<PAGE> 1
Registration No. 33-44300
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 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.
1 of 80
<PAGE> 2
CROSS REFERENCE TO ITEMS REQUIRED
BY FORM N-8B-2
<TABLE>
<CAPTION>
N-8B-2 ITEM CAPTION IN PROSPECTUS
<S> <C>
1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Nationwide Life 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
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
N-8B-2 ITEM CAPTION IN PROSPECTUS
<S> <C>
38 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Distribution of The Policies
39 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Distribution of The Policies
40 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
41(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Distribution of The Policies
42 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
43 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
44 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . How The Cash Value Varies
45 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
46 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . How The Cash Value Varies
47 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
48 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Custodian of Assets
49 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
50 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
51 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Summary of The Policies;
Information About The
Policies
52 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Substitution of Securities
53 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Taxation of The Company
54 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
55 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
56 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
57 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
58 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
59 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial Statements
</TABLE>
<PAGE> 4
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
P.O. Box 182150
Columbus, Ohio 43218-2150
(800) 533-5622, TDD (800) 238-3035
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICIES
ISSUED BY THE 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 and the flexibility to vary the
amount and frequency of premium payments. The Policies may also provide a Cash
Surrender Value if the Policy is terminated during the lifetime of the Insured.
Nationwide Life and Annuity Insurance Company guarantees to keep the Policy in
force during the first three years so long as the Minimum Premium requirement
has been met. 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" under Section 7702 of the Internal Revenue Code (the "Code") .
The Policy Owner may allocate Net Premiums and Cash Value to one or more of the
sub-accounts of the Variable Account and the Fixed Account. The assets of each
sub-account will be used to purchase, at Net Asset Value, shares of a designated
underlying Mutual Fund of the following series of the underlying variable
account Mutual Fund options:
<TABLE>
<S> <C>
NATIONWIDE SEPARATE ACCOUNT TRUST: FIDELITY VARIABLE INSURANCE PRODUCTS FUND:
-Capital Appreciation Fund -Growth Portfolio
-Money Market Fund NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST:
-Government Bond Fund -Balanced Portfolio
-Total Return Fund TCI PORTFOLIOS, INC.:
-TCI Advantage
</TABLE>
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.
Nationwide Life and Annuity Insurance Company guarantees to keep the Policy in
force during the first three years so long as the Minimum Premium requirement
has been met.
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" provision 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.
BREAK POINT PREMIUM-The level annual premium at which the sales load is
reduced on a current basis.
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.
COMPANY- Nationwide Life and Annuity Insurance Company.
CODE-The Internal Revenue Code of 1986, as amended.
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 5%.
HOME OFFICE- The main office of the Company located in Columbus, Ohio.
INDEBTEDNESS-Amounts owed the Company as a result of Policy loans including
both principal and accrued interest.
INITIAL 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 of premiums that must be paid during the first
three Policy Years to guarantee the Policy remains 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 results 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
Indebtedness.
POLICY OWNER-The person designated in the Policy application as the Owner.
POLICY YEAR-Each year commencing with the Policy Date and each Policy
Anniversary thereafter.
SCHEDULED PREMIUM-The Scheduled Premium is shown on the Policy Data Page.
SPECIFIED AMOUNT-A dollar amount used to determine the death benefit under a
Policy. It is shown on the Policy Data Page.
SURRENDER CHARGE-An amount deducted from the Cash Value if the Policy is
surrendered.
VALUATION DATE-Each day the New York Stock Exchange and the Company's Home
Office are open for business or any other day during which there is sufficient
degree of trading that the current Net Asset Value of the Accumulation
Units might be materially affected.
VALUATION PERIOD-A period commencing with the close of business on the New
York Stock Exchange and ending at the close of business for the next succeeding
Valuation Date.
VARIABLE ACCOUNT-A separate investment account of Nationwide Life and Annuity
Insurance Company.
2
<PAGE> 6
<TABLE>
TABLE OF CONTENTS
<S> <C>
GLOSSARY OF TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SUMMARY OF THE POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Variable Life Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
The Variable Account and its Sub-Accounts . . . . . . . . . . . . . . . . . . . . . . 5
The Fixed Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Deductions and Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
THE VARIABLE ACCOUNT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Investments of the Variable Account . . . . . . . . . . . . . . . . . . . . . . . . . 8
Fidelity Variable Insurance Products Fund . . . . . . . . . . . . . . . . . . . . . . 8
Nationwide Separate Account Trust . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Neuberger & Berman Advisers Management Trust . . . . . . . . . . . . . . . . . . . . . 9
TCI Portfolios, Inc., member of the Twentieth Century Family of Mutual Funds . . . . . 10
Reinvestment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Dollar Cost Averaging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Substitution of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
INFORMATION ABOUT THE POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Underwriting and Issuance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
-Minimum Requirements for Issuance of a Policy . . . . . . . . . . . . . . . . . . . . 12
-Premium Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Allocation of Cash Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Short-Term Right to Cancel Policy . . . . . . . . . . . . . . . . . . . . . . . . . . 12
POLICY CHARGES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Deductions from Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Surrender Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
-Reductions to Surrender Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Deductions from Cash Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
-Monthly Cost of Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
-Monthly Administrative Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
-Increase Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Deductions from the Sub-Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
HOW THE CASH VALUE VARIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
How the Investment Experience is Determined . . . . . . . . . . . . . . . . . . . . . 15
Net Investment Factor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Valuation of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Determining the Cash Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Valuation Periods and Valuation Dates . . . . . . . . . . . . . . . . . . . . . . . . 16
SURRENDERING THE POLICY FOR CASH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Right to Surrender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Cash Surrender Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Partial Surrenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
RIGHT TO EXCHANGE FOR A FIXED BENEFIT POLICY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
CHANGES OF INVESTMENT POLICY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
GRACE PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
-First Three Policy Years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
-Policy Years Four and After . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
3
<PAGE> 7
<TABLE>
<S> <C>
-All Policy Years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
REINSTATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
THE FIXED ACCOUNT OPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
CHANGES IN EXISTING INSURANCE COVERAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Specified Amount Increases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Specified Amount Decreases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Changes in the Death Benefit Option . . . . . . . . . . . . . . . . . . . . . . . . . 22
OTHER POLICY PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Policy Owner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Incontestability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Error in Age or Sex . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Suicide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Nonparticipating Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
LEGAL CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
DISTRIBUTION OF THE POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ADVERTISING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
REGISTRATION STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
LEGAL OPINIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
APPENDIX 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
APPENDIX 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
</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.
4
<PAGE> 8
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. Nationwide Life and Annuity Insurance Company guarantees
to keep the Policy in force during the first three years so long as certain
requirements have been met (see "Underwriting and Issuance").
Under certain conditions, a Policy may become a modified endowment contract as
a result of a material change or a reduction in benefits as defined by the
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"). When the Policy is
issued, the Policy's Net Premiums not allocated to the Fixed Account will be
placed in the Nationwide Separate Account Trust Money Market Fund 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 of a
corresponding underlying Mutual Fund options. For a description of the
underlying Mutual Fund options and their investment objectives, see
"Investments of the Variable Account".
THE FIXED ACCOUNT
The Fixed Account is funded by the assets of the Company's General Account.
Cash Values allocated to the Fixed Account are credited with interest daily at
a rate declared by the Company. The interest rate declared is at the Company's
sole discretion, but may never be less than an effective annual rate of 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. On a current basis, the sales load is
reduced to 1.5% on any portion of the annual premium paid in excess of the
annual Break Point Premium. The total sales load actually deducted from any
Policy will be equal to the sum of this front-end sales load plus any sales
surrender charge 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
2. monthly cost of any additional benefits provided by riders to the Policy;
plus
3. an administrative expense charge. This charge is $25 per month in the
first year and $5 per month in renewal years. The charge in renewal
years may be increased at the sole discretion of the Company but may not
exceed $7.50 per month; plus
5
<PAGE> 9
4. an increase charge per $1000 applied to any increase in the Specified
Amount. The increase charge is $2.04 per year per $1000 and is shown on
the policy data page. This charge is designed to cover the costs
associated with increasing the Specified Amount (see "Policy Charges").
This charge will be deducted on each Monthly Anniversary Day for the
first 12 months after the increase becomes effective.
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
equivalent to an annual effective rate of 0.80% of the daily net assets of the
Variable Account. On each Policy Anniversary beginning with the 10th, the
mortality and expense risk charge is reduced to 0.50% on an annual basis of the
daily net assets of the Variable Account, provided the Cash Surrender Value is
$25,000 or more on such anniversary.
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 maximum
initial Surrender Charge varies by issue age, sex, Specified Amount and
underwriting classification and is calculated based on the initial Specified
Amount. The following table illustrates the maximum initial Surrender Charge
per $1,000 of initial Specified Amount for Policies which are issued on a
Standard basis (see Appendix 1 for specific examples).
<TABLE>
<CAPTION>
Initial Specified Amount $50,000-$99,999
Issue Male Female Male Female
Age Non-Tobacco Non-Tobacco Standard Standard
<S> <C> <C> <C> <C>
25 $7.776 $7.521 $8.369 $7.818
35 8.817 8.398 9.811 8.891
45 12.191 11.396 13.887 12.169
55 15.636 14.011 18.415 15.116
65 22.295 19.086 26.577 20.641
</TABLE>
<TABLE>
<CAPTION>
Initial Specified Amount $100,000+
Issue Male Female Male Female
Age Non-Tobacco Non-Tobacco Standard Standard
<S> <C> <C> <C> <C>
25 $5.776 $5.521 $6.369 $5.818
35 6.817 6.398 7.811 6.891
45 9.691 8.896 11.387 9.669
55 13.136 11.511 15.915 12.616
65 21.295 18.086 25.577 19.641
</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:
<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%
</TABLE>
6
<PAGE> 10
<TABLE>
<S> <C>
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 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 reimbursements, 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 equal to three
minimum monthly premiums. A Policy may be issued to an Insured up to age 80.
