-----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, KjPEdv/QLKjNiQZ69HUZXtQIKbSfyefYhQe4PYpSimL+rUsNSE2Q2JbpoaUBE8Se FaNlWCI9luv5Fz8Ijcbg7Q== 0001190903-04-000577.txt : 20040507 0001190903-04-000577.hdr.sgml : 20040507 20040507093624 ACCESSION NUMBER: 0001190903-04-000577 CONFORMED SUBMISSION TYPE: 497 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 20040507 EFFECTIVENESS DATE: 20040507 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONWIDE VLI SEPARATE ACCOUNT 2 CENTRAL INDEX KEY: 0000820914 IRS NUMBER: 314156830 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 033-42180 FILM NUMBER: 04787036 BUSINESS ADDRESS: STREET 1: NATIONWIDE LIFE INSURANCE CO STREET 2: ONE NATIONWIDE PLAZA CITY: COLUMBUS STATE: OH ZIP: 43215 BUSINESS PHONE: 614-249-7111 MAIL ADDRESS: STREET 1: NATIONWIDE LIFE INSURANCE CO STREET 2: ONE NATIONWIDE PLAZA CITY: COLUMBUS STATE: OH ZIP: 43215 497 1 nlaicfpvul.txt NLAIC FPVUL NATIONWIDE LIFE INSURANCE COMPANY Flexible Premium Variable Universal Life Insurance Policies Issued by Nationwide Life Insurance Company through its Nationwide VLI Separate Account-2 The date of this prospectus is May 1, 2004 THIS PROSPECTUS CONTAINS BASIC INFORMATION YOU SHOULD UNDERSTAND ABOUT THE POLICIES BEFORE INVESTING - THE INSURANCE POLICY IS THE LEGALLY BINDING INSTRUMENT GOVERNING THE RELATIONSHIP BETWEEN YOU AND NATIONWIDE SHOULD YOU CHOOSE TO INVEST. PLEASE READ THIS PROSPECTUS CAREFULLY AND KEEP IT FOR FUTURE REFERENCE. NOT ALL BENEFITS, PROGRAMS, FEATURES AND INVESTMENT OPTIONS DESCRIBED IN THIS PROSPECTUS ARE AVAILABLE OR APPROVED FOR USE IN EVERY STATE. THE FOLLOWING UNDERLYING MUTUAL FUNDS ARE AVAILABLE UNDER THE POLICIES: FIDELITY VARIABLE INSURANCE PRODUCTS FUND o VIP Growth Portfolio: Initial Class GARTMORE VARIABLE INSURANCE TRUST ("GVIT") o Gartmore GVIT Government Bond Fund: Class I o Gartmore GVIT Money Market Fund: Class I o Gartmore GVIT Nationwide(R)Fund: Class I (formerly, Gartmore GVIT Total Return Fund: Class I) NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST o AMT Balanced Portfolio THE FOLLOWING UNDERLYING MUTUAL FUNDS ARE NOT AVAILABLE FOR POLICIES ISSUED ON OR AFTER MAY 1, 2003: AMERICAN CENTURY VARIABLE PORTFOLIOS, INC. o American Century VP Balanced Fund: Class I GARTMORE VARIABLE INSURANCE TRUST o Gartmore GVIT Growth Fund: Class I For general information or to obtain FREE copies of the: o Nationwide's privacy statement; o prospectus, annual report or semi-annual report for any underlying mutual fund; and o any required Nationwide forms, call: 1-800-547-7548 TDD 1-800-238-3035 or write: NATIONWIDE LIFE INSURANCE COMPANY ONE NATIONWIDE PLAZA, RR1-04-D4 COLUMBUS, OHIO 43215 Material incorporated by reference to 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 world-wide web at: WWW.BESTOFAMERICA.COM THIS POLICY: o IS NOT A BANK DEPOSIT o IS NOT FDIC INSURED o IS NOT INSURED OR ENDORSED BY A BANK OR ANY FEDERAL GOVERNMENT AGENCY o IS NOT AVAILABLE IN EVERY STATE o MAY GO DOWN IN VALUE 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 with the amount and frequency of premium payments. 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-2 or the fixed account, depending on how premium payments are invested. DECLINING VALUES OR NEGATIVE INVESTMENT RESULTS MAY RESULT IN REDUCTIONS IN DEATH BENEFITS, CASH VALUES, AND THE LOSS OF INSURANCE COVERAGE IF ADDITIONAL PREMIUMS ARE NOT PAID. Investors assume certain risks when investing in the policies, including the risk losing of money. Nationwide guarantees the death benefit for as long as the policy is in force. Nationwide guarantees to keep the policy in force so long as minimum premium requirements have been met. The cash surrender value is not guaranteed. The 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 - - refer to your policy for specific benefit information. 1 In the future, additional underlying mutual funds managed by certain financial institutions, brokerage firms, or their affiliates may be added to the variable account. These additional underlying mutual funds may be offered exclusively to purchasing customers of the particular financial institution or brokerage firm, or through other exclusive distribution arrangements. 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. 2 GLOSSARY OF SPECIAL TERMS ATTAINED AGE- The insured's age on the policy date, plus the number of full years since the policy issue date. ACCUMULATION UNIT- An accounting unit of measure used to calculate the cash value of the variable account. BREAK POINT PREMIUM- The level annual premium at which the sales load is reduced on a current basis. 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. GUIDELINE LEVEL PREMIUM- The level annual premiums required to mature the policy under reasonable mortality and expense charges with an annual effective interest rate of 5%. It is calculated pursuant to Rule 6e-3(T) of the Investment Company Act of 1940. SUB-ACCOUNTS- Divisions of the variable account to which underlying mutual fund shares are allocated and for which accumulation units are separately maintained. MATURITY DATE- The policy anniversary on or next following the insured's 95th birthday. NATIONWIDE- Nationwide Life Insurance Company. NET PREMIUMS- Net premiums are equal to the actual premiums minus the percent of premium charges. The percent of premium charges are shown on the policy data page. SPECIFIED AMOUNT- The dollar amount used to determine the death benefit under a policy. VALUATION PERIOD- Each day the New York Stock Exchange is open for business. VARIABLE ACCOUNT- Nationwide VLI Separate Account-2, a separate account of Nationwide Life Insurance Company 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 TABLE OF CONTENTS GLOSSARY OF SPECIAL TERMS....................................3 TABLE OF CONTENTS............................................4 SUMMARY OF POLICY EXPENSES...................................5 SYNOPSIS OF THE POLICIES.....................................6 NATIONWIDE LIFE INSURANCE COMPANY............................6 NATIONWIDE INVESTMENT SERVICES CORPORATION.............................................6 INVESTING IN THE POLICY......................................6 The Variable Account and Underlying Mutual Funds The Fixed Account INFORMATION ABOUT THE POLICIES...............................8 Minimum Requirements for Issuance of Policies Premium Payments Pricing POLICY CHARGES...............................................9 Sales Load Tax Load Surrender Charges Reductions to Surrender Charges Monthly Cost of Insurance Charge Monthly Administrative Charge Increase Charge Mortality and Expense Risk Charge Income Tax Reduction of Charges SURRENDERING THE POLICY FOR CASH............................11 Surrender (Redemption) Income Tax Withholding VARIATION IN CASH VALUE.....................................12 Error in Age or Sex POLICY PROVISIONS...........................................12 Policy Owner Beneficiary Changes in Existing Insurance Coverage OPERATION OF THE POLICY.....................................13 Allocation of Net Premium and Cash Value How the Investment Experience is Determined Net Investment Factor Determining the Cash Value Transfers RIGHT TO REVOKE.............................................15 POLICY LOANS................................................15 Taking a Policy Loan Effect on Investment Performance Interest Effect on Death Benefit and Cash Value Repayment ASSIGNMENT..................................................16 POLICY OWNER SERVICES.......................................16 Dollar Cost Averaging DEATH BENEFIT INFORMATION...................................17 Calculation of the Death Benefit Changes in the Death Benefit Option Proceeds Payable on Death Incontestability Suicide Maturity Proceeds RIGHT OF CONVERSION.........................................18 GRACE PERIOD................................................18 Reinstatement TAX MATTERS.................................................19 Policy Proceeds Withholding Estate and Generation-Skipping Transfers Taxes Non-Resident Aliens Taxation of Nationwide Tax Changes LEGAL CONSIDERATIONS........................................22 STATE REGULATION............................................22 REPORTS TO POLICY OWNERS....................................22 ADVERTISING.................................................22 LEGAL PROCEEDINGS...........................................22 INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS....................24 REGISTRATION STATEMENT......................................24 DISTRIBUTION OF THE POLICIES................................24 NATIONWIDE INVESTMENT SERVICES CORPORATION DIRECTORS AND OFFICERS.................................25 ADDITIONAL INFORMATION ABOUT NATIONWIDE.............................................25 COMPANY MANAGEMENT..........................................26 APPENDIX A: OBJECTIVES FOR UNDERLYING MUTUAL FUNDS..........29 APPENDIX B: ILLUSTRATIONS OF SURRENDER CHARGES................................................30 4 SUMMARY OF POLICY EXPENSES Nationwide deducts certain charges from the policy. Charges are made for administrative and sales expenses, tax expenses, providing life insurance protection and assuming the mortality and expense risks. Nationwide deducts a sales load and a tax load from premium payments. The sales load is guaranteed never to exceed 3.5% of each premium payment. Currently, the sales load is reduced to 1.5% on any portion of the annual premium paid in excess of the annual break point premium (see "Sales Load"). The tax load is approximately 3.5% of premiums for all states (see "Tax Expense Charge"). Nationwide deducts a mortality and expense risk charge equal to an annualized rate of 0.80% of the daily net assets of the variable account. For each policy anniversary starting on the 10th anniversary, if the cash surrender value is $25,000 or more, the mortality and expense risk charge is reduced to an annualized rate of 0.50% of the daily net assets of the variable account. For policies issued in New York, the reduction occurs regardless of the cash surrender value. Nationwide deducts an administrative expense charge of $12.50 per month in the first year, and $5 per month in renewal years. Nationwide guarantees this charge will never exceed $25 per month in the first year and $7.50 per month in renewal years. Nationwide deducts the following charges from the cash value of the policy: o a monthly cost of insurance charge; o a monthly cost of any additional benefits provided by riders to the policy; o an increase charge (applied to increases in the specified amount); and o a surrender charge. The increase charge is comprised of an underwriting and administration component of $1.50 per year per $1,000 and a sales component of $0.54 per year per $1,000 (see "Increase Charge"). A surrender charge is assessed for policies surrendered during the first 9 policy years (see "Surrender Charges"). For more information about any policy charge, see "Policy Charges" in this prospectus. 5 SYNOPSIS OF THE POLICIES The policy offered by this prospectus provides for life insurance coverage on the insured. The death benefit and cash value of the policy may increase or decrease to reflect the performance of the investment options chosen by the policy owner (see "Death Benefit Information"). CASH SURRENDER VALUE If the policy is terminated during the insured's lifetime, a cash surrender value may be payable under the policy. However, there is no guaranteed cash surrender value (see "Variation in Cash Value "). The policy will lapse without value if the cash surrender value falls below what is needed to cover policy charges. PREMIUMS The minimum initial premium for which a policy may be issued is equal to the minimum monthly premium. The initial premium is shown on the policy data page. Each premium payment must be at least equal to the minimum monthly premium. Additional premium payments may be made at any time while the policy is in force, subject to certain restrictions (see "Premium Payments"). TAXATION The policies described in this prospectus meet the definition of "life insurance" under Section 7702 of the Internal Revenue Code. Nationwide will monitor compliance with the tests provided by Section 7702 to insure the policies continue to receive this favored tax treatment (see "Tax Matters"). NONPARTICIPATING POLICIES The policies are nonparticipating policies on which no dividends are payable. The policies do not share in the profits or surplus earnings of Nationwide. RIDERS A rider may be added to the policy (availability varies by state). Riders currently include: o Maturity Extension Endorsement; o Spouse Rider; o Child Rider; o Waiver of Monthly Deductions Rider; o Accidental Death Benefit Rider; o Base Insured Term Rider; o Accelerated Death Benefit Rider; o Change of Insured Rider; and o Guaranteed Minimum Death Benefit Rider. POLICY CANCELLATION Policy owners may return the policy for any reason within certain time periods and Nationwide will refund the policy value or the amount required by law (see "Right to Revoke"). NATIONWIDE LIFE INSURANCE COMPANY Nationwide is a stock life insurance company organized under the laws of the State of Ohio in March 1929, with its home office at One Nationwide Plaza, Columbus, Ohio 43215. Nationwide is a provider of life insurance, annuities and retirement products. It is admitted to do business in all states, the District of Columbia and Puerto Rico. CUSTODIAN OF ASSETS Nationwide serves as the custodian of the assets of the variable account. OTHER CONTRACTS ISSUED BY NATIONWIDE Nationwide offers a wide array of investment products, including variable annuity and variable life insurance products. Each of these products has different charges, benefit features and underlying investment options. Investors are encouraged to compare and contrast the costs and benefits of the policies against those of other investment products, especially other variable annuity and variable life insurance products offered by Nationwide and its affiliates. This process of comparison and analysis should aid in determining whether the purchase of the policy described in this prospectus is consistent with the investor's particular investment objectives, risk tolerance, investment time horizon, marital status, tax situation and other personal characteristics and needs. NATIONWIDE INVESTMENT SERVICES CORPORATION The policies are distributed by Nationwide Investment Services Corporation ("NISC"), One Nationwide Plaza, Columbus, Ohio 43215. (For policies issued in the State of Michigan, all references to NISC will mean Nationwide Investment Svcs. Corporation.) NISC is a wholly owned subsidiary of Nationwide. INVESTING IN THE POLICY THE VARIABLE ACCOUNT AND UNDERLYING MUTUAL FUNDS Nationwide VLI Separate Account-2 is a separate account that invests in the underlying mutual fund options listed in Appendix A. Nationwide established 6 the separate account on May 7, 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 Nationwide or the variable account. Income, gains, and losses credited to, or charged against the variable account reflect the variable account's own investment experience and not the investment experience of Nationwide's other assets. The variable account's assets are held separately from Nationwide's assets and are not chargeable with liabilities incurred in any other business of Nationwide. Nationwide is obligated to pay all amounts promised to policy owners under the policies. The variable account is divided into sub-accounts. Policy owners elect to have net premiums allocated among the sub-accounts and the fixed account at the time of application. Nationwide uses the assets of each sub-account to buy shares of the underlying mutual funds based on policy owner instructions. A policy's investment performance depends upon the performance of the underlying mutual fund options chosen by the policy owner. 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. The underlying mutual fund options 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. Policy owners should not compare the performance of a publicly traded fund with the performance of underlying mutual funds participating in the variable account. The performance of the underlying mutual funds could differ substantially from that of any publicly traded funds. Changes of Investment Policy Nationwide may materially change the investment policy of the variable account. Nationwide must inform policy owners and obtain all necessary regulatory approvals. Any change must be submitted to the various state insurance departments which may disapprove it if deemed detrimental to the interests of the policy owners or if it renders Nationwide's operations hazardous to the public. If a policy owner objects, they may make an irrevocable, one time election to transfer all sub-account cash values to the fixed account. The policy owner has the later of 60 days (6 months in Pennsylvania) from the date of the investment policy change or 60 days (6 months in Pennsylvania) from being informed of the change to make the conversion. Nationwide will not require evidence of insurability for this conversion. Voting Rights Policy owners who have allocated assets to the underlying mutual funds are entitled to certain voting rights. Nationwide will vote policy owner shares at special shareholder meetings based on policy owner instructions. However, if the law changes allowing Nationwide to vote in its own right, it may elect to do so. Policy owners with voting interests in an underlying mutual fund will be notified of issues requiring the shareholder's vote as soon as possible before the shareholder meeting. Notification will contain proxy materials, and a form to return to Nationwide with voting instructions. Nationwide will vote shares for which no instructions are received in the same proportion as those that are received. The number of shares which a policy owner 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. Nationwide will designate a date for this determination not more than 90 days before the shareholder meeting. Substitution of Securities Nationwide 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 and state insurance departments. Material Conflicts The underlying mutual funds may be offered through separate accounts of other insurance companies, as well as through other separate accounts of Nationwide. Nationwide does not anticipate any disadvantages to this. However, it is possible that a conflict may arise between the interests of the variable account and one or more of the other separate accounts in which these underlying mutual funds participate. Material conflicts may occur due to a change in law affecting the operations of variable life insurance policies and variable annuity contracts, or differences in the voting instructions of the policy owners and those of 7 other companies. If a material conflict occurs, Nationwide will take whatever steps are necessary to protect policy owners, including withdrawal of the variable account from participation in the underlying mutual fund(s) involved in the conflict. THE FIXED ACCOUNT The fixed account is an investment option that is funded by assets of Nationwide's general account. The general account contains all of Nationwide's assets other than this and those in other Nationwide separate accounts. The general account is used to support Nationwide's annuity and insurance obligations and may contain compensation for mortality and expense risks. Under exemptive and exclusionary provisions, Nationwide's general account has not been registered under the Securities Act of 1933 and has not been registered as an investment company under the Investment Company Act of 1940. Accordingly, neither the general account nor any interest therein is subject to the provisions of these Acts. Nationwide has been advised that the staff of the SEC has not reviewed the disclosures in this prospectus relating to the fixed account. Disclosures regarding the general account may, however, be subject to certain generally applicable provisions of the federal securities laws concerning the accuracy and completeness of statements made in prospectuses. Premium payments will be allocated to the fixed account by election of the policy owner. The investment income earned by the fixed account will be allocated to the policies at varying rate(s) set by Nationwide. The guaranteed rate for any premium payment will be effective for not less than twelve months. Nationwide guarantees that the rate will not be less than 4.0% per year. Any interest in excess of 4.0% will be credited to fixed account allocations at Nationwide's sole discretion. The policy owner assumes the risk that interest credited to fixed account allocations may not exceed the minimum guarantee of 4.0% for any given year. New premium payments deposited to the contract which are allocated to the fixed account may receive a different rate of interest than amounts transferred from the sub-accounts to the fixed account and amounts maturing in the fixed account. INFORMATION ABOUT THE POLICIES MINIMUM REQUIREMENTS FOR ISSUANCE OF A POLICY This policy provides life insurance coverage with the flexibility to vary the amount and frequency of premium payments. Minimum requirements for policy issuance include: o the insured must be age 80 or younger; o Nationwide may require satisfactory evidence of insurability (including a medical exam); and o a minimum specified amount $50,000 ($100,000 in Pennsylvania and New Jersey). PREMIUM PAYMENTS Each premium payment must be at least equal to the minimum monthly premium. The initial premium is payable in full at Nationwide's home office or to an authorized agent of Nationwide. Upon payment of the initial premium, temporary insurance may be provided. Issuance of the continuing insurance coverage is dependent upon completion of all underwriting requirements, payment of 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: o Nationwide may require satisfactory evidence of insurability before accepting any additional premium payment which results in an increase in the net amount at risk; o during the first 3 policy years, the total premium payments, less any policy indebtedness, less any partial surrenders, less any partial surrender fee, must be greater than or equal to the minimum premium requirement in order to guarantee the policy remain in force. (The minimum premium requirement is shown on the policy data page.); o 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; and o Nationwide may require policy indebtedness be repaid prior to accepting any additional premium payments. Additional premium payments or other changes to the policy may jeopardize the policy's non-modified endowment status. Nationwide will monitor premiums paid and other policy transactions and will notify the policy owner when non-modified endowment contract status is in jeopardy. 8 PRICING Premiums will not be priced when the New York Stock Exchange is closed or on the following nationally recognized holidays: o New Year's Day o Independence Day o Martin Luther King, Jr. Day o Labor Day o Presidents' Day o Thanksgiving o Good Friday o Christmas o Memorial Day Nationwide also will not price premium payments if: (1) trading on the New York Stock Exchange is restricted; (2) an emergency exists making disposal or valuation of securities held in the variable account impracticable; or (3) the SEC, by order, permits a suspension or postponement for the protection of security holders. Rules and regulations of the SEC will govern as to when the conditions described in (2) and (3) exist. If Nationwide is closed on days when the New York Stock Exchange is open, contract value may be affected since the policy owner would not have access to their account. POLICY CHARGES SALES LOAD Nationwide deducts a sales load from each premium payment received. It is guaranteed not to exceed 3.5% of each premium payment. Currently, the sales load is reduced to 1.5% on any portion of the annual premium paid in excess of the break point premium. The break point premium is located on the policy data page. The total sales load actually deducted from any policy will be equal to the sum of this front-end sales load plus any sales surrender charge. TAX LOAD Nationwide deducts a tax load equal to 3.5% from all premium payments. This charge is associated with the premium taxes imposed by various state and local jurisdictions and by the federal government under Section 848 of the Internal Revenue Code. The tax load may not equal the assessment paid by Nationwide during any particular year. Nationwide does not expect to make a profit from these charges. SURRENDER CHARGES Nationwide deducts a surrender charge from the cash value of any policy surrendered during the first 9 years. The charge will be 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 surrender charge is calculated based on the initial specified amount. The following tables illustrate the maximum initial surrender charge per $1,000 of initial specified amount for policies which are issued on a standard basis (see Appendix B for specific examples). INITIAL SPECIFIED AMOUNT $50,000-$99,999 - --------------------------------------------------------- Issue Male Female Male Female Age Non-Tobacco Non-Tobacco Standard Standard - --------------------------------------------------------- 25 $7.776 $7.521 $8.369 $7.818 - --------------------------------------------------------- 35 $8.817 $8.398 $9.811 $8.891 - --------------------------------------------------------- 45 $12.191 $11.396 $13.887 $12.169 - --------------------------------------------------------- 55 $15.636 $14.011 $18.415 $15.116 - --------------------------------------------------------- 65 $22.295 $19.086 $26.577 $20.641 - --------------------------------------------------------- INITIAL SPECIFIED AMOUNT $100,000 OR MORE - -------------------------------------------------------- Issue Male Female Male Female Age Non-TobaccoNon-Tobacco Standard Standard - -------------------------------------------------------- 25 $5.776 $5.521 $6.369 $5.818 - -------------------------------------------------------- 35 $6.817 $6.398 $7.811 $6.891 - -------------------------------------------------------- 45 $9.691 $8.896 $11.387 $9.669 - -------------------------------------------------------- 55 $13.136 $11.511 $15.915 $12.616 - -------------------------------------------------------- 65 $21.295 $18.086 $25.577 $19.641 - -------------------------------------------------------- The surrender charge is comprised of two components: o an underwriting component; and o sales component. The underwriting component varies by issue age in the following manner: $1,000 OF INITIAL SPECIFIED AMOUNT - ------------------------------------------------------- Issue Age Specified Amounts Specified Amounts less than $100,000 $100,000 or more - ------------------------------------------------------- 0-35 $6.00 $4.00 - ------------------------------------------------------- 36-55 $7.50 $5.00 - ------------------------------------------------------- 56-80 $7.50 $6.50 - ------------------------------------------------------- The underwriting component is designed to cover the administrative expenses associated with underwriting and issuing policies, including the costs of: o processing applications; o conducting medical exams; o determining insurability and the insured's underwriting class; and o establishing policy records. 9 The remainder of the surrender charge that is not attributable to the underwriting component represents the sales component. In no event will this component exceed 26 1/2% of the lesser of the Guideline Level Premium required in the first year or the premiums actually paid in the first year. The purpose of the sales component is to reimburse Nationwide for expenses incurred in the distribution of the policies. The surrender charge may be insufficient to recover certain expenses related to the sale of the policies. Unrecovered expenses are borne by Nationwide's 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. REDUCTIONS TO SURRENDER CHARGES Surrender charges are reduced in subsequent policy years as follows: - ------------------- ------------------------------- COMPLETED SURRENDER CHARGE AS A % OF POLICY YEARS INITIAL SURRENDER CHARGES - ------------------- ------------------------------- 0 100% - ------------------- ------------------------------- 1 100% - ------------------- ------------------------------- 2 90% - ------------------- ------------------------------- 3 80% - ------------------- ------------------------------- 4 70% - ------------------- ------------------------------- 5 60% - ------------------- ------------------------------- 6 50% - ------------------- ------------------------------- 7 40% - ------------------- ------------------------------- 8 30% - ------------------- ------------------------------- 9 and After 0% - ------------------- ------------------------------- The surrender charge is reduced by any partial surrender charge actually paid on previous decreases in the specified amount. For the initial specified amount, a completed policy year (in the chart above) is measured from the issue date. For any increase in the specified amount, a completed policy year (in the chart above) is measured from the effective date of the increase. Special guaranteed maximum surrender charges apply in Pennsylvania (see Appendix B). MONTHLY COST OF INSURANCE CHARGE The cost of insurance charge for each policy month is determined by multiplying the monthly cost of insurance rate by the net amount at risk. The net amount at risk is the difference between the death benefit and the policy's cash value, each calculated at the beginning of the policy month. This deduction is charged proportionately to the cash value in each sub-account and the fixed account. If Death Benefit Option 1 is in effect and there have been increases in the specified amount, then the cash value will first be considered a part of the initial specified amount. If the cash value exceeds the initial specified amount, it will then be considered a part of the additional increases in specified amount resulting from the increases in the order of the increases. Monthly cost of insurance rates will not exceed those guaranteed in the policy. Guaranteed cost of insurance rates for policies issued on specified amounts less than $100,000 are based on the 1980 Commissioner's Extended Term Mortality Table, Age Last Birthday (1980 CET). Guaranteed cost of insurance rates for policies issued on specified amounts of $100,000 or more are based on the 1980 Commissioner's Standard Ordinary Mortality Table, Age Last Birthday (1980 CSO). Guaranteed cost of insurance rates for policies issued on a substandard basis are based on appropriate percentage multiples of the guaranteed cost of insurance rate on a standard basis. These mortality tables are sex distinct. In addition, separate mortality tables will be used for tobacco and non-tobacco. For policies issued in Texas on a standard basis ("Special Class - Standard" in Texas), guaranteed cost of insurance rates for specified amounts less than $100,000 are based on 130% of the 1980 CSO. The rate class of an insured may affect the cost of insurance rate. Nationwide currently places insureds into both standard rate classes and substandard rate classes that involve a higher mortality risk. In an otherwise identical policy, an insured in the standard rate class will have a lower cost of insurance than an insured in a rate class with higher mortality risks. Nationwide may also issue certain policies on a "non medical" basis to certain categories of individuals. Due to the underwriting criteria established for policies issued on a non medical basis, actual rates will be higher than the current cost of insurance rates being charged under policies that are medically underwritten. MONTHLY ADMINISTRATIVE CHARGE Nationwide deducts an administrative expense charge proportionately to the cash value in each sub-account and the fixed account on a monthly basis. This charge reimburses Nationwide for certain actual expenses related to maintenance of the policies including accounting and record keeping, and periodic reporting to policy owners. Nationwide does not expect to recover any amount in excess of aggregate maintenance expenses from this charge. Currently, this charge is $12.50 per month in the first year and $5 per month in renewal years. Nationwide may, at its sole discretion, increase this charge. However, Nationwide guarantees that this charge will never exceed $25 per month in the first year and $7.50 per month in renewal years. 10 INCREASE CHARGE The increase charge is deducted proportionally from the cash value in the sub-accounts and the fixed account when the policy owner requests an increase in the specified amount. It is used to cover the cost of underwriting the requested increase and processing and distribution expenses related to the increase. The increase charge is comprised of two components: underwriting and administration; and sales. The underwriting and administration component is equal to $1.50 per year per $1,000. The sales component is equal to $0.54 per year per $1,000. Nationwide does not expect to realize a profit from this charge. MORTALITY AND EXPENSE RISK CHARGE Nationwide assumes certain risks for guaranteeing the mortality and expense charges. The mortality risk assumed under the policies is that the insured may not live as long as expected. The expense risk assumed is that the actual expenses incurred in issuing and administering the policies may be greater than expected. In addition, Nationwide assumes 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. Nationwide deducts the mortality and expense risk charge from the variable account on a daily basis. The charge is equivalent to an annualized rate of 0.80% of the daily net assets of the variable account. Each policy anniversary starting on the 10th anniversary, if the cash surrender value is $25,000 or more, the mortality and expense risk charge is reduced to 0.50% on an annualized basis. Policy owners receive quarterly and annual statements, advising policy owners of the cancellation of accumulation units for mortality and expense risk charges. For policies issued in New York, the reduction occurs regardless of the cash surrender value. All charges are guaranteed. Nationwide may realize a profit from the mortality and expense risk charge. INCOME TAX No charge is assessed to policy owners for income taxes incurred by Nationwide as a result of the operations of the sub-accounts. However, Nationwide reserves the right to assess a charge for income taxes assessed against the variable account if income taxes are incurred. REDUCTION OF CHARGES The policy is available for purchase by individuals, corporations and other groups. Nationwide may reduce or eliminate certain charges (sales load, surrender charge, monthly administrative charge, monthly cost of insurance charge, or other 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 or sponsored arrangements made available by Nationwide (including employees of Nationwide and their families). Eligibility for reduction in charges and the amount of any reduction is determined by a number of factors, including: o the number of insureds; o the total premium expected to be paid; o total assets under management for the policy owner; o the nature of the relationship among individual insureds; o the purpose for which the policies are being purchased; o the expected persistency of individual policies; and o any other circumstances which are rationally related to the expected reduction in expenses. The extent and nature of reductions may change from time to time. The charge structure may vary. Variations are determined in a manner not unfairly discriminatory to policy owners which reflect differences in costs of services. SURRENDERING THE POLICY FOR CASH SURRENDER (REDEMPTION) Policies may be surrendered for the cash surrender value any time while the insured is living. The cancellation will be effective as of the date Nationwide receives the policy accompanied by a signed, written request for cancellation. Nationwide may require the policy owner's signature to be guaranteed by a member firm of the New York, American, Boston, Midwest, Philadelphia or Pacific Stock Exchanges, or by a commercial bank or a savings and loan, which is a member of the Federal Deposit Insurance Corporation. In some cases, Nationwide may require additional documentation of a customary nature. Nationwide is 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. Cash Surrender Value The cash surrender value increases or decreases daily to reflect the investment experience of the variable account 11 and the daily crediting of interest in the fixed account and the policy loan account. The cash surrender value equals the policy's cash value, next computed after the date Nationwide receives a proper written request for surrender and the policy, minus any charges, indebtedness or other deductions due on that date, which may also include a surrender charge. Partial Surrenders After the policy has been in force for one year, the policy owner may request a partial surrender. Partial surrenders are permitted if they satisfy the following requirements: (1) the minimum partial surrender is $500; (2) partial surrenders may not reduce the specified amount to less than $50,000; (3) after a partial surrender, the cash surrender value is greater than $500 or an amount equal to three times the current monthly deduction if higher; (4) maximum total partial surrenders in any policy year are limited to 10% of the total premium payments. Currently, this requirement is waived beginning in the 15th year if the cash surrender value is $10,000 or more after the withdrawal; and (5) after the partial surrender, the policy continues to qualify as life insurance. When a partial surrender is made, the cash value will be reduced by the amount of the partial surrender. Under Death Benefit Option 1, the specified amount is reduced by the amount of the partial surrender, unless the death benefit is based on the applicable percentage of cash value. In that case, a partial surrender will decrease the specified amount by the amount the partial surrender exceeds the difference between the death benefit and specified amount. Surrenders charges are waived for partial surrenders that satisfy the above conditions. Certain partial surrenders may result in currently taxable income and tax penalties. INCOME TAX WITHHOLDING Federal law requires Nationwide to withhold income tax from any portion of surrender proceeds subject to tax. Nationwide will withhold income tax unless the policy owner advises Nationwide, in writing, of his or her request not to withhold. If a policy owner requests that taxes not be withheld, or if the taxes withheld are insufficient, the policy owner may be liable for payment of an estimated tax. Policy owners should consult a tax advisor. In certain employer-sponsored life insurance arrangements, including equity split dollar arrangements, participants may be required to report for income tax purposes, one or more of the following: (1) the value each year of the life insurance protection provided; (2) an amount equal to any employer-paid premiums; or (3) some or all of the amount by which the current value exceeds the employer's interest in the policy. Participants should consult with the sponsor or the administrator of the plan, and/or with their personal tax or legal advisor, to determine the tax consequences, if any, of their employer-sponsored life insurance arrangements. VARIATION IN CASH VALUE On any date during the policy year, the cash value equals the cash value on the preceding valuation period plus any net premium applied since the previous valuation period, minus any partial surrenders, plus or minus any investment results, minus any surrender charge for decreases in specified amount, and less any policy charges. There is no guaranteed cash value. The cash value will vary with the investment experience of the variable account and/or the daily crediting of interest in the fixed account and policy loan account depending on the allocation of cash value by the policy owner. 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. POLICY PROVISIONS POLICY OWNER While the insured is living, all rights in this policy are vested in the policy owner named in the application or as subsequently changed, subject to assignment, if any. The policy owner may name a contingent policy owner or a new policy owner while the insured is living. Any change must be in a written form satisfactory to Nationwide and recorded at Nationwide's home office. Once recorded, the change will be effective when signed. The change will not affect any payment made or action taken by Nationwide before it was recorded. Nationwide may require that the policy be submitted for endorsement before making a change. If the policy owner is other than the insured and names no contingent policy owner, and dies before the insured, 12 the policy owner's rights in this policy belong to the policy owner's estate. BENEFICIARY The beneficiary(ies) will be as named in the application or as subsequently changed, subject to assignment, if any. The policy owner may name a new beneficiary while the insured is living. Any change must be in a written form satisfactory to Nationwide and recorded at Nationwide's home office. Once recorded, the change will be effective when signed. The change will not affect any payment made or action taken by Nationwide before it was recorded. If any beneficiary predeceases the insured, that beneficiary's interest passes to any surviving beneficiary(ies), unless otherwise provided. Multiple beneficiaries will be paid in equal shares, unless otherwise provided. If no named beneficiary survives the insured, the death proceeds will be paid to the policy owner or the policy owner's estate. CHANGES IN EXISTING INSURANCE COVERAGE The policy owner may request certain changes in the insurance coverage under the policy. Requests must be in writing and received by Nationwide. No change will take effect unless the cash surrender value after the change is sufficient to keep the policy in force for at least 3 months. Specified Amount Increases After the first policy year, the policy owner may request an increase to the specified amount. Any increase will be subject to the following conditions: (1) the request must be applied for in writing; (2) satisfactory evidence of insurability must be provided; (3) the increase must be for a minimum of $10,000; (4) the cash surrender value is sufficient to continue the policy in force for at least 3 months; and (5) age limits are the same as for a new issue. Any approved increase will have an effective date of the monthly anniversary day on or next following the date Nationwide approves the supplemental application. Nationwide reserves the right to limit the number of specified amount increases to one each policy year. Specified Amount Decreases After the first policy year, the policy owner may also request a decrease to the specified amount. Any approved decrease will be effective on the monthly anniversary date on or next following the date Nationwide receives the request. Any such decrease will reduce insurance in the following order: (1) against insurance provided by the most recent increase; (2) against the next most recent increases successively; and (3) against insurance provided under the original application. Nationwide reserves the right to limit the number of specified amount decreases to one each policy year. Nationwide will refuse a request for a decrease which would: (1) reduce the specified amount to less than $50,000 ($100,000 in New Jersey and Pennsylvania); or (2) disqualify the policy as a contract for life insurance. OPERATION OF THE POLICY ALLOCATION OF NET PREMIUM AND CASH VALUE Nationwide allocates premium payments to sub-accounts or the fixed account, as instructed by policy owners. Shares of the underlying mutual funds allocated to the sub-accounts are purchased at net asset value, then converted into accumulation units. 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 written notice to Nationwide. Premiums allocated to sub-accounts on the application will be allocated to the GVIT Gartmore GVIT Money Market Fund: Class I during the period that a policy owner can cancel the policy, unless a specific state requires premiums to be allocated to the fixed account. At the expiration of this cancellation period, these premiums are used to purchase shares of the underlying mutual funds specified by the policy owner at net asset value for the respective sub-account(s). The policy owner may change the allocation of net premiums or may transfer cash value from one sub-account to another. Changes are subject to the terms and conditions imposed by each underlying mutual fund and those found in this prospectus. Net 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 (see "Transfers"). HOW THE INVESTMENT EXPERIENCE IS DETERMINED The accumulation unit value for a valuation period is determined by multiplying the accumulation unit value for each sub-account for the immediately preceding valuation period by the net investment factor for the sub-account for the subsequent valuation period. 13 NET INVESTMENT FACTOR Net investment factor is determined by dividing (a) by (b) and subtracting (c) from the result where: (a) is the sum of: (1) the net asset value of the underlying mutual fund held in the sub-account 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 of the underlying mutual fund determined as of the end of the preceding valuation period. (c) is a factor representing the daily mortality and expense risk charge. This factor is equal to an annualized rate of 0.80% of the daily net assets of the variable account. Each policy anniversary starting on the 10th the mortality and expense risk charge is reduced to 0.50% on an annualized basis of the daily net assets of the variable account if the cash surrender value is $25,000 or more each anniversary. For policies issued in New York, the charge is reduced regardless of the cash surrender value on each anniversary. Based on the net investment factor, the value of an accumulation unit may increase or decrease. Changes in the net investment factor may not be directly proportional to changes in the net asset value of underlying mutual fund shares, because of the deduction for mortality and expense risk charge, and any charge or credit for tax reserves. Though the number of accumulation units will not change as a result of investment experience, the value of an accumulation unit may increase or decrease from valuation period to valuation period. DETERMINING THE CASH VALUE The cash value is the sum of the value of all variable account accumulation units attributable to the policy plus amounts credited to the fixed account and the policy loan account. The number of accumulation units credited to each sub-account is determined by dividing the net amount allocated to the sub-account by the accumulation unit value for the sub-account for the valuation period during which the premium is received by Nationwide. In the event part or all of the cash value is surrendered or charges or deductions are made against the cash value, an appropriate number of accumulation units from the variable account and an appropriate amount from the fixed account will be deducted in the same proportion that the policy owner's interest in the variable account and the fixed account bears to the total cash value. The cash value in the fixed account and the policy loan account is credited with interest daily at an annualized rate which Nationwide periodically declares. The annual effective rate will never be less than 4%. (For a description of the annualized credited rates, see "The Fixed Account" and "Policy Loans.") Upon request, Nationwide will inform the policy owner of the then applicable rates for each account. TRANSFERS Policy owners can transfer 100% of allocations without penalty or adjustment subject to the following conditions: o Nationwide reserves the right to restrict transfers between the fixed account and the sub-accounts to one per policy year; o transfers made to the fixed account may not be made in the first policy year; o Nationwide reserves the right to restrict transfers from the fixed account to 25% of the cash value attributable to the fixed account; and o Nationwide reserves the right to restrict transfers to the fixed account to 25% of cash value. Nationwide will determine the amount a policy owner has available for transfers among the sub-accounts in accumulation units based on the net asset value (NAV) per share of the underlying mutual fund in which a sub-account invests. The underlying mutual fund will determine its NAV once daily as of the close of the regular business session of the New York Stock Exchange (usually 4:00 p.m. Eastern time). An accumulation unit will not equal the NAV of the mutual fund in which the sub-account invests, however, because the accumulation unit value will reflect the deduction for any transaction fees and periodic charges. Disruptive trading practices, which hamper the ability of underlying mutual fund managers in their orderly pursuit of stated investment objectives, may adversely affect the performance of the underlying mutual funds. Prior to the policy's maturity date, the policy owner may transfer among the available sub-account; however, in instances of disruptive trading that Nationwide may determine to be, or may have already determined to be, harmful to policy owners, Nationwide will, through the use of appropriate means available to it, attempt to curtail or limit the disruptive trading. If a policy owner's trading activities, or those of a third party acting on a policy owner's behalf, constitute disruptive trading, Nationwide 14 will not limit a policy owner's ability to initiate the trades as provided in the policy; however, Nationwide may limit a policy owner's means for making a transfer or take other action Nationwide deems necessary to protect the interests of those investing in the affected sub-accounts. Policy owners may submit transfer requests among the sub-account portfolios in writing by U.S. mail. On a daily basis, Nationwide will group transfer requests into transfer events. A "transfer event" is any valuation period on which allocations are moved between investment options, regardless of the quantity of reallocations. For example, if a policy owner moves the policy's cash value between 20 sub-account portfolios in one day, the entire reallocation only counts as one transfer event. Transfer events include transfers made pursuant to any asset rebalancing program that the policy owner elects. With the first 20 transfer events of a calendar year, or an equivalent amount in a shorter period, a policy owner may choose to submit transfer requests over the telephone, or via the Internet. Afterwards, Nationwide may require that all transfer requests be submitted in writing by U.S. mail. Nationwide will process a transfer at the end of the valuation period on which it is received. Nationwide may add new underlying mutual funds, or new share classes of currently available underlying mutual funds, that assess short-term trading fees. In the case of new share class additions, the policy owner's subsequent allocations may be limited to that new share class. Short-term trading fees are a charge assessed by an underlying mutual fund when you transfer out of a sub-account before the end of a stated period. These fees will only apply to sub-accounts corresponding to underlying mutual funds that impose such a charge. The underlying mutual fund intends short-term trading fees to compensate the fund and its shareholders for the negative impact on fund performance that may result from disruptive trading practices, including frequent trading and short-term trading (market timing) strategies. The fees are not intended to adversely impact policy owners not engaged in such strategies. The separate account will collect the short-term trading fees at the time of the transfer by reducing the policy owner's sub-account value. Nationwide will remit all such fees to the underlying mutual fund. RIGHT TO REVOKE A policy owner may cancel the policy by returning it by the latest of: o 10 days after receiving the policy; o 45 days after signing the application; or o 10 days after Nationwide delivers a Notice of Right of Withdrawal. The policy can be mailed to the registered representative who sold it, or directly to Nationwide. Returned policies are deemed void from the beginning. Nationwide will refund the amount prescribed by the state in which the policy was issued within seven days after it receives the policy. This right varies by state. POLICY LOANS TAKING A POLICY LOAN The policy owner may take a policy loan at any time after the first policy year using the policy as security. Maximum policy indebtedness is limited to 90% of the cash value of the variable account, less any surrender charges, less interest due on the next policy anniversary. For policies issued in Texas, maximum policy indebtedness is limited to 90% of the cash value in the sub-accounts and 100% of the cash value in the fixed account, less surrender charges and interest due on the next policy anniversary. Nationwide will not grant a loan for an amount less than $200. Policy indebtedness will be deducted from the death benefit, cash surrender value upon surrender, or the maturity proceeds. Any request for a policy loan must be in written form. The request must be signed and, where permitted, the signature guaranteed by a member firm of the New York, American, Boston, Midwest, Philadelphia or Pacific Stock Exchanges, or by a commercial bank or a savings and loan which is a member of the Federal Deposit Insurance Corporation. Certain policy loans may result in currently taxable income and tax penalties. A policy owner considering the use of policy loans in connection with his or her retirement income plan should consult his or her personal tax adviser regarding potential tax consequences that may arise if necessary payments are not made to keep the policy from lapsing. The amount of the payments necessary to prevent the policy from lapsing will increase with age. EFFECT ON INVESTMENT PERFORMANCE When a loan is made, an amount equal to the amount of the loan is transferred from the variable account to the policy loan account. If the assets relating to a policy are held in more than one sub-account, withdrawals from sub-accounts will be made in proportion to the assets in each sub-account at the time of the loan. Policy loans will be transferred from the fixed account only when sufficient amounts are not available in the sub-accounts. 