this determination not more than 90 days before the shareholder
meeting.
Material Conflicts
The underlying mutual funds may be offered through separate accounts of other
insurance companies, as well as through other separate accounts of Nationwide.
Nationwide does not anticipate any disadvantages to this. However, it is
possible that a conflict may arise between the interests of the variable account
and one or more of the other separate accounts in which these underlying mutual
funds participate.
Material conflicts may occur due to a change in law affecting the operations of
variable life insurance policies and variable annuity contracts, or differences
in the voting instructions of the contract owners and those of other companies.
If a material conflict occurs, Nationwide will take whatever steps are necessary
to protect contract owners and variable annuity payees, including withdrawal of
the variable account from participation in the underlying mutual fund(s)
involved in the conflict.
Substitution of Securities
Nationwide may substitute, eliminate, or combine shares of another underlying
mutual fund for shares already purchased or to be purchased in the future if
either of the following occurs:
1) shares of a current underlying mutual fund are no longer available for
investment; or
2) further investment in an underlying mutual fund is inappropriate.
28
<PAGE> 31
No substitution, elimination, or combination of shares may take place without
the prior approval of the SEC and state insurance departments.
THE FIXED ACCOUNT
The fixed account is an investment option that is funded by assets of
Nationwide's general account. The general account contains all of Nationwide's
assets other than those in other Nationwide separate accounts. It is used to
support Nationwide's annuity and insurance obligations and may contain
compensation for mortality and expense risks. The general account is not subject
to the same laws as the variable account and the SEC has not reviewed material
in this prospectus relating to the fixed account. However, information relating
to the fixed account is subject to federal securities laws relating to accuracy
and completeness of prospectus disclosure.
Purchase payments will be allocated to the fixed account by election of the
contract owner.
The investment income earned by the fixed account will be allocated to the
contracts at varying guaranteed interest rate(s) depending on the following
categories of fixed account allocations:
- - New Money Rate - The rate credited on the fixed account allocation when
the contract is purchased or when subsequent purchase payments are
made. Subsequent purchase payments may receive different New Money
Rates than the rate when the contract was issued, since the New Money
Rate is subject to change based on market conditions.
- - Variable Account to Fixed Rate - Allocations transferred from any of
the underlying investment options in the variable account to the fixed
account may receive a different rate. The rate may be lower than the
New Money Rate. There may be limits on the amount and frequency of
movements from the variable account to the fixed account.
- - Renewal Rate - The rate available for maturing fixed account
allocations which are entering a new guarantee period. The contract
owner will be notified of this rate in a letter issued with the
quarterly statements when any of the money in the contract owner's
fixed account matures. At that time, the contract owner will have an
opportunity to leave the money in the fixed account and receive the
Renewal Rate or the contract owner can move the money to any of the
other underlying mutual fund options.
- - Dollar Cost Averaging Rate - From time to time, Nationwide may offer a
more favorable rate for an initial purchase payment into a new contract
when used in conjunction with a Dollar Cost Averaging program.
All of these rates are subject to change on a daily basis; however, once
applied to the fixed account, the interest rates are guaranteed until the end of
the calendar quarter during which the 12 month anniversary of the fixed account
allocation occurs.
Credited interest rates are annualized rates - the effective yield of interest
over a one-year period. Interest is credited to each contract on a daily basis.
As a result, the credited interest rate is compounded daily to achieve the
stated effective yield.
Any interest in excess of 3.0% will be credited to fixed account allocations at
Nationwide's sole discretion. The contract owner assumes the risk that interest
credited to fixed account allocations may not exceed the minimum guarantee of
3.0% for any given year.
Nationwide guarantees that the fixed account contract value will not be less
than the amount of the purchase payments allocated to the fixed account, plus
interest credited as described above, less any applicable charges including
CDSC.
CHARGES AND DEDUCTIONS
CONTRACT MAINTENANCE CHARGE
On each contract anniversary (and upon a full surrender of the contract),
Nationwide deducts a $30 Contract Maintenance Charge. This charge reimburses
Nationwide for administrative
29
<PAGE> 32
expenses relating to the maintenance of the contract.
The deduction of the Contract Maintenance Charge will be taken proportionately
from each sub-account and the fixed account based on the value in each option at
the time of the withdrawal as compared to the total contract value.
Nationwide will not increase the Contract Maintenance Charge. Nationwide will
not reduce or eliminate the Contract Maintenance Charge where it would be
discriminatory or unlawful.
MORTALITY AND EXPENSE RISK CHARGES
Nationwide deducts Mortality and Expense Risk Charges from the variable account.
This amount is computed on a daily basis, and is equal to an annual rate of
1.30% of the daily net assets of the variable account.
The mortality risk charges compensate Nationwide for guaranteeing the annuity
purchase rates of the contracts. This guarantee ensures that the annuity
purchase rates will not change regardless of the death rates of annuity payees
or the general population. The mortality risk charges also compensate Nationwide
for risks assumed in connection with the standard death benefit.
The expense risk charges compensate Nationwide for guaranteeing that
administration charges will not increase regardless of actual expenses.
If these charges are insufficient to cover actual expenses, the loss is borne by
Nationwide.
CONTINGENT DEFERRED SALES CHARGE
No sales charge deduction is made from the purchase payments when amounts are
deposited into the contracts. However, if any part of the contract is
surrendered, Nationwide will deduct a CDSC, as described below.
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 8 years of the
surrender date.
The CDSC is calculated by multiplying the applicable CDSC percentage by the
lesser of the amount surrendered or the total of all purchase payments made
within 8 years of the surrender request.
For purposes of calculating the CDSC, surrenders are considered to come first
from the oldest purchase payment made to the contract, then the next oldest
purchase payment, and so forth. Earnings are not subject to the CDSC, but may
not be distributed prior to the distribution of all purchase payments. (For tax
purposes, a surrender is usually treated as a withdrawal of earnings first.)
The CDSC is used to cover sales expenses, including commissions (maximum of
5.11% of purchase payments), production of sales material, and other promotional
expenses. If expenses are greater than the CDSC, the shortfall will be made up
from Nationwide's general account, which may indirectly include portions of the
Contract Maintenance Charge and other variable account charges, since Nationwide
may generate a profit from these charges.
Contract owners taking withdrawals before age 59 1/2 may be subject to a 10% tax
penalty. In addition, all or a portion of the withdrawal may be subject to
federal income taxes (see "Non-Qualified Contracts - Natural Persons as Contract
Owners").
Waiver of Contingent Deferred Sales Charge
Starting with the second contract year, the contract owner may withdraw without
a CDSC the greater of:
(a) 10% of all purchase payments; or
(b) any amount withdrawn to meet minimum distribution requirements
under the Internal Revenue Code.
This CDSC-free privilege is non-cumulative. Free amounts not taken during any
given contract year cannot be taken as free amounts in a subsequent contract
year.
In addition, no CDSC will be deducted:
30
<PAGE> 33
(1) upon the annuitization of contracts which have been in force
for at least two years;
(2) upon payment of a death benefit; or
(3) from any values which have been held under a contract for at
least 8 years.
No CDSC applies to transfers among sub-accounts or between or among the fixed
account or the variable account. Nationwide may waive the CDSC if a contract
described in this prospectus is exchanged for another Nationwide contract (or a
contract of any of its affiliated insurance companies). A CDSC may apply to the
contract received in the exchange.
Additionally, Nationwide will waive the CDSC on contracts purchased by:
- - an officer, director, partner or employee of the general distributor,
Clarendon Insurance Agency, Inc. (an affiliate of Massachusetts
Financial Services Company); or
- - an officer, director, partner or employee of any firm affiliated with
Clarendon Insurance Agency, Inc.
PREMIUM TAXES
Nationwide will charge against the contract value any premium taxes levied by a
state or other government entity. Premium tax rates currently range from 0% to
5%. This range is subject to change. The method used to assess premium tax will
be determined by Nationwide at its sole discretion in compliance with state law.
If applicable, Nationwide will deduct premium taxes from the contract either at:
(1) the time the contract is surrendered;
(2) annuitization; or
(3) such earlier date as Nationwide becomes subject to premium
taxes.
Premium taxes may be deducted from death benefit proceeds.
CONTRACT OWNERSHIP
The contract owner has all rights under the contract. Purchasers who name
someone other than themselves as the contract owner will have no rights under
the contract.
Contract owners of Non-Qualified Contracts may name a new contract owner at any
time before the annuitization date. Any change of contract owner automatically
revokes any prior contract owner designation. Changes in contract ownership may
result in federal income taxation and may be subject to state and federal gift
taxes.
A change in contract ownership must be submitted in writing and recorded at
Nationwide's home office. Once recorded, the change will be effective as of the
date signed. However, the change will not affect any payments made or actions
taken by Nationwide before it was recorded.
The contract owner may also request a change in the annuitant, contingent
annuitant, contingent owner, beneficiary, or contingent beneficiary before the
annuitization date. These changes must be:
- on a Nationwide form;
- signed by the contract owner; and
- received at Nationwide's home office before the annuitization
date.
Nationwide must review and approve any change requests. If the contract owner is
not a natural person and there is a change of the annuitant, distributions will
be made as if the contract owner died at the time of the change.
On the annuitization date, the annuitant will become the contract owner.
JOINT OWNERSHIP
Joint owners each own an undivided interest in the contract.
Contract owners can name a joint owner at any time before annuitization subject
to the following conditions:
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<PAGE> 34
- - Joint owners can only be named for Non-Qualified Contracts;
- - Joint owners must be spouses at the time joint ownership is requested,
unless state law requires Nationwide to allow non-spousal joint owners;
- - The exercise of any ownership right in the contract will generally require
a written request signed by both joint owners;
- - Nationwide will not be liable for any loss, liability, cost, or expense for
acting in accordance with the instructions of either joint owner; and
- - An election in writing signed by both contract owners must be made to
authorize Nationwide to allow the exercise of ownership rights
independently by either joint owner.
CONTINGENT OWNERSHIP
The contingent owner is entitled to certain benefits under the contract, if a
contract owner who is NOT the annuitant dies before the annuitization date, and
there is no surviving joint owner.
The contract owner may name or change a contingent owner at any time before the
annuitization date. To change the contingent owner, a written request must be
submitted to Nationwide. Once Nationwide has recorded the change, it will be
effective as of the date it was signed, whether or not the contract owner was
living at the time it was recorded. The change will not affect any action taken
by Nationwide before the change was recorded.
ANNUITANT
The annuitant is the person who will receive annuity payments and upon whose
continuation of life any annuity payment involving life contingencies depends.
This person must be age 78 or younger at the time of contract issuance, unless
Nationwide approves a request for an annuitant of greater age. The annuitant may
be changed before the annuitization date with Nationwide's consent.
BENEFICIARY AND CONTINGENT BENEFICIARY
The beneficiary is the person(s) who is entitled to the death benefit if the
annuitant dies before the annuitization date and there is no joint owner. The
contract owner can name more than one beneficiary. Multiple beneficiaries will
share the death benefit equally, unless otherwise specified.
The contract owner may change the beneficiary or contingent beneficiary during
the annuitant's lifetime by submitting a written request to Nationwide. Once
recorded, the change will be effective as of the date it was signed, whether or
not the annuitant was living at the time it was recorded. The change will not
affect any action taken by Nationwide before the change was recorded.
OPERATION OF THE CONTRACT
MINIMUM INITIAL AND SUBSEQUENT PURCHASE PAYMENTS
<TABLE>
<CAPTION>
MINIMUM INITIAL MINIMUM
CONTRACT PURCHASE SUBSEQUENT
TYPE PAYMENT PAYMENTS
<S> <C> <C>
Non-Qualified $1,500 $0
IRA $0 $0
SEP IRA $0 $0
Tax Sheltered $0 $0
Annuity
Qualified $0 $0
</TABLE>
PRICING
Initial purchase payments allocated to sub-accounts will be priced at the
accumulation unit value determined no later than 2 business days after receipt
of an order to purchase if the application and all necessary information are
complete. If the application is not complete, Nationwide may retain a purchase
payment for up to 5 business days while attempting to complete it. If the
application is not completed within 5 business days, the prospective purchaser
will be informed of the reason for the delay. The purchase payment will be
returned unless the prospective purchaser specifically allows Nationwide to hold
the purchase payment until the application is completed.
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<PAGE> 35
Subsequent purchase payments will be priced based on the next available
accumulation unit value after the payment is received. The cumulative total of
all purchase payments under contracts on the life of any one annuitant cannot
exceed $1,000,000 without Nationwide's prior consent.
Purchase payments will not be priced when the New York Stock Exchange is closed
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
- - Christmas
Nationwide also will not price purchase payments if:
(1) trading on the New York Stock Exchange is restricted;
(2) an emergency exists making disposal or valuation of securities
held in the variable account impracticable; or
(3) the SEC, by order, permits a suspension or postponement for
the protection of security holders.
Rules and regulations of the SEC will govern as to when the conditions described
in (2) and (3) exist. If Nationwide is closed on days when the New York Stock
Exchange is open, contract value may be affected since the contract owner will
not have access to their account.
ALLOCATION OF PURCHASE PAYMENTS
Nationwide allocates purchase payments to sub-accounts and/or the fixed account
as instructed by the contract owner. Shares of the sub-accounts are purchased at
net asset value, then converted into accumulation units. Contract owners can
change allocations or make exchanges among the sub-accounts and the fixed
account. Certain transactions may be subject to conditions imposed by the
underlying mutual funds, as well as those set forth in the contract.
DETERMINING THE CONTRACT VALUE
The contract value is the sum of:
1) the value of amounts allocated to the sub-accounts of the
variable account; and
2) amounts allocated to the fixed account.
If part or all of the contract value is surrendered, or charges are assessed
against the contract value, Nationwide will deduct a proportionate amount from
each sub-account and the fixed account based on current cash values.
Determining Variable Account Value - Valuing an Accumulation Unit
Purchase payments or transfers allocated to sub-accounts are accounted for in
accumulation units. Accumulation unit values (for each sub-account) are
determined by calculating the net investment factor for the underlying mutual
funds for the current valuation period and multiplying that result with the
accumulation unit values determined on the previous valuation period.
Nationwide uses the net investment factor as a way to calculate the investment
performance of a sub-account from valuation period to valuation period. For each
sub-account, the net investment factor shows the investment performance of the
underlying mutual fund in which a particular sub-account invests, including the
charges assessed against that sub-account for a valuation period.
The net investment factor for any particular sub-account is determined by
dividing (a) by (b), and then subtracting (c) from the result, where:
(a) is:
(1) the net asset value of the underlying mutual fund as of the
end of the current valuation period; and
(2) the per share amount of any dividend or income distributions
made by the underlying mutual fund (if the ex-dividend date
occurs during the current valuation period);
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<PAGE> 36
(b) is the net asset value of the underlying mutual fund
determined as of the end of the preceding valuation period;
and
(c) is a factor representing the daily variable account charges.
The factor is equal to an annual rate of 1.30% of the daily
net assets of the variable account.
Based on the change in the net investment factor, the value of an accumulation
unit may increase or decrease. Changes in the net investment factor may not be
directly proportional to changes in the net asset value of the underlying mutual
fund shares because of the deduction of variable account charges.
Though the number of accumulation units will not change as a result of
investment experience, the value of an accumulation unit may increase or
decrease from valuation period to valuation period.
Determining Fixed Account Value
Nationwide determines the value of the fixed account by:
1) adding all amounts allocated to the fixed account, minus
amounts previously transferred or withdrawn; and
2) adding any interest earned on the amounts allocated.
TRANSFERS
Transfers from the Fixed Account to the Variable Account
Fixed account allocations may be transferred to the variable account only upon
reaching the end of an Interest Rate Guarantee Period. Normally, Nationwide will
permit 100% of such fixed account allocations to be transferred to the variable
account; however, Nationwide may, under certain economic conditions and at its
discretion, limit the maximum transferable amount. Under no circumstances will
the maximum transferable amount be less than 10% of the fixed account
allocations reaching the end of an Interest Rate Guarantee Period. Transfers of
the fixed account allocations must be made within 45 days after reaching the end
of an Interest Rate Guarantee Period.
Contract owners who use Dollar Cost Averaging may transfer from the fixed
account to the variable account under the terms of that program (see "Dollar
Cost Averaging").
Transfers from the Variable Account to the Fixed Account
Variable account allocations may be transferred to the fixed account at any
time. Normally, Nationwide will not restrict transfers from the variable account
to the fixed account; however, Nationwide may establish a maximum transfer limit
from the variable account to the fixed account.
Except as noted below, under no circumstances will the transfer limit be less
than 10% of the current value of the variable account, less any transfers made
in the 12 months preceding the date the transfer is requested, but not including
transfers made prior to the imposition of the transfer limit. However, where
permitted by state law, Nationwide reserves the right to refuse transfers or
purchase payments to the fixed account when the fixed account value is greater
than or equal to 30% of the contract value at the time the purchase payment is
made or the transfer is requested.
Transfer Requests
Nationwide will accept transfer requests in writing or, in those states that
allow them, over the telephone. Nationwide will use reasonable procedures to
confirm that telephone instructions are genuine and will not be liable for
following telephone instructions that it reasonably determined to be genuine.
Nationwide may withdraw the telephone exchange privilege upon 30 days written
notice to contract owners.
After annuitization, transfers may only be made on the anniversary of the
annuitization date.
Amounts transferred to the variable account will receive the accumulation unit
value next determined after the request is received.
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Interest Rate Guarantee Period
The interest rate guarantee period is the period of time that the fixed account
interest rate is guaranteed to remain the same. Within 45 days of the end of an
interest rate guarantee period, transfers may be made from the fixed account to
the variable account. Nationwide will determine the amount that may be
transferred and will declare this amount at the end of the guarantee period.
This amount will not be less than 10% of the amount in the fixed account that is
maturing.
For new purchase payments allocated to the fixed account, or transfers to the
fixed account from the variable account, this period begins on the date of
deposit or transfer and ends on the one year anniversary of the deposit or
transfer. The guaranteed interest rate period may last for up to 3 months beyond
the 1 year anniversary because guaranteed terms end on the last day of a
calendar quarter.
During an interest rate guarantee period, transfers cannot be made from the
fixed account, and amounts transferred to the fixed account must remain on
deposit.
Market Timing Firms
Some contract owners may use market timing firms or other third parties to make
transfers on their behalf. Generally, in order to take advantage of perceived
market trends, market-timing firms will submit transfer or exchange requests on
behalf of multiple contract owners at the same time. Sometimes this can result
in unusually large transfers of funds. These large transfers might interfere
with the ability of Nationwide or the underlying mutual fund to process
transactions. This can potentially disadvantage contract owners not using
market-timing firms. To avoid this, Nationwide may modify transfer and exchange
rights of contract owners who use market timing firms (or other third parties)
to transfer or exchange funds on their behalf.
The exchange and transfer rights of individual contract owners will not be
modified in any way when instructions are submitted directly by the contract
owner, or by the contract owner's representative (as authorized by the execution
of a valid Nationwide Limited Power of Attorney Form).
To protect contract owners, Nationwide may refuse exchange and transfer
requests:
- submitted by any agent acting under a power of attorney on
behalf of more than one contract owner; or
- submitted on behalf of individual contract owners who have
executed pre-authorized exchange forms which are submitted by
market timing firms (or other third parties) on behalf of more
than one contract owner at the same time.
Nationwide will not restrict exchange rights unless Nationwide believes it to be
necessary for the protection of all contract owners.
RIGHT TO REVOKE
Contract owners have a ten day "free look" to examine the contract. The contract
may be returned to Nationwide's home office for any reason within ten days of
receipt and Nationwide will refund the contract value or another amount required
by law. All IRA refunds will be a return of purchase payments. State and/or
federal law may provide additional free look privileges.
Liability of the variable account under this provision is limited to the
contract value in each sub-account on the date of revocation. Any additional
amounts refunded to the contract owner will be paid by Nationwide.
SURRENDER (REDEMPTION)
Contract owners may surrender some or all of their contract value before the
earlier of the annuitization date or the annuitant's death. Surrender requests
must be in writing and Nationwide may require additional information. When
taking a full surrender, the contract must accompany the written request.
Nationwide may require a signature guarantee.
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Nationwide will pay any amounts surrendered from the sub-accounts within 7 days.
However, Nationwide may suspend or postpone payment when it is unable to price a
purchase payment or transfer.
PARTIAL SURRENDERS (PARTIAL REDEMPTIONS)
Nationwide will surrender accumulation units from the sub-accounts and an amount
from the fixed account. The amount withdrawn from each investment option will be
in proportion to the value in each option at the time of the surrender request.
A CDSC may apply. The contract owner may direct Nationwide to deduct the CDSC
from either:
a) the amount requested; or
b) the remaining contract value.
If the contract owner does not make a specific election, any applicable CDSC
will be taken from the remaining contract value.
FULL SURRENDERS (FULL REDEMPTIONS)
The contract value upon full surrender may be more or less than the total of all
purchase payments made to the contract. The contract value will reflect variable
account charges, underlying mutual fund charges and the investment performance
of the underlying mutual funds. A CDSC may apply.
SURRENDERS UNDER A QUALIFIED PLAN OR TAX SHELTERED ANNUITY
Contract owners of a Qualified Plan or Tax Sheltered Annuity may surrender part
or all of their contract value before the earlier of the annuitization date or
the annuitant's death, except as provided below:
A. Contract value attributable to contributions made under a qualified
cash or deferred arrangement (within the meaning of Internal Revenue
Code Section 402(g)(3)(A)), a salary reduction agreement (within the
meaning of Internal Revenue Code Section 402(g)(3)(C)), or transfers
from a Custodial Account (described in Section 403(b)(7) of the
Internal Revenue Code), may be surrendered only:
1. when the contract owner reaches age 59 1/2, separates from
service, dies, or becomes disabled (within the meaning of
Internal Revenue Code Section 72(m)(7)); or
2. in the case of hardship (as defined for purposes of Internal
Revenue Code Section 401(k)), provided that any such hardship
surrender may NOT include any income earned on salary
reduction contributions.
B. The surrender limitations described in Section A also apply to:
1. salary reduction contributions to Tax Sheltered Annuities made
for plan years beginning after December 31, 1988;
2. earnings credited to such contracts after the last plan year
beginning before January 1, 1989, on amounts attributable to
salary reduction contributions; and
3. all amounts transferred from 403(b)(7) Custodial Accounts
(except that earnings and employer contributions as of
December 31, 1988 in such Custodial Accounts may be withdrawn
in the case of hardship).
C. Any distribution other than the above, including a ten day free look
cancellation of the contract (when available) may result in taxes,
penalties, and/or retroactive disqualification of a Qualified Contract
or Tax Sheltered Annuity.
In order to prevent disqualification of a Tax Sheltered Annuity after a ten day
free look cancellation, Nationwide will transfer the proceeds to another Tax
Sheltered Annuity upon proper direction by the contract owner.
These provisions explain Nationwide's understanding of current withdrawal
restrictions. These restrictions may change.
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Distributions pursuant to Qualified Domestic Relations Orders will not violate
the restrictions stated above.
Plan terms and the Internal Revenue Code may modify surrender provisions when
the contract is issued to fund a Qualified Plan.
LOAN PRIVILEGE
The loan privilege is ONLY available to owners of Qualified Contracts and Tax
Sheltered Annuities. These contract owners can take loans from the contract
value beginning 30 days after the contract is issued up to the annuitization
date. Loans are subject to the terms of the contract, the plan, and the Internal
Revenue Code. Nationwide may modify the terms of a loan to comply with changes
in applicable law.
MINIMUM & MAXIMUM LOAN AMOUNTS
Contract owners may borrow a minimum of $1,000, unless Nationwide is required by
law to allow a lesser minimum amount. Each loan must individually satisfy the
contract minimum amount.
Nationwide will calculate the maximum nontaxable loan amount based upon
information provided by the participant or the employer. Loans may be taxable if
a participant has additional loans from other plans. The total of all
outstanding loans must not exceed the following limits:
<TABLE>
<CAPTION>
CONTRACT MAXIMUM OUTSTANDING LOAN
VALUES BALANCE ALLOWED
<S> <C> <C>
NON-ERISA PLANS up to up to 80% of contract
$20,000 value (not more than
$10,000)
$20,000 up to 50% of contract
and over value (not more than
$50,000*)
ERISA PLANS All up to 50% of contract
value (not more than
$50,000*)
</TABLE>
*The $50,000 limits will be reduced by the highest outstanding balance owed
during the previous 12 months.
For salary reduction Tax Sheltered Annuities, loans may be secured only by the
contract value.
LOAN PROCESSING FEE
Nationwide may charge a loan processing fee at the time each new loan is
processed. If assessed, this fee will compensate Nationwide for expenses related
to administering and processing loans.
The fee is taken from the sub-accounts and the fixed account in proportion to
the contract value at the time the loan is processed.
HOW LOAN REQUESTS ARE PROCESSED
All loans are made from the collateral fixed account. Nationwide transfers
accumulation units in proportion to the assets in each sub-account to the
collateral fixed account until the requested amount is reached. If there are not
enough accumulation units available in the contract to reach the requested loan
amount, Nationwide next transfers contract value from the fixed account. No CDSC
will be deducted on transfers related to loan processing.
INTEREST
The outstanding loan balance in the collateral fixed account is credited with
interest until the loan is repaid in full. The credited interest rate will be
2.25% less than the loan interest rate fixed by Nationwide. The credited
interest rate is guaranteed never to fall below 3.0%.
Specific loan terms are disclosed at the time of loan application or issuance.
LOAN REPAYMENT
Loans must be repaid in five years. However, if the loan is used to purchase the
contract owner's principal residence, the contract owner has 15 years to repay
the loan.
Contract owners must identify loan repayments as loan repayments or they will be
treated as purchase payments and will not reduce the outstanding loan. Payments
must be substantially level and made at least quarterly.
Loan repayments will consist of principal and interest in amounts set forth in
the loan agreement. Repayments are allocated to the sub-accounts in accordance
with the contract,
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unless Nationwide and the contract owner have agreed to amend the contract at a
later date on a case by case basis.
DISTRIBUTIONS & ANNUITY PAYMENTS
Distributions made from the contract while a loan is outstanding will be reduced
by the amount of the outstanding loan plus accrued interest if:
- the contract is surrendered;
- the contract owner/annuitant dies;
- the contract owner who is not the annuitant dies prior to
annuitization; or
- annuity payments begin.
TRANSFERRING THE CONTRACT
Nationwide reserves the right to restrict any transfer of the contract while the
loan is outstanding.
GRACE PERIOD & LOAN DEFAULT
If a loan payment is not made when due, interest will continue to accrue. A
grace period may be available (please refer to the terms of the loan agreement).
If a loan payment is not made by the end of the applicable grace period, the
entire loan will be treated as a deemed distribution and will be taxable to the
borrower. This deemed distribution may also be subject to an early withdrawal
tax penalty by the Internal Revenue Service.
After default, interest will continue to accrue on the loan. Defaulted amounts,
plus interest, are deducted from the contract value when the participant is
eligible for a distribution of at least that amount. Additional loans are not
available while a previous loan is in default.
ASSIGNMENT
Contract rights are personal to the contract owner and may not be assigned
without Nationwide's written consent. Qualified Contracts, IRAs, SEP IRAs, and
Tax Sheltered Annuities may not be assigned, pledged or otherwise transferred
except where allowed by law.
A Non-Qualified Contract owner may assign some or all rights under the contract.
An assignment must occur before annuitization while the annuitant is alive. Once
proper notice of assignment is recorded by Nationwide's home office, the
assignment will become effective as of the date the written request was signed.
Nationwide is not responsible for the validity or tax consequences of any
assignment. Nationwide is not liable for any payment or settlement made before
the assignment is recorded. Assignments will not be recorded until Nationwide
receives sufficient direction from the contract owner and the assignee regarding
the proper allocation of contract rights.
