<PAGE> 1
Registration No. 33-44300
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Post-Effective Amendment No. 7
TO FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF
SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2
----------------------------
NATIONWIDE VL SEPARATE ACCOUNT-A
(Exact Name of Trust)
----------------------------
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
One Nationwide Plaza
Columbus, Ohio 43216
(Exact Name and Address of Depositor and Registrant)
Gordon E. McCutchan
Secretary
One Nationwide Plaza
Columbus, Ohio 43216
(Name and address of Agent for Service)
----------------------------
This Post-Effective Amendment amends the Registration Statement in respect to
the Prospectus and Financial Statements.
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on May 1, 1997 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a) (1) of Rule 485
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485
The Registrant has registered an indefinite number of securities by a prior
registration statement in accordance with Rule 24f-2 under the Investment
Company Act of 1940. Pursuant to Paragraph (a)(3) thereof, a non-refundable fee
in the amount of $500.00 has been paid to the Commission. Registrant filed its
Rule 24f-2 Notice for the fiscal year ended December 31, 1996, on February 25,
1997.
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CROSS REFERENCE TO ITEMS REQUIRED
BY FORM N-8B-2
N-8B-2 Item Caption in Prospectus
1................................................Nationwide Life and Annuity
Insurance Company
The Variable Account
2................................................Nationwide Life and Annuity
Insurance Company
3................................................Custodian of Assets
4................................................Distribution of The Policies
5................................................The Variable Account
6................................................Not Applicable
7................................................Not Applicable
8................................................Not Applicable
9................................................Legal Proceedings
10................................................Information About The
Policies; How The Cash Value
Varies; Right to Exchange for
a Fixed Benefit Policy;
Reinstatement; Other Policy
Provisions
11................................................Investments of The Variable
Account
12................................................The Variable Account
13................................................Policy Charges
Reinstatement
14................................................Underwriting and Issuance -
Premium Payments
Minimum Requirements for
Issuance of a Policy
15................................................Investments of the Variable
Account; Premium Payments
16................................................Underwriting and Issuance -
Allocation of Cash Value
17................................................Surrendering The Policy for
Cash
18................................................Reinvestment
19................................................Not Applicable
20................................................Not Applicable
21................................................Policy Loans
22................................................Not Applicable
23................................................Not Applicable
24................................................Not Applicable
25................................................Nationwide Life and Annuity
Insurance Company
26................................................Not Applicable
27................................................Nationwide Life and Annuity
Insurance Company
28................................................Company Management
29................................................Company Management
30................................................Not Applicable
31................................................Not Applicable
32................................................Not Applicable
33................................................Not Applicable
34................................................Not Applicable
35................................................Nationwide Life and Annuity
Insurance Company
36................................................Not Applicable
<PAGE> 3
N-8B-2 Item Caption in Prospectus
37................................................Not Applicable
38................................................Distribution of The Policies
39................................................Distribution of The Policies
40................................................Not Applicable
41(a).............................................Distribution of The Policies
42................................................Not Applicable
43................................................Not Applicable
44................................................How The Cash Value Varies
45................................................Not Applicable
46................................................How The Cash Value Varies
47................................................Not Applicable
48................................................Custodian of Assets
49................................................Not Applicable
50................................................Not Applicable
51................................................Summary of The Policies;
Information About The
Policies
52................................................Substitution of Securities
53................................................Taxation of The Company
54................................................Not Applicable
55................................................Not Applicable
56................................................Not Applicable
57................................................Not Applicable
58................................................Not Applicable
59................................................Financial Statements
<PAGE> 4
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
P.O. Box 182150
Columbus, Ohio 43218-2150
(800) 533-5622, TDD (800) 238-3035
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICIES
ISSUED BY THE NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
THROUGH ITS NATIONWIDE VL SEPARATE ACCOUNT-A
The Life Insurance Policies offered by this prospectus are variable life
insurance policies (collectively referred to as the "Policies"). The Policies
are designed to provide life insurance coverage and the flexibility to vary the
amount and frequency of premium payments. The Policies may also provide a Cash
Surrender Value if the Policy is terminated during the lifetime of the Insured.
Nationwide Life and Annuity Insurance Company guarantees to keep the Policy in
force during the first three years so long as the Minimum Premium requirement
has been met. The death benefit and Cash Value of the Policies may vary to
reflect the experience of the Nationwide VL Separate Account-A (the "Variable
Account") or the Fixed Account to which Cash Values are allocated.
The Policies described in this prospectus meet the definition of "life
insurance" under Section 7702 of the Internal Revenue Code (the "Code").
The Policy Owner may allocate Net Premiums and Cash Value to one or more of the
sub-accounts of the Variable Account and the Fixed Account. The assets of each
sub-account will be used to purchase, at Net Asset Value, shares of a designated
Underlying Mutual Fund of the following series of the underlying variable
account Mutual Fund options:
<TABLE>
<CAPTION>
<S> <C>
American Century Variable Portfolios, Nationwide Separate Account Trust
Inc., a member of American Century(SM) -Capital Appreciation Fund
Investments -Money Market Fund
-American Century VP Advantage -Government Bond Fund
Fidelity Variable Insurance Products -Total Return Fund
Fund: Neuberger & Berman Advisers Management Trust
-Growth Portfolio -Balanced Portfolio
</TABLE>
Nationwide Life and Annuity Insurance Company (the "Company") guarantees that
the death benefit for a Policy will never be less than the Specified Amount
stated on the Policy data pages as long as the Policy is in force. There is no
guaranteed Cash Surrender Value. If the Cash Surrender Value is insufficient to
cover the charges under the Policy, the Policy will lapse without value.
Nationwide Life and Annuity Insurance Company guarantees to keep the Policy in
force during the first three years so long as the Minimum Premium requirement
has been met.
This prospectus generally describes only that portion of the Cash Value
allocated to the Variable Account. For a brief summary of the Fixed Account
Option, see "The Fixed Account Option" provision in this prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE. A PROSPECTUS
FOR THE UNDERLYING MUTUAL FUND OPTION(S) BEING CONSIDERED MUST ACCOMPANY THIS
PROSPECTUS AND SHOULD BE READ IN CONJUNCTION HEREWITH.
The date of this Prospectus is May 1, 1997
1
<PAGE> 5
GLOSSARY OF TERMS
Attained Age-The Insured's age on the Policy Date, plus the number of full years
since the Policy Date.
Accumulation Unit-An accounting unit of measure used to calculate the Variable
Account Cash Value.
Beneficiary-The person to whom the Death Proceeds are paid.
Break Point Premium-The level annual premium at which the sales load is reduced
on a current basis.
Cash Value-The sum of the Policy values in the Variable Account, Fixed Account
and any associated value in the Policy Loan Account.
Cash Surrender Value-The Policy's Cash Value, less any Indebtedness under the
Policy, less any Surrender Charge.
Company- Nationwide Life and Annuity Insurance Company.
Code-The Internal Revenue Code of 1986, as amended.
Death Proceeds-Amount of money payable to the Beneficiary if the Insured dies
while the Policy is in force.
Fixed Account-An investment option which is funded by the General Account of the
Company.
General Account-All assets of the Company other than those of the Variable
Account or in other separate accounts that have been or may be established by
the Company.
Guideline Level Premium-The amount of level annual premium calculated in
accordance with the provisions of the Code. It represents the level annual
premiums required to mature the Policy under guaranteed mortality and expense
charges, and an interest rate of 5%.
Home Office- The main office of the Company located in Columbus, Ohio.
Indebtedness-Amounts owed the Company as a result of Policy loans including both
principal and accrued interest.
Initial Premium-The Initial Premium is the premium required for coverage to
become effective on the Policy Date. It is shown on the Policy Data Page.
Insured-The person whose life is covered by the Policy, and who is named on the
Policy Data Page.
Maturity Date-The Policy Anniversary on or following the Insured's 95th
birthday.
Minimum Premium-The Minimum Premium is shown on the Policy Data Page. It is used
to measure the total amount of premiums that must be paid during the first three
Policy Years to guarantee the Policy remains in force.
Monthly Anniversary Day-The same day as the Policy Date for each succeeding
month.
Net Asset Value- The worth of one share at the end of a market day or at the
close of the New York Stock Exchange. Net Asset Value is computed by adding the
value of all portfolio holdings, plus other assets, deducting liabilities and
then dividing the results by the number of shares outstanding.
Net Premiums-Net Premiums are equal to the actual premiums minus the percent of
premium charge. The percent of premium charges are shown on the Policy Data
Page.
Policy Anniversary-The same day and month as the Policy Date for succeeding
years.
Policy Charges-All deductions made from the value of the Variable Account, or
the Policy Cash Value.
Policy Date-The date the provisions of the Policy take effect, as shown on the
Policy Owner's Policy Data Page.
Policy Loan Account-The Portion of the Cash Value which results from Policy
Indebtedness.
Policy Owner-The person designated in the Policy application as the Owner.
Policy Year-Each year commencing with the Policy Date and each Policy
Anniversary thereafter.
Scheduled Premium-The Scheduled Premium is shown on the Policy Data Page.
Specified Amount-A dollar amount used to determine the death benefit under a
Policy. It is shown on the Policy Data Page.
Surrender Charge-An amount deducted from the Cash Value if the Policy is
surrendered.
Underlying Mutual Funds-The Underlying Mutual Funds which correspond to the
sub-accounts of the Variable Account.
Valuation Date-Each day the New York Stock Exchange and the Company's Home
Office are open for business or any other day during which there is sufficient
degree of trading that the current Net Asset Value of the Accumulation Units
might be materially affected.
Valuation Period-A period commencing with the close of business on the New York
Stock Exchange and ending at the close of business for the next succeeding
Valuation Date.
Variable Account-A separate investment account of Nationwide
Life and Annuity Insurance Company.
2
<PAGE> 6
TABLE OF CONTENTS
GLOSSARY OF TERMS..............................................................2
SUMMARY OF THE POLICIES........................................................5
Variable Life Insurance...................................................5
The Variable Account and its Sub-Accounts.................................5
The Fixed Account.........................................................5
Deductions and Charges....................................................5
Premiums..................................................................7
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY..................................7
THE VARIABLE ACCOUNT...........................................................7
Investments of the Variable Account.......................................8
American Century Variable Portfolios, Inc., member of American
Century(SM) Investments.................................................8
Fidelity Variable Insurance Products Fund.................................9
Nationwide Separate Account Trust.........................................9
Neuberger & Berman Advisers Management Trust..............................9
Reinvestment.............................................................10
Transfers................................................................10
Dollar Cost Averaging....................................................10
Substitution of Securities...............................................11
Voting Rights............................................................11
INFORMATION ABOUT THE POLICIES................................................12
Underwriting and Issuance................................................12
-Minimum Requirements for Issuance of a Policy...........................12
-Premium Payments........................................................12
Allocation of Cash Value.................................................12
Short-Term Right to Cancel Policy........................................12
POLICY CHARGES................................................................13
Deductions from Premiums.................................................13
Surrender Charges........................................................13
-Reductions to Surrender Charges.........................................14
Deductions from Cash Value...............................................14
-Monthly Cost of Insurance...............................................14
-Monthly Administrative Charge...........................................15
-Increase Charge.........................................................15
Deductions from the Sub-Accounts.........................................15
HOW THE CASH VALUE VARIES.....................................................15
How the Investment Experience is Determined..............................15
Net Investment Factor....................................................16
Valuation of Assets......................................................16
Determining the Cash Value...............................................16
Valuation Periods and Valuation Dates....................................16
SURRENDERING THE POLICY FOR CASH..............................................16
Right to Surrender.......................................................16
Cash Surrender Value.....................................................17
Partial Surrenders.......................................................17
Maturity Proceeds........................................................17
Income Tax Withholding...................................................17
POLICY LOANS..................................................................18
Taking a Policy Loan.....................................................18
Effect on Investment Performance.........................................18
Interest.................................................................18
Effect on Death Benefit and Cash Value...................................18
Repayment................................................................18
HOW THE DEATH BENEFIT VARIES..................................................19
Calculation of the Death Benefit.........................................19
Proceeds Payable on Death................................................19
RIGHT TO EXCHANGE FOR A FIXED BENEFIT POLICY..................................19
CHANGES OF INVESTMENT POLICY..................................................20
GRACE PERIOD..................................................................20
-First Three Policy Years................................................20
3
<PAGE> 7
-Policy Years Four and After.............................................20
-All Policy Years........................................................20
REINSTATEMENT.................................................................20
THE FIXED ACCOUNT OPTION......................................................21
CHANGES IN EXISTING INSURANCE COVERAGE........................................21
Specified Amount Increases...............................................21
Specified Amount Decreases...............................................22
Changes in the Death Benefit Option......................................22
OTHER POLICY PROVISIONS.......................................................22
Policy Owner.............................................................22
Beneficiary..............................................................22
Assignment...............................................................23
Incontestability.........................................................23
Error in Age or Sex......................................................23
Suicide..................................................................23
Nonparticipating Policies................................................23
LEGAL CONSIDERATIONS..........................................................23
DISTRIBUTION OF THE POLICIES..................................................23
CUSTODIAN OF ASSETS...........................................................24
TAX MATTERS...................................................................24
Policy Proceeds..........................................................24
-Federal Estate and Generation-Skipping Transfer Taxes...................25
-Non-Resident Aliens.....................................................25
Taxation of the Company..................................................26
Tax Changes..............................................................26
THE COMPANY...................................................................26
COMPANY MANAGEMENT............................................................27
Directors of the Company.................................................27
Executive Officers of the Company........................................28
OTHER CONTRACTS ISSUED BY THE COMPANY.........................................28
STATE REGULATION..............................................................28
REPORTS TO POLICY OWNERS......................................................29
ADVERTISING...................................................................29
LEGAL PROCEEDINGS.............................................................29
EXPERTS.......................................................................29
REGISTRATION STATEMENT........................................................29
LEGAL OPINIONS................................................................29
APPENDIX 1....................................................................30
APPENDIX 2....................................................................31
FINANCIAL STATEMENTS..........................................................48
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS.
THE PRIMARY PURPOSE OF THE POLICIES IS TO PROVIDE LIFE INSURANCE PROTECTION FOR
THE BENEFICIARY NAMED IN THE POLICY. NO CLAIM IS MADE THAT THE POLICIES ARE IN
ANY WAY SIMILAR OR COMPARABLE TO A SYSTEMATIC INVESTMENT PLAN OF A MUTUAL FUND.
4
<PAGE> 8
SUMMARY OF THE POLICIES
Variable Life Insurance
The variable life insurance Policies offered by Nationwide Life and Annuity
Insurance Company (the "Company") are similar in many ways to fixed-benefit
whole life insurance. As with fixed-benefit whole life insurance, the Owner of
the Policy pays a premium for life insurance coverage on the person insured.
Also like fixed-benefit whole life insurance, the Policies may provide for a
Cash Surrender Value which is payable if the Policy is terminated during the
Insured's lifetime. As with fixed-benefit whole life insurance, the Cash
Surrender Value during the early Policy years may be substantially lower than
the premiums paid.
However, the Policies differ from fixed-benefit whole life insurance in several
respects. Unlike fixed-benefit whole life insurance, the death benefit and Cash
Value of the Policies may increase or decrease to reflect the investment
performance of the Variable Account sub-accounts or the Fixed Account to which
Cash Values are allocated (see "How the Death Benefit Varies"). There is no
guaranteed Cash Surrender Value (see "How the Cash Value Varies"). If the Cash
Surrender Value is insufficient to pay the Policy Charges, the Policy will lapse
without value. Nationwide Life and Annuity Insurance Company guarantees to keep
the Policy in force during the first three years so long as certain requirements
have been met (see "Underwriting and Issuance").
Under certain conditions, a Policy may become a modified endowment contract as a
result of a material change or a reduction in benefits as defined by the Code.
Excess premiums paid may also cause the Policy to become a modified endowment
contract. The Company will monitor premiums paid and other policy transactions
and will notify the Policy Owner when the Policy's non-modified endowment
contract status is in jeopardy (see "Tax Matters").
The Variable Account and its Sub-Accounts
The Company places the Policy's Net Premiums in the Variable Account or the
Fixed Account at the time the Policy is issued. The Policy Owner selects the
sub-accounts of the Variable Account or the Fixed Account into which the Cash
Value will be allocated (see "Allocation of Cash Value"). When the Policy is
issued, the Policy's Net Premiums not allocated to the Fixed Account will be
placed in the Nationwide Separate Account Trust Money Market Fund until the
expiration of the period in which the Policy Owner may exercise his or her
short-term right to cancel the Policy (see "Short-Term Right to Cancel Policy").
Assets of each sub-account are invested at Net Asset Value in shares of a
corresponding Underlying Mutual Fund options. For a description of the
Underlying Mutual Fund options and their investment objectives, see "Investments
of the Variable Account".
The Fixed Account
The Fixed Account is funded by the assets of the Company's General Account. Cash
Values allocated to the Fixed Account are credited with interest daily at a rate
declared by the Company. The interest rate declared is at the Company's sole
discretion, but may never be less than an effective annual rate of 4%.
Deductions and Charges
The Company deducts certain charges from the assets of the Variable Account and
the Cash Value of the Policy. These charges are made for administrative and
sales expenses, state premium taxes, providing life insurance protection and
assuming the mortality and expense risks. For a discussion of any charges
imposed by the Underlying Mutual Fund options, see the prospectuses of the
respective Underlying Mutual Funds.
The Company deducts a sales load from each premium payment received not to
exceed 3.5% of each premium payment. On a current basis, the sales load is
reduced to 1.5% on any portion of the annual premium paid in excess of the
annual Break Point Premium. The total sales load actually deducted from any
Policy will be equal to the sum of this front-end sales load plus any sales
surrender charge that may be deducted from Policies that are surrendered.
The Company also deducts a charge for state premium taxes equal to 2.5% of all
premium payments.
