<PAGE> 1
Registration No. 33-44300
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 8
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 43215
(EXACT NAME AND ADDRESS OF DEPOSITOR AND REGISTRANT)
DENNIS W. CLICK
SECRETARY
ONE NATIONWIDE PLAZA
COLUMBUS, OHIO 43215
(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, 1998 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
If appropriate check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment
Title of Securities being registered: Flexible Premium Variable Life Insurance
Policies
Approximate date of proposed offering: Continuously on and after May 1, 1998
[ ] Check box if it is proposed that this filing will become effective on (date)
at (time) pursuant to Rule 487.
===============================================================================
<PAGE> 2
CROSS REFERENCE TO ITEMS REQUIRED
BY FORM N-8B-2
<TABLE>
<CAPTION>
N-8B-2 ITEM CAPTION IN PROSPECTUS
<S> <C>
1................................................................................Nationwide Life and Annuity
Insurance Company
The Variable Account
2................................................................................Nationwide Life and Annuity
Insurance Company
3................................................................................Custodian of Assets
4................................................................................Distribution of The Policies
5................................................................................The Variable Account
6................................................................................Not Applicable
7................................................................................Not Applicable
8................................................................................Not Applicable
9................................................................................Legal Proceedings
10................................................................................Information About The
Policies; How The Cash Value
Varies; Right to Exchange for
a Fixed Benefit Policy;
Reinstatement; Other Policy
Provisions
11................................................................................Investments of The Variable
Account
12................................................................................The Variable Account
13................................................................................Policy Charges
Reinstatement
14................................................................................Underwriting and Issuance -
Premium Payments
Minimum Requirements for
Issuance of a Policy
15................................................................................Investments of the Variable
Account; Premium Payments
16................................................................................Underwriting and Issuance -
Allocation of Cash Value
17................................................................................Surrendering The Policy for
Cash
18................................................................................Reinvestment
19................................................................................Not Applicable
20................................................................................Not Applicable
21................................................................................Policy Loans
22................................................................................Not Applicable
23................................................................................Not Applicable
24................................................................................Not Applicable
25................................................................................Nationwide Life and Annuity
Insurance Company
26................................................................................Not Applicable
27................................................................................Nationwide Life and Annuity
Insurance Company
28................................................................................Company Management
29................................................................................Company Management
30................................................................................Not Applicable
31................................................................................Not Applicable
32................................................................................Not Applicable
33................................................................................Not Applicable
34................................................................................Not Applicable
</TABLE>
<PAGE> 3
<TABLE>
N-8B-2 ITEM CAPTION IN PROSPECTUS
<S> <C>
35................................................................................Nationwide Life and Annuity
Insurance Company
36................................................................................Not Applicable
37................................................................................Not Applicable
38................................................................................Distribution of The Policies
39................................................................................Distribution of The Policies
40................................................................................Not Applicable
41(a).............................................................................Distribution of The Policies
42................................................................................Not Applicable
43................................................................................Not Applicable
44................................................................................How The Cash Value Varies
45................................................................................Not Applicable
46................................................................................How The Cash Value Varies
47................................................................................Not Applicable
48................................................................................Custodian of Assets
49................................................................................Not Applicable
50................................................................................Not Applicable
51................................................................................Summary of The Policies;
Information About The
Policies
52................................................................................Substitution of Securities
53................................................................................Taxation of The Company
54................................................................................Not Applicable
55................................................................................Not Applicable
56................................................................................Not Applicable
57................................................................................Not Applicable
58................................................................................Not Applicable
59................................................................................Financial Statements
</TABLE>
<PAGE> 4
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
P.O. Box 182150
Columbus, Ohio 43218-2150
(800) 533-5622, TDD (800) 238-3035
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICIES
ISSUED BY THE NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
THROUGH ITS NATIONWIDE VL SEPARATE ACCOUNT-A
The life insurance policies offered by this prospectus are variable life
insurance policies (collectively referred to as the "Policies"). The Policies
are designed to provide life insurance coverage and the flexibility to vary the
amount and frequency of premium payments. The Policies may also provide a Cash
Surrender Value if the Policy is terminated during the lifetime of the Insured.
Nationwide Life and Annuity Insurance Company (the "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 and the Fixed Account. The assets of each Sub-Account will be used
to purchase, at Net Asset Value, shares in one or more of the following Mutual
Fund options:
<TABLE>
<S> <C>
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC., NATIONWIDE SEPARATE ACCOUNT TRUST:
A MEMBER OF THE AMERICAN CENTURY(SM) - Capital Appreciation Fund
FAMILY OF INVESTMENTS - Government Bond Fund
- American Century VP Advantage - Money Market Fund
FIDELITY VARIABLE INSURANCE PRODUCTS FUND: - Total Return Fund
-VIP Growth Portfolio NEUBERGER & BERMAN ADVISERS MANAGEMENT
TRUST:
- Balanced Portfolio
</TABLE>
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. The 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.
THE BENEFITS DESCRIBED IN THIS PROSPECTUS MAY NOT BE AVAILABLE IN EVERY
JURISDICTION. PLEASE REFER TO YOUR POLICY FOR SPECIFIC BENEFIT INFORMATION.
INVESTMENTS IN THESE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY ANY BANK. INVESTMENTS ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY, AND AN
INVESTMENT IN THE VARIABLE ACCOUNT FUND OPTIONS INVOLVES CERTAIN INVESTMENT RISK
WHICH MAY INCLUDE THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("SEC") NOR HAS THE SEC 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, 1998
1
<PAGE> 5
GLOSSARY OF SPECIAL TERMS
ATTAINED AGE- The Insured's age on the Policy Date, plus the number of full
years since the Policy Date.
ACCUMULATION UNIT- An accounting unit of measure used to calculate the 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 value of one share of an Underlying Mutual Fund 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.
SUB-ACCOUNTS- Separate and distinct divisions of the Variable Account, to which
specific underlying Mutual Fund shares are allocated and for which Accumulation
Units are separately maintained.
SURRENDER CHARGE- An amount deducted from the Cash Value if the Policy is
surrendered.
UNDERLYING MUTUAL FUNDS- A registered open-end management investment company in
which the assets of the Sub-Accounts will be invested.
VALUATION DATE- Each day the New York Stock Exchange and the Home Office are
open for business or any other day during which there is a sufficient degree of
trading of the Underlying Mutual Fund shares that the current Cash Value might
be materially affected.
2
<PAGE> 6
VALUATION PERIOD- A period commencing with the close of a Valuation Date and
ending at the close of business for the next succeeding Valuation Date.
VARIABLE ACCOUNT- A separate investment account of Nationwide Life and Annuity
Insurance Company.
3
<PAGE> 7
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
GLOSSARY OF TERMS............................................................................................2
SUMMARY OF THE POLICIES......................................................................................6
Variable Life Insurance.............................................................................6
The Variable Account and its Sub-Accounts...........................................................6
The Fixed Account...................................................................................6
Deductions and Charges..............................................................................6
Premiums............................................................................................7
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY................................................................8
THE VARIABLE ACCOUNT.........................................................................................8
Investments of the Variable Account.................................................................8
American Century Variable Portfolios, Inc., a member of the American Century(SM) Family of
Investments.........................................................................................9
Fidelity Variable Insurance Products Fund..........................................................10
Nationwide Separate Account Trust..................................................................10
Neuberger & Berman Advisers Management Trust.......................................................10
Reinvestment.......................................................................................11
Transfers..........................................................................................11
Dollar Cost Averaging..............................................................................12
Substitution of Securities.........................................................................12
Voting Rights......................................................................................12
INFORMATION ABOUT THE POLICIES..............................................................................12
Underwriting and Issuance..........................................................................12
Minimum Requirements for Issuance of a Policy......................................................12
Premium Payments...................................................................................13
Allocation of Cash Value...........................................................................13
Short-Term Right to Cancel Policy..................................................................13
POLICY CHARGES..............................................................................................13
Deductions from Premiums...........................................................................13
Surrender Charges..................................................................................14
Reductions to Surrender Charges....................................................................15
Deductions from Cash Value.........................................................................15
Monthly Cost of Insurance..........................................................................15
Monthly Administrative Charge......................................................................16
Increase Charge....................................................................................16
Deductions from the Sub-Accounts...................................................................16
Expenses of the Underlying Mutual Funds............................................................16
HOW THE CASH VALUE VARIES...................................................................................17
How the Investment Experience is Determined........................................................17
Net Investment Factor..............................................................................17
Determining the Cash Value.........................................................................18
Valuation Periods and Valuation Dates..............................................................18
SURRENDERING THE POLICY FOR CASH............................................................................18
Right to Surrender.................................................................................18
Cash Surrender Value...............................................................................18
Partial Surrenders.................................................................................18
Maturity Proceeds..................................................................................19
Income Tax Withholding.............................................................................19
POLICY LOANS................................................................................................19
Taking a Policy Loan...............................................................................19
Effect on Investment Performance...................................................................19
Interest...........................................................................................19
Effect on Death Benefit and Cash Value.............................................................20
Repayment..........................................................................................20
HOW THE DEATH BENEFIT VARIES................................................................................20
Calculation of the Death Benefit...................................................................20
Proceeds Payable on Death..........................................................................21
RIGHT TO EXCHANGE FOR A FIXED BENEFIT POLICY................................................................21
CHANGES OF INVESTMENT POLICY................................................................................21
</TABLE>
4
<PAGE> 8
<TABLE>
<S> <C>
GRACE PERIOD................................................................................................21
First Three Policy Years...........................................................................21
Policy Years Four and After........................................................................22
All Policy Years...................................................................................22
REINSTATEMENT...............................................................................................22
THE FIXED ACCOUNT OPTION....................................................................................22
CHANGES IN EXISTING INSURANCE COVERAGE......................................................................23
Specified Amount Increases.........................................................................23
Specified Amount Decreases.........................................................................23
Changes in the Death Benefit Option................................................................23
OTHER POLICY PROVISIONS.....................................................................................24
Policy Owner.......................................................................................24
Beneficiary........................................................................................24
Assignment.........................................................................................24
Incontestability...................................................................................24
Error in Age or Sex................................................................................24
Suicide............................................................................................24
Nonparticipating Policies..........................................................................25
LEGAL CONSIDERATIONS........................................................................................25
DISTRIBUTION OF THE POLICIES................................................................................25
CUSTODIAN OF ASSETS.........................................................................................25
TAX MATTERS.................................................................................................25
Policy Proceeds....................................................................................25
Withholding........................................................................................26
Federal Estate and Generation-Skipping Transfer Taxes..............................................26
Non-Resident Aliens................................................................................27
Taxation of the Company............................................................................27
Tax Changes........................................................................................27
THE COMPANY.................................................................................................28
COMPANY MANAGEMENT..........................................................................................28
Directors of the Company...........................................................................28
Executive Officers of the Company..................................................................29
OTHER CONTRACTS ISSUED BY THE COMPANY.......................................................................29
STATE REGULATION............................................................................................29
REPORTS TO POLICY OWNERS....................................................................................30
ADVERTISING.................................................................................................30
YEAR 2000 COMPLIANCE ISSUES.................................................................................30
LEGAL PROCEEDINGS...........................................................................................30
EXPERTS.....................................................................................................30
REGISTRATION STATEMENT......................................................................................30
LEGAL OPINIONS..............................................................................................32
APPENDIX 1..................................................................................................33
APPENDIX 2..................................................................................................34
FINANCIAL STATEMENTS........................................................................................51
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS.
THE PRIMARY PURPOSE OF THE POLICIES IS TO PROVIDE LIFE INSURANCE PROTECTION FOR
THE BENEFICIARY NAMED IN THE POLICY. NO CLAIM IS MADE THAT THE POLICIES ARE IN
ANY WAY SIMILAR OR COMPARABLE TO A SYSTEMATIC INVESTMENT PLAN OF A MUTUAL FUND.
5
<PAGE> 9
SUMMARY OF THE POLICIES
VARIABLE LIFE INSURANCE
The variable life insurance policies offered by the Company are similar in many
ways to fixed-benefit whole life insurance. As with fixed-benefit whole life
insurance, the Policy Owner 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 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.
The 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 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 ("NSAT 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
corresponding Underlying Mutual Fund options. For a description of the
Underlying Mutual Fund options and their investment objectives, see "Investments
of the Variable Account".
THE FIXED ACCOUNT
The Fixed Account is funded by the assets of the Company's General Account. Cash
Values allocated to the Fixed Account are credited with interest daily at a rate
declared by the Company. The interest rate declared is at the Company's sole
discretion, but may never be less than an effective annual rate of 4%.
DEDUCTIONS AND CHARGES
The Company deducts certain charges from the assets of the Variable Account and
the Cash Value of the Policy. These charges are made for administrative and
sales expenses, state premium taxes, providing life insurance protection and
assuming the mortality and expense risks. For a discussion of any charges
imposed by the Underlying Mutual Fund options, see the prospectuses of the
respective Underlying Mutual Funds.
The Company deducts a sales load from each premium payment received not to
exceed 3.5% of each premium payment. On a current basis, the sales load is
reduced to 1.5% on any portion of the annual premium paid in excess of the
annual Break Point Premium. The total sales load actually deducted from any
Policy will be equal to the sum of this front-end sales load plus any sales
surrender charge that may be deducted from Policies that are surrendered.
The Company also deducts a charge for state premium taxes equal to 2.5% of all
premium payments.
The Company also deducts the following charges from the Policy's Cash Value on
the Policy Date and each subsequent Monthly Anniversary Day:
1. monthly cost of insurance; plus
2. monthly cost of any additional benefits provided by riders to the
Policy; plus
3. an administrative expense charge. This charge is $25 per month in
the first year and $5 per month in renewal years. The charge in
renewal years may be increased at the sole discretion of the
Company but may not exceed $7.50 per month; plus
6
<PAGE> 10
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 the anniversary.