15 The amount taken out of the variable account will not be affected by the variable account's investment experience while the loan is outstanding. INTEREST Currently, policy loans are credited with an annual effective rate of 5.1% during policy years 2 through 14 and an annual effective rate of 6% during the 15th and subsequent policy years. Nationwide guarantees the rate will never be lower than 5.1%. Nationwide may change the current interest crediting rate on policy loans at any time at its sole discretion. The loan interest rate is 6% per year for all policy loans. 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, Nationwide retains the right to increase the net cost (by decreasing the interest crediting rate) on all subsequent policy loans to an amount that would result in the transaction being treated as a loan under federal tax law. Amounts transferred to the policy loan account will earn interest daily from the date of transfer. The earned interest is transferred from the policy loan account to a variable account or the fixed account on each policy anniversary, at the time a new loan is requested or at the time of loan repayment. The earned interest 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, Nationwide will send a notice to the policy owner and the assignee, if any. The 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 charges plus an amount sufficient to continue the policy in force for 3 years. EFFECT ON DEATH BENEFIT AND CASH VALUE A policy loan, whether or not repaid, will have a permanent effect on the death benefit and cash value because the investment results of the variable account or the fixed account will apply only to the non-loaned portion of the cash value. The longer the loan is outstanding, the greater the effect is likely to be. Depending on the investment results of the variable account or the fixed account while the loan is outstanding, the effect could be favorable or unfavorable. REPAYMENT All or part of the indebtedness may be repaid at any time while the policy is in force during the insured's lifetime. Any payment intended as a loan repayment, rather than a premium payment, must be identified as such. Loan repayments will be credited to the sub-accounts and the fixed account in proportion to the policy owner's underlying mutual fund allocation factors in effect at the time of the repayment. Each repayment may not be less than $50. Nationwide reserves the right to require that any loan repayments resulting from policy loans transferred from the fixed account must be first allocated to the fixed account. ASSIGNMENT While the insured is living, the policy owner may assign his or her rights in the policy. The assignment must be in writing, signed by the policy owner and recorded at Nationwide's home office. Prior to being recorded, assignments will not affect any payments made or actions taken by Nationwide. Nationwide is not responsible for any assignment not submitted for recording, nor is Nationwide responsible for the sufficiency or validity of any assignment. Assignments are subject to any indebtedness owed to Nationwide before being recorded. POLICY OWNER SERVICES DOLLAR COST AVERAGING Dollar Cost Averaging is a long-term transfer program that allows you to make regular, level investments over time. It involves the automatic transfer of a specified amount from certain sub-accounts and the fixed account into other sub-accounts. Nationwide does not guarantee that this program will result in profit or protect policy owners from loss. Policy owners direct Nationwide to automatically transfer specified amounts from the fixed account and the following underlying mutual fund options: GVIT Gartmore GVIT Government Bond Fund: Class I; GVIT Gartmore GVIT Money Market Fund: Class I; and the Neuberger Berman AMT Limited Maturity Bond Portfolio: Class I. Dollar Cost Averaging transfers may not be directed to the fixed account. 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. Transfers occur monthly or on another frequency if permitted by Nationwide. Nationwide will process 16 transfers until either the value in the originating investment option is exhausted, or the policy owner instructs Nationwide in writing to stop the transfers. Nationwide reserves the right to stop establishing new Dollar Cost Averaging programs. Nationwide reserves the right to assess a processing fee for this service. DEATH BENEFIT INFORMATION CALCULATION OF THE DEATH BENEFIT At issue, the policy owner selects the specified amount. While the policy is in force, the death benefit will never be less than the specified amount. The death benefit may vary with the cash value of the policy, which depends on investment performance. The policy owner may choose one of two death benefit options: OPTION 1. The death benefit will be the greater of the specified amount or the applicable percentage of cash value. Under Option 1 the amount of the death benefit will ordinarily not change for several years to reflect the investment performance and may not change at all. If investment performance is favorable, the amount of death benefit may increase. To see how and when investment performance may begin to affect death benefits, please see the illustrations. OPTION 2. The death benefit will be the greater of the specified amount plus the cash value, or the applicable percentage of cash value and will vary directly with the investment performance. The term "applicable percentage" means: (1) 250% when the insured is attained age 40 or less at the beginning of a policy year; and (2) when the insured is above attained age 40, the percentage shown in the "Applicable Percentage of Cash Value Table."
APPLICABLE PERCENTAGE OF CASH VALUE TABLE - --------------------------------------------------------------------------------------------- ATTAINED AGE PERCENTAGE OF ATTAINED AGE PERCENTAGE OF ATTAINED PERCENTAGE OF CASH VALUE CASH VALUE AGE CASH VALUE - --------------------------------------------------------------------------------------------- 0-40 250% 60 130% 80 105% - --------------------------------------------------------------------------------------------- 41 243% 61 128% 81 105% - --------------------------------------------------------------------------------------------- 42 236% 62 126% 82 105% - --------------------------------------------------------------------------------------------- 43 229% 63 124% 83 105% - --------------------------------------------------------------------------------------------- 44 222% 64 122% 84 105% - --------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------- 45 215% 65 120% 85 105% - --------------------------------------------------------------------------------------------- 46 209% 66 119% 86 105% - --------------------------------------------------------------------------------------------- 47 203% 67 118% 87 105% - --------------------------------------------------------------------------------------------- 48 197% 68 117% 88 105% - --------------------------------------------------------------------------------------------- 49 191% 69 116% 89 105% - --------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------- 50 185% 70 115% 90 105% - --------------------------------------------------------------------------------------------- 51 178% 71 113% 91 104% - --------------------------------------------------------------------------------------------- 52 171% 72 111% 92 103% - --------------------------------------------------------------------------------------------- 53 164% 73 109% 93 102% - --------------------------------------------------------------------------------------------- 54 157% 74 107% 94 101% - --------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------- 55 150% 75 105% 95 100% - --------------------------------------------------------------------------------------------- 56 146% 76 105% - --------------------------------------------------------------------------------------------- 57 142% 77 105% - --------------------------------------------------------------------------------------------- 58 138% 78 105% - --------------------------------------------------------------------------------------------- 59 134% 79 105% - ---------------------------------------------------------------------------------------------
CHANGES IN THE DEATH BENEFIT OPTION After the first policy year, the policy owner may elect to change the death benefit option under the policy from either Option 1 to Option 2, or from Option 2 to Option 1. Only one change of death benefit option is permitted per policy year. The effective date of a change will be the monthly anniversary date following the date the change is approved by Nationwide. If the change is from Option 1 to Option 2, the specified amount will be decreased by the amount of the cash value. Nationwide may require evidence of insurability for a change from Option 1 to Option 2. If the change is from Option 2 to Option 1, the specified amount will be increased by the amount of the cash value. A change in death benefit option will not be permitted if it results in the total premiums paid exceeding the current maximum premium limitations under Section 7702 of the Internal Revenue Code. 17 PROCEEDS PAYABLE ON DEATH The actual death proceeds payable on the insured's death will be the death benefit as described above, less any policy indebtedness and less any unpaid policy charges. Under certain circumstances, the death proceeds may be adjusted (see "Incontestability," "Error in Age or Sex," and "Suicide"). INCONTESTABILITY Nationwide will not contest payment of the death proceeds based on the initial specified amount after the policy has been in force during the insured's lifetime for 2 years from the policy date. For any increase in specified amount requiring evidence of insurability, Nationwide will not contest payment of the death proceeds based on such an increase after it has been in force during the insured's lifetime for 2 years from its effective date. SUICIDE If the insured dies by suicide, while sane or insane, within 2 years from the policy date, Nationwide will pay no more than the sum of the premiums paid, less any indebtedness. If the insured dies by suicide, while sane or insane, within 2 years from the date Nationwide accepts an application for an increase in the specified amount, Nationwide 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. MATURITY PROCEEDS The maturity date is the policy anniversary on or next following the insured's 95th birthday. If the policy is still in force, maturity proceeds are payable to the policy owner on the maturity date. Maturity proceeds are equal to the amount of the policy's cash value, less any indebtedness. RIGHT OF CONVERSION The policy owner may, within 24 months of the policy date, make an irrevocable election to transfer all sub-account cash value to the fixed account. This election must be in writing and received at Nationwide's home office. This right of conversion may not be available in every state. GRACE PERIOD First Three Policy Years The policies will not lapse during the first three policy years provided that on each monthly anniversary date (1) is greater than or equal to (2), where: (1) is the sum of all premiums paid to date minus any policy indebtedness, minus any partial surrenders, and minus any partial surrender fee; and (2) is the sum of monthly premiums required since the policy date, including the monthly minimum premium for the current monthly anniversary date. If (1) is less than (2) and the cash surrender value is less than zero, a grace period of 61 days from the monthly anniversary day will be allowed for the payment of sufficient premium to satisfy the minimum premium requirement. If sufficient premium is not paid by the end of the grace period, the policy will lapse without value. In any event, the policy will not lapse as long as there is a positive cash surrender value. Policy Years Four and After If the cash surrender value on a monthly anniversary day is not sufficient to cover the current policy charges, a grace period of 61 days from the monthly anniversary day will be allowed for the payment of sufficient premium to cover the current policy charges due, plus an amount equal to three times the current monthly deduction. All Policy Years Nationwide will send a notice at the start of the grace period to the policy owner's last known address. If the insured dies during the grace period, Nationwide will pay the death proceeds. REINSTATEMENT If the grace period ends and the policy owner has neither paid the required premium nor surrendered the policy for its cash surrender value, the policy owner may reinstate the policy by: (1) submitting a written request at any time within 3 years after the end of the grace period and prior to the maturity date; (2) providing evidence of insurability satisfactory to Nationwide; (3) paying an amount of premium equal to the minimum monthly premiums missed since the beginning of the grace period, if the policy terminated in the first 3 policy years; (4) paying sufficient premium to cover all policy charges that were due and unpaid during the grace 18 period if the policy terminated in the fourth or later policy year; (5) paying sufficient premium to keep the policy in force for 3 months from the date of reinstatement; and (6) paying or reinstating any indebtedness against the policy which existed at the end of the grace period. The effective date of a reinstated policy will be the monthly anniversary date on or next following the date the application for reinstatement is approved by Nationwide. If the policy is reinstated, the cash value on the date of reinstatement, but prior to applying any premiums or loan repayments received, will be set equal to the lesser of: (1) the cash value at the end of the grace period; or (2) the surrender charge for the policy year in which the policy was reinstated. Amounts allocated to underlying mutual funds at the start of the grace period will be reinstated, unless the policy owner provides otherwise. TAX MATTERS 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. Nationwide will monitor compliance with these tests. The policy should thus receive the same federal income tax treatment as fixed benefit life insurance. As a result, the death proceeds payable under a policy are 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 (see "Information about the Policies"). 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 the policy owner 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 addition, a 10% tax penalty generally applies to the taxable portion of such distributions unless the policy owner is over age 59 1/2, 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, Nationwide will monitor premiums paid and will notify the policy owner when the 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 the policy owner pursuant to Section 7702(f)(7) of the Internal Revenue Code. The policy owner should carefully consider this potential effect and seek further information before initiating any changes in the terms of the policy. Under certain conditions, a policy may become a modified endowment contract, 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 19 policy that fails to satisfy the diversification standards will not be treated as life insurance unless such failure was inadvertent, is corrected, and the policy owner or the issuer pays an amount to the IRS. The amount will be based on the tax that would have been paid by the policy owner if the income, for the period the policy was not diversified, had been received by the policy owner. If the failure to diversify is not corrected in this manner, the policy owner will be deemed to be the owner of the underlying securities and taxed on the earnings of his or her 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, Nationwide will take whatever steps are available to remain in compliance. Nationwide will monitor compliance with these regulations and, to the extent necessary, will change the objectives or assets of the sub-account investments to remain in compliance. A total surrender or cancellation of the policy by lapse or the maturity of the policy on its maturity date may have adverse tax consequences. If the amount received by the policy owner plus total policy indebtedness exceeds the premiums paid into the policy, 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 a contract 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 income that is distributed. The mandatory backup withholding may arise if no taxpayer identification number is provided to Nationwide, or if the IRS notifies Nationwide that back-up withholding is required. 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 2004, an estate of less than $1,500,000 (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 such 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 three years of death. An incident of ownership is, in general, any right that may be exercised by the policy owner, such as the right to borrow on the policy, or the right to name a new beneficiary. If the policy owner (whether or not he or she is the insured) transfers ownership of the policy to another person, such transfer may be subject to a federal gift tax. In addition, if such policy owner transfers the policy to someone two or more generations younger than the policy owner, the transfer may be subject to the federal generation-skipping transfer tax ("GSTT"), the taxable amount being the value of the policy. 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, Nationwide 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 48%), and there is a provision for an aggregate $1.5 million exemption. Due to the complexity of these rules, the policy owner should consult with counsel and other competent advisers 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. Nationwide is required to withhold such amount from the distribution and remit it to the IRS. Distributions to certain NRAs may be subject to lower, or in certain instances zero, tax and withholding rates, if the United States has entered into an applicable treaty. 20 However, in order to obtain the benefits of such treaty provisions, the NRA must give to Nationwide 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 Nationwide prior to the distribution. If Nationwide does not have the proper proof of citizenship or residency and a proper individual taxpayer identification number prior to any distribution, Nationwide 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 Nationwide 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 Nationwide is taxed as a life insurance company under the Internal Revenue Code. Since the variable account is not a separate entity from Nationwide and its operations form a part of Nationwide, 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. Nationwide does not initially expect to incur any federal income tax liability that would be chargeable to the variable account. Based upon these expectations, no charge is currently being made against the variable account for federal income taxes. If, however, Nationwide determines that on a separate company basis such taxes may be incurred, it reserves the right to assess a charge for such taxes against the variable account. Nationwide 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 Nationwide's 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. 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 the policy owner, insured, or beneficiary or other person receiving any benefit or interest in or from the policy is not both a resident and citizen of the United States, there may be a tax imposed by a foreign country, in 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 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. In 2001, the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) was enacted into law. EGTRRA contained numerous changes to the federal income, gift, estate and generation skipping transfer taxes, many of which are not scheduled to become effective until a future date. Among other matters, EGTRRA provides for the repeal of the federal estate and generation skipping transfer taxes after 2009; however, unless Congress and the President enact additional legislation, EGTRRA also provides that all of those changes will "sunset" after 2010, and the estate and generation skipping transfer taxes will be reinstated as if EGTRRA had never been enacted 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. 21 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 Nationwide is subject to the laws of Ohio governing insurance companies and to regulation by the Ohio Insurance Department. An annual statement in a prescribed form is filed with the Insurance Department each year covering the operation of Nationwide 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 Nationwide's contract liabilities and reserves so that the Insurance Department may certify the items are correct. Nationwide's books and accounts are subject to review by the Insurance Department at all times and a full examination of its operations is conducted periodically by the National Association of Insurance Commissioners. Such regulation does not, however, involve any supervision of management or investment practices or policies. In addition, Nationwide is subject to regulation under the insurance laws of other jurisdictions in which it may operate. REPORTS TO POLICY OWNERS Nationwide will mail to the policy owner at the last known address of record: o 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, and policy indebtedness; o 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 o 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. ADVERTISING Nationwide is 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 the financial strength or claims-paying ability of Nationwide. The ratings are not intended to reflect the investment experience or financial strength of the variable account. Nationwide may advertise these ratings from time to time. In addition, Nationwide may include in certain advertisements, endorsements in the form of a list of organizations, individuals or other parties which recommend Nationwide or the policies. Furthermore, Nationwide 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 Nationwide is a party to litigation and arbitration proceedings and inquiries from regulatory bodies in the ordinary course of its business. In recent years, life insurance companies have been named as defendants in lawsuits, including class action lawsuits relating to life insurance and annuity pricing and sales practices. A number of these lawsuits have resulted in substantial jury awards or settlements. On October 29, 1998, Nationwide was named in a lawsuit filed in Ohio state court by plaintiff Mercedes Castillo that challenged 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 was brought as a class action on behalf of all persons who purchased individual deferred annuity contracts or participated in group annuity contracts sold by Nationwide and the other named defendants, which were allegedly used to fund certain tax-deferred retirement plans. The amended complaint seeks unspecified compensatory and punitive damages. On May 28, 2002, the Court granted the motion of Marcus Shore to withdraw as a named plaintiff and denied plaintiffs' 22 motion to add new persons as named plaintiffs. On November 4, 2002, the Court issued a decision granting Nationwide 's motion for summary judgment on all of plaintiff Mercedes Castillo's individual claims, and ruling that plaintiff's motion for class certification was moot. Following appeal by the plaintiff, both of those decisions were affirmed by the Ohio Court of Appeals on September 9, 2003. The plaintiff filed a notice of appeal of the decision by the Ohio Court of Appeals on October 24, 2003. The Ohio Supreme Court announced on January 21, 2004 that the appeal was not accepted and the time for reconsideration has expired. On October 31, 2003, a lawsuit seeking class action status containing allegations similar to those made in the Castillo case was filed against Nationwide in Arizona federal court by plaintiff Robert Helman (Robert Helman et al v. Nationwide Life Insurance Company et al). This lawsuit is in a very preliminary stage and Nationwide is evaluating its merits. Nationwide intends to defend this lawsuit vigorously. On August 15, 2001, Nationwide was named in a lawsuit filed in Connecticut federal court (Lou Haddock, as trustee of the Flyte Tool & Die, Incorporated Deferred Compensation Plan, et al v. Nationwide Financial Services, Inc. and Nationwide Life Insurance Company). The plaintiffs first amended their complaint on September 6, 2001 to include class action allegations, and have subsequently amended their complaint twice. As amended, in the current complaint, the plaintiffs seek to represent a class of ERISA qualified retirement plans that purchased variable annuities from Nationwide. Plaintiffs allege that they invested ERISA plan assets in their variable annuity contracts, and that Nationwide acquired and breached ERISA fiduciary duties by accepting service payments from certain mutual funds that allegedly consisted of or diminished those ERISA plan assets. The complaint seeks disgorgement of some or all of the fees allegedly received by Nationwide and other unspecified relief for restitution, along with declaratory and injunctive relief and attorneys' fees. On December 3, 2001, the plaintiffs filed a motion for class certification. Plaintiffs filed a supplement to that motion on September 19, 2003. Nationwide opposed that motion on December 24, 2003. On January 30, 2004, Nationwide filed its Revised Memorandum in Support of Summary Judgment and a Motion Requesting that the Court Decide Summary Judgment before Class Certification. Plaintiffs are opposing that motion. Nationwide intends to defend this lawsuit vigorously. On May 1, 2003, a class action was filed against Nationwide in the United States District Court for the Eastern District of Louisiana (Edward Miller, Individually, and on behalf of all others similarly situated, v. Nationwide Life Insurance Company). The complaint alleges that in 2001, plaintiff Edward Miller purchased three group modified single premium variable annuities issued by Nationwide. Plaintiff alleges that Nationwide represented in its prospectus and promised in its annuity contracts that contract holders could transfer assets without charge among the various funds available through the contracts, that the transfer rights of contract holders could not be modified and that NLIC's expense charges under the contracts were fixed. Plaintiff claims that Nationwide has breached the contracts and violated federal securities laws by imposing trading fees on transfers that were supposed to have been without charge. Plaintiff seeks compensatory damages and rescission on behalf of himself and a class of persons who purchased this type of annuity or similar contracts issued by Nationwide between May 1, 2001 and April 30, 2002 inclusive and were allegedly damaged by paying transfer fees. Nationwide's motion to dismiss the complaint was granted by the Court on October 28, 2003. Plaintiff has appealed that dismissal. On January 21, 2004, Nationwide was named in a lawsuit filed in the U.S. District Court for the Northern District of Mississippi (United Investors Life Insurance Company v. Nationwide Life Insurance Company and/or Nationwide Life Insurance Company of America and/or Nationwide Life and Annuity Insurance Company and/or Nationwide Life and Annuity Company of America and/or Nationwide Financial Services, Inc. and/or Nationwide Financial Corporation, and John Does A-Z). In its complaint, the plaintiff alleges that Nationwide and/or its affiliated life insurance companies (1) tortiously interfered with the plaintiff's contractual and fiduciary relationship with Waddell & Reed, Inc. and/or its affiliates, Waddell & Reed Financial, Inc., Waddell & Reed Financial Services, Inc. and W & R Insurance Agency, Inc. (collectively, "Waddell & Reed"), (2) conspired with and otherwise caused Waddell & Reed to breach its contractual and fiduciary obligations to the plaintiff, and (3) tortiously interfered with the plaintiff's contractual relationship with policyholders of insurance policies issued by the plaintiff. The complaint seeks compensatory damages, punitive damages, pre- and post-judgment interest, a full accounting, and costs and disbursements, including attorneys' fees. The plaintiff seeks to have each defendant judged jointly and severally liable for all damages. This lawsuit is in a very preliminary stage, and Nationwide intends to defend it vigorously. The financial services industry, including mutual fund, variable annuity and distribution companies have been the subject of increasing scrutiny by regulators, legislators, and the media over the past year. Numerous regulatory agencies, including the SEC and the New York Attorney General, have commenced industry-wide 23 investigations regarding late trading and market timing in connection with mutual funds and variable insurance contracts, and have commenced enforcement actions against some mutual fund companies on those issues. Investigations and enforcement actions have also been commenced, on a smaller scale, regarding the sales practices of mutual fund and variable annuity distributors. These legal proceedings are expected to continue in the future. These investigations and proceedings could result in legal precedents, as well as new industry-wide legislation, rules, or regulations, that could significantly affect the financial services industry, including variable annuity companies. Nationwide has been contacted by regulatory agencies for information relating to market timing, late trading, and sales practices. Nationwide is cooperating with these regulatory agencies and is responding to those information requests. There can be no assurance that any such litigation or regulatory actions will not have a material adverse effect on Nationwide in the future. The general distributor, NISC, is not engaged in litigation of a material nature. INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The financial statements of Nationwide VLI Separate Account-2 and Nationwide Life Insurance Company and subsidiaries for the periods indicated 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. The report of KPMG LLP covering the December 31, 2001 financial statements of Nationwide Life Insurance Company and subsidiaries refers to a change to the method of accounting for derivative instruments and hedging activities, and for purchased or retained interests in securitized financial assets. REGISTRATION STATEMENT Nationwide has 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 the policy for additional information. DISTRIBUTION OF THE POLICIES 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. NISC was organized as an Oklahoma corporation on March 19, 1974. 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: o Nationwide VLI Separate Account-2; o Nationwide VLI Separate Account-3; o Nationwide VLI Separate Account-4; o Nationwide VLI Separate Account-6; o Nationwide Multi-Flex Variable Account; o Nationwide Variable Account; o Nationwide Variable Account-II; o Nationwide Variable Account-4; o Nationwide Variable Account-5; o Nationwide Variable Account-6; o Nationwide Variable Account-7; o Nationwide Variable Account-8; o Nationwide Variable Account-9; o Nationwide Variable Account-10; o Nationwide Variable Account-11; o Nationwide Variable Account-13; o Nationwide Variable Account-14; o Nationwide VA Separate Account-A; o Nationwide VA Separate Account-B; o Nationwide VA Separate Account-C; o Nationwide VL Separate Account-C; and o Nationwide VL Separate Account-D. Gross first year commissions plus any expense allowance payments paid by Nationwide on the sale of these policies provided by NISC will not exceed 99% of the target premium plus 4% of any excess premium payments. Gross renewal commissions in years 2 through 10 paid by Nationwide will not exceed 4% of actual premium payment, and will not exceed 1% in policy years 11 and thereafter. No underwriting commissions have been paid by Nationwide to NISC. NISC, or its affiliate, may receive compensation from a fund, its investment advisor, its distributor, or its affiliate ("Fund Entities"). These fees relate to the administration, distribution, or other services provided to the Fund Entities by NISC or NISC's affiliates. Some or 24 all of this compensation may be paid pursuant to a Fund's 12b-1 plan. The amount of compensation is generally a percentage of the value of a fund's shares held by the Variable Account or other separate accounts we or our affiliate insurance companies sponsor. These percentages differ by Fund Entity. NATIONWIDE INVESTMENT SERVICES CORPORATION DIRECTORS AND OFFICERS The following is a list of Directors and Officers of NISC. Joseph J. Gasper, Director and Chairman of the Board Richard A. Karas, Director and Vice Chairman John M. Davis, President William G. Goslee, Senior Vice President Mark R. Thresher, Director and Senior Vice President and Treasurer Kevin S. Crossett, Vice President Trey Rouse, Vice President Peter R. Salvator, Vice President Barbara J. Shane, Vice President-Compliance Officer Karen R. Tackett, Vice President Alan A. Todryk, Vice President-Taxation Carol L. Dove, Associate Vice President-Treasury Services and Assistant Treasurer Glenn W. Soden, Associate Vice President and Assistant Secretary Thomas E. Barnes, Vice President and Secretary John F. Delaloye, Assistant Secretary Dina Tantra, Assistant Secretary Mark D. Maxwell, Assistant Secretary E. Gary Berndt, Assistant Treasurer The business address of the Directors and Officers listed above is One Nationwide Plaza, Columbus, Ohio 43215. - -------------------------------------------------------------------------------- ADDITIONAL INFORMATION ABOUT NATIONWIDE The life insurance business, including annuities, is the only business in which Nationwide is engaged. Nationwide markets its policies through independent insurance brokers, general agents, and registered representatives of registered NASD broker/dealer firms. Nationwide serves as depositor for the following separate investment accounts, each of which is a registered investment company: o Nationwide Variable Account; o Nationwide Variable Account-II; o Nationwide Variable Account-3; o Nationwide Variable Account-4; o Nationwide Variable Account-5; o Nationwide Variable Account-6; o Nationwide Variable Account-7; o Nationwide Variable Account-8; o Nationwide Variable Account-9; o Nationwide Variable Account-10; o Nationwide Variable Account-11 o Nationwide Variable Account-12 o Nationwide Variable Account-13; o Nationwide Variable Account-14; o MFS Variable Account; o Nationwide Multi-Flex Variable Account; o Nationwide VLI Separate Account; o Nationwide VLI Separate Account-2; o Nationwide VLI Separate Account-3; o Nationwide VLI Separate Account-4; and o Nationwide VLI Separate Account-5 o Nationwide VLI Separate Account-6. Nationwide, in common with other insurance companies, is subject to regulation and supervision by the regulatory authorities of the states in which it is licensed to do business. A license from the state insurance department is a prerequisite to the transaction of insurance business in that state. In general, all states have statutory administrative powers. Such regulation relates, among other things, to licensing of insurers and their agents, the approval of policy forms, the methods of computing reserves, the form and content of statutory financial statements, the amount of policyholders' and stockholders' dividends, and the type of distribution of investments permitted. Nationwide operates in the highly competitive field of life insurance. There are approximately 2,300 stock, mutual and other types of insurers in the life insurance business in the United States, and a large number of them compete with the registrant in the sale of insurance policies. As is customary in insurance company groups, employees are shared with the other insurance companies in the group. In addition to its direct salaried employees, Nationwide shares employees with Nationwide Mutual Insurance Company and Nationwide Mutual Fire Insurance Company. Nationwide does not presently own or lease any materially important physical properties when its property holdings are viewed in relation to its total assets. Nationwide shares its home office, other facilities and equipment with Nationwide Mutual Insurance Company. 25 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. The business address of the directors and officers listed below is One Nationwide Plaza, Columbus, Ohio 43215. W. G. JURGENSEN has been Chief Executive Officer of Nationwide since August 2000, Chief Executive Officer-Elect from May to August 2000 and a Director of Nationwide since May 2000. Previously, he was Executive Vice President of Bank One Corporation from 1998 to 2000. Mr. Jurgensen was Executive Vice President of First Chicago NBD Corporation and Chairman of FCC National Bank from 1996 to 1998. Mr. Jurgensen has been with Nationwide for 42 years. JOSEPH J. GASPER has been President and Chief Operating Officer and a Director of Nationwide since April 1996. Previously, he was Executive Vice President-Property and Casualty Operations of Nationwide from April 1995 to April 1996. He was Senior Vice President-Property and Casualty Operations of Nationwide from September 1993 to April 1995. Prior to that time, Mr. Gasper held various management positions with the Nationwide companies. Mr. Gasper has been with Nationwide for 37 years. MARK R. THRESHER has been President and Chief Operating Officer-Elect of Nationwide Financial since December 2003. Previously, he was Senior Vice President-Finance-Nationwide Financial from May 1999 to December 2003, Vice President-Controller from August 1996 to May 1999. He was Vice President and Treasurer of Nationwide from June 1996 to August 1996. Prior to joining Nationwide, Mr. Thresher served as a partner with KPMG LLP from July 1988 to May 1996. Mr. Thresher has been with Nationwide for 8 years. PATRICIA R. HATLER has been Executive Vice President, General Counsel and Secretary of Nationwide since March 2003. Previously, she was Senior Vice President, General Counsel and Secretary from April 2000 to March 2003, and Senior Vice President and General Counsel from July 1999 to April 2000. Prior to joining Nationwide, she was General Counsel and Corporate Secretary of Independence Blue Cross from 1983 to July 1999. Ms. Hatler has been with Nationwide for 5 years. TERRI L. HILL has been Executive Vice President-Chief Administrative Officer of Nationwide since September 2003. She is also a director/officer of other Nationwide affiliates and subsidiaries. Ms. Hill previously held executive positions with several Nationwide subsidiaries from May 1997 to September 2003. Prior to that time, she was Vice President-Human Relations with American Express from February 1985 to September 1996. Ms. Hill has been with Nationwide for 7 years. MICHAEL C. KELLER has been Executive Vice President-Chief Information Officer of Nationwide since June 2001. Prior to joining Nationwide, Mr. Keller was Senior Vice President of Bank One from January 1998 to June 2001, and held various management positions with IBM from July 1982 to December 1997. Mr. Keller has been with Nationwide for 3 years. KATHLEEN D. RICORD has been Executive Vice President-Chief Marketing Officer of Nationwide Mutual since September 2003. Previously, she was Senior Vice President-Marketing and Strategy of several Nationwide companies from April 2002 to September 2003, Vice President-Marketing and Strategy from August 1999 to April 2002, Vice President-Assistant to the Chief Executive Officer and Enterprise Strategic Planning from March 1998 to August 1999 and Associate Vice President-Enterprise Strategic Planning and Assistant to the Chief Executive Officer from March 1997 to March 1998. Prior to that time, Ms. Ricord held several positions within Nationwide. Ms. Ricord has been with Nationwide for 18 years. ROBERT A. ROSHOLT has been Executive Vice President-Chief Finance and Investment Officer of Nationwide since October 2002. Prior to joining Nationwide, Mr. Rosholt was Executive Vice President and Head of Operations of AON Corporation from September 2000 to September 2002. Prior to that time he was Executive Vice President-Chief Financial Officer of Bank One Corporation. Mr. Rosholt has been with Nationwide for 2 years. WESLEY K. AUSTEN has been Senior Vice President-Property and Casualty Commercial/Farm Product Pricing of Nationwide since September 2003 and was Vice President from April 2002 to September 2003. He is also an officer of ALLIED Group, Inc. ("Allied"), a director/officer of various ALLIED affiliates and subsidiaries and was an employee of ALLIED from 1980 26 to April 2002. Mr. Austen has been with Nationwide for 24 years. DAVID A. DIAMOND has been Senior Vice President since December 2000. Previously, he was Senior Vice President-Corporate Controller of Nationwide from August 1999 to December 2000. He was Vice President-Controller of Nationwide from October 1993 to August 1996. Prior to that time, Mr. Diamond held several positions within Nationwide. Mr. Diamond has been with Nationwide for 15 years. DENNIS P. DRENT has been Senior Vice president-Internal Audits of Nationwide since May 2003, and was Vice President-Internal Audits from July 2000 to May 2003. Prior to joining Nationwide, he was a partner with Ernst & Young LLP from February 1999 to July 2000, and Vice President with TIG Insurance Company from August 1987 to February 1999.Mr. Drent has been with Nationwide for 4 years. 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, and 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 35 years. J. LYNN GREENSTEIN has been Senior Vice President-Product Management of Nationwide since March 2003, and was Vice President-Operations Services from January 2000 to March 2003. She is also a director/officer of other Nationwide affiliates and subsidiaries. Ms. Greenstein has been with Nationwide for 19 years. KELLY A. HAMILTON has been Senior Vice President-NI Finance of Nationwide since September 2003, and was Vice President-Corporate Controller from August 2001 to September 2003. She is also a director/officer of other Nationwide affiliates and subsidiaries. Ms. Hamilton has been with Nationwide for 9 years. DAVID K. HOLLINGSWORTH has been Senior Vice President-President Nationwide Insurance Sales since August 2001. Mr. Hollingsworth has been with Nationwide for 14 years. DAVID R. JAHN has been Senior Vice President-Property and Casualty Claims since October 2003. Prior to that time he was Senior Vice President-Product Management from November 2000 to October 2003. Mr. Jahn has been with Nationwide for 32 years. M. EILEEN KENNEDY has been Senior Vice President-Chief Financial Officer of Nationwide since April 2004. Prior to that time she was Senior Vice President-NF Finance from January 2004 to April 2004. Ms. Kennedy has also been Executive Vice President and Chief Finance Officer of Gartmore Global Investments, Inc. ("Gartmore"), and serves as Executive Vice President of several Gartmore subsidiaries, since April 2003. Prior to that time, Ms. Kennedy held a number of management positions, including senior vice president and treasurer, with Bank One Corporation from June 1980 to April 2003. Ms. Kennedy has been with Nationwide for 1 year. RICHARD A. KARAS has been Senior Vice President-Sales-Financial Services of Nationwide since March 1993. Previously, he was Vice President-Sales-Financial Services of Nationwide from February 1989 to March 1993. Prior to that time, Mr. Karas held several positions within Nationwide. Mr. Karas has been with Nationwide for 39 years. GALE V. KING has been Senior Vice President-Property and Casualty Human Resources of Nationwide since October 2003, and was Vice President-Human Resources-Nationwide Insurance from May 1999 to October 2003. She is also a director of other Nationwide affiliates and subsidiaries. Ms. King has been with Nationwide for 21 years. SRINIVAS KOUSHIK has been Senior Vice President-Chief Technology Officer of Nationwide Mutual since December 2003 and was Vice President-Information Systems from April 2002 to December 2003. Prior to joining Nationwide, he was Chief Technology Officer with IBM Global Services from January 1994 to January 2002. Mr. Koushik has been with Nationwide for 2 years. GREGORY S. LASHUTKA has been Senior Vice President-Corporate Relations of Nationwide since January 2000. Prior to that time, he was Mayor of the City of Columbus (Ohio) from January 1992 to December 1999. Mr. Lashutka has been with Nationwide for 4 years. GARY D. MCMAHAN has been Senior Vice President of Nationwide since August 2002. Prior to that time he was self-employed as a consultant from February 1999 to August 2002, and held a number of management positions including Senior Vice President, with Massachusetts Mutual Insurance Company from January 1970 to February 1999. Mr. McMahan has been with Nationwide for 2 years. BRIAN W. NOCCO has been Senior Vice President and Treasurer of Nationwide since April 2001. Prior joining Nationwide, he was Executive Vice President of Imperial Bank and subsidiaries from May 1998 to June 2001. He was Senior Vice President-Chief Compliance Officer with The Chubb Corporation from 1994 to 1998 and Treasurer and Vice President-Finance of Continental Bank Corporation from 1986 to 1994. From 1974 to 1986 he held management positions in several companies. Mr. Nocco has been with Nationwide for 3 years. 27 MARK D. PHELAN has been Senior Vice President-Technology and Operations of Nationwide since December 2000. Prior to joining Nationwide, he was Executive Vice President of Check Free Corporation from October 1992 to November 1997, Sales Vice President of AT&T Corporation from February 1982 to November 1992, and Operations Manager with IBM Corporation from April 1977 to February 1982. Mr. Phelan has been with Nationwide for 4 years. JOHN S. SKUBIK has been Senior Vice President-Consumer Finance since January 2003. Prior to that time he was Senior Vice President-Strategic Initiatives from November 2001 to January 2003. Prior to joining Nationwide in 2001, Mr. Skubik was an Executive Vice President with Bank One. Mr. Skubik has been with Nationwide for 3 years. KATHERINE A. STUMPH has been Senior Vice President-Marketing, Strategy and Urban Operations of Nationwide since September 2003, and was Vice President-Strategic Initiatives and Assistant to the CEO from May 2003 to September 2003. She has held various other officer positions from September 1996 to May 2003. Ms. Stumph has been with Nationwide for 28 years. MARK D. TORKOS has been Senior Vice President-Property and Casualty Systems of Nationwide since December 2003. Prior to joining Nationwide, he was Chief Technology Officer and held a variety of senior level positions with Bank One from 1994 to December 2003. Mr. Torkos has been with Nationwide for less than 1 year. ROBERT L. WILSON has been Senior Vice President-Corporate Strategy of Nationwide since February 2004. Prior to joining Nationwide, he was proprietor/consultant with Greenwich Advisors from September 2001 to February 2004, Executive Vice President with AIA from May 1998 to September 2001, and Executive Vice President with Chase Manhattan Bank from June 1993 to May 1998. Mr. Wilson has been with Nationwide for less than 1 year. SUSAN A. WOLKEN has been Senior Vice President-Product Management and Nationwide Financial Marketing since May 1999. Previously, she was Senior Vice President-Life Company Operations of Nationwide from June 1997 to May 1999. She was Senior Vice President-Enterprise Administration of Nationwide from July 1996 to June 1997. Prior to that time, she was Senior Vice President-Human Resources of Nationwide from April 1995 to July 1996, Vice President-Human Resources of Nationwide from September 1993 to April 1995, and Vice President-Individual Life and Health Operations from September 1993 to April 1995. Ms. Wolken has been with Nationwide for 27 years. 28 - -------------------------------------------------------------------------------- APPENDIX A: SUB-ACCOUNT PORTFOLIOS - -------------------------------------------------------------------------------- The Sub-Account portfolios listed below are designed primarily as investments for variable annuity contracts and variable life insurance policies issued by insurance companies. There is no guarantee that the investment objectives will be met. Total Sub-Account Portfolio Annual Operating Expenses are expenses that are deducted from Sub-Account portfolio assets, including management fees, distribution (12b-1) fees, and other expenses. Please refer to the prospectus for each Sub-Account portfolio for more detailed information.
