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NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
Home Office
P.O. Box 182150
One Nationwide Plaza
Columbus, Ohio 43218-2150
(800) 547-7548, TDD (800) 238-3035
MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICIES*
ISSUED BY NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
THROUGH ITS NATIONWIDE VL SEPARATE ACCOUNT-A
The Life Insurance Policies offered by this prospectus are variable life
insurance policies (collectively referred to as the "Policies"). The Policies
are designed to provide life insurance coverage on the Insured named in the
Policy. The Policies may also provide a Cash Surrender Value if the Policy is
surrendered during the lifetime of the Insured. The Death Benefit and Cash
Value of the Policies may vary to reflect the experience of the Nationwide VL
Separate Account-A (the "Variable Account") or the Fixed Account to which Cash
Values are allocated.
The Policies described in this prospectus may meet the definition of a "modified
endowment contract" under Section 7702A of the Internal Revenue Code (the
"Code"). The Code provides for taxation in the same manner as annuities for
surrenders, partial surrenders, loans, collateral assignments and other
pre-death distributions from modified endowment contracts. Any distribution is
taxable to the extent the Cash Value of the Policy exceeds, at the time of the
distribution, the premiums paid into the Policy. The Code also provides for a
10% tax penalty on the taxable portion of such distributions. That penalty is
applicable unless the distribution is 1) paid after the Policy Owner is 591/2 or
disabled; or 2) the distribution is part of an annuity to the Policy Owner as
defined in the Code. (See "Tax Matters.")
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 may not be advantageous for
persons who may wish to make policy loans or withdrawals prior to attaining age
591/2. (See "Tax Matters.")
*The Policy is titled a "Flexible Premium Variable Life Insurance Policy" in
Texas.
The Policy Owner may allocate premiums and Cash Value to one or more of the
sub-accounts of the Variable Account and the Fixed Account. The assets of each
sub-account will be used to purchase, at net asset value, shares of a designated
Underlying Mutual Fund in the following series of the Underlying Mutual Fund
options:
<TABLE>
<CAPTION>
<S><C>
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.: NATIONWIDE SEPARATE ACCOUNT TRUST:
-American Century VP Balanced -Capital Appreciation Fund
-American Century VP Capital Appreciation -Government Bond Fund
-American Century VP International -Money Market Fund
-American Century VP Value -Small Company Fund
DREYFUS -Total Return Fund
-Dreyfus Socially Responsible Growth Fund NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST:
-Dreyfus Stock Index Fund -Growth Portfolio
DREYFUS VARIABLE INVESTMENT FUND -Limited Maturity Bond
Portfolio
-Growth & Income Portfolio** -Partners Portfolio
-Capital Appreciation Portfolio OPPENHEIMER VARIABLE ACCOUNT FUNDS:
FIDELITY VARIABLE INSURANCE PRODUCTS FUND: -Oppenheimer Bond Fund
-Equity-Income Portfolio -Oppenheimer Global Securities Fund
-Growth Portfolio -Oppenheimer Growth Fund
-High Income Portfolio** -Oppenheimer Multiple Strategies Fund
-Overseas Portfolio STRONG OPPORTUNITY FUND II, INC.:
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II: STRONG VARIABLE INSURANCE FUNDS, INC.:
-Asset Manager Portfolio -Discovery Fund II, Inc.
-Contrafund Portfolio -International Stock Fund II
FIDELITY VARIABLE INSURANCE PRODUCTS FUND III: VAN ECK WORLDWIDE INSURANCE TRUST:
-Growth Opportunities Portfolio -Worldwide Bond Fund
MORGAN STANLEY UNIVERSAL FUNDS, INC.: -Worldwide Emerging Markets Fund
-Emerging Markets Debt Portfolio -Worldwide Hard Assets Fund
</TABLE>
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VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST
-Morgan Stanley Real Estate Securities Portfolio
WARBURG PINCUS TRUST
-International Equity Portfolio
-Post-Venture Capital Portfolio
-Small Company Growth Portfolio
** The Growth & Income Portfolio and the High Income Portfolio may invest in
lower quality debt securities commonly referred to as junk bonds.
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.
INVESTMENTS IN THESE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, AND ARE NOT
GUARANTEED OR ENDORSED BY, THE ADVISER OF ANY OF THE UNDERLYING MUTUAL FUNDS
IDENTIFIED ABOVE, THE U.S. GOVERNMENT, OR ANY BANK OR BANK AFFILIATE.
INVESTMENTS ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. ANY
INVESTMENT IN THE CONTRACT INVOLVES CERTAIN INVESTMENT RISK WHICH MAY INCLUDE
THE POSSIBLE LOSS OF PRINCIPAL.
THE COMPANY (NATIONWIDE LIFE AND ANNUITY INSURANCE 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.
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."
THE DATE OF THIS PROSPECTUS IS SEPTEMBER 5, 1997
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GLOSSARY OF TERMS
ATTAINED AGE- The Insured's age on the Policy Date, plus the number of full
years since the Policy Date.
ACCUMULATION UNIT- An accounting unit of measure used to calculate the Cash
Value of the Variable Account.
BENEFICIARY- The person to whom the proceeds due on the Insured's death are
paid.
CASH VALUE- The sum of the value of Policy assets in the Variable Account, Fixed
Account and any associated value in the Policy Loan Account.
CASH SURRENDER VALUE- The Policy's Cash Value, less any indebtedness under the
Policy, less any Surrender Charge.
CODE- The Internal Revenue Code of 1986, as amended.
COMPANY- Nationwide Life and Annuity Insurance Company.
DEATH PROCEEDS- Amount of money payable to the Beneficiary if the Insured dies
while the Policy is in force.
FIXED ACCOUNT- An investment option which is funded by the General Account of
the Company.
GENERAL ACCOUNT- All assets of the Company other than those of the Variable
Account or those of other separate accounts that have been or may be established
by the Company.
GUIDELINE SINGLE PREMIUM- The amount of single premium calculated in accordance
with the provisions of the Code. It represents the single premium required to
mature the Policy under guaranteed mortality and expense charges, and an
interest rate of 6%.
HOME OFFICE- The main office of the Company located in Columbus, Ohio.
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 100th
birthday.
MONTHLY ANNIVERSARY DATE- The same day as the Policy Date for each succeeding
month.
NET ASSET VALUE- The worth of one share of a Mutual Fund as calculated at the
end of each business day. Net Asset Value is computed by adding the value of
all portfolio holdings, plus other assets, deducting liabilities and then
dividing the result by the number of shares outstanding.
POLICY ANNIVERSARY- An anniversary of the Policy Date.
POLICY CHARGES- All deductions made from the value of the Variable Account, or
the Policy Cash Value.
POLICY DATE- The date the provisions of the Policy take effect, as shown on the
Policy Owner's Policy data page.
POLICY LOAN ACCOUNT- The Portion of the Cash Value which results from policy
loans.
POLICY OWNER- The person designated in the Policy application as the Owner.
POLICY YEAR- Each year commencing with the Policy Date and each Policy Date
anniversary thereafter.
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.
UNDERLYING MUTUAL FUNDS- The underlying mutual funds which correspond to the
sub-accounts of the Variable Account.
VALUATION DATE- Each day both the New York Stock Exchange and the Company's Home
Office is open for business or any other day during which there is a sufficient
degree of trading such that the current net asset value of the Accumulated 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- Nationwide VL Separate Account-A, a separate investment
account of Nationwide Life and Annuity Insurance Company.
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TABLE OF CONTENTS
GLOSSARY OF TERMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
SUMMARY OF THE POLICIES. . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Variable Life Insurance . . . . . . . . . . . . . . . . . . . . . . .6
The Variable Account and its Sub-Accounts . . . . . . . . . . . . . .6
The Fixed Account . . . . . . . . . . . . . . . . . . . . . . . . . .6
Deductions and Charges. . . . . . . . . . . . . . . . . . . . . . . .6
Premiums. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY. . . . . . . . . . . . . . . . .7
THE VARIABLE ACCOUNT . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Investments of the Variable Account . . . . . . . . . . . . . . . . .7
American Century Variable Portfolios, Inc., member of American
Century-SM- Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Dreyfus9. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dreyfus Variable Investment Fund. . . . . . . . . . . . . . . . . . 10
Fidelity Variable Insurance Products Fund . . . . . . . . . . . . . 10
Fidelity Variable Insurance Products Fund II. . . . . . . . . . . . 11
Fidelity Variable Insurance Products Fund III . . . . . . . . . . . 11
Morgan Stanley Universal Funds, Inc.. . . . . . . . . . . . . . . . 12
Nationwide Separate Account Trust . . . . . . . . . . . . . . . . . 12
Neuberger & Berman Advisers Management Trust. . . . . . . . . . . . 13
Oppenheimer Variable Account Funds. . . . . . . . . . . . . . . . . 13
Strong Opportunity Fund II, Inc.. . . . . . . . . . . . . . . . . . 14
Strong Variable Insurance Funds, Inc. . . . . . . . . . . . . . . . 14
Van Eck Worldwide Insurance Trust . . . . . . . . . . . . . . . . . 14
Van Kampen American Capital Life Investment Trust . . . . . . . . . 14
Warburg Pincus Trust. . . . . . . . . . . . . . . . . . . . . . . . 15
Reinvestment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Dollar Cost Averaging . . . . . . . . . . . . . . . . . . . . . . . 16
Substitution of Securities. . . . . . . . . . . . . . . . . . . . . 17
Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
INFORMATION ABOUT THE POLICIES . . . . . . . . . . . . . . . . . . . . . . . 18
Underwriting and Issuance . . . . . . . . . . . . . . . . . . . . . 18
-Minimum Requirements for Issuance of a Policy. . . . . . . . . . . 18
-Premium Deposits . . . . . . . . . . . . . . . . . . . . . . . . . 18
-Allocation of Cash Value . . . . . . . . . . . . . . . . . . . . . 18
-Short-Term Right to Cancel Policy. . . . . . . . . . . . . . . . . 19
POLICY CHARGES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Deductions from Premiums. . . . . . . . . . . . . . . . . . . . . . 19
Monthly Deductions. . . . . . . . . . . . . . . . . . . . . . . . . 19
-Cost of Insurance Charge . . . . . . . . . . . . . . . . . . . . . 19
-Administrative Expense Charge. . . . . . . . . . . . . . . . . . . 19
Tax Expense Charge. . . . . . . . . . . . . . . . . . . . . . . . . 20
-Mortality and Expense Risk Charge. . . . . . . . . . . . . . . . . 20
Surrender Charges . . . . . . . . . . . . . . . . . . . . . . . . . 20
Expenses of the Underlying Mutual Funds . . . . . . . . . . . . . . 21
HOW THE CASH VALUE VARIES. . . . . . . . . . . . . . . . . . . . . . . . . . 23
How the Investment Experience is Determined. . . . . . . . . . . . . . . . . 23
Net Investment Factor . . . . . . . . . . . . . . . . . . . . . . . 23
Valuation of Assets . . . . . . . . . . . . . . . . . . . . . . . . 24
Determining the Cash Value. . . . . . . . . . . . . . . . . . . . . 24
Valuation Periods and Valuation Dates . . . . . . . . . . . . . . . 24
SURRENDERING THE POLICY FOR CASH . . . . . . . . . . . . . . . . . . . . . . 24
Right to Surrender. . . . . . . . . . . . . . . . . . . . . . . . . 24
Cash Surrender Value. . . . . . . . . . . . . . . . . . . . . . . . 24
Partial Surrenders. . . . . . . . . . . . . . . . . . . . . . . . . 25
Maturity Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . 25
Income Tax Withholding. . . . . . . . . . . . . . . . . . . . . . . 25
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POLICY LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Taking a Policy Loan. . . . . . . . . . . . . . . . . . . . . . . . 26
Effect on Investment Performance. . . . . . . . . . . . . . . . . . 26
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Effect on Death Benefit and Cash Value. . . . . . . . . . . . . . . 27
Repayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
HOW THE DEATH BENEFIT VARIES . . . . . . . . . . . . . . . . . . . . . . . . 27
-Calculation of the Death Benefit . . . . . . . . . . . . . . . . . 27
-Proceeds Payable on Death. . . . . . . . . . . . . . . . . . . . . 28
RIGHT OF CONVERSION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
CHANGES OF INVESTMENT POLICY . . . . . . . . . . . . . . . . . . . . . . . . 28
GRACE PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
REINSTATEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
THE FIXED ACCOUNT OPTION . . . . . . . . . . . . . . . . . . . . . . . . . . 29
OTHER POLICY PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Policy Owner. . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Incontestability. . . . . . . . . . . . . . . . . . . . . . . . . . 30
Error in Age or Sex . . . . . . . . . . . . . . . . . . . . . . . . 30
Suicide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Nonparticipating Policies . . . . . . . . . . . . . . . . . . . . . 30
Riders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
LEGAL CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
DISTRIBUTION OF THE POLICIES . . . . . . . . . . . . . . . . . . . . . . . . 30
CUSTODIAN OF ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
TAX MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Policy Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . 31
-Federal Estate and Generation-Skipping Transfer Taxes. . . . . . . 32
-Non-Resident Aliens. . . . . . . . . . . . . . . . . . . . . . . . 32
Taxation of the Company . . . . . . . . . . . . . . . . . . . . . . 33
Tax Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
THE COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
COMPANY MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Directors of the Company. . . . . . . . . . . . . . . . . . . . . . 34
Executive Officers of the Company . . . . . . . . . . . . . . . . . 35
OTHER CONTRACTS ISSUED BY THE COMPANY. . . . . . . . . . . . . . . . . . . . 36
STATE REGULATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
REPORTS TO POLICY OWNERS . . . . . . . . . . . . . . . . . . . . . . . . . . 36
ADVERTISING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
REGISTRATION STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
LEGAL OPINIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
APPENDIX 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
APPENDIX 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
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.
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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 Policy Charges, the Policy will lapse.
THE VARIABLE ACCOUNT AND ITS SUB-ACCOUNTS
The Company places the Policy's Cash Value in the Nationwide VL Separate
Account-A and/or the Fixed Account (the "Variable Account") at the time the
Policy is issued. The Policy Owner selects the sub-accounts of the Variable
Account into which the Cash Value will be allocated. (See "Allocation of Cash
Value.") When the Policy is issued, the Cash Value will be allocated to the
Nationwide Separate Account Trust Money Market Fund Sub-Account (for any Cash
Value 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. (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 option. For a description of the
Underlying Mutual Fund options and their investment objectives, see "Investments
of the Variable Account." The Policy Owner also can have Cash Value allocated
to the Fixed Account.
THE FIXED ACCOUNT
The Fixed Account is funded by the assets of the Company's General Account. Cash
Values allocated to the Fixed Account are credited with interest daily at a rate
declared by the Company. The interest rate declared is at the Company's sole
discretion, but may never be less than an effective annual rate of 3%.
DEDUCTIONS AND CHARGES
The Company deducts certain charges from the Cash Value of the Policy. These
charges are made for administrative expenses, state premium taxes, federal
taxes, providing life insurance protection and assuming the mortality and
expense risks.
The Company deducts a monthly charge for the cost of insurance, administrative
charges, premium tax, and federal tax from the Policy's Cash Value attributable
to the Variable Account and Fixed Account. The Company also deducts on a
monthly basis from the Cash Value attributable to the Variable Account, a charge
to provide for mortality and expense risks. For Policies which are surrendered
in the first 9 Policy Years, the Company deducts a Surrender Charge not to
exceed 10% of the initial Premium Payment. This includes a charge for deferred
sales expenses and premium tax recovery. The sales surrender charge will never
exceed 7.5% of the initial premium payments. For a complete discussion of all
charges, deductions and reductions of charges, see "Charges and Other
Deductions."
Underlying Mutual Fund shares are purchased at net asset value, which reflects
the deduction of investment management fees and certain other expenses. The
management fees are charged by each Underlying Mutual Fund's investment adviser
for managing the Underlying Mutual Fund and selecting its portfolio of
securities. Other Underlying Mutual Fund expenses can include such items as
interest expense on loans and contracts with transfer agents, custodians, and
other companies that provide services to the Underlying Mutual Fund. (See
"Expenses of the Underlying Mutual Funds").
PREMIUMS
The minimum premium for which a Policy may be issued is $10,000 for issue ages
0-70 and $50,000 for issue ages 71-80. 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.")
6
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NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
The Nationwide Life and Annuity Company (the "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 of companies 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 and their
affiliated companies. The Company's Home Office is at One Nationwide Plaza,
Columbus, Ohio 43216.
The Company offers a multiple line of products, including annuities. It is
admitted to do business in 46 states and the District of Columbia (for
additional information, see "The Company").
THE VARIABLE ACCOUNT
The Variable Account was established by 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. 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 changeable 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 Cash Value
Varies").
Premium payments and Cash Value are allocated within the Variable Account among
one or more sub-accounts. The assets of each sub-account are used to purchase
shares of the funds designated by the Policy Owner. Thus, the investment
performance of a Policy depends upon the investment performance of the
Underlying Mutual Fund options designated by the Policy Owner.
INVESTMENTS OF THE VARIABLE ACCOUNT
At the time of application, the Policy Owner elects to have the Cash Value
allocated among one or more of the Variable Account sub-accounts and the Fixed
Account. (See "Allocation of Cash Value.") When the policy is issued, the
Policy's Cash Value not allocated to the Fixed Account is placed in the
Nationwide Separate Account Trust Money Market sub-account until 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.") At the
expiration of this period, shares of the Underlying Mutual Funds specified by
the Policy Owner are purchased at net asset value for the respective
sub-account(s). Such election is subject to any minimum premium limitations
which may be imposed by the Underlying Mutual Fund option(s). In addition, no
less than 5% of premium may be allocated to any one sub-account or the Fixed
Account. The Policy Owner may change the allocation of Cash Value 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 Deposits, upon acceptance, will be allocated to the
Nationwide Separate Account Trust Money Market Fund unless the Policy Owner
specifies otherwise. (See "Premium Deposits.") Premium Deposits will be held
only while the Company obtains information necessary to evaluate the risk.
Following the underwriting process, the Company will either issue the policy or
refund deposits within 5 days from the date thereof.
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Each of the Underlying Mutual Fund options is a series of registered investment
companies which receive investment advice from a registered investment adviser:
1. American Century Variable Portfolios, Inc., managed by American
Century Investment Management, Inc., an affiliate of American Century
Companies, Inc.;
2. Dreyfus Stock Index Fund, managed by The Dreyfus Corporation;
3. Dreyfus Socially Responsible Growth Fund, Inc., managed by The Dreyfus
Corporation;
4. Dreyfus Variable Investment Fund, managed by The Dreyfus Corporation;
5. Fidelity Variable Insurance Products Fund, managed by Fidelity
Management & Research Company;
6. Fidelity Variable Insurance Products Fund II, managed by Fidelity
Management & Research Company;
7. Fidelity Variable Insurance Products Fund III, managed by Fidelity
Management & Research Company;
8. Morgan Stanley Universal Funds, Inc., managed by Morgan Stanley Asset
Management, Inc.;
9. The Nationwide Separate Account Trust, managed by Nationwide Advisory
Services, Inc.;
10. Neuberger & Berman Advisers Management Trust, managed by Neuberger &
Berman Management Incorporated;
11. Oppenheimer Variable Account Funds, managed by Oppenheimer Management
Corporation;
12. Strong Opportunity Fund II, Inc., managed by Strong Capital
Management, Inc.;
13. Strong Variable Insurance Funds, Inc., managed by Strong Capital
Management, Inc.;
14. Van Eck Worldwide Insurance Trust, managed by Van Eck Associates
Corporation;
15. Van Kampen American Capital Life Investment Trust managed by Van
Kampen American Capital Asset Management, Inc.; and
16. Warburg Pincus Trust, managed by Warburg Pincus Counsellors, Inc.
A summary of investment objectives is contained in the description of each
Underlying Mutual Fund below. 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 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 Funds, their investment policies and
restrictions, risks and charges are contained in the prospectuses of the
respective Underlying Mutual Funds. A prospectus for the Underlying Mutual Fund
option(s) being considered must accompany this prospectus and should be read in
conjunction herewith.
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC., MEMBER OF AMERICAN CENTURYSM
INVESTMENTS
American Century Variable Portfolios, Inc. (formerly "TCI Portfolios, Inc.") was
organized as a Maryland corporation in 1987. It is a diversified, open-end
management company, designed only to provide investment vehicles for variable
annuity and variable life insurance products of insurance companies. A member
of American CenturySM Investments, American Century Variable Portfolios, Inc. is
managed by American Century Investment Management, Inc.
- - AMERICAN CENTURY VP BALANCED
INVESTMENT OBJECTIVE: Capital growth and current income. The fund will
seek to achieve its objective by maintaining approximately 60% of the
assets of the fund in common stocks (including securities convertible into
common stocks and other equity equivalents) that are considered by
management to have better-than-average prospects for appreciation and
approximately 40% in fixed income securities. There can be no assurance
that the Fund will achieve its investment objective.
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- - AMERICAN CENTURY VP CAPITAL APPRECIATION
INVESTMENT OBJECTIVE: Capital growth. The fund will seek to achieve its
objective by investing in common stocks (including securities convertible
into common stocks and other equity equivalents) that meet certain
fundamental and technical standards of selection and have, in the opinion
of the fund's investment manager, better than average potential for
appreciation. The fund tries to stay fully invested in such securities,
regardless of the movement of stock prices generally.
The fund may invest in cash and cash equivalents temporarily or when it is
unable to find common stocks meeting its criteria of selection. It may
purchase securities only of companies that have a record of at least three
years continuous operation. There can be no assurance that the Fund will
achieve its investment objective.
- - AMERICAN CENTURY VP INTERNATIONAL
INVESTMENT OBJECTIVE: To seek capital growth. The fund will seek to
achieve its investment objective by investing primarily in securities of
foreign companies that meet certain fundamental and technical standards of
selection and, in the opinion of the investment manager, have potential for
appreciation. Under normal conditions, the fund will invest at least 65%
of its assets in common stocks or other equity securities of issuers from
at least three countries outside the United States. Securities of United
States issuers may be included in the portfolio from time to time.
Although the primary investment of the fund will be common stocks (defined
to include depository receipts for common stocks), the fund may also invest
in other types of securities consistent with the fund's objective. When
the manager believes that the total return potential of other securities
equals or exceeds the potential return of common stocks, the fund may
invest up to 35% of its assets in such other securities. There can be no
assurance that the fund will achieve its objectives.
- - AMERICAN CENTURY VP VALUE
INVESTMENT OBJECTIVE: The investment objective of the Fund is long-term
capital growth; income is a secondary objective. Under normal market
conditions, the Fund expects to invest at least 80% of the value of its
total asset in equity securities, including common and preferred stock,
convertible preferred stock and convertible debt obligations. The equity
securities in which the Fund will invest will be primarily securities of
well-established companies with intermediate-to-large market
capitalizations that are believed by management to be undervalued at the
time of purchase.
(Although the Statement of Additional Information concerning American
Century Variable Portfolios, Inc., refers to redemptions of securities in
kind under certain conditions, all surrendering or redeeming Contract
Owners will receive cash from the Company.)
DREYFUS
- - THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
The Dreyfus Socially Responsible Growth Fund, Inc. is an open-end,
diversified, management investment company. It was incorporated under
Maryland law on July 20, 1992, and commenced operations on October 7, 1993.
The Dreyfus Corporation serves as the Fund's investment advisor. NCN
Capital Management Group, Inc. serves as the Fund's sub-investment adviser
and provides day-to-day management of the Fund's portfolio.
INVESTMENT OBJECTIVE: The Fund's primary goal is to provide capital growth
through equity investment in companies that, in the opinion of the Fund's
management, not only meet traditional investment standards, but which also
show evidence that they conduct their business in a manner that contributes
to the enhancement of the quality of life in America. Current income is
secondary to the primary goal.
- - DREYFUS STOCK INDEX FUND
The Dreyfus Stock Index Fund, Inc. is an open-end, non-diversified,
management investment company. It was incorporated under Maryland law on
January 24, 1989, and commenced operations on September 29, 1989. The
Dreyfus Corporation ("Dreyfus") serves as the Fund's manager, while Mellon
Equity Associates, an affiliate of Dreyfus, serves as the Fund's index
manager.
INVESTMENT OBJECTIVE: To provide investment results that correspond to the
price and yield performance of publicly traded common stocks in the
aggregate, as represented by the Standard & Poor's 500 Composite Stock
Price Index. The Fund is neither sponsored by nor affiliated with Standard
& Poor's Corporation.
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DREYFUS VARIABLE INVESTMENT FUND
Dreyfus Variable Investment Fund (the "Fund") is an open-end, management
investment company. It was organized as an unincorporated business trust under
the laws of the Commonwealth of Massachusetts on October 29,1986 and commenced
operations August 31, 1990. The Dreyfus Corporation ("Dreyfus") serves as the
Fund's manager. Dreyfus is a wholly-owned subsidiary of Mellon Bank, N.A.,
which is a wholly-owned subsidiary of Mellon Bank Corporation.
- - CAPITAL APPRECIATION PORTFOLIO
INVESTMENT OBJECTIVE: The Fund's primary investment objective is to
provide long-term capital growth consistent with the preservation of
apital; current income is a secondary investment objective. This Fund
invests primarily in the common stocks of domestic and foreign
issuers.
- - GROWTH AND INCOME PORTFOLIO
INVESTMENT OBJECTIVE: To provide long-term capital growth, current income
and growth of income, consistent with reasonable investment risk. The
Portfolio invests in equity securities, debt securities and money market
instruments of domestic and foreign issuers. The proportion of the
Portfolio's assets invested in each type of security will vary from time to
time in accordance with Dreyfus' assessment of economic conditions and
investment opportunities. In purchasing equity securities, Dreyfus will
invest in common stocks, preferred stocks and securities convertible into
common stocks, particularly those which offer opportunities for capital
appreciation and growth of earnings, while paying current dividends. The
Portfolio will generally invest in investment-grade debt obligations,
except that it may invest up to 35% of the value of its net assets in
convertible debt securities rated not lower than Caa by Moody's Investor
Service, Inc. or CCC by Standard & Poor's Ratings Group, Fitch Investors
Service, L.P. or Duff & Phelps Credit Rating Co., or if unrated, deemed to
be of comparable quality by Dreyfus. These securities are considered to
have predominantly speculative characteristics with respect to capacity to
pay interest and repay principal and are considered to be of poor standing.
See "Investment Considerations and Risks-Lower Rated Securities" in the
Portfolio's prospectuses.