For Policies which are surrendered during the first nine Policy Years, the
Company deducts a Surrender Charge. This Surrender Charge is comprised of an
Underwriting Surrender Charge and a Sales Surrender Charge. The maximum initial
Surrender Charge varies by issue age, sex, Specified Amount and underwriting
classification and is calculated based on the initial Specified Amount. The
following table illustrates the maximum initial Surrender Charge per $1,000 of
initial Specified Amount for Policies which are issued on a standard basis (see
Appendix 1 for specific examples).
<TABLE>
Initial Specified Amount $50,000-$99,999
<CAPTION>
Issue Male Female Male Female
Age Non-Tobacco Non-Tobacco Standard Standard
<S> <C> <C> <C> <C> <C>
25 $7.776 $7.521 $8.369 $7.818
35 8.817 8.398 9.811 8.891
45 12.191 11.396 13.887 12.169
55 15.636 14.011 18.415 15.116
65 22.295 19.086 26.577 20.641
</TABLE>
<TABLE>
Initial Specified Amount $100,000+
<CAPTION>
Issue Male Female Male Female
Age Non-Tobacco Non-Tobacco Standard Standard
<S> <C> <C> <C> <C> <C>
25 $5.776 $5.521 $6.369 $5.818
35 6.817 6.398 7.811 6.891
45 9.691 8.896 11.387 9.669
55 13.136 11.511 15.915 12.616
65 21.295 18.086 25.577 19.641
</TABLE>
Underlying Mutual Fund shares are purchased at Net Asset Value, which reflects
the deduction of investment management fees and certain other expenses. The
management fees are charged by each Underlying Mutual Fund's investment adviser
for managing the Underlying Mutual Fund and selecting its portfolio of
securities. Other Underlying Mutual Fund expenses can include such items as
interest expense on loans and contracts with transfer agents, custodians, and
other companies that provide services to the Underlying Mutual Fund (see
"Expenses of the Underlying Mutual Funds").
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.
7
<PAGE> 11
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 at the Home Office or to an
authorized agent. All premiums after the first are payable at the 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
The Company, formerly Financial Horizons Life Insurance Company, is a stock life
insurance company organized under the laws of the State of Ohio in February
1981. The Company is a member of the "Nationwide Insurance Enterprise" with its
Home Office at One Nationwide Plaza, Columbus, Ohio 43215. The Company is a
provider of life insurance and annuities. The Policies are distributed by the
General Distributor, Nationwide Advisory Services, Inc. ("NAS").
THE VARIABLE ACCOUNT
The Variable Account was established by the Company on August 8, 1984. The
Company has caused the Variable Account to be registered with the SEC as a unit
investment trust pursuant to the provisions of the Investment Company Act of
1940 (the "1940 Act"). Nationwide Life Insurance Company, One Nationwide Plaza,
Columbus, Ohio 43215 serves as trustee for the trust. NAS, Three Nationwide
Plaza, Columbus, Ohio 43215 serves as principal underwriter for the trust.
Registration does not involve supervision of the management of the Variable
Account or the Company by the SEC.
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.
NATIONWIDE ADVISORY SERVICES, INC.
The Contracts are distributed by the General Distributor, NAS, Three Nationwide
Plaza, Columbus, Ohio, 43215. NAS is a wholly-owned subsidiary of Nationwide
Life Insurance Company.
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 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 NSAT Money Market Fund. At the
end of this period, the Cash Value in that Sub-Account will be transferred to
the 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 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 the NSAT 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 contracts and variable life insurance
policies 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
8
<PAGE> 12
risks associated with mixed and shared funding, which are 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 NAS; and
4. Neuberger & Berman Advisers Management Trust, managed by Neuberger &
Berman Management Incorporated.
The Underlying Mutual Fund options are NOT available to the general public
directly. The Underlying Mutual Funds are available as investment options in
variable life insurance policies or variable annuity contracts issued by life
insurance companies or, in some cases, through participation in certain
qualified pension or retirement plans.
Some of the Underlying Mutual Funds have been established by investment advisers
which manage publicly traded mutual funds having similar names and investment
objectives. While some of the Underlying Mutual Funds may be similar to, and may
in fact be modeled after publicly traded mutual funds, Policy purchasers should
understand that the Underlying Mutual Funds are not otherwise directly related
to any publicly traded mutual fund. Consequently, the investment performance of
publicly traded mutual funds and any corresponding Underlying Mutual Funds may
differ substantially.
A summary of investment objectives is contained in the description of each
Underlying Mutual Fund below. These Underlying Mutual Fund options are available
only to serve as the underlying investment vehicle for variable annuity
contracts and variable life insurance policies issued through separate accounts
of life insurance companies which may or may not be affiliated, also known as
"mixed and shared funding." There are certain risks associated with mixed and
shared funding, which are disclosed in the Underlying Mutual Funds'
prospectuses. A full description of the Underlying Mutual Funds, their
investment policies and restrictions, risks and charges are contained in the
prospectuses of the respective Underlying Mutual Funds. A prospectus for the
Underlying Mutual Fund option(s) being considered must accompany this prospectus
and should be read in conjunction herewith. THERE CAN BE NO ASSURANCE THAT THE
INVESTMENT OBJECTIVES WILL BE ACHIEVED.
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC., A MEMBER OF THE AMERICAN CENTURY(SM)
FAMILY OF INVESTMENTS
American Century Variable Portfolios, Inc. was organized as a Maryland
corporation in 1987. It is a diversified, open-end investment management company
which offers its share only as investment vehicles for variable annuity
contracts and variable life insurance products of insurance companies. 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 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.)
9
<PAGE> 13
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
The Fidelity Variable Insurance Products Fund (VIP) is an open-end, diversified,
management investment company organized as a Massachusetts business trust on
November 13, 1981. Shares of VIP are purchased by insurance companies to fund
benefits under variable life insurance policies and variable annuity contracts.
Fidelity Management & Research Company ("FMR") is the manager for VIP and it's
portfolios.
-VIP GROWTH PORTFOLIO
Investment Objective: Capital Appreciation. This Portfolio will invest in
the securities of both well-known and established companies, and smaller,
less well-known companies which may have a narrow product line or whose
securities are thinly traded. These latter securities will often involve
greater risk than may be found in the ordinary investment security. FMR's
analysis and expertise plays an integral role in the selection of
securities and, therefore, the performance of the Portfolio. Many
securities which FMR believes would have the greatest potential may be
regarded as speculative, and investment in the Portfolio may involve
greater risk than is inherent in other mutual funds. It is also important
to point out that this 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 ("NSAT") is a diversified open-end management
investment company organized under the laws of Massachusetts. NSAT offers shares
in the funds listed below, each with its own investment objectives. Shares of
NSAT will be sold only to life insurance company separate accounts to fund the
benefits under variable life insurance policies and variable annuity contracts
issued by life insurance companies. The assets of NSAT are managed by NAS, a
wholly-owned subsidiary of Nationwide Life Insurance Company.
-CAPITAL APPRECIATION FUND
Investment Objective: Long-term growth by primarily investing in a
diversified portfolio of the common stock of companies which NAS
determines have a better-than-average potential for sustained capital
growth over the long term.
-GOVERNMENT BOND FUND
Investment Objective: A high level of income as is consistent with the
preservation of by investing in a diversified portfolio of securities
issued or backed by the U.S. Government, its agencies or
instrumentalities.
-MONEY MARKET FUND
Investment Objective: As high a level of current income as is considered
consistent with the preservation of capital and liquidity by investing
primarily in money market instruments.
-TOTAL RETURN FUND
Investment Objective: Capital growth by investing in common stocks of
companies that NAS believes will have above-average earnings or otherwise
provide investors with above-average potential for capital appreciation.
To maximize this potential, NAS may also utilize from time to time,
securities convertible into common stock, warrants and options to
purchase such stocks.
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
Neuberger and Berman Advisers Management Trust ("N & B AMT") is an open-end,
diversified management investment company consisting of several series. Shares
of the series of N & B AMT 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.
-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
10
<PAGE> 14
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 and the Fixed
Account. A transfer will take effect on the date of receipt of written notice at
the 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 good order at the Home Office.
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 Sub-Accounts. The Company reserves the right to restrict the
amounts of 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 the following: 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; or other procedures as the Company may
deem reasonable. Although the Company's 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 will 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.
Policies described in this prospectus may be sold to individual who
independently utilize the services of a firm or individual engaged in market
timing. Generally, such firms or individuals obtain authorization from multiple
Policy Owners to make transfers and exchanges among the Sub-Account on the basis
of perceived market trends. Because of the unusually large transfers of funds
associated with some of these transactions, the ability of the Company or
Underlying Mutual Funds to process such transactions may be compromised, and the
execution of such transactions may possibly disadvantage or work to the
detriment of other Policy Owners not utilizing market timing services.
Accordingly, the right to exchange Contract Values among the Sub-Accounts may be
subject to modification if such rights are exercised by a market timing firm or
any other third party authorized to initiate transfer or exchange transactions
on behalf of multiple Policy Owners. THE RIGHTS OF INDIVIDUAL POLICY OWNERS TO
EXCHANGE CONTRACT VALUES, WHEN INSTRUCTIONS ARE SUBMITTED DIRECTLY BY THE POLICY
OWNER, OR BY THE POLICY OWNER'S REPRESENTATIVE OF RECORD AS AUTHORIZED BY THE
EXECUTION OF A VALID NATIONWIDE LIMITED POWER OF ATTORNEY FORM, WILL NOT BE
MODIFIED IN ANY WAY. In modifying such rights, the Company may, among other
things, not accept:
(1) the transfer or exchange instructions of any agent acting under a
power of attorney on behalf of more than one Policy Owner; or
11
<PAGE> 15
(2) the transfer or exchange instructions of individual Policy Owners
who have executed preauthorized transfer or exchange forms which are
submitted by market timing firms or other third parties on behalf of
more than one Policy Owner at the same time.
The Company will not impose any such restrictions or otherwise modify exchange
rights unless such action is reasonably intended to prevent the use of such
rights in a manner that will disadvantage or potentially impair the contract
rights of other Policy Owners.
DOLLAR COST AVERAGING
If the Contract Value is $15,000 or more, the Policy Owner may direct the
Company to automatically transfer amounts from the NSAT Money Market Fund, NSAT
Government Bond Fund or the Fixed Account to any other Sub-Account. Dollar Cost
Averaging will occur on a monthly basis or on another frequency permitted by the
Company. Dollar Cost Averaging is a long-term investment program which provides
for regular, level investments over time. There is no guarantee that Dollar Cost
Averaging will result in a profit or protect against loss. The minimum monthly
transfer is $100. Transfers will be processed until either the value in the
originating funds is exhausted or the Policy Owner instructs the Home Office to
cancel the transfers.
The Company reserves the right to discontinue establishing new Dollar Cost
Averaging programs. The Company also reserves a right to assess a processing fee
for this service.
SUBSTITUTION OF SECURITIES
If shares of the Underlying Mutual Funds are no longer available for investment
by the Variable Account or, if in the judgment of the Company's management
further investment in the Underlying Mutual Fund options is inappropriate the
Company may eliminate Sub-Accounts, combine two or more Sub-Accounts, or
substitute shares of another Underlying Mutual Fund for 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 SEC.
VOTING RIGHTS
Voting rights under the Policies apply only with respect to Cash Value allocated
to the Sub-Accounts.
In accordance with its view of applicable law, the Company will vote the shares
of the Underlying Mutual Funds at regular and special meetings of the
shareholders. These shares will be voted in accordance with instructions
received from Policy Owners. If the 1940 Act or any regulation thereunder should
be amended or if the present interpretation changes, permitting the Company to
vote the shares of the Underlying Mutual Funds in its own right, the Company may
elect to do so.
The Policy Owner is the person who has the voting interest under a Policy. The
number of Underlying Mutual Fund shares attributable to each Policy Owner is
determined by dividing the Policy Owner's interest in each respective
Sub-Account by the Net Asset Value of the Underlying Mutual Fund. The number of
shares which may be voted will be determined as of a date chosen by the Company
not more than 90 days prior to the meeting of the Underlying Mutual Fund. Each
person having a voting interest will receive periodic reports relating to the
Underlying Mutual Funds, proxy material and a form with which to give voting
instructions.
Voting instructions will be solicited by written communication at least 21 days
prior to such meeting. Underlying Mutual Fund shares to which no timely
instructions are received will be voted by the Company in the same proportion as
the voting instructions which are received with respect to all Policies
participating in the Variable Account.
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.
12
<PAGE> 16
PREMIUM PAYMENTS
The Initial Premium for a Policy is payable in full at the 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 NSAT Money
Market Fund value or the Fixed Account as if the Policy had been issued and the
Initial Net Premium invested on the date the premium was received in good order
at the Home Office. When the Policy is issued, the Net Premiums will be
allocated to the NSAT Money Market Fund (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 NSAT Money Market Fund. 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 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 Home Office.
Immediately after mailing or delivery, the Policy will be deemed void from the
beginning. The Company will refund either the total premiums paid or the Cash
Value less Indebtedness as prescribed by the state in which the Policy was
issued 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.
