<PAGE> 1
REGISTRATION NO. 33-35775
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 6
TO FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF
SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2
-------------------------
NATIONWIDE VL SEPARATE ACCOUNT-A
(Exact Name of Trust)
-------------------------
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
ONE NATIONWIDE PLAZA
COLUMBUS, OHIO 43216
(Exact Name and Address of Depositor and Registrant)
GORDON E. McCUTCHAN
SECRETARY
ONE NATIONWIDE PLAZA
COLUMBUS, OHIO 43216
(Name and address of Agent for Service)
-------------------------
This Post-Effective Amendment amends the Registration Statement in respect to
the Prospectus and the Financial Statements.
It is proposed that this filing will become effective (check appropriate
box):
/ / immediately upon filing pursuant to paragraph (b) of Rule 485
/X/ on May 1, 1996 pursuant to paragraph (b) of Rule 485
/ / 60 days after filing pursuant to paragraph (a) (1) of Rule 485
/ / on (date) pursuant to paragraph (a)(1) of Rule 485
The Registrant has registered an indefinite number of securities by a prior
registration statement in accordance with Rule 24f-2 under the Investment
Company Act of 1940. Pursuant to Paragraph (a)(3) thereof, a non-refundable fee
in the amount of $500.00 has been paid to the Commission. Registrant filed its
Rule 24f-2 Notice for the fiscal year ended December 31, 1995, on February 26,
1996.
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CROSS REFERENCE TO ITEMS REQUIRED
BY FORM N-8B-2
<TABLE>
<CAPTION>
N-8B-2 ITEM CAPTION IN PROSPECTUS
<S> <C>
1 ................................... Nationwide Life and Annuity Insurance
Company
The Variable Account
2 ................................... Nationwide Life and Annuity Insurance
Company
3 ................................... Custodian of Assets
4 ................................... Distribution of The Policies
5 ................................... The Variable Account
6 ................................... Not Applicable
7 ................................... Not Applicable
8 ................................... Not Applicable
9 ................................... Legal Proceedings
10 ................................... Information About The Policies; How The
Cash Value Varies; Right to Exchange for
a Fixed Benefit Policy; Reinstatement;
Other Policy Provisions
11 ................................... Investments of The Variable Account
12 ................................... The Variable Account
13 ................................... Policy Charges Reinstatement
14 ................................... Underwriting and Issuance - Premium
Payments Minimum Requirements for
Issuance of a Policy
15 ................................... Investments of the Variable Account;
Premium Payments
16 ................................... Underwriting and Issuance - Allocation
of Cash Value
17 ................................... Surrendering The Policy for Cash
18 ................................... Reinvestment
19 ................................... Not Applicable
20 ................................... Not Applicable
21 ................................... Policy Loans
22 ................................... Not Applicable
23 ................................... Not Applicable
24 ................................... Not Applicable
25 ................................... Nationwide Life and Annuity Insurance
Company
26 ................................... Not Applicable
27 ................................... Nationwide Life and Annuity Insurance
Company
28 ................................... Company Management
29 ................................... Company Management
30 ................................... Not Applicable
31 ................................... Not Applicable
32 ................................... Not Applicable
33 ................................... Not Applicable
34 ................................... Not Applicable
35 ................................... Nationwide Life and Annuity Insurance
Company
36 ................................... Not Applicable
37 ................................... Not Applicable
38 ................................... Distribution of The Policies
39 ................................... Distribution of The Policies
40 ................................... Not Applicable
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
N-8B-2 ITEM CAPTION IN PROSPECTUS
<S> <C>
41(a) ................................ Distribution of The Policies
42 ................................... Not Applicable
43 ................................... Not Applicable
44 ................................... How The Cash Value Varies
45 ................................... Not Applicable
46 ................................... How The Cash Value Varies
47 ................................... Not Applicable
48 ................................... Custodian of Assets
49 ................................... Not Applicable
50 ................................... Not Applicable
51 ................................... Summary of The Policies; Information
About The Policies
52 ................................... Substitution of Securities
53 ................................... Taxation of The Company
54 ................................... Not Applicable
55 ................................... Not Applicable
56 ................................... Not Applicable
57 ................................... Not Applicable
58 ................................... Not Applicable
59 ................................... Financial Statements
</TABLE>
<PAGE> 4
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
HOME OFFICE
P.O. BOX 182150
ONE NATIONWIDE PLAZA
COLUMBUS, OHIO 43218-2150
(800) 533-5622, TDD 1-800-238-3035
MULTIPLE PAYMENT VARIABLE LIFE INSURANCE POLICIES
ISSUED BY NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
THROUGH ITS NATIONWIDE VL SEPARATE ACCOUNT-A
The Life Insurance Policies offered by this prospectus are variable life
insurance policies (collectively referred to as the "Policies"). The Policies
are designed to provide life insurance coverage on the Insured named in the
Policy. The Policies may also provide a Cash Surrender Value if the Policy is
terminated during the lifetime of the Insured. The death benefit and Cash Value
of the Policies may vary to reflect the experience of the Nationwide VL Separate
Account - A (the "Variable Account") or the Fixed Account to which Cash Values
are allocated.
The Policies described in this prospectus, meet the definition of life insurance
contracts under Section 7702 of the Internal Revenue Code (the "Code"). The
Policies are designed to generally require the payment of the Guideline Single
Premium in five annual installments for death benefit Option 1 and five or more
annual Guideline Level Premiums under death benefit Option 2.
The Policy Owner may allocate net premiums and Cash Value to one or more of the
sub-accounts of the Variable Account and the Fixed Account. The assets of each
sub-account will be used to purchase, at Net Asset Value, shares of a designated
underlying Mutual Fund of the following series of the Variable Account
underlying Mutual Fund options:
NATIONWIDE SEPARATE ACCOUNT TRUST:
-Capital Appreciation Fund
-Money Market Fund
-Government Bond Fund
-Total Return Fund
FIDELITY VARIABLE INSURANCE PRODUCTS FUND:
-Growth Portfolio
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST:
-Balanced Portfolio
TCI PORTFOLIOS, INC.
-TCI Advantage
Nationwide Life and Annuity Insurance Company (the "Company") guarantees that
the death benefit for a Policy will never be less than the Specified Amount
stated on the Policy data pages as long as the Policy is in force. There is no
guaranteed Cash Surrender Value. If the Cash Surrender Value is insufficient to
cover the charges under the Policy, the Policy will lapse without value. Also,
during the first five Policy Years, the total premium payments less any existing
Policy Indebtedness must be greater than or equal to the Minimum Premium
requirement in order for the Policy to continue in force.
This prospectus generally describes only that portion of the Cash Value
allocated to the Variable Account. For a brief summary of the Fixed Account
Option, see "The Fixed Account Option" located in this prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE. A PROSPECTUS
FOR THE UNDERLYING MUTUAL FUND OPTION(S) BEING CONSIDERED MUST ACCOMPANY THIS
PROSPECTUS AND SHOULD BE READ IN CONJUNCTION HEREWITH.
The date of this Prospectus is May 1, 1996.
1
<PAGE> 5
GLOSSARY OF TERMS
ATTAINED AGE- The Insured's age on the Policy Date, plus the number of full
years since the Policy Date.
ACCUMULATION UNIT- An accounting unit of measure used to calculate the Variable
Account Cash Value.
BENEFICIARY- The person to whom the Death Proceeds are paid.
CASH VALUE- The sum of the Policy values in the Variable Account, Fixed Account
and any associated value in the Policy Loan Account.
CASH SURRENDER VALUE- The Policy's Cash Value, less any Indebtedness under the
Policy, less any Surrender Charge.
CODE- The Internal Revenue Code of 1986, as amended.
COMPANY- Nationwide Life and Annuity Insurance Company.
DEATH PROCEEDS- Amount of money payable to the Beneficiary if the Insured dies
while the Policy is in force.
FIXED ACCOUNT- An investment option which is funded by the General Account of
the Company.
GENERAL ACCOUNT- All assets of the Company other than those of the Variable
Account or in other separate accounts that have been or may be established by
the Company.
GUIDELINE LEVEL PREMIUM- The amount of level annual premium calculated in
accordance with the provisions of the Code. It represents the level annual
premiums required to mature the Policy under guaranteed mortality and expense
charges, and an interest rate of 4%.
GUIDELINE SINGLE PREMIUM- The amount of single premium calculated in accordance
with the provisions of the Code. It represents the single premium required to
mature the Policy under guaranteed mortality and expense charges, and an
interest rate of 6%.
HOME OFFICE- The main office of the Company located in Columbus, Ohio.
INDEBTEDNESS- Amounts owed the Company as a result of Policy loans including
both principal and accrued interest.
INITIAL PREMIUM- The Initial Premium is the premium required for coverage to
become effective on the Policy Date. It is shown on the Policy Data Page.
INSURED- The person whose life is covered by the Policy, and who is named on the
Policy Data Page.
MATURITY DATE- The Policy Anniversary on or following the Insured's 95th
birthday.
MINIMUM PREMIUM- The Minimum Premium is shown on the Policy Data Page. It is
used to measure the total amount that must be paid during the first five Policy
Years to continue the Policy in force.
MONTHLY ANNIVERSARY DAY- The same day as the Policy Date for each succeeding
month.
MUTUAL FUNDS- The underlying Mutual Funds which correspond to the sub-accounts
of the Variable Account.
NET ASSET VALUE- The worth of one share at the end of a market day or at the
close of The New York Stock Exchange. Net Asset Value is computed by adding the
value of all portfolio holdings plus other assets, deducting liabilities and
then dividing the result by the number of shares outstanding.
NET PREMIUMS- Net Premiums are equal to the actual premiums minus the percent of
premium charge. The percent of premium charges are shown on the Policy Data
Page.
POLICY ANNIVERSARY- The same day and month as the Policy Date for succeeding
years.
POLICY CHARGES- All deductions made from the value of the Variable Account, or
the Policy Cash Value.
POLICY DATE- The date the provisions of the Policy take effect, as shown on the
Policy Owner's Policy Data Page.
POLICY LOAN ACCOUNT- The Portion of the Cash Value which results from Policy
Loans.
POLICY OWNER- The person designated in the Policy application as the Owner.
POLICY YEAR- Each year commencing with the Policy Date and each Policy
Anniversary thereafter.
SCHEDULED PREMIUM- The Scheduled Premium is shown on the Policy Data Page. It is
used to calculate the Initial Specified Amount.
2
<PAGE> 6
SPECIFIED AMOUNT- A dollar amount used to determine the death benefit under a
Policy. It is shown on the Policy Data Page.
SURRENDER CHARGE- An amount deducted from the Cash Value if the Policy is
surrendered.
UNSCHEDULED PREMIUM- Additional premium payments which may be allowed under
certain conditions.
VALUATION DATE- Each day the New York Stock Exchange and the Company's Home
Office are open for business or any other day during which there is a sufficient
degree of trading such that the current Net Asset Value of the Accumulation
Units might be materially affected.
VALUATION PERIOD- A period commencing with the close of business on the New York
Stock Exchange and ending at the close of business for the next succeeding
Valuation Date.
VARIABLE ACCOUNT- A separate investment account of Nationwide Life and Annuity
Insurance Company.
3
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<S> <C>
GLOSSARY OF TERMS ...................................................................... 2
SUMMARY OF THE POLICIES ................................................................ 6
Variable Life Insurance .......................................................... 6
The Variable Account and its Sub-Accounts ........................................ 6
The Fixed Account ................................................................ 6
Deductions and Charges ........................................................... 6
Underlying Mutual Fund Annual Expenses ........................................... 7
Premiums ......................................................................... 8
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY .......................................... 8
THE VARIABLE ACCOUNT ................................................................... 8
Investments of the Variable Account .............................................. 9
Nationwide Separate Account Trust ................................................ 9
Neuberger & Berman Advisers Management Trust ..................................... 10
TCI Portfolios, Inc , a member of the Twentieth Century Family of Mutual Funds ... 10
Fidelity's Variable Insurance Products Fund ...................................... 10
Reinvestment ..................................................................... 11
Transfers ........................................................................ 11
Dollar Cost Averaging ............................................................ 11
Substitution of Securities ....................................................... 12
Voting Rights .................................................................... 12
INFORMATION ABOUT THE POLICIES ......................................................... 12
Underwriting and Issuance ........................................................ 12
-Minimum Requirements for Issuance of a Policy ................................... 12
-Premium Payments ................................................................ 13
Allocation of Cash Value ......................................................... 13
Short-Term Right to Cancel the Policy ............................................ 13
POLICY CHARGES ......................................................................... 13
Deductions from Premiums ......................................................... 13
Surrender Charges ................................................................ 14
-Reductions to Surrender Charges ................................................. 14
Deductions from Cash Value ....................................................... 14
-Monthly Cost of Insurance ....................................................... 15
-Monthly Administrative Charge ................................................... 15
Deductions from the Sub-Accounts ................................................. 15
HOW THE CASH VALUE VARIES .............................................................. 16
How the Investment Experience is Determined ...................................... 16
Net Investment Factor ............................................................ 16
Valuation of Assets .............................................................. 16
Determining the Contract Value ................................................... 16
Valuation Periods and Valuation Dates ............................................ 17
SURRENDERING THE POLICY FOR CASH ....................................................... 17
Maturity Proceeds ................................................................ 17
Income Tax Withholding ........................................................... 17
POLICY LOANS ........................................................................... 18
Taking a Policy Loan ............................................................. 18
Effect on Investment Performance ................................................. 18
Interest ......................................................................... 18
Effect on Death Benefit and Cash Value ........................................... 18
Repayment ........................................................................ 18
HOW THE DEATH BENEFIT VARIES ........................................................... 19
Calculation of the Death Benefit ................................................. 19
-Proceeds Payable on Death ....................................................... 20
RIGHT TO EXCHANGE FOR A FIXED BENEFIT POLICY ........................................... 20
CHANGES OF INVESTMENT POLICY ........................................................... 20
GRACE PERIOD ........................................................................... 20
-First Five Policy Years ......................................................... 20
-Policy Years Six and After ...................................................... 21
-All Policy Years ................................................................ 21
REINSTATEMENT .......................................................................... 21
</TABLE>
4
<PAGE> 8
<TABLE>
<S> <C>
THE FIXED ACCOUNT OPTION ............................................................... 21
CHANGES IN EXISTING INSURANCE COVERAGE ................................................. 22
Specified Amount Increases ....................................................... 22
Specified Amount Decreases ....................................................... 22
Changes in the Death Benefit Option .............................................. 22
OTHER POLICY PROVISIONS ................................................................ 22
Policy Owner ..................................................................... 22
Beneficiary ...................................................................... 23
Assignment ....................................................................... 23
Incontestability ................................................................. 23
Error in Age or Sex .............................................................. 23
Suicide .......................................................................... 23
Nonparticipating Policies ........................................................ 23
LEGAL CONSIDERATIONS ................................................................... 23
DISTRIBUTION OF THE POLICIES ........................................................... 24
CUSTODIAN OF ASSETS .................................................................... 24
TAX MATTERS ............................................................................ 24
Policy Proceeds .................................................................. 24
Taxation of the Company .......................................................... 25
Other Considerations ............................................................. 25
THE COMPANY ............................................................................ 25
COMPANY MANAGEMENT ..................................................................... 26
Directors of the Company ......................................................... 26
Executive Officers of the Company ................................................ 27
OTHER CONTRACTS ISSUED BY THE COMPANY .................................................. 27
STATE REGULATION ....................................................................... 27
REPORTS TO POLICY OWNERS ............................................................... 28
ADVERTISING ............................................................................ 28
LEGAL PROCEEDINGS ...................................................................... 28
EXPERTS ................................................................................ 28
REGISTRATION STATEMENT ................................................................. 28
LEGAL OPINIONS ......................................................................... 28
APPENDIX 1 ............................................................................. 29
APPENDIX 2 ............................................................................. 30
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS.
THE PRIMARY PURPOSE OF THE POLICIES IS TO PROVIDE LIFE INSURANCE PROTECTION FOR
THE BENEFICIARY NAMED IN THE POLICY. NO CLAIM IS MADE THAT THE POLICIES ARE IN
ANY WAY SIMILAR OR COMPARABLE TO A SYSTEMATIC INVESTMENT PLAN OF A MUTUAL FUND.
5
<PAGE> 9
SUMMARY OF THE POLICIES
VARIABLE LIFE INSURANCE
The variable life insurance Policies offered by Nationwide Life and Annuity
Insurance Company (the "Company") are similar in many ways to fixed-benefit
whole life insurance. As with fixed-benefit whole life insurance, the Owner of
the Policy pays a premium for life insurance coverage on the person insured.
Also like fixed-benefit whole life insurance, the Policies may provide for a
Cash Surrender Value which is payable if the Policy is terminated during the
Insured's lifetime. As with fixed-benefit whole life insurance, the Cash
Surrender Value during the early Policy years may be substantially lower than
the premiums paid.
However, the Policies differ from fixed-benefit whole life insurance in several
respects. Unlike fixed-benefit whole life insurance, the death benefit and Cash
Value of the Policies may increase or decrease to reflect the investment
performance of the Variable Account sub-accounts or the Fixed Account to which
Cash Values are allocated (see "How the Death Benefit Varies"). There is no
guaranteed Cash Surrender Value (see "How the Cash Value Varies"). If the Cash
Surrender Value is insufficient to pay the Policy Charges, the Policy will lapse
without value. Also, during the first five Policy Years, the total premium
payments less any existing Policy Indebtedness must be greater than or equal to
the minimum premium requirement in order for the Policy to continue in force.
The Policies are designed to generally permit the payment of the Guideline
Single Premium in five annual installments for death benefit Option 1 and five
annual Guideline Level Premiums under death benefit Option 2.
The Policies are designed to avoid classification as modified endowment
contracts under Section 7702A of the Code which provides for taxation of
surrenders, partial surrenders, loans, collateral assignments and other
pre-death distributions in the same way as annuities are taxed. Under certain
conditions, a Policy may become a modified endowment contract as a result of a
material change or a reduction in benefits as defined by the Code. Excess
premiums paid may also cause the Policy to become a modified endowment contract.
The Company will monitor premiums paid and other policy transactions and will
notify the Policy Owner when the Policy's non-modified endowment contract status
is in jeopardy (see "Tax Matters").
THE VARIABLE ACCOUNT AND ITS SUB-ACCOUNTS
The Company places the Policy's Net Premiums in the Variable Account or the
Fixed Account at the time the Policy is issued. The Policy Owner selects the
sub-accounts of the Variable Account or the Fixed Account into which the Cash
Value will be allocated (see "Allocation of Cash Value"). At present, there are
three sub-accounts. When the Policy is issued, the Net Premiums will be
allocated to the Nationwide Separate Account Trust Money Market Fund sub-account
(for any Net Premiums allocated to a Sub-Account on the application) or to the
Fixed Account until the expiration of the period in which the Policy Owner may
exercise his or her short-term right to cancel the Policy (see "Short-Term Right
to Cancel Policy"). Assets of each sub-account are invested at Net Asset Value
in shares at a corresponding underlying Mutual Fund option. Assets of each
sub-account are invested at Net Asset Value in shares of a corresponding
underlying Mutual Fund option. For a description of the underlying Mutual Fund
options and their investment objectives, see the "Investments of the Variable
Account" section.
THE FIXED ACCOUNT
The Fixed Account is funded by the assets of the Company's General Account. Cash
Values allocated to the Fixed Account are credited with interest daily at a rate
declared by the Company. The interest rate declared is at the Company's sole
discretion, but may never be less than an effective annual rate of 4%.
DEDUCTIONS AND CHARGES
The Company deducts certain charges from the assets of the Variable Account and
the Cash Value of the Policy. These charges are made for administrative and
sales expenses, state premium taxes, providing life insurance protection and
assuming the mortality and expense risks. For a discussion of any charges
imposed by the underlying Mutual Fund options, see the prospectuses of the
respective underlying Mutual Funds.
The Company deducts a sales load from each premium payment received not to
exceed 3.5% of each premium payment. (The Company may reduce this sales loading
at its sole discretion.) The total sales load actually deducted from any Policy
will be equal to the sum of the 3.5% front-end sales load plus any sales
surrender charge that may be deducted from Policies that are surrendered.
The Company also deducts a charge for state premium taxes equal to 2.5% of all
premium payments.
The Company also deducts the following charges from the Policy's Cash Value on
the Policy Date and each subsequent Monthly Anniversary Day:
1. monthly cost of insurance; plus
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<PAGE> 10
2. monthly cost of any additional benefits provided by riders to the
Policy; plus
3. a current administrative expense charge of $5. This charge may be
increased at the sole discretion of the Company but may not exceed
$7.50.
The Company also deducts on a daily basis from the assets of the Variable
Account a charge to provide for mortality and expense risks. This charge is
equal on an annual basis to 0.80% of the Variable Account assets.
For Policies which are surrendered during the first nine Policy Years, the
Company deducts a Surrender Charge. This Surrender Charge is comprised of an
Underwriting Surrender Charge and a Sales Surrender Charge. The initial
Surrender Charge varies by issue age, sex and underwriting classification and is
calculated based on the initial Specified Amount. The following table
illustrates the initial Surrender Charge per $1,000 of initial Specified Amount
for Policies which are issued on a Standard basis (see Appendix 1 for specific
examples). Special guaranteed maximum Surrender Charges apply in Pennsylvania
(see Appendix 1).
<TABLE>
<CAPTION>
Issue Male Female Male Female
Age Non-Tobacco Non-Tobacco Standard Standard
<S> <C> <C> <C> <C>
25 $ 5.878 $ 5.537 $ 6.680 $ 5.945
35 7.260 6.712 8.559 7.373
45 11.159 10.160 13.244 11.151
55 15.275 13.375 18.373 14.686
65 23.821 20.553 27.943 22.165
</TABLE>
Underlying Mutual Fund shares are purchased at Net Asset Value, which reflects
the deduction of investment management fees and certain other expenses. The
management fees are charged by each underlying Mutual Fund's investment adviser
for managing the underlying Mutual Fund and selecting its portfolio of
securities. Other underlying Mutual Fund expenses can include such items as
interest expense on loans and contracts with transfer agents, custodians, and
other companies that provide services to the underlying Mutual Fund. The
management fees and other expenses for each underlying Mutual Fund, for its most
recently completed fiscal year, expressed as a percentage of the underlying
Mutual Fund's average assets, are as follows:
UNDERLYING MUTUAL FUND ANNUAL EXPENSES
<TABLE>
<S> <C>
NSAT Capital Appreciation Fund
Management Fees....................................... 0.50%
Other Expenses........................................ 0.04%
Total underlying Mutual Fund Expenses........... 0.54%
NSAT Money Market Fund
Management Fees....................................... 0.50%
Other Expenses........................................ 0.02%
Total underlying Mutual Fund Expenses........... 0.52%
NSAT Government Bond Fund
Management Fees....................................... 0.50%
Other Expenses........................................ 0.01%
Total underlying Mutual Fund Expenses........... 0.51%
NSAT Total Return Fund
Management Fees....................................... 0.50%
Other Expenses........................................ 0.01%
Total underlying Mutual Fund Expenses........... 0.51%
N & B Advisers Management Trust-Balanced Portfolio
Management Fees....................................... 0.85%
Other Expenses........................................ 0.19%
Total underlying Mutual Fund Expenses........... 1.04%
TCI Portfolios-TCI Advantage
Management Fees....................................... 1.00%
Other Expenses........................................ 0.00%
Total underlying Mutual Fund Expenses........... 1.00%
Fidelity-Growth Portfolio
Management Fees....................................... 0.61%
Other Expenses........................................ 0.09%
Total underlying Mutual Fund Expenses........... 0.70%
</TABLE>
The Mutual Fund expenses shown above are assessed at the underlying Mutual Fund
level and are not direct charges against the Variable Account or reductions in
Cash Value. These underlying Mutual Fund expenses are taken into consideration
in computing each underlying Mutual Fund's Net Asset Value, which is the share
7
<PAGE> 11
price used to calculate the Variable Account's unit value. The management fees
and other expenses some of which may be subject to fee waivers or expense
reimbursement are more fully described in the prospectuses for each individual
underlying Mutual Fund option. The information relating to the underlying Mutual
Fund expenses was provided by the underlying Mutual Fund and was not
independently verified by the Company.
PREMIUMS
The minimum Initial Premium for which a Policy may be issued is $2,000. A Policy
may be issued to an Insured up to age 75.
For a limited time, the Policy Owner has a right to cancel the Policy and
receive a full refund of premiums paid (see "Short Term Right to Cancel
Policy").
The Initial Premium is due on the Policy Date. It will be credited on the
initial investment date. Any due and unpaid monthly deductions will be
subtracted from the Cash Value at this time. Insurance will not be effective
until the Initial Premium is paid. The Initial Premium is shown on the Policy
data page.
Premiums, other than the Initial Premium may be made at any time the Policy is
in force subject to the limits described below. During the first five Policy
Years, the total premium payments less any Policy Indebtedness must be greater
than or equal to the Minimum Premium in order for the Policy to continue in
force. The Minimum Premium is equal to the monthly Minimum Premium multiplied
by the number of completed policy months. The monthly Minimum Premium is shown
on the Policy data page.