The Company also deducts the following charges from the Policy's Cash Value on
the Policy Date and each subsequent Monthly Anniversary Day:
1. monthly cost of insurance; plus
2. monthly cost of any additional benefits provided by riders to the
Policy; plus
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3. an administrative expense charge. This charge is $25 per month in the
first year and $5 per month in renewal years. The charge in renewal
years may be increased at the sole discretion of the Company but may
not exceed $7.50 per month; plus
4. an increase charge per $1000 applied to any increase in the Specified
Amount. The increase charge is $2.04 per year per $1000 and is shown
on the policy data page. This charge is designed to cover the costs
associated with increasing the Specified Amount (see "Policy
Charges"). This charge will be deducted on each Monthly Anniversary
Day for the first 12 months after the increase becomes effective.
The Company also deducts on a daily basis from the assets of the Variable
Account a charge to provide for mortality and expense risks. This charge is
equivalent to an annual effective rate of 0.80% of the daily net assets of the
Variable Account. On each Policy Anniversary beginning with the 10th, the
mortality and expense risk charge is reduced to 0.50% on an annual basis of the
daily net assets of the Variable Account, provided the Cash Surrender Value is
$25,000 or more on such anniversary.
For Policies which are surrendered during the first nine Policy Years, the
Company deducts a Surrender Charge. This Surrender Charge is comprised of an
Underwriting Surrender Charge and a Sales Surrender Charge. The maximum initial
Surrender Charge varies by issue age, sex, Specified Amount and underwriting
classification and is calculated based on the initial Specified Amount. The
following table illustrates the maximum initial Surrender Charge per $1,000 of
initial Specified Amount for Policies which are issued on a Standard basis (see
Appendix 1 for specific examples).
Initial Specified Amount $50,000-$99,999
Issue Male Female Male Female
Age Non-Tobacco Non-Tobacco Standard Standard
25 $7.776 $7.521 $8.369 $7.818
35 8.817 8.398 9.811 8.891
45 12.191 11.396 13.887 12.169
55 15.636 14.011 18.415 15.116
65 22.295 19.086 26.577 20.641
Initial Specified Amount $100,000+
Issue Male Female Male Female
Age Non-Tobacco Non-Tobacco Standard Standard
25 $5.776 $5.521 $6.369 $5.818
35 6.817 6.398 7.811 6.891
45 9.691 8.896 11.387 9.669
55 13.136 11.511 15.915 12.616
65 21.295 18.086 25.577 19.641
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>
- ------------------------------------------------------------------------------------------------------------
Management Other Total
Fees Expenses Expenses
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
American Century Variable Portfolios, Inc.- American Century VP 1.00% 0.00% 1.00%
Advantage
- ------------------------------------------------------------------------------------------------------------
Fidelity Variable Insurance Products Fund Fund-Growth Portfolio 0.61% 0.08% 0.68%
- ------------------------------------------------------------------------------------------------------------
Nationwide Separate Account Trust-Capital Appreciation Fund 0.50% 0.02% 0.52%
- ------------------------------------------------------------------------------------------------------------
Nationwide Separate Account Trust-Government Bond Fund 0.50% 0.01% 0.51%
- ------------------------------------------------------------------------------------------------------------
Nationwide Separate Account Trust-Money Market Fund 0.50% 0.03% 0.53%
- ------------------------------------------------------------------------------------------------------------
Nationwide Separate Account Trust-Total Return Fund 0.50% 0.02% 0.52%
- ------------------------------------------------------------------------------------------------------------
Neuberger&Berman Advisers Management Trust-Balanced Portfolio 0.85% 0.23% 1.08%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE> 10
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, fee waivers or expense
reimbursement arrangements.
The information relating to the Underlying Mutual Fund expenses was provided by
the Underlying Mutual Fund and was not independently verified by the Company.
Premiums
The minimum Initial Premium for which a Policy may be issued is equal to three
minimum monthly premiums. A Policy may be issued to an Insured up to age 80.
For a limited time, the Policy Owner has a right to cancel the Policy and
receive a full refund of premiums paid (see "Short-Term Right to Cancel
Policy").
The Initial Premium is due on the Policy Date. It will be credited on the Policy
Date. Any due and unpaid monthly deductions will be subtracted from the Cash
Value at this time. Insurance will not be effective until the Initial Premium is
paid. The Initial Premium is shown on the policy data page.
Premiums, other than the Initial Premium may be made at any time the Policy is
in force subject to the limits described below. During the first three Policy
Years, the total premium payments less any Policy Indebtedness, less any partial
surrenders, and less any partial surrender fee must be greater than or equal to
the Minimum Premium requirement in order to guarantee the Policy remain in
force. The Minimum Premium requirement is equal to the monthly Minimum Premium
multiplied by the number of completed policy months. The monthly Minimum Premium
is shown on the policy data page.
The Company will send Scheduled Premium payment reminder notices to the Policy
Owner. The Company will send them according to the premium mode shown on the
policy data page.
The Policy Owner may pay the Initial Premium to the Company at the Company's
Home Office or to an authorized agent. All premiums after the first are payable
at the Company's Home Office. Premium receipts will be furnished upon request.
Each premium must be at least equal to the monthly Minimum Premium. The Company
reserves the right to require satisfactory evidence of insurability before
accepting any additional premium payment which results in any increase in the
net amount at risk. Also, the Company will refund any portion of any premium
payment which is determined to be in excess of the premium limit established by
law to qualify the Policy as a contract for life insurance. Where permitted by
state law, the Company may also require that any existing Policy Indebtedness is
repaid prior to accepting any additional premium payments.
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
Nationwide Life and Annuity Company (the "Company"), formerly the Financial
Horizons Life Insurance Company, is a stock life insurance company organized
under the laws of the State of Ohio, and was established in February, 1981. The
Company is a member of the Nationwide Insurance Enterprise which includes
Nationwide Life Insurance Company, Nationwide Indemnity Company, Nationwide
Mutual Insurance Company, Nationwide Mutual Fire Insurance Company, Nationwide
Property and Casualty Insurance Company, National Casualty Company, West Coast
Life Insurance Company, Scottsdale Indemnity Company and Nationwide General
Insurance Company. The Company's Home Office is at One Nationwide Plaza,
Columbus, Ohio 43216.
The Company offers a multiple line of products, including annuities. It is
admitted to do business in 46 states and the District of Columbia (for
additional information, see "The Company").
THE VARIABLE ACCOUNT
The Nationwide VL Separate Account-A (formerly the Financial Horizons VL
Separate Account-1) (the "Variable Account") was established by the Company on
August 8, 1984. The Company has caused the Variable Account to be registered
with the Securities and Exchange Commission as a unit investment trust pursuant
to the provisions of the Investment Company Act of 1940. Nationwide Life
Insurance Company, One Nationwide Plaza, Columbus, Ohio 43216 serves as trustee
for the trust. Nationwide Advisory Services, Inc., One Nationwide Plaza,
Columbus, Ohio 43216 serves as principal underwriter for the trust. Such
registration does
7
<PAGE> 11
not involve supervision of the management of the Variable Account or the Company
by the Securities and Exchange Commission.
The Variable Account is a separate investment account of the Company and as
such, is not chargeable with the liabilities arising out of any other business
the Company may conduct. The Company does not guarantee the investment
performance of the Variable Account. The death benefit and Cash Value under the
Policy may vary with the investment performance of the investments in the
Variable Account (see "How the Death Benefit Varies" and "How the Cash Value
Varies").
Net Premium payments and Cash Value are allocated within the Variable Account
among one or more sub-accounts (see "Tax Matters"). The assets of each
sub-account are used to purchase shares of the Underlying Mutual Fund options
designated by the Policy Owner. Thus, the investment performance of a Policy
depends upon the investment performance of the Underlying Mutual Funds
designated by the Policy Owner.
Investments of the Variable Account
At the time of application, the Policy Owner elects to have the Net Premiums
allocated among one or more of the Variable Account sub-accounts and the Fixed
Account (see "Allocation of Cash Value"). During the period in which the Policy
Owner may exercise his or her short-term right to cancel the Policy, all Net
Premiums not allocated to the Fixed Account are placed in the Nationwide
Separate Account Trust Money Market Fund sub-account. At the end of this period,
the Cash Value in that sub-account will be transferred to the Variable Account
sub-accounts based on the Underlying Mutual Fund allocation factors. Any
subsequent Net Premiums received after this period will be allocated based on
the Underlying Mutual Fund allocation factors.
No less than 5% of Net Premiums may be allocated to any one sub-account or the
Fixed Account. The Policy Owner may change the allocation of Net Premiums or may
transfer Cash Value from one sub-account to another, subject to such terms and
conditions as may be imposed by each Underlying Mutual Fund option and as set
forth in this prospectus (see "Transfers", "Allocation of Cash Value" and
"Short-Term Right to Cancel Policy"). Additional Premium Payments, upon
acceptance, will be allocated to Nationwide Separate Account Trust Money Market
Fund unless the Policy Owner specifies otherwise (see "Premium Payments").
These Underlying Mutual Fund options are available only to serve as the
underlying investment for variable annuity and variable life contracts issued
through separate accounts of the life insurance companies which may or may not
be affiliated, also known as "mixed and shared funding." There are certain risks
associated with mixed and shared funding, which is disclosed in the Underlying
Mutual Funds' prospectuses. A full description of the Underlying Mutual Fund
options, their investment policies and restrictions, risks and charges are
contained in the prospectuses of the respective Underlying Mutual Funds.
Each of the Underlying Mutual Funds receives investment advice from a registered
investment adviser:
1. American Century Variable Portfolios, Inc., managed by American
Century Investment Management, Inc., an affiliate of American Century
Companies, Inc.;
2. Fidelity Variable Insurance Products Fund, managed by Fidelity
Management & Research Company;
3. Nationwide Separate Account Trust, managed by Nationwide Advisory
Services, Inc.; and
4. Neuberger & Berman Advisers Management Trust, managed by Neuberger &
Berman Management Incorporated.
A summary of investment objectives is contained in the description of each
Underlying Mutual Fund option below. More detailed information may be found in
the current prospectus for each Underlying Mutual Fund. A prospectus for the
Underlying Mutual Fund option(s) being considered must accompany this prospectus
and should be read in conjunction herewith.
American Century Variable Portfolios, Inc., member of American Century(SM)
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 investment company, designed only to provide investment vehicles for
variable annuity and variable life insurance products of insurance companies. A
member of American Century(TM) Investments, American Century Variable Portfolios
is managed by American Century Investment Management, Inc.
- - American Century VP Advantage
Investment Objective: Current income and capital growth. The fund will seek
to achieve its objective by investing in three types of securities. The
fund's investment manager intends to invest approximately (i) 20% of the
fund's assets in securities of the United States government and its
agencies and
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instrumentalities and repurchase agreements collateralized by such
securities with a weighted average maturity of six months or less, i.e.,
cash or cash equivalents; (ii) 40% of the fund's assets in fixed income
securities of the United States government and its agencies and
instrumentalities with a weighted average maturity of three to ten years;
and (iii) 40% of the fund's assets in equity securities that are considered
by management to have better-than-average prospects for appreciation.
Assets will be purchased or sold, as the case may be, as is necessary in
response to changes in market value to maintain the asset mix of the Fund's
portfolio at approximately 60% cash, cash equivalents and fixed income
securities and 40% equity securities. There can be no assurance that the
Fund will achieve its investment objective.
(Although the Statement of Additional Information concerning 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.)
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.
- - Growth Portfolio
Investment Objective: Seeks to achieve capital appreciation. This Portfolio
will invest in the securities of both well-known and established companies,
and smaller, less well-known companies which may have narrow product line
or whose securities are thinly traded. These later securities will often
involve greater risk than may be found in the ordinary investment security.
FMR's analysis and expertise plays an integral role in the selection of
securities and, therefore, the performance of the Portfolio. Many
securities which FMR believes would have the greatest potential may be
regarded as speculative, and investment in the Portfolio may involve
greater risk than is inherent in other mutual funds. It is also important
to point out that the Portfolio makes most sense for you if you can afford
to ride out changes in the stock market, because it invests primarily in
common stocks. FMR also can make temporary investments in securities such
as investment-grade bonds, high-quality preferred stocks and short-term
notes, for defensive purposes when it believes market conditions warrant.
Nationwide Separate Account Trust
Nationwide Separate Account Trust (the "Trust") is a diversified open-end
management investment company organized under the laws of Massachusetts, by a
Declaration of Trust, dated June 30, 1981, as subsequently amended. The Trust
offers shares in the four separate Funds listed below, each with its own
investment objectives. Currently, shares of the Trust will be sold only to life
insurance company separate accounts to fund the benefits under variable
insurance or annuity policies issued by life insurance companies. The assets of
the Trust are managed by Nationwide Advisory Services, Inc., of One Nationwide
Plaza, Columbus, Ohio 43216, a wholly-owned subsidiary of Nationwide Life
Insurance Company (the Company's sole stockholder).
- - Capital Appreciation Fund
Investment Objective: The Fund is designed for investors who are interested
in long-term growth. The Fund seeks to meet its objective primarily through
a diversified portfolio of the common stock of companies which the
investment manager determines have a better-than-average potential for
sustained capital growth over the long term.
- - 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.
- - Total Return Fund (formerly Common Stock Fund)
Investment Objective: To obtain a reasonable long-term total return (i.e.,
earnings growth plus potential dividend yield) on invested capital from a
flexible combination of current return and capital gains through
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<PAGE> 13
investments in common stocks, convertible issues, money market instruments
and bonds with a primary emphasis on common stocks.
Neuberger & Berman Advisers Management Trust
Neuberger & Berman Advisers Management Trust is an open-end diversified
management investment company established as a Massachusetts business trust on
December 14, 1983. Shares of the Trust are offered in connection with certain
variable annuity contracts and variable life insurance policies issued through
life insurance company separate accounts and are also offered directly to
qualified pension and retirement plans outside of the separate account context.
The investment adviser is Neuberger & Berman Management Incorporated.
- - Balanced Portfolio
Investment Objective: To provide long-term capital growth and reasonable
current income without undue risk to principal. The Balanced Portfolio will
seek to achieve its objective through investment of a portion of its assets
in common stocks and a portion of its assets in debt securities. The
Investment Adviser anticipates that the Balanced Portfolio's investments
will normally be managed so that approximately 60% of the Portfolio's total
assets will be invested in common stocks and the remaining assets will be
invested in debt securities. However, depending on the Investment Adviser's
views regarding current market trends, the common stock portion of the
Portfolio's investments may be adjusted downward to as low as 50% or upward
to as high as 70%. At least 25% of the Portfolio's assets will be invested
in fixed income senior securities.
Reinvestment
The Underlying Mutual Fund options described above have as a policy the
distribution of dividends in the form of additional shares (or fractions
thereof) of the Underlying Mutual Fund options. The distribution of additional
shares will not affect the number of Accumulation Units attributable to a
particular Policy (see "Allocation of Cash Value").
Transfers
The Policy Owner may transfer Cash Value among the sub-accounts of the Variable
Account and the Fixed Account. A transfer will take effect on the date of
receipt of written notice at the Company's Home Office. Transfer requests must
be in a written form acceptable to the Company.
After the first Policy Anniversary, the Policy Owner may annually transfer a
portion of the value of the Variable Account to the Fixed Account, without
penalty or adjustment. The Policy Owner may request a transfer of up to 100% of
the Cash Value from the Variable Account to the Fixed account. The Company
reserves the right to restrict transfers to the Fixed Account to 25% of the Cash
Value. The Policy Owner's Cash Value in each sub-account will be determined as
of the date the transfer request is received in the Home Office in good order.
The Policy Owner may transfer a portion of the value of the Fixed Account to the
Variable Account once each Policy Year, without penalty or adjustment. The
Policy Owner may request a transfer of up to 100% of the Cash Value in the Fixed
Account to the Variable sub-accounts. The Company reserves the right to restrict
the amounts of such transfers to 25% of the Cash Value in the Fixed Account.
Transfers may be made once per Valuation Date and may be made either in writing
or, in states allowing such transfers, by telephone. The Company will employ
reasonable procedures to confirm that instructions communicated by telephone are
genuine. Such procedures may include any or all of the following, or such other
procedures as the Company may, from time to time, deem reasonable: requesting
identifying information, such as name, contract number, Social Security number,
and/or personal identification number; tape recording all telephone
transactions, and providing written confirmation thereof to both the Policy
owner and any agent of record at the last address of record. Although failure to
follow reasonable procedures may result in the Company's liability for any
losses due to unauthorized or fraudulent telephone transfers, the Company will
not be liable for following instructions communicated by telephone which it
reasonably believes to be genuine. Any losses incurred pursuant to actions taken
by the Company in reliance on telephone instructions reasonably believed to be
genuine shall be borne by the Contract Owner. The Company may withdraw the
telephone exchange privilege upon 30 days written notice to Policy Owners.
Policy Owners who have entered into a Dollar Cost Averaging Agreement with the
Company (see "Dollar Cost Averaging") may transfer from the Fixed Account to the
Variable Account under the terms of that agreement.
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<PAGE> 14
Dollar Cost Averaging
The Policy Owner may direct the Company to automatically transfer from the Money
Market sub-account or the Fixed Account to any other sub-account within the
Variable Account on a monthly basis. This service is intended to allow the
Policy Owner to utilize Dollar Cost Averaging, a long-term investment program
which provides for regular, level investments over time. The Company makes no
guarantees that Dollar Cost Averaging will result in a profit or protect against
loss in a declining market. To qualify for Dollar Cost Averaging there must be a
minimum total Cash Value, less Policy Indebtedness, of $15,000. Transfers for
purposes of Dollar Cost Averaging can only be made from the Money Market
sub-account or the Fixed Account. The minimum monthly Dollar Cost Averaging
transfer is $100. In addition, Dollar Cost Averaging monthly transfers from the
Fixed Account must be equal to or less than 1/30th of the Fixed Account value
when the Dollar Cost Averaging program is requested. Transfers out of the Fixed
Account, other than for Dollar Cost Averaging, may be subject to certain
additional restrictions (see "Transfers"). A written election of this service,
on a form provided by the Company, must be completed by the Policy Owner in
order to begin transfers. Once elected, transfers from the Money Market
sub-account or the Fixed Account will be processed monthly until either the
value in the Money Market sub-account or the Fixed Account is completely
depleted or the Policy Owner instructs the Company in writing to cancel the
monthly transfers.