13
<PAGE> 17
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 tax
rates generally 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
<TABLE>
<CAPTION>
Issue Male Female Male Female
Age Non-Tobacco Non-Tobacco Standard Standard
<S> <C> <C> <C> <C> <C>
25 $7.776 $7.521 $8.369 $7.818
35 8.817 8.398 9.811 8.891
45 12.191 11.396 13.887 12.169
55 15.636 14.011 18.415 15.116
65 22.295 19.086 26.577 20.641
</TABLE>
Initial Specified Amount $100,000+
<TABLE>
<CAPTION>
Issue Male Female Male Female
Age Non-Tobacco Non-Tobacco Standard Standard
<S> <C> <C> <C> <C> <C>
25 $5.776 $5.521 $6.369 $5.818
35 6.817 6.398 7.811 6.891
45 9.691 8.896 11.387 9.669
55 13.136 11.511 15.915 12.616
65 21.295 18.086 25.577 19.641
</TABLE>
The Surrender Charge is comprised of two components: an underwriting surrender
charge and sales surrender charge. The underwriting surrender charge varies by
issue age in the following manner:
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 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")
14
<PAGE> 18
REDUCTIONS TO SURRENDER CHARGES
The Surrender Charges are reduced in subsequent Policy Years in the following
manner:
<TABLE>
<CAPTION>
Surrender Charge Surrender Charge
Completed as a % of Initial Completed as a % of Initial
Policy Years Surrender Charges Policy Years Surrender Charges
<S> <C> <C> <C> <C>
0 100% 5 60%
1 100% 6 50%
2 90% 7 40%
3 80% 8 30%
4 70% 9+ 0%
</TABLE>
Special guaranteed maximum Surrender Charges apply in Pennsylvania (see Appendix
1).
DEDUCTIONS FROM CASH VALUE
The Company also deducts the following charges from the Policy's Cash Value on
the Policy Date and each subsequent Monthly Anniversary Day:
1. monthly cost of insurance charges; plus
2. monthly cost of any additional benefits provided by riders; plus
3. monthly administrative expense charge; plus
4. the increase charge per $1000 applied to any increase in the
Specified Amount (see "Specified Amount Increases"). The increase
charge is $2.04 per year per $1000 and is shown on the Policy Data
Page. This charge is designed to cover the costs associated with
increasing the Specified Amount (see "Policy Charges"). This
charge will be deducted on each Monthly Anniversary Day for the
first 12 months after the increase becomes effective.
These deductions will be charged proportionately to the Cash Value in each
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 will first be considered a part of the
initial Specified Amount. If the Cash Value exceeds the initial Specified
Amount, it will then be considered a part of the additional increases in
Specified Amount resulting from the increases in the order of the increases.
Monthly cost of insurance rates will not exceed those guaranteed in the Policy.
Guaranteed cost of insurance rates for Policies issued on Specified Amounts less
than $100,000 are based on the 1980 Commissioners Extended Term Mortality Table,
Age Last Birthday (1980 CET). Guaranteed cost of insurance rates for Policies
issued on Specified Amounts $100,000 or more are based on the 1980 Commissioners
Standard Ordinary Mortality Table, Age Last Birthday (1980 CSO). Guaranteed cost
of insurance rates for Policies issued on a substandard basis are based on
appropriate percentage multiples of the 1980 CSO. These mortality tables are sex
distinct. In addition, separate mortality tables will be used for standard and
non-tobacco.
For Policies issued in Texas on a standard basis ("Special Class - Standard" in
Texas), guaranteed cost of insurance rates for Specified Amounts less than
$100,000 are based on 130% of the 1980 Commissioners Standard Ordinary Mortality
Table, Age Last Birthday (1980 CSO).
The rate class of an Insured may affect the cost of insurance rate. The Company
currently places Insureds into both standard rate classes and substandard
classes that involve a higher mortality risk. In an otherwise identical Policy,
an Insured in the standard rate class will have a lower cost of insurance than
an Insured in a rate class with higher mortality risks. The Company may also
issue certain Policies on a "Non Medical" basis to certain categories of
individuals. Due to the underwriting criteria established for Policies issued on
a Non Medical basis, actual rates will be higher than the current cost of
insurance rates being charged under Policies that are medically underwritten.
15
<PAGE> 19
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 the 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 (see "Taxation of
the Company"). The Company reserves the right to assess a charge for taxes
against the Variable Account if the Company determines that taxes will be
incurred.
EXPENSES OF THE UNDERLYING MUTUAL FUNDS
Underlying Mutual Fund shares are purchased at Net Asset Value, which reflects
the deduction of investment management fees and certain other expenses. The
management fees are charged by each Underlying Mutual Fund's investment adviser
for managing the Underlying Mutual Fund and selecting its portfolio of
securities. Other Underlying Mutual Fund expenses can include such items as
interest expense on loans and contracts with transfer agents, custodians, and
other companies that provide services to the Underlying Mutual Fund. The
management fees and other expenses for each Underlying Mutual Fund for its most
recently completed fiscal year, expressed as a percentage of the Underlying
Mutual Fund's average assets, are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Management Other Total Expenses
Fees Expenses
- --------------------------------------------------------------------------------------------------------------
American Century Variable Portfolios, Inc.- American Century VP 1.00% 0.00% 1.00%
----- ----- -----
Advantage
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fidelity VIP Growth Portfolio* 0.60% 0.09% 0.69%
- --------------------------------------------------------------------------------------------------------------
NSAT Capital Appreciation Fund 0.60% 0.09% 0.69%
- --------------------------------------------------------------------------------------------------------------
NSAT Government Bond Fund 0.50% 0.08% 0.58%
- --------------------------------------------------------------------------------------------------------------
NSAT Money Market Fund 0.40% 0.08% 0.48%
- --------------------------------------------------------------------------------------------------------------
NSAT Total Return Fund 0.60% 0.07% 0.67%
- --------------------------------------------------------------------------------------------------------------
Neuberger&Berman Advisers Management Trust-Balanced Portfolio 0.85% 0.19% 1.04%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 20
*The investment adviser has voluntarily agreed to reimburse a potion of the
management fees and/or other expenses resulting in a reduction of total
expenses. Absent any partial reimbursement. "Management Fees" and "Other
Expenses" for the Fidelity VIP Growth Portfolio would have been 0.60% and
0.09%.
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.
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 for any subsequent Valuation Period is determined by multiplying the
Accumulation Unit value for each Sub-Account for the immediately preceding
Valuation Period by the net investment factor for the Sub-Account during the
subsequent Valuation Period. The value of an Accumulation Unit may increase or
decrease from Valuation Period to Valuation Period. The number of Accumulation
Units will not change as a result of investment experience.
NET INVESTMENT FACTOR
The net investment factor for any Valuation Period is determined by dividing (a)
by (b) and subtracting (c) from the result where:
(a) is the net of:
(1) the Net Asset Value per share of the Underlying Mutual Fund held
in the Sub-Account determined at the end of the current Valuation
Period; plus
(2) the per share amount of any dividend or capital gain Distributions
made by the Underlying Mutual Fund held in the Sub-Account if the
"ex-dividend" date occurs during the current Valuation Period.
(b) is the Net Asset Value per share of the Underlying Mutual Fund held in
the Sub-Account determined at the end of the immediately preceding
Valuation Period.
(c) is a factor representing the Mortality and Expense Risk Charge. Such
factor is equal to an annual 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.
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 Risk Charge and Expense Risk Charge.
17
<PAGE> 21
DETERMINING THE CASH VALUE
The Cash Value is the sum of the value of all Accumulation Units and amounts
allocated and credited to the Fixed Account. The number of Accumulation Units
credited to each Sub-Account is determined by dividing the net amount allocated
to the Sub-Account by the Accumulation Unit value for the Sub-Account for the
Valuation Period during which the premium is received by 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 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 a Valuation Date 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 Home Office
are open for business or any other day during which there is a sufficient degree
of trading that the current Variable Account Contract Value might be materially
affected.
SURRENDERING THE POLICY FOR CASH
RIGHT TO SURRENDER
The Policy Owner may surrender the Policy in full at any time while the Insured
is living and receive its Cash Surrender Value. The cancellation will be
effective as of the date the Company receives a proper written request for
cancellation and the Policy. The 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 Sub- Accounts.
Partial surrenders will be deducted from the Fixed Account only to the extent
that insufficient values are available in the Sub- Accounts. The Company
reserves the right to deduct a $25.00 fee from the partial surrender amount.
18
<PAGE> 22
Surrender charges will be waived for any partial surrenders which satisfy the
above conditions. Certain partial surrenders may result in currently taxable
income and tax penalties (see "Tax Matters").
MATURITY PROCEEDS
The Maturity Date is the Policy Anniversary on or next following the Insured's
95th birthday. The maturity proceeds will be payable to the Policy Owner on the
Maturity Date provided the Policy is still in force. The Maturity Proceeds will
be equal to the amount of the Policy's Cash Value, less any Indebtedness.
INCOME TAX WITHHOLDING
Federal law requires the Company to withhold income tax from any portion of
surrender proceeds that is subject to tax, unless the Policy Owner advises the
Company, in writing, of his or her request not to withhold.
If the Policy Owner requests that the Company not withhold taxes, or if the
taxes withheld are insufficient, the Policy Owner may be liable for payment of
an estimated tax. The Policy Owner should consult his or her tax advisor.
In certain employer-sponsored life insurance arrangements, including equity
split dollar arrangements, participants may be required to report for income tax
purposes, one or more of the following: (1) the value each year of the life
insurance protection provided; (2) an amount equal to any employer-paid
premiums; or (3) some or all of the amount by which the current value of the
policy exceeds the employer's interest in the policy. Participants should
consult with the sponsor or the administrator of the plan, and/or with their
personal tax or legal advisers, to determine the tax consequences, if any, of
their employer-sponsored life insurance arrangements.
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 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 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 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
19
<PAGE> 23
Company retains the right to increase the net cost (by decreasing the interest
crediting rate) on all subsequent policy loans to an amount that would result in
the transaction being treated as a loan under Federal tax law. If this amount is
not prescribed by such ruling, regulation, or court decision, the amount will be
that which the Company considers to be more likely to result in the transaction
being treated as a loan under Federal tax law.
Amounts transferred to the Policy Loan Account will earn interest daily from the
date of transfer. The earned interest is transferred from the Policy Loan
Account to a Variable Account or the Fixed Account on each Policy Anniversary or
at the time of loan repayment. It will be allocated according to the Fund
allocation factors in effect at the time of the transfer.
Interest is charged daily and is payable at the end of each Policy Year or at
the time of loan repayment. Unpaid interest will be added to the existing Policy
Indebtedness as of the due date and will be charged interest at the same rate as
the rest of the Indebtedness.
EFFECT ON DEATH BENEFIT AND CASH VALUE
A Policy loan, whether or not repaid, will have a permanent effect on the Death
Benefit and Cash Value because the investment results of the Variable Account or
the Fixed Account will apply only to the non-loaned portion of the Cash Value.
The longer the loan is outstanding, the greater the effect is likely to be.
Depending on the investment results of the Variable Account or the Fixed Account
while the loan is outstanding, the effect could be favorable or unfavorable.
REPAYMENT
All or part of the Indebtedness may be repaid at any time while the Policy is in
force during the Insured's lifetime. Any payment intended as a loan repayment,
rather than a premium payment, must be identified as such. Loan repayments will
be credited to the 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
<TABLE>
<CAPTION>
Attained Percentage Attained Percentage Attained Percentage
Age of Cash Value Age of Cash Value Age of Cash Value
<S> <C> <C> <C> <C> <C> <C>
0-40 250% 60 130% 80 105%
41 243% 61 128% 81 105%
42 236% 62 126% 82 105%
43 229% 63 124% 83 105%
44 222% 64 122% 84 105%
45 215% 65 120% 85 105%
46 209% 66 119% 86 105%
</TABLE>
20
<PAGE> 24
<TABLE>
<CAPTION>
Attained Percentage Attained Percentage Attained Percentage
Age of Cash Value Age of Cash Value Age of Cash Value
<S> <C> <C> <C> <C> <C> <C>
47 203% 67 118% 87 105%
48 197% 68 117% 88 105%
49 191% 69 116% 89 105%
50 185% 70 115% 90 105%
51 178% 71 113% 91 104%
52 171% 72 111% 92 103%
53 164% 73 109% 93 102%
54 157% 74 107% 94 101%
55 150% 75 105% 95 100%
56 146% 76 105%
57 142% 77 105%
58 138% 78 105%
59 134% 79 105%
</TABLE>
PROCEEDS PAYABLE ON DEATH
The actual Death Proceeds payable on the Insured's death will be the death
benefit as described above, less any Policy Indebtedness and less any unpaid
Policy Charges. Under certain circumstances, the Death Proceeds may be adjusted
(see "Incontestability", "Error in Age or Sex" and "Suicide").
RIGHT TO EXCHANGE FOR A FIXED BENEFIT POLICY
The Policy Owner may exchange the Policy for a flexible premium adjustable life
insurance policy offered by the Company on the Policy Date. The benefits for the
new policy will not vary with the investment experience of a separate account.
The exchange must be elected within 24 months from the Policy Date. No evidence
of insurability will be required.
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 the 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 the 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:
21
<PAGE> 25
(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 a notice at the start of the Grace Period to the Policy
Owner's last known address. If the Insured dies during the Grace Period, the
Company will pay the Death Proceeds.
REINSTATEMENT
If the Grace Period ends and the Policy Owner has neither paid the required
premium nor surrendered the Policy for its Cash Surrender Value, the Policy
Owner may reinstate the Policy by:
1. submitting a written request at any time within 3 years after
the end of the Grace Period and prior to the Maturity Date;
2. providing evidence of insurability satisfactory to the Company;
3. paying 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 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 1940
Act. 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 SEC 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 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
22
<PAGE> 26
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 Home Office. No
change will take effect unless the Cash Surrender Value, after the change, is
sufficient to keep the Policy in force for at least 3 months.
SPECIFIED AMOUNT INCREASES
After the first Policy Year, the Policy Owner may request an increase to the
Specified Amount. Any increase will be subject to the following conditions:
1. the request must be applied for in writing;
2. satisfactory evidence of insurability must be provided;
3. the increase must be for a minimum of $10,000;
4. the Cash Surrender Value is sufficient to continue the Policy in
force for at least 3 months; and
5. age limits are the same as for a new issue.
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 decrease will 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 IRS to qualify the Policy as a
life insurance contract.