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 benefits under variable insurance and
annuity policies. Fidelity Management & Research Company ('FMR') is the Fund's
manager.
- - EQUITY-INCOME PORTFOLIO
INVESTMENT OBJECTIVE: To seek reasonable income by investing primarily in
income-producing equity securities. In choosing these securities FMR also
will consider the potential for capital appreciation. The Portfolio's goal
is to achieve a yield which exceeds the composite yield on the securities
comprising the Standard & Poor's 500 Composite Stock Price Index.
- - GROWTH PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to achieve capital appreciation. This
Portfolio will invest in the securities of both well-known and established
companies, and smaller, less well-known companies which may have a narrow
product line or whose securities are thinly traded. These latter
securities will often involve greater risk than may be found in the
ordinary investment security. FMR's analysis and expertise plays an
integral role in the selection of securities and, therefore, the
performance of the Portfolio. Many securities which FMR believes would
have the greatest potential may be regarded as speculative, and investment
in the Portfolio may involve greater risk than is inherent in other
underlying mutual funds. It is also important to point out that the
Portfolio makes 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.
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<PAGE>
- - HIGH INCOME PORTFOLIO
INVESTMENT OBJECTIVE: To obtain a high level of current income by
investing primarily in high-risk, high-yielding, lower rated fixed-income
securities, while also considering growth of capital. The Fund's manager
will seek high current income normally by investing the Fund's assets as
follows:
- at least 65% in income-producing debt securities and preferred stocks,
including convertible securities, zero coupon securities, and
mortgage-backed and asset-based securities;
- up to 20% in common stocks and other equity securities when consistent
with the Fund's primary objective or acquired as part of a unit
combining fixed-income and equity securities.
Higher yields are usually available on securities that are lower-rated or
that are unrated. Lower-rated securities are usually defined as Ba or lower by
Moody's; BB or lower by Standard & Poor's and may be deemed to be of a
speculative nature. The Fund may also purchase lower-quality bonds such as
those rated Ca3 by Moody's or C- by Standard & Poor's which provide poor
protection for payment of principal and interest (commonly referred to as "junk
bonds"). For a further discussion of lower-rated securities, please see the
"Risks of Lower-Rated Debt Securities" section of the Fund's prospectus.
- - OVERSEAS PORTFOLIO
INVESTMENT OBJECTIVE: To seek long term growth of capital primarily
through investments in foreign securities. The Overseas Portfolio provides
a means for investors to diversify their own portfolios by participating in
companies and economies outside of the United States.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
The Fund is an open-end, diversified, management investment company organized as
a Massachusetts business trust on March 21, 1988. The fund's shares are
purchased by insurance companies to fund benefits under variable insurance and
annuity policies. FMR is the Fund's manager.
- - ASSET MANAGER PORTFOLIO
INVESTMENT OBJECTIVE: To seek to obtain high total return with reduced
risk over the long-term by allocating its assets among domestic and foreign
stocks, bonds and short-term fixed income instruments.
- - CONTRAFUND PORTFOLIO
INVESTMENT OBJECTIVE: To seek capital appreciation by investing primarily
in companies that the fund manager believes to be undervalued due to an
overly pessimistic appraisal by the public. This strategy can lead to
investments in domestic or foreign companies, small and large, many of
which may not be well known. The fund primarily invests in common stock
and securities convertible into common stock, but it has the flexibility to
invest in any type of security that may produce capital appreciation.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND III
The Fidelity Variable Insurance Products Fund III is an open-end, diversified,
management investment company organized as a Massachusetts business trust on
July 14, 1994. The Fund's name was changed from Fidelity Advisor Annuity Fund
to Variable Insurance Products Fund III on December 30, 1996. The Fund shares
are purchased by insurance companies to fund benefits under variable life
insurance and annuity contracts. Fidelity Management & Research Company ("FMR")
is the Fund's manager.
- - GROWTH OPPORTUNITIES PORTFOLIO
INVESTMENT OBJECTIVE: To provide capital growth by investing primarily in
common stocks and securities convertible into common stocks. The Fund,
under normal conditions, will invest at least 65% of its total assets in
securities of companies that FMR believes have long-term growth potential.
Although the Fund invests primarily in common stock and securities
convertible into common stock, it has the ability to purchase other
securities, such as preferred stock and bonds, that may produce capital
growth. The Fund may invest in foreign securities without limitation.
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<PAGE>
MORGAN STANLEY UNIVERSAL FUNDS, INC.
Morgan Stanley Universal Funds, Inc. (the "Fund") is a mutual fund designed to
provide investment vehicles for variable annuity contracts and variable life
insurance policies and for certain tax-qualified investors. The Fund is an
open-end management investment company, or mutual fund. At present it offers 17
separate investment portfolios (each, a "Portfolio"), each with a distinct
investment objective.
- - EMERGING MARKETS DEBT PORTFOLIO
INVESTMENT OBJECTIVE: The Fund seeks high total return by investing
primarily in dollar- and non-dollar denominated Fixed Income Securities of
government and private-sector related issuers located in emerging market
countries, which securities provide a high level of current income, while
at the same time holding the potential for capital appreciation if the
perceived creditworthiness of the issuer improves due to improving
economic, financial, political, social or other conditions in the country
in which the issuer is located.
NATIONWIDE SEPARATE ACCOUNT TRUST
Nationwide Separate Account Trust (the "Trust") is a diversified open-end
management investment company created under the laws of Massachusetts. The
Trust offers shares in the five separate Mutual 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
life insurance policies or variable annuity contracts issued by life insurance
companies. The assets of the Trust are managed by Nationwide Advisory Services,
Inc., of One Nationwide Plaza, Columbus, Ohio 43216, a wholly-owned subsidiary
of Nationwide Life Insurance Company.
- - CAPITAL APPRECIATION FUND
INVESTMENT OBJECTIVE: The Fund is designed for investors who are
interested in long-term growth. The Fund seeks to meet its objective
primarily through a diversified portfolio of the common stock of companies
which the investment manager determines have a better-than-average
potential for sustained capital growth over the long term.
- - 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.
- - 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.
- - SMALL COMPANY FUND
INVESTMENT OBJECTIVE: The Fund seeks long-term growth of capital by
investing primarily in equity securities of domestic and foreign companies
with market capitalizations of less than $1 billion at the time of
purchase. Nationwide Advisory Services, Inc. ("NAS"), the Fund's adviser,
has employed a group of sub-advisers each of which will manage a portion of
the Fund's portfolio. These sub-advisers are the Dreyfus Corporation,
Neuberger & Berman, L.P., Pictet International Management Limited, Van Eck
Associates Corporation, Strong Capital Management, Inc. and Warburg, Pincus
Counsellors, Inc. These sub-advisers were chosen because they utilize a
number of different investment styles when investing in small company
stocks. By utilizing a number of different investment styles, NAS hopes to
increase prospects for investment return and to reduce market risk and
volatility.
- - TOTAL RETURN FUND
INVESTMENT OBJECTIVE: To obtain a reasonable long-term total return (i.e.,
earnings growth plus potential dividend yield) on invested capital from a
flexible combination of current return and capital gains through
investments in common stocks, convertible issues, money market instruments
and bonds, with a primary emphasis on common stocks.
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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.
- - GROWTH PORTFOLIO
INVESTMENT OBJECTIVE: The Portfolio seeks capital growth through
investments in common stocks of companies that the investment adviser
believes will have above average earnings or otherwise provide investors
with above average potential for capital appreciation. To maximize this
potential, the investment adviser may also utilize, from time to time,
securities convertible into common stocks, warrants and options to purchase
such stocks.
- - LIMITED MATURITY BOND PORTFOLIO
INVESTMENT OBJECTIVE: To provide the high level of current income,
consistent with low risk to principal and liquidity, and secondarily, its
total return. It seeks to achieve its objectives through investments in a
diversified portfolio of fixed and variable rate debt securities and seeks
to increase income and preserve or enhance total return by actively
managing average portfolio maturity in light of market conditions and
trends. The portfolio invests in securities which are at lease investment
grade and does not invest in junk bonds.
- - PARTNERS PORTFOLIO
INVESTMENT OBJECTIVE: To seek capital growth. This portfolio will seek to
achieve its objective by investing primarily in the common stock of
established companies. Its investment program seeks securities believed to
be undervalued based on fundamentals such as low price-to-earnings ratios,
consistent cash flows, and support from asset values. The objective of the
Partners Portfolio is not fundamental and can be changed by the Trustees of
the Trust without shareholder approval. Shareholders will, however,
receive at least 30 days prior notice thereof. There is no assurance the
investment objective will be met.
OPPENHEIMER VARIABLE ACCOUNT FUNDS
The Oppenheimer Variable Account Funds is an open-ended, diversified management
investment company organized as a Massachusetts business trust in 1984. Shares
of the Funds are sold only to provide benefits under variable life insurance
policies and variable annuity contracts. Oppenheimer Management Corporation is
the Funds' investment advisor.
- - OPPENHEIMER BOND FUND
INVESTMENT OBJECTIVE: Primarily to seek a high level of current income
from investment in high yield fixed-income securities rated "Baa" or better
by Moody's or "BBB" or better by Standard & Poor's. Secondarily, the fund
seeks capital growth when consistent with its primary objective.
- - OPPENHEIMER GLOBAL SECURITIES FUND
INVESTMENT OBJECTIVE: To seek long-term capital appreciation by investing
a substantial portion of assets in securities of foreign issuers,
"growth-type" companies, cyclical industries and special situations which
are considered to have appreciation possibilities. Current income is not
an objective. These securities may be considered to be speculative.
- - OPPENHEIMER GROWTH FUND
INVESTMENT OBJECTIVE: The Fund seeks to achieve capital appreciation by
investing in securities of well-known established companies. In seeking
its objective of capital appreciation, the Fund will emphasize investments
in securities of well-known and established companies. Such securities
generally have a history of earnings and dividends and are issued by
seasoned companies (having an operating history of at least five years
including predecessors). Current income is a secondary consideration in
the selection of the Fund's portfolio securities.
- - OPPENHEIMER MULTIPLE STRATEGIES FUND
INVESTMENT OBJECTIVE: To seek a total investment return (which includes
current income and capital appreciation in the value of its shares) from
investments in common stocks and other equity securities, bonds and other
debt securities, and "money market" securities.
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STRONG OPPORTUNITY FUND II, INC.
The Strong Opportunity Fund II, Inc. (fka "Strong Special Fund II, Inc.") is a
diversified, open-end management company commonly called a Mutual Fund. The
Special Fund II was incorporated in Wisconsin and may only be purchased by the
separate accounts of insurance companies for the purpose of funding variable
annuity contracts and variable life policies. Strong Capital Management, Inc.
(the "Advisor") is the investment advisor for the fund.
INVESTMENT OBJECTIVE: To seek capital appreciation through investments in
a diversified portfolio of equity securities.
STRONG VARIABLE INSURANCE FUNDS, INC.
The Strong Variable Insurance Funds, Inc. is a diversified, open-end management
company commonly called a mutual fund. The Strong Discovery Fund II, Inc.
("Discovery Fund II") and the Strong International Stock Fund II (the
"International Stock Fund II") were separately incorporated in Wisconsin and may
only be purchased by the separate accounts of insurance companies for the
purpose of funding variable annuity contracts and variable life insurance
policies. Strong Capital Management, Inc. is the investment advisor for each of
the Funds.
- - DISCOVERY FUND II, INC.
INVESTMENT OBJECTIVE: To seek maximum capital appreciation through
investments in a diversified portfolio of securities. The fund normally
emphasizes investment in equity securities and may invest up to 100% of its
total assets in equity securities including common stocks, preferred stocks
and securities convertible into common or preferred stocks. Although the
Fund normally emphasizes investment in equity securities, the fund has the
flexibility to invest in any type of security that its advisor believes has
the potential for capital appreciation including up to 100% of its total
assets in debt obligations, including intermediate to long-term corporate
or U.S. government debt securities.
- - INTERNATIONAL STOCK FUND II
INVESTMENT OBJECTIVE: To seek capital growth by investing primarily in the
equity securities of issuers located outside the United States.
VAN ECK WORLDWIDE INSURANCE TRUST
Van Eck Worldwide Insurance Trust is an open-end management investment company
organized as a "business trust" under the laws of the Commonwealth of
Massachusetts on January 7, 1987. Shares of the Trust are offered only to
separate accounts of various insurance companies to fund benefits of variable
insurance and annuity policies. The assets of the Trust are managed by Van Eck
Associates Corporation.
- - WORLDWIDE BOND FUND
INVESTMENT OBJECTIVE: To seek high total return through a flexible policy
of investing globally, primarily in debt securities. The debt securities
in which the fund will invest will be primarily high grade; the fund will
not invest in junk bonds.
- - WORLDWIDE EMERGING MARKETS FUND
INVESTMENT OBJECTIVE: Seeks long-term capital appreciation by investing
primarily in equity securities in emerging markets around the world. The
Fund specifically emphasizes investment in countries that, compared to the
world's major economies, exhibit relatively low gross national product per
capita, as well as the potential for rapid economic growth. Peregrine
Asset Management (Hong Kong) Limited serves as sub-investment adviser to
this Fund.
- - WORLDWIDE HARD ASSETS FUND (FORMERLY GOLD AND NATURAL RESOURCES FUND)
INVESTMENT OBJECTIVE: To seek long-term capital appreciation by investing
globally, primarily in "Hard Assets Securities." Hard assets are tangible,
finite assets, asuch as real estate, energy, timber, and industrial and
precious metals. Income is a secondary consideration.
VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST
The Van Kampen American Capital Life Investment Trust is an open-end
diversified management investment company organized as a Massachusetts business
trust on June 3, 1985. The Trust offers shares in separate funds which are sold
only to insurance companies to provide funding for variable life insurance
policies and variable annuity contracts. Van Kampen American Capital Asset
Management, Inc. serves as the Portfolio's investment adviser.
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<PAGE>
-MORGAN STANLEY CAPITAL REAL ESTATE SECURITIES PORTFOLIO
INVESTMENT OBJECTIVE: To seek long-term capital growth by investing in a
portfolio of securities of companies operating in the real estate industry
("Real Estate Securities"). Current income is a secondary consideration.
Real Estate Securities include equity securities, including common stocks
and convertible securities, as well as non-convertible preferred stocks and
debt securities of real estate industry companies. A "real estate industry
company" is a company that derives at least 50% of its assets (marked to
market), gross income or net profits from the ownership, construction,
management or sale of residential, commercial or industrial real estate.
Under normal market conditions, at least 65% of the Portfolio's total
assets will be invested in Real Estate Securities, primarily equity
securities of real estate investment trusts. The Portfolio may invest up
to 25% of its total assets in securities issued by foreign issuers, some or
all of which may also be Real Estate Securities. There can be no assurance
that the Portfolio will achieve its investment objective.
WARBURG PINCUS TRUST
The Warburg Pincus Trust ("Trust") is an open-end management investment company
organized in March 1995 as a business trust under the laws of The Commonwealth
of Massachusetts. The Trust offers its shares to insurance companies for
allocation to separate accounts for the purpose of funding variable annuity and
variable life contracts. Trust portfolios are managed by Warburg, Pincus
Counsellors, Inc. ("Counsellors.")
- - INTERNATIONAL EQUITY PORTFOLIO
INVESTMENT OBJECTIVE: To seek long-term capital appreciation by investing
primarily in a broadly diversified portfolio of equity securities of
companies, wherever organized, that in the judgment of "Counsellors" have
their principal business activities and interests outside the United
States. The Portfolio will ordinarily invest substantially all of its
assets, but no less than 65% of its total assets, in common stocks,
warrants and securities convertible into or exchangeable for common stocks.
The Portfolio intends to invest principally in the securities of
financially strong companies with opportunities for growth within growing
international economies and markets through increased earning power and
improved utilization or recognition of assets.
- - POST-VENTURE CAPITAL PORTFOLIO
INVESTMENT OBJECTIVE: The Portfolio seeks long-term growth of capital by
investing primarily in equity securities of issuers in their post-venture
capital stage of development and pursues an aggressive investment strategy.
Under normal market conditions, the Portfolio will invest at least 65% of
its total assets in equity securities of "post-venture capital companies."
A post-venture capital company is one that has received venture capital
financing either (a) during the early stages of the company's existence or
the early stages of the development of a new product or service or (b) as a
part of a restructuring or recapitalization of the company. The Portfolio
may invest up to 10% of its assets in venture capital and other investment
funds.
- - SMALL COMPANY GROWTH PORTFOLIO
INVESTMENT OBJECTIVE: To seek capital growth by investing in a portfolio
of equity securities of small-sized domestic companies. The Portfolio
ordinarily will invest at least 65% of its total assets in common stocks or
warrants of small-sized companies (i.e., companies having stock market
capitalizations of between $25 million and $1 billion at the time of
purchase) that represent attractive opportunities for capital growth. The
Portfolio intends to invest primarily in companies whose securities are
traded on domestic stock exchanges or in the over-the-counter market. The
Portfolio's investments will be made on the basis of their equity
characteristics and securities ratings generally will not be a factor in
the selection process.
REINVESTMENT
The Funds described above have as a policy the distribution of dividends in the
form of additional shares (or fractions thereof) of the mutual funds. The
distribution of additional shares will not affect the number of Accumulation
Units attributable to a particular Policy. (See "Allocation of Cash Value.")
TRANSFERS
The Policy Owner may transfer 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.
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After the First Policy Anniversary, the Policy Owner may annually request a
transfer of up to 100% of the Cash Value from the Variable Account to the Fixed
Account. The Policy Owner's Cash Value in each Sub-Account will be determined
as of the date the transfer request is received in the Home Office in good
order. The Company reserves the right to restrict transfers to the Fixed
Account to 25% of the Cash Value.
The Policy Owner may annually transfer a portion of the value of the Fixed
Account to the Variable Account without penalty or adjustment. The Company
reserves the right to limit the amount of Cash Value transferred out of the
Fixed Account each Policy Year. Transfers from the Fixed Account must be made
within 30 days after the termination date of the interest rate guarantee period.
Transfers among the sub-accounts 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.
Policy Owners who have entered into a Dollar Cost Averaging Agreement with the
Company (see "Dollar Cost Averaging" below) may transfer from the Fixed Account
to the Variable Account under the terms of that agreement.
Policies described in this prospectus may in some cases be sold to individuals
who independently utilize the services of a firm or individual engaged in market
timing. Generally, such firms or individuals obtain authorization from multiple
Policy Owners to make transfers and exchanges among the sub-accounts (the
Underlying Mutual Funds) on the basis of perceived market trends. Because of
the unusually large transfers of funds associated with some of these
transactions, the ability of the Company or Underlying Mutual Funds to process
such transactions may be compromised, and the execution of such transactions may
possibly disadvantage or work to the detriment of other Policy Owners not
utilizing market timing services.
Accordingly, the right to exchange Cash Surrender Values among the sub-accounts
may be subject to modification if such rights are exercised by a market timing
firm or any other third party authorized to initiate transfer or exchange
transactions on behalf of multiple Policy Owners. THE RIGHTS OF INDIVIDUAL
POLICY OWNERS TO EXCHANGE CASH SURRENDER VALUES, WHEN INSTRUCTIONS ARE SUBMITTED
DIRECTLY BY THE POLICY OWNER, OR BY THE POLICY OWNER'S REPRESENTATIVE OF RECORD
AS AUTHORIZED BY THE EXECUTION OF A VALID NATIONWIDE LIMITED POWER OF ATTORNEY
FORM, WILL NOT BE MODIFIED IN ANY WAY. In modifying such rights, the Company
may, among other things, not accept (1) the transfer or exchange instructions of
any agent acting under a power of attorney on behalf of more than one Policy
Owner, or (2) the transfer or exchange instructions of individual policy owners
who have executed pre-authorized transfer or exchange forms which are submitted
by market timing firms or other third parties on behalf of more than one Policy
Owner at the same time. The Company will not impose any such restrictions or
otherwise modify exchange rights unless such action is reasonably intended to
prevent the use of such rights in a manner that will disadvantage or potentially
impair the contract rights of other Policy Owners.
DOLLAR COST AVERAGING
The Policy Owner may direct the Company to automatically transfer from the Money
Market sub-account, Fixed Account, or the Limited Maturity Bond Portfolio
sub-account to any other sub-account within the Variable Account on a monthly
basis or as frequently as otherwise authorized by the Company. This service is
intended to allow the Policy Owner to utilize dollar cost averaging, a long-term
investment program which provides for regular, level investments over time. The
Company makes no guarantees that dollar cost averaging will result in a profit
or protect against loss in a declining market. To qualify for dollar cost
averaging, there must be a minimum total Cash Value, less policy indebtedness,
of $15,000. Transfers for purposes of dollar cost averaging can only be made
from the Money Market sub-account, Fixed Account, or the Limited Maturity Bond
Portfolio sub-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
16
<PAGE>
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, Fixed Account, or the
Limited Maturity Bond Portfolio sub-account will be processed monthly until
either the value in the Money Market sub-account, Fixed Account, or the Limited
Maturity Bond Portfolio sub-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 such discontinuation
would 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 Underlying Mutual Fund options described in this prospectus
should no longer be available for investment by the Variable Account or, if in
the judgment of the Company's management further investment in such Underlying
Mutual Funds should become inappropriate in view of the purposes of the Policy,
the Company may substitute shares of another Underlying Mutual Fund for shares
already purchased or to be purchased in the future by 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 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 in
accordance with instructions received from Policy Owners. However, if the
Investment Company Act of 1940 or any regulation thereunder should be amended or
if the present interpretation thereof should change, and as a result the Company
determines that it is permitted to vote the shares of the Underlying Mutual
Funds in its own right, the Company may elect to do so.
The Policy Owner shall have the voting interest under a Policy. The number of
shares in each sub-account for which the Policy Owner may give voting
instructions is determined by dividing any portion of the Policy's Cash Value
derived from participation in that Underlying Mutual Fund by the net asset value
of one share of that Underlying Mutual Fund.
The number of shares which a person has a right to vote will be determined as of
a date chosen by the Company, but not more than 90 days prior to the meeting of
the Underlying Mutual Fund. Voting instructions will be solicited by written
communication prior to such meeting.
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.
Notwithstanding contrary Policy Owner voting instructions, the Company may vote
Underlying Mutual Fund shares in any manner necessary to enable the Underlying
Mutual Fund to (1) make or refrain from making any change in the investments or
investment policies for any of the Underlying Mutual Funds, if required by an
insurance regulatory authority; (2) refrain from making any change in the
investment policies or any investment adviser or principal underwriter of any
portfolio which may be initiated by Policy Owners or the Underlying Mutual
Fund's Board of Directors, provided the Company's disapproval of the change is
reasonable and, in the case of a change in the investment policies or investment
adviser, based on a good faith determination that such change would be contrary
to state law or otherwise inappropriate in light of the portfolio's objective
and purposes; or (3) enter into or refrain from entering into any advisory
agreement or underwriting contract, if required by any insurance regulatory
authority.
17
<PAGE>
INFORMATION ABOUT THE POLICIES
UNDERWRITING AND ISSUANCE
- -Minimum Requirements for Issuance of a Policy
Underwriting for these Policies is designed to group applicants into
classifications which can be expected to produce mortality experience consistent
with the actuarial structure for that class. The Company uses the following
methods of underwriting: (a) simplified underwriting not routinely requiring a
physical examination, and (b) medical or paramedical underwriting which requires
such an examination. (See "How the Death Benefit Varies.")
The Company reserves the right to request a medical examination on any applicant
where an affirmative response to one of the medical questions of the application
requires additional underwriting by the Company.
The minimum amount of initial premium that will be accepted by the Company is
$10,000 for issue ages 0-70 and $50,000 for issue ages 71-80. Policies may be
issued to Insureds who are 80 or younger at the time of issue. Before issuing
any Policy, the Company requires evidence of insurability satisfactory to it,
which may include a medical examination.
- -Premium Deposits
The initial premium for a Policy is payable in full at the Company's Home
Office. The minimum amount of initial premium required is $10,000 for issue
ages 0-70 and $50,000 for issue ages 71-80. The Specified Amount of Death
Benefit is determined by treating the initial premium as equal to 100% of the
Guideline Single Premium. The effective date of permanent insurance coverage is
dependent upon completion of all underwriting requirements, payment of the
initial premium, and delivery of the Policy while the insured is still living.
The Policy is primarily intended to be a single premium policy with a limited
ability to make additional payments. Subsequent premium payments under the
Policy are permitted under the following circumstances:
1. an additional premium payment is required to keep the Policy in force
(see "Grace Period"); or
2. except in Virginia, additional premium payments of at least $1,000 may
be made at any time provided the premium limits prescribed by the
Internal Revenue Service to qualify the Policy as a life insurance
contract are not violated.
Deposits of additional premiums if accepted, may increase the Specified Amount
of Insurance. 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. The Company may require that
any existing Policy indebtedness is repaid prior to accepting any additional
premium payments.
Additional Premium Deposits, upon acceptance, will be allocated to the
Nationwide Separate Account Trust Money Market Fund unless the Policy Owner
specifies otherwise.
The Company will not accept a subsequent premium deposit which would result in
total premiums paid exceeding the premium limitations prescribed by the Internal
Revenue Service to qualify the Policy as a life insurance contract.
- -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 premium invested on the date the
premium was received in good order by the Company. When the Policy is issued,
the Cash Value will be allocated to the Nationwide Separate Account Trust Money
Market Fund sub-account (for any Cash Value allocated to a Sub-Account on the
Application) or the Fixed Account until the expiration of the period in which
the Policy Owner may exercise his or her short-term right to cancel the Policy.
At the expiration of the period in which the Policy Owner may exercise his or
her short term right to cancel the Policy, shares of the Underlying Mutual Funds
specified by the Policy Owner are purchased at net asset value for the
respective sub-account(s). The Policy Owner may change the allocation of Cash
Value or may transfer Cash Value from one sub-account to another, subject to
such terms and conditions as may be imposed by each Underlying Mutual Fund and
as set forth in the prospectus. Cash Value 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.")
18
<PAGE>
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 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 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. The scope of this right may vary by state.
The exact policy provision approved or used in a particular state will be
disclosed in any policy issued.
POLICY CHARGES
DEDUCTIONS FROM PREMIUMS
No deduction is made from any premium at the time of payment. 100% of each
premium payment is applied to the Cash Value.
MONTHLY DEDUCTIONS
On the Policy Date and on each Monthly Anniversary Date, the Company will deduct
an amount to cover charges and expenses incurred in connection with the Policy.
