<PAGE> 1
Registration No. 333-46412
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
POST-EFFECTIVE AMENDMENT NO. 1 [X]
TO FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF
SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-BB-2
NATIONWIDE VLI SEPARATE ACCOUNT - 5
(EXACT NAME OF TRUST)
NATIONWIDE LIFE INSURANCE COMPANY
ONE NATIONWIDE PLAZA
COLUMBUS, OHIO 43215
(EXACT NAME AND ADDRESS OF DEPOSITOR AND REGISTRANT)
PATRICIA R. HATLER
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, the Financial Statements.
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on January 17, 2001 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
If appropriate check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment
Title of Securities being registered: Last Survivor Flexible Premium Variable
Universal Life Insurance Policies
Approximate date of proposed public offering: continuously on and after
January 17, 2001.
[ ] Check box if it is proposed that this filing will become effective on (date
at (time) pursuant to Rule 487.
================================================================================
<PAGE> 2
CROSS REFERENCE TO ITEMS REQUIRED
BY FORM N-8B-2
<TABLE>
<CAPTION>
N-8B-2 ITEM CAPTION IN PROSPECTUS
<S> <C>
1.....................................................................Nationwide Life Insurance
......................................................................Company
The Variable Account
2.....................................................................Nationwide Life Insurance
Company
3.....................................................................Custodian of Assets
4.....................................................................Distribution of The Policies
5.....................................................................The Variable Account
6.....................................................................Not Applicable
7.....................................................................Not Applicable
8.....................................................................Not Applicable
9.....................................................................Legal Proceedings
10.....................................................................Information About The Policies;
How The Cash Value Varies; Right
to Exchange for a Fixed Benefit
Policy; Reinstatement; Other Policy
Provisions
11.....................................................................Investments of The Variable
Account
12.....................................................................The Variable Account
13.....................................................................Policy Charges
Reinstatement
14.....................................................................Underwriting and Issuance -
Premium Payments
Minimum Requirements for
Issuance of a Policy
15.....................................................................Investments of the Variable
Account; Premium Payments
16.....................................................................Underwriting and Issuance -
Allocation of Cash Value
17.....................................................................Surrendering The Policy for Cash
18.....................................................................Reinvestment
19.....................................................................Not Applicable
20.....................................................................Not Applicable
21.....................................................................Policy Loans
22.....................................................................Not Applicable
23.....................................................................Not Applicable
24.....................................................................Not Applicable
25.....................................................................Nationwide Life Insurance
Company
26.....................................................................Not Applicable
27.....................................................................Nationwide Life Insurance
Company
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
N-8B-2 ITEM............................................................CAPTION IN PROSPECTUS
28.....................................................................Company Management
29.....................................................................Company Management
30.....................................................................Not Applicable
31.....................................................................Not Applicable
32.....................................................................Not Applicable
33.....................................................................Not Applicable
34.....................................................................Not Applicable
35.....................................................................Nationwide Life Insurance
Company
36.....................................................................Not Applicable
37.....................................................................Not Applicable
38.....................................................................Distribution of The Policies
39.....................................................................Distribution of The Policies
40.....................................................................Not Applicable
41(a)..................................................................Distribution of The Policies
42.....................................................................Not Applicable
43.....................................................................Not Applicable
44.....................................................................How The Cash Value Varies
45.....................................................................Not Applicable
46.....................................................................How The Cash Value Varies
47.....................................................................Not Applicable
48.....................................................................Custodian of Assets
49.....................................................................Not Applicable
50.....................................................................Not Applicable
51.....................................................................Summary of The Policies;
Information About The Policies
52.....................................................................Substitution of Securities
53.....................................................................Taxation of The Company
54.....................................................................Not Applicable
55.....................................................................Not Applicable
56.....................................................................Not Applicable
57.....................................................................Not Applicable
58.....................................................................Not Applicable
59.....................................................................Financial Statements
</TABLE>
<PAGE> 4
NATIONWIDE LIFE INSURANCE COMPANY
Last Survivor Flexible Premium Variable Universal Life Insurance Policies
Issued by Nationwide Life Insurance Company through its Nationwide VLI Separate
Account-5
The date of this prospectus is January 17, 2001.
This prospectus contains basic information you should know about the policies
before investing. Please read it and keep it for future reference
The following underlying mutual funds are available under the policies:
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
- VIP Equity-Income Portfolio: Service Class
- VIP Growth Portfolio: Service Class
- VIP High Income Portfolio: Service Class*
- VIP Overseas Portfolio: Service Class
NATIONWIDE SEPARATE ACCOUNT TRUST
- Capital Appreciation Fund
- Money Market Fund
- Total Return Fund
- Dreyfus NSAT Mid Cap Index Fund (formerly, Nationwide Select Advisers
Mid Cap Fund) (subadviser: The Dreyfus Corporation)
- Nationwide Small Cap Value Fund (subadviser: The Dreyfus Corporation)
- Nationwide Small Company Fund
(subadvisers: The Dreyfus Corporation, Neuberger Berman, L.P., Lazard
Asset Management Strong Capital Management, Inc. and Waddell & Reed
Investment Management Company)
- Strong NSAT Mid Cap Growth Fund (subadviser: Strong Capital Management
Inc.)
ONE GROUP(R) INVESTMENT TRUST
- One Group Investment Trust Balanced Portfolio (formerly, Asset
Allocation Fund)
- One Group Investment Trust Bond Portfolio
- One Group Investment Trust Diversified Equity Portfolio
- One Group Investment Trust Diversified Mid Cap Portfolio
- One Group Investment Trust Equity Index Portfolio
- One Group Investment Trust Government Bond Portfolio
- One Group Investment Trust Large Cap Growth Portfolio (formerly, Large
Company Growth Fund)
- One Group Investment Trust Mid Cap Growth Portfolio (formerly, Growth
Opportunities Fund)
- One Group Investment Trust Mid Cap Value Portfolio
W&R TARGET FUNDS, INC.
- Asset Strategy Portfolio
- Balanced Portfolio
- Bond Portfolio
- Core Equity Portfolio
- Growth Portfolio
- High Income Portfolio
- International Portfolio
- Limited-Term Bond Portfolio
- Money Market Portfolio
- Science and Technology Portfolio
- Small Cap Portfolio
*These underlying mutual funds invest in lower quality debt securities commonly
referred to as junk bonds.
In the future, additional underlying mutual funds managed by certain financial
institutions or brokerage firms may be added to the variable account. These
additional underlying mutual funds may be offered exclusively to purchasing
customers of the particular financial institution or brokerage firm.
To obtain copies of any underlying mutual fund prospectus, please call:
1-800-547-7548
TDD 1-800-238-3035
or write:
NATIONWIDE LIFE INSURANCE COMPANY
P.O. BOX 182150
COLUMBUS, OHIO 43218-2150
1
<PAGE> 5
Material incorporated by reference in this prospectus can be found on the SEC
website at:
www.sec.gov
This policy is NOT:
- a bank deposit;
- endorsed by a bank or government agency;
- federally insured; or
- available in every state.
The life insurance policies offered by this prospectus are flexible premium
variable universal life insurance policies. They provide flexibility to vary the
amount and frequency of premium payments. A cash surrender value may be offered
if the policy is terminated during the lifetime of the insured.
The purpose of this policy is to provide life insurance protection for the
beneficiary named in the policy. No claim is made that the policy is in any way
similar or comparable to a systematic investment plan of a mutual fund. The
death benefit and cash value of this policy may vary to reflect the experience
of the Nationwide VLI Separate Account-5 (the "variable account") or the fixed
account, depending on how premium payments are invested.
Investors assume certain risks when investing in the policies, including the
risk of losing money.
Nationwide guarantees the death benefit for as long as the policy is in force.
The cash surrender value is not guaranteed. The policy will lapse if the cash
surrender value is insufficient to cover policy charges.
Benefits described in this prospectus may not be available in every jurisdiction
- refer to your policy for specific benefit information.
THIS PROSPECTUS IS NOT AN OFFERING IN ANY JURISDICTION WHERE SUCH OFFERING MAY
NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY REPRESENTATIONS IN
CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS.
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> 6
GLOSSARY OF SPECIAL TERMS
ATTAINED AGE- The insured's age on the policy date, plus the number of full
years since the policy date.
ACCUMULATION UNIT- An accounting unit of measure used to calculate the cash
value of the variable account.
AVERAGE ISSUE AGE- The arithmetic average of the ages of the two insureds at
policy issuance.
BASIC COVERAGE- One of the two types of coverage that comprise the specified
amount. The other type is supplemental coverage.
FIXED ACCOUNT- An investment option which 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.
IRS GUIDELINE LEVEL PREMIUM- The amount of level annual premium, calculated in
accordance with the provisions of the Internal Revenue Code, guaranteed
mortality and expense charges, and an interest rate of 4%.
MATURITY DATE- The policy anniversary on or next following the insured's 100th
birthday.
NATIONWIDE - Nationwide Life Insurance Company.
NET AMOUNT AT RISK- Net amount at risk is the death benefit minus the cash value
calculated at the beginning of each policy month.
NET PREMIUMS- Net premiums are equal to the actual premiums minus the percent of
premium charges. The percent of premium charges are shown on the policy data
page.
SEC GUIDELINE LEVEL PREMIUM- The level annual premiums required to mature the
policy under reasonable mortality and expense charges with an annual effective
interest rate of 5%. It is calculated pursuant to Rule 6e-3(T) of the Investment
Company Act of 1940.
SUB-ACCOUNTS- Divisions of the variable account to which underlying mutual fund
shares are allocated and for which accumulation units are separately maintained.
SUPPLEMENTAL COVERAGE- One of the two types of coverage that comprise the
specified amount. Supplemental coverage can never exceed 90% of the specified
amount. Supplemental coverage is not available in New York or New Jersey.
VALUATION PERIOD - Each day the New York Stock Exchange is open.
VARIABLE ACCOUNT- Nationwide VLI Separate Account-5, a separate account of
Nationwide Life Insurance Company 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> 7
TABLE OF CONTENTS
GLOSSARY OF SPECIAL TERMS..........................
SUMMARY OF POLICY EXPENSES.........................
UNDERLYING MUTUAL FUND ANNUAL EXPENSES.............
SYNOPSIS OF THE POLICIES...........................
NATIONWIDE LIFE INSURANCE COMPANY..................
GENERAL DISTRIBUTOR................................
INVESTING IN THE POLICY............................
The Variable Account and Underlying Mutual
Funds
The Fixed Account
INFORMATION ABOUT THE POLICIES.....................
Minimum Requirements for Policy Issuance
Premium Payments
Death Benefit Guarantees
Pricing
POLICY CHARGES.....................................
Sales Load
Premium Expense Charge
Surrender Charges
Monthly Cost of Insurance
Monthly Administrative Charge
Mortality and Expense Risk Charge
Income Tax
Reduction of Charges
SURRENDERING THE POLICY FOR CASH...................
Surrender (Redemption)
Cash Surrender Value
Partial Surrenders
Income Tax Withholding
VARIATION IN CASH VALUE............................
POLICY PROVISIONS..................................
Policy Owner
Beneficiary
Changes in Existing Insurance Coverage
OPERATION OF THE POLICY............................
Allocation of Net Premium and Cash Value
How the Investment Experience is Determined
Net Investment Factor
Determining the Cash Value
Transfers2
RIGHT TO REVOKE....................................
POLICY LOANS.......................................
Taking a Policy Loan
Effect on Investment Performance
Interest
Effect on Death Benefit and Cash Value
Repayment
ASSIGNMENT.........................................
POLICY OWNER SERVICES..............................
Dollar Cost Averaging
DEATH BENEFIT INFORMATION..........................
Calculation of the Death Benefit
Changes in the Death Benefit Option
Proceeds Payable on Death
Incontestability
Error in Age or Sex
Suicide
Maturity Proceeds
RIGHT OF CONVERSION................................
GRACE PERIOD.......................................
Grace Period without Death Benefit Guarantees
Lifetime Guaranteed Policy Continuation
Limited Guaranteed Policy Continuation
Reinstatement
TAX MATTERS........................................
Policy Proceeds
Withholding
Federal Estate and Generation-Skipping
Transfers Taxes
Non-Resident Aliens
Taxation of Policy Split Option Rider
Description of Cash Value Accumulation
Test and Guideline Premium Cash
Value Corridor Test
Taxation of Nationwide
Tax Changes
LEGAL CONSIDERATIONS...............................
STATE REGULATION...................................
REPORTS TO POLICY OWNERS...........................
ADVERTISING........................................
LEGAL PROCEEDINGS..................................
4
<PAGE> 8
EXPERTS............................................
REGISTRATION STATEMENT.............................
DISTRIBUTION OF THE POLICIES.......................
ADDITIONAL INFORMATION ABOUT
NATIONWIDE....................................
APPENDIX A: OBJECTIVES FOR UNDERLYING MUTUAL FUNDS.
APPENDIX B: ILLUSTRATIONS OF CASH VALUES,
CASH SURRENDER VALUES, AND
DEATH BENEFITS..................................
5
<PAGE> 9
SUMMARY OF POLICY EXPENSES
Nationwide deducts certain charges from the policy. Charges are made for
administrative and sales expenses, tax expenses, providing life insurance
protection and assuming the mortality and expense risks (see "Policy Charges").
Nationwide deducts a sales load and a premium expense charge from each premium
payment received. The sales load is guaranteed never to exceed 2.5% for each
premium payment. Currently, the sales load is 0.5% for all policy years. The
premium expense charge is approximately 3.5% of premiums for all states (see
"Sales Load" and "Premium Expense Charge").
Nationwide deducts the following charges monthly from the cash value of the
policy (see "Policy Charges"):
- cost of insurance;
- cost of any additional benefits provided by riders to the policy;
- administrative expense charge(1); and
- mortality and expense risk charge(2).
(1)This amount of this charge is the sum of the per policy charge and the per
$1,000 basic coverage charge (see "Monthly Administrative Charge").
(2)This charge is equal to an annual effective rate multiplied by the cash value
attributable to the variable account. The annual effective rate is 0.60% up to
$25,000 of cash value attributable to the variable account, 0.30% for the next
$25,000 to $224,999 of cash value attributable to the variable account, and
0.10% for all cash value attributable to the variable account of $250,000 or
more (see "Mortality and Expense Risk Charge").
For policies which are surrendered during the first 9 policy years, Nationwide
deducts a surrender charge (see "Surrender Charges").
For more information about any policy charge, see "Policy Charges" in this
prospectus.
UNDERLYING MUTUAL FUND ANNUAL EXPENSES
(as a percentage of underlying mutual fund net assets, after expense
reimbursement)
<TABLE>
<CAPTION>
Management Other Total Underlying
Fees Expenses 12b-1 Fees Mutual Fund Expenses
<S> <C> <C> <C> <C>
Fidelity VIP Equity-Income Portfolio: Service 0.48% 0.08% 0.10% 0.66%
Class
Fidelity VIP Growth Portfolio: Service Class 0.58% 0.07% 0.10% 0.75%
Fidelity VIP High Income Portfolio: Service 0.58% 0.11% 0.10% 0.79%
Class
Fidelity VIP Overseas Portfolio: Service Class 0.73% 0.15% 0.10% 0.98%
NSAT Capital Appreciation Fund 0.60% 0.14% 0.00% 0.74%
NSAT Money Market Fund 0.39% 0.15% 0.00% 0.54%
NSAT Total Return Fund 0.58% 0.14% 0.00 0.72%
NSAT Dreyfus NSAT Mid Cap Index Fund (formerly, NSAT 0.88% 0.37% 0.00% 1.25%
Nationwide Mid Cap Index Fund)
NSAT Nationwide Small Cap Value Fund 0.88% 0.37% 0.00% 1.25%
NSAT Nationwide Small Company Fund 0.98% 0.27% 0.00% 1.25%
NSAT Strong NSAT Mid Cap Growth Fund 0.90% 0.10% 0.00% 1.00%
One Group Investment Trust Balanced Portfolio 0.70% 0.25% 0.00% 0.95%
(formerly Asset Allocation Fund)
One Group Investment Trust Bond Portfolio 0.45% 0.30% 0.00% 0.75%
One Group Investment Trust Diversified Equity 0.68% 0.27% 0.00% 0.95%
Portfolio
One Group Investment Trust Diversified Mid Cap 0.60% 0.32% 0.00% 0.92%
Portfolio
One Group Investment Trust Equity Index 0.28% 0.28% 0.00% 0.56%
Portfolio
</TABLE>
6
<PAGE> 10
<TABLE>
<CAPTION>
Management Other Total Underlying
Fees Expenses 12b-1 Fees Mutual Fund Expenses
<S> <C> <C> <C> <C>
One Group Investment Trust Government Bond 0.45% 0.28% 0.00% 0.73%
Portfolio
One Group Investment Trust Large Cap Growth 0.65% 0.23% 0.00% 0.88%
Portfolio (formerly Large Company Growth Fund)
One Group Investment Trust Mid Cap Growth 0.65% 0.27% 0.00% 0.92%
Portfolio (formerly Growth Opportunities Fund)
One Group Investment Trust Mid Cap Value 0.63% 0.32% 0.00% 0.95%
Portfolio
W&R Target Funds, Inc. - Asset Strategy 0.74% 0.14% 0.24% 1.12%
Portfolio
W&R Target Funds, Inc. - Balanced Portfolio 0.65% 0.06% 0.24% 0.95%
W&R Target Funds, Inc. - Bond Portfolio 0.52% 0.06% 0.24% 0.82%
W&R Target Funds, Inc. - Core Equity Portfolio 0.69% 0.02% 0.24% 0.95%
W&R Target Funds, Inc. - Growth Portfolio 0.69% 0.02% 0.24% 0.95%
W&R Target Funds, Inc. - High Income Portfolio 0.63% 0.05% 0.24% 0.92%
W&R Target Funds, Inc. - International Portfolio 0.82% 0.15% 0.24% 1.21%
W&R Target Funds, Inc. - Limited-Term Bond 0.52% 0.15% 0.24% 0.91%
Portfolio
W&R Target Funds, Inc. - Money Market Portfolio 0.44% 0.08% 0.24% 0.76%
W&R Target Funds, Inc. - Science and Technology 0.80% 0.06% 0.24% 1.10%
Portfolio
W&R Target Funds, Inc. - Small Cap Portfolio 0.84% 0.04% 0.24% 1.12%
</TABLE>
The expenses shown above are deducted by the underlying mutual fund before it
provides Nationwide with the daily net asset value. Nationwide then deducts
applicable variable account charges from the net asset value to calculate the
unit value of the corresponding sub-account. The management fees and other
expenses are more fully described in the prospectus for each underlying mutual
fund. Information relating to the underlying mutual funds was provided by the
underlying mutual funds and not independently verified by Nationwide.
Some underlying mutual funds are subject to fee waivers and expense
reimbursements. The following chart shows what the expenses would have been for
such funds without fee waivers and expense reimbursements.
<TABLE>
<CAPTION>
Management Other Total Underlying
Fees Expenses 12b-1 Fees Mutual Fund
Expenses
<S> <C> <C> <C> <C>
Fidelity VIP Equity-Income Portfolio: Service Class 0.48% 0.10 0.10% 0.68
Fidelity VIP Growth Portfolio: Service Class 0.58% 0.09% 0.10% 0.77%
Fidelity VIP Overseas Portfolio: Service Class 0.73% 0.18% 0.10% 1.01%
NSAT Dreyfus Mid Cap Index Fund (formerly, NSAT Nationwide 0.88% 0.86% 0.00% 1.74%
Mid Cap Index Fund)
NSAT Nationwide Small Cap Value Fund 0.90% 0.37% 0.00% 1.27%
NSAT Strong NSAT Mid Cap Growth Fund 0.90% 0.33% 0.00% 1.23%
One Group Investment Trust Bond Fund 0.55% 0.30% 0.00% .85%
One Group Investment Trust Diversified Equity 0.70% 0.27% 0.00% .97%
Portfolio
One Group Investment Trust Diversified Mid Cap 0.71% 0.32% 0.00% 1.03%
Portfolio
One Group Investment Trust Equity Index Portfolio 0.30% 0.28% 0.00% 0.58%
One Group Investment Trust Mid Cap Value Portfolio 0.70% 0.32% 0.00% 1.02%
</TABLE>
7
<PAGE> 11
SYNOPSIS OF THE POLICIES
The policy offered by this prospectus provides for life insurance coverage on
two insureds. Nationwide pays the death proceeds on the death of the last
surviving insured. The death benefit and cash value of the policy may increase
or decrease to reflect the performance of the investment options chosen by the
policy owner (see "Death Benefit Information").
CASH SURRENDER VALUE
The cash surrender value increases or decreases daily to reflect the investment
experience of the variable account and the daily crediting of interest in the
fixed account and the policy loan account. The cash surrender value equals the
policy's cash value, next computed after the date Nationwide receives a proper
written request for surrender and the policy, minus any charges, indebtedness or
other deductions due on that date, which may also include a surrender charge.
PREMIUMS
The initial premium is shown on the policy data page. Additional premium
payments may be made at any time while the policy is in force. Each premium
payment must be at least $50.
TAXATION
The policies described in this prospectus meet the definition of "life
insurance" under Section 7702 of the Internal Revenue Code. Nationwide will
monitor compliance with the tests provided by Section 7702 to insure the
policies continue to receive this favored tax treatment (see "Tax Matters").
NONPARTICIPATING POLICIES
The policies are nonparticipating policies on which no dividends are payable.
The policies do not share in the profits or surplus earnings of Nationwide.
RIDERS
A rider may be added to the policy (availability varies by state).
Riders currently include:
- Policy Split Option;
- Estate Protection;
- Maturity Extension Endorsement; and
- Maturity Extension for Specified Amount.
These riders are not available in the State of New Jersey.
POLICY CANCELLATION
Policy owners may return the policy for any reason within certain time periods
and Nationwide will refund the policy value or the amount required by law (see
"Right to Revoke").
NATIONWIDE LIFE INSURANCE COMPANY
Nationwide is a stock life insurance company organized under the laws of the
State of Ohio in March 1929. It is a member of the Nationwide group with its
home office at One Nationwide Plaza, Columbus, Ohio 43215. Nationwide is a
provider of life insurance, annuities and retirement products. It is admitted to
do business in all states, the District of Columbia and Puerto Rico.
CUSTODIAN OF ASSETS
Nationwide serves as the custodian of the assets of the variable account.
OTHER CONTRACTS ISSUED BY NATIONWIDE
Nationwide does presently and will, from time to time, offer variable contracts
and policies with benefits which vary in accordance with the investment
experience of a separate account of Nationwide.
The policies are distributed by Waddell & Reed, Inc., 6300 Lamar Ave., Overland
Park, KS 66202 and by Nationwide Investment Services Corporation ("NISC"), Two
Nationwide Plaza, Columbus, Ohio 43215. NISC is a wholly owned subsidiary of
Nationwide Life Insurance Company.
8
<PAGE> 12
INVESTING IN THE POLICY
THE VARIABLE ACCOUNT AND UNDERLYING MUTUAL FUNDS
Nationwide VLI Separate Account-5 is a separate account that invests in the
underlying mutual fund options listed in Appendix A. Nationwide established the
separate account on May 21, 1998, pursuant to Ohio law. Although the separate
account is registered with the SEC as a unit investment trust pursuant to the
Investment Company Act of 1940 ("1940 Act"), the SEC does not supervise the
management of Nationwide or the variable account.
Income, gains, and losses credited to, or charged against the variable account
reflect the variable account's own investment experience and not the investment
experience of Nationwide's other assets. The variable account's assets are held
separately from Nationwide's assets and in general are not chargeable with
liabilities incurred in any other business of Nationwide. Nationwide is
obligated to pay all amounts promised to policy owners under the policies.
The variable account is divided into sub-accounts. Policy owners elect to have
net premiums allocated among the sub-accounts and the fixed account at the time
of application.
Nationwide uses the assets of each sub-account to buy shares of the underlying
mutual funds based on policy owner instructions. A policy's investment
performance depends upon the performance of the underlying mutual fund options
chosen by the policy owner.
