<PAGE>
Registration No. 333-36869
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1
-----------------------------
TO FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF
SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2
-------------------
NATIONWIDE VL SEPARATE ACCOUNT-C
(EXACT NAME OF TRUST)
-------------------
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
ONE NATIONWIDE PLAZA
COLUMBUS, OHIO 43216
(EXACT NAME AND ADDRESS OF DEPOSITOR AND REGISTRANT)
DENNIS W. CLICK
---------------
SECRETARY
ONE NATIONWIDE PLAZA
COLUMBUS, OHIO 43216
(NAME AND ADDRESS OF AGENT FOR SERVICE)
-------------------
Title and amount of securities being registered: Flexible premium variable
universal life insurance policies. Such policies are not issued in
predetermined amounts or units.
Approximate date of proposed public offering: (As soon as practicable
after the effective date of this Registration Statement).
[ ] Check box if it is proposed that this filing will become effective on
(date) at (time) pursuant to Rule 487.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall therefore become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such dates as the Commission, acting pursuant to said Section 8(a),
may determine.
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1 of 95
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CROSS REFERENCE TO ITEMS REQUIRED
BY FORM N-8B-2
N-8B-2 ITEM CAPTION IN PROSPECTUS
1. . . . . . . . . . . . . . . . . . . . . . . . . . . Nationwide Life and
Annuity Insurance
Company The
Variable Account
2. . . . . . . . . . . . . . . . . . . . . . . . . . . Nationwide Life and
Annuity
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 and
Annuity Insurance
Company
26. . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
27. . . . . . . . . . . . . . . . . . . . . . . . . . . Nationwide Life and
Annuity Insurance
Company
28. . . . . . . . . . . . . . . . . . . . . . . . . . . Company Management
29. . . . . . . . . . . . . . . . . . . . . . . . . . . Company Management
30. . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
31. . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
32. . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
33. . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
34. . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
35. . . . . . . . . . . . . . . . . . . . . . . . . . . Nationwide Life and
Annuity Insurance
Company
36. . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
37. . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
2 of 95
<PAGE>
N-8B-2 ITEM CAPTION IN PROSPECTUS
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
3 of 95
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NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
P.O. BOX 182150
COLUMBUS, OHIO 43218-2150
(800) 547-7548, TDD (800) 238-3035
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICIES
ISSUED BY NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
THROUGH ITS NATIONWIDE VL SEPARATE ACCOUNT-C
The Life Insurance Policies offered by this prospectus are variable life
insurance policies (collectively referred to as the "Policies"). The Policies
are designed to provide life insurance coverage and the flexibility to vary the
amount and frequency of premium payments. The Policies may also provide a Cash
Surrender Value if the Policy is terminated during the lifetime of the Insured.
Nationwide Life and Annuity Insurance Company guarantees to keep the Policy in
force during the Guaranteed Policy Continuation Period provided that minimum
premium requirements have been met (See "Grace Period" and "Guaranteed Policy
Continuation Provision"). The death benefit and Cash Value of the Policies may
vary to reflect the experience of the Nationwide VL Separate Account-C (the
"Variable Account") or the Fixed Account to which Cash Values are allocated.
The Policies described in this prospectus meet the definition of "life
insurance" under Section 7702 of the Internal Revenue Code (the "Code").
The Policy Owner may allocate Net Premiums and Cash Value to one or more of the
Sub-Accounts of the Variable Account and the Fixed Account. The assets of each
Sub-Account will be used to purchase, at Net Asset Value, shares of a
designated Underlying Mutual Fund in the following series of the Underlying
Mutual Fund options:
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.,
A MEMBER OF THE AMERICAN CENTURY (SM) FAMILY OF INVESTMENTS
American Century VP Income & Growth American Century VP International
American Century VP Value
DREYFUS
The Dreyfus Socially Responsible Growth Fund, Inc.
Dreyfus Stock Index Fund, Inc.
Dreyfus Variable Investment Fund - Capital Appreciation Portfolio
FIDELITY VARIABLE INSURANCE PRODUCTS ("VIP") FUND
VIP Fund Equity-Income Portfolio: Service Class
VIP Fund Growth Portfolio: Service Class
VIP Fund High Income Portfolio: Service Class
VIP Fund Overseas Portfolio: Service Class
FIDELITY VARIABLE INSURANCE PRODUCTS ("VIP") FUND II
VIP Fund II Contrafund Portfolio: Service Class
FIDELITY VARIABLE INSURANCE PRODUCTS ("VIP") FUND III
VIP Fund III Growth Opportunities Portfolio: Service Class
MORGAN STANLEY
Morgan Stanley Universal Funds, Inc. - Emerging Markets Debt Portfolio
Van Kampen American Capital Life Investment Trust -
Morgan Stanley Real Estate Securities Portfolio
NATIONWIDE SEPARATE ACCOUNT TRUST
Capital Appreciation Fund Government Bond Fund
Money Market Fund Total Return Fund
Nationwide Balanced Fund
Nationwide Equity Income Fund
Nationwide Global Equity Fund
Nationwide High Income Bond Fund
Nationwide Multi Sector Bond Fund
Nationwide Select Advisers Mid Cap Fund
1
<PAGE>
Nationwide Small Cap Value Fund
Nationwide Small Company Fund
Nationwide Strategic Growth Fund
Nationwide Strategic Value Fund
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
AMT Guardian Portfolio AMT Mid-Cap Growth Portfolio
AMT Partners Portfolio
OPPENHEIMER VARIABLE ACCOUNT FUNDS
Oppenheimer Capital Appreciation Fund Oppenheimer Growth Fund
Oppenheimer Growth & Income Fund
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Emerging Markets Fund Worldwide Hard Assets Fund
WARBURG PINCUS TRUST
Growth & Income Portfolio International Equity Portfolio
Post-Venture Capital Portfolio
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY (THE "COMPANY") GUARANTEES THAT
THE DEATH BENEFIT FOR A POLICY WILL NEVER BE LESS THAN THE SPECIFIED AMOUNT
STATED ON THE POLICY DATA PAGE AS LONG AS THE POLICY IS IN FORCE. THERE IS NO
GUARANTEED CASH SURRENDER VALUE. IF THE CASH SURRENDER VALUE IS INSUFFICIENT TO
COVER THE CHARGES UNDER THE POLICY, THE POLICY WILL LAPSE WITHOUT VALUE SUBJECT
TO A GRACE PERIOD, UNLESS THE MINIMUM PREMIUM REQUIREMENTS HAVE BEEN MET (SEE
"GRACE PERIOD" AND "GUARANTEED POLICY CONTINUATION PROVISION"). THIS PROSPECTUS
GENERALLY DESCRIBES ONLY THAT PORTION OF THE CASH VALUE ALLOCATED TO THE
VARIABLE ACCOUNT. FOR A BRIEF SUMMARY OF THE FIXED ACCOUNT OPTION, SEE "THE
FIXED ACCOUNT OPTION."
INVESTMENTS IN THESE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, AND ARE NOT
GUARANTEED OR ENDORSED BY, THE ADVISER OF ANY OF THE UNDERLYING MUTUAL FUNDS
IDENTIFIED ABOVE, THE U.S. GOVERNMENT, OR ANY BANK OR BANK AFFILIATE.
INVESTMENTS ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. ANY
INVESTMENT IN THE CONTRACT INVOLVES CERTAIN INVESTMENT RISK WHICH MAY INCLUDE
THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE. A PROSPECTUS
FOR THE UNDERLYING MUTUAL FUND OPTION(S) BEING CONSIDERED MUST ACCOMPANY THIS
PROSPECTUS AND SHOULD BE READ IN CONJUNCTION HEREWITH.
THE DATE OF THIS PROSPECTUS IS ___________________
2
<PAGE>
GLOSSARY OF 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.
BENEFICIARY-The person to whom the Death Proceeds are paid.
CASH VALUE-The sum of the Policy values in the Variable Account, Fixed Account
and any associated value in the Policy Loan Account.
CASH SURRENDER VALUE-The Policy's Cash Value, less any Indebtedness under the
Policy, less Surrender Charge.
CODE-The Internal Revenue Code of 1986, as amended.
COMPANY- Nationwide Life and Annuity Insurance Company.
DEATH PROCEEDS-Amount of money payable to the Beneficiary if the Insured dies
while the Policy is in force prior to the Maturity Date.
FIXED ACCOUNT-An investment option which is funded by the General Account of the
Company.
GENERAL ACCOUNT-All assets of the Company other than those of the Variable
Account or in other separate accounts that have been or may be established by
the Company.
GUARANTEED POLICY CONTINUATION PERIOD-The guaranteed period during which a
Policy will continue in force and not lapse, and is the lesser of 30 Policy
Years or the number of Policy Years until the Insured reaches Attained Age 65;
provided that for Policies issued to an Insured age 55 or older, the Guaranteed
Period is 10 years.
SEC GUIDELINE LEVEL PREMIUM-The amount of level annual premium calculated in
accordance with the provisions of Rule 6e-3(T) under Investment Company Act of
1940. It represents the level annual premiums required to mature the Policy
under reasonable mortality and expense charges, and at an annual effective
interest rate of 5%.
HOME OFFICE-The main office of the Company located in Columbus, Ohio.
INDEBTEDNESS-Amounts owed the Company as a result of Policy loans including both
principal and accrued interest.
INITIAL INVESTMENT DATE- The later of the Policy Date or the date on which the
Company receives the Initial Premium at the Home Office.
INITIAL PREMIUM-The Initial Premium is the premium required for coverage to
become effective on the Policy Date. It is shown on the Policy data page.
INSURED-The person whose life is covered by the Policy, and who is named on the
Policy data page.
MATURITY DATE-The Policy Anniversary on or next following the Insured's 100th
birthday.
MINIMUM MONTHLY PREMIUM-It is used to measure the total amount of premiums that
must be paid during the Guaranteed Policy Continuation Period to keep the Policy
in force and is shown on the Policy data page.
MINIMUM REQUIRED DEATH BENEFIT-Is the lowest death benefit which will qualify
the Policy as life insurance under Section 7702 of the Code.
MINIMUM SPECIFIED AMOUNT- It is shown in the Policy data page. Changes to the
Policy which result in a Specified Amount below the Minimum Specified Amount
will not be processed.
MONTHLY ANNIVERSARY DAY-The same day as the Policy Date for each succeeding
month.
NET AMOUNT AT RISK-The Net Amount At Risk can be determined as of the Monthly
Anniversary Day or any other day. The Net Amount At Risk on a Monthly
Anniversary Day is the death benefit minus the Cash Value prior to deduction of
the base policy cost of insurance charge. On any other day the Net Amount At
Risk is the death benefit minus the Cash Value.
3
<PAGE>
NET ASSET VALUE-The worth of one share at the end of a market day or at the
close of the New York Stock Exchange. Net Asset Value is computed by adding the
value of all portfolio holdings plus other assets, deducting liabilities and
then dividing the result by the number of shares outstanding.
NET PREMIUMS-Net Premiums are equal to the actual premiums minus the percent of
premium charge. The percent of premium charges are shown on the Policy data
page.
POLICY(IES)- The variable life insurance Policy(ies) offered by this prospectus.
POLICY ANNIVERSARY-The same day and month as the Policy Date for succeeding
years.
POLICY CHARGES-All deductions made from the premiums and the Policy Cash Value.
POLICY DATE-The date the provisions of the Policy take effect, as shown on the
Policy Owner's Policy data page.
POLICY LOAN ACCOUNT-The portion of the Cash Value which results from Policy
Indebtedness.
POLICY OWNER-The person designated in the Policy application as the owner.
POLICY YEAR-Each year commencing with the Policy Date and each Policy
Anniversary thereafter.
SCHEDULED PREMIUM-The Scheduled Premium is shown on the Policy data page.
SPECIFIED AMOUNT-A dollar amount used to determine the death benefit under a
Policy. It is shown on the Policy data page.
SUB-ACCOUNT-A part of the Variable Account, the assets of which are invested
exclusively in a corresponding Underlying Mutual Fund.
SURRENDER CHARGE-An amount deducted from the Cash Value if the Policy is
surrendered or if the Specified Amount is reduced as a result of a request from
the Policy Owner.
TARGET PREMIUM-The annual premium at which the sales load is reduced on a
current basis.
UNDERLYING MUTUAL FUNDS-The underlying mutual funds which correspond to the Sub-
Accounts of the Variable Account.
VALUATION DATE-Each day the New York Stock Exchange and the Company's Home
Office are open for business or any other day during which there is sufficient
degree of trading that the current Net Asset Value of the Accumulation Units
might be materially affected.
VALUATION PERIOD-A period commencing with the close of business on the New York
Stock Exchange and ending at the close of business for the next succeeding
Valuation Date.
VARIABLE ACCOUNT-A separate investment account of Nationwide Life and Annuity
Insurance Company. Nationwide VL Separate Account-C.
4
<PAGE>
TABLE OF CONTENTS
GLOSSARY OF TERMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
SUMMARY OF THE POLICIES. . . . . . . . . . . . . . . . . . . . . . . . . .8
Variable Life Insurance. . . . . . . . . . . . . . . . . . . . . . .8
The Variable Account and its Sub-Accounts. . . . . . . . . . . . . .8
The Fixed Account. . . . . . . . . . . . . . . . . . . . . . . . . .8
Deductions and Charges . . . . . . . . . . . . . . . . . . . . . . .8
Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY. . . . . . . . . . . . . . 11
THE VARIABLE ACCOUNT . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Investments of the Variable Account. . . . . . . . . . . . . . . . 11
-American Century Variable Portfolios, Inc., a member
of the American Century (SM) Family of Investments . . . . . . . 12
-Dreyfus Stock Index Fund, Inc.. . . . . . . . . . . . . . . . . . 12
-The Dreyfus Socially Responsible Growth Fund, Inc.. . . . . . . . 13
-Dreyfus Variable Investment Fund. . . . . . . . . . . . . . . . . 13
-Fidelity Variable Insurance Products Fund . . . . . . . . . . . . 13
-Fidelity Variable Insurance Products Fund II. . . . . . . . . . . 14
-Fidelity Variable Insurance Products Fund III . . . . . . . . . . 14
-Morgan Stanley Universal Funds, Inc.. . . . . . . . . . . . . . . 14
-Nationwide Separate Account Trust . . . . . . . . . . . . . . . . 14
-Subadvised Nationwide Funds . . . . . . . . . . . . . . . . . . 15
-Neuberger & Berman Advisers Management Trust. . . . . . . . . . . 17
-Oppenheimer Variable Account Funds. . . . . . . . . . . . . . . . 18
-Van Eck Worldwide Insurance Trust . . . . . . . . . . . . . . . . 19
-Van Kampen American Capital Life Investment Trust . . . . . . . . 19
-Warburg Pincus Trust. . . . . . . . . . . . . . . . . . . . . . . 19
Reinvestment . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Transfers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Dollar Cost Averaging. . . . . . . . . . . . . . . . . . . . . . . 21
Substitution of Securities . . . . . . . . . . . . . . . . . . . . 21
Voting Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
INFORMATION ABOUT THE POLICIES . . . . . . . . . . . . . . . . . . . . . 22
Underwriting and Issuance. . . . . . . . . . . . . . . . . . . . . 22
-Minimum Requirements for Issuance of a Policy . . . . . . . . . . 22
-Premium Payments. . . . . . . . . . . . . . . . . . . . . . . . . 22
Allocation of Net Premium and Cash Value . . . . . . . . . . . . . 23
Short-Term Right to Cancel Policy. . . . . . . . . . . . . . . . . 23
POLICY CHARGES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Deductions from Premiums . . . . . . . . . . . . . . . . . . . . . 23
Surrender Charges. . . . . . . . . . . . . . . . . . . . . . . . . 24
-Reductions to Surrender Charges . . . . . . . . . . . . . . . . . 25
Deductions from Cash Value . . . . . . . . . . . . . . . . . . . . 25
-Monthly Cost of Insurance . . . . . . . . . . . . . . . . . . . . 26
-Monthly Administrative Charge . . . . . . . . . . . . . . . . . . 26
-Mortality and Expense Risk Charge . . . . . . . . . . . . . . . . 26
Reduction of Charges . . . . . . . . . . . . . . . . . . . . . . . 27
Expenses of the Underlying Mutual Funds. . . . . . . . . . . . . . 27
HOW THE CASH VALUE VARIES. . . . . . . . . . . . . . . . . . . . . . . . 29
How the Investment Experience is Determined. . . . . . . . . . . . 29
Net Investment Factor. . . . . . . . . . . . . . . . . . . . . . . 29
Valuation of Assets. . . . . . . . . . . . . . . . . . . . . . . . 30
Determining the Cash Value . . . . . . . . . . . . . . . . . . . . 30
Valuation Periods and Valuation Dates. . . . . . . . . . . . . . . 30
SURRENDERING THE POLICY FOR CASH . . . . . . . . . . . . . . . . . . . . 30
Right to Surrender . . . . . . . . . . . . . . . . . . . . . . . . 30
Cash Surrender Value . . . . . . . . . . . . . . . . . . . . . . . 30
Partial Surrenders . . . . . . . . . . . . . . . . . . . . . . . . 31
-Preferred Partial Surrenders. . . . . . . . . . . . . . . . . . . 31
-Reduction of the Specified Amount . . . . . . . . . . . . . . . . 31
5
<PAGE>
Maturity Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . 31
Income Tax Withholding . . . . . . . . . . . . . . . . . . . . . . 31
POLICY LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Taking a Policy Loan . . . . . . . . . . . . . . . . . . . . . . . 32
Effect on Investment Performance . . . . . . . . . . . . . . . . . 32
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Effect on Death Benefit and Cash Value . . . . . . . . . . . . . . 33
Repayment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
HOW THE DEATH BENEFIT VARIES . . . . . . . . . . . . . . . . . . . . . . 33
Calculation of the Death Benefit . . . . . . . . . . . . . . . . . 33
Proceeds Payable on Death. . . . . . . . . . . . . . . . . . . . . 33
RIGHT TO EXCHANGE FOR A FIXED BENEFIT POLICY . . . . . . . . . . . . . . 34
CHANGES OF INVESTMENT POLICY . . . . . . . . . . . . . . . . . . . . . . 34
GRACE PERIOD AND GUARANTEED POLICY CONTINUATION PROVISION. . . . . . . . 34
Grace Period . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Guaranteed Policy Continuation Provision . . . . . . . . . . . . . 34
REINSTATEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
THE FIXED ACCOUNT OPTION . . . . . . . . . . . . . . . . . . . . . . . . 35
CHANGES IN EXISTING INSURANCE COVERAGE . . . . . . . . . . . . . . . . . 35
Specified Amount Increases . . . . . . . . . . . . . . . . . . . . 36
Specified Amount Decreases . . . . . . . . . . . . . . . . . . . . 36
Changes in the Death Benefit Option. . . . . . . . . . . . . . . . 36
OTHER POLICY PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . 36
Policy Owner . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Beneficiary. . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Incontestability . . . . . . . . . . . . . . . . . . . . . . . . . 37
Error in Age or Sex. . . . . . . . . . . . . . . . . . . . . . . . 37
Suicide. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Nonparticipating Policies. . . . . . . . . . . . . . . . . . . . . 37
Riders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
LEGAL CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 38
DISTRIBUTION OF THE POLICIES . . . . . . . . . . . . . . . . . . . . . . 38
CUSTODIAN OF ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . 38
TAX MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Policy Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . 38
-Federal Estate and Generation-Skipping Transfer Taxes . . . . . . 39
-Non-Resident Aliens . . . . . . . . . . . . . . . . . . . . . . . 40
Taxation of the Company. . . . . . . . . . . . . . . . . . . . . . 40
Tax Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
THE COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
COMPANY MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Directors of the Company . . . . . . . . . . . . . . . . . . . . . 42
Executive Officers of the Company. . . . . . . . . . . . . . . . . 42
OTHER CONTRACTS ISSUED BY THE COMPANY. . . . . . . . . . . . . . . . . . 43
STATE REGULATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
REPORTS TO POLICY OWNERS . . . . . . . . . . . . . . . . . . . . . . . . 43
ADVERTISING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
REGISTRATION STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . 44
LEGAL OPINIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
APPENDIX 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
APPENDIX 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 64
6
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THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
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.
THE PRIMARY PURPOSE OF THE POLICIES IS TO PROVIDE LIFE INSURANCE PROTECTION FOR
THE BENEFICIARY NAMED IN THE POLICY. NO CLAIM IS MADE THAT THE POLICIES ARE IN
ANY WAY SIMILAR OR COMPARABLE TO A SYSTEMATIC INVESTMENT PLAN OF A MUTUAL FUND.
7
<PAGE>
SUMMARY OF THE POLICIES
VARIABLE LIFE INSURANCE
The variable life insurance Policies offered by Nationwide Life and Annuity
Insurance Company (the "Company") provide for life insurance coverage on the
Insured. The Policies may provide for a Cash Surrender Value which is payable
if the Policy is terminated during the Insured's lifetime.
The death benefit and Cash Value of the Policies may increase or decrease to
reflect the investment performance of the Variable Account Sub-Accounts or the
Fixed Account to which Cash Values are allocated (see "How the Death Benefit
Varies"). There is no guaranteed Cash Surrender Value (see "How the Cash Value
Varies"). If the Cash Surrender Value is insufficient to pay the Policy Charges,
the Policy will lapse without value. The Company guarantees to keep the Policy
in force during the Guaranteed Policy Continuation Period provided the premium
requirements have been met (see "Underwriting and Issuance").
Under certain conditions, a Policy may become a modified endowment contract as a
result of a material change or a reduction in benefits as defined by the
Internal Revenue Code ("Code"). Excess premiums paid may also cause the Policy
to become a modified endowment contract. The Company will monitor premiums paid
and other policy transactions and will notify the Policy Owner when the Policy's
non-modified endowment contract status is in jeopardy (see "Tax Matters").
THE VARIABLE ACCOUNT AND ITS SUB-ACCOUNTS
The Company places the Policy's Net Premiums in the Variable Account or the
Fixed Account at the time the Policy is issued. The Policy Owner selects the
Sub-Accounts of the Variable Account or the Fixed Account into which the Cash
Value will be allocated (see "Allocation of Cash Value"). In such states which
require a return of premiums to those Policy Owners exercising their short term
right to cancel (see "Short Term Right to Cancel Policy"), the Net Premiums will
be allocated to the Nationwide Separate Account Trust Money Market Fund Sub-
Account (for any Net Premiums allocated to a Sub-Account on the application) or
the Fixed Account until the expiration of the period in which the Policy Owner
may exercise his or her short-term right to cancel the Policy. Assets of each
Sub-Account are invested at Net Asset Value in shares of a corresponding
Underlying Mutual Fund (see "Allocation of Net Premium and Cash Value"). For a
description of the Underlying Mutual Fund options and their investment
objectives, see "Investments of the Variable Account."
THE FIXED ACCOUNT
The Fixed Account is funded by the assets of the Company's General Account. Cash
Values allocated to the Fixed Account are credited with interest daily at a rate
declared by the Company. The interest rate declared is at the Company's sole
discretion, but may never be less than an effective annual rate of 3%.
DEDUCTIONS AND CHARGES
The Company deducts certain charges from the premiums and the Cash Value of the
Policy. These charges are made for administrative and sales expenses, tax
expenses, providing life insurance protection and assuming the mortality and
expense risks. For a discussion of any charges imposed by the Underlying Mutual
Fund options, see the prospectuses of the respective Underlying Mutual Funds.
The Company deducts a sales load from each premium payment received which is
guaranteed never to exceed 2.5% of such premium payment. On a current basis,
the sales load, in all years, is 2.5% of premiums paid up to the Target Premium
plus 0.5% of premiums in excess of the Target Premium. 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.
The Company also deducts a charge for tax expense equal to 3.5%, on both current
and guaranteed basis, of all premium payments. This charge reimburses the
Company for premium taxes imposed by various state and local jurisdictions and
for federal taxes imposed under Section 848 of the Code. The 3.5% tax expense
rate consists of the following components: (1) a state premium tax rate of
2.25%; and (2) a federal tax rate of 1.25%.
The Company also deducts the following charges from the Policy's Cash Value on
the Policy Date and each subsequent Monthly Anniversary Day:
- monthly cost of insurance; plus
- monthly cost of any additional benefits provided by riders to the
Policy; plus
8
<PAGE>
- an administrative expense charge. This charge is $10 per month in the
first year and $5 per month in renewal years. The charge may be
increased at the sole discretion of the Company but may not exceed $10
per month in the first year, $7.50 per month in renewal years; plus
- mortality and expense risk charge. 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% for the first
$25,000 of Cash Value attributable to the Variable Account, 0.30% for
the next $225,000 of Cash Value attributable to the Variable Account
and 0.10% for all Cash Value attributable to the Variable Account in
excess of $250,000.
For Policies which are surrendered during the first nine Policy Years, the
Company deducts a Surrender Charge. This Surrender Charge is comprised of an
underwriting component and a sales component. The maximum initial Surrender
Charge varies by issue age, sex, Specified Amount and underwriting
classification and is calculated based on the initial Specified Amount. The
Surrender Charge in renewal years is equal to a percentage of the initial
Surrender Charge. The following table illustrates the maximum initial Surrender
Charge per $1,000 of initial Specified Amount for Policies which are issued on a
standard basis (see Appendix 1 for specific examples).
Initial Specified Amount $50,000-$99,999
Issue Male Female Male Female
Age Non-Tobacco Non-Tobacco Standard Standard
25 $7.773 $7.518 $8.369 $7.818
35 8.817 8.396 9.811 8.889
45 12.185 11.390 13.884 12.164
55 15.628 13.995 18.410 15.106
65 22.274 19.043 26.559 20.607
Initial Specified Amount $100,000 +
Issue Male Female Male Female
Age Non-Tobacco Non-Tobacco Standard Standard
25 $5.773 $5.518 $6.369 $5.818
35 6.817 6.396 7.811 6.889
45 9.685 8.890 11.384 9.664
55 13.128 11.495 15.910 12.606
65 21.274 18.043 25.559 19.607
Policies that are surrendered during the first nine Policy Years following an
increase in the Specified Amount will incur a Surrender Charge associated with
the increase. This Surrender Charge is comprised of an underwriting component
and a sales component. The maximum initial Surrender Charge associated with the
increase is based on the attained age at the time of the increase, the
underwriting classification of the increase, sex, and the amount of the
increase in Specified Amount. The actual initial Surrender Charge associated
with the increase is based upon the maximum initial Surrender Charge associated
with the increase and the premium received within one year of the increase in
Specified Amount.
Increases that are caused by a change in the death benefit option that preserves
the Net Amount At Risk are not subject to a Surrender Charge (for a discussion
on death benefit options see "Calculation of the Death Benefit"). The Surrender
Charge associated with the increase for Policy Years following the increase is a
percentage of the initial Surrender Charge.
9
<PAGE>
The following table illustrates the maximum initial Surrender Charge per $1,000
of Specified Amount increase for Policies increasing coverage on a standard
basis.
ISSUE MALE FEMALE MALE FEMALE
AGE NON-TOBACCO NON-TOBACCO STANDARD STANDARD
25 $3.464 $3.311 $3.821 $3.491
35 4.090 3.837 4.686 4.133
45 5.811 5.334 6.830 5.798
55 7.877 6.897 9.546 7.563
65 12.764 10.826 15.335 11.764
The renewal Surrender Charge is reduced by any partial Surrender Charge actually
paid on previous decreases in Specified Amount. On any partial surrender after
the first Policy Year, a service charge of $25.00 may be deducted from the
amount of the partial surrender.
Decreases in Specified Amount, that are not associated with a partial withdrawal
or a death benefit option change that preserves the Net Amount At Risk, will
incur a proportional Surrender Charge. For a Policy with prior increases in
Specified Amounts, these decreases will be made on a LIFO (last in first out)
basis and therefore decrease each segment in reverse order of its effective
date. For each segment that is reduced by the decrease, a proportional
Surrender Charge will be incurred. The total Surrender Charge for the decrease
will be the sum of these proportional Surrender Charges for the decreases in
various segments.
Underlying Mutual Fund shares are purchased at Net Asset Value, which reflects
the deduction of investment management fees and certain other expenses. The
management fees are charged by each Underlying Mutual Fund's investment adviser
for managing the Underlying Mutual Fund and selecting its portfolio of
securities. Other Underlying Mutual Fund expenses can include such items as
interest expense on loans and contracts with transfer agents, custodians, and
other companies that provide services to the Underlying Mutual Fund. (See
"Expenses of the Underlying Mutual Funds".)
PREMIUMS
The minimum Initial Premium for which a Policy may be issued is equal to three
times the initial Minimum Monthly Premium.
For a limited time, the Policy Owner has the right to cancel the Policy and
receive an amount specified by the laws of the state in which the Policy was
issued (see "Short-Term Right to Cancel Policy").
The Initial Premium is due on the Policy Date. It will be credited on the
Initial Investment Date. Any due and unpaid monthly deductions will be
subtracted from the Cash Value at this time. Insurance will not be effective
until the Initial Premium is paid. The Initial Premium is shown on the Policy
data page.
Premiums, other than the Initial Premium, may be made at any time while the
Policy is in force subject to the limits described below. During the Guaranteed
Policy Continuation Period, the total premium payments, less any Policy
Indebtedness, less any partial surrenders, must be greater than or equal to the
sum of the Minimum Monthly Premiums in order to guarantee the Policy remain in
force. The Minimum Monthly Premiums are shown on the Policy data page.
The Company will send Scheduled Premium payment reminder notices to the Policy
Owner according to the premium mode shown on the Policy data page.
The Initial Premium may be paid to the Company at our Home Office or to an
authorized agent. All premiums after the first are payable at our Home Office.
Premium receipts will be furnished upon request.
Each premium must be at least $50. The Company reserves the right to require
satisfactory evidence of insurability before accepting any additional premium
payment which results in any increase in the Net Amount At Risk. Also, we will
refund any portion of any premium payment which is determined to be in excess of
the premium limit established by law to qualify your Policy as a contract for
life insurance. Where permitted by state law, we may also require that any
existing Policy Indebtedness be repaid prior to accepting any additional premium
payments.
10
<PAGE>
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
Nationwide Life and Annuity Insurance Company (the "Company"), is a stock life
insurance company organized under the laws of the State of Ohio in February,
1981. The Company is a member of Nationwide Insurance Enterprise which includes
Nationwide Life Insurance Company, Nationwide Indemnity Company, Nationwide
Mutual Insurance Company, Nationwide Mutual Fire Insurance Company, Nationwide
Property and Casualty Insurance Company, National Casualty Company, Scottsdale
Indemnity Company and Nationwide General Insurance Company and their affiliated
companies. The Company's Home Office is at One Nationwide Plaza, Columbus, Ohio
43216.
The Company offers a multiple line of products, including annuities. It is
admitted to do business in 46 states and the District of Columbia (for
additional information, see "The Company").
THE VARIABLE ACCOUNT
The Variable Account was established by a resolution of the Company's Board of
Directors, on July 22, 1997, pursuant to Ohio law. The Company has caused the
Variable Account to be registered with the Securities and Exchange Commission as
a unit investment trust pursuant to the provisions of the Investment Company Act
of 1940. Nationwide Life and Annuity Insurance Company, One Nationwide Plaza,
Columbus, Ohio 43216 serves as Trustee for the Trust. Nationwide Advisory
Services, Inc., One Nationwide Plaza, Columbus, Ohio 43216 serves as principal
underwriter for the Trust. Such registration does not involve supervision of
the management of the Variable Account or the Company by the Securities and
Exchange Commission.
The Variable Account is a separate investment account of the Company and as
such, is not chargeable with the liabilities arising out of any other business
the Company may conduct. The Company does not guarantee the investment
performance of the Variable Account. The death benefit and Cash Value under the
Policy may vary with the performance of the investments in the Variable Account
(see "How the Death Benefit Varies" and "How the Cash Value Varies").
Net Premium payments and Cash Value are allocated within the Variable Account
among one or more Sub-Accounts (see "Tax Matters"). The assets of each Sub-
Account are used to purchase shares of the Underlying Mutual Fund options
designated by the Policy Owner. Thus, the investment performance of a Policy
depends upon the investment performance of the Underlying Mutual Fund options
designated by the Policy Owner.
INVESTMENTS OF THE VARIABLE ACCOUNT
At the time of application, the Policy Owner elects to have the Net Premiums
allocated among one or more of the Variable Account Sub-Accounts and the Fixed
Account (see "Allocation of Net Premium and Cash Value"). In such states which
require a return of premiums to those Policy Owners exercising their short term
right to cancel (see "Short Term Right to Cancel Policy"), Net Premiums will be
allocated to the Nationwide Separate Account Trust Money Market Fund Sub-Account
(for any Net Premiums allocated to a Sub-Account on the application) or the
Fixed Account until the expiration of the period in which the Policy Owner may
exercise his or her short-term right to cancel the Policy. At the end of this
period, the Cash Value in that Sub-Account will be transferred to the Variable
Account Sub-Accounts based on the fund allocation factors. Any subsequent Net
Premiums received after this period will be allocated based on the fund
allocation factors.
No less than 5% of Net Premiums may be allocated to any one Sub-Account or the
Fixed Account. The Policy Owner may change the allocation of Net Premiums or
may transfer Cash Value from one Sub-Account to another, subject to such terms
and conditions as may be imposed by each Underlying Mutual Fund option and as
set forth in this prospectus (see "Transfers", "Allocation of Net Premium and
Cash Value" and "Short-Term Right to Cancel Policy").
