-----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, OhMkEss3YfhdRHdBzzCR0I2+lFxJkZBRNhpDO7OJAbPcWKZpgUB7/SD9PTRe6wcE hIHz3xt7SYkn/c7neIeyEg== 0000950152-02-000486.txt : 20020414 0000950152-02-000486.hdr.sgml : 20020414 ACCESSION NUMBER: 0000950152-02-000486 CONFORMED SUBMISSION TYPE: 497 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 20020125 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONWIDE VLI SEPARATE ACCOUNT 4 CENTRAL INDEX KEY: 0001041357 IRS NUMBER: 314156830 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 333-69160 FILM NUMBER: 02517646 BUSINESS ADDRESS: STREET 1: C/O NATIONWIDE LIFE INSURANCE CO STREET 2: ONE NATIONWIDE PLAZA CITY: COLUMBUS STATE: OH ZIP: 43216 BUSINESS PHONE: 8008603946 MAIL ADDRESS: STREET 1: C/O NATIONWIDE LIFE INSURANCE CO STREET 2: ONE NATIONWIDE PLAZA CITY: COLUMBUS STATE: OH ZIP: 43216 497 1 l92169be497.txt NATIONWIDE VLI SEPARATE ACCOUNT-4 497 TABLE OF CONTENTS - - What should I know about this and other variable life insurance products before purchasing a variable life insurance policy? - - How can I obtain additional information about Nationwide and this variable life insurance policy? GLOSSARY OF SPECIAL TERMS....................................................... POLICY EXPENSES................................................................. - - How much does this variable life insurance policy cost? INVESTMENT OPTIONS.............................................................. - - What underlying mutual funds are available in this variable life insurance policy and how much does each fund cost, after expense reimbursement? - - What are the underlying mutual fund expenses before expense reimbursement? - - Are there any other investment options available to me? MORE INFORMATION ABOUT THIS POLICY ............................................. - - Are there riders available to added to the policy? - - Ok. Now that I know a little more about where I can invest my money, describe this policy in detail. - - Are there any criteria for purchasing this policy? - - What is the minimum amount of premium you will accept? - - Tell me more about the charges I must pay in order to make sure a death benefit is paid if the insured dies. RIGHT TO CANCEL................................................................. - - What if I decide I don't want this policy after I purchase it? ALLOCATION OF PREMIUM PAYMENTS.................................................. - - I've decided I want to purchase this policy. What happens after I send in my initial premium payment? - - When will my premium payments be allocated to my requested sub-account options? VALUING ACCOUNT VALUES.......................................................... - - Once my premium payments can be applied to my policy, how much can my premium purchase? TRANSFERRING ALLOCATIONS........................................................ - - May I make transfers between investment options? - - How do I make transfers? CASH VALUE AND SURRENDERS....................................................... - - Does my policy have any value besides death benefit value? - - What if I want to take a partial or total surrender? What happens next? - - Will partial surrenders have any effect on my policy's cash value? - - Will I have to pay taxes on any amounts surrendered? POLICY LOANS.................................................................... - - May I take a loan against my policy? - - Will my loan have any effect on investment performance? - - What about interest? - - Will a loan have any effect on my death benefit amount or cash value amount? - - When and how do I make loan repayments? DEATH BENEFIT................................................................... - - Do I have a choice of death benefit options? - - May I ever change the specified amount after my policy is issued? - - May I change my death benefit option after my policy is issued? - - What happens once the insured dies? - - How is the death benefit distributed? - - Earlier you mentioned a maturity date. What is the maturity date? - - What if I don't want to get paid the policy's cash value on the maturity date? May I extend the maturity date? ASSIGNMENT...................................................................... - - May I ever assign my policy? POLICY LAPSE AND REINSTATEMENT.................................................. - - Can my policy ever lapse and what happens if it does? PERIODIC INFORMATION............................................................ - - Will I ever receive periodic information from you about my policy? POLICY OWNER AND BENEFICIARY.................................................... - - Tell me more about my rights as policy owner as well as the rights of the beneficiary. Does the insured have any rights under the policy if I am not the insured? TAX INFORMATION................................................................. - - Tell me more about how my life insurance policy is taxed. What should I look out for? MORE INFORMATION ABOUT NATIONWIDE............................................... - - Tell me a little more about Nationwide and the variable account. OTHER GENERAL INFORMATION....................................................... - - Legal Considerations - - State Regulation - - Advertising - - Legal Proceedings - - Experts - - Registration Statement - - Who is the general distributor (principal underwriter) for this policy? - - How are the policies sold (distributed)? APPENDIX A: OBJECTIVES FOR THE UNDERLYING MUTUAL FUNDS.......................... APPENDIX B: PERFORMANCE SUMMARY INFORMATION..................................... APPENDIX C: FINANCIAL STATEMENTS................................................ NATIONWIDE LIFE INSURANCE COMPANY Flexible Premium Variable Universal Life Insurance Policies Issued by Nationwide Life Insurance Company through its Nationwide VLI Separate Account-4 The date of this prospectus is January 25, 2002. - -------------------------------------------------------------------------------- WHAT SHOULD I KNOW ABOUT THIS AND OTHER VARIABLE LIFE INSURANCE PRODUCTS BEFORE PURCHASING A VARIABLE LIFE INSURANCE POLICY? Variable life insurance policies are complex products with unique benefits and advantages that may be particularly useful for certain individuals with life insurance and estate planning needs. There are, however, costs and charges associated with benefits that variable life insurance products provide - costs and charges that may not be present in term or universal life insurance policies, as well as other investment products such as mutual funds or annuities. With help from a financial consultant, you are encouraged to evaluate your particular needs - whether estate planning, investment or otherwise - in order to determine if a variable life insurance policy is the right financial instrument to meet your needs. This process will aid you in determining whether the purchase of the variable life insurance policy described in this prospectus is consistent with your goals, risk tolerance, time horizon, family situation, tax situation and other personal needs. THIS PROSPECTUS CONTAINS BASIC INFORMATION YOU SHOULD KNOW ABOUT THIS VARIABLE LIFE INSURANCE POLICY BEFORE INVESTING. PLEASE READ THIS PROSPECTUS CAREFULLY AND KEEP IT FOR FUTURE REFERENCE. The life insurance policies offered by this prospectus are flexible premium variable universal life insurance policies (flexible premium variable adjustable life insurance policies in Puerto Rico). They provide flexibility to vary the amount and frequency of premium payments. A cash surrender value may be offered if you terminate your policy during the lifetime of the insured. The purpose of this policy is to provide life insurance protection for the beneficiary named in the policy. No claim is made that the policy is in any way similar or comparable to a systematic investment plan of a mutual fund. The death benefit and cash value of this policy may vary to reflect the experience of the Nationwide VLI Separate Account-4 (the "variable account") or the fixed account, depending on how premium payments are invested. PLEASE REMEMBER THAT THIS POLICY: - - IS NOT A BANK DEPOSIT - - IS NOT FDIC INSURED - - IS NOT INSURED OR ENDORSED BY A BANK OR ANY FEDERAL GOVERNMENT AGENCY - - IS NOT AVAILABLE IN EVERY STATE - - MAY GO DOWN IN VALUE You assume certain risks when investing in the policies, including the risk of losing money. We guarantee to keep your policy in force so long as minimum premium requirements have been met. We guarantee the death benefit for as long as your policy is in force. The cash surrender value is not guaranteed. Your policy will lapse if the cash surrender value is insufficient to cover policy charges. Benefits described in this prospectus may not be available in every jurisdiction - - please refer to your policy for specific benefit information. This prospectus is not an offering in any jurisdiction where such offering may not lawfully be made. 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. HOW CAN I OBTAIN ADDITIONAL INFORMATION ABOUT NATIONWIDE AND THIS VARIABLE LIFE INSURANCE POLICY? For general information or to obtain FREE copies of the: - prospectus, annual report or semi-annual report for any underlying mutual fund; and - any required forms, call: 1-800-547-7548 TDD 1-800-238-3035 or write: NATIONWIDE LIFE INSURANCE COMPANY P.O. BOX 182150 COLUMBUS, OHIO 43218-2150 1 Material incorporated by reference in this prospectus can be found on the SEC website at: www.sec.gov Information about this and other Best of America products can be found on the worldwide web at: www.bestofamerica.com 2 GLOSSARY OF SPECIAL TERMS ATTAINED AGE- The insured's age on the policy date, plus the number of full years since the policy date. ACCUMULATION UNIT- An accounting unit of measure used to calculate the cash value of the variable account. BENEFICIARY- The person to whom death benefit proceeds are paid. CASH VALUE- The sum of the value of all variable account accumulation units attributable to your policy plus amounts credited to the fixed account and your policy loan account, if any. FIXED ACCOUNT- An investment option, which is funded by the general account of Nationwide. GENERAL ACCOUNT- All assets of Nationwide other than those of the variable account or in other separate accounts that have been or may be established by Nationwide. INSURED- The person whose life is covered by this policy. MATURITY DATE- The policy anniversary on or next following the insured's 100th birthday. MINIMUM REQUIRED DEATH BENEFIT- The lowest death benefit that will qualify the policy as life insurance under Section 7702 of the Internal Revenue Code. NATIONWIDE- Nationwide Life Insurance Company. "We", "our" and "us" refer to Nationwide. NET AMOUNT AT RISK- The death benefit minus the cash value. On the monthly anniversary date, the net amount at risk is the death benefit minus the cash value prior to subtraction of the base policy cost of insurance charge (which consists of the administrative charge, per unit charge, and Mortality and Expense Risk fee). NET PREMIUMS- The actual premiums minus the percent of premium charges. The percent of premium charges are shown on the policy data page. POLICY OWNER- The policy owner has all rights under this policy. The policy owner is the person or entity whose name is on the application unless later changed. "You" or "your" refer to the policy owner. SPECIFIED AMOUNT- The dollar amount used to determine the death benefit of your policy. Your specified amount is listed on your policy data page. SUB-ACCOUNTS- Divisions of the variable account to which underlying mutual fund shares are allocated and for which accumulation units are separately maintained. VALUATION PERIOD- Each day the New York Stock Exchange is open. VARIABLE ACCOUNT- Nationwide VLI Separate Account-4, 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 POLICY EXPENSES HOW MUCH DOES THIS VARIABLE LIFE INSURANCE POLICY COST? There are certain charges associated with the policy, in addition to those charges assessed by the underlying mutual funds. Below is a summary of those charges. A detailed summary of the charges assessed to your individual policy can be found on the policy data page that is issued with your policy. SOME CHARGES ARE TAKEN MONTHLY. THOSE CHARGES ARE: THE MORTALITY AND EXPENSE RISK CHARGE The amount charged for mortality and expense risks depends on how long you have owned your policy. - - For policy years 1-15, a charge at an annualized rate of 0.80% of the policy's variable account assets are assessed on each monthly anniversary day. - - For policy years 16 and after, a charge at an annualized rate of 0.30% of the policy's variable account assets are assessed on each monthly anniversary day. PER $1,000 OF SPECIFIED AMOUNT CHARGE...................................maximum of $0.30 per $1,000 of specified amount (This charge is assessed monthly during the first two policy years only) MONTHLY POLICY EXPENSE CHARGE...........................................a maximum of $7.50 COST OF INSURANCE CHARGE................................................varies based on insurability.
SOME CHARGES ARE TAKEN AS A RESULT OF AN ACTION TAKEN BY YOU. FOR INSTANCE, A SURRENDER CHARGE IS ASSESSED IF YOU SURRENDER A PART OR ALL OF YOUR POLICY PRIOR TO THE END OF THE SURRENDER PERIOD. THE CHARGES THAT FALL WITHIN THIS CATEGORY ARE: MAXIMUM SURRENDER CHARGE................................................22.50% multiplied by the lesser of (a) or (b),where: (a) = the specified amount selected by the policy owner multiplied by the rate indicated on Chart 1 below, divided by 1,000; and (b) = premiums paid by the policy owner during the first two policy years Plus (c) multiplied by (d) where: (c) = the specified amount divided by 1,000; and (d) = the administrative target component as illustrated by Chart 2 below; this factor allows the company to account for the probability (at various ages) that death will occur and no CDSC will be recouped.
CHART 1 - ------------------------------------------------------------------ AGE MALE FEMALE MALE FEMALE NON-TOBACCO NON-TOBACCO TOBACCO TOBACCO - ------------------------------------------------------------------ 18 $5.21 $4.36 $6.91 $5.17 19 5.40 4.54 7.17 5.39 20 5.63 4.76 7.47 5.65 21 5.84 4.96 7.76 5.90 22 6.07 5.17 8.06 6.15 23 6.31 5.39 8.38 6.42 24 6.56 5.62 8.73 6.70 25 6.84 5.86 9.11 7.00 26 7.13 6.12 9.51 7.32 27 $7.45 $6.39 $9.94 $7.65 28 7.78 6.68 10.41 8.01 - ------------------------------------------------------------------ AGE MALE FEMALE MALE FEMALE NON-TOBACCO NON-TOBACCO TOBACCO TOBACCO - ------------------------------------------------------------------ 29 8.14 6.99 10.90 8.38 30 8.56 7.34 11.46 8.81 31 8.96 7.68 12.03 9.22 32 9.39 8.04 12.62 9.66 33 9.85 8.42 13.26 10.12 34 0.34 8.82 13.93 10.61 35 10.85 9.24 14.65 11.13 36 11.39 9.69 15.41 11.67 37 11.97 10.16 16.21 12.24 38 12.58 10.66 17.06 12.85 39 13.23 11.18 17.96 13.48 40 13.95 11.77 18.94 14.17 41 14.67 12.35 19.95 14.86 4 - ------------------------------------------------------------------ AGE MALE FEMALE MALE FEMALE NON-TOBACCO NON-TOBACCO TOBACCO TOBACCO - ------------------------------------------------------------------ 42 15.44 12.95 21.00 15.58 43 16.26 13.60 22.12 16.34 44 17.12 14.27 23.30 17.13 45 18.04 14.99 24.55 17.96 46 19.02 15.74 25.86 18.83 47 20.06 16.55 27.26 19.75 48 21.16 17.39 28.74 20.72 49 22.34 18.29 30.31 21.75 50 23.64 19.29 32.02 22.87 51 24.98 20.30 33.79 24.02 52 26.41 21.38 35.67 25.23 53 27.93 22.52 37.66 26.50 54 29.56 23.73 39.76 27.85 55 31.29 25.02 41.99 29.27 56 33.14 26.40 44.34 30.79 57 35.11 27.87 46.83 32.40 58 37.22 29.44 49.48 34.13 59 39.49 31.14 52.30 35.98 60 42.01 33.07 55.42 38.09 61 44.61 35.05 58.63 40.26 62 47.40 37.18 62.04 42.59 63 50.38 39.47 65.65 45.08 64 53.58 41.92 69.47 47.74 65 56.99 44.55 73.51 50.56 66 60.65 47.37 77.78 53.58 67 64.57 50.41 82.30 56.81 68 68.78 53.71 87.12 60.31 69 73.33 57.30 92.26 64.13 70 78.52 61.49 98.10 68.57 71 83.82 65.79 103.99 73.14 72 89.50 70.49 110.27 78.11 73 95.58 75.59 116.89 83.47 74 102.05 81.11 123.85 89.23 75 108.92 87.06 131.11 95.38 76 116.22 93.48 138.65 101.95 77 123.91 100.35 146.41 108.92 78 132.14 107.81 154.56 116.44 79 141.00 115.96 163.19 124.59 80 150.61 124.91 172.42 133.51 81 160.93 134.65 182.18 143.16 82 172.06 145.31 192.54 153.68 83 183.91 156.85 203.37 165.03 84 196.41 169.27 214.56 177.14 85 209.46 182.58 226.02 189.97 CHART 2 - ----------------------------------------------------------------- ISSUE AGE ADMINISTRATIVE TARGET COMPONENT - ----------------------------------------------------------------- 0 through 35 4.00 36 through 55 5.00 56 through 85 6.50 5 MAXIMUM PREMIUM LOAD......................................................7.50% for policy years 1-15, currently 5.50% (for policy years 16 and after the, the maximum premium load is guaranteed to never exceed 6.00%) PARTIAL SURRENDER PROCESSING FEE (PER PARTIAL SURRENDER)..................lesser of $25 or 2% of the amount surrendered
IF YOU DECIDE TO TAKE A LOAN, INTEREST IS APPLIED TO THE LOANED AMOUNT. THE AMOUNT OF INTEREST APPLIED IS GUARANTEED NEVER TO BE GREATER THAN THE PERCENTAGE SHOWN BELOW. INTEREST ASSESSED ON LOANED AMOUNTS...............................................................................4.5%
DETAILED DESCRIPTIONS OF EACH CHARGE SHOWN ABOVE CAN BE FOUND LATER IN THIS PROSPECTUS. INVESTMENT OPTIONS NOT ALL INVESTMENT OPTIONS MAY BE AVAILABLE IN ALL STATES. WHAT UNDERLYING MUTUAL FUNDS ARE AVAILABLE IN THIS VARIABLE LIFE INSURANCE POLICY AND HOW MUCH DOES EACH FUND COST, AFTER EXPENSE REIMBURSEMENT? The following underlying mutual funds are available under the policies: UNDERLYING MUTUAL FUND ANNUAL EXPENSES (AS A PERCENTAGE OF UNDERLYING MUTUAL FUND NET ASSETS AFTER EXPENSE REIMBURSEMENTS)
- ------------------------------------------------------------------------------------------------------------------------- Management Other 12b-1 Total Underlying Fees Expenses Fees Mutual Fund Expenses - ------------------------------------------------------------------------------------------------------------------------- American Century Variable Portfolios, Inc. - American 0.70% 0.00% 0.00% 0.70% Century VP Income & Growth American Century Variable Portfolios, Inc. - American 1.23% 0.00% 0.00% 1.23% Century VP International American Century Variable Portfolios, Inc. - American 1.00% 0.00% 0.00% 1.00% Century VP Value The Dreyfus Socially Responsible Growth Fund, Inc.: Initial 0.75% 0.03% 0.00% 0.78% Shares Dreyfus Stock Index Fund, Inc.: Initial Shares 0.25% 0.01% 0.00% 0.26% Dreyfus Variable Investment Fund - Appreciation Portfolio: 0.75% 0.03% 0.00% 0.78% Initial Shares Federated Insurance Series - Federated Quality Bond Fund II 0.28% 0.42% 0.00% 0.70% Fidelity VIP Equity-Income Portfolio: Service Class* 0.48% 0.08% 0.10% 0.66% Fidelity VIP Growth Portfolio: Service Class* 0.57% 0.09% 0.10% 0.76% Fidelity VIP High Income Portfolio: Service Class 0.58% 0.10% 0.10% 0.78% Fidelity VIP Overseas Portfolio: Service Class* 0.72% 0.17% 0.10% 0.99% Fidelity VIP II Contrafund(R)Portfolio: Service Class* 0.57% 0.09% 0.10% 0.76% Fidelity VIP III Growth Opportunities Portfolio: Service 0.58% 0.11% 0.10% 0.79% Class* GVIT - Dreyfus GVIT Mid Cap Index Fund: Class I 0.50% 0.40% 0.00% 0.90% GVIT - Federated GVIT Equity Income Fund: Class I 0.80% 0.31% 0.00% 1.11% GVIT - Federated GVIT High Income Bond Fund: Class I 0.80% 0.32% 0.00% 1.12% GVIT - Gartmore GVIT Emerging Markets Fund: Class I 1.15% 0.60% 0.00% 1.75% GVIT - Gartmore GVIT Global Technology and Communications 0.98% 0.37% 0.00% 1.35% Fund: Class I GVIT - Gartmore GVIT Government Bond Fund: Class I 0.50% 0.23% 0.00% 0.73%
6
- ------------------------------------------------------------------------------------------------------------------------- Management Other 12b-1 Total Fees Expenses Fees Underlying Mutual Fund Expenses - ------------------------------------------------------------------------------------------------------------------------- GVIT - Gartmore GVIT Growth Fund: Class I 0.60% 0.23% 0.00% 0.83% GVIT - Gartmore GVIT International Growth Fund: Class I 1.00% 0.60% 0.00% 1.60% GVIT - Gartmore GVIT Investor Destinations Aggressive Fund 0.13% 0.23% 0.25% 0.61% GVIT - Gartmore GVIT Investor Destinations Conservative Fund 0.13% 0.23% 0.25% 0.61% GVIT - Gartmore GVIT Investor Destinations Moderate Fund 0.13% 0.23% 0.25% 0.61% GVIT - Gartmore GVIT Investor Destinations Moderately 0.13% 0.23% 0.25% 0.61% Aggressive Fund GVIT - Gartmore GVIT Investor Destinations Moderately 0.13% 0.23% 0.25% 0.61% Conservative Fund GVIT - Gartmore GVIT Money Market Fund: Class I 0.39% 0.22% 0.00% 0.61% GVIT - Gartmore GVIT Total Return Fund: Class I 0.58% 0.23% 0.00% 0.81% GVIT - Gartmore GVIT Worldwide Leaders Fund: Class I 1.00% 0.42% 0.00% 1.42% GVIT - GVIT Small Cap Growth Fund: Class I 1.10% 0.50% 0.00% 1.60% GVIT - GVIT Small Cap Value Fund: Class I 0.90% 0.30% 0.00% 1.20% GVIT - GVIT Small Company Fund: Class I 0.93% 0.26% 0.00% 1.19% GVIT - J.P. Morgan GVIT Balanced Fund: Class I 0.75% 0.32% 0.00% 1.07% GVIT - MAS GVIT Multi Sector Bond Fund: Class I 0.75% 0.34% 0.00% 1.09% GVIT - Strong GVIT Mid Cap Growth Fund: Class I 0.90% 0.27% 0.00% 1.17% Janus Aspen Series - Capital Appreciation Portfolio: 0.65% 0.02% 0.25% 0.92% Service Shares Janus Aspen Series - Global Technology Portfolio: Service 0.65% 0.04% 0.25% 0.94% Shares Janus Aspen Series - International Growth Portfolio: 0.65% 0.06% 0.25% 0.96% Service Shares Neuberger Berman AMT Guardian Portfolio 0.85% 0.15% 0.00% 1.00% Neuberger Berman AMT Mid-Cap Growth Portfolio 0.84% 0.14% 0.00% 0.98% Neuberger Berman AMT Partners Portfolio 0.82% 0.10% 0.00% 0.92% Oppenheimer Variable Account Funds - Oppenheimer Aggressive 0.62% 0.02% 0.00% 0.64% Growth Fund/VA Oppenheimer Variable Account Funds - Oppenheimer Capital 0.64% 0.03% 0.00% 0.67% Appreciation Fund/VA Oppenheimer Variable Account Funds - Oppenheimer Global 0.64% 0.04% 0.00% 0.68% Securities Fund/VA Oppenheimer Variable Account Funds - Oppenheimer Main Street 0.70% 0.03% 0.00% 0.73% Growth & Income Fund/VA Strong Opportunity Fund II, Inc. 1.00% 0.11% 0.00% 1.11% The Universal Institutional Funds, Inc. - Emerging Markets 0.59% 0.81% 0.00% 1.40% Debt Portfolio The Universal Institutional Funds, Inc. - Mid Cap Growth 0.00% 1.05% 0.00% 1.05% Portfolio The Universal Institutional Funds, Inc. - U. S. Real Estate 0.74% 0.36% 0.00% 1.10% Portfolio Van Eck Worldwide Insurance Trust - Worldwide Emerging 1.00% 0.26% 0.00% 1.26% Markets Fund Van Eck Worldwide Insurance Trust - Worldwide Hard Assets 1.00% 0.14% 0.00% 1.14% Fund
*Actual annual class operating expenses were lower because a portion of the brokerage commissions that the Fund paid was used to reduce the Fund's expenses, and/or because through arrangements with the Fund's custodian, credits realized as a result of the uninvested cash balances were used to reduce a portion of the Fund's custodian expenses. See the underlying mutual fund prospectus for details. 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 in calculating the unit value of the corresponding sub-account. The management fees and other expenses are more fully described in the 7 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. WHAT ARE THE UNDERLYING MUTUAL FUND EXPENSES BEFORE EXPENSE REIMBURSEMENT? Some underlying mutual funds are subject to fee waivers, expense reimbursements and/or custodial credits. The following chart shows what the expenses would have been for such funds without fee waivers, expense reimbursements or custodial credits. UNDERLYING MUTUAL FUND ANNUAL EXPENSES (as a percentage of underlying mutual fund net assets, before expense reimbursements)
- ------------------------------------------------------------------------------------------------------------------------------ Management Other 12b-1 Total Underlying Fees Expenses Fees Mutual Fund Expenses - ------------------------------------------------------------------------------------------------------------------------------ Federated Insurance Series - Federated Quality Bond Fund II 0.60% 0.67% 0.25% 1.52% GVIT - Gartmore GVIT Emerging Markets Fund: Class I 1.15% 2.94% 0.00% 4.09% GVIT - Gartmore GVIT Global Technology and Communications 0.98% 1.59% 0.00% 2.57% Fund: Class I GVIT - Gartmore GVIT International Growth Fund: Class I 1.00% 1.88% 0.00% 2.88% GVIT Gartmore GVIT Investor Destinations Aggressive Fund 0.13% 0.63% 0.25% 1.01% GVIT Gartmore GVIT Investor Destinations Conservative Fund 0.13% 0.63% 0.25% 1.01% GVIT Gartmore GVIT Investor Destinations Moderate Fund 0.13% 0.63% 0.25% 1.01% GVIT Gartmore GVIT Investor Destinations Moderately 0.13% 0.63% 0.25% 1.01% Aggressive Fund GVIT Gartmore GVIT Investor Destinations Moderately 0.13% 0.63% 0.25% 1.01% Conservative Fund Strong Opportunity Fund II, Inc. 1.00% 0.18% 0.00% 1.18% The Universal Institutional Funds, Inc. - Emerging Markets 0.80% 0.81% 0.00% 1.61% Debt Portfolio The Universal Institutional Funds, Inc. - Mid Cap Growth 0.75% 1.54% 0.00% 2.29% Portfolio The Universal Institutional Funds, Inc. - U. S. Real Estate 0.80% 0.36% 0.00% 1.16% Portfolio Van Eck Worldwide Insurance Trust - Worldwide Emerging 1.00% 0.33% 0.00% 1.33% Markets Fund Van Eck Worldwide Insurance Trust - Worldwide Hard Assets Fund 1.00% 0.16% 0.00% 1.16%
No charge is assessed to you for income taxes incurred by us as a result of the operations of the sub-accounts. However, we reserve the right to assess a charge for income taxes against the sub-accounts of the variable account if income taxes are incurred. YOU CAN FIND THE OBJECTIVES FOR EACH OF THE FUNDS LISTED ABOVE IN APPENDIX A. PLEASE TAKE A LOOK AT APPENDIX B IF YOU WOULD LIKE TO SEE THE MOST RECENT HISTORICAL PERFORMANCE FOR EACH OF THE FUNDS LISTED ABOVE. ARE THERE ANY OTHER INVESTMENT OPTIONS AVAILABLE TO ME? Yes. You may also invest in the fixed account option available in your policy. The fixed account is an investment option that is funded by assets of our general account. The general account contains all of our assets other than those in this and our other separate accounts. The general account is used to support our 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. Premiums will be allocated to the fixed account as elected by you, subject to the limits disclosed in this prospectus. The investment income earned by the fixed account will be allocated to the policies at varying guaranteed interest rate(s) depending on the following categories of fixed account allocations: - - Portfolio Rate - The rate credited on the fixed account net of policy loans. This rate is a weighted average of all investments in the fixed account made over time at different rates of return and is subject to 8 change based on market conditions. The Dollar Cost Averaging Rate is the same as the Portfolio Rate. - - Renewal Rate - The rate available for maturing fixed account allocations which are entering a new guarantee period. You will be notified of this rate in a letter issued with the quarterly statements when any of the money in your fixed account matures. At that time, you will have an opportunity to leave the money in the fixed account and receive the Renewal Rate or you can move the money to any of the sub-accounts. - - Enhanced Dollar Cost Averaging Rate - From time to time, we may offer a more favorable rate for an initial premium into a new policy when used in conjunction with an enhanced 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 which the 12 month anniversary of 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 your policy 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 premium payment will be effective for not less than twelve months. We guarantee that the rate will not be less than 3.0% per year. Any interest in excess of 3.0% will be credited to fixed account allocations at our sole discretion. You assume the risk that interest credited to fixed account allocations may not exceed the minimum guarantee of 3.0% for any given year. We guarantee that the fixed account value will not be less than the amount of the premium allocated to the fixed account, plus interest credited as described above, less any surrenders and any applicable charges. ARE THERE RIDERS AVAILABLE TO BE ADDED TO THE POLICY? Yes, the riders you currently can add to the policy are: - Waiver of Monthly Deductions Rider - Waiver of Specified Premium Rider - Child Rider - Spouse Rider - Accidental Death Benefit Rider - Long Term Care Rider Not all riders may be available in all states. OK. NOW THAT I KNOW A LITTLE MORE ABOUT WHERE I CAN INVEST MY MONEY, DESCRIBE THIS POLICY IN DETAIL. The policy described in this application meets the definition of "life insurance" as defined in Section 7702 of the Internal Revenue Code. We continually monitor this policy to make sure that it continues to meet the requirements of Section 7702. If you purchase this policy, you will not be paid dividends from us. This policy is not a participating policy. It does not share in the profits or surplus earnings of Nationwide like traditional term or universal life insurance policies. In addition, any dividends paid by the underlying mutual funds will be automatically reinvested in that fund. With variable life insurance policies, including the policy described in this prospectus, the cash value and the death benefit vary with the investment performance of the investment options you select, however, remember that the death benefit cannot fall below the amount you've specified, often called the "specified amount." The specified amount will be reflected on your policy data page. In this policy, you request the amount of specified amount you feel you need upon the death of the named insured - such insured could be you or another named person. In return for our guarantee that a death benefit will be paid upon the death of the named insured while the policy is in force, you must deposit a minimum amount of premium, in addition to paying certain costs. ARE THERE ANY CRITERIA FOR PURCHASING THIS POLICY? Minimum requirements for policy issuance include: - the insured must be 85 or younger; - we may require satisfactory evidence of insurability (including a medical exam); and - you must specify a death benefit amount of at least $100,000. WHAT IS THE MINIMUM AMOUNT OF PREMIUM YOU WILL ACCEPT? The minimum amount of premium you must pay depends on how much life insurance you specify, however, each premium payment must be at least $50. The initial premium is payable in full at our home office or to our authorized agent. TELL ME MORE ABOUT THE CHARGES I MUST PAY IN ORDER TO MAKE SURE A DEATH BENEFIT IS PAID IF THE INSURED DIES. In order to make sure the policy does not lapse, you will need to pay the following charges: - - Cost of Insurance Charge - - Mortality and Expense Risk Charge - - Per $1,000 of Specified Amount Charge - - Monthly Policy Expense Charge - - Premium Load 9 Each of the charges shown above are discussed in further detail below. COST OF INSURANCE CHARGE We deduct a Cost of Insurance Charge from the cash value on a monthly basis. This charge is determined by multiplying the monthly cost of insurance rate by the net amount at risk (the death benefit minus the policy's cash value). This deduction is charged proportionately to the cash value in each sub-account and the fixed account, unless you elect otherwise. If you elect to increase the specified amount (the amount used to calculate the death benefit), the net amount at risk will also increase. In order for us to support this increased risk, we will assess an additional Cost of Insurance Charge to the increase. The underwriting criteria, such as the insured's age and health, may be different at the time of the specified amount increase than at the time of application. Therefore, the monthly cost of insurance rate we use to calculate the Cost of Insurance Charge for the increase may be different than the rate we used to calculate the Cost of Insurance Charge for the initial specified amount. Monthly cost of insurance rates will not exceed those guaranteed in the policy. Guaranteed cost of insurance rates are based on the 1980 Commissioners' Standard Ordinary Mortality Table, Age Last Birthday (1980 CSO). These mortality tables are sex distinct. In addition, separate mortality tables will be used for tobacco and non-tobacco. MORTALITY AND EXPENSE RISK CHARGE We assume certain risks for guaranteeing the mortality and expense charges. The mortality risk assumed under this policy is that the insured may not live as long as expected. The expense risk assumed is that the actual expenses incurred in issuing and administering this policy may be greater than expected. In addition, we assume risks associated with the non-recovery of policy issue, underwriting and other administrative expenses due to policies that lapse or are surrendered in the early policy years. In exchange for assuming the risks described above, we deduct a Mortality and Expense Risk Charge from the variable account on a monthly basis. For each policy in years 1-15, this charge is equal to an annualized rate of 0.80% of the policy's variable account assets on each monthly anniversary day. For policy years 16 and after, this charge is equal to an annualized rate of 0.30% of the policy's variable account assets on each monthly anniversary day. Mortality and Expense Risk Charge deductions will be charged proportionally to the cash value in each sub-account in which you invest unless you tell us otherwise. PER $1,000 OF SPECIFIED AMOUNT CHARGE We deduct a charge from the cash value on a monthly basis for the first two policy years only. The amount of the charge varies with the age of the insured at the time of policy issuance in accordance with the following chart: - ------------------------------------------------------------------ ISSUE AGE CHARGE PER ISSUE AGE CHARGE PER $1,000 OF $1,000 OF SPECIFIED SPECIFIED AMOUNT AMOUNT - ------------------------------------------------------------------ 0-19 $0.05 78 $0.26 20-29 $0.075 79 $0.24 30-39 $0.10 80 $0.23 40-49 $0.125 81 $0.21 50-59 $0.15 82 $0.20 60-69 $0.20 83 $0.19 70-76 $0.30 84 $0.18 77 $0.28 85 $0.16 This charge is taken on each monthly anniversary day. This charge compensates us for sales expenses and expenses associated with underwriting, issuing and distributing the policy. Sales expenses include actual expenses paid to the broker or agent who is servicing you. Issue expenses include costs associated with the underwriting process. MONTHLY POLICY EXPENSE CHARGE We deduct a Policy Expense Charge from the cash value in the amount of $5.00 per month. This charge is guaranteed to never go above $7.50 per month. The Policy Expense Charge is taken proportionately against the sub-accounts of the variable account and the fixed account on each monthly contract anniversary day. The Monthly Policy Expense Charge compensates us for administrative expenses. Administrative expenses include actual expenses related to the maintenance of the policies including account and record-keeping, and providing you with periodic reports. Neither we nor Nationwide Investment Services Corporation (nor any of the affiliates of either) receive profits or other benefits not included in the charges described in this section. MAXIMUM PREMIUM LOAD We deduct a premium load from the cash value in the amount of 7.5% for policy years 1-15 and 5.5% for policy years 16 and after. The maximum premium load is assessed monthly and is guaranteed not to exceed 6.0% for policy years 16 and after. The premium load compensates us for tax expenses. The Premium Load compensates Nationwide for tax expenses including state premium and other state and local taxes as well as federal taxes imposed under 10 Section 848 of the Internal Revenue Code. This charge is not a sales charge. The amount charged may be more or less than the amount actually assessed by the state in which you live. RIGHT TO CANCEL WHAT IF I DECIDE I DON'T WANT THIS POLICY AFTER I PURCHASE IT? You may cancel the policy by returning it by the latest of: - - 10 days after receiving the policy; - - 45 days after signing the application; or - - 10 days after we deliver a Notice of Right of Withdrawal. If you decide to cancel, the policy can be mailed to the registered representative who sold it you or returned directly to us. The cancellation will be effective as of the date the request to cancel is postmarked, or if you return the policy and the request to cancel directly to us, the date we receive the returned policy and request to cancel. Returned policies are deemed void from the beginning. We will refund the amount prescribed by the state in which the policy was issued within 7 days after we receive the policy. (For policies issued in New York, we will refund any premiums paid.) The refunded amount will reflect the policy's investment experience from the time of issuance to the time of termination, as well as the deduction of any policy charges, unless the state in which the policy was issued requires another amount to be refunded. In addition you may, at any time during the first 24 months after your policy is issued, submit a written request to us for an irrevocable one-time election to transfer all sub-account cash value to the fixed account. This right of conversion is subject to state availability. ALLOCATION OF PREMIUM PAYMENTS I'VE DECIDED I WANT TO PURCHASE THIS POLICY. WHAT HAPPENS AFTER I SEND IN MY INITIAL PREMIUM PAYMENT? Initial premiums allocated to a sub-account on the application are allocated to the GVIT - Gartmore GVIT Money Market Fund: Class I during the period in which you may cancel the policy, unless your state requires premiums to be allocated to the fixed account. (In New York, premiums are allocated to either the GVIT - Gartmore GVIT Money Market Fund: Class I or the fixed account based on your election. If you make no election, premiums are allocated to the GVIT - Gartmore GVIT Money Market Fund: Class I.) At the expiration of this period, the premiums are used to purchase shares of the underlying mutual funds you specified at net asset value for the respective sub-account(s). Upon payment of the initial premium, temporary insurance may be provided. Issuance of continuing insurance coverage is dependent upon completion of all underwriting requirements, payment of the initial premium, and delivery of the policy while the insured is still living. Additional premium payments may be made at any time while the policy is in force, subject to the following conditions: - we may require satisfactory evidence of insurability before accepting any additional premium payment which results in an increase in the net amount at risk; and - premium payments in excess of the premium limit established by the IRS to qualify the policy as a contract for life insurance will be refunded. Additional premium payments or other changes to the policy may jeopardize the policy remaining within the definition of "life insurance" as defined by the Internal Revenue Code. We will monitor premiums paid and other policy transactions and will notify you when we believe your policy may be in jeopardy of violating the life insurance guidelines. We will send scheduled premium payment reminder notices to you according to the premium mode shown on your policy data page. We allocate premium payments to the sub-accounts and/or the fixed account, as you instruct. All percentage allocations must be in whole numbers, and must be at least 1%. The sum of allocations must equal 100%. Future premium allocations may be changed by giving us written notice. You may change the allocation of premiums or may transfer cash value from one sub-account to another. Cash value transferred to the variable account from the fixed account, or between sub-accounts, will receive the accumulation unit value next determined after the transfer request is received. Premiums allocated to the fixed account at the time of application may not be transferred from the fixed account prior to the first policy anniversary. WHEN WILL MY PREMIUM PAYMENTS BE ALLOCATED TO MY REQUESTED SUB-ACCOUNT OPTIONS? Premium payments received by us in good order will be applied to the sub-accounts and/or fixed account within 2 business days of receipt. Premiums will not be used to purchase accumulation units when the New York Stock Exchange is closed or on the following nationally recognized holidays: 11 - - New Year's Day - Independence Day - - Martin Luther King, Jr. Day - Labor Day - - Presidents' Day - Thanksgiving - - Good Friday - Christmas - - Memorial Day We will not use premiums to purchase accumulation units 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 the conditions described in (2) and (3) exist. If we are closed on days when the New York Stock Exchange is open, your cash value may be affected since you would not have access to your account. VALUING ACCOUNT VALUES ONCE MY PREMIUM PAYMENTS CAN BE APPLIED TO MY POLICY, HOW MUCH CAN MY PREMIUM PURCHASE? The number of "units" your premium can purchase is determined primarily by policy charges and the net asset value of the underlying mutual funds as of the date your premium is allocated to those funds. How we determine your Variable Account Value - Valuing an Accumulation Unit Premium 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. We use 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 underlying 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) where: a) is the sum of: 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 date of the dividend or income distribution occurs during the current valuation period). b) is the net asset value per share of the underlying mutual fund determined as of the end of the immediately preceding valuation period. We currently do not maintain a tax reserve with respect to the policies since income with respect to the underlying mutual funds is not taxable to us or the variable account. We do, however, reserve the right to adjust the calculation of the net investment factor to reflect a tax reserve should such income or other items become taxable to us. Based on the change in 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 underlying mutual fund shares because of the deduction of variable account charges. Determining Fixed Account Value We determine the value of the fixed account by: 1) adding all amounts allocated to the fixed account; minus 2) amounts previously withdrawn or transferred from the fixed account to the sub-accounts; plus 3) any interest earned on the amounts allocated; minus 4) charges deducted in accordance with the policy. TRANSFERRING ALLOCATIONS MAY I MAKE TRANSFERS BETWEEN INVESTMENT OPTIONS? Yes. You may make transfers among investment options after your policy is issued provided you meet the criteria listed below. Transfers from the Fixed Account to the Sub-Accounts Fixed account allocations may be transferred to the sub-accounts only upon reaching the end of an interest rate guaranteed period. Normally, we will permit 100% of fixed account allocations to be transferred to the variable account. However, we may under certain economic conditions and at our discretion, limit the maximum transferable amount. In addition, we reserve the right to restrict transfers between the fixed account and the sub-accounts to one per policy year. Under no circumstances will the maximum transferable amount be less than 20% of the portion of cash value attributable to the fixed 12 account as of the end of the previous policy year (subject to state restrictions). Those of you who have entered into dollar cost averaging agreements with us may transfer under the terms of that agreement. Transfers of the fixed account allocations must be made within 30 days after reaching the end of an interest rate guarantee period. Transfers to the Fixed Account Transfers to the fixed account may not be made prior to the first policy anniversary or within 12 months of any prior transfer. We reserve the right to restrict the amount transferred to the fixed account to 25% of the portion of cash value attributable to the sub-accounts as of the close of business of the prior valuation period. In addition, we reserve the right to refuse a transfer to the fixed account if the fixed account value before the transfer is greater than or equal to 30% of your policy's cash value. Transfers Among the Sub-Accounts Allocations may be transferred among the sub-accounts once per valuation period. 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 30 days of the end of an interest rate guarantee period, transfers may be made from the fixed account to the sub-accounts. We will determine the amount that may be transferred and will declare this amount at the end of the guarantee period. For new premium payments allocated to the fixed account, or transfers to the fixed account from the sub-accounts, 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 anniversary because a guaranteed term ends 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. Dollar Cost Averaging Program 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 the fixed account and/or certain sub-accounts into other sub-accounts. This program is not available in the State of New York. We do not guarantee that this program will result in profit or protect you from loss. If you elect this option, you must direct us via the instructions below to automatically transfer amounts from the fixed account, Federated Insurance Series - Federated Quality Bond Fund II, Fidelity VIP High Income Portfolio: Service Class, GVIT - Gartmore GVIT Government Bond Fund: Class I, GVIT Federated GVIT High Income Bond Fund: Class I, and the GVIT - Gartmore GVIT Money Market Fund: Class I to any other specified sub-account(s). Transfers will occur monthly or on another frequency if permitted by us. We will process transfers until either the value in the originating investment option is exhausted, or you instruct us in writing to stop the transfers. 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. No charge is assessed for using a Dollar Cost Averaging program. We reserve the right to stop establishing new Dollar Cost Averaging programs at any time. Enhanced Dollar Cost Averaging Program We 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 you 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. We will process transfers until either amounts in the enhanced rate fixed account are exhausted or you instruct us in writing to stop the transfers. For this program only, when a written request to discontinue transfers is received, we will automatically transfer the remaining amount in the enhanced rate fixed account to the GVIT - Gartmore GVIT Money Market Fund Class I. We are required by state law to reserve the right to postpone payment of assets in the fixed account for a period of up to six months from the date of the surrender request. HOW DO I MAKE TRANSFERS? We will accept transfer requests in writing, over the telephone or via the internet. See the following table for specific contact information. - ------------------------------------------------------------------ Form of Request Contact Information - ------------------------------------------------------------------ Written request Nationwide Life Insurance Company P.O. Box 182150 Columbus, OH 43218-2150 Telephone request 1-800-547-7548 TDD 1-800-238-3035 Internet request www.bestofamerica.com Transfer requests may be submitted at any time. Requests received by us after the close of business of a valuation period will be processed the next valuation period. 13 We will use reasonable procedures to confirm that instructions received are genuine and will not be liable for following instructions we reasonably determine to be genuine. We may withdraw the telephone and/or internet exchange privilege upon 30 days written notice to you. Market-Timing Firms We reserve the right to refuse or limit transfer requests (or take any other action deemed necessary) in order to protect policy owners and beneficiaries from the negative investment results that may result from short-term trading or other harmful investment practices that are employed by some policy owners (or third parties acting on their behalf). If we determine that a policy owner (or a third party acting on the policy owner's behalf) is engaging in harmful short-term trading, we reserve the right to take action to protect investors, including exercising our right to terminate the ability of specified policy owners to submit transfer requests via telephone, facsimile, or over the internet. If we exercise this right, affected policy owners would be limited to submitting transfer requests via U.S. mail. Any action we take pursuant to this provision will be preceded by a 30 day written notice to the affected policy owner. CASH VALUE AND SURRENDERS DOES MY POLICY HAVE ANY VALUE BESIDES DEATH BENEFIT VALUE? Yes. Your policy has cash value if you have paid all the required premiums to keep the policy in force. Assuming your policy is not in a grace period, you may take partial surrenders of the cash value, total surrenders or take a policy loan. Cash Value Cash value is the sum of the value of all variable account accumulation units attributable to your policy plus amounts credited to the fixed account and your policy loan account, if any. We will determine the value of the assets in your variable account at the end of each valuation period. The cash value will be determined at least monthly. The number of accumulation units credited to each sub-account is determined by dividing the net amount allocated to the sub-account by the accumulation unit value for the sub-account for the valuation period during which the premium is received by us. In the event part or all of the cash value is surrendered, we will deduct an appropriate number of accumulation units from the variable account sub-accounts in the same proportion that your interest in the variable account sub-accounts are allocated, unless otherwise directed by you. Deductions will be taken from the fixed account only to the extent that there are insufficient assets in the sub-accounts. The cash value in the fixed account and the policy loan account is credited with interest daily at an effective annual rate which we periodically declare. The annual effective rate will never be less than 3%. Upon request, we will inform you of the applicable rates for each account. On any date during the policy year, the cash value equals: 1) the cash value on the preceding valuation date; plus 2) any new premium applied since the previous valuation date; plus 3) any interest added to assets in the fixed account; plus 4) any interest added to assets in the policy loan account, if applicable; plus or minus 5) any investment results for assets invested in the sub-accounts; minus 6) policy charges; minus 7) partial surrenders, if applicable; minus 8) any surrender charges, if applicable. There is no guaranteed cash value. The cash value will vary with the investment experience of the variable account and/or the daily crediting of interest in the fixed account and policy loan account depending on your investment allocations. Cash Surrender Value It's important to remember that if your policy is terminated during the insured's lifetime, a cash surrender value may be payable to you under the policy, however, the amount of the cash surrender value is not guaranteed by us. Your policy will lapse without value if the cash surrender value falls below what is needed to cover policy charges. You may surrender your policy for the cash surrender value any time while the insured is living. The cancellation will be effective as of the date we receive the policy accompanied by a signed, written request for cancellation. In some cases, we may require additional documentation of a customary nature. We are required by state law to reserve the right to postpone payment of assets in the fixed account for a period of up to 6 months from the date of the surrender request. The cash surrender value equals the policy's cash value, next computed after the date we receive a proper written 14 request for surrender AND the policy, minus any charges, indebtedness or other deductions due on that date, which may also include a surrender charge. The cash surrender value increases or decreases daily to reflect the investment experience of the variable account and the daily crediting of interest in the fixed account and the policy loan account. If, at any time, the policy's cash surrender value falls below zero and the policy continuation provision is not in effect, the grace period will begin. You will be notified that your policy has negative cash surrender value and will be given the opportunity to pay premiums to bring the policy out of the grace period WHAT IF I WANT TO TAKE A PARTIAL OR TOTAL SURRENDER? WHAT HAPPENS NEXT? If you wish to totally or partially surrender your policy, you may be assessed a surrender charge. The following information explains in detail what charges you will incur for surrendering a portion or all of your policy. Total Surrenders You may surrender your policy and receive your policy's cash surrender value, which is the policy's cash value, less indebtedness or other deductions. If you elect to surrender the entire policy during the first 14 policy years, we will deduct a surrender charge from your policy's cash value. The charge is deducted proportionally from the cash value in each sub-account and the fixed account. The maximum initial surrender charge varies by issue age, sex, specified amount and underwriting classification. The maximum initial surrender charge will not exceed 22.5% multiplied by the lesser of: (a) or (b), where: (a) = the specified amount multiplied by the rate indicated on Chart 1, divided by 1,000; (b) = premiums paid during the first two policy years; Plus (c) multiplied by (d), where: (c) = the specified amount divided by 1,000; and (d) = the administrative target component as illustrated by Chart 2 as follows, this factor allows the company to account for the probability (at various ages) that death will occur and no CDSC will be recouped. In certain scenarios, usually involving decreases in your policy value, your policy's surrender charge may equal all of your policy's cash surrender value. In other scenarios, usually involving a large initial premium or significant additions of premium after the second policy year, your policy's surrender charge may be nominal relative to the premiums you have paid. CHART 1 - ------------------------------------------------------------------ AGE MALE FEMALE MALE FEMALE NON-TOBACCO NON-TOBACCO TOBACCO TOBACCO - ------------------------------------------------------------------ 18 $5.21 $4.36 $6.91 $5.17 19 5.40 4.54 7.17 5.39 20 5.63 4.76 7.47 5.65 21 5.84 4.96 7.76 5.90 22 6.07 5.17 8.06 6.15 23 6.31 5.39 8.38 6.42 24 6.56 5.62 8.73 6.70 25 6.84 5.86 9.11 7.00 26 7.13 6.12 9.51 7.32 27 7.45 6.39 9.94 7.65 28 7.78 6.68 10.41 8.01 29 8.14 6.99 10.90 8.38 30 8.56 7.34 11.46 8.81 31 8.96 7.68 12.03 9.22 32 9.39 8.04 12.62 9.66 33 9.85 8.42 13.26 10.12 34 10.34 8.82 13.93 10.61 35 10.85 9.24 14.65 11.13 36 11.39 9.69 15.41 11.67 37 11.97 10.16 16.21 12.24 38 12.58 10.66 17.06 12.85 39 13.23 11.18 17.96 13.48 40 13.95 11.77 18.94 14.17 41 14.67 12.35 19.95 14.86 42 15.44 12.95 21.00 15.58 43 16.26 13.60 22.12 16.34 44 17.12 14.27 23.30 17.13 45 18.04 14.99 24.55 17.96 46 19.02 15.74 25.86 18.83 47 20.06 16.55 27.26 19.75 48 21.16 17.39 28.74 20.72 49 22.34 18.29 30.31 21.75 50 23.64 19.29 32.02 22.87 51 24.98 20.30 33.79 24.02 52 26.41 21.38 35.67 25.23 53 27.93 22.52 37.66 26.50 54 29.56 23.73 39.76 27.85 55 31.29 25.02 41.99 29.27 56 33.14 26.40 44.34 30.79 57 35.11 27.87 46.83 32.40 58 37.22 29.44 49.48 34.13 59 39.49 31.14 52.30 35.98 60 42.01 33.07 55.42 38.09 61 44.61 35.05 58.63 40.26 62 47.40 37.18 62.04 42.59 63 50.38 39.47 65.65 48.08 64 53.58 41.92 69.47 47.74 65 56.99 44.55 73.51 50.56 15 - ------------------------------------------------------------------ AGE MALE FEMALE MALE FEMALE NON-TOBACCO NON-TOBACCO TOBACCO TOBACCO - ------------------------------------------------------------------ 66 $60.65 $47.37 $77.78 $53.58 67 64.57 50.41 82.30 56.81 68 68.78 53.71 87.12 60.31 69 73.33 57.30 92.26 64.13 70 78.52 61.49 98.10 68.57 71 83.82 65.79 103.99 73.14 72 89.50 70.49 110.27 78.11 73 95.58 75.59 116.89 83.47 74 102.05 81.11 123.85 89.23 75 108.92 87.06 131.11 95.38 76 116.22 93.48 138.65 101.95 77 123.91 100.35 146.41 108.92 78 132.14 107.81 154.56 116.44 79 141.00 115.96 163.19 124.59 80 150.61 124.91 172.42 133.51 81 160.93 134.65 182.18 143.16 82 172.06 145.31 192.54 153.68 83 183.91 156.85 203.37 165.03 84 196.41 169.27 214.56 177.14 85 209.46 182.58 226.02 189.97 CHART 2 - ------------------------------------------------------------------ Issue Age Administrative Target Component - ------------------------------------------------------------------ 0 through 35 4.00 36 through 55 5.00 56 through 85 6.50 Surrender charges for years 2-15 are a percentage of the initial surrender charge as shown in the following chart: - ------------------------------------------------------------------ POLICY YEAR SURRENDER CHARGE POLICY SURRENDER YEAR CHARGE - ------------------------------------------------------------------ 1 100% of initial 9 30% of initial surrender charge surrender charge 2 95% of initial 10 25% of initial surrender charge surrender charge 3 85% of initial 11 20% of initial surrender charge surrender charge 4 80% of initial 12 15% of initial surrender charge surrender charge 5 70% of initial 13 10% of initial surrender charge surrender charge 6 60% of initial 14 5% of initial surrender charge surrender charge 7 50% of initial 15 0% of initial surrender charge surrender charge 8 40% of initial surrender charge The surrender charge schedule will be fixed at the end of the second policy year and will remain the same for the life of the policy, unless the specified amount is increased. The surrender charge schedule will not vary due to changes in specified amount or cash value. Surrender charges reimburse us for certain expenses related to the sale of the policies, including commissions, costs of sales literature, and other promotional activity. The surrender charges may be insufficient to recover certain expenses related to the sale of the policies. Unrecovered expenses are borne by our general assets which may include profits, if any, from Mortality and Expense Risk Charges. Additional premiums and/or income earned on assets in the variable account have no effect on these charges. If, at any time, your policy's cash surrender value is less than or equal to zero, the grace period will begin, unless the policy is covered by the policy continuation provision. You will be notified that your policy has negative cash surrender value and will be given the opportunity to pay premiums to bring the policy out of the grace period. Partial Surrenders After your policy has been in force for one year, you may request a partial surrender. Such requests must be made in writing. Partial surrenders will be deducted proportionately from the assets in each sub-account, unless otherwise directed by you. Amounts will be deducted from the fixed account only to the extent that there are insufficient assets in the variable account. When you take a partial surrender, we reduce the policy's cash value by the amount of the partial surrender. Partial surrenders are permitted if they satisfy the following: 1) the minimum partial surrender is $200; 2) during the first 10 policy years, the sum of all partial surrenders in a given year may not exceed 10% of your policy's cash surrender value as of the beginning of that policy year; 3) after your 10th policy year, the maximum partial surrender is limited to the cash surrender value less the greater of $500 or 3 month's policy charges; 4) a partial surrender may not cause the total specified amount to be reduced below the minimum specified amount as shown on the policy data page; and 5) after the partial surrender, your policy continues to qualify as life insurance. We reserve the right to limit the number of partial surrenders to one in each policy year. Certain partial surrenders may result in currently taxable income and tax penalties. 16 Currently, we do not assess a fee for processing partial surrenders. However, we reserve the right to assess a Partial Surrender Processing Fee equal to the lesser of $25 or 2% of the amount surrendered for each partial surrender. WILL PARTIAL SURRENDERS HAVE ANY EFFECT ON MY POLICY'S CASH VALUE? Yes. When a partial surrender is taken, we will reduce the cash value by the partial surrender amount withdrawn and any surrender fees taken. In addition, we will reduce the Specified Amount by the amount necessary to prevent an increase in the net amount at risk. Any decrease will reduce your insurance in the following order: 1) against the insurance provided by the most recent increase; 2) against the most recent increase successively; and 3) against the insurance under the original application. WILL I HAVE TO PAY TAXES ON ANY AMOUNTS SURRENDERED? Federal law requires us to withhold income tax from any portion of surrender proceeds subject to tax. We will withhold income tax unless you advise us, in writing, of your request not to withhold. If you request that taxes not be withheld, or if the taxes withheld are insufficient, you may be liable for payment of an estimated tax. You should consult a tax adviser. If your policy is an employer-sponsored life insurance arrangement, you may be required to report for income tax purposes, one or more of the following: 1) the value each year of the life insurance protection provided; 2) an amount equal to any employer-paid premiums; or 3) some or all of the amount by which the current value exceeds the employer's interest in the policy. You should consult with the sponsor or the administrator of your plan, and/or with their personal tax or legal adviser, to determine the tax consequences, if any, of your employer-sponsored life insurance arrangement. POLICY LOANS MAY I TAKE A LOAN AGAINST MY POLICY? Yes, provided your policy meets certain criteria. After the first policy year, you may request a policy loan using your policy as security. Any request for a policy loan must be in written form and signed by you. Certain policy loans may result in current taxable income and tax penalties. Policy loans are subject to the following: - - we will not grant a loan for an amount less than $200. - - the maximum total amount that may be borrowed, including any outstanding loans, as of the date the loan is processed, is: a) 90% of the cash value in the sub-accounts; plus b) 100% of the cash value in the fixed account; plus c) 100% of the cash value in the policy loan account; minus d) 100% of the surrender charge. - - if the cash value is less than or equal to $0, no additional loans may be taken. - - if total indebtedness ever equals or exceeds the cash value less surrender charges, your policy will terminate without value, subject to the grace period provisions. Policy indebtedness will be deducted from the death benefit, cash surrender value upon surrender, or the maturity proceeds. If you are considering getting a policy loan in connection with your retirement income plan, you should consult your personal tax adviser regarding potential tax consequences that may arise if necessary payments are not made to keep the policy from lapsing. The amount of the payments necessary to prevent your policy from lapsing will increase with age. WILL MY LOAN HAVE ANY EFFECT ON INVESTMENT PERFORMANCE? Yes. When a loan is made, an amount equal to the amount of the loan is transferred from the variable account to the policy loan account. If the assets relating to your policy are held in more than one sub-account, withdrawals from the sub-accounts will be made in proportion to the assets in each sub-account at the time of the loan, unless otherwise directed by you. Policy loans will be transferred from the fixed account only when sufficient amounts are not available in the sub-accounts. The amount taken out of the variable account will not be affected by the variable account's investment experience while the loan is outstanding. WHAT ABOUT INTEREST? The annual effective loan interest rate charged on policy loans is guaranteed to never be greater than 4.50%. 17 If it is determined that such loans will be treated, as a result of the differential between the interest crediting rate and the loan interest rate, as taxable distributions under any applicable ruling, regulation, or court decision, we retain the right to increase the net cost (by decreasing the interest crediting rate) on all subsequent policy loans to an amount that would result in the transaction being treated as a loan under federal tax law. If this amount is not prescribed by such ruling, regulation, or court decision, the amount will be an amount which we consider to be more likely to result in the transaction being treated as a loan under federal tax law. Amounts transferred to the policy loan account will earn interest daily from the date of transfer. The earned interest is transferred from the policy loan account to the variable account or the fixed account on each policy anniversary, at the time a new loan is requested, or at the time of loan repayment. It will be allocated according to the fund allocation factors in effect at the time of the transfer. Interest is charged daily and is payable at the end of each policy year or at the time of loan repayment. Unpaid interest will be added to the existing policy indebtedness as of the due date and will be charged interest at the same rate as the rest of the indebtedness. Whenever the total policy indebtedness exceeds the cash value less any surrender charges, we will send a notice to you and the assignee, if any. Your policy will terminate without value 61 days after the mailing of the notice unless a sufficient repayment is made during that period. A repayment is sufficient if it is large enough to reduce the total policy indebtedness to an amount equal to the total cash value less any surrender charge plus an amount sufficient to continue your policy in force for 3 months. WILL A LOAN HAVE ANY EFFECT ON MY DEATH BENEFIT AMOUNT OR CASH VALUE AMOUNT? Yes. A policy loan, whether or not repaid, will have a permanent effect on your death benefit and cash value because the investment results of the variable account or the fixed account will apply only to the non-loaned portion of the cash value. The longer the loan is outstanding, the greater the effect is likely to be. Depending on the investment results of the variable account or the fixed account while the loan is outstanding, the effect could be favorable or unfavorable. WHEN AND HOW DO I MAKE LOAN REPAYMENTS? All or part of the indebtedness may be repaid at any time while your policy is in force during the insured's lifetime. Any payment intended as a loan repayment, rather than a premium payment, must be identified as such. Loan repayments will be credited to the sub-accounts and the fixed account in proportion to your underlying mutual fund allocation factors in effect at the time of the repayment. Each repayment must be at least $50. We reserve the right to require that any loan repayments resulting from policy loans transferred from the fixed account must be first allocated to the fixed account. DEATH BENEFIT DO I HAVE A CHOICE OF DEATH BENEFIT OPTIONS? Yes. In fact you may choose one of three death benefit options. All the death benefit options listed below qualify as life insurance using the guideline premium/cash value corridor test under Section 7702 of the Internal Revenue Code. Keep in mind that whatever death benefit option you choose, the death benefit will never be less than the specified amount, less partial withdrawals and/or policy indebtedness. The death benefit may vary with the cash value of the policy, which depends on investment performance. The death benefit options you may choose are as follows: Option 1. If you elect Option 1 and the insured dies, the amount of the death benefit will be equal the greater of: 1) the specified amount on the date death proceeds become payable; or 2) the applicable percentage of cash value, as indicated in the chart below, as of the date death proceeds become payable. Option 2. If you elect Option 2 and the insured dies, the amount of the death benefit will be equal to the greater of: 1) the specified amount plus the cash value on the date death proceeds become payable; or 2) the applicable percentage of the cash value, as indicated on the chart below, as of the date the death proceeds become payable. Option 3. If you elect Option 3 and the insured dies, the amount of the death benefit will be equal to the greater of: 1) the specified amount plus the accumulated premium amount on the date death proceeds become payable; or 2) the applicable percentage of cash value, as indicated on the chart below, as of the date the death proceeds become payable. The accumulated premium amount is all premium payments accumulated to the date of death less 18 any partial surrenders accumulated to the date of death. The accumulations will be calculated based on the interest rate declared at the time the policy is issued. In no event will the accumulated premium amount be less than zero ($0) or greater than the maximum increase as shown on the policy data page. Not all death benefits may be available in all states. The cost of insurance you will pay varies based on the Death Benefit Option you select. For example, Option 1 provides for a death benefit without the opportunity for your beneficiaries to receive any proceeds in excess of the specified amount. Thus, with Option 1 you will incur a lower cost of insurance than if you elect Option 2 which provides a death benefit of the specified amount plus any cash value you have accrued in the policy. Similarly, Option 3 provides for a death benefit that may exceed the specified amount by the amount of premium you have paid. Therefore, with Option 1 you will incur a lower cost of insurance than if you elect Option 3. The cost of insurance for Option 2 may be higher or lower than the cost of insurance for Option 3 depending on whether or not your policy's cash value exceeds the amount of premium you have paid plus any interest credited on that premium. Percentage of Cash Value Section 7702 of the Internal Revenue Code under the Guideline Premium/Cash Value Corridor Test, requires that the death benefit be greater than or equal to the cash value multiplied by the applicable percentages shown on the following table: - -------------------------------------------------------- ATTAINED APPLICABLE ATTAINED APPLICABLE AGE PERCENTAGE AGE PERCENTAGE - -------------------------------------------------------- 31-40 250% 70 115% 41 243% 71 113% 42 236% 72 111% 43 229% 73 109% 44 222% 74 107% 45 215% 75 105% 46 209% 76 105% 47 203% 77 105% 48 197% 78 105% 49 191% 79 105% 50 185% 80 105% 51 178% 81 105% 52 171% 82 105% 53 164% 83 105% 54 157% 84 105% 55 150% 85 105% 56 146% 86 105% 57 142% 87 105% 58 138% 88 105% 59 134% 89 105% 60 130% 90 105% 61 128% 91 104% 62 126% 92 103% 63 124% 93 102% 64 122% 94 101% 65 120% 95 100% 66 119% 96 100% 67 118% 97 100% 68 117% 98 100% 69 116% 99 100% 100 100% MAY I EVER CHANGE THE SPECIFIED AMOUNT AFTER MY POLICY IS ISSUED? Yes. You may request certain changes in the insurance coverage under your policy. Requests must be in writing and received by us at our home office. No change in specified amount will take effect unless the cash surrender value, after the change, is sufficient to keep your policy in force for at least 3 months. 