Amounts pledged or assigned will be treated as distributions and will be
included in gross income to the extent that the cash value exceeds the
investment in the contract for the taxable year in which it was pledged or
assigned. Amounts assigned may be subject to a tax penalty equal to 10% of the
amount included in gross income.
Assignment of the entire contract value may cause the portion of the contract
value exceeding the total investment in the contract and previously taxed
amounts to be included in gross income for federal income tax purposes each year
that the assignment is in effect.
CONTRACT OWNER SERVICES
ASSET REBALANCING
Asset rebalancing is the automatic reallocation of contract values to the
sub-accounts on a predetermined percentage basis. Asset rebalancing is not
available for assets held in the fixed account. Requests for asset rebalancing
must be on a Nationwide form.
Asset rebalancing occurs every three months or on another frequency if permitted
by Nationwide. If the last day of the three-month period falls on a Saturday,
Sunday, recognized holiday, or any other day when the New York
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Stock Exchange is closed, asset rebalancing will occur on the next business day.
Asset rebalancing may be subject to employer limitations or restrictions for
contracts issued to a Qualified Plan or Tax Sheltered Annuity plan. Contract
owners should consult a financial adviser to discuss the use of asset
rebalancing.
Nationwide reserves the right to stop establishing new asset rebalancing
programs. Nationwide also reserves the right to assess a processing fee for this
service.
DOLLAR COST AVERAGING
Dollar cost averaging is a long-term transfer program that allows you to make
regular, level investments over time. It involves the automatic transfer of a
specified amount from the fixed account and/or certain sub-accounts into other
sub-accounts. Nationwide does not guarantee that this program will result in
profit or protect contract owners from loss.
Contract owners direct Nationwide to automatically transfer specified amounts
from the fixed account and the NSAT Money Market Fund to any other underlying
mutual fund. The minimum monthly transfer is $100. Transfers from the fixed
account must be equal to 1/30th of the fixed account value at the time the
program is requested.
Transfers occur monthly or on another frequency if permitted by Nationwide.
Nationwide will process transfers until either the value in the originating
investment option is exhausted, or the contract owner instructs Nationwide in
writing to stop the transfers.
Nationwide reserves the right to stop establishing new dollar cost averaging
programs. Nationwide also reserves the right to assess a processing fee for this
service.
SYSTEMATIC WITHDRAWALS
Systematic withdrawals allow contract owners to receive a specified amount (of
at least $100) on a monthly, quarterly, semi-annual, or annual basis. Requests
for systematic withdrawals and requests to discontinue systematic withdrawals
must be in writing.
The withdrawals will be taken from the sub-accounts and the fixed account
proportionately unless Nationwide is instructed otherwise. A CDSC may apply.
Nationwide will withhold federal income taxes from systematic withdrawals unless
otherwise instructed by the contract owner. The Internal Revenue Service may
impose a 10% penalty tax if the contract owner is under age 59 1/2 unless the
contract owner has made an irrevocable election of distributions of
substantially equal payments.
Nationwide reserves the right to stop establishing new systematic withdrawal
programs. Nationwide also reserves the right to assess a processing fee for this
service. Systematic withdrawals are not available before the end of the ten-day
free look period (see "Right to Revoke").
ANNUITY COMMENCEMENT DATE
The annuity commencement date is the date on which annuity payments are
scheduled to begin. The contract owner may change the annuity commencement date
before annuitization. This change must be in writing and approved by Nationwide.
ANNUITIZING THE CONTRACT
ANNUITIZATION DATE
The annuitization date is the date that annuity payments begin. It will be the
first day of a calendar month unless otherwise agreed, and must be at least 2
years after the contract is issued. If the contract is issued to fund a Tax
Sheltered Annuity plan, annuitization may occur during the first 2 years subject
to Nationwide's approval.
ANNUITIZATION
Annuitization is the period during which annuity payments are received. It is
irrevocable once
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payments have begun. Upon arrival of the annuitization date, the annuitant must
choose:
(1) an annuity payment option; and
(2) either a fixed payment annuity, variable payment annuity, or
an available combination.
Nationwide guarantees that each payment under a fixed payment annuity will be
the same throughout annuitization. Under a variable payment annuity, the amount
of each payment will vary with the performance of the underlying mutual funds
chosen by the contract owner.
FIXED PAYMENT ANNUITY
A fixed payment annuity is an annuity where the amount of the annuity payments
remains level.
The first payment under a fixed payment annuity is determined on the
annuitization date on an age last birthday basis by:
1) deducting applicable premium taxes from the total contract
value; then
2) applying the contract value amount specified by the contract
owner to the fixed payment annuity table for the annuity
payment option elected.
Subsequent payments will remain level unless the annuity payment option elected
provides otherwise. Nationwide does not credit discretionary interest during
annuitization.
VARIABLE PAYMENT ANNUITY
A variable payment annuity is an annuity where the amount of the annuity
payments will vary depending on the performance of the underlying mutual funds
selected.
The first payment under a variable payment annuity is determined on the
annuitization date on an age last birthday basis by:
1) deducting applicable premium taxes from the total contract
value; then
2) applying the contract value amount specified by the contract
owner to the variable payment annuity table for the annuity
payment option elected.
The dollar amount of the first payment is converted into a set number of annuity
units that will represent each monthly payment. This is done by dividing the
dollar amount of the first payment by the value of an annuity unit as of the
annuitization date. This number of annuity units remains fixed during
annuitization.
The second and subsequent payments are determined by multiplying the fixed
number of annuity units by the annuity unit value for the valuation period in
which the payment is due. The amount of the second and subsequent payments will
vary with the performance of the selected underlying mutual funds. Nationwide
guarantees that variations in mortality experience from assumptions used to
calculate the first payment will not affect the dollar amount of the second and
subsequent payments.
Assumed Investment Rate
An assumed investment rate is the percentage rate of return assumed to determine
the amount of the first payment under a variable payment annuity. Nationwide
uses the assumed investment rate of 3.5% to calculate the first annuity payment
and to calculate the investment performance of an underlying mutual fund in
order to determine subsequent payments under a variable payment annuity. An
assumed investment rate is the percentage rate of return required to maintain
level variable annuity payments. Subsequent variable annuity payments may be
more or less than the first payment based on whether actual investment
performance is higher or lower than the assumed investment rate of 3.5%.
Value of an Annuity Unit
Annuity unit values for sub-accounts are determined by multiplying the net
investment factor for the valuation period for which the annuity unit is being
calculated by the immediately preceding valuation period's annuity unit value,
and multiplying the result by an interest factor to neutralize the assumed
investment rate of 3.5% per annum built into the
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variable payment annuity purchase rate basis in the contracts.
Exchanges among Underlying Mutual Funds
Exchanges among underlying mutual funds during annuitization must be in writing.
Exchanges will occur on each anniversary of the annuitization date.
FREQUENCY AND AMOUNT OF ANNUITY PAYMENTS
Payments are made based on the annuity payment option selected, unless:
- - the amount to be distributed is less than $500, in which case
Nationwide may make one lump sum payment of the contract value; or
- - an annuity payment would be less than $20, in which case Nationwide can
change the frequency of payments to intervals that will result in
payments of at least $20. Payments will be made at least annually.
ANNUITY PAYMENT OPTIONS
Contract owners must elect an annuity payment option before the annuitization
date. The annuity payment options are:
(1) LIFE ANNUITY - An annuity payable periodically, but at least annually,
for the lifetime of the annuitant. Payments will end upon the
annuitant's death. For example, if the annuitant dies before the second
annuity payment date, the annuitant will receive only one annuity
payment. The annuitant will only receive two annuity payments if he or
she dies before the third annuity payment date, and so on.
(2) JOINT AND LAST SURVIVOR ANNUITY - An annuity payable periodically, but
at least annually, during the joint lifetimes of the annuitant and a
designated second individual. If one of these parties dies, payments
will continue for the lifetime of the survivor. As is the case under
option 1, there is no guaranteed number of payments. Payments end upon
the death of the last surviving party, regardless of the number of
payments received.
(3) LIFE ANNUITY WITH 120 OR 240 MONTHLY PAYMENTS GUARANTEED - An annuity
payable monthly during the lifetime of the annuitant. If the annuitant
dies before all of the guaranteed payments have been made, payments
will continue to the end of the guaranteed period and will be paid to a
designee chosen by the annuitant at the time the annuity payment option
was elected.
The designee may elect to receive the present value of the remaining
guaranteed payments in a lump sum. The present value will be computed
as of the date Nationwide receives the notice of the annuitant's death.
Not all of the annuity payment options may be available in all states. Contract
owners may request other options before the annuitization date. These options
are subject to Nationwide's approval.
No distribution for Non-Qualified Contracts will be made until an annuity
payment option has been elected. Qualified Contracts, IRAs, SEP IRAs, and Tax
Sheltered Annuities are subject to the "minimum distribution" requirements set
forth in the plan, contract, and the Internal Revenue Code.
DEATH BENEFITS
DEATH OF CONTRACT OWNER - NON-QUALIFIED CONTRACTS
If the contract owner who is not the annuitant dies before the annuitization
date, the joint owner becomes the contract owner. If no joint owner is named,
the contingent owner becomes the contract owner. If no contingent owner is
named, the last surviving contract owner's estate becomes the contract owner.
If the contract owner and annuitant are the same, and the contact
owner/annuitant dies before the annuitization date, the contingent owner will
not have any rights in the contract unless the contingent owner is also the
beneficiary.
For contracts issued on or after January 19, 1985, distributions under
Non-Qualified Contracts will
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be made pursuant to the "Required Distributions for Non-Qualified Contracts"
provision.
DEATH OF ANNUITANT - NON-QUALIFIED CONTRACTS
If the annuitant who is not the contract owner dies before the annuitization
date, a death benefit is payable to the beneficiary unless a contingent
annuitant is named. If a contingent annuitant is named, the contingent annuitant
becomes the annuitant and no death benefit is payable.
The beneficiary may elect to receive the death benefit:
(1) in a lump sum;
(2) as an annuity; or
(3) in any other manner permitted by law and approved by
Nationwide.
The beneficiary must notify Nationwide of this election within 60 days of the
annuitant's death.
If no beneficiaries survive the annuitant, the contingent beneficiary(ies)
receives the death benefit. Contingent beneficiaries will share the death
benefit equally, unless otherwise specified.
If no beneficiaries or contingent beneficiaries survive the annuitant, the
contract owner or the last surviving contract owner's estate will receive the
death benefit.
If the annuitant dies after the annuitization date, any benefit that may be
payable will be paid according to the selected annuity payment option.
DEATH OF CONTRACT OWNER/ANNUITANT
If a contract owner who is also the annuitant dies before the annuitization
date, a death benefit is payable according to the "Death of the Annuitant -
Non-Qualified Contracts" provision.
If the contract owner/annuitant dies after the annuitization date, any benefit
that may be payable will be paid according to the selected annuity payment
option.
DEATH BENEFIT PAYMENT
Contract owners may select one of three death benefits available under the
contract at the time of application (not all death benefit options may be
available in all states). If no selection is made at the time of application,
the death benefit will be the Five-Year Reset Death Benefit.
The death benefit value is determined as of the date Nationwide receives:
(1) proper proof of the annuitant's death;
(2) an election specifying the distribution method; and
(3) any state required form(s).
If the annuitant dies before the annuitization date, the death benefit will be
the greatest of:
1) the total of all purchase payments, less any amounts
surrendered; or
2) the contract value.
However, if the annuitization date is deferred beyond the annuitant's 75th
birthday, the death benefit will be the contract value.
REQUIRED DISTRIBUTIONS
REQUIRED DISTRIBUTIONS FOR NON-QUALIFIED CONTRACTS
Internal Revenue Code Section 72(s) requires Nationwide to make certain
distributions when a contract owner dies. The following distributions will be
made according to those requirements:
1) If any contract owner dies on or after the annuitization date
and before the entire interest in the contract has been
distributed, then the remaining interest must be distributed
at least as rapidly as the distribution method in effect on
the contract owner's death.
2) If any contract owner dies before the annuitization date, then
the entire interest in the contract (consisting of either the
death benefit or the contract value reduced by charges set
forth elsewhere in the contract) will be distributed within 5
years of the contract owner's death, provided however:
a) any interest payable to or for the benefit of a
natural person (referred to herein as a "designated
beneficiary"),
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may be distributed over the life of the designated
beneficiary or over a period not longer than the life
expectancy of the designated beneficiary.
Payments must begin within one year of the contract
owner's death unless otherwise permitted by federal
income tax regulations;
b) if the designated beneficiary is the surviving spouse
of the deceased contract owner, the spouse can choose
to become the contract owner instead of receiving a
death benefit. Any distributions required under these
distribution rules will be made upon that spouse's
death.
In the event that the contract owner is NOT a natural person (e.g., a trust or
corporation), then, for purposes of these distribution provisions:
a) the death of the annuitant will be treated as the death of a
contract owner;
b) any change of annuitant will be treated as the death of a
contract owner; and
c) in either case, the appropriate distribution will be made upon
the death or change, as the case may be. The annuitant is the
primary annuitant as defined in Section 72(s)(6)(B) of the
Internal Revenue Code.
These distribution provisions do not apply to any contract exempt from Section
72(s) of the Internal Revenue Code by reason of Section 72(s)(5) or any other
law or rule.
The designated beneficiary must elect a method of distribution and notify
Nationwide of this election within 60 days of the contract owner's death.
REQUIRED DISTRIBUTIONS FOR QUALIFIED PLANS AND TAX SHELTERED ANNUITIES
Distributions from Qualified Plans or Tax Sheltered Annuities will be made
according to the Minimum Distribution and Incidental Benefit provisions of
Section 401(a)(9) of the Internal Revenue Code. Distributions will be made to
the annuitant according to the selected annuity payment option over a period not
longer than
a) the life of the annuitant or the joint lives of the annuitant
and the annuitant's designated beneficiary; or
b) a period not longer than the life expectancy of the annuitant
or the joint life expectancies of the annuitant and the
annuitant's designated beneficiary.
Required distributions do not have to be withdrawn from this contract if they
are being withdrawn from another Tax Sheltered Annuity of the annuitant.
If the annuitant's entire interest in a Qualified Plan or Tax Sheltered Annuity
will be distributed in equal or substantially equal payments over a period
described in a) or b), the payments will begin on the required beginning date.
The required beginning date is the later of:
a) April 1 of the calendar year following the calendar year in
which the annuitant reaches age 70 1/2; or
b) the annuitant's retirement date.
Provision b) does not apply to any employee who is a 5% owner (as defined in
Section 416 of the Internal Revenue Code) with respect to the plan year ending
in the calendar year when the employee attains the age of 70 1/2.
Payments beginning 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 annuitant's life expectancy or the joint life expectancies of the
annuitant and the annuitant's designated beneficiary (if the annuitant dies
before the required beginning date) or the beneficiary under the selected
annuity payment option (if the annuitant dies after the required beginning
date), whichever is applicable under the applicable minimum distribution or MDIB
provisions. Life expectancy and joint life expectancies are computed by using
return multiples contained in Section 1.72-9 of the Treasury Regulations.
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If the annuitant dies before distributions begin, the interest in the Qualified
Plan or Tax Sheltered Annuity must be distributed by December 31 of the calendar
year in which the fifth anniversary of the annuitant's death occurs unless:
a) the annuitant names his or her surviving spouse as the
beneficiary and the spouse chooses to receive distribution of
the contract in substantially equal payments over his or her
life (or a period not longer than his or her life expectancy)
and beginning no later than December 31 of the year in which
the annuitant would have attained age 70 1/2; or
b) the annuitant names a beneficiary other than his or her
surviving spouse and the beneficiary elects to receive
distribution of the contract in substantially equal payments
over his or her life (or a period not longer than his or her
life expectancy) beginning no later than December 31 of the
year following the year in which the annuitant dies.
If the annuitant dies after distributions have begun, distributions must
continue at least as rapidly as under the schedule used before the annuitant's
death.
If distribution requirements are not met, a penalty tax of 50% is levied on the
difference between the amount that should have been distributed for that year
and the amount that actually was distributed for that year.
REQUIRED DISTRIBUTIONS FOR INDIVIDUAL RETIREMENT ANNUITIES AND SEP IRAS
Distributions from an Individual Retirement Annuity or a SEP IRA must begin no
later than April 1 of the calendar year following the calendar year in which the
contract owner reaches age 70 1/2. Distribution may be paid in a lump sum or in
substantially equal payments over:
a) the contract owner's life or the lives of the contract owner
and his or her spouse or designated beneficiary; or
b) a period not longer than the life expectancy of the contract
owner or the joint life expectancy of the contract owner and
the contract owner's designated beneficiary.
If the contract owner dies before distributions begin, the interest in the
Individual Retirement Annuity must be distributed by December 31 of the calendar
year in which the fifth anniversary of the contract owner's death occurs,
unless:
a) the contract owner names his or her surviving spouse as the
beneficiary and such spouse chooses to:
1) treat the contract as an Individual Retirement
Annuity or SEP IRA established for his or her
benefit; or
2) receive distribution of the contract in substantially
equal payments over his or her life (or a period not
longer than his or her life expectancy) and beginning
no later than December 31 of the year in which the
contract owner would have reached age 70 1/2; or
b) the contract owner names a beneficiary other than his or her
surviving spouse and such beneficiary elects to receive a
distribution of the contract in substantially equal payments
over his or her life (or a period not longer than his or her
life expectancy) beginning no later than December 31 of the
year following the year of the contract owner's death.
Required distributions do not have to be withdrawn from this contract if they
are being withdrawn from another Individual Retirement Annuity, SEP IRA, or
Individual Retirement Account of the contract owner.
If the contract owner dies after distributions have begun, distributions must
continue at least as rapidly as under the schedule being used before the
contract owner's death. However, a surviving spouse who is the beneficiary under
the annuity payment option may treat the
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contract as his or her own, in the same manner as is described in section (a)(i)
of this provision.
If distribution requirements are not met, a penalty tax of 50% is levied on the
difference between the amount that should have been distributed for that year
and the amount that actually was distributed for that year.
A portion of each distribution will be included in the recipient's gross income
and taxed at ordinary income tax rates. The portion of a distribution which is
taxable is based on the ratio between the amount by which non-deductible
purchase payments exceed prior non-taxable distributions and total account
balances at the time of the distribution. The owner of an Individual Retirement
Annuity must annually report the amount of non-deductible purchase payments, the
amount of any distribution, the amount by which non-deductible purchase payments
for all years exceed non-taxable distributions for all years, and the total
balance of all Individual Retirement Annuities.
Individual Retirement Annuity and SEP IRA distributions will not receive the
favorable tax treatment of a lump sum distribution from a Qualified Plan. If the
contract owner dies before the entire interest in the contract has been
distributed, the balance will also be included in his or her gross estate.
FEDERAL TAX CONSIDERATIONS
FEDERAL INCOME TAXES
The tax consequences of purchasing a contract described in this prospectus will
depend on:
- - the type of contract purchased;
- - the purposes for which the contract is purchased; and
- - the personal circumstances of individual investors having interests in
the contracts.
See "Synopsis of the Contracts" for a brief description of the various types of
contracts and the different purposes for which the contracts may be purchased.
Existing tax rules are subject to change, and may affect individuals differently
depending on their situation. Nationwide does not guarantee the tax status of
any contracts or any transactions involving the contracts.
Annuity contracts are often purchased with the expectation that investment
earnings will be taxable only upon withdrawal from the contract (tax-deferral).
In some cases, tax-deferral may apply as a result of the type of contract
purchased. In other cases, tax-deferral may apply, but only as a result of the
contract being purchased by certain tax qualified or tax advantaged plans - such
plans are typically permitted to purchase other investments besides annuities
and retain tax-deferred status.
The following is a brief summary of some of the federal income tax
considerations related to the contracts. In addition to the federal income tax,
distributions from annuity contracts may be subject to state and local income
taxes. The tax rules across all states and localities are not uniform and
therefore will not be discussed in this prospectus. Tax rules that may apply to
contracts issued in U.S. territories such as Puerto Rico and Guam are also not
discussed. Nothing in this prospectus should be considered to be tax advice.
Contract owners and prospective contract owners are encouraged to consult a
financial consultant, tax advisor or legal counsel to discuss the taxation and
use of the contracts.
The Internal Revenue Code sets forth different income tax rules for the
following types of annuity contracts:
- - Individual Retirement Annuities;
- - Roth IRAs;
- - SEP IRAs;
- - Tax Sheltered Annuities; and
- - "Non-Qualified Annuities."
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Individual Retirement Annuities and SEP IRAs
Distributions from Individual Retirement Annuities and SEP IRAs are generally
taxed when received. If any of the amount contributed to the IRA was
nondeductible for federal income tax purposes, then a portion of each
distribution is excludable from income.
If distributions of income from an IRA are made prior to the date that the owner
attains the age of 59 1/2 years, the income is subject to both the regular
income tax and an additional penalty tax of 10%. The penalty tax can be avoided
if the distribution is:
- - made to a beneficiary on or after the death of the owner;
- - attributable to the owner becoming disabled (as defined in the Internal
Revenue Code;
- - part of a series of substantially equal periodic payments made not less
frequently than annually made for the life (or life expectancy) of the
owner, or the joint lives (or joint life expectancies) of the owner and
his or her designated beneficiary;
- - used for qualified higher education expenses; or
- - used for expenses attributable to the purchase of a home for a
qualified first-time buyer.
Roth IRAs
Distributions of earnings from Roth IRAs are taxable or nontaxable depending
upon whether they are "qualified distributions" or "nonqualified distributions."
A "qualified distribution" is one that satisfies the five-year rule and meets
one of the following requirements:
- - it is made on or after the date on which the contract owner attains age
59 1/2;
- - it is made to a beneficiary (or the contract owner's estate) on or
after the death of the contract owner;
- - it is attributable to the contract owner's disability; or
- - it is used for expenses attributable to the purchase of a home for a
qualified first-time buyer.
The five year rule generally is satisfied if the distribution is not made within
the five taxable year period beginning with the first taxable year in which a
contribution is made to any Roth IRA established for the owner.
A qualified distribution is not included in gross income for federal income tax
purposes.
A nonqualified distribution is not includible in gross income to the extent that
the distribution, when added to all previous distributions, does not exceed that
total amount of contributions made to the Roth IRA. Any nonqualified
distribution in excess of the aggregate amount of contributions will be included
in the contract owner's gross income in the year that is distributed to the
contract owner.
Special rules apply for Roth IRAs that have proceeds received from an IRA prior
to January 1, 1999 if the owner elected the special 4-year income averaging
provisions that were in effect for 1998.
If nonqualified distributions of income from a Roth IRA are made prior to the
date that the owner attains the age of 59 1/2 years, the income is subject to
both the regular income tax and an additional penalty tax of 10%. The penalty
tax can be avoided if the distribution is:
- - made to a beneficiary on or after the death of the owner;
- - attributable to the owner becoming disabled as defined in the Internal
Revenue Code;
- - part of a series of substantially equal periodic payments made not less
frequently than annually made for the life (or life expectancy) of the
owner, or the joint lives
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(or joint life expectancies) of the owner and his or her designated
beneficiary;
- - for qualified higher education expenses; or
- - used for expenses attributable to the purchase of a home for a
qualified first-time buyer.
If the contract owner dies before the contract is completely distributed, the
balance may be included in the contract owner's gross estate for tax purposes.
Tax Sheltered Annuities
Distributions from Tax Sheltered Annuities are generally taxed when received. A
portion of each distribution is excludable from income based on a formula
established pursuant to the Internal Revenue Code. The formula excludes from
income the amount invested in the contract divided by the number of anticipated
payments until the full investment in the contract is recovered. Thereafter all
distributions are fully taxable.
If a distribution of income is made from a Tax Sheltered Annuity prior to the
date that the owner attains the age of 59 1/2 years, the income is subject to
both the regular income tax and an additional penalty tax of 10%. The penalty
tax can be avoided if the distribution is:
- - made to a beneficiary on or after the death of the owner;
- - attributable to the owner becoming disabled as defined in the Internal
Revenue Code;
- - part of a series of substantially equal periodic payments made not less
frequently than annually made for the life (or life expectancy) of the
owner, or the joint lives (or joint life expectancies) of the owner and
his or her designated beneficiary;
- - for qualified higher education expenses;
- - used for expenses attributable to the purchase of a home for a
qualified first-time buyer; or
- - made to the owner after separation from service with his or her
employer after age 55.
Non-Qualified Contracts - Natural Persons as Contract Owners
Generally, the income earned inside a Non-Qualified Annuity Contract that is
owned by a natural person is not taxable until it is distributed from the
contract.
Distributions before the annuitization date are taxable to the contract owner to
the extent that the cash value of the contract exceeds the contract owner's
investment at the time of the distribution. Distributions, for this purpose,
include partial surrenders, any portion of the contract that is assigned or
pledged; or any portion of the contract that is 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.
With respect to annuity distributions on or after the annuitization date, a
portion of each annuity payment is excludable from taxable income. The amount
excludable is based on the ratio between the contract owner's investment in the
contract and the expected return on the contract. Once the entire investment in
the contract is recovered, all distributions are fully includable in income. The
maximum amount excludable from income is the investment in the contract. If the
annuitant dies before the entire investment in the contract has been excluded
from income, and as a result of the annuitant's death no more payments are due
under the contract, then the unrecovered investment in the contract may be
deducted on his or her final tax return.
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 the same calendar year will be treated as one annuity contract.
A special rule applies to distributions from contracts that have investments
that were made prior to August 14, 1982. For those contracts, distributions that
are made prior to the annuitization date are treated first as a recovery
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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 Internal Revenue Code imposes a penalty tax if a distribution is made before
the contract owner reaches age 59 1/2. The amount of the penalty is 10% of the
portion of any distribution that is includible in gross income. The penalty tax
does not apply if the distribution is:
- - the result of a contract owner's death;
- - the result of a contract owner's disability, as defined in the Internal
Revenue Code;
- - 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
- - is allocable to an investment in the contract before August 14, 1982.
Non-Qualified Contracts - Non-Natural Persons as Contract Owners
The previous discussion related to the taxation of Non-Qualified Contracts owned
by individuals. Different rules (the so-called "non-natural persons" rules)
apply if the contract owner is not a natural person.
Generally, contracts owned by corporations, partnerships, trusts, and similar
entities are not treated as annuity contracts under the Internal Revenue Code.
Therefore, income earned under a Non-Qualified Contract that is owned by a
non-natural person is taxed as ordinary income during the taxable year that it
is earned. Taxation is not deferred, even if the income is not distributed out
of the contract. The income is taxable as ordinary income, not capital gain.
The non-natural persons rules do not apply to all entity-owned contracts. A
contract that is owned by a non-natural person as an agent of an individual is
treated as owned by the individual. This would cause the contract to be treated
as an annuity under the Internal Revenue Code, allowing tax deferral. However,
this exception does not apply when the non-natural person is an employer that
holds the contract under a non-qualified deferred compensation arrangement for
one or more employees.
The non-natural persons rules also do not apply to contracts that are:
- - acquired by the estate of a decedent by reason of the death of the
decedent;
- - issued in connection with certain qualified retirement plans and
individual retirement plans;
- - purchased by an employer upon the termination of certain qualified
retirement plans.
WITHHOLDING
Pre-death distributions from the contracts are subject to federal income tax.
Nationwide will withhold the tax from the distributions unless the contract
owner requests otherwise. If the distribution is from a Tax Sheltered Annuity,
it will be subject to mandatory 20% withholding that cannot be waived, unless:
- - the distribution is made directly to another Tax Sheltered Annuity or
IRA; or
- - the distribution satisfies the minimum distribution requirements
imposed by the Internal Revenue Code.
In addition, contract owners may not waive withholding if the distribution is
subject to mandatory back-up withholding (if no taxpayer identification number
is given or if the Internal Revenue Service notifies Nationwide that mandatory
back-up withholding is required). Mandatory back-up withholding rates are 31% of
income that is distributed.
