-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OW+hTCPi4MrG1b5EQnQzZ70fgFDHfOjyfRYhn8QqvcKKDcsMEXpLOT92VRca8xjy 3FERn9mY4X9T/9Sb983ezw== 0000950152-99-005699.txt : 19990630 0000950152-99-005699.hdr.sgml : 19990630 ACCESSION NUMBER: 0000950152-99-005699 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 19990629 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONWIDE LIFE & ANNUITY VA SEPARATE ACCOUNT C CENTRAL INDEX KEY: 0000909833 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 311000740 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485APOS SEC ACT: SEC FILE NUMBER: 033-66496 FILM NUMBER: 99655543 FILING VALUES: FORM TYPE: 485APOS SEC ACT: SEC FILE NUMBER: 811-07908 FILM NUMBER: 99655544 BUSINESS ADDRESS: STREET 1: FINANCIAL HORIZONS LIFE INSURANCE CO STREET 2: P.O. BOX 182008 CITY: COLUMBUS STATE: OH ZIP: 43216-2008 BUSINESS PHONE: 614-249-71 MAIL ADDRESS: STREET 1: FINANCIAL HORIZONS LIFE INSURANCE CO STREET 2: P.O. BOX 182008 CITY: COLUMBUS STATE: OH ZIP: 43218-2008 FORMER COMPANY: FORMER CONFORMED NAME: FINANCIAL HORIZONS VA SEPARATE ACCOUNT 3 DATE OF NAME CHANGE: 19930728 485APOS 1 NATIONWIDE VA SEPARATE ACCOUNT-C 1 As filed with the Securities and Exchange Commission. '33 Act File No. 33-66496 '40 Act File No. 811-7908 =============================================================================== SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM N-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 POST-EFFECTIVE AMENDMENT NO. 8 [X] and REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 AMENDMENT NO. 10 [X] NATIONWIDE VA SEPARATE ACCOUNT-C (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 DENNIS W. CLICK, SECRETARY, ONE NATIONWIDE PLAZA, COLUMBUS, OHIO 43215 (Name and Address of Agent for Service) This Post-Effective amendment amends the Registration Statement in respect of the Prospectus and Statement of Additional Information. It is proposed that this filing will become effective (check appropriate space): [ ] immediately upon filing pursuant to paragraph (b) of Rule 485 [ ] on (date) to paragraph (b) of Rule 485 [ ] 60 days after filing pursuant to paragraph (a) of Rule 485 [X] on (September 1, 1999) pursuant to paragraph (a) of Rule 485 [ ] this post-effective amendment designates a new effective date for a previously filed post-effective amendment. =============================================================================== 1 of 101 2 NATIONWIDE VA SEPARATE ACCOUNT-C REFERENCE TO ITEMS REQUIRED BY FORM N-4 Caption in Prospectus and Statement of Additional Information and Other Information
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 .............................................. 11 Item 4. Condensed Financial Information ..................................... 12 Item 5. General Description of Registrant, Depositor, and Portfolio Companies 16 Item 6. Deductions and Expenses ............................................. 18 Item 7. General Description of Variable Annuity Contracts ................... 20 Item 8. Annuity Period ...................................................... 29 Item 9. Death Benefit and Distributions ..................................... 30 Item 10. Purchases and Contract Value ....................................... 22 Item 11. Redemptions ........................................................ 24 Item 12. Taxes .............................................................. 35 Item 13. Legal Proceedings .................................................. 41 Item 14. Table of Contents of the Statement of Additional Information ....... 45 Part B INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION Item 15. Cover Page ......................................................... 48 Item 16. Table of Contents .................................................. 48 Item 17. General Information and History .................................... 48 Item 18. Services ........................................................... 48 Item 19. Purchase of Securities Being Offered ............................... 49 Item 20. Underwriters ....................................................... 49 Item 21. Calculation of Performance Information ............................. 49 Item 22. Annuity Payments ................................................... 50 Item 23. Financial Statements ............................................... 51 Part C OTHER INFORMATION Item 24. Financial Statements and Exhibits .................................. 80 Item 25. Directors and Officers of the Depositor ............................ 82 Item 26. Persons Controlled by or Under Common Control with the Depositor or Registrant ............................................ 84 Item 27. Number of Contract Owners .......................................... 95 Item 28. Indemnification .................................................... 95 Item 29. Principal Underwriter .............................................. 95 Item 30. Location of Accounts and Records ................................... 97 Item 31. Management Services ................................................ 97 Item 32. Undertakings ....................................................... 97
2 of 101 3 NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY Deferred Variable Annuity Contracts issued by Nationwide Life and Annuity Insurance Company Through Its Nationwide VA Separate Account-C The date of this prospectus is September 1, 1999. - ------------------------------------------------------------------------------- This prospectus contains basic information you should know about the contracts before investing. Please read it and keep it for future reference. The following underlying mutual funds are available under the contracts: NATIONWIDE SEPARATE ACCOUNT TRUST - - Money Market Fund - - Total Return Fund ONE GROUP(R) INVESTMENT TRUST - - One Group Investment Trust Bond Portfolio - - One Group Investment Trust Balanced Portfolio (formerly Asset Allocation Fund) - - One Group Investment Trust Equity Index Portfolio - - One Group Investment Trust Government Bond Portfolio - - One Group Investment Trust Mid Cap Growth Portfolio (formerly Growth Opportunities Fund) - - One Group Investment Trust Large Cap Growth Portfolio (formerly Large Company Growth Fund) - - One Group Investment Trust Diversified Equity Portfolio - - One Group Investment Trust Diversified Mid Cap Portfolio - - One Group Investment Mid Cap Value Portfolio FIDELITY VARIABLE INSURANCE PRODUCTS FUND The Fidelity VIP Funds are not available to new contracts issued on or after September 1, 1999. - - VIP Equity-Income Portfolio - - VIP Overseas Portfolio Purchase payments not invested in the underlying mutual fund options of the Nationwide VA Separate Account - C may be allocated to the fixed account. The Statement of Additional Information (dated September 1, 1999) which contains additional information about the contracts and the variable account has been filed with the Securities and Exchange Commission ("SEC") and is incorporated herein by reference. The table of contents for the Statement of Additional Information is on page 44. For general information or to obtain FREE copies of the: - Statement of Additional Information; - prospectus for any underlying mutual fund; or - required Nationwide forms, call: 1-800-860-3946 TDD 1-800-238-3035 or write: NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY P.O. BOX 182008 COLUMBUS, OHIO 43218-2008 1 3 of 101 4 The Statement of Additional Information and other material incorporated by reference can be found on the SEC website at: www.sec.gov THIS ANNUITY IS NOT: - - A BANK DEPOSIT - - ENDORSED BY A BANK OR GOVERNMENT AGENCY - - FEDERALLY INSURED - - AVAILABLE IN EVERY STATE Investors assume certain risks when investing in the contracts, including the possibility of losing money. These contracts are offered to customers of various financial institutions and brokerage firms. No financial institution or brokerage firm is responsible for the guarantees under the contracts. Guarantees under the contracts are the sole responsibility of Nationwide. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC, NOR HAS THE SEC PASSED UPON THE ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. 2 4 of 101 5 GLOSSARY OF SPECIAL TERMS ACCUMULATION UNIT - An accounting unit of measure used to calculate the contract value allocated to the variable account before the annuitization date. ANNUITIZATION DATE - The date on which annuity payments begin. ANNUITY COMMENCEMENT DATE - The date on which the annuity payments are scheduled to begin. This date may be changed by the contract owner with Nationwide's consent. ANNUITY UNIT - An accounting unit used to calculate the variable payment annuity payments. CONTRACT VALUE - The total of all accumulation units in a contract, plus any amount held in the fixed account. CONTRACT YEAR - Each year the contract is in force beginning with the date the contract is issued. ERISA - The Employee Retirement Income Securities Act of 1974, as amended. FIXED ACCOUNT- An investment option that is funded by the general account of Nationwide. INDIVIDUAL RETIREMENT ACCOUNT - An account that qualifies for favorable tax treatment under Section 408(a) of the Internal Revenue Code, but does not include Roth IRAs. INDIVIDUAL RETIREMENT ANNUITY - An annuity contract that qualifies for favorable tax treatment under Section 408 (b) of the Internal Revenue Code, but does not include Roth IRAs or Simple IRAs. NATIONWIDE - Nationwide Life and Annuity Insurance Company. NON-QUALIFIED CONTRACT - A contract that does not qualify for favorable tax treatment as a Qualified Plan, Individual Retirement Annuity, Roth IRA, SEP IRA, or Tax Sheltered Annuity. QUALIFIED PLANS - Retirement plans that receive favorable tax treatment under Section 401 or 403(a) of the Internal Revenue Code. ROTH IRA - An annuity contract that qualifies for favorable tax treatment under Section 408A of the Internal Revenue Code. SEP IRA - A retirement plan that receives favorable tax treatment under Section 408(k) of the Internal Revenue Code. SUB-ACCOUNTS - Divisions of the variable account to which underlying mutual fund shares are allocated and for which accumulation units and annuity units are separately maintained. TAX SHELTERED ANNUITY - An annuity that qualifies for favorable tax treatment under Section 403(b) of the Internal Revenue Code. VALUATION PERIOD - Each day the New York Stock Exchange is open for business. VARIABLE ACCOUNT - Nationwide VA Separate Account-C, a separate account of Nationwide that contains variable account allocations. The variable account is divided into sub-accounts, each of which invests in shares of a separate underlying mutual fund. 3 5 of 101 6 TABLE OF CONTENTS GLOSSARY OF SPECIAL TERMS .............................................. 3 SUMMARY OF CONTRACT EXPENSES ........................................... 6 UNDERLYING MUTUAL FUND ANNUAL EXPENSES ................................. 7 EXAMPLE ................................................................ 8 SYNOPSIS OF THE CONTRACTS .............................................. 9 FINANCIAL STATEMENTS ................................................... 9 CONDENSED FINANCIAL INFORMATION ........................................ 10 NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY .......................... 14 NATIONWIDE ADVISORY SERVICES, INC ...................................... 14 INVESTING IN THE CONTRACT .............................................. 14 The Variable Account and Underlying Mutual Funds The Fixed Account STANDARD CHARGES AND DEDUCTIONS......................................... 16 Mortality and Expense Risk Charge Administrative Charge Contingent Deferred Sales Charge Premium Taxes CONTRACT OWNERSHIP ..................................................... 18 Joint Ownership Annuitant Beneficiary and Contingent Beneficiary OPERATION OF THE CONTRACT .............................................. 19 Minimum Initial and Subsequent Purchase Payments Pricing Allocation of Purchase Payments Determining the Contract Value Transfers RIGHT TO REVOKE ........................................................ 22 SURRENDER (REDEMPTION) ................................................. 22 Surrenders Under a Texas Optional Retirement Program and Louisiana Optional Retirement Plan Surrenders Under a Qualified Contract or Tax Sheltered Annuity LOAN PRIVILEGE ......................................................... 24 Minimum & Maximum Loan Amounts Loan Processing Fee How Loan Requests are Processed Interest Loan Repayment Distributions & Annuity Payments Transferring the Contract Grace Period & Loan Default ASSIGNMENT ............................................................. 25 CONTRACT OWNER SERVICES ................................................ 26 Asset Rebalancing Dollar Cost Averaging Systematic Withdrawals ANNUITY COMMENCEMENT DATE .............................................. 27 ANNUITIZING THE CONTRACT ............................................... 27 Annuitization Date Annuitization Fixed Payment Annuity Variable Payment Annuity Assumed Investment Rate Value of an Annuity Unit Exchanges among Underlying Mutual Funds Frequency and Amount of Annuity Payments Annuity Payment Options DEATH BENEFITS ......................................................... 29 Death of Contract Owner - Non-Qualified Contracts Death of Annuitant - Non-Qualified Contracts Death of Contract Owner/Annuitant How the Death Benefit Value is Determined Death Benefit Payment REQUIRED DISTRIBUTIONS ................................................. 30 Required Distributions for Non-Qualified Contracts Required Distributions for Qualified Plans or Tax Sheltered Annuities Required Distributions for Individual Retirement Annuities and SEP IRAs Required Distributions for Roth IRAs FEDERAL TAX CONSIDERATIONS ............................................. 33 Federal Income Taxes Individual Retirement Annuities, Qualified Plans, SEP IRAs and Tax Sheltered Annuities Roth IRAs Withholding Non-Resident Aliens Federal Estate, Gift, and Generation Skipping Transfer Taxes Puerto Rico Charge for Tax Diversification Tax Changes STATEMENTS AND REPORTS ................................................. 39 YEAR 2000 COMPLIANCE ISSUES ............................................ 39 LEGAL PROCEEDINGS ...................................................... 40
4 6 of 101 7 ADVERTISING AND SUB-ACCOUNT PERFORMANCE SUMMARY ........................ 40 TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION ............... 44 APPENDIX A: OBJECTIVES FOR UNDERLYING MUTUAL FUNDS ..................... 45
5 7 of 101 8 SUMMARY OF CONTRACT EXPENSES The expenses listed below are charged to all contract owners unless the contract owner meets an available exception. CONTRACT OWNER TRANSACTION EXPENSES Maximum Contingent Deferred Sales Charge ("CDSC") (as a percentage of purchase payments surrendered)................................... 7%(1) Range of CDSC Over Time:
- ----------------------------------------------------- NUMBER OF COMPLETED YEARS FROM CDSC DATE OF PURCHASE PAYMENT PERCENTAGE - ----------------------------------------------------- 0 7% - ----------------------------------------------------- 1 6% - ----------------------------------------------------- 2 5% - ----------------------------------------------------- 3 4% - ----------------------------------------------------- 4 3% - ----------------------------------------------------- 5 2% - ----------------------------------------------------- 6 1% - ----------------------------------------------------- 7 0% - -----------------------------------------------------
(1) For contracts issued before September 1, 1999, or a date on which state insurance authorities approve applicable contract modifications, the contract owner may withdraw, during the first contract year, without a CDSC, any amount in order for this contract to meet minimum distribution requirements under the Internal Revenue Code. Starting with the second year after a purchase payment has been made, the contract owner may withdraw without a CDSC the greater of: a) an amount equal to 10% of that purchase payment; or b) any amount in order for this contract to meet minimum distribution requirements under the Internal Revenue Code. This free withdrawal privilege is non-cumulative. For contracts issued on or after September 1, 1999, or a date on which state insurance authorities approve applicable contract modifications, each contract year the contract owner may withdraw without a CDSC the greater of: a) 10% of purchase payments made to the contract; or b) any amount withdrawn to meet the minimum distribution requirements under the Internal Revenue Code. This free withdrawal privilege is cumulative. The CDSC is imposed only against purchase payments (see "Waiver of Contingent Deferred Sales Charge"). VARIABLE ACCOUNT CHARGES(2) (as a percentage of average account value) Mortality and Expense Risk Charges........ 1.25% Administration Charge(3).................. 0.05% Total Variable Account Charges......... 1.30%
(2) These charges apply only to sub-account allocations. They do not apply to allocations made to the fixed account. They are charged on a daily basis at the annual rate noted above. (3) The Administration Charge is deducted to reimburse Nationwide for expenses related to the issuance and maintenance of the contracts. LOAN PROCESSING FEE Nationwide may charge a Loan Processing Fee at the time each new loan is processed. Loans are only available for contracts issued as Qualified Contracts or Tax Sheltered Annuities. Loans are not available in all states. In addition, some states may not allow Nationwide to assess a Loan Processing Fee (see "Loan Privilege"). 6 8 of 101 9 UNDERLYING MUTUAL FUND ANNUAL EXPENSES (AS A PERCENTAGE OF UNDERLYING MUTUAL FUND NET ASSETS, AFTER EXPENSE REIMBURSEMENT)
- ------------------------------------------------------------------------------------------------------------------------------- Management Other 12b-1 Total Mutual Fees Expenses Fees Fund Expenses - ------------------------------------------------------------------------------------------------------------------------------- Fidelity VIP Equity-Income Portfolio 0.49% 0.08% 0.00% 0.57% Fidelity VIP Overseas Portfolio 0.74% 0.15% 0.00% 0.89% NSAT - Money Market Fund 0.34% 0.21% 0.00% 0.55% NSAT - Total Return Fund 0.57% 0.21% 0.00% 0.78% One Group Investment Trust Bond Portfolio 0.54% 0.21% 0.00% 0.75% One Group Investment Trust Balanced Portfolio (formerly Asset Allocation Fund) 0.70% 0.30% 0.00% 1.00% One Group Investment Trust Equity Index Portfolio 0.00% 0.55% 0.00% 0.55% One Group Investment Trust Government Bond Portfolio 0.42% 0.33% 0.00% 0.75% One Group Investment Trust Mid Cap Growth Portfolio (formerly Growth Opportunities Fund) 0.65% 0.32% 0.00% 0.97% One Group Investment Trust Large Cap Growth Portfolio (formerly Large Company Growth Fund) 0.65% 0.28% 0.00% 0.93% One Group Investment Diversified Equity Portfolio 0.67% 0.28% 0.00% 0.95% One Group Investment Trust Diversified Mid Cap Portfolio 0.17% 0.78% 0.00% 0.95% One Group Investment Trust Mid Cap Value Portfolio 0.42% 0.53% 0.00% 0.95% - -------------------------------------------------------------------------------------------------------------------------------
The expenses shown above are deducted by the underlying mutual fund before it provides Nationwide with the daily net asset value. Nationwide then deducts applicable variable account charges from the net asset value to calculate the unit value of the corresponding sub-account. The management fees and other expenses are more fully described in the prospectus for each underlying mutual fund. Information relating to the underlying mutual funds was provided by the underlying mutual funds and not independently verified by Nationwide. Some underlying mutual funds are subject to fee waivers and expense reimbursements. The following chart shows what the expenses would have been for such funds without fee waivers and expense reimbursements.
- ----------------------------------------------------------------------------------------------------------------------- Management Other 12b-1 Total Mutual Fees Expenses Fees Fund Expenses - ----------------------------------------------------------------------------------------------------------------------- Fidelity VIP Equity-Income Portfolio 0.50% 0.08% 0.00% 0.58% Fidelity VIP Overseas Portfolio 0.74% 0.17% 0.00% 0.91% NSAT - Money Market Fund 0.40% 0.21% 0.00% 0.61% NSAT - Total Return Fund 0.59% 0.21% 0.00% 0.80% One Group Investment Trust Bond Fund 0.60% 0.21% 0.00% 0.81% One Group Investment Trust Equity Index Portfolio 0.30% 0.83% 0.00% 1.13% One Group Investment Trust Government Bond Portfolio 0.45% 0.33% 0.00% 0.78% One Group Investment Trust Diversified Equity Portfolio 0.74% 0.28% 0.00% 1.02% One Group Investment Trust Diversified Mid Cap Portfolio 0.74% 0.78% 0.00% 1.52% One Group Investment Trust Mid Cap Value Portfolio 0.74% 0.53% 0.00% 1.27% - -----------------------------------------------------------------------------------------------------------------------
7 9 of 101 10 EXAMPLE The following chart shows the amount of expenses (in dollars) that would be incurred under this contract assuming a $1000 investment, 5% annual return, and no change in expenses. These dollar figures are illustrative only and should not be considered a representation of past or future expenses. Actual expenses may be greater or less than those shown below. The example reflects the expenses of both the variable account and the underlying mutual funds. The example reflects the standard 7 year CDSC schedule and the maximum amount of variable account charges that could be assessed to a contract (1.30%). The summary of contract expenses and example are to help contract owners understand the expenses associated with the contract.
- ---------------------------------------------------------------------------------------------------------------------------- If you surrender your If you do not surrender your If you annuitize your contract contract at the end of the contract at the end of the at the end of the applicable time period applicable time period applicable time period - ---------------------------------------------------------------------------------------------------------------------------- 1 3 5 10 1 3 5 10 1 3 5 10 Yr. Yrs. Yrs. Yrs. Yr. Yrs. Yrs. Yrs. Yr. Yrs. Yrs. Yrs. - ---------------------------------------------------------------------------------------------------------------------------- Fidelity VIP Equity-Income 90 106 131 225 20 61 104 225 * 61 104 225 Portfolio Fidelity VIP Overseas 93 116 148 260 23 71 121 260 * 71 121 260 Portfolio NSAT - Money Market Fund 89 105 130 223 19 60 103 223 * 60 103 223 NSAT - Total Return Fund 92 112 143 248 22 67 116 248 * 67 116 248 One Group Investment Trust 94 119 154 272 24 74 127 272 * 74 127 272 Balanced Portfolio (formerly Asset Allocation Fund) One Group Investment Trust 92 111 141 245 22 66 114 245 * 66 114 245 Bond Portfolio One Group Investment Trust 89 105 130 223 19 60 103 223 * 60 103 223 Equity Index Portfolio One Group Investment Trust 92 111 141 245 22 66 114 245 * 66 114 245 Government Bond Portfolio One Group Investment Trust 94 118 153 268 24 73 126 268 * 73 126 268 Mid Cap Growth Portfolio (formerly Growth Opportunities Fund) One Group Investment Trust 93 117 150 264 23 72 123 264 * 72 123 264 Large Cap Growth Portfolio (formerly Large Company Growth Fund) One Group Investment Trust 94 118 152 266 24 73 125 266 * 73 125 266 Diversified Equity Portfolio One Group Investment Trust 94 118 152 266 24 73 125 266 * 73 125 266 Diversified Mid Cap Portfolio One Group Investment Trust 94 118 152 266 24 73 125 266 * 73 125 266 Mid Cap Value Portfolio - ----------------------------------------------------------------------------------------------------------------------------
* The contracts sold under this prospectus do not permit annuitization during the first two contract years. 8 10 of 101 11 SYNOPSIS OF THE CONTRACTS The contracts described in this prospectus are flexible purchase payment contracts. The contracts may be issued as either individual or group contracts. In those states where contracts are issued as group contracts, references throughout this prospectus to "contract(s)" will also mean "certificate(s)." References to "contract owner" will mean "participant" unless the plan otherwise permits or requires the contract owner to exercise contract rights under the plan terms. The contracts can be categorized as: - - Non-Qualified - - Individual Retirement Annuities - - Roth IRAs - - SEP IRAs - - Tax Sheltered Annuities - - Qualified. MINIMUM INITIAL AND SUBSEQUENT PURCHASE PAYMENTS
- ------------------------------------------------------- MINIMUM INITIAL MINIMUM CONTRACT PURCHASE SUBSEQUENT TYPE PAYMENT PAYMENTS - ------------------------------------------------------- Non-Qualified $2,000 $10 IRA $2,000 $10 Roth IRA $2,000 $10 SEP IRA $2,000 $10 Tax Sheltered $ 0 $10 Annuity Qualified $ 0 $10 - ------------------------------------------------------
CHARGES AND EXPENSES Nationwide deducts a Mortality and Expense Risk Charge equal to an annual rate of 1.25% of the daily net assets of the variable account. Nationwide assesses these charges in return for bearing certain mortality and administrative risks. Nationwide deducts an Administration Charge equal to an annual rate of 0.05% of the daily net assets of the variable account. This charge reimburses Nationwide for administrative expenses related to issuance and maintenance of the contracts. Nationwide does not deduct a sales charge from purchase payments upon deposit into the contract. However, Nationwide may deduct a CDSC if any amount is withdrawn from the contract. This CDSC reimburses Nationwide for sales expenses. The amount of the CDSC will not exceed 7% of purchase payments surrendered. ANNUITY PAYMENTS Annuity payments begin on the annuitization date. The payments will be based on the annuity payment option chosen at the time of application (see "Annuity Payment Options"). TAXATION How the contracts are taxed depends on the type of contract issued. Nationwide will charge against the contract any premium taxes levied by any governmental authority (see "Federal Tax Considerations" and "Premium Taxes"). TEN DAY FREE LOOK Contract owners may return the contract for any reason within ten days of receipt and Nationwide will refund the contract value or the amount required by law (see "Right to Revoke"). FINANCIAL STATEMENTS Financial statements for the variable account and Nationwide are located in the Statement of Additional Information. A current Statement of Additional Information may be obtained without charge by contacting Nationwide's home office at the telephone number listed on page 1 of this prospectus. 9 11 of 101 12 CONDENSED FINANCIAL INFORMATION Accumulation unit values for an accumulation unit outstanding throughout the period.