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. The underlying mutual fund options 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.
However the underlying mutual funds are NOT directly related to any publicly
traded mutual fund. Policy 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.
Changes of Investment Policy
Nationwide may materially change the investment policy of the variable account.
Nationwide must inform policy owners and obtain all necessary regulatory
approvals. Any change must be submitted to the various state insurance
departments which may disapprove it if deemed detrimental to the interests of
the policy owners or if it renders Nationwide's operations hazardous to the
public. If a policy owner objects, the policy owner may, upon written request,
transfer all sub-account cash values to the fixed account. The policy owner has
the later of 60 days (6 months in Pennsylvania) from the date of the investment
policy change or 60 days (6 months in Pennsylvania) from being informed of the
change to make the transfer. Nationwide will not assess a charge for this
transfer.
Voting Rights
Policy owners who have allocated assets to the underlying mutual funds are
entitled to certain voting rights. Nationwide will vote policy owner shares at
special shareholder meetings based on policy owner instructions. However, if the
law changes allowing Nationwide to vote in its own right, it may elect to do so.
Policy owners with voting interests in an underlying mutual fund will be
notified of issues requiring the shareholder's vote as soon as possible prior to
the shareholder meeting. Notification will contain proxy materials, and a form
to return to Nationwide with voting instructions. Nationwide will vote shares
for
9
<PAGE> 13
which no instructions are received in the same proportion as those that are
received.
The number of shares which a policy 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.
Substitution of Securities
Nationwide may substitute, eliminate and/or combine shares of another underlying
mutual fund for shares already purchased or to be purchased in the future if
either of the following occur:
1) shares of a current underlying mutual fund option are no longer available for
investment; or
2) further investment in an underlying mutual fund option is inappropriate.
No substitution, elimination, and/or combination of shares may take place
without the prior approval of the SEC and state insurance departments.
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.
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. Purchase payments will be
allocated to the fixed account by election of the contract owner.
Under exemptive and exclusionary provisions, Nationwide's general account has
not been registered under the Securities Act of 1933 and has not been registered
as an investment company under the Investment Company Act of 1940. Accordingly,
neither the general account nor any interest therein is subject to the
provisions of these Acts. Nationwide has been advised that the staff of the SEC
has not reviewed the disclosures in this prospectus relating to the fixed
account. Disclosures regarding the general account may, however, be subject to
certain generally applicable provisions of the federal securities laws
concerning the accuracy and completeness of statements made in prospectuses.
The investment income earned by the fixed account will be allocated to the
contracts at varying rate(s) set by Nationwide. The guaranteed rate for any
purchase payment will be effective for not less than twelve months. Nationwide
guarantees that the rate will not be less than 3.0% per year.
Any interest in excess of 3.0% will be credited to fixed account allocations at
Nationwide's sole discretion. The contract owner assumes the risk that interest
credited to fixed account allocations may not exceed the minimum guarantee of
3.0% for any given year. New purchase payments deposited to the contract which
are allocated to the fixed account may receive a different rate of interest than
amounts transferred from the sub-accounts to
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the fixed account and amounts maturing in the fixed account.
INFORMATION ABOUT THE POLICIES
MINIMUM REQUIREMENTS FOR POLICY ISSUANCE
This policy provides life insurance coverage with the flexibility to vary the
amount and frequency of premium payments. At policy issuance, the policy owner
selects the premium and specified amount, which consists of basic coverage and
supplemental coverage, if any. The proportion of supplemental coverage is
irrevocable. A policy owner can apply to increase or decrease the specified
amount no more than once per policy year.
The minimum specified amount is $100,000. Supplemental coverage cannot exceed
90% of the specified amount.
Supplemental coverage differs from basic coverage in several respects: (1)
supplemental coverage has lower cost of insurance rates, on a current basis; (2)
supplemental coverage has no surrender charges; and (3) supplemental coverage
has no monthly per unit charge, on a current basis. Supplemental coverage is not
available for policies issued in the State of New York.
Policies may be issued to insureds at ages consistent with Nationwide's
underwriting guidelines. Before issuing any policy, Nationwide requires
satisfactory evidence of insurability which may include medical examinations.
PREMIUM PAYMENTS
Each premium payment must be at least $50. The initial premium is payable in
full at Nationwide's home office or to an authorized agent of Nationwide.
Upon payment of the initial premium, temporary insurance may be provided.
Issuance of the continuing insurance coverage is dependent upon completion of
all underwriting requirements, payment of initial premium, and delivery of the
policy while both insureds are still living.
Additional premium payments may be made at any time while the policy is in
force, subject to the following conditions:
- Nationwide may require satisfactory evidence of insurability before
accepting any additional premium payment which results in an increase in
the net amount at risk.
- Premium payments in excess of the premium limit established by the IRS to
qualify the policy as a contract for life insurance will be refunded.
- Nationwide may require policy indebtedness be repaid prior to accepting any
additional premium payments.
Additional premium payments or other changes to the policy may jeopardize the
policy's non-modified endowment status. Nationwide will monitor premiums paid
and other policy transactions and will notify the policy owner when non-modified
endowment contract status is in jeopardy.
Nationwide will send scheduled premium payment reminder notices to policy owners
according to the premium mode shown on the policy data page.
DEATH BENEFIT GUARANTEES
Lifetime Guaranteed Policy Continuation
The policy will not lapse if cumulative premiums, less any indebtedness and
partial withdrawals are greater than or equal to cumulative Lifetime Guaranteed
Policy Continuation premiums (see "Grace Period").
Limited Guaranteed Policy Continuation
The policy will not lapse during the Limited Guaranteed Policy Continuation
period if cumulative premiums, less any indebtedness and partial withdrawals,
are greater than or equal to cumulative Limited Guaranteed Policy Continuation
premiums. The Limited Guaranteed Policy Continuation period runs from the 3rd
policy anniversary date to the policy anniversary on or next following the
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younger insured's 75th birthday (see "Grace Period").
INITIAL GUARANTEED POLICY CONTINUATION
The policy will not lapse if cumulative premiums, less any indebtedness and
partial withdrawals, are greater than or equal to cumulative Initial Guaranteed
Policy Continuation premiums. The Initial Guaranteed Policy Continuation period
runs from the policy date to the 3rd policy anniversary date.
PRICING
Premiums will not be priced when the New York Stock Exchange is closed or on the
following nationally recognized holidays:
- New Year's Day - Independence Day
- Martin Luther King, Jr. - Labor Day Day
- Presidents' Day - Thanksgiving
- Good Friday - Christmas
- Memorial Day
Nationwide also will not price purchase payments if:
(1) trading on the New York Stock Exchange is restricted;
(2) an emergency exists making disposal or valuation of securities held in
the variable account impracticable; or (3) the SEC, by order, permits a
suspension or postponement for the protection of security holders.
Rules and regulations of the SEC will govern as to when the conditions described
in (2) and (3) exist. If Nationwide is closed on days when the New York Stock
Exchange is open, policy value may be affected since the policy owner would not
have access to their account.
POLICY CHARGES
SALES LOAD
Nationwide deducts a sales load from each premium payment received. It is
guaranteed never to exceed 2.5% of each premium payment. Currently, the sales
load is 0.5% for all policy years.
The total sales load actually deducted from any policy will be equal to the sum
of this front-end sales load plus any sales surrender charge. In addition, the
portion of the increase charges attributable to an increase in specified amount
that reimburse Nationwide for distribution expenses will be added to the total
sales load deduction.
TAX EXPENSE CHARGES
A charge equal to 3.5% is deducted from all premium payments, when the premium
payment is received, in order to compensate Nationwide for certain
administrative expenses which are incurred by Nationwide for taxes, which
include premium or other taxes, imposed by various state and local jurisdiction
as well as federal taxes imposed under Section 848 of the Internal Revenue Code.
These tax expenses to Nationwide consist of two components:
(1) a tax rate of 2.25% for state and local premium or other taxes; and
(2) a tax rate of 1.25% for federal taxes.
The amount charged may be more or less than the amount actually assessed by the
state in which a particular policy owner lives.
Nationwide does not expect to make a profit from these charges.
SURRENDER CHARGES
Nationwide deducts a surrender charge from the cash value of any policy
surrendered during the first 9 policy years. The charge is deducted
proportionally from the cash value in each sub-account and the fixed account.
The maximum surrender charge varies by the issue ages, sexes, and underwriting
classifications of the insureds and is calculated based on the initial basic
coverage on the policy date.
The following table illustrates the maximum surrender charge per $1,000 of
initial basic coverage for policies which are issued on a male non-tobacco
preferred and a female non-tobacco other than preferred basis (see "Appendix B:
Illustrations of Cash Values, Cash Surrender
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Values, and Death Benefits" for specific examples) based on $1 million specified
amount.
Maximum Surrender Charges
Per $1,000 of Initial
Average Issue Age Basic Coverage
35/35 $5.42
45/45 $8.39
55/55 $11.14
65/65 $15.58
75/75 $22.81
The surrender charge is comprised of two components:
- an underwriting component; and
- a sales component.
The underwriting component varies by average issue age in the following manner:
Underwriting Component
Per $1,000 of Initial Basic
Average Issue Age Coverage
0-39 $4.00
40-49 $6.00
50-59 $7.00
60-85 $8.00
The underwriting component is designed to cover the administrative expenses
associated with underwriting and issuing policies, including the costs of:
- processing applications;
- conducting medical exams;
- determining insurability and the insureds' underwriting class; and
- establishing policy records.
The remainder of the surrender charge that is not attributable to the
underwriting component represents the sales component. The purpose of the sales
component is to reimburse Nationwide for some of the expenses incurred in the
distribution of the policies.
In no event will this component exceed 23.75% of the lesser of the SEC Guideline
Level Premium required in the first year or the premiums actually paid in the
first year.
The following table illustrates the maximum sales surrender charge per $1,000 of
initial basic coverage based on a policy issued on a male non-tobacco preferred
and a female non-tobacco other than preferred basis.
Maximum Sales Component
Per $1,000 of Initial Basic
Average Issue Age Coverage
35/35 $1.42
45/45 $2.39
55/55 $4.14
65/65 $7.58
75/75 $14.81
Nationwide does not expect to profit from the surrender charge. The surrender
charge may be insufficient to recover certain expenses related to the sale of
the policies. Unrecovered expenses are born by Nationwide's general assets which
may include profits, if any, from mortality and expense risk charges. Additional
premiums and/or income earned on assets in the variable account have no effect
on these charges.
The surrender charge does not apply to increases or decreases in specified
amount.
Reductions to Surrender Charges
Surrender charges are reduced in subsequent policy years as follows:
Surrender Charge
as a Percentage of Initial Surrender Charge
Policy Year
1 100%
2 100%
3 90%
4 80%
5 70%
6 60%
7 50%
8 40%
9 30%
10+ 0%
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MONTHLY COST OF INSURANCE
The monthly cost of insurance charge reflects the anticipated mortality of both
insureds and the fact that the death benefit is not payable until the death of
the last surviving insured.
The monthly cost of insurance charge for each policy month is determined by
multiplying the monthly cost of insurance rate by the net amount at risk. The
net amount at risk is the difference between the death benefit and the policy's
cash value, as calculated at the beginning of each policy month. This deduction
is charged proportionately to the cash value in each sub-account and the fixed
account.
Monthly cost of insurance rates will not exceed those guaranteed in the policy.
Guaranteed cost of insurance rates are based on the 1980 Commissioners Standard
Ordinary Mortality Table, Age Last Birthday (1980 CSO). Guaranteed cost of
insurance rates for policies issued on a substandard basis are based on
appropriate multiples of the 1980 CSO. These mortality tables are sex distinct.
In addition, separate mortality tables will be used for tobacco and non-tobacco.
The rate class of an insured may affect the cost of insurance rate. Nationwide
currently places insureds into both standard rate classes and substandard rate
classes that involve a higher mortality risk. In an otherwise identical policy,
an insured in the standard rate class will have a lower cost of insurance than
an insured in a rate class with higher mortality risks.
MONTHLY ADMINISTRATIVE CHARGE
Nationwide deducts a monthly administrative expense charge proportionately from
the cash value in each sub-account and the fixed account. This charge reimburses
Nationwide for certain actual expenses related to maintenance of the policies
including accounting and record keeping, and periodic reporting to policy
owners. Nationwide does not expect to recover any amount in excess of aggregate
maintenance expenses from this charge.
Currently, this charge is the sum of the per policy charge and the per $1,000
basic coverage charge as set forth below:
Policy Year(s) Per Policy Charge
1 $10.00
2+ $ 5.00
The per policy charge for years 2+ may be increased at Nationwide's sole
discretion, but may not exceed $7.50 per month.
The per $1,000 basic coverage charge is determined for the first three policy
years this monthly charge is derived as the sum of the charges for both Insureds
via the following table:
Per $1,000 of Initial Basic
Average Issue Age Coverage
less than 40 $0.06
40-49 $0.08
50-59 $0.10
60-69 $0.12
greater than 69 $0.15
The maximum monthly charge is $250 per $1,000 of Basic Coverage. The per $1,000
of Basic Coverage charge is 0 after the third policy year.
After a change in specified amount, the per $1000 basic coverage charge portion
of the monthly administrative expense charge is based on the new basic coverage
in effect.
For policies issued in the State of New York, the per policy charge portion is
equal to $7.50 per month in all years, both currently and guaranteed. The
monthly per $1,000 basic coverage charge portion in New York is $0.04 per $1,000
in the first year only, subject to a minimum of $20 and a maximum of $80 per
policy, currently and guaranteed, and $0 thereafter.
MORTALITY AND EXPENSE RISK CHARGE
Nationwide assumes certain risks for guaranteeing the mortality and expense
charges. The mortality risk assumed under the policies is that both insureds may
not live as long as expected. The expense risk assumed is that the
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actual expenses incurred in issuing and administering the policies may be
greater than expected. In addition, Nationwide assumes risks associated with the
non-recovery of policy issue, underwriting and other administrative expenses due
to policies that lapse or are surrendered in the early policy years.
Nationwide deducts the mortality and expense risk charge from the variable
account on a monthly basis. Mortality and expense risk deductions will be
charged proportionally to the cash value in each sub-account. This charge varies
depending on the variable account value, as described in the table that follows.
Variable Account Value Mortality and Expense Risk
Charge
less than $25,000 0.60%
$25,000 to $249,999 0.30%
$250,000 or more 0.10%
Policy owners receive quarterly and annual statements, advising policy owners of
the cancellation of accumulation units for mortality and expense risk charges.
FEDERAL INCOME TAX
No charge is assessed to policy owners for federal income taxes incurred by
Nationwide as a result of the operations of the sub-accounts. However,
Nationwide reserves the right to assess a charge for income taxes against the
variable account if income taxes are incurred.
REDUCTION OF CHARGES
The policy is available for purchase by individuals, corporations and other
groups. Nationwide may reduce or eliminate certain charges (sales load,
surrender charge, monthly administrative charge, monthly cost of insurance
charge, or other charges), where the size or nature of the group results in
savings in sales, underwriting, administrative or other costs, to Nationwide.
These charges may be reduced in certain group, sponsored arrangements or special
exchange programs made available by Nationwide, (including employees of
Nationwide and their families).
Eligibility for reduction in charges and the amount of any reduction is
determined by a number of factors, including:
- the number of insureds;
- the total premium expected to be paid;
- total assets under management for the policy owner;
- the nature of the relationship among individual insureds;
- the purpose for which the policies are being purchased;
- the expected persistency of individual policies; and
- any other circumstances which are rationally related to the expected
reduction in expenses.
The extent and nature of reductions may change from time to time. The charge
structure may vary. Variations are determined in a manner not unfairly
discriminatory to policy owners which reflects differences in costs of services.
SURRENDERING THE POLICY FOR CASH
SURRENDER (REDEMPTION)
Policies may be surrendered for the cash surrender value any time while the
insured is living. The cancellation will be effective as of the date Nationwide
receives the policy accompanied by a signed, written request for cancellation.
In some cases, Nationwide may require additional documentation of a customary
nature.
CASH SURRENDER VALUE
The cash surrender value increases or decreases daily to reflect the investment
experience of the variable account and the daily crediting of interest in the
fixed account and the policy loan account.
The cash surrender value equals the policy's cash value, next computed after the
date Nationwide receives a proper written request for surrender and the policy,
minus any charges, indebtedness or other deductions due on that
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date, which may also include a surrender charge.
PARTIAL SURRENDERS
After the policy has been in force for one year, the policy owner may request a
partial surrender.
Partial surrenders are permitted if they satisfy the following requirements:
1) the minimum partial surrender is $200;
2) partial surrenders may not reduce the specified amount below the
minimum issue amount ($100,000);
3) the maximum amount of a partial surrender is the cash surrender value
less the greater of $500 or three monthly deductions; and
4) after the partial surrender, the policy continues to qualify as life
insurance.
Nationwide reserves the right to limit the number of partial surrenders in each
policy year.
When a partial surrender is made, the cash value is reduced by the amount of the
partial surrender. Also, under death benefit Option 1, the specified amount is
reduced by the amount of the partial surrender. The basic and supplemental
specified amounts are reduced proportionally.
Partial surrenders will be first deducted from the values in the sub-accounts.
Partial surrenders will be deducted from the fixed account only to the extent
that insufficient values are available in the sub-accounts.
Nationwide reserves the right to deduct a fee for each partial surrender. The
fee will not be more than the lesser of $25 or 2% of the amount of the partial
surrender. On a current basis, Nationwide does not deduct this fee.
Certain partial surrenders may result in currently taxable income and tax
penalties.
INCOME TAX WITHHOLDING
Federal law requires Nationwide to withhold income tax from any portion of
surrender proceeds subject to tax. Nationwide will withhold income tax unless
the policy owner advises Nationwide, in writing, of his or her request not to
withhold. If a policy owner requests that taxes not be withheld, or if the taxes
withheld are insufficient, the policy owner may be liable for payment of an
estimated tax. Policy owners should consult a tax advisor.
VARIATION IN CASH VALUE
On any date during the policy year, the cash value equals the cash value on the
preceding valuation date plus any net premium applied since the previous
valuation date, minus any partial surrenders plus or minus any investment
results, and less any policy charges.
There is no guaranteed cash value. The cash value will vary with the investment
experience of the variable account and/or the daily crediting of interest in the
fixed account and policy loan account depending on the allocation of cash value
by the policy owner.
POLICY PROVISIONS
POLICY OWNER
While either insured is living, all rights in this policy are vested in the
policy owner named in the application or as subsequently changed, subject to
assignment, if any.
The policy owner may name a contingent policy owner or a new policy owner while
either insured is living. Any change must be in a written form satisfactory to
Nationwide and recorded at Nationwide's home office. Once recorded, the change
will be effective when signed. The change will not affect any payment made or
action taken by Nationwide before it was recorded. Nationwide may require that
the policy be submitted for endorsement before making a change.
If the policy owner dies before both insureds, the policy owner's rights in this
policy belong to the policy owner's estate.
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BENEFICIARY
The beneficiary(ies) will be as named in the application or as subsequently
changed, subject to assignment, if any.
The policy owner may name a new beneficiary while either insured is living. Any
change must be in a written form satisfactory to Nationwide and recorded at
Nationwide's home office. Once recorded, the change will be effective when
signed. The change will not affect any payment made or action taken by
Nationwide before it was recorded.
If any beneficiary predeceases an insured, that beneficiary's interest passes to
any surviving beneficiary(ies), unless otherwise provided. Multiple
beneficiaries will be paid in equal shares, unless otherwise provided. If no
named beneficiary survives both insureds, the death proceeds will be paid to the
policy owner or the policy owner's estate.
CHANGES IN EXISTING INSURANCE COVERAGE
The policy owner may request certain changes in the insurance coverage under the
policy. Requests must be in writing and received by Nationwide. No change will
take effect unless the cash surrender value after the change is sufficient to
keep the policy in force for at least 3 months.
Any approved change will have an effective date of the monthly anniversary day
on or next following the date Nationwide approves the application for the
change. Basic and supplemental coverage will change proportionally.
Nationwide reserves the right to limit the number of specified amount changes to
one each policy year.
Specified Amount Increases
After the first policy year, the policy owner may request an increase to the
specified amount. Any increase will be subject to the following conditions:
1. satisfactory evidence of insurability must be provided for both
insureds;
2. the increase must be for a minimum of $10,000; and
3. age limits are the same as for a new issue.
Specified Amount Decreases
After the first policy year, the policy owner may also request a decrease to the
specified amount. Any such decrease shall reduce insurance in the following
order:
1. against insurance provided by the most recent increase;
2. against the next most recent increases successively; and
3. against insurance provided under the original application.
Nationwide will refuse a request for a decrease which would:
1. reduce the specified amount to less than the minimum issue amount;
2. disqualify the policy as a contract for life insurance; or
3. result in both a negative guideline single premium and a guideline
level premium that is negative to the extent that the annual sum of
guideline level premiums would be negative at some time before
maturity.
OPERATION OF THE POLICY
ALLOCATION OF NET PREMIUM AND CASH VALUE
Nationwide allocates premium payments to sub-accounts or the fixed account, as
instructed by policy owners. All percentage allocations must be in whole
numbers, and must be at least 5%. The sum of allocations must equal 100%. Future
premium allocations may be changed by giving written notice to Nationwide.
Premiums allocated to a sub-account on the application are allocated to the NSAT
Money Market Fund or the W&R Target Funds, Inc. - Money Market Portfolio during
the period a policy owner can cancel the policy, unless a specific state
requires premiums to be allocated to the fixed account. At the expiration of
this
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<PAGE> 21
period, these premiums are used to purchase shares of the underlying mutual
funds specified by the policy owner at net asset value for the respective
sub-account(s).
The policy owner may change the allocation of net premiums or may transfer cash
value from one sub-account to another. Changes are subject to the terms and
conditions imposed by each underlying mutual fund and those found in this
prospectus. Net premiums allocated to the fixed account at the time of
application may not be transferred from the fixed account prior to the first
policy anniversary (see "Transfers").
HOW THE INVESTMENT EXPERIENCE IS DETERMINED
The accumulation unit value for a valuation period is determined by multiplying
the accumulation unit value for each sub-account for the immediately preceding
valuation period by the net investment factor for the sub-account for the
subsequent valuation period. Though the number of accumulation units will not
change as a result of investment experience, the value of an accumulation unit
may increase or decrease from valuation period to valuation period.
NET INVESTMENT FACTOR
The net investment factor for any valuation period is determined by dividing (a)
by (b) where:
(a) is:
(1) the net asset value per share of the underlying mutual fund held
in the sub-account as of the end of the current valuation period;
and
(2) the per share amount of any dividend or income distributions made
by the underlying mutual fund (if the ex-dividend date occurs
during the current valuation period).
(b) is the net asset value per share of the underlying mutual fund determined
as of the end of the immediately preceding valuation period.
The net investment factor may be greater or less than one; therefore, the value
of an accumulation unit may increase or decrease. Nationwide does not currently
assess any charge for income taxes incurred by Nationwide as a result of the
operations of the sub-accounts. Nationwide reserves the right to assess a charge
for such taxes if Nationwide determines that such taxes will be incurred.
DETERMINING THE CASH VALUE
The cash value is the sum of the value of all variable account accumulation
units attributable to the policy plus amounts credited to the fixed account and
the policy loan account.
The number of accumulation units credited to each sub-account is determined by
dividing the net amount allocated to the sub-account by the accumulation unit
value for the sub-account for the valuation period during which the premium is
received by Nationwide. In the event part or all of the cash value is
surrendered or charges or deductions are made against the cash value, an
appropriate number of accumulation units from the variable account and an
appropriate amount from the fixed account will be deducted in the same
proportion that the policy owner's interest in the variable account and the
fixed account bears to the total cash value.
The cash value in the fixed account and the policy loan account is credited with
interest daily at an effective annual rate which Nationwide periodically
declares. The annual effective rate will never be less than 3.0%. (For a
description of the annual effective credited rates, see "The Fixed Account" and
"Policy Loans.") Upon request, Nationwide will inform the policy owner of the
then applicable rates for each account.