The Company reserves the right to discontinue offering Dollar Cost Averaging
upon 30 days written notice to Policy Owners however, any discontinuation will
not affect Dollar Cost Averaging programs already commenced. The Company also
reserves the right to assess a processing fee for this service.
Substitution of Securities
If shares of the above Underlying Mutual Funds should no longer be available for
investment by the Variable Account or, if in the judgment of the Company's
management further investment in such Underlying Mutual Fund options should
become inappropriate the Company may eliminate Sub-Accounts, combine two or more
Sub-Accounts, or substitute shares of one or more Underlying Mutual Fund for
other Underlying Mutual Fund shares already purchased or to be purchased in the
future by Net Premium payments under the Policy. No substitution of securities
in the Variable Account may take place without prior approval of the Securities
and Exchange Commission, and under such requirements as it and any state
insurance department may impose.
Voting Rights
Voting rights under the Policies apply only with respect to Cash Value allocated
to the sub-accounts of the Variable Account.
In accordance with its view of present applicable law, the Company will vote the
shares of the Underlying Mutual Funds held in the Variable Account at regular
and special meetings of the shareholders of the Underlying Mutual Funds. These
shares will be voted in accordance with instructions from Policy Owners who have
an interest in the Variable Account. If the Investment Company Act of 1940 or
any regulation thereunder should be amended or if the present interpretation
thereof should change, and as a result the Company determines that it is
permitted to vote the shares of the Underlying Mutual Funds in its own right, it
may elect to do so.
The Policy Owner shall have the voting interest under a Policy. The number of
shares in each sub-account for which the Policy Owner may give voting
instructions is determined by dividing any portion of the Policy's Cash Value
derived from participation in that Underlying Mutual Fund by the Net Asset Value
of one share of that Underlying Mutual Fund. The number of shares which a person
has a right to vote will be determined as of a date chosen by the Company, but
not more than 90 days prior to the meeting of the Underlying Mutual Fund. Voting
instructions will be solicited by written communication at least 21 days prior
to such meeting.
Underlying Mutual Fund shares held in the Variable Account as to which no timely
instructions are received will be voted by the Company in the same proportion as
the voting instructions which are received.
Each person having a voting interest in the Variable Account will receive
periodic reports relating to investments of the Variable Account, the Underlying
Mutual Funds' proxy material and a form with which to give such voting
instructions.
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INFORMATION ABOUT THE POLICIES
Underwriting and Issuance
- -Minimum Requirements for Issuance of a Policy
The Policies are designed to provide life insurance coverage and the flexibility
to vary the amount and frequency of premium payments. At issue, the Policy Owner
selects the initial Specified Amount and premium. The minimum Specified Amount
is $50,000 ($100,000 in Pennsylvania). Policies may be issued to Insureds with
issue ages 80 or younger. Before issuing any Policy, the Company requires
satisfactory evidence of insurability which may include a medical examination.
- -Premium Payments
The Initial Premium for a Policy is payable in full at the Company's Home
Office. Upon payment of an initial premium, temporary insurance may be provided
subject to a maximum amount. The effective date of permanent insurance coverage
is dependent upon completion of all underwriting requirements, payments of the
Initial Premium, and delivery of the Policy while the Insured is still living.
Premiums, other than the Initial Premium, may be made at any time while the
Policy is in force subject to the limits described below. During the first three
Policy Years, the total premium payments less any Policy Indebtedness, less any
partial surrenders, and less any partial surrender fee must be greater than or
equal to the Minimum Premium requirement in order to guarantee the Policy
remains in force. The Minimum Premium requirement is equal to the monthly
Minimum Premium multiplied by the number of completed policy months. The monthly
Minimum Premium is shown on the policy data page.
Each premium payment must be at least equal to the monthly Minimum Premium.
Additional premium payments may be made at any time while the Policy is in
force. However, the Company reserves the right to require satisfactory evidence
of insurability before accepting any additional premium payment which results in
an increase in the net amount at risk. Also, the Company will refund any portion
of any premium payment which is determined to be in excess of the premium limit
established by law to qualify the Policy as a contract for life insurance. The
Company may also require that any existing Policy Indebtedness is repaid prior
to accepting any additional premium payments. Additional premium payments or
other changes to the contract, may jeopardize the Policy's non-modified
endowment contract status. The Company will monitor premiums paid and other
policy transactions and will notify the Policy Owner when non-modified endowment
contract status is in jeopardy (see "Tax Matters").
Allocation of Cash Value
At the time a Policy is issued, its Cash Value will be based on the Nationwide
Separate Account Trust Money Market Fund sub-account value or the Fixed Account
as if the Policy had been issued and the Initial Net Premium invested on the
date such premium was received in good order by the Company. When the Policy is
issued, the Net Premiums will be allocated to the Nationwide Separate Account
Trust Money Market Fund sub-account (for any Net Premiums allocated to a
sub-account on the application) or the Fixed Account until the expiration of the
period in which the Policy Owner may exercise his or her short-term right to
cancel the Policy. Net Premiums not designated for the Fixed Account will be
placed in the Nationwide Separate Account Trust Money Market Sub-Account. At the
expiration of the period in which the Policy Owner may exercise his or her short
term right to cancel the Policy, shares of the Underlying Mutual Fund options
specified by the Policy Owner are purchased at Net Asset Value for the
respective sub-account(s). The Policy Owner may change the allocation of Net
Premiums or may transfer Cash Value from one sub-account to another, subject to
such terms and conditions as may be imposed by each Underlying Mutual Fund
option and as set forth in the prospectus. Net Premiums allocated to the Fixed
Account at the time of application may not be transferred prior to the first
Policy Anniversary (see "Transfers" and "Investments of the Variable Account").
The designation of investment allocations will be made by the prospective Policy
Owner at the time of application for a Policy. The Policy Owner may change the
way in which future Net Premiums are allocated by giving written notice to the
Company. All percentage allocations must be in whole numbers, and must be at
least 5%. The sum of allocations must equal 100%.
Short-Term Right to Cancel Policy
A Policy may be returned for cancellation and a full refund of premium within 10
days after the Policy is received, within 45 days after the application for
insurance is signed, or within 10 days after the Company mails or delivers a
Notice of Right of Withdrawal, whichever is latest. The Policy can be mailed or
delivered to the registered representative who sold it, or to the Company.
Immediately after such mailing or delivery, the Policy
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<PAGE> 16
will be deemed void from the beginning. The Company will refund the total
premiums paid within seven days after it receives the Policy.
POLICY CHARGES
Deductions from Premiums
The Company deducts a sales load from each premium payment received not to
exceed 3.5% of each premium payment. On a current basis, the sales load is
reduced to 1.5% on any portion of the annual premium paid in excess of the
annual Break Point Premium. The total sales load actually deducted from any
Policy will be equal to the sum of this front-end sales load plus any sales
surrender charge that may be deducted from Policies that are surrendered.
The Company also pays any state premium taxes attributable to a particular
policy when incurred by the Company. The Company expects to pay an average state
premium tax rate of approximately 2.5% of premiums for all states, although such
tax rates generally can range from 0% to 4%. To reimburse the Company for the
payment of state premium taxes associated with the Policies, the Company deducts
a charge for state premium taxes equal to 2.5% of all premium payments received.
This charge may be more or less than the amount actually assessed by the state
in which a particular Policy Owner lives. The Company does not expect to make a
profit from this charge.
Surrender Charges
The Company will deduct a Surrender Charge from the Policy's Cash Value for any
Policy surrendered during the first nine Policy Years. The maximum initial
Surrender Charge varies by issue age, sex, Specified Amount and underwriting
classification and is calculated based on the initial Specified Amount. The
following table illustrates the maximum initial Surrender Charge per $1,000 of
initial Specified Amount for Policies which are issued on a standard basis (see
Appendix 1 for specific examples).
Initial Specified Amount $50,000-$99,999
Issue Male Female Male Female
Age Non-Tobacco Non-Tobacco Standard Standard
25 $7.776 $7.521 $8.369 $7.818
35 8.817 8.398 9.811 8.891
45 12.191 11.396 13.887 12.169
55 15.636 14.011 18.415 15.116
65 22.295 19.086 26.577 20.641
Initial Specified Amount $100,000+
Issue Male Female Male Female
Age Non-Tobacco Non-Tobacco Standard Standard
25 $5.776 $5.521 $6.369 $5.818
35 6.817 6.398 7.811 6.891
45 9.691 8.896 11.387 9.669
55 13.136 11.511 15.915 12.616
65 21.295 18.086 25.577 19.641
The Surrender Charge is comprised of two components: an underwriting surrender
charge and sales surrender charge. The underwriting surrender charge varies by
issue age in the following manner:
Issue Specified Amounts Specified Amounts
Age less than $100,000 $100,000 or more
0-35 $6.00 $4.00
36-55 7.50 5.00
56-80 7.50 6.50
The underwriting surrender charge is designed to cover the administrative
expenses associated with underwriting and issuing the Policy, including the
costs of processing applications, conducting medical exams, determining
insurability and the Insured's underwriting class, and establishing policy
records. The Company does not expect to profit from the underwriting surrender
charges. The Surrender Charge may be insufficient to recover certain expenses
related to the sale of the Policies. Unrecovered expenses are borne by the
Company's general assets which may include profits, if any, from Mortality and
Expense Risk Charges (see "Deductions from the Sub-Accounts"). Additional
premiums and/or income earned on assets in the Variable
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<PAGE> 17
Account have no effect on these charges. The remainder of the Surrender Charge
which is not attributable to the underwriting surrender charge component
represents the sales surrender charge component. In no event will this component
exceed 26 1/2% of the lesser of the Guideline Level Premium required in the
first year or the premiums actually paid in the first year. The purpose of the
sales surrender charge component is to reimburse the Company for some of the
expenses incurred in the distribution of the Policies. The Company also deducts
3.5% of each premium for sales load (see "Deductions from Premiums").
- -Reductions to Surrender Charges
The Surrender Charges are reduced in subsequent Policy Years in the following
manner:
Surrender Charge Surrender Charge
Completed as a % of Initial Completed as a % of Initial
Policy Years Surrender Charges Policy Years Surrender Charges
0 100% 5 60%
1 100% 6 50%
2 90% 7 40%
3 80% 8 30%
4 70% 9+ 0%
Special guaranteed maximum Surrender Charges apply in Pennsylvania (see Appendix
1).
Deductions from Cash Value
The Company also deducts the following charges from the Policy's Cash Value on
the Policy Date and each subsequent Monthly Anniversary Day:
1. monthly cost of insurance charges; plus
2. monthly cost of any additional benefits provided by riders; plus
3. monthly administrative expense charge; plus
4. the increase charge per $1000 applied to any increase in the Specified
Amount (see "Specified Amount Increases"). The increase charge is
$2.04 per year per $1000 and is shown on the policy data page. This
charge is designed to cover the costs associated with increasing the
Specified Amount (see "Policy Charges"). This charge will be deducted
on each Monthly Anniversary Day for the first 12 months after the
increase becomes effective.
These deductions will be charged proportionately to the Cash Value in each
Variable Account sub-account and the Fixed Account.
- -Monthly Cost of Insurance
The monthly cost of insurance charge for each policy month is determined by
multiplying the monthly cost of insurance rate by the net amount at risk. The
net amount at risk is the difference between the death benefit and the Policy's
Cash Value, each calculated at the beginning of the policy month.
If death benefit Option 1 is in effect and there have been increases in the
Specified Amount, then the Cash Value shall first be considered a part of the
initial Specified Amount. If the Cash Value exceeds the initial Specified
Amount, it shall then be considered a part of the additional increases in
Specified Amount resulting from the increases in the order of the increases.
Monthly cost of insurance rates will not exceed those guaranteed in the Policy.
Guaranteed cost of insurance rates for Policies issued on Specified Amounts less
than $100,000 are based on the 1980 Commissioners Extended Term Mortality Table,
Age Last Birthday (1980 CET). Guaranteed cost of insurance rates for Policies
issued on Specified Amounts $100,000 or more are based on the 1980 Commissioners
Standard Ordinary Mortality Table, Age Last Birthday (1980 CSO). Guaranteed cost
of insurance rates for Policies issued on a substandard basis are based on
appropriate percentage multiples of the 1980 CSO. These mortality tables are sex
distinct. In addition, separate mortality tables will be used for standard and
non-tobacco.
For Policies issued in Texas on a standard basis ("Special Class - Standard" in
Texas), guaranteed cost of insurance rates for Specified Amounts less than
$100,000 are based on 130% of the 1980 Commissioners Standard Ordinary Mortality
Table, Age Last Birthday (1980 CSO).
The rate class of an Insured may affect the cost of insurance rate. The Company
currently places Insureds into both standard rate classes and substandard
classes that involve a higher mortality risk. In an otherwise identical Policy,
an Insured in the standard rate class will have a lower cost of insurance than
an Insured in a
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<PAGE> 18
rate class with higher mortality risks. The Company may also issue certain
Policies on a "Non Medical" basis to certain categories of individuals. Due to
the underwriting criteria established for Policies issued on a Non Medical
basis, actual rates will be higher than the current cost of insurance rates
being charged under Policies that are medically underwritten.
- -Monthly Administrative Charge
The Company deducts a monthly Administrative Expense Charge to reimburse it for
certain expenses related to maintenance of the Policies, accounting and record
keeping and periodic reporting to Policy Owners. This charge is designed only to
reimburse the Company for certain actual administrative expenses. The Company
does not expect to recover from this charge any amount in excess of aggregate
maintenance expenses. Currently, this charge is $25 per month in the first year,
$5 per month in renewal years. The Company may at its sole discretion increase
this charge. However, the Company guarantees that this charge will never exceed
$7.50 per month in renewal years.
- -Increase Charge
The Increase Charge is comprised of two components: an underwriting and
administration charge as well as a sales charge (see "Specified Amount
Increases"). The underwriting and administration charge is $1.50 per year per
$1000. This charge is to cover the cost of underwriting the increases and any
processing expenses. Nationwide Life and Annuity does not expect to profit from
this charge. The sales charge is equal to .54 per year per $1000 and reimburses
the Company for expenses incurred in distribution.
Deductions from the Sub-Accounts
The Company assumes certain risks for guaranteeing the mortality and expense
charges. The mortality risk assumed under the Policies is that the Insured may
not live as long as expected. The expense risk assumed is that the actual
expenses incurred in issuing and administering the Policies may be greater than
expected. In addition, the Company assumes risks associated with the
non-recovery of policy issue, underwriting and other administrative expenses due
to Policies which lapse or are surrendered in the early Policy Years.
To compensate the Company for assuming these risks associated with the Policies,
the Company deducts on a daily basis from the assets of the Variable Account a
charge to provide for mortality and expense risks. This charge is equivalent to
an annual effective rate of 0.80% of the daily net assets of the Variable
Account. On each Policy Anniversary beginning with the 10th, the mortality and
expense risk charge is reduced to 0.50% on an annual basis of the daily net
assets of the Variable Account, provided the Cash Surrender Value is $25,000 or
more on such anniversary. To the extent that future levels of mortality and
expenses are less than or equal to those expected, the Company may realize a
profit from this charge. The Surrender Charge may be insufficient to recover
certain expenses related to the sale of the Policies. Unrecovered expenses are
borne by the Company's general assets which may include profits, if any, from
mortality and expense risk charges (see "Surrender Charges").
The Company does not currently assess any charge for income taxes incurred by
the Company as a result of the operations of the sub-accounts of the Variable
Account (see "Taxation of the Company"). The Company reserves the right to
assess a charge for such taxes against the Variable Account if the Company
determines that such taxes will be incurred.
HOW THE CASH VALUE VARIES
On any date during the Policy Year, the Cash Value equals the Cash Value on the
preceding Valuation Date, plus any Net Premium applied since the previous
Valuation Date, minus any partial surrenders, plus or minus any investment
results, and less any Policy Charges.
There is no guaranteed Cash Value. The Cash Value will vary with the investment
experience of the Variable Account and/or the daily crediting of interest in the
Fixed Account and Policy Loan Account depending on the allocation of Cash Value
by the Policy Owner.
How the Investment Experience is Determined
The Cash Value in each sub-account is converted to Accumulation Units of that
sub-account. The conversion is accomplished by dividing the amount of Cash Value
allocated to a sub-account by the value of an Accumulation Unit for the
sub-account of the Valuation Period during which the allocation occurs.
The value of an Accumulation Unit for each sub-account was arbitrarily set
initially at $10 when the Mutual Fund shares in that sub-account were available
for purchase. The value for any subsequent Valuation Period is determined by
multiplying the Accumulation Unit value for each sub-account for the immediately
preceding
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<PAGE> 19
Valuation Period by the Net Investment Factor for the sub-account during the
subsequent Valuation Period. The value of an Accumulation Unit may increase or
decrease from Valuation Period to Valuation Period. The number of Accumulation
Units will not change as a result of investment experience.
Net Investment Factor
The Net Investment Factor for any Valuation Period is determined by dividing (a)
by (b) and subtracting (c) from the result where:
(a) is the net of:
(1) the Net Asset Value per share of the Underlying Mutual Fund held in
the sub-account determined at the end of the current Valuation Period,
plus
(2) the per share amount of any dividend or capital gain distributions
made by the Underlying Mutual Fund held in the sub-account if the
"ex-dividend" date occurs during the current Valuation Period.
(b) is the net of:
(1) the Net Asset Value per share of the Underlying Mutual Fund held in
the Sub-Account determined at the end of the immediately preceding
Valuation Period, plus or minus
(2) the per share charge or credit, if any, for any taxes reserved for in
the immediately preceding Valuation Period.
(c) is a factor representing the daily Mortality and Expense Risk Charge
deducted from the Variable Account. Such factor is equal to an annual rate
of 0.80% of the daily Net Asset Value of the Variable Account. On each
Policy Anniversary beginning with the 10th, the mortality and expense risk
charge is reduced to 0.50% on an annual basis of the daily net assets of
the Variable Account, provided the Cash Surrender Value is $25,000 or more
on such anniversary.
