NATIONWIDE VL SEPARATE ACCOUNT-D
497, 2001-01-17
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                  NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY

      Corporate Flexible Premium Variable Universal Life Insurance Policies

 Issued by Nationwide Life and Annuity Insurance Company through its Nationwide
                             VL Separate Account-D.

                   The date of this prospectus is May 1, 2000.

--------------------------------------------------------------------------------
This prospectus contains basic information you should know about the policies
before investing. Please read it and keep it for future reference.

The following underlying mutual funds are available under the policies:

FIDELITY VARIABLE INSURANCE PRODUCTS FUND

    -    VIP Equity-Income Portfolio: Service Class
    -    VIP Growth Portfolio: Service Class
    -    VIP High Income Portfolio: Service Class
    -    VIP Overseas Portfolio: Service Class

NATIONWIDE SEPARATE ACCOUNT TRUST ("NSAT")

    -    Capital Appreciation Fund
    -    Government Bond Fund
    -    Money Market Fund
    -    Total Return Fund
    -    Dreyfus NSAT Mid Cap Index Fund (formerly, Nationwide Mid Cap Index
         Fund) (formerly, Nationwide Select Advisers Mid Cap Fund) (subadviser:
         The Dreyfus Corporation)
    -    Nationwide Small Cap Value Fund (subadviser: The Dreyfus Corporation)
    -    Nationwide Small Company Fund (subadvisers: The Dreyfus Corporation,
         Neuberger Berman, LLC., Lazard Asset Management, Strong Capital
         Management, Inc., and Waddell & Reed Investment Management Company)
    -    Strong NSAT Mid Cap Growth Fund (formerly, Nationwide Strategic Growth
         Fund) (subadviser: Strong Capital Management, Inc.)

ONE GROUP(R) INVESTMENT TRUST
    -    One Group Investment Trust Balanced Portfolio (formerly, Asset
         Allocation Fund)
    -    One Group Investment Trust Bond Portfolio
    -    One Group Investment Trust Diversified Equity Portfolio
    -    One Group Investment Trust Diversified Mid Cap Portfolio
    -    One Group Investment Trust Equity Index Portfolio
    -    One Group Investment Trust Government Bond Portfolio
    -    One Group Investment Trust Large Cap Growth Portfolio (formerly, Large
         Company Growth Fund)
    -    One Group Investment Trust Mid Cap Growth Portfolio (formerly, Growth
         Opportunities Fund)
    -    One Group Investment Trust Mid Cap Value Portfolio

*These underlying mutual funds invest in lower quality debt securities commonly
referred to as junk bonds.

THE FOLLOWING UNDERLYING MUTUAL FUND IS NOT AVAILABLE FOR POLICIES ISSUED ON OR
AFTER JUNE 15, 2000:

NATIONWIDE SEPARATE ACCOUNT TRUST ("NSAT")

    -    Nationwide Strategic Value Fund (subadviser: Strong Capital Management
         Inc./Schafer Capital Management Inc.)

In the future, additional underlying mutual funds managed by certain financial
institutions or brokerage firms may be added to the variable account. These
additional underlying mutual funds may be offered exclusively to purchasing
customers of the particular financial institution or brokerage firm.

For general information or to obtain FREE copies of the:

    -    prospectus, annual report or semi-annual report for any underlying
         mutual fund; and
    -    any required Nationwide forms,

call:

                  1-800-547-7548

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     TDD 1-800-238-3035

or write:

     NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
     P.O. BOX 182150
     COLUMBUS, OHIO 43218-2150

Material incorporated by reference to this prospectus can be found on the SEC
website at:

                                   WWW.SEC.GOV

This policy is NOT:
    -    a bank deposit;
    -    endorsed by a bank or government agency;
    -    federally insured; or
    -    available in every state.

The life insurance policies offered by this prospectus are corporate flexible
premium variable universal life insurance policies. They are designed for use by
corporations and employers to provide life insurance coverage and the
flexibility to vary the amount and frequency of premium payments. A cash
surrender value may be offered if the policy is terminated during the lifetime
of the insured.

The purpose of this policy is to provide life insurance protection for the
beneficiary named in the policy. No claim is made that the policy is in any way
similar or comparable to a systematic investment plan of a mutual fund.

The death benefit and cash value of this policy may vary to reflect the
experience of the Nationwide VL Separate Account-D (the "variable account") or
the fixed account, depending on how premium payments are invested.

Investors assume certain risks when investing in the policies, including the
risk of losing money.

Nationwide guarantees the death benefit for as long as the policy is in force.
The cash surrender value is not guaranteed. The policy will lapse if the cash
surrender value is insufficient to cover policy charges.

Benefits described in this prospectus may not be available in every jurisdiction
- refer to your policy for specific benefit information.

THIS PROSPECTUS IS NOT AN OFFERING IN ANY JURISDICTION WHERE SUCH OFFERING MAY
NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY REPRESENTATIONS IN
CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC NOR HAS THE
SEC PASSED UPON THE ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.

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GLOSSARY OF SPECIAL TERMS

ATTAINED AGE- The insured's age on the policy date, plus the number of full
years since the policy date.

ACCUMULATION UNIT- An accounting unit of measure used to calculate the cash
value of the variable account.

FIXED ACCOUNT- An investment option which is funded by the general account of
Nationwide.

GENERAL ACCOUNT- All assets of Nationwide other than those of the variable
account or in other separate accounts that have been or may be established by
Nationwide.

GUIDELINE LEVEL PREMIUM- The level annual premiums required to mature the policy
under guaranteed mortality and current expense charges, and an interest rate of
4%. It is calculated pursuant to the Internal Revenue Code.

MATURITY DATE- The policy anniversary on or next following the insured's 100th
birthday.

NATIONWIDE- Nationwide Life and Annuity Insurance Company.

NET AMOUNT AT RISK- The death benefit minus the cash value. On a monthly
anniversary day, the net amount at risk is the death benefit minus the cash
value prior to subtraction of the base policy cost of insurance charge.

NET PREMIUMS- The actual premiums minus the percent of premium charges. The
percent of premium charges are shown on the policy data page.

SUB-ACCOUNTS- Divisions of the variable account to which underlying mutual fund
shares are allocated and for which accumulation units are separately maintained.

VALUATION PERIOD- Each day the New York Stock Exchange is open.

VARIABLE ACCOUNT- Nationwide VL Separate Account-D, a separate account of
Nationwide Life and Annuity Insurance Company that contains variable account
allocations. The variable account is divided into sub-accounts, each of which
invests in shares of a separate underlying mutual fund.

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TABLE OF CONTENTS

GLOSSARY OF SPECIAL TERMS..........................

SUMMARY OF POLICY EXPENSES.........................

UNDERLYING MUTUAL FUND ANNUAL EXPENSES.............

SYNOPSIS OF THE POLICIES...........................

NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY......

NATIONWIDE INVESTMENT SERVICES
     CORPORATION...................................

INVESTING IN THE POLICY............................
     The Variable Account and Underlying Mutual
     Funds
     The Fixed Account

INFORMATION ABOUT THE POLICIES.....................
     Minimum Requirements for Policy Issuance
     Premium Payments
     Pricing

POLICY CHARGES.....................................
     Sales Load
     Tax Expense Charge
     Monthly Cost of Insurance
     Monthly Administrative Charge
     Mortality and Expense Risk Charge
     Income Tax
     Reduction of Charges

SURRENDERING THE POLICY FOR CASH...................
     Surrender (Redemption)
     Cash Surrender Value
     Partial Surrenders
     Income Tax Withholding

VARIATION IN CASH VALUE............................

POLICY PROVISIONS..................................
     Policy Owner
     Beneficiary
     Changes in Existing Insurance Coverage

OPERATION OF THE POLICY............................
     Allocation of Net Premium and Cash Value
     How the Investment Experience is Determined
     Net Investment Factor
     Determining the Cash Value
     Transfers

RIGHT TO REVOKE....................................

POLICY LOANS.......................................
     Taking a Policy Loan
     Effect on Investment Performance
     Interest
     Effect on Death Benefit and Cash Value
     Repayment

ASSIGNMENT.........................................

POLICY OWNER SERVICES..............................
     Dollar Cost Averaging

DEATH BENEFIT INFORMATION..........................
     Calculation of the Death Benefit
     Changes in the Death Benefit Option
     Proceeds Payable on Death
     Incontestability
     Error in Age
     Suicide
     Maturity Proceeds

RIGHT OF CONVERSION................................

GRACE PERIOD.......................................
     Reinstatement

TAX MATTERS........................................
     Policy Proceeds
     Withholding
     Federal Estate and Generation-Skipping
         Transfers Taxes
     Non-Resident Aliens
     Taxation of Nationwide
     Tax Changes

LEGAL CONSIDERATIONS...............................

STATE REGULATION...................................

REPORTS TO POLICY OWNERS...........................

ADVERTISING........................................

LEGAL PROCEEDINGS..................................

EXPERTS............................................

REGISTRATION STATEMENT.............................

DISTRIBUTION OF THE POLICIES.......................

ADDITIONAL INFORMATION ABOUT
     NATIONWIDE....................................

APPENDIX A: OBJECTIVES FOR UNDERLYING MUTUAL FUNDS.

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APPENDIX B: ILLUSTRATIONS OF CASH VALUES, CASH
     SURRENDER VALUES, AND DEATH BENEFITS..........

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SUMMARY OF POLICY EXPENSES

Nationwide deducts certain charges from the policy. Charges are made for
administrative and sales expenses, providing life insurance protection and
assuming the mortality and expense risks.

Nationwide deducts a sales load and a charge for tax expense charge from premium
payments. The sales load is guaranteed never to exceed 5.5% of each premium
payment during the first 7 policy years and 2% thereafter. Currently, the sales
load is 3% of the premium payment plus 2.5% of premiums up to the target premium
during the first 7 policy years, and 0% on all premiums thereafter. The tax
expense charge is approximately 3.5% of premiums for all states (see "Sales
Load" and "Tax Expense Charge").

The mortality and expense risk charge is guaranteed not to exceed an annual
effective rate of 0.75% of the daily net assets of the variable account.
Currently, this annual effective rate will be 0.40% in policy years 1-4, 0.25%
in policy years 5-20, and 0.10% thereafter.

Nationwide deducts the following charges from the cash value of the policy:

    -    monthly cost of insurance;
    -    monthly cost of any additional benefits provided by riders to the
         policy; and
    -    administrative expense charge.(1)

(1)Currently, the administrative expense charge is $5 per month. It is
guaranteed not to exceed $10 per month.

Nationwide does not deduct a surrender charge from the policy.

For more information about any policy charge, see "Policy Charges" in this
prospectus.

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                     UNDERLYING MUTUAL FUND ANNUAL EXPENSES
                          (AFTER EXPENSE REIMBURSEMENT)

<TABLE>
<CAPTION>
                                                                           Management      Other       12b-1    Total Mutual
                                                                              Fees        Expenses     Fees    Fund Expenses
<S>                                                                           <C>          <C>         <C>         <C>
    Fidelity VIP Equity-Income Portfolio: Service Class                       0.48%        0.08%       0.10%       0.66%
    Fidelity VIP Growth Portfolio: Service Class                              0.58%        0.07%       0.10%       0.75%
    Fidelity VIP High Income Portfolio: Service Class                         0.58%        0.11%       0.10%       0.79%
    Fidelity VIP Overseas Portfolio: Service Class                            0.73%        0.15%       0.10%       0.98%
    NSAT - Capital Appreciation Fund                                          0.60%        0.14%       0.00%       0.74%
    NSAT - Government Bond Fund                                               0.50%        0.15%       0.00%       0.65%
    NSAT - Money Market Fund                                                  0.39%        0.15%       0.00%       0.54%
    NSAT - Total Return Fund                                                  0.58%        0.14%       0.00%       0.72%
    NSAT - Dreyfus NSAT Mid Cap Index Fund (formerly, Nationwide Mid Cap      0.88%        0.15%       0.00%       1.03%
    Index Fund) (formerly, Nationwide Select Advisers Mid Cap Fund)
    NSAT - Nationwide Small Cap Value Fund                                    0.88%        0.37%       0.00%       1.25%
    NSAT - Nationwide Small Company Fund                                      0.98%        0.17%       0.00%       1.15%
    NSAT - Strong NSAT Mid Cap Growth Fund (formerly, Nationwide              0.90%        0.10%       0.00%       1.00%
    Strategic Growth Fund)
    One Group Investment Trust Balanced Portfolio (formerly Asset             0.70%        0.25%       0.00%        0.95%
    Allocation Fund)
    One Group Investment Trust Bond Portfolio                                 0.45%        0.30%       0.00%        0.75%
    One Group Investment Trust Diversified Equity Portfolio                   0.68%        0.27%       0.00%        0.95%
    One Group Investment Trust Diversified Mid Cap Portfolio                  0.63%        0.32%       0.00%        0.95%
    One Group Investment Trust Equity Index Portfolio                         0.27%        0.28%       0.00%        0.55%
    One Group Investment Trust Government Bond Portfolio                      0.45%        0.28%       0.00%        0.73%
    One Group Investment Trust Large Cap Growth Portfolio (formerly           0.65%        0.23%       0.00%        0.88%
    Large Company Growth Fund)
    One Group Investment Trust Mid Cap Growth Portfolio (formerly Growth      0.65%        0.27%       0.00%        0.92%
    Opportunities Fund)
    One Group Investment Trust Mid Cap Value Portfolio                        0.63%        0.32%       0.00%        0.95%
</TABLE>

The expenses shown above are deducted by the underlying mutual fund before it
provides Nationwide with the daily net asset value. Nationwide then deducts
applicable variable account charges from the net asset value in calculating the
unit value of the corresponding sub-account. The management fees and other
expenses are more fully described in the prospectus for each underlying mutual
fund. Information relating to the underlying mutual funds was provided by the
underlying mutual funds and not independently verified by Nationwide.

Some underlying mutual funds are subject to fee waivers and expense
reimbursements. The following chart shows what the expenses would have been for
such funds without fee waivers and expense reimbursements.

<TABLE>
<CAPTION>
                                                                         Management      Other       12b-1    Total Mutual
                                                                            Fees        Expenses     Fees    Fund Expenses
<S>                                                                         <C>           <C>           <C>        <C>
    Fidelity VIP Equity-Income Portfolio: Service Class                     0.48%         0.09%         0.10%      0.67%
    Fidelity VIP Growth Portfolio: Service Class                            0.58%         0.09%         0.10%      0.77%
    Fidelity VIP Overseas Portfolio: Service Class                          0.73%         0.18%         0.10%      1.01%
    NSAT - Dreyfus NSAT Mid Cap Index Fund (formerly, Nationwide Mid        0.88%         0.86%         0.00%      1.74%
    Cap Index Fund) (formerly, Nationwide Select Advisers Mid Cap Fund)
    NSAT - Nationwide Small Cap Value Fund                                  0.90%         0.37%         0.00%      1.27%
    NSAT - Strong NSAT Mid Cap Growth Fund (formerly, Nationwide            0.98%         0.17%         0.00%      1.15%
    Strategic Growth Fund)
    One Group Investment Trust Bond Portfolio                               0.55%         0.30%         0.00%      0.85%
    One Group Investment Trust Diversified Equity Portfolio                 0.70%         0.27%         0.00%      0.97%
</TABLE>

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<TABLE>
<S>                                                                         <C>           <C>           <C>        <C>
    One Group Investment Trust Diversified Mid Cap Portfolio                0.71%         0.32%         0.00%      1.03%
    One Group Investment Trust Equity Index Portfolio                       0.30%         0.28%         0.00%      0.58%
    One Group Investment Trust Mid Cap Value Portfolio                      0.70%         0.32%         0.00%      1.02%
</TABLE>

SYNOPSIS OF THE POLICIES

The policy offered by this prospectus provides for life insurance coverage on
the insured. The death benefit and cash value of the policy may increase or
decrease to reflect the performance of the investment options chosen by the
policy owner (see "Death Benefit Information").

CASH SURRENDER VALUE

If the policy is terminated during the insured's lifetime, a cash surrender
value may be payable under the policy. However, there is no guaranteed cash
surrender value (see "Variation in Cash Value "). The policy will lapse without
value if the cash surrender value falls below what is needed to cover policy
charges.

PREMIUMS

The minimum initial premium for which a policy may be issued is equal to three
monthly deductions. The initial premium is shown on 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
(see "Premium Payments").

TAXATION

The policies described in this prospectus meet the definition of "life
insurance" under Section 7702 of the Internal Revenue Code. Nationwide will
monitor compliance with the tests provided by Section 7702 to insure the
policies continue to receive this favored tax treatment (see "Tax Matters").

NONPARTICIPATING POLICIES

The policies are nonparticipating policies on which no dividends are payable.
The policies do not share in the profits or surplus earnings of Nationwide.

RIDERS

A rider may be added to the policy (availability varies by state).

Riders currently include:
-        Additional Protection Rider;
-        Change of Insured Rider; and
-        Maturity Extension Rider.

POLICY CANCELLATION

Policy owners may return the policy for any reason within certain time periods
and Nationwide will refund the policy value or the amount required by law (see
"Right to Revoke").

NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY

Nationwide is a stock life insurance company organized under the laws of the
State of Ohio in February 1981. It is a member of the Nationwide group with its
home office at One Nationwide Plaza, Columbus, Ohio 43215. Nationwide is a
provider of life insurance, annuities and retirement products. It is admitted to
do business in 48 states and the District of Columbia.

CUSTODIAN OF ASSETS

Nationwide serves as the custodian of the assets of the variable account.

OTHER CONTRACTS ISSUED BY NATIONWIDE

Nationwide does presently and will, from time to time, offer variable contracts
and policies with benefits which vary in accordance with the investment
experience of a separate account of Nationwide.

NATIONWIDE INVESTMENT SERVICES CORPORATION

The policies are distributed by Nationwide Investment Services Corporation
("NISC"), Two

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Nationwide Plaza, Columbus, Ohio 43215. (For policies issued in the State of
Michigan, all references to NISC shall mean Nationwide Investment Svcs.
Corporation.) NISC is a wholly owned subsidiary of Nationwide Life Insurance
Company.

INVESTING IN THE POLICY

THE VARIABLE ACCOUNT AND UNDERLYING MUTUAL FUNDS

Nationwide VL Separate Account-D is a separate account that invests in the
underlying mutual fund options listed in Appendix A. Nationwide established the
separate account on May 22, 1998, pursuant to Ohio law. Although the separate
account is registered with the SEC as a unit investment trust pursuant to the
Investment Company Act of 1940 ("1940 Act"), the SEC does not supervise the
management of Nationwide or the variable account.

Income, gains, and losses credited to, or charged against the variable account
reflect the variable account's own investment experience and not the investment
experience of Nationwide's other assets. The variable account's assets are held
separately from Nationwide's assets and are not chargeable with liabilities
incurred in any other business of Nationwide. Nationwide is obligated to pay all
amounts promised to policy owners under the policies.

The variable account is divided into sub-accounts. Policy owners elect to have
net premiums allocated among the sub-accounts and the fixed account at the time
of application.

Nationwide uses the assets of each sub-account to buy shares of the underlying
mutual funds based on policy owner instructions. A policy's investment
performance depends upon the performance of the underlying mutual fund options
chosen by the policy owner.

Each underlying mutual fund's prospectus contains more detailed information
about that fund. Prospectuses for the underlying mutual funds should be read in
conjunction with this prospectus.

Underlying mutual funds in the variable account are NOT publicly traded mutual
funds. They are only available as investment options in variable life insurance
policies or variable annuity contracts issued by life insurance companies or, in
some cases, through participation in certain qualified pension or retirement
plans.

The investment advisers of the underlying mutual funds may manage publicly
traded funds with similar names and investment objectives. However, the
underlying mutual funds are NOT directly related to any publicly traded mutual
fund. Policy owners should not compare the performance of a publicly traded fund
with the performance of underlying mutual funds participating in the variable
account. The performance of the underlying mutual funds could differ
substantially from that of any publicly traded funds.

Changes of Investment Policy

Nationwide may materially change the investment policy of the variable account.
Nationwide must inform policy owners and obtain all necessary regulatory
approvals. Any change must be submitted to the various state insurance
departments which may disapprove it if deemed detrimental to the interests of
the policy owners or if it renders Nationwide's operations hazardous to the
public. If a policy owner objects, the policy owner may elect to transfer all
sub-account cash values to the fixed account. No transfer charge will be
assessed. The policy owner has the later of 60 days (6 months in Pennsylvania)
from the date of the investment policy change or 60 days (6 months in
Pennsylvania) from being informed of the change to make the transfer.

Voting Rights

Policy owners who have allocated assets to the underlying mutual funds are
entitled to certain voting rights. Nationwide will vote policy owner shares at
special shareholder meetings based on policy owner instructions. However, if the
law changes allowing Nationwide to vote in its own right, it may elect to do so.

Policy owners with voting interests in an underlying mutual fund will be
notified of issues requiring the shareholder's vote as soon as possible prior to
the shareholder meeting. Notification will contain proxy materials, and a form
to return to Nationwide with voting

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instructions. Nationwide will vote shares for which no instructions are received
in the same proportion as those that are received.

The number of shares which a policy owner may vote is determined by dividing the
cash value of the amount they have allocated to an underlying mutual fund by the
net asset value of that underlying mutual fund. Nationwide will designate a date
for this determination not more than 90 days before the shareholder meeting.

Changes within the Variable Account

Nationwide may, from time to time, create additional sub-accounts in the
variable account. These sub-accounts may not be available to all policy owners.
Nationwide also has the right to eliminate sub-accounts from the variable
account, to combine two or more investment divisions, or to substitute a new
underlying mutual fund for the underlying mutual fund in which a sub-account
invests.

A substitution may become necessary if, in Nationwide's judgment, an underlying
mutual fund no longer suits the purposes of the policies. This may happen due
to:

    -   a change in laws or regulations;

    -   a change in the underlying mutual fund's investment objectives or
        restrictions;

    -   an underlying mutual fund no longer being available for investment; or

    -   some other reason.

In general, Nationwide may consider substituting an underlying mutual fund in
which one of the sub-accounts invests under the following circumstances:

    -   if a conflict of interest arises with the underlying mutual fund's
        investment manager or other investors in the same underlying mutual
        fund;

    -   if the personnel of the underlying mutual fund's manager changes in a
        way Nationwide deems unfavorable;

    -   if the underlying mutual fund's manager does not control risks
        consistent with the underlying mutual fund's investment objectives and
        methods;

    -    if an underlying mutual fund's investment performance is unsatisfactory
         over a period of time compared to relevant benchmarks, taking into
         account the underlying mutual fund's investment objectives and methods;
         or

    -    if an underlying mutual fund's investment manager resigns or otherwise
         ceases to manage the underlying mutual fund's assets.

The approval of policy owners is not required for such a substitution, and
policy owners have no legal right to compel such a substitution. No substitution
of securities in the variable account may take place without the prior approval
of the SEC and under such requirements as it may impose.

Subject to any required regulatory approvals, Nationwide reserves the right to
transfer assets of the variable account or of any of the sub-accounts to another
separate account or sub-account that Nationwide determines to be associated with
the class of policies to which the policy belongs, to another separate account
or to another investment division.

Where permitted by law, Nationwide reserves the right to:

    (1)  register or deregister the variable account under the Investment
         Company Act of 1940, subject to the approval of the SEC;

    (2)  operate the variable account as a managed separate account or any other
         form of organization permitted by applicable law;

    (3)  reserve, restrict, or eliminate any voting rights of policy owners, or
         other persons who have voting rights through the variable account; and

    (4)  combine the variable account with other separate accounts, subject to
         the approval of the SEC.

Material Conflicts

The underlying mutual funds may be offered through separate accounts of other
insurance companies, as well as through other separate accounts of Nationwide.
Nationwide does not anticipate any disadvantages to this. However, it is
possible that a conflict may arise between the interests of the variable account
and one or more

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of the other separate accounts in which these underlying mutual funds
participate.

Material conflicts may occur due to a change in law affecting the operations of
variable life insurance policies and variable annuity contracts, or differences
in the voting instructions of the contract owners and those of other companies.
If a material conflict occurs, Nationwide will take whatever steps are necessary
to protect contract owners and variable annuity payees, including withdrawal of
the variable account from participation in the underlying mutual fund(s)
involved in the conflict.

THE FIXED ACCOUNT

The fixed account is an investment option that is funded by assets of
Nationwide's general account. The general account contains all of Nationwide's
assets other than those in other Nationwide separate accounts. It is used to
support Nationwide's annuity and insurance obligations and may contain
compensation for mortality and expense risks.

Under exemptive and exclusionary provisions, interests in the 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 (the "1940 Act"). Accordingly, neither the general account
nor any interests therein is subject to the provisions of these Acts, and
Nationwide has been advised that the staff of the SEC has not reviewed the
disclosures in this prospectus relating to the fixed account. Disclosures
regarding the general account may, however, be subject to certain generally
applicable provisions of the federal securities laws concerning the accuracy and
completeness of statements made in prospectuses.

Premium payments will be allocated to the fixed account by election of the
policy owner.

The investment income earned by the fixed account will be allocated to the
policies at varying rate(s) set by Nationwide. The guaranteed rate for any
premium payment will be effective for not less than twelve months. Nationwide
guarantees that the rate will not be less than 3.0% per year.

Any interest in excess of 3.0% will be credited to fixed account allocations at
Nationwide's sole discretion. The policy owner assumes the risk that interest
credited to fixed account allocations may not exceed the minimum guarantee of
3.0% for any given year.