We will send Scheduled Premium payment reminder notices to you. We will send
them according to the premium mode shown on the Policy data page.
You may pay the Initial Premium to us at our Home Office or to an authorized
agent. All premiums after the first are payable at our Home Office. Premium
receipts will be furnished upon request.
Each premium must be at least equal to the monthly Minimum Premium. The Company
reserves the right to require satisfactory evidence of insurability before
accepting any additional premium payment which results in any increase in the
net amount at risk. Also, we will refund any portion of any premium payment
which is determined to be in excess of the premium limit established by law to
qualify your Policy as a contract for life insurance. We may also require that
any existing Policy Indebtedness is repaid prior to accepting any additional
premium payments.
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
The Nationwide Life and Annuity Company (the "Company"), formerly Financial
Horizons Life Insurance Company is a stock life insurance company organized
under the laws of the State of Ohio and was established in February, 1981.
The Company offers a multiple line of products including annuities. As of
January 1, 1996, it is admitted to do business in 43 states and the District of
Columbia (for additional information, see "The Company").
THE VARIABLE ACCOUNT
Nationwide VL Separate Account-A (formerly Financial Horizons VL Separate
Account-1) (the Variable Account) was established by the Company on August 8,
1984. The Company has caused the Variable Account to be registered with the
Securities and Exchange Commission as a unit investment trust pursuant to the
provisions of the Investment Company Act of 1940. Nationwide Life and Annuity
Company, One Nationwide Plaza, Columbus, Ohio 43216 serves as Trustee for the
trust. Nationwide Financial Services, Inc. One Nationwide Plaza, Columbus, Ohio
serves as principal underwriter for the trust. Such registration does not
involve supervision of the management of the Variable Account or the Company by
the Securities and Exchange Commission.
The Variable Account is a separate investment account of the Company and as
such, is not chargeable with the liabilities arising out of any other business
the Company may conduct. The Company does not guarantee the investment
performance of the Variable Account. The death benefit and Cash Value under the
Policy may vary with the investment performance of the investments in the
Variable Account (see "How the Death Benefit Varies" and "How the Cash Value
Varies").
Net Premium payments and Cash Value are allocated within the Variable Account
among one or more sub-accounts (see "Tax Matters"). The assets of each
sub-account are used to purchase shares of the underlying Mutual Fund options
designated by the Policy Owner. Thus, the investment performance of a Policy
depends upon the investment performance of the underlying Mutual Funds
designated by the Policy Owner.
8
<PAGE> 12
INVESTMENTS OF THE VARIABLE ACCOUNT
At the time of application, the Policy Owner elects to have the Net Premiums
allocated among one or more of the Variable Account sub-accounts and the Fixed
Account (see "Allocation of Cash Value"). During the period in which the Policy
Owner may exercise his or her short-term right to cancel the Policy, all Net
Premiums not allocated to the Fixed Account are placed in the Nationwide
Separate Account Trust Money Market Fund sub-account. At the end of this period,
the Cash Value in that sub-account will be transferred to the Variable Account
sub-accounts based on the underlying Mutual Fund allocation factors. Any
subsequent Net Premiums received after this period will be allocated based on
the underlying Mutual Fund allocation factors.
No less than 5% of Net Premiums may be allocated to any one sub-account or the
Fixed Account. The Policy Owner may change the allocation of Net Premiums or may
transfer Cash Value from one sub-account to another, subject to such terms and
conditions as may be imposed by each underlying Mutual Fund option and as set
forth in this prospectus (see "Transfers", "Allocation of Cash Value" and
"Short-Term Right to Cancel the Policy"). Additional Premium Payments, upon
acceptance, will be allocated to the Nationwide Separate Account Trust Money
Market Fund unless the Policy Owner specifies otherwise (see "Premium
Payments").
These underlying Mutual Fund options are available only to serve as the
underlying investment for variable annuity and variable life contracts issued
through separate accounts of the life insurance companies which may or may not
be affiliated, also known as "mixed and shared funding." There are certain risks
associated with mixed and shared funding, which is disclosed in the underlying
Mutual Funds' prospectuses. A full description of the underlying Mutual Fund
options, their investment policies and restrictions, risks and charges are
contained in the prospectuses of the respective underlying Mutual Fund options.
Each of the underlying Mutual Fund options is a registered management investment
company which received investment advice from a registered investment adviser:
1) The Nationwide Separate Account Trust, managed by Nationwide
Financial Services, Inc.;
2) The Neuberger & Berman Advisers Management Trust, managed by
Neuberger & Berman management Incorporated;
3) TCI Portfolios, Inc., managed by Investors Research Corporation, an
affiliated of Twentieth Century Companies; and
4) Fidelity Variable Insurance Products Fund, managed by Fidelity
Management & Research Company.
A summary of investment objectives is contained in the description of each
underlying Mutual Fund below. More detailed information may be found in the
current prospectus for each underlying Mutual Fund option. A prospectus for the
underlying Mutual Fund option(s) being considered must accompany this prospectus
and should be read in conjunction herewith.
NATIONWIDE SEPARATE ACCOUNT TRUST
Nationwide Separate Account Trust (the "Trust") is a diversified open-end
management investment company organized under the laws of Massachusetts, by a
Declaration of Trust, dated June 30, 1981, as subsequently amended. The Trust
offers shares in the four separate Funds listed below, each with its own
investment objectives. Currently, shares of the Trust will be sold only to life
insurance company separate accounts to fund the benefits under variable
insurance or annuity policies issued by life insurance companies. The assets of
the Trust are managed by Nationwide Financial Services, Inc., of One Nationwide
Plaza, Columbus, Ohio 43216, a wholly-owned subsidiary of Nationwide Life
Insurance Company (the sole stockholder of the Company).
- - CAPITAL APPRECIATION FUND
Investment Objective: The Fund is designed for investors who are
interested in long-term growth. The Fund seeks to meet its objective
primarily through a diversified portfolio of the common stock of
companies which the investment manager determines have a
better-than-average potential for sustained capital growth over the
long term.
- - MONEY MARKET FUND
Investment Objective: To seek as high a level of current income as is
considered consistent with the preservation of capital and liquidity by
investing primarily in money market instruments.
- - GOVERNMENT BOND FUND
Investment Objective: To provide as high a level of income as is
consistent with capital preservation through investing primarily in
bonds and securities issued or backed by the U.S. Government, its
agencies or instrumentalities.
9
<PAGE> 13
- - TOTAL RETURN FUND
Investment Objective: To obtain a reasonable long-term total return
(i.e., earnings growth plus potential dividend yield) on invested
capital from a flexible combination of current return and capital gains
through investments in common stocks, convertible issues, money market
instruments and bonds with a primary emphasis on common stocks.
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
Neuberger & Berman Advisers Management Trust is an open-end diversified
management investment company established as a Massachusetts business trust on
December 14, 1983. Shares of the Trust are offered in connection with certain
variable annuity contracts and variable life insurance policies issued through
life insurance company separate accounts and are also offered directly to
qualified pension and retirement plans outside of the separate account context.
The investment adviser is Neuberger & Berman Management Incorporated.
- - BALANCED PORTFOLIO
Investment Objective: To provide long-term capital growth and
reasonable current income without undue risk to principal. The Balanced
Portfolio will seek to achieve its objective through investment of a
portion of its assets in common stocks and a portion of its assets in
debt securities. The Investment Adviser anticipates that the Balanced
Portfolio's investments will normally be managed so that approximately
60% of the Portfolio's total assets will be invested in common stocks
and the remaining assets will be invested in debt securities. However,
depending on the Investment Adviser's views regarding current market
trends, the common stock portion of the Portfolio's investments may be
adjusted downward to as low as 50% or upward to as high as 70%. At
least 25% of the Portfolio's assets will be invested in fixed income
senior securities.
TCI PORTFOLIOS, INC., A MEMBER OF THE TWENTIETH CENTURY FAMILY OF MUTUAL FUNDS
The Company was organized as a Maryland corporation on June 4, 1987. It is a
diversified, open-end management investment company, designed only to provide
investment vehicles for variable annuity and variable life insurance products of
insurance companies. A member of the Twentieth Century Family of Mutual Funds,
TCI Portfolios is managed by Investors Research Corporation.
- - TCI ADVANTAGE
Investment Objective: Current income and capital growth. The fund will
seek to achieve its objective by investing in three types of
securities. The fund's investment manager intends to invest
approximately (i) 20% of the fund's assets in securities of the United
States government and its agencies and instrumentalities and repurchase
agreements collateralized by such securities with a weighted average
maturity of six months or less, i.e., cash or cash equivalents; (ii)
40% of the fund's assets in fixed income securities of the United
States government and its agencies and instrumentalities with a
weighted average maturity of three to ten years; and (iii) 40% of the
fund's assets in equity securities that are considered by management to
have better-than-average prospects for appreciation. Assets will be
purchased or sold, as the case may be, as is necessary in response to
changes in market value to maintain the asset mix of the Fund's
portfolio at approximately 60% cash, cash equivalents and fixed income
securities and 40% equity securities. There can be no assurance that
the Fund will achieve its investment objective.
(Although the Statement of Additional Information concerning TCI
Portfolios, Inc. refers to redemptions of securities in kind under
certain conditions, all surrendering or redeeming Policy Owners will
receive cash from the Company.)
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND
The Fund is an open-end, diversified, management investment company organized as
a Massachusetts business trust on November 13, 1981. The Fund's shares are
purchased by insurance companies to fund benefits under variable insurance and
annuity policies. Fidelity Management & Research Company ("FMR") is the Fund's
manager.
- GROWTH PORTFOLIO
Investment Objective: Seeks to achieve 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
10
<PAGE> 14
investment in the Portfolio may involve greater risk than is inherent
in other mutual funds. It is also important to point out that the
Portfolio makes most sense for you if you can afford to ride out
changes in the stock market, because it invests primarily in common
stocks. FMR also can 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.
REINVESTMENT
The underlying Mutual Fund options described above have as a policy the
distribution of dividends in the form of additional shares (or fractions
thereof) of the underlying Mutual Funds. The distribution of additional shares
will not affect the number of Accumulation Units attributable to a particular
Policy (see "Allocation of Cash Value").
TRANSFERS
The Owner may request a transfer of up to 100% of the Cash Value from the
Variable Account to the Fixed Account. The Policy Owner's Cash Value in each
sub-account will be determined as of the date the transfer request is received
in the Home Office in good order. The Company reserves the right to restrict
transfers to the Fixed Account to 25% of the Cash Value.
The Policy Owner may annually transfer a portion of the value of the Fixed
Account to the Variable Account and a portion of the Variable Account to the
Fixed Account, without penalty or adjustment. The Company reserves the right to
limit the amount of Cash Value transferred out of the Fixed Account each Policy
Year. Transfers from the Fixed Account must be made within 30 days after the
termination date of the interest rate guarantee period.
Transfers may be made once per Valuation Date and may be made either in writing
or, in states allowing such transfers, by telephone. The Company will employ
reasonable procedures to confirm that instructions communicated by telephone are
genuine. Such procedures may include any or all of the following, or such other
procedures as the Company may, from time to time, deem reasonable: requesting
identifying information, such as name, contract number, Social Security number,
and/or personal identification number; tape recording all telephone
transactions, and providing written confirmation thereof to both the Policy
owner and any agent of record at the last address of record. Although failure to
follow reasonable procedures may result in the Company's liability for any
losses due to unauthorized or fraudulent telephone transfers, the Company will
not be liable for following instructions communicated by telephone which it
reasonably believes to be genuine. The Company may withdraw the telephone
exchange privilege upon 30 days written notice to Policy Owners.
Policy Owners who have entered into a Dollar Cost Averaging Agreement with the
Company (see "Dollar Cost Averaging") may transfer from the Fixed Account to the
Variable Account under the terms of that agreement.
DOLLAR COST AVERAGING
The Contract Owner may direct the Company to automatically transfer from the
Money Market sub-account or the Fixed Account to any other sub-account within
the Variable Account on a monthly basis. This service is intended to allow the
Contract Owner to utilize Dollar Cost Averaging, a long-term investment program
which provides for regular, level investments over time. The Company makes no
guarantees that Dollar Cost Averaging will result in a profit or protect against
loss in a declining market. To qualify for Dollar Cost Averaging there must be a
minimum total Contract Value, less policy indebtedness, of $15,000. Transfers
for purposes of Dollar Cost Averaging can only be made from the Money Market
sub-account or the Fixed Account. The minimum monthly Dollar Cost Averaging
transfer is $100. In addition, Dollar Cost Averaging monthly transfers from the
Fixed Account must be equal to or less than 1/30th of the Fixed Account value
when the Dollar Cost Averaging program is requested. Transfers out of the Fixed
Account, other than for Dollar Cost Averaging, may be subject to certain
additional restrictions (see "Transfers"). A written election of this service,
on a form provided by the Company, must be completed by the Contract Owner in
order to begin transfers. Once elected, transfers from the Money Market
sub-account or the Fixed Account will be processed monthly until either the
value in the Money Market sub-account or the Fixed Account is completely
depleted or the Contract Owner instructs the Company in writing to cancel the
monthly transfers.
The Company reserves the right to discontinue offering Dollar Cost Averaging
upon 30 days' written notice to Contract Owners however, such discontinuation
will not affect Dollar Cost Averaging programs already commenced. The Company
also reserves the right to assess a processing fee for this service.
11
<PAGE> 15
SUBSTITUTION OF SECURITIES
If shares of the above underlying Mutual Funds should no longer be available for
investment by the Variable Account or, if in the judgment of the Company's
management further investment in such underlying Mutual Fund options should
become inappropriate the Company may eliminate Sub-Accounts, combine two or more
Sub-Accounts, or substitute shares of one or more underlying Mutual Funds for
other underlying Mutual Fund shares already purchased or to be purchased in the
future by Net Premium payments under the Policy. No substitution of securities
in the Variable Account may take place without prior approval of the Securities
and Exchange Commission, and under such requirements as it and any state
insurance department may impose.
VOTING RIGHTS
Voting rights under the Policies apply only with respect to Cash Value allocated
to the sub-accounts of the Variable Account.
In accordance with its view of present applicable law, the Company will vote the
shares of the underlying Mutual Funds held in the Variable Account at regular
and special meetings of shareholders of the underlying Mutual Funds. These
shares will be voted in accordance with instructions received from Policy Owners
who have an interest in the Variable Account. If the Investment Company Act of
1940 or any regulation thereunder should be amended or if the present
interpretation thereof should change, and as result the Company determines that
is permitted to vote the shares of the underlying Mutual Funds in its own right,
it may elect to do so.
The Policy Owner shall have the voting interest under a Policy. The number of
shares in each sub-account for which the Policy Owner may give voting
instructions is determined by dividing any portion of the Policy's Cash Value
derived from participation in that underlying Mutual Fund by the Net Asset Value
of one share of that underlying Mutual Fund. The number of shares which a person
has a right to vote will be determined as of a date chosen by the Company, but
not more than 90 days prior to the meeting of the underlying Mutual Fund. Voting
instructions will be solicited by written communication at least 21 days prior
to such meeting.
The Company will vote underlying Mutual Fund shares in accordance with
instructions received from the Policy Owners. Underlying Mutual Fund shares held
by the Company or by the Variable Account as to which no timely instructions are
received will be voted by the Company in the same proportion as the voting
instructions which are received.
Each person having a voting interest in the Variable Account will receive
periodic reports relating to investments of the Variable Account, the underlying
Mutual Funds' proxy material and a form with which to give such voting
instructions.
Notwithstanding contrary Policy Owner voting instructions, the Company may vote
underlying Mutual Fund shares in any manner necessary to enable the underlying
Mutual Fund to: (1) make or refrain from making any change in the investments or
investment policies for any of the underlying Mutual Funds, if required by an
insurance regulatory authority; (2) refrain from making any change in the
investment policies or any investment advisor or principal underwriter of any
portfolio which may be initiated by Policy Owners or the underlying Mutual
Fund's Board of Directors, provided the Company's disapproval of the change is
reasonable and, in the case of a change in the investment policies or investment
advisor, is based on a good faith determination that such change would be
contrary to state law or otherwise inappropriate in light of the portfolio's
objective and purposes; or (3) enter into or refrain from entering into any
advisory agreement or underwriting contract, if required by any insurance
regulatory authority.
INFORMATION ABOUT THE POLICIES
UNDERWRITING AND ISSUANCE
- -Minimum Requirements for Issuance of a Policy
The Policies are designed to generally permit the payment of the Guideline
Single Premium in five annual installments under death benefit Option 1 and five
annual Guideline Level Premiums under death benefit Option 2. At issue, the
Policy Owner selects a Scheduled Premium level. This Scheduled Premium is used
to determine the initial Specified Amount. The minimum Scheduled Premium is
$2,000. Policies may be issued to Insureds with issue ages 75 or younger. Before
issuing any Policy, the Company requires satisfactory evidence of insurability
which may include a medical examination.
12
<PAGE> 16
- -Premium Payments
The Initial Premium for a Policy is payable in full at the Company's Home
Office. The effective date of insurance coverage is dependent upon completion of
all underwriting requirements, payment of the Initial Premium, and delivery of
the Policy while the Insured is still living.
Premiums, other than the Initial Premium, may be made at any time while the
Policy is in force subject to the limits described below. During the first 5
Policy Years, the total premium payments less any Policy Indebtedness must be
greater than or equal to the minimum premium requirement in order for the Policy
to continue in force. The Minimum Premium requirement is equal to the monthly
Minimum Premium multiplied by the number of completed policy months. The monthly
Minimum Premium is shown on the Policy data page.
Each premium payment must be at least equal to the monthly Minimum Premium.
Additional premium payments may be made at any time while the Policy is in
force. However, the Company reserves the right to require satisfactory evidence
of insurability before accepting any additional premium payment which results in
an increase in the net amount at risk. Also, the Company will refund any portion
of any premium payment which is determined to be in excess of the premium limit
established by law to qualify the Policy as a contract for life insurance. The
Company may also require that any existing Policy Indebtedness is repaid prior
to accepting any additional premium payments. Additional premium payments or
other changes to the contract, may jeopardize the Policy's non-modified
endowment contract status. The Company will monitor premiums paid and other
policy transactions and will notify the Policy Owner when non-modified endowment
contract status is in jeopardy by such additional premiums (see "Tax Matters").
ALLOCATION OF CASH VALUE
At the time a Policy is issued, its Cash Value will be based on the Nationwide
Separate Account Trust Money Market Fund sub-account value or the Fixed Account
as if the Policy had been issued and the Initial Net Premium invested on the
date such premium was received in good order by the Company. When the Policy is
issued, the Net Premiums will be allocated to the Nationwide Separate Account
Trust Money Market Fund sub-account (for any Net Premiums Allocated to a
Sub-Account on the application) or the Fixed Account until the expiration of the
period in which the Policy Owner may exercise his or her short-term right to
cancel the Policy. Net Premiums not designated for the Fixed Account will be
placed in the Nationwide Separate Account Trust Money Market Sub-Account. At the
expiration of the period in which the Policy Owner may exercise his or her short
term right to cancel the Policy, shares of the underlying Mutual Fund options
specified by the Policy Owner are purchased at Net Asset Value for the
respective sub-account(s). The Policy Owner may change the allocation of Net
Premiums or may transfer Cash Value from one sub-account to another, subject to
such terms and conditions as may be imposed by each underlying Mutual Fund
option and as set forth in the prospectus. Net Premiums allocated to the Fixed
Account at the time of application may not be transferred prior to the first
Policy Anniversary (see "Transfers" and "Investments of the Variable Account").
The designation of investment allocations will be made by the prospective Policy
Owner at the time of application for a Policy. The Policy Owner may change the
way in which future Net Premiums are allocated by giving written notice to the
Company. All percentage allocations must be in whole numbers, and must be at
least 5%. The sum of allocations must equal 100%.
SHORT-TERM RIGHT TO CANCEL POLICY
A Policy may be returned for cancellation and a full refund of premium within 10
days after the Policy is received, within 45 days after the application for
insurance is signed, or within 10 days after the Company mails or delivers a
Notice of Right of Withdrawal, whichever is latest. The Policy can be mailed or
delivered to the registered representative who sold it, or to the Company.
Immediately after such mailing or delivery, the Policy will be deemed void from
the beginning. The Company will refund the total premiums paid within seven days
after it receives the Policy.
POLICY CHARGES
DEDUCTIONS FROM PREMIUMS
The Company deducts a sales load from each premium payment received not to
exceed 3.5% of each premium payment (the Company may reduce this sales loading
at its sole discretion). The total sales load actually deducted from any Policy
will be equal to the sum of the 3.5% front-end sales load plus any sales
surrender charge that may be deducted from Policies that are surrendered.
The Company also pays any state premium taxes attributable to a particular
policy when incurred by the Company. The Company expects to pay an average state
premium tax rate of approximately 2.5% of premiums for all states, although such
tax rates generally can range from 0% to 4%. To reimburse the Company for the
payment of state premium taxes associated with the Policies, the Company deducts
a charge for state premium taxes equal to 2.5% of all premium payments received.
This charge may be more or less
13
<PAGE> 17
than the amount actually assessed by the state in which a particular Policy
Owner lives. The Company does not expect to make a profit from this charge.
SURRENDER CHARGES
The Company will deduct a Surrender Charge from the Policy's Cash Value for any
Policy surrendered during the first nine Policy Years. The initial Surrender
Charge varies by issue age, sex and underwriting classification and is
calculated based on the initial Specified Amount. The following table
illustrates the initial Surrender Charge per $1,000 of initial Specified Amount
for Policies which are issued on a standard basis (see Appendix 1 for specific
examples). Special guaranteed maximum Surrender Charges apply in Pennsylvania
(see Appendix 1).
<TABLE>
<CAPTION>
Issue Male Female Male Female
Age Non-Tobacco Non-Tobacco Standard Standard
<S> <C> <C> <C> <C>
25 $ 5.878 $ 5.537 $ 6.680 $ 5.945
35 7.260 6.712 8.559 7.373
45 11.159 10.160 13.244 11.151
55 15.275 13.375 18.373 14.686
65 23.821 20.553 27.943 22.165
</TABLE>
The Surrender Charge is comprised of two components: an underwriting surrender
charge and sales surrender charge. The underwriting surrender charge varies by
issue age in the following manner:
<TABLE>
<CAPTION>
Issue Charge per $1,000 of
Age Initial Specified Amount
<S> <C>
0-39 $3.50
40-59 $5.00
60-75 $6.50
</TABLE>
The underwriting surrender charge is designed to cover the administrative
expenses associated with underwriting and issuing the Policy, including the
costs of processing applications, conducting medical exams, determining
insurability and the Insured's underwriting class, and establishing policy
records. The Company does not expect to profit from the underwriting surrender
charges. The Surrender Charge may be insufficient to recover certain expenses
related to the sale of the Policies. Unrecovered expenses are borne by the
Company's general assets which may include profits, if any, from Mortality and
Expense Risk Charges (see "Deductions from the Sub-Accounts"). Additional
premiums and/or income earned on assets in the Variable Account or partial
surrenders have no effect on these charges. The remainder of the Surrender
Charge which is not attributable to the underwriting surrender charge component
represents the sales surrender charge component. The purpose of the sales
surrender charge component is to reimburse the Company for some of the expenses
incurred in the distribution of the Policies. The Company also deducts 3.5% of
each premium for sales load (see "Deductions from Premiums").
- -Reductions to Surrender Charges
The Surrender Charges are reduced in subsequent Policy Years in the following
manner:
<TABLE>
<CAPTION>
Surrender Charge Surrender Charge
Completed as a % of Initial Completed as a % of Initial
Policy Years Surrender Charges Policy Years Surrender Charges
<S> <C> <C> <C>
0 100% 5 85%
1 100% 6 80%
2 100% 7 75%
3 95% 8 50%
4 90% 9+ 0%
</TABLE>
Special guaranteed maximum Surrender Charges apply in Pennsylvania (see Appendix
1).
DEDUCTIONS FROM CASH VALUE
The Company also deducts the following charges from the Policy's Cash Value on
the Policy Date and each subsequent Monthly Anniversary Day:
1. monthly cost of insurance charges; plus
2. monthly cost of any additional benefits provided by Riders; plus
3. monthly administrative expense charge.
14
<PAGE> 18
These deductions will be charged proportionately to the Cash Value in each
Variable Account sub-account and the Fixed Account.
- -Monthly Cost of Insurance
The monthly cost of insurance charge for each policy month is determined by
multiplying the monthly cost of insurance rate by the net amount at risk. The
net amount at risk is the difference between the death benefit and the Policy's
Cash Value, each calculated at the beginning of the policy month.
If death benefit Option 1 is in effect and there have been increases in the
Specified Amount, then the Cash Value shall first be considered a part of the
initial Specified Amount. If the Cash Value exceeds the initial Specified
Amount, it shall then be considered a part of the additional increases in
Specified Amount resulting from the increases in the order of the increases.
Monthly cost of insurance rates will not exceed those guaranteed in the Policy.