- ------------------------------------------------------------------------------------------------------------------------ ACCUMULATION ACCUMULATION PERCENT NUMBER OF UNIT VALUE UNIT VALUE CHANGE IN ACCUMULATION UNDERLYING AT BEGINNING AT END ACCUMULATION UNITS AT END MUTUAL FUND OF PERIOD OF PERIOD UNIT VALUE OF THE PERIOD YEAR - ------------------------------------------------------------------------------------------------------------------------ Fidelity VIP Equity- 19.268781 21.229680 10.18% 1,945,917 1998 Income Portfolio - Q 15.239003 19.268781 26.44% 1,663,574 1997 13.510928 15.239003 12.79% 972,607 1996 10.132457 13.510928 33.34% 324,280 1995 10.000000 10.132457 1.32% 48,709 1994 - ------------------------------------------------------------------------------------------------------------------------ Fidelity VIP Equity- 19.268781 21.229680 10.18% 3,679,860 1998 Income Portfolio - NQ 15.239003 19.268781 26.44% 2,829,983 1997 13.510928 15.239003 12.79% 1,623,389 1996 10.132457 13.510928 33.34% 525,735 1995 10.000000 10.132457 1.32% 79,134 1994 - ------------------------------------------------------------------------------------------------------------------------ Fidelity VIP Overseas 12.709885 14.144224 11.29% 360,308 1998 Portfolio -Q 11.543398 12.709885 10.11% 360,753 1997 10.330773 11.543398 11.74% 194,098 1996 9.542958 10.330773 8.26% 87,650 1995 10.000000 9.542958 -4.57% 37,588 1994 - ------------------------------------------------------------------------------------------------------------------------ Fidelity VIP Overseas 12.709885 14.144224 11.29% 983,989 1998 Portfolio -NQ 11.543398 12.709885 10.11% 826,716 1997 10.330773 11.543398 11.74% 470,134 1996 9.542958 10.330773 8.26% 180,868 1995 10.000000 9.542958 -4.57% 66,350 1994 - ------------------------------------------------------------------------------------------------------------------------ NSAT - Money Market Fund - Q* 11.392164 11.836880 3.90% 318,412 1998 10.965501 11.392164 8.82% 269,586 1997 10.569801 10.965501 3.74% 174,349 1996 10.135415 10.569801 4.29% 99,809 1995 10.000000 10.135415 1.35% 16,557 1994 - ------------------------------------------------------------------------------------------------------------------------ NSAT - Money Market Fund - 11.392164 11.836880 3.90% 503,644 1998 NQ* 10.965501 11.392164 8.82% 502,861 1997 10.569801 10.965501 3.74% 299,032 1996 10.135415 10.569801 4.29% 120,754 1995 10.000000 10.135415 1.35% 31,027 1994 - ------------------------------------------------------------------------------------------------------------------------ NSAT - Total Return Fund - Q 19.118736 22.281011 16.54% 1,225,858 1998 14.965912 19.118736 27.75% 1,003,531 1997 12.445719 14.965912 20.25% 527,663 1996 9.767528 12.445719 27.42% 188,348 1995 10.000000 9.767528 -2.32% 35,204 1994 - ------------------------------------------------------------------------------------------------------------------------
10 12 of 101 13 CONDENSED FINANCIAL INFORMATION (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------ ACCUMULATION ACCUMULATION PERCENT NUMBER OF UNIT VALUE UNIT VALUE CHANGE IN ACCUMULATION UNDERLYING AT BEGINNING AT END ACCUMULATION UNITS AT END MUTUAL FUND OF PERIOD OF PERIOD UNIT VALUE OF THE PERIOD YEAR - ------------------------------------------------------------------------------------------------------------------------ NSAT - Total Return Fund - NQ 19.118736 22.281011 16.54% 2,363,345 1998 14.965912 19.118736 27.75% 1,742,657 1997 12.445719 14.965912 20.25% 907,271 1996 9.767528 12.445719 27.42% 317,092 1995 10.000000 9.767528 -2.32% 53,945 1994 - ------------------------------------------------------------------------------------------------------------------------ One Group Investment 15.674014 18.423578 17.54% 1,717,800 1998 Trust Balanced Portfolio - Q 12.921017 15.674014 21.31% 882,338 1997 (formerly Asset Allocation Fund) 11.697239 12.921017 10.46% 404,004 1996 9.819156 11.697239 19.13% 149,620 1995 10.000000 9.819156 -1.81% 33,312 1994 - ------------------------------------------------------------------------------------------------------------------------ One Group Investment 15.674014 18.423578 17.54% 3,772,445 1998 Trust Balanced Portfolio - NQ 12.921017 15.674014 21.31% 1,619,845 1997 (formerly Asset Allocation Fund) 11.697239 12.921017 10.46% 602,084 1996 9.819156 11.697239 19.13% 178,905 1995 10.000000 9.819156 -1.81% 38,193 1994 - ------------------------------------------------------------------------------------------------------------------------ One Group Investment 16.381936 19.509120 19.09% 97,500 1998 Trust Balanced Portfolio 13.329211 16.381936 22.90% 97,500 1997 (formerly Asset Allocation Fund) 11.909104 13.329211 11.92% 97,500 1996 - Initial Funding by Depositor 9.867500 11.909104 20.69% 97,500 1995 10.000000 9.867500 -1.32% 97,500 1994 - ------------------------------------------------------------------------------------------------------------------------ One Group Investment Trust 10.000000 10.955610 9.56% 252,427 1998(1) Equity Index Portfolio-Q - ------------------------------------------------------------------------------------------------------------------------ One Group Investment Trust 10.000000 10.955610 9.56% 746,119 1998(1) Equity Index Portfolio-NQ - ------------------------------------------------------------------------------------------------------------------------ One Group Investment Trust 10.000000 11.051791 10.52% 250,000 1998(1) Equity Index Portfolio-Initial Funding by Depositor - ------------------------------------------------------------------------------------------------------------------------ One Group Investment 12.460216 13.199019 5.93% 955,478 1998 Trust Government Bond 11.511652 12.460216 8.24% 488,790 1997 Portfolio - Q 11.358330 11.511652 1.35% 337,711 1996 9.861504 11.358330 15.18% 139,391 1995 10.000000 9.861504 -1.38% 13,330 1994 - ------------------------------------------------------------------------------------------------------------------------
11 13 of 101 14 CONDENSED FINANCIAL INFORMATION (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------ ACCUMULATION ACCUMULATION PERCENT NUMBER OF UNIT VALUE UNIT VALUE CHANGE IN ACCUMULATION UNDERLYING AT BEGINNING AT END ACCUMULATION UNITS AT END MUTUAL FUND OF PERIOD OF PERIOD UNIT VALUE OF THE PERIOD YEAR - ------------------------------------------------------------------------------------------------------------------------ One Group Investment 12.460216 13.199019 5.93% 1,715,256 1998 Trust Government Bond 11.511652 12.460216 8.24% 785,214 1997 Portfolio - NQ 11.358330 11.511652 1.35% 419,072 1996 9.861504 11.358330 15.18% 152,273 1995 10.000000 9.861504 -1.38% 11,348 1994 - ------------------------------------------------------------------------------------------------------------------------ One Group Investment 13.023184 13.977022 7.32% 500,000 1998 Trust Government Bond 11.875401 13.023184 9.67% 500,000 1997 Portfolio - Initial Funding by 11.564087 11.875401 2.69% 500,000 1996 Depositor 9.910061 11.564087 16.69% 500,000 1995 10.000000 9.910061 -0.90% 500,000 1994 - ------------------------------------------------------------------------------------------------------------------------ One Group Investment 17.286833 23.685874 37.02% 1,184,086 1998 Trust Mid Cap Growth Portfolio - 13.492662 17.286833 28.12% 969,427 1997 Q (formerly Growth Opportunities 11.819338 13.492662 14.16% 569,164 1996 Fund) 9.652463 11.819338 22.45% 182,690 1995 10.000000 9.652463 -3.48% 37,250 1994 - ------------------------------------------------------------------------------------------------------------------------ One Group Investment 17.286833 23.685874 37.02% 2,752,495 1998 Trust Mid Cap Growth Portfolio - 13.492662 17.286833 28.12% 1,967,681 1997 NQ (formerly Growth 11.819338 13.492662 14.16% 1,083,660 1996 Opportunities Fund) 9.652463 11.819338 22.45% 385,700 1995 10.000000 9.652463 -3.48% 57,644 1994 - ------------------------------------------------------------------------------------------------------------------------ One Group Investment 18.067840 25.081612 38.82% 2,500 1998 Trust Mid Cap Growth Portfolio 13.919060 18.067840 29.81% 2,500 1997 (formerly Growth Opportunities 12.033480 13.919060 15.67% 2,500 1996 Fund)- Initial Funding by 9.700000 12.033480 24.06% 2,500 1995 Depositor 10.000000 9.700000 -3.00% 2,500 1994 - ------------------------------------------------------------------------------------------------------------------------ One Group Investment 18.376907 25.623274 39.43% 2,360,235 1998 Trust Large Cap Growth Portfolio 14.112701 18.376907 30.22% 1,752,117 1997 - Q (formerly Large Company 12.255940 14.112701 15.15% 1,008,706 1996 Growth Fund) 10.003154 12.255940 22.52% 388,897 1995 10.000000 10.003154 0.03% 43,062 1994 - ------------------------------------------------------------------------------------------------------------------------ One Group Investment 18.376907 25.623274 39.43% 5,213,039 1998 Trust Large Cap Growth Portfolio 14.112701 18.376907 30.22% 3,368,336 1997 - NQ (formerly Large Company 12.255940 14.112701 15.15% 1,721,371 1996 Growth Fund) 10.003154 12.255940 22.52% 632,427 1995 10.000000 10.003154 0.03% 76,916 1994 - ------------------------------------------------------------------------------------------------------------------------
12 14 of 101 15 CONDENSED FINANCIAL INFORMATION (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------ ACCUMULATION ACCUMULATION PERCENT NUMBER OF UNIT VALUE UNIT VALUE CHANGE IN ACCUMULATION UNDERLYING AT BEGINNING AT END ACCUMULATION UNITS AT END MUTUAL FUND OF PERIOD OF PERIOD UNIT VALUE OF THE PERIOD YEAR - ------------------------------------------------------------------------------------------------------------------------ One Group Investment 19.206744 27.132525 41.27% 300,000 1998 Trust Large Cap Growth Portfolio 14.558482 19.206744 31.93% 300,000 1997 (formerly Large Company Growth 12.477892 14.558482 16.67% 300,000 1996 Fund) - Initial Funding by 10.052392 12.477892 24.13% 300,000 1995 Depositor 10.000000 10.052392 0.52% 300,000 1994 - ------------------------------------------------------------------------------------------------------------------------
(1) The unit value information shown reflects the period from May 1, 1998 to December 31, 1998. * The 7-day yield on the NSAT Money Market Fund as of December 31, 1998 was 3.52%. The One Group Investment Trust Bond Portfolio, One Group Investment Trust Diversified Equity Portfolio, One Group Investment Trust Diversified Mid Cap Portfolio, and One Group Investment Trust Mid Cap Value Portfolio were added to the variable account September 1, 1999. Consequently, no condensed financial information is available. 13 15 of 101 16 NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY Nationwide is a stock life insurance company organized under Ohio law February, 1981, with its home office at One Nationwide Plaza, Columbus, Ohio 43215. Nationwide is a provider of life insurance products, annuities and retirement products. NATIONWIDE ADVISORY SERVICES, INC. The contracts are distributed by the general distributor, Nationwide Advisory Services, Inc. ("NAS"), Three Nationwide Plaza, Columbus, Ohio 43215. NAS is a wholly owned subsidiary of Nationwide Life Insurance Company. INVESTING IN THE CONTRACT THE VARIABLE ACCOUNT AND UNDERLYING MUTUAL FUNDS Nationwide VA Separate Account - C is a separate account that invests in the underlying mutual funds listed in Appendix A. Nationwide established the separate account on July 24, 1991, pursuant to Ohio law. Although the separate account is registered with the SEC as a unit investment trust pursuant to the Investment Company Act of 1940 ("1940 Act"), the SEC does not supervise the management of Nationwide or the variable account. Income, gains, and losses credited to, or charged against, the variable account reflect the variable account's own investment experience and not the investment experience of Nationwide's other assets. The variable account's assets are held separately from Nationwide's assets and are not chargeable with liabilities incurred in any other business of Nationwide. Nationwide is obligated to pay all amounts promised to contract owners under the contracts. The variable account is divided into sub-accounts. Nationwide uses the assets of each sub-account to buy shares of the underlying mutual funds based on contract owner instructions. There are two sub-accounts for each underlying mutual fund. One sub-account contains shares attributable to accumulation units under Non-Qualified Contracts. The other contains shares attributable to accumulation units under Individual Retirement Accounts, Roth IRAs, SEP IRAs, Tax Sheltered Annuities, and Qualified Contracts. Each underlying mutual fund's prospectus contains more detailed information about that fund. Prospectuses for the underlying mutual funds should be read in conjunction with this prospectus. Underlying mutual funds in the variable account are NOT publicly traded mutual funds. They are only available as investment options in variable life insurance policies or variable annuity contracts issued by life insurance companies, or in some cases, through participation in certain qualified pension or retirement plans. The investment advisers of the underlying mutual funds may manage publicly traded mutual funds with similar names and investment objectives. However, the underlying mutual funds are NOT directly related to any publicly traded mutual fund. Contract owners should not compare the performance of a publicly traded fund with the performance of underlying mutual funds participating in the variable account. The performance of the underlying mutual funds could differ substantially from that of any publicly traded funds. Voting Rights Contract owners who have allocated assets to the underlying mutual funds are entitled to certain voting rights. Nationwide will vote contract owner shares at special shareholder meetings based on contract owner instructions. However, if the law changes and Nationwide is allowed to vote in its own right, it may elect to do so. Contract owners with voting interests in an underlying mutual fund will be notified of issues requiring the shareholders' vote as soon as possible before the shareholder meeting. Notification will contain proxy materials and a form with which to give Nationwide voting instructions. Nationwide will vote shares for which no instructions are received in the same proportion as those that are received. The number of shares which a contract owner may vote is determined by dividing the cash 14 16 of 101 17 value of the amount they have allocated to an underlying mutual fund by the net asset value of that underlying mutual fund. Nationwide will designate a date for this determination not more than 90 days before the shareholder meeting. Material Conflicts The underlying mutual funds may be offered through separate accounts of other insurance companies, as well as through other separate accounts of Nationwide. Nationwide does not anticipate any disadvantages to this. However, it is possible that a conflict may arise between the interests of the variable account and one or more of the other separate accounts in which these underlying mutual funds participate. Material conflicts may occur due to a change in law affecting the operations of variable life insurance policies and variable annuity contracts, or differences in the voting instructions of the contract owners and those of other companies. If a material conflict occurs, Nationwide will take whatever steps are necessary to protect contract owners and variable annuity payees, including withdrawal of the variable account from participation in the underlying mutual fund(s) involved in the conflict. Substitution of Securities Nationwide may substitute, eliminate, or combine shares of another underlying mutual fund for shares already purchased or to be purchased in the future if either of the following occurs: 1) shares of a current underlying mutual fund are no longer available for investment; or 2) further investment in an underlying mutual fund is inappropriate. No substitution, elimination, or combination of shares may take place without the prior approval of the SEC and state insurance departments. THE FIXED ACCOUNT The fixed account is an investment option that is funded by assets of Nationwide's general account. The general account contains all of Nationwide's assets other than those in other Nationwide separate accounts. It is used to support Nationwide's annuity and insurance obligations and may contain compensation for mortality and expense risks. The general account is not subject to the same laws as the variable account and the SEC has not reviewed material in this prospectus relating to the fixed account. However, information relating to the fixed account is subject to federal securities laws relating to accuracy and completeness of prospectus disclosure. Purchase payments will be allocated to the fixed account by election of the contract owner. The investment income earned by the fixed account will be allocated to the contracts at varying guaranteed interest rate(s) depending on the following categories of fixed account allocations: - - New Money Rate - The rate credited on the fixed account allocation when the contract is purchased or when subsequent purchase payments are made. Subsequent purchase payments may receive different New Money Rates than the rate when the contract was issued, since the New Money Rate is subject to change based on market conditions. - - Variable Account to Fixed Rate - Allocations transferred from any of the underlying investment options in the variable account to the fixed account may receive a different rate. The rate may be lower than the New Money Rate. There may be limits on the amount and frequency of movements from the variable account to the fixed account. - - Renewal Rate - The rate available for maturing fixed account allocations which are entering a new guarantee period. The contract owner will be notified of this rate in a letter issued with the quarterly statements when any of the money in the contract owner's fixed account matures. At that time, the contract owner will have an opportunity to leave the money in the fixed account and receive the Renewal Rate or the contract owner can move the money to any of the other underlying mutual fund options. 15 17 of 101 18 - - Dollar Cost Averaging Rate - From time to time, Nationwide may offer a more favorable rate for an initial purchase payment into a new contract when used in conjunction with a Dollar Cost Averaging program. All of these rates are subject to change on a daily basis; however, once applied to the fixed account, the interest rates are guaranteed until the end of the calendar quarter during the 12 month anniversary in which the fixed account allocation occurs. Credited interest rates are annualized rates - the effective yield of interest over a one-year period. Interest is credited to each contract on a daily basis. As a result, the credited interest rate is compounded daily to achieve the stated effective yield. The guaranteed rate for any purchase payment will be effective for not less than twelve months. Nationwide guarantees that the rate will not be less than 3% per year. Any interest in excess of 3.0% will be credited to fixed account allocations at Nationwide's sole discretion. The contract owner assumes the risk that interest credited to fixed account allocations may not exceed the minimum guarantee of 3.0% for any given year. Nationwide guarantees that the fixed account contract value will not be less than the amount of the purchase payments allocated to the fixed account, plus interest credited as described above, less any applicable charges including CDSC. STANDARD CHARGES AND DEDUCTIONS MORTALITY AND EXPENSE RISK CHARGE Nationwide deducts a Mortality and Expense Risk Charge from the variable account. This amount is computed on a daily basis, and is equal to an annual rate of 1.25% of the daily net assets of the variable account. The mortality risk charges compensate Nationwide for guaranteeing the annuity rate of the contracts. This guarantee ensures that the annuity rates will not change regardless of the death rates of annuity payees or the general population. The expense risk charges compensate Nationwide for guaranteeing that administration charges will not increase regardless of actual expenses. If the Mortality and Expense Risk Charge is insufficient to cover actual expenses, the loss is borne by Nationwide. ADMINISTRATION CHARGE Nationwide deducts an Administration Charge equal on an annual basis to 0.05% of the daily net assets of the variable account. This charge is designed to reimburse Nationwide for administrative expenses related to the issuance and maintenance of the contracts. CONTINGENT DEFERRED SALES CHARGE No sales charge deduction is made from the purchase payments when amounts are deposited into the contracts. However, if any part of the contract is surrendered, Nationwide will deduct a CDSC. The CDSC will not exceed 7% of purchase payments surrendered. The CDSC is calculated by multiplying the applicable CDSC percentage (noted below) by the amount of purchase payments surrendered. For purposes of calculating the CDSC, surrenders are considered to come first from the oldest purchase payment made to the contract, then the next oldest purchase payment, and so forth. For tax purposes, a surrender is usually treated as a withdrawal of earnings first. The CDSC applies as follows:
- --------------------------------------------------- NUMBER OF YEARS FROM DATE OF CDSC PURCHASE PAYMENT PERCENTAGE - --------------------------------------------------- 0 7% 1 6% 2 5% 3 4% 4 3% 5 2% 6 1% 7 0% - ---------------------------------------------------
The CDSC is used to cover sales expenses, including commissions (maximum of 8.5% of purchase payments), production of sales 16 18 of 101 19 material, and other promotional expenses. If expenses are greater than the CDSC, the shortfall will be made up from Nationwide's general account, which may indirectly include portions of the Administration Charge and other variable account charges, since Nationwide may generate a profit from these charges. Contract owners taking withdrawals before age 59-1/2 may be subject to a 10% tax penalty. In addition, all or a portion of the withdrawal may be subject to federal income taxes (see "Non-Qualified Contracts Natural Persons as Contract Owners"). Waiver of Contingent Deferred Sales Charge For contracts issued before September 1, 1999, or a date on which state insurance authorities approve applicable contract modifications, the contract owner may withdraw, During the first contract year, without a CDSC, any amount in order for this contract to meet minimum distribution requirements under the Internal Revenue Code. Starting with the second year after a purchase payment has been made, the contract owner may withdraw without a CDSC the greater of: a) an amount equal to 10% of that purchase payment; or b) any amount in order for this contract to meet minimum distribution requirements under the Internal Revenue Code. For contracts issued on or after September 1, 1999, or a date on which state insurance authorities approve applicable contract modifications, each contract year the contract owner may withdraw without a CDSC the greater of: a) 10% of purchase payments made to the contract; or b) any amount withdrawn to meet the minimum distribution requirements under the Internal Revenue Code. This free withdrawal privilege is cumulative. In addition, no CDSC will be deducted: (1) upon annuitization; (2) upon payment of a death benefit; or (3) from any values which have been held under a contract for at least 7 years. No CDSC applies to transfers among sub-accounts, the fixed account, or the variable account. Nationwide may waive the CDSC if a contract described in this prospectus is exchanged for another Nationwide contract (or a contract of any of its affiliated insurance companies). A CDSC may apply to the contract received in the exchange. Nationwide may waive or reduce the CDSC when sales are to employees of Bank One Corporation or the employees of its affiliates, subsidiaries or holding companies. A contract held by a Charitable Remainder Trust may withdraw CDSC-free the greater of (a) or (b), where: (a) is the amount which would otherwise be available for withdrawal without a CDSC; and (b) is the difference between the total purchase payments made to the contract as of the date of the withdrawal (reduced by previous withdrawals) and the contract value at the close of the day prior to the date of the withdrawal. For Tax Sheltered Annuity Contracts, Qualified Contracts, and SEP IRA Contracts, Nationwide will waive the CDSC when: a) the plan participant experiences a case of hardship (as provided in Internal Revenue Code section 403(b) and as defined for purposes of Internal Revenue Code section 401(k)); b) the plan participant becomes disabled (within the meaning of Internal Revenue Code section 72(m)(7)); c) the plan participant attains age 59-1/2 and has participated in the contract for at least 5 years, as determined from the contract anniversary date immediately preceding the distribution; d) the plan participant has participated in the contract for at least 15 years as determined from the contract anniversary date immediately preceding the distribution; e) the plan participant dies; or 17 19 of 101 20 f) the contract is annuitized after 2 years from the inception of the contract. The contract owner may be subject to income tax on all or a portion of any such withdrawals and to a tax penalty if the contract owner takes withdrawals prior to age 59-1/2 (see "Non-Qualified Contracts - Natural Persons as Contract Owners"). The CDSC for any type of contract issued will not be eliminated if to do so would be unfairly discriminatory or prohibited by state law. PREMIUM TAXES Nationwide will charge against the contract value any premium taxes levied by a state or other government entity. Premium tax rates currently range from 0% to 3.5%. This range is subject to change. The method used to assess premium tax will be determined by Nationwide at its sole discretion in compliance with state law. If applicable, Nationwide will deduct premium taxes from the contract either at: (1) the time the contract is surrendered; (2) annuitization; or (3) such other date as Nationwide becomes subject to premium taxes. Premium taxes may be deducted from death benefit proceeds. CONTRACT OWNERSHIP The contract owner has all rights under the contract, including the right to designate and change any designations of the contract owner, annuitant, beneficiary, contingent beneficiary, annuity payment option, and annuity commencement date. Contract owners must be age 80 or younger at the time of contract issuance. Purchasers who name someone other than themselves as the contract owner will have no rights under the contract. Contract owners may name a new contract owner at any time before the annuitization date. Any change of contract owner automatically revokes any prior contract owner designation. Changes in contract ownership may result in federal income taxation and may be subject to state and federal gift taxes. A change in contract ownership must be submitted in writing and recorded at Nationwide's home office. Once recorded, the change will be effective as of the date signed. However, the change will not affect any payments made or actions taken by Nationwide before it was recorded. The contract owner may also request a change in the annuitant, beneficiary, or contingent beneficiary before the annuitization date. These changes must be: - - on a Nationwide form; - - signed by the contract owner; and - - received at Nationwide's home office before the annuitization date. Nationwide must review and approve any change requests. If the contract owner is not a natural person and there is a change of the annuitant, distributions will be made as if the contract owner died at the time of the change. On the annuitization date, the annuitant will become the contract owner, unless the contract owner is a Charitable Remainder Trust. JOINT OWNERSHIP Joint owners each own an undivided interest in the contract. A joint owner will receive a death benefit if a contract owner who is also the annuitant dies before the annuitization date. If a contract owner who is NOT the annuitant dies before the annuitization date, the joint owner becomes the contract owner. Contract owners can name a joint owner at any time before annuitization subject to the following conditions: - - Joint owners can only be named for Non-Qualified Contracts; - - Joint owners must be spouses at the time joint ownership is requested, unless state law requires Nationwide to allow non-spousal joint owners; 18 20 of 101 21 - - The exercise of any ownership right in the contract generally will require a written request signed by both joint owners; - - An election in writing signed by both contract owners must be made to authorize Nationwide to allow the exercise of ownership rights independently by either joint owner; and - - Nationwide will not be liable for any loss, liability, cost, or expense for acting in accordance with the instructions of either joint owner. ANNUITANT The annuitant is the person designated to receive annuity payments during annuitization of the contract and upon whose continuation of life any annuity payment involving life contingencies depends. This person must be age 80 or younger at the time of contract issuance, unless Nationwide approves a request for an annuitant of greater age. The annuitant may be changed prior to the annuitization date with the consent of Nationwide. BENEFICIARY AND CONTINGENT BENEFICIARY The beneficiary is the person(s) who is entitled to the death benefit if the annuitant who was not also a joint owner dies before the annuitization date. If the annuitant was also a joint owner and dies before the annuitization date, the death benefit will be paid to the surviving joint owner. The contract owner can name more than one beneficiary. The beneficiaries will share the death benefit equally, unless otherwise specified. If no beneficiary(ies) survives the annuitant, the contingent beneficiary(ies) receives the death benefit. Contingent beneficiaries will share the death benefit equally, unless otherwise specified. If no beneficiaries or contingent beneficiaries survive the annuitant, the contract owner or the last surviving contract owner's estate will receive the death benefit. If the contract owner is a Charitable Remainder Trust and the annuitant dies before the annuitization date, the death benefit will accrue to the Charitable Remainder Trust. Any designation in conflict with the Charitable Remainder Trust's right to the death benefit will be void. The contract owner may change the beneficiary or contingent beneficiary during the annuitant's lifetime by submitting a written request to Nationwide. Once recorded, the change will be effective as of the date it was signed, whether or not the annuitant was living at the time it was recorded. The change will not affect any action taken by Nationwide before the change was recorded. OPERATION OF THE CONTRACT MINIMUM INITIAL AND SUBSEQUENT PURCHASE PAYMENTS
- ----------------------------------------------------------- MINIMUM INITIAL MINIMUM CONTRACT PURCHASE PAYMENT SUBSEQUENT TYPE PAYMENTS - ----------------------------------------------------------- Non-Qualified $2,000 $10 IRA $2,000 $10 Roth IRA $2,000 $10 SEP IRA $2,000 $10 Tax Sheltered $ 0 $10 Annuity Qualified $ 0 $10 - -----------------------------------------------------------
PRICING Initial purchase payments allocated to sub-accounts will be priced at the accumulation unit value determined no later than 2 business days after receipt of an order to purchase if the application and all necessary information are complete. If the application is not complete, Nationwide may retain a purchase payment for up to 5 business days while attempting to complete it. If the application is not completed within 5 business days, the prospective purchaser will be informed of the reason for the delay. The purchase payment will be returned unless the prospective purchaser specifically allows Nationwide to hold the purchase payment until the application is completed. Subsequent purchase payments will be priced based on the next available accumulation unit value after the payment is received. The cumulative total of all purchase payments under contracts on the life of any one annuitant cannot exceed $1,000,000 without Nationwide's prior consent. 19 21 of 101 22 Purchase payments will not be priced when the New York Stock Exchange is closed or on the following nationally recognized holidays: - - New Year's Day - - Martin Luther King, Jr. Day - - Presidents' Day - - Good Friday - - Memorial Day - - Independence Day - - Labor Day - - Thanksgiving - - Christmas Nationwide also will not price purchase payments if: (1) trading on the New York Stock Exchange is restricted; (2) an emergency exists making disposal or valuation of securities held in the variable account impracticable; or (3) the SEC, by order, permits a suspension or postponement for the protection of security holders. Rules and regulations of the SEC will govern as to when conditions described in (2) and (3) exist. ALLOCATION OF PURCHASE PAYMENTS Nationwide allocates purchase payments to sub-accounts and/or the fixed account as instructed by the contract owner. Shares of the sub-accounts are purchased at net asset value, then converted into accumulation units. Contract owners can change allocations or make exchanges among the sub-accounts or the fixed account. Certain transactions may be subject to conditions imposed by the underlying mutual funds, as well as those set forth in the contract. DETERMINING THE CONTRACT VALUE The contract value is: 1) the value of amounts allocated to the sub-accounts of the variable account; and 2) amounts allocated to the fixed account. If part or all of the contract value is surrendered, or charges are assessed against the contract value, Nationwide will deduct a proportionate amount from each sub-account and the fixed account based on current cash values. Determining Variable Account Value - Valuing an Accumulation Unit Purchase payments or transfers allocated to sub-accounts are accounted for in accumulation units. Accumulation unit values (for each sub-account) are determined by calculating the net investment factor for the underlying mutual funds for the current valuation period and multiplying that result with the accumulation unit values determined on the previous valuation period. Nationwide uses the net investment factor as a way to calculate the investment performance of a sub-account from valuation period to valuation period. For each sub-account, the net investment factor shows the investment performance of the underlying mutual fund in which a particular sub-account invests, including the charges assessed against that sub-account for a valuation period. The net investment factor for any particular sub-account is determined by dividing (a) by (b), and then subtracting (c) from the result, where (a) is: (1) the net asset value of the underlying mutual fund as of the end of the current valuation period; and (2) the per share amount of any dividend or income distributions made by the underlying mutual fund (if the ex-dividend date occurs during the current valuation period). (b) is the net asset value of the underlying mutual fund determined as of the end of the preceding valuation period. (c) is a factor representing the daily variable account charges, which may include charges for contract options chosen by the contract owner. The factor is equal to an annual rate of 1.30% of the daily net assets of the variable account. Based on the net investment factor, the value of an accumulation unit may increase or decrease. Changes in the net investment factor may not be directly proportional to changes in the net asset value of the underlying mutual fund shares 20 22 of 101 23 because of the deduction of variable account charges. Though the number of accumulation units will not change as a result of investment experience, the value of an accumulation unit may increase or decrease from valuation period to valuation period. Determining Fixed Account Value Nationwide determines the value of the fixed account by: 1) adding all amounts allocated to the fixed account, minus amounts previously transferred or withdrawn; and 2) adding any interest earned on the amounts allocated. TRANSFERS Transfers from the Fixed Account to the Variable Account Fixed account allocations may be transferred to the variable account only upon reaching the end of an Interest Rate Guarantee Period. Normally, Nationwide will permit 100% of such fixed account allocations to be transferred to the variable account; however, Nationwide may, under certain economic conditions and at its discretion, limit the maximum transferable amount. The maximum transferable amount will not be less than 25% of the fixed account allocation reaching the end of an Interest Rate Guarantee Period. Transfers of the fixed account allocations must be made within 45 days after reaching the end of an Interest Rate Guarantee Period. Transfers from the Variable Account to the Fixed Account Variable account allocations may be transferred to the fixed account at any time. Normally, Nationwide will not restrict transfers from the variable account to the fixed account; however, Nationwide may establish a maximum transfer limit from the variable account to the fixed account. Under no circumstances will the transfer limit be less than 10% of the current value of the variable account, less any transfers made in the 12 months preceding the date the transfer is requested, but not including transfers made prior to the imposition of the transfer limit. However, Nationwide may refuse transfers or purchase payments to the fixed account when the fixed account value is greater than or equal to 30% of the contract value at the time the purchase payment is made or the transfer is requested. After annuitization, transfers may only be made on the anniversary of the annuitization date. Contract owners who use Dollar Cost Averaging may transfer from the fixed account to the variable account under the terms of that program (see "Dollar Cost Averaging"). Amounts transferred to the variable account will receive the accumulation unit value next determined after the transfer request is received. Transfer Requests Nationwide will accept transfer requests in writing or over the telephone. Nationwide will use reasonable procedures to confirm that telephone instructions are genuine and will not be liable for following telephone instructions that it reasonably determined to be genuine. Nationwide may withdraw the telephone exchange privilege upon 30 days written notice to contract owners. Interest Rate Guarantee Period The interest rate guarantee period is the period of time that the fixed account interest rate is guaranteed to remain the same. Within 45 days of the end of an interest rate guarantee period, transfers may be made from the fixed account to the variable account. Nationwide will determine the amount that may be transferred and will declare this amount at the end of the guarantee period. This amount will not be less than 10% of the amount in the fixed account that is maturing. For new purchase payments allocated to the fixed account or for transfers to the fixed account from the variable account, this period begins on the date of deposit or transfer and ends on the one year anniversary of the deposit or transfer. The guaranteed interest rate period may last for up to 3 months beyond the 1 year 21 23 of 101 24 anniversary because guaranteed terms end on the last day of a calendar quarter. During an interest rate guarantee period, transfers cannot be made from the fixed account, and amounts transferred to the fixed account must remain on deposit. Market Timing Firms Some contract owners may use market timing firms or other third parties to make transfers on their behalf. Generally, in order to take advantage of perceived market trends, market timing firms will submit transfer or exchange requests on behalf of multiple contract owners at the same time. Sometimes this can result in unusually large transfers of funds. These large transfers might interfere with the ability of Nationwide or the underlying mutual fund to process transactions. This can potentially disadvantage contract owners not using market timing firms. To avoid this, Nationwide may modify transfer rights of contract owners who use market timing firms (or other third parties) to transfer funds on their behalf. The exchange and transfer rights of individual contract owners will not be modified in any way when instructions are submitted directly by the contract owner, or by the contract owner's representative (as authorized by the execution of a valid Nationwide Limited Power of Attorney Form). To protect contract owners, Nationwide may refuse transfer requests: - - submitted by any agent acting under a power of attorney on behalf of more than one contract owner; or - - submitted on behalf of individual contract owners who have executed pre-authorized 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. Nationwide will not restrict transfer rights unless Nationwide believes it to be necessary for the protection of all contract owners. RIGHT TO REVOKE Contract owners have a ten day "free look" to examine the contract. The contract may be returned to Nationwide's home office for any reason within ten days of receipt and Nationwide will refund the contract value or another amount required by law. All IRA and Roth IRA refunds will be a return of purchase payments. State and/or federal law may provide additional free look privileges. 