Generally, this Monthly Deduction will be deducted on a pro-rata basis from the
Cash Value in each Sub-account and the Fixed Account. The amount of the Monthly
Deductions will vary from month to month. If the Cash Surrender Value is not
sufficient to cover the Monthly Deduction which is due, the Policy may lapse
(see "Grace Period"). The Monthly Deductions are comprised of the following
charges:
- -Cost of Insurance Charge
Immediately after the Policy is issued, the Death Benefit will be substantially
greater than the initial premium payment. While the Policy is in force, prior
to the Maturity Date, the Death Benefit will always be greater than the Cash
Value. To enable the Company to pay this excess of the Death Benefit over the
Cash Value, a monthly cost of insurance charge is deducted.
Currently, this charge is deducted monthly and is equal to an annual rate of
0.65% multiplied by the Cash Value. On a current basis, for policy years 11 and
later, this monthly charge is anticipated to be reduced to the Cash Value
multiplied by an annual rate of 0.30% if the Cash Surrender Value is $100,000 or
more.
In no event will this current monthly deduction for the cost of insurance exceed
the guaranteed monthly cost of insurance charges. Guaranteed cost of insurance
charges will not exceed the cost based on the guaranteed cost of insurance rate
multiplied by the Policy's net amount at risk. The net amount at risk is equal
to the Death Benefit minus the Cash Value. Guaranteed cost of insurance rates
for standard issues are based on the 1980 Commissioner's Standard Ordinary
Mortality Table, Age Last Birthday (1980 CSO). Guaranteed cost of insurance
rates for substandard issues are based on appropriate percentage multiples of
the 1980 CSO. These mortality tables are sex distinct.
- -Administrative Expense Charge
The Company deducts a monthly Administrative Expense Charge to reimburse it for
expenses related to the issuance and maintenance of the Policies including
underwriting, establishing policy records, accounting and record keeping, and
periodic reporting to Policy Owners. This charge is designed only to reimburse
the Company for its actual administrative expenses. In the aggregate, the
Company expects that the charges for administrative costs will be approximately
equal to the related expenses. This monthly charge is equal to an annual rate
of 0.30% multiplied by the Policy's Cash Value. On a current basis, for Policy
Years 11 and later, this monthly charge is anticipated to be reduced to an
annual rate of 0.15% multiplied by the Cash Value, provided the Cash Surrender
Value is greater than or equal to $100,000. This Administrative Expense Charge
is subject to a $10 per month minimum.
19
<PAGE>
- -Tax Expense Charge
During the first ten policy years, the Company makes a Monthly Deduction to
compensate for certain taxes which are incurred by the Company including premium
taxes imposed by various states and local jurisdictions and for federal taxes
imposed under Section 848 of the Internal Revenue Code. This monthly charge is
equal to an annual rate of 0.50% multiplied by the Policy's Cash Value.
This charge is deducted monthly and includes a premium tax component equal to an
annual rate of 0.30% and a federal tax component equal to an annual rate of
0.20%. The Company expects to pay an average state premium tax of approximately
2.5% of premiums for all states, although such tax rates can generally range
from 0% to 4%. The Company does not anticipate to make a profit from this
monthly Tax Expense Charge.
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.
- -Mortality and Expense Risk Charge
The Company assumes certain risks for guaranteeing the mortality and expense
charges. The mortality risk assumed under the Policies is that the Insured may
not live as long as expected. The expense risk assumed is that the actual
expenses incurred in issuing and administering the Policies may be greater than
expected. In addition, the Company assumes risks associated with the
nonrecovery of policy issue, underwriting and other administrative expenses due
to Policies which lapse or are surrendered during the early policy years.
To compensate the Company for assuming these risks, a monthly charge for
mortality and expense risks is deducted on a pro-rata basis from the Cash Value
in each Variable Account Sub-account. This monthly charge is equal to an annual
rate of 0.90% multiplied by the Cash Value attributable to the Variable Account.
To the extent that future levels of mortality and expenses are less than or
equal to those expected, the Company may realize a profit from these charges.
SURRENDER CHARGES
The Company will deduct a surrender charge from the Policy's Cash Value for any
Policy which is surrendered during the first nine policy years. The surrender
charge is comprised of two components: a sales surrender charge and a premium
tax surrender charge.
The Company incurs certain sales and other distribution expenses at the time the
Policies are issued. The majority of these expenses consist of commissions paid
for the sale or these policies. Premium taxes are generally incurred by the
Company at the time the Policies are issued. These surrender charges are
designed to recover a portion of these expenses. The Company does not expect to
profit from these surrender charges. Unrecovered expenses are borne by the
Company's general assets which may include profits, if any, from the monthly
mortality and expense risk charges (see "Monthly Deductions"). Certain
surrenders may result in adverse tax consequences (see "Tax Matters"). Maximum
surrender charges are shown in the following table:
Surrender Charge
as a Percent of
Completed Policy Years Initial Premium Payment
0 10.0%
1 10.0
2 9.0
3 8.0
4 7.0
5 6.0
6 5.0
7 4.0
8 3.0
9+ 0.0
20
<PAGE>
Approximately 75% of the total surrender charges are for the recovery of sales
expenses and 25% for the recovery of premium taxes. In no event will the sales
surrender charge exceed 7.5% of the total premium payments.
The amount of the sales surrender charge may be eliminated when the Policies are
issued to an officer, director, former director, partner, employee, or retired
employee of the Company; an employee of the General Distributor of the Policies,
Nationwide Advisory Services, Inc., or an employee of an affiliate of the
Company or the General Distributor, or, a duly appointed representative of the
Company who receives no commission as a result of the purchase. Elimination of
the sales surrender charge will be permitted by the Company only in those
situations where the Company does not incur sales expenses normally associated
with sales of a Policy. In no event will the elimination of any sales surrender
charge be permitted where such elimination will be unfairly discriminatory to
any person.
EXPENSES OF THE UNDERLYING MUTUAL FUNDS
Underlying Mutual Fund shares are purchased at net asset value, which reflects
the deduction of investment management fees and certain other expenses. The
management fees are charged by each Underlying Mutual Fund's investment adviser
for managing the Underlying Mutual Fund and selecting its portfolio of
securities. Other Underlying Mutual Fund expenses can include such items as
interest expense on loans and contracts with transfer agents, custodians, and
other companies that provide services to the Underlying Mutual Fund. The
management fees and other expenses for each Underlying Mutual Fund for its most
recently completed fiscal year, expressed as a percentage of the Underlying
Mutual Fund's average assets, are as follows:
<TABLE>
<CAPTION>
UNDERLYING MUTUAL FUND ANNUAL EXPENSES
(AFTER EXPENSE REIMBURSEMENT)
Management Other Total
Fees Expenses Expenses
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
American Century Variable Portfolios, Inc.-American Century VP Balanced 1.00% 0.00% 1.00%
- ------------------------------------------------------------------------------------------------------------------
American Century Variable Portfolios, Inc.-American Century VP Capital Appreciation 1.00% 0.00% 1.00%
- ------------------------------------------------------------------------------------------------------------------
American Century Variable Portfolios, Inc.-American Century VP International 1.50% 0.00% 1.50%
- ------------------------------------------------------------------------------------------------------------------
American Century Variable Portfolios, Inc.-American Century VP Value 1.00% 0.00% 1.00%
- ------------------------------------------------------------------------------------------------------------------
Dreyfus Socially Responsible Growth Fund 0.72% 0.24% 0.96%
- ------------------------------------------------------------------------------------------------------------------
Dreyfus Stock Index Fund 0.25% 0.05% 0.30%
- ------------------------------------------------------------------------------------------------------------------
Dreyfus Variable Investment Fund-Capital Appreciation Portfolio 0.75% 0.09% 0.84%
- ------------------------------------------------------------------------------------------------------------------
Dreyfus Variable Investment Fund-Growth & Income Portfolio 0.75% 0.08% 0.83%
- ------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-Equity-Income Portfolio 0.51% 0.07% 0.58%
- ------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-Growth Portfolio 0.61% 0.08% 0.69%
- ------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-High Income Portfolio 0.59% 0.12% 0.71%
- ------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-Overseas Portfolio 0.76% 0.17% 0.93%
- ------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund II-Asset Manager Portfolio 0.64% 0.10% 0.74%
- ------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund II-Contrafund Portfolio 0.61% 0.13% 0.74%
- ------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund III-Growth Opportunities Portfolio 0.61% 0.16% 0.77%
- ------------------------------------------------------------------------------------------------------------------
Morgan Stanley Universal Funds, Inc.-Emerging Markets Debt Portfolio 0.80% 0.50% 1.30%
- ------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers Management
Trust-Growth Portfolio 0.83% 0.09% 0.92%
- ------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers Management
Trust-Limited Maturity Bond Portfolio 0.65% 0.13% 0.78%
- ------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers Management
Trust-Partners Portfolio 0.84% 0.11% 0.95%
- ------------------------------------------------------------------------------------------------------------------
NSAT-Capital Appreciation Fund 0.50% 0.02% 0.52%
- ------------------------------------------------------------------------------------------------------------------
NSAT-Government Bond Fund 0.50% 0.01% 0.51%
- ------------------------------------------------------------------------------------------------------------------
NSAT-Money Market Fund 0.50% 0.03% 0.53%
- ------------------------------------------------------------------------------------------------------------------
NSAT Small Company Fund 1.00% 0.10% 1.10%
- ------------------------------------------------------------------------------------------------------------------
NSAT-Total Return Fund 0.50% 0.02% 0.52%
- ------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Fund-Oppenheimer Bond Fund 0.74% 0.04% 0.78%
- ------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Fund-Oppenheimer Global Securities Fund 0.73% 0.08% 0.81%
- ------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Fund-Oppenheimer Growth Fund 0.75% 0.04% 0.79%
- ------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Fund-Oppenheimer Multiple Strategies 0.73% 0.04% 0.77%
- ------------------------------------------------------------------------------------------------------------------
Strong Opportunity Fund II, Inc. 1.00% 0.17% 1.17%
- ------------------------------------------------------------------------------------------------------------------
Strong Variable Insurance Funds, Inc. - Discovery Fund II, Inc. 1.00% 0.22% 1.22%
- ------------------------------------------------------------------------------------------------------------------
Strong Variable Insurance Funds, Inc. - International Stock Fund II 1.00% 0.59% 1.59%
- ------------------------------------------------------------------------------------------------------------------
21
<PAGE>
<CAPTION>
Management Other Total
Fees Expenses Expenses
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance Trust-Worldwide Bond Fund 1.00% 0.08% 1.08%
- ------------------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance Trust-Worldwide Emerging Markets Fund 1.00% 0.00% 1.00%
- ------------------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance Trust-Worldwide Hard Assets Fund 1.00% 0.08% 1.08%
- ------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life Investment Trust -
Morgan Stanley Real Estate Securities Portfolio 0.83% 0.27% 1.10%
- ------------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust-International Equity Portfolio 0.62% 0.78% 1.40%
- ------------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust-Post-Venture Capital Portfolio 0.96% 0.40% 1.36%
- ------------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust-Small Company Growth Portfolio 0.90% 0.26% 1.16%
- ------------------------------------------------------------------------------------------------------------------
</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. None of the above Underlying Mutual Funds are subject to 12b-1
fees.
The following funds are subject to fee waivers or expense reimbursement
arrangements:
- --------------------------------------------------------------------------------
FUND EXPENSES WITHOUT REIMBURSEMENT OR WAIVER
- --------------------------------------------------------------------------------
American Century Variable Absent a waiver of fees by the Portfolio's
Portfolios, Inc. - American investment adviser and co-administrator,
Century VP Value Management Fees for the Portfolio would equal
1.25%; Other Expenses would equal .81%; Total
Portfolio Operating Expenses would have been
2.06%.
- --------------------------------------------------------------------------------
Dreyfus Stock Index Fund In the event that aggregate expenses of the Fund
exceed .40 of 1% of the value of the Fund's
average net assets for the fiscal year, the Fund
may deduct from the payment to be made to
Dreyfus, or Dreyfus will bear, such excess
expense. In addition, the Fund may waive
receipt of its fees and/or voluntarily assume
certain expenses of the Fund, which would have
the effect of lowering the overall expense ratio
of the Fund.
- --------------------------------------------------------------------------------
Dreyfus Socially Responsible In the event that aggregate expenses of the Fund
Growth Fund exceed .40 of 1% of the value of the Fund's
average net assets for the fiscal year, the Fund
may deduct from the payment to be made to
Dreyfus, or Dreyfus will bear, such excess
expense. In addition, the Fund may waive
receipt of its fees and/or voluntarily assume
certain expenses of the Fund, which would have
the effect of lowering the overall expense ratio
of the Fund.
- --------------------------------------------------------------------------------
Fidelity VIP Fund - Equity- The Adviser has voluntarily agreed subject to
Income Portfolio revision or termination to reimburse a fund if,
and to the extent that, its aggregate operating
expenses, including management fees, exceed a
specified annual rate for the fund. The expense
cap is: 1.50% imposed on October 9, 1986. Since
the expense ratio is significantly below the
expense cap there is no reimbursement and none
anticipated during the current year. Since
there is no reimbursement the discontinuance of
the arrangement has no effect on total fund
operating expenses.
- --------------------------------------------------------------------------------
Fidelity VIP Fund - Growth The Fund may, from time to time, agree to
Portfolio reimburse a fund for management fees and other
expenses above a specified limit. The Fund
retains the ability to be repaid if expenses
fall below the specified limit prior to the end
of the fiscal year. Reimbursement arrangements,
which may be terminated at any time, can
decrease the Fund's expense and boost its
performance.
- --------------------------------------------------------------------------------
Fidelity VIP Fund - High- The Fund may, from time to time, agree to
Income Portfolio reimburse a fund for management fees and other
expenses above a specified limit. The Fund
retains the ability to be repaid if expenses
fall below the specified limit prior to the end
of the fiscal year. Reimbursement arrangements,
which may be terminated at any time, can
decrease the Fund's expense and boost its
performance.
- --------------------------------------------------------------------------------
Fidelity Variable Insurance The Adviser has voluntarily agreed subject to
Products Fund - Overseas revision or termination to reimburse a fund if,
Portfolio and to the extent that, its aggregate operating
expenses, including management fees, exceed a
specified annual rate for the fund. The expense
cap is: 1.50% imposed on January 28, 1986.
Since the expense ratio is significantly below
the expense cap there is no reimbursement and
none anticipated during the current year. Since
there is no reimbursement the discontinuance of
the arrangement has no effect on total fund
operating expenses.
- --------------------------------------------------------------------------------
Fidelity VIP Fund II - Asset The Fund may, from time to time, agree to
Manager Portfolio reimburse a fund for management fees and other
expenses above a specified limit. The Fund
retains the ability to be repaid if expenses
fall below the specified limit prior to the end
of the fiscal year. Reimbursement arrangements,
which may be terminated at any time, can
decrease the Fund's expense and boost its
performance.
- --------------------------------------------------------------------------------
Fidelity VIP Fund II - The Fund may, from time to time, agree to
Contrafund Portfolio reimburse a fund for management fees and other
expenses above a specified limit. The Fund
retains the ability to be repaid if expenses
fall below the specified limit prior to the end
of the fiscal year. Reimbursement arrangements,
which may be terminated at any time, can
decrease the Fund's expense and boost its
performance.
- --------------------------------------------------------------------------------
22
<PAGE>
- --------------------------------------------------------------------------------
FUND EXPENSES WITHOUT REIMBURSEMENT OR WAIVER
- --------------------------------------------------------------------------------
Neuberger&Berman Advisers The Fund manager will limit expenses by
Management Trust - Growth reimbursing the Portfolio for its operating
Portfolio expenses and its pro rata share of operating
expenses, that exceed 1% of the Fund's average
daily net asset value.
- --------------------------------------------------------------------------------
Neuberger&Berman Advisers The Fund manager will limit expenses by
Management Trust - Limited reimbursing the Portfolio for its operating
Maturity Bond Portfolio expenses and its pro rata share of operating
expenses, that exceed 1% of the Fund's average
daily net asset value.
- --------------------------------------------------------------------------------
Neuberger&Berman Advisers The Fund manager will limit expenses by
Management Trust - Partners reimbursing the Portfolio for its operating
Portfolio expenses and its pro rata share of operating
expenses, that exceed 1% of the Fund's average
daily net asset value.
- --------------------------------------------------------------------------------
Oppenheimer Variable Account Total operating expenses would have been 0.81%
Funds - Oppenheimer Growth in the absence of a voluntary one-time fee
Fund reimbursement described in the Statement of
Additional Information.
- --------------------------------------------------------------------------------
Van Kampen American Capital The Trust reimburses the Adviser for the cost of
Life Investment Trust - Morgan the Portfolio's accounting services. Further,
Stanley Real Estate Securities the Adviser and the Subadviser may, from time to
Portfolio time, agree to waive their respective investment
advisory fees or any portion thereof or elect to
reimburse the Portfolio for ordinary business
expenses in excess of an agreed upon amount.
- --------------------------------------------------------------------------------
Warburg Pincus Trust - The Management Fees, Other Expenses and Total
International Equity Portfolio Operating Expenses are net of any fee
Portfolio waivers or expense reimbursements. Without such
waivers or reimbursements, Management Fees would
have equaled 1.00%, Other Expenses would have
equaled 1.21% and total Portfolio Operating
Expenses would have equaled 2.21%. The Fund's
investment adviser had undertaken to reduce or
otherwise limit Total Portfolio Operating
Expenses; there is no assurance that these
undertakings will continue.
- --------------------------------------------------------------------------------
Warburg Pincus Trust - Small The Management Fees, Other Expenses and Total
Company Growth Portfolio Portfolio Operating Expenses are net of any fee
waivers or expense reimbursements. Without such
waivers or reimbursements, Management Fees would
have equaled .90%, Other Expenses would have
equaled .60% and total Portfolio Operating
Expenses would have equaled 1.50%. The Fund's
investment adviser had undertaken to reduce or
otherwise limit Total Portfolio Operating
Expenses; there is no assurance that these
undertakings will continue.
- --------------------------------------------------------------------------------
The information relating to the Underlying Mutual Fund expenses was provided by
the Underlying Mutual Fund and was not independently verified by the Company.
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 premium applied since the previous Valuation
Date, plus or minus any investment results, and less any Policy Charges.
There is no guaranteed Cash Value. The Cash Value will vary with the investment
experience of the Variable Account and/or the daily crediting of interest in the
Fixed Account and Policy Loan Account depending on the allocation of Cash Value
by the Policy Owner.
HOW THE INVESTMENT EXPERIENCE IS DETERMINED
The Cash Value in each sub-account is converted to Accumulation Units of that
sub-account. The conversion is accomplished by dividing the amount of Cash
Value allocated to a sub-account by the value of an Accumulation Unit for the
sub-account of the Valuation Period during which the allocation occurs.
The value of an Accumulation Unit for each sub-account was arbitrarily set
initially at $10 when the Underlying Mutual Fund shares in that sub-account were
available for purchase. The value for any subsequent Valuation Period is
determined by multiplying the Accumulation Unit value for each sub-account for
the immediately preceding Valuation Period by the Net Investment Factor for the
sub-account during the subsequent Valuation Period. The value of an
Accumulation Unit may increase or decrease from Valuation Period to Valuation
Period. The number of Accumulation Units will not change as a result of
investment experience.
NET INVESTMENT FACTOR
The Net Investment Factor for any Valuation Period is determined by dividing (a)
by (b) where:
(a) is the net of:
(1) the Net Asset Value per share of the Underlying Mutual Fund option
held in the sub-account determined at the end of the current Valuation
Period, plus
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(2) the per share amount of any dividend or capital gain distributions
made by the Underlying Mutual Fund option 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. (See "Charge for Tax
Provisions.")
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 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, amounts credited to the Fixed Account, and any associated value in
the Policy Loan Account is the Cash Value. The number of Accumulation Units
credited per each sub-account are determined by dividing the net amount
allocated to the sub-account by the Accumulation Unit Value for the sub-account
for the Valuation Period during which the premium is received by the Company.
In the event part or all of the Cash Value is surrendered or charges or
deductions are made against the Cash Value, generally 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 credited to the Fixed Account will never be
less than 3%. The annual effective rate credited to the Policy Loan Account
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 is 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 Stock Exchange, or by a Commercial Bank
or Savings and Loan, which is a member of the Federal Deposit Insurance
Corporation. In some cases, the Company may require additional documentation of
a customary nature.
CASH SURRENDER VALUE
The Cash Surrender Value increases or decreases daily to reflect the investment
experience of the Variable Account and the daily crediting of interest in the
Fixed Account and the Policy Loan Account. The Cash Surrender Value equals the
Policy's Cash Value, next computed after the date the Company receives a proper
written request for surrender of the Policy, minus any charges, indebtedness or
other deductions due on that date, which may also include a Surrender Charge.
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<PAGE>
PARTIAL SURRENDERS
Partial surrenders are permitted after the fifth policy year. Partial
surrenders will be permitted only if they satisfy the following requirements:
1. The partial surrender request is in writing and the request is
signed by the Policy Owner or an authorized party of the Policy
Owner; and
2. The maximum partial surrender in any Policy Year, not subject to
Surrender Charges, is limited to the maximum of:
(i) 10% of the total premium payments; and
(ii) 100% of cumulative earnings (Cash Value less total premium
payments less any existing policy indebtedness);
3. Such partial surrenders must not result in a reduction of the Cash
Surrender Value below $10,000; and
4. After such partial surrender, the Policy continues to qualify as
life insurance.
All partial surrenders will be next computed after the date the Company receives
a proper written request. When a partial surrender is made, the Cash Value is
reduced by the amount of the partial surrender. Also, the Specified Amount is
reduced by the amount of the partial surrender unless the Death Benefit is based
on the applicable percentage of the 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 the Specified
Amount. Partial surrender amounts must be first deducted from the values in the
Variable sub-accounts. Partial surrenders will be deducted from the Fixed
Account only to the extent that insufficient values are available in the
Variable sub-accounts.
No Surrender Charges will be assessed against any such eligible partial
surrenders. Certain partial surrenders may result in currently taxable income
and tax penalties.
MATURITY PROCEEDS
The Maturity Date is the Policy Anniversary on or next following the Insured's
100th birthday. The maturity proceeds will be payable to the Policy Owner on
the Maturity Date provided the Policy is still in force. The Maturity Proceeds
will be equal to the amount of the Policy's Cash Value, less any indebtedness.
INCOME TAX WITHHOLDING
Federal law requires the Company to withhold income tax from any portion of
surrender proceeds that is subject to tax, unless the Policy Owner advises the
Company, in writing, of his or her request not to withhold.
If the Policy Owner requests that the Company not withhold taxes, or if the
taxes withheld are insufficient, the Policy Owner may be liable for payment of
an estimated tax. The Policy Owner should consult his or her tax advisor.
In certain employer-sponsored life insurance arrangements, including equity
split dollar arrangements, Participants may be required to report for income tax
purposes, one or more of the following: (1) the value each year of the life
insurance protection provided; (2) an amount equal to any employer-paid
premiums; or (3) some or all of the amount by which the current value of the
Contract exceeds the employer's interest in the contract. 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.
25
<PAGE>
POLICY LOANS
TAKING A POLICY LOAN
The Policy Owner may take a loan using the Policy as security. During the first
year, maximum Policy indebtedness is limited to 50% of the Cash Value less any
Surrender Charge. Thereafter, maximum policy indebtedness is limited to 90% of
the Cash Value less any Surrender Charge. The Company will not grant a loan for
an amount less than $1,000 ($200 in Connecticut; $250 in Oregon; $500 in New
Jersey). Should the Death Benefit 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.
Maximum Policy indebtedness, in Texas, is limited to 90% of the Cash Value less
any Surrender Charge in the sub-accounts and 100% of the Cash Value less any
Surrender Charge in the Fixed Account.
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.")
EFFECT ON INVESTMENT PERFORMANCE
When a loan is made, an amount equal to the amount of the loan is transferred
from the Variable Account to the Policy Loan Account. If the assets relating to
a Policy are held in more than one sub-account, withdrawals from sub-accounts
will be made in proportion to the assets in each Variable Sub-account at the
time of the loan. Policy Loans will be transferred from the Fixed Account only
when insufficient amounts are available in the Variable Sub-accounts. The
amount taken out of the Variable Account will not be affected by the Variable
Account's investment experience while the loan is outstanding.
INTEREST
Amounts transferred to the Policy Loan Account will earn interest daily from the
date of transfer.
Total policy indebtedness is comprised of two components: (i) Preferred Loans
and (ii) Regular Loans. The amount of the loan account will be treated as a
Preferred Loan to the extent such amount is less than or equal to the Cash Value
minus the result of: the premiums paid less any withdrawals not taxed as
distributions plus any repaid loans previously taxed as distributions plus any
amounts reported to the Company as cost basis attributable to exchanges under
Section 1035 of the Code. Any additional loaned amounts will be treated as
Regular Loans. Preferred and Regular Loan amounts will be determined once a
year, as well as at any time a new loan is requested. On a current basis,
preferred indebtedness will be credited interest daily at an annual effective
rate of 6%, and Regular indebtedness will be credited interest daily at an
annual effective rate of 4%. The credited rate for all policy indebtedness is
guaranteed never to be lower than 4%. This earned interest is transferred from
the Policy Loan Account to a Variable Account or the Fixed Account on each
Policy Anniversary, at any time a new loan is requested, or at the time of loan
repayment. It will be allocated according to the Fund Allocation Factors in
effect at the time of the transfer.
The loan interest rate is 6% per year for all policy indebtedness. Interest is
charged daily and is payable at the end of each Policy Year as well as at any
time a new loan is requested. Unpaid interest will be added to the existing
policy indebtedness as of the due date and will be charged interest at the same
rate as the rest of the indebtedness.
Whenever the total loan indebtedness plus accrued interest exceeds the Cash
Value less any Surrender Charges, the Company will send a notice to the Policy
Owner and the assignee, if any. The Policy will terminate without value 61 days
after the mailing of the notice unless a sufficient repayment is made during
that period. A repayment is sufficient if it is large enough to reduce the
total loan indebtedness plus accrued interest to an amount equal to the total
Cash Value less any Surrender Charges plus an amount sufficient to continue the
Policy in force for 3 months.