NON-RESIDENT ALIENS
Generally, a pre-death distribution from a contract to a non-resident alien is
subject to federal income tax at a rate of 30% of
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the amount of income that is distributed. Nationwide is required to withhold
this amount and send it to the Internal Revenue Service. Some distributions to
non-resident aliens may be subject to a lower (or no) tax if a treaty applies.
In order to obtain the benefits of such a treaty, the non-resident alien must:
1) provide Nationwide with proof of residency and citizenship (in
accordance with Internal Revenue Service requirements); and
2) provide Nationwide with an individual taxpayer identification number.
If the non-resident alien does not meet the above conditions, Nationwide will
withhold 30% of income from the distribution.
Another way to avoid the 30% withholding is for the non-resident alien to
provide Nationwide with sufficient evidence that:
1) the distribution is connected to the non-resident alien's conduct of
business in the United States; and
2) the distribution is includible in the non-resident alien's gross income
for United States federal income tax purposes.
Note that these distributions may be subject to back-up withholding, currently
31%, if a correct taxpayer identification number is not provided.
FEDERAL ESTATE, GIFT, AND GENERATION SKIPPING TRANSFER TAXES
The following transfers may be considered a gift for federal gift tax purposes:
- - a transfer of the contract from one contract owner to another; or
- - a distribution to someone other than a contract owner.
Upon the contract owner's death, the value of the contract may subject to estate
taxes, even if all or a portion of the value is also subject to federal income
taxes.
Section 2612 of the Internal Revenue Code may require Nationwide to determine
whether a death benefit or other distribution is a "direct skip" and the amount
of the resulting generation skipping transfer tax, if any. A direct skip is when
property is transferred to, or a death benefit or other distribution is made to:
a) an individual who is two or more generations younger than the contract
owner; or
b) certain trusts, as described in Section 2613 of the Internal Revenue
Code (generally, trusts that have no beneficiaries who are not 2 or
more generations younger than the contract owner).
If the contract owner is not an individual, then for this purpose ONLY,
"contract owner" refers to any person:
- - who would be required to include the contract, death benefit,
distribution, or other payment in his or her federal gross estate at
his or her death; or
- - who is required to report the transfer of the contract, death benefit,
distribution, or other payment for federal gift tax purposes.
If a transfer is a direct skip, Nationwide will deduct the amount of the
transfer tax from the death benefit, distribution or other payment, and remit it
directly to the Internal Revenue Service.
CHARGE FOR TAX
Nationwide is not required to maintain a capital gain reserve liability on
Non-Qualified Contracts. If tax laws change requiring a reserve, Nationwide may
implement and adjust a tax charge.
DIVERSIFICATION
Internal Revenue Code Section 817(h) contains rules on diversification
requirements for variable annuity contracts. A variable annuity contract that
does not meet these diversification requirements will not be treated as an
annuity, unless
- - the failure to diversify was accidental;
- - the failure is corrected; and
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- - a fine is paid to the Internal Revenue Service.
The amount of the fine will be the amount of tax that would have been paid by
the contract owner if the income, for the period the contract was not
diversified, had been received by the contract owner.
If the violation is not corrected, the contract owner will be considered the
owner of the underlying securities and will be taxed on the earnings of his or
her contract. Nationwide believes that the investments underlying this contract
meet these diversification requirements.
TAX CHANGES
The foregoing tax information is based on Nationwide's understanding of federal
tax laws. It is NOT intended as tax advice. All information is subject to change
without notice. For more details, contact your personal tax and/or financial
advisor.
STATEMENTS AND REPORTS
Nationwide will mail contract owners statements and reports. Therefore, contract
owners should promptly notify Nationwide of any address change.
These mailings will contain:
- - statements showing the contract's quarterly activity;
- - confirmation statements showing transactions that affect the contract's
value. Confirmation statements will not be sent for recurring
transactions (i.e., dollar cost averaging or salary reduction
programs). Instead, confirmation of recurring transactions will appear
in the contract's quarterly statements;
- - semi-annual reports as of June 30 containing financial statements for
the variable account; and
- - annual reports as of December 31 containing financial statements for
the variable account.
Contract owners should review statements and confirmations carefully. All errors
or corrections must be reported to Nationwide immediately to assure proper
crediting to the contract. Unless Nationwide is notified within 30 days of
receipt of the statement, Nationwide will assume statements and confirmation
statements are correct.
LEGAL PROCEEDINGS
Nationwide is a party to litigation and arbitration proceedings in the ordinary
course of its business, none of which is expected to have a material adverse
effect on Nationwide.
In recent years, life insurance companies have been named as defendants in
lawsuits, including class action lawsuits relating to life insurance and annuity
pricing and sales practices. A number of these lawsuits have resulted in
substantial jury awards or settlements.
In November 1997, two plaintiffs, one who was the owner of a variable life
insurance contract and the other who was the owner of a variable annuity
contract, commenced a lawsuit in a federal court in Texas against Nationwide and
the American Century group of defendants (Robert Young and David D. Distad v.
Nationwide Life Insurance Company et al.). In this lawsuit, plaintiffs sought to
represent a class of variable life insurance contract owners and variable
annuity contract owners whom they claim were allegedly misled when purchasing
these variable contracts into believing that the performance of their underlying
mutual fund option managed by American Century, whose shares may only be
purchased by insurance companies, would track the performance of a mutual fund,
also managed by American Century, whose shares are publicly traded. The amended
complaint seeks unspecified compensatory and punitive damages. On April 27,
1998, the District Court denied, in part, and granted, in part, motions to
dismiss the complaint filed by Nationwide and American Century. The remaining
claims against Nationwide allege
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securities fraud, common law fraud, civil conspiracy, and breach of contract.
The District Court, on December 2, 1998, issued an order denying plaintiffs'
motion for class certification and the appeals court declined to review the
order denying class certification upon interlocutory appeal. On June 11, 1999,
the District Court denied the plaintiffs' motion to amend their complaint and
reconsider class certification. In January 2000 Nationwide and American Century
settled this lawsuit now limited to the claims of the two named plaintiffs. On
February 9, 2000 the court dismissed this lawsuit with prejudice.
On October 29, 1998, Nationwide was named in a lawsuit filed in Ohio state court
related to the sale of deferred annuity products for use as investments in
tax-deferred contributory retirement plans (Mercedes Castillo v. Nationwide
Financial Services, Inc., Nationwide Life Insurance Company and Nationwide Life
and Annuity Insurance Company). On May 3, 1999, the complaint was amended to,
among other things, add Marcus Shore as a second plaintiff. The amended
complaint is brought as a class action on behalf of all persons who purchased
individual deferred annuity contracts or participated in group annuity contracts
sold by Nationwide and the other named Nationwide affiliates which were used to
fund certain tax-deferred retirement plans. The amended complaint seeks
unspecified compensatory and punitive damages. No class has been certified. On
June 11, 1999, Nationwide and the other named defendants filed a motion to
dismiss the amended complaint. On March 8, 2000, the court denied the motion to
dismiss the amended complaint filed by Nationwide and other named defendants.
Nationwide intends to defend this lawsuit vigorously.
There can be no assurance that any litigation relating to pricing or sales
practices will not have a material adverse effect on Nationwide in the future.
The general distributor is not engaged in any litigation of any material nature.
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TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
<S> <C>
General Information and History................................................1
Services.......................................................................1
Purchase of Securities Being Offered...........................................1
Underwriters...................................................................2
Calculations of Yield Quotations of Money Market Sub-Accounts..................2
Annuity Payments...............................................................2
Financial Statements...........................................................3
</TABLE>
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APPENDIX A: OBJECTIVES FOR UNDERLYING MUTUAL FUNDS
The underlying mutual funds listed below are designed primarily as investments
for variable annuity contracts and variable life insurance policies issued by
insurance companies.
There is no guarantee that the investment objectives will be met.
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. The Fund's investment adviser is Massachusetts Financial
Service Company.
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. The Fund's
investment adviser is Massachusetts Financial Service Company.
MFS(R) BOND FUND - CLASS A
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. The Fund's
investment adviser is Massachusetts Financial Service Company.
MFS(R) EMERGING GROWTH FUND - CLASS A
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 Fund's investment
adviser is Massachusetts Financial Service Company.
The contract owner may allocate to the Fund purchase payments (or contract value
attributable to purchase payments) made on or after January 1, 1981.
MFS(R) GLOBAL GOVERNMENTS FUND - CLASS A (FORMERLY MFS(R) WORLD GOVERNMENTS
FUND)
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. The Fund's investment adviser
is Massachusetts Financial Service Company.
MFS(R) GROWTH OPPORTUNITIES FUND - CLASS A
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. The Fund's investment
adviser is Massachusetts Financial Service Company.
MFS(R) HIGH INCOME FUND - CLASS A
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
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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. The
Fund's investment adviser is Massachusetts Financial Service Company.
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. The
Fund's investment adviser is Massachusetts Financial Service Company.
MFS SERIES TRUST IV - MFS(R) MONEY MARKET FUND
Investment Objective: To seek as high a level of current income as is considered
consistent with the preservation of capital and liquidity. 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. The Fund's investment adviser is
Massachusetts Financial Service Company.
MFS(R) TOTAL RETURN FUND - CLASS A
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. The Fund's investment
adviser is Massachusetts Financial Service Company.
NATIONWIDE SEPARATE ACCOUNT TRUST
Nationwide Separate Account Trust ("NSAT") is a diversified open-end management
investment company created under the laws of Massachusetts. NSAT offers shares
in the mutual funds listed below, each with its own investment objectives.
Shares of NSAT will be sold primarily to separate accounts to fund the benefits
under variable life insurance policies and variable annuity contracts issued by
life insurance companies. Effective September 1, 1999, the investment advisory
services previously performed by Nationwide Advisory Services ("NAS") were
transferred to Villanova Mutual Fund Capital Trust ("VMF"), an indirect
subsidiary of Nationwide Financial Services, Inc. The portfolio managers and
subadvisers for each of the Funds continue to manage the Funds after the
transfer to VMF.
MONEY MARKET FUND
Investment Objective: As high a level of current income as is considered
consistent with the preservation of capital and maintenance of liquidity.
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STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 2000
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, 2000. 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...................................................................2
Calculation of Yield Quotations of Money Market Sub-Accounts...................2
Annuity Payments...............................................................2
Financial Statements...........................................................3
</TABLE>
GENERAL INFORMATION AND HISTORY
The MFS Variable Account is a separate investment account of Nationwide Life
Insurance Company ("Nationwide"). All of Nationwide's common stock is owned by
Nationwide Financial Services, Inc. ("NFS"), a holding company. NFS has two
classes of common stock outstanding with different voting rights enabling
Nationwide Corporation (the holder of all of the outstanding Class B Common
Stock) to control NFS. Nationwide Corporation is a holding company, as well. All
of its common stock is held by Nationwide Mutual Insurance Company (95.3%) and
Nationwide Mutual Fire Insurance Company (4.7%), the ultimate controlling
persons of the Nationwide group of companies. The Nationwide group of companies
is one of America's largest insurance and financial services family of
companies, with combined assets of over $120 billion as of December 31, 1999.
SERVICES
Nationwide, which has responsibility for administration of the Contracts and the
Variable Account, maintains records of the name, address, taxpayer
identification number, and other pertinent information for each Contract Owner
and the number and type of Contract issued to each Contract Owner and records
with respect to the Contract Value of each Contract.
The Custodian of the assets of the Variable Account is Nationwide. Nationwide
will maintain a record of all purchases and redemptions of shares of the
underlying mutual funds.
The audited financial statements have been included herein in reliance upon the
reports of KPMG LLP, independent certified public accountants, Two Nationwide
Plaza, Columbus, Ohio 43215, and upon the authority of said firm as experts in
accounting and auditing.
PURCHASE OF SECURITIES BEING OFFERED
The Contracts will be sold by licensed insurance agents in the states where the
Contracts may be lawfully sold. 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").
1
<PAGE> 58
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, 1999, 1998 and 1997, no underwriting commissions
were paid by Nationwide to Clarendon.
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> 59
<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 (comprised of the sub-accounts
listed in note 1(b)) (collectively, "the Account") as of December 31, 1999, 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 Account'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, 1999, 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 the Account as of December
31, 1999, and the results of its operations and its changes in contract owners'
equity for each of the years in the two year period then ended in conformity
with generally accepted accounting principles.
KPMG LLP
Columbus, Ohio
February 18, 2000
<PAGE> 2
MFS VARIABLE ACCOUNT
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY
DECEMBER 31, 1999
<TABLE>
<S> <C>
ASSETS:
Investments at market value:
MFS Series Trust IV - MFS(R)Money Market Fund (MFSMyMkt)
44,839,567 shares (cost $44,839,567) ................................. $ 44,839,567
Massachusetts Investors Growth Stock Fund - Class A (MFSGrStk)
5,060,285 shares (cost $69,960,980) .................................. 102,875,587
Massachusetts Investors Trust - Class A (MFSInvTr)
2,381,892 shares (cost $38,456,230) .................................. 49,900,636
MFS(R)Bond Fund - Class A (MFSBdFd)
1,723,568 shares (cost $22,798,332) .................................. 20,993,061
MFS(R)Emerging Growth Fund - Class A (MFSEmGro)
309,109 shares (cost $12,300,453) .................................... 20,583,561
MFS(R)Growth Opportunities Fund - Class A (MFSGrOpp)
8,102,643 shares (cost $108,820,607) ................................. 154,517,403
MFS(R)High Income Fund - Class A (MFSHiInc)
4,176,635 shares (cost $22,232,196) .................................. 20,841,407
MFS(R)Research Fund - Class A (MFSRsrch)
1,835,939 shares (cost $35,559,355) .................................. 52,985,206
MFS(R)Total Return Fund - Class A (MFSTotRe)
3,735,009 shares (cost $54,334,069) .................................. 51,841,920
MFS(R)World Governments Fund - Class A (MFSWdGvt)
381,664 shares (cost $4,106,511) ..................................... 3,591,454
Nationwide Separate Account Trust - Money Market Fund (NSATMyMkt)
1,088,111 shares (cost $1,088,111) ................................... 1,088,111
-------------
Total receivable .................................................. 524,057,913
Accounts receivable ........................................................ 16
-------------
Total assets ...................................................... 524,057,929
ACCOUNTS PAYABLE .............................................................. 78,945
-------------
CONTRACT OWNERS' EQUITY (NOTE 4) .............................................. $ 523,978,984
=============
</TABLE>
See accompanying notes to financial
<PAGE> 3
MFS VARIABLE ACCOUNT
STATEMENTS OF CHANGES IN
CONTRACT OWNERS' EQUITY
- --------------------------------
STATEMENTS OF OPERATIONS
- --------------------------------
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
TOTAL MFSMyMkt
------------------------------ ------------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .......................... $ 8,566,936 10,369,909 2,182,838 2,582,102
Mortality, expense and administration
charges (note 2):
Non-Spectrum .............................. (6,760) (7,274) (1,901) (2,584)
Spectrum .................................. (6,518,341) (6,596,560) (626,290) (687,836)
------------- ------------- ------------- -------------
Net investment activity ..................... 2,041,835 3,766,075 1,554,647 1,891,682
------------- ------------- ------------- -------------
Proceeds from mutual fund shares sold ......... 137,636,399 130,394,580 23,621,380 20,441,104
Cost of mutual fund shares sold ............... (105,287,343) (99,402,881) (23,621,380) (20,441,104)
------------- ------------- ------------- -------------
Realized gain (loss) on investments ......... 32,349,056 30,991,699 - -
Change in unrealized gain (loss) on investments 22,704,757 18,094,682 - -
------------- ------------- ------------- -------------
Net gain (loss) on investments .............. 55,053,813 49,086,381 - -
------------- ------------- ------------- -------------
Reinvested capital gains ...................... 30,356,218 34,176,159 - -
------------- ------------- ------------- -------------
Net increase (decrease) in contract owners'
equity resulting from operations ........ 87,451,866 87,028,615 1,554,647 1,891,682
------------- ------------- ------------- -------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ............................. 13,486,199 21,666,010 782,924 898,913
Transfers between funds ....................... - - 3,148,451 4,471,627
Redemptions ................................... (93,890,119) (86,101,187) (11,884,305) (9,288,873)
Annuity benefits .............................. (670,897) (577,607) (73,068) (78,290)
Annual contract maintenance charge (note 2) ... (241,389) (219,538) (37,058) (39,671)
Contingent deferred sales charges (note 2) .... (156,849) (103,039) (32,130) (11,571)
Adjustments to maintain reserves .............. 1,436 (135,171) (3,554) (51,614)
------------- ------------- ------------- -------------
Net equity transactions ................... (81,471,619) (65,470,532) (8,098,740) (4,099,479)
------------- ------------- ------------- -------------
Net change in contract owners' equity ........... 5,980,247 21,558,083 (6,544,093) (2,207,797)
Contract owners' equity beginning of period ..... 517,998,737 496,440,654 51,419,718 53,627,515
------------- ------------- ------------- -------------
Contract owners' equity end of period ........... $ 523,978,984 517,998,737 44,875,625 51,419,718
============= ============= ============= =============
<CAPTION>
MFSGrStk MFSInvTr
------------------------------ ------------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .......................... - 23,643 251,769 455,006
Mortality, expense and administration
charges (note 2):
Non-Spectrum .............................. (1,240) (1,370) (552) (512)
Spectrum .................................. (1,090,622) (825,562) (698,126) (727,278)
------------- ------------- ------------- -------------
Net investment activity ..................... (1,091,862) (803,289) (446,909) (272,784)
------------- ------------- ------------- -------------
Proceeds from mutual fund shares sold ......... 15,786,263 12,931,854 13,218,357 14,054,623
Cost of mutual fund shares sold ............... (9,828,016) (9,211,452) (6,960,564) (8,943,542)
------------- ------------- ------------- -------------
Realized gain (loss) on investments ......... 5,958,247 3,720,402 6,257,793 5,111,081
Change in unrealized gain (loss) on investments 15,455,405 11,624,106 (4,553,230) 2,981,251
------------- ------------- ------------- -------------
Net gain (loss) on investments .............. 21,413,652 15,344,508 1,704,563 8,092,332
------------- ------------- ------------- -------------
Reinvested capital gains ...................... 7,544,492 5,881,907 1,413,976 2,957,888
------------- ------------- ------------- -------------
Net increase (decrease) in contract owners'
equity resulting from operations ........ 27,866,282 20,423,126 2,671,630 10,777,436
------------- ------------- ------------- -------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ............................. 3,993,587 3,149,739 1,009,480 1,696,074
Transfers between funds ....................... 10,768,381 6,233,843 (1,193,708) (555,795)
Redemptions ................................... (14,092,092) (9,503,275) (9,374,362) (8,819,189)
Annuity benefits .............................. (65,351) (44,622) (50,984) (36,360)
Annual contract maintenance charge (note 2) ... (27,619) (17,039) (19,536) (16,463)
Contingent deferred sales charges (note 2) .... (21,585) (8,106) (17,722) (6,772)
Adjustments to maintain reserves .............. (10,309) (71,184) 6,257 241
------------- ------------- ------------- -------------
Net equity transactions ................... 545,012 (260,644) (9,640,575) (7,738,264)
------------- ------------- ------------- -------------
Net change in contract owners' equity ........... 28,411,294 20,162,482 (6,968,945) 3,039,172
Contract owners' equity beginning of period ..... 74,455,073 54,292,591 56,873,438 53,834,266
------------- ------------- ------------- -------------
Contract owners' equity end of period ........... 102,866,367 74,455,073 49,904,493 56,873,438
============= ============= ============= =============
</TABLE>
(Continued)
<PAGE> 4
MFS VARIABLE ACCOUNT
STATEMENTS OF CHANGES IN
CONTRACT OWNERS' EQUITY, CONTINUED
- -----------------------------------------
STATEMENTS OF OPERATIONS, CONTINUED
- -----------------------------------------
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
MFSBdFd MFSEmGro
--------------------------- --------------------------
1999 1998 1999 1998
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .......................... $ 1,654,981 1,859,739 - -
Mortality, expense and administration
charges (note 2):
Non-Spectrum .............................. (111) (223) - -
Spectrum .................................. (320,201) (373,037) (202,824) (197,843)
------------ ----------- ----------- -----------
Net investment activity ..................... 1,334,669 1,486,479 (202,824) (197,843)
------------ ----------- ----------- -----------
Proceeds from mutual fund shares sold ......... 7,173,570 8,377,135 7,091,245 6,632,123
Cost of mutual fund shares sold ............... (7,284,574) (7,948,902) (4,274,435) (3,476,772)
------------ ----------- ----------- -----------
Realized gain (loss) on investments ......... (111,004) 428,233 2,816,810 3,155,351
Change in unrealized gain (loss) on investments (2,051,919) (1,155,208) 3,965,332 352,115
------------ ----------- ----------- -----------
Net gain (loss) on investments .............. (2,162,923) (726,975) 6,782,142 3,507,466
------------ ----------- ----------- -----------
Reinvested capital gains ...................... - 88,925 97,012 148,843
------------ ----------- ----------- -----------
Net increase (decrease) in contract owners'
equity resulting from operations ........ (828,254) 848,429 6,676,330 3,458,466
------------ ----------- ----------- -----------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ............................. 384,574 1,160,385 1,796,971 1,154,923
Transfers between funds ....................... (1,297,499) 401,769 (181,944) (431,140)
Redemptions ................................... (5,140,591) (4,211,550) (3,808,479) (3,810,007)
Annuity benefits .............................. (75,346) (47,201) (3,048) (2,440)
Annual contract maintenance charge (note 2) ... (13,003) (11,467) (8,529) (8,292)
Contingent deferred sales charges (note 2) .... (9,288) (7,214) (6,544) (2,556)
Adjustments to maintain reserves .............. (228) 1,684 369 7,905
------------ ----------- ----------- -----------
Net equity transactions ................... (6,151,381) (2,713,594) (2,211,204) (3,091,607)
------------ ----------- ----------- -----------
Net change in contract owners' equity ........... (6,979,635) (1,865,165) 4,465,126 366,859
Contract owners' equity beginning of period ..... 27,972,946 29,838,111 16,118,930 15,752,071
------------ ----------- ----------- -----------
Contract owners' equity end of period ........... $ 20,993,311 27,972,946 20,584,056 16,118,930
============ =========== =========== ===========
<CAPTION>
MFSGrOpp MFSHiInc
---------------------------- --------------------------
1999 1998 1999 1998
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .......................... - - 2,242,661 2,551,491
Mortality, expense and administration
charges (note 2):
Non-Spectrum .............................. (1,851) (1,632) (163) (195)
Spectrum .................................. (1,764,184) (1,730,709) (315,266) (385,733)
------------ ------------ ----------- -----------
Net investment activity ..................... (1,766,035) (1,732,341) 1,927,232 2,165,563
------------ ------------ ----------- -----------
Proceeds from mutual fund shares sold ......... 29,050,157 26,360,076 9,651,962 9,322,459
Cost of mutual fund shares sold ............... (20,434,106) (18,002,705) (9,791,758) (8,501,775)
------------ ------------ ----------- -----------
Realized gain (loss) on investments ......... 8,616,051 8,357,371 (139,796) 820,684
Change in unrealized gain (loss) on investments 16,486,755 10,467,937 (387,891) (2,867,726)
------------ ------------ ----------- -----------
Net gain (loss) on investments .............. 25,102,806 18,825,308 (527,687) (2,047,042)
------------ ------------ ----------- -----------
Reinvested capital gains ...................... 14,239,127 15,210,020 - -
------------ ------------ ----------- -----------
Net increase (decrease) in contract owners'
equity resulting from operations ........ 37,575,898 32,302,987 1,399,545 118,521
------------ ------------ ----------- -----------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ............................. 2,492,192 7,638,546 331,911 1,174,207
Transfers between funds ....................... (3,229,327) (2,801,413) (1,601,990) (1,577,321)
Redemptions ................................... (22,992,059) (23,389,524) (4,814,330) (5,316,140)
Annuity benefits .............................. (166,195) (151,243) (87,932) (91,832)
Annual contract maintenance charge (note 2) ... (70,423) (65,520) (16,665) (18,489)
Contingent deferred sales charges (note 2) .... (30,048) (26,490) (8,379) (5,958)
Adjustments to maintain reserves .............. (12,497) 74,516 16,018 15,656
------------ ------------ ----------- -----------
Net equity transactions ................... (24,008,357) (18,721,128) (6,181,367) (5,819,877)
------------ ------------ ----------- -----------
Net change in contract owners' equity ........... 13,567,541 13,581,859 (4,781,822) (5,701,356)
Contract owners' equity beginning of period ..... 140,949,392 127,367,533 25,653,603 31,354,959
------------ ------------ ----------- -----------
Contract owners' equity end of period ........... 154,516,933 140,949,392 20,871,781 25,653,603
============ ============ =========== ===========
</TABLE>
<PAGE> 5
MFS VARIABLE ACCOUNT
STATEMENTS OF CHANGES IN
CONTRACT OWNERS' EQUITY, CONTINUED
- -------------------------------------
STATEMENTS OF OPERATIONS, CONTINUED
- -------------------------------------
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
MFSRsrch MFSTotRe
--------------------------- --------------------------
1999 1998 1999 1998
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .......................... $ - - 1,900,797 2,489,803
Mortality, expense and administration
charges (note 2):
Non-Spectrum .............................. (779) (639) (163) (119)
Spectrum .................................. (658,747) (682,488) (772,092) (891,862)
------------ ----------- ----------- -----------
Net investment activity ..................... (659,526) (683,127) 1,128,542 1,597,822
------------ ----------- ----------- -----------
Proceeds from mutual fund shares sold ......... 14,315,650 13,014,940 15,478,371 15,210,192
Cost of mutual fund shares sold ............... (7,063,124) (7,349,389) (13,603,307) (11,393,719)
------------ ----------- ----------- -----------
Realized gain (loss) on investments ......... 7,252,526 5,665,551 1,875,064 3,816,473
Change in unrealized gain (loss) on investments (227,551) 3,200,984 (5,730,615) (6,519,824)
------------ ----------- ----------- -----------
Net gain (loss) on investments .............. 7,024,975 8,866,535 (3,855,551) (2,703,351)
------------ ----------- ----------- -----------
Reinvested capital gains ...................... 3,686,963 1,963,781 3,374,648 7,924,795
------------ ----------- ----------- -----------
Net increase (decrease) in contract owners'
equity resulting from operations ........ 10,052,412 10,147,189 647,639 6,819,266
------------ ----------- ----------- -----------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ............................. 1,672,547 2,457,685 946,201 902,584
Transfers between funds ....................... (2,490,592) (2,366,157) (3,370,521) (1,753,702)
Redemptions ................................... (9,391,456) (8,304,556) (10,996,606) (11,867,669)
Annuity benefits .............................. (50,346) (53,782) (90,215) (62,970)
Annual contract maintenance charge (note 2) ... (17,954) (14,862) (25,741) (22,436)
Contingent deferred sales charges (note 2) .... (8,945) (11,114) (19,527) (19,514)
Adjustments to maintain reserves .............. 26,933 17,075 (22,524) (134,203)
------------ ----------- ----------- -----------
Net equity transactions ................... (10,259,813) (8,275,711) (13,578,933) (12,957,910)
------------ ----------- ----------- -----------
Net change in contract owners' equity ........... (207,401) 1,871,478 (12,931,294) (6,138,644)
Contract owners' equity beginning of period ..... 53,235,629 51,364,151 64,589,879 70,728,523
------------ ----------- ----------- -----------
Contract owners' equity end of period ........... $ 53,028,228 53,235,629 51,658,585 64,589,879
============ =========== =========== ===========
<CAPTION>
MFSWdGvt NSATMyMkt
------------------------ ------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .......................... 276,355 331,281 57,535 76,844
Mortality, expense and administration
charges (note 2):
Non-Spectrum .............................. - - - -
Spectrum .................................. (54,080) (74,693) (15,909) (19,519)
---------- ---------- ---------- ----------
Net investment activity ..................... 222,275 256,588 41,626 57,325
---------- ---------- ---------- ----------
Proceeds from mutual fund shares sold ......... 1,893,444 3,720,395 356,000 329,679
Cost of mutual fund shares sold ............... (2,070,079) (3,803,842) (356,000) (329,679)
---------- ---------- ---------- ----------
Realized gain (loss) on investments ......... (176,635) (83,447) - -
Change in unrealized gain (loss) on investments (251,529) 11,047 - -
---------- ---------- ---------- ----------
Net gain (loss) on investments .............. (428,164) (72,400) - -
---------- ---------- ---------- ----------
Reinvested capital gains ...................... - - - -
---------- ---------- ---------- ----------
Net increase (decrease) in contract owners'
equity resulting from operations ........ (205,889) 184,188 41,626 57,325
---------- ---------- ---------- ----------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ............................. 60,934 1,419,862 14,878 13,092
Transfers between funds ....................... (524,193) (1,619,685) (27,058) (2,026)
Redemptions ................................... (1,094,100) (1,282,444) (301,739) (307,960)
Annuity benefits .............................. (8,412) (8,867) - -
Annual contract maintenance charge (note 2) ... (3,111) (3,409) (1,750) (1,890)
Contingent deferred sales charges (note 2) .... (539) (1,880) (2,142) (1,864)
Adjustments to maintain reserves .............. 1,038 4,802 (67) (49)
---------- ---------- ---------- ----------
Net equity transactions ................... (1,568,383) (1,491,621) (317,878) (300,697)
---------- ---------- ---------- ----------
Net change in contract owners' equity ........... (1,774,272) (1,307,433) (276,252) (243,372)
Contract owners' equity beginning of period ..... 5,365,936 6,673,369 1,364,193 1,607,565
---------- ---------- ---------- ----------
Contract owners' equity end of period ........... 3,591,664 5,365,936 1,087,941 1,364,193
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 6
MFS VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(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, 1999, contract owners have invested in all of the above
funds. The contract owners' equity is affected by the investment
results of each fund, equity transactions by contract owners and
certain contract expenses (see note 2). The accompanying financial
statements include only contract owners' purchase payments pertaining
to the variable portions of their contracts and exclude any purchase
payments for fixed dollar benefits, the latter being included in the
accounts of the Company.