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 Nationwide. SURRENDER (REDEMPTION) Contract owners may surrender some or all of their contract value before the earlier of the annuitization date or the annuitant's death. Surrender requests must be in writing and Nationwide may require additional information. When taking a full surrender, the contract must accompany the written request. Nationwide may require a signature guarantee. Nationwide will pay any amount surrendered from the sub-accounts within 7 days. However, Nationwide may suspend or postpone payment when it is unable to price a purchase payment or transfer. Partial Surrenders (Partial Redemption) Nationwide will surrender accumulation units from the sub-accounts and an amount from the fixed account. The amount withdrawn from each investment option will be in proportion to the value in each option at the time of the surrender request. A CDSC may apply. The contract owner may direct Nationwide to deduct the CDSC either from: a) the amount requested; or b) the contract value remaining after the contract owner has received the amount requested. 22 24 of 101 25 If the contract owner does not make a specific election, any applicable CDSC will be taken from the contract value remaining after the contract owner has received the amount requested. Full Surrenders (Full Redemptions) The contract value upon full surrender may be more or less than the total of all purchase payments made to the contract. The contract value will reflect variable account charges, underlying mutual fund charges and the investment performance of the underlying mutual funds. A CDSC may apply. SURRENDERS UNDER A TEXAS OPTIONAL RETIREMENT PROGRAM OR THE LOUISIANA OPTIONAL RETIREMENT PLAN Redemption restrictions apply to contracts issued under the Texas Optional Retirement Program or the Louisiana Optional Retirement Plan. The Texas Attorney General has ruled that participants in contracts issued under the Texas Optional Retirement Program may only take withdrawals if: the participant dies; the participant retires; the participant terminates employment due to total disability; or the participant that works in a Texas public institution of higher education terminates employment. A participant under a contract issued under the Louisiana Optional Retirement Plan may only take distributions from the contract upon retirement or termination of employment. All retirement benefits under this type of plan must be paid as lifetime income; lump sum cash payments are not permitted, except for death benefits. Due to the restrictions described above, a participant under either of these plans will not be able to withdraw cash values from the contract unless one of the applicable conditions is met. However, contract value may be transferred to other carriers, subject to any CDSC. Nationwide issues this contract to participants in the Texas Optional Retirement Program in reliance upon and in compliance with Rule 6c-7 of the Investment Company Act of 1940. Nationwide issues this contract to participants in the Louisiana Optional Retirement Plan in reliance upon and in compliance with an exemptive order that Nationwide received from the SEC on August 22, 1990. SURRENDERS UNDER A QUALIFIED CONTRACT OR TAX SHELTERED ANNUITY Contract owners of a Tax Sheltered Annuity may surrender part or all of their contract value before the earlier of the annuitization date or the annuitant's death, except as provided below: A. Contract value attributable to contributions made under a qualified cash or deferred arrangement (within the meaning of Internal Revenue Code Section 402(g)(3)(A)), a salary reduction agreement (within the meaning of Internal Revenue Code Section 402(g)(3)(C)), or transfers from a Custodial Account (described in Section 403(b)(7) of the Internal Revenue Code), may be surrendered only: 1. when the contract owner reaches age 59-1/2, separates from service, dies, or becomes disabled (within the meaning of Internal Revenue Code Section 72(m)(7)); or 2. in the case of hardship (as defined for purposes of Internal Revenue Code Section 401(k)), provided that any such hardship surrender may NOT include any income earned on salary reduction contributions. B. The surrender limitations described in Section A 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 23 25 of 101 26 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 a ten day free look cancellation of the contract (when available) may result in taxes, penalties, and/or retroactive disqualification of a Qualified Contract or Tax Sheltered Annuity. In order to prevent disqualification of a Tax Sheltered Annuity after a ten day free look cancellation, Nationwide will transfer the proceeds to another Tax Sheltered Annuity upon proper direction by the contract owner. These provisions explain Nationwide's understanding of current withdrawal restrictions. These restrictions may change. Distributions pursuant to Qualified Domestic Relations Orders will not violate the restrictions above. LOAN PRIVILEGE The loan privilege is ONLY available to owners of Qualified Contracts or Tax Sheltered Annuities. These contract owners can take loans from the contract value beginning 30 days after the contract is issued up to the annuitization date. Loans are subject to the terms of the contract, the plan, and the Internal Revenue Code. Nationwide may modify the terms of a loan to comply with changes in applicable law. MINIMUM & MAXIMUM LOAN AMOUNTS Contract owners may borrow a minimum of $1000, unless Nationwide is required by law to allow a lesser minimum amount. Each loan must individually satisfy the contract minimum amount. Nationwide will calculate the maximum nontaxable loan amount based upon information provided by the participant or the employer. Loans may be taxable if a participant has additional loans from other plans. The total of all outstanding loans must not exceed the following limits:
- ------------------------------------------------------- CONTRACT MAXIMUM OUTSTANDING LOAN VALUES BALANCE ALLOWED - ------------------------------------------------------- NON-ERISA up to up to 80% of contract PLANS $20,000 value (not more than $10,000) - ------------------------------------------------------- $20,000 up to 50% of contract and over value (not more than $50,000*) - ------------------------------------------------------- ERISA PLANS All up to 50% of contract value (not more than $50,000*) - -------------------------------------------------------
* The $50,000 limits will be reduced by the highest outstanding balance owed during the previous 12 months. For salary reduction Tax Sheltered Annuities, loans may be secured only by the contract value. LOAN PROCESSING FEE Nationwide may charge a Loan Processing Fee at the time each new loan is processed. If assessed it compensates Nationwide for expenses related to administering and processing loans. Loans are not available in all states. In addition, some states may not allow Nationwide to assess a Loan Processing Fee. HOW LOAN REQUESTS ARE PROCESSED All loans are made from the collateral fixed account. Nationwide transfers accumulation units in proportion to the assets in each sub-account to the collateral fixed account until the requested amount is reached. If there are not enough accumulation units available in the contract to reach the requested loan amount, Nationwide next transfers contract value from the fixed account. No CDSC will be deducted on transfers related to loan processing. INTEREST The outstanding loan balance in the collateral fixed account is credited with interest until the loan is repaid in full. The interest rate will be 2.25% less than the loan interest rate fixed by Nationwide. It is guaranteed never to fall below 3.0%. Specific loan terms are disclosed at the time of loan application or issuance. 24 26 of 101 27 LOAN REPAYMENT Loans must be repaid in five years. However, if the loan is used to purchase the contract owner's principal residence, the contract owner has 15 years to repay the loan. Contract owners must identify loan repayments as loan repayments or they will be treated as purchase payments and will not reduce the outstanding loan. Payments must be substantially level and made at least quarterly. Loan repayments will consist of principal and interest in amounts set forth in the loan agreement. Repayments are allocated to the sub-accounts in accordance with the contract, unless Nationwide and the contract owner have agreed to amend the contract at a later date on a case by case basis. DISTRIBUTIONS & ANNUITY PAYMENTS Distributions made from the contract while a loan is outstanding will be reduced by the amount of the outstanding loan plus accrued interest if: - the contract is surrendered; - the contract owner/annuitant dies; - the contract owner who is not the annuitant dies prior to annuitization; or - annuity payments begin. TRANSFERRING THE CONTRACT Nationwide reserves the right to restrict any transfer of the contract while the loan is outstanding. GRACE PERIOD & LOAN DEFAULT If a loan payment is not made when due, interest will continue to accrue. A grace period may be available (please refer to the terms of the loan agreement). If a loan payment is not made by the end of the applicable grace period, the entire loan will be treated as a deemed distribution and will be taxable to the borrower. This deemed distribution may also be subject to an early withdrawal tax penalty by the Internal Revenue Service. After default, interest will continue to accrue on the loan. Defaulted amounts, plus interest, are deducted from the contract value when the participant is eligible for a distribution of at least that amount. Additional loans are not available while a previous loan is in default. ASSIGNMENT Contract rights are personal to the contract owner and may not be assigned without Nationwide's written consent. IRAs, SEP IRAs Roth IRAs, Qualified Contracts, and Tax Sheltered Annuities may not be assigned, pledged or otherwise transferred except where allowed by law. A Non-Qualified Contract owner may assign some or all rights under the contract. An assignment must occur before annuitization while the annuitant is alive. Once proper notice of assignment is recorded by Nationwide's home office, the assignment will become effective as of the date the written request was signed. Nationwide is not responsible for the validity or tax consequences of any assignment. Nationwide is not liable for any payment or settlement made before the assignment is recorded. Assignments will not be recorded until Nationwide receives sufficient direction from the contract owner and the assignee regarding the proper allocation of contract rights. Amounts pledged or assigned will be treated as distributions and will 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. Amounts assigned may be subject to a tax penalty equal to 10% of the amount included in gross income. 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. 25 27 of 101 28 CONTRACT OWNER SERVICES ASSET REBALANCING Asset rebalancing is the automatic reallocation of contract values to the sub-accounts on a predetermined percentage basis. Asset rebalancing is not available for assets held in the fixed account. Requests for asset rebalancing must be on a Nationwide form. Asset rebalancing occurs every three months or on another frequency if permitted by Nationwide. 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, asset rebalancing will occur on the next business day. Asset rebalancing may be subject to employer limitations or restrictions for contracts issued to a Qualified Plan or Tax Sheltered Annuity plan. Contract owners should consult a financial adviser to discuss the use of asset rebalancing. Nationwide reserves the right to stop establishing new asset rebalancing programs. Nationwide also reserves the right to assess a processing fee for this service. DOLLAR COST AVERAGING Dollar Cost Averaging is a long-term transfer program that allows you to make regular, level investments over time. It involves the automatic transfer of a specified amount from certain sub-accounts and the fixed account into other sub-accounts. Nationwide does not guarantee that this program will result in profit or protect contract owners from loss. Contract owners direct Nationwide to automatically transfer specified amounts from the fixed account and the NSAT-Money Market Fund to any other underlying mutual fund Transfers from the fixed account must be equal to or less than 1/30th of the fixed account value at the time the program is requested. A dollar cost averaging program which transfers amounts from the fixed account to the variable account is not the same as an enhanced rate dollar cost averaging program. Contract owners who wish to utilize dollar cost averaging from the fixed account should first inquire as to whether any enhanced rate dollar cost averaging programs are available. Transfers occur monthly or on another frequency if permitted by Nationwide. The minimum monthly transfer is $100. Nationwide will process transfers until either the value in the originating investment option is exhausted, or the contract owner instructs Nationwide in writing to stop the transfers. Nationwide reserves the right to stop establishing new Dollar Cost Averaging programs. Nationwide also reserves the right to assess a processing fee for this service. Enhanced Rate Dollar Cost Averaging Program Nationwide may, from time to time, offer enhanced rate dollar cost averaging programs. Dollar cost averaging transfers for this program may only be made from the fixed account. Such enhanced rate dollar cost averaging programs allow the contract owner to earn a higher rate of interest on assets in the fixed account than would normally be credited when not participating in the program. Each enhanced interest rate is guaranteed for as long as the corresponding program is in effect. Nationwide will process transfers until either amounts in the enhanced rate fixed account are exhausted, or the contract owner instructs Nationwide in writing to stop the transfers. For this program only, when a written request to discontinue transfers is received, Nationwide will automatically transfer the remaining amount in the enhanced rate fixed account to the NSAT Money Market Fund. SYSTEMATIC WITHDRAWALS Systematic withdrawals allow contract owners to receive a specified amount (of at least $100) on a monthly, quarterly, semi-annual, or annual basis. Requests for systematic withdrawals and requests to discontinue systematic withdrawals must be in writing. The withdrawals will be taken from the sub-accounts and the fixed account proportionately unless Nationwide is instructed otherwise. A CDSC may apply (see "Contingent Deferred Sales Charge"). 26 28 of 101 29 Nationwide will withhold federal income taxes from systematic withdrawals unless otherwise instructed by the contract owner. The Internal Revenue Service may impose a 10% penalty tax 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. Nationwide reserves the right to stop establishing new systematic withdrawal programs. Nationwide also reserves the right to assess a processing fee for this service. Systematic withdrawals are not available before the end of the ten-day free look period (see "Right to Revoke"). ANNUITY COMMENCEMENT DATE The annuity commencement date is the date on which annuity payments are scheduled to begin. The contract owner may change the annuity commencement date before annuitization. This change must be in writing and approved by Nationwide. ANNUITIZING THE CONTRACT ANNUITIZATION DATE The annuitization date is the date that annuity payments begin. It will be the first day of a calendar month unless otherwise agreed, and must be at least 2 years after the contract is issued. If the contract is issued to fund a Qualified Plan or Tax Sheltered Annuity plan, annuitization may occur during the first 2 years subject to Nationwide's approval. ANNUITIZATION Annuitization is the period during which annuity payments are received. It is irrevocable once payments have begun. Upon arrival of the annuitization date, the annuitant must choose: (1) an annuity payment option; and (2) either a fixed payment annuity, variable payment annuity, or an available combination. Nationwide guarantees that each payment under a fixed payment annuity will be the same throughout annuitization. Under a variable payment annuity, the amount of each payment will vary with the performance of the underlying mutual funds chosen by the contract owner. FIXED PAYMENT ANNUITY A fixed payment annuity is an annuity where the amount of the annuity payment remains level. The first payment under a fixed payment annuity is determined on the annuitization date on an "age last birthday" basis by: 1) deducting applicable premium taxes from the total contract value; then 2) applying the contract value amount specified by the contract owner to the fixed payment annuity table for the annuity payment option elected. Subsequent payments will remain level unless the annuity payment option elected provides otherwise. Nationwide does not credit discretionary interest during annuitization. VARIABLE PAYMENT ANNUITY A variable payment annuity is an annuity where the amount of the annuity payments will vary depending on the performance of the underlying mutual funds selected. The first payment under a variable payment annuity is determined on the annuitization date on an "age last birthday" basis by: 1) deducting applicable premium taxes from the total contract value; then 2) applying the contract value amount specified by the contract owner to the variable payment annuity table for the annuity payment option elected. The dollar amount of the first payment is converted into a set number of annuity units that will represent each monthly payment. This is done by dividing the dollar amount of the first payment by the value of an annuity unit as of the annuitization date. This number of annuity units remains fixed during annuitization. The second and subsequent payments are 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 amount of the second and subsequent 27 29 of 101 30 payments will vary with the performance of the selected underlying mutual funds. Nationwide guarantees that variations in mortality experience from assumptions used to calculate the first payment will not affect the dollar amount of the second and subsequent payments. ASSUMED INVESTMENT RATE An assumed investment rate is the percentage rate of return assumed to determine the amount of the first payment under a variable payment annuity. Nationwide uses the assumed investment rate of 3.5% to calculate the first annuity payment. The assumed investment rate of 3.5% is the percentage rate of return required to maintain level variable annuity payments. Subsequent variable annuity payments may be more or less than the first based on whether actual investment performance is higher or lower than the assumed investment rate of 3.5%. VALUE OF AN ANNUITY UNIT Annuity unit values for sub-accounts are determined by multiplying the net investment factor for the valuation period for which the annuity unit is being calculated by the immediately preceding valuation period's annuity unit value, and multiplying the result by an interest factor to neutralize the assumed investment rate of 3.5% per annum built into the variable payment annuity purchase rate basis in the contracts. EXCHANGES AMONG UNDERLYING MUTUAL FUNDS Exchanges among underlying mutual funds during annuitization must be in writing. Exchanges will occur on each anniversary of the annuitization date. FREQUENCY AND AMOUNT OF ANNUITY PAYMENTS Payments are made based on the annuity payment option selected, unless: - - the amount to be distributed is less than $500, in which case Nationwide may make one lump sum payment of the contract value; or - - an annuity payment would be less than $20, in which case Nationwide can change the frequency of payments to intervals that will result in payments of at least $20. Payments will be made at least annually. ANNUITY PAYMENT OPTIONS Contract owners must elect an annuity payment option before the annuitization date. The annuity payment options are: (1) LIFE ANNUITY - An annuity payable periodically, but at least annually, for the lifetime of the annuitant. Payments will end upon the annuitant's death. For example, if the annuitant dies before the second annuity payment date, the annuitant will receive only one annuity payment. The annuitant will only receive two annuity payments if he or she dies before the third annuity payment date, and so on. (2) JOINT AND LAST SURVIVOR ANNUITY - An annuity payable periodically, but at least annually, during the joint lifetimes of the annuitant and a designated second individual. If one of these parties dies, payments will continue for the lifetime of the survivor. As is the case under option 1, there is no guaranteed number of payments. Payments end upon the death of the last surviving party, regardless of the number of payments received. (3) LIFE ANNUITY WITH 120 OR 240 MONTHLY PAYMENTS GUARANTEED - An annuity payable monthly during the lifetime of the annuitant. If the annuitant dies before all of the guaranteed payments have been made, payments will continue to the end of the guaranteed period and will be paid to a designee chosen by the annuitant at the time the annuity payment option was elected. The designee may elect to receive the present value of the remaining guaranteed payments in a lump sum. The present value will be computed as of the date Nationwide receives notice of the annuitant's death. Not all of the annuity payment options may be available in all states. Contract owners may request other options before the annuitization date. These options are subject to Nationwide's approval. 28 30 of 101 31 No distribution for Non-Qualified Contracts will be made until an annuity payment option has been elected. IRAs, SEP IRAs, Qualified Contracts and Tax Sheltered Annuities are subject to the "minimum distribution" requirements set forth in the plan, contract, and the Internal Revenue Code. DEATH BENEFITS DEATH OF CONTRACT OWNER - NON-QUALIFIED CONTRACTS If the contract owner who is not the annuitant dies before the annuitization date, the joint owner becomes the contract owner. If no joint owner is named, the annuitant becomes the contract owner. Distributions under Non-Qualified Contracts will be made pursuant to the "Required Distributions for Non-Qualified Contracts" provision. DEATH OF ANNUITANT - NON-QUALIFIED CONTRACTS If the annuitant who is not the contract owner dies before the annuitization date, a death benefit is payable to the beneficiary or contingent beneficiary. If two or more beneficiaries are named, the benefit will be paid to the surviving beneficiaries in equal shares, unless the contract provides otherwise. If no beneficiary or contingent beneficiary survives the annuitant, the contract owner (or his or her estate if the annuitant was also the contract owner) will receive the benefit. DEATH OF CONTRACT OWNER/ANNUITANT If a contract owner who is also the annuitant dies before the annuitization date, a death benefit is payable according to the "Death of the Annuitant - Non-Qualified Contracts" provision. If the contract owner/annuitant dies after the annuitization date, any benefit that may be payable will be paid according to the selected annuity payment option. HOW THE DEATH BENEFIT VALUE IS DETERMINED The death benefit value is determined as of the date the home office receives: 1) proper proof of the annuitant's death; 2) an election specifying the distribution method; and 3) any state required forms(s). The beneficiary may elect to receive the death benefit: (1) in a lump sum; (2) as an annuity; or (3) in any other manner permitted by law and approved by Nationwide. The beneficiary must notify Nationwide of this election within 60 days of the annuitant's death. If the annuitant dies after the annuitization date, any benefit that may be payable will be paid according to the selected annuity payment option. DEATH BENEFIT PAYMENT For any type of contract issued on or after the later of September 1, 1999, or a date on which state insurance authorities approve applicable contract modifications: - - If the annuitant dies on or after his or her 86th birthday and prior to the annuitization date, the dollar amount of the death benefit will be equal to the contract value. - - If the annuitant dies prior to his or her 86th birthday and prior to the annuitization date, the dollar amount of the death benefit will be the greatest of: 1) the contract value; 2) the sum of all purchase payments, less an adjustment for amounts surrendered; or 3) the contract value as of the most recent five year contract anniversary, less an adjustment for amounts surrendered, plus purchase payment received after that five year contract anniversary. The adjustment for amounts surrendered will reduce items (2) and (3) above in the same proportion that the contract value was reduced on the date(s) of the partial surrenders. 29 31 of 101 32 For any type of contract issued on or after the later of May 1, 1998 or a date on which state insurance authorities approve applicable modifications and prior to September 1, 1999 or a date on which state insurance authorities approve applicable contract modifications: - - If the annuitant dies on or prior to his or her 75th birthday and prior to the annuitization date, the dollar amount of the death benefit will be the greatest of: 1) the contract value; 2) the sum of all purchase payments, less an adjustment for amounts surrendered; or 3) the contract value as of the most recent five year contract anniversary, less an adjustment for amounts surrendered since that most recent five year contract anniversary. The adjustment for amounts surrendered will reduce items (2) and (3) above in the same proportion that the contract value was reduced on the date(s) of the partial surrender(s). - - If the annuitant dies after his or her 75th birthday and prior to the annuitization date, the dollar amount of the death benefit will be equal to the contract value. For any type of contract issued prior to May 1, 1998 or a date on which state insurance authorities approve applicable contract modifications: - - If the annuitant dies prior to his or her 75th birthday and prior to the annuitization date, the dollar amount of the death benefit will be the greatest of: 1) the contract value; 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 that most recent five year contract anniversary. - - If the annuitant dies after his or her 75th birthday and prior to the annuitization date, the dollar amount of the death benefit will be equal to the contract value. REQUIRED DISTRIBUTIONS REQUIRED DISTRIBUTIONS FOR NON-QUALIFIED CONTRACTS Internal Revenue Code Section 72(s) requires Nationwide to make certain distributions when a contract owner dies. The following distributions will be made according to those requirements: 1) If any contract owner dies on or after the annuitization date and before the entire interest in the contract has been distributed, then the remaining interest must be distributed at least as rapidly as the distribution method in effect on the contract owner's death. 2) If any contract owner dies before the annuitization date, then the entire interest in the contract (consisting of either the death benefit or the contract value reduced by charges set forth elsewhere in the contract) will be distributed within 5 years of the contract owner's death, provided however: a) any interest payable to or for the benefit of a natural person (referred to herein as a "designated beneficiary"), may be distributed over the life of the designated beneficiary or over a period not longer than the life expectancy of the designated beneficiary. Payments must begin within one year of the contract owner's death unless otherwise permitted by federal income tax regulations; b) if the designated beneficiary is the surviving spouse of the deceased contract owner, the spouse can choose to become the contract owner instead of receiving a death benefit. Any distributions required under these distribution rules will be made upon that spouse's death. In the event that the contract owner is NOT a natural person (e.g., a trust or corporation), then, for purposes of these distribution provisions: 30 32 of 101 33 a) the death of the annuitant will be treated as the death of a contract owner; b) any change of annuitant will be treated as the death of a contract owner; and c) in either case, the appropriate distribution will be made upon the death or change, as the case may be. These distribution provisions do not apply to any contract exempt from Section 72(s) of the Internal Revenue Code by reason of Section 72(s)(5) or any other law or rule. The designated beneficiary must elect a method of distribution and notify Nationwide of this election within 60 days of the contract owner's death. REQUIRED DISTRIBUTIONS FOR QUALIFIED PLANS OR TAX SHELTERED ANNUITIES Distributions from Qualified Contracts or Tax Sheltered Annuities will be made according to the Minimum Distribution and Incidental Benefit provisions ("MDIB") of Section 401(a)(9) of the Internal Revenue Code. Distributions will be made to the annuitant according to the selected annuity payment option over a period not longer than: a) the life of the annuitant or the joint lives of the annuitant and the annuitant's designated beneficiary; or b) a period not longer than the life expectancy of the annuitant or the joint life expectancies of the annuitant and the annuitant's designated beneficiary. Required distributions do not have to be withdrawn from this contract if they are being withdrawn from another Tax Sheltered Annuity of the annuitant. If the annuitant's entire interest in a Qualified Plan or Tax Sheltered Annuity will be distributed in equal or substantially equal payments over a period described in a) or b), the payments will begin on the required beginning date. The required beginning date is the later of: a) April 1 of the calendar year following the calendar year in which the annuitant reaches age 70-1/2; or b) the annuitant's retirement date. Provision b) does not apply to any employee who is a 5% owner (as defined in Section 416 of the Internal Revenue Code) with respect to the plan year ending in the calendar year when the employee attains the age of 70-1/2. Distributions commencing on the required distribution date must satisfy MDIB provisions set forth in the Internal Revenue Code. Those provisions require that distribution cannot be less than the amount determined by dividing the annuitant's interest in the tax sheltered annuity by the end of the previous calendar year by: a) the annuitant's life expectancy, or if applicable; b) the joint and survivor life expectancy of the annuitant and the annuitant's beneficiary. The life expectancies and joint life expectancies are determined by reference to Treasury Regulation 1.72-9. If the annuitant dies before distributions begin, 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 the annuitant's death occurs unless: a) the annuitant names his or her surviving spouse as the beneficiary and the spouse chooses to receive distribution of the contract in substantially equal payments over his or her life (or a period not longer than his or her life expectancy) and beginning no 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 the beneficiary elects to receive distribution of the contract in substantially equal payments over his or her life (or a period not longer than his or her life expectancy) beginning no later than December 31 of the year following the year in which the annuitant dies. If the annuitant dies after distributions have begun, distributions must continue at least as 31 33 of 101 34 rapidly as under the schedule used before the annuitant's death. If distribution requirements are not met, a penalty tax of 50% is levied on the difference between the amount that should have been distributed for that year and the amount that actually was distributed for that year. REQUIRED DISTRIBUTIONS FOR INDIVIDUAL RETIREMENT ANNUITIES AND SEP IRAS Distributions from an Individual Retirement Annuity or SEP IRA must begin no later than April 1 of the calendar year following the calendar year in which the contract owner reaches age 70-1/2. Distribution may be paid in a lump sum or in substantially equal payments over: a) the contract owner's life or the lives of the contract owner and his or her spouse or designated beneficiary; or b) a period not longer than the life expectancy of the contract owner or the joint life expectancy of the contract owner and the contract owner's designated beneficiary. If the contract owner dies before distributions begin, the interest in the Individual Retirement Annuity or SEP IRA must be distributed by December 31 of the calendar year in which the fifth anniversary of the contract owner's death occurs, unless: a) the contract owner names his or her surviving spouse as the beneficiary and such spouse chooses to: 1) treat the contract as an Individual Retirement Annuity established for his or her benefit; or 2) receive distribution of the contract in substantially equal payments over his or her life (or a period not longer than his or her life expectancy) and beginning no later than December 31 of the year in which the contract owner would have reached age 70-1/2; or b) the contract owner names a beneficiary other than his or her surviving spouse and such beneficiary elects to receive a distribution of the contract in substantially equal payments over his or her life (or a period not longer than his or her life expectancy) beginning no later than December 31 of the year following the year of the contract owner's death. Required distributions do not have to be withdrawn from this contract if they are being withdrawn from another Individual Retirement Annuity, SEP IRA or Individual Retirement Account of the contract owner. If the contract owner dies after distributions have begun, distributions must continue at least as rapidly as under the schedule being used before the contract owner's death. However, 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 distribution requirements are not met, a penalty tax of 50% is levied on the difference between the amount that should have been distributed for that year and the amount that actually was distributed for that year. A portion of each distribution will be included in the recipient's gross income and taxed at ordinary income tax rates. The portion of a 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 or SEP IRA 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 and SEP IRA distributions will not receive the favorable tax treatment of a lump sum distribution from a Qualified Plan. If the contract owner dies before the entire interest in the contract has been distributed, the balance will also be included in his or her gross estate. 