The Underlying Mutual Fund options are available only to serve as the underlying
investment for variable annuity contracts and variable life insurance policies
issued through separate accounts of life insurance companies which may or may
not be affiliated, also known as "mixed and shared funding." There are certain
risks associated with mixed and shared funding, which are disclosed in the
Underlying Mutual Funds' prospectuses. A full description of the Underlying
Mutual Funds, their investment policies and restrictions, risks and charges are
contained in the prospectuses of the respective Underlying Mutual Funds.
11
<PAGE>
Additional premium payments, upon acceptance, will be allocated to the
Nationwide Separate Account Trust Money Market Fund unless the Policy Owner
specifies otherwise (see "Premium Payments").
A summary of investment objectives is contained in the description of each
Underlying Mutual Fund below. More detailed information may be found in the
current prospectus for each Underlying Mutual Fund option. A prospectus for the
Underlying Mutual Fund option(s) being considered must accompany this prospectus
and should be read in conjunction herewith.
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC., A MEMBER OF THE AMERICAN
CENTURY (SM) FAMILY OF INVESTMENTS
American Century Variable Portfolios, Inc. was organized as a Maryland
corporation in 1987. It is a diversified, open-end management investment
company, which offers its shares only as investment vehicles for variable
annuity and variable life insurance products of insurance companies. American
Century Variable Portfolios, Inc. is managed by American Century Investment
Management, Inc.
-AMERICAN CENTURY VP INTERNATIONAL
INVESTMENT OBJECTIVE: Capital growth. The Fund will seek to achieve its
investment objective by investing primarily in securities of foreign
companies that meet certain fundamental and technical standards of
selection and, in the opinion of the investment manager, have potential for
appreciation. Under normal conditions, the Fund will invest at least 65%
of its assets in common stocks or other equity securities of issuers from
at least three countries outside the United States. While securities of
United States issuers may be included in the portfolio from time to time,
it is the primary intent of the manager to diversify investments across a
broad range of foreign issuers. Although the primary investment of the
Fund will be common stocks (defined to include depository receipts for
common stocks and other equity equivalents), the Fund may also invest in
other types of securities consistent with the Fund's objective. When the
Fund manager believes that the total capital growth potential of other
securities equals or exceeds the potential return of common stocks, the
Fund may invest up to 35% of its assets in such other securities.
-AMERICAN CENTURY VP VALUE
INVESTMENT OBJECTIVE: Long-term capital growth; income is a secondary
objective. Under normal market conditions, the Fund expects to invest at
least 80% of the value of its total assets in equity securities, including
common and preferred stock, convertible preferred stock and convertible
debt obligations. The equity securities in which the Fund will invest will
be primarily securities of well-established companies with intermediate to
large market capitalizations that are believed by the Fund manager to be
undervalued at the time of purchase.
-AMERICAN CENTURY VP INCOME & GROWTH
INVESTMENT OBJECTIVE: Dividend growth, current income and capital
appreciation. The Fund seeks to achieve its investment objective by
investing primarily in common stocks. The investment manager constructs
the portfolio to match the risk characteristics of the S&P 500 Stock Index
and then optimizes each portfolio to achieve the desired balance of risk
and return potential. This includes targeting a dividend yield that
exceeds that of the S&P 500. Such a management technique, known as
portfolio optimization, may cause the Fund to be more heavily invested in
some industries than in others. However, the Fund may not invest more than
25% of its total assets in companies whose principal business activities
are in the same industry.
DREYFUS STOCK INDEX FUND, INC.
The Dreyfus Stock Index Fund, Inc., is an open-end, non-diversified, management
investment company. It was incorporated under Maryland law on January 24, 1989,
and commenced operations on September 29, 1989. The Dreyfus Corporation
("Dreyfus") serves as the Fund's manager, while Mellon Equity Associates, an
affiliate of Dreyfus, serves as the Fund's index manager. Dreyfus is a wholly-
owned subsidiary of Mellon Bank, N.A., which is a wholly-owned subsidiary of
Mellon Bank Corporation.
INVESTMENT OBJECTIVE: To provide investment results that correspond to the
price and yield performance of publicly traded common stocks, in the
aggregate, as represented by the Standard & Poor's 500 Composite Stock
Price Index. The Fund is neither sponsored by nor affiliated with Standard
& Poor's Corporation.
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<PAGE>
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
The Dreyfus Socially Responsible Growth Fund, Inc. is an open-end, diversified,
management investment company. It was incorporated under Maryland law on July
20, 1992, and commenced operations on October 7, 1993. Dreyfus serves as the
Fund's investment advisor. NCM Capital Management Group, Inc. serves as the
Fund's sub-investment adviser and provides day-to-day management of the Fund's
portfolio.
INVESTMENT OBJECTIVE: Capital growth through equity investment in
companies that, in the opinion of the Fund's management, not only meet
traditional investment standards but which also show evidence that they
conduct their business in a manner that contributes to the enhancement of
the quality of life in America. Current income is secondary to the primary
goal.
DREYFUS VARIABLE INVESTMENT FUND
Dreyfus Variable Investment Fund is an open-end, management investment company.
It was organized as an unincorporated business trust under the laws of the
Commonwealth of Massachusetts on October 29, 1986 and commenced operations on
August 31, 1990. Dreyfus serves as the investment manager.
-CAPITAL APPRECIATION PORTFOLIO
INVESTMENT OBJECTIVE: Long-term capital growth consistent with the
preservation of capital; current income is a secondary investment
objective. This Portfolio invests primarily in the common stocks of
domestic and foreign issuers.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
The Fidelity Variable Insurance Products Fund ("Fidelity VIP Fund") is an open-
end, diversified, management investment company organized as a Massachusetts
business trust on November 13, 1981. Shares of Fidelity VIP Fund are purchased
by insurance companies to fund benefits under variable insurance and annuity
policies. Fidelity Management & Research Company ("FMR") is the manager for
Fidelity VIP Fund and its portfolios.
-VIP FUND EQUITY-INCOME PORTFOLIO: SERVICE CLASS
INVESTMENT OBJECTIVE: Reasonable income by investing primarily in
income-producing equity securities. In choosing these securities FMR will
also 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 FUND 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-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 the Portfolio makes sense for you if can afford
to ride out changes in the stock market because the Portfolio 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 FUND 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.
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<PAGE>
- 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; BB or lower by Standard & Poor's and may be
deemed to be speculative in nature. The Portfolio may also purchase
lower-quality bonds such as those rated Ca3 by Moody's Investor
Services, Inc. ("Moody's") or C- by Standard & Poor's Corporation
("S&P") 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 Lower-
Rated Debt Securities" section of the Portfolio's prospectus.
-VIP FUND 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.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
The Fidelity Variable Insurance Products Fund II ("Fidelity VIP Fund II") is an
open-end, diversified, management investment company organized as a
Massachusetts business trust on March 21, 1988. Fidelity VIP Fund II's shares
are purchased by insurance companies to fund benefits under variable insurance
and annuity policies. FMR is the manager of Fidelity VIP Fund II and its
portfolios.
-VIP FUND II CONTRAFUND PORTFOLIO: SERVICE CLASS
INVESTMENT OBJECTIVE: Capital appreciation by investing primarily in
companies that FMR believes to be undervalued due to an overly pessimistic
appraisal by the public. This strategy can lead to investments in domestic
or foreign companies, small and large, many of which may not be well known.
The Portfolio primarily invests in common stock and securities convertible
into common stock, but it has the flexibility to invest in any type of
security that may produce capital appreciation.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND III
The Fidelity Variable Insurance Products Fund III ("Fidelity VIP Fund III") is
an open-end, diversified, management investment company organized as a
Massachusetts business trust on July 14, 1994. Fidelity VIP Fund III's shares
are purchased by insurance companies to fund benefits under variable life
insurance and annuity contracts. FMR is the manager for Fidelity VIP Fund III
and its portfolios.
-VIP FUND III GROWTH OPPORTUNITIES PORTFOLIO: SERVICE CLASS
INVESTMENT OBJECTIVE: Capital growth by investing primarily in common
stocks and securities convertible into common stocks. The Portfolio, under
normal conditions, will invest at least 65% of its total assets in
securities of companies that FMR believes have long-term growth potential.
Although the Portfolio invests primarily in common stock and securities
convertible into common stock, it has the ability to purchase other
securities, such as preferred stock and bonds, that may produce capital
growth. The Portfolio may invest in foreign securities without limitation.
MORGAN STANLEY UNIVERSAL FUNDS, INC.
Morgan Stanley Universal Funds, Inc. is a mutual fund designed to provide
investment vehicles for variable annuity contracts and variable life insurance
policies and for certain tax-qualified investors. Its Emerging Markets Debt
Portfolio is managed by Morgan Stanley Asset Management, Inc.
-EMERGING MARKETS DEBT PORTFOLIO
INVESTMENT OBJECTIVE: High total return by investing primarily in dollar-
and non-dollar denominated fixed income securities of government and
government-related issuers located in emerging market countries, which
securities provide a high level of current income, while at the same time
holding the potential for capital appreciation if the perceived
creditworthiness of the issuer improves due to improving economic,
financial, political, social or other conditions in the country in which
the issuer is located.
NATIONWIDE SEPARATE ACCOUNT TRUST
Nationwide Separate Account Trust ("NSAT") is a diversified, open-end management
investment company created under the laws of Massachusetts. NSAT is a
registered investment company that offers shares in the mutual funds listed
below, each with its own investment objectives. Shares of NSAT will be sold
primarily to life insurance company separate accounts to fund the benefits under
variable life insurance policies and
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variable annuity contracts. The assets of the Trust are managed by Nationwide
Advisory Services, Inc., ("NAS") a registered investment adviser and wholly-
owned subsidiary of Nationwide Life Insurance Company.
-CAPITAL APPRECIATION FUND
INVESTMENT OBJECTIVE: Long-term growth by primarily investing in a
diversified portfolio of the common stock of companies which NAS determines
have better-than-average potential for sustained capital growth over the
long term.
-GOVERNMENT BOND FUND
INVESTMENT OBJECTIVE: As high level of income as is consistent with the
preservation of capital by investing in a diversified portfolio of
securities issued or backed by the United States government, its agencies
or instrumentalities.
-MONEY MARKET FUND
INVESTMENT OBJECTIVE: As high a level of current income as is considered
consistent with the preservation of capital and liquidity by investing
primarily in money market instruments.
-TOTAL RETURN FUND
INVESTMENT OBJECTIVE: Capital growth by investing in common stocks of
companies that NAS believes will have above-average earnings or otherwise
provide investors with above-average potential for capital appreciation.
To maximize this potential, NAS may also utilize, from time to time,
securities convertible into common stocks, warrants and options to purchase
such stocks.
SUBADVISED NATIONWIDE FUNDS
-NATIONWIDE BALANCED FUND
SUBADVISER: SALOMON BROTHERS ASSET MANAGEMENT, INC.
INVESTMENT OBJECTIVE: Primarily seeks above average income compared to a
portfolio entirely invested in equity securities. The Fund's secondary
objective is to take advantage of opportunities for growth of capital and
income. The Fund seeks its objective primarily through investments in a
broad variety of securities, including equity securities, fixed-income
securities and short term obligations. Under normal market conditions, it
is anticipated that the Fund will invest at least 40% of the Fund's total
assets in equity securities and at least 25% in fixed-income senior
securities. The Fund's subadviser, Salomon Brothers Asset Management,
Inc., will have discretion to invest in the full range of maturities of
fixed-income securities. Generally, most of the Fund's long-term debt
investments will consist of "investment grade" securities; but the Fund may
invest up to 20% of its net assets in non-convertible fixed-income
securities rated below investment grade or determined by the subadviser to
be of comparable quality. These securities are commonly known as junk
bonds. In addition, the Fund may invest an unlimited amount in convertible
securities rated below investment grade.
-NATIONWIDE EQUITY INCOME FUND
SUBADVISER: FEDERATED INVESTMENT COUNSELING
INVESTMENT OBJECTIVE: Seeks above average income and capital appreciation
by investing at least 65% of its assets in income-producing equity
securities. Such equity securities include common stocks, preferred
stocks, and securities (including debt securities) that are convertible
into common stocks. The portion of the Fund's total assets invested in
each type of equity security will vary according to the Fund's subadviser's
assessment of market, economic conditions and outlook.
-NATIONWIDE GLOBAL EQUITY FUND
SUBADVISER: J. P. MORGAN INVESTMENT MANAGEMENT INC.
INVESTMENT OBJECTIVE: To provide high total return from a globally
diversified portfolio of equity securities. Total return will consist of
income plus realized and unrealized capital gains and losses. The Fund
seeks its investment objective through country allocation, stock selection
and management of currency exposure. Under normal market conditions, J.P.
Morgan Investment Management Inc., intends to keep the Fund essentially
fully invested with at least 65% of the value of its total assets in equity
securities consisting of common stocks and other securities with equity
characteristics such as preferred stocks, warrants, rights, convertible
securities, trust certificates, limited partnership interests and equity
participations. The Fund's primary equity instruments are the common stock
of companies
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based in the developed countries around the world. The assets of the Fund
will ordinarily be invested in the securities of at least five different
countries.
-NATIONWIDE HIGH INCOME BOND FUND
SUBADVISER: FEDERATED INVESTMENT COUNSELING
INVESTMENT OBJECTIVE: Seeks to provide high current income by investing
primarily in a professionally managed, diversified portfolio of fixed
income securities. To meet its objective, the Fund intends to invest at
least 65% of its assets in lower-rated fixed income securities such as
preferred stocks, bonds, debentures, notes, equipment lease certificates
and equipment trust certificates which are rated BBB or lower by S & P or
Fitch Investors Service or Baa or lower by Moody's (or if not rated, are
determined by the Fund's subadviser to be of a comparable quality). Such
investments are commonly referred to as "junk bonds." For a further
discussion of lower-rated securities, please see the "High Yield
Securities" section of the Fund's prospectus.
-NATIONWIDE MULTI SECTOR BOND FUND
SUBADVISER: SALOMON BROTHERS ASSET MANAGEMENT, INC. WITH SALOMON BROTHERS
ASSET MANAGEMENT LIMITED
INVESTMENT OBJECTIVE: Primarily seeks a high level of current income.
Capital appreciation is a secondary objective. The Fund seeks to achieve
its objectives by investing in a globally diverse portfolio of fixed-income
investments and by giving the subadviser, Salomon Brothers Asset
Management, Inc., broad discretion to deploy the Fund's assets among
certain segments of the fixed-income market that the subadviser believes
will best contribute to achievement of the Fund's investment objectives.
The Fund reserves the right to invest predominantly in securities rated in
medium or lower categories, or as determined by the subadviser to be of
comparable quality, commonly referred to as "junk bonds." Although the
subadviser has the ability to invest up to 100% of the Fund's assets in
lower-rated securities, the subadviser does not anticipate investing in
excess of 75% of the Fund's assets in such securities. The Subadviser has
entered into a subadvisory agreement with its London based affiliate,
Salomon Brothers Asset management Limited, pursuant to which the Subadviser
has delegated to Salomon Brothers Asset Management Limited responsibility
for management of the Fund's investments in non-dollar denominated debt
securities and currency transactions.
-NATIONWIDE SELECT ADVISERS MID CAP FUND
SUBADVISERS: FIRST PACIFIC ADVISORS, INC., PILGRIM BAXTER & ASSOCIATES,
LTD., AND RICE, HALL, JAMES & ASSOCIATES
INVESTMENT OBJECTIVE: Capital appreciation by investing primarily in
equity securities of medium-sized companies (market capitalization between
$500 million and $7 billion); under normal market conditions, the Fund will
invest in equity securities consisting of common stock, preferred stock and
securities convertible into common stocks, including convertible preferred
stock and convertible bonds. NAS has chosen the Fund's subadvisers because
they utilize a number of different investment styles. In utilizing these
different styles, NAS hopes to increase prospects for investment return and
to reduce market risk and volatility.
-NATIONWIDE SMALL CAP VALUE FUND
SUBADVISER: THE DREYFUS CORPORATION
INVESTMENT OBJECTIVE: Capital appreciation through investment in a
diversified portfolio of equity securities of companies with a median
market capitalization of approximately $1 billion. Under normal market
conditions, at least 75% of the Fund's total assets will be invested in
equity securities of companies with market capitalizations at the time of
purchase of between $200 million and $2.5 billion. The Fund will invest in
equity securities of domestic and foreign issuers characterized as "value"
companies according to criteria established by Dreyfus, the Fund's
subadviser.
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-NATIONWIDE SMALL COMPANY FUND
SUBADVISERS: DREYFUS CORPORATION, NEUBERGER & BERMAN, L.P., PICTET
INTERNATIONAL MANAGEMENT LIMITED WITH VAN ECK ASSOCIATES CORPORATION,
STRONG CAPITAL MANAGEMENT, INC. AND WARBURG PINCUS ASSET MANAGEMENT, INC.
INVESTMENT OBJECTIVE: Long-term growth of capital by investing primarily
in equity securities of domestic and foreign companies with market
capitalizations of less than $1 billion at the time of purchase. The
subadvisers were chosen because they utilize a number of different
investment styles when investing in small company stocks. By utilizing
different investment styles, NAS hopes to increase prospects for investment
return and to reduce market risk and volatility.
-NATIONWIDE STRATEGIC 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.
-NATIONWIDE STRATEGIC VALUE FUND
SUBADVISER: STRONG CAPITAL MANAGEMENT INC./SCHAFER CAPITAL MANAGEMENT INC.
INVESTMENT OBJECTIVE: Primarily long-term capital appreciation; current
income is a secondary objective. The Fund seeks to meet its objectives by
investing in securities which are believed to offer the possibility of
increase in value, primarily common stocks of established companies having
a strong financial position and a low stock market valuation at the time of
purchase in relation to investment value. Other than considered
appropriate for cash reserves, the Fund will generally maintain a fully
invested position in common stocks of publicly held companies, primarily in
stocks of companies listed on a national securities exchange or other
equity securities (common stock or securities convertible into common
stock). Investments may also be made in debt securities which are
convertible into common stocks and in warrants or other rights to purchase
common stock, which in such case are considered equity securities by the
Fund. Strong Capital Management, Inc. has subcontracted with Schafer
Capital Management, Inc. to subadvise the Fund.
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
Neuberger & Berman Advisers Management Trust ("N & B AMT") is an open-end,
diversified management investment company consisting of several series. Shares
of the series of N & B AMT are offered in connection with certain variable
annuity contracts and variable life insurance policies issued through life
insurance company separate accounts and are also offered directly to qualified
pension and retirement plans outside of the separate account context.
The Guardian, Partners and Mid-Cap Portfolios of N & B AMT invest all of their
investable assets in a corresponding series of Advisers Managers Trust managed
by Neuberger & Berman Management Incorporated ("N & B Management"). Each series
then invests in securities in accordance with an investment objective, policies
and limitations identical to those of the Portfolio. This "master/feeder fund"
structure is different from that of many other investment companies which
directly acquire and manage their own portfolios of securities. (For more
information regarding "master/feeder fund" structure, see "Special Information
Regarding Organization, Capitalization, and Other Matters" in the underlying
mutual fund prospectus.)The investment advisor is N & B Management.
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-AMT GUARDIAN PORTFOLIO
INVESTMENT OBJECTIVE: Capital appreciation and secondarily, current income.
The Portfolio and its corresponding series seek to achieve these objectives
by investing in common stocks of long-established, high-quality companies.
N & B Management uses a value-oriented investment approach in selecting
securities, looking for low price-to-earnings ratios, strong balance
sheets, solid management, and consistent earnings.
-AMT MID-CAP GROWTH PORTFOLIO
INVESTMENT OBJECTIVE: Capital appreciation by investing in equity
securities of medium-sized companies that N & B Management believes have
the potential for long-term, above-average capital appreciation. Medium-
sized companies have market capitalizations form $300 million to $10
billion at the time of investment. The Portfolio and its corresponding
series may invest up to 10% of its net assets, measured at the time of
investment, in corporate debt securities that are below investment grade
or, if unrated, deemed by N & B Management to be of comparable quality.
Securities that are below investment grade, as well as unrated securities,
are often considered to be speculative and usually entail greater risk. As
part of the Portfolio's investment strategy, the Portfolio may invest up to
20% of its net assets in securities of issuers organized and doing business
principally outside the United States. This limitation does not apply with
respect to foreign securities that are denominated in U.S. dollars.
-AMT PARTNERS PORTFOLIO
INVESTMENT OBJECTIVE: Capital growth by investing in the common stock of
established companies. Its investment program seeks securities believed to
be undervalued based on fundamentals such as low price-to-earnings ratios,
consistent cash flows, and the company's track record through all parts of
the market cycle.
OPPENHEIMER VARIABLE ACCOUNT FUNDS
The Oppenheimer Variable Account Funds is an open-end, diversified management
investment company organized as a Massachusetts business trust in 1984. Shares
of the Funds are sold only to provide benefits under variable life insurance
policies and variable annuity contracts. OppenheimerFunds, Inc. is the
investment adviser.
-OPPENHEIMER CAPITAL APPRECIATION FUND
INVESTMENT OBJECTIVE: Capital appreciation by investing in "growth-type"
companies. Such companies are believed to have relatively favorable long-
term prospects for increasing demand for their goods or services, or to be
developing new products, services or markets, and normally retain a
relatively larger portion of their earnings for research, development and
investment in capital assets. The Fund may also invest in cyclical
industries in "special situations" that OppenheimerFunds, Inc. believes
present opportunities for capital growth.
-OPPENHEIMER GROWTH & INCOME FUND
INVESTMENT OBJECTIVE: High total return, which includes growth in the
value of its shares as well as current income from equity and debt
securities. In seeking its investment objectives, the Fund may invest in
equity and debt securities. Equity investments will include common stocks,
preferred stocks, convertible securities and warrants. Debt investments
will include bonds, participation interests, asset backed securities,
private-label mortgage-backed securities and CMOs, zero coupon securities
and U.S. debt obligations, and cash and cash equivalents. From time to
time, the Fund may focus on small to medium capitalization issuers, the
securities of which may be subject to greater price volatility than those
of larger capitalized issuers.
-OPPENHEIMER GROWTH FUND
INVESTMENT OBJECTIVE: Capital appreciation by investing in securities of
well-known established companies. Such securities generally have a history
of earnings and dividends and are issued by seasoned companies (companies
which have an operating history of at least five years including
predecessors). Current income is a secondary consideration in the
selection of the Fund's portfolio securities.
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VAN ECK WORLDWIDE INSURANCE TRUST
Van Eck Worldwide Insurance Trust ("Van Eck Trust") is an open-end management
investment company organized as a business trust under the laws of the
Commonwealth of Massachusetts on January 7, 1987. Shares of Van Eck Trust are
offered only to separate accounts of various insurance companies to fund the
benefits of variable insurance and annuity policies. The investment advisor and
manager is Van Eck Associates Corporation.
-WORLDWIDE EMERGING MARKETS FUND
INVESTMENT OBJECTIVE: Long-term capital appreciation by investing in
equity securities in emerging markets around the world. The Fund
emphasizes primarily investment in countries that, compared to the world's
major economies, exhibit relatively low gross national product per capita,
as well as the potential for rapid economic growth. Peregrine Asset
Management (Hong Kong) Limited serves as sub-investment advisor to this
Fund.
-WORLDWIDE HARD ASSETS FUND
INVESTMENT OBJECTIVE: Long-term capital appreciation by investing
primarily in "Hard Asset Securities." For the Fund's purpose, "Hard
Assets" are real estate, energy, timber and industrial and precious metals.
Income is a secondary consideration.
VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST
The Van Kampen American Capital Life Investment Trust is an open-end,
diversified management investment company organized as a Delaware business
trust. Shares are offered in separate portfolios which are sold only to
insurance companies to provide funding for variable life insurance policies and
variable annuity contracts. Van Kampen American Capital Asset Management, Inc.
serves as the investment adviser.
-MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO
INVESTMENT OBJECTIVE: Long-term capital growth by investing principally in
a diversified portfolio of securities of companies operating in the real
estate industry ("Real Estate Securities"). Current income is a secondary
consideration. Real Estate Securities include equity securities, including
common stocks and convertible securities, as well as non-convertible
preferred stocks and debt securities of real estate industry companies. A
"real estate industry company" is a company that derives at least 50% of
its assets (marked to market), gross income or net profits, from the
ownership, construction, management or sale of residential, commercial or
industrial real estate. Under normal market conditions, at least 65% of
the Portfolio's total assets will be invested in Real Estate Securities,
primarily equity securities of real estate investment trusts. The
Portfolio may invest up to 25% of its total assets in securities issued by
foreign issuers, some or all of which may also be Real Estate Securities.
WARBURG PINCUS TRUST
The Warburg Pincus Trust is an open-end, management investment company organized
in March 1995 as a business trust under the laws of the Commonwealth of
Massachusetts. It offers shares to insurance companies for allocation to
separate accounts for the purpose of funding variable annuity and variable life
contracts. Portfolios are managed by Warburg Pincus Asset Management, Inc.
("Warburg")
-GROWTH & INCOME PORTFOLIO
INVESTMENT OBJECTIVE: Long-term growth of capital and income by
investing primarily in dividend-paying equity securities. Under normal
market conditions, the Portfolio will invest substantially all of its
assets in equity securities that Warburg considers to be relatively
undervalued based upon research and analysis, taking into account factors
such as price/earnings ratio, price/book ratio, price/cash flow ratio,
earnings growth, debt/capital ratio and multiples of earnings of comparable
securities. Although the Portfolio may hold securities of any size, it
currently expects to focus on companies with market capitalizations of $1
billion or greater at the time of initial purchase.
-INTERNATIONAL EQUITY PORTFOLIO
INVESTMENT OBJECTIVE: Long-term capital appreciation by investing
primarily in a broadly diversified portfolio of equity securities of
companies, wherever organized, that in the judgment of Warburg have their
principal business activities and interest outside the United States. The
Portfolio will ordinarily invest substantially all of its assets, but no
less than 65% of its total assets, in common stocks, warrants
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and securities convertible into or exchangeable for common stocks. The
Portfolio intends to invest principally in the securities of financially
strong companies with opportunities for growth within growing international
economies and markets through increased earning power and improved
utilization or recognition of assets.
-POST-VENTURE CAPITAL PORTFOLIO
INVESTMENT OBJECTIVE: Long-term growth of capital by investing primarily
in equity securities of issuers in their post-venture capital stage of
development and pursues an aggressive investment strategy. Under normal
market conditions, the Portfolio will invest at least 65% of its total
assets in equity securities of "post-venture capital companies." A post-
venture capital company is one that has received venture capital financing
either: (a) during the early stages of the company's existence or the
early stages of the development of a new product or service; or (b) as part
of a restructuring or recapitalization of the company. The Portfolio may
invest up to 10% of its assets in venture capital and other investment
funds.
REINVESTMENT
The funds described above have as a policy the distribution of dividends in the
form of additional shares (or fractions thereof) of the Underlying Mutual Funds.
The distribution of additional shares will not affect the number of Accumulation
Units attributable to a particular Policy (see "Allocation of Cash Value").
TRANSFERS
The Policy Owner may transfer amounts between the Fixed Account and the Sub-
Accounts, without penalty or adjustment, subject to the following requirements.
During any Policy Year, the Company reserves the right to restrict such
transfers between the Fixed Account and the Sub-Accounts to one transfer per
Policy Year.
The Company reserves the right to restrict the amount transferred from the Fixed
Account to 20% of that portion of the Cash Value attributable to the Fixed
Account as of the end of the previous Policy Year. Transfers out of the Fixed
Account effected by dollar cost averaging are not subject to this restriction
(see "Dollar Cost Averaging").
Transfers made to the Fixed Account may not be made either: (a) prior to the
first Policy Anniversary; or (b) within 12 months subsequent to a prior
transfer. The Company reserves the right to restrict the amount transferred to
the Fixed Account to 20% of that portion of Cash Value attributable to the Sub-
Accounts as of the close of business of the prior Valuation Period. The Company
further reserves the right to refuse a transfer to the Fixed Account, in the
event the Cash Value attributable to the Fixed Account should be greater than or
equal to 30% of the Cash Value.
Transfers may be made either in writing or, in states allowing such transfers,
by telephone. In states allowing telephone transfers, and if the Policy Owner
so elects, the Company will also permit the Policy Owner to utilize the
telephone exchange privilege for exchanging amounts among Sub-Account options.
The Company will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. Such procedures may include any or all
of the following, or such other procedures as the Company may, from time to
time, deem reasonable: requesting identifying information, such as name,
contract number, Social Security number, and/or personal identification number;
tape recording all telephone transactions; and providing written confirmation
thereof to both the Policy Owner and any agent of record at the last address of
record. Although failure to follow reasonable procedures may result in the
Company's liability for any losses due to unauthorized or fraudulent telephone
transfers, the Company will not be liable for following instructions
communicated by telephone which it reasonably believes to be genuine. Any losses
incurred pursuant to actions taken by the Company in reliance on telephone
instructions reasonably believed to be genuine shall be borne by the Policy
Owner. The Company may determine to withdraw the telephone exchange privilege,
upon 30 days written notice to Policy Owners.
Policy Owners who have entered into a dollar cost averaging agreement with the
Company (see "Dollar Cost Averaging" below) may transfer from the Fixed Account
to the Variable Account under the terms of that agreement.
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Policies described in this prospectus may in some cases be sold to individuals
who independently utilize the services of a firm or individual engaged in market
timing. Generally, such firms or individuals obtain authorization from multiple
Policy Owners to make transfers and exchanges among the Sub-Accounts (the
Underlying Mutual Funds) on the basis of perceived market trends. Because of
the unusually large transfers of funds associated with some of these
transactions, the ability of the Company or Underlying Mutual Funds to process
such transactions may be compromised, and the execution of such transactions may
possibly disadvantage or work to the detriment of other Policy Owners not
utilizing market timing services.
Accordingly, the right to exchange Cash Surrender Values among the Sub-Accounts
may be subject to modification if such rights are exercised by a market timing
firm or any other third party authorized to initiate transfer or exchange
transactions on behalf of multiple Policy Owners. THE RIGHTS OF INDIVIDUAL
POLICY OWNERS TO EXCHANGE CASH SURRENDER VALUES, WHEN INSTRUCTIONS ARE SUBMITTED
DIRECTLY BY THE POLICY OWNER, OR BY THE POLICY OWNER'S REPRESENTATIVE OF RECORD
AS AUTHORIZED BY THE EXECUTION OF A VALID NATIONWIDE LIMITED POWER OF ATTORNEY
FORM, WILL NOT BE MODIFIED IN ANY WAY. In modifying such rights, the Company
may, among other things, not accept (1) the transfer or exchange instructions of
any agent acting under a power of attorney on behalf of more than one Policy
Owner, or (2) the transfer or exchange instructions of individual Policy Owners
who have executed pre-authorized transfer or 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. The Company will not impose any such restrictions or
otherwise modify exchange rights unless such action is reasonably intended to
prevent the use of such rights in a manner that will disadvantage or potentially
impair the contract rights of other Policy Owners.
DOLLAR COST AVERAGING
The Policy Owner may direct the Company to automatically transfer funds from the
Nationwide Separate Account Trust ("NSAT") Money Market Sub-Account, the NSAT
Government Bond Fund, or the Fixed Account to any other Sub-Account within the
Variable Account on a monthly basis or as frequently as otherwise authorized by
the Company. This service is intended to allow the Policy Owner to utilize
dollar cost averaging, a long-term investment program which provides for
regular, level investments over time. The Company makes no guarantees that
dollar cost averaging will result in a profit or protect against loss in a
declining market. To qualify for dollar cost averaging, there must be a minimum
total Cash Value, less Policy Indebtedness, of $15,000. Transfers for purposes
of dollar cost averaging can only be made from the NSAT Money Market Sub-
Account, the NSAT Government Bond Fund, or the Fixed Account. The minimum
monthly dollar cost averaging transfer is $100. In addition, dollar cost
averaging monthly transfers from the Fixed Account must be equal to or less than
1/30th of the Fixed Account value when the dollar cost averaging program is
requested. Transfers out of the Fixed Account, other than for dollar cost
averaging, may be subject to certain additional restrictions (see "Transfers"
above). A written election of this service, on a form provided by the Company,
must be completed by the Policy Owner in order to begin transfers. Once
elected, transfers from the NSAT Money Market Sub-Account, the NSAT Government
Bond Fund, or the Fixed Account will be processed monthly until either the value
in the NSAT Money Market Sub-Account, the NSAT Government Bond Fund, or the
Fixed Account is completely depleted or the Policy Owner instructs the Company
in writing to cancel the transfers.
The Company reserves the right to discontinue offering dollar cost averaging
upon 30 days written notice to Policy Owners however, any such discontinuation
would not affect dollar cost averaging programs already commenced. The Company
currently does not assess a processing fee for this service, however, it
reserves the right to do so in the future.
SUBSTITUTION OF SECURITIES
If shares of the Underlying Mutual Fund options should no longer be available
for investment by the Variable Account or, if in the judgment of the Company's
management, further investment in such Underlying Mutual Funds should become
inappropriate in view of the purposes of the Policy, the Company may substitute
shares of another Underlying Mutual Fund for shares already purchased or to be
purchased in the future by Net Premium payments under the Policy. No
substitution of securities in the Variable Account may take place without prior
approval of the Securities and Exchange Commission, and under such requirements
as it and any state insurance department may impose.
VOTING RIGHTS
Voting rights under the Policies apply only with respect to Cash Value allocated
to the Sub-Accounts of the Variable Account.