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<PAGE>
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 a loan may be repaid at any time while the Policy is in force
during the insured's lifetime. Any payment intended as a loan repayment, rather
than a premium payment, must be identified as such. Loan repayments will be
credited to the Variable Sub-accounts and the Fixed Account in proportion to the
Policy Owner's Premium allocation in effect at the time of the repayment. Each
repayment may not be less than $1,000. 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 Specified Amount is determined by treating the initial premium as
equal to 100% of the Guideline Single Premium. Guideline Single Premiums vary
by attained age, sex, underwriting classification, and total premium payments.
The following table illustrates representative initial Specified Amounts.
$10,000 Single Premium $25,000 Single Premium $50,000 Single Premium
Issue
Age Male Female Male Female Male Female
35 $62,031 $76,231 $155,077 $190,577 $310,154 $381,154
40 49,883 61,337 124,707 153,343 249,413 306,685
45 40,437 49,825 101,903 124,562 202,186 249,124
50 33,079 40,742 82,698 101,854 165,397 203,708
55 27,358 33,531 68,396 83,828 136,791 167,655
60 22,964 27,734 57,410 69,335 114,821 138,671
65 19,579 23,052 48,948 57,631 97,895 115,261
Generally, for a given premium payment, the initial Specified Amount is greater
for females than males. The Specified Amount is shown in the Policy. While the
Policy is in force, the Death Benefit will never be less than the Specified
Amount or the Applicable Percentage of Cash Value. The Death Benefit may vary
with the Cash Value of the Policy, which depends on investment performance. The
amount of Death Benefit will ordinarily not change for several years to reflect
investment performance and may not change at all. If investment performance is
favorable, the amount of Death Benefit may increase. The Applicable Percentage
of Cash Value varies by attained age.
Applicable Percentage of Cash Value Factors
Attained Percentage Attained Percentage Attained Percentage
Age of Cash Value Age of Cash Value Age of Cash Value
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%
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49 191% 69 116% 89 105%
50 185% 70 115% 90 105%
51 178% 71 113% 91 104%
52 171% 72 111% 92 103%
53 164% 73 109% 93 102%
54 157% 74 107% 94 101%
55 150% 75 105% 95 101%
56 146% 76 105% 96 101%
57 142% 77 105% 97 101%
58 138% 78 105% 98 101%
59 134% 79 105% 99 101%
100 100%
- -Proceeds Payable on Death
The actual Death Proceeds payable on the Insured's death will be the Death
Benefit as described above, less any outstanding Policy loans and less any
unpaid Policy Charges. Under certain circumstances, the Proceeds may be
adjusted. (See "Incontestability", "Error in Age or Sex", and "Suicide.")
RIGHT OF CONVERSION
The Policy Owner may at any time, upon written request to the Company within 24
months of the Policy Date, make an irrevocable, one time election to transfer
all sub-account Cash Values to the Fixed Account. The Right of Conversion
provision is subject to state availability.
CHANGES OF INVESTMENT POLICY
The Company may materially change the Investment Policy of the Variable Account.
The Company must inform the Policy Owner 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 holders or if it renders the Company's operations hazardous to the
public. If a Policy Owner objects, there is an unconditional right to transfer
all of the Cash Value in the Variable Account to the Fixed Account. The Policy
Owner has the later of 60 days (6 months in Pennsylvania) from the date of the
Investment Policy change or 60 days (6 months in Pennsylvania) from being
informed of such change to make this transfer.
GRACE PERIOD
If the Cash Surrender Value in the Policy is insufficient to pay the monthly
deductions, Policy loan interest, or other charges which become due but are
unpaid, a grace period of 61 days will be allowed for payment of sufficient
premium to continue the Policy in force. The Company will notify the Policy
Owner of the amount required to continue the Policy in force. If the required
amount is not received within 61 days of the notice, the Policy will terminate
without value. If the Insured dies during the Grace Period, the Company will
pay the Death Proceeds.
REINSTATEMENT
If the Grace Period ends and the Policy Owner has neither paid the required
premium nor surrendered the Policy for its Cash Surrender Value, the Policy
Owner may reinstate the Policy by:
1. submitting a written request at any time within 3 years after the end of
the Grace Period and prior to the Maturity Date:
2. providing evidence of insurability satisfactory to the Company;
3. paying sufficient premium to cover all policy charges that were due and
unpaid during the Grace Period;
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<PAGE>
4. paying additional premiums at least equal to 3 times the guaranteed cost of
insurance charges; and
5. repaying 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 us.
If your Policy is reinstated, the Cash Value on the date of reinstatement, but
prior to applying any premiums or loan repayments received, will be set equal to
the appropriate Surrender Charge. Such Surrender Charge will be based on the
length of time from the date of premium payments to the effective date of the
reinstatement. Unless the Policy Owner has provided otherwise, the allocation
of the amount of the Surrender Charge, additional premium payments, and any loan
repayments will be based on the Underlying Mutual Fund Allocation factors in
effect at the start of the Grace Period.
THE FIXED ACCOUNT OPTION
Under of exemptive and exclusionary provisions, interests in Nationwide'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 is subject to the provisions of these Acts, and Nationwide
has been advised that the staff of the Securities and Exchange Commission has
not reviewed the disclosures in this prospectus relating to the Fixed Account
option. Disclosures regarding the General Account may, however, be subject to
certain generally applicable provisions of the federal securities laws
concerning the accuracy and completeness of statements made in prospectuses.
As explained earlier, a Policy Owner may elect to allocate or transfer all or
part of the Cash Value to the Fixed Account and the amount allocated or
transferred becomes part of Nationwide's general assets (General Account).
Nationwide's General Account consists of all assets of the Company other than
those in the Variable Account and in other separate accounts that have been or
may be established by the Company. Subject to applicable law, the Company has
sole discretion over the investment of the assets of the General Account, and
Policy Owners do not share in the investment experience of those assets. The
Company guarantees that the part of the Cash Value invested under the Fixed
Account option will accrue interest daily at an effective annual rate that the
Company declares periodically. The Fixed Account crediting rate will not be
less than an effective annual rate of 3%. Upon request and in the annual
statement the Company will inform a Policy Owner of the then applicable rate.
The Company is not obligated to credit interest at a higher rate.
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 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.
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<PAGE>
If any Beneficiary predeceases the Insured, that Beneficiary's interest passes
to any surviving beneficiary, unless otherwise provided. Multiple beneficiaries
will be paid in equal shares, unless otherwise provided. If no named
Beneficiary survives the Insureds, the proceeds shall be paid to the Policy
Owner or the Policy Owner's estate.
ASSIGNMENT
While the Insured is living, the Policy Owner may assign his or her rights in
the Policy. The assignment must be in writing, signed by the Policy Owner and
recorded by the Company at its Home Office. 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 a Death Benefit based on representations in any
written application when such benefit has been in force, during the lifetime of
the Insured, for two years.
ERROR IN AGE OR SEX
If the Insured's age, sex or both, as stated in the application, are incorrect,
the affected benefits will be adjusted to reflect the correct age, sex, or both.
SUICIDE
If the Insured dies by suicide within two years from the Policy Date, the
Company will pay no more than the sum of the premiums, less any unpaid loan. If
the Insured dies by suicide 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
The Policies are nonparticipating. This means that they do not participate in
any dividend distribution of the Company's surplus.
RIDERS
A rider may be added as an addition to the Policy. Riders currently include:
1. Maturity Extension Endorsement; and
2. Accelerated Death Benefit Rider.
Rider availability varies by state.
LEGAL CONSIDERATIONS
On July 6, 1983, the U.S. Supreme Court held in ARIZONA GOVERNING COMMITTEE V.
NORRIS that certain annuity benefits provided by employers' retirement and
fringe benefit programs may not vary between men and women on the basis of sex.
This decision applies only to benefits derived from premiums made on or after
August 1, 1983. The Policies offered by this prospectus are based upon
actuarial tables which distinguish between men and women and thus the Policies
provide different benefits to men and women of the same age. Accordingly,
employers and employee organizations should consider, in consultation with legal
counsel, the impact of Norris on any employment related insurance or benefit
program before purchasing this Policy.
DISTRIBUTION OF THE POLICIES
The Policies will be sold by licensed insurance agents in those states where the
Policies may lawfully be sold. Such agents will be registered representatives
of broker dealers registered under the Securities Exchange Act of 1934 who are
members of the National Association of Securities Dealers, Inc. (NASD). The
Policies will be distributed by the General Distributor, Nationwide Advisory
Services, Inc. ("NAS"), One Nationwide Plaza, Columbus, Ohio 43216.
NAS is a corporation which was organized under the laws of the State of Ohio on
April 8, 1965. NAS is both a broker-dealer and registered investment adviser.
As such, it is the principal underwriter for several open-end investment
companies and for a number of separate accounts issued by the Company and
Nationwide Life and
30
<PAGE>
Annuity Insurance Company ("NLAIC") to fund the benefits of variable insurance
and annuity polices. NAS also currently acts as the investment adviser and/or
administrator for the mutual fund portfolios sold through NAS' registered
representatives and for some of the mutual fund portfolios which act as
underlying investment options for the variable insurance and annuity policies
issued by the Company or NLAIC.
NAS acts as general distributor for the 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 Variable Account-9, Nationwide VA Separate Account-A, Nationwide
VA Separate Account-B, Nationwide VA Separate Account-C, Nationwide VL Separate
Account-A, Nationwide VL Separate Account-B, Nationwide VLI Separate Account-2,
Nationwide VLI Separate Account-3, NACo Variable Account and the Nationwide
Variable Account, all of which are separate investment accounts of the Company
or its affiliates.
NAS also acts as principal underwriter for the Nationwide Investing Foundation,
Nationwide Separate Account Trust, Financial Horizons Investment Trust,
Nationwide Investing Foundation II, and Nationwide Asset Allocation Trust, which
are open-end management investment companies.
Gross commissions paid by the Company on the sale of these Policies plus fees
for marketing services are not more than 6.75% of the premiums paid.
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 life insurance proceeds payable under a Policy are excludable from gross
income of the beneficiary under Section 101 of the Code.
The Policies described in this prospectus, meet the definition of "modified
endowment contracts" under Section 7702A of the Code. The Code defines modified
endowment contracts as those policies issued or materially changed 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. The policies offered in this prospectus
typically fall within this definition. The Code provides for taxation of
surrenders, partial surrenders, loans, collateral assignments and other pre-
death distributions from modified endowment contracts (other than certain
Distributions made under a Policy on the life of a "terminally ill individual"
or "chronically ill individual") are subject to federal income taxes in a manner
similar to the way annuities are taxed. Any distribution is taxable to the
extent the Cash Value of the Policy exceeds, at the time of the distribution,
the premiums paid into the Policy. The Code generally provides for a 10% tax
penalty on the taxable portion of such distributions. That penalty is
applicable unless the distribution is 1) paid after the Policy Owner is 59 1/2
or disabled; or 2) the distribution is part of an annuity to the Policy Owner as
defined in the Code. Under certain circumstances, certain distributions made
under a Policy on the life of a "terminally ill individual" or a "chronically
ill individual," as those terms are defined in the Code, are excludible from
gross income.
Even though exchanges under Section 1035 of the Code qualify as material
changes, certain exchanges of pre-June 22, 1988 policies may retain their non-
modified endowment status. Therefore, 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 fifteen 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 certain material changes or a reduction in benefits as defined by Section
7702A(c) of the Code.
In addition to meeting the tests required under Sections 7702, Section 817(h) of
the Code requires that the investments of separate accounts such as the Variable
Account be adequately diversified. Regulations issued by the Secretary of the
Treasury, set the standards for measuring the adequacy of this diversification.
To be adequately diversified, each sub-account of the Variable Account must meet
certain tests. The Company
31
<PAGE>
believes that the investments of the Variable Account meet the applicable
diversification standards. The regulations provide that a variable life policy
which does not satisfy the diversification standards will not be treated as life
insurance under Section 7702 of the Internal Revenue Code, unless the failure to
satisfy regulations was inadvertent, the failure 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 of the life policy will be deemed the owner of the underlying
securities and will be taxed on the earnings of his or her account. 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.
Representatives of the Internal Revenue Service have suggested, from time to
time, that the number of Underlying Mutual Funds available or the number of
transfer opportunities available under a variable product may be relevant in
determining whether the product qualifies for the desired tax treatment. No
formal guidance has been issued in this area. Should the Secretary of the
Treasury issue additional rules or regulations limiting the number of Underlying
Mutual Funds, transfers between Underlying Mutual Funds, exchanges of Underlying
Mutual Funds or changes in investment objectives of Underlying Mutual Funds such
that the Policy would no longer qualify as life insurance under Section 7702 of
the Code, the Company will take whatever steps are available to remain in
compliance.
A total surrender or cancellation of the Policy by lapse may have adverse tax
consequences depending on the circumstances. If the amount received by the
Policy Owner plus total Policy Indebtedness exceeds the premiums paid into the
Policy, the excess generally will be treated as taxable income, regardless of
whether or not the Policy is a modified endowment contract.
- - Federal Estate and Generation-Skipping Transfer Taxes
The federal estate tax is integrated with the federal gift tax under a unified
tax rate schedule. In general, an estate of less than $600,000 (inclusive of
certain pre-death gifts) will not incur a federal estate tax liability. In
addition, an unlimited marital deduction may be available for federal estate tax
purposes, for certain amounts that pass to the surviving spouse.
When the Insured dies, the death benefit will generally be included in the
Insured's federal gross estate if: (1) the proceeds were payable to or for the
benefit of the Insured's estate, or (2) the Insured held any "incident of
ownership" in the Policy at death or at any time within three years of death.
An incident of ownership is, in general, any right that may be exercised by the
owner of a Policy, such as the right to borrow on the Policy, or the right to
name a new beneficiary.
If the Policy Owner (whether or not he or she is the Insured) transfers
ownership of the Policy to another person, such transfer may be subject to a
federal gift tax. In addition, if such Policy Owner transfers the Policy to
someone two or more generations younger than the Policy Owner, the transfer may
be subject to the federal generation-skipping transfer tax ("GSTT"), the taxable
amount being the value of the Policy.
Similarly, if the Beneficiary is two or more generations younger than the
Insured, the payment of the Death Proceeds at the death of the Insured may be
subject to the GSTT. Pursuant to regulations recently promulgated by the U.S.
Treasury Department, the Company may be required to withhold a portion of the
Death Proceeds and pay them directly to the Internal Revenue Service as the GSTT
liability.
The GSTT provisions generally apply to the same transfers that are subject to
estate or gift taxes.
The tax rate is a flat rate equal to the maximum estate tax rate (currently
55%), and there is a provision for an aggregate $1 million exemption. Due to
the complexity of these rules, the Policy Owner should consult with counsel and
other competent advisors regarding these taxes.
- - Non-Resident Aliens
Distributions to nonresident aliens ("NRAs") are generally subject to federal
income tax and tax withholding, at a statutory rate of 30% of the amount of
income that is distributed. The Company is required to withhold such amount
from the Distribution and remit it to the Internal Revenue Service.
Distributions to certain NRAs may be subject to lower, or in certain instances
zero, tax and withholding rates, if the United States has entered into an
applicable treaty. However, in order to obtain the benefits of such treaty
provisions, the NRA must give to the Company sufficient proof of his or her
residency and citizenship in the form and manner prescribed by the Internal
Revenue Service. In addition, for any Distribution made after December 31,
1997, the NRA must obtain
32
<PAGE>
an individual Taxpayer Identification Number from the Internal Revenue Service,
and furnish that number to the Company prior to the Distribution. If the
Company does not have the proper proof of citizenship or residency and (for
Distribution after December 31, 1997) a proper individual Taxpayer
Identification Number prior to any Distribution, the Company will be required to
withhold 30% of the income, regardless of any treaty provision.
A payment may not be subject to withholding where the recipient sufficiently
establishes to the Company that such payment is effectively connected to the
recipient's conduct of a trade or business in the United States and that such
payment is includable in the recipient's gross income for United States federal
income tax purposes. Any such distributions may be subject to back-up
withholding at the statutory rate (currently 31%) if no taxpayer identification
number, or an incorrect taxpayer identification number, is provided.
State and local estate, inheritance, income and other tax consequences of
ownership or receipt of Policy proceeds depend on the circumstances of each
Policy Owner or Beneficiary.
TAXATION OF THE COMPANY
The Company is taxed as a life insurance company under the Code. Since the
Variable Account is not a separate entity from the Company and its operations
form a part of the Company, it will not be taxed separately as a "regulated
investment company" under Sub-chapter M of the Code. Investment income and
realized capital gains on the assets of the Variable Account are reinvested and
taken into account in determining the value of Accumulation Units. As a result,
such investment income and realized capital gains are automatically applied to
increase reserves under the Policies.
The Company does not initially expect to incur any Federal income tax liability
that would be chargeable to the Variable Account. Based upon these
expectations, no charge is currently being made against the Variable Account for
federal income taxes. If, however, the Company determines that on a separate
company basis such taxes may be incurred, it reserves the right to assess a
charge for such taxes against the Variable Account.
The Company may also incur state and local taxes (in addition to premium taxes)
in several states. At present, these taxes are not significant. If they
increase, however, charges for such taxes may be made.
TAX CHANGES
The foregoing discussion, which is based on the Company's understanding of
federal tax laws as they are currently interpreted by the Internal Revenue
Service, is general and is not intended as tax advice.
In the recent past, the Code has been subjected to numerous amendments and
changes, and it is reasonable to believe that it will continue to be revised.
The United States Congress has, in the past, considered numerous legislative
proposals that, if enacted, could change the tax treatment of the Policies. It
is reasonable to believe that such proposals, and other proposals will be
considered in the future, and some may be enacted into law. In addition, the
U.S. Treasury Department may amend existing regulations, issue new regulations,
or adopt new interpretations of existing law that may be at variance with its
current positions on these matters. In addition, current state law (which is
not discussed herein), and future amendments to state law, may affect the tax
consequences of the Policy.
If the Policy Owner, Insured, or Beneficiary or other person receiving any
benefit or interest in or from the Policy is not both a resident and citizen of
the United States, there may be a tax imposed by a foreign country, in addition
to any tax imposed by the United States. The foreign law (including
regulations, rulings, and case law) may change and impose additional taxes on
the Policy, the Death Benefit, or other Distributions and/or ownership of the
Policy, or a treaty may be amended and all or part of the favorable treatment
may be eliminated.
Any or all of the foregoing may change from time to time without any notice, and
the tax consequences arising out of a Policy may be changed retroactively.
There is no way of predicting if when, and to what extent any such change may
take place. No representation is made as to the likelihood of the continuation
of these current laws, interpretations, and policies.
THE FOREGOING IS A GENERAL EXPLANATION AS TO CERTAIN TAX MATTERS PERTAINING TO
INSURANCE POLICIES. IT IS NOT INTENDED TO BE LEGAL OR TAX ADVICE, AND SHOULD
NOT TAKE THE PLACE OF YOUR INDEPENDENT LEGAL, TAX AND/OR FINANCIAL ADVISOR.
33
<PAGE>
THE COMPANY
The Company is a life insurance company writing life, accident and health
insurance, and annuities in all states and the District of Columbia. The
Company issues variable annuity contracts through other segregated investment
accounts. This 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, 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 serves as depositor for the Nationwide VL Separate Account-B,
Nationwide VA Separate Account-C, Nationwide VA Separate Account-B, Nationwide
VA Separate Account-A, and the Nationwide VL Separate Account-A, each of which
is a registered investment company.
The Company does not presently own or lease any materially important physical
properties when its property holdings are viewed in relation to its total
assets. The Company shares home office, other facilities and equipment with
Nationwide Mutual Insurance Company.
COMPANY MANAGEMENT
Nationwide Life and Annuity Insurance Company, together with Nationwide Mutual
Insurance Company, Nationwide Mutual Fire Insurance Company, Nationwide
Indemnity Company, Nationwide Life and Annuity Insurance Company, Nationwide
Property and Casualty Insurance Company, National Casualty Company, West Coast
Life Insurance Company, Scottsdale Indemnity Company and Nationwide General
Insurance Company and their affiliated companies comprise the Nationwide
Insurance Enterprise.
The companies comprising the Nationwide Insurance Enterprise have substantially
common boards of directors and officers. Nationwide Financial Services, Inc. is
the sole shareholder of the 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, Fred W. Eckel Sons; President, Eckel Farms, Inc. (1)
Willard J. Engel 1994 General Manager Lyon County Co-Operative Oil Company (1)
Fred C. Finney 1992 Owner and Operator, Moreland Fruit Farm; Operator, Melrose Orchard (1)
Charles L. Fuellgraf, Jr. * + 1969 Chief Executive Officer, Fuellgraf Electric Company. (1)
Joseph J. Gasper*+ 1996 President and Chief Operating Officer, Nationwide Life and Annuity Insurance Company and
Nationwide Life Insurance Company. (2)
Henry S. Holloway *+ 1986 Farm Owner and Operator (1)
Dimon Richard McFerson *+ 1988 Chairman and Chief Executive Officer, Nationwide Insurance Enterprise (2)
David O. Miller *+ 1985 President, Owen Potato Farm, Inc.; Partner, M&M Enterprises (1)
34
<PAGE>
C. Ray Noecker 1994 Owner and Operator, Noecker Farms (1)
James F. Patterson + 1989 Vice President, Pattersons, Inc. ; President, Patterson Farms, Inc. (1)
Arden L. Shisler *+ 1984 President and Chief Executive Officer, K&B Transport, Inc. (1)
Robert L. Stewart 1989 Owner and Operator, Sunnydale Farms and Mining (1)
Nancy C. Thomas * 1986 Farm Owner and Operator. (1)
Harold W. Weihl 1990 Farm Owner and Operator, Weihl Farms (1)
</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 insurance affiliates of
the Nationwide Insurance Enterprise, except Mr. Gasper who is a director only of
the Company and Nationwide Life Insurance Company. Messrs. McFerson and Gasper
are directors of Nationwide Advisory Services, Inc., a registered broker-dealer.
Messrs. Holloway, McFerson, Miller, Patterson, Shisler and Fuellgraf are
directors of Nationwide Financial Services, Inc. Messrs. Fuellgraf, McFerson,
Ms. Thomas and Mr. Weihl are trustees of Nationwide Investing Foundation, a
registered investment company. Mr. McFerson is trustee of Nationwide Separate
Account Trust, Financial Horizons Investment Trust, Nationwide Investing
Foundation II and Nationwide Asset Allocation Trust, registered investment
companies. Mr. Engel is a director of Western Cooperative Transport.
EXECUTIVE OFFICERS OF THE COMPANY
NAME OFFICE HELD
Dimon Richard McFerson Chairman and Chief Executive Officer-Nationwide
Insurance Enterprise
Joseph J. Gasper President and Chief Operating Officer
Gordon E. McCutchan Executive Vice President, Law and Corporate
Services and Secretary
Robert A. Oakley Executive Vice President-Chief Financial
Officer
Robert J. Woodward, Jr. Executive Vice President-Chief Investment
Officer
James E. Brock Senior Vice President - Life Company Operations
W. Sidney Druen Senior Vice President and General Counsel and
Assistant Secretary
Harvey S. Galloway, Jr. Senior Vice President and Chief Actuary
Richard A. Karas Senior Vice President - Sales and Financial
Services
Mark R. Thresher Vice President - Controller
Duane M. Campbell Vice President - Treasurer
Mr. Gasper is also President and Chief Operating Officer of Nationwide Life
Insurance Company. Mr. Galloway is also an officer of Nationwide Mutual
Insurance Company and Nationwide Life Insurance Company. Each of the other
officers listed above is also an officer of each of the companies comprising the
Nationwide Insurance Enterprise. Each of the executive officers listed above
has been associated with the registrant in an executive capacity for more than
the past five years, except Mr. Thresher, who joined the Registrant in 1996.
From 1988-1996, Mr. Thresher served as a partner in the accounting firm KPMG
Peat Marwick LLP and lead partner for Nationwide Insurance Enterprise from 1993-
1996.
35
<PAGE>
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 current policy values, transactions since the last
statement, policy loan information, and any other information required by
federal or state laws or regulations.
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 change in Specified Amount, changes in future premium allocation,
transfers among sub-accounts, premium payments, loans, increase in loan
principal, loan repayments, unpaid loan interest added to principal,
reinstatement and termination.
ADVERTISING
The Company is ranked and rated by independent financial rating services, among
which are Moody's, Standard & Poor's and A.M. Best Company. The purpose of
these ratings is to reflect the financial strength or claims-paying ability of
the Company. The ratings are not intended to reflect the investment experience
or financial strength of the Variable Account. The Company may advertise these
ratings from time to time. In addition, the Company may include in certain
advertisements endorsements in the form of a list of organizations, individuals
or other parties which recommend the Company or the Contracts. Furthermore, the
Company may occasionally include in advertisements comparisons of currently
taxable and tax deferred investment programs based on selected tax brackets or
discussions of alternative investment vehicles and general economic conditions.
LEGAL PROCEEDINGS
There are no material legal proceedings, other than ordinary routine litigation
incidental to the business to which the Company and the Variable Account are
parties or to which any of their property is the subject.
The General Distributor, Nationwide Advisory Services, Inc., is not engaged in
any material litigation of any nature.
EXPERTS
The financial statements and schedules 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.
36
<PAGE>
REGISTRATION STATEMENT
A Registration Statement has been filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, with respect to the
Policies offered hereby. This prospectus does not contain all the information
set forth in the Registration Statement and amendments thereto and exhibits
filed as a part thereof, to all of which reference is hereby made for further
information concerning the Variable Account, the Company, and the Policies
offered hereby. Statements contained in this prospectus as to the content of
Policies and other legal instruments are summaries. For a complete statement of
the terms thereof, reference is made to such instruments as filed.
LEGAL OPINIONS
Legal matters in connection with the Policies described herein are being passed
upon by Druen, Dietrich, Reynolds & Koogler, One Nationwide Plaza, Columbus,
Ohio 43216. All the members of such firm are employed by the Nationwide Mutual
Insurance Company.
37
<PAGE>
APPENDIX 1
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 Cash Surrender Values falls to zero, 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 and no Cash Values are allocated to the Fixed Account.
The amounts shown for the Cash Value, Cash Surrender Value and Death Benefit as
of each Policy Anniversary reflect the fact that the net investment return on
the assets held in the sub-accounts is lower than the gross return. This is due
to the deduction of Underlying Mutual Fund investment advisory fees and other
expenses which are equivalent to an annual effective rate of 0.90%. This
effective rate is based on the average of the fund expenses for the preceding
year for all underlying mutual fund options available under the policy as of
March 31, 1997.