19 Specified Amount Increases After the first policy year, you may request an increase to the specified amount. Any increase will be subject to the following conditions: 1) the request must be applied for in writing; 2) satisfactory evidence of insurability must be provided; 3) the increase must be for a minimum of $10,000; 4) the cash surrender value is sufficient to keep the policy in force for at least 3 months; and 5) the insured must be 85 or younger. Any approved increase will have an effective date of the monthly anniversary day or on the next day we approve the supplemental application. We reserve the right to limit the number of specified amount increases to one each policy year. Specified Amount Decreases After the first policy year, you may request a decrease to the specified amount. Any approved decrease will be effective on the monthly anniversary day or on the next day we receive the request. Any such decrease will reduce the insurance in the following order: 1) against insurance provided by the most recent increase; 2) against the next most recent increases successively; and 3) against insurance provided under the original application. We reserve the right to limit the number of specified amount decreases to one each policy year. We will refuse a request for a decrease which would: 1) reduce the specified amount below the minimum issue amount as is shown on the policy data page; or on the initial application; or 2) disqualify the policy as a contract for life insurance. 3) result in both: (a) a negative guideline single premium; and (b) an aggregate guideline level premium that would be negative at any time prior to the maturity of the policy. The "guideline single premium" and "guideline level premium" are defined in Section 7702 of the Internal Revenue Code. The guideline single premium is calculated at the time your policy is issued and equals the premium necessary to fund the future benefits under the policy, based on the assumption of a level 6% rate of return, current expenses, and reasonable mortality charges. The guideline level premium equals the level annual amount to be paid over a period that ends when the insured becomes 100 years old, based on the same assumptions, except with a level 4% rate of return. Please note that these premium levels do NOT guarantee that your policy will stay in force. Rather, these premium levels are used to ensure your policy meets the Internal Revenue Code's definition of life insurance. Also, if you take a partial surrender, your cash value may not be enough to avoid causing your policy to lapse (see Policy Lapse and Reinstatement below). To avoid lapsing your policy, you may reduce your policy's specified amount to a level where the cash value is sufficient to keep the policy in force. Keep in mind, however, the reduction in the specified amount must meet the requirements of this Specified Amount Decreases section. MAY I CHANGE MY DEATH BENEFIT OPTION AFTER MY POLICY IS ISSUED? Yes. After the first policy year, you may elect to change the death benefit option under your policy. Only one change of death benefit option is permitted per policy year. The effective date of a change will be the monthly anniversary day following the date the change is approved by us. If the change is from Option 1 to Option 2: The specified amount will be decreased by the amount of the cash value. If the change is from Option 2 to Option 1: The specified amount will be increased by the amount of the cash value. If the change is from Option 3 to Option 1: The specified amount will be increased by the amount of the accumulated premium account. If the change is from Option 3 to Option 2: The specified amount will be adjusted by the amount of the difference between cash value and the accumulated premium account. If the cash value is greater than the accumulated premium account, this will result in a decrease to the specified amount. If the cash value is less than the accumulated premium account, the option change will result in an increase in specified amount. WE WILL NOT ALLOW DEATH BENEFIT OPTION CHANGES FROM OPTION 1 TO OPTION 3 OR OPTION 2 TO OPTION 3. In order for any change in the death benefit option to become effective, the cash surrender value, after the change, must be sufficient to keep the policy in force for at least 3 months. 20 We will adjust the specified amount so that the net amount at risk remains constant before and after the death benefit option change. A change in death benefit option will not be permitted if it results in the total premiums paid exceeding the then current maximum premium limitations under the guideline premium/cash value corridor test of Section 7702 of the Internal Revenue Code. WHAT HAPPENS ONCE THE INSURED DIES? If the insured dies while your policy is in force and prior to the maturity date, death proceeds will be payable to the beneficiary(ies). The amount of the death proceeds is equal to: 1) the death benefit provided by the policy; plus 2) any insurance that may be provided by riders to the policy; minus 3) any indebtedness; minus 4) any due and unpaid monthly deductions accruing during a grace period. We will pay the death proceeds to the beneficiary after receipt of proof of death of the insured, at the home office in a satisfactory format. Death proceeds may be adjusted under certain conditions (see "Error in Age or Sex" and "Suicide"). Incontestability We will not contest payment of the death proceeds based on the initial specified amount after the policy has been in force during the insured's lifetime for 2 years from the policy date. We will not contest payment of the death proceeds based on an increase in specified amount requiring evidence of insurability after the increase has been in force during the insured's lifetime for 2 years from its effective date. Error in Age or Sex If the age or sex of the insured has been misstated, the death benefit and cash value will be adjusted. The cash value will be adjusted to reflect the cost of insurance charges on the correct age and sex from the policy date. Suicide If the insured dies by suicide, while sane or insane, within 2 years from the policy date, we will pay no more than the sum of the premiums paid, less any indebtedness and less any partial surrenders. If the insured dies by suicide, while sane or insane, within 2 years from the date we accept an application for an increase in the specified amount, we will pay no more than the death benefit associated with the initial specified amount, plus the Cost of Insurance Charges associated with the increase in specified amount. HOW IS THE DEATH BENEFIT DISTRIBUTED? Death benefit proceeds may be paid in lump sum or in any form of distribution listed in this provision. If the beneficiary of the death benefit does not specify the method of payment, we will pay it in a lump sum. Proceeds from any optional form of distribution will be paid from our general account and therefore will not be affected by the investment experience of any sub-account. One or a combination of settlement options may be chosen if the total amount placed under the option is at least $2,000 and each payment is at least $20. A settlement option election may be changed at any time by proper written request to our home office. Once recorded, the request will be effective on the date it was requested. We may require proof of the age and sex of any person to be paid under a settlement option. While the policy is in force, you may choose or change settlement options at any time. If no settlement option has been chosen prior to the date the death proceeds become payable, the beneficiary may choose one. A change in beneficiary automatically revokes any settlement option in effect. When death proceeds become payable under any option, a settlement contract is issued in exchange for this policy. The new contract's effective date is the date death proceeds become payable or the date on which the policy is surrendered. Settlement option payments may not be assigned. To the extent permitted by law, settlement option payments are not subject to the claims of creditors or to legal process. For any settlement options, payments may be made annually, semi-annually, quarterly or monthly. Under Options 1, 2 and 4 below, withdrawal of any outstanding balance may be made by written request to us. No amount left with us under Options 3, 5 or 6 may be withdrawn. Options 1, 2, 4 and the guaranteed period of Option 3, provide for payment of interest at a guaranteed minimum interest rate of 2.5% per year, compounded annually. Any interest to be paid in excess of this rate will be determined once a year. OPTION 1. INTEREST INCOME. In this Option, proceeds remain with us to earn interest. This interest may be left to accumulate or to be paid periodically. OPTION 2. INCOME FOR A FIXED PERIOD. In this Option, proceeds remaining with us will be paid over a specified number of years, not to exceed 30 years. Each payment consists of a portion of the death benefit proceeds plus a portion of the interest credited on the outstanding balance. 21 OPTION 3. LIFE INCOME WITH PAYMENTS GUARANTEED. In this Option, payments are made for a guaranteed period of 10, 15 or 20 years, and thereafter for the remainder of a payee's lifetime. The amount payable monthly for each $1,000 left with us will be determined according to the payee's sex and age on the effective date of the Option. OPTION 4. FIXED INCOME FOR VARYING PERIODS. In this Option, death benefit proceeds may be left on deposit with us at interest with payments of a fixed amount being paid at specified intervals until the principal and interest have been exhausted. The last payment will be for the balance only. The total amount payable each year may not be less than 5% of the original proceeds (i.e., not less than $50 per annum of each $1,000 of original proceeds). OPTION 5. JOINT AND SURVIVOR LIFE INCOME. In this Option, equal payments will be made for the longer of the lives of two named payees. OPTION 6. ALTERNATE LIFE INCOME. In this Option, we will use the proceeds to purchase an annuity. The amount payable will be 102% of our current individual immediate annuity purchase rate on the effective date of the settlement contract. We reserve the right to change the current annuity rates at any time. However, once this Option has been selected and the settlement contract is issued, any revision in rates will not affect payment to a payee or payees. Upon request, we will quote the amount currently payable under this settlement option. EARLIER YOU MENTIONED A MATURITY DATE. WHAT IS THE MATURITY DATE? The maturity date is the policy anniversary on or next following the insured's 100th birthday. If your policy is still in force, maturity proceeds may be payable to you on the maturity date. If paid, maturity proceeds are equal to the amount of the policy's cash value, less any indebtedness. WHAT IF I DON'T WANT TO GET PAID THE POLICY'S CASH VALUE ON THE MATURITY DATE? MAY I EXTEND THE MATURITY DATE? Yes. If the insured is alive on the original maturity date of the policy, you may extend the maturity date. Unless you elect otherwise, the maturity date will automatically be extended until the date the insured dies, subject to the following: 1) no premium payments will be allowed after the original maturity date; 2) increases to the specified amount will not be permitted after the original maturity date; 3) death benefit option changes will not be permitted after the original maturity date; 4) on the original maturity date, 100% of the cash value in the sub-accounts will be transferred to the fixed account; 5) after the original maturity date, transfers from the fixed account to the sub-accounts will not be permitted; 6) no further monthly deductions will be taken after the original maturity date (the cost of insurance charges will be $0); 7) the specified amount for the maturity date extension will be equal to the specified amount on the insured's 85th birthday, less (a) and (b) where: a) is any decrease to the specified amount on or after the insured's attained age 85; and b) is an adjustment for partial withdrawals taken after the insured's attained age 85. The amount of the adjustment varies based on the death benefit option and the insured's attained age defined as follows: ---------------------------------------- INSURED'S ATTAINED AGE ---------------------------------------- 86-90 91 and Older Death Benefit Option 1 Amount by which Amount proportionate the base policy to the ratio of the specified withdrawal to the amount is policy value prior reduced due to to the withdrawal the withdrawal Death Benefit Option 2 $0 $0 or 3 ASSIGNMENT MAY I EVER ASSIGN MY POLICY? Yes. While the insured is living, you may assign your rights in the policy. The assignment must be in writing in a form acceptable to us, signed by you and received at our home office. Assignments will not affect any payments made or actions taken by us prior to our receipt of the assignment request. We are not responsible for any assignment not submitted, nor are we responsible for the sufficiency or validity of any assignment. Assignments are subject to any indebtedness owed to us before being recorded. The interest of any beneficiary will be subject to the rights of any assignee of record on file at our home office. POLICY LAPSE AND REINSTATEMENT CAN MY POLICY EVER LAPSE AND WHAT HAPPENS IF IT DOES? It is possible that your policy could lapse if your cash surrender value is insufficient to cover all policy charges. If the cash surrender value on a monthly 22 anniversary day is not sufficient to cover that month's policy charges, and premium payments required under the "Guaranteed Policy Continuation" provision have not been met, a grace period will be allowed for the payment of a premium. Such premium must equal or exceed the lesser of 3 times the monthly charges and the premium required to bring the guaranteed policy continuation provision into effect. We will send you a notice at the start of the grace period, at the address on the application or another address specified by you, stating the amount of premium required. The grace period will end 61 days after the date the notice is mailed. We will send an additional reminder notice at least 31 days prior to the end of the grace period. If sufficient premium is not received by us by the end of the grace period, your policy will lapse without value. If death proceeds become payable during the grace period, we will pay the death proceeds. Guaranteed Policy Continuation Period We will not lapse the policy, if on each monthly anniversary day (1) is greater than (2), where: 1) is the sum of all premiums paid to date, minus any indebtedness and minus any partial surrenders; and 2) is the sum of the monthly death benefit guarantee premiums due since the policy date including any premium for the current monthly anniversary day. If (1) is not greater than or equal to (2), then the guaranteed policy continuation provision is not in effect and the policy will go into the grace period. The monthly death benefit guarantee premiums and the death benefit guarantee period are shown on the policy data page. The monthly death benefit guarantee premiums may vary by policy duration and may be affected by changes to the policy. This policy has two levels of guaranteed policy continuation guarantees, the Initial Death Benefit Guarantee and the Limited Death Benefit Guarantee. Each level of guarantee has its own minimum premium requirement. Each level of premium and the period in which it applies is shown on the policy data page. The Limited Death Benefit Guarantee will be permanently lost when premium payments fall below those required to maintain this benefit unless sufficient premiums are paid within a 61-day grace period. Reinstatement If the grace period ends and you have neither paid the required premium nor surrendered your policy for its cash surrender value, you may reinstate the policy by: 1) submitting a written request at any time within 3 years after the end of the grace period and prior to the maturity date; 2) providing evidence of insurability satisfactory to us; 3) paying sufficient premium to cover all policy charges that were due and unpaid during the grace period; 4) paying sufficient premium to keep your policy in force for 3 months from the date of reinstatement; and 5) paying or reinstating any indebtedness against the policy which existed at the end of the grace period. The effective date of a reinstated policy will be the monthly anniversary day or on the next date the application for reinstatement is approved by us. If the policy is reinstated, the cash value on the date of reinstatement, but prior to applying any premiums or loan repayments, will be set equal to the lesser of: 1) the cash value at the end of the grace period; or 2) the surrender charge for the policy year in which your policy is reinstated. Unless otherwise specified, all amounts will be invested according to the investment instructions in effect at the start of the grace period. PERIODIC INFORMATION WILL I EVER RECEIVE PERIODIC INFORMATION FROM YOU ABOUT MY POLICY? Yes. We will mail to you at the last known address of record: - an annual statement containing: the amount of the current death benefit, cash value, cash surrender value, premiums paid, monthly charges deducted, amounts invested in the fixed account and the sub-accounts, as well as policy indebtedness; - annual and semi-annual reports containing all applicable information and financial statements or their equivalent, which must be sent to the underlying mutual fund beneficial shareholders as required by the rules under the Investment Company Act of 1940 for the variable account; and - statements of significant transactions, such as changes in specified amount, changes in death benefit options, changes in future premium allocations, transfers among sub-accounts, premium payments, loans, loan repayments, reinstatement and termination. 23 POLICY OWNER AND BENEFICIARY TELL ME MORE ABOUT MY RIGHTS AS POLICY OWNER AS WELL AS THE RIGHTS OF THE BENEFICIARY. DOES THE INSURED HAVE ANY RIGHTS UNDER THE POLICY IF I AM NOT THE INSURED? The insured does not have any rights in the policy, unless the insured is also the policy owner (you). You have all rights under the policy until the insured dies. Policy Owner While the insured is living, all rights in this policy are vested in the policy owner (you) named on the application or as subsequently changed, subject to assignment, if any. You may name a contingent policy owner or a new policy owner while the insured is living. Any change must be in a written form satisfactory to us and received at our home office. Once received, the change will be effective when signed. The change will not affect any payment made or action taken by us before request was received. We may require that your policy be submitted for endorsement before making a change. If you are someone other than the insured, name no contingent policy owner, and die before the insured, your rights in this policy belong to your estate. Beneficiary The beneficiary(ies) and/or contingent beneficiary will be as named on the application or as subsequently changed, subject to assignment, if any. You may name a new beneficiary and/or contingent beneficiary while the insured is living. Any change must be in a written form satisfactory to us and received at our home office. Once received, the change will be effective when signed. The change will not affect any payment made or action taken by us before it was received. We may require that your policy be submitted for endorsement before making a change. If any beneficiary predeceases the insured, that beneficiary's interest passes to any surviving beneficiary(ies), or contingent beneficiaries unless otherwise provided. Multiple beneficiaries will be paid in equal shares, unless otherwise provided. If no named beneficiary survives the insured, the death proceeds will be paid to you or your estate. TAX INFORMATION TELL ME MORE ABOUT HOW MY LIFE INSURANCE POLICY IS TAXED. WHAT SHOULD I LOOK OUT FOR? First, we should state that we are not providing tax advice. For any tax advice, you should contact your personal tax adviser. Policy Proceeds Section 7702 of the Internal Revenue Code provides that if certain tests are met, a policy will be treated as a life insurance policy for federal tax purposes. We will monitor compliance with these tests. This policy should thus receive the same federal income tax treatment as fixed benefit life insurance. As a result, the death proceeds payable under this policy are generally excludable from gross income of the beneficiary under Section 101 of the Internal Revenue Code. However, if the policy is transferred for valuable consideration, then a portion of the death proceeds may be includable in the beneficiary's gross income. Section 7702A of the Internal Revenue Code defines modified endowment contracts as those life insurance policies issued or materially changed on or after June 21, 1988 on which the total premiums paid during the first seven years exceed the amount that would have been paid if the policy provided for paid up benefits after seven level annual premiums. As a general rule, distributions from a life insurance policy (other than a modified endowment contract) during the life of the insured are treated as the non-taxable return of premium, to the extent of premiums previously paid. For this purpose, dividends that are used to purchase riders are treated as distributions; dividends that are used to purchase paid-up additions or to reduce premiums are not treated as distributions. Aggregate amounts distributed in excess of aggregate premiums paid are generally treated as taxable ordinary income. A loan from a life insurance policy that is not a modified endowment contract generally is not treated as a taxable distribution. However, if the total loan is not repaid and is forgiven (such as if the life insurance policy lapses or is surrendered), then the amount of the outstanding loan balance is treated as a distribution to you and may be treated as ordinary income in whole or in part. The Internal Revenue Code provides special rules for the taxation of surrenders, partial surrenders, loans, collateral assignments and other pre-death distributions from modified endowment contracts (other than certain distributions to terminally ill individuals). Under these special rules, such transactions are taxable to the extent the cash value of the policy exceeds, at the time of distribution, the premiums paid into the policy. In 24 addition, a 10% tax penalty generally applies to the taxable portion of such distributions unless you are over age 59 1/2 or disabled, or the distribution is part of a series of substantially equal periodic payments as defined in the Internal Revenue Code. Under certain circumstances, certain distributions made under a policy on the life of a "terminally ill individual," as that term is defined in the Internal Revenue Code, are treated as death proceeds and are subject to the death benefit rules of Section 101 of the Internal Revenue Code, described above. The policies offered by this prospectus may or may not be issued as modified endowment contracts. If the policy is not issued as a modified endowment contract, we will monitor the premiums paid and will notify you when your policy is in jeopardy of becoming a modified endowment contract. If a policy is not a modified endowment contract, a cash distribution during the first 15 years after a policy is issued which causes a reduction in death benefits may still become fully or partially taxable to you pursuant to Section 7702(f)(7) of the Internal Revenue Code. You should carefully consider this potential effect and seek further information before initiating any changes in the terms of the policy. Under certain conditions, a policy may become a modified endowment, or may become subject to a new 7 year testing period, as a result of a material change or a reduction in benefits as defined by Section 7702A(c) of the Internal Revenue Code. In addition to meeting the tests required under Section 7702, Section 817(h) of the Internal Revenue Code requires that the investments of separate accounts such as the variable account be adequately diversified. Regulations under 817(h) provide that a variable life policy that fails to satisfy the diversification standards will not be treated as life insurance unless such failure was inadvertent, is corrected, and you or we pay an amount to the IRS. The amount will be based on the tax that would have been paid by you if the income, for the period the policy was not diversified, had been received by you. If the failure to diversify is not corrected in this manner, you will be deemed to be the owner of the underlying securities and taxed on the earnings of your account. Representatives of the IRS have suggested, from time to time, that the number of underlying mutual funds available or the number of transfer opportunities available under a variable product may be relevant in determining whether the product qualifies for the desired tax treatment. No formal guidance has been issued in this area. Should the U.S. Secretary of the Treasury issue additional rules or regulations limiting the number of underlying mutual funds, transfers between underlying mutual funds, exchanges of underlying mutual funds or changes in investment objectives of underlying mutual funds such that the policy would no longer qualify as life insurance under Section 7702 of the Internal Revenue Code, we will take whatever steps are available to remain in compliance. We will monitor compliance with these regulations and, to the extent necessary, will change the objectives or assets of the sub-account investments to remain in compliance. A total surrender or cancellation of the policy by lapse or the maturity of the policy on its maturity date may have adverse tax consequences. If the amount received by you plus total policy indebtedness exceeds the premiums paid into the policy, then the excess generally will be treated as taxable income, regardless of whether or not the policy is a modified endowment contract. Withholding Distributions of income from a life insurance policy (including a modified endowment contract) are subject to federal income tax withholding; however, the recipient may elect not to have the withholding taken from the distribution. A distribution of income from the policy may be subject to mandatory back-up withholding (which cannot be waived). The mandatory back-up withholding rate is established by Section 3406 of the Internal Revenue Code and is applied against the amount of income that is distributed. The mandatory back-up withholding may arise if no taxpayer identification number is provided to us, or if the IRS notifies us that back-up withholding is required. Federal Estate and Generation-Skipping Transfer Taxes State and local estate, inheritance, income and other tax consequences of ownership or receipt of policy proceeds depend on the circumstances of each policy owner or beneficiary. The federal estate tax is integrated with the federal gift tax under a unified tax rate schedule. In general, in 2002, an estate of less than $1,000,000 (inclusive of certain pre-death gifts) will not incur a federal estate tax liability. In addition, an unlimited marital deduction may be available for federal estate tax purposes, for certain amounts that pass to the surviving spouse. When the insured dies, the death benefit will generally be included in the insured's federal gross estate if: 1) the proceeds were payable to or for the benefit of the insured's estate; or 2) the insured held any "incident of ownership" in the policy at death or at any time within 3 years of death. An incident of ownership is, in general, any right that may be exercised by you, such as the right to borrow on the policy, or the right to name a new beneficiary. 25 If you (whether or not you are an insured) transfer ownership of your policy to another person, such transfer may be subject to a federal gift tax. In addition, if you transfer the policy to someone two or more generations younger than you, the transfer may be subject to the federal generation-skipping transfer tax ("GSTT"), the taxable amount being the value of the policy. Similarly, if the beneficiary is two or more generations younger than the insured, the payment of the death proceeds at the death of the insured may be subject to the GSTT. Pursuant to regulations recently promulgated by the U.S. Secretary of the Treasury, we may be required to withhold a portion of the death proceeds and pay them directly to the IRS as the GSTT liability. The GSTT provisions generally apply to the same transfers that are subject to estate or gift taxes. The tax rate is a flat rate equal to the maximum estate tax rate (currently 55%), and there is a provision for an aggregate $1 million exemption. Due to the complexity of these rules, you should consult with counsel and other competent advisors regarding these taxes. Non-Resident Aliens Pre-death distributions from modified endowment contracts to nonresident aliens ("NRAs") are generally subject to federal income tax and tax withholding, at a statutory rate of 30% of the amount of income that is distributed. We are required to withhold such amount from the distribution and remit it to the IRS. Distributions to certain NRAs may be subject to lower, or in certain instances zero, tax and withholding rates, if the United States has entered into an applicable treaty. However, in order to obtain the benefits of such treaty provisions, the NRA must give to us sufficient proof of his or her residency and citizenship in the form and manner prescribed by the IRS. In addition, the NRA must obtain an individual taxpayer identification number from the IRS, and furnish that number to us prior to the distribution. If we do not have the proper proof of citizenship or residency and a proper individual taxpayer identification number prior to any distribution, we will be required to withhold 30% of the income, regardless of any treaty provision. A pre-death distribution may not be subject to withholding where the recipient sufficiently establishes to us that such payment is effectively connected to the recipient's conduct of a trade or business in the United States and that such payment is includable in the recipient's gross income for United States federal income tax purposes. Any such distributions may be subject to back-up withholding at the statutory rate if no taxpayer identification number, or an incorrect taxpayer identification number, is provided. Taxation of Nationwide We are taxed as a life insurance company under the Internal Revenue Code. Since the variable account is not a separate entity from us and its operations form a part of us, it will not be taxed separately as a "regulated investment company" under Sub-chapter M of the Internal Revenue Code. Investment income and realized capital gains on the assets of the variable account are reinvested and taken into account in determining the value of accumulation units. As a result, such investment income and realized capital gains are automatically applied to increase reserves under the policies. We do not initially expect to incur any federal income tax liability that would be chargeable to the variable account. Based upon these expectations, no charge is currently being made against the variable account for federal income taxes. If, however, we determine that on a separate company basis such taxes may be incurred, we reserve the right to assess a charge for such taxes against the variable account. We may also incur state and local taxes (in addition to premium taxes) in several states. At present, these taxes are not significant. If they increase, however, charges for such taxes may be made. Tax Changes The foregoing discussion, which is based on our understanding of federal tax laws as they are currently interpreted by the IRS, is general and is not intended as tax advice. The Internal Revenue Code has been subjected to numerous amendments and changes, and it is reasonable to believe that it will continue to be revised. The United States Congress has, in the past, considered numerous legislative proposals that, if enacted, could change the tax treatment of the policies. It is reasonable to believe that such proposals, and future proposals, may be enacted into law. In addition, the U.S. Treasury Department may amend existing regulations, issue new regulations, or adopt new interpretations of existing law that may be at variance with its current positions on these matters. In addition, current state law (which is not discussed herein), and future amendments to state law, may affect the tax consequences of the policy. If you, the insured, or the beneficiary or other person receiving any benefit or interest in or from the policy is not both a resident and citizen of the United States, there may be a tax imposed by a foreign country, in addition to any tax imposed by the United States. The foreign law (including regulations, rulings, and case law) may change and impose additional taxes on the policy, the death proceeds, or other distributions and/or ownership of the policy, or a treaty may be amended and all or part 26 of the favorable treatment may be eliminated. Any or all of the foregoing may change from time to time without any notice, and the tax consequences arising out of a policy may be changed retroactively. There is no way of predicting if, when, or to what extent any such change may take place. No representation is made as to the likelihood of the continuation of these current laws, interpretations, and policies. The foregoing is a general explanation as to certain tax matters pertaining to insurance policies. It is not intended to be legal or tax advice. You should consult your independent legal, tax and/or financial adviser. MORE INFORMATION ABOUT NATIONWIDE TELL ME A LITTLE MORE ABOUT NATIONWIDE AND THE VARIABLE ACCOUNT. We are a stock life insurance company organized under the laws of the State of Ohio in March 1929 with our home office at One Nationwide Plaza, Columbus, Ohio 43215. We are a provider of life insurance, annuities and retirement products. We are admitted to do business in all states, the District of Columbia and Puerto Rico. Custodian of Assets We serve as the custodian of the assets of the variable account. Other Contracts Issued by Nationwide We offer variable contracts and policies with benefits that vary in accordance with the investment experience of various separate accounts of Nationwide. The Variable Account and Underlying Mutual Funds Nationwide VLI Separate Account-4 is a separate account that invests in the underlying mutual funds listed in Appendix A. We established the separate account on December 3, 1987 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 us 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 our other assets. The variable account's assets are held separately from our assets and in general are not chargeable with liabilities incurred in any of our other businesses. We are obligated to pay all amounts promised to you under the policy. The variable account is divided into sub-accounts. You elect to have premiums allocated among the sub-accounts and the fixed account at the time of application. We use the assets of each sub-account to buy shares of the underlying mutual funds based on your instructions. A policy's investment performance depends upon the performance of the underlying mutual funds chosen by you. 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 objectives. However the underlying mutual funds are NOT directly related to any publicly traded mutual fund. YOU 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. Changes of Investment Policy We may materially change the investment policy of the variable account. We must inform you and obtain all necessary regulatory approvals. Any change must be submitted to the various state insurance departments which may disapprove it if deemed detrimental to the overall interests of the policy owners or if it renders our operations hazardous to the public. If you object, the policy may be converted to a substantially comparable general account life insurance policy offered by us. You have the later of 60 days (6 months in Pennsylvania) from the date of the investment policy change or 60 days (6 months in Pennsylvania) from being informed of the change to make the conversion. We will not require evidence of insurability for this conversion. Upon electing such a policy conversion, we will transfer the cash value of the policy (as of the conversion date) to the new policy, which will provide for an amount of insurance not exceeding the death benefit of the original policy. The new policy will not be affected by the investment experience of any separate account. Voting Rights If you have allocated assets to the underlying mutual funds, you are entitled to certain voting rights. We will vote your shares at special shareholder meetings based on your instructions. However, if the law changes 27 allowing us to vote in its own right, we may elect to do so. If you have voting interests in an underlying mutual fund, you will be notified of issues requiring the shareholder's vote as soon as possible prior to the shareholder meeting. Notification will contain proxy materials and a form to return to us with your voting instructions. We will vote shares for which no instructions are received in the same proportion as those that are received. The number of shares which you may vote is determined by dividing the cash value of the amount they have allocated to an underlying mutual fund by the net asset value of that underlying mutual fund. We 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 our other separate accounts. We do not anticipate any disadvantage 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, we will take whatever steps are necessary to protect you and payees, including withdrawal of the variable account from participation in the underlying mutual fund(s) involved in the conflict. Substitution of Securities We may substitute, eliminate and/or combine shares of another underlying mutual fund for shares already purchased or to be purchased in the future if either of the following occur: 1) shares of a current underlying mutual fund option are no longer available for investment; or 2) further investment in an underlying mutual fund option is inappropriate. No substitution, elimination, and/or combination of shares may take place without the prior approval of the SEC. OTHER GENERAL INFORMATION LEGAL CONSIDERATIONS On July 6, 1983, the U.S. Supreme Court held in Arizona Governing Committee v. Norris that certain annuity benefits provided by employers' retirement and fringe benefit programs may not vary between men and women on the basis of sex. This decision applies only to benefits derived from premiums made on or after August 1, 1983. The policies offered by this prospectus are based upon actuarial tables which distinguish between men and women. Thus the policies provide different benefits to men and women of the same age. Accordingly, employers and employee organizations should consider, in consultation with legal counsel, the impact of Norris on any employment related insurance or benefit program before purchasing this policy. STATE REGULATION We are subject to the laws of Ohio governing insurance companies and to regulation by the Ohio Insurance Department. An annual statement in a prescribed form is filed with the Insurance Department each year covering our operations for the preceding year and its financial condition as of the end of such year. Regulation by the Insurance Department includes periodic examination to determine our contract liabilities and reserves so that the Insurance Department may certify the items are correct. Our books and accounts are subject to review by the Insurance Department at all times and a full examination of its operations is conducted periodically by the National Association of Insurance Commissioners. Such regulation does not, however, involve any supervision of management or investment practices or policies. In addition, We are subject to regulation under the insurance laws of other jurisdictions in which it may operate. ADVERTISING We are ranked and rated by independent financial rating services, including Moody's, Standard & Poor's and A.M. Best Company. The purpose of these ratings is to reflect our financial strength or claims-paying ability. The ratings are not intended to reflect the investment experience or financial strength of the variable account. We may advertise these ratings from time to time. In addition, we may include in certain advertisements, endorsements in the form of a list of organizations, individuals or other parties which recommend us or the policies. Furthermore, we may occasionally include in advertisements comparisons of currently taxable and tax deferred investment programs, based on selected tax brackets, or discussions of alternative investment vehicles and general economic conditions. LEGAL PROCEEDINGS We are 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 us. In recent years, life insurance companies have been named as defendants in lawsuits, including class action 28 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, we 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). On May 3, 1999, the complaint was amended to, among other things, add Marcus Shore as a second plaintiff. The amended complaint is brought as a class action on behalf of all persons who purchased individual deferred annuity contracts or participated in group annuity contracts sold by us and the other named Nationwide affiliates which were used to fund certain tax-deferred retirement plans. The amended complaint seeks unspecified compensatory and punitive damages. No class has been certified. On June 11, 1999, we and the other named defendants filed a motion to dismiss the amended complaint. On March 8, 2000, the court denied the motion to dismiss the amended complaint filed by us and other named defendants. We intend 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 us in the future. The general distributor, Nationwide Investment Services Corporation, is not engaged in any litigation of any material nature. EXPERTS The financial statements of Nationwide Life Insurance Company and Nationwide VLI Separate Account-4 have been included herein in reliance upon the reports of KPMG LLP, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. REGISTRATION STATEMENT We have filed a registration statement with the SEC under the Securities Act of 1933, as amended, for the policies discussed in this prospectus. However, the prospectus does not contain all the information included in the registration statement. The registration statement may also contain amendments and exhibits that are not included in the prospectus. The prospectus is meant to be a summary and explanation of the policy, which is the legal binding instrument for the policies. Please refer to your policy for additional information. WHO IS THE GENERAL DISTRIBUTOR (PRINCIPAL UNDERWRITER) FOR THIS POLICY? The general distributor (principal underwriter) for this policy is Nationwide Investment Services Corporation ("NISC" or "Nationwide Investment Scvs. Corporation for policies issued in the State of Michigan), Two Nationwide Plaza, Columbus, Ohio 43215. NISC is our wholly owned subsidiary. NISC was organized as an Oklahoma corporation on March 19, 1974. HOW ARE THE POLICIES SOLD (DISTRIBUTED)? The policies will be sold by licensed insurance agents in those states where the policies may lawfully be sold. Agents are registered representatives of broker dealers registered under the Securities Exchange Act of 1934 who are member firms of the National Association of Securities Dealers, Inc. ("NASD"). The policies will be distributed by the general distributor, NISC pursuant to an agreement with us dated May 1, 2000. NISC is a wholly owned subsidiary of Nationwide and a member of the NASD. NISC acts as general distributor for the following separate accounts, all of which are separate investment accounts of Nationwide or its affiliates: - Nationwide VLI Separate Account-2; - Nationwide VLI Separate Account-3; - Nationwide VLI Separate Account-4; - Nationwide VLI Separate Account-5; - Nationwide Multi-Flex Variable Account; - Nationwide Variable Account; - Nationwide Variable Account-II; - Nationwide Variable Account-4; - Nationwide Variable Account-5; - Nationwide Variable Account-6; - Nationwide Variable Account-8; - Nationwide Variable Account-7; - Nationwide Variable Account-9; - Nationwide Variable Account-10; - Nationwide VA Separate Account-A; - Nationwide VA Separate Account-B; - Nationwide VA Separate Account-C; - Nationwide VL Separate Account-A; - Nationwide VL Separate Account-B; - Nationwide VL Separate Account-C; and - Nationwide VL Separate Account-D. Gross first year commissions paid by us on the sale of these policies plus fees for marketing services are not more than 90% of the premiums paid up to commission target premium, 3% of premium in excess of commission target premium. Commission target premium is equal to the IRS guideline level premium. No underwriting commissions have been paid by us to NISC. 29 NATIONWIDE INVESTMENT SERVICES CORPORATION DIRECTORS AND OFFICERS
POSITIONS AND OFFICES NAME AND BUSINESS ADDRESS WITH UNDERWRITER - ------------------------------------------------------------------------------------------------------------------- W.G. Jurgensen Chief Executive Officer and One Nationwide Plaza Director Columbus, OH 43215 Joseph J. Gasper Chairman of the Board and Director One Nationwide Plaza Columbus, OH 43215 Richard A. Karas Vice Chairman and Director One Nationwide Plaza Columbus, OH 43215 Duane C. Meek President One Nationwide Plaza Columbus, OH 43215 Philip C. Gath Director One Nationwide Plaza Columbus, OH 43215 Susan A. Wolken Director One Nationwide Plaza Columbus, OH 43215 Robert A. Oakley Executive Vice President - Chief Financial Officer One Nationwide Plaza Columbus, OH 43215 Robert J. Woodward, Jr. Executive Vice President - Chief Investment Officer One Nationwide Plaza Columbus, OH 43215 Mark R. Thresher Senior Vice President and Treasurer One Nationwide Plaza Columbus, OH 43215 Barbara J. Shane Vice President - Compliance Officer Two Nationwide Plaza Columbus, OH 43215 Alan A. Todryk Vice President - Taxation One Nationwide Plaza Columbus, OH 43215 John F. Delaloye Assistant Secretary One Nationwide Plaza Columbus, OH 43215 Glenn W. Soden Associate Vice President and Secretary One Nationwide Plaza Columbus, OH 43215 E. Gary Berndt Assistant Treasurer One Nationwide Plaza Columbus, OH 43215 Carol L. Dove Associate Vice President -Treasury Services and Assistant Treasurer One Nationwide Plaza Columbus, OH 43215 Terry C. Smetzer Assistant Treasurer One Nationwide Plaza Columbus, OH 43215
ADDITIONAL INFORMATION ABOUT NATIONWIDE The life insurance business, including annuities, is the only business in which we are engaged. We market our policies through independent insurance brokers, general agents, and registered representatives of registered NASD broker/dealer firms. We serve as depositor for the following separate investment accounts, each of which is a registered investment company: - Nationwide Variable Account; - Nationwide Variable Account-II; - Nationwide Variable Account-3; - Nationwide Variable Account-4; 30 - Nationwide Variable Account-5; - Nationwide Variable Account-6; - Nationwide Variable Account-7; - Nationwide Variable Account-8; - Nationwide Variable Account-9; - Nationwide Variable Account-10; - MFS Variable Account; - Nationwide Multi-Flex Variable Account; - Nationwide VLI Separate Account; - Nationwide VLI Separate Account-2; - Nationwide VLI Separate Account-3; - Nationwide VLI Separate Account-4; and - Nationwide VLI Separate Account-5. We, like other insurance companies, are subject to regulation and supervision by the regulatory authorities of the states in which it is licensed to do business. A license from the state insurance department is a prerequisite to the transaction of insurance business in that state. In general, all states have statutory administrative powers. Such regulation relates, among other things, to licensing of insurers and their agents, the approval of policy forms, the methods of computing reserves, the form and content of statutory financial statements, the amount of policyholders' and stockholders' dividends, and the type of distribution of investments permitted. We operate in the highly competitive field of life insurance. There are approximately 2,300 stock, mutual and other types of insurers in the life insurance business in the United States, and a large number of them compete with the registrant in the sale of insurance policies. As is customary in insurance company groups, employees are shared with the other insurance companies in the group. In addition to its direct salaried employees, we share employees with Nationwide Mutual Insurance Company and Nationwide Mutual Fire Insurance Company. We do not presently own or lease any materially important physical properties when its property holdings are viewed in relation to its total assets. We share our home office, other facilities and equipment with Nationwide Mutual Insurance Company. COMPANY MANAGEMENT Nationwide Life Insurance Company and Nationwide Life and Annuity Insurance Company, together with Nationwide Mutual Insurance Company, Nationwide Mutual Fire Insurance Company, Nationwide Property and Casualty Insurance Company and Nationwide General Insurance Company and their affiliated companies comprise the Nationwide group of companies. The companies listed above have substantially common boards of directors and officers. Nationwide Financial Services, Inc. ("NFS") is the sole shareholder of Nationwide. NFS serves as a holding company for other financial institutions. Nationwide is the sole owner of Nationwide Life and Annuity Insurance Company. Each of the directors and officers listed below is a director or officer respectively of at least one or more of the other major insurance affiliates of the Nationwide group of companies. Messrs. Gasper and Woodward are also trustees of one or more of the registered investment companies distributed by NISC, a registered broker-dealer affiliated with the Nationwide group of companies.
DIRECTORS OF NATIONWIDE - --------------------------------------------------------------------------------------------------- DIRECTORS OF THE DEPOSITOR NAME AND POSITIONS AND OFFICES PRINCIPAL BUSINESS ADDRESS WITH DEPOSITOR PRINCIPAL OCCUPATION - --------------------------------------------------------------------------------------------------- Lewis J. Alphin Director Farm Owner and Operator, Bell Farms (1) 519 Bethel Church Road Mount Olive, NC 28365-6107 A. I. Bell Director Farm Owner and Operator (1) 4121 North River Road West Zanesville, OH 43701 Yvonne M. Curl Director Vice President, Chief Marketing Officer for Avaya Inc.(2) Avaya Inc. Room 3C322 211 Mt. Airy Road Basing Ridge, NJ 07920 Kenneth D. Davis Director Farm Owner and Operator (1) 7229 Woodmansee Road Leesburg, OH 45135 Keith W. Eckel Director Partner, Fred W. Eckel Sons; President, Eckel Farms, Inc. (1) 1647 Falls Road Clarks Summit, PA 18411
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- ------------------------------------------------------------------------------------------------------------------------------------ DIRECTORS OF THE DEPOSITOR NAME AND POSITIONS AND OFFICES PRINCIPAL BUSINESS ADDRESS WITH DEPOSITOR PRINCIPAL OCCUPATION - ------------------------------------------------------------------------------------------------------------------------------------ Willard J. Engel Director Retired General Manager, Lyon County Co-operative Oil Company (1) 301 East Marshall Street Marshall, MN 56258 Fred C. Finney Director Owner and Operator, Moreland Fruit Farm; Operator, Melrose 1558 West Moreland Road Orchard (1) Wooster, OH 44691 Joseph J. Gasper President and Chief President and Chief Operating Officer, Nationwide Life Insurance One Nationwide Plaza Operating Officer and Company and Nationwide Life and Annuity Insurance Company (1) Columbus, OH 43215 Director W.G. Jurgensen Chief Executive Chairman and Chief Executive Officer (3) One Nationwide Plaza Officer and Director Columbus, OH 43215 David O. Miller Chairman of the Board President, Owen Potato Farm, Inc.; Partner, M&M Enterprises (1) 115 Sprague Drive and Director Hebron, OH 43025 Ralph M. Paige Director Executive Director Federation of Southern Cooperatives/Land Federation of Southern Assistance Fund (1) Cooperatives/Land Assistance Fund 2769 Church Street East Point, GA 30344 James F. Patterson Director Vice President, Pattersons, Inc.; President, Patterson Farms, Inc. 8765 Mulberry Road (1) Chesterland, OH 44026 Arden L. Shisler Director President and Chief Executive Officer, K&B Transport, Inc. (1) 1356 North Wenger Road Dalton, OH 44618 Robert L. Stewart Director Owner and Operator Sunnydale Farms and Mining (1) 88740 Fairview Road Jewett, OH 43986
(1) Principal occupation for last 5 years. (2) Prior to assuming this current position, Ms. Curl held other executive management positions with the Xerox Corporation. (3) Prior to assuming this current position, Mr. Jurgensen was Executive Vice President of Bank One Corporation. Prior to that, Mr. Jurgensen was Executive Vice President of First Chicago NBD. Each of the directors is a director of the other major insurance affiliates of the Nationwide group of companies except Mr. Gasper who is a director only of Nationwide Life Insurance Company and Nationwide Life and Annuity Insurance Company. Mr. Gasper is a director of NISC, a registered broker-dealer. Messrs. Miller, Patterson, and Shisler are directors of Nationwide Financial Services, Inc. Messrs. Gasper and Woodward are trustees of Nationwide Separate Account Trust and Nationwide Asset Allocation Trust, registered investment companies.
EXECUTIVE OFFICERS OF NATIONWIDE - ---------------------------------------------------------------------------------------------------------------------------------- OFFICERS OF THE DEPOSITOR NAME AND PRINCIPAL BUSINESS ADDRESS OFFICES OF THE DEPOSITOR - ---------------------------------------------------------------------------------------------------------------------------------- Richard D. Headley Executive Vice President One Nationwide Plaza Columbus, OH 43215 Michael S. Helfer Executive Vice President - Corporate Strategy One Nationwide Plaza Columbus, OH 43215 Donna A. James Executive Vice President - Chief Administrative Officer One Nationwide Plaza Columbus, OH 43215 Robert A. Oakley Executive Vice President - Chief Financial Officer and Treasurer One Nationwide Plaza Columbus, OH 43215
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- ---------------------------------------------------------------------------------------------------------------------------------- OFFICERS OF THE DEPOSITOR NAME AND PRINCIPAL BUSINESS ADDRESS OFFICES OF THE DEPOSITOR - ---------------------------------------------------------------------------------------------------------------------------------- Robert J. Woodward, Jr. Executive Vice President - Chief Investment Officer One Nationwide Plaza Columbus, OH 43215 John R. Cook, Jr. Senior Vice President - Chief Communications Officer One Nationwide Plaza Columbus, OH 43215 Thomas L. Crumrine Senior Vice President One Nationwide Plaza Columbus, OH 43215 David A. Diamond Senior Vice President - Corporate Strategy One Nationwide Plaza Columbus, OH 43215 Philip C. Gath Senior Vice President - Chief Actuary - Nationwide Financial One Nationwide Plaza Columbus, OH 43215 Patricia R. Hatler Senior Vice President, General Counsel and Secretary One Nationwide Plaza Columbus, OH 43215 David K. Hollingsworth Senior Vice President - Business Development and Sponsor Relations One Nationwide Plaza Columbus, OH 43215 David R. Jahn Senior Vice President - Product Management One Nationwide Plaza Columbus, OH 43215 Richard A. Karas Senior Vice President - Sales - Financial Services One Nationwide Plaza Columbus, OH 43215 Gregory S. Lashutka Senior Vice President - Corporate Relations One Nationwide Plaza Columbus, OH 43215 Edwin P. McCausland, Jr. Senior Vice President - Fixed Income Securities One Nationwide Plaza Columbus, OH 43215 Mark D. Phelan Senior Vice President - Technology and Operations One Nationwide Plaza Columbus, OH 43215 Douglas C. Robinette Senior Vice President - Claims One Nationwide Plaza Columbus, OH 43215 Mark R. Thresher Senior Vice President - Finance - Nationwide Financial One Nationwide Plaza Columbus, OH 43215 Susan A. Wolken Senior Vice President - Product Management and Nationwide Financial One Nationwide Plaza Marketing Columbus, OH 43215 Richard M. Waggoner Senior Vice President - Operations One Nationwide Plaza Columbus, OH 43215