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC. - AMERICAN CENTURY VP BALANCED FUND: CLASS I (not available for policies issued on or after May 1, 2003) - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: American Century Investment Management, Inc. - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: Capital growth and current income. - ------------------------------------------------ ----------------------------------------------------------------------------------- FIDELITY VARIABLE INSURANCE PRODUCTS FUND - VIP GROWTH PORTFOLIO: INITIAL CLASS - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: Fidelity Management & Research Company - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: Capital appreciation. - ------------------------------------------------ ----------------------------------------------------------------------------------- GARTMORE VARIABLE INSURANCE TRUST - GARTMORE GVIT GOVERNMENT BOND FUND: CLASS I - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: Gartmore Mutual Fund Capital Trust, an affiliate of Nationwide Financial Services, Inc. - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: High level of income. - ------------------------------------------------ ----------------------------------------------------------------------------------- GARTMORE VARIABLE INSURANCE TRUST - GARTMORE GVIT GROWTH FUND: CLASS I (not available for policies issued on or after May 1, 2003) - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: Gartmore Mutual Fund Capital Trust, an affiliate of Nationwide Financial Services, Inc. - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: Long-term capital appreciation. - ------------------------------------------------ ----------------------------------------------------------------------------------- GARTMORE VARIABLE INSURANCE TRUST - GARTMORE GVIT MONEY MARKET FUND: CLASS I - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: Gartmore Mutual Fund Capital Trust, an affiliate of Nationwide Financial Services, Inc. - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: High level of current income. - ------------------------------------------------ ----------------------------------------------------------------------------------- GARTMORE VARIABLE INSURANCE TRUST - GARTMORE GVIT NATIONWIDE(R) FUND: CLASS I - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: Gartmore Mutual Fund Capital Trust, an affiliate of Nationwide Financial Services, Inc. - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: Capital appreciation. - ------------------------------------------------ ----------------------------------------------------------------------------------- NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST - AMT BALANCED PORTFOLIO - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: Neuberger Berman Management, Inc. - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: Growth of capital and reasonable current income. - ------------------------------------------------ -----------------------------------------------------------------------------------
29 APPENDIX B: ILLUSTRATIONS OF SURRENDER CHARGES Example 1. A female non-tobacco, age 45, purchases a policy with a specified amount of $50,000 and a scheduled premium of $750. She now wishes to surrender the policy during the first policy year. By using the "Initial Surrender Charge" table reproduced below, (also see "Surrender Charges") the total surrender charge per thousand, multiplied by the specified amount expressed in thousands, equals the total Surrender Charge of $569.80 ($11.396 x 50=569.80). Example 2. A male non-tobacco, age 35, purchases a policy with a specified amount of $100,000 and a scheduled premium of $1,100. He now wants to surrender the policy in the sixth policy year. The total initial surrender charge is calculated using the method illustrated above. (Surrender charge per 1,000=6.817 x 100 for a total of $681.70 maximum initial surrender charge). Because the fifth policy year has been completed, the maximum initial surrender charge is reduced by multiplying it by the applicable percentage factor from the "Reductions to Surrender Charges" table below. (Also see "Reductions to Surrender Charges"). In this case, $681.70 x 60%=$409.02 which is the amount Nationwide deducts as a total surrender charge. The following tables illustrate the maximum initial surrender charge per $1,000 of initial specified amount for policies that are issued on a standard basis.
INITIAL SPECIFIED AMOUNT $50,000-$99,999 - ----------------------------------------------------------------------------------------------------------- ISSUE MALE FEMALE MALE FEMALE AGE NON-TOBACCO NON-TOBACCO STANDARD STANDARD - ----------------------------------------------------------------------------------------------------------- 25 $7.776 $7.521 $8.369 $7.818 - ----------------------------------------------------------------------------------------------------------- 35 8.817 8.398 9.811 8.891 - ----------------------------------------------------------------------------------------------------------- 45 12.191 11.396 13.887 12.169 - ----------------------------------------------------------------------------------------------------------- 55 15.636 14.011 18.415 15.116 - ----------------------------------------------------------------------------------------------------------- 65 22.295 19.086 26.577 20.641 - ----------------------------------------------------------------------------------------------------------- INITIAL SPECIFIED AMOUNT $100,000 OR MORE - ----------------------------------------------------------------------------------------------------------- ISSUE MALE FEMALE MALE FEMALE AGE NON-TOBACCO NON-TOBACCO STANDARD STANDARD - ----------------------------------------------------------------------------------------------------------- 25 $5.776 $5.521 $6.369 $5.818 - ----------------------------------------------------------------------------------------------------------- 35 6.817 6.398 7.811 6.891 - ----------------------------------------------------------------------------------------------------------- 45 9.691 8.896 11.387 9.669 - ----------------------------------------------------------------------------------------------------------- 55 13.136 11.511 15.915 12.616 - ----------------------------------------------------------------------------------------------------------- 65 21.295 18.086 25.577 19.641 - ----------------------------------------------------------------------------------------------------------- REDUCTIONS TO SURRENDER CHARGES - ----------------------------------------------------------------------------------------------------------- SURRENDER CHARGE SURRENDER CHARGE COMPLETED AS A % OF INITIAL COMPLETED AS A % OF INITIAL POLICY YEARS SURRENDER CHARGES POLICY YEARS SURRENDER CHARGES - ----------------------------------------------------------------------------------------------------------- 0 100% 5 60% - ----------------------------------------------------------------------------------------------------------- 1 100% 6 50% - ----------------------------------------------------------------------------------------------------------- 2 90% 7 40% - ----------------------------------------------------------------------------------------------------------- 3 80% 8 30% - ----------------------------------------------------------------------------------------------------------- 4 70% 9+ 0% - -----------------------------------------------------------------------------------------------------------
30 The current surrender charges are the same for all states. However, in Pennsylvania, the guaranteed maximum surrender charges are spread out over 14 years. The guaranteed maximum surrender charges in subsequent years in Pennsylvania are reduced in the following manner.
- --------------------------------------------------------------------------------------------------------------- SURRENDER CHARGE SURRENDER CHARGE SURRENDER CHARGE COMPLETED AS A % OF INITIAL COMPLETED AS A % OF INITIAL COMPLETED AS A % OF INITIAL POLICY SURRENDER POLICY SURRENDER POLICY SURRENDER YEARS CHARGES YEARS CHARGES YEARS CHARGES - --------------------------------------------------------------------------------------------------------------- 0 100% 5 60% 10 20% - --------------------------------------------------------------------------------------------------------------- 1 100% 6 50% 11 15% - --------------------------------------------------------------------------------------------------------------- 2 90% 7 40% 12 10% - --------------------------------------------------------------------------------------------------------------- 3 80% 8 30% 13 5% - --------------------------------------------------------------------------------------------------------------- 4 70% 9 25% 14+ 0% - ---------------------------------------------------------------------------------------------------------------
The illustrations of current values in this prospectus are the same for Pennsylvania. However, the illustrations of guaranteed values in this prospectus do not reflect guaranteed maximum surrender charges which are spread out over 14 years. If this policy is issued in Pennsylvania, please contact the home office for an illustration. Nationwide has no plans to change the current surrender charges. 31 - -------------------------------------------------------------------------------- Independent Auditors' Report The Board of Directors of Nationwide Life Insurance Company and Contract Owners of Nationwide VLI Separate Account-2: We have audited the accompanying statement of assets, liabilities and contract owners' equity of Nationwide VLI Separate Account-2 (comprised of the sub-accounts listed in note 1(b)) (collectively, "the Account") as of December 31, 2003, and the related statements of operations and changes in contract owners' equity, and the financial highlights for each of the periods indicated herein. 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, 2003, 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, 2003, and the results of its operations, changes in contract owners' equity, and financial highlights for each of the periods indicated herein, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Columbus, Ohio February 20, 2004 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY December 31,2003 Assets: Investments at fair value: AIM VIF - AIM V.I. Capital Appreciation Fund - Series I (AIMCapAp) 3,135 shares (cost $58,438)........................................................ $ 66,715 AIM VIF Basic Value Fund - Series I (AIMBVF) 19,085 shares (cost $189,925)...................................................... 203,442 AIM VIF Capital Development Fund - Series I (AIMCDF) 4,906 shares (cost $57,733)........................................................ 62,360 Alliance Bernstein VPS Small Cap Value Portfolio - Class A (AllSmCpVal) 14,574 shares (cost $190,639)...................................................... 211,184 Alliance VPS Growth & Income Portfolio - Class A (AllGroInc) 19,100 shares (cost $383,619)...................................................... 416,380 American Century VP Balanced Fund - Class I (ACVPBal) 835,237 shares (cost $5,508,059)................................................... 5,629,497 American Century VP Capital Appreciation Fund - Class I (ACVPCapAp) 1,839,607 shares (cost $14,981,363)................................................ 13,098,000 American Century VP Income & Growth Fund - Class I (ACVPIncGr) 569,557 shares (cost $3,015,436)................................................... 3,741,988 American Century VP Inflation Protection Fund - Class II (ACVPInfPr) 7,289 shares (cost $74,144)........................................................ 75,145 American Century VP International Fund - Class I (ACVPInt) 1,784,083 shares (cost $10,662,183)................................................ 11,471,653 American Century VP Ultra Fund - Class I (ACVPUltra) 50,764 shares (cost $437,737)...................................................... 466,014 American Century VP Value Fund - Class I (ACVPVal) 1,636,827 shares (cost $10,888,421)................................................ 12,750,880 Comstock GVIT Value Fund - Class I (ComGVITVal) 13,042 shares (cost $117,074)...................................................... 129,640 Credit Suisse Trust - Global Post-Venture Capital Portfolio (CSGPVen) 92,598 shares (cost $735,232)...................................................... 875,048 Credit Suisse Trust - International Focus Portfolio (CSIntEq) 700,069 shares (cost $5,818,907)................................................... 6,195,611 Credit Suisse Trust - Small Cap Growth Portfolio (CSSmCapGr) 1,078,591 shares (cost $11,096,706)................................................ 14,884,555 Dreyfus GVIT International Value Fund - Class I (DryIntVal) 15,989 shares (cost $192,405)...................................................... 210,418 Dreyfus GVIT Mid Cap Index Fund - Class I (DryMidCapIx) 457,119 shares (cost $5,510,723)................................................... 6,751,652 Dreyfus IP - Small Cap Stock Index Portfolio - Service Class (DrySmCapIxS) 85,174 shares (cost $1,015,313).................................................... 1,116,636
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY, Continued Dreyfus Socially Responsible Growth Fund, Inc. - Initial Shares (DrySRGro) 419,875 shares (cost $14,485,910).................................................. $ 9,988,838 Dreyfus Stock Index Fund (DryStkIx) 2,755,240 shares (cost $88,020,002)................................................ 78,303,907 Dreyfus VIF - Appreciation Portfolio - Initial Shares (DryVIFApp) 188,705 shares (cost $5,657,867)................................................... 6,495,241 Dreyfus VIF - Developing Leaders Portfolio - Initial Shares (DryDevLeadI) 4,714 shares (cost $163,132)....................................................... 176,257 Dreyfus VIF - Growth and Income Portfolio - Initial Shares (DryVIFGrInc) 124,754 shares (cost $2,622,231)................................................... 2,515,032 Federated American Leaders Fund II - Primary Shares (FedAmLdII) 724 shares (cost $13,015).......................................................... 13,829 Federated Capital Appreciation Fund II - Primary Shares (FedCpApII) 1,215 shares (cost $6,135)......................................................... 6,635 Federated GVIT High Income Bond Fund - Class I (FGVITHiInc) 26,047 shares (cost $204,840)...................................................... 208,896 Federated Quality Bond Fund II - Primary Shares (FedQualBd) 137,143 shares (cost $1,615,913)................................................... 1,623,774 Fidelity(R)VIP - Equity-Income Portfolio: Initial Class (FidVIPEI) 3,204,677 shares (cost $75,195,230)................................................ 74,284,422 Fidelity(R)VIP - Growth Portfolio: Initial Class (FidVIPGr) 3,062,762 shares (cost $134,660,773)............................................... 95,068,140 Fidelity(R)VIP - High Income Portfolio: Initial Class (FidVIPHI) 3,710,348 shares (cost $22,225,627)................................................ 25,786,916 Fidelity(R)VIP - Overseas Portfolio: Initial Class (FidVIPOv) 1,102,398 shares (cost $13,435,709)................................................ 17,186,381 Fidelity(R)VIP II - Asset Manager Portfolio: Initial Class (FidVIPAM) 1,677,352 shares (cost $26,542,631)................................................ 24,254,513 Fidelity(R)VIP II - Contrafund Portfolio: Initial Class (FidVIPCon) 2,363,817 shares (cost $56,328,677)................................................ 54,675,085 Fidelity(R)VIP II - Investment Grade Bond Portfolio: Service Class (FidVIPInvGrB) 17,653 shares (cost $235,768)...................................................... 240,252 Fidelity(R)VIP III - Growth Opportunities Portfolio: Initial Class (FidVIPGrOp) 276,847 shares (cost $4,544,028)................................................... 4,172,090 Fidelity(R)VIP III - Mid Cap Portfolio: Service Class (FidVIPMCap) 30,734 shares (cost $682,559)...................................................... 740,696 Fidelity(R)VIP III - Value Strategies Portfolio: Service Class (FidVIPValStS) 172,457 shares (cost $1,955,062)................................................... 2,136,744 Franklin Templeton VIP - Franklin Rising Dividends Securities Fund - Class I (FTVIPFRDiv) 56,109 shares (cost $848,387)......................................... 913,449 Franklin Templeton VIP - Franklin Small Cap Value Securities Fund - Class I (FTVIPSmCpVal) 13,199 shares (cost $154,595)................................................... 169,076 Franklin Templeton VIPT - Templeton Foreign Securities Fund - Class I (FTVIPFS) 30,353 shares (cost $343,892)...................................................... 375,467
Gartmore GVIT Emerging Markets Fund - Class I (GVITEmMrkts) 163,841 shares (cost $1,383,854)................................................... $ 1,612,192 Gartmore GVIT Global Financial Services Fund - Class I (GVITGlFin) 31,265 shares (cost $352,113)...................................................... 356,105 Gartmore GVIT Global Health Sciences Fund - Class I (GVITGlHlth) 63,183 shares (cost $661,958)...................................................... 629,303 Gartmore GVIT Global Technology and Communications Fund - Class I (GVITGlTech) 343,387 shares (cost $1,215,482)................................................... 1,273,967 Gartmore GVIT Global Utilities Fund - Class I (GVITGlUtl) 18,114 shares (cost $147,890)...................................................... 165,926 Gartmore GVIT Government Bond Fund - Class I (GVITGvtBd) 1,353,967 shares (cost $16,631,333)................................................ 16,423,617 Gartmore GVIT Growth Fund - Class I (GVITGrowth) 1,719,348 shares (cost $30,956,682)................................................ 17,159,090 Gartmore GVIT ID Aggressive Fund (GVITIDAgg) 47,364 shares (cost $459,362)...................................................... 496,850 Gartmore GVIT ID Conservative Fund (GVITIDCon) 36,945 shares (cost $366,158)...................................................... 381,268 Gartmore GVIT ID Moderate Fund (GVITIDMod) 234,346 shares (cost $2,195,459)................................................... 2,470,006 Gartmore GVIT ID Moderately Aggressive Fund (GVITIDModAgg) 195,717 shares (cost $1,797,292)................................................... 2,074,599 Gartmore GVIT ID Moderately Conservative Fund (GVITIDModCon) 67,146 shares (cost $654,610)...................................................... 703,695 Gartmore GVIT International Growth Fund - Class I (GVITIntGro) 12,856 shares (cost $76,135)....................................................... 81,247 Gartmore GVIT Money Market Fund - Class I (GVITMyMkt) 31,758,648 shares (cost $31,758,648)............................................... 31,758,648 Gartmore GVIT Nationwide(R)Leaders Fund - Class I (GVITLead) 10,091 shares (cost $101,668)...................................................... 119,179 Gartmore GVIT Small Cap Growth Fund - Class I (GVITSmCapGr) 126,523 shares (cost $1,539,759)................................................... 1,641,007 Gartmore GVIT Small Cap Value Fund - Class I (GVITSmCapVal) 1,298,293 shares (cost $11,485,484)................................................ 15,008,264 Gartmore GVIT Small Company Fund - Class I (GVITSmComp) 1,259,065 shares (cost $23,801,358)................................................ 27,359,492 Gartmore GVIT Total Return Fund - Class I (GVITTotRt) 7,170,192 shares (cost $103,995,562)............................................... 73,637,874 Gartmore GVIT U.S. Growth Leaders Fund - Class I (GVITUSGro) 97,261 shares (cost $1,059,045).................................................... 1,044,584 Janus AS - Balanced Portfolio - Service Shares (JanBal) 1,174 shares (cost $27,080)........................................................ 27,954 Janus AS - Capital Appreciation Portfolio - Service Shares (JanCapAp) 120,909 shares (cost $2,273,247)................................................... 2,500,390 Janus AS - Global Technology Portfolio - Service Shares (JanGlTech) 376,692 shares (cost $1,025,067)................................................... 1,329,723 Janus AS - International Growth Portfolio - Service Shares (JanIntGro) 75,224 shares (cost $1,268,929).................................................... 1,721,888
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY, Continued Janus AS - Risk-Managed Large Cap Core Portfolio - Service Shares (JanRsLgCpCr) 636 shares (cost $7,439)........................................................... $ 7,941 MAS GVIT Multi Sector Bond Fund - Class I (MGVITMultiSec) 128,658 shares (cost $1,247,045)................................................... 1,268,567 MFS VIT - MFS Investors Growth Stock Series - Initial Class (MFSVITInvGrwI) 6,382 shares (cost $54,035)........................................................ 55,584 MFS VIT - MFS Value Series - Initial Class (MFSVITValIn) 4,061 shares (cost $39,851)........................................................ 43,700 Neuberger Berman AMT - Balanced Portfolio (NBAMTBal) 7,633 shares (cost $68,003)........................................................ 68,160 Neuberger Berman AMT - Fasciano Portfolio (NBAMTFas) 864 shares (cost $9,966)........................................................... 10,713 Neuberger Berman AMT - Growth Portfolio (NBAMTGro) 1,554,592 shares (cost $14,602,384)................................................ 16,198,848 Neuberger Berman AMT - Guardian Portfolio (NBAMTGuard) 140,139 shares (cost $1,607,978)................................................... 1,959,147 Neuberger Berman AMT - Limited Maturity Bond Portfolio (NBAMTLMat) 474,037 shares (cost $6,303,912)................................................... 6,257,290 Neuberger Berman AMT - Mid Cap Growth Portfolio - Class S (NBAMTMCGr) 17,806 shares (cost $262,407)...................................................... 272,069 Neuberger Berman AMT - Partners Portfolio (NBAMTPart) 1,321,998 shares (cost $18,969,309)................................................ 20,358,765 Neuberger Berman AMT - Socially Responsive Portfolio (NBAMTSocRe) 3,282 shares (cost $36,246)........................................................ 40,528 Oppenheimer Aggressive Growth Fund/VA - Initial Class (OppAggGro) 49,858 shares (cost $1,793,509).................................................... 1,830,283 Oppenheimer Bond Fund/VA - Initial Class (OppBdFd) 1,156,060 shares (cost $12,746,798)................................................ 13,202,210 Oppenheimer Capital Appreciation Fund/VA - Initial Class (OppCapAp) 433,347 shares (cost $12,466,337).................................................. 15,037,136 Oppenheimer Global Securities Fund/VA - Initial Class (OppGlSec) 1,310,984 shares (cost $29,326,647)................................................ 32,879,487 Oppenheimer High Income Fund/VA - Initial Class (OppHiIncInt) 36,258 shares (cost $296,894)...................................................... 312,181 Oppenheimer Main Street(R)Growth & Income Fund/VA - Initial Class (OppMSGrInc) 74,492 shares (cost $1,316,200).................................................... 1,430,243 Oppenheimer Main Street(R)Small Cap Fund/VA - Initial Class (OppMaStSmCpI) 30,042 shares (cost $374,449)...................................................... 403,769 Oppenheimer Multiple Strategies Fund/VA - Initial Class (OppMultStr) 967,615 shares (cost $15,174,020).................................................. 15,404,426 Putnam VT Growth & Income Fund - IB Shares (PUTVTGrIncIB) 643 shares (cost $13,400).......................................................... 14,960 Putnam VT International Equity Fund - IB Shares (PUTVTIntlEqIB) 4,885 shares (cost $57,360)........................................................ 62,777 Putnam VT Voyager Fund - IB Shares (PUTVTVoyIB) 582 shares (cost $14,072).......................................................... 15,097
Strong GVIT Mid Cap Growth Fund - Class I (SGVITMdCpGr) 105,978 shares (cost $2,123,252)................................................... $ 2,273,224 Strong Opportunity Fund II, Inc. (StOpp2) 1,792,807 shares (cost $37,105,314)................................................ 34,045,406 Strong VIF - Strong Discovery Fund II (StDisc2) 602,676 shares (cost $6,267,763)................................................... 7,629,880 Strong VIF - Strong International Stock Fund II (StIntStk2) 22 shares (cost $112).............................................................. 22 Turner GVIT Growth Focus Fund - Class I (TurnGVITGro) 206,458 shares (cost $571,601)..................................................... 648,279 Van Eck WIT - Worldwide Bond Fund (VEWrldBd) 350,612 shares (cost $4,394,471)................................................... 4,666,639 Van Eck WIT - Worldwide Emerging Markets Fund (VEWrldEMkt) 458,745 shares (cost $4,202,668)................................................... 5,573,752 Van Eck WIT - Worldwide Hard Assets Fund (VEWrldHAs) 350,433 shares (cost $4,190,631)................................................... 5,210,940 Van Kampen UIF - Core Plus Fixed Income Portfolio - Class A (VKoreFI) 2,653 shares (cost $30,203)........................................................ 30,617 Van Kampen UIF - Emerging Markets Debt Portfolio (VKEmMkt) 316,520 shares (cost $2,679,847)................................................... 2,861,344 Van Kampen UIF - U.S. Real Estate Portfolio (VKUSRealEst) 836,577 shares (cost $10,577,966).................................................. 13,033,865 ------------ Total Investments............................................................... 880,777,175 Accounts Receivable...................................................................... 785,011 ------------ Total Assets.................................................................... 881,562,186 Accounts Payable............................................................................ -- ------------ Contract Owners Equity (note 7)............................................................. $881,562,186 ============
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF OPERATIONS Year Ended December 31,2003
Total AIMCapAp AIMBVF AIMCDF ------------- -------- ------- ------- Investment activity: Reinvested dividends ........................... $ 8,949,773 -- 56 -- Mortality and expense risk charges (note 3) .... (5,897,663) (235) (350) (105) ------------- ------ ------- ------- Net investment income (loss) ................ 3,052,110 (235) (294) (105) ------------- ------ ------- ------- Proceeds from mutual fund shares sold .......... 321,981,360 4,295 43,721 19,663 Cost of mutual fund shares sold ................ (358,212,120) (3,770) (39,232) (18,923) ------------- ------ ------- ------- Realized gain (loss) on investments ......... (36,230,760) 525 4,489 740 Change in unrealized gain (loss) on investments .............................. 223,498,022 8,278 13,517 4,627 ------------- ------ ------- ------- Net gain (loss) on investments .............. 187,267,262 8,803 18,006 5,367 ------------- ------ ------- ------- Reinvested capital gains ....................... 231,065 -- -- -- ------------- ------ ------- ------- Net increase (decrease) in contract owners' equity resulting from operations ......... $ 190,550,437 8,568 17,712 5,262 ============= ====== ======= ======= AllSmCpVal AllVGroInc ACVPBal ACVPCapAp ---------- ---------- ---------- ---------- Investment activity: Reinvested dividends ........................... 13 6 129,712 -- Mortality and expense risk charges (note 3) .... (305) (424) (39,223) (92,344) ------- ------ ---------- ---------- Net investment income (loss) ................ (292) (418) 90,489 (92,344) ------- ------ ---------- ---------- Proceeds from mutual fund shares sold .......... 29,229 3,012 1,055,800 1,378,246 Cost of mutual fund shares sold ................ (28,287) (2,937) (1,381,905) (3,280,808) ------- ------ ---------- ---------- Realized gain (loss) on investments ......... 942 75 (326,105) (1,902,562) Change in unrealized gain (loss) on investments .............................. 20,545 32,761 1,118,651 4,110,801 ------- ------ ---------- ---------- Net gain (loss) on investments .............. 21,487 32,836 792,546 2,208,239 ------- ------ ---------- ---------- Reinvested capital gains ....................... 31 -- -- -- ------- ------ ---------- ---------- Net increase (decrease) in contract owners' equity resulting from operations ......... 21,226 32,418 883,035 2,115,895 ======= ====== ========== ==========
ACVPIncGr ACVPInfPr ACVPInt ACVPUltra ----------- --------- ---------- ---------- Investment activity: Reinvested dividends ........................... $ 42,157 725 76,687 -- Mortality and expense risk charges (note 3) .... (22,571) (282) (75,393) (2,083) ----------- -------- ---------- ---------- Net investment income (loss) ................ 19,586 443 1,294 (2,083) ----------- -------- ---------- ---------- Proceeds from mutual fund shares sold .......... 1,399,508 136,350 3,828,602 1,424,153 Cost of mutual fund shares sold ................ (1,656,349) (136,575) (5,649,230) (1,401,682) ----------- -------- ---------- ---------- Realized gain (loss) on investments ......... (256,841) (225) (1,820,628) 22,471 Change in unrealized gain (loss) on investments .............................. 1,047,403 1,001 4,044,090 31,622 ----------- -------- ---------- ---------- Net gain (loss) on investments .............. 790,562 776 2,223,462 54,093 ----------- -------- ---------- ---------- Reinvested capital gains ....................... -- 18 -- -- ----------- -------- ---------- ---------- Net increase (decrease) in contract owners' equity resulting from operations ......... $ 810,148 1,237 2,224,756 52,010 =========== ======== ========== ========== ACVPVal ComGVITVal CSGPVen CSIntEq ---------- ---------- ---------- --------- Investment activity: Reinvested dividends ........................... 122,033 677 -- 26,142 Mortality and expense risk charges (note 3) .... (83,906) (344) (5,477) (37,440) ---------- ------- ---------- --------- Net investment income (loss) ................ 38,127 333 (5,477) (11,298) ---------- ------- ---------- --------- Proceeds from mutual fund shares sold .......... 4,016,279 20,991 6,329,783 937,646 Cost of mutual fund shares sold ................ (4,484,903) (19,338) (6,187,737) (995,370) ---------- ------- ---------- --------- Realized gain (loss) on investments ......... (468,624) 1,653 142,046 (57,724) Change in unrealized gain (loss) on investments .............................. 3,272,161 12,566 162,735 1,638,617 ---------- ------- ---------- --------- Net gain (loss) on investments .............. 2,803,537 14,219 304,781 1,580,893 ---------- ------- ---------- --------- Reinvested capital gains ....................... -- -- -- -- ---------- ------- ---------- --------- Net increase (decrease) in contract owners' equity resulting from operations ......... 2,841,664 14,552 299,304 1,569,595 ========== ======= ========== =========
NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF OPERATIONS, Continued Year Ended December 31,2003
CSSmCapGr DryIntVal DryMidCapIx DrySmCapIxS ----------- --------- ----------- ----------- Investment activity: Reinvested dividends ......................... $ -- -- 24,317 1,671 Mortality and expense risk charges (note 3) .. (89,532) (311) (37,047) (3,223) ----------- -------- ---------- -------- Net investment income (loss) .............. (89,532) (311) (12,730) (1,552) ----------- -------- ---------- -------- Proceeds from mutual fund shares sold ........ 5,621,661 117,634 1,578,531 372,139 Cost of mutual fund shares sold .............. (7,180,721) (108,623) (1,736,046) (306,784) ----------- -------- ---------- -------- Realized gain (loss) on investments ....... (1,559,060) 9,011 (157,515) 65,355 Change in unrealized gain (loss) on investments ............................ 6,398,613 18,013 1,649,966 101,495 ----------- -------- ---------- -------- Net gain (loss) on investments ............ 4,839,553 27,024 1,492,451 166,850 ----------- -------- ---------- -------- Reinvested capital gains ...................... -- -- 40 5,323 ----------- -------- ---------- -------- Net increase (decrease) in contract owners' equity resulting from operations ....... $ 4,750,021 26,713 1,479,761 170,621 =========== ======== ========== ======== DrySRGro DryStkIx DryVIFApp DryDevLeadI ---------- ----------- ---------- ----------- Investment activity: Reinvested dividends ......................... 10,175 1,036,389 82,867 45 Mortality and expense risk charges (note 3) .. (67,265) (491,154) (43,638) (221) ---------- ----------- ---------- ------- Net investment income (loss) .............. (57,090) 545,235 39,229 (176) ---------- ----------- ---------- ------- Proceeds from mutual fund shares sold ........ 1,095,766 8,989,786 3,788,412 12,737 Cost of mutual fund shares sold .............. (1,840,973) (11,036,767) (4,796,120) (11,687) ---------- ----------- ---------- ------- Realized gain (loss) on investments ....... (745,207) (2,046,981) (1,007,708) 1,050 Change in unrealized gain (loss) on investments ............................ 2,849,243 18,594,894 2,073,274 13,125 ---------- ----------- ---------- ------- Net gain (loss) on investments ............ 2,104,036 16,547,913 1,065,566 14,175 ---------- ----------- ---------- ------- Reinvested capital gains ...................... -- -- -- -- ---------- ----------- ---------- ------- Net increase (decrease) in contract owners' equity resulting from operations ....... 2,046,946 17,093,148 1,104,795 13,999 ========== =========== ========== =======
DryVIFGrInc FedAmLdII FedCpApII FGVITHiInc ----------- --------- --------- ---------- Investment activity: Reinvested dividends ......................... $ 18,048 -- -- 6,724 Mortality and expense risk charges (note 3) .. (14,646) (11) (12) (394) ----------- ------ ------ -------- Net investment income (loss) .............. 3,402 (11) (12) 6,330 ----------- ------ ------ -------- Proceeds from mutual fund shares sold ........ 772,922 1,351 1,345 112,748 Cost of mutual fund shares sold .............. (1,089,733) (1,388) (1,384) (112,106) ----------- ------ ------ -------- Realized gain (loss) on investments ....... (316,811) (37) (39) 642 Change in unrealized gain (loss) on investments ............................ 800,579 814 500 4,057 ----------- ------ ------ -------- Net gain (loss) on investments ............ 483,768 777 461 4,699 ----------- ------ ------ -------- Reinvested capital gains ..................... -- -- -- -- ----------- ------ ------ -------- Net increase (decrease) in contract owners' equity resulting from operations........ $ 487,170 766 449 11,029 =========== ====== ====== ======== FedQualBd FidVIPEI FidVIPGr FidVIPHI ---------- ---------- ----------- ----------- Investment activity: Reinvested dividends ......................... 70,239 1,139,885 223,150 1,390,428 Mortality and expense risk charges (note 3) .. (13,559) (489,575) (646,292) (177,611) ---------- ---------- ----------- ----------- Net investment income (loss) .............. 56,680 650,310 (423,142) 1,212,817 ---------- ---------- ----------- ----------- Proceeds from mutual fund shares sold ........ 2,686,186 5,863,575 8,754,074 20,227,853 Cost of mutual fund shares sold .............. (2,641,021) (7,515,510) (14,271,617) (19,969,857) ---------- ---------- ----------- ----------- 45,165 (1,651,935) (5,517,543) 257,996 Realized gain (loss) on investments ....... Change in unrealized gain (loss) on investments ............................ (31,320) 17,928,029 29,260,774 4,109,732 ---------- ---------- ----------- ----------- Net gain (loss) on investments ............ 13,845 16,276,094 23,743,231 4,367,728 ---------- ---------- ----------- ----------- Reinvested capital gains ..................... -- -- -- -- ---------- ---------- ----------- ----------- Net increase (decrease) in contract owners' equity resulting from operations........ 70,525 16,926,404 23,320,089 5,580,545 ========== ========== =========== ===========
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF OPERATIONS, Continued Year Ended December 31, 2003
FidVIPOv FidVIPAM FidVIPCon FidVIPInvGrB ----------- ---------- ---------- ------------ Investment activity: Reinvested dividends ............................... $ 112,753 838,376 219,092 -- Mortality and expense risk charges (note 3) ........ (106,828) (193,956) (356,329) (467) ----------- ---------- ---------- ------- Net investment income (loss) .................... 5,925 644,420 (137,237) (467) ----------- ---------- ---------- ------- Proceeds from mutual fund shares sold .............. 1,790,935 3,116,268 4,585,765 19,272 Cost of mutual fund shares sold .................... (2,053,763) (3,694,374) (5,829,074) (19,195) ----------- ---------- ---------- ------- Realized gain (loss) on investments ............. (262,828) (578,106) (1,243,309) 77 Change in unrealized gain (loss) on investments .... 5,358,106 3,592,165 13,191,640 4,485 ----------- ---------- ---------- ------- Net gain (loss) on investments .................. 5,095,278 3,014,059 11,948,331 4,562 ----------- ---------- ---------- ------- Reinvested capital gains ........................... -- -- -- -- ----------- ---------- ---------- ------- Net increase (decrease) in contract owners' equity resulting from operations .......... $ 5,101,203 3,658,479 11,811,094 4,095 =========== ========== ========== ======= FidVIPGrOp FidVIPMCap FidVIPValStS FTVIPFRDiv ---------- ---------- ------------ ---------- Investment activity: Reinvested dividends ............................... 26,525 -- -- 499 Mortality and expense risk charges (note 3) ........ (25,065) (1,105) (7,699) (1,402) --------- -------- ---------- ------- Net investment income (loss) .................... 1,460 (1,105) (7,699) (903) --------- -------- ---------- ------- Proceeds from mutual fund shares sold .............. 639,910 126,122 2,379,414 37,113 Cost of mutual fund shares sold .................... (981,732) (109,423) (2,189,704) (36,298) --------- -------- ---------- ------- Realized gain (loss) on investments ............. (341,822) 16,699 189,710 815 Change in unrealized gain (loss) on investments .... 1,280,096 58,136 186,255 65,062 --------- -------- ---------- ------- Net gain (loss) on investments .................. 938,274 74,835 375,965 65,877 --------- -------- ---------- ------- Reinvested capital gains ........................... -- -- 12,819 1,517 --------- -------- ---------- ------- Net increase (decrease) in contract owners' equity resulting from operations .......... 939,734 73,730 381,085 66,491 ========= ======== ========== =======