New premium payments deposited to the contract which are allocated to the fixed
account may receive a different rate of interest than amounts transferred from
the sub-accounts to the fixed account and amounts maturing in the fixed account.

The fixed account is not available for policies issued in the State of Texas.

INFORMATION ABOUT THE POLICIES

MINIMUM REQUIREMENTS FOR POLICY ISSUANCE

This policy provides life insurance coverage with the flexibility to vary the
amount and frequency of premium payments. Minimum requirements for policy
issuance include:

    -    the insured must be age 80 or younger;

    -    Nationwide may require satisfactory evidence of insurability (including
         a medical exam); and

    -    a minimum specified amount of $50,000 ($100,000 in Pennsylvania and New
         Jersey).

PREMIUM PAYMENTS

Each premium payment must be at least $50. The initial premium is payable in
full at Nationwide's home office or to an authorized agent of Nationwide.

Upon payment of the initial premium, temporary insurance may be provided.
Issuance of the continuing insurance coverage is dependent upon completion of
all underwriting requirements, payment of initial premium, and delivery of the
policy while the insured is still living.

Additional premium payments may be made at any time while the policy is in
force, subject to the following conditions:

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<PAGE>   12

    -    Nationwide may require satisfactory evidence of insurability before
         accepting any additional premium payment which results in an increase
         in the net amount at risk.

    -    premium payments in excess of the premium limit established by the IRS
         to qualify the policy as a contract for life insurance will be
         refunded.

    -    Nationwide may require policy indebtedness be repaid prior to accepting
         any additional premium payments.

Additional premium payments or other changes to the policy may jeopardize the
policy's non-modified endowment status. Nationwide will monitor premiums paid
and other policy transactions and will notify the policy owner when non-modified
endowment contract status is in jeopardy.

Nationwide will send scheduled premium payment reminder notices to policy owners
according to the premium mode shown on the policy data page.

PRICING

Premiums will not be priced when the New York Stock Exchange is closed or on the
following nationally recognized holidays:

-        New Year's Day            -        Independence Day
-        Martin Luther King, Jr.   -        Labor Day Day
-        Presidents' Day           -        Thanksgiving
-        Good Friday               -        Christmas
-        Memorial Day

Nationwide also will not price purchase payments if:

   (1)   trading on the New York Stock Exchange is restricted;

   (2)   an emergency exists making disposal or valuation of securities held in
         the variable account impracticable; or

   (3)   the SEC, by order, permits a suspension or postponement for the
         protection of security holders.

Rules and regulations of the SEC will govern as to when the conditions described
in (2) and (3) exist. If Nationwide is closed on days when the New York Stock
Exchange is open, policy value may be affected since the policy owner would not
have access to their account.

POLICY CHARGES

SALES LOAD

Nationwide deducts a sales load from each premium payment received. It is
guaranteed never to exceed 5.5% of each premium payment during the first 7
policy years and 2% thereafter. Currently, the sales load is 3% of the premium
payment plus 2.5% of premiums up to the target premium during the first 7 policy
years, and 0% on all premiums thereafter. The target premium is a premium based
upon the specified amount. It is the level annual premium amount at which the
sales load is reduced on a current basis.

TAX EXPENSE CHARGE

A charge equal to 3.5% is deducted from all premium payments when the premium
payments are received in order to compensate Nationwide for certain
administrative expenses which are incurred by Nationwide for taxes which include
premium or other taxes imposed by various state and local jurisdictions, as well
as federal taxes imposed under Section 848 of the Internal Revenue Code. These
tax expenses consist of two components:

    (1)  a tax rate of 2.25% for state and local or other taxes; and

    (2)  a tax rate of 1.25% for federal taxes.

The amount charged may be more or less than the amount actually assessed by the
state in which a particular policy owner lives.

Nationwide does not expect to make a profit form these charges.

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. This
deduction is charged proportionately to the cash value in each sub-account and
the fixed account.

If death benefit Option 1 is in effect and there have been increases in the
specified amount,



                                       12
<PAGE>   13

then the cash value will first be considered a part of the initial specified
amount. If the cash value exceeds the initial specified amount, it will 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 be unisex and will not exceed those
guaranteed in the policy. Guaranteed cost of insurance rates are based on the
1980 Commissioners' Standard Ordinary Male Mortality Table, Age Last Birthday,
aggregate as to tobacco status (1980 CSO). Guaranteed cost of insurance rates
for policies issued on a substandard basis are based on appropriate percentage
multiples of the 1980 CSO.

The rate class of an insured may affect the cost of insurance rate. Nationwide
currently places insureds into both standard rate classes and substandard rate
classes that involve a higher mortality risk. In an otherwise identical policy,
an insured in the standard rate class will have a lower cost of insurance than
an insured in a rate class with higher mortality risks. Nationwide may also
issue certain policies on a "non-medical," guaranteed issue, or simplified issue
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

Nationwide deducts an administrative expense charge proportionately from the
cash value in each sub-account and the fixed account on a monthly basis. This
charge reimburses Nationwide for certain actual expenses related to maintenance
of the policies including accounting and record keeping, and periodic reporting
to policy owners. Nationwide does not expect to recover any amount in excess of
aggregate maintenance expenses from this charge. Currently, this charge is $5
per month in all policy years. Nationwide may, at its sole discretion, increase
this charge. However, Nationwide guarantees that this charge will never exceed
$10 per month in all policy years.

MORTALITY AND EXPENSE RISK CHARGE

Nationwide assumes certain risks for guaranteeing the mortality and expense
charges. The mortality risk assumed under the policies is that 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, Nationwide assumes risks associated with the non-recovery
of policy issue, underwriting and other administrative expenses due to policies
that lapse or are surrendered in the early policy years.

Nationwide deducts the mortality and expense risk charge from the variable
account on a daily basis. The charge is deducted proportionally from the cash
value in each sub-account. The mortality and expense risk charge compensates
Nationwide for assuming risks associated with mortality and administrative
costs. The charge is not to exceed an annual effective rate of 0.75% of the
daily net assets of the variable account. On a current basis, this rate will be
0.40% in policy years 1-4, 0.25% in policy years 5-20, and 0.10% thereafter.

Nationwide may realize a profit from this charge. Unrecovered expenses are borne
by Nationwide's general assets which may include profits, if any, from mortality
and expense risk charges.

INCOME TAX

No charge is assessed to policy owners for income taxes incurred by Nationwide
as a result of the operations of the sub-accounts. However, Nationwide reserves
the right to assess a charge for income taxes against the variable account if
income taxes are incurred.

REDUCTION OF CHARGES

The policy is available for purchase by individuals, corporations and other
groups. Nationwide may reduce or eliminate certain charges (sales load,
mortality and expense risk charge, monthly administrative charge, monthly cost
of insurance charge, or other charges), where the size or nature of the group
results in savings in sales, underwriting, administrative or other costs, to
Nationwide. These charges may



                                       13
<PAGE>   14

be reduced in certain group, sponsored arrangements or special exchange programs
made available by Nationwide (including employees of Nationwide and their
families). Eligibility for reduction in charges and the amount of any reduction
is determined by a number of factors, including:

    -    the number of insureds;

    -    the total premium expected to be paid;

    -    total assets under management for the policy owner;

    -    the nature of the relationship among individual insureds;

    -    the purpose for which the policies are being purchased;

    -    the expected persistency of individual policies; and

    -    any other circumstances which are rationally related to the expected
         reduction in expenses.

The extent and nature of reductions may change from time to time. The charge
structure may vary. Variations are determined in a manner not unfairly
discriminatory to policy owners which reflects differences in costs of services.

SURRENDERING THE POLICY FOR CASH

SURRENDER (REDEMPTION)

Policies may be surrendered for the cash surrender value any time while the
insured is living. The cancellation will be effective as of the date Nationwide
receives the policy accompanied by a signed, written request for cancellation.
In some cases, Nationwide may require additional documentation of a customary
nature. Nationwide is required by state law to reserve the right to postpone
payment of assets in the fixed account for a period of up to six months from the
date of the surrender request.

CASH SURRENDER VALUE

The cash surrender value increases or decreases daily to reflect the investment
experience of the variable account and the daily crediting of interest in the
fixed account and the policy loan account.

The cash surrender value equals the policy's cash value, next computed after the
date Nationwide receives a proper written request for surrender and the policy,
minus any charges, indebtedness or other deductions due on that date, plus 3.5%,
5.5%, or 4.0% of the current premium if that date occurs during policy years
one, two or three, respectively.

PARTIAL SURRENDERS

After the policy has been in force for one year, the policy owner may request a
partial surrender.

Partial surrenders are permitted if they satisfy the following requirements:

    (1)  the minimum partial surrender is $500;

    (2)  partial surrenders may not reduce the specified amount to less than
         $50,000;

    (3)  after the partial surrender, the cash surrender value is greater than
         $500 or an amount equal to three times the current monthly deduction,
         if higher; and

    (4)  after the partial surrender, the policy continues to qualify as life
         insurance.

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.

Preferred Partial Surrenders

A partial surrender is considered a preferred partial surrender if the following
conditions are met:

    (1)  the 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.



                                       14
<PAGE>   15

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 in the case of 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.

INCOME TAX WITHHOLDING

Federal law requires Nationwide to withhold income tax from any portion of
surrender proceeds subject to tax. Nationwide will withhold income tax unless
the policy owner advises Nationwide, in writing, of his or her request not to
withhold. If a policy owner requests that taxes not be withheld, or if the taxes
withheld are insufficient, the policy owner may be liable for payment of an
estimated tax. Policy owners should consult a tax advisor.

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.

VARIATION IN CASH VALUE

On any date during the policy year, the cash value equals the cash value on the
preceding valuation period, plus any net premiums applied since the previous
valuation period, minus any partial surrenders, plus or minus any investment
results, and less any policy charges.

There is no guaranteed cash value. The cash value will vary with the investment
experience of the variable account and/or the daily crediting of interest in the
fixed account and policy loan account depending on the allocation of cash value
by the policy owner.

POLICY PROVISIONS

POLICY OWNER

While 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
Nationwide and recorded at Nationwide's home office. Once recorded, the change
will be effective when signed. The change will not affect any payment made or
action taken by Nationwide before it was recorded. Nationwide may require that
the policy be submitted for endorsement before making a change.

If the policy owner is other than the insured, 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.

BENEFICIARY

The beneficiary(ies) will be as named in the application or as subsequently
changed, subject to assignment, if any.

The policy owner may name a new beneficiary while the insured is living. Any
change must be in a written form satisfactory to Nationwide and recorded at
Nationwide's home office. Once recorded, the change will be effective when
signed. The change will not affect any payment made or action taken by
Nationwide before it was recorded.

If any beneficiary predeceases the insured, that beneficiary's interest passes
to any surviving



                                       15
<PAGE>   16

beneficiary(ies), unless otherwise provided. Multiple beneficiaries will be paid
in equal shares, unless otherwise provided. If no named beneficiary survives the
insured, the death proceeds will be paid to the policy owner or the policy
owner's estate.

CHANGES IN EXISTING INSURANCE COVERAGE

The policy owner may request certain changes in the insurance coverage under the
policy. Requests must be in writing and received by Nationwide. No change will
take effect unless the cash surrender value after the change is sufficient to
keep the policy in force for at least 3 months.

Specified Amount Increases

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 Nationwide approves the supplemental application.
Nationwide 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 Nationwide 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.

Nationwide reserves the right to limit the number of specified amount decreases
to one each policy year. Nationwide will refuse a request for a decrease which
would:

    (1)  reduce the specified amount to less than $50,000 ($100,000 in New
         Jersey and Pennsylvania); or

    (2)  disqualify the policy as a contract for life insurance.

OPERATION OF THE POLICY

ALLOCATION OF NET PREMIUM AND CASH VALUE

Nationwide allocates premium payments to sub-accounts or the fixed account as
instructed by policy owners. All percentage allocations must be in whole
numbers, and must be at least 1%. The sum of allocations must equal 100%. Future
premium allocations may be changed by giving written notice to Nationwide.

Premiums may be allocated to the sub-accounts during the period a policy owner
may cancel the policy, unless a specific state requires premiums to be allocated
to the NSAT Money Market Fund or the fixed account. At the expiration of the
cancellation period, these premiums are used to purchase shares of the
underlying mutual funds specified by the policy owner at net asset value for the
respective sub-account(s).

The policy owner may change the allocation of net premiums or may transfer cash
value from one sub-account to another. Changes are subject to the terms and
conditions imposed by each underlying mutual fund and those found in this
prospectus.

HOW THE INVESTMENT EXPERIENCE IS DETERMINED

The accumulation unit value for a valuation period is determined by multiplying
the accumulation unit value for each sub-account for the immediately preceding
valuation period by the net investment factor for the sub-account for the
subsequent valuation period. Though the



                                       16
<PAGE>   17

number of accumulation units will not change as a result of investment
experience, the value of an accumulation unit may increase or decrease from
valuation period to valuation period.

NET INVESTMENT FACTOR

The net investment factor for any valuation period is determined by dividing (a)
by (b) and subtracting (c) from the result where:

 (a)   is:

       (1)    the net asset value per share of the underlying mutual fund held
              in the sub-account as of the end of the current valuation period;
              and

       (2)    the per share amount of any dividend or income distributions made
              by the underlying mutual fund (if the ex-dividend date occurs
              during the current valuation period);

(b)    is the net asset value per share of the underlying mutual fund
       determined as of the end of the immediately preceding valuation period;
       and

(c)    is a factor representing the daily mortality and expense risk charge
       deducted from the variable account. Such factor is guaranteed not to
       exceed an annual effective rate of 0.75% of the daily net assets of the
       variable account. On a current basis, this rate will be 0.40% in policy
       years 1-4, 0.25% in policy years 5-20, and 0.10% thereafter.

The net investment factor may be greater or less than one; therefore, the value
of an accumulation unit may increase or decrease. It should be noted that
changes in the net investment factor may not be directly proportional to changes
in the net asset value of underlying mutual fund shares, because of the
deduction for mortality and expense risk charge.

DETERMINING THE CASH VALUE

The cash value is the sum of the value of all variable account accumulation
units attributable to the policy plus amounts credited to the fixed account and
the policy loan account.

The number of accumulation units credited to each sub-account is determined by
dividing the net amount allocated to the sub-account by the accumulation unit
value for the sub-account for the valuation period during which the premium is
received by Nationwide. In the event that part or all of the cash value is
surrendered or charges or deductions are made against the cash value, an
appropriate number of accumulation units from the variable account and an
appropriate amount from the fixed account will be deducted in the same
proportion that the policy owner's interest in the variable account and the
fixed account bears to the total cash value.

The cash value in the fixed account and the policy loan account is credited with
interest daily at an effective annual rate which Nationwide periodically
declares. The annual effective rate will never be less than 3% (for a
description of the annual effective credited rates, see "The Fixed Account" and
"Policy Loans"). Upon request, Nationwide will inform the policy owner of the
then applicable rates for each account.

TRANSFERS

The policy owner may transfer amounts between the fixed account and the variable
account without penalty or adjustment, subject to the following requirements:

-        Nationwide reserves the right to limit such transfers to one per policy
         year;

-        transfers from the fixed account must be made within 45 days after the
         end of an interest rate guarantee period (the period of time for which
         the current interest rate is guaranteed by Nationwide);

-        Nationwide reserves the right to restrict the amount transferred from
         the fixed account to 20% of the portion of the cash value attributable
         to the fixed account as of the end of the prior policy year. However,
         if the policy owner elects in writing to Nationwide to transfer all of
         the cash value attributable to the fixed account, the restriction for
         five successive policy years shall be 20%, 25%, 33%, 50% and 100%,
         respectively;

-        transfers to the fixed account may not be made prior to the first
         policy anniversary or



                                       17
<PAGE>   18

         within 12 months subsequent to a prior transfer;

-        Nationwide reserves the right to restrict the amount transferred to the
         fixed account to 20% of that portion of the cash value attributable to
         the variable account as of the close of business of the prior valuation
         period; and

-        Nationwide reserves the right to refuse a transfer to the fixed account
         if the cash value attributable to the fixed account is greater than or
         equal to 30% of the cash value.

Transfer Requests

Nationwide will accept transfer requests in writing or in those states that
allow, over the telephone. Nationwide will use reasonable procedures to confirm
that telephone instructions are genuine and will not be liable for following
instructions it reasonably determined to be genuine. Nationwide may withdraw the
telephone exchange privilege upon 30 days written notice to policy owners.

Market-Timing Firms

Some policy owners may use market-timing firms or other third parties to make
transfers on their behalf. Generally, in order to take advantage of perceived
market trends, market- timing firms will submit transfer requests on behalf of
multiple policy owners at the same time. Sometimes this can result in unusually
large transfers of funds. These large transfers might interfere with the ability
of Nationwide or the underlying mutual fund to process transactions. This can
potentially disadvantage policy owners not using market-timing firms. To avoid
this, Nationwide may modify the transfer rights of policy owners who use
market-timing firms (or other third parties) to initiate transfers on their
behalf.

The transfer rights of individual policy owners will not be modified in any way
when instructions are submitted directly by the policy owner, or by the policy
owner's representative (as authorized by the execution of a valid Nationwide
Limited Power of Attorney Form).

To protect policy owners, Nationwide may refuse transfer requests:

    -    submitted by any agent acting under a power of attorney on behalf of
         more than one policy owner; or

    -    submitted on behalf of individual policy owners who have executed
         pre-authorized exchange forms which are submitted by market-timing
         firms (or other third parties) on behalf of more than one policy owner
         at the same time.

Nationwide will not restrict transfer rights unless Nationwide believes it to be
necessary for the protection of all policy owners.

RIGHT TO REVOKE

Policy owners may return the policy for any reason before the latest of:

    -    10 days after receiving the policy;

    -    45 days after signing the application; or

    -    10 days after Nationwide mails or delivers a Notice of Right of
         Withdrawal.

The policy can be mailed to the registered representative who sold it, or
directly to Nationwide.

Returned policies are deemed void from the beginning. Nationwide will refund the
amount prescribed by the state in which the policy was issued within seven days
after it receives the policy. The refunded policy value will reflect the
deduction of any policy charges, unless otherwise required by law. This right
varies by state.

POLICY LOANS

TAKING A POLICY LOAN

The policy owner may take a policy loan at any time using the policy as
security. Maximum policy indebtedness is limited to 90% of the cash value in the
sub-accounts plus 100% of the cash value in the fixed account plus 100% of the
cash value in the policy loan account. Nationwide will not grant a loan for an
amount less than $500 (unless otherwise required by state law). Policy
indebtedness will be deducted from the death benefit, cash surrender value upon
surrender, or the maturity proceeds.



                                       18
<PAGE>   19

Any request for a policy loan must be in written form. The request must be
signed and, where permitted, the signature guaranteed by a member firm of the
New York, American, Boston, Midwest, Philadelphia or Pacific Stock Exchanges, or
by a commercial bank or a savings and loan which is a member of the Federal
Deposit Insurance Corporation. Certain policy loans may result in currently
taxable income and tax penalties.

A policy owner considering the use of policy loans in connection with his or her
retirement income plan should consult his or her personal tax adviser regarding
potential tax consequences that may arise if necessary payments are not made to
keep the policy from lapsing. The amount of the payments necessary to prevent
the policy from lapsing will increase with age.

EFFECT ON INVESTMENT PERFORMANCE

When a loan is made, an amount equal to the amount of the loan is transferred
from the variable account to the policy loan account. If the assets relating to
a policy are held in more than one sub-account, withdrawals from the
sub-accounts will be made in proportion to the assets in each sub-account at the
time of the loan. Policy loans will be transferred from the fixed account only
when sufficient amounts are not available in the sub-accounts.

The amount taken out of the variable account will not be affected by the
variable account's investment experience while the loan is outstanding.

INTEREST

The loan interest rate is guaranteed not to exceed 3.75% per year for all policy
loans. On a current basis, the loan interest rate is 3.4% in policy years 1 - 4,
3.25% in policy years 5 - 20, and 3.10% thereafter.

On a current and guaranteed basis, the cash value in the policy loan account is
credited with an annual effective rate of 3% in all policy years.

If it is determined that such loans will be treated, as a result of the
differential between the interest crediting rate and the loan interest rate, as
taxable distributions under any applicable ruling, regulation, or court
decision, Nationwide retains the right to increase the net cost (by decreasing
the interest crediting rate) on all subsequent policy loans to an amount that
would result in the transaction being treated as a loan under federal tax law.
If this amount is not prescribed by such ruling, regulation, or court decision,
the amount will be that which Nationwide considers to be more likely to result
in the transaction being treated as a loan under federal tax law.

Amounts transferred to the policy loan account will earn interest daily from the
date of transfer. The earned interest is transferred from the policy loan
account to a variable account or the fixed account on each policy anniversary,
at the time a new loan is requested, or at the time of loan repayment. It will
be allocated according to the fund allocation factors in effect at the time of
the transfer.

Interest is charged daily and is payable at the end of each policy year or at
the time of loan repayment. Unpaid interest will be added to the existing policy
indebtedness as of the due date and will be charged interest at the same rate as
the rest of the indebtedness.

Whenever the total policy indebtedness exceeds the cash value, Nationwide will
send a notice to the policy owner and the assignee, if any. The policy will
terminate without value 61 days after the mailing of the notice unless a
sufficient repayment is made during that period. A repayment is sufficient if it
is large enough to reduce the total policy indebtedness to an amount equal to
the total cash value plus an amount sufficient to continue the policy in force
for 3 months.

EFFECT ON DEATH BENEFIT AND CASH VALUE

A policy loan, whether or not repaid, will have a permanent effect on the death
benefit and cash value because the investment results of the variable account or
the fixed account will apply only to the non-loaned portion of the cash value.
The longer the loan is outstanding, the greater the effect is likely to be.
Depending on the investment results of the variable account or the fixed account
while the loan is outstanding, the effect could be favorable or unfavorable.



                                       19
<PAGE>   20

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 sub-accounts and the fixed account in proportion to the
policy owner's underlying mutual fund allocation factors in effect at the time
of the repayment. Each repayment may not be less than $50. Nationwide reserves
the right to require that any loan repayments resulting from policy loans
transferred from the fixed account must be first allocated to the fixed account.

ASSIGNMENT

While 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 at Nationwide's home office. Prior to being recorded, assignments will
not affect any payments made or actions taken by Nationwide. Nationwide is not
responsible for any assignment not submitted for recording, nor is Nationwide
responsible for the sufficiency or validity of any assignment. Assignments are
subject to any indebtedness owed to Nationwide before being recorded.

POLICY OWNER SERVICES

DOLLAR COST AVERAGING

Dollar Cost Averaging is a long-term transfer program that allows you to make
regular, level investments over time. It involves the automatic transfer of a
specified amount from the fixed account and/or certain sub-accounts into other
sub-accounts. Nationwide does not guarantee that this program will result in
profit or protect policy owners from loss.

Policy owners direct Nationwide to automatically transfer specified amounts from
the fixed account and the NSAT Money Market Fund.

Transfers occur monthly or on another frequency if permitted by Nationwide.
Nationwide will process transfers until either the value in the originating
investment option is exhausted, or the policy owner instructs Nationwide in
writing to stop the transfers.

Transfers from the fixed account must be equal to or less than 1/30th of the
fixed account value at the time the program is requested.

Nationwide reserves the right to stop establishing new Dollar Cost Averaging
programs. Nationwide reserves the right to assess a processing fee for this
service.

DEATH BENEFIT INFORMATION

CALCULATION OF THE DEATH BENEFIT

At issue, the policy owner selects 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 Internal Revenue 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.

OPTION 1: the death benefit will be the greater of the specified amount or the
applicable percentage of cash value. 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, see the illustrations in
Appendix B.

OPTION 2: the death benefit will be the greater of the specified amount plus the
cash value as of the date of death, or the applicable percentage of cash value
and will vary directly with the investment performance.

OPTION 3: the death benefit is the greater of: (a) the applicable percentage of
the cash value as of



                                       20
<PAGE>   21

the date of death; or (b) the specified amount plus the lesser of either: (i)
the maximum increase amount shown on the policy, or (ii) the amount of all
premium payments and interest accrued at the Option 3 interest rate as shown in
the policy, accumulated up to the date of death, less any partial surrenders and
applicable interest accrued at the Option 3 interest rate as shown in the
policy. Once elected, Option 3 is irrevocable.

                   GUIDELINE PREMIUM/CASH VALUE CORRIDOR TEST
                       APPLICABLE PERCENTAGE OF CASH VALUE

<TABLE>
<CAPTION>
     Attained         Percentage         Attained        Percentage         Attained        Percentage
       Age           of Cash Value         Age          of Cash Value         Age          of Cash Value
<S>                      <C>                <C>             <C>                <C>             <C>
      0-40               250%               60              130%               80              105%
        41               243%               61              128%               81              105%
        42               236%               62              126%               82              105%
        43               229%               63              124%               83              105%
        44               222%               64              122%               84              105%

        45               215%               65              120%               85              105%
        46               209%               66              119%               86              105%
        47               203%               67              118%               87              105%
        48               197%               68              117%               88              105%
        49               191%               69              116%               89              105%

        50               185%               70              115%               90              105%
        51               178%               71              113%               91              104%
        52               171%               72              111%               92              103%
        53               164%               73              109%               93              102%
        54               157%               74              107%               94              101%
        55               150%               75              105%               95              101%
        56               146%               76              105%               96              101%
        57               142%               77              105%               97              101%
        58               138%               78              105%               98              101%
        59               134%               79              105%               99              101%
</TABLE>

In the event the policy owner has a substandard rating, the preceding
percentages will differ.