A contract owner may choose from among a number of different underlying
mutual fund options. The underlying mutual fund options are not
available to the general public directly. The underlying mutual funds
are available as investment options in variable life insurance policies
or variable annuity contracts issued by life insurance companies or, in
some cases, through participation in certain qualified pension or
retirement plans.
<PAGE> 7
Some of the underlying mutual funds have been established by investment
advisers which manage publicly traded mutual funds having similar names
and investment objectives. While some of the underlying mutual funds
may be similar to, and may in fact be modeled after, publicly traded
mutual funds, the underlying mutual funds are not otherwise directly
related to any publicly traded mutual fund. Consequently, the
investment performance of publicly traded mutual funds and any
corresponding underlying mutual funds may differ substantially.
(c) Security Valuation, Transactions and Related Investment Income
The market value of the underlying mutual funds is based on the closing
net asset value per share at December 31, 1999. 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) Calculation of Annuity Reserves
Annuity reserves are computed for contracts in the variable payout
stage according to industry standard mortality tables. The assumed
investment return is 3.5 percent unless the annuitant elects otherwise,
in which case the rate may vary from 3.5 percent to 7 percent, as
regulated by the laws of the respective states. The mortality risk is
fully borne by the Company and may result in additional amounts being
transferred into the Account by the Company to cover greater longevity
of annuitants than expected. Conversely, if reserves exceed amounts
required, transfers may be made to the Company.
<PAGE> 8
MFS VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(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.
(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.
(Continued)
<PAGE> 9
(4) COMPONENTS OF CONTRACT OWNERS' EQUITY
The following is a summary of contract owners' equity at December 31, 1999,
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 1,494 $ 39.388969 $ 58,847 4%
Tax qualified spectrum 836,061 33.286752 27,829,755 3%
Non-tax qualified spectrum 499,340 33.309883 16,632,957 3%
Massachusetts Investors Growth
Stock Fund - Class A:
Non-tax qualified 706 264.338201 186,623 37%
Tax qualified spectrum 281,457 277.213327 78,023,631 37%
Non-tax qualified spectrum 98,328 235.229678 23,129,664 37%
Non-tax qualified spectrum (81-225) 3,994 256.252391 1,023,472 37%
Massachusetts Investors Trust - Class A:
Non-tax qualified 289 199.617423 57,689 6%
Tax qualified spectrum 235,642 168.230713 39,642,222 6%
Non-tax qualified spectrum 63,779 150.943364 9,627,017 6%
Non-tax qualified spectrum (81-225) 982 160.362369 157,476 6%
MFS(R) Bond Fund - Class A:
Non-tax qualified 56 57.457644 3,218 (3)%
Tax qualified spectrum 296,161 48.832757 14,462,358 (3)%
Non-tax qualified spectrum 124,805 48.792845 6,089,591 (3)%
Non-tax qualified spectrum (81-225) 784 48.983649 38,403 (3)%
MFS(R)Emerging Growth Fund - Class A:
Tax qualified spectrum 276,955 74.260820 20,566,905 48%
MFS(R)Growth Opportunities Fund - Class A:
Non-tax qualified 1,102 256.397950 282,551 31%
Tax qualified spectrum 540,025 236.283783 127,599,150 31%
Non-tax qualified spectrum 114,789 200.709590 23,039,253 31%
Non-tax qualified spectrum (81-225) 9,598 221.460448 2,125,577 31%
MFS(R)High Income Fund - Class A:
Non-tax qualified 217 76.334509 16,565 6%
Tax qualified spectrum 214,222 66.310941 14,205,262 6%
Non-tax qualified spectrum 91,528 65.304939 5,977,230 6%
Non-tax qualified spectrum (81-225) 4,190 66.310941 277,843 6%
</TABLE>
(Continued)
<PAGE> 10
MFS VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
ANNUAL
UNITS UNIT VALUE RETURN*
----- ---------- -------
<S> <C> <C> <C> <C>
MFS(R) Research Fund - Class A:
Non-tax qualified 434 221.469939 96,118 23%
Tax qualified spectrum 186,365 216.708566 40,386,892 22%
Non-tax qualified spectrum 62,991 189.353287 11,927,553 22%
Non-tax qualified spectrum (81-225) 1,216 214.179022 260,442 22%
MFS(R)Total Return Fund - Class A:
Tax qualified spectrum 359,370 109.920643 39,502,181 1%
Non-tax qualified spectrum 109,211 106.399516 11,619,998 1%
Non-tax qualified spectrum (81-225) 1,014 108.851257 110,375 1%
MFS(R)World Governments Fund - Class A:
Tax qualified spectrum 63,386 49.309941 3,125,560 (5)%
Non-tax qualified spectrum 8,381 48.073994 402,908 (5)%
Non-tax qualified spectrum (81-225) 367 49.233289 18,069 (5)%
Nationwide Separate Account Trust -
Money Market Fund:
Tax qualified spectrum 20,531 25.451018 522,535 3%
Non-tax qualified spectrum 22,201 25.467570 565,406 3%
======== ==========
Reserves for annuity contracts in payout phase:
Tax qualified 74,006
Non-tax qualified 26,228
Tax qualified spectrum 2,980,540
Non-tax qualified spectrum 1,306,914
----------
$ 523,978,984
=============
</TABLE>
* The annual return does not include contract charges satisfied by surrendering
units.
<PAGE> 60
<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, 1999 and
1998, 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,
1999. 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, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999, in conformity with generally accepted
accounting principles.
Columbus, Ohio
January 28, 2000
<PAGE> 2
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Balance Sheets
(in millions, except per share amounts)
<TABLE>
<CAPTION>
December 31,
-----------------------------
Assets 1999 1998
------ --------- ---------
<S> <C> <C>
Investments:
Securities available-for-sale, at fair value:
Fixed maturity securities $15,294.0 $14,245.1
Equity securities 92.9 127.2
Mortgage loans on real estate, net 5,786.3 5,328.4
Real estate, net 254.8 243.6
Policy loans 519.6 464.3
Other long-term investments 73.8 44.0
Short-term investments 416.0 289.1
--------- ---------
22,437.4 20,741.7
--------- ---------
Cash 4.8 3.4
Accrued investment income 238.6 218.7
Deferred policy acquisition costs 2,554.1 2,022.2
Other assets 305.9 420.3
Assets held in separate accounts 67,135.1 50,935.8
--------- ---------
$92,675.9 $74,342.1
========= =========
Liabilities and Shareholder's Equity
------------------------------------
Future policy benefits and claims $21,861.6 $19,767.1
Other liabilities 914.2 866.1
Liabilities related to separate accounts 67,135.1 50,935.8
--------- ---------
89,910.9 71,569.0
--------- ---------
Commitments and contingencies (notes 8 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 766.1 914.7
Retained earnings 2,011.0 1,579.0
Accumulated other comprehensive income (15.9) 275.6
--------- ---------
2,765.0 2,773.1
--------- ---------
$92,675.9 $74,342.1
========= =========
</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)
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Policy charges $ 895.5 $ 698.9 $ 545.2
Life insurance premiums 220.8 200.0 205.4
Net investment income 1,520.8 1,481.6 1,409.2
Realized (losses) gains on investments (11.6) 28.4 11.1
Other 66.1 66.8 46.5
-------- -------- --------
2,691.6 2,475.7 2,217.4
-------- -------- --------
Benefits and expenses:
Interest credited to policyholder account balances 1,096.3 1,069.0 1,016.6
Other benefits and claims 210.4 175.8 178.2
Policyholder dividends on participating policies 42.4 39.6 40.6
Amortization of deferred policy acquisition costs 272.6 214.5 167.2
Other operating expenses 463.4 419.7 384.9
-------- -------- --------
2,085.1 1,918.6 1,787.5
-------- -------- --------
Income before federal income tax expense 606.5 557.1 429.9
Federal income tax expense 201.4 190.4 150.2
-------- -------- --------
Net income $ 405.1 $ 366.7 $ 279.7
======== ======== ========
</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
Years ended December 31, 1999, 1998 and 1997
(in millions)
<TABLE>
<CAPTION>
Accumulated
Additional other Total
Common paid-in Retained comprehensive shareholder's
stock capital earnings income equity
-------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
December 31, 1996 $ 3.8 $ 527.9 $1,432.6 $173.6 $2,137.9
Comprehensive income:
Net income -- -- 279.7 -- 279.7
Net unrealized gains on securities
available-for-sale arising during
the year -- -- -- 73.5 73.5
--------
Total comprehensive income 353.2
--------
Capital contribution -- 836.8 -- -- 836.8
--------
Dividend to shareholder -- (450.0) (400.0) -- (850.0)
------ -------- -------- ------ --------
December 31, 1997 3.8 914.7 1,312.3 247.1 2,477.9
Comprehensive income:
Net income -- -- 366.7 -- 366.7
Net unrealized gains on securities
available-for-sale arising during
the year -- -- -- 28.5 28.5
--------
Total comprehensive income 395.2
--------
Dividend to shareholder -- -- (100.0) -- (100.0)
------ -------- -------- ------ --------
December 31, 1998 3.8 914.7 1,579.0 275.6 2,773.1
Comprehensive income:
Net income -- -- 405.1 -- 405.1
Net unrealized losses on securities
available-for-sale arising during
the year -- -- -- (315.0) (315.0)
--------
Total comprehensive income 90.1
--------
Capital contribution -- 26.4 87.9 23.5 137.8
--------
Dividends to shareholder -- (175.0) (61.0) -- (236.0)
------ -------- -------- ------ --------
December 31, 1999 $ 3.8 $ 766.1 $2,011.0 $(15.9) $2,765.0
====== ======== ======== ====== ========
</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)
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 405.1 $ 366.7 $ 279.7
Adjustments to reconcile net income to net cash provided by operating
activities:
Interest credited to policyholder account balances 1,096.3 1,069.0 1,016.6
Capitalization of deferred policy acquisition costs (637.0) (584.2) (487.9)
Amortization of deferred policy acquisition costs 272.6 214.5 167.2
Amortization and depreciation 2.4 (8.5) (2.0)
Realized (gains) losses on invested assets, net 11.6 (28.4) (11.1)
Increase in accrued investment income (7.9) (8.2) (0.3)
Decrease (increase) in other assets 122.9 16.4 (12.7)
Decrease in policy liabilities (20.9) (8.3) (23.1)
Increase (decrease) in other liabilities 149.7 (34.8) 230.6
Other, net (8.6) (11.3) (10.9)
--------- --------- ---------
Net cash provided by operating activities 1,386.2 982.9 1,146.1
--------- --------- ---------
Cash flows from investing activities:
Proceeds from maturity of securities available-for-sale 2,307.9 1,557.0 993.4
Proceeds from sale of securities available-for-sale 513.1 610.5 574.5
Proceeds from repayments of mortgage loans on real estate 696.7 678.2 437.3
Proceeds from sale of real estate 5.7 103.8 34.8
Proceeds from repayments of policy loans and sale of other invested assets 40.9 23.6 22.7
Cost of securities available-for-sale acquired (3,724.9) (3,182.8) (2,828.1)
Cost of mortgage loans on real estate acquired (971.4) (829.1) (752.2)
Cost of real estate acquired (14.2) (0.8) (24.9)
Short-term investments, net (27.5) 69.3 (354.8)
Other, net (110.9) (88.4) (62.5)
--------- --------- ---------
Net cash used in investing activities (1,284.6) (1,058.7) (1,959.8)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from capital contributions -- -- 836.8
Cash dividends paid (188.5) (100.0) --
Increase in investment product and universal life insurance
product account balances 3,799.4 2,682.1 2,488.5
Decrease in investment product and universal life insurance
product account balances (3,711.1) (2,678.5) (2,379.8)
--------- --------- ---------
Net cash used in financing activities (100.2) (96.4) 945.5
--------- --------- ---------
Net increase (decrease) in cash 1.4 (172.2) 131.8
Cash, beginning of year 3.4 175.6 43.8
--------- --------- ---------
Cash, end of year $ 4.8 $ 3.4 $ 175.6
========= ========= =========
</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, 1999, 1998 and 1997
(1) Organization and Description of Business
Nationwide Life Insurance Company (NLIC) is a leading provider of
long-term savings and retirement products in the United States and is a
wholly owned subsidiary of Nationwide Financial Services, Inc. (NFS).
The Company develops and sells a diverse range of products including
variable annuities, fixed annuities and life insurance as well as
investment management and administrative services. NLIC markets its
products through a broad network of distribution channels, including
independent broker/dealers, national and regional brokerage firms,
financial institutions, pension plan administrators, life insurance
specialists, Nationwide Retirement Solutions sales representatives, and
Nationwide agents.
Wholly owned subsidiaries of NLIC include Nationwide Life and Annuity
Insurance Company (NLAIC), Nationwide Advisory Services, Inc., and
Nationwide Investment Services Corporation. NLIC and its subsidiaries
are collectively referred to as "the Company."
(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.
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. All significant intercompany
balances and transactions have been eliminated.
<PAGE> 7
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of
Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(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 accumulated other comprehensive income in
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, 1999 or 1998.
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.
(c) Revenues and Benefits
Investment Products and Universal Life Insurance Products:
Investment products consist primarily of individual and group
variable and fixed deferred annuities. Universal life insurance
products include universal life insurance, variable universal life
insurance, corporate owned life insurance and other
interest-sensitive life insurance policies. Revenues for
investment products and universal life insurance products consist
of net investment income, asset fees, cost of insurance, policy
administration and surrender charges that have been earned and
assessed against policy account balances during the period. Policy
benefits and claims that are charged to expense include interest
credited to policy account balances and benefits and claims
incurred in the period in excess of related policy account
balances.
Traditional Life Insurance Products: Traditional life insurance
products include those products with fixed and guaranteed premiums
and benefits and consist primarily of whole life insurance,
limited-payment life insurance, term life insurance and certain
annuities with life contingencies. Premiums for traditional life
insurance products are recognized as revenue when due. Benefits
and expenses are associated with earned premiums so as to result
in recognition of profits over the life of the contract. This
association is accomplished by the provision for future policy
benefits and the deferral and amortization of policy acquisition
costs.
<PAGE> 8
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of
Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(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 $915.4 million of separate
account assets, the investment income and gains or losses of these
accounts accrue directly to the contractholders. The activity of
the separate accounts is not reflected in the consolidated
statements of income and cash flows except for the fees the
Company receives.
(f) Future Policy Benefits
Future policy benefits for investment products in the accumulation
phase, universal life insurance and variable universal life
insurance policies have been calculated based on participants'
contributions plus interest credited less applicable contract
charges. The average interest rate credited on investment product
policy reserves was 5.6%, 6.0% and 6.1% for the years ended
December 31, 1999, 1998 and 1997, respectively.
Future policy benefits for traditional life insurance policies
have been calculated by the net level premium method using
interest rates varying from 6.0% to 10.5% and estimates of
mortality, morbidity, investment yields and withdrawals which were
used or which were being experienced at the time the policies were
issued, rather than the assumptions prescribed by state regulatory
authorities.
<PAGE> 9
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of
Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(g) Participating Business
Participating business represents approximately 29% in 1999 (40%
in 1998 and 50% in 1997) of the Company's life insurance in force,
69% in 1999 (74% in 1998 and 77% in 1997) of the number of life
insurance policies in force, and 13% in 1999 (14% in 1998 and 27%
in 1997) 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.
(j) Recently Issued Accounting Pronouncements
In March 1998, The American Institute of Certified Public
Accountant's Accounting Standards Executive Committee issued
Statement of Position (SOP) 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." The
SOP, which has been adopted prospectively as of January 1, 1999,
requires the capitalization of certain costs incurred in
connection with developing or obtaining internal use software.
Prior to the adoption of SOP 98-1, the Company expensed internal
use software related costs as incurred. The effect of adopting the
SOP was to increase net income for 1999 by $8.3 million.
In June 1998, the Financial Accounting Standards Board (FASB)
issued Statement No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (FAS 133). FAS 133 establishes accounting
and reporting standards for derivative instruments and for hedging
activities. Contracts that contain embedded derivatives, such as
certain investment and insurance contracts, are also addressed by
the Statement. FAS 133 requires that an entity recognize all
derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. In
July 1999 the FASB issued Statement No. 137 which delayed the
effective date of FAS 133 to fiscal years beginning after June 15,
2000. The Company plans to adopt this Statement in first quarter
2001 and is currently evaluating the impact on results of
operations and financial condition.
(k) Reclassification
Certain items in the 1998 and 1997 consolidated financial
statements have been reclassified to conform to the 1999
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, 1999 and
1998 were:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
(in millions) cost gains losses fair value
--------- ------ ------- ---------
<S> <C> <C> <C> <C>
December 31, 1999:
Fixed maturity securities:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies $ 428.4 $ 23.4 $ (2.4) $ 449.4
Obligations of states and political subdivisions 0.8 -- -- 0.8
Debt securities issued by foreign governments 110.6 0.6 (0.8) 110.4
Corporate securities 11,414.7 118.9 (218.6) 11,315.0
Mortgage-backed securities 3,422.8 25.8 (30.2) 3,418.4
--------- ------ ------- ---------
Total fixed maturity securities 15,377.3 168.7 (252.0) 15,294.0
Equity securities 84.9 12.4 (4.4) 92.9
--------- ------ ------- ---------
$15,462.2 $181.1 $(256.4) $15,386.9
========= ====== ======= =========
December 31, 1998:
Fixed maturity securities:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies $ 255.9 $ 13.0 $ -- $ 268.9
Obligations of states and political subdivisions 1.6 -- -- 1.6
Debt securities issued by foreign governments 106.5 4.5 -- 111.0
Corporate securities 9,899.6 423.2 (18.7) 10,304.1
Mortgage-backed securities 3,457.7 104.2 (2.4) 3,559.5
--------- ------ ------- ---------
Total fixed maturity securities 13,721.3 544.9 (21.1) 14,245.1
Equity securities 110.4 18.3 (1.5) 127.2
--------- ------ ------- ---------
$13,831.7 $563.2 $ (22.6) $14,372.3
========= ====== ======= =========
</TABLE>
The amortized cost and estimated fair value of fixed maturity
securities available-for-sale as of December 31, 1999, by expected
maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Estimated
(in millions) cost fair value
--------- ---------
<S> <C> <C>
Fixed maturity securities available for sale:
Due in one year or less $ 847.0 $ 847.0
Due after one year through five years 5,240.5 5,205.7
Due after five years through ten years 5,046.9 5,005.2
Due after ten years 4,242.9 4,236.1
--------- ---------
$15,377.3 $15,294.0
========= =========
</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 (losses) gains on securities
available-for-sale, net, were as follows as of December 31:
<TABLE>
<CAPTION>
(in millions) 1999 1998
------ -------
<S> <C> <C>
Gross unrealized (losses) gains $(75.3) $ 540.6
Adjustment to deferred policy acquisition costs 50.9 (116.6)
Deferred federal income tax 8.5 (148.4)
------ -------
$(15.9) $ 275.6
====== =======
</TABLE>
An analysis of the change in gross unrealized (losses) gains on
securities available-for-sale for the years ended December 31:
<TABLE>
<CAPTION>
(in millions) 1999 1998 1997
------- ----- ------
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturity securities $(607.1) $52.6 $137.5
Equity securities (8.8) 4.2 (2.7)
------- ----- ------
$(615.9) $56.8 $134.8
======= ===== ======
</TABLE>
Proceeds from the sale of securities available-for-sale during 1999,
1998 and 1997 were $513.1 million, $610.5 million and $574.5 million,
respectively. During 1999, gross gains of $10.4 million ($9.0 million
and $9.9 million in 1998 and 1997, respectively) and gross losses of
$28.0 million ($7.6 million and $18.0 million in 1998 and 1997,
respectively) were realized on those sales. In addition, gross gains of
$15.1 million and gross losses of $0.7 million were realized in 1997
when the Company paid a dividend to NFS, which then made an equivalent
dividend to Nationwide Corp., consisting of securities having an
aggregate fair value of $850.0 million.
The Company had $15.6 million of real estate investments at December
31, 1999 that were non-income producing the preceding twelve months.
During 1998 the Company had investments of $42.4 million that were
non-income producing, which consisted of $32.7 million of securities
available-for-sale and $9.7 million of real estate.
Real estate is presented at cost less accumulated depreciation of $24.8
million as of December 31, 1999 ($21.5 million as of December 31, 1998)
and valuation allowances of $5.5 million as of December 31, 1999 ($5.4
million as of December 31, 1998).
The recorded investment of mortgage loans on real estate considered to
be impaired was $3.7 million as of both December 31, 1999 and 1998. No
valuation allowance has been recorded for these loans as of December
31, 1999 or 1998. During 1999, the average recorded investment in
impaired mortgage loans on real estate was approximately $3.7 million
($9.1 million in 1998) and there was no interest income recognized on
those loans. Interest income recognized on impaired loans was $0.3
million in 1998 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) 1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Allowance, beginning of year $42.4 $42.5 $51.0
Additions (reductions) charged to operations 0.7 (0.1) (1.2)
Direct write-downs charged against the allowance -- -- (7.3)
Allowance on acquired mortgage loans 1.3 -- --
----- ----- -----
Allowance, end of year $44.4 $42.4 $42.5
===== ===== =====
</TABLE>
An analysis of investment income by investment type follows for the
years ended December 31:
<TABLE>
<CAPTION>
(in millions) 1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Gross investment income:
Securities available-for-sale:
Fixed maturity securities $1,031.3 $ 982.5 $ 911.6
Equity securities 2.5 0.8 0.8
Mortgage loans on real estate 460.4 458.9 457.7
Real estate 28.8 40.4 42.9
Short-term investments 18.6 17.8 22.7
Other 26.5 30.7 21.0
-------- -------- --------
Total investment income 1,568.1 1,531.1 1,456.7
Less investment expenses 47.3 49.5 47.5
-------- -------- --------
Net investment income $1,520.8 $1,481.6 $1,409.2
======== ======== ========
</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) 1999 1998 1997
------- ----- -----
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturity securities $(25.0) $(0.7) $ 3.6
Equity securities 7.4 2.1 2.7
Mortgage loans on real estate (0.6) 3.9 1.6
Real estate and other 6.6 23.1 3.2
------ ----- -----
$(11.6) $28.4 $11.1
====== ===== =====
</TABLE>
Fixed maturity securities with an amortized cost of $9.1 million as of
December 31, 1999 and $6.5 million as of December 31, 1998 were on
deposit with various regulatory agencies as required by law.
(4) Derivative Financial Instruments
The Company uses derivative financial instruments, principally interest
rate swaps, interest rate futures contracts and foreign currency swaps,
to manage market risk exposures associated with changes in interest
rates and foreign currency exchange rates. Provided they meet specific
criteria, interest rate swaps and futures are considered hedges and are
accounted for under the accrual method and deferral method,
respectively. The Company has no significant derivative positions that
are not considered hedges.
<PAGE> 13
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of
Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Interest rate swaps are primarily used to convert specific investment
securities and interest bearing policy liabilities from a fixed-rate to
a floating-rate basis. Amounts receivable or payable under these
agreements are recognized as an adjustment to net investment income or
interest credited to policyholder account balances consistent with the
nature of the hedged item. The changes in fair value of the interest
rate swap agreements are not recognized on the balance sheet, except
for interest rate swaps designated as hedges of fixed maturity
securities available-for-sale, for which changes in fair values are
reported in accumulated other comprehensive income.
Interest rate futures contracts are primarily used to hedge the risk of
adverse interest rate changes related to the Company's mortgage loan
commitments and anticipated purchases of fixed rate investments. Gains
and losses are deferred and, at the time of closing, reflected as an
adjustment to the carrying value of the related mortgage loans or
investments. The carrying value adjustments are amortized into net
investment income over the life of the related mortgage loans or
investments.
Foreign currency swaps are used to convert cash flows from specific
policy liabilities and investments denominated in foreign currencies
into U.S. dollars at specified exchange rates. Gains and losses on
foreign currency swaps are recorded in earnings based on the related
spot foreign exchange rate at the end of the reporting period. Gains
and losses on these contracts offset those recorded as a result of
translating the hedged foreign currency denominated liabilities and
investments to U.S. dollars.
The following table summarizes the notional amount of derivative
financial instruments classified as hedges outstanding as of December
31, 1999. Prior to 1999 the Company's activities in derivatives were
not significant.
<TABLE>
<CAPTION>
(in millions)
-------------
<S> <C>
Interest rate swaps
Pay fixed/receive variable rate swaps hedging investments $362.7
Pay variable/receive fixed rate swaps hedging investments $ 28.5
Other contracts hedging investments $ 19.1
Pay variable/receive fixed rate swaps hedging liabilities $577.2
Foreign currency swaps
Hedging foreign currency denominated investments $ 14.8
Hedging foreign currency denominated liabilities $577.2
Interest rate futures contracts $781.6
</TABLE>
<PAGE> 14
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of
Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(5) Federal Income Tax
The tax effects of temporary differences that give rise to significant
components of the net deferred tax liability as of December 31, 1999
and 1998 are as follows:
<TABLE>
<CAPTION>
(in millions) 1999 1998
---- ----
<S> <C> <C>
Deferred tax assets:
Fixed maturity securities $ 5.3 $ --
Future policy benefits 149.5 207.7
Liabilities in separate accounts 373.6 319.9
Mortgage loans on real estate and real estate 18.5 17.5
Other assets and other liabilities 51.1 58.9
----- ------
Total gross deferred tax assets 598.0 604.0
Less valuation allowance (7.0) (7.0)
----- ------
Net deferred tax assets 591.0 597.0
----- ------
Deferred tax liabilities:
Deferred policy acquisition costs 724.4 568.7
Fixed maturity securities -- 212.2
Deferred tax on realized investment gains 34.7 34.8
Equity securities and other long-term investments 10.8 9.6
Other 26.5 21.6
------ ------
Total gross deferred tax liabilities 796.4 846.9
------ ------
Net deferred tax liability $205.4 $249.9
====== ======
</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, 1999, 1998 and 1997.