W.G. JURGENSEN has been a Director and Chief Executive Officer since 2000. Previously, he was Executive Vice President of Bank One Corporation from 1998 to May 2000. Prior to Bank One's merger with First Chicago NBD, Mr. Jurgensen served from 1990 to 1998 as Executive Vice President with First Chicago, leading various business units. For 17 years, Mr. Jurgensen was with Norwest Corporation, beginning as a corporate banking officer and serving in increasingly responsible roles including president and CEO of Norwest Investment Services and management of the treasury function. Mr. Jurgensen's final post was Executive Vice President - Corporate Banking. JOSEPH J. GASPER has been President and Chief Operating Officer and Director of Nationwide since April 1996. Previously, he was Executive Vice President - Property/Casualty Operations of Nationwide Mutual Insurance Company from April 1995 to April 1996. He was Senior Vice President - Property/Casualty Operations of Nationwide 33 Mutual Insurance Company from September 1993 to April 1995. Prior to that time, Mr. Gasper held numerous positions within Nationwide. Mr. Gasper has been with Nationwide for 34 years. LEWIS J. ALPHIN has been a Director of Nationwide since 1993. Mr. Alphin owns and operates an 800-acre farm in Mt. Olive, NC. He taught agriculture business at James Sprunt Community Collegy in Kenansville, NC for more than 22 years before retiring in 1994. He is the former board chairman of the Cape Fear Farm Credit Association, a member and former vice president, secretary/treasurer, and director of the Duplin County Agribusiness Council, and a former board member of the Southern States Cooperative (1986 to 1993). Mr. Alphin is a member of the Duplin County Farm Bureau, the North Carolina Farm Bureau, ad the Farm Credit Council. He is a member and former director of the Oak Wolfe Fire Department. A. I. BELL has been a Director of Nationwide since April, 1998. Mr. Bell has served as a state trustee of the Ohio Farm Bureau Federation from 1991 to 1998 and as president that last four years. He oversees the Bell family farm in Zanesville, Ohio. The farm is the hub of a multi-family swine network, in addition to grain and beef operations. Mr. Bell has represented the Ohio Farm Bureau at state and national level activities, and has traveled internationally representing Ohio agriculture. In 1995, he was introduced into The Ohio State University Department of Animal Sciences Hall of Fame. YVONNE M. CURL has been a Director of Nationwide since April 1998. Ms. Curl is Vice President - Chief Marketing Officer for Avaya Inc. located in Basking Ridge, NJ. Prior to joining Avaya Inc. in November 2000, she was employed by the Xerox Corporation. She joined Xerox in 1976 as a sales representative and progressed through management positions, including vice president - field operations; executive assistant to the chairman and CEO; and as corporate vice president serving as senior vice president and general manager, public sector worldwide/global solutions group. JOHN R. COOK, JR. has been Senior Vice President - Chief Communications Officer since May 1997. Previously, Mr. Cook was Senior Vice President - Chief Communications Officer of USAA from July 1989 to May 1997. Mr. Cook has been with Nationwide for 3 years. THOMAS L. CRUMRINE has been Senior Vice President of Nationwide since September 1997. Previously he was Senior Vice President - Property/Casualty from March 1996 to September 1997. Prior to that time, he was Senior Vice President - Claims from April 1995 to March 1996, Vice President - Claims from 1993 to March 1996, Vice President - Agency Sales from 1991 to 1993 and Vice President - Agency Services from 1989 to 1991. Prior to 1989 Mr. Crumrine held several positions with Nationwide. KENNETH D. DAVIS has been a Director of Nationwide since April 1999. Mr. Davis is the immediate past president of the Ohio Farm Bureau Federation. He served as a member of the Ohio Farm Bureau Federation's board of trustees from 1989 until 1999. He served as first vice president of the board from 1994 until 1998. Mr. Davis serves on the board of directors of his local rural electric cooperatives and is a member of many agriculture organizations including the Ohio Corn Growers, Ohio Cattlemen's and Ohio Soybean associations. DAVID A. DIAMOND has been Senior Vice President - Corporate Strategy since December 11, 2000. Previously, Mr. Diamond was Senior Vice President - Corporate Controller from August 1999 to December 2000. He was Vice President - Controller from October 1993 to August 1999. Prior to that time, Mr. Diamond held several positions within Nationwide. Mr. Diamond has been with Nationwide for 12 years. KEITH W. ECKEL has been a Director of Nationwide since April 1996. Mr. Eckel is a partner of Fred W. Eckel Sons and president of Eckel Farms, Inc. in northeast Pennsylvania. He received the Master Farmer award from Penn State University in 1982. Mr. Eckel is a member of the Pennsylvania Agricultural Land Preservation Board. He is a former president of the Pennsylvania Farm Bureau, a position he held for 15 years, and the Lackawanna County Cooperative Extension Association. He has served as a board member and executive committee member of the American Farm Bureau Federation. He is a former vice president of the Pennsylvania Council of Cooperative Extension Associations and former board member of the Pennsylvania Vegetable Growers Association. WILLARD J. ENGEL has been a Director of Nationwide since 1994. Mr. Engel served as general manager of Lyon County Co-Operative Oil Co. in Marshall, MN from 1975 to 1997, and occasionally serves on a consulting basis. He previously was a division manager of the Truman Farmers Elevator. He is a former director of the Western Co-op Transport in Montevideo, MN, a former director and legislative committee chairman of the Northwest Petroleum Association in St. Paul, and a former director of Farmland Industries in Kansas City. FRED C. FINNEY has been a Director of Nationwide since 1992. Mr. Finney is the owner and operator of the Moreland Fruit Farm and operator of Melrose Orchard in Wooster, OH. He is past president of the Ohio Farm Bureau Federation, the Ohio Fruit Growers Society, Wayne County Farm Bureau, and the Westwood Ruritan 34 Club. He is a member of the American Berry Cooperative. PHILIP C. GATH has been Senior Vice President - Chief Actuary - Nationwide Financial since May 1998. Previously, Mr. Gath was Vice President - Product Manager - Individual Variable Annuity from July 1997 to May 1998. Mr. Gath was Vice President - Individual Life Actuary from August 1989 to July 1997. Prior to that time, Mr. Gath held several positions within Nationwide. Mr. Gath has been with Nationwide for 32 years. PATRICIA R. HATLER has been Senior Vice President, General Counsel and Secretary since April 2000. Previously, she was Senior Vice President and General Counsel from July 1999 to April 2000. Prior to that time, she was General Counsel and Corporate Secretary of Independence Blue Cross from 1983 to July 1999. RICHARD D. HEADLEY has been Executive Vice President for Nationwide since July 2000. Previously, he was Executive Vice President - Chief Information Technology Officer from May 1999 to July 2000. He was Senior Vice President - Chief Information Technology Officer from October 1997 to May 1999. Previously, Mr. Headly was Chairman and Chief Executive Officer of Banc One Services Corporation from 1992 to October 1997. From January 1975 until 1992, Mr. Headley held several positions with Banc One Corporation. Mr. Headley has been with Nationwide for 3 years. MICHAEL S. HELFER has been Executive Vice President - Corporate Strategy since August 2000. He is a former partner and head of the financial institutions group at Wilmer, Cutler and Pickering, a 350-lawyer international law firm headquartered in Washington, D.C. He served as that firm's Chairman and Chief Executive Officer from 1995 to 1998. DAVID K. HOLLINGSWORTH has been Senior Vice President - Business Development and Sponsor Relations since April 2000. Previouly, he was Senior Vice President - Multi Channel and Sponsor relations from August 1999 until April 2000. Previously, he was Senior Vice President - Marketing from June 1999 to August 1999. Prior to that time, Mr. Hollingsworth held numerous positions within Nationwide. Mr. Hollingsworth has been with Nationwide for 26 years. DAVID R. JAHN has been Senior Vice President - Product Management since November 2000. Previously, he was Senior Vice President - Commercial Insurance from March 1998 to November 2000. Previously, he was Vice President - Property/Casualty Operations and Vice President - Resource Management from March 1996 to January 1998. Prior to that time, Mr. Jahn has held numerous positions within Nationwide. Mr. Jahn has been with Nationwide for 29 years. DONNA A. JAMES has been Executive Vice President - Chief Administrative Officer since July 2000. Previously, she was Senior Vice President - Chief Human Resources Officer from May 1999 to July 2000. She was Senior Vice President - Human Resources from December 1997 to May 1999. Previously, she was Vice President - Human Resources from July 1996 to December 1997. Prior to that time, Ms. James was Vice President - Assistant to the CEO of Nationwide from March 1996 to July 1996. From May 1994 to March 1996, she was Associate Vice President - - Assistant to the CEO of Nationwide. Previously, Ms. James held several positions within Nationwide. Ms. James has been with Nationwide for 19 years. RICHARD A. KARAS has been Senior Vice President - Sales - Financial Services since March 1993. Previously, he was Vice President - Sales - Financial Services from February 1989 to March 1993. Prior to that time, Mr. Karas held several positions within Nationwide. Mr. Karas has been with Nationwide for 36 years. GREGORY S. LASHUTKA has been Senior Vice President - Corporate Relations since January 2000. Previously, he was the Mayor of the City of Columbus (Ohio) from January 1992 to December 1999. From January 1986 to December 1991, Mr. Lashutka was a Partner with Squire, Sanders & Dempsey. From January 1978 to December 1985, he was City Attorney for the City of Columbus (Ohio). EDWIN P. MCCAUSLAND, JR. has been Senior Vice President - Fixed Income Securities since 1999. Mr. McCausland has 29 years of experience in insurance investments beginning his career in 1970 with Connecticut Mutual Life Insurance Company. He joined Phoenix Mutual Life Insurance Company in 1981 as second Vice President of Bond Investments and rising to Vice President of Pension Operations. He was Vice President and Managing Director of Mass Mutual Life Insurance Company prior to joining Nationwide. DAVID O. MILLER has been a Director of Nationwide since November 1996. Mr. Miller has been Chairman of the Board since 1998. Mr. Miller is president of Owen Potato Farm, Inc. and a partner of M&M Enterprises in Licking County, OH. He is a director and board chairman of the National Cooperative Business Association, director of Cooperative Business International and the International Cooperative Alliance, and serves on the educational executive committee of the National Council of Farmer Cooperatives. He was president of the Ohio Farm Bureau Federation from 1981 to 1985 and was vice president for six years. Mr. Miller served a two-year term on the board of the American Farm Bureau Association. He is past president of the Ohio Vegetable and Potato Growers Association, and was a director of Landmark, Inc., a 35 farm supply cooperative which is now part of Indianapolis-based Countrymark. ROBERT A. OAKLEY has been Executive Vice President - Chief Financial Officer and Treasurer since December 2000. Previously, Mr. Oakley was Executive Vice President - Chief Financial Officer from April 1995 to December 2000. Prior to that, Mr. Oakley was Senior Vice President - Chief Financial Officer from October 1993 to April 1995. Prior to that time, Mr. Oakley held several positions within Nationwide. Mr. Oakley has been with Nationwide for 25 years. RALPH M. PAIGE has been a Director of Nationwide since April 1999. Mr. Paige has been the Executive Director of the Federation of Southern Cooperatives/Land Assistance Fund since 1969. Mr. Paige also served as the National Field Director/Georgia State Director from 1981 to 1984. JAMES F. PATTERSON has been a Director of Nationwide since April 1989. Mr. Patterson is president of Patterson Farms, Inc. and has operated Patterson Fruit Farm in Chesterland, OH since 1964. Mr. Patterson is on the boards of The Ohio State University Hospitals Health System in Cleveland, Geauga Hospital, Inc. and the National Cooperative Business Association. He is past president of the Ohio Farm Bureau Federation and former member of Cleveland Foundation's Lake and Geauga Advisory Committees. MARK D. PHELAN has been Senior Vice President - Technology and Operations since December 2000. Previously, he was Senior Vice President - Technology Services from 1998 to December 2000. His previous management experience includes five years (1977 - 1982) with the data processing division's sales group at IBM Corporation. From 1982 through 1990, Mr. Phelan served as Director of AT&T's Consumer Communications Services Group and he was subsequently promoted to Sales Vice President for the Eastern Region of the Business Communications Services Division. In 1992, he became Executive Vice President - Sales and Marketing for the Electronic Commerce Division of Checkfree Corporation, a position he held for five years. From 1997 until 1998, he was in private consulting. DOUGLAS C. ROBINETTE has been Senior Vice President - Claims since November 2000. Previously he was Senior Vice President - Claims and Financial Services from 1999 to November 2000. Prior to that time, Mr. Robinette was Senior Vice President - Marketing and Product Management from May 1998 to 1999. Mr. Robinette was Executive Vice President, Customer Services of Employers Insurance of Wausau, a member of the Nationwide group until 1998, from September 1996 to May 1998. Prior to that time, he was Executive Vice President, Finance and Insurance Services of Wausau from May 1995 to September 1996. From November 1994 to May 1995, Mr. Robinette was Senior Vice President, Finance and Insurance Services of Wausau. From May 1993 to November 1994, he was Senior Vice President, Finance of Wausau. Prior to that time, Mr. Robinette held several positions within the Nationwide group. Mr. Robinette has been with Nationwide for 14 years. ARDEN L. SHISLER has been a Director of Nationwide since 1984. Mr. Shisler is president and chief executive officer of K&B Transport, Inc., a trucking firm in Dalton, OH. He is a director of the National Cooperative Business Association in Washington, DC. He is a former board member and vice president of the Ohio Farm Bureau Federation and past president of the Ohio Agricultural Marketing Association, an Ohio Farm Bureau Federation subsidiary. He is a member of the Ohio Trucking Association, the Ohio Trucking Safety Council, the Wayne County Farm Bureau, Cornerstone Community Church, the Advisory Committee of The Ohio State University Agriculture Technical Institute and a board member of the Wilderness Center. ROBERT L. STEWART has been a Director of Nationwide since 1989. Mr. Stewart is the owner and operator of Sunnydale Farms and Mining in Jewett, OH. He served on the board of the Ohio Farm Bureau Federation and as president of the Ohio Holstein Association board. Mr. Stewart was a director of the Ohio Agricultural Stabilization and Conservation Service board and Landmark, Inc. a farm supply cooperative which is now part of Indianapolis-based Countrymark. MARK R. THRESHER has been Senior Vice President - Finance - Nationwide Financial since May 1999. He was Vice President - Controller from August 1996 to May 1999. He was Vice President Finance and Treasurer from November 1996 to February 1997. Previously, he was Vice President and Treasurer from June 1996 to November 1996. Prior to joining Nationwide, Mr. Thresher served as a partner with KPMG LLP from July 1988 to June 1996. RICHARD M. WAGGONER has been Senior Vice President - Operations since May 1999. Previously, he was President of Nationwide Services from May 1997 to May 1999. Prior to that time, Mr. Waggoner has held numerous positions within the Nationwide group of companies. Mr. Waggoner has been with Nationwide for 24 years. SUSAN A. WOLKEN has been Senior Vice President - Product Management and Nationwide Financial Marketing since May 1999. Previously, Ms. Wolken was Senior Vice President - Life Company Operations from June 1997 to May 1999. She was Senior Vice President - Enterprise Administration from July 1996 to June 1997. Prior to that time, she was Senior Vice 36 President - Human Resources from April 1995 to July 1996. From September 1993 to April 1995, Ms. Wolken was Vice President - Human Resources. From October 1989 to September 1993 she was Vice President - Individual Life and Health Operations. Ms. Wolken has been with Nationwide for 26 years. ROBERT J. WOODWARD, JR. has been Executive Vice President - Chief Investment Officer since August 1995. Previously, he was Senior Vice President - Fixed Income Investments from March 1991 to August 1995. Prior to that time, Mr. Woodward held several positions within Nationwide. Mr. Woodward has been with Nationwide for 36 years. 37 APPENDIX A: OBJECTIVES FOR UNDERLYING MUTUAL FUNDS The underlying mutual funds listed below are designed primarily as investment vehicles for variable annuity contracts and variable life insurance policies issued by insurance companies. There is no guarantee that the investment objectives will be met. AMERICAN CENTURY VARIABLE PORTFOLIOS, INC., A MEMBER OF THE AMERICAN CENTURY(SM) FAMILY OF INVESTMENTS. American Century Variable Portfolios, Inc. was organized as a Maryland corporation in 1987. It is a diversified, open-end investment management company which offers its shares only as investment vehicles for variable annuity and variable life insurance products of insurance companies. American Century Variable Portfolios, Inc. is managed by American Century Investment Management, Inc. AMERICAN CENTURY VP INCOME & GROWTH Investment Objective: Dividend growth, current income and capital appreciation. The Fund seeks to achieve its investment objective by investing in common stocks. The investment manager constructs the portfolio to match the risk characteristics of the S&P 500 Stock Index and then optimizes each portfolio to achieve the desired balance of risk and return potential. This includes targeting a dividend yield that exceeds that of the S&P 500. Such a management technique known as "portfolio optimization" may cause the Fund to be more heavily invested in some industries than in others. However, the Fund may not invest more than 25% of its total assets in companies whose principal business activities are in the same industry. AMERICAN CENTURY VP INTERNATIONAL Investment Objective: Capital growth. The Fund will seek to achieve its investment objective by investing primarily in securities of foreign companies that meet certain fundamental and technical standards of selection and, in the opinion of the investment manager, have potential for appreciation. Under normal conditions, the Fund will invest at least 65% of its assets in common stocks or other equity securities of issuers from at least three countries outside the United States. While securities of United States issuers may be included in the portfolio from time to time, it is the primary intent of the manager to diversify investments across a broad range of foreign issuers. Although the primary investment of the Fund will be common stocks (defined to include depository receipts for common stock and other equity equivalents), the Fund may also invest in other types of securities consistent with the Fund's objective. When the manager believes that the total capital growth potential of other securities equals or exceeds the potential return of common stocks, the Fund may invest up to 35% of its assets in such other securities. AMERICAN CENTURY VP VALUE Investment Objective: Long-term capital growth; income is a secondary objective. The equity securities in which the Fund will invest will be primarily securities of well-established companies with intermediate-to-large market capitalizations that are believed by management to be undervalued at the time of purchase. Under normal market conditions, the Fund expects to invest at least 80% of the value of its total assets in equity securities, including common and preferred stock, convertible preferred stock and convertible debt obligations. THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.: INITIAL SHARES The Dreyfus Socially Responsible Growth Fund, Inc. is an open-end, diversified, management investment company incorporated under Maryland law on July 20, 1992 and commenced operations on October 7, 1993. The Fund offers its share only as investment vehicles for variable annuity and variable life insurance products of insurance companies. The Dreyfus Corporation serves as the Fund's investment adviser. NCM Capital Management Group, Inc. serves as the Fund's sub-investment adviser and provides day-to-day management of the Fund's portfolio. Investment Objective: Capital growth through equity investment in companies that, in the opinion of the Fund's advisers, not only meet traditional investment standards, but which also show evidence that they conduct their business in a manner that contributes to the enhancement of the quality of life in America. Current income is secondary to the primary goal. DREYFUS STOCK INDEX FUND, INC.: INITIAL SHARES The Dreyfus Stock Index Fund, Inc. ("Fund") is an open-end, non-diversified, management investment company incorporated under Maryland law on January 24, 1989 and commenced operations on September 29, 1989. The Fund offers its shares only as investment vehicles for variable annuity and variable life insurance products of insurance companies. The Dreyfus Corporation ("Dreyfus") serves as the Fund's manager, while Mellon Equity Associates, an affiliate of Dreyfus, serves as the Fund's index manager. Dreyfus is a wholly owned subsidiary of Mellon Bank, N.A., which is a wholly owned subsidiary of Mellon Bank Corporation. 38 Investment Objective: To provide investment results that correspond to the price and yield performance of publicly traded common stocks in the aggregate, as represented by the Standard & Poor's 500 Composite Stock Price Index. The Fund is neither sponsored by nor affiliated with Standard & Poor's Corporation. DREYFUS VARIABLE INVESTMENT FUND Dreyfus Variable Investment Fund ("Fund") is an open-end, management investment company. It was organized as an unincorporated business trust under the laws of the Commonwealth of Massachusetts on October 29, 1986 and commenced operations on August 31, 1990. The Fund offers its shares only as investment vehicles for variable annuity and variable life insurance products of insurance companies. The Dreyfus Corporation serves as the Fund's manager. Fayez Sarofim & Company serves as the sub-adviser and provides day-to-day management of the portfolio. APPRECIATION PORTFOLIO: INITIAL SHARES Investment Objective: Primarily long-term capital growth consistent with the preservation of capital; current income is a secondary investment objective. This Portfolio invests primarily in the common stocks of domestic and foreign issuers. FEDERATED INSURANCE SERIES Federated Insurance Series (the "Trust"), an open-end management investment company, was established as a Massachusetts business trust, under a Declaration of Trust dated September 15, 1993. The Trust offers its shares only as investment vehicles for variable annuity and variable life insurance products of insurance companies. Federated Investment Management Company serves as the investment adviser. FEDERATED QUALITY BOND FUND II Investment Objective: Current income by investing in investment grade fixed income securities. FIDELITY VARIABLE INSURANCE PRODUCTS FUND The Fidelity Variable Insurance Products Fund ("VIP") is an open-end, diversified, management investment company organized as a Massachusetts business trust on November 13, 1981. Shares of VIP are purchased by insurance companies to fund benefits under variable life insurance policies and variable annuity contracts. Fidelity Management & Research Company ("FMR") is the manager for VIP and its portfolios. VIP EQUITY-INCOME PORTFOLIO: SERVICE CLASS 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 GROWTH PORTFOLIO: SERVICE CLASS Investment Objective: Capital appreciation. This Portfolio will invest in the securities of both well-known and established companies, and smaller, less well-known companies which may have a narrow product line or whose securities are thinly traded. These latter securities will often involve greater risk than may be found in the ordinary investment security. FMR's analysis and expertise plays an integral role in the selection of securities and, therefore, the performance of the Portfolio. Many securities which FMR believes would have the greatest potential may be regarded as speculative, and investment in the Portfolio may involve greater risk than is inherent in other underlying mutual funds. It is also important to point out that this Portfolio makes sense for you if you can afford to ride out changes in the stock market because it invests primarily in common stocks. FMR can also make temporary investments in securities such as investment-grade bonds, high-quality preferred stocks and short-term notes, for defensive purposes when it believes market conditions warrant. VIP HIGH INCOME PORTFOLIO: SERVICE CLASS Investment Objective: High level of current income by investing primarily in high-risk, lower-rated, high-yielding, fixed-income securities, while also considering growth of capital. FMR will seek high current income normally by investing the Portfolio's assets as follows: - at least 65% in income-producing debt securities and preferred stocks, including convertible securities; and - up to 20% in common stocks and other equity securities when consistent with the Portfolio's primary objective or acquired as part of a unit combining fixed-income and equity securities Higher yields are usually available on securities that are lower-rated or that are unrated. Lower-rated securities are usually defined as Ba or lower by Moody's Investor Service, Inc. ("Moody's"); BB or lower by Standard & Poor's and may be deemed to be of a speculative nature. The Portfolio may also purchase lower-quality bonds such as those rated Ca3 by Moody's or C- by Standard & Poor's which provide poor protection for payment of principal and interest (commonly referred to as "junk bonds"). For a further discussion of lower-rated securities, please see the "Risks of Lower-Rated Debt Securities" section of the Portfolio's prospectus. VIP OVERSEAS PORTFOLIO: SERVICE CLASS Investment Objective: Long-term capital growth primarily through investments in foreign securities. This Portfolio provides a means for investors to 39 diversify their own portfolios by participating in companies and economies outside the United States. FIDELITY VARIABLE INSURANCE PRODUCTS FUND II The Fidelity Variable Insurance Products Fund II ("VIP II") is an open-end, diversified, management investment company organized as a Massachusetts business trust on March 21, 1988. VIP II's shares are purchased by insurance companies to fund benefits under variable life insurance policies and variable annuity contracts. Fidelity Management & Research Company ("FMR") is the manager of VIP II and its portfolios. VIP II CONTRAFUND(R) PORTFOLIO: SERVICE CLASS Investment Objective: Capital appreciation by investing primarily in companies that FMR believes to be undervalued due to an overly pessimistic appraisal by the public. This strategy can lead to investments in domestic or foreign companies, small and large, many of which may not be well known. The Portfolio primarily invests in common stock and securities convertible into common stock, but it has the flexibility to invest in any type of security that may produce capital appreciation. FIDELITY VARIABLE INSURANCE PRODUCTS FUND III The Fidelity Variable Insurance Products Fund III ("VIP III") is an open-end, diversified, management investment company organized as a Massachusetts business trust on July 14, 1994. VIP III's shares are purchased by insurance companies to fund benefits under variable life insurance policies and variable annuity contracts. Fidelity Management & Research Company ("FMR") is the manager of VIP III and it's portfolios. VIP III GROWTH OPPORTUNITIES PORTFOLIO: SERVICE CLASS Investment Objective: Capital growth by investing primarily in common stocks and securities convertible into common stocks. The Portfolio, under normal conditions, will invest at least 65% of its total assets in securities of companies that FMR believes have long-term growth potential. Although the Portfolio invests primarily in common stock and securities convertible into common stock, it has the ability to purchase other securities, such as preferred stock and bonds that may produce capital growth. The Portfolio may invest in foreign securities without limitation. GARTMORE VARIABLE INSURANCE TRUST Gartmore Variable Insurance Trust (formerly, Nationwide Separate Account Trust) ("GVIT") is an open-end management investment company created under the laws of Massachusetts. GVIT offers shares in the mutual funds listed below, each with its own investment objectives. Shares of GVIT will be sold primarily to separate accounts to fund the benefits under variable life insurance policies and variable annuity contracts issued by life insurance companies. Gartmore Global Asset Management Trust, an indirect subsidiary of Nationwide Mutual Insurance Company, manages the assets of the Gartmore GVIT Emerging Markets Fund and Gartmore GVIT International Growth Fund. The remaining assets of GVIT are managed by Gartmore Mutual Fund Capital Trust ("GMF"), an indirect subsidiary of Nationwide Financial Services, Inc. DREYFUS GVIT MID CAP INDEX FUND: CLASS I Subadviser: The Dreyfus Corporation Investment Objective: Capital appreciation. Under normal conditions, the Fund invests at least 80% of its net assets in equity securities of companies included in the Standard & Poor's MidCap 400 Index and in derivative instruments linked to the S&P 400. The Fund is neither sponsored by nor affiliated with Standard & Poor's Corporation. FEDERATED GVIT EQUITY INCOME FUND: CLASS I Subadviser: Federated Investment Counseling Investment Objective: Above average income and capital appreciation. Under normal conditions, the Fund invests at least 80% of its net assets in income producing U.S. and foreign equity securities and securities that are convertible into common stock. FEDERATED GVIT HIGH INCOME BOND FUND: CLASS I Subadviser: Federated Investment Counseling Investment Objective: To provide high current income. Under normal conditions, the Fund invests at least 80% of the Fund's net assets in corporate bonds that are rated BBB or lower by a rating agency or that are unrated but of comparable quality. Such funds are commonly referred to as "junk bonds." GARTMORE GVIT EMERGING MARKETS FUND: CLASS I Subadviser: Gartmore Global Partners Investment Objective: Long term capital growth. Under normal conditions, the Fund invests at least 80% of its net assets in equity securities of companies located in emerging market or developing countries or that derive a significant portion of their earnings or revenue from emerging market countries. GARTMORE GVIT GLOBAL TECHNOLOGY AND COMMUNICATIONS FUND: CLASS I Investment Objective: Long term capital appreciation by investing under normal conditions at least 80% of its net assets in equity securities issued by companies with business operations in technology and communications and/or technology and communication related industries. These companies will be tied economically to a number of 40 countries throughout the world, including the United States. GARTMORE GVIT GOVERNMENT BOND FUND: CLASS I Investment Objective: Seeks as high a level of income as is consistent with the preservation of capital. Under normal conditions, the Fund invests at least 80% of its net assets in U.S. government and agency bonds, bills and notes. The duration of the Fund will typically be four to six years. GARTMORE GVIT GROWTH FUND: CLASS I Investment Objective: Long-term capital appreciation. The Fund invests primarily in large capitalization companies. The Fund looks for companies whose earnings are expected to grow faster than other companies in the market. GARTMORE GVIT INTERNATIONAL GROWTH FUND: CLASS I Subadviser: Gartmore Global Partners Investment Objective: Long term capital growth by investing primarily in equity securities of companies in Europe, Australia, the Far East and other regions, including developing countries. GARTMORE GVIT INVESTOR DESTINATIONS AGGRESSIVE FUND Investment Objective: To maximize total investment return primarily by seeking growth of capital. The Fund invests in a target allocation mix of 40% large cap U.S. stocks, 15% mid cap U.S. stocks, 10% small cap U.S. stocks, 30% international funds, and 5% bonds. GARTMORE GVIT INVESTOR DESTINATIONS CONSERVATIVE FUND Investment Objective: To maximize total investment return by seeking income and, secondarily, long term growth of capital. The Fund invests in a target allocation mix of 10% large cap U.S. stocks, 5% mid cap U.S. stocks, 5% international stocks, 35% bonds, and 45% short-term investments. GARTMORE GVIT INVESTOR DESTINATIONS MODERATE FUND Investment Objective: To maximize total investment return by seeking growth of capital and income. The Fund invests in a target allocation mix of 30% large cap U.S. stocks, 10% mid cap U.S. stocks, 5% small cap U.S. stocks, 15% international stocks, 25% bonds, and 15% short-term investments. GARTMORE GVIT INVESTOR DESTINATIONS MODERATELY AGGRESSIVE FUND Investment Objective: To maximize total investment return primarily by seeking growth of capital, but also income. The Fund invests in a target allocation mix of 35% large cap U.S. stocks, 15% mid cap U.S. stocks, 5% small cap U.S. stocks, 25% international stocks, 15% bonds, and 5% short-term investments. GARTMORE GVIT INVESTOR DESTINATIONS MODERATELY CONSERVATIVE FUND Investment Objective: To maximize total investment return by seeking income and, secondarily, growth of capital. The Fund invests in a target allocation mix of 20% large cap U.S. stocks, 10% mid cap U.S. stocks, 10% international stocks, 35% bonds, and 25% short-term investments. GARTMORE GVIT MONEY MARKET FUND: CLASS I Investment Objective: As high a level of current income as is consistent with the preservation of capital and maintenance of liquidity. The Fund invests in high-quality money market obligations maturing in 397 days or less. GARTMORE GVIT TOTAL RETURN FUND: CLASS I Investment Objective: Seeks total return through a flexible combination of capital appreciation and current income. The Fund invests primarily in common stocks and convertible securities. GARTMORE GVIT WORLDWIDE LEADERS FUND: CLASS I Subadviser: Gartmore Global Partners Investment Objective: Long-term capital growth. Under normal conditions, the Fund invests at least 80% of its net assets in equity securities of companies located throughout the world considered to be leaders. GVIT SMALL CAP GROWTH FUND: CLASS I Subadvisers: Miller Anderson & Sherrerd, LLP, Neuberger Berman, LLC and Waddell & Reed Investment Management Company Investment Objective: Seeks capital growth by investing in a broadly diversified portfolio of equity securities issued by U.S. and foreign companies with market capitalizations in the range of companies represented by the Russell 2000, known as small cap companies. Under normal conditions, the Fund will invest at least 80% of its net assets in the equity securities of small cap companies. GVIT SMALL CAP VALUE FUND: CLASS I Subadviser: The Dreyfus Corporation Investment Objective: Capital appreciation. Under normal conditions, the Fund invests at least 80% of its net assets in equity securities of small capitalization companies. These are companies whose equity market capitalizations at the time of investment are similar to the market capitalizations of companies in the Russell 2000 Index. The Fund will invest in stocks of U.S. and foreign companies which the portfolio managers believe qualify as "value" companies. 41 GVIT SMALL COMPANY FUND: CLASS I Subadvisers: The Dreyfus Corporation, Neuberger Berman, LLC, Gartmore Global Partners, Strong Capital Management, Inc. and Waddell & Reed Investment Management Company Investment Objective: Long-term growth of capital. Under normal conditions, the Fund will invest at least 80% of its net assets in equity securities issued by small capitalization companies. These are companies whose equity market capitalizations at the time of investment are similar to the market capitalizations of companies in the Russell 2000 Index. J.P. MORGAN GVIT BALANCED FUND: CLASS I Subadviser: J.P. Morgan Investment Management, Inc. Investment Objective: A high total return from a diversified portfolio of equity and fixed income securities. Under normal conditions, the Fund invests approximately 50% of its net assets in equity securities and 30% of its net assets in fixed income securities (including U.S. government corporate, mortgage-backed and asset-backed securities). The equity securities held by the Fund generally are common stocks of large and medium sized companies included in the Standard & Poor's 500 Index. MAS GVIT MULTI SECTOR BOND FUND: CLASS I Subadviser: Miller, Anderson & Sherrerd, LLP Investment Objective: Primarily seeks above average total return over a market cycle of three to five years. The Fund invests in a diversified portfolio of U.S. and foreign fixed income securities, including high yield securities (commonly referred to as "junk bonds") and emerging markets securities. STRONG GVIT MID CAP GROWTH FUND: CLASS I Subadviser: Strong Capital Management Inc. Investment Objective: Capital growth by focusing on common stocks of U.S. and foreign companies that the subadviser believes are reasonably priced and have above-average growth potential. Under normal conditions, the Fund invests at least 80% of its net assets in equity securities issued by mid capitalization companies. JANUS ASPEN SERIES The Janus Aspen Series is an open-end management investment company whose shares are offered in connection with investment in and payments under variable annuity contracts and variable life insurance policies, as well as certain qualified retirement plans. Janus Capital Corporation serves as investment adviser to each Portfolio. CAPITAL APPRECIATION PORTFOLIO: SERVICE SHARES Investment Objective: Long-term growth of capital by investing primarily in common stocks selected for their growth potential. The Portfolio may invest in companies of any size, from larger, well-established companies to smaller, emerging growth companies. GLOBAL TECHNOLOGY PORTFOLIO: SERVICE SHARES Investment Objective: Long-term growth of capital by investing primarily in equity securities of U.S. and foreign companies selected for their growth potential. Under normal circumstances, the Portfolio invests at least 65% of its total assets in securities of companies that the Portfolio manager believes will benefit significantly from advances or improvements in technology. INTERNATIONAL GROWTH PORTFOLIO: SERVICE SHARES Investment Objective: Long-term growth of capital by investing at least 65% of its total assets in securities of issuers from at least five different countries, excluding the United States. Although the Portfolio intends to invest substantially all of its assets in issuers located outside the United States, it may invest in U.S. issuers and it may at times invest all of its assets in fewer than five countries, or even a single country. NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST ("AMT") Neuberger Berman AMT is an open-end, diversified management investment company that offers its portfolios in connection with variable annuity contracts and variable life insurance policies, and certain qualified plans. Prior to May 1, 2000, the portfolios invested through a two-tier master/feeder structure, whereby each portfolio invested its assets in another fund that served as a corresponding "master series;" the master series invested in securities. Effective May 1, 2000, the portfolios converted to a conventional one-tier structure, whereby each portfolio holds its securities directly. Neuberger Berman Management Inc. is the investment adviser. AMT GUARDIAN PORTFOLIO Investment Objective: Long-term capital growth, with current income as a secondary objective. The Portfolio pursues these goals by investing mainly in common stocks of large-capitalization companies. AMT MID-CAP GROWTH PORTFOLIO Investment Objective: Capital growth. The Portfolio pursues this goal by investing mainly in common stocks of mid-capitalization companies. The managers look for fast-growing companies that are in new or rapidly evolving industries and seek to reduce risk by diversifying among many companies, industries and sectors. 42 AMT PARTNERS PORTFOLIO Investment Objective: Capital growth. The Portfolio pursues its goal by investing mainly in common stocks of mid- to large-capitalization companies. OPPENHEIMER VARIABLE ACCOUNT FUNDS The Oppenheimer Variable Account Funds are an open-end, diversified management investment company organized as a Massachusetts business trust in 1984. Shares of the Funds are sold to provide benefits under variable life insurance policies and variable annuity contracts. OppenheimerFunds, Inc. is the investment adviser. OPPENHEIMER AGGRESSIVE GROWTH FUND/VA Investment Objective: Capital appreciation by investing in "growth type" companies. Such companies are believed to have relatively favorable long-term prospects for increasing demand for their goods or services, or to be developing new products, services or markets and normally retain a relatively larger portion of their earnings for research, development and investment in capital assets. The Fund may also invest in cyclical industries in "special situations" that OppenheimerFunds, Inc. believes present opportunities for capital growth. OPPENHEIMER CAPITAL APPRECIATION FUND/VA Investment Objective: Capital appreciation by investing in securities of well-known established companies. Such securities generally have a history of earnings and dividends and are issued by seasoned companies (companies which have an operating history of at least five years including predecessors). Current income is a secondary consideration in the selection of the Fund's portfolio securities. OPPENHEIMER GLOBAL SECURITIES FUND/VA Investment Objective: Long-term capital appreciation by investing a substantial portion of assets in securities of foreign issuers, "growth-type" companies, cyclical industries and special appreciation possibilities. These securities may be considered speculative. OPPENHEIMER MAIN STREET GROWTH & INCOME FUND/VA Investment Objective: High total return, which stocks, preferred stocks, convertible securities and warrants. Debt investments will include bonds, participation includes growth in the value of its shares as well as current income from quality and debt securities. In seeking its investment objectives, the Fund may invest in equity and debt securities. Equity investments will include common interests, asset-backed securities, private-label mortgage-backed securities and CMOs, zero coupon securities and U.S. debt obligations, and cash and cash equivalents. From time to time, the Fund may focus on small to medium capitalization issuers, the securities of which may be subject to greater price volatility than those of larger capitalized issuers. STRONG OPPORTUNITY FUND II, INC. The Strong Opportunity Fund II, Inc. is a diversified, open-end management company commonly called a mutual fund. The Strong Opportunity Fund II, Inc. was incorporated in Wisconsin and may only be purchased by the separate accounts of insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Strong Capital Management, Inc. is the investment adviser for the Fund. Investment Objective: Capital appreciation through investments in a diversified portfolio of equity securities. THE UNIVERSAL INSTITUTIONAL FUNDS, INC. The Universal Institutional Funds, Inc. is a mutual fund designed to provide investment vehicles for variable annuity contracts and variable life insurance policies and for certain tax-qualified investors. EMERGING MARKETS DEBT PORTFOLIO Investment Objective: High total return by investing primarily in dollar and non-dollar denominated fixed income securities of government and government-related issuers located in emerging market countries, which securities provide a high level of current income, while at the same time holding the potential for capital appreciation if the perceived creditworthiness of the issuer improves due to improving economic, financial, political, social or other conditions in the country in which the issuer is located. Morgan Stanley Dean Witter Investment Management, Inc. is the Portfolio's investment adviser. MID CAP GROWTH PORTFOLIO Investment Objective: Long-term capital growth by investing primarily in common stocks and other equity securities of issuers with equity capitalizations in the range of the companies represented in the Standard & Poor's Rating Group ("S&P") MidCap 400 Index. Such range is generally $500 million to $6 billion but the range fluctuates over time with changes in the equity market. Miller, Anderson & Sherrerd, LLP is the Portfolio's investment adviser. U. S. REAL ESTATE PORTFOLIO Investment Objective: Long-term capital growth by investing principally in a diversified portfolio of securities of companies operating in the real estate industry ("Real Estate Securities"). Current income is a secondary consideration. Real Estate Securities include equity securities, including common stocks and convertible securities, as well as non-convertible 43 preferred stocks and debt securities of real estate industry companies. A "real estate industry company" is a company that derives at least 50% of its assets (marked to market), gross income or net profits from the ownership, construction, management or sale of residential, commercial or industrial real estate. Under normal market conditions, at least 65% of the Portfolio's total assets will be invested in Real Estate Securities, primarily equity securities of real estate investment trusts. The Portfolio may invest up to 25% of its total assets in securities issued by foreign issuers, some or all of which may also be Real Estate Securities. Morgan Stanley Asset Management, Inc. serves as the Portfolio's investment adviser. VAN ECK WORLDWIDE INSURANCE TRUST Van Eck Worldwide Insurance Trust ("Van Eck Trust") is an open-end management investment company organized as a business trust under the laws of the Commonwealth of Massachusetts on January 7, 1987. Shares of Van Eck Trust are offered only to separate accounts of insurance companies to fund the benefits of variable life insurance policies and variable annuity contracts. The investment advisor and manager is Van Eck Associates Corporation. WORLDWIDE EMERGING MARKETS FUND Investment Objective: Long-term capital appreciation by investing primarily in equity securities in emerging markets around the world. The Fund emphasizes investment in countries that, compared to the world's major economies, exhibit relatively low gross national product per capita, as well as the potential for rapid economic growth. WORLDWIDE HARD ASSETS FUND Investment Objective: Long-term capital appreciation by investing primarily in "Hard Asset Securities." For the Fund's purpose, "Hard Assets" are real estate, energy, timber, and industrial and precious metals. Income is a secondary consideration. 44 APPENDIX B: PERFORMANCE SUMMARY INFORMATION The following performance tables display historical investments results of the underlying mutual fund sub-accounts. This information may be useful in helping potential investors in deciding which underlying mutual fund sub-accounts to choose and in assessing the competence of the underlying mutual funds' investment advisers. The performance figures shown be considered in light of the investment objectives and policies, characteristics and quality of the underlying portfolios of the underlying mutual funds, and the market conditions during the periods of time quoted. The performance figures should not be considered as estimates or predictions of future performance. Investment return and the principal value of the underlying mutual fund sub-accounts are not guaranteed and will fluctuate so that a policy owner's units, when redeemed, may be worth more or less than their original cost. 45 PERFORMANCE TABLES - TOTAL RETURN
- ------------------------------------------------------------------------------------------------------------------------------ Annual Percentage Non Annualized Change Percentage Change - ------------------------------------------------------------------------------------------------------------------------------ Fund Unit 1 mo 1 Yr 2 Yrs 3 Yrs. 5 yrs. UNDERLYING INVESTMENT Inception Values 1998 1999 2000 To to to to to OPTIONS Date** 09/30/01 09/30/01 9/30/01 9/30/01 9/30/01 9/30/01 - ------------------------------------------------------------------------------------------------------------------------------ American Century VP Income 10/30/97 11.15 26.86 18.02 -10.62 -7.85 -22.60 -15.29 6.90 NA & Growth American Century VP 05/01/94 11.15 18.76 64.04 -16.83 -7.65 -34.85 -15.57 8.85 39.97 International American Century VP Value 05/01/96 12.21 4.81 -0.85 18.14 -7.34 12.46 15.77 29.41 67.49 The Dreyfus Socially 10/06/93 10.57 29.38 30.08 -11.03 -9.52 -38.37 -24.71 1.15 42.29 Responsible Growth Fund, Inc.: Initial Shares Dreyfus Stock Index Fund, 09/29/89 11.14 28.21 20.60 -9.28 -8.11 -26.83 -17.30 5.33 60.30 Inc.: Initial Shares Dreyfus Variable 04/05/93 12.18 30.22 11.46 -0.65 -4.53 -16.88 -6.89 12.95 68.80 Investment Fund - Appreciation Portfolio: Initial Shares Federated Insurance 04/22/99 11.84 NA NA 10.45 1.07 12.91 19.45 NA NA Series - Federated Quality Bond Fund II Fidelity VIP Equity-Income 10/09/86 11.15 11.54 6.25 8.30 -8.19 -9.73 -2.81 15.27 52.21 Portfolio: Service Class Fidelity VIP Growth 10/09/86 11.98 39.38 37.29 -11.07 -12.52 -38.26 -22.66 6.85 51.01 Portfolio: Service Class Fidelity VIP High Income 09/15/85 6.86 -4.42 8.07 -22.61 -8.54 -26.43 -31.07 -25.02 -17.69 Portfolio: Service Class Fidelity VIP Overseas 01/28/87 9.30 12.64 42.46 -19.15 -11.71 -34.17 -27.72 -2.57 8.63 Portfolio: Service Class Fidelity VIP II 01/03/95 12.35 29.94 24.15 -6.71 -5.53 -23.36 -10.19 17.37 66.35 Contrafund(R)Portfolio: Service Class Fidelity VIP III Growth 01/03/95 8.21 24.51 4.18 -17.18 -8.78 -32.07 -32.64 -20.39 16.48 Opportunities Portfolio: Service Class GVIT Dreyfus GVIT Mid Cap 10/31/97 12.93 10.81 20.92 15.21 -12.60 -20.03 12.75 38.57 NA Index Fund: Class I GVIT Federated GVIT Equity 10/31/97 9.89 15.13 18.49 -10.62 -6.94 -30.13 -17.11 -0.23 NA Income Fund: Class I GVIT Federated GVIT High 10/31/97 9.78 5.80 3.19 -8.28 -6.75 -8.77 -8.10 -4.13 NA Income Bond Fund: Class I GVIT Gartmore GVIT 08/30/00 6.41 NA NA NA -17.17 -36.81 NA NA NA Emerging Markets Fund: Class I GVIT Gartmore GVIT Global 06/30/00 2.92 NA NA NA -15.20 -71.59 NA NA NA Technology and Communications Fund: Class I GVIT Gartmore GVIT 11/08/82 12.92 8.91 -2.35 12.54 1.56 13.38 20.66 17.80 45.88 Government Bond Fund: Class I GVIT Gartmore GVIT Growth 04/15/92 6.19 29.96 4.28 -26.53 -8.25 -53.77 -52.19 -42.67 -9.13 Fund: Class I GVIT Gartmore GVIT 08/30/00 6.35 NA NA NA -7.66 -36.13 NA NA NA International Growth Fund: Class I GVIT Gartmore GVIT Money 11/10/81 12.07 5.27 4.85 6.03 0.24 4.71 10.71 16.05 28.63 Market Fund: Class I GVIT Gartmore GVIT Total 11/08/82 9.78 18.07 6.94 -2.12 -8.79 -25.50 -16.43 -3.14 37.26 Return Fund: Class I GVIT Gartmore GVIT 10/31/97 9.52 19.14 22.92 -12.32 -10.11 -30.94 -25.21 -4.80 NA Worldwide Leaders Fund: Class I GVIT GVIT Small Cap Growth 05/03/99 12.51 NA NA -16.17 -15.69 -41.08 0.23 NA NA Fund: Class I GVIT GVIT Small Cap Value 10/31/97 13.72 -3.06 27.84 11.20 -18.17 -3.49 22.28 78.85 NA Fund: Class I GVIT GVIT Small Company 10/23/95 12.73 1.01 44.02 8.90 -13.56 -21.04 14.94 48.74 53.63 Fund: Class I GVIT J.P. Morgan GVIT 10/31/97 9.84 8.07 0.87 -0.35 -4.73 -11.95 -8.87 -3.26 NA Balanced Fund: Class I GVIT MAS GVIT Multi Sector 10/31/97 11.22 2.60 1.56 5.65 -2.00 4.35 9.90 12.22 NA Bond Fund: Class I GVIT Strong GVIT Mid Cap 10/31/97 10.28 14.59 84.75 -15.38 -21.09 -56.44 -30.87 8.29 NA Growth Fund: Class I Janus Aspen Series - 05/01/97 5.78 58.11 66.95 -19.35 -8.55 -42.08 -19.72 26.65 NA Capital Appreciation Portfolio: Service Shares Janus Aspen Series - 01/18/00 3.15 NA NA NA -20.05 -66.18 NA NA NA Global Technology Portfolio: Service Shares Janus Aspen Series - 05/02/94 5.56 17.24 82.31 -16.97 -10.37 -41.47 -11.54 18.67 51.57 International Growth Portfolio: Service Shares Neuberger Berman AMT 11/03/97 13.71 31.67 14.93 1.13 -7.88 -14.42 5.39 29.06 NA Guardian Portfolio Neuberger Berman AMT 11/03/97 12.42 39.28 53.89 -7.46 -16.04 -52.50 -13.86 18.39 NA Mid-Cap Growth Portfolio Neuberger Berman AMT 03/22/94 9.43 4.21 7.37 0.70 -10.77 -15.81 -8.26 4.68 37.40 Partners Portfolio
- --------------------------------------------------------------------------------- Non Annualized Annualized Percentage Change Percentage Change - --------------------------------------------------------------------------------- Inception 3 Yrs. 5 yrs. Inception UNDERLYING INVESTMENT to to to To OPTIONS 9/30/01 9/30/01 9/30/01 9/30/01 - --------------------------------------------------------------------------------- American Century VP Income 20.14 2.25 NA 4.79 & Growth American Century VP 61.26 2.87 6.96 6.66 International American Century VP Value 72.90 8.97 10.87 10.64 The Dreyfus Socially 141.18 0.38 7.31 11.66 Responsible Growth Fund, Inc.: Initial Shares Dreyfus Stock Index Fund, 275.45 1.74 9.90 11.65 Inc.: Initial Shares Dreyfus Variable 187.53 4.14 11.04 13.25 Investment Fund - Appreciation Portfolio: Initial Shares Federated Insurance 17.53 NA NA 6.85 Series - Federated Quality Bond Fund II Fidelity VIP Equity-Income 418.17 4.85 8.76 11.61 Portfolio: Service Class Fidelity VIP Growth 508.43 2.23 8.59 12.81 Portfolio: Service Class Fidelity VIP High Income 191.20 -9.15 -3.82 6.89 Portfolio: Service Class Fidelity VIP Overseas 120.45 -0.86 1.67 5.53 Portfolio: Service Class Fidelity VIP II 159.46 5.48 10.72 15.19 Contrafund(R)Portfolio: Service Class Fidelity VIP III Growth 67.27 -7.32 3.10 7.93 Opportunities Portfolio: Service Class GVIT Dreyfus GVIT Mid Cap 28.85 11.49 NA 6.69 Index Fund: Class I GVIT Federated GVIT Equity 0.63 -0.08 NA 0.16 Income Fund: Class I GVIT Federated GVIT High 0.05 -1.40 NA 0.01 Income Bond Fund: Class I GVIT Gartmore GVIT -44.66 NA NA -42.00 Emerging Markets Fund: Class I GVIT Gartmore GVIT Global -63.55 NA NA -55.40 Technology and Communications Fund: Class I GVIT Gartmore GVIT 402.28 5.61 7.84 8.92 Government Bond Fund: Class I GVIT Gartmore GVIT Growth 55.97 -16.93 -1.90 4.81 Fund: Class I GVIT Gartmore GVIT -40.73 NA NA -38.22 International Growth Fund: Class I GVIT Gartmore GVIT Money 262.58 5.09 5.16 6.69 Market Fund: Class I GVIT Gartmore GVIT Total 854.40 -1.06 6.54 12.68 Return Fund: Class I GVIT Gartmore GVIT -3.68 -1.63 NA -0.95 Worldwide Leaders Fund: Class I GVIT GVIT Small Cap Growth 25.09 NA NA 9.74 Fund: Class I GVIT GVIT Small Cap Value 34.98 21.38 NA 7.96 Fund: Class I GVIT GVIT Small Company 109.93 14.15 8.97 13.30 Fund: Class I GVIT J.P. Morgan GVIT -0.14 -1.10 NA -0.04 Balanced Fund: Class I GVIT MAS GVIT Multi Sector 13.35 3.92 NA 3.25 Bond Fund: Class I GVIT Strong GVIT Mid Cap 5.03 2.69 NA 1.26 Growth Fund: Class I Janus Aspen Series - 89.21 8.19 NA 15.54 Capital Appreciation Portfolio: Service Shares Janus Aspen Series - -68.52 NA NA -49.30 Global Technology Portfolio: Service Shares Janus Aspen Series - 127.82 5.87 8.67 11.75 International Growth Portfolio: Service Shares Neuberger Berman AMT 44.27 8.87 NA 9.83 Guardian Portfolio Neuberger Berman AMT 45.60 5.79 NA 10.09 Mid-Cap Growth Portfolio Neuberger Berman AMT 113.90 1.54 6.56 10.63 Partners Portfolio
46
- ------------------------------------------------------------------------------------------------------------------------------- Annual Percentage Non Annualized Change Percentage Change - ------------------------------------------------------------------------------------------------------------------------------- Fund Unit 1 mo 1 Yr 2 Yrs 3 Yrs. 5 yrs. UNDERLYING INVESTMENT Inception Values 1998 1999 2000 To to to to to OPTIONS Date** 09/30/01 09/30/01 9/30/01 9/30/01 9/30/01 9/30/01 - ------------------------------------------------------------------------------------------------------------------------------- Oppenheimer Variable 08/15/86 11.58 12.36 83.60 -11.24 -6.98 -56.39 -18.17 28.47 25.35 Account Funds - Oppenheimer Aggressive Growth Fund/VA Oppenheimer Variable 04/03/85 13.26 24.00 41.66 -0.23 -12.10 -30.64 -3.00 35.55 77.37 Account Funds - Oppenheimer Capital Appreciation Fund/VA Oppenheimer Variable 06/30/95 7.22 14.10 58.48 5.09 -13.16 -27.38 8.29 51.07 84.59 Account Funds - Oppenheimer Global Securities Fund/VA Oppenheimer Variable 07/05/95 9.68 4.70 21.71 -8.78 -6.08 -24.92 -15.07 10.33 37.34 Account Funds - Oppenheimer Main Street Growth & Income Fund/VA Strong Opportunity Fund 06/30/95 7.90 13.54 34.91 6.35 -13.82 -19.41 0.55 34.89 77.61 II, Inc. The Universal 06/16/97 10.47 -28.38 29.37 11.39 -3.04 2.47 28.39 62.23 NA Institutional Funds, Inc. - - Emerging Markets Debt Portfolio The Universal 11/08/82 5.23 NA NA -7.33 -13.89 -50.10 NA NA NA Institutional Funds, Inc. - - Mid Cap Growth Portfolio The Universal 07/03/95 11.44 -11.62 -3.37 28.06 -5.08 7.28 31.28 32.59 66.57 Institutional Funds, Inc. - - U. S. Real Estate Portfolio Van Eck Worldwide 12/27/95 5.95 -34.13 100.28 -41.87 -13.46 -40.35 -29.26 9.17 -45.72 Insurance Trust - Worldwide Emerging Markets Fund Van Eck Worldwide 09/01/89 7.66 -30.97 21.00 11.40 -10.88 -15.62 -5.50 9.23 -19.19 Insurance Trust - Worldwide Hard Assets Fund
- --------------------------------------------------------------------------- Non Annualized Annualized Percentage Change Percentage Change - --------------------------------------------------------------------------- Inception 3 Yrs. 5 yrs. Inception UNDERLYING INVESTMENT to to to To OPTIONS 9/30/01 9/30/01 9/30/01 9/30/01 - ---------------------------------------------------------------------------- Oppenheimer Variable 485.59 8.71 4.62 12.39 Account Funds - Oppenheimer Aggressive Growth Fund/VA Oppenheimer Variable 726.74 10.67 12.14 13.66 Account Funds - Oppenheimer Capital Appreciation Fund/VA Oppenheimer Variable 226.48 14.74 13.04 11.48 Account Funds - Oppenheimer Global Securities Fund/VA Oppenheimer Variable 112.95 3.33 6.55 12.89 Account Funds - Oppenheimer Main Street Growth & Income Fund/VA Strong Opportunity Fund 266.93 10.49 12.17 14.84 II, Inc. The Universal 5.52 17.50 NA 1.26 Institutional Funds, Inc. - - Emerging Markets Debt Portfolio The Universal -22.74 NA NA -12.38 Institutional Funds, Inc. - - Mid Cap Growth Portfolio The Universal 111.54 9.86 10.74 12.75 Institutional Funds, Inc. - - U. S. Real Estate Portfolio Van Eck Worldwide -33.98 2.97 -11.50 -6.93 Insurance Trust - Worldwide Emerging Markets Fund Van Eck Worldwide 34.74 2.99 -4.17 2.50 Insurance Trust - Worldwide Hard Assets Fund
**The underlying mutual fund Inception Date is the date the underlying mutual fund first became effective, which is not necessarily the same date the underlying mutual fund was first made available through the variable account. For those underlying mutual funds which have not been offered as sub-accounts through the variable account for one of the quoted periods, the cash values will show the investment performance such underlying mutual funds would have achieved (reduced by any applicable variable account and policy charges, and underlying mutual fund investment advisory fees and expenses) had they been offered as sub-accounts through the variable account for the period quoted. Certain underlying mutual funds are not as old as some of the periods quoted, therefore, the cash values may not be available for all of the periods shown. The preceding table displays three types of total return. Simply stated, total return shows the percentage change in unit values, with dividends and capital gains reinvested, after the deduction of a 0.80% asset charge (and the deduction of applicable investment advisory fees and other expenses of the underlying mutual funds). The total return figures shown in the Annual Percentage Change and Annualized Percentage Change columns represent annualized figures; i.e., they show the rate of growth that would have produced the corresponding cumulative return had performance been constant over the entire period. The Non-Annualized Percentage Change total return figures are not annual return figures but instead represent the total percentage change in unit value over the stated periods without annualization. THE TOTAL RETURN FIGURES DO NOT TAKE INTO ACCOUNT THE SEVERAL OTHER POLICY CHARGES WHICH ARE DESCRIBED IN THE "POLICY CHARGES" SECTION. THESE OTHER CHARGES INCLUDE DEDUCTIONS FROM PREMIUMS, COST OF INSURANCE CHARGES, SURRENDER CHARGES AND A MONTHLY ADMINISTRATIVE CHARGE. Performance summary information is not available for the GVIT - Gartmore GVIT Investor Destinations Aggressive Fund, GVIT - Gartmore GVIT Investor Destinations Conservative Fund, GVIT - Gartmore GVIT Investor Destinations Moderate Fund, GVIT - Gartmore GVIT Investor Destinations Moderately Aggressive Fund, and GVIT - Gartmore GVIT Investor Destinations Moderately Conservative Fund as these funds were added to the separate account January 25, 2002. 47 PERFORMANCE TABLES - CASH VALUE
- -------------------------------------------------------------------------------------------------------------------------- 1 Year to 2 Years to 3 Years to 5 Years to 09/30/01 09/30/01 09/30/01 09/30/01 - -------------------------------------------------------------------------------------------------------------------------- Fund Cash Cash Cash Cash UNDERLYING INVESTMENT Inception Accum Surr. Accum Surr. Accum Surr. Accum Surr. OPTIONS Date** Value Value Value Value Value Value Value Value - -------------------------------------------------------------------------------------------------------------------------- American Century VP 10/30/97 $ 6,186 $ 2,256 $ 12,934 $ 9,200 $ 22,016 $ 18,675 NA NA Income & Growth American Century VP 05/01/94 $ 5,138 $ 1,207 $ 12,024 $ 8,290 $ 21,213 $ 17,872 $ 41,310 $ 38,559 International American Century VP 05/01/96 $ 9,258 $ 5,327 $ 18,363 $ 14,629 $ 29,203 $ 25,862 $ 52,827 $ 50,076 Value Dreyfus Investment 04/30/99 $ 5,629 $ 1,698 $ 12,679 $ 8,945 NA NA NA NA Portfolios - European Equity Portfolio: Initial Shares The Dreyfus Socially 09/29/89 $ 5,828 $ 1,897 $ 12,433 $ 8,699 $ 21,385 $ 18,044 $ 43,761 $ 41,010 Responsible Growth Fund, Inc.: Initial Shares Dreyfus Stock Index 10/06/93 $ 4,840 $ 0,909 $ 10,885 $ 7,151 $ 19,491 $ 16,150 $ 39,575 $ 36,823 Fund, Inc.: Initial Shares Dreyfus Variable 04/05/93 $ 6,686 $ 2,755 $ 14,120 $ 10,385 $ 23,690 $ 20,349 $ 47,518 $ 44,766 Investment Fund - Appreciation Portfolio: Initial Shares Federated Insurance 04/22/99 $ 9,212 $ 5,281 $ 18,659 $ 14,925 NA NA NA NA Series - Federated Quality Bond Fund II Fidelity VIP 10/09/86 $ 7,331 $ 3,400 $ 15,014 $ 11,280 $ 24,734 $ 21,392 $ 46,421 $ 43,670 Equity-Income Portfolio: Service Class Fidelity VIP Growth 10/09/86 $ 4,861 $ 0,930 $ 11,103 $ 7,369 $ 20,186 $ 16,845 $ 41,986 $ 39,234 Portfolio: Service Class Fidelity VIP High 09/15/85 $ 5,833 $ 1,902 $ 11,236 $ 7,502 $ 17,637 $ 14,296 $ 29,931 $ 27,180 Income Portfolio: Service Class Fidelity VIP Overseas 01/28/87 $ 5,222 $ 1,291 $ 11,014 $ 7,279 $ 19,282 $ 15,941 $ 35,114 $ 32,363 Portfolio: Service Class Fidelity VIP II 01/03/95 $ 6,092 $ 2,161 $ 13,284 $ 9,549 $ 23,246 $ 19,905 $ 46,623 $ 43,872 Contrafund(R) Portfolio: Service Class Fidelity VIP III 01/03/95 $ 5,363 $ 1,433 $ 10,665 $ 6,931 $ 17,491 $ 14,149 $ 33,937 $ 31,185 Growth Opportunities Portfolio: Service Class GVIT Dreyfus GVIT Mid 10/31/97 $ 6,421 $ 2,490 $ 15,548 $ 11,814 $ 27,159 $ 23,817 NA NA Cap Index Fund: Class I GVIT Federated GVIT 10/31/97 $ 5,509 $ 1,578 $ 12,145 $ 8,411 $ 20,614 $ 17,273 NA NA Equity Income Fund: Class I GVIT Federated GVIT 10/31/97 $ 7,359 $ 3,428 $ 14,604 $ 10,869 $ 22,676 $ 19,335 NA NA High Income Bond Fund: Class I GVIT Gartmore GVIT 08/30/00 $ 5,035 $ 1,104 NA NA NA NA NA NA Emerging Markets Fund: Class I GVIT Gartmore GVIT 08/30/00 $ 5,021 $ 1,090 NA NA NA NA NA NA Global Technology and Communications Fund: Class I GVIT Gartmore GVIT 04/15/92 $ 3,477 $ 0,000 $ 7,219 $ 3,485 $ 12,210 $ 8,869 $ 24,786 $ 22,034 Government Bond Fund: Class I GVIT Gartmore GVIT 11/08/82 $ 9,254 $ 5,323 $ 18,803 $ 15,069 $ 28,585 $ 25,243 $ 51,291 $ 48,539 Growth Fund: Class I GVIT Gartmore GVIT 06/30/00 $ 1,948 $ 0,000 NA NA NA NA NA NA International Growth Fund: Class I GVIT Gartmore GVIT 11/10/81 $ 8,509 $ 4,578 $ 17,276 $ 13,542 $ 26,960 $ 23,618 $ 47,346 $ 44,595 Money Market Fund: Class I GVIT Gartmore GVIT 11/08/82 $ 5,945 $ 2,014 $ 12,593 $ 8,858 $ 20,811 $ 17,470 $ 40,022 $ 37,270 Total Return Fund: Class I GVIT Gartmore GVIT 10/31/97 $ 5,469 $ 1,539 $ 11,430 $ 7,696 $ 19,537 $ 16,195 NA NA Worldwide Leaders Fund: Class I GVIT GVIT Small Cap 05/03/99 $ 4,589 $ 0,658 $ 12,891 $ 9,157 NA NA NA NA Growth Fund: Class I GVIT GVIT Small Cap 10/31/97 $ 7,932 $ 4,001 $ 17,778 $ 14,044 $ 32,786 $ 29,445 NA NA Value Fund: Class I GVIT GVIT Small 10/23/95 $ 6,345 $ 2,414 $ 15,737 $ 12,003 $ 28,150 $ 24,809 $ 50,282 $ 47,530 Company Fund: Class I GVIT J.P. Morgan GVIT 10/31/97 $ 7,095 $ 3,164 $ 14,293 $ 10,559 $ 22,445 $ 19,104 NA NA Balanced Fund: Class I GVIT MAS GVIT Multi 10/31/97 $ 8,485 $ 4,554 $ 17,189 $ 13,455 $ 26,558 $ 23,217 NA NA Sector Bond Fund: Class I GVIT Strong GVIT Mid 10/31/97 $ 3,318 $ 0,000 $ 8,982 $ 5,247 $ 18,143 $ 14,802 NA NA Cap Growth Fund: Class I
- -------------------------------------------------------------------- 10 Years to Inception To 09/30/01 09/30/01 - -------------------------------------------------------------------- Cash Cash UNDERLYING INVESTMENT Accum Surr. Accum Surr. OPTIONS Value Value Value Value - -------------------------------------------------------------------- American Century VP NA NA $ 31,888 $ 28,743 Income & Growth American Century VP NA NA $ 74,037 $ 72,465 International American Century VP NA NA $ 62,234 $ 59,875 Value Dreyfus Investment NA NA $ 19,098 $ 15,757 Portfolios - European Equity Portfolio: Initial Shares The Dreyfus Socially 146,207 $145,224 $207,002 $206,413 Responsible Growth Fund, Inc.: Initial Shares Dreyfus Stock Index NA NA $ 89,761 $ 88,189 Fund, Inc.: Initial Shares Dreyfus Variable NA NA $122,174 $120,995 Investment Fund - Appreciation Portfolio: Initial Shares Federated Insurance NA NA $ 28,110 $ 24,769 Series - Federated Quality Bond Fund II Fidelity VIP 146,498 $145,515 $311,325 $311,325 Equity-Income Portfolio: Service Class Fidelity VIP Growth 142,187 $141,205 $337,747 $337,747 Portfolio: Service Class Fidelity VIP High 78,227 $ 77,244 $183,683 $183,683 Income Portfolio: Service Class Fidelity VIP Overseas 90,883 $ 89,900 $164,668 $164,668 Portfolio: Service Class Fidelity VIP II NA NA $ 79,037 $ 77,072 Contrafund(R) Portfolio: Service Class Fidelity VIP III NA NA $ 55,618 $ 53,653 Growth Opportunities Portfolio: Service Class GVIT Dreyfus GVIT Mid NA NA $ 36,871 $ 33,726 Cap Index Fund: Class I GVIT Federated GVIT NA NA $ 28,193 $ 25,049 Equity Income Fund: Class I GVIT Federated GVIT NA NA $ 31,481 $ 28,337 High Income Bond Fund: Class I GVIT Gartmore GVIT NA NA $ 13,080 $ 9,346 Emerging Markets Fund: Class I GVIT Gartmore GVIT NA NA $ 11,893 $ 8,159 Global Technology and Communications Fund: Class I GVIT Gartmore GVIT NA NA $ 78,785 $ 77,803 Government Bond Fund: Class I GVIT Gartmore GVIT 120,134 $119,152 $359,258 $359,258 Growth Fund: Class I GVIT Gartmore GVIT NA NA $ 8,887 $ 5,153 International Growth Fund: Class I GVIT Gartmore GVIT 104,097 $103,114 $281,609 $281,609 Money Market Fund: Class I GVIT Gartmore GVIT 123,261 $122,278 $481,113 $481,113 Total Return Fund: Class I GVIT Gartmore GVIT NA NA $ 26,824 $ 23,679 Worldwide Leaders Fund: Class I GVIT GVIT Small Cap NA NA $ 22,367 $ 19,025 Growth Fund: Class I GVIT GVIT Small Cap NA NA $ 42,525 $ 39,380 Value Fund: Class I GVIT GVIT Small NA NA $ 67,234 $ 64,876 Company Fund: Class I GVIT J.P. Morgan GVIT NA NA $ 30,356 $ 27,211 Balanced Fund: Class I GVIT MAS GVIT Multi NA NA $ 35,917 $ 32,773 Sector Bond Fund: Class I GVIT Strong GVIT Mid NA NA $ 26,559 $ 23,414 Cap Growth Fund: Class I
48
- -------------------------------------------------------------------------------------------------------------------------- 1 Year to 2 Years to 3 Years to 5 Years to 09/30/01 09/30/01 09/30/01 09/30/01 - -------------------------------------------------------------------------------------------------------------------------- Fund Cash Cash Cash Cash UNDERLYING INVESTMENT Inception Accum Surr. Accum Surr. Accum Surr. Accum Surr. OPTIONS Date** Value Value Value Value Value Value Value Value - -------------------------------------------------------------------------------------------------------------------------- Janus Aspen Series - 05/01/97 $ 4,500 $ 0,570 $ 11,035 $ 7,301 $ 21,849 $ 18,508 NA NA Capital Appreciation Portfolio: Service Shares Janus Aspen Series - 01/18/00 $ 2,499 $ 0,000 NA NA NA NA NA NA Global Technology Portfolio: Service Shares Janus Aspen Series - 05/02/94 $ 4,584 $ 0,653 $ 11,883 $ 8,148 $ 21,867 $ 18,526 $ 43,407 $ 40,656 International Growth Portfolio: Service Shares Neuberger Berman AMT 11/03/97 $ 6,904 $ 2,974 $ 15,390 $ 11,656 $ 26,324 $ 22,982 NA NA Guardian Portfolio Neuberger Berman AMT 11/03/97 $ 3,616 $ 0,000 $ 10,723 $ 6,988 $ 20,720 $ 17,379 NA NA Mid-Cap Growth Portfolio Neuberger Berman AMT 03/22/94 $ 6,813 $ 2,882 $ 14,113 $ 10,379 $ 22,968 $ 19,627 $ 41,843 $ 39,091 Partners Portfolio Oppenheimer Variable 08/15/86 $ 3,214 $ 0,000 $ 9,966 $ 6,232 $ 20,846 $ 17,505 $ 39,424 $ 36,673 Account Funds - Oppenheimer Aggressive Growth Fund/VA Oppenheimer Variable 04/03/85 $ 5,528 $ 1,597 $ 13,432 $ 9,697 $ 24,885 $ 21,544 $ 49,782 $ 47,031 Account Funds - Oppenheimer Capital Appreciation Fund/VA Oppenheimer Variable 06/30/95 $ 5,800 $ 1,870 $ 14,683 $ 10,948 $ 27,363 $ 24,022 $ 53,685 $ 50,933 Account Funds - Oppenheimer Global Securities Fund/VA Oppenheimer Variable 07/05/95 $ 5,968 $ 2,037 $ 12,737 $ 9,003 $ 22,106 $ 18,765 $ 41,398 $ 38,647 Account Funds - Oppenheimer Main Street Growth & Income Fund/VA Strong Opportunity 06/30/95 $ 6,525 $ 2,594 $ 14,643 $ 10,909 $ 25,992 $ 22,650 $ 50,911 $ 48,159 Fund II, Inc The Universal 06/16/97 $ 8,323 $ 4,392 $ 18,667 $ 14,932 $ 32,224 $ 28,883 NA NA Institutional Funds, Inc. - Emerging Markets Debt Portfolio The Universal 11/08/82 $ 3,848 $ 0,000 NA NA NA NA NA NA Institutional Funds, Inc. - Mid Cap Growth Portfolio The Universal 07/03/95 $ 8,729 $ 4,798 $ 19,168 $ 15,434 $ 30,171 $ 26,830 $ 53,372 $ 50,620 Institutional Funds, Inc. - U. S. Real Estate Portfolio Van Eck Worldwide 12/27/95 $ 4,662 $ 0,732 $ 10,423 $ 6,689 $ 19,759 $ 16,418 $ 27,639 $ 24,887 Insurance Trust - Worldwide Emerging Markets Fund Van Eck Worldwide 09/01/89 $ 6,822 $ 2,891 $ 14,306 $ 10,572 $ 23,412 $ 20,071 $ 35,339 $ 32,587 Insurance Trust - Worldwide Hard Assets Fund
- ----------------------------------------------------------------------- 10 Years to Inception To 09/30/01 09/30/01 - ----------------------------------------------------------------------- Cash Cash UNDERLYING INVESTMENT Accum Surr. Accum Surr. OPTIONS Value Value Value Value - ----------------------------------------------------------------------- Janus Aspen Series - NA NA $ 42,750 $ 39,998 Capital Appreciation Portfolio: Service Shares Janus Aspen Series - NA NA $ 6,335 $ 2,601 Global Technology Portfolio: Service Shares Janus Aspen Series - NA NA $ 87,890 $ 86,318 International Growth Portfolio: Service Shares Neuberger Berman AMT NA NA $ 36,150 $ 33,005 Guardian Portfolio Neuberger Berman AMT NA NA $ 32,205 $ 29,060 Mid-Cap Growth Portfolio Neuberger Berman AMT NA NA $ 84,296 $ 82,723 Partners Portfolio Oppenheimer Variable $131,973 $130,990 $317,850 $317,850 Account Funds - Oppenheimer Aggressive Growth Fund/VA Oppenheimer Variable $172,082 $171,099 $449,053 $449,053 Account Funds - Oppenheimer Capital Appreciation Fund/VA Oppenheimer Variable $154,439 $153,456 $179,184 $178,398 Account Funds - Oppenheimer Global Securities Fund/VA Oppenheimer Variable NA NA $ 65,378 $ 63,413 Account Funds - Oppenheimer Main Street Growth & Income Fund/VA Strong Opportunity NA NA $147,954 $146,971 Fund II, Inc The Universal NA NA $ 45,065 $ 42,313 Institutional Funds, Inc. - Emerging Markets Debt Portfolio The Universal NA NA $ 10,161 $ 6,427 Institutional Funds, Inc. - Mid Cap Growth Portfolio The Universal NA NA $ 79,659 $ 77,693 Institutional Funds, Inc. - U. S. Real Estate Portfolio Van Eck Worldwide NA NA $ 32,893 $ 30,534 Insurance Trust - Worldwide Emerging Markets Fund Van Eck Worldwide $ 80,397 $ 79,415 $100,045 $ 99,455 Insurance Trust - Worldwide Hard Assets Fund
