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NATIONWIDE LOGO
NATIONWIDE(R)
VA SEPARATE ACCOUNT-C
(FORMERLY FINANCIAL HORIZONS VA SEPARATE ACCOUNT-3)
ANNUAL REPORT
TO
CONTRACT OWNERS
DECEMBER 31, 1996
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
HOME OFFICE: COLUMBUS, OHIO
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NATIONWIDE LOGO
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
ONE NATIONWIDE PLAZA, COLUMBUS, OHIO 43215
PHOTO
PRESIDENT'S MESSAGE
On behalf of Nationwide Life and Annuity Insurance Company, we are pleased to
bring you the 1996 annual report of the Nationwide VA Separate Account-C.
The U.S. economy is enjoying the rewards of a stable political system and a
globally competitive business sector. These good times will last, although not
all years will show the stellar performance of the last two years. 1997 may be
the year in which normalcy will return.
The economic expansion has lasted six years already, and all resources are more
or less fully employed. The job market in particular is showing some strains,
and wages are rising a bit faster than before. Also, the competitive pressures
from abroad are increasing due to a sharp rise in the exchange value of our
currency. Business will be hard pressed under those conditions to continue
showing above-average profit increases. For the economy as a whole, inflation
has hit the low point in this business cycle and will slowly but surely be a
more important variable for monetary policy.
In the last few years, and especially in 1996, our economy expanded faster than
the natural rate of growth. This cannot continue without creating bottlenecks
that in turn induce price increases. Either the economy will slow under its own
weight or the Federal Reserve will have to step in. Some indicators point to a
softening of business activity. But whether this is enough will be a close
call.
Again, the long-term trend is very positive for the U.S., its business
activity, and its financial markets. However, 1997 might turn out to have some
more surprises than anticipated right now.
/s/ JOSEPH J. GASPER
-------------------------------
Joseph J. Gasper, President
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Contents
<TABLE>
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HOW TO READ THE ANNUAL REPORT 4
Explanation on how to read and understand
the various financial reports
A FEW WORDS ABOUT OUR FUNDS 6
FUND PERFORMANCES 11
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY 13
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY 15
NOTES TO FINANCIAL STATEMENTS 16
SCHEDULES OF CHANGES IN UNIT VALUE 18
INDEPENDENT AUDITORS' REPORT 20
</TABLE>
The discussions refer to a stock market index. The Standard & Poor's 500 Index
(S&P 500) is an unmanaged index of 500 U.S. common stocks and the historical
performance assumes the reinvestment of dividends.
The performance figures quoted by the fund managers do not include the annual
mortality, expense and administration charges of the annuity contract. The
Fund's portfolio is subject to change.
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How to Read the Annual Report
This Annual Report is sent to all customers who own a Nationwide annuity with
all or some of the funds in the Nationwide VA Separate Account-C (the Account).
The Account is a separate account trust which offers investment options in
eight mutual funds from three mutual fund houses. An explanation of the funds
and their objectives can be found on pages 6 through 10.
The Annual Report has three major financial sections.
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY
This statement, beginning on page 13, lists all the funds in the Account, the
number of shares owned, the amount paid for the shares (i.e., cost) and their
market value on December 31, 1996. The funds are presented in alphabetical
order by investment company. The market value of the assets change as the
underlying mutual fund shares change in value. As contract owners make
exchanges between the funds, the number of shares in each fund increases and
decreases. When money is deposited (withdrawn) by contract owners, shares of
the mutual funds are bought (sold) by the Account. The total market value of
the funds is equal to the Total investments.
Accounts receivable, if applicable, is an asset of the Account for money market
fund shares added to the contract owners' accounts, but not yet added to Total
investments. Total investments plus Accounts receivable equals Total assets.
Accounts payable, if applicable, is a liability of the Account for money market
fund shares deducted from the contract owners' accounts, but not yet deducted
from Total investments.
Total assets minus Accounts payable equals Contract owners' equity. For a
summary of Contract owners' equity by fund series turn to page 14.
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
These statements, found on page 15, show the activity in the Account for the
periods stated herein.
The Investment activity section shows the changes in unrealized gain (loss) of
the mutual funds in the Account, realized gain (loss) as shares of the funds
are bought (sold), mortality, expense and administration charges which are
assessed through the daily unit value calculation, and dividends and capital
gains earnings from the underlying mutual funds.
The Equity transactions section illustrates the receipt of purchase payments by
the Account as new contracts are sold, existing contract owners deposit
additional funds; and deductions from the Account when money is withdrawn,
contracts are canceled, annuity benefits are paid, and annual contract
maintenance charges and contingent deferred sales charges are assessed.
Net change in contract owners' equity equals Investment activity plus Equity
transactions.
The Contract owners' equity at the beginning of the period plus the Net change
in contract owners' equity equals the Contract owners' equity at the end of the
period. Contract owners' equity at the end of the calendar year will equal the
Contract owners' equity at the beginning of the next year.
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SCHEDULES OF CHANGES IN UNIT VALUE
As a contract owner, you invest in the mutual funds offered in your annuity
contract. However, you do not buy shares of the mutual fund. Instead, the
Account buys shares of the fund and you in turn purchase units of the Account.
Except for the units surrendered for the annual contract maintenance charge,
the number of units you own will not change unless you contribute to or
withdraw money from your account. The value of your contract can change based
on the value of the units you own. For example, if you purchase 100 units at
$10 per unit, the value of your contract is $1,000. If the value of the units
increases to $12 per unit, your contract value increases to $1,200. Therefore,
to determine the value of your account, multiply the number of units of each
fund you own by the fund's unit value.