The Company's current federal income tax liability was $104.7 million
and $72.8 million as of December 31, 1999 and 1998, respectively.
Federal income tax expense for the years ended December 31 was as
follows:
(in millions) 1999 1998 1997
------ ------ ------
Currently payable $ 53.6 $186.1 $121.7
Deferred tax expense 147.8 4.3 28.5
------ ------ ------
$201.4 $190.4 $150.2
====== ====== ======
<PAGE> 15
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of
Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Total federal income tax expense for the years ended December 31, 1999,
1998 and 1997 differs from the amount computed by applying the U.S.
federal income tax rate to income before tax as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ---------------- ----------------
(in millions) Amount % Amount % Amount %
------ ---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Computed (expected) tax expense $212.3 35.0 $195.0 35.0 $150.5 35.0
Tax exempt interest and dividends
received deduction (7.3) (1.2) (4.9) (0.9) -- --
Income tax credits (4.3) (0.7) -- -- -- --
Other, net 0.7 0.1 0.3 0.1 (0.3) (0.1)
------ ---- ------ ---- ------ ----
Total (effective rate of each year) $201.4 33.2 $190.4 34.2 $150.2 34.9
====== ==== ====== ==== ====== ====
</TABLE>
Total federal income tax paid was $29.8 million, $173.4 million and
$91.8 million during the years ended December 31, 1999, 1998 and 1997,
respectively.
(6) Comprehensive Income
Comprehensive Income includes net income as well as certain items that
are reported directly within separate components of shareholder's
equity that bypass net income. Currently, the Company's only component
of Other Comprehensive Income is unrealized gains (losses) on
securities available-for-sale. The related before and after federal tax
amounts are as follows:
<TABLE>
<CAPTION>
(in millions) 1999 1998 1997
------- ------ ------
<S> <C> <C> <C>
Unrealized gains (losses) on securities available-for-sale
arising during the period:
Gross $(665.3) $ 58.2 $141.1
Adjustment to deferred policy acquisition costs 167.5 (12.9) (21.8)
Related federal income tax (expense) benefit 171.4 (15.9) (41.7)
------- ------ ------
Net (326.4) 29.4 77.6
------- ------ ------
Reclassification adjustment for net (gains) losses on
securities available-for-sale realized during the
period:
Gross 17.6 (1.4) (6.3)
Related federal income tax expense (benefit) (6.2) 0.5 2.2
------- ------ ------
Net 11.4 (0.9) (4.1)
------- ------ ------
Total Other Comprehensive Income $(315.0) $ 28.5 $ 73.5
======= ====== ======
</TABLE>
(7) Fair Value of Financial Instruments
The following disclosures summarize the carrying amount and estimated
fair value of the Company's financial instruments. Certain assets and
liabilities are specifically excluded from the disclosure requirements
of financial instruments. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Company.
<PAGE> 16
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of
Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
The fair value of a financial instrument is defined as the amount at
which the financial instrument could be exchanged in a current
transaction between willing parties. In cases where quoted market
prices are not available, fair value is to be based on estimates using
present value or other valuation techniques. Many of the Company's
assets and liabilities subject to the disclosure requirements are not
actively traded, requiring fair values to be estimated by management
using present value or other valuation techniques. These techniques are
significantly affected by the assumptions used, including the discount
rate and estimates of future cash flows. Although fair value estimates
are calculated using assumptions that management believes are
appropriate, changes in assumptions could cause these estimates to vary
materially. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases,
could not be realized in the immediate settlement of the instruments.
Although insurance contracts, other than policies such as annuities
that are classified as investment contracts, are specifically exempted
from the disclosure requirements, estimated fair value of policy
reserves on life insurance contracts is provided to make the fair value
disclosures more meaningful.
The tax ramifications of the related unrealized gains and losses can
have a significant effect on fair value estimates and have not been
considered in the estimates.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures:
Fixed maturity and equity securities: The fair value for fixed
maturity securities is based on quoted market prices, where
available. For fixed maturity securities not actively traded, fair
value is estimated using values obtained from independent pricing
services or, in the case of private placements, is estimated by
discounting expected future cash flows using a current market rate
applicable to the yield, credit quality and maturity of the
investments. The fair value for equity securities is based on
quoted market prices. The carrying amount and fair value for fixed
maturity and equity securities exclude the fair value of
derivatives contracts designated as hedges of fixed maturity and
equity securities.
Mortgage loans on real estate, net: The fair value for mortgage
loans on real estate is estimated using discounted cash flow
analyses, using interest rates currently being offered for similar
loans to borrowers with similar credit ratings. Loans with similar
characteristics are aggregated for purposes of the calculations.
Fair value for mortgage loans in default is the estimated fair
value of the underlying collateral.
Policy loans, short-term investments and cash: The carrying amount
reported in the consolidated balance sheets for these instruments
approximates their fair value.
Separate account assets and liabilities: The fair value of assets
held in separate accounts is based on quoted market prices. The
fair value of liabilities related to separate accounts is the
amount payable on demand, which is net of certain surrender
charges.
Investment contracts: The fair value for the Company's liabilities
under investment type contracts is disclosed using two methods.
For investment contracts without defined maturities, fair value is
the amount payable on demand. For investment contracts with known
or determined maturities, fair value is estimated using discounted
cash flow analysis. Interest rates used are similar to currently
offered contracts with maturities consistent with those remaining
for the contracts being valued.
<PAGE> 17
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of
Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Policy reserves on life insurance contracts: Included are
disclosures for individual life insurance, universal life
insurance and supplementary contracts with life contingencies for
which the estimated fair value is the amount payable on demand.
Also included are disclosures for the Company's limited payment
policies, which the Company has used discounted cash flow analyses
similar to those used for investment contracts with known
maturities to estimate fair value.
Commitments to extend credit: Commitments to extend credit have
nominal fair value because of the short-term nature of such
commitments. See note 8.
Futures contracts: The fair value for futures contracts is based
on quoted market prices.
Interest rate and foreign currency swaps: The fair value for
interest rate and foreign currency swaps are calculated with
pricing models using current rate assumptions.
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>
1999 1998
------------------------ -------------------------
Carrying Estimated Carrying Estimated
(in millions) amount fair value amount fair value
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Assets:
Investments:
Securities available-for-sale:
Fixed maturity securities $15,294.0 $15,294.0 $14,245.1 $14,245.1
Equity securities 92.9 92.9 128.5 128.5
Mortgage loans on real estate, net 5,786.3 5,745.5 5,328.4 5,527.6
Policy loans 519.6 519.6 464.3 464.3
Short-term investments 416.0 416.0 289.1 289.1
Cash 4.8 4.8 3.4 3.4
Assets held in separate accounts 67,135.1 67,135.1 50,935.8 50,935.8
Liabilities:
Investment contracts (16,977.7) (16,428.6) (15,468.7) (15,158.6)
Policy reserves on life insurance contracts (4,883.9) (4,607.9) (3,914.0) (3,768.9)
Liabilities related to separate accounts (67,135.1) (66,318.7) (50,935.8) (49,926.5)
Derivative financial instruments:
Interest rate swaps hedging assets 4.3 4.3 - -
Interest rate swaps hedging liabilities - (24.2) - -
Foreign currency swaps (11.8) (11.8) - -
Futures contracts 1.3 1.3 (1.3) (1.3)
</TABLE>
(8) Risk Disclosures
The following is a description of the most significant risks facing
life insurers and how the Company mitigates those risks:
Credit Risk: The risk that issuers of securities owned by the Company
or mortgagors on mortgage loans on real estate owned by the Company
will default or that other parties, including reinsurers, which owe the
Company money, will not pay. The Company minimizes this risk by
adhering to a conservative investment strategy, by maintaining
reinsurance and credit and collection policies and by providing for any
amounts deemed uncollectible.
<PAGE> 18
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.
Legal/Regulatory Risk: The risk that changes in the legal or regulatory
environment in which an insurer operates will result in increased
competition, reduced demand for a company's products, or create
additional expenses not anticipated by the insurer in pricing its
products. The Company mitigates this risk by offering a wide range of
products and by operating throughout the United States, thus reducing
its exposure to any single product or jurisdiction, and also by
employing underwriting practices which identify and minimize the
adverse impact of this risk.
Financial Instruments with Off-Balance-Sheet Risk: The Company is a
party to financial instruments with off-balance-sheet risk in the
normal course of business through management of its investment
portfolio. These financial instruments include commitments to extend
credit in the form of loans and derivative financial instruments. 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 $216.2 million
extending into 2000 were outstanding as of December 31, 1999. The
Company also had $28.0 million of commitments to purchase fixed
maturity securities outstanding as of December 31, 1999.
Notional amounts of derivative financial instruments, primarily
interest rate swaps, interest rate futures contracts and foreign
currency swaps, significantly exceed the credit risk associated with
these instruments and represent contractual balances on which
calculations of amounts to be exchanged are based. Credit exposure is
limited to the sum of the aggregate fair value of positions that have
become favorable to NLIC, including accrued interest receivable due
from counterparties. Potential credit losses are minimized through
careful evaluation of counterparty credit standing, selection of
counterparties from a limited group of high quality institutions,
collateral agreements and other contract provisions. At December 31,
1999, NLIC's credit risk from these derivative financial instruments
was $6.1 million.
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 23% (22% in 1998) in any geographic area and no more than 2% (2%
in 1998) with any one borrower as of December 31, 1999. As of December
31, 1999, 39% (42% in 1998) of the remaining principal balance of the
Company's commercial mortgage loan portfolio financed retail
properties.
<PAGE> 19
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of
Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Reinsurance: The Company has entered into a reinsurance contract to
cede a portion of its general account individual annuity business to
The Franklin Life Insurance Company (Franklin). Total recoveries due
from Franklin were $143.6 million and $187.9 million as of December 31,
1999 and 1998, 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.
(9) Pension Plan and Postretirement Benefits Other Than Pensions
The Company is a participant, together with other affiliated companies,
in a pension plan covering all employees who have completed at least
one year of service. The Company funds pension costs accrued for direct
employees plus an allocation of pension costs accrued for employees of
affiliates whose work efforts benefit the Company. Assets of the
Retirement Plan are invested in group annuity contracts of NLIC.
Pension cost (benefit) charged to operations by the Company during the
years ended December 31, 1999, 1998 and 1997 were $(8.3) million, $2.0
million and $7.5 million, respectively. The Company has recorded a
prepaid pension asset of $13.3 million and $5.0 million as of December
31, 1999 and 1998, respectively.
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,
1999 and 1998 was $49.6 million and $40.1 million, respectively, and
the net periodic postretirement benefit cost (NPPBC) for 1999, 1998 and
1997 was $4.9 million, $4.1 million and $3.0 million, respectively.
<PAGE> 20
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of
Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Information regarding the funded status of the pension plan as a whole
and the postretirement life and health care benefit plan as a whole as
of December 31, 1999 and 1998 follows:
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
------------------ -----------------------
(in millions) 1999 1998 1999 1998
--------------------------------------------------------- -------- -------- ------- -------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $2,185.0 $2,033.8 $ 270.1 $ 237.9
Service cost 80.0 87.6 14.2 9.8
Interest cost 109.9 123.4 17.6 15.4
Actuarial (gain) loss (95.0) 123.2 (64.4) 15.6
Plan settlement in 1999/curtailment in 1998 (396.1) (107.2) -- --
Benefits paid (72.4) (75.8) (11.0) (8.6)
Acquired companies -- -- 13.3 --
-------- -------- ------- -------
Benefit obligation at end of year 1,811.4 2,185.0 239.8 270.1
-------- -------- ------- -------
Change in plan assets:
Fair value of plan assets at beginning of year 2,541.9 2,212.9 77.9 69.2
Actual return on plan assets 161.8 300.7 3.5 5.0
Employer contribution 12.4 104.1 20.9 12.1
Plan settlement (396.1) -- -- --
Benefits paid (72.4) (75.8) (11.0) (8.4)
-------- -------- ------- -------
Fair value of plan assets at end of year 2,247.6 2,541.9 91.3 77.9
-------- -------- ------- -------
Funded status 436.2 356.9 (148.5) (192.2)
Unrecognized prior service cost 28.2 31.5 -- --
Unrecognized net (gains) losses (402.0) (345.7) (46.7) 16.0
Unrecognized net (asset) obligation at transition (7.7) (11.0) 1.1 1.3
-------- -------- ------- -------
Prepaid (accrued) benefit cost $ 54.7 $ 31.7 $(194.1) $(174.9)
======== ======== ======= =======
</TABLE>
<PAGE> 21
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of
Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Basis for measurements, funded status of the pension plan and
postretirement life and health care benefit plan:
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
---------------- -----------------------
1999 1998 1999 1998
---- ---- ------- ------
<S> <C> <C>
Weighted average discount rate 7.00% 5.50% 7.80% 6.65%
Rate of increase in future compensation levels 5.25% 3.75% -- --
Assumed health care cost trend rate:
Initial rate -- -- 15.00% 15.00%
Ultimate rate -- -- 5.50% 8.00%
Uniform declining period -- -- 5 Years 15 Years
</TABLE>
The net periodic pension cost for the pension plan as a whole for the
years ended December 31, 1999, 1998 and 1997 follows:
<TABLE>
<CAPTION>
(in millions) 1999 1998 1997
-------------------------------------------------------------------------------- ----------- ------------
<S> <C> <C> <C>
Service cost (benefits earned during the period) $ 80.0 $ 87.6 $ 77.3
Interest cost on projected benefit obligation 109.9 123.4 118.6
Expected return on plan assets (160.3) (159.0) (139.0)
Recognized gains (9.1) (3.8) --
Amortization of prior service cost 3.2 3.2 3.2
Amortization of unrecognized transition obligation (asset) (1.4) 4.2 4.2
------- ------- --------
$ 22.3 $ 55.6 $ 64.3
======= ======= ========
</TABLE>
Effective December 31, 1998, Wausau Service Corporation (WSC) ended its
affiliation with Nationwide Insurance and employees of WSC ended
participation in the plan. A curtailment gain of $67.1 million resulted
(consisting of a $107.2 million reduction in the projected benefit
obligation, net of the write-off of the $40.1 million remaining
unamortized transition obligation related to WSC). During 1999, the
plan transferred assets to settle its obligation related to WSC
employees . A settlement gain of $32.9 million was recognized.
Basis for measurements, net periodic pension cost for the pension plan:
<TABLE>
<CAPTION>
1999 1998 1997
------ ----- -----
<S> <C> <C> <C>
Weighted average discount rate 6.08% 6.00% 6.50%
Rate of increase in future compensation levels 4.33% 4.25% 4.75%
Expected long-term rate of return on plan assets 7.33% 7.25% 7.25%
</TABLE>
<PAGE> 22
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of
Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
The amount of NPPBC for the postretirement benefit plan as a whole for
the years ended December 31, 1999, 1998 and 1997 was as follows:
<TABLE>
<CAPTION>
(in millions) 1999 1998 1997
------- ----------- -----------
<S> <C> <C> <C>
Service cost (benefits attributed to employee service during the year) $14.2 $ 9.8 $ 7.0
Interest cost on accumulated postretirement benefit obligation 17.6 15.4 14.0
Actual return on plan assets (3.5) (5.0) (3.6)
Amortization of unrecognized transition obligation of affiliates 0.6 0.2 0.2
Net amortization and deferral (1.8) 1.2 (0.5)
----- ----- -----
$27.1 $21.6 $17.1
===== ===== =====
</TABLE>
Actuarial assumptions used for the measurement of the NPPBC for the
postretirement benefit plan for 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ ------
<S> <C> <C> <C>
Discount rate 6.65% 6.70% 7.25%
Long term rate of return on plan
assets, net of tax 7.15% 5.83% 5.89%
Assumed health care cost trend rate:
Initial rate 15.00% 12.00% 11.00%
Ultimate rate 5.50% 6.00% 6.00%
Uniform declining period 5 Years 12 Years 12 Years
</TABLE>
For the postretirement benefit plan as a whole, a one percentage point
increase or decrease in the assumed health care cost trend rate would
have no impact on the APBO as of December 31, 1999 and have no impact
on the NPPBC for the year ended December 31, 1999.
(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.
The statutory capital and surplus of NLIC as of December 31, 1999, 1998
and 1997 was $1.35 billion, $1.32 billion and $1.13 billion,
respectively. The statutory net income of NLIC for the years ended
December 31, 1999, 1998 and 1997 was $276.2 million, $171.0 million and
$111.7 million, respectively.
The Company is limited in the amount of shareholder dividends it may
pay without prior approval by the Department. As of December 31, 1999
$40.2 million of dividends could be paid by NLIC without prior
approval.
<PAGE> 23
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of
Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
In addition, the payment of dividends by NLIC may also be subject to
restrictions set forth in the insurance laws of New York that limit the
amount of statutory profits on NLIC's participating policies (measured
before dividends to policyholders) that can inure to the benefit of the
Company and its shareholder.
The Company currently does not expect such regulatory requirements to
impair its ability to pay operating expenses and shareholder dividends
in the future.
(11) Transactions With Affiliates
During second quarter 1999 the Company entered into a modified
coinsurance arrangement to reinsure the 1999 operating results of an
affiliated company, Employers Life Insurance Company of Wausau (ELOW)
retroactive to January 1, 1999. In September 1999, NFS acquired ELOW
for $120.8 million and immediately merged ELOW into NLIC terminating
the modified coinsurance arrangement. Because ELOW was an affiliate,
the Company accounted for the merger similar to poolings-of-interests;
however, prior period financial statements were not restated due to
immateriality. The reinsurance and merger combined contributed $1.46
million to year to date net income.
The Company has a reinsurance agreement with NMIC whereby all of the
Company's accident and health business is ceded to NMIC on a modified
coinsurance basis. The agreement covers individual accident and health
business for all periods presented and group and franchise accident and
health business since July 1, 1999. Either party may terminate the
agreement on January 1 of any year with prior notice. Prior to July 1,
1999 group and franchise accident and health business and a block of
group life insurance policies were ceded to ELOW under a modified
coinsurance agreement. Under a modified coinsurance agreement, 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
the reinsurer. Risk of asset default is retained by the Company,
although a fee is paid to the Company for the retention of such risk.
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. Revenues ceded to NMIC and ELOW for the years
ended December 31, 1999, 1998 and 1997 were $193.0 million, $216.9
million, and $315.3 million, respectively, while benefits, claims and
expenses ceded were $216.9 million, $259.3 million, and $326.6 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 such agreement are subject to
allocation among NMIC and such subsidiaries. Measures used to allocate
expenses among companies include individual employee estimates of time
spent, special cost studies, salary expense, commission expense and
other methods agreed to by the participating companies that are within
industry guidelines and practices. In addition, beginning in 1999
Nationwide Services Company, a subsidiary of NMIC, provides computer,
telephone, mail, employee benefits administration, and other services
to NMIC and certain of its direct and indirect subsidiaries, including
the Company, based on specified rates for units of service consumed.
For the years ended December 31, 1999, 1998 and 1997, the Company made
payments to NMIC and Nationwide Services Company totaling $124.1
million, $95.0 million, and $85.8 million, respectively. In addition,
the Company does not believe that expenses recognized under these
agreements are materially different than expenses that would have been
recognized had the Company operated on a stand-alone basis.
The Company leases office space from NMIC and certain of its
subsidiaries. For the years ended December 31, 1999, 1998 and 1997, the
Company made lease payments to NMIC and its subsidiaries of $9.9
million, $8.0 million and $8.4 million, respectively.
<PAGE> 24
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of
Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
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 1999 and
1998 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.
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 $411.7 million and $248.4 million as
of December 31, 1999 and 1998, respectively, and are included in
short-term investments on the accompanying consolidated balance sheets.
As part of certain restructuring activities that occurred prior to the
March 1997 IPO, the Company paid a dividend valued at $485.7 million to
Nationwide Corp. on January 1, 1997 consisting of the outstanding
shares of common stock of ELOW, National Casualty Company (NCC) and
West Coast Life Insurance Company (WCLIC). Also, on February 24, 1997,
the Company 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.
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, 1999 were $56.0
million, $60.0 million and $66.1 million, respectively.
(12) Bank Lines of Credit
NFS, NLIC and NMIC are parties to 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 any party. NFS, NLIC and
NMIC pay facility and usage fees to the financial institutions to
maintain the revolving credit facility. As of December 31, 1999 the
Company had no amounts outstanding under the agreement.
(13) Contingencies
On October 29, 1998, the Company was named in a lawsuit filed in Ohio
state court related to the sale of deferred annuity products for use as
investments in tax-deferred contributory retirement plans (Mercedes
Castillo v. Nationwide Financial Services, Inc., Nationwide Life
Insurance Company and Nationwide Life and Annuity Insurance Company).
On May 3, 1999, the complaint was amended to, among other things, add
Marcus Shore as a second plaintiff. The amended complaint is brought as
a class action on behalf of all persons who purchased individual
deferred annuity contracts or participated in group annuity contracts
sold by the Company and the other named Company affiliates which were
used to fund certain tax-deferred retirement plans. The amended
complaint seeks unspecified compensatory and punitive damages. No class
has been certified. On June 11, 1999, the Company and the other named
defendants filed a motion to dismiss the amended complaint. On March 8,
2000, the court denied the motion to dismiss the amended complaint
filed by the Company and other named defendants. The Company intends to
defend this lawsuit vigorously.
(14) Segment Information
The Company uses differences in products as the basis for defining its
reportable segments. The Company reports three product segments:
Variable Annuities, Fixed Annuities and Life Insurance.
<PAGE> 25
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of
Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
The Variable Annuities segment consists of annuity contracts that
provide the customer with access to a wide range of investment options,
tax-deferred accumulation of savings, asset protection in the event of
an untimely death, and flexible payout options including a lump sum,
systematic withdrawal or a stream of payments for life. The Company's
variable annuity products consist almost entirely of flexible premium
deferred variable annuity contracts.
The Fixed Annuities segment consists of annuity contracts that generate
a return for the customer at a specified interest rate fixed for a
prescribed period, tax-deferred accumulation of savings, and flexible
payout options including a lump sum, systematic withdrawal or a stream
of payments for life. Such contracts consist of single premium deferred
annuities, flexible premium deferred annuities and single premium
immediate annuities. The Fixed Annuities segment includes the fixed
option under variable annuity contracts.
The Life Insurance segment consists of insurance products, including
variable universal life insurance and corporate-owned life insurance
products, that provide a death benefit and may also allow the customer
to build cash value on a tax-deferred basis.
In addition to the product segments, the Company reports corporate
revenue and expenses, investments and related investment income
supporting capital not specifically allocated to its product segments,
revenues and expenses of its investment advisor subsidiary, revenues
and expenses related to group annuity contracts sold to Nationwide
Insurance employee and agent benefit plans and all realized gains and
losses on investments in a Corporate and Other segment.
During 1999 the Company revised the allocation of net investment income
among its Life Insurance and Corporate and Other segments. Also,
certain amounts previously reported as other income were reclassified
to operating expense. Amounts reported for prior periods have been
restated to reflect these changes.
The following table summarizes the financial results of the Company's
business segments for the years ended December 31, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
Variable Fixed Life Corporate
(in millions) Annuities Annuities Insurance and Other Total
------------------------------------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
1999:
Net investment income (1) $ (41.5) $ 1,134.5 $ 253.1 $ 174.7 $ 1,520.8
Other operating revenue 668.2 43.4 393.0 77.8 1,182.4
--------- --------- -------- -------- ---------
Total operating revenue (2) 626.7 1,177.9 646.1 252.5 2,703.2
--------- --------- -------- -------- ---------
Interest credited to policyholder
account balances -- 837.5 130.5 128.3 1,096.3
Amortization of deferred policy
acquisition costs 162.8 49.7 60.1 -- 272.6
Other benefits and expenses 173.6 113.5 334.7 94.4 716.2
--------- --------- -------- -------- ---------
Total expenses 336.4 1,000.7 525.3 222.7 2,085.1
--------- --------- -------- -------- ---------
Operating income before
federal income tax 290.3 177.2 120.8 29.8 618.1
Realized losses on investments -- -- -- (11.6) (11.6)
--------- --------- -------- -------- ---------
Consolidated income before
federal tax expense $ 290.3 $ 177.2 $ 120.8 $ 18.2 $ 606.5
========= ========= ======== ======== =========
Assets as of year end $62,599.7 $17,134.8 $6,616.7 $6,324.7 $92,675.9
========= ========= ======== ======== =========
</TABLE>
<PAGE> 26
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of
Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
<TABLE>
<CAPTION>
Variable Fixed Life Corporate
(in millions) Annuities Annuities Insurance and Other Total
------------------------------------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1998:
Net investment income (1) $ (31.3) $ 1,116.6 $ 225.6 $ 170.7 $ 1,481.6
Other operating revenue 532.9 35.7 318.5 78.6 965.7
--------- --------- -------- -------- ---------
Total operating revenue (2) 501.6 1,152.3 544.1 249.3 2,447.3
--------- --------- -------- -------- ---------
Interest credited to policyholder
account balances -- 828.6 115.4 125.0 1,069.0
Amortization of deferred policy
acquisition costs 123.9 44.2 46.4 -- 214.5
Other benefits and expenses 159.3 104.2 293.5 78.1 635.1
--------- --------- -------- -------- ---------
Total expenses 283.2 977.0 455.3 203.1 1,918.6
--------- --------- -------- -------- ---------
Operating income before federal
income tax 218.4 175.3 88.8 46.2 528.7
Realized gains on investments -- -- -- 28.4 28.4
--------- --------- -------- -------- ---------
Consolidated income before
federal tax expense $ 218.4 $ 175.3 $ 88.8 $ 74.6 $ 557.1
========= ========= ======== ======== =========
Assets as of year end $47,668.7 $15,215.7 $5,187.6 $6,270.1 $74,342.1
========= ========= ======== ======== =========
1997:
Net investment income (1) $ (26.8) $ 1,098.2 $ 184.9 $ 152.9 $ 1,409.2
Other operating revenue 413.9 43.2 283.4 56.6 797.1
--------- --------- -------- -------- ---------
Total operating revenue (2) 387.1 1,141.4 468.3 209.5 2,206.3
--------- --------- -------- -------- ---------
Interest credited to policyholder
account balances -- 823.4 78.5 114.7 1,016.6
Amortization of deferred policy
acquisition costs 87.8 39.8 39.6 -- 167.2
Benefits and expenses 148.4 108.7 283.5 63.1 603.7
--------- --------- -------- -------- ---------
Total expenses 236.2 971.9 401.6 177.8 1,787.5
--------- --------- -------- -------- ---------
Operating income before federal
income tax 150.9 169.5 66.7 31.7 418.8
Realized gains on investments -- -- -- 11.1 11.1
--------- --------- -------- -------- ---------
Consolidated income before
federal tax expense $ 150.9 $ 169.5 $ 66.7 $ 42.8 $ 429.9
========= ========= ======== ======== =========
Assets as of year end $35,278.7 $14,436.3 $3,901.4 $6,174.3 $59,790.7
========= ========= ======== ======== =========
</TABLE>
- ----------
(1) The Company's method of allocating net investment income results in
a charge (negative net investment income) to the Variable Annuities
segment which is recognized in the Corporate and Other segment. The
charge relates to non-invested assets which support this segment on
a statutory basis.