**The underlying mutual fund Inception Date is the date the underlying mutual fund first became effective, which is not necessarily the same date the underlying mutual fund was first made available through the variable account. For those underlying mutual funds which have not been offered as sub-accounts through the variable account for one of the quoted periods, the cash values will show the investment performance such underlying mutual funds would have achieved (reduced by any applicable variable account and policy charges, and underlying mutual fund investment advisory fees and expenses) had they been offered as sub-accounts through the variable account for the period quoted. Certain underlying mutual funds are not as old as some of the periods quoted, therefore, the cash values may not be available for all of the periods shown. The preceding cash value performance table shows the effect of the performance quoted on accumulated values and cash surrender values, based on a hypothetical annual premium of $10,000 for a 50 year-old male, preferred plus, with a level death benefit. The cash surrender value figures reflect the deduction of all applicable policy charges, including a 0.80% asset charge, applicable cost of insurance charges, surrender charges, and an annual administrative charge (and the deduction of applicable investment advisory fees and other expenses of the underlying mutual funds). See the "Policy Expenses" section for more information about these charges. The cost of insurance charges may be higher or lower for purchasers who do not meet the profile of the hypothetical purchaser. Illustrations reflecting a potential purchaser's specific characteristics are available from Nationwide upon request. 49 Performance summary information is not available for the GVIT - Gartmore GVIT Investor Destinations Aggressive Fund, GVIT - Gartmore GVIT Investor Destinations Conservative Fund, GVIT - Gartmore GVIT Investor Destinations Moderate Fund, GVIT - Gartmore GVIT Investor Destinations Moderately Aggressive Fund, and GVIT - Gartmore GVIT Investor Destinations Moderately Conservative Fund as these funds were added to the separate account January 25, 2002. 50 APPENDIX C: FINANCIAL STATEMENTS 51 1 - -------------------------------------------------------------------------------- Independent Auditors' Report ---------------------------- The Board of Directors of Nationwide Life Insurance Company and Contract Owners of Nationwide VLI Separate Account-4: We have audited the accompanying statement of assets, liabilities and contract owners' equity of Nationwide VLI Separate Account-4 (comprised of the sub-accounts listed in note 1(b)) (collectively, "the Account") as of December 31, 2000, and the related statements of operations and changes in contract owners' equity for each of the years in the two year period then ended and for the period February 18, 1998 (commencement of operations) through December 31, 1998, and the financial highlights for each of the years in the two year period then ended and for the period February 18, 1998 (commencement of operations) through December 31, 1998. These financial statements and financial highlights are the responsibility of the Account's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights 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, 2000, by correspondence with the transfer agents of the underlying mutual funds. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Account as of December 31, 2000, the results of its operations and its changes in contract owners' equity for each of the years in the two year period then ended and for the period February 18, 1998 (commencement of operations) through December 31, 1998, and the finan- cial highlights for each of the years in the two year period then ended and for the period February 18, 1998 (commencement of operations) through December 31, 1998, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Columbus, Ohio February 16, 2001 - -------------------------------------------------------------------------------- 2 NATIONWIDE VLI SEPARATE ACCOUNT-4 STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY DECEMBER 31, 2000
ASSETS: Investments at fair value: American Century VP - American Century VP Income & Growth (ACVPIncGr) 3,520,844 shares (cost $26,492,915) ............................................... $ 25,033,199 American Century VP - American Century VP International (ACVPInt) 4,327,440 shares (cost $50,107,521) ............................................... 44,269,706 American Century VP - American Century VP Value (ACVPValue) 1,110,522 shares (cost $6,655,647) ................................................ 7,407,179 The Dreyfus Socially Responsible Growth Fund, Inc. (DrySRGr) 478,283 shares (cost $17,868,978) ................................................. 16,486,409 Dreyfus Stock Index Fund (DryStkIx) 6,822,189 shares (cost $247,280,744) .............................................. 231,954,425 Dreyfus IP - European Equity Portfolio (DryEuroEq) 97,382 shares (cost $1,422,509) ................................................... 1,458,779 Dreyfus VIF - Appreciation Portfolio (DryVApp) 829,567 shares (cost $32,580,787) ................................................. 32,278,459 Federated Insurance Series - Quality Bond Fund II (FedQualBd2) 4,888,937 shares (cost $49,393,596) ............................................... 52,409,408 Fidelity VIP - Equity-Income Portfolio - Service Class (FidVEqInS) 1,123,826 shares (cost $26,958,864) ............................................... 28,601,378 Fidelity VIP - Growth Portfolio - Service Class (FidVGrS) 2,288,448 shares (cost $112,282,101) .............................................. 99,547,490 Fidelity VIP - High Income Portfolio - Service Class (FidVHiInS) 1,742,262 shares (cost $17,700,937) ............................................... 14,199,438 Fidelity VIP - Overseas Portfolio - Service Class (FidVOvSeS) 1,219,554 shares (cost $26,879,872) ............................................... 24,317,914 Fidelity VIP-II - Contrafund Portfolio - Service Class (FidVConS) 2,001,473 shares (cost $50,647,030) ............................................... 47,374,866 Fidelity VIP-III - Growth Opportunities Portfolio - Service Class (FidVGrOpS) 800,720 shares (cost $16,998,621) ................................................. 14,172,737 Gartmore NSAT - Emerging Markets Fund (NSATEmMGM) 2,782 shares (cost $20,588) ....................................................... 20,895 Gartmore NSAT - Global Technology & Communications Fund (NSATGTecGM) 75,628 shares (cost $751,824) ..................................................... 555,867 Gartmore NSAT - International Growth Fund (NSATIntGGM) 2,891 shares (cost $24,686) ....................................................... 24,946
3 NATIONWIDE VLI SEPARATE ACCOUNT-4 STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY, CONTINUED Janus Aspen Series - Capital Appreciation Portfolio - Service Shares (JanACapApS) 835,840 shares (cost $25,584,669) ................................................. 22,183,187 Janus Aspen Series - Global Technology Portfolio - Service Shares (JanAGlTchS) 2,391,105 shares (cost $21,271,695) ............................................... 15,661,738 Janus Aspen Series - International Growth Portfolio - Service Shares (JanAIntGrS) 607,844 shares (cost $21,433,733) ................................................. 18,624,342 Nationwide SAT - Balanced Fund - J.P. Morgan (NSATBalJPM) 679,412 shares (cost $7,039,214) .................................................. 6,787,329 Nationwide SAT - Capital Appreciation Fund (NSATCapAp) 1,479,309 shares (cost $34,225,912) ............................................... 21,716,260 Nationwide SAT - Equity Income Fund - Federated (NSATEqIFED) 180,950 shares (cost $2,405,433) .................................................. 2,169,595 Nationwide SAT - Global 50 Fund (NSATGlob50) 2,316,205 shares (cost $30,284,783) ............................................... 26,983,784 Nationwide SAT - Government Bond Fund (NSATGvtBd) 4,350,728 shares (cost $48,110,219) ............................................... 49,772,326 Nationwide SAT - High Income Bond Fund - Federated (NSATHiIFED) 1,949,660 shares (cost $17,083,991) ............................................... 15,363,317 Nationwide SAT - Mid Cap Growth Fund - Strong (NSATMCpSTR) 1,663,974 shares (cost $34,257,943) ............................................... 27,671,892 Nationwide SAT - Mid Cap Index Fund - Dreyfus (NSATMCIxDR) 494,827 shares (cost $6,960,647) .................................................. 6,704,912 Nationwide SAT - Money Market Fund (NSATMMkt) 232,950,632 shares (cost $232,950,632) ............................................ 232,950,632 Nationwide SAT - Multi Sector Bond Fund - MAS (NSATMBdMAS) 2,835,859 shares (cost $26,553,198) ............................................... 26,316,776 Nationwide SAT - Small Cap Growth Fund (NSATSmCapG) 433,027 shares (cost $7,290,920) .................................................. 7,032,358 Nationwide SAT - Small Cap Value Fund (NSATSmCapV) 1,751,521 shares (cost $17,697,372) ............................................... 15,238,231 Nationwide SAT - Small Company Fund (NSATSmCo) 2,150,419 shares (cost $46,873,187) ............................................... 43,008,379 Nationwide SAT - Strategic Value Fund (NSATStrVal) 122,367 shares (cost $1,221,340) .................................................. 1,228,560 Nationwide SAT - Total Return Fund (NSATTotRtn) 2,841,975 shares (cost $46,180,109) ............................................... 33,080,588 Neuberger & Berman AMT - Guardian Portfolio (NBAMTGuard) 341,544 shares (cost $5,466,763) .................................................. 5,440,792 Neuberger & Berman AMT - Mid-Cap Growth Portfolio (NBAMTMCGr) 1,637,648 shares (cost $43,888,979) ............................................... 36,814,318 Neuberger & Berman AMT - Partners Portfolio (NBAMTPart) 601,581 shares (cost $10,164,616) ................................................. 9,727,567
4 Oppenheimer Aggressive Growth Fund/VA (OppAggGrVA) 805,091 shares (cost $73,635,576) ................................................................ 56,976,278 Oppenheimer Capital Appreciation Fund/VA (OppCapApVA) 966,962 shares (cost $47,676,455) ................................................................ 45,089,423 Oppenheimer Global Securities Fund/VA (OppGlSecVA) 132,214 shares (cost $3,939,556) ................................................................. 4,010,040 Oppenheimer Main Street Growth & Income Fund/VA (OppMGrInVA) 981,886 shares (cost $22,848,695) ................................................................ 20,874,887 Strong Opportunity Fund II, Inc. (StOpp2) 211,464 shares (cost $5,540,840) ................................................................. 5,062,438 Turner NSAT - Growth Focus Fund (NSATGFocTU) 13,155 shares (cost $82,744) ..................................................................... 78,534 The Universal Institutional Funds, Inc. - Emerging Markets Debt Portfolio ((MSUEmMkt) (formerly Morgan Stanley - Emerging Markets Debt Portfolio) 216,626 shares (cost $1,602,945) .................................................................. 1,496,887 The Universal Institutional Funds, Inc. - Mid Cap Growth Portfolio (MSUMCapGr) (formerly Morgan Stanley - Mid Cap Growth Portfolio) 68,097 shares (cost $939,349) ..................................................................... 840,998 The Universal Institutional Funds, Inc. - U.S. Real Estate Portfolio (MSUUSRealE) (formerly Van Kampen American Capital - Morgan Stanley U.S. Real Estate Portfolio) 437,348 shares (cost $4,980,785) .................................................................. 5,033,881 Van Eck WIT - Worldwide Emerging Markets Fund (VEWwEmgMkt) 435,385 shares (cost $4,582,831) ................................................................. 3,609,340 Van Eck WIT - Worldwide Hard Assets Fund (VEWwHrdAst) 109,063 shares (cost $1,275,365) ................................................................. 1,316,394 Warburg Pincus Trust - Global Post Venture Capital Portfolio (WPTGloPVC) 191,645 shares (cost $2,340,455) ................................................................. 2,431,981 Warburg Pincus Trust - International Equity Portfolio (WPTIntEq) 225,970 shares (cost $3,107,770) ................................................................. 2,424,657 Warburg Pincus Trust - Value Portfolio (WPTValue) 81,531 shares (cost $1,588,695) .................................................................. 1,110,451 ----------- Total investments.............................................................................. 1,414,946,167 Accounts receivable .................................................................................... - ----------- Total assets .................................................................................. 1,414,946,167 ACCOUNTS PAYABLE........................................................................................... 53,726 ----------- CONTRACT OWNERS' EQUITY (NOTE 7) .......................................................................... $ 1,414,892,441 ===========
See accompanying notes to financial statements. 5 NATIONWIDE VLI SEPARATE ACCOUNT-4 STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 2000 AND 1999 AND FOR THE PERIOD FEBRUARY 18, 1998 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1998
Total ACVPincGr ------------------------------------------- ------------------------------- 2000 1999 1998 2000 1999 ------------- ------------- ------------- ------------- ------------- INVESTMENT ACTIVITY: Reinvested dividends .......................... $ 21,039,631 6,784,764 795,996 89,434 345 Mortality and expense risk charges (note 3) ... (1,473,980) (382,102) (7,523) (33,218) (4,870) ------------- ------------- ------------- ------------- ------------- Net investment income ....................... 19,565,651 6,402,662 788,473 56,216 (4,525) ------------- ------------- ------------- ------------- ------------- Proceeds from mutual funds shares sold ...... 537,305,272 201,999,339 61,803,110 4,190,922 4,238,041 Cost of mutual fund shares sold ............. (520,733,854) (195,191,587) (62,074,770) (4,127,013) (3,971,748) ------------- ------------- ------------- ------------- ------------- Realized gain (loss) on investment .......... 16,571,418 6,807,752 (271,660) 63,909 266,293 Change in unrealized gain (loss) on investments .............................. (178,984,942) 42,568,531 6,208,890 (2,277,235) 692,513 ------------- ------------- ------------- ------------- ------------- Net gain (loss) on investments .............. (162,413,524) 49,376,283 5,937,230 (2,213,326) 958,806 ------------- ------------- ------------- ------------- ------------- Reinvested capital gains ...................... 50,385,356 6,941,880 597,466 -- -- ------------- ------------- ------------- ------------- ------------- Net increase (decrease) in contract owners' equity resulting from operations ........ $ (92,462,517) 62,720,825 7,323,169 (2,157,110) 954,281 ============= ============= ============= ============= ============= ACVPincGr ACVPint --------------- --------------------------------------------- 1998 2000 1999 1998 ------------- ------------- ------------- ------------- INVESTMENT ACTIVITY: Reinvested dividends .......................... $ 5,125 29,817 -- 355 Mortality and expense risk charges (note 3) ... (86) (43,822) (3,029) (173) ------------- ------------- ------------- ------------- Net investment income ....................... 5,039 (14,005) (3,029) 182 ------------- ------------- ------------- ------------- Proceeds from mutual funds shares sold ...... 60,422 11,287,808 2,517,615 613,620 Cost of mutual fund shares sold ............. (58,667) (8,439,891) (1,889,551) (614,510) ------------- ------------- ------------- ------------- Realized gain (loss) on investment .......... 1,755 2,847,917 628,064 (890) Change in unrealized gain (loss) on investments .............................. 125,007 (10,029,310) 4,031,727 159,768 ------------- ------------- ------------- ------------- Net gain (loss) on investments .............. 126,762 (7,181,393) 4,659,791 158,878 ------------- ------------- ------------- ------------- Reinvested capital gains ...................... -- 445,800 -- 3,644 ------------- ------------- ------------- ------------- Net increase (decrease) in contract owners' equity resulting from operations ........ $ 131,801 (6,749,598) 4,656,762 162,704 ============= ============= ============= =============
ACVPValue DrySRGr ---------------------------------------------- -------------------------------- 2000 1999 1998 2000 1999 ------------- ------------- ------------- ------------- ------------- INVESTMENT ACTIVITY: Reinvested dividends .......................... $ 29,260 9,053 169 133,052 1,039 Mortality and expense risk charges (note 3) ... (2,491) (698) (44) (5,466) (849) ------------- ------------- ------------- ------------- ------------- Net investment income ....................... 26,769 8,355 125 127,586 190 ------------- ------------- ------------- ------------- ------------- Proceeds from mutual funds shares sold ........ 5,835,158 1,027,473 216,392 1,524,094 620,665 Cost of mutual fund shares sold ............... (5,829,916) (1,065,502) (220,562) (1,237,290) (483,300) ------------- ------------- ------------- ------------- ------------- Realized gain (loss) on investments ......... $ 5,242 (38,029) (4,170) 286,804 137,365 Change in unrealized gain (loss) on investments .............................. 865,295 (142,040) 28,277 (2,392,732) 901,808 ------------- ------------- ------------- ------------- ------------- Net gain (loss) on investments .............. 870,537 (180,069) 24,107 (2,105,928) 1,039,173 ------------- ------------- ------------- ------------- ------------- Reinvested capital gains ...................... 74,870 85,768 1,997 -- 279,678 ------------- ------------- ------------- ------------- ------------- Net increase (decrease) in contract owners' equity resulting from operations ........ $ 972,176 (85,946) 26,229 (1,978,342) 1,319,041 ============= ============= ============= ============= ============= DrySRGr DryStkix ----------- ---------------------------------------------- 1998 2000 1999 1998 ------------ ------------- ------------- ------------- INVESTMENT ACTIVITY: Reinvested dividends .......................... $ 2,114 1,776,028 694,199 64,671 Mortality and expense risk charges (note 3) ... (96) (301,447) (80,224) (1,001) ------------ ------------- ------------- ------------- Net investment income ....................... 2,018 1,474,581 613,975 63,670 ------------ ------------- ------------- ------------- Proceeds from mutual funds shares sold ........ 292,403 17,394,755 3,651,059 2,855,607 Cost of mutual fund shares sold ............... (279,293) (13,809,069) (3,038,322) (2,928,820) ------------ ------------- ------------- ------------- Realized gain (loss) on investments ......... 13,110 3,585,686 612,737 (73,213) Change in unrealized gain (loss) on investments .............................. 108,355 (27,898,576) 11,117,238 1,455,019 ------------ ------------- ------------- ------------- Net gain (loss) on investments .............. 121,465 (24,312,890) 11,729,975 1,381,806 ------------ ------------- ------------- ------------- Reinvested capital gains ...................... 47,900 3,654,055 672,634 12,311 ------------ ------------- ------------- ------------- Net increase (decrease) in contract owners' equity resulting from operations ........ $ 171,383 (19,184,254) 13,016,584 1,457,787 ============ ============= ============= =============
6 NATIONWIDE VLI SEPARATE ACCOUNT-4 STATEMENTS OF OPERATIONS, CONTINUED YEARS ENDED DECEMBER 31, 2000 AND 1999 AND FOR THE PERIOD FEBRUARY 18, 1998 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1998
DryEuroEq DryVApp ---------------------------------------- ------------------------------- 2000 1999 1998 2000 1999 ----------- ----------- ----------- ----------- ----------- INVESTMENT ACTIVITY: Reinvested dividends .......................... $ 3,040 266 -- 209,082 102,225 Mortality and expense risk charges (note 3) ... (647) -- -- (61,134) (19,902) ----------- ----------- ----------- ----------- ----------- Net investment income ....................... 2,393 266 -- 147,948 82,323 ----------- ----------- ----------- ----------- ----------- Proceeds from mutual funds shares sold ........ 4,915,237 9,724 -- 5,802,885 6,596,135 Cost of mutual fund shares sold ............... (4,976,743) (9,364) -- (5,449,137) (6,226,765) ----------- ----------- ----------- ----------- ----------- Realized gain (loss) on investments ......... (61,506) 360 -- 353,748 369,370 Change in unrealized gain (loss) on investments .............................. 26,273 9,997 -- (1,102,409) 649,339 ----------- ----------- ----------- ----------- ----------- Net gain (loss) on investments .............. (35,233) 10,357 -- (748,661) 1,018,709 ----------- ----------- ----------- ----------- ----------- Reinvested capital gains ...................... 39,799 1,251 -- 355,671 68,742 ----------- ----------- ----------- ----------- ----------- Net increase (decrease) in contract owners' equity resulting from operations ........ $ 6,959 11,874 -- (245,042) 1,169,774 =========== =========== =========== =========== =========== DryVApp FedQualBd2 ------------- ---------------------------------------- 1998 2000 1999 1998 ----------- ----------- ----------- ----------- INVESTMENT ACTIVITY: Reinvested dividends .......................... $ 7,616 284,124 -- -- Mortality and expense risk charges (note 3) ... (108) (36,034) (3,162) -- ----------- ----------- ----------- ----------- Net investment income ....................... 7,508 248,090 (3,162) -- ----------- ----------- ----------- ----------- Proceeds from mutual funds shares sold ........ 191,690 5,070,565 193,269 -- Cost of mutual fund shares sold ............... (192,584) (4,943,810) (195,176) -- ----------- ----------- ----------- ----------- Realized gain (loss) on investments ......... (894) 126,755 (1,907) -- Change in unrealized gain (loss) on investments .............................. 150,742 2,975,611 40,201 -- ----------- ----------- ----------- ----------- Net gain (loss) on investments .............. 149,848 3,102,366 38,294 -- ----------- ----------- ----------- ----------- Reinvested capital gains ...................... -- -- -- -- ----------- ----------- ----------- ----------- Net increase (decrease) in contract owners' equity resulting from operations ........ $ 157,356 3,350,456 35,132 -- =========== =========== =========== ===========
FidVEqinS FidVGrS ---------------------------------------- ------------------------------ 2000 1999 1998 2000 1999 ----------- ----------- ----------- ----------- ----------- INVESTMENT ACTIVITY: Reinvested dividends .......................... $ 275,597 97,065 -- 46,538 8,639 Mortality and expense risk charges (note 3) ... (12,713) (3,265) (402) (106,544) (12,917) ----------- ----------- ----------- ----------- ----------- Net investment income ....................... 262,884 93,800 (402) (60,006) (4,278) ----------- ----------- ----------- ----------- ----------- Proceeds from mutual funds shares sold ........ 8,769,366 2,794,623 1,186,510 8,193,032 1,070,026 Cost of mutual fund shares sold ............... (9,316,337) (2,491,032) (1,221,597) (6,947,939) (923,816) ----------- ----------- ----------- ----------- ----------- Realized gain (loss) on investments ......... (546,971) 303,591 (35,087) 1,245,093 146,210 Change in unrealized gain (loss) on investments .............................. 1,470,791 (277,459) 449,182 (19,309,179) 6,093,883 ----------- ----------- ----------- ----------- ----------- Net gain (loss) on investments .............. 923,820 26,132 414,095 (18,064,086) 6,240,093 ----------- ----------- ----------- ----------- ----------- Reinvested capital gains ...................... 1,063,019 214,564 -- 5,556,689 543,154 ----------- ----------- ----------- ----------- ----------- Net increase (decrease) in contract owners' equity resulting from operations ........ $ 2,249,723 334,496 413,693 (12,567,403) 6,778,969 =========== =========== =========== =========== =========== FidVGrS FidVHiInS ------------- ---------------------------------------- 1998 2000 1999 1998 ----------- ----------- ----------- ----------- INVESTMENT ACTIVITY: Reinvested dividends .......................... $ -- 711,532 364,862 -- Mortality and expense risk charges (note 3) ... (249) (21,719) (1,521) (245) ----------- ----------- ----------- ----------- Net investment income ....................... (249) 689,813 363,341 (245) ----------- ----------- ----------- ----------- Proceeds from mutual funds shares sold ........ 759,197 5,669,988 926,716 848,212 Cost of mutual fund shares sold ............... (750,697) (6,842,047) (1,041,180) (901,996) ----------- ----------- ----------- ----------- Realized gain (loss) on investments ......... 8,500 (1,172,059) (114,464) (53,784) Change in unrealized gain (loss) on investments .............................. 480,684 (3,641,858) 103,063 37,295 ----------- ----------- ----------- ----------- Net gain (loss) on investments .............. 489,184 (4,813,917) (11,401) (16,489) ----------- ----------- ----------- ----------- Reinvested capital gains ...................... -- -- 13,640 -- ----------- ----------- ----------- ----------- Net increase (decrease) in contract owners' equity resulting from operations ........ $ 488,935 (4,124,104) 365,580 (16,734) =========== =========== =========== ===========
(Continued) 7 NATIONWIDE VLI SEPARATE ACCOUNT-4 STATEMENTS OF OPERATIONS, CONTINUED YEARS ENDED DECEMBER 31, 2000 AND 1999 AND FOR THE PERIOD FEBRUARY 18, 1998 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1998
FidVOvSeS FidVConS ------------------------------------------- -------------------------------- 2000 1999 1998 2000 1999 ------------ ------------ ------------ ------------ ------------ INVESTMENT ACTIVITY: Reinvested dividends .......................... $ 217,766 21,110 -- 93,712 26,713 Mortality and expense risk charges (note 3) ... (49,878) (9,859) (75) (27,798) (4,360) ------------ ------------ ------------ ------------ ------------ Net investment income ....................... 167,888 11,251 (75) 65,914 22,353 ------------ ------------ ------------ ------------ ------------ Proceeds from mutual funds shares sold ........ 23,478,026 7,592,272 528,529 2,681,172 1,218,202 Cost of mutual fund shares sold ............... (25,243,216) (6,861,807) (553,402) (2,152,820) (1,003,352) ------------ ------------ ------------ ------------ ------------ Realized gain (loss) on investments ......... (1,765,190) 730,465 (24,873) 528,352 214,850 Change in unrealized gain (loss) on investments .............................. (4,479,931) 1,849,661 68,313 (6,926,956) 3,006,379 ------------ ------------ ------------ ------------ ------------ Net gain (loss) on investments .............. $ (6,245,121) 2,580,126 43,440 (6,398,604) 3,221,229 ------------ ------------ ------------ ------------ ------------ Reinvested capital gains ...................... 1,409,432 34,048 -- 3,401,735 195,897 ------------ ------------ ------------ ------------ ------------ Net increase (decrease) in contract owners' equity resulting from operations ........ $ (4,667,801) 2,625,425 43,365 (2,930,955) 3,439,479 ============ ============ ============ ============ ============ FidVConS FidVGrOpS -------------- ----------------------------------------- 1998 2000 1999 1998 ------------ ------------ ------------ ------------ INVESTMENT ACTIVITY: Reinvested dividends .................... $ -- 125,878 28,246 -- Mortality and expense risk charges (note 3) ....................... (330) (11,570) (3,130) (168) ------------ ------------ ------------ ------------ Net investment income ................. (330) 114,308 25,116 (168) ------------ ------------ ------------ ------------ Proceeds from mutual funds shares sold .. 974,276 2,790,417 613,535 309,151 Cost of mutual fund shares sold ......... (947,452) (2,995,674) (559,981) (296,203) ------------ ------------ ------------ ------------ Realized gain (loss) on investments ... 26,824 (205,257) 53,554 12,948 Change in unrealized gain (loss) on investments ........................ 648,413 (3,225,818) 137,134 262,800 ------------ ------------ ------------ ------------ Net gain (loss) on investments ........ 675,237 (3,431,075) 190,688 275,748 ------------ ------------ ------------ ------------ Reinvested capital gains ................ -- 662,022 55,207 -- ------------ ------------ ------------ ------------ Net increase (decrease) in contract owners' equity resulting from operations ........................ $ 674,907 (2,654,745) 271,011 275,580 ============ ============ ============ ============
NSATEmMGM NSATGTecGM ------------------------------------------- -------------------------------- 2000 1999 1998 2000 1999 ------------ ------------ ------------ ------------ ------------ INVESTMENT ACTIVITY: Reinvested dividends .......................... $ -- -- -- -- -- Mortality and expense risk charges (note 3) ... -- -- -- -- -- ------------ ------------ ------------ ------------ ------------ Net investment income ....................... -- -- -- -- -- ------------ ------------ ------------ ------------ ------------ Proceeds from mutual funds shares sold ........ 641,425 -- -- 9,643 -- Cost of mutual fund shares sold ............... (644,443) -- -- (14,069) -- ------------ ------------ ------------ ------------ ------------ Realized gain (loss) on investments ......... (3,018) -- -- (4,426) -- Change in unrealized gain (loss) on investments .............................. 336 -- -- (195,957) -- ------------ ------------ ------------ ------------ ------------ Net gain (loss) on investments .............. (2,682) -- -- (200,383) -- ------------ ------------ ------------ ------------ ------------ Reinvested capital gains ...................... -- -- -- 10,013 -- ------------ ------------ ------------ ------------ ------------ Net increase (decrease) in contract owners' equity resulting from operations ........ $ (2,682) -- -- (190,370) -- ============ ============ ============ ============ ============ NSATGTecGM NSATIntGGm ------------ --------------------------------------------- 1998 2000 1999 1998 ------------ ------------ ------------ ------------ INVESTMENT ACTIVITY: Reinvested dividends .......................... $ -- -- -- -- Mortality and expense risk charges (note 3) ... -- -- -- -- ------------ ------------ ------------ ------------ Net investment income ....................... -- -- -- -- ------------ ------------ ------------ ------------ Proceeds from mutual funds shares sold ........ -- 355,202 -- -- Cost of mutual fund shares sold ............... -- (354,541) -- -- ------------ ------------ ------------ ------------ Realized gain (loss) on investments ......... -- 661 -- -- Change in unrealized gain (loss) on investments .............................. -- 260 -- -- ------------ ------------ ------------ ------------ Net gain (loss) on investments .............. -- 921 -- -- ------------ ------------ ------------ ------------ Reinvested capital gains ...................... -- -- -- -- ------------ ------------ ------------ ------------ Net increase (decrease) in contract owners' equity resulting from operations ........ $ -- 921 -- -- ============ ============ ============ ============
8 NATIONWIDE VLI SEPARATE ACCOUNT-4 STATEMENTS OF OPERATIONS, CONTINUED YEARS ENDED DECEMBER 31, 2000 AND 1999 AND FOR THE PERIOD FEBRUARY 18, 1998 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1998
JanACapApS JanAGlTchS ---------------------------------------- ---------------------------- 2000 1999 1998 2000 1999 ----------- ----------- ----------- ----------- ----------- INVESTMENT ACTIVITY: Reinvested dividends .......................... $ 135,185 -- -- 94,337 -- Mortality and expense risk charges (note 3) ... (5,130) -- -- (5,864) -- ----------- ----------- ----------- ----------- ----------- Net investment income ....................... 130,055 -- -- 88,473 -- ----------- ----------- ----------- ----------- ----------- Proceeds from mutual funds shares sold ........ 2,667,595 -- -- 6,627,712 -- Cost of mutual fund shares sold ............... (3,199,056) -- -- (8,282,161) -- ----------- ----------- ----------- ----------- ----------- Realized gain (loss) on investments ......... (531,461) -- -- (1,654,449) -- Change in unrealized gain (loss) on investments .............................. (3,401,482) -- -- (5,609,957) -- ----------- ----------- ----------- ----------- ----------- Net gain (loss) on investments .............. (3,932,943) -- -- (7,264,406) -- ----------- ----------- ----------- ----------- ----------- Reinvested capital gains ...................... -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- Net increase (decrease) in contract owners' equity resulting from operations ........ $(3,802,888) -- -- (7,175,933) -- =========== =========== =========== =========== =========== JanAGlTchS JanAintGrS -------------- ---------------------------------------- 1998 2000 1999 1998 ----------- ----------- ----------- ----------- INVESTMENT ACTIVITY: Reinvested dividends .......................... $ -- 482,954 -- -- Mortality and expense risk charges (note 3) ... -- (5,407) -- -- ----------- ----------- ----------- ----------- Net investment income ....................... -- 477,547 -- -- ----------- ----------- ----------- ----------- Proceeds from mutual funds shares sold ........ -- 8,802,259 -- -- Cost of mutual fund shares sold ............... -- (10,182,763) -- -- ----------- ----------- ----------- ----------- Realized gain (loss) on investments ......... -- (1,380,504) -- -- Change in unrealized gain (loss) on investments .............................. -- (2,809,392) -- -- ----------- ----------- ----------- ----------- Net gain (loss) on investments .............. -- (4,189,896) -- -- ----------- ----------- ----------- ----------- Reinvested capital gains ...................... -- -- -- -- ----------- ----------- ----------- ----------- Net increase (decrease) in contract owners' equity resulting from operations ........ $ -- (3,712,349) -- -- =========== =========== =========== ===========
NSATBalJPM NSATCapAp ---------------------------------------- ---------------------------- 2000 1999 1998 2000 1999 ----------- ----------- ----------- ----------- ----------- INVESTMENT ACTIVITY: Reinvested dividends .......................... $ 172,981 80,095 9,854 41,174 96,180 Mortality and expense risk charges (note 3) ... (5,434) (1,605) (51) (10,414) (2,498) ----------- ----------- ----------- ----------- ----------- Net investment income ....................... 167,547 78,490 9,803 30,760 93,682 ----------- ----------- ----------- ----------- ----------- Proceeds from mutual funds shares sold ........ 5,501,271 2,788,299 316,297 6,534,873 4,176,681 Cost of mutual fund shares sold ............... (5,437,733) (2,830,503) (315,924) (7,187,743) (3,638,494) ----------- ----------- ----------- ----------- ----------- Realized gain (loss) on investments ......... 63,538 (42,204) 373 (652,870) 538,187 Change in unrealized gain (loss) on investments .............................. (241,628) (33,063) 22,806 (11,341,220) (1,637,699) ----------- ----------- ----------- ----------- ----------- Net gain (loss) on investments .............. (178,090) (75,267) 23,179 (11,994,090) (1,099,512) ----------- ----------- ----------- ----------- ----------- Reinvested capital gains ...................... -- 495 2,184 4,845,304 1,352,393 ----------- ----------- ----------- ----------- ----------- Net increase (decrease) in contract owners' equity resulting from operations ........ $ (10,543) 3,718 35,166 (7,118,026) 346,563 =========== =========== =========== =========== =========== NSATCapAp NSATEqIFED ------------ ---------------------------------------- 1998 2000 1999 1998 ----------- ----------- ----------- ----------- INVESTMENT ACTIVITY: Reinvested dividends .......................... $ 14,834 15,802 1,722 896 Mortality and expense risk charges (note 3) ... (440) (1,543) (71) (17) ----------- ----------- ----------- ----------- Net investment income ....................... 14,394 14,259 1,651 879 ----------- ----------- ----------- ----------- Proceeds from mutual funds shares sold ........ 703,904 1,130,737 116,995 18,085 Cost of mutual fund shares sold ............... (686,965) (1,084,332) (100,117) (17,928) ----------- ----------- ----------- ----------- Realized gain (loss) on investments ......... 16,939 46,405 16,878 157 Change in unrealized gain (loss) on investments .............................. 469,266 (334,972) 84,114 15,021 ----------- ----------- ----------- ----------- Net gain (loss) on investments .............. 486,205 (288,567) 100,992 15,178 ----------- ----------- ----------- ----------- Reinvested capital gains ...................... 174,093 -- 202 2,636 ----------- ----------- ----------- ----------- Net increase (decrease) in contract owners' equity resulting from operations ........ $ 674,692 (274,308) 102,845 18,693 =========== =========== =========== ===========
(Continued) 9 NATIONWIDE VLI SEPARATE ACCOUNT-4 STATEMENTS OF OPERATIONS, CONTINUED YEARS ENDED DECEMBER 31, 2000 AND 1999 AND FOR THE PERIOD FEBRUARY 18, 1998 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1998
NSATGlob50 NSATGvtBd ------------------------------------------- ------------------------------ 2000 1999 1998 2000 1999 ------------ ------------ ------------ ------------ ------------ INVESTMENT ACTIVITY: Reinvested dividends .......................... $ 199,386 8,364 1,950 2,182,498 798,788 Mortality and expense risk charges (note 3) ... (37,311) (10,207) (34) (99,138) (37,827) ------------ ------------ ------------ ------------ ------------ Net investment income ....................... 162,075 (1,843) 1,916 2,083,360 760,961 ------------ ------------ ------------ ------------ ------------ Proceeds from mutual funds shares sold ........ 5,122,679 1,039,009 57,978 5,456,678 10,418,680 Cost of mutual fund shares sold ............... (5,037,852) (930,501) (57,852) (5,620,925) (11,072,171) ------------ ------------ ------------ ------------ ------------ Realized gain (loss) on investments ......... 84,827 108,508 126 (164,247) (653,491) Change in unrealized gain (loss) on investments .............................. (4,336,580) 997,392 38,188 2,189,054 (442,511) ------------ ------------ ------------ ------------ ------------ Net gain (loss) on investments .............. (4,251,753) 1,105,900 38,314 2,024,807 (1,096,002) ------------ ------------ ------------ ------------ ------------ Reinvested capital gains ...................... 945,098 456,545 3,213 -- 35,939 ------------ ------------ ------------ ------------ ------------ Net increase (decrease) in contract owners' equity resulting from operations ........ $ (3,144,580) 1,560,602 43,443 4,108,167 (299,102) ============ ============ ============ ============ ============ NSATGvtBd NSATHiIFED ------------- -------------------------------------------- 1998 2000 1999 1998 ------------ ------------ ------------ ------------ INVESTMENT ACTIVITY: Reinvested dividends .......................... $ 83,382 1,119,466 308,481 22,707 Mortality and expense risk charges (note 3) ... (327) (9,331) (3,120) (68) ------------ ------------ ------------ ------------ Net investment income ....................... 83,055 1,110,135 305,361 22,639 ------------ ------------ ------------ ------------ Proceeds from mutual funds shares sold ........ 1,043,507 3,240,993 689,933 206,929 Cost of mutual fund shares sold ............... (1,033,771) (3,550,410) (687,767) (213,860) ------------ ------------ ------------ ------------ Realized gain (loss) on investments ......... 9,736 (309,417) 2,166 (6,931) Change in unrealized gain (loss) on investments .............................. (84,436) (1,573,020) (155,595) 7,941 ------------ ------------ ------------ ------------ Net gain (loss) on investments .............. (74,700) (1,882,437) (153,429) 1,010 ------------ ------------ ------------ ------------ Reinvested capital gains ...................... 22,403 -- 645 -- ------------ ------------ ------------ ------------ Net increase (decrease) in contract owners' equity resulting from operations ........ $ 30,758 (772,302) 152,577 23,649 ============ ============ ============ ============
NSATMCpSTR NSATMCIxDR ------------------------------------------- ------------------------------ 2000 1999 1998 2000 1999 ------------ ------------ ------------ ------------ ------------ INVESTMENT ACTIVITY: Reinvested dividends .......................... $ -- -- -- 24,820 1,219 Mortality and expense risk charges (note 3) ... (36,857) (2,128) (30) (1,304) (9) ------------ ------------ ------------ ------------ ------------ Net investment income ....................... (36,857) (2,128) (30) 23,516 1,210 ------------ ------------ ------------ ------------ ------------ Proceeds from mutual funds shares sold ........ 10,455,471 2,132,323 150,535 3,068,344 104,264 Cost of mutual fund shares sold ............... (9,038,986) (1,804,973) (150,564) (2,777,066) (89,446) ------------ ------------ ------------ ------------ ------------ Realized gain (loss) on investments ......... 1,416,485 327,350 (29) 291,278 14,818 Change in unrealized gain (loss) on investments .............................. (7,958,483) 1,323,586 48,847 (336,854) 51,305 ------------ ------------ ------------ ------------ ------------ Net gain (loss) on investments .............. (6,541,998) 1,650,936 48,818 (45,576) 66,123 ------------ ------------ ------------ ------------ ------------ Reinvested capital gains ...................... 922,208 515,885 -- 238,697 47,431 ------------ ------------ ------------ ------------ ------------ Net increase (decrease) in contract owners' equity resulting from operations ........ $ (5,656,647) 2,164,693 48,788 216,637 114,764 ============ ============ ============ ============ ============ NSATMCIxDR NSATMMkt ------------ -------------------------------------------- 1998 2000 1999 1998 ------------ ------------ ------------ ------------ INVESTMENT ACTIVITY: Reinvested dividends .......................... $ 782 10,355,160 3,376,535 506,347 Mortality and expense risk charges (note 3) ... (21) (307,209) (139,891) (1,751) ------------ ------------ ------------ ------------ Net investment income ....................... 761 10,047,951 3,236,644 504,596 ------------ ------------ ------------ ------------ Proceeds from mutual funds shares sold ........ 48,915 263,535,916 104,229,444 44,230,768 Cost of mutual fund shares sold ............... (51,817) (263,535,916) (104,229,444) (44,230,768) ------------ ------------ ------------ ------------ Realized gain (loss) on investments ......... (2,902) -- -- -- Change in unrealized gain (loss) on investments .............................. 29,815 -- -- -- ------------ ------------ ------------ ------------ Net gain (loss) on investments .............. 26,913 -- -- -- ------------ ------------ ------------ ------------ Reinvested capital gains ...................... -- -- -- -- ------------ ------------ ------------ ------------ Net increase (decrease) in contract owners' equity resulting from operations ........ $ 27,674 10,047,951 3,236,644 504,596 ============ ============ ============ ============
10 NATIONWIDE VLI SEPARATE ACCOUNT-4 STATEMENTS OF OPERATIONS, CONTINUED YEARS ENDED DECEMBER 31, 2000 AND 1999 AND FOR THE PERIOD FEBRUARY 18, 1998 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1998
NSATMBdMAS NSATSmCapG ---------------------------------------- ---------------------------- 2000 1999 1998 2000 1999 ----------- ----------- ----------- ----------- ----------- INVESTMENT ACTIVITY: Reinvested dividends .......................... $ 1,380,209 405,079 20,456 -- -- Mortality and expense risk charges (note 3) ... (35,618) (8,904) (64) (1,793) (31) ----------- ----------- ----------- ----------- ----------- Net investment income ....................... 1,344,591 396,175 20,392 (1,793) (31) ----------- ----------- ----------- ----------- ----------- Proceeds from mutual funds shares sold ........ 1,457,359 824,473 678,560 4,671,162 11,249,953 Cost of mutual fund shares sold ............... (1,524,119) (850,875) (682,489) (4,701,490) (11,295,118) ----------- ----------- ----------- ----------- ----------- Realized gain (loss) on investments ......... (66,760) (26,402) (3,929) (30,328) (45,165) Change in unrealized gain (loss) on investments .............................. (112,147) (125,056) 781 (1,279,267) 1,020,705 ----------- ----------- ----------- ----------- ----------- Net gain (loss) on investments .............. (178,907) (151,458) (3,148) (1,309,595) 975,540 ----------- ----------- ----------- ----------- ----------- Reinvested capital gains ...................... -- -- 691 72,445 101,886 ----------- ----------- ----------- ----------- ----------- Net increase (decrease) in contract owners' equity resulting from operations ........ $ 1,165,684 244,717 17,935 (1,238,943) 1,077,395 =========== =========== =========== =========== =========== NSATSmCapG NSATSmCapV ------------- ------------------------------------------ 1998 2000 1999 1998 ----------- ----------- ----------- ----------- INVESTMENT ACTIVITY: Reinvested dividends .......................... $ -- -- -- -- Mortality and expense risk charges (note 3) ... -- (6,507) (609) (72) ----------- ----------- ----------- ----------- Net investment income ....................... -- (6,507) (609) (72) ----------- ----------- ----------- ----------- Proceeds from mutual funds shares sold ........ -- 5,713,553 1,400,366 119,432 Cost of mutual fund shares sold ............... -- (5,334,666) (1,184,849) (127,976) ----------- ----------- ----------- ----------- Realized gain (loss) on investments ......... -- 378,887 215,517 (8,544) Change in unrealized gain (loss) on investments .............................. -- (2,383,146) (194,598) 118,603 ----------- ----------- ----------- ----------- Net gain (loss) on investments .............. -- (2,004,259) 20,919 110,059 ----------- ----------- ----------- ----------- Reinvested capital gains ...................... -- 2,830,882 651,318 -- ----------- ----------- ----------- ----------- Net increase (decrease) in contract owners' equity resulting from operations ........ $ -- 820,116 671,628 109,987 =========== =========== =========== ===========
NSATSmCo NSATStrVal ---------------------------------------- ---------------------------- 2000 1999 1998 2000 1999 ----------- ----------- ----------- ----------- ----------- INVESTMENT ACTIVITY: Reinvested dividends .......................... $ 6,404 -- -- 12,032 5,676 Mortality and expense risk charges (note 3) ... (24,879) (4,091) (112) (439) (137) ----------- ----------- ----------- ----------- ----------- Net investment income ....................... (18,475) (4,091) (112) 11,593 5,539 ----------- ----------- ----------- ----------- ----------- Proceeds from mutual funds shares sold ........ 5,986,277 1,854,552 303,745 6,700,644 173,459 Cost of mutual fund shares sold ............... (4,024,143) (1,415,009) (310,124) (6,640,337) (155,571) ----------- ----------- ----------- ----------- ----------- Realized gain (loss) on investments ......... 1,962,134 439,543 (6,379) 60,307 17,888 Change in unrealized gain (loss) on investments .............................. (6,709,330) 2,711,547 132,974 33,455 (70,115) ----------- ----------- ----------- ----------- ----------- Net gain (loss) on investments .............. (4,747,196) 3,151,090 126,595 93,762 (52,227) ----------- ----------- ----------- ----------- ----------- Reinvested capital gains ...................... 6,779,344 500,536 -- -- 22,264 ----------- ----------- ----------- ----------- ----------- Net increase (decrease) in contract owners' equity resulting from operations ........ $ 2,013,673 3,647,535 126,483 105,355 (24,424) =========== =========== =========== =========== =========== NSATStrVal NSATTotRtn ------------ ------------------------------------------ 1998 2000 1999 1998 ----------- ----------- ----------- ----------- INVESTMENT ACTIVITY: Reinvested dividends .......................... $ 1,052 193,418 96,396 27,487 Mortality and expense risk charges (note 3) ... (24) (5,805) (606) (578) ----------- ----------- ----------- ----------- Net investment income ....................... 1,028 187,613 95,790 26,909 ----------- ----------- ----------- ----------- Proceeds from mutual funds shares sold ........ 81,326 3,055,349 806,876 1,201,208 Cost of mutual fund shares sold ............... (89,165) (2,710,595) (784,668) (1,222,228) ----------- ----------- ----------- ----------- Realized gain (loss) on investments ......... (7,839) 344,754 22,208 (21,020) Change in unrealized gain (loss) on investments .............................. 43,881 (13,348,541) (33,899) 283,836 ----------- ----------- ----------- ----------- Net gain (loss) on investments .............. 36,042 (13,003,787) (11,691) 262,816 ----------- ----------- ----------- ----------- Reinvested capital gains ...................... -- 11,991,779 809,302 321,440 ----------- ----------- ----------- ----------- Net increase (decrease) in contract owners' equity resulting from operations ........ $ 37,070 (824,395) 893,401 611,165 =========== =========== =========== ===========
(Continued) 11 NATIONWIDE VLI SEPARATE ACCOUNT-4 STATEMENTS OF OPERATIONS, CONTINUED YEARS ENDED DECEMBER 31, 2000 AND 1999 AND FOR THE PERIOD FEBRUARY 18, 1998 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1998
NBAMTGuard NBAMTMCGr -------------------------------------------- ------------------------------ 2000 1999 1998 2000 1999 ------------ ------------ ------------ ------------ ------------ INVESTMENT ACTIVITY: Reinvested dividends .......................... $ 16,882 3,977 -- -- -- Mortality and expense risk charges (note 3) ... (1,965) (679) (83) (41,606) (7,463) ------------ ------------ ------------ ------------ ------------ Net investment income ....................... 14,917 3,298 (83) (41,606) (7,463) ------------ ------------ ------------ ------------ ------------ Proceeds from mutual funds shares sold ........ 1,626,130 807,995 117,578 13,583,260 7,840,757 Cost of mutual fund shares sold ............... (1,517,104) (670,629) (123,077) (9,016,924) (6,652,007) ------------ ------------ ------------ ------------ ------------ Realized gain (loss) on investments ......... 109,026 137,366 (5,499) 4,566,336 1,188,750 Change in unrealized gain (loss) on investments .............................. (185,904) 77,047 82,886 (10,290,829) 3,039,884 ------------ ------------ ------------ ------------ ------------ Net gain (loss) on investments .............. (76,878) 214,413 77,387 (5,724,493) 4,228,634 ------------ ------------ ------------ ------------ ------------ Reinvested capital gains ...................... -- -- -- 6,497 37,807 ------------ ------------ ------------ ------------ ------------ Net increase (decrease) in contract owners' equity resulting from operations ........ $ (61,961) 217,711 77,304 (5,759,602) 4,258,978 ============ ============ ============ ============ ============ BAMTMCGr NBAMTPart ------------ ---------------------------------------------- 1998 2000 1999 1998 ------------ ------------ ------------ ------------ INVESTMENT ACTIVITY: Reinvested dividends .......................... -- 55,679 56,853 114 Mortality and expense risk charges (note 3) ... $ (52) (5,009) (2,109) (290) ------------ ------------ ------------ ------------ Net investment income ....................... (52) 50,670 54,744 (176) ------------ ------------ ------------ ------------ Proceeds from mutual funds shares sold ........ 140,913 3,401,374 787,143 862,257 Cost of mutual fund shares sold ............... (137,009) (3,678,166) (785,895) (875,740) ------------ ------------ ------------ ------------ Realized gain (loss) on investments ......... 3,904 (276,792) 1,248 (13,483) Change in unrealized gain (loss) on investments .............................. 176,285 (888,222) 196,040 255,133 ------------ ------------ ------------ ------------ Net gain (loss) on investments .............. 180,189 (1,165,014) 197,288 241,650 ------------ ------------ ------------ ------------ Reinvested capital gains ...................... -- 1,184,100 98,874 3,599 ------------ ------------ ------------ ------------ Net increase (decrease) in contract owners' equity resulting from operations ........ $ 180,137 69,756 350,906 245,073 ============ ============ ============ ============
OppAggGrVA OppCapApVA -------------------------------------------- ------------------------------ 2000 1999 1998 2000 1999 ------------ ------------ ------------ ------------ ------------ INVESTMENT ACTIVITY: Reinvested dividends .......................... $ -- -- 26 26,876 10,044 Mortality and expense risk charges (note 3) ... (52,493) (2,942) (80) (35,238) (4,168) ------------ ------------ ------------ ------------ ------------ Net investment income ....................... (52,493) (2,942) (54) (8,362) 5,876 ------------ ------------ ------------ ------------ ------------ Proceeds from mutual funds shares sold ........ 13,833,125 1,971,772 120,154 6,304,788 993,762 Cost of mutual fund shares sold ............... (9,344,555) (1,353,384) (118,908) (4,511,928) (802,267) ------------ ------------ ------------ ------------ ------------ Realized gain (loss) on investments ......... 4,488,570 618,388 1,246 1,792,860 191,495 Change in unrealized gain (loss) on investments .............................. (19,721,439) 2,906,737 155,404 (5,403,446) 2,561,317 ------------ ------------ ------------ ------------ ------------ Net gain (loss) on investments .............. (15,232,869) 3,525,125 156,650 (3,610,586) 2,752,812 ------------ ------------ ------------ ------------ ------------ Reinvested capital gains ...................... 950,033 -- 270 1,434,225 110,334 ------------ ------------ ------------ ------------ ------------ Net increase (decrease) in contract owners' equity resulting from operations ........ $(14,335,329) 3,522,183 156,866 (2,184,723) 2,869,022 ============ ============ ============ ============ ============ OppCapApVA OppGlSecVA ------------ -------------------------------------------- 1998 2000 1999 1998 ------------ ------------ ------------ ------------ INVESTMENT ACTIVITY: Reinvested dividends .......................... $ 8 -- -- -- Mortality and expense risk charges (note 3) ... (142) (1,051) -- -- ------------ ------------ ------------ ------------ Net investment income ....................... (134) (1,051) -- -- ------------ ------------ ------------ ------------ Proceeds from mutual funds shares sold ........ 412,555 3,569,728 -- -- Cost of mutual fund shares sold ............... (391,820) (3,708,378) -- -- ------------ ------------ ------------ ------------ Realized gain (loss) on investments ......... 20,735 (138,650) -- -- Change in unrealized gain (loss) on investments .............................. 255,097 70,484 -- -- ------------ ------------ ------------ ------------ Net gain (loss) on investments .............. 275,832 (68,166) -- -- ------------ ------------ ------------ ------------ Reinvested capital gains ...................... 101 -- -- -- ------------ ------------ ------------ ------------ Net increase (decrease) in contract owners' equity resulting from operations ........ $ 275,799 (69,217) -- -- ============ ============ ============ ============
12 NATIONWIDE VLI SEPARATE ACCOUNT-4 STATEMENTS OF OPERATIONS, CONTINUED YEARS ENDED DECEMBER 31, 2000 AND 1999 AND FOR THE PERIOD FEBRUARY 18, 1998 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1998
OppMGrInVA StOpp2 ---------------------------------------- ------------------------------------ 2000 1999 1998 2000 1999 1998 ----------- ----------- ----------- ----------- ---------- -------- INVESTMENT ACTIVITY: Reinvested dividends ........................ $ 38,554 10,187 29 -- -- -- Mortality and expense risk charges (note 3) . (10,265) (2,014) (113) (1,449) -- -- ----------- ----------- ----------- ----------- ---------- -------- Net investment income ..................... 28,289 8,173 (84) (1,449) -- -- ----------- ----------- ----------- ----------- ---------- -------- Proceeds from mutual funds shares sold ...... 1,958,100 570,677 698,919 2,262,742 -- -- Cost of mutual fund shares sold ............. (1,608,534) (582,947) (718,580) (2,255,273) -- -- ----------- ----------- ----------- ----------- ---------- -------- Realized gain (loss) on investments ....... 349,566 (12,270) (19,661) 7,469 -- -- Change in unrealized gain (loss) on investments ............................ (2,767,885) 713,752 80,325 (478,402) -- -- ----------- ----------- ----------- ----------- ---------- -------- Net gain (loss) on investments ............ (2,418,319) 701,482 60,664 (470,933) -- -- ----------- ----------- ----------- ----------- ---------- -------- Reinvested capital gains .................... 509,013 17,163 645 501,505 -- -- ----------- ----------- ----------- ----------- ---------- -------- Net increase (decrease) in contract owners' equity resulting from operations ..... $(1,881,017) 726,818 61,225 29,123 -- -- =========== =========== =========== =========== ========== ========= NSATGFocTU ---------------------------------------- 2000 1999 1998 ----------- ----------- ----------- INVESTMENT ACTIVITY: Reinvested dividends .......................... $ -- -- -- Mortality and expense risk charges (note 3) ... -- -- -- ----------- ----------- ----------- Net investment income ....................... -- -- -- ----------- ----------- ----------- Proceeds from mutual funds shares sold ........ 290,188 -- -- Cost of mutual fund shares sold ............... (317,405) -- -- ----------- ----------- ----------- Realized gain (loss) on investments ......... (27,217) -- -- Change in unrealized gain (loss) on investments .............................. (4,210) -- -- ----------- ----------- ----------- Net gain (loss) on investments .............. (31,427) -- -- ----------- ----------- ----------- Reinvested capital gains ...................... -- -- -- ----------- ----------- ----------- Net increase (decrease) in contract owners' equity resulting from operations ........ $ (31,427) -- -- =========== =========== ===========
MSUEmMkt MSUMCapGr ---------------------------------------- ------------------------------------- 2000 1999 1998 2000 1999 1998 ----------- ----------- ----------- ----------- ---------- --------- INVESTMENT ACTIVITY: Reinvested dividends .......................... $ 151,314 85,097 18,594 -- -- -- Mortality and expense risk charges (note 3) ... (963) (166) (11) (162) -- -- ----------- ----------- ----------- ----------- ---------- ---------- Net investment income ....................... 150,351 84,931 18,583 (162) -- -- ----------- ----------- ----------- ----------- ---------- ---------- Proceeds from mutual funds shares sold ........ 1,344,335 218,023 268,442 769,277 -- -- Cost of mutual fund shares sold ............... (1,256,230) (200,881) (301,322) (782,583) -- -- ----------- ----------- ----------- ----------- ---------- ---------- Realized gain (loss) on investments ......... 88,105 17,142 (32,880) (13,306) -- -- Change in unrealized gain (loss) on investments .............................. (119,691) 20,955 (7,323) (98,350) -- -- ----------- ----------- ----------- ----------- ---------- ---------- Net gain (loss) on investments .............. (31,586) 38,097 (40,203) (111,656) -- -- ----------- ----------- ----------- ----------- ---------- ---------- Reinvested capital gains ...................... -- -- -- 800 -- -- ----------- ----------- ----------- ----------- ---------- ---------- Net increase (decrease) in contract owners' equity resulting from operations ........ $ 118,765 123,028 (21,620) (111,018) -- -- =========== =========== =========== =========== ========== ========== MSUUSRealE ---------------------------------------- 2000 1999 1998 ----------- ----------- ----------- INVESTMENT ACTIVITY: Reinvested dividends .......................... $ 265,214 54,408 34 Mortality and expense risk charges (note 3) ... (2,123) (1,163) (50) ----------- ----------- ----------- Net investment income ....................... 263,091 53,245 (16) ----------- ----------- ----------- Proceeds from mutual funds shares sold ........ 10,682,231 10,399,298 357,742 Cost of mutual fund shares sold ............... (10,383,636) (10,439,502) (388,797) ----------- ----------- ----------- Realized gain (loss) on investments ......... 298,595 (40,204) (31,055) Change in unrealized gain (loss) on investments .............................. 155,839 (130,048) 27,306 ----------- ----------- ----------- Net gain (loss) on investments .............. 454,434 (170,252) (3,749) ----------- ----------- ----------- Reinvested capital gains ...................... 25,130 -- 339 ----------- ----------- ----------- Net increase (decrease) in contract owners' equity resulting from operations ........ $ 742,655 (117,007) (3,426) =========== =========== ===========
(Continued) 13 NATIONWIDE VLI SEPARATE ACCOUNT-4 STATEMENTS OF OPERATIONS, CONTINUED YEARS ENDED DECEMBER 31, 2000 AND 1999 AND FOR THE PERIOD FEBRUARY 18, 1998 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1998
VEWwEmgMkt VEWwHrdAst ----------------------------------------- ---------------------------- 2000 1999 1998 2000 1999 ----------- ----------- ----------- ----------- ----------- INVESTMENT ACTIVITY: Reinvested dividends .......................... $ -- -- -- 6,160 2,469 Mortality and expense risk charges (note 3) ... (1,640) (139) (20) (124) (295) ----------- ----------- ----------- ----------- ----------- Net investment income ....................... (1,640) (139) (20) 6,036 2,174 ----------- ----------- ----------- ----------- ----------- Proceeds from mutual funds shares sold ........ 8,541,759 1,092,848 70,482 6,042,759 718,765 Cost of mutual fund shares sold ............... (8,950,297) (857,511) (84,625) (6,013,577) (692,370) ----------- ----------- ----------- ----------- ----------- Realized gain (loss) on investments ......... (408,538) 235,337 (14,143) 29,182 26,395 Change in unrealized gain (loss) on investments .............................. (1,655,251) 663,413 18,347 20,687 22,444 ----------- ----------- ----------- ----------- ----------- Net gain (loss) on investments .............. (2,063,789) 898,750 4,204 49,869 48,839 ----------- ----------- ----------- ----------- ----------- Reinvested capital gains ...................... -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- Net increase (decrease) in contract owners' equity resulting from operations ........ $(2,065,429) 898,611 4,184 55,905 51,013 =========== =========== =========== =========== =========== VEWwHrdAst WPTGloPVC ------------ ---------------------------------------- 1998 2000 1999 1998 ----------- ----------- ----------- ----------- INVESTMENT ACTIVITY: Reinvested dividends .......................... $ -- 25,366 10,150 4,521 Mortality and expense risk charges (note 3) ... (11) (2,889) (1,209) (50) ----------- ----------- ----------- ----------- Net investment income ....................... (11) 22,477 8,941 4,471 ----------- ----------- ----------- ----------- Proceeds from mutual funds shares sold ........ 46,572 1,991,744 372,724 345,457 Cost of mutual fund shares sold ............... (49,623) (1,898,600) (375,164) (337,050) ----------- ----------- ----------- ----------- Realized gain (loss) on investments ......... (3,051) 93,144 (2,440) 8,407 Change in unrealized gain (loss) on investments .............................. (2,102) 87,894 (2,238) 5,870 ----------- ----------- ----------- ----------- Net gain (loss) on investments .............. (5,153) 181,038 (4,678) 14,277 ----------- ----------- ----------- ----------- Reinvested capital gains ...................... -- 23,283 18,278 -- ----------- ----------- ----------- ----------- Net increase (decrease) in contract owners' equity resulting from operations ........ $ (5,164) 226,798 22,541 18,748 =========== =========== =========== ===========
WPTInteq ----------------------------------------- 2000 1999 1998 ----------- ----------- ----------- INVESTMENT ACTIVITY: Reinvested dividends .......................... $ 12,900 19,282 2,873 Mortality and expense risk charges (note 3) ... (1,340) (81) (42) ----------- ----------- ----------- Net investment income ....................... 11,560 19,201 2,831 ----------- ----------- ----------- Proceeds from mutual funds shares sold ........ 992,359 785,974 277,515 Cost of mutual fund shares sold ............... (749,434) (670,363) (301,573) ----------- ----------- ----------- Realized gain (loss) on investments ......... 242,925 115,611 (24,058) Change in unrealized gain (loss) on investments .............................. (1,294,832) 581,395 30,323 ----------- ----------- ----------- Net gain (loss) on investments .............. (1,051,907) 697,006 6,265 ----------- ----------- ----------- Reinvested capital gains ...................... 310,165 -- -- ----------- ----------- ----------- Net increase (decrease) in contract owners' equity resulting from operations ........ $ (730,182) 716,207 9,096 =========== =========== =========== WPTValue ---------------------------------------- 2000 1999 1998 ----------- ----------- ----------- INVESTMENT ACTIVITY: Reinvested dividends .......................... $ -- -- -- Mortality and expense risk charges (note 3) ... (1,199) (154) (13) ----------- ----------- ----------- Net investment income ....................... (1,199) (154) (13) ----------- ----------- ----------- Proceeds from mutual funds shares sold ........ 1,772,806 364,939 87,326 Cost of mutual fund shares sold ............... (1,546,982) (278,265) (89,432) ----------- ----------- ----------- Realized gain (loss) on investments ......... 225,824 86,674 (2,106) Change in unrealized gain (loss) on investments .............................. (716,480) 208,276 29,961 ----------- ----------- ----------- Net gain (loss) on investments .............. (490,656) 294,950 27,855 ----------- ----------- ----------- Reinvested capital gains ...................... 141,743 -- -- ----------- ----------- ----------- Net increase (decrease) in contract owners' equity resulting from operations ........ $ (350,112) 294,796 27,842 =========== =========== ===========
See accompanying notes to financial statements. 14 NATIONWIDE VLI SEPARATE ACCOUNT-4 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY YEARS ENDED DECEMBER 31, 2000 AND 1999 AND FOR THE PERIOD FEBRUARY 18, 1998 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1998
Total ACVPincGr ---------------------------------------------- ---------------------------------------------- 2000 1999 1998 2000 1999 1998 -------------- -------------- -------------- -------------- ------------- ------------- INVESTMENT ACTIVITY: Net investment income............... $ 19,565,651 6,402,662 788,473 56,216 (4,525) 5,039 Realized gain (loss) on investments 16,571,418 6,807,752 (271,660) 63,909 266,293 1,755 Change in unrealized gain (loss) on investments.................... (178,984,942) 42,568,531 6,208,888 (2,277,235) 692,513 125,007 Reinvested capital gains............ 50,385,356 6,941,880 597,466 - - - -------------- -------------- -------------- -------------- ------------- ------------ Net increase (decrease) in contract owners' equity resulting from operations ...... (92,462,517) 62,720,825 7,323,167 (2,157,110) 954,281 131,801 -------------- -------------- -------------- -------------- ------------- ------------ EQUITY TRANSACTIONS: Purchase payments received from contract owners................... 947,537,536 515,112,072 106,894,981 9,141,279 4,843,884 168,731 Transfers between funds............. - - - 7,485,967 5,659,068 959,762 Surrenders.......................... (10,694,705) (2,953,250) (205,540) (307,329) (25,955) (64) Death benefits...................... (65,736) (165,946) - (1,577) (1,531) - Policy loans (net of repayments) (note 5).......................... (9,821,909) (4,792,558) (1,093,563) (57,111) (99,683) - Deductions for surrender charges (note 2d)......................... (1,692,311) (378,228) (2,405) (48,631) (3,324) (1) Redemptions to pay cost of insurance charges and administrative charges (notes 2b and 2c)................. (63,687,230) (28,207,228) (4,765,148) (1,117,246) (410,626) (23,721) Asset charges (note 3): FPVUL & VEL contracts............. (1,989,545) (882,295) (148,735) (32,044) (13,701) (985) MSP contracts..................... (359,299) (49,709) (535) (6,176) (1,582) (4) SL contracts...................... (165,436) (99,794) (12,520) (4,637) (1,422) (83) -------------- -------------- -------------- -------------- ------------- ------------ Net equity transactions......... 859,061,365 477,583,064 100,666,535 15,052,495 9,945,128 1,103,635 -------------- -------------- -------------- -------------- ------------- ------------ NET CHANGE IN CONTRACT OWNERS' EQUITY...................... 766,598,848 540,303,889 107,989,702 12,895,385 10,899,409 1,235,436 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD........................... 648,293,593 107,989,704 - 12,134,845 1,235,436 - -------------- -------------- -------------- -------------- ------------- ------------ CONTRACT OWNERS' EQUITY END OF PERIOD........................... $1,414,892,441 648,293,593 107,989,702 25,030,230 12,134,845 1,235,436 ============== ============== ============== ============== ============= ============ CHANGES IN UNITS: Beginning units.............. 50,045,344 9,506,248 - 874,749 97,382 - ------------ -------------- -------------- -------------- ------------- -------------- Units purchased.............. 109,550,329 66,964,330 16,180,186 1,358,922 990,326 99,550 Units redeemed............... (43,498,824) (26,425,234) (6,673,938) (125,099) (212,959) (2,168 ------------ -------------- -------------- -------------- ------------- -------------- Ending units................. 116,096,849 50,045,344 9,506,248 2,108,572 874,749 97,382 ============ ============== ============== ============== ============= ============== ACVPint ----------------------------------------------- 2000 1999 1998 -------------- -------------- -------------- INVESTMENT ACTIVITY: Net investment income........ ........ $ (14,005) (3,029) 182 Realized gain (loss) on investments .. 2,847,917 628,064 (890) Change in unrealized gain (loss) on investments...................... (10,029,310) 4,031,727 159,768 Reinvested capital gains.............. 445,800 - 3,644 -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations ........ (6,749,598) 4,656,762 162,704 -------------- -------------- -------------- EQUITY TRANSACTIONS: Purchase payments received from contract owners..................... 17,266,035 3,440,338 489,914 Transfers between funds............... 20,394,660 5,542,573 1,905,042 Surrenders............................ (174,891) (6,193) - Death benefits........................ (5,691) (3,352) - Policy loans (net of repayments) (note 5)............................ (199,083) (114,731) (2,833) Deductions for surrender charges (note 2d)........................... (27,674) (793) - Redemptions to pay cost of insurance charges and administrative charges (notes 2b and 2c)................... (1,602,834) (514,310) (73,254) Asset charges (note 3): FPVUL & VEL contracts............... (60,820) (21,791) (2,574) MSP contracts....................... (7,381) (570) (9) SL contracts........................ (7,846) (1,478) (217) -------------- -------------- -------------- Net equity transactions........... 35,574,475 8,319,693 2,316,069 -------------- -------------- -------------- NET CHANGE IN CONTRACT OWNERS' EQUITY........................ 28,824,877 12,976,455 2,478,773 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD............................. 15,455,228 2,478,773 - -------------- -------------- -------------- CONTRACT OWNERS' EQUITY END OF PERIOD............................. $ 44,280,105 15,455,228 2,478,773 ============== ============== ============== CHANGES IN UNITS: Beginning units.............. 830,394 209,297 - -------------- -------------- -------------- Units purchased.............. 2,368,251 682,334 216,428 Units redeemed............... (135,307) (61,237) (7,131) -------------- -------------- -------------- Ending units................. 3,063,338 830,394 209,297 ============== ============== ==============