The Schedules of Changes in Unit Value show you the unit value at the beginning
of the period and at the end of the period. The percentage increase (decrease)
in unit value shows how it changed in value. This is computed by subtracting
the beginning unit value from the ending unit value and dividing the difference
by the beginning unit value. This can be used as a measure of the performance
of the funds over the periods reported herein.
As you review the following pages of the Annual Report, the Notes to Financial
Statements beginning on page 16 will also help explain and clarify the various
statements and schedules.
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A Few Words About Our Funds
FIDELITY LOGO
VARIABLE INSURANCE PRODUCTS FUND
EQUITY-INCOME PORTFOLIO
OBJECTIVE - To seek reasonable income by investing primarily in
income-producing equity securities.
AN INTERVIEW WITH STEPHEN PETERSON, PORTFOLIO MANAGER
NOTE TO SHAREHOLDERS: Stephen Peterson began managing the fund on January 6,
1997 and did not manage the fund during the past year.
Q. HOW DID THE FUND PERFORM, STEPHEN?
A. While performing well on an absolute basis, the fund underperformed the
Standard &Poor's 500 Index which returned 22.95% for the 12 months ended
December 31, 1996.
Q. WHY WERE THE FUND'S RETURNS DISAPPOINTING DURING THE PAST SIX MONTHS?
A. There are a couple of reasons. Primarily, though, it's because of the equity
income style of investing that this fund follows. Equity income fund managers
seek to own stocks of quality companies that also have attractive dividend
yields equal to or greater than the market average. Having that sort of
orientation attracts equity income style managers to utility stocks, financial
stocks and cyclical stocks such as automobiles and basic industries. As a
group, the industries I just mentioned - with the exception of financial stocks
- - performed well on an absolute basis but underperformed the overall market
during the past year. As in 1995, the strong performance of the overall stock
market was primarily concentrated in technology stocks and larger
market-capitalization stocks such as Coca Cola and Gillette.
Q. AND THE FUND DIDN'T HAVE LARGE HOLDINGS IN MANY OF THE OUTPERFORMING STOCKS?
A. Exactly. The past 12 months have not really been a stock picker's market,
but one in which the S&P 500 managed to outperform most actively managed mutual
funds such as this one. Also, the fund had a fairly large weighting in mid-cap
stocks that also underperformed the market average.
Q. WHAT HOLDINGS DID PERFORM WELL?
A. Some of the fund's top holdings performed well. Specifically, General
Electric, IBM and Philip Morris. The fund also was helped by its weighting in
financial stocks such as Aetna, FNMA, Citicorp and American Express. However,
some of the fund's utility stocks and convertible bonds were drags on
performance.
Q. YOU TOOK OVER THE FUND IN EARLY JANUARY 1997. WHAT ARE YOUR PLANS FOR THE
FUND? WHAT CHANGES CAN SHAREHOLDERS EXPECT FROM YOU?
A. As an equity income manager my investment strategy is to look for
better-than-average yielding large-cap stocks with attractive attributes that
will lead to capital appreciation over time. I try to buy stocks that are
currently out-of-favor within this framework, and try to avoid taking large
positions in certain segments of the market, such as mid-cap stocks or
convertible bonds. Once the out-of-favor stocks appreciate, I sell them and buy
other out-of-favor stocks. Mine is a methodical, straight-forward process that
emphasizes individual stock picking more than anything else.
Q. WHAT DO YOU LOOK FOR IN DIVIDEND-YIELDING STOCKS?
A. I usually buy stocks that have dividend yield equal to or above the average
yield of the S&P 500 - currently about 2%. If I own companies with lower
yields, it's because the company has decided to distribute excess capital to
shareholders in other ways such as stock repurchase programs. This is
consistent with my strategy of owning companies that are strong income
producers with higher-than-average dividends, along with stocks of undervalued
companies that I think have the potential to appreciate over time.
Q. DOES THE FUND OWN TURNAROUND STOCKS OR COMPANIES THAT ARE UNDERGOING
POSITIVE CHANGE?
A. Yes. While my goal is to have the fund primarily invested in quality
companies with consistent earnings growth, I would like to own some companies
that haven't performed well in the market recently, and therefore may have
lower valuations and better opportunity for capital appreciation. It's an
approach I've used in the past with some other funds I've managed and it's
worked well.
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EQUITY-INCOME PORTFOLIO (CONT'D)
Q. WHAT'S YOUR OUTLOOK FOR THE MONTHS AHEAD?
A. I don't sense that there's been any significant change in the mood of the
market - it still favors consistent earnings growth. Since the market continues
to reward stocks of large-cap, consistent earnings companies, it's quite
difficult to outperform the general market, especially with the equity income
style of investing. However, as everyone knows, the economic recovery has been
underway since 1991 - historically, quite a long period of time for a strong
economy without an interruption or correction. Therefore, I'm trying to
structure the fund so it can perform relatively well when and if the market
changes course. While I think the outlook for this fund remains good, investors
should be cautious after two years of more than 20% returns from the overall
market.
OVERSEAS PORTFOLIO
OBJECTIVE - To seek long term growth of capital primarily through investments
in foreign securities.
AN INTERVIEW WITH RICHARD MACE, PORTFOLIO MANAGER
Q. RICK, HOW DID THE FUND PERFORM?
A. For the 12-month period that ended December 31, 1996, the fund outperformed
the Morgan Stanley Capital International EAFE Index - which tracks the
performance of stocks in Europe, Australia and the Far East. The index had a
total return of 6.05% for the period.