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 Policy 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
three Policy Years, the total premium payments less any Policy
Indebtedness, less any partial surrenders, and less any partial surrender
fee must be greater than or equal to the Minimum Premium requirement in order
to guarantee the Policy remain 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.
The Company will send Scheduled Premium payment reminder notices to the Policy
Owner. The Company will send them according to the premium mode shown on the
policy data page.
The Policy Owner may pay the Initial Premium to the Company at the Company's
Home Office or to an authorized agent. All premiums after the first are
payable at the Company's 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, 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.
Where permitted by state law, the Company may also require that any existing
Policy Indebtedness is repaid prior to accepting any additional premium
payments.
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
Nationwide Life and Annuity Company (the "Company"), formerly the 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 is a member of the Nationwide Insurance Enterprise which includes
Nationwide Life Insurance Company, Nationwide Indemnity Company, Nationwide
Mutual Insurance Company, Nationwide Mutual Fire Insurance Company, Nationwide
Property and Casualty Insurance Company, National Casualty Company, West Coast
Life Insurance Company, Scottsdale Indemnity Company and Nationwide General
Insurance Company. The Company's Home Office is at One Nationwide Plaza,
Columbus, Ohio 43216.
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").
7
<PAGE> 11
THE VARIABLE ACCOUNT
The Nationwide VL Separate Account-A (formerly the 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
Insurance Company, One Nationwide Plaza, Columbus, Ohio 43216 serves as trustee
for the trust. Nationwide Financial Services, Inc., One Nationwide Plaza,
Columbus, Ohio 43216 serves as principal underwriter for the trust. Such
registration does not involve supervision of the management of the Variable
Account or the Company by the Securities and Exchange Commission.
The Variable Account is a separate investment account of the Company and as
such, is not chargeable with the liabilities arising out of any other business
the Company may conduct. The Company does not guarantee the investment
performance of the Variable Account. The death benefit and Cash Value under
the Policy may vary with the 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.
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 Policy"). Additional Premium Payments, upon
acceptance, will be allocated to 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
Funds.
Each of the underlying Mutual Funds receives investment advice from a
registered investment adviser:
1. Fidelity Variable Insurance Products Fund, managed by Fidelity Management
& Research Company;
2. Nationwide Separate Account Trust, managed by Nationwide Financial
Services, Inc.;
3. Neuberger & Berman Advisers Management Trust, managed by Neuberger &
Berman Management Incorporated; and
4. TCI Portfolios, Inc., managed by Investors Research Corporation, an
affiliate of Twentieth Century Companies.
A summary of investment objectives is contained in the description of each
underlying Mutual Fund option below. More detailed information may be found in
the current prospectus for each underlying Mutual Fund. A prospectus for the
underlying Mutual Fund option(s) being considered must accompany this
prospectus and should be read in conjunction herewith.
FIDELITY 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
8
<PAGE> 12
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 narrow product line or whose securities are thinly traded. These
later securities will often involve greater risk than may be found in the
ordinary investment security. FMR's analysis and expertise plays an
integral role in the selection of securities and, therefore, the
performance of the Portfolio. Many securities which FMR believes would
have the greatest potential may be regarded as speculative, and
investment in the Portfolio may involve greater risk than is inherent in
other 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.
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 Company's sole stockholder).
- - 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.
- - TOTAL RETURN FUND (FORMERLY COMMON STOCK 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
9
<PAGE> 13
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., MEMBER OF THE TWENTIETH CENTURY FAMILY OF MUTUAL FUNDS
TCI Portfolios, Inc. was organized as a Maryland corporation in 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 Contract Owners will receive cash from the Company.)
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 Fund options. The distribution of additional
shares will not affect the number of Accumulation Units attributable to a
particular Policy (see "Allocation of Cash Value").
TRANSFERS
The Policy Owner may transfer Cash Value among the sub-accounts of the Variable
Account and the Fixed Account. A transfer will take effect on the date of
receipt of written notice at the Company's Home Office. Transfer requests must
be in a written form acceptable to the Company.
After the first Policy Anniversary, the Policy Owner may annually transfer a
portion of the value of the Variable Account to the Fixed Account, without
penalty or adjustment. The Policy Owner may request a transfer of up to 100%
of the Cash Value from the Variable Account to the Fixed account. The Company
reserves the right to restrict transfers to the Fixed Account to 25% of the
Cash Value. 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 Policy Owner may transfer a portion of the value of the Fixed Account to
the Variable Account once each Policy Year, without penalty or adjustment. The
Policy Owner may request a transfer of up to 100% of the Cash Value in the
Fixed Account to the Variable sub-accounts. The Company reserves the right to
restrict the amounts of such transfers to 25% of the Cash Value in the Fixed
Account.
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. Any losses incurred pursuant to
actions taken by the Company in reliance on telephone instructions reasonably
believed to be genuine shall be borne by the Contract Owner. The Company may
withdraw the telephone exchange privilege upon 30 days written notice to Policy
Owners.
10
<PAGE> 14
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 Policy 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
Policy Owner to utilize Dollar Cost Averaging, a long-term investment program
which provides for regular, level investments over time. The Company makes no
guarantees that Dollar Cost Averaging will result in a profit or protect
against loss in a declining market. To qualify for Dollar Cost Averaging there
must be a minimum total Cash Value, less Policy Indebtedness, of $15,000.
Transfers for purposes of Dollar Cost Averaging can only be made from the 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 Policy 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 Policy 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 Policy Owners however, any discontinuation will
not affect Dollar Cost Averaging programs already commenced. The Company also
reserves the right to assess a processing fee for this service.
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 Fund
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 the shareholders of the underlying Mutual
Funds. These shares will be voted in accordance with instructions 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 a result the Company determines
that it 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.
Underlying Mutual Fund shares held in 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.
11
<PAGE> 15
INFORMATION ABOUT THE POLICIES
UNDERWRITING AND ISSUANCE
- -Minimum Requirements for Issuance of a Policy
The Policies are designed to provide life insurance coverage and the
flexibility to vary the amount and frequency of premium payments. At issue,
the Policy Owner selects the initial Specified Amount and premium. The minimum
Specified Amount is $50,000 ($100,000 in Pennsylvania). Policies may be issued
to Insureds with issue ages 80 or younger. Before issuing any Policy, the
Company requires satisfactory evidence of insurability which may include a
medical examination.
- -Premium Payments
The Initial Premium for a Policy is payable in full at the Company's Home
Office. Upon payment of an initial premium, temporary insurance may be
provided subject to a maximum amount. The effective date of permanent
insurance coverage is dependent upon completion of all underwriting
requirements, payments 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
three Policy Years, the total premium payments less any Policy Indebtedness,
less any partial surrenders, and less any partial surrender fee must be greater
than or equal to the Minimum Premium requirement in order to guarantee the
Policy remains 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 (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.
12
<PAGE> 16
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. On a current basis, the sales load is
reduced to 1.5% on any portion of the annual premium paid in excess of the
annual Break Point Premium. The total sales load actually deducted from any
Policy will be equal to the sum of this front-end sales load plus any sales
surrender charge 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 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 maximum initial
Surrender Charge varies by issue age, sex, Specified Amount and underwriting
classification and is calculated based on the initial Specified Amount. The
following table illustrates the maximum initial Surrender Charge per $1,000 of
initial Specified Amount for Policies which are issued on a standard basis (see
Appendix 1 for specific examples).
<TABLE>
<CAPTION>
Initial Specified Amount $50,000-$99,999
Issue Male Female Male Female
Age Non-Tobacco Non-Tobacco Standard Standard
<S> <C> <C> <C> <C>
25 $7.776 $7.521 $8.369 $7.818
35 8.817 8.398 9.811 8.891
45 12.191 11.396 13.887 12.169
55 15.636 14.011 18.415 15.116
65 22.295 19.086 26.577 20.641
<CAPTION>
Initial Specified Amount $100,000+
Issue Male Female Male Female
Age Non-Tobacco Non-Tobacco Standard Standard
<S> <C> <C> <C> <C>
25 $5.776 $5.521 $6.369 $5.818
35 6.817 6.398 7.811 6.891
45 9.691 8.896 11.387 9.669
55 13.136 11.511 15.915 12.616
65 21.295 18.086 25.577 19.641
</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 Specified Amounts Specified Amounts
Age less than $100,000 $100,000 or more
<S> <C> <C>
0-35 $6.00 $4.00
36-55 7.50 5.00
56-80 7.50 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 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. In no event will this component exceed 26
1/2% of the lesser of the Guideline Level Premium required in the first year or
the
13
<PAGE> 17
premiums actually paid in the first year. 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 60%
1 100% 6 50%
2 90% 7 40%
3 80% 8 30%
4 70% 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; plus
4. the increase charge per $1000 applied to any increase in the Specified
Amount (see "Specified Amount Increases"). The increase charge is $2.04
per year per $1000 and is shown on the policy data page. This charge is
designed to cover the costs associated with increasing the Specified
Amount (see "Policy Charges"). This charge will be deducted on each
Monthly Anniversary Day for the first 12 months after the increase
becomes effective.