                                       21
<PAGE>   22


                          CASH VALUE ACCUMULATION TEST
                       APPLICABLE PERCENTAGE OF CASH VALUE

<TABLE>
<CAPTION>
     Attained         Percentage         Attained        Percentage         Attained        Percentage
       Age           of Cash Value         Age          of Cash Value         Age          of Cash Value

<S>                     <C>                 <C>            <C>                 <C>            <C>
                                            44             292.29%             72             141.69%
                                            45             283.37%             73             139.10%
        18              667.85%             46             274.79%             74             136.66%
        19              648.73%             47             266.55%             75             134.38%
        20              630.14%             48             258.61%             76             133.56%

        21              611.94%             49             250.98%             77             132.83%
        22              594.06%             50             243.65%             78             132.18%
        23              576.45%             51             236.59%             79             131.58%
        24              559.07%             52             229.82%             80             131.04%
        25              541.95%             53             223.34%             81             130.55%

        26              525.08%             54             217.13%             82             130.12%
        27              508.52%             55             211.19%             83             127.37%
        28              492.32%             56             205.51%             84             124.75%
        29              476.49%             57             200.06%             85             122.27%
        30              461.08%             58             194.84%             86             119.90%

        31              446.10%             59             189.84%             87             117.63%
        32              431.57%             60             185.03%             88             115.44%
        33              417.50%             61             180.43%             89             113.31%
        34              403.89%             62             176.02%             90             112.35%
        35              390.73%             63             171.81%             91             111.38%

        36              378.03%             64             167.80%             92             110.38%
        37              365.79%             65             163.98%             93             109.32%
        38              354.01%             66             160.34%             94             108.18%
        39              342.67%             67             156.86%             95             106.94%
        40              331.77%             68             153.54%             96             105.62%

        41              321.30%             69             150.37%             97             104.27%
        42              311.24%             70             147.33%             98             102.99%
        43              301.57%             71             144.44%             99             100.00%
</TABLE>

In the event the policy owner has a substandard rating, the preceding
percentages will differ.


                                       22
<PAGE>   23



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 and cannot be
changed. Only one change of death benefit option is permitted per policy year.
The effective date of a change will be the monthly anniversary day following the
date the change is approved by Nationwide.

In order for any change in the death benefit option to become effective, the
cash surrender value, after a change, must be sufficient to keep the policy in
force for at least three months.

Nationwide will adjust the specified amount so 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 specified amount
being reduced to an amount in which the total premiums paid exceed the premium
limit required by applicable state law to qualify the policy as a contract for
life insurance.

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," and "Suicide").

INCONTESTABILITY

Nationwide will not contest payment of the death proceeds based on the initial
specified amount after the policy has been in force during the insured's
lifetime for 2 years from the policy date. For any increase in specified amount
requiring evidence of insurability, Nationwide will not contest payment of the
death proceeds based on such an increase after it has been in force during the
insured's lifetime for 2 years from its effective date.

ERROR IN AGE

If the age of the insured has been misstated, the affected benefits 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 amount of the death benefit at the time of the insured's death
         reduced by the amount of the cash value 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 in the policy month of death; and

   (3)   is the cash value at the time of the insured's death.

SUICIDE

If the insured dies by suicide, while sane or insane, within two years from the
policy date, Nationwide will pay no more than the sum of the premiums paid, less
any indebtedness and less any partial surrenders. If 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, Nationwide will pay no more
than the amount paid for the additional benefit.

MATURITY PROCEEDS

The maturity date is the policy anniversary on or next following the insured's
100th birthday. Maturity proceeds are payable to the policy owner on the
maturity date. Maturity proceeds are equal to the amount of the policy's cash
value, less any indebtedness.

RIGHT OF CONVERSION

The policy owner may, at any time upon written request to Nationwide within 24
months of the policy date, make an irrevocable, one-time election to transfer
all sub-account cash values to the fixed account. The right of conversion is
subject to state availability.

GRACE PERIOD

If the cash surrender value on a monthly anniversary day is not sufficient to
cover the current policy charges, a grace period will be allowed for the payment
of a premium equal up to three times the current monthly deduction. Nationwide
will send the policy owner a notice



                                       23
<PAGE>   24

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 Nationwide by the end of the grace period,
the policy will lapse without value. If death proceeds become payable during the
grace period, Nationwide will pay the death proceeds.

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 Nationwide;

    (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
Nationwide. If the policy is reinstated, the cash value on the date of
reinstatement, but prior to applying any premiums or loan repayments received,
will be set equal to the cash value at the end of the grace period.

Unless the policy owner has provided otherwise, all amounts will be allocated
based on the underlying mutual fund allocation factors in effect at the start of
the grace period.

TAX MATTERS

POLICY PROCEEDS

Section 7702 of the Internal Revenue Code provides that if certain tests are
met, a policy will be treated as a life insurance policy for federal tax
purposes. Nationwide will monitor compliance with these tests. The policy should
thus receive the same federal income tax treatment as fixed benefit life
insurance. As a result, the death proceeds payable under a policy are excludable
from gross income of the beneficiary under Section 101 of the Internal Revenue
Code.

Section 7702A of the Internal Revenue Code defines modified endowment contracts
as those policies issued or materially changed on or after June 21, 1988 on
which the total premiums paid during the first seven years exceed the amount
that would have been paid if the policy provided for paid up benefits after
seven level annual premiums (see "Information about the Policies"). The Internal
Revenue Code states that taxation of surrenders, partial surrenders, loans,
collateral assignments and other pre-death distributions from modified endowment
contracts (other than certain distributions to terminally ill individuals) are
subject to federal income taxes in a manner similar to the way annuities are
taxed. Modified endowment contract distributions are defined by the Internal
Revenue Code as amounts not received as an annuity and are taxable to the extent
the cash value of the policy exceeds, at the time of distribution, the premiums
paid into the policy. A 10% tax penalty generally applies to the taxable portion
of such distributions unless the policy owner is over age 59 1/2 or disabled or
the distribution is part of an annuity to the policy owner as defined in the
Internal Revenue Code. Under certain circumstances, certain distributions made
under a policy on the life of a "terminally ill individual", as that term is
defined in the Internal Revenue Code, are excludable from gross income.

The policies offered by this prospectus may or may not be issued as modified
endowment contracts. Nationwide will monitor premiums paid and will notify the
policy owner when the policy's non-modified endowment status is in



                                       24
<PAGE>   25

jeopardy. If a policy is not a modified endowment contract, a cash distribution
during the first 15 years after a policy is issued which causes a reduction in
death benefits may still become fully or partially taxable to the policy owner
pursuant to Section 7702(f)(7) of the Internal Revenue Code. The policy owner
should carefully consider this potential effect and seek further information
before initiating any changes in the terms of the policy. Under certain
conditions, a policy may become a modified endowment as a result of a material
change or a reduction in benefits as defined by Section 7702A(c) of the Internal
Revenue Code.

In addition to meeting the tests required under Section 7702, Section 817(h) of
the Internal Revenue Code requires that the investments of separate accounts
such as the variable account be adequately diversified. Regulations under 817(h)
provide that a variable life policy that fails to satisfy the diversification
standards will not be treated as life insurance unless such failure was
inadvertent, is corrected, and the policy owner or Nationwide pays an amount to
the IRS. The amount will be based on the tax that would have been paid by the
policy owner if the income, for the period the policy was not diversified, had
been received by the policy owner.

If the failure to diversify is not corrected in this manner, the policy owner
will be deemed the owner of the underlying securities and taxed on the earnings
of his or her account.

Representatives of the IRS have suggested, from time to time, that the number of
underlying mutual funds available or the number of transfer opportunities
available under a variable product may be relevant in determining whether the
product qualifies for the desired tax treatment. No formal guidance has been
issued in this area. Should the U.S. Secretary of the Treasury issue additional
rules or regulations limiting the number of underlying mutual funds, transfers
between underlying mutual funds, exchanges of underlying mutual funds or changes
in investment objectives of underlying mutual funds such that the policy would
no longer qualify as life insurance under Section 7702 of the Internal Revenue
Code, Nationwide will take whatever steps are available to remain in compliance.

Nationwide will monitor compliance with these regulations and, to the extent
necessary, will change the objectives or assets of the sub-account investments
to remain in compliance.

A total surrender or cancellation of the policy by lapse or the maturity of the
policy on its maturity date may have adverse tax consequences. If the amount
received by the policy owner plus total policy indebtedness exceeds the premiums
paid into the policy, the excess generally will be treated as taxable income,
regardless of whether or not the policy is a modified endowment contract.

WITHHOLDING

Distributions of income from a modified endowment contract are subject to
federal income tax withholding; however, the recipient may elect not to have the
withholding taken from the distribution. A distribution of income from a
modified endowment contract may be subject to mandatory back-up withholding
(which cannot be waived). The mandatory back-up withholding rate is 31% of the
income that is distributed and will arise if no taxpayer identification number
is provided to Nationwide, or if the IRS notifies Nationwide that back-up
withholding is required.

FEDERAL ESTATE AND GENERATION-SKIPPING TRANSFER TAXES

The federal estate tax is integrated with the federal gift tax under a unified
tax rate schedule. In general, in 1999, an estate of less than $675,000
(inclusive of certain pre-death gifts) will not incur a federal estate tax
liability. In addition, an unlimited marital deduction may be available for
federal estate tax purposes, for certain amounts that pass to the surviving
spouse.

When the insured dies, the death benefit will generally be included in the
insured's federal gross estate if:

    (1)  the proceeds were payable to or for the benefit of the insured's
         estate; or

    (2)  the insured held any "incident of



                                       25
<PAGE>   26

         ownership" in the policy at death or at any time within three years of
         death.

An incident of ownership is, in general, any right that may be exercised by the
policy owner, such as the right to borrow on the policy, or the right to name a
new beneficiary.

If the policy owner (whether or not he or she is the insured) transfers
ownership of the policy to another person, such transfer may be subject to a
federal gift tax. In addition, if such policy owner transfers the policy to
someone two or more generations younger than the policy owner, the transfer may
be subject to the federal generation-skipping transfer tax ("GSTT"), the taxable
amount being the value of the policy.

Similarly, if the beneficiary is two or more generations younger than the
insured, the payment of the death proceeds at the death of the insured may be
subject to the GSTT. Pursuant to regulations recently promulgated by the U.S.
Secretary of the Treasury, Nationwide may be required to withhold a portion of
the death proceeds and pay them directly to the IRS as the GSTT liability.

The GSTT provisions generally apply to the same transfers that are subject to
estate or gift taxes.

The tax rate is a flat rate equal to the maximum estate tax rate (currently
55%), and there is a provision for an aggregate $1 million exemption. Due to the
complexity of these rules, the policy owner should consult with counsel and
other competent advisors regarding these taxes.

NON-RESIDENT ALIENS

Pre-death distributions from modified endowment contracts to nonresident aliens
("NRAs") are generally subject to federal income tax and tax withholding, at a
statutory rate of 30% of the amount of income that is distributed. Nationwide is
required to withhold such amount from the distribution and remit it to the IRS.
Distributions to certain NRAs may be subject to lower, or in certain instances
zero, tax and withholding rates, if the United States has entered into an
applicable treaty. However, in order to obtain the benefits of such treaty
provisions, the NRA must give to Nationwide sufficient proof of his or her
residency and citizenship in the form and manner prescribed by the IRS. In
addition, the NRA must obtain an individual taxpayer identification number from
the IRS, and furnish that number to Nationwide prior to the distribution. If
Nationwide does not have the proper proof of citizenship or residency and a
proper individual taxpayer identification number prior to any distribution,
Nationwide will be required to withhold 30% of the income, regardless of any
treaty provision.

A pre-death distribution may not be subject to withholding where the recipient
sufficiently establishes to Nationwide that such payment is effectively
connected to the recipient's conduct of a trade or business in the United States
and that such payment is includible in the recipient's gross income for United
States federal income tax purposes. Any such distributions may be subject to
back-up withholding at the statutory rate (currently 31%) if no taxpayer
identification number, or an incorrect taxpayer identification number, is
provided.

State and local estate, inheritance, income and other tax consequences of
ownership or receipt of policy proceeds depend on the circumstances of each
policy owner or beneficiary.

TAXATION OF NATIONWIDE

Nationwide is taxed as a life insurance company under the Internal Revenue Code.
Since the variable account is not a separate entity from Nationwide and its
operations form a part of Nationwide, it will not be taxed separately as a
"regulated investment company" under Sub-chapter M of the Internal Revenue Code.
Investment income and realized capital gains on the assets of the variable
account are reinvested and taken into account in determining the value of
accumulation units. As a result, such investment income and realized capital
gains are automatically applied to increase reserves under the policies.

Nationwide does not initially expect to incur any federal income tax liability
that would be chargeable to the variable account. Based upon these expectations,
no charge is currently being made against the variable account for federal
income taxes. If, however, Nationwide



                                       26
<PAGE>   27

determines that on a separate company basis such taxes may be incurred, it
reserves the right to assess a charge for such taxes against the variable
account.

Nationwide may also incur state and local taxes (in addition to premium taxes)
in several states. At present, these taxes are not significant. If they
increase, however, charges for such taxes may be made.

TAX CHANGES

The foregoing discussion, which is based on Nationwide's understanding of
federal tax laws as they are currently interpreted by the IRS, is general and is
not intended as tax advice.

The Internal Revenue Code has been subjected to numerous amendments and changes,
and it is reasonable to believe that it will continue to be revised. The United
States Congress has, in the past, considered numerous legislative proposals
that, if enacted, could change the tax treatment of the policies. It is
reasonable to believe that such proposals, and future proposals, may be enacted
into law. In addition, the U.S. Treasury Department may amend existing
regulations, issue new regulations, or adopt new interpretations of existing law
that may be at variance with its current positions on these matters. In
addition, current state law (which is not discussed herein), and future
amendments to state law, may affect the tax consequences of the policy.

If the policy owner, insured, or beneficiary or other person receiving any
benefit or interest in or from the policy is not both a resident and citizen of
the United States, there may be a tax imposed by a foreign country, in addition
to any tax imposed by the United States. The foreign law (including regulations,
rulings, and case law) may change and impose additional taxes on the policy, the
death proceeds, or other distributions and/or ownership of the policy, or a
treaty may be amended and all or part of the favorable treatment may be
eliminated.

Any or all of the foregoing may change from time to time without any notice, and
the tax consequences arising out of a policy may be changed retroactively. There
is no way of predicting if, when, or to what extent any such change may take
place. No representation is made as to the likelihood of the continuation of
these current laws, interpretations, and policies.

The foregoing is a general explanation as to certain tax matters pertaining to
insurance policies. It is not intended to be legal or tax advice, and should not
take the place of your independent legal, tax and/or financial advisor.

LEGAL CONSIDERATIONS

On July 6, 1983, the U.S. Supreme Court held in Arizona Governing Committee v.
Norris that certain annuity benefits provided by employers' retirement and
fringe benefit programs may not vary between men and women on the basis of sex.
This decision applies only to benefits derived from premiums made on or after
August 1, 1983. The policies offered by this prospectus are based upon actuarial
tables which distinguish between men and women. Thus the policies provide
different benefits to men and women of the same age. Accordingly, employers and
employee organizations should consider, in consultation with legal counsel, the
impact of Norris on any employment related insurance or benefit program before
purchasing this policy.

STATE REGULATION

Nationwide is subject to the laws of Ohio governing insurance companies and to
regulation by the Ohio Insurance Department. An annual statement in a prescribed
form is filed with the Insurance Department each year covering the operation of
Nationwide for the preceding year and its financial condition as of the end of
such year. Regulation by the Insurance Department includes periodic examination
to determine Nationwide's contract liabilities and reserves so that the
Insurance Department may certify the items are correct. Nationwide's books and
accounts are subject to review by the Insurance Department at all times and a
full examination of its operations is conducted periodically by the National
Association of Insurance Commissioners. Such regulation does not, however,
involve any supervision of management or investment practices or policies. In
addition, Nationwide is



                                       27
<PAGE>   28

subject to regulation under the insurance laws of other jurisdictions in which
it may operate.

REPORTS TO POLICY OWNERS

Nationwide will mail to the policy owner at the last known address of record:

-        an annual statement containing: the amount of the current death
         benefit, cash value, cash surrender value, premiums paid, monthly
         charges deducted, amounts invested in the fixed account and the
         sub-accounts, and policy indebtedness;

-        annual and semi-annual reports containing all applicable information
         and financial statements or their equivalent, which must be sent to the
         underlying mutual fund beneficial shareholders as required by the rules
         under the Investment Company Act of 1940 for the variable account; and

-        statements of significant transactions, such as changes in specified
         amount, changes in death benefit options, changes in future premium
         allocations, transfers among sub-accounts, premium payments, loans,
         loan repayments, reinstatement and termination.

ADVERTISING

Nationwide is ranked and rated by independent financial rating services,
including Moody's, Standard & Poor's and A.M. Best Company. The purpose of these
ratings is to reflect the financial strength or claims-paying ability of
Nationwide. The ratings are not intended to reflect the investment experience or
financial strength of the variable account. Nationwide may advertise these
ratings from time to time. In addition, Nationwide may include in certain
advertisements, endorsements in the form of a list of organizations, individuals
or other parties which recommend Nationwide or the policies. Furthermore,
Nationwide may occasionally include in advertisements comparisons of currently
taxable and tax deferred investment programs, based on selected tax brackets, or
discussions of alternative investment vehicles and general economic conditions.

LEGAL PROCEEDINGS

Nationwide is a party to litigation and arbitration proceedings in the ordinary
course of its business, none of which is expected to have a material adverse
effect on Nationwide.

In recent years, life insurance companies have been named as defendants in
lawsuits, including class action lawsuits relating to life insurance and annuity
pricing and sales practices. A number of these lawsuits have resulted in
substantial jury awards or settlements.

On October 29, 1998, Nationwide was named in a lawsuit filed in Ohio state court
related to the sale of deferred annuity products for use as investments in
tax-deferred contributory retirement plans (Mercedes Castillo v. Nationwide
Financial Services, Inc., Nationwide Life Insurance Company and Nationwide Life
and Annuity Insurance Company). On May 3, 1999, the complaint was amended to,
among other things, add Marcus Shore as a second plaintiff. The amended
complaint is brought as a class action on behalf of all persons who purchased
individual deferred annuity contracts or participated in group annuity contracts
sold by Nationwide and the other named Nationwide affiliates which were used to
fund certain tax-deferred retirement plans. The amended complaint seeks
unspecified compensatory and punitive damages. No class has been certified. On
June 11, 1999, Nationwide and the other named defendants filed a motion to
dismiss the amended complaint. On March 8, 2000, the court denied the motion to
dismiss the amended complaint filed by Nationwide and the other named
defendants. Nationwide intends to defend this lawsuit vigorously.

There can be no assurance that any litigation relating to pricing or sales
practices will not have a material adverse effect on Nationwide in the future.

The general distributor, NISC, is not engaged in any litigation of any material
nature.

                                       28
<PAGE>   29


EXPERTS

The audited financial statements have been included herein in reliance upon the
reports of KPMG LLP, independent certified public accountants, and upon the
authority of said firm as experts in accounting and auditing.

REGISTRATION STATEMENT

A registration statement has been filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, with respect to the
policies offered hereby. This prospectus does not contain all the information
set forth in the Registration Statement and amendments thereto and exhibits
filed as a part thereof, to all of which reference is hereby made for further
information concerning the variable account, Nationwide, and the policies
offered hereby. Statements contained in this prospectus as to the content of
policies and other legal instruments are summaries. For a complete statement of
the terms thereof, reference is made to such instruments as filed.

DISTRIBUTION OF THE POLICIES

The policies will be sold by licensed insurance agents in those states where the
policies may lawfully be sold. Agents are registered representatives of broker
dealers registered under the Securities Exchange Act of 1934 who are member
firms of the National Association of Securities Dealers, Inc. ("NASD"). The
policies will be distributed by the general distributor, NISC. NISC was
organized as an Oklahoma corporation on March 19, 1974. NISC is a wholly owned
subsidiary of Nationwide Life Insurance Company and a member of the NASD.

NISC serves as general distributor for the following separate accounts, all of
which are separate investment accounts of Nationwide or its affiliates:

    -    Nationwide Multi-Flex Variable Account;
    -    Nationwide Variable Account;
    -    Nationwide Variable Account-II;
    -    Nationwide Variable Account-5;
    -    Nationwide Variable Account-6;
    -    Nationwide Variable Account-8;
    -    Nationwide Variable Account-9;
    -    Nationwide Variable Account-10;
    -    Nationwide Variable Account-11;
    -    Nationwide VLI Separate Account-2;
    -    Nationwide VLI Separate Account-3;
    -    Nationwide VLI Separate Account-4;
    -    Nationwide VLI Separate Account-5;
    -    Nationwide VA Separate Account-A;
    -    Nationwide VA Separate Account-B;
    -    Nationwide VA Separate Account-C;
    -    Nationwide VL Separate Account-A;
    -    Nationwide VL Separate Account-B;
    -    Nationwide VL Separate Account-C;
    -    Nationwide VL Separate Account-D;
    -    Nationwide DC Variable Account;
    -    Nationwide DCVA-II; and
    -    NACo Variable Account.

Gross first year commissions plus any expense allowance payments made by
Nationwide on the sale of these policies distributed by NISC will not exceed 40%
of target premium plus 5% of any excess premium payments in year one and 22.5%
of target premium plus 5% on the excess premium in years two through four. Gross
renewal commissions paid at the beginning of policy year five and beyond by
Nationwide will not exceed greater of 5% of target premium plus 5% on the excess
premium or an annual effective rate of 0.20%, paid quarterly, of the cash value
as of the end of the prior quarter. For single premium modified endowment
contracts issued on or after May 1, 1999, gross renewal commissions paid at the
beginning of policy year two and beyond will not exceed an annual rate of 0.20%,
paid quarterly, of the cash value as of the end of the prior quarter.

No underwriting commissions have been paid by Nationwide to NISC.


                                       29
<PAGE>   30


<TABLE>
<CAPTION>
NISC DIRECTORS AND OFFICERS
 ------------------------------------------------------------------------------------------------------------------
                                                                     POSITIONS AND OFFICES
       NAME AND BUSINESS ADDRESS                                        WITH UNDERWRITER
 ------------------------------------------------------------------------------------------------------------------
<S>                                     <C>
 Joseph J. Gasper                                              Chairman of the Board and Director
 One Nationwide Plaza
 Columbus, OH 43215
 ------------------------------------------------------------------------------------------------------------------
 W.G. Jurgensen                                        Chairman and Chief Executive Officer and Director
 One Nationwide Plaza
 Columbus, OH 43215
 ------------------------------------------------------------------------------------------------------------------
 Richard A. Karas                                                  Vice Chairman and Director
 One Nationwide Plaza
 Columbus, OH 43215
 ------------------------------------------------------------------------------------------------------------------
 Duane C. Meek                                                             President
 One Nationwide Plaza
 Columbus, OH 43215
 ------------------------------------------------------------------------------------------------------------------
 Philip C. Gath                                                             Director
 One Nationwide Plaza
 Columbus, OH 43215
 ------------------------------------------------------------------------------------------------------------------
 Susan A. Wolken                                                            Director
 One Nationwide Plaza
 Columbus, OH 43215
 ------------------------------------------------------------------------------------------------------------------
 Robert A. Oakley                                      Executive Vice President - Chief Financial Officer
 One Nationwide Plaza
 Columbus, OH 43215
 ------------------------------------------------------------------------------------------------------------------
 Robert J. Woodward, Jr.                              Executive Vice President - Chief Investment Officer
 One Nationwide Plaza
 Columbus, OH 43215
 ------------------------------------------------------------------------------------------------------------------
 Mark R. Thresher                                             Senior Vice President and Treasurer
 One Nationwide Plaza
 Columbus, OH 43215
 ------------------------------------------------------------------------------------------------------------------
 Barbara J. Shane                                             Vice President - Compliance Officer
 Two Nationwide Plaza
 Columbus, OH 43215
 ------------------------------------------------------------------------------------------------------------------
 Alan A. Todryk                                                    Vice President - Taxation
 One Nationwide Plaza
 Columbus, OH 43215
 ------------------------------------------------------------------------------------------------------------------
 Carol L. Dove                                          Associate Vice President - Treasury Services and
 One Nationwide Plaza                                                 Assistant Treasurer
 Columbus, OH 43215
 ------------------------------------------------------------------------------------------------------------------
 Glenn W. Soden                                              Associate Vice President and Secretary
 One Nationwide Plaza
 Columbus, OH 43215
 ------------------------------------------------------------------------------------------------------------------
 John F. Delaloye                                                     Assistant Secretary
 One Nationwide Plaza
 Columbus, OH 43215
 ------------------------------------------------------------------------------------------------------------------
 E. Gary Berndt                                                       Assistant Treasurer
 One Nationwide Plaza
 Columbus, OH 43215
 ------------------------------------------------------------------------------------------------------------------
 Terry C. Smetzer                                                     Assistant Treasurer
 One Nationwide Plaza
 Columbus, OH 43215
 ------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       30
<PAGE>   31


ADDITIONAL INFORMATION ABOUT NATIONWIDE

The life insurance business, including annuities, is the only business in which
Nationwide is engaged.

Nationwide markets its policies through independent insurance brokers, general
agents, and registered representatives of registered NASD broker/dealer firms.