Q. WHAT WERE SOME OF THE MORE SIGNIFICANT CHANGES YOU MADE TO THE PORTFOLIO
OVER THE COURSE OF THE YEAR?
A. I continued to sell Japanese stocks in order to keep the fund underweighted
in Japan relative to the EAFE Index. I've placed the proceeds from these sales
in European cyclical stocks - which tend to benefit from a strong economy. This
strategy has been effective in moving the fund into undervalued European
equities that I believe have appealing risk/reward characteristics. It also has
limited the fund's exposure to the negative effects of the weak Japanese yen
and the underperforming Japanese stock market.
Q. DOES THIS MEAN YOU HAVE A NEGATIVE VIEW ON JAPAN?
A. Not at all. In fact, I solidified the fund's position in what I consider my
value holdings in Japan. These are companies that I believe will benefit from
the weak yen, the recent Japanese economic revival, world economic growth and
solid management intent on raising the value of their businesses. I only invest
with conviction, and I believed in the fund's remaining Japanese holdings. Some
examples included Toyota and Honda, and broad-based export companies such as
Canon.
Q. BASED ON YOUR INVESTMENTS DURING THE PERIOD, YOU SAW OPPORTUNITIES
IN EUROPE. . .
A. Six months ago, I saw great potential in Europe. Stocks were generally
undervalued, there was the potential for economic recovery and some companies
were taking steps to raise shareholder value. Some stocks have appreciated and
realized their underlying value. Economic growth has come, although not as
uniformly as I would have hoped. Additionally, many more corporate managements
have been proactive in growing the value of their businesses by restructuring
their balance sheets, selling off poor-performing subsidiaries and redeploying
excess cash more efficiently.
Q. WHAT SPECIFIC TYPES OF COMPANIES DID YOU LIKE IN EUROPE?
A. As I said before, I looked for cyclical names - especially in the energy
sector. I believed many European energy stocks' prices did not reflect rising
oil prices and were discounting lower oil prices that never came to pass. Some
energy stocks in the fund were Total, Royal Dutch Petroleum, Shell and British
Petroleum.
Q. MANY OF THE FUND'S CANADIAN HOLDINGS ARE RELATIVELY NEW TO THIS PORTFOLIO.
WHAT WAS THE STORY THERE?
A. Many Canadian oil and gas, natural resources and bank stocks were
attractively valued during the period. Two additions included Canadian Natural
Resources and Inco.
Q. DID YOU HAVE ANY DISAPPOINTMENTS?
A. Yes. One would be the weakness of the Japanese market. I consider another to
be the legal and governmental impediments to recognizing shareholder value in
Europe. For example, it's not yet legal in many European countries for
corporations to buy back stock, even though many corporate managements seek to
do so. I also continue to be disappointed by the problems that arise from
partial government own-
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OVERSEAS PORTFOLIO (CONT'D)
ership of companies. Take the case of Eramet, which is one of the fund's French
holdings. It's been reported in the media that the French government, a partial
owner of Eramet, is pressuring the company's management to sell a nickel mine
it owns in the colony of New Caledonia. The government has denied the report.
However, it's also been reported that the government will take steps to oust
the management if they choose not to comply. I think it's unfortunate that the
government is unduly influencing management's decision making process.
Q. WHAT'S YOUR OUTLOOK?
A. I'm hopeful that the economic recoveries that have begun in Europe and Japan
will continue. I think the key to a company's stock price will be the company's
shareholder-friendly attitude, reflected in stock buybacks or a proactive
management. Therefore, I will try to position the fund in companies that could
benefit from economic growth and that are focused on providing returns for
shareholders.
NATIONWIDE LOGO
NATIONWIDE(R) SEPARATE ACCOUNT TRUST
MONEY MARKET FUND
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.
NARRATIVE BY KAREN MADER, FUND MANAGER
For the last seven sessions the Federal Open Market Committee has left the
Federal Funds rate unchanged. The last time the Federal Reserve changed the
direction of the interest rates was in January 1996 when they lowered the
Federal Funds rate to its current rate of 5.25% from 5.50%. Economic indicators
throughout 1996 suggested that the economy was growing at a modest rate with
low inflationary pressures.
Economists offered a mixed forecast for 1997. Week to week, economic indicators
continue to paint an obscure picture as to the exact state of the economy.
At December 31, 1996, the Separate Account Money Market fund had assets of $984
million with an average maturity of 38 days. 92% of the Fund was invested in
first tier commercial paper. Commercial paper continues to have a yield
advantage over other money market instruments. The remaining 8% was invested in
U.S. Government and Canadian Obligations.
The Fund continues to invest in only the highest rated money market
instruments. An internal credit review is completed on every issuer before
investment.
TOTAL RETURN FUND
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.
NARRATIVE BY JOHN M. SCHAFFNER, FUND MANAGER
The Total Return Fund's performance in 1996 was positively influenced by
several sectors. The technology stocks it holds, such as IBM and
Hewlett-Packard had strong gains. Financial stocks, including all the brokerage
stocks, Mellon Bank, and Allstate Insurance also had good appreciation. The
drug stocks, particularly Warner-Lambert also had good gains, as did several
chemical companies, including DuPont, Monsanto, Air Products and Crompton
&Knowles. On the negative side, AT&T had very poor performance, with Sprint not
a great deal better. MCICorp. was also having a poor year until the announced
merger with British Telecom increased it to a more respectable result. The Fund
currently has about an 8% weighting in these long distance stocks, and although
we still think they are well positioned long term, and undervalued, fear of
increased competition, plus poor reported results for AT&T led to a significant
drag on Fund performance this year. Several other stocks in which we have
significant positions, such as Equitable, Comcast, and PepsiCo, all of which we
do like long-term, had either small losses or minuscule gains versus a very
strong market this year, also inhibiting Fund results.
