<PAGE> 1
As filed with the Securities and Exchange Commission.
'33 Act File No. 33-86408
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933 [X]
POST EFFECTIVE AMENDMENT NO. 5
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 5
NATIONWIDE VA SEPARATE ACCOUNT- B
(Exact Name of Registrant)
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(Name of Depositor)
One Nationwide Plaza, Columbus, Ohio 43215
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code: (614) 249-7111
Gordon E. McCutchan, Secretary, One Nationwide Plaza, Columbus, Ohio 43215
(Name and Address of Agent for Service)
This Post-Effective amendment amends the Registration Statement in
respect of the Prospectus, Statement of Additional Information, and the
Financial Statements.
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on May 1, 1997 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a) of Rule 485
[ ] on (date) pursuant to paragraph (a) of Rule 485
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
The Registrant has registered an indefinite number of securities by a prior
registration statement in accordance with Rule 24f-2 under the Investment
Company Act of 1940. Pursuant to Paragraph (a)(3) thereof, a non-refundable fee
in the amount of $500 has been paid to the Commission. Registrant filed its Rule
24f-2 Notice for the fiscal year ended December 31, 1996, on February 25, 1997.
================================================================================
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NATIONWIDE VA SEPARATE ACCOUNT-B
REFERENCE TO ITEMS REQUIRED BY FORM N-4
N-4 Item Page
Part A INFORMATION REQUIRED IN A PROSPECTUS
Item 1. Cover page......................................................3
Item 2. Definitions.....................................................5
Item 3. Synopsis or Highlights.........................................13
Item 4. Condensed Financial Information................................14
Item 5. General Description of Registrant, Depositor, and Portfolio
Companies.....................................................19
Item 6. Deductions and Expenses........................................20
Item 7. General Description of Variable Annuity Contracts..............21
Item 8. Annuity Period.................................................26
Item 9. Death Benefit and Distributions................................30
Item 10. Purchases and Contract Value..................................21
Item 11. Redemptions...................................................24
Item 12. Taxes.........................................................33
Item 13. Legal Proceedings.............................................43
Item 14. Table of Contents of the Statement of Additional Information..43
Part B INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
Item 15. Cover Page....................................................52
Item 16. Table of Contents.............................................52
Item 17. General Information and History...............................52
Item 18. Services......................................................52
Item 19. Purchase of Securities Being Offered..........................52
Item 20. Underwriters..................................................53
Item 21. Calculation of Performance Information........................53
Item 22. Annuity Payments..............................................57
Item 23. Financial Statements..........................................58
Part C OTHER INFORMATION
Item 24. Financial Statements and Exhibits.............................95
Item 25. Directors and Officers of the Depositor.......................96
Item 26. Persons Controlled by or Under Common Control with the
Depositor or Registrant......................................98
Item 27. Number of Contract Owners....................................107
Item 28. Indemnification..............................................107
Item 29. Principal Underwriter........................................107
Item 30. Location of Accounts and Records.............................109
Item 31. Management Services..........................................109
Item 32. Undertakings.................................................109
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NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
Home Office
P.O. Box 16609
Columbus, Ohio 43216-6609, 1-800-848-6331
TDD 1-800-238-3035
INDIVIDUAL MODIFIED SINGLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACTS
ISSUED BY THE NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
THROUGH ITS NATIONWIDE VARIABLE ACCOUNT-B
The Individual Modified Single Premium Deferred Variable Annuity
Contracts described in this prospectus are modified single purchase payment
contracts (collectively referred to as the "Contracts"). Reference throughout
the prospectus to such Contracts shall also mean Certificates issued under Group
Modified Single Premium Retirement Contracts. For such Group Contracts,
references to "Owner" shall mean the "Participant" unless the Plan otherwise
permits or requires the Owner to exercise contractual rights under the authority
of the Plan terms. The Contracts are sold to individuals for use in retirement
plans which may qualify for special federal tax treatment under the Internal
Revenue Code. Annuity payments under the Contracts are deferred until a selected
later date.
Purchase Payments are allocated to the Nationwide VA Separate Account-B
("Variable Account"), a separate account of Nationwide Life and Annuity
Insurance Company (the "Company"). The Variable Account uses its assets to
purchase shares at net asset value in one or more of the following series of the
underlying Mutual Fund options:
AVAILABLE FOR ALL CONTRACTS
American Century Variable Portfolios, Inc., an affiliate of
American Century Companies, Inc.
American Century VP Balanced American Century VP Capital Appreciation
American Century VP International American Century VP Value
Dreyfus
Dreyfus Stock Index Fund Dreyfus Variable Investment Fund Growth
& Income Portfolio*
The Dreyfus Socially Responsible Growth Fund
Fidelity Variable Insurance Products Fund
Equity-Income Portfolio Growth Portfolio High Income Portfolio* Overseas
Portfolio
Fidelity Variable Insurance Products Fund II
Asset Manager Portfolio Contrafund Portfolio
Nationwide Separate Account Trust
Capital Appreciation Fund Government Bond Fund Money Market Fund
Small Company Fund Total Return Fund
Neuberger & Berman Advisers Management Trust
Growth Portfolio Limited Maturity Bond Portfolio Partners Portfolio
Oppenheimer Variable Account Funds
Oppenheimer Bond Fund Oppenheimer Global Securities Fund
Oppenheimer Multiple Strategies Fund
Strong Special Fund II, Inc.
Strong Variable Insurance Funds, Inc.
Strong Discovery Fund II, Inc. International Stock Fund II
Van Eck Worldwide Insurance Trust
Worldwide Bond Fund Worldwide Emerging Markets Fund
Worldwide Hard Assets Fund
Van Kampen American Capital Life Investment Trust
Real Estate Securities Fund
Warburg Pincus Trust
International Equity Portfolio Post-Venture Capital Portfolio
Small Company Growth Portfolio
* These Portfolios may invest in lower quality debt securities commonly referred
to as junk bonds.
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This prospectus provides you with the basic information you should know
about the Individual Deferred Variable Annuity Contracts issued by the
Nationwide VA Separate Account-B before investing. You should read it and keep
it for future reference. A Statement of Additional Information dated May 1,
1997, containing further information about the Contracts and the Nationwide VA
Separate Account-B has been filed with the Securities and Exchange Commission.
You can obtain a copy without charge from Nationwide Life and Annuity Insurance
Company by calling the number listed above, or writing P.O. Box 16609, Columbus,
Ohio 43216-6609.
INVESTMENTS IN THESE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, AND ARE NOT
GUARANTEED OR ENDORSED BY, THE ADVISER OF ANY OF THE UNDERLYING MUTUAL FUNDS
IDENTIFIED ABOVE, THE U.S. GOVERNMENT, OR ANY BANK OR BANK AFFILIATE.
INVESTMENTS ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. ANY
INVESTMENT IN THE CONTRACT INVOLVES CERTAIN INVESTMENT RISK WHICH MAY INCLUDE
THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE STATEMENT OF ADDITIONAL INFORMATION, DATED MAY 1, 1997, IS INCORPORATED
HEREIN BY REFERENCE. THE TABLE OF CONTENTS FOR THE STATEMENT OF ADDITIONAL
INFORMATION APPEARS ON PAGE 41 OF THE PROSPECTUS.
THE DATE OF THIS PROSPECTUS IS MAY 1, 1997.
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GLOSSARY OF SPECIAL TERMS
Accumulation Unit- An accounting unit of measure used to calculate the Variable
Account Contract Value prior to the Annuitization Date.
Annuitant- The person designated to receive annuity payments during
Annuitization and upon whose continuation of life any annuity payment involving
life contingencies depends. This person must be age 85 or younger at the time of
Contract issuance, unless the Company has approved a request for an Annuitant of
greater age. The Annuitant may be changed prior to the Annuitization Date with
the consent of the Company.
Annuitization- The period during which annuity payments are actually received.
Annuitization Date- The date on which annuity payments actually commence at
Annuitization.
Annuity Commencement Date- The date on which annuity payments are scheduled to
commence. The Annuity Commencement Date is shown on the Data Page of the
Contract, and is subject to change by the Contract Owner.
Annuity Payment Option- The chosen form of annuity payments. Several options are
available under the Contract.
Annuity Unit- An accounting unit of measure used to calculate the value of
Variable Annuity payments.
Beneficiary- The Beneficiary is the person designated to receive certain
benefits under the Contract upon the death of the Designated Annuitant prior to
the Annuitization Date. The Beneficiary can be changed by the Contract Owner as
set forth in the Contract.
Code- The Internal Revenue Code of 1986, as amended.
Company- Nationwide Life and Annuity Insurance Company.
Contingent Annuitant- The Contingent Annuitant may be the recipient of certain
rights or benefits under this Contract when the Annuitant dies before the
Annuitization Date. If a Contingent Annuitant is designated and the Annuitant
dies before the Annuitization Date, the Contingent Annuitant becomes the
Annuitant. A Contingent Annuitant may not be named for Contracts issued as
Qualified Contracts, Individual Retirement Annuities, SEP IRAs or Tax Sheltered
Annuities.
Contingent Beneficiary- The Contingent Beneficiary is the person designated to
be the Beneficiary if the named Beneficiary is not living at the time of the
death of the Designated Annuitant.
Contingent Owner- A Contingent Owner succeeds to the rights of the Contract
Owner upon the Contract Owner's death before Annuitization. A Contingent Owner
may not be named for Contracts issued as Qualified Contracts, Individual
Retirement Annuities, SEP IRAs or Tax Sheltered Annuities.
Contract- The Individual Deferred Variable Annuity Contract described in this
prospectus.
Contract Anniversary- An anniversary of the Date of Issue of the Contract.
Contract Owner (Owner)- The Contract Owner is the person who possesses all
rights under the Contract, including the right to designate and change any
designations of the Owner, Contingent Owner, Annuitant, Contingent Annuitant,
Beneficiary, Contingent Beneficiary, Annuity Payment Option, and the Annuity
Commencement Date. The Contract Owner is the person named as Owner in the
application, unless changed.
Contract Value- The sum of the value of all Accumulation Units attributable to
the Contract.
Contract Year- Each year the Contract remains in force commencing with the Date
of Issue.
Date of Issue- The date shown as the Date of Issue on the Data Page of the
Contract.
Death Benefit- The benefit which is payable upon the death of the Annuitant or
the Contingent Annuitant, if applicable. This benefit does not apply upon the
death of the Contract Owner when the Owner and Annuitant are not the same
person. If the Annuitant dies after the Annuitization Date, any benefit that may
be payable shall be as specified in the Annuity Payment Option elected.
Distribution- Any payment of part or all of the Contract Value
ERISA- The Employee Retirement Income Security Act of 1974, as amended.
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Fixed Annuity- An annuity providing for payments which are guaranteed by the
Company as to dollar amount during annuitization.
Home Office- The main office of the Company located in Columbus, Ohio.
Individual Retirement Annuity - An annuity contract which qualifies for
favorable tax treatment under Section 408 of the Code.
Joint Owner- The Joint Owner, if any, possesses an undivided interest in the
entire Contract in conjunction with the Owner. If a Joint Owner is named,
references to "Contract Owner", "Owner", or "Joint Owner" in this prospectus
will apply to both the Owner and Joint Owner or either of them. If permitted by
state law, Joint Owners must be spouses at the time Joint Ownership is
requested. Joint Ownership may be selected only for a Non-Qualified Contract.
Mutual Fund (Fund)- A registered management investment company in which the
assets of the Sub-Accounts of the Variable Account will be invested.
Non-Qualified Contract- A Contract which does not qualify for favorable tax
treatment under Sections 401 and 403(a) (Qualified Plans), 408 (IRAs) or 403(b)
(Tax Sheltered Annuities) of the Code.
Plan Participant-The Plan Participant is the person for whom contributions are
being made to a Qualified Contract or Tax Sheltered Annuity either through
employer contributions or employee salary reduction contributions.
Purchase Payment- A deposit of new value into the Contract. The term "Purchase
Payment" does not include transfers among the Sub-Accounts.
Qualified Contracts- A Contract issued to fund a Qualified Plan.
Qualified Plans- Retirement plans which receive favorable tax treatment under
Sections 401 or 403(a) of the Code.
SEP IRA- A retirement plan which receives favorable tax treatment under the
provisions of Section 408(k) of the Code.
Sub-Accounts- Separate and distinct divisions of the Variable Account, to which
specific underlying Mutual Fund shares are allocated and for which Accumulation
Units and Annuity Units are separately maintained.
Tax Sheltered Annuity- An annuity which qualifies for favorable tax treatment
under Section 403(b) of the Code.
Valuation Date- Each day the New York Stock Exchange and the Company's Home
Office are open for business or any other day during which there is a sufficient
degree of trading of the Variable Account's underlying Mutual Fund shares that
the current net asset value of its Accumulation Units might be materially
affected.
Valuation Period- The period of time commencing at the close of a Valuation Date
and ending at the close of business for the next succeeding Valuation Date.
Variable Account- The Nationwide VA Separate Account-B, a separate investment
account of the Company into which Variable Account Purchase Payments are
allocated. The Variable Account is divided into Sub-Accounts, each of which
invests in the shares of a separate underlying Mutual Fund.
Variable Annuity- An annuity providing for payments which are not predetermined
or guaranteed as to dollar amount and which vary in amount with the investment
experience of the Variable Account.
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<PAGE> 7
Table of Contents
GLOSSARY OF SPECIAL TERMS.....................................................3
SUMMARY OF CONTRACT EXPENSES..................................................7
UNDERLYING MUTUAL FUND ANNUAL EXPENSES........................................7
SYNOPSIS.....................................................................11
CONDENSED FINANCIAL INFORMATION..............................................12
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY................................17
THE VARIABLE ACCOUNT.........................................................17
Underlying Mutual Fund Options....................................17
Voting Rights.....................................................17
Substitution of Securities........................................18
VARIABLE ACCOUNT CHARGES AND OTHER DEDUCTIONS................................18
Expenses of the Variable Account..................................18
Mortality Risk Charge.............................................18
Expense Risk Charge...............................................18
Administration Charge.............................................18
Premium Taxes.....................................................19
OPERATION OF THE CONTRACT....................................................19
Investments of the Variable Account...............................19
Allocation of Purchase Payments and Contract Value................19
Value of an Accumulation Unit.....................................19
Net Investment Factor.............................................20
Valuation of Assets...............................................20
Determining the Contract Value....................................20
Right to Revoke...................................................20
Transfers.........................................................21
Contract Ownership Provisions.....................................21
Joint Ownership Provisions........................................22
Contingent Ownership Provisions...................................22
Beneficiary Provisions............................................22
Surrender (Redemption)............................................22
Surrenders Under a Qualified Contract or Tax-Sheltered Annuity
Contract.................................23
Loan Privilege....................................................23
Assignment........................................................25
Contract Owner Services...........................................25
Asset Rebalancing...............................................25
Dollar Cost Averaging...........................................25
Systematic Withdrawals..........................................25
ANNUITY PAYMENT PERIOD, DEATH BENEFIT, AND OTHER DISTRIBUTIONS...............26
Annuity Commencement Date.........................................26
Change in Annuity Commencement Date...............................26
Annuity Payment Period-Variable Account...........................26
Value of an Annuity Unit..........................................26
Assumed Investment Rate...........................................26
Frequency and Amount of Annuity Payments..........................26
Change in Form of Annuity.........................................27
Annuity Payment Options...........................................27
Death of Contract Owner Provisions-Non-Qualified Contracts........27
Death of Annuitant Provisions- Non-Qualified Contracts............27
Death of the Owner/Annuitant Provisions...........................28
Death Benefit Payment Provisions..................................28
Required Distribution Provisions for Non-Qualified Contracts......28
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Required Distributions Qualified Plans and Tax Sheltered
Annuities.........................................................29
Required Distributions for Individual Retirement Annuities and
SEP IRAs..........................................................30
Generation-Skipping Transfers.....................................30
FEDERAL TAX CONSIDERATIONS...................................................31
Federal Income Taxes..............................................31
Non-Qualified Contracts-Natural Persons as Owners.................31
Non-Qualified Contracts-Non-Natural Persons as Owners.............32
Qualified Plans, Individual Retirement Annuities, SEP IRAs and
Tax Sheltered Annuities...........................................32
Withholding.......................................................33
Non-Resident Aliens...............................................33
Federal Estate, Gift, and Generation Skipping Transfer Taxes......34
Charge for Tax Provisions.........................................34
Diversification...................................................34
Tax Changes.......................................................34
GENERAL INFORMATION..........................................................35
Contract Owner Inquiries..........................................35
Statements and Reports............................................35
Advertising.......................................................35
LEGAL PROCEEDINGS............................................................41
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION.....................41
APPENDIX A...................................................................42
APPENDIX B...................................................................43
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SUMMARY OF CONTRACT EXPENSES
CONTRACT OWNER TRANSACTION EXPENSES
Maximum Contingent Deferred Sales Charge........................ 0%
MAXIMUM ANNUAL CONTRACT MAINTENANCE CHARGE............................. $0
VARIABLE ACCOUNT ANNUAL EXPENSES
Mortality and Expense Risk Charges.............................. 1.25%
Administration Charge........................................... 0.20%
Total Variable Account Annual Expenses........................ 1.45%
UNDERLYING MUTUAL FUND ANNUAL EXPENSES(1)
(as a percentage of underlying Mutual Fund net assets)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Management Total Mutual
Fees Other Expenses Fund Expenses
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
American Century Variable Portfolios, 1.00% 0.00% 1.00%
Inc.-American Century VP Balanced
- -------------------------------------------------------------------------------------------------------------
American Century Variable Portfolios, 1.00% 0.00% 1.00%
Inc.-American Century VP Capital Appreciation
- -------------------------------------------------------------------------------------------------------------
American Century Variable Portfolios, 1.50% 0.00% 1.50%
Inc.-American Century VP International
- -------------------------------------------------------------------------------------------------------------
American Century Variable Portfolios, 1.00% 0.00% 1.00%
Inc.-American Century VP Value
- -------------------------------------------------------------------------------------------------------------
Dreyfus Stock Index Fund 0.25% 0.05% 0.30%
- -------------------------------------------------------------------------------------------------------------
Dreyfus Variable Investment Fund-Growth & 0.75% 0.08% 0.83%
Income Portfolio
- -------------------------------------------------------------------------------------------------------------
The Dreyfus Socially Responsible Growth Fund* 0.72% 0.24% 0.96%
- -------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-Equity-Income Portfolio 0.51% 0.07% 0.58%
- -------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-Growth Portfolio 0.61% 0.08% 0.69%
- -------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund -High Income Portfolio 0.59% 0.12% 0.71%
- -------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund -Overseas Portfolio 0.76% 0.17% 0.93%
- -------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund II-Asset Manager Portfolio* 0.64% 0.10% 0.74%
- -------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund II-Contrafund Portfolio 0.61% 0.13% 0.74%
- -------------------------------------------------------------------------------------------------------------
NSAT-Capital Appreciation Fund 0.50% 0.02% 0.52%
- -------------------------------------------------------------------------------------------------------------
NSAT-Government Bond Fund 0.50% 0.01% 0.51%
- -------------------------------------------------------------------------------------------------------------
NSAT-Money Market Fund 0.50% 0.03% 0.53%
- -------------------------------------------------------------------------------------------------------------
NSAT -Small Company Fund 1.00% 0.10% 1.10%
- -------------------------------------------------------------------------------------------------------------
NSAT-Total Return Fund 0.50% 0.02% 0.52%
- -------------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers Management 0.83% 0.09% 0.92%
Trust-Growth Portfolio
- -------------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers Management 0.65% 0.13% 0.78%
Trust-Limited Maturity Bond Portfolio
- -------------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers Management 0.84% 0.11% 0.95%
Trust-Partners Portfolio
- -------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds-Bond Fund 0.74% 0.04% 0.78%
- -------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds-Global 0.73% 0.08% 0.81%
Securities Fund
- -------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds-Multiple 0.73% 0.04% 0.77%
Strategies Fund
- -------------------------------------------------------------------------------------------------------------
Strong Special Fund II, Inc. 1.00% 0.17% 1.17%
- -------------------------------------------------------------------------------------------------------------
Strong Variable Insurance Funds, 1.00% 0.21% 1.21%
Inc.-Discovery Fund II, Inc.
- -------------------------------------------------------------------------------------------------------------
Strong Variable Insurance Funds, 1.00% 0.90% 1.90%
Inc.-International Stock Fund II
- -------------------------------------------------------------------------------------------------------------
</TABLE>
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UNDERLYING MUTUAL FUND ANNUAL EXPENSES(1)
(as a percentage of underlying Mutual Fund net assets)
Continued
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Management Total Mutual
Fees Other Expenses Fund Expenses
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Van Eck Worldwide Insurance Trust-Worldwide 1.00% 0.08% 1.08%
Hard Assets Fund
- -------------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance Trust-Worldwide 1.00% 0.08% 1.08%
Bond Fund*
- -------------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance Trust-Worldwide 1.00% 0.00% 1.00%
Emerging Markets Fund*
- -------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life Investment 0.83% 0.27% 1.10%
Trust-Real Estate Securities Fund*
- -------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust-International Equity 0.96% 0.40% 1.36%
Portfolio*
- -------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust-Post-Venture Capital 0.62% 0.78% 1.40%
Portfolio*
- -------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust-Small Company Growth 0.90% 0.26% 1.16%
Portfolio*
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Mutual Fund expenses shown above are assessed at the underlying
Mutual Fund level and are not direct charges against Variable Account
assets or reductions from Contract Values. 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
unit values of the Variable Account. The management fees and other
expenses are more fully described in the prospectus for each individual
underlying Mutual Fund. The information relating to the underlying Mutual
Fund expenses was provided by the underlying Mutual Fund and was not
independently verified by the Company.
* The investment advisers for the indicated underlying Mutual Funds have
voluntarily agreed to reimburse a portion of the management fees and/or
operating expenses resulting in a reduction of the total expenses. Absent
any such partial reimbursement, "Management Fees" and "Other Expenses"
would have been 0.75% and 0.24% for the Dreyfus Socially Responsible
Growth Fund, Inc.; 0.71% and 0.10% for the Fidelity VIP Fund II-Asset
Manager Portfolio; 1.00% and 0.10% for the Van Eck Worldwide Insurance
Trust-Worldwide Bond Fund; 1.00% and 1.06% for the Van Eck Worldwide
Insurance Trust-Worldwide Emerging Markets Fund; 1.00% and 0.27% for the
Van Kampen American Capital Life Investment Trust-Real Estate Securities
Fund. Absent any such partial reimbursement, "Total Mutual Fund Expenses"
would have been 1.40% for the Warburg Pincus Trust-International Equity
Portfolio; 5.56% for the Warburg Pincus Trust Post-Venture Capital
Portfolio; and 1.17% for the Warburg Pincus Trust-Small Company Growth
Portfolio.
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EXAMPLE
The following chart depicts the dollar amount of expenses that would be incurred
under this Contract assuming a $1000 investment and 5% annual return. These
dollar figures are illustrative only and should not be considered a
representation of past or future expenses. Actual expenses may be greater or
lesser than those shown below.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
If you surrender your If you do not surrender If you annuitize your Contract
Contract at the end of your Contract at the end of at the end of the applicable
the applicable time period the applicable time period time period
- ----------------------------------------------------------------------------------------------------------------------
1 Yr. 3 Yrs. 5 Yrs. 10 Yrs. 1 Yr. 3 Yrs 5 Yrs. 10 Yrs. 1 Yr. 3 Yrs. 5 Yrs. 10 Yrs.
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
American Century Variable 26 79 135 287 26 79 135 287 * 79 135 287
Portfolios, Inc.-American
Century VP Balanced
- ----------------------------------------------------------------------------------------------------------------------
American Century Variable 26 79 135 287 26 79 135 287 * 79 135 287
Portfolios, Inc.-American
Century VP Capital
Appreciation
- ----------------------------------------------------------------------------------------------------------------------
American Century Variable 31 95 161 338 31 95 161 338 * 95 161 338
Portfolios, Inc.-American
Century VP International
- ----------------------------------------------------------------------------------------------------------------------
American Century Variable 26 79 135 287 26 79 135 287 * 79 135 287
Portfolios, Inc.-American
Century VP Value
- ----------------------------------------------------------------------------------------------------------------------
Dreyfus Stock Index Fund 18 57 98 212 18 57 98 212 * 57 98 212
- ----------------------------------------------------------------------------------------------------------------------
Dreyfus VIF-Growth & 24 74 126 270 24 74 126 270 * 74 126 270
Income Portfolio
- ----------------------------------------------------------------------------------------------------------------------
The Dreyfus Socially 25 78 133 283 25 78 133 283 * 78 133 283
Responsible Growth Fund
- ----------------------------------------------------------------------------------------------------------------------
Fidelity VIP 21 66 113 243 21 66 113 243 * 66 113 243
Fund-Equity-Income
Portfolio
- ----------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-Growth 22 69 119 255 22 69 119 255 * 69 119 255
Portfolio
- ----------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-Overseas 25 77 131 280 25 77 131 280 * 77 131 280
Portfolio
- ----------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-High 23 70 120 257 23 70 120 257 * 70 120 257
Income Portfolio
- ----------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund II-Asset 23 71 121 260 23 71 121 260 * 71 121 260
Manager Portfolio
- ----------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund 23 71 121 260 23 71 121 260 * 71 121 260
II-Contrafund Portfolio
- ----------------------------------------------------------------------------------------------------------------------
NSAT-Capital Appreciation 21 64 110 236 21 64 110 236 * 64 110 236
Fund
- ----------------------------------------------------------------------------------------------------------------------
NSAT-Government Bond Fund 21 64 109 235 21 64 109 235 * 64 109 235
- ----------------------------------------------------------------------------------------------------------------------
NSAT-Money Market Fund 21 64 110 237 21 64 110 237 * 64 110 237
- ----------------------------------------------------------------------------------------------------------------------
NSAT - Small Company Fund 27 82 140 298 27 82 140 298 * 82 140 298
- ----------------------------------------------------------------------------------------------------------------------
NSAT-Total Return Fund 21 64 110 236 21 64 110 236 * 64 110 236
- ----------------------------------------------------------------------------------------------------------------------
Neuberger & Berman 25 77 131 279 25 77 131 279 * 77 131 279
Advisers Management
Trust-Growth Portfolio
- ----------------------------------------------------------------------------------------------------------------------
Neuberger & Berman 23 72 123 264 23 72 123 264 * 72 123 264
Advisers Management
Trust-Limited Maturity
Bond Portfolio
- ----------------------------------------------------------------------------------------------------------------------
Neuberger & Berman 25 77 132 282 25 77 132 282 * 77 132 282
Advisers Management Trust-
Partners Portfolio
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
If you surrender your If you do not surrender If you annuitize your Contract
Contract at the end of your Contract at the end of at the end of the applicable
the applicable time period the applicable time period time period
- -----------------------------------------------------------------------------------------------------------------
1 Yr. 3 Yrs. 5 Yrs. 10 Yrs. 1 Yr. 3 Yrs 5 Yrs. 10 Yrs. 1 Yr. 3 Yrs. 5 Yrs. 10 Yrs.
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Oppenheimer Variable 23 72 123 264 23 72 123 264 * 72 123 264
Account Funds-Bond Fund
- -----------------------------------------------------------------------------------------------------------------
Oppenheimer Variable 24 73 125 267 24 73 125 267 * 73 125 267
Account Funds-Global
Securities Fund
- -----------------------------------------------------------------------------------------------------------------
Oppenheimer Variable 23 72 123 263 23 72 123 263 * 72 123 263
Account Funds-Multiple
Strategies Fund
- -----------------------------------------------------------------------------------------------------------------
Strong Special Fund II, 28 84 144 305 28 84 144 305 * 84 144 305
Inc.
- -----------------------------------------------------------------------------------------------------------------
Strong Variable Insurance 28 86 146 309 28 86 146 309 * 86 146 309
Funds, Inc.- Discovery
Fund II, Inc.
- -----------------------------------------------------------------------------------------------------------------
Strong Variable Insurance 35 107 181 376 35 107 181 376 * 107 181 376
Funds, Inc.
- -International Stock Fund
II
- -----------------------------------------------------------------------------------------------------------------
Van Eck Worldwide 27 82 139 295 27 82 139 295 * 82 139 295
Insurance Trust-Worldwide
Bond Fund
- -----------------------------------------------------------------------------------------------------------------
Van Eck Worldwide 26 79 135 287 26 79 135 287 * 79 135 287
Insurance Trust-Worldwide
Emerging Markets Fund
- -----------------------------------------------------------------------------------------------------------------
Van Eck Worldwide 27 82 139 295 27 82 139 295 * 82 139 295
Insurance Trust-Worldwide
Hard Assets Fund
- -----------------------------------------------------------------------------------------------------------------
Van Kampen American 27 82 140 298 27 82 140 298 * 82 140 298
Capital Life Investment
Trust - Real Estate
Securities Fund
- -----------------------------------------------------------------------------------------------------------------
Warburg Pincus 30 90 154 324 30 90 154 324 * 90 154 324
Trust-International
Equity Portfolio
- -----------------------------------------------------------------------------------------------------------------
Warburg Pincus 30 92 156 328 30 92 156 328 * 92 156 328
Trust-Post-Venture
Capital Portfolio
- -----------------------------------------------------------------------------------------------------------------
Warburg Pincus 27 84 143 304 27 84 143 304 * 84 143 304
Trust-Small Company
Growth Portfolio
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
*The Contracts sold under this prospectus do not permit annuitizations during
the first two Contract Years.
The purpose of the Summary of Contract Expenses and Example is to
assist the Contract Owner in understanding the various costs and expenses that
will be borne directly or indirectly when investing in the Contract. The
expenses of the Nationwide VA Separate Account-B as well as those of the
underlying Mutual Fund options are reflected in the Example. For more complete
descriptions of the expenses of the Variable Account, see "Variable Account
Chargesand Other Deductions." For more complete information regarding expenses
paid out of the assets of the underlying Mutual Fund options, see the Mutual
Funds' prospectuses. Deductions for premium taxes may also apply but are not
reflected in the Example shown above (see "Premium Taxes").
10
12 of 112
<PAGE> 13
SYNOPSIS
The Individual Deferred Variable Annuity Contracts described in this
prospectus are designed for use in connection with the following types of
Contracts (1) Non-Qualified, (2) Individual Retirement Annuities, (3) Tax
Sheltered Annuities, (4) SEP IRAs and (5) Qualified.
The initial first year Purchase Payment must be at least $15,000 and
subsequent Purchase Payments at least $1,000. The cumulative total of all
Purchase Payments under Contracts issued on the life of any one Designated
Annuitant may not exceed $1,000,000 without the prior consent of the Company
(see "Allocation of Purchase Payments and Contract Value").
The Company does not deduct a slaes charge from Purchase Payments made
for these Contracts, nor is any sales charge deducted upon the surrender of the
Contract.
The Company will also assess an Administration Charge equal to an annual
rate of 0.20% of the daily net asset value of the Variable Account. These
charges are to reimburse the Company for administrative expenses related to the
issue and maintenance of the Contracts. The Company does not expect to recover
from these charges an amount in excess of accumulated administrative expenses
(see "Administration Charge"). The Company deducts a Mortality Risk Charge equal
to an annual rate of 0.80% of the daily net asset value of the Variable Account
for mortality risks assumed by the Company (see "Mortality Risk Charge"). The
Company deducts an Expense Risk Charge equal to an annual rate of 0.45% of the
daily net asset value of the Variable Account as compensation for the Company's
risk by undertaking not to increase administrative charges on the Contracts
regardless of the actual administrative costs (see "Expense Risk Charge").
Upon Annuitization, the selected Annuity Payment Option will begin (see
"Annuity Payment Option"). However, if the net amount to be applied to any
Annuity Payment Option at the Annuitization Date is less than $5,000, the
Contract Value may be distributed in one lump sum in lieu of annuity payments.
If any annuity payment would be less than $50, the Company shall have the right
to change the frequency of payments to such intervals as will result in payments
of at least $50. In no event, however, will annuity payments be made less
frequently than annually (see "Frequency and Amount of Annuity Payments").
The Company will charge against the Purchase Payments or the Contract
Value the amount of any premium taxes levied by a state or any other
governmental entity (see "Premium Taxes").
To be sure that the Contract Owner is satisfied with the Contract, the
Contract Owner has a ten day free look. Within ten days of the date the Contract
is received, it may be returned to the Home Office of the Company, at the
address shown on page 1 of this prospectus. If a Contract is returned to the
Company in a timely manner, the Company will void the Contract and refund the
Contract Value in full unless otherwise required by state and/or federal law.
State and/or federal law may provide additional free look privileges. All
Individual Retirement Annuity refunds will be return of Purchase Payments (see
"Right to Revoke").
11
13 of 112
<PAGE> 14
CONDENSED FINANCIAL INFORMATION
Accumulation Unit Values for an Accumulation Unit outstanding throughout the
period.
<TABLE>
<CAPTION>
Number of Units
Beginning Unit Ending Unit Percent Change At The End Of
Fund Value Value in Unit Value The Period Year
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
American Century 10.000000 10.871600 8.72% 13,228 1996
Variable Portfolios,
Inc.
American Century VP
Balanced-Q
- -------------------------------------------------------------------------------------------------------------
American Century 10.000000 10.871600 8.72% 35,163 1996
Variable Portfolios,
Inc.
American Century VP
Balanced-NQ
- -------------------------------------------------------------------------------------------------------------
American Century 10.000000 9.371161 -6.29% 46,612 1996
Variable Portfolios,
Inc.
American Century VP
Capital Appreciation-Q
- -------------------------------------------------------------------------------------------------------------
American Century 10.000000 9.371161 -6.29% 83,063 1996
Variable Portfolios,
Inc.
American Century VP
Capital
Appreciation-NQ
- -------------------------------------------------------------------------------------------------------------
American Century 10.000000 11.142834 11.43% 27,097 1996
Variable Portfolios,
Inc.
American Century VP
International-Q
- -------------------------------------------------------------------------------------------------------------
American Century 10.000000 11.142834 11.43% 77,343 1996
Variable Portfolios,
Inc.
American Century VP
International-NQ
- -------------------------------------------------------------------------------------------------------------
American Century 10.000000 10.142228 1.42% 0 1996*
Variable Portfolio,
Inc.
American Century VP
Value-Q
- -------------------------------------------------------------------------------------------------------------
American Century 10.000000 10.142228 1.42% 0 1996*
Variable Portfolio,
Inc.
American Century VP
Value-NQ
- -------------------------------------------------------------------------------------------------------------
Dreyfus Variable 10.000000 9.986593 -0.13% 0 1996*
Investment Fund-
Growth & Income
Portfolio-Q
- -------------------------------------------------------------------------------------------------------------
Dreyfus Variable 10.000000 9.986593 -0.13% 0 1996*
Investment Fund-
Growth & Income
Portfolio-N Q
- -------------------------------------------------------------------------------------------------------------
Dreyfus Stock Index 10.000000 11.644617 16.45% 64,418 1996
Fund-Q
- -------------------------------------------------------------------------------------------------------------
Dreyfus Stock Index 10.000000 11.644617 16.45% 189,227 1996
Fund-NQ
- -------------------------------------------------------------------------------------------------------------
The Dreyfus Socially 10.000000 11.402663 14.03% 10,096 1996
Responsible Growth
Fund, Inc.-Q
- -------------------------------------------------------------------------------------------------------------
The Dreyfus Socially 10.000000 11.402663 14.03% 29,501 1996
Responsible Growth
Fund, Inc.-NQ
- -------------------------------------------------------------------------------------------------------------
</TABLE>
12
14 of 112
<PAGE> 15
CONDENSED FINANCIAL INFORMATION, Continued
Accumulation Unit Value for an Accumulation Unit outstanding throughout the
period.
<TABLE>
<CAPTION>
Number of Units
Beginning Unit Ending Unit Percent Change At The End Of
Fund Value Value in Unit Value The Period Year
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fidelity VIP Fund- 10.000000 10.915770 9.16% 36,697 1996
Overseas Portfolio-Q
- ------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-- 10.000000 10.915770 9.16% 95,229 1996
Overseas Portfolio-NQ
- ------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-High 10.000000 10.970108 9.70% 291,879 1996
Income Portfolio-Q
- ------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-High 10.000000 10.970108 9.70% 245,978 1996
Income Portfolio-NQ
- ------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund- Equity- 10.000000 10.958584 9.59% 320,026 1996
Income Portfolio-Q
- ------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund- Equity- 10.000000 10.958584 9.59% 682,976 1996
Income Portfolio-NQ
- ------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund- 10.000000 11.057399 10.57% 230,586 1996
Growth Portfolio-Q
- ------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund- 10.000000 11.057399 10.57% 910,947 1996
Growth Portfolio-NQ
- ------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund II - Asset 10.000000 11.029343 10.29% 38,401 1996
Manager Portfolio-Q
- ------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund II - Asset 10.000000 11.029343 10.29% 63,564 1996
Manager Portfolio-NQ
- ------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund II- 10.000000 11.815914 18.16% 255,409 1996
Contrafund Portfolio-Q
- ------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund II- 10.000000 11.815914 18.16% 400,821 1996
Contrafund Portfolio-NQ
- ------------------------------------------------------------------------------------------------------------
NSAT- Capital Appreciation 10.000000 11.889746 19.00% 89,481 1996
Fund-Q
- ------------------------------------------------------------------------------------------------------------
NSAT- Capital Appreciation 10.000000 11.889746 19.00% 71,846 1996
Fund-NQ
- ------------------------------------------------------------------------------------------------------------
</TABLE>
13
15 of 112
<PAGE> 16
CONDENSED FINANCIAL INFORMATION, Continued
Accumulation Unit Value for an Accumulation Unit outstanding throughout the
period.