For Underlying Mutual Fund options that credit dividends on a daily basis and
pay such dividends once a month, the Net Investment Factor allows for the
monthly reinvestment of these daily dividends.
The Net Investment Factor may be greater or less than one; therefore, the value
of an Accumulation Unit may increase or decrease. It should be noted that
changes in the Net Investment Factor may not be directly proportional to changes
in the Net Asset Value of Underlying Mutual Fund shares, because of the
deduction for Mortality and Expense Risk Charge, and any charge or credit for
tax reserves.
Valuation of Assets
Underlying Mutual Fund shares in the Variable Account will be valued at their
Net Asset Value.
Determining the Cash Value
The sum of the value of all Variable Account Accumulation Units attributable to
the Policy and amounts credited to the Fixed Account is the Cash Value. The
number of Accumulation Units credited per each sub-account are determined by
dividing the net amount allocated to the sub-account by the Accumulation Unit
Value for the sub-account for the Valuation Period during which the premium is
received by the Company. If part or all of the Cash Value is surrendered or
charges or deductions are made against the Cash Value, an appropriate number of
Accumulation Units from the Variable Account and an appropriate amount from the
Fixed Account will be deducted in the same proportion that the Policy Owner's
interest in the Variable Account and the Fixed Account bears to the total Cash
Value.
The Cash Value in the Fixed Account and the Policy Loan Account is credited with
interest daily at an effective annual rate which the Company periodically
declares. The annual effective rate will never be less than 4%. Upon request,
the Company will inform the Policy Owner of the then applicable rates for each
account.
Valuation Periods and Valuation Dates
A Valuation Period is the period commencing at the close of business on the New
York Stock Exchange and ending at the close of business for the next succeeding
Valuation Date. A Valuation Date is each day that the New York Stock Exchange
and the Company's Home Office are open for business or any other day during
which there is sufficient degree of trading that the current Net Asset Value of
the Accumulation Units might be materially affected.
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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 a Savings and Loan, which is a member of the Federal Deposit Insurance
Corporation or other guarantor institution as defined by federal securities laws
and regulations. In some cases, the Company may require additional documentation
of a customary nature.
Cash Surrender Value
The Cash Surrender Value increases or decreases daily to reflect the investment
experience of the Variable Account and the daily crediting of interest in the
Fixed Account and the Policy Loan Account. The Cash Surrender Value equals the
Policy's Cash Value, next computed after the date the Company receives a proper
written request for surrender and the Policy, minus any charges, Indebtedness or
other deductions due on that date, which may also include a Surrender Charge.
Partial Surrenders
After the Policy has been in force for one year, the Policy Owner may request a
partial surrender. Partial surrenders will be permitted only if they satisfy the
following requirements:
1. The minimum partial surrender is $500;
2. The partial surrender may not reduce the Specified Amount to less than
$50,000;
3. After the partial surrender, the Cash Surrender Value is greater than
$500 or an amount equal to three times the current monthly deduction
if higher;
4. The maximum total partial surrenders in any policy year are limited to
10% of the total premium payments. On a current basis, this
requirement is waived in years 15 and beyond provided the Cash
Surrender Value is $10,000 or more after the withdrawal; and
5. After the partial surrender, the Policy continues to qualify as life
insurance.
When a partial surrender is made, the Cash Value is reduced by the amount of the
partial surrender. Under Death Benefit Option 1, the Specified Amount is reduced
by the amount of the partial surrender, unless the death benefit is based on the
applicable percentage of cash value. In such a case, a partial surrender will
decrease the Specified Amount by the amount by which the partial surrender
exceeds the difference between the death benefit and Specified Amount. Partial
surrender amounts must be first deducted from the values in the Variable Account
sub-accounts. Partial surrenders will be deducted from the Fixed Account only to
the extent that insufficient values are available in the Variable Account
sub-accounts. The Company reserves the right to deduct a $25.00 fee from the
partial surrender amount.
Surrender charges will be waived for any partial surrenders which satisfy the
above conditions. Certain partial surrenders may result in currently taxable
income and tax penalties (see "Tax Matters").
Maturity Proceeds
The Maturity Date is the Policy Anniversary on or next following the Insured's
95th birthday. The maturity proceeds will be payable to the Policy Owner on the
Maturity Date provided the Policy is still in force. The Maturity Proceeds will
be equal to the amount of the Policy's Cash Value, less any Indebtedness.
Income Tax Withholding
Federal law requires the Company to withhold income tax from any portion of
surrender proceeds that is subject to tax, unless the Policy Owner advises the
Company, in writing, of his or her request not to withhold.
If the Policy Owner requests that the Company not withhold taxes, or if the
taxes withheld are insufficient, the Policy Owner may be liable for payment of
an estimated tax. The Policy Owner should consult his or her tax advisor.
In certain employer-sponsored life insurance arrangements, including equity
split dollar arrangements, participants may be required to report for income tax
purposes, one or more of the following: (1) the value each year of the life
insurance protection provided; (2) an amount equal to any employer-paid
premiums; or (3) some or all of the amount by which the current value of the
policy exceeds the employer's interest in the policy.
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Participants should consult with the sponsor or the administrator of the plan,
and/or with their personal tax or legal advisers, to determine the tax
consequences, if any, of their employer-sponsored life insurance arrangements.
POLICY LOANS
Taking a Policy Loan
After the first Policy Year, the Policy Owner may take a Policy loan using the
Policy as security. Maximum Policy Indebtedness is limited to 90% of the Cash
Value less Surrender Charge less interest due on the next Policy Anniversary.
Maximum Policy Indebtedness, in Texas, is limited to 90% of the Cash Value in
the sub-accounts and 100% of the Cash Value in the Fixed Account less Surrender
Charge less interest due on the next Policy Anniversary. The Company will not
grant a loan for an amount less than $200. Should the Death Proceeds become
payable, the Policy be surrendered, or the Policy mature while a loan is
outstanding, the amount of Policy Indebtedness will be deducted from the death
benefit, Cash Surrender Value or the maturity value, respectively.
Any request for a Policy loan must be in written form satisfactory to the
Company. The request must be signed and, where permitted, the signature
guaranteed by a member firm of the New York, American, Boston, Midwest,
Philadelphia or Pacific Stock Exchange; or by a Commercial Bank or a Savings and
Loan which is a member of the Federal Deposit Insurance Corporation. Certain
policy loans may result in currently taxable income and tax penalties (see "Tax
Matters").
A Policy Owner considering the use of policy loans in connection with his or her
retirement income plan should consult his or her personal tax adviser regarding
potential tax consequences that may arise if necessary payments are not made to
keep the Policy from lapsing. The amount of such payments necessary to prevent
the Policy from lapsing would increase with age (see "Tax Matters").
Effect on Investment Performance
When a loan is made, an amount equal to the amount of the loan is transferred
from the Variable Account to the Policy Loan Account. If the assets relating to
a Policy are held in more than one sub-account, withdrawals from sub-accounts
will be made in proportion to the assets in each Variable sub-account at the
time of the loan. Policy loans will be transferred from the Fixed Account only
when insufficient amounts are available in the Variable sub-accounts. The amount
taken out of the Variable Account will not be affected by the Variable Account's
investment experience while the loan is outstanding.
Interest
On a current basis, policy loans are credited with an annual effective rate of
5.1% during policy years 2 through 14 and an annual effective rate of 6% during
the 15th and subsequent policy years. The rate is guaranteed never to be lower
than 5.1%. The Company may change the current interest crediting rate on policy
loans at any time at its sole discretion. The loan interest rate is 6% per year
for all Policy loans. In the event that it is determined that such loans will be
treated, as a result of the differential between the interest crediting rate and
the loan interest rate, as taxable distributions under any applicable ruling,
regulation, or court decision, the Company retains the right to increase the net
cost (by decreasing the interest crediting rate) on all subsequent policy loans
to an amount that would result in the transaction being treated as a loan under
Federal tax law. If this amount is not prescribed by such ruling, regulation, or
court decision, the amount will be that which the Company considers to be more
likely to result in the transaction being treated as a loan under Federal tax
law.
Amounts transferred to the Policy Loan Account will earn interest daily from the
date of transfer. The earned interest is transferred from the Policy Loan
Account to a Variable Account or the Fixed Account on each Policy Anniversary or
at the time of loan repayment. It will be allocated according to the Fund
allocation factors in effect at the time of the transfer.
Interest is charged daily and is payable at the end of each Policy Year or at
the time of loan repayment. Unpaid interest will be added to the existing Policy
Indebtedness as of the due date and will be charged interest at the same rate as
the rest of the Indebtedness.
Effect on Death Benefit and Cash Value
A Policy loan, whether or not repaid, will have a permanent effect on the Death
Benefit and Cash Value because the investment results of the Variable Account or
the Fixed Account will apply only to the non-loaned portion of the Cash Value.
The longer the loan is outstanding, the greater the effect is likely to be.
Depending on the investment results of the Variable Account or the Fixed Account
while the loan is outstanding, the effect could be favorable or unfavorable.
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Repayment
All or part of the Indebtedness may be repaid at any time while the Policy is in
force during the Insured's lifetime. Any payment intended as a loan repayment,
rather than a premium payment, must be identified as such. Loan repayments will
be credited to the Variable sub-accounts and the Fixed Account in proportion to
the Policy Owner's Fund allocation factors in effect at the time of the
repayment. Each repayment may not be less than $50. The Company reserves the
right to require that any loan repayments resulting from Policy loans
transferred from the Fixed Account must be first allocated to the Fixed Account.
HOW THE DEATH BENEFIT VARIES
Calculation of the Death Benefit
At issue, the Policy Owner selects the Specified Amount.
While the Policy is in force, the death benefit will never be less than the
Specified Amount. The death benefit may vary with the Cash Value of the Policy,
which depends on investment performance.
The Policy Owner may choose one of two death benefit options. Under Option 1,
the death benefit will be the greater of the Specified Amount or the Applicable
Percentage of Cash Value. Under Option 1, the amount of the death benefit will
ordinarily not change for several years to reflect the investment performance
and may not change at all. If investment performance is favorable the amount of
death benefit may increase. To see how and when investment performance will
begin to affect death benefits, please see the illustrations. Under Option 2,
the death benefit will be the greater of the Specified Amount plus the Cash
Value, or the Applicable Percentage of Cash Value and will vary directly with
the investment performance.
The term "Applicable Percentage" means:
1. 250% when the Insured is Attained Age 40 or less at the beginning of a
Policy Year; and
2. when the Insured is above Attained Age 40, the percentage shown in the
"Applicable Percentage of Cash Value Table" shown in this provision.
APPLICABLE PERCENTAGE OF CASH VALUE TABLE
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%
49 191% 69 116% 89 105%
50 185% 70 115% 90 105%
51 178% 71 113% 91 104%
52 171% 72 111% 92 103%
53 164% 73 109% 93 102%
54 157% 74 107% 94 101%
55 150% 75 105% 95 100%
56 146% 76 105%
57 142% 77 105%
58 138% 78 105%
59 134% 79 105%
Proceeds Payable on Death
The actual Death Proceeds payable on the Insured's death will be the death
benefit as described above, less any Policy Indebtedness and less any unpaid
Policy Charges. Under certain circumstances, the Death Proceeds may be adjusted
(see "Incontestability", "Error in Age or Sex" and "Suicide").
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<PAGE> 23
RIGHT TO EXCHANGE FOR A FIXED BENEFIT POLICY
The Policy Owner may exchange the Policy for a flexible premium adjustable life
insurance policy offered by the Company on the Policy Date. The benefits for the
new policy will not vary with the investment experience of a separate account.
The exchange must be elected within 24 months from the Policy Date. No evidence
of insurability will be required.
The Policy Owner and Beneficiary under the new policy will be the same as those
under the exchanged Policy on the effective date of the exchange. The new policy
will have a death benefit on the exchange date not more than the death benefit
of the original Policy immediately prior to the exchange date. The new policy
will have the same Policy Date and issue age as the original Policy. The initial
Specified Amount and any increases in Specified Amount will have the same rate
class as those of the original Policy. Any Indebtedness may be transferred to
the new policy.
The exchange may be subject to an equitable adjustment in rates and values to
reflect variances, if any, in the rates and values between the two Policies.
After adjustment, if any excess is owed the Policy Owner, the Company will pay
the excess to the Policy Owner in cash. The exchange may be subject to federal
income tax withholding (see "Income Tax Withholding").
CHANGES OF INVESTMENT POLICY
The Company may materially change the investment policy of the Variable Account.
The Company must inform the Policy Owners and obtain all necessary regulatory
approvals. Any change must be submitted to the various state insurance
departments which may disapprove it if deemed detrimental to the interests of
the Policy Owners or if it renders the Company's operations hazardous to the
public. If a Policy Owner objects, the Policy may be converted to a
substantially comparable General Account life insurance policy offered by the
Company on the life of the Insured. The Policy Owner has the later of 60 days (6
months in Pennsylvania) from the date of the investment policy change or 60 days
(6 months in Pennsylvania) from being informed of such change to make this
conversion. The Company will not require evidence of insurability for this
conversion.
The new policy will not be affected by the investment experience of any separate
account. The new policy will be for an amount of insurance not exceeding the
death benefit of the Policy converted on the date of such conversion.
GRACE PERIOD
- -First Three Policy Years
This Policy will not lapse during the first three Policy Years provided that on
each Monthly Anniversary Day (1) is greater than or equal to (2) where:
(1) Is the sum of all premiums paid to date minus any Policy Indebtedness,
minus any partial surrenders, and minus any partial surrender fee; and
(2) Is the sum of monthly Minimum Premiums required since the Policy Date
including the monthly Minimum Premium for the current Monthly
Anniversary Day.
If (1) is less than (2) and the Cash Surrender Value is less than zero, a Grace
Period of 61 days from the Monthly Anniversary Day will be allowed for the
payment of sufficient premium to satisfy the Minimum Premium requirement. If
sufficient premium is not paid by the end of the Grace Period, the Policy will
lapse without value. In any event the Policy will not lapse as long as there is
a positive Cash Surrender Value.
- -Policy Years Four and After
If the Cash Surrender Value on a Monthly Anniversary Day is not sufficient to
cover the current Policy Charges, a Grace Period of 61 days from the Monthly
Anniversary Day will be allowed for the payment of sufficient premium to cover
the current Policy Charges due plus an amount equal to three times the current
monthly deduction.
- -All Policy Years
The Company will send such a notice at the start of the Grace Period to the
Policy Owner's last known address. If the Insured dies during the Grace Period,
the Company will pay the Death Proceeds.
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REINSTATEMENT
If the Grace Period ends and the Policy Owner has neither paid the required
premium nor surrendered the Policy for its Cash Surrender Value, the Policy
Owner may reinstate the Policy by:
1. submitting a written request at any time within 3 years after the end
of the Grace Period and prior to the Maturity Date;
2. providing evidence of insurability satisfactory to the Company;
3. paying an amount of premium equal to the sum of the Minimum Monthly
Premiums missed since the beginning of the Grace Period, if the Policy
terminated in the first three policy years;
4. paying sufficient premium to cover all policy charges that were due
and unpaid during the Grace Period if the Policy terminated in the
fourth or later policy year;
5. paying sufficient premium to keep the Policy in force for 3 months
from the date of reinstatement; and
6. paying or reinstating any Indebtedness against the Policy which
existed at the end of the Grace Period.
The effective date of a reinstated Policy will be the Monthly Anniversary Day on
or next following the date the application for reinstatement is approved by the
Company. If the Policy is reinstated, the Cash Value on the date of
reinstatement, but prior to applying any premiums or loan repayments received,
will be set equal to the lesser of:
1. the Cash Value at the end of the Grace Period; or
2. the Surrender Charge for the Policy Year in which the Policy was
reinstated.
Unless the Policy Owner has provided otherwise, all amounts will be allocated
based on the Fund allocation factors in effect at the start of the Grace Period.
THE FIXED ACCOUNT OPTION
Under of exemptive and exclusionary provisions, interests in the Company's
General Account have not been registered under the Securities Act of 1933 and
the General Account has not been registered as an investment company under the
Investment Company Act of 1940. Accordingly, neither the General Account nor any
interests therein is subject to the provisions of these Acts, and the Company
has been advised that the staff of the Securities and Exchange Commission has
not reviewed the disclosures in this prospectus relating to the Fixed Account
option. Disclosures regarding the General Account may, however, be subject to
certain generally applicable provisions of the federal securities laws
concerning the accuracy and completeness of statements made in prospectuses.
As explained earlier, a Policy Owner may elect to allocate or transfer all or
part of the Cash Value to the Fixed Account and the amount allocated or
transferred becomes part of the Company's General Account. The Company's General
Account consists of all assets of the Company other than those in the Variable
Account and in other separate accounts that have been or may be established by
the Company. Subject to applicable law, the Company has sole discretion over the
investment of the assets of the General Account, and Policy Owners do not share
in the investment experience of those assets. The Company guarantees that the
part of the Cash Value invested under the Fixed Account option will accrue
interest daily at an effective annual rate that the Company declares
periodically. The Fixed Account crediting rate will not be less than an
effective annual rate of 4%. Upon request the Company will inform a Policy Owner
of the then applicable rate. The Company is not obligated to credit interest at
a higher rate.
CHANGES IN EXISTING INSURANCE COVERAGE
The Policy Owner may request certain changes in the insurance coverage under the
Policy. Any request must be in writing and received at the Company's Home
Office. No change will take effect unless the Cash Surrender Value, after the
change, is sufficient to keep the Policy in force for at least 3 months.
Specified Amount Increases
After the first Policy Year, the Policy Owner may request an increase to the
Specified Amount. Any increase will be subject to the following conditions:
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<PAGE> 25
1. the request must be applied for in writing;
2. satisfactory evidence of insurability must be provided;
3. the increase must be for a minimum of $10,000;
4. the Cash Surrender Value is sufficient to continue the Policy in force
for at least 3 months; and
5. age limits are the same as for a new issue.
Any approved increase will have an effective date of the Monthly Anniversary Day
on or next following the date the Company approves the supplemental application.
The Company reserves the right to limit the number of Specified Amount increases
to one each Policy Year.