The Total Return Fund's strategy has always included a strong element of value.
For most of 1995, and all of 1996, this type of strategy has been out of favor
in the stock market. Momentum and indexing strategies have led to stocks with
relatively high valuations performing well by going to even higher valuations.
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TOTAL RETURN FUND (CONT'D)
History, and numerous studies have repeatedly shown that investing in highly
valued stocks is a risky and poor-performing long term strategy. Therefore, the
Total Return Fund has stuck to its approach, and will continue to do so. This
approach, especially in the recent environment of high relative valuations, has
included more of buying stocks we like long-term, on news that disappoints
short term investors. PepsiCo, Comcast and Olsten are examples of this, plus
the more recent addition of Electronic Data Systems. We have also continued to
add to our energy stocks, not because of disappointment but because of good
long term fundamentals combined with still-attractive valuations.
While I would certainly like to see better performance from the Fund versus its
peers and the market indexes, I believe this will come from continuing our
current strategies, which are sound, and by continuing to pursue the Fund's
objectives by taking on less risk, rather than more.
THE ONE GROUP LOGO
REPORT FROM THE INVESTMENT ADVISOR
1996 proved to be a rewarding year for stock investors, and a challenging one
for bond enthusiasts. Stocks maintained the strength they exhibited during 1995
and posted impressive double-digit returns. Bond returns, on the other hand,
slipped back into the low single digits, as the market was plagued with
volatility.
STOCK MARKET CONTINUES TO SOAR
The stock market enjoyed another record-breaking year in 1996. Most of the
market's strength was due to solid corporate earnings coupled with subdued
inflation and relatively low interest rates.
The Dow Jones Industrial Average, for example, reached several milestones
during the year. By early October, the Index had topped 6000 for the first
time. And, just a few weeks later, on November 25, the Dow closed at 6548, its
high point for the year.
The Standard & Poor's 500 Index, a popular benchmark for measuring stock market
performance, was up 22.95% for the year the second consecutive year in which
the Index's return topped 20%.
We are pleased to report that The One Group domestic stock funds provided
attractive returns during the year. All of the funds participated in the market
rally and kept pace with their respective benchmark indexes. Furthermore, each
posted strong double-digit returns.
It was difficult for most stock fund managers to match the returns on the S&P
500 during 1996, mainly because the best price moves came from the very biggest
growth stocks. Most stock funds have holdings in medium- and small-company
stocks, which did not experience the same price increases as their larger
counterparts. Neither did value stocks, which, in general, underperformed their
growth-oriented peers.
VOLATILITY LEADS TO LACKLUSTER BOND RETURNS
The taxable bond market went on a roller coaster ride during 1996, first
falling, then coming back up, then declining again. The first six months of the
year were characterized by volatility and negative performance, as a strong
economy pushed interest rates up and bond prices down.
In the second half of the year, the bond market staged a comeback. Economic
growth slowed down, and interest rates reverted back to their late 1995 levels.
In addition, foreign demand for high-quality U.S. bonds helped boost the
market's performance.
Then in December signs of a stronger economy began to emerge. As a result, all
segments of the domestic bond market again experienced declines, eliminating
about half the gains made during the previous five months. The market ended the
year with lackluster returns.
Despite this difficult environment, we are pleased to report that The One Group
fixed income funds offered relatively strong returns, outperforming their
respective Lipper Analytical Services mutual fund peer groups for the 12-month
period. (Lipper is a well-respected mutual fund research firm that tracks and
compares returns for groups of funds with similar investment objectives.)
We attribute this to two strategies: maintaining a neutral duration stance
versus the benchmarks, and sector selection. (Duration is a measure of a bond
fund's sensitivity to interest rate changes. A lower number indicates less
sensitivity; a higher number indicates greater sensitivity.) A neutral duration
stance allowed our funds to temper some of the price volatility seen during the
period. Furthermore, by focusing on bonds
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REPORT FROM THE INVESTMENT ADVISOR (CONT'D)
in the mortgage-backed and corporate sectors, our funds captured the yield
advantage that these securities offered compared to Treasury securities.
KEEP PERFORMANCE IN PERSPECTIVE
As strong as the stock market's returns were during 1996, and as disappointing
as the bond market's results were, it's important to keep performance - whether
good or bad - in perspective. Returns in any single year shouldn't influence
your long-term investment strategy.
It's highly unlikely that, over the long term, the stock market will remain as
strong as it has been during the past two years, or that the bond market will
remain as volatile. While short-term returns may fluctuate, over the long term
the markets tend to adjust for periodic ups and downs so that performance evens
out.
OUR THANKS TO YOU
Thank you for the confidence you have shown in The One Group Investment Trusts.
Your ongoing support is appreciated as The One Group continues to help you
reach your investment goals.