<TABLE>
<CAPTION>
Number of
Percent Units At The
Beginning Unit Ending Unit Change in End Of The
Fund Value Value Unit Value Period Year
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NSAT-Government 10.000000 10.149155 1.49% 30,956 1996
Bond Fund-Q
- -----------------------------------------------------------------------------------------------------------
NSAT-Government 10.000000 10.149155 1.49% 97,767 1996
Bond Fund-NQ
- -----------------------------------------------------------------------------------------------------------
NSAT- Money Market 10.000000 10.326243 3.26% 283,411 1996
Fund- Q**
- -----------------------------------------------------------------------------------------------------------
NSAT- Money Market 10.000000 10.326243 3.26% 628,692 1996
Fund- NQ**
- -----------------------------------------------------------------------------------------------------------
NSAT-Small Company 10.000000 12.152247 21.52% 49,485 1996
Fund-Q
- -----------------------------------------------------------------------------------------------------------
NSAT-Small Company 10.000000 12.152247 21.52% 69,854 1996
Fund-NQ
- -----------------------------------------------------------------------------------------------------------
NSAT-Total 10.000000 11.639579 16.40% 32,415 1996
Return Fund-Q
- -----------------------------------------------------------------------------------------------------------
NSAT-Total 10.000000 11.639579 16.40% 57,403 1996
Return Fund-NQ
- -----------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers 10.000000 10.469935 4.70% 7,597 1996
Management Trust-Growth
Portfolio-Q
- -----------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers 10.000000 10.469935 4.70% 50,629 1996
Management Trust-Growth
Portfolio-NQ
- -----------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers 10.000000 10.209208 2.09% 123,635 1996
Management Trust-Limited
Maturity Bond Portfolio-Q
- -----------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers 10.000000 10.209208 2.09% 274,872 1996
Management Trust-Limited
Maturity Bond Portfolio-NQ
- -----------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers 10.000000 12.248582 22.49% 177,265 1996
Management Trust-Partners
Portfolio-Q
- -----------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers 10.000000 12.248582 22.49% 214,292 1996
Management Trust-Partners
Portfolio-NQ
- -----------------------------------------------------------------------------------------------------------
</TABLE>
**The 7-day yield on the Money Market Fund as of December 31, 1996 was 3.49%.
14
16 of 112
<PAGE> 17
CONDENSED FINANCIAL INFORMATION, Continued
Accumulation Unit Values for an Accumulation Unit outstanding throughout the
period.
<TABLE>
<CAPTION>
Number of Units
Beginning Unit Ending Unit Percent Change At The End Of
Fund Value Value in Unit Value The Period Year
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Oppenheimer Variable 10.000000 11.201956 12.02% 40,161 1996
Account Funds-Global
Securities Fund-Q
- -------------------------------------------------------------------------------------------------------------
Oppenheimer Variable 10.000000 11.201956 12.02% 75,124 1996
Account Funds-Global
Securities Fund-NQ
- -------------------------------------------------------------------------------------------------------------
Oppenheimer Variable 10.000000 11.129020 11.29% 6,127 1996
Account Funds-
Multiple Strategies
Fund-Q
- -------------------------------------------------------------------------------------------------------------
Oppenheimer Variable 10.000000 11.129020 11.29% 34,052 1996
Account Funds-
Multiple Strategies
Fund-NQ
- -------------------------------------------------------------------------------------------------------------
Oppenheimer Variable 10.000000 10.288722 2.89% 55,343 1996
Account Funds-Bond
Fund-Q
- -------------------------------------------------------------------------------------------------------------
Oppenheimer Variable 10.000000 10.288722 2.89% 152,075 1996
Account Funds Bond
Fund-NQ
- -------------------------------------------------------------------------------------------------------------
Strong Variable 10.000000 9.903046 -0.97% 27,130 1996
Insurance Funds,
Inc.-
Discovery Fund II-Q
- -------------------------------------------------------------------------------------------------------------
Strong Variable 10.000000 9.903046 -0.97% 55,312 1996
Insurance Funds,
Inc.-
Discovery Fund II-NQ
- -------------------------------------------------------------------------------------------------------------
Strong Variable 10.000000 10.462103 4.62% 61,841 1996
Insurance Funds,
Inc.-
International Stock
Fund II-Q
- -------------------------------------------------------------------------------------------------------------
Strong Variable 10.000000 10.462103 4.62% 154,841 1996
Insurance Funds,
Inc.-
International Stock
Fund II-NQ
- -------------------------------------------------------------------------------------------------------------
Strong Special Fund 10.000000 11.319705 13.20% 312,712 1996
II,
Inc.- Q
- -------------------------------------------------------------------------------------------------------------
Strong Special Fund 10.000000 11.319705 13.20% 302,280 1996
II,
Inc.-NQ
- -------------------------------------------------------------------------------------------------------------
</TABLE>
15
17 of 112
<PAGE> 18
CONDENSED FINANCIAL INFORMATION, Continued
Accumulation Unit Values for an Accumulation Unit outstanding throughout the
period.
<TABLE>
<CAPTION>
Number of Units
Beginning Unit Ending Unit Percent Change At The End Of
Fund Value Value in Unit Value The Period Year
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Van Eck Worldwide 10.000000 10.189870 1.90% 39,599 1996
Insurance Trust -
Worldwide
Fund-Q
- ----------------------------------------------------------------------------------------------------------------
Van Eck Worldwide 10.000000 10.189870 1.90% 36,398 1996
Insurance Trust- Worldwide
Bond Fund-NQ
- ----------------------------------------------------------------------------------------------------------------
Van Eck Worldwide 10.000000 10.077496 0.77% 0 1996*
Insurance Trust- Worldwide
Emerging Markets Fund-Q
- ----------------------------------------------------------------------------------------------------------------
Van Eck Worldwide 10.000000 10.077496 0.77% 750 1996*
Insurance Trust- Worldwide
Emerging Markets Fund-NQ
- ----------------------------------------------------------------------------------------------------------------
Van Eck Worldwide 10.000000 10.132333 1.32% 22,227 1996
Insurance Trust-Worldwide
Hard Assets Fund-Q
- ----------------------------------------------------------------------------------------------------------------
Van Eck Worldwide 10.000000 10.132333 1.32% 48,531 1996
Insurance Trust-Worldwide
Hard Assets Fund-NQ
- ----------------------------------------------------------------------------------------------------------------
Van Kampen American 10.000000 13.626341 36.26% 63,345 1996
Capital Life Investment
Trust-Real Estate
Securities Fund-Q
- ----------------------------------------------------------------------------------------------------------------
Van Kampen American 10.000000 13.626341 36.26% 65,843 1996
Capital Life Investment
Trust-Real Estate
Securities Fund-NQ
- ----------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust- 10.000000 10.450529 4.51% 113,387 1996
International Equity
Portfolio-Q
- ----------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust- 10.000000 10.450529 4.51% 278,224 1996
International Equity
Portfolio-NQ
- ----------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust- 10.000000 10.163437 1.63% 0 1996*
Post-
Venture Capital
Portfolio-Q
- ----------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust- 10.000000 10.163437 1.63% 726 1996*
Post-
Venture Capital
Portfolio-NQ
- ----------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust- 10.000000 11.231071 12.31% 104,843 1996
Small
Company Growth Portfolio-Q
- ----------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust- 10.000000 11.231071 12.31% 314,236 1996
Small
Company Growth
Portfolio-NQ
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
* The American Century Variable Portfolio, Inc. - American Century VP Value,
Dreyfus Variable Investment Fund Growth and Income Portfolio, Van Eck Worldwide
Insurance Trust - Worldwide Emerging Markets Fund, and Warburg Pincus Trust -
Post-Venture Capital Portfolio were added December 23, 1996. Consequently, the
Condensed Financial Information reflects the accumulation unit outstanding for
the period from December 23, 1996 to December 31, 1996.
16
18 of 112
<PAGE> 19
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
Nationwide Life and Annuity Insurance Company, formerly Financial
Horizons Life Insurance Company, is a stock life insurance company organized
under the laws of the State of Ohio and was established in February 1981. The
Company is a member of the "Nationwide Insurance Enterprise" with its Home
Office at One Nationwide Plaza, Columbus, Ohio 43215.
The Company offers certain life insurance products and annuities.
THE VARIABLE ACCOUNT
The Variable Account was established as Financial Horizons VA Separate
Account-2 by the Company on March 6, 1991, pursuant to the provisions of Ohio
law. The name of the Variable Account was subsequently changed to Nationwide VA
Separate Account-B pursuant to a resolution by the Board of Directors. The
Company has caused the Variable Account to be registered with the Securities and
Exchange Commission as a unit investment trust pursuant to the provisions of the
Investment Company Act of 1940. Such registration does not involve supervision
of the management of the Variable Account or the Company by the Securities and
Exchange Commission.
The Variable Account is a separate investment account of the Company and
as such, is not chargeable with liabilities arising out of any other business
the Company may conduct. The Company does not guarantee the investment
performance of the Variable Account. Obligations under the Contracts, however,
are obligations of the Company. Income, gains and losses, whether or not
realized, from the assets of the Variable Account are, in accordance with the
Contracts, credited to or charged against the Variable Account without regard to
other income, gains, or losses of the Company.
Purchase Payments are allocated within the Variable Account among one or
more Sub-Accounts made up of shares in the underlying Mutual Funds designated by
the Contract Owner. There are two Sub-Accounts within the Variable Account for
each of the underlying Mutual Fund options which may be designated by the
Contract Owner. One such Sub-Account contains the underlying Mutual Funds shares
attributable to Accumulation Units under Qualified Contracts and one such
Sub-Account contains the underlying Mutual Funds shares attributable to
Accumulation Units under Non-Qualified Contracts.
Underlying Mutual Fund Options
Contract Owners may choose from among a number of different underlying
Mutual Fund options. (See Appendix B which contains a summary of investment
objectives for each underlying Mutual Fund.) More detailed information may be
found in the current prospectus for each underlying Mutual Fund offered. Such a
prospectus for the underlying Mutual Fund option(s) should be read in
conjunction with this prospectus. A copy of each prospectus may be obtained
without charge from Nationwide Life and Annuity Insurance Company by calling
1-800-848-6331, TDD 1-800-238-3035, or writing P.O.
Box 16609, Columbus, Ohio 43216-6609.
The underlying Mutual Funds may also be available to registered separate
accounts offering variable annuity and variable life products of other
participating insurance companies, as well as to the Variable Account and other
separate accounts of the Company. Although the Company does not anticipate any
disadvantages to this, there is a possibility that a material conflict may arise
between the interest of the Variable Account and one or more of the other
separate accounts participating in the underlying Mutual Funds. A conflict may
occur due to a change in law affecting the operations of variable life and
variable annuity separate accounts, differences in the voting instructions of
the Contract Owners and those of other companies, or some other reason. In the
event of conflict, the Company will take any steps necessary to protect the
Contract Owners and variable annuity payees, including withdrawal of the
Variable Account from participation in the underlying Mutual Fund or Mutual
Funds which are involved in the conflict.
Voting Rights
Voting rights under the Contracts apply ONLY with respect to Purchase
Payments or accumulated amounts allocated to the Variable Account.
In accordance with its view of present applicable law, the Company will
vote the shares of the underlying Mutual Funds held in the Variable Account at
regular and special meetings of the shareholders of the underlying Mutual Funds.
These shares will be voted in accordance with instructions received from
Contract Owners who have an interest in the Variable Account. If the Investment
Company Act of 1940 or any Regulation thereunder should be amended or if the
present interpretation thereof should change, and as a result the Company
determines that it is permitted to vote the shares of the underlying Mutual
Funds in its own right, it may elect to do so.
17
19 of 112
<PAGE> 20
The Contract Owner shall be the person who has the voting interest
under the Contract. The number of underlying Mutual Fund shares attributable to
each Contract Owner is determined by dividing the Contract Owner's interest in
each respective Sub-Account of the Variable Account by the net asset value of
the underlying Mutual Fund corresponding to the Sub-Account. The number of
shares which a person has the right to vote will be determined as of the date to
be 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 Fund, proxy material and a
form with which to give such voting instructions.
Voting instructions will be solicited by written communication at least
21 days prior to such meeting. Underlying Mutual Fund shares held in the
Variable Account as to which no timely instructions are received will be voted
by the Company in the same proportion as the voting instructions which are
received with respect to all Contracts participating in the Variable Account.
Substitution of Securities
If the shares of the underlying Mutual Fund options described in this
prospectus should no longer be available for investment by the Variable Account
or if, in the judgment of the Company's management, further investment in such
underlying Mutual Fund shares should become 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 with Purchase Payments under the
Contract. No substitution of securities in the Variable Account may take place
without prior approval of the Securities and Exchange Commission, under such
requirements as it may impose.
VARIABLE ACCOUNT CHARGES AND OTHER DEDUCTIONS
Expenses of Variable Account
The Variable Account is responsible for the following types of expenses:
(1) administrative expenses relating to the issuance and maintenance of the
Contracts; (2) mortality risk charge associated with guaranteeing the annuity
purchase rates at issue for the life of the Contracts; and (3) expense risk
charge associated with guaranteeing that the Mortality Risk, Expense Risk, and
Administration Charges described in this prospectus will not change regardless
of actual expenses. If these charges are insufficient to cover these expenses,
the loss will be borne by the Company.
For 1996, the Variable Account incurred total expenses equal to 1.04% of
its average net assets, relating to the administrative, sales, mortality and
expense risk charges described below for all Contracts outstanding during that
year. Deductions from and expenses paid out of the assets of the underlying
Mutual Funds are described in each underlying Mutual Fund prospectus.
Mortality Risk Charge
The Company assumes a "mortality risk" by virtue of annuity rates
incorporated in the Contract which cannot be changed regardless of the death
rates of persons receiving annuity payments or of the general population.
For assuming this mortality risk, the Company deducts a Mortality Risk
Charge from the Variable Account. This amount is computed on a daily basis, and
is equal to an annual rate of 0.80% of the daily net asset value of the Variable
Account. The Company expects to generate a profit through assessing this charge.
Expense Risk Charge
The Company will not increase charges for administration of the Contracts
regardless of its actual expenses. For assuming this expense risk, the Company
deducts an Expense Risk Charge from the Variable Account. This amount is
computed on a daily basis, and is equal to an annual rate of 0.45% of the daily
net asset value of the Variable Account. The Company expects to generate a
profit through assessing this charge.
Administration Charge
The Company also assesses an Administration Charge equal on an annual
basis to 0.20% of the daily net asset value of the Variable Account. The
deduction of the Administration Charge is made from each Sub-Account in the same
proportion that the value in that Sub-Account bears to the total Contract Value.
The Administrative Charge is designed only to reimburse the Company for
administrative expenses and the Company will monitor these charges to ensure
that they do not exceed annual administration expenses.
18
20 of 112
<PAGE> 21
Premium Taxes
The Company will charge against the Contract Value the amount of any
premium taxes levied by a state or any other governmental entity upon Purchase
Payments received by the Company. Premium taxes currently imposed by certain
jurisdictions range from 0% to 3.5%. This range is subject to change. The method
used to recoup premium tax expense will be determined by the Company at its sole
discretion and in compliance with applicable state law. The Company currently
deducts such charges from a Contract Owner's Contract Value either: (1) at the
time the Contract is surrendered, (2) at Annuitization, or (3) at such earlier
date as the Company may become subject to such taxes.
OPERATION OF THE CONTRACT
Investments of the Variable Account
The Contract Owner elects to have Purchase Payments attributable to his
or her participation in the Variable Account allocated among one or more of the
Sub-Accounts which consist of shares in the underlying Mutual Fund options.
Shares of the respective underlying Mutual Fund options specified by the
Contract Owner are purchased at net asset value for the respective
Sub-Account(s) and converted into Accumulation Units. The Contract Owner may
change the election as to allocation of Purchase Payments or may elect to
exchange amounts among the Sub-Account options pursuant to such terms and
conditions applicable to such transactions as may be imposed by each of the
underlying Mutual Funds, in addition to those set forth in the Contracts.
Allocation Of Purchase Payments and Contract Value
Purchase Payments are allocated to one or more Sub-Accounts within the
Variable Account in accordance with the designation of the underlying Mutual
Funds by the Contract Owner and converted into Accumulation Units.
The initial first year Purchase Payment must be at least $15,000 and
additional payments, if any, must be at least $1,000. The Contract Owner may
increase or decrease Purchase Payments or change the frequency of payment. The
Contract Owner is not obligated to continue Purchase Payments in the amount or
at the frequency elected. There are no penalties for failure to continue
Purchase Payments. The cumulative total of all Purchase Payments under Contracts
issued on the life of any one Designated Annuitant may not exceed $1,000,000
without prior consent of the Company.
THE PURCHASER IS CAUTIONED THAT INVESTMENT RETURN ON SMALL INITIAL AND
SUBSEQUENT PURCHASE PAYMENTS MAY BE LESS THAN CHARGES ASSESSED BY THE COMPANY.
The initial Purchase Payment allocated to designated Sub-Accounts of the
Variable Account will be priced no later than 2 business days after receipt of
an order to purchase if the application and all information necessary for
processing the purchase order are complete. The Company may, however, retain the
Purchase Payment for up to 5 business days while attempting to complete an
incomplete application. If the application cannot be made complete within 5
days, the prospective purchaser will be informed of the reasons for the delay
and the Purchase Payment will be returned immediately unless the prospective
purchaser specifically consents to the Company retaining the Purchase Payment
until the application is complete. Thereafter, subsequent Purchase Payments will
be priced on the basis of the Accumulation Value next computed for the
appropriate Sub-Account after the additional Purchase Payment is received.
Purchase Payments will not be priced on the following nationally
recognized holidays: New Year's Day, Presidents Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas.
Value of an Accumulation Unit
The value of an Accumulation Unit for each Sub-Account was arbitrarily
set initially at $10 when underlying Mutual Fund shares in that Sub-Account were
available for purchase. The value for any subsequent Valuation Period is
determined by multiplying the Accumulation Unit value for each Sub-Account for
the immediately preceding Valuation Period by the Net Investment Factor for the
Sub-Account during the subsequent Valuation Period. The value of an Accumulation
Unit may increase or decrease from Valuation Period to Valuation Period. The
number of Accumulation Units will not change as a result of investment
experience.
19
21 of 112
<PAGE> 22
Net Investment Factor
The Net Investment Factor for any Valuation Period is determined by
dividing (a) by (b) and subtracting (c) from the result where:
(a) is the net of:
(1) the net asset value per share of the underlying Mutual Fund
held in the Sub-Account determined at the end of the
current Valuation Period, plus
(2) the per share amount of any dividend or capital gain
Distributions made by the underlying Mutual Fund held in
the Sub-Account if the "ex-dividend" date occurs during the
current Valuation Period.
(b) is the net of:
(1) the net asset value per share of the underlying Mutual Fund
held in the Sub-Account determined at the end of the
immediately preceding Valuation Period, plus or minus
(2) the per share charge or credit, if any, for any taxes
reserved for in the immediately preceding Valuation Period
(see "Charge For Tax Provisions").
(c) is a factor representing the daily Mortality Risk Charge, Expense
Risk Charge and Administration Charge deducted from the Variable
Account. Such factor is equal to an annual rate of 1.45% of the
daily net asset value of the Variable Account.
For underlying Mutual Fund options that credit dividends on a daily basis
and pay such dividends once a month (the Nationwide Separate Account Trust -
Money Market Fund), the Net Investment Factor allows for the monthly
reinvestment of these daily dividends.
The Net Investment Factor may be greater or less than one; therefore, the
value of an Accumulation Unit may increase or decrease. It should be noted that
changes in the Net Investment Factor may not be directly proportional to changes
in the net asset value of underlying Mutual Fund shares, because of the
deduction for Mortality Risk Charge, Expense Risk Charge, and Administration
Charge, and any charge or credit for tax reserves.
Valuation of Assets
Underlying Mutual Fund shares in the Variable Account will be valued at
their net asset value.
Determining the Contract Value
The sum of the value of all Accumulation Units is the Contract Value. The
number of Accumulation Units credited per each Sub-Account are determined by
dividing the net amount allocated to the Sub-Account by the Accumulation Unit
Value for the Sub-Account for the Valuation Period during which the Purchase
Payment is received by the Company. In the event part or all of the Contract
Value is surrendered or charges or deductions are made against the Contract
Value, an appropriate number of Accumulation Units will be deducted.
Right to Revoke
Unless otherwise required by state and/or federal law, the Contract Owner
may revoke the Contract 10 days after receipt of the Contract and receive a
refund of the Contract Value. All Individual Retirement Annuity refunds will be
return of Purchase Payments. In order to revoke the Contract, it must be mailed
or delivered to the Home Office of the Company at the mailing address shown on
page 1 of this prospectus. Mailing or delivery must occur on or before 10 days
after receipt of the Contract for revocation to be effective. In order to revoke
the Contract, if it has not been received, written notice must be mailed or
delivered to the Home Office of the Company at the mailing address shown on page
1 of this prospectus.
The liability of the Variable Account under this provision is limited to
the Contract Value in each Sub-Account on the date of revocation. Any additional
amounts refunded to the Contract Owner will be paid by the Company.
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Transfers
Transfers among the Sub-Accounts for the underlying Mutual Fund options
are permitted 12 times per year. The Contract Owner's value in each Sub-Account
will be determined as of the date the transfer request is received in good order
in the Home Office.
Transfers may be made either in writing or, in states allowing such
transfers, by telephone. This telephone exchange privilege is made available to
Contract Owners automatically without the Contract Owner's election. 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; or providing written confirmation thereof to both
the Contract Owner and any agent of record, at the last address of record; or
such 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 shall be borne by the Contract Owner.
Contracts described in this prospectus may in some cases be sold to
individuals who independently utilize the services of a firm or individual
engaged in market timing. Generally, such firms or individuals obtain
authorization from multiple Contract Owners to make transfers and exchanges
among the Sub-Accounts (the underlying Mutual Funds) on the basis of perceived
market trends. Because of the unusually large transfers of funds associated with
some of these transactions, the ability of the Company or underlying Mutual
Funds to process such transactions may be compromised, and the execution of such
transactions may possibly disadvantage or work to the detriment of other
Contract 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 Contract Owners. THE RIGHTS OF INDIVIDUAL
CONTRACT OWNERS TO EXCHANGE CONTRACT VALUES, WHEN INSTRUCTIONS ARE SUBMITTED
DIRECTLY BY THE CONTRACT OWNER, OR BY THE CONTRACT 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 or more
than one Contract Owner, or (2) the transfer or exchange instructions of
individual Contract 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 Contract 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 Contract
Owners.
Contract Ownership Provisions
Unless otherwise provided, the Contract Owner has all rights under the
Contract. IF THE PURCHASER NAMES SOMEONE OTHER THAN HIMSELF OR HERSELF AS OWNER,
THE PURCHASER WILL HAVE NO RIGHTS UNDER THE CONTRACT. Prior to the Annuitization
Date, the Contract Owner may name a new Contract Owner in Non-Qualified
Contracts. Such change may be subject to state and federal gift taxes and may
also result in federal income taxation. Any change of Contract Owner designation
will automatically revoke any prior Contract Owner designation. Once proper
notice of the change is received and recorded by the Company, the change will
become effective as of the date the written request is recorded. A change of
Owner will not apply and will not be effective with respect to any payment made
or action taken by the Company prior to the time that the change was received
and recorded by the Company.
Prior to the Annuitization Date, the Contract Owner may request a change
in the Annuitant, the Contingent Annuitant, Contingent Owner, Beneficiary, or
Contingent Beneficiary. Such a request must be made in writing on a form
acceptable to the Company and must be signed by both the Contract Owner and the
person to be named as Annuitant, Contingent Annuitant, or Contingent Owner, as
applicable. Such request must be received by the Company at its Home Office
prior to the Annuitization Date. Any such change is subject to underwriting and
approval by the Company. If the Contract Owner is not a natural person and there
is a change of the Annuitant, such change shall be treated as the death of a
Contract Owner and Distributions shall be made as if the Contract Owner died at
the time of such change.
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On the Annuitization Date, the Annuitant shall become the Contract Owner.
Joint Ownership Provisions
Where permitted by state law, joint owners must be spouses at the time
joint ownership is requested. If a Joint Owner is named, the Joint Owner will
possess an undivided interest in the Contract. Unless otherwise provided, the
exercise of any ownership right in the Contract (including the right to
surrender or partially surrender the Contract, to change the Contract Owner, the
Contingent Owner, the Annuitant, the Contingent Annuitant, the Beneficiary, the
Contingent Beneficiary, the Annuity Payment Option or the Annuitization Date)
shall require a written request signed by both Joint Owners. The Company will
not be liable for any loss, liability, cost, or expense for acting in accordance
with the instructions of either the Owner or Joint Owner.
Contingent Ownership Provisions
The Contingent Owner is the person who may receive certain benefits under
the Contract if the Contract Owner, who is not the Annuitant, dies prior to the
Annuitization Date and there is no surviving Joint Owner. If more than one
Contingent Owner survives the Contract Owner, each will share equally unless
otherwise specified in the Contingent Owner designation. If no Contingent Owner
survives a Contract Owner and there is no surviving Joint Owner, all rights and
interest of the Contingent Owner will vest in the Contract Owner's estate. If a
Contract Owner, who is also the Annuitant, dies before the Annuitization Date
and there is no surviving Joint Owner, then the Contingent Owner does not have
any rights in the Contract; however, if the Contingent Owner is also the
Beneficiary, the Contingent Owner will have all the rights of a beneficiary.
Subject to the terms of any existing assignment, the Contract Owner may
change the Contingent Owner prior to the Annuitization Date by written notice to
the Company. The change will take effect upon receipt and recording by the
Company at its Home Office, whether or not the Contract Owner is living at the
time of recording, but without further liability as to any payment or settlement
made by the Company before receipt of such change.
Beneficiary Provisions
The Beneficiary is the person or persons who may receive certain benefits
under the Contract in the event the Annuitant dies prior to the Annuitization
Date. If more than one Beneficiary survives the Annuitant, each will share
equally unless otherwise specified in the Beneficiary designation. If no
Beneficiary survives the Annuitant, all rights and interest of the Beneficiary
shall vest in the Contingent Beneficiary, and if more than one Contingent
Beneficiary survives, each will share equally unless otherwise specified in the
Contingent Beneficiary designation. If no Contingent Beneficiaries survive the
Annuitant, all rights and interest of the Contingent Beneficiary will vest with
the Contract Owner or the estate of the last surviving Contract Owner.
Subject to the terms of any existing assignment, the Contract Owner may
change the Beneficiary or Contingent Beneficiary during the lifetime of the
Annuitant, by written notice to the Company. The change will take effect upon
receipt and recording by the Company at its Home Office, whether or not the
Annuitant is living at the time of recording, but without further liability as
to any payment or settlement made by the Company before receipt of such change.
Surrender (Redemption)
While the Contract is in force and prior to the earlier of the
Annuitization Date or the death of the Designated Annuitant, the Company will,
upon proper written application by the Contract Owner deemed by the Company to
be in good order, allow the Contract Owner to surrender a portion or all of the
Contract Value. "Proper written application" means that the Contract Owner must
request the surrender in writing and include the Contract. In some cases (for
example, requests by a corporation, partnership, agent, fiduciary, or surviving
spouse), the Company will require additional documentation of a customary
nature. The Company may require that the signature(s) be guaranteed by a member
firm of a major stock exchange or other depository institution qualified to give
such a guaranty.
The Company will, upon receipt of any such written request, surrender a
number of Accumulation Units from the Variable Account to equal the gross dollar
amount requested. In the event of a partial surrender, the Company will, unless
instructed to the contrary, surrender Accumulation Units from all Sub-Accounts
in which the Contract Owner has an interest. The number of Accumulation Units
surrendered from each Sub-Account will be in the same proportion that the
Contract Owner's interest in the Sub-Accounts bears to the total Contract
Value.
The Company will pay any funds applied for from the Variable Account
within 7 days of receipt of such application in the Company's Home Office.
However, the Company reserves the right to suspend or postpone
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the date of any payment of any benefit or values for any Valuation Period (1)
when the New York Stock Exchange ("Exchange") is closed, (2) when trading on the
Exchange is restricted, (3) when an emergency exists as a result of which
disposal of securities held in the Variable Account is not reasonably
practicable or it is not reasonably practicable to determine the value of the
Variable Account's net assets, or (4) during any other period when the
Securities and Exchange Commission, by order, so permits for the protection of
security holders; provided that applicable rules and regulations of the
Securities and Exchange Commission shall govern as to whether the conditions
prescribed in (2) and (3) exist. The Contract Value on surrender may be more or
less than the total of Purchase Payments made by a Contract Owner, depending on
the market value of the underlying Mutual Fund shares.
Surrenders Under a Qualified Contract or Tax Sheltered Annuity Contract
Except as provided below, the Owner may Surrender part or all of the
Contract Value at any time this Contract is in force prior to the earlier of the
Annuitization Date or the death of the Annuitant:
A. The surrender of Contract Value attributable to contributions made
pursuant to a salary reduction agreement (within the meaning of
Code Section 402(g)(3)(A) or (C)), or transfers from a Custodial
Account described in Section 403(b)(7) of the Code, may be
executed only:
1. when the Contract Owner attains age 59 1/2, separates from
service, dies, or becomes disabled (within the meaning of
Code Section 72(m)(7)); or
2. in the case of hardship (as defined for purposes of Code
Section 401(k)), provided that any surrender of Contract
Value in the case of hardship may not include any income
attributable to salary reduction contributions.
B. The surrender limitations described in Section A. above also apply
to:
1. salary reduction contributions to Tax Sheltered Annuities
made for plan years beginning after December 31, 1988;
2. earnings credited to such contracts after the last plan
year beginning before January 1, 1989, on amounts
attributable to salary reduction contributions; and
3. all amounts transferred from 403(b)(7) Custodial Accounts
(except that earnings, and employer contributions as of
December 31, 1988 in such Custodial Accounts, may be
withdrawn in the case of hardship).
C. Any Distribution other than the above, including exercise of a
contractual ten-day free look provision (when available) may
result in the immediate application of taxes and penalties and/or
retroactive disqualification of a Qualified Contract or Tax
Sheltered Annuity.
A premature Distribution may not be eligible for rollover treatment. To
assist in preventing disqualification of a Tax Sheltered Annuity in the event of
a ten-day free look, the Company will agree to transfer the proceeds to another
contract which meets the requirements of Section 403(b) of the Code, upon proper
direction by the Contract Owner. The foregoing is the Company's understanding of
the withdrawal restrictions which are currently applicable under Code Section
401(k)(2)(B), Code Section 403(b)(11) and Revenue Ruling 90-24. Such
restrictions are subject to legislative change and/or reinterpretation from time
to time. Distributions pursuant to Qualified Domestic Relations Orders will not
be considered to be a violation of the restrictions stated in this provision.
The Contract surrender provisions may also be modified pursuant to the
plan terms and Code tax provisions when the Contract is issued to fund a
Qualified Plan.
Loan Privilege
Prior to the Annuitization Date, the Owner of a Qualified Contract or Tax
Sheltered Annuity Contract may receive a loan from the Contract Value subject to
the terms of the Contract, the Plan, and the Code, which may impose
restrictions on loans.
Loans from Qualified Contracts or Tax Sheltered Annuities are available
beginning 30 days after the Date of Issue. The Contract Owner may borrow a
minimum of $1,000. In non-ERISA plans, for Contract Values up to $20,000, the
maximum loan balance which may be outstanding at any time is 80% of the Contract
Value, but not more than $10,000. If the Contract Value is $20,000 or more, the
maximum loan balance which may be outstanding at any time is 50% of the Contract
Value, but not more than $50,000. For ERISA plans, the
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maximum loan balance which may be outstanding at any time is 50% of the Contract
Value, but not more than $50,000. The $50,000 limit will be reduced by the
highest loan balances owed during the prior one-year period. Additional loans
are subject to the Contract minimum amount. The aggregate of all loans may not
exceed the Contract Value limitations stated in this provision.
For salary reduction Tax Sheltered Annuities, loans may only be secured
by the Contract Value. For loans from Qualified Contracts and other Tax
Sheltered Annuities, the Company reserves the right to limit a loan to 50% of
the Contract Value subject to the acceptance by the Contract Owner of the
Company's loan agreement. Where permitted, the Company may require other named
collateral where the loan from a Contract exceeds 50% of the Contract Value.
All loans are made from a collateral fixed account. An amount equal to
the principal amount of the loan will be transferred to the collateral fixed
account. The Company will transfer to the collateral fixed account the Variable
Account units from the Contract Owner's investment options in proportion to the
assets in each option until the required balance is reached or all such
variable units are exhausted. No withdrawal charges are deducted at the time of
the loan, or on the transfer from the Variable Account to the collateral fixed
account.
Until the loan has been repaid in full, that portion of the collateral
fixed account equal to the outstanding loan balance shall be credited with
interest at a rate 2.25% less than the loan interest rate fixed by the Company
for the term of the loan. However, the interest rate credited to the collateral
fixed account will never be less than 3.0%. Specific loan terms are disclosed at
the time of loan application or loan issuance.
Loans must be repaid in substantially level payments, not less frequently
than quarterly, within five years. Loans used to purchase the principal
residence of the Contract Owner must be repaid within 15 years. During the loan
term, the outstanding balance of the loan will continue to earn interest at an
annual rate as specified in the loan agreement. Loan repayments will consist of
principal and interest in amounts set forth in the loan agreement. Loan
repayments will be allocated to the sub-accounts in the same manner as a
Purchase Payment. Both loan repayments and Purchase Payments will be allocated
to the Contract in accordance with the most current allocation, unless the
Contract Owner and the Company agree otherwise on a case by case basis.
If the Contract is surrendered while the loan is outstanding, the
surrender value will be reduced by the amount of the loan outstanding plus
accrued interest. If the Contract Owner/Annuitant dies while the loan is
outstanding, the Death Benefit will be reduced by the amount of the loan
outstanding plus accrued interest. If a Contract Owner who is not the Annuitant
dies prior to Annuitization and while the loan is outstanding, the Distribution
will be reduced by the amount of the loan outstanding plus accrued interest. If
annuity payments start while the loan is outstanding, the Contract Value will
be reduced by the amount of the outstanding loan plus accrued interest. Until
the loan is repaid, the Company reserves the right to restrict any transfer of
the Contract which would otherwise qualify as a transfer as permitted in the
Code.
If a loan payment is not made when due, interest will continue to accrue.
A grace period may be available under the terms of the loan agreement. If a loan
payment is not made when due, or by the end of the applicable grace period, the
entire loan will be treated as a deemed Distribution, may be taxable to the
borrower, and may be subject to the early withdrawal tax penalty. Interest
which subsequently accrues on defaulted amounts may also be treated as
additional deemed Distributions each year. Any defaulted amounts, plus accrued
interest, will be deducted from the Contract when the Participant becomes
eligible for a Distribution of at least that amount, and this amount may again
be treated as a Distribution where required by law. Additional loans may not be
available while a previous loan remains in default.
Loans may also be subject to additional limitations or restrictions under
the terms of the employer's plan. Loans permitted under this Contract may still
be taxable in whole or part if the Participant has additional loans from other
plans or contracts. The Company will calculate the maximum nontaxable loan based
on the information provided by the Participant or the employer.
Loan repayments must be identified as such or else they will be treated
as Purchase Payments, and will not be used to reduce the outstanding loan
principal or interest due. The Company reserves the right to modify the loan's
term or procedures if there is a change in applicable law. The Company also
reserves the right to assess a loan processing fee.
Individual Retirement Annuities, SEP IRAs and Non-Qualified Contracts are
not eligible for loans.
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Assignment
Where permitted, the Contract Owner may assign some or all rights under
the Contract at any time during the lifetime of the Annuitant prior to the
Annuitization Date. Such assignment will take effect upon receipt and recording
by the Company at its Home Office of a written notice executed by the Contract
Owner. The Company is not responsible for the validity or tax consequences of
any assignment. The Company shall not be liable as to any payment or other
settlement made by the Company before recording of the assignment. Where
necessary for the proper administration of the terms of the Contract, an
assignment will not be recorded until the Company has received sufficient
direction from the Contract Owner and assignee as to the proper allocation of
Contract rights under the assignment.
If this Contract is a Non-Qualified Contract, any portion of the Contract
Value, which is pledged or assigned, shall be treated as a Distribution and
shall be included in gross income to the extent that the cash value exceeds the
investment in the Contract for the taxable year in which it was pledged or
assigned. In addition, any Contract Values assigned may, under certain
conditions, be subject to a tax penalty equal to 10% of the amount which is
included in gross income. All rights in this Contract are personal to the
Contract Owner and may not be assigned without written consent of the Company.
Assignment of the entire Contract Value may cause the portion of the Contract
Value exceeding the total investment in the Contract and previously taxed
amounts to be included in gross income for federal income tax purposes each year
that the assignment is in effect. Individual Retirement Annuities, SEP IRAs, Tax
Sheltered Annuities, and Qualified Contracts, may not be assigned, pledged or
otherwise transferred except under such conditions as may be allowed by law.
Contract Owner Services
Asset Rebalancing- The Contract Owner may direct the automatic
reallocation of Contract Values to the underlying Mutual Fund options on a
predetermined percentage basis every three months or based on another frequency
as authorized by the Company. If the last day of the three month period falls on
a Saturday, Sunday, recognized holiday or any other day when the New York Stock
Exchange is closed, the Asset Rebalancing exchange will occur on the first
business day after that day. An Asset Rebalancing request must be in writing on
a form provided by the Company. The Contract Owner may want to contact a
financial adviser in order to discuss the use of Asset Rebalancing in his or her
Contract.
Contracts issued to a Qualified Plan or a Tax Sheltered Annuity Plan as
defined by the Code may have superseding plan restrictions with regard to the
frequency of fund exchanges and underlying Mutual Fund options.
The Company reserves the right to discontinue offering Asset Rebalancing
upon 30 days' written notice; such discontinuation will not affect Asset
Rebalancing programs which have already commenced. The Company also reserves the
right to assess a processing fee for this service.
Dollar Cost Averaging- The Contract Owner may direct the Company to
automatically transfer a specified amount from the Money Market Fund Sub-Account
or Limited Maturity Bond Portfolio Sub-Account to any other Sub-Account within
the Variable Account on a monthly basis or as frequently as otherwise authorized
by the Company. This service is intended to allow the Contract Owner to utilize
Dollar Cost Averaging, a long-term investment program which provides for
regular, level investments over time. The Company makes no guarantees that
Dollar Cost Averaging will result in a profit or protect against loss in a
declining market. The minimum monthly Dollar Cost Averaging transfer is $100. A
written election of this service, on a form provided by the Company, must be
completed by the Contract Owner in order to begin transfers. Once elected,
transfers from the Money Market Fund Sub-Account or Limited Maturity Bond
Portfolio Sub-Account will be processed monthly or on another approved frequency
until either the value in the Money Market Fund Sub-Account or Limited Maturity
Bond Portfolio Sub-Account is completely depleted or the Contract Owner
instructs the Company in writing to cancel the transfers.
The Company reserves the right to discontinue offering Dollar Cost
Averaging upon 30 days' written notice; such discontinuation will not affect
Dollar Cost Averaging programs which have already commenced. The Company also
reserves the right to assess a processing fee for this service.
Systematic Withdrawals- A Contract Owner may elect in writing on a form
provided by the Company to take Systematic Withdrawals of a specified dollar
amount (of at least $100) on a monthly, quarterly, semi-annual, or annual basis.