TRANSFERS
Policy owners can transfer allocations without penalty or adjustment subject to
the following conditions:
- Transfers between the fixed account and the variable account may not be
made in the first policy year.
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- Transfers between the fixed account and the variable account may be made
once per policy year.
- Transfers among sub-accounts may be made once per valuation date.
- Nationwide reserves the right to restrict the amount transferred from the
fixed account to 20% of the cash value in the fixed account. Policy owners
who have entered into Dollar Cost Averaging agreements with Nationwide may
transfer under the terms of that agreement.
- Nationwide reserves the right to restrict the amount transferred to the
fixed account to 20% of the cash value.
The policy owner's cash value in each sub-account will be determined as of the
date Nationwide receives the transfer request in good order.
Transfer Requests
Nationwide will accept transfer requests in writing or in those states that
allow, over the telephone. Nationwide will use reasonable procedures to confirm
that telephone instructions are genuine and will not be liable for following
instructions it reasonably determined to be genuine. Nationwide may withdraw the
telephone exchange privilege upon 30 days written notice to policy owners.
Market-Timing Firms
Some policy 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 requests on behalf of
multiple policy 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 policy owners not using market-timing firms. To avoid
this, Nationwide may modify the transfer rights of policy owners who use
market-timing firms (or other third parties) to initiate transfers on their
behalf.
The transfer rights of individual policy owners will not be modified in any way
when instructions are submitted directly by the policy owner, or by the policy
owner's representative (as authorized by the execution of a valid Nationwide
Limited Power of Attorney Form).
To protect policy owners, Nationwide may refuse transfer requests:
- submitted by any agent acting under a power of attorney on behalf of more
than one policy owner; or
- submitted on behalf of individual policy 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 policy owner at the
same time.
Nationwide will not restrict transfer rights unless Nationwide believes it to be
necessary for the protection of all policy owners.
RIGHT TO REVOKE
A policy owner may cancel the policy by returning it by the latest of:
- 10 days after receiving the policy;
- 45 days after signing the application; or
- 10 days after Nationwide delivers a Notice of Right to Withdrawal.
The policy can be mailed to the registered representative who sold it, or
directly to Nationwide.
Returned policies are deemed void from the beginning. Nationwide will refund the
amount prescribed by the state in which the policy was issued within seven days
after it receives the policy. The refunded policy value will reflect the
deduction of any policy charges, unless otherwise required by law. This right
varies by state.
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POLICY LOANS
TAKING A POLICY LOAN
The policy owner may take a policy loan at any time using the policy as
security. Maximum policy indebtedness is limited to 90% of the cash value, less
any surrender charges. The cash value less surrender charge is determined as of
the loan date. Nationwide will not grant a loan for an amount less than $200.
Policy indebtedness will be deducted from the death benefit, cash surrender
value upon surrender, or the maturity proceeds.
Any request for a policy loan must be in written form. The request must be
signed and, where permitted, the signature guaranteed by a member firm of the
New York, American, Boston, Midwest, Philadelphia or Pacific Stock Exchanges, or
by a commercial bank or a savings and loan which is a member of the Federal
Deposit Insurance Corporation. Certain policy loans may result in currently
taxable income and tax penalties.
A policy owner considering the use of policy loans in connection with his or her
retirement income plan should consult his or her personal tax adviser regarding
potential tax consequences that may arise if necessary payments are not made to
keep the policy from lapsing. The amount of the payments necessary to prevent
the policy from lapsing will increase with age.
EFFECT ON INVESTMENT PERFORMANCE
When a loan is made, an amount equal to the amount of the loan is transferred
from the variable account to the policy loan account. If the assets relating to
a policy are held in more than one sub-account, withdrawals from sub-accounts
will be made in proportion to the assets in each sub-account at the time of the
loan. Policy loans will be transferred from the fixed account only when
sufficient amounts are not available in the sub-accounts.
The amount taken out of the variable account will not be affected by the
variable account's investment experience while the loan is outstanding.
INTEREST
The annual effective loan interest rate charged on policy loans is 3.9%.
On a current basis, cash value in the policy loan account is credited with an
annual effective rate of 3% during policy years 1 through 10 and an annual
effective rate of 3.9% during the 11th and subsequent policy years. Nationwide
may change the current interest crediting rate on the policy loans at any time
at its sole discretion. However, the rate is guaranteed never to be lower than
3% during policy years 1 through 10 and 3.65% during the 11th and subsequent
policy years.
If it is determined that such loans will be treated, as a result of the
differential between the interest crediting rate and the loan interest rate, as
taxable distributions under any applicable ruling, regulation, or court
decision, Nationwide retains the right to increase the net cost (by decreasing
the interest crediting rate) on all subsequent policy loans to an amount that
would result in the transaction being treated as a loan under federal tax law.
If this amount is not prescribed by such ruling, regulation, or court decision,
the amount will be that which Nationwide considers to be more likely to result
in the transaction being treated as a loan under federal tax law.
Amounts transferred to the policy loan account will earn interest daily from the
date of transfer. The earned interest is transferred from the policy loan
account to a variable account or the fixed account on each policy anniversary,
at the time a new loan is requested, or at the time of loan repayment. It will
be allocated according to the fund allocation factors in effect at the time of
the transfer.
Interest is charged daily and is payable at the end of each policy year or at
the time of loan repayment. Unpaid interest will be added to the existing policy
indebtedness as of the due date and will be charged interest at the same rate as
the rest of the indebtedness.
Whenever the total policy indebtedness exceeds the cash value less any surrender
charges,
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<PAGE> 24
Nationwide will send a notice to the policy owner and the assignee, if any. The
policy will terminate without value 61 days after the mailing of the notice
unless a sufficient repayment is made during that period. A repayment is
sufficient if it is large enough to reduce the total policy indebtedness to an
amount equal to the total cash value less any surrender charges plus an amount
sufficient to continue the policy in force for 3 months.
EFFECT ON DEATH BENEFIT AND CASH VALUE
A policy loan, whether or not repaid, will have a permanent effect on the death
benefit and cash value because the investment results of the variable account or
the fixed account will apply only to the non-loaned portion of the cash value.
The longer the loan is outstanding, the greater the effect is likely to be.
Depending on the investment results of the variable account or the fixed account
while the loan is outstanding, the effect could be favorable or unfavorable.
REPAYMENT
All or part of the indebtedness may be repaid at any time while the policy is in
force during the insured's lifetime. Any payment intended as a premium payment,
rather than a loan repayment, must be identified as such. Loan repayments will
be credited to the sub-accounts and the fixed account in proportion to the
policy owner's underlying mutual fund allocation factors in effect at the time
of the repayment. Each repayment may not be less than $50. Nationwide reserves
the right to require that any loan repayments resulting from policy loans
transferred from the fixed account must be first allocated to the fixed account.
ASSIGNMENT
While either insured is living, the policy owner may assign his or her rights in
the policy. The assignment must be in writing, signed by the policy owner and
recorded at Nationwide's home office. Prior to being recorded, assignments will
not affect any payments made or actions taken by Nationwide. Nationwide is not
responsible for any assignment not submitted for recording, nor is Nationwide
responsible for the sufficiency or validity of any assignment. Assignments are
subject to any indebtedness owed to Nationwide before being recorded.
POLICY OWNER SERVICES
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. Policy owners may participate in this program if their policy
value is at least $15,000. Nationwide does not guarantee that this program will
result in profit or protect policy owners from loss.
Policy owners direct Nationwide to automatically transfer specified amounts from
the fixed account and the following underlying mutual fund options: Fidelity VIP
High Income Portfolio; and the NSAT Money Market Fund.
The minimum monthly transfer is $100. Transfers from the fixed account must be
equal to or less than 1/30th of the fixed account value at the time the program
is requested.
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 policy owner instructs Nationwide in
writing to stop the transfers.
Nationwide reserves the right to stop establishing new Dollar Cost Averaging
programs. Nationwide reserves the right to assess a processing fee for this
service.
DEATH BENEFIT INFORMATION
CALCULATION OF THE DEATH BENEFIT
At issue, the policy owner selects premium and the specified amount, which
consists of the basic coverage and the supplemental coverage, if any (see
"Underwriting and Issuance").
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While the policy is in force, the death benefit will never be less than the
specified amount. The death benefit may vary with the cash value of the policy,
which depends on investment performance.
The policy owner chooses one of three death benefit options.
OPTION 1: the death benefit will be the greater of the specified amount or the
applicable percentage of cash value (see below). Under OPTION 1, the amount of
the death benefit will ordinarily not change for several years to reflect the
investment performance, and may not change at all. If investment performance is
favorable, the amount of death benefit may increase. To see how and when
investment performance will begin to affect death benefits, please see the
illustrations in Appendix B.
OPTION 2: the death benefit will be the greater of the specified amount plus the
cash value, or the applicable percentage of cash value. Under OPTION 2, the
amount of the death benefit will vary directly with the investment performance.
OPTION 3: the death benefit will be the greater of (a) and (b) where:
(a) is the specified amount plus the returnable accumulated premium (RAP)
amount, but not to exceed the maximal accumulated premium (identified at
issue); and
(b) is the applicable percentage of cash value.
The term "applicable percentage" means the percentage shown in the "Applicable
Percentage of Cash Value Table." The applicable percentage depends on whether
the policy owner elected the Guideline Premium/Cash Value Corridor Test or the
Cash Value Accumulation Test. The following tables illustrate applicable
percentages:
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GUIDELINE PREMIUM/CASH VALUE CORRIDOR TEST
TABLE OF APPLICABLE PERCENTAGES OF CASH VALUE
<TABLE>
<CAPTION>
Attained Age of Percentage of Attained Age of Percentage of Cash Attained Age of Percentage of
Younger Insured Cash Value Younger Insured Value Younger Insured Cash Value
<S> <C> <C> <C> <C> <C>
0-40 250% 60 130% 80 105%
41 243% 61 128% 81 105%
42 236% 62 126% 82 105%
43 229% 63 124% 83 105%
44 222% 64 122% 84 105%
45 215% 65 120% 85 105%
46 209% 66 119% 86 105%
47 203% 67 118% 87 105%
48 197% 68 117% 88 105%
49 191% 69 116% 89 105%
50 185% 70 115% 90 105%
51 178% 71 113% 91 104%
52 171% 72 111% 92 103%
53 164% 73 109% 93 102%
54 157% 74 107% 94 101%
55 150% 75 105% 95 101%
56 146% 76 105% 96 101%
57 142% 77 105% 97 101%
58 138% 78 105% 98 101%
59 134% 79 105% 99 101%
100 100%
</TABLE>
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<PAGE> 27
CASH VALUE ACCUMULATION TEST
The Cash Value Accumulation Test also requires the death benefit to exceed an
applicable percentage of the cash value. These applicable percentages are the
net inverses of net single premiums based on an interest rate of 4% and 1980 CSO
guaranteed mortality as prescribed in Internal Revenue Code Section 7702 for the
Cash Value Accumulation Test. These premiums vary with the ages, sexes, and risk
classifications of the insureds.
The table below provides an example of applicable percentages for the Cash Value
Accumulation Test. This example is for a male non-tobacco preferred issue age 55
and a female non-tobacco preferred issue age 55.
<TABLE>
<CAPTION>
Policy Percentage of Policy Percentage of Cash Policy Percentage of
Year Cash Value Year Value Year Cash Value
<S> <C> <C> <C> <C> <C>
1 302% 16 174% 31 121%
2 290% 17 169% 32 119%
3 279% 18 164% 33 118%
4 269% 19 159% 34 116%
5 259% 20 154% 35 115%
6 249% 21 150% 36 113%
7 240% 22 146% 37 112%
8 231% 23 142% 38 111%
9 223% 24 139% 39 110%
10 215% 25 136% 40 108%
11 207% 26 133% 41 107%
12 200% 27 130% 42 106%
13 193% 28 127% 43 104%
14 186% 29 125% 44 103%
15 180% 30 123% 45 102%
</TABLE>
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<PAGE> 28
CHANGES IN THE DEATH BENEFIT OPTION
After the first policy year, the policy owner may change the death benefit
option. If the change is from Option 1 to Option 2, the specified amount will be
decreased by the amount of the cash value. Basic coverage and supplemental
coverage will be decreased proportionally. If the change is from Option 2 to
Option 1, the specified amount will be increased by the amount of the cash
value. Basic coverage and supplemental coverage will be increased
proportionally.
Evidence of insurability is not required for a change from Option 2 to Option 1.
Nationwide reserves the right to require evidence of insurability for a change
from Option 1 to Option 2.
Nationwide also permits changes from Option 3 to Option 1 or Option 2.
The effective date of the change will be the monthly anniversary date on or next
following the date Nationwide approves the request for change. Only one change
of option is permitted per policy year. A change in death benefit option will
not be permitted if it results in the total premiums paid exceeding the then
current maximum premium limitations prescribed by the IRS to qualify the policy
as a life insurance contract.
PROCEEDS PAYABLE ON DEATH
The actual death proceeds payable on the death of the last surviving insured
will be the death benefit as described above, less any policy indebtedness, and
less any unpaid policy charges. Under certain circumstances, the death proceeds
may be adjusted (see "Incontestability," "Error in Age or Sex," and "Suicide").
INCONTESTABILITY
Nationwide will not contest payment of the death proceeds based on the initial
specified amount after the policy has been in force during the lifetimes of both
insureds for 2 years from the policy date. For any increase in specified amount
requiring evidence of insurability, Nationwide will not contest payment of the
death proceeds based on such an increase after it has been in force during the
lifetimes of both insureds for 2 years from its effective date.
ERROR IN AGE OR SEX
If the age or sex of either insured has been misstated, the affected benefits
will be adjusted by the ratio of the last monthly cost of insurance deducted to
the monthly cost of insurance that would have been deducted based on the true
age and sex of each insured.
SUICIDE
If either insured dies by suicide, while sane or insane, within two years from
the policy date, Nationwide will pay no more than the sum of the premiums paid,
less any indebtedness, and less any partial surrenders. If either insured dies
by suicide, while sane or insane, within two years from the date an application
is accepted for an increase in the specified amount, Nationwide will pay no more
than the amount paid for the additional benefit.
MATURITY PROCEEDS
The maturity date is the policy anniversary on or next following the insured's
100th birthday. If the policy is still in force, maturity proceeds are payable
to the policy owner on the maturity date. Maturity proceeds are equal to the
amount of the policy's cash value, less any indebtedness.
RIGHT OF CONVERSION
The policy owner may at any time upon written request to Nationwide within 24
months of the policy date, make an irrevocable, one time election to transfer
all sub-account cash values to the fixed account. The right of conversion is
subject to state availability.
GRACE PERIOD
GRACE PERIOD WITHOUT DEATH BENEFIT GUARANTEES
If the surrender value on a monthly anniversary day is not sufficient to cover
the current monthly deduction, and no death benefit guarantee is in effect, a
grace period will be
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<PAGE> 29
allowed for the payment of a premium of at least 4 times the current monthly
deduction. Nationwide will send the policy owner a notice at the start of the
grace period at the last known address stating the amount of premium required to
keep the policy from lapsing.
The grace period will end 61 days after the later of the day Nationwide mails
the notice or the monthly anniversary date when the surrender value was
insufficient. If the required amount is not paid by the end of the grace period,
this policy will terminate without value. Nationwide will pay the death proceeds
if the death proceeds become payable during the grace period.
LIFETIME GUARANTEED POLICY CONTINUATION
The policy will not lapse if on each monthly anniversary date, (1) is greater
than or equal to (2), where:
1. is the sum of all premiums paid to date less any indebtedness and less
any previous partial surrenders; and
2. is the sum of the Lifetime Guaranteed Policy Continuation premiums due
since the policy date including such premium for the current monthly
anniversary date.
The Lifetime Guaranteed Policy Continuation is not permanently lost when premium
payments fall below those required to maintain this benefit. Payment of enough
premium to make (1) greater than or equal to (2) restores the benefit. Any
increase or decrease in specified amount would increase or decrease the minimum
guaranteed amount, respectively.
The Lifetime Guaranteed Policy Continuation premium is shown on the policy data
page.
LIMITED GUARANTEED POLICY CONTINUATION
During the Limited Guaranteed Policy Continuation period, the policy will not
lapse if on each monthly anniversary day (1) is greater than or equal to (2)
where:
(1) is the sum of all premiums paid to date, less any indebtedness and less
any previous partial surrenders; and
(2) is the sum of the Limited Guaranteed Policy Continuation premiums due
since the policy date including such premium for the current monthly
anniversary date.
The sum of the Limited Policy Continuation Premiums (LPCP) will be calculated
monthly.
Two different premium levels are used in the Limited Policy Continuation
Guaranteed Period. These premiums are the Initial Policy Continuation Premium
(applicable in years 1-3) and the Long-term Policy Continuation Premium
(applicable in years 4+). At the beginning of each in the first three policy
years, the sum of LPCP will increase 1/12 of the Initial Policy Continuation
Premium. At the beginning of each month in the fourth or later policy years, the
sum of LPCP will increase by 1/12 of the Long-term Policy Continuation Premium.
Testing will be performed as necessary, i.e. whenever the Cash Surrender Value
falls to $0. Unlimited catch-up will be allowed. This means that the guarantee
is not lost if on any policy month anniversary (1) is less than (2). The
guarantee would not be in effect at that time, but could be reinstated if the
policyowner paid sufficient premium so that (1) was greater than equal to (2).
REINSTATEMENT
If the grace period ends and the policy owner has neither paid the required
premium nor surrendered the policy for its cash surrender value, the policy
lapses. The policy owner may reinstate the policy provided both insureds are
alive on the date of reinstatement by:
1) submitting a written request at any time within 3 years after the end of
the grace period and prior to the maturity date;
2) providing evidence of insurability of both insureds satisfactory to
Nationwide;
3) paying sufficient premium to cover all policy charges that were due and
unpaid during the grace period if the policy terminated in the fourth or
later policy year;
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<PAGE> 30
4) paying sufficient premium to keep the policy in force for 3 months from
the date of reinstatement; and
5) paying or reinstating any indebtedness against the policy which existed
at the end of the grace period.
The effective date of a reinstated policy will be the monthly anniversary day on
or next following the date the application for reinstatement is approved by
Nationwide. If the policy is reinstated, the cash value on the date of
reinstatement, but prior to applying any premiums or loan repayments received,
will be set equal to the lesser of:
1) The cash value at the end of the grace period; or
2) The surrender charge for the policy year in which the policy was
reinstated.
Unless the policy owner has provided otherwise, all amounts will be allocated
based on the underlying mutual fund allocation factors in effect at the start of
the grace period.
TAX MATTERS
POLICY PROCEEDS
Section 7702 of the Internal Revenue Code provides that if certain tests are
met, a policy will be treated as a life insurance policy for federal tax
purposes. Nationwide will monitor compliance with these tests. The policy should
thus receive the same federal income tax treatment as fixed benefit life
insurance. As a result, the death proceeds payable under a policy are excludable
from gross income of the beneficiary under Section 101 of the Internal Revenue
Code.
Section 7702A of the Internal Revenue Code defines modified endowment contracts
as those policies issued or materially changed on or after June 21, 1988 on
which the total premiums paid during the first seven years exceed the amount
that would have been paid if the policy provided for paid up benefits after
seven level annual premiums (see "Information about the Policies"). The Internal
Revenue Code states that taxation of surrenders, partial surrenders, loans,
collateral assignments and other pre-death distributions from modified endowment
contracts (other than certain distributions to terminally ill individuals) are
subject to federal income taxes in a manner similar to the way annuities are
taxed. Modified endowment contract distributions are defined by the Internal
Revenue Code as amounts not received as an annuity and are taxable to the extent
the cash value of the policy exceeds, at the time of distribution, the premiums
paid into the policy. A 10% tax penalty generally applies to the taxable portion
of such distributions unless the policy owner is over age 59 1/2 or disabled or
the distribution is part of an annuity to the policy owner as defined in the
Internal Revenue Code. Under certain circumstances, certain distributions made
under a policy on the life of a "terminally ill individual," as that term is
defined in the Internal Revenue Code, are excludable from gross income.
The policies offered by this prospectus may or may not be issued as modified
endowment contracts. Nationwide will monitor premiums paid and will notify the
policy owner when the policy's non-modified endowment status is in jeopardy. If
a policy is not a modified endowment contract, a cash distribution during the
first 15 years after a policy is issued which causes a reduction in death
benefits may still become fully or partially taxable to the policy owner
pursuant to Section 7702(f)(7) of the Internal Revenue Code. The policy owner
should carefully consider this potential effect and seek further information
before initiating any changes in the terms of the policy. Under certain
conditions, a policy may become a modified endowment as a result of a material
change or a reduction in benefits as defined by Section 7702A(c) of the Internal
Revenue Code.
In addition to meeting the tests required under Section 7702, Section 817(h) of
the Internal Revenue Code requires that the investments of separate accounts
such as the variable account be adequately diversified. Regulations under 817(h)
provide that a variable life policy that fails to satisfy the diversification
standards will
27
<PAGE> 31
not be treated as life insurance unless such failure was inadvertent, is
corrected, and the policy owner or Nationwide pays an amount to the IRS. The
amount will be based on the tax that would have been paid by the policy owner if
the income, for the period the policy was not diversified, had been received by
the policy owner.
If the failure to diversify is not corrected in this manner, the policy owner
will be deemed the owner of the underlying securities and taxed on the earnings
of his or her account.
Representatives of the IRS have suggested, from time to time, that the number of
underlying mutual funds available or the number of transfer opportunities
available under a variable product may be relevant in determining whether the
product qualifies for the desired tax treatment. No formal guidance has been
issued in this area. Should the U.S. Secretary of the Treasury issue additional
rules or regulations limiting the number of underlying mutual funds, transfers
between underlying mutual funds, exchanges of underlying mutual funds or changes
in investment objectives of underlying mutual funds such that the policy would
no longer qualify as life insurance under Section 7702 of the Internal Revenue
Code, Nationwide will take whatever steps are available to remain in compliance.
Nationwide will monitor compliance with these regulations and, to the extent
necessary, will change the objectives or assets of the sub-account investments
to remain in compliance.
A total surrender or cancellation of the policy by lapse or the maturity of the
policy on its maturity date may have adverse tax consequences. If the amount
received by the policy owner plus total policy indebtedness exceeds the premiums
paid into the policy, the excess generally will be treated as taxable income,
regardless of whether or not the policy is a modified endowment contract.
WITHHOLDING
Distributions of income from a modified endowment contract are subject to
federal income tax withholding; however, the recipient may elect not to have the
withholding taken from the distribution. A distribution of income from a
modified endowment contract may be subject to mandatory back-up withholding
(which cannot be waived). The mandatory back-up withholding rate is 31% of the
income that is distributed and will arise of no Taxpayer identification number
is provided to Nationwide, or if the IRS notifies Nationwide that back-up
withholding is required.
FEDERAL ESTATE AND GENERATION-SKIPPING TRANSFER TAXES
The federal estate tax is integrated with the federal gift tax under a unified
tax rate schedule. In general, in 2000, an estate of less than $675,000
(inclusive of certain pre-death gifts) will not incur a federal estate tax
liability. In addition, an unlimited marital deduction may be available for
federal estate tax purposes, for certain amounts that pass to the surviving
spouse.
When the last surviving insured dies, the death benefit will generally be
included in such insured's federal gross estate if: (1) the proceeds were
payable to or for the benefit of the insured's estate; or (2) the insured held
any "incident of ownership" in the policy at death or at any time within three
years of death. An incident of ownership is, in general, any right that may be
exercised by the policy owner, such as the right to borrow on the policy, or the
right to name a new beneficiary.
If the policy owner (whether or not he or she is the insured) transfers
ownership of the policy to another person, such transfer may be subject to a
federal gift tax. In addition, if such policy owner transfers the policy to
someone two or more generations younger than the policy owner, the transfer may
be subject to the federal generation-skipping transfer tax ("GSTT"), the taxable
amount being the value of the policy.
Similarly, if the beneficiary is two or more generations younger than the
insured, the payment of the death proceeds at the death of the insured may be
subject to the GSTT.