(Continued) 15 NATIONWIDE VLI SEPARATE ACCOUNT-4 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, CONTINUED YEARS ENDED DECEMBER 31, 2000 AND 1999 AND FOR THE PERIOD FEBRUARY 18, 1998 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1998
ACVPValue DrySRGr -------------------------------------------- ----------------------------------------- 2000 1999 1998 2000 1999 1998 ------------ ------------ ------------ ------------ ------------ ---------- INVESTMENT ACTIVITY: Net investment income .............. $ 26,769 8,355 125 127,586 190 2,018 Realized gain (loss) on investments 5,242 (38,029) (4,170) 286,804 137,365 13,110 Change in unrealized gain (loss) on investments ................... 865,295 (142,040) 28,277 (2,392,732) 901,808 108,355 Reinvested capital gains ........... 74,870 85,768 1,997 -- 279,678 47,900 ------------ ------------ ------------ ------------ ------------ ---------- Net increase (decrease) in contract owners' equity resulting from operations ...... 972,176 (85,946) 26,229 (1,978,342) 1,319,041 171,383 ------------ ------------ ------------ ------------ ------------ ---------- EQUITY TRANSACTIONS: Purchase payments received from contract owners .................. 2,380,936 698,376 218,019 5,340,142 2,335,241 544,259 Transfers between funds ............ 2,477,656 905,970 409,201 6,492,229 4,065,765 721,262 Surrenders ......................... (104,084) (7,715) (20) (161,374) (13,484) (97) Death benefits ..................... -- -- -- 17,714 (18,063) -- Policy loans (net of repayments) (note 5) ......................... (8,731) (15,452) (1,893) (253,461) (33,299) (1,497) Deductions for surrender charges (note 2d) ........................ (16,470) (988) -- (25,536) (1,727) (1) Redemptions to pay cost of insurance charges and administrative charges (notes 2b and 2c) ................ (264,459) (132,120) (23,676) (1,388,349) (506,680) (61,633) Asset charges (note 3): FPVUL & VEL contracts ............ (10,699) (5,363) (827) (49,907) (17,385) (1,607) MSP contracts .................... (992) (203) (3) (4,193) (332) (6) SL contracts ..................... (751) (147) (70) (2,607) (913) (135) ------------ ------------ ------------ ------------ ------------ ---------- Net equity transactions ........ 4,452,406 1,442,358 600,731 9,964,658 5,809,123 1,200,545 ------------ ------------ ------------ ------------ ------------ ---------- NET CHANGE IN CONTRACT OWNERS' EQUITY ..................... 5,424,582 1,356,412 626,960 7,986,316 7,128,164 1,371,928 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD .......................... 1,983,372 626,960 -- 8,500,092 1,371,928 -- ------------ ------------ ------------ ------------ ------------ ---------- CONTRACT OWNERS' EQUITY END OF PERIOD .......................... $ 7,407,954 1,983,372 626,960 16,486,408 8,500,092 1,371,928 ============ ============ ============ ============ ============ ========== CHANGES IN UNITS: Beginning units .................... 193,386 59,864 -- 509,172 106,093 -- ------------ ------------ ------------ ------------ ------------ ---------- Units purchased .................... 464,887 171,328 62,522 741,714 445,091 111,810 Units redeemed ..................... (40,889) (37,806) (2,658) (118,327) (42,012) (5,717) ------------ ------------ ------------ ------------ ------------ ---------- Ending units ....................... 617,384 193,386 59,864 1,132,559 509,172 106,093 ============ ============ ============ ============ ============ ==========
DryStkIx ----------------------------------------- 2000 1999 1998 ------------ ------------ ------------ INVESTMENT ACTIVITY: Net investment income .............. $ 1,474,581 613,975 63,670 Realized gain (loss) on investments 3,585,686 612,737 (73,213) Change in unrealized gain (loss) on investments ................... (27,898,576) 11,117,238 1,455,019 Reinvested capital gains ........... 3,654,055 672,634 12,311 ------------ ------------ ------------ Net increase (decrease) in contract owners' equity resulting from operations ...... (19,184,254) 13,016,584 1,457,787 ------------ ------------ ------------ EQUITY TRANSACTIONS: Purchase payments received from contract owners .................. 68,654,997 41,330,848 3,047,695 Transfers between funds ............ 72,727,790 57,817,925 10,358,645 Surrenders ......................... (1,341,027) (626,906) (430) Death benefits ..................... 2,224 (24,555) -- Policy loans (net of repayments) (note 5) ......................... (792,260) (192,790) (9,416) Deductions for surrender charges (note 2d) ........................ (212,202) (80,289) (5) Redemptions to pay cost of insurance charges and administrative charges (notes 2b and 2c) ................ (8,955,356) (4,045,059) (463,310) Asset charges (note 3): FPVUL & VEL contracts ............ (279,995) (134,875) (15,073) MSP contracts .................... (49,600) (4,126) (54) SL contracts ..................... (28,362) (11,443) (1,269) ------------ ------------ ------------ Net equity transactions ........ 129,726,209 94,028,730 12,916,783 ------------ ------------ ------------ NET CHANGE IN CONTRACT OWNERS' EQUITY ..................... 110,541,955 107,045,314 14,374,570 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD .......................... 121,419,884 14,374,570 -- ------------ ------------ ------------ CONTRACT OWNERS' EQUITY END OF PERIOD .......................... $231,961,839 121,419,884 14,374,570 ============ ============ ============ CHANGES IN UNITS: Beginning units .................... 8,707,267 1,136,754 -- ------------ ------------ ------------ Units purchased .................... 11,088,744 7,959,543 1,180,333 Units redeemed ..................... (888,358) (389,030) (43,579) ------------ ------------ ------------ Ending units ....................... 18,907,653 8,707,267 1,136,754 ============ ============ ============
16 NATIONWIDE VLI SEPARATE ACCOUNT-4 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, CONTINUED YEARS ENDED DECEMBER 31, 2000 AND 1999 AND FOR THE PERIOD FEBRUARY 18, 1998 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1998
DryEuroEq DryVApp -------------------------------------------- ----------------------------------------- 2000 1999 1998 2000 1999 1998 ----------- ----------- -------------- ----------- ----------- ----------- INVESTMENT ACTIVITY: Net investment income .............. $ 2,393 266 -- 147,948 82,323 7,508 Realized gain (loss) on investments (61,506) 360 -- 353,748 369,370 (894) Change in unrealized gain (loss) on investments ................... 26,273 9,997 -- (1,102,409) 649,339 150,742 Reinvested capital gains ........... 39,799 1,251 -- 355,671 68,742 -- ----------- ----------- -------------- ----------- ----------- ----------- Net increase (decrease) in contract owners' equity resulting from operations ...... 6,959 11,874 -- (245,042) 1,169,774 157,356 ----------- ----------- -------------- ----------- ----------- ----------- EQUITY TRANSACTIONS: Purchase payments received from contract owners .................. 298,004 8,625 -- 13,754,528 12,955,621 381,182 Transfers between funds ............ 1,063,297 114,306 -- 1,480,475 4,076,889 1,070,054 Surrenders ......................... (23) -- -- (176,111) (56,786) (44) Death benefits ..................... -- -- -- -- (6,440) -- Policy loans (net of repayments) (note 5) ......................... (310) -- -- (114,896) (32,681) (289) Deductions for surrender charges (note 2d) ........................ (4) -- -- (27,867) (7,273) (1) Redemptions to pay cost of insurance charges and administrative charges (notes 2b and 2c) ................ (41,463) (92) -- (1,277,668) (701,318) (58,099) Asset charges (note 3): FPVUL & VEL contracts ............ (1,518) (32) -- (33,727) (17,976) (1,594) MSP contracts .................... (296) (8) -- (5,950) (683) (6) SL contracts ..................... (300) -- -- (1,121) (1,755) (134) ----------- ----------- -------------- ----------- ----------- ----------- Net equity transactions ........ 1,317,387 122,799 -- 13,597,663 16,207,598 1,391,069 ----------- ----------- -------------- ----------- ----------- ----------- NET CHANGE IN CONTRACT OWNERS' EQUITY ..................... 1,324,346 134,673 -- 13,352,621 17,377,372 1,548,425 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD .......................... 134,673 -- -- 18,925,797 1,548,425 -- ----------- ----------- -------------- ----------- ----------- ----------- CONTRACT OWNERS' EQUITY END OF PERIOD .......................... $ 1,459,019 134,673 -- 32,278,418 18,925,797 1,548,425 =========== =========== ============== =========== =========== =========== CHANGES IN UNITS: Beginning units .................... 10,415 -- -- 1,466,981 120,461 -- ----------- ----------- -------------- ----------- ----------- ----------- Units purchased .................. 110,285 10,455 -- 1,345,193 1,811,470 125,573 Units redeemed ................... (5,477) (40) -- (224,132) (464,950) (5,112) ----------- ----------- -------------- ----------- ----------- ----------- Ending units ....................... 115,223 10,415 -- 2,588,042 1,466,981 120,461 =========== =========== ============== =========== =========== ===========
FedQualBd2 --------------------------------------------- 2000 1999 1998 ----------- ----------- -------------- INVESTMENT ACTIVITY: Net investment income .............. 248,090 (3,162) -- Realized gain (loss) on investments 126,755 (1,907) -- Change in unrealized gain (loss) on investments ................... 2,975,611 40,201 -- Reinvested capital gains ........... -- -- -- ----------- ----------- -------------- Net increase (decrease) in contract owners' equity resulting from operations ...... 3,350,456 35,132 -- ----------- ----------- -------------- EQUITY TRANSACTIONS: Purchase payments received from contract owners .................. 18,965,217 3,119,190 -- Transfers between funds ............ 19,532,260 8,049,110 -- Surrenders ......................... -- -- -- Death benefits ..................... (5,851) -- -- Policy loans (net of repayments) (note 5) ......................... (6,815) -- -- Deductions for surrender charges (note 2d) ........................ -- -- -- Redemptions to pay cost of insurance charges and administrative charges (notes 2b and 2c) ................ (606,106) (20,060) -- Asset charges (note 3): FPVUL & VEL contracts ............ (2,155) (31) -- MSP contracts .................... (611) (21) -- SL contracts ..................... (235) -- -- ----------- ----------- -------------- Net equity transactions ........ 37,875,704 11,148,188 -- ----------- ----------- -------------- NET CHANGE IN CONTRACT OWNERS' EQUITY ..................... 41,226,160 11,183,320 -- CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD .......................... 11,183,320 -- -- ----------- ----------- -------------- CONTRACT OWNERS' EQUITY END OF PERIOD .......................... 52,409,480 11,183,320 -- =========== =========== ============== CHANGES IN UNITS: Beginning units .................... 1,133,916 -- -- Units purchased ...................... 3,748,621 1,141,400 -- Units redeemed ....................... (63,800) (7,484) -- ----------- ----------- -------------- Ending units ....................... 4,818,737 1,133,916 -- =========== =========== ==============
(Continued) 17 NATIONWIDE VLI SEPARATE ACCOUNT-4 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, CONTINUED YEARS ENDED DECEMBER 31, 2000 AND 1999 AND FOR THE PERIOD FEBRUARY 18, 1998 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1998
FIDVEQINS FIDVGRS -------------------------------------------- -------------------------------------------- 2000 1999 1998 2000 1999 1998 ------------ ------------ ------------ ------------ ------------ ------------ INVESTMENT ACTIVITY: Net investment income .............. $ 262,884 93,800 (402) (60,006) (4,278) (249) Realized gain (loss) on investments (546,971) 303,591 (35,087) 1,245,093 146,210 8,500 Change in unrealized gain (loss) on investments ................... 1,470,791 (277,459) 449,182 (19,309,179) 6,093,883 480,684 Reinvested capital gains ........... 1,063,019 214,564 -- 5,556,689 543,154 -- ------------ ------------ ------------ ------------ ------------ ------------ Net increase (decrease) in contract owners' equity resulting from operations ...... 2,249,723 334,496 413,693 (12,567,403) 6,778,969 488,935 ------------ ------------ ------------ ------------ ------------ ------------ EQUITY TRANSACTIONS: Purchase payments received from contract owners .................. 7,850,333 4,448,956 1,622,388 37,211,019 13,666,314 742,777 Transfers between funds ............ 4,967,158 6,896,656 3,964,871 39,402,444 20,406,545 2,489,085 Surrenders ......................... (341,944) (80,452) (401) (572,831) (63,057) (1,445) Death benefits ..................... (6,617) (1,391) -- (17,086) (10,491) -- Policy loans (net of repayments) (note 5) ......................... (315,976) (144,802) (6,242) (799,676) (177,397) (5,968) Deductions for surrender charges (note 2d) ........................ (54,109) (10,304) (5) (90,644) (8,076) (17) Redemptions to pay cost of insurance charges and administrative charges (notes 2b and 2c) ................ (1,698,463) (1,124,439) (217,638) (5,241,119) (1,671,275) (140,842) Asset charges (note 3): FPVUL & VEL contracts ............ (68,189) (43,634) (6,715) (178,345) (55,807) (4,257) MSP contracts .................... (4,739) (1,965) (24) (24,381) (2,486) (15) SL contracts ..................... (5,991) (1,316) (565) (12,861) (3,848) (358) ------------ ------------ ------------ ------------ ------------ ------------ Net equity transactions ........ 10,321,463 9,937,309 5,355,669 69,676,520 32,080,422 3,078,960 ------------ ------------ ------------ ------------ ------------ ------------ NET CHANGE IN CONTRACT OWNERS' EQUITY ..................... 12,571,186 10,271,805 5,769,362 57,109,117 38,859,391 3,567,895 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD .......................... 16,041,167 5,769,362 -- 42,427,286 3,567,895 -- ------------ ------------ ------------ ------------ ------------ ------------ CONTRACT OWNERS' EQUITY END OF PERIOD .......................... $ 28,612,353 16,041,167 5,769,362 99,536,403 42,427,286 3,567,895 ============ ============ ============ ============ ============ ============ CHANGES IN UNITS: Beginning units .................... 1,374,484 517,910 -- 2,322,709 256,014 -- ------------ ------------ ------------ ------------ ------------ ------------ Units purchased .................... 1,252,718 975,907 540,577 4,664,500 2,192,613 268,539 Units redeemed ..................... (329,618) (119,333) (22,667) (425,983) (125,918) (12,525) ------------ ------------ ------------ ------------ ------------ ------------ Ending units ....................... 2,297,584 1,374,484 517,910 6,561,226 2,322,709 256,014 ============ ============ ============ ============ ============ ============
FIDVHIINS --------------------------------------------- 2000 1999 1998 ------------ ------------ ------------ INVESTMENT ACTIVITY: Net investment income .............. 689,813 363,341 (245) Realized gain (loss) on investments (1,172,059) (114,464) (53,784) Change in unrealized gain (loss) on investments ................... (3,641,858) 103,063 37,295 Reinvested capital gains ........... -- 13,640 -- ------------ ------------ ------------ Net increase (decrease) in contract owners' equity resulting from operations ...... (4,124,104) 365,580 (16,734) ------------ ------------ ------------ EQUITY TRANSACTIONS: Purchase payments received from contract owners .................. 7,533,788 2,442,012 685,592 Transfers between funds ............ 3,220,351 3,417,897 2,964,332 Surrenders ......................... (716,896) (30,819) -- Death benefits ..................... -- (1,204) -- Policy loans (net of repayments) (note 5) ......................... (1,732) (134,160) (1,581) Deductions for surrender charges (note 2d) ........................ (113,440) (3,947) -- Redemptions to pay cost of insurance charges and administrative charges (notes 2b and 2c) ................ (677,508) (455,068) (103,400) Asset charges (note 3): FPVUL & VEL contracts ............ (22,619) (18,072) (3,432) MSP contracts .................... (3,871) (1,135) (12) SL contracts ..................... (2,510) (1,596) (289) ------------ ------------ ------------ Net equity transactions ........ 9,215,563 5,213,908 3,541,210 ------------ ------------ ------------ NET CHANGE IN CONTRACT OWNERS' EQUITY ..................... 5,091,459 5,579,488 3,524,476 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD .......................... 9,103,964 3,524,476 -- ------------ ------------ ------------ CONTRACT OWNERS' EQUITY END OF PERIOD .......................... 14,195,423 9,103,964 3,524,476 ============ ============ ============ CHANGES IN UNITS: Beginning units .................... 895,631 368,766 -- ------------ ------------ ------------ Units purchased .................... 1,222,377 623,361 380,291 Units redeemed ..................... (310,119) (96,496) (11,525) ------------ ------------ ------------ Ending units ....................... 1,807,889 895,631 368,766 ============ ============ ============
18 NATIONWIDE VLI SEPARATE ACCOUNT-4 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, CONTINUED YEARS ENDED DECEMBER 31, 2000 AND 1999 AND FOR THE PERIOD FEBRUARY 18, 1998 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1998
FIDVOVSES FIDVCONS ------------------------------------------ -------------------------------------------- 2000 1999 1998 2000 1999 1998 ------------ ------------ ------------ ------------ ------------ ------------ INVESTMENT ACTIVITY: Net investment income .............. $ 167,888 11,251 (75) 65,914 22,353 (330) Realized gain (loss) on investments (1,765,190) 730,465 (24,873) 528,352 214,850 26,824 Change in unrealized gain (loss) on investments ................... (4,479,931) 1,849,661 68,313 (6,926,956) 3,006,379 648,413 Reinvested capital gains ........... 1,409,432 34,048 -- 3,401,735 195,897 -- ------------ ------------ ------------ ------------ ------------ ------------ Net increase (decrease) in contract owners' equity resulting from operations ...... (4,667,801) 2,625,425 43,365 (2,930,955) 3,439,479 674,907 ------------ ------------ ------------ ------------ ------------ ------------ EQUITY TRANSACTIONS: Purchase payments received from contract owners .................. 8,505,042 1,371,398 233,314 13,331,258 6,884,353 1,117,315 Transfers between funds ............ 8,652,600 8,415,589 835,812 16,551,717 11,647,164 3,133,469 Surrenders ......................... (105,541) (26,372) (16) (475,190) (454,009) (165) Death benefits ..................... (10,322) (308) -- (21,261) (4,599) -- Policy loans (net of repayments) (note 5) ......................... (59,458) (21,644) (1,574) (383,633) (155,019) (2,052) Deductions for surrender charges (note 2d) ........................ (16,701) (3,377) -- (75,193) (58,146) (2) Redemptions to pay cost of insurance charges and administrative charges (notes 2b and 2c) ................ (1,042,254) (318,257) (34,849) (3,087,387) (1,389,362) (173,162) Asset charges (note 3): FPVUL & VEL contracts ............ (27,681) (10,339) (1,230) (119,105) (50,526) (5,299) MSP contracts .................... (7,325) (724) (4) (13,801) (1,103) (19) SL contracts ..................... (2,147) (955) (103) (4,789) (2,492) (446) ------------ ------------ ------------ ------------ ------------ ------------ Net equity transactions ........ 15,886,213 9,405,011 1,031,350 25,702,616 16,416,261 4,069,639 ------------ ------------ ------------ ------------ ------------ ------------ NET CHANGE IN CONTRACT OWNERS' EQUITY ..................... 11,218,412 12,030,436 1,074,715 22,771,661 19,855,740 4,744,546 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD .......................... 13,105,151 1,074,715 -- 24,600,286 4,744,546 -- ------------ ------------ ------------ ------------ ------------ ------------ CONTRACT OWNERS' EQUITY END OF PERIOD .......................... $ 24,323,563 13,105,151 1,074,715 47,371,947 24,600,286 4,744,546 ============ ============ ============ ============ ============ ============ CHANGES IN UNITS: Beginning units .................... 897,019 95,893 -- 1,555,137 365,486 -- ------------ ------------ ------------ ------------ ------------ ------------ Units purchased .................... 1,314,737 863,392 99,416 2,019,106 1,338,819 381,598 Units redeemed ..................... (114,723) (62,266) (3,523) (278,479) (149,168) (16,112) ------------ ------------ ------------ ------------ ------------ ------------ Ending units ....................... 2,097,033 897,019 95,893 3,295,764 1,555,137 365,486 ============ ============ ============ ============ ============ ============
FIDVGROPS --------------------------------------------- 2000 1999 1998 ------------ ------------ ------------ INVESTMENT ACTIVITY: Net investment income .............. 114,308 25,116 (168) Realized gain (loss) on investments (205,257) 53,554 12,948 Change in unrealized gain (loss) on investments ................... (3,225,818) 137,134 262,800 Reinvested capital gains ........... 662,022 55,207 -- ------------ ------------ ------------ Net increase (decrease) in contract owners' equity resulting from operations ...... (2,654,745) 271,011 275,580 ------------ ------------ ------------ EQUITY TRANSACTIONS: Purchase payments received from contract owners .................. 4,026,349 3,045,388 584,874 Transfers between funds ............ 4,007,402 5,377,081 1,646,479 Surrenders ......................... (106,913) (191,409) (36) Death benefits ..................... (14,827) (1,216) -- Policy loans (net of repayments) (note 5) ......................... (182,797) (42,620) 29 Deductions for surrender charges (note 2d) ........................ (16,918) (24,514) -- Redemptions to pay cost of insurance charges and administrative charges (notes 2b and 2c) ................ (1,045,761) (632,760) (84,140) Asset charges (note 3): FPVUL & VEL contracts ............ (39,737) (23,008) (2,917) MSP contracts .................... (3,764) (1,943) (10) SL contracts ..................... (3,068) (1,552) (245) ------------ ------------ ------------ Net equity transactions ........ 6,619,966 7,503,447 2,144,034 ------------ ------------ ------------ NET CHANGE IN CONTRACT OWNERS' EQUITY ..................... 3,965,221 7,774,458 2,419,614 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD .......................... 10,194,072 2,419,614 -- ------------ ------------ ------------ CONTRACT OWNERS' EQUITY END OF PERIOD .......................... 14,159,293 10,194,072 2,419,614 ============ ============ ============ CHANGES IN UNITS: Beginning units .................... 798,468 194,457 -- ------------ ------------ ------------ Units purchased .................... 797,422 679,802 202,309 Units redeemed ..................... (236,089) (75,791) (7,852) ------------ ------------ ------------ Ending units ....................... 1,359,801 798,468 194,457 ============ ============ ============
(Continued) 19 NATIONWIDE VLI SEPARATE ACCOUNT-4 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, CONTINUED YEARS ENDED DECEMBER 31, 2000 AND 1999 AND FOR THE PERIOD FEBRUARY 18, 1998 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1998
NSATEMMGM NSATGTECGM ---------------------------------------------- ------------------------------------------ 2000 1999 1998 2000 1999 1998 -------------- -------------- ------------ -------------- --------- ------------- INVESTMENT ACTIVITY: Net investment income....... $ - - - - - - Realized gain (loss) on investments (3,018) - - (4,426) - - Change in unrealized gain (loss) on investments............. 336 - - (195,957) - - Reinvested capital gains..... - - - 10,013 - - -------------- -------------- ---------- -------------- ---------- ------------ Net increase (decrease) in contract owners' equity resulting from operations (2,682) - - (190,370) - - -------------- -------------- ---------- -------------- ---------- ------------ EQUITY TRANSACTIONS: Purchase payments received from contract owners............ 430 - - 36,330 - - Transfers between funds...... 23,571 - - 719,894 - - Surrenders................... - - - - - - Death benefits............... - - - - - - Policy loans (net of repayments) (note 5)................... - - - (22) - - Deductions for surrender charges (note 2d).................. - - - - - - Redemptions to pay cost of insurance charges and administrative charges (notes 2b and 2c).......... (398) - - (14,760) - - Asset charges (note 3): FPVUL & VEL contracts...... (17) - - (358) - - MSP contracts.............. - - - (4) - - SL contracts............... (73) - - (108) - - -------------- -------------- ---------- -------------- ---------- ------------ Net equity transactions.. 23,513 - - 740,972 - - -------------- -------------- ---------- -------------- ---------- ------------ NET CHANGE IN CONTRACT OWNERS' EQUITY............... 20,831 - - 550,602 - - CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD.................... - - - - - - -------------- -------------- ---------- -------------- ---------- ------------ CONTRACT OWNERS' EQUITY END OF PERIOD.................... $20,831 - - 550,602 - - ============== ============== ========== ============== ========== ============ CHANGES IN UNITS: Beginning units.............. - - - - - -------------- -------------- ---------- -------------- ---------- ------------ Units purchased.............. 2,438 - - 92,911 - - Units redeemed............... (47) - - (1,413) - - -------------- -------------- ---------- -------------- ---------- ----------- Ending units................. 2,391 - - 91,498 - - ============== ============== ========== ============== ========== ============
NSATINTGGM --------------------------------------------- 2000 1999 1998 ------------- -------------- -------------- INVESTMENT ACTIVITY: Net investment income....... - - - Realized gain (loss) on investments 661 - - Change in unrealized gain (loss) on investments............. 260 - - Reinvested capital gains..... - - - -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations 921 - - -------------- -------------- -------------- EQUITY TRANSACTIONS: Purchase payments received from contract owners............ 1,248 - - Transfers between funds...... 23,447 - - Surrenders................... - - - Death benefits............... - - - Policy loans (net of repayments) (note 5)................... - - - Deductions for surrender charges (note 2d).................. - - - Redemptions to pay cost of insurance charges and administrative charges (notes 2b and 2c).......... (576) - - Asset charges (note 3): FPVUL & VEL contracts...... (20) - - MSP contracts.............. - - - SL contracts............... (73) - - -------------- -------------- -------------- Net equity transactions.. 24,026 - - -------------- -------------- -------------- NET CHANGE IN CONTRACT OWNERS' EQUITY............... 24,947 - - CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD.................... - - - -------------- -------------- -------------- CONTRACT OWNERS' EQUITY END OF PERIOD.................... 24,947 - - ============== ============== ============== CHANGES IN UNITS: Beginning units.............. - - - -------------- -------------- -------------- Units purchased.............. 2,770 - - Units redeemed............... (73) - - -------------- -------------- -------------- Ending units................. 2,697 - - ============== ============== ==============
20 NATIONWIDE VLI SEPARATE ACCOUNT-4 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, CONTINUED YEARS ENDED DECEMBER 31, 2000 AND 1999 AND FOR THE PERIOD FEBRUARY 18, 1998 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1998
JANACAPAPS JANAGLTCHS --------------------------------------------- -------------------------------- 2000 1999 1998 2000 1999 -------------- -------------- -------------- -------------- ------------- INVESTMENT ACTIVITY: Net investment income........ $ 130,055 - - 88,473 - Realized gain (loss) on investments (531,461) - - (1,654,449) - Change in unrealized gain (loss) on investments............. (3,401,482) - - (5,609,957) - Reinvested capital gains..... - - - - - -------------- -------------- -------------- -------------- ------------- Net increase (decrease) in contract owners' equity resulting from operations (3,802,888) - - (7,175,933) - -------------- -------------- -------------- -------------- ------------- EQUITY TRANSACTIONS: Purchase payments received from contract owners............ 4,655,897 - - 5,576,181 - Transfers between funds...... 22,374,018 - - 18,371,062 - Surrenders................... (74,366) - - (65,589) - Death benefits............... - - - (282) - Policy loans (net of repayments) (note 5)................... (27,728) - - (67,411) - Deductions for surrender charges (note 2d).................. (11,767) - - (10,379) - Redemptions to pay cost of insurance charges and administrative charges (notes 2b and 2c).......... (892,334) - - (930,882) - Asset charges (note 3): FPVUL & VEL contracts...... (33,096) - - (32,832) - MSP contracts.............. (4,072) - - (5,353) - SL contracts............... (1,406) - - (670) - -------------- -------------- -------------- -------------- ------------- Net equity transactions.. 25,985,146 - - 22,833,845 - -------------- -------------- -------------- -------------- ------------- NET CHANGE IN CONTRACT OWNERS' EQUITY............... 22,182,258 - - 15,657,912 - CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD.................... - - - - - -------------- -------------- -------------- -------------- ------------- CONTRACT OWNERS' EQUITY END OF PERIOD.................... $22,182,258 - - 15,657,912 - ============== ============== ============== ============== ============= CHANGES IN UNITS: Beginning units.............. - - - - - -------------- -------------- -------------- -------------- ------------- Units purchased.............. 2,815,308 - - 2,513,806 - Units redeemed............... (120,018) - - (133,644) - -------------- -------------- -------------- -------------- ------------- Ending units................. 2,695,290 - - 2,380,162 - ============== ============== ============== ============== =============
JANAGLTCHS JANAINTGRS --------------- ---------------------------------------------- 1998 2000 1999 1998 -------------- -------------- -------------- -------------- INVESTMENT ACTIVITY: Net investment income........ - 477,547 - - Realized gain (loss) on investments - (1,380,504) - - Change in unrealized gain (loss) on investments............. - (2,809,392) - - Reinvested capital gains..... - - - - -------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations - (3,712,349) - - -------------- -------------- -------------- -------------- EQUITY TRANSACTIONS: Purchase payments received from contract owners............ - 3,860,854 - - Transfers between funds...... - 19,317,238 - - Surrenders................... - (64,857) - - Death benefits............... - (1,321) - - Policy loans (net of repayments) (note 5)................... - (44,077) - - Deductions for surrender charges (note 2d).................. - (10,263) - - Redemptions to pay cost of insurance charges and administrative charges (notes 2b and 2c).......... - (688,560) - - Asset charges (note 3): FPVUL & VEL contracts...... - (25,778) - - MSP contracts.............. - (2,921) - - SL contracts............... - (733) - - -------------- -------------- -------------- -------------- Net equity transactions.. - 22,339,582 - - -------------- -------------- -------------- -------------- NET CHANGE IN CONTRACT OWNERS' EQUITY............... - 18,627,233 - - CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD.................... - - - - -------------- -------------- -------------- -------------- CONTRACT OWNERS' EQUITY END OF PERIOD.................... - 18,627,233 - - ============== ============== ============== ============== CHANGES IN UNITS: Beginning units.............. - - - - -------------- -------------- -------------- -------------- Units purchased.............. - 2,353,803 - - Units redeemed............... - (100,741) - - -------------- -------------- -------------- -------------- Ending units................. - 2,253,062 - - ============== ============== ============== ==============
(Continued) 21 NATIONWIDE VLI SEPARATE ACCOUNT-4 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, CONTINUED YEARS ENDED DECEMBER 31, 2000 AND 1999 AND FOR THE PERIOD FEBRUARY 18, 1998 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1998
NSATBALJPM NSATCAPAP ----------------------------------------- ----------------------------------------- 2000 1999 1998 2000 1999 1998 ----------- ----------- ----------- ----------- ----------- ----------- INVESTMENT ACTIVITY Net investment income .............. $ 167,547 78,490 9,803 30,760 93,682 14,394 Realized gain (loss) on investments 63,538 (42,204) 373 (652,870) 538,187 16,939 Change in unrealized gain (loss) on investments ................... (241,628) (33,063) 22,806 (11,341,220) (1,637,699) 469,266 Reinvested capital gains ........... -- 495 2,184 4,845,304 1,352,393 174,093 ----------- ----------- ----------- ----------- ----------- ----------- Net increase (decrease) in contract owners' equity resulting from operations ...... (10,543) 3,718 35,166 (7,118,026) 346,563 674,692 ----------- ----------- ----------- ----------- ----------- ----------- EQUITY TRANSACTIONS: Purchase payments received from contract owners .................. 1,988,633 1,611,897 87,905 8,485,213 9,062,429 1,531,297 Transfers between funds ............ 1,908,503 1,487,269 640,480 1,967,580 7,693,905 4,379,971 Surrenders ......................... (157,913) (107,959) -- (306,983) (206,070) (118) Death benefits ..................... (11,305) -- -- 10,787 (17,696) -- Policy loans (net of repayments) (note 5) ......................... (49,949) (10,080) (2,200) (245,557) (72,988) 731 Deductions for surrender charges (note 2d) ........................ (24,988) (13,826) -- (48,576) (26,392) (1) Redemptions to pay cost of insurance charges and administrative charges (notes 2b and 2c) ................ (312,300) (211,528) (28,998) (2,322,085) (1,637,150) (265,208) Asset charges (note 3): FPVUL & VEL contracts ............ (10,757) (6,440) (840) (83,996) (57,366) (7,161) MSP contracts .................... (2,649) (439) (3) (5,475) (1,785) (26) SL contracts ..................... (1,847) (638) (71) (4,898) (1,205) (603) ----------- ----------- ----------- ----------- ----------- ----------- Net equity transactions ........ 3,325,428 2,748,256 696,273 7,446,010 14,735,682 5,638,882 ----------- ----------- ----------- ----------- ----------- ----------- NET CHANGE IN CONTRACT OWNERS' EQUITY ..................... 3,314,885 2,751,974 731,439 327,984 15,082,245 6,313,574 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD .......................... 3,483,413 731,439 -- 21,395,819 6,313,574 -- ----------- ----------- ----------- ----------- ----------- ----------- CONTRACT OWNERS' EQUITY END OF PERIOD .......................... $ 6,798,298 3,483,413 731,439 21,723,803 21,395,819 6,313,574 =========== =========== =========== =========== =========== =========== CHANGES IN UNITS: Beginning units .................... 327,982 67,709 -- 1,644,036 485,911 -- ----------- ----------- ----------- ----------- ----------- ----------- Units purchased .................... 449,447 353,956 70,786 1,198,867 1,379,462 509,866 Units redeemed ..................... (129,366) (93,683) (3,077) (494,498) (221,337) (23,955) ----------- ----------- ----------- ----------- ----------- ----------- Ending units ....................... 648,063 327,982 67,709 2,348,405 1,644,036 485,911 =========== =========== =========== =========== =========== =========== NSATEQIFED ----------------------------------------- 2000 1999 1998 ----------- ----------- ----------- INVESTMENT ACTIVITY Net investment income .............. 14,259 1,651 879 Realized gain (loss) on investments 46,405 16,878 157 Change in unrealized gain (loss) on investments ................... (334,972) 84,114 15,021 Reinvested capital gains ........... -- 202 2,636 ----------- ----------- ----------- Net increase (decrease) in contract owners' equity resulting from operations ...... (274,308) 102,845 18,693 ----------- ----------- ----------- EQUITY TRANSACTIONS: Purchase payments received from contract owners .................. 473,028 100,722 28,736 Transfers between funds ............ 1,253,216 527,196 202,838 Surrenders ......................... (6,869) (207) -- Death benefits ..................... -- -- -- Policy loans (net of repayments) (note 5) ......................... (32,403) (1,768) -- Deductions for surrender charges (note 2d) ........................ (1,087) (26) -- Redemptions to pay cost of insurance charges and administrative charges (notes 2b and 2c) ................ (157,503) (48,952) (5,984) Asset charges (note 3): FPVUL & VEL contracts ............ (5,044) (1,993) (247) MSP contracts .................... (589) (80) (1) SL contracts ..................... (503) (77) (21) ----------- ----------- ----------- Net equity transactions ........ 1,522,246 574,815 225,321 ----------- ----------- ----------- NET CHANGE IN CONTRACT OWNERS' EQUITY ..................... 1,247,938 677,660 244,014 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD .......................... 921,674 244,014 -- ----------- ----------- ----------- CONTRACT OWNERS' EQUITY END OF PERIOD .......................... 2,169,612 921,674 244,014 =========== =========== =========== CHANGES IN UNITS: Beginning units .................... 67,642 21,211 -- ----------- ----------- ----------- Units purchased .................... 135,367 51,440 21,799 Units redeemed ..................... (22,437) (5,009) (588) ----------- ----------- ----------- Ending units ....................... 180,572 67,642 21,211 =========== =========== ===========
22 NATIONWIDE VLI SEPARATE ACCOUNT-4 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, CONTINUED YEARS ENDED DECEMBER 31, 2000 AND 1999 AND FOR THE PERIOD FEBRUARY 18, 1998 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1998
NSATGLOB50 NSATGVTBD -------------------------------------------- -------------------------------------------- 2000 1999 1998 2000 1999 1998 ------------ ------------ ------------ ------------ ------------ ------------ INVESTMENT ACTIVITY: Net investment income .............. $ 162,075 (1,843) 1,916 2,083,360 760,961 83,055 Realized gain (loss) on investments 84,827 108,508 126 (164,247) (653,491) 9,736 Change in unrealized gain (loss) on investments ................... (4,336,580) 997,392 38,188 2,189,054 (442,511) (84,436) Reinvested capital gains ........... 945,098 456,545 3,213 -- 35,939 22,403 ------------ ------------ ------------ ------------ ------------ ------------ Net increase (decrease) in contract owners' equity resulting from operations ...... (3,144,580) 1,560,602 43,443 4,108,167 (299,102) 30,758 ------------ ------------ ------------ ------------ ------------ ------------ EQUITY TRANSACTIONS: Purchase payments received from contract owners .................. 12,463,148 1,045,536 96,340 17,668,928 5,188,264 480,508 Transfers between funds ............ 2,956,853 12,602,010 374,760 9,887,594 10,824,196 4,241,272 Surrenders ......................... (17,060) (149,120) (20) (72,334) (7,882) (58) Death benefits ..................... -- (783) -- (652) (779) -- Policy loans (net of repayments) (note 5) ......................... (18,038) (3,556) (199) (103,358) (10,210) (822) Deductions for surrender charges (note 2d) ........................ (2,700) (19,098) -- (11,446) (1,010) (1) Redemptions to pay cost of insurance charges and administrative charges (notes 2b and 2c) ................ (486,956) (215,865) (19,705) (1,298,442) (747,310) (51,451) Asset charges (note 3): FPVUL & VEL contracts ............ (10,018) (4,771) (571) (21,054) (13,896) (2,112) MSP contracts .................... (54,582) (78) (2) (3,139) (3,046) (8) SL contracts ..................... (649) (8,899) (48) (7,679) (1,057) (178) ------------ ------------ ------------ ------------ ------------ ------------ Net equity transactions ........ 14,829,998 13,245,376 450,555 26,038,418 15,227,270 4,667,150 ------------ ------------ ------------ ------------ ------------ ------------ NET CHANGE IN CONTRACT OWNERS' EQUITY ..................... 11,685,418 14,805,978 493,998 30,146,585 14,928,168 4,697,908 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD .......................... 15,299,976 493,998 -- 19,626,076 4,697,908 -- ------------ ------------ ------------ ------------ ------------ ------------ CONTRACT OWNERS' EQUITY END OF PERIOD .......................... $ 26,985,394 15,299,976 493,998 49,772,661 19,626,076 4,697,908 ============ ============ ============ ============ ============ ============ CHANGES IN UNITS: Beginning units .................... 1,116,697 41,464 -- 1,882,004 436,992 -- ------------ ------------ ------------ ------------ ------------ ------------ Units purchased .................... 1,201,157 1,104,898 43,495 2,670,982 1,601,216 442,110 Units redeemed ..................... (61,297) (29,665) (2,031) (282,166) (156,204) (5,118) ------------ ------------ ------------ ------------ ------------ ------------ Ending units ....................... 2,256,557 1,116,697 41,464 4,270,820 1,882,004 436,992 ============ ============ ============ ============ ============ ============ NSATHIIFED --- ----------------------------------------- 2000 1999 1998 ------------ ------------ ------------ INVESTMENT ACTIVITY: Net investment income .............. 1,110,135 305,361 22,639 Realized gain (loss) on investments (309,417) 2,166 (6,931) Change in unrealized gain (loss) on investments ................... (1,573,020) (155,595) 7,941 Reinvested capital gains ........... -- 645 -- ------------ ------------ ------------ Net increase (decrease) in contract owners' equity resulting from operations ...... (772,302) 152,577 23,649 ------------ ------------ ------------ EQUITY TRANSACTIONS: Purchase payments received from contract owners .................. 5,531,190 4,145,976 116,422 Transfers between funds ............ 2,945,536 3,041,733 850,224 Surrenders ......................... (202,047) (1,402) -- Death benefits ..................... (243) -- -- Policy loans (net of repayments) (note 5) ......................... 27,348 (1,976) -- Deductions for surrender charges (note 2d) ........................ (31,972) (180) -- Redemptions to pay cost of insurance charges and administrative charges (notes 2b and 2c) ................ (295,849) (134,672) (18,455) Asset charges (note 3): FPVUL & VEL contracts ............ (5,820) (4,222) (756) MSP contracts .................... (873) (16) (3) SL contracts ..................... (176) (549) (64) ------------ ------------ ------------ Net equity transactions ........ 7,967,094 7,044,692 947,368 ------------ ------------ ------------ NET CHANGE IN CONTRACT OWNERS' EQUITY ..................... 7,194,792 7,197,269 971,017 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD .......................... 8,168,286 971,017 -- ------------ ------------ ------------ CONTRACT OWNERS' EQUITY END OF PERIOD .......................... 15,363,078 8,168,286 971,017 ============ ============ ============ CHANGES IN UNITS: Beginning units .................... 805,022 92,454 -- ------------ ------------ ------------ Units purchased .................... 918,997 756,587 94,321 Units redeemed ..................... (63,618) (44,019) (1,867) ------------ ------------ ------------ Ending units ....................... 1,660,401 805,022 92,454 ============ ============ ============
(Continued) 23 NATIONWIDE VLI SEPARATE ACCOUNT-4 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, CONTINUED YEARS ENDED DECEMBER 31, 2000 AND 1999 AND FOR THE PERIOD FEBRUARY 18, 1998 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1998
NSATMCPSTR NSATMCIXDR -------------------------------------------- ------------------------------------------ 2000 1999 1998 2000 1999 1998 ------------ ------------ ------------ ------------ ------------ ------------ INVESTMENT ACTIVITY: Net investment income .............. $ (36,857) (2,128) (30) 23,516 1,210 761 Realized gain (loss) on investments 1,416,485 327,350 (29) 291,278 14,818 (2,902) Change in unrealized gain (loss) on investments ................... (7,958,483) 1,323,586 48,847 (336,854) 51,305 29,815 Reinvested capital gains ........... 922,208 515,885 -- 238,697 47,431 -- ------------ ------------ ------------ ------------ ------------ ------------ Net increase (decrease) in contract owners' equity resulting from operations ...... (5,656,647) 2,164,693 48,788 216,637 114,764 27,674 ------------ ------------ ------------ ------------ ------------ ------------ EQUITY TRANSACTIONS: Purchase payments received from contract owners .................. 11,164,429 2,422,960 106,807 1,349,384 29,706 38,598 Transfers between funds ............ 12,673,990 6,109,550 294,315 4,514,754 418,208 239,349 Surrenders ......................... (176,519) (8,289) -- (1,416) (445) -- Death benefits ..................... (276) (1,613) -- -- -- -- Policy loans (net of repayments) (note 5) ......................... (111,058) (24,425) (514) (1,227) (3,245) -- Deductions for surrender charges (note 2d) ........................ (27,932) (1,062) -- (224) (57) -- Redemptions to pay cost of insurance charges and administrative charges (notes 2b and 2c) ................ (1,032,843) (166,998) (20,594) (182,757) (35,179) (6,590) Asset charges (note 3): FPVUL & VEL contracts ............ (33,805) (5,799) (658) (7,127) (2,054) (289) MSP contracts .................... (2,152) (79) (2) (2,018) (35) (1) SL contracts ..................... (1,262) (147) (55) (272) (34) (24) ------------ ------------ ------------ ------------ ------------ ------------ Net equity transactions ........ 22,452,572 8,324,098 379,299 5,669,097 406,865 271,043 ------------ ------------ ------------ ------------ ------------ ------------ NET CHANGE IN CONTRACT OWNERS' EQUITY ..................... 16,795,925 10,488,791 428,087 5,885,734 521,629 298,717 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD .......................... 10,916,878 428,087 -- 820,346 298,717 -- ------------ ------------ ------------ ------------ ------------ ------------ CONTRACT OWNERS' EQUITY END OF PERIOD .......................... $ 27,712,803 10,916,878 428,087 6,706,080 820,346 298,717 ============ ============ ============ ============ ============ ============ CHANGES IN UNITS: Beginning units .................... 580,219 37,396 -- 61,224 26,958 -- ------------ ------------ ------------ ------------ ------------ ------------ Units purchased .................... 1,233,405 556,514 39,590 399,626 37,816 27,645 Units redeemed ..................... (97,413) (13,691) (2,194) (13,571) (3,550) (687) ------------ ------------ ------------ ------------ ------------ ------------ Ending units ....................... 1,716,211 580,219 37,396 447,279 61,224 26,958 ============ ============ ============ ============ ============ ============ NSATMMKT ----------------------------------------- 2000 1999 1998 ------------ ------------ ------------ INVESTMENT ACTIVITY: Net investment income .............. 10,047,951 3,236,644 504,596 Realized gain (loss) on investments -- -- -- Change in unrealized gain (loss) on investments ................... -- -- -- Reinvested capital gains ........... -- -- -- ------------ ------------ ------------ Net increase (decrease) in contract owners' equity resulting from operations ...... 10,047,951 3,236,644 504,596 ------------ ------------ ------------ EQUITY TRANSACTIONS: Purchase payments received from contract owners .................. 551,344,398 352,373,390 88,272,542 Transfers between funds ............ (450,193,315) (230,478,324) (60,507,727) Surrenders ......................... (1,793,468) (235,503) (201,196) Death benefits ..................... -- (27,182) -- Policy loans (net of repayments) (note 5) ......................... (3,989,346) (2,684,887) (1,000,116) Deductions for surrender charges (note 2d) ........................ (283,795) (30,161) (2,354) Redemptions to pay cost of insurance charges and administrative charges (notes 2b and 2c) ................ (11,953,409) (7,099,744) (1,866,745) Asset charges (note 3): FPVUL & VEL contracts ............ (251,927) (155,882) (58,762) MSP contracts .................... (45,487) (18,983) (210) SL contracts ..................... (26,948) (43,454) (4,947) ------------ ------------ ------------ Net equity transactions ........ 82,806,703 111,599,270 24,630,485 ------------ ------------ ------------ NET CHANGE IN CONTRACT OWNERS' EQUITY ..................... 92,854,654 114,835,914 25,135,081 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD .......................... 139,970,995 25,135,081 -- ------------ ------------ ------------ CONTRACT OWNERS' EQUITY END OF PERIOD .......................... 232,825,649 139,970,995 25,135,081 ============ ============ ============ CHANGES IN UNITS: Beginning units .................... 13,058,280 2,395,406 -- ------------ ------------ ------------ Units purchased .................... 44,348,389 33,458,797 8,773,206 Units redeemed ..................... (36,845,146) (22,795,923) (6,377,800) ------------ ------------ ------------ Ending units ....................... 20,561,523 13,058,280 2,395,406 ============ ============ ============
24 NATIONWIDE VLI SEPARATE ACCOUNT-4 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, CONTINUED YEARS ENDED DECEMBER 31, 2000 AND 1999 AND FOR THE PERIOD FEBRUARY 18, 1998 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1998
NSATMBDMAS NSATSMCAPG -------------------------------------------- ----------------------------------------- 2000 1999 1998 2000 1999 1998 ------------ ------------ ------------ ------------ ------------ ---------- INVESTMENT ACTIVITY: Net investment income .............. $ 1,344,591 396,175 20,392 (1,793) (31) -- Realized gain (loss) on investments (66,760) (26,402) (3,929) (30,328) (45,165) -- Change in unrealized gain (loss) on investments ................... (112,147) (125,056) 781 (1,279,267) 1,020,705 -- Reinvested capital gains ........... -- -- 691 72,445 101,886 -- ------------ ------------ ------------ ------------ ------------ ---------- Net increase (decrease) in contract owners' equity resulting from operations ...... 1,165,684 244,717 17,935 (1,238,943) 1,077,395 -- ------------ ------------ ------------ ------------ ------------ ---------- EQUITY TRANSACTIONS: Purchase payments received from contract owners .................. 9,346,749 3,583,938 238,773 1,154,557 1,120,048 -- Transfers between funds ............ 3,298,958 8,648,087 687,922 4,644,251 516,673 -- Surrenders ......................... (62,839) (4,080) -- (1,187) -- -- Death benefits ..................... -- 21 -- -- -- -- Policy loans (net of repayments) (note 5) ......................... (10,119) (7,035) (427) (11,214) -- -- Deductions for surrender charges (note 2d) ........................ (9,943) (523) -- (188) -- -- Redemptions to pay cost of insurance charges and administrative charges (notes 2b and 2c) ................ (538,746) (202,496) (20,588) (216,886) (3,049) -- Asset charges (note 3): FPVUL & VEL contracts ............ (8,327) (5,111) (994) (7,874) (190) -- MSP contracts .................... (37,227) (340) (4) (1,016) (16) -- SL contracts ..................... (891) (6,384) (84) (401) (68) -- ------------ ------------ ------------ ------------ ------------ ---------- Net equity transactions ........ 11,977,615 12,006,077 904,598 5,560,042 1,633,398 -- ------------ ------------ ------------ ------------ ------------ ---------- NET CHANGE IN CONTRACT OWNERS' EQUITY ..................... 13,143,299 12,250,794 922,533 4,321,099 2,710,793 -- CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD .......................... 13,173,327 922,533 -- 2,710,793 -- -- ------------ ------------ ------------ ------------ ------------ ---------- CONTRACT OWNERS' EQUITY END OF PERIOD .......................... $ 26,316,626 13,173,327 922,533 7,031,892 2,710,793 -- ============ ============ ============ ============ ============ ========== CHANGES IN UNITS: Beginning units .................... 1,283,724 90,322 -- 132,226 -- -- ------------ ------------ ------------ ------------ ------------ ---------- Units purchased .................... 1,242,287 1,252,855 96,867 290,611 132,396 -- Units redeemed ..................... (92,882) (59,453) (6,545) (13,237) (170) -- ------------ ------------ ------------ ------------ ------------ ---------- Ending units ....................... 2,433,129 1,283,724 90,322 409,600 132,226 -- ============ ============ ============ ============ ============ ========== NSATSMCAPV --------------------------------------------- 2000 1999 1998 ------------ ------------ ------------ INVESTMENT ACTIVITY: Net investment income .............. (6,507) (609) (72) Realized gain (loss) on investments 378,887 215,517 (8,544) Change in unrealized gain (loss) on investments ................... (2,383,146) (194,598) 118,603 Reinvested capital gains ........... 2,830,882 651,318 -- ------------ ------------ ------------ Net increase (decrease) in contract owners' equity resulting from operations ...... 820,116 671,628 109,987 ------------ ------------ ------------ EQUITY TRANSACTIONS: Purchase payments received from contract owners .................. 4,858,757 837,148 186,610 Transfers between funds ............ 6,033,116 2,112,202 774,453 Surrenders ......................... (80,683) (7,439) -- Death benefits ..................... -- 222 -- Policy loans (net of repayments) (note 5) ......................... (42,449) (13,801) (2,782) Deductions for surrender charges (note 2d) ........................ (12,767) (953) -- Redemptions to pay cost of insurance charges and administrative charges (notes 2b and 2c) ................ (687,469) (244,824) (34,791) Asset charges (note 3): FPVUL & VEL contracts ............ (26,379) (10,039) (1,048) MSP contracts .................... (2,432) (356) (4) SL contracts ..................... (1,182) (386) (88) ------------ ------------ ------------ Net equity transactions ........ 10,038,512 2,671,774 922,350 ------------ ------------ ------------ NET CHANGE IN CONTRACT OWNERS' EQUITY ..................... 10,858,628 3,343,402 1,032,337 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD .......................... 4,375,739 1,032,337 -- ------------ ------------ ------------ CONTRACT OWNERS' EQUITY END OF PERIOD .......................... 15,234,367 4,375,739 1,032,337 ============ ============ ============ CHANGES IN UNITS: Beginning units .................... 354,123 106,497 -- ------------ ------------ ------------ Units purchased .................... 821,558 273,364 110,966 Units redeemed ..................... (69,600) (25,738) (4,469) ------------ ------------ ------------ Ending units ....................... 1,106,081 354,123 106,497 ============ ============ ============
(Continued) 25 NATIONWIDE VLI SEPARATE ACCOUNT-4 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, CONTINUED YEARS ENDED DECEMBER 31, 2000 AND 1999 AND FOR THE PERIOD FEBRUARY 18, 1998 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1998
NSATSMCO NSATSTRVAL -------------------------------------------- ------------------------------------------ 2000 1999 1998 2000 1999 1998 ------------ ------------ ------------ ------------ ------------ ---------- INVESTMENT ACTIVITY: Net investment income .............. $ (18,475) (4,091) (112) 11,593 5,539 1,028 Realized gain (loss) on investments 1,962,134 439,543 (6,379) 60,307 17,888 (7,839) Change in unrealized gain (loss) on investments ................... (6,709,330) 2,711,547 132,974 33,455 (70,115) 43,881 Reinvested capital gains ........... 6,779,344 500,536 -- -- 22,264 -- ------------ ------------ ------------ ------------ ------------ ---------- Net increase (decrease) in contract owners' equity resulting from operations ...... 2,013,673 3,647,535 126,483 105,355 (24,424) 37,070 ------------ ------------ ------------ ------------ ------------ ---------- EQUITY TRANSACTIONS: Purchase payments received from contract owners .................. 13,832,839 2,908,526 360,233 217,062 113,739 26,097 Transfers between funds ............ 15,651,034 5,337,212 1,192,844 36,281 555,257 290,790 Surrenders ......................... (181,834) (6,177) (43) (2,555) (534) -- Death benefits ..................... (2,655) (1,172) -- -- -- -- Policy loans (net of repayments) (note 5) ......................... (173,061) (23,244) (2,442) 5,717 (6,758) 368 Deductions for surrender charges (note 2d) ........................ (28,773) (791) (1) (404) (68) -- Redemptions to pay cost of insurance charges and administrative charges (notes 2b and 2c) ................ (1,154,682) (349,442) (64,333) (70,189) (38,618) (7,966) Asset charges (note 3): FPVUL & VEL contracts ............ (39,974) (13,385) (2,107) (3,692) (2,342) (354) MSP contracts .................... (4,563) (382) (8) (245) (47) (1) SL contracts ..................... (2,226) (788) (177) (704) (54) (30) ------------ ------------ ------------ ------------ ------------ ---------- Net equity transactions ........ 27,896,105 7,850,357 1,483,966 181,271 620,575 308,904 ------------ ------------ ------------ ------------ ------------ ---------- NET CHANGE IN CONTRACT OWNERS' EQUITY ..................... 29,909,778 11,497,892 1,610,449 286,626 596,151 345,974 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD .......................... 13,108,341 1,610,449 -- 942,125 345,974 -- ------------ ------------ ------------ ------------ ------------ ---------- CONTRACT OWNERS' EQUITY END OF PERIOD .......................... $ 43,018,119 13,108,341 1,610,449 1,228,751 942,125 345,974 ============ ============ ============ ============ ============ ========== CHANGES IN UNITS: Beginning units .................... 900,802 159,462 -- 96,897 34,463 -- ------------ ------------ ------------ ------------ ------------ ---------- Units purchased .................... 1,953,863 777,178 167,063 45,789 67,374 35,384 Units redeemed ..................... (108,007) (35,838) (7,601) (25,096) (4,940) (921) ------------ ------------ ------------ ------------ ------------ ---------- Ending units ....................... 2,746,658 900,802 159,462 117,590 96,897 34,463 ============ ============ ============ ============ ============ ========== NSATTOTRTN ----------------------------------------- 2000 1999 1998 ------------ ------------ ------------ INVESTMENT ACTIVITY: Net investment income .............. 187,613 95,790 26,909 Realized gain (loss) on investments 344,754 22,208 (21,020) Change in unrealized gain (loss) on investments ................... (13,348,541) (33,899) 283,836 Reinvested capital gains ........... 11,991,779 809,302 321,440 ------------ ------------ ------------ Net increase (decrease) in contract owners' equity resulting from operations ...... (824,395) 893,401 611,165 ------------ ------------ ------------ EQUITY TRANSACTIONS: Purchase payments received from contract owners .................. 10,272,164 7,871,786 2,620,309 Transfers between funds ............ 4,280,493 9,589,090 5,463,668 Surrenders ......................... (358,609) (153,144) (81) Death benefits ..................... 16,036 (25,003) -- Policy loans (net of repayments) (note 5) ......................... (580,464) (318,100) (4,594) Deductions for surrender charges (note 2d) ........................ (56,746) (19,613) (1) Redemptions to pay cost of insurance charges and administrative charges (notes 2b and 2c) ................ (3,360,137) (2,208,818) (385,652) Asset charges (note 3): FPVUL & VEL contracts ............ (122,772) (73,719) (10,105) MSP contracts .................... (6,483) (3,448) (36) SL contracts ..................... (10,831) (2,037) (851) ------------ ------------ ------------ Net equity transactions ........ 10,072,651 14,656,994 7,682,657 ------------ ------------ ------------ NET CHANGE IN CONTRACT OWNERS' EQUITY ..................... 9,248,256 15,550,395 8,293,822 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD .......................... 23,844,217 8,293,822 -- ------------ ------------ ------------ CONTRACT OWNERS' EQUITY END OF PERIOD .......................... 33,092,473 23,844,217 8,293,822 ============ ============ ============ CHANGES IN UNITS: Beginning units .................... 1,894,394 702,435 -- ------------ ------------ ------------ Units purchased .................... 1,307,532 1,426,646 740,122 Units redeemed ..................... (485,526) (234,687) (37,687) ------------ ------------ ------------ Ending units ....................... 2,716,400 1,894,394 702,435 ============ ============ ============
26 NATIONWIDE VLI SEPARATE ACCOUNT-4 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, CONTINUED YEARS ENDED DECEMBER 31, 2000 AND 1999 AND FOR THE PERIOD FEBRUARY 18, 1998 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1998
NBAMTGUARD NBAMTMCGR ----------------------------------------- ----------------------------------------- 2000 1999 1998 2000 1999 1998 ----------- ----------- ----------- ----------- ----------- ----------- INVESTMENT ACTIVITY: Net investment income .............. $ 14,917 3,298 (83) (41,606) (7,463) (52) Realized gain (loss) on investments 109,026 137,366 (5,499) 4,566,336 1,188,750 3,904 Change in unrealized gain (loss) on investments ................... (185,904) 77,047 82,886 (10,290,829) 3,039,884 176,285 Reinvested capital gains ........... -- -- -- 6,497 37,807 -- ----------- ----------- ----------- ----------- ----------- ----------- Net increase (decrease) in contract owners' equity resulting from operations ...... (61,961) 217,711 77,304 (5,759,602) 4,258,978 180,137 ----------- ----------- ----------- ----------- ----------- ----------- EQUITY TRANSACTIONS: Purchase payments received from contract owners .................. 791,413 436,993 246,176 15,764,083 9,784,832 57,715 Transfers between funds ............ 2,086,291 1,360,544 891,240 16,272,282 (2,147,643) 560,630 Surrenders ......................... (37,547) (62,331) (2) (82,297) (16,427) (20) Death benefits ..................... -- -- -- (5,370) (4,321) -- Policy loans (net of repayments) (note 5) ......................... (16,305) (3,869) (318) (106,262) (67,280) (140) Deductions for surrender charges (note 2d) ........................ (5,941) (7,983) -- (13,023) (2,104) -- Redemptions to pay cost of insurance charges and administrative charges (notes 2b and 2c) ................ (259,871) (169,963) (17,719) (1,383,172) (350,946) (55,646) Asset charges (note 3): FPVUL & VEL contracts ............ (12,978) (8,142) (742) (48,371) (11,378) (1,407) MSP contracts .................... (543) (127) (3) (5,311) (459) (5) SL contracts ..................... (579) (100) (62) (2,701) (716) (118) ----------- ----------- ----------- ----------- ----------- ----------- Net equity transactions ........ 2,543,940 1,545,022 1,118,570 30,389,858 7,183,558 561,009 ----------- ----------- ----------- ----------- ----------- ----------- NET CHANGE IN CONTRACT OWNERS' EQUITY ..................... 2,481,979 1,762,733 1,195,874 24,630,256 11,442,536 741,146 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD .......................... 2,958,607 1,195,874 -- 12,183,682 741,146 -- ----------- ----------- ----------- ----------- ----------- ----------- CONTRACT OWNERS' EQUITY END OF PERIOD .......................... $ 5,440,586 2,958,607 1,195,874 36,813,938 12,183,682 741,146 =========== =========== =========== =========== =========== =========== CHANGES IN UNITS: Beginning units .................... 202,892 56,533 -- 640,951 85,872 -- ----------- ----------- ----------- ----------- ----------- ----------- Units purchased .................... 252,130 167,370 58,160 1,560,513 995,573 90,761 Units redeemed ..................... (58,231) (21,011) (1,627) (79,404) (440,494) (4,889) ----------- ----------- ----------- ----------- ----------- ----------- Ending units ....................... 396,791 202,892 56,533 2,122,060 640,951 85,872 =========== =========== =========== =========== =========== =========== NBAMTPART --------------------------------------- 2000 1999 1998 ----------- ----------- ----------- INVESTMENT ACTIVITY: Net investment income .............. 50,670 54,744 (176) Realized gain (loss) on investments (276,792) 1,248 (13,483) Change in unrealized gain (loss) on investments ................... (888,222) 196,040 255,133 Reinvested capital gains ........... 1,184,100 98,874 3,599 ----------- ----------- ----------- Net increase (decrease) in contract owners' equity resulting from operations ...... 69,756 350,906 245,073 ----------- ----------- ----------- EQUITY TRANSACTIONS: Purchase payments received from contract owners .................. 2,034,154 2,049,277 831,946 Transfers between funds ............ 1,022,755 1,699,822 3,231,525 Surrenders ......................... (165,342) (78,561) (16) Death benefits ..................... (502) (2,713) -- Policy loans (net of repayments) (note 5) ......................... (95,808) (216,206) (174) Deductions for surrender charges (note 2d) ........................ (26,163) (10,061) -- Redemptions to pay cost of insurance charges and administrative charges (notes 2b and 2c) ................ (540,817) (464,515) (144,625) Asset charges (note 3): FPVUL & VEL contracts ............ (25,778) (22,616) (4,977) MSP contracts .................... (3,445) (622) (18) SL contracts ..................... (1,681) (1,766) (419) ----------- ----------- ----------- Net equity transactions ........ 2,197,373 2,952,039 3,913,242 ----------- ----------- ----------- NET CHANGE IN CONTRACT OWNERS' EQUITY ..................... 2,267,129 3,302,945 4,158,315 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD .......................... 7,461,260 4,158,315 -- ----------- ----------- ----------- CONTRACT OWNERS' EQUITY END OF PERIOD .......................... 9,728,389 7,461,260 4,158,315 =========== =========== =========== CHANGES IN UNITS: Beginning units .................... 676,989 401,819 -- ----------- ----------- ----------- Units purchased .................... 383,557 382,626 417,585 Units redeemed ..................... (170,279) (107,456) (15,766) ----------- ----------- ----------- Ending units ....................... 890,267 676,989 401,819 =========== =========== ===========