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In accordance with its view of present applicable law, the Company will vote the
shares of the Underlying Mutual Funds held in the Variable Account at regular
and special meetings of the shareholders of the Underlying Mutual Funds in
accordance with instructions received from Policy Owners. However, if the
Investment Company Act of 1940, or any regulation thereunder, should be amended,
or if the present interpretation thereof should change, and as a result the
Company determines that it is permitted to vote the shares of the Underlying
Mutual Funds in its own right, the Company may elect to do so.
The Policy Owner shall have the voting interest under a Policy. The number of
shares in each Sub-Account for which the Policy Owner may give voting
instructions is determined by dividing any portion of the Policy's Cash Value
derived from participation in that Underlying Mutual Fund by the Net Asset Value
of one share of that Underlying Mutual Fund.
The number of shares which a person has a right to vote will be determined as of
a date chosen by the Company, but not more than 90 days prior to the meeting of
the Underlying Mutual Fund. Voting instructions will be solicited by written
communication prior to such meeting.
The Company will vote Underlying Mutual Fund shares in accordance with
instructions received from the Policy Owners. Underlying Mutual Fund shares held
by the Company or by the Variable Account as to which no timely instructions are
received will be voted by the Company in the same proportion as the voting
instructions which are received.
Each person having a voting interest in the Variable Account will receive
periodic reports relating to investments of the Variable Account, the Underlying
Mutual Funds' proxy material and a form with which to give such voting
instructions.
Notwithstanding contrary Policy Owner voting instructions, the Company may vote
Underlying Mutual Fund shares in any manner necessary to enable the Underlying
Mutual Fund to: (1) make or refrain from making any change in the investments or
investment policies for any of the Underlying Mutual Funds, if required by an
insurance regulatory authority; (2) refrain from making any change in the
investment policies or any investment adviser or principal underwriter of any
portfolio which may be initiated by Policy Owners or the Underlying Mutual
Fund's Board of Directors, provided the Company's disapproval of the change is
reasonable and, in the case of a change in the investment policies or investment
adviser, based on a good faith determination that such change would be contrary
to state law or otherwise inappropriate in light of the portfolio's objective
and purposes; or (3) enter into or refrain from entering into any advisory
agreement or underwriting contract, if required by any insurance regulatory
authority.
INFORMATION ABOUT THE POLICIES
UNDERWRITING AND ISSUANCE
- -Minimum Requirements for Issuance of a Policy
The Policies are designed to provide life insurance coverage and the flexibility
to vary the amount and frequency of premium payments. At issue, the Policy
Owner selects the initial Specified Amount and premium. The minimum Specified
Amount is $50,000 ($100,000 in Pennsylvania and New Jersey) for non-preferred
Policies and $100,000 for preferred Policies. Policies may be issued to
Insureds who are 80 or younger at the time of issue. Before issuing any Policy,
the Company requires satisfactory evidence of insurability which may include a
medical examination.
- -Premium Payments
The Initial Premium for a Policy is payable in full at the Company's Home Office
or to an authorized agent. Upon payment of an initial premium, temporary
insurance may be provided, subject to a maximum amount. The effective date of
permanent insurance coverage is dependent upon completion of all underwriting
requirements, payment of Initial Premium, and delivery of the policy while the
Insured is still living.
Premiums, other than the Initial Premium, may be made at any time while the
Policy is in force subject to the limits described below. During the Guaranteed
Policy Continuation Period, the total premium payments, less any Policy
Indebtedness, and less any partial surrenders, must be greater than or equal to
the sum of the Minimum Monthly Premiums in order to guarantee the Policy remain
in force. The Minimum Monthly Premium is shown in the Policy data page.
Each premium payment must be at least $50. Additional premium payments may be
made at any time while the Policy is in force. However, the Company reserves
the right to require satisfactory evidence of insurability before accepting any
additional premium payment which results in an increase in the Net Amount At
Risk.
22
<PAGE>
Also, the Company will refund any portion of any premium payment which is
determined to be in excess of the premium limit established by law to qualify
the Policy as a contract for life insurance. The Company may also require that
any existing Policy Indebtedness be repaid prior to accepting any additional
premium payments. Additional premium payments or other changes to the contract,
may jeopardize the Policy's non-modified endowment status. The Company will
monitor premiums paid and other policy transactions and will notify the Policy
Owner when non-modified endowment contract status is in jeopardy (see "Tax
Matters").
ALLOCATION OF NET PREMIUM AND CASH VALUE
The designation of investment allocations will be made by the prospective Policy
Owner at the time of application for a Policy. The Policy Owner may change the
way in which future Net Premiums are allocated by giving written notice to the
Company. All percentage allocations must be in whole numbers, and must be at
least 5%. The sum of allocations must equal 100%. At the time a Policy is
issued, its Cash Value will be determined as if the Policy had been issued and
the Initial Net Premium invested on the date such premium was received in good
order by the Company.
In such states which require a return of premiums to those Policy Owners
exercising their short term right to cancel (see "Short Term Right to Cancel
Policy"), the Net Premiums will be allocated to the Nationwide Separate Account
Trust Money Market Fund Sub-Account (for any Net Premiums allocated to a Sub-
Account on the application) or the Fixed Account until the expiration of the
period in which the Policy Owner may exercise his or her short-term right to
cancel the Policy. Net Premiums not designated for the Fixed Account will be
placed in the Nationwide Separate Account Trust Money Market Sub-Account. At
the expiration of the period in which the Policy Owner may exercise his or her
short term right to cancel the policy, shares of the Underlying Mutual Funds
specified by the Policy Owner are purchased 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, subject to
such terms and conditions as may be imposed by each Underlying Mutual Fund and
as set forth in the prospectus. Net Premiums allocated to the Fixed Account at
the time of application may not be transferred prior to the first Policy
Anniversary (see "Transfers" and "Investments of the Variable Account").
SHORT-TERM RIGHT TO CANCEL POLICY
A Policy may be returned for cancellation within 10 days after the Policy is
received, within 45 days after the application for insurance is signed, or
within 10 days after the Company mails or delivers a Notice of Right of
Withdrawal, whichever is latest. The Policy can be mailed or delivered to the
registered representative who sold it, or to the Company. Immediately after such
mailing or delivery, the Policy will be deemed void from the beginning. The
Company will refund the amount prescribed by the state in which the Policy was
issued within seven days after it receives the Policy. The amount of the refund
will be either the premiums paid or the Cash Value less, Indebtedness. The
scope of this right varies by state.
POLICY CHARGES
DEDUCTIONS FROM PREMIUMS
The Company deducts a sales load from each premium payment received which is
guaranteed never to exceed 2.5% of such premium payment. On a current basis,
the sales load in all Policy Years is 2.5% of premium paid up to the Target
Premium plus 0.5% of premiums in excess of the Target Premium. 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. The Target Premium is a premium
level based upon a percentage of the Guideline Level Premium. The Target
Premium is the level annual premium amount at which the sales load is reduced on
a current basis.
The Company also deducts from premium payments a tax expense charge of 3.5%, on
both current and guaranteed basis, of all premium payments. This charge
reimburses the Company for premium taxes imposed by various state and local
jurisdictions and for federal taxes imposed under Section 848 of the Code. The
3.5% tax expense rate consists of the following components: (1) a state premium
tax rate of 2.25%; and (2) a federal tax rate of 1.25%.
The Company expects to pay an average state premium tax rate of approximately
2.25% of premiums for all states, although such tax rates range by state from 0%
to 4%. To reimburse the Company for the payment of state premium taxes
associated with the Policies, the Company deducts a charge for state premium
taxes equal to 2.25% of all premium payments received. This charge may be more
or less than the amount actually assessed by the state in which a particular
Policy Owner lives. The 1.25% federal tax component is designed to reimburse
the Company for expenses incurred from federal taxes imposed under Section 848
of the Code. The Company does not expect to make a profit from this charge.
23
<PAGE>
SURRENDER CHARGES
The Company will deduct a Surrender Charge from the policy's Cash Value for any
Policy surrendered during the first nine Policy Years. The maximum initial
Surrender Charge varies by issue age, sex, Specified Amount and underwriting
classification and is calculated based on the initial Specified Amount. The
following table illustrates the maximum initial Surrender Charge per $1,000 of
initial Specified Amount for Policies which are issued on a standard basis (see
Appendix 1 for specific examples).
Initial Specified Amount $50,000-$99,999
Issue Male Female Male Female
Age Non-Tobacco Non-Tobacco Standard Standard
25 $7.773 $7.518 $8.369 $7.818
35 8.817 8.396 9.811 8.889
45 12.185 11.390 13.884 12.164
55 15.628 13.995 18.410 15.106
65 22.274 19.043 26.559 20.607
Initial Specified Amount $100,000+
Issue Male Female Male Female
Age Non-Tobacco Non-Tobacco Standard Standard
25 $5.773 $5.518 $6.369 $5.818
35 6.817 6.396 7.811 6.889
45 9.685 8.890 11.384 9.664
55 13.128 11.495 15.910 12.606
65 21.274 18.043 25.559 19.607
The Surrender Charge is comprised of two components: an underwriting component
and sales component. The underwriting component varies by issue age in the
following manner:
Charge per $1,000 of
Initial Specified Amount
Issue Specified Amounts Specified Amounts
Age less than $100,000 $100,000 or more
0-35 $6.00 $4.00
36-55 7.50 5.00
56-80 7.50 6.50
The underwriting component is designed to cover the administrative expenses
associated with underwriting and issuing the Policy, including the costs of
processing applications, conducting medical exams, determining insurability and
the Insured's underwriting class, and establishing policy records. The Company
does not expect to profit from the underwriting component. The Surrender Charge
may be insufficient to recover certain expenses related to the sale of the
Policies. Unrecovered expenses are borne by the Company's general assets which
may include profits, if any, from mortality and expense risk charges (see
"Deductions from the Cash Value"). Additional premiums and/or income earned on
assets in the Variable Account have no effect on these charges. The remainder
of the Surrender Charge which is not attributable to the underwriting component
represents the sales component. In no event will this component exceed 26 1/2%
of the lesser of the SEC Guideline Level Premium required in the first year or
the premiums actually paid in the first year. The purpose of the sales
component is to reimburse the Company for some of the expenses incurred in the
distribution of the Policies. The Company also deducts 3.5% of each premium for
sales load (see "Deductions from Premiums").
24
<PAGE>
Policies that are surrendered during the first nine Policy Years following an
increase in the Specified Amount will incur a Surrender Charge associated with
the increase. This Surrender Charge is comprised of an underwriting component
and sales component. The maximum initial Surrender Charge associated with the
increase is based on the Attained Age at the time of the increase, the
underwriting classification of the increase, sex, and the amount of the increase
in Specified Amount. The actual initial Surrender Charge associated with the
increase is based upon the maximum initial Surrender Charge and the premium
received within one year of the increase in Specified Amount.
Increases that are caused by a change in death benefit option (See "Changes in
the Death Benefit Option") that preserve the Net Amount At Risk are not subject
to a Surrender Charge. The Surrender Charge associated with the increase for
Policy Years following the increase is a percentage of the initial Surrender
Charge.
The following table illustrates the maximum initial Surrender Charge per $1,000
of Specified Amount increase for Policies increasing coverage on a standard
basis.
Issue Male Female Male Female
Age Non-Tobacco Non-Tobacco Standard Standard
25 $3.464 $3.311 $3.821 $3.491
35 4.090 3.837 4.686 4.133
45 5.811 5.334 6.830 5.798
55 7.877 6.897 9.546 7.563
65 12.764 10.826 15.335 11.764
- -Reductions to Surrender Charges
The Surrender Charges are reduced in subsequent Policy Years in the following
manner:
Surrender Charge Surrender Charge
Completed as a % of Initial Completed as a % of Initial
Policy Years Surrender Charges Policy Years Surrender Charges
0 100% 5 60%
1 100% 6 50%
2 90% 7 40%
3 80% 8 30%
4 70% 9+ 0%
The renewal Surrender Charge is reduced by any partial Surrender Charge actually
paid on previous decreases in Specified Amount.
For the Initial Specified Amount, a completed Policy Year (in the chart above)
is measured from the Issue Date. For any increase in Specified Amount, a
completed Policy Year (in the chart above) is measured from the effective date
of the increase.
Special guaranteed maximum Surrender Charges apply in Pennsylvania (see
Appendix 1).
Decreases in Specified Amount, requested by a Policy Owner, will incur a
proportional Surrender Charge. This proportion is equal to the decrease in
Specified Amount divided by the Specified Amount prior to the decrease. In the
case of a Policy with prior increases, these fractional Surrender Charges will
be calculated separately for the Initial Specified Amount and each increase in
Specified Amount. For a Policy with prior increases in Specified Amounts, these
decreases will be made on a LIFO (last in first out) basis and therefore
decrease each segment in reverse order of its effective date.
Decreases in Specified Amount resulting from a partial surrender or a death
benefit option change that preserves the Net Amount Risk will not incur a
proportional Surrender Charge.
DEDUCTIONS FROM CASH VALUE
The Company also deducts the following charges from the Policy's Cash Value on
the Policy Date and each subsequent Monthly Anniversary Day:
- monthly cost of insurance charges; plus
- monthly cost of any additional benefits provided by riders; plus
25
<PAGE>
- monthly administrative expense charge; plus
- mortality and expense risk charge.
These deductions will be charged proportionately to the Cash Value in each
Variable Account Sub-Account and the Fixed Account.
- -Monthly Cost of Insurance
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.
If death benefit Option 1 or Option 3 is in effect and there have been increases
in the Specified Amount, then the Cash Value shall first be considered a part of
the initial Specified Amount. If the Cash Value exceeds the initial Specified
Amount, it shall then be considered a part of the additional increases in
Specified Amount resulting from the increases in the order of the increases.
Monthly cost of insurance rates will not exceed those guaranteed in the Policy.
Guaranteed cost of insurance rates for Policies issued on Specified Amounts less
than $100,000 are based on the 1980 Commissioners Extended Term Mortality Table,
Age Last Birthday (1980 CET). Guaranteed cost of insurance rates for Policies
issued on Specified Amounts $100,000 or more 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 percentage multiples of the guaranteed cost of insurance rate on a
standard basis. These mortality tables are sex distinct. In addition, separate
mortality tables will be used for tobacco and non-tobacco.
For group or sponsored arrangements (including employees of the Company and
their family members) and for special exchange programs which the Company may
make available from time to time, the mortality tables are unisex.
For Policies issued in Texas on a standard basis ("Special Class - Standard" in
Texas), guaranteed cost of insurance rates for Specified Amounts less than
$100,000 are based on 130% of the 1980 Commissioners Standard Ordinary Mortality
Table, Age Last Birthday (1980 CSO). For Policies issued in the state of
Montana, the mortality tables are unisex.
The rate class of an Insured may affect the cost of insurance rate. The Company
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. The Company may also
issue certain Policies on a "Non Medical" basis to certain categories of
individuals. Due to the underwriting criteria established for Policies issued
on a Non Medical basis, actual rates will be higher than the current cost of
insurance rates being charged under Policies that are medically underwritten.
- -Monthly Administrative Charge
The Company deducts a monthly administrative expense charge to reimburse it for
certain expenses related to maintenance of the Policies, accounting and record
keeping, and periodic reporting to Policy Owners. This charge is designed only
to reimburse the Company for certain actual administrative expenses. The
Company does not expect to recover from this charge any amount in excess of
aggregate maintenance expenses. Currently, this charge is $10 per month in the
first year, $5 per month in renewal years. The Company may, at its sole
discretion, increase this charge. However, the Company guarantees that this
charge will never exceed $10 per month in the first year and $7.50 per month in
renewal years.
- -Mortality and Expense Risk Charge
The Company assumes certain risks for guaranteeing the mortality and expense
charges. The mortality risk assumed under the Policies is that the Insured may
not live as long as expected. The expense risk assumed is that the actual
expenses incurred in issuing and administering the Policies may be greater than
expected. In addition, the Company assumes risks associated with the non-
recovery of Policy issue, underwriting and other administrative expenses due to
Policies which lapse or are surrendered in the early Policy Years.
To compensate the Company for assuming these risks associated with the Policies,
the Company deducts on a monthly basis from the Cash Value attributable to the
Variable Account, a charge for assuming mortality and expense risks. This
charge is equivalent to an annual effective rate of 0.60% of the first $25,000
of Cash Value attributable to the Variable Account, 0.30% of the next $225,000
of Cash Value attributable to the Variable Account, and 0.10% of Cash Value
attributable to the Variable Account in excess of $250,000. To the extent
26
<PAGE>
that future levels of mortality and expenses are less than or equal to those
expected, the Company may realize a profit from this charge. The Surrender
Charge may be insufficient to recover certain expenses related to the sale of
the Policies. Unrecovered expenses are borne by the Company's general assets
which may include profits, if any, from mortality and expense risk charges (see
"Surrender Charges").
The Company does not currently assess any charge for income taxes incurred by
the Company as a result of the operations of the Sub-Accounts of the Variable
Account (see "Taxation of the Company"). The Company reserves the right to
assess a charge for such taxes against the Variable Account if the Company
determines that such taxes will be incurred.
REDUCTION OF CHARGES
The Policy is available for purchase by individuals, corporations and other
groups. For group or sponsored arrangements (including employees of the Company
and their family members) and for special exchange programs which the Company
may make available from time to time, the Company reserves the right to reduce
or eliminate the sales load, mortality and expense risk charges, Surrender
Charge, monthly administrative charge, monthly cost of insurance charges or
other charges normally assessed on certain multiple life cases where it is
expected that the size or nature of such cases will result in savings of sales,
underwriting, administrative or other costs.
Eligibility for and the amount of these reductions will be 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, in the opinion of the Company, are rationally related
to the expected reduction in expenses. The extent and nature of reductions may
change from time to time. Any variations in the charge structure will be
determined in a uniform manner reflecting differences in costs of services and
not unfairly discriminatory to Policy Owners.
EXPENSES OF THE UNDERLYING MUTUAL FUNDS
Underlying Mutual Fund shares are purchased at Net Asset Value, which reflects
the deduction of investment management fees and certain other expenses. The
management fees are charged by each Underlying Mutual Fund's investment adviser
for managing the Underlying Mutual Fund and selecting its portfolio of
securities. Other Underlying Mutual Fund expenses can include such items as
interest expense on loans and contracts with transfer agents, custodians, and
other companies that provide services to the Underlying Mutual Fund. The
management fees and other expenses for each Underlying Mutual Fund for its most
recently completed fiscal year, expressed as a percentage of the Underlying
Mutual Fund's average assets, are as follows:
UNDERLYING MUTUAL FUND ANNUAL EXPENSES(1)
(AFTER EXPENSE REIMBURSEMENT)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Management Total Mutual
Fees Other Expenses Fund Expenses
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
American Century Variable Portfolios, Inc. - American Century VP Income & Growth 0.70% 0.00% 0.70%
- ------------------------------------------------------------------------------------------------------------------------------------
American Century Variable Portfolios, Inc. - American Century VP International 1.50% 0.00% 1.50%
- ------------------------------------------------------------------------------------------------------------------------------------
American Century Variable Portfolios, Inc. - American Century VP Value 1.00% 0.00% 1.00%
- ------------------------------------------------------------------------------------------------------------------------------------
The Dreyfus Socially Responsible Growth Fund, Inc.* 0.72% 0.24% 0.96%
- ------------------------------------------------------------------------------------------------------------------------------------
Dreyfus Stock Index Fund, Inc. 0.25% 0.05% 0.30%
- ------------------------------------------------------------------------------------------------------------------------------------
Dreyfus Variable Investment Fund - Capital Appreciation Portfolio 0.75% 0.09% 0.84%
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund - Equity-Income Portfolio: Service Class*** 0.51% 0.17% 0.68%
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund - Growth Portfolio: Service Class*** 0.61% 0.18% 0.79%
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund - High Income Portfolio: Service Class*** 0.59% 0.22% 0.81%
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund - Overseas Portfolio: Service Class*** 0.76% 0.27% 1.03 %
- ------------------------------------------------------------------------------------------------------------------------------------
27
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund II - Contrafund Portfolio: Service Class*** 0.61% 0.23% 0.84%
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund III - Growth Opportunities Portfolio: Service Class*** 0.61% 0.26% 0.87%
- ------------------------------------------------------------------------------------------------------------------------------------
Morgan Stanley Universal Funds, Inc. - Emerging Markets Debt Portfolio 0.80% 0.50% 1.30%
- ------------------------------------------------------------------------------------------------------------------------------------
NSAT Capital Appreciation Fund 0.65% 0.03% 0.68%
- ------------------------------------------------------------------------------------------------------------------------------------
NSAT Government Bond Fund 0.55% 0.02% 0.57%
- ------------------------------------------------------------------------------------------------------------------------------------
NSAT Money Market Fund 0.45% 0.02% 0.47%
- ------------------------------------------------------------------------------------------------------------------------------------
NSAT Small Company Fund 1.00% 0.10% 1.10%
- ------------------------------------------------------------------------------------------------------------------------------------
NSAT Total Return Fund 0.65% 0.03% 0.68%
- ------------------------------------------------------------------------------------------------------------------------------------
NSAT Nationwide Balanced Fund** 0.75% 0.15% 0.90%
- ------------------------------------------------------------------------------------------------------------------------------------
NSAT Nationwide Equity Income Fund** 0.80% 0.15% 0.95%
- ------------------------------------------------------------------------------------------------------------------------------------
NSAT Nationwide Global Equity Fund** 1.00% 0.20% 1.20%
- ------------------------------------------------------------------------------------------------------------------------------------
NSAT Nationwide High Income Bond Fund** 0.80% 0.15% 0.95%
- ------------------------------------------------------------------------------------------------------------------------------------
NSAT Nationwide Multi-Sector Bond Fund** 0.75% 0.15% 0.90%
- ------------------------------------------------------------------------------------------------------------------------------------
NSAT Nationwide Select Advisers Mid Cap Fund** 1.05% 0.15% 1.20%
- ------------------------------------------------------------------------------------------------------------------------------------
NSAT Nationwide Small Cap Value Fund** 0.97% 0.08% 1.05%
- ------------------------------------------------------------------------------------------------------------------------------------
NSAT Nationwide Small Company Fund 1.00% 0.10% 1.10%
- ------------------------------------------------------------------------------------------------------------------------------------
NSAT Nationwide Strategic Growth Fund** 0.90% 0.10% 1.00%
- ------------------------------------------------------------------------------------------------------------------------------------
NSAT Nationwide Strategic Value Fund 0.90% 0.10% 1.00%
- ------------------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman AMT Guardian Portfolio** 0.55% 0.45% 1.00%
- ------------------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman AMT Mid-Cap Growth Portfolio** 0.55% 0.45% 1.00%
- ------------------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman AMT Partners Portfolio 0.84% 0.11% 0.95%
- ------------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds - Oppenheimer Capital Appreciation Fund 0.72% 0.03% 0.75%
- ------------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds - Oppenheimer Growth Fund* 0.75% 0.04% 0.79%
- ------------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds - Oppenheimer Growth & Income Fund 0.75% 0.25% 1.00%
- ------------------------------------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance Trust - Worldwide Emerging Markets Fund* 1.00% 0.27% 1.27%
- ------------------------------------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance Trust - Worldwide Hard Assets Fund 1.00% 0.11% 1.11%
- ------------------------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life Investment Trust - Morgan Stanley Real Estate
Securities Portfolio* 0.80% 0.30% 1.10%
- ------------------------------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust - Growth & Income Portfolio*, ** 0.65% 0.35% 1.00%
- ------------------------------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust - International Equity Portfolio* 0.96% 0.40% 1.36%
- ------------------------------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust - Post-Venture Capital Portfolio* 0.62% 0.78% 1.40%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Mutual Fund expenses shown above are assessed at the Underlying Mutual
Fund level and are not direct charges against Variable Account assets or
reductions from Cash Value. These Underlying Mutual Fund expenses are
taken into consideration in computing each Underlying Mutual Fund's Net
Asset Value, which is used to calculate the unit values of the Variable
Account. The management fees and other expenses are more fully described
in the prospectuses for each individual Underlying Mutual Fund. The
information relating to the Underlying Mutual Fund expenses was provided
by the Underlying Mutual Fund and was not independently verified by the
Company. The management fees and other expenses are not currently subject
to fee waivers or expense reimbursements.
28
<PAGE>
* The investment advisers for the indicated Underlying Mutual Funds have
voluntarily agreed to reimburse a portion of the management fees and/or
other operating expenses resulting in a reduction of the total expenses.
Absent any such partial reimbursements, "Management Fees" and "Other
Expenses" would have been 0.75% and 0.24% for The Dreyfus Socially
Responsible Growth Fund; 0.75% and 0.06% for the Oppenheimer Variable
Account Funds - Oppenheimer Growth Fund; 1.00% and 0.27% for the Van Kampen
American Capital Life Investment Trust - Morgan Stanley Real Estate
Securities Portfolio; 1.00% and 0.40% for the Warburg Pincus Trust -
International Equity Portfolio; and 1.25% and 0.82% for the Warburg Pincus
Trust - Post-Venture Capital Portfolio.
** The Advisers have agreed with the Trust to waive management fees or to
reimburse expenses incurred by each fund to the extent necessary to limit
the total expense ratio for each fund to a maximum rate calculated on the
average net assets of each fund as follows: NSAT Nationwide Balanced Fund
- 0.90%; NSAT Nationwide Equity Income Fund - 0.95%; NSAT Nationwide High
Income Bond Fund - 0.95%; NSAT Nationwide Multi-Sector Bond Fund - 1.20%;
NSAT Nationwide Select Advisers Mid Cap Fund - 1.20%; NSAT Nationwide
Small Cap Value Fund - 1.20%; and NSAT Nationwide Strategic Growth Fund -
1.00%. In addition, the Advisers of the following Underlying Mutual Funds
have agreed to waive management fees or to reimburse expenses incurred by
each Underlying Mutual Fund to the extent necessary to limit the total
expense ratio to a maximum rate calculated on average net assets as
follows: Neuberger & Berman AMT-Guardian Portfolio - 1.00%; Neuberger
& Berman AMT - Mid-Cap Growth Portfolio - 1.00%; and Warburg Pincus
Trust - Growth & Income Portfolio - 1.00%.
*** The "Other Expenses" reflect the payment of 0.10% pursuant to a Rule 12b-1
Plan adopted by the underlying Mutual Funds.
The Underlying Mutual Fund expenses shown above are assessed at the Underlying
Mutual Fund level and are not direct charges against the Variable Account or
reductions in Cash Value. These Underlying Mutual Fund expenses are taken into
consideration in computing each Underlying Mutual Fund's Net Asset Value, which
is the share price used to calculate the Variable Account's unit value. The
management fees and other expenses are more fully described in the prospectuses
for each individual Underlying Mutual Fund.
HOW THE CASH VALUE VARIES
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, minus any Surrender Charge for decreases in Specified Amount, 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.
HOW THE INVESTMENT EXPERIENCE IS DETERMINED
The Cash Value in each Sub-Account is converted to Accumulation Units of that
Sub-Account. The conversion is accomplished by dividing the amount of Cash
Value allocated to a Sub-Account by the value of an Accumulation Unit for the
Sub-Account of the Valuation Period during which the allocation occurs.
The value of an Accumulation Unit for each Sub-Account was arbitrarily set
initially at $10 when the Underlying Mutual Fund shares in that Sub-Account were
available for purchase. The value for any subsequent Valuation Period is
determined by multiplying the Accumulation Unit value for each Sub-Account for
the immediately preceding Valuation Period by the net investment factor for the
Sub-Account during the subsequent Valuation Period. The value of an
Accumulation Unit may increase or decrease from Valuation Period to Valuation
Period. The number of Accumulation Units will not change as a result of
investment experience.
NET INVESTMENT FACTOR
The net investment factor for any Valuation Period is determined by dividing (a)
by (b) where:
(a) is the net of:
(1) the Net Asset Value per share of the Underlying Mutual Fund held in
the Sub-Account determined at the end of the current Valuation Period,
plus
(2) the per share amount of any dividend or income distributions made by
the Underlying Mutual Fund held in the Sub-Account if the "ex-
dividend" date occurs during the current Valuation Period.
29
<PAGE>
(b) is the Net Asset Value per share of the Underlying Mutual Fund held in the
Sub-Account determined at the end of the immediately preceding Valuation
Period.
For Underlying Mutual Fund options that credit dividends on a daily basis and
pay such dividends once a month, the net investment factor allows for the
monthly reinvestment of these daily dividends.
The net investment factor may be greater or less than one; therefore, the value
of an Accumulation Unit may increase or decrease. Currently, the Company does
not maintain a tax reserve with respect to the Policies since income with
respect to the Underlying Mutual Funds is not taxable to the Company or the
Variable Account. The Company reserves the right to adjust the calculation of
the net investment factor to reflect a tax reserve should such income of other
items become taxable to the Company.
VALUATION OF ASSETS
Underlying Mutual Fund shares in the Variable Account will be valued at their
Net Asset Value.
DETERMINING THE CASH VALUE
The sum of the value of all Variable Account Accumulation Units attributable to
the Policy and amounts credited to the Fixed Account and the Policy Loan
Account is the Cash Value. The number of Accumulation Units credited per each
Sub-Account are 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 the Company. 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 the Company periodically
declares. (For a description of the annual effective credited rates, see "The
Fixed Account Option" and "Policy Loans.") Upon request, the Company will
inform the Policy Owner of the then applicable rates for each account.
VALUATION PERIODS AND VALUATION DATES
A Valuation Period is the period commencing at the close of business on the New
York Stock Exchange and ending at the close of business for the next succeeding
Valuation Date. A Valuation Date is each day that the New York Stock Exchange
and the Company's Home Office are open for business or any other day during
which there is sufficient degree of trading that the current Net Asset Value of
the Accumulation Units might be materially affected.
SURRENDERING THE POLICY FOR CASH
RIGHT TO SURRENDER
The Policy Owner may surrender the Policy in full at any time while the Insured
is living and receive its Cash Surrender Value. The cancellation will be
effective as of the date the Company receives a proper written request for
cancellation and the Policy. Such written request must be signed and the Company
may require the signature to be 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. In some cases, the Company 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 the Company 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.
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PARTIAL SURRENDERS
After the Policy has been in force for one year, the Policy Owner may request a
partial surrender. When a partial surrender is made, the Cash Value will be
reduced by the amount of the partial surrender. Further, the Specified Amount
will be reduced by the amount necessary to prevent any increase to the Net
Amount At Risk, unless the partial surrender is treated as a preferred partial
surrender. Partial surrenders will be permitted only if they satisfy the
following requirements:
1. The minimum partial surrender is $200;
2. The partial surrender may not reduce the Specified Amount below the
Minimum Specified Amount;
3. During the first ten Policy Years, the maximum amount of a partial
surrender cannot exceed 10% of Cash Surrender Value as of the
beginning of the Policy Year;
4. After the completion of ten Policy Years, the maximum amount of a
partial surrender is the Cash Surrender Value less the greater of $500
or three monthly deductions; and
5. After the partial surrender, the Policy continues to qualify as life
insurance.
- -Preferred Partial Surrenders
A partial surrender is considered a preferred partial surrender if the following
conditions are met: (1) such surrender occurs before the 15th Policy
Anniversary; and (2) the surrender amount plus the amount of any previous
preferred policy surrenders in that same Policy Year does not exceed 10% of the
Cash Surrender Value as of the beginning of the Policy Year.
- -Reduction of the Specified Amount
When a partial surrender is made, in addition to the Cash Value being reduced by
the amount of the partial surrender, the Specified Amount may also be reduced,
except for a preferred partial surrender. The reduction to the Specified Amount
will be made in the following order: (1) against the most recent increase in
the Specified Amount; (2) against the next most recent increases in the
Specified Amount in succession; and (3) against the Specified Amount under the
original application.
The Company reserves the right to deduct a fee from the partial surrender
amount. The maximum fee is shown on the Policy data page. Certain partial
surrenders may result in currently taxable income and tax penalties (see "Tax
Matters").
The Company reserves the right to deduct a fee from the partial surrender
amount. The maximum fee is $25.00. Certain partial surrenders may result in
currently taxable income and tax penalties (see "Tax Matters").
MATURITY PROCEEDS
The Maturity Date is the Policy Anniversary on or next following the Insured's
100th birthday. The maturity proceeds will be payable to the Policy Owner on
the Maturity Date provided the Policy is still in force. The maturity proceeds
will be equal to the amount of the Policy's Cash Value, less any Indebtedness.
INCOME TAX WITHHOLDING
Federal law requires the Company to withhold income tax from any portion of
surrender proceeds that is subject to tax, unless the Policy Owner advises the
Company, in writing, of his or her request not to withhold.
If the Policy Owner requests that the Company not withhold taxes, or if the
taxes withheld are insufficient, the Policy Owner may be liable for payment of
an estimated tax. The Policy Owner should consult his or her tax advisor.
In certain employer-sponsored life insurance arrangements, including equity
split dollar arrangements, participants may be required to report for income tax
purposes, one or more of the following: (1) the value each year of the life
insurance protection provided, (2) an amount equal to any employer-paid
premiums; or (3) some or all of the amount by which the current value exceeds
the employer's interest in the Policy. Participants should consult with the
sponsor or the administrator of the Plan, and/or with their personal tax or
legal advisor, to determine the tax consequences, if any, of their employer-
sponsored life insurance arrangements.