Specified Amount Decreases
After the first Policy Year, the Policy Owner may also request a decrease to the
Specified Amount. Any approved decrease will be effective on the Monthly
Anniversary Day on or next following the date the Company receives the request.
Any such decrease shall reduce insurance in the following order:
1. against insurance provided by the most recent increase;
2. against the next most recent increases successively; and
3. against insurance provided under the original application.
The Company reserves the right to limit the number of Specified Amount decreases
to one each Policy Year. The Company will refuse a request for a decrease which
would:
1. reduce the Specified Amount to less than $50,000; or
2. disqualify the Policy as a contract for life insurance.
Changes in the Death Benefit Option
After the first Policy Year, the Policy Owner may change the death benefit
option under the Policy. If the change is from Option 1 to Option 2, the
Specified Amount will be decreased by the amount of the Cash Value. If the
change is from Option 2 to Option 1, the Specified Amount will be increased by
the amount of the Cash Value. Evidence of insurability is not required for a
change from Option 2 to Option 1. The Company reserves the right to require
evidence of insurability for a change from Option 1 to Option 2. The effective
date of the change will be the Monthly Anniversary Day on or next following the
date the Company approves the request for change. Only one change of option is
permitted per Policy Year. A change in death benefit option will not be
permitted if it results in the total premiums paid exceeding the then current
maximum premium limitations prescribed by the Internal Revenue Service to
qualify the Policy as a life insurance contract.
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<PAGE> 26
OTHER POLICY PROVISIONS
Policy Owner
While the Insured is living, all rights in this Policy are vested in the Policy
Owner named in the application or as subsequently changed, subject to
assignment, if any.
The Policy Owner may name a contingent Policy Owner or a new Policy Owner while
the Insured is living. Any change must be in a written form satisfactory to the
Company and recorded at the Company's Home Office. Once recorded, the change
will be effective when signed. The change will not affect any payment made or
action taken by the Company before it was recorded. The Company may require that
the Policy be submitted for endorsement before making a change.
If the Policy Owner is other than the Insured and names no contingent Policy
Owner, and dies before the Insured, the Policy Owner's rights in this Policy
belong to the Policy Owner's estate.
Beneficiary
The Beneficiary(ies) shall be as named in the application or as subsequently
changed, subject to assignment, if any.
The Policy Owner may name a new Beneficiary while the Insured is living. Any
change must be in a written form satisfactory to the Company and recorded at the
Company's Home Office. Once recorded, the change will be effective when signed.
The change will not affect any payment made or action taken by the Company
before it was recorded.
If any Beneficiary predeceases the Insured, that Beneficiary's interest passes
to any surviving Beneficiary(ies), unless otherwise provided. Multiple
Beneficiaries will be paid in equal shares, unless otherwise provided. If no
named Beneficiary survives the Insured, the Death Proceeds shall be paid to the
Policy Owner or the Policy Owner's estate.
Assignment
While the Insured is living, the Policy Owner may assign his or her rights in
the Policy. The assignment must be in writing, signed by the Policy Owner and
recorded by the Company at its Home Office. Any assignment will not affect any
payments made or actions taken by the Company before it was recorded. The
Company is not responsible for any assignment not submitted for recording, nor
is the Company responsible for the sufficiency or validity of any assignment.
The assignment will be subject to any Indebtedness owed to the Company before it
was recorded.
Incontestability
The Company will not contest payment of the Death Proceeds based on the initial
Specified Amount after the Policy has been in force during the Insured's
lifetime for 2 years from the Policy Date. For any increase in Specified Amount
requiring evidence of insurability, the Company will not contest payment of the
Death Proceeds based on such an increase after it has been in force during the
Insured's lifetime for 2 years from its effective date.
Error in Age or Sex
If the age or sex of the Insured has been misstated, the affected benefits will
be adjusted. The amount of the death benefit will be (1) multiplied by (2) and
then the result added to (3), where:
(1) is the amount of the death benefit at the time of the Insured's death
reduced by the amount of the Cash Value at the time of the Insured's
death;
(2) is the ratio of the monthly cost of insurance applied in the policy
month of death and the monthly cost of insurance that should have been
applied at the true age and sex in the policy month of death; and
(3) is the Cash Value at the time of the Insured's death.
Suicide
If the Insured dies by suicide, while sane or insane, within two years from the
Policy Date, the Company will pay no more than the sum of the premiums paid,
less any indebtedness. If the Insured dies by suicide, while sane or insane,
within two years from the date an application is accepted for an increase in the
Specified Amount, the Company will pay no more than the amount paid for such
additional benefit.
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<PAGE> 27
Nonparticipating Policies
These are nonparticipating Policies on which no dividends are payable. These
Policies do not share in the profits or surplus earnings of the Company.
LEGAL CONSIDERATIONS
On July 6, 1983, the U.S. Supreme Court held in Arizona Governing Committee v.
Norris that certain annuity benefits provided by employers' retirement and
fringe benefit programs may not vary between men and women on the basis of sex.
This decision applies only to benefits derived from contributions made on or
after August 1, 1983. The Policies offered by this prospectus are based upon
actuarial tables which distinguish between men and women and thus the Policies
provide different benefits to men and women of the same age. Accordingly,
employers and employee organizations should consider, in consultation with legal
counsel, the impact of Norris on any employment related insurance or benefit
program before purchasing this Policy.
DISTRIBUTION OF THE POLICIES
The Policies will be sold by licensed insurance agents in those states where the
Policies may lawfully be sold. Such agents will be registered representatives of
broker dealers registered under the Securities Exchange Act of 1934 who are
members of the National Association of Securities Dealers, Inc. (NASD). The
Policies will be distributed by the General Distributor, Nationwide Advisory
Services, Inc.
Nationwide Advisory Services, Inc., One Nationwide Plaza, Columbus, Ohio 43216,
("NAS") acts as general distributor for Nationwide Multi-Flex Variable Account,
Nationwide DC Variable Account, Nationwide DCVA-II, Nationwide Variable
Account-II, Nationwide Variable Account-5, Nationwide Variable Account-6,
Nationwide Variable Account-8, Nationwide 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 Nationwide Variable
Account, all of which are separate investment accounts of the Company or its
affiliates. NAS is a wholly owned subsidiary of the Company.
NAS also acts as principal underwriter for the Nationwide Investing Foundation,
Nationwide Separate Account Trust, Financial Horizons Investment Trust,
Nationwide Investing Foundation II and Nationwide Asset Allocation Trust, which
are open-end management investment companies.
Gross first year commissions plus any expense allowance payments paid by the
Company on the sale of these policies provided by the General Distributor will
not exceed 80% of the target Premium plus 4% of any excess premium payments.
Gross renewal commissions in years 2-10 paid by the Company will not exceed 4%
of actual premium payment, and will not exceed 1% in years 11+.
CUSTODIAN OF ASSETS
The Company serves as the Custodian of the assets of the Variable Account.
TAX MATTERS
Policy Proceeds
Section 7702 of the Code provides that if certain tests are met, a Policy will
be treated as a life insurance policy for federal tax purposes. The Company will
monitor compliance with these tests. The Policy should thus receive the same
federal income tax treatment as fixed benefit life insurance. As a result, the
Death Proceeds payable under a Policy are excludable from gross income of the
beneficiary under Section 101 of the Code.
Section 7702A of the Code defines modified endowment contracts as those policies
issued or materially changed on or after June 21, 1988 on which the total
premiums paid during the first seven years exceed the amount that would have
been paid if the policy provided for paid up benefits after seven level annual
premiums (see "Information about the Policies"). The Code provides for taxation
of surrenders, partial surrenders, loans, collateral assignments and other
pre-death distributions from modified endowment contracts (other than certain
distributions to terminally ill or chronically ill individuals) are subject to
federal income taxes a manner similar to the way annuities are taxed. Modified
endowment contract distributions are defined by the Code as amounts not received
as an annuity and are taxable to the extent the cash value of the policy
exceeds, at the time of distribution, the premiums paid into the policy. A 10%
tax penalty generally applies to the taxable portion of such distributions
unless the Policy Owner is over age 59 1/2 or disabled. Under certain
circumstances, certain
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<PAGE> 28
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.
It may not be advantageous to replace existing insurance with Policies described
in this prospectus. It may also be disadvantageous to purchase a policy to
obtain additional insurance protection if the purchaser already owns another
variable life insurance policy.
The Policies offered by this prospectus may or may not be issued as modified
endowment contracts. The Company will monitor premiums paid and will notify the
Policy Owner when the policy's non-modified endowment status is in jeopardy. If
a policy is not a modified endowment contract, a cash distribution during the
first 15 years after a policy is issued which causes a reduction in death
benefits may still become fully or partially taxable to the Owner pursuant to
Section 7702(f)(7) of the Code. The Policy Owner should carefully consider this
potential effect and seek further information before initiating any changes in
the terms of the policy. Under certain conditions, a policy may become a
modified endowment as a result of a material change or a reduction in benefits
as defined by Section 7702A(c) of the Code.
In addition to meeting the tests required under Section 7702, Section 817(h) of
the Code requires that the investments of separate accounts such as the Variable
Account be adequately diversified. Regulations under 817(h) provide that a
variable life policy failing to satisfy the diversification standards will not
be treated as life insurance unless such failure was inadvertent, is corrected,
and the Policy Owner or the Company pays an amount to the Internal Revenue
Service. The amount will be based on the tax that would have been paid by the
Policy Owner if the income, for the period the policy was not diversified, had
been received by the Policy Owner. If the failure to diversify is not corrected
in this manner, the Policy Owner will be deemed the owner of the underlying
securities and taxed on the earnings of his or her account.
Should the Secretary of the Treasury issue additional rules or regulations
limiting the number of funds, transfers between funds, exchanges of funds or
changes in investment objectives of funds such that the Policy would no longer
qualify as life insurance under Section 7702 of the Code, the Company will take
whatever steps are available to remain in compliance.
The Company will monitor compliance with these regulations and, to the extent
necessary, will change the objectives or assets of the sub-account investments
to remain in compliance.
A total surrender or cancellation of the policy by lapse or the maturity of the
Policy on its Maturity Date may have adverse tax consequences. If the amount
received by the Policy Owner plus total Policy Indebtedness exceeds the premiums
paid into the Policy, the excess will generally be treated as taxable income,
regardless of whether or not the Policy is a modified endowment contract.
- - Federal Estate and Generation-Skipping Transfer Taxes
The federal estate tax is integrated with the federal gift tax under a unified
tax rate schedule. In general, an estate of less than $600,000 (inclusive of
certain predeath gifts) will not incur a federal estate tax liability. In
addition, an unlimited marital deduction may be available for federal estate tax
purposes, for certain amounts that pass to the surviving spouse.
When the Insured dies, the death benefit will generally be included in the
lnsured's federal gross estate if: (1) the proceeds were payable to or for the
benefit of the Insured's estate; or (2) the Insured held any "incident of
ownership" in the Policy at death or at any time within three years of death. An
incident of ownership is, in general, any right that may be exercised by the
Policy, 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
25
<PAGE> 29
counsel and other competent advisors regarding these taxes,
- - Non-Resident Aliens
Distributions to nonresident aliens ("NRAs") are generally subject to federal
income tax and tax withholding, at a statutory rate of 30% of the amount of
income that is distributed. The Company is required to withhold such amount from
the Distribution and remit it to the Internal Revenue Service. Distributions to
certain NRAs may be subject to lower, or in certain instances zero, tax and
withholding rates, if the United States has entered into an applicable treaty.
However, in order to obtain the benefits of such treaty provisions, the NRA must
give to the Company sufficient proof of his or her residency and citizenship in
the form and manner prescribed by the Internal Revenue Service. In addition, for
any Distribution made after December 31, 1997, the NRA must obtain an individual
Taxpayer Identification Number from the Internal Revenue Service, and furnish
that number to the Company prior to the Distribution. If the Company does not
have the proper proof of citizenship or residency and (for Distributions after
December 31, 1997) a proper individual Taxpayer Identification Number prior to
any Distribution, the Company will be required to withhold 30% of the income,
regardless of any treaty provision.
A payment may not be subject to withholding where the recipient sufficiently
establishes to the Company that such payment is effectively connected to the
recipient's conduct of a trade or business in the United States and that such
payment is includable in the recipient's gross income for United States federal
income tax purposes, Any such distributions may be subject to back-up
withholding at the statutory rate (currently 31%) if not 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
26
<PAGE> 30
such change may take place. No representation is made as to the likelihood of
the continuation of these current laws, interpretations, and policies.
THE FOREGOING IS A GENERAL EXPLANATION AS TO CERTAIN TAX MATTERS PERTAINING TO
INSURANCE POLICIES. IT IS NOT INTENDED TO BE LEGAL OR TAX ADVICE, AND SHOULD NOT
TAKE THE PLACE OF YOUR INDEPENDENT LEGAL, TAX AND/OR FINANCIAL ADVISOR.
THE COMPANY
The 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 serves as depositor for the Nationwide VA Separate Account-A,
Nationwide VA Separate Account-B, Nationwide VA Separate Account-C, Nationwide
VL Separate Account-A and Nationwide VL Separate Account-B, each of which is a
registered investment company, and each of which is a separate investment
account of the Company.
The Company, in common with other insurance companies, is subject to regulation
and supervision by the regulatory authorities of the states in which it is
licensed to do business. A license from the state insurance department is a
prerequisite to the transaction of insurance business in that state. In general,
all states have statutory administrative powers. Such regulation relates, among
other things, to licensing of insurers and their agents, the approval of policy
forms, the methods of computing reserves, the form and content of statutory
financial statements, the amount of policyholders' and stockholders' dividends,
and the type of distribution of investments permitted.
The Company operates in the highly competitive field of life insurance. There
are approximately 2,300 stock, mutual and other types of insurers in the life
insurance business in the United States, and a large number of them compete with
the registrant in the sale of insurance policies.
As is customary in insurance company groups, employees are shared with the other
insurance companies in the group. In addition to its direct salaried employees,
the Company shares employees with Nationwide Mutual Insurance Company and
Nationwide Mutual Fire Insurance Company.
The Company does not presently own or lease any materially important properties
when its property holdings are viewed in relation to its total assets. The
Company shares Home Office, other facilities and equipment with Nationwide
Mutual Insurance Company.
COMPANY MANAGEMENT
Nationwide Life and Annuity Insurance Company, together with Nationwide Mutual
Insurance Company, Nationwide Indemnity Company, Nationwide Mutual Fire
Insurance Company, Nationwide Life Insurance Company, Nationwide Property and
Casualty Insurance Company, National Casualty Company, Scottsdale Indemnity
Company and Nationwide General Insurance Company comprise the Nationwide
Insurance Enterprise.
The companies comprising the Nationwide Insurance Enterprise have substantially
common boards of directors and officers. Nationwide Life Insurance Company is
the sole shareholder of Nationwide Life and Annuity Insurance Company.
Directors of the Company
Director
Name Since Principal Occupation
---- ----- --------------------
Lewis J. Alphin 1993 Farm Owner and Operator (1)
Keith W. Eckel 1996 Partner, Fred W. Eckel Sons; President,
Eckel Farms, Inc. (1)
Willard J. Engel 1994 General Manager Lyon County Co-Operative
Oil Company (1)
Fred C. Finney 1992 Owner and Operator, Moreland Fruit Farm;
Operator, Melrose Orchard (1)
27
<PAGE> 31
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)
C. Ray Noecker 1994 Owner and Operator, Noecker Farms (1)
James F. Patterson + 1989 Vice President, Pattersons, Inc. ;
President, Patterson Farms, Inc. (1)
Arden L. Shisler *+ 1984 President and Chief Executive Officer,
K&B Transport, Inc. (1)
Robert L. Stewart 1989 Owner and Operator, Sunnydale Farms and
Mining (1)
Nancy C. Thomas * 1986 Farm Owner and Operator. (1)
Harold W. Weihl 1990 Farm Owner and Operator, Weihl Farms (1)
*Member, Executive Committee +Member, Investment Committee
1) Principal occupation for last five years.
2) Prior to assuming this current position, Messrs. McFerson and Gasper held
other executive management positions with the companies.
Each of the directors is a director of the other major insurance affiliates of
the Nationwide Insurance Enterprise, except Mr. Gasper who is a director only of
the Company and Nationwide Life Insurance Company. Messrs. McFerson and Gasper
are directors of Nationwide Advisory Services, Inc., a registered broker-dealer.
Messrs. Holloway, McFerson, Miller, Patterson, Shisler and Fuellgraf are
directors of Nationwide Financial Services, Inc. Messrs. Fuellgraf, McFerson,
Ms. Thomas and Mr. Weihl are trustees of Nationwide Investing Foundation, a
registered investment company. Mr. McFerson is trustee of Nationwide Separate
Account Trust, Financial Horizons Investment Trust, Nationwide Investing
Foundation II and Nationwide Asset Allocation Trust, registered investment
companies. Mr. Engel is a director of Western Cooperative Transport.
Executive Officers of the Company
Name Office Held
- ---- -----------
Dimon Richard McFerson Chairman and Chief Executive Officer-Nationwide
Insurance Enterprise
Joseph J. Gasper President and Chief Operating Officer
Gordon E. McCutchan Executive Vice President, Law and Corporate
Services and Secretary
Robert A. Oakley Executive Vice President-Chief Financial Officer
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
28
<PAGE> 32
Mr. Gasper is also President and Chief Operating Officer of Nationwide Life
Insurance Company. Mr. Galloway is also an officer of Nationwide Mutual
Insurance Company and Nationwide Life Insurance Company. Each of the other
officers listed above is also an officer of each of the companies comprising the
Nationwide Insurance Enterprise. Each of the executive officers listed above has
been associated with the registrant in an executive capacity for more than the
past five years, except Mr. Thresher, who joined the Registrant in 1996. From
1988-1996, Mr. Thresher served as a partner in the accounting firm KPMG Peat
Marwick LLP and lead partner for Nationwide Insurance Enterprise from 1993-1996.
OTHER CONTRACTS ISSUED BY THE COMPANY
The Company does presently and will, from time to time, offer variable contracts
and policies with benefits which vary in accordance with the investment
experience of a separate account of the Company.