23
<PAGE> 27
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 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) will be as named in the application or as subsequently
changed, subject to assignment, if any. The Policy Owner may name a new
Beneficiary while the Insured is living. Any change must be in a written form
satisfactory to the Company and recorded at the 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 will 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 at the Home Office. Any assignment will not affect 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 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 the
additional benefit.
24
<PAGE> 28
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. 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, NAS.
NAS, Three Nationwide Plaza, Columbus, Ohio 43215, 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 Variable Account-9, Nationwide VA Separate Account-A, Nationwide VA
Separate Account-B, Nationwide VA Separate Account-C, Nationwide VL Separate
Account-A, Nationwide VL Separate Account-B, Nationwide VL Separate Account-C,
Nationwide VLI Separate Account -2, Nationwide VLI Separate Account-3,
Nationwide VLI Separate Account-4, 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, Nationwide Investing Foundation III, 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 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 distributions
made
25
<PAGE> 29
under a Policy on the life of a "terminally ill individual," as that terms is
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 Policy 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 the failure was inadvertent, is corrected,
and the Policy Owner or the Company pays an amount to the IRS. The amount will
be based on the tax that would have been paid by the Policy Owner if the income,
for the period the policy was not diversified, had been received by the Policy
Owner. If the failure to diversify is not corrected in this manner, the Policy
Owner will be deemed the owner of the underlying securities and taxed on the
earnings of his or her account.
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.
WITHHOLDING
Distributions of income from a modified endowment contract are subject to
federal income tax withholding; however, the recipient may elect not to have the
withholding taken from the distribution. A distribution of income from a
modified endowment contract may be subject to mandatory back-up withholding
which cannot be waiver. The mandatory back-up withholding rate is 31% of the
income that is distributed and will arise if no taxpayer identification number
is provided to the Company, or if the IRS notifies the Company that back-up
withholding is required.
FEDERAL ESTATE AND GENERATION-SKIPPING TRANSFER TAXES
The federal estate tax is integrated with the federal gift tax under a unified
tax rate schedule. In general, for 1998, an estate of less than $625,000
(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, the transfer may be subject to a
federal gift tax. In addition, if the 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.
26
<PAGE> 30
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 IRS as the GSTT liability.
The GSTT provisions generally apply to the same transfers that are subject to
estate or gift taxes.
The tax rate is a flat rate equal to the maximum estate tax rate (currently
55%), and there is a provision for an aggregate $1 million exemption. Due to the
complexity of these rules, the Policy Owner should consult with counsel and
other competent advisors regarding these taxes.
NON-RESIDENT ALIENS
Predeath distributions from Modified Endowment Contracts to nonresident aliens
(NRAs) are generally subject to federal income tax and tax withholding, at a
statutory rate of 30% of the amount of income that is distributed. The Company
is required to withhold such amount from the distribution and remit it to the
IRS. Distributions to certain NRAs may be subject to lower, or in certain
instances zero, tax and withholding rates, if the United States has entered into
an applicable treaty. However, in order to obtain the benefits of such treaty
provisions, the NRA must give to the Company sufficient proof of his or her
residency and citizenship in the form and manner prescribed by the IRS. In
addition, for any distribution made after December 31, 1997, the NRA must obtain
an individual Taxpayer Identification Number from the IRS, 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 the payment is effectively connected to the
recipient's conduct of a trade or business in the United States and that the
payment is includable in the recipient's gross income for United States federal
income tax purposes. Any 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 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 IRS, is general and is not
intended as tax advice.
The Code has been subject to numerous amendments and changes, and it is
reasonable to believe that it will continue to be revised. The United States
Congress has considered numerous legislative proposals that, if enacted, could
change the tax treatment of the Policies. It is reasonable to believe that such
proposals may be enacted into law. In addition, the U.S. Treasury Department may
amend existing regulations, issue new regulations, or adopt new interpretations
of existing law that may be at variance with its current positions on these
matters. In addition, 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
27
<PAGE> 31
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 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 Nationwide VL Separate Account-A, Nationwide
VL Separate Account-B, Nationwide VL Separate Account-C, Nationwide VA Separate
Account-A, Nationwide VA Separate Account-B, and Nationwide VA Separate
Account-C, each of which is a registered investment 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 Mutual Fire Insurance Company, Nationwide
Indemnity Company, Nationwide Life Insurance Company, Nationwide Property and
Casualty Insurance Company, National Casualty Company, Scottsdale Indemnity
Company and Nationwide General Insurance Company and their affiliated companies
comprise the Nationwide Insurance Enterprise. The companies comprising the
Nationwide Insurance Enterprise have substantially common boards of directors
and officers. Nationwide Financial Services, Inc. is the sole shareholder of
Nationwide Life.
28
<PAGE> 32
<TABLE>
<CAPTION>
DIRECTORS OF THE DEPOSITOR NAME AND POSITIONS AND OFFICERS WITH DEPOSITOR PRINCIPAL OCCUPATION
PRINCIPAL BUSINESS ADDRESS
<S> <C> <C>
Lewis J. Alphin Director Farm Owner and Operator (1)
519 Bethel Church Road
Mount Olive, NC 28365
A. I. Bell Director Farm Owner and Operator (1)
4121 North River Road West
Zanesville, OH 43701
Keith W. Eckel Director Partner, Fred W. Eckel Sons;
1647 Falls Road President, Eckel Farms, Inc. (1)
Clarks Summit, PA 18411
Willard J. Engel Director Retired General Manager, Lyon County
301 East Marshall Street Co-operative Oil Company (1)
Marshall, MN 44691
Fred C. Finney Director Owner and Operator, Moreland Fruit
1558 West Moreland Road Farm; Operator, Melrose Orchard (1)
Wooster, OH 44691
Charles L. Fuellgraf, Jr. Director Chief Executive Officer, Fuellgraf
600 South Washington Street Electric Company (1)
Butler, PA 16001
Joseph J. Gasper President and Chief Operating Officer President and Chief Operating Officer,
One Nationwide Plaza and Director Nationwide Life Insurance Company and
Columbus, OH 43215 Nationwide Life and Annuity Insurance
Company (2)
Dimon R. McFerson Chairman and Chief Executive Chairman and Chief Executive
One Nationwide Plaza Officer-Nationwide Insurance Enterprise Officer-Nationwide Insurance
Columbus, OH 43215 and Director Enterprise (2)
David O. Miller Chairman of the Board and Director President, Owen Potato Farm, Inc.;
115 Sprague Drive Partner, M&M Enterprises (1)
Hebron, OH 43025
Yvonne L. Montgomery Director Senior Vice President-General Manager
Suite 1600 Southern Customer Operations for U.S.
2859 Paces Ferry Road Customer Operations, Xerox Corporation
Atlanta, GA 30339 (2)
C. Ray Noecker Director Owner and Operator Noecker Farms (1)
2770 Winchester Southern S.
Ashville, OH 43103
James F. Patterson Director Vice President, Pattersons, Inc.;
8765 Mulberry Road President, Patterson Farms, Inc. (1)
Chesterland, OH 44026
Arden L. Shisler Director President and Chief Executive Officer,
1356 North Wenger Road K&B Transport, Inc. (1)
Dalton, OH 44618
Robert L. Stewart Director Owner and Operator Sunnydale Farms and
88740 Fairview Road Mining (1)
Jewett, OH 43986
Nancy C. Thomas Director Farm Owner and Operator, Da-Ma-Lor
10835 Georgetown Street NE Farms (1)
Louisville, OH 44641
Harold W. Weihl Director Farm Owner and Operator, Weihl Farms
14282 King Road (1)
Bowling Green, OH 43402
1) Principal Occupation for last 5 years
2) Prior to assuming this current position, held other executive management
positions with the same or affiliated companies.
</TABLE>
29
<PAGE> 33
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 NAS, a registered broker-dealer.
Messrs., 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 and Nationwide
Investing Foundation III registered investment companies. Messrs. Gasper and
Woodward are trustees of Nationwide Separate Account Trust and Nationwide Asset
Allocation Trust, registered investment companies. Mr. McFerson is trustee of
Financial Horizons Investment Trust and Nationwide Investing Foundation II
registered investment companies. Mr. Engel is a director of Western Cooperative
Transport.
EXECUTIVE OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
NAME OFFICE HELD
<S> <C>
Robert A. Oakley Executive Vice President-Chief Financial Officer
One Nationwide Plaza
Columbus, OH 43215
Robert J. Woodward, Jr. Executive Vice President-Chief Investment Officer
One Nationwide Plaza
Columbus, OH 43215
W. Sidney Druen Senior Vice President and General Counsel and Assistant Secretary
One Nationwide Plaza
Columbus, OH 43215
Harvey S. Galloway, Jr. Senior Vice President and Chief Actuary, Health and Annuities
One Nationwide Plaza
Columbus, OH 43215
Richard A. Karas Senior Vice President - Sales and Financial Services
One Nationwide Plaza
Columbus, OH 43215
Susan A. Wolken Senior Vice President - Life Company Operations
One Nationwide Plaza
Columbus, OH 43215
Matthew S. Easley Vice President - Life Marketing and Administrative Services
One Nationwide Plaza
Columbus, OH 43215
Timothy E. Murphy Vice President - Strategic Marketing
One Nationwide Plaza
Columbus, OH 43215
R. Dennis Noice Vice President Retail Operations
One Nationwide Plaza
Columbus, OH 43215
Joseph P. Rath Vice President - Product and Market Compliance
One Nationwide Plaza
Columbus, OH 43215
</TABLE>
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.
30
<PAGE> 34
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, 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.
YEAR 2000 COMPLIANCE ISSUES
The Company has developed a plan to address issues related to the year 2000. The
problem relates to many existing computer programs using only two digits to
identify a year in the date field. These programs were designed and developed
without considering the impact of the upcoming change in the century. If not
corrected, many computer applications could fail or create erroneous results by
or at the Year 2000. The Company has been evaluating its exposure to the Year
2000 issue through a review of all of its operating systems as well as
dependencies on the systems of other users since 1996. The Company expects all
system changes and replacements needed to achieve Year 2000 compliance to be
completed by the end of 1998. Compliance testing will be completed in the first
quarter of 1999. The Company's parent, Nationwide Life Insurance Company (NLIC),
charges all costs associated with these system changes as the costs are
incurred.
Operating expenses in 1997 for NLIC including approximately $45 million on
technology projects, which includes costs related to Year 2000 and the
development of a new policy administration system for traditional life insurance
products and other system enhancements. NLIC anticipates spending a comparable
amount in 1998 on technology projects, including Year 2000 initiatives. These
expenses do not have an effect on the assets of the Variable Account and are not
charged through to the Contract Owner.
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, NAS, is not engaged in any material litigation of any
nature.
EXPERTS
The audited 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 SEC 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
31
<PAGE> 35
hereby. Statements contained in this prospectus as to the content of Policies
and other legal instruments are summaries. For a complete statement of the terms
thereof, reference is made to such instruments as filed.
LEGAL OPINIONS
Legal matters in connection with the Policies described herein are being passed
upon by Druen, Dietrich, Reynolds & Koogler, One Nationwide Plaza, Columbus,
Ohio 43215. All the members of such firm are employed by the Nationwide Mutual
Insurance Company.
32
<PAGE> 36
APPENDIX 1
ILLUSTRATION OF
SURRENDER CHARGES
Example 1: A female non-tobacco , age 45, purchases a Policy with a Specified
Amount of $50,000 and a Scheduled Premium of $750. She now wishes to surrender
the Policy during the first Policy year. By using the initial surrender charge
table reproduced below, (also see "Surrender Charges") the total surrender
charge per thousand multiplied by the Specified Amount expressed in thousands
equals the total surrender charge of $569.80 ($11.396 x 50=569.80).
Example 2: A male non-tobacco , age 35, purchases a Policy with a Specified
Amount of $100,000 and a Scheduled Premium of $1100. He now wants to surrender
the Policy in the sixth Policy Year. The total initial surrender charge is
calculated using the method illustrated above. (surrender charge per 1000 6.817
x 100=681.70 maximum initial surrender charge). Because the fifth Policy Year
has been completed, the maximum initial surrender charge is reduced by
multiplying it by the applicable percentage factor from the "Reductions to
Surrender Charges" table below (Also see "Reductions to Surrender Charges"). In
this case, $681.70 x 60%=$409.02.
Maximum Surrender Charge per $1,000 of initial Specified Amount for policies
which are issued on a standard basis.
<TABLE>
<CAPTION>
Initial Specified Amount $50,000-$99,999
- ----------------------------------------------------------------------------------------------------------
ISSUE MALE FEMALE MALE FEMALE
AGE NON-TOBACCO NON-TOBACCO STANDARD STANDARD
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
25 $7.776 $7.521 $8.369 $7.818
- ----------------------------------------------------------------------------------------------------------
35 8.817 8.398 9.811 8.891
- ----------------------------------------------------------------------------------------------------------
45 12.191 11.396 13.887 12.169
- ----------------------------------------------------------------------------------------------------------
55 15.636 14.011 18.415 15.116
- ----------------------------------------------------------------------------------------------------------
65 22.295 19.086 26.577 20.641
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Initial Specified Amount $100,000+
- ----------------------------------------------------------------------------------------------------------
ISSUE MALE FEMALE MALE FEMALE
AGE NON-TOBACCO NON-TOBACCO STANDARD STANDARD
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
25 $5.776 $5.521 $6.369 $5.818
- ----------------------------------------------------------------------------------------------------------
35 6.817 6.398 7.811 6.891
- ----------------------------------------------------------------------------------------------------------
45 9.691 8.896 11.387 9.669
- ----------------------------------------------------------------------------------------------------------
55 13.136 11.511 15.915 12.616
- ----------------------------------------------------------------------------------------------------------
65 21.295 18.086 25.577 19.641
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Reductions to Surrender Charges
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
SURRENDER CHARGE SURRENDER CHARGE
COMPLETED AS A % OF INITIAL COMPLETED AS A % OF INITIAL
POLICY YEARS SURRENDER CHARGES POLICY YEARS SURRENDER CHARGES
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
0 100% 5 60%
- -------------------------------------------------------------------------------------------------------------
1 100% 6 50%
- -------------------------------------------------------------------------------------------------------------
2 90% 7 40%
- -------------------------------------------------------------------------------------------------------------
3 80% 8 30%
- -------------------------------------------------------------------------------------------------------------
4 70% 9+ 0%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The current Surrender Charges are the same for all states. However, in
Pennsylvania the guaranteed maximum Surrender Charges are spread out over 14
years. The guaranteed maximum Surrender Charge in subsequent years in
Pennsylvania is reduced in the following manner:
<TABLE>
<CAPTION>
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.