Guaranteed cost of insurance rates for Policies issued on a simplified basis are
based on the 1980 Commissioners Extended Term Mortality Table, Age Last Birthday
(1980 CET). Guaranteed cost of insurance rates for Policies issued on a
preferred basis are based on the 1980 Commissioners Standard Ordinary Mortality
Table, Age Last Birthday (1980 CSO). Guaranteed cost of insurance rates for
Policies issued on a substandard basis are based on appropriate percentage
multiples of the 1980 CSO. These mortality tables are sex distinct. In addition,
separate mortality tables will be used for standard and non-tobacco. For
Policies issued in Texas, guaranteed cost of insurance rates for
Standard-Simplified issues ("Special Class-Simplified" in Texas) are based on
130% of the 1980 Commissioners Standard Ordinary Mortality Table, Age Last
Birthday (1980 CSO).
The rates for Policies issued on a simplified or preferred basis will not exceed
the rates in the appropriate table. The cost of insurance rates per $1,000 of
net amount at risk is less for Policies issued on a preferred basis as compared
to a simplified basis.
The rate class of an Insured may affect the cost of insurance rate. The Company
currently places Insureds into both standard rate classes and substandard
classes that involve a higher mortality risk. In an otherwise identical Policy,
and Insured in the standard rate class will have a lower cost of insurance than
an Insured in a rate class with higher mortality risks. The Company may also
issue certain policies on a "Simplified Issue" basis to certain categories of
individuals. Due to the underwriting criteria established for Policies issued on
a Simplified Issue basis, actual rates for healthy individuals will be higher
than the current cost of insurance rates being charged under otherwise identical
Policies that are issued on a Preferred basis.
- -Monthly Administrative Charge
The Company deducts a monthly Administrative Expense Charge to reimburse it for
certain expenses related to maintenance of the Policies, accounting and record
keeping and periodic reporting to Policy Owners. This charge is designed only to
reimburse the Company for certain actual administrative expenses. The Company
does not expect to recover from this charge any amount in excess of aggregate
maintenance expenses. Currently, this charge is $5 per month. The Company may at
its sole discretion increase this charge. However, the Company guarantees that
this charge will never exceed $7.50 per month.
DEDUCTIONS FROM THE SUB-ACCOUNTS
The Company assumes certain risks for guaranteeing the mortality and expense
charges. The mortality risk assumed under the Policies is that the Insured may
not live as long as expected. The expense risk assumed is that the actual
expenses incurred in issuing and administering the Policies may be greater than
expected. In addition, the Company assumes risks associated with the
non-recovery of policy issue, underwriting and other administrative expenses due
to Policies which lapse or are surrendered in the early Policy Years.
To compensate the Company for assuming these risks associated with the Policies,
the Company deducts a daily Mortality and Expense Risk Charge from the assets of
the sub-accounts of the Variable Account. This charge is equivalent to an annual
effective rate of 0.80% of the daily Net Asset Value of the Variable Account. To
the extent that future levels of mortality and expenses are less than or equal
to those expected, the Company may realize a profit from this charge. The
Surrender Charge may be insufficient to recover certain expenses related to the
sale of the Policies. Unrecovered expenses are borne by the Company's general
assets which may include profits, if any, from mortality and expense risk
charges (see "Surrender Charges").
The Company does not currently assess any charge for income taxes incurred by
the Company as a result of the operations of the sub-accounts of the Variable
Account (see "Taxation of the Company"). The Company reserves the right to
assess a charge for such taxes against the Variable Account if the Company
determines that such taxes will be incurred.
15
<PAGE> 19
HOW THE CASH VALUE VARIES
On any date during the Policy Year, the Cash Value equals the Cash Value on the
preceding Valuation Date, plus any Net Premiums applied since the previous
Valuation Date, minus any partial surrenders, plus or minus any investment
results, and less any Policy Charges.
There is no guaranteed Cash Value. The Cash Value will vary with the investment
experience of the Variable Account and/or the daily crediting of interest in the
Fixed Account and Policy Loan Account depending on the allocation of Cash Value
by the Policy Owner.
HOW THE INVESTMENT EXPERIENCE IS DETERMINED
The Cash Value in each sub-account is converted to Accumulation Units of that
sub-account. The conversion is accomplished by dividing the amount of Cash Value
allocated to a sub-account by the value of an Accumulation Unit for the
sub-account of the Valuation Period during which the allocation occurs.
The value of an Accumulation Unit for each sub-account was arbitrarily set
initially at $10 when the underlying Mutual Fund shares in that sub-account were
available for purchase. The value for any subsequent Valuation Period is
determined by multiplying the Accumulation Unit value for each sub-account for
the immediately preceding Valuation Period by the Net Investment Factor for the
sub-account during the subsequent Valuation Period. The value of an Accumulation
Unit may increase or decrease from Valuation Period to Valuation Period. The
number of Accumulation Units will not change as a result of investment
experience.
NET INVESTMENT FACTOR
The Net Investment Factor for any Valuation Period is determined by dividing (a)
by (b) and subtracting (c) from the result where:
(a) is the net of:
(1) the Net Asset Value per share of the underlying Mutual Fund held in
the sub-account determined at the end of the current Valuation
Period, plus
(2) the per share amount of any dividend or capital gain distributions
made by the underlying Mutual Fund held in the sub-account if the
"ex-dividend" date occurs during the current Valuation Period.
(b) is the net of:
(1) the Net Asset Value per share of the underlying Mutual Fund held in
the Sub-Account determined at the end of the immediately preceding
Valuation Period, plus or minus
(2) the per share charge or credit, if any, for any taxes reserved for
in the immediately preceding Valuation Period.
(c) is a factor representing the daily Mortality and Expense Risk Charge
deducted from the Variable Account. Such factor is equal to an annual
rate of .80% of the daily Net Asset Value of the Variable Account.
For underlying Mutual Funds that credit dividends on a daily basis and pay such
dividends once a month, the Net Investment Factor allows for the monthly
reinvestment of these daily dividends.
The Net Investment Factor may be greater or less than one; therefore, the value
of an Accumulation Unit may increase or decrease. 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, and any charge or credit for
tax reserves.
VALUATION OF ASSETS
Underlying Mutual Fund shares in the Variable Account will be valued at their
Net Asset Value.
DETERMINING THE CONTRACT VALUE
The sum of the value of all Variable Account Accumulation Units attributable to
the Contract and amounts credited to the Fixed Account is the Contract Value.
The number of Accumulation Units credited per each sub-account are determined by
dividing the net amount allocated to the sub-account by the Accumulation Unit
Value for the sub-account for the Valuation Period during which the purchase
payment is received by the Company. If part or all of the Contract Value is
surrendered or changes or deductions are made against the Contract Value, an
appropriate number of Accumulation Units from the Variable Account and an
appropriate amount from the Fixed Account will be deducted in the same
proportion that the Contract Owner's interest in the Variable Account and the
Fixed Account bears to the total Contract Value.
16
<PAGE> 20
The Cash Value in the Fixed Account and the Policy Loan Account is credited with
interest daily at an effective annual rate which the Company periodically
declares. The annual effective rate will never be less than 4%. Upon request,
the Company will inform the Policy Owner of the then applicable rates for each
account.
VALUATION PERIODS AND VALUATION DATES
A Valuation Period is the period commencing at the close of business on the New
York Stock Exchange and ending at the close of business for the next succeeding
Valuation Date. A Valuation Date is each day that the New York Stock Exchange
and the Company's Home Office are open for business or any other day during
which there is sufficient degree of trading that the current Net Asset Value of
the Accumulation Units might be materially affected.
SURRENDERING THE POLICY FOR CASH
The Policy Owner may surrender the Policy in full at any time while the Insured
is living and receive its Cash Surrender Value. The cancellation will be
effective as of the date the Company receives a proper written request for
cancellation and the Policy. Such written request must be signed and, where
permitted, the signature guaranteed by a member firm of the New York, American,
Boston, Midwest, Philadelphia or Pacific Stock Exchange, or by a Commercial
Bank or a Savings and Loan, which is a member of the Federal Deposit Insurance
Corporation, or other eligible guarantor institution as defined by the federal
securities laws and regulations. In some cases, the Company may require
additional documentation of a customary nature.
The Cash Surrender Value increases or decreases daily to reflect the investment
experience of the Variable Account and the daily crediting of interest in the
Fixed Account and the Policy Loan Account. The Cash Surrender Value equals the
Policy's Cash Value, next computed after the date the Company receives a proper
written request for surrender and the Policy, minus any charges, Indebtedness or
other deductions due on that date, which may also include a Surrender Charge.
After the Policy has been in force for 5 Policy Years, the Policy Owner may
request a partial surrender. Partial surrenders will be permitted only if they
satisfy the following requirements:
1. The maximum partial surrender in any Policy Year is limited to 10%
of the total premium payments;
2. The minimum partial surrender is $500; and
3. After the partial surrender, the Policy continues to qualify as
life insurance.
When a partial surrender is made, the Cash Value is reduced by the amount of the
partial surrender. Under Death Benefit Option 1, the Specified Amount is reduced
by the amount of the partial surrender, unless the death benefit is based on the
applicable percentage of cash value. In such a case, a partial surrender will
decrease the Specified Amount by the amount by which the partial surrender
exceeds the difference between the death benefit and Specified Amount. Partial
surrender amounts must be first deducted from the values in the Variable
sub-accounts. Partial surrenders will be deducted from the Fixed Account only to
the extent that insufficient values are available in the Variable sub-accounts.
Surrender charges will be waived for any partial surrenders which satisfy the
above conditions. Certain partial surrenders may result in currently taxable
income and tax penalties (see "Tax Matters").
MATURITY PROCEEDS
The Maturity Date is the Policy Anniversary on or next following the Insured's
95th birthday. The Maturity Proceeds will be payable to the Policy Owner on the
Maturity Date provided the Policy is still in force. The Maturity Proceeds will
be equal to the amount of the Policy's Cash Value, less any Indebtedness.
INCOME TAX WITHHOLDING
Federal law requires the Company to withhold income tax from any portion of
surrender proceeds that is subject to tax, unless the Policy Owner advises the
Company, in writing, of his or her request not to withhold.
If the Policy Owner requests that the Company not withhold taxes, or if the
taxes withheld are insufficient, the Policy Owner may be liable for payment of
an estimated tax. The Policy Owner should consult his or her tax advisor.
In certain employer-sponsored life insurance arrangements, including equity
split dollar arrangements, participants may be required to report for income tax
purposes, one or more of the following: (1) the value each year of the life
insurance protection provided; (2) an amount equal to any employer-paid
premiums; or (3) some or all of the amount by which the current value of the
policy exceeds the employer's interest in the policy.
17
<PAGE> 21
Participants should consult with the sponsor or the administrator of the plan,
and/or with their personal tax or legal advisers, to determine the tax
consequences, if any, of their employer-sponsored life insurance arrangements.
POLICY LOANS
TAKING A POLICY LOAN
After the first Policy Year, the Policy Owner may take a Policy loan using the
Policy as security. Maximum Policy Indebtedness is limited to 90% of the Cash
Surrender Value less interest due on the next Policy Anniversary. Maximum Policy
Indebtedness, in Texas, is limited to 90% of the Cash Surrender Value in the
sub-accounts and 100% of the Cash Surrender Value in the Fixed Account less
interest due on the next Policy Anniversary. The Company will not grant a loan
for an amount less than $1,000 ($200 in Connecticut). Should the Death Proceeds
become payable, the Policy be surrendered, or the Policy mature while a loan is
outstanding, the amount of Policy Indebtedness will be deducted from the death
benefit, Cash Surrender Value or the maturity value, respectively.
Any request for a Policy loan must be in written form satisfactory to the
Company. The request must be signed and, where permitted, the signature
guaranteed by a member firm of the New York, American, Boston, Midwest,
Philadelphia or Pacific Stock Exchange; or by a Commercial Bank or a Savings
and Loan which is a member of the Federal Deposit Insurance Corporation or
other eligible guarantor institution as defined by the federal securities laws
and regulations. Certain policy loans may result in currently taxable income
and tax penalties (see "Tax Matters").
EFFECT ON INVESTMENT PERFORMANCE
When a loan is made, an amount equal to the amount of the loan is transferred
from the Variable Account to the Policy Loan Account. If the assets relating to
a Policy are held in more than one sub-account, withdrawals from sub-accounts
will be made in proportion to the assets in each Variable sub-account at the
time of the loan. Policy loans will be transferred from the Fixed Account only
when insufficient amounts are available in the Variable sub-accounts. The amount
taken out of the Variable Account will not be affected by the Variable Account's
investment experience while the loan is outstanding.
INTEREST
Amounts transferred to the Policy Loan Account will earn interest daily from the
date of transfer.
Policy loans will be currently credited interest daily at an annual effective
rate of 5.1%. This rate is guaranteed never to be lower than 5.1%. The Company
may change the current interest crediting rate on Policy loans at any time at
its sole discretion. This earned interest is transferred from the Policy Loan
Account to a Variable Account or the Fixed Account on each Policy Anniversary or
at the time of loan repayment. It will be allocated according to the underlying
Mutual Fund allocation factors in effect at the time of the transfer.
The loan interest rate is 6% per year for all Policy loans. Interest is charged
daily and is payable at the end of each Policy Year or at the time of loan
repayment. Unpaid interest will be added to the existing Policy Indebtedness as
of the due date and will be charged interest at the same rate as the rest of the
Indebtedness.
Whenever the total Policy Indebtedness exceeds the Cash Value less any Surrender
Charges, the Company will send a notice to the Policy Owner and the assignee, if
any. The Policy will terminate without value 61 days after the mailing of the
notice unless a sufficient repayment is made during that period. A repayment is
sufficient if it is large enough to reduce the total Policy Indebtedness to an
amount equal to the total Cash Value less any Surrender Charges plus an amount
sufficient to continue the Policy in force for 3 months.
EFFECT ON DEATH BENEFIT AND CASH VALUE
A Policy loan, whether or not repaid, will have a permanent effect on the death
benefit and Cash Value because the investment results of the Variable Account or
the Fixed Account will apply only to the non-loaned portion of the Cash Value.
The longer the loan is outstanding, the greater the effect is likely to be.
Depending on the investment results of the Variable Account or the Fixed Account
while the loan is outstanding, the effect could be favorable or unfavorable.
REPAYMENT
All or part of the Indebtedness may be repaid at any time while the Policy is in
force during the Insured's lifetime. Any payment intended as a loan repayment,
rather than a premium payment, must be identified as such. Loan repayments will
be credited to the Variable sub-accounts and the Fixed Account in proportion to
the Policy Owner's Fund allocation factors in effect at the time of the
repayment. Each repayment may not be less than $1,000 ($50 in Connecticut). The
Company reserves the right to require that any loan repayments resulting from
Policy loans transferred from the Fixed Account must be first allocated to the
Fixed Account.
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<PAGE> 22
HOW THE DEATH BENEFIT VARIES
CALCULATION OF THE DEATH BENEFIT
At issue, the Policy Owner selects a desired Scheduled Premium level. The
Scheduled Premium is used to determine the initial Specified Amount. Under death
benefit Option 1, the initial Specified Amount is determined by treating the
Scheduled Premium as 20% of the Guideline Single Premium. Under death benefit
Option 2, the initial Specified Amount is determined by treating the Scheduled
Premium as the Guideline Level Premium. For either death benefit option, the
initial Specified Amount will be set at such a level such that payment of the
Scheduled Premiums will not result in the Policy being classified as a modified
endowment contract (see "Tax Matters").
The following table illustrates the Initial Specified Amount that results from a
$2,000 Scheduled Premium payment.
<TABLE>
<CAPTION>
Male Female
Issue Non-Tobacco Non-Tobacco
Age Option 1 Option 2 Option 1 Option 2
<S> <C> <C> <C> <C>
30 $85,779 $75,378 $99,541 $93,577
35 $68,165 $61,559 $79,212 $76,497
40 $54,111 $50,082 $63,070 $62,320
45 $43,165 $40,605 $50,599 $50,633
50 $34,675 $32,791 $40,824 $40,958
55 $28,136 $26,852 $33,171 $32,949
60 $23,176 $22,867 $27,141 $26,301
65 $19,474 $19,474 $22,369 $22,168
</TABLE>
Generally, for a given Scheduled Premium, the initial Specified Amount is
greater for non-tobacco than standard and females than males. The Specified
Amount is shown in the Policy.
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 two death benefit options. Under 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, please see the illustrations. Under Option 2,
the death benefit will be the greater of the Specified Amount plus the Cash
Value, or the Applicable Percentage of Cash Value and will vary directly with
the investment performance.
The term "Applicable Percentage" means:
1. when the Insured is Attained Age 40 or less at the beginning of a
Policy Year, and
2. when the Insured is above Attained Age 40, the percentage shown in
the "Applicable Percentage of Cash Value Table" shown in this
provision.
APPLICABLE PERCENTAGE OF CASH VALUE TABLE
<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%
</TABLE>
19
<PAGE> 23
<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>
53 164% 73 109% 93 102%
54 157% 74 107% 94 101%
55 150% 75 105% 95 100%
56 146% 76 105%
57 142% 77 105%
58 138% 78 105%
59 134% 79 105%
</TABLE>
- -Proceeds Payable on Death
The actual Proceeds payable on the Insured's death will be the death benefit as
described above less any Policy Indebtedness, and less any unpaid Policy
Charges. Under certain circumstances, the Death Proceeds may be adjusted (see
"Incontestability," "Error in Age or Sex" and "Suicide").
RIGHT TO EXCHANGE FOR A FIXED BENEFIT POLICY
The Policy Owner may exchange the Policy for a flexible premium adjustable life
insurance policy offered by the Company on the Policy Date. The benefits for the
new policy will not vary with the investment experience of a separate account.
The exchange must be elected within 24 months from the Policy Date. No evidence
of insurability will be required.
The Policy Owner and Beneficiary under the new policy will be the same as those
under the exchanged Policy on the effective date of the exchange. The new policy
will have a death benefit on the exchange date not more than the death benefit
of the original Policy immediately prior to the exchange date. The new policy
will have the same Policy Date and issue age as the original Policy. The initial
Specified Amount and any increases in Specified Amount will have the same rate
class as those of the original Policy. Any Indebtedness may be transferred to
the new policy.
The exchange may be subject to an equitable adjustment in rates and values to
reflect variances, if any, in the rates and values between the two Policies.
After adjustment, if any excess is owed the Policy Owner, the Company will pay
the excess to the Policy Owner in cash. The exchange may be subject to federal
income tax withholding (see "Income Tax Withholding").
CHANGES OF INVESTMENT POLICY
The Company may materially change the investment policy of a Variable Account.
The Company must inform the Policy Owners and obtain all necessary regulatory
approvals. Any change must be submitted to the various state insurance
departments which may disapprove it if deemed detrimental to the interests of
the Policy Owners or if it renders the Company's operations hazardous to the
public. If a Policy Owner objects, the Policy may be converted to a
substantially comparable Nationwide Life and Annuity General Account life
insurance policy offered by the Company on the life of the Insured. The Policy
Owner has the later of 60 days (6 months in Pennsylvania) from the date of the
investment policy change or 60 days (6 months in Pennsylvania) from being
informed of such change to make this conversion. The Company will not require
evidence of insurability for this conversion.
The new Policy will not be affected by the investment experience of any Variable
Account. The new Policy will be for an amount of insurance not exceeding the
death benefit of the Policy converted on the date of such conversion.
GRACE PERIOD
- -First Five Policy Years
This Policy will not lapse during the first five Policy Years provided that on
each Monthly Anniversary Day (1) is greater than or equal to (2) where:
(1) Is the sum of all premiums paid to date minus any Policy
Indebtedness; and
(2) Is the sum of monthly Minimum Premiums since the Policy Date
including the monthly Minimum Premium for the current Monthly
Anniversary Day.
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<PAGE> 24
If (1) is less than (2), a Grace Period of 61 days from the Monthly Anniversary
Day will be allowed for the payment of sufficient premium to satisfy the minimum
premium requirement. If sufficient premium is not paid by the end of the Grace
Period, the Policy will lapse. The Policy will be terminated with the return of
any available Cash Surrender Value. The Cash Surrender Value will be calculated
as of the beginning of the Grace Period. The Policy Owner may also elect in
writing to have the Policy placed on Extended Term Insurance.
- -Policy Years Six and After
If the Cash Surrender Value on a Monthly Anniversary Day is not sufficient to
cover the current monthly deduction for insurance costs, administrative expenses
and other benefits, a Grace Period of 61 days from the Monthly Anniversary Day
will be allowed for the payment of sufficient premium to cover the current
monthly deduction plus an amount equal to three times the current monthly
deduction.
- -All Policy Years
The Company will send such a notice at the start of the Grace Period to the
Policy Owner's last known address. If the Insured dies during the Grace Period,
the Company 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 the Company;
3. paying sufficient premium to cover all policy charges that were due and
unpaid during the Grace Period;
4. paying sufficient premium to keep the Policy in force for 3 months from
the date of reinstatement; and
5. paying or reinstating any Indebtedness against the Policy which existed
at the end of the Grace Period.
The effective date of a reinstated Policy will be the Monthly Anniversary Day on
or next following the date the application for reinstatement is approved by the
Company. If the Policy is reinstated, the Cash Value on the date of
reinstatement, but prior to applying any premiums or loan repayments received,
will be set equal to the lesser of:
(1) the Cash Value at the end of the Grace Period; or
(2) the Surrender Charge for the Policy Year in which the Policy was
reinstated.
Unless the Policy Owner has provided otherwise, all amounts will be allocated
based on the underlying Mutual Fund allocation factors in effect at the start of
the Grace Period.
THE FIXED ACCOUNT OPTION
Because of exemptive and exclusionary provisions, interests in the Company's
General Account have not been registered under the Securities Act of 1933 and
the General Account has not been registered as an investment company under the
Investment Company Act of 1940. Accordingly, neither the General Account nor any
interests therein are subject to the provisions of these Acts, and the Company
has been advised that the staff of the Securities and Exchange Commission has
not reviewed the disclosures in this prospectus relating to the Fixed Account
option. Disclosures regarding the General Account may, however, be subject to
certain generally applicable provisions of the federal securities laws relating
to the accuracy and completeness of statements made in prospectuses.
As explained earlier, a Policy Owner may elect to allocate or transfer all or
part of the Cash Value to the Fixed Account and the amount allocated or
transferred becomes part of the Company's general assets (General Account). The
Company's General Account consists of all assets of the Company other than those
in the Variable Account and in other separate accounts that have been or may be
established by the Company. Subject to applicable law, the Company has sole
discretion over the investment of the assets of the General Account, and Policy
Owners do not share in the investment experience of those assets. The Company
guarantees that the part of the Cash Value invested under the Fixed Account
option will accrue interest daily at an effective annual rate that the Company
declares periodically. The Fixed Account crediting rate will not be less than an
effective annual rate of 4%. Upon request the Company will inform a Policy Owner
of the then applicable rate. The Company is not obligated to credit interest at
a higher rate.
21
<PAGE> 25
CHANGES IN EXISTING INSURANCE COVERAGE
The Policy Owner may request certain changes in the insurance coverage under the
Policy. Any request must be in writing and received at the Company's Home
Office. No change will take effect unless the Cash Surrender Value, after the
change, is sufficient to keep the Policy in force for at least 3 months.
SPECIFIED AMOUNT INCREASES
After the fifth Policy Year, the Policy Owner may request an increase to the
Specified Amount. Any increase will be subject to the following conditions:
(1) the request must be applied for in writing;
(2) satisfactory evidence of insurability must be provided;
(3) the increase must be for a minimum of $10,000;
(4) the Cash Surrender Value is sufficient to continue the Policy in
force for at least 3 months; and
(5) age limits are the same as a new issue.
Any approved increase will have an effective date of the Monthly Anniversary Day
on or next following the date the Company approves the supplemental application.
The Company reserves the right to limit the number of Specified Amount increases
to one each Policy Year.
SPECIFIED AMOUNT DECREASES
After the fifth Policy Year, the Policy Owner may also request a decrease to the
Specified Amount. Any approved decrease will be effective on the Monthly
Anniversary Day on or next following the date the Company receives the request.
Any such decrease shall reduce insurance in the following order:
(1) against insurance provided by the most recent increase;
(2) against the next most recent increases successively; and
(3) against insurance provided under the original application.
The Company reserves the right to limit the number of Specified Amount decreases
to one each Policy Year. The Company will refuse a request for a decrease which
would:
(1) reduce the Specified Amount to less than $10,000; or
(2) disqualify the Policy as a contract for life insurance.
CHANGES IN THE DEATH BENEFIT OPTION
After the fifth Policy Year, the Policy Owner may change the death benefit
option under the Policy. If the change is from Option 1 to Option 2, the
Specified Amount will be decreased by the amount of the Cash Value. If the
change is from Option 2 to Option 1, the Specified Amount will be increased by
the amount of the Cash Value. The Company reserves the right to require evidence
of insurability for either change. The effective date of the change will be the
Monthly Anniversary Day on or next following the date the Company approves the
request for change. Only one change of option is permitted per Policy Year. A
change in death benefit option will not be permitted if it results in the total
premiums paid exceeding the then current maximum premium limitations prescribed
by the Internal Revenue Service to qualify the Policy as a life insurance
contract.