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<PAGE> 32
Pursuant to regulations recently promulgated by the U.S. Secretary of the
Treasury, Nationwide may be required to withhold a portion of the death proceeds
and pay them directly to the IRS as the GSTT liability.
The GSTT provisions generally apply to the same transfers that are subject to
estate or gift taxes.
The tax rate is a flat rate equal to the maximum estate tax rate (currently
55%), and there is a provision for an aggregate $1 million exemption. Due to the
complexity of these rules, the policy owner should consult with counsel and
other competent advisors regarding these taxes.
NON-RESIDENT ALIENS
Pre-death distributions from modified endowment contracts to nonresident aliens
("NRAs") are generally subject to federal income tax and tax withholding, at a
statutory rate of 30% of the amount of income that is distributed. Nationwide is
required to withhold such amount from the distribution and remit it to the IRS.
Distributions to certain NRAs may be subject to lower, or in certain instances
zero, tax and withholding rates, if the United States has entered into an
applicable treaty. However, in order to obtain the benefits of such treaty
provisions, the NRA must give to Nationwide sufficient proof of his or her
residency and citizenship in the form and manner prescribed by the IRS. In
addition, the NRA must obtain an individual Taxpayer identification number from
the IRS, and furnish that number to Nationwide prior to the distribution. If
Nationwide does not have the proper proof of citizenship or residency and a
proper individual Taxpayer identification number prior to any distribution,
Nationwide will be required to withhold 30% of the income, regardless of any
treaty provision.
A pre-death distribution may not be subject to withholding where the recipient
sufficiently establishes to Nationwide that such payment is effectively
connected to the recipient's conduct of a trade or business in the United States
and that such payment is includible in the recipient's gross income for United
States federal income tax purposes, Any such distributions may be subject to
back-up withholding at the statutory rate (currently 31%) if no Taxpayer
identification number, or an incorrect Taxpayer identification number, is
provided.
State and local estate, inheritance, income and other tax consequences of
ownership or receipt of policy proceeds depend on the circumstances of each
policy owner or beneficiary.
TAXATION OF POLICY SPLIT OPTION RIDER
The Policy Split Option Rider permits a policy to be split into two other single
life insurance contracts upon the occurrence of a divorce of the joint insureds
or certain other changes in federal estate tax.
A policy split could have adverse tax consequences. It is not clear whether a
policy split will be treated as a nontaxable exchange under Section 1035 of the
Internal Revenue Code. If a policy split is not treated as a nontaxable
exchange, a split could result in the recognition of taxable income in an amount
up to any gain in the policy at the time of the split. Additionally, it is not
clear whether, in all circumstances, the resulting individual contracts would be
treated as life insurance contracts for federal income tax purposes and, if so
treated, whether the individual contracts would be classified as modified
endowment contracts. Before the policy owner exercises rights provided by the
Policy Split Option Rider, it is important that a tax adviser be consulted
regarding the possible consequences of a policy split.
DESCRIPTION OF CASH VALUE ACCUMULATION TEST AND GUIDELINE PREMIUM/CASH VALUE
CORRIDOR TEST
Section 7702(b)(1) of the Internal Revenue Code provides that if one of two
alternate tests is met, a policy will be treated as life insurance for federal
tax purposes. The two tests are referred to as the Cash Value Accumulation Test
and the Guideline Premium/Cash Value Corridor Test.
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<PAGE> 33
The Cash Value Accumulation Test generally requires that under the terms of a
life insurance policy, the death benefit must be sufficient so that the cash
surrender value, as defined in Section 7702(f)(2), does not at any time exceed
the net single premium required to fund the future benefits under the policy.
The net single premium under the policy will vary according to the age, sex and
underwriting classification of the insureds.
Under the Cash Value Accumulation Test, there is no limit to the amount that may
be paid in premiums as long as there is sufficient death benefit in relation to
the account value at all times. A table containing the applicable percentage of
cash value can be found in the "How the Death Benefit Varies" section.
The Guideline Premium/Cash Value Corridor Test requires that the sum of the
premiums paid into the policy does not at any time exceed the guideline premium
limitation. Additionally, a minimum corridor of death benefit in relation to
account value must be maintained.
Policy owners who elect this test are given the option of electing either an
Option 1 or Option 2 death benefit. Please refer to "How the Death Benefit
Varies" for a detailed explanation.
The policy owners must make the election of death benefit qualification tests on
the application. Once elected, the death benefit qualification test cannot be
changed for the duration of the policy. If no option is designated, the
Guideline Premium/Cash Value Corridor Test with an Option 1 death benefit will
be assumed by Nationwide to have been selected.
Regardless of which test is selected, Nationwide will monitor compliance to
assure that the policy meets the statutory definition of life insurance for
federal tax purposes. The policy should thus receive the same federal income tax
treatment as fixed benefit life insurance. As a result, the death proceeds
payable under a policy are excludable from gross income of the beneficiary under
Section 101 of the Internal Revenue Code.
The policy owner elects either the Cash Value Accumulation Test or the Guideline
Premium/Cash Value Corridor Test in the application. This election is
irrevocable.
TAXATION OF NATIONWIDE
Nationwide is taxed as a life insurance company under the Internal Revenue Code.
Since the variable account is not a separate entity from Nationwide and its
operations form a part of Nationwide, it will not be taxed separately as a
"regulated investment company" under Sub-chapter M of the Internal Revenue Code.
Investment income and realized capital gains on the assets of the variable
account are reinvested and taken into account in determining the value of
accumulation units. As a result, such investment income and realized capital
gains are automatically applied to increase reserves under the policies.
Nationwide does not initially expect to incur any federal income tax liability
that would be chargeable to the variable account. Based upon these expectations,
no charge is currently being made against the variable account for federal
income taxes. If, however, Nationwide determines that on a separate company
basis such taxes may be incurred, it reserves the right to assess a charge for
such taxes against the variable account.
Nationwide may also incur state and local taxes (in addition to premium taxes)
in several states. At present, these taxes are not significant. If they
increase, however, charges for such taxes may be made.
TAX CHANGES
The foregoing discussion, which is based on Nationwide's understanding of
federal tax laws as they are currently interpreted by the IRS, is general and is
not intended as tax advice.
The Internal Revenue Code has been subjected to numerous amendments and changes,
and it is reasonable to believe that it will continue to be revised. The United
States Congress has, in the past, considered numerous legislative proposals
that, if enacted, could change the tax treatment
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<PAGE> 34
of the policies. It is reasonable to believe that such proposals, and future
proposals, may be enacted into law. In addition, the U.S. Treasury Department
may amend existing regulations, issue new regulations, or adopt new
interpretations of existing law that may be at variance with its current
positions on these matters. In addition, current state law (which is not
discussed herein), and future amendments to state law, may affect the tax
consequences of the policy.
If the policy owner, insured, or beneficiary or other person receiving any
benefit or interest in or from the policy is not both a resident and citizen of
the United States, there may be a tax imposed by a foreign country, in addition
to any tax imposed by the United States. The foreign law (including regulations,
rulings, and case law) may change and impose additional taxes on the policy, the
death proceeds, or other distributions and/or ownership of the policy, or a
treaty may be amended and all or part of the favorable treatment may be
eliminated.
Any or all of the foregoing may change from time to time without any notice, and
the tax consequences arising out of a policy may be changed retroactively. There
is no way of predicting if, when, or to what extent any such change may take
place. No representation is made as to the likelihood of the continuation of
these current laws, interpretations, and policies.
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<PAGE> 35
The foregoing is a general explanation as to certain tax matters pertaining to
insurance policies. It is not intended to be legal or tax advice, and should not
take the place of your independent legal, tax and/or financial advisor.
LEGAL CONSIDERATIONS
On July 6, 1983, the U.S. Supreme Court held in Arizona Governing Committee v.
Norris that certain annuity benefits provided by employers' retirement and
fringe benefit programs may not vary between men and women on the basis of sex.
This decision applies only to benefits derived from premiums made on or after
August 1, 1983. The policies offered by this prospectus are based upon actuarial
tables which distinguish between men and women. Thus the policies provide
different benefits to men and women of the same age. Accordingly, employers and
employee organizations should consider, in consultation with legal counsel, the
impact of Norris on any employment related insurance or benefit program before
purchasing this policy.
STATE REGULATION
Nationwide is subject to the laws of Ohio governing insurance companies and to
regulation by the Ohio Insurance Department. An annual statement in a prescribed
form is filed with the Insurance Department each year covering the operation of
Nationwide for the preceding year and its financial condition as of the end of
such year. Regulation by the Insurance Department includes periodic examination
to determine Nationwide's contract liabilities and reserves so that the
Insurance Department may certify the items are correct. Nationwide's books and
accounts are subject to review by the Insurance Department at all times and a
full examination of its operations is conducted periodically by the National
Association of Insurance Commissioners. Such regulation does not, however,
involve any supervision of management or investment practices or policies. In
addition, Nationwide is subject to regulation under the insurance laws of other
jurisdictions in which it may operate.
REPORTS TO POLICY OWNERS
Nationwide will mail to the policy owner at the last known address of record:
- an annual statement containing: the amount of the current death benefit,
cash value, cash surrender value, premiums paid, monthly charges deducted,
amounts invested in the fixed account and the sub-accounts, and policy
indebtedness;
- annual and semi-annual reports containing all applicable information and
financial statements or their equivalent, which must be sent to the
underlying mutual fund beneficial shareholders as required by the rules
under the Investment Company Act of 1940 for the variable account; and
- statements of significant transactions, such as changes in specified
amount, changes in death benefit options, changes in future premium
allocations, transfers among sub-accounts, premium payments, loans, loan
repayments, reinstatement and termination.
ADVERTISING
Nationwide is ranked and rated by independent financial rating services,
including Moody's, Standard & Poor's and A.M. Best Company. The purpose of these
ratings is to reflect the financial strength or claims-paying ability of
Nationwide. The ratings are not intended to reflect the investment experience or
financial strength of the variable account. Nationwide may advertise these
ratings from time to time. In addition, Nationwide may include in certain
advertisements, endorsements in the form of a list of organizations, individuals
or other parties which recommend Nationwide or the policies. Furthermore,
Nationwide may occasionally include in advertisements comparisons of currently
taxable and tax deferred investment programs, based on selected tax brackets, or
discussions of alternative investment vehicles and general economic conditions.
32
<PAGE> 36
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 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. 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 distributors, Waddell & Reed, Inc. and NISC, are not engaged in any
litigation of any material nature.
EXPERTS
The audited financial statements have been included herein in reliance upon the
reports of KPMG LLP, independent certified public accountants, and upon the
authority of said firm as experts in accounting and auditing.
REGISTRATION STATEMENT
A registration statement has been filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, with respect to the
policies offered hereby. This
33
<PAGE> 37
prospectus does not contain all the information set forth in the Registration
Statement and amendments thereto and exhibits filed as a part thereof, to all of
which reference is hereby made for further information concerning the variable
account, Nationwide, and the policies offered hereby. Statements contained in
this prospectus as to the content of policies and other legal instruments are
summaries. For a complete statement of the terms thereof, reference is made to
such instruments as filed.
DISTRIBUTION OF THE POLICIES
The policies will be sold by licensed insurance agents in those states where the
policies may lawfully be sold. Agents are registered representatives of broker
dealers registered under the Securities Exchange Act of 1934 who are member
firms of the National Association of Securities Dealers, Inc. ("NASD"). The
policies will be distributed by the general distributors, NISC and Waddell &
Reed, Inc. NISC was organized as an Oklahoma corporation in 1974. NISC is a
wholly owned subsidiary of Nationwide and a member of the NASD. Waddell & Reed,
Inc. was organized as a Delaware corporation in 1981.
NISC acts as general distributor for the following separate accounts, all of
which are separate investment accounts of Nationwide or its affiliates:
- Nationwide Multi-Flex Variable Account;
- Nationwide VLI Separate Account-2;
- Nationwide VLI Separate Account-3;
- Nationwide VLI Separate Account-4;
- Nationwide VLI Separate Account-5;
- Nationwide Variable Account;
- Nationwide Variable Account-II;
- Nationwide Variable Account-5;
- Nationwide Variable Account-6;
- Nationwide Variable Account-8;
- Nationwide Variable Account-9;
- Nationwide Variable Account-10;
- Nationwide Variable Account-11;
- Nationwide VA Separate Account-A;
- Nationwide VA Separate Account-B;
- Nationwide VA Separate Account-C;
- Nationwide VL Separate Account-A;
- Nationwide VL Separate Account-B;
- Nationwide VL Separate Account-C;
- Nationwide VL Separate Account-D;
- NACo Variable Account;
- Nationwide DC Variable Account; and the ;
- Nationwide DCVA II.
Waddell & Reed, Inc. acts as general distributor for the following investment
companies:
WADDELL & REED ADVISORS FUNDS
WADDELL & REED ADVISORS FUNDS, INC.*
- Waddell & Reed Advisors Accumulative Fund
- Waddell & Reed Advisors Bond Fund
- Waddell & Reed Advisors Income Fund
- Waddell & Reed Advisors Science and Technology Fund
- Waddell & Reed Advisors Asset Strategy Fund, Inc.
- Waddell & Reed Advisors Cash Management, Inc.
- Waddell & Reed Advisors Continental Income Fund, Inc.
- Waddell & Reed Advisors Government Securities Fund, Inc.
- Waddell & Reed Advisors High Income Fund, Inc.
- Waddell & Reed Advisors High Income Fund II, Inc.
- Waddell & Reed Advisors International Growth Fund, Inc.
- Waddell & Reed Advisors Municipal Bond Fund, Inc.
- Waddell & Reed Advisors Municipal High Income Fund, Inc.
- Waddell & Reed Advisors New Concepts Fund, Inc.
- Waddell & Reed Advisors Retirement Shares, Inc.
- Waddell & Reed Advisors Small Cap Fund, Inc.
- Waddell & Reed Advisors Tax-Managed Equity Fund, Inc.
- Waddell & Reed Advisors Vanguard Fund, Inc.
34
<PAGE> 38
W&R FUNDS, INC.*
- Asset Strategy Fund
- International Growth Fund
- Large Cap Growth Fund
- Mid Cap Growth Fund
- Science and Technology Fund
- Small Cap Growth Fund
- Tax-Managed Equity Fund
- Total Return Fund
W&R TARGET FUNDS, INC.
- Asset Strategy Portfolio
- Balanced Portfolio
- Bond Portfolio
- Core Equity Portfolio
- Growth Portfolio
- High Income Portfolio
- Income Portfolio
- International Growth Portfolio
- Large Cap Growth Portfolio
- Mid Cap Growth Portfolio
- Science and Technology Portfolio
- Small Cap Growth Portfolio
- Tax-Managed Equity Portfolio
- Total Return Portfolio
* Indicates series fund.
Gross first year commissions plus any expense allowance payments paid by
Nationwide on the sale of these policies provided by the General Distributor
will not exceed 99% of the target premium plus 4% of any excess premium
payments. Gross renewal commissions in years 2 through 10 paid by Nationwide
will not exceed 4% of actual premium payment, and will not exceed 2% in policy
years 11 and thereafter.
No underwriting commissions have been paid by Nationwide to NISC or Waddell &
Reed, Inc.
35
<PAGE> 39
WADDELL &REED, INC. DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
POSITIONS AND OFFICES
NAME AND BUSINESS ADDRESS WITH UNDERWRITER
------------------------------------------------------------------------------------------------------------------
<S> <C>
Keith A. Tucker Director, Chairman of the Board
6300 Lamar Ave.
Overland Park, KS 66202
------------------------------------------------------------------------------------------------------------------
Robert L. Hechler Director, President, Chief Executive Officer,
6300 Lamar Ave. Principal Financial Officer and Treasurer
Overland Park, KS 66202
------------------------------------------------------------------------------------------------------------------
Henry J. Hermann Director
6300 Lamar Ave.
Overland Park, KS 66202
------------------------------------------------------------------------------------------------------------------
Robert J. Williams Executive Vice President and
6300 Lamar Ave. National Sales Manager
Overland Park, KS 66202
------------------------------------------------------------------------------------------------------------------
Thomas W. Butch Executive Vice President and
6300 Lamar Ave. Chief Marketing Officer
Overland Park, KS 66202
------------------------------------------------------------------------------------------------------------------
Daniel C. Schulte Senior Vice President, Secretary and
6300 Lamar Ave. Chief Legal Officer
Overland Park, KS 66202
------------------------------------------------------------------------------------------------------------------
</TABLE>
KEITH A. TUCKER - Chairman of the Board of Directors of the registered
investment companies for which Waddell & Reed, Inc. serves as principal
underwriter; Chairman of the Board of Directors, Chief Executive Officer and
Director of Waddell & Reed Financial, Inc.; President, Chairman of the Board of
Directors and Chief Executive Officer of Waddell & Reed Financial Services,
Inc.; Chairman of the Board of Directors of Waddell & Reed Investment Management
Company (WRIMCO), Waddell & Reed, Inc. and Waddell & Reed Services Company;
formerly, President of each of the registered investment companies for which
Waddell & Reed, Inc. serves as principal underwriter; formerly, Chairman of the
Board of Directors of Waddell & Reed Asset Management Company, a former
affiliate of Waddell & Reed Financial, Inc. Date of birth: February 11, 1945.
ROBERT L HECHLER - President and Principal Financial Officer of the registered
investment companies for which Waddell & Reed, Inc. serves as principal
underwriter; Executive Vice President, Chief Operating Officer and Director of
Waddell & Reed Financial, Inc.; Executive Vice President, Chief Operating
Officer, Director and Treasurer of Waddell & Reed Financial Services, Inc.;
Executive Vice President, Principal Financial Officer, Director and Treasurer of
WRIMCO; President, Chief Executive Officer, Principal Financial Officer,
Director and Treasurer of Waddell & Reed, Inc.; Director and Treasurer of
Waddell & Reed Services Company; Chairman, Chief Executive Officer, President
and Director of Fiduciary Trust Company of New Hampshire, an affiliate of
Waddell & Reed, Inc.; Director of Legend Group Holdings, LLC, Legend Advisory
Corporation, Legend Equities Corporation, Advisory Services Corporation, The
Legend Group, Inc. and LEC Insurance Agency, Inc., affiliates of Waddell & Reed
Financial, Inc.; formerly, Vice President of each of the funds in the Fund
Complex; formerly, Director and Treasurer of Waddell & Reed Asset Management
Company; formerly, President of Waddell & Reed Services Company. Date of birth:
November 12, 1936.
36
<PAGE> 40
HENRY J. HERRMANN - Executive Vice President of the registered investment
companies for which Waddell & Reed, Inc. serves as principal underwriter;
President, Chief Investment Officer, and Director of Waddell & Reed Financial,
Inc.; Vice President, Chief Investment Officer and Director of Waddell & Reed
Financial Services, Inc.; Director of Waddell & Reed, Inc.; President, Chief
Executive Officer, Chief Investment Officer and Director of WRIMCO; Chairman of
the Board of Directors of Austin, Calvert & Flavin, Inc., an affiliate of
WRIMCO; formerly, President, Chief Executive Officer, Chief Investment Officer
and Director of Waddell & Reed Asset Management Company. Date of birth: December
8, 1942.
ROBERT J. WILLIAMS - Senior Vice President of Waddell & Reed Financial, Inc.;
Vice President and National Sales Manager of Waddell & Reed Financial Services,
Inc.; Executive Vice President and National Sales Manager of Waddell & Reed,
Inc.; President and Director of W & R Insurance Agency, Inc. (and eight other
state-specific insurance agencies). Date of birth: March 21, 1944.
THOMAS W. BUTCH - Senior Vice President and Chief Marketing Officer of Waddell &
Reed Financial, Inc.; Executive Vice President and Chief Marketing Officer of
Waddell & Reed, Inc. Date of birth: December 16, 1956.
DANIEL C. SCHULTE - Vice President, Assistant Secretary and General Counsel of
the registered investment companies for which Waddell & Reed, Inc. serves as
principal underwriter; Vice President, Secretary and General Counsel of Waddell
& Reed Financial, Inc.; Senior Vice President, Secretary and Director of Waddell
& Reed Financial Services, Inc. and Waddell & Reed Services Company; Senior Vice
President, Secretary and General Counsel of Waddell & Reed, Inc. and WRIMCO;
Vice President, Secretary and Director of W & R Insurance Agency, Inc. (and
eight other state-specific insurance agencies); Assistant Secretary and General
Counsel of Austin, Calvert & Flavin, Inc. Date of birth: December 8, 1965.
<TABLE>
<CAPTION>
NATIONWIDE INVESTMENT SERVICES CORPORATION DIRECTORS AND OFFICERS
------------------------------------------------------------------------------------------------------------------
POSITIONS AND OFFICES
NAME AND BUSINESS ADDRESS WITH UNDERWRITER
------------------------------------------------------------------------------------------------------------------
<S> <C>
Joseph J. Gasper Chairman of the Board and Director
One Nationwide Plaza
Columbus, OH 43215
------------------------------------------------------------------------------------------------------------------
W. G. Jurgensen Chairman and Chief Executive Officer and Director
One Nationwide Plaza
Columbus, OH 43215
------------------------------------------------------------------------------------------------------------------
Richard A. Karas Vice Chairman and Director
One Nationwide Plaza
Columbus, OH 43215
------------------------------------------------------------------------------------------------------------------
Duane C. Meek President
One Nationwide Plaza
Columbus, OH 43215
------------------------------------------------------------------------------------------------------------------
Philip C. Gath Director
One Nationwide Plaza
Columbus, OH 43215
------------------------------------------------------------------------------------------------------------------
Susan A. Wolken Director
One Nationwide Plaza
Columbus, OH 43215
------------------------------------------------------------------------------------------------------------------
</TABLE>
37
<PAGE> 41
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
POSITIONS AND OFFICES
NAME AND BUSINESS ADDRESS WITH UNDERWRITER
------------------------------------------------------------------------------------------------------------------
<S> <C>
Robert A. Oakley Executive Vice President - Chief Financial Officer
One Nationwide Plaza
Columbus, OH 43215
------------------------------------------------------------------------------------------------------------------
Robert J. Woodward, Jr. Executive Vice President - Chief Investment Officer
One Nationwide Plaza
Columbus, OH 43215
------------------------------------------------------------------------------------------------------------------
Mark R. Thresher Senior Vice President and Treasurer
One Nationwide Plaza
Columbus, OH 43215
------------------------------------------------------------------------------------------------------------------
Barbara J. Shane Vice President - Compliance Officer
Two Nationwide Plaza
Columbus, OH 43215
------------------------------------------------------------------------------------------------------------------
Alan A. Todryk Vice President - Taxation
One Nationwide Plaza
Columbus, OH 43215
------------------------------------------------------------------------------------------------------------------
Glenn W. Soden Associate Vice President and Secretary
One Nationwide Plaza
Columbus, OH 43215
------------------------------------------------------------------------------------------------------------------
John F. Delaloye Assistant Secretary
One Nationwide Plaza
Columbus, OH 43215
------------------------------------------------------------------------------------------------------------------
E. Gary Berndt Assistant Treasurer
One Nationwide Plaza
Columbus, OH 43215
------------------------------------------------------------------------------------------------------------------
Duane M. Campbell Assistant Treasurer
One Nationwide Plaza
Columbus, OH 43215
------------------------------------------------------------------------------------------------------------------
Terry C. Smetzer Assistant Treasurer
One Nationwide Plaza
Columbus, OH 43215
------------------------------------------------------------------------------------------------------------------
</TABLE>
ADDITIONAL INFORMATION ABOUT NATIONWIDE
The life insurance business, including annuities, is the only business in which
Nationwide is engaged.
Nationwide markets its policies through independent insurance brokers, general
agents, and registered representatives of registered NASD broker/dealer firms.