(2) Excludes realized gains and losses on investments.
The Company has no significant revenue from customers located outside
of the United States nor does the Company have any significant
long-lived assets located outside the United States.
<PAGE> 61
PART C. OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
(1) Financial statements included in Prospectus (Part A):
Condensed Financial Information.
(2) Financial statements included in Part B:
Those financial statements 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.
Statement of Assets, Liabilities and Contract Owners'
Equity as of December 31, 1999.
Statements of Operations for the years ended December 31,
1999 and 1998.
Statements of Changes in Contract Owners'
Equity for the years ended December 31, 1999 and 1998.
Notes to Financial Statements.
Nationwide Life Insurance Company and Subsidiaries:
Independent Auditors' Report.
Consolidated Balance Sheets as of December 31, 1999 and
1998.
Consolidated Statements of Income for the years ended
December 31, 1999, 1998 and 1997.
Consolidated Statements of Shareholder's Equity for the
years ended December 31, 1999, 1998 and 1997.
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.
Notes to Consolidated Financial Statements.
<PAGE> 62
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 - Attached
hereto.
(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> 63
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 28365-6107
A. I. Bell Director
4121 North River Road West
Zanesville, OH 43701
Kenneth D. Davis Director
7229 Woodmansee Road
Leesburg, OH 45135
Keith W. Eckel Director
1647 Falls Road
Clarks Summit, PA 18411
Willard J. Engel Director
301 East Marshall Street
Marshall, MN 56258
Fred C. Finney Director
1558 West Moreland Road
Wooster, OH 44691
Joseph J. Gasper President and Chief Operating Officer
One Nationwide Plaza and Director
Columbus, OH 43215
Dimon R. McFerson Chairman and Chief Executive Officer
One Nationwide Plaza and Director
Columbus, OH 43215
David O. Miller Chairman of the Board and Director
115 Sprague Drive
Hebron, OH 43025
Yvonne L. Montgomery Director
Xerox Corporation
Suite 200
1401 H Street NW
Washington, DC 20005-2110
Ralph M. Paige Director
Federation of Southern
Cooperatives/Land Assistance Fund
2769 Church Street
East Point, GA 30344
James F. Patterson Director
8765 Mulberry Road
Chesterland, OH 44026
</TABLE>
<PAGE> 64
<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
1767D Westwood Avenue
Alliance, OH 44601
Richard D. Headley Executive Vice President - Chief
One Nationwide Plaza Information Technology Officer
Columbus, OH 43215
Robert A. Oakley Executive Vice President-
One Nationwide Plaza Chief Financial Officer
Columbus, OH 43215
Robert J. Woodward, Jr. Executive Vice President
One Nationwide Plaza Chief Investment Officer
Columbus, OH 43215
James E. Brock Senior Vice President - Corporate
One Nationwide Plaza Development
Columbus, OH 43215
Charles A. Bryan Senior Vice President -
One Nationwide Plaza Chief Actuary - Property and Casualty
Columbus, OH 43215
John R. Cook, Jr. Senior Vice President -
One Nationwide Plaza Chief Communications Officer
Columbus, OH 43215
Thomas L. Crumrine Senior Vice President
One Nationwide Plaza
Columbus, OH 43215
David A. Diamond Senior Vice President -
One Nationwide Plaza Corporate Controller
Columbus, OH 43215
Philip C. Gath Senior Vice President -
One Nationwide Plaza Chief Actuary - Nationwide Financial
Columbus, OH 43215
Patricia R. Hatler Senior Vice President,
One Nationwide Plaza General Counsel and Secretary
Columbus, OH 43215
</TABLE>
<PAGE> 65
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS WITH DEPOSITOR
---------------- --------------
<S> <C>
David K. Hollingsworth Senior Vice President -
One Nationwide Plaza Business Development and
Columbus, OH 43215 Sponsor Relations
David R. Jahn Senior Vice President -
One Nationwide Plaza Commercial Insurance
Columbus, OH 43215
Donna A James Senior Vice President - Chief Human
One Nationwide Plaza Resources Officer
Columbus, OH 43215
Richard A. Karas Senior Vice President - Sales -
One Nationwide Plaza Financial Services
Columbus, OH 43215
Gregory S. Lashutka Senior Vice President -
One Nationwide Plaza Corporate Relations
Columbus, OH 43215
Edwin P. McCausland, Jr. Senior Vice President -
One Nationwide Plaza Fixed Income Securities
Columbus, OH 43215
Mark D. Phelan Senior Vice President
One Nationwide Plaza
Columbus, OH 43215
Douglas C. Robinette Senior Vice President -
One Nationwide Plaza Claims and Finance Services
Columbus, OH 43215
Mark R. Thresher Senior Vice President -
One Nationwide Plaza Finance - Nationwide Financial
Columbus, OH 43215
Richard M. Waggoner Senior Vice President -
One Nationwide Plaza Operations
Columbus, OH 43215
Susan A. Wolken Senior Vice President - Product
One Nationwide Plaza Management and Nationwide
Columbus, OH 43215 Financial Marketing
</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> 66
<TABLE>
<CAPTION>
COMPANY STATE/COUNTRY OF NO. VOTING PRINCIPAL BUSINESS
ORGANIZATION SECURITIES
(SEE ATTACHED
CHART UNLESS
OTHERWISE
INDICATED)
-------------------------- ---------------- ------------- ------------------------------------
<S> <C> <C> <C>
The 401(k) Companies, Inc. Texas Holding Company
The 401(k) Company Texas Third-party administrator for 401(k)
plans
401(k) Investment Advisors, Inc. Texas Investment advisor registered with the
SEC
401(k) Investments Services, Inc. Texas NASD registered broker-dealer
Affiliate Agency, Inc. Delaware Insurance agency marketing life
insurance & annuity products through
financial institutions
Affiliate Agency of Ohio, Inc. Ohio Insurance agency marketing life
insurance & annuity products through
financial institutions
AID Finance Services, Inc. Iowa Holding Company
ALLIED General Agency Company Iowa Managing general agent and surplus
lines broker for property & casualty
insurance products
ALLIED Group, Inc. Iowa Property & casualty holding company
ALLIED Group Insurance Marketing Iowa Direct marketer for property and
Company casualty insurance products
ALLIED Group Merchant Banking Iowa Broker-Dealer
Corporation
ALLIED Property and Casualty Insurance Iowa Underwrites general property &
Company casualty insurance
Allnations, Inc. Ohio Promotes international cooperative
insurance organizations
AMCO Insurance Company Iowa Underwrites general property &
casualty insurance
American Marine Underwriters, Inc. Florida Underwriting manager for ocean cargo
and bulk insurance
Auto Direkt Insurance Company Germany Insurance Company
Cal-Ag Insurance services, Inc. California Captive insurance brokerage firm
CalFarm Insurance Agency California Former marketing company for
traditional agent producers of CalFarm
Insurance Company
CalFarm Insurance Company California Multi-line insurance company
Caliber Funding Delaware A limited purpose corporation
Colonial County Mutual Insurance Texas Insurance Company
Company
Columbus Insurance Brokerage and Germany General service insurance broker
Service GmbH
</TABLE>
<PAGE> 67
<TABLE>
<CAPTION>
COMPANY STATE/COUNTRY OF NO. VOTING PRINCIPAL BUSINESS
ORGANIZATION SECURITIES
(SEE ATTACHED
CHART UNLESS
OTHERWISE
INDICATED)
-------------------------- ---------------- ------------- ------------------------------------
<S> <C> <C> <C>
Cooperative Service Company Nebraska Insurance agency that sells and
services commercial insurance
Depositors Insurance Company Iowa Underwrites property & casualty
insurance
eNationwide, LLC Ohio A limited liability company to provide
administrative services to
Nationwide's direct operations
Excaliber Funding Corporation Delaware Limited purpose corporation
F&B, Inc. Iowa Insurance Agency
Farmland Mutual Insurance Company Iowa Mutual Insurance Company
Financial Horizons Distributors Alabama Insurance agency marketing life
Agency of Alabama, Inc. insurance and annuity products through
financial institutions
Financial Horizons Distributors Ohio Insurance marketing life insurance and
Agency of Ohio, Inc. annuity products through financial
institutions
Financial Horizons Distributors Oklahoma Insurance marketing life insurance and
Agency of Oklahoma, Inc. annuity products through financial
institutions
Financial Horizons Distributors Texas Insurance marketing life insurance and
Agency of Texas, Inc. annuity products through financial
institutions
*Financial Horizons Investment Trust Massachusetts Diversified, open-end investment
company
Financial Horizons Securities Oklahoma Limited broker-dealer doing business
Corporation solely in the financial institution
market
GatesMcDonald Health Plus Inc. Ohio Managed Care Organization
Gates, McDonald & Company Ohio Services employers for managing
workers' and unemployment compensation
matters
Gates, McDonald & Company of Nevada Nevada Self-insurance administration, claims
examinations and data processing
services
Gates, McDonald & Company of New York, New York Workers' compensation/self-insured
Inc. claims administration services to
employers with exposure in New York
Insurance Intermediaries, Inc. Ohio Insurance agency providing commercial
property & casualty brokerage services
Irvin L. Schwartz and Associates, Inc. Ohio Insurance Agency
Landmark Financial Services of New New York Insurance agency marketing life
York, Inc. insurance and annuity products through
financial institutions
Leben Direkt Insurance Company Germany Life insurance through direct mail
</TABLE>
<PAGE> 68
<TABLE>
<CAPTION>
COMPANY STATE/COUNTRY OF NO. VOTING PRINCIPAL BUSINESS
ORGANIZATION SECURITIES
(SEE ATTACHED
CHART UNLESS
OTHERWISE
INDICATED)
-------------------------- ---------------- ------------- ------------------------------------
<S> <C> <C> <C>
Lone Star General Agency, Inc. Texas General agent to market non-standard
automobile and motorcycle insurance
for Colonial Mutual Insurance Company
MedProSolutions, Inc. Massachusetts Provides third-party administration
services for workers compensation,
automobile injury and disability claims
Midwest Printing Services, Ltd. Iowa General printing services
Morley & Associates, Inc. Oregon Insurance brokerage
Morley Capital Management, Inc. Oregon Investment adviser and stable value
money management
Morley Financial Services, Inc. Oregon Holding Company
Morley Research Associates, Ltd. Delaware Credit research consulting
**MRM Investments, Inc. Ohio Owns and operates a recreational ski
facility
**National Casualty Company Wisconsin Insurance Company
National Casualty Company of America, England Insurance Company
Ltd.
National Deferred Compensation, Inc. Ohio Administers deferred compensation
plans for public employees
**National Premium and Benefit Delaware Provides third-party administration
Administration Company services
Nationwide Advisory Services, Inc. Ohio Registered broker-dealer providing
investment management and
administrative services
**Nationwide Agency, Inc. Ohio Insurance Agency
Nationwide Agribusiness Insurance Iowa Provides property & casualty insurance
Company primarily to agricultural business
Nationwide Arena, LLC Ohio A limited liability company related to
arena development
*Nationwide Asset Allocation Trust Ohio Diversified open-end investment company
Nationwide Assurance Company Wisconsin Underwrites non-standard automobile
and motorcycle insurance
Nationwide Cash Management Company Ohio Investment Securities Agent
</TABLE>
<PAGE> 69
<TABLE>
<CAPTION>
COMPANY STATE/COUNTRY OF NO. VOTING PRINCIPAL BUSINESS
ORGANIZATION SECURITIES
(SEE ATTACHED
CHART UNLESS
OTHERWISE
INDICATED)
-------------------------- ---------------- ------------- ------------------------------------
<S> <C> <C> <C>
Nationwide Corporation Ohio Holding company for entities
affiliated with Nationwide Mutual
Insurance Company
Nationwide Exclusive Distribution Ohio A limited liability company providing
Company, LLC agency support services to Nationwide
exclusive agents
Nationwide Financial Assignment Ohio An assignment company to administer
Company structured settlement business
Nationwide Financial Institution Delaware Insurance Agency
Distributors Agency, Inc.
Nationwide Financial Institution New Mexico Insurance Agency
Distributors Agency, Inc. of
New Mexico
Nationwide Financial Institution Massachusetts Insurance Agency
Distributors Agency, Inc. of
Massachusetts
Nationwide Financial Services Bermuda Long-term insurer which issued
(Bermuda) Ltd. variable annuity and variable life
products to persons outside the U.S. &
Bermuda
Nationwide Financial Services Capital Delaware Trust which issues and sells
Trust securities & uses proceeds to acquire
debentures
Nationwide Financial Services Capital Delaware Trust which issues and sells
Trust II securities & uses proceeds to acquire
debentures
Nationwide Financial Services, Inc. Delaware Holding Company for entities
associated with Nationwide Mutual
Insurance Company
Nationwide Foundation Ohio Not-for profit corporation
Nationwide General Insurance Company Ohio Primarily provides automobile and fire
insurance to select customers
Nationwide Global Finance, LLC Ohio Act as a support company for
Nationwide Global Holdings, Inc. & its
international capitalization efforts
Nationwide Global Funds Cayman Islands Exempted company with limited
liability for purpose of issuing
investment shares to segregated asset
accounts of Nationwide Financial
Services (Bermuda) Ltd. and to
non-U.S. resident investors
Nationwide Global Holdings, Inc. Ohio Holding Company for Nationwide
Insurance Enterprise international
operations
Nationwide Global Holdings, Inc.-NGH Grand Duchy of Analyze European market of life
Luxembourg Branch Luxembourg insurance
</TABLE>
<PAGE> 70
<TABLE>
<CAPTION>
COMPANY STATE/COUNTRY OF NO. VOTING PRINCIPAL BUSINESS
ORGANIZATION SECURITIES
(SEE ATTACHED
CHART UNLESS
OTHERWISE
INDICATED)
-------------------------- ---------------- ------------- ------------------------------------
<S> <C> <C> <C>
Nationwide Global Holdings-Hong Kong, Hong Kong Primarily a holding company for
Limited Nationwide Global Holdings, Inc. Asian
operations
Nationwide Global Holdings-NGH Brasil Brazil Holding company
Participacoes LTDA
Nationwide Health Plans, Inc. Ohio Health insuring organization
Nationwide Home Mortgage Company Iowa Mortgage lendor
*Nationwide Indemnity Company Ohio Reinsurance company assuming business
from Nationwide Mutual Insurance
Company and other insurers within the
Nationwide Insurance Enterprise
Nationwide Insurance Company of America Wisconsin Independent agency personal lines
underwriter of property & casualty
insurance
Nationwide Insurance Company of Florida Ohio Transacts general insurance business
except life insurance
Nationwide Insurance Golf Charities, Ohio Not-for-profit corporation
Inc.
Nationwide International Underwriters California Special risks, excess & surplus lines
underwriting manager
Nationwide Investing Foundation Michigan Provide investors with continuous
source of investment under management
of trustees
*Nationwide Investing Foundation II Massachusetts Diversified, open-end investment
company
Nationwide Investment Services Oklahoma Registered broker-dealer
Corporation
Nationwide Investors Services, Inc. Ohio Stock Transfer Agent
**Nationwide Life and Annuity Ohio Life Insurance Company
Insurance Company
**Nationwide Life Insurance Company Ohio Life Insurance Company
Nationwide Lloyds Texas Commercial property insurance in Texas
Nationwide Management Systems, Inc. Ohio Preferred provider organization,
products and related services
Nationwide Mutual Fire Insurance Ohio Mutual Insurance Company
Company
*Nationwide Mutual Funds Ohio Diversified, open-end investment
company
Nationwide Mutual Insurance Company Ohio Mutual Insurance Company
</TABLE>
<PAGE> 71
<TABLE>
<CAPTION>
COMPANY STATE/COUNTRY OF NO. VOTING PRINCIPAL BUSINESS
ORGANIZATION SECURITIES
(SEE ATTACHED
CHART UNLESS
OTHERWISE
INDICATED)
-------------------------- ---------------- ------------- ------------------------------------
<S> <C> <C> <C>
Nationwide Properties, Ltd. Ohio Develop, own and operate real estate
and real estate investments
Nationwide Property and Casualty Ohio Insurance Company
Insurance Company
Nationwide Realty Investors, Inc. Ohio Develop, own and operate real estate
and real estate investments
Nationwide Retirement Solutions, Inc. Delaware Market and administer deferred
compensation plans for public employees
Nationwide Retirement Solutions, Inc. Alabama Market and administer deferred
of Alabama compensation plans for public employees
Nationwide Retirement Solutions, Inc. Arizona Market and administer deferred
of Arizona compensation plans for public employees
Nationwide Retirement Solutions, Inc. Arkansas Market and administer deferred
of Arkansas compensation plans for public employees
Nationwide Retirement Solutions, Inc. Montana Market and administer deferred
of Montana compensation plans for public employees
Nationwide Retirement Solutions, Inc. Nevada Market and administer deferred
of Nevada compensation plans for public employees
Nationwide Retirement Solutions, Inc. New Mexico Market and administer deferred
of New Mexico compensation plans for public employees
Nationwide Retirement Solutions, Inc. Ohio Market variable annuity contracts to
of Ohio members of the National Education
Association in the state of Ohio
Nationwide Retirement Solutions, Inc. Oklahoma Market variable annuity contracts to
of Oklahoma members of the National Education
Association in the state of Oklahoma
Nationwide Retirement Solutions, Inc. South Dakota Market and administer deferred
of South Dakota compensation plans for public employees
Nationwide Retirement Solutions, Inc. Texas Market and administer deferred
of Texas compensation plans for public employees
Nationwide Retirement Solutions, Inc. Wyoming Market variable annuity contracts to
of Wyoming members of the National Education
Association in the state of Wyoming
</TABLE>
<PAGE> 72
<TABLE>
<CAPTION>
COMPANY STATE/COUNTRY OF NO. VOTING PRINCIPAL BUSINESS
ORGANIZATION SECURITIES
(SEE ATTACHED
CHART UNLESS
OTHERWISE
INDICATED)
-------------------------- ---------------- ------------- ------------------------------------
<S> <C> <C> <C>
Nationwide Retirement Solutions Massachusetts Market and administer deferred
Insurance Agency Inc. compensation plans for public employees
Nationwide Seguradora S.A. Brazil Engage in elementary, health & life
insurance; private open pension and
wealth concession plans
*Nationwide Separate Account Trust Massachusetts Diversified, open-end investment
company
Nationwide Services Company, LLC. Ohio Single member limited liability
company performing shared services
functions for the Nationwide Insurance
Enterprise
Nationwide Trust Company, FSB United States Federal savings bank chartered by the
Office of Thrift Supervision in U.S.
Department of Treasury to exercise
custody & fiduciary powers
Neckura Holding Company Germany Administrative services for Neckura
Insurance Group
Neckura Insurance Company Germany Insurance Company
Neckura Life Insurance Company Germany Life and health insurance company
Nevada Independent Nevada Workers' compensation administrative
Companies-Construction services to Nevada employers in the
construction industry
Nevada Independent Companies-Health Nevada Workers' compensation administrative
and Nonprofit services to Nevada employers in health
& nonprofit industries
Nevada Independent Companies- Nevada Workers' compensation administrative
Hospitality and Entertainment services to Nevada employers in the
hospitality & entertainment industries
Nevada Independent Companies- Nevada Workers' compensation administrative
Manufacturing, Transportation and services to Nevada employers in the
Distribution manufacturing, transportation and
distribution industries
NFS Distributors, Inc. Delaware Holding company for Nationwide
Financial Services, Inc. distribution
companies
NGH Luxembourg, S.A Luxembourg Acts primarily as holding company for
Nationwide Global Holdings, Inc.