OTHER POLICY PROVISIONS
POLICY OWNER
While the Insured is living, all rights in this Policy are vested in the Policy
Owner named in the application or as subsequently changed, subject to
assignment, if any.
The Policy Owner may name a contingent Policy Owner or a new Policy Owner while
the Insured is living. Any change must be in a written form satisfactory to the
Company and recorded at the Company's Home Office. Once recorded, the change
will be effective when signed. The change will not affect any payment made or
action taken by the Company before it was recorded. The Company may require that
the Policy be submitted for endorsement before making a change.
If the Policy Owner is other than the Insured and names no contingent Policy
Owner, and dies before the Insured, the Policy Owner's rights in this Policy
belong to the Owner's estate.
22
<PAGE> 26
BENEFICIARY
The Beneficiary(ies) shall be as named in the application or as subsequently
changed, subject to assignment, if any.
The Policy Owner may name a new Beneficiary while the Insured is living. Any
change must be in a written form satisfactory to the Company and recorded at the
Company's Home Office. Once recorded, the change will be effective when signed.
The change will not affect any payment made or action taken by the Company
before it was recorded.
If any Beneficiary predeceases the Insured, that Beneficiary's interest passes
to any surviving Beneficiary(ies), unless otherwise provided. Multiple
Beneficiaries will be paid in equal shares, unless otherwise provided. If no
named Beneficiary survives the Insured, the Death Proceeds shall be paid to the
Policy Owner or the Policy Owner's estate.
ASSIGNMENT
While the Insured is living, the Policy Owner may assign his or her rights in
the Policy. The assignment must be in writing, signed by the Policy Owner and
recorded by the Company at its Home Office. Any assignment will not affect any
payments made or actions taken by the Company before it was recorded. The
Company is not responsible for any assignment not submitted for recording, nor
is the Company responsible for the sufficiency or validity of any assignment.
The assignment will be subject to any Indebtedness owed to the Company before it
was recorded.
INCONTESTABILITY
The Company will not contest payment of the Death Proceeds based on the initial
Specified Amount after the Policy has been in force during the Insured's
lifetime for 2 years from the Policy Date. For any increase in Specified Amount
requiring evidence of insurability, the Company will not contest payment of the
Death Proceeds based on such an increase after it has been in force during the
Insured's lifetime for 2 years from its effective date.
ERROR IN AGE OR SEX
If the age or sex of the Insured has been misstated, the 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 and sex 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, the Company will pay no more than the sum of the premiums paid,
less any Indebtedness. If the Insured dies by suicide, while sane or insane,
within two years from the date an application is accepted for an increase in the
Specified Amount, the Company will pay no more than the amount paid for such
additional benefit.
NONPARTICIPATING POLICIES
These are nonparticipating Policies on which no dividends are payable. These
Policies do not share in the profits or surplus earnings of the Company.
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 contributions made on or
after August 1, 1983. The Policies offered by this prospectus are based upon
actuarial tables which distinguish between men and women and thus the Policies
provide different benefits to men and women of the same age. Accordingly,
employers and employee organizations should consider, in consultation with legal
counsel, the impact of Norris on any employment related insurance or benefit
program before purchasing this Policy.
23
<PAGE> 27
DISTRIBUTION OF THE POLICIES
The Policies will be sold by licensed insurance agents in those states where the
Policies may lawfully be sold. Such agents will be registered representatives of
broker dealers registered under the Securities Exchange Act of 1934 who are
members of the National Association of Securities Dealers, Inc. (NASD). The
Policies will be distributed by the General Distributor, Nationwide Financial
Services, Inc., a wholly-owned subsidiary of Nationwide Life Insurance Company.
NFS acts a general distributor for Nationwide Multi-Flex Variable Account,
Nationwide DC Variable Account, Nationwide Variable Account-II, Nationwide
Variable Account-5, Nationwide Variable Account-6, Nationwide Variable
Account-8, Nationwide VA Separate Account-A, Nationwide VA Separate Account-B,
Nationwide VA Separate Account-C, Nationwide VL Separate Account-A, Nationwide
VLI Separate Account-2, Nationwide VLI Separate Account-3, NACo Variable Account
and Nationwide Variable Account, all of which are separate investment accounts
of the Company or its affiliates. NFS is a wholly owned subsidiary of the
Company.
NFS also acts as principal underwriter for Nationwide Investing Foundation,
Nationwide Separate Account Trust, Financial Horizons Investment Trust, and
Nationwide Investing Foundation II, which are open-end management investment
companies.
Gross first year commissions paid by the Company on the sale of these Policies
plus fees for marketing services provided by the General Distributor are not
more than 26% of the Scheduled Premium plus 5% of any excess premium payments.
Gross renewal commissions paid by the Company will not exceed 5% of actual
premium payments.
CUSTODIAN OF ASSETS
The Company serves as the Custodian of the assets of the Variable Account.
TAX MATTERS
POLICY PROCEEDS
Section 7702 of the Code provides that if certain tests are met, a Policy will
be treated as a life insurance policy for federal tax purposes. The Company will
monitor compliance with these tests. The Policy should thus receive the same
federal income tax treatment as fixed benefit life insurance. As a result, the
Death Proceeds payable under a Policy are excludable from gross income of the
beneficiary under Section 101 of the Code.
Section 7702A of the Code defines modified endowment contracts as those policies
issued or materially changed on or after June 21, 1988 on which the total
premiums paid during the first seven years exceed the amount that would have
been paid if the policy provided for paid up benefits after seven level annual
premiums (See "Information about the Policies"). The Code provides for taxation
of surrenders, partial surrenders, loans, collateral assignments and other
pre-death distributions from modified endowment contracts in the same way
annuities are taxed. Modified endowment contract distributions are defined by
the Code as amounts not received as an annuity and are taxable to the extent the
cash value of the policy exceeds, at the time of distribution, the premiums paid
into the policy. A 10% tax penalty generally applies to the taxable portion of
such distributions unless the Policy Owner is over age 59-1/2 or disabled.
It may not be advantageous to replace existing insurance with Policies described
in this prospectus. It may also be disadvantageous to purchase a policy to
obtain additional insurance protection if the purchaser already owns another
variable life insurance policy.
The Policies offered by this prospectus may or may not be issued as modified
endowment contracts. The Company will monitor premiums paid and will notify the
Policy Owner when the policy's non-modified endowment status is in jeopardy. If
a policy is not a modified endowment contract, a cash distribution during the
first 15 years after a policy is issued which causes a reduction in death
benefits may still become fully or partially taxable to the Owner pursuant to
Section 7702(f)(7) of the Code. The Policy Owner should carefully consider this
potential effect and seek further information before initiating any changes in
the terms of the policy. Under certain conditions, a policy may become a
modified endowment as a result of a material change or a reduction in benefits
as defined by Section 7702A (c) of the Code.
In addition to meeting the tests required under Sections 7702, Section 817(h) of
the Code requires that the investments of separate accounts such as the Variable
Account be adequately diversified. Regulations under 817(h) provide that a
variable life policy failing to satisfy the diversification standards will not
be treated as life insurance unless such failure was inadvertent, is corrected,
and the Policy Owner or the Company pays an amount to the Internal Revenue
Service. The amount will be based on the tax that would have been paid by the
Policy Owner if the income, for the period the policy was not diversified, had
been received by the Policy
24
<PAGE> 28
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.
Should the Secretary of the Treasury issue additional rules or regulations
limiting the number of underlying Mutual Funds, transfers between underlying
Mutual Funds, exchanges of underlying Mutual Funds or changes in investment
objectives of underlying Mutual Funds such that the Policy would no longer
qualify as life insurance under Section 7702 of the Code, the Company will take
whatever steps are available to remain in compliance.
The Company will monitor compliance with these regulations and, to the extent
necessary, will change the objectives or assets of the sub-account investments
to remain in compliance.
A total surrender or cancellation of the Policy by lapse may have adverse tax
consequences depending on the circumstances.
Federal estate and state and local estate, inheritance and other tax
consequences of ownership or receipt of Policy proceeds depend on the
circumstances of each Policy Owner or Beneficiary.
TAXATION OF THE COMPANY
The Company is taxed as a life insurance company under the Code. Since the
Variable Account is not a separate entity from the Company and its operations
form a part of the Company, it will not be taxed separately as a "regulated
investment company" under Sub-chapter M of the Code. Investment income and
realized capital gains on the assets of the Variable Account are reinvested and
taken into account in determining the value of Accumulation Units. As a result,
such investment income and realized capital gains are automatically applied to
increase reserves under the Policies.
The Company does not initially expect to incur any federal income tax liability
that would be chargeable to the Variable Account. Based upon these expectations,
no charge is currently being made against the Variable Account for federal
income taxes. If, however, the Company determines that on a separate company
basis such taxes may be incurred, it reserves the right to assess a charge for
such taxes against the Variable Account.
The Company may also incur state and local taxes (in addition to premium taxes)
in several states. At present, these taxes are not significant. If they
increase, however, charges for such taxes may be made.
OTHER CONSIDERATIONS
The foregoing discussion is general and is not intended as tax advice. Counsel
and other competent advisors should be consulted for more complete information.
This discussion is based on the Company's understanding of federal income tax
laws as they are currently interpreted by the Internal Revenue Service. No
representation is made as to the likelihood of continuation of these current
laws and interpretations.
THE COMPANY
The life insurance business, which includes product lines in health insurance
and annuities, is the only business in which the Company is engaged.
The Company markets its Policies through independent insurance brokers, general
agents, and registered representatives of registered NASD broker/dealer firms.
The Company serves as depositor for the Nationwide Variable Account, Nationwide
Variable Account-II, Nationwide Variable Account-3, Nationwide Variable
Account-4, Nationwide Variable Account-5, Nationwide Variable Account-6,
Nationwide Fidelity Advisor Variable Account, Nationwide Variable Account-8, MFS
Variable Account, Nationwide Multi-Flex Variable Account, Nationwide VLI
Separate Account, Nationwide VLI Separate Account-2, Nationwide VLI Separate
Account-3, the NACo Variable Account and Nationwide DC Variable Account, each of
which is a registered investment company and a separate investment account of
the Company.
The Company, in common with other insurance companies, is subject to regulation
and supervision by the regulatory authorities of the states in which it is
licensed to do business. A license from the state insurance department is a
prerequisite to the transaction of insurance business in that state. In general,
all states have statutory administrative powers. Such regulation relates, among
other things, to licensing of insurers and their agents, the approval of policy
forms, the methods of computing reserves, the form and content of statutory
financial statements, the amount of policyholders' and stockholders' dividends,
and the type of distribution of investments permitted.
25
<PAGE> 29
The Company operates in the highly competitive field of life insurance. There
are approximately 2,300 stock, mutual and other types of insurers in the life
insurance business in the United States, and a large number of them compete with
the registrant in the sale of insurance policies.
As is customary in insurance company groups, employees are shared with the other
insurance companies in the group. The Company shares employees with Nationwide
Mutual Insurance Company, Nationwide Life Insurance Company and Nationwide
Mutual Fire Insurance Company.
The Company does not presently own or lease any materially important physical
properties when its property holdings are viewed in relation to its total
assets. The Company shares Home Office, other facilities and equipment with
Nationwide Mutual Insurance Company.
COMPANY MANAGEMENT
Nationwide Life and Annuity Insurance Company, together with Nationwide Mutual
Insurance Company, Nationwide Mutual Fire Insurance Company, Nationwide Life
Insurance Company, Nationwide Property and Casualty Insurance Company, National
Casualty Company, West Coast Life Insurance Company, Scottsdale Indemnity
Company, Nationwide Indemnity Company and Nationwide General Insurance Company
and all of their affiliated companies comprise the Nationwide Insurance
Enterprise.
The companies comprising the Nationwide Insurance Enterprise have substantially
common boards of directors and officers. Nationwide Life Insurance Company is
the sole shareholder of Nationwide Life and Annuity Insurance Company.
DIRECTORS OF THE COMPANY
<TABLE>
<CAPTION>
Director
Name Since Principal Occupation
<S> <C> <C>
Lewis J. Alphin 1993 Farm Owner and Operator (1)
Keith W. Eckel 1996 Partner and Manager, Fred W. Eckel Sons
and Eckel Farms, Inc. (1)
Willard J. Engel 1994 General Manager, Lyon County Cooperative
Oil Company (1)
Fred C. Finney 1992 Owner and Operator, Moreland Fruit Farm;
Operator, Melrose Orchard
Charles L. Fuellgraf, Jr. *+ 1969 Chief Executive Officer, Fuellgraf
Electric Company, Electrical
Construction and Engineering Services (1)
Joseph J. Gasper *+ 1996 President and Chief Operating Officer,
Nationwide Life Insurance Company and
Nationwide Life and Annuity Insurance
Company (2)
Henry S. Holloway *+ 1986 Farm Owner and Operator (1)
D. Richard McFerson *+ 1988 Chairman and Chief Executive Officer,
Nationwide Insurance Enterprise (2)
David O. Miller *+ 1985 Farm Owner and Land Developer;
President, Owen Potato Farm, Inc.;
Partner, M&M Enterprises (1)
C. Ray Noecker 1994 Farm Owner and Operator (1)
James F. Patterson + 1989 Vice President, Pattersons, Inc. ;
President, Patterson Farms, Inc. (1)
Arden L. Shisler *+ 1984 Partner and Manager, Sweetwater Beef
Farms; President and Chief Executive
Officer, K&B Transport, Inc. (1)
Robert L. Stewart 1989 Farm Owner and Operator; Owner,
Sunnydale Mining (1)
Nancy C. Thomas * 1986 Farm Owner and Operator, Da-Ma-Lor Farms (1)
Harold W. Weihl 1990 Farm Owner and Operator, Weihl Farm (1)
</TABLE>
- ----------
* Member, Executive Committee
+ Member, Investment Committee
26
<PAGE> 30
(1) Principal occupation for last five years.
(2) Prior to assuming their current positions, Messrs. McFerson and Gasper
held other executive management positions with the companies.
Each of the directors is a director of the other major insurance affiliates of
the Nationwide Insurance Enterprise, except Mr. Gasper who is a director only of
the Company and Nationwide Life Insurance Company. Messrs. Gasper and McFerson
are directors of Nationwide Financial Services, Inc., a registered
broker-dealer.
Messrs. Gasper, Holloway, McFerson, Miller, Patterson and Shisler are directors
of Nationwide Corporation. Messrs. Fuellgraf, McFerson, Ms. Thomas, and Mr.
Weihl are trustees of Nationwide Investing Foundation, a registered investment
company. Mr. McFerson is trustee of Nationwide Separate Account Trust, Financial
Horizons Investment Trust, and Nationwide Investing Foundation II, registered
investment companies. Mr. Engel is a director of Western Cooperative Transport.
EXECUTIVE OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
NAME OFFICE HELD
<S> <C>
D. Richard McFerson Chairman and Chief Executive Officer-Nationwide
Insurance Enterprise
Joseph J. Gasper President and Chief Operating Officer
Gordon E. McCutchan Executive Vice President, Law and Corporate Services
and Secretary
Robert A. Oakley Executive Vice President - Chief Financial Officer
Robert J. Woodward, Jr. Executive Vice President-Chief Investment Officer
James E. Brock Senior Vice President - Life Company Operations
W. Sidney Druen Senior Vice President and General Counsel and
Assistant Secretary
Harvey S. Galloway, Jr. Senior Vice President and Chief Actuary
Richard A. Karas Senior Vice President - Sales and Financial Services
Mark A. Folk Vice President and Treasurer
</TABLE>
Mr. Gasper is also President and Chief Operating Officer of Nationwide Life and
Annuity Insurance Company. Each of the other officers listed above is also an
officer of each of the companies comprising the Nationwide Enterprise. Each of
the executive officers listed above has been associated with the registrant in
an executive capacity for more than the past five years, except Mr. Folk, who
joined the Registrant in 1993. From 1983-1993, Mr. Folk served as a partner at
the accounting firm KPMG Peat Marwick LLP.
OTHER CONTRACTS ISSUED BY THE COMPANY
The Company does presently and will, from time to time, offer variable contracts
and policies with benefits which vary in accordance with the investment
experience of a separate account of the Company.
STATE REGULATION
The Company is subject to the laws of Ohio governing insurance companies and to
regulation by the Ohio Insurance Department. An annual statement in a prescribed
form is filed with the Insurance Department each year covering the operation of
the Company for the preceding year and its financial condition as of the end of
such year. Regulation by the Insurance Department includes periodic examination
to determine the Company's contract liabilities and reserves so that the
Insurance Department may certify the items are correct. The Company's books and
accounts are subject to review by the Insurance Department at all times and a
full examination of its operations is conducted periodically by the National
Association of Insurance Commissioners. Such regulation does not, however,
involve any supervision of management or investment practices or policies. In
addition, the Company is subject to regulation under the insurance laws of other
jurisdictions in which it may operate.
27
<PAGE> 31
REPORTS TO POLICY OWNERS
The Company will mail to the Policy Owner, at the last known address of record,
an annual statement showing the amount of the current death benefit, the Cash
Value, and Cash Surrender Value, premiums paid and monthly charges deducted
since the last report, the amounts invested in the Fixed Account and in the
Variable Account and in each sub-account of the Variable Account, and any Policy
Indebtedness.
Policy Owners will also be sent annual and semi-annual reports containing
financial statements for the Variable Account as required by the 1940 Act.
In addition, Policy Owners will receive statements of significant transactions,
such as changes in Specified Amount, changes in death benefit option, changes in
future premium allocation, transfers among sub-accounts, premium payments,
loans, loan repayments, reinstatement and termination.
ADVERTISING
The Company is ranked and rated by independent financial rating services, among
which are Moody's, Standard & Poor's and A.M. Best Company. The purpose of
these ratings is to reflect the financial strength or claims-paying ability of
the Company. The ratings are not intended to reflect the investment experience
or financial strength of the Variable Account. The Company may advertise these
ratings from time to time. In addition, the Company may include in certain
advertisements endorsements in the form of a list of organizations, individuals
or other parties which recommend the Company or the Contracts. Furthermore, the
Company 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
There are no material legal proceedings, other than ordinary routine litigation
incidental to the business to which the Company and the Variable Account are
parties or to which any of their property is the subject.
The General Distributor, Nationwide Financial Services, Inc., is not engaged in
any material litigation of any nature.
EXPERTS
The financial statements and schedules included herein have been included herein
in reliance upon the reports of KPMG Peat Marwick LLP, independent certified
public accountants, and upon the authority of said firm as experts in accounting
and auditing.
REGISTRATION STATEMENT
A Registration Statement has been filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, with respect to the
Policies offered hereby. This prospectus does not contain all the information
set forth in the Registration Statement and amendments thereto and exhibits
filed as a part thereof, to all of which reference is hereby made for further
information concerning the Variable Account, the Company, and the Policies
offered hereby. Statements contained in this prospectus as to the content of
Policies and other legal instruments are summaries. For a complete statement of
the terms thereof, reference is made to such instruments as filed.
LEGAL OPINIONS
Legal matters in connection with the Policies described herein are being passed
upon by Druen, Rath & Dietrich, One Nationwide Plaza, Columbus, Ohio 43216. All
the members of such firm are employed by the Nationwide Mutual Insurance
Company.
28
<PAGE> 32
APPENDIX 1
ILLUSTRATION OF
SURRENDER CHARGES
Example 1: A female non-tobacco, age 45, purchases a Policy with a Scheduled
Premium of $2,000 yielding a Specified Amount of $50,599. She now wishes to
surrender the Policy during the first Policy year. By using the initial
surrender charge table reproduced below, (also see "Surrender Charges") the
total surrender charge per thousand multiplied by the Specified Amount expressed
in thousands equals the total surrender charge of $514.09 ($10.160 x 50.599 =
$514.09).
Example 2: A male non-tobacco, age 35, purchases a Policy with a Scheduled
Premium of $2,000 yielding a Specified Amount of $68,165. He now wants to
surrender the Policy in the sixth Policy Year. The total initial surrender value
is calculated using the method illustrated above. (Specified Amount in thousands
$68.165 x 7.260 = 494.88 total first year surrender charge). Because the fifth
Policy Year has been completed, the total initial surrender charge is reduced by
multiplying it by the applicable percentage factor from the "Reductions to
Surrender Charges" table below (Also see "Reductions to Surrender Charges"). In
this case, $494.88 x 85% = $420.65.
Initial Surrender Charge per $1,000 of initial Specified Amount for policies
which are issued on a standard basis.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ISSUE MALE FEMALE MALE FEMALE
AGE NON-TOBACCO NON-TOBACCO STANDARD STANDARD
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
25 $ 5.878 $ 5.537 $ 6.680 $ 5.945
- --------------------------------------------------------------------------------
35 7.260 6.712 8.559 7.373
- --------------------------------------------------------------------------------
45 11.159 10.160 13.244 11.151
- --------------------------------------------------------------------------------
55 15.275 13.375 18.373 14.686
- --------------------------------------------------------------------------------
65 23.821 20.553 27.943 22.165
- --------------------------------------------------------------------------------
</TABLE>
Reductions to Surrender Charges.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SURRENDER CHARGE SURRENDER CHARGE
COMPLETED AS A % OF INITIAL COMPLETED AS A % OF INITIAL
POLICY YEARS SURRENDER CHARGES POLICY YEARS SURRENDER CHARGES
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
0 100% 5 85%
- --------------------------------------------------------------------------------
1 100% 6 80%
- --------------------------------------------------------------------------------
2 100% 7 75%
- --------------------------------------------------------------------------------
3 95% 8 50%
- --------------------------------------------------------------------------------
4 90% 9+ 0%
- --------------------------------------------------------------------------------
</TABLE>
The current Surrender Charges are the same for all states. However, in
Pennsylvania the guaranteed maximum Surrender Charges are 8% higher than those
shown. In addition, the guaranteed maximum Surrender Charge in subsequent years
in Pennsylvania are reduced in the following manner:
<TABLE>
<CAPTION>
SURRENDER CHARGE SURRENDER CHARGE SURRENDER CHARGE
COMPLETED AS A % OF INITIAL COMPLETED AS A % OF INITIAL COMPLETED AS A % OF INITIAL
POLICY YEARS SURRENDER CHARGES POLICY YEARS SURRENDER CHARGES POLICY YEARS SURRENDER CHARGES
<S> <C> <C> <C> <C> <C>
0 100% 5 83% 10 46%
1 98% 6 75% 11 37%
2 95% 7 70% 12 28%
3 92% 8 65% 13 14%
4 88% 9 55% 14+ 0%
</TABLE>
The illustrations of current values are the same for Pennsylvania. However, the
guaranteed maximum Surrender Charges are slightly higher in Pennsylvania. If
this contract is issued in Pennsylvania, please contact the Home Office for an
illustration.
The Company has no plans to change the current Surrender Charges.
29
<PAGE> 33
APPENDIX 2
ILLUSTRATIONS OF CASH VALUES,
CASH SURRENDER VALUES
AND DEATH BENEFITS
The illustrations in this prospectus have been prepared to help show how values
under the Policies change with investment performance. The illustrations
illustrate how Cash Values, Cash Surrender Values and death benefits under a
Policy would vary over time if the hypothetical gross investment rates of return
were a uniform annual effective rate of either 0%, 6% or 12%. If the
hypothetical gross investment rate of return averages 0%, 6% or 12% over a
period of years, but fluctuates above or below those averages for individual
years, the Cash Values, Cash Surrender Values and death benefits may be
different. For hypothetical returns of 0% and 6%, the illustrations also
illustrate when the Policies would go into default, at which time additional
premium payments would be required to continue the Policy in force. The
illustrations also assume there is no Policy debt, no additional premium
payments are made, no Cash Values are allocated to the Fixed Account, and their
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. The mortality and expense risk charges are
equivalent to an annual effective rate of .80% of the daily net asset value of
the Variable Account. In addition, the net investment returns also reflect the
deduction of Fund investment advisory fees and other expenses which are
equivalent to an annual effective rate of 0.70% of the daily net asset value of
the Variable Account.
Considering current charges for mortality and expense risks and Fund expenses,
gross annual rates of return of 0%, 6% and 12% correspond to net investment
experience at constant annual rates of -1.50%, 4.50% and 10.50%.
The illustrations also reflect the fact that the Company 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 (including non-tobacco). Policies issued on a substandard
basis would result in lower Cash Values and death benefits than those
illustrated.
In addition, the illustrations reflect the fact that the Company deducts a
monthly administrative charge at the beginning of each Policy Month. This
monthly administrative expense charge is $5 and is guaranteed not to exceed
$7.50. Current values reflect a current monthly administrative expense charge of
$5 and guaranteed values reflect the $7.50 maximum monthly administrative charge
under the Policy. The illustrations also reflect the fact that no charges for
federal or state income taxes are currently made against the Variable Account.
If such a charge is made in the future, it will require a higher gross
investment return than illustrated in order to produce the net after-tax returns
shown in the illustrations.
Upon request, the Company will furnish a comparable illustration based on the
proposed Insured's age, sex, smoking classification, rating classification and
premium payment requested.