Taking account of the Underlying Mutual Fund expenses, gross annual rates of
return of 0%, 6% and 12% correspond to net investment experience at constant
annual rates of -0.90%, 5.1%, and 11.1% respectively.
The illustrations also reflect the fact that the Company makes monthly charges
for providing insurance protection, recovering taxes, providing for
administrative expenses, and assuming mortality and expense risks. Current
values reflect current charges and guaranteed values reflect the maximum 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.
In addition, the illustrations reflect the fact that no charges for federal or
state income taxes are currently made against the Variable Account. If such a
charge is made in the future, it will require a higher gross investment return
than illustrated in order to produce the net after-tax returns shown in the
illustrations.
Upon request, the Company will furnish a comparable illustration based on the
proposed Insured's age, sex, rating classification and Premium Payment
requested.
38
<PAGE>
$10,000 INITIAL PREMIUM: $19,579 SPECIFIED AMOUNT
MALE: SIMPLIFIED ISSUE: AGE 65
CURRENT VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,582 8,582 19,579 10,160 9,160 19,579 10,738 9,738 19,579
2 11,025 9,176 8,176 19,579 10,324 9,324 19,579 11,540 10,540 19,579
3 11,576 8,782 7,882 19,579 10,493 9,593 19,579 12,411 11,511 19,579
4 12,155 8,401 7,601 19,579 10,667 9,867 19,579 13,358 12,558 19,579
5 12,763 8,030 7,330 19,579 10,846 10,146 19,579 14,386 13,686 19,579
6 13,401 7,671 7,071 19,579 11,030 10,430 19,579 15,503 14,903 19,579
7 14,071 7,323 6,823 19,579 11,218 10,718 19,579 16,717 16,217 19,579
8 14,775 6,985 6,585 19,579 11,413 11,013 19,579 18,041 17,641 20,025
9 15,513 6,657 6,357 19,579 11,612 11,312 19,579 19,501 19,201 21,256
10 16,289 6,339 6,339 19,579 11,818 11,818 19,579 21,104 21,104 22,582
15 20,789 5,018 5,018 19,579 13,271 13,271 19,579 32,367 32,367 33,986
20 26,533 3,854 3,854 19,579 14,983 14,983 19,579 49,517 49,517 51,993
25 33,864 2,830 2,830 19,579 17,000 17,000 19,579 75,690 75,690 79,475
30 43,219 1,928 1,928 19,579 19,380 19,380 19,579 116,668 116,668 117,834
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT THE CURRENT CHARGES DESCRIBED IN THE "MONTHLY
DEDUCTIONS" AND "SURRENDER CHARGES" SECTIONS OF THE PROSPECTUS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS THE AVERAGE FUND EXPENSE DESCRIBED IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE OR THE TRUST
THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
39
<PAGE>
$10,000 INITIAL PREMIUM: $19,579 SPECIFIED AMOUNT
MALE: SIMPLIFIED ISSUE: AGE 65
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,381 8,381 19,579 9,962 8,962 19,579 10,544 9,544 19,579
2 11,025 8,734 7,734 19,579 9,896 8,896 19,579 11,130 10,130 19,579
3 11,576 8,052 7,152 19,579 9,799 8,899 19,579 11,767 10,867 19,579
4 12,155 7,329 6,529 19,579 9,664 8,864 19,579 12,462 11,662 19,579
5 12,763 6,557 5,857 19,579 9,486 8,786 19,579 13,225 12,525 19,579
6 13,401 5,724 5,124 19,579 9,255 8,655 19,579 14,069 13,469 19,579
7 14,071 4,815 4,315 19,579 8,960 8,460 19,579 15,008 14,508 19,579
8 14,775 3,810 3,410 19,579 8,585 8,185 19,579 16,063 15,663 19,579
9 15,513 2,686 2,386 19,579 8,112 7,812 19,579 17,258 16,958 19,579
10 16,289 1,418 1,418 19,579 7,519 7,519 19,579 18,628 18,628 19,932
15 20,789 (*) (*) (*) 1,805 1,805 19,579 28,480 28,480 29,904
20 26,533 (*) (*) (*) (*) (*) (*) 43,419 43,419 45,590
25 33,864 (*) (*) (*) (*) (*) (*) 65,149 65,149 68,407
30 43,219 (*) (*) (*) (*) (*) (*) 98,541 98,541 99,527
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT THE GUARANTEED CHARGES DESCRIBED IN THE "MONTHLY
DEDUCTIONS" AND "SURRENDER CHARGES" SECTIONS OF THE PROSPECTUS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS THE AVERAGE FUND EXPENSE DESCRIBED IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE OR THE TRUST
THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
40
<PAGE>
$10,000 INITIAL PREMIUM: $40,437 SPECIFIED AMOUNT
MALE: SIMPLIFIED ISSUE: AGE 45
CURRENT VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,582 8,582 40,437 10,160 9,160 40,437 10,738 9,738 40,437
2 11,025 9,176 8,176 40,437 10,324 9,324 40,437 11,540 10,540 40,437
3 11,576 8,782 7,882 40,437 10,493 9,593 40,437 12,411 11,511 40,437
4 12,155 8,401 7,601 40,437 10,667 9,867 40,437 13,358 12,558 40,437
5 12,763 8,030 7,330 40,437 10,846 10,146 40,437 14,386 13,686 40,437
6 13,401 7,671 7,071 40,437 11,030 10,430 40,437 15,503 14,903 40,437
7 14,071 7,323 6,823 40,437 11,218 10,718 40,437 16,717 16,217 40,437
8 14,775 6,985 6,585 40,437 11,413 11,013 40,437 18,035 17,635 40,437
9 15,513 6,657 6,357 40,437 11,612 11,312 40,437 19,468 19,168 40,437
10 16,289 6,339 6,339 40,437 11,818 11,818 40,437 21,024 21,024 40,437
15 20,789 5,018 5,018 40,437 13,271 13,271 40,437 31,910 31,910 42,759
20 26,533 3,854 3,854 40,437 14,983 14,983 40,437 49,033 49,033 59,820
25 33,864 2,830 2,830 40,437 17,000 17,000 40,437 75,219 75,219 87,254
30 43,219 1,928 1,928 40,437 19,377 19,377 40,437 116,172 116,172 124,304
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT THE CURRENT CHARGES DESCRIBED IN THE "MONTHLY
DEDUCTIONS" AND "SURRENDER CHARGES" SECTIONS OF THE PROSPECTUS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS THE AVERAGE FUND EXPENSE DESCRIBED IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE OR THE TRUST
THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
41
<PAGE>
$10,000 INITIAL PREMIUM: $40,437 SPECIFIED AMOUNT
MALE: SIMPLIFIED ISSUE: AGE 45
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,501 8,501 40,437 10,080 9,080 40,437 10,658 9,658 40,437
2 11,025 8,999 7,999 40,437 10,150 9,150 40,437 11,370 10,370 40,437
3 11,576 8,494 7,594 40,437 10,211 9,311 40,437 12,139 11,239 40,437
4 12,155 7,984 7,184 40,437 10,260 9,460 40,437 12,972 12,172 40,437
5 12,763 7,467 6,767 40,437 10,297 9,597 40,437 13,874 13,174 40,437
6 13,401 6,941 6,341 40,437 10,318 9,718 40,437 14,852 14,252 40,437
7 14,071 6,402 5,902 40,437 10,320 9,820 40,437 15,911 15,411 40,437
8 14,775 5,849 5,449 40,437 10,301 9,901 40,437 17,062 16,662 40,437
9 15,513 5,276 4,976 40,437 10,256 9,956 40,437 18,310 18,010 40,437
10 16,289 4,680 4,680 40,437 10,181 10,181 40,437 19,668 19,668 40,437
15 20,789 1,317 1,317 40,437 9,512 9,512 40,437 29,386 29,386 40,437
20 26,533 (*) (*) (*) 7,315 7,315 40,437 45,090 45,090 55,010
25 33,864 (*) (*) (*) 1,889 1,889 40,437 69,171 69,171 80,238
30 43,219 (*) (*) (*) (*) (*) (*) 106,265 106,265 113,704
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT THE GUARANTEED CHARGES DESCRIBED IN THE "MONTHLY
DEDUCTIONS" AND "SURRENDER CHARGES" SECTIONS OF THE PROSPECTUS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS THE AVERAGE FUND EXPENSE DESCRIBED IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE OR THE TRUST
THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
42
<PAGE>
$25,000 INITIAL PREMIUM: $101,093 SPECIFIED AMOUNT
MALE: SIMPLIFIED ISSUE: AGE 45
CURRENT VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,250 24,132 21,632 101,093 25,583 23,083 101,093 27,034 24,534 101,093
2 27,562 23,289 20,789 101,093 26,182 23,682 101,093 29,244 26,744 101,093
3 28,941 22,472 20,222 101,093 26,798 24,548 101,093 31,645 29,395 101,093
4 30,388 21,679 19,679 101,093 27,432 25,432 101,093 34,253 32,253 101,093
5 31,907 20,911 19,161 101,093 28,083 26,333 101,093 37,086 35,336 101,093
6 33,502 20,165 18,665 101,093 28,753 27,253 101,093 40,164 38,664 101,093
7 35,178 19,442 18,192 101,093 29,441 28,191 101,093 43,503 42,253 101,093
8 36,936 18,740 17,740 101,093 30,149 29,149 101,093 47,120 46,120 101,093
9 38,783 18,059 17,309 101,093 30,877 30,127 101,093 51,037 50,287 101,093
10 40,722 17,399 17,399 101,093 31,626 31,626 101,093 55,280 55,280 101,093
15 51,973 14,756 14,756 101,093 36,610 36,610 101,093 84,709 84,709 113,510
20 66,332 12,428 12,428 101,093 42,475 42,475 101,093 131,806 131,806 160,803
25 84,659 10,379 10,379 101,093 49,301 49,301 101,093 206,582 206,582 239,635
30 108,049 8,575 8,575 101,093 57,224 57,224 101,093 323,780 323,780 346,445
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT THE CURRENT CHARGES DESCRIBED IN THE "MONTHLY
DEDUCTIONS" AND "SURRENDER CHARGES" SECTIONS OF THE PROSPECTUS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS THE AVERAGE FUND EXPENSE DESCRIBED IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE OR THE TRUST
THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
43
<PAGE>
$25,000 INITIAL PREMIUM: $101,093 SPECIFIED AMOUNT
MALE: SIMPLIFIED ISSUE: AGE 45
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,250 23,931 21,431 101,093 25,383 22,883 101,093 26,836 24,336 101,093
2 27,562 22,851 20,351 101,093 25,751 23,251 101,093 28,822 26,322 101,093
3 28,941 21,760 19,510 101,093 26,102 23,852 101,093 30,975 28,725 101,093
4 30,388 20,654 18,654 101,093 26,434 24,434 101,093 33,310 31,310 101,093
5 31,907 19,528 17,778 101,093 26,741 24,991 101,093 35,843 34,093 101,093
6 33,502 18,377 16,877 101,093 27,020 25,520 101,093 38,595 37,095 101,093
7 35,178 17,193 15,943 101,093 27,263 26,013 101,093 41,583 40,333 101,093
8 36,936 15,969 14,969 101,093 27,463 26,463 101,093 44,824 43,824 101,093
9 38,783 14,695 13,945 101,093 27,611 26,861 101,093 48,340 47,590 101,093
10 40,722 13,364 13,364 101,093 27,699 27,699 101,093 52,161 52,161 101,093
15 51,973 5,799 5,799 101,093 27,735 27,735 101,093 79,302 79,302 106,265
20 66,332 (*) (*) (*) 24,678 24,678 101,093 121,978 121,978 148,813
25 84,659 (*) (*) (*) 14,964 14,964 101,093 187,121 187,121 217,061
30 108,049 (*) (*) (*) (*) (*) (*) 287,469 287,469 307,592
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT THE GUARANTEED CHARGES DESCRIBED IN THE "MONTHLY
DEDUCTION" AND "SURRENDER CHARGES" SECTION OF THE PROSPECTUS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS THE AVERAGE FUND MANAGEMENT EXPENSE DESCRIBED IN THE PROSPECTUS
APPENDIX
(*) UNLESS ADDITIONAL PREMIUMS ARE PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE OR THE TRUST
THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
44
<PAGE>
$100,000 INITIAL PREMIUM: $195,791 SPECIFIED AMOUNT
MALE: SIMPLIFIED ISSUE: AGE 65
CURRENT VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 96,708 86,708 195,791 102,511 92,511 195,791 108,313 98,313 195,791
2 110,250 93,524 83,524 195,791 105,084 95,084 195,791 117,318 107,318 195,791
3 115,762 90,446 81,446 195,791 107,723 98,723 195,791 127,071 118,071 195,791
4 121,551 87,468 79,468 195,791 110,427 102,427 195,791 137,635 129,635 195,791
5 127,628 84,589 77,589 195,791 113,200 106,200 195,791 149,077 142,077 195,791
6 134,010 81,804 75,804 195,791 116,042 110,042 195,791 161,470 155,470 195,791
7 140,710 79,111 74,111 195,791 118,955 113,955 195,791 174,903 169,903 197,641
8 147,746 76,507 72,507 195,791 121,942 117,942 195,791 189,597 185,597 210,452
9 155,133 73,988 70,988 195,791 125,004 122,004 195,791 205,646 202,646 224,154
10 162,889 71,553 71,553 195,791 128,142 128,142 195,791 223,212 223,212 238,837
15 207,893 62,060 62,060 195,791 152,505 152,505 195,791 349,845 349,845 367,337
20 265,330 53,828 53,828 195,791 181,501 181,501 195,791 548,319 548,319 575,735
25 338,635 46,687 46,687 195,791 216,010 216,010 226,810 859,393 859,393 902,362
30 432,194 40,493 40,493 195,791 257,079 257,079 259,650 1,346,944 1,346,944 1,360,414
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT THE CURRENT CHARGES DESCRIBED IN THE "MONTHLY
DEDUCTIONS" AND "SURRENDER CHARGES" SECTIONS OF THE PROSPECTUS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS THE AVERAGE FUND EXPENSE DESCRIBED IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE OR THE TRUST
THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
45
<PAGE>
$100,000 INITIAL PREMIUM: $195,791 SPECIFIED AMOUNT
MALE: SIMPLIFIED ISSUE: AGE 65
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 94,724 84,724 195,791 100,554 90,554 195,791 106,387 96,387 195,791
2 110,250 89,180 79,180 195,791 100,888 90,888 195,791 113,303 103,303 195,791
3 115,762 83,324 74,324 195,791 100,974 91,974 195,791 120,837 111,837 195,791
4 121,551 77,095 69,095 195,791 100,776 92,776 195,791 129,095 121,095 195,791
5 127,628 70,416 63,416 195,791 100,242 93,242 195,791 138,201 131,201 195,791
6 134,010 63,182 57,182 195,791 99,301 93,301 195,791 148,306 142,306 195,791
7 140,710 55,257 50,257 195,791 97,861 92,861 195,791 159,604 154,604 195,791
8 147,746 46,469 42,469 195,791 95,804 91,804 195,791 172,343 168,343 195,791
9 155,133 36,605 33,605 195,791 92,985 89,985 195,791 186,774 183,774 203,583
10 162,889 25,406 25,406 195,791 89,242 89,242 195,791 202,728 202,728 216,919
15 207,893 (*) (*) (*) 50,882 50,882 195,791 313,490 313,490 329,165
20 265,330 (*) (*) (*) (*) (*) (*) 479,062 479,062 503,016
25 338,635 (*) (*) (*) (*) (*) (*) 718,814 718,814 754,755
30 432,194 (*) (*) (*) (*) (*) (*) 1,087,242 1,087,242 1,098,114
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT THE GUARANTEED CHARGES DESCRIBED IN THE "MONTHLY
DEDUCTIONS" AND "SURRENDER CHARGES" SECTIONS OF THE PROSPECTUS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS THE AVERAGE FUND EXPENSE DESCRIBED IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE OR THE TRUST
THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
46
<PAGE>
$100,000 INITIAL PREMIUM: $273,583 SPECIFIED AMOUNT
MALE: REGULAR ISSUE: AGE 55
CURRENT VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 96,708 86,708 273,583 102,511 92,511 273,583 108,313 98,313 273,583
2 110,250 93,524 83,524 273,583 105,084 95,084 273,583 117,318 107,318 273,583
3 115,762 90,446 81,446 273,583 107,723 98,723 273,583 127,071 118,071 273,583
4 121,551 87,468 79,468 273,583 110,427 102,427 273,583 137,635 129,635 273,583
5 127,628 84,589 77,589 273,583 113,200 106,200 273,583 149,077 142,077 273,583
6 134,010 81,804 75,804 273,583 116,042 110,042 273,583 161,470 155,470 273,583
7 140,710 79,111 74,111 273,583 118,955 113,955 273,583 174,893 169,893 273,583
8 147,746 76,507 72,507 273,583 121,942 117,942 273,583 189,433 185,433 273,583
9 155,133 73,988 70,988 273,583 125,004 122,004 273,583 205,181 202,181 273,583
10 162,889 71,553 71,553 273,583 128,142 128,142 273,583 222,260 222,260 273,583
15 207,893 62,060 62,060 273,583 152,505 152,505 273,583 348,353 348,353 404,090
20 265,330 53,828 53,828 273,583 181,501 181,501 273,583 545,981 545,981 584,200
25 338,635 46,687 46,687 273,583 216,010 216,010 273,583 855,728 855,728 898,515
30 432,194 40,493 40,493 273,583 s 257,079 257,079 273,583 1,341,201 1,341,201 1,408,261
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT THE CURRENT CHARGES DESCRIBED IN THE "MONTHLY
DEDUCTIONS" AND "SURRENDER CHARGES" SECTIONS OF THE PROSPECTUS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS THE AVERAGE FUND EXPENSE DESCRIBED IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE OR THE TRUST
THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
47
<PAGE>
$100,000 INITIAL PREMIUM: $273,583 SPECIFIED AMOUNT
MALE: REGULAR ISSUE: AGE 55
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 95,428 85,428 273,583 101,237 91,237 273,583 107,048 97,048 273,583
2 110,250 90,746 80,746 273,583 102,348 92,348 273,583 114,641 104,641 273,583
3 115,762 85,934 76,934 273,583 103,319 94,319 273,583 122,842 113,842 273,583
4 121,551 80,971 72,971 273,583 104,133 96,133 273,583 131,721 123,721 273,583
5 127,628 75,827 68,827 273,583 104,766 97,766 273,583 141,357 134,357 273,583
6 134,010 70,462 64,462 273,583 105,188 99,188 273,583 151,838 145,838 273,583
7 140,710 64,827 59,827 273,583 105,356 100,356 273,583 163,262 158,262 273,583
8 147,746 58,861 54,861 273,583 105,222 101,222 273,583 175,751 171,751 273,583
9 155,133 52,500 49,500 273,583 104,733 101,733 273,583 189,449 186,449 273,583
10 162,889 45,670 45,670 273,583 103,829 103,829 273,583 204,536 204,536 273,583
15 207,893 2,162 2,162 273,583 93,673 93,673 273,583 312,923 312,923 362,991
20 265,330 (*) (*) (*) 56,926 56,926 273,583 480,735 480,735 514,386
25 338,635 (*) (*) (*) (*) (*) (*) 743,388 743,388 780,557
30 432,194 (*) (*) (*) (*) (*) (*) 1,136,014 1,136,014 1,192,815
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT THE GUARANTEED CHARGES DESCRIBED IN THE "MONTHLY
DEDUCTIONS" AND "SURRENDER CHARGES" SECTIONS OF THE PROSPECTUS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS THE AVERAGE FUND EXPENSE DESCRIBED IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE OR THE TRUST
THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
48
<PAGE>
APPENDIX 2
The following performance tables display historical investment results of the
Underlying Mutual Fund sub-accounts of the Variable Account. This information
may be useful in helping potential investors in deciding which Underlying Mutual
Fund sub-accounts to choose and in assessing the competence of the Underlying
Mutual Funds' investment advisers. The performance figures shown should be
considered in light of the investment objectives and policies, characteristics
and quality of the underlying portfolios of the Underlying Mutual Funds, and the
market conditions during the periods of time quoted. The performance figures
should not be considered as estimates or predictions of future performance.
Investment return and the principal value of the Underlying Mutual Fund sub-
accounts are not guaranteed and will fluctuate so that a Policy Owner's units,
when redeemed, may be worth more or less than their original cost.