(Continued) 27 NATIONWIDE VLI SEPARATE ACCOUNT-4 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, CONTINUED YEARS ENDED DECEMBER 31, 2000 AND 1999 AND FOR THE PERIOD FEBRUARY 18, 1998 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1998
OPPAGGGRVA OPPCAPAPVA ------------------------------------------- ----------------------------------------- 2000 1999 1998 2000 1999 1998 ------------ ------------ ------------ ------------ ------------ ------------ INVESTMENT ACTIVITY: Net investment income .............. $ (52,493) (2,942) (54) (8,362) 5,876 (134) Realized gain (loss) on investments 4,488,570 618,388 1,246 1,792,860 191,495 20,735 Change in unrealized gain (loss) on investments ................... (19,721,439) 2,906,737 155,404 (5,403,446) 2,561,317 255,097 Reinvested capital gains ........... 950,033 -- 270 1,434,225 110,334 101 ------------ ------------ ------------ ------------ ------------ ------------ Net increase (decrease) in contract owners' equity resulting from operations ...... (14,335,329) 3,522,183 156,866 (2,184,723) 2,869,022 275,799 ------------ ------------ ------------ ------------ ------------ ------------ EQUITY TRANSACTIONS: Purchase payments received from contract owners .................. 24,690,515 2,894,019 298,181 12,133,627 2,754,479 522,163 Transfers between funds ............ 38,617,778 4,290,831 753,401 25,912,373 7,064,837 1,352,464 Surrenders ......................... (184,820) (25,306) (318) (1,774,425) (254,161) (369) Death benefits ..................... (6,793) 295 -- (7,097) (300) -- Policy loans (net of repayments) (note 5) ......................... (384,286) (37,694) (2,146) (290,219) (72,268) (10,091) Deductions for surrender charges (note 2d) ........................ (29,245) (3,241) (4) (280,781) (32,551) (4) Redemptions to pay cost of insurance charges and administrative charges (notes 2b and 2c) ................ (2,643,790) (416,901) (60,958) (2,024,385) (655,772) (91,465) Asset charges (note 3): FPVUL & VEL contracts ............ (84,929) (13,629) (1,372) (73,662) (23,800) (2,763) MSP contracts .................... (14,660) (182) (5) (8,607) (983) (10) SL contracts ..................... (7,197) (488) (115) (4,224) (390) (233) ------------ ------------ ------------ ------------ ------------ ------------ Net equity transactions ........ 59,952,573 6,687,704 986,664 33,582,600 8,779,091 1,769,692 ------------ ------------ ------------ ------------ ------------ ------------ NET CHANGE IN CONTRACT OWNERS' EQUITY ..................... 45,617,244 10,209,887 1,143,530 31,397,877 11,648,113 2,045,491 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD .......................... 11,353,417 1,143,530 -- 13,693,604 2,045,491 -- ------------ ------------ ------------ ------------ ------------ ------------ CONTRACT OWNERS' EQUITY END OF PERIOD....................$ ..... 56,970,661 11,353,417 1,143,530 45,091,481 13,693,604 2,045,491 ============ ============ ============ ============ ============ ============ CHANGES IN UNITS: Beginning units .................... 570,019 101,944 -- 806,675 165,067 -- ------------ ------------ ------------ ------------ ------------ ------------ Units purchased .................... 3,007,222 544,229 108,530 2,290,226 715,374 174,797 Units redeemed ..................... (149,167) (76,154) (6,586) (257,837) (73,766) (9,730) ------------ ------------ ------------ ------------ ------------ ------------ Ending units ....................... 3,428,074 570,019 101,944 2,839,064 806,675 165,067 ============ ============ ============ ============ ============ ============ OPPGLSECVA ----------------------------------------- 2000 1999 1998 ------------ --------- --------- INVESTMENT ACTIVITY: Net investment income .............. (1,051) -- -- Realized gain (loss) on investments (138,650) -- -- Change in unrealized gain (loss) on investments ................... 70,484 -- -- Reinvested capital gains ........... -- -- -- ------------ --------- --------- Net increase (decrease) in contract owners' equity resulting from operations ...... (69,217) -- -- ------------ --------- --------- EQUITY TRANSACTIONS: Purchase payments received from contract owners .................. 756,191 -- -- Transfers between funds ............ 3,400,619 -- -- Surrenders ......................... (1,589) -- -- Death benefits ..................... -- -- -- Policy loans (net of repayments) (note 5) ......................... (2,407) -- -- Deductions for surrender charges (note 2d) ........................ (252) -- -- Redemptions to pay cost of insurance charges and administrative charges (notes 2b and 2c) ................ (70,452) -- -- Asset charges (note 3): FPVUL & VEL contracts ............ (1,673) -- -- MSP contracts .................... (1,076) -- -- SL contracts ..................... (94) -- -- ------------ --------- --------- Net equity transactions ........ 4,079,267 -- -- ------------ --------- --------- NET CHANGE IN CONTRACT OWNERS' EQUITY ..................... 4,010,050 -- -- CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD .......................... -- -- -- ------------ --------- --------- CONTRACT OWNERS' EQUITY END OF PERIOD....................$ ..... 4,010,050 -- -- ============ ========= ========= CHANGES IN UNITS: Beginning units .................... -- -- -- ------------ --------- --------- Units purchased .................... 426,089 -- -- Units redeemed ..................... (8,082) -- -- ------------ --------- --------- Ending units ....................... 418,007 -- -- ============ ========= =========
28 NATIONWIDE VLI SEPARATE ACCOUNT-4 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, CONTINUED YEARS ENDED DECEMBER 31, 2000 AND 1999 AND FOR THE PERIOD FEBRUARY 18, 1998 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1998
OPPMGRINVA STOPP2 -------------------------------------------- --------------------------------------- 2000 1999 1998 2000 1999 1998 ------------ ------------ ------------ ------------ --------- --------- INVESTMENT ACTIVITY: Net investment income .............. $ 28,289 8,173 (84) (1,449) -- -- Realized gain (loss) on investments 349,566 (12,270) (19,661) 7,469 -- -- Change in unrealized gain (loss) on investments ................... (2,767,885) 713,752 80,325 (478,402) -- -- Reinvested capital gains ........... 509,013 17,163 645 501,505 -- -- ------------ ------------ ------------ ------------ --------- --------- Net increase (decrease) in contract owners' equity resulting from operations ...... (1,881,017) 726,818 61,225 29,123 -- -- ------------ ------------ ------------ ------------ --------- --------- EQUITY TRANSACTIONS: Purchase payments received from contract owners .................. 6,051,658 1,687,758 284,513 1,381,833 -- -- Transfers between funds ............ 11,215,475 3,276,499 1,343,627 3,738,013 -- -- Surrenders ......................... (108,972) (24,107) (418) (11,246) -- -- Death benefits ..................... 7,734 (9,603) -- -- -- -- Policy loans (net of repayments) (note 5) ......................... (207,915) (23,549) (16,228) (10,320) -- -- Deductions for surrender charges (note 2d) ........................ (17,244) (3,088) (5) (1,779) -- -- Redemptions to pay cost of insurance charges and administrative charges (notes 2b and 2c) ................ (1,065,069) (314,964) (43,383) (61,655) -- -- Asset charges (note 3): FPVUL & VEL contracts ............ (39,206) (12,409) (1,608) (1,167) -- -- MSP contracts .................... (6,649) (626) (6) (206) -- -- SL contracts ..................... (3,480) (620) (135) (147) -- -- ------------ ------------ ------------ ------------ --------- --------- Net equity transactions ........ 15,826,332 4,575,291 1,566,357 5,033,326 -- -- ------------ ------------ ------------ ------------ --------- --------- NET CHANGE IN CONTRACT OWNERS' EQUITY ..................... 13,945,315 5,302,109 1,627,582 5,062,449 -- -- CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD .......................... 6,929,691 1,627,582 -- -- -- -- ------------ ------------ ------------ ------------ --------- --------- CONTRACT OWNERS' EQUITY END OF PERIOD....................$ ..... 20,875,006 6,929,691 1,627,582 5,062,449 -- -- ============ ============ ============ ============ ========= ========= CHANGES IN UNITS: Beginning units .................... 558,424 158,153 -- -- -- -- ------------ ------------ ------------ ------------ --------- --------- Units purchased .................... 1,423,961 436,576 164,578 523,047 -- -- Units redeemed ..................... (119,721) (36,305) (6,425) (8,938) -- -- ------------ ------------ ------------ ------------ --------- --------- Ending units ....................... 1,862,664 558,424 158,153 514,109 -- -- ============ ============ ============ ============ ========= ========= NSATGFOCTU ----------------------------------------- 2000 1999 1998 ------------ --------- --------- INVESTMENT ACTIVITY: Net investment income .............. -- -- -- Realized gain (loss) on investments (27,217) -- -- Change in unrealized gain (loss) on investments ................... (4,210) -- -- Reinvested capital gains ........... -- -- -- ------------ --------- --------- Net increase (decrease) in contract owners' equity resulting from operations ...... (31,427) -- -- ------------ --------- --------- EQUITY TRANSACTIONS: Purchase payments received from contract owners .................. 8,564 -- -- Transfers between funds ............ 102,537 -- -- Surrenders ......................... -- -- -- Death benefits ..................... -- -- -- Policy loans (net of repayments) (note 5) ......................... -- -- -- Deductions for surrender charges (note 2d) ........................ -- -- -- Redemptions to pay cost of insurance charges and administrative charges (notes 2b and 2c) ................ (1,091) -- -- Asset charges (note 3): FPVUL & VEL contracts ............ (35) -- -- MSP contracts .................... (4) -- -- SL contracts ..................... (8) -- -- ------------ --------- --------- Net equity transactions ........ 109,963 -- -- ------------ --------- --------- NET CHANGE IN CONTRACT OWNERS' EQUITY ..................... 78,536 -- -- CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD .......................... -- -- -- ------------ --------- --------- CONTRACT OWNERS' EQUITY END OF PERIOD....................$ ..... 78,536 -- -- ============ ========= ========= CHANGES IN UNITS: Beginning units .................... -- -- -- ------------ --------- --------- Units purchased .................... 12,533 -- -- Units redeemed ..................... (154) -- -- ------------ --------- --------- Ending units ....................... 12,379 -- -- ============ ========= =========
(Continued) 29 NATIONWIDE VLI SEPARATE ACCOUNT-4 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, CONTINUED YEARS ENDED DECEMBER 31, 2000 AND 1999 AND FOR THE PERIOD FEBRUARY 18, 1998 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1998
MSUEMMKT MSUMCAPGR ----------------------------------------- ----------------------------------------- 2000 1999 1998 2000 1999 1998 ----------- ----------- ----------- ----------- ------------- ----------- INVESTMENT ACTIVITY: Net investment income .............. $ 150,351 84,931 18,583 (162) -- -- Realized gain (loss) on investments 88,105 17,142 (32,880) (13,306) -- -- Change in unrealized gain (loss) on investments ................... (119,691) 20,955 (7,323) (98,350) -- -- Reinvested capital gains ........... -- -- -- 800 -- -- ----------- ----------- ----------- ----------- ------------- ----------- Net increase (decrease) in contract owners' equity resulting from operations ...... 118,765 123,028 (21,620) (111,018) -- -- ----------- ----------- ----------- ----------- ------------- ----------- EQUITY TRANSACTIONS: Purchase payments received from contract owners .................. 423,869 176,047 41,423 88,544 -- -- Transfers between funds ............ 353,545 265,717 144,407 877,199 -- -- Surrenders ......................... (956) (137) -- (650) -- -- Death benefits ..................... -- -- -- -- -- -- Policy loans (net of repayments) (note 5) ......................... (6,273) (792) -- (83) -- -- Deductions for surrender charges (note 2d) ........................ (151) (17) -- (103) -- -- Redemptions to pay cost of insurance charges and administrative charges (notes 2b and 2c) ................ (78,727) (30,191) (6,534) (12,506) -- -- Asset charges (note 3): FPVUL & VEL contracts ............ (3,151) (1,369) (152) (300) -- -- MSP contracts .................... (105) (2) (1) (74) -- -- SL contracts ..................... (173) (2) (13) (2) -- -- ----------- ----------- ----------- ----------- ------------- ----------- Net equity transactions ........ 687,878 409,254 179,130 952,025 -- -- ----------- ----------- ----------- ----------- ------------- ----------- NET CHANGE IN CONTRACT OWNERS' EQUITY ..................... 806,643 532,282 157,510 841,007 -- -- CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD .......................... 689,792 157,510 -- -- -- -- ----------- ----------- ----------- ----------- ------------- ----------- CONTRACT OWNERS' EQUITY END OF PERIOD....................$ ..... 1,496,435 689,792 157,510 841,007 -- -- =========== =========== =========== =========== ============= =========== CHANGES IN UNITS: .................... Beginning units .................... 75,186 21,992 -- -- -- -- -- -- -- -- -- -- Units purchased .................... 90,977 57,926 22,914 98,221 -- -- Units redeemed ..................... (19,742) (4,732) (922) (1,379) -- -- -- -- -- -- -- -- Ending units ....................... 146,421 75,186 21,992 96,842 -- -- =========== =========== =========== =========== ============= =========== MSUUSREALE ----------------------------------------- 2000 1999 1998 ----------- ----------- ----------- INVESTMENT ACTIVITY: Net investment income .............. 263,091 53,245 (16) Realized gain (loss) on investments 298,595 (40,204) (31,055) Change in unrealized gain (loss) on investments ................... 155,839 (130,048) 27,306 Reinvested capital gains ........... 25,130 -- 339 ----------- ----------- ----------- Net increase (decrease) in contract owners' equity resulting from operations ...... 742,655 (117,007) (3,426) ----------- ----------- ----------- EQUITY TRANSACTIONS: Purchase payments received from contract owners .................. 1,587,036 754,790 233,023 Transfers between funds ............ 1,297,880 440,087 517,845 Surrenders ......................... (14,855) (8,017) -- Death benefits ..................... (503) (1,020) -- Policy loans (net of repayments) (note 5) ......................... 8,244 (8,547) (834) Deductions for surrender charges (note 2d) ........................ (2,351) (1,027) -- Redemptions to pay cost of insurance charges and administrative charges (notes 2b and 2c) ................ (156,453) (188,335) (28,277) Asset charges (note 3): FPVUL & VEL contracts ............ (7,652) (4,322) (1,116) MSP contracts .................... (893) (107) (4) SL contracts ..................... (715) (227) (94) ----------- ----------- ----------- Net equity transactions ........ 2,709,738 983,275 720,543 ----------- ----------- ----------- NET CHANGE IN CONTRACT OWNERS' EQUITY ..................... 3,452,393 866,268 717,117 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD .......................... 1,583,385 717,117 -- ----------- ----------- ----------- CONTRACT OWNERS' EQUITY END OF PERIOD....................$ ..... 5,035,778 1,583,385 717,117 =========== =========== =========== CHANGES IN UNITS: .................... Beginning units .................... 185,170 81,141 -- -- -- -- Units purchased .................... 321,028 119,546 84,716 Units redeemed ..................... (50,354) (15,517) (3,575) -- -- -- Ending units ....................... 455,844 185,170 81,141 =========== =========== ===========
30 NATIONWIDE VLI SEPARATE ACCOUNT-4 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, CONTINUED YEARS ENDED DECEMBER 31, 2000 AND 1999 AND FOR THE PERIOD FEBRUARY 18, 1998 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1998
VEWWEMGMKT VEWWHRDAST ----------------------------------------- ----------------------------------------- 2000 1999 1998 2000 1999 1998 ----------- ----------- ----------- ----------- ----------- ----------- INVESTMENT ACTIVITY: Net investment income .............. $ (1,640) (139) (20) 6,036 2,174 (11) Realized gain (loss) on investments (408,538) 235,337 (14,143) 29,182 26,395 (3,051) Change in unrealized gain (loss) on investments ................... (1,655,251) 663,413 18,347 20,687 22,444 (2,102) Reinvested capital gains ........... -- -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- Net increase (decrease) in contract owners' equity resulting from operations ...... (2,065,429) 898,611 4,184 55,905 51,013 (5,164) ----------- ----------- ----------- ----------- ----------- ----------- EQUITY TRANSACTIONS: Purchase payments received from contract owners .................. 1,719,241 322,588 90,144 140,736 201,802 23,363 Transfers between funds ............ 1,679,789 1,279,757 207,921 728,352 69,474 144,721 Surrenders ......................... (45,027) (1,334) -- (5,248) (679) -- Death benefits ..................... -- (1,149) -- -- -- -- Policy loans (net of repayments) (note 5) ......................... (19,011) (5,485) 410 3,590 216 235 Deductions for surrender charges (note 2d) ........................ (7,125) (171) -- (831) (87) -- Redemptions to pay cost of insurance charges and administrative charges (notes 2b and 2c) ................ (324,544) (90,731) (13,062) (48,413) (29,846) (8,707) Asset charges (note 3): FPVUL & VEL contracts ............ (13,663) (4,040) (370) (2,162) (1,079) (186) MSP contracts .................... (1,248) (151) (1) (343) (2) (1) SL contracts ..................... (1,292) (184) (31) (135) (159) (16) ----------- ----------- ----------- ----------- ----------- ----------- Net equity transactions ........ 2,987,120 1,499,100 285,011 815,546 239,640 159,409 ----------- ----------- ----------- ----------- ----------- ----------- NET CHANGE IN CONTRACT OWNERS' EQUITY ..................... 921,691 2,397,711 289,195 871,451 290,653 154,245 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD .......................... 2,686,906 289,195 -- 444,898 154,245 -- ----------- ----------- ----------- ----------- ----------- ----------- CONTRACT OWNERS' EQUITY END OF PERIOD....................$ ..... 3,608,597 2,686,906 289,195 1,316,349 444,898 154,245 =========== =========== =========== =========== =========== =========== CHANGES IN UNITS: .................... 204,110 43,904 -- 53,265 22,344 -- Beginning units .................... -- -- -- -- -- -- 316,404 171,741 46,042 106,332 51,882 23,601 Units purchased .................... (53,994) (11,535) (2,138) (18,085) (20,961) (1,257) Units redeemed ..................... -- -- -- -- -- -- 466,520 204,110 43,904 141,512 53,265 22,344 Ending units ....................... ============== ============== ============== ============== ============= ============ WPTGLOPVC ----------------------------------------- 2000 1999 1998 ----------- ----------- ----------- INVESTMENT ACTIVITY: Net investment income .............. 22,477 8,941 4,471 Realized gain (loss) on investments 93,144 (2,440) 8,407 Change in unrealized gain (loss) on investments ................... 87,894 (2,238) 5,870 Reinvested capital gains ........... 23,283 18,278 -- ----------- ----------- ----------- Net increase (decrease) in contract owners' equity resulting from operations ...... 226,798 22,541 18,748 ----------- ----------- ----------- EQUITY TRANSACTIONS: Purchase payments received from contract owners .................. 576,937 486,214 76,711 Transfers between funds ............ 628,024 (106) 655,643 Surrenders ......................... (4,490) (2,612) -- Death benefits ..................... -- -- -- Policy loans (net of repayments) (note 5) ......................... (20,705) (3,476) (17,477 Deductions for surrender charges (note 2d) ........................ (710) (334) -- Redemptions to pay cost of insurance charges and administrative charges (notes 2b and 2c) ................ (131,580) (53,820) (13,090 Asset charges (note 3): FPVUL & VEL contracts ............ (4,272) (2,591) (558 MSP contracts .................... (428) (46) (2 SL contracts ..................... (681) (57) (47 ----------- ----------- ----------- Net equity transactions ........ 1,042,095 423,172 701,180 ----------- ----------- ----------- NET CHANGE IN CONTRACT OWNERS' EQUITY ..................... 1,268,893 445,713 719,928 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD .......................... 1,165,641 719,928 -- ----------- ----------- ----------- CONTRACT OWNERS' EQUITY END OF PERIOD....................$ ..... 2,434,534 1,165,641 719,928 =========== =========== =========== CHANGES IN UNITS: .................... 102,845 66,036 -- Beginning units .................... -- -- -- 114,059 67,676 69,022 Units purchased .................... (16,387) (30,867) (2,986 Units redeemed ..................... -- -- -- 200,517 102,845 66,036 Ending units ....................... ============== ============== ==============
(Continued) 31 NATIONWIDE VLI SEPARATE ACCOUNT-4 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, CONTINUED YEARS ENDED DECEMBER 31, 2000 AND 1999 AND FOR THE PERIOD FEBRUARY 18, 1998 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1998
WPTINTEQ WPTVALUE ----------------------------------------- ----------------------------------------- 2000 1999 1998 2000 1999 1998 ----------- ----------- ----------- ----------- ----------- ----------- INVESTMENT ACTIVITY: Net investment income .............. $ 11,560 19,201 2,831 (1,199) (154) (13) Realized gain (loss) on investments 242,925 115,611 (24,058) 225,824 86,674 (2,106) Change in unrealized gain (loss) on investments ................... (1,294,832) 581,395 30,323 (716,480) 208,276 29,961 Reinvested capital gains ........... 310,165 -- -- 141,743 -- -- ----------- ----------- ----------- ----------- ----------- ----------- Net increase (decrease) in contract owners' equity resulting from operations ...... (730,182) 716,207 9,096 (350,112) 294,796 27,842 ----------- ----------- ----------- ----------- ----------- ----------- EQUITY TRANSACTIONS: Purchase payments received from contract owners .................. 467,135 386,407 114,374 381,654 170,257 48,012 Transfers between funds ............ 625,009 716,698 495,343 297,999 306,681 118,060 Surrenders ......................... (33,371) (6,378) -- (12,588) (1,792) (163) Death benefits ..................... -- -- -- -- -- -- Policy loans (net of repayments) (note 5) ......................... (16,955) (4,356) (891) (6,839) (2,901) 404 Deductions for surrender charges (note 2d) ........................ (5,281) (817) -- (1,992) (229) (2) Redemptions to pay cost of insurance charges and administrative charges (notes 2b and 2c) ................ (157,048) (114,080) (19,101) (83,921) (61,093) (7,797) Asset charges (note 3): FPVUL & VEL contracts ............ (8,846) (5,328) (733) (4,492) (1,843) (237) MSP contracts .................... (866) (367) (3) (481) (24) (1) SL contracts ..................... (834) (328) (62) (736) (63) (20) ----------- ----------- ----------- ----------- ----------- ----------- Net equity transactions ........ 868,943 971,451 588,927 568,604 408,993 158,256 ----------- ----------- ----------- ----------- ----------- ----------- NET CHANGE IN CONTRACT OWNERS' EQUITY ..................... 138,761 1,687,658 598,023 218,492 703,789 186,098 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD .......................... 2,285,681 598,023 -- 889,887 186,098 -- ----------- ----------- ----------- ----------- ----------- ----------- CONTRACT OWNERS' EQUITY END OF PERIOD....................$ ..... 2,424,442 2,285,681 598,023 1,108,379 889,887 186,098 =========== =========== =========== =========== =========== =========== CHANGES IN UNITS: .................... 141,958 56,767 -- 51,860 17,619 -- ----------- ----------- ----------- ----------- ----------- ----------- Beginning units .................... -- -- -- -- -- -- 84,215 98,872 58,807 43,425 38,599 18,507 Units purchased .................... (15,819) (13,681) (2,040) (15,055) (4,358) (888) Units redeemed ..................... -- -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- 210,354 141,958 56,767 80,230 51,860 17,619 Ending units ....................... ============== ============== ============== ============== ============= ==============
See accompanying notes to financial statements. 32 - -------------------------------------------------------------------------------- NATIONWIDE VLI SEPARATE ACCOUNT-4 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Organization and Nature of Operations The Nationwide VLI Separate Account-4 (the Account) was established pursuant to a resolution of the Board of Directors of Nationwide Life Insurance Company (the Company) on December 3, 1997. The Account has been registered as a unit investment trust under the Investment Company Act of 1940. On May 3, 1999, the Company (Depositor) transferred to the Account 100,000 shares of the Nationwide SAT - Small Cap Growth Fund for which the Account was credited with 100,000 units of the Nationwide SAT - Small Cap Growth Fund. The value of the units purchased by the Company on May 3, 1999 was $1,000,000. The Company offers Flexible Premium, Modified Single Premium and Survivorship Life Variable Life Insurance Policies through the Account. (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 policy charges and note 3 for asset charges. Contract owners may invest in the following: Portfolios of the American Century Variable Portfolios, Inc. (American Century VP); American Century VP - American Century VP Income & Growth (ACVPIncGr) American Century VP - American Century VP International (ACVPInt) American Century VP - American Century VP Value (ACVPValue) The Dreyfus Socially Responsible Growth Fund, Inc. (DrySRGr) Dreyfus Stock Index Fund (DryStkIx) Dreyfus IP - European Equity Portfolio (DryEuroEq) Portfolio of the Dreyfus Variable Investment Fund (Dreyfus VIF); Dreyfus VIF - Appreciation Portfolio (DryVApp) Federated Insurance Series - Quality Bond Fund II (FedQualBd2) Portfolios of the Fidelity Variable Insurance Products Fund (Fidelity VIP); Fidelity VIP - Equity-Income Portfolio - Service Class (FidVEqInS) Fidelity VIP - Growth Portfolio - Service Class (FidVGrS) Fidelity VIP - High Income Portfolio - Service Class (FidVHiInS) Fidelity VIP - Overseas Portfolio - Service Class (FidVOvSeS) Portfolio of the Fidelity Variable Insurance Products Fund II (Fidelity VIP-II); Fidelity VIP-II - Contrafund Portfolio - Service Class (FidVConS) Portfolio of the Fidelity Variable Insurance Products Fund III (Fidelity VIP-III); Fidelity VIP-III - Growth Opportunities Portfolio - Service Class (FidVGrOpS) Funds of the Gartmore NSAT; Gartmore NSAT - Emerging Markets Fund (NSATEmMGM) Gartmore NSAT - Global Technology & Communication Fund (NSATGTecGM) Gartmore NSAT - International Growth Fund (NSATIntGGM) (Continued) 33 Portfolios of Janus Aspen Series; Janus Aspen Series - Capital Appreciation Portfolio - Service Shares (JanACapApS) Janus Aspen Series - Global Technology Portfolio - Service Shares (JanAGlTchS) Janus Aspen Series - International Growth Portfolio - Service Shares (JanAIntGrS) Funds of the Nationwide Separate Account Trust (Nationwide SAT) (managed for a fee by an affiliated investment advisor); Nationwide SAT - Balanced Fund - J.P. Morgan (NSATBalJPM) Nationwide SAT - Capital Appreciation Fund (NSATCapAp) Nationwide SAT - Equity Income Fund - Federated (NSATEqIFED) Nationwide SAT - Global 50 Fund (NSATGlob50) Nationwide SAT - Government Bond Fund (NSATGvtBd) Nationwide SAT - High Income Bond Fund - Federated (NSATHiIFED) Nationwide SAT - Mid Cap Growth Fund - Strong (NSATMCpSTR) Nationwide SAT - Mid Cap Index Fund - Dreyfus (NSATMCIxDR) Nationwide SAT - Money Market Fund (NSATMMkt) Nationwide SAT - Multi Sector Bond Fund - MAS (NSATMBdMAS) Nationwide SAT - Small Cap Growth Fund (NSATSmCapG) Nationwide SAT - Small Cap Value Fund (NSATSmCapV) Nationwide SAT - Small Company Fund (NSATSmCo) Nationwide SAT - Strategic Value Fund (NSATStrVal) Nationwide SAT - Total Return Fund (NSATTotRtn) Portfolios of the Neuberger & Berman Advisers Management Trust (Neuberger &Berman AMT); Neuberger & Berman AMT - Guardian Portfolio (NBAMTGuard) Neuberger & Berman AMT - Mid-Cap Growth Portfolio (NBAMTMCGr) Neuberger & Berman AMT - Partners Portfolio (NBAMTPart) Funds of the Oppenheimer Variable Account Funds; Oppenheimer Aggressive Growth Fund/VA (OppAggGrVA) Oppenheimer Capital Appreciation Fund/VA (OppCapApVA) Oppenheimer Global Securities Fund/VA (OppGlSecVA) Oppenheimer Growth & Income Fund/VA (OppMGrInVA) Strong Opportunity Fund II, Inc. (StOpp2) Turner NSAT - Growth Focus Fund (NSATGFocTU) Portfolios of The Universal Institutional Funds, Inc. The Universal Institutional Funds, Inc. - Emerging Markets Debt Portfolio (MSUEmMkt) (formerly Morgan Stanley - Emerging Markets Debt Portfolio) The Universal Institutional Funds, Inc. - Mid Cap Growth Portfolio (MSUMCapGr) (formerly Morgan Stanley - Mid Cap Growth Portfolio) The Universal Institutional Funds, Inc. - U.S. Real Estate Portfolio (MSUUSRealE) (formerly Van Kampen Morgan Stanley - U.S. Real Estate Portfolio) Funds of the Van Eck Worldwide Insurance Trust (Van Eck WIT); Van Eck WIT - Worldwide Emerging Markets Fund (VEWwEmgMkt) Van Eck WIT - Worldwide Hard Assets Fund (VEWwHrdAst) Portfolios of the Warburg Pincus Trust; Warburg Pincus Trust - Global Post - Venture Capital Portfolio (WPTGloPVC) Warburg Pincus Trust - International Equity Portfolio (WPTIntEq) Warburg Pincus Trust - Value Portfolio (WPTValue) 34 At December 31, 2000, 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 notes 2 and 3). The accompanying financial statements include only contract owners' purchase payments pertaining to the variable portions of their contracts and exclude any purchase payments for fixed dollar benefits, the latter being included in the accounts of the Company. 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 fair value of the underlying mutual funds is based on the closing net asset value per share at December 31, 2000. The cost of investments sold is determined on the specific identification basis. Investment transactions are accounted for on the trade date (date the order to buy or sell is executed) and dividend income is recorded on the ex-dividend date. (d) Federal Income Taxes Operations of the Account form a part of, and are taxed with, operations of the Company which is taxed as a life insurance company under the Internal Revenue Code. The Company does not provide for income taxes within the Account. Taxes are the responsibility of the contract owner upon termination or withdrawal. (e) Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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) POLICY CHARGES (a) Deductions from Premium On flexible premium, modified single premium and survivorship life variable life insurance contracts, the Company deducts a charge for state premium taxes not to exceed 2.5% of all premiums received to cover the payment of these premium taxes. Additionally, the Company deducts a front-end sales load of up to 3.5% from each premium payment received. The Company may at its sole discretion reduce this sales loading. (b) Cost of Insurance A cost of insurance charge is assessed monthly against each contract. The amount of the charge is based upon age, sex, rate class and net amount at risk (death benefit less total contract value). (Continued) 35 NATIONWIDE VLI SEPARATE ACCOUNT-4 NOTES TO FINANCIAL STATEMENTS, Continued (c) Administrative Charges For flexible premium, modified single premium and survivorship life variable life insurance contracts, the Company currently deducts a monthly administrative charge of $10 during the first policy year and $5 per month thereafter (may deduct up to $7.50, maximum) to recover policy maintenance, accounting, record keeping and other administrative expenses. The above charges are assessed against each contract by liquidating units. (d) Surrender Charges Policy surrenders result in a redemption of the contract value from the Account and payment of the surrender proceeds to the contract owner or designee. The surrender proceeds consist of the contract value, less any outstanding policy loans, and less a surrender charge, if applicable. The amount of the charge is based upon a specified percentage of the initial surrender charge which varies by issue age, sex and rate class. For flexible premium contracts, the charge is 100% of the initial surrender charge in the first year, declining to 30% of the initial surrender charge in the eighth year. No surrender charge is assessed on any contract surrendered after the eighth year. The Company may waive the surrender charge for certain contracts in which the sales expenses normally associated with the distribution of a contract are not incurred. No charges were deducted from the initial funding, or from earnings thereon. (3) ASSET CHARGES For flexible premium variable universal life (FPVUL) and variable executive life (VEL) contracts, the Company deducts a charge equal to an annual effective rate multiplied by the Cash Value attributable to the Variable Account. The annual effective rate is 0.60% for the first $25,000 of Cash Value attributable to the Variable Account, 0.30% for the next $225,000 of Cash Value attributable to the Variable Account and 0.10% for all Cash Value attributable to the Variable Account in excess of $250,000. This charge is assessed monthly against each contract by liquidating units. For modified single premium contracts (MSP), the Company deducts an annual rate of .70% charged against the cash value of the contracts. This charge is assessed monthly against each contract by liquidating units. For surivorship life contracts (SL), the Company deducts an annual rate of .55% in policy years one through ten. In policy years eleven and greater, the Company deducts an annual rate of .55% if the cash value of the contract is less than $25,000. If the cash value is greater than $25,000 but less than $100,000, the Company reduces the annual rate to .35%. If the cash value is greater than $100,000, the company reduces the annual rate to .20%. This charge is assessed monthly by liquidating units. For Corporate Variable Universal Life Series, the Company deducts on a daily basis from the assets of the Variable Account, a charge to provide for mortality and expense risks. This charge is guaranteed not to exceed an annual effective rate of 0.75% of the daily net assets of the Variable Account. Currently, this rate is 0.40% during the first through fourth Policy Years, 0.25% during the fifth through twentieth Policy Years, and 0.10% thereafter. This charge is assessed through the daily unit value calculation. Nationwide may reduce or eliminate certain charges where the size or nature of the group results in savings in sales, underwriting, administrative or other costs to Nationwide. These charges may be reduced in certain group sponsored arrangements or special exchange programs made available by Nationwide. 36 (4) DEATH BENEFITS Death benefit proceeds result in a redemption of the contract value from the Account and payment of those proceeds, less any outstanding policy loans (and policy charges), to the legal beneficiary. For last survivor flexible premium contracts, the proceeds are payable on the death of the last surviving insured. In the event that the guaranteed death benefit exceeds the contract value on the date of death, the excess is paid by the Company's general account. (5) POLICY LOANS (NET OF REPAYMENTS) Contract provisions allow contract owners to borrow 90% of a policy's cash surrender value. Interest is charged on the outstanding loan and is due and payable in advance on the policy anniversary. At the time the loan is granted, the amount of the loan is transferred from the Account to the Company's general account as collateral for the outstanding loan. Collateral amounts in the general account are credited with the stated rate of interest in effect at the time the loan is made, subject to a guaranteed minimum rate. Interest credited is paid by the Company's general account to the Account. Loan repayments result in a transfer of collateral including interest back to the Account. (6) 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. (Continued) 37 NATIONWIDE VLI SEPARATE ACCOUNT-4 NOTES TO FINANCIAL STATEMENTS, Continued (7) FINANCIAL HIGHLIGHTS The following is a summary of units, unit fair values and contract owners' equity outstanding for variable life and annuity contracts as of the end of the period indicated, and the expense ratios and total return for each of the years in the period ended December 31, 2000, and the period February 18, 1998 (commencement of operations) through December 1998. The following is a summary for 2000:
UNIT CONTRACT TOTAL UNITS FAIR VALUE OWNERS' EQUITY EXPENSES* RETURN** ----------- ----------- -------------- --------- --------- The BEST of AMERICA(R) America's FUTURE Life Series(SM): American Century VP - American Century VP Income & Growth .............. 804,658 $13.383115 $10,768,831 0.00% (10.62)% American Century VP - American Century VP International ................ 1,252,780 16.203538 20,299,468 0.00% (16.83)% American Century VP - American Century VP Value ........................ 380,941 12.277397 4,676,964 0.00% 18.14% The Dreyfus Socially Responsible Growth Fund, Inc. ................................ 953,352 14.972899 14,274,443 0.00% (11.03)% Dreyfus Stock Index Fund .......................... 6,631,938 14.027609 93,030,233 0.00% (9.28)% Dreyfus IP - European Equity Portfolio ............ 70,183 12.672265 889,378 0.00% (0.65)% Dreyfus VIF - Appreciation Portfolio .............. 721,134 14.418721 10,397,830 0.00% (2.00)% Federated Insurance Series - Quality Bond Fund II ............................. 184,168 10.900349 2,007,495 0.00% 10.45% Fidelity VIP - Equity-Income Portfolio - Service Class .......... 1,731,014 12.835974 22,219,251 0.00% 8.30% Fidelity VIP - Growth Portfolio - Service Class ... 3,245,205 17.016859 55,223,196 0.00% (11.07)% Fidelity VIP - High Income Portfolio - Service Class ............ 775,357 7.993621 6,197,910 0.00% (22.61)% Fidelity VIP - Overseas Portfolio - Service Class ............... 709,131 12.973519 9,199,925 0.00% (19.15)% Fidelity VIP-II - Contrafund Portfolio - Service Class ............. 2,414,828 15.048072 36,338,506 0.00% (6.71)% Fidelity VIP-III - Growth Opportunities Portfolio - Service Class .................................... 959,519 10.743116 10,308,224 0.00% (17.18)% Gartmore NSAT Emerging Markets Fund ............... 2,391 8.712299 20,831 0.00% (51.70)%*** Gartmore NSAT Global Technology & Communications Fund .............................. 91,498 6.017639 550,602 0.00% (159.83)%*** Gartmore NSAT International Growth Fund ........... 2,697 9.249730 24,947 0.00% (30.10)%*** Janus Aspen Series - Capital Appreciation Portfolio - Service Shares ....................... 2,083,464 8.236248 17,159,926 0.00% (18.95)%***
38
UNIT CONTRACT TOTAL UNITS FAIR VALUE OWNERS' EQUITY EXPENSES* RETURN** ----------- ----------- -------------- --------- --------- Janus Aspen Series - Global Technology Portfolio - Service Shares ....... 1,878,974 6.582411 12,368,179 0.00% (36.72)%*** Janus Aspen Series - International Growth Portfolio - Service Shares ......................... 1,639,208 8.273482 13,561,958 0.00% (18.55)%*** Nationwide SAT - Balanced Fund ...................... 382,020 10.862308 4,149,619 0.00% (0.35)% Nationwide SAT - Capital Appreciation Fund .......... 1,582,653 9.956531 15,757,734 0.00% (26.53)% Nationwide SAT - Equity Income Fund ................. 150,717 12.193117 1,837,710 0.00% (10.62)% Nationwide SAT - Global 50 Fund ..................... 1,172,113 12.840541 15,050,565 0.00% (12.32)% Nationwide SAT - Government Bond Fund ............... 796,198 11.968657 9,529,421 0.00% 12.54% Nationwide SAT - High Income Bond Fund .............. 167,390 10.013612 1,676,179 0.00% (8.28)% Nationwide SAT - Mid Cap Growth Portfolio (formerly Nationwide SAT - Strategic Growth Portfolio) ........................ 569,923 17.915535 10,210,475 0.00% (15.38)% Nationwide SAT - Mid Cap Index Fund ................. 312,214 15.436663 4,819,542 0.00% 15.21% Nationwide SAT - Money Market Fund .................. 6,735,623 11.702768 78,825,433 0.00% 6.03% Nationwide SAT - Multi Sector Bond Fund ............. 1,105,931 11.008804 12,174,978 0.00% 5.65% Nationwide SAT - Small Cap Growth Fund .............. 220,651 17.186287 3,792,171 0.00% (16.17)% Nationwide SAT - Small Cap Growth Fund Initial Funding by Depositor (note 1a) ............. 100,000 17.186295 1,718,630 0.00% (16.17)% Nationwide SAT - Small Cap Value Fund ............... 731,305 13.779795 10,077,233 0.00% 11.20% Nationwide SAT - Small Company Fund ................. 922,404 15.841678 14,612,427 0.00% 8.90% Nationwide SAT - Strategic Value Fund ............... 114,604 10.471261 1,200,048 0.00% 7.61% Nationwide SAT - Total Return Fund .................. 2,459,963 12.359389 30,403,640 0.00% (2.12)% Neuberger & Berman AMT - Guardian Portfolio ......... 253,627 15.303939 3,881,492 0.00% 1.13% Neuberger & Berman AMT - Mid Cap Growth Portfolio ........................... 903,690 19.835316 17,924,977 0.00% (7.46)% Neuberger & Berman AMT - Partners Portfolio ......... 648,616 11.267369 7,308,196 0.00% 0.70% Oppenheimer Aggressive Growth Fund / VA ............. 1,531,755 18.311377 28,048,543 0.00% (11.24)% Oppenheimer Capital Appreciation Fund / VA .......... 1,394,931 17.524709 24,445,760 0.00% (0.23)% Oppenheimer Global Securities Fund / VA ............. 228,958 9.598100 2,197,562 0.00% (5.99)%*** Oppenheimer Main Street Growth & Income / VA ................... 1,325,991 11.624742 15,414,303 0.00% (8.78)% Strong Opportunity Fund II, Inc. .................... 156,475 9.854316 1,541,954 0.00% (1.83)%*** The Universal Institutional Funds, Inc. - Emerging Markets Debt Portfolio (formerly Morgan Stanley - Emerging Markets Debt Portfolio) ................... 116,206 10.321107 1,199,375 0.00% 11.39% The Universal Institutional Funds, Inc. - Mid Cap Growth Portfolio (formerly Morgan Stanley - Mid Cap Growth Portfolio) ........................ 38,928 8.689212 338,254 0.00% (19.54)%***
(Continued) 39 NATIONWIDE VLI SEPARATE ACCOUNT-4 NOTES TO FINANCIAL STATEMENTS, Continued
UNIT CONTRACT TOTAL UNITS FAIR VALUE OWNERS' EQUITY EXPENSES* RETURN** ----------- ----------- -------------- --------- --------- The Universal Institutional Funds, Inc. - U.S. Real Estate Portfolio (formerly Van Kampen American Capital - Morgan Stanley U.S. Real Estate Portfolio) ....... 320,762 10.935907 3,507,823 0.00% 15.43%*** Turner NSAT Growth Focus Fund ..................... 12,379 6.344311 78,536 0.00% (146.74)%*** Van Eck WIT - Worldwide Emerging Markets Fund .................. 408,641 7.669407 3,134,034 0.00% (41.87)% Van Eck WIT - Worldwide Hard Assets Fund .......... 138,471 9.305371 1,288,524 0.00% 11.40% Warburg Pincus Trust - Global Post-Venture Capital Portfolio ............ 93,621 12.974256 1,214,663 0.00% (18.94)% Warburg Pincus Trust - International Equity Portfolio ................... 161,421 11.977804 1,933,469 0.00% (25.90)% Warburg Pincus Trust - Value Portfolio ............ 69,236 14.116099 977,342 0.00% 8.91% The BEST of AMERICA(R) Corporate Variable Universal Life SeriesSM: American Century VP - American Century VP Income & Growth .............. 763,555 11.398555 8,703,424 0.31% (10.97)% American Century VP - American Century VP International ................ 1,191,245 13.221985 15,750,624 0.30% (17.16)% American Century VP - American Century VP Value ........................ 111,911 10.893612 1,219,115 0.16% 17.67% The Dreyfus Socially Responsible Growth Fund, Inc. ................................ 136,511 12.795380 1,746,710 0.40% (11.39)% Dreyfus Stock Index Fund .......................... 7,299,831 11.972080 87,394,161 0.28% (9.64)% Dreyfus IP - European Equity Portfolio ............ 8,448 12.608842 106,519 0.23% (1.05)% Dreyfus VIF - Appreciation Portfolio .............. 1,368,457 12.111451 16,574,000 0.34% (2.39)% Federated Insurance Series - Quality Bond Fund II ............................. 607,272 10.828312 6,575,731 0.14% 10.01% Fidelity VIP - Equity-Income Portfolio - Service Class .......... 351,542 11.310203 3,976,011 0.30% 7.87% Fidelity VIP - Growth Portfolio - Service Class ... 2,131,137 14.593603 31,100,967 0.34% (11.42)% Fidelity VIP - High Income Portfolio - Service Class ............ 441,041 7.470194 3,294,662 0.32% (22.92)% Fidelity VIP - Overseas Portfolio - Service Class ............... 1,216,616 10.864367 13,217,763 0.44% (19.47)% Fidelity VIP-II - Contrafund Portfolio - Service Class ............. 671,658 13.026647 8,749,452 0.37% (7.09)% Fidelity VIP-III - Growth Opportunities Portfolio - Service Class .................................... 397,095 9.628054 3,823,252 0.43% (17.51)% Janus Aspen Series - Capital Appreciation Portfolio - Service Class ... 535,891 8.205940 4,397,489 0.22%*** (19.27)%***
40
UNIT CONTRACT TOTAL UNITS FAIR VALUE OWNERS' EQUITY EXPENSES* RETURN** ----------- ----------- -------------- --------- --------- Janus Aspen Series - Global Technology Portfolio - Service Class ..... 343,351 6.558143 2,251,745 0.38%*** (36.98)%*** Janus Aspen Series - International Growth Portfolio - Service Class .. 383,403 8.243024 3,160,400 0.23%*** (18.87)%*** Nationwide SAT - Balanced Fund ................... 117,858 9.980967 1,176,337 0.30% (0.75)% Nationwide SAT - Capital Appreciation Fund ....... 178,360 8.505270 1,517,000 0.23% (26.82)% Nationwide SAT - Equity Income Fund .............. 29,855 11.117142 331,902 0.90% (10.98)% Nationwide SAT - Global 50 Fund .................. 942,496 11.093053 10,455,158 0.40% (12.67)% Nationwide SAT - Government Bond Fund ............ 3,170,399 11.626380 36,860,264 0.36% 12.09% Nationwide SAT - High Income Bond Fund ........... 224,564 9.436226 2,119,037 0.10% (8.64)% Nationwide SAT - Mid Cap Growth Fund ............. 647,094 16.319202 10,560,058 0.42% (15.72)% Nationwide SAT - Mid Cap Index Fund .............. 38,007 13.573326 515,881 0.14% 14.75% Nationwide SAT - Money Market Fund ............... 5,646,634 11.380873 64,263,624 0.24% 5.60% Nationwide SAT - Multi Sector Bond Fund .......... 1,055,243 10.635225 11,222,747 0.36% 5.23% Nationwide SAT - Small Cap Growth Fund ........... 59,757 17.072794 1,020,219 0.24% (16.50)% Nationwide SAT - Small Cap Value Fund ............ 152,675 12.101060 1,847,529 0.24% 10.76% Nationwide SAT - Small Company Fund .............. 493,035 14.091380 6,947,544 0.15% 8.47% Nationwide SAT - Strategic Value Fund ............ 2,481 9.402302 23,327 0.59% 7.18% Nationwide SAT - Total Return Fund ............... 212,989 10.534111 2,243,650 0.36% (2.51)% Neuberger & Berman AMT - Guardian Portfolio ...... 86,066 10.768698 926,819 0.20% 0.73% Neuberger & Berman AMT - Mid Cap Growth Portfolio ........................ 827,220 15.959556 13,202,064 0.31% (7.83)% Neuberger & Berman AMT - Partners Portfolio ...... 241,651 10.015242 2,420,193 0.30% 0.03% Oppenheimer Aggressive Growth Fund / VA .......... 1,068,591 15.659821 16,733,944 0.32% (11.59)% Oppenheimer Capital Appreciation Fund / VA ....... 911,021 14.945030 13,615,236 0.28% (0.63)% Oppenheimer Global Securities Fund / VA .......... 43,440 9.572769 415,841 0.17%*** (6.37)%*** Oppenheimer Main Street Growth & Income / VA ................ 327,513 9.845729 3,224,604 0.28% (9.14)% Strong Opportunity Fund II, Inc. ................. 72,473 9.828296 712,286 0.28% (1.49)% The Universal Institutional Funds, Inc. - Emerging Markets Debt Portfolio ................. 28,939 9.671636 279,887 0.47% 10.94% The Universal Institutional Funds, Inc. - Mid Cap Growth Portfolio ....................... 8,201 8.666239 71,072 0.54%*** (19.89)%*** The Universal Institutional Funds, Inc. - U.S. Real Estate Portfolio ...................... 111,390 10.960329 1,220,871 0.38%*** 15.00%*** Van Eck WIT - Worldwide Emerging Markets Fund .... 41,537 7.303734 303,375 0.49% (42.10)% Van Eck WIT - Worldwide Hard Assets Fund ......... 3,041 9.149843 27,825 0.83% 10.96%
(Continued) 41 NATIONWIDE VLI SEPARATE ACCOUNT-4 NOTES TO FINANCIAL STATEMENTS, Continued
UNIT CONTRACT TOTAL UNITS FAIR VALUE OWNERS' EQUITY EXPENSES* RETURN** ----------- ----------- -------------- --------- --------- Warburg Pincus Trust - Global Post-Venture Capital Portfolio ........... 106,896 11.411760 1,219,871 0.59% (19.26)% Warburg Pincus Trust - International Equity Portfolio .................. 48,933 10.033586 490,973 0.50% (26.19)% Warburg Pincus Trust - Value Portfolio ........... 10,994 11.918959 131,037 0.35% 8.48% The BEST of AMERICA(R) Corporate Variable Universal Life SeriesSM: Reduced Fee Tier: American Century VP - American Century VP Income & Growth ............. 540,359 10.285709 5,557,975 0.42% (10.70)% American Century VP - American Century VP International ............... 619,313 13.288939 8,230,013 0.37% (16.91)% American Century VP - American Century VP Value ....................... 124,532 12.140456 1,511,875 0.18% 18.02% The Dreyfus Socially Responsible Growth Fund, Inc. ............................... 42,696 10.896922 465,255 0.49% (11.12)% Dreyfus Stock Index Fund ......................... 4,975,884 10.357445 51,537,445 0.34% (9.37)% Dreyfus IP - European Equity Portfolio ........... 36,592 12.656379 463,122 0.23% (0.75)% Dreyfus VIF - Appreciation Portfolio ............. 498,451 10.646157 5,306,588 0.45% (2.10)% Federated Insurance Series - Quality Bond Fund II ............................... 4,027,297 10.882300 43,826,254 0.11% 10.34% Fidelity VIP - Equity-Income Portfolio - Service Class ......... 215,028 11.240819 2,417,091 0.32% 8.20% Fidelity VIP - Growth Portfolio - Service Class .. 1,184,884 11.150661 13,212,240 0.48% (11.16)% Fidelity VIP - High Income Portfolio - Service Class ........... 591,491 7.950841 4,702,851 0.54% (22.69)% Fidelity VIP - Overseas Portfolio - Service Class .............. 171,286 11.126859 1,905,875 0.66% (19.23)% Fidelity VIP-II - Contrafund Portfolio - Service Class ............ 209,278 10.913660 2,283,989 0.50% (6.81)% Fidelity VIP-III - Growth Opportunities Portfolio - Service Class ................................... 3,187 8.728402 27,817 0.60% (17.26)% Janus Aspen Series - Capital Appreciation Portfolio - Service Class .. 75,935 8.228654 624,843 0.22%*** (19.03)%*** Janus Aspen Series - Global Technology Portfolio - Service Class ..... 157,837 6.576328 1,037,988 0.38%*** (36.78)%*** Janus Aspen Series - International Growth Portfolio - Service Class .. 230,451 8.265856 1,904,875 0.23%*** (18.63)%*** Nationwide SAT - Balanced Fund ................... 148,185 9.935839 1,472,342 0.29% (0.45)% Nationwide SAT - Capital Appreciation Fund ....... 587,392 7.574275 4,449,069 0.23% (26.61)% Nationwide SAT - Global 50 Fund .................. 141,948 10.424035 1,479,671 0.44% (12.41)%
42
UNIT CONTRACT TOTAL UNITS FAIR VALUE OWNERS' EQUITY EXPENSES* RETURN** ----------- ----------- -------------- --------- --------- Nationwide SAT - Government Bond Fund ............ 304,223 11.120055 3,382,976 0.42% 12.43% Nationwide SAT - High Income Bond Fund ........... 1,268,447 9.119705 11,567,862 0.09% (8.37)% Nationwide SAT - Mid Cap Growth Fund ............. 499,194 13.906958 6,942,270 0.42% (15.46)% Nationwide SAT - Mid Cap Index Fund .............. 97,058 14.122042 1,370,657 0.14% 15.09% Nationwide SAT - Money Market Fund ............... 8,179,266 10.971228 89,736,592 0.26% 5.92% Nationwide SAT - Multi Sector Bond Fund .......... 271,955 10.733031 2,918,901 0.28% 5.55% Nationwide SAT - Small Cap Growth Fund ........... 29,192 17.157856 500,872 0.24% (16.25)% Nationwide SAT - Small Cap Value Fund ............ 222,101 14.901350 3,309,605 0.25% 11.09% Nationwide SAT - Small Company Fund .............. 1,331,219 16.119172 21,458,148 0.13% 8.79% Nationwide SAT - Strategic Value Fund ............ 505 10.645991 5,376 0.53% 7.50% Nationwide SAT - Total Return Fund ............... 43,448 10.246333 445,183 0.43% (2.22)% Neuberger & Berman AMT - Guardian Portfolio ...... 57,098 11.073505 632,275 0.25% 1.03% Neuberger & Berman AMT - Mid Cap Growth Portfolio ........................ 391,150 14.538915 5,686,897 0.39% (7.55)% Oppenheimer Aggressive Growth Fund / VA .......... 827,728 14.724854 12,188,174 0.36% (11.33)% Oppenheimer Capital Appreciation Fund / VA ....... 533,112 13.187632 7,030,485 0.34% (0.33)% Oppenheimer Global Securities Fund / VA .......... 145,609 9.591764 1,396,647 0.17%*** (6.08)%*** Oppenheimer Main Street Growth & Income / VA ................ 209,160 10.690852 2,236,099 0.38% (8.87)% Strong Opportunity Fund II, Inc. ................. 285,161 9.847803 2,808,209 0.12%*** (1.94)%*** The Universal Institutional Funds, Inc. - Emerging Markets Debt Portfolio ................. 1,276 13.458822 17,173 0.65% 11.28% The Universal Institutional Funds, Inc. - Mid Cap Growth Portfolio ....................... 49,713 8.683462 431,681 0.46%*** (19.63)%*** The Universal Institutional Funds, Inc. - U.S. Real Estate Portfolio ...................... 23,692 12.961511 307,084 0.39%*** 15.33%*** Van Eck WIT - Worldwide Emerging Markets Fund ................. 16,342 10.475365 171,188 0.69% (41.92)% ======== ========== $1,414,892,441 ============== The following is a summary for 1999: The BEST of AMERICA(R) America's FUTURE Life Series(SM): American Century VP - American Century VP Income & Growth ............. 463,779 $14.972547 $ 6,943,953 0.00% 18.02% American Century VP - American Century VP International ............... 625,339 19.481449 12,182,510 0.00% 64.04% American Century VP - American Century VP Value ....................... 169,333 10.392110 1,759,727 0.00% (0.85)%
(Continued) 43 NATIONWIDE VLI SEPARATE ACCOUNT-4 NOTES TO FINANCIAL STATEMENTS, Continued
UNIT CONTRACT TOTAL UNITS FAIR VALUE OWNERS' EQUITY EXPENSES* RETURN** ----------- ----------- -------------- --------- --------- The Dreyfus Socially Responsible Growth Fund, Inc. ............................... 480,241 16.829763 8,082,342 0.00% 30.08% Dreyfus Stock Index Fund ......................... 3,757,311 15.462782 58,098,481 0.00% 20.60% Dreyfus IP - European Equity Portfolio ........... 10,415 12.930654 134,673 0.00% 11.46% Dreyfus VIF - Appreciation Portfolio ............. 505,299 14.513370 7,333,591 0.00% 111.52%*** Federated Insurance Series - Quality Bond Fund II ............................ 3,972 9.869090 39,200 0.00% (1.97)%*** Fidelity VIP - Equity-Income Portfolio - Service Class ......... 1,196,502 11.851816 14,180,722 0.00% 6.25% Fidelity VIP - Growth Portfolio - Service Class .. 1,564,447 19.134456 29,934,842 0.00% 37.29% Fidelity VIP - High Income Portfolio - Service Class ........... 664,736 10.329299 6,866,257 0.00% 8.07% Fidelity VIP - Overseas Portfolio - Service Class .............. 392,522 16.046561 6,298,628 0.00% 42.46% Fidelity VIP-II - Contrafund Portfolio - Service Class ............ 1,324,909 16.131283 21,372,482 0.00% 24.15% Fidelity VIP-III - Growth Opportunities Portfolio - Service Class ................................... 673,044 12.971233 8,730,211 0.00% 4.18% Morgan Stanley - Emerging Markets Debt Portfolio ................. 62,633 9.266040 580,360 0.00% 29.37% Nationwide SAT - Balanced Fund ................... 224,583 10.900657 2,448,102 0.00% 0.87% Nationwide SAT - Capital Appreciation Fund ....... 1,343,877 13.552350 18,212,691 0.00% 4.28% Nationwide SAT - Equity Income Fund .............. 66,677 13.642236 909,623 0.00% 18.49% Nationwide SAT - Global 50 Fund .................. 595,841 14.645021 8,726,104 0.00% 22.92% Nationwide SAT - Government Bond Fund ............ 509,816 10.635188 5,421,989 0.00% (2.35)% Nationwide SAT - High Income Bond Fund ........... 130,767 10.917180 1,427,607 0.00% 3.19% Nationwide SAT - Mid Cap Index Fund .............. 61,224 13.399089 820,346 0.00% 20.92% Nationwide SAT - Money Market Fund ............... 4,602,015 11.037591 50,795,159 0.00% 4.85% Nationwide SAT - Multi Sector Bond Fund .......... 590,762 10.419701 6,155,563 0.00% 1.56% Nationwide SAT - Small Cap Growth Fund ........... 32,108 20.501257 658,254 0.00% 157.84%*** Nationwide SAT - Small Cap Growth Fund Initial Funding by Depositor (note 1a) .......... 100,000 20.501257 2,050,126 0.00% 157.84%*** Nationwide SAT - Small Cap Value Fund ............ 345,575 12.391945 4,282,346 0.00% 27.84% Nationwide SAT - Small Company Fund .............. 393,286 14.547287 5,721,244 0.00% 44.02% Nationwide SAT - Strategic Growth Fund ........... 211,257 21.171385 4,472,603 0.00% 84.75% Nationwide SAT - Strategic Value Fund ............ 96,106 9.730781 935,186 0.00% (3.07)% Nationwide SAT - Total Return Fund ............... 1,852,310 12.627200 23,389,489 0.00% 6.94% Neuberger & Berman AMT - Guardian Portfolio ...... 177,738 15.132896 2,689,691 0.00% 14.93%
44
UNIT CONTRACT TOTAL UNITS FAIR VALUE OWNERS' EQUITY EXPENSES* RETURN** ----------- ----------- -------------- --------- --------- Neuberger & Berman AMT - Mid Cap Growth Portfolio ........................ 280,847 21.434231 6,019,739 0.00% 53.89% Neuberger & Berman AMT - Partners Portfolio ...... 582,704 11.188893 6,519,813 0.00% 7.37% Oppenheimer Aggressive Growth Fund / VA .......... 431,151 20.629873 8,894,590 0.00% 83.60% Oppenheimer Capital Appreciation Fund / VA ....... 618,285 17.565274 10,860,345 0.00% 41.66% Oppenheimer Main Street Growth & Income / VA ................ 460,733 12.743006 5,871,123 0.00% 21.71% Van Eck WIT - Worldwide Emerging Markets Fund ................. 194,066 13.192491 2,560,214 0.00% 100.28% Van Eck WIT - Worldwide Hard Assets Fund ......... 53,013 8.353043 442,820 0.00% 21.00% Van Kampen LIT - Morgan Stanley Real Estate Securities Portfolio ................... 146,473 8.539870 1,250,860 0.00% (3.37)% Warburg Pincus Trust - Global Post-Venture Capital Portfolio ........... 46,879 17.414110 816,356 0.00% 63.50% Warburg Pincus Trust - Growth & Income Portfolio ....................... 60,100 11.912913 715,966 0.00% 6.24% Warburg Pincus Trust - International Equity Portfolio .................. 138,513 16.163464 2,238,850 0.00% 53.43% The BEST of AMERICA(R) Corporate Variable Universal Life SeriesSM: American Century VP - American Century VP Income & Growth ............. 355,846 12.803106 4,555,934 0.19% 17.55% American Century VP - American Century VP International ............... 204,837 15.960157 3,269,231 0.18% 63.39% American Century VP - American Century VP Value ....................... 23,107 9.257533 213,914 0.61% (1.25)% The Dreyfus Socially Responsible Growth Fund, Inc. ............................... 28,931 14.439525 417,750 0.40% 29.56% Dreyfus Stock Index Fund ......................... 3,707,136 13.249543 49,117,858 0.25% 20.12% Dreyfus VIF - Appreciation Portfolio ............. 843,808 12.239522 10,327,807 0.34% 11.01% Federated Insurance Series - Quality Bond Fund II ............................ 18 9.842943 177 0.39%*** (2.36)%*** Fidelity VIP - Equity-Income Portfolio - Service Class ......... 118,952 10.484615 1,247,166 0.34% 5.83% Fidelity VIP - Growth Portfolio - Service Class .. 758,262 16.475102 12,492,444 0.21% 36.74% Fidelity VIP - High Income Portfolio - Service Class ........... 230,895 9.691447 2,237,707 0.14% 7.64% Fidelity VIP - Overseas Portfolio - Service Class .............. 504,007 13.491426 6,799,773 0.29% 41.89% Fidelity VIP-II - Contrafund Portfolio - Service Class ............ 230,228 14.020034 3,227,804 0.27% 23.65%
(Continued) 45 NATIONWIDE VLI SEPARATE ACCOUNT-4 NOTES TO FINANCIAL STATEMENTS, Continued
UNIT CONTRACT TOTAL UNITS FAIR VALUE OWNERS' EQUITY EXPENSES* RETURN** ----------- ----------- -------------- --------- --------- Fidelity VIP-III - Growth Opportunities Portfolio - Service Class ................................... 125,424 11.671298 1,463,861 0.42% 3.77% Morgan Stanley - Emerging Markets Debt Portfolio ................. 12,553 8.717559 109,432 0.30% 28.86% Nationwide SAT - Balanced Fund ................... 43,881 10.056111 441,272 0.31% 0.47% Nationwide SAT - Capital Appreciation Fund ....... 65,598 11.623180 762,457 0.16% 3.86% Nationwide SAT - Equity Income Fund .............. 965 12.487973 12,051 0.99% 18.02% Nationwide SAT - Global 50 Fund .................. 468,148 12.702408 5,946,607 0.31% 22.43% Nationwide SAT - Government Bond Fund ............ 1,312,872 10.372218 13,617,395 0.44% (2.74)% Nationwide SAT - High Income Bond Fund ........... 80,137 10.328712 827,712 0.08% 2.78% Nationwide SAT - Money Market Fund ............... 3,786,796 10.776865 40,809,789 0.29% 4.43% Nationwide SAT - Multi Sector Bond Fund .......... 460,632 10.106222 4,655,249 0.25% 1.15% Nationwide SAT - Small Cap Growth Fund ........... 118 20.447188 2,413 0.64%*** 157.03%*** Nationwide SAT - Small Cap Value Fund ............ 8,548 10.925665 93,393 0.65% 27.33% Nationwide SAT - Small Company Fund .............. 72,698 12.991606 944,464 0.11% 43.45% Nationwide SAT - Strategic Growth Fund ........... 128,669 19.361969 2,491,285 0.37% 84.02% Nationwide SAT - Strategic Value Fund ............ 791 8.772237 6,939 0.37% (3.46)% Nationwide SAT - Total Return Fund ............... 42,084 10.805244 454,728 0.27% 6.52% Neuberger & Berman AMT - Guardian Portfolio ...... 25,154 10.690765 268,916 0.49% 14.47% Neuberger & Berman AMT - Mid Cap Growth Portfolio ........................ 315,266 17.314889 5,458,796 0.24% 53.28% Neuberger & Berman AMT - Partners Portfolio ...... 94,285 9.985118 941,447 0.35% 6.94% Oppenheimer Aggressive Growth Fund / VA .......... 138,018 17.712996 2,444,712 0.24% 82.87% Oppenheimer Capital Appreciation Fund / VA ....... 188,390 15.039330 2,833,259 0.29% 41.09% Oppenheimer Main Street Growth & Income / VA ................ 97,691 10.835877 1,058,568 0.33% 21.22% Van Eck WIT - Worldwide Emerging Markets Fund ................. 10,044 12.613718 126,692 0.22% 99.48% Van Eck WIT - Worldwide Hard Assets Fund ......... 252 8.246159 2,078 0.70% 20.52% Van Kampen LIT - Morgan Stanley Real Estate Securities Portfolio ................ 38,697 8.593033 332,525 0.70% (3.76)% Warburg Pincus Trust - Global Post-Venture Capital Portfolio ........... 4,981 14.762349 73,531 0.37% 62.85% Warburg Pincus Trust - Growth & Income Portfolio ....................... 42,745 10.519954 449,675 0.40% 5.82% Warburg Pincus Trust - International Equity Portfolio .................. 3,445 13.593893 46,831 0.35% 52.82%
46
UNIT CONTRACT TOTAL UNITS FAIR VALUE OWNERS' EQUITY EXPENSES* RETURN** ----------- ----------- -------------- --------- --------- The BEST of AMERICA(R) Corporate Variable Universal Life SeriesSM: Reduced Fee Tier: American Century VP - American Century VP Income & Growth ............. 55,124 11.518727 634,958 0.25%*** 20.10%*** American Century VP - American Century VP International ............... 218 15.993145 3,487 0.25%*** 79.60%*** American Century VP - American Century VP Value ....................... 946 10.286399 9,731 0.83%*** 3.80%*** Dreyfus Stock Index Fund ......................... 1,242,820 11.428481 14,203,545 0.34%*** 18.97%*** Dreyfus VIF - Appreciation Portfolio ............. 117,874 10.726699 1,264,399 0.46%*** 9.66%*** Federated Insurance Series - Quality Bond Fund II ............................ 1,129,926 9.862542 11,143,943 0.08%*** (1.82)%*** Fidelity VIP - Equity-Income Portfolio - Service Class ......... 59,030 10.389282 613,279 0.47%*** 5.17%*** Fidelity VIP - Overseas Portfolio - Service Class .............. 490 13.776193 6,750 0.38%*** 50.15%*** Nationwide SAT - Balanced Fund ................... 59,518 9.980828 594,039 0.41%*** (0.25)%*** Nationwide SAT - Capital Appreciation Fund ....... 234,561 10.320007 2,420,671 0.21%*** 4.25%*** Nationwide SAT - Global 50 Fund .................. 52,708 11.900760 627,265 0.41%*** 25.25%*** Nationwide SAT - Government Bond Fund ............ 59,316 9.890955 586,692 0.71%*** (1.45)%*** Nationwide SAT - High Income Bond Fund ........... 594,118 9.952512 5,912,967 0.12%*** (0.62)%*** Nationwide SAT - Money Market Fund ............... 4,669,469 10.357933 48,366,047 0.41%*** 4.72%*** Nationwide SAT - Multi Sector Bond Fund .......... 232,330 10.168791 2,362,515 0.34%*** 2.24%*** Nationwide SAT - Small Company Fund .............. 434,818 14.816849 6,442,633 0.15%*** 63.98%*** Nationwide SAT - Strategic Growth Fund ........... 240,293 16.450708 3,952,990 0.09%*** 85.68%*** Neuberger & Berman AMT - Mid Cap Growth Portfolio ........................ 44,838 15.726546 705,147 0.32%*** 76.06%*** Oppenheimer Aggressive Growth Fund / VA .......... 850 16.605768 14,115 0.32%*** 87.74%*** ======== ========== $648,293,593 ============ The following is a summary for 1998: The BEST of AMERICA(R) America's FUTURE Life Series(SM): American Century VP - American Century VP Income & Growth ............. 97,382 $12.686493 $ 1,235,436 0.00% 26.86% American Century VP - American Century VP International .................. 206,063 11.875895 2,447,183 0.00% 18.76% American Century VP - American Century VP Value ....................... 59,424 10.481205 622,835 0.00% 4.81%
(Continued) 47 NATIONWIDE VLI SEPARATE ACCOUNT-4 NOTES TO FINANCIAL STATEMENTS, Continued
UNIT CONTRACT TOTAL UNITS FAIR VALUE OWNERS' EQUITY EXPENSES* RETURN** ----------- ----------- -------------- --------- --------- The Dreyfus Socially Responsible Growth Fund, Inc. ............................... 105,696 12.938078 1,367,503 0.00% 29.38% Dreyfus Stock Index Fund ......................... 1,025,141 12.821142 13,143,478 0.00% 28.21% Dreyfus VIF - Appreciation Portfolio ............. 110,355 13.021619 1,437,001 0.00% 30.22% Fidelity VIP - Equity-Income Portfolio - Service Class ......... 511,915 11.154137 5,709,970 0.00% 11.54% Fidelity VIP - Growth Portfolio - Service Class .. 255,829 13.937692 3,565,666 0.00% 39.38% Fidelity VIP - High Income Portfolio - Service Class ........... 368,689 9.557602 3,523,783 0.00% (4.42)% Fidelity VIP - Overseas Portfolio - Service Class .............. 92,817 11.263759 1,045,468 0.00% 12.64% Fidelity VIP-II - Contrafund Portfolio - Service Class ............ 362,774 12.993755 4,713,796 0.00% 29.94% Fidelity VIP-III - Growth Opportunities Portfolio - Service Class ................................... 193,229 12.450522 2,405,802 0.00% 24.51% Morgan Stanley - Emerging Markets Debt Portfolio ................. 21,992 7.162164 157,510 0.00% (28.38)% Nationwide SAT - Balanced Fund ................... 67,360 10.806799 727,946 0.00% 8.07% Nationwide SAT - Capital Appreciation Fund ....... 485,064 12.996420 6,304,095 0.00% 29.96% Nationwide SAT - Equity Income Fund .............. 21,000 11.513398 241,781 0.00% 15.13% Nationwide SAT - Global 50 Fund .................. 41,464 11.913908 493,998 0.00% 19.14% Nationwide SAT - Government Bond Fund ............ 166,631 10.890820 1,814,748 0.00% 8.91% Nationwide SAT - High Income Bond Fund ........... 79,031 10.579676 836,122 0.00% 5.80% Nationwide SAT - Mid Cap Index Fund .............. 26,958 11.080816 298,717 0.00% 10.81% Nationwide SAT - Money Market Fund ............... 2,000,515 10.527225 21,059,872 0.00% 5.27% Nationwide SAT - Multi Sector Bond Fund .......... 74,773 10.260092 767,178 0.00% 2.60% Nationwide SAT - Small Cap Value Fund ............ 106,497 9.693575 1,032,337 0.00% (3.06)% Nationwide SAT - Small Company Fund .............. 159,205 10.100944 1,608,121 0.00% 1.01% Nationwide SAT - Strategic Growth Fund ........... 36,919 11.459357 423,068 0.00% 14.59% Nationwide SAT - Strategic Value Fund ............ 34,463 10.038994 345,974 0.00% 0.39% Nationwide SAT - Total Return Fund ............... 702,365 11.807411 8,293,112 0.00% 18.07% Neuberger & Berman AMT - Guardian Portfolio ...... 55,695 13.166703 733,320 0.00% 31.67% Neuberger & Berman AMT - Mid Cap Growth Portfolio ........................ 85,802 13.928381 1,195,083 0.00% 39.28% Neuberger & Berman AMT - Partners Portfolio ...... 375,069 10.420882 3,908,550 0.00% 4.21% Oppenheimer Aggressive Growth Fund / VA .......... 100,709 11.236019 1,131,568 0.00% 12.36% Oppenheimer Capital Appreciation Fund / VA ....... 164,300 12.399968 2,037,315 0.00% 24.00%
48