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 Specified Amounts
less than $100,000 are based on the 1980 Commissioners Extended Term Mortality
Table, Age Last Birthday (1980 CET). Guaranteed cost of insurance rates for
Policies issued on Specified Amounts $100,000 or more are based on the 1980
Commissioners Standard Ordinary Mortality Table, Age Last Birthday (1980 CSO).
Guaranteed cost of insurance rates for Policies issued on a substandard basis
are based on appropriate percentage multiples of the 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 on a standard basis ("Special Class - Standard" in
Texas), guaranteed cost of insurance rates for Specified Amounts less than
$100,000 are based on 130% of the 1980 Commissioners Standard Ordinary
Mortality Table, Age Last Birthday (1980 CSO).
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, an Insured in the standard rate class will have a lower cost
of insurance than an Insured in a rate class with higher mortality risks. The
Company may also issue certain Policies on a "Non Medical" basis to certain
categories of individuals. Due to the underwriting criteria established for
Policies issued on a Non Medical basis, actual rates will be higher than the
current cost of insurance rates being charged under Policies that are medically
underwritten.
14
<PAGE> 18
- -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 $25 per month in the
first year, $5 per month in renewal years. The Company may at its sole
discretion increase this charge. However, the Company guarantees that this
charge will never exceed $7.50 per month in renewal years.
- -Increase Charge
The Increase Charge is comprised of two components: an underwriting and
administration charge as well as a sales charge (see "Specified Amount
Increases"). The underwriting and administration charge is $1.50 per year per
$1000. This charge is to cover the cost of underwriting the increases and any
processing expenses. Nationwide Life and Annuity does not expect to profit
from this charge. The sales charge is equal to .54 per year per $1000 and
reimburses the Company for expenses incurred in distribution.
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 on a daily basis from the assets of the Variable
Account a charge to provide for mortality and expense risks. This charge is
equivalent to an annual effective rate of 0.80% of the daily net assets of the
Variable Account. On each Policy Anniversary beginning with the 10th, the
mortality and expense risk charge is reduced to 0.50% on an annual basis of the
daily net assets of the Variable Account, provided the Cash Surrender Value is
$25,000 or more on such anniversary. 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.
HOW THE CASH VALUE VARIES
On any date during the Policy Year, the Cash Value equals the Cash Value on the
preceding Valuation Date, plus any Net Premium applied since the previous
Valuation Date, minus any partial surrenders, plus or minus any investment
results, 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 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.
15
<PAGE> 19
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 0.80% of the daily Net Asset Value of the Variable Account.
On each Policy Anniversary beginning with the 10th, the mortality and
expense risk charge is reduced to 0.50% on an annual basis of the
daily net assets of the Variable Account, provided the Cash Surrender
Value is $25,000 or more on such anniversary.
For underlying Mutual Fund options that credit dividends on a daily basis and
pay such dividends once a month, the Net Investment Factor allows for the
monthly reinvestment of these daily dividends.
The Net Investment Factor may be greater or less than one; therefore, the value
of an Accumulation Unit may increase or decrease. 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 CASH VALUE
The sum of the value of all Variable Account Accumulation Units attributable to
the Policy and amounts credited to the Fixed Account is the Cash Value. The
number of Accumulation Units credited per each sub-account are determined by
dividing the net amount allocated to the sub-account by the Accumulation Unit
Value for the sub-account for the Valuation Period during which the premium is
received by the Company. If part or all of the Cash Value is surrendered or
charges or deductions are made against the Cash Value, an appropriate number of
Accumulation Units from the Variable Account and an appropriate amount from the
Fixed Account will be deducted in the same proportion that the Policy Owner's
interest in the Variable Account and the Fixed Account bears to the total Cash
Value.
The Cash Value in the Fixed Account and the Policy Loan Account is credited
with interest daily at an effective annual rate which the Company periodically
declares. 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
RIGHT TO SURRENDER
The Policy Owner may surrender the Policy in full at any time while the Insured
is living and receive its Cash Surrender Value. The cancellation will be
effective as of the date the Company receives a proper written request for
cancellation and the Policy. Such written request must be signed and, where
permitted, the signature guaranteed by a member firm of the New York, American,
Boston, Midwest, Philadelphia or Pacific
16
<PAGE> 20
Stock Exchange, or by a Commercial Bank or a Savings and Loan, which is a
member of the Federal Deposit Insurance Corporation or other guarantor
institution, as defined by federal securities laws and regulations. In some
cases, the Company may require additional documentation of a customary nature.
CASH SURRENDER VALUE
The Cash Surrender Value increases or decreases daily to reflect the investment
experience of the Variable Account and the daily crediting of interest in the
Fixed Account and the Policy Loan Account. The Cash Surrender Value equals the
Policy's Cash Value, next computed after the date the Company receives a proper
written request for surrender and the Policy, minus any charges, Indebtedness
or other deductions due on that date, which may also include a Surrender
Charge.
PARTIAL SURRENDERS
After the Policy has been in force for one year, the Policy Owner may request a
partial surrender. Partial surrenders will be permitted only if they satisfy
the following requirements:
1. The minimum partial surrender is $500;
2. The partial surrender may not reduce the Specified Amount to less than
$50,000;
3. After the partial surrender, the Cash Surrender Value is greater than
$500 or an amount equal to three times the current monthly deduction if
higher;
4. The maximum total partial surrenders in any policy year are limited to
10% of the total premium payments. On a current basis, this requirement
is waived in years 15 and beyond provided the Cash Surrender Value is
$10,000 or more after the withdrawal; and
5. 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 Account sub-accounts. Partial surrenders will be deducted from
the Fixed Account only to the extent that insufficient values are available in
the Variable Account sub-accounts. The Company reserves the right to deduct a
$25.00 fee from the partial surrender amount.
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. 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.
17
<PAGE> 21
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
Value less Surrender Charge less interest due on the next Policy Anniversary.
Maximum Policy Indebtedness, in Texas, is limited to 90% of the Cash Value in
the sub-accounts and 100% of the Cash Value in the Fixed Account less Surrender
Charge less interest due on the next Policy Anniversary. The Company will not
grant a loan for an amount less than $200. Should the Death Proceeds become
payable, the Policy be surrendered, or the Policy mature while a loan is
outstanding, the amount of Policy Indebtedness will be deducted from the death
benefit, Cash Surrender Value or the maturity 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.
Certain policy loans may result in currently taxable income and tax penalties
(see "Tax Matters").
A Policy Owner considering the use of policy loans in connection with his or
her retirement income plan should consult his or her personal tax adviser
regarding potential tax consequences that may arise if necessary payments are
not made to keep the Policy from lapsing. The amount of such payments
necessary to prevent the Policy from lapsing would increase with age (see "Tax
Matters").
EFFECT ON INVESTMENT PERFORMANCE
When a loan is made, an amount equal to the amount of the loan is transferred
from the Variable Account to the Policy Loan Account. If the assets relating
to a Policy are held in more than one sub-account, withdrawals from
sub-accounts will be made in proportion to the assets in each Variable
sub-account at the time of the loan. Policy loans will be transferred from the
Fixed Account only when insufficient amounts are available in the Variable
sub-accounts. The amount taken out of the Variable Account will not be
affected by the Variable Account's investment experience while the loan is
outstanding.
INTEREST
On a current basis, policy loans are credited with an annual effective rate of
5.1% during policy years 2 through 14 and an annual effective rate of 6% during
the 15th and subsequent policy years. The 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. The loan interest rate is 6%
per year for all Policy loans. In the event that it is determined that such
loans will be treated, as a result of the differential between the interest
crediting rate and the loan interest rate, as taxable distributions under any
applicable ruling, regulation, or court decision, the Company retains the right
to increase the net cost (by decreasing the interest crediting rate) on all
subsequent policy loans to an amount that would result in the transaction being
treated as a loan under Federal tax law. If this amount is not prescribed by
such ruling, regulation, or court decision, the amount will be that which the
Company considers to be more likely to result in the transaction being treated
as a loan under Federal tax law.
Amounts transferred to the Policy Loan Account will earn interest daily from
the date of transfer. The earned interest is transferred from the Policy Loan
Account to a Variable Account or the Fixed Account on each Policy Anniversary
or at the time of loan repayment. It will be allocated according to the Fund
allocation factors in effect at the time of the transfer.
Interest is charged daily and is payable at the end of each Policy Year or at
the time of loan repayment. Unpaid interest will be added to the existing
Policy Indebtedness as of the due date and will be charged interest at the same
rate as the rest of the Indebtedness.
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
18
<PAGE> 22
Policy Owner's Fund allocation factors in effect at the time of the repayment.
Each repayment may not be less than $50. The Company reserves the right to
require that any loan repayments resulting from Policy loans transferred from
the Fixed Account must be first allocated to the Fixed Account.
HOW THE DEATH BENEFIT VARIES
CALCULATION OF THE DEATH BENEFIT
At issue, the Policy Owner selects the Specified Amount.
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. 250% 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.
<TABLE>
APPLICABLE PERCENTAGE OF CASH VALUE TABLE
<CAPTION>
Attained Percentage Attained Percentage Attained Percentage
Age of Cash Value Age of Cash Value Age of Cash Value
<S> <C> <C> <C> <C> <C>
0-40 250% 60 130% 80 105%
41 243% 61 128% 81 105%
42 236% 62 126% 82 105%
43 229% 63 124% 83 105%
44 222% 64 122% 84 105%
45 215% 65 120% 85 105%
46 209% 66 119% 86 105%
47 203% 67 118% 87 105%
48 197% 68 117% 88 105%
49 191% 69 116% 89 105%
50 185% 70 115% 90 105%
51 178% 71 113% 91 104%
52 171% 72 111% 92 103%
53 164% 73 109% 93 102%
54 157% 74 107% 94 101%
55 150% 75 105% 95 100%
56 146% 76 105%
57 142% 77 105%
58 138% 78 105%
59 134% 79 105%
</TABLE>
PROCEEDS PAYABLE ON DEATH
The actual Death Proceeds payable on the Insured's death will be the death
benefit as described above, less any Policy Indebtedness and less any unpaid
Policy Charges. Under certain circumstances, the Death Proceeds may be
adjusted (see "Incontestability", "Error in Age or Sex" and "Suicide").