Nationwide serves as depositor for the following separate investment accounts,
each of which is a registered investment company:
- Nationwide VA Separate Account - A
- Nationwide VA Separate Account - B
- Nationwide VA Separate Account - C
- Nationwide VL Separate Account - A
- Nationwide VL Separate Account - B
- Nationwide VL Separate Account - C
- Nationwide VL Separate Account - D
Nationwide, in common with other insurance companies, is subject to regulation
and supervision by the regulatory authorities of the states in which it is
licensed to do business. A license from the state insurance department is a
prerequisite to the transaction of insurance business in that state. In general,
all states have statutory administrative powers. Such regulation relates, among
other things, to licensing of insurers and their agents, the approval of policy
forms, the methods of
38
<PAGE> 42
computing reserves, the form and content of statutory financial statements, the
amount of policyholders' and stockholders' dividends, and the type of
distribution of investments permitted.
Nationwide operates in the highly competitive field of life insurance. There are
approximately 2,300 stock, mutual and other types of insurers in the life
insurance business in the United States, and a large number of them compete with
the registrant in the sale of insurance policies.
As is customary in insurance company groups, employees are shared with the other
insurance companies in the group. In addition to its direct salaried employees,
Nationwide shares employees with Nationwide Life Insurance Company, Nationwide
Mutual Insurance Company and Nationwide Mutual Fire Insurance Company.
Nationwide does not presently own or lease any materially important physical
properties when its property holdings are viewed in relation to its total
assets. Nationwide shares its home office, other facilities and equipment with
Nationwide Mutual Insurance Company.
COMPANY MANAGEMENT
Nationwide Life Insurance Company and Nationwide Life and Annuity Insurance
Company, together with Nationwide Mutual Insurance Company, Nationwide Mutual
Fire Insurance Company, Nationwide Property and Casualty Insurance Company and
Nationwide General Insurance Company and their affiliated companies comprise the
Nationwide group of companies. The companies listed above have substantially
common boards of directors and officers.
Nationwide Financial Services, Inc. ("NFS") is the sole shareholder of
Nationwide Insurance Company. Nationwide Life and Annuity Insurance Company is a
wholly-owned subsidiary of Nationwide Life Insurance Company. NFS serves as a
holding company for other financial institutions. Nationwide Life Insurance
Company is the sole owner of Nationwide Life and Annuity Insurance Company.
Each of the directors and officers listed below is a director or officer
respectively of at least one or more of the other major insurance affiliates of
the Nationwide group of companies. Messrs. Jurgensen, Gasper, and Ms. Breit are
also trustees of one or more of the registered investment companies distributed
by NISC, a registered broker-dealer affiliated with the Nationwide group of
companies.
<TABLE>
<CAPTION>
DIRECTORS OF NATIONWIDE
----------------------------------------------------------------------------------------------------------------------
DIRECTORS OF THE DEPOSITOR NAME AND POSITIONS AND OFFICES PRINCIPAL OCCUPATION
PRINCIPAL BUSINESS ADDRESS WITH DEPOSITOR
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Lewis J. Alphin Director Farm Owner and Operator, Bell Farms (1)
519 Bethel Church Road
Mount Olive, NC 28365-6107
----------------------------------------------------------------------------------------------------------------------
A. I. Bell Director Farm Owner and Operator (1)
4121 North River Road West
Zanesville, OH 43701
----------------------------------------------------------------------------------------------------------------------
Nancy C. Breit Director Co-owner, Thomas Farms (2)
1767D Westwood Avenue
Alliance, OH 44601
----------------------------------------------------------------------------------------------------------------------
Yvonne M. Curl Director Senior Vice President and General Manager, Public
Xerox Corporation Sector Worldwide/Document Solutions Group
Suite 200 Operations, Xerox Corporation (2)
1401 H Street NW
Washington, DC 20007
----------------------------------------------------------------------------------------------------------------------
</TABLE>
39
<PAGE> 43
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
DIRECTORS OF THE DEPOSITOR NAME AND POSITIONS AND OFFICES PRINCIPAL OCCUPATION
PRINCIPAL BUSINESS ADDRESS WITH DEPOSITOR
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Kenneth D. Davis Director Farm Owner and Operator (1)
7229 Woodmansee Road
Leesburg, OH 45135
----------------------------------------------------------------------------------------------------------------------
Keith W. Eckel Director Partner, Fred W. Eckel Sons; President, Eckel
1647 Falls Road Farms, Inc. (1)
Clarks Summit, PA 18411
----------------------------------------------------------------------------------------------------------------------
Willard J. Engel Director Retired General Manager, Lyon County Co-operative
301 East Marshall Street Oil Company (1)
Marshall, MN 56258
----------------------------------------------------------------------------------------------------------------------
Fred C. Finney Director Owner and Operator, Moreland Fruit Farm; Operator,
1558 West Moreland Road Melrose Orchard (1)
Wooster, OH 44691
----------------------------------------------------------------------------------------------------------------------
Joseph J. Gasper President and Chief President and Chief Operating Officer, Nationwide
One Nationwide Plaza Operating Officer and Life Insurance Company and Nationwide Life and
Columbus, OH 43215 Director Annuity Insurance Company (2)
----------------------------------------------------------------------------------------------------------------------
W. G. Jurgensen Chief Executive Officer Chief Executive Officer
One Nationwide Plaza and Director
Columbus, OH 43215
----------------------------------------------------------------------------------------------------------------------
Dimon R. McFerson Chairman and Director Chairman (2)
One Nationwide Plaza
Columbus, OH 43215
----------------------------------------------------------------------------------------------------------------------
David O. Miller Chairman of the Board and President, Owen Potato Farm, Inc.; Partner, M&M
115 Sprague Drive Director Enterprises (1)
Hebron, OH 43025
----------------------------------------------------------------------------------------------------------------------
Ralph M. Paige Director Executive Director Federation of Southern
Federation of Southern Cooperatives/Land Assistance Fund
Cooperatives/Land Assistance Fund
2769 Church Street
East Point, GA 30344
----------------------------------------------------------------------------------------------------------------------
James F. Patterson Director Vice President, Pattersons, Inc.; President,
8765 Mulberry Road Patterson Farms, Inc. (1)
Chesterland, OH 44026
----------------------------------------------------------------------------------------------------------------------
Arden L. Shisler Director President and Chief Executive Officer, K&B
1356 North Wenger Road Transport, Inc. (1)
Dalton, OH 44618
----------------------------------------------------------------------------------------------------------------------
Robert L. Stewart Director Owner and Operator Sunnydale Farms and Mining (1)
88740 Fairview Road
Jewett, OH 43986
----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Principal occupation for last 5 years.
(2) Prior to assuming this current position, held other executive
management positions with the same or affiliated companies.
Each of the directors is a director of the other major insurance affiliates of
the Nationwide group of companies except Mr. Gasper who is a director only of
Nationwide Life Insurance Company and Nationwide Life and Annuity Insurance
Company. Messrs. Jurgensen and Gasper are directors of NISC, a registered
broker-dealer.
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<PAGE> 44
Messrs. Jurgensen, Miller, Patterson, and Shisler are directors of Nationwide
Financial Services, Inc. Mr. Jurgensen and Ms. Breit are trustees of Nationwide
Mutual Funds, a registered investment company. Messrs. Jurgensen and Gasper are
trustees of Nationwide Separate Account Trust and Nationwide Asset Allocation
Trust, registered investment companies. Mr. Jurgensen is trustee of Financial
Horizons Investment Trust and Nationwide Mutual Funds, registered investment
companies.
EXECUTIVE OFFICERS OF NATIONWIDE
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
OFFICERS OF THE DEPOSITOR OFFICES OF THE DEPOSITOR
NAME AND PRINCIPAL BUSINESS ADDRESS
-------------------------------------------------------------------------------------------------------------------
<S> <C>
Richard D. Headley Executive Vice President - Chief Information Technology Officer
One Nationwide Plaza
Columbus, OH 43215
-------------------------------------------------------------------------------------------------------------------
Michael S. Helfer Executive Vice President - Corporate Strategy
One Nationwide Plaza
Columbus, OH 43215
-------------------------------------------------------------------------------------------------------------------
Donna A. James Executive Vice President - Chief Administrative Officer
One Nationwide Plaza
Columbus, OH 43215
-------------------------------------------------------------------------------------------------------------------
Robert A. Oakley Executive Vice President - Chief Financial Officer
One Nationwide Plaza
Columbus, OH 43215
-------------------------------------------------------------------------------------------------------------------
Robert J. Woodward, Jr. Executive Vice President - Chief Investment Officer
One Nationwide Plaza
Columbus, OH 43215
-------------------------------------------------------------------------------------------------------------------
Charles A. Bryan Senior Vice President - Chief Actuary - Property and Casualty
One Nationwide Plaza
Columbus, OH 43215
-------------------------------------------------------------------------------------------------------------------
John R. Cook, Jr. Senior Vice President - Chief Communications Officer
One Nationwide Plaza
Columbus, OH 43215
-------------------------------------------------------------------------------------------------------------------
David A. Diamond Senior Vice President - Corporate Controller
One Nationwide Plaza
Columbus, OH 43215
-------------------------------------------------------------------------------------------------------------------
Thomas L. Crumrine Senior Vice President
One Nationwide Plaza
Columbus, OH 43215
-------------------------------------------------------------------------------------------------------------------
Philip C. Gath Senior Vice President - Chief Actuary - Nationwide Financial
One Nationwide Plaza
Columbus, OH 43215
-------------------------------------------------------------------------------------------------------------------
Patricia R. Hatler Senior Vice President, General Counsel and Secretary
One Nationwide Plaza
Columbus, OH 43215
-------------------------------------------------------------------------------------------------------------------
David K. Hollingsworth Senior Vice President - Business Development and Sponsor
One Nationwide Plaza Relations
Columbus, OH 43215
-------------------------------------------------------------------------------------------------------------------
David R. Jahn Senior Vice President - Project Management
One Nationwide Plaza
Columbus, OH 43215
-------------------------------------------------------------------------------------------------------------------
Richard A. Karas Senior Vice President - Sales - Financial Services
One Nationwide Plaza
Columbus, OH 43215
-------------------------------------------------------------------------------------------------------------------
</TABLE>
41
<PAGE> 45
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
OFFICERS OF THE DEPOSITOR OFFICES OF THE DEPOSITOR
NAME AND PRINCIPAL BUSINESS ADDRESS
-------------------------------------------------------------------------------------------------------------------
<S> <C>
Gregory S. Lashutka Senior Vice President - Corporate Relations
One Nationwide Plaza
Columbus, OH 43215
-------------------------------------------------------------------------------------------------------------------
Edwin P. McCausland, Jr. Senior Vice President - Fixed Income Securities
One Nationwide Plaza
Columbus, OH 43215
-------------------------------------------------------------------------------------------------------------------
Mark D. Phelan Senior Vice President - Chief Technology Officer
One Nationwide Plaza
Columbus, OH 43215
-------------------------------------------------------------------------------------------------------------------
Douglas C. Robinette Senior Vice President - Claims and Financial Services
One Nationwide Plaza
Columbus, OH 43215
-------------------------------------------------------------------------------------------------------------------
Mark R. Thresher Senior Vice President - Finance - Nationwide Financial
One Nationwide Plaza
Columbus, OH 43215
-------------------------------------------------------------------------------------------------------------------
Richard M. Waggoner Senior Vice President - Operations
One Nationwide Plaza
Columbus, OH 43215
-------------------------------------------------------------------------------------------------------------------
Susan A. Wolken Senior Vice President - Product Management and Nationwide
One Nationwide Plaza Financial Marketing
Columbus, OH 43215
-------------------------------------------------------------------------------------------------------------------
</TABLE>
W. G. JURGENSEN has been a Director and Chief Executive Officer since 2000.
Previously, he was Executive Vice President of Bank One Corporation from 1998 to
May 2000. Prior to Bank One's merger with First Chicago NBD, Mr. Jurgensen
served from 1990 to 1998 as Executive Vice President with First Chicago, leading
various business units. For 17 years Jurgensen was with Norwest Corporation,
beginning as a corporate banking officer and serving in increasingly responsible
roles including president and CEO of Norwest Investment Services and management
of the treasury function. His final post was Executive Vice President-Corporate
Banking.
DIMON R. MCFERSON has been a Director since April 1988 and Chairman since April
1996. He was Chief Executive Officer from April 1996 to 2000. He was elected
Chief Executive Officer in December 1992, and President and Chief Executive
Officer in December 1993. He was President and General Manager of Nationwide
Mutual Insurance Company from April 1988 to April 1991; President and Chief
Operating Officer of Nationwide Mutual Insurance Company from April 1991 to
December 1992; and President and Chief Executive Officer of Nationwide Mutual
Insurance Company from December 1992 to April 1996. Mr. McFerson has been with
Nationwide for 20 years.
JOSEPH J. GASPER has been President and Chief Operating Officer and Director of
Nationwide since April 1996. Previously, he was Executive Vice President -
Property/Casualty Operations of Nationwide Mutual Insurance Company from April
1995 to April 1996. He was Senior Vice President - Property/Casualty Operations
of Nationwide Mutual Insurance Company from September 1993 to April 1995. Prior
to that time, Mr. Gasper held numerous positions within Nationwide. Mr. Gasper
has been with Nationwide for 33 years.
LEWIS J. ALPHIN has been a Director of Nationwide since 1993. Mr. Alphin owns
and operates an 800-acre farm in Mt. Olive, NC. He taught agriculture business
at James Sprunt Community College in Kenansville, NC for more than 22 years
before retiring in 1994. He is the former board chairman of the Cape Fear Farm
Credit Association, a member and former vice president, secretary/treasurer, and
director
42
<PAGE> 46
of the Duplin County Agribusiness Council, and a former board member of the
Southern States Cooperative (1986 to 1993). Mr. Alphin is a member of the Duplin
County Farm Bureau, the North Carolina Farm Bureau, ad the Farm Credit Council.
He is a member and former director of the Oak Wolfe Fire Department.
A. I. BELL has been a Director of Nationwide since April, 1998. Mr. Bell has
served as a state trustee of the Ohio Farm Bureau Federation from 1991 to 1998
and as president that last four years. He oversees the Bell family farm in
Zanesville, Ohio. The farm is the hub of a multi-family swine network, in
addition to grain and beef operations. Mr. Bell has represented the Ohio Farm
Bureau at state and national level activities, and has traveled internationally
representing Ohio agriculture. In 1995, he was introduced into The Ohio State
University Department of Animal Sciences Hall of Fame.
NANCY C. BREIT has been a Director of Nationwide since 1986. Mrs. Thomas is a
board member of Farm Credit Services' 4th District and serves on the advisory
board of Walsh University in North Canton, OH. She is a past president and
former director of the Ohio Agricultural Marketing Association and served on the
boards of the Ohio Farm Bureau Federation and Landmark, Inc., a farm supply
cooperative which is now part of Indianapolis-based Countrymark, and as the
Midwest regional representative on the American Farm Bureau women's committee.
CHARLES A. BRYAN has been a Senior Vice President - Chief Actuary - Property and
Casualty since 1998. Prior to joining Nationwide, Mr. Bryan was president, Chief
Operating Officer of Direct Response Corporation from 1996 to 1998. Prior to
that time, Mr. Bryan was a partner with Ernst & Young.
JOHN R. COOK, JR. has been Senior Vice President - Chief Communications Officer
since May 1997. Previously, Mr. Cook was Senior Vice President - Chief
Communications Officer of USAA from July 1989 to May 1997. Mr. Cook has been
with Nationwide for 2 years.
YVONNE M. CURL has been a Director of Nationwide since April, 1998. Ms.
Montgomery is senior vice president/general manager - Public Sector
Worldwide/Document Solutions Group for Xerox Corporation. A resident of
Washington, DC, Ms. Montgomery is in charge of providing an integrated,
industry-focused portfolio of document solutions and services to the public
sector worldwide. Ms. Montgomery joined Xerox in 1976 as a sales representative
and progressed through management positions, including vice president-field
operations and executive assistant to the chairman and CEO.
KENNETH D. DAVIS has been a Director of Nationwide since April 1999. Mr. Davis
is the immediate past president of the Ohio Farm Bureau Federation. He served as
a member of the Ohio Farm Bureau Federation's board of trustees from 1989 until
1999. He served as first vice president of the board from 1994 until 1998. Mr.
Davis serves on the board of directors of his local rural electric cooperatives
and is a member of many agriculture organizations including the Ohio Corn
Growers, Ohio Cattlemen's and Ohio Soybean associations.
DAVID A. DIAMOND has been Senior Vice President - Corporate Controller since
August 1999. He was Vice President-Controller from August 1996 to August 1999.
Previously, he was Vice President - Controller from October 1993 to August 1996.
Prior to that time, Mr. Diamond held several positions within Nationwide. Mr.
Diamond has been with Nationwide for 11 years.
KEITH W. ECKEL has been a Director of Nationwide since April 1996. Mr. Eckel is
a partner of Fred W. Eckel Sons and president of Eckel Farms, Inc. in northeast
Pennsylvania. He received the Master Farmer award from Penn State University in
1982. Mr. Eckel is a member of the Pennsylvania Agricultural Land Preservation
Board. He is a former president of the Pennsylvania Farm Bureau, a position he
held for 15 years, and the Lackawanna County Cooperative Extension Association.
He has
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<PAGE> 47
served as a board member and executive committee member of the American Farm
Bureau Federation. He is a former vice president of the Pennsylvania Council of
Cooperative Extension Associations and former board member of the Pennsylvania
Vegetable Growers Association.
WILLARD J. ENGEL has been a Director of Nationwide since 1994. Mr. Engel served
as general manager of Lyon County Co-Operative Oil Co. in Marshall, MN from 1975
to 1997, and occasionally serves on a consulting basis. He previously was a
division manager of the Truman Farmers Elevator. He is a former director of the
Western Co-op Transport in Montevideo, MN, a former director and legislative
committee chairman of the Northwest Petroleum Association in St. Paul, and a
former director of Farmland Industries in Kansas City.
FRED C. FINNEY has been a Director of Nationwide since 1992. Mr. Finney is the
owner and operator of the Moreland Fruit Farm and operator of Melrose Orchard in
Wooster, OH. He is past president of the Ohio Farm Bureau Federation, the Ohio
Fruit Growers Society, Wayne County Farm Bureau, and the Westwood Ruritan Club.
He is a member of the American Berry Cooperative.
PHILIP C. GATH has been Senior Vice President - Chief Actuary - Nationwide
Financial since May 1998. Previously, Mr. Gath was Vice President - Product
Manager - Individual Variable Annuity from July 1997 to May 1998. Mr. Gath was
Vice President - Individual Life Actuary from August 1989 to July 1997. Prior to
that time, Mr. Gath held several positions within Nationwide. Mr. Gath has been
with Nationwide for 31 years.
PATRICIA R. HATLER has been Senior Vice President, General Counsel and Secretary
since April 2000. Previously, she was Senior Vice President and General Counsel
from July 1999 to April 2000. Prior to that time, she was General Counsel and
Corporate Secretary of Independence Blue Cross from 1983 to July 1999.
MICHAEL S. HELFER has been Executive Vice President - Corporate Strategy since
August 2000. He is a former partner and head of the financial institutions group
at Wilmer, Cutler and Pickering, a 350-lawyer international law firm
headquartered in Washington, D.C. He served as that firm's chairman and chief
executive officer from 1995 to 1998.
DAVID K. HOLLINGSWORTH has been Senior Vice President - Business Development and
Sponsor Relations since July 2000. Previously, he was Senior Vice President -
Multi Channel and Sponsor Relations from August 1999 to July 2000. Previously,
he was Senior Vice President - Marketing from June 1999 to August 1999. Prior to
that time, has held numerous positions within the Nationwide group of companies.
Mr. Hollingsworth has been with Nationwide for 25 years.
DAVID R. JAHN has been Senior Vice President - Project Management since July
2000. Previously, he was Senior Vice President - Commercial Insurance from March
1998 to July 2000. Previously, he was Vice President - Property/Casualty
Operations and Vice President - Resource Management from March 1996 to January
1998. Prior to that time, Mr. Jahn has held numerous positions within the
Nationwide group of companies. Mr. Jahn has been with Nationwide for 28 years.
DONNA A. JAMES has been Executive Vice President - Chief Administrative Officer
since July 2000. Previously, she was Senior Vice President - Chief Human
Resources Officer from May 1999 to July 2000. She was Senior Vice President -
Human Resources from December 1997 to May 1999. Previously she was Vice
President - Human Resources from July 1996 to December 1997. Prior to that time,
Ms. James was Vice President - Assistant to the CEO of Nationwide from March
1996 to July 1996. From May 1994 to March 1996 she was Associate Vice President
- Assistant to the CEO for Nationwide. Previously Ms. James held several
positions within Nationwide. Ms. James has been with Nationwide for 18 years.
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<PAGE> 48
RICHARD D. HEADLEY has been Executive Vice President for Nationwide since July
2000. Previously, he was Executive Vice President - Chief Information Technology
Officer from May 1999 to July 2000. He was Senior Vice President - Chief
Information Technology Officer from October 1997 to May 1999. Previously, Mr.
Headley was Chairman and Chief Executive Officer of Banc One Services
Corporation from 1992 to October 1997. From January 1975 until 1992 Mr. Headley
held several positions with Banc One Corporation. Mr. Headley has been with
Nationwide for 2 years.
RICHARD A. KARAS has been Senior Vice President - Sales - Financial Services
since March 1993. Previously, he was Vice President - Sales - Financial Services
from February 1989 to March 1993. Prior to that time, Mr. Karas held several
positions within Nationwide. Mr. Karas has been with Nationwide for 35 years.
GREGORY S. LASHUTKA has been Senior Vice President - Corporate Relations since
January 2000. Previously, he was the Mayor of the City of Columbus (Ohio) from
January 1992 to December 1999. From January 1986 to December 1991, Mr. Lashutka
was a Partner with Squire, Sanders & Dempsey. From January 1978 to December
1985, he was City Attorney for the City of Columbus (Ohio).
EDWIN P. MCCAUSLAND, JR. has been Senior Vice President - Fixed Income
Securities since 1999. Mr. McCausland has 29 years of experience in insurance
investments beginning his career in 1970 with Connecticut Mutual Life Insurance
Company. He joined Phoenix Mutual Life Insurance Company in 1981 as second Vice
President of Bond Investments and rising to Vice President of Pension
Operations. He was Vice President and Managing Director of Mass Mutual Life
Insurance Company prior to joining Nationwide.
DAVID O. MILLER has been a Director of Nationwide since November 1996. Mr.
Miller has been Chairman of the Board since 1998. Mr. Miller is president of
Owen Potato Farm, Inc. and a partner of M&M Enterprises in Licking County, OH.
He is a director and board chairman of the National Cooperative Business
Association, director of Cooperative Business International and the
International Cooperative Alliance, and serves on the educational executive
committee of the National Council of Farmer Cooperatives. He was president of
the Ohio Farm Bureau Federation from 1981 to 1985 and was vice president for six
years. Mr. Miller served a two year term on the board of the American Farm
Bureau Association. He is past president of the Ohio Vegetable and Potato
Growers Association, and was a director of Landmark, Inc., a farm supply
cooperative which is now part of Indianapolis-based Countrymark.
ROBERT A. OAKLEY has been Executive Vice President - Chief Financial Officer
since April 1995. Previously, he was Senior Vice President - Chief Financial
Officer from October 1993 to April 1995. Prior to that time, Mr. Oakley held
several positions within Nationwide. Mr. Oakley has been with Nationwide for 24
years.
RALPH M. PAIGE has been a Director of Nationwide since April 1999. Mr. Paige has
been the Executive Director of the Federation of Southern Cooperatives/Land
Assistance Fund since 1969. Mr. Paige also served as the National Field
Director/Georgia State Director from 1981 to 1984.
JAMES F. PATTERSON has been a Director of Nationwide since April 1989. Mr.
Patterson is president of Patterson Farms, Inc. and has operated Patterson Fruit
Farm in Chesterland, OH since 1964. Mr. Patterson is on the boards of The Ohio
State University Hospitals Health System in Cleveland, Geauga Hospital, Inc. and
the National Cooperative Business Association. He is past president of the Ohio
Farm Bureau Federation and former member of Cleveland Foundation's Lake and
Geauga Advisory Committees.