European operations
NGH Netherlands, B.V. The Netherlands Holding company for other overseas
companies
</TABLE>
<PAGE> 73
<TABLE>
<CAPTION>
COMPANY STATE/COUNTRY OF NO. VOTING PRINCIPAL BUSINESS
ORGANIZATION SECURITIES
(SEE ATTACHED
CHART UNLESS
OTHERWISE
INDICATED)
-------------------------- ---------------- ------------- ------------------------------------
<S> <C> <C> <C>
NGH UK, Ltd. United Kingdom Assist Nationwide Global Holdings,
Inc. with European operations and
marketing
Northpointe Capital LLC Delaware Limited liability company for
investments
PanEuroLife Luxembourg Life Insurance company providing
individual life insurance primarily in
the UK, Belgium and France
Pension Associates, Inc. Wisconsin Pension plan administration and record
keeping services
Portland Investment Services, Inc. Oregon NASD registered broker-dealer
Premier Agency, Inc. Iowa Insurance Agency
Riverview Agency, Inc. Texas Has a pending application to become a
licensed insurance agency with the
Texas Department of Insurance
Scottsdale Indemnity Company Ohio Insurance Company
Scottsdale Insurance Company Ohio Insurance Company
Scottsdale Surplus Lines Insurance Arizona Provides excess and surplus lines
Company insurance coverage on a non-admitted
basis
SVM Sales GmbH, Neckura Insurance Germany Recruits and supervises external sales
Group partners who obtain new business for
the Neckura Group as well as to offer
financial services
Union Bond & Trust Company Oregon Oregon state bank with trust powers
Villanova Capital, Inc. Delaware Holding Company
Villanova Mutual Fund Capital Trust Delaware Trust designed to act as a registered
investment advisor
Villanova SA Capital Trust Delaware Trust designed to act as a registered
investment advisor
Western Heritage Insurance Company Arizona Underwrites excess and surplus lines
of property and casualty insurance
</TABLE>
<PAGE> 74
<TABLE>
<CAPTION>
COMPANY STATE/COUNTRY OF NO. VOTING PRINCIPAL BUSINESS
ORGANIZATION SECURITIES
(SEE ATTACHED
CHART UNLESS
OTHERWISE
INDICATED)
-------------------------- ---------------- ------------- -------------------------------
<S> <C> <C> <C>
* MFS Variable Account Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* NACo Variable Account Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide DC Variable Account Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
Nationwide DCVA-II Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Separate Account No. 1 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Multi-Flex Variable Account Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide VA Separate Account-A Ohio Nationwide Life and Annuity Issuer of Annuity Contracts
Separate Account
* Nationwide VA Separate Account-B Ohio Nationwide Life and Annuity Issuer of Annuity Contracts
Separate Account
* Nationwide VA Separate Account-C Ohio Nationwide Life and Annuity Issuer of Annuity Contracts
Separate Account
* Nationwide Variable Account Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Variable Account-II Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Variable Account-3 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Variable Account-4 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Variable Account-5 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Variable Account-6 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Fidelity Advisor Variable Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account Account
* Nationwide Variable Account-8 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Variable Account-9 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Variable Account-10 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
Nationwide Variable Account-11 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
</TABLE>
<PAGE> 75
<TABLE>
<CAPTION>
COMPANY STATE/COUNTRY OF NO. VOTING PRINCIPAL BUSINESS
ORGANIZATION SECURITIES
(SEE ATTACHED
CHART UNLESS
OTHERWISE
INDICATED)
-------------------------- ---------------- ------------- -------------------------------
<S> <C> <C> <C>
* Nationwide VL Separate Account-A Ohio Nationwide Life and Annuity Issuer of Life Insurance
Separate Account Policies
Nationwide VL Separate Account-B Ohio Nationwide Life and Annuity Issuer of Life Insurance
Separate Account Policies
* Nationwide VL Separate Account-C Ohio Nationwide Life and Annuity Issuer of Life Insurance
Separate Account Policies
* Nationwide VL Separate Account-D Ohio Nationwide Life and Annuity Issuer of Life Insurance
Separate Account Policies
* Nationwide VLI Separate Account Ohio Nationwide Life Separate Issuer of Life Insurance
Account Policies
* Nationwide VLI Separate Account-2 Ohio Nationwide Life Separate Issuer of Life Insurance
Account Policies
* Nationwide VLI Separate Account-3 Ohio Nationwide Life Separate Issuer of Life Insurance
Account Policies
* Nationwide VLI Separate Account-4 Ohio Nationwide Life Separate Issuer of Life Insurance
Account Policies
Nationwide VLI Separate Account-5 Ohio Nationwide Life Separate Issuer of Life Insurance
Account Policies
</TABLE>
<PAGE> 76
<TABLE>
<CAPTION>
(left side)
<S> <C> <C> <C>
- ------------------------
| NATIONWIDE INSURANCE |
| GOLF CHARITIES, INC. |
| |
| MEMBERSHIP |
| NONPROFIT |
| CORPORATION |
- ------------------------
-------------------------------------------------------------------------------------------------------------------------
| |
- --------------------------- --------------------------- ----------------------------
| ALLIED GROUP | | ALLIED | | |
| MERCHANT BANKING | | GROUP, INC. | | |
| CORPORATION | | (AGI) | | NATIONWIDE LLOYDS |
| | | | | |
|Common Stock: 10,000 | |-------|Common Stock: 850 Shares |---| | |
|------------ Shares | | |------------ | | | A TEXAS LLOYDS |================================
| | | | | | | |
| Cost | | | Cost | | | |
| ---- | | | ---- | | | |
|Casualty- | | |Casualty- | | | |
|100% $150,055 | | |100% $243,344,521 | | | |
- --------------------------- | --------------------------- | ----------------------------
| |
- --------------------------- | --------------------------- | ----------------------------
| NATIONWIDE INSURANCE | | | AMCO | | | DEPOSITORS |
| COMPANY OF AMERICA | | | INSURANCE COMPANY | | | INSURANCE COMPANY |
| | | | (AMCO) | | | (DEPOSITORS) |
|Common Stock: 12,000 | | |Common Stock: 500,000 | | |Common Stock: 300,000 |
|------------ Shares | | |------------ Shares | | |------------ Shares |
| |---| | |---|---| |
| Cost | | | Cost | | | Cost |
| ---- | | | ---- | | | ---- |
| | | | | | | |
|AGI-100% $215,273,000 | | |AGI-100% $147,425,540| | |AGI 100% $22,251,842 |
- --------------------------- | --------------------------- | ----------------------------
| | |
- --------------------------- | --------------------------- | ----------------------------
| AID FINANCE | | | ALLIED | | | ALLIED PROPERTY |
| SERVICES, INC. | | | GENERAL AGENCY | | | AND CASUALTY |
| (AID FINANCE) | | | COMPANY | | | INSURANCE COMPANY |
|Common Stock: 10,000 | | |Common Stock: 5,000 | | |Common Stock: 300,000 |
|------------ Shares | | |------------ Shares | | |------------ Shares |
| |---| | | |---| |
| Cost | | Cost | | | Cost |
| ---- | | ---- | | | ---- |
|AGI-100% $19,545,634| |AMCO-100% $135,342 | | |AGI-100% $47,018,643 |
- --------------------------- --------------------------- | ----------------------------
| |
- --------------------------- --------------------------- | ----------------------------
| ALLIED | | MIDWEST | | | NATIONWIDE |
| GROUP INSURANCE | | PRINTING SERVICES, | | | HOME MORTGAGE |
| MARKETING COMPANY | | LTD. | | | COMPANY (NHMC) |
| | |Common Stock: 10,000 | | | |
|Common Stock: 20,000 | |------------ Shares | | |Common Stock: 54,348 |
|------------ Shares | | |---|---|------------ Shares |
| | | | | | |
| | | | | | |
| | | | | | |
| Cost | | Cost | | | |
| ---- | | ---- | | | |
| Aid | |AGI-100% $610,000 | | |AGI-80% |
| Finance-100% $16,059,469| --------------------------- | ----------------------------
- -------------------------- | |
--------------------------- | ----------------------------
| PREMIER | | | AGMC |
| AGENCY, | | | REINSURANCE, LTD. |
| INC. | | | |
|Common Stock: 100,000 | | |Common Stock: 11,000 |
|------------ Shares | | |------------ Shares |
| |---| | |
| Cost | | Cost |
| ---- | | ---- |
|AGI-100% $100,000 | |NHMC-100% $11,000 |
--------------------------- ----------------------------
</TABLE>
<PAGE> 77
<TABLE>
<CAPTION>
NATIONWIDE(R) (middle)
<S> <C> <C>
------------------------------------------ ------------------------------------------
| | | |
| NATIONWIDE MUTUAL | | NATIONWIDE MUTUAL |
| INSURANCE COMPANY |==============================================| FIRE INSURANCE COMPANY |
| (CASUALTY) | | (FIRE) |
| | | |
------------------------------------------ ------------------------------------------
| || | |
- --| || |--------------------------------------------------------------------| |-----------------------
|| |
|| |--------------------------------------------------------------|-------------------
|| | |
|| -------------------------------- | -------------------------------- -----------------------------------
|| | FARMLAND MUTUAL | | | NATIONWIDE GENERAL | | NECKURA HOLDING |
|| | INSURANCE COMPANY | | | INSURANCE COMPANY | | COMPANY (NECKURA) |
|| |Guaranty Fund | | | | | |
=====||==|------------ |---| | |Common Stock: 20,000 | |Common Stock: 10,000 |
|Certificate | | |---|------------ Shares | |--|------------ Shares |
|----------- | | | | | | | |
| Cost | | | | Cost | | | Cost |
| ---- | | | | ---- | | | ---- |
|Casualty $500,000 | | | |Casualty-100% $5,944,422 | | |Casualty-100% $142,943,140 |
-------------------------------- | | -------------------------------- | --------------------------------
| | |
-------------------------------- | | -------------------------------- | --------------------------------
| F & B, INC. | | | | NATIONWIDE PROPERTY | | | NECKURA |
| | | | | AND CASUALTY | | | INSURANCE COMPANY |
|Common Stock: 1 Share | | | | INSURANCE COMPANY | | | |
|------------ | | | |Common Stock: 60,000 | |--|Common Stock: 6,000 |
| |---| |---|------------ Shares | | |------------ Shares |
| Cost | | | | | | | |
| ---- | | | | Cost | | | Cost |
|Farmland | | | | ---- | | | ---- |
|Mutual-100% $10 | | | |Casualty-100% $6,000,000 | | |Neckura-100% DM 6,000,000 |
-------------------------------- | | -------------------------------- | --------------------------------
| | |
-------------------------------- | | -------------------------------- | --------------------------------
| COOPERATIVE SERVICE | | | | NATIONWIDE ASSURANCE | | | NECKURA LIFE |
| COMPANY | | | | COMPANY | | | INSURANCE COMPANY |
|Common Stock: 600 Shares | | | | | | | |
|------------ |---- |---|Common Stock: 1,750 | |--|Common Stock: 4,000 |
| | | |------------ Shares | | |------------ Shares |
| Cost | | | | |
| ---- | | | Cost | | | Cost |
|Farmland | | | ---- | | | ---- |
|Mutual-100% $3,506,173 | | |Casualty-100% $41,750,000 | | |Neckura-100% DM 15,825,681|
-------------------------------- | -------------------------------- | --------------------------------
| |
-------------------------------- | -------------------------------- | --------------------------------
| SCOTTSDALE | | | NATIONWIDE AGRIBUSINESS | | | COLUMBUS INSURANCE |
| INSURANCE COMPANY | | | INSURANCE COMPANY | | | BROKERAGE AND SERVICE |
| (SIC) | | | | | | GmbH |
|Common Stock: 30,136 | | |Common Stock: 1,000,000 | | |Common Stock: 1 Share |
|---|------------ Shares |--------|---|------------ Shares | |--|------------ |
| | | | | | | | |
| | | | | Cost | | | Cost |
| | Cost | | | ---- | | | ---- |
| | ---- | | |Casualty-99.9% $26,714,335 | | |Neckura-100% DM 51,639 |
| |Casualty-100% $150,000,500 | | |Other Capital | | | |
| | | | |------------- | | | |
| | | | |Casualty-Ptd. $713,576 | | | |
| -------------------------------- | ------------------------------- | --------------------------------
| | |
| -------------------------------- | -------------------------------- | --------------------------------
| | SCOTTSDALE | | | NATIONAL CASUALTY | | | LEBEN DIREKT |
| | SURPLUS LINES | | | COMPANY | | | INSURANCE COMPANY |
| | INSURANCE COMPANY | | | (NC) | | | |
| |Common Stock: 10,000 | | | Common Stock: 100 Shares | | |Common Stock: 4,000 Shares |
|---|------------ Shares | ----| ------------- | |--|------------ |
| | | | | | | |
| | Cost | | Cost | | | Cost |
| | ---- | | ---- | | | ---- |
| |SIC-100% $6,000,000 | |Casualty-100% $67,442,439 | | |Neckura-100% DM 4,000,000 |
| | | | | | | |
| -------------------------------- -------------------------------- | --------------------------------
| | |
| -------------------------------- -------------------------------- | --------------------------------
| | NATIONAL PREMIUM & | | NCC OF AMERICAN, LTD. | | | AUTO DIREKT |
| | BENEFIT ADMINISTRATION | | (INACTIVE) | | | INSURANCE COMPANY |
| | COMPANY | | | | | |
| |Common Stock: 10,000 | | | | |Common Stock: 1500 Shares |
|---|------------ Shares | | | |--|------------ |
| | | | | | | |
| | Cost | | | | | Cost |
| | ---- | | | | | ---- |
| |SIC-100% $10,000 | |NC-100% | | |Neckura-100% DM 1,643,149 |
| -------------------------------- -------------------------------- | --------------------------------
| |
| -------------------------------- -------------------------------- | --------------------------------
| | WESTERN . | | SUN DIRECT | | | SVM SALES |
| | HERITAGE INSURANCE | | VERSICHERUNGS - | | | GmbH |
| | COMPANY | | AKTIENGESCLISCHAFT | | | |
| |Common Stock: 4,776,076 | |Common Stock: 1 Share | | |Common Stock: 50 Shares |
|---|------------ Shares | |------------ |------------| |
| | | | | |
| Cost | | Cost | | Cost |
| ---- | | ---- | | ---- |
|SIC-100% $57,000,000 | |Neckura-100% $9,600,000 | |Neckura-100% DM 50,000 |
| | | EURO | | |
-------------------------------- -------------------------------- --------------------------------
</TABLE>
<PAGE> 78
<TABLE>
<CAPTION>
(right side)
<S> <C> <C> <C>
------------------------
| NATIONWIDE |
| FOUNDATION |
| |
| MEMBERSHIP |
| NONPROFIT |
| CORPORATION |
------------------------
- ---------------------------------------------------------------------------------------------------------------------|
|
- --------------------------------------------------------------------------------------------------------------- |
| | | |
| | | |
-------------------------------- -------------------------------- | -------------------------------------
| SCOTTSDALE | | NATIONWIDE | | | NATIONWIDE |
| INDEMNITY COMPANY | | COMMUNITY URBAN | | | CORPORATION |
| | | REDEVELOPMENT | | | |
| | | CORPORATION | | |Common Stock: Control: |
|Common Stock: 50,000 | |Common Stock: 10 Shares | | |------------ ------- |
|-----|------------ Shares | |----|------------ | | |$13,642,432 100% |
| | | | | Cost | | | Shares Cost |
| | Cost | | | ---- | | | ------ ---- |
| | ---- | | |Casualty-100% $1,000 | | |Casualty 12,992,922 $1,008,497,908 |
| |Casualty-100% $8,800,000 | | | | | |Fire 649,510 36,862,514 |
| | | | | | | | (See Page 2) |
| -------------------------------- | -------------------------------- | -------------------------------------
| | |
| -------------------------------- | -------------------------------- | -------------------------------------
| | NATIONWIDE | | | NATIONWIDE CASH | | | ALLNATIONS, INC. |
| | INDEMNITY COMPANY | | | MANAGEMENT COMPANY | | |Common Stock: 12,167 Shares |
| | | | | | | |------------- Cost |
|-----|Common Stock: 28,000 | |----|Common Stock: 100 Shares | |-----| ---- |
| |------------ Shares | | |------------ | | |Casualty-18.6% $90,630 |
| | | | | Cost | | |Fire-18.6% $90,722 |
| | Cost | | | ---- | | |Preferred Stock 1,466 Shares |
| | ---- | | |Casualty-100% $11,226 | | |--------------- Cost |
| |Casualty-100% $594,529,000 | | | | | | ---- |
| | | | | | | |Casualty-6.8% $100,000 |
| | | | | | | |Fire-6.8% $100,000 |
| -------------------------------- | -------------------------------- | -------------------------------------
| | |
| -------------------------------- | -------------------------------- | -------------------------------------
| | LONE STAR | | | NATIONWIDE INSURANCE | | | CALFARM INSURANCE |
| | GENERAL AGENCY, INC. | | | COMPANY OF FLORIDA | | | COMPANY |
| | | | | | | |Common Stock: 49,800 Shares |
------|Common Stock: 1,000 | |----|Common Stock: 10,000 Shares| |-----|------------- |
| |------------ Shares | | |------------ | | |
| | | | | Cost | | |
| | Cost | | | ---- | | |
| | ---- | | |Casualty-100% $300,000,000 | |Casualty-100% |
| |Casualty-100% $5,000,000 | | | | | |
| -------------------------------- | -------------------------------- -------------------------------------
| || | |
| -------------------------------- | -------------------------------- -------------------------------------
| | COLONIAL COUNTY | | | NATIONWIDE INTERNATIONAL | | CALFARM INSURANCE |
| | MUTUAL INSURANCE | | | UNDERWRITERS | | AGENCY |
| | COMPANY | | |Common Stock: 1,000 Shares | | |
| | | |----|------------ | | |
| | | | | | | |
| | | | | Cost | |Common Stock: 1,000 shares |
| |Surplus Debentures: | | | ---- | |------------- |
| |------------------- | | |Casualty-100% $10,000 | | |
| | Cost | | -------------------------------- | |
| | ---- | | | |
| |Colonial $500,000 | | -------------------------------- |CalFarm Insurance |
| |Lone Star 150,000 | | | NATIONWIDE | |Company - 100% |
| -------------------------------- | | ARENA LLC | -------------------------------------
| | | | |
| -------------------------------- | | | -------------------------------------
| | NATIONWIDE SERVICES | | | | | CAL-AG INSURANCE |
| | COMPANY, LLC | | | | | SERVICES |
| | | | | | | |
| |Single Member Limited | |....| | |Common Stock: 1,000 Shares |
|.....|Liability Company | | | | |------------ |
| | | | | | | |
| | | | |Casualty-90% | |CalFarm Insurance |
| |Casualty-100% | | | | |Agency-100% |
| | | | -------------------------------- -------------------------------------
| -------------------------------- |
| | --------------------------------
| | | NATIONWIDE |
| -------------------------------- | | EXCLUSIVE DISTRIBUTION |
| | AMERICAN MARINE | | | COMPANY, LLC (NEDCO) |
| | UNDERWRITERS, INC. | | | |
| | | | | Single Member Limited |
| |Common Stock: 20 Shares | |....| Liability Compnany |
|-----|------------ | | | |
| | Cost | | | |
| | ---- | | |Casualty-100% |
| |Casualty-100% $5,020 | | | |
| | | | --------------------------------
| -------------------------------- | |
| | --------------------------------
| --------------------------------- | | INSURANCE |
| | eNATIONWIDE, LLC | | | INTERMEDIARIES, INC |
| | | | | |
| | Single Member Limited | | |Common Stock 1,615 Shares |
| | Liability Company | |----|------------ |
| | | | Cost |
|.....| | | ---- |
| | |Casualty-100% $1,615,000 |
| | | |
|Casualty-100% | --------------------------------
| |
---------------------------------
Subsidiary Companies -- Solid Line
Contractual Association -- Double Line
Limited Liability Company -- Dotted Line
December 31, 1999
</TABLE>
Page 1
<PAGE> 79
<TABLE>
<CAPTION>
(Left Side)
<S> <C> <C> <C> <C> <C> <C>
|----------------------------------|-----------------------------------|-----------------------------
| | |
----------------------------- ----------------------------- -----------------------------
| NATIONWIDE LIFE INSURANCE | | NATIONWIDE | | NATIONWIDE TRUST |
| COMPANY (NW LIFE) | | FINANCIAL SERVICES | | COMPANY, FSB |
| | | CAPITAL TRUST | | Common Stock: 2,800,000 |
| Common Stock: 3,814,779 | | Preferred Stock: | | ------------ Shares |
| ------------ Shares | | --------------- | | Cost |
| | | | | ---- |
| NFS--100% | | NFS--100% | | NFS--100% $3,000,000 |
----------------|------------ ----------------------------- -----------------------------
|
| ||--------------------------
- ----------------------------- | ----------------------------- -----------------------------
| NATIONWIDE LIFE AND | | | NATIONWIDE | | NATIONWIDE FINANCIAL |
| ANNUITY INSURANCE COMPANY | | | ADVISORY SERVICES, INC | | INSTITUTION DISTRIBUTORS |
| | | | (NW ADV. SERV.) | | AGENCY, INC. (NFIDAI) |
| Common Stock: 66,000 | | | Common Stock: 7,676 | | |
| ------------ Shares |--|--| ------------ Shares |==== | |
| | | | | || | |
| Cost | | | Cost | || | Common Stock: 1,000 Shares|
| ---- | | | ---- | || | ------------ |
| NW Life-100% $58,070,003 | | | NW Life-100% $5,996,261 | || | NFSDI-100% |
- ----------------------------- | ----------------------------- || --------------|--||----------
| || | ||
- ----------------------------- | ----------------------------- || ----------------------------- | || -----------------------
| NATIONWIDE INVESTMENT | | | NATIONWIDE MUTUAL | || | FINANCIAL HORIZONS | | || | |
| SERVICES CORPORATION | | | FUNDS | || | DISTRIBUTORS AGENCY | | || | |
| | | | | || | OF ALABAMA, INC. | | || | |
| Common Stock: 5,000 | | | OHIO BUSINESS TRUST | || | | | || | FLORIDA |
| ------------ Shares | | | | || | Common Stock: 10,000 | | || | RECORDS |===
| |--| | |==|| | ------------ Shares |-- || | ADMINISTRATOR |
| | | | | || | | | || | |
| Cost | | | | || | Cost | | || | |
| ---- | | | | || | ---- | | || | |
| NW Life-100% $529,728 | | | | || | NFIDAI-100% $100 | | || | |
- ----------------------------- | ----------------------------- || ----------------------------- | || -----------------------
| || | ||
- ----------------------------- | ----------------------------- || ------------------------------| || -----------------------
| NATIONWIDE FINANCIAL | | | NATIONWIDE | || | LANDMARK FINANCIAL | | || | |
| ASSIGNMENT | | | SEPARATE ACCOUNT | || | SERVICES OF | | || | |
| COMPANY | | | TRUST | || | NEW YORK, INC. | | || | |
| | | | | || | | | || | |
| | | | | || | Common Stock: 10,000 | | || | FINANCIAL HORIZONS |
| |--| | MASSACHUSETTS |==|| | ------------ Shares |-- ||==| DISTRIBUTORS AGENCY |
| | | | BUSINESS TRUST | || | | | || | OF OHIO, INC. |
| | | | | || | Cost | | || | |
| | | | | || | ---- | | || | |
| NW Life-100% | | | | || | NFIDAI-100% $10,100 | | || | |
- ----------------------------- | ----------------------------- || ----------------------------- | || -----------------------
| || | ||
- ----------------------------- | ----------------------------- || ----------------------------- | || -----------------------
| NATIONWIDE REALTY | | | NATIONWIDE | || | FINANCIAL HORIZONS | | || | |
| INVESTORS, LTD. | | | GLOBAL FUND | || | SECURITIES CORP. | | || | |
| | | | | || | | | || | |
| Units: | | | CAYMAN ISLANDS | || | Common Stock: 10,000 | | || | FINANCIAL HORIZONS |
| ------ |--| | EXEMPTED LLC |==|| | ------------ Shares |-- ||==| DISTRIBUTORS AGENCY |
| | | | | || | | | || | OF OKLAHOMA, INC |
| | | | | || | Cost | | || | |
| NW Life-90% | | | | || | ---- | | || | |
| NW Mutual-10% | | | | || | NFIDAI-100% $153,000 | | || | |
- ----------------------------- | ----------------------------- || ----------------------------- | || -----------------------
| || | ||
- ----------------------------- | ----------------------------- || ----------------------------- | || -----------------------
| NATIONWIDE | | | NATIONWIDE | || | AFFILIATE AGENCY, INC. | | || | |
| PROPERTIES, LTD. | | | ASSET ALLOCATION TRUST | || | | | || | |
| | | | | || | | | || | |
| Units: |--| | | || | Common Stock: 100 | | || | FINANCIAL HORIZONS |
| ------ | | OHIO BUSINESS TRUST |==== | ------------ Shares |-- ||==| DISTRIBUTORS AGENCY |
| | | | | | | || | OF TEXAS, INC |
| | | | | Cost | | || | |
| NW Life-97.6% | | | | ---- | | || | |
| NW Mutual-2.4% | | | | NFIDAI-100% $100 | | || | |
- ----------------------------- ----------------------------- ----------------------------- | || -----------------------
| ||
----------------------------- | || -----------------------
| NATIONWIDE FINANCIAL | | || | |
| INSTITUTION DISTRIBUTORS | | || | |
| INS. AGENCY, INC. | | || | |
| OF MASS. | | || | AFFILIATE |
| |-- ====| AGENCY OF |
|Common Stock: 100 Shares | | | OHIO, INC |
|------------ | | | |
| | | | |
|NFIDAI-100% | | | |
----------------------------- | -----------------------
----------------------------- |
| NATIONWIDE FINANCIAL | |
| INSTITUTION DISTRIBUTORS | |
| INS. AGENCY, INC. | |
| OF NEW MEXICO |--
| |
|Common Stock: 100 Shares |
|------------ |
| |
|NFIDAI-100% |
-----------------------------
</TABLE>
<PAGE> 80
<TABLE>
<CAPTION>
(Center)
NATIONWIDE(R)
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------- --------------------------------------------------
| NATIONWIDE MUTUAL | | NATIONWIDE MUTUAL |
| INSURANCE COMPANY |================================| FIRE INSURANCE COMPANY |
| (CASUALTY) | | | (FIRE) |
- -------------------------------------------------- | --------------------------------------------------
|
-----------------------------------------
| NATIONWIDE CORPORATION (NW CORP) |
| Common Stock: Control: |
| ------------ ------- |
| 13,642,432 100% |
| Shares Cost |
| ------ ---- |
|Casualty 12,992,922 $1,008,497,908 |
|Fire 649,510 36,862,514 |
-------------------|---------------------
|--------------------------------------------------------------
---------------|-------------
| NATIONWIDE FINANCIAL |
| SERVICES, INC. (NFS) |
| |
|Common Stock: Control: |
|------------ ------- |
| |
| |
|Class A Public--100% |
|Class B NW Corp--100% |
---------------|-------------
|
- -----------|-------------------------|--------------------------|-----------------------------|----------------------|--------------
| | | | |
- -----------|------------ ------------|-------------- -----------|------------- ---------------|--------- ------------|--------------
|NFS DISTRIBUTORS, INC.| | IRVIN L. SCHWARTZ | | NATIONWIDE FINANCIAL | |VILLANOVA CAPITAL, INC.| | NATIONWIDE FINANCIAL |
| (NFSDI) | | AND ASSOCIATES, INC. | |SERVICES (BERMUDA) INC.| |Common Stock: 958,750 | | SERVICES CAPITAL |
| | |Common Stock: Control: | |Common Stock: 250,000 | |------------- Shares | | TRUST II |
| | |------------- -------- | |------------- Shares | |NFS-96% | | |
| | |Class A Other-100%| | Cost | |Preferred Stock:500,000| | |
|NFS-100% | |Class B NFS -100%| | ---- | |--------------- Shares | | |
| | | | |NFS-100% $3,500,000 | |NFS-100% | | NFS-100% |
- -----------|------------ --------------------------- ------------------------- ---------------|--------- -------------------------
| | |
- -----------|---------------------------- -----------------------------|-----------------------|
- -----------|------------ --------------|----------- ------------|------------ --------------|---------- ------------|-------------
| NATIONAL DEFERRED | | NATIONWIDE RETIREMENT | | VILLANOVA S.A. CAPITAL| | MORLEY FINANCIAL | | VILLANOVA MUTUAL FUND |
| COMPENSATION, INC. | | SOLUTIONS, INC. (NRS)| | TRUST (VSA) | |SERVICES, INC. (MORLEY)| | CAPITAL TRUST (VMF) |
| | |Common Stock: 236,494 | | | |Common Stock: 82,343 | | |
| | |------------- Shares | | | |------------ Shares | | |
| | | | | | | | | |
|NFSDI-100% | | | | | |VILLANOVA CAPITAL, INC.| | |
| | |NFSDI-100% | |DELAWARE BUSINESS TRUST| |-100% | |DELAWARE BUSINESS TRUST|
- ----------||------------ -------------------|------ ---------------------|--- ---------------------|--- -------------------------
|| | | |
|| | | -----
|| ---------------------------- | ------------------------- | ------------------------- | ------------------------
|| | NATIONWIDE RETIREMENT | | |NATIONWIDE RETIREMENT | | | NATIONWIDE | | | MORLEY & |
|| |SOLUTIONS, INC. OF ALABAMA| | | SOLUTIONS, INC. OF | | |INVESTORS SERVICES, INC.| | | ASSOCIATES, INC. |
|| | | | | NEW MEXICO | | | | | | |
|| |Common Stock: 10,000 | | | Common Stock: 1,000 | | | Common Stock: 5 Shares | | | Common Stock: 3,500 |
|| |------------- Shares |--|--| ------------- Shares | |--|------------- | |--| ------------- Shares |
============ | Cost | | | Cost | | | Cost | | | Cost |
| ---- | | | ---- | | | ---- | | | ---- |
|NRS-100% $1,000 | | |NRS-100% $1,000 | | |VSA-100% $5,000 | | |Morley-100% $1,000|
---------------------------- | -------------------------- | -------------------------- | ------------------------
| | |
---------------------------- | -------------------------- | -------------------------- | -----------------------
| NATIONWIDE RETIREMENT | | | NATIONWIDE RETIREMENT | | | VILLANOVA VALUE | | | EXCALIBER FUNDING |
|SOLUTIONS, INC. OF ARIZONA| | | SOLUTIONS, INC. OF | | | INVESTOR, LLC | | | CORPORATION |
| | | | SO. DAKOTA | | | | | | |
|Common Stock: 1,000 | | |Common Stock: 1,000 | | | | | |Common Stock: 1,000 |
|------------- Shares |--|--|------------- Shares | ...| | |--|------------- Shares |
| Cost | | | Cost | | | | | Cost |
| ---- | | | ---- | | | | | ---- |
|NRS-100% $1,000 | | |NRS-100% $1,000 | | VSA-100% | | |Morley-100% $1,000 |
---------------------------- | -------------------------- -------------------------- | -----------------------
| |
---------------------------- | -------------------------- -------------------------- | ------------------------
| NATIONWIDE RETIREMENT | | | NATIONWIDE RETIREMENT | | MORLEY CAPITAL | | | CALIBER FUNDING |
| SOLUTIONS, INC. OF | | | SOLUTIONS, INC. | | MANAGEMENT | | | CORPORATION |
| ARKANSAS | | | OF WYOMING | | | | | |
|Common Stock: 50,000 |-----|Common Stock: 500 Shares| |Common Stock: 500 Shares| | | |
|------------- Shares | | |------------- | |------------- |--|--| |
| Cost | | | Cost | | Cost | | | |
| ---- | | | ---- | | ---- | | | |
|NRS-100% $500 | | |NRS-100% $500 | |Morley-100% $5,000 | | |Morley-100% |
---------------------------- | -------------------------- -------------------------- | ------------------------
| |
---------------------------- | -------------------------- -------------------------- | ------------------------
| NATIONWIDE RETIREMENT | | | NATIONWIDE RETIREMENT | | UNION BOND | | | MORLEY RESEARCH |
| SOLUTIONS, INS. | | | SOLUTIONS, INC. | | & TRUST COMPANY | | | ASSOCIATES, LTD. |
| AGENCY, INC. | | | OF OHIO | | | | | |
|Common Stock: 1,000 | | | | |Common Stock: 2,000 | | | Common Stock: 1,000 |
|------------- Shares |--|==| | |------------- Shares |--|--| ------------- Shares |
| | | | | | | | | |
| Cost | | | | | Cost | | | Cost |
| ---- | | | | | ---- | | | ---- |
|NRS-100% $1,000 | | | | | Morley-100% $50,000 | | |Morley-100% $1,000 |
---------------------------- | -------------------------- -------------------------- | ------------------------
| |
---------------------------- | -------------------------- -------------------------- |
| NATIONWIDE RETIREMENT | | | NATIONWIDE RETIREMENT | | PORTLAND INVESTMENT | |
|SOLUTIONS, INC. OF MONTANA| | | SOLUTIONS, INC. OF | | SERVICES, INC. | |
| | | | OKLAHOMA | | | |
|Common Stock: 500 | | | | | Common Stock: 1,000 | |
|------------- Shares |--|==| | | ------------- Shares |--
| Cost | | | | | Cost |
| ---- | | | | | ---- |
|NRS-100% $500 | | | | | Morley-100% $25,000 |
---------------------------- | -------------------------- --------------------------
|
---------------------------- | --------------------------
| NATIONWIDE RETIREMENT | | | NATIONWIDE RETIREMENT|
| SOLUTIONS, INC. OF NEVADA| | | SOLUTIONS, INC. |
| | | | OF TEXAS |
|Common Stock: 1,000 |-- ==| |
|------------- Shares | | |
| Cost | | |
| ---- | | |
|NRS-100% $1,000 | | |
---------------------------- --------------------------
</TABLE>
<PAGE> 81
<TABLE>
<CAPTION>
(Right)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
------------------------------- | ---------------------------- -----------------------------
| GATES MCDONALD | | | NATIONWIDE | | NATIONWIDE GLOBAL |
| & COMPANY (GATES) | | |HEALTH PLANS, INC. (NHP) | | HOLDINGS, INC. (NGH) |
| | | | | | |
- ------------------- --|Common Stock: 254 Shares | |--|Common Stock: 100 Shares | |Common Stock: 1 Share |
| | | |------------ | || |------------ | --|------------ |
| ---------------|-------------- | | Cost | || | Cost || | Cost |
| | | | | ---- | || | ---- || | ---- |
| | THE 401(k) COMPANIES, INC. | | |NW Corp.-100% $25,683,532 | || | || | |
| | (401(k)) | | |------------------------------ || |NW Corp.-100% $14,603,732|| |NW Corp.-100% $257,000,000|
| | | | || --------------------------- | -----------------------------
| |Common Stock: Control | | |------------------------------ || ----------------------------| -----------------------------
||--|------------- ------- | | | MEDPROSOLUTIONS, INC. | || | NATIONWIDE MANAGEMENT || | NATIONWIDE GLOBAL |
|| |Class A Other-100% | --| | |--| SYSTEMS, INC. || | HOLDINGS, INC. - |
|| |Class B NFS-100% | | | Cost | || | || | LUXEMBOURG BRANCH |
|| | | | | ---- | || |Common Stock: 100 Shares || | (BRANCH) |
|| ------------------------------ | |Gates-100% $6,700,000 | || |------------- || | |
|| | | | || | Cost ||--| |
|| | | | || | ---- || |Endowment Capital - |
|| ------------------------------ | ------------------------------- || |NHP Inc.-100% $25,149 || | $1,000,000 |
|| | 401(k) INVESTMENT | | || ----------------------------| --------------|--------------
|| | SERVICES, INC. | | |------------------------------ || ----------------------------| --------------|--------------
|| | | | | GATES MCDONALD & | || | NATIONWIDE || | NGH LUXEMBOURG S.A. |
|| |Common Stock: 1,000,000 | | | COMPANY OF NEW YORK, INC. | || | AGENCY, INC. || | (LUX SA) |
|| |------------ Shares | --| | |--| || | |
||--| | | |Common Stock: 3 Shares | | |Common Stock: 100 Shares || |Common Stock: 5894 Shares |
|| | Cost | | |------------ | | |------------ || -|------------ |
|| | ---- | | | Cost | | | Cost || || Cost |
|| |401(k)-100% $7,800 | | | ---- | | | ---- || || ---- |
|| ------------------------------ | |Gates-100% $106,947 | | |NHP Inc.-99% $116,077 || ||BRANCH.-99.98% $115,470,723|
|| | ------------------------------- | ----------------------------| |-----------------------------
|| ------------------------------ | | | |
|| | 401(k) INVESTMENT | | ------------------------------- | ----------------------------| |-----------------------------
|| | ADVISORS, INC. | | | GATES MCDONALD & | | |NATIONWIDE GLOBAL HOLDINGS|| || PAN EURO LIFE |
|| | | | | COMPANY OF NEVADA | | | -HONG KONG, LIMITED || || |
|| |Common Stock: 1,000 Shares | --| | | | || ||Common Stock: 1,300,000 |
||--|------------ | | |Common Stock: 40 Shares | | |Common Stock: 2 Shares || ||------------ Shares |
|| | Cost | | |------------ | | |------------ Cost -- -- |
|| | ---- | | | Cost | | | ---- || || Cost |
|| |401(k)-100% $1,000 | | | ---- | | |NGH-50% || || ---- |
|| ------------------------------ | |Gates-100% $93,750 | | |Casualty--50% || ||LUX SA-90% 3,817,832,685|
|| | ------------------------------- | ----------------------------| || LUF |
|| ------------------------------ | | | |-----------------------------
|| | 401(k) COMPANY | | ------------------------------- | ----------------------------| |-----------------------------
|| | | | | GATES MCDONALD | | | NGH || ||NATIONWIDE GLOBAL HOLDINGS |
|| |Common Stock: 855,000 Shares| | | HEALTH PLUS, INC. | | | NETHERLANDS B.V. || ||- NGH BRASIL PARTICIPACOES,|
|| | | --| | | | || || LTDA (NGH BRASIL) |
|| | Cost | | |Common Stock: 200 Shares | | |Common Stock: 40 Shares || || |
||--| ---- | | |------------ | | |------------ -- -- Shares Cost |
|| |401(k)-100% $1,000 | | | Cost | | | Cost || | ------ ---- |
|| ------------------------------ | | ---- | | | ---- || |LUX SA 6,164,899 R6,164,899|
|| | |Gates-100% $2,000,000 | | |NGH-100% NLG 52,500 || |NGH 1 R1 |
|| ------------------------------ | ------------------------------- | ----------------------------| --------------|--------------
|| | | | | | |
|===| | | ------------------------------- | ----------------------------| --------------|--------------
| | RIVERVIEW AGENCY, INC. | | |NEVADA INDEPENDENT COMPANIES-| | | NATIONWIDE || | NATIONWIDE |
| | | | |MANUFACTURING TRANSPORTATION | | | SERVICES SP. Z.O.O. || | SEGURADORA S.A. |
| | | | | AND DISTRIBUTION | | | || | |
| | | --| | | |Common Stock: 80 Shares || | Shares Cost |
| | | | |Common Stock: 1,000 Shares | | |------------ Cost -- | ------ ---- |
| ------------------------------ | |------------ | | | ---- || |NGH |
| | |Gates-100% | | |NGH-100% 4,000 PLN || |BRASIL 9,999,999 R9,999,999|
| ------------------------------ | ------------------------------- | --------------------------- | |LUX SA 1 R1 |
| | | | | | -----------------------------
| | PENSION ASSOCIATES, INC. | | ------------------------------- | ----------------------------| -----------------------------
| | | | | NEVADA INDEPENDENT | | | MRM INVESTMENTS, INC. || | NATIONWIDE GLOBAL |
- ----| Common Stock: 1,000 Shares | | | COMPANIES-HEALTH AND PROFIT | | | || | FINANCE, LLC |
| | --| | ---|Common Stock: 1 Share || | Single Member Limited |
| Cost | | |Common Stock: 1,000 Shares | |------------ || | Liability Company |
| ---- | | |------------ | | Cost |...| |
| NFS-100% $2,839,392 | | | | | ---- | | |
------------------------------ | |Gates-100% | |NW Corp.-100% $7,000,000 | |NGH-100% |
| ------------------------------- ---------------------------- -----------------------------
|
| -------------------------------
| | NEVADA INDEPENDENT |
| | COMPANIES-CONSTRUCTION |
--| |
| |Common Stock: 1,000 Shares |
| |------------ |
| | |
| |Gates-100% |
| -------------------------------
|
| -------------------------------
| | NEVADA INDEPENDENT |
| | COMPANIES-HOSPITALITY AND | Subsidiary Companies - Solid Line
--| ENTERTAINMENT | Contractual Association - Double Line
| | Limited Liability Company - Dotted Line
|Common Stock: 1,000 Shares |
|Gates-100% | December 31, 1999
-------------------------------
Page 2
</TABLE>
<PAGE> 82
Item 27. NUMBER OF CONTRACT OWNERS
The number of contract Owners of Qualified and Non-Qualified
Contracts as of January 31, 2000 was 6,747 and 1,564,
respectively.