The Company will process the withdrawals as directed by surrendering on a
pro-rata basis Accumulation Units from all Sub-Accounts in which the Contract
Owner has an interest. Each Systematic Withdrawal is subject to federal income
taxes on the taxable portion. Unless directed by the Contract Owner,
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the Company will withhold federal income taxes from each Systematic Withdrawal.
In addition, the Internal Revenue Service may assess a 10% federal penalty tax
on Systematic Withdrawals if the Contract Owner is under age 59 1/2. Unless the
Contract Owner has made an irrevocable election of distributions of
substantially equal payments, the Systematic Withdrawals may be discontinued
at any time by notifying the Company in writing
The Company reserves the right to discontinue offering Systematic
Withdrawals upon 30 days' written notice; such discontinuation will not affect
any Systematic Withdrawal programs already commenced. The Company also reserves
the right to assess a processing fee for this service. Systematic withdrawals
are not available prior to the expiration of the ten day free look provision of
the Contract or of applicable state/federal law.
ANNUITY PAYMENT PERIOD, DEATH BENEFIT AND OTHER DISTRIBUTIONS
Annuity Commencement Date
An Annuity Commencement Date will be selected. Such date must be the
first day of a calendar month or any other agreed upon date and must be at least
2 years after the Date of Issue. In the event the Contract is issued subject to
the terms of a Qualified Plan or Tax Sheltered Annuity Plan, Annuitization may
occur during the first 2 years subject to approval by the Company.
Change in Annuity Commencement Date
If the Contract Owner requests in writing, and the Company approves the
request, the Annuity Commencement Date may be changed. The new date must comply
with the Annuity Commencement Date provisions above.
Annuity Payment Period-Variable Account
At the Annuitization Date, the Contract Value is applied to the Annuity
Payment Option elected and the amount of the first such payment shall be
determined in accordance with the Annuity Table in the Contract.
Subsequent Variable Annuity payments vary in amount in accordance with
the investment performance of the Variable Account. The dollar amount of the
first annuity payment determined as above is divided by the value of an Annuity
Unit as of the Annuitization Date to establish the number of Annuity Units
representing each monthly annuity payment. This number of Annuity Units remains
fixed during the annuity payment period. The dollar amount of the second and
subsequent payments is not predetermined and may change from month to month. The
dollar amount of each subsequent payment is determined by multiplying the fixed
number of Annuity Units by the Annuity Unit Value for the Valuation Period in
which the payment is due. The Company guarantees that the dollar amount of each
payment after the first will not be affected by variations in mortality
experience from mortality assumptions used to determine the first payment.
Value of an Annuity Unit
The value of an Annuity Unit was arbitrarily set initially at $10 when
the first underlying Mutual Fund shares were purchased. The value of an Annuity
Unit for a Sub-Account for any subsequent Valuation Period is determined by
multiplying the Annuity Unit Value for the immediately preceding Valuation
Period by the Net Investment Factor for the Valuation Period for which the
Annuity Unit Value is being calculated, and multiplying the result by an
interest factor to neutralize the assumed investment rate of 3.5% per annum
built into the Annuity Tables contained in the Contracts (see "Net Investment
Factor").
Assumed Investment Rate
A 3.5% assumed investment rate is built into the Annuity Tables contained
in the Contracts. A higher assumption would mean a higher initial payment but
more slowly rising or more rapidly falling subsequent payments. A lower
assumption would have the opposite effect. If the actual investment rate is at
the annual rate of 3.5%, the annuity payments will be level.
Frequency and Amount of Annuity Payments
Annuity payments will be paid as monthly installments. However, if the
net amount available to apply under any Annuity Payment Option is less than
$5,000, the Company shall have the right to pay such amount in one lump sum in
lieu of the payments otherwise provided for. In addition, if the payments
provided for would be or become less than $50, the Company shall have the right
to change the frequency of payments to such
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intervals as will result in payments of at least $50. In no event will the
Company make payments under an annuity option less frequently than annually.
Change in Form of Annuity
The Contract Owner may, upon prior written notice to the Company, at any
time prior to the Annuitization Date, elect one of the Annuity Payment Options.
Annuity Payment Options
Any of the following Annuity Payment Options may be elected:
Option 1-Life Annuity-An annuity payable periodically, but at least
annually, during the lifetime of the Annuitant, ceasing with the last
payment due prior to the death of the Annuitant. IT WOULD BE POSSIBLE
UNDER THIS OPTION FOR THE ANNUITANT TO RECEIVE ONLY ONE ANNUITY PAYMENT
IF HE OR SHE DIED BEFORE THE SECOND ANNUITY PAYMENT DATE, TWO ANNUITY
PAYMENTS IF HE OR SHE DIED BEFORE THE THIRD ANNUITY PAYMENT DATE, AND SO
ON.
Option 2-Joint and Last Survivor Annuity-An annuity payable periodically,
but at least annually, during the joint lifetimes of the Annuitant and
designated second person and continuing thereafter during the lifetime of
the survivor. AS IS THE CASE UNDER OPTION 1 ABOVE, THERE IS NO MINIMUM
NUMBER OF PAYMENTS GUARANTEED UNDER THIS OPTION. PAYMENTS CEASE UPON THE
DEATH OF THE LAST SURVIVING ANNUITANT REGARDLESS OF THE NUMBER OF
PAYMENTS RECEIVED.
Option 3-Life Annuity With 120 or 240 Monthly Payments Guaranteed-An
annuity payable monthly during the lifetime of the Annuitant with the
guarantee that if at the death of the Annuitant payments have been made
for fewer than 120 or 240 months, as selected, payments will be made as
follows:
(1) If the Annuitant is the payee, any guaranteed annuity payments
will be continued during the remainder of the selected period to
such recipient as chosen by the Annuitant at a time the Annuity
Payment Option was selected. In the alternative, the recipient
may, at any time, elect to have the present value of the
guaranteed number of annuity payments remaining paid in a lump sum
as specified in section (2) below.
(2) If someone other than the Annuitant is the payee, the present
value, computed as of the date on which notice of death is
received by the Company at its Home Office, of the guaranteed
number of annuity payments remaining after receipt of such notice
and to which the deceased would have been entitled had he or she
not died, computed at the Assumed Investment Rate effective in
determining the Annuity Tables, shall be paid in a lump sum.
Some of the stated Annuity Options may not be available in all states.
The Owner may request an alternative non-guaranteed option by giving notice in
writing prior to Annuitization. If such a request is approved by the Company, it
will be permitted under the Contract.
If the Contract Owner of a Non-Qualified Contract fails to elect an
Annuity Payment Option, no distribution will be made until an effective Annuity
Payment Option has been elected. Qualified Plan Contracts, Individual Retirement
Annuities, SEP IRAs, or Tax Sheltered Annuities are subject to the minimum
Distribution requirements set forth in the Plan, Contract, or Code.
Death of Contract Owner Provisions - Non-Qualified Contracts
For Non-Qualified Contracts, if the Contract Owner and the Annuitant are
not the same person and such Contract Owner dies prior to the Annuitization
Date, then the Joint Owner, if any, becomes the new Contract Owner. If there is
no surviving Joint Owner, the Contingent Owner becomes the new Contract Owner.
If there is no surviving Contingent Owner, the last surviving Contract Owner's
estate becomes the Contract Owner. The entire interest in the Contract Value,
less any applicable deductions (which may include a Contingent Deferred Sales
Charge), must be distributed in accordance with the "Required Distribution
Provisions- Non-Qualified Contracts" provisions.
Death of the Annuitant Provisions - Non-Qualified Contracts
If the Contract Owner and Annuitant are not the same person, and the
Annuitant dies prior to the Annuitization Date, a Death Benefit will be payable
to the Beneficiary, the Contingent Beneficiary, the Contract Owner, or the last
surviving Contract Owner's estate, as specified in the "Beneficiary Provisions",
unless there is a surviving Contingent Annuitant. In such case, the Contingent
Annuitant becomes the Annuitant and no Death Benefit is payable.
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The Beneficiary may elect to receive such Death Benefits in the form of:
(1) a lump sum distribution; (2) election of an annuity payout; or (3) any
distribution that is permitted under state and federal regulations and is
acceptable by the Company. Such election must be received by the Company within
60 days of the Annuitant's death.
If the Annuitant dies after the Annuitization Date, any benefit that may
be payable shall be paid according to the selected Annuity Payment Option.
Death of the Contract Owner/Annuitant Provisions
If any Contract Owner and Annuitant are the same person, and such person
dies before the Annuitization Date, a Death Benefit will be payable to the
Beneficiary, the Contingent Beneficiary, the Contract Owner, or the last
surviving Contract Owner's estate, as specified in the Beneficiary Provisions
and in accordance with the appropriate "Required Distributions Provisions."
If the Annuitant dies after the Annuitization Date, any benefit that may
be payable shall be paid according to the selected Annuity Payment Option.
Death Benefit Payment Provisions
The value of the Death Benefit will be determined as of the Valuation
Date coincident with or next following the date the Company receives in writing
at the Home Office the following three items: (1) proper proof of the
Annuitant's death; (2) an election specifying the distribution method; and (3)
any applicable state required form(s).
If the Annuitant dies prior to his 86th birthday the dollar amount of the
death benefit will be the greater of: (1) the Contract Value; or, (2) the sum of
all purchase payments, less any amounts surrendered, or (3) the Contract Value
as of the most recent five-year Contract Anniversary, less any amounts
surrendered since the most recent five-year Contract Anniversary.
If the Contract Owner has (1) requested an Annuity Commencement Date
later than the first day of the calendar month after the Annuitant's 86th
birthday; (2) the Company has approved the request; and (3) the Annuitant dies
on or after his or her 86th birthday; the dollar amount of the death benefit
will be equal to the Contract Value.
If the Annuitant dies after the Annuitization Date, any payment that may
be payable will be determined according to the selected Annuity Payment Option.
Required Distribution Provisions For Non-Qualified Contracts
Upon the death of any Contract Owner or Joint Owner (including an
Annuitant who becomes the Owner of the Contract on the Annuitization Date) (each
of the foregoing "a deceased Owner"), certain distributions for Non-Qualified
Contracts, are required by Section 72(s) of the Code. Notwithstanding any
provision of the Contract to the contrary, the following distributions shall be
made in accordance with such requirements:
1. If any deceased Owner dies on or after the Annuitization Date and
before the entire interest under the Contract has been
distributed, then the remaining portion of such interest shall be
distributed at least as rapidly as under the method of
distribution in effect as of the date of such deceased Owner's
death.
2. If any deceased Owner dies prior to the Annuitization Date, then
the entire interest in the Contract (consisting of either the
Death Benefit or the Contract Value reduced by certain charges as
set forth elsewhere in the Contract) shall be distributed within 5
years of the death of the deceased Owner, provided however:
(a) If any portion of such interest is payable to or for the
benefit of a natural person who is a surviving Contract
Owner, Contingent Owner, Joint Owner, Annuitant, Contingent
Annuitant, Beneficiary, or Contingent Beneficiary as the
case may be (each a "designated beneficiary"), such portion
may, at the election of the designated beneficiary, be
distributed over the life of such designated beneficiary,
or over a period not extending beyond the life expectancy
of such designated beneficiary, provided that payments
begin within one year of the date of the deceased Owner's
death (or such longer period as may be permitted by federal
income tax regulations), and
(b) If the designated beneficiary is the surviving spouse of
the deceased Owner, such spouse may elect to become the
Owner of this Contract, in lieu of a Death Benefit, and the
distributions required under these distribution rules will
be made upon the death of such spouse.
In the event that this Contract is owned by a person that is not a
natural person (e.g., a trust or corporation), then, for purposes of these
distribution provisions, (i) the death of the Annuitant shall be treated as the
death of any
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Owner, (ii) any change of the Annuitant shall be treated as the death of any
Owner, and (iii) in either case the appropriate distribution required under
these distribution rules shall be made upon such death or change, as the case
may be. The Annuitant is the primary annuitant as defined in Section 72(s)(6)(B)
of the Code.
These distribution provisions shall not be applicable to any Contract
that is not required to be subject to the provisions of 72(s) of the Code by
reason of Section 72(s)(5) or any other law or rule (including Tax Sheltered
Annuities, Individual Retirement Annuities, Qualified Plans and SEP IRAs).
Upon the death of a "deceased Owner", the designated beneficiary must
elect a method of distribution which complies with these above distribution
provisions and which is acceptable to the Company. Such election must be
received by the Company within 60 days of the deceased Owner's death.
Required Distributions for Qualified Plans or Tax Sheltered Annuities
The entire interest of an Annuitant under a Qualified Contract or Tax
Sheltered Annuity Contract will be distributed in a manner consistent with the
Minimum Distribution and Incidental Benefit (MDIB) provisions of Section
401(a)(9) of the Code and applicable regulations and will be paid,
notwithstanding anything else contained herein, to the Annuitant under the
Annuity Payments Option selected, over a period not exceeding:
A. the life of the Annuitant or the lives of the Annuitant and the
Annuitant's designated beneficiary under the selected Annuity
Payment Option; or
B. a period not extending beyond the life expectancy of the Annuitant
or the life expectancy of the Annuitant and the Annuitant's
designated beneficiary under the selected annuity Payment Option.
For Tax Sheltered Annuity Contracts, no Distributions will be required
from this Contract if Distributions otherwise required from this Contract are
being withdrawn from another Tax Sheltered Annuity Contract of the Annuitant.
If the Annuitant's entire interest in a Qualified Plan or Tax Sheltered
Annuity is to be distributed in equal or substantially equal payments over a
period described in (A) or (B), above, such payments will commence no later than
(i) the first day of April following the calendar year in which the Annuitant
attains age 70 1/2 or (ii) when the Annuitant retires, whichever is later (the
"required beginning date"). However, provision (ii) does not apply to any
employee who is a 5% Owner (as defined in Section 416 of the Code) with respect
to the plan year ending in the calendar year in which the employee attains the
age of 70 1/2.
If the Annuitant dies prior to the commencement of his or her
Distribution, the interest in the Qualified Contract or Tax Sheltered Annuity
must be distributed by December 31 of the calendar year in which the fifth
anniversary of his or her death occurs unless:
(a) the Annuitant names his or her surviving spouse as the Beneficiary
and such spouse elects to receive Distribution of the account in
substantially equal payments over his or her life (or a period not
exceeding his or her life expectancy) and commencing not later
than December 31 of the year in which the Annuitant would have
attained age 70 1/2; or
(b) the Annuitant names a Beneficiary other than his or her surviving
spouse and such Beneficiary elects to receive a Distribution of
the account in substantially equal payments over his or her life
(or a period not exceeding his or her life expectancy) commencing
not later than December 31 of the year following the year in which
the Annuitant dies.
If the Annuitant dies after Distribution has commenced, Distribution must
continue at least as rapidly as under the schedule being used prior to his or
her death.
Payments commencing on the required beginning date will not be less than
the lesser of the quotient obtained by dividing the entire interest of the
Annuitant by the life expectancy of the Annuitant, or the joint and last
survivor expectancy of the Annuitant and the Annuitant's designated beneficiary
(if the Annuitant dies prior to the required beginning date) or the beneficiary
under the selected Annuity Payment Option (if the Annuitant dies after the
required beginning date) whichever is applicable under the applicable minimum
distribution or MDIB provisions. Life expectancy and joint and last survivor
expectancy are computed by the use of return multiples contained in Section
1.72-9 of the Treasury Regulations.
If the amounts distributed to the Annuitant are less than those mentioned
above, penalty tax of 50% is levied on the excess of the amount that should have
been distributed for that year over the amount that actually was distributed for
that year.
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Required Distributions for Individual Retirement Annuities and SEP IRAs
Distribution from an Individual Retirement Annuity must begin not later
than April 1 of the calendar year following the calendar year in which the Owner
attains age 70 1/2. Distribution may be accepted in a lump sum or in
substantially equal payments over: (a) the Owner's life or the lives of the
Owner and his or her spouse or designated beneficiary, or (b) a period not
extending beyond the life expectancy of the Owner or the joint life expectancy
of the Owner and the Owner's designated beneficiary.
If the Owner dies prior to the commencement of his or her Distribution,
the interest in the Individual Retirement Annuity must be distributed by
December 31 of the calendar year in which the fifth anniversary of his or her
death occurs, unless:
(a) The Owner names his or her surviving spouse as the Beneficiary and
such spouse elects to:
(i) treat the annuity as an Individual Retirement Annuity
established for his or her benefit; or
(ii) receive Distribution of the account in nearly equal
payments over his or her life (or a period not exceeding
his or her life expectancy) and commencing not later than
December 31 of the year in which the Owner would have
attained age 70 1/2; or
(b) The Owner names a Beneficiary other than his or her surviving
spouse and such Beneficiary elects to receive a Distribution of
the account in nearly equal payments over his or her life (or a
period not exceeding his or her life expectancy) commencing not
later than December 31 of the year following the year in which the
Owner dies.
No Distribution will be required from this Contract if Distributions
otherwise required from this Contract are being withdrawn from another
Individual Retirement Annuity or Individual Annuity Account of the Contract
Owner.
If the Owner dies after Distribution has commenced, Distribution must
continue at least as rapidly as under the schedule being used prior to his or
her death, except that a surviving spouse who is the beneficiary under the
Annuity Payment Option, may treat the Contract as his or her own, in the same
manner as is described in section (a)(i) of this provision.
If the amounts distributed to the Contract Owner are less than those
mentioned above, penalty tax of 50% is levied on the excess of the amount that
should have been distributed for that year over the amount that actually was
distributed for that year.
A pro-rata portion of all Distributions will be included in the gross
income of the person receiving the Distribution and taxed at ordinary income tax
rates. The portion of the Distribution which is taxable is based on the ratio
between the amount by which non-deductible Purchase Payments exceed prior
non-taxable Distributions and total account balances at the time of the
Distribution. The Owner of an Individual Retirement Annuity must annually report
the amount of non-deductible Purchase Payments, the amount of any Distribution,
the amount by which non-deductible Purchase Payments for all years exceed
non-taxable Distributions for all years, and the total balance of all Individual
Retirement Annuities.
Individual Retirement Annuity Distributions will not receive the benefit
of the tax treatment of a lump sum Distribution from a Qualified Plan. If the
Owner dies prior to the time Distribution of his or her interest in the annuity
is completed, the balance will also be included in his or her gross estate.
Simplified Employee Pensions (SEPs) and Salary Reduction Simplified
Employee Pensions (SAR SEPs), described in Section 408(k) of the Code, are taxed
in a manner similar to IRAs, and are subject to similar distribution
requirements as IRAs. SAR SEPs cannot be established after 1996.
Generation-Skipping Transfers
The Company may determine whether the Death Benefit or any other payment
constitutes a direct skip as defined in Section 2612 of the Code, and the amount
of the tax on the generation-skipping transfer resulting from such direct skip.
If applicable, such payment will be reduced by any tax the Company is required
to pay by Section 2603 of the Code.
A direct skip may occur when property is transferred to or a Death
Benefit is paid to an individual two or more generations younger than the
Contract Owner.
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FEDERAL TAX CONSIDERATIONS
Federal Income Taxes
The Company does not make any guarantee regarding the tax status for any
Contract or any transaction involving the Contracts. Contract Owners should
consult a financial consultant, legal counsel or tax advisor to discuss in
detail the taxation and the use of the Contracts.
Section 72 of the Code governs federal income taxation of annuities in
general. That section sets forth different rules for: (1) Qualified Contracts;
(2) Individual Retirement Annuities, including SEP IRAs; (3) Tax Sheltered
Annuities; and (4) Non-Qualified Contracts. Each type of annuity is discussed
below.
Distributions to participants from Qualified Contracts or Tax Sheltered
Annuities are generally taxed when received. A portion of each Distribution is
excludable from income based on the ratio between the after tax investment of
the Owner/Annuitant in the Contract and the value of the Contract at the time of
the withdrawal or Annuitization.
Distributions from Individual Retirement Annuities and Contracts owned by
Individual Retirement Accounts are generally taxed when received. The portion of
each such payment which is excludable is based on the ratio between the amount
by which nondeductible Purchase Payments to all such Contracts exceeds prior
non-taxable Distributions from such Contracts, and the total account balances in
such Contracts at the time of the Distribution. The Owner of such Individual
Retirement Annuities or the Annuitant under Contracts held by Individual
Retirement Accounts must annually report to the Internal Revenue Service the
amount of nondeductible Purchase Payments, the amount of any Distribution, the
amount by which nondeductible Purchase Payments for all years exceed non-taxable
Distributions for all years, and the total balance in all Individual Retirement
Annuities and Accounts.
A change of the Annuitant or Contingent Annuitant may be treated by the
Internal Revenue Service as a taxable transaction.
Non-Qualified Contracts - Natural Persons as Owners
The rules applicable to Non-Qualified Contracts provide that a portion of
each annuity payment received is excludable from taxable income based on the
ratio between the Contract Owner's investment in the Contract and the expected
return on the Contract until the investment has been recovered; thereafter the
entire amount is includable in income. The maximum amount excludable from income
is the investment in the Contract. If the Annuitant dies prior to excluding from
income the entire investment in the Contract, the Annuitant's final tax return
may reflect a deduction for the balance of the investment in the Contract.
Distributions made from the Contract prior to the Annuitization Date are
taxable to the Contract Owner to the extent that the cash value of the Contract
exceeds the Contract Owner's investment at the time of the Distribution.
Distributions, for this purpose, include partial surrenders, dividends, loans,
or any portion of the Contract which is assigned or pledged; or for Contracts
issued after April 22, 1987, any portion of the Contract transferred by gift.
For these purposes, a transfer by gift may occur upon Annuitization if the
Contract Owner and the Annuitant are not the same individual. In determining the
taxable amount of a Distribution, all annuity contracts issued after October 21,
1988, by the same company to the same contract owner during any 12 month period,
will be treated as one annuity contract. Additional limitations on the use of
multiple contracts may be imposed by Treasury Regulations. Distributions prior
to the Annuitization Date with respect to that portion of the Contract invested
prior to August 14, 1982, are treated first as a recovery of the investment in
the Contract as of that date. A Distribution in excess of the amount of the
investment in the Contract as of August 14, 1982, will be treated as taxable
income.
The Tax Reform Act of 1986 has changed the tax treatment of certain
Non-Qualified Contracts held by entities other than individuals. Such entities
are taxed currently on the earnings on the Contract which are attributable to
contributions made to the Contract after February 28, 1986. There are exceptions
for immediate annuities and certain Contracts owned for the benefit of an
individual. An immediate annuity, for purposes of this discussion, is a single
premium Contract on which payments begin within one year of purchase. If this
Contract is issued as the result of an exchange described in Section 1035 of the
Code, for purposes of determining whether the Contract is an immediate annuity,
it will generally be considered to have been purchased on the purchase date of
the contract given up in the exchange.
Code Section 72 also provides for a penalty tax, equal to 10% of the
portion of any Distribution that is includable in gross income, if such
Distribution is made prior to attaining age 59 1/2. The penalty tax does not
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apply if the Distribution is attributable to the Contract Owner's death,
disability or one of a series of substantially equal periodic payments made over
the life or life expectancy of the Contract Owner (or the joint lives or joint
life expectancies of the Contract Owner and the beneficiary selected by the
Contract Owner to receive payment under the Annuity Payment Option selected by
the Contract Owner) or for the purchase of an immediate annuity, or is allocable
to an investment in the Contract before August 14, 1982. A Contract Owner
wishing to begin taking Distributions to which the 10% tax penalty does not
apply should forward a written request to the Company. Upon receipt of a written
request from the Contract Owner, the Company will inform the Contract Owner of
the procedures pursuant to Company policy and subject to limitations of the
Contract including but not limited to first year withdrawals. Such election
shall be irrevocable and may not be amended or changed.
In order to qualify as an annuity contract under Section 72 of the Code,
the contract must provide for Distribution of the entire contract to be made
upon the death of a Contract Owner. If a Contract Owner dies prior to the
Annuitization Date, then the Joint Contract Owner, the Contingent Owner or other
named recipient must receive the Distribution within 5 years of the Contract
Owner's death. However, the recipient may elect for payments to be made over
his/her life or life expectancy provided that such payments begin within one
year from the death of the Contract Owner. If the Joint Contract Owner,
Contingent Owner or other named recipient is the surviving spouse, such spouse
may be treated as the Contract Owner and the Contract may be continued
throughout the life of the surviving spouse. In the event the Contract Owner
dies on or after the Annuitization Date and before the entire interest has been
distributed, the remaining portion must be distributed at least as rapidly as
under the method of Distribution being used as of the date of the Contract
Owner's death (see "Required Distribution For Qualified Plans and Tax Sheltered
Annuities"). If the Contract Owner is not an individual, the death of the
Annuitant (or a change in the Annuitant) will result in a Distribution pursuant
to these rules, regardless of whether a Contingent Annuitant is named.
The Code requires that any election to receive an annuity rather than a
lump sum payment must be made within 60 days after the lump sum becomes payable
(generally, the election must be made within 60 days after the death of an Owner
or the Annuitant). If the election is made more than 60 days after the lump sum
first becomes payable, the election would be ignored for tax purposes, and the
entire amount of the lump sum would be subject to immediate tax. If the election
is made within the 60 day period, each Distribution would be taxable when it is
paid.
Non-Qualified Contracts - Non-Natural Persons as Owners
The foregoing discussion of the taxation of Non-Qualified Contracts
applies to Contracts owned (or, pursuant to Section 72(u) of the Code, deemed to
be owned) by individuals; it does not apply to Contracts where one or more
non-individuals is an Owner.
As a general rule, contracts owned by corporations, partnerships, trusts,
and similar entities ("Non-Natural Persons"), rather than by one or more
individuals, are not treated as annuity contracts for most purposes under the
Code; in particular, they are not treated as annuity contracts for purposes of
Section 72. Therefore, the taxation rules for Distributions, as described above,
do not apply to Non-Qualified Contracts owned by Non-Natural Persons.
Rather, the following rules will apply:
The income earned under a Non-Qualified Contract that is owned by a
Non-Natural Person is taxed as ordinary income during the taxable year that it
is earned, and is not deferred, even if the income is not distributed out of the
Contract to the Owner.
The foregoing Non-Natural Person rule does not apply to all entity-owned
contracts. First, for this purpose, a Contract that is owned by a Non-Natural
Person as an agent for an individual is treated as owned by the individual. This
exception does not apply, however, to a Non-Natural Person who is an employer
that holds the Contract under a non-qualified deferred compensation arrangement
for one or more employees.
The Non-Natural Person rules also do not apply to a Contract that is (a)
acquired by the estate of a decedent by reason of the death of the decedent; (b)
issued in connection with certain qualified retirement plans and individual
retirement plans; (c) used in connection with certain structured settlements;
(d) purchased by an employer upon the termination of certain qualified
retirement plans; or (e) an immediate annuity.
Qualified Plans, Individual Retirement Annuities, SEP IRAs and Tax Sheltered
Annuities
The Contract may be purchased as a Qualified Contract, an Individual
Retirement Annuity, SEP IRA, or a Tax Sheltered Annuity. The Contract Owner
should seek competent advice as to the tax consequences associated with the use
of a Contract as an Individual Retirement Annuity.
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For information regarding eligibility, limitations on permissible
amounts of Purchase Payments, and the tax consequences of distributions from
Qualified Plans, Tax Sheltered Annuities, Individual Retirement Annuities, SEP
IRAs and other plans that receive favorable tax treatment, the purchasers of
such contracts should seek competent advice. The terms of such plans may limit
the rights available under the Contracts.
Pursuant to Section 403(b)(1)(E) Code, a Contract that is issued as a
Tax-Sheltered Annuity is required to limit the amount of the Purchase Payment
for any year to an amount that does not exceed the limit set forth in Section
402(g) of the Code ($7,000), as it is from time to time increased to reflect
increases in the cost of living. This limit may be reduced by any deposits,
contributions or payments made to any other Tax-Sheltered Annuity or other plan,
contract or arrangement by or on behalf of the Owner.
The Code permits the rollover of most Distributions from Qualified Plans
to other Qualified Plans or Individual Retirement Annuities. Most Distributions
from Tax-Sheltered Annuities may be rolled into another Tax-Sheltered Annuity,
Individual Retirement Annuity, or an Individual Retirement Account.
Distributions that may not be rolled over are those which are:
1. one of a series of substantially equal annual (or more frequent)
payments made: (a) over the life (or life expectancy) of the
Contract Owner, (b) over the joint lives (or joint life
expectancies) of the Contract Owner and the Contract Owner's
designated Beneficiary, or (c) for a specified period of ten years
or more, or
2. a required minimum distribution.
Any Distribution eligible for rollover will be subject to federal tax
withholding at a rate of twenty percent (20%) unless the Distribution is
transferred directly to an appropriate plan as described above.
The Contract is available for Qualified Plans electing to comply with
section 404(c) of ERISA. It is the responsibility of the plan and its
fiduciaries to determine and satisfy the requirements of section 404(c).
Individual Retirement Accounts and Individual Retirement Annuities may
not provide life insurance benefits. If the Death Benefit exceeds the greater of
the cash value of the Contract or the sum of all Purchase Payments (less any
surrenders), it is possible the Internal Revenue Service could determine that
the Individual Retirement Account or Individual Retirement Annuity did not
qualify for the desired tax treatment.
Withholding
The Company is required to withhold tax from certain Distributions to the
extent that such Distribution would constitute income to the Contract Owner or
other payee. The Contract Owner or other payee is entitled to elect not to have
federal income tax withheld from any such Distribution, but may be subject to
penalties in the event insufficient federal income tax is withheld during a
calendar year. However, if the Internal Revenue Service notifies the Company
that the Contract Owner or other payee has furnished an incorrect taxpayer
identification number, or if the Contract Owner or other payee fails to provide
a taxpayer identification number, the Distributions may be subject to back-up
withholding at the statutory rate, which is presently 31%, and which cannot be
waived by the Contract Owner or other payee.
Non-Resident Aliens
Distributions to nonresident aliens (NRAs) are generally subject to
federal income tax and tax withholding, at a statutory rate of thirty percent
(30%) of the amount of income that is distributed. The Company may be required
to withhold such amount from the Distribution and remit it to the Internal
Revenue Service. Distributions to certain NRAs may be subject to lower, or in
certain instances, zero tax and withholding rates, if the United States has
entered into an applicable treaty. However, in order to obtain the benefits of
such treaty provisions, the NRA must give to the Company sufficient proof of his
or her residency and citizenship in the form and manner prescribed by the
Internal Revenue Service. In addition, for any Distribution made after December
31, 1997, the NRA must obtain an Individual Taxpayer Identification Number from
the Internal Revenue Service, and furnish that number to the Company prior to
the Distribution. If the Company does not have the proper proof of citizenship
or residency and (for Distributions after December 31, 1997) a proper Individual
Taxpayer Identification Number prior to any Distribution, the Company will be
required to withhold 30% of the income, regardless of any treaty provision.
A payment may not be subject to withholding where the recipient
sufficiently establishes to the Company that such payment is effectively
connected to the recipient's conduct of a trade or business in the United States
and that such payment is includable in the recipient's gross income for United
States federal
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income tax purposes. Any such Distributions will be subject to the rules set
forth in the section entitled "Withholding."
Federal Estate, Gift, and Generation Skipping Transfer Taxes
A transfer of the Contract from one Contract Owner to another, or the
payment of a Distribution under the Contract to someone other than a Contract
Owner, may constitute a gift for federal gift tax purposes. Upon the death of
the Contract Owner, the value of the Contract may be included in his or her
gross estate, even if a all or a portion of the value is also subject to federal
income taxes.
The Company may be required to determine whether the Death Benefit or any
other payment or Distribution constitutes a "direct skip" as defined in Section
2612 of the Code, and the amount of the generation skipping transfer tax, if
any, resulting from such direct skip. A direct skip may occur when property is
transferred to, or a Death Benefit or other Distribution is made to (a) an
individual who is two or more generations younger than the Owner; or (b) certain
trusts, as described in Section 2613 of the Code (generally, trusts that have no
beneficiaries who are not 2 or more generations younger than the Owner). If the
Owner is not an individual, then for this purpose only, "Owner" refers to any
person who would be required to include the Contract, Death Benefit,
Distribution, or other payment in his federal gross estate at his death, or who
is required to report the transfer of the Contract, Death Benefit, Distribution,
or other payment for federal gift tax purposes.
If the Company determines that a generation skipping transfer tax is
required to be paid by reason of such direct skip, the Company is required to
reduce the amount of such Death Benefit, Distribution, or other payment by such
tax liability, and pay the tax liability directly to the Internal Revenue
Service.
Federal estate, gift and generation skipping transfer tax consequences,
and state and local estate, inheritance, succession, generation skipping
transfer, and other tax consequences, of owning or transferring a Contract, and
of receiving a Distribution, Death Benefit, or other payment, depend on the
circumstances of the person owning or transferring the Contract, or receiving a
Distribution, Death Benefit, or other payment.
Charge for Tax Provisions
The Company is no longer required to maintain a capital gain reserve
liability on Non-Qualified Contracts since capital gains attributable to assets
held in the Company's Variable Account for such Contracts are not taxable to the
Company. However, the Company reserves the right to implement and adjust the tax
charge in the future, if the tax laws change.
Diversification
The Internal Revenue Service has promulgated regulations under Section
817(h) of the Code relating to diversification standards for the investments
underlying a variable annuity contract. The regulations provide that a variable
annuity contract which does not satisfy the diversification standards will not
be treated as an annuity contract, unless the failure to satisfy the regulations
was inadvertent, the failure is corrected, and the Owner or the Company pays an
amount to the Internal Revenue Service. The amount will be based on the tax that
would have been paid by the Owner if the income, for the period the contract was
not diversified, had been received by the Owner. If the failure to diversify is
not corrected in this manner, the Owner of an annuity contract will be deemed
the Owner of the underlying securities and will be taxed on the earnings of his
or her account. The Company believes, under its interpretation of the Code and
regulations thereunder, that the investments underlying this Contract meet these
diversification standards.
Representatives of the Internal Revenue Service have suggested, from time
to time, that the number of underlying Mutual Funds available or the number of
transfer opportunities available under a variable product may be relevant in
determining whether the product qualifies for the desired tax treatment. No
formal guidance has been issued in this area. Should the Secretary of the
Treasury issue additional rules or regulations limiting the number of underlying
Mutual Funds, transfers between underlying Mutual Funds, exchanges of underlying
Mutual Funds or changes in investment objectives of underlying Mutual Funds such
that the Contract would no longer qualify as an annuity under Section 72 of the
Code, the Company will take whatever steps are available to remain in
compliance.
Tax Changes
In the recent past, the Code has been subjected to numerous amendments
and changes, and it is reasonable to believe that it will continue to be
revised. The United States Congress has, in the past, considered numerous
legislative proposals that, if enacted, could change the tax treatment of the
Contracts. It
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<PAGE> 37
is reasonable to believe that such proposals, and other proposals will be
considered in the future, and some of them may be enacted into law. In addition,
the Treasury Department may amend existing regulations, issue new regulations,
or adopt new interpretations of existing law that may be in variance with its
current positions on these matters. In addition, current state law (which is not
discussed herein), and future amendments to state law, may affect the tax
consequences of the Contract.
The foregoing discussion, which is based on the Company's understanding
of federal tax laws as they are currently interpreted by the Internal Revenue
Service, is general and is not intended as tax advice. Statutes, regulations,
and rulings are subject to interpretation by the courts. The courts may
determine that a different interpretation than the currently favored
interpretation is appropriate, thereby changing the operation of the rules that
are applicable to annuity contracts.
Any of the foregoing may change from time to time without any notice,
and the tax consequences arising out of a Contract may be changed retroactively.
There is no way of predicting whether, when, and to what extent any such change
may take place. No representation is made as to the likelihood of the
continuation of these current laws, interpretations, and policies.
THE FOREGOING IS A GENERAL EXPLANATION AS TO CERTAIN TAX MATTERS PERTAINING TO
ANNUITY CONTRACTS. 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.
GENERAL INFORMATION
Contract Owner Inquiries
Contract Owner inquiries may be directed to Nationwide Life and Annuity
Insurance Company by writing P.O. Box 16609, Columbus, Ohio 43216-6609, or
calling 1-800-848-6331, TDD 1-800-238-3035.
Statements and Reports
The Company will mail to Contract Owners, at their last known address of
record, any statements and reports required by applicable law. Contract Owners
should therefore give the Company prompt notice of any address change. The
Company will send a confirmation statement to Contract Owners each time a
transaction is made affecting the Owners' Variable Account Contract Value, such
as making additional Purchase Payments, transfers, exchanges or withdrawals.
Quarterly statements are also mailed detailing the Contract activity during the
calendar quarter. Instead of receiving an immediate confirmation of transactions
made pursuant to some types of periodic payment plan (such as a dollar cost
averaging program) or salary reduction arrangement, the Contract Owner may
receive confirmation of such transactions in their quarterly statements. The
Contract Owner should review the information in these statements carefully. All
errors or corrections must be reported to the Company immediately to assure
proper crediting to the Owner's Contract. The Company will assume all
transactions are accurately reported on quarterly statements or confirmation
statements unless the Contract Owner notifies the Company otherwise within 30
days after receipt of the statement. The Company will also send to Contract
Owners each year an annual report and a semi-annual report containing financial
statements for the Variable Account, as of December 31 and June 30,
respectively.
Advertising
A "yield" and "effective yield" may be advertised for the Nationwide
Separate Account Trust Money Market Fund Sub-Account. "Yield" is a measure of
the net dividend and interest income earned over a specific seven-day period
(which period will be stated in the advertisement) expressed as a percentage of
the offering price of the Sub-Account's units. Yield is an annualized figure,
which means that it is assumed that the Sub-Account generates the same level of
net income over a 52-week period. The "effective yield" is calculated similarly
but includes the effect of assumed compounding, calculated under rules
prescribed by the Securities and Exchange Commission. The effective yield will
be slightly higher than yield due to this compounding effect.
The Company may also from time to time advertise the performance of a
Sub-Account of the Variable Account relative to the performance of other
variable annuity sub-accounts or underlying mutual fund options with similar or
different objectives, or the investment industry as a whole. Other investments
to which the Sub-Accounts may be compared include, but are not limited to:
precious metals; real estate; stocks and bonds; closed-end funds; CDs; bank
money market deposit accounts and passbook savings; and the Consumer Price
Index.
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<PAGE> 38
The Sub-Accounts of the Variable Account may also be compared to certain
market indexes, which may include, but are not limited to: S&P 500;
Shearson/Lehman Intermediate Government/Corporate Bond Index; Shearson/Lehman
Long-Term Government/Corporate Bond Index; Donoghue Money Fund Average; U.S.
Treasury Note Index; Bank Rate Monitor National Index of 2 1/2 Year CD Rates;
and Dow Jones Industrial Average.