MARK D. PHELAN has been Senior Vice President - Chief Technology Officer since
July 2000. Previously, he was Senior Vice President - Technology Services from
1998 to 2000. His
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<PAGE> 49
previous management experience includes five years (1977-1982) with the data
processing division's sales group at IBM Corporation. From 1982 through 1990,
Mr. Phelan served as director of AT&T's Consumer Communications Services Group
and he was subsequently promoted to sales vice president for the Eastern Region
of the Business Communications Services Division. In 1992, he became executive
vice president-sales and marketing for the Electronic Commerce Division of
Checkfree Corporation, a position he held for five years. From 1997 until 1998,
he was in private consulting.
DOUGLAS C. ROBINETTE has been Senior Vice President - Claims and Financial
Services since 1999. Previously, he was Senior Vice President - Marketing and
Product Management from May 1998 to 1999. Previously, Mr. Robinette was
Executive Vice President, Customer Services of Employers Insurance of Wausau
(Wausau), a member of the Nationwide group until December 1998, from September
1996 to May 1998. Prior to that time he was Executive Vice President, Finance
and Insurance Services of Wausau from May 1995 to September 1996. From November
1994 to May 1995 Mr. Robinette was Senior Vice President, Finance and Insurance
Services of Wausau. From May 1993 to November 1994 he was Senior Vice President,
Finance of Wausau. Prior to that time, Mr. Robinette held several positions
within the Nationwide group. Mr. Robinette has been with the Nationwide group
for 13 years.
ARDEN L. SHISLER has been a Director of Nationwide since 1984. Mr. Shisler is
president and chief executive officer of K&B Transport, Inc., a trucking firm in
Dalton, OH. He is a director of the National Cooperative Business Association in
Washington, DC. He is a former board member and vice president of the Ohio Farm
Bureau Federation and past president of the Ohio Agricultural Marketing
Association, an Ohio Farm Bureau Federation subsidiary. He is a member of the
Ohio Trucking Association, the Ohio Trucking Safety Council, the Wayne County
Farm Bureau, Cornerstone Community Church, the Advisory Committee of The Ohio
State University Agriculture Technical Institute and a board member of the
Wilderness Center.
ROBERT L. STEWART has been a Director of Nationwide since 1989. Mr. Stewart is
the owner and operator of Sunnydale Farms and Mining in Jewett, OH. He served on
the board of the Ohio Farm Bureau Federation and as president of the Ohio
Holstein Association board. Mr. Stewart was a director of the Ohio Agricultural
Stabilization and Conservation Service board and Landmark, Inc. a farm supply
cooperative which is now part of Indianapolis-based Countrymark.
MARK R. THRESHER has been Senior Vice President - Finance - Nationwide Financial
since May 1999. He was Vice President - Controller from August 1996 to May 1999.
He was Vice President and Treasurer from November 1996 to February 1997.
Previously, he was Vice President and Treasurer from June 1996 to November 1996.
Prior to joining Nationwide, Mr. Thresher served as a partner with KPMG LLP from
July 1988 to June 1996.
RICHARD M. WAGGONER has been Senior Vice President - Operations since May 1999.
Previously, he was President of Nationwide Services from May 1997 to May 1999.
Prior to that time, Mr. Waggoner has held numerous positions within the
Nationwide group of companies. Mr. Waggoner has been with Nationwide for 23
years.
SUSAN A. WOLKEN has been Senior Vice President - Product Management and
Nationwide Financial Marketing since May 1999. Previously, Ms. Wolken was Senior
Vice President - Life Company Operations from June 1997 to May 1999. She was
Senior Vice President - Enterprise Administration from July 1996 to June 1997.
Prior to that time, she was Senior Vice President - Human Resources from April
1995 to July 1996. From September 1993 to April 1995, Ms. Wolken was Vice
President - Human Resources. From October 1989 to September 1993 she was Vice
President - Individual Life and Health Operations. Ms. Wolken has been with
Nationwide for 25 years.
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ROBERT J. WOODWARD, JR. has been Executive Vice President - Chief Investment
Officer since August 1995. Previously, he was Senior Vice President - Fixed
Income Investments from March 1991 to August 1995. Prior to that time, Mr.
Woodward held several positions within Nationwide. Mr. Woodward has been with
Nationwide for 35 years.
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APPENDIX A: OBJECTIVES FOR UNDERLYING MUTUAL FUNDS
The underlying mutual funds listed below are designed primarily as investment
vehicles for variable annuity contracts and variable life insurance policies
issued by insurance companies.
There is no guarantee that the investment objectives will be met.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
The Fidelity Variable Insurance Products Fund (VIP) is an open-end, diversified,
management investment company organized as a Massachusetts business trust on
November 13, 1981. Shares of VIP are purchased by insurance companies to fund
benefits under variable life insurance policies and variable annuity contracts.
Fidelity Management & Research Company ("FMR") is the manager for VIP and its
portfolios.
VIP EQUITY-INCOME PORTFOLIO: SERVICE CLASS
Investment Objective: Reasonable income by investing primarily in
income-producing equity securities. In choosing these securities FMR also
will consider the potential for capital appreciation. The Portfolio's goal
is to achieve a yield which exceeds the composite yield on the securities
comprising the Standard & Poor's 500 Composite Stock Price Index.
VIP GROWTH PORTFOLIO: SERVICE CLASS
Investment Objective: Capital appreciation. This Portfolio will invest in
the securities of both well-known and established companies, and smaller,
less well-known companies which may have a narrow product line or whose
securities are thinly traded. These latter securities will often involve
greater risk than may be found in the ordinary investment security. FMR's
analysis and expertise plays an integral role in the selection of
securities and, therefore, the performance of the Portfolio. Many
securities which FMR believes would have the greatest potential may be
regarded as speculative, and investment in the Portfolio may involve
greater risk than is inherent in other underlying mutual funds. It is also
important to point out that this Portfolio makes sense for you if you can
afford to ride out changes in the stock market because it invests primarily
in common stocks. FMR can also make temporary investments in securities
such as investment-grade bonds, high-quality preferred stocks and
short-term notes, for defensive purposes when it believes market conditions
warrant.
VIP HIGH INCOME PORTFOLIO: SERVICE CLASS
Investment Objective: High level of current income by investing primarily
in high-risk, lower-rated, high-yielding, fixed-income securities, while
also considering growth of capital. FMR will seek high current income
normally by investing the Portfolio's assets as follows:
- at least 65% in income-producing debt securities and preferred stocks,
including convertible securities
- up to 20% in common stocks and other equity securities when consistent
with the Portfolio's primary objective or acquired as part of a unit
combining fixed-income and equity securities
Higher yields are usually available on securities that are lower-rated or
that are unrated. Lower-rated securities are usually defined as Ba or lower
by Moody's Investor Service, Inc. ("Moody's"); BB or lower by Standard &
Poor's and may be deemed to be of a speculative nature. The Portfolio may
also purchase lower-quality bonds such as those rated Ca3 by Moody's or C-
by Standard & Poor's which provide poor protection for payment of principal
and interest (commonly referred to as "junk bonds"). For a further
discussion of lower-rated securities, please see the "Risks of
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Lower-Rated Debt Securities" section of the Portfolio's prospectus.
VIP OVERSEAS PORTFOLIO: SERVICE CLASS
Investment Objective: Long-term capital growth primarily through
investments in foreign securities. This Portfolio provides a means for
investors to diversify their own portfolios by participating in companies
and economies outside the United States.
NATIONWIDE SEPARATE ACCOUNT TRUST
Nationwide Separate Account Trust ("NSAT") is a diversified open-end management
investment company created under the laws of Massachusetts. NSAT offers shares
in the mutual funds listed below, each with its own investment objectives.
Shares of NSAT will be sold primarily to separate accounts to fund the benefits
under variable life insurance policies and variable annuity contracts issued by
life insurance companies. Effective September 1, 1999, the investment advisory
services previously performed by Nationwide Advisory Services ("NAS") were
transferred to Villanova Mutual Fund Capital Trust ("VMF"), an affiliate of NAS
and an indirect subsidiary of Nationwide Financial Services, Inc. The portfolio
managers and subadvisers for each of the Funds continue to manage the Funds
after the transfer to VMF.
CAPITAL APPRECIATION FUND
Investment Objective: Long-term capital appreciation.
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.
TOTAL RETURN FUND
Investment Objective: To obtain a reasonable, long-term total return on
invested capital.
SUB-ADVISED NATIONWIDE FUNDS
DREYFUS NSAT MID CAP INDEX FUND (FORMERLY NATIONWIDE MID CAP INDEX FUND
NATIONWIDE SELECT ADVISERS MID CAP FUND)
Subadviser: The Dreyfus Corporation
Investment Objective: Capital appreciation. The Fund seeks to match the
performance of the Standard & Poor's MidCap 400 Index. To pursue this
goal, the Fund generally is fully invested in all 400 stocks included in
this index in proportion to their weighting in the index, and in futures
whose performance is tied to the index. The Fund is neither sponsored by
nor affiliated with Standard & Poor's Corporation.
NATIONWIDE SMALL CAP VALUE FUND
Subadviser: The Dreyfus Corporation
Investment Objective: The Fund intends to pursue its investment objective
by investing, under normal market conditions, at least 75% of the Fund's
total assets in equity securities of companies whose equity market
capitalizations at the time of investment are similar to the market
capitalizations of companies in the Russell 2000 Small Stock Index.
NATIONWIDE SMALL COMPANY FUND
Subadvisers: The Dreyfus Corporation, Neuberger Berman, L.P., Lazard
Asset Management and Strong Capital Management, Inc.
Investment Objective: Under normal market conditions, the Fund will
invest at least 65% of its total assets in equity securities of companies
whose equity market capitalizations at the time of investment are similar
to the market capitalizations of companies in the Russell 2000 Small
Stock Index.
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Strong NSAT Mid Cap GROWTH FUND
Subadviser: Strong Capital Management Inc.
Investment Objective: Capital growth by investing primarily in equity
securities that the Fund's subadviser believes have above-average growth
prospects. The Fund will generally invest in companies whose earnings are
believed to be in a relatively strong growth trend, and to a lesser
extent, in companies in which significant further growth is not
anticipated but whose market value is thought to be undervalued. Under
normal market conditions, the Fund will invest at least 65% of its total
assets in equity securities, including common stocks, preferred stocks,
and securities convertible into common or preferred stocks, such as
warrants and convertible bonds. The Fund may invest up to 35% of its
total assets in debt obligations, including intermediate- to long-term
corporate or U.S. Government debt securities.
ONE GROUP(R) INVESTMENT TRUST
One Group Investment Trust is a diversified, open-end management investment
company organized under the laws of Massachusetts by a Declaration of Trust,
dated June 7, 1993. One
Group Investment Trust offers shares in the separate mutual funds (the "Funds")
shown below, each with its own investment objective. The shares of the Funds are
sold to life insurance companies to fund variable annuity contracts and variable
life insurance policies. The assets of One Group Investment Trust are managed by
Banc One Investment Advisors Corporation.
ONE GROUP INVESTMENT TRUST BALANCED PORTFOLIO (FORMERLY ASSET ALLOCATION
FUND)
Investment Objective: The Portfolio seeks to provide total return
while preserving capital.
ONE GROUP INVESTMENT TRUST BOND PORTFOLIO
Investment Objective: The Portfolio seeks to maximize total return by
investing primarily in a diversified portfolio of intermediate and
long-term debt securities.
ONE GROUP INVESTMENT TRUST DIVERSIFIED EQUITY PORTFOLIO
Investment Objective: The Portfolio seeks long-term capital growth and
growth of income with a secondary objective of providing a moderate level
of current income.
ONE GROUP INVESTMENT TRUST DIVERSIFIED MID CAP PORTFOLIO
Investment Objective: The Portfolio seeks long term capital growth by
investing primarily in equity securities of companies with intermediate
capitalizations.
ONE GROUP INVESTMENT TRUST EQUITY INDEX PORTFOLIO
Investment Objective: The Portfolio seeks investment results that
correspond to the aggregated price and dividend performance of securities
in the Standard & Poor's 500 Composite Stock Price Index* ("S&P 500").
*"S&P 500" is a registered service mark of Standard & Poor's Corporation,
which does not sponsor and is in no way affiliated with the Portfolio.
ONE GROUP INVESTMENT TRUST GOVERNMENT BOND PORTFOLIO
Investment Objective: The Portfolio seeks a high level of current income
with liquidity and safety of principal.
ONE GROUP INVESTMENT TRUST LARGE CAP GROWTH PORTFOLIO (FORMERLY LARGE
COMPANY GROWTH FUND)
Investment Objective: The Portfolio seeks long-term capital appreciation
and growth of income by investing primarily in equity securities.
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ONE GROUP INVESTMENT TRUST MID CAP GROWTH PORTFOLIO (FORMERLY GROWTH
OPPORTUNITIES FUND)
Investment Objective: The Portfolio seeks growth of capital and,
secondarily, current income, by investing primarily in equity securities.
Issuers will include medium sized companies with a history of above-average
growth or companies that are expected to enter periods of above-average
growth, and smaller companies which are positioned in emerging growth
industries.
ONE GROUP INVESTMENT TRUST MID CAP VALUE PORTFOLIO
Investment Objective: The Portfolio seeks capital appreciation with the
secondary goal of achieving current income by investing primarily in equity
securities.
W&R TARGET FUNDS, INC.
The Fund is an open-end, diversified management company organized as a Maryland
corporation on December 2, 1986. The Fund sells its shares only to the separate
accounts of participating insurance companies to fund certain variable life
insurance policies and variable annuity contracts. Waddell & Reed Investment
Management Company is the Fund's investment advisor.
ASSET STRATEGY PORTFOLIO
Investment Objective: The Asset Strategy Portfolio seeks high total return
over the long-term. It seeks to achieve its goal by allocating its assets
among stocks, bonds and short-term instruments, both in the United States
and abroad.
BALANCED PORTFOLIO
Investment Objective: The Balanced Portfolio seeks as a primary goal,
current income, with a secondary goal of long-term appreciation of capital.
It invests primarily in a mix of stocks, fixed-income securities and cash,
depending on market conditions.
BOND PORTFOLIO
Investment Objective: The Bond Portfolio seeks a reasonable return with
emphasis on preservation of capital. It seeks to achieve its goal by
investing primarily in domestic debt securities, usually of investment
grade.
CORE EQUITY PORTFOLIO
Investment Objective: The Core Equity Portfolio seeks capital growth and
income. It seeks to achieve its goals by investing primarily in common
stocks of large U.S. and foreign companies that have a record of paying
regular dividends on common stock or have the potential for capital
appreciation, or are expected to resist market decline.
GROWTH PORTFOLIO
Investment Objective: The Growth Portfolio seeks capital growth, with a
secondary goal of current income. It seeks to achieve its goal by
investing primarily in common stocks, of U.S. and foreign companies.
HIGH INCOME PORTFOLIO
Investment Objective: The High Income Portfolio seeks as a primary goal,
high current income with a secondary goal of capital growth. It seeks to
achieve its goals by investing primarily in high-yield, high-risk,
fixed-income securities of U.S. and foreign issuers, the risks of which are
consistent with the Portfolio's goals.
INTERNATIONAL PORTFOLIO
Investment Objective: The International Portfolio seeks as a primary goal,
long-term appreciation of capital, with a secondary goal of current income.
It seeks to achieve its goals by investing primarily in common stocks of
foreign companies that may have the potential for long-term growth.
LIMITED-TERM BOND PORTFOLIO
Investment Objective: The Limited-Term Bond Portfolio seeks a high level of
current income consistent with preservation of capital. It seeks to achieve
its goal by investing primarily in investment-grade debt
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securities of U.S. issuers, including U.S. Government securities.
MONEY MARKET PORTFOLIO
Investment Objective: The Money Market Portfolio seeks current income
consistent with stability of principal. It seeks to achieve it goal by
investing in U.S. dollar-denominated high quality money market obligations
and instruments.
SCIENCE AND TECHNOLOGY PORTFOLIO
Investment Objective: The Science and Technology Portfolio seeks long-term
capital growth. It seeks to achieve its goals by concentrating its
investments primarily science and technology equity securities of U.S. and
foreign companies.
SMALL CAP PORTFOLIO
Investment Objective: The Small Cap Portfolio seeks capital growth. It
seeks to achieve its goal by investing primarily in common stocks of
companies that are relatively new or unseasoned, companies in their early
stages of development, or smaller companies positioned in new or in
emerging industries where the opportunity for rapid growth is above
average.
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APPENDIX B: ILLUSTRATIONS OF CASH VALUES, CASH SURRENDER VALUES,
AND DEATH BENEFITS FOR ONE GROUP SURVIVORSHIP LIFE INSURANCE POLICIES
The illustrations in this prospectus have been prepared to help show how values
under the polices change with investment performance. The illustrations
demonstrate how cash values, cash surrender values and death benefits under a
policy would vary over time if the hypothetical gross investment rates of return
were a uniform annual effective rate of either 0%, 6% or 12%. If the
hypothetical gross investment rate of return averages 0%, 6% or 12% over a
period of years, but fluctuates above or below those averages for individual
years, the cash values,, cash surrender values and death benefits may be
different.
For hypothetical returns of 0% and 6%, the illustrations also illustrate when
the policies would go into default, at which time additional premium payments
would be required to continue the policy in force. The illustrations also assume
there is not policy indebtedness, no additional premium payments are made, no
cash values are allocated to the fixed account, and there are no changes in the
specified amount or death benefit option.
The amounts shown for the cash value, cash surrender value and death benefit as
of each policy anniversary reflect the fact that the net investment return on
the assets held in the variable account sub-accounts is lower than the gross
return. This is due to the deduction of underlying mutual fund investment
advisory fees and other expenses which are equivalent to an annual effective
rate of 0.84%. This effective rate is based on the average of the fund expenses,
after expense reimbursement, for the preceding year for all mutual fund options
available under the policy as of May 1, 2000. Some underlying mutual funds are
subject to expense reimbursements and fee waivers. Absent expense reimbursements
and fee waivers, the annual effective rate would have been 0.93%. Nationwide
anticipates that the expense reimbursement and fee waiver arrangements will
continue past the current year. Should there be an increase or decrease in the
expense reimbursements and fee waivers of these underlying mutual funds, such
change will be reflected in the net asset value of the corresponding underlying
mutual fund.
Taking into account the underlying mutual fund expenses, gross annual rates of
return of 0%, 6% and 12% correspond to net investment experience at constant
annual rates of -0.84%, 5.16% and 11.16%, respectively.
The illustrations also reflect the fact that Nationwide makes monthly charges
for providing insurance protection. Current values reflect current cost of
insurance charges and guaranteed values reflect the maximum cost of insurance
charges guaranteed in the policy. The values shown are for policies which are
issued as standard. Policies issued on a substandard basis would result in lower
cash values and death benefits than those illustrated. Death benefit Option 1
has been assumed in all the illustrations.
The illustrations reflect that Nationwide deducts a sales load as well as
charges for state premium and federal taxes, from each premium payment. The
illustrations reflect the fact that no charges for federal or state income taxes
are currently made against the variable account. If such a charge is made in the
future, it will require a higher gross investment return than illustrated in
order to produce the net after-tax returns shown in the illustrations.
In addition, the illustrations reflect the fact that Nationwide deducts a
monthly administrative charge at the beginning of each policy month. The
illustrations also reflect that Nationwide deducts a monthly charge to assume
mortality and expense risks. This mortality and expense risk charge is assessed
at the beginning of each policy month and is calculated as a percentage of the
assets of the variable account only.
Policy charges on policies issued for delivery in the State of New York will
vary (see "Deductions and Charges") and thereby affect the illustrations.
The cash surrender values shown in the illustrations reflect that Nationwide
will deduct a
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<PAGE> 57
surrender charge from the policy's cash value for any policy surrendered in
the first nine years.
Upon request, Nationwide will furnish a comparable illustration based on the
proposed insureds' age, sex, smoking classification, rating classification and
premium payment requested.