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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 Cash Value attributable to
both Fixed and Policy Loan Accounts, and 90% of the Cash Value of the Variable
Account, less any Surrender Charges. The Company will not grant a loan for an
amount less than $200. Should the Death Proceeds become payable, the Policy be
surrendered, or the Policy mature while a loan is outstanding, the amount of
Policy Indebtedness will be deducted from the death benefit, Cash Surrender
Value or the maturity proceeds, respectively.
Any request for a Policy loan must be in written form satisfactory to the
Company. 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
(see "Tax Matters").
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 such payments necessary to prevent
the Policy from lapsing would increase with age (see "Tax Matters").
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 Variable Sub-Account at the
time of the loan. Policy loans will be transferred from the Fixed Account only
when insufficient amounts are available in the Variable 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, the 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. The Company
may change the current interest crediting rate on the policy loans at any time
at its sole discretion. However, the crediting 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. In the event that 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, the Company 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 the Company
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, and if the Guaranteed Policy Continuation Period is not in effect, the
Company 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.
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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 loan repayment,
rather than a premium payment, must be identified as such. Loan repayments will
be credited to the Variable 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. The Company
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.
HOW THE DEATH BENEFIT VARIES
CALCULATION OF THE DEATH BENEFIT
At issue, the Policy Owner selects the Specified Amount and the death benefit
option. At issue, the Policy Owner also irrevocably elects either of the
following tests qualifying the policy as life insurance under Section 7702 of
the Code: 1.) Guideline Premium/Cash Value Corridor Test or 2.) the Cash Value
Accumulation Test.
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 may choose one of three death benefit options.
Under OPTION 1, the death benefit will be the greater of the Specified Amount or
Minimum Required Death Benefit. 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.
Under OPTION 2, the death benefit will be the greater of the Specified Amount
plus the Cash Value as of the date of death, or Minimum Required Death Benefit
and will vary directly with the investment performance.
Under OPTION 3, the death benefit is the greater of: the Minimum Required Death
Benefit or the sum of the Specified Amount on the date of death and accumulated
premium account which consists of all premium payments accumulated to date of
death less partial surrenders accumulated to date of death. The accumulations
will be calculated based on the OPTION 3 interest rate shown on the Policy data
page. In no event will the accumulated premium account be less than zero or
greater than the maximum accumulated premium account shown on the Policy data
page. Once elected, OPTION 3 is irrevocable.
For any death benefit option, the calculation of the Minimum Required Death
Benefit is shown on the Policy Data Page. The Minimum Required Death Benefit is
the lowest death benefit which will qualify the Policy as life insurance under
Section 7702 of the Code. 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 under Section 7702 of the Code where the Policy
Owner has selected Guideline Premium/Cash Value Corridor Test.
PROCEEDS PAYABLE ON DEATH
The actual Death Proceeds payable on the Insured's death 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").
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RIGHT TO EXCHANGE FOR A FIXED BENEFIT POLICY
The Policy Owner may exchange the Policy for a flexible premium adjustable life
insurance policy offered by the Company on the Policy Date. The benefits for
the new policy will not vary with the investment experience of a separate
account. The exchange must be elected within 24 months from the Policy Date. No
evidence of insurability will be required.
The Policy Owner and Beneficiary under the new policy will be the same as those
under the exchanged Policy on the effective date of the exchange. The new
policy will have a death benefit on the exchange date not more than the death
benefit of the original Policy immediately prior to the exchange date. The new
policy will have the same Policy Date and issue age as the original Policy. The
initial Specified Amount and any increases in Specified Amount will have the
same rate class as those of the original Policy. Any Indebtedness may be
transferred to the new policy.
The exchange may be subject to an equitable adjustment in rates and values to
reflect variances, if any, in the rates and values between the two Policies.
After adjustment, if any excess is owed the Policy Owner, the Company will pay
the excess to the Policy Owner in cash. The exchange may be subject to federal
income tax withholding (see "Income Tax Withholding").
CHANGES OF INVESTMENT POLICY
The Company may materially change the investment policy of the Variable Account.
The Company must inform the 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 the Company's operations hazardous to the
public. If a Policy Owner objects, the Policy may be converted to a
substantially comparable General Account life insurance policy offered by the
Company on the life of the Insured. 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 such change to make this
conversion. The Company will not require evidence of insurability for this
conversion.
The new policy will not be affected by the investment experience of any separate
account. The new policy will be for an amount of insurance not exceeding the
death benefit of the Policy converted on the date of such conversion.
GRACE PERIOD AND GUARANTEED POLICY CONTINUATION PROVISION
GRACE PERIOD
If the Cash Surrender Value on a Monthly Anniversary Day is not sufficient to
cover the current monthly deduction, and the Guaranteed Policy Continuation
Provision is not in effect, a grace period will be allowed for the payment of a
premium of at least four times the current monthly deduction. The Company will
send the Policy Owner a notice at the start of the grace period, at the address
in the application or another address specified by the Policy Owner, stating the
amount of premium required. The grace period will end 61 days after the day the
notice is mailed. If sufficient premium is not received by the Company by the
end of the grace period, the Policy will lapse without value. If Death Proceeds
become payable during the grace period, the Company will pay the Death Proceeds.
GUARANTEED POLICY CONTINUATION PROVISION
This Policy will not lapse during the Guaranteed Policy Continuation Period
provided that on each Monthly Anniversary Day (1) is greater than or equal to
(2) where:
(1) Is the sum of all premiums paid to date minus any Indebtedness, and
minus any partial surrenders; and
(2) Is the sum of Minimum Monthly Premiums required since the Policy Date
including the Minimum Monthly Premium for the current Monthly
Anniversary Day.
The Guaranteed Policy Continuation Period is the lesser of 30 Policy Years or
the number of Policy Years until the Insured reaches Attained Age 65. For
Policies issued to ages greater than 55, the Guaranteed Policy Continuation
Period is 10 Policy Years.
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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
Owner may reinstate the Policy 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 satisfactory to the Company;
3. paying sufficient premium to cover all Policy Charges that were due
and unpaid during the grace period;
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 the
Company. If your 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.
THE FIXED ACCOUNT OPTION
Under exemptive and exclusionary provisions, interests in the Company's General
Account have not been registered under the Securities Act of 1933 and the
General Account has not been registered as an investment company under the
Investment Company Act of 1940. Accordingly, neither the General Account nor
any interest therein are subject to the provisions of these Acts, and the
Company has been advised that the staff of the Securities and Exchange
Commission has not reviewed the disclosures in this prospectus relating to the
Fixed Account option. 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.
As explained earlier, a Policy Owner may elect to allocate or transfer all or
part of the Cash Value to the Fixed Account and the amount allocated or
transferred becomes part of the Company's General Account. The Company's
General Account consists of all assets of the Company other than those in the
Variable Account and in other separate accounts that have been or may be
established by the Company. Subject to applicable law, the Company has sole
discretion over the investment of the assets of the General Account and Policy
Owners do not share in the investment experience of those assets. The Company
guarantees that the part of the Cash Value invested under the Fixed Account
option will accrue interest daily at an effective annual rate that the Company
declares periodically. The Fixed Account crediting rate will not be less than
an effective annual rate of 3%. Upon request, the Company will inform the
Policy Owner of the then applicable rate. The Company is not obligated to
credit interest at a higher rate.
CHANGES IN EXISTING INSURANCE COVERAGE
The Policy Owner may request certain changes in the insurance coverage under the
Policy. Any request must be in writing and received at the Company's Home
Office. 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.
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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. the request must be applied for in writing;
2. satisfactory evidence of insurability must be provided;
3. the increase must be for a minimum of $10,000;
4. the Cash Surrender Value is sufficient to continue the Policy in force
for at least 3 months; and
5. age limits are the same as for a new issue.
Any approved increase will have an effective date of the Monthly Anniversary Day
on or next following the date the Company approves the supplemental application.
The Company reserves the right to limit the number of Specified Amount increases
to one each Policy Year.
SPECIFIED AMOUNT DECREASES
After the first Policy Year, the Policy Owner may also request a decrease to the
Specified Amount. Any approved decrease will be effective on the Monthly
Anniversary Day on or next following the date the Company receives the request.
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.
The Company reserves the right to limit the number of Specified Amount decreases
to one each Policy Year. The Company will refuse a request for a decrease which
would:
1. reduce the Specified Amount to less than the Minimum Specified Amount;
or
2. disqualify the Policy as a contract for life insurance.
CHANGES IN THE DEATH BENEFIT OPTION
After the first Policy Year, the Policy Owner may elect to change the death
benefit option under the policy from either Option 1 to Option 2, or from Option
2 to Option 1. Initial elections to Option 3 are irrevocable. Accordingly,
such changes to or from Option 3 are not permitted. Only one change of death
benefit option is permitted per Policy Year. The effective date of such change
will be the Monthly Anniversary Day following the date such change is approved
by the Company.
In order for any such change in the death benefit option to become effective,
the Cash Surrender Value, after such change, must be sufficient to keep the
Policy in force for at least three months subsequent to said change.
The Company will adjust the Specified Amount such that the Net Amount At Risk
remains constant before and after the death benefit option change. 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 under Section 7702
of the Code where the Policy Owner has selected Guideline Premium/Cash Value
Corridor Test.
OTHER POLICY PROVISIONS
POLICY OWNER
While the 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
the Insured is living. Any change must be in a written form satisfactory to the
Company and recorded at the Company's Home Office. Once recorded, the change
will be effective when signed. The change will not affect any payment made or
action taken by the Company before it was recorded. The Company may require
that the Policy be submitted for endorsement before making a change.
If the Policy Owner is other than the Insured and names no contingent Policy
Owner, and dies before the Insured, the Policy Owner's rights in this Policy
belong to the Policy Owner's estate.
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BENEFICIARY
The Beneficiary(ies) shall be as named in the application or as subsequently
changed, subject to assignment, if any.
The Policy Owner may name a new Beneficiary while the Insured is living. Any
change must be in a written form satisfactory to the Company and recorded at the
Company's Home Office. Once recorded, the change will be effective when signed.
The change will not affect any payment made or action taken by the Company
before it was recorded.
If any Beneficiary predeceases the 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 the Insureds, the Death Proceeds shall be paid to the
Policy Owner or the Policy Owner's estate.
ASSIGNMENT
While the 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 by the Company at its Home Office. Any assignment will not affect any
payments made or actions taken by the Company before it was recorded. The
Company is not responsible for any assignment not submitted for recording, nor
is the Company responsible for the sufficiency or validity of any assignment.
The assignment will be subject to any Indebtedness owed to the Company before it
was recorded.
INCONTESTABILITY
The Company will not contest payment of the Death Proceeds based on the initial
Specified Amount after the Policy has been in force during the Insured's
lifetime for 2 years from the Policy Date. For any increase in Specified Amount
requiring evidence of insurability, the Company will not contest payment of the
Death Proceeds based on such an increase after it has been in force during the
Insured's lifetime for 2 years from its effective date.
ERROR IN AGE OR SEX
If the age or sex of the Insured has been misstated, the death benefit and Cash
Value will be adjusted. The amount of the death benefit will be (1) multiplied
by (2) and then the result added to (3), where:
(1) is the Net Amount At Risk at the time of the Insured's death;
(2) is the ratio of the monthly cost of insurance applied in the policy
month of death and the monthly cost of insurance that should have been
applied at the true age and sex in the Policy month of death; and
(3) is the Cash Value at the time of the Insured's death.
The Cash Value will be adjusted to reflect the cost of insurance charges on the
correct age and sex from the Policy Date.
SUICIDE
If the Insured dies by suicide, while sane or insane, within two years from the
Policy Date, the Company will pay no more than the sum of the premiums paid,
less any Indebtedness and less any partial surrenders. If the 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, the Company will pay no more
than the amount paid for such additional benefit.
NONPARTICIPATING POLICIES
These are nonparticipating Policies on which no dividends are payable. These
Policies do not share in the profits or surplus earnings of the Company.
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RIDERS
A rider may be added as an addition to the Policy. Riders currently include:
1. Maturity Extension Endorsement;
2. Spouse Rider;
3. Child Rider;
4. Waiver of Monthly Deductions Rider;
5. Accidental Death Benefit Rider;
6. Additional Protection Rider;
7. Accelerated Death Benefit Rider; and
8. Change of Insured Rider.
Rider availability varies by state.
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 and 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.
DISTRIBUTION OF THE POLICIES
The Policies will be sold by licensed insurance agents in those states where the
policies may lawfully be sold. Such agents will be 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 Distributor, Nationwide Advisory
Services, Inc. NAS acts as general distributor for the Nationwide Multi-Flex
Variable Account, Nationwide DC Variable Account, Nationwide DCVA-II, Nationwide
Variable Account-II, Nationwide Variable Account-5, Nationwide Variable Account-
6, Nationwide Variable Account-8, Nationwide Variable Account-9, 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 VLI Separate Account-2, Nationwide
VLI Separate Account-3, Nationwide VLI Separate Account-4, NACo Variable Account
and the Nationwide Variable Account, all of which are separate investment
accounts of the Company or its affiliates. NAS is a wholly owned subsidiary of
the Company.
NAS also acts as principal underwriter for the Nationwide Investing Foundation,
Nationwide Separate Account Trust, Financial Horizons Investment Trust,
Nationwide Investing Foundation II and Nationwide Asset Allocation Trust, which
are open-end management investment companies.
Gross first year commissions plus any expense allowance payments paid by the
Company on the sale of these Policies provided by the General Distributor will
not exceed 90% of the Target Premium plus 3% of any excess premium payments.
Gross renewal commissions in years 2 through 10 paid by the Company will not
exceed 3% of actual premium payment, and will not exceed 2% in Policy Years 11
and thereafter.
CUSTODIAN OF ASSETS
The Company serves as the custodian of the assets of the Variable Account.
TAX MATTERS
POLICY PROCEEDS
Section 7702 of the Code provides that if certain tests are met, a Policy will
be treated as a life insurance policy for federal tax purposes. The Company
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 Code.
Section 7702A of the 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
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(see "Information about the Policies"). The 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 or chronically 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 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 Code. Under certain
circumstances, certain distributions made under a Policy on the life of a
"terminally ill individual" or a "chronically ill individual," as those terms
are defined in the Code, are excludable from gross income.
The Policies offered by this prospectus may or may not be issued as modified
endowment contracts. The Company 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 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 Code.
In addition to meeting the tests required under Section 7702, Section 817(h) of
the 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
not be treated as life insurance unless such failure was inadvertent, is
corrected, and the Policy Owner or the Company pays an amount to the Internal
Revenue Service. The amount will be based on the tax that would have been paid
by the 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 Internal Revenue Service have suggested, from time to
time, that the number of Underlying Mutual Funds available or the number of
transfer opportunities available under a variable product may be relevant in
determining whether the product qualifies for the desired tax treatment. No
formal guidance has been issued in this area. Should the Secretary of the
Treasury issue additional rules or regulations limiting the number of Underlying
Mutual Funds, transfers between Underlying Mutual Funds, exchanges of Underlying
Mutual Funds or changes in investment objectives of Underlying Mutual Funds such
that the Policy would no longer qualify as life insurance under Section 7702 of
the Code, the Company will take whatever steps are available to remain in
compliance.
The Company 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.
- - 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, an estate of less than $600,000 (inclusive of
certain predeath 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 Insured dies, the death benefit will generally be included in the
lnsured'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.
39
<PAGE>
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. Pursuant to regulations recently promulgated by the U.S.
Treasury Department, the Company may be required to withhold a portion of the
Death Proceeds and pay them directly to the Internal Revenue Service 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
Distributions 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. The Company is required to withhold such amount
from the distribution and remit it to the Internal Revenue Service.
Distributions to certain NRAs may be subject to lower, or in certain instances
zero, tax and withholding rates, if the United States has entered into an
applicable treaty. However, in order to obtain the benefits of such treaty
provisions, the NRA must give to the Company sufficient proof of his or her
residency and citizenship in the form and manner prescribed by the Internal
Revenue Service. In addition, for any distribution made after December 31,
1997, the NRA must obtain an individual Taxpayer Identification Number from the
Internal Revenue Service, and furnish that number to the Company prior to the
distribution. If the Company does not have the proper proof of citizenship or
residency and (for Distributions after December 31, 1997) a proper individual
Taxpayer Identification Number prior to any distribution, the Company will be
required to withhold 30% of the income, regardless of any treaty provision.
A payment may not be subject to withholding where the recipient sufficiently
establishes to the Company that such payment is effectively connected to the
recipient's conduct of a trade or business in the United States and that such
payment is includable in the recipient's gross income for United States federal
income tax purposes, Any such distributions 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 THE COMPANY
The Company is taxed as a life insurance company under the Code. Since the
Variable Account is not a separate entity from the Company and its operations
form a part of the Company, it will not be taxed separately as a "regulated
investment company" under Sub-chapter M of the 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.
The Company 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, the Company 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.
The Company 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 the Company's understanding of
federal tax laws as they are currently interpreted by the Internal Revenue
Service, is general and is not intended as tax advice.
In the recent past, the Code has been subjected to numerous amendments and
changes, and it is reasonable to believe that it will continue to be revised.
The United States Congress has, in the past, considered numerous legislative
proposals that, if enacted, could change the tax treatment of the 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.
40
<PAGE>
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.
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.
THE COMPANY
The life insurance business, including annuities, is the only business in which
the Company is engaged.
The Company markets its Policies through independent insurance brokers, general
agents, and registered representatives of registered NASD broker/dealer firms.
The Company serves as depositor for the Nationwide VL Separate Account-C,
Nationwide VL Separate Account-B, Nationwide VL Separate Account-A, Nationwide
VA Separate Account-A, Nationwide VA Separate Account-B, and the Nationwide VA
Separate Account-C, each of which is a registered investment company.
The Company, 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 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.
The Company 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,
the Company shares employees with Nationwide Mutual Insurance Company and
Nationwide Mutual Fire Insurance Company.
The Company does not presently own or lease any materially important physical
properties when its property holdings are viewed in relation to its total
assets. The Company shares Home Office, other facilities and equipment with
Nationwide Mutual Insurance Company.
COMPANY MANAGEMENT
The Company, together with Nationwide Mutual Insurance Company, Nationwide
Mutual Fire Insurance Company, Nationwide Indemnity Company, Nationwide Life
Insurance Company, Nationwide Property and Casualty Insurance Company, National
Casualty Company, Scottsdale Indemnity Company and Nationwide General Insurance
Company and their affiliated companies comprise the Nationwide Insurance
Enterprise.
The companies comprising the Nationwide Insurance Enterprise have substantially
common boards of directors and officers. Nationwide Financial Services, Inc. is
the sole shareholder of Nationwide Life Insurance Company which is the sole
shareholder of the Company.
41
<PAGE>
DIRECTORS OF THE COMPANY
Director
Name Since Principal Occupation
Lewis J. Alphin 1993 Farm Owner and Operator (1)
Keith W. Eckel 1996 Partner, Fred W. Eckel Sons; President, Eckel
Farms, Inc. (1)
Willard J. Engel 1994 General Manager Lyon County Co-Operative Oil
Company (1)
Fred C. Finney 1992 Owner and Operator, Moreland Fruit Farm; Operator,
Melrose Orchard (1)
Charles L.
Fuellgraf, Jr. *+ 1969 Chief Executive Officer, Fuellgraf Electric
Company. (1)
Joseph J. Gasper *+ 1996 President and Chief Operating Officer, Nationwide
Life Insurance Company and Nationwide Life and
Annuity Insurance Company. (2)
Henry S. Holloway *+ 1986 Farm Owner and Operator (1)
Dimon Richard
McFerson *+ 1988 Chairman and Chief Executive Officer, Nationwide
Insurance Enterprise (2)
David O. Miller *+ 1985 President, Owen Potato Farm, Inc.; Partner, M&M
Enterprises (1)
C. Ray Noecker 1994 Owner and Operator, Noecker Farms (1)
James F. Patterson + 1989 Vice President, Pattersons, Inc. ; President,
Patterson Farms, Inc. (1)
Arden L. Shisler *+ 1984 President and Chief Executive Officer, K&B
Transport, Inc. (1)
Robert L. Stewart 1989 Owner and Operator, Sunnydale Farms and Mining (1)
Nancy C. Thomas * 1986 Farm Owner and Operator. (1)
Harold W. Weihl 1990 Farm Owner and Operator, Weihl Farms (1)
*Member, Executive Committee +Member, Investment Committee
1) Principal occupation for last five years.
2) Prior to assuming this current position, Messrs. McFerson and Gasper held
other executive management positions with the companies.
Each of the directors is a director of the other major insurance affiliates of
the Nationwide Insurance Enterprise, except Mr. Gasper who is a director only of
the Company and Nationwide Life Insurance Company. Messrs. McFerson and Gasper
are directors of Nationwide Advisory Services, Inc., a registered broker-dealer.
Messrs. Holloway, McFerson, Miller, Patterson, Shisler and Fuellgraf are
directors of Nationwide Financial Services, Inc. Messrs. Fuellgraf, McFerson,
Ms. Thomas and Mr. Weihl are trustees of Nationwide Investing Foundation, a
registered investment company. Mr. McFerson is trustee of Nationwide Separate
Account Trust, Financial Horizons Investment Trust, Nationwide Investing
Foundation II and Nationwide Asset Allocation Trust, registered investment
companies. Mr. Engel is a director of Western Cooperative Transport.
EXECUTIVE OFFICERS OF THE COMPANY
NAME OFFICE HELD
Dimon Richard McFerson Chairman and Chief Executive Officer-Nationwide
Insurance Enterprise
Joseph J. Gasper President and Chief Operating Officer
Gordon E. McCutchan Executive Vice President, Law and Corporate
Services and Secretary
Robert A. Oakley Executive Vice President-Chief Financial Officer
42
<PAGE>
Robert J. Woodward, Jr. Executive Vice President-Chief Investment Officer
Susan A. Wolken Senior Vice President - Life Company Operations
W. Sidney Druen Senior Vice President and General Counsel
Harvey S. Galloway, Jr. Senior Vice President and Chief Actuary
Richard A. Karas Senior Vice President - Sales and Financial
Services
Mark R. Thresher Vice President - Controller
Duane M. Campbell Vice President - Treasurer
Dennis W. Click Vice President - Secretary
Mr. Gasper is also President and Chief Operating Officer of Nationwide Life
Insurance Company. Mr. Galloway is also an officer of Nationwide Mutual
Insurance Company and Nationwide Life Insurance Company. Each of the other
officers listed above is also an officer of each of the companies comprising the
Nationwide Insurance Enterprise. Each of the executive officers listed above
has been associated with the registrant in an executive capacity for more than
the past five years, except Mr. Thresher, who joined the Registrant in 1996.
From 1988-1996, Mr. Thresher served as a partner in the accounting firm KPMG
Peat Marwick LLP and lead partner for Nationwide Insurance Enterprise from 1993-
1996.
OTHER CONTRACTS ISSUED BY THE COMPANY
The Company 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 the Company.
STATE REGULATION
The Company 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 the Company 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 the Company's contract liabilities and
reserves so that the Insurance Department may certify the items are correct.
The Company'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, the Company is subject to
regulation under the insurance laws of other jurisdictions in which it may
operate.
REPORTS TO POLICY OWNERS
The Company will mail to the Policy Owner at the last known address of record,
an annual statement showing the amount of the current death benefit, the Cash
Value, Cash Surrender Value, premiums paid, monthly charges deducted since the
last report, and the amounts invested in the Fixed Account, each Sub-Account,
and any Policy Indebtedness.
Policy Owners will also be sent annual and semi-annual reports containing
financial statements for the Variable Account as required by the Investment
Company Act of 1940.
In addition, Policy Owners will receive statements of significant transactions,
such as changes in Specified Amount, changes in death benefit option, changes in
future premium allocation, transfers among Sub-Accounts, premium payments,
loans, loan repayments, reinstatement and termination.
ADVERTISING
The Company 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
the Company. The ratings are not intended to reflect the investment experience
or financial strength of the Variable Account. The Company may advertise these
ratings from time to time. In addition, the Company may include in certain
advertisements, endorsements in the form of a list of organizations, individuals
or other parties which recommend the Company or the Policies. Furthermore, the
Company may occasionally include in advertisements comparisons of currently
taxable and tax deferred investment programs,
43
<PAGE>
based on selected tax brackets, or discussions of alternative investment
vehicles and general economic conditions.
LEGAL PROCEEDINGS
From time to time the Company is a party to litigation and arbitration
proceedings in the ordinary course of its business, none of which is expected to
have a material adverse effect on the Company.
In recent years, life insurance companies have been named as defendants in
lawsuits, including class action lawsuits, relating to life insurance pricing
and sales practices. A number of these lawsuits have resulted in substantial
jury awards or settlements. In February 1997, Nationwide Life was named as a
defendant in a lawsuit filed in New York Supreme Court also related to the sale
of whole life policies on a "vanishing premium" basis (JOHN H. SNYDER v.
NATIONWIDE MUTUAL INSURANCE COMPANY, NATIONWIDE MUTUAL INSURANCE CO. AND
NATIONWIDE LIFE INSURANCE CO.). The plaintiff in such lawsuit seeks to
represent a national class of Nationwide Life policyholders and claims
unspecified compensatory and punitive damages. This lawsuit is in an early
stage and has not been certified as a class action. Nationwide Life intends to
defend these cases vigorously. There can be no assurance that any future
litigation relating to pricing and sales practices will not have a material
adverse effect on the Company.
The General Distributor, Nationwide Advisory Services, Inc., is not engaged in
any material litigation of any nature.
EXPERTS
The financial statements have been included herein in reliance upon the reports
of KPMG Peat Marwick 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 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, the Company, 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.
LEGAL OPINIONS
Legal matters in connection with the Policies described herein are being passed
upon by Druen, Dietrich, Reynolds & Koogler, One Nationwide Plaza, Columbus,
Ohio 43215. All the members of such firm are employed by the Nationwide Mutual
Insurance Company.
44
<PAGE>
APPENDIX 1
ILLUSTRATION OF
SURRENDER CHARGES
Example 1: A female non-tobacco, age 45, purchases a Policy with a Specified
Amount of $50,000 and a Scheduled Premium of $750. She now wishes to surrender
the Policy during the first Policy Year. By using the initial Surrender Charge
table reproduced below, (also see "Surrender Charges") the total Surrender
Charge per thousand multiplied by the Specified Amount expressed in thousands
equals the total Surrender Charge of $569.50 ($11.390 x 50=569.50).
Example 2: A male non-tobacco, age 35, purchases a Policy with a Specified
Amount of $100,000 and a Scheduled Premium of $1100. He now wants to surrender
the Policy in the sixth Policy Year. The total initial Surrender Charge is
calculated using the method illustrated above. (Surrender Charge per 1000 6.817
x 100=681.70 maximum initial Surrender Charge). Because the fifth Policy Year
has been completed, the maximum initial Surrender Charge is reduced by
multiplying it by the applicable percentage factor from the "Reductions to
Surrender Charges" table below. (Also see "Reductions to Surrender Charges").
In this case, $681.70 x 60%=$409.02.
Maximum Surrender Charge per $1,000 of initial Specified Amount for policies
which are issued on a standard basis.
Initial Specified Amount $50,000-$99,999
- --------------------------------------------------------------------------------
ISSUE MALE FEMALE MALE FEMALE
AGE NON-TOBACCO NON-TOBACCO STANDARD STANDARD
- --------------------------------------------------------------------------------
25 $7.773 $7.518 $8.369 $7.818
- --------------------------------------------------------------------------------
35 8.817 8.396 9.811 8.889
- --------------------------------------------------------------------------------
45 12.185 11.390 13.884 12.164
- --------------------------------------------------------------------------------
55 15.628 13.995 18.410 15.106
- --------------------------------------------------------------------------------
65 22.274 19.043 26.559 20.607
- --------------------------------------------------------------------------------
Initial Specified Amount $100,000+
- --------------------------------------------------------------------------------
ISSUE MALE FEMALE MALE FEMALE
AGE NON-TOBACCO NON-TOBACCO STANDARD STANDARD
- --------------------------------------------------------------------------------
25 $5.773 $5.518 $6.369 $5.818
- --------------------------------------------------------------------------------
35 6.817 6.396 7.811 6.889
- --------------------------------------------------------------------------------
45 9.685 8.890 11.384 9.664
- --------------------------------------------------------------------------------
55 13.128 11.495 15.910 12.606
- --------------------------------------------------------------------------------
65 21.274 18.043 25.559 19.607
- --------------------------------------------------------------------------------
Reductions to Surrender Charges.
- --------------------------------------------------------------------------------
SURRENDER CHARGE SURRENDER CHARGE
COMPLETED AS A % OF INITIAL COMPLETED AS A % OF INITIAL
POLICY YEARS SURRENDER CHARGES POLICY YEARS SURRENDER CHARGES
- --------------------------------------------------------------------------------
0 100% 5 60%
- --------------------------------------------------------------------------------
1 100% 6 50%
- --------------------------------------------------------------------------------
2 90% 7 40%
- --------------------------------------------------------------------------------
3 80% 8 30%
- --------------------------------------------------------------------------------
4 70% 9+ 0%
- --------------------------------------------------------------------------------
The current Surrender Charges are the same for all states. However, in
Pennsylvania the guaranteed maximum Surrender Charges are spread out over 14
years. The guaranteed maximum Surrender Charge in subsequent years in
Pennsylvania is reduced in the following manner:
45
<PAGE>
<TABLE>
<CAPTION>
COMPLETED SURRENDER CHARGE COMPLETED SURRENDER CHARGE COMPLETED SURRENDER CHARGE
POLICY AS A % OF INITIAL POLICY AS A % OF INITIAL POLICY AS A % OF INITIAL
YEARS SURRENDER CHARGES YEARS SURRENDER CHARGES YEARS SURRENDER CHARGES
<S> <C> <C> <C> <C> <C>
0 100% 5 60% 10 20%
1 100% 6 50% 11 15%
2 90% 7 40% 12 10%
3 80% 8 30% 13 5%
4 70% 9 25% 14+ 0%
</TABLE>
The illustrations of current values in this prospectus are the same for
Pennsylvania. However, the illustrations of guaranteed values in this
prospectus do not reflect guaranteed maximum Surrender Charges which are spread
out over 14 years. If this contract is issued in Pennsylvania, please contact
the Home Office for an illustration.
The Company has no plans to change the current Surrender Charges.
46
<PAGE>
APPENDIX 2
ILLUSTRATIONS OF CASH VALUES,
CASH SURRENDER VALUES,
AND DEATH BENEFITS
The illustrations in this prospectus have been prepared to help show how values
under the Policies change with investment performance. The illustrations
illustrate 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 no 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 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 0.65%. This
effective rate is based on the average of the fund expenses for the preceding
year for all mutual fund options available under the policy as of March 31,
1997.
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 -0.65%, 5.35% and 11.35%.
The illustrations also reflect the fact that the Company makes monthly charges
for providing insurance protection, recovering taxes, providing for
administrative expenses, and assuming mortality and expense risks. 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.
The Cash Surrender Values shown in the illustrations reflect the fact that the
Company will deduct a Surrender Charge from the Policy's Cash Value for any
Policy surrendered in full during the first nine Policy Years.
The illustrations also 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.
Upon request, the Company will furnish a comparable illustration based on the
proposed Insured's age, sex, smoking classification, rating classification and
premium payment requested.
47
<PAGE>
<TABLE>
<CAPTION>
DEATH BENEFIT OPTION 1
$750 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 45
CURRENT VALUES
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>
1 788 407 0 50,000 440 0 50,000 472 0 50,000
2 1,614 857 283 50,000 949 376 50,000 1,046 472 50,000
3 2,483 1,288 772 50,000 1,470 953 50,000 1,667 1,151 50,000
4 3,394 1,702 1,243 50,000 2,003 1,544 50,000 2,343 1,884 50,000
5 4,351 2,102 1,700 50,000 2,552 2,150 50,000 3,082 2,681 50,000
6 5,357 2,486 2,142 50,000 3,118 2,774 50,000 3,891 3,547 50,000
7 6,412 2,856 2,569 50,000 3,701 3,414 50,000 4,778 4,492 50,000
8 7,520 3,211 2,981 50,000 4,301 4,071 50,000 5,752 5,522 50,000
9 8,683 3,549 3,377 50,000 4,919 4,747 50,000 6,821 6,649 50,000
10 9,905 3,871 3,871 50,000 5,557 5,557 50,000 7,996 7,996 50,000
11 11,188 4,177 4,177 50,000 6,213 6,213 50,000 9,290 9,290 50,000
12 12,535 4,466 4,466 50,000 6,890 6,890 50,000 10,717 10,717 50,000
13 13,949 4,736 4,736 50,000 7,588 7,588 50,000 12,290 12,290 50,000
14 15,434 4,989 4,989 50,000 8,307 8,307 50,000 14,028 14,028 50,000
15 16,993 5,223 5,223 50,000 9,049 9,049 50,000 15,950 15,950 50,000
16 18,630 5,437 5,437 50,000 9,814 9,814 50,000 18,078 18,078 50,000
17 20,349 5,603 5,603 50,000 10,579 10,579 50,000 20,417 20,417 50,000
18 22,154 5,718 5,718 50,000 11,339 11,339 50,000 22,993 22,993 50,000
19 24,049 5,782 5,782 50,000 12,100 12,100 50,000 25,841 25,841 50,000
20 26,039 5,800 5,800 50,000 12,864 12,864 50,000 29,011 29,011 50,000
21 28,129 5,757 5,757 50,000 13,623 13,623 50,000 32,544 32,544 50,000
22 30,323 5,647 5,647 50,000 14,372 14,372 50,000 36,494 36,494 50,000
23 32,626 5,460 5,460 50,000 15,105 15,105 50,000 40,924 40,924 50,000
24 35,045 5,187 5,187 50,000 15,819 15,819 50,000 45,887 45,887 53,688
25 37,585 4,818 4,818 50,000 16,508 16,508 50,000 51,374 51,374 59,594
26 40,252 4,341 4,341 50,000 17,165 17,165 50,000 57,432 57,432 66,047
27 43,052 3,744 3,744 50,000 17,786 17,786 50,000 64,139 64,139 72,477
28 45,992 3,012 3,012 50,000 18,363 18,363 50,000 71,571 71,571 79,444
29 49,079 2,125 2,125 50,000 18,888 18,888 50,000 79,814 79,814 86,997
30 52,321 1,059 1,059 50,000 19,348 19,348 50,000 88,969 88,969 95,197
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY $10.00 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST
POLICY YEAR AND $5 THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS UP TO THE TARGET PREMIUM AND 4%
ON PREMIUMS IN EXCESS OF TARGET FOR ANY SINGLE POLICY YEAR.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL LAPSE WITHOUT VALUE.