STATE REGULATION
The Company is subject to the laws of Ohio governing insurance companies and to
regulation by the Ohio Insurance Department. An annual statement in a prescribed
form is filed with the Insurance Department each year covering the operation of
the Company for the preceding year and its financial condition as of the end of
such year. Regulation by the Insurance Department includes periodic examination
to determine the Company's contract liabilities and reserves so that the
Insurance Department may certify the items are correct. The Company's books and
accounts are subject to review by the Insurance Department at all times and a
full examination of its operations is conducted periodically by the National
Association of Insurance Commissioners. Such regulation does not, however,
involve any supervision of management or investment practices or policies. In
addition, the Company is subject to regulation under the insurance laws of other
jurisdictions in which it may operate.
REPORTS TO POLICY OWNERS
The Company will mail to the Policy Owner, at the last known address of record,
an annual statement showing the amount of the current death benefit, the Cash
Value, and Cash Surrender Value, premiums paid and monthly charges deducted
since the last report, the amounts invested in the Fixed Account and in the
Variable Account and in each sub-account of the Variable Account, and any Policy
Indebtedness.
Policy Owners will also be sent annual and semi-annual reports containing
financial statements for the Variable Account as required by the 1940 Act.
In addition, Policy Owners will receive statements of significant transactions,
such as changes in Specified Amount, changes in death benefit option, changes in
future premium allocation, transfers among sub-accounts, premium payments,
loans, loan repayments, reinstatement and termination.
ADVERTISING
The Company is ranked and rated by independent financial rating services, among
which are Moody's, Standard & Poor's and A.M. Best Company . The purpose of
these ratings is to reflect the financial strength or claims-paying ability of
the Company. The ratings are not intended to reflect the investment experience
or financial strength of the Variable Account. The Company may advertise these
ratings from time to time. In addition, the Company may include in certain
advertisements endorsements in the form of a list of organizations, individuals
or other parties which recommend the Company or the Contracts . Furthermore, the
Company may occasionally include in advertisements comparisons of currently
taxable and tax deferred investment programs based on selected tax brackets or
discussions of alternative investment vehicles and general economic conditions.
LEGAL PROCEEDINGS
There are no material legal proceedings, other than ordinary routine litigation
incidental to the business to which the Company and the Variable Account are
parties or to which any of their property is the subject.
The General Distributor, Nationwide Advisory Services, Inc., is not engaged in
any material litigation of any nature.
EXPERTS
29
<PAGE> 33
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.
REGISTRATION STATEMENT
A Registration Statement has been filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, with respect to the
Policies offered hereby. This prospectus does not contain all the information
set forth in the Registration Statement and amendments thereto and exhibits
filed as a part thereof, to all of which reference is hereby made for further
information concerning the Variable Account, the Company, and the Policies
offered hereby. Statements contained in this prospectus as to the content of
Policies and other legal instruments are summaries. For a complete statement of
the terms thereof, reference is made to such instruments as filed.
LEGAL OPINIONS
Legal matters in connection with the Policies described herein are being passed
upon by Druen, Rath & Dietrich, One Nationwide Plaza, Columbus, Ohio 43216. All
the members of such firm are employed by the Nationwide Mutual Insurance
Company.
30
<PAGE> 34
APPENDIX 1
ILLUSTRATION OF
SURRENDER CHARGES
Example 1: A female non-tobacco , age 45, purchases a Policy with a Specified
Amount of $50,000 and a Scheduled Premium of $750. She now wishes to surrender
the Policy during the first Policy year. By using the initial surrender charge
table reproduced below, (also see "Surrender Charges") the total surrender
charge per thousand multiplied by the Specified Amount expressed in thousands
equals the total surrender charge of $569.80 ($11.396 x 50=569.80).
Example 2: A male non-tobacco , age 35, purchases a Policy with a Specified
Amount of $100,000 and a Scheduled Premium of $1100. He now wants to surrender
the Policy in the sixth Policy Year. The total initial surrender charge is
calculated using the method illustrated above. (surrender charge per 1000 6.817
x 100=681.70 maximum initial surrender charge). Because the fifth Policy Year
has been completed, the maximum initial surrender charge is reduced by
multiplying it by the applicable percentage factor from the "Reductions to
Surrender Charges" table below (Also see "Reductions to Surrender Charges"). In
this case, $681.70 x 60%=$409.02.
Maximum Surrender Charge per $1,000 of initial Specified Amount for policies
which are issued on a standard basis.
Initial Specified Amount $50,000-$99,999
===============================================================================
Issue Male Female Male Female
Age Non-Tobacco Non-Tobacco Standard Standard
===============================================================================
25 $7.776 $7.521 $8.369 $7.818
- -------------------------------------------------------------------------------
35 8.817 8.398 9.811 8.891
- -------------------------------------------------------------------------------
45 12.191 11.396 13.887 12.169
- -------------------------------------------------------------------------------
55 15.636 14.011 18.415 15.116
- -------------------------------------------------------------------------------
65 22.295 19.086 26.577 20.641
===============================================================================
Initial Specified Amount $100,000+
===============================================================================
Issue Male Female Male Female
Age Non-Tobacco Non-Tobacco Standard Standard
===============================================================================
25 $5.776 $5.521 $6.369 $5.818
- -------------------------------------------------------------------------------
35 6.817 6.398 7.811 6.891
- -------------------------------------------------------------------------------
45 9.691 8.896 11.387 9.669
- -------------------------------------------------------------------------------
55 13.136 11.511 15.915 12.616
- -------------------------------------------------------------------------------
65 21.295 18.086 25.577 19.641
===============================================================================
Reductions to Surrender Charges
===============================================================================
Surrender Charge Surrender Charge
Completed as a % of Initial Completed as a % of Initial
Policy Years Surrender Charges Policy Years Surrender Charges
===============================================================================
0 100% 5 60%
- -------------------------------------------------------------------------------
1 100% 6 50%
- -------------------------------------------------------------------------------
2 90% 7 40%
- -------------------------------------------------------------------------------
3 80% 8 30%
- -------------------------------------------------------------------------------
4 70% 9+ 0%
===============================================================================
The current Surrender Charges are the same for all states. However, in
Pennsylvania the guaranteed maximum Surrender Charges are spread out over 14
years. The guaranteed maximum Surrender Charge in subsequent years in
Pennsylvania is reduced in the following manner:
<TABLE>
<CAPTION>
Surrender Charge Surrender Charge Surrender Charge
Completed as a % of Initial Completed as a % of Initial Completed as a % of Initial
Policy Years Surrender Charges Policy Years Surrender Charges Policy Years Surrender Charges
<S> <C> <C> <C> <C> <C> <C>
0 100% 5 60% 10 20%
1 100% 6 50% 11 15%
2 90% 7 40% 12 10%
3 80% 8 30% 13 5%
4 70% 9 25% 14+ 0%
</TABLE>
The illustrations of current values in this prospectus are the same for
Pennsylvania. However, the illustrations of guaranteed values in this prospectus
do not reflect guaranteed maximum Surrender Charges which are spread out over 14
years. If this contract is issued in Pennsylvania, please contact the Home
Office for an illustration.
The Company has no plans to change the current Surrender Charges.
31
<PAGE> 35
APPENDIX 2
ILLUSTRATIONS OF CASH VALUES,
CASH SURRENDER VALUES,
AND DEATH BENEFITS
The illustrations in this prospectus have been prepared to help show how values
under the Policies change with investment performance. The illustrations
illustrate how Cash Values, Cash Surrender Values and death benefits under a
Policy would vary over time if the hypothetical gross investment rates of return
were a uniform annual effective rate of either 0%, 6% or 12%. If the
hypothetical gross investment rate of return averages 0%, 6% or 12% over a
period of years, but fluctuates above or below those averages for individual
years, the Cash Values, Cash Surrender Values and death benefits may be
different. For hypothetical returns of 0% and 6%, the illustrations also
illustrate when the Policies would go into default, at which time additional
premium payments would be required to continue the Policy in force. The
illustrations also assume there is no Policy Indebtedness, no additional premium
payments are made, no Cash Values are allocated to the Fixed Account, and there
are no changes in the Specified Amount or death benefit option.
The amounts shown for the Cash Value, Cash Surrender Value and death benefit as
of each Policy Anniversary reflect the fact that the net investment return on
the assets held in the sub-accounts is lower than the gross return. This is due
to the daily charges made against the assets of the sub-accounts for assuming
mortality and expense risks. The mortality and expense risk charges are
equivalent to an annual effective rate of 0.80% of the daily Net Asset Value of
the Variable Account. On each Policy Anniversary beginning with the 10th, the
mortality and expense risk charge is reduced to 0.50% on an annual basis of the
daily net assets of the Variable Account, provided the Cash Surrender Value is
$25,000 or more on such anniversary. In addition, the net investment returns
also reflect the deduction of Underlying Mutual Fund investment advisory fees
and other expenses which are equivalent to an annual effective rate of 0.80% of
the daily Net Asset Value of the Variable Account. This effective rate is based
on the average of the fund expenses for the preceding year for all mutual fund
options available under the policy as of April 30, 1995.
Considering current charges for mortality and expense risks and Underlying
Mutual Fund expenses, gross annual rates of return of 0%, 6% and 12% correspond
to net investment experience at constant annual rates of -1.60%, 4.40% and
10.40%. On each Policy Anniversary beginning with the 10th, the gross annual
rates of return of 0%, 6%, and 12% correspond to net investment experience at
constant annual rates of -1.30%, 4.70%, and 10.70%, provided the Cash Surrender
Value is $25,000 or more on such anniversary. This is due to a guaranteed
reduction in the mortality and expense risk charge from an annual effective rate
of 0.80% to an annual effective rate of 0.50% if the aforementioned conditions
apply.
The illustrations also reflect the fact that the Company makes monthly charges
for providing insurance protection. Current values reflect current cost of
insurance charges and guaranteed values reflect the maximum cost of insurance
charges guaranteed in the Policy. The values shown are for Policies which are
issued as standard. Policies issued on a substandard basis would result in lower
Cash Values and Death benefits than those illustrated.
The illustrations also reflect the fact that the Company deducts a sales load
from each premium payment. Current values reflect a deduction of 3.5% of each
premium payment up to Break Point Premium and 1.5% of any excess. Guaranteed
values reflect a deduction of 3.5% of each premium payment. The illustrations
also reflect the fact that the Company deducts a charge for state premium taxes
equal to 2.5% of all premium payments.
The Cash Surrender Values shown in the illustrations reflect the fact that the
Company will deduct a Surrender Charge from the Policy's Cash Value for any
Policy surrendered in full during the first nine years.
In addition, the illustrations reflect the fact that the Company deducts a
monthly administrative charge at the beginning of each Policy Month. This
monthly administrative expense charge is $25 per month in the first year, $5 per
month in renewal years. Current values reflect a current monthly administrative
expense charge of $5 in renewal years, and guaranteed values reflect the $7.50
maximum monthly administrative charge under the Policy in renewal years. The
illustrations also reflect the fact that no charges for federal or state income
taxes are currently made against the Variable Account. If such a charge is made
in the future, it will require a higher gross investment return than illustrated
in order to produce the net after-tax returns shown in the illustrations.
Upon request, the Company will furnish a comparable illustration based on the
proposed Insured's age, sex, smoking classification, rating classification and
premium payment requested.
32
<PAGE> 36
DEATH BENEFIT OPTION 1
$750 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE45
CURRENT VALUES
<TABLE>
<CAPTION>
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
CASH CASH CASH
ANNUAL PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 750 788 241 0 50,000 268 0 50,000 296 0 50,000
2 750 1,614 706 132 50,000 783 210 50,000 864 290 50,000
3 750 2,483 1,154 637 50,000 1,310 794 50,000 1,480 964 50,000
4 750 3,394 1,579 1,120 50,000 1,845 1,386 50,000 2,144 1,685 50,000
5 750 4,351 1,981 1,579 50,000 2,386 1,985 50,000 2,860 2,459 50,000
6 750 5,357 2,362 2,018 50,000 2,937 2,592 50,000 3,636 3,292 50,000
7 750 6,412 2,727 2,440 50,000 3,502 3,215 50,000 4,483 4,196 50,000
8 750 7,520 3,071 2,842 50,000 4,077 3,847 50,000 5,404 5,174 50,000
9 750 8,683 3,395 3,223 50,000 4,663 4,491 50,000 6,407 6,235 50,000
10 750 9,905 3,698 3,698 50,000 5,262 5,262 50,000 7,503 7,503 50,000
15 750 16,993 4,785 4,785 50,000 8,326 8,326 50,000 14,657 14,657 50,000
20 750 26,039 4,747 4,747 50,000 11,163 11,163 50,000 25,820 25,820 50,000
25 750 37,585 2,779 2,779 50,000 13,084 13,084 50,000 44,987 44,987 52,185
30 750 52,321 (*) (*) (*) 12,846 12,846 50,000 77,324 77,324 82,737
35 750 71,127 (*) (*) (*) 7,510 7,510 50,000 130,329 130,329 136,846
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY
ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR AND $5.00
THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS
UP TO THE BREAK POINT PREMIUM AND 4% ON PREMIUMS IN EXCESS OF BREAK POINT
FOR ANY SINGLE POLICY YEAR.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUES WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED THE ASSUMED RATES, BUT ALSO FLUCTUATED
ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
33
<PAGE> 37
DEATH BENEFIT OPTION 1
$750 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 45
GUARANTEED VALUES
<TABLE>
<CAPTION>
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
CASH CASH CASH
ANNUAL PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 750 788 175 0 50,000 200 0 50,000 226 0 50,000
2 750 1,614 540 0 50,000 608 34 50,000 679 105 50,000
3 750 2,483 881 365 50,000 1,015 498 50,000 1,161 644 50,000
4 750 3,394 1,198 739 50,000 1,420 961 50,000 1,672 1,213 50,000
5 750 4,351 1,489 1,087 50,000 1,823 1,421 50,000 2,216 1,814 50,000
6 750 5,357 1,751 1,407 50,000 2,219 1,875 50,000 2,792 2,448 50,000
7 750 6,412 1,982 1,695 50,000 2,605 2,318 50,000 3,401 3,115 50,000
8 750 7,520 2,178 1,948 50,000 2,977 2,748 50,000 4,044 3,814 50,000
9 750 8,683 2,333 2,161 50,000 3,330 3,157 50,000 4,718 4,546 50,000
10 750 9,905 2,445 2,445 50,000 3,657 3,657 50,000 5,425 5,425 50,000
15 750 16,993 2,199 2,199 50,000 4,731 4,731 50,000 9,486 9,486 50,000
20 750 26,039 (*) (*) (*) 3,966 3,966 50,000 14,446 14,446 50,000
25 750 37,585 (*) (*) (*) (*) (*) (*) 20,249 20,249 50,000
30 750 52,321 (*) (*) (*) (*) (*) (*) 27,165 27,165 50,000
35 750 71,127 (*) (*) (*) (*) (*) (*) 37,284 37,284 50,000
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A
MONTHLY ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR AND
$7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL
PREMIUM.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUES WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED THE ASSUMED RATES, BUT ALSO FLUCTUATED
ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
34
<PAGE> 38
DEATH BENEFIT OPTION 2
$750 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 45
CURRENT VALUES
<TABLE>
<CAPTION>
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
CASH CASH CASH
ANNUAL PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 750 788 240 0 50,240 267 0 50,267 294 0 50,294
2 750 1,614 702 128 50,702 779 205 50,779 859 285 50,859
3 750 2,483 1,145 628 51,145 1,300 784 51,300 1,469 952 51,469
4 750 3,394 1,563 1,104 51,563 1,826 1,367 51,826 2,122 1,663 52,122
5 750 4,351 1,956 1,555 51,956 2,356 1,954 52,356 2,823 2,421 52,823
6 750 5,357 2,326 1,982 52,326 2,891 2,546 52,891 3,577 3,233 53,577
7 750 6,412 2,677 2,391 52,677 3,436 3,149 53,436 4,395 4,108 54,395
8 750 7,520 3,005 2,775 53,005 3,985 3,756 53,985 5,277 5,047 55,277
9 750 8,683 3,309 3,137 53,309 4,540 4,368 54,540 6,230 6,058 56,230
10 750 9,905 3,590 3,590 53,590 5,100 5,100 55,100 7,261 7,261 57,261
15 750 16,993 4,508 4,508 54,508 7,815 7,815 57,815 13,712 13,712 63,712
20 750 26,039 4,169 4,169 54,169 9,813 9,813 59,813 22,659 22,659 72,659
25 750 37,585 1,809 1,809 51,809 9,931 9,931 59,931 34,844 34,844 84,844