Normally these rankings and ratings are published by independent tracking
services and publications of general interest including, but not limited to:
Lipper Analytical Services, Inc., CDA/Wiesenberger, Morningstar, Donoghue's,
magazines such as Money, Forbes, Kiplinger's Personal Finance Magazine,
Financial World, Consumer Reports, Business Week, Time, Newsweek, National
Underwriter, U.S. News and World Report; rating services such as LIMRA, Value,
Best's Agent Guide, Western Annuity Guide, Comparative Annuity Reports; and
other publications such as the Wall Street Journal, Barron's, Investor's Daily,
and Standard & Poor's Outlook. In addition, Variable Annuity Research & Data
Service (The VARDS Report) is an independent rating service that ranks over 500
variable annuity funds based upon total return performance. These rating
services and publications rank the performance of the underlying Mutual Fund
options against all underlying mutual funds over specified periods and against
underlying mutual funds in specified categories. The rankings may or may not
include the effects of sales charges or other fees.
The Company is also 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.
The Company may from time to time advertise several types of historical
performance for the Sub-Accounts of the Variable Account. The Company may
advertise for the Sub-Accounts standardized "average annual total return,"
calculated in a manner prescribed by the Securities and Exchange Commission, and
nonstandardized "total return." "Average annual total return" will show the
percentage rate of return of a hypothetical initial investment of $1,000 for at
least the most recent one, five and ten year period, or for a period covering
the time the underlying Mutual Fund option held in the Sub-Account has been in
existence, if the underlying Mutual Fund option has not been in existence for
one of the prescribed periods. This calculation reflects the deduction of all
applicable charges made to the Contracts except for premium taxes, which may be
imposed by certain states.
Nonstandardized "total return" will be calculated in a similar manner and
for the same time periods as the average annual total return except total return
will assume an initial investment of $10,000 and will not reflect the deduction
of any applicable Contingent Deferred Sales Charge, which, if reflected, would
decrease the level of performance shown. The Contingent Deferred Sales Charge is
not reflected because the Contracts are designed for long term investment. An
assumed initial investment of $10,000 will be used because that figure more
closely approximates the size of a typical Contract than does the $1,000 figure
used in calculating the standardized average annual total return quotations.
For those underlying Mutual Fund options which have not been held as
Sub-Accounts within the Variable Account for one of the quoted periods, the
standardized average annual total return and nonstandardized total return
quotations will show the investment performance such underlying Mutual Fund
options would have achieved (reduced by the applicable charges) had they been
held as Sub-Accounts within the Variable Account for the period quoted.
All performance information and comparative material advertised by the Company
is historical in nature and is not intended to represent or guarantee future
results. A Contract Owner's Contract Value at redemption may be more or less
than original cost.
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<PAGE> 39
Below are quotations of standardized average annual total return and
non-standardized total return calculated as described above, for each of the
Sub-Accounts available within the Variable Account for which there is
significant investment history. These figures are based upon historical earnings
and are not necessarily representative of future results.
UNDERLYING MUTUAL FUND PERFORMANCE SUMMARY
Non-Standardized Total Return
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
1 Year To 5 Years To Life of Fund Date Fund
SUB-ACCOUNT OPTIONS 12/31/96 12/31/96 To 12/31/96 Effective
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
American Century Variable 10.58% 5.17% 8.64 05-01-91
Portfolios, Inc.-American
Century VP Balanced
- -------------------------------------------------------------------------------------------------------
American Century Variable -5.72% 4.64% 9.22% 11-20-87
Portfolios, Inc.- American
Century VP Capital Appreciation
- -------------------------------------------------------------------------------------------------------
American Century Variable 12.74% N/A 6.17% 05-01-94
Portfolios, Inc.-American
Century VP International
- -------------------------------------------------------------------------------------------------------
American Century Variable N/A N/A 17.23% 05-01-96
Portfolios, Inc.-American
Century VP Value
- -------------------------------------------------------------------------------------------------------
Dreyfus Stock Index Fund 20.76% 12.99% 12.04% 09-29-89
- -------------------------------------------------------------------------------------------------------
Dreyfus Socially Responsible 19.47% N/A 17.74% 10-06-93
Growth Fund
- -------------------------------------------------------------------------------------------------------
Dreyfus Variable Investment 17.91% N/A 25.31% 05-02-94
Fund-Growth & Income Portfolio
- -------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-Equity-Income 12.62% 16.16% 12.04%* 10-09-86
Portfolio
- -------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-Growth 13.04% 13.51% 13.50%* 10-09-86
Portfolio
- -------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-High Income 12.37% 13.31% 9.52%* 09-19-85
Portfolio
- -------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-Overseas 11.57% 7.55% 6.33% 01-28-87
Portfolio
- -------------------------------------------------------------------------------------------------------
Fidelity VIP II Fund-Asset 12.94% 9.65% 10.07% 09-06-89
Manager Portfolio
- -------------------------------------------------------------------------------------------------------
Fidelity VIP II Fund-Contrafund 19.54% N/A 28.40% 07-01-95
Portfolio
- -------------------------------------------------------------------------------------------------------
NSAT-Capital Appreciation Fund 24.31% N/A 12.63% 04-15-92
- -------------------------------------------------------------------------------------------------------
NSAT-Government. Bond Fund 1.98% 5.49% 6.85%* 11-08-82
- -------------------------------------------------------------------------------------------------------
NSAT-Money Market Fund 3.60% 2.65% 4.20%* 11-10-81
- -------------------------------------------------------------------------------------------------------
NSAT-Small Company Fund 21.04% N/A 31.12% 10-23-95
- -------------------------------------------------------------------------------------------------------
NSAT-Total Return Fund 20.07% 12.15% 10.99%* 11-08-82
- -------------------------------------------------------------------------------------------------------
N&B Advisers Management 7.55% 8.24% 9.83%* 09-10-84
Trust-Growth Portfolio
- -------------------------------------------------------------------------------------------------------
N&B Advisers Management 2.79 3.79% 5.14%* 09-10-84
Trust-Limited Maturity Bond
Portfolio
- -------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 40
Non-Standardized Total Return
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
1 Year To 5 Years To Life of Fund Date Fund
SUB-ACCOUNT OPTIONS 12/31/96 12/31/96 To 12/31/96 Effective
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NB Advisers Management 27.69% N/A 20.00% 03-22-94
Trust-Partners Portfolio
- -------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account 3.27% 6.12% 7.24%* 04-30-85
Funds-Bond Fund
- -------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account 16.09% 10.81% 9.09% 11-12-90
Funds-Global Securities Fund
- -------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account 13.82% 10.07% 9.92% 02-09-87
Funds-Multiple Strategies Fund
- -------------------------------------------------------------------------------------------------------
Strong Special Fund II, Inc. 16.43% N/A 17.23% 05-08-92
- -------------------------------------------------------------------------------------------------------
Strong Variable Insurance -0.66% N/A 10.67% 05-08-92
Funds, Inc.-Discovery Fund II,
Inc.
- -------------------------------------------------------------------------------------------------------
Strong Variable Insurance 8.78% N/A 9.35% 10-23-95
Funds, Inc.-International Stock
Fund II
- -------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance 1.03% 2.40% 5.14% 09-01-89
Trust-Worldwide Bond Fund
- -------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance 25.00% N/A 23.41% 12-27-95
Trust-Worldwide Emerging
Markets Fund
- -------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance 16.36% 12.90% 6.99% 09-01-89
Trust-Worldwide Hard Assets Fund
- -------------------------------------------------------------------------------------------------------
Van Kampen American Capital 38.49% N/A 29.74% 07-01-95
Life Investment Trust-Real
Estate Securities Fund
- -------------------------------------------------------------------------------------------------------
Warburg Pincus 8.39% N/A 9.47% 07-01-95
Trust-International Equity
Portfolio
- -------------------------------------------------------------------------------------------------------
Warburg Pincus Trust- N/A N/A -9.88% 09-30-96
Post-Venture Capital Trust
- -------------------------------------------------------------------------------------------------------
Warburg Pincus Trust-Small 12.25% N/A 24.70% 07-01-95
Company Growth Portfolio
- -------------------------------------------------------------------------------------------------------
</TABLE>
* Represents 10 years to 12/31/96
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<PAGE> 41
Standardized Average Annual Total Return
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
1 Year To 5 Years To Life of Fund Date Fund
SUB-ACCOUNT OPTIONS 12/31/96 12/31/96 To 12/31/96 Effective
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
American Century Variable 10.58% 5.17% 8.64% 5-01-91
Portfolios, Inc.-American Century
VP Balanced
- ------------------------------------------------------------------------------------------------------
American Century Variable -5.72% 4.64% 9.22% 11-20-87
Portfolios, Inc.-American Century
VP Capital Appreciation
- ------------------------------------------------------------------------------------------------------
American Century Variable 12.74% N/A 6.17% 05-01-94
Portfolios, Inc.-American Century
VP International
- ------------------------------------------------------------------------------------------------------
American Century Variable N/A N/A 17.23% 05-01-96
Portfolios, Inc.-American Century
VP Value
- ------------------------------------------------------------------------------------------------------
Dreyfus Stock Index Fund 20.76% 12.99% 12.04% 09-29-89
- ------------------------------------------------------------------------------------------------------
Dreyfus Socially Responsible 19.47% N/A 17.74% 10-06-93
Growth Fund
- ------------------------------------------------------------------------------------------------------
Dreyfus Variable Investment 17.91% N/A 25.31% 05-02-94
Fund-Growth & Income Portfolio
- ------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-Equity-Income 12.62% 16.16% 12.04%* 10-09-86
Portfolio
- ------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-Growth Portfolio 13.04% 13.51% 13.50%* 10-09-86
- ------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-High Income 12.37% 13.31% 9.52%* 9-19-85
Portfolio
- ------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-Overseas 11.57% 7.55% 6.33% 1-28-87
Portfolio
- ------------------------------------------------------------------------------------------------------
Fidelity VIP Fund II -Asset 12.94% 9.65% 10.07% 9-06-89
Manager Portfolio
- ------------------------------------------------------------------------------------------------------
Fidelity VIP Fund II -Contrafund 19.54% N/A 28.40% 7-01-95
Portfolio
- ------------------------------------------------------------------------------------------------------
NSAT-Capital Appreciation Fund 24.31% N/A 12.63% 4-15-92
- ------------------------------------------------------------------------------------------------------
NSAT-Government Bond Fund 1.98% 5.49% 6.85%* 11-08-82
- ------------------------------------------------------------------------------------------------------
NSAT-Money Market Fund 3.60% 2.65% 4.20%* 11-10-81
- ------------------------------------------------------------------------------------------------------
NSAT-Small Company Fund 21.04% N/A 31.12% 10-23-95
- ------------------------------------------------------------------------------------------------------
NSAT-Total Return Fund 20.07% 12.15% 10.99%* 11-08-82
- ------------------------------------------------------------------------------------------------------
N&B Advisers Management 7.55% 8.24% 9.83%* 9-10-84
Trust-Growth Portfolio
- ------------------------------------------------------------------------------------------------------
N&B Advisers Management 2.79% 3.79% 5.14%* 9-10-84
Trust-Limited Mat. Bond Port.
- ------------------------------------------------------------------------------------------------------
N&B Advisers Management 27.69% N/A 20.00% 03-22-94
Trust-Partners Portfolio
- ------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account 3.27% 6.12% 7.24%* 4-30-85
Funds-Bond Fund
- ------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account 16.09% 10.81% 9.09% 11-12-90
Funds-Global Securities Fund
- ------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account 13.82% 10.07% 9.92% 2-09-87
Funds-Multiple Strategies Fund
- ------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 42
Standardized Average Annual Total Return
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
1 Year To 5 Years To Life of Fund Date Fund
SUB-ACCOUNT OPTIONS 12/31/96 12/31/96 To 12/31/96 Effective
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Strong Special Fund II, Inc. 16.43% N/A 17.23% 5-08-92
- ------------------------------------------------------------------------------------------------------
Strong Variable Insurance Funds, -0.66% N/A 10.67% 5-08-92
Inc.-Discovery Fund II, Inc.
- ------------------------------------------------------------------------------------------------------
Strong Variable Insurance Funds, 8.78% N/A 9.35% 10-23-95
Inc.-International Stock Fund II
- ------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance 1.03% 2.40% 5.14% 9-01-89
Trust-Worldwide Bond Fund
- ------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance 25.00% N/A 23.41% 12-27-95
Trust-Worldwide Emerging Markets
Fund
- ------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance 16.36% 12.90% 6.69% 9-01-89
Trust-Worldwide Hard Assets Fund
- ------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life 38.49% N/A 29.74% 07-01-95
Investment Trust-Real Estate
Securities Fund
- ------------------------------------------------------------------------------------------------------
Warburg Pincus Trust-International 8.39% N/A 9.47% 07-01-95
Equity Portfolio
- ------------------------------------------------------------------------------------------------------
Warburg Pincus Trust- N/A N/A -9.88% 09-30-96
Post-Venture Capital Trust
- ------------------------------------------------------------------------------------------------------
Warburg Pincus Trust-Small Company 12.25% N/A 24.70% 07-01-95
Growth Portfolio
- ------------------------------------------------------------------------------------------------------
</TABLE>
* Represents 10 years to 12/31/96.
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<PAGE> 43
LEGAL PROCEEDINGS
There are no material legal proceedings, other than ordinary routine
litigation incidental to the business to which the Company and the Variable
Account are parties or to which any of their property is the subject.
The General Distributor, Nationwide Advisory Services, Inc., is not
engaged in any litigation of any material nature.
From time to time the Company is a party to litigation and arbitration
proceedings in the ordinary course of its business, none of which is expected to
have a material adverse effect on the Company.
In recent years, life insurance companies have been named as defendants
in lawsuits, including class action lawsuits, relating to life insurance pricing
and sales practices. A number of these lawsuits have resulted in substantial
jury awards or settlements. In October 1996, a policyholder of Nationwide Life
filed a complaint in Alabama state court against Nationwide Life and an agent of
Nationwide Life (Wayne M. King v. Nationwide Life Insurance Company and Danny
Nix) related to the sale of a whole life policy on a "vanishing premium" basis
and seeking unspecified compensatory and punitive damages. In February 1997,
Nationwide Life was named as a defendant in a lawsuit filed in New York Supreme
Court also related to the sale of whole life policies on a "vanishing premium"
basis (John H. Snyder v. Nationwide Mutual Insurance Company, Nationwide Mutual
Insurance Co. and Nationwide Life Insurance Co.). The plaintiff in such lawsuit
seeks to represent a national class of Nationwide Life policyholders and claims
unspecified compensatory and punitive damages. This lawsuit is in an early stage
and has not been certified as a class action. Nationwide Life intends to defend
these cases vigorously. There can be no assurance that any future litigation
relating to pricing and sales practices will not have a material adverse effect
on the Company.
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
Page
General Information and History..............................................1
Services.....................................................................1
Purchase of Securities Being Offered.........................................1
Underwriters.................................................................2
Calculations of Performance..................................................2
Underlying Mutual Fund Performance Summary...................................3
Annuity Payments.............................................................6
Financial Statements.........................................................7
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<PAGE> 44
APPENDIX A
ANNUITY PAYMENT PERIOD-FIXED ANNUITY
First and Subsequent Payments
A Fixed Annuity is an annuity with payments which are guaranteed by the
Company as to dollar amount during the annuity payment period. The first Fixed
Annuity payment will be determined by applying the Contract Value to the
applicable Annuity Table in accordance with the Annuity Payment Option elected.
This will be done at the Annuitization Date on an age last birthday basis. Fixed
Annuity payments after the first will not be less than the first Fixed Annuity
payment.
The Company does not credit discretionary interest to Fixed Annuity
payments during the annuity payment period for annuity options based on life
contingencies. The Annuitant must rely on the Annuity Tables applicable to the
Contracts to determine the amount of such Fixed Annuity payments.
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<PAGE> 45
APPENDIX B
PARTICIPATING UNDERLYING MUTUAL FUNDS
Below are the investment objectives of each Underlying Mutual Fund available
through the Variable Account. THERE CAN BE NO ASSURANCE THAT THE INVESTMENT
OBJECTIVES WILL BE ACHIEVED.
AVAILABLE FOR ALL CONTRACTS
American Century Variable Portfolios, Inc., member of the American CenturySM
Investments.
American Century Variable Portfolios, Inc. was organized as a Maryland
corporation in 1987. It is a diversified, open-end investment management
company, designed only to provide investment vehicles for variable annuity and
variable life insurance products of insurance companies. American Century
Variable Portfolios is managed by America Century Investment Management, Inc.
-American Century VP Balanced (formerly "TCI Balanced")
Investment Objective: Capital growth and current income. The Fund will
seek to achieve its objective by maintaining approximately 60% of the
assets of the Fund in common stocks (including securities convertible
into common stocks and other equity equivalents) that are considered by
management to have better-than-average prospects for appreciation and
approximately 40% in fixed income securities. A minimum of 25% of the
fixed income portion of the Fund will be invested in fixed income senior
securities. There can be no assurance that the Fund will achieve its
investment objective.
-American Century VP Capital Appreciation (formerly "TCI Growth")
Investment Objective: Capital growth. The Fund will seek to achieve its
objective by investing in common stocks (including securities convertible
into common stocks and other equity equivalents) that meet certain
fundamental and technical standards of selection and have, in the opinion
of the Fund's investment manager, better than average potential for
appreciation. The Fund tries to stay fully invested in such securities,
regardless of the movement of stock prices generally.
The Fund may invest in cash and cash equivalents temporarily or when it
is unable to find common stocks meeting its criteria of selection. It may
purchase securities only of companies that have a record of at least
three years continuous operation. There can be no assurance that the Fund
will achieve its investment objective.
-American Century VP International (formerly "TCI International")
Investment Objective: To seek capital growth. The Fund will seek to
achieve its investment objective by investing primarily in securities of
foreign companies that meet certain fundamental and technical standards
of selection and, in the opinion of the investment manager, have
potential for appreciation. Under normal conditions, the Fund will invest
at least 65% of its assets in common stocks or other equity securities of
issuers from at least three countries outside the United States.
Securities of United States issuers may be included in the portfolio from
time to time. Although the primary investment of the Fund will be common
stocks (defined to include depository receipts for common stocks), the
Fund may also invest in other types of securities consistent with the
Fund's objective. When the manager believes that the total return
potential of other securities equals or exceeds the potential return of
common stocks, the Fund may invest up to 35% of its assets in such other
securities. There can be no assurance that the Fund will achieve its
objectives.
-American Century VP Value (formerly "TCI Valued")
Investment Objective: The investment objective of the Fund is long-term
capital growth; income is a secondary objective. Under normal market
conditions, the Fund expects to invest at least 80% of the value of its
total asset in equity securities, including common and preferred stock,
convertible preferred stock and convertible debt obligations. The equity
securities in which the Fund will invest will be primarily securities of
well-established companies with intermediate-to-large market
capitalizations that are believed by management to be undervalued at the
time of purchase.
(Although the Statement of Additional Information concerning American
Century Variable Portfolios refers to redemptions of securities in kind
under certain conditions, all surrendering or redeeming Contract Owners
will receive cash from the Company.)
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<PAGE> 46
Dreyfus Stock Index Fund
The Dreyfus Stock Index Fund, Inc. is an open-end, non-diversified,
management investment company. It was incorporated under Maryland law on January
24, 1989 and commenced operations on September 29, 1989. The Dreyfus Corporation
("Dreyfus:) serves as the Fund's manager, while Mellon Equity Associates, an
affiliate of Dreyfus, serves as the Fund's index manager.
Investment Objective: To provide investment results that correspond to
the price and yield performance of publicly traded common stocks in the
aggregate, as represented by the Standard & Poor's 500 Composite Stock
Price Index. The Fund is neither sponsored by nor affiliated with
Standard & Poor's Corporation.
Dreyfus Variable Investment Fund
Dreyfus Variable Investment Fund (the "Fund") is an open-end,
management investment company. It was organized as an unincorporated business
trust under the laws of the Commonwealth of Massachusetts on October 29, 1986
and commenced operations on August 31, 1990. The Dreyfus Corporation ("Dreyfus")
serves as the Fund's manager. Dreyfus is a wholly-owned subsidiary of Mellon
Bank, N.A., which is a wholly-owned subsidiary of Mellon Bank Corporation.
-Growth and Income Portfolio
Investment Objective: To provide long-term capital growth, current income
and growth of income, consistent with reasonable investment risk. The
Portfolio invests in equity securities, debt securities and money market
instruments of domestic and foreign issuers. The proportion of the
Portfolio's assets invested in each type of security will vary from time
to time in accordance with Dreyfus' assessment of economic conditions and
investment opportunities. In purchasing equity securities, Dreyfus will
invest in common stocks, preferred stocks and securities convertible into
common stocks, particularly those which offer opportunities for capital
appreciation and growth of earnings, while paying current dividends. The
Portfolio will generally invest in investment-grade debt obligations,
except that it may invest up to 35% of the value of its net assets in
convertible debt securities rated not lower than Caa by Moody's Investor
Service, Inc. or CCC by Standard & Poor's Ratings Group, Fitch Investors
Service, L.P. or Duff & Phelps Credit Rating Co., or if unrated, deemed
to be of comparable quality by Dreyfus. These securities are considered
to have predominantly speculative characteristics with respect to
capacity to pay interest and repay principal and are considered to be of
poor standing. See "Investment Considerations and Risks-Lower Rated
Securities" in the Portfolio's prospectuses.
The Dreyfus Socially Responsible Growth Fund, Inc.
The Dreyfus Socially Responsible Growth Fund, Inc. is an open-end,
diversified, management investment company. It was incorporated under Maryland
law on July 20, 1992, and commenced operations on October 7, 1993. The Dreyfus
Corporation serves as the Fund's investment advisor. NCM, Capital Management
Group, Inc. serves as the Fund's sub-investment adviser and provides day-to-day
management of the Fund's portfolio.
Investment Objective: The Fund's primary goal is to provide capital growth
equity investment in companies that, in the opinion of the Fund's management,
not only meet traditional investment standards, but which also show evidence
that they conduct their business in a manner that contributed to the enhancement
of the quality of life in America. Current income is secondary to the primary
goal.
Fidelity Variable Insurance Products Fund
The Fund is an open-end, diversified, management investment company
organized as a Massachusetts business trust on November 13, 1981. The Fund's
shares are purchased by insurance companies to fund benefits under variable
insurance and annuity policies. Fidelity Management & Research Company ("FMR")
is the Fund's manager.
-Equity-Income Portfolio
Investment Objective: To seek reasonable income by investing primarily in
income-producing equity securities. In choosing these securities FMR also
will consider the potential for capital appreciation. The Portfolio's
goal is to achieve a yield which exceeds the composite yield on the
securities comprising the Standard & Poor's 500 Composite Stock Price
Index.
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<PAGE> 47
-Growth Portfolio
Investment Objective: Seeks to achieve capital appreciation. This
Portfolio will invest in the securities of both well-known and
established companies, and smaller, less well-known companies which may
have a narrow product line or whose securities are thinly traded. These
latter securities will often involve greater risk than may be found in
the ordinary investment security. FMR's analysis and expertise plays an
integral role in the selection of securities and, therefore, the
performance of the Portfolio. Many securities which FMR believes would
have the greatest potential may be regarded as speculative, and
investment in the Portfolio may involve greater risk than is inherent in
other mutual funds. It is also important to point out that the Portfolio
makes most sense for you if you can afford to ride out changes in the
stock market, because it invests primarily in common stocks. FMR also can
make temporary investments in securities such as investment-grade bonds,
high-quality preferred stocks and short-term notes, for defensive
purposes when it believes market conditions warrant.
-High Income Portfolio
Investment Objective: Seeks to obtain a high level of current income by
investing primarily in high-risk, lower-rated, high-yielding,
fixed-income securities, while also considering growth of capital. The
Portfolio manager will seek high current income normally by investing the
Portfolio's assets as follows:
o at least 65% in income-producing debt securities and preferred
stocks, including convertible securities
o up to 20% in common stocks and other equity securities when
consistent with the Portfolio's primary objective or acquired as
part of a unit combining fixed-income and equity securities
Higher yields are usually available on securities that are lower-rated or
that are unrated. Lower-rated securities are usually defined as Ba or
lower by Moody's; BB or lower by Standard & Poor's and may be deemed to
be of a speculative nature. The Portfolio may also purchase lower-quality
bonds such as those rated Ca3 by Moody's or C- by Standard & Poor's which
provide poor protection for payment of principal and interest (commonly
referred to as "junk bonds"). For a further discussion of lower-rated
securities, please see the "Risks of Lower-Rated Debt Securities" section
of the Portfolio's prospectus.
-Overseas Portfolio
Investment Objective: To seek long term growth of capital primarily
through investments in foreign securities. The Overseas Portfolio
provides a means for investors to diversify their own portfolios by
participating in companies and economies outside of the United States.
Fidelity Variable Insurance Products Fund II
The Variable Insurance Products Fund II is an open-end, diversified,
management investment company organized as a Massachusetts business trust on
March 21, 1988. The Fund's shares are purchased by insurance companies to fund
benefits under variable insurance and annuity policies. FMR is the Fund's
manager.
-Asset Manager Portfolio
Investment Objective: To seek high total return with reduced risk over
the long-term by allocating its assets among domestic and foreign stocks,
bonds and short-term fixed income instruments.
-Contrafund Portfolio
Investment Objective: To seek capital appreciation by investing primarily
in companies that the Fund manager believes to be undervalued due to an
overly pessimistic appraisal by the public. This strategy can lead to
investments in domestic or foreign companies, small and large, many of
which may not be well known. The Fund primarily invests in common stock
and securities convertible into common stock, but it has the flexibility
to invest in any type of security that may produce capital appreciation.
Nationwide Separate Account Trust
Nationwide Separate Account Trust (the "Trust") is a diversified open-end
management investment company created under the laws of Massachusetts. The Trust
offers shares in the five separate Mutual Funds listed below, each with its own
investment objectives. Currently, shares of the Trust will be sold only to life
insurance company separate accounts to fund the benefits under variable life
insurance policies or variable
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<PAGE> 48
annuity contracts issued by life insurance companies. The assets of the Trust
are managed by Nationwide Advisory Services, Inc., One Nationwide Plaza,
Columbus, Ohio 43215, a wholly-owned subsidiary of Nationwide Life Insurance
Company.
-Capital Appreciation Fund
Investment Objective: The Fund is designed for investors who are
interested in long-term growth. The Fund seeks to meet its objective
primarily through a diversified portfolio of the common stock of
companies which the investment manager determines have a
better-than-average potential for sustained capital growth over the long
term.
-Government Bond Fund
Investment Objective: To provide as high a level of income as is
consistent with the preservation of capital. It seeks to achieve its
objective 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: To seek as high a level of current income as is
considered consistent with the preservation of capital and liquidity by
investing primarily in money market instruments.
-Small Company Fund
Investment Objective: The Fund seeks long-term growth of capital by
investing primarily in equity securities of domestic and foreign
companies with market capitalizations of less then $1 billion at the time
of purchase. Nationwide Advisory Services, Inc.("NAS"), the Fund's
adviser, has employed a group of sub-advisers, each of which will manage
a portion of the Fund's portfolio. These sub-advisers are the Dreyfus
Corporation, Neuberger & Berman, L.P., Pictet International Management
Limited, Van Eck Associates Corporation, Strong Capital Management, Inc.
and Warburg, Pincus Counsellors, Inc. The sub-advisers were chosen
because they utilize a number of different investment styles when
investing in small company stocks. By utilizing a number of investment
styles, NAS hopes to increase prospects for investment return and to
reduce market risk and volatility.
-Total Return Fund
Investment Objective: To obtain a reasonable long-term total return
(i.e., earnings growth plus potential dividend yield) on invested capital
from a flexible combination of current return and capital gains through
investments in common stocks, convertible issues, money market
instruments and bonds with a primary emphasis on common stocks.
Neuberger & Berman Advisers Management Trust
Neuberger & Berman Advisers Management Trust is an open-end diversified
management investment company established as a Massachusetts business trust on
December 14, 1983. Shares of the Trust are offered in connection with certain
variable annuity contracts and variable life insurance policies issued through
life insurance company separate accounts and are also offered directly to
qualified pension and retirement plans outside of the separate account context.
The investment adviser is Neuberger & Berman Management Incorporated.
-Growth Portfolio
Investment Objective: The Portfolio seeks capital growth through
investments in common stocks of companies that the investment adviser
believes will have above average earnings or otherwise provide investors
with above average potential for capital appreciation. To maximize this
potential, the investment adviser may also utilize, from time to time,
securities convertible into common stocks, warrants and options to
purchase such stocks.
-Limited Maturity Bond Portfolio
Investment Objective: To provide the high level of current income,
consistent with low risk to principal and liquidity. As a secondary
objective, it also seeks to enhance its total return through capital
appreciation when market factors, such as falling interest rates and
rising bond prices, indicate that capital appreciation may be available
without significant risk to principal. It seeks to achieve its objectives
through investments in a diversified portfolio of limited maturity debt
securities.
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<PAGE> 49
-Partners Portfolio
Investment Objective: To seek capital growth. This Portfolio will seek to
achieve its objective by investing primarily in the common stock of
established companies. Its investment program seeks securities believed
to be undervalued based on fundamentals such as low price-to-earnings
ratios, consistent cash flows, and support from asset values. The
objective of the Partners Portfolio is not fundamental and can be changed
by the Trustees of the Trust without shareholder approval. Shareholders
will, however, receive at least 30 days notice thereof.
There is no assurance the investment objective will be met.
Oppenheimer Variable Account Funds
The Oppenheimer Variable Account Funds is an open-end, diversified
management investment company organized as a Massachusetts business trust in
1984. Shares of the Funds are sold only to provide benefits under variable life
insurance policies and variable annuity contracts. Oppenheimer Management
Corporation is the Funds' investment adviser.
-Bond Fund
Investment Objective: Primarily to seek a high level of current income
from investment in high yield fixed-income securities rated "Baa" or
better by Moody's or "BBB" or better by Standard & Poor's. Secondarily,
the Fund seeks capital growth when consistent with its primary objective.
-Global Securities Fund
Investment Objective: To seek long-term capital appreciation by investing
a substantial portion of assets in securities of foreign issuers,
"growth-type" companies, cyclical industries and special situations which
are considered to be speculative.
-Multiple Strategies Fund
Investment Objective: To seek a total investment return (which includes
current income and capital appreciation in the value of its shares) from
investments in common stocks and other equity securities, bonds and other
debt securities, and "money market" securities.
Strong Special Fund II, Inc.
The Strong Special Fund II, Inc. is a diversified, open-end management
company commonly called a mutual fund. The Special Fund II, Inc. was
incorporated in Wisconsin and may only be purchased by the separate accounts of
insurance companies for the purpose of funding variable annuity contracts and
variable life insurance policies. Strong Capital Management Inc. (the "Advisor")
is the investment advisor for the Fund.
Investment Objective: To seek capital appreciation through investments in
a diversified portfolio of equity securities.
Strong Variable Insurance Funds, Inc.
Strong Variable Insurance Funds, Inc. ("Corporation") is an open-end
management investment company commonly referred to as a mutual fund.
Incorporated in the State of Wisconsin, the Corporation has been authorized to
issue shares of common stock and series of classes of common stock. The
International Stock Fund II and The Strong Discovery Fund II, Inc. ("Funds") are
offered by the Corporation to insurance company separate accounts for the
purpose of funding variable annuity contracts and variable life insurance
policies. Strong Capital Management, Inc. is the investment advisor to the
Funds.
-Discovery Fund II, Inc.
Investment Objective: To seek maximum capital appreciation through
investments in a diversified portfolio of securities. The Fund normally
emphasizes investment in equity securities and may invest up to 100% of
its total assets in equity securities including common stocks, preferred
stocks and securities convertible into common or preferred stocks.
Although the Fund normally emphasizes investment in equity securities,
the Fund has the flexibility to invest in any type of security that the
Advisor believes has the potential for capital appreciation including up
to 100% of its total assets in debt obligations, including intermediate
to long-term corporate or U.S. government debt securities.
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<PAGE> 50
-International Stock Fund II
Investment Objective: To seek capital growth by investing primarily in
the equity securities of issuers located outside the United States.
Van Eck Worldwide Insurance Trust
Van Eck Investment Trust is an open-end management investment company
organized as a "Business Trust" under the laws of the Commonwealth of
Massachusetts on January 7, 1987. Trust shares are offered only to separate
accounts of various insurance companies to fund the benefits of variable
insurance and annuity policies. The investment adviser and manager is Van Eck
Associates Corporation.
-Worldwide Bond Fund
Investment Objective: To seek high total return through a flexible policy
of investing globally, primarily in debt securities.
-Worldwide Emerging Markets Fund
Investment Objective: Seeks long-term capital appreciation by investing
primarily in equity securities in emerging markets around the world. The
Fund specifically emphasizes investment in countries that, compared to
the world's major economies, exhibit relatively low gross national
product per capita, as well as the potential for rapid economic growth.
Peregrine Asset Management (Hong Kong) Limited serves as sub-investment
adviser to this Fund.
-Worldwide Hard Assets (formerly "Gold And Natural Resources Fund")
Investment Description: Seeks long-term capital appreciation by investing
globally, primarily in "Hard Assets Securities." Hard assets are
tangible, finite assets, such as real estate, energy, timber, and
industrial and previous metals. Income is a secondary consideration.
Van Kampen American Capital Life Investment Trust
The Van Kampen American Capital Life Investment Trust is an open-end
diversified management investment company organized as a Massachusetts business
trust on June 3, 1985. The Trust offers shares in separate funds which are sold
only to insurance companies to provide funding for variable life insurance
policies and variable annuity contracts. Van Kampen American Capital Asset
Management, Inc. serves as the Fund's investment adviser.
- Real Estate Securities Fund
Investment Objective: To seek long-term capital growth by investing in a
portfolio of securities of companies operating in the real estate
industry ("Real Estate Securities"). Current income is a secondary
consideration. Real Estate Securities include equity securities,
including common stocks and convertible securities, as well as
non-convertible preferred stocks and debt securities of real estate
industry companies. A "real estate industry company" is a company that
derives at least 50% of its assets (marked to market), gross income or
net profits from the ownership, construction, management or sale of
residential, commercial or industrial real estate. Under normal market
conditions, at least 65% of the Fund's total assets will be invested in
Real Estate Securities, primarily equity securities of real estate
investment trusts. The Fund may invest up to 25% of its total assets in
securities issued by foreign issuers, some or all of which may also be
Real Estate Securities. There can be no assurance that the Fund will
achieve its investment objective.
Warburg Pincus Trust
The Warburg Pincus Trust ("Trust") is an open-end management investment company
organized in March 1995 as a business trust under the laws of The Commonwealth
of Massachusetts. The Trust offers its shares to insurance companies for
allocation to separate accounts for the purpose of funding variable annuity and
variable life contracts. Trust portfolios are managed by Warburg, Pincus
Counsellors, Inc. ("Counsellors.")
- International Equity Portfolio
Investment Objective: To seek long-term capital appreciation by investing
primarily in a broadly diversified portfolio of equity securities of
companies, wherever organized, that in the judgment of "Counsellors" have
their principal business activities and interests outside the United
States. The Portfolio will ordinarily invest substantially all of its
assets, but no less than 65% of its total assets, in
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<PAGE> 51
common stocks, warrants and securities convertible into or exchangeable
for common stocks. The Portfolio intends to invest principally in the
securities of financially strong companies with opportunities for growth
within growing international economies and markets through increased
earning power and improved utilization or recognition of assets.
-Post-Venture Capital Portfolio
Investment Objective: The Portfolio seeks long-term growth of capital by
investing primarily in equity securities of issuers in their
post-venture capital stage of development and pursues an aggressive
investment strategy. Under normal market conditions, the Portfolio will
invest at least 65% of its total assets in equity securities of
"post-venture capital companies." A post-venture capital company is one
that has received venture capital financing either (a) during the early
stages of the company's existence or the early stages of the development
of a new product or service or (b) as part of a restructuring or
recapitalization of the company. The Portfolio may invest up to 10% of
its assets in venture capital and other investment funds.
-Small Company Growth Portfolio
Investment Objective: To seek capital growth by investing in a portfolio
of equity securities of small-sized domestic companies. The Portfolio
ordinarily will invest at least 65% of its total assets in common stocks
or warrants of small-sized companies (i.e., companies having stock market
capitalizations of between $25 million and $1 billion at the time of
purchase) that represent attractive opportunities for capital growth. The
Portfolio intends to invest primarily in companies whose securities are
traded on domestic stock exchanges or in the over-the-counter market. The
Portfolio's investments will be made on the basis of their equity
characteristics and securities ratings generally will not be a factor in
the selection process.
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<PAGE> 52
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1997
INDIVIDUAL DEFERRED VARIABLE ANNUITY CONTRACTS ISSUED
BY NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY THROUGH ITS
NATIONWIDE VA SEPARATE ACCOUNT-B
This Statement of Additional Information is not a prospectus. It contains
information in addition to and more detailed than set forth in the prospectus
and should be read in conjunction with the prospectus dated May 1, 1997. The
prospectus may be obtained from Nationwide Life and Annuity Insurance Company
by writing P.O. Box 16609, Columbus, Ohio 43216-6609, or calling 1-800-848-6331,
TDD 1-800-238-3035.
TABLE OF CONTENTS
Page
General Information and History.............................................1
Services....................................................................1
Purchase of Securities Being Offered........................................1
Underwriters................................................................2
Calculations of Performance.................................................2
Underlying Mutual Fund Performance Summary..................................3
Annuity Payments............................................................6
Financial Statements........................................................7
General Information and History
The Nationwide VA Separate Account-B (formerly Financial Horizons VA
Separate Account-2) is a separate investment account of Nationwide Life and
Annuity Insurance Company ("Company") (formerly Financial Horizons Life
Insurance Company). The Company is a member of the Nationwide Insurance
Enterprise and all of the Company's common stock is owned by Nationwide Life
Insurance Company which is owned by Nationwide Financial Services, Inc.("NFS"),
a holding company. NFS has two classes of common stock outstanding with
different voting rights enabling Nationwide Corporation (the holder of all of
the outstanding Class B Common Stock) to control NFS. Nationwide Corporation is
a holding company, as well. All of the common stock is held by Nationwide Mutual
Insurance Company (95.3%) and Nationwide Mutual Fire Insurance Company (4.7%),
the ultimate controlling persons of Nationwide Insurance Enterprise. The
Nationwide Insurance Enterprise is one of America's largest insurance and
financial services family of companies, with combined assets of over $67.5
billion as of December 31, 1996.