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.
19
<PAGE> 23
The Policy Owner and Beneficiary under the new policy will be the same as those
under the exchanged Policy on the effective date of the exchange. The new
policy will have a death benefit on the exchange date not more than the death
benefit of the original Policy immediately prior to the exchange date. The new
policy will have the same Policy Date and issue age as the original Policy.
The initial Specified Amount and any increases in Specified Amount will have
the same rate class as those of the original Policy. Any Indebtedness may be
transferred to the new policy.
The exchange may be subject to an equitable adjustment in rates and values to
reflect variances, if any, in the rates and values between the two Policies.
After adjustment, if any excess is owed the Policy Owner, the Company will pay
the excess to the Policy Owner in cash. The exchange may be subject to federal
income tax withholding (see "Income Tax Withholding").
CHANGES OF INVESTMENT POLICY
The Company may materially change the investment policy of the Variable
Account. The Company must inform the Policy Owners and obtain all necessary
regulatory approvals. Any change must be submitted to the various state
insurance departments which may disapprove it if deemed detrimental to the
interests of the Policy Owners or if it renders the Company's operations
hazardous to the public. If a Policy Owner objects, the Policy may be
converted to a substantially comparable General Account life insurance policy
offered by the Company on the life of the Insured. The Policy Owner has the
later of 60 days (6 months in Pennsylvania) from the date of the investment
policy change or 60 days (6 months in Pennsylvania) from being informed of such
change to make this conversion. The Company will not require evidence of
insurability for this conversion.
The new policy will not be affected by the investment experience of any
separate account. The new policy will be for an amount of insurance not
exceeding the death benefit of the Policy converted on the date of such
conversion.
GRACE PERIOD
- -First Three Policy Years
This Policy will not lapse during the first three 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, minus any partial surrenders, and minus any
partial surrender fee; and
(2) Is the sum of monthly Minimum Premiums required since the
Policy Date including the monthly Minimum Premium for the
current Monthly Anniversary Day.
If (1) is less than (2) and the Cash Surrender Value is less than zero, 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 without value. In any event the Policy will not lapse as long as there
is a positive Cash Surrender Value.
- -Policy Years Four and After
If the Cash Surrender Value on a Monthly Anniversary Day is not sufficient to
cover the current Policy Charges, a Grace Period of 61 days from the Monthly
Anniversary Day will be allowed for the payment of sufficient premium to cover
the current Policy Charges due 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;
20
<PAGE> 24
3. paying an amount of premium equal to the sum of the Minimum
Monthly Premiums missed since the beginning of the Grace
Period, if the Policy terminated in the first three policy
years;
4. paying sufficient premium to cover all policy charges that
were due and unpaid during the Grace Period if the Policy
terminated in the fourth or later policy year;
5. paying sufficient premium to keep the Policy in force for 3
months from the date of reinstatement; and
6. 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 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 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.
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 first Policy Year, the Policy Owner may request an increase to the
Specified Amount. Any increase will be subject to the following conditions:
1. the request must be applied for in writing;
2. satisfactory evidence of insurability must be provided;
3. the increase must be for a minimum of $10,000;
4. the Cash Surrender Value is sufficient to continue the Policy
in force for at least 3 months; and
5. age limits are the same as for a new issue.
21
<PAGE> 25
Any approved increase will have an effective date of the Monthly Anniversary
Day on or next following the date the Company approves the supplemental
application. The Company reserves the right to limit the number of Specified
Amount increases to one each Policy Year.
SPECIFIED AMOUNT DECREASES
After the first Policy Year, the Policy Owner may also request a decrease to
the Specified Amount. Any approved decrease will be effective on the Monthly
Anniversary Day on or next following the date the Company receives the request.
Any such decrease shall reduce insurance in the following order:
1. against insurance provided by the most recent increase;
2. against the next most recent increases successively; and
3. against insurance provided under the original application.
The Company reserves the right to limit the number of Specified Amount
decreases to one each Policy Year. The Company will refuse a request for a
decrease which would:
1. reduce the Specified Amount to less than $50,000; or
2. disqualify the Policy as a contract for life insurance.
CHANGES IN THE DEATH BENEFIT OPTION
After the first Policy Year, the Policy Owner may 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. Evidence of insurability is not required for a
change from Option 2 to Option 1. The Company reserves the right to require
evidence of insurability for a change from Option 1 to Option 2. 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 Policy Owner's estate.
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.
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<PAGE> 26
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.
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.
Nationwide Financial Services, Inc., One Nationwide Plaza, Columbus, Ohio 43216,
("NFS") acts as 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,
23
<PAGE> 27
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 the 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 plus any expense allowance payments paid by the
Company on the sale of these policies provided by the General Distributor will
not exceed 80% of the target Premium plus 4% of any excess premium payments.
Gross renewal commissions in years 2-10 paid by the Company will not exceed 4%
of actual premium payment, and will not exceed 1% in years 11+.
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 Section 7702, Section 817(h) of
the Code requires that the investments of separate accounts such as the
Variable Account be adequately diversified. Regulations under 817(h) provide
that a variable life policy 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 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 funds, transfers between funds, exchanges of funds or
changes in investment objectives of 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.
24
<PAGE> 28
A total surrender or cancellation of the policy by lapse or the maturity of the
Policy on its Maturity Date may have adverse tax consequences. If the amount
received by the Policy Owner plus total Policy Indebtedness exceeds the
premiums paid into the Policy, the excess will generally be treated as taxable
income, regardless of whether or not the Policy is a modified endowment
contract.
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 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 each of which is 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.
The Company operates in the highly competitive field of life insurance. There
are approximately 2,300 stock, mutual and other types of insurers in the life
insurance business in the United States, and a large number of them compete
with the registrant in the sale of insurance policies.
As is customary in insurance company groups, employees are shared with the
other insurance companies in the group. In addition to its direct salaried
employees, the Company shares employees with Nationwide Mutual Insurance
Company and Nationwide Mutual Fire Insurance Company.
The Company does not presently own or lease any materially important 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.
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<PAGE> 29
COMPANY MANAGEMENT
Nationwide Life and Annuity Insurance Company, together with Nationwide Mutual
Insurance Company, Nationwide Indemnity Company, Nationwide Mutual Fire
Insurance Company, Nationwide Life Insurance Company, Nationwide Property and
Casualty Insurance Company, National Casualty Company, Scottsdale Indemnity
Company and Nationwide General Insurance Company 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 Company
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
1) Principal occupation for last five years.
2) Prior to assuming this current position, Messrs.. McFerson and Gasper
held other executive management positions with the companies.
Each of the directors is a director of the other major affiliates of the
Nationwide Insurance Enterprise, except Mr. Gasper who is a director only of
the Company and Nationwide Life Insurance Company. Messrs. McFerson and Gasper
are directors of Nationwide 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 a trustee of Nationwide Separate Account Trust,
Financial
26
<PAGE> 30
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 Senior 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
</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 Insurance
Enterprise. Each of the executive officers listed above has been associated
with the registrant in an executive capacity for more than the past five years,
except Mr. 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.
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.
27
<PAGE> 31
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 Specified
Amount of $50,000 and a Scheduled Premium of $750. She now wishes to surrender
the Policy during the first Policy year. By using the initial surrender charge
table reproduced below, (also see "Surrender Charges") the total surrender
charge per thousand multiplied by the Specified Amount expressed in thousands
equals the total surrender charge of $569.80 ($11.396 x 50=569.80).
Example 2: A male non-tobacco , age 35, purchases a Policy with a Specified
Amount of $100,000 and a Scheduled Premium of $1100. He now wants to surrender
the Policy in the sixth Policy Year. The total initial surrender charge is
calculated using the method illustrated above. (surrender charge per 1000
6.817 x 100=681.70 maximum initial surrender charge). Because the fifth Policy
Year has been completed, the maximum initial surrender charge is reduced by
multiplying it by the applicable percentage factor from the "Reductions to
Surrender Charges" table below (Also see "Reductions to Surrender Charges").
In this case, $681.70 x 60%=$409.02.
Maximum Surrender Charge per $1,000 of initial Specified Amount for policies
which are issued on a standard basis.