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Fund Performances
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Total Return: Assuming Contract Not Surrendered** (Non-Standardized)
Approximate Percent Change in Net Assets with Capital Gains and Income Dividends Reinvested
- -----------------------------------------------------------------------------------------------------------------------------
Non-Annualized Percent Change*** Annualized Percent Change***
Inception 1 Yr. to 5 Yr. to Inception to 5 Yr. to Inception to
Funds++ Date*+ 12/31/96 12/31/96+ 12/31/96+ 12/31/96 12/31/96
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FIDELITY VIP FUND
Equity-Income Portfolio 10/09/86 12.79% 114.09% 217.61% 16.44% 11.96%
Overseas Portfolio 01/28/87 11.74% 44.97% 86.66% 7.71% 6.49%
NATIONWIDE SEPARATE ACCOUNT TRUST
Money Market Fund 11/10/81 3.74% 14.82% 133.28% 2.80% 5.75%
Total Return Fund 11/08/82 20.25% 78.68% 527.39% 12.31% 13.86%
THE ONE GROUP(R)INVESTMENT TRUST
Asset Allocation Fund 08/01/94 10.46% NA* 29.21% NA* 11.18%
Government Bond Fund 08/01/94 1.35% NA* 15.12% NA* 6.00%
Growth Opportunities Fund++ 08/01/94 14.54% NA* 34.93% NA* 13.19%
Large Company Growth Fund 08/01/94 15.15% NA* 41.13% NA* 15.31%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Performance information is not available for all or part of the period
indicated (See Fund Inception Date).
** SEC and NASD regulations require that any reporting of product performance
be accompanied by standardized data and the disclosures are on the
following page. Please review this information and a product prospectus
before investing.
*** Percent change in unit value price represents total return after the
deduction of a 1.3% annual asset fee.
+ Numbers in this column represent the total percentage change in the unit
value for the period indicated. This is not an annual return figure.
++ Funds are neither insured nor guaranteed by the U.S. Government. For the
Money Market Fund, there is no assurance that a stable $1 fund NAV (used
to calculate Unit Value) can be maintained. Figures quoted represent past
performance and returns can fluctuate.
*+ Performance for some funds reflects performance for periods before the
fund was actually available in the separate account. That hypothetical
performance is calculated by imposing contract charges on actual fund
performance, to determine how the fund would have performed if it had been
available in the separate account.
++ Formerly Small Company Growth Fund
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<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Total Return: Assuming Contract Surrendered (Standardized)
Approximate Percent Change in Net Assets with Capital Gains and Income Dividends Reinvested
- -----------------------------------------------------------------------------------------------------------------------------
Inception 1 Yr. to 5 Yr. to 10 Yr. to Inception to
Funds++ Date*+ 12/31/96 12/31/96 12/31/96 12/31/96
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FIDELITY VIP FUND
Equity-Income Portfolio 10/09/86 4.39% 13.82% 9.90% 9.25%
Overseas Portfolio 01/28/87 3.34% 4.50% NA* 3.67%
NATIONWIDE SEPARATE ACCOUNT TRUST
Money Market Fund 11/10/81 -4.66% -0.61% 1.65% 3.35%
Total Return Fund 11/08/82 11.85% 9.31% 8.75% 12.12%
THE ONE GROUP(R)INVESTMENT TRUST
Asset Allocation Fund 08/01/94 2.06% NA* NA* 5.74%
Government Bond Fund 08/01/94 -6.95% NA* NA* 0.44%
Growth Opportunities Fund++ 08/01/94 6.14% NA* NA* 7.76%
Large Company Growth Fund 08/01/94 6.75% NA* NA* 10.01%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The above illustration represents past fund performance based on a $1,000
hypothetical investment. The performance figures reflect the deduction of a
1.3% annual asset fee, a $30 annual administrative charge, and a maximum of a
6.0% contingent deferred sales charge (after one year, declining thereafter).
They also reflect the application of an annual 10% free withdrawal privilege
available after the first year. Investment principal and investment returns
are not guaranteed under these variable options. Account values at the time
of redemption may be more or less than the purchase payment, due to market
fluctuations and any specific charges that may apply. This is neither an
offer to sell nor a solicitation to buy securities. The results shown are not
a representation of future investment performance. Any comparisons should be
made only after a recognition of the differences in the investment policies
and objectives of the funds' investments. This report is authorized for
distribution to prospective investors only when preceded or accompanied by
prospectuses containing more complete information, which should be read
carefully before investing or sending money.
* Performance information is not available for all or part of the period
indicated (See Fund Inception Date).
++ Funds are neither insured nor guaranteed by the U.S. Government. For the
Money Market Fund, there is no assurance that a stable $1 fund NAV (used
to calculate Unit Value) can be maintained. Figures quoted represent past
performance and returns can fluctuate.
*+ Performance for some funds reflects performance for periods before the
fund was actually available in the separate account. That hypothetical
performance is calculated by imposing contract charges on actual fund
performance, to determine how the fund would have performed if it had been
available in the separate account.