FTVIPSmCpVal FTVIPFS GVITEmMrkts GVITGLFin ------------ -------- ----------- --------- Investment activity: Reinvested dividends ............................... $ 62 948 4,333 1,558 Mortality and expense risk charges (note 3) ........ (357) (726) (4,814) (1,427) -------- -------- ---------- --------- Net investment income (loss) .................... (295) 222 (481) 131 -------- -------- ---------- --------- Proceeds from mutual fund shares sold .............. 101,671 149,170 1,152,746 1,001,701 Cost of mutual fund shares sold .................... (93,605) (137,531) (1,003,069) (976,991) -------- -------- ---------- --------- Realized gain (loss) on investments ............. 8,066 11,639 149,677 24,710 Change in unrealized gain (loss) on investments .... 14,481 31,576 219,942 4,592 -------- -------- ---------- --------- Net gain (loss) on investments .................. 22,547 43,215 369,619 29,302 -------- -------- ---------- --------- Reinvested capital gains ........................... -- -- -- 36,957 -------- -------- ---------- --------- Net increase (decrease) in contract owners' equity resulting from operations .......... $ 22,252 43,437 369,138 66,390 ======== ======== ========== ========= GVITGLHlth GVITGLTech GVITGLUtl GVITGvtBd ---------- ---------- --------- ----------- Investment activity: Reinvested dividends ............................... -- -- 750 646,418 Mortality and expense risk charges (note 3) ........ (5,970) (5,695) (920) (159,721) ---------- ---------- -------- ----------- Net investment income (loss) .................... (5,970) (5,695) (170) 486,697 ---------- ---------- -------- ----------- Proceeds from mutual fund shares sold .............. 1,432,702 1,438,857 158,773 16,220,023 Cost of mutual fund shares sold .................... (1,294,435) (1,285,197) (153,536) (16,239,231) ---------- ---------- -------- ----------- Realized gain (loss) on investments ............. 138,267 153,660 5,237 (19,208) Change in unrealized gain (loss) on investments .... (27,859) 95,094 18,068 (207,136) ---------- ---------- -------- ----------- Net gain (loss) on investments .................. 110,408 248,754 23,305 (226,344) ---------- ---------- -------- ----------- Reinvested capital gains ........................... 70,723 -- -- 29,787 ---------- ---------- -------- ----------- Net increase (decrease) in contract owners' equity resulting from operations .......... 175,161 243,059 23,135 290,140 ========== ========== ======== ===========
NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF OPERATIONS, Continued Year Ended December 31, 2003
GVITGrowth GVITIDAgg GVITIDCon GVITIDMod ----------- --------- --------- --------- Investment activity: Reinvested dividends ............................... $ 3,130 4,130 9,827 30,037 Mortality and expense risk charges (note 3) ........ (110,693) (2,234) (2,784) (10,396) ----------- -------- -------- -------- Net investment income (loss) .................... (107,563) 1,896 7,043 19,641 ----------- -------- -------- -------- Proceeds from mutual fund shares sold .............. 1,880,508 898,198 336,122 220,719 Cost of mutual fund shares sold .................... (5,749,162) (854,015) (330,193) (214,889) ----------- -------- -------- -------- Realized gain (loss) on investments ............. (3,868,654) 44,183 5,929 5,830 Change in unrealized gain (loss) on investments .... 8,180,131 42,877 16,454 285,948 ----------- -------- -------- -------- Net gain (loss) on investments .................. 4,311,477 87,060 22,383 291,778 ----------- -------- -------- -------- Reinvested capital gains ........................... -- 5,518 1,440 946 ----------- -------- -------- -------- Net increase (decrease) in contract owners' equity resulting from operations .......... $ 4,203,914 94,474 30,866 312,365 =========== ======== ======== ======== GVITIDModAgg GVITIDModCon GVITIntGro GVITMyMkt ------------ ------------ ---------- ----------- Investment activity: Reinvested dividends ............................... 19,854 12,539 -- 267,135 Mortality and expense risk charges (note 3) ........ (9,434) (3,374) (438) (315,221) -------- -------- -------- ----------- Net investment income (loss) .................... 10,420 9,165 (438) (48,086) -------- -------- -------- ----------- Proceeds from mutual fund shares sold .............. 421,703 329,080 287,641 52,914,332 Cost of mutual fund shares sold .................... (429,277) (314,125) (278,157) (52,914,332) -------- -------- -------- ----------- Realized gain (loss) on investments ............. (7,574) 14,955 9,484 -- Change in unrealized gain (loss) on investments .... 318,164 48,943 5,034 -- -------- -------- -------- ----------- Net gain (loss) on investments .................. 310,590 63,898 14,518 -- -------- -------- -------- ----------- Reinvested capital gains ........................... -- 1,142 -- -- -------- -------- -------- ----------- Net increase (decrease) in contract owners' equity resulting from operations .......... 321,010 74,205 14,080 (48,086) ======== ======== ======== ===========
GVITLead GVITSmCapGr GVITSmCapVal GVITSmComp -------- ----------- ------------ ---------- Investment activity: Reinvested dividends ............................... $ 167 -- 54 -- Mortality and expense risk charges (note 3) ........ (670) (9,992) (78,572) (162,554) -------- ---------- ----------- ---------- Net investment income (loss) .................... (503) (9,992) (78,518) (162,554) -------- ---------- ----------- ---------- Proceeds from mutual fund shares sold .............. 66,021 2,552,073 11,825,967 4,473,625 Cost of mutual fund shares sold .................... (69,415) (2,306,781) (11,420,906) (5,414,955) -------- ---------- ----------- ---------- Realized gain (loss) on investments ............. (3,394) 245,292 405,061 (941,330) Change in unrealized gain (loss) on investments .... 22,125 101,046 4,692,960 8,912,411 -------- ---------- ----------- ---------- Net gain (loss) on investments .................. 18,731 346,338 5,098,021 7,971,081 -------- ---------- ----------- ---------- Reinvested capital gains ........................... -- -- -- -- -------- ---------- ----------- ---------- Net increase (decrease) in contract owners' equity resulting from operations .......... $ 18,228 336,346 5,019,503 7,808,527 ======== ========== =========== ========== GVITTotRt GVITUSGro JanBal JanCapAp ---------- ---------- ------ ---------- Investment activity: Reinvested dividends ............................... 364,416 -- 243 5,918 Mortality and expense risk charges (note 3) ........ (492,794) (4,094) (41) (17,053) ---------- ---------- ----- ---------- Net investment income (loss) .................... (128,378) (4,094) 202 (11,135) ---------- ---------- ----- ---------- Proceeds from mutual fund shares sold .............. 3,670,080 1,505,809 169 1,458,506 Cost of mutual fund shares sold .................... (5,989,912) (1,391,370) (162) (1,540,703) ---------- ---------- ----- ---------- Realized gain (loss) on investments ............. (2,319,832) 114,439 7 (82,197) Change in unrealized gain (loss) on investments .... 18,094,378 (8,682) 875 520,550 ---------- ---------- ----- ---------- Net gain (loss) on investments .................. 15,774,546 105,757 882 438,353 ---------- ---------- ----- ---------- Reinvested capital gains ........................... -- 64,799 -- -- ---------- ---------- ----- ---------- Net increase (decrease) in contract owners' equity resulting from operations .......... 15,646,168 166,462 1,084 427,218 ========== ========== ===== ==========
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF OPERATIONS, Continued Year Ended December 31, 2003
JanGlTech JanIntGro JanRsLgCpCr MGVITMultiSec ---------- --------- ----------- ------------- Investment activity: Reinvested dividends ............................... $ -- 15,339 6 81,970 Mortality and expense risk charges (note 3) ........ (8,186) (11,890) (14) (10,896) --------- -------- ------ ---------- Net investment income (loss) .................... (8,186) 3,449 (8) 71,074 --------- -------- ------ ---------- Proceeds from mutual fund shares sold .............. 678,165 655,560 1,364 2,704,889 Cost of mutual fund shares sold .................... (978,757) (567,721) (1,401) (2,609,762) --------- -------- ------ ---------- Realized gain (loss) on investments ............. (300,592) 87,839 (37) 95,127 Change in unrealized gain (loss) on investments .................................. 755,405 377,425 503 (5,724) --------- -------- ------ ---------- Net gain (loss) on investments .................. 454,813 465,264 466 89,403 --------- -------- ------ ---------- Reinvested capital gains ........................... -- -- -- -- --------- -------- ------ ---------- Net increase (decrease) in contract owners' equity resulting from operations .......... $ 446,627 468,713 458 160,477 ========= ======== ====== ========== MFSVITInvGrwI MFSVITValIn NBAMTBal NBAMTFas ------------- ----------- -------- -------- Investment activity: Reinvested dividends ............................... -- -- 1,029 -- Mortality and expense risk charges (note 3) ........ (68) (74) (425) (42) ------ ----- ------ ------- Net investment income (loss) .................... (68) (74) 604 (42) ------ ----- ------ ------- Proceeds from mutual fund shares sold .............. 3,254 720 6,704 27,115 Cost of mutual fund shares sold .................... (3,141) (682) (7,581) (26,365) ------ ----- ------ ------- Realized gain (loss) on investments ............. 113 38 (877) 750 Change in unrealized gain (loss) on investments .................................. 1,549 3,849 8,095 747 ------ ----- ------ ------- Net gain (loss) on investments .................. 1,662 3,887 7,218 1,497 ------ ----- ------ ------- Reinvested capital gains ........................... -- -- -- 5 ------ ----- ------ ------- Net increase (decrease) in contract owners' equity resulting from operations .......... 1,594 3,813 7,822 1,460 ====== ===== ====== =======
NBAMTGro NBAMTGuard NBAMTLMat NBAMTMCGr ------------ ---------- ---------- --------- Investment activity: Reinvested dividends $ -- 15,295 289,709 -- Mortality and expense risk charges (note 3) ........ (113,247) (12,078) (50,160) (601) Net investment income (loss) .................... ------------ ---------- ---------- -------- (113,247) 3,217 239,549 (601) ------------ ---------- ---------- -------- Proceeds from mutual fund shares sold .............. 7,253,127 1,863,642 2,412,027 265,458 Cost of mutual fund shares sold .................... (10,102,232) (2,083,044) (2,392,121) (258,376) ------------ ---------- ---------- -------- Realized gain (loss) on investments ............. (2,849,105) (219,402) 19,906 7,082 Change in unrealized gain (loss) on investments .................................. 6,753,242 710,906 (150,522) 9,663 ------------ ---------- ---------- -------- Net gain (loss) on investments .................. 3,904,137 491,504 (130,616) 16,745 ------------ ---------- ---------- -------- Reinvested capital gains ........................... -- -- -- -- ------------ ---------- ---------- -------- Net increase (decrease) in contract owners' equity resulting from operations .......... $ 3,790,890 494,721 108,933 16,144 ============ ========== ========== ======== NBAMTPart NBAMTSocRe OppAggGro OppBdFd ---------- ---------- ---------- ---------- Investment activity: Reinvested dividends -- -- -- 780,527 Mortality and expense risk charges (note 3) ........ (125,663) (106) (11,886) (100,738) Net investment income (loss) .................... ---------- ----- ---------- ---------- (125,663) (106) (11,886) 679,789 ---------- ----- ---------- ---------- Proceeds from mutual fund shares sold .............. 5,454,853 342 6,981,943 3,855,356 Cost of mutual fund shares sold .................... (7,937,157) (317) (6,752,739) (3,860,203) ---------- ----- ---------- ---------- Realized gain (loss) on investments ............. (2,482,304) 25 229,204 (4,847) Change in unrealized gain (loss) on investments .................................. 8,076,460 4,282 73,026 124,933 ---------- ----- ---------- ---------- Net gain (loss) on investments .................. 5,594,156 4,307 302,230 120,086 ---------- ----- ---------- ---------- Reinvested capital gains ........................... -- -- -- -- ---------- ----- ---------- ---------- Net increase (decrease) in contract owners' equity resulting from operations .......... 5,468,493 4,201 290,344 799,875 ========== ===== ========== ==========
NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF OPERATIONS, Continued Year Ended December 31, 2003
OppCapAp OppGlSec OppHiIncInt OppMSGrInc ----------- ----------- ----------- ----------- Investment activity: Reinvested dividends ............................... $ 48,384 199,865 -- 11,048 Mortality and expense risk charges (note 3) ........ (97,538) (201,145) (475) (8,470) ----------- ----------- -------- ---------- Net investment income (loss) .................... (49,154) (1,280) (475) 2,578 ----------- ----------- -------- ---------- Proceeds from mutual fund shares sold .............. 6,358,285 6,570,373 134,541 1,480,124 Cost of mutual fund shares sold .................... (8,518,257) (10,925,797) (131,733) (1,398,434) ----------- ----------- -------- ---------- Realized gain (loss) on investments ............. (2,159,972) (4,355,424) 2,808 81,690 Change in unrealized gain (loss) on investments .................................. 5,578,110 14,079,632 15,287 214,017 ----------- ----------- -------- ---------- Net gain (loss) on investments .................. 3,418,138 9,724,208 18,095 295,707 ----------- ----------- -------- ---------- Reinvested capital gains ........................... -- -- -- -- ----------- ----------- -------- ---------- Net increase (decrease) in contract owners' equity resulting from operations .......... $ 3,368,984 9,722,928 17,620 298,285 =========== =========== ======== ========== OppMaStSmCpI OppMultStr PUTVTGrIncIB PUTVTIntlEqIB ------------ ---------- ------------ ------------- Investment activity: Reinvested dividends ............................... -- 378,934 -- -- Mortality and expense risk charges (note 3) ........ (584) (103,390) (40) (131) ------- ---------- ------ ------- Net investment income (loss) ....................... (584) 275,544 (40) (131) ------- ---------- ------ ------- Proceeds from mutual fund shares sold .............. 51,290 1,009,890 1,374 28,223 Cost of mutual fund shares sold .................... (49,709) (1,176,710) (1,416) (26,197) ------- ---------- ------ ------- Realized gain (loss) on investments ............. 1,581 (166,820) (42) 2,026 Change in unrealized gain (loss) on investments .................................. 29,320 2,834,011 1,560 5,418 ------- ---------- ------ ------- Net gain (loss) on investments .................. 30,901 2,667,191 1,518 7,444 ------- ---------- ------ ------- Reinvested capital gains ........................... -- -- -- -- ------- ---------- ------ ------- Net increase (decrease) in contract owners' equity resulting from operations .......... 30,317 2,942,735 1,478 7,313 ======= ========== ====== =======
PUTVTVoyIB SGVITMdCpGr StOpp2 StDisc2 ---------- ----------- ---------- ---------- Investment activity: Reinvested dividends ............................... $ -- -- 22,768 -- Mortality and expense risk charges (note 3) ........ (36) (16,320) (243,625) (51,688) ------- ----------- ---------- ---------- Net investment income (loss) .................... (36) (16,320) (220,857) (51,688) ------- ----------- ---------- ---------- Proceeds from mutual fund shares sold .............. 1,486 11,315,982 6,367,476 2,728,028 Cost of mutual fund shares sold .................... (1,372) (11,001,248) (8,381,704) (2,338,631) ------- ----------- ---------- ---------- Realized gain (loss) on investments ............. 114 314,734 (2,014,228) 389,397 Change in unrealized gain (loss) on investments .................................. 1,025 196,161 11,846,663 1,778,903 ------- ----------- ---------- ---------- Net gain (loss) on investments .................. 1,139 510,895 9,832,435 2,168,300 ------- ----------- ---------- ---------- Reinvested capital gains ........................... -- -- -- -- ------- ----------- ---------- ---------- Net increase (decrease) in contract owners' equity resulting from operations .......... $ 1,103 494,575 9,611,578 2,116,612 ======= =========== ========== ========== StIntStk2 TurnGVITGro VEWrldBd VEWrldEMkt ---------- ----------- ----------- ---------- Investment activity: Reinvested dividends ............................... 22,646 -- 86,807 4,618 Mortality and expense risk charges (note 3) ........ (1,550) (3,394) (38,975) (28,328) ---------- -------- ----------- ---------- Net investment income (loss) .................... 21,096 (3,394) 47,832 (23,710) ---------- -------- ----------- ---------- Proceeds from mutual fund shares sold .............. 5,562,084 837,367 14,023,643 8,530,488 Cost of mutual fund shares sold .................... (5,619,704) (731,272) (13,494,169) (7,765,873) ---------- -------- ----------- ---------- Realized gain (loss) on investments ............. (57,620) 106,095 529,474 764,615 Change in unrealized gain (loss) on investments .................................. (7,327) 99,325 135,636 1,136,659 ---------- -------- ----------- ---------- Net gain (loss) on investments .................. (64,947) 205,420 665,110 1,901,274 ---------- -------- ----------- ---------- Reinvested capital gains ........................... -- -- -- -- ---------- -------- ----------- ---------- Net increase (decrease) in contract owners' equity resulting from operations .......... (43,851) 202,026 712,942 1,877,564 ========== ======== =========== ==========
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF OPERATIONS, Continued Years Ended December 31, 2003
VEWrldHAs VKoreFI VKEmMkt VKUSRealEst ------------ ------- ---------- ----------- Investment activity: Reinvested dividends................................ $ 19,918 -- -- -- Mortality and expense risk charges (note 3)......... (31,922) (54) (14,792) (81,334) ------------ ------ ---------- ---------- Net investment income (loss)..................... (12,004) (54) (14,792) (81,334) ------------ ------ ---------- ---------- Proceeds from mutual fund shares sold............... 14,058,576 7,706 7,573,633 5,361,279 Cost of mutual fund shares sold..................... (13,369,955) (7,626) (7,257,163) (5,210,656) ------------ ------ ---------- ---------- Realized gain (loss) on investments.............. 688,621 80 316,470 150,623 Change in unrealized gain (loss) on investments..... 856,699 414 218,451 3,325,139 ------------ ------ ---------- ---------- Net gain (loss) on investments................... 1,545,320 494 534,921 3,475,762 ------------ ------ ---------- ---------- Reinvested capital gains............................ -- -- -- -- ------------ ------ ---------- ---------- Net increase (decrease) in contract owners' equity resulting from operations... $ 1,533,316 440 520,129 3,394,428 ============ ====== ========== ==========
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY Years Ended December 31, 2003 and 2002
Total AIMCapAp AIMBVF AIMCDF --------------------------- ------------- -------------- ------------- 2003 2002 2003 2002 2003 2002 2003 2002 ------------ ------------ ------ ---- ------- ---- ------ ---- Investment activity: Net investment income (loss) ................ $ 3,052,110 4,950,226 (235) -- (294) -- (105) -- Realized gain (loss) on investments ......... (36,230,760) (79,683,065) 525 -- 4,489 -- 740 -- Change in unrealized gain (loss) on investments ........................... 223,498,022 (101,227,231) 8,278 -- 13,517 -- 4,627 -- Reinvested capital gains .................... 231,065 3,918,828 -- -- -- -- -- -- ------------ ------------ ------ --- ------- --- ------ --- Net increase (decrease) in contract owners' equity resulting from operations ............................ 190,550,437 (172,041,242) 8,568 -- 17,712 -- 5,262 -- ------------ ------------ ------ --- ------- --- ------ --- Equity transactions: Purchase payments received from contract owners (note 6) ................. 79,106,617 89,852,157 4,077 -- 13,196 -- 17,738 -- Transfers between funds ..................... -- -- 54,624 -- 174,047 -- 39,891 -- Surrenders (note 6) ......................... (65,928,134) (68,413,303) -- -- -- -- -- -- Death benefits (note 4) ..................... (2,595,113) (2,878,265) -- -- -- -- -- -- Net policy repayments (loans) (note 5) ...... 2,893,261 (1,274,925) -- -- -- -- -- -- Deductions for surrender charges (note 2d)... (3,047,308) (3,761,910) -- -- -- -- -- -- Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) ........................ (45,732,350) (47,105,562) (558) -- (1,485) -- (506) -- Asset charges (note 3): MSP contracts ............................ (360,513) (404,175) -- -- (11) -- -- -- LSFP contracts ........................... (348,047) (354,416) -- -- (21) -- (11) -- ------------ ------------ ------ --- ------- --- ------ --- Net equity transactions ............... (36,011,587) (34,340,399) 58,143 -- 185,726 -- 57,112 -- ------------ ------------ ------ --- ------- --- ------ --- Net change in contract owners' equity .......... 154,538,850 (206,381,641) 66,711 -- 203,438 -- 62,374 -- Contract owners' equity beginning of period ................................... 727,023,336 933,404,977 -- -- -- -- -- -- ------------ ------------ ------ --- ------- --- ------ --- Contract owners' equity end of period .......... $881,562,186 727,023,336 66,711 -- 203,438 -- 62,374 -- ============ ============ ====== === ======= === ====== === CHANGES IN UNITS: Beginning units ............................. 43,194,768 44,510,163 -- -- -- -- -- -- ------------ ------------ ------ --- ------- --- ------ --- Units purchased ............................. 9,067,289 7,977,095 5,459 -- 15,769 -- 4,859 -- Units redeemed .............................. (10,139,138) (9,292,490) (48) -- (124) -- (43) -- ------------ ------------ ------ --- ------- --- ------ --- Ending units ................................ 42,122,919 43,194,768 5,411 -- 15,645 -- 4,816 -- ============ ============ ====== === ======= === ====== ===
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, Continued Years Ended December 31, 2003 and 2002
AllSmCpVal AllVGroInc --------------- -------------- 2003 2002 2003 2002 -------- ---- ------- ---- Investment activity: Net investment income (loss) ................. $ (292) -- (418) -- Realized gain (loss) on investments .......... 942 -- 75 -- Change in unrealized gain (loss) on investments ............................ 20,545 -- 32,761 -- Reinvested capital gains ..................... 31 -- -- -- -------- --- ------- --- Net increase (decrease) in contract owners' equity resulting from operations ............................. 21,226 -- 32,418 -- -------- --- ------- --- Equity transactions: Purchase payments received from contract owners (note 6) .................. 10,110 -- 33,861 -- Transfers between funds ...................... 188,663 -- 352,236 -- Surrenders (note 6) .......................... (7,886) -- (29) -- Death benefits (note 4) ...................... -- -- -- -- Net policy repayments (loans) (note 5) ....... 1,348 -- 1,309 -- Deductions for surrender charges (note 2d) ... (364) -- (1) -- Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) ......................... (1,659) -- (3,099) -- Asset charges (note 3): MSP contracts ............................. (97) -- (130) -- LSFP contracts ............................ -- -- (188) -- -------- --- ------- --- Net equity transactions ................ 190,115 -- 383,959 -- -------- --- ------- --- Net change in contract owners' equity ........... 211,341 -- 416,377 -- Contract owners' equity beginning of period ..... -- -- -- -- -------- --- ------- --- Contract owners' equity end of period ........... $211,341 -- 416,377 -- ======== === ======= === CHANGES IN UNITS: Beginning units .............................. -- -- -- -- -------- --- ------- --- Units purchased .............................. 15,534 -- 33,907 -- Units redeemed ............................... (153) -- (320) -- -------- --- ------- --- Ending units ................................. 15,381 -- 33,587 -- ======== === ======= === ACVPBal ACVPCapAp --------------------- ----------------------- 2003 2002 2003 2002 --------- --------- ---------- ---------- Investment activity: Net investment income (loss) ................. 90,489 93,052 (92,344) (106,678) Realized gain (loss) on investments .......... (326,105) (292,649) (1,902,562) (4,991,738) Change in unrealized gain (loss) on investments ............................ 1,118,651 (326,154) 4,110,801 1,749,350 Reinvested capital gains ..................... -- -- -- -- --------- --------- ---------- ---------- Net increase (decrease) in contract owners' equity resulting from operations ............................. 883,035 (525,751) 2,115,895 (3,349,066) --------- --------- ---------- ---------- Equity transactions: Purchase payments received from contract owners (note 6) .................. 538,281 655,414 1,235,265 1,491,221 Transfers between funds ...................... 193,768 (19,192) (407,015) (1,137,628) Surrenders (note 6) .......................... (281,959) (261,495) (646,593) (823,146) Death benefits (note 4) ...................... (12,858) (12,043) (3,714) (65,672) Net policy repayments (loans) (note 5) ....... (42,073) (29,194) 102,148 (9,534) Deductions for surrender charges (note 2d) ... (13,033) (14,379) (29,887) (45,263) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) ......................... (289,395) (278,409) (758,543) (853,298) Asset charges (note 3): MSP contracts ............................. (3,799) (4,131) (4,502) (5,655) LSFP contracts ............................ (1,595) (1,525) (2,026) (3,142) --------- --------- ---------- ---------- Net equity transactions ................ 87,337 35,046 (514,867) (1,452,117) --------- --------- ---------- ---------- Net change in contract owners' equity ........... 970,372 (490,705) 1,601,028 (4,801,183) Contract owners' equity beginning of period ..... 4,659,269 5,149,974 11,497,921 16,299,104 --------- --------- ---------- ---------- Contract owners' equity end of period ........... 5,629,641 4,659,269 13,098,949 11,497,921 ========= ========= ========== ========== CHANGES IN UNITS: Beginning units .............................. 277,290 275,968 839,237 945,180 --------- --------- ---------- ---------- Units purchased .............................. 47,943 42,350 118,180 116,117 Units redeemed ............................... (43,280) (41,028) (169,443) (222,060) --------- --------- ---------- ---------- Ending units ................................. 281,953 277,290 787,974 839,237 ========= ========= ========== ==========
NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, Continued Years Ended December 31, 2003 and 2002
ACVPIncGr ACVPInfPr ----------------------- -------------- 2003 2002 2003 2002 ---------- ---------- ------- ---- Investment activity: Net investment income (loss) .................. $ 19,586 14,281 443 -- Realized gain (loss) on investments ........... (256,841) (990,548) (225) -- Change in unrealized gain (loss) on investments ............................. 1,047,403 154,381 1,001 -- Reinvested capital gains ...................... -- -- 18 -- ---------- ---------- ------- --- Net increase (decrease) in contract owners' equity resulting from operations .............................. 810,148 (821,886) 1,237 -- ---------- ---------- ------- --- Equity transactions: Purchase payments received from contract owners (note 6) ................... 359,246 405,497 19,342 -- Transfers between funds ....................... 82,945 (269,573) 66,741 -- Surrenders (note 6) ........................... (322,295) (341,450) -- -- Death benefits (note 4) ....................... (10,466) -- -- -- Net policy repayments (loans) (note 5) ........ (17,312) (16,672) (10,850) -- Deductions for surrender charges (note 2d) .... (14,897) (18,776) -- -- Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .......................... (173,369) (177,476) (1,304) -- Asset charges (note 3): MSP contracts .............................. (2,173) (2,339) -- -- LSFP contracts ............................. (2,145) (1,896) (30) -- ---------- ---------- ------- --- Net equity transactions ................. (100,466) (422,685) 73,899 -- ---------- ---------- ------- --- Net change in contract owners' equity ............ 709,682 (1,244,571) 75,136 -- Contract owners' equity beginning of period ..................................... 3,032,321 4,276,892 -- -- ---------- ---------- ------- --- Contract owners' equity end of period ............ $3,742,003 3,032,321 75,136 -- ========== ========== ======= === CHANGES IN UNITS: Beginning units ............................... 368,062 416,289 -- -- ---------- ---------- ------- --- Units purchased ............................... 51,709 56,087 8,499 -- Units redeemed ................................ (66,478) (104,314) (1,186) -- ---------- ---------- ------- --- Ending units .................................. 353,293 368,062 7,313 -- ========== ========== ======= === ACVPInt ACVPUltra ----------------------- ------------------ 2003 2002 2003 2002 ---------- ---------- -------- ------- Investment activity: Net investment income (loss) .................. 1,294 6,760 (2,083) 4 Realized gain (loss) on investments ........... (1,820,628) (3,987,767) 22,471 (8,753) Change in unrealized gain (loss) on investments ............................. 4,044,090 1,109,135 31,622 (3,345) Reinvested capital gains ...................... -- -- -- -- ---------- ---------- -------- ------- Net increase (decrease) in contract owners' equity resulting from operations .............................. 2,224,756 (2,871,872) 52,010 (12,094) ---------- ---------- -------- ------- Equity transactions: Purchase payments received from contract owners (note 6) ................... 1,270,341 1,372,078 51,821 5,058 Transfers between funds ....................... (927,232) (973,520) 637,951 124,302 Surrenders (note 6) ........................... (1,014,639) (877,609) (38,610) (26,672) Death benefits (note 4) ....................... (23,621) (3,330) -- -- Net policy repayments (loans) (note 5) ........ 63,696 (127,897) (205,636) -- Deductions for surrender charges (note 2d) .... (46,898) (48,258) (1,785) (1,467) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .......................... (534,885) (616,258) (115,287) (2,866) Asset charges (note 3): MSP contracts .............................. (3,290) (4,054) (419) (25) LSFP contracts ............................. (6,570) (7,145) (145) (136) ---------- ---------- -------- ------- Net equity transactions ................. (1,223,098) (1,285,993) 327,890 98,194 ---------- ---------- -------- ------- Net change in contract owners' equity ............ 1,001,658 (4,157,865) 379,900 86,100 Contract owners' equity beginning of period ..................................... 10,472,740 14,630,605 86,100 -- ---------- ---------- -------- ------- Contract owners' equity end of period ............ 11,474,398 10,472,740 466,000 86,100 ========== ========== ======== ======= CHANGES IN UNITS: Beginning units ............................... 860,438 950,787 10,760 -- ---------- ---------- -------- ------- Units purchased ............................... 107,107 102,635 66,318 11,128 Units redeemed ................................ (205,500) (192,984) (30,151) (368) ---------- ---------- -------- ------- Ending units .................................. 762,045 860,438 46,927 10,760 ========== ========== ======== =======
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, Continued Years Ended December 31, 2003 and 2002
ACVPVal ComGVITVal ------------------------ -------------- 2003 2002 2003 2002 ----------- ---------- ------- ---- Investment activity: Net investment income (loss) .................. $ 38,127 16,260 333 -- Realized gain (loss) on investments ........... (468,624) (393,781) 1,653 -- Change in unrealized gain (loss) on investments ............................. 3,272,161 (2,130,437) 12,566 -- Reinvested capital gains ...................... -- 677,932 -- -- ----------- ---------- ------- --- Net increase (decrease) in contract owners' equity resulting from operations .............................. 2,841,664 (1,830,026) 14,552 -- ----------- ---------- ------- --- Equity transactions: Purchase payments received from contract owners (note 6) ................... 890,906 1,048,504 6,770 -- Transfers between funds ....................... (303,398) 1,006,877 110,212 -- Surrenders (note 6) ........................... (1,332,433) (962,466) -- -- Death benefits (note 4) ....................... (32,386) (6,357) -- -- Net policy repayments (loans) (note 5) ........ 388,906 (99,706) -- -- Deductions for surrender charges (note 2d) .... (61,587) (52,924) -- -- Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .......................... (517,471) (502,028) (1,897) -- Asset charges (note 3): MSP contracts .............................. (5,716) (7,417) (3) -- LSFP contracts ............................. (8,230) (7,578) -- -- ----------- ---------- ------- --- Net equity transactions ................. (981,409) 416,905 115,082 -- ----------- ---------- ------- --- Net change in contract owners' equity ............ 1,860,255 (1,413,121) 129,634 -- Contract owners' equity beginning of period ..................................... 10,890,722 12,303,843 -- -- ----------- ---------- ------- --- Contract owners'equity end of period ............. $12,750,977 10,890,722 129,634 -- =========== ========== ======= === CHANGES IN UNITS: Beginning units ............................... 735,597 721,884 -- -- ----------- ---------- ------- --- Units purchased ............................... 105,740 134,241 10,445 -- Units redeemed ................................ (168,819) (120,528) (162) -- ----------- ---------- ------- --- Ending units .................................. 672,518 735,597 10,283 -- =========== ========== ======= === CSGPVen CSIntEq --------------------- ---------------------- 2003 2002 2003 2002 --------- --------- --------- ---------- Investment activity: Net investment income (loss) .................. (5,477) (7,766) (11,298) (44,098) Realized gain (loss) on investments ........... 142,046 (833,287) (57,724) 168,979 Change in unrealized gain (loss) on investments ............................. 162,735 398,641 1,638,617 (1,412,977) Reinvested capital gains ...................... -- -- -- -- --------- --------- --------- ---------- Net increase (decrease) in contract owners' equity resulting from operations .............................. 299,304 (442,412) 1,569,595 (1,288,096) --------- --------- --------- ---------- Equity transactions: Purchase payments received from contract owners (note 6) ................... 72,537 123,418 589,111 716,930 Transfers between funds ....................... (646,030) 70,901 (322,319) (401,475) Surrenders (note 6) ........................... (81,611) (231,349) (404,585) (411,253) Death benefits (note 4) ....................... -- -- (10,839) (17,485) Net policy repayments (loans) (note 5) ........ 7,169 98,610 55,209 39,755 Deductions for surrender charges (note 2d) .... (3,772) (12,721) (18,701) (22,614) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .......................... (44,509) (56,152) (304,171) (329,478) Asset charges (note 3): MSP contracts .............................. (353) (394) (2,338) (3,900) LSFP contracts ............................. (481) (512) (4,458) (4,265) --------- --------- --------- ---------- Net equity transactions ................. (697,050) (8,199) (423,091) (433,785) --------- --------- --------- ---------- Net change in contract owners' equity ............ (397,746) (450,611) 1,146,504 (1,721,881) Contract owners' equity beginning of period ..................................... 1,272,812 1,723,423 5,049,074 6,770,955 --------- --------- --------- ---------- Contract owners' equity end of period ............ 875,066 1,272,812 6,195,578 5,049,074 ========= ========= ========= ========== CHANGES IN UNITS: Beginning units ............................... 174,334 154,238 637,322 679,600 --------- --------- --------- ---------- Units purchased ............................... 19,057 51,890 90,205 89,777 Units redeemed ................................ (111,742) (31,794) (135,976) (132,055) --------- --------- --------- ---------- Ending units .................................. 81,649 174,334 591,551 637,322 ========= ========= ========= ==========
NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, Continued Years Ended December 31, 2003 and 2002
CSSmCapGr DryIntVal ------------------------ -------------- 2003 2002 2003 2002 ----------- ---------- ------- ---- Investment activity: Net investment income (loss) .................. $ (89,532) (96,995) (311) -- Realized gain (loss) on investments ........... (1,559,060) (6,156,236) 9,011 -- Change in unrealized gain (loss) on investments ............................. 6,398,613 434,119 18,013 -- Reinvested capital gains ...................... -- -- -- -- ----------- ---------- ------- --- Net increase (decrease) in contract owners' equity resulting from operations .............................. 4,750,021 (5,819,112) 26,713 -- ----------- ---------- ------- --- Equity transactions: Purchase payments received from contract owners (note 6) ................... 1,395,647 1,742,231 10,916 -- Transfers between funds ....................... 22,985 (1,876,740) 174,077 -- Surrenders (note 6) ........................... (782,163) (1,026,223) -- -- Death benefits (note 4) ....................... (36,374) (16,016) -- -- Net policy repayments (loans) (note 5) ........ (59,178) 41,216 -- -- Deductions for surrender charges (note 2d) .... (36,153) (56,430) -- -- Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .......................... (769,346) (794,609) (1,135) -- Asset charges (note 3): MSP contracts .............................. (3,361) (6,478) (99) -- LSFP contracts ............................. (7,181) (6,974) (52) -- ----------- ---------- ------- --- Net equity transactions ................. (275,124) (2,000,023) 183,707 -- ----------- ---------- ------- --- Net change in contract owners' equity ............ 4,474,897 (7,819,135) 210,420 -- Contract owners' equity beginning of period ..................................... 10,409,890 18,229,025 -- -- ----------- ---------- ------- --- Contract owners' equity end of period ............ $14,884,787 10,409,890 210,420 -- =========== ========== ======= === CHANGES IN UNITS: Beginning units ............................... 932,671 1,084,722 -- -- ----------- ---------- ------- --- Units purchased ............................... 132,389 144,963 15,359 -- Units redeemed ................................ (158,775) (297,014) (101) -- ----------- ---------- ------- --- Ending units .................................. 906,285 932,671 15,258 -- =========== ========== ======= === DryMidCapIx DryEuroEq --------------------- -------------- 2003 2002 2003 2002 --------- --------- ---- ------- Investment activity: Net investment income (loss) .................. (12,730) (15,561) -- (420) Realized gain (loss) on investments ........... (157,515) (372,288) -- (18,187) Change in unrealized gain (loss) on investments ............................. 1,649,966 (455,988) -- (639) Reinvested capital gains ...................... 40 33,555 -- -- --------- --------- --- ------- Net increase (decrease) in contract owners' equity resulting from operations .............................. 1,479,761 (810,282) -- (19,246) --------- --------- --- ------- Equity transactions: Purchase payments received from contract owners (note 6) ................... 547,174 351,967 -- 9,123 Transfers between funds ....................... 1,761,755 1,472,727 -- (69,351) Surrenders (note 6) ........................... (427,117) (278,698) -- (161) Death benefits (note 4) ....................... (19,754) (1,826) -- -- Net policy repayments (loans) (note 5) ........ (22,331) (9,157) -- 117 Deductions for surrender charges (note 2d) .... (19,742) (15,325) -- (9) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .......................... (384,428) (202,705) -- (2,401) Asset charges (note 3): MSP contracts .............................. (3,408) (3,190) -- -- LSFP contracts ............................. (2,402) (1,934) -- 1 --------- --------- --- ------- Net equity transactions ................. 1,429,747 1,311,859 -- (62,681) --------- --------- --- ------- Net change in contract owners' equity ............ 2,909,508 501,577 -- (81,927) Contract owners' equity beginning of period ..................................... 3,842,211 3,340,634 -- 81,927 --------- --------- --- ------- Contract owners' equity end of period ............ 6,751,719 3,842,211 -- -- ========= ========= === ======= CHANGES IN UNITS: Beginning units ............................... 445,821 325,991 -- 12,374 --------- --------- --- ------- Units purchased ............................... 215,981 165,799 -- 1,810 Units redeemed ................................ (75,898) (45,969) -- (14,184) --------- --------- --- ------- Ending units .................................. 585,904 445,821 -- -- ========= ========= === =======