32 34 of 101 35 Simplified Employee Pensions (SEPs) and Salary Reduction Simplified Employee Pensions (SAR SEPs), described in Internal Revenue Code Section 408(k), are taxed similarly to IRAs and are subject to similar distribution requirements. SAR SEPs cannot be established after 1996. REQUIRED DISTRIBUTIONS FOR ROTH IRAS The rules for Roth IRAs do not require distributions to begin during the contract owner's lifetime. When the contract owner dies, the interest in the Roth IRA must be distributed by December 31 of the calendar year in which the fifth anniversary of his or her death occurs, unless: a) the contract owner names his or her surviving spouse as the beneficiary and the spouse chooses to: 1) treat the contract as a Roth IRA established for his or her benefit; or 2) receive distribution of the contract in substantially equal payments over his or her life (or a period not longer than his or her life expectancy) and beginning no later than December 31 of the year following the year in which the contract owner would have reached age 70-1/2; or b) the contract owner names a beneficiary other than his or her surviving spouse and the beneficiary chooses to receive distribution of the contract in substantially equal payments over his or her life (or a period not longer than his or her life expectancy) beginning no later than December 31 of the year following the year in which the contract owner dies. Distributions from Roth IRAs may be either taxable or nontaxable, depending upon whether they are "qualified distributions" or "nonqualified distributions" (see "Federal Tax Considerations"). FEDERAL TAX CONSIDERATIONS FEDERAL INCOME TAXES Contract owners should consult a financial consultant, legal counsel or tax adviser to discuss in detail the taxation and the use of the contracts. Nationwide does not guarantee the tax status of the contracts or any transactions involving the contracts. Section 72 of the Internal Revenue Code governs federal income taxation of annuities in general. That section sets forth different rules for: (1) Individual Retirement Annuities and Individual Retirement Accounts; (2) Roth IRAs; (3) SEP IRAs; (4) Qualified Contracts; (5) Tax Sheltered Annuities; and (6) Non-Qualified Contracts. Each type of annuity is discussed below. Individual Retirement Annuities, SEP IRAs and Individual Retirement Accounts Distributions from Individual Retirement Annuities, SEP IRAs and contracts owned by Individual Retirement Accounts are generally taxed when received. The excludable portion of each payment is based on the ratio between the amount by which non-deductible purchase payments to all the contracts exceeds prior non-taxable distributions from the contracts, and the total account balances in the contracts at the time of the distribution. The owner of these Individual Retirement Annuities, SEP IRAs 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 distributions; - - 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, SEP IRAs and Individual Retirement Accounts. 33 35 of 101 36 Roth IRAs Distributions of earnings from Roth IRAs are taxable or nontaxable, depending upon whether they are "qualified distributions" or "nonqualified distributions." A "qualified distribution" is one that satisfies the five-year rule and meets one of the following requirements: (i) it is made on or after the date on which the contract owner attains age 59-1/2; (ii) it is made to a beneficiary (or the contract owner's estate) on or after the death of the contract owner; (iii) it is attributable to the contract owner's disability; or (iv) it is a qualified first-time homebuyer distribution (as defined in Section 72(t)(2)(F) of the Internal Revenue Code). If the Roth IRA does not have any qualified rollover contributions from a retirement plan other than a Roth IRA (or income allocable thereto), the five year rule is satisfied if the distribution is not made within the five year period beginning with the first contribution to the Roth IRA. If the Roth IRA contains qualified rollover contributions from a retirement plan other than a Roth IRA (or income allocable thereto), the five year rule is satisfied if the distribution is not made within the five taxable year period commencing with the taxable year in which the qualified rollover contribution was made. A nonqualified distribution is any distribution that is not a qualified distribution. A qualified distribution is not included in gross income for federal income tax purposes. A nonqualified distribution is not includible in gross income to the extent that the distribution, when added to all previous distributions, does not exceed that total amount of contributions made to the Roth IRA. Any nonqualified distribution in excess of the aggregate amount of contributions will be included in the contract owner's gross income in the year that is distributed to the contract owner. Taxable distributions will not receive the same favorable tax treatment of a lump sum distribution from a Qualified Plan. If the contract owner dies before the contract is completely distributed, the balance will also be included in the contract owner's gross estate for tax purposes. A change of the annuitant or contingent annuitant may be treated by the Internal Revenue Service as a taxable transaction. Tax Sheltered Annuities and Qualified Contracts Distributions from Tax Sheltered Annuities and Qualified Contracts are generally taxed when received. A portion of each distribution is excludable from income based on a formula required by the Internal Revenue Code. The formula excludes from income the amount invested in the contract divided by the number of anticipated payments (as determined pursuant to Section 72(d) of the Internal Revenue Code) until the full investment in the contract is recovered. Thereafter all distributions are fully taxable. Non-Qualified Contracts - Natural Persons as Contract Owners The rules applicable to Non-Qualified Contracts provide that a portion of each annuity payment 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 includible in income. The maximum amount excludable from income is the investment in the contract. If the annuitant dies before the entire investment in the contract has been excluded from income, and no additional payments are due after his or her death, then he or she may be entitled to a deduction for the balance of the investment on his or her final income tax return. Distributions before 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 that is assigned or 34 36 of 101 37 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 before the annuitization date allocable to a 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 earnings from 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 Internal Revenue 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. Internal Revenue Code Section 72 also assesses a penalty tax if a distribution is made before the contract owner reaches age 59-1/2. The amount of the penalty is 10% of the portion of any distribution that is includible in gross income. The penalty tax does not apply if the distribution: 1) is the result of a contract owner's death; 2) is the result of a contract owner's disability; 3) is 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); 4) is for the purchase of an immediate annuity; or 5) is allocable to an investment in the contract before August 14, 1982. A contract owner that wants to begin taking distributions to which the 10% tax penalty does not apply should forward a written request to Nationwide. Upon receipt of this written request, Nationwide will inform the contract owner of Nationwide's policies and procedures, as well as contract limitations. An election to begin taking these withdrawals will be irrevocable and may not be amended or changed. In order to qualify as an annuity contract under Section 72 of the Internal Revenue Code, the contract must provide for distribution of the entire contract upon a contract owner's death. These rules are described in "Required distributions for Non-Qualified Contracts." The Internal Revenue Code requires that any election to receive an annuity instead of a lump sum payment be made within 60 days after the lump sum becomes payable (generally, within 60 days of the death of a contract owner or the annuitant). As long as the election is made within the 60 day period, each distribution will be taxable when it is paid. Upon the end of this 60 day period, if no election has been made, the entire amount of the lump sum will be subject to immediate tax, even if the payee decides at a later date to take the distribution as an annuity. Non-Qualified Contracts - Non-Natural Persons as Contract Owners The previous discussion related to the taxation of Non-Qualified Contracts owned (or, pursuant to Section 72(u) of the Internal Revenue Code, 35 37 of 101 38 deemed to be owned) by individuals. Different rules apply if the contract owner is not a natural person. Generally, contracts owned by corporations, partnerships, trusts, and similar entities ("non-natural persons") are not treated as annuity contracts under the Internal Revenue Code. Specifically, they are not treated as annuity contracts for purposes of Section 72. Therefore, 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. Taxation is not deferred, even if the income is not distributed out of the contract to the contract owner. This non-natural person rule does not apply to all entity-owned contracts. A contract that is owned by a non-natural person as an agent for an individual is treated as owned by the individual. This would put the contract back under Section 72, allowing tax deferral. However, this exception does not apply when the non-natural person is an employer that holds the contract under a non-qualified deferred compensation arrangement for one or more employees. The non-natural person rule also does not apply to contracts that are: 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. INDIVIDUAL RETIREMENT ANNUITIES , QUALIFIED PLANS, SEP IRAS AND TAX SHELTERED ANNUITIES Contract owners looking for information on eligibility, limitations on permissible amounts of purchase payments, and the tax consequences of distributions from Individual Retirement Annuities, Qualified Plans, SEP IRAs and Tax Sheltered Annuities should contact a qualified adviser. The terms of each plan may limit the rights available under the contracts. Section 403(b)(1)(E) of the Internal Revenue Code requires a contract issued as a Tax Sheltered Annuity to limit purchase payments for any year to an amount that does not exceed the limit set forth in Section 402(g) of the Internal Revenue Code. This limit is increased from time to time to reflect increases in the cost of living. This limit may be reduced by deposits, contributions or payments made to another Tax Sheltered Annuity or other plan, contract or arrangement by or on behalf of the contract owner. The Internal Revenue Code allows most distributions from Qualified Plans to be rolled into other Qualified Plans, SEP IRAs or Individual Retirement Annuities. Most distributions from Tax Sheltered Annuities may be rolled into another Tax Sheltered Annuity, SEP IRA, Individual Retirement Annuity, or an Individual Retirement Account. Distributions that may NOT be rolled over are those that are: a) one of a series of substantially equal annual (or more frequent) payments made: 1) over the life (or life expectancy) of the contract owner; 2) over the joint lives (or joint life expectancies) of the contract owner and the contract owner's designated beneficiary; 3) for a specified period of ten years or more; or b) a required minimum distribution. Any distribution that is eligible for rollover will be subject to federal tax withholding of 20% if the distribution is not rolled into 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). 36 38 of 101 39 Individual Retirement Accounts, SEP IRAs and Individual Retirement Annuities may not provide life insurance benefits. If the death benefit exceeds the greater of the contract's cash value or the sum of all purchase payments (less any surrenders), the contract could be considered life insurance. Consequently, the Internal Revenue Service could determine that the Individual Retirement Account, SEP IRA or Individual Retirement Annuity does not qualify for the desired tax treatment. ROTH IRAS The contract may be purchased as a Roth IRA. For detailed information on purchasing and holding this contract as a Roth IRA, the contract owner should contact a financial adviser. The Internal Revenue Code allows distributions from Individual Retirement Accounts and Individual Retirement Annuities to be rolled into Roth IRAs. The rollovers are subject to federal income tax as distributions from the Individual Retirement Account or Individual Retirement Annuity. For rollovers from Individual Retirement Annuities or Individual Retirement Accounts, all of the income from the rollover will be required to be included in income in the year of the rollover distribution from the Individual Retirement Account or Individual Retirement Annuity. A distribution from a Roth IRA that contains the proceeds of a rollover from an Individual Retirement Account or Individual Retirement Annuity within the preceding five years could be subject to a 10% penalty, even if the distribution is not taxable. In addition, if the rollover from the Individual Retirement Account or Individual Retirement Annuity was made in 1998, and the income from that rollover was included in income ratably over a four year period, a distribution from the Roth IRA within four years of the rollover may result in the loss of all or a portion of the four year spread, subjecting the amount deferred under the four year election to current taxation. WITHHOLDING Pre-death distributions from the contracts are subject to federal income tax. Nationwide will withhold the tax from the distributions unless the contract owner requests otherwise. Contract owners may not waive withholding if the distribution is subject to mandatory back-up withholding (if no mandatory taxpayer identification number is given or if the Internal Revenue Service notifies Nationwide that mandatory back-up withholding is required) or if it is an eligible rollover distribution. Mandatory back-up withholding rates are 31% of income that is distributed. NON-RESIDENT ALIENS Generally, a pre-death distribution from a contract to a non-resident alien is subject to federal income tax at a rate of 30% of the amount of income that is distributed. Nationwide is required to withhold this amount and send it to the Internal Revenue Service. Some distributions to non-resident aliens may be subject to a lower (or no) tax if a treaty applies. In order to obtain the benefits of such a treaty, the non-resident alien must: 1) provide Nationwide with proof of residency and citizenship (in accordance with Internal Revenue Service requirements); and 2) provide Nationwide with an individual taxpayer identification number. If the non-resident alien does not meet the above conditions, Nationwide will withhold 30% of income from the distribution. Another way to avoid the 30% withholding is for the non-resident alien to provide Nationwide with sufficient evidence that: 1) the distribution is connected to the non-resident alien's conduct of business in the United States; and 2) the distribution is includible in the non-resident alien's gross income for United States federal income tax purposes. 37 39 of 101 40 Note that these distributions may be subject to back-up withholding, currently 31%, if a correct taxpayer identification number is not provided. FEDERAL ESTATE, GIFT, AND GENERATION SKIPPING TRANSFER TAXES The following transfers may be considered a gift for federal gift tax purposes: - - a transfer of the contract from one contract owner to another; or - - a distribution to someone other than a contract owner. Upon the contract owner's death, the value of the contract may be subject to estate taxes, even if all or a portion of the value is also subject to federal income taxes. Section 2612 of the Internal Revenue Code may require Nationwide to determine whether a death benefit or other distribution is a "direct skip" and the amount of the resulting generation skipping transfer tax, if any. A direct skip is 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 contract owner; or b) certain trusts, as described in Section 2613 of the Internal Revenue Code (generally, trusts that have no beneficiaries who are not 2 or more generations younger than the contract owner). If the contract owner is not an individual, then for this purpose ONLY, "contract owner" refers to any person: - - who would be required to include the contract, death benefit, distribution, or other payment in his or her federal gross estate at his or her death; or - - who is required to report the transfer of the contract, death benefit, distribution, or other payment for federal gift tax purposes. If a transfer is a direct skip, Nationwide will deduct the amount of the transfer tax from the death benefit, distribution or other payment, and remit it directly to the Internal Revenue Service. PUERTO RICO Under the Puerto Rico tax code, distributions from a Non-Qualified Contract before annuitization are treated as nontaxable return of principal until the principal is fully recovered. Thereafter all distributions are fully taxable. Distributions after annuitization are treated as part taxable income and part nontaxable return of principal. The amount excluded from gross income after annuitization is equal to the amount of the distribution in excess of 3% of the total purchase payments paid, until an amount equal to the total purchase payments paid has been excluded. Thereafter, the entire distribution is included in gross income. Puerto Rico does not impose an early withdrawal penalty tax. Generally, Puerto Rico does not require income tax to be withheld from distributions of income. A personal adviser should be consulted in these situations. CHARGE FOR TAX Nationwide is not required to maintain a capital gain reserve liability on Non-Qualified Contracts. If tax laws change requiring a reserve, Nationwide may implement and adjust a tax charge. DIVERSIFICATION Internal Revenue Code Section 817(h) contains rules on diversification requirements for variable annuity contracts. A variable annuity contract that does not meet these diversification requirements will not be treated as an annuity, unless - - the failure to diversify was accidental; - - the failure is corrected; and - - a fine is paid to the Internal Revenue Service. The amount of the fine will be the amount of tax that would have been paid by the contract owner if the income, for the period the contract was not diversified, had been received by the contract owner. If the violation is not corrected, the contract owner will be considered the owner of the underlying securities and will be taxed on the 38 40 of 101 41 earnings of his or her contract. Nationwide believes that the investments underlying this contract meet these diversification requirements. TAX CHANGES The foregoing tax information is based on Nationwide's understanding of federal tax laws. It is NOT intended as tax advice. All information is subject to change without notice. For more details, contact your personal tax and/or financial adviser. STATEMENTS AND REPORTS Nationwide will mail contract owners statements and reports. Therefore, contract owners should promptly notify Nationwide of any address change. These mailings will contain: - - statements showing the contract's quarterly activity; - - confirmation statements showing transactions that affect the contract's value. Confirmation statements will not be sent for recurring transactions (i.e., Dollar Cost Averaging or salary reduction programs). Instead, confirmation of recurring transactions will appear in the contract's quarterly statements; - - semi-annual reports as of June 30 containing financial statements for the variable account; and - - annual reports as of December 31 containing financial statements for the variable account. Contract owners should review statements and confirmations carefully. All errors or corrections must be reported to Nationwide immediately to assure proper crediting to the contract. Unless Nationwide is notified within 30 days of receipt of the statement, Nationwide will assume statements and confirmation statements are correct. YEAR 2000 COMPLIANCE ISSUES Nationwide has developed and implemented a plan to address issues related to the Year 2000. The problem relates to many existing computer systems using only two digits to identify a year in a date field. These systems were designed and developed without considering the impact of the upcoming change in the century. If not corrected, many computer systems could fail or create erroneous results when processing information dated after December 31, 1999. Like many organizations, Nationwide is required to renovate or replace many computer systems so that the systems will function properly after December 31, 1999. Nationwide has completed an inventory and assessment of all computer systems and has implemented a plan to renovate or replace all applications that were identified as not Year 2000 compliant. Nationwide has renovated all applications that required renovation. Testing of the renovated programs included running each application in a Year 2000 environment and was completed as planned during 1998. For applications being replaced, Nationwide had all replacement systems in place and functioning as planned by year-end 1998. The shareholder services system that supports mutual fund products was fully deployed during the first quarter 1999. Conversions of existing traditional life policies to the new compliant system will continue through second quarter 1999. Nationwide has completed an inventory and assessment of all vendor products and has tested and certified that each vendor product is Year 2000 compliant. Any vendor products that could not be certified as Year 2000 compliant were replaced or eliminated in 1998. Nationwide's facilities in Columbus, Ohio have been inventoried, assessed, and tested as being Year 2000 compliant. Systems supporting Nationwide's infrastructure such as telecommunications, voice and networks were renovated and will be brought into compliance before the end of the second quarter 1999. Nationwide has also addressed issues associated with the exchange of electronic data with external organizations. Nationwide has completed an inventory and assessment of all business partners utilizing electronic interfaces with Nationwide and processes have been put in 39 41 of 101 42 place to allow Nationwide to accept data regardless of the format. In addition to resolving internal Year 2000 readiness issues, Nationwide is surveying significant external organizations (business partners) to assess if they will be Year 2000 compliant and be in a position to do business in the Year 2000 and beyond. Specifically, Nationwide has contacted mutual fund organizations that provide funds for Nationwide's variable annuity and life products and wholesale producers to determine when they will be Year 2000 compliant. The results are currently being gathered and analyzed. In addition to the contingency plans developed for electronic interfaces between Nationwide and its business partners, contingency plans were also developed for wholesale producers who may not become compliant before the end of 1999. Additional contingency plans will be developed for mutual fund organizations during the second quarter 1999. Nationwide has identified external risk scenarios, prioritized those risks and is now in the process of developing contingency plans to minimize the impact to Nationwide, customers and producers. Contingency plan efforts are expected to be completed by the end of the third quarter 1999. Operating expenses in 1998 and 1997 include approximately $44.7 million and $45.4 million, respectively, for technology projects, including costs related to Year 2000. Nationwide anticipates spending less than $5 million on Year 2000 activities in 1999, and spent $2.4 million during first quarter 1999. Management does not anticipate that the completion of Year 2000 renovation and replacement activities will result in a reduction in operating expenses. Rather, personnel and resources currently allocated to Year 2000 issues will be assigned to other technology-related projects. LEGAL PROCEEDINGS Nationwide Life and Annuity Insurance Company ("Nationwide") 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 Nationwide. In recent years, life insurance companies have been named as defendants in lawsuits, including class action lawsuits, relating to life insurance and annuity pricing and sales practices. A number of these lawsuits have resulted in substantial jury awards or settlements. On October 29, 1998, Nationwide and certain of its subsidiaries were named in a lawsuit filed in Ohio state court related to the sale of deferred annuity products for use as investments in tax-deferred contributory retirement plans (Mercedes Castillo v. Nationwide Financial Services, Inc., Nationwide Life Insurance Company and Nationwide Life and Annuity Insurance Company). The plaintiff in such lawsuit seeks to represent a national class of Nationwide's customers and seeks unspecified compensatory and punitive damages. Nationwide currently is evaluating this lawsuit, which has not been certified as a class. Nationwide intends to defend this lawsuit vigorously. There can be no assurance that any litigation relating to pricing or sales practices will not have a material adverse effect on Nationwide in the future. ADVERTISING AND SUB-ACCOUNT PERFORMANCE SUMMARY ADVERTISING A "yield" and "effective yield" may be advertised for the NSAT-Money Market Fund. "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 NSAT-Money Market Fund's units. Yield is an annualized figure, which means that it is assumed that the NSAT-Money Market Fund 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 SEC. The effective yield will be slightly higher than yield due to this compounding effect. 40 42 of 101 43 Nationwide may advertise the performance of a sub-account in relation to the performance of other variable annuity sub-accounts, 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; - - bank money market deposit accounts and passbook savings; - - CDs; and - - the Consumer Price Index. Market Indexes The sub-accounts will be compared to certain market indexes, such as: - - 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. Tracking & Rating Services; Publications Nationwide's rankings and ratings are sometimes published by other services, such as: - - 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; and - News and World Report; - - LIMRA; - - Value; - - Best's Agent Guide; - - Western Annuity Guide; - - Comparative Annuity Reports; - - Wall Street Journal; - - Barron's; - - Investor's Daily; - - Standard & Poor's Outlook; and - - Variable Annuity Research & Data Service (The VARDS Report). These rating services and publications rank the underlying mutual funds' performance against other funds. These rankings may or may not include the effects of sales charges or other fees. Financial Rating Services Nationwide is also ranked and rated by independent financial rating services, among which are Moody's, Standard & Poor's and A.M. Best Company. Nationwide may advertise these ratings. These ratings reflect Nationwide's financial strength or claims-paying ability. The ratings are not intended to reflect the investment experience or financial strength of the variable account. Some Nationwide advertisements and endorsements may include lists of organizations, individuals or other parties that recommend Nationwide or the contract. Furthermore, Nationwide may occasionally advertise comparisons of currently taxable and tax deferred investment programs, based on selected tax brackets, or discussions of alternative investment vehicles and general economic conditions. Historical Performance of the Sub-Accounts Nationwide will advertise historical performance of the sub-accounts. Nationwide may advertise for the sub-account's standardized "average annual total return," calculated in a manner prescribed by the SEC, and nonstandardized "total return." Average annual total return shows the percentage rate of return of a 41 43 of 101 44 hypothetical initial investment of $1,000 for the most recent one, five and ten year periods (or for a period covering the time the underlying mutual fund has been available in the variable account if it has not been available for one of the prescribed periods). This calculation reflects the standard 7-year CDSC schedule and the deduction of all charges that could be made to the contracts if all available options were chosen, except for the premium taxes, which may be imposed by certain states. Nonstandardized "total return," calculated similar to standardized "average annual total return," shows the percentage rate of return of a hypothetical initial investment of $10,000 for the most recent one, five and ten year periods (or for a period covering the time the underlying mutual fund has been in existence). For those underlying mutual funds which have not been available for one of the prescribed periods, the nonstandardized total return illustrations will show the investment performance the underlying mutual funds would have achieved (reduced by the same charges except the CDSC) had they been available in the variable account for one of the periods. The CDSC is not reflected because the contracts are designed for long term investment. The CDSC, if reflected, would decrease the level of performance shown. An initial investment of $10,000 is assumed because that amount is closer to the size of a typical contract than $1,000, which was used in calculating the standardized average annual total return. The standardized average annual total return and nonstandardized total return quotations are calculated using data for the period ended December 31, 1998. However, Nationwide generally provides performance information more frequently. Information relating to performance of the sub-accounts is based on historical earnings and does not represent or guarantee future results. 42 44 of 101 45 SUB-ACCOUNT PERFORMANCE SUMMARY STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
10 years or Date Fund Date Fund 1 Year to 5 Years to Available in Variable Added to Sub-Account Options 12/31/98 12/31/98 Account to 12/31/98 Variable Account - --------------------------------------------------------------------------------------------------------------- Fidelity VIP Equity-Income Portfolio 4.78% N/A 18.24% 08/01/94 Fidelity VIP Overseas Portfolio 5.89% N/A 7.70% 08/01/94 NSAT - Money Market Fund -1.50% N/A 3.35% 08/01/94 NSAT - Total Return Fund 11.14% N/A 19.56% 08/01/94 One Group Investment Trust Balanced 12.14% N/A 14.46% 08/01/94 Portfolio (formerly Asset Allocation Fund) One Group Investment Trust Equity N/A N/A 7.64% 05/01/98 Index Portfolio (1) One Group Investment Trust Government 0.53% N/A 5.99% 08/01/94 Bond Portfolio One Group Investment Trust Mid Cap 31.62% N/A 21.25% 08/01/94 Growth Portfolio (formerly Growth Opportunities Fund) One Group Investment Trust Large Cap 34.03% N/A 23.45% 08/01/94 Growth Portfolio (formerly Large Company Growth Fund)
NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
10 years to 1 Year to 5 Years to 12/31/98 or the Date Fund Sub-Account Options 12/31/98 12/31/98 Life of the Fund Effective - ----------------------------------------------------------------------------------------------------------------- Fidelity VIP Equity-Income Portfolio 10.18% 17.23% 14.12% 10/09/86 Fidelity VIP Overseas Portfolio 11.29% 8.28% 8.65% 01/28/87 NSAT - Money Market Fund 3.90% 3.67% 4.05% 11/10/81 NSAT - Total Return Fund 16.54% 17.88% 13.94% 11/08/82 One Group Investment Trust Balanced 17.54% N/A 14.84% 08/01/94 Portfolio (formerly Asset Allocation Fund) One Group Investment Trust Equity N/A N/A 9.56% 05/01/98 Index Portfolio(1) One Group Investment Trust Government 5.93% N/A 6.49% 08/01/94 Bond Portfolio One Group Investment Trust Mid Cap 37.02% N/A 21.56% 08/01/94 Growth Portfolio (formerly Growth Opportunities Fund) One Group Investment Trust Large Cap 39.43% N/A 23.75% 08/01/94 Growth Portfolio (formerly Large Company Growth Fund)
(1) The One Group Investment Trust - Equity Index Portfolio was added to the variable account on May 1, 1998. Consequently, the performance information shown reflects the period from May 1, 1998 through December 31, 1998. The One Group Investment Trust Bond Portfolio, One Group Investment Trust Diversified Equity Portfolio, One Group Investment Trust Diversified Mid Cap Portfolio, and One Group Investment Trust Mid Cap Value Portfolio were added to the variable account September 1, 1999. Consequently, no performance information is available. 43 45 of 101 46 TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION PAGE General Information and History.................................. 1 Services......................................................... 1 Purchase of Securities Being Offered............................. 2 Underwriters..................................................... 2 Calculations of Performance...................................... 2 Annuity Payments................................................ 3 Financial Statements............................................. 4 44 46 of 101 47 APPENDIX A: OBJECTIVES FOR UNDERLYING MUTUAL FUNDS The underlying mutual funds listed below are designed primarily as investments for variable annuity contracts and variable life insurance policies issued by insurance companies. There is no guarantee that the investment objectives will be met. NATIONWIDE SEPARATE ACCOUNT TRUST ("NSAT") Nationwide Separate Account Trust ("NSAT") is a diversified, open-end management investment company created under the laws of Massachusetts. NSAT offers shares in the Underlying Mutual Funds listed below, each with its own investment objectives. Shares of NSAT will be sold primarily to life insurance company separate accounts to fund the benefits under variable life insurance policies and variable annuity contracts. The assets of NSAT are managed by Nationwide Advisory Services, Inc. ("NAS"), a wholly-owned subsidiary of Nationwide Life Insurance Company. NSAT - MONEY MARKET FUND Investment Objective: As high a level of current income as is considered consistent with the preservation of capital and liquidity by investing primarily in money market instruments. NSAT - TOTAL RETURN FUND Investment Objective: Capital growth by investing in common stocks of companies that NAS believes will have above-average earnings or otherwise provide investors with above-average potential for capital appreciation. To maximize this potential, NAS may also utilize, from time to time, securities convertible into common stocks, warrants and options to purchase such stocks. ONE GROUP(R) INVESTMENT TRUST One Group(R) Investment Trust is a diversified, open-end management investment company organized under the laws of Massachusetts by a Declaration of Trust, dated June 7, 1993. One Group(R) Investment Trust offers shares in the separate mutual funds (the "Funds") shown below, each with its own investment objective. The shares of the Funds are sold to Nationwide Life and Annuity Insurance Company to fund the benefits of The One Investors Annuity and certain other separate accounts funding variable annuity contracts and variable life policies issued by other life insurance companies and qualified pension and retirement plans. The assets of One Group(R) Investment Trust are managed by Banc One Investment Advisers Corporation. ONE GROUP INVESTMENT TRUST BALANCED PORTFOLIO (FORMERLY ASSET ALLOCATION FUND) Investment Objective: The Portfolio seeks to provide total return while preserving capital. ONE GROUP INVESTMENT TRUST EQUITY INDEX PORTFOLIO Investment Objective: The Portfolio seeks investment results that correspond to the aggregated price and dividend performance of securities in the Standard & Poor's 500 Composite Stock Price Index* ("S&P 500"). *"S&P 500" is a registered service mark of Standard & Poor's Corporation, which does not sponsor and is in no way affiliated with the Portfolio. ONE GROUP INVESTMENT TRUST GOVERNMENT BOND PORTFOLIO Investment Objective: The Portfolio seeks a high level of current income with liquidity and safety of principal. ONE GROUP INVESTMENT TRUST MID CAP GROWTH PORTFOLIO (FORMERLY GROWTH OPPORTUNITIES FUND) Investment Objective: The Portfolio seeks growth of capital and, secondarily, current income, by investing primarily in equity securities. Issuers will include medium sized companies with a history of above-average growth or companies that are expected to enter periods of above-average 45 47 of 101 48 growth, and smaller companies which are positioned in emerging growth industries. ONE GROUP INVESTMENT TRUST LARGE CAP GROWTH PORTFOLIO (FORMERLY LARGE COMPANY GROWTH FUND) Investment Objective: The Portfolio seeks long-term capital appreciation and growth of income by investing primarily in equity securities. ONE GROUP INVESTMENT TRUST BOND PORTFOLIO Investment Objective: The Portfolio seeks to maximize total return by investing primarily in a diversified portfolio of intermediate and long-term debt securities. ONE GROUP INVESTMENT TRUST DIVERSIFIED EQUITY PORTFOLIO Investment Objective: The Portfolio seeks long-term capital growth and growth of income with a secondary objective of providing a moderate level of current income. ONE GROUP INVESTMENT TRUST DIVERSIFIED MID CAP PORTFOLIO Investment Objective: The Portfolio seeks long term capital growth by investing primarily in equity securities of companies with intermediate capitalizations. ONE GROUP INVESTMENT TRUST MID CAP VALUE PORTFOLIO Investment Objective: The Portfolio seeks capital appreciation with the secondary goal of achieving current income by investing primarily in equity securities. FIDELITY VARIABLE INSURANCE PRODUCTS FUND ("VIP") The Fidelity Variable Insurance Products Funds are not available to contracts issued on or after September 1, 1999. The Fidelity Variable Insurance Products Fund ("VIP") is an open-end, diversified management investment company organized as a Massachusetts business trust on November 13, 1981. Shares of VIP are purchased by insurance companies to fund benefits under variable insurance and annuity policies. Fidelity Management & Research Company ("FMR") is the manager for the VIP Fund and its portfolios. VIP EQUITY-INCOME PORTFOLIO Investment Objective: 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. VIP OVERSEAS PORTFOLIO Investment Objective: Long term capital growth primarily through investments in foreign securities. This Portfolio provides a means for investors to diversify their own portfolios by participating in companies and economies outside of the United States. 46 48 of 101 49 STATEMENT OF ADDITIONAL INFORMATION SEPTEMBER 1, 1999 DEFERRED VARIABLE ANNUITY CONTRACTS ISSUED BY NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY THROUGH ITS NATIONWIDE VA SEPARATE ACCOUNT- C This Statement of Additional Information is not a prospectus. It contains information in addition to and in some respects more detailed than set forth in the prospectus and should be read in conjunction with the prospectus dated September 1, 1999. The prospectus may be obtained from Nationwide Life and Annuity Insurance Company by writing P.O. Box 182008, Columbus, Ohio 43218-2008, or calling 1-800-860-3946, TDD 1-800-238-3035. TABLE OF CONTENTS PAGE General Information and History........................................ 