33
<PAGE> 37
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 March 13, 1998.
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.
34
<PAGE> 38
<TABLE>
<CAPTION>
DEATH BENEFIT OPTION 1
$750 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 45
CURRENT VALUES
0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
CASH CASH CASH
ANNUAL PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <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.
35
<PAGE> 39
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> <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
<FN>
- ---------------------------
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A
MONTHLY ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR
AND $7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON
ALL PREMIUMS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS
APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
</TABLE>
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 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> <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
<FN>
- -----------------------
(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.
</TABLE>
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 2
$750 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 45
<TABLE>
<CAPTION>
GUARANTEED VALUES
0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
CASH CASH CASH
ANNUAL PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <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
<FN>
- ------------------------
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A
MONTHLY ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR
AND $7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON
ALL PREMIUMS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS
APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
</TABLE>
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 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> <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
<FN>
- --------------------------
(1) ASSUMES NO POLICY LOANS OR PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY
ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR AND $5.00
THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS
UP TO THE BREAK POINT PREMIUM AND 4% ON PREMIUMS IN EXCESS OF BREAK POINT
FOR ANY SINGLE POLICY YEAR.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS
APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
</TABLE>
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 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> <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
<FN>
- -----------------------
(1) ASSUMES NO POLICY LOANS OR PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A
MONTHLY ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR
AND $7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON
ALL PREMIUMS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS
APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
</TABLE>
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 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
<FN>
- ---------------------------
(1) ASSUMES NO POLICY LOANS OR PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY
ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR AND $5.00
THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS
UP TO THE BREAK POINT PREMIUM AND 4% ON PREMIUMS IN EXCESS OF BREAK POINT
FOR ANY SINGLE POLICY YEAR.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS
APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
</TABLE>
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 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
<FN>
- --------------------------
(1) ASSUMES NO POLICY LOANS OR PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A
MONTHLY ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR
AND $7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON
ALL PREMIUMS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS
APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
</TABLE>
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 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
<FN>
- ---------------------------
(1) ASSUMES NO POLICY LOANS OR PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY
ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR AND $5.00
THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS
UP TO THE BREAK POINT PREMIUM AND 4% ON PREMIUMS IN EXCESS OF BREAK POINT
FOR ANY SINGLE POLICY YEAR.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS
APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
</TABLE>
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 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
<FN>
- -----------------------
(1) ASSUMES NO POLICY LOANS OR PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A
MONTHLY ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR
AND $7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON
ALL PREMIUMS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS
APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
</TABLE>
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 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
<FN>
- --------------------------
(1) ASSUMES NO POLICY LOANS OR PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY
ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR AND $5.00
THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS
UP TO THE BREAK POINT PREMIUM AND 4% ON PREMIUMS IN EXCESS OF BREAK POINT
FOR ANY SINGLE POLICY YEAR.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS
APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
</TABLE>
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 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
<FN>
- ----------------------------
(1) ASSUMES NO POLICY LOANS OR PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A
MONTHLY ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR
AND $7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON
ALL PREMIUMS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS
APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
</TABLE>
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 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
<FN>
- -----------------------------
(1) ASSUMES NO POLICY LOANS OR PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY
ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR AND $5.00
THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS
UP TO THE BREAK POINT PREMIUM AND 4% ON PREMIUMS IN EXCESS OF BREAK POINT
FOR ANY SINGLE POLICY YEAR.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS
APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
</TABLE>
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 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
<FN>
- ---------------------------
(1) ASSUMES NO POLICY LOANS OR PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A
MONTHLY ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR
AND $7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON
ALL PREMIUMS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS
APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
</TABLE>
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
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
<FN>
- -----------------------------
(1) ASSUMES NO POLICY LOANS OR PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY
ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR AND $5.00
THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS
UP TO THE BREAK POINT PREMIUM AND 4% ON PREMIUMS IN EXCESS OF BREAK POINT
FOR ANY SINGLE POLICY YEAR.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS
APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
</TABLE>
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.
49
<PAGE> 53
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> <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
<FN>
- ------------------------------
(1) ASSUMES NO POLICY LOANS OR PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A
MONTHLY ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR
AND $7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON
ALL PREMIUMS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS
APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
</TABLE>
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.
50
<PAGE> 54
<PAGE> 1
Independent Auditors' Report
The Board of Directors of Nationwide Life and Annuity Insurance Company and
Contract Owners of Nationwide VL Separate Account-A:
We have audited the accompanying statement of assets, liabilities and
contract owners' equity of Nationwide VL Separate Account-A as of December 31,
1997, 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, 1997, 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 as of December 31, 1997, and the
results of its operations and its changes in contract owners' equity and
schedules of changes in unit value for each of the years in the three year
period then ended in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Columbus, Ohio
February 6, 1998
<PAGE> 2
NATIONWIDE VL SEPARATE ACCOUNT-A
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments at market value:
American Century VP - American Century VP Advantage (ACVPAdv)
65,673 shares (cost $340,971) ............................ $433,439
Fidelity VIP - Growth Portfolio (FidVIPGr)
1,145 shares (cost $29,326) .............................. 42,484
Nationwide SAT - Capital Appreciation Fund (NSATCapAp)
427 shares (cost $8,167) ................................. 9,058
Nationwide SAT - Government Bond Fund (NSATGvtBd)
1,238 shares (cost $13,601) .............................. 14,091
Nationwide SAT - Money Market Fund (NSATMyMkt)
1,125 shares (cost $1,125) ............................... 1,125
Nationwide SAT - Total Return Fund (NSATTotRe)
1,231 shares (cost $15,685) .............................. 20,160
Neuberger & Berman AMT - Balanced Portfolio (NBAMTBal)
623 shares (cost $9,748) ................................. 11,083
--------
Total investments ..................................... 531,440
Accounts receivable ............................................ 68
--------
Total assets .......................................... 531,508
ACCOUNTS PAYABLE .................................................. --
--------
CONTRACT OWNERS' EQUITY ........................................... $531,508
========
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
ANNUAL
Contract owners' equity represented by: UNITS UNIT VALUE RETURN
----- ---------- -------
<S> <C> <C> <C> <C>
Multiple Payment Contracts and Flexible Premium Contracts:
American Century VP -
American Century VP Advantage .................... 511 $ 15.906088 $ 8,128 12%
American Century VP -
American Century VP Advantage
Initial Funding by Depositor (note 1a) ......... 25,000 17.013707 425,343 13%
Fidelity VIP - Growth Portfolio .................... 1,734 24.509547 42,500 22%
Nationwide SAT - Capital Appreciation Fund ......... 368 24.563746 9,039 33%
Nationwide SAT - Government Bond Fund .............. 841 16.735906 14,075 9%
Nationwide SAT - Money Market Fund ................. 88 12.754301 1,122 4%
Nationwide SAT - Total Return Fund ................. 716 28.233403 20,215 28%
Neuberger & Berman AMT -
Balanced Portfolio ............................... 593 18.694343 11,086 19%
========= =============== ----------
$ 531,508
==========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 4
NATIONWIDE VL SEPARATE ACCOUNT-A
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
INVESTMENT ACTIVITY:
<S> <C> <C> <C>
Reinvested dividends ................................. $ 8,040 10,646 12,757
Mortality and expense charges (note 3) ............... (795) (722) (621)
--------- --------- ---------
Net investment activity ........................... 7,245 9,924 12,136
--------- --------- ---------
Proceeds from mutual fund shares sold ................ 33,699 16,003 36,212
Cost of mutual funds sold ............................ (28,831) (14,209) (35,326)
--------- --------- ---------
Realized gain on investments ...................... 4,868 1,794 886
Change in unrealized gain on investments ............. 29,307 8,266 53,488
--------- --------- ---------
Net gain on investments ........................... 34,175 10,060 54,374
--------- --------- ---------
Reinvested capital gains ............................. 23,407 21,139 694
--------- --------- ---------
Net increase in contract owners'
equity resulting from operations ............ 64,827 41,123 67,204
--------- --------- ---------
EQUITY TRANSACTIONS:
Purchase payments received from contract owners ...... 14,070 24,097 36,589
Surrenders ........................................... (23,075) (6,042) (164)
Policy loans (net of repayments) (note 4) ............ 13,620 3,498 (23,321)
Deductions for surrender charges (note 2d) ........... (4,334) -- --
Redemptions to pay cost of insurance charges
and administration charges (notes 2b and 2c) ...... (8,935) (12,114) (12,670)
--------- --------- ---------
Net increase (decrease) in equity transactions.. (8,654) 9,439 434
--------- --------- ---------
NET CHANGE IN CONTRACT OWNERS' EQUITY ................... 56,173 50,562 67,638
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ............. 475,335 424,773 357,135
--------- --------- ---------
CONTRACT OWNERS' EQUITY END OF PERIOD ................... $ 531,508 475,335 424,773
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 5
NATIONWIDE VL SEPARATE ACCOUNT-A
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Nature of Operations
Nationwide VL Separate Account-A (the Account) was established pursuant
to a resolution of the Board of Directors of Nationwide Life and
Annuity 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 American Century VP --
American Century VP 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 offered for purchase.
Additionally, contracts without a front-end sales charge, but with a
contingent deferred sales charge and certain other fees, have been
offered for purchase. See note 2 for a discussion of policy charges and
note 3 for asset charges.
Contract owners may invest in the following:
Portfolio of the American Century Variable Portfolios, Inc.
(American Century VP);
American Century VP - American Century VP Advantage (ACVPAdv)
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 AMT);
Neuberger & Berman AMT - Balanced Portfolio (NBAMTBal)
At December 31, 1997, 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, 1997. 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> 6
(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 1996 and 1995 amounts have been reclassified to conform with
the current period presentation.
(2) POLICY CHARGES
(a) Deductions from Premiums
For single premium contracts, no deduction is made from any premium at
the time of payment. 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 $12.50 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> 7
(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. At this time no single premium contracts are in force.
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) RELATED PARTY TRANSACTIONS
The Company performs various services on behalf of the Mutual Fund
Companies in which the Account invests and may receive fees for the
services performed. These services include, among other things, shareholder
communications, preparation, postage, fund transfer agency and various
other record keeping and customer service functions. These fees are paid to
an affiliate of the Company.
(6) 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:
- Beginning unit value - Jan. 1
- Reinvested capital gains and dividends
(This amount reflects the increase in the unit value due to
capital gain and dividend distributions from the underlying mutual
funds.)
- Unrealized gain (loss)
(This amount reflects the increase (decrease) in the unit value
resulting from the market appreciation (depreciation) of the
underlying mutual funds.)
- Asset charges
(This amount reflects the decrease in the unit value due to the
charges discussed in note 3.)
- Ending unit value - Dec. 31
- Percentage increase (decrease) in unit value.