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, Continued Years Ended December 31, 2003 and 2002
DrySmCapIxS DrySRGro -------------------- ---------------------- 2003 2002 2003 2002 ---------- ------- --------- ---------- Investment activity: Net investment income (loss) .................. $ (1,552) 8 (57,090) (57,330) Realized gain (loss) on investments ........... 65,355 (6,758) (745,207) (1,069,508) Change in unrealized gain (loss) on investments ............................. 101,495 (172) 2,849,243 (2,683,067) Reinvested capital gains ...................... 5,323 -- -- -- ---------- ------- --------- ---------- Net increase (decrease) in contract owners' equity resulting from operations .............................. 170,621 (6,922) 2,046,946 (3,809,905) ---------- ------- --------- ---------- Equity transactions: Purchase payments received from contract owners (note 6) ................... 34,884 35,798 1,300,735 1,704,096 Transfers between funds ....................... 554,704 96,048 (354,728) (1,126,297) Surrenders (note 6) ........................... (53,225) (12,292) (728,259) (924,256) Death benefits (note 4) ....................... -- -- (47,698) (43,454) Net policy repayments (loans) (note 5) ........ (11,377) 314 95,761 (20,791) Deductions for surrender charges (note 2d) .... (2,460) (676) (33,661) (50,823) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .......................... 313,580 (1,475) (769,716) (847,059) Asset charges (note 3): MSP contracts .............................. (681) (62) (2,600) (4,062) LSFP contracts ............................. (142) (3) (3,343) (3,757) ---------- ------- --------- ---------- Net equity transactions ................. 835,283 117,652 (543,509) (1,316,403) ---------- ------- --------- ---------- Net change in contract owners' equity ............ 1,005,904 110,730 1,503,437 (5,126,308) Contract owners' equity beginning of period ..................................... 110,730 -- 8,486,022 13,612,330 ---------- ------- --------- ---------- Contract owners' equity end of period ............ $1,116,634 110,730 9,989,459 8,486,022 ========== ======= ========= ========== CHANGES IN UNITS: Beginning units ............................... 14,471 -- 505,221 573,971 ---------- ------- --------- ---------- Units purchased ............................... 101,010 14,878 81,656 87,917 Units redeemed ................................ (8,896) (407) (112,686) (156,667) ---------- ------- --------- ---------- Ending units .................................. 106,585 14,471 474,191 505,221 ========== ======= ========= ========== DryStkIx DryVIFApp ------------------------ ----------------------- 2003 2002 2003 2002 ---------- ----------- ---------- ---------- Investment activity: Net investment income (loss) .................. 545,235 459,532 39,229 23,140 Realized gain (loss) on investments ........... (2,046,981) (940,878) (1,007,708) (571,297) Change in unrealized gain (loss) on investments ............................. 18,594,894 (19,311,189) 2,073,274 (691,267) Reinvested capital gains ...................... -- -- -- -- ---------- ----------- ---------- ---------- Net increase (decrease) in contract owners' equity resulting from operations .............................. 17,093,148 (19,792,535) 1,104,795 (1,239,424) ---------- ----------- ---------- ---------- Equity transactions: Purchase payments received from contract owners (note 6) ................... 6,831,591 8,299,700 532,770 608,427 Transfers between funds ....................... (215,290) (4,186,916) 14,944 308,413 Surrenders (note 6) ........................... (4,911,709) (4,818,700) (525,761) (292,680) Death benefits (note 4) ....................... (106,620) (104,303) (2,993) (12,604) Net policy repayments (loans) (note 5) ........ 43,990 60,616 (21,948) (52,352) Deductions for surrender charges (note 2d) .... (227,027) (264,971) (24,302) (16,094) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .......................... (3,943,274) (4,116,114) (307,883) (311,263) Asset charges (note 3): MSP contracts .............................. (28,833) (28,802) (1,612) (2,257) LSFP contracts ............................. (52,162) (51,509) (5,859) (5,846) ---------- ----------- ---------- ---------- Net equity transactions ................. (2,609,334) (5,210,999) (342,644) 223,744 ---------- ----------- ---------- ---------- Net change in contract owners' equity ............ 14,483,814 (25,003,534) 762,151 (1,015,680) Contract owners' equity beginning of period ..................................... 63,819,155 88,822,689 5,733,185 6,748,865 ---------- ----------- ---------- ---------- Contract owners' equity end of period ............ 78,302,969 63,819,155 6,495,336 5,733,185 ========== =========== ========== ========== CHANGES IN UNITS: Beginning units ............................... 3,317,324 3,551,969 534,799 520,418 ---------- ----------- ---------- ---------- Units purchased ............................... 472,303 427,978 59,732 82,728 Units redeemed ................................ (577,267) (662,623) (91,159) (68,347) ---------- ----------- ---------- ---------- Ending units .................................. 3,212,360 3,317,324 503,372 534,799 ========== =========== ========== ==========
NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, Continued Years Ended December 31, 2003 and 2002
DryDevLeadI DryVIFGrInc --------------- --------------------- 2003 2002 2003 2002 -------- ---- --------- --------- Investment activity: Net investment income (loss) .................. $ (176) -- 3,402 (1,347) Realized gain (loss) on investments ........... 1,050 -- (316,811) (131,464) Change in unrealized gain (loss) on investments ............................. 13,125 -- 800,579 (602,115) Reinvested capital gains ...................... -- -- -- -- -------- --- --------- --------- Net increase (decrease) in contract owners' equity resulting from operations .............................. 13,999 -- 487,170 (734,926) -------- --- --------- --------- Equity transactions: Purchase payments received from contract owners (note 6) ................... 2,943 -- 198,654 229,396 Transfers between funds ....................... 161,527 -- 78,440 (67,132) Surrenders (note 6) ........................... -- -- (148,469) (99,306) Death benefits (note 4) ....................... -- -- (10,153) (7,828) Net policy repayments (loans) (note 5) ........ -- -- (11,543) (3,538) Deductions for surrender charges (note 2d) .... -- -- (6,862) (5,461) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .......................... (2,006) -- (125,107) (138,671) Asset charges (note 3): MSP contracts .............................. (57) -- (1,904) (2,335) LSFP contracts ............................. (140) -- (1,694) (1,850) -------- --- --------- --------- Net equity transactions ................. 162,267 -- (28,638) (96,725) -------- --- --------- --------- Net change in contract owners' equity ............ 176,266 -- 458,532 (831,651) Contract owners' equity beginning of period ..................................... -- -- 2,056,526 2,888,177 -------- --- --------- --------- Contract owners' equity end of period ............ $176,266 -- 2,515,058 2,056,526 ======== === ========= ========= CHANGES IN UNITS: Beginning units ............................... -- -- 208,582 217,273 -------- --- --------- --------- Units purchased ............................... 13,890 -- 34,554 26,066 Units redeemed ................................ (181) -- (39,873) (34,757) -------- --- --------- --------- Ending units .................................. 13,709 -- 203,263 208,582 ======== === ========= ========= FedAmLdII FedCpApII ------------- ------------ 2003 2002 2003 2002 ------ ---- ----- ---- Investment activity: Net investment income (loss) .................. (11) -- (12) -- Realized gain (loss) on investments ........... (37) -- (39) -- Change in unrealized gain (loss) on investments ............................. 814 -- 500 -- Reinvested capital gains ...................... -- -- -- -- ------ --- ----- --- Net increase (decrease) in contract owners'equity resulting from operations .............................. 766 -- 449 -- ------ --- ----- --- Equity transactions: Purchase payments received from contract owners (note 6) ................... 40 -- 2,649 -- Transfers between funds ....................... 13,081 -- 3,624 -- Surrenders (note 6) ........................... -- -- -- -- Death benefits (note 4) ....................... -- -- -- -- Net policy repayments (loans) (note 5) ........ -- -- -- -- Deductions for surrender charges (note 2d) .... -- -- -- -- Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .......................... (52) -- (92) -- Asset charges (note 3): MSP contracts .............................. -- -- -- -- LSFP contracts ............................. -- -- -- -- ------ --- ----- --- Net equity transactions ................. 13,069 -- 6,181 -- ------ --- ----- --- Net change in contract owners' equity ............ 13,835 -- 6,630 -- Contract owners' equity beginning of period ..................................... -- -- -- -- ------ --- ----- --- Contract owners' equity end of period ............ 13,835 -- 6,630 -- ====== === ===== === CHANGES IN UNITS: Beginning units ............................... -- -- -- -- ------ --- ----- --- Units purchased ............................... 1,109 -- 561 -- Units redeemed ................................ (5) -- (8) -- ------ --- ----- --- Ending units .................................. 1,104 -- 553 -- ====== === ===== ===
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, Continued Years Ended December 31, 2003 and 2002
FGVITHiInc FedQualBd --------------- ----------------------- 2003 2002 2003 2002 -------- ---- --------- ----------- Investment activity: Net investment income (loss) .................. $ 6,330 -- 56,680 (3,977) Realized gain (loss) on investments ........... 642 -- 45,165 17,661 Change in unrealized gain (loss) on investments ............................. 4,057 -- (31,320) 39,181 Reinvested capital gains ...................... -- -- -- -- -------- --- --------- --------- Net increase (decrease) in contract owners'equity resulting from operations .............................. 11,029 -- 70,525 52,865 -------- --- --------- --------- Equity transactions: Purchase payments received from contract owners (note 6) ................... 11,770 -- 166,447 34,259 Transfers between funds ....................... 222,001 -- 468,108 1,229,802 Surrenders (note 6) ........................... (27,497) -- (210,375) (24,623) Death benefits (note 4) ....................... -- -- -- -- Net policy repayments (loans) (note 5) ........ (3,241) -- (17,519) 2,487 Deductions for surrender charges (note 2d) .... (1,271) -- (9,724) (1,354) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .......................... (3,706) -- (104,806) (30,500) Asset charges (note 3): MSP contracts .............................. (185) -- (885) (175) LSFP contracts ............................. -- -- (634) (146) -------- --- --------- --------- Net equity transactions ................. 197,871 -- 290,612 1,209,750 -------- --- --------- --------- Net change in contract owners' equity ............ 208,900 -- 361,137 1,262,615 Contract owners' equity beginning of period ..................................... -- -- 1,262,615 -- -------- --- --------- --------- Contract owners' equity end of period ............ $208,900 -- 1,623,752 1,262,615 ======== === ========= ========= CHANGES IN UNITS: Beginning units ............................... -- -- 117,678 -- -------- --- --------- --------- Units purchased ............................... 20,105 -- 64,282 122,888 Units redeemed ................................ (1,248) -- (36,210) (5,210) -------- --- --------- --------- Ending units .................................. 18,857 -- 145,750 117,678 ======== === ========= ========= FidVIPEI FidVIPGr ------------------------ ------------------------ 2003 2002 2003 2002 ---------- ----------- ---------- ----------- Investment activity: Net investment income (loss) .................. 650,310 670,788 (423,142) (497,509) Realized gain (loss) on investments ........... (1,651,935) (1,832,619) (5,517,543) (6,475,478) Change in unrealized gain (loss) on investments ............................. 17,928,029 (13,879,079) 29,260,774 (28,601,357) Reinvested capital gains ...................... -- 1,645,146 -- -- ---------- ----------- ---------- ----------- Net increase (decrease) in contract owners' equity resulting from operations .............................. 16,926,404 (13,395,764) 23,320,089 (35,574,344) ---------- ----------- ---------- ----------- Equity transactions: Purchase payments received from contract owners (note 6) ................... 5,470,555 6,296,828 9,045,995 10,702,893 Transfers between funds ....................... 195,335 (1,326,155) (2,370,299) (5,909,456) Surrenders (note 6) ........................... (4,143,940) (4,013,742) (5,367,306) (6,576,671) Death benefits (note 4) ....................... (191,683) (512,295) (187,564) (303,488) Net policy repayments (loans) (note 5) ........ 144,919 (325,234) 547,985 53,735 Deductions for surrender charges (note 2d) .... (191,540) (220,708) (248,086) (361,638) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .......................... (3,626,293) (3,720,031) (5,279,385) (5,684,040) Asset charges (note 3): MSP contracts .............................. (28,378) (33,789) (22,563) (29,451) LSFP contracts ............................. (22,049) (22,051) (26,103) (26,493) ---------- ----------- ---------- ----------- Net equity transactions ................. (2,393,074) (3,877,177) (3,907,326) (8,134,609) ---------- ----------- ---------- ----------- Net change in contract owners' equity ............ 14,533,330 (17,272,941) 19,412,763 (43,708,953) Contract owners' equity beginning of period ..................................... 59,751,461 77,024,402 75,663,436 119,372,389 ---------- ----------- ---------- ----------- Contract owners' equity end of period ............ 74,284,791 59,751,461 95,076,199 75,663,436 ========== =========== ========== =========== CHANGES IN UNITS: Beginning units ............................... 2,146,294 2,285,562 2,922,853 3,226,113 ---------- ----------- ---------- ----------- Units purchased ............................... 270,295 239,009 414,867 408,396 Units redeemed ................................ (356,735) (378,277) (579,595) (711,656) ---------- ----------- ---------- ----------- Ending units .................................. 2,059,854 2,146,294 2,758,125 2,922,853 ========== =========== ========== ===========
NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, Continued Years Ended December 31, 2003 and 2002
FidVIPHI FidVIPOv ------------------------ ------------------------ 2003 2002 2003 2002 ----------- ---------- ---------- ----------- Investment activity: Net investment income (loss) ....................... $ 1,212,817 1,610,797 5,925 1,649 Realized gain (loss) on investments ................ 257,996 (6,235,204) (262,828) (10,007,301) Change in unrealized gain (loss) on investments .................................. 4,109,732 5,128,915 5,358,106 6,676,168 Reinvested capital gains ........................... -- -- -- -- ----------- ---------- ---------- ----------- Net increase (decrease) in contract owners' equity resulting from operations ................................... 5,580,545 504,508 5,101,203 (3,329,484) ----------- ---------- ---------- ----------- Equity transactions: Purchase payments received from contract owners (note 6) ........................ 1,736,677 1,686,100 1,605,394 1,803,973 Transfers between funds ............................ 943,588 3,942,862 234,691 (1,055,151) Surrenders (note 6) ................................ (1,521,127) (973,008) (1,417,940) (1,283,924) Death benefits (note 4) ............................ (280,214) (26,392) (49,771) (62,516) Net policy repayments (loans) (note 5) ............. (48,477) (25,575) 87,313 (63,624) Deductions for surrender charges (note 2d) ......... (70,309) (53,504) (65,539) (70,600) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) ............................... (1,233,202) (970,512) (719,142) (781,093) Asset charges (note 3): MSP contracts ................................... (15,750) (12,568) (3,909) (4,418) LSFP contracts .................................. (10,973) (8,051) (5,162) (5,086) ----------- ---------- ---------- ----------- Net equity transactions ...................... (499,787) 3,559,352 (334,065) (1,522,439) ----------- ---------- ---------- ----------- Net change in contract owners' equity ................. 5,080,758 4,063,860 4,767,138 (4,851,923) Contract owners' equity beginning of period .......................................... 20,706,049 16,642,189 12,425,622 17,277,545 ----------- ---------- ---------- ----------- Contract owners' equity end of period ................. $25,786,807 20,706,049 17,192,760 12,425,622 =========== ========== ========== =========== CHANGES IN UNITS: Beginning units .................................... 1,206,230 1,017,739 968,581 1,067,775 ----------- ---------- ---------- ----------- Units purchased .................................... 156,030 325,331 154,575 127,166 Units redeemed ..................................... (172,701) (136,840) (193,925) (226,360) ----------- ---------- ---------- ----------- Ending units ....................................... 1,189,559 1,206,230 929,231 968,581 =========== ========== ========== =========== FidVIPAM FidVIPCon ----------------------- ----------------------- 2003 2002 2003 2002 ---------- ---------- ---------- ---------- Investment activity: Net investment income (loss) ....................... 644,420 770,857 (137,237) 43,995 Realized gain (loss) on investments ................ (578,106) (608,998) (1,243,309) (1,171,475) Change in unrealized gain (loss) on investments .................................. 3,592,165 (2,677,633) 13,191,640 (3,976,205) Reinvested capital gains ........................... -- -- -- -- ---------- ---------- ---------- ---------- Net increase (decrease) in contract owners' equity resulting from operations ................................... 3,658,479 (2,515,774) 11,811,094 (5,103,685) ---------- ---------- ---------- ---------- Equity transactions: Purchase payments received from contract owners (note 6) ........................ 1,656,663 1,668,475 4,167,255 5,127,914 Transfers between funds ............................ (262,954) (727,846) 252,182 (2,166,207) Surrenders (note 6) ................................ (1,951,807) (1,466,623) (2,630,439) (3,296,014) Death benefits (note 4) ............................ (146,560) (24,631) (139,232) (105,306) Net policy repayments (loans) (note 5) ............. 196,742 38,282 (145,214) (145,249) Deductions for surrender charges (note 2d) ......... (90,216) (80,647) (121,583) (181,241) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) ............................... (1,137,560) (1,151,383) (2,560,438) (2,602,068) Asset charges (note 3): MSP contracts ................................... (6,820) (8,709) (15,681) (22,569) LSFP contracts .................................. (3,784) (3,308) (22,686) (21,973) ---------- ---------- ---------- ---------- Net equity transactions ...................... (1,746,296) (1,756,390) (1,215,836) (3,412,713) ---------- ---------- ---------- ---------- Net change in contract owners' equity ................. 1,912,183 (4,272,164) 10,595,258 (8,516,398) Contract owners' equity beginning of period .......................................... 22,343,721 26,615,885 44,077,392 52,593,790 ---------- ---------- ---------- ---------- Contract owners' equity end of period ................. 24,255,904 22,343,721 54,672,650 44,077,392 ========== ========== ========== ========== CHANGES IN UNITS: Beginning units .................................... 1,013,935 1,094,419 2,364,387 2,539,821 ---------- ---------- ---------- ---------- Units purchased .................................... 152,269 94,132 311,477 270,926 Units redeemed ..................................... (236,936) (174,616) (377,155) (446,360) ---------- ---------- ---------- ---------- Ending units ....................................... 929,268 1,013,935 2,298,709 2,364,387 ========== ========== ========== ==========
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, Continued Years Ended December 31, 2003 and 2002
FidVIPInvGrB FidVIPGrOp --------------- ---------------------- 2003 2002 2003 2002 -------- ---- --------- ---------- Investment activity: Net investment income (loss) ....................... $ (467) -- 1,460 13,434 Realized gain (loss) on investments ................ 77 -- (341,822) (387,954) Change in unrealized gain (loss) on investments .................................. 4,485 -- 1,280,096 (537,034) Reinvested capital gains ........................... -- -- -- -- -------- --- --------- ---------- Net increase (decrease) in contract owners' equity resulting from operations ................................... 4,095 -- 939,734 (911,554) -------- --- --------- ---------- Equity transactions: Purchase payments received from contract owners (note 6) ........................ 4,528 -- 452,147 560,969 Transfers between funds ............................ 237,978 -- 249,767 (326,009) Surrenders (note 6) ................................ (857) -- (246,768) (159,570) Death benefits (note 4) ............................ -- -- (13,232) (4,698) Net policy repayments (loans) (note 5) ............. (2,527) -- (11,656) (22,423) Deductions for surrender charges (note 2d) ......... (40) -- (11,406) (8,774) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) ............................... (2,885) -- (217,220) (218,076) Asset charges (note 3): MSP contracts ................................... -- -- (1,664) (1,654) LSFP contracts .................................. (35) -- (2,618) (2,257) -------- --- --------- ---------- Net equity transactions ...................... 236,162 -- 197,350 (182,492) -------- --- --------- ---------- Net change in contract owners' equity ................. 240,257 -- 1,137,084 (1,094,046) Contract owners' equity beginning of period .......................................... -- -- 3,035,034 4,129,080 -------- --- --------- ---------- Contract owners' equity end of period ................. $240,257 -- 4,172,118 3,035,034 ======== === ========= ========== CHANGES IN UNITS: Beginning units .................................... -- -- 398,008 420,111 -------- --- --------- ---------- Units purchased .................................... 24,251 -- 86,273 72,484 Units redeemed ..................................... (636) -- (60,512) (94,587) -------- --- --------- ---------- Ending units ....................................... 23,615 -- 423,769 398,008 ======== === ========= ========== FidVIPMCap FidVIPValStS -------------- ------------------- 2003 2002 2003 2002 ------- ---- --------- ------- Investment activity: Net investment income (loss) ....................... (1,105) -- (7,699) (316) Realized gain (loss) on investments ................ 16,699 -- 189,710 (9,547) Change in unrealized gain (loss) on investments .................................. 58,136 -- 186,255 (4,574) Reinvested capital gains ........................... -- -- 12,819 -- ------- --- --------- ------- Net increase (decrease) in contract owners' equity resulting from operations ................................... 73,730 -- 381,085 (14,437) ------- --- --------- ------- Equity transactions: Purchase payments received from contract owners (note 6) ........................ 48,341 -- 102,826 6,353 Transfers between funds ............................ 634,806 -- 1,755,855 107,296 Surrenders (note 6) ................................ (77) -- (32,768) -- Death benefits (note 4) ............................ -- -- -- -- Net policy repayments (loans) (note 5) ............. (8,758) -- (131,607) (930) Deductions for surrender charges (note 2d) ......... (4) -- (1,515) -- Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) ............................... (7,108) -- (31,415) (2,342) Asset charges (note 3): MSP contracts ................................... (185) -- (1,287) (137) LSFP contracts .................................. (53) -- (195) (5) ------- --- --------- ------- Net equity transactions ...................... 666,962 -- 1,659,894 110,235 ------- --- --------- ------- Net change in contract owners' equity ................. 740,692 -- 2,040,979 95,798 Contract owners' equity beginning of period .......................................... -- -- 95,798 -- ------- --- --------- ------- Contract owners' equity end of period ................. 740,692 -- 2,136,777 95,798 ======= === ========= ======= CHANGES IN UNITS: Beginning units .................................... -- -- 12,826 -- ------- --- --------- ------- Units purchased .................................... 54,049 -- 192,628 13,276 Units redeemed ..................................... (1,239) -- (22,798) (450) ------- --- --------- ------- Ending units ....................................... 52,810 -- 182,656 12,826 ======= === ========= =======
NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, Continued Years Ended December 31, 2003 and 2002
FTVIPFRDiv FTVIPSmCpVal FTVIPFS GVITEmMrkts --------------- -------------- -------------- -------------------- 2003 2002 2003 2002 2003 2002 2003 2002 -------- ---- ------- ---- ------- ---- --------- -------- Investment activity: Net investment income (loss) ................ $ (903) -- (295) -- 222 -- (481) (3,241) Realized gain (loss) on investments ......... 815 -- 8,066 -- 11,639 -- 149,677 9,490 Change in unrealized gain (loss) on investments ........................... 65,062 -- 14,481 -- 31,576 -- 219,942 (24,239) Reinvested capital gains .................... 1,517 -- -- -- -- -- -- -- -------- --- ------- --- ------- --- --------- -------- Net increase (decrease) in contract owners' equity resulting from operations ............................ 66,491 -- 22,252 -- 43,437 -- 369,138 (17,990) -------- --- ------- --- ------- --- --------- -------- Equity transactions: Purchase payments received from contract owners (note 6) ................. 80,062 -- 22,558 -- 40,705 -- 118,749 30,715 Transfers between funds ..................... 777,906 -- 126,262 -- 359,375 -- 1,059,724 (75,118) Surrenders (note 6) ......................... -- -- (815) -- (57,155) -- (160,155) (25,350) Death benefits (note 4) ..................... -- -- -- -- -- -- -- (1,829) Net policy repayments (loans) (note 5) ...... (1,592) -- (149) -- (5,716) -- (11,495) (40,241) Deductions for surrender charges (note 2d) .. -- -- (38) -- (2,642) -- (7,403) (1,394) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) ........................ (8,946) -- (944) -- (2,423) -- (29,334) (21,884) Asset charges (note 3): MSP contracts ............................ (405) -- -- -- (15) -- (552) (498) LSFP contracts ........................... (75) -- (39) -- (88) -- (332) (121) -------- --- ------- --- ------- --- --------- -------- Net equity transactions ............... 846,950 -- 146,835 -- 332,041 -- 969,202 (135,720) -------- --- ------- --- ------- --- --------- -------- Net change in contract owners' equity .......... 913,441 -- 169,087 -- 375,478 -- 1,338,340 (153,710) Contract owners' equity beginning of period ................................... -- -- -- -- -- -- 273,867 427,577 -------- --- ------- --- ------- --- --------- -------- Contract owners' equity end of period .......... $913,441 -- 169,087 -- 375,478 -- 1,612,207 273,867 ======== === ======= === ======= === ========= ======== CHANGES IN UNITS: Beginning units ............................. -- -- -- -- -- -- 39,708 52,012 -------- --- ------- --- ------- --- --------- -------- Units purchased ............................. 75,462 -- 12,866 -- 33,927 -- 115,260 17,002 Units redeemed .............................. (948) -- (157) -- (5,504) -- (12,157) (29,306) -------- --- ------- --- ------- --- --------- -------- Ending units ................................ 74,514 -- 12,709 -- 28,423 -- 142,811 39,708 ======== === ======= === ======= === ========= ========
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, Continued Years Ended December 31, 2003 and 2002
GVITGlFin GVITGlHlth ----------------- ------------------ 2003 2002 2003 2002 -------- ------ -------- ------- Investment activity: Net investment income (loss)................. $ 131 (119) (5,970) (397) Realized gain (loss) on investments.......... 24,710 113 138,267 (611) Change in unrealized gain (loss) on investments............................ 4,592 (599) (27,859) (4,795) Reinvested capital gains..................... 36,957 -- 70,723 -- -------- ------ -------- ------- Net increase (decrease) in contract owners' equity resulting from operations............................. 66,390 (605) 175,161 (5,803) -------- ------ -------- ------- Equity transactions: Purchase payments received from contract owners (note 6).................. 88,543 368 32,402 17,502 Transfers between funds...................... 159,904 66,328 700,808 155,423 Surrenders (note 6).......................... (18,112) -- (350,559) -- Death benefits (note 4)...................... -- -- -- -- Net policy repayments (loans) (note 5)....... 2,194 (972) (42,579) (8,938) Deductions for surrender charges (note 2d)... (837) -- (16,203) -- Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c)......................... (6,384) (625) (25,004) (2,414) Asset charges (note 3): MSP contracts............................. (30) (3) (238) (12) LSFP contracts............................ (43) -- (184) (50) -------- ------ -------- ------- Net equity transactions................ 225,235 65,096 298,443 161,511 -------- ------ -------- ------- Net change in contract owners' equity........... 291,625 64,491 473,604 155,708 Contract owners' equity beginning of period.................................... 64,491 -- 155,708 -- -------- ------ -------- ------- Contract owners' equity end of period........... $356,116 64,491 629,312 155,708 ======== ====== ======== ======= CHANGES IN UNITS: Beginning units.............................. 7,495 -- 18,805 -- -------- ------ -------- ------- Units purchased.............................. 24,908 7,678 78,585 20,531 Units redeemed............................... (2,911) (183) (41,380) (1,726) -------- ------ -------- ------- Ending units................................. 29,492 7,495 56,010 18,805 ======== ====== ======== ======= GVITGlTech GVITGlUtl -------------------- ----------------- 2003 2002 2003 2002 --------- -------- -------- ------ Investment activity: Net investment income (loss)................. (5,695) (450) (170) 33 Realized gain (loss) on investments.......... 153,660 (188,420) 5,237 (296) Change in unrealized gain (loss) on investments............................ 95,094 (19,032) 18,068 (33) Reinvested capital gains..................... -- -- -- -- --------- -------- -------- ------ Net increase (decrease) in contract owners' equity resulting from operations............................. 243,059 (207,902) 23,135 (296) --------- -------- -------- ------ Equity transactions: Purchase payments received from contract owners (note 6).................. 56,062 45,556 1,323 75 Transfers between funds...................... 863,669 130,870 109,537 36,282 Surrenders (note 6).......................... (68,772) (56,652) (244,561) -- Death benefits (note 4)...................... (5,717) -- -- -- Net policy repayments (loans) (note 5)....... (25,530) 26,213 254,660 -- Deductions for surrender charges (note 2d)... (3,179) (3,115) (11,304) -- Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c)......................... (46,194) (23,648) (2,587) (152) Asset charges (note 3): MSP contracts............................. (468) (196) (45) (5) LSFP contracts............................ (39) (9) (133) -- --------- -------- -------- ------ Net equity transactions................ 769,832 119,019 106,890 36,200 --------- -------- -------- ------ Net change in contract owners' equity........... 1,012,891 (88,883) 130,025 35,904 Contract owners' equity beginning of period.................................... 261,090 349,973 35,904 -- --------- -------- -------- ------ Contract owners' equity end of period........... 1,273,981 261,090 165,929 35,904 ========= -======= ======== ====== CHANGES IN UNITS: Beginning units.............................. 134,649 102,616 4,164 -- --------- -------- -------- ------ Units purchased.............................. 342,452 61,493 13,650 4,184 Units redeemed............................... (50,363) (29,460) (2,195) (20) --------- -------- -------- ------ Ending units................................. 426,738 134,649 15,619 4,164 ========= ======== ======== ======
NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS'EQUITY,Continued Years Ended December 31,2003 and 2002
GVITGvtBd GVITGrowth ------------------------ ----------------------- 2003 2002 2003 2002 ----------- ---------- ---------- ---------- Investment activity: Net investment income (loss) .................. $ 486,697 740,616 (107,563) (115,653) Realized gain (loss) on investments ........... (19,208) 766,407 (3,868,654) (2,366,653) Change in unrealized gain (loss) on investments ............................. (207,136) 254,202 8,180,131 (3,021,176) Reinvested capital gains ...................... 29,787 177,046 -- -- ----------- ---------- ---------- ---------- Net increase (decrease) in contract owners'equity resulting from operations .............................. 290,140 1,938,271 4,203,914 (5,503,482) ----------- ---------- ---------- ---------- Equity transactions: Purchase payments received from contract owners (note 6) ................... 1,454,811 1,267,894 2,819,241 3,550,411 Transfers between funds ....................... (3,784,652) 5,104,395 (527,911) (1,039,416) Surrenders (note 6) ........................... (2,627,215) (3,160,509) (1,252,791) (919,629) Death benefits (note 4) ....................... (61,806) (56,328) (72,160) (51,849) Net policy repayments (loans) (note 5) ........ 56,813 (301,152) 89,662 194,094 Deductions for surrender charges (note 2d) .... (121,434) (173,790) (57,906) (50,568) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .......................... (1,137,678) (897,183) (1,442,242) (1,432,973) Asset charges (note 3): MSP contracts .............................. (17,553) (18,203) (4,472) (5,160) LSFP contracts ............................. (8,560) (8,831) (7,643) (8,210) ----------- ---------- ---------- ---------- Net equity transactions ................. (6,247,274) 1,756,293 (456,222) 236,700 ----------- ---------- ---------- ---------- Net change in contract owners'equity ............. (5,957,134) 3,694,564 3,747,692 (5,266,782) Contract owners'equity beginning of period ..................................... 22,381,392 18,686,828 13,411,563 18,678,345 ----------- ---------- ---------- ---------- Contract owners'equity end of period ............. $16,424,258 22,381,392 17,159,255 13,411,563 =========== ========== ========== ========== CHANGES IN UNITS: Beginning units ............................... 1,024,071 940,162 1,170,029 1,157,307 ----------- ---------- ---------- ---------- Units purchased ............................... 91,225 256,619 236,749 296,325 Units redeemed ................................ (379,597) (172,710) (268,888) (283,603) ----------- ---------- ---------- ---------- Ending units .................................. 735,699 1,024,071 1,137,890 1,170,029 =========== ========== ========== ========== GVITIDAgg GVITIDCon ----------------- ----------------- 2003 2002 2003 2002 ------- ------- ------- ------- Investment activity: Net investment income (loss) .................. 1,896 375 7,043 3,709 Realized gain (loss) on investments ........... 44,183 (3,763) 5,929 (84) Change in unrealized gain (loss) on investments ............................. 42,877 (5,389) 16,454 (1,344) Reinvested capital gains ...................... 5,518 22 1,440 154 ------- ------- ------- ------- Net increase (decrease) in contract owners'equity resulting from operations .............................. 94,474 (8,755) 30,866 2,435 ------- ------- ------- ------- Equity transactions: Purchase payments received from contract owners (note 6) ................... 47,188 30,018 32,945 7,502 Transfers between funds ....................... 235,905 147,481 58,691 332,814 Surrenders (note 6) ........................... (5,780) (6,575) (13,603) (29,580) Death benefits (note 4) ....................... -- -- (11,368) -- Net policy repayments (loans) (note 5) ........ 1,380 (4,029) (13,680) 12,073 Deductions for surrender charges (note 2d) .... (267) (362) (629) (1,627) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .......................... (22,500) (11,321) (18,886) (5,634) Asset charges (note 3): MSP contracts .............................. (2) -- (431) (260) LSFP contracts ............................. -- -- (188) (167) ------- ------- ------- ------- Net equity transactions ................. 255,924 155,212 32,851 315,121 ------- ------- ------- ------- Net change in contract owners'equity ............. 350,398 146,457 63,717 317,556 Contract owners'equity beginning of period ..................................... 146,457 -- 317,556 -- ------- ------- ------- ------- Contract owners'equity end of period ............. 496,855 146,457 381,273 317,556 ======= ======= ======= ======= CHANGES IN UNITS: Beginning units ............................... 17,710 -- 31,754 -- ------- ------- ------- ------- Units purchased ............................... 31,669 20,524 16,723 34,708 Units redeemed ................................ (3,453) (2,814) (12,823) (2,954) ------- ------- ------- ------- Ending units .................................. 45,926 17,710 35,654 31,754 ======= ======= ======= =======