30 750 52,321 (*) (*) (*) 6,336 6,336 56,336 50,867 50,867 100,867
35 750 71,127 (*) (*) (*) (*) (*) (*) 70,540 70,540 120,540
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY
ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR AND $5.00
THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS
UP TO THE BREAK POINT PREMIUM AND 4% ON PREMIUMS IN EXCESS OF BREAK POINT
FOR ANY SINGLE POLICY YEAR.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUES WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED THE ASSUMED RATES, BUT ALSO FLUCTUATED
ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
35
<PAGE> 39
DEATH BENEFIT OPTION 2
$750 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 45
GUARANTEED VALUES
<TABLE>
<CAPTION>
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
CASH CASH CASH
ANNUAL PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 750 788 173 0 50,173 198 0 50,198 224 0 50,224
2 750 1,614 534 0 50,534 602 28 50,602 672 99 50,672
3 750 2,483 870 354 50,870 1,002 486 51,002 1,146 630 51,146
4 750 3,394 1,179 720 51,179 1,398 939 51,398 1,646 1,187 51,646
5 750 4,351 1,460 1,058 51,460 1,787 1,385 51,787 2,172 1,770 52,172
6 750 5,357 1,710 1,366 51,710 2,165 1,821 52,165 2,723 2,379 52,723
7 750 6,412 1,925 1,638 51,925 2,529 2,242 52,529 3,299 3,012 53,299
8 750 7,520 2,102 1,873 52,102 2,871 2,642 52,871 3,896 3,667 53,896
9 750 8,683 2,236 2,064 52,236 3,187 3,015 53,187 4,512 4,340 54,512
10 750 9,905 2,323 2,323 52,323 3,471 3,471 53,471 5,142 5,142 55,142
15 750 16,993 1,909 1,909 51,909 4,161 4,161 54,161 8,382 8,382 58,382
20 750 26,039 (*) (*) (*) 2,670 2,670 52,670 10,970 10,970 60,970
25 750 37,585 (*) (*) (*) (*) (*) (*) 10,552 10,552 60,552
30 750 52,321 (*) (*) (*) (*) (*) (*) 2,076 2,076 52,076
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A
MONTHLY ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR AND
$7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL
PREMIUM.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUES WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED THE ASSUMED RATES, BUT ALSO FLUCTUATED
ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
36
<PAGE> 40
DEATH BENEFIT OPTION 1
$1,200 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 55
CURRENT VALUES
<TABLE>
<CAPTION>
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
CASH CASH CASH
ANNUAL PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,200 1,260 493 0 50,000 540 0 50,000 587 0 50,000
2 1,200 2,583 1,195 502 50,000 1,328 635 50,000 1,466 773 50,000
3 1,200 3,972 1,862 1,238 50,000 2,125 1,502 50,000 2,411 1,788 50,000
4 1,200 5,431 2,489 1,935 50,000 2,929 2,375 50,000 3,426 2,872 50,000
5 1,200 6,962 3,070 2,585 50,000 3,731 3,246 50,000 4,509 4,024 50,000
6 1,200 8,570 3,605 3,189 50,000 4,534 4,119 50,000 5,673 5,257 50,000
7 1,200 10,259 4,087 3,740 50,000 5,330 4,984 50,000 6,918 6,571 50,000
8 1,200 12,032 4,507 4,230 50,000 6,111 5,833 50,000 8,247 7,970 50,000
9 1,200 13,893 4,868 4,660 50,000 6,877 6,669 50,000 9,675 9,467 50,000
10 1,200 15,848 5,160 5,160 50,000 7,621 7,621 50,000 11,207 11,207 50,000
15 1,200 27,189 5,361 5,361 50,000 10,798 10,798 50,000 20,938 20,938 50,000
20 1,200 41,663 2,465 2,465 50,000 12,184 12,184 50,000 36,920 36,920 50,000
25 1,200 60,136 (*) (*) (*) 9,324 9,324 50,000 66,534 66,534 69,861
30 1,200 83,713 (*) (*) (*) (*) (*) (*) 114,688 114,688 120,423
35 1,200 113,804 (*) (*) (*) (*) (*) (*) 190,213 190,213 199,723
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY
ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR AND $5.00
THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS
UP TO THE BREAK POINT PREMIUM AND 4% ON PREMIUMS IN EXCESS OF BREAK POINT
FOR ANY SINGLE POLICY YEAR.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUES WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED THE ASSUMED RATES, BUT ALSO FLUCTUATED
ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
37
<PAGE> 41
DEATH BENEFIT OPTION 1
$1,200 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 55
GUARANTEED VALUES
<TABLE>
<CAPTION>
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
CASH CASH CASH
ANNUAL PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,200 1,260 288 0 50,000 328 0 50,000 369 0 50,000
2 1,200 2,583 730 37 50,000 835 142 50,000 947 254 50,000
3 1,200 3,972 1,113 490 50,000 1,312 689 50,000 1,530 907 50,000
4 1,200 5,431 1,434 879 50,000 1,752 1,198 50,000 2,117 1,563 50,000
5 1,200 6,962 1,683 1,198 50,000 2,146 1,661 50,000 2,700 2,215 50,000
6 1,200 8,570 1,855 1,439 50,000 2,485 2,069 50,000 3,272 2,856 50,000
7 1,200 10,259 1,940 1,594 50,000 2,756 2,409 50,000 3,824 3,478 50,000
8 1,200 12,032 1,926 1,649 50,000 2,943 2,666 50,000 4,344 4,066 50,000
9 1,200 13,893 1,798 1,590 50,000 3,028 2,820 50,000 4,814 4,607 50,000
10 1,200 15,848 1,542 1,542 50,000 2,991 2,991 50,000 5,220 5,220 50,000
15 1,200 27,189 (*) (*) (*) 106 106 50,000 5,495 5,495 50,000
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A
MONTHLY ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR AND
$7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL
PREMIUM.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUES WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED THE ASSUMED RATES, BUT ALSO FLUCTUATED
ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
38
<PAGE> 42
DEATH BENEFIT OPTION 2
$1,200 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 55
CURRENT VALUES
<TABLE>
<CAPTION>
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
CASH CASH CASH
ANNUAL PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,200 1,260 487 0 50,487 534 0 50,534 581 0 50,581
2 1,200 2,583 1,180 487 51,180 1,311 618 51,311 1,448 755 51,448
3 1,200 3,972 1,831 1,207 51,831 2,090 1,466 52,090 2,371 1,747 52,371
4 1,200 5,431 2,436 1,882 52,436 2,865 2,311 52,865 3,350 2,796 53,350
5 1,200 6,962 2,986 2,501 52,986 3,628 3,143 53,628 4,381 3,896 54,381
6 1,200 8,570 3,483 3,067 53,483 4,377 3,961 54,377 5,471 5,055 55,471
7 1,200 10,259 3,917 3,570 53,917 5,102 4,755 55,102 6,613 6,267 56,613
8 1,200 12,032 4,279 4,002 54,279 5,791 5,514 55,791 7,803 7,526 57,803
9 1,200 13,893 4,570 4,362 54,570 6,443 6,235 56,443 9,045 8,837 59,045
10 1,200 15,848 4,781 4,781 54,781 7,044 7,044 57,044 10,334 10,334 60,334
15 1,200 27,189 4,390 4,390 54,390 8,915 8,915 58,915 17,325 17,325 67,325
20 1,200 41,663 776 776 50,776 7,486 7,486 57,486 24,406 24,406 74,406
25 1,200 60,136 (*) (*) (*) (*) (*) (*) 29,600 29,600 79,600
30 1,200 83,713 (*) (*) (*) (*) (*) (*) 27,765 27,765 77,765
35 1,200 113,804 (*) (*) (*) (*) (*) (*) 9,106 9,106 59,106
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY
ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR AND $5.00
THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS
UP TO THE BREAK POINT PREMIUM AND 4% ON PREMIUMS IN EXCESS OF BREAK POINT
FOR ANY SINGLE POLICY YEAR.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUES WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED THE ASSUMED RATES, BUT ALSO FLUCTUATED
ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
39
<PAGE> 43
DEATH BENEFIT OPTION 2
$1,200 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 55
GUARANTEED VALUES
<TABLE>
<CAPTION>
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
CASH CASH CASH
ANNUAL PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,200 1,260 280 0 50,280 320 0 50,320 361 0 50,361
2 1,200 2,583 710 17 50,710 813 120 50,813 921 228 50,921
3 1,200 3,972 1,074 450 51,074 1,266 643 51,266 1,478 854 51,478
4 1,200 5,431 1,368 814 51,368 1,674 1,119 51,674 2,023 1,468 52,023
5 1,200 6,962 1,585 1,100 51,585 2,023 1,538 52,023 2,546 2,061 52,546
6 1,200 8,570 1,718 1,302 51,718 2,304 1,888 52,304 3,036 2,620 53,036
7 1,200 10,259 1,758 1,411 51,758 2,504 2,157 52,504 3,481 3,134 53,481
8 1,200 12,032 1,693 1,415 51,693 2,605 2,327 52,605 3,860 3,582 53,860
9 1,200 13,893 1,510 1,302 51,510 2,588 2,380 52,588 4,151 3,943 54,151
10 1,200 15,848 1,199 1,199 51,199 2,434 2,434 52,434 4,332 4,332 54,332
15 1,200 27,189 (*) (*) (*) (*) (*) (*) 2,609 2,609 52,609
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A
MONTHLY ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR AND
$7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL
PREMIUM.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUES WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED THE ASSUMED RATES, BUT ALSO FLUCTUATED
ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
40
<PAGE> 44
DEATH BENEFIT OPTION 1
$1,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 45
CURRENT VALUES
<TABLE>
<CAPTION>
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
CASH CASH CASH
ANNUAL PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,500 1,575 799 0 100,000 864 0 100,000 928 31 100,000
2 1,500 3,229 1,803 905 100,000 1,989 1,091 100,000 2,183 1,286 100,000
3 1,500 4,965 2,771 1,963 100,000 3,143 2,335 100,000 3,547 2,739 100,000
4 1,500 6,788 3,704 2,986 100,000 4,328 3,610 100,000 5,031 4,313 100,000
5 1,500 8,703 4,604 3,976 100,000 5,546 4,918 100,000 6,650 6,022 100,000
6 1,500 10,713 5,472 4,933 100,000 6,800 6,262 100,000 8,420 7,881 100,000
7 1,500 12,824 6,297 5,848 100,000 8,081 7,632 100,000 10,345 9,897 100,000
8 1,500 15,040 7,069 6,710 100,000 9,379 9,020 100,000 12,433 12,074 100,000
9 1,500 17,367 7,790 7,521 100,000 10,698 10,428 100,000 14,704 14,435 100,000
10 1,500 19,810 8,451 8,451 100,000 12,028 12,028 100,000 17,170 17,170 100,000
15 1,500 33,986 11,068 11,068 100,000 19,125 19,125 100,000 33,766 33,766 100,000
20 1,500 52,079 11,929 11,929 100,000 26,663 26,663 100,000 61,182 61,182 100,000
25 1,500 75,170 9,916 9,916 100,000 34,418 34,418 100,000 107,751 107,751 124,991
30 1,500 104,641 2,735 2,735 100,000 41,087 41,087 100,000 184,431 184,431 197,341
35 1,500 142,254 (*) (*) (*) 44,522 44,522 100,000 310,217 310,217 325,728
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY
ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR AND $5.00
THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS
UP TO THE BREAK POINT PREMIUM AND 4% ON PREMIUMS IN EXCESS OF BREAK POINT
FOR ANY SINGLE POLICY YEAR.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUES WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED THE ASSUMED RATES, BUT ALSO FLUCTUATED
ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
41
<PAGE> 45
DEATH BENEFIT OPTION 1
$1,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 45
GUARANTEED VALUES
<TABLE>
<CAPTION>
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
CASH CASH CASH
ANNUAL PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,500 1,575 751 0 100,000 814 0 100,000 878 0 100,000
2 1,500 3,229 1,675 777 100,000 1,854 956 100,000 2,041 1,144 100,000
3 1,500 4,965 2,558 1,750 100,000 2,913 2,105 100,000 3,298 2,490 100,000
4 1,500 6,788 3,399 2,681 100,000 3,989 3,271 100,000 4,655 3,937 100,000
5 1,500 8,703 4,196 3,567 100,000 5,082 4,453 100,000 6,122 5,494 100,000
6 1,500 10,713 4,945 4,406 100,000 6,187 5,649 100,000 7,707 7,168 100,000
7 1,500 12,824 5,642 5,193 100,000 7,302 6,853 100,000 9,417 8,969 100,000
8 1,500 15,040 6,282 5,923 100,000 8,421 8,062 100,000 11,262 10,903 100,000
9 1,500 17,367 6,858 6,588 100,000 9,537 9,268 100,000 13,251 12,982 100,000
10 1,500 19,810 7,365 7,365 100,000 10,646 10,646 100,000 15,395 15,395 100,000
15 1,500 33,986 8,667 8,667 100,000 15,879 15,879 100,000 29,121 29,121 100,000
20 1,500 52,079 7,003 7,003 100,000 19,687 19,687 100,000 50,746 50,746 100,000
25 1,500 75,170 (*) (*) (*) 19,705 19,705 100,000 87,111 87,111 101,049
30 1,500 104,641 (*) (*) (*) 10,491 10,491 100,000 149,298 149,298 159,749
35 1,500 142,254 (*) (*) (*) (*) (*) (*) 250,764 250,764 263,302
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A
MONTHLY ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR AND
$7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL
PREMIUM.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUES WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED THE ASSUMED RATES, BUT ALSO FLUCTUATED
ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
42
<PAGE> 46
DEATH BENEFIT OPTION 2
$1,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 45
CURRENT VALUES
<TABLE>
<CAPTION>
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
CASH CASH CASH
ANNUAL PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,500 1,575 796 0 100,796 860 0 100,860 925 27 100,925
2 1,500 3,229 1,793 896 101,793 1,978 1,081 101,978 2,171 1,274 102,171
3 1,500 4,965 2,751 1,943 102,751 3,120 2,313 103,120 3,521 2,713 103,521
4 1,500 6,788 3,670 2,952 103,670 4,288 3,570 104,288 4,983 4,265 104,983
5 1,500 8,703 4,552 3,924 104,552 5,482 4,853 105,482 6,571 5,942 106,571
6 1,500 10,713 5,397 4,858 105,397 6,704 6,165 106,704 8,296 7,758 108,296
7 1,500 12,824 6,193 5,745 106,193 7,942 7,494 107,942 10,161 9,712 110,161
8 1,500 15,040 6,931 6,572 106,931 9,187 8,828 109,187 12,167 11,808 112,167
9 1,500 17,367 7,610 7,341 107,610 10,437 10,168 110,437 14,329 14,060 114,329
10 1,500 19,810 8,221 8,221 108,221 11,682 11,682 111,682 16,651 16,651 116,651
15 1,500 33,986 10,477 10,477 110,477 18,031 18,031 118,031 31,632 31,632 131,632
20 1,500 52,079 10,710 10,710 110,710 23,760 23,760 123,760 54,303 54,303 154,303
25 1,500 75,170 7,771 7,771 107,771 27,485 27,485 127,485 87,582 87,582 187,582
30 1,500 104,641 (*) (*) (*) 26,171 26,171 126,171 135,472 135,472 235,472
35 1,500 142,254 (*) (*) (*) 13,912 13,912 113,912 202,743 202,743 302,743
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY
ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR AND $5.00
THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS
UP TO THE BREAK POINT PREMIUM AND 4% ON PREMIUMS IN EXCESS OF BREAK POINT
FOR ANY SINGLE POLICY YEAR.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUES WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED THE ASSUMED RATES, BUT ALSO FLUCTUATED
ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
43
<PAGE> 47
DEATH BENEFIT OPTION 2
$1,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 45
GUARANTEED VALUES
<TABLE>
<CAPTION>
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
CASH CASH CASH
ANNUAL PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,500 1,575 748 0 100,748 810 0 100,810 873 0 100,873
2 1,500 3,229 1,664 766 101,664 1,842 944 101,842 2,028 1,131 102,028
3 1,500 4,965 2,536 1,728 102,536 2,887 2,080 102,887 3,269 2,461 103,269
4 1,500 6,788 3,361 2,643 103,361 3,944 3,226 103,944 4,602 3,884 104,602
5 1,500 8,703 4,137 3,509 104,137 5,009 4,381 105,009 6,033 5,405 106,033
6 1,500 10,713 4,861 4,322 104,861 6,079 5,540 106,079 7,567 7,029 107,567
7 1,500 12,824 5,525 5,077 105,525 7,146 6,697 107,146 9,209 8,760 109,209
8 1,500 15,040 6,126 5,767 106,126 8,204 7,845 108,204 10,961 10,602 110,961
9 1,500 17,367 6,655 6,386 106,655 9,243 8,974 109,243 12,826 12,557 112,826
10 1,500 19,810 7,108 7,108 107,108 10,257 10,257 110,257 14,809 14,809 114,809
15 1,500 33,986 7,992 7,992 107,992 14,608 14,608 114,608 26,644 26,644 126,644
20 1,500 52,079 5,673 5,673 105,673 16,391 16,391 116,391 42,448 42,448 142,448
25 1,500 75,170 (*) (*) (*) 12,425 12,425 112,425 61,419 61,419 161,419
30 1,500 104,641 (*) (*) (*) (*) (*) (*) 80,800 80,800 180,800
35 1,500 142,254 (*) (*) (*) (*) (*) (*) 92,554 92,554 192,554
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A
MONTHLY ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR AND
$7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL
PREMIUM.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUES WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED THE ASSUMED RATES, BUT ALSO FLUCTUATED
ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
44
<PAGE> 48
DEATH BENEFIT OPTION 1
$2,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 55
CURRENT VALUES
<TABLE>
<CAPTION>
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
CASH CASH CASH
ANNUAL PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,500 2,625 1,386 223 100,000 1,495 333 100,000 1,605 443 100,000
2 2,500 5,381 2,961 1,799 100,000 3,275 2,112 100,000 3,602 2,439 100,000
3 2,500 8,275 4,489 3,443 100,000 5,109 4,063 100,000 5,782 4,736 100,000
4 2,500 11,314 5,949 5,019 100,000 6,982 6,052 100,000 8,147 7,217 100,000
5 2,500 14,505 7,327 6,513 100,000 8,878 8,064 100,000 10,701 9,887 100,000
6 2,500 17,855 8,626 7,929 100,000 10,805 10,107 100,000 13,471 12,773 100,000
7 2,500 21,373 9,844 9,262 100,000 12,760 12,178 100,000 16,479 15,898 100,000
8 2,500 25,066 10,965 10,500 100,000 14,732 14,267 100,000 19,743 19,278 100,000
9 2,500 28,945 11,988 11,639 100,000 16,721 16,372 100,000 23,293 22,944 100,000
10 2,500 33,017 12,919 12,919 100,000 18,735 18,735 100,000 27,174 27,174 100,000
15 2,500 56,644 15,657 15,657 100,000 28,929 28,929 100,000 53,773 53,773 100,000
20 2,500 86,798 13,769 13,769 100,000 39,070 39,070 100,000 99,843 99,843 106,832
25 2,500 125,284 3,152 3,152 100,000 47,636 47,636 100,000 178,503 178,503 187,428
30 2,500 174,402 (*) (*) (*) 51,634 51,634 100,000 304,551 304,551 319,778
35 2,500 237,091 (*) (*) (*) 43,079 43,079 100,000 502,828 502,828 527,969
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY
ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR AND $5.00
THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS
UP TO THE BREAK POINT PREMIUM AND 4% ON PREMIUMS IN EXCESS OF BREAK POINT
FOR ANY SINGLE POLICY YEAR.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUES WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED THE ASSUMED RATES, BUT ALSO FLUCTUATED
ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
45
<PAGE> 49
DEATH BENEFIT OPTION 1
$2,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 55
GUARANTEED VALUES
<TABLE>
<CAPTION>
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
CASH CASH CASH
ANNUAL PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,500 2,625 1,212 50 100,000 1,316 154 100,000 1,421 258 100,000
2 2,500 5,381 2,542 1,380 100,000 2,832 1,670 100,000 3,135 1,973 100,000
3 2,500 8,275 3,778 2,732 100,000 4,340 3,294 100,000 4,953 3,906 100,000
4 2,500 11,314 4,913 3,983 100,000 5,833 4,903 100,000 6,878 5,948 100,000
5 2,500 14,505 5,937 5,123 100,000 7,301 6,488 100,000 8,915 8,101 100,000
6 2,500 17,855 6,842 6,145 100,000 8,735 8,037 100,000 11,070 10,372 100,000
7 2,500 21,373 7,617 7,036 100,000 10,121 9,540 100,000 13,348 12,767 100,000
8 2,500 25,066 8,245 7,780 100,000 11,443 10,978 100,000 15,753 15,288 100,000