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 THE COMPANY OR THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
DEATH BENEFIT OPTION 1
$750 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 45
CURRENT VALUES
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 1,575 356 0 50,000 387 0 50,000 418 0 50,000
2 3,229 721 147 50,000 806 232 50,000 895 321 50,000
3 4,965 1,064 548 50,000 1,228 711 50,000 1,406 889 50,000
4 6,788 1,385 926 50,000 1,650 1,191 50,000 1,951 1,492 50,000
5 8,703 1,680 1,278 50,000 2,071 1,669 50,000 2,534 2,133 50,000
6 10,713 1,948 1,604 50,000 2,489 2,145 50,000 3,157 2,813 50,000
7 12,824 2,185 1,898 50,000 2,899 2,613 50,000 3,820 3,533 50,000
8 15,040 2,388 2,159 50,000 3,299 3,069 50,000 4,525 4,296 50,000
9 17,367 2,552 2,380 50,000 3,681 3,509 50,000 5,272 5,100 50,000
10 19,810 2,672 2,672 50,000 4,042 4,042 50,000 6,064 6,064 50,000
11 22,376 2,745 2,745 50,000 4,377 4,377 50,000 6,902 6,902 50,000
12 25,069 2,766 2,766 50,000 4,680 4,680 50,000 7,789 7,789 50,000
13 27,898 2,732 2,732 50,000 4,947 4,947 50,000 8,730 8,730 50,000
14 30,868 2,637 2,637 50,000 5,170 5,170 50,000 9,730 9,730 50,000
15 33,986 2,473 2,473 50,000 5,339 5,339 50,000 10,789 10,789 50,000
16 37,261 2,231 2,231 50,000 5,445 5,445 50,000 11,913 11,913 50,000
17 40,699 1,901 1,901 50,000 5,474 5,474 50,000 13,106 13,106 50,000
18 44,309 1,468 1,468 50,000 5,409 5,409 50,000 14,370 14,370 50,000
19 48,099 915 915 50,000 5,230 5,230 50,000 15,710 15,710 50,000
20 52,079 224 224 50,000 4,915 4,915 50,000 17,133 17,133 50,000
21 56,258 (*) (*) (*) 4,440 4,440 50,000 18,649 18,649 50,000
22 60,646 (*) (*) (*) 3,779 3,779 50,000 20,274 20,274 50,000
23 65,253 (*) (*) (*) 2,899 2,899 50,000 22,026 22,026 50,000
24 70,091 (*) (*) (*) 1,762 1,762 50,000 23,928 23,928 50,000
25 75,170 (*) (*) (*) 314 314 50,000 26,007 26,007 50,000
26 80,504 (*) (*) (*) (*) (*) (*) 28,301 28,301 50,000
27 86,104 (*) (*) (*) (*) (*) (*) 30,855 30,855 50,000
28 91,984 (*) (*) (*) (*) (*) (*) 33,726 33,726 50,000
29 98,158 (*) (*) (*) (*) (*) (*) 36,995 36,995 50,000
30 104,641 (*) (*) (*) (*) (*) (*) 40,779 40,779 50,000
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A MONTHLY $10 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST
POLICY YEAR AND $7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN
IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL LAPSE WITHOUT VALUE.
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 THE COMPANY OR THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
DEATH BENEFIT OPTION 2
$750 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 45
CURRENT VALUES
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
1 788 405 0 50,405 438 0 50,438 470 0 50,470
2 1,614 851 278 50,851 943 369 50,943 1,039 465 51,039
3 2,483 1,277 760 51,277 1,457 940 51,457 1,652 1,136 51,652
4 3,394 1,683 1,224 51,683 1,980 1,521 51,980 2,316 1,857 52,316
5 4,351 2,073 1,671 52,073 2,516 2,114 52,516 3,037 2,636 53,037
6 5,357 2,445 2,101 52,445 3,064 2,720 53,064 3,823 3,478 53,823
7 6,412 2,800 2,513 52,800 3,625 3,338 53,625 4,677 4,390 54,677
8 7,520 3,137 2,908 53,137 4,198 3,968 54,198 5,608 5,379 55,608
9 8,683 3,456 3,284 53,456 4,783 4,611 54,783 6,623 6,451 56,623
10 9,905 3,755 3,755 53,755 5,380 5,380 55,380 7,729 7,729 57,729
11 11,188 4,035 4,035 54,035 5,988 5,988 55,988 8,936 8,936 58,936
12 12,535 4,295 4,295 54,295 6,608 6,608 56,608 10,253 10,253 60,253
13 13,949 4,534 4,534 54,534 7,238 7,238 57,238 11,690 11,690 61,690
14 15,434 4,751 4,751 54,751 7,879 7,879 57,879 13,261 13,261 63,261
15 16,993 4,945 4,945 54,945 8,530 8,530 58,530 14,977 14,977 64,977
16 18,630 5,117 5,117 55,117 9,189 9,189 59,189 16,854 16,854 66,854
17 20,349 5,234 5,234 55,234 9,825 9,825 59,825 18,873 18,873 68,873
18 22,154 5,291 5,291 55,291 10,431 10,431 60,431 21,045 21,045 71,045
19 24,049 5,290 5,290 55,290 11,006 11,006 61,006 23,386 23,386 73,386
20 26,039 5,237 5,237 55,237 11,554 11,554 61,554 25,922 25,922 75,922
21 28,129 5,116 5,116 55,116 12,057 12,057 62,057 28,660 28,660 78,660
22 30,323 4,920 4,920 54,920 12,505 12,505 62,505 31,617 31,617 81,617
23 32,626 4,641 4,641 54,641 12,885 12,885 62,885 34,806 34,806 84,806
24 35,045 4,270 4,270 54,270 13,185 13,185 63,185 38,242 38,242 88,242
25 37,585 3,799 3,799 53,799 13,390 13,390 63,390 41,943 41,943 91,943
26 40,252 3,218 3,218 53,218 13,487 13,487 63,487 45,926 45,926 95,926
27 43,052 2,520 2,520 52,520 13,459 13,459 63,459 50,212 50,212 100,212
28 45,992 1,694 1,694 51,694 13,289 13,289 63,289 54,823 54,823 104,823
29 49,079 729 729 50,729 12,957 12,957 62,957 59,779 59,779 109,779
30 52,321 (*) (*) (*) 12,438 12,438 62,438 65,100 65,100 115,100
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY $10.00 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST
POLICY YEAR AND $5 THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS UP TO THE TARGET PREMIUM AND 4%
ON PREMIUMS IN EXCESS OF TARGET FOR ANY SINGLE POLICY YEAR.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL LAPSE WITHOUT VALUE.
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 THE COMPANY OR THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
DEATH BENEFIT OPTION 2
$750 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 45
GUARANTEED VALUES
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>
1 788 353 0 50,353 384 0 50,384 415 0 50,415
2 1,614 714 141 50,714 799 225 50,799 887 313 50,887
3 2,483 1,051 535 51,051 1,212 696 51,212 1,388 872 51,388
4 3,394 1,363 904 51,363 1,623 1,164 51,623 1,920 1,461 51,920
5 4,351 1,647 1,245 51,647 2,029 1,628 52,029 2,483 2,081 52,483
6 5,357 1,901 1,556 51,901 2,427 2,083 52,427 3,077 2,733 53,077
7 6,412 2,121 1,834 52,121 2,812 2,525 52,812 3,702 3,415 53,702
8 7,520 2,304 2,074 52,304 3,179 2,949 53,179 4,357 4,127 54,357
9 8,683 2,443 2,271 52,443 3,521 3,349 53,521 5,037 4,865 55,037
10 9,905 2,536 2,536 52,536 3,832 3,832 53,832 5,742 5,742 55,742
11 11,188 2,578 2,578 52,578 4,107 4,107 54,107 6,468 6,468 56,468
12 12,535 2,564 2,564 52,564 4,338 4,338 54,338 7,213 7,213 57,213
13 13,949 2,492 2,492 52,492 4,519 4,519 54,519 7,975 7,975 57,975
14 15,434 2,357 2,357 52,357 4,642 4,642 54,642 8,750 8,750 58,750
15 16,993 2,150 2,150 52,150 4,696 4,696 54,696 9,529 9,529 59,529
16 18,630 1,865 1,865 51,865 4,669 4,669 54,669 10,304 10,304 60,304
17 20,349 1,493 1,493 51,493 4,547 4,547 54,547 11,065 11,065 61,065
18 22,154 1,020 1,020 51,020 4,311 4,311 54,311 11,796 11,796 61,796
19 24,049 435 435 50,435 3,941 3,941 53,941 12,478 12,478 62,478
20 26,039 (*) (*) (*) 3,418 3,418 53,418 13,092 13,092 63,092
21 28,129 (*) (*) (*) 2,720 2,720 52,720 13,616 13,616 63,616
22 30,323 (*) (*) (*) 1,827 1,827 51,827 14,028 14,028 64,028
23 32,626 (*) (*) (*) 717 717 50,717 14,304 14,304 64,304
24 35,045 (*) (*) (*) (*) (*) (*) 14,413 14,413 64,413
25 37,585 (*) (*) (*) (*) (*) (*) 14,316 14,316 64,316
26 40,252 (*) (*) (*) (*) (*) (*) 13,960 13,960 63,960
27 43,052 (*) (*) (*) (*) (*) (*) 13,282 13,282 63,282
28 45,992 (*) (*) (*) (*) (*) (*) 12,201 12,201 62,201
29 49,079 (*) (*) (*) (*) (*) (*) 10,631 10,631 60,631
30 52,321 (*) (*) (*) (*) (*) (*) 8,477 8,477 58,477
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A MONTHLY $10 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST
POLICY YEAR AND $7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL LAPSE WITHOUT VALUE.
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 THE COMPANY OR THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
DEATH BENEFIT OPTION 1
$1,200 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 55
CURRENT VALUES
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 1,575 592 0 50,000 642 0 50,000 693 0 50,000
2 3,229 1,200 507 50,000 1,340 647 50,000 1,486 793 50,000
3 4,965 1,784 1,160 50,000 2,054 1,430 50,000 2,347 1,724 50,000
4 6,788 2,358 1,804 50,000 2,800 2,245 50,000 3,301 2,747 50,000
5 8,703 2,923 2,438 50,000 3,580 3,095 50,000 4,358 3,873 50,000
6 10,713 3,478 3,062 50,000 4,397 3,981 50,000 5,530 5,114 50,000
7 12,824 4,023 3,676 50,000 5,253 4,906 50,000 6,831 6,485 50,000
8 15,040 4,559 4,282 50,000 6,150 5,873 50,000 8,278 8,000 50,000
9 17,367 5,085 4,878 50,000 7,090 6,882 50,000 9,886 9,678 50,000
10 19,810 5,603 5,603 50,000 8,077 8,077 50,000 11,677 11,677 50,000
11 22,376 6,111 6,111 50,000 9,113 9,113 50,000 13,671 13,671 50,000
12 25,069 6,523 6,523 50,000 10,120 10,120 50,000 15,821 15,821 50,000
13 27,898 6,852 6,852 50,000 11,109 11,109 50,000 18,162 18,162 50,000
14 30,868 7,108 7,108 50,000 12,092 12,092 50,000 20,736 20,736 50,000
15 33,986 7,283 7,283 50,000 13,065 13,065 50,000 23,574 23,574 50,000
16 37,261 7,328 7,328 50,000 13,987 13,987 50,000 26,694 26,694 50,000
17 40,699 7,242 7,242 50,000 14,861 14,861 50,000 30,163 30,163 50,000
18 44,309 7,009 7,009 50,000 15,678 15,678 50,000 34,044 34,044 50,000
19 48,099 6,626 6,626 50,000 16,439 16,439 50,000 38,425 38,425 50,000
20 52,079 6,096 6,096 50,000 17,152 17,152 50,000 43,412 43,412 50,000
21 56,258 5,386 5,386 50,000 17,799 17,799 50,000 49,122 49,122 51,578
22 60,646 4,467 4,467 50,000 18,365 18,365 50,000 55,487 55,487 58,261
23 65,253 3,303 3,303 50,000 18,831 18,831 50,000 62,518 62,518 65,644
24 70,091 1,850 1,850 50,000 19,178 19,178 50,000 70,282 70,282 73,796
25 75,170 56 56 50,000 19,379 19,379 50,000 78,850 78,850 82,792
26 80,504 (*) (*) (*) 19,415 19,415 50,000 88,302 88,302 92,717
27 86,104 (*) (*) (*) 19,251 19,251 50,000 98,722 98,722 103,658
28 91,984 (*) (*) (*) 18,846 18,846 50,000 110,204 110,204 115,714
29 98,158 (*) (*) (*) 18,142 18,142 50,000 122,847 122,847 128,989
30 104,641 (*) (*) (*) 17,059 17,059 50,000 136,757 136,757 143,594
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY $10.00 ADMINISTRATIVE
EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND $5 THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM
CHARGE ON ALL PREMIUMS UP TO THE TARGET PREMIUM AND 4% ON PREMIUMS IN EXCESS OF TARGET FOR
ANY SINGLE POLICY YEAR.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES
AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL LAPSE WITHOUT VALUE.
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 THE COMPANY OR THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
DEATH BENEFIT OPTION 1
$1,200 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 55
GUARANTEED VALUES
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 1,575 470 0 50,000 516 0 50,000 563 0 50,000
2 3,229 915 222 50,000 1,038 345 50,000 1,167 474 50,000
3 4,965 1,303 680 50,000 1,533 909 50,000 1,784 1,160 50,000
4 6,788 1,630 1,075 50,000 1,993 1,439 50,000 2,410 1,856 50,000
5 8,703 1,887 1,402 50,000 2,411 1,926 50,000 3,039 2,554 50,000
6 10,713 2,067 1,651 50,000 2,776 2,360 50,000 3,666 3,250 50,000
7 12,824 2,162 1,815 50,000 3,078 2,731 50,000 4,284 3,937 50,000
8 15,040 2,157 1,880 50,000 3,299 3,021 50,000 4,879 4,602 50,000
9 17,367 2,040 1,832 50,000 3,421 3,213 50,000 5,439 5,231 50,000
10 19,810 1,794 1,794 50,000 3,425 3,425 50,000 5,949 5,949 50,000
11 22,376 1,404 1,404 50,000 3,290 3,290 50,000 6,393 6,393 50,000
12 25,069 853 853 50,000 2,993 2,993 50,000 6,753 6,753 50,000
13 27,898 124 124 50,000 2,505 2,505 50,000 7,009 7,009 50,000
14 30,868 (*) (*) (*) 1,793 1,793 50,000 7,134 7,134 50,000
15 33,986 (*) (*) (*) 811 811 50,000 7,089 7,089 50,000
16 37,261 (*) (*) (*) (*) (*) (*) 6,823 6,823 50,000
17 40,699 (*) (*) (*) (*) (*) (*) 6,265 6,265 50,000
18 44,309 (*) (*) (*) (*) (*) (*) 5,319 5,319 50,000
19 48,099 (*) (*) (*) (*) (*) (*) 3,863 3,863 50,000
20 52,079 (*) (*) (*) (*) (*) (*) 1,742 1,742 50,000
21 56,258 (*) (*) (*) (*) (*) (*) (*) (*) (*)
22 60,646 (*) (*) (*) (*) (*) (*) (*) (*) (*)
23 65,253 (*) (*) (*) (*) (*) (*) (*) (*) (*)
24 70,091 (*) (*) (*) (*) (*) (*) (*) (*) (*)
25 75,170 (*) (*) (*) (*) (*) (*) (*) (*) (*)
26 80,504 (*) (*) (*) (*) (*) (*) (*) (*) (*)
27 86,104 (*) (*) (*) (*) (*) (*) (*) (*) (*)
28 91,984 (*) (*) (*) (*) (*) (*) (*) (*) (*)
29 98,158 (*) (*) (*) (*) (*) (*) (*) (*) (*)
30 104,641 (*) (*) (*) (*) (*) (*) (*) (*) (*)
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A MONTHLY $10 ADMINISTRATIVE
EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND $7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF
PREMIUM CHARGE ON ALL PREMIUMS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES
AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL LAPSE WITHOUT VALUE.
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 THE COMPANY OR THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
DEATH BENEFIT OPTION 2
$1,200 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 55
CURRENT VALUES
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 1,575 585 0 50,585 635 0 50,635 685 0 50,685
2 3,229 1,180 487 51,180 1,317 624 51,317 1,461 768 51,461
3 4,965 1,744 1,121 51,744 2,008 1,384 52,008 2,294 1,671 52,294
4 6,788 2,293 1,739 52,293 2,722 2,167 52,722 3,208 2,653 53,208
5 8,703 2,827 2,342 52,827 3,460 2,975 53,460 4,208 3,723 54,208
6 10,713 3,345 2,929 53,345 4,224 3,809 54,224 5,306 4,890 55,306
7 12,824 3,848 3,501 53,848 5,015 4,669 55,015 6,511 6,164 56,511
8 15,040 4,335 4,058 54,335 5,834 5,556 55,834 7,834 7,557 57,834
9 17,367 4,807 4,600 54,807 6,681 6,473 56,681 9,287 9,079 59,287
10 19,810 5,264 5,264 55,264 7,558 7,558 57,558 10,885 10,885 60,885
11 22,376 5,706 5,706 55,706 8,466 8,466 58,466 12,642 12,642 62,642
12 25,069 6,033 6,033 56,033 9,305 9,305 59,305 14,470 14,470 64,470
13 27,898 6,259 6,259 56,259 10,082 10,082 60,082 16,387 16,387 66,387
14 30,868 6,394 6,394 56,394 10,805 10,805 60,805 18,416 18,416 68,416
15 33,986 6,432 6,432 56,432 11,464 11,464 61,464 20,558 20,558 70,558
16 37,261 6,314 6,314 56,314 11,993 11,993 61,993 22,762 22,762 72,762
17 40,699 6,045 6,045 56,045 12,389 12,389 62,389 25,036 25,036 75,036
18 44,309 5,607 5,607 55,607 12,626 12,626 62,626 27,376 27,376 77,376
19 48,099 5,006 5,006 55,006 12,700 12,700 62,700 29,790 29,790 79,790
20 52,079 4,251 4,251 54,251 12,611 12,611 62,611 32,299 32,299 82,299
21 56,258 3,318 3,318 53,318 12,324 12,324 62,324 34,881 34,881 84,881
22 60,646 2,186 2,186 52,186 11,807 11,807 61,807 37,522 37,522 87,522
23 65,253 834 834 50,834 11,024 11,024 61,024 40,203 40,203 90,203
24 70,091 (*) (*) (*) 9,937 9,937 59,937 42,901 42,901 92,901
25 75,170 (*) (*) (*) 8,506 8,506 58,506 45,593 45,593 95,593
26 80,504 (*) (*) (*) 6,703 6,703 56,703 48,264 48,264 98,264
27 86,104 (*) (*) (*) 4,487 4,487 54,487 50,888 50,888 100,888
28 91,984 (*) (*) (*) 1,816 1,816 51,816 53,437 53,437 103,437
29 98,158 (*) (*) (*) (*) (*) (*) 55,867 55,867 105,867
30 104,641 (*) (*) (*) (*) (*) (*) 58,124 58,124 108,124
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY $10.00 ADMINISTRATIVE
EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND $5 THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM
CHARGE ON ALL PREMIUMS UP TO THE TARGET PREMIUM AND 4% ON PREMIUMS IN EXCESS OF TARGET FOR
ANY SINGLE POLICY YEAR.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES
AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL LAPSE WITHOUT VALUE.
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 THE COMPANY OR THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
DEATH BENEFIT OPTION 2
$1,200 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 55
GUARANTEED VALUES
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 1,575 461 0 50,461 507 0 50,507 553 0 50,553
2 3,229 891 198 50,891 1,012 319 51,012 1,138 445 51,138
3 4,965 1,258 634 51,258 1,480 856 51,480 1,724 1,100 51,724
4 6,788 1,556 1,001 51,556 1,904 1,349 51,904 2,302 1,748 52,302
5 8,703 1,777 1,292 51,777 2,272 1,787 52,272 2,865 2,380 52,865
6 10,713 1,914 1,498 51,914 2,574 2,158 52,574 3,401 2,985 53,401
7 12,824 1,959 1,612 51,959 2,796 2,450 52,796 3,898 3,551 53,898
8 15,040 1,898 1,621 51,898 2,921 2,644 52,921 4,335 4,058 54,335
9 17,367 1,720 1,512 51,720 2,929 2,721 52,929 4,694 4,486 54,694
10 19,810 1,412 1,412 51,412 2,801 2,801 52,801 4,949 4,949 54,949
11 22,376 962 962 50,962 2,517 2,517 52,517 5,077 5,077 55,077
12 25,069 360 360 50,360 2,058 2,058 52,058 5,051 5,051 55,051
13 27,898 (*) (*) (*) 1,402 1,402 51,402 4,842 4,842 54,842
14 30,868 (*) (*) (*) 524 524 50,524 4,415 4,415 54,415
15 33,986 (*) (*) (*) (*) (*) (*) 3,725 3,725 53,725
16 37,261 (*) (*) (*) (*) (*) (*) 2,713 2,713 52,713
17 40,699 (*) (*) (*) (*) (*) (*) 1,308 1,308 51,308
18 44,309 (*) (*) (*) (*) (*) (*) (*) (*) (*)
19 48,099 (*) (*) (*) (*) (*) (*) (*) (*) (*)
20 52,079 (*) (*) (*) (*) (*) (*) (*) (*) (*)
21 56,258 (*) (*) (*) (*) (*) (*) (*) (*) (*)
22 60,646 (*) (*) (*) (*) (*) (*) (*) (*) (*)
23 65,253 (*) (*) (*) (*) (*) (*) (*) (*) (*)
24 70,091 (*) (*) (*) (*) (*) (*) (*) (*) (*)
25 75,170 (*) (*) (*) (*) (*) (*) (*) (*) (*)
26 80,504 (*) (*) (*) (*) (*) (*) (*) (*) (*)
27 86,104 (*) (*) (*) (*) (*) (*) (*) (*) (*)
28 91,984 (*) (*) (*) (*) (*) (*) (*) (*) (*)
29 98,158 (*) (*) (*) (*) (*) (*) (*) (*) (*)
30 104,641 (*) (*) (*) (*) (*) (*) (*) (*) (*)
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A MONTHLY $10 ADMINISTRATIVE
EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND $7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF
PREMIUM CHARGE ON ALL PREMIUMS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES
AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL LAPSE WITHOUT VALUE.
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 THE COMPANY OR THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
DEATH BENEFIT OPTION 1
$1,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 45
CURRENT VALUES
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 1,575 934 37 100,000 1,003 106 100,000 1,072 175 100,000
2 3,229 1,904 1,006 100,000 2,102 1,205 100,000 2,309 1,412 100,000
3 4,965 2,848 2,040 100,000 3,239 2,431 100,000 3,664 2,856 100,000
4 6,788 3,766 3,048 100,000 4,416 3,698 100,000 5,150 4,432 100,000
5 8,703 4,658 4,030 100,000 5,634 5,006 100,000 6,781 6,153 100,000
6 10,713 5,524 4,986 100,000 6,896 6,357 100,000 8,574 8,035 100,000
7 12,824 6,364 5,915 100,000 8,202 7,754 100,000 10,545 10,096 100,000
8 15,040 7,176 6,817 100,000 9,556 9,197 100,000 12,715 12,356 100,000
9 17,367 7,961 7,692 100,000 10,958 10,689 100,000 15,105 14,836 100,000
10 19,810 8,718 8,718 100,000 12,412 12,412 100,000 17,742 17,742 100,000
11 22,376 9,447 9,447 100,000 13,919 13,919 100,000 20,652 20,652 100,000
12 25,069 10,147 10,147 100,000 15,482 15,482 100,000 23,866 23,866 100,000
13 27,898 10,817 10,817 100,000 17,104 17,104 100,000 27,424 27,424 100,000
14 30,868 11,457 11,457 100,000 18,788 18,788 100,000 31,374 31,374 100,000
15 33,986 12,026 12,026 100,000 20,499 20,499 100,000 35,731 35,731 100,000
16 37,261 12,508 12,508 100,000 22,224 22,224 100,000 40,535 40,535 100,000
17 40,699 12,895 12,895 100,000 23,962 23,962 100,000 45,845 45,845 100,000
18 44,309 13,180 13,180 100,000 25,709 25,709 100,000 51,726 51,726 100,000
19 48,099 13,367 13,367 100,000 27,477 27,477 100,000 58,265 58,265 100,000
20 52,079 13,474 13,474 100,000 29,288 29,288 100,000 65,566 65,566 100,000
21 56,258 13,455 13,455 100,000 31,108 31,108 100,000 73,721 73,721 100,000
22 60,646 13,309 13,309 100,000 32,942 32,942 100,000 82,861 82,861 100,000
23 65,253 13,019 13,019 100,000 34,785 34,785 100,000 93,064 93,064 109,815
24 70,091 12,570 12,570 100,000 36,633 36,633 100,000 104,335 104,335 122,072
25 75,170 11,941 11,941 100,000 38,481 38,481 100,000 116,784 116,784 135,469
26 80,504 11,112 11,112 100,000 40,325 40,325 100,000 130,533 130,533 150,113
27 86,104 10,063 10,063 100,000 42,162 42,162 100,000 145,756 145,756 164,704
28 91,984 8,765 8,765 100,000 43,990 43,990 100,000 162,626 162,626 180,514
29 98,158 7,187 7,187 100,000 45,802 45,802 100,000 181,339 181,339 197,660
30 104,641 5,284 5,284 100,000 47,593 47,593 100,000 202,124 202,124 216,273
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY $10.00 ADMINISTRATIVE
EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND $5 THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM
CHARGE ON ALL PREMIUMS UP TO THE TARGET PREMIUM AND 4% ON PREMIUMS IN EXCESS OF TARGET FOR
ANY SINGLE POLICY YEAR.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES
AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL LAPSE WITHOUT VALUE.
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 THE COMPANY OR THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
DEATH BENEFIT OPTION 1
$1,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 45
GUARANTEED VALUES
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 1,575 934 36 100,000 1,003 105 100,000 1,072 174 100,000
2 3,229 1,862 964 100,000 2,059 1,161 100,000 2,265 1,367 100,000
3 4,965 2,753 1,945 100,000 3,139 2,331 100,000 3,558 2,750 100,000
4 6,788 3,605 2,887 100,000 4,241 3,523 100,000 4,961 4,243 100,000
5 8,703 4,415 3,787 100,000 5,365 4,737 100,000 6,484 5,856 100,000
6 10,713 5,181 4,642 100,000 6,508 5,970 100,000 8,137 7,598 100,000
7 12,824 5,897 5,448 100,000 7,666 7,217 100,000 9,929 9,480 100,000
8 15,040 6,557 6,198 100,000 8,834 8,475 100,000 11,871 11,512 100,000
9 17,367 7,156 6,887 100,000 10,007 9,737 100,000 13,976 13,707 100,000
10 19,810 7,688 7,688 100,000 11,179 11,179 100,000 16,258 16,258 100,000
11 22,376 8,147 8,147 100,000 12,346 12,346 100,000 18,734 18,734 100,000
12 25,069 8,527 8,527 100,000 13,503 13,503 100,000 21,424 21,424 100,000
13 27,898 8,825 8,825 100,000 14,645 14,645 100,000 24,353 24,353 100,000
14 30,868 9,032 9,032 100,000 15,767 15,767 100,000 27,554 27,554 100,000
15 33,986 9,137 9,137 100,000 16,859 16,859 100,000 31,059 31,059 100,000
16 37,261 9,129 9,129 100,000 17,909 17,909 100,000 34,907 34,907 100,000
17 40,699 8,996 8,996 100,000 18,907 18,907 100,000 39,141 39,141 100,000
18 44,309 8,716 8,716 100,000 19,834 19,834 100,000 43,808 43,808 100,000
19 48,099 8,269 8,269 100,000 20,671 20,671 100,000 48,967 48,967 100,000
20 52,079 7,633 7,633 100,000 21,399 21,399 100,000 54,693 54,693 100,000
21 56,258 6,786 6,786 100,000 21,997 21,997 100,000 61,075 61,075 100,000
22 60,646 5,705 5,705 100,000 22,444 22,444 100,000 68,226 68,226 100,000
23 65,253 4,364 4,364 100,000 22,716 22,716 100,000 76,282 76,282 100,000
24 70,091 2,729 2,729 100,000 22,784 22,784 100,000 85,412 85,412 100,000
25 75,170 757 757 100,000 22,607 22,607 100,000 95,635 95,635 110,936
26 80,504 (*) (*) (*) 22,129 22,129 100,000 106,895 106,895 122,929
27 86,104 (*) (*) (*) 21,278 21,278 100,000 119,342 119,342 134,857
28 91,984 (*) (*) (*) 19,961 19,961 100,000 133,119 133,119 147,762
29 98,158 (*) (*) (*) 18,065 18,065 100,000 148,390 148,390 161,745
30 104,641 (*) (*) (*) 15,459 15,459 100,000 165,355 165,355 176,930
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A MONTHLY $10 ADMINISTRATIVE
EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND $7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF
PREMIUM CHARGE ON ALL PREMIUMS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES
AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL LAPSE WITHOUT VALUE.
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 THE COMPANY OR THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
DEATH BENEFIT OPTION 2
$1,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 45
CURRENT VALUES
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 1,575 930 33 100,930 999 101 100,999 1,068 170 101,068
2 3,229 1,892 994 101,892 2,089 1,192 102,089 2,295 1,397 102,295
3 4,965 2,824 2,017 102,824 3,212 2,405 103,212 3,634 2,826 103,634
4 6,788 3,727 3,009 103,727 4,370 3,652 104,370 5,095 4,377 105,095
5 8,703 4,599 3,971 104,599 5,561 4,933 105,561 6,691 6,063 106,691
6 10,713 5,441 4,902 105,441 6,788 6,249 106,788 8,435 7,897 108,435
7 12,824 6,251 5,802 106,251 8,051 7,602 108,051 10,342 9,893 110,342
8 15,040 7,029 6,670 107,029 9,350 8,991 109,350 12,428 12,069 112,428
9 17,367 7,774 7,505 107,774 10,686 10,417 110,686 14,711 14,442 114,711
10 19,810 8,486 8,486 108,486 12,060 12,060 112,060 17,210 17,210 117,210
11 22,376 9,164 9,164 109,164 13,472 13,472 113,472 19,948 19,948 119,948
12 25,069 9,807 9,807 109,807 14,922 14,922 114,922 22,947 22,947 122,947
13 27,898 10,413 10,413 110,413 16,412 16,412 116,412 26,237 26,237 126,237
14 30,868 10,983 10,983 110,983 17,942 17,942 117,942 29,855 29,855 129,855
15 33,986 11,470 11,470 111,470 19,464 19,464 119,464 33,787 33,787 133,787
16 37,261 11,853 11,853 111,853 20,958 20,958 120,958 38,046 38,046 138,046
17 40,699 12,126 12,126 112,126 22,412 22,412 122,412 42,659 42,659 142,659
18 44,309 12,279 12,279 112,279 23,814 23,814 123,814 47,652 47,652 147,652
19 48,099 12,316 12,316 112,316 25,165 25,165 125,165 53,071 53,071 153,071
20 52,079 12,261 12,261 112,261 26,489 26,489 126,489 58,985 58,985 158,985
21 56,258 12,061 12,061 112,061 27,728 27,728 127,728 65,391 65,391 165,391
22 60,646 11,716 11,716 111,716 28,876 28,876 128,876 72,340 72,340 172,340
23 65,253 11,210 11,210 111,210 29,912 29,912 129,912 79,875 79,875 179,875
24 70,091 10,529 10,529 110,529 30,811 30,811 130,811 88,040 88,040 188,040
25 75,170 9,655 9,655 109,655 31,548 31,548 131,548 96,885 96,885 196,885
26 80,504 8,572 8,572 108,572 32,094 32,094 132,094 106,464 106,464 206,464
27 86,104 7,265 7,265 107,265 32,423 32,423 132,423 116,838 116,838 216,838
28 91,984 5,717 5,717 105,717 32,502 32,502 132,502 128,074 128,074 228,074
29 98,158 3,906 3,906 103,906 32,293 32,293 132,293 140,238 140,238 240,238
30 104,641 1,804 1,804 101,804 31,750 31,750 131,750 153,401 153,401 253,401
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY $10.00 ADMINISTRATIVE
EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND $5 THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM
CHARGE ON ALL PREMIUMS UP TO THE TARGET PREMIUM AND 4% ON PREMIUMS IN EXCESS OF TARGET FOR
ANY SINGLE POLICY YEAR.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES
AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL LAPSE WITHOUT VALUE.