<PAGE> 8
SCHEDULE I
NATIONWIDE VL SEPARATE ACCOUNT-A
MULTIPLE PAYMENT CONTRACTS AND FLEXIBLE PREMIUM CONTRACTS
SCHEDULES OF CHANGES IN UNIT VALUE
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
ACVPAdv ACVPAdv(+) FidVIPGr NSATCapAp NSATGvtBd
------------ ------------ ------------ ------------ ------------
1997
<S> <C> <C> <C> <C> <C>
Beginning unit value - Jan. 1 $ 14.210999 15.079515 20.008196 18.410667 15.383251
------------ ------------ ------------ ------------ ------------
Reinvested capital gains
and dividends .999595 1.062482 .738304 .749108 .983193
------------ ------------ ------------ ------------ ------------
Unrealized gain (loss) .816206 .871710 3.943560 5.577539 .496554
------------ ------------ ------------ ------------ ------------
Asset charges (.120712) .000000 (.180513) (.173568) (.127092)
------------ ------------ ------------ ------------ ------------
Ending unit value - Dec. 31 $ 15.906088 17.013707 24.509547 24.563746 16.735906
------------ ------------ ------------ ------------ ------------
Percentage increase (decrease)
in unit value* 12% 13% 22% 33% 9%
============ ============ ============ ============ ============
1996
Beginning unit value - Jan. 1 $ 13.112917 13.802855 17.583952 14.713230 14.984933
------------ ------------ ------------ ------------ ------------
Reinvested capital gains
and dividends .945920 .998314 1.263661 .766553 .930103
------------ ------------ ------------ ------------ ------------
Unrealized gain (loss) .260998 .278346 1.312893 3.061949 (.412550)
------------ ------------ ------------ ------------ ------------
Asset charges (.108836) .000000 (.152310) (.131065) (.119235)
------------ ------------ ------------ ------------ ------------
Ending unit value - Dec. 31 $ 14.210999 15.079515 20.008196 18.410667 15.383251
------------ ------------ ------------ ------------ ------------
Percentage increase (decrease)
in unit value* 8% 9% 14% 25% 3%
============ ============ ============ ============ ============
1995
Beginning unit value - Jan. 1 $ 11.321934 11.822996 13.094007 11.465403 12.720514
------------ ------------ ------------ ------------ ------------
Reinvested capital gains
and dividends .411556 .431938 .072389 .653781 .903001
------------ ------------ ------------ ------------ ------------
Unrealized gain (loss) 1.477165 1.547921 4.544905 2.696528 1.472503
------------ ------------ ------------ ------------ ------------
Asset charges (.097738) .000000 (.127349) (.102482) (.111085)
------------ ------------ ------------ ------------ ------------
Ending unit value - Dec. 31 $ 13.112917 13.802855 17.583952 14.713230 14.984933
------------ ------------ ------------ ------------ ------------
Percentage increase (decrease)
in unit value* 16% 17% 34% 28% 18%
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
NSATMyMkt NSATTotRe NBAMTBal
------------ ------------ ------------
1997
<S> <C> <C> <C>
Beginning unit value - Jan. 1 12.214743 21.988773 15.775523
------------ ------------ ------------
Reinvested capital gains
and dividends .640005 1.284328 1.058944
------------ ------------ ------------
Unrealized gain (loss) .000000 5.164704 1.999835
------------ ------------ ------------
Asset charges (.100447) (.204402) (.139959)
------------ ------------ ------------
Ending unit value - Dec. 31 12.754301 28.233403 18.694343
------------ ------------ ------------
Percentage increase (decrease)
in unit value* 4% 28% 19%
============ ============ ============
1996
Beginning unit value - Jan. 1 11.714295 18.192762 14.878481
------------ ------------ ------------
Reinvested capital gains
and dividends .596995 1.217547 2.281380
------------ ------------ ------------
Unrealized gain (loss) .000000 2.737018 (1.262381)
------------ ------------ ------------
Asset charges (.096547) (.158554) (.121957)
------------ ------------ ------------
Ending unit value - Dec. 31 12.214743 21.988773 15.775523
------------ ------------ ------------
Percentage increase (decrease)
in unit value* 4% 21% 6%
============ ============ ============
1995
Beginning unit value - Jan. 1 11.176411 14.205723 12.118394
------------ ------------ ------------
Reinvested capital gains
and dividends .629782 1.413734 .308616
------------ ------------ ------------
Unrealized gain (loss) .000000 2.703396 2.562255
------------ ------------ ------------
Asset charges (.091898) (.130091) (.110784)
------------ ------------ ------------
Ending unit value - Dec. 31 11.714295 18.192762 14.878481
------------ ------------ ------------
Percentage increase (decrease)
in unit value* 5% 28% 23%
============ ============ ============
</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 6.
<PAGE> 55
<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, 1997 and 1996, 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, 1997. 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, 1997 and 1996, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Columbus, Ohio
January 30, 1998
<PAGE> 2
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Balance Sheets
December 31, 1997 and 1996
($000's omitted)
<TABLE>
<CAPTION>
Assets 1997 1996
------ ---------- ------------
<S> <C> <C>
Investments:
Securities available-for-sale, at fair value:
Fixed maturity securities $ 796,919 $ 648,076
Equity securities 14,767 12,254
Mortgage loans on real estate, net 218,852 150,997
Real estate, net 2,824 1,090
Policy loans 215 126
Short-term investments 18,968 492
---------- ----------
1,052,545 813,035
---------- ----------
Cash 5,163 4,296
Accrued investment income 10,778 9,189
Deferred policy acquisition costs 30,087 16,168
Other assets 15,624 37,482
Assets held in Separate Accounts 891,101 486,251
---------- ----------
$2,005,298 $1,366,421
========== ==========
Liabilities and Shareholder's Equity
------------------------------------
Future policy benefits and claims $ 986,191 $ 80,720
Funds withheld under coinsurance agreement with affiliate -- 679,571
Other liabilities 29,426 35,842
Liabilities related to Separate Accounts 891,101 486,251
---------- ----------
1,906,718 1,282,384
---------- ----------
Commitments (notes 6 and 7)
Shareholder's equity:
Common stock, $40 par value. Authorized, issued and outstanding 66,000 shares 2,640 2,640
Additional paid-in capital 52,960 52,960
Retained earnings 35,812 25,209
Unrealized gains on securities available-for-sale, net 7,168 3,228
---------- ----------
98,580 84,037
---------- ----------
$2,005,298 $1,366,421
========== ==========
</TABLE>
See accompanying notes to finanacial 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, 1997, 1996 and 1995
($000's omitted)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenues:
Investment product and universal life insurance product policy charges $ 11,244 $ 6,656 $ 4,322
Traditional life insurance premiums 363 246 674
Net investment income 11,577 51,045 49,108
Realized losses on investments (246) (3) (702)
Other income 1,057 -- --
-------- -------- --------
23,995 57,944 53,402
-------- -------- --------
Benefits and expenses:
Interest credited to policyholder account balances 3,948 34,711 33,276
Other benefits and claims 433 813 904
Amortization of deferred policy acquisition costs 1,402 7,380 5,508
Other operating expenses 1,860 7,247 6,567
-------- -------- --------
7,643 50,151 46,255
-------- -------- --------
Income before federal income tax expense 16,352 7,793 7,147
Federal income tax expense 5,749 2,707 2,373
-------- -------- --------
Net income $ 10,603 $ 5,086 $ 4,774
======== ======== ========
</TABLE>
See accompanying notes to finanacial 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, 1997, 1996 and 1995
($000's omitted)
<TABLE>
<CAPTION>
Unrealized
gains (losses)
Additional on securities Total
Common paid-in Retained available-for- shareholder's
stock capital earnings sale, net equity
----- ------- -------- --------- ------
<S> <C> <C> <C> <C> <C>
December 31, 1994 $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
------ ------- ------- ------- --------
December 31, 1995 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)
------ ------- ------- ------- --------
December 31, 1996 2,640 52,960 25,209 3,228 84,037
Net income -- -- 10,603 -- 10,603
Unrealized gains on securities available-
for-sale, net -- -- -- 3,940 3,940
------ ------- ------- ------- --------
December 31, 1997 $2,640 $52,960 $35,812 $ 7,168 $ 98,580
====== ======= ======= ======= ========
</TABLE>
See accompanying notes to finanacial 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, 1997, 1996 and 1995
($000's omitted)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 10,603 $ 5,086 $ 4,774
Adjustments to reconcile net income to net cash provided by
operating activities:
Interest credited to policyholder account balances 3,948 34,711 33,276
Capitalization of deferred policy acquisition costs (20,099) (19,987) (6,754)
Amortization of deferred policy acquisition costs 1,402 7,380 5,508
Commission and expense allowances under coinsurance
agreement with affiliate -- 26,473 --
Amortization and depreciation 250 1,721 878
Realized losses on invested assets, net 246 3 702
Increase in accrued investment income (1,589) (725) (423)
Decrease (increase) in other assets 21,858 (32,539) 62
Increase (decrease) in policy liabilities and funds withheld
on coinsurance agreement with affiliate 228,898 (7,101) 627
(Decrease) increase in other liabilities (7,488) 23,198 1,427
--------- --------- --------
Net cash provided by operating activities 238,029 38,220 40,077
--------- --------- --------
Cash flows from investing activities:
Proceeds from maturity of securities available-for-sale 95,366 73,966 41,729
Proceeds from sale of securities available-for-sale 30,431 2,480 3,070
Proceeds from maturity of fixed maturity securities held-to-maturity -- -- 11,251
Proceeds from repayments of mortgage loans on real estate 15,199 10,975 8,673
Proceeds from sale of real estate -- -- 655
Proceeds from repayments of policy loans 67 23 50
Cost of securities available-for-sale acquired (267,899) (179,671) (79,140)
Cost of fixed maturity securities held-to maturity acquired -- -- (8,000)
Cost of mortgage loans on real estate acquired (84,736) (57,395) (18,000)
Cost of real estate acquired (13) -- (10)
Policy loans issued (155) (55) (66)
Short-term investments, net (18,476) 4,352 (4,479)
--------- --------- --------
Net cash used in investing activities (230,216) (145,325) (44,267)
--------- --------- --------
Cash flows from financing activities:
Increase in investment product and universal life insurance
product account balances 6,952 200,575 46,247
Decrease in investment product and universal life insurance
product account balances (13,898) (89,174) (42,057)
--------- --------- --------
Net cash (used in) provided by financing activities (6,946) 111,401 4,190
--------- --------- --------
Net increase in cash 867 4,296 --
Cash, beginning of year 4,296 -- --
--------- --------- --------
Cash, end of year $ 5,163 $ 4,296 $
========= ========= ========
</TABLE>
See accompanying notes to finanacial statements.
<PAGE> 6
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements
December 31, 1997, 1996 and 1995
($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 insurance 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.
(2) Summary of Significant Accounting Policies
The significant accounting policies followed by the Company that
materially affect financial reporting are summarized below. The
accompanying financial statements have been prepared in accordance with
generally accepted accounting principles, which differ from statutory
accounting practices prescribed or permitted by regulatory authorities.
An Annual Statement, filed with the Department of Insurance of the
State of Ohio (the Department), is prepared on the basis of accounting
practices prescribed or permitted by the Department. Prescribed
statutory accounting practices include a variety of publications of the
National Association of Insurance Commissioners (NAIC), as well as
state laws, regulations and general administrative rules. Permitted
statutory accounting practices encompass all accounting practices not
so prescribed. The Company has no material permitted statutory
accounting practices.
In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosures of contingent assets and
liabilities as of the date of the financial statements and the reported
amounts of revenues and expenses for the reporting period.
Actual results could differ significantly from those estimates.
The most significant estimates include those used in determining
deferred policy acquisition costs, valuation allowances for mortgage
loans on real estate and real estate investments and the liability for
future policy benefits and claims. Although some variability is
inherent in these estimates, management believes the amounts provided
are adequate.
(a) Valuation of Investments and Related Gains and Losses
The Company is required to classify its fixed maturity securities
and equity securities as either held-to-maturity,
available-for-sale or trading. Fixed maturity securities are
classified as held-to-maturity when the Company has the positive
intent and ability to hold the securities to maturity and are
stated at amortized cost. Fixed maturity securities not classified
as held-to-maturity and all equity securities are classified as
available-for-sale and are stated at fair value, with the
unrealized gains and losses, net of adjustments to deferred policy
acquisition costs and deferred federal income tax, reported as a
separate component of 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, 1997 or 1996.
<PAGE> 7
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
Mortgage loans on real estate are carried at the unpaid principal
balance less valuation allowances. The Company provides valuation
allowances for impairments of mortgage loans on real estate based
on a review by portfolio managers. The measurement of impaired
loans is based on the present value of expected future cash flows
discounted at the loan's effective interest rate or, as a
practical expedient, at the fair value of the collateral, if the
loan is collateral dependent. Loans in foreclosure and loans
considered to be impaired are placed on non-accrual status.
Interest received on non-accrual status mortgage loans on real
estate is included in interest income in the period received.
Real estate is carried at cost less accumulated depreciation and
valuation allowances. Impairment losses are recorded on long-lived
assets used in operations when indicators of impairment are
present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amount.
Realized gains and losses on the sale of investments are
determined on the basis of specific security identification.
Estimates for valuation allowances and other than temporary
declines are included in realized gains and losses on investments.
(b) Revenues and Benefits
Investment Products and Universal Life Insurance Products:
Investment products consist primarily of individual variable and
fixed annuities. 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.
(c) Deferred Policy Acquisition Costs
The costs of acquiring new business, principally commissions,
certain expenses of the policy issue and underwriting department
and certain variable sales expenses have been deferred. For
investment products and universal life insurance products,
deferred policy acquisition costs are being amortized with
interest over the lives of the policies in relation to the present
value of estimated future gross profits from projected interest
margins, asset fees, cost of insurance, policy administration and
surrender charges. For years in which gross profits are negative,
deferred policy acquisition costs are amortized based on the
present value of gross revenues. Deferred policy acquisition costs
are adjusted to reflect the impact of unrealized gains and losses
on fixed maturity securities available-for-sale as described in
note 2(a).
(d) Separate Accounts
Separate Account assets and liabilities represent contractholders'
funds which have been segregated into accounts with specific
investment objectives. The investment income and gains or losses
of these accounts accrue directly to the contractholders. The
activity of the Separate Accounts is not reflected in the
statements of income and cash flows except for the fees the
Company receives.
<PAGE> 8
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
(e) Future Policy Benefits
Future policy benefits for investment products in the accumulation
phase, universal life insurance and variable universal life
insurance policies have been calculated based on participants'
contributions plus interest credited less applicable contract
charges.
(f) Federal Income Tax
The Company files a consolidated federal income tax return with
Nationwide Mutual Insurance Company (NMIC). The members of the
consolidated tax return group have a tax sharing agreement which
provides, in effect, for each member to bear essentially the same
federal income tax liability as if separate tax returns were
filed.
The Company utilizes the asset and liability method of accounting
for income tax. Under this method, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be
recovered or settled. Under this method, the effect on deferred
tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.
Valuation allowances are established when necessary to reduce the
deferred tax assets to the amounts expected to be realized.
(g) Reinsurance Ceded
Reinsurance revenues ceded and reinsurance recoveries on benefits
and expenses incurred are deducted from the respective income and
expense accounts. Assets and liabilities related to reinsurance
ceded are reported on a gross basis.
(h) Statements of Cash Flows
The Company routinely invests its available cash balances in
highly liquid, short-term investments with affiliated companies.
See note 11. As such, the Company had no cash balance as of
December 31, 1995.
(i) Recently Issued Accounting Pronouncements
Statement of Financial Accounting Standards No. 130 - Reporting
Comprehensive Income was issued in June 1997 and is effective for
fiscal years beginning after December 15, 1997. The statement
establishes standards for reporting and display of comprehensive
income and its components in a full set of financial statements.