Services
The Company, which has responsibility for administration of the Contracts
and the Variable Account, maintains records of the name, address, taxpayer
identification number, and other pertinent information for each Contract Owner
and the number and type of Contract issued to each such Contract Owner and
records with respect to the Contract Value of each Contract.
The Custodian of the assets of the Variable Account is the Company. The
Company will maintain a record of all purchases and redemptions of shares of the
underlying Mutual Funds. The Company, or subsidiaries of the Company may have
entered into agreements with either the investment adviser or distributor for
several of the underlying Mutual Funds. The agreements relate to administrative
services furnished by the Company or an affiliate of the Company and provide for
an annual fee based on the average aggregate net assets of the Variable Account
(and other separate accounts of the Company or life insurance company
subsidiaries of the Company) invested in particular underlying Mutual Funds.
These fees in no way affect the net asset value of the underlying Mutual Funds
or fees paid by the Contract Owner.
The financial statements and schedules have been included herein in
reliance upon the reports of KPMG Peat Marwick LLP, independent certified public
accountants, Two Nationwide Plaza, Columbus, Ohio 43215, and upon the authority
of said firm as experts in accounting and auditing.
Purchase of Securities Being Offered
The Contracts will be sold by licensed insurance agents in the states
where the Contracts may be lawfully sold. Such agents will be registered
representatives of broker-dealers registered under the Securities Exchange Act
of 1934 who are members of the National Association of Securities Dealers, Inc.
("NASD").
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<PAGE> 53
Underwriters
The Contracts, which are offered continuously, are distributed by
Nationwide Advisory Services, Inc. ("NAS"), One Nationwide Plaza, Columbus, Ohio
43215, an affiliate of the Company. No underwriting commissions have been paid
by the Company to NAS.
Calculations of Performance
Any current yield quotations of the Nationwide Separate Account Trust
Money Market Fund Sub-Account, subject to Rule 482 of the Securities Act of
1933, shall consist of a seven calendar day historical yield, carried at least
to the nearest hundredth of a percent. The yield shall be calculated by
determining the net change, exclusive of capital changes, in the value of
hypothetical pre-existing account having a balance of one accumulation unit at
the beginning of the base period, subtracting a hypothetical charge reflecting
deductions from Contract Owner accounts, and dividing the net change in account
value by the value of the account at the beginning of the period to obtain a
base period return, and multiplying the base period return by (365/7) or (366/7)
in a leap year. As of December 31, 1996, the Nationwide Separate Account Trust
Money Market Fund Sub-Account's seven-day current unit value yield was 3.49%.
The Nationwide Separate Account Trust Money Market Fund Sub-Account's effective
yield is computed similarly but includes the effect of assumed compounding on an
annualized basis of the current unit value yield quotations of the Fund, and for
the period ending December 31, 1996 was 3.55%.
The Nationwide Separate Account Trust Money Market Fund Sub-Account's
yield and effective yield will fluctuate daily. Actual yields will depend on
factors such as the type of instruments in the Fund's portfolio, portfolio
quality and average maturity, changes in interest rates, and the Fund's
expenses. Although the Sub-Account determines its yield on the basis of a seven
calendar day period, it may use a different time period on occasion. The yield
quotes may reflect the expense limitation described "Investment Manager and
Other Services" in the Fund's Statement of Additional Information. There is no
assurance that the yields quoted on any given occasion will remain in effect for
any period of time and there is no guarantee that the net asset values will
remain constant. It should be noted that a Contract Owner's investment in the
Nationwide Separate Account Trust Money Market Fund Sub-Account is not
guaranteed or insured. Yield of other money market funds may not be comparable
if a different base period or another method of calculation is used.
All performance advertising shall also include quotations of standardized
average annual total return, calculated in accordance with a standard method
prescribed by rules of the Securities and Exchange Commission, to facilitate
comparison with standardized average annual total return advertised for a
specific period is found by first taking a hypothetical $1,000 investment in
each of the Sub-Accounts' units on the first day of the period at the offering
price, which is the Accumulation Unit Value per unit ("initial investment") and
computing the ending redeemable value ("redeemable value") of that investment at
the end of the period. The redeemable value is then divided by the initial
investment and this quotient is taken to the Nth root (N represents the number
of years in the period) and 1 is subtracted from the result which is then
expressed as a percentage, carried to at least the nearest hundredth of a
percent. Standardized average annual total return reflects the deduction of
1.45% Mortality, Expense Risk and Administration Charge. No deduction is made
for premium taxes which may be assessed by certain states. Nonstandardized total
return may also be advertised, and is calculated in a manner similar to
standardized average annual total return except the nonstandardized total return
is based on a hypothetical initial investment of $10,000. An assumed initial
investment of $10,000 will be used because that figure more closely approximates
the size of a typical Contract than does the $1,000 figure used in calculating
the standardized average annual total return quotations.
The standardized average annual total return and nonstandardized average
annual total return quotations will be current to the last day of the calendar
quarter preceding the date on which an advertisement is submitted for
publication. Both the standardized average annual return and the nonstandardized
average annual total return will be based on rolling calendar quarters and will
cover periods of one, five, and ten years, or a period covering the time the
underlying Mutual Fund held in the Sub-Account has been in existence, if the
underlying Mutual Fund has not been in existence for one of the prescribed
periods. For those underlying Mutual Funds which have not been held as
Sub-Accounts within the Variable Account for one of the quoted periods, the
average annual total return and nonstandardized total return quotations will
show the investment performance such underlying Mutual Funds would have achieved
(reduced by the applicable charges) had they been held as Sub-Accounts within
the Variable Account for the period quoted.
Quotations of average annual total return and total return are based upon
historical earnings and will fluctuate. Any quotation of performance, therefore,
would not be considered a guarantee of future performance. Factors affecting a
Sub-Account's performance include general market conditions, operating expenses
and investment management. A Contract Owner's account when redeemed may be more
or less than original cost.
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<PAGE> 54
UNDERLYING MUTUAL FUND PERFORMANCE SUMMARY
Non-Standardized Total Return
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
1 Year To 5 Years To Life of Fund Date Fund
SUB-ACCOUNT OPTIONS 12/31/96 12/31/96 To 12/31/96 Effective
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
American Century Variable 10.58% 5.17% 8.64 05-01-91
Portfolios, Inc.-American
Century VP Balanced
- -------------------------------------------------------------------------------------------------------
American Century Variable -5.72% 4.64% 9.22% 11-20-87
Portfolios, Inc.- American
Century VP Capital Appreciation
- -------------------------------------------------------------------------------------------------------
American Century Variable 12.74% N/A 6.17% 05-01-94
Portfolios, Inc.-American
Century VP International
- -------------------------------------------------------------------------------------------------------
American Century Variable N/A N/A 17.23% 05-01-96
Portfolios, Inc.-American
Century VP Value
- -------------------------------------------------------------------------------------------------------
Dreyfus Stock Index Fund 20.76% 12.99% 12.04% 09-29-89
- -------------------------------------------------------------------------------------------------------
Dreyfus Socially Responsible 19.47% N/A 17.74% 10-06-93
Growth Fund
- -------------------------------------------------------------------------------------------------------
Dreyfus Variable Investment 17.91% N/A 25.31% 05-02-94
Fund-Growth & Income Portfolio
- -------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-Equity-Income 12.62% 16.16% 12.04%* 10-09-86
Portfolio
- -------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-Growth 13.04% 13.51% 13.50%* 10-09-86
Portfolio
- -------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-High Income 12.37% 13.31% 9.52%* 09-19-85
Portfolio
- -------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-Overseas 11.57% 7.55% 6.33% 01-28-87
Portfolio
- -------------------------------------------------------------------------------------------------------
Fidelity VIP II Fund-Asset 12.94% 9.65% 10.07% 09-06-89
Manager Portfolio
- -------------------------------------------------------------------------------------------------------
Fidelity VIP II Fund-Contrafund 19.54% N/A 28.40% 07-01-95
Portfolio
- -------------------------------------------------------------------------------------------------------
NSAT-Capital Appreciation Fund 24.31% N/A 12.63% 04-15-92
- -------------------------------------------------------------------------------------------------------
NSAT-Government. Bond Fund 1.98% 5.49% 6.85%* 11-08-82
- -------------------------------------------------------------------------------------------------------
NSAT-Money Market Fund 3.60% 2.65% 4.20%* 11-10-81
- -------------------------------------------------------------------------------------------------------
NSAT-Small Company Fund 21.04% N/A 31.12% 10-23-95
- -------------------------------------------------------------------------------------------------------
NSAT-Total Return Fund 20.07% 12.15% 10.99%* 11-08-82
- -------------------------------------------------------------------------------------------------------
N&B Advisers Management 7.55% 8.24% 9.83%* 09-10-84
Trust-Growth Portfolio
- -------------------------------------------------------------------------------------------------------
N&B Advisers Management 2.79 3.79% 5.14%* 09-10-84
Trust-Limited Maturity Bond
Portfolio
- -------------------------------------------------------------------------------------------------------
NB Advisers Management 27.69% N/A 20.00% 03-22-94
Trust-Partners Portfolio
- -------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account 3.27% 6.12% 7.24%* 04-30-85
Funds-Bond Fund
- -------------------------------------------------------------------------------------------------------
</TABLE>
3
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<PAGE> 55
Non-Standardized Total Return
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
1 Year To 5 Years To Life of Fund Date Fund
SUB-ACCOUNT OPTIONS 12/31/96 12/31/96 To 12/31/96 Effective
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Oppenheimer Variable Account 16.09% 10.81% 9.09% 11-12-90
Funds-Global Securities Fund
- -------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account 13.82% 10.07% 9.92% 02-09-87
Funds-Multiple Strategies Fund
- -------------------------------------------------------------------------------------------------------
Strong Special Fund II, Inc. 16.43% N/A 17.23% 05-08-92
- -------------------------------------------------------------------------------------------------------
Strong Variable Insurance -0.66% N/A 10.67% 05-08-92
Funds, Inc.-Discovery Fund II,
Inc.
- -------------------------------------------------------------------------------------------------------
Strong Variable Insurance 8.78% N/A 9.35% 10-23-95
Funds, Inc.-International Stock
Fund II
- -------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance 1.03% 2.40% 5.14% 09-01-89
Trust-Worldwide Bond Fund
- -------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance 25.00% N/A 23.41% 12-27-95
Trust-Worldwide Emerging
Markets Fund
- -------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance 16.36% 12.90% 6.99% 09-01-89
Trust-Worldwide Hard Assets Fund
- -------------------------------------------------------------------------------------------------------
Van Kampen American Capital 38.49% N/A 29.74% 07-01-95
Life Investment Trust-Real
Estate Securities Fund
- -------------------------------------------------------------------------------------------------------
Warburg Pincus 8.39% N/A 9.47% 07-01-95
Trust-International Equity
Portfolio
- -------------------------------------------------------------------------------------------------------
Warburg Pincus Trust- N/A N/A -9.88% 09-30-96
Post-Venture Capital Trust
- -------------------------------------------------------------------------------------------------------
Warburg Pincus Trust-Small 12.25% N/A 24.70% 07-01-95
Company Growth Portfolio
- -------------------------------------------------------------------------------------------------------
</TABLE>
* Represents 10 years to 12/31/96
4
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<PAGE> 56
Standardized Average Annual Total Return
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
1 Year To 5 Years To Life of Fund Date Fund
SUB-ACCOUNT OPTIONS 12/31/96 12/31/96 To 12/31/96 Effective
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
American Century Variable 10.58% 5.17% 8.64% 5-01-91
Portfolios, Inc.-American Century
VP Balanced
- -----------------------------------------------------------------------------------------------------
American Century Variable -5.72% 4.64% 9.22% 11-20-87
Portfolios, Inc.-American Century
VP Capital Appreciation
- -----------------------------------------------------------------------------------------------------
American Century Variable 12.74% N/A 6.17% 05-01-94
Portfolios, Inc.-American Century
VP International
- -----------------------------------------------------------------------------------------------------
American Century Variable N/A N/A 17.23% 05-01-96
Portfolios, Inc.-American Century
VP Value
- -----------------------------------------------------------------------------------------------------
Dreyfus Stock Index Fund 20.76% 12.99% 12.04% 09-29-89
- -----------------------------------------------------------------------------------------------------
Dreyfus Socially Responsible 19.47% N/A 17.74% 10-06-93
Growth Fund
- -----------------------------------------------------------------------------------------------------
Dreyfus Variable Investment 17.91% N/A 25.31% 05-02-94
Fund-Growth & Income Portfolio
- -----------------------------------------------------------------------------------------------------
Fidelity VIP Fund-Equity-Income 12.62% 16.16% 12.04%* 10-09-86
Portfolio
- -----------------------------------------------------------------------------------------------------
Fidelity VIP Fund-Growth Portfolio 13.04% 13.51% 13.50%* 10-09-86
- -----------------------------------------------------------------------------------------------------
Fidelity VIP Fund-High Income 12.37% 13.31% 9.52%* 9-19-85
Portfolio
- -----------------------------------------------------------------------------------------------------
Fidelity VIP Fund-Overseas 11.57% 7.55% 6.33% 1-28-87
Portfolio
- -----------------------------------------------------------------------------------------------------
Fidelity VIP Fund II -Asset 12.94% 9.65% 10.07% 9-06-89
Manager Portfolio
- -----------------------------------------------------------------------------------------------------
Fidelity VIP Fund II -Contrafund 19.54% N/A 28.40% 7-01-95
Portfolio
- -----------------------------------------------------------------------------------------------------
NSAT-Capital Appreciation Fund 24.31% N/A 12.63% 4-15-92
- -----------------------------------------------------------------------------------------------------
NSAT-Government Bond Fund 1.98% 5.49% 6.85%* 11-08-82
- -----------------------------------------------------------------------------------------------------
NSAT-Money Market Fund 3.60% 2.65% 4.20%* 11-10-81
- -----------------------------------------------------------------------------------------------------
NSAT-Small Company Fund 21.04% N/A 31.12% 10-23-95
- -----------------------------------------------------------------------------------------------------
NSAT-Total Return Fund 20.07% 12.15% 10.99%* 11-08-82
- -----------------------------------------------------------------------------------------------------
N&B Advisers Management 7.55% 8.24% 9.83%* 9-10-84
Trust-Growth Portfolio
- -----------------------------------------------------------------------------------------------------
N&B Advisers Management 2.79% 3.79% 5.14%* 9-10-84
Trust-Limited Maturity Bond
Portfolio
- -----------------------------------------------------------------------------------------------------
N&B Advisers Management 27.69% N/A 20.00% 03-22-94
Trust-Partners Portfolio
- -----------------------------------------------------------------------------------------------------
Oppenheimer Variable Account 3.27% 6.12% 7.24%* 4-30-85
Funds-Bond Fund
- -----------------------------------------------------------------------------------------------------
Oppenheimer Variable Account 16.09% 10.81% 9.09% 11-12-90
Funds-Global Securities Fund
- -----------------------------------------------------------------------------------------------------
</TABLE>
5
56 of 112
<PAGE> 57
Standardized Average Annual Total Return
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
1 Year To 5 Years To Life of Fund Date Fund
SUB-ACCOUNT OPTIONS 12/31/96 12/31/96 To 12/31/96 Effective
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Oppenheimer Variable Account 13.82% 10.07% 9.92% 2-09-87
Funds-Multiple Strategies Fund
- ------------------------------------------------------------------------------------------------------
Strong Special Fund II, Inc. 16.43% N/A 17.23% 5-08-92
- ------------------------------------------------------------------------------------------------------
Strong Variable Insurance Funds, -0.66% N/A 10.67% 5-08-92
Inc.-Discovery Fund II, Inc.
- ------------------------------------------------------------------------------------------------------
Strong Variable Insurance Funds, 8.78% N/A 9.35% 10-23-95
Inc.-International Stock Fund II
- ------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance 1.03% 2.40% 5.14% 9-01-89
Trust-Worldwide Bond Fund
- ------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance 25.00% N/A 23.41% 12-27-95
Trust-Worldwide Emerging Markets
Fund
- ------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance 16.36% 12.90% 6.69% 9-01-89
Trust-Worldwide Hard Assets Fund
- ------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life 38.49% N/A 29.74% 07-01-95
Investment Trust-Real Estate
Securities Fund
- ------------------------------------------------------------------------------------------------------
Warburg Pincus Trust-International 8.39% N/A 9.47% 07-01-95
Equity Portfolio
- ------------------------------------------------------------------------------------------------------
Warburg Pincus Trust- N/A N/A -9.88% 09-30-96
Post-Venture Capital Trust
- ------------------------------------------------------------------------------------------------------
Warburg Pincus Trust-Small Company 12.25% N/A 24.70% 07-01-95
Growth Portfolio
- ------------------------------------------------------------------------------------------------------
</TABLE>
* Represents 10 years to 12/31/96.
Annuity Payments
See "Frequency and Amount of Annuity Payments" located in the prospectus.
6
57 of 112
<PAGE> 58
<PAGE> 1
- --------------------------------------------------------------------------------
Independent Auditors' Report
----------------------------
The Board of Directors of Nationwide Life and Annuity Insurance Company and
Contract Owners of Nationwide VA Separate Account-B:
We have audited the accompanying statement of assets, liabilities and
contract owners' equity of Nationwide VA Separate Account-B as of December 31,
1996, and the related statement of operations and changes in contract owners'
equity and schedule of changes in unit value for the period February 1, 1996
(commencement of operations) through December 31, 1996. These financial
statements and schedule 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 schedule of changes in unit value based on our audit.
We conducted our audit 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 schedule 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 include confirmation of securities
owned as of December 31, 1996, by correspondence with the transfer agents of the
underlying mutual funds. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and schedule of changes in unit
value referred to above present fairly, in all material respects, the financial
position of Nationwide VA Separate Account-B as of December 31, 1996, and the
results of its operations and its changes in contract owners' equity and the
schedule of changes in unit value for the period February 1, 1996 (commencement
of operations) through December 31, 1996, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Columbus, Ohio
February 7, 1997
- --------------------------------------------------------------------------------
<PAGE> 2
- --------------------------------------------------------------------------------
NATIONWIDE VA SEPARATE ACCOUNT-B
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY
December 31, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at market value:
The Dreyfus Socially Responsible Growth Fund, Inc. (DrySRGro)
22,475 shares (cost $461,821) .............................. $ 451,523
Dreyfus Stock Index Fund (DryStkIx)
145,638 shares (cost $2,912,479) ........................... 2,953,547
Fidelity VIP - Equity-Income Portfolio (FidVIPEI)
522,646 shares (cost $10,282,309) .......................... 10,991,255
Fidelity VIP - Growth Portfolio (FidVIPGr)
405,339 shares (cost $12,515,252) .......................... 12,622,269
Fidelity VIP - High Income Portfolio (FidVIPHI)
471,267 shares (cost $5,771,718) ........................... 5,900,268
Fidelity VIP - Overseas Portfolio (FidVIPOv)
76,436 shares (cost $1,370,463) ............................ 1,440,045
Fidelity VIP-II - Asset Manager Portfolio (FidVIPAM)
66,425 shares (cost $1,060,690) ............................ 1,124,582
Fidelity VIP-II - Contrafund Portfolio (FidVIPCon)
468,227 shares (cost $7,387,625) ........................... 7,753,842
Nationwide SAT - Capital Appreciation Fund (NSATCapAp)
117,920 shares (cost $1,922,166) ........................... 1,919,737
Nationwide SAT - Government Bond Fund (NSATGvtBd)
118,335 shares (cost $1,290,642) ........................... 1,306,420
Nationwide SAT - Money Market Fund (NSATMyMkt)
10,277,985 shares (cost $10,277,985) ....................... 10,277,985
Nationwide SAT - Small Company Fund (NSATSmCo)
104,407 shares (cost $1,434,104) ........................... 1,450,211
Nationwide SAT - Total Return Fund (NSATTotRe)
78,782 shares (cost $1,011,248) ............................ 1,045,432
Neuberger & Berman - Growth Portfolio (NBAMTGro)
23,647 shares (cost $594,000) .............................. 609,609
Neuberger & Berman - Limited Maturity Bond Portfolio (NBAMTLMat)
289,563 shares (cost $3,959,347) ........................... 4,068,367
Neuberger & Berman - Partners Portfolio (NBAMTPart)
291,016 shares (cost $4,604,615) ........................... 4,795,946
Oppenheimer - Bond Fund (OppBdFd)
183,493 shares (cost $2,130,162) ........................... 2,134,021
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
Oppenheimer - Global Securities Fund (OppGlSec)
73,250 shares (cost $1,212,117) .................................. 1,291,396
Oppenheimer - Multiple Strategies Fund (OppMult)
28,609 shares (cost $435,353) .................................... 447,154
Strong Special Fund II, Inc. (StSpec2)
361,822 shares (cost $6,803,040) ................................. 6,961,452
Strong VIF - Strong Discovery Fund II (StDisc2)
75,593 shares (cost $796,573) .................................... 816,409
Strong VIF - Strong International Stock Fund II (StIntStk2)
201,863 shares (cost $2,264,287) ................................. 2,266,927
TCI Portfolios - TCI Balanced (TCIBal)
69,775 shares (cost $509,056) .................................... 526,105
TCI Portfolios - TCI Growth (TCIGro)
118,671 shares (cost $1,277,993) ................................. 1,215,196
TCI Portfolios - TCI International (TCIInt)
195,257 shares (cost $1,105,902) ................................. 1,163,732
Van Eck - Gold and Natural Resources Fund (VEGoldNR)
42,877 shares (cost $698,026) .................................... 716,912
Van Eck - Worldwide Bond Fund (VEWrldBd)
69,765 shares (cost $758,062) .................................... 774,393
Van Eck - Worldwide Emerging Markets Fund (VEWrldEMkt)
605 shares (cost $7,500) ......................................... 7,561
Van Kampen American Capital - Real Estate Securities Fund (VKACRESec)
119,102 shares (cost $1,579,015) ................................. 1,760,335
Warburg Pincus - International Equity Portfolio (WPIntEq)
356,487 shares (cost $4,077,193) ................................. 4,092,473
Warburg Pincus - Post Venture Capital Portfolio (WPPVenCap)
756 shares (cost $7,300) ......................................... 7,383
Warburg Pincus - Small Company Growth Portfolio (WPSmCoGr)
330,291 shares (cost $4,586,521) ................................. 4,706,652
-----------
Total investments ................................................ 97,599,139
Accounts receivable .................................................... 2,557
-----------
Total assets ..................................................... 97,601,696
ACCOUNTS PAYABLE .......................................................... 860,715
-----------
CONTRACT OWNERS' EQUITY (NOTE 4) .......................................... $96,740,981
===========
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
<PAGE> 4
- --------------------------------------------------------------------------------
NATIONWIDE VA SEPARATE ACCOUNT-B
STATEMENT OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
For the Period February 1, 1996 (commencement of operations)
Through December 31, 1996
<TABLE>
<CAPTION>
1996
------------
<S> <C>
INVESTMENT ACTIVITY:
Reinvested capital gains and dividends ............... $ 804,126
Mortality, expense and administration charges (note 2) (502,691)
------------
Net investment activity ........................... 301,435
------------
Proceeds from mutual fund shares sold ................ 76,703,639
Cost of mutual fund shares sold ...................... (75,779,842)
------------
Realized gain (loss) on investments ............... 923,797
Change in unrealized gain (loss) on investments ...... 2,494,576
------------
Net gain (loss) on investments .................... 3,418,373
------------
Net increase (decrease) in contract owners'
equity resulting from operations ............ 3,719,808
------------
EQUITY TRANSACTIONS:
Purchase payments received from contract owners ...... 95,174,558
Redemptions .......................................... (2,157,551)
Adjustments to maintain reserves ..................... 4,166
------------
Net equity transactions ........................ 93,021,173
------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ................... 96,740,981
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ............. --
------------
CONTRACT OWNERS' EQUITY END OF PERIOD ................... $ 96,740,981
============
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
<PAGE> 5
- --------------------------------------------------------------------------------
NATIONWIDE VA SEPARATE ACCOUNT-B
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Nature of Operations
The Nationwide VA Separate Account-B (the Account) was established
pursuant to a resolution of the Board of Directors of Nationwide Life and
Annuity Insurance Company (the Company) on March 6, 1991. The Account has been
registered as a unit investment trust under the Investment Company Act of 1940.
The Company offers tax qualified and non-tax qualified Individual Deferred
Variable Annuity Contracts through the Account. The primary distribution for the
contracts is through the brokerage community; however, other distributors are
utilized.
(b) The Contracts
Only contracts without a sales charge, but with certain other fees are
offered for purchase. See note 2 for a discussion of contract expenses.
Contract owners in either the accumulation or payout phase may invest in
the following:
Portfolio of Dreyfus Variable Investment Fund (Dreyfus);
Dreyfus - Growth andIncome Portfolio (DryGroInc)
The Dreyfus Socially Responsible Growth Fund, Inc. (DrySRGro)
Dreyfus Stock Index Fund (DryStkIx)
Portfolios of the Fidelity Variable Insurance Products Fund (Fidelity
VIP);
Fidelity VIP - Equity-Income Portfolio (FidVIPEI)
Fidelity VIP - Growth Portfolio (FidVIPGr)
Fidelity VIP - High Income Portfolio (FidVIPHI)
Fidelity VIP - Overseas Portfolio (FidVIPOv)
Portfolios of the Fidelity Variable Insurance Products Fund II
(Fidelity VIP-II);
Fidelity VIP-II - Asset Manager Portfolio (FidVIPAM)
Fidelity VIP-II - Contrafund Portfolio (FidVIPCon)
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 - Small Company Fund (NSATSmCo)
Nationwide SAT - Total Return Fund (NSATTotRe)
Portfolios of the Neuberger & Berman Advisers Management Trust
(Neuberger & Berman);
Neuberger & Berman - Growth Portfolio (NBAMTGro)
Neuberger & Berman - Limited Maturity Bond Portfolio (NBAMTLMat)
Neuberger & Berman - Partners Portfolio (NBAMTPart)
Funds of the Oppenheimer Variable Account Funds (Oppenheimer);
Oppenheimer - Bond Fund (OppBdFd)
Oppenheimer - Global Securities Fund (OppGlSec)
Oppenheimer - Multiple Strategies Fund (OppMult)
<PAGE> 6
Strong Special Fund II, Inc. (StSpec2)
Funds of the Strong Variable Insurance Funds, Inc. (Strong VIF);
Strong VIF - Strong Discovery Fund II (StDisc2)
Strong VIF - Strong International Stock Fund II (StIntStk2)
Portfolios of the TCI Portfolios, Inc. (TCI Portfolios);
TCI Portfolios - TCI Balanced (TCIBal)
TCI Portfolios - TCI Growth (TCIGro)
TCI Portfolios - TCI International (TCIInt)
TCI Portfolios - TCI Value (TCIValue)
Funds of the Van Eck Worldwide Insurance Trust (Van Eck);
Van Eck - Gold and Natural Resources Fund (VEGoldNR)
Van Eck - Worldwide Bond Fund (VEWrldBd)
Van Eck - Worldwide Emerging Markets Fund (VEWrldEMkt)
Fund of the Van Kampen American Capital Life Investment Trust (Van
Kampen American Capital);
Van Kampen American Capital - Real Estate Securities Fund
(VKACRESec)
Portfolios of the Warburg Pincus Trust (Warburg Pincus);
Warburg Pincus - International Equity Portfolio (WPIntEq)
Warburg Pincus - Post Venture Capital Portfolio (WPPVenCap)
Warburg Pincus - Small Company Growth Portfolio (WPSmCoGr)
At December 31, 1996, contract owners have invested in all of the above
funds except the Dreyfus - Growth andIncome Portfolio and the TCI Portfolios -
TCI Value. The contract owners' equity is affected by the investment results of
each fund, equity transactions by contract owners and certain contract expenses
(see note 2).
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 benefits, the latter being
included in the accounts of the Company.
(c) Security Valuation, Transactions and Related Investment Income
The market value of the underlying mutual funds is based on the closing
net asset value per share at December 31, 1996. The cost of investments sold is
determined on the specific identification basis. Investment transactions are
accounted for on the trade date (date the order to buy or sell is executed) and
dividend income is recorded on the ex-dividend date.
(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.
(2) EXPENSES
The Company does not deduct a sales charge from purchase payments made for
these contracts, nor is any sales charge deducted upon the surrender of the
contract.
The following contract charges are deducted by the Company: a mortality
risk charge, an expense risk charge and an administration charge assessed
through the daily unit value calculation equal to an annual rate of 0.80%, 0.45%
and 0.20%, respectively.
<PAGE> 7
(3) 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 for each
series, as applicable, in the following format:
- Beginning unit value - Feb. 1
- Reinvested capital gains and dividends
(This amount reflects the increase in the unit value due to
capital gains and dividend distributions from the underlying
mutual funds.)
- Unrealized gain (loss)
(This amount reflects the increase (decrease) in the unit value
resulting from the market appreciation (depreciation) of the
underlying mutual funds.)
- Contract charges
(This amount reflects the decrease in the unit value due to the
mortality risk charge, an expense risk charge and an
administration charge discussed in note 2.)
- Ending unit value - Dec. 31
- Percentage increase (decrease) in unit value.
For contracts in the payout phase, an assumed investment return of 3.5%,
used in the calculation of the annuity benefit payment amount, results in a
corresponding reduction in the components of the unit values as shown in
Schedule I.
<PAGE> 8
(4) COMPONENTS OF CONTRACT OWNERS' EQUITY
The following is a summary of contract owners' equity at December 31, 1996.
<TABLE>
<CAPTION>
Contract owners' equity represented by: UNITS UNIT VALUE
------- ----------
<S> <C> <C> <C>
The Dreyfus Socially Responsible Growth Fund, Inc.:
Tax qualified ................................... 10,096 $ 11.402663 $ 115,121
Non-tax qualified ............................... 29,501 11.402663 336,390
Dreyfus Stock Index Fund:
Tax qualified ................................... 64,418 11.644617 750,123
Non-tax qualified ............................... 189,227 11.644617 2,203,476
Fidelity VIP - Equity-Income Portfolio:
Tax qualified ................................... 320,026 10.958584 3,507,032
Non-tax qualified ............................... 682,976 10.958584 7,484,450
Fidelity VIP - Growth Portfolio:
Tax qualified ................................... 230,586 11.057399 2,549,681
Non-tax qualified ............................... 910,947 11.057399 10,072,704
Fidelity VIP - High Income Portfolio:
Tax qualified ................................... 291,879 10.970108 3,201,944
Non-tax qualified ............................... 245,978 10.970108 2,698,405
Fidelity VIP - Overseas Portfolio:
Tax qualified ................................... 36,697 10.915770 400,576
Non-tax qualified ............................... 95,229 10.915770 1,039,498
Fidelity VIP-II - Asset Manager Portfolio:
Tax qualified ................................... 38,401 11.029343 423,538
Non-tax qualified ............................... 63,564 11.029343 701,069
Fidelity VIP-II - Contrafund Portfolio:
Tax qualified ................................... 255,409 11.815914 3,017,891
Non-tax qualified ............................... 400,821 11.815914 4,736,066
Nationwide SAT - Capital Appreciation Fund:
Tax qualified ................................... 89,481 11.899746 1,064,801
Non-tax qualified ............................... 71,846 11.899746 854,949
Nationwide SAT - Government Bond Fund:
Tax qualified ................................... 30,956 10.149155 314,177
Non-tax qualified ............................... 97,767 10.149155 992,252
Nationwide SAT - Money Market Fund:
Tax qualified ................................... 283,411 10.326243 2,926,571
Non-tax qualified ............................... 628,692 10.326243 6,492,026
Nationwide SAT - Small Company Fund:
Tax qualified ................................... 49,485 12.152247 601,354
Non-tax qualified ............................... 69,854 12.152247 848,883
Nationwide SAT - Total Return Fund:
Tax qualified ................................... 32,415 11.639579 377,297
Non-tax qualified ............................... 57,403 11.639579 668,147
Neuberger & Berman - Growth Portfolio:
Tax qualified ................................... 7,597 10.469935 79,540
Non-tax qualified ............................... 50,629 10.469935 530,082
Neuberger & Berman - Limited Maturity Bond Portfolio:
Tax qualified ................................... 123,635 10.209208 1,262,215
Non-tax qualified ............................... 274,872 10.209208 2,806,225
Neuberger & Berman - Partners Portfolio:
Tax qualified ................................... 177,265 12.248582 2,171,245
Non-tax qualified ............................... 214,292 12.248582 2,624,773
</TABLE>
<PAGE> 9
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Oppenheimer - Bond Fund:
Tax qualified ............................... 55,343 10.288722 569,409
Non-tax qualified ........................... 152,075 10.288722 1,564,657
Oppenheimer - Global Securities Fund:
Tax qualified ............................... 40,161 11.201956 449,882
Non-tax qualified ........................... 75,124 11.201956 841,536
Oppenheimer - Multiple Strategies Fund:
Tax qualified ............................... 6,127 11.129020 68,188
Non-tax qualified ........................... 34,052 11.129020 378,965
Strong Special Fund II, Inc.:
Tax qualified ............................... 312,712 11.319705 3,539,808
Non-tax qualified ........................... 302,280 11.319705 3,421,720
Strong VIF - Strong Discovery Fund II:
Tax qualified ............................... 27,130 9.903046 268,670
Non-tax qualified ........................... 55,312 9.903046 547,757
Strong VIF - Strong International Stock Fund II:
Tax qualified ............................... 61,841 10.462103 646,987
Non-tax qualified ........................... 154,841 10.462103 1,619,962
TCI Portfolios - TCI Balanced:
Tax qualified ............................... 13,228 10.871600 143,810
Non-tax qualified ........................... 35,163 10.871600 382,278
TCI Portfolios - TCI Growth:
Tax qualified ............................... 46,612 9.371161 436,809
Non-tax qualified ........................... 83,063 9.371161 778,397
TCI Portfolios - TCI International:
Tax qualified ............................... 27,097 11.142834 301,937
Non-tax qualified ........................... 77,343 11.142834 861,820
Van Eck - Gold and Natural Resources Fund:
Tax qualified ............................... 22,227 10.132333 225,211
Non-tax qualified ........................... 48,531 10.132333 491,732
Van Eck - Worldwide Bond Fund:
Tax qualified ............................... 39,599 10.189870 403,509
Non-tax qualified ........................... 36,398 10.189870 370,891
Van Eck - Worldwide Emerging Markets Fund:
Non-tax qualified ........................... 750 10.077496 7,558
Van Kampen American Capital-Real Estate
Securities Fund:
Tax qualified ............................... 63,345 13.626341 863,161
Non-tax qualified ........................... 65,843 13.626341 897,199
Warburg Pincus - International Equity Portfolio:
Tax qualified ............................... 113,387 10.450529 1,184,954
Non-tax qualified ........................... 278,224 10.450529 2,907,588
Warburg Pincus - Post Venture Capital Portfolio:
Non-tax qualified ........................... 726 10.163437 7,379
Warburg Pincus - Small Company Growth Portfolio:
Tax qualified ............................... 104,843 11.231071 1,177,499
Non-tax qualified ........................... 314,236 11.231071 3,529,207
------- --------- ---------
$96,740,981
===========
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 10
- --------------------------------------------------------------------------------
SCHEDULE I
NATIONWIDE VA SEPARATE ACCOUNT-B
TAX QUALIFIED and NON-TAX QUALIFIED
SCHEDULE OF CHANGES IN UNIT VALUE
For the Period February 1, 1996 (commencement of operations)
Through December 31, 1996
<TABLE>
<CAPTION>
DrySRGro DryStkix FidVIPEI FidVIPGr FidVIPHI FidVIPOv
-------- -------- -------- -------- -------- --------
1996
<S> <C> <C> <C> <C> <C> <C>
Beginning unit value - Feb. 1 $10.000000 10.000000 10.000000 10.000000 10.000000 10.000000
- ----------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .492388 .415384 .448815 .702576 .889968 .240688
- ----------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 1.050316 1.370272 .646554 .496044 .218835 .812340
- ----------------------------------------------------------------------------------------------------------------------
Contract charges (.140041) (.141039) (.136785) (.141221) (.138695) (.137258)
- ----------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $11.402663 11.644617 10.958584 11.057399 10.970108 10.915770
- ----------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 14% 16% 10% 11% 10% 9%
======================================================================================================================
<CAPTION>
FidVIPAM FidVIPCon NSATCapAp NSATGvtBd
-------- --------- --------- ---------
1996
<S> <C> <C> <C> <C>
Beginning unit value - Feb. 1 10.000000 10.000000 10.000000 10.000000
- ----------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .642372 .093123 .495879 .615172
- ----------------------------------------------------------------------------------------
Unrealized gain (loss) .524178 1.865417 1.546079 (.335408)
- ----------------------------------------------------------------------------------------
Contract charges (.137207) (.142626) (.142212) (.130609)
- ----------------------------------------------------------------------------------------
Ending unit value - Dec. 31 11.029343 11.815914 11.899746 10.149155
- ----------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 10% 18% 19% 1%
========================================================================================
* This is not an annualized rate of return as it is the change for the period
indicated.
</TABLE>
<PAGE> 11
SCHEDULE I, CONTINUED
NATIONWIDE VA SEPARATE ACCOUNT-B
TAX QUALIFIED and NON-TAX QUALIFIED
SCHEDULE OF CHANGES IN UNIT VALUE
For the Period February 1, 1996 (commencement of operations)
Through December 31, 1996
<TABLE>
<CAPTION>
NSATMyMkt NSATSmCo NSATTotRe NBAMTGro NBAMTLMat NBAMTPart OppBdFd OppGLSec
--------- -------- --------- -------- --------- --------- ------- --------
1996
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning unit value - Feb. 1 $10.000000 10.000000 10.000000 10.000000 10.000000 10.000000 10.000000 10.000000
- ---------------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .460992 .117127 .645040 .882507 .835242 .390600 .638603 .000000
- ---------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .000000 2.186677 1.135114 (.278131) (.493540) 2.002277 (.217537) 1.340389
- ---------------------------------------------------------------------------------------------------------------------------------
Contract charges (.134749) (.151557) (.140575) (.134441) (.132494) (.144295) (.132344) (.138433)
- ---------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $10.326243 12.152247 11.639579 10.469935 10.209208 12.248582 10.288722 11.201956
- ---------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 3% 22% 16% 5% 2% 22% 3% 12%
=================================================================================================================================
<CAPTION>
OppMult St.Spec2 StDisc2 StintStk2
------- -------- ------- ---------
1996
<S> <C> <C> <C> <C>
Beginning unit value - Feb. 1 10.000000 10.000000 10.000000 10.000000
- ---------------------------------------------------------------------------------
Reinvested capital gains
and dividends .742762 .456697 2.028193 .047861
- ---------------------------------------------------------------------------------
Unrealized gain (loss) .524984 1.002196 (1.996989) .552209
- ---------------------------------------------------------------------------------
Contract charges (.138726) (.139188) (.128158) (.137967)
- ---------------------------------------------------------------------------------
Ending unit value - Dec. 31 11.129020 11.319705 9.903046 10.462103
- ---------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 11% 13% (1)% 5%
=================================================================================
<FN>
* This is not an annualized rate of return as it is the change for the period
indicated.