30
<PAGE> 34
DEATH BENEFIT OPTION 1
$2,000 ANNUAL PREMIUM: $43,165 SPECIFIED AMOUNT
MALE: NON-TOBACCO: SIMPLIFIED ISSUE: AGE 45
CURRENT VALUES
<TABLE>
<CAPTION>
0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
ANNUAL NET NET NET NET NET NET
PREMIUMS ACCUM SURR DEATH ACCUM SURR DEATH ACCUM SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,000 2,100 1,671 1,189 43,165 1,776 1,294 43,165 1,882 1,400 43,165
2 2,000 4,305 3,314 2,832 43,165 3,629 3,147 43,165 3,956 3,475 43,165
3 2,000 6,620 4,930 4,448 43,165 5,561 5,080 43,165 6,244 5,763 43,165
4 2,000 9,051 6,520 6,062 43,165 7,578 7,121 43,165 8,769 8,312 43,165
5 2,000 11,604 8,081 7,647 43,165 9,682 9,248 43,165 11,555 11,122 43,165
6 0 12,184 7,755 7,346 43,165 9,906 9,497 43,165 12,549 12,140 43,165
7 0 12,793 7,421 7,036 43,165 10,130 9,745 43,165 13,639 13,254 43,165
8 0 13,433 7,077 6,716 43,165 10,352 9,991 43,165 14,837 14,475 43,165
9 0 14,105 6,724 6,483 43,165 10,573 10,332 43,165 16,153 15,913 43,165
10 0 14,810 6,357 6,357 43,165 10,790 10,790 43,165 17,601 17,601 43,165
15 0 18,901 4,293 4,293 43,165 11,788 11,788 43,165 27,419 27,419 43,165
20 0 24,124 1,573 1,573 43,165 12,424 12,424 43,165 43,700 43,700 53,315
25 0 30,788 (*) (*) (*) 12,121 12,121 43,165 69,987 69,987 81,185
30 0 39,295 (*) (*) (*) 9,520 9,520 43,165 112,321 112,321 120,183
35 0 50,151 (*) (*) (*) 1,656 1,656 43,165 181,129 181,129 190,185
</TABLE>
(1) ASSUMES NO POLICY LOANS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $5 PER MONTH.
(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 FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
31
<PAGE> 35
DEATH BENEFIT OPTION 1
$2,000 ANNUAL PREMIUM: $43,165 SPECIFIED AMOUNT
MALE: NON-TOBACCO: SIMPLIFIED ISSUE: AGE 45
GUARANTEED VALUES
<TABLE>
<CAPTION>
0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
ANNUAL NET NET NET NET NET NET
PREMIUMS ACCUM SURR DEATH ACCUM SURR DEATH ACCUM SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,000 2,100 1,578 1,096 43,165 1,680 1,199 43,165 1,783 1,302 43,165
2 2,000 4,305 3,125 2,643 43,165 3,429 2,947 43,165 3,745 3,263 43,165
3 2,000 6,620 4,642 4,160 43,165 5,248 4,766 43,165 5,904 5,422 43,165
4 2,000 9,051 6,128 5,671 43,165 7,141 6,684 43,165 8,282 7,825 43,165
5 2,000 11,604 7,584 7,151 43,165 9,114 8,680 43,165 10,906 10,472 43,165
6 0 12,184 7,145 6,735 43,165 9,192 8,783 43,165 11,713 11,304 43,165
7 0 12,793 6,687 6,302 43,165 9,253 8,868 43,165 12,590 12,204 43,165
8 0 13,433 6,207 5,846 43,165 9,293 8,931 43,165 13,542 13,180 43,165
9 0 14,105 5,700 5,459 43,165 9,306 9,065 43,165 14,575 14,334 43,165
10 0 14,810 5,162 5,162 43,165 9,288 9,288 43,165 15,698 15,698 43,165
15 0 18,901 1,838 1,838 43,165 8,541 8,541 43,165 23,071 23,071 43,165
20 0 24,124 (*) (*) (*) 5,812 5,812 43,165 35,129 35,129 43,165
25 0 30,788 (*) (*) (*) (*) (*) (*) 55,050 55,050 63,858
30 0 39,295 (*) (*) (*) (*) (*) (*) 86,609 86,609 92,671
35 0 50,151 (*) (*) (*) (*) (*) (*) 137,483 137,483 144,357
</TABLE>
(1) ASSUMES NO POLICY LOANS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $7.50 PER MONTH.
(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 FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
32
<PAGE> 36
DEATH BENEFIT OPTION 2
$2,000 ANNUAL PREMIUM: $40,605 SPECIFIED AMOUNT
MALE: NON-TOBACCO: SIMPLIFIED ISSUE: AGE 45
CURRENT VALUES
<TABLE>
<CAPTION>
0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
ANNUAL NET NET NET NET NET NET
PREMIUMS ACCUM SURR DEATH ACCUM SURR DEATH ACCUM SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,000 2,100 1,673 1,220 42,278 1,778 1,325 42,384 1,884 1,431 42,489
2 2,000 4,305 3,314 2,861 43,919 3,628 3,175 44,233 3,954 3,501 44,560
3 2,000 6,620 4,921 4,468 45,526 5,550 5,097 46,155 6,230 5,777 46,835
4 2,000 9,051 6,496 6,066 47,102 7,548 7,118 48,154 8,731 8,301 49,337
5 2,000 11,604 8,036 7,628 48,641 9,623 9,215 50,228 11,478 11,071 52,084
6 2,000 14,284 9,541 9,156 50,146 11,777 11,392 52,382 14,497 14,112 55,102
7 2,000 17,098 11,010 10,647 51,615 14,012 13,650 54,617 17,813 17,451 58,419
8 2,000 20,053 12,442 12,102 53,047 16,331 15,991 56,936 21,457 21,117 62,062
9 2,000 23,156 13,838 13,612 54,444 18,737 18,511 59,343 25,461 25,234 66,066
10 2,000 26,414 15,195 15,195 55,801 21,231 21,231 61,836 29,859 29,859 70,465
15 2,000 45,315 21,582 21,582 62,187 35,358 35,358 75,964 59,598 59,598 100,203
20 2,000 69,439 26,779 26,779 67,385 52,067 52,067 92,672 107,276 107,276 147,882
25 2,000 100,227 30,327 30,327 70,932 71,359 71,359 111,964 183,588 183,588 224,194
30 2,000 139,522 31,312 31,312 71,917 92,666 92,666 133,272 305,356 305,356 345,961
35 2,000 189,673 28,568 28,568 69,173 114,920 114,920 155,526 499,671 499,671 540,277
</TABLE>
(1) ASSUMES NO POLICY LOANS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $5 PER MONTH.
(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 FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
33
<PAGE> 37
DEATH BENEFIT OPTION 2
$2,000 ANNUAL PREMIUM: $40,605 SPECIFIED AMOUNT
MALE: NON-TOBACCO: SIMPLIFIED ISSUE: AGE 45
GUARANTEED VALUES
<TABLE>
<CAPTION>
0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
ANNUAL NET NET NET NET NET NET
PREMIUMS ACCUM SURR DEATH ACCUM SURR DEATH ACCUM SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,000 2,100 1,582 1,129 42,187 1,684 1,231 42,289 1,787 1,334 42,392
2 2,000 4,305 3,125 2,672 43,731 3,428 2,975 44,033 3,743 3,289 44,348
3 2,000 6,620 4,630 4,177 45,235 5,232 4,779 45,837 5,884 5,431 46,489
4 2,000 9,051 6,095 5,665 46,701 7,099 6,668 47,704 8,228 7,798 48,833
5 2,000 11,604 7,520 7,112 48,125 9,028 8,620 49,633 10,794 10,386 51,400
6 2,000 14,284 8,902 8,516 49,507 11,021 10,636 51,626 13,603 13,218 54,208
7 2,000 17,098 10,238 9,876 50,843 13,076 12,714 53,681 16,676 16,313 57,281
8 2,000 20,053 11,526 11,187 52,132 15,193 14,853 55,799 20,036 19,697 60,642
9 2,000 23,156 12,763 12,536 53,368 17,370 17,144 57,975 23,709 23,483 64,315
10 2,000 26,414 13,944 13,944 54,550 19,606 19,606 60,211 27,723 27,723 68,328
15 2,000 45,315 18,921 18,921 59,526 31,610 31,610 72,215 54,111 54,111 94,716
20 2,000 69,439 21,873 21,873 62,479 44,610 44,610 85,215 95,085 95,085 135,690
25 2,000 100,227 21,755 21,755 62,360 57,469 57,469 98,075 158,326 158,326 198,931
30 2,000 139,522 16,799 16,799 57,404 67,891 67,891 108,497 255,411 255,411 296,016
35 2,000 189,673 4,017 4,017 44,622 71,414 71,414 112,019 403,362 403,362 443,967
</TABLE>
(1) ASSUMES NO POLICY LOANS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $7.50 PER MONTH.
(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 FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
34
<PAGE> 38
DEATH BENEFIT OPTION 1
$5,000 ANNUAL PREMIUM: $114,019 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 45
CURRENT VALUES
<TABLE>
<CAPTION>
0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
ANNUAL NET NET NET NET NET NET
PREMIUMS ACCUM SURR DEATH ACCUM SURR DEATH ACCUM SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 5,000 5,250 4,298 3,025 114,019 4,565 3,293 114,019 4,833 3,561 114,019
2 5,000 10,763 8,526 7,254 114,019 9,328 8,055 114,019 10,162 8,889 114,019
3 5,000 16,551 12,684 11,412 114,019 14,295 13,023 114,019 16,037 14,765 114,019
4 5,000 22,628 16,775 15,566 114,019 19,480 18,272 114,019 22,522 21,313 114,019
5 5,000 29,010 20,793 19,648 114,019 24,888 23,742 114,019 29,675 28,530 114,019
6 0 30,460 20,097 19,016 114,019 25,607 24,525 114,019 32,370 31,288 114,019
7 0 31,983 19,382 18,364 114,019 26,334 25,316 114,019 35,329 34,311 114,019
8 0 33,582 18,644 17,690 114,019 27,068 26,114 114,019 38,581 37,626 114,019
9 0 35,261 17,886 17,250 114,019 27,811 27,175 114,019 42,160 41,523 114,019
10 0 37,024 17,098 17,098 114,019 28,555 28,555 114,019 46,097 46,097 114,019
15 0 47,254 12,658 12,658 114,019 32,294 32,294 114,019 72,813 72,813 114,019
20 0 60,309 6,803 6,803 114,019 35,667 35,667 114,019 117,021 117,021 142,765
25 0 76,971 (*) (*) (*) 37,655 37,655 114,019 188,506 188,506 218,667
30 0 98,237 (*) (*) (*) 35,905 35,905 114,019 303,905 303,905 325,179
35 0 125,378 (*) (*) (*) 25,759 25,759 114,019 491,641 491,641 516,223
</TABLE>
(1) ASSUMES NO POLICY LOANS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $5 PER MONTH.
(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 FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
35
<PAGE> 39
DEATH BENEFIT OPTION 1
$5,000 ANNUAL PREMIUM: $114,019 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 45
GUARANTEED VALUES
<TABLE>
<CAPTION>
0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
ANNUAL NET NET NET NET NET NET
PREMIUMS ACCUM SURR DEATH ACCUM SURR DEATH ACCUM SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 5,000 5,250 4,165 2,893 114,019 4,429 3,156 114,019 4,692 3,420 114,019
2 5,000 10,763 8,254 6,981 114,019 9,039 7,767 114,019 9,857 8,584 114,019
3 5,000 16,551 12,266 10,994 114,019 13,841 12,569 114,019 15,545 14,273 114,019
4 5,000 22,628 16,203 14,994 114,019 18,844 17,635 114,019 21,814 20,605 114,019
5 5,000 29,010 20,065 18,920 114,019 24,057 22,912 114,019 28,728 27,583 114,019
6 0 30,460 19,197 18,115 114,019 24,557 23,476 114,019 31,147 30,065 114,019
7 0 31,983 18,292 17,274 114,019 25,039 24,022 114,019 33,788 32,770 114,019
8 0 33,582 17,344 16,390 114,019 25,496 24,542 114,019 36,673 35,719 114,019
9 0 35,261 16,344 15,708 114,019 25,920 25,284 114,019 39,826 39,190 114,019
10 0 37,024 15,285 15,285 114,019 26,302 26,302 114,019 43,276 43,276 114,019
15 0 47,254 8,778 8,778 114,019 27,287 27,287 114,019 66,314 66,314 114,019
20 0 60,309 (*) (*) (*) 25,345 25,345 114,019 104,483 104,483 127,470
25 0 76,971 (*) (*) (*) 16,770 16,770 114,019 166,137 166,137 192,719
30 0 98,237 (*) (*) (*) (*) (*) (*) 264,541 264,541 283,058
35 0 125,378 (*) (*) (*) (*) (*) (*) 423,713 423,713 444,899
</TABLE>
(1) ASSUMES NO POLICY LOANS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $7.50 PER MONTH.
(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 FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
36
<PAGE> 40
DEATH BENEFIT OPTION 2
$5,000 ANNUAL PREMIUM: $103,521 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 45
CURRENT VALUES
<TABLE>
<CAPTION>
0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
ANNUAL NET NET NET NET NET NET
PREMIUMS ACCUM SURR DEATH ACCUM SURR DEATH ACCUM SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 5,000 5,250 4,313 3,157 107,834 4,580 3,425 108,101 4,848 3,693 108,369
2 5,000 10,763 8,545 7,390 112,066 9,347 8,192 112,868 10,180 9,025 113,702
3 5,000 16,551 12,696 11,541 116,217 14,305 13,149 117,826 16,043 14,888 119,565
4 5,000 22,628 16,767 15,669 120,288 19,463 18,366 122,984 22,493 21,396 126,015
5 5,000 29,010 20,750 19,711 124,272 24,822 23,782 128,343 29,582 28,542 133,103
6 5,000 35,710 24,650 23,668 128,171 30,393 29,411 133,914 37,376 36,394 140,898
7 5,000 42,746 28,462 27,538 131,984 36,180 35,256 139,701 45,945 45,021 149,467
8 5,000 50,133 32,186 31,319 135,707 42,190 41,323 145,711 55,366 54,500 158,887
9 5,000 57,889 35,822 35,245 139,344 48,433 47,856 151,954 65,727 65,150 169,249
10 5,000 66,034 39,365 39,365 142,886 54,912 54,912 158,433 77,117 77,117 180,638
15 5,000 113,287 56,148 56,148 159,669 91,733 91,733 195,254 154,255 154,255 257,776
20 5,000 173,596 70,150 70,150 173,671 135,657 135,657 239,179 278,346 278,346 381,867
25 5,000 250,567 80,391 80,391 183,912 187,059 187,059 290,580 477,700 477,700 581,221
30 5,000 348,804 84,916 84,916 188,437 245,176 245,176 348,697 797,182 797,182 900,704
35 5,000 474,182 81,221 81,221 184,742 308,270 308,270 411,791 1,309,263 1,309,263 1,412,784
</TABLE>
(1) ASSUMES NO POLICY LOANS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $5 PER MONTH.
(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 FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
37
<PAGE> 41
DEATH BENEFIT OPTION 2
$5,000 ANNUAL PREMIUM: $103,521 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 45
GUARANTEED VALUES
<TABLE>
<CAPTION>
0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
ANNUAL NET NET NET NET NET NET
PREMIUMS ACCUM SURR DEATH ACCUM SURR DEATH ACCUM SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 5,000 5,250 4,186 3,031 107,707 4,450 3,294 107,971 4,713 3,558 108,235
2 5,000 10,763 8,281 7,126 111,803 9,067 7,911 112,588 9,884 8,728 113,405
3 5,000 16,551 12,285 11,130 115,806 13,856 12,701 117,377 15,555 14,400 119,077
4 5,000 22,628 16,195 15,098 119,716 18,823 17,725 122,344 21,778 20,680 125,299
5 5,000 29,010 20,010 18,970 123,531 23,971 22,931 127,492 28,603 27,564 132,125
6 5,000 35,710 23,726 22,744 127,247 29,303 28,321 132,824 36,090 35,108 139,611
7 5,000 42,746 27,339 26,415 130,860 34,821 33,897 138,343 44,299 43,375 147,820
8 5,000 50,133 30,842 29,975 134,363 40,527 39,660 144,048 53,298 52,431 156,819
9 5,000 57,889 34,229 33,651 137,750 46,418 45,841 149,939 63,158 62,581 166,680
10 5,000 66,034 37,495 37,495 141,016 52,497 52,497 156,018 73,963 73,963 177,484
15 5,000 113,287 51,792 51,792 155,313 85,710 85,710 189,231 145,608 145,608 249,129
20 5,000 173,596 61,807 61,807 165,328 123,228 123,228 226,749 258,515 258,515 362,037
25 5,000 250,567 65,529 65,529 169,050 163,419 163,419 266,940 435,826 435,826 539,347
30 5,000 348,804 59,582 59,582 163,103 202,566 202,566 306,087 713,500 713,500 817,021
35 5,000 474,182 38,307 38,307 141,828 233,039 233,039 336,560 1,146,772 1,146,772 1,250,293
</TABLE>
(1) ASSUMES NO POLICY LOANS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $7.50 PER MONTH.
(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 FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
38
<PAGE> 42
DEATH BENEFIT OPTION 1
$20,000 ANNUAL PREMIUM: $301,625 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 55
CURRENT VALUES
<TABLE>
<CAPTION>
0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
ANNUAL NET NET NET NET NET NET
PREMIUMS ACCUM SURR DEATH ACCUM SURR DEATH ACCUM SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 20,000 21,000 17,246 12,639 301,625 18,318 13,711 301,625 19,392 14,784 301,625
2 20,000 43,050 34,218 29,611 301,625 37,437 32,830 301,625 40,785 36,178 301,625
3 20,000 66,203 50,937 46,329 301,625 57,415 52,807 301,625 64,419 59,812 301,625
4 20,000 90,513 67,401 63,024 301,625 78,293 73,916 301,625 90,540 86,163 301,625
5 20,000 116,038 83,596 79,449 301,625 100,104 95,958 301,625 119,413 115,266 301,625
6 0 121,840 80,906 76,989 301,625 103,165 99,249 301,625 130,500 126,583 301,625
7 0 127,932 78,117 74,431 301,625 106,271 102,585 301,625 142,715 139,029 301,625
8 0 134,329 75,201 71,746 301,625 109,404 105,948 301,625 156,179 152,723 301,625
9 0 141,045 72,145 69,841 301,625 112,561 110,257 301,625 171,043 168,739 301,625
10 0 148,097 68,954 68,954 301,625 115,755 115,755 301,625 187,493 187,493 301,625
15 0 189,014 49,393 49,393 301,625 131,395 131,395 301,625 300,823 300,823 348,954
20 0 241,235 19,138 19,138 301,625 144,329 144,329 301,625 486,304 486,304 520,345
25 0 307,884 (*) (*) (*) 150,363 150,363 301,625 788,319 788,319 827,735
30 0 392,947 (*) (*) (*) 140,942 140,942 301,625 1,271,902 1,271,902 1,335,497
35 0 501,511 (*) (*) (*) 91,006 91,006 301,625 2,036,854 2,036,854 2,138,697
</TABLE>
(1) ASSUMES NO POLICY LOANS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $5 PER MONTH.
(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 FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
39
<PAGE> 43
DEATH BENEFIT OPTION 1
$20,000 ANNUAL PREMIUM: $301,625 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 55
GUARANTEED VALUES
<TABLE>
<CAPTION>
0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
ANNUAL NET NET NET NET NET NET
PREMIUMS ACCUM SURR DEATH ACCUM SURR DEATH ACCUM SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 20,000 21,000 16,107 11,499 301,625 17,145 12,537 301,625 18,184 13,577 301,625
2 20,000 43,050 31,880 27,273 301,625 34,965 30,358 301,625 38,177 33,570 301,625
3 20,000 66,203 47,335 42,728 301,625 53,516 48,908 301,625 60,208 55,601 301,625
4 20,000 90,513 62,478 58,101 301,625 72,847 68,470 301,625 84,527 80,150 301,625
5 20,000 116,038 77,313 73,166 301,625 93,015 88,869 301,625 111,425 107,279 301,625
6 0 121,840 73,076 69,159 301,625 94,193 90,277 301,625 120,222 116,306 301,625
7 0 127,932 68,523 64,837 301,625 95,142 91,456 301,625 129,796 126,110 301,625
8 0 134,329 63,592 60,137 301,625 95,804 92,348 301,625 140,230 136,774 301,625
9 0 141,045 58,215 55,911 301,625 96,119 93,815 301,625 151,628 149,325 301,625
10 0 148,097 52,319 52,319 301,625 96,021 96,021 301,625 164,123 164,123 301,625
15 0 189,014 12,046 12,046 301,625 86,589 86,589 301,625 250,337 250,337 301,625
20 0 241,235 (*) (*) (*) 47,333 47,333 301,625 398,663 398,663 426,569
25 0 307,884 (*) (*) (*) (*) (*) (*) 638,828 638,828 670,769
30 0 392,947 (*) (*) (*) (*) (*) (*) 1,011,794 1,011,794 1,062,384
35 0 501,511 (*) (*) (*) (*) (*) (*) 1,573,016 1,573,016 1,651,667
</TABLE>
(1) ASSUMES NO POLICY LOANS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $7.50 PER MONTH.
(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 FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
40
<PAGE> 44
DEATH BENEFIT OPTION 2
$20,000 ANNUAL PREMIUM: $271,462 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 55
CURRENT VALUES
<TABLE>
<CAPTION>
0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
ANNUAL NET NET NET NET NET NET
PREMIUMS ACCUM SURR DEATH ACCUM SURR DEATH ACCUM SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 20,000 21,000 17,298 13,151 288,760 18,370 14,223 289,832 19,442 15,296 290,904
2 20,000 43,050 34,246 30,099 305,708 37,457 33,310 308,919 40,796 36,650 312,258
3 20,000 66,203 50,855 46,709 322,317 57,299 53,153 328,761 64,265 60,118 335,727
4 20,000 90,513 67,116 63,176 338,578 77,914 73,975 349,376 90,050 86,111 361,512
5 20,000 116,038 82,994 79,262 354,456 99,296 95,564 370,758 118,353 114,621 389,815
6 20,000 142,840 98,503 94,979 369,965 121,487 117,963 392,949 149,439 145,914 420,901
7 20,000 170,982 113,634 110,317 385,096 144,508 141,191 415,970 183,581 180,264 455,043
8 20,000 200,531 128,361 125,251 399,823 168,362 165,252 439,824 221,062 217,952 492,524
9 20,000 231,558 142,677 140,604 414,139 193,075 191,002 464,537 262,215 260,141 533,677
10 20,000 264,136 156,599 156,599 428,061 218,694 218,694 490,156 307,428 307,428 578,890
15 20,000 453,150 220,839 220,839 492,301 362,421 362,421 633,883 611,568 611,568 883,030
20 20,000 694,385 269,646 269,646 541,108 528,498 528,498 799,960 1,094,741 1,094,741 1,366,203
25 20,000 1,002,269 297,796 297,796 569,258 715,032 715,032 986,494 1,862,319 1,862,319 2,133,781
30 20,000 1,395,216 298,297 298,297 569,759 917,183 917,183 1,188,645 3,083,762 3,083,762 3,355,224
35 20,000 1,896,726 258,982 258,982 530,444 1,122,561 1,122,561 1,394,023 5,029,049 5,029,049 5,300,511
</TABLE>
(1) ASSUMES NO POLICY LOANS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $5 PER MONTH.
(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 FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
41
<PAGE> 45
DEATH BENEFIT OPTION 2
$20,000 ANNUAL PREMIUM: $271,462 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 55
GUARANTEED VALUES
<TABLE>
<CAPTION>
0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
ANNUAL NET NET NET NET NET NET
PREMIUMS ACCUM SURR DEATH ACCUM SURR DEATH ACCUM SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 20,000 21,000 16,210 12,063 287,672 17,247 13,100 288,709 18,285 14,139 289,747
2 20,000 43,050 31,952 27,805 303,414 35,022 30,876 306,484 38,219 34,072 309,681
3 20,000 66,203 47,218 43,071 318,680 53,335 49,189 324,797 59,956 55,809 331,418
4 20,000 90,513 61,989 58,049 333,451 72,181 68,242 343,643 83,654 79,715 355,116
5 20,000 116,038 76,238 72,506 347,700 91,550 87,818 363,012 109,481 105,749 380,943
6 20,000 142,840 89,938 86,414 361,400 111,428 107,903 382,890 137,619 134,095 409,081
7 20,000 170,982 103,059 99,742 374,521 131,797 128,480 403,259 168,266 164,949 439,728
8 20,000 200,531 115,551 112,441 387,013 152,620 149,510 424,082 201,620 198,510 473,082
9 20,000 231,558 127,364 125,291 398,827 173,857 171,783 445,319 237,898 235,825 509,360
10 20,000 264,136 138,455 138,455 409,917 195,468 195,468 466,930 277,344 277,344 548,806
15 20,000 453,150 181,584 181,584 453,046 307,734 307,734 579,196 532,612 532,612 804,074
20 20,000 694,385 196,954 196,954 468,416 418,925 418,925 690,387 917,807 917,807 1,189,269
25 20,000 1,002,269 169,899 169,899 441,361 509,435 509,435 780,897 1,493,080 1,493,080 1,764,542
30 20,000 1,395,216 81,828 81,828 353,290 549,586 549,586 821,048 2,351,116 2,351,116 2,622,578
35 20,000 1,896,726 (*) (*) (*) 486,060 486,060 757,522 3,623,823 3,623,823 3,895,285
</TABLE>
(1) ASSUMES NO POLICY LOANS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $7.50 PER MONTH.