<TABLE>
<CAPTION>
Initial Specified Amount $50,000-$99,999
ISSUE MALE FEMALE MALE FEMALE
AGE NON-TOBACCO NON-TOBACCO STANDARD STANDARD
<S> <C> <C> <C> <C>
25 $7.776 $7.521 $8.369 $7.818
35 8.817 8.398 9.811 8.891
45 12.191 11.396 13.887 12.169
55 15.636 14.011 18.415 15.116
65 22.295 19.086 26.577 20.641
Initial Specified Amount $100,000+
ISSUE MALE FEMALE MALE FEMALE
AGE NON-TOBACCO NON-TOBACCO STANDARD STANDARD
<S> <C> <C> <C> <C>
25 $5.776 $5.521 $6.369 $5.818
35 6.817 6.398 7.811 6.891
45 9.691 8.896 11.387 9.669
55 13.136 11.511 15.915 12.616
65 21.295 18.086 25.577 19.641
Reductions to Surrender Charges
SURRENDER CHARGE SURRENDER CHARGE
COMPLETED AS A % OF INITIAL COMPLETED AS A % OF INITIAL
POLICY YEARS SURRENDER CHARGES POLICY YEARS SURRENDER CHARGES
<S> <C> <C> <C>
0 100% 5 60%
1 100% 6 50%
2 90% 7 40%
3 80% 8 30%
4 70% 9+ 0%
</TABLE>
The current Surrender Charges are the same for all states. However, in
Pennsylvania the guaranteed maximum Surrender Charges are spread out over 14
years. The guaranteed maximum Surrender Charge in subsequent years in
Pennsylvania is reduced in the following manner:
<TABLE>
<CAPTION>
COMPLETED SURRENDER CHARGE COMPLETED SURRENDER CHARGE COMPLETED SURRENDER CHARGE
POLICY AS A % OF INITIAL POLICY AS A % OF INITIAL POLICY AS A % OF INITIAL
YEARS SURRENDER CHARGES YEARS SURRENDER CHARGES YEARS SURRENDER CHARGES
<S> <C> <C> <C> <C> <C>
0 100% 5 60% 10 20%
1 100% 6 50% 11 15%
2 90% 7 40% 12 10%
3 80% 8 30% 13 5%
4 70% 9 25% 14+ 0%
</TABLE>
The illustrations of current values in this prospectus are the same for
Pennsylvania. However, the illustrations of guaranteed values in this
prospectus do not reflect guaranteed maximum Surrender Charges which are
spread out over 14 years. If this contract is issued in Pennsylvania, please
contact the Home Office for an illustration.
The Company has no plans to change the current Surrender Charges.
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 Indebtedness, no additional
premium payments are made, no Cash Values are allocated to the Fixed Account,
and there are no changes in the Specified Amount or death benefit option.
The amounts shown for the Cash Value, Cash Surrender Value and death benefit as
of each Policy Anniversary reflect the fact that the net investment return on
the assets held in the sub-accounts is lower than the gross return. This is
due to the daily charges made against the assets of the sub-accounts for
assuming mortality and expense risks. The mortality and expense risk charges
are equivalent to an annual effective rate of 0.80% of the daily net asset
value of the Variable Account. On each Policy Anniversary beginning with the
10th, the mortality and expense risk charge is reduced to 0.50% on an annual
basis of the daily net assets of the Variable Account, provided the Cash
Surrender Value is $25,000 or more on such anniversary. In addition, the net
investment returns also reflect the deduction of underlying Mutual Fund
investment advisory fees and other expenses which are equivalent to an annual
effective rate of 0.80% of the daily net asset value of the Variable Account.
This effective rate is based on the average of the fund expenses for the
preceding year for all mutual fund options available under the policy as of
April 30, 1995.
Considering current charges for mortality and expense risks and underlying
Mutual Fund expenses, gross annual rates of return of 0%, 6% and 12% correspond
to net investment experience at constant annual rates of -1.60%, 4.40% and
10.40%. On each Policy Anniversary beginning with the 10th, the gross annual
rates of return of 0%, 6%, and 12% correspond to net investment experience at
constant annual rates of -1.30%, 4.70%, and 10.70%, provided the Cash Surrender
Value is $25,000 or more on such anniversary. This is due to a guaranteed
reduction in the mortality and expense risk charge from an annual effective
rate of 0.80% to an annual effective rate of 0.50% if the aforementioned
conditions apply.
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. Policies issued on a substandard basis would result in
lower Cash Values and Death benefits than those illustrated.
The illustrations also reflect the fact that the Company deducts a sales load
from each premium payment. Current values reflect a deduction of 3.5% of each
premium payment up to Break Point Premium and 1.5% of any excess. Guaranteed
values reflect a deduction of 3.5% of each premium payment. The illustrations
also reflect the fact that the Company deducts a charge for state premium taxes
equal to 2.5% of all premium payments.
The Cash Surrender Values shown in the illustrations reflect the fact that the
Company will deduct a Surrender Charge from the Policy's Cash Value for any
Policy surrendered in full during the first nine years.
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 $25 per month in the first year, $5
per month in renewal years. Current values reflect a current monthly
administrative expense charge of $5 in renewal years, and guaranteed values
reflect the $7.50 maximum monthly administrative charge under the Policy in
renewal years. The illustrations also reflect the fact that no charges for
federal or state income taxes are currently made against the Variable Account.
If such a charge is made in the future, it will require a higher gross
investment return than illustrated in order to produce the net after-tax
returns shown in the illustrations.
Upon request, the Company will furnish a comparable illustration based on the
proposed Insured's age, sex, smoking classification, rating classification and
premium payment requested.
30
<PAGE> 34
<TABLE>
DEATH BENEFIT OPTION 1
$750 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 45
<CAPTION>
CURRENT VALUES
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
CASH CASH CASH
ANNUAL PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH 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>
1 750 788 241 0 50,000 268 0 50,000 296 0 50,000
2 750 1,614 706 132 50,000 783 210 50,000 864 290 50,000
3 750 2,483 1,154 637 50,000 1,310 794 50,000 1,480 964 50,000
4 750 3,394 1,579 1,120 50,000 1,845 1,386 50,000 2,144 1,685 50,000
5 750 4,351 1,981 1,579 50,000 2,386 1,985 50,000 2,860 2,459 50,000
6 750 5,357 2,362 2,018 50,000 2,937 2,592 50,000 3,636 3,292 50,000
7 750 6,412 2,727 2,440 50,000 3,502 3,215 50,000 4,483 4,196 50,000
8 750 7,520 3,071 2,842 50,000 4,077 3,847 50,000 5,404 5,174 50,000
9 750 8,683 3,395 3,223 50,000 4,663 4,491 50,000 6,407 6,235 50,000
10 750 9,905 3,698 3,698 50,000 5,262 5,262 50,000 7,503 7,503 50,000
15 750 16,993 4,785 4,785 50,000 8,326 8,326 50,000 14,657 14,657 50,000
20 750 26,039 4,747 4,747 50,000 11,163 11,163 50,000 25,820 25,820 50,000
25 750 37,585 2,779 2,779 50,000 13,084 13,084 50,000 44,987 44,987 52,185
30 750 52,321 (*) (*) (*) 12,846 12,846 50,000 77,324 77,324 82,737
35 750 71,127 (*) (*) (*) 7,510 7,510 50,000 130,329 130,329 136,846
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY
ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR AND
$5.00 THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON
ALL PREMIUMS UP TO THE BREAK POINT PREMIUM AND 4% ON PREMIUMS IN
EXCESS OF BREAK POINT FOR ANY SINGLE POLICY YEAR.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL 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 VALUES WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED THE ASSUMED RATES, BUT ALSO
FLUCTUATED ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
31
<PAGE> 35
<TABLE>
DEATH BENEFIT OPTION 1
$750 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 45
GUARANTEED VALUES
<CAPTION>
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
CASH CASH CASH
ANNUAL PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH 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>
1 750 788 175 0 50,000 200 0 50,000 226 0 50,000
2 750 1,614 540 0 50,000 608 34 50,000 679 105 50,000
3 750 2,483 881 365 50,000 1,015 498 50,000 1,161 644 50,000
4 750 3,394 1,198 739 50,000 1,420 961 50,000 1,672 1,213 50,000
5 750 4,351 1,489 1,087 50,000 1,823 1,421 50,000 2,216 1,814 50,000
6 750 5,357 1,751 1,407 50,000 2,219 1,875 50,000 2,792 2,448 50,000
7 750 6,412 1,982 1,695 50,000 2,605 2,318 50,000 3,401 3,115 50,000
8 750 7,520 2,178 1,948 50,000 2,977 2,748 50,000 4,044 3,814 50,000
9 750 8,683 2,333 2,161 50,000 3,330 3,157 50,000 4,718 4,546 50,000
10 750 9,905 2,445 2,445 50,000 3,657 3,657 50,000 5,425 5,425 50,000
15 750 16,993 2,199 2,199 50,000 4,731 4,731 50,000 9,486 9,486 50,000
20 750 26,039 (*) (*) (*) 3,966 3,966 50,000 14,446 14,446 50,000
25 750 37,585 (*) (*) (*) (*) (*) (*) 20,249 20,249 50,000
30 750 52,321 (*) (*) (*) (*) (*) (*) 27,165 27,165 50,000
35 750 71,127 (*) (*) (*) (*) (*) (*) 37,284 37,284 50,000
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A
MONTHLY ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR
AND $7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE
ON ALL PREMIUMS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL 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 VALUES WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED THE ASSUMED RATES, BUT ALSO