</TABLE>
<PAGE> 12
SCHEDULE I, CONTINUED
NATIONWIDE VA SEPARATE ACCOUNT-B
TAX QUALIFIED and NON-TAX QUALIFIED
SCHEDULE OF CHANGES IN UNIT VALUE
For the Period February 1, 1996 (commencement of operations)
Through December 31, 1996
<TABLE>
<CAPTION>
TCIBal TCIGro TCIint VEGoldNR VEWrldBd VEWrldEMkt
------ ------ ------ -------- -------- ----------
1996
<S> <C> <C> <C> <C> <C> <C>
Beginning unit value - Feb. 1 $10.000000 10.000000 10.000000 10.000000 10.000000 10.000000
- -----------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .464101 1.113558 .234571 .184293 .274473 .000000
- -----------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .544727 (1.611001) 1.046291 .078725 .047392 .080691
- -----------------------------------------------------------------------------------------------------------------------
Contract charges (.137228) (.131396) (.138028) (.130685) (.131995) (.003195)
- -----------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $10.871600 9.371161 11.142834 10.132333 10.189870 10.077496
- -----------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 9% (6)% 11% 1% 2% 1%(b)
=======================================================================================================================
<CAPTION>
VKACRESec WPlntEq WPPVenCap WPSmCoGr
--------- ------- --------- --------
1996
<S> <C> <C> <C> <C>
Beginning unit value - Feb. 1 10.000000 10.000000 10.000000 10.000000
- -----------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .262264 .203841 .000000 .000000
- -----------------------------------------------------------------------------------------
Unrealized gain (loss) 3.509141 .382585 .166644 1.376228
- -----------------------------------------------------------------------------------------
Contract charges (.145064) (.135897) (.003207) (.145157)
- -----------------------------------------------------------------------------------------
Ending unit value - Dec. 31 13.626341 10.450529 10.163437 11.231071
- -----------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 36% 5% 2%(b) 12%
==========================================================================================
<FN>
* An annualized rate of return cannot be determined as:
(a)This is the change for the period indicated; and
(b)This investment option was not being utilized for the entire period
indicated.
</TABLE>
See note 3.
- --------------------------------------------------------------------------------
<PAGE> 59
<PAGE> 1
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Nationwide Life and Annuity Insurance Company:
We have audited the accompanying balance sheets of Nationwide Life and Annuity
Insurance Company, a wholly owned subsidiary of Nationwide Life Insurance
Company, as of December 31, 1996 and 1995, and the related statements of income,
shareholder's equity and cash flows for each of the years in the three-year
period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Nationwide Life and Annuity
Insurance Company as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
In 1994, the Company adopted the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities.
KPMG Peat Marwick LLP
Columbus, Ohio
January 31, 1997
<PAGE> 2
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Balance Sheets
December 31, 1996 and 1995
($000's omitted)
<TABLE>
<CAPTION>
Assets 1996 1995
------ ---------- -------
<S> <C> <C>
Investments (notes 4, 7 and 8):
Securities available-for-sale, at fair value:
Fixed maturity securities (cost $640,303 in 1996; $539,214 in 1995) $ 648,076 555,751
Equity securities (cost $10,854 in 1996; $10,256 in 1995) 12,254 11,407
Mortgage loans on real estate, net 150,997 104,736
Real estate, net 1,090 1,117
Policy loans 126 94
Short-term investments (note 12) 492 4,844
---------- -------
813,035 677,949
---------- -------
Cash 4,296 --
Accrued investment income 9,189 8,464
Deferred policy acquisition costs 16,168 23,405
Deferred federal income tax (note 6) 4,735 --
Other assets 32,747 208
Assets held in Separate Accounts (note 7) 486,251 257,556
---------- -------
$1,366,421 967,582
========== =======
Liabilities and Shareholder's Equity
------------------------------------
Future policy benefits and claims (notes 5 and 7) $ 80,720 621,280
Funds withheld under coinsurance agreement with affiliate (note 12) 679,571 --
Accrued federal income tax (note 6):
Current 7,914 708
Deferred -- 2,830
---------- -------
7,914 3,538
---------- -------
Other liabilities 27,928 5,031
Liabilities related to Separate Accounts (note 7) 486,251 257,556
---------- -------
1,282,384 887,405
---------- -------
Commitments (notes 7 and 8)
Shareholder's equity (notes 3, 4 and 11):
Capital shares, $40 par value. Authorized, issued and outstanding 66,000 shares 2,640 2,640
Additional paid-in capital 52,960 52,960
Retained earnings 25,209 20,123
Unrealized gains on securities available-for-sale, net 3,228 4,454
---------- -------
84,037 80,177
---------- -------
$1,366,421 967,582
========== =======
</TABLE>
See accompanying notes to financial statements.
<PAGE> 3
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Statements of Income
Years ended December 31, 1996, 1995 and 1994
($000's omitted)
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Revenues (note 13):
Investment product and universal life insurance product policy charges $ 6,656 4,322 3,601
Traditional life insurance premiums 246 674 311
Net investment income (note 4) 51,045 49,108 45,030
Realized losses on investments (note 4) (3) (702) (625)
-------- ------- -------
57,944 53,402 48,317
-------- ------- -------
Benefits and expenses:
Benefits and claims 35,524 34,180 29,870
Amortization of deferred policy acquisition costs 7,380 5,508 6,940
Other operating expenses (note 12) 7,247 6,567 6,320
-------- ------- -------
50,151 46,255 43,130
-------- ------- -------
Income before federal income tax expense 7,793 7,147 5,187
-------- ------- -------
Federal income tax expense (benefit) (note 6):
Current 9,612 2,012 2,103
Deferred (6,905) 361 (244)
-------- ------- -------
2,707 2,373 1,859
-------- ------- -------
Net income $ 5,086 4,774 3,328
======== ======= =======
</TABLE>
See accompanying notes to financial statements.
<PAGE> 4
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Statements of Shareholder's Equity
Years ended December 31, 1996, 1995 and 1994
($000's omitted)
<TABLE>
<CAPTION>
Unrealized
gains (losses)
Additional on securities Total
Capital paid-in Retained available-for- shareholder's
shares capital earnings sale, net equity
------- ---------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C>
1994:
Balance, beginning of year $2,640 43,960 12,021 38 58,659
Capital contribution -- 9,000 -- -- 9,000
Net income -- -- 3,328 -- 3,328
Adjustment for change in accounting for
certain investments in debt and equity
securities, net (note 3) -- -- -- 4,698 4,698
Unrealized losses on securities available-
for-sale, net -- -- -- (8,439) (8,439)
------ ------ ------ ------ -------
Balance, end of year $2,640 52,960 15,349 (3,703) 67,246
====== ====== ====== ====== =======
1995:
Balance, beginning of year 2,640 52,960 15,349 (3,703) 67,246
Net income -- -- 4,774 -- 4,774
Unrealized gains on securities available-
for-sale, net -- -- -- 8,157 8,157
------ ------ ------ ------ -------
Balance, end of year $2,640 52,960 20,123 4,454 80,177
====== ====== ====== ====== =======
1996:
Balance, beginning of year 2,640 52,960 20,123 4,454 80,177
Net income -- -- 5,086 -- 5,086
Unrealized losses on securities available-
for-sale, net -- -- -- (1,226) (1,226)
------ ------ ------ ------ -------
Balance, end of year $2,640 52,960 25,209 3,228 84,037
====== ====== ====== ====== =======
</TABLE>
See accompanying notes to financial statements.
<PAGE> 5
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
($000's omitted)
<TABLE>
<CAPTION>
1996 1995 1994
--------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 5,086 4,774 3,328
Adjustments to reconcile net income to net cash provided by
operating activities:
Capitalization of deferred policy acquisition costs (19,987) (6,754) (7,283)
Amortization of deferred policy acquisition costs 7,380 5,508 6,940
Commission and expense allowances under coinsurance
agreement with affiliate (note 12) 26,473 -- --
Amortization and depreciation 1,721 878 473
Realized losses on invested assets, net 3 702 625
Deferred federal income tax (benefit) expense (6,905) 361 (244)
Increase in accrued investment income (725) (423) (750)
(Increase) decrease in other assets (32,539) 62 (126)
(Decrease) increase in policy liabilities and funds withheld
on coinsurance agreement with affiliate (7,101) 627 926
Increase (decrease) in accrued federal income tax payable 7,206 698 (254)
Increase (decrease) in other liabilities 22,897 368 (505)
--------- ------- -------
Net cash provided by operating activities 3,509 6,801 3,130
--------- ------- -------
Cash flows from investing activities:
Proceeds from maturity of securities available-for-sale 73,966 41,729 24,850
Proceeds from sale of securities available-for-sale 2,480 3,070 13,170
Proceeds from maturity of fixed maturity securities held-to-maturity -- 11,251 8,483
Proceeds from repayments of mortgage loans on real estate 10,975 8,673 5,733
Proceeds from sale of real estate -- 655 --
Proceeds from repayments of policy loans 23 50 2
Cost of securities available-for-sale acquired (179,671) (79,140) (94,130)
Cost of fixed maturity securities held-to maturity acquired -- (8,000) (15,544)
Cost of mortgage loans on real estate acquired (57,395) (18,000) (11,000)
Cost of real estate acquired -- (10) (52)
Policy loans issued (55) (66) (80)
Short-term investments, net 4,352 (4,479) 1,407
--------- ------- -------
Net cash used in investing activities (145,325) (44,267) (67,161)
--------- ------- -------
Cash flows from financing activities:
Proceeds from capital contribution -- -- 9,000
Increase in investment product and universal life insurance
product account balances 235,286 79,523 95,254
Decrease in investment product and universal life insurance
product account balances (89,174) (42,057) (40,223)
--------- ------- -------
Net cash provided by financing activities 146,112 37,466 64,031
--------- ------- -------
Net increase in cash 4,296 -- --
Cash, beginning of year -- -- --
--------- ------- -------
Cash, end of year $ 4,296 -- --
========= ======= =======
</TABLE>
See accompanying notes to financial statements.
<PAGE> 6
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements
December 31, 1996, 1995 and 1994
($000's omitted)
(1) Organization and Description of Business
Nationwide Life and Annuity Insurance Company (the Company) is a wholly
owned subsidiary of Nationwide Life Insurance Company (NLIC).
The Company sells primarily fixed and variable rate annuities through
banks and other financial institutions. In addition, the Company sells
universal life and other interest-sensitive life insurance products and is
subject to competition from other financial services providers throughout
the United States. The Company is subject to regulation by the Insurance
Departments of states in which it is licensed, and undergoes periodic
examinations by those departments.
The following is a description of the most significant risks facing life
insurers and how the Company mitigates those risks:
Legal/Regulatory Risk is the risk that changes in the legal or
regulatory environment in which an insurer operates will create
additional expenses not anticipated by the insurer in pricing its
products. That is, regulatory initiatives, new legal theories or
insurance company insolvencies through guaranty fund assessments may
create costs for the insurer beyond those currently recorded in the
financial statements. The Company mitigates this risk by operating
throughout the United States, thus reducing its exposure to any single
jurisdiction, and also by employing underwriting practices which
identify and minimize the adverse impact of this risk.
Credit Risk is the risk that issuers of securities owned by the Company
or mortgagors on mortgage loans on real estate owned by the Company
will default. The Company minimizes this risk by adhering to a
conservative investment strategy, by maintaining credit and collection
policies and by providing for any amounts deemed uncollectible.
Interest Rate Risk is the risk that interest rates will change and
cause a decrease in the value of an insurer's investments. This change
in rates may cause certain interest-sensitive products to become
uncompetitive or may cause disintermediation. The Company mitigates
this risk by charging fees for non-conformance with certain policy
provisions, by offering products that transfer this risk to the
purchaser, and/or by attempting to match the maturity schedule of its
assets with the expected payouts of its liabilities. To the extent that
liabilities come due more quickly than assets mature, an insurer would
have to borrow funds or sell assets prior to maturity and potentially
recognize a gain or loss.
(2) Summary of Significant Accounting Policies
The significant accounting policies followed by the Company that
materially affect financial reporting are summarized below. The
accompanying financial statements have been prepared in accordance with
generally accepted accounting principles (GAAP) which differ from
statutory accounting practices prescribed or permitted by regulatory
authorities. An Annual Statement, filed with the Department of Insurance
of the State of Ohio (the Department), is prepared on the basis of
accounting practices prescribed or permitted by the Department. Prescribed
statutory accounting practices include a variety of publications of the
National Association of Insurance Commissioners (NAIC), as well as state
laws, regulations and general administrative rules. Permitted statutory
accounting practices encompass all accounting practices not so prescribed.
The Company has no material permitted statutory accounting practices.
In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosures of contingent assets and liabilities as of
the date of the financial statements and the reported amounts of revenues
and expenses for the reporting period. Actual results could differ
significantly from those estimates.
<PAGE> 7
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
The most significant estimates include those used in determining deferred
policy acquisition costs, valuation allowances for mortgage loans on real
estate and real estate investments and the liability for future policy
benefits and claims. Although some variability is inherent in these
estimates, management believes the amounts provided are adequate.
(a) Valuation of Investments and Related Gains and Losses
The Company is required to classify its fixed maturity securities and
equity securities as either held-to-maturity, available-for-sale or
trading. Fixed maturity securities are classified as held-to-maturity
when the Company has the positive intent and ability to hold the
securities to maturity and are stated at amortized cost. Fixed maturity
securities not classified as held-to-maturity and all equity securities
are classified as available-for-sale and are stated at fair value, with
the unrealized gains and losses, net of adjustments to deferred policy
acquisition costs and deferred federal income tax, reported as a
separate component of shareholder's equity. The adjustment to deferred
policy acquisition costs represents the change in amortization of
deferred policy acquisition costs that would have been required as a
charge or credit to operations had such unrealized amounts been
realized. The Company has no fixed maturity securities classified as
held-to-maturity or trading as of December 31, 1996 or 1995.
Mortgage loans on real estate are carried at the unpaid principal
balance less valuation allowances. The Company provides valuation
allowances for impairments of mortgage loans on real estate based on a
review by portfolio managers. The measurement of impaired loans is
based on the present value of expected future cash flows discounted at
the loan's effective interest rate or, as a practical expedient, at the
fair value of the collateral, if the loan is collateral dependent.
Loans in foreclosure and loans considered to be impaired are placed on
non-accrual status. Interest received on non-accrual status mortgage
loans on real estate are included in interest income in the period
received.
Real estate is carried at cost less accumulated depreciation and
valuation allowances. Other long-term investments are carried on the
equity basis, adjusted for valuation allowances. Impairment losses are
recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount.
Realized gains and losses on the sale of investments are determined on
the basis of specific security identification. Estimates for valuation
allowances and other than temporary declines are included in realized
gains and losses on investments.
(b) Revenues and Benefits
Investment Products and Universal Life Insurance Products: Investment
products consist primarily of individual variable and fixed annuities
and annuities without life contingencies. Universal life insurance
products include universal life insurance, variable universal life
insurance and other interest-sensitive life insurance policies.
Revenues for investment products and universal life insurance products
consist of net investment income, asset fees, cost of insurance, policy
administration and surrender charges that have been earned and assessed
against policy account balances during the period. Policy benefits and
claims that are charged to expense include interest credited to policy
account balances and benefits and claims incurred in the period in
excess of related policy account balances.
Traditional Life Insurance Products: Traditional life insurance
products include those products with fixed and guaranteed premiums and
benefits and consist primarily of certain annuities with life
contingencies. Premiums for traditional life insurance products are
recognized as revenue when due. Benefits and expenses are associated
with earned premiums so as to result in recognition of profits over the
life of the contract. This association is accomplished by the provision
for future policy benefits and the deferral and amortization of policy
acquisition costs.
<PAGE> 8
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
(c) Deferred Policy Acquisition Costs
The costs of acquiring new business, principally commissions, certain
expenses of the policy issue and underwriting department and certain
variable agency expenses have been deferred. For investment products
and universal life insurance products, deferred policy acquisition
costs are being amortized with interest over the lives of the policies
in relation to the present value of estimated future gross profits from
projected interest margins, asset fees, cost of insurance, policy
administration and surrender charges. For years in which gross profits
are negative, deferred policy acquisition costs are amortized based on
the present value of gross revenues. Deferred policy acquisition costs
are adjusted to reflect the impact of unrealized gains and losses on
fixed maturity securities available-for-sale as described in note 2(a).
(d) Separate Accounts
Separate Account assets and liabilities represent contractholders'
funds which have been segregated into accounts with specific investment
objectives. The investment income and gains or losses of these accounts
accrue directly to the contractholders. The activity of the Separate
Accounts is not reflected in the statements of income and cash flows
except for the fees the Company receives.
(e) Future Policy Benefits
Future policy benefits for investment products in the accumulation
phase, universal life insurance and variable universal life insurance
policies have been calculated based on participants' contributions plus
interest credited less applicable contract charges.
(f) Federal Income Tax
The Company files a consolidated federal income tax return with
Nationwide Mutual Insurance Company (NMIC). The members of the
consolidated tax return group have a tax sharing agreement which
provides, in effect, for each member to bear essentially the same
federal income tax liability as if separate tax returns were filed.
The Company utilizes the asset and liability method of accounting for
income tax. Under this method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered
or settled. Under this method, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. Valuation allowances are
established when necessary to reduce the deferred tax assets to the
amounts expected to be realized.
(g) Reinsurance Ceded
Reinsurance premiums ceded and reinsurance recoveries on benefits and
claims incurred are deducted from the respective income and expense
accounts. Assets and liabilities related to reinsurance ceded are
reported on a gross basis.
(h) Statements of Cash Flows
The Company routinely invests its available cash balances in highly
liquid, short-term investments with affiliated companies. See note 12.
As such, the Company had no cash balance as of December 31, 1995 and
1994.
<PAGE> 9
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
(i) Reclassification
Certain items in the 1995 and 1994 financial statements have been
reclassified to conform to the 1996 presentation.
(3) Change in Accounting Principle
Effective January 1, 1994, the Company changed its method of accounting
for certain investments in debt and equity securities in connection with
the issuance of Statement of Financial Accounting Standards (SFAS) No. 115
Accounting for Certain Investments in Debt and Equity Securities. As of
January 1, 1994, the Company classified fixed maturity securities with
amortized cost and fair value of $380,974 and $399,556, respectively, as
available-for-sale and recorded the securities at fair value. Previously,
these securities were recorded at amortized cost. The effect as of January
1, 1994, has been recorded as a direct credit to shareholder's equity as
follows:
<TABLE>
<S> <C>
Excess of fair value over amortized cost of fixed maturity
securities available-for-sale $ 18,582
Adjustment to deferred policy acquisition costs (11,355)
Deferred federal income tax (2,529)
--------
$ 4,698
========
</TABLE>
(4) Investments
The amortized cost and estimated fair value of securities
available-for-sale were as follows as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
1996: cost gains losses fair value
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Fixed maturity securities:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies $ 3,695 7 (78) 3,624
Obligations of states and political subdivisions 269 -- (2) 267
Debt securities issued by foreign governments 6,129 133 (8) 6,254
Corporate securities 393,371 5,916 (1,824) 397,463
Mortgage-backed securities 236,839 4,621 (992) 240,468
-------- ------- -------- -------
Total fixed maturity securities 640,303 10,677 (2,904) 648,076
Equity securities 10,854 1,540 (140) 12,254
-------- ------- -------- -------
$651,157 12,217 (3,044) 660,330
======== ======= ======== =======
1995:
Fixed maturity securities:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies $ 3,492 18 -- 3,510
Obligations of states and political subdivisions 271 -- (1) 270
Debt securities issued by foreign governments 6,177 301 -- 6,478
Corporate securities 332,425 10,116 (925) 341,616
Mortgage-backed securities 196,849 7,649 (621) 203,877
-------- ------- -------- -------
Total fixed maturity securities 539,214 18,084 (1,547) 555,751
Equity securities 10,256 1,151 -- 11,407
-------- ------- -------- -------
$549,470 19,235 (1,547) 567,158
======== ======= ======== =======
</TABLE>
<PAGE> 10
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
The amortized cost and estimated fair value of fixed maturity securities
available-for-sale as of December 31, 1996, by contractual maturity, are
shown below. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Estimated
cost fair value
--------- ----------
<S> <C> <C>
Fixed maturity securities available-for-sale:
Due in one year or less $ 43,219 43,441
Due after one year through five years 198,045 200,453
Due after five years through ten years 121,820 122,595
Due after ten years 40,380 41,119
-------- -------
403,464 407,608
Mortgage-backed securities 236,839 240,468
-------- -------
$640,303 648,076
======== =======
</TABLE>
The components of unrealized gains on securities available-for-sale, net,
were as follows as of December 31:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Gross unrealized gains $ 9,173 17,688
Adjustment to deferred policy acquisition
costs (4,207) (10,836)
Deferred federal income tax (1,738) (2,398)
------- -------
$ 3,228 4,454
======= =======
</TABLE>
An analysis of the change in gross unrealized gains (losses) on securities
available-for-sale and fixed maturity securities held-to-maturity follows
for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------ -------
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturity securities $ (8,764) 30,647 (32,692)
Equity securities 249 1,283 (190)
Fixed maturity securities
held-to-maturity -- 3,941 (8,407)
-------- ------ -------
$ (8,515) 35,871 (41,289)
======== ====== =======
</TABLE>
Proceeds from the sale of securities available-for-sale during 1996, 1995
and 1994 were $2,480, $3,070 and $13,170, respectively. During 1996, gross
gains of $181 ($64 and $373 in 1995 and 1994, respectively) and no gross
losses ($6 and $73 in 1995 and 1994, respectively) were realized on those
sales.
During 1995, the Company transferred fixed maturity securities classified
as held-to-maturity with amortized cost of $2,000 to available-for-sale
securities due to evidence of a significant deterioration in the issuer's
creditworthiness. The transfer of those fixed maturity securities resulted
in a gross unrealized loss of $600.
As permitted by the Financial Accounting Standards Board's Special Report,
A Guide to Implementation of Statement 115 on Accounting for Certain
Investments in Debt and Equity Securities, issued in November 1995, the
Company transferred all of its fixed maturity securities previously
classified as held-to-maturity to available-for-sale. As of December 14,
1995, the date of transfer, the fixed maturity securities had amortized
cost of $77,405, resulting in a gross unrealized gain of $1,709.
The Company has no investments which were non-income producing for the
twelve month period preceding December 31, 1996 ($996 of fixed maturity
securities in 1995).
<PAGE> 11
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
Real estate is presented at cost less accumulated depreciation of $108 as
of December 31, 1996 ($81 as of December 31, 1995) and valuation
allowances of $229 as of December 31, 1996 ($229 as of December 31, 1995).
The recorded investment of mortgage loans on real estate considered to be
impaired (under SFAS No. 114 - Accounting by Creditors for Impairment of a
Loan as amended by SFAS No. 118 - Accounting by Creditors for Impairment
of a Loan-Income Recognition and Disclosure) as of December 31, 1996 was
$955 ($966 as of December 31, 1995), which includes $955 (none as of
December 31, 1995) of impaired mortgage loans on real estate for which the
related valuation allowance was $184 (none as of December 31, 1995) and
none ($966 as of December 31, 1995) of impaired mortgage loans on real
estate for which there was no valuation allowance. During 1996, the
average recorded investment in impaired mortgage loans on real estate was
approximately $964 ($242 in 1995) and interest income recognized on those
loans was $16 (none in 1995), which is equal to interest income recognized
using a cash-basis method of income recognition.
Activity in the valuation allowance account for mortgage loans on real
estate is summarized for the year ended December 31, 1996:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Allowance, beginning of year $750 860
Additional charged to operations 184 --
Reduction of the allowance credited
to operations -- (110)
---- ----
Allowance, end of year $934 750
==== ====
</TABLE>
An analysis of investment income by investment type follows for the years
ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------ ------
<S> <C> <C> <C>
Gross investment income:
Securities available-for-sale:
Fixed maturity securities $40,552 35,093 36,720
Equity securities 598 713 16
Fixed maturity securities
held-to-maturity -- 4,530 540
Mortgage loans on real estate 9,991 9,106 8,437
Real estate 214 273 175
Short-term investments 507 348 207
Other 57 41 19
------- ------ ------
Total investment income 51,919 50,104 46,114
Less: investment expenses 874 996 1,084
------- ------ ------
Net investment income $51,045 49,108 45,030
======= ====== ======
</TABLE>
An analysis of realized gains (losses) on investments, net of valuation
allowances, by investment type follows for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
----- ---- ----
<S> <C> <C> <C>
Fixed maturity securities available-for-sale $ 181 (822) 260
Mortgage loans on real estate (184) 110 (832)
Real estate and other -- 10 (53)
----- ---- ----
$ (3) (702) (625)
===== ==== ====
</TABLE>
Fixed maturity securities with an amortized cost of $3,403 and $2,806 as
of December 31, 1996 and 1995, respectively, were on deposit with various
regulatory agencies as required by law.
<PAGE> 12
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
(5) Future Policy Benefits
The liability for future policy benefits for investment contracts has been
established based on policy terms, interest rates and various contract
provisions. The average interest rate credited on investment product
policies was approximately 5.6%, 5.6% and 5.3% for the years ended
December 31, 1996, 1995 and 1994, respectively.
(6) Federal Income Tax
The tax effects of temporary differences that give rise to significant
components of the net deferred tax asset (liability) as of December 31,
1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
Deferred tax assets:
Liabilities in Separate Accounts $ 5,311 3,445
Future policy benefits 1,070 5,249
Mortgage loans on real estate and real estate 407 338
Other assets and other liabilities 3,836 708
-------- -------
Total gross deferred tax assets 10,624 9,740
-------- -------
Deferred tax liabilities:
Fixed maturity securities 3,268 6,308
Deferred policy acquisition costs 2,131 6,262
Equity securities 490 --
-------- -------
Total gross deferred tax liabilities 5,889 12,570
-------- -------
$ 4,735 (2,830)
======== =======
</TABLE>
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion of the
total gross deferred tax assets will not be realized. All future
deductible amounts can be offset by future taxable amounts or recovery of
federal income tax paid within the statutory carryback period. The Company
has determined that valuation allowances are not necessary as of December
31, 1996, 1995 and 1994 based on its analysis of future deductible
amounts.
Total federal income tax expense for the years ended December 31, 1996,
1995 and 1994 differs from the amount computed by applying the U.S.
federal income tax rate to income before tax as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------------- ---------------- ----------------
Amount % Amount % Amount %
------- ---- ------- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Computed (expected) tax expense $ 2,728 35.0 $ 2,501 35.0 $ 1,815 35.0
Tax exempt interest and dividends
received deduction (175) (2.3) (150) (2.1) (50) (1.0)
Other, net 154 2.0 22 0.3 94 1.8
------- ---- ------- ---- ------- ----
Total (effective rate of each year) $ 2,707 34.7 $ 2,373 33.2 $ 1,859 35.8
======= ==== ======= ==== ======= ====
</TABLE>
Total federal income tax paid was $2,335, $1,314 and $2,357 during the
years ended December 31, 1996, 1995 and 1994, respectively.
<PAGE> 13
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
(7) Disclosures about Fair Value of Financial Instruments
SFAS No. 107 - Disclosures about Fair Value of Financial Instruments (SFAS
107) requires disclosure of fair value information about existing on and
off-balance sheet financial instruments. SFAS 107 defines the fair value
of a financial instrument as the amount at which the financial instrument
could be exchanged in a current transaction between willing parties. In
cases where quoted market prices are not available, fair value is based on
estimates using present value or other valuation techniques.
These techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows. Although
fair value estimates are calculated using assumptions that management
believes are appropriate, changes in assumptions could cause these
estimates to vary materially. In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent markets
and, in many cases, could not be realized in the immediate settlement of
the instruments. SFAS 107 excludes certain assets and liabilities from its
disclosure requirements. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Company.
Although insurance contracts, other than policies such as annuities that
are classified as investment contracts, are specifically exempted from
SFAS 107 disclosures, estimated fair value of policy reserves on life
insurance contracts is provided to make the fair value disclosures more
meaningful.
The tax ramifications of the related unrealized gains and losses can have
a significant effect on fair value estimates and have not been considered
in the estimates.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures:
Cash, short-term investments and policy loans: The carrying amount
reported in the balance sheets for these instruments approximates their
fair value.
Fixed maturity and equity securities: Fair value for fixed maturity
securities is based on quoted market prices, where available. For fixed
maturity securities not actively traded, fair value is estimated using
values obtained from independent pricing services or, in the case of
private placements, is estimated by discounting expected future cash
flows using a current market rate applicable to the yield, credit
quality and maturity of the investments. The fair value for equity
securities is based on quoted market prices.
Separate Account assets and liabilities: The fair value of assets held
in Separate Accounts is based on quoted market prices. The fair value
of liabilities related to Separate Accounts is the amount payable on
demand, which includes certain surrender charges.
Mortgage loans on real estate: The fair value for mortgage loans on
real estate is estimated using discounted cash flow analyses, using
interest rates currently being offered for similar loans to borrowers
with similar credit ratings. Loans with similar characteristics are
aggregated for purposes of the calculations. Fair value for mortgages
in default is the estimated fair value of the underlying collateral.
Investment contracts: Fair value for the Company's liabilities under
investment type contracts is disclosed using two methods. For
investment contracts without defined maturities, fair value is the
amount payable on demand. For investment contracts with known or
determined maturities, fair value is estimated using discounted cash
flow analysis. Interest rates used are similar to currently offered
contracts with maturities consistent with those remaining for the
contracts being valued.
Policy reserves on life insurance contracts: The estimated fair value
is the amount payable on demand. Also included are disclosures for the
Company's limited payment policies, which the Company has used
discounted cash flow analyses similar to those used for investment
contracts with known maturities to estimate fair value.
<PAGE> 14
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
Commitments to extend credit: Commitments to extend credit have nominal
value because of the short-term nature of such commitments. See note 8.
Carrying amount and estimated fair value of financial instruments subject
to SFAS 107 and policy reserves on life insurance contracts were as
follows as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
----------------------- -----------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Assets
Investments:
Securities available-for-sale:
Fixed maturity securities $648,076 648,076 555,751 555,751
Equity securities 12,254 12,254 11,407 11,407
Mortgage loans on real estate, net 150,997 152,496 104,736 111,501
Policy loans 126 126 94 94
Short-term investments 492 492 4,844 4,844
Cash 4,296 4,296 -- --
Assets held in Separate Accounts 486,251 486,251 257,556 257,556
Liabilities
Investment contracts 75,417 72,262 616,984 601,582
Policy reserves on life insurance contracts 5,303 5,390 4,296 4,520
Liabilities related to Separate Accounts 486,251 471,125 257,556 246,996
</TABLE>
(8) Additional Financial Instruments Disclosures
Financial Instruments with Off-Balance-Sheet Risk: The Company is a party
to financial instruments with off-balance-sheet risk in the normal course
of business through management of its investment portfolio. These
financial instruments include commitments to extend credit in the form of
loans. These instruments involve, to varying degrees, elements of credit
risk in excess of amounts recognized on the balance sheets.
Commitments to fund fixed rate mortgage loans on real estate are
agreements to lend to a borrower, and are subject to conditions
established in the contract. Commitments generally have fixed expiration
dates or other termination clauses and may require payment of a deposit.
Commitments extended by the Company are based on management's case-by-case
credit evaluation of the borrower and the borrower's loan collateral. The
underlying mortgage property represents the collateral if the commitment
is funded. The Company's policy for new mortgage loans on real estate is
to lend no more than 75% of collateral value. Should the commitment be
funded, the Company's exposure to credit loss in the event of
nonperformance by the borrower is represented by the contractual amounts
of these commitments less the net realizable value of the collateral. The
contractual amounts also represent the cash requirements for all unfunded
commitments. Commitments on mortgage loans on real estate of $19,500
extending into 1997 were outstanding as of December 31, 1996.
Significant Concentrations of Credit Risk: The Company grants mainly
commercial mortgage loans on real estate to customers throughout the
United States. The Company has a diversified portfolio with no more than
31% (28% in 1995) in any geographic area and no more than 5% (15% in 1995)
with any one borrower.
<PAGE> 15
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
The summary below depicts loans by remaining principal balance as of
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
Apartment
Office Warehouse Retail & other Total
-------- --------- ------ --------- --------
<S> <C> <C> <C> <C> <C>
1996:
East North Central $ 1,968 2,324 8,203 7,867 20,362
East South Central -- -- 1,828 11,591 13,419
Mountain -- 1,394 -- 1,986 3,380
Middle Atlantic 2,817 -- 883 1,990 5,690
New England 1,993 868 1,944 -- 4,805
Pacific 3,883 15,779 10,093 9,273 39,028
South Atlantic 9,926 -- 16,209 20,520 46,655
West North Central 2,000 -- -- -- 2,000
West South Central 3,824 -- 1,995 10,847 16,666
-------- ------ ------ ------- --------
$ 26,411 20,365 41,155 64,074 152,005
======== ====== ====== =======
Less valuation allowances and unamortized discount 1,008
--------
Total mortgage loans on real estate, net $150,997
========
1995:
East North Central $ 1,854 878 8,263 3,940 14,935
East South Central -- -- 1,877 11,753 13,630
Mountain -- -- -- 1,964 1,964
Middle Atlantic 882 1,820 901 -- 3,603
New England -- 895 1,963 -- 2,858
Pacific 1,923 8,600 8,211 8,838 27,572
South Atlantic 3,953 -- 9,928 15,797 29,678
West North Central -- 1,500 -- -- 1,500
West South Central 3,881 969 -- 4,932 9,782
-------- ------ ------ ------- --------
$ 12,493 14,662 31,143 47,224 105,522
======== ====== ====== =======
Less valuation allowances and unamortized discount 786
--------
Total mortgage loans on real estate, net $104,736
========
</TABLE>
(9) Pension Plan
The Company is a participant, together with other affiliated companies, in
a pension plan covering all employees who have completed at least one
thousand hours of service within a twelve-month period and who have met
certain age requirements. Benefits are based upon the highest average
annual salary of a specified number of consecutive years of the last ten
years of service. The Company funds an allocation of pension costs accrued
for employees of affiliates whose work efforts benefit the Company.
Effective January 1, 1995, the plan was amended to provide enhanced
benefits for participants who met certain eligibility requirements and
elected early retirement no later than March 15, 1995. The entire cost of
the enhanced benefit was borne by NMIC and certain of its property and
casualty insurance company affiliates.
Effective December 31, 1995, the Nationwide Insurance Companies and
Affiliates Retirement Plan was merged with the Farmland Mutual Insurance
Company Employees' Retirement Plan and the Wausau Insurance Companies
Pension Plan to form the Nationwide Insurance Enterprise Retirement Plan.
Immediately prior to the merger, the plans were amended to provide
consistent benefits for service after January 1, 1996. These amendments
had no significant impact on the accumulated benefit obligation or
projected benefit obligation as of December 31, 1995.
<PAGE> 16
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
Pension costs charged to operations by the Company during the years ended
December 31, 1996, 1995 and 1994 were $189, $214 and $265, respectively.
The net periodic pension cost for the Nationwide Insurance Enterprise
Retirement Plan as a whole for the year ended December 31, 1996 and for
the Nationwide Insurance Companies and Affiliates Retirement Plan as a
whole for the years ended December 31, 1995 and 1994 follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- -------- -------
<S> <C> <C> <C>
Service cost (benefits earned during the period) $ 75,466 64,524 64,740
Interest cost on projected benefit obligation 105,511 95,283 73,951
Actual return on plan assets (210,583) (249,294) (21,495)
Net amortization and deferral 101,795 143,353 (62,150)
--------- -------- -------
$ 72,189 53,866 55,046
========= ======== =======
</TABLE>
Basis for measurements, net periodic pension cost:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Weighted average discount rate 6.00% 7.50% 5.75%
Rate of increase in future compensation levels 4.25% 6.25% 4.50%
Expected long-term rate of return on plan assets 6.75% 8.75% 7.00%
</TABLE>
Information regarding the funded status of the Nationwide Insurance
Enterprise Retirement Plan as a whole as of December 31, 1996 and 1995
follows:
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Accumulated benefit obligation:
Vested $ 1,338,554 1,236,730
Nonvested 11,149 26,503
----------- ----------
$ 1,349,703 1,263,233
=========== ==========
Net accrued pension expense:
Projected benefit obligation for services rendered to date $ 1,847,828 1,780,616
Plan assets at fair value 1,947,933 1,738,004
----------- ----------
Plan assets in excess of (less than) projected benefit
obligation 100,105 (42,612)
Unrecognized prior service cost 37,870 42,845
Unrecognized net gains (201,952) (63,130)
Unrecognized net asset at transition 37,158 41,305
----------- ----------
$ (26,819) (21,592)
=========== ==========
</TABLE>
Basis for measurements, funded status of plan:
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Weighted average discount rate 6.50% 6.00%
Rate of increase in future compensation levels 4.75% 4.25%
</TABLE>
Assets of the Nationwide Insurance Enterprise Retirement Plan are invested
in group annuity contracts of NLIC and Employers Life Insurance Company of
Wausau, a wholly owned subsidiary of NLIC.
<PAGE> 17
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
(10) Postretirement Benefits Other Than Pensions
In addition to the defined benefit pension plan, the Company, together
with other affiliated companies, participates in life and health care
defined benefit plans for qualifying retirees. Postretirement life and
health care benefits are contributory and generally available to full time
employees who have attained age 55 and have accumulated 15 years of
service with the Company after reaching age 40. Postretirement health care
benefit contributions are adjusted annually and contain cost-sharing
features such as deductibles and coinsurance. In addition, there are caps
on the Company's portion of the per-participant cost of the postretirement
health care benefits. These caps can increase annually, but not more than
three percent. The Company's policy is to fund the cost of health care
benefits in amounts determined at the discretion of management. Plan
assets are invested primarily in group annuity contracts of NLIC.
The Company elected to immediately recognize its estimated accumulated
postretirement benefit obligation, however, certain affiliated companies
elected to amortize their initial transition obligation over periods
ranging from 10 to 20 years.
The Company's accrued postretirement benefit expense as of December 31,
1996 and 1995 was $840 and $808, respectively, and the net periodic
postretirement benefit cost (NPPBC) for 1996, 1995 and 1994 was $78, $66
and $119, respectively.