(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 FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
42
<PAGE> 46
DEATH BENEFIT OPTION 1
$20,000 ANNUAL PREMIUM: $205,135 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 65
CURRENT VALUES
<TABLE>
<CAPTION>
0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
ANNUAL NET NET NET NET NET NET
PREMIUMS ACCUM SURR DEATH ACCUM SURR DEATH ACCUM SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 20,000 21,000 16,645 11,758 205,135 17,701 12,814 205,135 18,758 13,871 205,135
2 20,000 43,050 33,017 28,131 205,135 36,177 31,290 205,135 39,465 34,578 205,135
3 20,000 66,203 49,143 44,256 205,135 55,501 50,614 205,135 62,382 57,496 205,135
4 20,000 90,513 65,029 60,387 205,135 75,738 71,096 205,135 87,796 83,154 205,135
5 20,000 116,038 80,710 76,312 205,135 96,991 92,593 205,135 116,069 111,671 205,135
6 0 121,840 77,395 73,241 205,135 99,418 95,265 205,135 126,538 122,385 205,135
7 0 127,932 73,834 69,925 205,135 101,795 97,885 205,135 138,136 134,227 205,135
8 0 134,329 70,003 66,338 205,135 104,116 100,452 205,135 151,043 147,378 205,135
9 0 141,045 65,862 63,418 205,135 106,373 103,930 205,135 165,468 163,025 205,135
10 0 148,097 61,348 61,348 205,135 108,539 108,539 205,135 181,661 181,661 205,135
15 0 189,014 30,920 30,920 205,135 117,386 117,386 205,135 293,969 293,969 308,667
20 0 241,235 (*) (*) (*) 120,208 120,208 205,135 474,058 474,058 497,761
25 0 307,884 (*) (*) (*) 107,590 107,590 205,135 758,927 758,927 796,873
30 0 392,947 (*) (*) (*) 47,357 47,357 205,135 1,218,524 1,218,524 1,230,709
</TABLE>
(1) ASSUMES NO POLICY LOANS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $5 PER MONTH.
(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 FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
43
<PAGE> 47
DEATH BENEFIT OPTION 1
$20,000 ANNUAL PREMIUM: $205,135 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 65
GUARANTEED VALUES
<TABLE>
<CAPTION>
0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
ANNUAL NET NET NET NET NET NET
PREMIUMS ACCUM SURR DEATH ACCUM SURR DEATH ACCUM SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 20,000 21,000 14,230 9,343 205,135 15,214 10,328 205,135 16,202 11,315 205,135
2 20,000 43,050 28,144 23,257 205,135 31,031 26,145 205,135 34,044 29,157 205,135
3 20,000 66,203 41,777 36,891 205,135 47,543 42,656 205,135 53,805 48,918 205,135
4 20,000 90,513 55,164 50,522 205,135 64,856 60,214 205,135 75,819 71,177 205,135
5 20,000 116,038 68,334 63,937 205,135 83,094 78,697 205,135 100,492 96,094 205,135
6 0 121,840 62,097 57,943 205,135 82,032 77,879 205,135 106,803 102,650 205,135
7 0 127,932 55,116 51,207 205,135 80,353 76,444 205,135 113,610 109,701 205,135
8 0 134,329 47,214 43,549 205,135 77,903 74,238 205,135 120,984 117,319 205,135
9 0 141,045 38,178 35,734 205,135 74,497 72,054 205,135 129,034 126,590 205,135
10 0 148,097 27,769 27,769 205,135 69,925 69,925 205,135 137,916 137,916 205,135
15 0 189,014 (*) (*) (*) 18,507 18,507 205,135 205,673 205,673 215,956
20 0 241,235 (*) (*) (*) (*) (*) (*) 325,362 325,362 341,630
25 0 307,884 (*) (*) (*) (*) (*) (*) 505,449 505,449 530,722
30 0 392,947 (*) (*) (*) (*) (*) (*) 791,368 791,368 799,282
</TABLE>
(1) ASSUMES NO POLICY LOANS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $7.50 PER MONTH.
(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 FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
44
<PAGE> 48
DEATH BENEFIT OPTION 2
$20,000 ANNUAL PREMIUM: $194,739 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 65
CURRENT VALUES
<TABLE>
<CAPTION>
0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
ANNUAL NET NET NET NET NET NET
PREMIUMS ACCUM SURR DEATH ACCUM SURR DEATH ACCUM SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 20,000 21,000 16,573 11,934 211,311 17,621 12,983 212,360 18,671 14,032 213,410
2 20,000 43,050 32,689 28,050 227,427 35,805 31,166 230,544 39,048 34,409 233,787
3 20,000 66,203 48,339 43,700 243,077 54,560 49,922 249,299 61,291 56,652 256,030
4 20,000 90,513 63,488 59,081 258,226 73,868 69,461 268,607 85,547 81,141 280,286
5 20,000 116,038 78,126 73,951 272,865 93,736 89,561 288,475 112,008 107,833 306,747
6 20,000 142,840 92,247 88,304 286,985 114,173 110,230 308,912 140,884 136,941 335,623
7 20,000 170,982 105,798 102,087 300,537 135,144 131,433 329,883 172,364 168,652 367,102
8 20,000 200,531 118,773 115,294 313,512 156,656 153,177 351,395 206,698 203,219 401,436
9 20,000 231,558 131,149 128,829 325,887 178,700 176,381 373,439 244,149 241,830 438,888
10 20,000 264,136 142,874 142,874 337,613 201,240 201,240 395,978 284,977 284,977 479,716
15 20,000 453,150 192,576 192,576 387,315 322,885 322,885 517,624 554,333 554,333 749,071
20 20,000 694,385 220,318 220,318 415,057 452,791 452,791 647,530 970,524 970,524 1,165,262
25 20,000 1,002,269 217,526 217,526 412,265 581,357 581,357 776,096 1,613,629 1,613,629 1,808,368
30 20,000 1,395,216 173,599 173,599 368,338 693,275 693,275 888,014 2,610,356 2,610,356 2,805,095
</TABLE>
(1) ASSUMES NO POLICY LOANS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $5 PER MONTH.
(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 FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
45
<PAGE> 49
DEATH BENEFIT OPTION 2
$20,000 ANNUAL PREMIUM: $194,739 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 65
GUARANTEED VALUES
<TABLE>
<CAPTION>
0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
ANNUAL NET NET NET NET NET NET
PREMIUMS ACCUM SURR DEATH ACCUM SURR DEATH ACCUM SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 20,000 21,000 14,089 9,450 208,828 15,058 10,419 209,797 16,030 11,391 210,768
2 20,000 43,050 27,502 22,863 222,240 30,300 25,661 225,039 33,219 28,580 227,957
3 20,000 66,203 40,213 35,574 234,951 45,698 41,060 240,437 51,650 47,012 246,389
4 20,000 90,513 52,188 47,781 246,926 61,213 56,807 255,952 71,405 66,999 266,144
5 20,000 116,038 63,376 59,201 258,115 76,787 72,612 271,526 92,556 88,381 287,294
6 20,000 142,840 73,708 69,765 268,447 92,338 88,395 287,077 115,158 111,215 309,897
7 20,000 170,982 83,097 79,386 277,835 107,761 104,050 302,500 139,256 135,545 333,995
8 20,000 200,531 91,429 87,949 286,167 122,921 119,442 317,659 164,871 161,392 359,609
9 20,000 231,558 98,595 96,275 293,333 137,676 135,356 332,414 192,025 189,705 386,763
10 20,000 264,136 104,503 104,503 299,242 151,896 151,896 346,635 220,762 220,762 415,500
15 20,000 453,150 113,030 113,030 307,768 211,043 211,043 405,782 391,195 391,195 585,933
20 20,000 694,385 75,773 75,773 270,511 232,666 232,666 427,405 610,524 610,524 805,263
25 20,000 1,002,269 (*) (*) (*) 178,177 178,177 372,915 875,543 875,543 1,070,282
30 20,000 1,395,216 (*) (*) (*) (*) (*) (*) 1,181,544 1,181,544 1,376,283
</TABLE>
(1) ASSUMES NO POLICY LOANS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $7.50 PER MONTH.
(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 FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
46
<PAGE> 50
<PAGE> 1
- --------------------------------------------------------------------------------
Independent Auditors' Report
The Board of Directors and Contract Owners of
Nationwide VL Separate Account-A (formerly Financial Horizons VL Separate
Account-1)
Nationwide Life and Annuity Insurance Company (formerly Financial Horizons
Life Insurance Company)
We have audited the accompanying statement of assets, liabilities and
contract owners' equity of Nationwide VL Separate Account-A (formerly Financial
Horizons VL Separate Account-1) as of December 31, 1995, and the related
statements of operations and changes in contract owners' equity and schedules of
changes in unit value for each of the years in the three year period then ended.
These financial statements and schedules of changes in unit value are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedules of changes in unit value
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 and schedules of
changes in unit value 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, 1995, by correspondence with the custodian and the
transfer agents of the underlying mutual funds. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and schedules of changes in unit
value referred to above present fairly, in all material respects, the financial
position of Nationwide VL Separate Account-A (formerly Financial Horizons VL
Separate Account-1) as of December 31, 1995, and the results of its operations
and its changes in contract owners' equity and the schedules of changes in unit
value for each of the years in the three year period then ended in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Columbus, Ohio
February 6, 1996
- --------------------------------------------------------------------------------
<PAGE> 2
- --------------------------------------------------------------------------------
NATIONWIDE VL SEPARATE ACCOUNT-A
(formerly Financial Horizons VL Separate Account-1)
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY
December 31, 1995
<TABLE>
<S> <C>
ASSETS:
Investments at market value:
Fidelity VIP - Growth Portfolio (FidGro)
1,203 shares (cost $27,185) $ 35,127
Nationwide SAT - Capital Appreciation Fund (NWCapApp)
85 shares (cost $930) 1,145
Nationwide SAT - Government Bond Fund (NWGvtBd)
1,282 shares (cost $13,566) 14,562
Nationwide SAT - Money Market Fund (NWMyMkt)
1,941 shares (cost $1,941) 1,941
Nationwide SAT - Total Return Fund (NWTotRet)
960 shares (cost $9,900) 11,079
Neuberger & Berman - Balanced Portfolio (NBBal)
682 shares (cost $10,265) 11,942
TCI Portfolios - TCI Advantage (TCIAdv)
56,330 shares (cost $285,447) 348,683
--------
Total investments 424,479
Accounts receivable 294
--------
Total assets 424,773
========
CONTRACT OWNERS' EQUITY $424,773
========
</TABLE>
<TABLE>
<CAPTION>
Contract owners' equity represented by: UNITS UNIT VALUE
Multiple Payment Contracts and Flexible Premium ----- ----------
Contracts:
<S> <C> <C> <C>
Fidelity VIP - Growth Portfolio 2,002 $17.583952 $ 35,203
Nationwide SAT - Capital Appreciation Fund 78 14.713230 1,148
Nationwide SAT - Government Bond Fund 971 14.984933 14,550
Nationwide SAT - Money Market Fund 164 11.714295 1,921
Nationwide SAT - Total Return Fund 608 18.192762 11,061
Neuberger & Berman - Balanced Portfolio 820 14.878481 12,200
TCI Portfolios - TCI Advantage 276 13.112917 3,619
TCI Portfolios - TCI Advantage
Initial Funding by Depositor (note 1a) 25,000 13.802855 345,071
====== ========= =======
$424,773
========
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
<PAGE> 3
NATIONWIDE VL SEPARATE ACCOUNT-A
(formerly Financial Horizons VL Separate Account-1)
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
--------- ------- -------
<S> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested capital gains and dividends $ 13,451 12,249 7,192
--------- ------- -------
Gain (loss) on investments:
Proceeds from redemptions of mutual fund shares 36,212 134,821 99,921
Cost of mutual fund shares sold (35,326) (138,965) (99,869)
--------- ------- -------
Realized gain (loss) on investments 886 (4,144) 52
Change in unrealized gain (loss) on investments 53,488 (7,482) 13,210
--------- ------- -------
Net gain (loss) on investments 54,374 (11,626) 13,262
--------- ------- -------
Net investment activity 67,825 623 20,454
--------- ------- -------
EQUITY TRANSACTIONS:
Purchase payments received from contract owners 36,589 - 91,893
Surrenders (note 2d) (164) (9,107) (8,020)
Policy loans (net of repayments) (note 4) (23,321) - -
--------- ------- -------
Net equity transactions 13,104 (9,107) 83,873
--------- ------- -------
EXPENSES:
Deductions for surrender charges (note 2d) - - (2,559)
Redemptions to pay cost of insurance charges and
administrative charges (notes 2b and 2c) (12,670) (20,999) (6,826)
Deductions for asset charges (note 3) (621) (1,049) (298)
--------- ------- -------
Total expenses (13,291) (22,048) (9,683)
--------- ------- -------
NET CHANGE IN CONTRACT OWNERS' EQUITY 67,638 (30,532) 94,644
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD 357,135 387,667 293,023
--------- ------- -------
CONTRACT OWNERS' EQUITY END OF PERIOD $ 424,773 357,135 387,667
========= ======= =======
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
<PAGE> 4
- --------------------------------------------------------------------------------
NATIONWIDE VL SEPARATE ACCOUNT-A
(formerly Financial Horizons VL Separate Account-1)
NOTES TO FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Nature of Operations
The Nationwide VL Separate Account-A (formerly Financial Horizons VL
Separate Account-1) (the Account) was established pursuant to a resolution of
the Board of Directors of Nationwide Life and Annuity Insurance Company
(formerly Financial Horizons Life Insurance Company) (the Company) on August 8,
1984. The Account has been registered as a unit investment trust under the
Investment Company Act of 1940. On August 21, 1991, the Company (Depositor)
transferred to the Account, 50,000 shares of the TCI Portfolios, Inc.-TCI
Advantage fund for which the Account was credited with 25,000 accumulation
units. The value of the accumulation units purchased by the Company on August
21, 1991 was $250,000.
The Company offers Modified Single Premium and Flexible Premium Variable
Life Insurance Policies through the Account. The primary distribution for the
contracts is through banks and other financial institutions; however, other
distributors may be utilized.
(b) The Contracts
Only contracts with a front-end sales charge, a contingent deferred sales
charge and certain other fees, have been purchased. Additionally, contracts
without a front-end sales charge, but with a contingent deferred sales charge
and certain other fees, have been purchased. 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 Fidelity Variable Insurance Products Fund (Fidelity VIP);
Fidelity VIP - Growth Portfolio (FidGro)
Funds of the Nationwide Separate Account Trust (Nationwide SAT) (managed
for a fee by an affiliated investment advisor);
Nationwide SAT - Capital Appreciation Fund (NWCapApp)
Nationwide SAT - Government Bond Fund (NWGvtBd)
Nationwide SAT - Money Market Fund (NWMyMkt)
Nationwide SAT - Total Return Fund (NWTotRet)
Portfolio of the Neuberger & Berman Advisers Management Trust (Neuberger &
Berman);
Neuberger & Berman - Balanced Portfolio (NBBal)
Portfolio of the TCI Portfolios, Inc. (TCI Portfolios);
TCI Portfolios - TCI Advantage (TCIAdv)
At December 31, 1995, contract owners have invested in all of the above
funds. The contract owners' equity is affected by the investment results of each
fund, equity transactions by contract owners and certain policy charges (see
notes 2 and 3). 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 investment options, 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, 1995. The cost of investments sold is
determined on a 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, the
operations of the Company, which is taxed as a life insurance company under the
provisions of 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.
<PAGE> 5
(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 Premiums
On multiple payment contracts and flexible premium contracts, the Company
deducts a charge for state premium taxes equal to 2.5% of all premiums received
to cover the payment of these premium taxes. The Company also deducts a sales
load from each premium payment received not to exceed 3.5% of each premium
payment. The Company may at its sole discretion reduce this sales loading.
(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
For multiple payment contracts, the Company currently deducts a monthly
administrative charge of $5 (may deduct up to $7.50, maximum) to recover policy
maintenance, accounting, record keeping and other administrative expenses.
For flexible premium contracts, the Company currently deducts a monthly
administrative charge of $25 during the first policy year and $5 per month
thereafter (may deduct up to $7.50, maximum) to recover policy maintenance,
accounting, record keeping and other administrative expenses. Additionally, the
Company deducts an increase charge of $2.04 per year per $1,000 applied to any
increase in the specified amount during the first 12 months after the increase
becomes effective.
For single premium contracts, the Company deducts an annual administrative
charge which is determined as follows:
Purchase payments totalling less than $25,000 - $90/year
Purchase payments totalling $25,000 or more - $50/year
The above charges are assessed against each contract by liquidating units.
No charges were deducted from the initial funding, or from the earnings
thereon.
(d) Surrenders
Policy surrenders result in a redemption of the contract value from the
Account and payment of the surrender proceeds to the contract owner or designee.
The surrender proceeds consist of the contract value, less any outstanding
policy loans, and less a surrender charge, if applicable. The charge is
determined according to contract type.
For multiple payment contracts and flexible premium contracts, the amount
charged is determined based upon a specified percentage of the initial surrender
charge, which varies by issue age, sex and rate class. The charge is 100% of the
initial surrender charge in the first year, declining to 0% after the ninth
year.
For single premium contracts, the charge is determined based upon a
specified percentage of the original purchase payment. The charge is 8.5% in the
first year, and declines to 0% after the ninth year.
(3) ASSET CHARGES
For multiple payment contracts and flexible premium contracts, the Company
deducts charges from the contract to cover mortality and expense risk charges
related to operations, and to recover policy maintenance charges. The charge is
equal to an annual rate of .80%, with certain exceptions.
For single premium contracts, the Company deducts a charge from the
contract to cover mortality and expense risk charges related to operations, and
to recover policy maintenance and premium tax charges. The charge is equal to an
annual rate of 1.30% during the first ten policy years, and 1.00% thereafter.
The above charges are assessed through the daily unit value calculation. No
charges are deducted from the initial funding, or from earnings thereon.
<PAGE> 6
(4) POLICY LOANS (NET OF REPAYMENTS)
Contract provisions allow contract owners to borrow up to 90% of a policy's
cash surrender value. On each policy anniversary following the initial loan, 6%
interest is due and payable to the Company.
At the time the loan is granted, the amount of the loan is transferred from
the Account to the Company's general account as collateral for the outstanding
loan. Collateral amounts in the general account are credited with the stated
rate of interest in effect at the time the loan is made, subject to a guaranteed
minimum rate. Loan repayments result in a transfer of collateral, including
interest, back to the Account.
(5) SCHEDULE I
Schedule I presents the components of the change in the unit values, which
are the basis for determining contract owners' equity. This schedule is
presented for each sub-account in the following format:
- - Beginning unit value - Jan. 1
- - Reinvested capital gains and dividends
(This amount reflects the increase in the unit value due to
capital gains and dividend distributions from the underlying mutual
funds.)
- - Unrealized gain (loss)
(This amount reflects the increase (decrease) in the unit value
resulting from the market appreciation (depreciation) of the
underlying mutual funds.)
- - Asset charges
(This amount reflects the decrease in the unit value due to the
charges discussed in note 3.)
- - Ending unit value - Dec. 31
- - Percentage increase (decrease) in unit value.
- --------------------------------------------------------------------------------
<PAGE> 7
Schedule I
NATIONWIDE VL SEPARATE ACCOUNT-A
(formerly Financial Horizons VL Separate Account-1)
MULTIPLE PAYMENT CONTRACTS AND FLEXIBLE PREMIUM CONTRACTS
SCHEDULES OF CHANGES IN UNIT VALUE
Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
FidGro NWCapApp NWGvtBd NWMyMkt
------ -------- ------- -------
1995
<S> <C> <C> <C> <C>
Beginning unit value - Jan. 1 $13.094007 11.465403 12.720514 11.176411
- ---------------------------------------------------------------------------------------------------------------------
Reinvested capital gains and dividends .072389 .653781 .903001 .629782
- ---------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 4.544905 2.696528 1.472503 .000000
- ---------------------------------------------------------------------------------------------------------------------
Asset charges (.127349) (.102482) (.111085) (.091898)
- ---------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $17.583952 14.713230 14.984933 11.714295
- ---------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease) in unit value* 34% 28% 18% 5%
=====================================================================================================================
1994
Beginning unit value - Jan. 1 $13.201441 11.662121 13.250482 10.845265
- ---------------------------------------------------------------------------------------------------------------------
Reinvested capital gains and dividends .794469 .184927 .833925 .419275
- ---------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (.799798) (.289863) (1.261429) .000000
- ---------------------------------------------------------------------------------------------------------------------
Asset charges (.102105) (.091782) (.102464) (.088129)
- ---------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $13.094007 11.465403 12.720514 11.176411
- ---------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease) in unit value* (1)% (2)% (4)% 3%
=====================================================================================================================
1993
Beginning unit value - Jan. 1 $11.148182 10.725293 12.196370 10.639809
- ---------------------------------------------------------------------------------------------------------------------
Reinvested capital gains and dividends .248048 .261975 .781559 .291848
- ---------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 1.903014 .761628 .376228 .000000
- ---------------------------------------------------------------------------------------------------------------------
Asset charges (.097803) (.086775) (.103675) (.086392)
- ---------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $13.201441 11.662121 13.250482 10.845265
- ---------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease) in unit value* 18% 9% 9% 2%
=====================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
NWTotRet NBBal TCIAdv TCIAdv+
-------- ----- ------ -------
1995
<S> <C> <C> <C> <C>
Beginning unit value - Jan. 1 14.205723 12.118394 11.321934 11.822996
- -------------------------------------------------------------------------------------------------------------------
Reinvested capital gains and dividends 1.413734 .308616 .411556 .431938
- -------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 2.703396 2.562255 1.477165 1.547921
- -------------------------------------------------------------------------------------------------------------------
Asset charges (.130091) (.110784) (.097738) .000000
- -------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 18.192762 14.878481 13.112917 13.802855
- -------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease) in unit value* 28% 23% 16% 17%
===================================================================================================================
1994
Beginning unit value - Jan. 1 14.167308 12.640011 11.295721 11.701906
- -------------------------------------------------------------------------------------------------------------------
Reinvested capital gains and dividends .717782 .493181 .297670 .309969
- -------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (.565055) (.916591) (.181209) (.188879)
- -------------------------------------------------------------------------------------------------------------------
Asset charges (.114312) (.098207) (.090248) .000000
- -------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 14.205723 12.118394 11.321934 11.822996
- -------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease) in unit value* 0% (4)% 0% 1%
===================================================================================================================
1993
Beginning unit value - Jan. 1 12.875439 11.969093 10.657984 10.953160
- -------------------------------------------------------------------------------------------------------------------
Reinvested capital gains and dividends .527331 .184591 .223352 .230690
- -------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .873117 .583624 .502395 .518056
- -------------------------------------------------------------------------------------------------------------------
Asset charges (.108579) (.097297) (.088010) .000000
- -------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 14.167308 12.640011 11.295721 11.701906
- -------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease) in unit value* 10% 6% 6% 7%
===================================================================================================================
</TABLE>
*An annualized rate of return cannot be determined as asset charges do not
include the policy charges described in note 2.
+ For Depositor, see note 1a.
See note 5.
- --------------------------------------------------------------------------------
<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 (formerly Financial Horizons Life Insurance Company)
(a wholly owned subsidiary of Nationwide Life Insurance Company) as of December
31, 1995 and 1994, 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,
1995. 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, 1995 and 1994, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
In 1994, the Company adopted the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards (SFAS) No. 115,
Accounting for Certain Investments in Debt and Equity Securities.
In 1993, the Company adopted the provisions of SFAS No. 109, Accounting for
Income Taxes and SFAS No. 106, Employers' Accounting for Postretirement Benefits
Other Than Pensions.