FLUCTUATED ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
32
<PAGE> 36
<TABLE>
DEATH BENEFIT OPTION 2
$750 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 45
<CAPTION>
CURRENT VALUES
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
CASH CASH CASH
ANNUAL PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH 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>
1 750 788 240 0 50,240 267 0 50,267 294 0 50,294
2 750 1,614 702 128 50,702 779 205 50,779 859 285 50,859
3 750 2,483 1,145 628 51,145 1,300 784 51,300 1,469 952 51,469
4 750 3,394 1,563 1,104 51,563 1,826 1,367 51,826 2,122 1,663 52,122
5 750 4,351 1,956 1,555 51,956 2,356 1,954 52,356 2,823 2,421 52,823
6 750 5,357 2,326 1,982 52,326 2,891 2,546 52,891 3,577 3,233 53,577
7 750 6,412 2,677 2,391 52,677 3,436 3,149 53,436 4,395 4,108 54,395
8 750 7,520 3,005 2,775 53,005 3,985 3,756 53,985 5,277 5,047 55,277
9 750 8,683 3,309 3,137 53,309 4,540 4,368 54,540 6,230 6,058 56,230
10 750 9,905 3,590 3,590 53,590 5,100 5,100 55,100 7,261 7,261 57,261
15 750 16,993 4,508 4,508 54,508 7,815 7,815 57,815 13,712 13,712 63,712
20 750 26,039 4,169 4,169 54,169 9,813 9,813 59,813 22,659 22,659 72,659
25 750 37,585 1,809 1,809 51,809 9,931 9,931 59,931 34,844 34,844 84,844
30 750 52,321 (*) (*) (*) 6,336 6,336 56,336 50,867 50,867 100,867
35 750 71,127 (*) (*) (*) (*) (*) (*) 70,540 70,540 120,540
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY
ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR AND
$5.00 THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON
ALL PREMIUMS UP TO THE BREAK POINT PREMIUM AND 4% ON PREMIUMS IN
EXCESS OF BREAK POINT FOR ANY SINGLE POLICY YEAR.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL 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 VALUES WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED THE ASSUMED RATES, BUT ALSO
FLUCTUATED ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
33
<PAGE> 37
<TABLE>
DEATH BENEFIT OPTION 2
$750 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 45
<CAPTION>
GUARANTEED VALUES
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
CASH CASH CASH
ANNUAL PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH 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>
1 750 788 173 0 50,173 198 0 50,198 224 0 50,224
2 750 1,614 534 0 50,534 602 28 50,602 672 99 50,672
3 750 2,483 870 354 50,870 1,002 486 51,002 1,146 630 51,146
4 750 3,394 1,179 720 51,179 1,398 939 51,398 1,646 1,187 51,646
5 750 4,351 1,460 1,058 51,460 1,787 1,385 51,787 2,172 1,770 52,172
6 750 5,357 1,710 1,366 51,710 2,165 1,821 52,165 2,723 2,379 52,723
7 750 6,412 1,925 1,638 51,925 2,529 2,242 52,529 3,299 3,012 53,299
8 750 7,520 2,102 1,873 52,102 2,871 2,642 52,871 3,896 3,667 53,896
9 750 8,683 2,236 2,064 52,236 3,187 3,015 53,187 4,512 4,340 54,512
10 750 9,905 2,323 2,323 52,323 3,471 3,471 53,471 5,142 5,142 55,142
15 750 16,993 1,909 1,909 51,909 4,161 4,161 54,161 8,382 8,382 58,382
20 750 26,039 (*) (*) (*) 2,670 2,670 52,670 10,970 10,970 60,970
25 750 37,585 (*) (*) (*) (*) (*) (*) 10,552 10,552 60,552
30 750 52,321 (*) (*) (*) (*) (*) (*) 2,076 2,076 52,076
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A
MONTHLY ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR
AND $7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE
ON ALL PREMIUMS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL 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 VALUES WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED THE ASSUMED RATES, BUT ALSO
FLUCTUATED ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
34
<PAGE> 38
<TABLE>
DEATH BENEFIT OPTION 1
$1,200 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 55
<CAPTION>
CURRENT VALUES
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
CASH CASH CASH
ANNUAL PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH 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 1,200 1,260 493 0 50,000 540 0 50,000 587 0 50,000
2 1,200 2,583 1,195 502 50,000 1,328 635 50,000 1,466 773 50,000
3 1,200 3,972 1,862 1,238 50,000 2,125 1,502 50,000 2,411 1,788 50,000
4 1,200 5,431 2,489 1,935 50,000 2,929 2,375 50,000 3,426 2,872 50,000
5 1,200 6,962 3,070 2,585 50,000 3,731 3,246 50,000 4,509 4,024 50,000
6 1,200 8,570 3,605 3,189 50,000 4,534 4,119 50,000 5,673 5,257 50,000
7 1,200 10,259 4,087 3,740 50,000 5,330 4,984 50,000 6,918 6,571 50,000
8 1,200 12,032 4,507 4,230 50,000 6,111 5,833 50,000 8,247 7,970 50,000
9 1,200 13,893 4,868 4,660 50,000 6,877 6,669 50,000 9,675 9,467 50,000
10 1,200 15,848 5,160 5,160 50,000 7,621 7,621 50,000 11,207 11,207 50,000
15 1,200 27,189 5,361 5,361 50,000 10,798 10,798 50,000 20,938 20,938 50,000
20 1,200 41,663 2,465 2,465 50,000 12,184 12,184 50,000 36,920 36,920 50,000
25 1,200 60,136 (*) (*) (*) 9,324 9,324 50,000 66,534 66,534 69,861
30 1,200 83,713 (*) (*) (*) (*) (*) (*) 114,688 114,688 120,423
35 1,200 113,804 (*) (*) (*) (*) (*) (*) 190,213 190,213 199,723
</TABLE>
(1) ASSUMES NO POLICY LOANS OR PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY
ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR AND
$5.00 THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON
ALL PREMIUMS UP TO THE BREAK POINT PREMIUM AND 4% ON PREMIUMS IN
EXCESS OF BREAK POINT FOR ANY SINGLE POLICY YEAR.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL 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 VALUES WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED THE ASSUMED RATES, BUT ALSO
FLUCTUATED ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
35
<PAGE> 39
<TABLE>
DEATH BENEFIT OPTION 1
$1,200 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 55
<CAPTION>
GUARANTEED VALUES
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
CASH CASH CASH
ANNUAL PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH 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 1,200 1,260 288 0 50,000 328 0 50,000 369 0 50,000
2 1,200 2,583 730 37 50,000 835 142 50,000 947 254 50,000
3 1,200 3,972 1,113 490 50,000 1,312 689 50,000 1,530 907 50,000
4 1,200 5,431 1,434 879 50,000 1,752 1,198 50,000 2,117 1,563 50,000
5 1,200 6,962 1,683 1,198 50,000 2,146 1,661 50,000 2,700 2,215 50,000
6 1,200 8,570 1,855 1,439 50,000 2,485 2,069 50,000 3,272 2,856 50,000
7 1,200 10,259 1,940 1,594 50,000 2,756 2,409 50,000 3,824 3,478 50,000
8 1,200 12,032 1,926 1,649 50,000 2,943 2,666 50,000 4,344 4,066 50,000
9 1,200 13,893 1,798 1,590 50,000 3,028 2,820 50,000 4,814 4,607 50,000
10 1,200 15,848 1,542 1,542 50,000 2,991 2,991 50,000 5,220 5,220 50,000
15 1,200 27,189 (*) (*) (*) 106 106 50,000 5,495 5,495 50,000
</TABLE>
(1) ASSUMES NO POLICY LOANS OR PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A
MONTHLY ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR
AND $7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE
ON ALL PREMIUMS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL 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 VALUES WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED THE ASSUMED RATES, BUT ALSO
FLUCTUATED ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
36
<PAGE> 40
<TABLE>
DEATH BENEFIT OPTION 2
$1,200 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 55
<CAPTION>
CURRENT VALUES
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
CASH CASH CASH
ANNUAL PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH 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 1,200 1,260 487 0 50,487 534 0 50,534 581 0 50,581
2 1,200 2,583 1,180 487 51,180 1,311 618 51,311 1,448 755 51,448
3 1,200 3,972 1,831 1,207 51,831 2,090 1,466 52,090 2,371 1,747 52,371
4 1,200 5,431 2,436 1,882 52,436 2,865 2,311 52,865 3,350 2,796 53,350
5 1,200 6,962 2,986 2,501 52,986 3,628 3,143 53,628 4,381 3,896 54,381
6 1,200 8,570 3,483 3,067 53,483 4,377 3,961 54,377 5,471 5,055 55,471
7 1,200 10,259 3,917 3,570 53,917 5,102 4,755 55,102 6,613 6,267 56,613
8 1,200 12,032 4,279 4,002 54,279 5,791 5,514 55,791 7,803 7,526 57,803
9 1,200 13,893 4,570 4,362 54,570 6,443 6,235 56,443 9,045 8,837 59,045
10 1,200 15,848 4,781 4,781 54,781 7,044 7,044 57,044 10,334 10,334 60,334
15 1,200 27,189 4,390 4,390 54,390 8,915 8,915 58,915 17,325 17,325 67,325
20 1,200 41,663 776 776 50,776 7,486 7,486 57,486 24,406 24,406 74,406
25 1,200 60,136 (*) (*) (*) (*) (*) (*) 29,600 29,600 79,600
30 1,200 83,713 (*) (*) (*) (*) (*) (*) 27,765 27,765 77,765
35 1,200 113,804 (*) (*) (*) (*) (*) (*) 9,106 9,106 59,106
</TABLE>
(1) ASSUMES NO POLICY LOANS OR PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY
ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR AND
$5.00 THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON
ALL PREMIUMS UP TO THE BREAK POINT PREMIUM AND 4% ON PREMIUMS IN
EXCESS OF BREAK POINT FOR ANY SINGLE POLICY YEAR.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL 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 VALUES WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED THE ASSUMED RATES, BUT ALSO