49
<PAGE>
FUND PERFORMANCE TABLE *
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Annual Percentage Change
- ----------------------------------------------------------------------------------------------------------------------------------
Fund Unit
UNDERLYING MUTUAL FUNDS Inception Values 1994 1995 1996
Date 12/31/96
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
American Century VP Balanced 05/01/91 10.93 0.61 21.12 12.21
- ----------------------------------------------------------------------------------------------------------------------------------
American Century VP Capital Appreciation 11/20/87 9.12 -1.17 31.1 -4.32
- ----------------------------------------------------------------------------------------------------------------------------------
American Century VP International 05/01/94 10.77 N/A 11.33 14.1
- ----------------------------------------------------------------------------------------------------------------------------------
American Century VP Value 05/01/96 10.15 N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Dreyfus Variable Investment Fund
- ----------------------------------------------------------------------------------------------------------------------------------
Growth & Income Fund 05/02/94 9.99 N/A 61.89 19.63
- ----------------------------------------------------------------------------------------------------------------------------------
Dreyfus Socially Responsible Growth Fund 10/06/93 11.18 1.49 34.56 21.23
- ----------------------------------------------------------------------------------------------------------------------------------
Dreyfus Stock Index Fund 09/29/89 11.46 0.19 33.28 22.54
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund II -Asset Manager Portfolio 09/06/89 11.02 -6.09 16.96 14.6
- ----------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund II -Contrafund Portfolio 01/03/95 11.25 N/A N/A 21.31
- ----------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund - Equity-Income Portfolio 10/09/86 10.79 7.07 35.09 14.28
- ----------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund - Growth Portfolio 10/09/86 10.45 -0.02 35.36 14.71
- ----------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund - High Income Portfolio 09/19/85 10.83 -1.55 20.6 14.03
- ----------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund - Overseas Portfolio 01/28/87 10.67 1.72 9.68 13.22
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
NSAT Capital Appreciation Fund 04/15/92 11.61 -0.9 29.35 26.14
- ----------------------------------------------------------------------------------------------------------------------------------
NSAT Government Bond Fund 11/08/82 10.68 -3.23 18.74 3.49
- ----------------------------------------------------------------------------------------------------------------------------------
NSAT Money Market Fund 11/10/81 10.34 3.88 5.64 5.13
- ----------------------------------------------------------------------------------------------------------------------------------
NSAT Small Company Fund 10/23/95 10.52 N/A N/A 22.83
- ----------------------------------------------------------------------------------------------------------------------------------
NSAT Total Return Fund 11/08/82 11.44 1.07 29.09 21.84
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers
Management Trust - Growth Portfolio 09/10/84 9.87 -4.99 31.73 9.14
- ----------------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers
Management Trust - Bond Portfolio 09/10/84 10.48 -0.15 10.93 4.31
- ----------------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers
Management Trust - Partners Portfolio 03/22/94 11.48 N/A 36.47 29.57
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account
Fund - Bond Fund 04/30/85 10.64 -1.94 17 4.8
- ----------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account
Fund - Global Securities 11/12/90 10.83 -5.72 2.24 17.8
- ----------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account
Fund - Multiple Strategies 02/09/87 10.94 -1.95 21.36 15.5
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Strong Variable Insurance
Funds, Inc. - Discovery Fund II, Inc. 05/08/92 9.88 -5.39 35.26 0.81
- ----------------------------------------------------------------------------------------------------------------------------------
Strong Variable Insurance
Funds, Inc. - International Stock Fund II 10/20/95 10.05 N/A N/A 10.38
- ----------------------------------------------------------------------------------------------------------------------------------
Strong Opportunity Fund II, Inc. 05/08/92 10.77 3.6 25.82 18.15
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance
Trust - Worldwide Emerging Markets Fund 09/01/87 10.06 -4.79 12.08 20.57
- ----------------------------------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance
Trust - Worldwide Bond Fund 09/01/89 10.52 -1.32 17.3 2.52
- ----------------------------------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance
Trust - Worldwide Hard Assets Fund 12/27/95 10.07 N/A N/A 26.72
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital
Life Investment Trust - Morgan Stanley
Real Estate Securities Portfolio 07/03/95 13.67 N/A N/A 40.53
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust - International
Equity Portfolio 06/30/95 9.94 N/A N/A 9.98
- ----------------------------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust - Post Venture
Capital Portfolio 11/18/96 10.17 N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust - Small Company
Growth Portfolio 06/30/95 9.83 N/A N/A 13.91
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Cumulative Non-Anualized
Percentage Change
- ----------------------------------------------------------------------------------------------------------------------------------
UNDERLYING MUTUAL FUNDS 1 mo 1 Yr 2 Yrs 3 Yrs. 5 yrs. Inception
to to to to to to
12/31/96 12/31/96 12/31/96 12/31/96 12/31/96 12/31/96
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
American Century VP Balanced -2.46 12.21 35.91 36.74 38.36 73.69
- ----------------------------------------------------------------------------------------------------------------------------------
American Century VP Capital Appreciation -3.12 -4.32 25.43 23.97 34.92 154.91
- ----------------------------------------------------------------------------------------------------------------------------------
American Century VP International 2.05 14.1 27.02 N/A N/A 20.03
- ----------------------------------------------------------------------------------------------------------------------------------
American Century VP Value 0.72 N/A N/A N/A N/A 12.28
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Dreyfus Variable Investment Fund
Growth & Income Fund -2.09 19.63 93.67 N/A N/A 89.63
- ----------------------------------------------------------------------------------------------------------------------------------
Dreyfus Socially Responsible Growth Fund -3.44 21.23 63.13 65.56 N/A 77.74
- ----------------------------------------------------------------------------------------------------------------------------------
Dreyfus Stock Index Fund -2.04 22.54 63.31 63.63 101.79 153.5
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund II - Asset
Manager Portfolio -1.46 14.6 34.04 25.87 70.47 124.77
- ----------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund II - Contrafund Portfolio -0.6 21.31 N/A N/A N/A 67.16
- ----------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund - Equity-Income Portfolio -1.64 14.28 54.39 65.3 128.56 263.05
- ----------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund - Growth Portfolio -3.08 14.71 55.27 55.24 102.58 311.23
- ----------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund - High Income Portfolio 1.38 14.03 37.53 35.4 100.79 258.69
- ----------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund - Overseas Portfolio 0.53 13.22 24.17 26.31 54.78 112.54
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
NSAT Capital Appreciation Fund 0.24 26.14 63.17 61.7 N/A 87.48
- ----------------------------------------------------------------------------------------------------------------------------------
NSAT Government Bond Fund -1.13 3.49 22.89 18.92 40.48 264.17
- ----------------------------------------------------------------------------------------------------------------------------------
NSAT Money Market Fund 0.42 5.13 11.06 15.37 22.58 184.92
- ----------------------------------------------------------------------------------------------------------------------------------
NSAT Small Company Fund 1.17 22.83 N/A N/A N/A 40.49
- ----------------------------------------------------------------------------------------------------------------------------------
NSAT Total Return Fund 0.15 21.84 57.29 58.98 90.76 654.17
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers
Management Trust - Growth Portfolio -0.58 9.14 43.77 36.6 59.79 341.7
- ----------------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers
Management Trust -Bond Portfolio -0.07 4.31 15.71 15.53 29.57 167
- ----------------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers
Management Trust -Partners Portfolio 0.18 29.57 76.82 N/A N/A 72.76
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account
Fund - Bond Fund -0.92 4.8 22.61 20.23 44.75 197.83
- ----------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account
Fund - Global Securities 0.8 17.8 20.43 13.54 79.64 86.47
- ----------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account
Fund - Multiple Strategies -0.5 15.5 40.16 37.44 73.69 194.24
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Strong Variable Insurance
Funds, Inc. - Discovery Fund II, Inc. -0.37 0.81 36.35 29.01 N/A 71.41
- ----------------------------------------------------------------------------------------------------------------------------------
Strong Variable Insurance
Funds, Inc. - International Stock Fund II -0.8 10.38 N/A N/A N/A 13.27
- ----------------------------------------------------------------------------------------------------------------------------------
Strong Opportunity Fund II, Inc. -0.25 18.15 48.65 54 N/A 123.93
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance
Trust - Worldwide Emerging Markets Fund 0.97 20.57 35.14 28.67 103.41 84.44
- ----------------------------------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance
Trust - Worldwide Bond Fund -0.89 2.52 20.26 18.68 21.13 60.74
- ----------------------------------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance
Trust - Worldwide Hard Assets Fund 1.05 26.72 N/A N/A N/A 25.45
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital
Life Investment Trust - Morgan Stanley
Real Estate Securities Portfolio 11.06 40.53 N/A N/A N/A 50.93
- ----------------------------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust - International
Equity Portfolio 0.2 9.98 N/A N/A N/A 18.01
- ----------------------------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust - Post Venture
Capital Portfolio 0 N/A N/A N/A N/A -2.22
- ----------------------------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust-Small
Company Growth Portfolio 2.3 13.91 N/A N/A N/A 42.5
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------
Average Annualized
Percentage Change
- -----------------------------------------------------------------------------------
UNDERLYING MUTUAL FUNDS 3 Yrs. 5 yrs. Inception
to to to
12/31/96 12/31/96 12/31/96
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
American Century VP Balanced 10.99 6.71 10.24
- -----------------------------------------------------------------------------------
American Century VP Capital Appreciation 7.42 6.17 10.81
- -----------------------------------------------------------------------------------
American Century VP International N/A N/A 7.09
- -----------------------------------------------------------------------------------
American Century VP Value N/A N/A N/A
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
Dreyfus Variable Investment Fund
Growth & Income Fund N/A N/A 27.18
- -----------------------------------------------------------------------------------
Dreyfus Socially Responsible Growth Fund 18.3 N/A 19.46
- -----------------------------------------------------------------------------------
Dreyfus Stock Index Fund 17.84 15.08 13.68
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
Fidelity VIP Fund II - Asset
Manager Portfolio 7.97 11.26 11.71
- -----------------------------------------------------------------------------------
Fidelity VIP Fund II - Contrafund Portfolio N/A N/A 29.43
- -----------------------------------------------------------------------------------
Fidelity VIP Fund - Equity-Income Portfolio 18.24 17.98 13.44
- -----------------------------------------------------------------------------------
Fidelity VIP Fund - Growth Portfolio 15.79 15.16 14.83
- -----------------------------------------------------------------------------------
Fidelity VIP Fund - High Income Portfolio 10.63 14.96 11.99
- -----------------------------------------------------------------------------------
Fidelity VIP Fund - Overseas Portfolio 8.1 9.13 7.89
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
NSAT Capital Appreciation Fund 17.37 N/A 14.28
- -----------------------------------------------------------------------------------
NSAT Government Bond Fund 5.94 7.03 9.57
- -----------------------------------------------------------------------------------
NSAT Money Market Fund 4.88 4.16 7.16
- -----------------------------------------------------------------------------------
NSAT Small Company Fund N/A N/A 33.12
- -----------------------------------------------------------------------------------
NSAT Total Return Fund 16.71 13.79 15.35
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
Neuberger & Berman Advisers
Management Trust - Growth Portfolio 10.96 9.83 12.83
- -----------------------------------------------------------------------------------
Neuberger & Berman Advisers
Management Trust - Bond Portfolio 4.93 5.32 8.31
- -----------------------------------------------------------------------------------
Neuberger & Berman Advisers
Management Trust - Partners Portfolio N/A N/A 21.78
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
Oppenheimer Variable Account
Fund - Bond Fund 6.33 7.68 9.81
- -----------------------------------------------------------------------------------
Oppenheimer Variable Account
Fund - Global Securities 4.32 12.43 10.69
- -----------------------------------------------------------------------------------
Oppenheimer Variable Account
Fund - Multiple Strategies 11.18 11.67 11.53
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
Strong Variable Insurance
Funds, Inc. - Discovery Fund II, Inc. 8.86 N/A 12.3
- -----------------------------------------------------------------------------------
Van Eck Worldwide Insurance
Funds, Inc. - International Stock Fund II N/A N/A 10.98
- -----------------------------------------------------------------------------------
Strong Opportunity Fund II, Inc. 15.48 N/A 18.95
- -----------------------------------------------------------------------------------
Van Eck Worldwide Insurance
Trust - Worldwide Emerging Markets Fund 8.77 15.26 8.71
- -----------------------------------------------------------------------------------
Van Eck Worldwide Insurance
Trust - Worldwide Bond Fund 5.87 3.91 6.69
- -----------------------------------------------------------------------------------
Van Eck Worldwide Insurance
Trust - Worldwide Hard Assets Fund N/A N/A 25.15
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
Van Kampen American Capital
Life Investment Trust - Morgan Stanley
Real Estate Securities Portfolio N/A N/A 31.77
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
Warburg Pincus Trust - International
Equity Portfolio N/A N/A 11.74
- -----------------------------------------------------------------------------------
Warburg Pincus Trust - Post
Venture Capital Portfolio N/A N/A N/A
- -----------------------------------------------------------------------------------
Warburg Pincus Trust - Small
Company Growth Portfolio N/A N/A 26.79
- -----------------------------------------------------------------------------------
</TABLE>
(See accompanying Notes to Fund Performance Table)
*TOTAL RETURN SHOWS THE PERCENT CHANGE IN UNIT VALUES, WITH DIVIDENDS AND
CAPITAL GAINS REINVESTED AFTER THE DEDUCTIONS OF APPLICABLE INVESTMENT ADVISORY
FEES AND OTHER EXPENSES OF THE UNDERLYING MUTUAL FUNDS. THE TOTAL RETURN
FIGURES DO NOT TAKE INTO ACCOUNT THE SEVERAL OTHER POLICY CHARGES WHICH ARE
DESCRIBED IN THE "POLICY CHARGES" SECTION.
Performance information is not yet available for the Dreyfus Variable Investment
Fund-Capital Appreciation Portfolio, Fidelity Variable Insurance Products III-
Growth Opportunities Portfolio, Morgan Stanley Universal Funds, Inc.-Emerging
Markets Debt Portfolio and the Oppenheimer Variable Account Funds-Oppenheimer
Growth Fund.
50
<PAGE>
NOTES TO FUND PERFORMANCE TABLE
The preceding table displays three types of total return: (1) Annual Percentage
Change; (2) Cumulative Non-Annualized Percentage Change; and (3) Average
Annualized Percentage Change. Total return shows the percent change in unit
values, with dividends and capital gains reinvested, after the deduction of
applicable investment advisory fees and other expenses of the Underlying Mutual
Funds, and includes no contract-level charges. The total return figures shown
in the Annual Percentage Change and Average Annualized Percentage Change columns
represent annualized figures, i.e., that is the rate of growth that would have
produced the corresponding cumulative return had performance been constant over
the entire period quoted. The Annual Percentage Change reflects the rate of
return on an annual percentage basis during the 1994, 1995 and 1996 calendar
years. The Average Annualized Percentage Change reflects the annual percentage
rate of return over 3 and 5 year periods, or from Underlying Mutual Fund
inception. The Cumulative Non-Annualized Percentage Change total return
figures are not annual return figures but instead represent the total percentage
change in unit value over the stated periods without annualization. Total
Return Shows The Percent Change In Unit Values, With Dividends And Capital Gains
Reinvested After The Deductions Of Applicable Investment Advisory Fees And Other
Expenses Of The Underlying Mutual Funds. THE TOTAL RETURN FIGURES DO NOT TAKE
INTO ACCOUNT THE SEVERAL OTHER POLICY CHARGES WHICH ARE DESCRIBED IN THE "POLICY
CHARGES" SECTION.
The Underlying Mutual Fund Inception Date is the date the Underlying Mutual Fund
first became effective, which is not necessarily the same date the Underlying
Mutual Fund was first made available through the Variable Account. For those
Underlying Mutual Funds which have not been offered as Sub-Accounts through the
Variable Account for one of the quoted periods, the total return figures will
show the investment performance such Underlying Mutual Funds would have achieved
Underlying Mutual Fund investment advisory fees and expenses had they been
offered as sub-accounts through the Variable Account for the period quoted.
Certain Underlying Mutual Funds are not as old as some of the periods quoted,
therefore, total return figures may not be available for all of the periods
shown.
THE PRECEDING FUND PERFORMANCE TABLE DISPLAYS HISTORICAL INVESTMENT RESULTS OF
THE UNDERLYING MUTUAL FUNDS OF THE VARIABLE ACCOUNT. THIS INFORMATION MAY BE
USEFUL IN HELPING POTENTIAL INVESTORS IN DECIDING WHICH UNDERLYING MUTUAL FUNDS
TO CHOOSE AND IN ASSESSING THE COMPETENCE OF THE UNDERLYING MUTUAL FUNDS'
INVESTMENT ADVISERS. THE PERFORMANCE FIGURES SHOWN SHOULD BE CONSIDERED IN
LIGHT OF THE INVESTMENT OBJECTIVES AND POLICIES, CHARACTERISTICS AND QUALITY OF
THE UNDERLYING PORTFOLIOS OF THE UNDERLYING MUTUAL FUNDS, AND THE MARKET
CONDITIONS DURING THE PERIODS OF TIME QUOTED. THE PERFORMANCE FIGURES SHOULD
NOT BE CONSIDERED AS ESTIMATES OR PREDICTIONS OF FUTURE PERFORMANCE. INVESTMENT
RETURN AND THE PRINCIPAL VALUE OF THE UNDERLYING MUTUAL FUNDS ARE NOT GUARANTEED
AND WILL FLUCTUATE SO THAT A POLICY OWNER'S UNITS, WHEN REDEEMED, MAY BE WORTH
MORE OR LESS THAN THEIR ORIGINAL COST.
51
<PAGE>
CASH VALUE PERFORMANCE TABLE *
HYPOTHETICAL ANNUAL PREMIUM: $50,000
$165,397 SPECIFIED AMOUNT
MALE AGE 50 / SIMPLIFIED ISSUE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
1 YEAR TO 12/31/96 3 YEARS TO 12/31/96
- ----------------------------------------------------------------------------------------------------------------------------------
FUND CASH CASH
UNDERLYING MUTUAL FUND INCEPTION ACCUM SURR. ACCUM SURR.
DATE VALUE VALUE VALUE VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
American Century VP Balanced 05/01/91 $ 55,052 $ 50,052 $ 64,635 $ 60,135
- ----------------------------------------------------------------------------------------------------------------------------------
American Century VP Capital Appreciation 11/20/87 $ 46,936 $ 41,936 $ 58,602 $ 54,102
- ----------------------------------------------------------------------------------------------------------------------------------
American Century VP International 05/01/94 $ 55,980 $ 50,980 NA NA
- ----------------------------------------------------------------------------------------------------------------------------------
American Century VP Value 05/01/94 NA NA NA NA
- ----------------------------------------------------------------------------------------------------------------------------------
Dreyfus Variable Investment Fund Growth & Income Fund 05/02/94 $ 58,702 $ 53,702 NA NA
- ----------------------------------------------------------------------------------------------------------------------------------
Dreyfus Socially Responsible Growth Fund 10/06/93 $ 59,485 $ 54,485 $ 78,297 $ 73,797
- ----------------------------------------------------------------------------------------------------------------------------------
Dreyfus Stock Index Fund 09/29/89 $ 60,124 $ 55,124 $ 77,366 $ 72,866
- ----------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund II - Asset
Manager Portfolio 09/06/89 $ 56,228 $ 51,228 $ 59,465 $ 54,965
- ----------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund II - Contrafund Portfolio 01/03/95 $ 59,520 $ 54,520 NA NA
- ----------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund - Equity-Income Portfolio 10/09/86 $ 56,070 $ 51,070 $ 78,190 $ 73,690
- ----------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund - Growth Portfolio 10/09/86 $ 56,281 $ 51,281 $ 73,408 $ 68,908
- ----------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund - High Income Portfolio 09/19/85 $ 55,949 $ 50,949 $ 63,999 $ 59,499
- ----------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund - Overseas Portfolio 01/28/87 $ 55,548 $ 50,548 $ 59,696 $ 55,196
- ----------------------------------------------------------------------------------------------------------------------------------
NSAT Capital Appreciation Fund 04/15/92 $ 61,895 $ 56,895 $ 76,446 $ 71,946
- ----------------------------------------------------------------------------------------------------------------------------------
NSAT Government Bond Fund 11/08/82 $ 50,765 $ 45,765 $ 56,185 $ 51,685
- ----------------------------------------------------------------------------------------------------------------------------------
NSAT Money Market Fund 11/10/81 $ 51,576 $ 46,576 $ 54,517 $ 50,017
- ----------------------------------------------------------------------------------------------------------------------------------
NSAT Small Company Fund 10/23/95 $ 60,273 $ 55,273 NA NA
- ----------------------------------------------------------------------------------------------------------------------------------
NSAT Total Return Fund 11/08/82 $ 59,782 $ 54,782 $ 75,172 $ 70,672
- ----------------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers
Management Trust - Growth Portfolio 09/10/84 $ 53,545 $ 48,545 $ 64,567 $ 60,067
- ----------------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers
Management Trust - Bond Portfolio 09/10/84 $ 51,169 $ 46,169 $ 54,587 $ 50,087
- ----------------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers
Management Trust - Partners Portfolio 03/22/94 $ 63,580 $ 58,580 NA NA
- ----------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Fund - Bond Fund 04/30/85 $ 51,409 $ 46,409 $ 56,812 $ 52,312
- ----------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Fund - Global Securities 11/12/90 $ 57,797 $ 52,797 $ 53,621 $ 49,121
- ----------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Fund - Multiple Strategies 02/09/87 $ 56,667 $ 51,667 $ 64,959 $ 60,459
- ----------------------------------------------------------------------------------------------------------------------------------
Strong Variable Insurance
Funds, Inc. - Discovery Fund II, Inc. 05/08/92 $ 49,448 $ 44,448 $ 60,965 $ 56,465
- ----------------------------------------------------------------------------------------------------------------------------------
Strong Variable Insurance
Funds, Inc. - International Stock Fund II 10/20/95 $ 54,160 $ 49,160 NA NA
- ----------------------------------------------------------------------------------------------------------------------------------
Strong Opportunity Fund II, Inc. 05/08/92 $ 57,969 $ 52,969 $ 72,821 $ 68,321
- ----------------------------------------------------------------------------------------------------------------------------------
Van Eck Worldwide
Insurance Trust - Worldwide Emerging Markets Fund 09/01/89 $ 59,170 $ 54,170 $ 60,793 $ 56,293
- ----------------------------------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance
Trust - Worldwide Bond Fund 09/01/89 $ 50,293 $ 45,293 $ 56,078 $ 51,578
- ----------------------------------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance
Trust - Worldwide Hard Assets Fund 12/27/95 $ 62,184 $ 57,184 NA NA
- ----------------------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital
Life Investment Trust - Morgan Stanley
Real Estate Securities Portfolio 07/03/95 $ 68,955 $ 63,955 NA NA
- ----------------------------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust - International Equity Portfolio 06/30/95 $ 53,963 $ 48,963 NA NA
- ----------------------------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust - Post Venture Capital Portfolio 11/18/96 NA NA NA NA
- ----------------------------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust - Small Company Growth Portfolio 06/30/95 $ 55,891 $ 50,891 NA NA
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
5 YEARS TO 12/31/96 10 YEARS TO 12/31/96 INCEPTION TO 12/31/96
- ----------------------------------------------------------------------------------------------------------------------------------
CASH CASH CASH
UNDERLYING MUTUAL FUND ACCUM SURR. ACCUM SURR. ACCUM SURR.
VALUE VALUE VALUE VALUE VALUE VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
American Century VP Balanced $ 62,957 $ 59,457 NA NA $ 78,255 $ 75,255
- ----------------------------------------------------------------------------------------------------------------------------------
American Century VP Capital Appreciation $ 61,439 $ 57,939 NA NA $108,046 $108,046
- -----------------------------------------------------------------------------------------------------------------------------------
American Century VP International NA NA NA NA $ 57,056 $ 52,556
- -----------------------------------------------------------------------------------------------------------------------------------
American Century VP Value NA NA NA NA $ 55,435 $ 50,435
- -----------------------------------------------------------------------------------------------------------------------------------
Dreyfus Variable Investment Fund
Growth & Income Fund NA NA NA NA $ 90,290 $ 85,790
- -----------------------------------------------------------------------------------------------------------------------------------
Dreyfus Socially Responsible Growth Fund NA NA NA NA $ 83,699 $ 79,699
- -----------------------------------------------------------------------------------------------------------------------------------
Dreyfus Stock Index Fund $ 92,029 $ 88,529 NA NA $110,855 $108,855
- -----------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund II - Asset Manager Portfolio $ 77,750 $ 74,250 NA NA $ 98,359 $ 96,359
- -----------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund II - Contrafund Portfolio NA NA NA NA $ 80,570 $ 75,570
- -----------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund - Equity-Income Portfolio $104,366 $100,866 $151,280 $151,280 $151,098 $151,098
- -----------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund - Growth Portfolio $ 92,421 $ 88,921 $ 171,428 $ 171,428 $ 171,592 $ 171,592
- -----------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund - High Income Portfolio $ 91,695 $ 88,195 $ 119,647 $ 119,647 $ 147,689 $ 147,689
- -----------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund - Overseas Portfolio $ 70,529 $ 67,029 NA NA $ 88,500 $ 88,500
- -----------------------------------------------------------------------------------------------------------------------------------
NSAT Capital Appreciation Fund NA NA NA NA $ 85,849 $ 82,349
- -----------------------------------------------------------------------------------------------------------------------------------
NSAT Government Bond Fund $ 64,009 $ 60,509 $ 93,383 $ 93,383 $145,092 $145,092
- -----------------------------------------------------------------------------------------------------------------------------------
NSAT Money Market Fund $ 55,807 $ 52,307 $ 72,595 $ 72,595 $111,589 $111,589
- -----------------------------------------------------------------------------------------------------------------------------------
NSAT Small Company Fund NA NA NA NA $ 68,634 $ 63,634
- -----------------------------------------------------------------------------------------------------------------------------------
NSAT Total Return Fund $ 86,982 $ 83,482 $136,813 $136,813 $302,010 $302,010
- -----------------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers
Management Trust - Growth Portfolio $ 72,820 $ 69,320 $123,303 $123,303 $180,222 $180,222
- -----------------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers
Management Trust - Bond Portfolio $ 59,009 $ 55,509 $ 79,390 $ 79,390 $108,381 $108,381
- -----------------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers
Management Trust - Partners Portfolio NA NA NA NA $ 81,946 $ 77,446
- -----------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Fund - Bond Fund $ 65,967 $ 62,467 $ 96,920 $ 96,920 $122,105 $122,105
- -----------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account
Fund - Global Securities $ 81,958 $ 78,458 NA NA $ 83,236 $ 80,736
- -----------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account
Fund - Multiple Strategies $ 79,203 $ 75,703 NA NA $123,021 $123,021
- -----------------------------------------------------------------------------------------------------------------------------------
Strong Variable Insurance
Funds, Inc. - Discovery Fund II, Inc. NA NA NA NA $ 78,661 $ 75,161
- -----------------------------------------------------------------------------------------------------------------------------------
Strong Variable Insurance
Funds, Inc. - International Stock Fund II NA NA NA NA $ 55,316 $ 50,316
- -----------------------------------------------------------------------------------------------------------------------------------
Strong Opportunity Fund II, Inc. NA NA NA NA $102,891 $ 99,391
- -----------------------------------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance
Trust - Worldwide Emerging Markets Fund $ 92,845 $ 89,345 NA NA $ 80,548 $ 78,548
- -----------------------------------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance
Trust - Worldwide Bond Fund $ 55,112 $ 51,612 NA NA $ 70,323 $ 68,323
- -----------------------------------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance
Trust - Worldwide Hard Assets Fund NA NA NA NA $ 61,463 $ 56,463
- -----------------------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life
Investment Trust - Morgan Stanley
Real Estate Securities Portfolio NA NA NA NA $ 73,373 $ 68,373
- -----------------------------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust - International
Equity Portfolio NA NA NA NA $ 57,366 $ 52,366
- -----------------------------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust - Post Venture
Capital Portfolio NA NA NA NA $ 48,656 $ 43,656
- -----------------------------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust - Small Company
Growth Portfolio NA NA NA NA $ 69,305 $ 64,305
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(See accompanying Notes to Cash Value Performance Table)
*THE CASH SURRENDER VALUE FIGURES REFLECT THE DEDUCTION OF THE APPLICABLE FUND-
LEVEL INVESTMENT ADVISORY FEES, A SURRENDER CHARGE AND AN ASSET FEE COMPRISED OF
A MORTALITY AND EXPENSE RISK CHARGE, THE APPLICABLE COST OF INSURANCE CHARGES,
TAX EXPENSE CHARGES AND AN ANNUAL ADMINISTRATIVE CHARGE.
Performance information is not yet available for the Dreyfus Variable Investment
Fund-Capital Appreciation Portfolio, Fidelity Variable Insurance Products III-
Growth Opportunities Portfolio, Morgan Stanley Universal Funds, Inc.-Emerging
Markets Debt Portfolio and the Oppenheimer Variable Account Funds-Oppenheimer
Growth Fund.
52
<PAGE>
NOTES TO CASH VALUE PERFORMANCE TABLE
The preceding cash value performance table shows the effect of the performance
quoted on accumulated values and cash surrender values, based on a hypothetical
annual premium of $50,000 for a 50 year-old male, simplified, with a level death
benefit and an initial specified amount of $165,397. The cash surrender value
figures reflect the deduction of the applicable fund-level investment advisory
fees, a Surrender Charge and an asset fee comprised of a mortality and expense
risk charge, the applicable cost of insurance charges, tax expense charges and
an annual administrative charge. Performance for the cash surrender value
columns reflect the deduction of the applicable Surrender Charge at the end of
each period. See the "Policy Charges" section for more information about these
charges. The cost of insurance charges may be higher or lower for purchasers
who do not meet the profile of the hypothetical purchaser. Illustrations
reflecting a potential purchaser's specific characteristics are available from
the Company upon request.
The Underlying Mutual Fund Inception Date is the date the Underlying Mutual Fund
first became effective, which is not necessarily the same date the Underlying
Mutual Fund was first made available through the Variable Account. For those
Underlying Mutual Funds which have not been offered as Sub-Accounts through the
Variable Account for one of the quoted periods, the cash values will show the
investment performance such Underlying Mutual Funds would have achieved (reduced
by any applicable Variable Account and Policy Charges, and Underlying Mutual
Fund investment advisory fees and expenses) had they been offered as sub-
accounts through the Variable Account for the period quoted. Certain Underlying
Mutual Funds are not as old as some of the periods quoted, therefore, the cash
values may not be available for all of the periods shown.
THE PRECEDING FUND PERFORMANCE TABLE DISPLAYS HISTORICAL INVESTMENT RESULTS OF
THE UNDERLYING MUTUAL FUND SUB-ACCOUNTS OF THE VARIABLE ACCOUNT. THIS
INFORMATION MAY BE USEFUL IN HELPING POTENTIAL INVESTORS IN DECIDING WHICH
UNDERLYING MUTUAL FUND SUB-ACCOUNTS TO CHOOSE AND IN ASSESSING THE COMPETENCE OF
THE UNDERLYING MUTUAL FUNDS' INVESTMENT ADVISERS. THE PERFORMANCE FIGURES SHOWN
SHOULD BE CONSIDERED IN LIGHT OF THE INVESTMENT OBJECTIVES AND POLICIES,
CHARACTERISTICS AND QUALITY OF THE UNDERLYING PORTFOLIOS OF THE UNDERLYING
MUTUAL FUNDS, AND THE MARKET CONDITIONS DURING THE PERIODS OF TIME QUOTED. THE
PERFORMANCE FIGURES SHOULD NOT BE CONSIDERED AS ESTIMATES OR PREDICTIONS OF
FUTURE PERFORMANCE. INVESTMENT RETURN AND THE PRINCIPAL VALUE OF THE UNDERLYING
MUTUAL FUND SUB-ACCOUNTS ARE NOT GUARANTEED AND WILL FLUCTUATE SO THAT A POLICY
OWNER'S UNITS, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST.