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS'EQUITY,Continued Years Ended December 31,2003 and 2002
GVITIDMod GVITIDModAgg -------------------- --------------------- 2003 2002 2003 2002 ---------- ------- --------- --------- Investment activity: Net investment income (loss) .................. $ 19,641 3,431 10,420 4,020 Realized gain (loss) on investments ........... 5,830 (3,356) (7,574) (30,041) Change in unrealized gain (loss) on investments ............................. 285,948 (11,401) 318,164 (40,857) Reinvested capital gains ...................... 946 436 -- 1,303 ---------- ------- --------- --------- Net increase (decrease) in contract owners'equity resulting from operations .............................. 312,365 (10,890) 321,010 (65,575) ---------- ------- --------- --------- Equity transactions: Purchase payments received from contract owners (note 6) ................... 276,128 40,643 203,520 51,389 Transfers between funds ....................... 1,514,517 528,483 721,450 981,852 Surrenders (note 6) ........................... (32,051) (2,844) (22,041) (3,304) Death benefits (note 4) ....................... -- -- -- -- Net policy repayments (loans) (note 5) ........ (47,251) 1,352 24,606 12,741 Deductions for surrender charges (note 2d) .... (1,481) (156) (1,019) (182) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .......................... (93,995) (12,601) (114,749) (34,114) Asset charges (note 3): MSP contracts .............................. (1,685) (292) (396) (29) LSFP contracts ............................. (228) -- (454) (89) ---------- ------- --------- --------- Net equity transactions ................. 1,613,954 554,585 810,917 1,008,264 ---------- ------- --------- --------- Net change in contract owners'equity ............. 1,926,319 543,695 1,131,927 942,689 Contract owners'equity beginning of period ..................................... 543,695 -- 942,689 -- ---------- ------- --------- --------- Contract owners'equity end of period ............. $2,470,014 543,695 2,074,616 942,689 ========== ======= ========= ========= CHANGES IN UNITS: Beginning units ............................... 59,819 -- 109,211 -- ---------- ------- --------- --------- Units purchased ............................... 187,414 61,992 101,890 113,991 Units redeemed ................................ (18,823) (2,173) (19,774) (4,780) ---------- ------- --------- --------- Ending units .................................. 228,410 59,819 191,327 109,211 ========== ======= ========= ========= GVITIDModCon GVITIntGro ----------------- ------------------ 2003 2002 2003 2002 ------- ------- -------- ------- Investment activity: Net investment income (loss) .................. 9,165 2,374 (438) (333) Realized gain (loss) on investments ........... 14,955 (4,333) 9,484 (4,929) Change in unrealized gain (loss) on investments ............................. 48,943 142 5,034 (759) Reinvested capital gains ...................... 1,142 402 -- -- ------- ------- -------- ------- Net increase (decrease) in contract owners'equity resulting from operations .............................. 74,205 (1,415) 14,080 (6,021) ------- ------- -------- ------- Equity transactions: Purchase payments received from contract owners (note 6) ................... 64,735 10,547 129,786 37,116 Transfers between funds ....................... 353,657 353,136 14,697 46,984 Surrenders (note 6) ........................... (4,714) (83,408) (123,145) (70,278) Death benefits (note 4) ....................... (11,855) (4,459) -- -- Net policy repayments (loans) (note 5) ........ (6,687) 3,617 (636) (1,483) Deductions for surrender charges (note 2d) .... (218) (4,586) (5,692) (3,864) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .......................... (33,121) (4,367) (2,865) (2,650) Asset charges (note 3): MSP contracts .............................. (1,050) (169) (19) -- LSFP contracts ............................. (154) (4) (14) -- ------- ------- -------- ------- Net equity transactions ................. 360,593 270,307 12,112 5,825 ------- ------- -------- ------- Net change in contract owners'equity ............. 434,798 268,892 26,192 (196) Contract owners'equity beginning of period ..................................... 268,892 -- 55,057 55,253 ------- ------- -------- ------- Contract owners'equity end of period ............. 703,690 268,892 81,249 55,057 ======= ======= ======== ======= CHANGES IN UNITS: Beginning units ............................... 28,027 -- 11,233 8,456 ------- ------- -------- ------- Units purchased ............................... 42,950 28,835 5,032 9,592 Units redeemed ................................ (6,085) (808) (3,983) (6,815) ------- ------- -------- ------- Ending units .................................. 64,892 28,027 12,282 11,233 ======= ======= ======== =======
NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, Continued Years Ended December 31, 2003 and 2002
GVITMyMkt GVITLead -------------------------- ----------------- 2003 2002 2003 2002 ------------ ----------- ------- ------- Investment activity: Net investment income (loss) ................ $ (48,086) 234,335 (503) 224 Realized gain (loss) on investments ......... -- -- (3,394) (9,895) Change in unrealized gain (loss) on investments ........................... -- -- 22,125 (4,614) Reinvested capital gains .................... -- -- -- -- ------------ ----------- ------- ------- Net increase (decrease) in contract owners' equity resulting from operations ............................ (48,086) 234,335 18,228 (14,285) ------------ ----------- ------- ------- Equity transactions: Purchase payments received from contract owners (note 6) ................. 4,279,006 4,228,147 10,592 7,788 Transfers between funds ..................... (6,838,365) 8,868,792 4,640 141,311 Surrenders (note 6) ......................... (10,294,119) (15,813,066) -- (12,363) Death benefits (note 4) ..................... (68,054) (100,051) -- -- Net policy repayments (loans) (note 5) ...... 666,422 856,428 (24,739) (2,325) Deductions for surrender charges (note 2d) .. (475,811) (869,528) -- (680) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) ........................ (2,140,515) (2,203,711) (4,507) (4,331) Asset charges (note 3): MSP contracts ............................ (41,707) (47,444) (61) (79) LSFP contracts ........................... (23,441) (40,196) -- -- ------------ ----------- ------- ------- Net equity transactions ............... (14,936,584) (5,120,629) (14,075) 129,321 ------------ ----------- ------- ------- Net change in contract owners' equity .......... (14,984,670) (4,886,294) 4,153 115,036 Contract owners' equity beginning of period ................................... 46,764,573 51,650,867 115,036 -- ------------ ----------- ------- ------- Contract owners' equity end of period .......... $ 31,779,903 46,764,573 119,189 115,036 ============ =========== ======= ======= CHANGES IN UNITS: Beginning units ............................. 3,181,070 3,540,015 13,679 -- ------------ ----------- ------- ------- Units purchased ............................. 496,788 649,115 4,986 14,429 Units redeemed .............................. (1,534,869) (1,008,060) (7,251) (750) ------------ ----------- ------- ------- Ending units ................................ 2,142,989 3,181,070 11,414 13,679 ============ =========== ======= ======= GVITSmCapGr GVITSmCapVal --------------------- ----------------------- 2003 2002 2003 2002 --------- --------- ---------- ---------- Investment activity: Net investment income (loss) ................ (9,992) (9,005) (78,518) (92,125) Realized gain (loss) on investments ......... 245,292 (539,108) 405,061 (3,668,042) Change in unrealized gain (loss) on investments ........................... 101,046 (10,392) 4,692,960 (1,169,384) Reinvested capital gains .................... -- -- -- 308,760 --------- --------- ---------- ---------- Net increase (decrease) in contract owners' equity resulting from operations ............................ 336,346 (558,505) 5,019,503 (4,620,791) --------- --------- ---------- ---------- Equity transactions: Purchase payments received from contract owners (note 6) ................. 251,062 619,612 962,419 1,188,983 Transfers between funds ..................... (19,343) 134,653 1,983,387 (1,353,452) Surrenders (note 6) ......................... (51,376) (162,779) (962,055) (1,003,083) Death benefits (note 4) ..................... -- (17,654) (95,096) (11,891) Net policy repayments (loans) (note 5) ...... (47,144) (2,166) (601,100) (51,969) Deductions for surrender charges (note 2d) .. (2,375) (8,951) (44,468) (55,158) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) ........................ (83,917) (76,901) (507,726) (586,977) Asset charges (note 3): MSP contracts ............................ (406) (476) (6,907) (7,239) LSFP contracts ........................... (769) (667) (10,106) (9,801) --------- --------- ---------- ---------- Net equity transactions ............... 45,732 484,671 718,348 (1,890,587) --------- --------- ---------- ---------- Net change in contract owners' equity .......... 382,078 (73,834) 5,737,851 (6,511,378) Contract owners' equity beginning of period ................................... 1,258,941 1,332,775 9,270,589 15,781,967 --------- --------- ---------- ---------- Contract owners' equity end of period .......... 1,641,019 1,258,941 15,008,440 9,270,589 ========= ========= ========== ========== CHANGES IN UNITS: Beginning units ............................. 265,763 186,280 838,299 1,034,902 --------- --------- ---------- ---------- Units purchased ............................. 48,697 120,635 202,734 107,054 Units redeemed .............................. (54,328) (41,152) (168,468) (303,657) --------- --------- ---------- ---------- Ending units ................................ 260,132 265,763 872,565 838,299 ========= ========= ========== ==========
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, Continued Years Ended December 31, 2003 and 2002
GVITSmComp GVITTotRt ------------------------ ------------------------ 2003 2002 2003 2002 ----------- ---------- ---------- ----------- Investment activity: Net investment income (loss) ................ $ (162,554) (166,099) (128,378) 63,059 Realized gain (loss) on investments ......... (941,330) (2,431,393) (2,319,832) (2,673,181) Change in unrealized gain (loss) on investments ........................... 8,912,411 (2,049,393) 18,094,378 (11,054,460) Reinvested capital gains .................... -- -- -- -- ----------- ---------- ---------- ----------- Net increase (decrease) in contract owners' equity resulting from operations ............................ 7,808,527 (4,646,885) 15,646,168 (13,664,582) ----------- ---------- ---------- ----------- Equity transactions: Purchase payments received from contract owners (note 6) ................. 1,785,411 2,184,290 8,223,681 9,291,200 Transfers between funds ..................... 282,080 (120,024) (1,394,191) (2,033,396) Surrenders (note 6) ......................... (1,042,745) (1,272,878) (3,227,744) (3,864,076) Death benefits (note 4) ..................... (73,828) (71,551) (241,692) (443,207) Net policy repayments (loans) (note 5) ...... (147,834) (215,642) 9,325 (296,328) Deductions for surrender charges (note 2d) .. (48,197) (69,993) (149,192) (212,478) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) ........................ (1,261,119) (1,285,393) (5,505,925) (5,626,226) Asset charges (note 3): MSP contracts ............................ (12,510) (13,651) (24,994) (28,021) LSFP contracts ........................... (11,018) (10,604) (16,647) (17,931) ----------- ---------- ---------- ----------- Net equity transactions ............... (529,760) (875,446) (2,327,379) (3,230,463) ----------- ---------- ---------- ----------- Net change in contract owners' equity .......... 7,278,767 (5,522,331) 13,318,789 (16,895,045) Contract owners' equity beginning of period ................................... 20,084,696 25,607,027 60,325,564 77,220,609 ----------- ---------- ---------- ----------- Contract owners' equity end of period .......... $27,363,463 20,084,696 73,644,353 60,325,564 =========== ========== ========== =========== CHANGES IN UNITS: Beginning units ............................. 1,090,705 1,141,976 2,622,768 2,758,504 ----------- ---------- ---------- ----------- Units purchased ............................. 133,747 129,251 360,701 391,170 Units redeemed .............................. (162,109) (180,522) (462,007) (526,906) ----------- ---------- ---------- ----------- Ending units ................................ 1,062,343 1,090,705 2,521,462 2,622,768 =========== ========== ========== =========== GVITUSGro JanBal ------------------ ------------- 2003 2002 2003 2002 --------- ------ ------ ---- Investment activity: Net investment income (loss) ................ (4,094) (119) 202 -- Realized gain (loss) on investments ......... 114,439 (263) 7 -- Change in unrealized gain (loss) on investments ........................... (8,682) (5,779) 875 -- Reinvested capital gains .................... 64,799 -- -- -- --------- ------ ------ --- Net increase (decrease) in contract owners' equity resulting from operations ............................ 166,462 (6,161) 1,084 -- --------- ------ ------ --- Equity transactions: Purchase payments received from contract owners (note 6) ................. 38,894 1,061 1,951 -- Transfers between funds ..................... 938,704 88,214 25,096 -- Surrenders (note 6) ......................... (17,480) -- -- -- Death benefits (note 4) ..................... -- -- -- -- Net policy repayments (loans) (note 5) ...... (146,138) (1,144) -- -- Deductions for surrender charges (note 2d) .. (808) -- -- -- Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) ........................ (15,281) (1,044) (175) -- Asset charges (note 3): MSP contracts ............................ (31) -- -- -- LSFP contracts ........................... (140) (11) -- -- --------- ------ ------ --- Net equity transactions ............... 797,720 87,076 26,872 -- --------- ------ ------ --- Net change in contract owners' equity .......... 964,182 80,915 27,956 -- Contract owners' equity beginning of period ................................... 80,915 -- -- -- --------- ------ ------ --- Contract owners' equity end of period .......... 1,045,097 80,915 27,956 -- ========= ====== ====== === CHANGES IN UNITS: Beginning units ............................. 9,894 -- -- -- --------- ------ ------ --- Units purchased ............................. 93,269 10,159 2,565 -- Units redeemed .............................. (18,501) (265) (17) -- --------- ------ ------ --- Ending units ................................ 84,662 9,894 2,548 -- ========= ====== ====== ===
NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, Continued Years Ended December 31, 2003 and 2002
JanCapAp JanGITech ---------------------- ---------------------- 2003 2002 2003 2002 ---------- --------- --------- ---------- Investment activity: Net investment income (loss) ....................... $ (11,135) (10,295) (8,186) (8,887) Realized gain (loss) on investments ................ (82,197) (417,474) (300,592) (269,555) Change in unrealized gain (loss) on investments .................................. 520,550 (28,278) 755,405 (427,636) Reinvested capital gains ........................... -- -- -- -- ---------- --------- --------- ---------- Net increase (decrease) in contract owners' equity resulting from operations ................................... 427,218 (456,047) 446,627 (706,078) ---------- --------- --------- ---------- Equity transactions: Purchase payments received from contract owners (note 6) ........................ 282,142 302,801 165,602 201,079 Transfers between funds ............................ (140,161) 136,764 32,152 (298,876) Surrenders (note 6) ................................ (148,985) (193,278) (78,038) (139,634) Death benefits (note 4) ............................ (719) -- (1,735) -- Net policy repayments (loans) (note 5) ............. (8,914) 11,769 1,274 26,135 Deductions for surrender charges (note 2d) ......... (6,886) (10,628) (3,607) (7,678) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) ............................... (154,470) (163,145) (110,637) (78,471) Asset charges (note 3): MSP contracts ................................... (1,377) (1,385) (844) (916) LSFP contracts .................................. (1,316) (1,213) (817) (608) ---------- --------- --------- ---------- Net equity transactions ...................... (180,686) 81,685 3,350 (298,969) ---------- --------- --------- ---------- Net change in contract owners' equity ................. 246,532 (374,362) 449,977 (1,005,047) Contract owners' equity beginning of period .......................................... 2,253,876 2,628,238 879,767 1,884,814 ---------- --------- --------- ---------- Contract owners' equity end of period ................. $2,500,408 2,253,876 1,329,744 879,767 ========== ========= ========= ========== CHANGES IN UNITS: Beginning units .................................... 440,390 428,785 357,176 449,115 ---------- --------- --------- ---------- Units purchased .................................... 64,043 95,428 91,294 83,201 Units redeemed ..................................... (95,220) (83,823) (77,325) (175,140) ---------- --------- --------- ---------- Ending units ....................................... 409,213 440,390 371,145 357,176 ========== ========= ========= ========== JanIntGro JanRsLgCpCr --------------------- ------------ 2003 2002 2003 2002 --------- --------- ----- ---- Investment activity: Net investment income (loss) ....................... 3,449 (4,636) (8) -- Realized gain (loss) on investments ................ 87,839 (407,715) (37) -- Change in unrealized gain (loss) on investments .................................. 377,425 (16,485) 503 -- Reinvested capital gains ........................... -- -- -- -- --------- --------- ----- --- Net increase (decrease) in contract owners' equity resulting from operations ................................... 468,713 (428,836) 458 -- --------- --------- ----- --- Equity transactions: Purchase payments received from contract owners (note 6) ........................ 390,875 498,623 197 -- Transfers between funds ............................ (198,596) (37,022) 7,352 -- Surrenders (note 6) ................................ (304,722) (398,206) -- -- Death benefits (note 4) ............................ (1,441) (2,290) -- -- Net policy repayments (loans) (note 5) ............. (9,893) 28,088 8 -- Deductions for surrender charges (note 2d) ......... (14,085) (21,897) -- -- Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) ............................... (89,111) (105,940) (73) -- Asset charges (note 3): MSP contracts ................................... (670) (824) -- -- LSFP contracts .................................. (1,074) (988) -- -- --------- --------- ----- --- Net equity transactions ...................... (228,717) (40,456) 7,484 -- --------- --------- ----- --- Net change in contract owners' equity ................. 239,996 (469,292) 7,942 -- Contract owners' equity beginning of period .......................................... 1,481,877 1,951,169 -- -- --------- --------- ----- --- Contract owners' equity end of period ................. 1,721,873 1,481,877 7,942 -- ========= ========= ===== === CHANGES IN UNITS: Beginning units .................................... 334,648 324,749 -- -- --------- --------- ----- --- Units purchased .................................... 43,772 70,908 656 -- Units redeemed ..................................... (87,251) (61,009) (7) -- --------- --------- ----- --- Ending units ....................................... 291,169 334,648 649 -- ========= ========= ===== ===
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, Continued Years Ended December 31, 2003 and 2002
MGVITMultiSec MFSVITInvGrwI ---------------------- ------------- 2003 2002 2003 2002 ---------- --------- ------ ---- Investment activity: Net investment income (loss) ....................... $ 71,074 38,896 (68) -- Realized gain (loss) on investments ................ 95,127 (7,201) 113 -- Change in unrealized gain (loss) on investments .................................. (5,724) 27,886 1,549 -- Reinvested capital gains ........................... -- -- -- -- ---------- --------- ------ --- Net increase (decrease) in contract owners' equity resulting from operations ................................... 160,477 59,581 1,594 -- ---------- --------- ------ --- Equity transactions: Purchase payments received from contract owners (note 6) ........................ 157,344 68,550 933 -- Transfers between funds ............................ (146,693) 654,994 55,220 -- Surrenders (note 6) ................................ (213,444) (23,316) (1,557) -- Death benefits (note 4) ............................ -- -- -- -- Net policy repayments (loans) (note 5) ............. 7,695 (4,610) -- -- Deductions for surrender charges (note 2d) ......... (9,866) (1,282) (72) -- Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) ............................... (33,842) (29,377) (535) -- Asset charges (note 3): MSP contracts ................................... (881) (472) -- -- LSFP contracts .................................. (880) (100) -- -- ---------- --------- ------ --- Net equity transactions ...................... (240,567) 664,387 53,989 -- ---------- --------- ------ --- Net change in contract owners' equity ................. (80,090) 723,968 55,583 -- Contract owners' equity beginning of period .......................................... 1,348,659 624,691 -- -- ---------- --------- ------ --- Contract owners' equity end of period ................. $1,268,569 1,348,659 55,583 -- ========== ========= ====== === CHANGES IN UNITS: Beginning units .................................... 117,430 57,879 -- -- ---------- --------- ------ --- Units purchased .................................... 24,936 68,517 5,007 -- Units redeemed ..................................... (43,333) (8,966) (191) -- ---------- --------- ------ --- Ending units ....................................... 99,033 117,430 4,816 -- ========== ========= ====== === MFSVITValIn NBAMTBal ------------- --------------- 2003 2002 2003 2002 ------ ---- ------ ------ Investment activity: Net investment income (loss) ....................... (74) -- 604 863 Realized gain (loss) on investments ................ 38 -- (877) (343) Change in unrealized gain (loss) on investments .................................. 3,849 -- 8,095 (8,064) Reinvested capital gains ........................... -- -- -- -- ------ --- ------ ------ Net increase (decrease) in contract owners' equity resulting from operations ................................... 3,813 -- 7,822 (7,544) ------ --- ------ ------ Equity transactions: Purchase payments received from contract owners (note 6) ........................ 2,515 -- 6,261 1,871 Transfers between funds ............................ 38,323 -- 10,323 39,141 Surrenders (note 6) ................................ -- -- -- -- Death benefits (note 4) ............................ -- -- -- -- Net policy repayments (loans) (note 5) ............. (326) -- 22 22 Deductions for surrender charges (note 2d) ......... -- -- -- -- Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) ............................... (617) -- (2,301) (1,718) Asset charges (note 3): MSP contracts ................................... (7) -- -- -- LSFP contracts .................................. -- -- -- -- ------ --- ------ ------ Net equity transactions ...................... 39,888 -- 14,305 39,316 ------ --- ------ ------ Net change in contract owners' equity ................. 43,701 -- 22,127 31,772 Contract owners' equity beginning of period .......................................... -- -- 46,040 14,268 ------ --- ------ ------ Contract owners' equity end of period ................. 43,701 -- 68,167 46,040 ====== === ====== ====== CHANGES IN UNITS: Beginning units .................................... -- -- 2,497 636 ------ --- ------ ------ Units purchased .................................... 3,635 -- 1,044 1,949 Units redeemed ..................................... (84) -- (126) (88) ------ --- ------ ------ Ending units ....................................... 3,551 -- 3,415 2,497 ====== === ====== ======
NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, Continued Years Ended December 31, 2003 and 2002
NBAMTFas NBAMTGro -------------- ------------------------ 2003 2002 2003 2002 ------- ---- ---------- ----------- Investment activity: Net investment income (loss) .................. $ (42) -- (113,247) (127,464) Realized gain (loss) on investments ........... 750 -- (2,849,105) (4,914,991) Change in unrealized gain (loss) on investments ............................. 747 -- 6,753,242 (1,658,364) Reinvested capital gains ...................... 5 -- -- -- ------- --- ---------- ----------- Net increase (decrease) in contract owners' equity resulting from operations .............................. 1,460 -- 3,790,890 (6,700,819) ------- --- ---------- ----------- Equity transactions: Purchase payments received from contract owners (note 6) ................... 552 -- 1,709,589 2,192,969 Transfers between funds ....................... 10,214 -- 119,597 (4,042,985) Surrenders (note 6) ........................... (648) -- (2,092,717) (939,226) Death benefits (note 4) ....................... -- -- (25,820) (56,429) Net policy repayments (loans) (note 5) ........ (328) -- 792,718 (16,008) Deductions for surrender charges (note 2d) .... (30) -- (96,729) (51,646) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .......................... (510) -- (985,451) (1,089,804) Asset charges (note 3): MSP contracts .............................. -- -- (2,540) (7,158) LSFP contracts ............................. -- -- (5,756) (6,125) ------- --- ---------- ----------- Net equity transactions ................. 9,250 -- (587,109) (4,016,412) ------- --- ---------- ----------- Net change in contract owners' equity ............ 10,710 -- 3,203,781 (10,717,231) Contract owners' equity beginning of period ..................................... -- -- 12,997,531 23,714,762 ------- --- ---------- ----------- Contract owners' equity end of period ............ $10,710 -- 16,201,312 12,997,531 ======= === ========== =========== CHANGES IN UNITS: Beginning units ............................... -- -- 866,555 1,114,641 ------- --- ---------- ----------- Units purchased ............................... 926 -- 140,684 141,889 Units redeemed ................................ (72) -- (185,624) (389,975) ------- --- ---------- ----------- Ending units .................................. 854 -- 821,615 866,555 ======= === ========== =========== NBAMTGuard NBAMTLMat --------------------- ---------------------- 2003 2002 2003 2002 --------- --------- ---------- --------- Investment activity: Net investment income (loss) .................. 3,217 2,019 239,549 238,386 Realized gain (loss) on investments ........... (219,402) (564,694) 19,906 29,349 Change in unrealized gain (loss) on investments ............................. 710,906 (142,270) (150,522) (464) Reinvested capital gains ...................... -- -- -- -- --------- --------- ---------- --------- Net increase (decrease) in contract owners' equity resulting from operations .............................. 494,721 (704,945) 108,933 267,271 --------- --------- ---------- --------- Equity transactions: Purchase payments received from contract owners (note 6) ................... 147,198 252,039 419,152 485,372 Transfers between funds ....................... (5,208) (326,889) 90,649 2,049,470 Surrenders (note 6) ........................... (168,265) (70,728) (1,419,276) (756,920) Death benefits (note 4) ....................... -- -- (398) (42,010) Net policy repayments (loans) (note 5) ........ (6,356) (14,101) 681,836 80,900 Deductions for surrender charges (note 2d) .... (7,778) (3,889) (65,601) (41,621) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .......................... (98,043) (106,763) (290,411) (245,535) Asset charges (note 3): MSP contracts .............................. (1,250) (1,592) (7,524) (6,969) LSFP contracts ............................. (1,689) (1,817) (1,699) (1,413) --------- --------- ---------- --------- Net equity transactions ................. (141,391) (273,740) (593,272) 1,521,274 --------- --------- ---------- --------- Net change in contract owners' equity ............ 353,330 (978,685) (484,339) 1,788,545 Contract owners' equity beginning of period ..................................... 1,605,837 2,584,522 6,741,521 4,952,976 --------- --------- ---------- --------- Contract owners' equity end of period ............ 1,959,167 1,605,837 6,257,182 6,741,521 ========= ========= ========== ========= CHANGES IN UNITS: Beginning units ............................... 210,005 247,137 390,323 298,490 --------- --------- ---------- --------- Units purchased ............................... 31,713 32,929 48,590 143,330 Units redeemed ................................ (45,956) (70,061) (86,847) (51,497) --------- --------- ---------- --------- Ending units .................................. 195,762 210,005 352,066 390,323 ========= ========= ========== =========
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, Continued Years Ended December 31, 2003 and 2002
NBAMTMCGr NBAMTPart --------------- ----------------------- 2003 2002 2003 2002 -------- ---- ---------- ---------- Investment activity: Net investment income (loss) .................. $ (601) -- (125,663) (32,601) Realized gain (loss) on investments ........... 7,082 -- (2,482,304) (1,617,582) Change in unrealized gain (loss) on investments ............................. 9,663 -- 8,076,460 (3,978,892) Reinvested capital gains ...................... -- -- -- -- -------- --- ---------- ---------- Net increase (decrease) in contract owners' equity resulting from operations .............................. 16,144 -- 5,468,493 (5,629,075) -------- --- ---------- ---------- Equity transactions: Purchase payments received from contract owners (note 6) ................... 11,530 -- 1,956,281 2,518,759 Transfers between funds ....................... 247,205 -- (669,643) (1,347,916) Surrenders (note 6) ........................... -- -- (2,336,671) (979,335) Death benefits (note 4) ....................... -- -- (73,321) (57,113) Net policy repayments (loans) (note 5) ........ 84 -- 567,185 (98,447) Deductions for surrender charges (note 2d) .... -- -- (108,005) (53,852) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .......................... (2,759) -- (1,168,275) (1,224,187) Asset charges (note 3): MSP contracts .............................. -- -- (10,782) (12,334) LSFP contracts ............................. (148) -- (15,068) (13,806) -------- --- ---------- ---------- Net equity transactions ................. 255,912 -- (1,858,299) (1,268,231) -------- --- ---------- ---------- Net change in contract owners' equity ............ 272,056 -- 3,610,194 (6,897,306) Contract owners' equity beginning of period ..................................... -- -- 16,750,853 23,648,159 -------- --- ---------- ---------- Contract owners' equity end of period ............ $272,056 -- 20,361,047 16,750,853 ======== === ========== ========== CHANGES IN UNITS: Beginning units ............................... -- -- 990,334 1,050,337 -------- --- ---------- ---------- Units purchased ............................... 22,437 -- 124,453 149,729 Units redeemed ................................ (260) -- (211,244) (209,732) -------- --- ---------- ---------- Ending units .................................. 22,177 -- 903,543 990,334 ======== === ========== ========== NBAMTSocRe OppAggGro ------------- --------------------- 2003 2002 2003 2002 ------ ---- --------- --------- Investment activity: Net investment income (loss) .................. (106) -- (11,886) (1,144) Realized gain (loss) on investments ........... 25 -- 229,204 (590,299) Change in unrealized gain (loss) on investments ............................. 4,282 -- 73,026 91,747 Reinvested capital gains ...................... -- -- -- -- ------ --- --------- --------- Net increase (decrease) in contract owners' equity resulting from operations .............................. 4,201 -- 290,344 (499,696) ------ --- --------- --------- Equity transactions: Purchase payments received from contract owners (note 6) ................... 1,275 -- 318,237 277,067 Transfers between funds ....................... 35,670 -- 301,461 (127,039) Surrenders (note 6) ........................... -- -- (68,982) (140,615) Death benefits (note 4) ....................... -- -- (2,559) (3,005) Net policy repayments (loans) (note 5) ........ 143 -- (29,327) (16,276) Deductions for surrender charges (note 2d) .... -- -- (3,188) (7,732) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .......................... (753) -- (133,803) (117,334) Asset charges (note 3): MSP contracts .............................. -- -- (660) (637) LSFP contracts ............................. -- -- (166) (143) ------ --- --------- --------- Net equity transactions ................. 36,335 -- 381,013 (135,714) ------ --- --------- --------- Net change in contract owners' equity ............ 40,536 -- 671,357 (635,410) Contract owners' equity beginning of period ..................................... -- -- 1,158,339 1,793,749 ------ --- --------- --------- Contract owners' equity end of period ............ 40,536 -- 1,829,696 1,158,339 ====== === ========= ========= CHANGES IN UNITS: Beginning units ............................... -- -- 304,625 337,769 ------ --- --------- --------- Units purchased ............................... 3,372 -- 141,228 72,910 Units redeemed ................................ (79) -- (59,990) (106,054) ------ --- --------- --------- Ending units .................................. 3,293 -- 385,863 304,625 ====== === ========= =========
NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, Continued Years Ended December 31, 2003 and 2002
OppBdFd OppCapAp ------------------------ ----------------------- 2003 2002 2003 2002 ----------- ---------- ---------- ---------- Investment activity: Net investment income (loss) .................. $ 679,789 882,439 (49,154) (15,505) Realized gain (loss) on investments ........... (4,847) (350,686) (2,159,972) (6,751,858) Change in unrealized gain (loss) on investments ............................. 124,933 535,188 5,578,110 2,058,407 Reinvested capital gains ...................... -- -- -- -- ----------- ---------- ---------- ---------- Net increase (decrease) in contract owners' equity resulting from operations .............................. 799,875 1,066,941 3,368,984 (4,708,956) ----------- ---------- ---------- ---------- Equity transactions: Purchase payments received from contract owners (note 6) ................... 986,173 1,018,900 1,377,491 2,131,465 Transfers between funds ....................... (729,951) 816,498 369,298 (446,711) Surrenders (note 6) ........................... (1,054,622) (999,559) (676,382) (1,052,801) Death benefits (note 4) ....................... (14,916) (86,356) (134,063) (45,480) Net policy repayments (loans) (note 5) ........ (9,225) (175,417) (101,777) (56,354) Deductions for surrender charges (note 2d) .... (48,746) (54,964) (31,263) (57,891) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .......................... (720,578) (658,218) (741,142) (828,314) Asset charges (note 3): MSP contracts .............................. (9,531) (10,665) (5,271) (5,855) LSFP contracts ............................. (6,190) (4,779) (5,208) (6,108) ----------- ---------- ---------- ---------- Net equity transactions ................. (1,607,586) (154,560) 51,683 (368,049) ----------- ---------- ---------- ---------- Net change in contract owners' equity ............ (807,711) 912,381 3,420,667 (5,077,005) Contract owners' equity beginning of period ..................................... 14,009,310 13,096,929 11,617,305 16,694,310 ----------- ---------- ---------- ---------- Contract owners' equity end of period ............ $13,201,599 14,009,310 15,037,972 11,617,305 =========== ========== ========== ========== CHANGES IN UNITS: Beginning units ............................... 685,876 691,900 1,030,433 1,073,994 ----------- ---------- ---------- ---------- Units purchased ............................... 95,828 85,064 167,469 162,077 Units redeemed ................................ (174,487) (91,088) (172,352) (205,638) ----------- ---------- ---------- ---------- Ending units .................................. 607,217 685,876 1,025,550 1,030,433 =========== ========== ========== ========== OppGlSec OppHiIncInt ----------------------- -------------- 2003 2002 2003 2002 ---------- ---------- ------- ---- Investment activity: Net investment income (loss) .................. (1,280) (61,818) (475) -- Realized gain (loss) on investments ........... (4,355,424) (779,589) 2,808 -- Change in unrealized gain (loss) on investments ............................. 14,079,632 (6,436,152) 15,287 -- Reinvested capital gains ...................... -- -- -- -- ---------- ---------- ------- --- Net increase (decrease) in contract owners' equity resulting from operations .............................. 9,722,928 (7,277,559) 17,620 -- ---------- ---------- ------- --- Equity transactions: Purchase payments received from contract owners (note 6) ................... 2,087,217 2,395,521 17,306 -- Transfers between funds ....................... 207,428 (974,214) 301,861 -- Surrenders (note 6) ........................... (1,759,910) (1,670,589) (13,447) -- Death benefits (note 4) ....................... (49,058) (139,234) -- -- Net policy repayments (loans) (note 5) ........ 153,062 (107,233) (5,673) -- Deductions for surrender charges (note 2d) .... (81,346) (91,862) (622) -- Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .......................... (1,361,309) (1,468,689) (4,579) -- Asset charges (note 3): MSP contracts .............................. (9,838) (11,572) (256) -- LSFP contracts ............................. (7,297) (7,148) (40) -- ---------- ---------- ------- --- Net equity transactions ................. (821,051) (2,075,020) 294,550 -- ---------- ---------- ------- --- Net change in contract owners' equity ............ 8,901,877 (9,352,579) 312,170 -- Contract owners' equity beginning of period ..................................... 23,978,747 33,331,326 -- -- ---------- ---------- ------- --- Contract owners' equity end of period ............ 32,880,624 23,978,747 312,170 -- ========== ========== ======= === CHANGES IN UNITS: Beginning units ............................... 1,190,779 1,278,705 -- -- ---------- ---------- ------- --- Units purchased ............................... 148,719 122,958 30,411 -- Units redeemed ................................ (189,490) (210,884) (2,398) -- ---------- ---------- ------- --- Ending units .................................. 1,150,008 1,190,779 28,013 -- ========== ========== ======= ===
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, Continued Years Ended December 31, 2003 and 2002