KPMG Peat Marwick LLP
Columbus, Ohio
February 26, 1996
<PAGE> 2
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(formerly Financial Horizons Life Insurance Company)
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Balance Sheets
December 31, 1995 and 1994
(000's omitted)
<TABLE>
<CAPTION>
Assets 1995 1994
------ -------- --------
<S> <C> <C>
Investments (notes 5, 8 and 9):
Securities available-for-sale, at fair value:
Fixed maturities (cost $539,214 in 1995; $427,874 in 1994) $555,751 413,764
Equity securities (cost $10,256 in 1995; $9,543 in 1994) 11,407 9,411
Fixed maturities held-to-maturity, at amortized cost (fair value $78,690 in 1994) -- 82,631
Mortgage loans on real estate 104,736 95,281
Real estate 1,117 1,802
Policy loans 94 79
Short-term investments (note 13) 4,844 365
-------- --------
677,949 603,333
-------- --------
Accrued investment income 8,464 8,041
Deferred policy acquisition costs 23,405 41,540
Deferred Federal income tax -- 1,923
Other assets 208 270
Assets held in Separate Accounts (note 8) 257,556 177,933
-------- --------
$967,582 833,040
======== ========
Liabilities and Shareholder's Equity
------------------------------------
Future policy benefits and claims (notes 6 and 8) 621,280 583,188
Accrued Federal income tax (note 7):
Current 708 10
Deferred 2,830 --
-------- --------
3,538 10
-------- --------
Other liabilities 5,031 4,663
Liabilities related to Separate Accounts (note 8) 257,556 177,933
-------- --------
887,405 765,794
-------- --------
Shareholder's equity (notes 3, 4, 5 and 12):
Capital shares, $40 par value. Authorized, issued and outstanding 66 shares 2,640 2,640
Additional paid-in capital 52,960 52,960
Retained earnings 20,123 15,349
Unrealized gains (losses) on securities available-for-sale, net 4,454 (3,703)
-------- --------
80,177 67,246
-------- --------
Commitments (note 9)
$967,582 833,040
======== ========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 3
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(formerly Financial Horizons Life Insurance Company)
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Statements of Income
Years ended December 31, 1995, 1994 and 1993
(000's omitted)
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Revenues (note 14):
Traditional life insurance premiums $ 674 311 85
Universal life and investment product policy charges 4,322 3,601 2,345
Net investment income (note 5) 49,108 45,030 40,477
Realized (losses) gains on investments (note 5) (702) (625) 420
-------- -------- --------
53,402 48,317 43,327
-------- -------- --------
Benefits and expenses:
Benefits and claims 34,180 29,870 29,439
Amortization of deferred policy acquisition costs 5,508 6,940 4,128
Other operating costs and expenses 6,567 6,320 5,424
-------- -------- --------
46,255 43,130 38,991
-------- -------- --------
Income before Federal income tax expense and cumulative effect of
changes in accounting principles 7,147 5,187 4,336
-------- -------- --------
Federal income tax expense (benefit) (note 7):
Current 2,012 2,103 1,982
Deferred 361 (244) (630)
-------- -------- --------
2,373 1,859 1,352
-------- -------- --------
Income before cumulative effect of changes in accounting principles 4,774 3,328 2,984
Cumulative effect of changes in accounting principles, net (note 3) -- -- (514)
-------- -------- --------
Net income $ 4,774 3,328 2,470
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 4
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(formerly Financial Horizons Life Insurance Company)
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Statements of Shareholder's Equity
Years ended December 31, 1995, 1994 and 1993
(000's omitted)
<TABLE>
<CAPTION>
Unrealized
gains (losses)
Additional on securities Total
Capital paid-in Retained available-for- shareholder's
shares capital earnings sale, net equity
-------- ---------- --------- --------------- --------------
<S> <C> <C> <C> <C> <C>
1993:
Balance, beginning of year $ 2,640 43,960 9,551 21 56,172
Net income -- -- 2,470 -- 2,470
Unrealized gains on equity securities, net -- -- -- 17 17
------- ------- ------- ------
-------
Balance, end of year $ 2,640 43,960 12,021 38 58,659
======= ======= ======= ====== =======
1994:
Balance, beginning of year 2,640 43,960 12,021 38 58,659
Capital contribution -- 9,000 -- -- 9,000
Net income -- -- 3,328 -- 3,328
Adjustment for change in accounting for
certain investments in debt and equity
securities, net (note 3) -- -- -- 4,698 4,698
Unrealized losses on securities available-
for-sale, net -- -- -- (8,439) (8,439)
------- ------- ------- ------- -------
Balance, end of year $ 2,640 52,960 15,349 (3,703) 67,246
======= ======= ======= ======= =======
1995:
Balance, beginning of year 2,640 52,960 15,349 (3,703) 67,246
Net income -- -- 4,774 -- 4,774
Unrealized gains on securities available-
for-sale, net -- -- -- 8,157 8,157
------- ------- ------- ------- -------
Balance, end of year $ 2,640 52,960 20,123 4,454 80,177
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
<PAGE> 5
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(formerly Financial Horizons Life Insurance Company)
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Statements of Cash Flows
Years ended December 31, 1995, 1994 and 1993
(000's omitted)
<TABLE>
<CAPTION>
1994 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 4,774 3,328 2,470
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Capitalization of deferred policy acquisition costs (6,754) (7,283) (10,351)
Amortization of deferred policy acquisition costs 5,508 6,940 4,128
Amortization and depreciation 878 473 660
Realized losses (gains) on invested assets, net 702 625 (420)
Deferred Federal income tax expense (benefit) 361 (244) (784)
Increase in accrued investment income (423) (750) (1,078)
Decrease (increase) in other assets 62 (126) 326
Increase (decrease) in policy liabilities 627 926 (202)
Increase (decrease) in accrued Federal income tax payable 698 (254) 666
Increase (decrease) in other liabilities 368 (505) 2,843
-------- -------- --------
Net cash provided by (used in) operating activities 6,801 3,130 (1,742)
-------- -------- --------
Cash flows from investing activities:
Proceeds from maturity of securities available-for-sale 41,729 24,850 --
Proceeds from sale of securities available-for-sale 3,070 13,170 134
Proceeds from maturity of fixed maturities held-to-maturity 11,251 8,483 28,829
Proceeds from sale of fixed maturities -- -- 2,136
Proceeds from repayments of mortgage loans on real estate 8,673 5,733 3,804
Proceeds from sale of real estate 655 -- --
Proceeds from repayments of policy loans 50 2 2
Cost of securities available-for-sale acquired (79,140) (94,130) (661)
Cost of fixed maturities held-to maturity acquired (8,000) (15,544) (100,671)
Cost of mortgage loans on real estate acquired (18,000) (11,000) (31,200)
Cost of real estate acquired (10) (52) (2)
Policy loans issued (66) (80) (2)
-------- -------- --------
Net cash used in investing activities (39,788) (68,568) (97,631)
-------- -------- --------
Cash flows form financing activities:
Proceeds from capital contribution -- 9,000 --
Increase in universal life and investment product account balances 79,523 95,254 127,050
Decrease in universal life and investment product account balances (42,057) (40,223) (33,159)
-------- -------- --------
Net cash provided by financing activities 37,466 64,031 93,891
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 4,479 (1,407) (5,482)
Cash and cash equivalents, beginning of year 365 1,772 7,254
-------- -------- --------
Cash and cash equivalents, end of year $ 4,844 365 1,772
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 6
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(formerly Financial Horizons Life Insurance Company)
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements
December 31, 1995, 1994 and 1993
(000's omitted)
(1) Organization and Description of Business
Nationwide Life and Annuity Insurance Company, formerly Financial
Horizons Life Insurance Company, (the Company) is a wholly owned
subsidiary of Nationwide Life Insurance Company (NLIC).
The Company is a life insurer licensed in 42 states and the District of
Columbia. The Company sells primarily fixed and variable rate annuities
through banks and other financial institutions. In addition, the
Company sells universal life and other interest-sensitive life
insurance products and is subject to competition from other insurers
throughout the United States. The Company is subject to regulation by
the Insurance Departments of states in which it is licensed, and
undergoes periodic examinations by those departments.
The following is a description of the most significant risks facing
life insurers and how the Company mitigates those risks:
Legal/Regulatory Risk is the risk that changes in the legal or
regulatory environment in which an insurer operates will create
additional expenses not anticipated by the insurer in pricing its
products. That is, regulatory initiatives designed to reduce
insurer profits, new legal theories or insurance company
insolvencies through guaranty fund assessments may create costs
for the insurer beyond those currently recorded in the financial
statements. The Company mitigates this risk by operating
throughout the United States, thus reducing its exposure to any
single jurisdiction, and also by employing underwriting practices
which identify and minimize the adverse impact of this risk.
Credit Risk is the risk that issuers of securities owned by the
Company or mortgagors on mortgage loans on real estate owned by
the Company will default. The Company minimizes this risk by
adhering to a conservative investment strategy, by maintaining
sound credit and collection policies and by providing for any
amounts deemed uncollectible.
Interest Rate Risk is the risk that interest rates will change and
cause a decrease in the value of an insurer's investments. This
change in rates may cause certain interest-sensitive products to
become uncompetitive or may cause disintermediation. The Company
mitigates this risk by charging fees for non-conformance with
certain policy provisions, by offering products that transfer this
risk to the purchaser, and/or by attempting to match the maturity
schedule of its assets with the expected payouts of its
liabilities. To the extent that liabilities come due more quickly
than assets mature, an insurer would have to borrow funds or sell
assets prior to maturity and potentially recognize a gain or loss.
(2) Summary of Significant Accounting Policies
The significant accounting policies followed by the Company that
materially affect financial reporting are summarized below. The
accompanying financial statements have been prepared in accordance with
generally accepted accounting principles (GAAP) which differ from
statutory accounting practices prescribed or permitted by regulatory
authorities. See note 4.
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.
<PAGE> 7
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(formerly Financial Horizons Life Insurance Company)
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
(a) Valuation of Investments and Related Gains and Losses
The Company is required to classify its fixed maturity securities
and equity securities as held-to-maturity, available-for-sale or
trading. Fixed maturity securities are classified as
held-to-maturity when the Company has the positive intent and
ability to hold the securities to maturity and are stated at
amortized cost. Fixed maturity securities not classified as
held-to-maturity and all equity securities are classified as
available-for-sale and are stated at fair value, with the
unrealized gains and losses, net of adjustments to deferred policy
acquisition costs and deferred Federal income tax, reported as a
separate component of shareholder's equity. The adjustment to
deferred policy acquisition costs represents the change in
amortization of deferred policy acquisition costs that would have
been required as a charge or credit to operations had such
unrealized amounts been realized. The Company has no fixed
maturity securities classified as held-to-maturity or trading as
of December 31, 1995.
Mortgage loans on real estate are carried at the unpaid principal
balance less valuation allowances. The Company provides valuation
allowances for impairments of mortgage loans on real estate based
on a review by portfolio managers. The measurement of impaired
loans is based on the present value of expected future cash flows
discounted at the loan's effective interest rate or, as a
practical expedient, at the fair value of the collateral, if the
loan is collateral dependent. Loans in foreclosure and loans
considered to be impaired are placed on non-accrual status.
Interest received on non-accrual status mortgage loans on real
estate are included in interest income in the period received.
Real estate is carried at cost less accumulated depreciation and
valuation allowances.
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.
In March, 1995, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 121 -
Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of (SFAS 121). SFAS 121 requires
impairment losses to be 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. SFAS 121 also addresses
the accounting for long-lived assets that are expected to be
disposed of. The statement is effective for fiscal years beginning
after December 15, 1995 and earlier application is permitted.
Previously issued financial statements shall not be restated. The
Company will adopt SFAS 121 in 1996 and the impact on the
financial statements is not expected to be material.
(b) Revenues and Benefits
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.
Universal Life and Investment Products: Universal life products
include universal life, variable universal life and other
interest-sensitive life insurance policies. Investment products
consist primarily of individual deferred annuities and immediate
annuities without life contingencies. Revenues for universal life
and investment products consist of 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
benefits and claims incurred in the period in excess of related
policy account balances and interest credited to policy account
balances.
<PAGE> 8
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(formerly Financial Horizons Life Insurance Company)
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
(c) Deferred Policy Acquisition Costs
The costs of acquiring new business, principally commissions,
certain expenses of the policy issue and underwriting department
and certain variable selling expenses have been deferred for
universal life and investment 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 for administrative services and risks assumed.
(e) Future Policy Benefits
Future policy benefits for annuity policies in the accumulation
phase, universal life and variable universal life policies have
been calculated based on participants' contributions plus interest
credited less applicable contract charges.
(f) Federal Income Tax
The Company files a consolidated Federal income tax return with
Nationwide Mutual Insurance Company (NMIC).
In 1993, the Company adopted Statement of Financial Accounting
Standards No. 109 - Accounting for Income Taxes, which required a
change from the deferred method of accounting for income tax of
APB Opinion 11 to the asset and liability method of accounting for
income tax. Under the asset and liability 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.
The Company has reported the cumulative effect of the change in
method of accounting for income tax in the 1993 statement of
income. See note 3.
(g) Cash Equivalents
For purposes of the statements of cash flows, the Company
considers all short-term investments with original maturities of
three months or less to be cash equivalents.
<PAGE> 9
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(formerly Financial Horizons Life Insurance Company)
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
(h) Reclassification
Certain items in the 1994 and 1993 financial statements have been
reclassified to conform to the 1995 presentation.
(3) Changes in Accounting Principles
Effective January 1, 1994, the Company changed its method of accounting
for certain investments in debt and equity securities in connection
with the issuance of Statement of Financial Accounting Standards No.
115 - Accounting for Certain Investments in Debt and Equity Securities.
As of January 1, 1994, the Company classified fixed maturity securities
with amortized cost and fair value of $380,974 and $399,556,
respectively, as available-for-sale and recorded the securities at fair
value. Previously, these securities were recorded at amortized cost.
The effect as of January 1, 1994, has been recorded as a direct credit
to shareholder's equity as follows:
<TABLE>
<S> <C>
Excess of fair value over amortized cost of fixed maturity securities
available-for-sale $ 18,582
Adjustment to deferred policy acquisition costs (11,355)
Deferred Federal income tax (2,529)
--------
$ 4,698
========
</TABLE>
During 1993, the Company adopted accounting principles in connection
with the issuance of two accounting standards by the FASB. The effect
as of January 1, 1993, the date of adoption, has been recognized in the
1993 statement of income as the cumulative effect of changes in
accounting principles, as follows:
<TABLE>
<S> <C>
Asset/liability method of recognizing income tax (note 2(f)) $ (79)
Accrual method of recognizing postretirement benefits other than
pensions (net of tax benefit of $234) (note 11) (435)
-----
$(514)
=====
</TABLE>
(4) Basis of Presentation
The financial statements have been prepared in accordance with GAAP. 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 such regulatory authority.
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.
The statutory capital shares and surplus of the Company as reported to
regulatory authorities as of December 31, 1995, 1994 and 1993 was
$54,978, $48,947 and $35,875, respectively. The statutory net income of
the Company as reported to regulatory authorities for the years ended
December 31, 1995, 1994 and 1993 was $8,023, $6,173 and $3,539,
respectively.
<PAGE> 10
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(formerly Financial Horizons Life Insurance Company)
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
(5) Investments
An analysis of investment income by investment type follows for the
years ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Gross investment income:
Securities available-for-sale:
Fixed maturities $35,093 36,720 --
Equity securities 713 16 13
Fixed maturities held-to-maturity 4,530 540 34,023
Mortgage loans on real estate 9,106 8,437 7,082
Real estate 273 175 167
Short-term investments 348 207 295
Other 41 19 --
------- ------- -------
Total investment income 50,104 46,114 41,580
Less: investment expenses 996 1,084 1,103
------- ------- -------
Net investment income $49,108 45,030 40,477
======= ======= =======
</TABLE>
An analysis of realized gains (losses) on investments, net of valuation
allowances, by investment type follows for the years ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Fixed maturity securities available-for-sale $(822) 260 --
Fixed maturities -- -- 856
Mortgage loans on real estate 110 (832) (246)
Real estate and other 10 (53) (190)
----- ----- -----
$(702) (625) 420
===== ===== =====
</TABLE>
The components of unrealized gains (losses) on securities
available-for-sale, net, were as follows as of December 31:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Gross unrealized gains (losses) $ 17,688 (14,242)
Adjustment to deferred policy acquisition costs (10,836) 8,545
Deferred Federal income tax (2,398) 1,994
-------- --------
$ 4,454 (3,703)
======== ========
</TABLE>
An analysis of the change in gross unrealized gains (losses) on
securities available-for-sale and fixed maturities held-to-maturity
follows for the years ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturities $ 30,647 (32,692) --
Equity securities 1,283 (190) 26
Fixed maturities held-to-maturity 3,941 (8,407) 5,710
-------- -------- --------
$ 35,871 (41,289) 5,736
======== ======== ========
</TABLE>
<PAGE> 11
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(formerly Financial Horizons Life Insurance Company)
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
The amortized cost and estimated fair value of securities
available-for-sale were as follow as of December 31, 1995:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Fixed maturities:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies $ 3,492 18 -- 3,510
Obligations of states and political subdivisions 271 -- (1) 270
Debt securities issued by foreign governments 6,177 301 -- 6,478
Corporate securities 332,425 10,116 (925) 341,616
Mortgage-backed securities 196,849 7,649 (621) 203,877
-------- -------- -------- --------
Total fixed maturities 539,214 18,084 (1,547) 555,751
Equity securities 10,256 1,151 -- 11,407
-------- -------- -------- --------
$549,470 19,235 (1,547) 567,158
======== ======== ======== ========
</TABLE>
The amortized cost and estimated fair value of securities
available-for-sale were as follow as of December 31, 1994:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Fixed maturities:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies $ 4,442 92 -- 4,534
Obligations of states and political subdivisions 273 -- (21) 252
Debt securities issued by foreign governments 8,517 15 (452) 8,080
Corporate securities 214,332 518 (7,903) 206,947
Mortgage-backed securities 200,310 1,291 (7,650) 193,951
-------- -------- -------- --------
Total fixed maturities 427,874 1,916 (16,026) 413,764
Equity securities 9,543 45 (177) 9,411
-------- -------- -------- --------
$437,417 1,961 (16,203) 423,175
======== ======== ======== ========
</TABLE>
The amortized cost and estimated fair value of fixed maturity corporate
securities held-to-maturity as of December 31, 1994 are $82,631 and
$78,690, respectively. Gross gains of $130 and gross losses of $4,071
were unrealized on those securities.
The amortized cost and estimated fair value of fixed maturity
securities available-for-sale as of December 31, 1995, by contractual
maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Estimated
cost fair value
-------- --------
<S> <C> <C>
Due in one year or less $ 39,072 39,427
Due after one year through five years 224,262 231,200
Due after five years through ten years 75,380 77,726
Due after ten years 3,651 3,521
-------- --------
342,365 351,874
Mortgage-backed securities 196,849 203,877
-------- --------
$539,214 555,751
======== ========
</TABLE>
<PAGE> 12
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(formerly Financial Horizons Life Insurance Company)
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
Proceeds from the sale of securities available-for-sale during
1995 and 1994 were $3,070 and $13,170, respectively, while proceeds
from sales of investments in fixed maturity securities during 1993 were
$2,136. Gross gains of $64 ($373 in 1994 and $205 in 1993) and gross
losses of $6 ($73 1994 and none in 1993) were realized on those sales.
During 1995, the Company transferred fixed maturity securities
classified as held-to-maturity with amortized cost of $2,000 to
available-for-sale securities due to evidence of a significant
deterioration in the issuer's creditworthiness. The transfer of those
fixed maturity securities resulted in a gross unrealized loss of $600.
As permitted by the FASB's Special Report, A Guide to Implementation of
Statement 115 on Accounting for Certain Investments in Debt and Equity
Securities, issued in November, 1995, the Company transferred all of
its fixed maturity securities previously classified as held-to-maturity
to available-for-sale. As of December 14, 1995, the date of transfer,
the fixed maturity securities had amortized cost of $77,405, resulting
in a gross unrealized gain of $1,709.
Fixed maturity securities that were non-income producing for the twelve
month period preceding December 31, 1995 had a carrying value of $996
(none in 1994).
Real estate is presented at cost less accumulated depreciation of $81
in 1995 ($97 in 1994) and valuation allowances of $229 in 1995 ($472 in
1994).
As of December 31, 1995, the recorded investment of mortgage loans on
real estate considered to be impaired (under Statement of Financial
Accounting Standards No. 114, Accounting by Creditors for Impairment of
a Loan as amended by Statement of Financial Accounting Standards No.
118, Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosure) was $966, for which there was no valuation
allowance. During 1995, the average recorded investment in impaired
mortgage loans on real estate was approximately $242 and no interest
income was recognized on those loans.
Activity in the valuation allowance account for mortgage loans on real
estate is summarized for the year ended December 31, 1995:
<TABLE>
<CAPTION>
1995
----
<S> <C>
Allowance, beginning of year $ 860
Reduction of the allowance credited to operations (110)
-----
Allowance, end of year $ 750
=====
</TABLE>
Foreclosures of mortgage loans on real estate were $631 in 1994. No
mortgage loans on real estate were in process of foreclosure or
in-substance foreclosed as of December 31, 1994 .
Fixed maturity securities with an amortized cost of $2,806 and $2,786
as of December 31, 1995 and 1994, respectively, were on deposit with
various regulatory agencies as required by law.
(6) Future Policy Benefits
The liability for future policy benefits for investment products has
been established based on policy terms, interest rates and various
contract provisions. The average interest rate credited on investment
product policies was approximately 5.6%, 5.3% and 6.0% for the years
ended December 31, 1995, 1994 and 1993, respectively.
<PAGE> 13
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(formerly Financial Horizons Life Insurance Company)
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
(7) Federal Income Tax
The tax effects of temporary differences that give rise to significant
components of the net deferred tax asset (liability) as of December 31,
1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Deferred tax assets:
Future policy benefits $ 5,249 5,879
Securities available-for-sale -- 4,985
Liabilities in Separate Accounts 3,445 3,111
Mortgage loans on real estate and real estate 338 458
Other assets and other liabilities 708 101
-------- --------
Total gross deferred tax assets 9,740 14,534
-------- --------
Deferred tax liabilities:
Securities available-for-sale 6,308 --
Deferred policy acquisition costs 6,262 12,611
-------- --------
Total gross deferred tax liabilities 12,570 12,611
-------- --------
$ (2,830) 1,923
======== ========
</TABLE>
The Company has determined that valuation allowances are not necessary
as of December 31, 1995, 1994 and 1993 based on its analysis of future
deductible amounts. 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. In addition, for future deductible amounts for
securities available-for-sale, affiliates of the Company which are
included in the same consolidated Federal income tax return hold
investments that could be sold for capital gains that could offset
capital losses realized by the Company should securities
available-for-sale be sold at a loss.
Total Federal income tax expense for the years ended December 31, 1995,
1994 and 1993 differs from the amount computed by applying the U.S.
Federal income tax rate to income before tax as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------------------- --------------------- ---------------------
Amount % Amount % Amount %
------------ ------- ------------ ------- ------------- -------
<S> <C> <C> <C> <C> <C> <C>
Computed (expected) tax expense $ 2,501 35.0 $ 1,815 35.0 $ 1,518 35.0
Tax exempt interest and dividends
received deduction (150) (2.1) (50) (1.0) (206) (4.7)
Current year increase in U.S. Federal
income tax rate -- -- -- -- 36 0.8
Other, net 22 0.3 94 1.8 4 0.1
------- ---- ------- ---- ------- ----
Total (effective rate of each year $ 2,373 33.2 $ 1,859 35.8 $ 1,352 31.2
======= ==== ======= ==== ======= ====
</TABLE>
Total Federal income tax paid was $1,314, $2,357 and $1,316 during the
years ended December 31, 1995, 1994 and 1993, respectively.
<PAGE> 14
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(formerly Financial Horizons Life Insurance Company)
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
(8) Disclosures about Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107 - Disclosures about
Fair Value of Financial Instruments (SFAS 107) requires disclosure of
fair value information about existing on and off-balance sheet
financial instruments. SFAS 107 defines the fair value of a financial
instrument as the amount at which the financial instrument could be
exchanged in a current transaction between willing parties. In cases
where quoted market prices are not available, fair value is based on
estimates using present value or other valuation techniques.
These techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows.
Although fair value estimates are calculated using assumptions that
management believes are appropriate, changes in assumptions could cause
these estimates to vary materially. In that regard, the derived fair
value estimates cannot be substantiated by comparison to independent
markets and, in many cases, could not be realized in the immediate
settlement of the instruments. SFAS 107 excludes certain assets and
liabilities from its disclosure requirements. Accordingly, the
aggregate fair value amounts presented do not represent the underlying
value of the Company.
Although insurance contracts, other than policies such as annuities
that are classified as investment contracts, are specifically exempted
from SFAS 107 disclosures, estimated fair value of policy reserves on
life insurance contracts are provided to make the fair value
disclosures more meaningful.
The tax ramifications of the related unrealized gains and losses can
have a significant effect on fair value estimates and have not been
considered in the estimates.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures:
Short-term investments and policy loans: The carrying amount
reported in the balance sheets for these instruments approximates
their fair value.
Fixed maturity and equity securities: Fair value for fixed
maturity securities is based on quoted market prices, where
available. For fixed maturity securities not actively traded, fair
value is estimated using values obtained from independent pricing
services or, in the case of private placements, is estimated by
discounting expected future cash flows using a current market rate
applicable to the yield, credit quality and maturity of the
investments. The fair value for equity securities is based on
quoted market prices.
Separate Account assets and liabilities: The fair value of assets
held in Separate Accounts is based on quoted market prices. The
fair value of liabilities related to Separate Accounts is the
amount payable on demand.