53
<PAGE>
Independent Auditors' Report
The Board of Directors of Nationwide Life and Annuity Insurance Company
(formerly Financial Horizons Life Insurance Company) and
Contract Owners of Nationwide VL Separate Account-A
(formerly Financial Horizons VL Separate Account-1):
We 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, 1996, 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, 1996, by correspondence with the transfer agents of
the underlying mutual funds. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
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, 1996, 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 7, 1997
<PAGE>
NATIONWIDE VL SEPARATE ACCOUNT-A
(Formerly Financial Horizons VL Separate Account-1)
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY
December 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investments at market value:
Fidelity VIP - Growth Portfolio (FidVIPGr)
1,295 shares (cost $30,834) ............................. $ 40,328
Nationwide SAT - Capital Appreciation Fund (NSATCapAp)
96 shares (cost $1,141) ................................. 1,561
Nationwide SAT - Government Bond Fund (NSATGvtBd)
1,578 shares (cost $16,876) ............................. 17,425
Nationwide SAT - Money Market Fund (NSATMyMkt)
10,224 shares (cost $10,224) ............................ 10,224
Nationwide SAT - Total Return Fund (NSATTotRe)
863 shares (cost $9,232) ................................ 11,458
Neuberger & Berman - Balanced Portfolio (NBAMTBal)
724 shares (cost $11,022) ............................... 11,523
TCI Portfolios - TCI Advantage (TCIAdv)
60,866 shares (cost $312,528) ........................... 382,850
--------
Total assets 475,369
Accounts Payable 34
--------
Contract Owners' Equity $475,335
========
Contract owners' equity represented by: UNITS UNIT VALUE
----- ----------
Multiple Payment Contracts and Flexible Premium Contracts:
Fidelity VIP - Growth Portfolio ....................... 2,016 $20.008196 $ 40,337
Nationwide SAT - Capital Appreciation Fund ............ 83 18.410667 1,528
Nationwide SAT - Government Bond Fund ................. 1,132 15.383251 17,414
Nationwide SAT - Money Market Fund .................... 835 12.214743 10,199
Nationwide SAT - Total Return Fund .................... 523 21.988773 11,500
Neuberger & Berman - Balanced Portfolio ............... 729 15.775523 11,500
TCI Portfolios - TCI Advantage ........................ 413 14.210999 5,869
TCI Portfolios - TCI Advantage Initial Funding by
Depositor (note 1a) .................................. 25,000 15.079515 376,988
====== ========= ========
$475,335
========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
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, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Investment Activity:
Reinvested capital gains and
dividends............................ $ 31,785 $ 13,451 $ 12,249
Mortality and expense charges
(note 3)............................. (722) (621) (1,049)
-------- ------ --------
Net investment activity............ 31,063 12,830 11,200
-------- ------ --------
Proceeds from mutual fund shares
sold................................. 16,003 36,212 134,821
Cost of mutual fund shares sold....... (14,209) (35,326) (138,965)
-------- ------ --------
Realized gain (loss) on
investments....................... 1,794 886 (4,144)
Change in unrealized gain (loss)
on investments....................... 8,266 53,488 (7,482)
-------- ------- --------
Net gain (loss) on investments..... 10,060 54,374 (11,626)
-------- ------- --------
Net increase (decrease) in
contract owners' equity
resulting from operations... 41,123 67,204 (426)
-------- ------- --------
Equity Transactions:
Purchase payments received from
contract owners..................... 24,097 36,589 --
Surrenders (note 2d).................. (6,042) (164) (9,107)
Policy loans (net of repayments)
(note 4)............................ 3,498 (23,321) --
Deductions for surrender charges
(note 2d)........................... -- -- --
Redemptions to pay cost of insurance
charges and administrative charges
(notes 2b and 2c)................... (12,114) (12,670) (20,999)
-------- ------ --------
Net equity transactions......... 9,439 434 (30,106)
-------- ------ --------
Net change in contract owners' equity 50,562 67,638 (30,532)
Contract owners' equity beginning
of period............................. 424,773 357,135 387,667
-------- ------ --------
Contract owners' equity end of
period................................ $ 475,335 $424,773 $357,135
========= ======= =======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NATIONWIDE VL SEPARATE ACCOUNT-A
(Formerly Financial Horizons VL Separate Account-1)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Nature of Operations
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, Multiple Payment 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 (FidVIPGr)
Funds of the Nationwide Separate Account Trust (Nationwide SAT)
(managed for a fee by an affiliated investment advisor);
Nationwide SAT - Capital Appreciation Fund (NSATCapAp)
Nationwide SAT - Government Bond Fund (NSATGvtBd) Nationwide
SAT - Money Market Fund (NSATMyMkt) Nationwide SAT - Total
Return Fund (NSATTotRe)
Portfolio of the Neuberger &Berman Advisers Management Trust
(Neuberger & Berman);
Neuberger & Berman - Balanced Portfolio (NBAMTBal)
Portfolio of the TCI Portfolios, Inc. (TCIPortfolios); TCI
Portfolios - TCI Advantage (TCIAdv)
At December 31, 1996, 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, 1996. The cost of
investments sold is determined on the specific identification basis.
Investment transactions are accounted for on the trade date (date the
order to buy or sell is executed) and dividend income is recorded on
the ex-dividend date.
<PAGE>
(d) Federal Income Taxes
Operations of the Account form a part of, and are taxed with,
operations of the Company, which is taxed as a life insurance company
under the Internal Revenue Code.
The Company does not provide for income taxes within the Account.
Taxes are the responsibility of the contract owner upon termination or
withdrawal.
(e) Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles may require management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities,
if any, at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
(f) Reclassifications
Certain 1995 and 1994 amounts have been reclassified to conform with
the current year presentation.
(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 totaling less than $25,000 - $90/year
Purchase payments totaling $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) Surrender Charges
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.
<PAGE>
(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.
(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 contract owners' equity. This schedule is presented in
the following format:
o Beginning unit value - Jan. 1
o 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.)
o Unrealized gain (loss)
(This amount reflects the increase (decrease) in the unit value
resulting from the market appreciation (depreciation) of the
underlying mutual funds.)
o Asset charges
(This amount reflects the decrease in the unit value due to the
charges discussed in note 3.)
o Ending unit value - Dec. 31
o Percentage increase (decrease) in unit value.
<PAGE>
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, 1996, 1995 AND 1994
<TABLE>
<C> <C> <C> <C> <C> <C> <C> <C>
FIDVIPGR NSATCAPAP NSATGVTBD NSATMYMKT NSATTOTRE NBAMTBAL TCIADV TCIADV+
-------- --------- --------- --------- --------- -------- ------ -------
1996
Beginning unit value -
Jan. 1 $17.583952 14.713230 14.984933 11.714295 18.192762 14.878481 13.112917 13.802855
- -----------------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 1.263661 .766553 .930103 .596995 1.217547 2.281380 .945920 .998314
- -----------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 1.312893 3.061949 (.412550) .000000 2.737018 (1.262381) .260998 .278346
- -----------------------------------------------------------------------------------------------------------------------------------
Asset charges (.152310) (.131065) (.119235) (.096547) (.158554) (.121957) (.108836) .000000
- -----------------------------------------------------------------------------------------------------------------------------------
Ending unit value -
Dec. 31 $20.008196 18.410667 15.383251 12.214743 21.988773 15.775523 14.210999 15.079515
- -----------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 14% 25% 3% 4% 21% 6% 8% 9%
===================================================================================================================================
1995
Beginning unit value -
Jan. 1 $13.094007 11.465403 12.720514 11.176411 14.205723 12.118394 11.321934 11.822996
- -----------------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .072389 .653781 .903001 .629782 1.413734 .308616 .411556 .431938
- -----------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 4.544905 2.696528 1.472503 .000000 2.703396 2.562255 1.477165 1.547921
- -----------------------------------------------------------------------------------------------------------------------------------
Asset charges (.127349) (.102482) (.111085) (.091898) (.130091) (.110784) (.097738) .000000
- -----------------------------------------------------------------------------------------------------------------------------------
Ending unit value -
Dec. 31 $17.583952 14.713230 14.984933 11.714295 18.192762 14.878481 13.112917 13.802855
- -----------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 34% 28% 18% 5% 28% 23% 16% 17%
===================================================================================================================================
1994
Beginning unit value -
Jan. 1 $13.201441 11.662121 13.250482 10.845265 14.167308 12.640011 11.295721 11.701906
- -----------------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .794469 .184927 .833925 .419275 .717782 .493181 .297670 .309969
- -----------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (.799798) (.289863) (1.261429) .000000 (.565055) (.916591) (.181209) (.188879)
- -----------------------------------------------------------------------------------------------------------------------------------
Asset charges (.102105) (.091782) (.102464) (.088129) (.114312) (.098207) (.090248) .000000
- -----------------------------------------------------------------------------------------------------------------------------------
Ending unit value -
Dec. 31 $13.094007 11.465403 12.720514 11.176411 14.205723 12.118394 11.321934 11.822996
- -----------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (1)% (2)% (4)% 3% 0% (4)% 0% 1%
===================================================================================================================================
</TABLE>
*An annualized rate of return cannot be determined as asset charges do not
include the policy charges discussed in note 2.
+For Depositor, see note 1a.
See note 5.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Nationwide Life and Annuity Insurance Company:
We have audited the accompanying balance sheets of Nationwide Life and Annuity
Insurance Company, a wholly owned subsidiary of Nationwide Life Insurance
Company, as of December 31, 1996 and 1995, and the related statements of income,
shareholder's equity and cash flows for each of the years in the three-year
period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Nationwide Life and Annuity
Insurance Company as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
In 1994, the Company adopted the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities.
KPMG Peat Marwick LLP
Columbus, Ohio
January 31, 1997
<PAGE>
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Balance Sheets
December 31, 1996 and 1995
($000's omitted)
<TABLE>
<CAPTION>
Assets 1996 1995
------ ---------- -------
<S> <C> <C>
Investments (notes 4, 7 and 8):
Securities available-for-sale, at fair value:
Fixed maturity securities (cost $640,303 in 1996; $539,214 in 1995) $ 648,076 555,751
Equity securities (cost $10,854 in 1996; $10,256 in 1995) 12,254 11,407
Mortgage loans on real estate, net 150,997 104,736
Real estate, net 1,090 1,117
Policy loans 126 94
Short-term investments (note 12) 492 4,844
---------- -------
813,035 677,949
---------- -------
Cash 4,296 --
Accrued investment income 9,189 8,464
Deferred policy acquisition costs 16,168 23,405
Deferred federal income tax (note 6) 4,735 --
Other assets 32,747 208
Assets held in Separate Accounts (note 7) 486,251 257,556
---------- -------
$1,366,421 967,582
========== =======
Liabilities and Shareholder's Equity
------------------------------------
Future policy benefits and claims (notes 5 and 7) $ 80,720 621,280
Funds withheld under coinsurance agreement with affiliate (note 12) 679,571 --
Accrued federal income tax (note 6):
Current 7,914 708
Deferred -- 2,830
---------- -------
7,914 3,538
---------- -------
Other liabilities 27,928 5,031
Liabilities related to Separate Accounts (note 7) 486,251 257,556
---------- -------
1,282,384 887,405
---------- -------
Commitments (notes 7 and 8)
Shareholder's equity (notes 3, 4 and 11):
Capital shares, $40 par value. Authorized, issued and outstanding 66,000 shares 2,640 2,640
Additional paid-in capital 52,960 52,960
Retained earnings 25,209 20,123
Unrealized gains on securities available-for-sale, net 3,228 4,454
---------- -------
84,037 80,177
---------- -------
$1,366,421 967,582
========== =======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Statements of Income
Years ended December 31, 1996, 1995 and 1994
($000's omitted)
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Revenues (note 13):
Investment product and universal life insurance product policy charges $ 6,656 4,322 3,601
Traditional life insurance premiums 246 674 311
Net investment income (note 4) 51,045 49,108 45,030
Realized losses on investments (note 4) (3) (702) (625)
-------- ------- -------
57,944 53,402 48,317
-------- ------- -------
Benefits and expenses:
Benefits and claims 35,524 34,180 29,870
Amortization of deferred policy acquisition costs 7,380 5,508 6,940
Other operating expenses (note 12) 7,247 6,567 6,320
-------- ------- -------
50,151 46,255 43,130
-------- ------- -------
Income before federal income tax expense 7,793 7,147 5,187
-------- ------- -------
Federal income tax expense (benefit) (note 6):
Current 9,612 2,012 2,103
Deferred (6,905) 361 (244)
-------- ------- -------
2,707 2,373 1,859
-------- ------- -------
Net income $ 5,086 4,774 3,328
======== ======= =======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Statements of Shareholder's Equity
Years ended December 31, 1996, 1995 and 1994
($000's omitted)
<TABLE>
<CAPTION>
Unrealized
gains (losses)
Additional on securities Total
Capital paid-in Retained available-for- shareholder's
shares capital earnings sale, net equity
------- ---------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C>
1994:
Balance, beginning of year $2,640 43,960 12,021 38 58,659
Capital contribution -- 9,000 -- -- 9,000
Net income -- -- 3,328 -- 3,328
Adjustment for change in accounting for
certain investments in debt and equity
securities, net (note 3) -- -- -- 4,698 4,698
Unrealized losses on securities available-
for-sale, net -- -- -- (8,439) (8,439)
------ ------ ------ ------ -------
Balance, end of year $2,640 52,960 15,349 (3,703) 67,246
====== ====== ====== ====== =======
1995:
Balance, beginning of year 2,640 52,960 15,349 (3,703) 67,246
Net income -- -- 4,774 -- 4,774
Unrealized gains on securities available-
for-sale, net -- -- -- 8,157 8,157
------ ------ ------ ------ -------
Balance, end of year $2,640 52,960 20,123 4,454 80,177
====== ====== ====== ====== =======
1996:
Balance, beginning of year 2,640 52,960 20,123 4,454 80,177
Net income -- -- 5,086 -- 5,086
Unrealized losses on securities available-
for-sale, net -- -- -- (1,226) (1,226)
------ ------ ------ ------ -------
Balance, end of year $2,640 52,960 25,209 3,228 84,037
====== ====== ====== ====== =======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
($000's omitted)
<TABLE>
<CAPTION>
1996 1995 1994
--------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 5,086 4,774 3,328
Adjustments to reconcile net income to net cash provided by
operating activities:
Capitalization of deferred policy acquisition costs (19,987) (6,754) (7,283)
Amortization of deferred policy acquisition costs 7,380 5,508 6,940
Commission and expense allowances under coinsurance
agreement with affiliate (note 12) 26,473 -- --
Amortization and depreciation 1,721 878 473
Realized losses on invested assets, net 3 702 625
Deferred federal income tax (benefit) expense (6,905) 361 (244)
Increase in accrued investment income (725) (423) (750)
(Increase) decrease in other assets (32,539) 62 (126)
(Decrease) increase in policy liabilities and funds withheld
on coinsurance agreement with affiliate (7,101) 627 926
Increase (decrease) in accrued federal income tax payable 7,206 698 (254)
Increase (decrease) in other liabilities 22,897 368 (505)
--------- ------- -------
Net cash provided by operating activities 3,509 6,801 3,130
--------- ------- -------
Cash flows from investing activities:
Proceeds from maturity of securities available-for-sale 73,966 41,729 24,850
Proceeds from sale of securities available-for-sale 2,480 3,070 13,170
Proceeds from maturity of fixed maturity securities held-to-maturity -- 11,251 8,483
Proceeds from repayments of mortgage loans on real estate 10,975 8,673 5,733
Proceeds from sale of real estate -- 655 --
Proceeds from repayments of policy loans 23 50 2
Cost of securities available-for-sale acquired (179,671) (79,140) (94,130)
Cost of fixed maturity securities held-to maturity acquired -- (8,000) (15,544)
Cost of mortgage loans on real estate acquired (57,395) (18,000) (11,000)
Cost of real estate acquired -- (10) (52)
Policy loans issued (55) (66) (80)
Short-term investments, net 4,352 (4,479) 1,407
--------- ------- -------
Net cash used in investing activities (145,325) (44,267) (67,161)
--------- ------- -------
Cash flows from financing activities:
Proceeds from capital contribution -- -- 9,000
Increase in investment product and universal life insurance
product account balances 235,286 79,523 95,254
Decrease in investment product and universal life insurance
product account balances (89,174) (42,057) (40,223)
--------- ------- -------
Net cash provided by financing activities 146,112 37,466 64,031
--------- ------- -------
Net increase in cash 4,296 -- --
Cash, beginning of year -- -- --
--------- ------- -------
Cash, end of year $ 4,296 -- --
========= ======= =======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements
December 31, 1996, 1995 and 1994
($000's omitted)
(1) Organization and Description of Business
Nationwide Life and Annuity Insurance Company (the Company) is a wholly
owned subsidiary of Nationwide Life Insurance Company (NLIC).
The Company sells primarily fixed and variable rate annuities through
banks and other financial institutions. In addition, the Company sells
universal life and other interest-sensitive life insurance products and is
subject to competition from other financial services providers throughout
the United States. The Company is subject to regulation by the Insurance
Departments of states in which it is licensed, and undergoes periodic
examinations by those departments.
The following is a description of the most significant risks facing life
insurers and how the Company mitigates those risks:
Legal/Regulatory Risk is the risk that changes in the legal or
regulatory environment in which an insurer operates will create
additional expenses not anticipated by the insurer in pricing its
products. That is, regulatory initiatives, new legal theories or
insurance company insolvencies through guaranty fund assessments may
create costs for the insurer beyond those currently recorded in the
financial statements. The Company mitigates this risk by operating
throughout the United States, thus reducing its exposure to any single
jurisdiction, and also by employing underwriting practices which
identify and minimize the adverse impact of this risk.
Credit Risk is the risk that issuers of securities owned by the Company
or mortgagors on mortgage loans on real estate owned by the Company
will default. The Company minimizes this risk by adhering to a
conservative investment strategy, by maintaining credit and collection
policies and by providing for any amounts deemed uncollectible.
Interest Rate Risk is the risk that interest rates will change and
cause a decrease in the value of an insurer's investments. This change
in rates may cause certain interest-sensitive products to become
uncompetitive or may cause disintermediation. The Company mitigates
this risk by charging fees for non-conformance with certain policy
provisions, by offering products that transfer this risk to the
purchaser, and/or by attempting to match the maturity schedule of its
assets with the expected payouts of its liabilities. To the extent that
liabilities come due more quickly than assets mature, an insurer would
have to borrow funds or sell assets prior to maturity and potentially
recognize a gain or loss.
(2) Summary of Significant Accounting Policies
The significant accounting policies followed by the Company that
materially affect financial reporting are summarized below. The
accompanying financial statements have been prepared in accordance with
generally accepted accounting principles (GAAP) which differ from
statutory accounting practices prescribed or permitted by regulatory
authorities. An Annual Statement, filed with the Department of Insurance
of the State of Ohio (the Department), is prepared on the basis of
accounting practices prescribed or permitted by the Department. Prescribed
statutory accounting practices include a variety of publications of the
National Association of Insurance Commissioners (NAIC), as well as state
laws, regulations and general administrative rules. Permitted statutory
accounting practices encompass all accounting practices not so prescribed.
The Company has no material permitted statutory accounting practices.
In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosures of contingent assets and liabilities as of
the date of the financial statements and the reported amounts of revenues
and expenses for the reporting period. Actual results could differ
significantly from those estimates.
<PAGE>
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
The most significant estimates include those used in determining deferred
policy acquisition costs, valuation allowances for mortgage loans on real
estate and real estate investments and the liability for future policy
benefits and claims. Although some variability is inherent in these
estimates, management believes the amounts provided are adequate.
(a) Valuation of Investments and Related Gains and Losses
The Company is required to classify its fixed maturity securities and
equity securities as either held-to-maturity, available-for-sale or
trading. Fixed maturity securities are classified as held-to-maturity
when the Company has the positive intent and ability to hold the
securities to maturity and are stated at amortized cost. Fixed maturity
securities not classified as held-to-maturity and all equity securities
are classified as available-for-sale and are stated at fair value, with
the unrealized gains and losses, net of adjustments to deferred policy
acquisition costs and deferred federal income tax, reported as a
separate component of shareholder's equity. The adjustment to deferred
policy acquisition costs represents the change in amortization of
deferred policy acquisition costs that would have been required as a
charge or credit to operations had such unrealized amounts been
realized. The Company has no fixed maturity securities classified as
held-to-maturity or trading as of December 31, 1996 or 1995.
Mortgage loans on real estate are carried at the unpaid principal
balance less valuation allowances. The Company provides valuation
allowances for impairments of mortgage loans on real estate based on a
review by portfolio managers. The measurement of impaired loans is
based on the present value of expected future cash flows discounted at
the loan's effective interest rate or, as a practical expedient, at the
fair value of the collateral, if the loan is collateral dependent.
Loans in foreclosure and loans considered to be impaired are placed on
non-accrual status. Interest received on non-accrual status mortgage
loans on real estate are included in interest income in the period
received.
Real estate is carried at cost less accumulated depreciation and
valuation allowances. Other long-term investments are carried on the
equity basis, adjusted for valuation allowances. Impairment losses are
recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount.
Realized gains and losses on the sale of investments are determined on
the basis of specific security identification. Estimates for valuation
allowances and other than temporary declines are included in realized
gains and losses on investments.
(b) Revenues and Benefits
Investment Products and Universal Life Insurance Products: Investment
products consist primarily of individual variable and fixed annuities
and annuities without life contingencies. Universal life insurance
products include universal life insurance, variable universal life
insurance and other interest-sensitive life insurance policies.
Revenues for investment products and universal life insurance products
consist of net investment income, asset fees, cost of insurance, policy
administration and surrender charges that have been earned and assessed
against policy account balances during the period. Policy benefits and
claims that are charged to expense include interest credited to policy
account balances and benefits and claims incurred in the period in
excess of related policy account balances.
Traditional Life Insurance Products: Traditional life insurance
products include those products with fixed and guaranteed premiums and
benefits and consist primarily of certain annuities with life
contingencies. Premiums for traditional life insurance products are
recognized as revenue when due. Benefits and expenses are associated
with earned premiums so as to result in recognition of profits over the
life of the contract. This association is accomplished by the provision
for future policy benefits and the deferral and amortization of policy
acquisition costs.
<PAGE>
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
(c) Deferred Policy Acquisition Costs
The costs of acquiring new business, principally commissions, certain
expenses of the policy issue and underwriting department and certain
variable agency expenses have been deferred. For investment products
and universal life insurance products, deferred policy acquisition
costs are being amortized with interest over the lives of the policies
in relation to the present value of estimated future gross profits from
projected interest margins, asset fees, cost of insurance, policy
administration and surrender charges. For years in which gross profits
are negative, deferred policy acquisition costs are amortized based on
the present value of gross revenues. Deferred policy acquisition costs
are adjusted to reflect the impact of unrealized gains and losses on
fixed maturity securities available-for-sale as described in note 2(a).
(d) Separate Accounts
Separate Account assets and liabilities represent contractholders'
funds which have been segregated into accounts with specific investment
objectives. The investment income and gains or losses of these accounts
accrue directly to the contractholders. The activity of the Separate
Accounts is not reflected in the statements of income and cash flows
except for the fees the Company receives.
(e) Future Policy Benefits
Future policy benefits for investment products in the accumulation
phase, universal life insurance and variable universal life insurance
policies have been calculated based on participants' contributions plus
interest credited less applicable contract charges.
(f) Federal Income Tax
The Company files a consolidated federal income tax return with
Nationwide Mutual Insurance Company (NMIC). The members of the
consolidated tax return group have a tax sharing agreement which
provides, in effect, for each member to bear essentially the same
federal income tax liability as if separate tax returns were filed.
The Company utilizes the asset and liability method of accounting for
income tax. Under this method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered
or settled. Under this method, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. Valuation allowances are
established when necessary to reduce the deferred tax assets to the
amounts expected to be realized.
(g) Reinsurance Ceded
Reinsurance premiums ceded and reinsurance recoveries on benefits and
claims incurred are deducted from the respective income and expense
accounts. Assets and liabilities related to reinsurance ceded are
reported on a gross basis.
(h) Statements of Cash Flows
The Company routinely invests its available cash balances in highly
liquid, short-term investments with affiliated companies. See note 12.
As such, the Company had no cash balance as of December 31, 1995 and
1994.
<PAGE>
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
(i) Reclassification
Certain items in the 1995 and 1994 financial statements have been
reclassified to conform to the 1996 presentation.
(3) Change in Accounting Principle
Effective January 1, 1994, the Company changed its method of accounting
for certain investments in debt and equity securities in connection with
the issuance of Statement of Financial Accounting Standards (SFAS) No. 115
Accounting for Certain Investments in Debt and Equity Securities. As of
January 1, 1994, the Company classified fixed maturity securities with
amortized cost and fair value of $380,974 and $399,556, respectively, as
available-for-sale and recorded the securities at fair value. Previously,
these securities were recorded at amortized cost. The effect as of January
1, 1994, has been recorded as a direct credit to shareholder's equity as
follows:
<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>
(4) Investments
The amortized cost and estimated fair value of securities
available-for-sale were as follows as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
1996: cost gains losses fair value
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Fixed maturity securities:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies $ 3,695 7 (78) 3,624
Obligations of states and political subdivisions 269 -- (2) 267
Debt securities issued by foreign governments 6,129 133 (8) 6,254
Corporate securities 393,371 5,916 (1,824) 397,463
Mortgage-backed securities 236,839 4,621 (992) 240,468
-------- ------- -------- -------
Total fixed maturity securities 640,303 10,677 (2,904) 648,076
Equity securities 10,854 1,540 (140) 12,254
-------- ------- -------- -------
$651,157 12,217 (3,044) 660,330
======== ======= ======== =======
1995:
Fixed maturity securities:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies $ 3,492 18 -- 3,510
Obligations of states and political subdivisions 271 -- (1) 270
Debt securities issued by foreign governments 6,177 301 -- 6,478
Corporate securities 332,425 10,116 (925) 341,616
Mortgage-backed securities 196,849 7,649 (621) 203,877
-------- ------- -------- -------
Total fixed maturity securities 539,214 18,084 (1,547) 555,751
Equity securities 10,256 1,151 -- 11,407
-------- ------- -------- -------
$549,470 19,235 (1,547) 567,158
======== ======= ======== =======
</TABLE>
<PAGE>
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
The amortized cost and estimated fair value of fixed maturity securities
available-for-sale as of December 31, 1996, by contractual maturity, are
shown below. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Estimated
cost fair value
--------- ----------
<S> <C> <C>
Fixed maturity securities available-for-sale:
Due in one year or less $ 43,219 43,441
Due after one year through five years 198,045 200,453
Due after five years through ten years 121,820 122,595
Due after ten years 40,380 41,119
-------- -------
403,464 407,608
Mortgage-backed securities 236,839 240,468
-------- -------
$640,303 648,076
======== =======
</TABLE>
The components of unrealized gains on securities available-for-sale, net,
were as follows as of December 31:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Gross unrealized gains $ 9,173 17,688
Adjustment to deferred policy acquisition
costs (4,207) (10,836)
Deferred federal income tax (1,738) (2,398)
------- -------
$ 3,228 4,454
======= =======
</TABLE>
An analysis of the change in gross unrealized gains (losses) on securities
available-for-sale and fixed maturity securities held-to-maturity follows
for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------ -------
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturity securities $ (8,764) 30,647 (32,692)
Equity securities 249 1,283 (190)
Fixed maturity securities
held-to-maturity -- 3,941 (8,407)
-------- ------ -------
$ (8,515) 35,871 (41,289)
======== ====== =======
</TABLE>
Proceeds from the sale of securities available-for-sale during 1996, 1995
and 1994 were $2,480, $3,070 and $13,170, respectively. During 1996, gross
gains of $181 ($64 and $373 in 1995 and 1994, respectively) and no gross
losses ($6 and $73 in 1995 and 1994, respectively) were realized on those
sales.