OppMSGrInc OppMaStSmCpI ---------------------- -------------- 2003 2002 2003 2002 ---------- --------- ------- ---- Investment activity: Net investment income (loss) .................. $ 2,578 (227) (584) -- Realized gain (loss) on investments ........... 81,690 (144,832) 1,581 -- Change in unrealized gain (loss) on investments ............................. 214,017 (63,259) 29,320 -- Reinvested capital gains ...................... -- -- -- -- ---------- --------- ------- --- Net increase (decrease) in contract owners' equity resulting from operations .............................. 298,285 (208,318) 30,317 -- ---------- --------- ------- --- Equity transactions: Purchase payments received from contract owners (note 6) ................... 100,521 86,118 20,279 -- Transfers between funds ....................... 195,608 352,251 365,548 -- Surrenders (note 6) ........................... (62,594) (39,278) (7,875) -- Death benefits (note 4) ....................... -- -- -- -- Net policy repayments (loans) (note 5) ........ (42,180) 85 80 -- Deductions for surrender charges (note 2d) .... (2,893) (2,160) (364) -- Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .......................... (54,542) (42,091) (4,132) -- Asset charges (note 3): MSP contracts .............................. (1,227) (841) (37) -- LSFP contracts ............................. (811) (787) (53) -- ---------- --------- ------- --- Net equity transactions ................. 131,882 353,297 373,446 -- ---------- --------- ------- --- Net change in contract owners' equity ............ 430,167 144,979 403,763 -- Contract owners' equity beginning of period ..................................... 1,000,092 855,113 -- -- ---------- --------- ------- --- Contract owners' equity end of period ............ $1,430,259 1,000,092 403,763 -- ========== ========= ======= === CHANGES IN UNITS: Beginning units ............................... 154,096 106,340 -- - ---------- --------- ------- --- Units purchased ............................... 46,202 59,843 29,584 - Units redeemed ................................ (25,179) (12,087) (333) - ---------- --------- ------- --- Ending units .................................. 175,119 154,096 29,251 - ========== ========= ======= === OppMultStr PUTVTGrIncIB ----------------------- ------------- 2003 2002 2003 2002 ---------- ---------- ------ ---- Investment activity: Net investment income (loss) .................. 275,544 377,956 (40) -- Realized gain (loss) on investments ........... (166,820) (465,799) (42) -- Change in unrealized gain (loss) on investments ............................. 2,834,011 (1,738,579) 1,560 -- Reinvested capital gains ...................... -- 200,398 -- -- ---------- ---------- ------ --- Net increase (decrease) in contract owners' equity resulting from operations .............................. 2,942,735 (1,626,024) 1,478 -- ---------- ---------- ------ --- Equity transactions: Purchase payments received from contract owners (note 6) ................... 1,155,345 1,233,000 543 -- Transfers between funds ....................... 434,484 6,851 13,190 -- Surrenders (note 6) ........................... (532,500) (881,744) -- -- Death benefits (note 4) ....................... (18,039) (208,239) -- -- Net policy repayments (loans) (note 5) ........ (62,595) (71,305) -- -- Deductions for surrender charges (note 2d) .... (24,613) (48,485) -- -- Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .......................... (737,262) (720,498) (257) -- Asset charges (note 3): MSP contracts .............................. (8,381) (8,198) -- -- LSFP contracts ............................. (3,405) (3,122) -- -- ---------- ---------- ------ --- Net equity transactions ................. 203,034 (701,740) 13,476 -- ---------- ---------- ------ --- Net change in contract owners' equity ............ 3,145,769 (2,327,764) 14,954 -- Contract owners' equity beginning of period ..................................... 12,259,254 14,587,018 -- -- ---------- ---------- ------ --- Contract owners' equity end of period ............ 15,405,023 12,259,254 14,954 -- ========== ========== ====== === CHANGES IN UNITS: Beginning units ............................... 543,407 574,816 -- -- ---------- ---------- ------ --- Units purchased ............................... 76,748 73,564 1,233 -- Units redeemed ................................ (70,952) (104,973) (23) -- ---------- ---------- ------ --- Ending units .................................. 549,203 543,407 1,210 -- ========== ========== ====== ===
NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, Continued Years Ended December 31, 2003 and 2002
PUTVTIntlEqIB PUTVTVoyIB -------------- ------------- 2003 2002 2003 2002 ------- ---- ------ ---- Investment activity: Net investment income (loss) .................. $ (131) -- (36) -- Realized gain (loss) on investments ........... 2,026 -- 114 -- Change in unrealized gain (loss) on investments ............................. 5,418 -- 1,025 -- Reinvested capital gains ...................... -- -- -- -- ------- --- ------ --- Net increase (decrease) in contract owners' equity resulting from operations .............................. 7,313 -- 1,103 -- ------- --- ------ --- Equity transactions: Purchase payments received from contract owners (note 6) ................... 1,697 -- 727 -- Transfers between funds ....................... 55,373 -- 13,491 -- Surrenders (note 6) ........................... (845) -- -- -- Death benefits (note 4) ....................... -- -- -- -- Net policy repayments (loans) (note 5) ........ 33 -- -- -- Deductions for surrender charges (note 2d) .... (39) -- -- -- Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .......................... (757) -- (226) -- Asset charges (note 3): MSP contracts .............................. -- -- -- -- LSFP contracts ............................. -- -- -- -- ------- --- ------ --- Net equity transactions ................. 55,462 -- 13,992 -- ------- --- ------ --- Net change in contract owners' equity ............ 62,775 -- 15,095 -- Contract owners' equity beginning of period ..................................... -- -- -- -- ------- --- ------ --- Contract owners' equity end of period ............ $62,775 -- 15,095 -- ======= === ====== === CHANGES IN UNITS: Beginning units ............................... -- -- -- -- ------- --- ------ --- Units purchased ............................... 5,067 -- 1,300 -- Units redeemed ................................ (136) -- (20) -- ------- --- ------ --- Ending units .................................. 4,931 -- 1,280 -- ======= === ====== === SGVITMdCpGr StOpp2 --------------------- ------------------------ 2003 2002 2003 2002 --------- --------- ---------- ----------- Investment activity: Net investment income (loss) .................. (16,320) (8,153) (220,857) (147,021) Realized gain (loss) on investments ........... 314,734 (397,870) (2,014,228) (2,167,910) Change in unrealized gain (loss) on investments ............................. 196,161 (56,058) 11,846,663 (9,845,255) Reinvested capital gains ...................... -- -- -- 644,398 --------- --------- ---------- ----------- Net increase (decrease) in contract owners' equity resulting from operations .............................. 494,575 (462,081) 9,611,578 (11,515,788) --------- --------- ---------- ----------- Equity transactions: Purchase payments received from contract owners (note 6) ................... 269,326 358,592 2,539,077 3,147,871 Transfers between funds ....................... 905,513 485,532 (2,376,920) (1,938,061) Surrenders (note 6) ........................... (96,786) (47,786) (2,584,861) (1,780,772) Death benefits (note 4) ....................... (126,970) (10,227) (71,968) (79,482) Net policy repayments (loans) (note 5) ........ (261,405) (5,425) 165,371 (352,730) Deductions for surrender charges (note 2d) .... (4,474) (2,628) (119,477) (97,921) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .......................... 639,976 (61,931) (1,701,430) (1,897,429) Asset charges (note 3): MSP contracts .............................. (829) (561) (6,701) (8,916) LSFP contracts ............................. (803) (432) (6,270) (6,859) --------- --------- ---------- ----------- Net equity transactions ................. 1,323,548 715,134 (4,163,179) (3,014,299) --------- --------- ---------- ----------- Net change in contract owners' equity ............ 1,818,123 253,053 5,448,399 (14,530,087) Contract owners' equity beginning of period ..................................... 1,178,178 925,125 28,600,889 43,130,976 --------- --------- ---------- ----------- Contract owners' equity end of period ............ 2,996,301 1,178,178 34,049,288 28,600,889 ========= ========= ========== =========== CHANGES IN UNITS: Beginning units ............................... 335,821 164,872 1,014,316 1,109,407 --------- --------- ---------- ----------- Units purchased ............................... 418,292 206,561 118,496 116,005 Units redeemed ................................ (141,096) (35,612) (241,119) (211,096) --------- --------- ---------- ----------- Ending units .................................. 613,017 335,821 891,693 1,014,316 ========= ========= ========== ===========
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, Continued Years Ended December 31, 2003 and 2002
StDisc2 StIntStk2 ----------------------- ---------------------- 2003 2002 2003 2002 ---------- ---------- ---------- --------- Investment activity: Net investment income (loss) .................. $ (51,688) (52,203) 21,096 63,769 Realized gain (loss) on investments ........... 389,397 (262,474) (57,620) (794,539) Change in unrealized gain (loss) on investments ............................. 1,778,903 (594,143) (7,327) 177,975 Reinvested capital gains ...................... -- -- -- -- ---------- ---------- ---------- --------- Net increase (decrease) in contract owners' equity resulting from operations .............................. 2,116,612 (908,820) (43,851) (552,795) ---------- ---------- ---------- --------- Equity transactions: Purchase payments received from contract owners (note 6) ................... 611,081 608,903 32,865 300,490 Transfers between funds ....................... (120,100) (80,174) (1,542,823) (144,364) Surrenders (note 6) ........................... (344,691) (417,882) (28,101) (170,083) Death benefits (note 4) ....................... (49,278) (18,966) (570) (7,537) Net policy repayments (loans) (note 5) ........ 21,455 81,865 445 10,245 Deductions for surrender charges (note 2d) .... (15,932) (22,978) (1,299) (9,352) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .......................... (343,313) (346,561) (16,588) (115,209) Asset charges (note 3): MSP contracts .............................. (1,643) (1,630) (75) (766) LSFP contracts ............................. (701) (621) (295) (2,122) ---------- ---------- ---------- --------- Net equity transactions ................. (243,122) (198,044) (1,556,441) (138,698) ---------- ---------- ---------- --------- Net change in contract owners' equity ............ 1,873,490 (1,106,864) (1,600,292) (691,493) Contract owners' equity beginning of period ..................................... 5,757,577 6,864,441 1,600,292 2,291,785 ---------- ---------- ---------- --------- Contract owners' equity end of period ............ $7,631,067 5,757,577 -- 1,600,292 ========== ========== ========== ========= CHANGES IN UNITS: Beginning units ............................... 313,582 327,117 285,304 297,754 ---------- ---------- ---------- --------- Units purchased ............................... 44,706 38,978 102,641 50,067 Units redeemed ................................ (58,229) (52,513) (387,945) (62,517) ---------- ---------- ---------- --------- Ending units .................................. 300,059 313,582 -- 285,304 ========== ========== ========== ========= TurnGVITGro VEWrldBd ------------------- --------------------- 2003 2002 2003 2002 -------- -------- --------- --------- Investment activity: Net investment income (loss) .................. (3,394) (1,483) 47,832 (26,814) Realized gain (loss) on investments ........... 106,095 (118,319) 529,474 493,528 Change in unrealized gain (loss) on investments ............................. 99,325 (25,065) 135,636 184,996 Reinvested capital gains ...................... -- -- -- -- -------- -------- --------- --------- Net increase (decrease) in contract owners' equity resulting from operations .............................. 202,026 (144,867) 712,942 651,710 -------- -------- --------- --------- Equity transactions: Purchase payments received from contract owners (note 6) ................... 32,050 26,059 441,801 260,531 Transfers between funds ....................... 437,266 112,664 (331,784) 1,799,806 Surrenders (note 6) ........................... (179,355) (1,211) (457,882) (190,817) Death benefits (note 4) ....................... -- -- (8,634) (3,389) Net policy repayments (loans) (note 5) ........ (16,437) 104 (8,665) (6,834) Deductions for surrender charges (note 2d) .... (8,290) (67) (21,164) (10,493) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .......................... (26,827) 12,255 (256,955) (142,406) Asset charges (note 3): MSP contracts .............................. (220) (133) (2,331) (1,498) LSFP contracts ............................. (548) (12) (1,849) (1,111) -------- -------- --------- --------- Net equity transactions ................. 237,639 149,659 (647,463) 1,703,789 -------- -------- --------- --------- Net change in contract owners' equity ............ 439,665 4,792 65,479 2,355,499 Contract owners' equity beginning of period ..................................... 208,618 203,826 4,601,070 2,245,571 -------- -------- --------- --------- Contract owners' equity end of period ............ 648,283 208,618 4,666,549 4,601,070 ======== ======== ========= ========= CHANGES IN UNITS: Beginning units ............................... 96,110 53,240 291,343 170,193 -------- -------- --------- --------- Units purchased ............................... 127,213 50,752 44,705 147,907 Units redeemed ................................ (24,354) (7,882) (87,714) (26,757) -------- -------- --------- --------- Ending units .................................. 198,969 96,110 248,334 291,343 ======== ======== ========= =========
NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, Continued Years Ended December 31, 2003 and 2002
VEWrldEMkt VEWrldHAs ---------------------- --------------------- 2003 2002 2003 2002 ---------- --------- --------- --------- Investment activity: Net investment income (loss) .................. $ (23,710) (23,485) (12,004) (3,098) Realized gain (loss) on investments ........... 764,615 (383,086) 688,621 (399,785) Change in unrealized gain (loss) on investments ............................. 1,136,659 111,183 856,699 176,398 Reinvested capital gains ...................... -- -- -- -- ---------- --------- --------- --------- Net increase (decrease) in contract owners' equity resulting from operations .............................. 1,877,564 (295,388) 1,533,316 (226,485) ---------- --------- --------- --------- Equity transactions: Purchase payments received from contract owners (note 6) ................... 609,752 704,499 484,564 513,130 Transfers between funds ....................... (129,198) 622,118 (743,244) 1,395,942 Surrenders (note 6) ........................... (426,215) (564,961) (263,804) (230,792) Death benefits (note 4) ....................... (17,744) (5,788) (2,937) (7,889) Net policy repayments (loans) (note 5) ........ 103,055 490 (22,204) (51,043) Deductions for surrender charges (note 2d) .... (19,700) (31,066) (12,193) (12,691) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .......................... (227,107) (229,103) (225,207) (210,529) Asset charges (note 3): MSP contracts .............................. (2,156) (2,796) (2,233) (1,932) LSFP contracts ............................. (3,500) (3,167) (886) (892) ---------- --------- --------- --------- Net equity transactions ................. (112,813) 490,226 (788,144) 1,393,304 ---------- --------- --------- --------- Net change in contract owners' equity ............ 1,764,751 194,838 745,172 1,166,819 Contract owners' equity beginning of period ..................................... 3,809,216 3,614,378 4,465,156 3,298,337 ---------- --------- --------- --------- Contract owners' equity end of period ............ $5,573,967 3,809,216 5,210,328 4,465,156 ========== ========= ========= ========= CHANGES IN UNITS: Beginning units ............................... 609,125 558,293 345,490 247,470 ---------- --------- --------- --------- Units purchased ............................... 151,286 130,293 60,677 136,375 Units redeemed ................................ (177,633) (79,461) (117,467) (38,355) ---------- --------- --------- --------- Ending units .................................. 582,778 609,125 288,700 345,490 ========== ========= ========= ========= VKoreFI VKEmMkt ------------- --------------------- 2003 2002 2003 2002 ------ ---- --------- --------- Investment activity: Net investment income (loss) .................. (54) -- (14,792) 85,212 Realized gain (loss) on investments ........... 80 -- 316,470 (10,342) Change in unrealized gain (loss) on investments ............................. 414 -- 218,451 14,386 Reinvested capital gains ...................... -- -- -- -- ------ --- --------- --------- Net increase (decrease) in contract owners' equity resulting from operations .............................. 440 -- 520,129 89,256 ------ --- --------- --------- Equity transactions: Purchase payments received from contract owners (note 6) ................... 529 -- 344,106 107,703 Transfers between funds ....................... 29,850 -- 747,030 186,450 Surrenders (note 6) ........................... -- -- (100,572) (77,281) Death benefits (note 4) ....................... -- -- -- (1,815) Net policy repayments (loans) (note 5) ........ -- -- 10,322 (44,874) Deductions for surrender charges (note 2d) .... -- -- (4,649) (4,250) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .......................... (208) -- (118,726) (59,348) Asset charges (note 3): MSP contracts .............................. -- -- (1,481) (924) LSFP contracts ............................. -- -- (3,217) (2,406) ------ --- --------- --------- Net equity transactions ................. 30,171 -- 872,813 103,255 ------ --- --------- --------- Net change in contract owners' equity ............ 30,611 -- 1,392,942 192,511 Contract owners' equity beginning of period ..................................... -- -- 1,468,419 1,275,908 ------ --- --------- --------- Contract owners' equity end of period ............ 30,611 -- 2,861,361 1,468,419 ====== === ========= ========= CHANGES IN UNITS: Beginning units ............................... -- -- 123,689 116,821 ------ --- --------- --------- Units purchased ............................... 3,028 -- 83,477 27,043 Units redeemed ................................ (21) -- (16,255) (20,175) ------ --- --------- --------- Ending units .................................. 3,007 -- 190,911 123,689 ====== === ========= =========
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, Continued Years Ended December 31, 2003 and 2002 VKUSRealEst ----------------------- 2003 2002 ----------- --------- Investment activity: Net investment income (loss) ..................... $ (81,334) 228,325 Realized gain (loss) on investments .............. 150,623 66,434 Change in unrealized gain (loss) on investments ................................ 3,325,139 (813,789) Reinvested capital gains ......................... -- 229,276 ----------- --------- Net increase (decrease) in contract owners' equity resulting from operations ................................. 3,394,428 (289,754) ----------- --------- Equity transactions: Purchase payments received from contract owners (note 6) ...................... 963,507 862,806 Transfers between funds .......................... 313,407 1,889,578 Surrenders (note 6) .............................. (669,155) (978,184) Death benefits (note 4) .......................... (27,635) (13,953) Net policy repayments (loans) (note 5) ........... 25,738 (57,356) Deductions for surrender charges (note 2d) ....... (30,929) (53,788) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) ............................. (591,816) (550,761) Asset charges (note 3): MSP contracts ................................. (5,098) (5,293) LSFP contracts ................................ (4,899) (4,505) ----------- --------- Net equity transactions .................... (26,880) 1,088,544 ----------- --------- Net change in contract owners' equity ............... 3,367,548 798,790 Contract owners' equity beginning of period ........................................ 9,666,432 8,867,642 ----------- --------- Contract owners' equity end of period ............... $13,033,980 9,666,432 =========== ========= CHANGES IN UNITS: Beginning units .................................. 469,840 425,269 ----------- --------- Units purchased .................................. 77,792 123,559 Units redeemed ................................... (83,771) (78,988) ----------- --------- Ending units ..................................... 463,861 469,840 =========== ========= See accompanying notes to financial statements. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NATIONWIDE VLI SEPARATE ACCOUNT-2 NOTES TO FINANCIAL STATEMENTS December 31, 2003 and 2002 (1) Background and Summary of Significant Accounting Policies (a) Organization and Nature of Operations The Nationwide VLI Separate Account-2 (the Account) was established pursuant to a resolution of the Board of Directors of Nationwide Life Insurance Company (the Company) on May 7, 1987. The Account is registered as a unit investment trust under the Investment Company Act of 1940. The Company offers Single Premium, Modified Single Premium, Flexible Premium and Last Survivor Flexible Premium Variable Life Insurance Policies through the Account. The primary distribution for the contracts is through the brokerage community; however, other distributors may be utilized. (b) The Contracts Prior to December 31, 1990, only contracts without a front-end sales charge, but with a contingent deferred sales charge and certain other fees, were offered for purchase. Beginning December 31, 1990, contracts with a front-end sales charge, 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: Funds of the AIM Variable Insurance Fund (AIMVIF); AIM VIF - AIM V.I. Capital Appreciation Fund - Series I (AIMCapAp) AIM VIF Basic Value Fund - Series I (AIMBVF) AIM VIF Capital Development Fund - Series I (AIMCDF) Alliance Bernstein VPS Small Cap Value Portfolio - Class A (AllSmCpVal) Alliance VPS Growth & Income Portfolio - Class A (AllGroInc) Portfolios of the American Century Variable Portfolios, Inc. (American Century VP); American Century VP Balanced Fund - Class I (ACVPBal) American Century VP Capital Appreciation Fund - Class I (ACVPCapAp) American Century VP Income & Growth Fund - Class I (ACVPIncGr) American Century VP Inflation Protection Fund - Class II (ACVPInfPr) American Century VP International Fund - Class I (ACVPInt) American Century VP Ultra Fund -Class I (ACVPUltra) American Century VP Value Fund - Class I (ACVPVal) Comstock GVIT Value Fund - Class I (ComGVITVal) Portfolios of the Credit Suisse Trust; Credit Suisse Trust - Global Post-Venture Capital Portfolio (CSGPVen) Credit Suisse Trust- International Focus Portfolio (CSIntEq) Credit Suisse Trust - Small Cap Growth Portfolio (CSSmCapGr) Portfolios of the Dreyfus GVIT; Dreyfus GVIT International Value Fund - Class I (DryIntVal) Dreyfus GVIT Mid Cap Index Fund - Class I (DryMidCapIx) Portfolios of the Dreyfus Investment Portfolios (Dreyfus IP); *Dreyfus IP - European Equity Portfolio (DryEuroEq) Dreyfus IP - Small Cap Stock Index Portfolio - Service Class (DrySmCapIxS) Dreyfus Socially Responsible Growth Fund, Inc. - Initial Shares (DrySRGro) Dreyfus Stock Index Fund (DryStkIx) Portfolios of the Dreyfus Variable Investment Fund (Dreyfus VIF); Dreyfus VIF - Appreciation Portfolio - Initial Shares (DryVIFApp) Dreyfus VIF - Developing Leaders Portfolio - Initial Shares (DryDevLeadI) Dreyfus VIF - Growth and Income Portfolio - Initial Shares (DryVIFGrInc) Portfolios of Federated Insurance Series; Federated American Leaders Fund II - Primary Shares (FedAmLdII) Federated Capital Appreciation Fund II - Primary Shares (FedCpApII) Federated GVIT High Income Bond Fund -Class I (FGVITHiInc) Federated Quality Bond Fund II - Primary Shares (FedQualBd) (Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 NOTES TO FINANCIAL STATEMENTS, Continued Portfolios of the Fidelity(R) Variable Insurance Products (Fidelity(R) VIP); Fidelity(R) VIP - Equity-Income Portfolio: Initial Class (FidVIPEI) Fidelity(R) VIP -Growth Portfolio: Initial Class (FidVIPGr) Fidelity(R) VIP - High Income Portfolio: Initial Class (FidVIPHI) Fidelity(R)VIP -Overseas Portfolio: Initial Class (FidVIPOv) Portfolios of the Fidelity(R)Variable Insurance Products (Fidelity(R)VIP II); Fidelity(R) VIP II -Asset Manager Portfolio: Initial Class (FidVIPAM) Fidelity(R) VIP II - Contrafund Portfolio: Initial Class (FidVIPCon) Fidelity(R) VIP II - Investment Grade Bond Portfolio: Service Class (FidVIPInvGrB) Portfolios of the Fidelity(R) Variable Insurance Products (Fidelity(R) VIP III); Fidelity(R) VIP III - Growth Opportunities Portfolio: Initial Class (FidVIPGrOp) Fidelity(R) VIP III - Mid Cap Portfolio: Service Class (FidVIPMCap) Fidelity(R) VIP III -Value Strategies Portfolio: Service Class (FidVIPValStS) Funds of the Franklin Templeton Variable Insurance Products (Franklin Templeton VIP); Franklin Templeton VIP - Franklin Rising Dividends Securities Fund - Class I (FTVIPFRDiv) Franklin Templeton VIP - Franklin Small Cap Value Securities Fund - Class I (FTVIPSmCpVal) Franklin Templeton VIPT -Templeton Foreign Securities Fund - Class I (FTVIPFS) Funds of the Gartmore Variable Insurance Trust (Gartmore GVIT); Gartmore GVIT Emerging Markets Fund - Class I (GVITEmMrkts) Gartmore GVIT Global Financial Services Fund - Class I (GVITGlFin) Gartmore GVIT Global Health Sciences Fund - Class I (GVITGlHlth) Gartmore GVIT Global Technology and Communications Fund - Class I (GVITGlTech) Gartmore GVIT Global Utilities Fund - Class I (GVITGlUtl) Gartmore GVIT Government Bond Fund - Class I (GVITGvtBd) Gartmore GVIT Growth Fund - Class I (GVITGrowth) Gartmore GVIT ID (Investor Destinations) Aggressive Fund (GVITIDAgg) Gartmore GVIT ID (Investor Destinations) Conservative Fund (GVITIDCon) Gartmore GVIT ID (Investor Destinations) Moderate Fund (GVITIDMod) Gartmore GVIT ID (Investor Destinations) Moderately Aggressive Fund (GVITIDModAgg) Gartmore GVIT ID (Investor Destinations) Moderately Conservative Fund (GVITIDModCon) Gartmore GVIT International Growth Fund -Class I (GVITIntGro) Gartmore GVIT Money Market Fund - Class I (GVITMyMkt) Gartmore GVIT Nationwide(R) Leaders Fund - Class I (GVITLead) Gartmore GVIT Small Cap Growth Fund - Class I (GVITSmCapGr) Gartmore GVIT Small Cap Value Fund - Class I (GVITSmCapVal) Gartmore GVIT Small Company Fund - Class I (GVITSmComp) Gartmore GVIT Total Return Fund - Class I (GVITTotRt) Gartmore GVIT U.S. Growth Leaders Fund - Class I (GVITUSGro) Portfolios of the Janus Aspen Series (Janus AS); Janus AS - Balanced Portfolio - Service Shares (JanBal) Janus AS - Capital Appreciation Portfolio - Service Shares (JanCapAp) Janus AS - Global Technology Portfolio - Service Shares (JanGITech) Janus AS - International Growth Portfolio - Service Shares (JanIntGro) Janus AS - Risk-Managed Large Cap Core Portfolio - Service Shares (JanRsLgCpCr) MAS GVIT Multi Sector Bond Fund - Class I (MGVITMultiSec) MFS VIT - MFS Investors Growth Stock Series - Initial Class (MFSVITInvGrwI) MFS VIT - MFS Value Series - Initial Class (MFSVITValIn) Portfolios of the Neuberger Berman Advisers Management Trust (Neuberger Berman AMT); Neuberger Berman AMT - Balanced Portfolio (NBAMTBal) Neuberger Berman AMT - Fasciano Portfolio (NBAMTFas) Neuberger Berman AMT - Growth Portfolio (NBAMTGro) Neuberger Berman AMT - Guardian Portfolio (NBAMTGuard) Neuberger Berman AMT - Limited Maturity Bond Portfolio (NBAMTLMat) Neuberger Berman AMT - Mid Cap Growth Portfolio - Class S (NBAMTMCGr) Neuberger Berman AMT - Partners Portfolio (NBAMTPart) Neuberger Berman AMT - Socially Responsive Portfolio (NBAMTSocRe) Funds of the Oppenheimer Variable Account Funds; Oppenheimer Aggressive Growth Fund/VA - Initial Class (OppAggGro) Oppenheimer Bond Fund/VA- Initial Class (OppBdFd) Oppenheimer Capital Appreciation Fund/VA - Initial Class (OppCapAp) Oppenheimer Global Securities Fund/VA - Initial Class (OppGlSec) Oppenheimer High Income Fund/VA- Initial Class (OppHiIncInt) Oppenheimer Main Street(R) Growth & Income Fund/VA - Initial Class (OppMSGrInc) Oppenheimer Main Street(R) Small Cap Fund/VA - Initial Class (OppMaStSmCpI) Oppenheimer Multiple Strategies Fund/VA- Initial Class (OppMultStr) Funds of the Putnam Variable Trust (Putnam VT); Putnam VT Growth & Income Fund - IB Shares (PUTVTGrIncIB) Putnam VT International Equity Fund - IB Shares (PUTVTIntlEqIB) Putnam VT Voyager Fund - IB Shares (PUTVTVoyIB) Strong GVIT Mid Cap Growth Fund - Class I (SGVITMdCpGr) Strong Opportunity Fund II, Inc. (StOpp2) Funds of the Strong Variable Insurance Funds, Inc (Strong VIF); Strong VIF - Strong Discovery Fund II (StDisc2) Strong VIF - Strong International Stock Fund II (StIntStk2) Turner GVIT Growth Focus Fund - Class I (TurnGVITGro) Funds of the Van Eck Worldwide Insurance Trust (Van Eck WIT); Van Eck WIT - Worldwide Bond Fund (VEWrldBd) Van Eck WIT - Worldwide Emerging Markets Fund (VEWrldEMkt) Van Eck WIT - Worldwide Hard Assets Fund (VEWrldHAs) Funds of the Van Kampen Universal Institutional Funds (Van Kampen UIF); Van Kampen UIF - Core Plus Fixed Income Portfolio - Class A (VKoreFI) Van Kampen UIF - Emerging Markets Debt Portfolio (VKEmMkt) Van Kampen UIF - U.S. Real Estate Portfolio (VKUSRealEst) At December 31, 2003, contract owners have invested in all of the above funds except those noted with an asterisk (*). 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. A purchase payment could be presented as a negative equity transaction in the Statements of Changes in Contract Owners' Equity if a prior period purchase payment is refunded to a contract owner due to a contract cancellation during the free look period, and/or if a gain is realized by the contract owner during the free look period. 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, 2003. Fund purchases and sales are accounted for on the trade date (date the order to buy or sell is executed). The cost of investments sold is determined on a specific identification basis, and dividends (which include capital gain distributions) are accrued as of the ex-dividend date. (Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 NOTES TO FINANCIAL STATEMENTS, Continued (d) Federal Income Taxes Operations of the Account form a part of, and are taxed with, operations of the Company, which is taxed as a life insurance company under the provisions of the Internal Revenue Code. The Company does not provide for income taxes within the Account. Taxes are the responsibility of the contract owner upon termination or withdrawal. (e) Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 Premiums For single premium and modified single premium contracts, no deduction is made from any premium at the time of payment. On multiple payment contracts and flexible premium contracts, the Company deducts a charge for state premium taxes equal to 2.5% of all premiums received to cover the payment of these premium taxes. For flexible premium contracts, the sales load is reduced to 1.5% on any portion of the annual premium paid in excess of the annual break point premium. The Company also deducts a sales load from each premium payment received not to exceed 3.5% of each premium payment. On last survivor flexible premium contracts, the Company deducts a charge for state premium taxes equal to 3.5% of all premiums received to cover the payment of these premium taxes. The Company also deducts a sales load from each premium payment received not to exceed 5% of each premium payment during the first ten years and 1.5% of each premium payment thereafter. The sales load is reduced to 1.5% on any portion of the annual premium paid in excess of the annual break point premium. The Company may at its sole discretion reduce this sales loading. (b) Cost of Insurance A cost of insurance charge is assessed monthly against each contract by liquidating units. The amount of the charge varies widely and is based upon age, sex, rate class and net amount at risk (death benefit less total contract value). For last survivor flexible premium contracts, the monthly cost of insurance is determined in a manner that reflects the anticipated mortality of the two insureds and the fact that the death benefit is not payable until the death of the second insured policyholder. (c) Administrative Charges An administrative charge is assessed against each contract to recover policy maintenance, accounting, record keeping and other administrative expenses and is assessed against each contract by liquidating units. For single premium contracts, the Company deducts an annual administrative charge which is determined as follows: Contracts issued prior to April 16, 1990: Purchase payments totalling less than $25,000 - $10/month Purchase payments totalling $25,000 or more - none Contracts issued on or after April 16, 1990: Purchase payments totalling less than $25,000 - $90/year ($65/year in New York) Purchase payments totalling $25,000 or more - $50/year For multiple payment contracts, the Company currently deducts a monthly administrative charge of $5 (not to exceed $7.50 per month). For flexible premium contracts, the Company currently deducts a monthly administrative charge of $12.50 during the first policy year. For all subsequent years, a monthly administrative charge is deducted (currently $5 per month not to exceed $7.50). Additionally, the Company deducts an increase charge of $1.50 per year per $1,000 for the underwriting component of the increase charge and $0.54 per year per $1,000 for the sales component of the increase charge applied to any increase in the specified amount during the first 12 months after the increase becomes effective. For modified single premium contracts, the monthly charge is equal to an annual rate of 0.03% multiplied by the policy's cash value to cover administrative, premium tax and deferred acquisition costs. For policy years 11 and later, this monthly charge is reduced to an annual rate of 0.65% of the policy's cash value. The monthly charge is subject to a $10 minimum. For last survivor flexible premium contracts, the Company deducts a monthly administrative charge equal to the sum of the policy charge and the basic coverage charge. For policy years one through ten the policy charge is $10. Additionally, there is a $0.04 per $1,000 basic coverage charge (not less than $20 or more than $80 per policy per year). For policy years eleven and after, the policy charge is $5. Additionally, there is a $0.02 (not to exceed $0.04) per $1,000 basic coverage charge (not less than $10 or more than $40 per policy per year). (d) Surrender Charges Policy surrenders result in a redemption of the contract value from the Account and payment of the surrender proceeds to the contract owner or designee. The surrender proceeds consist of the contract value, less any outstanding policy loans, and less a surrender charge, if applicable. The charge is determined according to contract type. For single premium contracts, the charge is determined based upon a specified percentage of the original purchase payment. For single premium contracts issued prior to April 16, 1990, the charge is 8% in the first year and declines to 0% after the ninth year. For single premium contracts issued on or after April 16, 1990, the charge is 8.5% in the first year, and declines to 0% after the ninth year. However, if a policy increases, the amount of the increase will have a nine-year surrender charge period. For multiple payment contracts and flexible premium contracts, the amount charged is based upon a specified percentage of the initial surrender charge, which varies by issue age, sex and rate class. The charge is 100% of the initial surrender charge in the first year, declining to 0% in the ninth year for flexible premium contracts and after the ninth year for multiple payment contracts. However, if a policy increases, the amount of the increase will have a nine-year surrender charge period. For modified single premium contracts, the amount charged is based on the original purchase payment. The charge is 10% in the first year, declining to 0% in the ninth year. For last survivor flexible premium contracts, the charge is 100% of the initial surrender charge, declining to 0% after the ninth year. However, if a policy increases, the amount of the increase will have a nine-year surrender charge period. For last survivor flexible payment contracts, the initial surrender charge is comprised of two components, an underwriting surrender charge and a sales surrender charge. 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. (3) Asset Charges For single premium contracts, the Company deducts a charge from the contract to cover mortality and expense risk charges related to operations, and to recover policy maintenance and premium tax charges. For contracts issued prior to April 16, 1990, the charge is equal to an annual rate of 0.95% during the first ten policy years, and 0.50% thereafter. A reduction of charges on these contracts is possible in policy years six through ten for those contracts achieving certain investment performance criteria. For single premium contracts issued on or after April 16, 1990, the charge is equal to an annual rate of 1.30% during the first ten policy years, and 1.00% thereafter. The above charges are assessed through the daily unit value calculation and are reflected in the table below. For multiple payment contracts and flexible premium contracts, the Company deducts a charge equal to an annual rate of 0.80%, with certain exceptions, to cover mortality and expense risk charges related to operations. The above charges are assessed through the daily unit value calculation and are reflected in the table below. For modified single premium contracts (MSP), the Company deducts an annual rate of 0.90% charged against the cash value of the contracts in the variable account. This charge is assessed monthly against each contract by liquidating units. (Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 NOTES TO FINANCIAL STATEMENTS, Continued For last survivor flexible premium contracts (LSFP), the Company deducts an annual rate of 0.80% in policy years one through ten. This charge is assessed monthly by liquidating units. In policy years eleven and greater, the Company deducts an annual rate of 0.50% if the cash value of the contract is greater than $25,000 and is less than $100,000. If the cash value is greater than or equal to $100,000, the Company reduces the annual asset fee rate to 0.30%. The following table provides mortality and expense risk charges taken daily from the unit value calculation by contract type for the period ended December 31, 2003.