Nationwide serves as depositor for the following separate accounts, each of
which is a registered investment company:

    -    Nationwide VL Separate Account-A;

    -    Nationwide VL Separate Account-B;

    -    Nationwide VL Separate Account-C;

    -    Nationwide VL Separate Account-D;

    -    Nationwide VA Separate Account-A;

    -    Nationwide VA Separate Account-B; and

    -    Nationwide VA Separate Account-C.

Nationwide, in common with other insurance companies, is subject to regulation
and supervision by the regulatory authorities of the states in which it is
licensed to do business. A license from the state insurance department is a
prerequisite to the transaction of insurance business in that state. In general,
all states have statutory administrative powers. Such regulation relates, among
other things, to licensing of insurers and their agents, the approval of policy
forms, the methods of computing reserves, the form and content of statutory
financial statements, the amount of policyholders' and stockholders' dividends,
and the type of distribution of investments permitted.

Nationwide operates in the highly competitive field of life insurance. There are
approximately 2,300 stock, mutual and other types of insurers in the life
insurance business in the United States, and a large number of them compete with
the registrant in the sale of insurance policies.

As is customary in insurance company groups, employees are shared with the other
insurance companies in the group. In addition to its direct salaried employees,
Nationwide shares employees with Nationwide Mutual Insurance Company and
Nationwide Mutual Fire Insurance Company.

Nationwide does not presently own or lease any materially important physical
properties when its property holdings are viewed in relation to its total
assets. Nationwide shares its home office, other facilities and equipment with
Nationwide Mutual Insurance Company.

Company Management

Nationwide Life Insurance Company and Nationwide Life and Annuity Insurance
Company, together with Nationwide Mutual Insurance Company, Nationwide Mutual
Fire Insurance Company, Nationwide Property and Casualty Insurance Company and
Nationwide General Insurance Company and their affiliated companies comprise the
Nationwide group of companies. The companies listed above have substantially
common boards of directors and officers.

Nationwide Financial Services, Inc. ("NFS") is the sole shareholder of
Nationwide Life Insurance Company. Nationwide Life and Annuity Insurance Company
is a wholly-owned subsidiary of Nationwide Life Insurance Company. NFS serves as
a holding company for other financial institutions.

Each of the directors and officers listed below is a director or officer
respectively of at least one or more of the other major insurance affiliates of
the Nationwide group of companies. Messrs. McFerson, Gasper, Woodward and Ms.
Thomas are also trustees of one or more of the registered investment companies
distributed by NISC, a registered broker-dealer affiliated with the Nationwide
group of companies.


                                       31
<PAGE>   32



<TABLE>
<CAPTION>
DIRECTORS OF NATIONWIDE
----------------------------------------------------------------------------------------------------------------------
DIRECTORS OF THE DEPOSITOR NAME AND     POSITIONS AND OFFICES                    PRINCIPAL OCCUPATION
     PRINCIPAL BUSINESS ADDRESS             WITH DEPOSITOR
----------------------------------------------------------------------------------------------------------------------
<S>                                     <C>                       <C>
Lewis J. Alphin                                Director           Farm Owner and Operator, Bell Farms (1)
519 Bethel Church Road
Mount Olive, NC 28365-6107
----------------------------------------------------------------------------------------------------------------------
A. I. Bell                                     Director           Farm Owner and Operator (1)
4121 North River Road West
Zanesville, OH 43701
----------------------------------------------------------------------------------------------------------------------
Nancy C. Breit                                 Director           Co-owner, Thomas Farms (2)
1767D Westwood Avenue
Alliance, OH 44601
----------------------------------------------------------------------------------------------------------------------
Yvonne M. Curl                                 Director           Senior Vice President and General Manager Public
Xerox Corporation                                                 Sector Worldwide/Document Solutions Group
Suite 200                                                         Operations, Xerox Corporation (2)
1401 H Street NW
Washington, DC 2007
----------------------------------------------------------------------------------------------------------------------
Kenneth D. Davis                               Director           Farm Owner and Operator (1)
7229 Woodmansee Road
Leesburg, Ohio 45135
----------------------------------------------------------------------------------------------------------------------
Keith W. Eckel                                 Director           Partner, Fred W. Eckel Sons; President, Eckel
1647 Falls Road                                                   Farms, Inc. (1)
Clarks Summit, PA 18411
----------------------------------------------------------------------------------------------------------------------
Willard J. Engel                               Director           Retired General Manager, Lyon County Co-operative
301 East Marshall Street                                          Oil Company (1)
Marshall, MN 56258
----------------------------------------------------------------------------------------------------------------------
Fred C. Finney                                 Director           Owner and Operator, Moreland Fruit Farm; Operator,
1558 West Moreland Road                                           Melrose Orchard (1)
Wooster, OH 44691
----------------------------------------------------------------------------------------------------------------------
Joseph J. Gasper                       President and Chief        President and Chief Operating Officer, Nationwide
One Nationwide Plaza                   Operating Officer and      Life Insurance Company and Nationwide Life and
Columbus, OH 43215                     Director                   Annuity Insurance Company (2)
----------------------------------------------------------------------------------------------------------------------
W. G. Jurgensen                        Chief Executive Officer    Chief Executive Officer and Director
One Nationwide Plaza                   and Director
Columbus, OH 43215
----------------------------------------------------------------------------------------------------------------------
David O. Miller                        Chairman of the Board      President, Owen Potato Farm, Inc.; Partner, M&M
115 Sprague Drive                      and Director               Enterprises (1)
Hebron, OH 43025
----------------------------------------------------------------------------------------------------------------------
Ralph M. Paige                                 Director           Executive Director Federation of Southern
Federation of Southern                                            Cooperatives/Land Assistance Fund
Cooperative/Land Assistance Fund
2769 Church Street
East Point, GA 30344
----------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       32
<PAGE>   33


<TABLE>
<CAPTION>
DIRECTORS OF NATIONWIDE
----------------------------------------------------------------------------------------------------------------------
 DIRECTORS OF THE DEPOSITOR NAME AND     POSITIONS AND OFFICES                   PRINCIPAL OCCUPATION
      PRINCIPAL BUSINESS ADDRESS             WITH DEPOSITOR
----------------------------------------------------------------------------------------------------------------------
<S>                                      <C>                      <C>
James F. Patterson                              Director          Vice President, Pattersons, Inc.; President,
8765 Mulberry Road                                                Patterson Farms, Inc. (1)
Chesterland, OH 44026
----------------------------------------------------------------------------------------------------------------------
Arden L. Shisler                                Director          President and Chief Executive Officer, K&B
1356 North Wenger Road                                            Transport, Inc. (1)
Dalton, OH 44618
----------------------------------------------------------------------------------------------------------------------
Robert L. Stewart                               Director          Owner and Operator Sunnydale Farms and Mining (1)
88740 Fairview Road
Jewett, OH 43986
----------------------------------------------------------------------------------------------------------------------
</TABLE>
    (1)  Principal occupation for last 5 years.
    (2)  Prior to assuming this current position, held other executive
         management positions with the same or affiliated companies.


Each of the directors is a director of the other major insurance affiliates of
the Nationwide group of companies, except Mr. Gasper who is a director only of
Nationwide Life Insurance Company and Nationwide Life and Annuity Insurance
Company. Messrs. Jurgensen and Gasper are directors of NISC, a registered
broker-dealer. Messrs. Jurgensen, Miller, Patterson, and Shisler are directors
of Nationwide Financial Services, Inc. and Ms. Breit are trustees of Nationwide
Mutual Funds, a registered investment company. Messrs. Gasper and Woodward are
trustees of Nationwide Separate Account Trust and Nationwide Asset Allocation
Trust, registered investment companies.

                                       33
<PAGE>   34

<TABLE>
<CAPTION>
EXECUTIVE OFFICERS OF NATIONWIDE
------------------------------------------------------------------------------------------------------------------------
OFFICERS OF THE DEPOSITOR
NAME AND PRINCIPAL BUSINESS ADDRESS           OFFICES OF THE DEPOSITOR
------------------------------------------------------------------------------------------------------------------------
<S>                                           <C>
William G. Jurgensen                          Chairman and Chief Executive Officer
------------------------------------------------------------------------------------------------------------------------
Joseph J. Gasper                              President and Chief Operating Officer
------------------------------------------------------------------------------------------------------------------------
Richard D. Headley                            Executive Vice President
------------------------------------------------------------------------------------------------------------------------
Michael S. Helfer                             Executive Vice President - Corporate Strategy
------------------------------------------------------------------------------------------------------------------------
Donna A. James                                Executive Vice President - Chief Administrative Officer
------------------------------------------------------------------------------------------------------------------------
Robert A. Oakley                              Executive Vice President - Chief Financial Officer
------------------------------------------------------------------------------------------------------------------------
Robert J. Woodward, Jr.                       Executive Vice President - Chief Investment Officer
------------------------------------------------------------------------------------------------------------------------
Charles A. Bryan                              Senior Vice President - Chief Actuary - Property and Casualty
------------------------------------------------------------------------------------------------------------------------
John R. Cook, Jr.                             Senior Vice President - Chief Communications Officer
------------------------------------------------------------------------------------------------------------------------
Thomas L. Crumrine                            Senior Vice President
------------------------------------------------------------------------------------------------------------------------
David A. Diamond                              Senior Vice President - Corporate Controller
------------------------------------------------------------------------------------------------------------------------
Philip C. Gath                                Senior Vice President - Chief Actuary - Nationwide Financial
------------------------------------------------------------------------------------------------------------------------
Patricia R. Hatler                            Senior Vice President, General Counsel and Secretary
------------------------------------------------------------------------------------------------------------------------
David K. Hollingsworth                        Senior Vice President - Multi-channel and Sponsor Relations
------------------------------------------------------------------------------------------------------------------------
David R. Jahn                                 Senior Vice President - Project Management
------------------------------------------------------------------------------------------------------------------------
Richard A. Karas                              Senior Vice President - Sales - Financial Services
------------------------------------------------------------------------------------------------------------------------
Gregory S. Lashutka                           Senior Vice President - Corporate Relations
------------------------------------------------------------------------------------------------------------------------
Edwin P. McCausland, Jr.                      Senior Vice President - Fixed income Securities
------------------------------------------------------------------------------------------------------------------------
Mark D. Phalen                                Senior Vice President - Chief Technology Officer
------------------------------------------------------------------------------------------------------------------------
Douglas C. Robinette                          Senior Vice President - Claims and Financial Services
------------------------------------------------------------------------------------------------------------------------
Mark R. Thresher                              Senior Vice President - Finance - Nationwide Financial
------------------------------------------------------------------------------------------------------------------------
Richard M. Waggoner                           Senior Vice President - Life Company Operations
------------------------------------------------------------------------------------------------------------------------
Susan A. Wolken                               Senior Vice President - Product Management and Nationwide Financial
                                              Marketing
------------------------------------------------------------------------------------------------------------------------
</TABLE>



                                       34
<PAGE>   35

Biographical information for each of the individuals listed in the above table
is set forth below.

W.G. JURGENSEN has been a Director and Chief Executive Officer since 2000.
Previously, he was Executive Vice President of Bank One Corporation from 1998 to
May 2000. Prior to Bank One's merger with First Chicago NBD, Mr. Jurgensen
served from 1990 to 1998 as Executive Vice President with First Chicago, leading
various business units. For 17 years Jurgensen was with Norwest Corporation,
beginning as a corporate banking officer and serving in increasingly responsible
roles including president and CEO of Norwest Investment Services and management
of the treasury function. His final post was Executive Vice President-Corporate
Banking.

JOSEPH J. GASPER has been President and Chief Operating Officer and Director of
Nationwide since April 1996. Previously, he was Executive Vice President -
Property/Casualty Operations of Nationwide Mutual Insurance Company from April
1995 to April 1996. He was Senior Vice President - Property/Casualty Operations
of Nationwide Mutual Insurance Company from September 1993 to April 1995. Prior
to that time, Mr. Gasper held numerous positions within Nationwide. Mr. Gasper
has been with Nationwide for 33 years.

LEWIS J. ALPHIN has been a Director of Nationwide since 1993. Mr. Alphin owns
and operates an 800-acre farm in Mt. Olive, NC. He taught agriculture business
at James Sprunt Community College in Kenansville, NC for more than 22 years
before retiring in 1994. He is the former board chairman of the Cape Fear Farm
Credit Association, a member and former vice president, secretary/treasurer, and
director of the Duplin County Agribusiness Council, and a former board member of
the Southern States Cooperative (1986 to 1993). Mr. Alphin is a member of the
Duplin County Farm Bureau, the North Carolina Farm Bureau, ad the Farm Credit
Council. He is a member and former director of the Oak Wolfe Fire Department.

A. I. BELL has been a Director of Nationwide since April, 1998. Mr. Bell has
served as a state trustee of the Ohio Farm Bureau Federation from 1991 to 1998
and as president that last four years. He oversees the Bell family farm in
Zanesville, Ohio. The farm is the hub of a multi-family swine network, in
addition to grain and beef operations. Mr. Bell has represented the Ohio Farm
Bureau at state and national level activities, and has traveled internationally
representing Ohio agriculture. In 1995, he was introduced into The Ohio State
University Department of Animal Sciences Hall of Fame.

NANCY C. BREIT has been a Director of Nationwide since 1986. Mrs. Thomas is a
board member of Farm Credit Services' 4th District and serves on the advisory
board of Walsh University in North Canton, OH. She is a past president and
former director of the Ohio Agricultural Marketing Association and served on the
boards of the Ohio Farm Bureau Federation and Landmark, Inc., a farm supply
cooperative which is now part of Indianapolis-based Countrymark, and as the
Midwest regional representative on the American Farm Bureau women's committee.

YVONNE M. CURL has been a Director of Nationwide since April, 1998. Ms.
Montgomery is senior vice president/general manager - Public Sector
Worldwide/Document Solutions Group for Xerox Corporation. A resident of
Washington, DC, Ms. Montgomery is in charge of providing an integrated,
industry-focused portfolio of document solutions and services to the public
sector worldwide. Ms. Montgomery joined Xerox in 1976 as a sales representative
and progressed through management positions, including vice president-field
operations and executive assistant to the chairman and CEO.

KENNETH D. DAVIS has been a Director of Nationwide since April 1999. Mr. Davis
is the immediate past president of the Ohio Farm Bureau Federation. He served as
a member of the Ohio Farm Bureau Federation's board of trustees from 1989 until
1999. He served as first vice president of the board from 1994 until 1998. Mr.
Davis serves on the board of directors of his local rural electric cooperatives
and is a member of many agriculture organizations including the Ohio Corn
Growers, Ohio Cattlemen's and Ohio Soybean associations.

KEITH W. ECKEL has been a Director of Nationwide since April 1996. Mr. Eckel is
a partner of Fred W. Eckel Sons and president of Eckel Farms, Inc. in northeast
Pennsylvania. He received the Master Farmer award from Penn State University in
1982. Mr. Eckel is a member of the Pennsylvania Agricultural Land Preservation
Board. He is a former president of the Pennsylvania Farm Bureau, a position he
held for 15 years, and the Lackawanna County



                                       35
<PAGE>   36

Cooperative Extension Association. He has served as a board member and executive
committee member of the American Farm Bureau Federation. He is a former vice
president of the Pennsylvania Council of Cooperative Extension Associations and
former board member of the Pennsylvania Vegetable Growers Association.

WILLARD J. ENGEL has been a Director of Nationwide since 1994. Mr. Engel served
as general manager of Lyon County Co-Operative Oil Co. in Marshall, MN from 1975
to 1997, and occasionally serves on a consulting basis. He previously was a
division manager of the Truman Farmers Elevator. He is a former director of the
Western Co-op Transport in Montevideo, MN, a former director and legislative
committee chairman of the Northwest Petroleum Association in St. Paul, and a
former director of Farmland Industries in Kansas City.

FRED C. FINNEY has been a Director of Nationwide since 1992. Mr. Finney is the
owner and operator of the Moreland Fruit Farm and operator of Melrose Orchard in
Wooster, OH. He is past president of the Ohio Farm Bureau Federation, the Ohio
Fruit Growers Society, Wayne County Farm Bureau, and the Westwood Ruritan Club.
He is a member of the American Berry Cooperative.

DAVID O. MILLER has been a Director of Nationwide since November 1996. Mr.
Miller has been Chairman of the Board since 1998. Mr. Miller is president of
Owen Potato Farm, Inc. and a partner of M&M Enterprises in Licking County, OH.
He is a director and board chairman of the National Cooperative Business
Association, director of Cooperative Business International and the
International Cooperative Alliance, and serves on the educational executive
committee of the National Council of Farmer Cooperatives. He was president of
the Ohio Farm Bureau Federation from 1981 to 1985 and was vice president for six
years. Mr. Miller served a two year term on the board of the American Farm
Bureau Association. He is past president of the Ohio Vegetable and Potato
Growers Association, and was a director of Landmark, Inc., a farm supply
cooperative which is now part of Indianapolis-based Countrymark.

RALPH M. PAIGE has been a Director of Nationwide since April 1999. Mr. Paige has
been the Executive Director of the Federation of Southern Cooperatives/Land
Assistance Fund since 1969. Mr. Paige also served as the National Field
Director/Georgia State Director from 1981 to 1984.

JAMES F. PATTERSON has been a Director of Nationwide since April 1989. Mr.
Patterson is president of Patterson Farms, Inc. and has operated Patterson Fruit
Farm in Chesterland, OH since 1964. Mr. Patterson is on the boards of The Ohio
State University Hospitals Health System in Cleveland, Geauga Hospital, Inc. and
the National Cooperative Business Association. He is past president of the Ohio
Farm Bureau Federation and former member of Cleveland Foundation's Lake and
Geauga Advisory Committees.

ARDEN L. SHISLER has been a Director of Nationwide since 1984. Mr. Shisler is
president and chief executive officer of K&B Transport, Inc., a trucking firm in
Dalton, OH. He is a director of the National Cooperative Business Association in
Washington, DC. He is a former board member and vice president of the Ohio Farm
Bureau Federation and past president of the Ohio Agricultural Marketing
Association, an Ohio Farm Bureau Federation subsidiary. He is a member of the
Ohio Trucking Association, the Ohio Trucking Safety Council, the Wayne County
Farm Bureau, Cornerstone Community Church, the Advisory Committee of The Ohio
State University Agriculture Technical Institute and a board member of the
Wilderness Center.

ROBERT L. STEWART has been a Director of Nationwide since 1989. Mr. Stewart is
the owner and operator of Sunnydale Farms and Mining in Jewett, OH. He served on
the board of the Ohio Farm Bureau Federation and as president of the Ohio
Holstein Association board. Mr. Stewart was a director of the Ohio Agricultural
Stabilization and Conservation Service board and Landmark, Inc. a farm supply
cooperative which is now part of Indianapolis-based Countrymark.



                                       36
<PAGE>   37

RICHARD D. HEADLEY has been Executive Vice President for Nationwide since July
2000. Previously, he was Executive Vice President - Chief Information Technology
Officer from May 1999 to July 2000. He was Senior Vice President - Chief
Information Technology Officer from October 1997 to May 1999. Previously, Mr.
Headley was Chairman and Chief Executive Officer of Banc One Services
Corporation from 1992 to October 1997. From January 1975 until 1992 Mr. Headley
held several positions with Banc One Corporation. Mr. Headley has been with
Nationwide for 2 years.

MICHAEL S. HELFER has been Executive Vice President - Corporate Strategy since
August 2000. He is a former partner and head of the financial institutions group
at Wilmer, Cutler and Pickering, a 350-lawyer international law firm
headquartered in Washington, D.C. He served as that firm's chairman and chief
executive officer from 1995 to 1998.

DONNA A. JAMES has been Executive Vice President - Chief Administrative Officer
since July 2000. Previously, she was Senior Vice President - Chief Human
Resources Officer since May 1999. She was Senior Vice President - Human
Resources from December 1997 to May 1999. Previously she was Vice President -
Human Resources from July 1996 to December 1997. Prior to that time, Ms. James
was Vice President - Assistant to the CEO of Nationwide from March 1996 to July
1996. From May 1994 to March 1996 she was Associate Vice President - Assistant
to the CEO for Nationwide. Previously Ms. James held several positions within
Nationwide. Ms. James has been with Nationwide for 18 years.

ROBERT A. OAKLEY has been Executive Vice President - Chief Financial Officer
since April 1995. Previously, he was Senior Vice President - Chief Financial
Officer from October 1993 to April 1995. Prior to that time, Mr. Oakley held
several positions within Nationwide. Mr. Oakley has been with Nationwide for 24
years.

ROBERT J. WOODWARD, JR. has been Executive Vice President - Chief Investment
Officer since August 1995. Previously, he was Senior Vice President - Fixed
Income Investments from March 1991 to August 1995. Prior to that time, Mr.
Woodward held several positions within Nationwide. Mr. Woodward has been with
Nationwide for 35 years.

CHARLES A. BRYAN has been a Senior Vice President - Chief Actuary - Property and
Casualty since 1998. Prior to joining Nationwide, Mr. Bryan was president, Chief
Operating Officer of Direct Response Corporation from 1996 to 1998. Prior to
that time, Mr. Bryan was a partner with Ernst & Young.

JOHN R. COOK, JR. has been Senior Vice President - Chief Communications Officer
since May 1997. Previously, Mr. Cook was Senior Vice President - Chief
Communications Officer of USAA from July 1989 to May 1997. Mr. Cook has been
with Nationwide for 2 years.

DAVID A. DIAMOND has been Senior Vice President - Corporate Controller since
August 1999. He was Vice President-Controller from August 1996 to August 1999.
Previously, he was Vice President - Controller from October 1993 to August 1996.
Prior to that time, Mr. Diamond held several positions within Nationwide. Mr.
Diamond has been with Nationwide for 11 years.

PHILIP C. GATH has been Senior Vice President - Chief Actuary - Nationwide
Financial since May 1998. Previously, Mr. Gath was Vice President - Product
Manager - Individual Variable Annuity from July 1997 to May 1998. Mr. Gath was
Vice President - Individual Life Actuary from August 1989 to July 1997. Prior to
that time, Mr. Gath held several positions within Nationwide. Mr. Gath has been
with Nationwide for 31 years.

PATRICIA R. HATLER has been Senior Vice President, General Counsel and Secretary
since April 2000. Previously, she was Senior Vice President and General Counsel
from July 1999 to April 2000. Prior to that time, she was General Counsel and
Corporate Secretary of Independence Blue Cross from 1983 to July 1999.



                                       37
<PAGE>   38

DAVID K. HOLLINGSWORTH has been Senior Vice President - Multi Channel and
Sponsor Relations since August 1999. Previously, he was Senior Vice President -
Marketing from June 1999 to August 1999. Prior to that time, has held numerous
positions within the Nationwide group of companies. Mr. Hollingsworth has been
with Nationwide for 25 years.

DAVID R. JAHN has been Senior Vice President - Project Management since July
2000. Previously he was Senior Vice President - Commercial Insurance from March
1998 to July 2000. Previously, he was Vice President - Property/Casualty
Operations and Vice President - Resource Management from March 1996 to January
1998. Prior to that time, Mr. Jahn has held numerous positions within the
Nationwide group of companies. Mr. Jahn has been with Nationwide for 28 years.

RICHARD A. KARAS has been Senior Vice President - Sales - Financial Services
since March 1993. Previously, he was Vice President - Sales - Financial Services
from February 1989 to March 1993. Prior to that time, Mr. Karas held several
positions within Nationwide. Mr. Karas has been with Nationwide for 35 years.

GREGORY S. LASHUTKA has been Senior Vice President - Corporate Relations since
January 2000. Previously, he was the Mayor of the City of Columbus (Ohio) from
January 1992 to December 1999. From January 1986 to December 1991, Mr. Lashutka
was a Partner with Squire, Sanders & Dempsey. From January 1978 to December
1985, he was City Attorney for the City of Columbus (Ohio).

EDWIN P. MCCAUSLAND, JR. has been Senior Vice President - Fixed Income
Securities since 1999. Mr. McCausland has 29 years of experience in insurance
investments beginning his career in 1970 with Connecticut Mutual Life Insurance
Company. He joined Phoenix Mutual Life Insurance Company in 1981 as second Vice
President of Bond Investments and rising to Vice President of Pension
Operations. He was Vice President and Managing Director of Mass Mutual Life
Insurance Company prior to joining Nationwide.

MARK D. PHELAN has been Senior Vice President - Chief Technology Officer since
July 2000. Previously he was Senior Vice President - Technology Services from
1998 to 2000. His previous management experience includes five years (1977-1982)
with the data processing division's sales group at IBM Corporation. From 1982
through 1990, Mr. Phelan served as director of AT&T's Consumer Communications
Services Group and he was subsequently promoted to sales vice president for the
Eastern Region of the Business Communications Services Division. In 1992, he
became executive vice president-sales and marketing for the Electronic Commerce
Division of Checkfree Corporation, a position he held for five years. From 1997
until 1998, he was in private consulting.

DOUGLAS C. ROBINETTE has been Senior Vice President - Claims and Financial
Services since 1999. Previously, he was Senior Vice President - Marketing and
Product Management from May 1998 to 1999. Previously, Mr. Robinette was
Executive Vice President, Customer Services of Employers Insurance of Wausau
(Wausau), a member of the Nationwide group until December 1998, from September
1996 to May 1998. Prior to that time he was Executive Vice President, Finance
and Insurance Services of Wausau from May 1995 to September 1996. From November
1994 to May 1995 Mr. Robinette was Senior Vice President, Finance and Insurance
Services of Wausau. From May 1993 to November 1994 he was Senior Vice President,
Finance of Wausau. Prior to that time, Mr. Robinette held several positions
within the Nationwide group. Mr. Robinette has been with the Nationwide group
for 13 years.