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$12,150 ANNUAL PREMIUM: $1,000,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO PREFERRED, ISSUE AGE 55 FEMALE: NON-TOBACCO PREFERRED, ISSUE
AGE 55
OPTION 1 CURRENT VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
----------------------- ----------------------- -----------------------
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- ----- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 12,758 8,467 0 1,000,000 9,057 0 1,000,000 9,647 0 1,000,000
2 26,153 16,756 6,870 1,000,000 18,460 8,574 1,000,000 20,237 10,351 1,000,000
3 40,218 24,789 15,892 1,000,000 28,152 19,255 1,000,000 31,800 22,903 1,000,000
4 54,986 35,307 27,398 1,000,000 40,969 33,061 1,000,000 47,346 39,438 1,000,000
5 70,493 45,505 38,585 1,000,000 54,198 47,278 1,000,000 64,355 57,435 1,000,000
6 86,775 55,348 49,417 1,000,000 67,819 61,887 1,000,000 82,947 77,015 1,000,000
7 103,872 64,788 59,845 1,000,000 81,801 76,859 1,000,000 103,244 98,301 1,000,000
8 121,823 73,759 69,805 1,000,000 96,097 92,143 1,000,000 125,371 121,417 1,000,000
9 140,671 82,180 79,214 1,000,000 110,639 107,673 1,000,000 149,453 146,488 1,000,000
10 160,462 89,957 89,957 1,000,000 125,349 125,349 1,000,000 175,627 175,627 1,000,000
11 181,243 97,738 97,738 1,000,000 140,886 140,886 1,000,000 204,780 204,780 1,000,000
12 203,063 105,402 105,402 1,000,000 157,167 157,167 1,000,000 237,109 237,109 1,000,000
13 225,973 112,950 112,950 1,000,000 174,230 174,230 1,000,000 272,989 272,989 1,000,000
14 250,030 120,382 120,382 1,000,000 192,116 192,116 1,000,000 312,874 312,874 1,000,000
15 275,289 127,700 127,700 1,000,000 210,868 210,868 1,000,000 357,224 357,224 1,000,000
16 301,810 134,903 134,903 1,000,000 230,533 230,533 1,000,000 406,546 406,546 1,000,000
17 329,658 141,994 141,994 1,000,000 251,159 251,159 1,000,000 461,409 461,409 1,000,000
18 358,899 148,972 148,972 1,000,000 272,833 272,833 1,000,000 522,449 522,449 1,000,000
19 389,601 155,838 155,838 1,000,000 295,620 295,620 1,000,000 590,371 590,371 1,000,000
20 421,839 162,593 162,593 1,000,000 319,583 319,583 1,000,000 665,965 665,965 1,000,000
21 455,688 169,298 169,298 1,000,000 344,849 344,849 1,000,000 750,176 750,176 1,000,000
22 491,230 175,475 175,475 1,000,000 371,094 371,094 1,000,000 843,819 843,819 1,000,000
23 528,549 180,735 180,735 1,000,000 398,095 398,095 1,000,000 948,035 948,035 1,000,000
24 567,734 184,897 184,897 1,000,000 425,805 425,805 1,000,000 1,063,892 1,063,892 1,117,087
25 608,878 187,749 187,749 1,000,000 454,178 454,178 1,000,000 1,192,306 1,192,306 1,251,922
26 652,080 189,041 189,041 1,000,000 483,168 483,168 1,000,000 1,334,603 1,334,603 1,401,333
27 697,441 188,488 188,488 1,000,000 512,743 512,743 1,000,000 1,492,240 1,492,240 1,566,852
28 745,071 185,758 185,758 1,000,000 542,882 542,882 1,000,000 1,666,816 1,666,816 1,750,156
29 795,082 180,459 180,459 1,000,000 573,585 573,585 1,000,000 1,860,079 1,860,079 1,953,083
30 847,594 172,113 172,113 1,000,000 604,872 604,872 1,000,000 2,073,940 2,073,940 2,177,637
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATION CAN BE MADE BY NATIONWIDE LIFE OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
55
<PAGE> 59
$14,000 ANNUAL PREMIUM: $1,000,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO PREFERRED, ISSUE AGE 55 FEMALE: NON-TOBACCO PREFERRED, ISSUE
AGE 55
OPTION 2 CURRENT VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
----------------------- ----------------------- -----------------------
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- ----- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 14,700 10,199 0 1,010,199 10,893 568 1,010,893 11,587 1,262 1,011,587
2 30,135 20,193 9,868 1,020,193 22,211 11,886 1,022,211 24,315 13,990 1,024,315
3 46,342 29,916 20,624 1,029,916 33,916 24,623 1,033,916 38,251 28,959 1,038,251
4 63,359 42,096 33,836 1,042,096 48,831 40,571 1,048,831 56,413 48,153 1,056,413
5 81,227 53,922 46,695 1,053,922 64,240 57,012 1,064,240 76,295 69,067 1,076,295
6 99,988 65,353 59,158 1,065,353 80,118 73,923 1,080,118 98,032 91,837 1,098,032
7 119,688 76,331 71,169 1,076,331 96,425 91,263 1,096,425 121,759 116,596 1,121,759
8 140,372 86,782 82,652 1,086,782 113,099 108,969 1,113,099 147,603 143,473 1,147,603
9 162,090 96,608 93,510 1,096,608 130,051 126,953 1,130,051 175,683 172,586 1,175,683
10 184,895 105,699 105,699 1,105,699 147,174 147,174 1,147,174 206,115 206,115 1,206,115
11 208,840 114,770 114,770 1,114,770 165,207 165,207 1,165,207 239,908 239,908 1,239,908
12 233,982 123,681 123,681 1,123,681 184,047 184,047 1,184,047 277,297 277,297 1,277,297
13 260,381 132,432 132,432 1,132,432 203,730 203,730 1,203,730 318,720 318,720 1,318,720
14 288,100 141,024 141,024 1,141,024 224,298 224,298 1,224,298 364,617 364,617 1,364,617
15 317,205 149,458 149,458 1,149,458 245,789 245,789 1,245,789 415,478 415,478 1,415,478
16 347,765 157,734 157,734 1,157,734 268,275 268,275 1,268,275 471,844 471,844 1,471,844
17 379,853 165,852 165,852 1,165,852 291,823 291,823 1,291,823 534,318 534,318 1,534,318
18 413,546 173,814 173,814 1,173,814 316,483 316,483 1,316,483 603,567 603,567 1,603,567
19 448,923 181,619 181,619 1,181,619 342,311 342,311 1,342,311 680,334 680,334 1,680,334
20 486,070 189,269 189,269 1,189,269 369,364 369,364 1,369,364 765,438 765,438 1,765,438
21 525,073 196,823 196,823 1,196,823 397,762 397,762 1,397,762 859,857 859,857 1,859,857
22 566,027 203,713 203,713 1,203,713 426,987 426,987 1,426,987 964,006 964,006 1,964,006
23 609,028 209,459 209,459 1,209,459 456,575 456,575 1,456,575 1,078,430 1,078,430 2,078,430
24 654,179 213,829 213,829 1,213,829 486,291 486,291 1,486,291 1,203,994 1,203,994 2,203,994
25 701,588 216,557 216,557 1,216,557 515,851 515,851 1,515,851 1,341,620 1,341,620 2,341,620
26 751,368 217,335 217,335 1,217,335 544,911 544,911 1,544,911 1,492,282 1,492,282 2,492,282
27 803,636 215,826 215,826 1,215,826 573,072 573,072 1,573,072 1,657,024 1,657,024 2,657,024
28 858,518 211,650 211,650 1,211,650 599,874 599,874 1,599,874 1,836,959 1,836,959 2,836,959
29 916,144 204,385 204,385 1,204,385 624,777 624,777 1,624,777 2,033,268 2,033,268 3,033,268
30 976,651 193,548 193,548 1,193,548 647,154 647,154 1,647,154 2,247,195 2,247,195 3,247,195
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS
APPENDIX.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATION CAN BE MADE BY NATIONWIDE LIFE OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
56
<PAGE> 60
$12,150 ANNUAL PREMIUM: $1,000,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO PREFERRED, ISSUE AGE 55 FEMALE: NON-TOBACCO PREFERRED, ISSUE
AGE 55
OPTION 1 GUARANTEED VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
----------------------- ----------------------- -----------------------
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- ----- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 12,758 7,872 0 1,000,000 8,442 0 1,000,000 9,014 0 1,000,000
2 26,153 15,573 5,687 1,000,000 17,202 7,317 1,000,000 18,904 9,018 1,000,000
3 40,218 23,024 14,127 1,000,000 26,218 17,321 1,000,000 29,688 20,791 1,000,000
4 54,986 33,561 25,652 1,000,000 38,941 31,033 1,000,000 45,007 37,098 1,000,000
5 70,493 43,778 36,858 1,000,000 52,071 45,151 1,000,000 61,763 54,843 1,000,000
6 86,775 53,638 47,707 1,000,000 65,588 59,656 1,000,000 80,073 74,142 1,000,000
7 103,872 63,095 58,152 1,000,000 79,460 74,517 1,000,000 100,058 95,115 1,000,000
8 121,823 72,082 68,128 1,000,000 93,639 89,685 1,000,000 121,837 117,883 1,000,000
9 140,671 80,518 77,553 1,000,000 108,057 105,092 1,000,000 145,531 142,565 1,000,000
10 160,462 88,310 88,310 1,000,000 122,635 122,635 1,000,000 171,272 171,272 1,000,000
11 181,243 95,355 95,355 1,000,000 137,285 137,285 1,000,000 199,207 199,207 1,000,000
12 203,063 101,547 101,547 1,000,000 151,910 151,910 1,000,000 229,512 229,512 1,000,000
13 225,973 106,771 106,771 1,000,000 166,410 166,410 1,000,000 262,398 262,398 1,000,000
14 250,030 110,898 110,898 1,000,000 180,669 180,669 1,000,000 298,167 298,167 1,000,000
15 275,289 113,751 113,751 1,000,000 194,531 194,531 1,000,000 337,096 337,096 1,000,000
16 301,810 115,097 115,097 1,000,000 207,781 207,781 1,000,000 379,487 379,487 1,000,000
17 329,658 114,614 114,614 1,000,000 220,132 220,132 1,000,000 425,676 425,676 1,000,000
18 358,899 111,875 111,875 1,000,000 231,200 231,200 1,000,000 476,054 476,054 1,000,000
19 389,601 106,358 106,358 1,000,000 240,517 240,517 1,000,000 531,123 531,123 1,000,000
20 421,839 97,464 97,464 1,000,000 247,555 247,555 1,000,000 591,574 591,574 1,000,000
21 455,688 84,582 84,582 1,000,000 251,792 251,792 1,000,000 658,420 658,420 1,000,000
22 491,230 66,900 66,900 1,000,000 252,504 252,504 1,000,000 732,903 732,903 1,000,000
23 528,549 43,549 43,549 1,000,000 248,916 248,916 1,000,000 816,770 816,770 1,000,000
24 567,734 13,447 13,447 1,000,000 240,067 240,067 1,000,000 912,351 912,351 1,000,000
25 608,878 (*) (*) (*) 224,671 224,671 1,000,000 1,021,630 1,021,630 1,072,711
26 652,080 (*) (*) (*) 200,953 200,953 1,000,000 1,142,434 1,142,434 1,199,556
27 697,441 (*) (*) (*) 166,453 166,453 1,000,000 1,275,473 1,275,473 1,339,247
28 745,071 (*) (*) (*) 117,750 117,750 1,000,000 1,421,796 1,421,796 1,492,886
29 795,082 (*) (*) (*) 50,214 50,214 1,000,000 1,582,499 1,582,499 1,661,624
30 847,594 (*) (*) (*) (*) (*) (*) 1,758,731 1,758,731 1,846,668
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATION CAN BE MADE BY NATIONWIDE LIFE OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
57
<PAGE> 61
$14,000 ANNUAL PREMIUM: $1,000,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO PREFERRED, ISSUE AGE 55 FEMALE: NON-TOBACCO PREFERRED, ISSUE
AGE 55
OPTION 2 GUARANTEED VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
----------------------- ----------------------- -----------------------
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- ----- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 14,700 9,604 0 1,009,604 10,278 0 1,010,278 10,954 629 1,010,954
2 30,135 19,010 8,685 1,019,010 20,954 10,629 1,020,954 22,982 12,657 1,022,982
3 46,342 28,150 18,858 1,028,150 31,983 22,690 1,031,983 36,140 26,848 1,036,140
4 63,359 40,350 32,090 1,040,350 46,805 38,545 1,046,805 54,075 45,815 1,054,075
5 81,227 52,196 44,968 1,052,196 62,116 54,889 1,062,116 73,706 66,479 1,073,706
6 99,988 63,646 57,451 1,063,646 77,892 71,697 1,077,892 95,165 88,970 1,095,165
7 119,688 74,644 69,481 1,074,644 94,093 88,931 1,094,093 118,585 113,422 1,118,585
8 140,372 85,113 80,983 1,085,113 110,655 106,525 1,110,655 144,089 139,959 1,144,089
9 162,090 94,958 91,861 1,094,958 127,489 124,392 1,127,489 171,792 168,694 1,171,792
10 184,895 104,069 104,069 1,104,069 144,489 144,489 1,144,489 201,806 201,806 1,201,806
11 208,840 112,323 112,323 1,112,323 161,528 161,528 1,161,528 234,241 234,241 1,234,241
12 233,982 119,594 119,594 1,119,594 178,466 178,466 1,178,466 269,225 269,225 1,269,225
13 260,381 125,744 125,744 1,125,744 195,146 195,146 1,195,146 306,938 306,938 1,306,938
14 288,100 130,622 130,622 1,130,622 211,385 211,385 1,211,385 347,501 347,501 1,347,501
15 317,205 134,027 134,027 1,134,027 226,941 226,941 1,226,941 390,999 390,999 1,390,999
16 347,765 135,696 135,696 1,135,696 241,491 241,491 1,241,491 437,454 437,454 1,437,454
17 379,853 135,277 135,277 1,135,277 254,615 254,615 1,254,615 486,796 486,796 1,486,796
18 413,546 132,315 132,315 1,132,315 265,764 265,764 1,265,764 538,833 538,833 1,538,833
19 448,923 126,275 126,275 1,126,275 274,258 274,258 1,274,258 593,257 593,257 1,593,257
20 486,070 116,585 116,585 1,116,585 279,336 279,336 1,279,336 649,686 649,686 1,649,686
21 525,073 102,719 102,719 1,102,719 280,241 280,241 1,280,241 707,733 707,733 1,707,733
22 566,027 84,039 84,039 1,084,039 276,057 276,057 1,276,057 766,849 766,849 1,766,849
23 609,028 59,971 59,971 1,059,971 265,877 265,877 1,265,877 826,479 826,479 1,826,479
24 654,179 29,886 29,886 1,029,886 248,692 248,692 1,248,692 885,947 885,947 1,885,947
25 701,588 (*) (*) (*) 223,291 223,291 1,223,291 944,335 944,335 1,944,335
26 751,368 (*) (*) (*) 188,192 188,192 1,188,192 1,000,379 1,000,379 2,000,379
27 803,636 (*) (*) (*) 141,576 141,576 1,141,576 1,052,423 1,052,423 2,052,423
28 858,518 (*) (*) (*) 81,280 81,280 1,081,280 1,098,365 1,098,365 2,098,365
29 916,144 (*) (*) (*) 4,975 4,975 1,004,975 1,135,809 1,135,809 2,135,809
30 976,651 (*) (*) (*) (*) (*) (*) 1,162,173 1,162,173 2,162,173
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATION CAN BE MADE BY NATIONWIDE LIFE OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
58
<PAGE> 62
APPENDIX B: ILLUSTRATIONS OF CASH VALUES, CASH SURRENDER VALUES,
AND DEATH BENEFITS FOR WADDELL & REED ADVISORS SURVIVORSHIP LIFE INSURANCE
POLICIES
The illustrations in this prospectus have been prepared to help show how values
under the polices change with investment performance. The illustrations
demonstrate how cash values, cash surrender values and death benefits under a
policy would vary over time if the hypothetical gross investment rates of return
were a uniform annual effective rate of either 0%, 6% or 12%. If the
hypothetical gross investment rate of return averages 0%, 6% or 12% over a
period of years, but fluctuates above or below those averages for individual
years, the cash values, cash surrender values and death benefits may be
different.
For hypothetical returns of 0% and 6%, the illustrations also illustrate when
the policies would go into default, at which time additional premium payments
would be required to continue the policy in force. The illustrations also assume
there is not policy indebtedness, no additional premium payments are made, no
cash values are allocated to the fixed account, and there are no changes in the
specified amount or death benefit option.
The amounts shown for the cash value, cash surrender value and death benefit as
of each policy anniversary reflect the fact that the net investment return on
the assets held in the variable account sub-accounts is lower than the gross
return. This is due to the deduction of underlying mutual fund investment
advisory fees and other expenses which are equivalent to an annual effective
rate of 0.98%. This effective rate is based on the average of the fund expenses,
after expense reimbursement, for the preceding year for all mutual fund options
available under the policy as of December 31, 1999.
Taking into account the underlying mutual fund expenses, gross annual rates of
return of 0%, 6% and 12% correspond to net investment experience at constant
annual rates of -0.98%, 5.02% and 11.02%, respectively.
The illustrations also reflect the fact that Nationwide makes monthly charges
for providing insurance protection. Current values reflect current cost of
insurance charges and guaranteed values reflect the maximum cost of insurance
charges guaranteed in the policy. The values shown are for policies which are
issued as standard. Policies issued on a substandard basis would result in lower
cash values and death benefits than those illustrated. Death benefit Option 1
has been assumed in all the illustrations.
The illustrations reflect that Nationwide deducts a sales load as well as
charges for state premium and federal taxes, from each premium payment. The
illustrations reflect the fact that no charges for federal or state income taxes
are currently made against the variable account. If such a charge is made in the
future, it will require a higher gross investment return than illustrated in
order to produce the net after-tax returns shown in the illustrations.
In addition, the illustrations reflect the fact that Nationwide deducts a
monthly administrative charge at the beginning of each policy month. The
illustrations also reflect that Nationwide deducts a monthly charge to assume
mortality and expense risks. This mortality and expense risk charge is assessed
at the beginning of each policy month and is calculated as a percentage of the
assets of the variable account only.
Policy charges on policies issued for delivery in the State of New York will
vary (see "Deductions and Charges") and thereby affect the illustrations.
The cash surrender values shown in the illustrations reflect that Nationwide
will deduct a surrender charge from the policy's cash value for any policy
surrendered in the first nine years.
Upon request, Nationwide will furnish a comparable illustration based on the
proposed insureds' age, sex, smoking classification, rating classification and
premium payment requested.
59
<PAGE> 63
$12,150 ANNUAL PREMIUM: $1,000,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO PREFERRED, ISSUE AGE 55 FEMALE: NON-TOBACCO PREFERRED, ISSUE
AGE 55
OPTION 1 CURRENT VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
----------------------- ----------------------- -----------------------
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- ----- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 12,758 8,454 0 1,000,000 9,042 0 1,000,000 9,632 0 1,000,000
2 26,153 16,717 6,832 1,000,000 18,417 8,532 1,000,000 20,190 10,304 1,000,000
3 40,218 24,715 15,818 1,000,000 28,066 19,169 1,000,000 31,702 22,805 1,000,000
4 54,986 35,184 27,276 1,000,000 40,822 32,914 1,000,000 47,172 39,263 1,000,000
5 70,493 45,320 38,400 1,000,000 53,968 47,048 1,000,000 64,072 57,153 1,000,000
6 86,775 55,088 49,156 1,000,000 67,484 61,552 1,000,000 82,518 76,586 1,000,000
7 103,872 64,439 59,497 1,000,000 81,336 76,393 1,000,000 102,625 97,682 1,000,000
8 121,823 73,311 69,357 1,000,000 95,475 91,520 1,000,000 124,511 120,556 1,000,000
9 140,671 81,621 78,655 1,000,000 109,831 106,865 1,000,000 148,291 145,325 1,000,000
10 160,462 89,278 89,278 1,000,000 124,325 124,325 1,000,000 174,093 174,093 1,000,000
11 181,243 96,928 96,928 1,000,000 139,615 139,615 1,000,000 202,793 202,793 1,000,000
12 203,063 104,452 104,452 1,000,000 155,612 155,612 1,000,000 234,574 234,574 1,000,000
13 225,973 111,850 111,850 1,000,000 172,354 172,354 1,000,000 269,791 269,791 1,000,000
14 250,030 119,124 119,124 1,000,000 189,878 189,878 1,000,000 308,884 308,884 1,000,000
15 275,289 126,274 126,274 1,000,000 208,225 208,225 1,000,000 352,291 352,291 1,000,000
16 301,810 133,302 133,302 1,000,000 227,436 227,436 1,000,000 400,497 400,497 1,000,000
17 329,658 140,209 140,209 1,000,000 247,557 247,557 1,000,000 454,043 454,043 1,000,000
18 358,899 146,995 146,995 1,000,000 268,661 268,661 1,000,000 513,532 513,532 1,000,000
19 389,601 153,661 153,661 1,000,000 290,818 290,818 1,000,000 579,636 579,636 1,000,000
20 421,839 160,209 160,209 1,000,000 314,084 314,084 1,000,000 653,104 653,104 1,000,000
21 455,688 166,698 166,698 1,000,000 338,582 338,582 1,000,000 734,832 734,832 1,000,000
22 491,230 172,651 172,651 1,000,000 363,977 363,977 1,000,000 825,576 825,576 1,000,000
23 528,549 177,679 177,679 1,000,000 390,037 390,037 1,000,000 926,397 926,397 1,000,000
24 567,734 181,600 181,600 1,000,000 416,705 416,705 1,000,000 1,038,437 1,038,437 1,090,358
25 608,878 184,201 184,201 1,000,000 443,922 443,922 1,000,000 1,162,459 1,162,459 1,220,582
26 652,080 185,234 185,234 1,000,000 471,628 471,628 1,000,000 1,299,698 1,299,698 1,364,683
27 697,441 184,413 184,413 1,000,000 499,772 499,772 1,000,000 1,451,520 1,451,520 1,524,096
28 745,071 181,407 181,407 1,000,000 528,311 528,311 1,000,000 1,619,420 1,619,420 1,700,391
29 795,082 175,822 175,822 1,000,000 557,217 557,217 1,000,000 1,805,032 1,805,032 1,895,284
30 847,594 167,181 167,181 1,000,000 586,475 586,475 1,000,000 2,010,139 2,010,139 2,110,646
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATION CAN BE MADE BY NATIONWIDE LIFE OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
60
<PAGE> 64
$14,000 ANNUAL PREMIUM: $1,000,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO PREFERRED, ISSUE AGE 55 FEMALE: NON-TOBACCO PREFERRED, ISSUE
AGE 55
OPTION 2 CURRENT VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
----------------------- ----------------------- -----------------------
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- ----- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 14,700 10,183 0 1,010,183 10,876 551 1,010,876 11,569 1,244 1,011,569
2 30,135 20,147 9,822 1,020,147 22,161 11,836 1,022,161 24,260 13,935 1,024,260
3 46,342 29,828 20,535 1,029,828 33,814 24,521 1,033,814 38,135 28,842 1,038,135
4 63,359 41,950 33,690 1,041,950 48,656 40,396 1,048,656 56,205 47,945 1,056,205
5 81,227 53,703 46,475 1,053,703 63,967 56,740 1,063,967 75,959 68,731 1,075,959
6 99,988 65,044 58,849 1,065,044 79,721 73,526 1,079,721 97,524 91,329 1,097,524
7 119,688 75,920 70,757 1,075,920 95,875 90,713 1,095,875 121,027 115,865 1,121,027
8 140,372 86,254 82,124 1,086,254 112,365 108,235 1,112,365 146,589 142,459 1,146,589
9 162,090 95,952 92,854 1,095,952 129,101 126,004 1,129,101 174,317 171,219 1,174,317
10 184,895 104,903 104,903 1,104,903 145,974 145,974 1,145,974 204,316 204,316 1,204,316
11 208,840 113,823 113,823 1,113,823 163,720 163,720 1,163,720 237,584 237,584 1,237,584
12 233,982 122,572 122,572 1,122,572 182,234 182,234 1,182,234 274,336 274,336 1,274,336
13 260,381 131,152 131,152 1,131,152 201,549 201,549 1,201,549 314,994 314,994 1,314,994
14 288,100 139,563 139,563 1,139,563 221,701 221,701 1,221,701 359,981 359,981 1,359,981
15 317,205 147,806 147,806 1,147,806 242,729 242,729 1,242,729 409,762 409,762 1,409,762
16 347,765 155,881 155,881 1,155,881 264,692 264,692 1,264,692 464,854 464,854 1,464,854
17 379,853 163,791 163,791 1,163,791 287,658 287,658 1,287,658 525,830 525,830 1,525,830
18 413,546 171,536 171,536 1,171,536 311,674 311,674 1,311,674 593,324 593,324 1,593,324
19 448,923 179,116 179,116 1,179,116 336,791 336,791 1,336,791 668,037 668,037 1,668,037
20 486,070 186,533 186,533 1,186,533 363,060 363,060 1,363,060 750,750 750,750 1,750,750
21 525,073 193,846 193,846 1,193,846 390,598 390,598 1,390,598 842,388 842,388 1,842,388
22 566,027 200,489 200,489 1,200,489 418,879 418,879 1,418,879 943,310 943,310 1,943,310
23 609,028 205,982 205,982 1,205,982 447,436 447,436 1,447,436 1,054,000 1,054,000 2,054,000
24 654,179 210,095 210,095 1,210,095 476,028 476,028 1,476,028 1,175,252 1,175,252 2,175,252
25 701,588 212,565 212,565 1,212,565 504,368 504,368 1,504,368 1,307,907 1,307,907 2,307,907
26 751,368 213,086 213,086 1,213,086 532,107 532,107 1,532,107 1,452,852 1,452,852 2,452,852
27 803,636 211,323 211,323 1,211,323 558,842 558,842 1,558,842 1,611,029 1,611,029 2,611,029
28 858,518 206,902 206,902 1,206,902 584,109 584,109 1,584,109 1,783,439 1,783,439 2,783,439
29 916,144 199,402 199,402 1,199,402 607,367 607,367 1,607,367 1,971,136 1,971,136 2,971,136
30 976,651 188,346 188,346 1,188,346 627,986 627,986 1,627,986 2,175,222 2,175,222 3,175,222
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS
APPENDIX.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATION CAN BE MADE BY NATIONWIDE LIFE OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
61
<PAGE> 65
$12,150 ANNUAL PREMIUM: $1,000,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO PREFERRED, ISSUE AGE 55 FEMALE: NON-TOBACCO PREFERRED, ISSUE
AGE 55
OPTION 1 GUARANTEED VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
----------------------- ----------------------- -----------------------
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- ----- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 12,758 7,859 0 1,000,000 8,428 0 1,000,000 8,999 0 1,000,000
2 26,153 15,536 5,651 1,000,000 17,162 7,276 1,000,000 18,859 8,973 1,000,000
3 40,218 22,953 14,056 1,000,000 26,137 17,240 1,000,000 29,595 20,698 1,000,000
4 54,986 33,444 25,535 1,000,000 38,802 30,893 1,000,000 44,841 36,932 1,000,000
5 70,493 43,601 36,681 1,000,000 51,852 44,932 1,000,000 61,493 54,573 1,000,000
6 86,775 53,389 47,457 1,000,000 65,267 59,335 1,000,000 79,662 73,731 1,000,000
7 103,872 62,760 57,817 1,000,000 79,013 74,070 1,000,000 99,464 94,521 1,000,000
8 121,823 71,650 67,695 1,000,000 93,039 89,085 1,000,000 121,009 117,054 1,000,000
9 140,671 79,977 77,011 1,000,000 107,276 104,311 1,000,000 144,410 141,444 1,000,000
10 160,462 87,650 87,650 1,000,000 121,644 121,644 1,000,000 169,789 169,789 1,000,000
11 181,243 94,567 94,567 1,000,000 136,050 136,050 1,000,000 197,283 197,283 1,000,000
12 203,063 100,621 100,621 1,000,000 150,399 150,399 1,000,000 227,053 227,053 1,000,000
13 225,973 105,700 105,700 1,000,000 164,586 164,586 1,000,000 259,294 259,294 1,000,000
14 250,030 109,675 109,675 1,000,000 178,492 178,492 1,000,000 294,286 294,286 1,000,000
15 275,289 112,371 112,371 1,000,000 191,958 191,958 1,000,000 332,287 332,287 1,000,000
16 301,810 113,555 113,555 1,000,000 204,767 204,767 1,000,000 373,573 373,573 1,000,000
17 329,658 112,906 112,906 1,000,000 216,627 216,627 1,000,000 418,446 418,446 1,000,000
18 358,899 110,000 110,000 1,000,000 227,148 227,148 1,000,000 467,256 467,256 1,000,000
19 389,601 104,315 104,315 1,000,000 235,856 235,856 1,000,000 520,453 520,453 1,000,000
20 421,839 95,254 95,254 1,000,000 242,212 242,212 1,000,000 578,661 578,661 1,000,000
21 455,688 82,209 82,209 1,000,000 245,679 245,679 1,000,000 642,808 642,808 1,000,000
22 491,230 64,373 64,373 1,000,000 245,524 245,524 1,000,000 714,029 714,029 1,000,000
23 528,549 40,877 40,877 1,000,000 240,961 240,961 1,000,000 793,926 793,926 1,000,000
24 567,734 10,650 10,650 1,000,000 231,012 231,012 1,000,000 884,642 884,642 1,000,000
25 608,878 (*) (*) (*) 214,366 214,366 1,000,000 988,760 988,760 1,038,198
26 652,080 (*) (*) (*) 189,207 189,207 1,000,000 1,104,535 1,104,535 1,159,762
27 697,441 (*) (*) (*) 153,024 153,024 1,000,000 1,231,854 1,231,854 1,293,447
28 745,071 (*) (*) (*) 102,330 102,330 1,000,000 1,371,684 1,371,684 1,440,269
29 795,082 (*) (*) (*) 32,403 32,403 1,000,000 1,525,034 1,525,034 1,601,286
30 847,594 (*) (*) (*) (*) (*) (*) 1,692,957 1,692,957 1,777,605
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATION CAN BE MADE BY NATIONWIDE LIFE OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
62
<PAGE> 66
$14,000 ANNUAL PREMIUM: $1,000,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO PREFERRED, ISSUE AGE 55 FEMALE: NON-TOBACCO PREFERRED, ISSUE
AGE 55
OPTION 2 GUARANTEED VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
----------------------- ----------------------- -----------------------
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- ----- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 14,700 9,588 0 1,009,588 10,261 0 1,010,261 10,936 611 1,010,936
2 30,135 18,966 8,641 1,018,966 20,905 10,580 1,020,905 22,928 12,603 1,022,928
3 46,342 28,065 18,773 1,028,065 31,885 22,592 1,031,885 36,029 26,736 1,036,029
4 63,359 40,210 31,950 1,040,210 46,637 38,377 1,046,637 53,876 45,616 1,053,876
5 81,227 51,985 44,757 1,051,985 61,854 54,627 1,061,854 73,383 66,156 1,073,383
6 99,988 63,348 57,153 1,063,348 77,510 71,315 1,077,510 94,676 88,481 1,094,676
7 119,688 74,245 69,083 1,074,245 93,561 88,398 1,093,561 117,878 112,716 1,117,878
8 140,372 84,601 80,471 1,084,601 109,943 105,813 1,109,943 143,106 138,976 1,143,106
9 162,090 94,319 91,222 1,094,319 126,566 123,469 1,126,566 170,466 167,368 1,170,466
10 184,895 103,292 103,292 1,103,292 143,321 143,321 1,143,321 200,058 200,058 1,200,058
11 208,840 111,398 111,398 1,111,398 160,079 160,079 1,160,079 231,980 231,980 1,231,980
12 233,982 118,511 118,511 1,118,511 176,699 176,699 1,176,699 266,345 266,345 1,266,345
13 260,381 124,498 124,498 1,124,498 193,023 193,023 1,193,023 303,317 303,317 1,303,317
14 288,100 129,206 129,206 1,129,206 208,866 208,866 1,208,866 343,003 343,003 1,343,003
15 317,205 132,438 132,438 1,132,438 223,984 223,984 1,223,984 385,467 385,467 1,385,467
16 347,765 133,932 133,932 1,133,932 238,056 238,056 1,238,056 430,712 430,712 1,430,712
17 379,853 133,340 133,340 1,133,340 250,651 250,651 1,250,651 478,643 478,643 1,478,643
18 413,546 130,210 130,210 1,130,210 261,229 261,229 1,261,229 529,041 529,041 1,529,041
19 448,923 124,010 124,010 1,124,010 269,110 269,110 1,269,110 581,574 581,574 1,581,574
20 486,070 114,174 114,174 1,114,174 273,536 273,536 1,273,536 635,825 635,825 1,635,825
21 525,073 100,179 100,179 1,100,179 273,753 273,753 1,273,753 691,377 691,377 1,691,377
22 566,027 81,396 81,396 1,081,396 268,850 268,850 1,268,850 747,642 747,642 1,747,642
23 609,028 57,255 57,255 1,057,255 257,928 257,928 1,257,928 804,028 804,028 1,804,028
24 654,179 27,136 27,136 1,027,136 239,985 239,985 1,239,985 859,814 859,814 1,859,814
25 701,588 (*) (*) (*) 213,832 213,832 1,213,832 914,036 914,036 1,914,036
26 751,368 (*) (*) (*) 177,994 177,994 1,177,994 965,382 965,382 1,965,382
27 803,636 (*) (*) (*) 130,664 130,664 1,130,664 1,012,141 1,012,141 2,012,141
28 858,518 (*) (*) (*) 69,695 69,695 1,069,695 1,052,157 1,052,157 2,052,157
29 916,144 (*) (*) (*) (*) (*) (*) 1,082,974 1,082,974 2,082,974
30 976,651 (*) (*) (*) (*) (*) (*) 1,101,949 1,101,949 2,101,949
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS
APPENDIX.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATION CAN BE MADE BY NATIONWIDE LIFE OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
63
<PAGE> 67
NATIONWIDE LIFE INSURANCE COMPANY AND
SUBSIDIARIES (a wholly owned subsidiary of Nationwide
Financial Services, Inc.)