FLUCTUATED ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
37
<PAGE> 41
<TABLE>
DEATH BENEFIT OPTION 2
$1,200 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 55
<CAPTION>
GUARANTEED VALUES
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
CASH CASH CASH
ANNUAL PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH 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 1,200 1,260 280 0 50,280 320 0 50,320 361 0 50,361
2 1,200 2,583 710 17 50,710 813 120 50,813 921 228 50,921
3 1,200 3,972 1,074 450 51,074 1,266 643 51,266 1,478 854 51,478
4 1,200 5,431 1,368 814 51,368 1,674 1,119 51,674 2,023 1,468 52,023
5 1,200 6,962 1,585 1,100 51,585 2,023 1,538 52,023 2,546 2,061 52,546
6 1,200 8,570 1,718 1,302 51,718 2,304 1,888 52,304 3,036 2,620 53,036
7 1,200 10,259 1,758 1,411 51,758 2,504 2,157 52,504 3,481 3,134 53,481
8 1,200 12,032 1,693 1,415 51,693 2,605 2,327 52,605 3,860 3,582 53,860
9 1,200 13,893 1,510 1,302 51,510 2,588 2,380 52,588 4,151 3,943 54,151
10 1,200 15,848 1,199 1,199 51,199 2,434 2,434 52,434 4,332 4,332 54,332
15 1,200 27,189 (*) (*) (*) (*) (*) (*) 2,609 2,609 52,609
</TABLE>
(1) ASSUMES NO POLICY LOANS OR PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A
MONTHLY ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR
AND $7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE
ON ALL PREMIUMS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL 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 VALUES WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED THE ASSUMED RATES, BUT ALSO
FLUCTUATED ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
38
<PAGE> 42
<TABLE>
DEATH BENEFIT OPTION 1
$1,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 45
<CAPTION>
CURRENT VALUES
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
CASH CASH CASH
ANNUAL PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH 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 1,500 1,575 799 0 100,000 864 0 100,000 928 31 100,000
2 1,500 3,229 1,803 905 100,000 1,989 1,091 100,000 2,183 1,286 100,000
3 1,500 4,965 2,771 1,963 100,000 3,143 2,335 100,000 3,547 2,739 100,000
4 1,500 6,788 3,704 2,986 100,000 4,328 3,610 100,000 5,031 4,313 100,000
5 1,500 8,703 4,604 3,976 100,000 5,546 4,918 100,000 6,650 6,022 100,000
6 1,500 10,713 5,472 4,933 100,000 6,800 6,262 100,000 8,420 7,881 100,000
7 1,500 12,824 6,297 5,848 100,000 8,081 7,632 100,000 10,345 9,897 100,000
8 1,500 15,040 7,069 6,710 100,000 9,379 9,020 100,000 12,433 12,074 100,000
9 1,500 17,367 7,790 7,521 100,000 10,698 10,428 100,000 14,704 14,435 100,000
10 1,500 19,810 8,451 8,451 100,000 12,028 12,028 100,000 17,170 17,170 100,000
15 1,500 33,986 11,068 11,068 100,000 19,125 19,125 100,000 33,766 33,766 100,000
20 1,500 52,079 11,929 11,929 100,000 26,663 26,663 100,000 61,182 61,182 100,000
25 1,500 75,170 9,916 9,916 100,000 34,418 34,418 100,000 107,751 107,751 124,991
30 1,500 104,641 2,735 2,735 100,000 41,087 41,087 100,000 184,431 184,431 197,341
35 1,500 142,254 (*) (*) (*) 44,522 44,522 100,000 310,217 310,217 325,728
</TABLE>
(1) ASSUMES NO POLICY LOANS OR PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY
ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR AND
$5.00 THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON
ALL PREMIUMS UP TO THE BREAK POINT PREMIUM AND 4% ON PREMIUMS IN
EXCESS OF BREAK POINT FOR ANY SINGLE POLICY YEAR.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL 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 VALUES WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED THE ASSUMED RATES, BUT ALSO
FLUCTUATED ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
39
<PAGE> 43
<TABLE>
DEATH BENEFIT OPTION 1
$1,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 45
<CAPTION>
GUARANTEED VALUES
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
CASH CASH CASH
ANNUAL PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH 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 1,500 1,575 751 0 100,000 814 0 100,000 878 0 100,000
2 1,500 3,229 1,675 777 100,000 1,854 956 100,000 2,041 1,144 100,000
3 1,500 4,965 2,558 1,750 100,000 2,913 2,105 100,000 3,298 2,490 100,000
4 1,500 6,788 3,399 2,681 100,000 3,989 3,271 100,000 4,655 3,937 100,000
5 1,500 8,703 4,196 3,567 100,000 5,082 4,453 100,000 6,122 5,494 100,000
6 1,500 10,713 4,945 4,406 100,000 6,187 5,649 100,000 7,707 7,168 100,000
7 1,500 12,824 5,642 5,193 100,000 7,302 6,853 100,000 9,417 8,969 100,000
8 1,500 15,040 6,282 5,923 100,000 8,421 8,062 100,000 11,262 10,903 100,000
9 1,500 17,367 6,858 6,588 100,000 9,537 9,268 100,000 13,251 12,982 100,000
10 1,500 19,810 7,365 7,365 100,000 10,646 10,646 100,000 15,395 15,395 100,000
15 1,500 33,986 8,667 8,667 100,000 15,879 15,879 100,000 29,121 29,121 100,000
20 1,500 52,079 7,003 7,003 100,000 19,687 19,687 100,000 50,746 50,746 100,000
25 1,500 75,170 (*) (*) (*) 19,705 19,705 100,000 87,111 87,111 101,049
30 1,500 104,641 (*) (*) (*) 10,491 10,491 100,000 149,298 149,298 159,749
35 1,500 142,254 (*) (*) (*) (*) (*) (*) 250,764 250,764 263,302
</TABLE>
(1) ASSUMES NO POLICY LOANS OR PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A
MONTHLY ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR
AND $7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE
ON ALL PREMIUMS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL 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 VALUES WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED THE ASSUMED RATES, BUT ALSO
FLUCTUATED ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
40
<PAGE> 44
<TABLE>
DEATH BENEFIT OPTION 2
$1,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 45
<CAPTION>
CURRENT VALUES
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
CASH CASH CASH
ANNUAL PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH 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 1,500 1,575 796 0 100,796 860 0 100,860 925 27 100,925
2 1,500 3,229 1,793 896 101,793 1,978 1,081 101,978 2,171 1,274 102,171
3 1,500 4,965 2,751 1,943 102,751 3,120 2,313 103,120 3,521 2,713 103,521
4 1,500 6,788 3,670 2,952 103,670 4,288 3,570 104,288 4,983 4,265 104,983
5 1,500 8,703 4,552 3,924 104,552 5,482 4,853 105,482 6,571 5,942 106,571
6 1,500 10,713 5,397 4,858 105,397 6,704 6,165 106,704 8,296 7,758 108,296
7 1,500 12,824 6,193 5,745 106,193 7,942 7,494 107,942 10,161 9,712 110,161
8 1,500 15,040 6,931 6,572 106,931 9,187 8,828 109,187 12,167 11,808 112,167
9 1,500 17,367 7,610 7,341 107,610 10,437 10,168 110,437 14,329 14,060 114,329
10 1,500 19,810 8,221 8,221 108,221 11,682 11,682 111,682 16,651 16,651 116,651
15 1,500 33,986 10,477 10,477 110,477 18,031 18,031 118,031 31,632 31,632 131,632
20 1,500 52,079 10,710 10,710 110,710 23,760 23,760 123,760 54,303 54,303 154,303
25 1,500 75,170 7,771 7,771 107,771 27,485 27,485 127,485 87,582 87,582 187,582
30 1,500 104,641 (*) (*) (*) 26,171 26,171 126,171 135,472 135,472 235,472
35 1,500 142,254 (*) (*) (*) 13,912 13,912 113,912 202,743 202,743 302,743
</TABLE>
(1) ASSUMES NO POLICY LOANS OR PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY
ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR AND
$5.00 THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON
ALL PREMIUMS UP TO THE BREAK POINT PREMIUM AND 4% ON PREMIUMS IN
EXCESS OF BREAK POINT FOR ANY SINGLE POLICY YEAR.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL 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 VALUES WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED THE ASSUMED RATES, BUT ALSO
FLUCTUATED ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
41
<PAGE> 45
<TABLE>
DEATH BENEFIT OPTION 2
$1,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 45
<CAPTION>
GUARANTEED VALUES
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
CASH CASH CASH
ANNUAL PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH 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 1,500 1,575 748 0 100,748 810 0 100,810 873 0 100,873
2 1,500 3,229 1,664 766 101,664 1,842 944 101,842 2,028 1,131 102,028
3 1,500 4,965 2,536 1,728 102,536 2,887 2,080 102,887 3,269 2,461 103,269
4 1,500 6,788 3,361 2,643 103,361 3,944 3,226 103,944 4,602 3,884 104,602
5 1,500 8,703 4,137 3,509 104,137 5,009 4,381 105,009 6,033 5,405 106,033
6 1,500 10,713 4,861 4,322 104,861 6,079 5,540 106,079 7,567 7,029 107,567
7 1,500 12,824 5,525 5,077 105,525 7,146 6,697 107,146 9,209 8,760 109,209
8 1,500 15,040 6,126 5,767 106,126 8,204 7,845 108,204 10,961 10,602 110,961
9 1,500 17,367 6,655 6,386 106,655 9,243 8,974 109,243 12,826 12,557 112,826
10 1,500 19,810 7,108 7,108 107,108 10,257 10,257 110,257 14,809 14,809 114,809
15 1,500 33,986 7,992 7,992 107,992 14,608 14,608 114,608 26,644 26,644 126,644
20 1,500 52,079 5,673 5,673 105,673 16,391 16,391 116,391 42,448 42,448 142,448
25 1,500 75,170 (*) (*) (*) 12,425 12,425 112,425 61,419 61,419 161,419
30 1,500 104,641 (*) (*) (*) (*) (*) (*) 80,800 80,800 180,800
35 1,500 142,254 (*) (*) (*) (*) (*) (*) 92,554 92,554 192,554
</TABLE>