MARK R. THRESHER has been Senior Vice President - Finance - Nationwide Financial
since May 1999. He was Vice President - Controller from August 1996 to May 1999.
Prior to joining Nationwide, Mr. Thresher served as a partner with KPMG LLP from
July 1988 to June 1996.

RICHARD M. WAGGONER has been Senior Vice President - Operations since May 1999.
Previously, he was President of Nationwide Services from May 1997 to May 1999.
Prior to



                                       38
<PAGE>   39

that time, Mr. Waggoner has held numerous positions within the Nationwide group
of companies. Mr. Waggoner has been with Nationwide for 23 years.

SUSAN A. WOLKEN has been Senior Vice President - Product Management and
Nationwide Financial Marketing since May 1999. Previously, Ms. Wolken was Senior
Vice President - Life Company Operations from June 1997 to May 1999. She was
Senior Vice President - Enterprise Administration from July 1996 to June 1997.
Prior to that time, she was Senior Vice President - Human Resources from April
1995 to July 1996. From September 1993 to April 1995, Ms. Wolken was Vice
President - Human Resources. From October 1989 to September 1993 she was Vice
President - Individual Life and Health Operations. Ms. Wolken has been with
Nationwide for 25 years.


                                       39
<PAGE>   40


APPENDIX A: OBJECTIVES FOR UNDERLYING MUTUAL FUNDS

The underlying mutual funds listed below are designed primarily as investment
vehicles for variable annuity contracts and variable life insurance policies
issued by insurance companies.

There is no guarantee that the investment objectives will be met.

FIDELITY VARIABLE INSURANCE PRODUCTS FUND

The Fidelity Variable Insurance Products Fund (VIP) is an open-end, diversified,
management investment company organized as a Massachusetts business trust on
November 13, 1981. Shares of VIP are purchased by insurance companies to fund
benefits under variable life insurance policies and variable annuity contracts.
Fidelity Management & Research Company ("FMR") is the manager for VIP and its
portfolios.

     VIP EQUITY-INCOME PORTFOLIO: SERVICE CLASS

     Investment Objective: Reasonable income by investing primarily in
     income-producing equity securities. In choosing these securities FMR also
     will consider the potential for capital appreciation. The Portfolio's goal
     is to achieve a yield which exceeds the composite yield on the securities
     comprising the Standard & Poor's 500 Composite Stock Price Index.

     VIP GROWTH PORTFOLIO: SERVICE CLASS

     Investment Objective: Capital appreciation. This Portfolio will invest in
     the securities of both well-known and established companies, and smaller,
     less well-known companies which may have a narrow product line or whose
     securities are thinly traded. These latter securities will often involve
     greater risk than may be found in the ordinary investment security. FMR's
     analysis and expertise plays an integral role in the selection of
     securities and, therefore, the performance of the Portfolio. Many
     securities which FMR believes would have the greatest potential may be
     regarded as speculative, and investment in the Portfolio may involve
     greater risk than is inherent in other underlying mutual funds. It is also
     important to point out that this Portfolio makes sense for you if you can
     afford to ride out changes in the stock market because it invests primarily
     in common stocks. FMR can also make temporary investments in securities
     such as investment-grade bonds, high-quality preferred stocks and
     short-term notes, for defensive purposes when it believes market conditions
     warrant.

     VIP HIGH INCOME PORTFOLIO: SERVICE CLASS

     Investment Objective: High level of current income by investing primarily
     in high-risk, lower-rated, high-yielding, fixed-income securities, while
     also considering growth of capital. FMR will seek high current income
     normally by investing the Portfolio's assets as follows:

         -  at least 65% in income-producing debt securities and preferred
            stocks, including convertible securities; and

         -  up to 20% in common stocks and other equity securities when
            consistent with the Portfolio's primary objective or acquired as
            part of a unit combining fixed-income and equity securities.

     Higher yields are usually available on securities that are lower-rated or
     that are unrated. Lower-rated securities are usually defined as Ba or lower
     by Moody's Investor Service, Inc. ("Moody's"); BB or lower by Standard &
     Poor's and may be deemed to be of a speculative nature. The Portfolio may
     also purchase lower-quality bonds such as those rated Ca3 by Moody's or C-
     by Standard & Poor's which provide poor protection for payment of principal
     and interest (commonly referred to as "junk bonds"). For a further
     discussion of lower-rated securities, please see the "Risks of Lower-Rated
     Debt Securities" section of the Portfolio's prospectus.


                                       40
<PAGE>   41


     VIP OVERSEAS PORTFOLIO: SERVICE CLASS
     Investment Objective: Long-term capital growth primarily through
     investments in foreign securities. This Portfolio provides a means for
     investors to diversify their own portfolios by participating in companies
     and economies outside the United States.

NATIONWIDE SEPARATE ACCOUNT TRUST
Nationwide Separate Account Trust ("NSAT") is a diversified open-end management
investment company created under the laws of Massachusetts. NSAT offers shares
in the mutual funds listed below, each with its own investment objectives.
Shares of NSAT will be sold primarily to separate accounts to fund the benefits
under variable life insurance policies and variable annuity contracts issued by
life insurance companies. The assets of NSAT are managed by Villanova Mutual
Fund Capital Trust ("VMF"), an indirect subsidiary of Nationwide Financial
Services, Inc.

     CAPITAL APPRECIATION FUND
     Investment Objective:  Long-term capital appreciation.

     GOVERNMENT BOND FUND
     Investment Objective: As high a level of income as is consistent with the
     preservation of capital by investing in a diversified portfolio of
     securities issued or backed by the U.S. Government, its agencies or
     instrumentalities.

     MONEY MARKET FUND
     Investment Objective: As high a level of current income as is consistent
     with the preservation of capital and maintenance of liquidity.

     TOTAL RETURN FUND
     Investment Objective: To obtain a reasonable, long-term total return on
     invested capital.

SUBADVISED NATIONWIDE FUNDS

     NSAT DREYFUS NSAT MID CAP INDEX FUND (FORMERLY, DREYFUS NSAT MID CAP INDEX
     FUND (FORMERLY, NATIONWIDE MID CAP INDEX FUND) (FORMERLY, NATIONWIDE SELECT
     ADVISERS MID CAP FUND)
     Subadviser: The Dreyfus Corporation
     Investment Objective: Capital appreciation. The Fund seeks to match the
     performance of the Standard & Poor's MidCap 400 Index. To pursue this goal,
     the Fund generally is fully invested in all 400 stocks included in this
     index in proportion to their weighting in the index, and in futures whose
     performance is tied to the index. The Fund is neither sponsored by nor
     affiliated with Standard & Poor's Corporation.

     NATIONWIDE SMALL CAP VALUE FUND
     Subadviser: The Dreyfus Corporation
     Investment Objective: The Fund intends to pursue its investment objective
     by investing, under normal market conditions, at least 75% of the Fund's
     total assets in equity securities of companies whose equity market
     capitalizations at the time of investment are similar to the market
     capitalizations of companies in the Russell 2000 Small Stock Index.

     NATIONWIDE SMALL COMPANY FUND
     Subadvisers: The Dreyfus Corporation, Neuberger Berman, LLC., Lazard Asset
     Management, Strong Capital Management, Inc, and Waddell & Reed Investment
     Management Company.
     Investment Objective: Under normal market conditions, the Fund will invest
     at least 65% of its total assets in equity securities of companies whose
     equity market capitalizations at the time of investment are similar to the
     market capitalizations of companies in the Russell 2000 Small Stock Index.

                                       41
<PAGE>   42

       NSAT STRONG NSAT MID CAP GROWTH FUND (FORMERLY, 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.

ONE GROUP(R) INVESTMENT TRUST
One Group Investment Trust is a diversified, open-end management investment
company organized under the laws of Massachusetts by a Declaration of Trust,
dated June 7, 1993. One Group Investment Trust offers shares in the separate
mutual funds (the "Funds") shown below, each with its own investment objective.
The shares of the Funds are sold to life insurance companies to fund variable
annuity contracts and variable life insurance policies. The assets of One Group
Investment Trust are managed by Banc One Investment Advisors Corporation.

     ONE GROUP INVESTMENT TRUST BALANCED PORTFOLIO (FORMERLY, ASSET ALLOCATION
     FUND)
     Investment Objective: The Portfolio seeks to provide total return while
     preserving capital.

     ONE GROUP INVESTMENT TRUST BOND PORTFOLIO
     Investment Objective: The Portfolio seeks to maximize total return by
     investing primarily in a diversified portfolio of intermediate and
     long-term debt securities.

     ONE GROUP INVESTMENT TRUST DIVERSIFIED EQUITY PORTFOLIO
     Investment Objective: The Portfolio seeks long-term capital growth and
     growth of income with a secondary objective of providing a moderate level
     of current income.

     ONE GROUP INVESTMENT TRUST DIVERSIFIED MID CAP PORTFOLIO
     Investment Objective: The Portfolio seeks long term capital growth by
     investing primarily in equity securities of companies with intermediate
     capitalizations.

     ONE GROUP INVESTMENT TRUST EQUITY INDEX PORTFOLIO
     Investment Objective: The Portfolio seeks investment results that
     correspond to the aggregated price and dividend performance of securities
     in the Standard & Poor's 500 Composite Stock Price Index* ("S&P 500").

     *"S&P 500" is a registered service mark of Standard & Poor's Corporation,
     which does not sponsor and is in no way affiliated with the Portfolio.

     ONE GROUP INVESTMENT TRUST GOVERNMENT BOND PORTFOLIO
     Investment Objective: The Portfolio seeks a high level of current income
     with liquidity and safety of principal.

     ONE GROUP INVESTMENT TRUST LARGE CAP GROWTH PORTFOLIO (FORMERLY, LARGE
     COMPANY GROWTH FUND)
     Investment Objective: The Portfolio seeks long-term capital appreciation
     and growth of income by investing primarily in equity securities.

     ONE GROUP INVESTMENT TRUST MID CAP GROWTH PORTFOLIO (FORMERLY, GROWTH
     OPPORTUNITIES FUND)
     Investment Objective: The Portfolio seeks growth of capital and,
     secondarily, current income, by investing primarily in equity securities.
     Issuers will include medium sized companies with a history of above-average
     growth or companies that are



                                       42
<PAGE>   43

     expected to enter periods of above-average growth, and smaller companies
     which are positioned in emerging growth industries.

     ONE GROUP INVESTMENT TRUST MID CAP VALUE PORTFOLIO
     Investment Objective: The Portfolio seeks capital appreciation with the
     secondary goal of achieving current income by investing primarily in equity
     securities.


                                       43
<PAGE>   44



APPENDIX B: ILLUSTRATIONS OF CASH VALUES, CASH SURRENDER VALUES, AND DEATH
BENEFITS FOR ONE INVESTOR CORPORATE VARIABLE UNIVERSAL LIFE INSURANCE POLICIES

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 daily charges made against the assets of the sub-accounts for assuming
mortality and expense risks. Beginning in the fourth policy year, cash surrender
value equals cash value less indebtedness, or other deductions. In policy years
one, two, and three only, cash surrender value = (cash value - indebtedness or
other deductions) + either 3.5%, 5.5%, or 4.0% of the current premium for either
years one, two, or three, respectively. The guaranteed mortality and expense
risk charges for policy years one through four are equivalent to an annual
effective rate of 0.75% of the daily net assets value of the variable account.
The current mortality and expense risk charges for policy years one through four
are equivalent to an annual effective rate of 0.40% of the daily net assets of
the variable account. The current mortality and expense risk charges for policy
years five through twenty are equivalent to an annual effective rate of 0.25% of
the daily net assets of the variable account. The current mortality and expense
risk charges for policy years twenty-one and beyond are equivalent to an annual
effective rate of 0.10% of the daily net assets of the variable account. In
addition, the net investment returns also reflect the deduction of underlying
mutual fund investment advisory fees and other expenses which are equivalent to
an annual effective rate of 0.90% of the daily net assets of the variable
account. This effective rate is based on the average of the fund expenses, after
expense reimbursement, for all underlying mutual fund options available under
the policy as of April 13,1999. Some underlying mutual funds are subject to fee
waivers and expense reimbursements. Absent fee waivers and expense
reimbursements, the annual effective rate would have been 1.05%. Nationwide
anticipates that the expense reimbursement and fee waiver arrangements will
continue past the current year. Should there be an increase or decrease in the
expense reimbursements and fee waivers of these underlying mutual funds, such
change will be reflected in the net asset value of the corresponding underlying
mutual fund.

Considering current charges for mortality and expense risks and underlying
mutual fund expenses, gross annual rates of return of 0%, 6% and 12% correspond
to net investment experience at constant annual rates of -1.30%, 4.70% and
10.70% for policy years one through four, and rates of -1.15%, 4.85% and 10.85%,
for policy years five through twenty, and rates of -1.00%, 5.00% and 11.00%, for
policy years twenty-one and beyond. Considering guaranteed charges for mortality
and expense risks and underlying mutual fund expenses, gross annual rates of
return of 0%, 6% and 12% correspond to net investment experience at



                                       44
<PAGE>   45

constant annual rates of -1.65%, 4.35% and 10.35%, for all policy years.

The illustrations also reflect the fact that Nationwide makes monthly charges
for providing insurance protection. Current values reflect current cost of
insurance charges and guaranteed values reflect the maximum cost of insurance
charges guaranteed in the policy. The values shown are for policies which are
issued as standard. Policies issued on a substandard basis would result in lower
cash values and death benefits than those illustrated.

The illustrations also reflect the fact that Nationwide deducts a sales load
from each premium payment received guaranteed not to exceed 5.5% of each premium
payment for the first seven policy years and 2% thereafter. On a current basis,
the sales load is 3.0% of premium payments plus 2.5% of premiums up to the
target premium during the first seven policy years, and 0% of all premiums
thereafter. Nationwide also deducts a tax expense charge of 3.5%, both current
and guaranteed, from all premium payments. The illustrations also reflect the
fact that Nationwide deducts a tax expense charge for state premium taxes at a
rate of 2.25% and for federal tax at a rate of 1.25% (imposed under Section 848
of the Internal Revenue Code) of all premium payments.

In addition, the illustrations reflect the fact that Nationwide deducts a
monthly administrative charge at the beginning of each policy month. This
monthly administrative expense charge is currently $5 per month and guaranteed
not to exceed $10. 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, Nationwide will furnish a comparable illustration based on the
proposed insured's age, smoking classification, rating classification and
premium payment requested.


                                       45
<PAGE>   46


                    $100,000 ANNUAL PREMIUM FOR FIRST 7 YEARS
                           $1,703,050 SPECIFIED AMOUNT
                          CASH VALUE ACCUMULATION TEST
               UNISEX: REGULAR ISSUE/NONTOBACCO PREFERRED, AGE 45
                             DEATH BENEFIT OPTION 1
                                 CURRENT VALUES

<TABLE>
<CAPTION>
                          0% HYPOTHETICAL GROSS INVESTMENT     6% HYPOTHETICAL GROSS INVESTMENT    12% HYPOTHETICAL GROSS INVESTMENT
                                       RETURN                               RETURN                              RETURN
            PREMIUMS
            PAID PLUS                   CASH                                 CASH                                CASH
 POLICY     INTEREST       CASH       SURRENDER     DEATH        CASH      SURRENDER   DEATH         CASH      SURRENDER     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       105,000       87,965       91,465     1,703,050    93,400       96,900    1,703,050    98,838      102,338     1,703,050
    2       215,250      174,518      180,018     1,703,050    190,914     196,414    1,703,050    207,967     213,467     1,703,050
    3       331,013      260,013      264,013     1,703,050    293,097     297,097    1,703,050    328,878     332,878     1,703,050
    4       452,563      344,415      344,415     1,703,050    400,139     400,139    1,703,050    462,826     462,826     1,703,050
    5       580,191      428,316      428,316     1,703,050    512,997     512,997    1,703,050    612,112     612,112     1,703,050
    6       714,201      511,203      511,203     1,703,050    631,387     631,387    1,703,050    777,476     777,476     1,894,246
    7       854,911      593,141      593,141     1,703,050    755,516     755,516    1,787,449    959,785     959,785     2,270,723
    8       897,656      582,074      582,074     1,703,050    788,122     788,122    1,811,260   1,058,397   1,058,397    2,432,403
    9       942,539      570,741      570,741     1,703,050    822,024     822,024    1,835,846   1,166,983   1,166,983    2,606,250
   10       989,666      559,093      559,093     1,703,050    857,251     857,251    1,861,295   1,286,513   1,286,513    2,793,323
   11      1,039,150     547,120      547,120     1,703,050    893,873     893,873    1,887,716   1,418,106   1,418,106    2,994,812
   12      1,091,107     534,774      534,774     1,703,050    931,933     931,933    1,915,125   1,562,949   1,562,949    3,211,864
   13      1,145,662     522,039      522,039     1,703,050    971,502     971,502    1,943,558   1,722,391   1,722,391    3,445,763
   14      1,202,945     508,868      508,868     1,703,050   1,012,635   1,012,635   1,973,004   1,897,881   1,897,881    3,697,805
   15      1,263,093     495,073      495,073     1,703,050   1,055,279   1,055,279   2,003,251   2,090,797   2,090,797    3,968,989
   16      1,326,247     480,555      480,555     1,703,050   1,099,460   1,099,460   2,034,296   2,302,781   2,302,781    4,260,764
   17      1,392,560     465,195      465,195     1,703,050   1,145,199   1,145,199   2,066,182   2,535,612   2,535,612    4,574,784
   18      1,462,188     448,825      448,825     1,703,050   1,192,486   1,192,486   2,098,949   2,791,157   2,791,157    4,912,842
   19      1,535,297     431,263      431,263     1,703,050   1,241,317   1,241,317   2,132,659   3,071,442   3,071,442    5,276,926
   20      1,612,062     412,332      412,332     1,703,050   1,291,702   1,291,702   2,167,396   3,378,709   3,378,709    5,669,265
   21      1,692,665     394,016      394,016     1,703,050   1,346,704   1,346,704   2,208,229   3,723,801   3,723,801    6,106,020
   22      1,777,298     375,683      375,683     1,703,050   1,404,611   1,404,611   2,252,042   4,105,782   4,105,782    6,582,884
   23      1,866,163     356,209      356,209     1,703,050   1,464,865   1,464,865   2,297,770   4,526,505   4,526,505    7,100,222
   24      1,959,471     335,073      335,073     1,703,050   1,527,323   1,527,323   2,345,038   4,989,090   4,989,090    7,660,206
   25      2,057,445     312,063      312,063     1,703,050   1,592,049   1,592,049   2,393,851   5,497,586   5,497,586    8,266,332
   26      2,160,317     286,923      286,923     1,703,050   1,659,104   1,659,104   2,444,307   6,056,394   6,056,393    8,922,698
   27      2,268,333     259,404      259,404     1,703,050   1,728,574   1,728,574   2,496,625   6,670,418   6,670,418    9,634,263
   28      2,381,750     229,189      229,189     1,703,050   1,800,528   1,800,528   2,551,082   7,344,962   7,344,962   10,406,722
   29      2,500,837     195,878      195,878     1,703,050   1,875,020   1,875,020   2,607,991   8,085,736   8,085,736   11,246,562
   30      2,625,879     158,997      158,997     1,703,050   1,952,090   1,952,090   2,667,642   8,898,923   8,898,923   12,160,882
</TABLE>

(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY $5
    ADMINISTRATIVE EXPENSE CHARGE ALL THE TIME. CURRENT VALUES REFLECT A PREMIUM
    CHARGE OF 9% OF TARGET PREMIUM AND 6.5% OF EXCESS-OF-TARGET PREMIUM FOR THE
    FIRST 7 YEARS AND 3.5% OF ALL PREMIUM FROM EIGHTH YEAR AND ON.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
    RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.

THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. WHILE THE HYPOTHETICAL INVESTMENT
RATES OF RETURN ARE



                                       46
<PAGE>   47

CURRENTLY CALCULATED WITH EXPENSE REIMBURSEMENTS THESE EXPENSE REIMBURSEMENTS
MAY BE LOWER OR UNAVAILABLE IN THE FUTURE. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATION CAN BE MADE BY NATIONWIDE OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.


                                       47
<PAGE>   48


                    $100,000 ANNUAL PREMIUM FOR FIRST 7 YEARS
                           $1,703,050 SPECIFIED AMOUNT
                          CASH VALUE ACCUMULATION TEST
                           UNISEX: NONTOBACCO, AGE 45
                             DEATH BENEFIT OPTION 1
                                GUARANTEED VALUES

<TABLE>
<CAPTION>
                          0% HYPOTHETICAL GROSS INVESTMENT     6% HYPOTHETICAL GROSS INVESTMENT    12% HYPOTHETICAL GROSS INVESTMENT
                                       RETURN                               RETURN                              RETURN
            PREMIUMS
            PAID PLUS                  CASH                                 CASH                                 CASH
 POLICY     INTEREST      CASH      SURRENDER       DEATH       CASH      SURRENDER   DEATH          CASH      SURRENDER     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       105,000      81,796      85,296      1,703,050     86,981      90,481     1,703,050    92,170       95,670     1,703,050
    2       215,250     162,037      167,537     1,703,050    177,538     183,038     1,703,050    193,670     199,170     1,703,050
    3       331,013     240,773      244,773     1,703,050    271,887     275,887     1,703,050    305,565     309,565     1,703,050
    4       452,563     318,044      318,044     1,703,050    370,253     370,253     1,703,050    429,044     429,044     1,703,050
    5       580,191     393,867      393,867     1,703,050    472,860     472,860     1,703,050    565,428     565,428     1,703,050
    6       714,201     468,271      468,271     1,703,050    579,964     579,964     1,703,050    716,193     716,193     1,744,935
    7       854,911     541,244      541,244     1,703,050    691,817     691,817     1,703,050    880,778     880,778     2,083,803
    8       897,656     522,556      522,556     1,703,050    713,012     713,012     1,703,050    960,701     960,701     2,207,881
    9       942,539     503,065      503,065     1,703,050    734,496     734,496     1,703,050   1,047,414   1,047,414    2,339,215
   10       989,666     482,648      482,648     1,703,050    756,241     756,241     1,703,050   1,141,427   1,141,427    2,478,308
   11      1,039,150    461,188      461,188     1,703,050    778,230     778,230     1,703,050   1,243,306   1,243,306    2,625,662
   12      1,091,107    438,573      438,573     1,703,050    800,462     800,462     1,703,050   1,353,678   1,353,678    2,781,812
   13      1,145,662    414,684      414,684     1,703,050    822,942     822,942     1,703,050   1,473,228   1,473,228    2,947,296
   14      1,202,945    389,379      389,379     1,703,050    845,669     845,669     1,703,050   1,602,689   1,602,689    3,122,655
   15      1,263,093    362,469      362,469     1,703,050    868,621     868,621     1,703,050   1,742,813   1,742,813    3,308,407
   16      1,326,247    333,693      333,693     1,703,050    891,750     891,750     1,703,050   1,894,356   1,894,356    3,505,068
   17      1,392,560    302,715      302,715     1,703,050    914,980     914,980     1,703,050   2,058,067   2,058,067    3,713,190
   18      1,462,188    269,139      269,139     1,703,050    938,229     938,229     1,703,050   2,234,714   2,234,714    3,933,421
   19      1,535,297    232,522      232,522     1,703,050    961,413     961,413     1,703,050   2,425,105   2,425,105    4,166,480
   20      1,612,062    192,373      192,373     1,703,050    984,461     984,461     1,703,050   2,630,109   2,630,109    4,413,161
   21      1,692,665    148,209      148,209     1,703,050   1,007,337   1,007,337    1,703,050   2,850,736   2,850,736    4,674,432
   22      1,777,298     99,507      99,507      1,703,050   1,030,022   1,030,022    1,703,050   3,088,108   3,088,108    4,951,227
   23      1,866,163     45,694      45,694      1,703,050   1,052,514   1,052,514    1,703,050   3,343,479   3,343,479    5,244,543
   24      1,959,471       *            *            *       1,074,784   1,074,784    1,703,050   3,618,136   3,618,136    5,555,255
   25      2,057,445       *            *            *       1,096,744   1,096,744    1,703,050   3,913,297   3,913,297    5,884,148
   26      2,160,317       *            *            *       1,118,254   1,118,254    1,703,050   4,230,087   4,230,087    6,232,057
   27      2,268,333       *            *            *       1,139,118   1,139,118    1,703,050   4,569,519   4,569,519    6,599,878
   28      2,381,750       *            *            *       1,159,094   1,159,094    1,703,050   4,932,479   4,932,479    6,988,591
   29      2,500,837       *            *            *       1,177,924   1,177,924    1,703,050   5,319,847   5,319,847    7,399,450
   30      2,625,879       *            *            *       1,195,404   1,195,404    1,703,050   5,732,779   5,732,779    7,834,167
</TABLE>

(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A MONTHLY
    $10.00 ADMINISTRATIVE EXPENSE CHARGE ALL THE TIME. GUARANTEED VALUES REFLECT
    A PREMIUM CHARGE OF 9% OF PREMIUM FOR THE FIRST 7 YEARS AND 5.5% OF PREMIUM
    FROM EIGHTH YEAR AND ON.
(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 NOT STAY IN FORCE.