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 THE COMPANY OR THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
DEATH BENEFIT OPTION 2
$1,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 45
GUARANTEED VALUES
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 1,575 930 32 100,930 998 101 100,998 1,067 170 101,067
2 3,229 1,850 953 101,850 2,046 1,148 102,046 2,250 1,353 102,250
3 4,965 2,729 1,921 102,729 3,111 2,304 103,111 3,527 2,719 103,527
4 6,788 3,564 2,846 103,564 4,193 3,475 104,193 4,904 4,186 104,904
5 8,703 4,353 3,725 104,353 5,288 4,660 105,288 6,388 5,760 106,388
6 10,713 5,091 4,553 105,091 6,392 5,853 106,392 7,987 7,449 107,987
7 12,824 5,773 5,324 105,773 7,499 7,051 107,499 9,706 9,257 109,706
8 15,040 6,393 6,034 106,393 8,603 8,244 108,603 11,550 11,191 111,550
9 17,367 6,943 6,674 106,943 9,695 9,425 109,695 13,523 13,254 113,523
10 19,810 7,417 7,417 107,417 10,766 10,766 110,766 15,632 15,632 115,632
11 22,376 7,808 7,808 107,808 11,808 11,808 111,808 17,884 17,884 117,884
12 25,069 8,110 8,110 108,110 12,812 12,812 112,812 20,284 20,284 120,284
13 27,898 8,320 8,320 108,320 13,771 13,771 113,771 22,845 22,845 122,845
14 30,868 8,427 8,427 108,427 14,672 14,672 114,672 25,572 25,572 125,572
15 33,986 8,421 8,421 108,421 15,501 15,501 115,501 28,478 28,478 128,478
16 37,261 8,292 8,292 108,292 16,240 16,240 116,240 31,569 31,569 131,569
17 40,699 8,024 8,024 108,024 16,870 16,870 116,870 34,850 34,850 134,850
18 44,309 7,600 7,600 107,600 17,364 17,364 117,364 38,320 38,320 138,320
19 48,099 6,999 6,999 106,999 17,693 17,693 117,693 41,975 41,975 141,975
20 52,079 6,203 6,203 106,203 17,830 17,830 117,830 45,816 45,816 145,816
21 56,258 5,195 5,195 105,195 17,743 17,743 117,743 49,840 49,840 149,840
22 60,646 3,959 3,959 103,959 17,404 17,404 117,404 54,048 54,048 154,048
23 65,253 2,480 2,480 102,480 16,783 16,783 116,783 58,442 58,442 158,442
24 70,091 737 737 100,737 15,841 15,841 115,841 63,016 63,016 163,016
25 75,170 (*) (*) (*) 14,532 14,532 114,532 67,757 67,757 167,757
26 80,504 (*) (*) (*) 12,796 12,796 112,796 72,639 72,639 172,639
27 86,104 (*) (*) (*) 10,557 10,557 110,557 77,621 77,621 177,621
28 91,984 (*) (*) (*) 7,728 7,728 107,728 82,647 82,647 182,647
29 98,158 (*) (*) (*) 4,212 4,212 104,212 87,651 87,651 187,651
30 104,641 (*) (*) (*) (*) (*) (*) 92,572 92,572 192,572
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A MONTHLY $10 ADMINISTRATIVE
EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND $7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF
PREMIUM CHARGE ON ALL PREMIUMS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES
AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL LAPSE WITHOUT VALUE.
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 THE COMPANY OR THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
DEATH BENEFIT OPTION 1
$2,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 55
CURRENT VALUES
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 2,625 1,409 246 100,000 1,519 357 100,000 1,630 467 100,000
2 5,381 2,852 1,690 100,000 3,165 2,002 100,000 3,492 2,329 100,000
3 8,275 4,271 3,225 100,000 4,883 3,837 100,000 5,548 4,502 100,000
4 11,314 5,666 4,736 100,000 6,678 5,748 100,000 7,823 6,893 100,000
5 14,505 7,036 6,222 100,000 8,553 7,740 100,000 10,341 9,527 100,000
6 17,855 8,382 7,685 100,000 10,515 9,818 100,000 13,132 12,435 100,000
7 21,373 9,704 9,123 100,000 12,568 11,987 100,000 16,228 15,647 100,000
8 25,066 11,003 10,538 100,000 14,718 14,253 100,000 19,666 19,201 100,000
9 28,945 12,278 11,929 100,000 16,971 16,622 100,000 23,487 23,138 100,000
10 33,017 13,529 13,529 100,000 19,334 19,334 100,000 27,741 27,741 100,000
11 37,293 14,758 14,758 100,000 21,813 21,813 100,000 32,492 32,492 100,000
12 41,782 15,810 15,810 100,000 24,272 24,272 100,000 37,675 37,675 100,000
13 46,497 16,706 16,706 100,000 26,740 26,740 100,000 43,380 43,380 100,000
14 51,446 17,465 17,465 100,000 29,246 29,246 100,000 49,705 49,705 100,000
15 56,644 18,075 18,075 100,000 31,786 31,786 100,000 56,743 56,743 100,000
16 62,101 18,441 18,441 100,000 34,292 34,292 100,000 64,565 64,565 100,000
17 67,831 18,562 18,562 100,000 36,777 36,777 100,000 73,327 73,327 100,000
18 73,848 18,409 18,409 100,000 39,234 39,234 100,000 83,206 83,206 100,000
19 80,165 17,976 17,976 100,000 41,676 41,676 100,000 94,422 94,422 102,920
20 86,798 17,269 17,269 100,000 44,131 44,131 100,000 106,964 106,964 114,452
21 93,763 16,232 16,232 100,000 46,586 46,586 100,000 120,906 120,906 126,951
22 101,076 14,811 14,811 100,000 49,036 49,036 100,000 136,314 136,314 143,130
23 108,755 12,939 12,939 100,000 51,477 51,477 100,000 153,337 153,337 161,004
24 116,818 10,538 10,538 100,000 53,908 53,908 100,000 172,134 172,134 180,740
25 125,284 7,512 7,512 100,000 56,331 56,331 100,000 192,877 192,877 202,521
26 134,173 3,781 3,781 100,000 58,766 58,766 100,000 215,759 215,759 226,547
27 143,506 (*) (*) (*) 61,227 61,227 100,000 240,987 240,987 253,037
28 153,307 (*) (*) (*) 63,732 63,732 100,000 268,798 268,798 282,238
29 163,597 (*) (*) (*) 66,301 66,301 100,000 299,478 299,478 314,452
30 174,402 (*) (*) (*) 68,958 68,958 100,000 333,301 333,301 349,966
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY $10.00 ADMINISTRATIVE
EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND $5 THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM
CHARGE ON ALL PREMIUMS UP TO THE TARGET PREMIUM AND 4% ON PREMIUMS IN EXCESS OF TARGET FOR
ANY SINGLE POLICY YEAR.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES
AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL LAPSE WITHOUT VALUE.
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 THE COMPANY OR THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
</TABLE>
60
<PAGE>
<TABLE>
<CAPTION>
DEATH BENEFIT OPTION 1
$2,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 55
GUARANTEED VALUES
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 2,625 1,397 235 100,000 1,507 345 100,000 1,618 455 100,000
2 5,381 2,737 1,574 100,000 3,045 1,883 100,000 3,368 2,205 100,000
3 8,275 3,986 2,940 100,000 4,582 3,535 100,000 5,231 4,184 100,000
4 11,314 5,139 4,209 100,000 6,110 5,180 100,000 7,214 6,284 100,000
5 14,505 6,185 5,372 100,000 7,622 6,808 100,000 9,324 8,510 100,000
6 17,855 7,116 6,419 100,000 9,107 8,409 100,000 11,568 10,870 100,000
7 21,373 7,920 7,339 100,000 10,554 9,973 100,000 13,956 13,375 100,000
8 25,066 8,579 8,114 100,000 11,945 11,480 100,000 16,493 16,028 100,000
9 28,945 9,077 8,728 100,000 13,263 12,914 100,000 19,188 18,839 100,000
10 33,017 9,395 9,395 100,000 14,489 14,489 100,000 22,053 22,053 100,000
11 37,293 9,515 9,515 100,000 15,605 15,605 100,000 25,109 25,109 100,000
12 41,782 9,420 9,420 100,000 16,593 16,593 100,000 28,387 28,387 100,000
13 46,497 9,089 9,089 100,000 17,432 17,432 100,000 31,925 31,925 100,000
14 51,446 8,497 8,497 100,000 18,097 18,097 100,000 35,761 35,761 100,000
15 56,644 7,606 7,606 100,000 18,550 18,550 100,000 39,941 39,941 100,000
16 62,101 6,366 6,366 100,000 18,743 18,743 100,000 44,518 44,518 100,000
17 67,831 4,709 4,709 100,000 18,611 18,611 100,000 49,558 49,558 100,000
18 73,848 2,548 2,548 100,000 18,068 18,068 100,000 55,145 55,145 100,000
19 80,165 (*) (*) (*) 17,014 17,014 100,000 61,395 61,395 100,000
20 86,798 (*) (*) (*) 15,337 15,337 100,000 68,473 68,473 100,000
21 93,763 (*) (*) (*) 12,908 12,908 100,000 76,601 76,601 100,000
22 101,076 (*) (*) (*) 9,572 9,572 100,000 86,075 86,075 100,000
23 108,755 (*) (*) (*) 5,133 5,133 100,000 97,279 97,279 102,143
24 116,818 (*) (*) (*) (*) (*) (*) 109,889 109,889 115,383
25 125,284 (*) (*) (*) (*) (*) (*) 123,768 123,768 129,957
26 134,173 (*) (*) (*) (*) (*) (*) 139,031 139,031 145,982
27 143,506 (*) (*) (*) (*) (*) (*) 155,796 155,796 163,586
28 153,307 (*) (*) (*) (*) (*) (*) 174,189 174,189 182,899
29 163,597 (*) (*) (*) (*) (*) (*) 194,340 194,340 204,057
30 174,402 (*) (*) (*) (*) (*) (*) 216,385 216,385 227,204
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A MONTHLY $10 ADMINISTRATIVE
EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND $7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF
PREMIUM CHARGE ON ALL PREMIUMS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES
AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL LAPSE WITHOUT VALUE.
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 THE COMPANY OR THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
</TABLE>
61
<PAGE>
<TABLE>
<CAPTION>
DEATH BENEFIT OPTION 2
$2,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 55
CURRENT VALUES
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 2,625 1,393 231 101,393 1,503 340 101,503 1,613 450 101,613
2 5,381 2,810 1,647 102,810 3,117 1,955 103,117 3,439 2,277 103,439
3 8,275 4,189 3,143 104,189 4,788 3,741 104,788 5,439 4,393 105,439
4 11,314 5,531 4,601 105,531 6,515 5,585 106,515 7,630 6,700 107,630
5 14,505 6,836 6,022 106,836 8,303 7,489 108,303 10,031 9,217 110,031
6 17,855 8,103 7,406 108,103 10,152 9,455 110,152 12,664 11,967 112,664
7 21,373 9,333 8,752 109,333 12,066 11,485 112,066 15,554 14,973 115,554
8 25,066 10,526 10,061 110,526 14,047 13,582 114,047 18,727 18,262 118,727
9 28,945 11,682 11,333 111,682 16,097 15,748 116,097 22,213 21,864 122,213
10 33,017 12,800 12,800 112,800 18,220 18,220 118,220 26,045 26,045 126,045
11 37,293 13,880 13,880 113,880 20,417 20,417 120,417 30,272 30,272 130,272
12 41,782 14,740 14,740 114,740 22,504 22,504 122,504 34,740 34,740 134,740
13 46,497 15,402 15,402 115,402 24,495 24,495 124,495 39,497 39,497 139,497
14 51,446 15,887 15,887 115,887 26,410 26,410 126,410 44,595 44,595 144,595
15 56,644 16,180 16,180 116,180 28,229 28,229 128,229 50,053 50,053 150,053
16 62,101 16,164 16,164 116,164 29,823 29,823 129,823 55,783 55,783 155,783
17 67,831 15,844 15,844 115,844 31,182 31,182 131,182 61,816 61,816 161,816
18 73,848 15,186 15,186 115,186 32,257 32,257 132,257 68,146 68,146 168,146
19 80,165 14,197 14,197 114,197 33,034 33,034 133,034 74,806 74,806 174,806
20 86,798 12,896 12,896 112,896 33,515 33,515 133,515 81,850 81,850 181,850
21 93,763 11,233 11,233 111,233 33,629 33,629 133,629 89,262 89,262 189,262
22 101,076 9,169 9,169 109,169 33,313 33,313 133,313 97,036 97,036 197,036
23 108,755 6,658 6,658 106,658 32,493 32,493 132,493 105,158 105,158 205,158
24 116,818 3,656 3,656 103,656 31,092 31,092 131,092 113,612 113,612 213,612
25 125,284 115 115 100,115 29,026 29,026 129,026 122,378 122,378 222,378
26 134,173 (*) (*) (*) 26,244 26,244 126,244 131,472 131,472 231,472
27 143,506 (*) (*) (*) 22,664 22,664 122,664 140,881 140,881 240,881
28 153,307 (*) (*) (*) 18,204 18,204 118,204 150,590 150,590 250,590
29 163,597 (*) (*) (*) 12,762 12,762 112,762 160,562 160,562 260,562
30 174,402 (*) (*) (*) 6,207 6,207 106,207 170,740 170,740 270,740
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY $10.00 ADMINISTRATIVE
EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND $5 THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM
CHARGE ON ALL PREMIUMS UP TO THE TARGET PREMIUM AND 4% ON PREMIUMS IN EXCESS OF TARGET FOR
ANY SINGLE POLICY YEAR.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES
AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL LAPSE WITHOUT VALUE.
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 THE COMPANY OR THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
</TABLE>
62
<PAGE>
<TABLE>
<CAPTION>
DEATH BENEFIT OPTION 2
$2,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 55
GUARANTEED VALUES
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 2,625 1,382 219 101,382 1,491 328 101,491 1,600 438 101,600
2 5,381 2,692 1,529 102,692 2,995 1,833 102,995 3,313 2,150 103,313
3 8,275 3,897 2,850 103,897 4,478 3,432 104,478 5,112 4,065 105,112
4 11,314 4,987 4,057 104,987 5,928 4,998 105,928 6,996 6,066 106,996
5 14,505 5,953 5,139 105,953 7,331 6,517 107,331 8,962 8,148 108,962
6 17,855 6,781 6,084 106,781 8,671 7,973 108,671 11,004 10,306 111,004
7 21,373 7,461 6,880 107,461 9,930 9,349 109,930 13,114 12,533 113,114
8 25,066 7,972 7,507 107,972 11,083 10,618 111,083 15,279 14,814 115,279
9 28,945 8,295 7,946 108,295 12,102 11,753 112,102 17,479 17,131 117,479
10 33,017 8,411 8,411 108,411 12,960 12,960 112,960 19,698 19,698 119,698
11 37,293 8,305 8,305 108,305 13,630 13,630 113,630 21,916 21,916 121,916
12 41,782 7,959 7,959 107,959 14,082 14,082 114,082 24,114 24,114 124,114
13 46,497 7,358 7,358 107,358 14,289 14,289 114,289 26,274 26,274 126,274
14 51,446 6,483 6,483 106,483 14,214 14,214 114,214 28,371 28,371 128,371
15 56,644 5,306 5,306 105,306 13,813 13,813 113,813 30,364 30,364 130,364
16 62,101 3,789 3,789 103,789 13,027 13,027 113,027 32,196 32,196 132,196
17 67,831 1,883 1,883 101,883 11,784 11,784 111,784 33,796 33,796 133,796
18 73,848 (*) (*) (*) 9,996 9,996 109,996 35,068 35,068 135,068
19 80,165 (*) (*) (*) 7,570 7,570 107,570 35,908 35,908 135,908
20 86,798 (*) (*) (*) 4,420 4,420 104,420 36,209 36,209 136,209
21 93,763 (*) (*) (*) 464 464 100,464 35,865 35,865 135,865
22 101,076 (*) (*) (*) (*) (*) (*) 34,762 34,762 134,762
23 108,755 (*) (*) (*) (*) (*) (*) 32,781 32,781 132,781
24 116,818 (*) (*) (*) (*) (*) (*) 29,782 29,782 129,782
25 125,284 (*) (*) (*) (*) (*) (*) 25,585 25,585 125,585
26 134,173 (*) (*) (*) (*) (*) (*) 19,965 19,965 119,965
27 143,506 (*) (*) (*) (*) (*) (*) 12,651 12,651 112,651
28 153,307 (*) (*) (*) (*) (*) (*) 3,315 3,315 103,315
29 163,597 (*) (*) (*) (*) (*) (*) (*) (*) (*)
30 174,402 (*) (*) (*) (*) (*) (*) (*) (*) (*)
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A MONTHLY $10 ADMINISTRATIVE
EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND $7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF
PREMIUM CHARGE ON ALL PREMIUMS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES
AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL LAPSE WITHOUT VALUE.
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 THE COMPANY OR THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
</TABLE>
63
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Nationwide Life and Annuity Insurance Company:
We have audited the accompanying balance sheets of Nationwide Life and Annuity
Insurance Company, a wholly owned subsidiary of Nationwide Life Insurance
Company, as of December 31, 1996 and 1995, and the related statements of income,
shareholder's equity and cash flows for each of the years in the three-year
period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Nationwide Life and Annuity
Insurance Company as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
In 1994, the Company adopted the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities.
KPMG Peat Marwick LLP
Columbus, Ohio
January 31, 1997
<PAGE>
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Balance Sheets
December 31, 1996 and 1995
($000's omitted)
<TABLE>
<CAPTION>
ASSETS 1996 1995
----------- -----------
<S> <C> <C>
Investments (notes 4, 7 and 8):
Securities available-for-sale, at fair value:
Fixed maturity securities (cost $640,303 in 1996;
$539,214 in 1995) $ 648,076 555,751
Equity securities (cost $10,854 in 1996; $10,256 in 1995) 12,254 11,407
Mortgage loans on real estate, net 150,997 104,736
Real estate, net 1,090 1,117
Policy loans 126 94
Short-term investments (note 12) 492 4,844
----------- -----------
813,035 677,949
----------- -----------
Cash 4,296 -
Accrued investment income 9,189 8,464
Deferred policy acquisition costs 16,168 23,405
Deferred federal income tax (note 6) 4,735 -
Other assets 32,747 208
Assets held in Separate Accounts (note 7) 486,251 257,556
----------- -----------
$ 1,366,421 967,582
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDER'S EQUITY
Future policy benefits and claims (notes 5 and 7) $ 80,720 621,280
Funds withheld under coinsurance agreement with affiliate (note 12) 679,571 -
Accrued federal income tax (note 6):
Current 7,914 708
Deferred - 2,830
----------- -----------
7,914 3,538
----------- -----------
Other liabilities 27,928 5,031
Liabilities related to Separate Accounts (note 7) 486,251 257,556
----------- -----------
1,282,384 887,405
----------- -----------
Commitments (notes 7 and 8)
Shareholder's equity (notes 3, 4 and 11):
Capital shares, $40 par value. Authorized, issued and
outstanding 66,000 shares 2,640 2,640
Additional paid-in capital 52,960 52,960
Retained earnings 25,209 20,123
Unrealized gains on securities available-for-sale, net 3,228 4,454
----------- -----------
84,037 80,177
----------- -----------
$ 1,366,421 967,582
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Statements of Income
Years ended December 31, 1996, 1995 and 1994
($000's omitted)
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Revenues (note 13):
Investment product and universal life insurance product policy
charges $ 6,656 4,322 3,601
Traditional life insurance premiums 246 674 311
Net investment income (note 4) 51,045 49,108 45,030
Realized losses on investments (note 4) (3) (702) (625)
----------- ----------- -----------
57,944 53,402 48,317
----------- ----------- -----------
Benefits and expenses:
Benefits and claims 35,524 34,180 29,870
Amortization of deferred policy acquisition costs 7,380 5,508 6,940
Other operating expenses (note 12) 7,247 6,567 6,320
----------- ----------- -----------
50,151 46,255 43,130
----------- ----------- -----------
Income before federal income tax expense 7,793 7,147 5,187
----------- ----------- -----------
Federal income tax expense (benefit) (note 6):
Current 9,612 2,012 2,103
Deferred (6,905) 361 (244)
----------- ----------- -----------
2,707 2,373 1,859
----------- ----------- -----------
Net income $ 5,086 4,774 3,328
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Statements of Shareholder's Equity
Years ended December 31, 1996, 1995 and 1994
($000's omitted)
<TABLE>
<CAPTION>
Unrealized
gains (losses)
Additional on securities Total
Capital paid-in Retained available-for- shareholder's
shares capital earnings sale, net equity
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
1994:
Balance, beginning of year $2,640 43,960 12,021 38 58,659
Capital contribution - 9,000 - - 9,000
Net income - - 3,328 - 3,328
Adjustment for change in accounting for
certain investments in debt and equity
securities, net (note 3) - - - 4,698 4,698
Unrealized losses on securities available-
for-sale, net - - - (8,439) (8,439)
-------------- -------------- -------------- -------------- --------------
Balance, end of year $2,640 52,960 15,349 (3,703) 67,246
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
1995:
Balance, beginning of year 2,640 52,960 15,349 (3,703) 67,246
Net income - - 4,774 - 4,774
Unrealized gains on securities available-
for-sale, net - - - 8,157 8,157
-------------- -------------- -------------- -------------- --------------
Balance, end of year $2,640 52,960 20,123 4,454 80,177
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
1996:
Balance, beginning of year 2,640 52,960 20,123 4,454 80,177
Net income - - 5,086 - 5,086
Unrealized losses on securities available-
for-sale, net - - - (1,226) (1,226)
-------------- -------------- -------------- -------------- --------------
Balance, end of year $2,640 52,960 25,209 3,228 84,037
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
($000's omitted)
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 5,086 4,774 3,328
Adjustments to reconcile net income to net cash provided by
operating activities:
Capitalization of deferred policy acquisition costs (19,987) (6,754) (7,283)
Amortization of deferred policy acquisition costs 7,380 5,508 6,940
Commission and expense allowances under coinsurance
agreement with affiliate (note 12) 26,473 - -
Amortization and depreciation 1,721 878 473
Realized losses on invested assets, net 3 702 625
Deferred federal income tax (benefit) expense (6,905) 361 (244)
Increase in accrued investment income (725) (423) (750)
(Increase) decrease in other assets (32,539) 62 (126)
(Decrease) increase in policy liabilities and funds withheld
on coinsurance agreement with affiliate (7,101) 627 926
Increase (decrease) in accrued federal income tax payable 7,206 698 (254)
Increase (decrease) in other liabilities 22,897 368 (505)
----------- ----------- -----------
Net cash provided by operating activities 3,509 6,801 3,130
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from maturity of securities available-for-sale 73,966 41,729 24,850
Proceeds from sale of securities available-for-sale 2,480 3,070 13,170
Proceeds from maturity of fixed maturity securities held-to-maturity - 11,251 8,483
Proceeds from repayments of mortgage loans on real estate 10,975 8,673 5,733
Proceeds from sale of real estate - 655 -
Proceeds from repayments of policy loans 23 50 2
Cost of securities available-for-sale acquired (179,671) (79,140) (94,130)
Cost of fixed maturity securities held-to maturity acquired - (8,000) (15,544)
Cost of mortgage loans on real estate acquired (57,395) (18,000) (11,000)
Cost of real estate acquired - (10) (52)
Policy loans issued (55) (66) (80)
Short-term investments, net 4,352 (4,479) 1,407
----------- ----------- -----------
Net cash used in investing activities (145,325) (44,267) (67,161)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from capital contribution - - 9,000
Increase in investment product and universal life insurance
product account balances 235,286 79,523 95,254
Decrease in investment product and universal life insurance
product account balances (89,174) (42,057) (40,223)
----------- ----------- -----------
Net cash provided by financing activities 146,112 37,466 64,031
----------- ----------- -----------
Net increase in cash 4,296 - -
Cash, beginning of year - - -
----------- ----------- -----------
Cash, end of year $ 4,296 - -
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements
December 31, 1996, 1995 and 19943
($000's omitted)
(1) ORGANIZATION AND DESCRIPTION OF BUSINESS
Nationwide Life and Annuity Insurance Company (the Company) is a wholly
owned subsidiary of Nationwide Life Insurance Company (NLIC).
The Company sells primarily fixed and variable rate annuities through banks
and other financial institutions. In addition, the Company sells universal
life and other interest-sensitive life insurance products and is subject to
competition from other financial services providers throughout the United
States. The Company is subject to regulation by the Insurance Departments
of states in which it is licensed, and undergoes periodic examinations by
those departments.
The following is a description of the most significant risks facing life
insurers and how the Company mitigates those risks:
LEGAL/REGULATORY RISK is the risk that changes in the legal or
regulatory environment in which an insurer operates will create
additional expenses not anticipated by the insurer in pricing its
products. That is, regulatory initiatives, new legal theories or
insurance company insolvencies through guaranty fund assessments may
create costs for the insurer beyond those currently recorded in the
financial statements. The Company mitigates this risk by operating
throughout the United States, thus reducing its exposure to any single
jurisdiction, and also by employing underwriting practices which
identify and minimize the adverse impact of this risk.
CREDIT RISK is the risk that issuers of securities owned by the
Company or mortgagors on mortgage loans on real estate owned by the
Company will default. The Company minimizes this risk by adhering to
a conservative investment strategy, by maintaining credit and
collection policies and by providing for any amounts deemed
uncollectible.
INTEREST RATE RISK is the risk that interest rates will change and
cause a decrease in the value of an insurer's investments. This
change in rates may cause certain interest-sensitive products to
become uncompetitive or may cause disintermediation. The Company
mitigates this risk by charging fees for non-conformance with certain
policy provisions, by offering products that transfer this risk to the
purchaser, and/or by attempting to match the maturity schedule of its
assets with the expected payouts of its liabilities. To the extent
that liabilities come due more quickly than assets mature, an insurer
would have to borrow funds or sell assets prior to maturity and
potentially recognize a gain or loss.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed by the Company that materially
affect financial reporting are summarized below. The accompanying
financial statements have been prepared in accordance with generally
accepted accounting principles (GAAP) which differ from statutory
accounting practices prescribed or permitted by regulatory authorities. An
Annual Statement, filed with the Department of Insurance of the State of
Ohio (the Department), is 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 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 financial statements and the reported amounts of revenues
and expenses for the reporting period. Actual results could differ
significantly from those estimates.
<PAGE>
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
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) VALUATION OF INVESTMENTS AND RELATED GAINS AND LOSSES
The Company is required to classify its fixed maturity securities and
equity securities as either held-to-maturity, available-for-sale or
trading. Fixed maturity securities are classified as held-to-maturity
when the Company has the positive intent and ability to hold the
securities to maturity and are stated at amortized cost. Fixed
maturity securities not classified as held-to-maturity and all equity
securities are classified as available-for-sale and are stated at fair
value, with the unrealized gains and losses, net of adjustments to
deferred policy acquisition costs and deferred federal income tax,
reported as a separate component of shareholder's equity. The
adjustment to deferred policy acquisition costs represents the change
in amortization of deferred policy acquisition costs that would have
been required as a charge or credit to operations had such unrealized
amounts been realized. The Company has no fixed maturity securities
classified as held-to-maturity or trading as of December 31, 1996 or
1995.
Mortgage loans on real estate are carried at the unpaid principal
balance less valuation allowances. The Company provides valuation
allowances for impairments of mortgage loans on real estate based on a
review by portfolio managers. The measurement of impaired loans is
based on the present value of expected future cash flows discounted at
the loan's effective interest rate or, as a practical expedient, at
the fair value of the collateral, if the loan is collateral dependent.
Loans in foreclosure and loans considered to be impaired are placed on
non-accrual status. Interest received on non-accrual status mortgage
loans on real estate are included in interest income in the period
received.
Real estate is carried at cost less accumulated depreciation and
valuation allowances. Other long-term investments are carried on the
equity basis, adjusted for valuation allowances. Impairment losses
are recorded on long-lived assets used in operations when indicators
of impairment are present and the undiscounted cash flows estimated to
be generated by those assets are less than the assets' carrying
amount.
Realized gains and losses on the sale of investments are determined on
the basis of specific security identification. Estimates for valuation
allowances and other than temporary declines are included in realized
gains and losses on investments.
(b) REVENUES AND BENEFITS
INVESTMENT PRODUCTS AND UNIVERSAL LIFE INSURANCE PRODUCTS: Investment
products consist primarily of individual variable and fixed annuities
and annuities without life contingencies. Universal life insurance
products include universal life insurance, variable universal life
insurance and other interest-sensitive life insurance policies.
Revenues for investment products and universal life insurance products
consist of net investment income, asset fees, cost of insurance,
policy administration and surrender charges that have been earned and
assessed against policy account balances during the period. Policy
benefits and claims that are charged to expense include interest
credited to policy account balances and benefits and claims incurred
in the period in excess of related policy account balances.
TRADITIONAL LIFE INSURANCE PRODUCTS: Traditional life insurance
products include those products with fixed and guaranteed premiums and
benefits and consist primarily of 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>
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
(c) DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new business, principally commissions, certain
expenses of the policy issue and underwriting department and certain
variable agency expenses have been deferred. For investment products
and universal life insurance products, deferred policy acquisition
costs are being amortized with interest over the lives of the policies
in relation to the present value of estimated future gross profits
from projected interest margins, asset fees, cost of insurance, policy
administration and surrender charges. For years in which gross
profits are negative, deferred policy acquisition costs are amortized
based on the present value of gross revenues. 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(a).
(d) SEPARATE ACCOUNTS
Separate Account assets and liabilities represent contractholders'
funds which have been segregated into accounts with specific
investment objectives. The investment income and gains or losses of
these accounts accrue directly to the contractholders. The activity
of the Separate Accounts is not reflected in the statements of income
and cash flows except for the fees the Company receives.
(e) 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.
(f) FEDERAL INCOME TAX
The Company files a consolidated federal income tax return with
Nationwide Mutual Insurance Company (NMIC). The members of the
consolidated tax return group have a tax sharing agreement 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.
(g) 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.
(h) STATEMENTS OF CASH FLOWS
The Company routinely invests its available cash balances in highly
liquid, short-term investments with affiliated companies. See note
12. As such, the Company had no cash balance as of December 31, 1995
and 1994.
<PAGE>
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
(i) RECLASSIFICATION
Certain items in the 1995 and 1994 financial statements have been
reclassified to conform to the 1996 presentation.
(3) CHANGE IN ACCOUNTING PRINCIPLE
Effective January 1, 1994, the Company changed its method of accounting for
certain investments in debt and equity securities in connection with the
issuance of Statement of Financial Accounting Standards (SFAS) No. 115 -
Accounting for Certain Investments in Debt and Equity Securities. As of
January 1, 1994, the Company classified fixed maturity securities with
amortized cost and fair value of $380,974 and $399,556, respectively, as
available-for-sale and recorded the securities at fair value. Previously,
these securities were recorded at amortized cost. The effect as of January
1, 1994, has been recorded as a direct credit to shareholder's equity as
follows:
Excess of fair value over amortized cost of
fixed maturity securities available-for-sale $ 18,582
Adjustment to deferred policy acquisition costs (11,355)
Deferred federal income tax (2,529)
---------
$ 4,698
---------
---------
(4) INVESTMENTS
The amortized cost and estimated fair value of securities
available-for-sale were as follows as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1996:
Fixed maturity securities:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies $ 3,695 7 78 3,624
Obligations of states and political subdivisions 269 - 2 267
Debt securities issued by foreign governments 6,129 133 8 6,254
Corporate securities 393,371 5,916 1,824 397,463
Mortgage-backed securities 236,839 4,621 992 240,468
---------- ---------- ---------- ----------
Total fixed maturity securities 640,303 10,677 2,904 648,076
Equity securities 10,854 1,540 140 12,254
---------- ---------- ---------- ----------
$ 651,157 12,217 3,044 660,330
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
1995:
Fixed maturity securities:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies $ 3,492 18 - 3,510
Obligations of states and political subdivisions 271 - (1) 270
Debt securities issued by foreign governments 6,177 301 - 6,478
Corporate securities 332,425 10,116 (925) 341,616
Mortgage-backed securities 196,849 7,649 (621) 203,877
---------- ---------- ---------- ----------
Total fixed maturity securities 539,214 18,084 (1,547) 555,751
Equity securities 10,256 1,151 - 11,407
---------- ---------- ---------- ----------
$ 549,470 19,235 (1,547) 567,158
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
The amortized cost and estimated fair value of fixed maturity securities
available-for-sale as of December 31, 1996, by contractual maturity, are
shown below. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
Amortized Estimated
cost fair value
---------- ----------
Fixed maturity securities available-for-sale:
Due in one year or less $ 43,219 43,441
Due after one year through five years 198,045 200,453
Due after five years through ten years 121,820 122,595
Due after ten years 40,380 41,119
---------- ----------
403,464 407,608
Mortgage-backed securities 236,839 240,468
---------- ----------
$ 640,303 648,076
---------- ----------
---------- ----------
The components of unrealized gains on securities available-for-sale, net,
were as follows as of December 31:
1996 1995
---------- ----------
Gross unrealized gains $ 9,173 17,688
Adjustment to deferred policy acquisition costs (4,207) (10,836)
Deferred federal income tax (1,738) (2,398)
---------- ----------
$ 3,228 4,454
---------- ----------
---------- ----------
An analysis of the change in gross unrealized gains (losses) on securities
available-for-sale and fixed maturity securities held-to-maturity follows
for the years ended December 31:
1996 1995 1994
-------- -------- --------
Securities available-for-sale:
Fixed maturity securities $ (8,764) 30,647 (32,692)
Equity securities 249 1,283 (190)
Fixed maturity securities held-to-maturity - 3,941 (8,407)
-------- -------- --------
$ (8,515) 35,871 (41,289)
-------- -------- --------
-------- -------- --------
Proceeds from the sale of securities available-for-sale during 1996, 1995
and 1994 were $2,480, $3,070 and $13,170, respectively. During 1996, gross
gains of $181 ($64 and $373 in 1995 and 1994, respectively) and no gross
losses ($6 and $73 in 1995 and 1994, respectively) were realized on those
sales.