Mortgage loans on real estate: The fair value for mortgage loans
on real estate is estimated using discounted cash flow analyses,
using interest rates currently being offered for similar loans to
borrowers with similar credit ratings. Loans with similar
characteristics are aggregated for purposes of the calculations.
Fair value for mortgages in default is the estimated fair value of
the underlying collateral.
Investment contracts: Fair value for the Company's liabilities
under investment type contracts is disclosed using two methods.
For investment contracts without defined maturities, fair value is
the amount payable on demand. For investment contracts with known
or determined maturities, fair value is estimated using discounted
cash flow analysis. Interest rates used are similar to currently
offered contracts with maturities consistent with those remaining
for the contracts being valued.
<PAGE> 15
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(formerly Financial Horizons Life Insurance Company)
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
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.
Carrying amount and estimated fair value of financial instruments
subject to SFAS 107 and policy reserves on life insurance contracts
were as follows as of December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
------------------------ ----------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Assets
------
Investments:
Securities available-for-sale:
Fixed maturities $555,751 555,751 413,764 413,764
Equity securities 11,407 11,407 9,411 9,411
Fixed maturities held-to-maturity -- -- 82,631 78,690
Mortgage loans on real estate 104,736 111,501 95,281 92,340
Policy loans 94 94 79 79
Short-term investments 4,844 4,844 365 365
Assets held in Separate Accounts 257,556 257,556 177,933 177,933
Liabilities
-----------
Investment contracts 616,984 601,582 579,903 563,331
Policy reserves on life insurance contracts 4,296 4,520 3,285 3,141
Liabilities related to Separate Accounts 257,556 246,996 177,933 168,749
</TABLE>
(9) Additional Financial Instruments Disclosures
Financial Instruments with Off-Balance-Sheet Risk: The Company is a
party to financial instruments with off-balance-sheet risk in the
normal course of business through management of its investment
portfolio. These financial instruments include commitments to extend
credit in the form of loans. These instruments involve, to varying
degrees, elements of credit risk in excess of amounts recognized on the
balance sheets.
Commitments to fund fixed rate mortgage loans on real estate are
agreements to lend to a borrower, and are subject to conditions
established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment
of a deposit. Commitments extended by the Company are based on
management's case-by-case credit evaluation of the borrower and the
borrower's loan collateral. The underlying mortgage property represents
the collateral if the commitment is funded. The Company's policy for
new mortgage loans on real estate is to lend no more than 80% 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 $8,500 extending into
1996 were outstanding as of December 31, 1995.
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 28% (27% in 1994) in any geographic area and no more than 14.8%
(8.2% in 1994) with any one borrower.
<PAGE> 16
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(formerly Financial Horizons Life Insurance Company)
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
The summary below depicts loans by remaining principal balance as of
December 31, 1995 and 1994:
<TABLE>
<CAPTION>
Apartment
Office Warehouse Retail & other Total
------ --------- ------ ------- -----
<S> <C> <C> <C> <C> <C>
1995:
East North Central $ 1,854 878 8,263 3,940 14,935
East South Central -- -- 1,877 11,753 13,630
Mountain -- -- -- 1,964 1,964
Middle Atlantic 882 1,820 901 -- 3,603
New England -- 895 1,963 -- 2,858
Pacific 1,923 8,600 8,211 8,838 27,572
South Atlantic 3,953 -- 9,928 15,797 29,678
West North Central -- 1,500 -- -- 1,500
West South Central 3,881 969 -- 4,932 9,782
-------- -------- -------- -------- --------
$ 12,493 14,662 31,143 47,224 105,522
======== ======== ======== ======== ========
Less valuation allowances and unamortized discount 786
--------
Total mortgage loans on real estate, net $104,736
========
</TABLE>
<TABLE>
<CAPTION>
Apartment
Office Warehouse Retail & other Total
------ --------- ------ ------- -----
<S> <C> <C> <C> <C> <C>
1994:
East North Central $ 1,921 2,254 10,290 4,959 19,424
East South Central -- -- 1,921 9,876 11,797
Mountain -- -- -- 1,986 1,986
Middle Atlantic 882 1,872 1,909 -- 4,663
New England -- 921 1,983 -- 2,904
Pacific 1,952 6,873 6,310 4,910 20,045
South Atlantic 1,965 -- 10,049 13,970 25,984
West North Central -- 1,500 -- -- 1,500
West South Central 1,921 978 -- 4,973 7,872
------- ------ ------ ------ -------
$ 8,641 14,398 32,462 40,674 96,175
======= ====== ====== ======
Less valuation allowances and unamortized discount 894
-------
Total mortgage loans on real estate, net $95,281
=======
</TABLE>
(10) Pension Plan
The Company is a participant, together with other affiliated companies,
in a pension plan covering all employees who have completed at least
one thousand hours of service within a twelve-month period and who have
met certain age requirements. Benefits are based upon the highest
average annual salary of a specified number of consecutive years of the
last ten years of service. The Company funds an allocation of pension
costs accrued for employees of affiliates whose work efforts benefit
the Company.
Effective January 1, 1995, the plan was amended to provide enhanced
benefits for participants who met certain eligibility requirements and
elected early retirement no later than March 15, 1995. The entire cost
of the enhanced benefit was borne by NMIC and certain of its property
and casualty insurance company affiliates.
<PAGE> 17
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(formerly Financial Horizons Life Insurance Company)
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
Effective December 31, 1995, the Nationwide Insurance
Companies and Affiliates Retirement Plan was merged with the Farmland
Mutual Insurance Company Employees' Retirement Plan and the Wausau
Insurance Companies Pension Plan to form the Nationwide Insurance
Enterprise Retirement Plan. Immediately prior to the merger, the plans
were amended to provide consistent benefits for service after January
1, 1996. These amendments had no significant impact on the accumulated
benefit obligation or projected benefit obligation as of December 31,
1995.
Pension costs charged to operations by the Company during the years
ended December 31, 1995, 1994 and 1993 were $214, $265 and $131,
respectively.
The net periodic pension cost for the Nationwide Insurance Companies
and Affiliates Retirement Plan as a whole for the years ended December
31, 1995, 1994 and 1993 follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Service cost (benefits earned during the period) $ 64,524 64,740 47,694
Interest cost on projected benefit obligation 95,283 73,951 70,543
Actual return on plan assets (249,294) (21,495) (105,002)
Net amortization and deferral 143,353 (62,150) 20,832
--------- --------- ---------
$ 53,866 55,046 34,067
========= ========= =========
</TABLE>
Basis for measurements, net periodic pension cost:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Weighted average discount rate 7.50% 5.75% 6.75%
Rate of increase in future compensation levels 6.25% 4.50% 4.75%
Expected long-term rate of return on plan assets 8.75% 7.00% 7.50%
</TABLE>
Information regarding the funded status of the Nationwide Insurance
Enterprise Retirement Plan as a whole as of December 31, 1995
(post-merger) and the Nationwide Insurance Companies and Affiliates
Retirement Plan as of December 31, 1995 (pre-merger) and 1994 follows:
<TABLE>
<CAPTION>
Post-merger Pre-merger
1995 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Accumulated benefit obligation:
Vested $ 1,236,730 1,002,079 914,850
Nonvested 26,503 8,998 7,570
----------- ----------- -----------
$ 1,263,233 1,011,077 922,420
=========== =========== ===========
Net accrued pension expense:
Projected benefit obligation for services rendered
to date $ 1,780,616 1,447,522 1,305,547
Plan assets at fair value 1,738,004 1,508,781 1,241,771
----------- ----------- -----------
Plan assets (less than) in excess of projected
benefit obligation (42,612) 61,259 (63,776)
Unrecognized prior service cost 42,845 42,850 46,201
Unrecognized net (gains) losses (63,130) (86,195) 39,408
Unrecognized net obligation (asset) at transition 41,305 (19,841) (21,994)
----------- ----------- -----------
$ (21,592) (1,927) (161)
=========== =========== ===========
</TABLE>
<PAGE> 18
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(formerly Financial Horizons Life Insurance Company)
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
Basis for measurements, funded status of plan:
<TABLE>
<CAPTION>
Post-merger Pre-merger
1995 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
Weighted average discount rate 6.00% 6.00% 7.50%
Rate of increase in future compensation levels 4.25% 4.25% 6.25%
</TABLE>
Assets of the Nationwide Insurance Enterprise Retirement Plan are
invested in group annuity contracts of NLIC and Employers Life
Insurance Company of Wausau, a wholly owned subsidiary of NLIC. Prior
to the merger, the assets of the Nationwide Insurance Companies and
Affiliates Retirement Plan were invested in a group annuity contract of
NLIC.
(11) Postretirement Benefits Other Than Pensions
In addition to the defined benefit pension plan, the Company, together
with other affiliated companies, participates in life and health care
defined benefit plans for qualifying retirees. Postretirement life and
health care benefits are contributory and generally available to full
time employees who have attained age 55 and have accumulated 15 years
of service with the Company after reaching age 40. Postretirement
health care benefit contributions are adjusted annually and contain
cost-sharing features such as deductibles and coinsurance. In addition,
there are caps on the Company's portion of the per-participant cost of
the postretirement health care benefits. These caps can increase
annually, but not more than three percent. The Company's policy is to
fund the cost of health care benefits in amounts determined at the
discretion of management. Plan assets are invested primarily in group
annuity contracts of NLIC.
Effective January 1, 1993, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 106 - Employers'
Accounting for Postretirement Benefits Other Than Pensions (SFAS 106),
which requires the accrual method of accounting for postretirement life
and health care insurance benefits based on actuarially determined
costs to be recognized over the period from the date of hire to the
full eligibility date of employees who are expected to qualify for such
benefits.
The Company elected to immediately recognize its estimated accumulated
postretirement benefit obligation as of January 1, 1993. Accordingly, a
noncash charge of $669 ($435 net of related income tax benefit) was
recorded in the 1993 statement of income as a cumulative effect of a
change in accounting principle. See note 3. The adoption of SFAS 106,
including the cumulative effect of the change in accounting principle,
increased the expense for postretirement benefits by $739 to $761 in
1993. 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,
1995 and 1994 was $808 and $771, respectively, and the net periodic
postretirement benefit cost (NPPBC) for 1995 and 1994 was $66 and $119,
respectively.
The amount of NPPBC for the plan as a whole for the years ended
December 31, 1995, 1994 and 1993 was as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
Service cost - benefits attributed to employee service during the year $ 6,235 8,586 7,090
Interest cost on accumulated postretirement benefit obligation 14,151 14,011 13,928
Actual return on plan assets (2,657) (1,622) --
Amortization of unrecognized transition obligation of affiliates 2,966 568 568
Net amortization and deferral (1,619) 1,622 --
-------- -------- --------
$ 19,076 23,165 21,586
======== ======== ========
</TABLE>
<PAGE> 19
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(formerly Financial Horizons Life Insurance Company)
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
Information regarding the funded status of the plan as a whole
as of December 31, 1995 and 1994 follows:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Accrued postretirement benefit expense:
Retirees $ 88,680 76,677
Fully eligible, active plan participants 28,793 22,013
Other active plan participants 90,375 59,089
--------- ---------
Accumulated postretirement benefit obligation (APBO) 207,848 157,779
Plan assets at fair value 54,325 49,012
--------- ---------
Plan assets less than accumulated postretirement benefit obligation (153,523) (108,767)
Unrecognized transition obligation of affiliates 1,827 6,577
Unrecognized net gains (1,038) (41,497)
--------- ---------
$(152,734) (143,687)
========= =========
</TABLE>
Actuarial assumptions used for the measurement of the APBO as of
December 31, 1995 and 1994 and the NPPBC for 1995, 1994 and 1993 were
as follows:
<TABLE>
<CAPTION>
1995 1995 1994 1994 1993
APBO NPPBC APBO NPPBC NPPBC
----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Discount rate 6.75% 8% 8% 7% 8%
Assumed health care cost trend rate:
Initial rate 11% 10% 11% 12% 14%
Ultimate rate 6% 6% 6% 6% 6%
Uniform declining period 12 Years 12 Years 12 Years 12 Years 12 Years
</TABLE>
The health care cost trend rate assumption has an effect on the amounts
reported. For the plan as a whole, a one percentage point increase in
the assumed health care cost trend rate would increase the APBO as of
December 31, 1995 by $641 and the NPPBC for the year ended December 31,
1995 by $107.
(12) Regulatory Risk-Based Capital and Dividend Restriction
Ohio, the Company's state of domicile, imposes minimum risk-based
capital requirements that were developed by the NAIC. The formulas for
determining the amount of risk-based capital specify various weighting
factors that are applied to financial balances or various levels of
activity based on the perceived degree of risk. Regulatory compliance
is determined by a ratio of the company's regulatory total adjusted
capital, as defined by the NAIC, to its authorized control level
risk-based capital, as defined by the NAIC. Companies below specific
trigger points or ratios are classified within certain levels, each of
which requires specified corrective action. The Company exceeds the
minimum risk-based capital requirements.
Ohio law limits the payment of dividends to shareholders. The maximum
dividend that may be paid by the Company without prior approval of the
Director of the Department is limited to the greater of statutory gain
from operations of the preceding calendar year or 10% of statutory
shareholder's surplus as of the prior December 31. Therefore, $70,034
of shareholder's equity, as presented in the accompanying financial
statements, is so restricted as to dividend payments in 1996.
<PAGE> 20
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(formerly Financial Horizons Life Insurance Company)
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
(13) Transactions With Affiliates
The Company shares home office, other facilities, equipment and common
management and administrative services with affiliates.
The Company and various affiliates entered into agreements with
Nationwide Cash Management Company (NCMC) and California Cash
Management Company (CCMC), both affiliates, under which NCMC and CCMC
act as common agents in handling the purchase and sale of short-term
securities for the respective accounts of the participants. Amounts on
deposit with NCMC and CCMC were $4,844 and $365 as of December 31, 1995
and 1994, respectively, and are included in short-term investments on
the accompanying balance sheets.
Certain annuity products are sold through an affiliated company, which
is a subsidiary of Nationwide Corporation. Total commissions paid to
the affiliate for the three years ended December 31, 1995 were $6,638,
$6,935 and $10,041, respectively.
(14) Segment Information
The Company operates in the long-term savings and life insurance lines
of business in the life insurance industry. Long-term savings
operations include both qualified and non-qualified individual annuity
contracts. Life insurance operations include universal life and
variable universal life issued to individuals. Corporate primarily
includes investments, and the related investment income, which are not
specifically allocated to one of the two operating segments. In
addition, realized gains and losses on all general account investments
are reported as a component of the corporate segment.
During 1995, the Company changed its reporting segments to better
reflect the way the businesses are managed. Prior periods have been
restated to reflect these changes.
The following table summarizes the revenues and income (loss) before
Federal income tax expense and cumulative effect of changes in
accounting principles for the years ended December 31, 1995, 1994 and
1993 and assets as of December 31, 1995, 1994 and 1993, by business
segment.
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Long-term savings $ 50,669 45,234 39,684
Life insurance 179 173 187
Corporate 2,554 2,910 3,456
--------- --------- ---------
$ 53,402 48,317 43,327
========= ========= =========
Income (loss) before Federal income tax expense and
cumulative effect of changes in accounting principles:
Long-term savings 4,514 3,739 2,134
Life insurance (387) (996) (1,254)
Corporate 3,020 2,444 3,456
--------- --------- ---------
$ 7,147 5,187 4,336
========= ========= =========
Assets:
Long-term savings 931,939 789,147 693,915
Life insurance 2,565 2,393 2,027
Corporate 33,078 41,500 30,097
--------- --------- ---------
$ 967,582 833,040 726,039
========= ========= =========
</TABLE>
<PAGE> 52
PART II - OTHER INFORMATION
CONTENTS OF REGISTRATION STATEMENT
This Post-Effective Amendment No. 6 to Form S-6 Registration Statement comprises
the following papers and documents:
The facing sheet.
Cross-reference to items required by Form N-8B-2.
The prospectus consisting of 73 pages.
Representations and Undertakings.
Accountants' Consent.
The Signatures.
The following exhibits required by Forms N-8B-2 and S-6:
<TABLE>
<S> <C>
1. Power of Attorney dated April 4, 1996 Attached hereto.
2. Resolution of the Depositor's Board of Directors Included with the Registration Statement on Form N-8B-2 for the Nationwide VL
authorizing the establishment of the Registrant, Separate Account-A (File No. 811-6137), and hereby incorporated herein by
adopted. reference.
3. Distribution Contracts Included with the Registration Statement on Form N-8B-2 for the Nationwide VL
Separate Account-A (File No. 811-6137), and hereby incorporated herein by
reference.
4. Form of Security Included with Pre-Effective Amendment No. 1 and hereby incorporated herein by
reference.
5. Articles of Incorporation of Depositor Included with the Registration Statement on Form N-8B-2 for the Nationwide VL
Separate Account-A (File No. 811-6137), and hereby incorporated herein by
reference.
6. Application form of Security Included with Pre-Effective Amendment No. 1 and hereby incorporated herein by
reference.
7. Opinion of Counsel Included with Pre-Effective Amendment No. 1 and hereby incorporated herein by
reference.
</TABLE>
<PAGE> 53
REPRESENTATIONS AND UNDERTAKINGS
The Registrant and the Company hereby make the following representations and
undertakings:
(a) This filing is made pursuant to Rules 6c-3 and 6e-3(T) under the Investment
Company Act of 1940 (the "Act"). The Registrant and the Company elect to be
governed by Rule 6e-3(T)(b)(13)(i)(A) under the Act with respect to the Policies
described in the prospectus. The Policies have been designed in such a way as to
qualify for the exemptive relief from various provisions of the Act afforded by
Rule 6e-3(T).
(b) Paragraph (b) (13) (iii) (F) of Rule 6e-3(T) is being relied on for the
deduction of the mortality and expense risk charges ("risk charges") assumed by
the Company under the Policies. The Company represents that the risk charges are
within the range of industry practice for comparable policies and reasonable in
relation to all of the risks assumed by the issuer under the Policies. Actuarial
memoranda demonstrating the reasonableness of these charges are maintained by
the Company, and will be made available to the Securities and Exchange
Commission (the "Commission") on request.
(c) The Company has concluded that there is a reasonable likelihood that the
distribution financing arrangement of the separate account will benefit the
separate account and the contractholders and will keep and make available to the
Commission on request a memorandum setting forth the basis for this
representation.
(d) The Company represents that the separate account will invest only in
management investment companies which have undertaken to have a board of
directors, a majority of whom are not interested persons of the Company,
formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
(e) Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the Registrant hereby undertakes to file with the
Commission such supplementary and periodic information, documents, and reports
as may be prescribed by any rule or regulation of the Commission heretofore or
hereafter duly adopted pursuant to authority conferred in that section.
<PAGE> 54
ACCOUNTANTS' CONSENT
The Board of Directors of Nationwide Life and Annuity Insurance Company
(formerly Financial Horizons Life Insurance Company) and
Contract Owners of Nationwide VL Separate Account-A
(formerly Financial Horizons VL Separate Account 1):
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Columbus, Ohio
April 26, 1996
<PAGE> 55
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, Nationwide VL Separate Account-A, certifies that it meets the
requirements of Securities Act Rule 485(b) for effectiveness of this
Post-Effective Amendment No. 6 and has duly caused this Post-Effective Amendment
No. 6 to be signed on its behalf by the undersigned thereunto duly authorized,
and its seal to be hereunto affixed and attested, all in the City of Columbus,
and State of Ohio, on this 26th day of April, 1996.
NATIONWIDE VL SEPARATE ACCOUNT-A
---------------------------------------------
(Registrant)
(Seal) NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
---------------------------------------------
Attest: (Sponsor)
W. SIDNEY DRUEN By: JOSEPH P. RATH
- ---------------------------- ---------------------------------------------
W. Sidney Druen Joseph P. Rath
Assistant Secretary Vice President and Associate
General Counsel
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 6 has been signed below by the following persons in the capacities
indicated on the 26th day of April, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C> <C>
LEWIS J. ALPHIN Director
- --------------------------------------------
Lewis J. Alphin
KEITH W. ECKEL Director
- --------------------------------------------
Keith W. Eckel
WILLARD J. ENGEL Director
- --------------------------------------------
Willard J. Engel
FRED C. FINNEY Director
- --------------------------------------------
Fred C. Finney
CHARLES L. FUELLGRAF, JR. Director
- --------------------------------------------
Charles L. Fuellgraf, Jr.
JOSEPH J. GASPER President/Chief
- -------------------------------------------- Operating Office and Director
Joseph J. Gasper
HENRY S. HOLLOWAY Chairman of the Board
- -------------------------------------------- and Director
Henry S. Holloway
D. RICHARD McFERSON Chairman and Chief Executive Officer-
- -------------------------------------------- Nationwide Insurance Enterprise and Director
D. Richard McFerson
DAVID O. MILLER Director
- --------------------------------------------
David O. Miller
C. RAY NOECKER Director
- --------------------------------------------
C. Ray Noecker
ROBERT A. OAKLEY Executive Vice President-
- -------------------------------------------- Chief Financial Officer
Robert A. Oakley
JAMES F. PATTERSON Director By/s/JOSEPH P. RATH
- -------------------------------------------- ----------------------------------
James F. Patterson Joseph P. Rath
Attorney-in-Fact
ARDEN L. SHISLER Director
- --------------------------------------------
Arden L. Shisler
ROBERT L. STEWART Director
- --------------------------------------------
Robert L. Stewart
NANCY C. THOMAS Director
- --------------------------------------------
Nancy C. Thomas
HAROLD W. WEIHL Director
- --------------------------------------------
Harold W. Weihl
</TABLE>
<PAGE> 1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned as directors
and/or officers of NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY, an Ohio
corporation, which has filed or will file with the Securities and Exchange
Commission under the provisions of the Securities Act of 1933, as amended,
various Registration Statements and amendments thereto for the registration
under said Act of Individual Deferred Variable Annuity Contracts in connection
with the Nationwide VA Separate Account-A, the Nationwide VA Separate Account-B,
the Nationwide VA Separate Account-C and the Nationwide VA Separate Account-Q
and the registration of fixed interest rate options subject to a market value
adjustment offered under some or all of the aforementioned Individual Variable
Annuity contracts in connection with the Nationwide Multiple Maturity Separate
Account-A; and the registration of variable life insurance policies in
connection with the Nationwide VL Separate Account-A of Nationwide Life and
Annuity Insurance Company, hereby constitutes and appoints D. Richard McFerson,
Joseph J. Gasper, Gordon E. McCutchan, W. Sidney Druen, and Joseph P. Rath, and
each of them with power to act without the others, his/her attorney, with full
power of substitution and resubstitution, for and in his/her name, place and
stead, in any and all capacities, to approve, and sign such Registration
Statements and any and all amendments thereto, with power to affix the corporate
seal of said corporation thereto and to attest said seal and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby granting unto said attorneys, and
each of them, full power and authority to do and perform all and every act and
thing requisite to all intents and purposes as he/she might or could do in
person, hereby ratifying and confirming that which said attorneys, or any of
them, may lawfully do or cause to be done by virtue hereof. This instrument may
be executed in one or more counterparts.
IN WITNESS WHEREOF, the undersigned have herewith set their names and seals
as of this 4th day of April, 1996.
<TABLE>
<S> <C>
/s/ LEWIS J. ALPHIN /s/ DAVID O. MILLER
- ------------------------------------------------------ ------------------------------------------------------
Lewis J. Alphin, Director David O. Miller, Director
/s/ KEITH W. ECKEL /s/ C. RAY NOECKER
- ------------------------------------------------------ ------------------------------------------------------
Keith W. Eckel, Director C. Ray Noecker, Director
/s/ WILLARD J. ENGEL /s/ ROBERT A. OAKLEY
- ------------------------------------------------------ ------------------------------------------------------
Willard J. Engel, Director Robert A. Oakley, Executive Vice President
and Chief Financial Officer
/s/ FRED C. FINNEY
- ------------------------------------------------------ /s/ JAMES F. PATTERSON
Fred C. Finney, Director ------------------------------------------------------
James F. Patterson, Director
/s/ CHARLES L. FUELLGRAF, JR.
- ------------------------------------------------------ /s/ ARDEN L. SHISLER
Charles L. Fuellgraf, Jr., Director ------------------------------------------------------
Arden L. Shisler, Director
/s/ JOSEPH J. GASPER
- ------------------------------------------------------ /s/ ROBERT L. STEWART
Joseph J. Gasper, President and ------------------------------------------------------
Chief Operating Officer and Director Robert L. Stewart, Director
/s/ HENRY S. HOLLOWAY /s/ NANCY C. THOMAS
- ------------------------------------------------------ ------------------------------------------------------
Henry S. Holloway, Chairman of the Board, Director Nancy C. Thomas, Director
/s/ D. RICHARD MCFERSON /s/ HAROLD W. WEIHL
- ------------------------------------------------------ ------------------------------------------------------
D. Richard McFerson, Chairman and Harold W. Weihl, Director
Chief Executive Officer-Nationwide
Insurance Enterprise and Director
</TABLE>