The amount of NPPBC for the plan as a whole for the years ended December
31, 1996, 1995 and 1994 was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Service cost (benefits attributed to employee service during the year) $ 6,541 6,235 8,586
Interest cost on accumulated postretirement benefit obligation 13,679 14,151 14,011
Actual return on plan assets (4,348) (2,657) (1,622)
Amortization of unrecognized transition obligation of affiliates 173 2,966 568
Net amortization and deferral 1,830 (1,619) 1,622
-------- ------- -------
$ 17,875 19,076 23,165
======== ======= =======
</TABLE>
Information regarding the funded status of the plan as a whole as of
December 31, 1996 and 1995 follows:
<TABLE>
<CAPTION>
1996 1995
--------- --------
<S> <C> <C>
Accrued postretirement benefit expense:
Retirees $ 92,954 88,680
Fully eligible, active plan participants 23,749 28,793
Other active plan participants 83,986 90,375
--------- --------
Accumulated postretirement benefit obligation (APBO) 200,689 207,848
Plan assets at fair value 63,044 54,325
--------- --------
Plan assets less than accumulated postretirement benefit obligation (137,645) (153,523)
Unrecognized transition obligation of affiliates 1,654 1,827
Unrecognized net gains (23,225) (1,038)
--------- --------
$(159,216) (152,734)
========= ========
</TABLE>
<PAGE> 18
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
Actuarial assumptions used for the measurement of the APBO as of December
31, 1996 and 1995 and the NPPBC for 1996, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1996 1996 1995 1995 1994
APBO NPPBC APBO NPPBC NPPBC
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Discount rate 7.25% 6.65% 6.75% 8.00% 7.00%
Long-term rate of return on plan
assets, net of tax -- 4.80% -- 8.00% N/A
Assumed health care cost trend rate:
Initial rate 11.00% 11.00% 11.00% 10.00% 12.00%
Ultimate rate 6.00% 6.00% 6.00% 6.00% 6.00%
Uniform declining period 12 Years 12 Years 12 Years 12 Years 12 Years
</TABLE>
The health care cost trend rate assumption has an effect on the amounts
reported. For the plan as a whole, a one percentage point increase in the
assumed health care cost trend rate would increase the APBO as of December
31, 1996 by $701 and the NPPBC for the year ended December 31, 1996 by
$83.
(11) Regulatory Risk-Based Capital and Dividend Restriction
Ohio, the Company's state of domicile, imposes minimum risk-based capital
requirements that were developed by the NAIC. The formulas for determining
the amount of risk-based capital specify various weighting factors that
are applied to financial balances or various levels of activity based on
the perceived degree of risk. Regulatory compliance is determined by a
ratio of the company's regulatory total adjusted capital, as defined by
the NAIC, to its authorized control level risk-based capital, as defined
by the NAIC. Companies below specific trigger points or ratios are
classified within certain levels, each of which requires specified
corrective action. The Company exceeds the minimum risk-based capital
requirements.
The statutory capital shares and surplus of the Company as reported to
regulatory authorities as of December 31, 1996, 1995 and 1994 was $71,390,
$54,978 and $48,947, respectively. The statutory net income of the Company
as reported to regulatory authorities for the years ended December 31,
1996, 1995 and 1994 was $670, $8,023 and $6,173, respectively.
The Company is limited in the amount of shareholder dividends it may pay
without prior approval by the Department. As of December 31, 1996, the
maximum amount available for dividend payment from the Company to its
shareholder without prior approval of the Department is $7,139.
The Company currently does not expect such regulatory requirements to
impair its ability to pay operating expenses and stockholder dividends in
the future.
(12) Transactions With Affiliates
The Company leases office space from NMIC and certain of its subsidiaries.
For the years ended December 31, 1996, 1995 and 1994, the Company made
lease payments to NMIC and its subsidiaries of $410, $287 and $341,
respectively.
<PAGE> 19
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
Pursuant to a cost sharing agreement among NMIC and certain of its direct
and indirect subsidiaries, including the Company, NMIC provides certain
operational and administrative services, such as sales support,
advertising, personnel and general management services, to those
subsidiaries. Expenses covered by this agreement are subject to allocation
among NMIC, the Company and other affiliates. Amounts allocated to the
Company were $2,682, $2,596 and $2,503 in 1996, 1995 and 1994,
respectively. The allocations are based on techniques and procedures in
accordance with insurance regulatory guidelines. Measures used to allocate
expenses among companies include individual employee estimates of time
spent, special cost studies, salary expense, commissions expense and other
methods agreed to by the participating companies that are within industry
guidelines and practices. The Company believes these allocation methods
are reasonable. In addition, the Company does not believe that expenses
recognized under the inter-company agreements are materially different
than expenses that would have been recognized had the Company operated on
a stand alone basis. Amounts payable to NMIC from the Company under the
cost sharing agreement were $2,275 and $1,186 as of December 31, 1996 and
1995, respectively.
Effective December 31, 1996, the Company entered into an intercompany
reinsurance agreement with NLIC whereby certain inforce and subsequently
issued fixed individual deferred annuity contracts are ceded on a 100%
coinsurance with funds withheld basis. Under 100% coinsurance with funds
withheld agreements, invested assets are retained by the ceding company
and liabilities for future policy benefits are transferred to the assuming
company. In addition, net investment earnings on the invested assets
retained by the ceding company are to be paid to the assuming company.
Under terms of the Company's agreement, the investment risk associated
with changes in interest rates is borne by NLIC. Risk of asset default is
retained by the Company, although a fee is paid by NLIC to the Company for
the Company's retention of such risk. The agreement will remain inforce
until all contract obligations are settled. The ceding of risk does not
discharge the original insurer from its primary obligation to the
contractholder. The Company believes that the terms of the 100%
coinsurance with funds withheld agreement are consistent in all material
respects with what the Company could have obtained with unaffiliated
parties.
The Company has recorded a liability equal to the amount due to NLIC as of
December 31, 1996 for $679,571, which represents the future policy
benefits of the fixed individual deferred annuity contracts ceded. In
consideration for the initial inforce business reinsured, NLIC agreed to
pay the Company $26,473 in commission and expense allowances which were
applied to the Company's deferred policy acquisition costs as of December
31, 1996. No significant gain or loss was recognized as a result of the
agreement.
The Company and various affiliates entered into agreements with Nationwide
Cash Management Company (NCMC) and California Cash Management Company
(CCMC), both affiliates, under which NCMC and CCMC act as common agents in
handling the purchase and sale of short-term securities for the respective
accounts of the participants. Amounts on deposit with NCMC and CCMC were
$492 and $4,844 as of December 31, 1996 and 1995, respectively, and are
included in short-term investments on the accompanying balance sheets.
Certain annuity products are sold through an affiliated company, which is
a subsidiary of Nationwide Corporation. Total commissions paid to the
affiliate for the three years ended December 31, 1996 were $14,644, $5,949
and $6,633, respectively.
(13) Segment Information
The Company has three primary segments: Variable Annuities, Fixed
Annuities and Life Insurance. The Variable Annuities segment consists of
annuity contracts that provide the customer with the opportunity to invest
in mutual funds managed by an affiliated company and independent
investment managers, with the investment returns accumulating on a
tax-deferred basis. The Fixed Annuities segment consists of annuity
contracts that generate a return for the customer at a specified interest
rate, fixed for a prescribed period, with returns accumulating on a
tax-deferred basis. The Life Insurance segment consists of insurance
products that provide a death benefit and may also allow the customer to
build cash value on a tax-deferred basis. In addition, the Company reports
corporate expenses and investments, and the related investment income
supporting capital not specifically allocated to its product segments in a
Corporate and Other segment. In addition, all realized gains and losses
are reported in the Corporate and Other segment.
<PAGE> 20
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
During 1996, the Company changed its reporting segments to better reflect
the way the businesses are managed. Prior periods have been restated to
reflect these changes.
The following table summarizes the revenues and income (loss) before
federal income tax expense for the years ended December 31, 1996, 1995 and
1994 and assets as of December 31, 1996, 1995 and 1994, by business
segment.
<TABLE>
<CAPTION>
1996 1995 1994
----------- -------- --------
<S> <C> <C> <C>
Revenues:
Variable Annuities $ 4,591 2,927 2,435
Fixed Annuities 51,643 50,056 44,812
Life Insurance 165 185 179
Corporate and Other 1,545 234 891
----------- -------- --------
$ 57,944 53,402 48,317
=========== ======== ========
Income (loss) before federal income tax expense:
Variable Annuities 1,094 1,196 658
Fixed Annuities 5,156 5,633 5,093
Life Insurance (1) (381) (990)
Corporate and Other 1,544 699 426
----------- -------- --------
$ 7,793 7,147 5,187
=========== ======== ========
Assets:
Variable Annuities 503,111 267,097 185,332
Fixed Annuities 787,682 643,313 606,696
Life Insurance 2,597 2,665 2,677
Corporate and Other 73,031 54,507 38,335
----------- -------- --------
$ 1,366,421 967,582 833,040
=========== ======== ========
</TABLE>
<PAGE> 21
SCHEDULE I
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Summary of Investments -
Other Than Investments in Related Parties
As of December 31, 1996
($000's omitted)
<TABLE>
<CAPTION>
- ------------------------------------------- -------- ------------ ---------------
Column A Column B Column C Column D
- ------------------------------------------- -------- ------------ ---------------
Amount at which
shown in the
Type of Investment Cost Market value balance sheet
- ------------------------------------------- -------- ------------ ---------------
<S> <C> <C> <C>
Fixed maturity securities available-for-sale:
Bonds:
U.S. Government and government agencies and authorities $239,737 243,310 243,310
States, municipalities and political subdivisions 269 267 267
Foreign governments 6,129 6,254 6,254
Public utilities 89,884 90,885 90,885
All other corporate 304,284 307,360 307,360
-------- ------- -------
Total fixed maturity securities available-for-sale 640,303 648,076 648,076
-------- ------- -------
Equity securities available-for-sale:
Common stocks:
Industrial, miscellaneous and all other 10,854 12,254 12,254
-------- ------- -------
Total equity securities available-for-sale 10,854 12,254 12,254
-------- ------- -------
Mortgage loans on real estate, net 151,931 150,997(1)
Real estate, net:
Investment properties 855 540(1)
Acquired in satisfaction of debt 573 550(1)
Policy loans 126 126
Short-term investments 492 492
-------- -------
Total investments $805,134 813,035
======== =======
</TABLE>
- ----------
(1) Difference from Column B is primarily due to valuation allowances due to
impairments on mortgage loans on real estate and due to accumulated
depreciation and valuation allowances due to impairments on real estate.
See note 4 to the financial statements.
See accompanying independent auditors' report.
<PAGE> 22
SCHEDULE III
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Supplemental Insurance Information
As of December 31, 1996, 1995 and 1994
and for each of the years then ended
($000's omitted)
<TABLE>
<CAPTION>
- ------------------------------- --------------- ----------------------- ----------------- ---------------- --------
Column A Column B Column C Column D Column E Column F
- ------------------------------- --------------- ----------------------- ----------------- ---------------- --------
Deferred policy Future policy benefits, Other policy
acquisition losses, claims and Unearned premiums claims and Premium
Segment costs loss expenses (1) benefits payable revenue
- ------------------------------- --------------- ----------------------- ----------------- ---------------- --------
<S> <C> <C> <C> <C> <C>
1996: Variable Annuities $ 17,335 -- -- --
Fixed Annuities 2,691 78,947 -- 246
Life Insurance 349 1,773 -- --
Corporate and Other (4,207) -- -- --
-------- ------- ------- -------
Total $ 16,168 80,720 -- 246
======== ======= ======= =======
1995: Variable Annuities 9,966 -- -- --
Fixed Annuities 23,913 619,400 -- 674
Life Insurance 360 1,880 -- --
Corporate and Other (10,834) -- -- --
-------- ------- ------- -------
Total $ 23,405 621,280 -- 674
======== ======= ======= =======
1994: Variable Annuities 7,760 -- -- --
Fixed Annuities 25,344 581,352 -- 311
Life Insurance 481 1,836 -- --
Corporate and Other 7,955 -- -- --
-------- ------- ------- -------
Total $ 41,540 583,188 -- 311
======== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------- ------------- --------- ------------ --------- --------
Column A Column G Column H Column I Column J Column K
- ----------------------------- ------------- --------- ------------ --------- --------
Benefits, Amortization
claims, of deferred Other
Net investment losses and policy operating
income settlement acquisition expenses Premiums
Segment (2) expenses costs (2) written
- ----------------------------- ------------- --------- ------------ --------- --------
<S> <C> <C> <C> <C> <C>
1996: Variable Annuities $ (849) 238 1,473 1,786 --
Fixed Annuities 50,197 35,193 5,888 5,407 --
Life Insurance 149 93 19 54 --
Corporate and Other 1,548 -- -- -- --
-------- ------- ------- ------- -------
Total $ 51,045 35,524 7,380 7,247 --
======== ======= ======= ======= =======
1995: Variable Annuities (450) 107 739 886 --
Fixed Annuities 48,454 33,974 5,211 5,238 --
Life Insurance 169 99 24 443 --
Corporate and Other 935 -- (466) -- --
-------- ------- ------- ------- -------
Total $ 49,108 34,180 5,508 6,567 --
======== ======= ======= ======= =======
1994: Variable Annuities (229) 86 464 1,227 --
Fixed Annuities 43,569 29,694 6,002 4,022 --
Life Insurance 173 90 8 1,071 --
Corporate and Other 1,517 -- 466 -- --
-------- ------- ------- ------- -------
Total $ 45,030 29,870 6,940 6,320 --
======== ======= ======= ======= =======
</TABLE>
- ----------
(1) Unearned premiums are included in Column C amounts.
(2) Allocations of net investment income and certain general expenses are based
on a number of assumptions and estimates, and reported operating results
would change by segment if different methods were applied.
See accompanying independent auditors' report.
<PAGE> 23
SCHEDULE IV
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Reinsurance
As of December 31, 1996, 1995 and 1994
and for each of the years then ended
($000's omitted)
<TABLE>
<CAPTION>
- ------------------------------- ------------ --------- ---------- ---------- ----------
Column A Column B Column C Column D Column E Column F
- ------------------------------- ------------ --------- ---------- ---------- ----------
Percentage
Ceded to Assumed of amount
other from other assumed
Gross amount companies companies Net amount to net
------------ --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1996:
Life Insurance in force $ 7,221 463 -- 6,758 0.0%
======= ======= ======= ======= =======
Premiums:
Life insurance 246 -- -- 246 0.0%
------- ------- ------- ------- -------
Total $ 246 -- -- 246 0.0%
======= ======= ======= ======= =======
1995:
Life Insurance in force $ 8,186 468 -- 7,718 0.0%
======= ======= ======= ======= =======
Premiums:
Life insurance 674 -- -- 674 0.0%
------- ------- ------- ------- -------
Total $ 674 -- -- 674 0.0%
======= ======= ======= ======= =======
1994:
Life Insurance in force $ 8,298 14 -- 8,284 0.0%
======= ======= ======= ======= =======
Premiums:
Life Insurance 311 -- -- 311 0.0%
------- ------- ------- ------- -------
Total $ 311 -- -- 311 0.0%
======= ======= ======= ======= =======
</TABLE>
- ----------
Note: The life insurance caption represents premiums from life-contingent
immediate annuities and excludes deposits on investment products and
universal life insurance products.
See accompanying independent auditors' report.
<PAGE> 24
SCHEDULE V
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Valuation and Qualifying Accounts
Years ended December 31, 1996, 1995 and 1994
($000's omitted)
<TABLE>
<CAPTION>
- ----------------------------------------------------- ----------- -------------------------- ---------- --------
Column A Column B Column C Column D Column E
- ----------------------------------------------------- ----------- -------------------------- ---------- --------
Balance Charged Balance
at to costs Charged at end
beginning and to other Deductions of
Description of period expenses accounts (1) period
- ----------------------------------------------------- ----------- --------- --------- ---------- --------
<S> <C> <C> <C> <C> <C>
1996:
Valuation allowances - mortgage loans on real estate $ 750 184 -- -- 934
Valuation allowances - real estate 229 -- -- -- 229
------- ------- ------- ------- -------
Total $ 979 184 -- -- 1,163
======= ======= ======= ======= =======
1995:
Valuation allowances - fixed maturity securities -- 996 -- 996 --
Valuation allowances - mortgage loans on real estate 860 (110) -- -- 750
Valuation allowances - real estate 472 (243) -- -- 229
------- ------- ------- ------- -------
Total $ 1,332 643 -- 996 979
======= ======= ======= ======= =======
1994:
Valuation allowances - mortgage loans on real estate 360 831 -- 331 860
Valuation allowances - real estate 419 53 -- -- 472
------- ------- ------- ------- -------
Total $ 779 884 -- 331 1,332
======= ======= ======= ======= =======
</TABLE>
- ----------
(1) Amounts represent direct write-downs charged against the valuation
allowance.
See accompanying independent auditors' report.
<PAGE> 60
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements: Page
(1) Financial statements and schedule included
in Prospectus
(Part A): 14
(2) Financial statements and schedule included
in Part B as required: 58
Nationwide VA Separate Account-B:
Independent Auditors' Report. 58
Statement of Assets, Liabilities and Contract 59
Owners' Equity as of December 31, 1996
Statement of Operations and Changes in 61
Contract Owners' Equity for the period
February 1, 1996 (commencement of
operations) through Dec. 31, 1996.
Notes to Financial Statements. 62
Schedule of Changes in Unit Value. 67
Nationwide Life and Annuity Insurance Company:
Independent Auditors' Report. 70
Balance Sheets as of December 71 31, 1996 and 1995.
Statements of Income for the 72
years ended December 31, 1996, 1995 and
1994.
Statements of Shareholder's 73
Equity for the years ended December 31,
1996, 1995 and 1994.
Statements of Cash Flows for 74
the years ended December 31, 1996, 1995
and 1994.
Notes to Financial Statements. 75
Schedule I - Summary of Investments - Other
Than Investments in Related Parties 108
Schedule III - Supplementary Insurance Information 109
Schedule IV - Reinsurance 110
Schedule V - Valuation and Qualifying Accounts 111
94 of 112
<PAGE> 61
Item 24. (b) Exhibits
(1) Resolution of the Depositor's Board of *
Directors authorizing the establishment of
the Registrant.
(2) Not Applicable *
(3) Underwriting or Distribution of contracts *
between the Registrant and Principal
Underwriter.
(4) The form of the variable annuity contract *
(5) Variable Annuity Application *
(6) Articles of Incorporation of Depositor - *
(7) Not Applicable *
(8) Not Applicable *
(9) Opinion of Counsel *
(10) Not Applicable *
(11) Not Applicable *
(12) Not Applicable *
(13) Performance Advertising Calculation *
Schedule.
*Filed previously in connection with this registration statement (SEC
File No. 33-86408) on November 14, 1994, and hereby incorporated by
reference.
95 of 112
<PAGE> 62
Item 25. Directors and Officers of the Depositor
Name and Principal Positions and Offices
Business Address With Depositor
Lewis J. Alphin Director
519 Bethel Church Road
Mount Olive, NC 28365
Keith W. Eckel Director
1647 Falls Road
Clarks Summit, PA 18411
Willard J. Engel Director
1100 East Main Street
Marshall, MN 56258
Fred C. Finney Director
1558 West Moreland Road
Wooster, OH 44691
Charles L. Fuellgraf, Jr. Director
600 South Washington Street
Butler, PA 16001
Joseph J. Gasper President and Chief Operating Officer
One Nationwide Plaza and Director
Columbus, OH 43215
Henry S. Holloway Chairman of the
1247 Stafford Road Board and Director
Darlington, MD 21034
Dimon Richard McFerson Chairman and Chief Executive Officer-
One Nationwide Plaza Nationwide Insurance Enterprise
Columbus, OH 43215 and Director
David O. Miller Director
115 Sprague Drive
Hebron, OH 43025
C. Ray Noecker Director
2770 Winchester Southern S.
Ashville, OH 43103
James F. Patterson Director
8765 Mulberry Road
Chesterland, OH 44026
96 of 112
<PAGE> 63
Name and Principal Positions and Offices
Business Address With Depositor
Arden L. Shisler Director
1356 North Wenger Road
Dalton, OH 44618
Robert L. Stewart Director
88740 Fairview Road
Jewett, OH 43986
Nancy C. Thomas Director
10835 Georgetown Street NE
Louisville, OH 44641
Harold W. Weihl Director
14282 King Road
Bowling Green, OH 43402
Gordon E. McCutchan Executive Vice President,
One Nationwide Plaza Law and Corporate Services
Columbus, OH 43215 and Secretary
Robert A. Oakley Executive Vice President-
One Nationwide Plaza Chief Financial Officer
Columbus, Ohio 43215
Robert J. Woodward, Jr. Executive Vice President
One Nationwide Plaza Chief Investment Officer
Columbus, OH 43215
James E. Brock Senior Vice President -
One Nationwide Plaza Life Company Operations
Columbus, OH 43215
W. Sidney Druen Senior Vice President and General
One Nationwide Plaza Counsel and Assistant Secretary
Columbus, OH 43215
Harvey S. Galloway, Jr. Senior Vice President-Chief Actuary-
One Nationwide Plaza Life, Health and Annuities
Columbus, OH 43215
Richard A. Karas Senior Vice President - Sales -
One Nationwide Plaza Financial Services
Columbus, OH 43215
Michael D. Bleiweiss Vice President-
One Nationwide Plaza Individual Annuity Operation
Columbus, OH 43215
97 of 112
<PAGE> 64
Name and Principal Positions and Offices
Business Address With Depositor
Matthew S. Easley Vice President - Marketing,
One Nationwide Plaza Innovation and Compliance
Columbus, OH 43215
Ronald L. Eppley Vice President-
One Nationwide Plaza Applications Service
Columbus, OH 43215
Timothy E. Murphy Vice President-
One Nationwide Plaza Strategic Marketing
Columbus, Ohio 43215
R. Dennis Noice Vice President-
One Nationwide Plaza Retail Operations
Columbus, OH 43215
Joseph P. Rath Vice President
One Nationwide Plaza
Columbus, OH 43215
Item 26. Persons Controlled by or Under Common Control with the Depositor or
Registrant.
* Subsidiaries for which separate financial statements are filed
** Subsidiaries included in the respective financial statements
*** Subsidiaries included in the respective group financial statements
filed for unconsolidated subsidiaries
**** other subsidiaries
98 of 112
<PAGE> 65
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
(see Attached
STATE Chart) unless
OF otherwise
COMPANY ORGANIZATION indicated PRINCIPAL BUSINESS
<S> <C> <C>
Affiliate Agency, Inc. Delaware Life Insurance Agency
Affiliate Agency of Ohio, Inc. Ohio Life Insurance Agency
Allnations, Inc. Ohio Promotes cooperative insurance corporations
worldwide
American Marine Underwriters, Inc. Florida Underwriting Manager
Auto Direkt Insurance Company Germany Insurance Company
The Beak and Wire Corporation Ohio Radio Tower Joint Venture
California Cash Management Company California Investment Securities Agent
Colonial County Mutual Insurance Texas Insurance Company
Company
Colonial Insurance Company of California Insurance Company
California
Columbus Insurance Brokerage and Germany Insurance Broker
Service GMBH
Companies Agency, Inc. Wisconsin Insurance Broker
Companies Agency Insurance Services California Insurance Broker
of California
Companies Agency of Alabama, Inc. Alabama Insurance Broker
Companies Agency of Idaho, Inc. Idaho Insurance Broker
Companies Agency of Illinois, Inc. Illinois Acts as Collection Agent for Policies placed
through Brokers
Companies Agency of Kentucky, Inc. Kentucky Insurance Broker
Companies Agency of Massachusetts, Massachusetts Insurance Broker
Inc.
Companies Agency of New York, Inc. New York Insurance Broker
Companies Agency of Pennsylvania, Inc. Pennsylvania Insurance Broker
Companies Agency of Phoenix, Inc. Arizona Insurance Broker
Companies Agency of Texas, Inc. Texas Insurance Broker
Countrywide Services Corporation Delaware Products Liability, Investigative and Claims
Management Services
Employers Insurance of Wausau A Wisconsin Insurance Company
Mutual Company
** Employers Life Insurance Company of Wisconsin Life Insurance Company
Wausau
F & B, Inc. Iowa Insurance Agency
</TABLE>
99 of 112
<PAGE> 66
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
(see Attached
STATE Chart) unless
OF otherwise
COMPANY ORGANIZATION indicated PRINCIPAL BUSINESS
<S> <C> <C>
Farmland Mutual Insurance Company Iowa Insurance Company
Financial Horizons Distributors Alabama Life Insurance Agency
Agency of Alabama, Inc.
Financial Horizons Distributors Ohio Life Insurance Agency
Agency of Ohio, Inc.
Financial Horizons Distributors Oklahoma Life Insurance Agency
Agency of Oklahoma, Inc.
Financial Horizons Distributors Texas Life Insurance Agency
Agency of Texas, Inc.
* Financial Horizons Investment Trust Massachusetts Investment Company
Financial Horizons Securities Oklahoma Broker Dealer
Corporation
Gates, McDonald & Company Ohio Cost Control Business
Gates, McDonald & Company of Nevada Nevada Self-Insurance Administration Claims
Examinations and Data Processing Services
Gates, McDonald & Company of New New York Workers Compensation Claims Administration
York, Inc.
Gates, McDonald Health Ohio Plus, Inc. Ohio Managed Care Organization
Greater La Crosse Health Plans, Inc. Wisconsin Writes Commercial Health and Medicare
Supplement Insurance
Insurance Intermediaries, Inc. Ohio Insurance Broker and Insurance Agency
Key Health Plan, Inc. California Pre-paid health plans
Landmark Financial Services of New New York Life Insurance Agency
York, Inc.
Leben Direkt Insurance Company Germany Life Insurance Company
Lone Star General Agency, Inc. Texas Insurance Agency
** MRM Investments, Inc. Ohio Owns and operates a Recreational Ski Facility
** National Casualty Company Michigan Insurance Company
National Casualty Company of America, Great Britain Insurance Company
Ltd.
** National Premium and Benefit Delaware Insurance Administrative Services
Administration Company
** Nationwide Advisory Services, Inc. Ohio Registered Broker-Dealer, Investment Manager
and Administrator
Nationwide Agency, Inc. Ohio Insurance Agency
Nationwide Agribusiness Insurance Iowa Insurance Company
Company
* Nationwide Asset Allocation Trust Massachusetts Investment Company
Nationwide Cash Management Company Ohio Investment Securities Agent
</TABLE>
100 of 112
<PAGE> 67
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
(see Attached
STATE Chart) unless
OF otherwise
COMPANY ORGANIZATION indicated PRINCIPAL BUSINESS
<S> <C> <C>
Nationwide Communications, Inc. Ohio Radio Broadcasting Business
Nationwide Community Urban Ohio Redevelopment of blighted areas within the
Redevelopment Corporation City of Columbus, Ohio
Nationwide Corporation Ohio Organized for the purpose of acquiring,
holding, encumbering, transferring, or
otherwise disposing of shares, bonds,
and other evidences of indebtedness,
securities, and contracts of other
persons, associations, corporations,
domestic or foreign and to form or
acquire the control of other
corporations
* Nationwide Development Company Ohio Owns, leases and manages commercial real
estate
Nationwide Financial Institution Delaware Insurance Agency
Distributors Agency, Inc.
Nationwide Financial Services, Inc. Delaware Holding Company
Nationwide General Insurance Company Ohio Insurance Company
Nationwide HMO, Inc. Ohio Health Maintenance Organization
* Nationwide Indemnity Company Ohio Reinsurance Company
Nationwide Insurance Enterprise Ohio Membership Non-Profit Corporation
Foundation
Nationwide Insurance Golf Charities, Ohio Membership Non-Profit Corporation
Inc.
Nationwide Investing Foundation Michigan Investment Company
* Nationwide Investing Massachusetts Investment Company
Foundation II
Nationwide Investment Services Oklahoma Registered Broker-Dealer in Deferred
Corporation Compensation Market
Nationwide Investors Services, Inc. Ohio Stock Transfer Agent
** Nationwide Life and Annuity Insurance Ohio Life Insurance Company
Company
** Nationwide Life Insurance Company Ohio Life Insurance Company
Nationwide Lloyds Texas Texas Lloyds Company
Nationwide Management Systems, Inc. Ohio Develops and Operates Managed Care Delivery
System
Nationwide Mutual Fire Insurance Ohio Insurance Company
Company
Nationwide Mutual Insurance Company Ohio Insurance Company
Nationwide Properties, Ltd. Ohio Develops, owns, and operates real estate
investments
Nationwide Property and Casualty Ohio Insurance Company
Insurance Company
</TABLE>
101 of 112
<PAGE> 68
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
(see Attached
STATE Chart) unless
OF otherwise
COMPANY ORGANIZATION indicated PRINCIPAL BUSINESS
<S> <C> <C>
Nationwide Realty Investors, Ltd. Ohio Develops, owns, and operates real estate and
real estate investments
* Nationwide Separate Account Trust Massachusetts Investment Company
NEA Valuebuilder Investor Services, Delaware Life Insurance Agency
Inc.
NEA Valuebuilder Investor Services of Alabama Life Insurance Agency
Alabama, Inc.
NEA Valuebuilder Investor Services of Arizona Life Insurance Agency
Arizona, Inc.
NEA Valuebuilder Investor Services of Montana Life Insurance Agency
Montana, Inc.
NEA Valuebuilder Investor Services of Nevada Life Insurance Agency
Nevada, Inc.
NEA Valuebuilder Investor Services of Ohio Life Insurance Agency
Ohio, Inc.
NEA Valuebuilder Investor Services of Oklahoma Life Insurance Agency
Oklahoma, Inc.
NEA Valuebuilder Investor Services of Texas Life Insurance Agency
Texas, Inc.
NEA Valuebuilder Investor Services of Wyoming Life Insurance Agency
Wyoming, Inc.
NEA Valuebuilder Investor Services, Delaware Life Insurance Agency
Inc.
NEA Valuebuilder Services Insurance Massachusetts Life Insurance Agency
Agency, Inc.