(1) ASSUMES NO POLICY LOANS OR PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A
MONTHLY ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR
AND $7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE
ON ALL PREMIUMS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL 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 VALUES WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED THE ASSUMED RATES, BUT ALSO
FLUCTUATED ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
42
<PAGE> 46
<TABLE>
DEATH BENEFIT OPTION 1
$2,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 55
<CAPTION>
CURRENT VALUES
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
CASH CASH CASH
ANNUAL PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH 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 2,500 2,625 1,386 223 100,000 1,495 333 100,000 1,605 443 100,000
2 2,500 5,381 2,961 1,799 100,000 3,275 2,112 100,000 3,602 2,439 100,000
3 2,500 8,275 4,489 3,443 100,000 5,109 4,063 100,000 5,782 4,736 100,000
4 2,500 11,314 5,949 5,019 100,000 6,982 6,052 100,000 8,147 7,217 100,000
5 2,500 14,505 7,327 6,513 100,000 8,878 8,064 100,000 10,701 9,887 100,000
6 2,500 17,855 8,626 7,929 100,000 10,805 10,107 100,000 13,471 12,773 100,000
7 2,500 21,373 9,844 9,262 100,000 12,760 12,178 100,000 16,479 15,898 100,000
8 2,500 25,066 10,965 10,500 100,000 14,732 14,267 100,000 19,743 19,278 100,000
9 2,500 28,945 11,988 11,639 100,000 16,721 16,372 100,000 23,293 22,944 100,000
10 2,500 33,017 12,919 12,919 100,000 18,735 18,735 100,000 27,174 27,174 100,000
15 2,500 56,644 15,657 15,657 100,000 28,929 28,929 100,000 53,773 53,773 100,000
20 2,500 86,798 13,769 13,769 100,000 39,070 39,070 100,000 99,843 99,843 106,832
25 2,500 125,284 3,152 3,152 100,000 47,636 47,636 100,000 178,503 178,503 187,428
30 2,500 174,402 (*) (*) (*) 51,634 51,634 100,000 304,551 304,551 319,778
35 2,500 237,091 (*) (*) (*) 43,079 43,079 100,000 502,828 502,828 527,969
</TABLE>
(1) ASSUMES NO POLICY LOANS OR PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY
ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR AND
$5.00 THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON
ALL PREMIUMS UP TO THE BREAK POINT PREMIUM AND 4% ON PREMIUMS IN
EXCESS OF BREAK POINT FOR ANY SINGLE POLICY YEAR.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL 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 VALUES WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED THE ASSUMED RATES, BUT ALSO
FLUCTUATED ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
43
<PAGE> 47
<TABLE>
DEATH BENEFIT OPTION 1
$2,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 55
<CAPTION>
GUARANTEED VALUES
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
CASH CASH CASH
ANNUAL PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH 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 2,500 2,625 1,212 50 100,000 1,316 154 100,000 1,421 258 100,000
2 2,500 5,381 2,542 1,380 100,000 2,832 1,670 100,000 3,135 1,973 100,000
3 2,500 8,275 3,778 2,732 100,000 4,340 3,294 100,000 4,953 3,906 100,000
4 2,500 11,314 4,913 3,983 100,000 5,833 4,903 100,000 6,878 5,948 100,000
5 2,500 14,505 5,937 5,123 100,000 7,301 6,488 100,000 8,915 8,101 100,000
6 2,500 17,855 6,842 6,145 100,000 8,735 8,037 100,000 11,070 10,372 100,000
7 2,500 21,373 7,617 7,036 100,000 10,121 9,540 100,000 13,348 12,767 100,000
8 2,500 25,066 8,245 7,780 100,000 11,443 10,978 100,000 15,753 15,288 100,000
9 2,500 28,945 8,708 8,359 100,000 12,682 12,333 100,000 18,289 17,940 100,000
10 2,500 33,017 8,989 8,989 100,000 13,818 13,818 100,000 20,963 20,963 100,000
15 2,500 56,644 7,002 7,002 100,000 17,234 17,234 100,000 37,407 37,407 100,000
20 2,500 86,798 (*) (*) (*) 12,880 12,880 100,000 62,409 62,409 100,000
25 2,500 125,284 (*) (*) (*) (*) (*) (*) 109,545 109,545 115,023
30 2,500 174,402 (*) (*) (*) (*) (*) (*) 190,458 190,458 199,981
35 2,500 237,091 (*) (*) (*) (*) (*) (*) 314,104 314,104 329,809
</TABLE>
(1) ASSUMES NO POLICY LOANS OR PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A
MONTHLY ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR
AND $7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE
ON ALL PREMIUMS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL 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 VALUES WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED THE ASSUMED RATES, BUT ALSO
FLUCTUATED ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
44
<PAGE> 48
<TABLE>
DEATH BENEFIT OPTION 2
$2,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 55
<CAPTION>
CURRENT VALUES
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
CASH CASH CASH
ANNUAL PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH 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 2,500 2,625 1,374 211 101,374 1,482 320 101,482 1,591 429 101,591
2 2,500 5,381 2,927 1,764 102,927 3,236 2,074 103,236 3,559 2,397 103,559
3 2,500 8,275 4,419 3,373 104,419 5,029 3,983 105,029 5,691 4,645 105,691
4 2,500 11,314 5,832 4,902 105,832 6,841 5,911 106,841 7,980 7,050 107,980
5 2,500 14,505 7,144 6,330 107,144 8,651 7,837 108,651 10,420 9,607 110,420
6 2,500 17,855 8,362 7,664 108,362 10,463 9,765 110,463 13,032 12,335 113,032
7 2,500 21,373 9,478 8,897 109,478 12,268 11,687 112,268 15,824 15,242 115,824
8 2,500 25,066 10,477 10,012 110,477 14,049 13,584 114,049 18,794 18,329 118,794
9 2,500 28,945 11,354 11,005 111,354 15,797 15,448 115,797 21,956 21,607 121,956
10 2,500 33,017 12,115 12,115 112,115 17,516 17,516 117,516 25,333 25,333 125,333
15 2,500 56,644 13,550 13,550 113,550 24,855 24,855 124,855 46,145 46,145 146,145
20 2,500 86,798 9,551 9,551 109,551 28,172 28,172 128,172 73,441 73,441 173,441
25 2,500 125,284 (*) (*) (*) 22,016 22,016 122,016 106,695 106,695 206,695
30 2,500 174,402 (*) (*) (*) (*) (*) (*) 141,554 141,554 241,554
35 2,500 237,091 (*) (*) (*) (*) (*) (*) 168,976 168,976 268,976
</TABLE>
(1) ASSUMES NO POLICY LOANS OR PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY
ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR AND
$5.00 THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON
ALL PREMIUMS UP TO THE BREAK POINT PREMIUM AND 4% ON PREMIUMS IN
EXCESS OF BREAK POINT FOR ANY SINGLE POLICY YEAR.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL 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 VALUES WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED THE ASSUMED RATES, BUT ALSO
FLUCTUATED ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
45
<PAGE> 49
<TABLE>
DEATH BENEFIT OPTION 2
$2,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 55
<CAPTION>
GUARANTEED VALUES
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
CASH CASH CASH
ANNUAL PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH 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 2,500 2,625 1,197 35 101,197 1,300 138 101,300 1,404 241 101,404
2 2,500 5,381 2,500 1,338 102,500 2,785 1,623 102,785 3,083 1,921 103,083
3 2,500 8,275 3,693 2,647 103,693 4,242 3,196 104,242 4,840 3,794 104,840
4 2,500 11,314 4,768 3,838 104,768 5,660 4,730 105,660 6,671 5,741 106,671
5 2,500 14,505 5,715 4,901 105,715 7,024 6,211 107,024 8,571 7,758 108,571
6 2,500 17,855 6,523 5,825 106,523 8,319 7,622 108,319 10,534 9,836 110,534
7 2,500 21,373 7,179 6,598 107,179 9,527 8,946 109,527 12,549 11,968 112,549
8 2,500 25,066 7,665 7,200 107,665 10,622 10,157 110,622 14,600 14,135 114,601
9 2,500 28,945 7,962 7,613 107,962 11,578 11,229 111,578 16,669 16,320 116,669
10 2,500 33,017 8,052 8,052 108,052 12,366 12,366 112,366 18,734 18,734 118,734
15 2,500 56,644 4,841 4,841 104,841 12,798 12,798 112,798 28,282 28,282 128,282
20 2,500 86,798 (*) (*) (*) 2,956 2,956 102,956 32,479 32,479 132,479
25 2,500 125,284 (*) (*) (*) (*) (*) (*) 19,082 19,082 119,082
</TABLE>
(1) ASSUMES NO POLICY LOANS OR PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A
MONTHLY ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR
AND $7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE
ON ALL PREMIUMS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL 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 VALUES WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED THE ASSUMED RATES, BUT ALSO
FLUCTUATED ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
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
authorizing the establishment of the for the Nationwide VL Separate Account-A (File No. 811-
Registrant, adopted 6137), and hereby incorporated herein by 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 the Registration Statement on Form S-6 for
the Nationwide VL Separate Account-A (File No. 33-44300),
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 the Registration Statement on Form S-6 for
the Nationwide VL Separate Account-A (File No. 33-44300),
and hereby incorporated herein by reference.
7. Opinion of Counsel Included with the Registration Statement on Form S-6 for
the Nationwide VL Separate Account-A (File No. 33-44300),
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 the 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>