During 1995, the Company transferred fixed maturity securities classified
as held-to-maturity with amortized cost of $2,000 to available-for-sale
securities due to evidence of a significant deterioration in the issuer's
creditworthiness. The transfer of those fixed maturity securities resulted
in a gross unrealized loss of $600.
As permitted by the Financial Accounting Standards Board's Special Report,
A Guide to Implementation of Statement 115 on Accounting for Certain
Investments in Debt and Equity Securities, issued in November 1995, the
Company transferred all of its fixed maturity securities previously
classified as held-to-maturity to available-for-sale. As of December 14,
1995, the date of transfer, the fixed maturity securities had amortized
cost of $77,405, resulting in a gross unrealized gain of $1,709.
The Company has no investments which were non-income producing for the
twelve month period preceding December 31, 1996 ($996 of fixed maturity
securities in 1995).
<PAGE>
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
Real estate is presented at cost less accumulated depreciation of $108 as
of December 31, 1996 ($81 as of December 31, 1995) and valuation
allowances of $229 as of December 31, 1996 ($229 as of December 31, 1995).
The recorded investment of mortgage loans on real estate considered to be
impaired (under SFAS No. 114 - Accounting by Creditors for Impairment of a
Loan as amended by SFAS No. 118 - Accounting by Creditors for Impairment
of a Loan Income Recognition and Disclosure) as of December 31, 1996 was
$955 ($966 as of December 31, 1995), which includes $955 (none as of
December 31, 1995) of impaired mortgage loans on real estate for which the
related valuation allowance was $184 (none as of December 31, 1995) and
none ($966 as of December 31, 1995) of impaired mortgage loans on real
estate for which there was no valuation allowance. During 1996, the
average recorded investment in impaired mortgage loans on real estate was
approximately $964 ($242 in 1995) and interest income recognized on those
loans was $16 (none in 1995), which is equal to interest income recognized
using a cash-basis method of income recognition.
Activity in the valuation allowance account for mortgage loans on real
estate is summarized for the year ended December 31, 1996:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Allowance, beginning of year $750 860
Additional charged to operations 184 --
Reduction of the allowance credited
to operations -- (110)
---- ----
Allowance, end of year $934 750
==== ====
</TABLE>
An analysis of investment income by investment type follows for the years
ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------ ------
<S> <C> <C> <C>
Gross investment income:
Securities available-for-sale:
Fixed maturity securities $40,552 35,093 36,720
Equity securities 598 713 16
Fixed maturity securities
held-to-maturity -- 4,530 540
Mortgage loans on real estate 9,991 9,106 8,437
Real estate 214 273 175
Short-term investments 507 348 207
Other 57 41 19
------- ------ ------
Total investment income 51,919 50,104 46,114
Less: investment expenses 874 996 1,084
------- ------ ------
Net investment income $51,045 49,108 45,030
======= ====== ======
</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>
1996 1995 1994
----- ---- ----
<S> <C> <C> <C>
Fixed maturity securities available-for-sale $ 181 (822) 260
Mortgage loans on real estate (184) 110 (832)
Real estate and other -- 10 (53)
----- ---- ----
$ (3) (702) (625)
===== ==== ====
</TABLE>
Fixed maturity securities with an amortized cost of $3,403 and $2,806 as
of December 31, 1996 and 1995, respectively, were on deposit with various
regulatory agencies as required by law.
<PAGE>
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
(5) Future Policy Benefits
The liability for future policy benefits for investment contracts has been
established based on policy terms, interest rates and various contract
provisions. The average interest rate credited on investment product
policies was approximately 5.6%, 5.6% and 5.3% for the years ended
December 31, 1996, 1995 and 1994, respectively.
(6) Federal Income Tax
The tax effects of temporary differences that give rise to significant
components of the net deferred tax asset (liability) as of December 31,
1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
Deferred tax assets:
Liabilities in Separate Accounts $ 5,311 3,445
Future policy benefits 1,070 5,249
Mortgage loans on real estate and real estate 407 338
Other assets and other liabilities 3,836 708
-------- -------
Total gross deferred tax assets 10,624 9,740
-------- -------
Deferred tax liabilities:
Fixed maturity securities 3,268 6,308
Deferred policy acquisition costs 2,131 6,262
Equity securities 490 --
-------- -------
Total gross deferred tax liabilities 5,889 12,570
-------- -------
$ 4,735 (2,830)
======== =======
</TABLE>
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion of the
total gross deferred tax assets will not be realized. All future
deductible amounts can be offset by future taxable amounts or recovery of
federal income tax paid within the statutory carryback period. The Company
has determined that valuation allowances are not necessary as of December
31, 1996, 1995 and 1994 based on its analysis of future deductible
amounts.
Total federal income tax expense for the years ended December 31, 1996,
1995 and 1994 differs from the amount computed by applying the U.S.
federal income tax rate to income before tax as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------------- ---------------- ----------------
Amount % Amount % Amount %
------- ---- ------- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Computed (expected) tax expense $ 2,728 35.0 $ 2,501 35.0 $ 1,815 35.0
Tax exempt interest and dividends
received deduction (175) (2.3) (150) (2.1) (50) (1.0)
Other, net 154 2.0 22 0.3 94 1.8
------- ---- ------- ---- ------- ----
Total (effective rate of each year) $ 2,707 34.7 $ 2,373 33.2 $ 1,859 35.8
======= ==== ======= ==== ======= ====
</TABLE>
Total federal income tax paid was $2,335, $1,314 and $2,357 during the
years ended December 31, 1996, 1995 and 1994, respectively.
<PAGE>
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
(7) Disclosures about Fair Value of Financial Instruments
SFAS No. 107 - Disclosures about Fair Value of Financial Instruments (SFAS
107) requires disclosure of fair value information about existing on and
off-balance sheet financial instruments. SFAS 107 defines the fair value
of a financial instrument as the amount at which the financial instrument
could be exchanged in a current transaction between willing parties. In
cases where quoted market prices are not available, fair value is based on
estimates using present value or other valuation techniques.
These techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows. Although
fair value estimates are calculated using assumptions that management
believes are appropriate, changes in assumptions could cause these
estimates to vary materially. In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent markets
and, in many cases, could not be realized in the immediate settlement of
the instruments. SFAS 107 excludes certain assets and liabilities from its
disclosure requirements. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Company.
Although insurance contracts, other than policies such as annuities that
are classified as investment contracts, are specifically exempted from
SFAS 107 disclosures, estimated fair value of policy reserves on life
insurance contracts is provided to make the fair value disclosures more
meaningful.
The tax ramifications of the related unrealized gains and losses can have
a significant effect on fair value estimates and have not been considered
in the estimates.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures:
Cash, short-term investments and policy loans: The carrying amount
reported in the balance sheets for these instruments approximates their
fair value.
Fixed maturity and equity securities: Fair value for fixed maturity
securities is based on quoted market prices, where available. For fixed
maturity securities not actively traded, fair value is estimated using
values obtained from independent pricing services or, in the case of
private placements, is estimated by discounting expected future cash
flows using a current market rate applicable to the yield, credit
quality and maturity of the investments. The fair value for equity
securities is based on quoted market prices.
Separate Account assets and liabilities: The fair value of assets held
in Separate Accounts is based on quoted market prices. The fair value
of liabilities related to Separate Accounts is the amount payable on
demand, which includes certain surrender charges.
Mortgage loans on real estate: The fair value for mortgage loans on
real estate is estimated using discounted cash flow analyses, using
interest rates currently being offered for similar loans to borrowers
with similar credit ratings. Loans with similar characteristics are
aggregated for purposes of the calculations. Fair value for mortgages
in default is the estimated fair value of the underlying collateral.
Investment contracts: Fair value for the Company's liabilities under
investment type contracts is disclosed using two methods. For
investment contracts without defined maturities, fair value is the
amount payable on demand. For investment contracts with known or
determined maturities, fair value is estimated using discounted cash
flow analysis. Interest rates used are similar to currently offered
contracts with maturities consistent with those remaining for the
contracts being valued.
Policy reserves on life insurance contracts: The estimated fair value
is the amount payable on demand. Also included are disclosures for the
Company's limited payment policies, which the Company has used
discounted cash flow analyses similar to those used for investment
contracts with known maturities to estimate fair value.
<PAGE>
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
Commitments to extend credit: Commitments to extend credit have nominal
value because of the short-term nature of such commitments. See note 8.
Carrying amount and estimated fair value of financial instruments subject
to SFAS 107 and policy reserves on life insurance contracts were as
follows as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
----------------------- -----------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Assets
Investments:
Securities available-for-sale:
Fixed maturity securities $648,076 648,076 555,751 555,751
Equity securities 12,254 12,254 11,407 11,407
Mortgage loans on real estate, net 150,997 152,496 104,736 111,501
Policy loans 126 126 94 94
Short-term investments 492 492 4,844 4,844
Cash 4,296 4,296 -- --
Assets held in Separate Accounts 486,251 486,251 257,556 257,556
Liabilities
Investment contracts 75,417 72,262 616,984 601,582
Policy reserves on life insurance contracts 5,303 5,390 4,296 4,520
Liabilities related to Separate Accounts 486,251 471,125 257,556 246,996
</TABLE>
(8) Additional Financial Instruments Disclosures
Financial Instruments with Off-Balance-Sheet Risk: The Company is a party
to financial instruments with off-balance-sheet risk in the normal course
of business through management of its investment portfolio. These
financial instruments include commitments to extend credit in the form of
loans. These instruments involve, to varying degrees, elements of credit
risk in excess of amounts recognized on the balance sheets.
Commitments to fund fixed rate mortgage loans on real estate are
agreements to lend to a borrower, and are subject to conditions
established in the contract. Commitments generally have fixed expiration
dates or other termination clauses and may require payment of a deposit.
Commitments extended by the Company are based on management's case-by-case
credit evaluation of the borrower and the borrower's loan collateral. The
underlying mortgage property represents the collateral if the commitment
is funded. The Company's policy for new mortgage loans on real estate is
to lend no more than 75% of collateral value. Should the commitment be
funded, the Company's exposure to credit loss in the event of
nonperformance by the borrower is represented by the contractual amounts
of these commitments less the net realizable value of the collateral. The
contractual amounts also represent the cash requirements for all unfunded
commitments. Commitments on mortgage loans on real estate of $19,500
extending into 1997 were outstanding as of December 31, 1996.
Significant Concentrations of Credit Risk: The Company grants mainly
commercial mortgage loans on real estate to customers throughout the
United States. The Company has a diversified portfolio with no more than
31% (28% in 1995) in any geographic area and no more than 5% (15% in 1995)
with any one borrower.
<PAGE>
NATIONWIDE LIFE AND ANNUITY 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, 1996 and 1995:
<TABLE>
<CAPTION>
Apartment
Office Warehouse Retail & other Total
-------- --------- ------ --------- --------
<S> <C> <C> <C> <C> <C>
1996:
East North Central $ 1,968 2,324 8,203 7,867 20,362
East South Central -- -- 1,828 11,591 13,419
Mountain -- 1,394 -- 1,986 3,380
Middle Atlantic 2,817 -- 883 1,990 5,690
New England 1,993 868 1,944 -- 4,805
Pacific 3,883 15,779 10,093 9,273 39,028
South Atlantic 9,926 -- 16,209 20,520 46,655
West North Central 2,000 -- -- -- 2,000
West South Central 3,824 -- 1,995 10,847 16,666
-------- ------ ------ ------- --------
$ 26,411 20,365 41,155 64,074 152,005
======== ====== ====== =======
Less valuation allowances and unamortized discount 1,008
--------
Total mortgage loans on real estate, net $150,997
========
1995:
East North Central $ 1,854 878 8,263 3,940 14,935
East South Central -- -- 1,877 11,753 13,630
Mountain -- -- -- 1,964 1,964
Middle Atlantic 882 1,820 901 -- 3,603
New England -- 895 1,963 -- 2,858
Pacific 1,923 8,600 8,211 8,838 27,572
South Atlantic 3,953 -- 9,928 15,797 29,678
West North Central -- 1,500 -- -- 1,500
West South Central 3,881 969 -- 4,932 9,782
-------- ------ ------ ------- --------
$ 12,493 14,662 31,143 47,224 105,522
======== ====== ====== =======
Less valuation allowances and unamortized discount 786
--------
Total mortgage loans on real estate, net $104,736
========
</TABLE>
(9) Pension Plan
The Company is a participant, together with other affiliated companies, in
a pension plan covering all employees who have completed at least one
thousand hours of service within a twelve-month period and who have met
certain age requirements. Benefits are based upon the highest average
annual salary of a specified number of consecutive years of the last ten
years of service. The Company funds an allocation of pension costs accrued
for employees of affiliates whose work efforts benefit the Company.
Effective January 1, 1995, the plan was amended to provide enhanced
benefits for participants who met certain eligibility requirements and
elected early retirement no later than March 15, 1995. The entire cost of
the enhanced benefit was borne by NMIC and certain of its property and
casualty insurance company affiliates.
Effective December 31, 1995, the Nationwide Insurance Companies and
Affiliates Retirement Plan was merged with the Farmland Mutual Insurance
Company Employees' Retirement Plan and the Wausau Insurance Companies
Pension Plan to form the Nationwide Insurance Enterprise Retirement Plan.
Immediately prior to the merger, the plans were amended to provide
consistent benefits for service after January 1, 1996. These amendments
had no significant impact on the accumulated benefit obligation or
projected benefit obligation as of December 31, 1995.
<PAGE>
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
Pension costs charged to operations by the Company during the years ended
December 31, 1996, 1995 and 1994 were $189, $214 and $265, respectively.
The net periodic pension cost for the Nationwide Insurance Enterprise
Retirement Plan as a whole for the year ended December 31, 1996 and for
the Nationwide Insurance Companies and Affiliates Retirement Plan as a
whole for the years ended December 31, 1995 and 1994 follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- -------- -------
<S> <C> <C> <C>
Service cost (benefits earned during the period) $ 75,466 64,524 64,740
Interest cost on projected benefit obligation 105,511 95,283 73,951
Actual return on plan assets (210,583) (249,294) (21,495)
Net amortization and deferral 101,795 143,353 (62,150)
--------- -------- -------
$ 72,189 53,866 55,046
========= ======== =======
</TABLE>
Basis for measurements, net periodic pension cost:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Weighted average discount rate 6.00% 7.50% 5.75%
Rate of increase in future compensation levels 4.25% 6.25% 4.50%
Expected long-term rate of return on plan assets 6.75% 8.75% 7.00%
</TABLE>
Information regarding the funded status of the Nationwide Insurance
Enterprise Retirement Plan as a whole as of December 31, 1996 and 1995
follows:
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Accumulated benefit obligation:
Vested $ 1,338,554 1,236,730
Nonvested 11,149 26,503
----------- ----------
$ 1,349,703 1,263,233
=========== ==========
Net accrued pension expense:
Projected benefit obligation for services rendered to date $ 1,847,828 1,780,616
Plan assets at fair value 1,947,933 1,738,004
----------- ----------
Plan assets in excess of (less than) projected benefit
obligation 100,105 (42,612)
Unrecognized prior service cost 37,870 42,845
Unrecognized net gains (201,952) (63,130)
Unrecognized net asset at transition 37,158 41,305
----------- ----------
$ (26,819) (21,592)
=========== ==========
</TABLE>
Basis for measurements, funded status of plan:
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Weighted average discount rate 6.50% 6.00%
Rate of increase in future compensation levels 4.75% 4.25%
</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.
<PAGE>
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
(10) Postretirement Benefits Other Than Pensions
In addition to the defined benefit pension plan, the Company, together
with other affiliated companies, participates in life and health care
defined benefit plans for qualifying retirees. Postretirement life and
health care benefits are contributory and generally available to full time
employees who have attained age 55 and have accumulated 15 years of
service with the Company after reaching age 40. Postretirement health care
benefit contributions are adjusted annually and contain cost-sharing
features such as deductibles and coinsurance. In addition, there are caps
on the Company's portion of the per-participant cost of the postretirement
health care benefits. These caps can increase annually, but not more than
three percent. The Company's policy is to fund the cost of health care
benefits in amounts determined at the discretion of management. Plan
assets are invested primarily in group annuity contracts of NLIC.
The Company elected to immediately recognize its estimated accumulated
postretirement benefit obligation, however, certain affiliated companies
elected to amortize their initial transition obligation over periods
ranging from 10 to 20 years.
The Company's accrued postretirement benefit expense as of December 31,
1996 and 1995 was $840 and $808, respectively, and the net periodic
postretirement benefit cost (NPPBC) for 1996, 1995 and 1994 was $78, $66
and $119, respectively.
The amount of NPPBC for the plan as a whole for the years ended December
31, 1996, 1995 and 1994 was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Service cost (benefits attributed to employee service during the year) $ 6,541 6,235 8,586
Interest cost on accumulated postretirement benefit obligation 13,679 14,151 14,011
Actual return on plan assets (4,348) (2,657) (1,622)
Amortization of unrecognized transition obligation of affiliates 173 2,966 568
Net amortization and deferral 1,830 (1,619) 1,622
-------- ------- -------
$ 17,875 19,076 23,165
======== ======= =======
</TABLE>
Information regarding the funded status of the plan as a whole as of
December 31, 1996 and 1995 follows:
<TABLE>
<CAPTION>
1996 1995
--------- --------
<S> <C> <C>
Accrued postretirement benefit expense:
Retirees $ 92,954 88,680
Fully eligible, active plan participants 23,749 28,793
Other active plan participants 83,986 90,375
--------- --------
Accumulated postretirement benefit obligation (APBO) 200,689 207,848
Plan assets at fair value 63,044 54,325
--------- --------
Plan assets less than accumulated postretirement benefit obligation (137,645) (153,523)
Unrecognized transition obligation of affiliates 1,654 1,827
Unrecognized net gains (23,225) (1,038)
--------- --------
$(159,216) (152,734)
========= ========
</TABLE>
<PAGE>
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
Actuarial assumptions used for the measurement of the APBO as of December
31, 1996 and 1995 and the NPPBC for 1996, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1996 1996 1995 1995 1994
APBO NPPBC APBO NPPBC NPPBC
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Discount rate 7.25% 6.65% 6.75% 8.00% 7.00%
Long-term rate of return on plan
assets, net of tax -- 4.80% -- 8.00% N/A
Assumed health care cost trend rate:
Initial rate 11.00% 11.00% 11.00% 10.00% 12.00%
Ultimate rate 6.00% 6.00% 6.00% 6.00% 6.00%
Uniform declining period 12 Years 12 Years 12 Years 12 Years 12 Years
</TABLE>
The health care cost trend rate assumption has an effect on the amounts
reported. For the plan as a whole, a one percentage point increase in the
assumed health care cost trend rate would increase the APBO as of December
31, 1996 by $701 and the NPPBC for the year ended December 31, 1996 by
$83.
(11) Regulatory Risk-Based Capital and Dividend Restriction
Ohio, the Company's state of domicile, imposes minimum risk-based capital
requirements that were developed by the NAIC. The formulas for determining
the amount of risk-based capital specify various weighting factors that
are applied to financial balances or various levels of activity based on
the perceived degree of risk. Regulatory compliance is determined by a
ratio of the company's regulatory total adjusted capital, as defined by
the NAIC, to its authorized control level risk-based capital, as defined
by the NAIC. Companies below specific trigger points or ratios are
classified within certain levels, each of which requires specified
corrective action. The Company exceeds the minimum risk-based capital
requirements.
The statutory capital shares and surplus of the Company as reported to
regulatory authorities as of December 31, 1996, 1995 and 1994 was $71,390,
$54,978 and $48,947, respectively. The statutory net income of the Company
as reported to regulatory authorities for the years ended December 31,
1996, 1995 and 1994 was $670, $8,023 and $6,173, respectively.
The Company is limited in the amount of shareholder dividends it may pay
without prior approval by the Department. As of December 31, 1996, the
maximum amount available for dividend payment from the Company to its
shareholder without prior approval of the Department is $7,139.
The Company currently does not expect such regulatory requirements to
impair its ability to pay operating expenses and stockholder dividends in
the future.
(12) Transactions With Affiliates
The Company leases office space from NMIC and certain of its subsidiaries.
For the years ended December 31, 1996, 1995 and 1994, the Company made
lease payments to NMIC and its subsidiaries of $410, $287 and $341,
respectively.
<PAGE>
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
Pursuant to a cost sharing agreement among NMIC and certain of its direct
and indirect subsidiaries, including the Company, NMIC provides certain
operational and administrative services, such as sales support,
advertising, personnel and general management services, to those
subsidiaries. Expenses covered by this agreement are subject to allocation
among NMIC, the Company and other affiliates. Amounts allocated to the
Company were $2,682, $2,596 and $2,503 in 1996, 1995 and 1994,
respectively. The allocations are based on techniques and procedures in
accordance with insurance regulatory guidelines. Measures used to allocate
expenses among companies include individual employee estimates of time
spent, special cost studies, salary expense, commissions expense and other
methods agreed to by the participating companies that are within industry
guidelines and practices. The Company believes these allocation methods
are reasonable. In addition, the Company does not believe that expenses
recognized under the inter-company agreements are materially different
than expenses that would have been recognized had the Company operated on
a stand alone basis. Amounts payable to NMIC from the Company under the
cost sharing agreement were $2,275 and $1,186 as of December 31, 1996 and
1995, respectively.
Effective December 31, 1996, the Company entered into an intercompany
reinsurance agreement with NLIC whereby certain inforce and subsequently
issued fixed individual deferred annuity contracts are ceded on a 100%
coinsurance with funds withheld basis. Under 100% coinsurance with funds
withheld agreements, invested assets are retained by the ceding company
and liabilities for future policy benefits are transferred to the assuming
company. In addition, net investment earnings on the invested assets
retained by the ceding company are to be paid to the assuming company.
Under terms of the Company's agreement, the investment risk associated
with changes in interest rates is borne by NLIC. Risk of asset default is
retained by the Company, although a fee is paid by NLIC to the Company for
the Company's retention of such risk. The agreement will remain inforce
until all contract obligations are settled. The ceding of risk does not
discharge the original insurer from its primary obligation to the
contractholder. The Company believes that the terms of the 100%
coinsurance with funds withheld agreement are consistent in all material
respects with what the Company could have obtained with unaffiliated
parties.
The Company has recorded a liability equal to the amount due to NLIC as of
December 31, 1996 for $679,571, which represents the future policy
benefits of the fixed individual deferred annuity contracts ceded. In
consideration for the initial inforce business reinsured, NLIC agreed to
pay the Company $26,473 in commission and expense allowances which were
applied to the Company's deferred policy acquisition costs as of December
31, 1996. No significant gain or loss was recognized as a result of the
agreement.
The Company and various affiliates entered into agreements with Nationwide
Cash Management Company (NCMC) and California Cash Management Company
(CCMC), both affiliates, under which NCMC and CCMC act as common agents in
handling the purchase and sale of short-term securities for the respective
accounts of the participants. Amounts on deposit with NCMC and CCMC were
$492 and $4,844 as of December 31, 1996 and 1995, respectively, and are
included in short-term investments on the accompanying balance sheets.
Certain annuity products are sold through an affiliated company, which is
a subsidiary of Nationwide Corporation. Total commissions paid to the
affiliate for the three years ended December 31, 1996 were $14,644, $5,949
and $6,633, respectively.
(13) Segment Information
The Company has three primary segments: Variable Annuities, Fixed
Annuities and Life Insurance. The Variable Annuities segment consists of
annuity contracts that provide the customer with the opportunity to invest
in mutual funds managed by an affiliated company and independent
investment managers, with the investment returns accumulating on a
tax-deferred basis. The Fixed Annuities segment consists of annuity
contracts that generate a return for the customer at a specified interest
rate, fixed for a prescribed period, with returns accumulating on a
tax-deferred basis. The Life Insurance segment consists of insurance
products that provide a death benefit and may also allow the customer to
build cash value on a tax-deferred basis. In addition, the Company reports
corporate expenses and investments, and the related investment income
supporting capital not specifically allocated to its product segments in a
Corporate and Other segment. In addition, all realized gains and losses
are reported in the Corporate and Other segment.
<PAGE>
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
During 1996, the Company changed its reporting segments to better reflect
the way the businesses are managed. Prior periods have been restated to
reflect these changes.
The following table summarizes the revenues and income (loss) before
federal income tax expense for the years ended December 31, 1996, 1995 and
1994 and assets as of December 31, 1996, 1995 and 1994, by business
segment.
<TABLE>
<CAPTION>
1996 1995 1994
----------- -------- --------
<S> <C> <C> <C>
Revenues:
Variable Annuities $ 4,591 2,927 2,435
Fixed Annuities 51,643 50,056 44,812
Life Insurance 165 185 179
Corporate and Other 1,545 234 891
----------- -------- --------
$ 57,944 53,402 48,317
=========== ======== ========
Income (loss) before federal income tax expense:
Variable Annuities 1,094 1,196 658
Fixed Annuities 5,156 5,633 5,093
Life Insurance (1) (381) (990)
Corporate and Other 1,544 699 426
----------- -------- --------
$ 7,793 7,147 5,187
=========== ======== ========
Assets:
Variable Annuities 503,111 267,097 185,332
Fixed Annuities 787,682 643,313 606,696
Life Insurance 2,597 2,665 2,677
Corporate and Other 73,031 54,507 38,335
----------- -------- --------
$ 1,366,421 967,582 833,040
=========== ======== ========
</TABLE>