Comprehensive income includes all changes in equity during a
period except those resulting from investments by shareholders and
distributions to shareholders and includes net income.
Comprehensive income would be reported in addition to earnings
amounts currently presented. The Company will adopt the statement
and begin reporting comprehensive income in the first quarter of
1998.
(j) Reclassification
Certain items in the 1996 and 1995 financial statements have been
reclassified to conform to the 1997 presentation.
<PAGE> 9
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
(3) Investments
The amortized cost, gross unrealized gains and losses and estimated
fair value of securities available-for-sale as of December 31, 1997 and
1996 were:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
---- ----- ------ ----------
<S> <C> <C> <C> <C>
December 31, 1997:
Fixed maturity securities:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies $ 5,923 $ 109 $ (27) $ 6,005
Obligations of states and political subdivisions 267 5 -- 272
Debt securities issued by foreign governments 6,077 57 (1) 6,133
Corporate securities 482,478 10,964 (509) 492,933
Mortgage-backed securities 285,224 6,458 (106) 291,576
-------- -------- --------- --------
Total fixed maturity securities 779,969 17,593 (643) 796,919
Equity securities 11,704 3,063 -- 14,767
-------- -------- --------- --------
$791,673 $ 20,656 $ (643) $811,686
======== ======== ========= ========
December 31, 1996:
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
======== ======== ========= ========
</TABLE>
The amortized cost and estimated fair value of fixed maturity
securities available-for-sale as of December 31, 1997, 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 $ 31,421 $ 31,623
Due after one year through five years 231,670 235,764
Due after five years through ten years 175,633 180,174
Due after ten years 56,021 57,782
-------- --------
494,745 505,343
Mortgage-backed securities 285,224 291,576
-------- --------
$779,969 $796,919
======== ========
</TABLE>
<PAGE> 10
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
The components of unrealized gains on securities available-for-sale,
net, were as follows as of December 31:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Gross unrealized gains $20,013 $ 9,173
Adjustment to deferred policy acquisition costs (8,985) (4,207)
Deferred federal income tax (3,860) (1,738)
------- -------
$ 7,168 $ 3,228
======= =======
</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>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturity securities $ 9,177 $(8,764) $30,647
Equity securities 1,663 249 1,283
Fixed maturity securities held-to-maturity -- -- 3,941
------- ------- -------
$10,840 $(8,515) $35,871
======= ======= =======
</TABLE>
Proceeds from the sale of securities available-for-sale during 1997,
1996 and 1995 were $30,431, $2,480 and $3,070, respectively. During
1997, gross gains of $825 ($181 and $64 in 1996 and 1995, respectively)
and gross losses of $1,124 (none and $6 in 1996 and 1995, respectively)
were realized on those sales. See note 11.
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 had no investments in mortgage loans on real estate
considered to be impaired as of December 31, 1997. The recorded
investment of mortgage loans on real estate considered to be impaired
as of December 31, 1996 was $955, for which the related valuation
allowance was $184. During 1997, the average recorded investment in
impaired mortgage loans on real estate was approximately $386 ($964 in
1996) and no interest income was recognized on those loans ($16 in
1996), 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 years ended December 31:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Allowance, beginning of year $ 934 $750
(Reductions) additions charged to operations (53) 184
Direct write-downs charged against the allowance (131) --
----- ----
Allowance, end of year $ 750 $934
===== ====
</TABLE>
<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 $153
as of December 31, 1997 ($108 as of December 31, 1996) and valuation
allowances of $229 as of December 31, 1997 ($229 as of December 31,
1996).
The Company has no investments which were non-income producing for the
twelve month periods preceding December 31, 1997 and 1996.
An analysis of investment income by investment type follows for the
years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Gross investment income:
Securities available-for-sale:
Fixed maturity securities $53,491 $40,552 $35,093
Equity securities 375 598 713
Fixed maturity securities held-to-maturity -- -- 4,530
Mortgage loans on real estate 14,862 9,991 9,106
Real estate 318 214 273
Short-term investments 899 507 348
Other 90 57 41
------- ------- -------
Total investment income 70,035 51,919 50,104
Less:
Investment expenses 1,386 874 996
Net investment income ceded (note 11) 57,072 -- --
------- ------- -------
Net investment income $11,577 $51,045 $49,108
======= ======= =======
</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>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Fixed maturity securities available-for-sale $(299) $ 181 $(822)
Mortgage loans on real estate 53 (184) 110
Real estate and other -- -- 10
----- ----- -----
$(246) $ (3) $(702)
===== ===== =====
</TABLE>
Fixed maturity securities with an amortized cost of $3,383 and $3,403
as of December 31, 1997 and 1996, respectively, were on deposit with
various regulatory agencies as required by law.
(4) 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 5.1%, 5.6% and 5.6% for the years
ended December 31, 1997, 1996 and 1995, respectively.
<PAGE> 12
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
(5) Federal Income Tax
The Company's current federal income tax liability was $806 and $7,914
as of December 31, 1997 and 1996, respectively.
The tax effects of temporary differences that give rise to significant
components of the net deferred tax asset (liability) as of December 31,
1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Future policy benefits $ 13,168 $ 1,070
Liabilities in Separate Accounts 8,080 5,311
Mortgage loans on real estate and real estate 336 407
Other assets and other liabilities 48 3,836
-------- -------
Total gross deferred tax assets 21,632 10,624
-------- -------
Deferred tax liabilities:
Fixed maturity securities 7,186 3,268
Deferred policy acquisition costs 6,159 2,131
Equity securities 1,072 490
Other 7,892 --
-------- -------
Total gross deferred tax liabilities 22,309 5,889
-------- -------
$ (677) $ 4,735
======== =======
</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, 1997, 1996 and 1995 based on its analysis of future
deductible amounts.
Federal income tax expense for the years ended Decmber 31 was as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Currently payable $2,458 $ 9,612 $2,012
Deferred tax expense (benefit) 3,291 (6,905) 361
------ ------- ------
$5,749 $ 2,707 $2,373
====== ======= ======
</TABLE>
Total federal income tax expense for the years ended December 31, 1997,
1996 and 1995 differs from the amount computed by applying the U.S.
federal income tax rate to income before tax as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------ ---------------- ----------------
Amount % Amount % Amount %
------------------ ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Computed (expected) tax expense $5,723 35.0 $2,728 35.0 $2,501 35.0
Tax exempt interest and dividends
received deduction -- (0.0) (175) (2.3) (150) (2.1)
Other, net 26 (0.2) 154 2.0 22 0.3
------ ---- ------ ---- ------ ----
Total (effective rate of each year) $5,749 35.2 $2,707 34.7 $2,373 33.2
====== ==== ====== ==== ====== ====
</TABLE>
Total federal income tax paid was $9,566, $2,335 and $1,314 during the
years ended December 31, 1997, 1996 and 1995, respectively.
<PAGE> 13
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
(6) Fair Value of Financial Instruments
The following disclosures summarize the carrying amount and estimated
fair value of the Company's financial instruments. Certain assets and
liabilities are specifically excluded from the disclosure requirements
of financial instruments. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Company.
The fair value of a financial instrument is defined as the amount at
which the financial instrument could be exchanged in a current
transaction between willing parties. In cases where quoted market
prices are not available, fair value is based on estimates using
present value or other valuation techniques. Many of the Company's
assets and liabilities subject to the disclosure requirements are not
actively traded, requiring fair values to be estimated by management
using present value or other valuation techniques. These techniques are
significantly affected by the assumptions used, including the discount
rate and estimates of future cash flows. Although fair value estimates
are calculated using assumptions that management believes are
appropriate, changes in assumptions could cause these estimates to vary
materially. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases,
could not be realized in the immediate settlement of the instruments.
Although insurance contracts, other than policies such as annuities
that are classified as investment contracts, are specifically exempted
from the disclosure requirements, estimated fair value of policy
reserves on life insurance contracts is provided to make the fair value
disclosures more meaningful.
The tax ramifications of the related unrealized gains and losses can
have a significant effect on fair value estimates and have not been
considered in the estimates.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures:
Fixed maturity and equity securities: The fair value for fixed
maturity securities is based on quoted market prices, where
available. For fixed maturity securities not actively traded, fair
value is estimated using values obtained from independent pricing
services or, in the case of private placements, is estimated by
discounting expected future cash flows using a current market rate
applicable to the yield, credit quality and maturity of the
investments. The fair value for equity securities is based on
quoted market prices.
Mortgage loans on real estate: The fair value for mortgage loans
on real estate is estimated using discounted cash flow analyses,
using interest rates currently being offered for similar loans to
borrowers with similar credit ratings. Loans with similar
characteristics are aggregated for purposes of the calculations.
Fair value for mortgages in default is the estimated fair value of
the underlying collateral.
Policy loans, short-term investments and cash: The carrying amount
reported in the balance sheets for these instruments approximates
their fair value.
Separate Account assets and liabilities: The fair value of assets
held in Separate Accounts is based on quoted market prices. The
fair value of liabilities related to Separate Accounts is the
amount payable on demand, which includes certain surrender
charges.
Investment contracts: The fair value for the Company's liabilities
under investment type contracts is disclosed using two methods.
For investment contracts without defined maturities, fair value is
the amount payable on demand. For investment contracts with known
or determined maturities, fair value is estimated using discounted
cash flow analysis. Interest rates used are similar to currently
offered contracts with maturities consistent with those remaining
for the contracts being valued.
<PAGE> 14
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
Policy reserves on life insurance contracts: The estimated fair
value is the amount payable on demand. Also included are
disclosures for the Company's limited payment policies, which the
Company has used discounted cash flow analyses similar to those
used for investment contracts with known maturities to estimate
fair value.
Commitments to extend credit: Commitments to extend credit have
nominal value because of the short-term nature of such
commitments. See note 7.
Carrying amount and estimated fair value of financial instruments
subject to disclosure requirements and policy reserves on life
insurance contracts were as follows as of December 31:
<TABLE>
<CAPTION>
1997 1996
------------------------ -----------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
------------------------ -----------------------
<S> <C> <C> <C> <C>
Assets:
Investments:
Securities available-for-sale:
Fixed maturity securities $796,919 $796,919 $648,076 $648,076
Equity securities 14,767 14,767 12,254 12,254
Mortgage loans on real estate, net 218,852 229,881 150,997 152,496
Policy loans 215 215 126 126
Short-term investments 18,968 18,968 492 492
Cash 5,163 5,163 4,296 4,296
Assets held in Separate Accounts 891,101 891,101 486,251 486,251
Liabilities
Investment contracts 980,263 950,105 75,417 72,262
Policy reserves on life insurance contracts 5,928 6,076 5,303 5,390
Liabilities related to Separate Accounts 891,101 868,056 486,251 471,125
</TABLE>
(7) Risk Disclosures
The following is a description of the most significant risks facing
life insurers and how the Company mitigates those risks:
Legal/Regulatory Risk: The risk that changes in the legal or regulatory
environment in which an insurer operates will result in increased
competition, reduced demand for a company's products, or create
additional expenses not anticipated by the insurer in pricing its
products. The Company mitigates this risk by operating throughout the
United States, thus reducing its exposure to any single jurisdiction,
and also by employing underwriting practices which identify and
minimize the adverse impact of this risk.
Credit Risk: The risk that issuers of securities owned by the Company
or mortgagors on mortgage loans on real estate owned by the Company
will default or that other parties which owe the Company money, will
not pay. The Company minimizes this risk by adhering to a conservative
investment strategy, by maintaining credit and collection policies and
by providing for any amounts deemed uncollectible.
<PAGE> 15
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
Interest Rate Risk: The risk that interest rates will change and cause
a decrease in the value of an insurer's investments. This change in
rates may cause certain interest-sensitive products to become
uncompetitive or may cause disintermediation. The Company mitigates
this risk by charging fees for non-conformance with certain policy
provisions, by offering products that transfer this risk to the
purchaser, and/or by attempting to match the maturity schedule of its
assets with the expected payouts of its liabilities. To the extent that
liabilities come due more quickly than assets mature, an insurer would
have to borrow funds or sell assets prior to maturity and potentially
recognize a gain or loss.
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 $61,200 extending into
1998 were outstanding as of December 31, 1997. The Company also had
$4,000 of commitments to purchase fixed maturity securities as of
December 31, 1997.
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 29% (31% in 1996) in any geographic area and no more than 3% (5%
in 1996) with any one borrower as of December 31, 1997. As of December
31, 1997 37% (42% in 1996) of the remaining principal balance of the
Company's commercial mortgage loan portfolio financed apartment
building properties.
(8) 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 year of service. 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 (the Retirement Plan). Immediately prior to the merger,
the plans were amended to provide consistent benefits for service after
January 1, 1996. These amendments had no significant impact on the
accumulated benefit obligation or projected benefit obligation as of
December 31, 1995.
Pension costs charged to operations by the Company during the years
ended December 31, 1997, 1996 and 1995 were $257, $189 and $214,
respectively.