9 2,500 28,945 8,708 8,359 100,000 12,682 12,333 100,000 18,289 17,940 100,000
10 2,500 33,017 8,989 8,989 100,000 13,818 13,818 100,000 20,963 20,963 100,000
15 2,500 56,644 7,002 7,002 100,000 17,234 17,234 100,000 37,407 37,407 100,000
20 2,500 86,798 (*) (*) (*) 12,880 12,880 100,000 62,409 62,409 100,000
25 2,500 125,284 (*) (*) (*) (*) (*) (*) 109,545 109,545 115,023
30 2,500 174,402 (*) (*) (*) (*) (*) (*) 190,458 190,458 199,981
35 2,500 237,091 (*) (*) (*) (*) (*) (*) 314,104 314,104 329,809
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A
MONTHLY ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR AND
$7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL
PREMIUM.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUES WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED THE ASSUMED RATES, BUT ALSO FLUCTUATED
ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
46
<PAGE> 50
DEATH BENEFIT OPTION 2
$2,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 55
CURRENT VALUES
<TABLE>
<CAPTION>
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
CASH CASH CASH
ANNUAL PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,500 2,625 1,374 211 101,374 1,482 320 101,482 1,591 429 101,591
2 2,500 5,381 2,927 1,764 102,927 3,236 2,074 103,236 3,559 2,397 103,559
3 2,500 8,275 4,419 3,373 104,419 5,029 3,983 105,029 5,691 4,645 105,691
4 2,500 11,314 5,832 4,902 105,832 6,841 5,911 106,841 7,980 7,050 107,980
5 2,500 14,505 7,144 6,330 107,144 8,651 7,837 108,651 10,420 9,607 110,420
6 2,500 17,855 8,362 7,664 108,362 10,463 9,765 110,463 13,032 12,335 113,032
7 2,500 21,373 9,478 8,897 109,478 12,268 11,687 112,268 15,824 15,242 115,824
8 2,500 25,066 10,477 10,012 110,477 14,049 13,584 114,049 18,794 18,329 118,794
9 2,500 28,945 11,354 11,005 111,354 15,797 15,448 115,797 21,956 21,607 121,956
10 2,500 33,017 12,115 12,115 112,115 17,516 17,516 117,516 25,333 25,333 125,333
15 2,500 56,644 13,550 13,550 113,550 24,855 24,855 124,855 46,145 46,145 146,145
20 2,500 86,798 9,551 9,551 109,551 28,172 28,172 128,172 73,441 73,441 173,441
25 2,500 125,284 (*) (*) (*) 22,016 22,016 122,016 106,695 106,695 206,695
30 2,500 174,402 (*) (*) (*) (*) (*) (*) 141,554 141,554 241,554
35 2,500 237,091 (*) (*) (*) (*) (*) (*) 168,976 168,976 268,976
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY
ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR AND $5.00
THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS
UP TO THE BREAK POINT PREMIUM AND 4% ON PREMIUMS IN EXCESS OF BREAK POINT
FOR ANY SINGLE POLICY YEAR.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUES WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED THE ASSUMED RATES, BUT ALSO FLUCTUATED
ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
47
<PAGE> 51
DEATH BENEFIT OPTION 2
$2,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 55
GUARANTEED VALUES
<TABLE>
<CAPTION>
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
CASH CASH CASH
ANNUAL PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,500 2,625 1,197 35 101,197 1,300 138 101,300 1,404 241 101,404
2 2,500 5,381 2,500 1,338 102,500 2,785 1,623 102,785 3,083 1,921 103,083
3 2,500 8,275 3,693 2,647 103,693 4,242 3,196 104,242 4,840 3,794 104,840
4 2,500 11,314 4,768 3,838 104,768 5,660 4,730 105,660 6,671 5,741 106,671
5 2,500 14,505 5,715 4,901 105,715 7,024 6,211 107,024 8,571 7,758 108,571
6 2,500 17,855 6,523 5,825 106,523 8,319 7,622 108,319 10,534 9,836 110,534
7 2,500 21,373 7,179 6,598 107,179 9,527 8,946 109,527 12,549 11,968 112,549
8 2,500 25,066 7,665 7,200 107,665 10,622 10,157 110,622 14,600 14,135 114,601
9 2,500 28,945 7,962 7,613 107,962 11,578 11,229 111,578 16,669 16,320 116,669
10 2,500 33,017 8,052 8,052 108,052 12,366 12,366 112,366 18,734 18,734 118,734
15 2,500 56,644 4,841 4,841 104,841 12,798 12,798 112,798 28,282 28,282 128,282
20 2,500 86,798 (*) (*) (*) 2,956 2,956 102,956 32,479 32,479 132,479
25 2,500 125,284 (*) (*) (*) (*) (*) (*) 19,082 19,082 119,082
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A
MONTHLY ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR AND
$7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL
PREMIUM.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUES WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED THE ASSUMED RATES, BUT ALSO FLUCTUATED
ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
48
<PAGE> 52
<PAGE> 1
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> 2
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> 3
NATIONWIDE VL SEPARATE ACCOUNT-A
(Formerly Financial Horizons VL Separate Account-1)
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
Years Ended December 31, 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> 4
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> 5
(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> 6
(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> 7
SCHEDULE I
NATIONWIDE VL SEPARATE ACCOUNT-A
(FORMERLY FINANCIAL HORIZONS VL SEPARATE ACCOUNT-1)
MULTIPLE PAYMENT CONTRACTS AND FLEXIBLE PREMIUM CONTRACTS
SCHEDULES OF CHANGES IN UNIT VALUE
YEARS ENDED DECEMBER 31, 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> 53
<PAGE> 1
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Nationwide Life and Annuity Insurance Company:
We have audited the accompanying balance sheets of Nationwide Life and Annuity
Insurance Company, a wholly owned subsidiary of Nationwide Life Insurance
Company, as of December 31, 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> 2
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> 3
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> 4
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Statements of Shareholder's Equity
Years ended December 31, 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> 5
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> 6
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> 7
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> 8
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> 9
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> 10
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> 11
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> 12
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> 13
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> 14
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> 15
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> 16
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> 17
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> 18
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> 19
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> 20
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>
<PAGE> 54
PART II - OTHER INFORMATION
CONTENTS OF REGISTRATION STATEMENT
This Post-Effective Amendment No.7 to Form S-6 Registration Statement comprises
the following papers and documents:
The facing sheet.
Cross-reference to items required by Form N-8B-2.
The prospectus consisting of 75 pages.
Representations and Undertakings.
Accountants' Consent
The Signatures.
The following exhibits required by FormsN-8B-2 and S-6:
<TABLE>
<CAPTION>
<S> <C> <C>
1. Power of Attorney dated April 2, 1997. Attached hereto.
2. Resolution of the Depositor's Board of Directors Included with the Registration Statement on Form N-
authorizing the establishment of the Registrant, 8B-2 for the Nationwide VL Separate Account-A (File
adopted No. 811-6137), and hereby incorporated herein by
reference.
3. Distribution Contracts Included with the Registration Statement on Form N-
8B-2 for the Nationwide VL Separate Account-A (File
No. 811-6137), and hereby incorporated herein by
reference.
4. Form of Security Included with the Registration Statement on Form S-6
for the Nationwide VL Separate Account-A (File
No. 33-44300), and hereby incorporated herein by
reference.
5. Articles of Incorporation of Depositor Included with the Registration Statement on Form N-
8B-2 for the Nationwide VL Separate Account-A (File
No. 811-6137), and hereby incorporated herein by
reference.
6. Application form of Security Included with the Registration Statement on Form S-6
for the Nationwide VL Separate Account-A (File
No. 33-44300), and hereby incorporated herein by
reference.
7. Opinion of Counsel Included with the Registration Statement on Form S-6
for the Nationwide VL Separate Account-A (File
No. 33-44300), and hereby incorporated herein by
reference.
</TABLE>
78
<PAGE> 55
Representations and Undertakings
The Registrant and the Company hereby make the following representations and
undertakings:
(a) This filing is made pursuant to Rules6c-3 and 6e-3(T) under the Investment
Company Act of 1940 (the Act). The Registrant and the Company elect to be
governed by Rule 6e-3(T)(b)(13)(i)(A) under the Act with respect to the
Policies described in the prospectus. The Policies have been designed in
such a way as to qualify for the exemptive relief from various provisions
of the Act afforded by Rule6e-3(T).
(b) Paragraph(b)(13)(iii)(F) of Rule6e-3(T) is being relied on for the
deduction of the mortality and expense risk charges (risk charges) assumed
by the Company under the Policies. The Company represents that the risk
charges are within the range of industry practice for comparable policies
and reasonable in relation to all of the risks assumed by the issuer under
the Policies. Actuarial memoranda demonstrating the reasonableness of these
charges are maintained by the Company, and will be made available to the
Securities and Exchange Commission (the Commission) on request.
(c) The Company has concluded that there is a reasonable likelihood that the
distribution financing arrangement of the separate account will benefit the
separate account and the contractholders and will keep and make available
to the Commission on request a memorandum setting forth the basis for this
representation.
(d) The Company represents that the separate account will invest only in
management investment companies which have undertaken to have a board of
directors, a majority of whom are not interested persons of the Company,
formulate and approve any plan under Rule12b-1 to finance distribution
expenses.
(e) Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the Registrant hereby undertakes to file with the
Commission such supplementary and periodic information, documents, and
reports as may be prescribed by any rule or regulation of the Commission
heretofore or hereafter duly adopted pursuant to authority conferred in
that section.
(f) Represents that the fees and charges deducted under the Contract in the
aggregate are reasonable in relation to the services rendered, the expenses
expected to be incurred, and the risks assumed by the Company.
77
<PAGE> 56
Accountants' Consent
The Board of Directors of Nationwide Life and Annuity Insurance Company
(formerly Financial Horizons Life Insurance Company) and
Contract Owners of the Nationwide VL Separate Account-A
(formerly Financial Horizons VL Separate Account-1):
We consent to the use of our reports included herein and to the reference to our
firm under the heading Experts in the prospectus.
KPMG Peat Marwick LLP
Columbus, Ohio
April 28, 1997
78
<PAGE> 57
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Nationwide VL Separate Account-A, certifies that it meets the requirements of
Securities Act Rule 485(b) for effectiveness of this Post-Effective Amendment
No. 7 and has duly caused this Post-Effective Amendment No. 7 to be signed on
its behalf by the undersigned thereunto duly authorized, and its seal to be
hereunto affixed and attested, all in the City of Columbus, and State of Ohio,
on this 28th day of April, 1997.
NATIONWIDE VL SEPARATE ACCOUNT-A
---------------------------------------------
(Registrant)
(Seal) NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
---------------------------------------------
Attest: (Sponsor)
W. SIDNEY DRUEN By: JOSEPH P. RATH
W. Sidney Druen Joseph P. Rath
Assistant Secretary Vice President
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 7 has been signed below by the following persons in the capacities
indicated on the 28th day of April, 1997.
Signature Title
LEWIS J. ALPHIN Director
- ----------------------------
Lewis J. Alphin
KEITH W. ECKEL Director
- ----------------------------
Keith W. Eckel
WILLARD J. ENGEL Director
- ----------------------------
Willard J. Engel
FRED C. FINNEY Director
- ----------------------------
Fred C. Finney
CHARLES L. FUELLGRAF, JR. Director
- ----------------------------
Charles L. Fuellgraf, Jr.
JOSEPH J. GASPER President/Chief
- ---------------------------- Operating Office and Director
Joseph J. Gasper
HENRY S. HOLLOWAY Chairman of the Board
- ---------------------------- and Director
Henry S. Holloway
DIMON RICHARD McFERSON Chairman and Chief Executive Officer-
- ---------------------------- Nationwide Insurance Enterprise and Director
Dimon Richard McFerson
DAVID O. MILLER Director
- ----------------------------
David O. Miller
C. RAYNOECKER Director
- ----------------------------
C. Ray Noecker
ROBERT A. OAKLEY Executive Vice President-
- ---------------------------- Chief Financial Officer
Robert A. Oakley
JAMES F. PATTERSON Director By /s/ JOSEPH P. RATH
- ---------------------------- ----------------------
James F. Patterson Joseph P. Rath
Attorney-in-Fact
ARDEN L. SHISLER Director
- ----------------------------
Arden L. Shisler
ROBERT L. STEWART Director
- ----------------------------
Robert L. Stewart
NANCY C. THOMAS Director
- ----------------------------
Nancy C. Thomas
HAROLD W. WEIHL Director
- ----------------------------
Harold W. Weihl
79
<PAGE> 1
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that each of the undersigned as
directors and/or officers of NATIONWIDE LIFE INSURANCE COMPANY, and NATIONWIDE
LIFE AND ANNUITY INSURANCE COMPANY, both Ohio corporations, which have filed or
will file with the U.S. Securities and Exchange Commission under the provisions
of the Securities Act of 1933, as amended, various Registration Statements and
amendments thereto for the registration under said Act of Individual Deferred
Variable Annuity Contracts in connection with MFS Variable Account, Nationwide
Variable Account, Nationwide Variable Account-II, Nationwide Variable Account-3,
Nationwide Variable Account-4, Nationwide Variable Account-5, Nationwide
Variable Account-6, Nationwide Fidelity Advisor Variable Account, Nationwide
Multi-Flex Variable Account, Nationwide Variable Account-8, Nationwide VA
Separate Account-A, Nationwide VA Separate Account-B, Nationwide VA Separate
Account-C and Nationwide VA Separate Account-Q; and the registration of fixed
interest rate options subject to a market value adjustment offered under some or
all of the aforementioned individual Variable Annuity Contracts in connection
with Nationwide Multiple Maturity Separate Account and Nationwide Multiple
Maturity Separate Account-A, and the registration of Group Flexible Fund
Retirement Contracts in connection with Nationwide DC Variable Account,
Nationwide DCVA-II, and NACo Variable Account; and the registration of Group
Common Stock Variable Annuity Contracts in connection with Separate Account No.
1; and the registration of variable life insurance policies in connection with
Nationwide VLI Separate Account, Nationwide VLI Separate Account-2, Nationwide
VLI Separate Account-3, Nationwide VL Separate Account-A and Nationwide VL
Separate Account-B, hereby constitutes and appoints Dimon Richard McFerson,
Joseph J. Gasper, W. Sidney Druen, and Joseph P. Rath, and each of them with
power to act without the others, his/her attorney, with full power of
substitution and resubstitution, for and in his/her name, place and stead, in
any and all capacities, to approve, and sign such Registration Statements and
any and all amendments thereto, with power to affix the corporate seal of said
corporation thereto and to attest said seal and to file the same, with all
exhibits thereto and other documents in connection therewith, with the U.S.
Securities and Exchange Commission, hereby granting unto said attorneys, and
each of them, full power and authority to do and perform all and every act and
thing requisite to all intents and purposes as he/she might or could do in
person, hereby ratifying and confirming that which said attorneys, or any of
them, may lawfully do or cause to be done by virtue hereof. This instrument may
be executed in one or more counterparts.
IN WITNESS WHEREOF, the undersigned have herewith set their names and
seals as of this 2nd day of April, 1997.
<TABLE>
<CAPTION>
<S> <C>
/s/ Lewis J. Alphin /s/ David O. Miller
- ------------------------------------------------- --------------------------------------------------
Lewis J. Alphin, Director David O. Miller, Director
/s/ Keith W. Eckel /s/ C. Ray Noecker
- ------------------------------------------------- -------------------------------------------------
Keith W. Eckel, Director C. Ray Noecker, Director
/s/ Willard J. Engel /s/ Robert A. Oakley
- ------------------------------------------------- --------------------------------------------------
Willard J. Engel, Director Robert A. Oakley, Executive Vice President and Chief
Financial Officer
/s/ Fred C. Finney /s/ James F. Patterson
- ------------------------------------------------- --------------------------------------------------
Fred C. Finney, Director James F. Patterson, Director
/s/ Charles L. Fuellgraf /s/ Arden L. Shisler
- ------------------------------------------------- --------------------------------------------------
Charles L. Fuellgraf, Jr., Director Arden L. Shisler, Director
/s/ Joseph J. Gasper /s/ Robert L. Stewart
- ------------------------------------------------- --------------------------------------------------
Joseph J. Gasper, President and Chief Operating Officer Robert L. Stewart, Director
and Director
/s/ Henry S. Holloway /s/ Nancy C. Thomas
- ------------------------------------------------- --------------------------------------------------
Henry S. Holloway, Chairman of the Board, Director Nancy C. Thomas, Director
/s/ Dimon Richard McFerson /s/ Harold W. Weihl
- ------------------------------------------------- --------------------------------------------------
Dimon Richard McFerson, Chairman and Chief Executive Harold W. Weihl, Director
Officer-Nationwide Insurance Enterprise and Director
</TABLE>