Neckura General Insurance Company Germany Insurance Company
Neckura Holding Company Germany Administrative Service for Neckura Insurance
Group
Neckura Insurance Company Germany Insurance Company
Neckura Life Insurance Company Germany Life Insurance Company
NWE, Inc. Ohio Special Investments
PEBSCO of Massachusetts Insurance Massachusetts Markets and Administers Deferred Compensation
Agency, Inc. Plans for Public Employees
PEBSCO of Texas, Inc. Texas Markets and Administers Deferred Compensation
Plans for Public Employees
Pension Associates of Wausau, Inc. Wisconsin Pension plan administration, record keeping
and consulting and compensation consulting
Physicians Plus Insurance Corporation Wisconsin Health Maintenance Organization
Prevea Health Insurance Plan, Inc. Wisconsin Health Maintenance Organization
</TABLE>
102 of 112
<PAGE> 69
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
(see Attached
STATE Chart) unless
OF otherwise
COMPANY ORGANIZATION indicated PRINCIPAL BUSINESS
<S> <C> <C>
Public Employees Benefit Services Delaware Markets and Administers Deferred Compensation
Corporation Plans for Public Employees
Public Employees Benefit Services Alabama Markets and Administers Deferred Compensation
Corporation of Alabama Plans for Public Employees
Public Employees Benefit Services Arkansas Markets and Administers Deferred Compensation
Corporation of Arkansas Plans for Public Employees
Public Employees Benefit Services Montana Markets and Administers Deferred Compensation
Corporation of Montana Plans for Public Employees
Public Employees Benefit Services New Mexico Markets and Administers Deferred Compensation
Corporation of New Mexico Plans for Public Employees
Scottsdale Indemnity Company Ohio Insurance Company
Scottsdale Insurance Company Ohio Excess and Surplus Lines Insurance Company
Scottsdale Surplus Lines Insurance Arizona Excess and Surplus Lines Insurance Company
Company
SVM Sales GmbH, Neckura Insurance Germany Sales support for Neckura Insurance Group
Group
Wausau Business Insurance Company Wisconsin Insurance Company
Wausau General Insurance Company Illinois Insurance Company
Wausau Insurance Company (U.K.) United Kingdom Insurance and Reinsurance Company
Limited
Wausau International Underwriters California Special Risks, Excess and Surplus Lines
Insurance Underwriting Manager
** Wausau Preferred Health Insurance Wisconsin Insurance and Reinsurance Company
Company
Wausau Service Corporation Wisconsin Holding Company
Wausau Underwriters Insurance Company Wisconsin Insurance Company
** West Coast Life Insurance Company California Life Insurance Company
</TABLE>
103 of 112
<PAGE> 70
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
(see Attached
STATE Chart) unless
OF otherwise
COMPANY ORGANIZATION indicated PRINCIPAL BUSINESS
<S> <C> <C>
* MFS Variable Account Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* NACo Variable Account Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide DC Variable Account Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide DCVA II Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Separate Account No. 1 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Multi-Flex Variable Account Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide VA Separate Account-A Ohio Nationwide Life and Annuity Issuer of Annuity Contracts
Separate Account
* Nationwide VA Separate Account-B Ohio Nationwide Life and Annuity Issuer of Annuity Contracts
Separate Account
Nationwide VA Separate Account-C Ohio Nationwide Life and Annuity Issuer of Annuity Contracts
Separate Account
* Nationwide VA Separate Account-Q Ohio Nationwide Life and Annuity Issuer of Annuity Contracts
Separate Account
* Nationwide Variable Account Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Variable Account-II Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Variable Account-3 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Variable Account-4 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Variable Account-5 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Fidelity Advisor Variable Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account Account
* Nationwide Variable Account-6 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Variable Account-8 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide VL Separate Ohio Nationwide Life and Annuity Issuer of Life Insurance
Policies
Account-A Separate Account
* Nationwide VL Separate Account-B Ohio Nationwide Life and Annuity Issuer of Life Insurance
Separate Account Policies
* Nationwide VLI Separate Account Ohio Nationwide Life Separate Issuer of Life Insurance
Account Policies
* Nationwide VLI Separate Account-2 Ohio Nationwide Life Separate Issuer of Life Insurance
Account Policies
* Nationwide VLI Separate Account-3 Ohio Nationwide Life Separate Issuer of Life Insurance
Account Policies
</TABLE>
104 of 112
<PAGE> 71
<TABLE>
<CAPTION>
NATIONWIDE INSURANCE ENTERPRISE(R) (left side)
<S> <C> <C> <C>
- ------------------------
| NATIONWIDE INSURANCE |
| GOLF CHARITIES, INC. |
| |
| MEMBERSHIP |
| NONPROFIT |
| CORPORATION |
- ------------------------
------------------------------------------
| EMPLOYERS INSURANCE OF WAUSAU |
| A MUTUAL COMPANY |
| (EMPLOYERS) |
| |========================================
| Contribution Note Cost |
| ----------------- ---- |
| Casualty $400,000,000 |
------------------------------------------
|
-----------------------------------------------------------------------
| | |
- --------------------------- --------------------------- ---------------------------- ---------------------------
| SAN DIEGO LOTUS | | WAUSAU INSURANCE CO. | | WAUSAU SERVICE | | |
| CORPORATION | | (U.K.) LIMITED | | CORPORATION (WSC) | | NATIONWIDE LLOYDS |
|Common Stock: 748,212 | |Common Stock: 8,506,800 | |Common Stock: 1,000 Shares| | |
|------------ Shares | |------------ Shares | |------------ | | |
| | | | | |=========| |
| Cost | | Cost | | Cost | || | A TEXAS LLOYDS |
| ---- | | ---- | | ---- | || | |
|Employers- | |Employers- | |Employers- | || | |
|100% $29,000,000| |100% $18,683,300| |100% $176,763,000| || | |
- --------------------------- --------------------------- ---------------------------- || ---------------------------
| ||
--------------------------------------------------------------------- ||
| | | ||
- --------------------------- | --------------------------- | ---------------------------- | || ---------------------------
| WAUSAU BUSINESS | | | COMPANIES AGENCY | | | COUNTRYWIDE SERVICES | | || | |
| INSURANCE COMPANY | | | OF KENTUCKY, INC. | | | CORPORATION | | || | |
|Common Stock: 10,900,000 | | |Common Stock: 1,000 | | |Common Stock: 100 Shares | | || | COMPANIES |
|------------ Shares | | |------------ Shares | | |------------ | | || | AGENCY OF |
| |---|---| | |---| | | ||==| TEXAS, INC. |
| Cost | | | Cost | | | Cost | | || | |
| ---- | | | ---- | | | ---- | | || | |
|WSC-100% $33,800,000| | |WSC-100% $1,000 | | |WSC-100% $145,852 | | || | |
- --------------------------- | --------------------------- | ---------------------------- | || ---------------------------
| | | ||
- --------------------------- | --------------------------- | ---------------------------- | || ---------------------------
| WAUSAU UNDERWRITERS | | | COMPANIES AGENCY | | | WAUSAU GENERAL | | || | |
| INSURANCE COMPANY | | | OF MASSACHUSETTS, INC. | | | INSURANCE COMPANY | | || | |
|Common Stock: 8,750 | | |Common Stock: 1,000 | | |Common Stock: 200,000 | | || | COMPANIES ANNUITY |
|------------ Shares | | |------------ Shares | | |------------ Shares | | || | AGENCY OF |
| |---|---| | |---| | | ====| TEXAS, INC. |
| Cost | | | Cost | | | Cost | | | |
| ---- | | | ---- | | | ---- | | | |
|WSC-100% $69,560,006| | |WSC-100% $1,000 | | |WSC-100% $39,000,000 | | | |
- --------------------------- | --------------------------- | ---------------------------- | ---------------------------
| | |
- --------------------------- | --------------------------- | ---------------------------- | ---------------------------
| GREATER LA CROSSE | | | COMPANIES AGENCY | | | WAUSAU INTERNATIONAL | | | AMERICAN MARINE |
| HEALTH PLANS, INC. | | | OF NEW YORK, INC. | | | UNDERWRITERS | | | UNDERWRITERS, INC. |
|Common Stock: 3,000 | | |Common Stock: 1,000 | | |Common Stock: 1,000 | | |Common Stock: 20 |
|------------ Shares | | |------------ Shares | | |------------ Shares | | |------------ Shares |
| |---|---| | |---| | |------| |
| Cost | | | Cost | | | Cost | | | Cost |
| ---- | | | ---- | | | ---- | | | ---- |
|WSC-33.3% $861,761 | | |WSC-100% $1,000 | | |WSC-100% $10,000 | | |WSC-100% $248,222 |
- --------------------------- | --------------------------- | ---------------------------- | ---------------------------
| | |
- --------------------------- | --------------------------- | ---------------------------- | ---------------------------
| COMPANIES AGENCY | | | COMPANIES AGENCY | | | COMPANIES AGENCY | | | COMPANIES AGENCY |
| OF ALABAMA, INC. | | | OF PENNSYLVANIA, INC. | | | INSURANCE SERVICES | | | OF ILLINOIS, INC. |
| | | | | | | OF CALIFORNIA | | | |
|Common Stock: 1,000 | | |Common Stock: 1,000 | | |Common Stock: 1,000 | | |Common Stock: 250 |
|------------ Shares | | |------------ Shares | |---|------------ Shares | |------|------------ Shares |
| |---|---| | | | | | | |
| Cost | | | Cost | | | Cost | | | Cost |
| ---- | | | ---- | | | ---- | | | ---- |
|WSC-100% $100 | | |WSC-100% $100 | | |WSC-100% $1,000 | | |WSC-100% $2,500 |
- --------------------------- | --------------------------- | ---------------------------- | ---------------------------
| | |
- --------------------------- | --------------------------- | ---------------------------- | ---------------------------
| COMPANIES AGENCY | | | COMPANIES AGENCY | | | PHYSICIANS PLUS | | | COMPANIES |
| OF IDAHO, INC. | | | OF PHOENIX, INC. | | | INSURANCE | | | AGENCY, INC. |
| | | | | | | CORPORATION | | | |
|Common Stock: 1,000 | | |Common Stock: 1,000 | | |Common Stock: 7,150 | | |Common Stock: 100 |
|------------ Shares | | |------------ Shares | | |------------ Shares | | |------------ Shares |
| |-------| | |---|Preferred Stock: 11,540 | |------| |
| | | | | |--------------- Shares | | | |
| | | | | | | | | |
| Cost | | Cost | | | Cost | | | Cost |
| ---- | | ---- | | | ---- | | | ---- |
|WSC-100% $1,000 | |WSC-100% $1,000 | | |WSC-33 1/3% $6,215,459| | |WSC-100% $10,000 |
- --------------------------- --------------------------- | ---------------------------- | ---------------------------
| |
| ---------------------------- | ---------------------------
| | PREVEA HEALTH | | | PENSION ASSOCIATES |
| | INSURANCE PLAN, INC. | | | OF WAUSAU, INC. |
| |Common Stock: 3,000 Shares| | |Common Stock: 1,000 |
| |------------ | | |------------ Shares |
----| | -------| |
| | | |
| Cost | |Companies Cost |
| ---- | |Agency, Inc. ---- |
|WSC-33 1/3% $500,000 | |(Wisconsin)-100% $10,000 |
---------------------------- ---------------------------
</TABLE>
<PAGE> 72
<TABLE>
<CAPTION>
NATIONWIDE INSURANCE ENTERPRISE(R) (middle)
<S> <C> <C>
-----------------------------------------------------------------------------
| |
| |
| NATIONWIDE MUTUAL |
=======| INSURANCE COMPANY |================================================
| (CASUALTY) |
| |
| |
-----------------------------------------------------------------------------
| || |
| || -------------------------------------------------------------
| || ---------------------------------------------------------------------------------------
| || | |
- -------------------------------- || | -------------------------------- --------------------------------
| ALLNATIONS, INC. | || | | NATIONWIDE GENERAL | | NECKURA HOLDING |
|Common Stock: 3,136 Shares | || | | INSURANCE COMPANY | | COMPANY (NECKURA) |
|------------ | || | | | | |
| Cost | || | |Common Stock: 20,000 | |Common Stock: 10,000 |
| ---- | || | |------------ Shares | |------------ Shares |
|Casualty-24.5% $88,320 | || | | Cost | | Cost |
|Fire-24.5% $88,463 | || | | ---- | | ---- |
|Preferred Stock: 1,466 Shares | || |----|Casualty-100% $5,944,422 | ---------|Casualty-100% $87,943,140 |
|--------------- | || | | | | | |
| Cost | || | | | | | |
| ---- | || | | | | | |
|Casualty-7.7% $100,000 | || | | | | | |
|Fire-7.7% $100,000 | || | | | | | |
- -------------------------------- || | -------------------------------- | --------------------------------
|| | |
- -------------------------------- || | -------------------------------- | --------------------------------
| FARMLAND MUTUAL | || | | NATIONWIDE PROPERTY | | | NECKURA |
| INSURANCE COMPANY | || | | AND CASUALTY | | | INSURANCE COMPANY |
|Guaranty Fund | || | | INSURANCE COMPANY | | | |
|------------ |========= |----|Common Stock: 60,000 | |--------|Common Stock: 6,000 |
|Certificate | | |------------ Shares | | |------------ Shares |
|----------- Cost | | | Cost | | | Cost |
| ---- | | | ---- | | |Neckura- ---- |
|Casualty $500,000 | | |Casualty-100% $6,000,000 | | |100% DM 6,000,000 |
- -------------------------------- | -------------------------------- | --------------------------------
| | |
- -------------------------------- | -------------------------------- | --------------------------------
| F & B, INC. | | | COLONIAL INSURANCE | | | NECKURA LIFE |
| | | | COMPANY OF CALIFORNIA | | | INSURANCE COMPANY |
|Common Stock: 1 Share | | | (COLONIAL) | | | |
|------------ | |----|Common Stock: 1,750 | |--------|Common Stock: 4,000 |
| Cost | | |------------ Shares | | |------------ Shares |
| ---- | | | Cost | | | Cost |
|Farmland | | | ---- | | | ---- |
|Mutual-100% $10 | | |Casualty-100% $11,750,000 | | |Neckura-100% DM 15,825,681 |
- -------------------------------- | -------------------------------- | --------------------------------
| |
- -------------------------------- | -------------------------------- | --------------------------------
| NATIONWIDE AGRIBUSINESS | | | SCOTTSDALE | | | NECKURA GENERAL |
| INSURANCE COMPANY | | | INSURANCE COMPANY | | | INSURANCE COMPANY |
|Common Stock: 1,000,000 | | | | | | |
|------------ Shares | | |Common Stock: 30,136 | | |Common Stock: 1,500 |
| Cost |------------------|------------ Shares | |--------|------------ Shares |
| ---- | | Cost | | | Cost |
|Casualty-99.9% $26,714,335 | | ---- | | | ---- |
|Other Capital: | |Casualty-100% $150,000,000 | | |Neckura-100% DM 1,656,925 |
|------------- | | | | | |
|Casualty-Ptd. $ 713,567 | | | | | |
- -------------------------------- -------------------------------- | --------------------------------
| |
-------------------------------- | --------------------------------
| SCOTTSDALE | | | COLUMBUS INSURANCE |
| SURPLUS LINES | | | BROKERAGE AND SERVICE |
| INSURANCE COMPANY | | | GmbH |
| | | |Common Stock: 1 Share |
| | |--------|------------ |
| "NEWLY FORMED" | | | Cost |
| | | | ---- |
| | | |Neckura-100% DM 51,639 |
| | | | |
| | | | |
-------------------------------- | --------------------------------
| |
-------------------------------- | --------------------------------
| NATIONAL PREMIUM & | | | LEBEN DIREKT |
| BENEFIT ADMINISTRATION | | | INSURANCE COMPANY |
| COMPANY | | | |
|Common Stock: 10,000 | | |Common Stock: 4,000 Shares |
|------------ Shares |------------------|------------ |
| Cost | | Cost |
| ---- | | ---- |
|Scottsdale-100% $10,000 | |Neckura-100% DM 4,000,000 |
| | | |
| | | |
-------------------------------- --------------------------------
-------------------------------- --------------------------------
| SVM SALES | | AUTO DIREKT |
| GmbH | | INSURANCE COMPANY |
| | | |
|Common Stock: 50 Shares | |Common Stock: 1,500 Shares |
|------------ | |------------ |
| Cost | | Cost |
| ---- | | ---- |
|Neckura-100% DM 50,000 | |Neckura-100% DM 1,643,149 |
| | | |
| | | |
-------------------------------- --------------------------------
</TABLE>
<PAGE> 73
<TABLE>
<CAPTION>
NATIONWIDE INSURANCE ENTERPRISE(R) (right side)
<S> <C> <C> <C>
------------------------
| NATIONWIDE INSURANCE |
| ENTERPRISE FOUNDATION|
| |
| MEMBERSHIP |
| NONPROFIT |
| CORPORATION |
------------------------
-----------------------------------------------------------------------------
| |
| |
| NATIONWIDE MUTUAL |
=======| FIRE INSURANCE COMPANY |
| (FIRE) |
| |
| |
-----------------------------------------------------------------------------
|
- --------------- --------------------------------------------------
| |
- ----------------------------------------------------------------------------------------------------------------- |
| | | |
| -------------------------------- | -------------------------------- ----------------------------------
| | SCOTTSDALE | | | NATIONWIDE | | NATIONWIDE |
| | INDEMNITY COMPANY | | | COMMUNITY URBAN | | CORPORATION |
| | | | | REDEVELOPMENT | | |
| | | | | CORPORATION | |Common Stock: Control: |
| |Common Stock: 50,000 | | |Common Stock: 10 Shares | |------------ ------- |
|-----|------------ Shares | |----|------------ | |$13,642,432 100% |
| | Cost | | | Cost | | Shares Cost |
| | ---- | | | ---- | | ------ ---- |
| |Casualty-100% $8,800,000 | | |Casualty-100% $1,000 | |Casualty 12,992,922 $751,352,485|
| | | | | | |Fire 649,510 24,007,936|
| | | | | | | (See Page 2) |
| -------------------------------- | -------------------------------- ----------------------------------
| |
| -------------------------------- | --------------------------------
| | NATIONWIDE | | | INSURANCE |
| | INDEMNITY COMPANY | | | INTERMEDIARIES, INC. |
| | | | | |
|-----|Common Stock: 28,000 | |----|Common Stock: 1,615 |
| |------------ Shares | | |------------ Shares |
| | Cost | | | Cost |
| | ---- | | | ---- |
| |Casualty-100% $294,529,000 | | |Casualty-100% $1,615,000 |
| -------------------------------- | --------------------------------
| |
| -------------------------------- | --------------------------------
| | LONE STAR | | | NATIONWIDE CASH |
| | GENERAL AGENCY, INC. | | | MANAGEMENT COMPANY |
| | | | |Common Stock: 100 Shares |
------|Common Stock: 1,000 | |----|------------ |
|------------ Shares | | | Cost |
| Cost | | | ---- |
| ---- | | |Casualty-90% $9,000 |
|Casualty-100% $5,000,000 | | |NW Adv. Serv. 1,000 |
-------------------------------- | --------------------------------
|| |
-------------------------------- | --------------------------------
| COLONIAL COUNTY MUTUAL | | | CALIFORNIA CASH |
| INSURANCE COMPANY | | | MANAGEMENT |
| | | | |
|Surplus Debentures | | |Common Stock: 90 Shares |
|------------------ | |----|------------ |
| Cost | | | Cost |
| ---- | | | ---- |
|Colonial $500,000 | | |Casualty-100% $9,000 |
|Lone Star 150,000 | | | |
-------------------------------- | --------------------------------
|
| -------------------------------- --------------------------------
| | NATIONWIDE | | THE BEAK AND |
| | COMMUNICATIONS, INC. | | WIRE CORPORATION |
| |Common Stock: 14,750 | | |
| |------------ Shares | |Common Stock: 750 Shares |
-----| Cost |------------------|------------ |
| ---- | | Cost |
|Casualty-100% $11,510,000 | | ---- |
|Other Capital: | |NW Comm-100% $531,000 |
|------------- | | |
|Casualty-Ptd. 1,000,000 | | |
-------------------------------- --------------------------------
Subsidiary Companies -- Solid Line
Contractual Association -- Double Lines
March 6, 1997
</TABLE>
<PAGE> 74
<TABLE>
<CAPTION>
(Left Side)
NATIONWIDE INSURANCE ENTERPRISE(R)
------------------------------------------------
| EMPLOYERS INSURANCE |
| OF WAUSAU |==========================================
| A MUTUAL COMPANY |
------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------
| | |
--------------------------- --------------------------- ---------------------------
| NATIONWIDE LIFE INSURANCE | | NATIONWIDE | | NATIONWIDE FINANCIAL |
| COMPANY (NW LIFE) | | FINANCIAL SERVICES | | INSTITUTION DISTRIBUTORS |
| | | CAPITAL TRUST | | AGENCY, INC. (NFIDAI) |
| Common Stock: 3,814,779 | | Preferred Stock: | | Common Stock: 1,000 |
| ------------ Shares | | --------------- | | ------------ Shares |
| | | | | |
| NFS--100% | | NFS--100% | | NFS--100% |
--------------------------- --------------------------- ---------------------------
| ||
--------------------------- | --------------------------- --------------------------- || --------------------------
| NATIONWIDE LIFE AND | | | NATIONWIDE | | FINANCIAL HORIZONS | || | |
| ANNUITY INSURANCE COMPANY | | | ADVISORY SERVICES | | DISTRIBUTORS AGENCY | || | |
| (NW LIFE) | | | (NW ADV. SERV.) | | OF ALABAMA, INC. | || | |
| Common Stock: 68,000 | | | Common Stock: 7,676 | | Common Stock: 10,000 | || | FINANCIAL HORIZONS |
| ------------ Shares |--|--| ------------ Shares |==|| | ------------ Shares |--||==| DISTRIBUTORS AGENCY |
| | | | | || | | || | OF OHIO, INC. |
| Cost | | | Cost | || | Cost | || | |
| ---- | | | ---- | || | ---- | || | |
| NW Life--100% $58,070,003 | | | NW Life--100% $5,996,261 | || | NFIDIA--100% $100 | || | |
--------------------------- | --------------------------- || --------------------------- || --------------------------
| || ||
--------------------------- | --------------------------- || --------------------------- || --------------------------
| NWE, INC. | | | NATIONWIDE | || | LANDMARK FINANCIAL | || | |
| | | | INVESTOR SERVICES, INC. | || | SERVICES OF | || | |
| | | | | || | NEW YORK, INC. | || | |
| Common Stock: 100 | | | Common Stock: 5 | || | Common Stock: 10,000 | || | FINANCIAL HORIZONS |
| ------------ Shares |--| | ------------ Shares |==|| | ------------ Shares | ||==| DISTRIBUTORS AGENCY |
| | | | | || | | || | OF OKLAHOMA, INC. |
| Cost | | | Cost | || | Cost | || | |
| ---- | | | ---- | || | ---- | || | |
| NW Life--100% $35,971,375 | | | NW Adv. Serv.--100% $5,000| || | NFIDIA--100% $10,100 | || | |
--------------------------- | --------------------------- || --------------------------- || --------------------------
| || ||
--------------------------- | --------------------------- || --------------------------- || --------------------------
| NATIONWIDE INVESTMENT | | | FINANCIAL HORIZONS | || | FINANCIAL HORIZONS | || | |
| SERVICES CORPORATION | | | INVESTMENT TRUST | || | SECURITIES CORP. | || | |
| | | | | || | | || | |
| Common Stock: 5,000 | | | | || | Common Stock: 10,000 | || | FINANCIAL HORIZONS |
| ------------ Shares |--| | |==|| | ------------ Shares | ||==| DISTRIBUTORS AGENCY |
| | | | | || | | || | OF TEXAS, INC. |
| Cost | | | | || | Cost | || | |
| ---- | | | | || | ---- | || | |
| NW Life--100% $529,728 | | | COMMON LAW TRUST | || | NFIDIA--100% $153,000 | || | |
--------------------------- | --------------------------- || --------------------------- || --------------------------
| || ||
--------------------------- | --------------------------- || --------------------------- || --------------------------
| NATIONWIDE LIFE INSURANCE | | | NATIONWIDE | || | AFFILIATE AGENCY, INC. | || | |
| COMPANY OF NEW YORK | | | INVESTING | || | | || | |
| | | | FOUNDATION | || | | || | |
| Common Stock: | | | | || | Common Stock: 100 | || | AFFILIATE |
| ------------ Shares |--| | |==|| | ------------ Shares |__||==| AGENCY OF |
| Cost | | | | || | | | OHIO, INC. |
| ---- | | | | || | Cost | | |
| NW Life--100% | | | | || | ---- | | |
| (Proposed) | | | COMMON LAW TRUST | || | NFIDIA--100% $100 | | |
--------------------------- | --------------------------- || --------------------------- --------------------------
| ||
--------------------------- | --------------------------- ||
| NATIONWIDE REALTY | | | NATIONWIDE | ||
| INVESTORS, LTD. | | | INVESTING | ||
| | | | FOUNDATION II | ||
| Units: | | | | ||
| ------ | | | |==||
| | | | | ||
| | | | | ||
| NW Life--90% | | | | ||
| NW Mutual--10% | | | COMMON LAW TRUST | ||
--------------------------- | --------------------------- ||
| ||
--------------------------- | --------------------------- ||
| NATIONWIDE REALTY | | | NATIONWIDE | ||
| INVESTORS, LTD. | | | SEPARATE ACCOUNT | ||
| | | | TRUST | ||
| Units: | | | | ||
| ------ |__| | |__||
| | | |
| | | |
| NW Life--97.6% | | |
| NW Mutual--2.4% | | COMMON LAW TRUST |
--------------------------- ---------------------------
</TABLE>
<PAGE> 75
<TABLE>
<CAPTION>
(Center)
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------
| NATIONWIDE MUTUAL |
========================================| INSURANCE COMPANY |==========================================
| (CASUALTY) |
------------------------------------------------
|
| ----------------------------------------------------
| |
---------------------------------------
| NATIONWIDE CORPORATION (NW CORP) |
| Common Stock: Control |
| ------------ ------- |
| 13,642,432 100% |
| Shares Cost |
| ------ ---- |
| Casualty 12,992,922 $751,352,485 |
| Fire 649,510 24,007,936 |
---------------------------------------
|
----------------------------------------------------------------------------------------------------------------------
| | | |
--------------------------- -------------------------- ----------------------------- ----------------------------
| NATIONWIDE FINANCIAL | | MRM INVESTMENTS, INC. | | WEST COAST LIFE | | NATIONAL CASUALTY |
| SERVICES, INC. (NFS) | | | | INSURANCE COMPANY | | COMPANY |
| | | | | | | (NC) |
| Common Stock: Control | | Common Stock: 1 | | Common Stock: 1,000,000 | | Common Stock: 100 |
| ------------ ------- | | ------------ Share | | ------------ Shares | | ------------ Shares |
| | | | | | | |
| | | Cost | | Cost | | Cost |
| Class A Public--100% | | ---- | | ---- | | ---- |
| Class B NW Corp--100% | | NW Corp.--100% $1,339,218 | | NW Corp.--100% $152,946,930 | | NW Corp.--100% $73,442,439 |
--------------------------- --------------------------- ----------------------------- ----------------------------
| |
- -------------------------------------------------------------------------------- |
| | |
--------------------------- --------------------------- ----------------------------
| PUBLIC EMPLOYEES BENEFIT | | NEA VALUEBUILDER | | NCC OF AMERICA, INC. |
| SERVICES CORPORATION | | INVESTOR SERVICES, INC. | | (INACTIVE) |
| (PEBSCO) | | (NEA) | | |
| Common Stock: 236,494 |==|| | Common Stock: 500 | | |
| ------------ Shares | || | ------------ Shares | | |
| | || | | | |
| NFS--100% | || | NFS--100% | | NFS--100% |
--------------------------- || ----------------------------- ----------------------------
|| ||
--------------------------- || --------------------------- ||
| PEBSCO OF | || | NEA VALUEBUILDER | ||
| ALABAMA | || | INVESTOR SERVICES | ||
| | || | OF ALABAMA, INC. | ||
| Common Stock: 100,000 | || | Common Stock: 500 | ||
| ------------ Shares |--|| | ------------ Shares |--||
| | || | | ||
| Cost | || | Cost | ||
| ---- | || | ---- | ||
| PEBSCO--100% $1,000 | || | NEA--100% $5,000 | ||
--------------------------- || --------------------------- ||
|| ||
--------------------------- || --------------------------- ||
| PEBSCO OF | || | NEA VALUEBUILDER | ||
| ARKANSAS | || | INVESTOR SERVICES | ||
| | || | OF ARIZONA, INC | ||
| Common Stock: 50,000 | || | Common Stock: 100 | ||
| ------------ Shares |--|| | ------------ Shares |--||
| | || | | ||
| Cost | || | Cost | ||
| ---- | || | ---- | ||
| PEBSCO--100% $500 | || | NEA--100% $1,000 | ||
--------------------------- || --------------------------- ||
|| ||
--------------------------- || --------------------------- ||
| PEBSCO OF MASSACHUSETTS | || | NEA VALUEBUILDER | ||
| INSURANCE AGENCY, INC. | || | INVESTOR SERVICES | ||
| | || | OF MONTANA, INC. | ||
| Common Stock: 1,000 | || | Common Stock: 500 | ||
| ------------ Shares |--|| | ------------ Shares |--||
| | || | | ||
| Cost | || | Cost | ||
| ---- | || | ---- | ||
| PEBSCO--100% $1,000 | || | NEA--100% $500 | ||
--------------------------- || --------------------------- ||
|| ||
--------------------------- || --------------------------- || ---------------------------
| PEBSCO OF | || | NEA VALUEBUILDER | || | |
| MONTANA | || | INVESTOR SERVICES | || | |
| | || | OF NEVADA, INC. | || | NEA VALUEBUILDER |
| Common Stock: 500 | || | Common Stock: 500 | || | INVESTOR SERVICES |
| ------------ Shares |--|| | ------------ Shares | ||==| OF OHIO, INC. |
| | || | | || | |
| Cost | || | Cost | || | |
| ---- | || | ---- | || | |
| PEBSCO--100% $500 | || | NEA--100% $500 | || | |
--------------------------- || --------------------------- || ---------------------------
|| ||
--------------------------- || --------------------------- || ---------------------------
| PEBSCO OF | || | NEA VALUEBUILDER | || | |
| NEW MEXICO | || | INVESTOR SERVICES | || | |
| | || | OF WYOMING, INC. | || | NEA VALUEBUILDER |
| Common Stock: 1,000 | || | Common Stock: 500 | || | INVESTOR SERVICES |
| ------------ Shares |--|| | ------------ Shares | ||==| OF OKLAHOMA, INC. |
| | || | | || | |
| Cost | || | Cost | || | |
| ---- | || | ---- | || | |
| PEBSCO--100% $1,000 | || | NEA--100% $500 | || | |
--------------------------- || --------------------------- || ---------------------------
|| ||
--------------------------- || --------------------------- || ----------------------------
| | || | NEA VALUEBUILDER | || | |
| | || | SERVICES INSURANCE | || | |
| PEBSCO OF | || | AGENCY, INC. | || | NEA VALUEBUILDER |
| TEXAS, INC. | || | Common Stock: 100 | || | INVESTOR SERVICES |
| |==|| | ------------ Shares |__||==| OF TEXAS, INC. |
| | | | | |
| | | Cost | | |
| | | ---- | | |
| | | NEA--100% $1,000 | | |
--------------------------- --------------------------- ----------------------------
</TABLE>
<PAGE> 76
<TABLE>
<CAPTION>
(Right)
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------
| NATIONWIDE MUTUAL |
========================================| FIRE INSURANCE COMPANY |
| (FIRE) |
------------------------------------------------
|
- -----------------------------------------------------------------|
- ----------------------------------------------------------------------------------------------
| | |
--------------------------- ------------------------------ ------------------------------
| GATES, MCDONALD | | EMPLOYERS LIFE INSURANCE | | NATIONWIDE HMO, INC. |
| & COMPANY (GATES) | | OF WAUSAU (ELIOW) | | (NW HMO) |
| | | | | |
| Common Stock: 254 | | Common Stock: 250,000 | | Common Stock: 100 |
|-- | ------------ Shares | |--| ------------ Shares | |--| ------------ Shares |
| | | | | | | | |
| | Cost | | | Cost | | | Cost |
| | ---- | | | ---- | | | ---- |
| | NW CORP.--100% $25,683,532 | | | NW CORP.--100% $126,509,480 | | | NW CORP.--100% $14,603,732 |
| ----------------------------- | ------------------------------ | ------------------------------
| | |
| --------------------------- | ------------------------------ | ------------------------------
| | GATES, MCDONALD & COMPANY | | | WAUSAU PREFERRED | | | NATIONWIDE MANAGEMENT |
| | OF NEW YORK, INC. | | | HEALTH INSURANCE CO. | | | SYSTEMS, INC. |
| | | | | | | | |
| | Common Stock: 3 | | | Common Stock: 250,000 | | | Common Stock: 100 |
|-- | ------------ Shares | |--| ------------ Shares | |--| ------------ Shares |
| | | | | | | | |
| | Cost | | | Cost | | | NW HMO Cost |
| | ---- | | | ---- | | | ---- |
| | GATES--100% $106,947 | | | NW CORP.--100% $57,413,193 | | | Inc.--100% $25,149 |
| ----------------------------- | ------------------------------ | ------------------------------
| | |
| ----------------------------- | ------------------------------ | ------------------------------
| | GATES, MCDONALD & COMPANY | | | KEY HEALTH PLAN, INC. | | | NATIONWIDE |
| | OF NEVADA | | | | | | AGENCY, INC. |
| | | | | | | | |
| | Common Stock: 40 | | | Common Stock: 1,000 | | | Common Stock: 100 |
|-- | ------------ Shares | |--| ------------ Shares | |--| ------------ Shares |
| | | | | | | |
| | Cost | | Cost | | | NW HMO Cost |
| | ---- | | ---- | | | ---- |
| | Gates--100% $93,750 | | ELIOPW--80% $2,700,000 | | | Inc.--99% $116,077 |
| ----------------------------- ------------------------------ | ------------------------------
|
| -----------------------------
| | GATES, MCDONALD |
| | HEALTH PLUS, INC. |
| | |
| | Common Stock: 200 |
|-- | ------------ Shares |
| |
| Cost |
| ---- |
| NW CORP.--100% $2,000,000 |
-----------------------------
Subsidiary Companies -- Solid Line
Contractual Association -- Double Line
Partnership Interest -- Dotted Line
March 6, 1997
Page 2
</TABLE>
<PAGE> 77
Item 27. Number of Contract Owners
The number of Contract Owners of Qualified and Non-Qualified
Contracts as of February 28, 1997 was 576 and 993, respectively.
Item 28. Indemnification
Provision is made in the Company's Amended and Restated Code of
Regulations and expressly authorized by the General Corporation
Law of the State of Ohio, for indemnification by the Company of
any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or
investigative by reason of the fact that such person is or was a
director, officer or employee of the Company, against expenses,
including attorneys fees, judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, to the extent and
under the circumstances permitted by the General Corporation Law
of the State of Ohio.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 ("Act") may be permitted to directors,
officers or persons controlling the Company pursuant to the
foregoing provisions, the Company has been informed that in the
opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 29. Principal Underwriter
(a) Nationwide Advisory Services, Inc. ("NAS") acts as principal
underwriter and general distributor for the Nationwide
Multi-Flex Variable Account, Nationwide DC Variable Account,
Nationwide DCVA II, Nationwide Variable Account-II, Nationwide
Variable Account-5, Nationwide Variable Account-6, Nationwide
Variable Account-8, Nationwide VA Separate Account-A,
Nationwide VA Separate Account-B, Nationwide VA Separate
Account-C, Nationwide VL Separate Account-A, Nationwide VL
Separate Account-B, Nationwide VLI Separate Account-2,
Nationwide VLI Separate Account-3, NACo Variable Account and
the Nationwide Variable Account, all of which are separate
investment accounts of the Company or its affiliates.
NAS also acts as principal underwriter for Nationwide Investing
Foundation, Nationwide Separate Account Trust, Financial Horizons
Investment Trust, Nationwide Asset Allocation Trust and Nationwide
Investing Foundation II, which are open-end management investment
companies.
(b) NATIONWIDE ADVISORY SERVICES, INC.
DIRECTORS AND OFFICERS
Positions and offices
Name and Business Address with Underwriter
Joseph J. Gasper President and Director
One Nationwide Plaza
Columbus, OH 43215
Dimon Richard McFerson Chairman of the Board of Directors and
One Nationwide Plaza Chairman and
Columbus, OH 43215 Chief Executive Officer--Nationwide
Insurance Enterprise and Director
Gordon E. McCutchan
One Nationwide Plaza Executive Vice President-Law and
Columbus, OH 43215 Corporate Services and Director
Robert A. Oakley Executive Vice President - Chief Financial
One Nationwide Plaza Officer and Director
Columbus, OH 43215
107 of 112
<PAGE> 78
(b) NATIONWIDE ADVISORY SERVICES, INC.
DIRECTORS AND OFFICERS
Robert J. Woodward, Jr. Executive Vice President - Chief Investment
One Nationwide Plaza Officer and Director
Columbus, OH 43215
W. Sidney Druen Senior Vice President and
One Nationwide Plaza General Counsel and
Columbus, OH 43215 Assistant Secretary
James F. Laird, Jr. Vice President - General
One Nationwide Plaza Manager & Acting Treasurer
Columbus, OH 43215
Edwin P. Mc Causland Vice President-Fixed Income
One Nationwide Plaza Securities
Columbus, OH 43215
Harry S. Schermer
One Nationwide Plaza Vice President - Investments
Columbus, OH 43215
Joseph P. Rath Vice President -Compliance
One Nationwide Plaza
Columbus, OH 43215
William G. Goslee
One Nationwide Plaza Vice President
Columbus, OH 43215
Peter J. Neckermann Vice President
One Nationwide Plaza
Columbus, OH 43215
Rae M. Pollina Secretary
One Nationwide Plaza
Columbus, OH 43215
(c) Name Of Net Underwriting Compensation On
Principal Discounts and Redemption Or Brokerage
Underwriter Commissions Annuitization Commissions Compensation
Nationwide N/A N/A N/A N/A
Advisory
Services,
Inc.
108 of 112
<PAGE> 79
Item 30.Location of Accounts and Records
Robert O. Cline
Nationwide Life and Annuity Insurance Company
One Nationwide Plaza
Columbus, OH 43215
Item 31.Management Services
Not Applicable
Item 32.Undertakings
The Registrant hereby undertakes to:
(a) file a post-effective amendment to this registration
statement as frequently as is necessary to ensure that the
audited financial statements in the registration statement
are never more than 16 months old for so long as payments
under the variable annuity contracts may be accepted;
(b) include either (1) as part of any application to purchase a
contract offered by the prospectus, a space that an
applicant can check to request a Statement of Additional
Information, or (2) a post card or similar written
communication affixed to or included in the prospectus that
the applicant can remove to send for a Statement of
Additional Information; and
(c) deliver any Statement of Additional Information and any
financial statements required to be made available under
this form promptly upon written or oral request.
The Registrant represents that any of the Contracts which are
issued pursuant to Section 403(b) of the Code is issued by the
Company through the Registrant in reliance upon, and in compliance
with, a no-action letter issued by the Staff of the Securities and
Exchange Commission to the American Council of Life Insurance
(publicly available November 28, 1988) permitting withdrawal
restrictions to the extent necessary to comply with Section
403(b)(11) of the Code.
The Company 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 risks
assumed by the Company.
109 of 112
<PAGE> 80
Offered by
Nationwide Life and Annuity Insurance Company
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
Nationwide VA Separate Account-B
Individual Deferred Variable Annuity Contract
PROSPECTUS
May 1, 1997
110 of 112
<PAGE> 81
Accountants' Consent and Independent Auditors' Report
on Financial Statement Schedules
The Board of Directors of Nationwide Life and Annuity Insurance Company and
Contract Owners of the Nationwide Variable Account-B:
The audits referred to in our report on Nationwide Life and Annuity Insurance
Company (the Company) dated January 31, 1997 included the related financial
statement schedules as of December 31, 1996, and for each of the years in the
three-year period ended December 31, 1996, included in the registration
statement. These financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statement schedules based on our audits. In our opinion, such
financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth herein.
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Services" in the Statement of Additional Information.
KPMG Peat Marwick LLP
Columbus, Ohio
April 24, 1997
111 of 112
<PAGE> 82
SIGNATURES
As required by the Securities Act of 1933, and the Investment Company Act
of 1940, the Registrant, NATIONWIDE VA SEPARATE ACCOUNT-B, certifies that it
meets the requirements of Securities Act Rule 485(b) for effectiveness of this
Registration Statement and has caused this Registration Statement to be signed
on its behalf in the City of Columbus, and State of Ohio, on this 24th day of
April, 1997.
NATIONWIDE VA SEPARATE ACCOUNT-B
----------------------------------------------
(Registrant)
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
----------------------------------------------
(Depositor)
By /s/ JOSEPH P. RATH
----------------------------------------------
Joseph P. Rath
Vice President
As required by the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities indicated on the 24th day of
April, 1997.
Signature Title
LEWIS J. ALPHIN Director
- ----------------------------
Lewis J. Alphin
KEITH W. ECKEL Director
- ----------------------------
Keith W. Eckel
WILLARD J. ENGEL Director
- ----------------------------
Willard J. Engel
FRED C. FINNEY Director
- ----------------------------
Fred C. Finney
CHARLES L. FUELLGRAF, JR. Director
- ----------------------------
Charles L. Fuellgraf, Jr.
JOSEPH J. GASPER President/Chief Operating Officer
- ---------------------------- and Director
Joseph J. Gasper
HENRY S. HOLLOWAY Chairman of the Board and Director
---------------------------
Henry S. Holloway
Chairman and Chief Executive Officer
- Nationwide Insurance
D. RICHARD MCFERSON Enterprise and Director
- ----------------------------
D. Richard McFerson
DAVID O. MILLER Director
- ----------------------------
David O. Miller
C. RAY NOECKER Director
- ----------------------------
C. Ray Noecker
ROBERT A. OAKLEY Executive Vice President- Chief
- ---------------------------- Financial Officer
Robert A. Oakley
JAMES F. PATTERSON Director By /s/ JOSEPH P. RATH
- ---------------------------- -------------------------
James F. Patterson Joseph P. Rath
Attorney-in-Fact
ARDEN L. SHISLER Director
- ----------------------------
Arden L. Shisler
ROBERT L. STEWART Director
- ----------------------------
Robert L. Stewart
NANCY C. THOMAS Director
- ----------------------------
Nancy C. Thomas
HAROLD W. WEIHL Director
- ----------------------------
Harold W. Weihl
112 of 112
<PAGE> 83
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that each of the undersigned as
directors and/or officers of NATIONWIDE LIFE INSURANCE COMPANY, and NATIONWIDE
LIFE AND ANNUITY INSURANCE COMPANY, both Ohio corporations, which have filed or
will file with the U.S. Securities and Exchange Commission under the provisions
of the Securities Act of 1933, as amended, various Registration Statements and
amendments thereto for the registration under said Act of Individual Deferred
Variable Annuity Contracts in connection with MFS Variable Account, Nationwide
Variable Account, Nationwide Variable Account-II, Nationwide Variable Account-3,
Nationwide Variable Account-4, Nationwide Variable Account-5, Nationwide
Variable Account-6, Nationwide Fidelity Advisor Variable Account, Nationwide
Multi-Flex Variable Account, Nationwide Variable Account-8, Nationwide VA
Separate Account-A, Nationwide VA Separate Account-B, Nationwide VA Separate
Account-C and Nationwide VA Separate Account-Q; and the registration of fixed
interest rate options subject to a market value adjustment offered under some or
all of the aforementioned individual Variable Annuity Contracts in connection
with Nationwide Multiple Maturity Separate Account and Nationwide Multiple
Maturity Separate Account-A, and the registration of Group Flexible Fund
Retirement Contracts in connection with Nationwide DC Variable Account,
Nationwide DCVA-II, and NACo Variable Account; and the registration of Group
Common Stock Variable Annuity Contracts in connection with Separate Account No.
1; and the registration of variable life insurance policies in connection with
Nationwide VLI Separate Account, Nationwide VLI Separate Account-2, Nationwide
VLI Separate Account-3, Nationwide VL Separate Account-A and Nationwide VL
Separate Account-B, hereby constitutes and appoints Dimon Richard McFerson,
Joseph J. Gasper, W. Sidney Druen, and Joseph P. Rath, and each of them with
power to act without the others, his/her attorney, with full power of
substitution and resubstitution, for and in his/her name, place and stead, in
any and all capacities, to approve, and sign such Registration Statements and
any and all amendments thereto, with power to affix the corporate seal of said
corporation thereto and to attest said seal and to file the same, with all
exhibits thereto and other documents in connection therewith, with the U.S.
Securities and Exchange Commission, hereby granting unto said attorneys, and
each of them, full power and authority to do and perform all and every act and
thing requisite to all intents and purposes as he/she might or could do in
person, hereby ratifying and confirming that which said attorneys, or any of
them, may lawfully do or cause to be done by virtue hereof. This instrument may
be executed in one or more counterparts.
IN WITNESS WHEREOF, the undersigned have herewith set their names and
seals as of this 2nd day of April, 1997.
<TABLE>
<CAPTION>
<S> <C>
/s/ Lewis J. Alphin /s/ David O. Miller
- ------------------------------------------------- --------------------------------------------------
Lewis J. Alphin, Director David O. Miller, Director
/s/ Keith W. Eckel /s/ C. Ray Noecker
- ------------------------------------------------- -------------------------------------------------
Keith W. Eckel, Director C. Ray Noecker, Director
/s/ Willard J. Engel /s/ Robert A. Oakley
- ------------------------------------------------- --------------------------------------------------
Willard J. Engel, Director Robert A. Oakley, Executive Vice President and Chief
Financial Officer
/s/ Fred C. Finney /s/ James F. Patterson
- ------------------------------------------------- --------------------------------------------------
Fred C. Finney, Director James F. Patterson, Director
/s/ Charles L. Fuellgraf /s/ Arden L. Shisler
- ------------------------------------------------- --------------------------------------------------
Charles L. Fuellgraf, Jr., Director Arden L. Shisler, Director
/s/ Joseph J. Gasper /s/ Robert L. Stewart
- ------------------------------------------------- --------------------------------------------------
Joseph J. Gasper, President and Chief Operating Officer Robert L. Stewart, Director
and Director
/s/ Henry S. Holloway /s/ Nancy C. Thomas
- ------------------------------------------------- --------------------------------------------------
Henry S. Holloway, Chairman of the Board, Director Nancy C. Thomas, Director
/s/ Dimon Richard McFerson /s/ Harold W. Weihl
- ------------------------------------------------- --------------------------------------------------
Dimon Richard McFerson, Chairman and Chief Executive Harold W. Weihl, Director
Officer-Nationwide Insurance Enterprise and Director
</TABLE>