<PAGE> 16
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
The net periodic pension cost for the Retirement Plan as a whole for
the years ended December 31, 1997 and 1996 and for the Nationwide
Insurance Companies and Affiliates Retirement Plan as a whole for the
year ended December 31, 1995 follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service cost (benefits earned during the period) $ 77,303 $ 75,466 $ 64,524
Interest cost on projected benefit obligation 118,556 105,511 95,283
Actual return on plan assets (327,965) (210,583) (249,294)
Net amortization and deferral 196,366 101,795 143,353
--------- --------- ---------
$ 64,260 $ 72,189 $ 53,866
========= ========= =========
</TABLE>
Basis for measurements, net periodic pension cost:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Weighted average discount rate 6.50% 6.00% 7.50%
Rate of increase in future compensation levels 4.75% 4.25% 6.25%
Expected long-term rate of return on plan assets 7.25% 6.75% 8.75%
</TABLE>
Information regarding the funded status of the Retirement Plan as a
whole as of December 31, 1997 and 1996 follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Accumulated benefit obligation:
Vested $1,547,462 $1,338,554
Nonvested 13,531 11,149
---------- ----------
$1,560,993 $1,349,703
========== ==========
Net accrued pension expense:
Projected benefit obligation for services rendered to date $2,033,761 $1,847,828
Plan assets at fair value 2,212,848 1,947,933
---------- ----------
Plan assets in excess of projected benefit obligation 179,087 100,105
Unrecognized prior service cost 34,658 37,870
Unrecognized net gains (330,656) (201,952)
Unrecognized net asset at transition 33,337 37,158
---------- ----------
$ (83,574) $ (26,819)
========== ==========
</TABLE>
Basis for measurements, funded status of plan:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Weighted average discount rate 6.00% 6.50%
Rate of increase in future compensation levels 4.25% 4.75%
</TABLE>
Assets of the Retirement Plan are invested in group annuity contracts
of NLIC and Employers Life Insurance Company of Wausau, an affiliate.
<PAGE> 17
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
(9) 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 (APBO), however, certain affiliated
companies elected to amortize their initial transition obligation over
periods ranging from 10 to 20 years.
The Company's accrued postretirement benefit expense as of December 31,
1997 and 1996 was $891 and $840, respectively, and the net periodic
postretirement benefit cost (NPPBC) for 1997, 1996 and 1995 was $94,
$78 and $66, respectively.
Information regarding the funded status of the plan as a whole as of
December 31, 1997 and 1996 follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Accrued postretirement benefit expense:
Retirees $ 93,327 $ 92,954
Fully eligible, active plan participants 31,580 23,749
Other active plan participants 112,951 83,986
--------- ---------
Accumulated postretirement benefit obligation 237,858 200,689
Plan assets at fair value 69,165 63,044
--------- ---------
Plan assets less than accumulated postretirement
benefit obligation (168,693) (137,645)
Unrecognized transition obligation of affiliates 1,481 1,654
Unrecognized net gains 1,576 (23,225)
--------- ---------
$(165,636) $(159,216)
========= =========
</TABLE>
The amount of NPPBC for the plan as a whole for the years ended
December 31, 1997, 1996 and 1995 was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service cost (benefits attributed to employee
service during the year) $ 7,077 $ 6,541 $ 6,235
Interest cost on accumulated postretirement
benefit obligation 14,029 13,679 14,151
Actual return on plan assets (3,619) (4,348) (2,657)
Amortization of unrecognized transition
obligation of affiliates 173 173 2,966
Net amortization and deferral (528) 1,830 (1,619)
------- ------- -------
$17,132 $17,875 $19,076
======= ======= =======
</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, 1997, 1996 and 1995 and the NPPBC for 1997, 1996 and 1995
were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
APBO:
Discount rate 6.70% 7.25% 6.75%
Assumed health care cost trend rate:
Initial rate 12.13% 11.00% 11.00%
Ultimate rate 6.12% 6.00% 6.00%
Uniform declining period 12 Years 12 Years 12 Years
NPPBC:
Discount rate 7.25% 6.65% 8.00%
Long term rate of return on plan assets, net of tax 5.89% 4.80% 8.00%
Assumed health care cost trend rate:
Initial rate 11.00% 11.00% 10.00%
Ultimate rate 6.00% 6.00% 6.00%
Uniform declining period 12 Years 12 Years 12 Years
</TABLE>
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,
1997 by $410 and the NPPBC for the year ended December 31, 1997 by $46.
(10) 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, 1997, 1996 and 1995 was
$74,820, $71,390 and $54,978, respectively. The statutory net income of
the Company as reported to regulatory authorities for the years ended
December 31, 1997, 1996 and 1995 was $7,446, $670 and $8,023,
respectively.
The Company is limited in the amount of shareholder dividends it may
pay without prior approval by the Department. As of December 31, 1997,
the maximum amount available for dividend payment from the Company to
its shareholder without prior approval of the Department was $7,482.
The Company currently does not expect such regulatory requirements to
impair its ability to pay operating expenses and stockholder dividends
in the future.
<PAGE> 19
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
(11) Transactions With Affiliates
The Company leases office space from NMIC and certain of its
subsidiaries. For the years ended December 31, 1997, 1996 and 1995, the
Company made lease payments to NMIC and its subsidiaries of $703, $410
and $287, respectively.
Pursuant to a cost sharing agreement among NMIC and certain of its
direct and indirect subsidiaries, including the Company, NMIC provides
certain operational and administrative services, such as sales support,
advertising, personnel and general management services, to those
subsidiaries. Expenses covered by this agreement are subject to
allocation among NMIC, the Company and other affiliates. Amounts
allocated to the Company were $2,564, $2,682 and $2,596 in 1997, 1996
and 1995, 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 $4,981 and $2,275 as of December 31, 1997 and 1996,
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. On December 31,
1997, the agreement was amended to a modified coinsurance basis. Under
modified coinsurance agreements, invested assets and liabilities for
future policy benefits are retained by the ceding company and net
investment earnings on the invested assets are paid to the assuming
company. Under terms of the Company's agreement, the investment risk
associated with changes in interest rates is borne by NLIC. Risk of
asset default is retained by the Company, although a fee is paid by
NLIC to the Company for the Company's retention of such risk. The
agreement will remain inforce until all contract obligations are
settled. 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 modified coinsurance agreement are consistent in
all material respects with what the Company could have obtained with
unaffiliated parties. Amounts ceded to NLIC in 1997 are included in
NLIC's results of operations for 1997 and include premiums of $300,617,
net investment income of $57,072 and benefits, claims and other
expenses of $343,426.
Under the 100% coinsurance with funds withheld agreement, the Company
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 paid the Company $26,473
in commission and expense allowances which were applied to the
Company's deferred policy acquisition costs as of December 31, 1996. No
significant gain or loss was recognized as a result of the agreement.
During 1997, the Company sold fixed maturity securities
available-for-sale at fair value of $27,253 to NLIC. The Company
recognized a $693 gain on the transactions.
The Company and various affiliates entered into agreements with
Nationwide Cash Management Company (NCMC), an affiliate, under which
NCMC acts as common agent in handling the purchase and sale of
short-term securities for the respective accounts of the participants.
Amounts on deposit with NCMC were $18,968 and $492 as of December 31,
1997 and 1996, respectively, and are included in short-term investments
on the accompanying balance sheets.
Certain annuity products are sold through an affiliated company. Total
commissions paid to the affiliate for the three years ended December
31, 1997 were $8,053, $14,644 and $5,949, respectively.
<PAGE> 20
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
(12) Segment Information
The Company has three product 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 Fixed Annuities segment also includes the
fixed option under the Company's variable annuity contracts. 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.
The following table summarizes the revenues and income (loss) before
federal income tax expense for the years ended December 31, 1997, 1996
and 1995 and assets as of December 31, 1997, 1996 and 1995, by segment.
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenues:
Variable Annuities $ 9,950 $ 4,591 $ 2,927
Fixed Annuities 7,752 51,643 50,056
Life Insurance 182 165 185
Corporate and Other 6,111 1,545 234
----------- ----------- ---------
$ 23,995 $ 57,944 $ 53,402
=========== =========== =========
Income (loss) before federal income tax expense:
Variable Annuities $ 7,267 $ 1,094 $ 1,196
Fixed Annuities 3,202 5,156 5,633
Life Insurance (228) (1) (381)
Corporate and Other 6,111 1,544 699
----------- ----------- ---------
$ 16,352 $ 7,793 $ 7,147
=========== =========== =========
Assets:
Variable Annuities $ 925,021 $ 503,111 $ 267,097
Fixed Annuities 989,116 787,682 643,313
Life Insurance 2,228 2,597 2,665
Corporate and Other 88,933 73,031 54,507
----------- ----------- ---------
$ 2,005,298 $ 1,366,421 $ 967,582
=========== =========== =========
</TABLE>
<PAGE> 56
PART II - OTHER INFORMATION
CONTENTS OF REGISTRATION STATEMENT
This Post-Effective Amendment No. 8 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 78 pages.
Representations and Undertakings.
Accountants' Consent
The Signatures.
The following exhibits required by Forms N-8B-2 and S-6:
<TABLE>
<S> <C>
1. Power of Attorney dated April 1, 1998. Attached hereto.
2. Resolution of the Depositor's Board of Directors Included with the Registration Statement on
authorizing the establishment of the Registrant, Form N-8B-2 for the Nationwide VL Separate Account-A
adopted (File 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>
<PAGE> 57
REPRESENTATIONS AND UNDERTAKINGS
The Registrant and the Company hereby make the following representations and
undertakings:
(a) This filing is made pursuant to Rules 6c-3 and 6e-3(T) under the
Investment Company Act of 1940 (the "1940 Act"). The Registrant and the
Company elect to be governed by Rule 6e-3(T)(b)(13)(i)(A) under the 1940
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 1940 Act afforded by Rule 6e-3(T).
(b) Paragraph (b) (13) (iii) (F) of Rule 6e-3(T) is being relied on for the
deduction of the mortality and expense risk charges ("risk charges")
assumed by the Company under the Policies. The Company represents that
the risk charges are within the range of industry practice for comparable
policies and reasonable in relation to all of the risks assumed by the
issuer under the Policies. Actuarial memoranda demonstrating the
reasonableness of these charges are maintained by the Company, and will
be made available to the Securities and Exchange Commission (the "SEC")
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 SEC on request a memorandum setting forth the basis for
this representation.
(d) The Company represents that the separate account will invest only in
management investment companies which have undertaken to have a board of
directors, a majority of whom are not interested persons of the Company,
formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
(e) Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the Registrant hereby undertakes to file with the
SEC such supplementary and periodic information, documents, and reports
as may be prescribed by any rule or regulation of the SEC 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.
<PAGE> 58
INDEPENDENT AUDITORS' CONSENT AND REPORT ON FINANCIAL STATEMENT SCHEDULES
The Board of Directors of Nationwide Life and Annuity Insurance Company and
Contract Owners of the Nationwide VL Separate Account-A:
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 29, 1998
<PAGE> 59
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. 8 and has duly caused this Post-Effective Amendment No. 8 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 29th day of April, 1998.
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-Product and Market Compliance
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No.8 has been signed below by the following persons in the capacities
indicated on the 29th day of April, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C> <C>
LEWIS J. ALPHIN Director
- --------------------------------------------
Lewis J. Alphin
A. I. BELL Director
- --------------------------------------------
A. I. Bell
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
DIMON R. McFERSON Chairman and Chief Executive Officer-
- -------------------------------------------- Nationwide Insurance Enterprise and Director
Dimon R. McFerson
DAVID O. MILLER Chairman of the Board and Director
- --------------------------------------------
David O. Miller
YVONNE L. MONTGOMERY Director
- --------------------------------------------
Yvonne L. Montgomery
C. RAY NOECKER Director
- --------------------------------------------
C. Ray Noecker
ROBERT A. OAKLEY Executive Vice President-
- -------------------------------------------- Chief Financial Officer
Robert A. Oakley
JAMES F. PATTERSON Director By/s/JOSEPH P. RATH
- -------------------------------------------- ----------------------------
James F. Patterson Joseph P. Rath
Attorney-in-Fact
ARDEN L. SHISLER Director
- --------------------------------------------
Arden L. Shisler
ROBERT L. STEWART Director
- --------------------------------------------
Robert L. Stewart
NANCY C. THOMAS Director
- --------------------------------------------
Nancy C. Thomas
HAROLD W. WEIHL Director
- --------------------------------------------
Harold W. Weihl
</TABLE>
<PAGE> 1
POWER OF ATTORNEY
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, and if applicable, of the Investment
Company Act of 1940, 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 Variable
Account-9, 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 VLI Separate Account-4,
Nationwide VL Separate Account-A and Nationwide VL Separate Account-B,
Nationwide VL Separate Account-C, hereby constitutes and appoints Dimon R.
McFerson, Joseph J. Gasper, W. Sidney Druen, Mark R. Thresher, 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 1st day of April, 1998.
<TABLE>
<CAPTION>
<S> <C>
/s/ Lewis J. Alphin /s/ Yvonne L. Montgomery
- ------------------------------------------------- --------------------------------------------------
Lewis J. Alphin, Director Yvonne L. Montgomery, Director
/s/ A. I. Bell /s/ C. Ray Noecker
- ------------------------------------------------- -------------------------------------------------
A. I. Bell, Director C. Ray Noecker, Director
/s/ Keith W. Eckel /s/ Robert A. Oakley
- ------------------------------------------------- --------------------------------------------------
Keith W. Eckel, Director Robert A. Oakley, Executive Vice President - Chief
Financial Officer
/s/ Willard J. Engel /s/ James F. Patterson
- ------------------------------------------------- --------------------------------------------------
Willard J. Engel, Director James F. Patterson, Director
/s/ Fred C. Finney /s/ Arden L. Shisler
- ------------------------------------------------- --------------------------------------------------
Fred C. Finney, Director Arden L. Shisler, Director
/s/ Charles L. Fuellgraf /s/ Robert L. Stewart
- ------------------------------------------------- --------------------------------------------------
Charles L. Fuellgraf, Jr., Director Robert L. Stewart, Director
/s/ Joseph J. Gasper /s/ Nancy C. Thomas
- ------------------------------------------------- --------------------------------------------------
Joseph J. Gasper, President and Chief Operating Officer Nancy C. Thomas, Director
and Director
/s/ Dimon R. McFerson /s/ Harold W. Weihl
- ------------------------------------------------- --------------------------------------------------
Dimon R. McFerson, Chairman and Chief Executive Harold W. Weihl, Director
Officer-Nationwide Insurance Enterprise and Director
/s/ David O. Miller
- -------------------------------------------------
David O. Miller, Chairman of the Board, Director
</TABLE>