1 Services............................................................... 1 Purchase of Securities Being Offered................................... 2 Underwriters........................................................... 2 Calculations of Performance............................................ 2 Annuity Payments....................................................... 3 Financial Statements................................................... 4 GENERAL INFORMATION AND HISTORY The Nationwide VA Separate Account-C is a separate investment account of Nationwide Life and Annuity Insurance Company ("Nationwide"). All of Nationwide'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 its common stock is held by Nationwide Mutual Insurance Company (95.24%) and Nationwide Mutual Fire Insurance Company (4.76%), 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 $98.28 billion as of December 31, 1998. SERVICES Nationwide, 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 Nationwide. Nationwide will maintain a record of all purchases and redemptions of shares of the underlying mutual funds. Nationwide, or affiliates of Nationwide, 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 Nationwide or an affiliate of Nationwide and provide for an annual fee based on the average aggregate net assets of the variable account (and other separate accounts of Nationwide or life insurance company subsidiaries of Nationwide) 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. 1 49 of 101 50 The audited financial statements have been included herein in reliance upon the reports of KPMG 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 are sold by licensed insurance agents in the states where the contracts may be lawfully sold. Agents are registered representatives of broker-dealers registered under the Securities Exchange Act of 1934 who are members of the National Association of Securities Dealers, Inc. ("NASD"). The contract owner may transfer up to 100% of the contract value from the variable account to the fixed account, without penalty or adjustment. However, Nationwide, at its sole discretion, reserves the right to limit such transfers to 25% of the contract value for any 12 month period. Contract owners may at the maturity of an Interest Rate Guarantee Period transfer a portion of the contract value of the fixed account to the variable account. Such portion will be determined by Nationwide at its sole discretion (but will not be less than 10% of the total value of the portion of the fixed account that is maturing), and will be declared upon the expiration date of the then current Interest Rate Guarantee Period. The Interest Rate Guarantee Period expires on the final day of a calendar quarter after the 12 month period. Transfers under this provision must be made within 45 days after the termination date of the guarantee period. Contract owners who have entered into a Dollar Cost Averaging agreement with Nationwide may transfer from the fixed account under the terms of that agreement. Transfers from the fixed account may not be made within 12 months of any prior Transfer. Transfers must also be made prior to the annuitization date. UNDERWRITERS The contracts, which are offered continuously, are distributed by Nationwide Advisory Services, Inc. ("NAS"), Three Nationwide Plaza, Columbus, Ohio 43215, an affiliate of Nationwide. No underwriting commissions were paid by Nationwide to NAS. CALCULATIONS OF PERFORMANCE Any current yield quotations of the NSAT-Money Market Fund, subject to Rule 482 of the Securities Act of 1933, will consist of a seven calendar day historical yield, carried at least to the nearest hundredth of a percent. The yield will be calculated by determining the net change, exclusive of capital changes, in the value of a 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. At December 31, 1998, the NSAT-Money Market Fund's seven-day current unit value yield was 3.52%. The NSAT-Money Market Fund's seven-day 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. At December 31, 1998 the seven-day effective yield for the NSAT-Money Market Fund was 3.58%. The NSAT-Money Market Fund yield and effective yield will fluctuate daily. Actual yields will depend on factors such as the type of instruments in the underlying mutual fund's portfolio, portfolio quality and average maturity, changes in interest rates, and the underlying mutual fund's expenses. Although the NSAT-Money Market Fund 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 in "Investment Manager and Other Services" in the NSAT-Money Market 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 NSAT-Money Market Fund is not guaranteed or insured. 2 50 of 101 51 Yields of other money market funds may not be comparable if a different basis or another method of calculation is used. All performance advertising will include quotations of standardized average annual total return, calculated in accordance with standard method prescribed by rules of the SEC. Standardized average annual return is found by 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 a 1.30% Mortality and Expense Risk Charge and Administration Charge. The redeemable value also reflects the effect of any CDSC that may be imposed at the end of the period (see "Contingent Deferred Sales Charge" located in the prospectus). 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 and does not reflect the deduction of any applicable CDSC. Reflecting the CDSC would decrease the level of the performance advertised. The CDSC is not reflected because the contract is 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. 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. The standardized average annual 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 has been available in the variable account if the underlying mutual fund has not been available for one of the prescribed periods. The nonstandardized 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 has been in existence. Quotations of average annual total return and total return are based upon historical earnings and will fluctuate. Any quotation of performance is not 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 the original cost. ANNUITY PAYMENTS See "Frequency and Amount of Annuity Payments" located in the prospectus. 3 51 of 101 52 1 ================================================================================ Independent Auditors' Report ---------------------------- The Board of Directors of Nationwide Life and Annuity Insurance Company and Contract Owners of Nationwide VA Separate Account-C: We have audited the accompanying statement of assets, liabilities and contract owners' equity of Nationwide VA Separate Account-C as of December 31, 1998, and the related statements of operations and changes in contract owners' equity for each of the years in the two year period then ended. 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. Our procedures included confirmation of securities owned as of December 31, 1998, 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 referred to above present fairly, in all material respects, the financial position of Nationwide VA Separate Account-C as of December 31, 1998, and the results of its operations and its changes in contract owners' equity for each of the years in the two year period then ended in conformity with generally accepted accounting principles. KPMG LLP Columbus, Ohio February 5, 1999 ================================================================================ 2 NATIONWIDE VA SEPARATE ACCOUNT-C STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY DECEMBER 31, 1998
ASSETS: Investments at market value: Fidelity VIP - Equity-Income Portfolio (FidVIPEI) 4,698,474 shares (cost $100,352,362)..................................................... $ 119,435,202 Fidelity VIP - Overseas Portfolio (FidVIPOv) 948,326 shares (cost $17,563,972)........................................................ 19,013,936 Nationwide SAT - Money Market Fund (NSATMyMkt) 9,721,545 shares (cost $9,721,545)....................................................... 9,721,545 Nationwide SAT - Total Return Fund (NSATTotRe) 4,346,223 shares (cost $65,918,788)...................................................... 79,970,511 One Group - Asset Allocation Fund (OGAstAll) 6,806,570 shares (cost $91,697,265)...................................................... 103,051,463 One Group - Equity Index Fund (OGEqIx) 1,249,094 shares (cost $12,445,896)...................................................... 13,702,564 One Group - Government Bond Fund (OGGvtBd) 3,969,880 shares (cost $41,485,994)...................................................... 42,239,520 One Group - Growth Opportunities Fund (OGGrOpp) 5,003,408 shares (cost $71,154,099)...................................................... 92,663,114 One Group - Large Company Growth Fund (OGLgCoGr) 8,934,545 shares (cost $146,873,116)..................................................... 202,188,741 ------------- Total investments................................................................... 681,986,596 Accounts receivable................................................................................ 15,346 ------------- Total assets........................................................................ 682,001,942 Accounts payable ....................................................................................... -- ------------- Contract owners' equity................................................................................. $ 682,001,942 =============
3
ANNUAL Contract owners' equity represented by: UNITS UNIT VALUE RETURN(b) -------- --------- --------- Fidelity VIP - Equity-Income Portfolio: Tax qualified............................ 1,945,917 $21.229680 $41,311,195 10% Non-tax qualified........................ 3,679,860 21.229680 78,124,373 10% Fidelity VIP - Overseas Portfolio: Tax qualified............................ 360,308 14.144224 5,096,277 11% Non-tax qualified........................ 983,989 14.144224 13,917,761 11% Nationwide SAT - Money Market Fund: Tax qualified............................ 318,412 11.836880 3,769,005 4% Non-tax qualified........................ 503,644 11.836880 5,961,574 4% Nationwide SAT - Total Return Fund: Tax qualified............................ 1,225,858 22.281011 27,313,356 17% Non-tax qualified........................ 2,363,345 22.281011 52,657,716 17% One Group - Asset Allocation Fund: Tax qualified............................ 1,717,800 18.423578 31,648,022 18% Non-tax qualified........................ 3,772,445 18.423578 69,501,935 18% Initial Funding by Depositor (note 1a) 97,500 19.509120 1,902,139 19% One Group - Equity Index Fund: Tax qualified............................ 252,427 10.955610 2,765,492 10%(a) Non-tax qualified........................ 746,119 10.955610 8,174,189 10%(a) Initial Funding by Depositor (note 1a)... 250,000 11.051791 2,762,948 11%(a) One Group - Government Bond Fund: Tax qualified............................ 955,478 13.199019 12,611,372 6% Non-tax qualified........................ 1,715,256 13.199019 22,639,697 6% Initial Funding by Depositor (note 1a)... 500,000 13.977022 6,988,511 7% One Group - Growth Opportunities Fund: Tax qualified............................ 1,184,086 23.685874 28,046,112 37% Non-tax qualified........................ 2,725,495 23.685874 64,555,731 37% Initial Funding by Depositor (note 1a)... 2,500 25.081612 62,704 39% One Group - Large Company Growth Fund: Tax qualified............................ 2,360,235 25.623274 60,476,948 39% Non-tax qualified........................ 5,213,039 25.623274 133,575,127 39% Initial Funding by Depositor (note 1a)... 300,000 27.132525 8,139,758 41% ========= ========= ------------ $682,001,942 ============
(a) This investment option was not being utilized for the entire period. Accordingly, the annual return was computed for such period as the investment option was utilized. (b) The annual return does not include contract charges satisfied by surrendering units. See accompanying notes to financial statements. ================================================================================ 4 NATIONWIDE VA SEPARATE ACCOUNT-C STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY YEARS ENDED DECEMBER 31, 1998 AND 1997
TOTAL FIDVIPEI ------------------------------ ------------------------------ 1998 1997 1998 1997 ------------- ------------- ------------- ------------- INVESTMENT ACTIVITY: Reinvested dividends ............................ $ 6,907,178 4,265,024 1,240,121 715,785 Mortality, expense and administration charges (note 2) .............................. (6,556,701) (3,381,832) (1,374,929) (831,713) ------------- ------------- ------------- ------------- Net investment activity ..................... 350,477 883,192 (134,808) (115,928) ------------- ------------- ------------- ------------- Proceeds from mutual fund shares sold ........... 19,122,996 11,087,093 1,736,107 833,449 Cost of mutual fund shares sold ................. (16,568,897) (10,118,939) (1,159,168) (586,402) ------------- ------------- ------------- ------------- Realized gain (loss) on investments ......... 2,554,099 968,154 576,939 247,047 Change in unrealized gain (loss) on investments 77,317,019 35,424,272 4,686,743 10,419,343 ------------- ------------- ------------- ------------- Net gain (loss) on investments .............. 79,871,118 36,392,426 5,263,682 10,666,390 ------------- ------------- ------------- ------------- Reinvested capital gains ........................ 28,599,549 17,620,814 4,413,373 3,598,807 ------------- ------------- ------------- ------------- Net increase (decrease) in contract owners' equity resulting from operations ........ 108,821,144 54,896,432 9,542,247 14,149,269 ------------- ------------- ------------- ------------- EQUITY TRANSACTIONS: Purchase payments received from contract owners ............................... 222,935,462 164,145,907 30,085,527 33,139,661 Transfers between funds ......................... -- -- (996,269) 1,982,841 Redemptions ..................................... (25,865,354) (9,912,134) (5,624,154) (2,166,009) Contingent deferred sales charges (note 2) ...... (753,231) (345,222) (149,745) (82,994) Adjustments to maintain reserves ................ 1,451 2,745 (7,404) 2,207 ------------- ------------- ------------- ------------- Net equity transactions ................... 196,318,328 153,891,296 23,307,955 32,875,706 ------------- ------------- ------------- ------------- NET CHANGE IN CONTRACT OWNERS' EQUITY ............. 305,139,472 208,787,728 32,850,202 47,024,975 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ....... 376,862,470 168,074,742 86,585,366 39,560,391 ------------- ------------- ------------- ------------- CONTRACT OWNERS' EQUITY END OF PERIOD ............. $ 682,001,942 376,862,470 119,435,568 86,585,366 ============= ============= ============= =============
FIDVIPOV NSATMYMKT ------------------------------ ---------------------------- 1998 1997 1998 1997 ------------- ------------- ------------- ------------- INVESTMENT ACTIVITY: Reinvested dividends ............................ 294,761 140,536 480,416 410,915 Mortality, expense and administration charges (note 2) .............................. (228,517) (155,335) (122,603) (104,872) ------------- ------------- ------------- ------------- Net investment activity ..................... 66,244 (14,799) 357,813 306,043 ------------- ------------- ------------- ------------- Proceeds from mutual fund shares sold ........... 1,146,502 296,780 8,738,658 7,532,542 Cost of mutual fund shares sold ................. (950,918) (247,708) (8,738,658) (7,532,542) ------------- ------------- ------------- ------------- Realized gain (loss) on investments ......... 195,584 49,072 -- -- Change in unrealized gain (loss) on investments 503,877 230,256 -- -- ------------- ------------- ------------- ------------- Net gain (loss) on investments .............. 699,461 279,328 -- -- ------------- ------------- ------------- ------------- Reinvested capital gains ........................ 868,768 557,884 -- -- ------------- ------------- ------------- ------------- Net increase (decrease) in contract owners' equity resulting from operations ........ 1,634,473 822,413 357,813 306,043 ------------- ------------- ------------- ------------- EQUITY TRANSACTIONS: Purchase payments received from contract owners ............................... 3,919,692 6,345,492 6,090,757 12,257,596 Transfers between funds ......................... (647,967) 555,514 (5,087,475) (7,836,939) Redemptions ..................................... (950,606) (287,407) (416,008) (1,106,114) Contingent deferred sales charges (note 2) ...... (34,219) (11,122) (14,645) (12,456) Adjustments to maintain reserves ................ 71 210 294 853 ------------- ------------- ------------- ------------- Net equity transactions ................... 2,286,971 6,602,687 572,923 3,302,940 ------------- ------------- ------------- ------------- NET CHANGE IN CONTRACT OWNERS' EQUITY ............. 3,921,444 7,425,100 930,736 3,608,983 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ....... 15,092,594 7,667,494 8,799,843 5,190,860 ------------- ------------- ------------- ------------- CONTRACT OWNERS' EQUITY END OF PERIOD ............. 19,014,038 15,092,594 9,730,579 8,799,843 ============= ============= ============= =============
5 NATIONWIDE VA SEPARATE ACCOUNT-C STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY YEARS ENDED DECEMBER 31, 1998 AND 1997
NSATTOTRE OGASTALL ------------------------------ ------------------------------ 1998 1997 1998 1997 ------------ ------------ ------------ ------------ INVESTMENT ACTIVITY: Reinvested dividends ............................ $ 714,940 581,993 1,900,182 851,407 Mortality, expense and administration charges (note 2) .............................. (878,488) (486,093) (900,997) (327,460) ------------ ------------ ------------ ------------ Net investment activity ..................... (163,548) 95,900 999,185 523,947 ------------ ------------ ------------ ------------ Proceeds from mutual fund shares sold ........... 1,676,825 1,234,589 267,312 230,267 Cost of mutual fund shares sold ................. (1,050,209) (782,774) (195,743) (180,939) ------------ ------------ ------------ ------------ Realized gain (loss) on investments ............. 626,616 451,815 71,569 49,328 Change in unrealized gain (loss) on investments . 6,183,757 6,133,091 9,178,113 1,354,415 ------------ ------------ ------------ ------------ Net gain (loss) on investments .............. 6,810,373 6,584,906 9,249,682 1,403,743 ------------ ------------ ------------ ------------ Reinvested capital gains ........................ 3,111,349 1,667,393 1,265,780 2,977,924 ------------ ------------ ------------ ------------ Net increase (decrease) in contract owners' equity resulting from operations ........ 9,758,174 8,348,199 11,514,647 4,905,614 ------------ ------------ ------------ ------------ EQUITY TRANSACTIONS: Purchase payments received from contract owners ............................... 20,869,076 23,481,911 52,234,693 21,558,362 Transfers between funds ......................... 86,250 990,636 1,921,949 739,176 Redemptions ..................................... (3,156,765) (1,737,301) (3,341,994) (662,596) Contingent deferred sales charges (note 2) ...... (89,208) (60,534) (92,789) (23,352) Adjustments to maintain reserves ................ (98) 5,636 (900) 7 ------------ ------------ ------------ ------------ Net equity transactions ................... 17,709,255 22,680,348 50,720,959 21,611,597 ------------ ------------ ------------ ------------ NET CHANGE IN CONTRACT OWNERS' EQUITY ............. 27,467,429 31,028,547 62,235,606 26,517,211 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ....... 52,503,643 21,475,096 40,816,490 14,299,279 ------------ ------------ ------------ ------------ CONTRACT OWNERS' EQUITY END OF PERIOD ............. $ 79,971,072 52,503,643 103,052,096 40,816,490 ============ ============ ============ ============
OGEQIX OGGVTBD ---------------------------- ---------------------------- 1998 1997 1998 1997 ------------ ------------ ------------ ------------ INVESTMENT ACTIVITY: Reinvested dividends ............................ 69,595 -- 1,741,737 1,067,051 Mortality, expense and administration charges (note 2) .............................. (39,561) -- (314,513) (149,083) ------------ ------------ ------------ ------------ Net investment activity ..................... 30,034 -- 1,427,224 917,968 ------------ ------------ ------------ ------------ Proceeds from mutual fund shares sold ........... 534,659 -- 2,245,378 475,970 Cost of mutual fund shares sold ................. (564,922) -- (2,196,128) (475,470) ------------ ------------ ------------ ------------ Realized gain (loss) on investments ............. (30,263) -- 49,250 500 Change in unrealized gain (loss) on investments . 1,256,668 -- 201,662 586,023 ------------ ------------ ------------ ------------ Net gain (loss) on investments .............. 1,226,405 -- 250,912 586,523 ------------ ------------ ------------ ------------ Reinvested capital gains ........................ -- -- 105,068 41,992 ------------ ------------ ------------ ------------ Net increase (decrease) in contract owners' equity resulting from operations ........ 1,256,439 -- 1,783,204 1,546,483 ------------ ------------ ------------ ------------ EQUITY TRANSACTIONS: Purchase payments received from contract owners ............................... 12,077,730 -- 17,834,339 6,064,947 Transfers between funds ......................... 398,461 -- 1,944,922 493,915 Redemptions ..................................... (28,766) -- (1,686,406) (359,045) Contingent deferred sales charges (note 2) ...... (1,300) -- (31,392) (9,910) Adjustments to maintain reserves ................ 65 -- 8,956 43 ------------ ------------ ------------ ------------ Net equity transactions ................... 12,446,190 -- 18,070,419 6,189,950 ------------ ------------ ------------ ------------ NET CHANGE IN CONTRACT OWNERS' EQUITY ............. 13,702,629 -- 19,853,623 7,736,433 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ....... -- -- 22,385,957 14,649,524 ------------ ------------ ------------ ------------ CONTRACT OWNERS' EQUITY END OF PERIOD ............. 13,702,629 -- 42,239,580 22,385,957 ============ ============ ============ ============
(Continued) 6 NATIONWIDE VA SEPARATE ACCOUNT-C STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY YEARS ENDED DECEMBER 31, 1998 AND 1997
OGGROPP OGLGCOGR ------------------------------ ------------------------------ 1998 1997 1998 1997 -------------- -------------- -------------- -------------- INVESTMENT ACTIVITY: Reinvested dividends ............................ $ -- -- 465,426 497,337 Mortality, expense and administration charges (note 2) .............................. (870,837) (471,076) (1,826,256) (856,200) -------------- -------------- -------------- -------------- Net investment activity ..................... (870,837) (471,076) (1,360,830) (358,863) -------------- -------------- -------------- -------------- Proceeds from mutual fund shares sold ........... 1,692,146 238,598 1,085,409 244,898 Cost of mutual fund shares sold ................. (1,119,894) (172,586) (593,257) (140,518) -------------- -------------- -------------- -------------- Realized gain (loss) on investments ............. 572,252 66,012 492,152 104,380 Change in unrealized gain (loss) on investments . 17,992,207 3,478,714 37,313,992 13,222,430 -------------- -------------- -------------- -------------- Net gain (loss) on investments .............. 18,564,459 3,544,726 37,806,144 13,326,810 -------------- -------------- -------------- -------------- Reinvested capital gains ........................ 5,435,045 4,836,828 13,400,166 3,939,986 -------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations ........ 23,128,667 7,910,478 49,845,480 16,907,933 -------------- -------------- -------------- -------------- EQUITY TRANSACTIONS: Purchase payments received from contract owners ............................... 22,224,086 20,472,239 57,599,562 40,825,699 Transfers between funds ......................... (171,521) 1,411,094 2,551,650 1,663,763 Redemptions ..................................... (3,230,769) (1,253,599) (7,429,886) (2,340,063) Contingent deferred sales charges (note 2) ...... (105,798) (54,360) (234,135) (90,494) Adjustments to maintain reserves ................ 1,416 (3,179) (949) (3,032) -------------- -------------- -------------- -------------- Net equity transactions ................... 18,717,414 20,572,195 52,486,242 40,055,873 -------------- -------------- -------------- -------------- NET CHANGE IN CONTRACT OWNERS' EQUITY ............. 41,846,081 28,482,673 102,331,722 56,963,806 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ....... 50,818,466 22,335,793 99,860,111 42,896,305 -------------- -------------- -------------- -------------- CONTRACT OWNERS' EQUITY END OF PERIOD ............. $ 92,664,547 50,818,466 202,191,833 99,860,111 ============== ============== ============== ==============
See accompanying notes to financial statements. ================================================================================ 7 ================================================================================ NATIONWIDE VA SEPARATE ACCOUNT-C NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Organization and Nature of Operations Nationwide VA Separate Account-C (the Account) was established pursuant to a resolution of the Board of Directors of Nationwide Life and Annuity 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. On May 1, 1998, the Company (Depositor) transferred to the Account, 250,000 shares of the One Group - Equity Index Fund, for which the Account was credited with 250,000 units of the foregoing One Group Fund. The value of the units purchased by the Company on May 1, 1998 was $2,500,000. 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 - Equity Index Fund (OGEqIx) One Group - Government Bond Fund (OGGvtBd) One Group - Growth Opportunities Fund (OGGrOpp) One Group - Large Company Growth Fund (OGLgCoGr) At December 31, 1998, 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. 8 A contract owner may choose from among a number of different underlying mutual fund options. The underlying mutual fund options are not available to the general public directly. The underlying mutual funds are available as investment options in variable life insurance policies or variable annuity contracts issued by life insurance companies or, in some cases, through participation in certain qualified pension or retirement plans. Some of the underlying mutual funds have been established by investment advisers which manage publicly traded mutual funds having similar names and investment objectives. While some of the underlying mutual funds may be similar to, and may in fact be modeled after, publicly traded mutual funds, the underlying mutual funds are not otherwise directly related to any publicly traded mutual fund. Consequently, the investment performance of publicly traded mutual funds and any corresponding underlying mutual funds may differ substantially. (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, 1998. 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. (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 Company deducts 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) RELATED PARTY TRANSACTIONS The Company performs various services on behalf of the Mutual Fund Companies in which the Account invests and may receive fees for the services performed. These services include, among other things, shareholder communications, preparation, postage, fund transfer agency and various other record keeping and customer service functions. These fees are paid to an affiliate of the Company. ================================================================================ 53 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, 1998 and 1997, 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, 1998. 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, 1998 and 1997, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1998, in conformity with generally accepted accounting principles. KPMG LLP Columbus, Ohio January 29, 1999 2 NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY (a wholly owned subsidiary of Nationwide Life Insurance Company) Balance Sheets ($000's omitted, except per share amounts)
December 31, Assets 1998 1997 ---- ---- Investments: Securities available-for-sale, at fair value: Fixed maturity securities $ 904,946 $ 796,919 Equity securities 20,853 14,767 Mortgage loans on real estate, net 268,894 218,852 Real estate, net 2,250 2,824 Policy loans 332 215 Short-term investments 2,277 18,968 ---------- ---------- 1,199,552 1,052,545 ---------- ---------- Cash 2 5,163 Accrued investment income 11,645 10,778 Deferred policy acquisition costs 53,007 30,087 Other assets 41,542 15,624 Assets held in separate accounts 1,533,690 891,101 ---------- ---------- $2,839,438 $2,005,298 ========== ========== Liabilities and Shareholder's Equity Future policy benefits and claims $1,163,829 $ 986,191 Other liabilities 25,933 29,426 Liabilities related to separate accounts 1,533,690 891,101 ---------- ---------- 2,723,452 1,906,718 ---------- ---------- Commitments and contingencies (note 7 and 11) Shareholder's equity: Common stock, $40 par value. Authorized, issued and outstanding 66,000 shares 2,640 2,640 Additional paid-in capital 52,960 52,960 Retained earnings 50,331 35,812 Accumulated other comprehensive income 10,055 7,168 ---------- ---------- 115,986 98,580 ---------- ---------- $2,839,438 $2,005,298 ========== ==========
See accompanying notes to financial statements. 3 NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY (a wholly owned subsidiary of Nationwide Life Insurance Company) Statements of Income ($000's omitted)
Years ended December 31, 1998 1997 1996 ---- ---- ---- Revenues: Policy charges $ 28,549 $ 11,244 $ 6,656 Life insurance premiums 63 363 246 Net investment income 11,314 11,577 51,045 Realized gains (losses) on investments 696 (246) (3) Other income 1,165 1,057 -- -------- -------- -------- 41,787 23,995 57,944 -------- -------- -------- Benefits and expenses: Interest credited to policyholder account balances 4,881 3,948 34,711 Other benefits and claims 1,586 433 813 Amortization of deferred policy acquisition costs 4,348 1,402 7,380 Other operating expenses 8,952 1,860 7,247 -------- -------- -------- 19,767 7,643 50,151 -------- -------- -------- Income before federal income tax expense 22,020 16,352 7,793 Federal income tax expense 7,501 5,749 2,707 -------- -------- -------- Net income $ 14,519 $ 10,603 $ 5,086 ======== ======== ========
See accompanying notes to financial statements. 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, 1998, 1997 and 1996 ($000's omitted)
Accumulated Additional other Total Common paid-in Retained comprehensive shareholder's stock capital earnings income equity ----- ------- -------- ------ ------ December 31, 1995 $ 2,640 $ 52,960 $ 20,123 $ 4,454 $ 80,177 Comprehensive income: Net income -- -- 5,086 -- 5,086 Net unrealized losses on securities available-for-sale arising during the -- -- -- (1,226) (1,226) year --------- Total comprehensive income 3,860 --------- --------- --------- --------- --------- December 31, 1996 2,640 52,960 25,209 3,228 84,037 Comprehensive income: Net income -- -- 10,603 -- 10,603 Net unrealized gains on securities available-for-sale arising during the -- -- -- 3,940 3,940 year --------- Total comprehensive income 14,543 --------- --------- --------- --------- --------- December 31, 1997 2,640 52,960 35,812 7,168 98,580 Comprehensive income: Net income -- -- 14,519 -- 14,519 Net unrealized gains on securities available-for-sale arising during the -- -- -- 2,887 2,887 year --------- Total comprehensive income 17,406 --------- --------- --------- --------- --------- December 31, 1998 $ 2,640 $ 52,960 $ 50,331 $ 10,055 $ 115,986 ========= ========= ========= ========= =========
See accompanying notes to financial statements. 5 NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY (a wholly owned subsidiary of Nationwide Life Insurance Company) Statements of Cash Flows ($000's omitted)
Years ended December 31, 1998 1997 1996 ---- ---- ---- Cash flows from operating activities: Net income $ 14,519 $ 10,603 $ 5,086 Adjustments to reconcile net income to net cash provided by operating activities: Interest credited to policyholder account balances 4,881 3,948 34,711 Capitalization of deferred policy acquisition costs (29,216) (20,099) (19,987) Amortization of deferred policy acquisition costs 4,348 1,402 7,380 Commission and expense allowances under coinsurance agreement with affiliate -- -- 26,473 Amortization and depreciation (479) 250 1,721 Realized (gains) losses on invested assets, net (696) 246 3 Increase in accrued investment income (867) (1,589) (725) (Increase) decrease in other assets (25,919) 21,858 (32,539) Increase (decrease) in policy liabilities and funds withheld on coinsurance agreement with affiliate 139,991 228,898 (7,101) (Decrease) increase in other liabilities (3,883) (7,488) 23,198 --------- --------- --------- Net cash provided by operating activities 102,679 238,029 38,220 --------- --------- --------- Cash flows from investing activities: Proceeds from maturity of securities available-for-sale 117,228 95,366 73,966 Proceeds from sale of securities available-for-sale 17,403 30,431 2,480 Proceeds from repayments of mortgage loans on real estate 28,180 15,199 10,975 Proceeds from sale of real estate 707 -- -- Proceeds from repayments of policy loans 99 67 23 Cost of securities available-for-sale acquired (242,516) (267,899) (179,671) Cost of mortgage loans on real estate acquired (78,180) (84,736) (57,395) Cost of real estate acquired (3) (13) -- Policy loans issued (216) (155) (55) Short-term investments, net 16,691 (18,476) 4,352 --------- --------- --------- Net cash used in investing activities (140,607) (230,216) (145,325) --------- --------- --------- Cash flows from financing activities: Increase in investment product and universal life insurance product account balances 74,828 6,952 200,575 Decrease in investment product and universal life insurance product account balances (42,061) (13,898) (89,174) --------- --------- --------- Net cash provided by (used in) financing activities 32,767 (6,946) 111,401 --------- --------- --------- Net (decrease) increase in cash (5,161) 867 4,296 Cash, beginning of year 5,163 4,296 -- --------- --------- --------- Cash, end of year $ 2 $ 5,163 $ 4,296 ========= ========= =========