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

                                       48
<PAGE>   49

FUTURE INVESTMENT RATES OF RETURN. WHILE THE HYPOTHETICAL INVESTMENT RATES OF
RETURN ARE CURRENTLY CALCULATED WITH EXPENSE REIMBURSEMENTS THESE EXPENSE
REIMBURSEMENTS MAY BE LOWER OR UNAVAILABLE IN THE FUTURE. ACTUAL RATES OF RETURN
MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS,
INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND
RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND
12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY NATIONWIDE OR THE
TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.

                                       49
<PAGE>   50

<PAGE>   1
--------------------------------------------------------------------------------

                           Independent Auditors' Report
                           ---------------------------

The Board of Directors of Nationwide Life and Annuity Insurance Company and
   Contract Owners of Nationwide VL Separate Account-D:

     We have audited the accompanying statement of assets, liabilities and
contract owners' equity of Nationwide VL Separate Account-D (comprised of the
sub-accounts listed in note 1(b)) (collectively, "the Account") as of December
31, 1999, and the related statement of operations and changes in contract
owners' equity for the period May 19, 1999 (commencement of operations) through
December 31, 1999. These financial statements are the responsibility of the
Account's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

     We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1999, by
correspondence with the transfer agents of the underlying mutual funds. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Account as of December
31, 1999, and the results of its operations and its changes in contract owners'
equity for the period May 19, 1999 (commencement of operations) through December
31, 1999, in conformity with generally accepted accounting principles.

                                                                       KPMG LLP

Columbus, Ohio
February 18, 2000

--------------------------------------------------------------------------------
<PAGE>   2


                        NATIONWIDE VL SEPARATE ACCOUNT-D
           STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY
                                December 31, 1999

<TABLE>
<CAPTION>
ASSETS:
   Investments at market value:
<S>  <C>                                                                                           <C>
     Dreyfus VIF - Quality Bond Portfolio
        51,979 shares (cost $571,634) ........................................................      $   566,051

     Fidelity VIP - Overseas Portfolio: Service Class
        18,250 shares (cost $390,795) ........................................................          499,689

     INVESCO VIF - Blue Chip Growth Portfolio
        30,020 shares (cost $457,560) ........................................................          553,861

     INVESCO VIF - Dynamics Portfolio
        5,684 shares (cost $84,442) ..........................................................          107,429

     INVESCO VIF - Equity Income Portfolio
        27,199 shares (cost $564,013) ........................................................          571,452

     INVESCO VIF - Total Return Portfolio
        23,701 shares (cost $394,166) ........................................................          369,254

     Nationwide SAT - Capital Appreciation Fund
        27,197 shares (cost $764,188) ........................................................          699,228

     Nationwide SAT - High Income Bond Fund
        56,779 shares (cost $560,585) ........................................................          540,534

     Nationwide SAT - Money Market Fund
        7,945 shares (cost $7,945) ...........................................................            7,945

     Nationwide SAT - Strategic Value Fund
        35,973 shares (cost $364,622) ........................................................          338,507
                                                                                                   ------------
           Total investments .................................................................        4,253,950

   Accounts receivable .......................................................................              630
                                                                                                   ------------
           Total assets ......................................................................        4,254,580

Accounts payable .............................................................................                -
                                                                                                   ------------
Contract owners' equity (note 5) .............................................................      $ 4,254,580
                                                                                                   ============
</TABLE>


See accompanying notes to financial statements.
================================================================================


<PAGE>   3



NATIONWIDE VL SEPARATE ACCOUNT-D
STATEMENTS OF CHANGES IN
CONTRACT OWNERS' EQUITY
STATEMENTS OF OPERATIONS
FOR THE PERIOD MAY 19, 1999 (COMMENCEMENT OF OPERATIONS) THROUGH
DECEMBER 31, 1999
<TABLE>
<CAPTION>

                                                                                                    INVESCO VIF
                                                                    Dreyfus VIF    Fidelity VIP       Blue Chip
                                                                   Quality Bond        Overseas          Growth
                                                            Total     Portfolio       Portfolio       Portfolio
                                                      -----------    -----------    -----------    ------------

<S>                                                   <C>            <C>            <C>             <C>
INVESTMENT ACTIVITY:
  Reinvested dividends ............................   $    62,096         16,312           --             --
  Mortality and expense risk charges (note 3) .....        (9,788)        (1,426)        (1,057)        (1,203)
                                                      -----------    -----------    -----------    -----------
     Net investment income ........................        52,308         14,886         (1,057)        (1,203)
                                                      -----------    -----------    -----------    -----------

  Proceeds from mutual fund shares sold ...........     4,134,210         10,936          9,416         14,651
  Cost of mutual fund shares sold .................    (4,141,413)       (11,035)        (8,550)       (14,300)
                                                      -----------    -----------    -----------    -----------
     Realized gain (loss) on investments ..........        (7,203)           (99)           866            351
  Change in unrealized gain (loss) on investments .        94,003         (5,582)       108,896         96,302
                                                      -----------    -----------    -----------    -----------
     Net gain (loss) on investments ...............        86,800         (5,681)       109,762         96,653
                                                      -----------    -----------    -----------    -----------
  Reinvested capital gains ........................        62,728           --             --            7,456
                                                      -----------    -----------    -----------    -----------
        Net increase (decrease) in contract owners'
          equity resulting from operations ........       201,836          9,205        108,705        102,906
                                                      -----------    -----------    -----------    -----------

EQUITY TRANSACTIONS:
  Purchase payments received from
     contract owners ..............................     4,183,303         16,014         28,236         80,446
  Transfers between funds .........................          --          552,682        373,054        386,851
  Redemptions to pay cost of insurance
     charges and administration charges
     (notes 2b and 2c) ............................      (130,559)       (11,846)       (10,308)       (16,345)
                                                      -----------    -----------    -----------    -----------
       Net equity transactions ....................     4,052,744        556,850        390,982        450,952
                                                      -----------    -----------    -----------    -----------

NET CHANGE IN CONTRACT OWNERS' EQUITY .............     4,254,580        566,055        499,687        553,858
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD .......          --             --             --             --
                                                      -----------    -----------    -----------    -----------
CONTRACT OWNERS' EQUITY END OF PERIOD .............   $ 4,254,580        566,055        499,687        553,858
                                                      ===========    ===========    ===========    ===========

<CAPTION>

                                                                        INVESCO VIF
                                                          INVESCO VIF        Equity    INVESCO VIF     INVESCO VIF
                                                             Dynamics        Income     High Yield    Total Return
                                                            Portfolio     Portfolio      Portfolio       Portfolio
                                                         ------------   -----------    -----------    ------------
<S>                                                      <C>             <C>           <C>            <C>
INVESTMENT ACTIVITY:
  Reinvested dividends ............................      $        25          6,728              1          8,567
  Mortality and expense risk charges (note 3) .....             (187)        (1,313)           (79)           (66)
                                                         -----------    -----------    -----------    -----------
     Net investment income ........................             (162)         5,415            (78)         8,501
                                                         -----------    -----------    -----------    -----------

  Proceeds from mutual fund shares sold ...........            7,473         22,974        373,497          4,835
  Cost of mutual fund shares sold .................           (7,300)       (23,054)      (380,462)        (5,074)
                                                         -----------    -----------    -----------    -----------
     Realized gain (loss) on investments ..........              173            (80)        (6,965)          (239)
  Change in unrealized gain (loss) on investments .           22,986          7,438             (1)       (24,912)
                                                         -----------    -----------    -----------    -----------
     Net gain (loss) on investments ...............           23,159          7,358         (6,966)       (25,151)
                                                         -----------    -----------    -----------    -----------
  Reinvested capital gains ........................             --            3,011           --            1,429
                                                         -----------    -----------    -----------    -----------
        Net increase (decrease) in contract owners'
          equity resulting from operations ........           22,997         15,784         (7,044)       (15,221)
                                                         -----------    -----------    -----------    -----------

EQUITY TRANSACTIONS:
  Purchase payments received from
     contract owners ..............................           74,006        171,665          7,086         20,798
  Transfers between funds .........................           19,104        410,200           --          373,054
  Redemptions to pay cost of insurance
     charges and administration charges
     (notes 2b and 2c) ............................           (8,684)       (26,200)           (42)       (10,150)
                                                         -----------    -----------    -----------    -----------
       Net equity transactions ....................           84,426        555,665          7,044        383,702
                                                         -----------    -----------    -----------    -----------

NET CHANGE IN CONTRACT OWNERS' EQUITY .............          107,423        571,449           --          368,481
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD .......             --             --             --             --
                                                         -----------    -----------    -----------    -----------
CONTRACT OWNERS' EQUITY END OF PERIOD .............          107,423        571,449           --          368,481
                                                         ===========    ===========    ===========    ===========
</TABLE>


                                                                     (Continued)

<PAGE>   4



NATIONWIDE VL SEPARATE ACCOUNT-D
STATEMENTS OF CHANGES IN
CONTRACT OWNERS' EQUITY, CONTINUED
STATEMENTS OF OPERATIONS, Continued

FOR THE PERIOD MAY 19, 1999 (COMMENCEMENT OF OPERATIONS) THROUGH
DECEMBER 31, 1999
<TABLE>
<CAPTION>

                                               Nationwide SAT
                                                       Capital  Nationwide SAT   Nationwide SAT    Nationwide SAT
                                                  Appreciation     High Income     Money Market   Strategic Value
                                                          Fund       Bond Fund             Fund              Fund
                                                      ---------     ----------        ----------       ----------

<S>                                                   <C>               <C>           <C>              <C>
INVESTMENT ACTIVITY:
  Reinvested dividends ............................   $   2,465         23,636             3,026          1,336
  Mortality and expense risk charges (note 3) .....      (1,765)        (1,350)             (498)          (844)
                                                      ---------       --------        ----------       --------
     Net investment income ........................         700         22,286             2,528            492
                                                      ---------       --------        ----------       --------

  Proceeds from mutual fund shares sold ...........      14,707         11,196         3,657,504          7,021
  Cost of mutual fund shares sold .................     (15,130)       (11,489)       (3,657,504)        (7,515)
                                                      ---------       --------        ----------       --------
     Realized gain (loss) on investments ..........        (423)          (293)             --             (494)
  Change in unrealized gain (loss) on investments .     (64,959)       (20,050)             --          (26,115)
                                                      ---------       --------        ----------       --------
     Net gain (loss) on investments ...............     (65,382)       (20,343)             --          (26,609)
                                                      ---------       --------        ----------       --------
  Reinvested capital gains ........................      45,603           --                --            5,229
                                                      ---------       --------        ----------       --------

        Net increase (decrease) in contract owners'
          equity resulting from operations ........     (19,079)         1,943             2,528        (20,888)
                                                      ---------       --------        ----------       --------

EQUITY TRANSACTIONS:
  Purchase payments received from
     contract owners ..............................        --             --           3,785,052           --
  Transfers between funds .........................     731,250        548,437        (3,760,255)       365,623
  Redemptions to pay cost of insurance
     charges and administration charges
     (notes 2b and 2c) ............................     (12,954)        (9,853)          (17,945)        (6,232)
                                                      ---------       --------        ----------       --------
       Net equity transactions ....................     718,296        538,584             6,852        359,391
                                                      ---------       --------        ----------       --------

NET CHANGE IN CONTRACT OWNERS' EQUITY .............     699,217        540,527             9,380        338,503
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD .......        --             --                --             --
                                                      ---------       --------        ----------       --------
CONTRACT OWNERS' EQUITY END OF PERIOD .............   $ 699,217        540,527             9,380        338,503
                                                      =========       ========        ==========       ========

</TABLE>

See accompanying notes to financial statements.


<PAGE>   5
-------------------------------------------------------------------------------

                       NATIONWIDE VL SEPARATE ACCOUNT-D

                          NOTES TO FINANCIAL STATEMENTS

                                DECEMBER 31, 1999

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    (a)  Organization and Nature of Operations

         The Nationwide VL Separate Account-D (the Account) was established
         pursuant to a resolution of the Board of Directors of Nationwide Life
         and Annuity Insurance Company (the Company) on May 22, 1998. The
         Account has been registered as a unit investment trust under the
         Investment Company Act of 1940.

         The Company offers Corporate Flexible Premium Variable Life Insurance
         Policies through the Account.

    (b)  The Contracts

         Only contracts without a front-end sales charge, but with a contingent
         deferred sales charge and certain other fees are offered for
         purchase. See note 2 for a discussion of policy charges, and note 3 for
         asset charges.

         Contract owners may invest in the following:

            Portfolio of the Dreyfus Variable Investment Fund (Dreyfus VIF);
              Dreyfus VIF - Quality Bond Portfolio

            Portfolio of the Fidelity Variable Insurance Products Fund
              (Fidelity VIP); Fidelity VIP - Overseas Portfolio: Service Class

            Goldman Sachs Variable Insurance Trust - Global Income Fund

            Portfolio of the INVESCO Variable Investment Fund (INVESCO VIF);
              INVESCO VIF - Blue Chip Growth Portfolio
              INVESCO VIF - Dynamics Portfolio
              INVESCO VIF - Equity Income Portfolio
              INVESCO VIF - Health Sciences Portfolio
              INVESCO VIF - High Yield Portfolio
              INVESCO VIF - Realty Portfolio
              INVESCO VIF - Small Company Growth Portfolio
              INVESCO VIF - Technology Portfolio
              INVESCO VIF - Total Return Portfolio
              INVESCO VIF - Utilities Portfolio

            Funds of the Nationwide Separate Account Trust (Nationwide SAT)
            (managed for a fee by an affiliated investment advisor);
              Nationwide SAT - Balanced Fund
              Nationwide SAT - Capital Appreciation Fund
              Nationwide SAT - Equity Income Fund
              Nationwide SAT - Global Equity Fund
              Nationwide SAT - Government Bond Fund
              Nationwide SAT - High Income Bond Fund
              Nationwide SAT - Money Market Fund
              Nationwide SAT - Multi-Sector Bond Fund
              Nationwide SAT - Select Advisers Mid Cap Fund
              Nationwide SAT - Select Advisers Small Cap Growth Fund
              Nationwide SAT - Small Cap Value Fund
              Nationwide SAT - Small Company Fund
              Nationwide SAT - Strategic Growth Fund
              Nationwide SAT - Strategic Value Fund
              Nationwide SAT - Total Return Fund

                                                                     (Continued)
            Salomon Brothers Investors Fund




<PAGE>   6


                        NATIONWIDE VL SEPARATE ACCOUNT-D

                     NOTES TO FINANCIAL STATEMENTS, CONTINUED

         At December 31, 1999, contract owners have invested in all of the above
         funds except for Goldman Sachs Variable Insurance Trust - Global Income
         Fund, INVESCO VIF - Health Sciences Portfolio, INVESCO VIF - Realty
         Portfolio, INVESCO VIF - Small Company Growth Portfolio, INVESCO VIF -
         Technology Portfolio, INVESCO VIF - Utilities Portfolio, Nationwide SAT
         - Balanced Fund, Nationwide SAT - Equity Income Fund, Nationwide SAT -
         Global Equity Fund, Nationwide SAT - Government Bond Fund, Nationwide
         SAT - Multi-Sector Bond Fund, Nationwide SAT - Select Advisers Mid Cap
         Fund, Nationwide SAT - Select Advisers Small Cap Growth Fund,
         Nationwide SAT - Small Cap Value Fund, Nationwide SAT - Small Company
         Fund, Nationwide SAT - Strategic Growth Fund, Nationwide SAT - Total
         Return Fund and Salomon Brothers Investors Fund. The contract owners'
         equity is affected by the investment results of each fund, equity
         transactions by contract owners and certain contract expenses (see note
         2).

         The accompanying financial statements include only contract owners'
         purchase payments pertaining to the variable portions of their
         contracts and exclude any purchase payments for fixed dollar benefits,
         the latter being included in the accounts of the Company.

    (c)  Security Valuation, Transactions and Related Investment Income

         The market value of the underlying mutual funds is based on the closing
         net asset value per share at December 31, 1999. The cost of investments
         sold is determined on the specific identification basis. Investment
         transactions are accounted for on the trade date (date the order to buy
         or sell is executed) and dividend income is recorded on the ex-dividend
         date.

    (d)  Federal Income Taxes

         Operations of the Account form a part of, and are taxed with,
         operations of the Company which is taxed as a life insurance company
         under the Internal Revenue Code.

         The Company does not provide for income taxes within the Account. Taxes
         are the responsibility of the contract owner upon termination or
         withdrawal.

    (e)  Use of Estimates in the Preparation of Financial Statements

         The preparation of financial statements in conformity with generally
         accepted accounting principles may require management to make estimates
         and assumptions that affect the reported amounts of assets and
         liabilities and disclosure of contingent assets and liabilities, if
         any, at the date of the financial statements and the reported amounts
         of revenues and expenses during the reporting period. Actual results
         could differ from those estimates.

(2) Policy Charges

    (a)  Deductions from Premium

         The Company deducts a charge for state premium taxes not to exceed
         3.5% of all premiums received to cover the payment of these premium
         taxes. Additionally, the Company deducts a front-end sales load of up
         to 5.5% from each premium payment received.

    (b)  Cost of Insurance

         A cost of insurance charge is assessed monthly against each contract
         by liquidating units. The amount of the charge is based upon age,
         sex, rate class and net amount at risk (death benefit less total
         contract value).

    (c)  Administrative Charges

         The Company currently deducts a monthly administrative charge of $5 in
         all policy years. This charge is subject to change but will not exceed
         $10 per policy year.




<PAGE>   7


(3)  Asset Charges

     The Company deducts a charge from the contract to cover mortality and
     expense risk charges related to operations, and to recover policy
     maintenance charges. This charge is guaranteed not to exceed an annual
     effective rate of .75%. The annual rate is currently .60% during the first
     through fourth policy years, .40% during the fifth through twentieth policy
     years, and .25% thereafter. This charge is assessed against each contract
     through the daily unit value calculation.

(4)  Related Party Transactions

     The Company performs various services on behalf of the Mutual Fund
     Companies in which the Account invests and may receive fees for the
     services performed. These services include, among other things, share-
     holder communications, preparation, postage, fund transfer agency and
     various other record keeping and customer service functions. These fees are
     paid to an affiliate of the Company.


                                                                     (continued)


<PAGE>   8


                       NATIONWIDE VL SEPARATE ACCOUNT-D

                    NOTES TO FINANCIAL STATEMENTS, CONTINUED

(5) COMPONENTS OF CONTRACT OWNERS' EQUITY

    The following is a summary of contract owners' equity at December 31, 1999:
<TABLE>
<CAPTION>

                                                                                                         PERIOD
    Contract owners' equity represented by:              UNITS     UNIT VALUE                           RETURN(b)
                                                         -----     ----------                           ---------
<S>                                                   <C>        <C>                <C>                <C>
       Dreyfus Variable Investment Fund -
         Quality Bond Portfolio.....................    56,693   $  9.984562        $   566,055          0%(a)
       Fidelity VIP -
         Overseas Service Class Shares..............    36,657     13.631426            499,687         36%(a)
       INVESCO VIF - Blue Chip Growth Portfolio.....    43,491     12.735013            553,858         27%(a)
       INVESCO VIF - Dynamics Portfolio.............     7,042     15.254583            107,423         53%(a)
       INVESCO VIF - Equity Income Portfolio........    50,378     11.343231            571,449         13%(a)
       INVESCO VIF - Total Return Portfolio.........    38,648      9.534274            368,481        (5)%(a)
       Nationwide SAT -
         Capital Appreciation Fund..................    67,426     10.370136            699,217          4%(a)
       Nationwide SAT - High Income Bond Fund.......    52,850     10.227564            540,527          2%(a)
       Nationwide SAT - Money Market Fund...........       900     10.421897              9,380          4%(a)
       Nationwide SAT - Strategic Value Fund........    35,095      9.645322            338,503        (4)%(a)
                                                        ======      ========        -----------

                                                                                    $ 4,254,580
                                                                                    ===========
<FN>

(a) Non-annualized. The return was computed for the period 1/05/99 (effective date) through 12/31/99.
(b) The annual return does not include contract charges satisfied by surrendering units.
</TABLE>



================================================================================




<PAGE>   51

<PAGE>   1
                          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, 1999 and 1998, 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, 1999. 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, 1999 and 1998, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1999, in conformity with generally accepted accounting
principles.





Columbus, Ohio
January 28, 2000
<PAGE>   2


                  NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
        (a wholly owned subsidiary of Nationwide Life Insurance Company)

                                 Balance Sheets

                   ($000's omitted, except per share amounts)


<TABLE>
<CAPTION>
                                                                                                 December 31,
                                                                                        -------------------------------
                                         Assets                                              1999            1998
                                         ------                                         --------------- ---------------
<S>                                                                                       <C>            <C>
Investments:
  Securities available-for-sale, at fair value:
    Fixed maturity securities                                                             $ 1,051,556    $    904,946
    Equity securities                                                                           5,659          20,853
  Mortgage loans on real estate, net                                                          330,068         268,894
  Real estate, net                                                                              2,200           2,250
  Policy loans                                                                                    465             332
  Short-term investments                                                                          706           2,277
                                                                                        --------------- ---------------
                                                                                            1,390,654       1,199,552
                                                                                        --------------- ---------------

Cash                                                                                            4,280               2
Accrued investment income                                                                      13,906          11,645
Deferred policy acquisition costs                                                              92,025          53,007
Reinsurance receivable from affiliate                                                          91,667               -
Other assets                                                                                   42,851          41,542
Assets held in separate accounts                                                            2,127,080       1,533,690
                                                                                        --------------- ---------------
                                                                                          $ 3,762,463     $ 2,839,438
                                                                                        =============== ===============

                          Liabilities and Shareholder's Equity
                          ------------------------------------
Future policy benefits and claims                                                         $ 1,480,807     $ 1,163,829
Other liabilities                                                                              41,308          25,933
Liabilities related to separate accounts                                                    2,127,080       1,533,690
                                                                                        --------------- ---------------
                                                                                            3,649,195       2,723,452
                                                                                        --------------- ---------------

Commitments and contingencies (notes 8 and 12)

Shareholder's equity:
  Common stock, $40 par value.  Authorized, issued and outstanding 66,000 shares                2,640           2,640
  Additional paid-in capital                                                                   52,960          52,960
  Retained earnings                                                                            59,536          50,331
  Accumulated other comprehensive income                                                       (1,868)         10,055
                                                                                        --------------- ---------------
                                                                                              113,268         115,986
                                                                                        --------------- ---------------
                                                                                          $ 3,762,463     $ 2,839,438
                                                                                        =============== ===============
</TABLE>


See accompanying notes to financial statements.

<PAGE>   3


                  NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
        (a wholly owned subsidiary of Nationwide Life Insurance Company)

                              Statements of Income

                                ($000's omitted)


<TABLE>
<CAPTION>
                                                                                        Years ended December 31,
                                                                              ---------------------------------------------
                                                                                  1999            1998           1997
                                                                              -------------   -------------  --------------

<S>                                                                              <C>          <C>            <C>
Revenues:
  Policy charges                                                                 $44,793         $28,549        $11,244
  Life insurance premiums                                                            292              63            363
  Net investment income                                                           13,959          11,314         11,577
  Realized gains (losses) on investments                                           5,208             696           (246)
  Other income                                                                     1,059           1,165          1,057
                                                                              -------------   -------------  --------------
                                                                                  65,311          41,787         23,995
                                                                              -------------   -------------  --------------
Benefits and expenses:
  Interest credited to policyholder account balances                               8,548           4,881          3,948
  Other benefits and claims                                                        5,210           1,586            433
  Amortization of deferred policy acquisition costs                               13,592           4,348          1,402
  Other operating expenses                                                        24,185           8,952          1,860
                                                                              -------------   -------------  --------------
                                                                                  51,535          19,767          7,643
                                                                              -------------   -------------  --------------

    Income before federal income tax expense                                      13,776          22,020         16,352

Federal income tax expense                                                         4,571           7,501          5,749
                                                                              -------------   -------------  --------------

    Net income                                                                   $ 9,205         $14,519        $10,603
                                                                              =============   =============  ==============
</TABLE>


See accompanying notes to financial statements.


<PAGE>   4


                  NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
        (a wholly owned subsidiary of Nationwide Life Insurance Company)

                       Statements of Shareholder's Equity

                  Years ended December 31, 1999, 1998 and 1997
                                ($000's omitted)



<TABLE>
<CAPTION>
                                                                                            Accumulated
                                                           Additional                          other             Total
                                              Common         paid-in        Retained       comprehensive     shareholder's
                                               stock         capital        earnings           income            equity
                                            ------------  --------------  --------------  -----------------  ---------------

<S>                                            <C>           <C>              <C>               <C>             <C>
December 31, 1996                              $2,640        $52,960          $25,209           $ 3,228         $ 84,037

Comprehensive income:
  Net income                                        -              -           10,603                 -           10,603
  Net unrealized gains on securities
    available-for-sale arising during the year      -              -                -             3,940            3,940
                                                                                                             ---------------
  Total comprehensive income                                                                                      14,543
                                            ------------  --------------  --------------  -----------------  ---------------
December 31, 1997                               2,640         52,960           35,812             7,168           98,580

Comprehensive income:
  Net income                                        -              -           14,519                 -           14,519
  Net unrealized gains on securities
    available-for-sale arising during the year      -              -                -             2,887            2,887
                                                                                                             ---------------
  Total comprehensive income                                                                                      17,406
                                            ------------  --------------  --------------  -----------------  ---------------
December 31, 1998                               2,640         52,960           50,331            10,055          115,986

Comprehensive income:
  Net income                                        -              -            9,205                 -            9,205
  Net unrealized losses on securities
    available-for-sale arising during the year      -              -                -           (11,923)         (11,923)
                                                                                                             ---------------
  Total comprehensive income                                                                                      (2,718)
                                            ------------  --------------  --------------  -----------------  ---------------
December 31, 1999                              $2,640        $52,960          $59,536           $(1,868)        $113,268
                                            ============  ==============  ==============  =================  ===============
</TABLE>


See accompanying notes to financial statements.