During 1995, the Company transferred fixed maturity securities classified
as held-to-maturity with amortized cost of $2,000 to available-for-sale
securities due to evidence of a significant deterioration in the issuer's
creditworthiness. The transfer of those fixed maturity securities resulted
in a gross unrealized loss of $600.
As permitted by the Financial Accounting Standards Board's Special Report,
A GUIDE TO IMPLEMENTATION OF STATEMENT 115 ON ACCOUNTING FOR CERTAIN
INVESTMENTS IN DEBT AND EQUITY SECURITIES, issued in November 1995, the
Company transferred all of its fixed maturity securities previously
classified as held-to-maturity to available-for-sale. As of December 14,
1995, the date of transfer, the fixed maturity securities had amortized
cost of $77,405, resulting in a gross unrealized gain of $1,709.
The Company has no investments which were non-income producing for the
twelve month period preceding December 31, 1996 ($996 of fixed maturity
securities in 1995).
<PAGE>
Real estate is presented at cost less accumulated depreciation of $108 as
of December 31, 1996 ($81 as of December 31, 1995) and valuation allowances
of $229 as of December 31, 1996 ($229 as of December 31, 1995).
The recorded investment of mortgage loans on real estate considered to be
impaired (under SFAS NO. 114 - ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A
LOAN as Amended by SFAS NO. 118 - ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF
A LOAN - INCOME RECOGNITION AND DISCLOSURE) as of December 31, 1996 was
$955 ($966 as of December 31, 1995), which includes $955 (none as of
December 31, 1995) of impaired mortgage loans on real estate for which the
related valuation allowance was $184 (none as of December 31, 1995) and
none ($966 as of December 31, 1995) of impaired mortgage loans on real
estate for which there was no valuation allowance. During 1996, the
average recorded investment in impaired mortgage loans on real estate was
approximately $964 ($242 in 1995) and interest income recognized on those
loans was $16 (none in 1995), which is equal to interest income recognized
using a cash-basis method of income recognition.
Activity in the valuation allowance account for mortgage loans on real
estate is summarized for the year ended December 31, 1996:
1996 1995
---------- ----------
Allowance, beginning of year $ 750 860
Additional charged to operations 184 -
Reduction of the allowance credited to
operations - (110)
---------- ----------
Allowance, end of year $ 934 750
---------- ----------
---------- ----------
An analysis of investment income by investment type follows for the years
ended December 31:
1996 1995 1994
-------- -------- --------
Gross investment income:
Securities available-for-sale:
Fixed maturity securities $ 40,552 35,093 36,720
Equity securities 598 713 16
Fixed maturity securities held-to-maturity - 4,530 540
Mortgage loans on real estate 9,991 9,106 8,437
Real estate 214 273 175
Short-term investments 507 348 207
Other 57 41 19
-------- -------- --------
Total investment income 51,919 50,104 46,114
Less: investment expenses 874 996 1,084
-------- -------- --------
Net investment income $ 51,045 49,108 45,030
-------- -------- --------
-------- -------- --------
An analysis of realized gains (losses) on investments, net of valuation
allowances, by investment type follows for the years ended December 31:
1996 1995 1994
-------- -------- --------
Fixed maturity securities available-for-
sale $ 181 (822) 260
Mortgage loans on real estate (184) 110 (832)
Real estate and other - 10 (53)
-------- -------- --------
$ (3) (702) (625)
-------- -------- --------
-------- -------- --------
Fixed maturity securities with an amortized cost of $3,403 and $2,806 as of
December 31, 1996 and 1995, respectively, were on deposit with various
regulatory agencies as required by law.
<PAGE>
(5) FUTURE POLICY BENEFITS
The liability for future policy benefits for investment contracts has been
established based on policy terms, interest rates and various contract
provisions. The average interest rate credited on investment product
policies was approximately 5.6%, 5.6% and 5.3% for the years ended December
31, 1996, 1995 and 1994, respectively.
(6) FEDERAL INCOME TAX
The tax effects of temporary differences that give rise to significant
components of the net deferred tax asset (liability) as of December 31,
1996 and 1995 are as follows:
1996 1995
---------- ----------
Deferred tax assets:
Liabilities in Separate Accounts $ 5,311 3,445
Future policy benefits 1,070 5,249
Mortgage loans on real estate and real estate 407 338
Other assets and other liabilities 3,836 708
---------- ----------
Total gross deferred tax assets 10,624 9,740
---------- ----------
Deferred tax liabilities:
Fixed maturity securities 3,268 6,308
Deferred policy acquisition costs 2,131 6,262
Equity securities 490 -
---------- ----------
Total gross deferred tax liabilities 5,889 12,570
---------- ----------
$ 4,735 (2,830)
---------- ----------
---------- ----------
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. All future deductible amounts
can be offset by future taxable amounts or recovery of federal income tax
paid within the statutory carryback period. The Company has determined
that valuation allowances are not necessary as of December 31, 1996, 1995
and 1994 based on its analysis of future deductible amounts.
Total federal income tax expense for the years ended December 31, 1996,
1995 and 1994 differs from the amount computed by applying the U.S. federal
income tax rate to income before tax as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------------- ---------------- ----------------
Amount % Amount % Amount %
---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Computed (expected) tax expense $2,728 35.0 $2,501 35.0 $1,815 35.0
Tax exempt interest and dividends
received deduction (175) (2.3) (150) (2.1) (50) (1.0)
Other, net 154 2.0 22 0.3 94 1.8
------ ------ ------ ------ ------ ------
Total (effective rate of each year) $2,707 34.7 $2,373 33.2 $1,859 35.8
</TABLE>
Total federal income tax paid was $2,335, $1,314 and $2,357 during the
years ended December 31, 1996, 1995 and 1994, respectively.
<PAGE>
(7) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS NO. 107 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (SFAS
107) requires disclosure of fair value information about existing on and
off-balance sheet financial instruments. SFAS 107 defines the fair value
of a financial instrument as the amount at which the financial instrument
could be exchanged in a current transaction between willing parties. In
cases where quoted market prices are not available, fair value is based on
estimates using present value or other valuation techniques.
These techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows. Although
fair value estimates are calculated using assumptions that management
believes are appropriate, changes in assumptions could cause these
estimates to vary materially. In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent markets and,
in many cases, could not be realized in the immediate settlement of the
instruments. SFAS 107 excludes certain assets and liabilities from its
disclosure requirements. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Company.
Although insurance contracts, other than policies such as annuities that
are classified as investment contracts, are specifically exempted from SFAS
107 disclosures, estimated fair value of policy reserves on life insurance
contracts is provided to make the fair value disclosures more meaningful.
The tax ramifications of the related unrealized gains and losses can have a
significant effect on fair value estimates and have not been considered in
the estimates.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures:
CASH, SHORT-TERM INVESTMENTS AND POLICY LOANS: The carrying amount
reported in the balance sheets for these instruments approximates
their fair value.
FIXED MATURITY AND EQUITY SECURITIES: Fair value for fixed maturity
securities is based on quoted market prices, where available. For
fixed maturity securities not actively traded, fair value is estimated
using values obtained from independent pricing services or, in the
case of private placements, is estimated by discounting expected
future cash flows using a current market rate applicable to the yield,
credit quality and maturity of the investments. The fair value for
equity securities is based on quoted market prices.
SEPARATE ACCOUNT ASSETS AND LIABILITIES: The fair value of assets
held in Separate Accounts is based on quoted market prices. The fair
value of liabilities related to Separate Accounts is the amount
payable on demand, which includes certain surrender charges.
MORTGAGE LOANS ON REAL ESTATE: The fair value for mortgage loans on
real estate is estimated using discounted cash flow analyses, using
interest rates currently being offered for similar loans to borrowers
with similar credit ratings. Loans with similar characteristics are
aggregated for purposes of the calculations. Fair value for mortgages
in default is the estimated fair value of the underlying collateral.
INVESTMENT CONTRACTS: Fair value for the Company's liabilities under
investment type contracts is disclosed using two methods. For
investment contracts without defined maturities, fair value is the
amount payable on demand. For investment contracts with known or
determined maturities, fair value is estimated using discounted cash
flow analysis. Interest rates used are similar to currently offered
contracts with maturities consistent with those remaining for the
contracts being valued.
POLICY RESERVES ON LIFE INSURANCE CONTRACTS: 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.
<PAGE>
COMMITMENTS TO EXTEND CREDIT: Commitments to extend credit have
nominal value because of the short-term nature of such commitments.
See note 8.
Carrying amount and estimated fair value of financial instruments
subject to SFAS 107 and policy reserves on life insurance contracts
were as follows as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------------------------- -------------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
ASSETS
Investments:
Securities available-for-sale:
Fixed maturity securities $ 648,076 648,076 555,751 555,751
Equity securities 12,254 12,254 11,407 11,407
Mortgage loans on real estate, net 150,997 152,496 104,736 111,501
Policy loans 126 126 94 94
Short-term investments 492 492 4,844 4,844
Cash 4,296 4,296 - -
Assets held in Separate Accounts 486,251 486,251 257,556 257,556
LIABILITIES
Investment contracts 75,417 72,262 616,984 601,582
Policy reserves on life insurance contracts 5,303 5,390 4,296 4,520
Liabilities related to Separate Accounts 486,251 471,125 257,556 246,996
</TABLE>
(8) ADDITIONAL FINANCIAL INSTRUMENTS DISCLOSURES
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK: The Company is a party
to financial instruments with off-balance-sheet risk in the normal course
of business through management of its investment portfolio. These
financial instruments include commitments to extend credit in the form of
loans. These instruments involve, to varying degrees, elements of credit
risk in excess of amounts recognized on the 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 $19,500
extending into 1997 were outstanding as of December 31, 1996.
SIGNIFICANT CONCENTRATIONS OF CREDIT RISK: The Company grants mainly
commercial mortgage loans on real estate to customers throughout the United
States. The Company has a diversified portfolio with no more than 31% (28%
in 1995) in any geographic area and no more than 5% (15% in 1995) with any
one borrower.
<PAGE>
The summary below depicts loans by remaining principal balance as of
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
Apartment
Office Warehouse Retail & other Total
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1996:
East North Central $ 1,968 2,324 8,203 7,867 20,362
East South Central - - 1,828 11,591 13,419
Mountain - 1,394 - 1,986 3,380
Middle Atlantic 2,817 - 883 1,990 5,690
New England 1,993 868 1,944 - 4,805
Pacific 3,883 15,779 10,093 9,273 39,028
South Atlantic 9,926 - 16,209 20,520 46,655
West North Central 2,000 - - - 2,000
West South Central 3,824 - 1,995 10,847 16,666
--------- --------- --------- --------- ---------
$ 26,411 20,365 41,155 64,074 152,005
--------- --------- --------- ---------
--------- --------- --------- ---------
Less valuation allowances and unamortized discount 1,008
---------
Total mortgage loans on real estate, net $ 150,997
---------
---------
1995:
East North Central $ 1,854 878 8,263 3,940 14,935
East South Central - - 1,877 11,753 13,630
Mountain - - - 1,964 1,964
Middle Atlantic 882 1,820 901 - 3,603
New England - 895 1,963 - 2,858
Pacific 1,923 8,600 8,211 8,838 27,572
South Atlantic 3,953 - 9,928 15,797 29,678
West North Central - 1,500 - - 1,500
West South Central 3,881 969 - 4,932 9,782
--------- --------- --------- --------- ---------
$ 12,493 14,662 31,143 47,224 105,522
--------- --------- --------- ---------
--------- --------- --------- ---------
Less valuation allowances and unamortized discount 786
---------
Total mortgage loans on real estate, net $ 104,736
---------
---------
</TABLE>
(9) PENSION PLAN
The Company is a participant, together with other affiliated companies, in
a pension plan covering all employees who have completed at least one
thousand hours of service within a twelve-month period and who have met
certain age requirements. Benefits are based upon the highest average
annual salary of a specified number of consecutive years of the last ten
years of service. The Company funds an allocation of pension costs accrued
for employees of affiliates whose work efforts benefit the Company.
Effective January 1, 1995, the plan was amended to provide enhanced
benefits for participants who met certain eligibility requirements and
elected early retirement no later than March 15, 1995. The entire cost of
the enhanced benefit was borne by NMIC and certain of its property and
casualty insurance company affiliates.
Effective December 31, 1995, the Nationwide Insurance Companies and
Affiliates Retirement Plan was merged with the Farmland Mutual Insurance
Company Employees' Retirement Plan and the Wausau Insurance Companies
Pension Plan to form the Nationwide Insurance Enterprise Retirement Plan.
Immediately prior to the merger, the plans were amended to provide
consistent benefits for service after January 1, 1996. These amendments
had no significant impact on the accumulated benefit obligation or
projected benefit obligation as of December 31, 1995.
<PAGE>
Pension costs charged to operations by the Company during the years ended
December 31, 1996, 1995 and 1994 were $189, $214 and $265, respectively.
The net periodic pension cost for the Nationwide Insurance Enterprise
Retirement Plan as a whole for the year ended December 31, 1996 and for the
Nationwide Insurance Companies and Affiliates Retirement Plan as a whole
for the years ended December 31, 1995 and 1994 follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Service cost (benefits earned during the period) $ 75,466 64,524 64,740
Interest cost on projected benefit obligation 105,511 95,283 73,951
Actual return on plan assets (210,583) (249,294) (21,495)
Net amortization and deferral 101,795 143,353 (62,150)
--------- --------- ---------
$ 72,189 53,866 55,046
--------- --------- ---------
--------- --------- ---------
Basis for measurements, net periodic pension cost:
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Weighted average discount rate 6.00% 7.50% 5.75%
Rate of increase in future compensation levels 4.25% 6.25% 4.50%
Expected long-term rate of return on plan assets 6.75% 8.75% 7.00%
</TABLE>
Information regarding the funded status of the Nationwide Insurance
Enterprise Retirement Plan as a whole as of December 31, 1996 and 1995
follows:
1996 1995
---------- ----------
Accumulated benefit obligation:
Vested $1,338,554 1,236,730
Nonvested 11,149 26,503
---------- ----------
$1,349,703 1,263,233
---------- ----------
---------- ----------
Net accrued pension expense:
Projected benefit obligation for services
rendered to date $1,847,828 1,780,616
Plan assets at fair value 1,947,933 1,738,004
---------- ----------
Plan assets in excess of (less than)
projected benefit obligation 100,105 (42,612)
Unrecognized prior service cost 37,870 42,845
Unrecognized net gains (201,952) (63,130)
Unrecognized net asset at transition 37,158 41,305
---------- ----------
$ (26,819) (21,592)
---------- ----------
---------- ----------
Basis for measurements, funded status of plan:
1996 1995
---------- ----------
Weighted average discount rate 6.50% 6.00%
Rate of increase in future compensation levels 4.75% 4.25%
Assets of the Nationwide Insurance Enterprise Retirement Plan are invested
in group annuity contracts of NLIC and Employers Life Insurance Company of
Wausau, a wholly owned subsidiary of NLIC.
<PAGE>
(10) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
In addition to the defined benefit pension plan, the Company, together with
other affiliated companies, participates in life and health care defined
benefit plans for qualifying retirees. Postretirement life and health care
benefits are contributory and generally available to full time employees
who have attained age 55 and have accumulated 15 years of service with the
Company after reaching age 40. Postretirement health care benefit
contributions are adjusted annually and contain cost-sharing features such
as deductibles and coinsurance. In addition, there are caps on the
Company's portion of the per-participant cost of the postretirement health
care benefits. These caps can increase annually, but not more than three
percent. The Company's policy is to fund the cost of health care benefits
in amounts determined at the discretion of management. Plan assets are
invested primarily in group annuity contracts of NLIC.
The Company elected to immediately recognize its estimated accumulated
postretirement benefit obligation, however, certain affiliated companies
elected to amortize their initial transition obligation over periods
ranging from 10 to 20 years.
The Company's accrued postretirement benefit expense as of December 31,
1996 and 1995 was $840 and $808, respectively, and the net periodic
postretirement benefit cost (NPPBC) for 1996, 1995 and 1994 was $78, $66
and $119, respectively.
The amount of NPPBC for the plan as a whole for the years ended December
31, 1996, 1995 and 1994 was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Service cost (benefits attributed to employee service during the year) $ 6,541 6,235 8,586
Interest cost on accumulated postretirement benefit obligation 13,679 14,151 14,011
Actual return on plan assets (4,348) (2,657) (1,622)
Amortization of unrecognized transition obligation of affiliates 173 2,966 568
Net amortization and deferral 1,830 (1,619) 1,622
--------- --------- ---------
$ 17,875 19,076 23,165
--------- --------- ---------
--------- --------- ---------
</TABLE>
Information regarding the funded status of the plan as a whole as of
December 31, 1996 and 1995 follows:
1996 1995
---------- ----------
Accrued postretirement benefit expense:
Retirees $ 92,954 88,680
Fully eligible, active plan participants 23,749 28,793
Other active plan participants 83,986 90,375
---------- ----------
Accumulated postretirement benefit
obligation (APBO) 200,689 207,848
Plan assets at fair value 63,044 54,325
---------- ----------
Plan assets less than accumulated
postretirement benefit obligation (137,645) (153,523)
Unrecognized transition obligation of
affiliates 1,654 1,827
Unrecognized net gains (23,225) (1,038)
---------- ----------
$ (159,216) (152,734)
---------- ----------
---------- ----------
<PAGE>
Actuarial assumptions used for the measurement of the APBO as of December
31, 1996 and 1995 and the NPPBC for 1996, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1996 1996 1995 1995 1994
APBO NPPBC APBO NPPBC NPPBC
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Discount rate 7.25% 6.65% 6.75% 8.00% 7.00%
Long-term rate of return on plan
assets, net of tax - 4.80% - 8.00% N/A
Assumed health care cost trend rate:
Initial rate 11.00% 11.00% 11.00% 10.00% 12.00%
Ultimate rate 6.00% 6.00% 6.00% 6.00% 6.00%
Uniform declining period 12 Years 12 Years 12 Years 12 Years 12 Years
</TABLE>
The health care cost trend rate assumption has an effect on the amounts
reported. For the plan as a whole, a one percentage point increase in the
assumed health care cost trend rate would increase the APBO as of December
31, 1996 by $701 and the NPPBC for the year ended December 31, 1996 by $83.
(11) REGULATORY RISK-BASED CAPITAL AND DIVIDEND RESTRICTION
Ohio, the Company's state of domicile, imposes minimum risk-based capital
requirements that were developed by the NAIC. The formulas for determining
the amount of risk-based capital specify various weighting factors that are
applied to financial balances or various levels of activity based on the
perceived degree of risk. Regulatory compliance is determined by a ratio
of the company's regulatory total adjusted capital, as defined by the NAIC,
to its authorized control level risk-based capital, as defined by the NAIC.
Companies below specific trigger points or ratios are classified within
certain levels, each of which requires specified corrective action. The
Company exceeds the minimum risk-based capital requirements.
The statutory capital shares and surplus of the Company as reported to
regulatory authorities as of December 31, 1996, 1995 and 1994 was $71,390,
$54,978 and $48,947, respectively. The statutory net income of the Company
as reported to regulatory authorities for the years ended December 31,
1996, 1995 and 1994 was $670, $8,023 and $6,173, respectively.
The Company is limited in the amount of shareholder dividends it may pay
without prior approval by the Department. As of December 31, 1996, the
maximum amount available for dividend payment from the Company to its
shareholder without prior approval of the Department is $7,139.
The Company currently does not expect such regulatory requirements to
impair its ability to pay operating expenses and stockholder dividends in
the future.
(12) TRANSACTIONS WITH AFFILIATES
The Company leases office space from NMIC and certain of its subsidiaries.
For the years ended December 31, 1996, 1995 and 1994, the Company made
lease payments to NMIC and its subsidiaries of $410, $287 and $341,
respectively.
<PAGE>
Pursuant to a cost sharing agreement among NMIC and certain of its direct
and indirect subsidiaries, including the Company, NMIC provides certain
operational and administrative services, such as sales support,
advertising, personnel and general management services, to those
subsidiaries. Expenses covered by this agreement are subject to allocation
among NMIC, the Company and other affiliates. Amounts allocated to the
Company were $2,682, $2,596 and $2,503 in 1996, 1995 and 1994,
respectively. The allocations are based on techniques and procedures in
accordance with insurance regulatory guidelines. Measures used to allocate
expenses among companies include individual employee estimates of time
spent, special cost studies, salary expense, commissions expense and other
methods agreed to by the participating companies that are within industry
guidelines and practices. The Company believes these allocation methods
are reasonable. In addition, the Company does not believe that expenses
recognized under the inter-company agreements are materially different than
expenses that would have been recognized had the Company operated on a
stand alone basis. Amounts payable to NMIC from the Company under the cost
sharing agreement were $2,275 and $1,186 as of December 31, 1996 and 1995,
respectively.
Effective December 31, 1996, the Company entered into an intercompany
reinsurance agreement with NLIC whereby certain inforce and subsequently
issued fixed individual deferred annuity contracts are ceded on a 100%
coinsurance with funds withheld basis. Under 100% coinsurance with funds
withheld agreements, invested assets are retained by the ceding company and
liabilities for future policy benefits are transferred to the assuming
company. In addition, net investment earnings on the invested assets
retained by the ceding company are to be paid to the assuming company.
Under terms of the Company's agreement, the investment risk associated with
changes in interest rates is borne by NLIC. Risk of asset default is
retained by the Company, although a fee is paid by NLIC to the Company for
the Company's retention of such risk. The agreement will remain inforce
until all contract obligations are settled. The ceding of risk does not
discharge the original insurer from its primary obligation to the
contractholder. The Company believes that the terms of the 100%
coinsurance with funds withheld agreement are consistent in all material
respects with what the Company could have obtained with unaffiliated
parties.
The Company has recorded a liability equal to the amount due to NLIC as of
December 31, 1996 for $679,571, which represents the future policy benefits
of the fixed individual deferred annuity contracts ceded. In consideration
for the initial inforce business reinsured, NLIC agreed to pay the Company
$26,473 in commission and expense allowances which were applied to the
Company's deferred policy acquisition costs as of December 31, 1996. No
significant gain or loss was recognized as a result of the agreement.
The Company and various affiliates entered into agreements with Nationwide
Cash Management Company (NCMC) and California Cash Management Company
(CCMC), both affiliates, under which NCMC and CCMC act as common agents in
handling the purchase and sale of short-term securities for the respective
accounts of the participants. Amounts on deposit with NCMC and CCMC were
$492 and $4,844 as of December 31, 1996 and 1995, respectively, and are
included in short-term investments on the accompanying balance sheets.
Certain annuity products are sold through an affiliated company, which is a
subsidiary of Nationwide Corporation. Total commissions paid to the
affiliate for the three years ended December 31, 1996 were $14,644, $5,949
and $6,633, respectively.
(13) SEGMENT INFORMATION
The Company has three primary segments: Variable Annuities, Fixed Annuities
and Life Insurance. The Variable Annuities segment consists of annuity
contracts that provide the customer with the opportunity to invest in
mutual funds managed by an affiliated company and independent investment
managers, with the investment returns accumulating on a tax-deferred basis.
The Fixed Annuities segment consists of annuity contracts that generate a
return for the customer at a specified interest rate, fixed for a
prescribed period, with returns accumulating on a tax-deferred basis. The
Life Insurance segment consists of insurance products that provide a death
benefit and may also allow the customer to build cash value on a
tax-deferred basis. In addition, the Company reports corporate expenses
and investments, and the related investment income supporting capital not
specifically allocated to its product segments in a Corporate and Other
segment. In addition, all realized gains and losses are reported in the
Corporate and Other segment.
<PAGE>
During 1996, the Company changed its reporting segments to better reflect
the way the businesses are managed. Prior periods have been restated to
reflect these changes.
The following table summarizes the revenues and income (loss) before
federal income tax expense for the years ended December 31, 1996, 1995 and
1994 and assets as of December 31, 1996, 1995 and 1994, by business
segment.
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Variable Annuities $ 4,591 2,927 2,435
Fixed Annuities 51,643 50,056 44,812
Life Insurance 165 185 179
Corporate and Other 1,545 234 891
----------- ----------- -----------
$ 57,944 53,402 48,317
----------- ----------- -----------
----------- ----------- -----------
Income (loss) before federal income tax expense:
Variable Annuities 1,094 1,196 658
Fixed Annuities 5,156 5,633 5,093
Life Insurance (1) (381) (990)
Corporate and Other 1,544 699 426
----------- ----------- -----------
$ 7,793 7,147 5,187
----------- ----------- -----------
----------- ----------- -----------
Assets:
Variable Annuities 503,111 267,097 185,332
Fixed Annuities 787,682 643,313 606,696
Life Insurance 2,597 2,665 2,677
Corporate and Other 73,031 54,507 38,335
----------- ----------- -----------
$ 1,366,421 967,582 833,040
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
<PAGE>
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Balance Sheet
(Unaudited)
(in thousands of dollars)
Assets June 30,1997
------ ------------
Investments:
Securities available-for-sale, at fair value:
Fixed maturity securities (cost $764,959) $ 771,125
Equity securities (cost $11,121) 13,694
Mortgage loans on real estate, net 172,916
Real estate, net 1,891
Policy loans 168
Short-term investments 10,262
------------
970,056
------------
Cash 9,493
Accrued investment income 10,814
Deferred policy acquisition costs 21,922
Deferred federal income tax 4,535
Other assets 1,157
Assets held in Separate Accounts 690,195
------------
$ 1,708,172
------------
------------
Liabilities and Shareholder's Equity
------------------------------------
Future policy benefits and claims $ 79,956
Funds withheld under coinsurance agreement with affiliate 815,171
Accrued federal income tax 8,377
Other liabilities 28,572
Liabilities related to Separate Accounts 690,195
------------
1,622,271
------------
Shareholder's equity:
Capital shares, $40 par value. Authorized, issued and
outstanding 66,000 shares 2,640
Additional paid-in capital 52,960
Retained earnings 26,841
Unrealized gains on securities available-for-sale, net 3,460
------------
85,901
------------
$ 1,708,172
------------
------------
84
See accompanying notes to unaudited financial statements
<PAGE>
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Statements of Income
(Unaudited)
(in thousands of dollars)
Six months ended
June 30,
-----------------------------
1997 1996
------------ ------------
Revenues:
Investment product and universal life
insurance product policy charges $ 4,439 2,886
Traditional life insurance premiums 165 75
Net investment income 5,908 24,070
Realized gains (losses) on investments (632) 272
------------ ------------
9,880 27,303
------------ ------------
Benefits and expenses:
Benefits and claims 2,195 16,483
Amortization of deferred policy acquisition
costs 2,011 3,710
Other operating expenses 3,104 3,818
------------ ------------
7,310 24,011
------------ ------------
Income before federal income tax expense 2,570 3,292
------------ ------------
Federal income tax expense:
Current 863 904
Deferred 75 326
------------ ------------
938 1,230
------------ ------------
Net income $ 1,632 2,062
------------ ------------
------------ ------------
85
See accompanying notes to unaudited financial statements
<PAGE>
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Statements of Shareholder's Equity
(Unaudited)
Six Months Ended June 30, 1997 and 1996
(in thousands of dollars)
<TABLE>
<CAPTION>
Unrealized
gains (losses)
Additional on securities Total
Capital paid-in Retained available-for- shareholder's
shares capital earnings sale, net equity
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
1996:
Balance, January 1, 1996 $ 2,640 52,960 20,123 4,454 80,177
Net income - - 2,062 - 2,062
Unrealized losses on securities
avallable-for-sale, net - - - (3,518) (3,518)
-------------- -------------- -------------- -------------- --------------
Balance, June 30, 1996 $ 2,640 52,960 22,185 936 78,721
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
1997:
Balance, January 1, 1997 2,640 52,960 25,209 3,228 84,037
Net income - - 1,632 - 1,632
Unrealized gains on securities
available-for-sale, net - - - 232 232
-------------- -------------- -------------- -------------- --------------
Balance, June 30, 1997 $ 2,640 52,960 26,841 3,460 85,901
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
</TABLE>
86
See accompanying notes to unaudited financial statements
<PAGE>
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Statements of Cash Flows
(Unaudited)
Six Months Ended June 30, 1997 and 1996
(in thousands of dollars)
1997 1996
--------- ---------
Cash flows from operating activities:
Net income $ 1,632 2,062
Adjustments to reconcile net income to net cash
provided by operating activities:
Capitalization of deferred policy acquisition costs (6,973) (5,823)
Amortization of deferred policy acquisition costs 2,011 3,710
Amortization and depreciation 750 1,094
Realized losses (gains) on investments, net 632 (272)
Deferred federal income tax 75 326
Increase in accrued investment income (1,625) (225)
Decrease (increase) in other assets 31,590 (27)
Increase (decrease) in policy liabilities and
funds withheld on coinsurance agreement with
affiliate 136,109 (3,695)
Decrease (increase) in accrued federal income tax
payable 463 (148)
Increase in other liabilities 644 8,037
--------- ---------
Net cash provided by operating activities 165,308 5,039
--------- ---------
Cash flows from investing activities:
Proceeds from maturity of securities
available-for-sale 43,264 43,627
Proceeds from sale of securities
available-for-sale -- 1,834
Proceeds from repayments of mortgage loans on
real estate 3,262 4,506
Proceeds from repayments of policy loans 3 19
Cost of securities available-for-sale acquired (169,625) (47,260)
Cost of mortgage loans on real estate acquired (25,916) (15,495)
Cost of real estate acquired (11) --
Policy loans issued (45) (29)
Short-term investements, net (9,770) (1,119)
--------- ---------
Net cash used in investing activities (158,838) (13,917)
--------- ---------
Cash flows from financing activities:
Increase in investment product and universal
life insurance product account balances 5,276 54,331
Decrease in investment product and universal
life insurance product account balances (6,549) (39,204)
--------- ---------
Net cash (used in) provided by financing
activities (1,273) 15,127
--------- ---------
Net increase in cash 5,197 6,249
Cash, beginning of period 4,296 --
--------- ---------
Cash, end of period $ 9,493 6,249
--------- ---------
--------- ---------
87
See accompanying notes to unaudited financial statements
<PAGE>
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Unaudited Financial Statements
Six Months Ended June 30, 1997
(1) ORGANIZATION AND BASIS OF PRESENTATION
Nationwide Life and Annuity Insurance Company (the Company) is a wholly
owned subsidiary of Nationwide Life Insurance Company (NLIC.).
The accompanying unaudited financial statements of 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. 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. The accompanying unaudited financial statements should be read
in conjunction with the Company's December 31, 1996 audited financial
statements and related notes contained on pages 43 through 62 herein.
88
<PAGE>
PART II - OTHER INFORMATION
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement to Form S-6 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 88 pages.
Representations and Undertakings.
The Signatures.
Accountants' Consent
The following exhibits required by Forms N-8B-2 and S-6:
1. Power of Attorney Filed previously in connection with SEC
File No. 333-36869 and is hereby
incorporated by reference.
2. Resolution of the Depositor's Filed previously in connection with SEC
Board of Directors authorizing File No. 333-36869 and is hereby
the establishment of the incorporated by reference.
Registrant, adopted
3. Distribution Contracts Filed previously in connection with SEC
File No. 333-27123 and is hereby
incorporated by reference.
4. Form of Security Filed previously in connection with SEC
File No. 333-36869 and is hereby
incorporated by reference.
5. Articles of Incorporation Filed previously in connection with SEC
of Depositor File No. 333-27123 and is hereby
incorporated herein by reference.
6. Application form of Security Attached hereto.
7. Opinion of Counsel Filed previously in connection with SEC
File No. 333-36869 and is hereby
incorporated by reference.
<PAGE>
REPRESENTATIONS AND UNDERTAKINGS
The Registrant and the Company 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 the Company 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 the Company under the policies. The Company 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 the Company, and will be
made available to the Securities and Exchange Commission (the "Commission")
on request.
(c) The Company 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) The Company 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 the company,
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 the Company.
<PAGE>
ACCOUNTANTS' CONSENT
The Board of Directors of Nationwide Life and Annuity Insurance Company:
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the Prospectus.