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Income
(Unaudited)
(in millions)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES
Policy charges $ 284.8 $ 231.7 $ 823.5 $ 656.0
Life insurance premiums 51.7 51.5 180.7 153.9
Net investment income 412.6 379.2 1,229.6 1,114.6
Net realized (losses) gains on investments (2.1) 6.2 (15.9) (7.5)
Other 3.6 26.6 12.8 66.5
------------- ------------- ------------- -------------
750.6 695.2 2,230.7 1,983.5
------------- ------------- ------------- -------------
BENEFITS AND EXPENSES
Interest credited to policyholder account balances 292.4 272.4 876.9 803.6
Other benefits and claims 56.2 51.7 185.2 146.5
Policyholder dividends on participating policies 8.3 8.7 31.8 30.5
Amortization of deferred policy acquisition costs 91.6 68.6 263.7 196.1
Other operating expenses 125.2 120.2 365.7 333.5
------------- ------------- ------------- -------------
573.7 521.6 1,723.3 1,510.2
------------- ------------- ------------- -------------
Income before federal income tax expense 176.9 173.6 507.4 473.3
Federal income tax expense 50.9 58.4 157.2 158.8
------------- ------------- ------------- -------------
Net income $ 126.0 $ 115.2 $ 350.2 $ 314.5
============= ============= ============= =============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
52
<PAGE> 68
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>
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
ASSETS 2000 1999
------------------- ------------------
<S> <C> <C>
Investments:
Securities available-for-sale, at fair value:
Fixed maturity securities (cost $14,805.1 in 2000; $15,377.3 in 1999) $ 14,809.8 $ 15,294.0
Equity securities (cost $113.3 in 2000; $84.9 in 1999) 129.1 92.9
Mortgage loans on real estate, net 6,113.0 5,786.3
Real estate, net 285.6 254.8
Policy loans 578.7 519.6
Other long-term investments 84.5 73.8
Short-term investments 613.3 416.0
------------------- ------------------
22,614.0 22,437.4
------------------- ------------------
Cash 2.0 4.8
Accrued investment income 247.8 238.6
Deferred policy acquisition costs 2,811.6 2,554.1
Other assets 358.1 305.9
Assets held in separate accounts 71,653.7 67,135.1
------------------- ------------------
$ 97,687.2 $ 92,675.9
=================== ==================
LIABILITIES AND SHAREHOLDER'S EQUITY
Future policy benefits and claims $ 21,804.4 $ 21,861.6
Other liabilities 1,158.4 914.2
Liabilities related to separate accounts 71,653.7 67,135.1
------------------- ------------------
94,616.5 89,910.9
------------------- ------------------
Shareholder's equity:
Capital shares, $1 par value. Authorized 5.0 million shares, issued and
outstanding 3.8 million shares 3.8 3.8
Additional paid-in capital 766.1 766.1
Retained earnings 2,271.2 2,011.0
Accumulated other comprehensive income (loss) 29.6 (15.9)
------------------- ------------------
3,070.7 2,765.0
------------------- ------------------
$ 97,687.2 $ 92,675.9
=================== ==================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
53
<PAGE> 69
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Statements of Shareholder's Equity
(Unaudited)
Nine Months Ended September 30, 2000 and 1999
(in millions)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON PAID-IN RETAINED COMPREHENSIVE SHAREHOLDER'S
STOCK CAPITAL EARNINGS INCOME (LOSS) EQUITY
----------- ------------- --------------- ------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1999 $ 3.8 $ 914.7 $ 1,579.0 $ 275.6 $ 2,773.1
Comprehensive income:
Net income - - 314.5 - 314.5
Net unrealized losses on securities
available-for-sale arising during the period - - - (238.2) (238.2)
-----------------
Total comprehensive income 76.3
-----------------
Capital contribution - 26.4 87.9 23.5 137.8
Dividends to shareholder - (175.0) (11.0) - (186.0)
----------- ------------- --------------- ------------------------------------
BALANCE, SEPTEMBER 30, 1999 $ 3.8 $ 766.1 $ 1,970.4 $ 60.9 $ 2,801.2
=========== ============= =============== ====================================
BALANCE, JANUARY 1, 2000 $ 3.8 $ 766.1 $ 2,011.0 $ (15.9) $ 2,765.0
Comprehensive income:
Net income - - 350.2 - 350.2
Net unrealized gains on securities
available-for-sale arising during the - - - 45.5 45.5
period
-----------------
Total comprehensive income 395.7
-----------------
Dividends to shareholder - - (90.0) - (90.0)
----------- ------------- --------------- ------------------------------------
BALANCE, SEPTEMBER 30, 2000 $ 3.8 $ 766.1 $ 2,271.2 $ 29.6 $ 3,070.7
=========== ============= =============== ====================================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
54
<PAGE> 70
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended September 30, 2000 and 1999
(in millions)
<TABLE>
<CAPTION>
2000 1999
--------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 350.2 $ 314.5
Adjustments to reconcile net income to net cash provided by operating activities:
Interest credited to policyholder account balances 876.9 803.6
Capitalization of deferred policy acquisition costs (586.8) (481.6)
Amortization of deferred policy acquisition costs 263.7 196.1
Amortization and depreciation (7.4) 3.3
Realized losses on investments, net 15.9 7.5
Increase in accrued investment income (9.2) (17.6)
(Increase) decrease in other assets (53.3) 38.6
Increase (decrease) in policy liabilities 0.5 (17.1)
Increase in other liabilities 269.7 39.1
Other, net 27.4 (0.6)
--------------- ----------------
Net cash provided by operating activities 1,147.6 885.8
--------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturity of securities available-for-sale 2,479.2 1,681.9
Proceeds from sale of securities available-for-sale 432.3 336.1
Proceeds from repayments of mortgage loans on real estate 609.4 350.0
Proceeds from sale of real estate 2.2 5.7
Proceeds from repayments of policy loans and sale of other invested assets 17.2 23.7
Cost of securities available-for-sale acquired (2,345.8) (2,479.9)
Cost of mortgage loans on real estate acquired (950.1) (452.2)
Cost of real estate acquired (6.1) (11.1)
Short-term investments, net (197.3) (20.5)
Other, net (116.8) (84.3)
--------------- ----------------
Net cash used in investing activities (75.8) (650.6)
--------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends paid (140.0) (188.5)
Increase in investment product and universal life insurance product account balances 3,609.4 2,690.9
Decrease in investment product and universal life insurance product account balances (4,544.0) (2,719.7)
--------------- ----------------
Net cash used in financing activities (1,074.6) (217.3)
--------------- ----------------
Net (decrease) increase in cash (2.8) 17.9
Cash, beginning of period 4.8 3.4
--------------- ----------------
Cash, end of period $ 2.0 $ 21.3
=============== ================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
55
<PAGE> 71
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Unaudited Consolidated Financial Statements
Nine Months Ended September 30, 2000
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of
Nationwide Life Insurance Company and subsidiaries (NLIC or
collectively the Company) have been prepared in accordance with
generally accepted accounting principles, which differ from statutory
accounting practices prescribed or permitted by regulatory authorities,
for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all information and footnotes required by generally accepted accounting
principles for complete financial statements. The financial information
included herein reflects all adjustments (all of which are normal and
recurring in nature) which are, in the opinion of management, necessary
for a fair presentation of financial position and results of
operations. Operating results for all periods presented are not
necessarily indicative of the results that may be expected for the full
year. All significant intercompany balances and transactions have been
eliminated. The accompanying unaudited consolidated financial
statements should be read in conjunction with the audited consolidated
financial statements and related notes for the year ended December 31,
1999 included in the Company's annual report on Form 10-K.
(2) COMPREHENSIVE INCOME
Comprehensive Income (Loss) includes net income as well as certain
items that are reported directly within a separate component of
shareholder's equity that bypass net income. Currently, the Company's
only component of Other Comprehensive Income (Loss) is unrealized gains
(losses) on securities available-for-sale. The related before and after
federal income tax amounts are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
(in millions) SEPTEMBER 30, SEPTEMBER 30,
--------------------------------------------------------------------------- -------------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Unrealized gains (losses) on securities
Available-for-sale arising during the period:
Gross $ 116.0 $ (91.6) $ 86.6 $ (487.9)
Adjustment to deferred policy acquisition costs (34.9) 15.3 (25.8) 108.7
Related federal income tax (expense) benefit (28.4) 29.9 (21.3) 132.5
---------- ---------- ---------- ----------
Net 52.7 (46.4) 39.5 (246.7)
---------- ---------- ---------- ----------
Reclassification adjustment for net (gains) losses
on securities available-for-sale realized during
the period:
Gross (2.9) (2.0) 9.2 13.0
Related federal income tax expense (benefit) 1.0 0.8 (3.2) (4.5)
---------- ---------- ---------- ----------
Net (1.9) (1.2) 6.0 8.5
---------- ---------- ---------- ----------
Total Other Comprehensive Income (Loss) $ 50.8 $ (47.6) $ 45.5 $ (238.2)
========== ========== ========== ==========
</TABLE>
(3) RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (FAS 133). FAS 133, as amended by Statement Nos. 137 and
138, is effective for fiscal years beginning after June 15, 2000 and
establishes accounting and reporting standards for derivative
instruments and for hedging activities. The Statement also addresses
contracts that contain embedded derivatives, such as certain insurance
contracts. 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. The Company plans to adopt
this Statement in first quarter 2001 and is currently evaluating the
impact on results of operations and financial condition.
56
<PAGE> 72
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
(4) SEGMENT DISCLOSURES
The Company uses differences in products as the basis for defining its
reportable segments. The Company reports three product segments:
Variable Annuities, Fixed Annuities and Life Insurance.
The Variable Annuities segment consists of annuity contracts that
provide the customer with 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 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 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, which 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
revenues and expenses, investments and related investment income
supporting capital not specifically allocated to its product segments,
certain revenues and expenses of its investment advisor and
broker/dealer subsidiary, revenues and expenses related to group
annuity contracts sold to Nationwide employee and agent benefit plans
and all realized gains and losses on investments in a Corporate and
Other segment.
The following table summarizes the financial results of the Company's
business segments for the three months ended September 30, 2000 and
1999.
<TABLE>
<CAPTION>
VARIABLE FIXED LIFE CORPORATE
(in millions) ANNUITIES ANNUITIES INSURANCE AND OTHER TOTAL
----------------------------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
2000
Operating revenue (1) $ 193.5 $ 325.7 $ 187.5 $ 46.0 $ 752.7
Benefits and expenses 105.5 276.4 148.4 43.4 573.7
------------ ------------ ------------ ------------ ------------
Operating income before federal
income tax expense 88.0 49.3 39.1 2.6 179.0
Net realized losses on investments -- -- -- (2.1) (2.1)
------------ ------------ ------------ ------------ ------------
Consolidated income before
federal income tax expense $ 88.0 $ 49.3 $ 39.1 $ 0.5 $ 176.9
============ ============ ============ ============ ============
1999
Operating revenue (1) $ 159.4 $ 292.1 $ 162.5 $ 75.0 $ 689.0
Benefits and expenses 86.3 248.1 130.7 56.5 521.6
------------ ------------ ------------ ------------ ------------
Operating income before federal
income tax expense 73.1 44.0 31.8 18.5 167.4
Net realized gains on investments -- -- -- 6.2 6.2
------------ ------------ ------------ ------------ ------------
Consolidated income before
federal income tax expense $ 73.1 $ 44.0 $ 31.8 $ 24.7 $ 173.6
============ ============ ============ ============ ============
</TABLE>
----------
(1) Excludes net realized gains and losses on investments.
57
<PAGE> 73
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Unaudited Consolidated Financial Statements, Continued
The following table summarizes the allocation of assets to and the
financial results of the Company's business segments for the nine
months ended September 30, 2000 and 1999.
<TABLE>
<CAPTION>
VARIABLE FIXED LIFE CORPORATE
(in millions) ANNUITIES ANNUITIES INSURANCE AND OTHER TOTAL
---------------------------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
2000
Operating revenue (1) $ 569.0 $ 975.5 $ 549.7 $ 152.4 $ 2,246.6
Benefits and expenses 311.5 833.8 440.8 137.2 1,723.3
------------ ------------ ------------ ------------ ------------
Operating income before federal
income taxes 257.5 141.7 108.9 15.2 523.3
Net realized losses on investments -- -- -- (15.9) (15.9)
------------ ------------ ------------ ------------ ------------
Income (loss) before federal
income taxes $ 257.5 $ 141.7 $ 108.9 $ (0.7) $ 507.4
============ ============ ============ ============ ============
Assets as of period end $ 66,214.3 $ 17,226.3 $ 7,936.0 $ 6,310.6 $ 97,687.2
============ ============ ============ ============ ============
1999
Operating revenue (1) $ 457.7 $ 866.0 $ 466.9 $ 200.4 $ 1,991.0
Benefits and expenses 247.4 733.2 376.8 152.8 1,510.2
------------ ------------ ------------ ------------ ------------
Operating income before federal
income taxes 210.3 132.8 90.1 47.6 480.8
Net realized losses on investments -- -- -- (7.5) (7.5)
------------ ------------ ------------ ------------ ------------
Income before federal
income taxes $ 210.3 $ 132.8 $ 90.1 $ 40.1 $ 473.3
============ ============ ============ ============ ============
Assets as of period end $ 53,475.8 $ 16,682.4 $ 6,018.2 $ 6,126.3 $ 82,302.7
============ ============ ============ ============ ============
</TABLE>
----------
(1) Excludes net realized gains and losses on investments.
(5) 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.
58
<PAGE> 74
<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> 75
PART II - OTHER INFORMATION
CONTENTS OF REGISTRATION STATEMENT
This Post-Effective Amendment No. 1 to the Registration Statement comprises the
following papers and documents:
The facing sheet.
Cross-reference to items required by Form N-8B-2.
The prospectus consisting of 84 pages.
Representations and Undertakings.
Independent Auditors' Consent.
Signatures.
The following exhibits required by Forms N-8B-2 and S-6:
1. Power of Attorney dated July 26, 2000 - Attached hereto.
2. Resolution of the Depositor's Board of Directors authorizing the
establishment of the Registrant, adopted - Filed previously with
Registration Statement (File No. 333-46412) and is hereby incorporated by
reference.
3. Distribution Contracts - Attached hereto.
4. Form of Security - Filed previously with Registration Statement (File No.
333-46412) and is hereby incorporated by reference.
5. Articles of Incorporation of Depositor - Filed previously with
Registration Statement (File No. 811-5311) and is hereby incorporated by
reference.
6. Application Form of Security - Attached hereto.
7. Opinion of Counsel - Filed previously with Registration Statement (File
No. 333-46412) and is hereby incorporated by reference.
<PAGE> 76
REPRESENTATIONS AND UNDERTAKINGS
The Registrant and Nationwide hereby make the following representations and
undertakings:
(a) This filing is made pursuant to Rules 6c-3 and 6e-3(T) under the
Investment Company Act of 1940 (the "Act"). The Registrant and Nationwide
elect to be governed by Rule 6e-3(T)(b)(13)(i)(A) under the Act with
respect to the policies described in the prospectus. The policies have
been designed in such a way as to qualify for the exemptive relief from
various provisions of the Act afforded by Rule 6e-3(T).
(b) Paragraph (b) (13) (iii) (F) of Rule 6e-3(T) is being relied on for the
deduction of the mortality and expense risk charges ("risk charges")
assumed by Nationwide under the policies. Nationwide represents that the
risk charges are within the range of industry practice for comparable
policies and reasonable in relation to all of the risks assumed by the
issuer under the policies. Actuarial memoranda demonstrating the
reasonableness of these charges are maintained by Nationwide, and will be
made available to the Securities and Exchange Commission (the
"Commission") on request.
(c) Nationwide has concluded that there is a reasonable likelihood that the
distribution financing arrangement of the separate account will benefit
the separate account and the contractholders and will keep and make
available to the Commission on request a memorandum setting forth the
basis for this representation.
(d) Nationwide represents that the separate account will invest only in
management investment companies which have undertaken to have a board of
directors, a majority of whom are not interested persons of Nationwide,
formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
(e) Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the Registrant hereby undertakes to file with the
Commission such supplementary and periodic information, documents, and
reports as may be prescribed by any rule or regulation of the Commission
heretofore or hereafter duly adopted pursuant to authority conferred in
that section.
(f) The fees and charges deducted under the policy in the aggregate are
reasonable in relation to the services rendered, the expenses expected to
be incurred, and the risks assumed by Nationwide.
<PAGE> 77
INDEPENDENT AUDITORS' CONSENT
The Board of Directors of Nationwide Life Insurance Company:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the Registration Statement.
KPMG LLP
Columbus, Ohio
December 4, 2000
<PAGE> 78
SIGNATURES
As required by the Securities Act of 1933, the Registrant, Nationwide VLI
Separate Account - 5, has caused this Registration Statement to be signed on its
behalf in the City of Columbus, and State of Ohio, on this 15h day of January,
2001.
<TABLE>
<CAPTION>
<S> <C>
NATIONWIDE VLI SEPARATE ACCOUNT-5
----------------------------------------------------------------
(Registrant)
NATIONWIDE LIFE INSURANCE COMPANY
(Seal) ----------------------------------------------------------------
Attest: (Depositor)
By: /s/ GLENN W. SODEN By: /s/ STEVEN SAVINI
---------------------------------------------- ----------------------------------------------------------------
Glenn W. Soden Steven Savini
Assistant Secretary Vice President -Product and Market Compliance
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the
following persons in the capacities indicated on the 15h day of January, 2001.
SIGNATURE TITLE
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
---------------------------------------- --------------------------------------
Arden L. Shisler STEVEN SAVINI
ROBERT L. STEWART Director Attorney-in-Fact
----------------------------------------
Robert L. Stewart
NANCY C. THOMAS Director
----------------------------------------
Nancy C. Thomas
</TABLE>