See accompanying notes to financial statements. 6 NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY (a wholly owned subsidiary of Nationwide Life Insurance Company) Notes to Financial Statements December 31, 1998, 1997 and 1996 ($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 provides long-term savings and retirement products, including variable annuities, fixed annuities and life insurance. (2) Summary of Significant Accounting Policies The significant accounting policies followed by the Company that materially affect financial reporting are summarized below. The accompanying financial statements have been prepared in accordance with generally accepted accounting principles, which differ from statutory accounting practices prescribed or permitted by regulatory authorities. An Annual Statement, filed with the Department of Insurance of the State of Ohio (the Department), is prepared on the basis of accounting practices prescribed or permitted by the Department. Prescribed statutory accounting practices include a variety of publications of the National Association of Insurance Commissioners (NAIC), as well as state laws, regulations and general administrative rules. Permitted statutory accounting practices encompass all accounting practices not so prescribed. The Company has no material permitted statutory accounting practices. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses for the reporting period. Actual results could differ significantly from those estimates. The most significant estimates include those used in determining deferred policy acquisition costs, valuation allowances for mortgage loans on real estate and real estate investments and the liability for future policy benefits and claims. Although some variability is inherent in these estimates, management believes the amounts provided are adequate. (a) Valuation of Investments and Related Gains and Losses The Company is required to classify its fixed maturity securities and equity securities as either held-to-maturity, available-for-sale or trading. Fixed maturity securities are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity and are stated at amortized cost. Fixed maturity securities not classified as held-to-maturity and all equity securities are classified as available-for-sale and are stated at fair value, with the unrealized gains and losses, net of adjustments to deferred policy acquisition costs and deferred federal income tax, reported as a separate component of shareholder's equity. The adjustment to deferred policy acquisition costs represents the change in amortization of deferred policy acquisition costs that would have been required as a charge or credit to operations had such unrealized amounts been realized. The Company has no fixed maturity securities classified as held-to-maturity or trading as of December 31, 1998 or 1997. 7 NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY (a wholly owned subsidiary of Nationwide Life Insurance Company) Notes to Financial Statements, Continued Mortgage loans on real estate are carried at the unpaid principal balance less valuation allowances. The Company provides valuation allowances for impairments of mortgage loans on real estate based on a review by portfolio managers. The measurement of impaired loans is based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the fair value of the collateral, if the loan is collateral dependent. Loans in foreclosure and loans considered to be impaired are placed on non-accrual status. Interest received on non-accrual status mortgage loans on real estate is included in interest income in the period received. Real estate is carried at cost less accumulated depreciation and valuation allowances. Impairment losses are recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Realized gains and losses on the sale of investments are determined on the basis of specific security identification. Estimates for valuation allowances and other than temporary declines are included in realized gains and losses on investments. (b) Revenues and Benefits Investment Products and Universal Life Insurance Products: Investment products consist primarily of individual variable and fixed deferred annuities. Universal life insurance products include universal life insurance, variable universal life insurance, corporate owned life insurance and other interest-sensitive life insurance policies. Revenues for investment products and universal life insurance products consist of net investment income, asset fees, cost of insurance, policy administration and surrender charges that have been earned and assessed against policy account balances during the period. Policy benefits and claims that are charged to expense include interest credited to policy account balances and benefits and claims incurred in the period in excess of related policy account balances. Traditional Life Insurance Products: Traditional life insurance products include those products with fixed and guaranteed premiums and benefits and consist primarily of certain annuities with life contingencies. Premiums for traditional life insurance products are recognized as revenue when due. Benefits and expenses are associated with earned premiums so as to result in recognition of profits over the life of the contract. This association is accomplished by the provision for future policy benefits and the deferral and amortization of policy acquisition costs. (c) Deferred Policy Acquisition Costs The costs of acquiring new business, principally commissions, certain expenses of the policy issue and underwriting department and certain variable sales expenses have been deferred. For investment products and universal life insurance products, deferred policy acquisition costs are being amortized with interest over the lives of the policies in relation to the present value of estimated future gross profits from projected interest margins, asset fees, cost of insurance, policy administration and surrender charges. For years in which gross profits are negative, deferred policy acquisition costs are amortized based on the present value of gross revenues. Deferred policy acquisition costs are adjusted to reflect the impact of unrealized gains and losses on fixed maturity securities available-for-sale as described in note 2(a). (d) Separate Accounts Separate account assets and liabilities represent contractholders' funds which have been segregated into accounts with specific investment objectives. The investment income and gains or losses of these accounts accrue directly to the contractholders. The activity of the separate accounts is not reflected in the statements of income and cash flows except for the fees the Company receives. 8 NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY (a wholly owned subsidiary of Nationwide Life Insurance Company) Notes to Financial Statements, Continued (e) Future Policy Benefits Future policy benefits for investment products in the accumulation phase, universal life insurance and variable universal life insurance policies have been calculated based on participants' contributions plus interest credited less applicable contract charges. The average interest rate credited on investment product policy reserves was 5.1%, 5.1% and 5.6% for the years ended December 31, 1998, 1997 and 1996, respectively. (f) Federal Income Tax The Company files a consolidated federal income tax return with Nationwide Mutual Insurance Company (NMIC). The members of the consolidated tax return group have a tax sharing agreement which provides, in effect, for each member to bear essentially the same federal income tax liability as if separate tax returns were filed. The Company utilizes the asset and liability method of accounting for income tax. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under this method, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce the deferred tax assets to the amounts expected to be realized. (g) Reinsurance Ceded Reinsurance revenues ceded and reinsurance recoveries on benefits and expenses incurred are deducted from the respective income and expense accounts. Assets and liabilities related to reinsurance ceded are reported on a gross basis. (h) Statements of Cash Flows The Company routinely invests its available cash balances in highly liquid, short-term investments with affiliated companies. See note 10. As such, the Company had no cash balance as of December 31, 1995. (i) Recently Issued Accounting Pronouncements On January 1, 1998 the Company adopted SFAS No. 131 - Disclosures about Segments of an Enterprise and Related Information (SFAS 131). SFAS 131 supersedes SFAS No. 14 - Financial Reporting for Segments of a Business Enterprise. SFAS 131 establishes standards for public business enterprises to report information about operating segments in annual financial statements and selected information about operating segments in interim financial reports. SFAS 131 also establishes standards for related disclosures about products and services, geographic areas, and major customers. The adoption of SFAS 131 did not affect results of operations or financial position, nor did it affect the manner in which the Company defines its operating segments. The segment information required for annual financial statements is included in note 12. On January 1, 1998, the Company adopted SFAS No. 132 - Employers' Disclosures about Pensions and Other Postretirement Benefits. SFAS 132 revises employers' disclosures about pension and other postretirement benefit plans. The Statement does not change the measurement or recognition of benefit plans in the financial statements. The revised disclosures required by SFAS 132 are included in note 8. 9 NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY (a wholly owned subsidiary of Nationwide Life Insurance Company) Notes to Financial Statements, Continued In June 1998, the FASB issued SFAS No. 133 - Accounting for Derivative Instruments and Hedging Activities (SFAS 133). SFAS 133 establishes accounting and reporting standards for derivative instruments and for hedging activities. Contracts that contain embedded derivatives, such as certain insurance contracts, are also addressed by the Statement. SFAS 133 requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The Statement is effective for fiscal years beginning after June 15, 1999. It may be implemented earlier provided adoption occurs as of the beginning of any fiscal quarter after issuance. The Company plans to adopt this Statement in first quarter 2000 and is currently evaluating the impact on results of operations and financial condition. In March 1998, The American Institute of Certified Public Accountant's Accounting Standards Executive Committee issued Statement of Position 98-1 - Accounting for the Costs of Computer Software Developed or Obtained for Internal Use (SOP 98-1). SOP 98-1 provides guidance intended to standardize accounting practices for costs incurred to develop or obtain computer software for internal use. Specifically, SOP 98-1 provides guidance for determining whether computer software is for internal use and when costs incurred for internal use software are to be capitalized. SOP 98-1 is effective for financial statements for fiscal years beginning after December 15, 1998. The Company does not expect the adoption of SOP 98-1, which occurred on January 1, 1999, to have a material impact on the Company's financial statements. (j) Reclassification Certain items in the 1997 and 1996 financial statements have been reclassified to conform to the 1998 presentation. (3) Investments The amortized cost, gross unrealized gains and losses and estimated fair value of securities available-for-sale as of December 31, 1998 and 1997 were:
Gross Gross Amortized unrealized unrealized Estimated cost gains losses fair value ---- ----- ------ ---------- December 31, 1998: Fixed maturity securities: U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 15,577 $ 232 $ (11) $ 15,798 Obligations of states and political subdivisions 332 1 -- 333 Debt securities issued by foreign governments 4,015 23 -- 4,038 Corporate securities 602,925 15,446 (358) 618,013 Mortgage-backed securities 261,225 5,605 (66) 266,764 --------- --------- --------- --------- Total fixed maturity securities 884,074 21,307 (435) 904,946 Equity securities 15,323 5,530 -- 20,853 --------- --------- --------- --------- $ 899,397 $ 26,837 $ (435) $ 925,799 ========= ========= ========= ========= December 31, 1997: Fixed maturity securities: U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 5,923 $ 109 $ (27) $ 6,005 Obligations of states and political subdivisions 267 5 -- 272 Debt securities issued by foreign governments 6,077 57 (1) 6,133 Corporate securities 482,478 10,964 (509) 492,933 Mortgage-backed securities 285,224 6,458 (106) 291,576 --------- --------- --------- --------- Total fixed maturity securities 779,969 17,593 (643) 796,919 Equity securities 11,704 3,063 -- 14,767 --------- --------- --------- --------- $ 791,673 $ 20,656 $ (643) $ 811,686 ========= ========= ========= =========
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, 1998, by expected 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.
Amortized Estimated cost fair value ---- ---------- Fixed maturity securities available-for-sale: Due in one year or less $121,769 $122,931 Due after one year through five years 606,626 621,349 Due after five years through ten years 126,215 130,402 Due after ten years 29,464 30,264 -------- -------- $884,074 $904,946 ======== ========
The components of unrealized gains on securities available-for-sale, net, were as follows as of December 31:
1998 1997 ---- ---- Gross unrealized gains $ 26,402 $ 20,013 Adjustment to deferred policy acquisition costs (10,933) (8,985) Deferred federal income tax (5,414) (3,860) -------- -------- $ 10,055 $ 7,168 ======== ========
An analysis of the change in gross unrealized gains (losses) on securities available-for-sale follows for the years ended December 31:
1998 1997 1996 ---- ---- ---- Securities available-for-sale: Fixed maturity securities $ 3,922 $ 9,177 $ (8,764) Equity securities 2,467 1,663 249 -------- -------- -------- $ 6,389 $ 10,840 $ (8,515) ======== ======== ========
Proceeds from the sale of securities available-for-sale during 1998, 1997 and 1996 were $17,403, $30,431 and $2,480, respectively. During 1998, gross gains of $509 ($825 and $181 in 1997 and 1996, respectively) and gross losses of $0 ($1,124 and none in 1997 and 1996, respectively) were realized on those sales. See note 10. The recorded investment of mortgage loans on real estate considered to be impaired as of December 31, 1998 was $890 (none as of December 31, 1997). No valuation allowance has been recorded for these loans as of December 31, 1998. During 1998, the average recorded investment in impaired mortgage loans on real estate was approximately $178 ($386 in 1997) and interest income recognized on those loans was $15 (none in 1997), which is equal to interest income recognized using a cash-basis method of income recognition. Activity in the valuation allowance account for mortgage loans on real estate is summarized for the years ended December 31:
1998 1997 ---- ---- Allowance, beginning of year $ 750 $ 934 Reductions credited to operations -- (53) Direct write-downs charged against the allowance -- (131) ----- ----- Allowance, end of year $ 750 $ 750 ===== =====
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 $105 as of December 31, 1998 ($153 as of December 31, 1997). There was a valuation allowance of $229 as of December 31, 1997. The Company has no investments which were non-income producing for the twelve month periods preceding December 31, 1998 and 1997. An analysis of investment income by investment type follows for the years ended December 31:
1998 1997 1996 ---- ---- ---- Gross investment income: Securities available-for-sale: Fixed maturity securities $56,398 $53,491 $40,552 Equity securities -- 375 598 Mortgage loans on real estate 21,124 14,862 9,991 Real estate 379 318 214 Short-term investments 1,361 899 507 Other 178 90 57 ------- ------- ------- Total investment income 79,440 70,035 51,919 Less: Investment expenses 1,773 1,386 874 Net investment income ceded (note 9) 66,353 57,072 -- ------- ------- ------- Net investment income $11,314 $11,577 $51,045 ======= ======= =======
An analysis of realized gains (losses) on investments, net of valuation allowances, by investment type follows for the years ended December 31:
1998 1997 1996 ---- ---- ---- Fixed maturity securities available-for-sale $ 509 $(299) $ 181 Mortgage loans on real estate -- 53 (184) Real estate and other 187 -- -- ----- ----- ----- $ 696 $(246) $ (3) ===== ===== =====
Fixed maturity securities with an amortized cost of $3,562 and $3,383 as of December 31, 1998 and 1997, respectively, were on deposit with various regulatory agencies as required by law. 12 NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY (a wholly owned subsidiary of Nationwide Life Insurance Company) Notes to Financial Statements, Continued (4) Federal Income Tax The Company's current federal income tax liability was $1,522 and $806 as of December 31, 1998 and 1997, respectively. The tax effects of temporary differences that give rise to significant components of the net deferred tax asset (liability) as of December 31, 1998 and 1997 are as follows:
1998 1997 ---- ---- Deferred tax assets: Future policy benefits $ 16,670 $ 13,168 Liabilities in Separate Accounts 12,477 8,080 Mortgage loans on real estate and real estate 263 336 Other assets and other liabilities -- 48 -------- -------- Total gross deferred tax assets 29,410 21,632 -------- -------- Deferred tax liabilities: Fixed maturity securities 8,669 7,186 Deferred policy acquisition costs 8,103 6,159 Equity securities 1,935 1,072 Other 10,422 7,892 -------- -------- Total gross deferred tax liabilities 29,129 22,309 -------- -------- $ 281 $ (677) ======== ========
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, 1998, 1997 and 1996 based on its analysis of future deductible amounts. Federal income tax expense for the years ended December 31 was as follows:
1998 1997 1996 ---- ---- ---- Currently payable $ 10,014 $ 2,458 $ 9,612 Deferred tax (benefit) expense (2,513) 3,291 (6,905) -------- -------- -------- $ 7,501 $ 5,749 $ 2,707 ======== ======== ========
Total federal income tax expense for the years ended December 31, 1998, 1997 and 1996 differs from the amount computed by applying the U.S. federal income tax rate to income before tax as follows:
1998 1997 1996 Amount % Amount % Amount % ------ - ------ - ------ - Computed (expected) tax expense $ 7,707 35.0 $ 5,723 35.0 $ 2,728 35.0 Tax exempt interest and dividends received deduction (223) (1.0) -- (0.0) (175) (2.3) Other, net 17 0.1 26 (0.2) 154 2.0 ------- ------ ------- ------ ------- ------ Total (effective rate of each year) $ 7,501 34.1 $ 5,749 35.2 $ 2,707 34.7 ======= ====== ======= ====== ======= ======
Total federal income tax paid was $9,298, $9,566 and $2,335 during the years ended December 31, 1998, 1997 and 1996, respectively. 13 NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY (a wholly owned subsidiary of Nationwide Life Insurance Company) Notes to Financial Statements, Continued (5) Comprehensive Income Pursuant to SFAS No. 130 - Reporting Comprehensive Income, which the Company adopted January 1, 1998, the Consolidated Statements of Shareholder's Equity include a new measure called "Comprehensive Income". Comprehensive Income includes net income as well as certain items that are reported directly within separate components of shareholders' equity that bypass net income. Currently, the Company's only component of Other Comprehensive Income is unrealized gains (losses) on securities available-for-sale. The related before and after federal tax amounts are as follows:
1998 1997 1996 ---- ---- ---- Unrealized gains (losses) on securities available- for-sale arising during the period: Gross $ 6,898 $ 10,541 $ (8,334) Adjustment to deferred policy acquisition costs (1,947) (4,778) 6,628 Related federal income tax (expense) benefit (1,733) (2,017) 362 -------- -------- -------- Net 3,218 3,746 (1,344) -------- -------- -------- Reclassification adjustment for net (gains) losses on securities available-for-sale realized during the period: Gross (509) 299 (181) Related federal income tax expense (benefit) 178 (105) 63 -------- -------- -------- Net (331) 194 118 -------- -------- -------- Total Other Comprehensive Income $ 2,887 $ 3,940 $ (1,226) ======== ======== ========
(6) Fair Value of Financial Instruments The following disclosures summarize the carrying amount and estimated fair value of the Company's financial instruments. Certain assets and liabilities are specifically excluded from the disclosure requirements of financial instruments. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company. The fair value of a financial instrument is defined as the amount at which the financial instrument could be exchanged in a current transaction between willing parties. In cases where quoted market prices are not available, fair value is based on estimates using present value or other valuation techniques. Many of the Company's assets and liabilities subject to the disclosure requirements are not actively traded, requiring fair values to be estimated by management using present value or other valuation techniques. These techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Although fair value estimates are calculated using assumptions that management believes are appropriate, changes in assumptions could cause these estimates to vary materially. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in the immediate settlement of the instruments. Although insurance contracts, other than policies such as annuities that are classified as investment contracts, are specifically exempted from the disclosure requirements, estimated fair value of policy reserves on life insurance contracts is provided to make the fair value disclosures more meaningful. The tax ramifications of the related unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates. 14 NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY (a wholly owned subsidiary of Nationwide Life Insurance Company) Notes to Financial Statements, Continued The following methods and assumptions were used by the Company in estimating its fair value disclosures: Fixed maturity and equity securities: The fair value for fixed maturity securities is based on quoted market prices, where available. For fixed maturity securities not actively traded, fair value is estimated using values obtained from independent pricing services or, in the case of private placements, is estimated by discounting expected future cash flows using a current market rate applicable to the yield, credit quality and maturity of the investments. The fair value for equity securities is based on quoted market prices. Mortgage loans on real estate: The fair value for mortgage loans on real estate is estimated using discounted cash flow analyses, using interest rates currently being offered for similar loans to borrowers with similar credit ratings. Loans with similar characteristics are aggregated for purposes of the calculations. Fair value for mortgages in default is the estimated fair value of the underlying collateral. Policy loans, short-term investments and cash: The carrying amount reported in the balance sheets for these instruments approximates their fair value. Separate account assets and liabilities: The fair value of assets held in separate accounts is based on quoted market prices. The fair value of liabilities related to separate accounts is the amount payable on demand, which is net of certain surrender charges. Investment contracts: The fair value for the Company's liabilities under investment type contracts is disclosed using two methods. For investment contracts without defined maturities, fair value is the amount payable on demand. For investment contracts with known or determined maturities, fair value is estimated using discounted cash flow analysis. Interest rates used are similar to currently offered contracts with maturities consistent with those remaining for the contracts being valued. Policy reserves on life insurance contracts: The estimated fair value is the amount payable on demand. Also included are disclosures for the Company's limited payment policies, which the Company has used discounted cash flow analyses similar to those used for investment contracts with known maturities to estimate fair value. Commitments to extend credit: Commitments to extend credit have nominal value because of the short-term nature of such commitments. See note 7. Carrying amount and estimated fair value of financial instruments subject to disclosure requirements and policy reserves on life insurance contracts were as follows as of December 31:
1998 1997 ------------------------- -------------------------- Carrying Estimated Carrying Estimated amount fair value amount fair value ------ ---------- ------ ---------- Assets: Investments: Securities available-for-sale: Fixed maturity securities $ 904,946 $ 904,946 $ 796,919 $ 796,919 Equity securities 20,853 20,853 14,767 14,767 Mortgage loans on real estate, net 268,894 276,387 218,852 229,881 Policy loans 332 332 215 215 Short-term investments 2,277 2,277 18,968 18,968 Cash 2 2 5,163 5,163 Assets held in separate accounts 1,533,690 1,533,690 891,101 891,101 Liabilities: Investment contracts 1,153,930 1,113,584 980,263 950,105 Policy reserves on life insurance contracts 9,899 10,517 5,928 6,076 Liabilities related to separate accounts 1,533,690 1,501,255 891,101 868,056
15 NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY (a wholly owned subsidiary of Nationwide Life Insurance Company) Notes to Financial Statements, Continued (7) Risk Disclosures The following is a description of the most significant risks facing life insurers and how the Company mitigates those risks: Credit Risk: The risk that issuers of securities owned by the Company or mortgagors on mortgage loans on real estate owned by the Company will default or that other parties which owe the Company money, will not pay. The Company minimizes this risk by adhering to a conservative investment strategy, by maintaining credit and collection policies and by providing for any amounts deemed uncollectible. Interest Rate Risk: The risk that interest rates will change and cause a decrease in the value of an insurer's investments. This change in rates may cause certain interest-sensitive products to become uncompetitive or may cause disintermediation. The Company mitigates this risk by charging fees for non-conformance with certain policy provisions, by offering products that transfer this risk to the purchaser, and/or by attempting to match the maturity schedule of its assets with the expected payouts of its liabilities. To the extent that liabilities come due more quickly than assets mature, an insurer would have to borrow funds or sell assets prior to maturity and potentially recognize a gain or loss. Legal/Regulatory Risk: The risk that changes in the legal or regulatory environment in which an insurer operates will result in increased competition, reduced demand for a company's products, or create additional expenses not anticipated by the insurer in pricing its products. The Company mitigates this risk by operating throughout the United States, thus reducing its exposure to any single jurisdiction, and also by employing underwriting practices which identify and minimize the adverse impact of this risk. 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 $9,500 extending into 1999 were outstanding as of December 31, 1998. 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 33% (29% in 1997) in any geographic area and no more than 6% (3% in 1997) with any one borrower as of December 31, 1998. As of December 31, 1998 36% (37% in 1997) of the remaining principal balance of the Company's commercial mortgage loan portfolio financed apartment building properties. 16 NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY (a wholly owned subsidiary of Nationwide Life Insurance Company) Notes to Financial Statements, Continued (8) Pension Plan and Postretirement Benefits Other Than Pensions The Company is a participant, together with other affiliated companies, in a pension plan covering all employees who have completed at least one year of service. The Company funds pension costs accrued for direct employees plus an allocation of pension costs accrued for employees of affiliates whose work efforts benefit the Company. Assets of the Retirement Plan are invested in group annuity contracts of NLIC and Employers Life Insurance Company of Wausau (ELICW). Pension costs charged to operations by the Company during the years ended December 31, 1998, 1997 and 1996 were $235, $257 and $189, respectively. In addition to the defined benefit pension plan, the Company, together with other affiliated companies, participates in life and health care defined benefit plans for qualifying retirees. Postretirement life and health care benefits are contributory and generally available to full time employees who have attained age 55 and have accumulated 15 years of service with the Company after reaching age 40. Postretirement health care benefit contributions are adjusted annually and contain cost-sharing features such as deductibles and coinsurance. In addition, there are caps on the Company's portion of the per-participant cost of the postretirement health care benefits. These caps can increase annually, but not more than three percent. The Company's policy is to fund the cost of health care benefits in amounts determined at the discretion of management. Plan assets are invested primarily in group annuity contracts of NLIC. The Company elected to immediately recognize its estimated accumulated postretirement benefit obligation (APBO), however, certain affiliated companies elected to amortize their initial transition obligation over periods ranging from 10 to 20 years. The Company's accrued postretirement benefit expense as of December 31, 1998 and 1997 was $1,008 and $891, respectively, and the net periodic postretirement benefit cost (NPPBC) for 1998, 1997 and 1996 was $130, $94 and $78, respectively. 17 NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY (a wholly owned subsidiary of Nationwide Life Insurance Company) Notes to Financial Statements, Continued Information regarding the funded status of the pension plan as a whole and the postretirement life and health care benefit plan as a whole as of December 31, 1998 and 1997 follows:
Pension Benefits Postretirement Benefits 1998 1997 1998 1997 ---- ---- ---- ---- Change in benefit obligation: Benefit obligation at beginning of year $ 2,033,800 $ 1,847,800 $ 237,900 $ 200,700 Service cost 87,600 77,300 9,800 7,000 Interest cost 123,400 118,600 15,400 14,000 Actuarial loss 123,200 60,000 15,600 24,400 Plan curtailment in 1998/merger in 1997 (107,200) 1,500 -- -- Benefits paid (75,800) (71,400) (8,600) (8,200) ----------- ----------- ----------- ----------- Benefit obligation at end of year 2,185,000 2,033,800 270,100 237,900 ----------- ----------- ----------- ----------- Change in plan assets: Fair value of plan assets at beginning of year 2,212,900 1,947,900 69,200 63,000 Actual return on plan assets 300,700 328,100 5,000 3,600 Employer contribution 104,100 7,200 12,100 10,600 Plan merger -- 1,100 -- -- Benefits paid (75,800) (71,400) (8,400) (8,000) ----------- ----------- ----------- ----------- Fair value of plan assets at end of year 2,541,900 2,212,900 77,900 69,200 ----------- ----------- ----------- ----------- Funded status 356,900 179,100 (192,200) (168,700) Unrecognized prior service cost 31,500 34,700 -- -- Unrecognized net (gains) losses (345,700) (330,700) 16,000 1,600 Unrecognized net (asset) obligation at transition (11,000) 33,300 1,300 1,500 ----------- ----------- ----------- ----------- Prepaid (accrued) benefit cost $ 31,700 $ (83,600) $ (174,900) $ (165,600) =========== =========== =========== ===========
Basis for measurements, funded status of the pension plan and postretirement life and health care benefit plan:
Pension Benefits Postretirement Benefits 1998 1997 1998 1997 ---- ---- ---- ---- Weighted average discount rate 5.50% 6.00% 6.65% 6.70% Rate of increase in future compensation levels 3.75% 4.25% -- -- Assumed health care cost trend rate: Initial rate -- -- 15.00% 12.13% Ultimate rate -- -- 8.00% 6.12% Uniform declining period -- -- 15 Years 12 Years
The net periodic pension cost for the pension plan as a whole for the years ended December 31, 1998, 1997 and 1996 follows:
1998 1997 1996 ---- ---- ---- Service cost (benefits earned during the period) $ 87,600 $ 77,300 $ 75,500 Interest cost on projected benefit obligation 123,400 118,600 105,500 Expected return on plan assets (159,000) (139,000) (116,100) Recognized gains (3,800) -- -- Amortization of prior service cost 3,200 3,200 3,200 Amortization of unrecognized transition obligation 4,200 4,200 4,100 --------- --------- --------- $ 55,600 $ 64,300 $ 72,200 ========= ========= =========
18 NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY (a wholly owned subsidiary of Nationwide Life Insurance Company) Notes to Financial Statements, Continued Effective December 31, 1998, Wausau Service Corporation (WSC) ended its affiliation with the Nationwide Insurance Enterprise and employees of WSC ended participation in the plan. A curtailment gain of $67,100 resulted (consisting of a $107,200 reduction in the projected benefit obligation, net of the write-off of the $40,100 remaining unamortized transition obligation related to WSC). The Company anticipates that the plan will settle the obligation related to WSC employees with a transfer of assets during 1999. Basis for measurements, net periodic pension cost for the pension plan:
1998 1997 1996 ---- ---- ---- Weighted average discount rate 6.00% 6.50% 6.00% Rate of increase in future compensation levels 4.25% 4.75% 4.25% Expected long-term rate of return on plan assets 7.25% 7.25% 6.75%
The amount of NPPBC for the postretirement benefit plan as a whole for the years ended December 31, 1998, 1997 and 1996 was as follows:
1998 1997 1996 ---- ---- ---- Service cost (benefits attributed to employee service during the year) $ 9,800 $ 7,000 $ 6,500 Interest cost on accumulated postretirement benefit obligation 15,400 14,000 13,700 Actual return on plan assets (5,000) (3,600) (4,300) Amortization of unrecognized transition obligation of affiliates 200 200 200 Net amortization and deferral 1,200 (500) 1,800 -------- -------- -------- $21,600 $ 17,100 $ 17,900 ======== ======== ========
Actuarial assumptions used for the measurement of the accumulated postretirement benefit obligation (APBO) and the NPPBC for the postretirement benefit plan for 1998, 1997 and 1996 were as follows:
1998 1997 1996 ---- ---- ---- NPPBC: Discount rate 6.70% 7.25% 6.65% Long term rate of return on plan assets, net of tax 5.83% 5.89% 4.80% Assumed health care cost trend rate: Initial rate 12.00% 11.00% 11.00% Ultimate rate 6.00% 6.00% 6.00% Uniform declining period 12 Years 12 Years 12 Years
For the postretirement benefit plan as a whole, a one percentage point increase or decrease in the assumed health care cost trend rate would have no impact on the APBO as of December 31, 1998 and have no impact on the NPPBC for the year ended December 31, 1998. (9) Shareholder's Equity, Regulatory Risk-Based Capital, Retained Earnings and Dividend Restrictions 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 19 NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY (a wholly owned subsidiary of Nationwide Life Insurance Company) Notes to Financial Statements, Continued certain levels, each of which requires specified corrective action. The Company exceeds the minimum risk-based capital requirements. The statutory capital and surplus of the Company as reported to regulatory authorities as of December 31, 1998, 1997 and 1996 was $70,135, $74,820 and $71,390, respectively. The statutory net (loss) income of the Company as reported to regulatory authorities for the years ended December 31, 1998, 1997 and 1996 was $(3,371), $7,446 and $670, respectively. The Company is limited in the amount of shareholder dividends it may pay without prior approval by the Department. As of December 31, 1998, the maximum amount available for dividend payment from the Company to its shareholder without prior approval of the Department was $7,013. The Company currently does not expect such regulatory requirements to impair its ability to pay operating expenses and stockholder dividends in the future. (10) Transactions With Affiliates The Company leases office space from NMIC and certain of its subsidiaries. For the years ended December 31, 1998, 1997 and 1996, the Company made lease payments to NMIC and its subsidiaries of $430, $703 and $410, respectively. Pursuant to a cost sharing agreement among NMIC and certain of its direct and indirect subsidiaries, including the Company, NMIC provides certain operational and administrative services, such as sales support, advertising, personnel and general management services, to those subsidiaries. Expenses covered by this agreement are subject to allocation among NMIC, the Company and other affiliates. Amounts allocated to the Company were $2,933, $2,564 and $2,682 in 1998, 1997 and 1996, 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 $2,750 and $4,981 as of December 31, 1998 and 1997, respectively. Effective December 31, 1996, the Company entered into an intercompany reinsurance agreement with NLIC whereby certain inforce and subsequently issued fixed individual deferred annuity contracts are ceded on a 100% coinsurance with funds withheld basis. On December 31, 1997, the agreement was amended to a modified coinsurance basis. Under modified coinsurance agreements, invested assets and liabilities for future policy benefits are retained by the ceding company and net investment earnings on the invested assets are paid to the assuming company. Under terms of the Company's agreement, the investment risk associated with changes in interest rates is borne by NLIC. Risk of asset default is retained by the Company, although a fee is paid by NLIC to the Company for the Company's retention of such risk. The agreement will remain inforce until all contract obligations are settled. The ceding of risk does not discharge the original insurer from its primary obligation to the contractholder. The Company believes that the terms of the modified coinsurance agreement are consistent in all material respects with what the Company could have obtained with unaffiliated parties. Amounts ceded to NLIC in 1998 are included in NLIC's results of operations for 1998 and include premiums of $241,503, net investment income of $66,353 and benefits, claims and other expenses of $296,659. In consideration for the initial inforce business reinsured, NLIC paid the Company $26,473 in commission and expense allowances which were applied to the Company's deferred policy acquisition costs as of December 31, 1996. No significant gain or loss was recognized as a result of the agreement. 20 NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY (a wholly owned subsidiary of Nationwide Life Insurance Company) Notes to Financial Statements, Continued During 1997, the Company sold fixed maturity securities available-for-sale at fair value of $27,253 to NLIC. The Company recognized a $693 gain on the transactions. The Company and various affiliates entered into agreements with Nationwide Cash Management Company (NCMC), an affiliate, under which NCMC acts as common agent in handling the purchase and sale of short-term securities for the respective accounts of the participants. Amounts on deposit with NCMC were $2,277 and $18,968 as of December 31, 1998 and 1997, respectively, and are included in short-term investments on the accompanying balance sheets. (11) Contingencies On October 29, 1998, the Company and certain of its affiliates were named in a lawsuit filed in the Common Pleas Court of Franklin County, Ohio related to the sale of deferred annuity products for use as investments in tax-deferred contributory retirement plans (Mercedes Castillo v. Nationwide Financial Services, Inc., Nationwide Life Insurance Company and Nationwide Life and Annuity Insurance Company). The plaintiff in such lawsuit seeks to represent a national class of the Company's customers and seeks unspecified compensatory and punitive damages. The Company is currently evaluating this lawsuit, which is in an early stage and has not been certified as a class. The Company intends to defend this lawsuit vigorously. (12) Segment Information The Company uses differences in products as the basis for defining its reportable segments. The Company reports three product segments: Variable Annuities, Fixed Annuities and Life Insurance. The Variable Annuities segment consists of annuity contracts that provide the customer with the opportunity to invest in mutual funds managed by independent investment managers and the Company, with investment returns accumulating on a tax-deferred basis. The Company's variable annuity products consist almost entirely of flexible premium deferred variable annuity contracts. 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. Such contracts consist of single premium deferred annuities, flexible premium deferred annuities and single premium immediate annuities. The Fixed Annuities segment includes the fixed option under variable annuity contracts. The Life Insurance segment consists of insurance products, including variable universal life insurance and corporate-owned life insurance products, that provide a death benefit and may also allow the customer to build cash value on a tax-deferred basis. In addition to the product segments, the Company reports corporate revenue and expenses, investments and related investment income supporting capital not specifically allocated to its product segments, and all realized gains and losses on investments in a Corporate and Other segment. 21 NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY (a wholly owned subsidiary of Nationwide Life Insurance Company) Notes to Financial Statements, Continued The following table summarizes the financial results of the Company's business segments for the years ended December 31, 1998, 1997 and 1996.