Item 28. INDEMNIFICATION
Provision is made in Nationwide's Amended Code of Regulations and
expressly authorized by the General Corporation Law of the State
of Ohio, for indemnification by Nationwide of any person who was
or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative by reason
of the fact that such person is or was a director, officer or
employee of Nationwide, against expenses, including attorneys'
fees, judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action,
suit or proceeding, to the extent and under the circumstances
permitted by the General Corporation Law of the State of Ohio.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 ("Act") may be permitted to directors,
officers or persons controlling Nationwide pursuant to the
foregoing provisions, Nationwide has been informed that in the
opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. 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
Nationwide, and for certain Sun Life (US) and Sun Life
(N.Y.) Annuity Contracts.
(b) CLARENDON INSURANCE AGENCY, INC.
OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
POSITIONS AND OFFICES
NAME AND BUSINESS ADDRESS WITH UNDERWRITER
------------------------- ---------------------
<S> <C>
Anne M. Georges President and Director
500 Boylston Street
Boston, MA 02116
James A. McNulty, III Director
500 Boylston Street
Boston, MA 02116
Davey Scoon Director and Treasurer
500 Boylston Street
Boston, MA 02116
</TABLE>
<PAGE> 83
(b) CLARENDON INSURANCE AGENCY, INC.
OFFICERS AND DIRECTORS (CONTINUED)
<TABLE>
<CAPTION>
POSITIONS AND OFFICES
NAME AND BUSINESS ADDRESS WITH UNDERWRITER
------------------------- ---------------------
<S> <C>
James M.A. Anderson Director
500 Boylston Street
Boston, MA 02116
Ronald J. Fernades Director
500 Boylston Street
Boston, MA 02116
Maura A. Murphy Secretary and Clerk
500 Boylston Street
Boston, MA 02116
Roy P. Creedon Assistant Secretary
500 Boylston Street and Assistant Clerk
Boston, MA 02116
Donald E. Kaufman Vice President
500 Boylston Street
Boston, MA 02116
Brian Krivitsky Vice President
500 Boylston Street
Boston, MA 02116
Laurie Lennox Vice President
500 Boylston Street
Boston, MA 02116
Peter A. Marion Tax Officer
500 Boylston Street
Boston, MA 02116
Cynthia M. Orcutt 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
John Davis
Nationwide Life Insurance Company
One Nationwide Plaza
Columbus, OH 43215
<PAGE> 84
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
Nationwide through the Registrant in reliance upon, and in
compliance with, a no-action letter issued by the Staff of the
Securities and Exchange Commission to the American Council of Life
Insurance (publicly available November 28, 1988) permitting
withdrawal restrictions to the extent necessary to comply with
Section 403(b)(11) of the Code.
Nationwide 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 Nationwide.
<PAGE> 85
INDEPENDENT AUDITORS' CONSENT
The Board of Directors of Nationwide Life Insurance Company and
Contract Owners of MFS Variable Account:
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Services" in the Statement of Additional Information.
KPMG LLP
Columbus, Ohio
April 28, 2000
<PAGE> 86
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-26 and has caused this Post-Effective Amendment to be
signed on its behalf in the City of Columbus, and State of Ohio, on this 28th
day of April, 2000.
MFS VARIABLE ACCOUNT
---------------------------------
(Registrant)
NATIONWIDE LIFE INSURANCE COMPANY
---------------------------------
(Depositor)
By/s/STEVEN SAVINI, ESQ.
---------------------------------
Steven Savini, Esq.
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 28th day
of April, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C> <C>
LEWIS J. ALPHIN Director
- ----------------------------------------
Lewis J. Alphin
A. I. BELL Director
- ----------------------------------------
A. I. Bell
KENNETH D. DAVIS Director
- ----------------------------------------
Kenneth D. Davis
KEITH W. ECKEL Director
- ----------------------------------------
Keith W. Eckel
WILLARD J. ENGEL Director
- ----------------------------------------
Willard J. Engel
Fred C. Finney Director
- ----------------------------------------
Fred C. Finney
Joseph J. Gasper President and Chief Operating
- ----------------------------------------
Joseph J. Gasper Officer and Director
Dimon R. MCFerson Chairman and Chief Executive
- ----------------------------------------
Dimon R. McFerson Officer and Director
David O. Miller Chairman of the Board and
- ----------------------------------------
David O. Miller Director
Yvonne L. Montgomery Director
- ----------------------------------------
Yvonne L. Montgomery
Robert A. Oakley Executive Vice President and Chief
- ----------------------------------------
Robert A. Oakley Financial Officer
Ralph m. paige Director
- ----------------------------------------
Ralph M. Paige
James F. Patterson Director
- ----------------------------------------
James F. Patterson
Arden L. Shisler Director By /s/ STEVEN SAVINI, ESQ.
- ---------------------------------------- --------------------------------------
Arden L. Shisler Steven Savini, Esq.
Robert L. Stewart Director Attorney-in-Fact
- ----------------------------------------
Robert L. Stewart
Nancy C. Thomas Director
- ----------------------------------------
Nancy C. Thomas
</TABLE>
<PAGE> 1
MARKETING COORDINATION AND
ADMINISTRATIVE SERVICES AGREEMENT
This Agreement entered into this 1st day of May, 2000, between Nationwide Life
Insurance Company ("Nationwide"), and Nationwide Investment Services Corporation
("NISC").
Nationwide proposes to develop, issue and administer, and NISC proposes to
provide the exclusive national distribution services for certain annuity and
life products (the "Products"). The parties hereby agree as follows:
A. ADMINISTRATION OF PRODUCTS
1. Appointment of Product Administration
Nationwide is hereby appointed Product Administrator for the
Products.
2. Duties of Nationwide
Nationwide will perform in a proper and timely manner, those
functions enumerated in the column marked "Nationwide" in the
"Analysis of Administrative Functions," attached hereto as
EXHIBIT A, and incorporated herein by reference.
3. Duties of NISC
NISC will perform in a proper and timely manner, those
functions enumerated in the column marked "NISC" in the
"Analysis of Administrative Functions," attached hereto as
EXHIBIT A, and incorporated herein by reference.
B. MARKETING COORDINATION AND SALES ADMINISTRATION
1. Distribution of Products
The Products will be distributed through registered
representatives of NASD broker-dealer firms, appointed by
Nationwide, who shall be duly qualified and licensed as agents
(the "Agents"), in accordance with applicable state insurance
authority.
2. NISC shall be the exclusive National Distributor of the
Products.
<PAGE> 2
3. Appointment and Termination of Agents
Appointment and termination of Agents shall be processed and
executed by Nationwide. NISC reserves the right to require
Nationwide to consult with it regarding licensing decisions.
4. Advertising
NISC shall not print, publish or distribute any advertisement,
circular or document relating to the Products or relating to
Nationwide unless such advertisement, circular or document has
been approved in writing by Nationwide. Such approval shall
not be unreasonably withheld, and shall be given promptly,
normally within five (5) business days. Neither Nationwide nor
any of its affiliates shall print, publish or distribute any
advertisement, circular or document relating to the Products
or relating to NISC unless such advertisement, circular or
document has been approved in writing by NISC. Such approval
shall not be unreasonably withheld, and shall be given
promptly, normally within five (5) business days. However,
nothing herein shall prohibit any person from advertising the
Products on a generic basis.
5. Marketing Conduct
The parties will jointly develop standards, practices and
procedures respecting the marketing of the Products. Such
standards, practices and procedures are intended to help
Nationwide meet its obligations as an issuer under the
securities laws, to assure compliance with state insurance
laws, and to help NISC meet its obligations under the
securities laws as National Distributor. These standards,
practices and procedures are subject to continuing review and
neither Nationwide nor NISC will object unreasonably to
changes to such standards, practices and procedures
recommended by the other to comply with the intent of this
provision.
6. Sales Material and Other Documents
a. Sales Material
1) Nationwide shall develop and prepare all
promotional material to be used in the
distribution of the Products, in
consultation with NISC.
2) Nationwide is responsible for the printing
and the expense of providing such
promotional material.
3) Nationwide is responsible for approval of
such promotional material by state insurance
regulators, where required.
<PAGE> 3
4) NISC and Nationwide agree to abide by the
Advertising and Sales Promotion Material
Guidelines, attached hereto as EXHIBIT B,
and incorporated herein by reference.
b. Prospectuses
1) Nationwide is responsible for the
preparation and regulatory clearance of any
required registration statements and
prospectuses for the Products.
2) Nationwide is responsible for the printing
of Product prospectuses in such quantities
as the parties agree are necessary to assure
sufficient supplies.
3) Nationwide is responsible for supplying
Agents with sufficient quantities of Product
prospectuses.
c. Contracts, Applications and Related Forms
1) Nationwide, in consultation with NISC, is
responsible for the design and printing of
adequate supplies of Product applications,
contracts, related forms, and such service
forms as the parties agree are necessary.
2) Nationwide is responsible for supplying
adequate quantities of all such forms to the
Agents.
7. Appointment of Agents
a. NISC will assist Nationwide in facilitating the
appointment of Agents by Nationwide.
b. Nationwide will forward all appointment forms and
applications to the appropriate states and maintain
all contacts with the states.
c. Nationwide will maintain appointment files on Agents,
and NISC will have access to such files as needed.
8. Licensing and Appointment Guide
Nationwide shall provide to NISC a Licensing and Appointment
Guide (as well periodic updates thereto), setting forth the
requirements for licensing and appointment, in such quantities
as NISC may reasonably require.
<PAGE> 4
9. Other
a. Product Training
Nationwide is responsible for any Product training
for the Agents.
b. Field Sales Material
1) Nationwide, in consultation with NISC, is
responsible for the development, printing
and distribution of non-public field sales
material to be used by Agents.
2) NISC shall have the right to review all
field sales materials and to require any
modification mandated by regulatory
requirements.
c. Production Reports
Nationwide will deliver to NISC the items listed in
Production Reports to be Provided, attached hereto as
EXHIBIT C, and incorporated herein by reference.
d. Customer Service
Each party will notify the other of all material
pertinent inquiries and complaints it receives, from
whatever source and to whomever directed, and will
consult with the other in responding to such
inquiries and complaints.
e. Records and Books
All books and records maintained by Nationwide in
connection with the offer and sale of variable
annuity interests funded by a Separate Account are
maintained and preserved in conformity with the
requirements of Rule 17a-3 and 17a-4 under the 1934
Exchange Act, to the extent such requirements are
applicable to the variable annuity operations.
All such books and records are maintained and held by
Nationwide on behalf of and as agent for NISC, whose
property they are and shall remain. Such books and
records are at all times subject to inspection by the
Securities and Exchange Commission and the National
Association of Securities Dealers, Inc.
<PAGE> 5
C. GENERAL PROVISIONS
1. Waiver
The forbearance or neglect of either party to insist upon
strict compliance by the other with any of the provisions of
this Agreement, whether continuing or not, or to declare a
forfeiture of termination against the other, shall not be
construed as a waiver of any rights or privileges of the
forbearing party in the event of a further default or failure
of performance.
2. Limitations
Neither party shall have authority on behalf of the other to:
make, alter or discharge any contractual terms of the
Products; waive any forfeiture; extend the time of making any
contributions to the products; guarantee dividends; alter the
forms which either may prescribe; nor substitute other forms
in place of those prescribed by the other.
3. Binding Effect
This Agreement shall be binding on and shall inure to the
benefit of the parties to it and their respective successors
and assigns, provided that neither party shall assign or
sub-contract this Agreement or any rights or obligations
hereunder without prior written consent of the other.
4. Indemnification
Each party ("Indemnifying Party") hereby agrees to release,
indemnify and hold harmless the other party, its officers,
directors, employers, agents, servants, predecessors or
successors from any claims or liability arising out of the
acts or omissions of the Indemnifying Party not authorized by
this Agreement, including the violation of any federal or
state law or regulation.
5. Notices
All notices, requests, demands and other communication under
this Agreement shall be in writing and shall be deemed to have
been given on the date of service if served personally on the
party to whom notice is to be given, or on the date of mailing
if sent postage prepaid by First Class Mail, Registered or
Certified mail, by overnight mail, properly addressed as
follows:
TO NATIONWIDE:
Nationwide Life Insurance Company
Michael C. Butler, Vice President-Sales
Three Nationwide Plaza
Columbus, Ohio 43215
<PAGE> 6
TO NISC:
Nationwide Investment Services Corporation.
Barbara Shane, Vice President-Compliance Officer
Two Nationwide Plaza
Columbus, Ohio 43215
6. Governing Law
This Agreement shall be construed in accordance with and
governed by the laws of the State of Ohio.
7. Arbitration
The parties agree that misunderstandings or disputes arising
from this Agreement shall be decided by arbitration, conducted
upon request of either party before three arbitrators (unless
the parties agree on a single arbitrator) designated by the
American Arbitration Association, and in accordance with the
rules of such Association. The expenses of the arbitration
proceedings conducted hereunder shall be borne equally by both
parties.
8. Confidentiality
Any information, documents and materials, whether printed or
oral, furnished by either party or its agents or employees to
the other shall be held in confidence. No such information
shall be given to any third party, other than to such
sub-contractors of NISC as may be permitted herein, or under
requirements of a lawful authority, without the express
written consent of the other party.
D. TERM OF AGREEMENT
This Agreement, including the Exhibits attached hereto, shall remain in
full force and effect until terminated, and may be amended only by
mutual agreement of the parties in writing. Any decision by either
party to cease issuance or distribution of any specific Product shall
not effect a termination of the Agreement unless such termination is
mutually agreed upon, or unless notice is given pursuant to Section
E.2. hereof.
E. TERMINATION
1. Either party may terminate this Agreement for cause at any
time, upon written notice to the other, if the other knowingly
and willfully: (a) fails to comply with the laws or
regulations of any state or governmental agency or body having
jurisdiction over the sale of insurance or securities; (b)
misappropriates any money or property belonging to the other;
(c) subjects the other to any actual or potential liability
due to misfeasance, malfeasance, or nonfeasance; (d) commits
any fraud upon the other; (e) has an assignment for the
benefit of creditors; (f) incurs bankruptcy; or (g) commits a
material breach of this Agreement.
<PAGE> 7
2. Either party may terminate this Agreement, without regard to
cause, upon six months prior written notice to the other.
3. In the event of termination of this Agreement, the following
conditions shall apply:
a) The parties irrevocably acknowledge the continuing
right to use any Product trademark that might then be
associated with any Products, but only with respect
to all business in force at the time of termination.
b) In the event this Agreement is terminated the parties
will use their best efforts to preserve in force the
business issued pursuant to this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to
be effective as of the date first above written.
NATIONWIDE LIFE INSURANCE
COMPANY
By: __________________________
Michael C. Butler
Title: Vice President - Sales
NATIONWIDE INVESTMENT SERVICES
CORPORATION
By: ________________________
Barbara Shane
Title: Vice President - Compliance Officer
<PAGE> 8
EXHIBIT A
ANALYSIS OF ADMINISTRATIVE FUNCTIONS
A. PRODUCT UNDERWRITING/ISSUE
NATIONWIDE NISC
- - Establishes underwriting criteria for - Consults with regard to new business
application processing and rejections. procedures and processing.
- - Reviews the completed application.
Applies underwriting/issue criteria to
application.
- - Notifies Agent and/or customer of
any error or missing data necessary to
underwrite application and establish
records for owner of Product ("Contract
Owner").
- - Prepares policy data page for
approved business and mails with policy
to Contract Owner.
- - Establishes and maintains all records
required for each Contract Owner, as
applicable.
- - Prepares and mails confirmation and
other statements to Contract Owners and
Agents, as required.
- - Prints, provides all forms ancillary
to issue of contract/policy forms for
Products.
- - Maintains supply of approved specimen
policy forms and all ancillary forms,
distributes same to Agents.
<PAGE> 9
B. BILLING AND COLLECTION
NATIONWIDE
- - Receives premium/purchase
payments and reconciles amount
received with remittance media.
- - Updates Contract Owner records to
reflect receipt of premium/purchase
payment and performs accounting/
investment allocation of each
payment received.
- - Deposits all cash received under the
Products in accordance with the
terms of the Products.
C. BANKING
NATIONWIDE
- - Balances, edits, endorses and prepares daily deposit.
- - Places deposits in depository account.
- - Prepares daily cash journal summary reports and
maintains same for review by NISC.
<PAGE> 10
D. PRICING/VALUATION/ACCOUNTING/TRADING
NATIONWIDE NISC
- - Maintains and makes available, as - Cooperates in annual audit of separate
reasonably requested, records used in account financials conducted for purposes
determining "Net Amount Available for of financial statement certification and
Investment." publication.
- - Collects information needed in - Will clear and settle Mutual Fund
determining Variable Account unit trades on behalf of the separate accounts
values from the Funds including using the National Securities Clearing
daily net asset value, capital Corporation FUND/Serv System.
gains or dividend distributions,
and the number of Fund Shares
acquired or sold during the
immediately preceding valuation
period.
- - Performs daily unit valuation
calculation.
<PAGE> 11
E. CONTRACT OWNER SERVICE/
RECORD MAINTENANCE
NATIONWIDE NISC
- - Receives and processes all - Accommodates customer service function
Contract Owner service requests, by providing any supporting information
including but not limited to or documentation which may be in the
informational requests, beneficiary control of NISC.
changes, and transfers of Contract
Value among eligible investment
options.
- - Maintains daily records of all
changes made to Contract Owner
accounts.
- - Researches and responds to all
Contract Owner/Agent inquiries.
- - Keeps all required Contract Owner
records.
- - Maintains adequate number of toll
free lines to service Contract Owner/
Agent inquiries.
F. DISBURSEMENTS (SURRENDERS,
DEATH CLAIMS, LOANS)
NATIONWIDE NISC
- - Receives and processes surrenders,
loans, and death claims in accordance
with established guidelines.
- - Prepares checks for surrenders,
loans, and death claims, and forwards
to Contract Owner or Beneficiary.
Prepares and mails confirmation
statement of disbursement to Contract
Owner/Beneficiary with copy to Agent.
<PAGE> 12
G. COMMISSIONS
NATIONWIDE NISC
- - Ascertains, on receipt of - Receives and performs record keeping
applications, whether writing Agent for investment company payments made
is appropriately licensed. under a 12b-1 Plan.
- - Pays commissions and other fees
in accordance with agreements
relating to same.
H. PROXY PROCESSING
NATIONWIDE NISC
- - Receives record date information
from Funds Receives proxy
solicitation materials from Funds.
- - Prepares Voting Instruction cards
and mails solicitation, if necessary.
- - Tabulates and votes all Fund Shares
in accordance with SEC requirements.
I. PERIODIC REPORTS TO CONTRACT OWNERS
NATIONWIDE NISC
- - Prepares and mails quarterly and
annual Statements of Account to
Contract Owners.
- - Prepares and mails all semi-annual
and annual reports of Variable
Account(s) to Contract Owners.
<PAGE> 13
J. REGULATORY/STATEMENT REPORTS
NATIONWIDE NISC
- - Prepares and files Separate Account - Prepares and files periodic FOCUS
Annual Statements. Reports with the NASDR and SEC, as
applicable.
- - Prepares and mails the appropriate, - Prepares and files annual audited
required IRS reports at the Contract financial statements with required
Owner level. Files same with required regulatory agencies.
regulatory agencies.
- - Prepares and files form N-SAR for
the Separate Account.
K. PREMIUM TAXES
NATIONWIDE NISC
- - Collects, pays and accounts for
premium taxes as appropriate.
- - Prepares and maintains all premium
tax records by state.
- - Maintains liabilities in General
Account ledger for accrual of premium
tax collected.
- - Integrates all company premium taxes
due and performs related accounting.
L. FINANCIAL AND MANAGEMENT REPORTS
NATIONWIDE NISC
- - Provides periodic reports in - Provides periodic reports in accordance
accordance with the Schedule of with the Schedule of Reports to be
Reports to be prepared jointly by prepared jointly by Nationwide and NISC.
Nationwide and NISC. (See EXHIBIT C) (See EXHIBIT C)
<PAGE> 14
M. AGENT LICENSE RECORDKEEPING
NATIONWIDE NISC
- - Receives, establishes, processes, - Maintains securities registrations and
and maintains Agent appointment assumes supervisory responsibility for
records. representatives of affiliated sales and
marketing companies involved in the
wholesale distribution of Nationwide
variable contract products.
- Maintains training, supervisory, and
other required records for and on behalf
of registered representatives of NISC.
<PAGE> 15
EXHIBIT B
ADVERTISING AND SALES PROMOTION MATERIAL GUIDELINES
FOR APPROVAL BY NATIONWIDE AND NISC
In order to assure compliance with state and federal regulatory requirements and
to maintain control over the distribution of promotional materials dealing with
the Products, Nationwide and NISC require that all variable contract promotional
materials be reviewed and approved by both Nationwide and NISC prior to their
use. These guidelines are intended to provide appropriate regulatory and
distribution controls.
1. Sufficient lead time must be allowed in the submission of all
promotional material. Nationwide and NISC shall approve in writing all
promotional material. Such approval shall not be unreasonably withheld,
and shall be given promptly, normally within five (5) days.
2. All promotional material will be submitted in "draft" form to permit
any changes or corrections to be made prior to the printing.
3. Nationwide and NISC will provide each other with details as to each and
every use of all promotional material submitted. Approval for one use
will not constitute approval for any other use. Different standards of
review may apply when the same advertising material is intended for
different uses. The following information will be provided for each
item of promotional material:
a. In what jurisdiction(s) the material will be used.
b. Whether distribution will be to broker/dealer, entity,
participant, etc.
c. How the material will be used (e.g., brochure, mailing, web
site, etc.)
d. The projected date of initial use.
4. Each party will advise the other of the date it discontinues the use of
any material.
5. Any changes to previously approved promotional material must be
resubmitted, following these procedures. When approved material is to
be put to a different use, request for approval of the material for the
new use must be submitted.
6. Nationwide will assign a form number to each item of advertising and
sales promotional material. This number will appear on each piece of
advertising and sales promotional material. It will be used to aid in
necessary filings, and to maintain appropriate controls.
7. Nationwide and NISC will provide written approval for all material to
be used.
8. Nationwide will be responsible to effect necessary state filings.
9 NISC will coordinate SEC/NASD filings of sales and promotional
material.
10. All telephone communication and written correspondence regarding
promotional materials should be directed to Office of Product and
Market Compliance, Nationwide Life Insurance Company, One Nationwide
Plaza, Columbus, Ohio 43215