++ Formerly Small Company Growth Fund
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NATIONWIDE VA SEPARATE ACCOUNT-C
(formerly Financial Horizons VA Separate Account-3)
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY
December 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investments at market value:
Fidelity VIP - Equity-Income Portfolio (FidVIPEI)
1,881,111 shares (cost $35,583,006) $ 39,559,761
Fidelity VIP - Overseas Portfolio (FidVIPOv)
406,973 shares (cost $6,951,537) 7,667,369
Nationwide SAT - Money Market Fund (NSATMyMkt)
5,190,551 shares (cost $5,190,551) 5,190,551
Nationwide SAT - Total Return Fund (NSATTotRe)
1,618,290 shares (cost $19,739,835) 21,474,710
One Group - Asset Allocation Fund (OGAstAll)
1,198,573 shares (cost $13,477,306) 14,298,978
One Group - Government Bond Fund (OGGvtBd)
1,443,273 shares (cost $14,683,383) 14,649,224
One Group - Growth Opportunities Fund (OGGrOpp)
1,844,356 shares (cost $22,297,061) 22,335,156
One Group - Large Company Growth Fund (OGLgCoGr)
3,137,882 shares (cost $38,115,643) 42,894,845
-------------
Total investments 168,070,594
Accounts receivable 4,148
-------------
Total assets 168,074,742
=============
CONTRACT OWNERS' EQUITY $ 168,074,742
=============
</TABLE>
13
<PAGE> 14
Contract owners' equity represented by:
<TABLE>
<CAPTION>
UNITS UNIT VALUE
--------- ----------
<S> <C> <C> <C>
Fidelity VIP - Equity-Income Portfolio:
Tax qualified 972,607 $ 15.239003 $ 14,821,561
Non-tax qualified 1,623,389 15.239003 24,738,830
Fidelity VIP - Overseas Portfolio:
Tax qualified 194,098 11.543398 2,240,550
Non-tax qualified 470,134 11.543398 5,426,944
Nationwide SAT - Money Market Fund:
Tax qualified 174,349 10.965501 1,911,824
Non-tax qualified 299,032 10.965501 3,279,036
Nationwide SAT - Total Return Fund:
Tax qualified 527,663 14.965912 7,896,958
Non-tax qualified 907,271 14.965912 13,578,138
One Group - Asset Allocation Fund:
Tax qualified 404,004 12.921017 5,220,143
Non-tax qualified 602,084 12.921017 7,779,538
Initial Funding by Depositor (note 1a) 97,500 13.329211 1,299,598
One Group - Government Bond Fund:
Tax qualified 337,711 11.511652 3,887,612
Non-tax qualified 419,072 11.511652 4,824,211
Initial Funding by Depositor (note 1a) 500,000 11.875401 5,937,701
One Group - Growth Opportunities Fund:
Tax qualified 569,164 13.492662 7,679,537
Non-tax qualified 1,083,660 13.492662 14,621,458
Initial Funding by Depositor (note 1a) 2,500 13.919060 34,798
One Group - Large Company Growth Fund:
Tax qualified 1,008,706 14.112701 14,235,566
Non-tax qualified 1,721,371 14.112701 24,293,194
Initial Funding by Depositor (note 1a) 300,000 14.558482 4,367,545
========= ========= -------------
$ 168,074,742
=============
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
14
<PAGE> 15
- --------------------------------------------------------------------------------
NATIONWIDE VA SEPARATE ACCOUNT-C
(FORMERLY FINANCIAL HORIZONS VA SEPARATE ACCOUNT-3)
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND FOR THE PERIOD AUGUST 17, 1994
(COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------- ---------- ----------
<S> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested capital gains and dividends $ 6,651,936 2,002,557 189,360
Mortality, expense and administration charges (note 2) (1,332,177) (286,944) (16,244)
------------- ---------- ----------
Net investment activity 5,319,759 1,715,613 173,116
------------- ---------- ----------
Proceeds from mutual fund shares sold 6,134,856 1,251,516 227,439
Cost of mutual fund shares sold (5,900,535) (1,229,073) (229,947)
------------- ---------- ----------
Realized gain (loss) on investments 234,321 22,443 (2,508)
Change in unrealized gain (loss) on investments 8,440,018 3,901,932 (309,680)
------------- ---------- ----------
Net gain (loss) on investments 8,674,339 3,924,375 (312,188)
------------- ---------- ----------
Net increase (decrease) in contract owners'
equity resulting from operations 13,994,098 5,639,988 (139,072)
------------- ---------- ----------
EQUITY TRANSACTIONS:
Purchase payments received from contract owners 97,359,956 39,177,663 15,808,617
Redemptions (3,074,851) (462,025) (10,793)
Annual contract maintenance charge (note 2) (39,851) (7,355) -
Contingent deferred sales charges (note 2) (162,806) (19,836) -
Adjustments to maintain reserves 10,270 521 218
------------- ---------- ----------
Net equity transactions 94,092,718 38,688,968 15,798,042
------------- ---------- ----------
NET CHANGE IN CONTRACT OWNERS' EQUITY 108,086,816 44,328,956 15,658,970
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD 59,987,926 15,658,970 -
------------- ---------- ----------
CONTRACT OWNERS' EQUITY END OF PERIOD $ 168,074,742 59,987,926 15,658,970
============= ========== ==========
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
15
<PAGE> 16
- --------------------------------------------------------------------------------
NATIONWIDE VA SEPARATE ACCOUNT-C
(FORMERLY FINANCIAL HORIZONS VA SEPARATE ACCOUNT-3)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Nature of Operations
Nationwide VA Separate Account-C (formerly Financial Horizons VA Separate
Account-3) (the Account) was established pursuant to a resolution of the Board
of Directors of Nationwide Life and Annuity Insurance Company (formerly
Financial Horizons Life Insurance Company) (the Company) on July 24, 1991. The
Account has been registered as a unit investment trust under the Investment
Company Act of 1940.
On August 17, 1994, the Company (Depositor) transferred to the Account
97,500 shares of the One Group-Asset Allocation Fund, 500,000 shares of the One
Group-Government Bond Fund, 2,500 shares of the One Group-Growth Opportunities
Fund and 300,000 shares of the One Group-Large Company Growth Fund, for which
the Account was credited with 97,500 units of the One Group-Asset Allocation
Fund, 500,000 units of the One Group-Government Bond Fund, 2,500 units of the
One Group-Growth Opportunities Fund and 300,000 units of the One Group-Large
Company Growth Fund. These amounts represent the initial funding of the
Account. The value of the units purchased by the Company on August 17, 1994
was $9,000,000.