UNIT CONTRACT TOTAL UNITS FAIR VALUE OWNERS' EQUITY EXPENSES* RETURN** ----------- ----------- -------------- --------- --------- Oppenheimer Main Street Growth & Income / VA ................ 139,668 10.470163 1,462,347 0.00% 4.70% Van Eck WIT - Worldwide Emerging Markets Fund ................. 43,904 6.586990 289,195 0.00% (34.13)% Van Eck WIT - Worldwide Hard Assets Fund ......... 22,344 6.903203 154,245 0.00% (30.97)% Van Kampen LIT - Morgan Stanley Real Estate Securities Portfolio ................ 81,141 8.837916 717,117 0.00% (11.62)% Warburg Pincus Trust - Global Post-Venture Capital Portfolio ........... 16,634 10.651002 177,169 0.00% 6.51% Warburg Pincus Trust - Growth & Income Portfolio ....................... 49,891 11.212895 559,423 0.00% 12.13% Warburg Pincus Trust - International Equity Portfolio .................. 56,767 10.534701 598,023 0.00% 5.35% The BEST of AMERICA(R) Corporate Variable Universal Life SeriesSM: American Century VP - American Century VP International ............... 3,234 9.768200 31,590 0.16%*** (3.46)%*** American Century VP - American Century VP Value ....................... 440 9.374321 4,125 0.23%*** (9.33)%*** The Dreyfus Socially Responsible Growth Fund, Inc. ............................... 397 11.144998 4,425 0.18%*** 17.07%*** Dreyfus Stock Index Fund ......................... 111,613 11.030001 1,231,092 0.24%*** 15.36%*** Dreyfus VIF - Appreciation Portfolio ............. 10,106 11.025485 111,424 0.29%*** 15.28%*** Fidelity VIP - Equity-Income Portfolio - Service Class ......... 5,995 9.906965 59,392 0.20%*** (1.39)%*** Fidelity VIP - Growth Portfolio - Service Class .. 185 12.048634 2,229 0.26%*** 30.55%*** Fidelity VIP - High Income Portfolio - Service Class ........... 77 9.003329 693 0.21%*** (14.86)%*** Fidelity VIP - Overseas Portfolio - Service Class .............. 3,076 9.508092 29,247 0.16%*** (7.33)%*** Fidelity VIP-II - Contrafund Portfolio - Service Class ............ 2,712 11.338370 30,750 0.16%*** 19.95%*** Fidelity VIP-III - Growth Opportunities Portfolio - Service Class ................................... 1,228 11.247664 13,812 0.18%*** 18.61%*** Nationwide SAT - Balanced Fund ................... 349 10.009481 3,493 0.21%*** 0.13%*** Nationwide SAT - Capital Appreciation Fund ....... 847 11.191056 9,479 0.20%*** 17.76%*** Nationwide SAT - Equity Income Fund .............. 211 10.581467 2,233 0.22%*** 8.66%*** Nationwide SAT - Government Bond Fund ............ 270,361 10.664112 2,883,160 0.23%*** 9.90%*** Nationwide SAT - High Income Bond Fund ........... 13,423 10.049520 134,895 0.15%*** 0.75%*** Nationwide SAT - Money Market Fund ............... 394,891 10.319833 4,075,209 0.13%*** 4.75%*** Nationwide SAT - Multi Sector Bond Fund .......... 15,549 9.991296 155,355 0.12%*** (0.13)%***
(Continued) 49 NATIONWIDE VLI SEPARATE ACCOUNT-4 NOTES TO FINANCIAL STATEMENTS, Continued
UNIT CONTRACT TOTAL UNITS FAIR VALUE OWNERS' EQUITY EXPENSES* RETURN** ----------- ----------- -------------- --------- --------- Nationwide SAT - Small Company Fund .............. 257 9.056852 2,328 0.20%*** (14.06)%*** Nationwide SAT - Strategic Growth Fund ........... 477 10.521882 5,019 0.17%*** 7.78%*** Nationwide SAT - Total Return Fund ............... 70 10.144232 710 0.14%*** 2.15%*** Neuberger & Berman AMT - Guardian Portfolio ...... 838 9.338993 7,826 0.15%*** (9.85)%*** Neuberger & Berman AMT - Mid Cap Growth Portfolio ........................ 70 11.296584 791 0.22%*** 19.34%*** Neuberger & Berman AMT - Partners Portfolio ...... 26,750 9.337008 249,765 0.35%*** (9.88)%*** Oppenheimer Aggressive Growth Fund / VA .......... 1,235 9.685930 11,962 0.19%*** (4.68)%*** Oppenheimer Capital Appreciation Fund / VA ....... 767 10.659314 8,176 0.25%*** 9.82%*** Oppenheimer Main Street Growth and Income / VA .............. 18,485 8.938847 165,235 0.16%*** (15.82)%*** Warburg Pincus Trust - Global Post-Venture Capital Portfolio ........... 985 9.065227 8,929 0.15%*** (13.94)%*** Warburg Pincus Trust - Growth & Income Portfolio ....................... 16,145 9.941469 160,505 0.18%*** (0.88)%*** ========= ========= $107,989,704 ============
* This represents expenses as a percentage of the average net assets of the variable account for the period indicated and includes only those expenses that are charged through a reduction in the unit values. Excluded are expenses of the underlying fund portfolios and charges made directly to contract owner accounts through the redemption of units. ** This represents the annual total return for the period indicated and includes a deduction only for expenses assessed through the daily unit value calculation. The total return does not include any expenses assessed through the redemption of units; inclusion of these expenses in the calculation would result in a reduction of the total return presented. *** Annualized as this investment option was not utilized for the entire period indicated. - -------------------------------------------------------------------------------- 1 INDEPENDENT AUDITORS' REPORT The Board of Directors Nationwide Life Insurance Company: We have audited the accompanying consolidated balance sheets of Nationwide Life Insurance Company and subsidiaries (collectively the Company), a wholly owned subsidiary of Nationwide Financial Services, Inc., as of December 31, 2000 and 1999, and the related consolidated statements of income, shareholder's equity and cash flows for each of the years in the three-year period ended December 31, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Nationwide Life Insurance Company and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP January 26, 2001 2 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Consolidated Balance Sheets (in millions, except per share amounts)
December 31, ------------------------------------ 2000 1999 ============================================================================================================================ ASSETS Investments: Securities available-for-sale, at fair value: Fixed maturity securities $ 15,443.0 $ 15,294.0 Equity securities 109.0 92.9 Mortgage loans on real estate, net 6,168.3 5,786.3 Real estate, net 310.7 254.8 Policy loans 562.6 519.6 Other long-term investments 101.8 73.8 Short-term investments 442.6 416.0 - ---------------------------------------------------------------------------------------------------------------------------- 23,138.0 22,437.4 - ---------------------------------------------------------------------------------------------------------------------------- Cash 18.4 4.8 Accrued investment income 251.4 238.6 Deferred policy acquisition costs 2,865.6 2,554.1 Other assets 396.7 305.9 Assets held in separate accounts 65,897.2 67,135.1 - ---------------------------------------------------------------------------------------------------------------------------- $ 92,567.3 $ 92,675.9 ============================================================================================================================ LIABILITIES AND SHAREHOLDER'S EQUITY Future policy benefits and claims $ 22,183.6 $ 21,861.6 Short-term borrowings 118.7 - Other liabilities 1,164.9 914.2 Liabilities related to separate accounts 65,897.2 67,135.1 - ---------------------------------------------------------------------------------------------------------------------------- 89,364.4 89,910.9 - ---------------------------------------------------------------------------------------------------------------------------- Commitments and contingencies (notes 9 and 14) Shareholder's equity: Common stock, $1 par value. Authorized 5.0 million shares; 3.8 million shares issued and outstanding 3.8 3.8 Additional paid-in capital 646.1 766.1 Retained earnings 2,436.3 2,011.0 Accumulated other comprehensive income (loss) 116.7 (15.9) - ---------------------------------------------------------------------------------------------------------------------------- 3,202.9 2,765.0 - ---------------------------------------------------------------------------------------------------------------------------- $ 92,567.3 $ 92,675.9 ============================================================================================================================
See accompanying notes to consolidated financial statements. 3 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Consolidated Statements of Income (in millions)
Years ended December 31, --------------------------------------------- 2000 1999 1998 =========================================================================================================================== Revenues: Policy charges $ 1,091.4 $ 895.5 $ 698.9 Life insurance premiums 240.0 220.8 200.0 Net investment income 1,654.9 1,520.8 1,481.6 Realized (losses) gains on investments (19.4) (11.6) 28.4 Other 17.0 66.1 66.8 - --------------------------------------------------------------------------------------------------------------------------- 2,983.9 2,691.6 2,475.7 - --------------------------------------------------------------------------------------------------------------------------- Benefits and expenses: Interest credited to policyholder account balances 1,182.4 1,096.3 1,069.0 Other benefits and claims 241.6 210.4 175.8 Policyholder dividends on participating policies 44.5 42.4 39.6 Amortization of deferred policy acquisition costs 352.1 272.6 214.5 Interest expense on short-term borrowings 1.3 - - Other operating expenses 479.0 463.4 419.7 - --------------------------------------------------------------------------------------------------------------------------- 2,300.9 2,085.1 1,918.6 - --------------------------------------------------------------------------------------------------------------------------- Income before federal income tax expense 683.0 606.5 557.1 Federal income tax expense 207.7 201.4 190.4 - --------------------------------------------------------------------------------------------------------------------------- Net income $ 475.3 $ 405.1 $ 366.7 ===========================================================================================================================
See accompanying notes to consolidated financial statements. 4 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Consolidated Statements of Shareholder's Equity Years ended December 31, 2000, 1999 and 1998 (in millions)
Accumulated Additional other Total Common paid-in Retained comprehensive shareholder's stock capital earnings income (loss) equity ========================================================================================================================= December 31, 1997 $ 3.8 $ 914.7 $ 1,312.3 $ 247.1 $ 2,477.9 Comprehensive income: Net income - - 366.7 - 366.7 Net unrealized gains on securities available-for-sale arising during the year - - - 28.5 28.5 --------------- Total comprehensive income 395.2 --------------- Dividend to shareholder - - (100.0) - (100.0) - ------------------------------------------------------------------------------------------------------------------------- December 31, 1998 3.8 914.7 1,579.0 275.6 2,773.1 ========================================================================================================================= Comprehensive income: Net income - - 405.1 - 405.1 Net unrealized losses on securities available-for-sale arising during the year - - - (315.0) (315.0) --------------- Total comprehensive income 90.1 --------------- Capital contribution - 26.4 87.9 23.5 137.8 Return of capital to shareholder - (175.0) - - (175.0) Dividends to shareholder - - (61.0) - (61.0) - ------------------------------------------------------------------------------------------------------------------------- December 31, 1999 3.8 766.1 2,011.0 (15.9) 2,765.0 ========================================================================================================================= Comprehensive income: Net income - - 475.3 - 475.3 Net unrealized gains on securities available-for-sale arising during the year - - - 132.6 132.6 --------------- Total comprehensive income 607.9 --------------- Return of capital to shareholder - (120.0) - - (120.0) Dividends to shareholder - - (50.0) - (50.0) - ------------------------------------------------------------------------------------------------------------------------- December 31, 2000 $ 3.8 $ 646.1 $ 2,436.3 $ 116.7 $ 3,202.9 =========================================================================================================================
See accompanying notes to consolidated financial statements. 5 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Consolidated Statements of Cash Flows (in millions)
Years ended December 31, ---------------------------------------------- 2000 1999 1998 ============================================================================================================================== Cash flows from operating activities: Net income $ 475.3 $ 405.1 $ 366.7 Adjustments to reconcile net income to net cash provided by operating activities: Interest credited to policyholder account balances 1,182.4 1,096.3 1,069.0 Capitalization of deferred policy acquisition costs (778.9) (637.0) (584.2) Amortization of deferred policy acquisition costs 352.1 272.6 214.5 Amortization and depreciation (12.7) 2.4 (8.5) Realized losses (gains) on invested assets, net 19.4 11.6 (28.4) Increase in accrued investment income (12.8) (7.9) (8.2) (Increase) decrease in other assets (92.0) 122.9 16.4 Decrease in policy liabilities (0.3) (20.9) (8.3) Increase (decrease) in other liabilities 229.3 149.7 (34.8) Other, net 22.3 (8.6) (11.3) - ------------------------------------------------------------------------------------------------------------------------------ Net cash provided by operating activities 1,384.1 1,386.2 982.9 - ------------------------------------------------------------------------------------------------------------------------------ Cash flows from investing activities: Proceeds from maturity of securities available-for-sale 2,988.7 2,307.9 1,557.0 Proceeds from sale of securities available-for-sale 602.0 513.1 610.5 Proceeds from repayments of mortgage loans on real estate 911.7 696.7 678.2 Proceeds from sale of real estate 18.7 5.7 103.8 Proceeds from repayments of policy loans and sale of other invested assets 79.3 40.9 23.6 Cost of securities available-for-sale acquired (3,475.5) (3,724.9) (3,182.8) Cost of mortgage loans on real estate acquired (1,318.0) (971.4) (829.1) Cost of real estate acquired (7.1) (14.2) (0.8) Short-term investments, net (26.6) (27.5) 69.3 Other, net (182.3) (110.9) (88.4) - ------------------------------------------------------------------------------------------------------------------------------ Net cash used in investing activities (409.1) (1,284.6) (1,058.7) - ------------------------------------------------------------------------------------------------------------------------------ Cash flows from financing activities: Capital returned to shareholder (120.0) (175.0) - Net proceeds from issuance of short-term borrowings (commercial paper) 118.7 - - Cash dividends paid (100.0) (13.5) (100.0) Increase in investment product and universal life insurance product account balances 4,517.0 3,799.4 2,682.1 Decrease in investment product and universal life insurance product account balances (5,377.1) (3,711.1) (2,678.5) - ------------------------------------------------------------------------------------------------------------------------------ Net cash used in financing activities (961.4) (100.2) (96.4) - ------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in cash 13.6 1.4 (172.2) Cash, beginning of year 4.8 3.4 175.6 - ------------------------------------------------------------------------------------------------------------------------------ Cash, end of year $ 18.4 $ 4.8 $ 3.4 ==============================================================================================================================
See accompanying notes to consolidated financial statements. 6 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements December 31, 2000, 1999 and 1998 (1) ORGANIZATION AND DESCRIPTION OF BUSINESS Nationwide Life Insurance Company (NLIC, or collectively with its subsidiaries, the Company) is a leading provider of long-term savings and retirement products in the United States and is a wholly owned subsidiary of Nationwide Financial Services, Inc. (NFS). The Company develops and sells a diverse range of products including individual annuities, private and public sector pension plans and other investment products sold to institutions and life insurance. NLIC markets its products through a broad network of distribution channels, including independent broker/dealers, national and regional brokerage firms, financial institutions, pension plan administrators, life insurance specialists, Nationwide Retirement Solutions and Nationwide agents. Wholly owned subsidiaries of NLIC include Nationwide Life and Annuity Insurance Company (NLAIC), Nationwide Advisory Services, Inc., and Nationwide Investment Services Corporation. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies followed by the Company that materially affect financial reporting are summarized below. The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America which differ from statutory accounting practices prescribed or permitted by regulatory authorities. Annual Statements for NLIC and NLAIC, filed with the Department of Insurance of the State of Ohio (the Department), are 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 consolidated 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 consolidated 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, the liability for future policy benefits and claims and federal income taxes. Although some variability is inherent in these estimates, management believes the amounts provided are adequate. (a) CONSOLIDATION POLICY The consolidated financial statements include the accounts of NLIC and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated. 7 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued (b) 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. The Company classifies fixed maturity and equity securities as available-for-sale. Available-for-sale securities 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 accumulated other comprehensive income in 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. 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. Other long-term investments are carried on the equity basis, adjusted for valuation allowances. Impairment losses are recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Realized gains and losses on the sale of investments are determined on the basis of specific security identification. Estimates for valuation allowances and other than temporary declines are included in realized gains and losses on investments. (c) REVENUES AND BENEFITS INVESTMENT PRODUCTS AND UNIVERSAL LIFE INSURANCE PRODUCTS: Investment products consist primarily of individual and group 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 whole life insurance, limited-payment life insurance, term life insurance and 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. 8 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued (d) 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(b). For traditional life insurance products, these deferred policy acquisition costs are predominantly being amortized with interest over the premium paying period of the related policies in proportion to the ratio of actual annual premium revenue to the anticipated total premium revenue. Such anticipated premium revenue was estimated using the same assumptions as were used for computing liabilities for future policy benefits. (e) SEPARATE ACCOUNTS Separate account assets and liabilities represent contractholders' funds which have been segregated into accounts with specific investment objectives. For all but $1.12 billion and $915.4 million of separate account assets at December 31, 2000 and 1999, respectively, 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 consolidated statements of income and cash flows except for the fees the Company receives. (f) 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. Future policy benefits for traditional life insurance policies have been calculated by the net level premium method using interest rates varying from 6.0% to 10.5% and estimates of mortality, morbidity, investment yields and withdrawals which were used or which were being experienced at the time the policies were issued. (g) PARTICIPATING BUSINESS Participating business represents approximately 21% in 2000 (29% in 1999 and 40% in 1998) of the Company's life insurance in force, 66% in 2000 (69% in 1999 and 74% in 1998) of the number of life insurance policies in force, and 8% in 2000 (13% in 1999 and 14% in 1998) of life insurance statutory premiums. The provision for policyholder dividends is based on current dividend scales and is included in "Future policy benefits and claims" in the accompanying consolidated balance sheets. (h) FEDERAL INCOME TAX The Company files a consolidated federal income tax return with Nationwide Mutual Insurance Company (NMIC), the majority shareholder of NFS. The members of the consolidated tax return group have a tax sharing arrangement which provides, in effect, for each member to bear essentially the same federal income tax liability as if separate tax returns were filed. 9 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued 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. (i) REINSURANCE CEDED Reinsurance premiums ceded and reinsurance recoveries on benefits and claims incurred are deducted from the respective income and expense accounts. Assets and liabilities related to reinsurance ceded are reported on a gross basis. (j) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133). SFAS 133, as amended by SFAS 137, Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133 and SFAS 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, is effective for the Company as of January 1, 2001. SFAS 133 establishes accounting and reporting standards for derivative instruments and hedging activities. It requires an entity to recognize all derivatives as either assets or liabilities on the balance sheet and measure those instruments at fair value. As of January 1, 2001, the Company had $755.4 million notional amount of freestanding derivatives with a market value of ($7.0) million. All other derivatives qualified for hedge accounting under SFAS 133. Adoption of SFAS 133 will result in the Company recording a net transition adjustment loss of $4.8 million (net of related income tax of $2.6 million) in net income. In addition, a net transition adjustment loss of $3.6 million (net of related income tax of $2.0 million) will be recorded in accumulated other comprehensive income at January 1, 2001. The adoption of SFAS 133 will result in the Company derecognizing $17.0 million of deferred assets related to hedges, recognizing $10.9 million of additional derivative instrument liabilities and $1.3 million of additional firm commitment assets, while also decreasing hedged future policy benefits by $3.0 million and increasing the carrying amount of hedged investments by $10.6 million. Further, the adoption of SFAS 133 will result in the Company reporting total derivative instrument assets and liabilities of $44.8 million and $107.1 million, respectively. Also, the Company expects that the adoption of SFAS 133 will increase the volatility of reported earnings and other comprehensive income. The amount of volatility will vary with the level of derivative and hedging activities and fluctuations in market interest rates and foreign currency exchange rates during any period. (k) RECLASSIFICATION Certain items in the 1999 and 1998 consolidated financial statements have been reclassified to conform to the 2000 presentation. 10 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued (3) INVESTMENTS The amortized cost, gross unrealized gains and losses and estimated fair value of securities available-for-sale as of December 31, 2000 and 1999 were:
Gross Gross Amortized unrealized unrealized Estimated (in millions) cost gains losses fair value ========================================================================================================================= December 31, 2000 Fixed maturity securities: U.S. Treasury securities and obligations of U.S. Government corporations and agencies $ 277.5 $ 33.4 $ 0.1 $ 310.8 Obligations of states and political subdivisions 8.6 0.2 - 8.8 Debt securities issued by foreign governments 94.1 1.5 0.1 95.5 Corporate securities 9,758.3 235.0 135.1 9,858.2 Mortgage-backed securities - U.S. Government backed 2,719.1 46.1 3.8 2,761.4 Asset-backed securities 2,388.2 36.3 16.2 2,408.3 ------------------------------------------------------------------------------------------------------------------------- Total fixed maturity securities 15,245.8 352.5 155.3 15,443.0 Equity securities 103.5 9.5 4.0 109.0 ------------------------------------------------------------------------------------------------------------------------- $ 15,349.3 $ 362.0 $ 159.3 $ 15,552.0 ========================================================================================================================= December 31, 1999 Fixed maturity securities: U.S. Treasury securities and obligations of U.S. Government corporations and agencies $ 428.4 $ 23.4 $ 2.4 $ 449.4 Obligations of states and political subdivisions 0.8 - - 0.8 Debt securities issued by foreign governments 110.6 0.6 0.8 110.4 Corporate securities 9,390.4 110.3 179.9 9,320.8 Mortgage-backed securities - U.S. Government backed 3,423.1 25.8 30.3 3,418.6 Asset-backed securities 2,024.0 8.6 38.6 1,994.0 ------------------------------------------------------------------------------------------------------------------------- Total fixed maturity securities 15,377.3 168.7 252.0 15,294.0 Equity securities 84.9 12.4 4.4 92.9 ------------------------------------------------------------------------------------------------------------------------- $ 15,462.2 $ 181.1 $ 256.4 $ 15,386.9 =========================================================================================================================
The amortized cost and estimated fair value of fixed maturity securities available-for-sale as of December 31, 2000, 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. 11 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued
Amortized Estimated (in millions) cost fair value =========================================================================================================== Fixed maturity securities available for sale: Due in one year or less $ 1,288.7 $ 1,287.0 Due after one year through five years 4,577.9 4,572.4 Due after five years through ten years 3,071.3 3,136.6 Due after ten years 1,200.6 1,277.3 ----------------------------------------------------------------------------------------------------------- 10,138.5 10,273.3 Mortgage-backed securities 2,719.1 2,761.4 Asset-backed securities 2,388.2 2,408.3 ----------------------------------------------------------------------------------------------------------- $ 15,245.8 $ 15,443.0 =========================================================================================================== The components of unrealized gains (losses) on securities available-for-sale, net, were as follows as of each December 31: (in millions) 2000 1999 =========================================================================================================== Gross unrealized gains (losses) $ 202.7 $ (75.3) Adjustment to deferred policy acquisition costs (23.2) 50.9 Deferred federal income tax (62.8) 8.5 ----------------------------------------------------------------------------------------------------------- $ 116.7 $ (15.9) =========================================================================================================== An analysis of the change in gross unrealized gains (losses) on securities available-for-sale for the years ended December 31: (in millions) 2000 1999 1998 =========================================================================================================== Securities available-for-sale: Fixed maturity securities $ 280.5 $ (607.1) $ 52.6 Equity securities (2.5) (8.8) 4.2 ----------------------------------------------------------------------------------------------------------- $ 278.0 $ (615.9) $ 56.8 ===========================================================================================================
Proceeds from the sale of securities available-for-sale during 2000, 1999 and 1998 were $602.0 million, $513.1 million and $610.5 million, respectively. During 2000, gross gains of $12.1 million ($10.4 million and $9.0 million in 1999 and 1998, respectively) and gross losses of $25.6 million ($28.0 million and $7.6 million in 1999 and 1998, respectively) were realized on those sales. The Company had $13.0 million and $15.6 million of real estate investments at December 31, 2000 and 1999, respectively, that were non-income producing the preceding twelve months. Real estate is presented at cost less accumulated depreciation of $25.7 million as of December 31, 2000 ($24.8 million as of December 31, 1999) and valuation allowances of $5.2 million as of December 31, 2000 ($5.5 million as of December 31, 1999). 12 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued The recorded investment of mortgage loans on real estate considered to be impaired was $9.8 million as of December 31, 2000 ($3.7 million as of December 31, 1999), which includes $5.3 million (none as of December 31, 1999) of impaired mortgage loans on real estate for which the related valuation allowance was $1.6 million (none as of December 31, 1999) and $4.5 million ($3.7 million as of December 31, 1999) of impaired mortgage loans on real estate for which there was no valuation allowance. During 2000, the average recorded investment in impaired mortgage loans on real estate was $7.7 million ($3.7 million in 1999) and interest income recognized on those loans totaled $0.4 million in 2000 (none in 1999) 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:
(in millions) 2000 1999 1998 =========================================================================================================== Allowance, beginning of year $ 44.4 $ 42.4 $ 42.5 Additions (reductions) charged to operations 4.1 0.7 (0.1) Direct write-downs charged against the allowance (3.2) -- -- Allowance on acquired mortgage loans -- 1.3 -- ----------------------------------------------------------------------------------------------------------- Allowance, end of year $ 45.3 $ 44.4 $ 42.4 =========================================================================================================== An analysis of investment income by investment type follows for the years ended December 31: (in millions) 2000 1999 1998 =========================================================================================================== Gross investment income: Securities available-for-sale: Fixed maturity securities $ 1,095.5 $ 1,031.3 $ 982.5 Equity securities 2.6 2.5 0.8 Mortgage loans on real estate 494.5 460.4 458.9 Real estate 32.2 28.8 40.4 Short-term investments 27.0 18.6 17.8 Other 53.2 26.5 30.7 ----------------------------------------------------------------------------------------------------------- Total investment income 1,705.0 1,568.1 1,531.1 Less investment expenses 50.1 47.3 49.5 ----------------------------------------------------------------------------------------------------------- Net investment income $ 1,654.9 $ 1,520.8 $ 1,481.6 =========================================================================================================== An analysis of realized gains (losses) on investments, net of valuation allowances, by investment type follows for the years ended December 31: (in millions) 2000 1999 1998 =========================================================================================================== Securities available-for-sale: Fixed maturity securities $ (18.2) $ (25.0) $ (0.7) Equity securities 4.7 7.4 2.1 Mortgage loans on real estate (4.2) (0.6) 3.9 Real estate and other (1.7) 6.6 23.1 ----------------------------------------------------------------------------------------------------------- $ (19.4) $ (11.6) $ 28.4 ===========================================================================================================
Fixed maturity securities with an amortized cost of $12.8 million and $9.1 million were on deposit with various regulatory agencies as required by law as of December 31, 2000 and 1999, respectively. 13 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued (4) SHORT-TERM BORROWINGS NLIC established a $300 million commercial paper program in October 2000. Borrowings under the commercial paper program are unsecured and are issued for terms of 364 days or less. As of December 31, 2000 the Company had $118.7 million of commercial paper outstanding at an average effective rate of 6.48%. See also note 13. (5) DERIVATIVE FINANCIAL INSTRUMENTS The Company uses derivative financial instruments, principally interest rate swaps, interest rate futures contracts and foreign currency swaps, to manage market risk exposures associated with changes in interest rates and foreign currency exchange rates. Provided they meet specific criteria, interest rate and foreign currency swaps and futures are considered hedges and are accounted for under the accrual method and deferral method, respectively. The Company has no significant derivative positions that are not considered hedges. See note 2 (j) regarding accounting for derivatives under SFAS 133 effective January 1, 2001. Interest rate swaps are primarily used to convert specific investment securities and interest bearing policy liabilities from a fixed-rate to a floating-rate basis. Amounts receivable or payable under these agreements are recognized as an adjustment to net investment income or interest credited to policyholder account balances consistent with the nature of the hedged item. Currently, changes in fair value of the interest rate swap agreements are not recognized on the balance sheet, except for interest rate swaps designated as hedges of fixed maturity securities available-for-sale and cross currency swaps hedging foreign denominated debt instruments, for which changes in fair values are reported in accumulated other comprehensive income. Interest rate futures contracts are primarily used to hedge the risk of adverse interest rate changes related to the Company's mortgage loan commitments and anticipated purchases of fixed rate investments. Gains and losses are deferred and, at the time of closing, reflected as an adjustment to the carrying value of the related mortgage loans or investments. The carrying value adjustments are amortized into net investment income over the life of the related mortgage loans or investments. Foreign currency swaps are used to convert cash flows from specific policy liabilities and investments denominated in foreign currencies into U.S. dollars at specified exchange rates. Amounts receivable or payable under these agreements are recognized as an adjustment to net investment income or interest credited to policyholder account balances consistent with the nature of the hedged item. Gains and losses on foreign currency swaps are recorded in earnings based on the related spot foreign exchange rate at the end of the reporting period. Gains and losses on these contracts offset those recorded as a result of translating the hedged foreign currency denominated liabilities and investments to U.S. dollars. 14 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued The notional amount of derivative financial instruments outstanding as of December 31, 2000 and 1999 were as follows:
(in millions ) 2000 1999 =========================================================================================================== Interest rate swaps Pay fixed/receive variable rate swaps hedging investments $ 934.8 $ 362.7 Pay variable/receive fixed rate swaps hedging investments 98.8 28.5 Pay variable/receive variable rate swaps hedging investments 184.0 9.0 Other contracts hedging investments 20.4 10.1 Pay variable/receive fixed rate swaps hedging liabilities 965.3 577.2 Pay variable/receive variable rate swaps hedging liabilities 546.9 -- Foreign currency swaps Hedging foreign currency denominated investments $ 30.5 $ 14.8 Hedging foreign currency denominated liabilities 1,542.2 577.2 Interest rate futures contracts $ 5,659.8 $ 781.6 ----------------------------------------------------------------------------------------------------------- (6) FEDERAL INCOME TAX The tax effects of temporary differences that give rise to significant components of the net deferred tax liability as of December 31, 2000 and 1999 were as follows: (in millions) 2000 1999 =========================================================================================================== Deferred tax assets: Fixed maturity securities $ -- $ 5.3 Future policy benefits 34.7 149.5 Liabilities in separate accounts 462.7 373.6 Mortgage loans on real estate and real estate 18.8 18.5 Other assets and other liabilities 40.3 51.1 ----------------------------------------------------------------------------------------------------------- Total gross deferred tax assets 556.5 598.0 Valuation allowance (7.0) (7.0) ----------------------------------------------------------------------------------------------------------- Net deferred tax assets 549.5 591.0 ----------------------------------------------------------------------------------------------------------- Deferred tax liabilities: Fixed maturity securities 98.8 -- Equity securities and other long-term investments 6.4 10.8 Deferred policy acquisition costs 783.7 724.4 Deferred tax on realized investment gains 29.0 34.7 Other 38.1 26.5 ----------------------------------------------------------------------------------------------------------- Total gross deferred tax liabilities 956.0 796.4 ----------------------------------------------------------------------------------------------------------- Net deferred tax liability $ 406.5 $ 205.4 ===========================================================================================================
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. Future taxable amounts or recovery of federal income tax paid within the statutory carryback period can offset nearly all future deductible amounts. The valuation allowance was unchanged for the years ended December 31, 2000, 1999 and 1998. 15 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued The Company's current federal income tax liability was $108.9 million and $104.7 million as of December 31, 2000 and 1999, respectively. Federal income tax expense for the years ended December 31 was as follows:
(in millions) 2000 1999 1998 =========================================================================================================== Currently payable $ 78.0 $ 53.6 $ 186.1 Deferred tax expense 129.7 147.8 4.3 ----------------------------------------------------------------------------------------------------------- $ 207.7 $ 201.4 $ 190.4 ===========================================================================================================
Total federal income tax expense for the years ended December 31, 2000, 1999 and 1998 differs from the amount computed by applying the U.S. federal income tax rate to income before tax as follows:
2000 1999 1998 ---------------------- ---------------------- ---------------------- (in millions) Amount % Amount % Amount % ================================================================================================================== Computed (expected) tax expense $239.1 35.0 $212.3 35.0 $195.0 35.0 Tax exempt interest and dividends received deduction (24.7) (3.6) (7.3) (1.2) (4.9) (0.9) Income tax credits (8.0) (1.2) (4.3) (0.7) - - Other, net 1.3 0.2 0.7 0.1 0.3 0.1 ------------------------------------------------------------------------------------------------------------------ Total (effective rate of each year) $207.7 30.4 $201.4 33.2 $190.4 34.2 ==================================================================================================================
Total federal income tax paid was $74.6 million, $29.8 million and $173.4 million during the years ended December 31, 2000, 1999 and 1998, respectively. (7) COMPREHENSIVE INCOME Comprehensive Income includes net income as well as certain items that are reported directly within separate components of shareholder's 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 for the years ended December 31, 2000, 1999 and 1998 were as follows:
(in millions) 2000 1999 1998 =========================================================================================================== Unrealized gains (losses) on securities available-for-sale arising during the period: Gross $ 264.5 $ (665.3) $ 58.2 Adjustment to deferred policy acquisition costs (74.0) 167.5 (12.9) Related federal income tax (expense) benefit (66.7) 171.4 (15.9) ----------------------------------------------------------------------------------------------------------- Net 123.8 (326.4) 29.4 ----------------------------------------------------------------------------------------------------------- Reclassification adjustment for net (gains) losses on securities available-for-sale realized during the period: Gross 13.5 17.6 (1.4) Related federal income tax expense (benefit) (4.7) (6.2) 0.5 ----------------------------------------------------------------------------------------------------------- Net 8.8 11.4 (0.9) ----------------------------------------------------------------------------------------------------------- Total Other Comprehensive Income (Loss) $ 132.6 $ (315.0) $ 28.5 ===========================================================================================================
16 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued (8) 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 to be based on estimates using present value or other valuation techniques. Many of the Company's assets and liabilities subject to the disclosure requirements are not actively traded, requiring fair values to be estimated by management using present value or other valuation techniques. These techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Although fair value estimates are calculated using assumptions that management believes are appropriate, changes in assumptions could cause these estimates to vary materially. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in the immediate settlement of the instruments. Although insurance contracts, other than policies such as annuities that are classified as investment contracts, are specifically exempted from the disclosure requirements, estimated fair value of policy reserves on life insurance contracts is provided to make the fair value disclosures more meaningful. The tax ramifications of the related unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates. The Company in estimating its fair value disclosures used the following methods and assumptions: 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. The carrying amount and fair value for fixed maturity and equity securities exclude the fair value of derivatives contracts designated as hedges of fixed maturity and equity securities. MORTGAGE LOANS ON REAL ESTATE, NET: 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 impaired mortgage loans is the estimated fair value of the underlying collateral. POLICY LOANS, SHORT-TERM INVESTMENTS AND CASH: The carrying amount reported in the consolidated 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 based on one of 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. 17 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued POLICY RESERVES ON LIFE INSURANCE CONTRACTS: Included are disclosures for individual life insurance, universal life insurance and supplementary contracts with life contingencies for which 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. SHORT-TERM BORROWINGS: The carrying amount reported in the consolidated balance sheets for these instruments approximates their fair value. COMMITMENTS TO EXTEND CREDIT: Commitments to extend credit have nominal fair value because of the short-term nature of such commitments. See note 9. FUTURES CONTRACTS: The fair value for futures contracts is based on quoted market prices. INTEREST RATE AND FOREIGN CURRENCY SWAPS: The fair value for interest rate and foreign currency swaps are calculated with pricing models using current rate assumptions. 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:
2000 1999 ------------------------------- ------------------------------- Carrying Estimated Carrying Estimated (in millions) amount fair value amount fair value ============================================================================================================== Assets: Investments: Securities available-for-sale: Fixed maturity securities $ 15,451.3 $ 15,451.3 $ 15,289.7 $ 15,289.7 Equity securities 109.0 109.0 92.9 92.9 Mortgage loans on real estate, net 6,168.3 6,327.8 5,786.3 5,745.5 Policy loans 562.6 562.6 519.6 519.6 Short-term investments 442.6 442.6 416.0 416.0 Cash 18.4 18.4 4.8 4.8 Assets held in separate accounts 65,897.2 65,897.2 67,135.1 67,135.1 Liabilities: Investment contracts (16,815.3) (15,979.8) (16,977.7) (16,428.6) Policy reserves on life insurance contracts (5,368.4) (5,128.5) (4,883.9) (4,607.9) Short-term borrowings (118.7) (118.7) -- -- Liabilities related to separate accounts (65,897.2) (64,237.6) (67,135.1) (66,318.7) Derivative financial instruments: Interest rate swaps hedging assets (8.3) (8.3) 4.3 4.3 Interest rate swaps hedging liabilities (26.2) (32.2) (11.5) (24.2) Foreign currency swaps (24.3) (30.9) (11.8) (11.8) Futures contracts (16.0) (16.0) 1.3 1.3 --------------------------------------------------------------------------------------------------------------
(9) RISK DISCLOSURES The following is a description of the most significant risks facing life insurers and how the Company mitigates those risks: 18 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued 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, including reinsurers, which owe the Company money, will not pay. The Company minimizes this risk by adhering to a conservative investment strategy, by maintaining reinsurance and 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 could potentially 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 offering a wide range of products and by operating throughout the United States, thus reducing its exposure to any single product or 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 and derivative financial instruments. These instruments involve, to varying degrees, elements of credit risk in excess of amounts recognized on the consolidated 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 $360.6 million extending into 2001 were outstanding as of December 31, 2000. The Company also had $55.6 million of commitments to purchase fixed maturity securities outstanding as of December 31, 2000. Notional amounts of derivative financial instruments, primarily interest rate swaps, interest rate futures contracts and foreign currency swaps, significantly exceed the credit risk associated with these instruments and represent contractual balances on which calculations of amounts to be exchanged are based. Credit exposure is limited to the sum of the aggregate fair value of positions that have become favorable to NLIC, including accrued interest receivable due from counterparties. Potential credit losses are minimized through careful evaluation of counterparty credit standing, selection of counterparties from a limited group of high quality institutions, collateral agreements and other contract provisions. As of December 31, 2000, NLIC's credit risk from these derivative financial instruments was $44.8 million. 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 22% (23% in 1999) in any geographic area and no more than 1% (2% in 1999) with any one borrower as of December 31, 2000. As of December 31, 2000, 36% (39% in 1999) of the remaining principal balance of the Company's commercial mortgage loan portfolio financed retail properties. 19 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued REINSURANCE: The Company has entered into reinsurance contracts to cede a portion of its individual annuity business to The Franklin Life Insurance Company (Franklin) and beginning in 2000 with Security Benefit Life Insurance Company (SBL). Total recoveries due from Franklin were $97.7 million and $143.6 million as of December 31, 2000 and 1999, respectively, while amounts due from SBL totaled $45.4 million at December 31, 2000. The contracts are immaterial to the Company's results of operations. The ceding of risk does not discharge the original insurer from its primary obligation to the policyholder. Under the terms of the contract, Franklin and SBL have each established a trust as collateral for the recoveries. The trust assets are invested in investment grade securities, the market value of which must at all times be greater than or equal to 102% and 100% of the reinsured reserves for Franklin and SBL, respectively. (10) 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 and who have met certain age requirements. Plan contributions are invested in a group annuity contract of NLIC. Benefits are based upon the highest average annual salary of a specified number of consecutive years of the last ten years of service. The Company funds pension costs accrued for direct employees plus an allocation of pension costs accrued for employees of affiliates whose work efforts benefit the Company. Pension cost (benefit) charged to operations by the Company during the years ended December 31, 2000, 1999 and 1998 were $1.9 million, $(8.3) million and $2.0 million, respectively. The Company has recorded a prepaid pension asset of $13.6 million and $13.3 million as of December 31, 2000 and 1999, 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, 2000 and 1999 was $51.0 million and $49.6 million, respectively and the net periodic postretirement benefit cost (NPPBC) for 2000, 1999 and 1998 was $3.8 million, $4.9 million and $4.1 million, respectively. 20 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated 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, 2000 and 1999 follows:
Pension Benefits Postretirement Benefits ---------------------------- --------------------------- (in millions) 2000 1999 2000 1999 =================================================================================================================== Change in benefit obligation: Benefit obligation at beginning of year $ 1,811.4 $ 2,185.0 $ 239.8 $ 270.1 Service cost 81.4 80.0 12.2 14.2 Interest cost 125.3 109.9 18.7 17.6 Actuarial loss (gain) 34.8 (95.0) 16.1 (64.4) Plan settlement -- (396.1) -- -- Benefits paid (71.2) (72.4) (10.4) (11.0) Acquired companies -- -- -- 13.3 ------------------------------------------------------------------------------------------------------------------- Benefit obligation at end of year 1,981.7 1,811.4 276.4 239.8 ------------------------------------------------------------------------------------------------------------------- Change in plan assets: Fair value of plan assets at beginning of year 2,247.6 2,541.9 91.3 77.9 Actual return on plan assets 140.9 161.8 12.2 3.5 Employer contribution -- 12.4 26.3 20.9 Plan curtailment in 2000/settlement in 1999 19.8 (396.1) -- -- Benefits paid (71.2) (72.4) (10.4) (11.0) ------------------------------------------------------------------------------------------------------------------- Fair value of plan assets at end of year 2,337.1 2,247.6 119.4 91.3 ------------------------------------------------------------------------------------------------------------------- Funded status 355.4 436.2 (157.0) (148.5) Unrecognized prior service cost 25.0 28.2 -- -- Unrecognized net gains (311.7) (402.0) (34.1) (46.7) Unrecognized net (asset) obligation at transition (6.4) (7.7) 1.0 1.1 ------------------------------------------------------------------------------------------------------------------- Prepaid (accrued) benefit cost $ 62.3 $ 54.7 $ (190.1) $ (194.1) ===================================================================================================================
Assumptions used in calculating the funded status of the pension plan and postretirement life and health care benefit plan were as follows:
Pension Benefits Postretirement Benefits --------------------------- --------------------------- 2000 1999 2000 1999 =================================================================================================================== Weighted average discount rate 6.75% 7.00% 7.50% 7.80% Rate of increase in future compensation levels 5.00% 5.25% -- -- Assumed health care cost trend rate: Initial rate -- -- 15.00% 15.00% Ultimate rate -- -- 5.50% 5.50% Uniform declining period -- -- 5 Years 5 Years -------------------------------------------------------------------------------------------------------------------
21 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued The components of net periodic pension cost for the pension plan as a whole for the years ended December 31, 2000, 1999 and 1998 were as follows:
(in millions) 2000 1999 1998 ========================================================================================================= Service cost (benefits earned during the period) $ 81.4 $ 80.0 $ 87.6 Interest cost on projected benefit obligation 125.3 109.9 123.4 Expected return on plan assets (184.5) (160.3) (159.0) Recognized gains (11.8) (9.1) (3.8) Amortization of prior service cost 3.2 3.2 3.2 Amortization of unrecognized transition obligation (asset) (1.3) (1.4) 4.2 --------------------------------------------------------------------------------------------------------- $ 12.3 $ 22.3 $ 55.6 =========================================================================================================
Effective December 31, 1998, Wausau Service Corporation (WSC) ended its affiliation with Nationwide and employees of WSC ended participation in the plan resulting in a curtailment gain of $67.1 million. During 1999, the Plan transferred assets to settle its obligation related to WSC employees, resulting in a gain of $32.9 million. The spin-off of liabilities and assets was completed in the year 2000, resulting in an adjustment to the curtailment gain of $19.8 million. Assumptions used in calculating the net periodic pension cost for the pension plan were as follows:
2000 1999 1998 ================================================================================================================ Weighted average discount rate 7.00% 6.08% 6.00% Rate of increase in future compensation levels 5.25% 4.33% 4.25% Expected long-term rate of return on plan assets 8.25% 7.33% 7.25% ---------------------------------------------------------------------------------------------------------------- The components of NPPBC for the postretirement benefit plan as a whole for the years ended December 31, 2000, 1999 and 1998 were as follows: (in millions) 2000 1999 1998 ================================================================================================================ Service cost (benefits attributed to employee service during the year) $ 12.2 $ 14.2 $ 9.8 Interest cost on accumulated postretirement benefit obligation 18.7 17.6 15.4 Expected return on plan assets (7.9) (4.8) (4.4) Amortization of unrecognized transition obligation of affiliates 0.6 0.6 0.2 Net amortization and deferral (1.3) (0.5) 0.6 ---------------------------------------------------------------------------------------------------------------- $ 22.3 $ 27.1 $ 21.6 ================================================================================================================
Actuarial assumptions used for the measurement of the NPPBC for the postretirement benefit plan for 2000, 1999 and 1998 were as follows:
2000 1999 1998 ================================================================================================================ Discount rate 7.80% 6.65% 6.70% Long-term rate of return on plan assets, net of tax in 1999 and 1998 8.30% 7.15% 5.83% Assumed health care cost trend rate: Initial rate 15.00% 15.00% 12.00% Ultimate rate 5.50% 5.50% 6.00% Uniform declining period 5 Years 5 Years 12 Years ----------------------------------------------------------------------------------------------------------------
22 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued Because current plan costs are very close to the employer dollar caps, the health care cost trend has an immaterial effect on plan obligations for the postretirement benefit plan as a whole. For this reason, the effect of a one percentage point increase or decrease in the assumed health care cost trend rate on the APBO as of December 31, 2000 and on the NPPBC for the year ended December 31, 2000 was not calculated. (11) SHAREHOLDER'S EQUITY, REGULATORY RISK-BASED CAPITAL, RETAINED EARNINGS AND DIVIDEND RESTRICTIONS Ohio, NLIC's and NLAIC's state of domicile, imposes minimum risk-based capital requirements that were developed by the NAIC. The formulas for determining the amount of risk-based capital specify various weighting factors that are applied to financial balances or various levels of activity based on the perceived degree of risk. Regulatory compliance is determined by a ratio of the company's regulatory total adjusted capital, as defined by the NAIC, to its authorized control level risk-based capital, as defined by the NAIC. Companies below specific trigger points or ratios are classified within certain levels, each of which requires specified corrective action. NLIC and NLAIC each exceed the minimum risk-based capital requirements. The statutory capital and surplus of NLIC as of December 31, 2000, 1999 and 1998 was $1.28 billion, $1.35 billion and $1.32 billion, respectively. The statutory net income of NLIC for the years ended December 31, 2000, 1999 and 1998 was $158.7 million, $276.2 million and $171.0 million, respectively. The NAIC completed a project to codify statutory accounting principles (Codification), which is effective January 1, 2001 for NLIC and its insurance company subsidiary. The resulting change to NLIC's January 1, 2001 surplus was an increase of approximately $80.0 million. The significant change for NLIC, as a result of Codification, was the recording of deferred taxes, which were not recorded prior to the adoption of Codification. The Company is limited in the amount of shareholder dividends it may pay without prior approval by the Department. As of December 31, 2000 no dividends could be paid by NLIC without prior approval. In addition, the payment of dividends by NLIC may also be subject to restrictions set forth in the insurance laws of New York that limit the amount of statutory profits on NLIC's participating policies (measured before dividends to policyholders) that can inure to the benefit of the Company and its shareholders. The Company currently does not expect such regulatory requirements to impair its ability to pay operating expenses and shareholder dividends in the future. (12) TRANSACTIONS WITH AFFILIATES During second quarter 1999, the Company entered into a modified coinsurance arrangement to reinsure the 1999 operating results of an affiliated company, Employers Life Insurance Company of Wausau (ELOW) retroactive to January 1, 1999. In September 1999, NFS acquired ELOW for $120.8 million and immediately merged ELOW into NLIC terminating the modified coinsurance arrangement. Because ELOW was an affiliate, the Company accounted for the merger similar to poolings-of-interests; however, prior period financial statements were not restated due to immateriality. The reinsurance and merger combined contributed $1.46 million to net income in 1999. 23 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued The Company has a reinsurance agreement with NMIC whereby all of the Company's accident and health business is ceded to NMIC on a modified coinsurance basis. The agreement covers individual accident and health business for all periods presented and group and franchise accident and health business since July 1, 1999. Either party may terminate the agreement on January 1 of any year with prior notice. Prior to July 1, 1999 group and franchise accident and health business and a block of group life insurance policies were ceded to ELOW under a modified coinsurance agreement. Under a modified coinsurance agreement, invested assets are retained by the ceding company and investment earnings are paid to the reinsurer. Under the terms of the Company's agreements, the investment risk associated with changes in interest rates is borne by the reinsurer. Risk of asset default is retained by the Company, although a fee is paid to the Company for the retention of such risk. The ceding of risk does not discharge the original insurer from its primary obligation to the policyholder. The Company believes that the terms of the modified coinsurance agreements are consistent in all material respects with what the Company could have obtained with unaffiliated parties. Revenues ceded to NMIC and ELOW for the years ended December 31, 2000, 1999 and 1998 were $170.1 million, $193.0 million, and $216.9 million, respectively, while benefits, claims and expenses ceded were $168.0 million, $197.3 million and $259.3 million, 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 such agreement are subject to allocation among NMIC and such subsidiaries. Measures used to allocate expenses among companies include individual employee estimates of time spent, special cost studies, salary expense, commission expense and other methods agreed to by the participating companies that are within industry guidelines and practices. In addition, beginning in 1999 Nationwide Services Company, a subsidiary of NMIC, provides computer, telephone, mail, employee benefits administration, and other services to NMIC and certain of its direct and indirect subsidiaries, including the Company, based on specified rates for units of service consumed. For the years ended December 31, 2000, 1999 and 1998, the Company made payments to NMIC and Nationwide Services Company totaling $150.3 million, $124.1 million, and $95.0 million, respectively. The Company does not believe that expenses recognized under these agreements are materially different than expenses that would have been recognized had the Company operated on a stand-alone basis. The Company leases office space from NMIC and certain of its subsidiaries. For the years ended December 31, 2000, 1999 and 1998, the Company made lease payments to NMIC and its subsidiaries of $14.1 million, $9.9 million and $8.0 million, respectively. The Company also participates in intercompany repurchase agreements with affiliates whereby the seller will transfer securities to the buyer at a stated value. Upon demand or after a stated period, the seller will repurchase the securities at the original sales price plus a price differential. Transactions under the agreements during 2000, 1999 and 1998 were not material. The Company believes that the terms of the repurchase agreements are materially consistent with what the Company could have obtained with unaffiliated parties. The Company and various affiliates entered into agreements with Nationwide Cash Management Company (NCMC), an affiliate, under which NCMC acts as a 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 $321.1 million and $411.7 million as of December 31, 2000 and 1999, respectively, and are included in short-term investments on the accompanying consolidated balance sheets. Certain annuity products are sold through affiliated companies, which are also subsidiaries of NFS. Total commissions and fees paid to these affiliates for the three years ended December 31, 2000 were $65.0 million, $79.7 million and $74.9 million, respectively. 24 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued (13) BANK LINES OF CREDIT Also available as a source of funds to the Company is a $1 billion revolving credit facility entered into by NFS, NLIC and NMIC. The facility is comprised of a five year $700 million agreement and a 364 day $300 million agreement with a group of national financial institutions. The facility provides for several and not joint liability with respect to any amount drawn by any party. The facility provides covenants, including, but not limited to, requirements that NLIC maintain statutory surplus in excess of $935 million. The Company had no amounts outstanding under this agreement as of December 31, 2000. Of the total facility, $300 million is designated to back NLIC's $300 million commercial paper program. Therefore, borrowing capacity under this facility would be reduced by the amount of any commercial paper outstanding. (14) CONTINGENCIES On October 29, 1998, the Company was 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). On May 3, 1999, the complaint was amended to, among other things, add Marcus Shore as a second plaintiff. The amended complaint is brought as a class action on behalf of all persons who purchased individual deferred annuity contracts or participated in group annuity contracts sold by the Company and the other named Company affiliates which were used to fund certain tax-deferred retirement plans. The amended complaint seeks unspecified compensatory and punitive damages. No class has been certified. On June 11, 1999, the Company and the other named defendants filed a motion to dismiss the amended complaint. On March 8, 2000, the court denied the motion to dismiss the amended complaint filed by the Company and other named defendants. The Company intends to defend this lawsuit vigorously. (15) SEGMENT INFORMATION The Company has redefined its business segments in order to align this disclosure with the way management currently views its core operations. This updated view better reflects the different economics of the Company's various businesses and also aligns well with the current market focus. As a result, the Company now reports three product segments: Individual Annuity, Institutional Products and Life Insurance. In addition, the Company reports certain other revenues and expenses in a Corporate segment. All 1999 and 1998 amounts have been restated to reflect the new business segments. The Individual Annuity segment consists of both variable and fixed annuity contracts. Individual annuity contracts provide the customer with tax-deferred accumulation of savings and flexible payout options including lump sum, systematic withdrawal or a stream of payments for life. In addition, variable annuity contracts provide the customer with access to a wide range of investment options and asset protection in the event of an untimely death, while fixed annuity contracts generate a return for the customer at a specified interest rate fixed for a prescribed period. The Company's individual annuity products consist of single premium deferred annuities, flexible premium deferred annuities and single premium immediate annuities. The Institutional Products segment is comprised of the Company's group pension and payroll deduction business, both public and private sectors, and medium-term note program. The public sector includes the 457 business in the form of fixed and variable annuities. The private sector includes the 401(k) business generated through fixed and variable annuities. The Life Insurance segment consists of insurance products, including universal life insurance, corporate-owned life insurance and bank-owned life insurance products, which provide a death benefit and also allow the customer to build cash value on a tax-advantaged basis. 25 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued In addition to the product segments, the Company reports a Corporate segment. The Corporate segment includes net investment income not allocated to the three product segments, certain revenues and expenses of the Company's investment advisory and broker/dealer subsidiary, unallocated expenses and interest expense on short-term borrowings. In addition to these operating revenues and expenses, the Company also reports net realized gains and losses on investments in the Corporate segment. The following table summarizes the financial results of the Company's business segments for the years ended December 31, 2000, 1999 and 1998.