Variable Fixed Life Corporate Annuities Annuities Insurance and Other Total --------- --------- --------- --------- ----- 1998: Net investment income (1) $ (1,417) $ 6,792 $ 4098 $ 5,531 $ 11,314 Other operating revenue 18,209 3,182 8,386 -- 29,777 ----------- ----------- ----------- ----------- ----------- Total operating revenue (2) 16,792 9,974 8,794 5,531 41,091 ----------- ----------- ----------- ----------- ----------- Interest credited to policyholder account balances -- 4,660 221 -- 4,881 Amortization of deferred policy acquisition costs 3,466 508 374 -- 4,348 Other benefits and expenses 4,442 2,087 4,009 -- 10,538 ----------- ----------- ----------- ----------- ----------- Total expenses 7,908 7,255 4,604 -- 19,767 ----------- ----------- ----------- ----------- ----------- Operating income (loss) before federal income tax 8,884 2,719 4,190 5,531 21,324 Realized gains on investments -- -- -- 696 696 ----------- ----------- ----------- ----------- ----------- Consolidated income before federal tax expense $ 8,884 $ 2,719 $ 4,190 $ 6,227 $ 22,020 =========== =========== =========== =========== =========== Assets as of year end $ 1,502,829 $ 1,162,040 $ 92,482 $ 82,087 $ 2,839,438 =========== =========== =========== =========== =========== 1997: Net investment income (1) $ (873) $ 5,927 $ 166 $ 6,357 $ 11,577 Other operating revenue 10,823 1,825 16 -- 12,664 ----------- ----------- ----------- ----------- ----------- Total operating revenue (2) 9,950 7,752 182 6,357 24,241 ----------- ----------- ----------- ----------- ----------- Interest credited to policyholder account balances -- 3,856 92 -- 3,948 Amortization of deferred policy acquisition costs 1,035 347 20 -- 1,402 Other benefits and expenses 1,648 347 298 -- 2,293 ----------- ----------- ----------- ----------- ----------- Total expenses 2,683 4,550 410 -- 7,643 ----------- ----------- ----------- ----------- ----------- Operating income before federal income tax 7,267 3,202 (228) 6,357 16,598 Realized losses on investments -- -- -- (246) (246) ----------- ----------- ----------- ----------- ----------- Consolidated income before federal tax expense $ 7,267 $ 3,202 $ (228) $ 6,111 $ 16,352 =========== =========== =========== =========== =========== Assets as of year end $ 925,021 $ 989,116 $ 2,228 $ 88,933 $ 2,005,298 =========== =========== =========== =========== ===========
22 NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY (a wholly owned subsidiary of Nationwide Life Insurance Company) Notes to Financial Statements, Continued
Variable Fixed Life Corporate Annuities Annuities Insurance and Other Total --------- --------- --------- --------- ----- 1996: Net investment income (1) $ (849) $ 50,197 $ 149 $ 1,548 $ 51,045 Other operating revenue 5,440 1,445 16 1 6,902 ----------- ----------- ----------- ----------- ----------- Total operating revenue (2) 4,591 51,642 165 1,549 57,947 ----------- ----------- ----------- ----------- ----------- Interest credited to policyholder account balances -- 34,711 -- -- 34,711 Amortization of deferred policy acquisition costs 1,473 5,888 19 -- 7,380 Benefits and expenses 2,024 5,889 147 -- 8,060 ----------- ----------- ----------- ----------- ----------- Total expenses 3,497 46,488 166 -- 50,151 ----------- ----------- ----------- ----------- ----------- Operating income before federal income tax 1,094 5,154 (1) 1,549 7,796 Realized losses on investments -- -- -- (3) (3) ----------- ----------- ----------- ----------- ----------- Consolidated income before federal tax expense $ 1,094 $ 5,154 $ (1) $ 1,546 $ 7,793 =========== =========== =========== =========== =========== Assets as of year end $ 503,111 $ 787,682 $ 2,597 $ 73,031 $ 1,366,421 =========== =========== =========== =========== ===========
(1) The Company's method of allocating net investment income results in a charge (negative net investment income) to the Variable Annuities segment which is recognized in the Corporate and Other segment. The charge relates to non-invested assets which support this segment on a statutory basis. (2) Excludes realized gains and losses on investments. The Company has no significant revenue from customers located outside of the United States nor does the Company have any significant long-lived assets located outside the United States. 54 PART C. OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS PAGE (a) To be filed by Financial Statements: (1) Financial statements included in Prospectus (Part A): Condensed Financial Information. 12 (2) Financial statements included in Part B: Those financial statements required by Item 23 to be included in Part B have been incorporated therein by reference to the Statement of Additional Information (Part A). Nationwide VA Separate Account-C: Independent Auditors' Report. 52 Statements of Assets, Liabilities and Contract Owners' Equity as of December 31, 1998. 53 Statements of Operations and Changes in Contract Owners' Equity for the years ended December 31, 1998 and 1997. 55 Notes to Financial Statements. 58 Nationwide Life and Annuity Insurance Company: Independent Auditors' Report. 60 Balance Sheets as of December 31, 1998 and 1997. 61 Statements of Income for the years ended December 31, 1998, 1997 and 1996. 62 Statements of Shareholder's Equity for the years ended December 31, 1998, 1997 and 1996. 63 Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996. 64 Notes to Financial Statements. 65
82 of 101 55 Item 24. (b) Exhibits (1) Resolution of the Depositor's Board of Directors authorizing the establishment of the Registrant - Filed previously with this Registration Statement (File No. 33-66496) and hereby incorporated by reference. (2) Not Applicable (3) Underwriting or Distribution contracts between the Registrant and Principal Underwriter - Filed previously with this Registration Statement (File No. 33-66496) and hereby incorporated by reference. (4) The form of the variable annuity contract - Attached hereto. (5) Variable Annuity Application - Filed previously with this Registration Statement (File No. 33-66496) and hereby incorporated by reference. (6) Articles of Incorporation of Depositor Filed previously with this Registration Statement (File No. 33-66496) and hereby incorporated herein by reference. (7) Not Applicable (8) Not Applicable (9) Opinion of Counsel - Filed previously with this Registration Statement (File No. 33-66496) and hereby incorporated by reference. (10) Not Applicable (11) Not Applicable (12) Not Applicable (13) Performance Advertising Calculation Schedule - Filed previously with this Registration Statement (File No. 33-66496) and hereby incorporated herein by reference.
83 of 101 56 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 A. I. Bell Director 4121 North River Road West Zanesville, OH 43701 Kenneth D. Davis Director 7229 Woodmansee Road Leesburg, OH 45135 Keith W. Eckel Director 1647 Falls Road Clarks Summit, PA 18411 Willard J. Engel Director 300 East Marshall Street Marshall, MN 56258 Fred C. Finney Director 1558 West Moreland Road Wooster, OH 44691 Joseph J. Gasper President and Chief Operating Officer One Nationwide Plaza and Director Columbus, OH 43215 Dimon R. McFerson Chairman and Chief Executive Officer- One Nationwide Plaza and Director Columbus, OH 43215 David O. Miller Chairman of the Board and Director 115 Sprague Drive Hebron, OH 43025 Yvonne L. Montgomery Director 2859 Paces Ferry Road Atlanta, GA 30339 Ralph M. Paige, Executive Director Director Federation of Southern Cooperatives/Land Assistance Fund 2769 Church Street East Point, GA 30344 James F. Patterson Director 8765 Mulberry Road Chesterland, OH 44026 Arden L. Shisler Director 1356 North Wenger Road Dalton, OH 44618
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NAME AND PRINCIPAL POSITIONS AND OFFICES BUSINESS ADDRESS WITH DEPOSITOR Robert L. Stewart Director 88740 Fairview Road Jewett, OH 43986 Nancy C. Thomas Director 1733A Westwood Avenue Alliance, OH 44601 Dennis W. Click Vice President and Secretary One Nationwide Plaza Columbus, OH 43215 Robert A. Oakley Executive Vice President- One Nationwide Plaza Chief Financial Officer Columbus, OH 43215 Robert J. Woodward Jr. Executive Vice President One Nationwide Plaza Chief Investment Officer Columbus, OH 43215 James E. Brock Senior Vice President-Corporate One Nationwide Plaza Development Columbus, OH 43215 John R. Cook, Jr. Senior Vice President - One Nationwide Plaza Chief Communication Officer Columbus, OH 43215 Phillip C. Gath Senior Vice President - One Nationwide Plaza Chief Actuary Columbus, OH 43215 Richard D. Headley Senior Vice President - Chief One Nationwide Plaza Information Technology Officer Columbus, OH 43215 Donna A James Senior Vice President - One Nationwide Plaza Human Resources Columbus, OH 43215 Richard A. Karas Senior Vice President - Sales - One Nationwide Plaza Financial Services Columbus, OH 43215 Douglas C. Robinette Senior Vice President- One Nationwide Plaza Marketing and Product Columbus, OH 43215 Management Bruce C. Barnes Vice President - Technology One Nationwide Plaza Strategy and Planning Columbus, OH 43215
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NAME AND PRINCIPAL POSITIONS AND OFFICES BUSINESS ADDRESS WITH DEPOSITOR David A. Diamond Vice President - Enterprise One Nationwide Plaza Controller Columbus, OH 43215 Matthew S. Easley Vice President - One Nationwide Plaza Investment Life Actuarial Columbus, OH 43215 R. Dennis Noice Vice President Systems - Nationwide One Nationwide Plaza Financial Services Columbus, OH 43215 Joseph P. Rath One Nationwide Plaza Vice President - Product Columbus, OH 43215 and Market Compliance Mark Thresher Vice President - Controller One Nationwide Plaza Columbus, OH 43215 Susan A. Wolken Senior Vice President - Life One Nationwide Plaza Company Operations 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 consolidated financial statements *** Subsidiaries included in the respective group financial statements filed for unconsolidated subsidiaries **** other subsidiaries 86 of 101 59
NO. VOTING SECURITIES COMPANY STATE/COUNTRY OF (SEE ATTACHED PRINCIPAL BUSINESS ORGANIZATION CHART UNLESS OTHERWISE INDICATED) The 401K Companies, Inc. Texas Holding Company The 401(K) Company Texas Third-party administrator for 401(k) plans 401K Investment Advisors, Inc. Texas Investment Advisor registered with the SEC 401K Investments Services, Inc. Texas NASD registered Broker-Dealer Affiliate Agency, Inc. Delaware Life Insurance Agency Affiliate Agency of Ohio, Inc. Ohio Life Insurance Agency AID Finance Services, Inc. Iowa Holding Company ALLIED General Agency Company Iowa Managing General Agent and Surplus Lines Broker (P&C) ALLIED Group, Inc. Iowa Holding Company ALLIED Group Insurance Marketing Iowa Direct Marketer (P&C) Company ALLIED Group Merchant Banking Iowa Broker-Dealer Corporation ALLIED Group Mortgage Company Iowa Mortgage Lender ALLIED Life Brokerage Agency, Inc. Iowa Insurance Broker ALLIED Life Financial Corporation Iowa Holding Company ALLIED Life Insurance Company Iowa Insurance Company ALLIED Property and Casualty Insurance Iowa Underwrites General P&C Company Insurance Allnations, Inc. Ohio Promotes international cooperative insurance organizations AMCO Insurance Company Iowa Underwrites General P&C Insurance American Marine Underwriters, Inc. Florida Underwriting Manager Auto Direkt Insurance Company Germany Insurance Company CalFarm Insurance Company California Stock Corporation Caliber Funding Corporation Delaware Stock Corporation Colonial County Mutual Insurance Texas Insurance Company Company Colonial Insurance Company of Wisconsin Insurance Company Wisconsin Columbus Insurance Brokerage and Germany Insurance Broker Service GmbH Cooperative Service Company Nebraska Insurance Agency Depositors Insurance Company Iowa Underwrites P&C insurance *Employers Life Insurance Company of Wisconsin Life Insurance Company Wausau Excaliber Funding Corporation Delaware Limited purpose corporation F&B, Inc. Iowa Insurance Agency Farmland Mutual Insurance Company Iowa Mutual Insurance Company
87 of 101 60
NO. VOTING SECURITIES COMPANY STATE/COUNTRY OF (SEE ATTACHED PRINCIPAL BUSINESS ORGANIZATION CHART UNLESS OTHERWISE INDICATED) Financial Horizons Distributors Agency of Alabama Insurance Agency Alabama, Inc. Financial Horizons Distributors Agency of Ohio Insurance Agency Ohio, Inc. Financial Horizons Distributors Agency of Oklahoma Insurance Agency Oklahoma, Inc. Financial Horizons Distributors Agency of Texas Insurance Agency Texas, Inc. *Financial Horizons Investment Trust Massachusetts Investment Company Financial Horizons Securities Corporation Oklahoma Broker-Dealer GatesMcDonald Health Plus, Inc. Ohio Managed Care Organization Gates, McDonald & Company Ohio Cost Control 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 York, Inc. administration MedPro Solutions, Inc. Massachusetts Third-party administration services for workers' compensation, automobile injury and disability claims Insurance Intermediaries, Inc. Ohio Insurance Broker and Insurance Agency Irvin L. Schwartz and Associates, Inc. Ohio Insurance Agency 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 Midwest Printing Services, Inc. Iowa General Printing Services Morley & Associates Oregon Insurance Broker Morley Capital Management, Inc. Oregon Investment Adviser and stable value money management Morley Financial Services, Inc. Oregon Holding Company Morley Research Associates, Ltd. Delaware Credit research consulting **MRM Investments, Inc. Ohio Owns and operates a recreational ski facility **National Casualty Company Wisconsin Insurance Company National Casualty Company of America, Great Britain Insurance Company Ltd. National Deferred Compensation, Inc. Ohio Administers deferred compensation plans for public employees **National Premium and Benefit Delaware Insurance Administrative Administration Company Services
88 of 101 61
NO. VOTING SECURITIES COMPANY STATE/COUNTRY OF (SEE ATTACHED PRINCIPAL BUSINESS ORGANIZATION CHART UNLESS OTHERWISE INDICATED) Nationwide Advisory Services, Inc. Ohio Investment Management and Administrative Services **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 Nationwide Community Urban Ohio Special purpose real estate Redevelopment Corporation corporation Nationwide Corporation Ohio Holding Company Nationwide Financial Institution Delaware Insurance Agency Distributors Agency, Inc. Nationwide Financial Services (Bermuda) Bermuda Life Insurance Company Ltd. Nationwide Financial Services Capital Delaware Statutory Business Trust Trust Nationwide Financial Services Capital Delaware Statutory Business Trust Trust II Nationwide Financial Services, Inc. Delaware Holding Company Nationwide General Insurance Company Ohio Insurance Company Nationwide Global Holdings, Inc. Ohio Holding Company for International Operations Nationwide Health Plans, Inc. Ohio Health Maintenance Organization *Nationwide Indemnity Company Ohio Reinsurance Company Nationwide Insurance Company of California Underwriter America Nationwide Insurance Company of Florida Ohio Insurance Company Nationwide Insurance Enterprise Ohio Membership Non-Profit Foundation Corporation Nationwide Services Company, LCC Ohio Shared services functions Nationwide Insurance Golf Charities, Inc. Ohio Membership Non-Profit Corporation Nationwide International Underwriters California Underwriting Manager Nationwide Investing Foundation Michigan Provide investors with continuous source of investment *Nationwide Investing Foundation II Massachusetts Common Law Trust Nationwide Investment Services Oklahoma Registered Broker-Dealer in Corporation deferred 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
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NO. VOTING SECURITIES COMPANY STATE/COUNTRY OF (SEE ATTACHED PRINCIPAL BUSINESS ORGANIZATION CHART UNLESS OTHERWISE INDICATED) Nationwide Lloyds Texas Property Insurance Nationwide Management Systems, Inc. Ohio Preferred provider organization, products and related services Nationwide Mutual Fire Insurance Ohio Mutual Insurance Company Company Nationwide Mutual Funds Ohio Investment Company Nationwide Mutual Insurance Company Ohio Mutual Insurance Company Nationwide Properties, Ltd. Ohio Develop, own and operate real estate and real estate investments Nationwide Property and Casualty Ohio Insurance Company Insurance Company Nationwide Realty Investors, Inc. Ohio Develop, own and operate real estate and real estate investments Nationwide Retirement Solutions, Inc. Delaware Market and administer deferred compensation plans for public employees Nationwide Retirement Solutions, Inc. of Alabama Market and administer deferred Alabama compensation plans for public employees Nationwide Retirement Solutions, Inc. of Arizona Market and administer deferred Arizona compensation plans for public employees Nationwide Retirement Solutions, Inc. of Arkansas Market and administer deferred Arkansas compensation plans for public employees Nationwide Retirement Solutions, Inc. Montana Market and administer deferred of Montana compensation plans for public employees Nationwide Retirement Solutions, Inc. Nevada Market and administer deferred of Nevada compensation plans for public employees Nationwide Retirement Solutions, Inc. New Mexico Market and administer deferred of New Mexico compensation plans for public employees Nationwide Retirement Solutions, Inc. Ohio Market variable annuity of Ohio contracts to members of the National Education Association in the state of Ohio Nationwide Retirement Solutions, Inc. Oklahoma Market variable annuity of Oklahoma contracts to members of the National Education Association in the state of Oklahoma Nationwide Retirement Solutions, Inc. South Dakota Market and administer deferred of South Dakota compensation plans for public employees Nationwide Retirement Solutions, Inc. Texas Market and administer deferred of Texas compensation plans for public employees Nationwide Retirement Solutions, Inc. Wyoming Market variable annuity of Wyoming contracts to members of the National Education Association in the state of Wyoming
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NO. VOTING SECURITIES COMPANY STATE/COUNTRY OF (SEE ATTACHED PRINCIPAL BUSINESS ORGANIZATION CHART UNLESS OTHERWISE INDICATED) Nationwide Retirement Solutions Massachusetts Market and administer deferred Insurance Agency Inc. compensation plans for public employees *Nationwide Separate Account Trust Massachusetts Investment Company Nationwide Trust Company, FSB United States of Federal Savings Bank America Neckura Holding Company Germany Administrative services for Neckura Insurance Group Neckura Insurance Company Germany Insurance Company Neckura Life Insurance Company Germany Life Insurance Company Nevada Independent Companies- Nevada Workers' compensation Construction administrative services Nevada Independent Companies-Health Nevada Workers' compensation and Nonprofit administrative services Nevada Independent Companies- Nevada Workers' compensation Hospitality and Entertainment administrative services Nevada Independent Companies- Nevada Workers' compensation Manufacturing administrative services NFS Distributors, Inc. Delaware Holding Company NWE, Inc. Ohio Special Investments PanEuroLife Luxembourg Life Insurance Pension Associates, Inc. Wisconsin Pension plan administration Portland Investment Services, Inc. Oregon NASD Registered Broker-Dealer Premier Agency, Inc. Iowa Insurance Agency Riverview Agency, Inc. Texas Stock Corporation Scottsdale Indemnity Company Ohio Insurance Company Scottsdale Insurance Company Ohio Insurance Company Scottsdale Surplus Lines Insurance Arizona Excess and Surplus Lines Company Insurance Company SVM Sales GmbH, Neckura Germany Sales support for Neckura Insurance Group Insurance Group Union Bond and Trust Company Oregon Oregon state bank with trust powers Villanova Capital, Inc. Delaware Holding Company Villanova Mutual Fund Capital Trust Delaware Business Trust Villanova SA Capital Trust Delaware Business Trust **Wausau Preferred Health Insurance Wisconsin Insurance and Reinsurance Company Company Western Heritage Insurance Company Arizona Excess and Surplus Lines Insurance Company
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NO. VOTING SECURITIES STATE/COUNTRY (SEE ATTACHED CHART) COMPANY OF ORGANIZATION UNLESS OTHERWISE INDICATED PRINCIPAL BUSINESS * 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 Variable Account-9 Ohio Nationwide Life Separate Issuer of Annuity Contracts Account Nationwide Variable Account-10 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 Ohio Nationwide Life and Annuity Issuer of Life Insurance Policies Account-B Separate Account * Nationwide VL Separate Ohio Nationwide Life and Annuity Issuer of Life Insurance Policies Account-C Separate Account
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NO. VOTING SECURITIES STATE/COUNTRY (SEE ATTACHED CHART) COMPANY OF ORGANIZATION UNLESS OTHERWISE INDICATED PRINCIPAL BUSINESS Nationwide VL Separate Ohio Nationwide Life and Annuity Issuer of Life Insurance Policies Account-D Separate Account * Nationwide VLI Separate Account Ohio Nationwide Life Separate Issuer of Life Insurance Policies Account * 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 Policies Account * Nationwide VLI Separate Account-4 Ohio Nationwide Life Separate Issuer of Life Insurance Policies Account Nationwide VLI Separate Account-5 Ohio Nationwide Life Separate Issuer of Life Insurance Policies Account
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(left side) - ------------------------ | NATIONWIDE INSURANCE | | GOLF CHARITIES, INC. | | | | MEMBERSHIP | | NONPROFIT | | CORPORATION | - ------------------------ ------------------------------------------------------------------------------------------------------------------------- | | | - --------------------------- --------------------------- ---------------------------- | ALLIED LIFE | | ALLIED | | AID FINANCE | | FINANCIAL | | GROUP, INC. | | SERVICES, INC. | | CORPORATION | | (AGI) | | (AID FINANCE) | | (ALFC) | | | | | |Common Stock: 850 | |Common Stock: 850 Shares | |Common Stock: 10,000 | |------------ Shares | |------------ | |------------ Shares | | |---| | |---| | | | Cost | | | Cost | | | Cost | | ---- | | | ---- | | | ---- | |Casualty- | | |Casualty- | | |Casualty- | |100% $47,286,429 | | |100% $1,049,237,226| | |100% $19,545,634 | - --------------------------- | --------------------------- | ---------------------------- | | | - --------------------------- | --------------------------- | ---------------------------- | ALLIED GROUP | | | AMCO | | | ALLIED | | MERCHANT BANKING | | | INSURANCE COMPANY | | | GROUP INSURANCE | | CORPORATION | | | (AMCO) | | | MARKETING COMPANY | |Common Stock: 10,000 | | |Common Stock: 155,991 | | |Common Stock: 20,000 | |------------ Shares | | |------------ Shares | | |------------ Shares | | |---| |----| |---| | | | Cost | | | | Cost | | | Cost | | ---- | | | | ---- | | | ---- | | | | | | | | |Aid Finance- | |AFLC-100% $100,000 | | | |AGI-100% $95,925,450| | |100% $16,059,469 | - --------------------------- | | --------------------------- | ---------------------------- | | | - --------------------------- | | --------------------------- | ---------------------------- | ALLIED LIFE | | | | WESTERN | | | DEPOSITORS | | BROKERAGE | | | | HERITAGE INSURANCE | | | INSURANCE COMPANY | | AGENCY, INC. | | | | COMPANY | | | (DEPOSITORS) | |Common Stock: 500,000 | | | |Common Stock: 4,776,076 | | |Common Stock: 199,991 | |------------ Shares | | | |------------ Shares | | |------------ Shares | | |---| |----| | |---| | | Cost | | | | Cost | | | Cost | | ---- | | | | ---- | | | ---- | |AFLC-100% $442,695 | | | |AMCO-100% $11,686,037| | |AGI-100% $15,251,842 | - --------------------------- | | --------------------------- | ---------------------------- | | | - --------------------------- | | --------------------------- | ---------------------------- | ALLIED LIFE | | | | ALLIED | | | ALLIED PROPERTY | | INSURANCE | | | | GENERAL AGENCY | | | AND CASUALTY | | COMPANY | | | | COMPANY | | | INSURANCE COMPANY | |Common Stock: 250,000 | | | |Common Stock: 5,000 | | |Common Stock: 156,822 | |------------ Shares | | | |------------ Shares | | |------------ Shares | | |---| |----| | |---| | | Cost | | Cost | | | Cost | | ---- | | ---- | | | ---- | |AFLC-100% $41,732,343| |AMCO-100% $135,342 | | |AGI-100% $33,018,634 | - --------------------------- --------------------------- | ---------------------------- | --------------------------- | ---------------------------- | PREMIER | | | ALLIED | | AGENCY, | | | GROUP MORTGAGE | | INC. | | | COMPANY | |Common Stock: 100,000 | | |Common Stock: 9,500 | |------------ Shares | | |------------ Shares | | |---|---| | | Cost | | | Cost | | ---- | | | ---- | |AGI-100% $100,000 | | |AGI-100% $213,976 | --------------------------- | ---------------------------- | | ---------------------------- | | MIDWEST | | | PRINTING SERVICES | | | LTD. | | |Common Stock: 10,000 | | |------------ Shares | |---| | | Cost | | ---- | |AFLC-100% $610,000 | ----------------------------
67
NATIONWIDE INSURANCE ENTERPRISE(R) (middle) ------------------------------------------ ------------------------------------------ | | | | | NATIONWIDE MUTUAL | | NATIONWIDE MUTUAL | | INSURANCE COMPANY |============================| FIRE INSURANCE COMPANY | | (CASUALTY) | | (FIRE) | | | | | ------------------------------------------ ------------------------------------------ | || | | | || |--------------------------------------------------------------------| |-------------------------- - --| || | || |--------------------------------------------------------------|---------------- || | | || -------------------------------- | -------------------------------- -------------------------------- || | | | | NATIONWIDE GENERAL | | NECKURA HOLDING | || | | | | INSURANCE COMPANY | | COMPANY (NECKURA) | || | NATIONWIDE LLOYDS | | | | | | || | | | |Common Stock: 20,000 | |Common Stock: 10,000 | ||==| | |---|------------ Shares | |--|------------ Shares | || | A TEXAS LLOYDS | | | | | | | || | | | | Cost | | | Cost | || | | | | ---- | | | ---- | || | | | |Casualty-100% $5,944,422 | | |Casualty-100% $87,943,140 | || -------------------------------- | -------------------------------- | -------------------------------- || | | || -------------------------------- | -------------------------------- | -------------------------------- || | 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 WISCONSIN | | | 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% $41,750,000 | | |Neckura-100% DM 15,825,681 | -------------------------------- | | -------------------------------- | -------------------------------- | | | -------------------------------- | | -------------------------------- | -------------------------------- | COOPERATIVE SERVICE | | | | SCOTTSDALE | | | NECKURA GENERAL | | COMPANY | | | | INSURANCE COMPANY | | | INSURANCE COMPANY | |Common Stock: 600 Shares | | | | (SIC) | | | | |------------ | | | |Common Stock: 30,136 | | |Common Stock: 1,500 | | Cost |---- |---|------------ Shares | ---- |--|------------ Shares | | ---- | | | Cost | | | | Cost | |Farmland $3,506,173 | | | ---- | | | | ---- | |Mutual-100% | | |Casualty-100% $150,000,000 | | | |Neckura-100% DM 1,656,925 | -------------------------------- | -------------------------------- | | -------------------------------- | | | -------------------------------- | -------------------------------- | | -------------------------------- | NATIONWIDE AGRIBUSINESS | | | SCOTTSDALE | | | | COLUMBUS INSURANCE | | INSURANCE COMPANY | | | SURPLUS LINES | | | | BROKERAGE AND SERVICE | |Common Stock: 1,000,000 | | | INSURANCE COMPANY | | | | GmbH | |------------ Shares | | | Common Stock: 10,000 | | | |Common Stock: 1 Share | | |--------| | ------------ Shares | ---| |--|------------ | | Cost | | | | | | | | |Casualty-99.9% ---- | | | Cost | | | | Cost | |Other Capital: $26,714,335 | | | ---- | | | | ---- | |------------- | | | SIC-100% $6,000,000 | | | |Neckura-100% DM 51,639 | |Casualty-Ptd. $ 713,576 | | | | | | | | -------------------------------- | -------------------------------- | | -------------------------------- | | | -------------------------------- | -------------------------------- | | -------------------------------- | NATIONAL CASUALTY | | | NATIONAL PREMIUM & | | | | LEBEN DIREKT | | COMPANY | | | BENEFIT ADMINISTRATION | | | | INSURANCE COMPANY | | (NC) | | | COMPANY | | | | | |Common Stock: 100 Shares | | |Common Stock: 10,000 | | | |Common Stock: 4,000 Shares | |------------ |--------| |------------ Shares |----| |--|------------ | | Cost | | Cost | | | Cost | | ---- | | ---- | | | ---- | |Casualty-100% $67,442,439 | |Scottsdale-100% $10,000 | | |Neckura-100% DM 4,000,000 | -------------------------------- -------------------------------- | -------------------------------- | | -------------------------------- -------------------------------- | -------------------------------- | NCC OF AMERICA, LTD. | | SVM SALES | | | AUTO DIREKT | | (INACTIVE) | | GmbH | | | INSURANCE COMPANY | | | | | | | | | | |Common Stock: 50 Shares | | |Common Stock: 1500 Shares | | | |------------ |------------|------------ | | | | Cost | | Cost | |NC-100% | | ---- | | ---- | | | |Neckura-100% DM 50,000 | |Neckura-100% DM 1,643,149 | | | | | | | | | | | | | -------------------------------- -------------------------------- --------------------------------
68
(right side) ------------------------ | NATIONWIDE INSURANCE | | ENTERPRISE FOUNDATION| | | | MEMBERSHIP | | NONPROFIT | | CORPORATION | ------------------------ - -----------------------------------------------------------------------| | - --------------- -------------------------------------------------- | | - -----------------------------------------------------------------------------------------|----------------------- | | | | | | | -------------------------------- | -------------------------------- | ---------------------------------- | | 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 | | | ALLNATIONS, INC. | | | INDEMNITY COMPANY | | | INTERMEDIARIES, INC. | | |Common Stock: 10,330 Shares | | | | | | | | |------------- Cost | |-----|Common Stock: 28,000 | |----|Common Stock: 1,615 | |--------| ---- | | |------------ Shares | | |------------ Shares | | |Casualty-18.6% $88,320 | | | Cost | | | Cost | | |Fire-18.6% $88,463 | | | ---- | | | ---- | | |Preferred Stock 1466 Shares | | |Casualty-100% $294,529,000 | | |Casualty-100% $1,615,000 | | |--------------- Cost | | | | | | | | | ---- | | | | | | | | |Casualty-6.8% $100,000 | | | | | | | | |Fire-6.8% $100,000 | | -------------------------------- | -------------------------------- | ---------------------------------- | | | | -------------------------------- | -------------------------------- | ---------------------------------- | | LONE STAR | | | NATIONWIDE CASH | | | PENSION ASSOCIATES | | | GENERAL AGENCY, INC. | | | MANAGEMENT COMPANY | | | OF WAUSAU, INC. | | | | | |Common Stock: 100 Shares | | |Common Stock: 1,000 Shares | ------|Common Stock: 1,000 | |----|------------ | |--------|------------- | | |------------ Shares | | | Cost | | | Cost | | | Cost | | | ---- | | | ---- | | | ---- | | |Casualty-90% $9,000 | | | | | |Casualty-100% $5,000,000 | | |NW Adv. Serv. 1,000 | | |Casualty-100% $2,839,392 | | -------------------------------- | -------------------------------- | ---------------------------------- | || | | | -------------------------------- | -------------------------------- | ---------------------------------- | | COLONIAL COUNTY MUTUAL | | | NATIONWIDE INSURANCE | | | AMERCIAN MARINE | | | INSURANCE COMPANY | | | COMPANY OF FLORIDA | | | UNDERWRITERS, INC. | | | | | |Common Stock: 10,000 | | |Common Stock: 20 Shares | | |Surplus Debentures | | |------------- Shares | | |------------- | | |------------------ | |----| | |--------| Cost | | | Cost | | | Cost | | ---- | | | ---- | | | ---- | | | | |Colonial $500,000 | | |Casualty-100% $300,000,000 | |Casualty-100% $5,020 | | |Lone Star 150,000 | | | | | | | -------------------------------- | -------------------------------- ---------------------------------- | | | -------------------------------- | -------------------------------- | | TIG COUNTRYWIDE | | | WAUSAU INTERNATIONAL | | | INSURANCE COMPANY | | | UNDERWRITERS | | |Common Stock 12,000 | | | | | |------------ Shares | | |Common Stock: 1,000 Shares | |-----| | -----|------------ | | | Cost | | | Cost | | | ---- | | | ---- | | |Casualty-100% $215,273,000 | | |Casualty-100% $10,000 | | | | | | | | -------------------------------- | | | | | -------------------------------- | | | -------------------------------- | -------------------------------- | | NATIONWIDE INSURANCE | | | NATIONWIDE | | | ENTERPRISE SERVICES, LTD. | | | ARENA LLC | | | | | | | | |Single Member Limited | | | | |.....|Liability Company | |....| | | | | | | | | | |Casualty-100% | |Casualty-90% | | | | | -------------------------------- -------------------------------- Subsidiary Companies -- Solid Line Contractual Association -- Double Line Limited Liability Company -- Dotted Line December 31, 1998
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(Left Side) |----------------------------------|-----------------------------------|------------------------------- | | | ----------------------------- ----------------------------- ----------------------------- | 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, INC. | | DISTRIBUTORS AGENCY | || | | | | | | (NW ADV. SERV.) | | OF ALABAMA, INC. | || | | | Common Stock: 66,000 | | | 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 | || | NFIDAI -100% $100 | || | | - ----------------------------- | ----------------------------- || ----------------------------- || ---------------------------- | || || - ----------------------------- | ----------------------------- || ----------------------------- || ---------------------------- | NWE, INC. | | | NATIONWIDE | || | LANDMARK FINANCIAL | || | | | | | | INVESTORS SERVICES, INC. | || | SERVICES OF | || | | | | | | | || | NEW YORK, INC. | || | | | Common Stock: 100 | | | Common Stock: 5 Shares | || | Common Stock: 10,000 | || | FINANCIAL HORIZONS | | ------------ Shares |--| | ------------ |--|| | ------------ Shares |--||==| DISTRIBUTORS AGENCY | | | | | | || | | || | OF OKLAHOMA, INC. | | Cost | | | Cost | || | Cost | || | | | ---- | | | ---- | || | ---- | || | | | NW Life -100% $35,971,375 | | | NW Adv. Serv. -100% $5,000| || | NFIDAI -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 | || | NFIDAI -100% $153,000 | || | | - ----------------------------- | ----------------------------- || ----------------------------- || ---------------------------- | || || - ----------------------------- | ----------------------------- || ----------------------------- || ---------------------------- | NATIONWIDE REALTY | | | NATIONWIDE | || | AFFILIATE AGENCY, INC. | || | | | INVESTORS, LTD. | | | INVESTING | || | | || | | | | | | FOUNDATION | || | | || | | | Units: | | | | || | Common Stock: 100 | || | AFFILIATE | | ------ |..| | |==|| | ------------ Shares |--||==| AGENCY OF | | | | | | || | | | OHIO, INC. | | | | | | || | Cost | | | | NW Life -90% | | | | || | ---- | | | | NW Mutual-10% | | | COMMON LAW TRUST | || | NFIDAI -100% $100 | | | - ----------------------------- | ----------------------------- || ----------------------------- ---------------------------- | || - ----------------------------- | ----------------------------- || ----------------------------- | NATIONWIDE | | | NATIONWIDE | || | NATIONWIDE | | PROPERTIES, LTD. | | | INVESTING | || | INVESTING | | | | | FOUNDATION II | || | FOUNDATION III | | Units: |..| | | || | | | ------ | | |==||==| | | | | | || | | | | | | || | | ---------------------- | NW Life -97.6% | | | || | | | MORLEY RESEARCH | | NW Mutual -2.4% | | COMMON LAW TRUST | || | OHIO BUSINESS TRUST | | ASSOCIATES, LTD. | - ----------------------------- ----------------------------- || ----------------------------- | | || |Common Stock: 1,000 | ----------------------------- || ----------------------------- |------------- Shares|------ | NATIONWIDE | || | NATIONWIDE | | Cost | | SEPARATE ACCOUNT | || | ASSET ALLOCATION TRUST | | ---- | | TRUST | || | | |Morley-100% $1,000| | | || | | ---------------------- | |==||==| | | | | | | | | | | | | MASSACHUSETTS | | COMMON LAW TRUST | | BUSINESS TRUST | ----------------------------- -----------------------------
70
(Center) NATIONWIDE INSURANCE ENTERPRISE (R) - -------------------------------------------------- -------------------------------------------------- | NATIONWIDE MUTUAL | | NATIONWIDE MUTUAL | | INSURANCE COMPANY |================================| FIRE INSURANCE COMPANY | | (CASUALTY) | | | (FIRE) | - -------------------------------------------------- | -------------------------------------------------- | ----------------------------------------- | 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 | | SERVICES, INC. (NFS) | | | |Common Stock: Control: | |------------ ------- | | | | | |Class A Public--100% | |Class B NW Corp--100% | ---------------|------------- | - -----------------|-------------------------------|-------------------|--------------------------------|----------------------------- | | | | -------------|--------------- --------------|-------------- | ---------------|------------- | MORLEY FINANCIAL | | THE 401(k) COMPANIES, INC.| | | NATIONWIDE RETIREMENT | | SERVICES, INC. (MORLEY) | | (401(k)) | | | SOLUTIONS, INC. | |Common Stock: 82,343 | |Common Stock: Control: | | |Common Stock: 236,494 | |---|------------- Shares | |------------- ------- |--| | |------------- Shares | | | | |Class A Other-100% | | | | | | |NFS-100% | |Class B NFS -100% | | | |NRS-100% | | ----------------------------- ----------------------------- | | ---------------|------------- | | | | | ----------------------------- ----------------------------- | | ----------------------------- | --------------------------- | | MORLEY & | | 401(k) INVESTMENT | | | | NATIONWIDE RETIREMENT | | | NATIONWIDE RETIREMENT | | | ASSOCIATES, INC. | | SERVICES, INC. | | | | SOLUTIONS, INC. OF | | | SOLUTIONS, INC. OF NEW | | | | | | | | | ALABAMA | | | MEXICO | | |Common Stock: 3,500 | | Common Stock: 1,000,000 | | | | Common Stock: 10,000 | | | Common Stock: 1,000 | |---|------------- Shares | | ------------- Shares |--| | | ------------- Shares |--|--| ------------- Shares | | | Cost | | Cost | | | | Cost | | | Cost | | | ---- | | ---- | | | | ---- | | | ---- | | |Morley-100% $1,000 | |401(k)-100% $7,800 | | | |NRS-100% $1,000 | | |NRS-100% $1,000 | | ----------------------------- ----------------------------- | | ----------------------------- | --------------------------- | | | | | ----------------------------- ----------------------------- | | ----------------------------- | --------------------------- | | MORLEY CAPITAL | | 401(k) INVESTMENT | | | | NATIONWIDE RETIREMENT | | | NATIONWIDE RETIREMENT | | | MANAGEMENT | | ADVISORS, INC. | | | | SOLUTIONS, INC. OF | | | SOLUTIONS, INC. OF | | | | | | | | | ARIZONA | | | SO. DAKOTA | | |Common Stock: 500 | |Common Stock: 1,000 | | | |Common Stock: 1,000 | | |Common Stock: 1,000 | |---|------------- Shares | |------------- Shares |--| | |------------- Shares |--|--|------------- Shares | | | Cost | | Cost | | | | Cost | | | Cost | | | ---- | | ---- | | | | ---- | | | ---- | | |Morley-100% $5,000 | |401(k)-100% $1,000 | | | |NRS-100% $1,000 | | |NRS-100% $1,000 | | ----------------------------- ----------------------------- | | ----------------------------- | --------------------------- | | | | | ----------------------------- ----------------------------- | | ----------------------------- | --------------------------- | | UNION BOND | | 401(k) ICOMPANY | | | | NATIONWIDE RETIREMENT | | | NATIONWIDE RETIREMENT | | | & TRUST COMPANY | | | | | | SOLUTIONS, INC. OF | | | SOLUTIONS, INC. OF | | | | | | | | | ARKANSAS | | | WYOMING | | |Common Stock: 2,000 | |Common Stock: 855,000 | | | |Common Stock: 50,000 | | |Common Stock: 500 | |---|------------- Shares | |------------- Shares |--| | |------------- Shares |--|--|------------- Shares | | | Cost | | Cost | | | Cost | | | Cost | | | ---- | | ---- | | | ---- | | | ---- | | |Morley-100% $50,000 | |401(k)-100% $1,000 | | |NRS-100% $500 | | |NRS-100% $500 | | ----------------------------- ----------------------------- | ----------------------------- | --------------------------- | | | | ----------------------------- ----------------------------- | ----------------------------- | --------------------------- | | PORTLAND INVESTMENT | | NATIONWIDE TRUST | | | NATIONWIDE RETIREMENT | | | NATIONWIDE RETIREMENT | | | SERVICES, INC. | | COMPANY, FSB | | | SOLUTIONS, INS. AGENCY, | | | SOLUTIONS, INC. OF | | | | | | | | INC. | | | OHIO | | |Common Stock: 1,000 | |Common Stock: 2,800,000 | | |Common Stock: 1,000 | | | | |---|------------- Shares | |------------- Shares |-----| |------------- Shares |--|==| | | | Cost | | Cost | | | Cost | | | | | | ---- | | ---- | | | ---- | | | | | |Morley-100% $25,000 | |NFS-100% $3,500,000 | | |NRS -100% $1,000 | | | | | ----------------------------- ----------------------------- | ----------------------------- | --------------------------- | | | | ----------------------------- ----------------------------- | ---------------------------- | --------------------------- | | EXCALIBER FUNDING | | NATIONWIDE FINANCIAL | | | NATIONWIDE RETIREMENT | | | NATIONWIDE RETIREMENT | | | CORPORATION | | SERVICES CAPITAL TRUST II | | | SOLUTIONS, INC. OF | | | SOLUTIONS, INC. OF | | | | | | | | MONTANA | | | OKLAHOMA | | |Common Stock: 1,000 | | | | |Common Stock: 500 | | | | |---|------------- Shares | | |-----| |------------- Shares |--|==| | | | Cost | | | | | Cost | | | | | | ---- | | | | | ---- | | | | | |Morley-100% $1,000 | |NFS-100% | | |NRS-100% $500 | | | | | ----------------------------- ----------------------------- | ----------------------------- | --------------------------- | | | | ----------------------------- ----------------------------- | ----------------------------- | --------------------------- | | CALIBER FUNDING | | NFS DISTRIBUTORS INC. | | | NATIONWIDE RETIREMENT | | | NATIONWIDE RETIREMENT | | | CORPORATION | | | | | SOLUTIONS, INC. OF | | | SOLUTIONS, INC. OF | | | | | | | | NEVADA | | | TEXAS | | | | | | | | Common Stock: 1,000 | | | | |---| | | |-----| | ------------- Shares |--|==| | | | | | | Cost | | | | | | | | ---- | | | |Morley-100% | |NFS-100% | | NRS-100% $1,000 | | | ----------------------------- ----------------------------- ----------------------------- ---------------------------
71
(Right) - ------------------------------------------------|--------------------|---------------------------------------| | | | | ---------------|---------------- --------------|---------------- | | EMPLOYERS LIFE INSURANCE CO. | | GATES MCDONALD | | | OF WAUSAU (ELIOW) | | & COMPANY (GATES) | | | | | | | |Common Stock: 250,000 | |Common Stock: 254 | | |--|------------- Shares | |--|------------- Shares | | | | | | | | | | | Cost | | | Cost | | | | ---- | | | ---- | | | |NW CORP. -100% $126,509,480 | | |NW CORP. -100% $25,683,532 | | | -------------------------------- | ------------------------------- - ------------ | | | | -------------------------------- | | -------------------------------- | -------------------------------- | | NATIONWIDE TRUST | | | | WAUSAU PREFERRED | | | HEALTHCARE | | | COMPANY | | | | HEALTH INSURANCE CO. | | | FIRST, INC. | | | | | | | | | | | | |Common Stock: 2,800,000 | | | |Common Stock: 200 | | | | |--|------------- Shares | | |--|------------- Shares | |--| | | | | | | | | | | | | Cost | | | Cost | | | Cost | | | ---- | | | ---- | | | ---- | | |NFS-100% $3,500,000 | | |ELIOW -100% $57,413,193 | | |Gates-100% $6,700,000 | | -------------------------------- | -------------------------------- | -------------------------------- | | | | -------------------------------- | -------------------------------- | ------------------------------- | | NATIONWIDE FINANCIAL | | | NATIONWIDE GLOBAL | | | GATES MCDONALD & COMPANY | | | SERVICES (BERMUDA) INC. | | | HOLDINGS, INC. (NGH) | | | OF NEW YORK, INC. | | | | | | | | | | | |Common Stock: 250,000 | | |Common Stock: 1 | | |Common Stock: 3 | |--|------------- Shares | |-----|------------- Share | |--|------------- Shares | | | | | | | | | | | | Cost | | | Cost | | | Cost | | | ---- | | | ---- | | | ---- | | |NFS-100% $3,500,000 | | |NW CORP.-100% $7,000,000 | | |Gates-100% $106,947 | | -------------------------------- | -------------------------------- | ------------------------------- | | | | | -------------------------------- | -------------------------------- | ------------------------------- | | NATIONWIDE DEFERRED | | | NATIONWIDE GLOBAL HOLDINGS | | | GATES MCDONALD & COMPANY | | | COMPENSATION, INC. | | | -HONG KONG, LIMITED | | | OF NEVADA | | | | | | | | | | | | | | |Common Stock: 2 | | |Common Stock: 40 | |--| | | |------------- Shares | |--|------------- Shares | | | | | | | | | | | | | | | | | | Cost | | | | | | | | | ---- | | |NFS-100% | | |NGH-100% | | |Gates-100% $93,750 | | -------------------------------- | -------------------------------- | ------------------------------- | | | | -------------------------------- | -------------------------------- | ------------------------------- | | IRVIN L. SCHWARTZ | | | NATIONWIDE | | | GATES McDONALD | | | AND ASSOCIATES, INC. | | | HEALTH PLANS, INC. (NHP) | | | HEALTH PLUS, INC. | | | | | | | | | | | |Common Stock: Control | | |Common Stock: 100 | | |Common Stock: 200 | |--|------------- ------- | |-----|------------- Shares |--| |--|------------- Shares | | | | | | | | | | | | | Cost | | | Cost | |Class A Other-100% | | | ---- | | | ---- | |Class B NFS -100% | | |NW CORP.-100% $14,603,732 | | |Gates-100% $2,000,000 | -------------------------------- | -------------------------------- | ------------------------------- | | -------------------------------- | -------------------------------- | | MRM INVESTMENTS, INC. | | | NATIONWIDE MANAGEMENT | | | | | | SYSTEMS, INC. | | | | | | | | |Common Stock: 1 | | |Common Stock: 100 | | |------------- Share |--| |------------- Shares |--| | | | | | | Cost | | Cost | | | ---- | | ---- | | |NW CORP.-100% $7,000,000 | |NHP Inc.-100% $25,149 | | -------------------------------- -------------------------------- | | -------------------------------- | | NATIONWIDE | | | AGENCY, INC. | | | | | |Common Stock: 100 | | |------------ Shares |--| | | | Cost | | ---- | |NHP Inc.-99% $116,077 | -------------------------------- Subsidiary Companies -- Solid Line Contractual Association -- Double Line Limited Liability Company -- Dotted Line December 31, 1998 Page 2
72 Item 27. NUMBER OF CONTRACT OWNERS The number of contract Owners of Qualified and Non-Qualified Contracts as of January 31, 1999 was 6,226 and 10,305, respectively. Item 28. INDEMNIFICATION Provision is made in Nationwide's Amended and Restated Code of Regulations and expressly authorized by the General Corporation Law of the State of Ohio, for indemnification by Nationwide 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 Nationwide, 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 Nationwide pursuant to the foregoing provisions, Nationwide has been informed that in the opinion of the SEC 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 Variable Account-II, Nationwide Variable Account-5, Nationwide Variable Account-6, Nationwide Variable Account-9, Nationwide VA Separate Account-A, Nationwide VA Separate Account-B, Nationwide VA Separate Account-C, Nationwide VLI Separate Account, Nationwide VL Separate Account-A, Nationwide VL Separate Account-B, Nationwide VL Separate Account-C, Nationwide VL Separate Account-D, Nationwide VLI Separate Account-2, Nationwide VLI Separate Account-3, Nationwide VLI Separate Account-4, Nationwide VLI Separate Account-5, and Nationwide Variable Account, all of which are separate investment accounts of Nationwide or its affiliates. NAS also acts as principal underwriter for Nationwide Separate Account Trust, Nationwide Asset Allocation Trust and Nationwide Mutual Funds which are open-end management investment companies. 96 of 101 73 (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 R. McFerson Chairman of the Board of Directors and One Nationwide Plaza Chairman and Chief Executive Officer- Columbus, OH 43215 and Director Robert A. Oakley One Nationwide Plaza Executive Vice President - Chief Financial Columbus, OH 43215 Officer and Director Susan A. Wolken One Nationwide Plaza Director Columbus, OH 43215 Paul J. Hondros One Nationwide Plaza Director Columbus, OH 43215 Robert J. Woodward, Jr. One Nationwide Plaza Executive Vice President - Chief Investment Columbus, OH 43215 Officer and Director Elizabeth A. Davin One Nationwide Plaza Assistant Secretary Columbus, OH 43215 Dennis W. Click Secretary One Nationwide Plaza Columbus, OH 43215 Alan A. Todryk Vice President - Taxation One Nationwide Plaza Columbus, OH 43215 James F. Laird, Jr. Vice President and General One Nationwide Plaza Manager Columbus, OH 43215 Edwin P. Mc Causland, Jr. Senior Vice President-Fixed Income One Nationwide Plaza Securities Columbus, OH 43215 William G. Goslee One Nationwide Plaza Vice President Columbus, OH 43215 Charles S. Bath One Nationwide Plaza Vice President - Investments Columbus, OH 43215 Joseph P. Rath Vice President - Product and Market Compliance One Nationwide Plaza Columbus, OH 43215 Christopher A. Cray Treasurer One Nationwide Plaza Columbus, OH 43215 David E. Simaitis Assistant Secretary One Nationwide Plaza Columbus, OH 43215 Patricia J. Smith Assistant Secretary One Nationwide Plaza Columbus, OH 43215
97 of 101 74
(c) NAME OF NET UNDERWRITING COMPENSATION ON PRINCIPAL DISCOUNTS AND REDEMPTION OR BROKERAGE UNDERWRITER COMMISSIONS ANNUITIZATION COMMISSIONS COMPENSATION Nationwide Advisory N/A N/A N/A N/A Services, Inc.
Item 30. LOCATION OF ACCOUNTS AND RECORDS John Davis 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 Internal Revenue Code are issued by Nationwide through the Registrant in reliance upon, and in compliance with a no-action letter issued by the staff of the SEC 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 Internal Revenue Code. Nationwide represents that the fees and charges deducted under the contract in the aggregate are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by Nationwide. 98 of 101 75 Offered by Nationwide Life and Annuity Insurance Company NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY Nationwide VA Separate Account-C Deferred Variable Annuity Contracts PROSPECTUS September 1, 1999 99 of 101 76 INDEPENDENT AUDITORS' CONSENT The Board of Directors of Nationwide Life and Annuity Insurance Company and Contract Owners of the Nationwide VA Separate Account-C: 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 LLP Columbus, Ohio April 6, 1999 100 of 101 77 SIGNATURES As required by the Securities Act of 1933, and the Investment Company Act of 1940, the Registrant, NATIONWIDE VA SEPARATE ACCOUNT-C certifies that it meets the requirements of Securities Act Rule 485(a) for effectiveness of this Registration Statement and has caused this Post-Effective Amendment to be signed on its behalf in the City of Columbus, and State of Ohio, on this 29th day of June, 1999. NATIONWIDE VA SEPARATE ACCOUNT-C --------------------------------------------- (Registrant) NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY --------------------------------------------- (Depositor) By /s/JOSEPH P. RATH --------------------------------------------- Joseph P. Rath Vice President - Product and Market Compliance As required by the Securities Act of 1933, this Post-Effective Amendment has been signed by the following persons in the capacities indicated on the 29th day of June, 1999.