KPMG Peat Marwick LLP
Columbus, Ohio
September 10, 1997
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, the Registrant, Nationwide VL
Separate Account-C, has caused this Pre-effective Amendment No. 1 to the
Registration Statement to be signed on its behalf in the City of Columbus, and
the State of Ohio, on this 29th day of December, 1997.
NATIONWIDE VL SEPARATE ACCOUNT-C
----------------------------------------
(Registrant)
(Seal) NATIONWIDE LIFE AND
ANNUITY INSURANCE COMPANY
----------------------------------------
Attest: (Depositor)
by/s/ JOHN F. DELALOYE By: by/s/JOSEPH P. RATH
- ----------------------------- -------------------------------------
John F. Delaloye Joseph P. Rath
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 29th day of December, 1997.
SIGNATURE TITLE
LEWIS J. ALPHIN Director
- --------------------------
Lewis J. Alphin
KEITH W. ECKEL Director
- --------------------------
Keith W. Eckel
WILLARD J. ENGEL Director
- --------------------------
Willard J. Engel
FRED C. FINNEY Director
- --------------------------
Fred C. Finney
CHARLES L. FUELLGRAF, JR. Director
- --------------------------
Charles L. Fuellgraf, Jr.
JOSEPH J. GASPER President/Chief Operating Officer and Director
- --------------------------
Joseph J. Gasper
HENRY S. HOLLOWAY Chairman of the Board and Director
- --------------------------
Henry S. Holloway
DIMON R. MCFERSON Chairman and Chief Executive Officer - Nationwide
- -------------------------- Insurance Enterprise and Director
Dimon R. McFerson
DAVID O. MILLER Director
- --------------------------
David O. Miller
C. RAY NOECKER Director
- --------------------------
C. Ray Noecker
ROBERT A. OAKLEY Executive Vice President-Chief Financial Officer
- --------------------------
Robert A. Oakley
JAMES F. PATTERSON Director by/s/JOSEPH P. RATH
- -------------------------- ---------------------------
James F. Patterson Joseph P Rath
ARDEN L. SHISLER Director Attorney-in-Fact
- --------------------------
Arden L. Shisler
ROBERT L. STEWART Director
- --------------------------
Robert L. Stewart
NANCY C. THOMAS Director
- --------------------------
Nancy C. Thomas
HAROLD W. WEIHL Director
- --------------------------
Harold W. Weihl
<PAGE>
EXHIBIT NO. 6
<PAGE>
WELCOME TO
NATIONWIDE LIFE
INSURANCE COMPANY
&
NATIONWIDE LIFE AND
ANNUITY INSURANCE COMPANY
SPECIMEN COPY
VLOB-41 (11/97)
<PAGE>
<TABLE>
<CAPTION>
<S><C>
/ / NATIONWIDE LIFE INSURANCE COMPANY
/ / NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE P.O. Box 182150, Columbus, OH 43218-2150
- -------------------------------------------------------------------------------------------------------------------------------
1. PRIMARY INSURED
- -------------------------------------------------------------------------------------------------------------------------------
Name of Primary Insured_______________________________________ Sex ______ Age _________ Date of Birth _______/_____/_______
(FIRST, MIDDLE, LAST)
Birth Place____________________________________ Drivers License #__________________ Social Security Number___ - ___ -______
Address________________________________________________ City ______________________ State ___________________ Zip _________
Occupation___________________________________________ Former Name (IF APPLICABLE)__________________________________________
Telephone - Home ( _________ ) ________________ Best Time To Call: ____________ A.M. ____________ P.M.
Telephone - Business ( _________ ) ________________ Best Time To Call: ____________ A.M. ____________ P.M.
- -------------------------------------------------------------------------------------------------------------------------------
2. SPOUSE (IF TO BE INSURED ON A SPOUSE RIDER.)
- -------------------------------------------------------------------------------------------------------------------------------
Name of Spouse_________________________________________________ Sex_______ Age _________ Date of Birth _____ /_____/_______
(FIRST, MIDDLE, LAST)
Birth Place____________________________________ Drivers License #__________________ Social Security Number___ - ____-______
Address________________________________________________ City ______________________ State ___________________ Zip _________
Occupation___________________________________________ Former Name (IF APPLICABLE)__________________________________________
- -------------------------------------------------------------------------------------------------------------------------------
3. CHILDREN (IF TO BE INSURED ON A CHILDREN'S RIDER.)
- -------------------------------------------------------------------------------------------------------------------------------
FULL NAMES OF SEX AGE DATE OF BIRTH HEIGHT WEIGHT RELATIONSHIP TO
CHILDREN MO. DAY YEAR FT. IN. CURRENT 1 YR. AGO PRIMARY INSURED
_____________________________________/__/__/__/___/__/__/__/__/____/_/__/_/__/___/_______/__________/______________________
_____________________________________/__/__/__/___/__/__/__/__/____/_/__/_/__/___/_______/__________/______________________
_____________________________________/__/__/__/___/__/__/__/__/____/_/__/_/__/___/_______/__________/______________________
_____________________________________/__/__/__/___/__/__/__/__/____/_/__/_/__/___/_______/__________/______________________
- -------------------------------------------------------------------------------------------------------------------------------
4. OWNER (IF SOMEONE OTHER THAN THE PRIMARY INSURED.)
- -------------------------------------------------------------------------------------------------------------------------------
Name of Owner_________________________________________________________________________________ Date of Birth _____/____/___
(FIRST, MIDDLE, LAST)
Address________________________________________________ City ______________________ State ___________________ Zip _________
Relationship to Primary Insured ___________________________________________ Social Security Number _______-________-_______
- -------------------------------------------------------------------------------------------------------------------------------
5. CONTINGENT OWNER (WILL BE OWNER IF OWNER DIES.) (COMPLETE ON EVERY JUVENILE APPLICATION.)
- -------------------------------------------------------------------------------------------------------------------------------
Name of Contingent Owner______________________________________________________________________ Date of Birth _____/____/___
(FIRST, MIDDLE, LAST)
Address________________________________________________ City ______________________ State ___________________ Zip _________
Relationship to Primary Insured ___________________________________________ Social Security Number _______-________-_______
- -------------------------------------------------------------------------------------------------------------------------------
6. PRIMARY BENEFICIARY / CONTINGENT BENEFICIARY (IF MORE SPACE IS NEEDED CONTINUE IN PART 25.)
- -------------------------------------------------------------------------------------------------------------------------------
DATE OF RELATIONSHIP SOCIAL
FULL NAME OF BENEFICIARY ADDRESS BIRTH TO INSURED SECURITY #
PRIMARY:
_______________________________ ___________________ ____/_____/______ _________________________ ______-______-__________
_______________________________ ___________________ ____/_____/______ _________________________ ______-______-__________
CONTINGENT: (WILL BE BENEFICIARY IF PRIMARY BENEFICIARY DIES BEFORE PRIMARY INSURED.)
_______________________________ ___________________ ____/_____/______ _________________________ ______-______-__________
_______________________________ ___________________ ____/_____/______ _________________________ ______-______-__________
- -------------------------------------------------------------------------------------------------------------------------------
7. PLAN
- -------------------------------------------------------------------------------------------------------------------------------
SPECIFIED AMOUNT $____________________
TARGET SPECIFIED AMOUNT (INCLUSIVE OF ADDITIONAL PROTECTION RIDER) $______________________
- -------------------------------------------------------------------------------------------------------------------------------
8. RIDERS
- -------------------------------------------------------------------------------------------------------------------------------
/ / WAIVER OF MONTHLY DEDUCTION RIDER / /GUARANTEED MINIMUM DEATH BENEFIT RIDER
/ / ACCIDENTAL DEATH BENEFIT RIDER - AMOUNT $____________________
/ / SPOUSE RIDER - AMOUNT $___________________ / /CHILDREN'S RIDER - AMOUNT $___________________
/ / ADDITIONAL PROTECTION RIDER (ATTACH SCHEDULE OF TARGET SPECIFIED AMOUNTS IF ANY CHANGES APPLIED FOR)
/ / OTHER_______________________________________________________________________________________________
VLOB-41 (11/97)
<PAGE>
- -------------------------------------------------------------------------------------------------------------------------------
9. DEATH BENEFIT OPTION
- -------------------------------------------------------------------------------------------------------------------------------
/ / OPTION 1 (THE SPECIFIED AMOUNT, OR A MULTIPLE OF THE CONTRACT VALUE, WHICHEVER IS GREATER)
/ / OPTION 2 (THE SPECIFIED AMOUNT, PLUS THE CONTRACT VALUE, OR A MULTIPLE OF THE CONTRACT VALUE, WHICHEVER IS GREATER)
/ / OPTION 3 (THE SPECIFIED AMOUNT, PLUS THE PREMIUM ACCUMULATION AT __% INTEREST OR A MULTIPLE OF THE CONTRACT VALUE,
WHICHEVER IS GREATER)
(IF NO OPTION IS SELECTED HERE, OPTION 1 IS ELECTED.)
- -------------------------------------------------------------------------------------------------------------------------------
10. PREMIUM AND MODE
- -------------------------------------------------------------------------------------------------------------------------------
INITIAL PREMIUM DEPOSIT PLANNED PREMIUM
(paid with application) / / SINGLE PREMIUM $___________ / / MONTHLY (Electronic Funds Transfer)
/ / ANNUAL $___________ $___________ (Attach completed
$ / / SEMI-ANNUAL $___________ authorization and void check)
/ / QUARTERLY $___________ / / OTHER______________________________
$___________________
- -------------------------------------------------------------------------------------------------------------------------------
11. ALLOCATIONS
- -------------------------------------------------------------------------------------------------------------------------------
FOR CONTRACTS ISSUED IN STATES WHICH REQUIRE A RETURN OF PREMIUM TO A POLICY OWNER EXERCISING THE SHORT TERM RIGHT TO CANCEL;
NET PREMIUMS WILL BE ALLOCATED TO THE NATIONWIDE SEPARATE ACCOUNT TRUST MONEY MARKET FUND OR TO THE FIXED ACCOUNT IF SELECTED
UNTIL THE END OF THE RIGHT TO CANCEL PERIOD. AT THE END OF THIS PERIOD, YOUR CONTRACT VALUE WILL BE ALLOCATED TO THE
SUBACCOUNTS INDICATED BELOW. FOR STATES REQUIRING A RETURN OF CASH VALUE YOUR NET PREMIUM WILL BE ALLOCATED TO THE
SUBACCOUNTS AT THE BEGINNING OF THE SHORT TERM RIGHT TO CANCEL PERIOD. YOUR SELECTIONS MUST TOTAL 100%. MINIMUM INITIAL
ALLOCATION TO ANY SINGLE SUBACCOUNT IS 5%. NO FRACTIONAL PERCENTAGES. THESE PERCENTAGES WILL APPLY IN FUTURE YEARS BUT MAY
BE CHANGED AT ANY TIME BY THE POLICY OWNER. (IF NO ALLOCATION INDICATED, MONEY MARKET WILL BE AUTOMATICALLY SELECTED.)
MORGAN STANLEY NEUBERGER & BERMAN NATIONWIDE SUBADVISED FUNDS
___ % Emerging Markets Debt Port. ___ % AMT Guardian Port. Fund Name (Subadvisor)
___ % Real Estate Securities Port. ___ % AMT Partners Port. ___ % Balanced Fund (Salomon Brothers)
___ % AMT Mid-Capital Growth Port. ___ % Equity Income Fund (Federated)
NATIONWIDE SEPARATE ACCOUNT TRUST ___ % Global Equity Fund (JP Morgan)
___ % Money Market Fund OPPENHEIMER ___ % High Income Bond Fund (Federated)
___ % Government Bond Fund ___ % Capital Appreciation Fund ___ % Multi Sector Bond Fund
___ % Total Return Fund ___ % Growth Fund (Salomon Brothers)
___ % Capital Appreciation Fund ___ % Growth & Income Fund ___ % Small Capital Value Fund (Dreyfus)
___ % Small Companies Fund
FIDELITY WARBURG PINCUS (Multi Managers)
___ % Contrafund Port. ___ % International Equity Port. ___ % Strategic Growth Fund (Strong)
___ % Equity-Income Port. ___ % Growth & Income Port. ___ % Strategic Value Fund(Strong/Schafer)
___ % Growth Port. ___ % Post-Venture Capital Port. ___ % Select Advisors Mid Capital Fund
___ % Growth Opportunities Port. (Three UAM Managers)
___ % High Income Port. DREYFUS
___ % Overseas Port. ___ % VIF Capital Appreciation Port. AMERICAN CENTURY
___ % Stock Index Fund ___ % VP Income & Growth
VAN ECK ___ % Socially Responsible Growth ___ % VP International
___ % Worldwide Hard Assets Fund Fund ___ % VP Value
___ % Worldwide Emerging Markets
Fund NATIONWIDE LIFE INSURANCE CO.
___ % Fixed Account
- -------------------------------------------------------------------------------------------------------------------------------
12. SUITABILITY (VARIABLE PRODUCTS ONLY)
- -------------------------------------------------------------------------------------------------------------------------------
A. DO YOU UNDERSTAND THAT THE DEATH BENEFIT AND SURRENDER VALUE MAY INCREASE DEPENDING ON THE YES NO
INVESTMENT EXPERIENCE OF THE VARIABLE ACCOUNT?. . . . . . . . . . . . . . . . . . . . . . . . . . / / / /
B. DO YOU BELIEVE THAT THIS POLICY WILL MEET YOUR INSURANCE NEEDS AND FINANCIAL OBJECTIVES? . . . . . / / / /
C. HAVE YOU RECEIVED A CURRENT COPY OF THE PROSPECTUS?. . . . . . . . . . . . . . . . . . . . . . . . / / / /
- -------------------------------------------------------------------------------------------------------------------------------
13. INSURANCE INFORMATION
- -------------------------------------------------------------------------------------------------------------------------------
a. List all Life Insurance now in force on each person here proposed for insurance. If None, write "NONE."
TO BE PERSON COMPANY POLICY NUMBER AMOUNT YEAR ACCIDENTAL
REPLACED? ISSUED DEATH
-------------- ------ -------- ------------- ------ ------ ----------
/ / YES / / NO
/ / YES / / NO
/ / YES / / NO
/ / YES / / NO
b. Will the insurance applied for replace existing Life Insurance or Annuities on any person
here proposed for insurance? YES NO
(If "yes", so indicate beside A above.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . / / / /
(COMPLETE AND SEND REPLACEMENT FORMS AND/OR 1035 EXCHANGE FORMS WHERE APPLICABLE.)
c. Are you (or anyone here proposed for coverage) now applying for Life Insurance with any other
company?
If "yes", state the company, kind of policy and face amount being applied for . . . . . . . . . . / / / /
________________________________________________________________________________________________________________________
________________________________________________________________________________________________________________________
VLOB-41
<PAGE>
- -------------------------------------------------------------------------------------------------------------------------------
14. PHYSICAL MEASUREMENTS
- -------------------------------------------------------------------------------------------------------------------------------
INSURED HEIGHT WEIGHT CURRENT WEIGHT 1 YR AGO REASON FOR WEIGHT GAIN OR LOSS
PRIMARY INSURED Ft.__ In.__ ___ Lbs. ___ Lbs. ______________________________
SPOUSE (if to be insured) Ft.__ In.__ ___ Lbs. ___ Lbs. ______________________________
- -------------------------------------------------------------------------------------------------------------------------------
15. TOBACCO USE
- -------------------------------------------------------------------------------------------------------------------------------
PRIMARY SPOUSE (IF TO
INSURED BE INSURED)
a. Have you used tobacco in any form in the past 12 months? . . . . . . . . . . . / / YES / /NO / / YES / /NO
b. If "yes", specify the KIND of tobacco use? (cigarettes, pipe, cigars, chewing,
etc.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _____________ _______________
c. How many times per day?. . . . . . . . . . . . . . . . . . . . . . . . . . . . _____________ _______________
- -------------------------------------------------------------------------------------------------------------------------------
16. PERSONAL INFORMATION
- -------------------------------------------------------------------------------------------------------------------------------
THE QUESTIONS IN THIS PART APPLY TO ALL PERSONS WHO ARE BEING PROPOSED FOR INSURANCE ON THIS APPLICATION.
ALL QUESTIONS ARE TO BE ANSWERED BY EACH ADULT LISTED IN PARTS 1 AND 2 AND FOR EACH CHILD LISTED IN PART 3. YES NO
a. Have you ever had any application for Life or Health Insurance (or for reinstatement of Life and
Health Insurance) declined, postponed, rated-up or limited? (If "Yes", provide details below.). . . . . / / / /
b. Have you ever applied for or received disability payments for any illness or injury?
(If "Yes", provide details below.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . / / / /
c. In the past 3 years have you engaged in, or do you intend to engage in:
flying as a pilot, student pilot, or crew member; racing of an automobile, motorcycle, or any type of
motor-powered vehicle; scuba diving, mountain climbing, hang gliding, parachuting, sky diving, bungee
jumping, or any type of body-contact or life-threatening sport? (If "Yes", complete an
Aviation/Hazardous Activities Questionnaire.). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . / / / /
d. Have you ever had your driver's license suspended or revoked; or been convicted of driving while
impaired or intoxicated; or been convicted in the past three years of more than one moving violation?
(If "Yes", give full details below.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . / / / /
e. Except as prescribed by a physician, have you ever used, or been convicted for sale or possession
of cocaine or any other narcotic or illegal drug? (If "Yes", give frequency, most recent date,
and type of drugs below.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . / / / /
f. Have you ever been convicted of a felony, misdemeanor, or any other crime? (If "Yes", provide
details below.). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . / / / /
Details of any "yes" answers (indicate name of person): ___________________________________________________________________
___________________________________________________________________________________________________________________________
___________________________________________________________________________________________________________________________
___________________________________________________________________________________________________________________________
___________________________________________________________________________________________________________________________
- -------------------------------------------------------------------------------------------------------------------------------
17. PERSONAL PHYSICIANS
- -------------------------------------------------------------------------------------------------------------------------------
Name, address, and telephone number of Personal Physician(s); GIVE DATE AND REASON LAST CONSULTED.
a. Primary Insured: ______________________________________________________________________________________________________
___________________________________________________________________________________________________________________________
___________________________________________________________________________________________________________________________
b. Spouse (IF TO BE INSURED):______________________________________________________________________________________________
___________________________________________________________________________________________________________________________
___________________________________________________________________________________________________________________________
c. Children (IF TO BE INSURED) (IF CHILDREN HAVE DIFFERENT DOCTORS, MATCH DOCTORS TO SPECIFIC CHILDREN):
___________________________________________________________________________________________________________________________
___________________________________________________________________________________________________________________________
___________________________________________________________________________________________________________________________
VLOB-41
<PAGE>
THE QUESTIONS IN PARTS 18, 19 AND 20 APPLY TO ALL PERSONS WHO ARE BEING PROPOSED FOR INSURANCE ON THIS APPLICATION.
ALL QUESTIONS ARE TO BE ANSWERED BY EACH ADULT LISTED IN PARTS 1 AND 2 AND FOR EACH CHILD LISTED IN PART 3.
FOR EACH "YES" ANSWER, CIRCLE THE APPROPRIATE ITEM, AND PROVIDE DETAILS IN #21 BELOW.
- -------------------------------------------------------------------------------------------------------------------------------
18. MEDICAL QUESTIONS
- -------------------------------------------------------------------------------------------------------------------------------
To the best of your knowledge and belief, has anyone here proposed for insurance in the past 10 years been
treated for or been diagnosed by a member of the medical profession as having: YES NO
a. Heart attack, angina (or other pain, discomfort, or tightness of the chest), shortness of breath,
palpitation, heart murmur, rheumatic fever, or any other disease of the heart or blood vessels?. . . . . . / / / /
b. High blood pressure (hypertension), anemia, or any other disease of the blood? . . . . . . . . . . . . . . / / / /
c. Recurrent dizziness or headaches, fainting spells, convulsions, seizures, epilepsy, stroke,
Alzheimer's disease, Parkinson's disease, multiple sclerosis, or chronic brain syndrome, neurosis,
affective disorder, psychosis, or any other brain, nervous, or mental disorder?. . . . . . . . . . . . . . / / / /
d. Asthma, emphysema, tuberculosis, coughing or spitting blood, bronchitis, pleurisy, persistent cough,
or any other disease of the lungs or respiratory system? . . . . . . . . . . . . . . . . . . . . . . . . . / / / /
e. Any disease or disorder of the eyes, ears, nose or throat, or any defect of sight, hearing or speech?. . . / / / /
f. Colitis, ulcer, hernia, persistent diarrhea, rectal bleeding, or any other disease or disorder
of the stomach, intestines, or rectum? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . / / / /
g. Kidney stones, nephritis, venereal disease, or any other disease of the kidneys, bladder,
prostate, testes, breasts, uterus, ovaries, or any other part of the urinary tract or reproductive system? / / / /
h. Sugar, albumin, blood, or pus in the urine? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . / / / /
i. Diabetes, or any disease of the liver, thyroid, or gallbladder? . . . . . . . . . . . . . . . . . . . . . / / / /
j. Cancer, or any malignant or benign tumor or cyst, or any disease of the skin or lymph glands?. . . . . . . / / / /
k. Arthritis, rheumatism, or gout; or any chronic back or muscle condition? . . . . . . . . . . . . . . . . . / / / /
l. Phlebitis, varicose veins, or any deformity, paralysis, or loss of limb? . . . . . . . . . . . . . . . . . / / / /
m. Alcoholism, alcohol use, narcotic addiction, drug use, or hallucinations?. . . . . . . . . . . . . . . . . / / / /
n. AIDS (acquired immune deficiency syndrome), ARC (AIDS-related complex), or any other AIDS-related
condition, or received a positive result of an HIV test? . . . . . . . . . . . . . . . . . . . . . . . . / / / /
o. Any chronic or persistent disease not mentioned previously?. . . . . . . . . . . . . . . . . . . . . . . . / / / /
- -------------------------------------------------------------------------------------------------------------------------------
19. SUPPLEMENTAL MEDICAL INFORMATION
- -------------------------------------------------------------------------------------------------------------------------------
Within the past five years, has anyone here proposed for insurance: YES NO
a. Consulted, or been examined or treated by any physician, chiropractor, or other medical practitioner,
or by any hospital, clinic, or other medical facility not previously mentioned? (If it was for a
"check up", annual physical, employment physical, etc., so state and give findings and results
in #21 below.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . / / / /
b. Had any disease, disorder, injury, or operation not previously mentioned?. . . . . . . . . . . . . . . . . / / / /
c. Had any x-rays, electrocardiograms, or other medical tests for reasons not covered above?. . . . . . . . . / / / /
d. Been advised to have any surgery, hospitalization, treatment or test that was not completed? . . . . . . . / / / /
- -------------------------------------------------------------------------------------------------------------------------------
20. FAMILY HISTORY
- -------------------------------------------------------------------------------------------------------------------------------
Has either of your natural parents experienced cardiovascular disease or death prior to age 60?
(If "yes", provide details below.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . / / / /
- -------------------------------------------------------------------------------------------------------------------------------
21. DETAILS OF MEDICAL HISTORY
- -------------------------------------------------------------------------------------------------------------------------------
Question Number PERSON DATES DETAILS (Be specific. Give full names, addresses and telephone
& Letter numbers (if available) of physicians, hospitals, etc.)
____________________/_________________/_____________/______________________________________________________________________
____________________/_________________/_____________/______________________________________________________________________
____________________/_________________/_____________/______________________________________________________________________
____________________/_________________/_____________/______________________________________________________________________
____________________/_________________/_____________/______________________________________________________________________
____________________/_________________/_____________/______________________________________________________________________
____________________/_________________/_____________/______________________________________________________________________
____________________/_________________/_____________/______________________________________________________________________
____________________/_________________/_____________/______________________________________________________________________
____________________/_________________/_____________/______________________________________________________________________
____________________/_________________/_____________/______________________________________________________________________
____________________/_________________/_____________/______________________________________________________________________
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<PAGE>
- -------------------------------------------------------------------------------------------------------------------------------
22. NOTE
- -------------------------------------------------------------------------------------------------------------------------------
I understand Nationwide Life Insurance Company/Nationwide Life and Annuity Insurance Company will not accept any premium
with this application and the receipt will not be in effect and must not be detached if any person here proposed for
insurance has ever been treated for or been diagnosed by a physician as having:
high blood pressure, angina, or chest pain or discomfort; heart attack, heart murmur, or other heart disorder;
epilepsy, stroke, or diabetes; acquired immune deficiency syndrome (AIDS), AIDS-related complex (ARC), any
AIDS-related disorder or positive HIV test result; any brain, nervous, or mental disorder; any drug or alcohol
addiction; any kidney disorder (other than kidney stones); or any cancer or other malignancy.
- -------------------------------------------------------------------------------------------------------------------------------
23. TAXPAYER IDENTIFICATION NUMBER
- -------------------------------------------------------------------------------------------------------------------------------
Under the Interest and Dividend Compliance Act of 1983, persons owning insurance policies are required to provide the
Company with certification that their taxpayer identification number is correct. (For most individuals, this is their
Social Security Number.) If you do not provide us with certification of this number, you may be subject to a $50 penalty
imposed by the Internal Revenue Service. In addition, we will be forced to withhold 31% from interest and other
payments we make to you (known as backup withholding). It is not an additional tax, since the amount withheld will
be applied against the tax you owe. If withholding results in an overpayment of taxes, a refund may be obtained.
/ / Check this box if the Internal Revenue Service has notified you that you are not subject to the provisions of this law.
Otherwise, your signature on this application is certification that the taxpayer identification number on this
application is true, correct, and complete.
- -------------------------------------------------------------------------------------------------------------------------------
24. IMPORTANT NOTICE
- -------------------------------------------------------------------------------------------------------------------------------
I UNDERSTAND THAT THE DEATH BENEFIT UNDER A VARIABLE LIFE INSURANCE POLICY MAY INCREASE OR DECREASE, DEPENDING ON
THE INVESTMENT RETURN ON THE SUBACCOUNT(S) I SELECT. REGARDLESS OF INVESTMENT RETURN, THE DEATH BENEFIT CAN NEVER
BE LESS THAN THE SPECIFIED AMOUNT, AS LONG AS THE POLICY IS IN FORCE. THE CONTRACT VALUE MAY INCREASE OR DECREASE
ON ANY DAY, DEPENDING ON THE INVESTMENT RETURN FOR THE POLICY. NO MINIMUM CONTRACT VALUE IS GUARANTEED. ON REQUEST, WE
WILL FURNISH ILLUSTRATIONS OF BENEFITS, INCLUDING DEATH BENEFITS AND CONTRACT VALUES FOR A VARIABLE LIFE INSURANCE POLICY
AND A FIXED LIFE INSURANCE POLICY FOR THE SAME PREMIUM.
- -------------------------------------------------------------------------------------------------------------------------------
25. SPECIAL INSTRUCTIONS
- -------------------------------------------------------------------------------------------------------------------------------
AGREEMENT, AUTHORIZATION AND SIGNATURES
I have read this application. I understand each of the questions. All of the answers and statements on this form are complete
and true to the best of my knowledge and belief. I understand and agree that:
1. This application, any amendments to it, and any related medical examinations will become a part of the Policy and are the
basis of any insurance issued upon this application.
2. Any person who submits an application or a claim containing a false or deceptive statement, and does so with intent to defraud
or knowing that he/she is facilitating a fraud against an insurer, is guilty of insurance fraud.
3. No medical examiner and no agent or other representative of Nationwide may accept risks or make or change any contract, or
waive or change any of the Company's rights or requirements.
4. If the full first premium payment is made in exchange for a Temporary Insurance Receipt (with the same date and number as this
form), Nationwide will only be liable to the extent set forth in that receipt.
5. IF THE FULL FIRST PREMIUM IS NOT PAID WITH THIS APPLICATION, THEN INSURANCE WILL ONLY TAKE EFFECT WHEN ALL OF THE FOLLOWING
CONDITIONS ARE MET:
a. IF A POLICY IS ISSUED BY NATIONWIDE AND IS ACCEPTED BY ME; AND
b. IF THE FULL FIRST PREMIUM IS PAID; AND
c. IF ALL THE ANSWERS AND STATEMENTS MADE ON THE APPLICATION, MEDICAL EXAMINATION(S) AND AMENDMENTS CONTINUE TO BE TRUE TO
THE BEST OF MY KNOWLEDGE AND BELIEF.
I have received the pre-notice form of the Fair Credit Reporting Act of 1970 and the Medical Information Bureau disclosure form.
I certify that the Social Security Number given is correct and complete.
I authorize: any licensed physician or medical practitioner; any hospital, clinic or other medical or medically related facility;
any insurance company; the Medical Information Bureau; or any other organization, institution or person who has knowledge of me;
to give that information to the Medical Director of the Nationwide Insurance Company, or its reinsurers. This authorization, or a
copy of it, will be valid for a period of not more than one year from the date it was signed.
Signed at_____________________________________________, on ___________________,______________________________________.
I have truly and accurately recorded all
Proposed Insured's answers on this application __________________________________________________________
and have witnessed his/her/their signature(s) Signature of Primary Insured (if over age 14)
hereon.
__________________________________________________________
To the best of my knowledge, the insurance Signature of Spouse (if to be insured)
applied for
/ / will / / will not (CHECK ONE) replace __________________________________________________________
any life insurance or annuity. Signature of Applicant (if other than the Primary Insured)
________________________________________________
Licensed Resident Agent Signature Firm __________________________________________________________
Signature of Owner
_________________________________________________
Agent's Name (Print) License ID Number
NO.
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<PAGE>
This receipt must not be detached and in no event will there be any temporary insurance unless the full first premium required by
the Company has been paid at the time of this application.
TEMPORARY INSURANCE RECEIPT NO.
NATIONWIDE LIFE INSURANCE COMPANY/NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
COLUMBUS, OHIO
Received from ____________________________________________________________ this ______________________ day of ___________, ________
the sum of _________________________________ dollars ($______________).
The temporary insurance that is provided by this receipt is for the coverage afforded by the initial premium deposit that is
shown in question 10 on page 2 of the application which has the same date and number as this receipt; except that the total
coverage with this Company under this and all other receipts will not exceed $1,000,000 on the person who is proposed for
insurance, regardless of the total amount(s) or number of receipts or applications.
If coverage afforded by the premium shown in question 10 on page 2 is more than $1,000,000 of insurance under this and/or any
other application, the company's liability will be no more than $1,000,000 plus a prorated return of premium submitted in excess
of the premium required to afford the $1,000,000 of insurance coverage.
Temporary insurance for the person who is proposed for coverage will be in force on the date of this receipt, subject to the
terms of the policy applied for in this application. Coverage will end on the earliest of:
1. The date the policy is issued. (The policy will replace the temporary insurance.)
2. The date the Company returns the premium deposit and mails a written notice to the Applicant that said insurance has
ended for each person who is proposed for insurance.
3. The 45th day after the date of this receipt (unless the receipt has been replaced earlier or has ended as noted in 1 or 2).
Fraud or material misrepresentation in this application voids the agreement. In such cases, the Company's only liability is for a
refund of the payment made.
If any person who is proposed for coverage dies by suicide, the Company's only liability with respect to that person under this
receipt is for a refund of payment made for that person's portion of the insurance applied for.
___________________________________________________
I have read and agree to the terms of this receipt. _________________________________
Licensed Resident Agent Signature
___________________________________________________
Signature of Proposed Insured (if over age 14) _________________________________
Date
___________________________________________________
Signature of Applicant if other than Insured
IMPORTANT NOTICE
DETACH AND GIVE TO PROPOSED INSURED
PRE-NOTICE OF PROCEDURES AS REQUIRED BY THE FAIR CREDIT REPORTING ACT OF 1970
This notice is to inform you that as part of our normal underwriting procedures in connection with an application for insurance:
1. An investigative consumer report may be made whereby information is obtained through personal interviews with your neighbors,
friends or others with whom you are acquainted. This inquiry will include information as to character, general reputation,
personal characteristics and mode of living, except as may be related directly or indirectly to your sexual orientation, with
respect to you, members of your family, and others having an interest in or closely connected with the insurance transaction;
and
2. Upon your written request, made within a reasonable time after you receive this notice, additional information as to the nature
and scope of the investigation, if one is made, will be provided. Requests for additional information should be addressed to
Nationwide Life Insurance Company/Nationwide Life and Annuity Insurance Company, Box 182150, Columbus, Ohio 43218-2150.
MEDICAL INFORMATION BUREAU DISCLOSURE NOTICE
Information regarding your insurability will be treated as confidential. Nationwide Life Insurance Company/Nationwide Life and
Annuity Insurance Company, or its reinsurer(s) may, however, make a brief report thereon to the Medical Information Bureau, a non-
profit membership organization of life insurance companies, which operates an information exchange on behalf of its members. If
you apply to another Bureau member company for life or health insurance coverage or a claim for benefits is submitted to such a
company, the Bureau, upon request, will supply such company with the information in its file.
Upon receipt of a request from you, the Bureau will arrange disclosure of any information it may have in your file. (Medical
information will be disclosed only to your attending physician.) If you question the accuracy of information in the Bureau's file,
you may contact the Bureau and seek a correction in accordance with the procedures set forth in the Federal Fair Credit Reporting
Act. The address of the Bureau's information office is Post Office Box 105, Essex Station, Boston, Massachusetts 02112, telephone
number (617) 426-3660.
Nationwide Life Insurance Company/Nationwide Life and Annuity Insurance Company or its reinsurer(s) may also release information in
its file to other life insurance companies to whom you may apply for life or health insurance, or to whom a claim for benefits may
be submitted.
</TABLE>
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