Individual Institutional Life (in millions) Annuity Products Insurance Corporate Total =================================================================================================================== 2000: Net investment income $ 483.2 $ 827.4 $ 289.2 $ 55.1 $ 1,654.9 Other operating revenue 625.9 251.6 453.9 17.0 1,348.4 ------------------------------------------------------------------------------------------------------------------- Total operating revenue(1) 1,109.1 1,079.0 743.1 72.1 3,003.3 ------------------------------------------------------------------------------------------------------------------- Interest credited to policyholder account balances 396.4 628.8 157.2 -- 1,182.4 Amortization of deferred policy acquisition costs 238.7 49.2 64.2 -- 352.1 Interest expense on short-term borrowings -- -- -- 1.3 1.3 Other benefits and expenses 192.3 170.3 368.8 33.7 765.1 ------------------------------------------------------------------------------------------------------------------- Total expenses 827.4 848.3 590.2 35.0 2,300.9 ------------------------------------------------------------------------------------------------------------------- Operating income before federal income tax 281.7 230.7 152.9 37.1 702.4 Realized losses on investments -- -- -- (19.4) (19.4) ------------------------------------------------------------------------------------------------------------------- Income before federal income tax $ 281.7 $ 230.7 $ 152.9 $ 17.7 $ 683.0 =================================================================================================================== Assets as of year end $45,422.5 $37,217.3 $ 8,103.3 $ 1,824.2 $92,567.3 ------------------------------------------------------------------------------------------------------------------- 1999: Net investment income $ 458.9 $ 771.2 $ 253.1 $ 37.6 $ 1,520.8 Other operating revenue 511.4 211.9 393.0 66.1 1,182.4 ------------------------------------------------------------------------------------------------------------------- Total operating revenue(1) 970.3 983.1 646.1 103.7 2,703.2 ------------------------------------------------------------------------------------------------------------------- Interest credited to policyholder account balances 384.9 580.9 130.5 -- 1,096.3 Amortization of deferred policy acquisition costs 170.9 41.6 60.1 -- 272.6 Other benefits and expenses 155.3 142.8 334.7 83.4 716.2 ------------------------------------------------------------------------------------------------------------------- Total expenses 711.1 765.3 525.3 83.4 2,085.1 ------------------------------------------------------------------------------------------------------------------- Operating income before federal income tax 259.2 217.8 120.8 20.3 618.1 Realized losses on investments -- -- -- (11.6) (11.6) ------------------------------------------------------------------------------------------------------------------- Income before federal income tax $ 259.2 $ 217.8 $ 120.8 $ 8.7 $ 606.5 =================================================================================================================== Assets as of year end $45,667.8 $39,045.1 $ 6,616.7 $ 1,346.3 $92,675.9 -------------------------------------------------------------------------------------------------------------------
26 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued
Individual Institutional Life (in millions) Annuity Products Insurance Corporate Total =================================================================================================================== 1998: Net investment income $ 431.7 $ 784.7 $ 225.6 $ 39.6 $ 1,481.6 Other operating revenue 412.6 167.8 318.5 66.8 965.7 ------------------------------------------------------------------------------------------------------------------- Total operating revenue(1) 844.3 952.5 544.1 106.4 2,447.3 ------------------------------------------------------------------------------------------------------------------- Interest credited to policyholder account balances 357.9 595.7 115.4 -- 1,069.0 Amortization of deferred policy acquisition costs 129.2 38.9 46.4 -- 214.5 Other benefits and expenses 125.7 137.5 293.5 78.4 635.1 ------------------------------------------------------------------------------------------------------------------- Total expenses 612.8 772.1 455.3 78.4 1,918.6 ------------------------------------------------------------------------------------------------------------------- Operating income before federal income tax 231.5 180.4 88.8 28.0 528.7 Realized gains on investments -- -- -- 28.4 28.4 ------------------------------------------------------------------------------------------------------------------- Income before federal income tax $ 231.5 $ 180.4 $ 88.8 $ 56.4 $ 557.1 =================================================================================================================== Assets as of year end $36,641.8 $30,618.4 $ 5,187.6 $ 1,894.3 $74,342.1 -------------------------------------------------------------------------------------------------------------------
---------- 1 Excludes net 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. PART I - FINANCIAL INFORMATION ITEM 1 UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Consolidated Statements of Income (Unaudited) (in millions)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, --------------------------------------------------------- 2001 2000 2001 2000 ============================================================================================================================== REVENUES Policy charges $ 243.9 $ 284.8 $ 768.0 $ 823.5 Life insurance premiums 59.4 51.7 189.8 180.7 Net investment income 435.0 412.6 1,286.8 1,229.6 Net realized gains (losses) on investments, hedging instruments and hedged items 36.7 (2.1) 34.9 (15.9) Other 3.3 3.6 12.4 12.8 - ------------------------------------------------------------------------------------------------------------------------------ 778.3 750.6 2,291.9 2,230.7 - ------------------------------------------------------------------------------------------------------------------------------ BENEFITS AND EXPENSES Interest credited to policyholder account balances 314.8 292.4 923.9 876.9 Other benefits and claims 66.8 56.2 209.0 185.2 Policyholder dividends on participating policies 9.5 8.3 31.1 31.8 Amortization of deferred policy acquisition costs 85.2 91.6 265.2 263.7 Interest expense on short-term borrowings 0.8 - 4.7 - Other operating expenses 109.8 125.2 327.3 365.7 - ------------------------------------------------------------------------------------------------------------------------------ 586.9 573.7 1,761.2 1,723.3 - ------------------------------------------------------------------------------------------------------------------------------ Income before federal income tax expense and cumulative effect of adoption of accounting principles 191.4 176.9 530.7 507.4 Federal income tax expense 52.8 50.9 141.9 157.2 - ------------------------------------------------------------------------------------------------------------------------------ Income before cumulative effect of adoption of accounting principles 138.6 126.0 388.8 350.2 Cumulative effect of adoption of accounting principles, net of tax - - (7.1) - - ------------------------------------------------------------------------------------------------------------------------------ Net income $ 138.6 $ 126.0 $ 381.7 $ 350.2 ==============================================================================================================================
See accompanying notes to unaudited consolidated financial statements. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Consolidated Balance Sheets (in millions, except per share amounts)
(UNAUDITED) SEPTEMBER 30, DECEMBER 31, 2001 2000 ============================================================================================================================== ASSETS Investments: Securities available-for-sale, at fair value: Fixed maturity securities (cost $16,964.3 in 2001; $15,245.8 in 2000) $ 17,573.4 $ 15,443.0 Equity securities (cost $106.3 in 2001; $103.5 in 2000) 96.5 109.0 Mortgage loans on real estate, net 6,809.7 6,168.3 Real estate, net 191.3 310.7 Policy loans 586.8 562.6 Other long-term investments 117.9 101.8 Short-term investments 771.2 442.6 - ------------------------------------------------------------------------------------------------------------------------------ 26,146.8 23,138.0 - ------------------------------------------------------------------------------------------------------------------------------ Cash 24.9 18.4 Accrued investment income 308.0 251.4 Deferred policy acquisition costs 3,035.1 2,865.6 Other assets 753.1 396.7 Assets held in separate accounts 54,526.6 65,897.2 - ------------------------------------------------------------------------------------------------------------------------------ $ 84,794.5 $ 92,567.3 ============================================================================================================================== LIABILITIES AND SHAREHOLDER'S EQUITY Future policy benefits and claims $ 24,764.0 $ 22,183.6 Short-term borrowings 25.0 118.7 Other liabilities 1,743.5 1,164.9 Liabilities related to separate accounts 54,526.6 65,897.2 - ------------------------------------------------------------------------------------------------------------------------------ 81,059.1 89,364.4 - ------------------------------------------------------------------------------------------------------------------------------ Shareholder's equity: Capital shares, $1 par value. Authorized 5.0 million shares, issued and outstanding 3.8 million shares 3.8 3.8 Additional paid-in capital 646.1 646.1 Retained earnings 2,783.0 2,436.3 Accumulated other comprehensive income 302.5 116.7 - ------------------------------------------------------------------------------------------------------------------------------ 3,735.4 3,202.9 - ------------------------------------------------------------------------------------------------------------------------------ $ 84,794.5 $ 92,567.3 ==============================================================================================================================
See accompanying notes to unaudited consolidated financial statements. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Consolidated Statements of Shareholder's Equity (Unaudited) Nine Months Ended September 30, 2001 and 2000 (in millions)
ACCUMULATED ADDITIONAL OTHER TOTAL COMMON PAID-IN RETAINED COMPREHENSIVE SHAREHOLDER'S STOCK CAPITAL EARNINGS INCOME (LOSS) EQUITY ================================================================================================================================== Balance as of January 1, 2000 $ 3.8 $ 766.1 $ 2,011.0 $ (15.9) $ 2,765.0 Comprehensive income: Net income - - 350.2 - 350.2 Net unrealized gains on securities available-for- sale arising during the period, net of tax - - - 45.5 45.5 ----------------- Total comprehensive income 395.7 Dividends to shareholder - - (90.0) - (90.0) - ---------------------------------------------------------------------------------------------------------------------------------- Balance as of September 30, 2000 $ 3.8 $ 766.1 $ 2,271.2 $ 29.6 $ 3,070.7 ================================================================================================================================== BALANCE AS OF JANUARY 1, 2001 $ 3.8 $ 646.1 $ 2,436.3 $ 116.7 $ 3,202.9 Comprehensive income: Net income - - 381.7 - 381.7 Net unrealized gains on securities available-for- sale arising during the period, net of tax - - - 176.1 176.1 Cumulative effect of adoption of accounting principles, net of tax - - - 5.9 5.9 Accumulated net gains on cash flow hedges, net of tax - - - 3.8 3.8 ----------------- Total comprehensive income 567.5 Dividends to shareholder - - (35.0) - (35.0) - ---------------------------------------------------------------------------------------------------------------------------------- BALANCE AS OF SEPTEMBER 30, 2001 $ 3.8 $ 646.1 $ 2,783.0 $ 302.5 $ 3,735.4 ==================================================================================================================================
See accompanying notes to unaudited consolidated financial statements. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended September 30, 2001 and 2000 (in millions)
2001 2000 ============================================================================================================================ CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 381.7 $ 350.2 Adjustments to reconcile net income to net cash provided by operating activities: Interest credited to policyholder account balances 923.9 876.9 Capitalization of deferred policy acquisition costs (556.9) (586.8) Amortization of deferred policy acquisition costs 265.2 263.7 Amortization and depreciation (23.4) (7.4) Realized (gains) losses on investments, hedging instruments and hedged items (34.9) 15.9 Cumulative effect of adoption of accounting principles 10.9 - Increase in accrued investment income (56.6) (9.2) Increase in other assets (186.8) (53.3) Increase in policy liabilities 21.1 0.5 Increase in other liabilities 248.6 269.7 Other, net 2.4 27.4 - ---------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 995.2 1,147.6 - ---------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from maturity of securities available-for-sale 3,076.6 2,479.2 Proceeds from sale of securities available-for-sale 247.7 432.3 Proceeds from repayments of mortgage loans on real estate 639.8 609.4 Proceeds from sale of real estate 168.5 2.2 Proceeds from repayments of policy loans and sale of other invested assets 57.3 17.2 Cost of securities available-for-sale acquired (4,958.7) (2,345.8) Cost of mortgage loans on real estate acquired (1,246.8) (950.1) Cost of real estate acquired (0.3) (6.1) Short-term investments, net (328.6) (197.3) Other, net (150.9) (116.8) - ---------------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (2,495.4) (75.8) - ---------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Net proceeds from issuance of short-term borrowings (93.7) - Cash dividends paid (35.0) (140.0) Increase in investment and universal life insurance product account balances 4,517.3 3,609.4 Decrease in investment and universal life insurance product account balances (2,881.9) (4,544.0) - ---------------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities 1,506.7 (1,074.6) - ---------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash 6.5 (2.8) Cash, beginning of period 18.4 4.8 - ---------------------------------------------------------------------------------------------------------------------------- Cash, end of period $ 24.9 $ 2.0 ============================================================================================================================
See accompanying notes to unaudited consolidated financial statements. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Unaudited Consolidated Financial Statements Nine Months Ended September 30, 2001 (1) Basis of Presentation --------------------- The accompanying unaudited consolidated financial statements of Nationwide Life Insurance Company and subsidiaries (NLIC or collectively, the Company) have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP), which differ from statutory accounting practices prescribed or permitted by regulatory authorities, for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The financial information included herein reflects all adjustments (all of which are normal and recurring in nature) which are, in the opinion of management, necessary for a fair presentation of financial position and results of operations. Operating results for all periods presented are not necessarily indicative of the results that may be expected for the full year. All significant intercompany balances and transactions have been eliminated. The accompanying unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes for the year ended December 31, 2000 included in the Company's annual report on Form 10-K. (2) New Accounting Principles ------------------------- In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133). SFAS 133, as amended by SFAS 137, Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133, and SFAS 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, was adopted by the Company effective January 1, 2001. SFAS 133 establishes accounting and reporting standards for derivative instruments and hedging activities. It requires an entity to recognize all derivatives as either assets or liabilities on the balance sheet and measure those instruments at fair value. As of January 1, 2001, the Company had $755.4 million notional amount of freestanding derivatives with a market value of ($7.0) million. All other derivatives qualified for hedge accounting under SFAS 133. The adoption of SFAS 133 resulted in the Company recording a net transition adjustment loss of $4.8 million (net of related income tax of $2.6 million) in net income. In addition, a net transition adjustment loss of $3.6 million (net of related income tax of $2.0 million) was recorded in accumulated other comprehensive income at January 1, 2001. The adoption of SFAS 133 resulted in the Company derecognizing $17.0 million of deferred assets related to hedges, recognizing $10.9 million of additional derivative instrument liabilities and $1.3 million of additional firm commitment assets, while also decreasing hedged future policy benefits by $3.0 million and increasing the carrying amount of hedged investments by $10.6 million. Further, the adoption of SFAS 133 resulted in the Company reporting total derivative instrument assets and liabilities of $44.8 million and $107.1 million, respectively, as of January 1, 2001. The Company expects that the adoption of SFAS 133 will increase the volatility of reported earnings and other comprehensive income. The amount of volatility will vary with the level of derivative and hedging activities and fluctuations in market interest rates and foreign currency exchange rates during any period. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Unaudited Consolidated Financial Statements, Continued In November 1999, the Emerging Issues Task Force (EITF) issued EITF Issue No. 99-20, Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets (EITF 99-20). The Company adopted EITF 99-20 on April 1, 2001. EITF 99-20 establishes the method of recognizing interest income and impairment on asset-backed investment securities. EITF 99-20 requires the Company to update the estimate of cash flows over the life of certain retained beneficial interests in securitization transactions and purchased beneficial interests in securitized financial assets. Pursuant to EITF 99-20, based on current information and events, if the Company estimates that the fair value of its beneficial interests is not greater than or equal to its carrying value and if there has been a decrease in the estimated cash flows since the last revised estimate, considering both timing and amount, then an other-than-temporary impairment should be recognized. The cumulative effect, net of tax, upon adoption of EITF 99-20 on April 1, 2001 decreased net income by $2.3 million with a corresponding increase to accumulated other comprehensive income. In July 2001, the FASB issued Statement of Financial Accounting Standards No. 141, Business Combinations (SFAS 141) and Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142). SFAS 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001 and the use of the pooling-of-interests method has been eliminated. SFAS 142 applies to all acquired intangible assets whether acquired singularly, as part of a group, or in a business combination. SFAS 142 supersedes APB Opinion No. 17, Intangible Assets, and will carry forward provisions in Opinion 17 related to internally developed intangible assets. SFAS 142 changes the accounting for goodwill and intangible assets with indefinite lives from an amortization method to an impairment-only approach. The amortization of goodwill from past business combinations will cease upon adoption of this statement, which will be January 1, 2002 for the Company. Companies will also be required to evaluate all existing goodwill and intangible assets with indefinite lives for impairment within six months of adoption. Any transitional impairment losses will be recognized in the first interim period in the year of adoption and will be recognized as the effect of a change in accounting principle. The Company does not expect any material impact of adopting SFAS 141 and SFAS 142 on the results of operations and financial position. In October 2001, the FASB issued Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144). SFAS 144 supersedes SFAS 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, and APB Opinion No. 30, Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. SFAS 144 is effective for fiscal years beginning after December 15, 2001 (January 1, 2002 for the Company) and will carry forward many of the provisions of SFAS 121 and Opinion 30. Under SFAS 144, if a long-lived asset is part of a group that includes other assets and liabilities, then the provisions of SFAS 144 apply to the entire group. In addition, SFAS 144 does not apply to goodwill and other intangible assets that are not amortized. Management does not expect the adoption of SFAS 144 to have a material impact on the results of operations or financial position of the Company. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Unaudited Consolidated Financial Statements, Continued (3) Derivatives ----------- QUALITATIVE DISCLOSURE Interest Rate Risk Management The Company is exposed to changes in the fair value of fixed rate investments (commercial mortgage loans and corporate bonds) due to changes in interest rates. To manage this risk, the Company enters into various types of derivative instruments to minimize fluctuations in fair values resulting from changes in interest rates. The Company principally uses interest rate swaps and short Eurodollar futures to manage this risk. Under interest rate swaps, the Company receives variable interest rate payments and makes fixed rate payments, thereby creating floating rate investments. Short Eurodollar futures change the fixed rate cash flow exposure to variable rate cash flows. With short Eurodollar futures, if interest rates rise (fall), the gains (losses) on the futures adjust the fixed rate income on the investments, thereby creating floating rate investments. As a result of entering into commercial mortgage loan and private placement commitments, the Company is exposed to changes in the fair value of the commitment due to changes in interest rates during the commitment period. To manage this risk, the Company enters into short Treasury futures. With short Treasury futures, if interest rates rise (fall), the gains (losses) on the futures will offset the change in fair value of the commitment. Floating rate investments (commercial mortgage loans and corporate bonds) expose the Company to fluctuations in cash flow and investment income due to changes in interest rates. To manage this risk, the Company enters into receive fixed, pay variable over-the-counter interest rate swaps or long Eurodollar futures strips to convert the variable rate investments to a fixed rate. In using interest rate swaps, the Company receives fixed interest rate payments and makes variable rate payments, thereby creating fixed rate assets. The long Eurodollar futures change the variable rate cash flow exposure to fixed rate cash flows. With long Eurodollar futures, if interest rates rise (fall), the losses (gains) on the futures are used to reduce the variable rate income on the investments, thereby creating fixed rate investments. Foreign Currency Risk Management In conjunction with the Company's medium-term note programs, from time to time, the Company issues both fixed and variable rate liabilities denominated in foreign currencies. As a result, the Company is exposed to changes in fair value of the liabilities due to changes in foreign currency exchange rates and interest rates. To manage these risks, the Company enters into cross-currency interest rate swaps to convert these liabilities to a variable US dollar rate. For a fixed rate liability, the cross-currency interest rate swap is structured to receive a fixed rate, in the foreign currency, and pay a variable US dollar rate, generally 3-month libor. For a variable rate foreign liability, the cross-currency interest rate swap is structured to receive a variable rate, in the foreign currency, and pay a variable US dollar rate, generally 3-month libor. The Company is exposed to changes in fair value of fixed rate investments denominated in a foreign currency due to changes in foreign currency exchange rates and interest rates. To manage this risk, the Company uses cross-currency interest rate swaps to convert these assets to variable US dollar rate instruments. Cross-currency interest rate swaps on assets are structured to pay a fixed rate, in the foreign currency, and receive a variable US dollar rate, generally 3-month libor. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Unaudited Consolidated Financial Statements, Continued Non-Hedging Derivatives The Company may enter into over-the-counter basis swaps (receive one variable rate, pay another variable rate) to change the rate characteristics of a specific investment to better match the variable rate paid on a liability. While the pay-side terms of the basis swap will line up with the terms of the asset, the Company may not be able to match the receive-side terms of the derivative to a specific liability; therefore, basis swaps may not receive hedge accounting treatment. QUANTITATIVE DISCLOSURE Fair Value Hedges Changes in the fair value of derivative instruments designated as fair value hedges, and the corresponding changes in the fair value of the hedged asset or liability, attributable to the risk being hedged, are included in net realized gains and losses on investments, hedging instruments and hedged items in the consolidated statements of income. Amounts receivable or payable under interest rate swaps are recognized as an adjustment to net investment income or interest credited to policyholder account balances consistent with the nature of the hedged item. During the three and nine months ended September 30, 2001, losses of $4.2 million and $3.2 million, respectively, were recognized in net realized gains and losses on investments, hedging instruments and hedged items. This represents the ineffective portion of the fair value hedging relationships. There were no gains or losses attributable to the portion of the derivative instrument's change in value excluded from the assessment of hedge effectiveness. There were also no gains or losses recognized in earnings as a result of hedged firm commitments no longer qualifying as fair value hedges. Cash Flow Hedges Changes in the fair value of derivative instruments designated as cash flow hedges are reported in accumulated other comprehensive income (AOCI). Amounts receivable or payable under interest rate swaps are recognized as an adjustment to net investment income or interest credited to policyholder account balances consistent with the nature of the hedged item. In the event that a derivative instrument was liquidated and the hedged item remained on the books, the gain or loss on the derivative would be reclassified out of AOCI over the life of the underlying asset. The Company is not anticipating any reclassifications out of AOCI over the next 12-month period. The ineffective portion of cash flow hedges is included in net realized gains and losses on investments, hedging instruments and hedged items in the consolidated statements of income. For the three months ended September 30, 2001, the ineffective portion of cash flow hedges was less than $0.1 million. There were no gains or losses attributable to the portion of the derivative instruments' change in value excluded from the assessment of hedge effectiveness. Other Derivative Instruments, Including Embedded Derivatives Net realized gains and losses on investments, hedging instruments and hedged items for the three and nine months ended September 30, 2001 include a gain of $0.4 million and a loss of $1.4 million, respectively, related to other derivative instruments, including embedded derivatives. For the three and nine months ended September 30, 2001 a $50.6 million gain and a $14.2 million loss, respectively, were recorded on the change in value of cross-currency interest rate swaps hedging variable rate medium-term notes denominated in foreign currencies. An offsetting loss of $50.4 million and a gain of $12.6 million were recorded to reflect the change in spot rates during the three and nine months ended September 30, 2001 on these variable rate liabilities. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Unaudited Consolidated Financial Statements, Continued (4) Comprehensive Income (Loss) --------------------------- Comprehensive income (loss) includes net income as well as certain items that are reported directly within a separate component of shareholder's equity that bypass net income. Other comprehensive income (loss) is comprised of unrealized gains (losses) on securities available-for-sale and accumulated net gains on cash flow hedges. The related before and after federal income tax amounts are as follows:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------------------------------------------------------------------------------------------------- (in millions) 2001 2000 2001 2000 =================================================================================================================== Unrealized gains (losses) on securities available-for-sale arising during the period: Transition adjustment - EITF 99-20 $ - $ - $ 3.5 $ - Gross 229.3 116.0 381.4 86.6 Adjustment to deferred policy acquisition costs (78.1) (34.9) (122.2) (25.8) Related federal income tax expense (52.9) (28.4) (91.9) (21.3) ------------------------------------------------------------------------------------------------------------------- Net 98.3 52.7 170.8 39.5 ------------------------------------------------------------------------------------------------------------------- Reclassification adjustment for net losses (gains) on securities available-for-sale realized during the period: Gross 6.4 (2.9) 11.7 9.2 Related federal income tax (benefit) expense (2.2) 1.0 (4.1) (3.2) ------------------------------------------------------------------------------------------------------------------- Net 4.2 (1.9) 7.6 6.0 ------------------------------------------------------------------------------------------------------------------- Other comprehensive income on securities available-for-sale 102.5 50.8 178.4 45.5 ------------------------------------------------------------------------------------------------------------------- Accumulated net gain on cash flow hedges: Transition adjustment - FAS 133 - - 5.6 - Gross 5.0 - 5.8 - Related federal income tax expense (1.8) - (4.0) - ------------------------------------------------------------------------------------------------------------------- Other comprehensive income on cash flow hedges 3.2 - 7.4 - ------------------------------------------------------------------------------------------------------------------- Total Other Comprehensive Income $ 105.7 $ 50.8 $ 185.8 $ 45.5 ===================================================================================================================
(5) Segment Disclosures ------------------- The Company uses differences in products as the basis for defining its reportable segments. The Company reports three product segments: Individual Annuity, Institutional Products and Life Insurance. The Individual Annuity segment consists of both variable and fixed annuity contracts. Individual annuity contracts provide the customer with tax-deferred accumulation of savings and flexible payout options including lump sum, systematic withdrawal or a stream of payments for life. In addition, variable annuity contracts provide the customer with access to a wide range of investment options and asset protection in the event of an untimely death, while fixed annuity contracts generate a return for the customer at a specified interest rate fixed for a prescribed period. The Company's individual annuity products consist of single premium deferred annuities, flexible premium deferred annuities and single premium immediate annuities. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Unaudited Consolidated Financial Statements, Continued The Institutional Products segment is comprised of the Company's group pension and payroll deduction business, both public and private sectors, and medium-term note programs. The public sector includes the 457 business in the form of fixed and variable annuities. The private sector includes the 401(k) business generated through fixed and variable annuities. The Life Insurance segment consists of insurance products, including universal life insurance, corporate-owned life insurance (COLI) and bank-owned life insurance (BOLI) products, which provide a death benefit and also allow the customer to build cash value on a tax-advantaged basis. In addition to the product segments, the Company reports a Corporate segment. The Corporate segment includes net investment income not allocated to the three product segments, certain revenues and expenses of the Company's broker/dealer subsidiary, unallocated expenses and interest expense on short-term borrowings. In addition to these operating revenues and expenses, the Company also reports net realized gains and losses on investments, hedging instruments and hedged items in the Corporate segment. The following table summarizes the financial results of the Company's business segments for the three months ended September 30, 2001 and 2000.
INDIVIDUAL INSTITUTIONAL LIFE (in millions) ANNUITY PRODUCTS INSURANCE CORPORATE TOTAL =================================================================================================================== 2001 Net investment income $ 135.7 $ 211.8 $ 80.7 $ 6.8 $ 435.0 Other operating revenue 134.4 47.3 121.6 3.3 306.6 ------------------------------------------------------------------------------------------------------------------- Total operating revenue(1) 270.1 259.1 202.3 10.1 741.6 ------------------------------------------------------------------------------------------------------------------- Interest credited to policyholder account balances 111.0 159.2 44.6 - 314.8 Amortization of deferred policy acquisition costs 53.0 10.4 21.8 - 85.2 Interest expense on short-term borrowings - - - 0.8 0.8 Other benefits and expenses 52.7 40.5 92.5 0.4 186.1 ------------------------------------------------------------------------------------------------------------------- Total expenses 216.7 210.1 158.9 1.2 586.9 ------------------------------------------------------------------------------------------------------------------- Operating income before federal income tax expense(1) 53.4 49.0 43.4 8.9 154.7 Net realized gains on investments, hedging instruments and hedged items - - - 36.7 36.7 ------------------------------------------------------------------------------------------------------------------- Income before federal income tax expense and cumulative effect of adoption of accounting principles $ 53.4 $ 49.0 $ 43.4 $ 45.6 $ 191.4 ===================================================================================================================
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Unaudited Consolidated Financial Statements, Continued
INDIVIDUAL INSTITUTIONAL LIFE (in millions) ANNUITY PRODUCTS INSURANCE CORPORATE TOTAL =================================================================================================================== 2000 Net investment income $ 119.5 $ 203.7 $ 73.5 $ 15.9 $ 412.6 Other operating revenue 153.6 68.9 114.0 3.6 340.1 ------------------------------------------------------------------------------------------------------------------- Total operating revenue(1) 273.1 272.6 187.5 19.5 752.7 ------------------------------------------------------------------------------------------------------------------- Interest credited to policyholder account balances 98.8 153.6 40.0 - 292.4 Amortization of deferred policy acquisition costs 60.9 15.2 15.5 - 91.6 Other benefits and expenses 41.6 46.0 92.9 9.2 189.7 ------------------------------------------------------------------------------------------------------------------- Total expenses 201.3 214.8 148.4 9.2 573.7 ------------------------------------------------------------------------------------------------------------------- Operating income before federal income tax expense(1) 71.8 57.8 39.1 10.3 179.0 Net realized losses on investments, hedging instruments and hedged items - - - (2.1) (2.1) ------------------------------------------------------------------------------------------------------------------- Income (loss) before federal income tax expense and cumulative effect of adoption of accounting principles $ 71.8 $ 57.8 $ 39.1 $ 8.2 $ 176.9 ===================================================================================================================
-------------- (1) Excludes net realized gains and losses on investments, hedging instruments and hedged items. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Unaudited Consolidated Financial Statements, Continued The following table summarizes the financial results of the Company's business segments for the nine months ended September 30, 2001 and 2000.
INDIVIDUAL INSTITUTIONAL LIFE (in millions) ANNUITY PRODUCTS INSURANCE CORPORATE TOTAL =================================================================================================================== 2001 Net investment income $ 387.3 $ 635.3 $ 241.7 $ 22.5 $ 1,286.8 Other operating revenue 422.8 158.6 376.7 12.1 970.2 ------------------------------------------------------------------------------------------------------------------- Total operating revenue(1) 810.1 793.9 618.4 34.6 2,257.0 ------------------------------------------------------------------------------------------------------------------- Interest credited to policyholder account balances 316.4 476.0 131.5 - 923.9 Amortization of deferred policy acquisition costs 164.2 36.2 64.8 - 265.2 Interest expense on short-term borrowings - - - 4.7 4.7 Other benefits and expenses 152.4 123.3 286.2 5.5 567.4 ------------------------------------------------------------------------------------------------------------------- Total expenses 633.0 635.5 482.5 10.2 1,761.2 ------------------------------------------------------------------------------------------------------------------- Operating income before federal income tax expense(1) 177.1 158.4 135.9 24.4 495.8 Net realized gains on investments, hedging instruments and hedged items - - - 34.9 34.9 ------------------------------------------------------------------------------------------------------------------- Income before federal income tax expense and cumulative effect of adoption of accounting principles $ 177.1 $ 158.4 $ 135.9 $ 59.3 $ 530.7 =================================================================================================================== Assets as of period end $ 39,944.9 $ 33,120.7 $ 8,548.1 $ 3,180.8 $ 84,794.5 ===================================================================================================================
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Unaudited Consolidated Financial Statements, Continued
INDIVIDUAL INSTITUTIONAL LIFE (in millions) ANNUITY PRODUCTS INSURANCE CORPORATE TOTAL =================================================================================================================== 2000 Net investment income $ 361.1 $ 612.2 $ 214.2 $ 42.1 $ 1,229.6 Other operating revenue 476.0 192.7 335.5 12.8 1,017.0 ------------------------------------------------------------------------------------------------------------------- Total operating revenue(1) 837.1 804.9 549.7 54.9 2,246.6 ------------------------------------------------------------------------------------------------------------------- Interest credited to policyholder account balances 296.8 465.5 114.6 - 876.9 Amortization of deferred policy acquisition costs 175.1 39.2 49.4 - 263.7 Other benefits and expenses 150.6 127.4 276.8 27.9 582.7 ------------------------------------------------------------------------------------------------------------------- Total expenses 622.5 632.1 440.8 27.9 1,723.3 ------------------------------------------------------------------------------------------------------------------- Operating income before federal income tax expense(1) 214.6 172.8 108.9 27.0 523.3 Net realized losses on investments, hedging instruments and hedged items - - - (15.9) (15.9) ------------------------------------------------------------------------------------------------------------------- Income before federal income tax expense and cumulative effect of adoption of accounting principles $ 214.6 $ 172.8 $ 108.9 $ 11.1 $ 507.4 =================================================================================================================== Assets as of period end $ 47,255.8 $ 40,005.9 $ 7,939.0 $ 2,486.5 $ 97,687.2 ===================================================================================================================
---------- (1) Excludes net realized gains and losses on investments, hedging instruments and hedged items. (6) Contingencies -------------- On October 29, 1998, the Company was 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). On May 3, 1999, the complaint was amended to, among other things, add Marcus Shore as a second plaintiff. The amended complaint is brought as a class action on behalf of all persons who purchased individual deferred annuity contracts or participated in group annuity contracts sold by the Company and the other named Company affiliates which were used to fund certain tax-deferred retirement plans. The amended complaint seeks unspecified compensatory and punitive damages. No class has been certified. On June 11, 1999, the Company and the other named defendants filed a motion to dismiss the amended complaint. On March 8, 2000, the court denied the motion to dismiss the amended complaint filed by the Company and other named defendants. The Company intends to defend this lawsuit vigorously. ITEM 2 MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS INTRODUCTION The following analysis of unaudited consolidated results of operations of the Company should be read in conjunction with the unaudited consolidated financial statements and related notes included elsewhere herein. Management's discussion and analysis contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the results of operations and businesses of the Company. These forward-looking statements involve certain risks and uncertainties. Factors that may cause actual results to differ materially from those contemplated or projected, forecast, estimated or budgeted in such forward looking statements include, among others, the following possibilities: (i) the potential impact on the Company's reported net income that could result from the adoption of certain accounting standards issued by the Financial Accounting Standards Board; (ii) tax law changes impacting the tax treatment of life insurance and investment products; (iii) heightened competition, including specifically the intensification of price competition, the entry of new competitors and the development of new products by new and existing competitors; (iv) adverse state and federal legislation and regulation, including limitations on premium levels, increases in minimum capital and reserves, and other financial viability requirements; (v) failure to expand distribution channels in order to obtain new customers or failure to retain existing customers; (vi) inability to carry out marketing and sales plans, including, among others, development of new products and/or changes to certain existing products and acceptance of the new and/or revised products in the market; (vii) changes in interest rates and the capital markets causing a reduction of investment income and/or asset fees, reduction in the value of the Company's investment portfolio or a reduction in the demand for the Company's products; (viii) general economic and business conditions which are less favorable than expected; (ix) unanticipated changes in industry trends and ratings assigned by nationally recognized rating organizations; and (x) inaccuracies in assumptions regarding future persistency, mortality, morbidity and interest rates used in calculating reserve amounts. RESULTS OF OPERATIONS Revenues Total operating revenues, which exclude net realized gains and losses on investments, hedging instruments and hedged items for third quarter 2001 increased to $741.6 million compared to $752.7 million for the same period in 2000. For the first nine months of 2001 and 2000, total operating revenues were $2.26 billion and $2.25 billion, respectively. Policy charges include asset fees, which are primarily earned from separate account assets generated from sales of individual and group variable annuities and investment life insurance products; cost of insurance charges earned on universal life insurance products; administration fees, which include fees charged per contract on a variety of the Company's products and premium loads on universal life insurance products; and surrender fees, which are charged as a percentage of premiums withdrawn during a specified period of annuity and certain life insurance contracts. Policy charges for the comparable periods of 2001 and 2000 were as follows:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------------------------------------- (in millions) 2001 2000 2001 2000 ===================================================================================================== Asset fees $ 149.7 $ 185.6 $ 466.6 $ 541.5 Cost of insurance charges 51.5 40.4 147.7 112.5 Administrative fees 26.4 35.7 98.8 99.6 Surrender fees 16.3 23.1 54.9 69.9 ----------------------------------------------------------------------------------------------------- Total policy charges $ 243.9 $ 284.8 $ 768.0 $ 823.5 =====================================================================================================
The decline in asset fees reflects a decrease in total average separate account assets of $12.07 billion (18%) and $5.28 billion (8%) for the three and nine months ended September 30, 2001, respectively, compared to the same periods a year ago. Market depreciation on variable annuity and investment life insurance products, partially offset by net flows into these products, have resulted in the decrease in average separate account balances. Cost of insurance charges are assessed on the net amount at risk on universal life insurance policies. The net amount at risk is equal to a policy's death benefit minus the related policyholder account value. The amount charged is based on the insured's age and other underwriting factors. The increase in cost of insurance charges is due primarily to growth in the net amount at risk related to corporate and individual investment life insurance reflecting expanded distribution and increased acceptance by producers and consumers. The net amount at risk related to corporate and individual investment life insurance grew to $32.0 billion as of September 30, 2001 compared to $26.30 billion a year ago. The decline in administrative fees in third quarter 2001 compared to a year ago is partially attributable to a decrease in premiums on individual investment life policies and certain corporate-owned life policies where the Company collects a premium load. Also contributing to the decline are case terminations in the Institutional Products segment that generated additional administrative fees in third quarter 2000. Surrender charges decreased as a result of continued improvement in customer retention in the Individual Annuity segment in the first nine months of 2001 compared to the same period a year ago. Net investment income includes the investment income earned on investments supporting fixed annuities and certain life insurance products as well as the yield on the Company's general account invested assets which are not allocated to product segments, net of related investment expenses. General account assets supporting insurance products are closely correlated to the underlying reserves on these products. Net investment income grew from $412.6 million in the third quarter of 2000 to $435.0 million in the third quarter of 2001 and from $1.23 billion in the first nine months of 2000 to $1.29 billion in the first nine months of 2001. The increases were primarily due to increased invested assets to support growth in individual fixed annuity, institutional products and life insurance policy reserves, partially offset by lower yields. General account reserves supporting these products increased $2.96 billion to $24.76 billion as of the end of third quarter 2001 compared to $21.80 billion a year ago. Realized gains and losses on investments, hedging instruments and hedged items are not considered by the Company to be recurring components of earnings. The Company makes decisions concerning the sale of invested assets based on a variety of market, business, tax and other factors. In addition, included in this caption are changes in the fair value of items qualifying as fair value hedges, the related hedged items and the ineffective portion of cash flow hedges, all of which are not considered recurring components of earnings. Other income includes management fees, commissions and other income earned by subsidiaries of the Company that provide investment management, marketing, distribution and administration services. Benefits and Expenses Interest credited to policyholder account balances totaled $314.8 million in third quarter 2001 compared to $292.4 million in third quarter 2000, while year-to-date 2001 interest credited totaled $923.9 million compared to $876.9 million a year ago and principally relates to fixed annuities, both individual and institutional, and investment life insurance products. The growth in interest credited reflects the increase in policy reserves for these products, partially offset by lower crediting rates in the Institutional segment. The decline in amortization of deferred policy acquisition costs (DAC), which totaled $85.2 million and $91.6 million in the third quarter of 2001 and 2000, respectively, is consistent with lower earnings in the Individual Annuity segment. On a year-to-date basis, DAC amortization totaled $265.2 million in 2001 compared to $263.7 million in 2000. Operating expenses decreased 12% to $109.8 million in third quarter 2001 compared to $125.2 million in third quarter 2000. For the first nine months of 2001, operating expenses were $327.3 million, down 11% from $365.7 million for the first nine months of 2000. The decrease reflects the Company's commitment to aggressive expense management in response to volatile equity markets. Federal income tax expense was $52.8 million in third quarter 2001 compared to $50.9 million in third quarter 2000, representing effective tax rates of 27.6% and 28.8% for third quarter 2001 and 2000 respectively. For the first nine months of 2001 and 2000 federal income tax expense was $141.9 million and $157.2 million, representing effective tax rates of 26.7% and 31.0%, respectively. An increase in tax exempt income and investment tax credits resulted in the decrease in effective rates. Other Data In managing business, the Company analyzes operating performance using a non-GAAP measure called net operating income. The Company calculates net operating income by adjusting net income to exclude net realized gains and losses on investments, hedging instruments and hedged items and cumulative effect of change in accounting principles. Net operating income or similar measures are commonly used in the insurance industry as a measure of ongoing earnings performance. The excluded items are important in understanding the Company's overall results of operations. Net operating income should not be viewed as a substitute for net income determined in accordance with GAAP, and you should note that the Company's definition of net operating income may differ from that used by other companies. However, the Company believes that the presentation of net operating income as it is measured for management purposes enhances the understanding of the Company's results of operations by highlighting the results from ongoing operations and the underlying profitability factors of the Company's business. The Company excludes net realized gains and losses on investments, hedging instruments and hedged items from net operating income because the timing of transactions resulting in recognition of gains or losses is largely at the Company's discretion and the amount of these gains and losses is heavily influenced by and fluctuates in part according to the availability of market opportunities. Including the fluctuating effects of these transactions could distort trends in the underlying profitability of the Company's business. The following table reconciles the Company's reported net income to net operating income for the periods indicated.
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------------------------------- (in millions) 2001 2000 2001 2000 =========================================================================================================== Net income $ 138.6 $ 126.0 $ 381.7 $ 350.2 Net realized (gains) losses on investments, hedging instruments and hedged items, net of tax (23.9) 1.3 (22.7) 10.3 Cumulative effect of adoption of accounting principles, net of tax - - 7.1 - ----------------------------------------------------------------------------------------------------------- Net operating income $ 114.7 $ 127.3 $ 366.1 $ 360.5 ===========================================================================================================
Recently Issued Accounting Pronouncements See note 2 to the unaudited consolidated financial statements for a discussion of recently issued accounting pronouncements. Sales Information In managing business, the Company regularly monitors and reports a non-GAAP measure titled sales. Sales or similar measures are commonly used in the insurance industry as a measure of business generated in the period. Sales should not be viewed as a substitute for revenues determined in accordance with GAAP, and the Company's definition of sales might differ from that used by other companies. Sales generate assets, which ultimately drive revenues from policy charges. Sales are comprised of statutory premiums or deposits on annuities, pension plans and life insurance products sold to a wide variety of customer bases. Statutory premiums and deposits are calculated in accordance with accounting practices prescribed or permitted by regulatory authorities and then adjusted to arrive at sales. Sales also include deposits on administration only group pension plans. Sales are stated net of internal replacements, which in the Company's opinion provides a more meaningful disclosure of sales. In addition, sales exclude: funding agreements issued to secure notes issued to foreign and domestic investors through an unrelated third party trust under the Company's two medium-term note programs; BOLI; large case pension plan acquisitions; and deposits into Nationwide employee and agent benefit plans. Although these products contribute to asset and earnings growth, they do not produce steady production flow that lends itself to meaningful comparisons and are therefore excluded from sales. The Company believes that the presentation of sales as measured for management purposes enhances the understanding of the Company's business and helps depict trends that may not be apparent in the results of operations due to differences between the timing of sales and revenue recognition. The Company's flagship products are marketed under The BEST of AMERICA(R) brand, and include individual and group variable annuities and variable life insurance. The BEST of AMERICA products allow customers to choose from investment options managed by premier mutual fund managers. The Company has also developed private label variable and fixed annuity products in conjunction with other financial services providers which allow those providers to sell products to their own customer bases under their own brand name. The Company also markets group deferred compensation retirement plans to employees of state and local governments for use under Internal Revenue Code (IRC) Section 457. The Company utilizes its sponsorship by the National Association of Counties and The United States Conference of Mayors when marketing IRC Section 457 products. Sales by product and segment for the comparable periods of 2001 and 2000 are summarized as follows:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------------------------------------------- (in millions) 2001 2000 2001 2000 ====================================================================================================== The BEST of AMERICA products $ 895.1 $ 1,398.3 $ 2,948.3 $ 4,282.1 Private label annuities 359.7 235.6 1,116.7 784.3 Other - 5.8 2.8 81.0 ------------------------------------------------------------------------------------------------------ Total individual variable annuity sales 1,254.8 1,639.7 4,067.8 5,147.4 ------------------------------------------------------------------------------------------------------ Deferred fixed annuities 543.7 133.5 1,296.9 325.0 Immediate fixed annuities 29.4 26.2 102.5 95.8 ------------------------------------------------------------------------------------------------------ Total individual fixed annuity sales 573.1 159.7 1,399.4 420.8 ------------------------------------------------------------------------------------------------------ Total individual annuity sales $ 1,827.9 $ 1,799.4 $ 5,467.2 $ 5,568.2 ====================================================================================================== The BEST of AMERICA products $ 716.4 $ 897.3 $ 2,425.0 $ 3,046.4 Other 16.6 11.1 43.9 37.4 ------------------------------------------------------------------------------------------------------ Total private sector pension plan sales 733.0 908.4 2,468.9 3,083.8 ------------------------------------------------------------------------------------------------------ Total public sector pension plan sales - IRC Section 457 annuities 366.8 427.5 1,156.9 1,732.8 ------------------------------------------------------------------------------------------------------ Total institutional products sales $ 1,099.8 $ 1,335.9 $ 3,625.8 $ 4,816.6 ====================================================================================================== The BEST of AMERICA variable life series $ 120.4 $ 155.8 $ 409.9 $ 419.2 Corporate-owned life insurance 78.0 152.9 593.7 476.2 Traditional/Universal life insurance 56.7 59.2 178.9 179.8 ------------------------------------------------------------------------------------------------------ Total life insurance sales $ 255.1 $ 367.9 $ 1,182.5 $ 1,075.2 ======================================================================================================
The Company sells its products through a broad distribution network. Unaffiliated entities that sell the Company's products to their own customer base include independent broker/dealers, brokerage firms, financial institutions, pension plan administrators and life insurance specialists. Representatives of the Company who market products directly to a customer base identified by the Company consists of Nationwide Retirement Solutions. The Company also distributes savings products through the agency distribution force of its ultimate parent company, Nationwide Mutual Insurance Company. Sales by distribution channel are summarized as follows.
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------------------------------------- (in millions) 2001 2000 2001 2000 ===================================================================================================== Independent broker/dealers $ 937.2 $ 1,456.2 $ 3,198.7 $ 4,593.4 Brokerage firms 568.5 294.5 1,598.2 902.7 Financial institutions 818.8 736.6 2,361.8 2,148.1 Pension plan administrators 224.7 228.7 767.8 819.6 Life insurance specialists 78.1 154.9 593.8 482.5 Nationwide agents 171.2 184.6 533.7 619.5 Nationwide Retirement Solutions 384.3 447.7 1,221.5 1,894.2 -----------------------------------------------------------------------------------------------------
The decrease in sales in the independent broker/dealer channel reflects lower demand for variable annuities due to volatile equity markets and a shift in private sector pension plan sales from group annuities issued by the Company to trust products issued by an affiliate, Nationwide Trust Company. Sales through brokerage firms increased 93% in third quarter 2001 compared to third quarter 2000 and are up 77% for the first nine months, principally due to the addition of Waddell & Reed as a distributor. Sales through financial institutions grew 11% in third quarter 2001 compared to a year ago, and grew 10% for the first nine months of 2001 compared to the first nine months of 2000, driven mainly by the appointment of new distributors in the bank channel who sell fixed annuity products. The increase in sales through life insurance specialists during the first nine months of 2001 compared to the same period a year ago reflects increased sales of COLI products that occurred in the first half of 2001. Third quarter 2001 sales through this channel were impacted by the volatile economic climate as fewer businesses are creating new employee benefit programs. Nationwide Retirement Solutions sales reached $384.3 million during third quarter 2001, a 14% decrease from a year ago. In this channel, sales declined from a year ago reflecting the impact of previously lost cases on recurring deposits. The decline in sales is also attributable to a shift in both Private and Public sector sales from group annuity contracts issued by the Company to administration only and Trust Company products provided by affiliates. Lower sales through this channel for the first nine months of 2001 compared to the same period a year ago reflects the impact of previously lost cases on recurring deposits. BUSINESS SEGMENTS The Company reports three product segments: Individual Annuity, Institutional Products and Life Insurance. In addition, the Company reports certain other revenues and expenses in a Corporate segment. The following table summarizes operating income before federal income tax expense for the Company's business segments for the periods indicated.
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------------------------------------- (in millions) 2001 2000 2001 2000 ================================================================================================================= Individual Annuity $ 53.4 $ 71.8 $ 177.1 $ 214.6 Institutional Products 49.0 57.8 158.4 172.8 Life Insurance 43.4 39.1 135.9 108.9 Corporate 8.9 10.3 24.4 27.0 ----------------------------------------------------------------------------------------------------------------- Operating income before federal income tax expense $ 154.7 $ 179.0 $ 495.8 $ 523.3 =================================================================================================================
Individual Annuity The Individual Annuity segment consists of both variable and fixed annuity contracts. Individual annuity contracts provide the customer with tax-deferred accumulation of savings and flexible payout options including lump sum, systematic withdrawal or a stream of payments for life. In addition, variable annuity contracts provide the customer with access to a wide range of investment options and asset protection in the event of an untimely death, while fixed annuity contracts generate a return for the customer at a specified interest rate fixed for a prescribed period. The Company's individual annuity products consist of single premium deferred annuities, flexible premium deferred annuities and single premium immediate annuities. The following table summarizes certain selected financial data for the Company's Individual Annuity segment for the periods indicated.
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------------------------------------- (in millions) 2001 2000 2001 2000 ================================================================================================================= INCOME STATEMENT DATA Revenues: Policy charges $ 120.2 $ 147.0 $ 374.9 $ 437.8 Net investment income 135.7 119.5 387.3 361.1 Premiums on immediate annuities 14.2 6.6 47.9 38.2 ----------------------------------------------------------------------------------------------------------------- 270.1 273.1 810.1 837.1 ----------------------------------------------------------------------------------------------------------------- Benefits and expenses: Interest credited to policyholder account balances 111.0 98.8 316.4 296.8 Other benefits 16.4 7.5 52.0 39.4 Amortization of deferred policy acquisition costs 53.0 60.9 164.2 175.1 Other operating expenses 36.3 34.1 100.4 111.2 ----------------------------------------------------------------------------------------------------------------- 216.7 201.3 633.0 622.5 ----------------------------------------------------------------------------------------------------------------- Operating income before federal income tax expense $ 53.4 $ 71.8 $ 177.1 $ 214.6 ================================================================================================================= OTHER DATA Sales: Individual variable annuities $ 1,254.8 $ 1,639.7 $ 4,067.8 $ 5,147.4 Individual fixed annuities 573.1 159.7 1,399.4 420.8 ----------------------------------------------------------------------------------------------------------------- Total individual annuity sales $ 1,827.9 $ 1,799.4 $ 5,467.2 $ 5,568.2 ================================================================================================================= Average account balances: General account $ 7,808.8 $ 6,893.1 $ 7,336.1 $ 6,965.6 Separate account 32,754.8 39,008.8 34,006.6 38,146.1 ----------------------------------------------------------------------------------------------------------------- Total average account balances $ 40,563.6 $ 45,901.9 $ 41,342.7 $ 45,111.7 ================================================================================================================= Account balances as of period end: Individual variable annuities $ 32,758.2 $ 41,645.8 Individual fixed annuities 5,164.1 3,792.0 ----------------------------------------------------------------------------------------------------------------- Total account balances $ 37,922.3 $ 45,437.8 ================================================================================================================= Return on average equity 12.0% 21.5% 14.3% 20.9% Pre-tax operating income to average account balances 0.53% 0.63% 0.57% 0.63% ------------------------------------------------------------------------------------ -----------------------------
Pre-tax operating earnings totaled $53.4 million in third quarter 2001, down 26% compared to a year ago earnings of $71.8 million. For the first nine months of 2001 pre-tax operating earnings were $177.1 million compared to $214.6 million for the first nine months of 2000. Asset fees decreased to $103.1 million in the third quarter of 2001, down 17% from $124.1 million in the same period a year ago. For the first nine months of 2001, asset fees totaled $318.7 million down 12% from the first nine months of 2000 total of $361.9 million. Asset fees are calculated daily and charged as a percentage of separate account assets. The decrease in asset fees is due to market depreciation on investments underlying reserves. For the three and nine months ended September 30, 2001, average separate account assets decreased 16% to $32.75 billion and 11% to $34.01 billion respectively, compared to the same periods a year ago. Surrender fees decreased by $5.6 million to $12.8 million in the third quarter of 2001 compared to a year ago. For the first nine months of 2001, surrender fees totaled $42.3 million compared to $61.3 million in the same period a year ago. These decreases were due to improved persistency in individual variable and fixed annuities. Operating expenses were $36.3 million in third quarter 2001, an increase of 6% over third quarter 2000. During the first nine months of 2001, operating expenses totaled $100.4 million, a decrease of 10% over the first nine months of 2000 total of $111.2 million reflecting management's focus on expense management in response to volatile equity markets. The following table depicts the interest spread on average general account reserves in the Individual Annuity segment for the periods indicated.
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------------------------------------- 2001 2000 2001 2000 ======================================================================================================== Net investment income 7.50% 7.89% 7.65% 7.84% Interest credited 5.69 5.73 5.75 5.68 -------------------------------------------------------------------------------------------------------- Interest spread 1.81% 2.16% 1.90% 2.16% ========================================================================================================
Interest spreads narrowed in the third quarter of 2001 and on a year-to-date basis compared to the prior year. A combination of the current competitive environment, a sharp decline in interest rates and a by-product of the Company's investment strategy all contributed to the reduction in spreads. As a strategic move to maintain market share, the Company did not lower crediting rates in the third quarter as quickly as earned rates declined. In addition, throughout 2001, the Company had a significant increase in cash flows in the general account due to strong fixed annuity sales. During the time between when a commitment is made to purchase a commercial mortgage loan or private placement bond and closing, typically 30 to 60 days, the cash is invested short-term. This strategy, while sound over the long-term, can provide short-term pressure on spreads, especially in a declining interest rate environment. Led by variable product deposits of $1.42 billion offset by withdrawals and surrenders of $1.09 billion, Individual Annuity segment deposits in third quarter 2001 of $1.99 billion offset by withdrawals and surrenders totaling $1.17 billion generated net flows of $825.7 million compared to the $641.1 million achieved a year ago. Despite the competitive nature of the individual annuity market, the Company has demonstrated the ability to generate positive net flows by expanding its broad distribution network and innovative product development resources. The decrease in pre-tax operating income to average assets in third quarter and the first nine months of 2001 compared to the same periods in 2000 is primarily a result of the Company's expense structure not being as elastic as the revenue stream. Individual Annuity sales, which exclude internal replacements, during third quarter 2001 were $1.83 billion, up slightly from $1.80 billion in the year ago quarter, while year-to-date 2001 sales of individual annuities were $5.47 billion compared to $5.57 billion in 2000. The addition of new selling arrangements and volatile equity markets drove the growth in sales of deferred fixed annuities which totaled $543.7 million in the third quarter 2001 compared to $133.5 million in third quarter 2000, offsetting the decline in variable annuity sales. Sales of deferred fixed annuities for the first nine months of 2001 were $1.30 billion compared to $325.0 million for the first nine months of 2000. Institutional Products The Institutional Products segment is comprised of the Company's group pension and payroll deduction business, both public and private sectors, and medium-term note programs. The public sector includes the 457 business in the form of fixed and variable annuities. The private sector includes the 401(k) business generated through fixed and variable annuities. The sales figures do not include business generated through the Company's two medium-term note programs, large case pension plan acquisitions and Nationwide employee and agent benefit plans, however the income statement data does reflect this business. The following table summarizes certain selected financial data for the Company's Institutional Products segment for the periods indicated.
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------------------------------------- (in millions) 2001 2000 2001 2000 ================================================================================================================= INCOME STATEMENT DATA Revenues: Asset fees $ 42.4 $ 57.2 $ 135.4 $ 167.8 Net investment income 211.8 203.7 635.3 612.2 Other 4.9 11.7 23.2 24.9 ----------------------------------------------------------------------------------------------------------------- 259.1 272.6 793.9 804.9 ----------------------------------------------------------------------------------------------------------------- Benefits and expenses: Interest credited to policyholder account balances 159.2 153.6 476.0 465.5 Other benefits and expenses 50.9 61.2 159.5 166.6 ----------------------------------------------------------------------------------------------------------------- 210.1 214.8 635.5 632.1 ----------------------------------------------------------------------------------------------------------------- Operating income before federal income tax expense $ 49.0 $ 57.8 $ 158.4 $ 172.8 ================================================================================================================= OTHER DATA Sales: Private sector pension plans $ 733.0 $ 908.4 $ 2,468.9 $ 3,083.8 Public sector pension plans 366.8 427.5 1,156.9 1,732.8 ----------------------------------------------------------------------------------------------------------------- Total institutional products sales $ 1,099.8 $ 1,335.9 $ 3,625.8 $ 4,816.6 ================================================================================================================= Average account balances: General account $ 11,769.0 $ 10,344.4 $ 11,427.7 $ 10,461.6 Separate account 22,714.2 28,628.2 23,692.3 28,220.0 ----------------------------------------------------------------------------------------------------------------- Total average account balances $ 34,483.2 $ 38,972.6 $ 35,120.0 $ 38,681.6 ================================================================================================================= Account balances as of period end: Private sector pension plans $ 15,334.0 $ 19,482.3 Public sector pension plans 14,600.5 18,950.4 Medium-term notes 2,880.5 1,287.2 ----------------------------------------------------------------------------------------------------------------- Total account balances $ 32,815.0 $ 39,719.9 ================================================================================================================= Return on average equity 20.6% 26.9% 22.8% 26.0% Pre-tax operating income to average account balances 0.57% 0.59% 0.60% 0.60% -----------------------------------------------------------------------------------------------------------------
Asset fees declined 26% to $42.4 million in the quarter ended September 30, 2001 compared to a year ago, while year-to-date 2001 asset fees were $135.4 million compared to $167.8 million in 2000. The decline was driven by a 21% decrease in average separate account assets in the quarter compared to the quarter ended a year ago and a 16% drop in year-to-date average separate account assets for the first nine months of 2001 compared to the same period a year ago. Net investment income increased to $211.8 million (4%) in the third quarter of 2001 compared to a year ago. Year-to-date net investment income also increased 4% from the same period a year ago. Driving these increases were 14% and 9% increases in the average general account balance in the third quarter and first nine months of 2001, respectively, compared to the same periods a year ago, offset by lower yields. Institutional Products segment results reflect an increase in interest spread income attributable to growth in average general account assets. Interest spread is the differential between net investment income and interest credited to policyholder account balances. Interest spreads vary depending on crediting rates offered by competitors, performance of the investment portfolio, including the rate of prepayments, changes in market interest rates and other factors. The following table depicts the interest spread on average general account reserves in the Institutional Products segment for the periods indicated.
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------------------------------------- 2001 2000 2001 2000 ===================================================================================================== Net investment income 7.20% 7.88% 7.41% 7.80% Interest credited 5.41 5.94 5.55 5.93 ----------------------------------------------------------------------------------------------------- Interest spread 1.79% 1.94% 1.86% 1.87% =====================================================================================================
Interest spread on average general account reserves decreased from the prior year for the quarter and year-to-date. For Institutional pension products, the Company sets interest crediting rates prior to the start of the quarter. In addition, the time between when a deposit is received and an investment commitment is made, and the actual close on a commercial mortgage loan or private placement bond can be 30 to 60 days. These practices will put pressure on spreads in a declining interest rate environment. In addition, the Company experienced a significant amount of transfers into the general account placing further pressure on spreads. Other benefits and expenses in third quarter 2001 decreased 17% compared to a year ago. For the first nine months of 2001 other benefits and expenses totaled $159.5 million, down 4% from the first nine months of 2000. The decreases are the result of expense reductions in the group public sector pension business in response to a lower revenue base. Institutional Product sales during third quarter 2001 reached $1.10 billion compared to sales of $1.34 billion in third quarter 2000. For the first nine months of 2001, sales reached $3.63 billion compared to sales of $4.82 billion for the same period a year ago. The Private Sector continues to be impacted by the volatile equity markets, which reduced the average plan size of take-over cases and a slowing economy, which has resulted in reduced demand for new cases. In the Public Sector, sales declined from a year ago reflecting the impact of previously lost cases on recurring deposits. Institutional Products segment deposits in third quarter 2001 of $1.13 billion offset by participant withdrawals and surrenders totaling $918.7 million generated net flows from participant activity of $214.7 million, a 18% increase over third quarter 2000. Year-to-date 2001 net flows decreased 8% to $426.5 million compared to year-to-date 2000 net flows of $464.3 million. Life Insurance The Life Insurance segment consists of insurance products, including universal life insurance, COLI and BOLI products, which provide a death benefit and also allow the customer to build cash value on a tax-advantaged basis. The following table summarizes certain selected financial data for the Company's Life Insurance segment for the periods indicated.
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------------------------------------- (in millions) 2001 2000 2001 2000 ================================================================================================================= INCOME STATEMENT DATA Revenues: Total policy charges $ 76.3 $ 68.9 $ 234.5 $ 193.0 Net investment income 80.7 73.5 241.7 214.2 Other 45.3 45.1 142.2 142.5 ----------------------------------------------------------------------------------------------------------------- 202.3 187.5 618.4 549.7 ----------------------------------------------------------------------------------------------------------------- Benefits 104.6 97.0 319.6 292.2 Operating expenses 54.3 51.4 162.9 148.6 ----------------------------------------------------------------------------------------------------------------- 158.9 148.4 482.5 440.8 ----------------------------------------------------------------------------------------------------------------- Operating income before federal income tax expense $ 43.4 $ 39.1 $ 135.9 $ 108.9 ================================================================================================================= OTHER DATA Sales: The BEST of AMERICA variable life series $ 120.4 $ 155.8 $ 409.9 $ 419.2 Corporate-owned life insurance 78.0 152.9 593.7 476.2 Traditional/Universal life insurance 56.7 59.2 178.9 179.8 ----------------------------------------------------------------------------------------------------------------- Total life insurance sales $ 255.1 $ 367.9 $ 1,182.5 $ 1,075.2 ================================================================================================================= Policy reserves as of period end: Corporate investment life insurance $ 2,981.6 $ 2,378.8 Individual investment life insurance 1,944.7 2,152.1 Traditional life insurance 1,853.2 1,807.0 Universal life insurance 779.4 770.7 ----------------------------------------------------------------------------------------------------------------- Total policy reserves $ 7,558.9 $ 7,108.6 ================================================================================================================= Return on average equity 10.8% 12.6% 12.0% 12.1% -----------------------------------------------------------------------------------------------------------------
Life Insurance segment results reflect increased revenues driven by growth in investment life insurance in force. Life Insurance segment earnings increased 11% to $43.4 million for the third quarter 2001, up from $39.1 million a year ago. On a year-to-date basis segment earnings increased 25% to $135.9 million in 2001 from $108.9 million in 2000. The increase in Life Insurance segment earnings is attributable to strong sales and increased investment life earnings due to reserve growth in both individual and corporate investment life insurance products. Driven primarily by increased policy charges, revenues from investment life products increased to $97.6 million in third quarter 2001 compared to $83.9 million in third quarter 2000, while year-to-date revenues increased to $296.9 million for 2001 compared to $232.9 million for 2000. The revenue growth reflects significantly increased policy reserve levels driven by corporate investment life reserves, which include both BOLI and COLI products, which reached $2.98 billion as of September 30, 2001, up from $2.38 billion in the same period a year ago. Pre-tax operating earnings from investment life products totaled $25.1 million in third quarter 2001 a 20% increase from $20.9 million in third quarter 2000, while the first nine months of 2001 reached $77.4 compared to $61.1 million a year ago, a 27% increase. The strong revenue growth discussed previously was offset by higher life insurance benefits due to the growth in the number of policies in-force in the third quarter and first nine months of 2001. Traditional/Universal life pre-tax operating earnings increased slightly to $18.3 million in third quarter 2001 compared to $18.2 million in the same period a year ago. For the first nine months of 2001, pre-tax operating earnings increased 22% to $58.5 million compared to $47.8 million for the first nine months of 2000, reflecting higher investment earnings and lower operating expenses. Total life insurance sales, excluding BOLI and Nationwide employee and agent benefit plan sales, decreased 31% to $255.1 million in third quarter 2001 compared to $367.9 million during the same period in 2000. For the first nine months of 2001, total life insurance sales, excluding BOLI and Nationwide employee and agent benefit plan sales, increased $107.3 million over 2000 and totaled $1.18 billion. In the quarter, individual market sales were adversely impacted by uncertainty surrounding estate planning. While the number of applications and policies issued are in line with prior year, the average size is down. COLI sales are down given the depressed economic environment where corporations are not forming new executive benefit plans and existing plans are being funded at lower levels. Corporate The following table summarizes certain selected financial data for the Company's Corporate segment for the periods indicated.
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------------------------------------- (in millions) 2001 2000 2001 2000 ================================================================================================================= INCOME STATEMENT DATA Operating revenues(1) $ 10.1 $ 19.5 $ 34.6 $ 54.9 Operating expenses 1.2 9.2 10.2 27.9 ----------------------------------------------------------------------------------------------------------------- Operating income before federal income tax expense(1) $ 8.9 $ 10.3 $ 24.4 $ 27.0 =================================================================================================================
---------- (1) Excludes net realized gains and losses on investments, hedging instruments and hedged items. The Corporate segment consists of net investment income on invested assets not allocated to the three product segments, unallocated expenses and interest expense on short-term borrowings. The decline in revenues reflects a decrease in net investment income on real estate investments and fewer investments retained in the corporate segment as more capital and the related investments earnings are allocated to the product segments to support growth. In addition to these operating revenues and expenses, the Company also reports net realized gains and losses on investments, hedging instruments and hedged items in the Corporate segment. The Company realized net investment gains of $37.4 million and net losses on hedges and hedged items of $0.7 million during the third quarter of 2001 compared to realized net investment losses of $2.1 million during the third quarter of 2000. For the first nine months of 2001, the Company realized net investment gains of $33.0 million and net gains on hedges and hedged items of $1.9 million compared to realized net investment losses of $15.9 million during the first nine months of 2000. During the third quarter and first nine months of 2001, a net investment gain of $44.4 million was realized upon the reduction of an interest in a real estate partnership investment. In addition, the Company realized an after tax loss of $4.8 million related to the adoption of FAS 133 in first quarter 2001 and an after tax loss of $2.3 related to the adoption of EITF 99-20 in second quarter 2001. ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Omitted due to reduced disclosure format. -----END PRIVACY-ENHANCED MESSAGE-----