SIGNATURE TITLE LEWIS J. ALPHIN Director - ----------------------------- Lewis J. Alphin A. I. BELL Director - ----------------------------- A. I. Bell KENNETH D. DAVIS Director - ----------------------------- Kenneth D. Davis KEITH W. ECKEL Director - ----------------------------- Keith W. Eckel WILLARD J. ENGEL Director - ----------------------------- Willard J. Engel FRED C. FINNEY Director - ----------------------------- Fred C. Finney JOSEPH J. GASPER President and Chief - ----------------------------- Joseph J. Gasper Operating Office and Director DIMON R. McFERSON Chairman and Chief Executive Officer - ----------------------------- Dimon R. McFerson and Director DAVID O. MILLER Chairman of the Board and Director - ----------------------------- David O. Miller YVONNE L. MONTGOMERY Director - ----------------------------- Yvonne L. Montgomery ROBERT A. OAKLEY Executive Vice President- - ----------------------------- Robert A. Oakley Chief Financial Officer RALPH M. PAIGE Director - ----------------------------- Ralph M. Paige 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
101 of 101 EX-4 2 EXHIBIT 4 1 EXHIBIT NO. 4 The Variable Annuity Contract Form 2 ABCD P.O. BOX 182008 COLUMBUS, OHIO 43218-2008 Dear Policyowner: PLEASE READ YOUR CONTRACT CAREFULLY This is a legal contract between the Owner and Us. This Contract is provided in return for: (1) the application, which is a part of this Contract; and (2) receipt of the Initial Purchase Payment. To be sure the Owner is satisfied with this Contract, he/she has ten days toe examine it and return it for any reason. This ten day period begins when the Owner receives the contract. If the Owner returns this Contract to the Home office of the Company during this ten day period, the Company will return the Purchase Payment Value (as of the date of cancellation) without deduction for any sales charges or administration fees. (The Company reserves the right to return Contract Value where permitted by state law). Thank you for relying on Us. If you have any questions about your Contract or need more assistance contact your agent or our home office. Executed for the Company on the Date of Issue. ABCD ABCDEF Secretary President READ YOUR CONTRACT CAREFULLY PLEASE NOTE - ANNUITY PAYMENTS AND OTHER VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON THE INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT ARE VARIABLE, MAY INCREASE OR DECREASE IN ACCORDANCE WITH THE NET INVESTMENT FACTOR, AND ARE NOT GUARANTEED AS TO A FIXED DOLLAR AMOUNT. NOTICE: Details for the variable provisions Details in the contract may be found on pages 10, 14, and 15. INDIVIDUAL, FLEXIBLE PURCHASE PAYMENT DEFERRED VARIABLE ANNUITY, NON-PARTICIPATING 3 CONTENTS Page Cover Page ............................................................ 1 Table of Contents ..................................................... 2 Data Page ............................................................. 3 Definitions ........................................................... 4 General Provisions .................................................... 6 Required Distributions and Death Benefit .............................. 8 Accumulation Provisions ............................................... 9 Surrender Provisions .................................................. 12 Annuitization Provisions .............................................. 14 Annuity Payment Options ............................................... 16 Annuity Tables ........................................................ 17 2 4 DATA PAGE OWNER JOINT OWNER (if any) ANNUITANT BENEFICIARY CONTINGENT BENEFICIARY (if any) CONTRACT NUMBER AGE AND SEX OF ANNUITANT ISSUE DATE INITIAL PURCHASE PAYMENT ANNUITY COMMENCEMENT DATE Contract Owners may have Purchase Payments applied to the general Account of Financial Horizons Life Insurance Company or towards the purchase of shares at net asset value of the following funds: FIDELITY VARIABLE INSURANCE PRODUCTS FUND -Equity-Income Portfolio -Overseas Portfolio NATIONWIDE SEPARATE ACCOUNT TRUST -Money Market Fund -Total Return Fund THE ONE GROUP INVESTMENT TRUST Asset Allocation Fund Government Bond Fund Large Company Growth Fund Small Company Growth Fund Fidelity Equity Income Portfolio Fidelity Overseas Portfolio NSAT Money Market Fund NSAT Total Return Fund FOR USE WITH FINANCIAL HORIZONS VA SEPARATE ACCOUNT 3 A SEPARATE INVESTMENT ACCOUNT SPECIALLY ESTABLISHED FOR INVESTMENT IN THE ABOVE FUNDS 3 5 DEFINITIONS THE COMPANY The Company is Financial Horizons Life Insurance Company. ACCUMULATION UNIT An accounting unit of measure used to calculate the Variable Account Contract Value prior to the Annuity Commencement Date. ANNUITANT The person named on the Data Page on whose life this Contract is issued and who will receive annuity payments beginning within 10 working days of the Annuity commencement Date. The Annuitant, if someone other than the Owner, becomes the Owner of the Contract on the Annuity Commencement Date. The Company reserves the right to reject any change of the Annuitant which has been made without the prior consent of the Company. ANNUITY COMMENCEMENT DATE The date on which annuity payments are scheduled to commence. The Annuity Commencement Date is shown on the Data Page. This date may be changed by the Owner prior to the date annuity payments actually commence. Annuity Payments will begin no later than 10 working days after the Annuity Commencement Date. ANNUITY PAYMENT OPTION The method for making annuity payments. The Annuity Payment Option selected on the application may be changed by the Owner prior to the Annuity Commencement Date. ANNUITY UNIT An accounting unit of measure used to calculate the value of Variable Annuity payments. BENEFICIARY The Beneficiary named in the application to receive certain benefits under this Contract when the Annuitant dies. CONTINGENT BENEFICIARY The person named in the application to be the Beneficiary if the named Beneficiary is not living when the annuitant dies. CONTRACT ANNIVERSARY An anniversary of the Contract Issue Date as shown on the Data Page. 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 Beneficiary, Contingent Beneficiary, Annuity Payment Option, and the Annuity Commencement Date. The Owner is the person named in the application, unless changed. Please see "Contract Ownership" and "Joint Ownership" on pages 6 and 7. CONTRACT VALUE The sum of the Variable Account Contract Value and the Fixed Account Contract Value. CONTRACT YEAR Each year starting with either the Date of Issue or a Contract Anniversary. DATE OF ISSUE The Date shown as the Date of Issue on the Data Page of the contract. DISTRIBUTION Any payment of part or all of the Contract Value. FIXED ACCOUNT All assets of the Company other than those in any segregated asset account. 4 6 FIXED ANNUITY An annuity providing for payments which are guaranteed by the Company as to dollar amount during the annuity payment period. HOME OFFICE The main office of the Company located in Columbus, Ohio. JOINT OWNER The Joint Owner, if any, possesses an undivided interest in the entire Contract in conjunction with the Owner. Please see "Contract Ownership" and "Joint Ownership" on pages 6 and 7. NON-QUALIFIED CONTRACT A Contract issued to fund a Non-Qualified Plan. NON-QUALIFIED PLAN A retirement program which does not receive favorable tax treatment under the provisions of the Internal Revenue Code. PURCHASE PAYMENT ANNIVERSARY An anniversary of the date a purchase payment is made under the Contract. PURCHASE PAYMENT YEAR Any year commencing with the date a purchase payment is made. QUALIFIED CONTRACT A Contract issued to fund a Qualified Plan. QUALIFIED PLAN A retirement program which receives favorable tax treatment under the provisions of the Internal Revenue 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 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 business of the New York Stock Exchange and ending at the close of business for the next succeeding Valuation Date. VARIABLE ACCOUNT A separate investment account of the Company into which Variable Account purchase payments are allocated. VARIABLE ANNUITY An annuity providing for payments which vary in amount with the investment experience of the Variable Account. 5 7 GENERAL PROVISIONS CHARGES The Company deducts charges for the maintenance and administration of the Contract. These charges are designed only to reimburse the Company for expenses incurred that relate to the maintenance and administration of the Contract. The Company will monitor these charges to ensure that they do not exceed accumulated expenses. The charges are 91) Contract Maintenance Charge: $30.00 on each Contract Anniversary and on any date that is not the Contract Anniversary when the Contract is surrendered for its full value, and (2) Contract Administration Charge: assessed daily through the unit value calculation, equal to an annual rate of 0.05%. The Contract Maintenance Charge may not be increased; it may, however be decreased by the Company if the circumstances under which the Contract is issued allow for lower than anticipated maintenance and administration expenses. DEDUCTIONS FOR PREMIUM TAXES The Company will deduct from the Contract Value the amount of any premium taxes levied by a sate or any other governmental entity. At present, premium taxes imposed by certain states range form .50% to 3.0%. The Company currently deducts from the Contract Value the applicable amount of premium taxes levied at the time the Contract is annuitized, except in those states which require such taxes to be paid when incurred. EXPENSE RISK CHARGE The Company will not increase charges for administration of the Contract regardless of its actual expenses. For assuming this expense risk, the Company assesses and Expense Risk Charge through the daily unit value calculation which is equal to an annual rate of 0.45%. MORTALITY RISK CHARGE The Company assumes a "mortality risk" that variable annuity payments will not be affected by the death rates of persons receiving such payments or of the general population by virtue of annuity rates incorporated in the Contract which cannot by changed. For assuming this mortality risk, the Company deducts a Mortality Risk Charge through the daily unit value calculation, which is equal to an annual rate of 0.80%. BENEFICIARY PROVISIONS The Beneficiary and any Contingent Beneficiary are named in the application, unless changed. If the Beneficiary dies prior to the Annuitant, the Contingent Beneficiary becomes the Beneficiary. Unless the Owner has provided otherwise, when there are two or more Beneficiaries, they will receive equal shares. If there is no named Beneficiary or Contingent Beneficiary upon the Annuitant's death, the Owner (or the estate of the Owner, if the Annuitant is the Owner) will be deemed to be the Beneficiary. The Company may pay the commuted value of any remaining unpaid payments to the estate. CONTRACT OWNERSHIP The Owner has all rights under the Contract, unless otherwise provided. If the purchaser names someone other than himself as Owner, the purchaser would have no rights under the Contract. The Owner is the person named in the application, unless changed. The Annuitant, if someone other than the Owner, becomes the Owner on the Annuity Commencement Date. If the Owner dies, a Distribution will be made in accordance with the Death of Contract Owner provision, unless the recipient of the distribution is the Owner's spouse, in which case a Distribution may be paid or the Contract may continue, depending on the election of the surviving spouse. 6 8 The Owner may name a new Owner at any time. Any new choice of Owner will automatically revoke any prior choice of Owner. Any request for change must be made in writing and received at the Home Office. The request for change must be a "Proper written Application". The change will become effective as of the date the written request is signed. A new choice of Owner or Contingent Owner will not apply to any payment made or action taken by the Company prior to the time it was received. A request for change in the Annuitant, Beneficiary, or Contingent Beneficiary must be made by the Owner in writing on a form acceptable to the Company. Any such change is subject to approval by the Company. JOINT OWNERSHIP If a Joint Owner is named in the application, then the Owner and Joint Owner will share an undivided interest in the entire Contract. If the Owner and Joint Owner wish to exercise Ownership rights in the Contract independently of each other, it must be so indicated in the application. Otherwise, then an Owner and Joint Owner have been named, the Company will only honor requests for changes and the exercise of their ownership rights that are made by both the Owner and Joint Owner. When a Joint Owner has been named, al references to "Owner" or "Contract Owner" throughout this Contract should be constructed to mean both the Owner and Joint Owner, unless otherwise provided. Where the Contract is issued to fund a retirement plan entered into pursuant to section 408 of the Internal Revenue Code, all the terms of this Contract and the rights of the owner, Joint Owner and Annuitant may be subject to the Plan Document. ALTERATION OR MODIFICATION All changes to the terms of this Contract must be made in writing and must be signed by the President or Secretary of the Company. No other person may change or alter any of the terms or conditions of the Contract. ASSIGNMENT Unless otherwise provided, the Owner may assign all rights under this Contract at any time during the lifetime of the Annuitant, prior to the Annuity Commencement Date. The Company will not be bound by any assignment until written notice is received and recorded at the Home Office. The Company is not responsible for the validity of any assignment. An assignment will not apply to any payment made or action take by the Company prior to the time it was recorded. If this Contract is a Non-Qualified Contract, the value of any portion of the Contract which is assigned or pledged, may be treated like a cash withdrawal for federal tax purposes. If this Contract is issued to fund a retirement plan pursuant to internal Revenue Code Section 408, it may not be assigned, pledged or otherwise transferred except as allowable by applicable law. ENTIRE CONTRACT This document is an annuity contract between the Owner and the Company. This Contract, Annuity application, Data Page, and Supplementary Agreement (if applicable) make up the Entire Contract. 7 9 MISSTATEMENT OF AGE OR SEX If the age or sex of the Annuitant has been misstated, all payments and benefits under this Contract will be adjusted. Payments and benefits will be made, based on the correct information. Proof of age of an Annuitant may be required at any time, on a form satisfactory to the Company. When the age or sex of an Annuitant has been misstated, the dollar amount of any overpayments will be deducted from the next payment or payments due under this Contract. The dollar amount of any underpayment made by the Company as a result of any such misstatement will be paid in full with the next payment due under this Contract. EVIDENCE OF SURVIVAL Where any payments under this Contract depend on the recipient being alive on a given date, proof that such person is living may be required by the Company. PROTECTION OF PROCEEDS Payments under this Contract are not assignable by any Beneficiary prior to the time they are due. Payments are not subject to the claims of creditors or to legal process, except as mandated by applicable laws. REPORTS At least once each year prior to the Annuity Commencement Date, a Report showing the Contract Value will be provided to the Owner. INCONTESTABILITY This Contract will not be contested. CONTRACT SETTLEMENT The Company may require this Contract to be returned to the Home Office prior to making any payments. All sums payable to or by the company under this Contract are payable at the Home Office. NUMBER AND GENDER Unless otherwise provided, all references in this Contract which are in the singular form will include the plural; all references in the plural form will include the singular; and all references in the male gender will include the female gender. NON-PARTICIPATING This Contract is non-participating. It will not share in the surplus of the Company. CONTRACT VALUE All values equal or exceed those required under state law. REQUIRED DISTRIBUTIONS AND DEATH BENEFIT Rules applicable for Contracts not issued in connection with a qualified plan or individual retirement account. DEATH OF CONTRACT OWNER If the Contract Owner (or Joint Owner): (a) has named someone other than himself as Annuitant, and (b) dies prior to the Annuity Commencement Date, a Distribution made in accordance with Section 72(s) of the Internal Revenue Code will be paid. The recipient of the Distribution will be any surviving Joint Owner. If there is no Joint Owner, the distribution will be paid to the Annuitant. If the deceased Owner or Joint Owner is also the Annuitant, the Distribution will be paid to the Beneficiary (see "Death of Annuitant"). The Distribution will be paid within 5 years of the Owner's death, unless: (a) the recipient of the Distribution elects, within one year of the Owner's death, to receive the Distribution in the form of a life annuity or an annuity for a period certain not exceeding the recipient's life expectancy; or (b) the recipient of the Distribution is the Owner's spouse, in which case, the Contract may be continued by the surviving spouse as Contract Owner. DEATH OF ANNUITANT If the Annuitant dies prior to the Annuity Commencement Date, a Death Benefit will be paid to the Beneficiary upon receipt of proof of death of the Annuitant. The death benefit will be paid as rapidly as under the Annuity Payment Option elected by the Owner and in effect at the time of the Annuitant's death. If the Owner or Joint Owner is also the Annuitant, the death of such person will be treated as the death of the Annuitant. If such person dies prior to 8 10 the Annuity Commencement Date, the death benefit payable to the Beneficiary will be paid in conformance with the distribution provisions set forth in the "Death of Contract Owner" section of the contract. GENERAL DEATH BENEFIT PROVISION The value of the Death Benefit will be determined as of the Valuation Date on or next following the date both proof of death, and an election of single sum settlement or Annuity Payment Option, are received in good order by the Company. The amount of the Death Benefit will be the greater of: (1) the sum of all purchase payments, less surrenders, or (2) the contract Value. The amount of the Death Benefit will be limited to the Contract Value if the Annuity Commencement Date is deferred beyond age 75 of the Annuitant and the Annuitant dies after attaining such age. If a single sum settlement is requested, payment will be made in accordance with any applicable laws and regulations governing the payment of Death Benefits. If an Annuity Payment Option is desired, election may be made by the Beneficiary during the 90 day period beginning of the date written notice is received by the Company. If no election has been made by the end of such 90 day period, the Death Benefit will be paid to the Beneficiary in a single sum. Contracts issued in connection with Qualified Plans or individual retirement accounts will be subject to specific rules set forth in the plan or Contract concerning distributions upon death of the Annuitant. ACCUMULATION PROVISIONS FLEXIBLE PURCHASE PAYMENTS This Contract is bought for: (1) the Initial Purchase Payment; and (2) purchase payments made after the first, if any. The cumulative total of all purchase payments under this and any other annuity contract(s) issued by the Company having the same Annuitant may not exceed $1,000,000 without the prior consent of the Company. INITIAL PURCHASE PAYMENT The Initial Purchase Payment is due on the Date of Issue. The Initial Purchase Payment may not be less than $5,000 for Non-Qualified Contracts. However, if periodic payments are expected by the company, this Initial Purchase Payment may be satisfied by purchase payments made on an annualized basis. For Qualified Contracts issued pursuant to a retirement plan which receives favorable tax treatment under the provisions of Section 408 of the Internal Revenue Code; the minimum purchase payments $2,000. However, if periodic payment are expected by the Company, the Company will accept purchase payments which, on an annualized basis, are at least $2,000 for the first Contract Year. Purchase Payments, if any, after the first Contract Year must be at least $10 each. The Company reserves the right to reject any Purchase Payment which does not meet this minimum payment requirement. NO DEFAULT There are no penalties for failure to continue Purchase Payments. Unless surrendered for the full Contract Value, the Contract will continue in full force until the Annuity Commencement Date. This Contract will not be in default, even if no additional purchase payment are made after the first. 9 11 CHANGE IN PURCHASE PAYMENTS The Owner is not obligated to continue Purchase Payments. The Owner may: (1) increase or decrease the amount of Purchase Payments, subject to any minimum payment requirements: (2) change the frequency of purchase Payments. A change in the frequency or amount of Purchase Payments does not have to be made by written request. ALLOCATION OF PURCHASE The Owner elects to have the Purchase Payments PAYMENTS allocated among the Fixed Account and the Sub-Accounts of the Variable Account at the time of application. CONTRACT VALUE The Contract Value at any time will be the sum of: (1) the Variable Account Contract Value; and (2) the Fixed Account Contract Value. FIXED ACCOUNT The Fixed Account Contract Value at any time will be: (1) the sum of all amounts credited to the Fixed Account under this Contract; plus (2) interest credited to the Fixed Account; less (3) any amounts canceled or withdrawn for charges, deductions, or Surrenders. INTEREST TO BE CREDITED The Company will credit interest to the Fixed Account Contract Value. Such interest will be credited at such rate or rates as the Company prospectively declares from time to time. Such rates will be declared to the Owner in writing prior to each quarterly period. An such rate or rates so determined, for which deposits are received, will remain in effect for a period of not less than 12 months. However, the Company guarantees that it will credit interest at not less than 3.0% per year. VARIABLE ACCOUNT The Variable Account Contract Value is the sum of CONTRACT VALUE the value of all Variable Account Accumulation Units under this Contract. If: (1) part or all of the Variable Account Contract Value is surrendered, or (2) when charges or deductions are made against the Variable Account Contract Value then, an appropriate number of Accumulation Units will be cancelled or surrendered to equal such amount. THE VARIABLE ACCOUNT The Variable Account is a separate investment account of the Company. It is named on the Data Page. The Company has allocated a part of its assets for this Contract and certain other contracts to the Variable account. Such assets of the Variable Account remain the property of the Company. However, they may not be charged with the liabilities from any other business in which the Company may take part. INVESTMENTS OF THE The purchase payments applied to the Variable VARIABLE ACCOUNT account will be invested at net asset value in one or more of the mutual funds shown on the Data Page. SUB-ACCOUNTS The Variable Account is divided into Sub-Accounts which invest in shares of mutual funds. Purchase payments are allocated among one or more of these Sub-Accounts, as designated by the Owner. VALUATION OF ASSETS Mutual fund shares in the variable Account will be valued at their net asset value. VARIABLE ACCOUNT The number of Accumulation Units for each ACCUMULATION UNITS Sub-Account of the Variable Account is found by dividing: (1) the net amount allocated to the Sub-Account; by (2) the Accumulation Unit value for the Sub-Account for the Valuation Period during which the Company received the Purchase Payments. VARIABLE ACCOUNT The value of an Accumulation Unit for each Sub-Account of the Variable Account was arbitrarily set at $10 when the first mutual fund shares were bought. The value for any later Valuation Period is found as follows: The Accumulation Unit value for each Sub-Account for the last prior Valuation Period is multiplied by the Net Investment Factor for the Sub- 10 12 Account for the next following Valuation period. The result is the Accumulation Unit Value. The value of an Accumulation Unit may increase or decrease from one Valuation Period to the next. The number of Accumulation Units will not change as a result of investment experience. NET INVESTMENT FACTOR The Net Investment Factor is an index applied to measure the investment performance of a Sub-Account from one Valuation Period to the next. The Net Investment Factor may be greater or less than one; therefore, the value of an Accumulation Unit may increase or decrease. The Net Investment Factor for any Sub-Account for any Valuation period is determined by: dividing (1) by (2) and subtracting (3) from the result, where: 1. is the net result of: a. the net asset value per share of the mutual fund held in the Sub-Account, determined at the end of the current Valuation Period; plus b. the per share amount of any dividend or capital gain distributions made by the mutual fund held in the Sub-Account, if the "ex-dividend" date occurs during the current Valuation Period; plus or minus. c. a per share charge or credit for any taxes reserved for, which is determined by the Company to have resulted from the investment operations of the Sub-Account. 2. is the net result of: a. the net asset value per share of the mutual fund held in the Sub-Account, determined at the end of the last prior Valuation period; plus or minus b. the per share charge or credit for any taxes reserved for the last prior Valuation Period. 3. is a factor representing the Mortality and Expense Risk Charge and the Administration Charge deducted from the Variable Account. Such factor is equal, on an annual basis, to 1.30% of the daily net asset value of the Variable Account. For funds that credit dividends on a daily basis and pay such dividends once a month, the Net Investment Factor allows for the monthly reinvestment of these daily dividends. FIXED ACCOUNT PROVISIONS The Fixed Account is the general account of the Company. It is made up of all assets of the Company other than: (1) those in the Variable Account; and (2) those in any other segregated asset account. TRANSFER PROVISIONS The Owner may annually transfer a portion of the value of the Fixed Account to the Variable Account and a portion of the Variable Account to the Fixed Account without penalty or adjustment. Transfers from the Fixed Account to the Variable Account will be determined by the Company, but will not be less than 10%, and will be declared before the termination date of the then current interest rate guarantee period. (The Company will always allow 10% of the Fixed Account value to be transferred to the Variable Account.) Transfers from the Fixed Account must be made within 30 days after the termination date of the guaranteed period. The Owner may request a transfer of up to 100% of the Contract Value from the Variable Account to the Fixed account. Such transfers must be made prior to the Annuity Commencement Date or the death of the Annuitant. No such transfers will be permitted prior to the first Contract Anniversary or within 12 months of any previous transfer. The Owner's value of each sub-account will be determined as of the day the written request for transfer is received in good order at the Home Office of the 11 13 Company. The Company reserves the right to restrict transfers to the Fixed account to 25% of the Contract Value, depending on market conditions at the time of transfer. Transfers from the Fixed Account may not be made prior to the first Contract Anniversary or within 12 months of any prior Transfer. Transfers must also be made prior to the Annuity Commencement Date. DISTRIBUTION PROVISIONS The following events will give rise to a Distribution: 1. Reaching the Annuity Commencement Date --Distribution will be made pursuant to the annuity Payment Option selected. 2. Death of the Annuitant prior tot he Annuity Commencement Date -- Distribution to be made in accordance with the options available under the Death of Annuitant provision of this Contract. 3. Death of the Contract Owner -- Distribution to be made in a manner consistent with the "Death of Contract Owner" provisions of this Contract. 4. Surrender -- Distribution to be made in accordance with the Surrender provisions of the Contract. 5. In accordance with Section 72 of the Federal Internal Revenue Code, if a non-natural person is the Owner, any change in the primary annuitant will be treated as the death of the Owner. EXCHANGE PRIVILEGES The Contract Owner may exchange this Contract for an annuity contract which: (1) is issued by the Company; and (2) is determined by the Company to be the type and class eligible for such exchange. In determining which contracts may be of the same type and class as this Contract, the Company shall apply its rules and regulations applicable thereto. The Contract Owner must request an exchange: (1) in writing; and (2) at least 45 days prior to the Annuity Commencement Date. Any such exchange shall be made free from any Contingent Deferred Sales Charge provided for in this Contract. SURRENDER PROVISIONS GENERAL SURRENDER PROVISIONS The Owner may Surrender part or all of the Contract Value at any time this Contract is in force and prior to the earlier of the Annuity Commencement Date or the death of the Annuitant. For the purpose of calculating the Contingent Deferred Sales Charge, and in order to minimize the applicable Contingent Deferred Sales Charge, all amount withdrawn are deemed to be withdrawn on the first-in first-out basis i.e., all withdrawals are deemed to come from the oldest Purchase Payments first. (Note--for tax purposes, withdrawals may be treated differently.) All Surrenders will have the following conditions: 1. The request for Surrender must be in writing. 2. The Surrender Value will be paid to the Owner when proper written application and the Contract are received at the Home Office. 3. Payment of the Variable account Contract Value will be made within seven days of receipt of both proper written application and the Contract. Payment of the Fixed Account Contract Value may be deferred up to six months following receipt of application. 4. When written application and the Contract are received, the Company will Surrender a number of Variable Account Accumulation Units and an amount from the Fixed Account needed to equal: (a) the dollar 12 14 amount requested; plus (b) any Contingent Deferred Sales Charge which applies; plus (c) any Contract Maintenance Charge which applies. 5. Unless the Owner has instructed otherwise, if a partial Surrender is requested, the Surrender will be made as follows: (a) from the Variable Account Contract Value; and (b) from the Fixed Account Contract Value. The amounts surrendered from the Fixed Account and Variable Account, will be in the same proportion that the Owner's interest in the Fixed Account and Variable Account bears to the total Contract Value. CONTINGENT DEFERRED If part or all of the Contract Value is SALES CHARGE surrendered, a Contingent Deferred Sales Charge may be applied at the time of a surrender. The Contingent Deferred Sales Charge may be applied at the time of a surrender. The Contingent Deferred Sales Charge will be equal to no more than 7% of the lesser of: (1) the total of all purchase payments made within 84 months prior to the date of the request for Surrender; or (2) the amount surrendered. In no event will the cumulative total of all Contingent Deferred Sales Charges exceed 7% of the total purchase payments made within 84 months prior to the date of the request for Surrender. 13 15 The Contingent Deferred Sales Charge applies to purchase payments as follows:
Years From Date Of Sales Charge Purchase Payment Percentage ---------------- ---------- 0 7% 1 6% 2 5% 3 4% 4 3% 5 2% 6 1% 7 0%
A Contingent Deferred Sales Charge will not be assessed against any values which have been held under the Contract for at lease 84 months or any values applied to purchase an annuity. REDUCTION OF CONTINGENT The amount of Contingent Deferred Sales Charges on DEFERRED SALES CHARGE the Contracts may be reduced when sales of the Contracts are made to a trustee, employer or similar entity pursuant to a retirement plan or when sales are made in a similar arrangement where offering the Contracts to a group of individuals under such a program results in savings of sales expenses. The entitlement to such a reduction in Contingent Deferred Sales Charges will be determined exclusively by the Company. SURRENDERS WITHOUT CHARGE Once each year, starting with the second Purchase Payment Year of a Purchase Payment, the Owner may Surrender, without a Contingent Deferred sales Charge, an amount equal to 10% of the purchase payment at the time of surrender. This free withdrawal privilege is non-cumulative and must be used in the year available. SURRENDER VALUE The Surrender Value is the amount that will be paid if the full Contract Value is surrendered. The Surrender Value at any time will be: 1. The Contract Value; less 2. Any Contingent Deferred Sales Charge which applies; less 3. Any Contract Maintenance Charge which applies PARTIAL SURRENDERS 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 and from the Fixed Account. The number of Accumulation Units surrendered from each such Sub-Account and the amount surrendered from the Fixed Account will be in the same proportion that the Contract Owner's interest in these Sub-Accounts and Fixed Account bears to the total Contract Value. DELAY IN PAYMENT OR The Company has the right to suspend or delay the SURRENDER date of any Surrender payment from the Variable Account for any period: 1. When the New York Stock Exchange is closed; 2. When trading on the New York Stock Exchange is restricted; 3. When an emergency exists as a result of which: (a) disposal of securities held in the Variable Account is not reasonably practicable; or (b) it is not reasonable practicable to fairly determine the value of the net assets of the Variable Account; 4. During any other period when the Securities and Exchange Commission, by order, so permits for the protection of security holders; or 5. When the request for Surrender is not made in writing. Rules and regulations of the Securities and Exchange Commission will govern as to whether the conditions set forth in numbers 2, 3, and 4 above exist. 14 16 The Company further reserves the right to delay payment of a total surrender of Fixed Account Contract Value for up to six months in those states where applicable law requires the Company to reserve such right. ANNUITIZATION PROVISIONS GENERAL All of the provisions within this section are subject to the restrictions set forth in the Section entitled "Death of Contract Owner", and "Death of Annuitant". ANNUITIZATION This is the process of purchasing an annuity according to the option selected, during the payout phase of the Contract. As of the Annuity Commencement Date, the Contract Value is surrendered and applied to the purchase rate then in effect for the option selected. The purchase rates for options set forth under this Contract will be determined on a basis not less favorable than the 1971 Individual Annuity Mortality Table (set back one year) with minimum interest at 3.5%. The purchase rates will not be less favorable than those offered by the Company at the time of Annuitization on a Single Premium Immediate Annuity for the same age, sex, and Annuity Payment Option. The rates shown in the Annuity Tables are calculated on this guaranteed basis. Annuitization is irrevocable once payments have begun. ANNUITY COMMENCEMENT DATE Such date: (1) must be the first day of a calendar month; and (2) must be at least two years after the Date of Issue. The Annuity Commencement Date may not be later than the first day of the first calendar month after the Annuitant's 75th birthday, unless a later date has: (1) been requested by the Contract Owner; and (2) approved by the Company. This date is selected by the Owner at the time of application. Any applicable premium taxes not already deducted will be deducted from the Contract Value at this time. The remaining Contract Value will then be applied to the Annuity Payment Option selected by the Owner. CHANGE OF ANNUITY The Owner may change the Annuity Commencement COMMENCEMENT DATE Date. A change of Annuity Commencement Date must be made prior to the Annuity Commencement Date and by written request. The request must be received at the Home Office prior to the new Annuity Commencement Date. The date to which such a change may be made must be the first day of a calendar month. CHANGE OF ANNUITY The Owner may change the Annuity Payment Option PAYMENT OPTION prior to the Annuity Commencement Date. A change of the Annuity Payment Option must be made by written request and must be received at the Home Office prior to the Annuity Commencement Date. After a change of Annuity Payment Option is received at the Home Office, it will become effective as of the date it was requested. A change of Annuity Payment Option will not apply to any payment made or action taken by the Company before it was received. ANNUITY PAYMENT OPTIONS One Annuity Payment Option or a combination of Annuity Payment Options may be selected. Any Annuity Payment Option not set forth in the Contract which is satisfactory to both the Company and the Annuitant may be selected. SUPPLEMENTARY AGREEMENT A Supplementary Agreement will be issued within 30 days following the Annuity Commencement Date. The Supplementary Agreement will set forth the terms of the Annuity Payment Option selected. 15 17 FREQUENCY/AMOUNT OF PAYMENTS Payments will be made based on the payment option selected and frequency selected. However, if the net amount to be applied at the Annuity Commencement Date is less than $500, the Company has the right to pay such amount in one lump sum. If any payment provided for would be or becomes less than $20, the Company has the right to change the frequency of payment to an interval that will result in payments of at least $20. FIXED ANNUITY PROVISIONS A Fixed Annuity is an annuity with level payments which are guaranteed by the Company as to dollar amount during the annuity payment period. At the Annuity Commencement Date, the Contract Value will be applied to the applicable Annuity Table. This will be done in accordance with the Annuity Payment Option selected. VARIABLE ANNUITY A Variable Annuity is an annuity with payments which: (1) are not pre-determined or guaranteed as to dollar amount; and (2) vary in amount with the investment experience of the Variable Account. DETERMINATION OF FIRST At the Annuity Commencement Date, the Variable VARIABLE ANNUITY PAYMENT Account Contract Value will be applied to the applicable Annuity Table. This will be done in accordance with the Annuity Payment Option selected. The Annuity Tables are based on the 1971 Individual Annuity Mortality Table (set back one year) with interest at 3.5%. ANNUITY UNIT VALUE An Annuity Unit is used to calculate the value of annuity payments. The value of an Annuity Unit for each Sub-Account was arbitrarily set at $10 when the first mutual funds were bought. The value for any later Valuation Period is found as follows: 1. The Annuity Unit Value for each Sub-Account for the last prior Valuation Period is multiplied by the Net Investment Factor for the Sub-Account for the Valuation Period for which the Annuity Unit Value is being calculated. 2. The result is multiplied by an interest factor. This is done to neutralize the Assumed Investment Rate of 3.5% per year, which is built into the Annuity Table. VARIABLE ANNUITY PAYMENTS Variable Annuity payments after the first vary in AFTER THE FIRST amount. The payment amount changes with the investment performance of the Sub-Accounts within the Variable Account. The dollar amount of such payments is determined as follows: 1. The dollar amount of the first annuity payment is divided by the value of an Annuity Unit as of the Annuity Commencement Date. This result establishes the fixed number of Annuity Units for each monthly annuity payment after the first. This number of Annuity Units remains fixed during the annuity payment period. 2. The fixed number of Annuity Units is multiplied by the Annuity Unit Value for the Valuation Period for which the payment is due. This result establishes the dollar amount of the payment. The Company guarantees that the dollar amount of each payment after the first will not be affected by the variations in expenses or mortality experience. ANNUITY PAYMENT OPTIONS GENERAL All annuity payments will be mailed within 10 working days of the first of the month in which they are scheduled to be made. LIFE ANNUITY The amount to be paid under this option will be paid during the lifetime of the Annuitant. Payments will cease with the last payment due prior to the death of the Annuitant. 16 18 JOINT AND LAST The amount to be paid under this option will be SURVIVOR ANNUITY paid and continued during the lifetimes of the Annuitant and designated second person. Payments will continue as long as either is living. LIFE ANNUITY WITH The amount to be paid under this option will be 120 OR 240 PAYMENTS paid during the lifetime of the Annuitant. A GUARANTEED guaranteed period of 120 or 240 months may be selected. If the Annuitant dies prior to the end of this guaranteed period, the Beneficiary may choose to continue receiving payments until the end of the guaranteed period, or receive the commuted value of the remaining guaranteed payments in a lump sum. Such lump sum payment will be equal to the present value of the remaining guaranteed payments to which the Annuitant would have been entitled had he not died. Any lump sum payment will be computed as of the date on which proof of the death of the Annuitant is received at the Home Office and computed at an assumed investment rate which is equal to the rate used to determine annuity payments, according to the Annuity Tables, in effect on the Annuity Commencement Date. 17 19 ANNUITY TABLES JOINT AND SURVIVOR MONTHLY ANNUITY PAYMENTS PER $1,000 APPLIED ANNUITANT'S AGE LAST BIRTHDAY
FEMALE AGE 50 55 60 65 70 ----- ----- ----- ----- ----- MALE AGE 50 $3.91 $4.07 $4.21 $4.34 $4.44 55 4.00 4.20 4.41 4.59 4.76 60 4.08 4.32 4.59 4.86 5.12 65 4.42 4.75 5.12 5.50
LIFE ANNUITY MONTHLY ANNUITY PAYMENTS PER $1,000 APPLIED
MALE FEMALE GUARANTEED PERIOD GUARANTEED PERIOD ANNUITANT'S ANNUITANT'S ATTAINED AGE 120 240 ATTAINED AGE 120 240 LAST BIRTHDAY NONE MONTHS MONTHS LAST BIRTHDAY NONE MONTHS MONTHS 40 $3.99 $3.98 $3.91 40 $3.99 $3.98 $3.91 41 4.05 4.03 3.95 41 3.77 3.76 3.73 42 4.11 4.08 4.00 42 3.81 3.80 3.77 43 4.16 4.14 4.04 43 3.86 3.85 3.81 44 4.23 4.20 4.09 44 3.91 3.89 3.85 45 4.29 4.26 4.14 45 3.96 3.94 3.89 46 4.36 4.32 4.19 46 4.01 3.99 3.94 47 4.44 4.39 4.24 47 4.06 4.05 3.98 48 4.51 4.46 4.29 48 4.12 4.10 4.03 49 4.59 4.53 4.35 49 4.18 4.16 4.08 50 4.67 4.60 4.40 50 4.25 4.23 4.13 51 4.76 4.68 4.46 51 4.32 4.29 4.19 52 4.85 4.76 4.51 52 4.39 4.36 4.24 53 4.95 4.85 4.57 53 4.47 4.43 4.30 54 5.05 4.93 4.63 54 4.55 4.51 4.36 55 5.15 5.03 4.69 55 4.64 4.59 4.43 56 5.26 5.12 4.75 56 4.73 4.67 4.49 57 5.38 5.22 4.81 57 4.82 4.76 4.55 58 5.50 5.33 4.87 58 4.93 4.85 4.62 59 5.63 5.44 4.93 59 5.03 4.95 4.69 60 5.77 5.55 4.99 60 5.15 5.05 4.76 61 5.91 5.67 5.05 61 5.27 5.16 4.83 62 6.07 5.80 5.11 62 5.39 5.27 4.90 63 6.23 5.93 5.17 63 5.53 5.39 4.97 64 6.41 6.06 5.23 64 5.67 5.52 5.04 65 6.60 6.21 5.28 65 5.83 5.66 5.11 66 6.81 6.36 5.34 66 6.00 5.80 5.18 67 7.03 6.51 5.38 67 6.19 5.95 5.24 68 7.26 6.67 5.43 68 6.39 6.12 5.30 69 7.51 6.84 5.47 69 6.61 6.29 5.36 70 7.79 7.01 5.51 70 6.85 6.46 5.41 71 8.08 7.19 5.54 71 7.11 6.65 5.46 72 8.40 7.36 5.57 72 7.39 6.85 5.50 73 8.74 7.54 5.60 73 7.70 7.05 5.54 74 9.10 7.73 5.62 74 8.03 7.25 5.57 75 9.50 7.91 5.64 75 8.40 7.46 5.59
18 20 AMENDATORY ENDORSEMENT Attached to and made a part of this Contract issued by NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY ONE NATIONWIDE PLAZA COLUMBUS, OHIO 43216 PO BOX 16609 COLUMBUS, OHIO 43216-6609 This Endorsement restates and clarifies provisions of the Contract to which it is attached. Notwithstanding any provisions of the Contract to the contrary, the following provisions shall apply: 1. THE FOLLOWING IS HEREBY ADDED TO THE DEFINITION OF ANNUITANT: "The Annuitant must be age [80] or younger at the time of Contract issuance unless the Company has approved a request for an Annuitant of a greater age." 2. THE FOLLOWING IS HEREBY ADDED TO THE DEFINITION OF CONTRACT OWNER: "The Contract Owner must be age [80] or younger at the time of Contract issuance unless the Company has approved a request for a Contract Owner of a greater age." 3. THE SECOND SENTENCE OF THE INITIAL PURCHASE PAYMENT SECTION IS HEREBY DELETED AND REPLACED WITH THE FOLLOWING: "The Initial Purchase Payment may not be less than [$2,000] for Non-Qualified Contracts." 4. THE FIRST PARAGRAPH OF THE SURRENDERS WITHOUT CHARGE SECTION IS HEREBY DELETED AND REPLACED WITH THE FOLLOWING: "Once each year, starting with the first Purchase Payment Year, the Contract Owner may surrender without a Contingent Deferred Sales Charge, an amount equal to [10%] of the Purchase Payments at the time of surrender. This free withdrawal privilege is cumulative; that is, free amounts not taken during any given contract year can be taken as free amounts in subsequent years." 21 5. THE SECOND PARAGRAPH DESCRIBING THE AMOUNT OR THE VALUE OF THE DEATH BENEFIT UNDER THE GENERAL DEATH BENEFIT PROVISIONS IS HEREBY DELETED AND REPLACED WITH THE FOLLOWING: "If the Annuitant dies prior to his [86] th birthday, the amount of the Death Benefit will be the greater of 1. the Contract Value, 2. the total of all purchase payments made to the contract, less an adjustment for amounts surrendered, or 3. the Contract Value as of the most recent five year Contract Anniversary, less an adjustment for amounts surrendered since that five year anniversary. The amount of the Death Benefit will be limited to the Contract Value if the Annuity Commencement Date is deferred beyond age [85] of the Annuitant and the Annuitant dies after attaining such age." Any adjustment for amounts surrendered will reduce 2 and 3 in the same proportion that the Contract Value was reduced on the date(s) of the partial surrender. Except for the above mentioned amendments nothing else is changed in the Contract. /s/ DENNIS W. CLICK /s/ JOSEPH J. GASPER - ------------------------ ------------------------- Dennis W. Click Joseph J. Gasper Secretary President -----END PRIVACY-ENHANCED MESSAGE-----