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 banks and other financial
institutions.
(b) The Contracts
Only contracts without a front-end sales charge, but with a contingent
deferred sales charge and certain other fees, are offered for purchase. See
note 2 for a discussion of contract expenses.
With certain exceptions, contract owners in either the accumulation or
the payout phase may invest in any of the following funds:
Portfolios of the Fidelity Variable Insurance Products Fund
(Fidelity VIP);
Fidelity VIP-Equity-Income Portfolio (FidVIPEI)
Fidelity VIP-Overseas Portfolio (FidVIPOv)
Funds of the Nationwide Separate Account Trust (Nationwide SAT)
(managed for a fee by an affiliated investment advisor);
Nationwide SAT-Money Market Fund (NSATMyMkt)
Nationwide SAT-Total Return Fund (NSATTotRe)
Funds of The One Group(R) Investment Trust (One Group);
One Group-Asset Allocation Fund (OGAstAll)
One Group-Government Bond Fund (OGGvtBd)
One Group-Growth Opportunities Fund (OGGrOpp)
(formerly One Group-Small Company Growth Fund (OGSmCoGr))
One Group-Large Company Growth Fund (OGLgCoGr)
At December 31, 1996, contract owners have invested in all of the above
funds. The contract owners' equity is affected by the investment results of
each fund, equity transactions by contract owners and certain 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.
16
<PAGE> 17
(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 a specific identification basis. Investment transactions are
accounted 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 provisions
of the Internal Revenue Code.
The Company does not provide for income taxes within the Account. Taxes
are the responsibility of the contract owner upon termination or withdrawal.
(e) Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles may require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities, if any, at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
(f) Reclassifications
Certain 1995 and 1994 amounts have been reclassified to conform with the
current year presentation.
(2) EXPENSES
The Company does not deduct a sales charge from purchase payments
received from the contract owners. However, if any part of the contract value
of such contracts is surrendered, the Company will, with certain exceptions,
deduct from a contract owner's contract value a contingent deferred sales
charge not to exceed 7% of the lesser of purchase payments or the amount
surrendered, such charge declining 1% per year, to 0%, after the purchase
payment has been held in the contract for 84 months. No sales charges are
deducted on redemptions used to purchase units in the fixed investment options
of the Company.
The following contract charges are deducted by the Company: (a) an annual
contract maintenance charge of $30 which is satisfied by surrendering units;
and (b) 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 0.05%, respectively. No charges are deducted from the
initial funding by the Depositor, or from earnings thereon.
(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 in
the following format:
o Beginning unit value - Jan. 1
o Reinvested capital gains and dividends
(This amount reflects the increase in the unit value due to
capital gains and dividend distributions from the underlying
mutual funds.)
o Unrealized gain (loss)
(This amount reflects the increase (decrease) in the unit value
resulting from the market appreciation (depreciation) of the
underlying mutual funds.)
o Contract charges
(This amount reflects the decrease in the unit value due to the
mortality risk charge, expense risk charge and administration
charge discussed in note 2.)
o Ending unit value - Dec. 31
o Percentage increase (decrease) in unit value.
- --------------------------------------------------------------------------------
17
<PAGE> 18
NATIONWIDE VA SEPARATE ACCOUNT-C
(FORMERLY FINANCIAL HORIZONS VA SEPARATE ACCOUNT-3)
TAX QUALIFIED and NON-TAX QUALIFIED
SCHEDULES OF CHANGES IN UNIT VALUE
YEARS ENDED DECEMBER 31, 1996, 1995 AND FOR THE PERIOD AUGUST 17, 1994
(COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1994
<TABLE>
<CAPTION>
FidVIPEI FidVIPOv NSATMyMkt NSATTotRe OGAstALL OGGvtBd
-------- -------- --------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
1996
Beginning unit value - Jan. 1 $13.510928 10.330773 10.569801 12.445719 11.697239 11.358330
- --------------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .623256 .254174 .537256 .829218 .661259 .652837
- --------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 1.291479 1.101090 .000000 1.867931 .722057 (.352317)
- --------------------------------------------------------------------------------------------------------------------------------
Contract charges (.186660) (.142639) (.141556) (.176956) (.159538) (.147198)
- --------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $15.239003 11.543398 10.965501 14.965912 12.921017 11.511652
- --------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 13% 12% 4% 20% 10% 1%
================================================================================================================================
1995
Beginning unit value - Jan. 1 $10.132457 9.542958 10.135415 9.767528 9.819156 9.861504
- --------------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .792320 .072990 .569798 .967739 .579713 .822180
- --------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 2.740385 .842800 .000000 1.856379 1.438638 .813939
- --------------------------------------------------------------------------------------------------------------------------------
Contract charges (.154234) (.127975) (.135412) (.145927) (.140268) (.139293)
- --------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $13.510928 10.330773 10.569801 12.445719 11.697239 11.358330
- --------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 33% 8% 4% 27% 19% 15%
================================================================================================================================
1994
Beginning unit value** $10.000000 10.000000 10.000000 10.000000 10.000000 10.000000
- --------------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .118045 .000000 .191073 .373048 .057220 .220096
- --------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .064681 (.408918) .000000 (.556634) (.189436) (.310075)
- --------------------------------------------------------------------------------------------------------------------------------
Contract charges (.050269) (.048124) (.055658) (.048886) (.048628) (.048517)
- --------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $10.132457 9.542958 10.135415 9.767528 9.819156 9.861504
- --------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 1% (5)% 1% (2)% (2)% (1)%
================================================================================================================================
</TABLE>
* An annualized rate of return cannot be determined as contract charges do
not include the annual contract maintenance charge discussed in note 2.