<PAGE>   5


                  NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
        (a wholly owned subsidiary of Nationwide Life Insurance Company)

                            Statements of Cash Flows

                                ($000's omitted)

<TABLE>
<CAPTION>
                                                                                           Years ended December 31,
                                                                                ----------------------------------------------
                                                                                    1999           1998             1997
                                                                                ------------- ---------------- ---------------
<S>                                                                               <C>             <C>             <C>
Cash flows from operating activities:
  Net income                                                                      $    9,205      $  14,519       $  10,603
  Adjustments to reconcile net income to net cash provided by
    operating activities:
      Interest credited to policyholder account balances                               8,548          4,881           3,948
      Capitalization of deferred policy acquisition costs                            (33,965)       (29,216)        (20,099)
      Amortization of deferred policy acquisition costs                               13,592          4,348           1,402
      Amortization and depreciation                                                    1,351           (479)            250
      Realized (gains) losses on invested assets, net                                 (5,208)          (696)            246
      Increase in accrued investment income                                           (2,261)          (867)         (1,589)
      Increase in policy liabilities and funds withheld
        on coinsurance agreement with affiliate                                      160,246        139,991         228,898
      Other, net                                                                      20,486        (29,802)         14,370
                                                                                ------------- ---------------- ---------------
          Net cash provided by operating activities                                  171,994        102,679         238,029
                                                                                ------------- ---------------- ---------------

Cash flows from investing activities:
  Proceeds from maturity of securities available-for-sale                            137,210        117,228          95,366
  Proceeds from sale of securities available-for-sale                                 73,864         17,403          30,431
  Proceeds from repayments of mortgage loans on real estate                           32,397         28,180          15,199
  Proceeds from sale of real estate                                                        -            707               -
  Proceeds from repayments of policy loans                                               109             99              67
  Cost of securities available-for-sale acquired                                    (375,642)      (242,516)       (267,899)
  Cost of mortgage loans on real estate acquired                                     (93,500)       (78,180)        (84,736)
  Cost of real estate acquired                                                             -             (3)            (13)
  Policy loans issued                                                                   (242)          (216)           (155)
  Short-term investments, net                                                          1,571         16,691         (18,476)
                                                                                ------------- ---------------- ---------------
          Net cash used in investing activities                                     (224,233)      (140,607)       (230,216)
                                                                                ------------- ---------------- ---------------

Cash flows from financing activities:
  Increase in investment product and universal life insurance
    product account balances                                                         192,893         74,828           6,952
  Decrease in investment product and universal life insurance
    product account balances                                                        (136,376)       (42,061)        (13,898)
                                                                                ------------- ---------------- ---------------
          Net cash provided by (used in) financing activities                         56,517         32,767          (6,946)
                                                                                ------------- ---------------- ---------------

Net increase (decrease) in cash                                                        4,278         (5,161)            867

Cash, beginning of year                                                                    2          5,163           4,296
Cash, end of year                                                                $     4,280   $          2     $     5,163
                                                                                ============= ================ ===============
</TABLE>


See accompanying notes to financial statements.


<PAGE>   6



                  NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
        (a wholly owned subsidiary of Nationwide Life Insurance Company)

                          Notes to Financial Statements

                        December 31, 1999, 1998 and 1997
                                ($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 provides long-term savings and retirement products,
         including variable annuities, fixed annuities and life insurance.

(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, 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.

         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 accumulated other comprehensive income in
              shareholder's equity. The adjustment to deferred policy
              acquisition costs represents the change in amortization of
              deferred policy acquisition costs that would have been required as
              a charge or credit to operations had such unrealized amounts been
              realized. The Company has no fixed maturity securities classified
              as held-to-maturity or trading as of December 31, 1999 or 1998.




<PAGE>   7


                  NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
        (a wholly owned subsidiary of Nationwide Life Insurance Company)

                    Notes to Financial Statements, Continued

              Mortgage loans on real estate are carried at the unpaid principal
              balance less valuation allowances. The Company provides valuation
              allowances for impairments of mortgage loans on real estate based
              on a review by portfolio managers. The measurement of impaired
              loans is based on the present value of expected future cash flows
              discounted at the loan's effective interest rate or, as a
              practical expedient, at the fair value of the collateral, if the
              loan is collateral dependent. Loans in foreclosure and loans
              considered to be impaired are placed on non-accrual status.
              Interest received on non-accrual status mortgage loans on real
              estate is included in interest income in the period received.

              Real estate is carried at cost less accumulated depreciation and
              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 deferred annuities. Universal life insurance products
              include universal life insurance, variable universal life
              insurance, corporate owned life insurance and other
              interest-sensitive life insurance policies. Revenues for
              investment products and universal life insurance products consist
              of net investment income, asset fees, cost of insurance, policy
              administration and surrender charges that have been earned and
              assessed against policy account balances during the period. Policy
              benefits and claims that are charged to expense include interest
              credited to policy account balances and benefits and claims
              incurred in the period in excess of related policy account
              balances.

              TRADITIONAL LIFE INSURANCE PRODUCTS: Traditional life insurance
              products include those products with fixed and guaranteed premiums
              and benefits and consist primarily of 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.

         (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 sales expenses have been deferred. For
              investment products and universal life insurance products,
              deferred policy acquisition costs are being amortized with
              interest over the lives of the policies in relation to the present
              value of estimated future gross profits from projected interest
              margins, asset fees, cost of insurance, policy administration and
              surrender charges. For years in which gross profits are negative,
              deferred policy acquisition costs are amortized based on the
              present value of gross revenues. Deferred policy acquisition costs
              are adjusted to reflect the impact of unrealized gains and losses
              on fixed maturity securities available-for-sale as described in
              note 2(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.

<PAGE>   8

                  NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
        (a wholly owned subsidiary of Nationwide Life Insurance Company)

                    Notes to Financial Statements, Continued

         (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. The average interest rate credited on investment product
              policy reserves was 4.5%, 5.1% and 5.1% for the years ended
              December 31, 1999, 1998 and 1997, respectively.

         (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 revenues ceded and reinsurance recoveries on benefits
              and expenses incurred are deducted from the respective income and
              expense accounts. Assets and liabilities related to reinsurance
              ceded are reported on a gross basis.

         (h)  RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

              In March 1998, The American Institute of Certified Public
              Accountant's Accounting Standards Executive Committee issued
              Statement of Position (SOP) 98-1, "Accounting for the Costs of
              Computer Software Developed or Obtained for Internal Use." The
              SOP, which has been adopted prospectively as of January 1, 1999,
              requires the capitalization of certain costs incurred in
              connection with developing or obtaining internal use software.
              Prior to the adoption of SOP 98-1, the Company expensed internal
              use software related costs as incurred. The effect of adopting the
              SOP was to increase net income for 1999 by $431.

              In June 1998, the Financial Accounting Standards Board (FASB)
              issued Statement No. 133, "Accounting for Derivative Instruments
              and Hedging Activities" (FAS 133). FAS 133 establishes accounting
              and reporting standards for derivative instruments and for hedging
              activities. Contracts that contain embedded derivatives, such as
              certain investment and insurance contracts, are also addressed by
              the Statement. FAS 133 requires that an entity recognize all
              derivatives as either assets or liabilities in the statement of
              financial position and measure those instruments at fair value. In
              July 1999 the FASB issued Statement No. 137 which delayed the
              effective date of FAS 133 to fiscal years beginning after June 15,
              2000. The Company plans to adopt this Statement in first quarter
              2001 and is currently evaluating the impact on results of
              operations and financial condition.


         (i)  RECLASSIFICATION

              Certain items in the 1998 and 1997 financial statements have been
              reclassified to conform to the 1999 presentation.

<PAGE>   9

                  NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
        (a wholly owned subsidiary of Nationwide Life Insurance Company)

                    Notes to Financial Statements, Continued


(3)      INVESTMENTS

         The amortized cost, gross unrealized gains and losses and estimated
         fair value of securities available-for-sale as of December 31, 1999 and
         1998 were:

<TABLE>
<CAPTION>
                                                                                     Gross         Gross
                                                                    Amortized     unrealized    unrealized     Estimated
                                                                      cost           gains        losses       fair value
                                                                 --------------- ------------- ------------- ---------------
<S>                                                               <C>              <C>          <C>           <C>
             December 31, 1999:
               Fixed maturity securities:
                 U.S. Treasury securities and obligations of U.S.
                   government corporations and agencies           $     36,717     $       2    $  (1,198)    $     35,521
                 Obligations of states and political subdivisions          302             -           (7)             295
                 Debt securities issued by foreign governments           2,256             2          (22)           2,236
                 Corporate securities                                  773,869         2,208      (13,367)         762,710
                 Mortgage-backed securities                            252,668         1,001       (2,875)         250,794
                                                                 --------------- ------------- ------------- ---------------
                     Total fixed maturity securities                 1,065,812         3,213      (17,469)       1,051,556
               Equity securities                                         1,990         3,669            -            5,659
                                                                 --------------- ------------- ------------- ---------------
                                                                    $1,067,802        $6,882     $(17,469)      $1,057,215
                                                                 ===========================================================

             December 31, 1998:
               Fixed maturity securities:
                 U.S. Treasury securities and obligations of U.S.
                   government corporations and agencies              $  15,577      $    232      $   (11)       $  15,798
                 Obligations of states and political subdivisions          332             1            -              333
                 Debt securities issued by foreign governments           4,015            23            -            4,038
                 Corporate securities                                  602,925        15,446         (358)         618,013
                 Mortgage-backed securities                            261,225         5,605          (66)         266,764
                                                                 --------------- ------------- ------------- ---------------
                     Total fixed maturity securities                   884,074        21,307         (435)         904,946
               Equity securities                                        15,323         5,530            -           20,853
                                                                 --------------- ------------- ------------- ---------------
                                                                      $899,397       $26,837        $(435)        $925,799
                                                                 =============== ============= ============= ===============
</TABLE>

         The amortized cost and estimated fair value of fixed maturity
         securities available-for-sale as of December 31, 1999, by expected
         maturity, are shown below. Expected maturities will differ from
         contractual maturities because borrowers may have the right to call or
         prepay obligations with or without call or prepayment penalties.

<TABLE>
<CAPTION>
                                                                                   Amortized     Estimated
                                                                                     cost       fair value
                                                                                 ------------ ---------------
<S>                                                                              <C>           <C>
             Fixed maturity securities available-for-sale:
               Due in one year or less                                           $    50,029   $    49,799
               Due after one year through five years                                 399,476       393,204
               Due after five years through ten years                                331,022       326,616
               Due after ten years                                                   285,285       281,937
                                                                                 ------------ ---------------
                                                                                  $1,065,812    $1,051,556
                                                                                 ============ ===============
</TABLE>

<PAGE>   10

                  NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
        (a wholly owned subsidiary of Nationwide Life Insurance Company)

                    Notes to Financial Statements, Continued


         The components of unrealized gains (losses) on securities
         available-for-sale, net, were as follows as of December 31:

<TABLE>
<CAPTION>
                                                                                     1999          1998
                                                                                 ------------- --------------

<S>                                                                                <C>            <C>
             Gross unrealized gains (losses)                                       $(10,587)      $26,402
             Adjustment to deferred policy acquisition costs                          7,714       (10,933)
             Deferred federal income tax                                              1,006        (5,414)
                                                                                 ------------- --------------
                                                                                  $  (1,868)      $10,055
                                                                                 ============= ==============
</TABLE>

         An analysis of the change in gross unrealized gains (losses) on
         securities available-for-sale follows for the years ended December 31:

<TABLE>
<CAPTION>
                                                                              1999          1998          1997
                                                                          ------------- ------------- -------------
<S>                                                                        <C>             <C>          <C>
            Securities available-for-sale:
              Fixed maturity securities                                    $ (35,128)      $ 3,922      $  9,177
              Equity securities                                               (1,861)        2,467         1,663
                                                                          ------------- ------------- -------------
                                                                           $ (36,989)      $ 6,389       $10,840
                                                                          ============= ============= =============
</TABLE>

         Proceeds from the sale of securities available-for-sale during 1999,
         1998 and 1997 were $73,864, $17,403 and $30,431, respectively. During
         1999, gross gains of $297 ($509 and $825 in 1998 and 1997,
         respectively) and gross losses of $37 (none and $1,124 in 1998 and
         1997, respectively) were realized on those sales. See note 10.

         The Company has no investments which were non-income producing for the
         twelve month periods preceding December 31, 1999 and 1998.

         Real estate is presented at cost less accumulated depreciation of $155
         as of December 31, 1999 ($105 as of December 31, 1998). There was no
         valuation allowance as of December 31, 1999 or 1998.

         The recorded investment of mortgage loans on real estate considered to
         be impaired as of December 31, 1999 was $881 ($890 as of December 31,
         1998). No valuation allowance has been recorded for these loans as of
         December 31, 1999 or 1998. During 1999, the average recorded investment
         in impaired mortgage loans on real estate was approximately $885 ($178
         in 1998) and there was no interest income recognized on those loans.
         Interest income recognized on impaired loans was $15 in 1998, which is
         equal to interest income recognized using a cash-basis method of income
         recognition.

         The valuation allowance account for mortgage loans on real estate was
         $750 for the year ended December 31, 1999 and remains unchanged from
         the previous two years.

         An analysis of investment income by investment type follows for the
years ended December 31:

<TABLE>
<CAPTION>
                                                                           1999         1998        1997
                                                                        ------------ ----------- -----------
<S>                                                                       <C>          <C>         <C>
             Gross investment income:
               Securities available-for-sale:
                 Fixed maturity securities                                $66,160      $56,398     $53,491
                 Equity securities                                              -            -         375
               Mortgage loans on real estate                               23,475       21,124      14,862
               Real estate                                                    413          379         318
               Short-term investments                                       1,580        1,361         899
               Other                                                          334          178          90
                                                                        ------------ ----------- -----------
                   Total investment income                                 91,962       79,440      70,035
             Less:
               Investment expenses                                          2,040        1,773       1,386
               Net investment income ceded (note 11)                       75,963       66,353      57,072
                                                                        ------------ ----------- -----------
                   Net investment income                                  $13,959      $11,314     $11,577
                                                                        ============ =========== ===========
</TABLE>

<PAGE>   11
                  NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
        (a wholly owned subsidiary of Nationwide Life Insurance Company)

                    Notes to Financial Statements, Continued

         An analysis of realized gains (losses) on investments, net of valuation
         allowances, by investment type follows for the years ended December 31:

<TABLE>
<CAPTION>
                                                                           1999         1998        1997
                                                                        ------------ ----------- ------------

<S>                                                                     <C>             <C>         <C>
             Fixed maturity securities available-for-sale               $    260        $ 509       $(299)
             Mortgage loans on real estate                                     7            -          53
             Real estate and other                                         4,941          187           -
                                                                        ------------ ----------- ------------
                                                                        $  5,208        $ 696       $(246)
                                                                        ============ =========== ============
</TABLE>

         Fixed maturity securities with an amortized cost of $3,540 and $3,562
         as of December 31, 1999 and 1998, respectively, were on deposit with
         various regulatory agencies as required by law.

(4)      DERIVATIVE FINANCIAL INSTRUMENTS

         The Company uses derivative financial instruments, principally interest
         rate swaps, interest rate futures contracts and foreign currency swaps,
         to manage market risk exposures associated with changes in interest
         rates and foreign currency exchange rates. Provided they meet specific
         criteria, interest rate swaps and futures are considered hedges and are
         accounted for under the accrual method and deferral method,
         respectively. The Company has no significant derivative positions that
         are not considered hedges.

         Interest rate swaps are primarily used to convert specific investment
         securities from a fixed-rate to a floating-rate basis. Amounts
         receivable or payable under these agreements are recognized as an
         adjustment to net investment income consistent with the nature of the
         hedged item. The changes in fair value of the interest rate swap
         agreements are not recognized on the balance sheet, except for interest
         rate swaps designated as hedges of fixed maturity securities
         available-for-sale, for which changes in fair values are reported in
         accumulated other comprehensive income.

         Interest rate futures contracts are primarily used to hedge the risk of
         adverse interest rate changes related to the Company's mortgage loan
         commitments and anticipated purchases of fixed rate investments. Gains
         and losses are deferred and, at the time of closing, reflected as an
         adjustment to the carrying value of the related mortgage loans or
         investments. The carrying value adjustments are amortized into net
         investment income over the life of the related mortgage loans or
         investments.

         Foreign currency swaps are used to convert cash flows from specific
         investments denominated in foreign currencies into U.S. dollars at
         specified exchange rates. Gains and losses on foreign currency swaps
         are recorded in earnings based on the related spot foreign exchange
         rate at the end of the reporting period. Gains and losses on these
         contracts offset those recorded as a result of translating the hedged
         foreign currency denominated investments to U.S. dollars.

         The following table summarizes the notional amount of derivative
         financial instruments classified as hedges outstanding as of December
         31, 1999. Prior to 1999 the Company's activities in derivatives were
         not significant.



<TABLE>
<CAPTION>
            Interest rate swaps
<S>                                                                          <C>
               Pay fixed/receive variable rate swaps hedging investments     $    1,585

            Foreign currency swaps
               Hedging foreign currency denominated investments              $    1,420

            Interest rate futures contracts                                  $    2,483
</TABLE>

<PAGE>   12
                  NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
        (a wholly owned subsidiary of Nationwide Life Insurance Company)

                    Notes to Financial Statements, Continued


(5)      FEDERAL INCOME TAX

         The tax effects of temporary differences that give rise to significant
         components of the net deferred tax asset as of December 31, 1999 and
         1998 are as follows:

<TABLE>
<CAPTION>
                                                                               1999          1998
                                                                            ------------  ------------
<S>                                                                          <C>          <C>
             Deferred tax assets:
               Future policy benefits                                        $ 17,454     $  16,670
               Liabilities in separate accounts                                15,603        12,477
               Fixed maturity securities                                        3,905             -
               Mortgage loans on real estate and real estate                      266           263
                                                                            ------------  ------------
                 Total gross deferred tax assets                               37,228        29,410
                                                                            ------------  ------------

             Deferred tax liabilities:
               Fixed maturity securities                                            -         8,669
               Deferred policy acquisition costs                               15,624         8,103
               Equity securities                                                1,284         1,935
               Other                                                           13,799        10,422
                                                                            ------------  ------------
                 Total gross deferred tax liabilities                          30,707        29,129
                                                                            ------------  ------------
                  Net deferred tax asset                                     $  6,521     $     281
                                                                            ============  ============
</TABLE>

         In assessing the realizability of deferred tax assets, management
         considers whether it is more likely than not that some portion of the
         total gross deferred tax assets will not be realized. 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, 1999, 1998 and 1997 based on its analysis of future
         deductible amounts.

         The Company's current federal income tax liability was $1,860 and
         $1,522 as of December 31, 1999 and 1998, respectively.

         Federal income tax expense for the years ended December 31 was as
         follows:

<TABLE>
<CAPTION>
                                                                           1999         1998        1997
                                                                        ------------ ----------- ------------

<S>                                                                      <C>           <C>          <C>
             Currently payable                                           $  4,391      $10,014      $2,458
             Deferred tax expense (benefit)                                   180       (2,513)      3,291
                                                                        ------------ ----------- ------------
                                                                         $  4,571     $  7,501      $5,749
                                                                        ============ =========== ============
</TABLE>

         Total federal income tax expense for the years ended December 31, 1999,
         1998 and 1997 differs from the amount computed by applying the U.S.
         federal income tax rate to income before tax as follows:

<TABLE>
<CAPTION>
                                                              1999                   1998                   1997
                                                       --------------------   --------------------   --------------------
                                                         Amount       %         Amount       %         Amount       %
                                                       --------------------   --------------------   --------------------

<S>                                                       <C>        <C>         <C>        <C>         <C>        <C>
             Computed (expected) tax expense              $4,822     35.0        $7,707     35.0        $5,723     35.0
             Tax exempt interest and dividends
                received deduction                          (255)    (1.8)         (223)    (1.0)            -      -
             Other, net                                        4      -              17      0.1            26     (0.2)
                                                       ----------- --------   ----------- --------   ----------- --------
                   Total (effective rate of each year)    $4,571     33.2        $7,501     34.1        $5,749     35.2
                                                       =========== ========   =========== ========   =========== ========
</TABLE>

         Total federal income tax paid was $4,053, $9,298 and $9,566 during the
         years ended December 31, 1999, 1998 and 1997, respectively.

<PAGE>   13

                  NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
        (a wholly owned subsidiary of Nationwide Life Insurance Company)

                    Notes to Financial Statements, Continued


(6)      COMPREHENSIVE INCOME

         Comprehensive Income includes net income as well as certain items that
         are reported directly within separate components of shareholder's
         equity that bypass net income. Currently, the Company's only component
         of Other Comprehensive Income is unrealized gains (losses) on
         securities available-for-sale. The related before and after federal tax
         amounts are as follows:

<TABLE>
<CAPTION>
                                                                           1999            1998           1997
                                                                       -------------   -------------  --------------

<S>                                                                      <C>               <C>            <C>
             Unrealized gains (losses) on securities available-for-sale
                arising during the period:
                Gross                                                    $ (36,729)        $ 6,898        $10,541
                Adjustment to deferred policy acquisition costs             18,645          (1,947)        (4,778)
                Related federal income tax (expense) benefit                 6,330          (1,733)        (2,017)
                                                                       -------------   -------------  --------------
                   Net                                                     (11,754)          3,218          3,746
                                                                       -------------   -------------  --------------

             Reclassification adjustment for net (gains) losses on
                securities available-for-sale realized during the
             period:
                Gross                                                         (260)           (509)           299
                Related federal income tax expense (benefit)                    91             178           (105)
                                                                       -------------   -------------  --------------
                   Net                                                        (169)           (331)           194
                                                                       -------------   -------------  --------------
             Total Other Comprehensive Income                            $ (11,923)        $ 2,887        $ 3,940
                                                                       =============   =============  ==============
</TABLE>

(7)      FAIR VALUE OF FINANCIAL INSTRUMENTS

         The following disclosures summarize the carrying amount and estimated
         fair value of the Company's financial instruments. Certain assets and
         liabilities are specifically excluded from the disclosure requirements
         of financial instruments. Accordingly, the aggregate fair value amounts
         presented do not represent the underlying value of the Company.

         The fair value of a financial instrument is defined as the amount at
         which the financial instrument could be exchanged in a current
         transaction between willing parties. In cases where quoted market
         prices are not available, fair value is based on estimates using
         present value or other valuation techniques. Many of the Company's
         assets and liabilities subject to the disclosure requirements are not
         actively traded, requiring fair values to be estimated by management
         using present value or other valuation techniques. These techniques are
         significantly affected by the assumptions used, including the discount
         rate and estimates of future cash flows. Although fair value estimates
         are calculated using assumptions that management believes are
         appropriate, changes in assumptions could cause these estimates to vary
         materially. In that regard, the derived fair value estimates cannot be
         substantiated by comparison to independent markets and, in many cases,
         could not be realized in the immediate settlement of the instruments.

         Although insurance contracts, other than policies such as annuities
         that are classified as investment contracts, are specifically exempted
         from the disclosure requirements, estimated fair value of policy
         reserves on life insurance contracts is provided to make the fair value
         disclosures more meaningful.

         The tax ramifications of the related unrealized gains and losses can
         have a significant effect on fair value estimates and have not been
         considered in the estimates.

<PAGE>   14
                  NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
        (a wholly owned subsidiary of Nationwide Life Insurance Company)

                    Notes to Financial Statements, Continued


         The following methods and assumptions were used by the Company in
estimating its fair value disclosures:

              FIXED MATURITY AND EQUITY SECURITIES: The fair value for fixed
              maturity securities is based on quoted market prices, where
              available. For fixed maturity securities not actively traded, fair
              value is estimated using values obtained from independent pricing
              services or, in the case of private placements, is estimated by
              discounting expected future cash flows using a current market rate
              applicable to the yield, credit quality and maturity of the
              investments. The fair value for equity securities is based on
              quoted market prices. The carrying amount and fair value for fixed
              maturity and equity securities exclude the fair value of
              derivatives contracts designated as hedges of fixed maturity and
              equity securities.

              MORTGAGE LOANS ON REAL ESTATE: 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.

              POLICY LOANS, SHORT-TERM INVESTMENTS AND CASH: The carrying amount
              reported in the balance sheets for these instruments approximates
              their fair value.

              SEPARATE ACCOUNT ASSETS AND LIABILITIES: The fair value of assets
              held in separate accounts is based on quoted market prices. The
              fair value of liabilities related to separate accounts is the
              amount payable on demand, which is net of certain surrender
              charges.

              INVESTMENT CONTRACTS: The fair value for the Company's liabilities
              under investment type contracts is disclosed using two methods.
              For investment contracts without defined maturities, fair value is
              the amount payable on demand. For investment contracts with known
              or determined maturities, fair value is estimated using discounted
              cash flow analysis. Interest rates used are similar to currently
              offered contracts with maturities consistent with those remaining
              for the contracts being valued.