** August 17, 1994 - Commencement of operations.
18
<PAGE> 19
SCHEDULE I, CONTINUED
NATIONWIDE VA SEPARATE ACCOUNT-C
(FORMERLY FINANCIAL HORIZONS VA SEPARATE ACCOUNT-3)
TAX QUALIFIED and NON-TAX QUALIFIED
SCHEDULES OF CHANGES IN UNIT VALUE
YEARS ENDED DECEMBER 31, 1996, 1995 AND FOR THE PERIOD AUGUST 17, 1994
(COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1994
<TABLE>
<CAPTION>
OGGrOpp OGLgCoGr OGAstAll+ OGGvtBd+ OGGrOpp+ OGLgCoGr+
------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
1996
Beginning unit value - Jan. 1 $11.819338 12.255940 11.909104 11.564087 12.033480 12.477892
- -----------------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 1.232041 .463877 .680369 .670213 1.270410 .477695
- -----------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .608263 1.564401 .739738 (.358899) .615170 1.602895
- -----------------------------------------------------------------------------------------------------------------------------------
Contract charges (.166980) (.171517) .000000 .000000 .000000 .000000
- -----------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $13.492662 14.112701 13.329211 11.875401 13.919060 14.558482
- -----------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 14% 15% 12% 3% 16% 17%
===================================================================================================================================
1995
Beginning unit value - Jan. 1 $ 9.652463 10.003154 9.867500 9.910061 9.700000 10.052392
- -----------------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .502502 .267432 .588453 .833693 .511358 .271374
- -----------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 1.808029 2.131887 1.453151 .820333 1.822122 2.154126
- -----------------------------------------------------------------------------------------------------------------------------------
Contract charges (.143656) (.146533) .000000 .000000 .000000 .000000
- -----------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $11.819338 12.255940 11.909104 11.564087 12.033480 12.477892
- -----------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 22% 23% 21% 17% 24% 24%
===================================================================================================================================
1994
Beginning unit value** $10.000000 10.000000 10.000000 10.000000 10.000000 10.000000
- -----------------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .000000 .062315 .057500 .220976 .000000 .062570
- -----------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (.299205) (.009786) (.190000) (.310915) (.300000) (.010178)
- -----------------------------------------------------------------------------------------------------------------------------------
Contract charges (.048332) (.049375) .000000 .000000 .000000 .000000
- -----------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $ 9.652463 10.003154 9.867500 9.910061 9.700000 10.052392
- -----------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (3)% 0% (1)% (1)% (3)% 1%
===================================================================================================================================
</TABLE>
* An annualized rate of return cannot be determined as contract charges do
not include the annual contract maintenance charge discussed in note 2.
** August 17, 1994 - Commencement of operations.
+ For Depositor, see note 1a.
See note 3.
19
<PAGE> 20
- --------------------------------------------------------------------------------
Independent Auditors' Report
The Board of Directors of Nationwide Life and Annuity Insurance Company
(formerly Financial Horizons Life Insurance Company) and
Contract Owners of Nationwide VA Separate Account-C
(formerly Financial Horizons VA Separate Account-3):
We have audited the accompanying statement of assets, liabilities and
contract owners' equity of Nationwide VA Separate Account-C (formerly Financial
Horizons VA Separate Account-3) as of December 31, 1996, and the related
statements of operations and changes in contract owners' equity and schedules
of changes in unit value for each of the years in the two year period then
ended and the period August 17, 1994 (commencement of operations) through
December 31, 1994. These financial statements and schedules of changes in unit
value are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements and schedules of changes in
unit value based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedules of
changes in unit value are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures 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
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and schedules of changes in unit
value referred to above present fairly, in all material respects, the financial
position of Nationwide VA Separate Account-C (formerly Financial Horizons VA
Separate Account-3) as of December 31, 1996, and the results of its operations
and its changes in contract owners' equity and the schedules of changes in unit
value for each of the years in the two year period then ended and the period
August 17, 1994 (commencement of operations) through December 31, 1994 in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Columbus, Ohio
February 7, 1997
- --------------------------------------------------------------------------------
20
<PAGE> 21
This report is for the information of contract owners with funds in
the Nationwide VA Separate Account-C. It may also be used, from time
to time, as sales literature, but only when accompanied or preceded by
the current prospectus, which contains complete information about the
contracts which invest in the separate account, and their fees,
charges and expenses. If this report is used as sales literature after
March 31, 1997, it must be accompanied by the fund performance report
reflecting performances for the most recently completed calendar
quarter. Prospective investors should read the prospectus carefully
before investing.
21
<PAGE> 22
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22
<PAGE> 23
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23
<PAGE> 24
<TABLE>
<S> <C>
--------------
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY Bulk Rate
HOME OFFICE: ONE NATIONWIDE PLAZA o COLUMBUS, OHIO 43215-2220 U.S. Postage
PAID
Columbus, Ohio
Permit No. 521
--------------
Nationwide(R) is a registered federal service mark of Nationwide Mutual Insurance Company
</TABLE>