              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.

              COMMITMENTS TO EXTEND CREDIT: Commitments to extend credit have
              nominal fair value because of the short-term nature of such
              commitments. See note 8.

              FUTURES CONTRACTS: The fair value for futures contracts is based
              on quoted market prices.

              INTEREST RATE AND FOREIGN CURRENCY SWAPS: The fair value for
              interest rate and foreign currency swaps are calculated with
              pricing models using current rate assumptions.

<PAGE>   15
                  NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
        (a wholly owned subsidiary of Nationwide Life Insurance Company)

                    Notes to Financial Statements, Continued



         Carrying amount and estimated fair value of financial instruments
         subject to disclosure requirements and policy reserves on life
         insurance contracts were as follows as of December 31:

<TABLE>
<CAPTION>
                                                                        1999                              1998
                                                           -------------------------------   -------------------------------
                                                              Carrying       Estimated          Carrying       Estimated
                                                               amount        fair value          amount        fair value
                                                           --------------  --------------    --------------  --------------
<S>                                                        <C>             <C>                <C>             <C>
              Assets:
                Investments:
                  Securities available-for-sale:
                    Fixed maturity securities              $  1,051,556    $  1,051,556       $   904,946     $   904,946
                    Equity securities                             5,659           5,659            20,853          20,853
                  Mortgage loans on real estate, net            330,068         324,610           268,894         276,387
                  Policy loans                                      465             465               332             332
                  Short-term investments                            706             706             2,277           2,277
                Cash                                              4,280           4,280                 2               2
                Assets held in separate accounts              2,127,080       2,127,080         1,533,690       1,533,690

              Liabilities:
                Investment contracts                         (1,335,787)     (1,283,459)       (1,153,930)     (1,113,584)
                Policy reserves on life insurance contracts    (145,020)       (145,370)           (9,899)        (10,517)
                Liabilities related to separate accounts     (2,127,080)     (2,082,541)       (1,533,690)     (1,501,255)

              Derivative financial instruments:
                Interest rate swaps hedging assets                  109             109                 -               -
                Foreign currency swaps                              (18)            (18)                -               -
                Futures contracts                                    21              21                 -               -
</TABLE>

(8)      RISK DISCLOSURES

         The following is a description of the most significant risks facing
         life insurers and how the Company mitigates those risks:

         CREDIT RISK: The risk that issuers of securities owned by the Company
         or mortgagors on mortgage loans on real estate owned by the Company
         will default or that other parties which owe the Company money, will
         not pay. 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: The risk that interest rates will change and cause
         a decrease in the value of an insurer's investments. This change in
         rates may cause certain interest-sensitive products to become
         uncompetitive or may cause disintermediation. The Company mitigates
         this risk by charging fees for non-conformance with certain policy
         provisions, by offering products that transfer this risk to the
         purchaser, and/or by attempting to match the maturity schedule of its
         assets with the expected payouts of its liabilities. To the extent that
         liabilities come due more quickly than assets mature, an insurer would
         have to borrow funds or sell assets prior to maturity and potentially
         recognize a gain or loss.

         LEGAL/REGULATORY RISK: The risk that changes in the legal or regulatory
         environment in which an insurer operates will result in increased
         competition, reduced demand for a company's products, or create
         additional expenses not anticipated by the insurer in pricing its
         products. The Company mitigates this risk by 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.

         FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK: The Company is a
         party to financial instruments with off-balance-sheet risk in the
         normal course of business through management of its investment
         portfolio. These financial instruments include commitments to extend
         credit in the form of loans and derivative financial instruments. These
         instruments involve, to varying degrees, elements of credit risk in
         excess of amounts recognized on the balance sheets.

<PAGE>   16
                  NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
        (a wholly owned subsidiary of Nationwide Life Insurance Company)

                    Notes to Financial Statements, Continued

         Commitments to fund fixed rate mortgage loans on real estate are
         agreements to lend to a borrower, and are subject to conditions
         established in the contract. Commitments generally have fixed
         expiration dates or other termination clauses and may require payment
         of a deposit. Commitments extended by the Company are based on
         management's case-by-case credit evaluation of the borrower and the
         borrower's loan collateral. The underlying mortgage property represents
         the collateral if the commitment is funded. The Company's policy for
         new mortgage loans on real estate is to lend no more than 75% of
         collateral value. Should the commitment be funded, the Company's
         exposure to credit loss in the event of nonperformance by the borrower
         is represented by the contractual amounts of these commitments less the
         net realizable value of the collateral. The contractual amounts also
         represent the cash requirements for all unfunded commitments.
         Commitments on mortgage loans on real estate of $10,039 extending into
         2000 were outstanding as of December 31, 1999.

         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 30% (33% in 1998) in any geographic area and no more than 5% (6%
         in 1998) with any one borrower as of December 31, 1999. As of December
         31, 1999 22% (36% in 1998) of the remaining principal balance of the
         Company's commercial mortgage loan portfolio financed apartment
         building properties.

(9)      PENSION PLAN AND POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

         The Company is a participant, together with other affiliated companies,
         in a pension plan covering all employees who have completed at least
         one year of service. The Company funds pension costs accrued for direct
         employees plus an allocation of pension costs accrued for employees of
         affiliates whose work efforts benefit the Company. Assets of the
         Retirement Plan are invested in group annuity contracts of NLIC.

         Pension costs charged to operations by the Company during the years
         ended December 31, 1999, 1998 and 1997 were $127, $235 and $257,
         respectively.

         In addition to the defined benefit pension plan, the Company, together
         with other affiliated companies, participates in life and health care
         defined benefit plans for qualifying retirees. Postretirement life and
         health care benefits are contributory and generally available to full
         time employees who have attained age 55 and have accumulated 15 years
         of service with the Company after reaching age 40. Postretirement
         health care benefit contributions are adjusted annually and contain
         cost-sharing features such as deductibles and coinsurance. In addition,
         there are caps on the Company's portion of the per-participant cost of
         the postretirement health care benefits. These caps can increase
         annually, but not more than three percent. The Company's policy is to
         fund the cost of health care benefits in amounts determined at the
         discretion of management. Plan assets are invested primarily in group
         annuity contracts of NLIC.

         The Company elected to immediately recognize its estimated accumulated
         postretirement benefit obligation (APBO), however, certain affiliated
         companies elected to amortize their initial transition obligation over
         periods ranging from 10 to 20 years.

         The Company's accrued postretirement benefit expense as of December 31,
         1999 and 1998 was $1,040 and $1,008, respectively, and the net periodic
         postretirement benefit cost (NPPBC) for 1999, 1998 and 1997 was $177,
         $130 and $94, respectively.


<PAGE>   17
                  NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
        (a wholly owned subsidiary of Nationwide Life Insurance Company)

                    Notes to Financial Statements, Continued



         Information regarding the funded status of the pension plan as a whole
         and the postretirement life and health care benefit plan as a whole as
         of December 31, 1999 and 1998 follows:

<TABLE>
<CAPTION>
                                                                             Pension Benefits          Postretirement Benefits
                                                                        ---------------------------   ---------------------------
                                                                            1999          1998            1999          1998
                                                                        ------------- -------------   ------------- -------------

<S>                                                                       <C>          <C>            <C>           <C>
              Change in benefit obligation:
              Benefit obligation at beginning of year                     $2,185,000   $ 2,033,800    $    270,100  $    237,900
              Service cost                                                    80,000        87,600          14,200         9,800
              Interest cost                                                  109,900       123,400          17,600        15,400
              Actuarial (gain) loss                                          (95,000)      123,200         (64,400)       15,600
              Plan settlement in 1999/curtailment in 1998                   (396,100)     (107,200)            -             -
              Benefits paid                                                  (72,400)      (75,800)        (11,000)       (8,600)
              Acquired companies                                                 -             -            13,300           -
                                                                        ------------- -------------   ------------- -------------
              Benefit obligation at end of year                            1,811,400     2,185,000         239,800       270,100
                                                                        ------------- -------------   ------------- -------------

              Change in plan assets:
              Fair value of plan assets at beginning of year               2,541,900     2,212,900          77,900        69,200
              Actual return on plan assets                                   161,800       300,700           3,500         5,000
              Employer contribution                                           12,400       104,100          20,900        12,100
              Plan settlement                                               (396,100)          -               -             -

              Benefits paid                                                  (72,400)      (75,800)        (11,000)       (8,400)
                                                                        ------------- -------------   ------------- -------------
              Fair value of plan assets at end of year                     2,247,600     2,541,900          91,300        77,900
                                                                        ------------- -------------   ------------- -------------

              Funded status                                                  436,200       356,900        (148,500)     (192,200)
              Unrecognized prior service cost                                 28,200        31,500             -             -
              Unrecognized net (gains) losses                               (402,000)     (345,700)        (46,700)       16,000
              Unrecognized net (asset) obligation at transition               (7,700)      (11,000)          1,100         1,300
                                                                        ------------- -------------   ------------- -------------
              Prepaid (accrued) benefit cost                            $     54,700  $     31,700     $  (194,100)  $  (174,900)
                                                                        ============= =============   ============= =============
</TABLE>

         Basis for measurements, funded status of the pension plan and
         postretirement life and health care benefit plan:

<TABLE>
<CAPTION>
                                                                             Pension Benefits          Postretirement Benefits
                                                                        ---------------------------   ---------------------------
                                                                            1999          1998            1999          1998
                                                                        ------------- -------------   ------------- -------------

<S>                                                                        <C>           <C>              <C>           <C>
              Weighted average discount rate                               7.00%         5.50%            7.80%         6.65%
              Rate of increase in future compensation levels               5.25%         3.75%             -             -
              Assumed health care cost trend rate:
                    Initial rate                                             -             -             15.00%        15.00%
                    Ultimate rate                                            -             -              5.50%         8.00%
                    Uniform declining period                                 -             -              5 Years     15 Years
</TABLE>

         The net periodic pension cost for the pension plan as a whole for the
         years ended December 31, 1999, 1998 and 1997 follows:

<TABLE>
<CAPTION>
                                                                                     1999           1998            1997
                                                                                 -------------  --------------  --------------

<S>                                                                               <C>            <C>             <C>
              Service cost (benefits earned during the period)                    $   80,000     $   87,600      $   77,300
              Interest cost on projected benefit obligation                          109,900        123,400         118,600
              Expected return on plan assets                                        (160,300)      (159,000)       (139,000)
              Recognized gains                                                        (9,100)        (3,800)              -
              Amortization of prior service cost                                       3,200          3,200           3,200
              Amortization of unrecognized transition obligation (asset)              (1,400)         4,200           4,200
                                                                                 -------------  --------------  --------------
                                                                                  $   22,300     $   55,600      $   64,300
                                                                                 =============  ==============  ==============
</TABLE>

<PAGE>   18
                  NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
        (a wholly owned subsidiary of Nationwide Life Insurance Company)

                    Notes to Financial Statements, Continued

         Effective December 31, 1998, Wausau Service Corporation (WSC) ended its
         affiliation with Nationwide Insurance and employees of WSC ended
         participation in the plan. A curtailment gain of $67,100 resulted
         (consisting of a $107,200 reduction in the projected benefit
         obligation, net of the write-off of the $40,100 remaining unamortized
         transition obligation related to WSC). During 1999, the plan
         transferred assets to settle its obligation related to WSC employees. A
         settlement gain of $32.9 million was recognized.

         Basis for measurements, net periodic pension cost for the pension plan:

<TABLE>
<CAPTION>
                                                                                        1999          1998          1997
                                                                                     -----------   -----------   -----------

<S>                                                                                    <C>           <C>           <C>
             Weighted average discount rate                                            6.08%         6.00%         6.50%
             Rate of increase in future compensation levels                            4.33%         4.25%         4.75%
             Expected long-term rate of return on plan assets                          7.33%         7.25%         7.25%
</TABLE>

         The amount of NPPBC for the postretirement benefit plan as a whole for
         the years ended December 31, 1999, 1998 and 1997 was as follows:

<TABLE>
<CAPTION>
                                                                                    1999           1998            1997
                                                                                -------------  --------------  -------------

<S>                                                                                 <C>           <C>             <C>
             Service cost (benefits attributed to employee service
                during the year)                                                    $14,200       $  9,800        $  7,000
             Interest cost on accumulated postretirement benefit obligation          17,600         15,400          14,000
             Actual return on plan assets                                            (3,500)        (5,000)         (3,600)
             Amortization of unrecognized transition obligation of affiliates           600            200             200
             Net amortization and deferral                                           (1,800)         1,200            (500)
                                                                                -------------  --------------  -------------
                                                                                    $27,100        $21,600         $17,100
                                                                                =============  ==============  =============
</TABLE>

         Actuarial assumptions used for the measurement of the accumulated
         postretirement benefit obligation (APBO) and the NPPBC for the
         postretirement benefit plan for 1999, 1998 and 1997 were as follows:

<TABLE>
<CAPTION>
                                                                                        1999          1998          1997
                                                                                     -----------   -----------   -----------
<S>                                                                                   <C>          <C>           <C>
             NPPBC:
               Discount rate                                                           6.65%         6.70%         7.25%
               Long term rate of return on plan
                   assets, net of tax                                                  7.15%         5.83%         5.89%
               Assumed health care cost trend rate:
                   Initial rate                                                       15.00%        12.00%        11.00%
                   Ultimate rate                                                       5.50%         6.00%         6.00%
                   Uniform declining period                                           5 Years      12 Years      12 Years
</TABLE>

         For the postretirement benefit plan as a whole, a one percentage point
         increase or decrease in the assumed health care cost trend rate would
         have no impact on the APBO as of December 31, 1999 and have no impact
         on the NPPBC for the year ended December 31, 1999.

(10)     SHAREHOLDER'S EQUITY, REGULATORY RISK-BASED CAPITAL, RETAINED EARNINGS
         AND DIVIDEND RESTRICTIONS

         Ohio, 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.

<PAGE>   19
                  NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
        (a wholly owned subsidiary of Nationwide Life Insurance Company)

                    Notes to Financial Statements, Continued

         The statutory capital and surplus of the Company as reported to
         regulatory authorities as of December 31, 1999, 1998 and 1997 was
         $63,275, $70,135 and $74,820, respectively. The statutory net (loss)
         income of the Company as reported to regulatory authorities for the
         years ended December 31, 1999, 1998 and 1997 was $(305), $(3,371) and
         $7,446, respectively.

         The Company is limited in the amount of shareholder dividends it may
         pay without prior approval by the Department. As of December 31, 1999,
         the maximum amount available for dividend payment from the Company to
         its shareholder without prior approval of the Department was $6,328.

         The Company currently does not expect such regulatory requirements to
         impair its ability to pay operating expenses and stockholder dividends
         in the future.

(11)     TRANSACTIONS WITH AFFILIATES

         The Company leases office space from NMIC and certain of its
         subsidiaries. For the years ended December 31, 1999, 1998 and 1997, the
         Company made lease payments to NMIC and its subsidiaries of $660, $430
         and $703, respectively.

         Pursuant to a cost sharing agreement among NMIC and certain of its
         direct and indirect subsidiaries, including the Company, NMIC provides
         certain operational and administrative services, such as sales support,
         advertising, personnel and general management services, to those
         subsidiaries. Expenses covered by this agreement are subject to
         allocation among NMIC, the Company and other affiliates. Measures used
         to allocate expenses among companies include individual employee
         estimates of time spent, special cost studies, salary expense,
         commission expense and other methods agreed to by the participating
         companies that are within industry guidelines and practices. In
         addition, beginning in 1999 Nationwide Services Company, a subsidiary
         of NMIC, provides computer, telephone, mail, employee benefits
         administration, and other services to NMIC and certain of its direct
         and indirect subsidiaries, including the Company, based on specified
         rates for units of service consumed. For the years ended December 31,
         1999, 1998 and 1997, the Company made payments to NMIC and Nationwide
         Services Company totaling $5,150, $2,933, and $2,564, respectively. In
         addition, the Company does not believe that expenses recognized under
         these agreements are materially different than expenses that would have
         been recognized had the Company operated on a stand-alone basis.

         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. On December 31,
         1997, the agreement was amended to a modified coinsurance basis. Under
         modified coinsurance agreements, invested assets and liabilities for
         future policy benefits are retained by the ceding company and net
         investment earnings on the invested assets are 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. Amounts ceded to NLIC in 1999 are included in NLIC's results
         of operations for 1999 and include premiums of $258,468 ($241,503 and
         $300,617 in 1998 and 1997, respectively), net investment income of
         $75,963 ($66,353 and $57,072 in 1998 and 1997, respectively) and
         benefits, claims and other expenses of $319,240 ($296,659 and $343,426
         in 1998 and 1997, respectively). In consideration for the initial
         inforce business reinsured, NLIC paid 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.

         During 1999, the Company entered into an intercompany reinsurance
         agreement with NLIC wherby certain life insurance contracts are ceded
         on a 100% coinsurance basis. Amounts ceded to NLIC include premiums of
         $87,696 and expenses of $3,150 during 1999 and policy reserves of
         $91,667 as of December 31, 1999.

         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 reinsurance agreements with affiliates are consistent in
         all material respects with what the Company could have obtained with
         unaffiliated parties.

<PAGE>   20
                  NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
        (a wholly owned subsidiary of Nationwide Life Insurance Company)

                    Notes to Financial Statements, Continued


         During 1997, the Company sold fixed maturity securities
         available-for-sale at fair value of $27,253 to NLIC. The Company
         recognized a $693 gain on the transactions.

         The Company and various affiliates entered into agreements with
         Nationwide Cash Management Company (NCMC), an affiliate, under which
         NCMC acts as common agent in handling the purchase and sale of
         short-term securities for the respective accounts of the participants.
         Amounts on deposit with NCMC were $706 and $2,277 as of December 31,
         1999 and 1998, respectively, and are included in short-term investments
         on the accompanying balance sheets.

(12)     CONTINGENCIES
         On October 29, 1998, the Company was named in a lawsuit filed in Ohio
         state court related to the sale of deferred annuity products for use as
         investments in tax-deferred contributory retirement plans (Mercedes
         Castillo v. Nationwide Financial Services, Inc., Nationwide Life
         Insurance Company and Nationwide Life and Annuity Insurance Company).
         On May 3, 1999, the complaint was amended to, among other things, add
         Marcus Shore as a second plaintiff. The amended complaint is brought as
         a class action on behalf of all persons who purchased individual
         deferred annuity contracts or participated in group annuity contracts
         sold by the Company and the other named Company affiliates which were
         used to fund certain tax-deferred retirement plans. The amended
         complaint seeks unspecified compensatory and punitive damages. No class
         has been certified. On June 11, 1999, the Company and the other named
         defendants filed a motion to dismiss the amended complaint. On March 8,
         2000, the court denied the motion to dismiss the amended complaint
         filed by the Company and other named defendants. The Company intends to
         defend this lawsuit vigorously.

(13)     SEGMENT INFORMATION

         The Company uses differences in products as the basis for defining its
         reportable segments. The Company reports three product segments:
         Variable Annuities, Fixed Annuities and Life Insurance.

         The Variable Annuities segment consists of annuity contracts that
         provide the customer with access to a wide range of investment options,
         tax-deferred accumulation of savings, asset protection in the event of
         an untimely death, and flexible payout options including a lump sum,
         systematic withdrawal or a stream of payments for life. The Company's
         variable annuity products consist almost entirely of flexible premium
         deferred variable annuity contracts.

         The Fixed Annuities segment consists of annuity contracts that generate
         a return for the customer at a specified interest rate fixed for a
         prescribed period, tax-deferred accumulation of savings, and flexible
         payout options including a lump sum, systematic withdrawal or a stream
         of payments for life. Such contracts consist of single premium deferred
         annuities, flexible premium deferred annuities and single premium
         immediate annuities. The Fixed Annuities segment includes the fixed
         option under variable annuity contracts.

         The Life Insurance segment consists of insurance products, including
         variable universal life insurance and corporate-owned life insurance
         products, that provide a death benefit and may also allow the customer
         to build cash value on a tax-deferred basis.

         In addition to the product segments, the Company reports corporate
         revenue and expenses, investments and related investment income
         supporting capital not specifically allocated to its product segments,
         and all realized gains and losses on investments in a Corporate and
         Other segment.

<PAGE>   21
                  NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
        (a wholly owned subsidiary of Nationwide Life Insurance Company)

                    Notes to Financial Statements, Continued


         The following table summarizes the financial results of the Company's
         business segments for the years ended December 31, 1999, 1998 and 1997.

<TABLE>
<CAPTION>
                                     Variable         Fixed            Life       Corporate
                                     Annuities      Annuities       Insurance     and Other      Total
                                     ---------      ---------       ---------     ---------      -----

<S>                                 <C>            <C>            <C>           <C>           <C>
1999:
Net investment income (1)           $    (2,304)   $     8,550    $     1,596   $     6,117   $    13,959

Other operating revenue                  26,187          3,310         16,647          --          46,144
                                    -----------    -----------    -----------   -----------   -----------
   Total operating revenue (2)           23,883         11,860         18,243         6,117        60,103
                                    -----------    -----------    -----------   -----------   -----------
Interest credited to policyholder
   account balances                        --            6,561          1,987          --           8,548
Amortization of deferred policy
   acquisition costs                      7,686            963          4,943          --          13,592
Other benefits and expenses              13,593          7,378          8,424          --          29,395
                                    -----------    -----------    -----------   -----------   -----------
   Total expenses                        21,279         14,902         15,354          --          51,535
                                    -----------    -----------    -----------   -----------   -----------
Operating income (loss) before
   federal income tax                     2,604         (3,042)         2,889         6,117         8,568
Realized gains on investments              --             --             --           5,208         5,208
                                    -----------    -----------    -----------   -----------   -----------
Consolidated income (loss) before
   federal tax expense              $     2,604    $    (3,042)   $     2,889   $    11,325   $    13,776
                                    ===========    ===========    ===========   ===========   ===========

Assets as of year end               $ 1,957,486    $ 1,352,324    $   382,388   $    70,265   $ 3,762,463
                                    ===========    ===========    ===========   ===========   ===========

1998:
Net investment income (1)           $    (1,417)   $     6,792    $       408   $     5,531   $    11,314
Other operating revenue                  18,209          3,182          8,386          --          29,777
                                    -----------    -----------    -----------   -----------   -----------
   Total operating revenue (2)           16,792          9,974          8,794         5,531        41,091
                                    -----------    -----------    -----------   -----------   -----------
Interest credited to policyholder
   account balances                        --            4,660            221          --           4,881
Amortization of deferred policy
   acquisition costs                      3,466            508            374          --           4,348
Other benefits and expenses               4,442          2,087          4,009          --          10,538
                                    -----------    -----------    -----------   -----------   -----------
   Total expenses                          --            7,908          7,255         4,604        19,767
                                    -----------    -----------    -----------   -----------   -----------
Operating income before federal
    income tax                            8,884          2,719          4,190         5,531        21,324
Realized gains on investments              --             --             --             696           696
                                    -----------    -----------    -----------   -----------   -----------
Consolidated income before
   federal tax expense              $     8,884    $     2,719    $     4,190   $     6,227   $    22,020
                                    ===========    ===========    ===========   ===========   ===========

Assets as of year end               $ 1,502,829    $ 1,162,040    $    92,482   $    82,087   $ 2,839,438
                                    ===========    ===========    ===========   ===========   ===========
</TABLE>
<PAGE>   22
                  NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
        (a wholly owned subsidiary of Nationwide Life Insurance Company)

                    Notes to Financial Statements, Continued



<TABLE>
<CAPTION>
                                                 Variable         Fixed            Life         Corporate
                                                Annuities       Annuities       Insurance       and Other        Total
                                              --------------- --------------- --------------- ---------------- -------------

<S>                                           <C>             <C>             <C>             <C>              <C>
         1997:
         Net investment income (1)            $       (873)   $      5,927    $        166    $        6,357   $   11,577

         Other operating revenue                    10,823           1,825              16               -         12,664
                                              --------------- --------------- --------------- ---------------- -------------
            Total operating revenue (2)              9,950           7,752             182             6,357       24,241
                                              --------------- --------------- --------------- ---------------- -------------
         Interest credited to policyholder
            account balances                             -           3,856              92               -          3,948
         Amortization of deferred policy
            acquisition costs                        1,035             347              20               -          1,402
         Other benefits and expenses                 1,648             347             298               -          2,293
                                              --------------- --------------- --------------- ---------------- -------------
            Total expenses                           2,683           4,550             410               -          7,643
                                              --------------- --------------- --------------- ---------------- -------------
         Operating income (loss) before
            federal income tax                       7,267           3,202            (228)            6,357       16,598
         Realized losses on investments                  -               -               -              (246)        (246)
                                              --------------- --------------- --------------- ---------------- -------------
         Consolidated income (loss) before
            federal tax expense               $      7,267    $      3,202    $       (228)   $        6,111   $   16,352
                                              =============== =============== =============== ================ =============

         Assets as of year end                $    925,021    $    989,116    $      2,228    $       88,933   $2,005,298
                                              =============== =============== =============== ================ =============
</TABLE>

----------

(1)  The Company's method of allocating net investment income results in a
     charge (negative net investment income) to the Variable Annuities segment
     which is recognized in the Corporate and Other segment. The charge relates
     to non-invested assets which support this segment on a statutory basis.

(2)  Excludes realized gains and losses on investments.

     The Company has no significant revenue from customers located outside of
     the United States nor does the Company have any significant long-lived
     assets located outside the United States.





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