Total AIMCapAp AIMBVF AIMCDF AllSmCpVal ---------- -------- ------ ------ ---------- Single Premium contracts issued prior to April 16, 1990 ........... $ 5,805 -- -- -- -- Single Premium contracts issued on or after April 16, 1990 ........ 940,273 -- -- -- -- Multiple Payment and Flexible Premium contracts ................. 4,951,585 235 350 105 305 ---------- --- --- --- --- Total .......................... $5,897,663 235 350 105 305 ========== === === === === AllGroInc ACVPBal ACVPCapAp ACVPIncGr ACVPInfPr --------- ------- --------- --------- --------- Single Premium contracts issued prior to April 16, 1990 ........... $ -- -- 337 -- -- Single Premium contracts issued on or after April 16, 1990 ........ -- 8,622 16,345 2,474 -- Multiple Payment and Flexible Premium contracts ................. 424 30,601 75,662 20,097 282 ---- ------ ------ ------ --- Total .......................... $424 39,223 92,344 22,571 282 ==== ====== ====== ====== === ACVPInt ACVPUltra ACVPVal ComGVITVal CSGPVen ------- --------- ------- ---------- ------- Single Premium contracts issued prior to April 16, 1990 ........... $ 1 -- -- -- -- Single Premium contracts issued on or after April 16, 1990 ........ 9,440 161 20,762 -- 857 Multiple Payment and Flexible Premium contracts ................. 65,952 1,922 63,144 344 4,620 ------- ----- ------ --- ----- Total .......................... $75,393 2,083 83,906 344 5,477 ======= ===== ====== === ===== CSIntEq CSSmCapGr DryIntVal DryMidCapIx DrySmCapIxS ------- --------- --------- ----------- ----------- Single Premium contracts issued prior to April 16, 1990 ........... $ -- 88 -- 1 -- Single Premium contracts issued on or after April 16, 1990 ........ 5,051 8,740 -- 7,914 1,301 Multiple Payment and Flexible Premium contracts ................. 32,389 80,704 311 29,132 1,922 ------- ------ --- ------ ----- Total .......................... $37,440 89,532 311 37,047 3,223 ======= ====== === ====== ===== DrySRGro DryStkIx DryVIFApp DryDevLeadI DryVIFGrInc -------- -------- --------- ----------- ----------- Single Premium contracts issued prior to April 16, 1990 ........... $ -- 124 -- -- -- Single Premium contracts issued on or after April 16, 1990 ........ 2,880 49,314 10,464 -- 2,233 Multiple Payment and Flexible Premium contracts ................. 64,385 441,716 33,174 221 12,413 ------- ------- ------ --- ------ Total .......................... $67,265 491,154 43,638 221 14,646 ======= ======= ====== === ======
FedAmLdII FedCpApII FGVITHiInc FedQualBd FidVIPEI --------- --------- ---------- --------- -------- Single Premium contracts issued prior to April 16, 1990 ........... $-- -- -- -- 558 Single Premium contracts issued on or after April 16, 1990 ........ -- -- -- 1,979 96,177 Multiple Payment and Flexible Premium contracts ................. 11 12 394 11,580 392,840 --- --- --- ------ ------- Total .......................... $11 12 394 13,559 489,575 === === === ====== ======= FidVIPGr FidVIPHI FidVIPOv FidVIPAM FidVIPCon -------- -------- -------- -------- --------- Single Premium contracts issued prior to April 16, 1990 ........... $ 631 411 221 158 -- Single Premium contracts issued on or after April 16, 1990 ........ 90,837 41,517 20,969 53,351 50,271 Multiple Payment and Flexible Premium contracts ................. 554,824 135,683 85,638 140,447 306,058 -------- ------- ------- ------- ------- Total .......................... $646,292 177,611 106,828 193,956 356,329 ======== ======= ======= ======= ======= FidVIPInvGrB FidVIPGrOp FidVIPMCap FidVIPValStS FTVIPFRDiv ------------ ---------- ---------- ------------ ---------- Single Premium contracts issued prior to April 16, 1990 ........... $ -- 50 -- 145 -- Single Premium contracts issued on or after April 16, 1990 ........ -- 1,777 -- 2,935 -- Multiple Payment and Flexible Premium contracts ................. 467 23,238 1,105 4,619 1,402 ---- ------ ----- ----- ----- Total .......................... $467 25,065 1,105 7,699 1,402 ==== ====== ===== ===== ===== FTVIPSmCpVal FTVIPFS GVITEmMrkts GVITGlFin GVITGlHlth ------------ ------- ----------- --------- ---------- Single Premium contracts issued prior to April 16, 1990 ........... $ -- -- 89 -- -- Single Premium contracts issued on or after April 16, 1990 ........ -- -- 1,348 486 4,276 Multiple Payment and Flexible Premium contracts ................. 357 726 3,377 941 1,694 ---- --- ----- ----- ----- Total .......................... $357 726 4,814 1,427 5,970 ==== === ===== ===== ===== GVITGlTech GVITGlUtl GVITGvtBd GVITGrowth GVITIDAgg ---------- --------- --------- ---------- --------- Single Premium contracts issued prior to April 16, 1990 ........... $ 229 -- 180 -- -- Single Premium contracts issued on or after April 16, 1990 ........ 1,079 590 53,444 4,854 -- Multiple Payment and Flexible Premium contracts ................. 4,387 330 106,097 105,839 2,234 ------ --- ------- ------- ----- Total .......................... $5,695 920 159,721 110,693 2,234 ====== === ======= ======= ===== GVITIDCon GVITIDMod GVITIDModAgg GVITIDModCon GVITIntGro --------- --------- ------------ ------------ ---------- Single Premium contracts issued prior to April 16, 1990 ........... $ -- -- -- -- -- Single Premium contracts issued on or after April 16, 1990 ........ 71 1,124 -- 133 157 Multiple Payment and Flexible Premium contracts ................. 2,713 9,272 9,434 3,241 281 ------ ------ ----- ----- --- Total .......................... $2,784 10,396 9,434 3,374 438 ====== ====== ===== ===== === GVITMyMkt GVITLead GVITSmCapGr GVITSmCapVal GVITSmComp --------- -------- ----------- ------------ ---------- Single Premium contracts issued prior to April 16, 1990 ........... $ 597 -- 1 118 81 Single Premium contracts issued on or after April 16, 1990 ........ 103,598 105 1,477 18,519 10,549 Multiple Payment and Flexible Premium contracts ................. 211,026 565 8,514 59,935 151,924 -------- --- ----- ------ ------- Total .......................... $315,221 670 9,992 78,572 162,554 ======== === ===== ====== =======
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 NOTES TO FINANCIAL STATEMENTS, Continued
GVITTotRt GVITUSGro JanBal JanCapAp JanGITech --------- --------- ------ -------- --------- Single Premium contracts issued prior to April 16, 1990 ........... $ 93 -- -- -- -- Single Premium contracts issued on or after April 16, 1990 ........ 25,102 1,158 -- 907 1,300 Multiple Payment and Flexible Premium contracts ................. 467,599 2,936 41 16,146 6,886 -------- ----- --- ------ ----- Total .......................... $492,794 4,094 41 17,053 8,186 ======== ===== === ====== ===== JanIntGro JanRsLgCpCr MGVITMultiSec MFSVITInvGrwI MFSVITValIn --------- ----------- ------------- ------------- ----------- Single Premium contracts issued prior to April 16, 1990 ........... $ -- -- -- -- -- Single Premium contracts issued on or after April 16, 1990 ........ 3,561 -- 1,957 -- -- Multiple Payment and Flexible Premium contracts ................. 8,329 14 8,939 68 74 ------- --- ------ --- --- Total .......................... $11,890 14 10,896 68 74 ======= === ====== === === NBAMTBal NBAMTFas NBAMTGro NBAMTGuard NBAMTLMat -------- -------- -------- ---------- --------- Single Premium contracts issued prior to April 16, 1990 ........... $ -- -- 319 -- 171 Single Premium contracts issued on or after April 16, 1990 ........ -- -- 15,912 856 17,619 Multiple Payment and Flexible Premium contracts ................. 425 42 97,016 11,222 32,370 ---- --- ------- ------ ------ Total .......................... $425 42 113,247 12,078 50,160 ==== === ======= ====== ====== NBAMTMCGr NBAMTPart NBAMTSocRe OppAggGro OppBdFd --------- --------- ---------- --------- ------- Single Premium contracts issued prior to April 16, 1990 ........... $ -- -- -- -- -- Single Premium contracts issued on or after April 16, 1990 ........ -- 10,519 -- 1,226 16,597 Multiple Payment and Flexible Premium contracts ................. 601 115,144 106 10,660 84,141 ---- ------- --- ------ ------- Total .......................... $601 125,663 106 11,886 100,738 ==== ======= === ====== ======= OppCapAp OppGlSec OppHiIncInt OppMSGrInc OppMaStSmCpI -------- -------- ----------- ---------- ------------ Single Premium contracts issued prior to April 16, 1990 ........... $ 94 -- -- -- -- Single Premium contracts issued on or after April 16, 1990 ........ 13,835 20,632 -- 1,470 -- Multiple Payment and Flexible Premium contracts ................. 83,609 180,513 475 7,000 584 ------- ------- --- ----- --- Total .......................... $97,538 201,145 475 8,470 584 ======= ======= === ===== === OppMultStr PUTVTGrIncIB PUTVTIntlEqIB PUTVTVoyIB SGVITMdCpGr ---------- ------------ ------------- ---------- ----------- Single Premium contracts issued prior to April 16, 1990 ........... $ -- -- -- -- -- Single Premium contracts issued on or after April 16, 1990 ........ 20,608 -- -- -- 1,618 Multiple Payment and Flexible Premium contracts ................. 82,782 40 131 36 14,702 -------- --- --- --- ------ Total .......................... $103,390 40 131 36 16,320 ======== === === === ======
StOpp2 StDisc2 StIntStk2 TurnGVITGro VEWrldBd -------- ------- --------- ----------- -------- Single Premium contracts issued prior to April 16, 1990 ........... $ 75 -- -- 138 482 Single Premium contracts issued on or after April 16, 1990 ........ 30,569 6,480 279 775 10,116 Multiple Payment and Flexible Premium contracts ................. 212,981 45,208 1,271 2,481 28,377 -------- ------ ----- ----- ------ Total .......................... $243,625 51,688 1,550 3,394 38,975 ======== ====== ===== ===== ====== VEWrldEMkt VEWrldHAs VKoreFI VKEmMkt VKUSRealEst ---------- --------- ------- ------- ----------- Single Premium contracts issued prior to April 16, 1990 ........... $ 127 39 -- 205 42 Single Premium contracts issued on or after April 16, 1990 ........ 2,736 9,144 -- 2,990 14,126 Multiple Payment and Flexible Premium contracts ................. 25,465 22,739 54 11,597 67,166 ------- ------ --- ------ ------ Total .......................... $28,328 31,922 54 14,792 81,334 ======= ====== === ====== ======
(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 up to 90% (50% during first year of single and modified single premium contracts) of a policy's cash surrender value. For single premium contracts issued prior to April 16, 1990, 6.5% interest is due and payable annually in advance. For single premium contracts issued on or after April 16, 1990, multiple payment, flexible premium, modified single and last survivor flexible premium contracts, 6% interest is due and payable in advance on the policy anniversary when there is a loan outstanding on the policy. At the time the loan is granted, the amount of the loan is transferred from the Account to the Company's general account as collateral for the outstanding loan. Collateral amounts in the general account are credited with the stated rate of interest in effect at the time the loan is made, subject to a guaranteed minimum rate. Loan repayments result in a transfer of collateral, including interest, back to the Account. (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. Contract owners may, with certain restrictions, transfer their assets between the Account and a fixed dollar contract (fixed account) maintained in the accounts of the Company through fixed to variable or variable to fixed transactions (exchanges) or through loan transactions. The fixed account assets are not reflected in the accompanying financial statements. The Account portion of contract owner loans is transferred to the fixed account for administration and collection. Loan repayments are transferred from the fixed account to the Account and are allocated to the sub accounts at the discretion of the contract owner. Loans and loan repayments are included in net policy repayments (loans) on the accompanying Statements of Changes in Contract Owners' Equity. Exchanges are initiated, under certain restrictions, at the discretion of the contract owner. The contract owner may transfer assets between a fixed dollar contract of the Company and the sub accounts of the Account. Exchanges from the Account to the fixed account are included in surrenders, and exchanges to the Account from the fixed account are included in purchase payments received from contract owners, as applicable on the accompanying Statements of Changes in Contract Owners' Equity. For the periods ended December 31, 2003 and 2002, total loan repayments and exchanges to the Account from the fixed account were $28,008,881 and $23,397,486, respectively, and total loans and exchanges from the Account to the fixed account were $28,642,868 and $42,106,553, respectively. (Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 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 contract expense rate, investment income ratio and total return for each period in the five year period ended December 31, 2003.
Contract Investment Expense Unit Contract Income Total Rate* Units Fair Value Owners' Equity Ratio** Return*** -------- ------- ---------- -------------- ---------- --------- Modified Single Premium contracts and Last Survivor Flexible Premium contracts AIM VIF - AIM V.I. Capital Appreciation Fund - Series I 2003 .......................... 0.00% 78 $12.393708 $ 967 0.00% 23.94% 5/1/03 AIM VIF Basic Value Fund - Series I 2003 .......................... 0.00% 1,146 13.067831 14,976 0.11% 30.68% 5/1/03 AIM VIF Capital Development Fund - Series I 2003 .......................... 0.00% 286 13.009212 3,721 0.00% 30.09% 5/1/03 Alliance Bernstein VPS Small Cap Value Portfolio - Class A 2003 .......................... 0.00% 3,645 13.796395 50,288 0.02% 37.96% 5/1/03 Alliance VPS Growth & Income Portfolio - Class A 2003 .......................... 0.00% 10,465 12.441750 130,203 0.00% 24.42% 5/1/03 American Century VP Balanced Fund - Class I 2003 .......................... 0.00% 39,618 16.364159 648,315 2.53% 19.46% 2002 .......................... 0.00% 41,666 13.698528 570,763 2.63% -9.56% 2001 .......................... 0.00% 46,974 15.146118 711,474 2.81% -3.54% 2000 .......................... 0.00% 46,479 15.701900 729,809 2.45% -2.65% 1999 .......................... 0.00% 47,439 16.129489 765,167 1.78% 10.06% American Century VP Capital Appreciation Fund - Class I 2003 .......................... 0.00% 78,088 10.573426 825,658 0.00% 20.47% 2002 .......................... 0.00% 84,319 8.776539 740,029 0.00% -21.20% 2001 .......................... 0.00% 113,954 11.137742 1,269,190 0.00% -28.07% 2000 .......................... 0.00% 136,380 15.483078 2,111,582 0.00% 9.03% 1999 .......................... 0.00% 67,671 14.200282 960,947 0.00% 64.52% American Century VP Income & Growth Fund - Class I 2003 .......................... 0.00% 57,191 11.011963 629,785 1.30% 29.35% 2002 .......................... 0.00% 52,727 8.513147 448,873 1.10% -19.37% 2001 .......................... 0.00% 53,217 10.558315 561,882 0.81% -8.35% 2000 .......................... 0.00% 51,494 11.520561 593,240 0.55% -10.62% 1999 .......................... 0.00% 90,023 12.888778 1,160,286 0.02% 18.02% American Century VP Inflation Protection Fund - Class II 2003 .......................... 0.00% 739 10.324182 7,630 1.88% 3.24% 4/30/03 American Century VP International Fund - Class I 2003 .......................... 0.00% 93,653 14.542846 1,361,981 0.75% 24.51% 2002 .......................... 0.00% 108,743 11.680067 1,270,126 0.79% -20.37% 2001 .......................... 0.00% 111,542 14.668200 1,636,120 0.09% -29.17% 2000 .......................... 0.00% 143,626 20.710054 2,974,502 0.14% -16.83% 1999 ......................... 0.00% 120,278 24.899615 2,994,876 0.00% 64.04% American Century VP Ultra Fund - Class I 2003 .......................... 0.00% 8,464 10.039885 84,978 0.00% 24.90% 2002 .......................... 0.00% 2,062 8.038471 16,575 0.46% -19.62% 5/1/02 American Century VP Value Fund - Class I 2003 .......................... 0.00% 94,777 19.965823 1,892,301 1.09% 28.96% 2002 .......................... 0.00% 105,282 15.482416 1,630,020 0.90% -12.62% 2001 .......................... 0.00% 98,909 17.718442 1,752,513 0.95% 12.82% 2000 .......................... 0.00% 53,790 15.704757 844,759 0.73% 18.14% 1999 .......................... 0.00% 42,323 13.293167 562,607 0.93% -0.85% Comstock GVIT Value Fund - Class I 2003 .......................... 0.00% 75 12.672281 950 1.52% 26.72% 5/1/03
Contract Investment Expense Unit Contract Income Total Rate* Units Fair Value Owners' Equity Ratio** Return*** -------- ------- ---------- -------------- ---------- --------- Credit Suisse Trust - Global Post-Venture Capital Portfolio 2003 .......................... 0.00% 11,132 $11.285456 $ 125,630 0.00% 47.66% 2002 .......................... 0.00% 11,260 7.643060 86,061 0.00% -34.16% 2001 .......................... 0.00% 12,080 11.607891 140,223 0.00% -28.63% 2000 .......................... 0.00% 19,402 16.265390 315,581 0.00% -18.94% 1999 .......................... 0.00% 14,680 20.065541 294,562 0.00% 63.50% Credit Suisse Trust - International Focus Portfolio 2003 .......................... 0.00% 111,879 9.637324 1,078,214 0.49% 33.09% 2002 .......................... 0.00% 115,124 7.241185 833,634 0.00% -19.90% 2001 .......................... 0.00% 120,573 9.040640 1,090,057 0.00% -22.27% 2000 .......................... 0.00% 119,996 11.631433 1,395,725 0.45% -25.90% 1999 .......................... 0.00% 142,042 15.696053 2,229,499 0.93% 53.43% Credit Suisse Trust - Small Cap Growth Portfolio 2003 .......................... 0.00% 136,928 12.647723 1,731,827 0.00% 48.55% 2002 .......................... 0.00% 132,124 8.514305 1,124,944 0.00% -33.69% 2001 .......................... 0.00% 185,522 12.840185 2,382,137 0.00% -16.01% 2000 .......................... 0.00% 212,377 15.287247 3,246,660 0.00% -18.11% 1999 .......................... 0.00% 154,684 18.668523 2,887,722 0.00% 69.08% Dreyfus GVIT International Value Fund - Class I 2003 .......................... 0.00% 3,602 13.838062 49,845 0.00% 38.38% 5/1/03 Dreyfus GVIT Mid Cap Index Fund - Class I 2003 .......................... 0.00% 87,632 11.837744 1,037,365 0.49% 34.65% 2002 .......................... 0.00% 57,522 8.791459 505,702 0.42% -15.30% 2001 .......................... 0.00% 37,983 10.379883 394,259 0.54% -1.30% 2000 .......................... 0.00% 15,903 10.517026 167,252 0.56% 5.17% 5/1/00 Dreyfus IP - European Equity Portfolio 2001 .......................... 0.00% 133 6.722485 894 0.84% -28.13% 2000 .......................... 0.00% 2,553 9.353456 23,879 0.42% -9.65% Dreyfus IP - Small Cap Stock Index Portfolio - Service Class 2003 .......................... 0.00% 38,496 10.574853 407,090 0.33% 37.78% 2002 .......................... 0.00% 4,411 7.675242 33,855 0.27% -23.25% 5/1/02 Dreyfus Socially Responsible Growth Fund, Inc.- Initial Shares 2003 .......................... 0.00% 50,706 14.903772 755,711 0.11% 26.00% 2002 .......................... 0.00% 57,964 11.828136 685,606 0.21% -28.94% 2001 .......................... 0.00% 72,096 16.646416 1,200,140 0.06% -22.57% 2000 .......................... 0.00% 87,987 21.499776 1,891,701 0.81% -11.03% 1999 .......................... 0.00% 72,077 24.166067 1,741,818 0.02% 30.08% Dreyfus Stock Index Fund 2003 .......................... 0.00% 632,333 18.706070 11,828,465 1.51% 28.36% 2002 .......................... 0.00% 584,757 14.572787 8,521,539 1.31% -22.36% 2001 .......................... 0.00% 599,693 18.770165 11,256,337 1.06% -12.18% 2000 .......................... 0.00% 591,538 21.373424 12,643,192 0.96% -9.28% 1999 .......................... 0.00% 619,532 23.560156 14,596,271 1.11% 20.60% Dreyfus VIF - Appreciation Portfolio - Initial Shares 2003 .......................... 0.00% 77,680 13.532029 1,051,168 1.40% 21.17% 2002 .......................... 0.00% 76,442 11.167894 853,696 1.14% -16.71% 2001 .......................... 0.00% 81,387 13.409044 1,091,322 0.84% -9.31% 2000 .......................... 0.00% 68,662 14.785375 1,015,193 0.63% -0.65% 1999 .......................... 0.00% 54,118 14.882433 805,408 0.70% 11.46% Dreyfus VIF - Developing Leaders Portfolio - Initial Shares 2003 .......................... 0.00% 4,756 12.900917 61,357 0.08% 29.01% 5/1/03 Dreyfus VIF - Growth and Income Portfolio - Initial Shares 2003 .......................... 0.00% 36,562 12.991038 474,978 0.84% 26.57% 2002 .......................... 0.00% 42,290 10.263905 434,061 0.60% -25.33% 2001 .......................... 0.00% 42,969 13.745232 590,619 0.50% -5.85% 2000 .......................... 0.00% 50,580 14.598583 738,396 0.61% -3.78% 1999 .......................... 0.00% 42,510 15.172345 644,976 0.65% 16.88% Federated GVIT High Income Bond Fund - Class I 2003 .......................... 0.00% 5,828 11.119017 64,802 9.25% 11.19% 5/1/03
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 NOTES TO FINANCIAL STATEMENTS, Continued
Contract Investment Expense Unit Contract Income Total Rate* Units Fair Value Owners' Equity Ratio** Return*** -------- ------- ---------- -------------- ---------- --------- Federated Quality Bond Fund II - Primary Shares 2003 .......................... 0.00% 11,878 $11.283621 $ 134,027 3.93% 4.65% 2002 .......................... 0.00% 11,620 10.782678 125,295 0.00% 7.83% 5/1/02 Fidelity(R) VIP - Equity-Income Portfolio: Initial Class 2003 .......................... 0.00% 409,083 18.300351 7,486,362 1.80% 30.33% 2002 .......................... 0.00% 407,426 14.041601 5,720,913 1.77% -16.95% 2001 .......................... 0.00% 431,008 16.906669 7,286,910 1.70% -4.96% 2000 .......................... 0.00% 410,082 17.788146 7,294,598 1.65% 8.42% 1999 .......................... 0.00% 442,948 16.406894 7,267,401 1.45% 6.33% Fidelity(R) VIP - Growth Portfolio: Initial Class 2003 .......................... 0.00% 393,063 16.832769 6,616,339 0.27% 32.85% 2002 .......................... 0.00% 408,322 12.670716 5,173,732 0.25% -30.10% 2001 .......................... 0.00% 464,650 18.128151 8,423,245 0.08% -17.65% 2000 .......................... 0.00% 494,090 22.013206 10,876,505 0.12% -10.98% 1999 .......................... 0.00% 462,592 24.728511 11,439,211 0.15% 37.44% Fidelity(R) VIP - High Income Portfolio: Initial Class 2003 .......................... 0.00% 277,638 11.879372 3,298,165 5.94% 27.26% 2002 .......................... 0.00% 277,242 9.334381 2,587,882 9.29% 3.44% 2001 .......................... 0.00% 268,872 9.023656 2,426,208 13.67% -11.73% 2000 .......................... 0.00% 251,453 10.222956 2,570,593 7.66% -22.47% 1999 .......................... 0.00% 301,341 13.186454 3,973,619 9.63% 8.15% Fidelity(R) VIP - Overseas Portfolio: Initial Class 2003 .......................... 0.00% 104,335 13.948630 1,455,330 0.83% 43.37% 2002 .......................... 0.00% 100,989 9.729244 982,547 0.83% -20.28% 2001 .......................... 0.00% 100,976 12.204145 1,232,326 5.37% -21.17% 2000 .......................... 0.00% 109,074 15.480896 1,688,563 1.56% -19.11% 1999 .......................... 0.00% 121,065 19.137888 2,316,928 1.25% 42.63% Fidelity(R) VIP II - Asset Manager Portfolio: Initial Class 2003 .......................... 0.00% 78,858 16.863587 1,329,829 3.62% 17.97% 2002 .......................... 0.00% 87,642 14.294216 1,252,774 3.98% -8.73% 2001 .......................... 0.00% 97,209 15.661062 1,522,396 4.21% -4.09% 2000 .......................... 0.00% 97,054 16.328861 1,584,781 3.30% -3.93% 1999 .......................... 0.00% 98,987 16.996678 1,682,450 3.18% 11.09% Fidelity(R) VIP II - Contrafund Portfolio: Initial Class 2003 .......................... 0.00% 271,532 21.523942 5,844,439 0.46% 28.46% 2002 .......................... 0.00% 278,231 16.754926 4,661,740 0.85% -9.35% 2001 .......................... 0.00% 310,919 18.482808 5,746,656 0.78% -12.24% 2000 .......................... 0.00% 339,730 21.061590 7,155,254 0.36% -6.62% 1999 .......................... 0.00% 334,798 22.555449 7,551,519 0.43% 24.25% Fidelity(R) VIP II - Investment Grade Bond Portfolio: Service Class 2003 .......................... 0.00% 998 10.217718 10,197 0.00% 2.18% 5/1/03 Fidelity(R) VIP III - Growth Opportunities Portfolio: Initial Class 2003 .......................... 0.00% 60,543 10.295709 623,333 0.74% 29.87% 2002 .......................... 0.00% 51,868 7.927585 411,188 1.07% -21.84% 2001 .......................... 0.00% 59,212 10.143319 600,606 0.38% -14.42% 2000 .......................... 0.00% 67,837 11.852480 804,037 1.30% -17.07% 1999 .......................... 0.00% 67,209 14.291602 960,524 0.94% 4.27% Fidelity(R) VIP III - Mid Cap Portfolio: Service Class 2003 .......................... 0.00% 9,873 14.085331 139,064 0.00% 40.85% 5/1/03 Fidelity(R) VIP III - Value Strategies Portfolio: Service Class 2003 .......................... 0.00% 26,162 11.849148 309,997 0.00% 57.79% 2002 .......................... 0.00% 843 7.509507 6,331 0.00% -24.90% 5/1/02 Franklin Templeton VIP - Franklin Rising Dividends Securities Fund - Class I 2003 .......................... 0.00% 15,727 12.306508 193,544 0.20% 23.07% 5/1/03 Franklin Templeton VIP - Franklin Small Cap Value Securities Fund - Class I 2003 .......................... 0.00% 2,401 13.357313 32,071 0.12% 33.57% 5/1/03
Contract Investment Expense Unit Contract Income Total Rate* Units Fair Value Owners' Equity Ratio** Return*** -------- ------- ---------- -------------- ---------- --------- Franklin Templeton VIPT - Templeton Foreign Securities Fund - Class I 2003 .......................... 0.00% 4,015 $13.269107 $ 53,275 0.79% 32.69% 5/1/03 Gartmore GVIT Emerging Markets Fund - Class I 2003 .......................... 0.00% 19,194 11.573140 222,135 0.66% 65.26% 2002 .......................... 0.00% 7,501 7.002885 52,529 0.17% -15.23% 2001 .......................... 0.00% 27,272 8.260926 225,292 0.52% -5.18% Gartmore GVIT Global Financial Services Fund - Class I 2003 .......................... 0.00% 1,548 12.255125 18,971 0.88% 41.45% 2002 .......................... 0.00% 289 8.663891 2,504 0.08% -13.36% 5/1/02 Gartmore GVIT Global Health Sciences Fund - Class I 2003 .......................... 0.00% 7,254 11.400451 82,699 0.00% 36.69% 2002 .......................... 0.00% 1,753 8.340128 14,620 0.00% -16.60% 5/1/02 Gartmore GVIT Global Technology and Communications Fund - Class I 2003 .......................... 0.00% 27,880 3.061527 85,355 0.00% 55.23% 2002 .......................... 0.00% 11,606 1.972253 22,890 0.59% -42.78% 2001 .......................... 0.00% 2,536 3.446837 8,741 0.00% -42.72% 2000 .......................... 0.00% 2,596 6.017639 15,622 0.00% -39.82% 10/2/00 Gartmore GVIT Global Utilities Fund - Class I 2003 .......................... 0.00% 3,190 10.772327 34,364 0.70% 24.05% 2002 .......................... 0.00% 250 8.683837 2,171 0.54% -13.16% 5/1/02 Gartmore GVIT Government Bond Fund - Class I 2003 .......................... 0.00% 141,781 17.018937 2,412,962 3.14% 2.00% 2002 .......................... 0.00% 215,754 16.685161 3,599,890 4.42% 10.98% 2001 .......................... 0.00% 192,314 15.033937 2,891,237 5.12% 7.25% 2000 .......................... 0.00% 147,694 14.017108 2,070,243 5.25% 12.54% 1999 .......................... 0.00% 146,891 12.455412 1,829,588 5.74% -2.35% Gartmore GVIT Growth Fund - Class I 2003 .......................... 0.00% 161,969 10.571536 1,712,261 0.02% 32.74% 2002 .......................... 0.00% 160,573 7.964177 1,278,832 0.00% -28.72% 2001 .......................... 0.00% 169,484 11.173143 1,893,669 0.00% -28.13% 2000 .......................... 0.00% 202,780 15.547089 3,152,639 0.18% -26.53% 1999 .......................... 0.00% 234,699 21.161942 4,966,687 0.66% 4.28% Gartmore GVIT ID Aggressive Fund 2003 .......................... 0.00% 86 10.986753 945 1.41% 31.87% Gartmore GVIT ID Conservative Fund 2003 .......................... 0.00% 4,630 10.845040 50,213 2.37% 7.91% 2002 .......................... 0.00% 10,505 10.050418 105,580 2.80% 0.50% 1/25/02 Gartmore GVIT ID Moderate Fund 2003 .......................... 0.00% 26,164 10.972970 287,097 2.06% 20.05% 2002 .......................... 0.00% 14,854 9.140249 135,769 1.72% -8.60% 1/25/02 Gartmore GVIT ID Moderately Aggressive Fund 2003 .......................... 0.00% 10,934 11.002361 120,300 1.54% 26.64% 2002 .......................... 0.00% 14,728 8.687687 127,952 1.55% -13.12% 1/25/02 Gartmore GVIT ID Moderately Conservative Fund 2003 .......................... 0.00% 21,041 10.963279 230,678 2.34% 13.70% 2002 .......................... 0.00% 9,155 9.642427 88,276 2.35% -3.58% 1/25/02 Gartmore GVIT International Growth Fund - Class I 2003 .......................... 0.00% 2,327 6.793220 15,808 0.00% 35.62% Gartmore GVIT Money Market Fund - Class I 2003 .......................... 0.00% 426,388 13.438171 5,729,875 0.63% 0.63% 2002 .......................... 0.00% 611,041 13.354620 8,160,220 1.26% 1.21% 2001 .......................... 0.00% 752,971 13.194770 9,935,279 3.57% 3.60% 2000 .......................... 0.00% 690,357 12.735851 8,792,284 5.53% 6.03% 1999 .......................... 0.00% 710,620 12.011954 8,535,935 5.04% 4.85% Gartmore GVIT Nationwide(R)Leaders Fund - Class I 2003 .......................... 0.00% 680 10.598061 7,207 0.19% 25.38% 2002 .......................... 0.00% 837 8.452459 7,075 1.18% -15.48% 5/1/02
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 NOTES TO FINANCIAL STATEMENTS, Continued
Contract Investment Expense Unit Contract Income Total Rate* Units Fair Value Owners' Equity Ratio** Return*** -------- ------- ---------- -------------- ---------- --------- Gartmore GVIT Small Cap Growth Fund - Class I 2003 .......................... 0.00% 29,802 $ 6.484322 $ 193,246 0.00% 34.27% 2002 .......................... 0.00% 39,937 4.829491 192,875 0.00% -33.29% 2001 .......................... 0.00% 28,981 7.239237 209,800 0.00% -10.84% 2000 .......................... 0.00% 5,428 8.119138 44,071 0.00% -18.81% 5/1/00 Gartmore GVIT Small Cap Value Fund - Class I 2003 .......................... 0.00% 144,123 17.924637 2,583,352 0.00% 56.85% 2002 .......................... 0.00% 156,777 11.427654 1,791,593 0.01% -27.16% 2001 .......................... 0.00% 145,093 15.689204 2,276,394 0.03% 28.28% 2000 .......................... 0.00% 92,343 12.230652 1,129,415 0.00% 11.20% 1999 .......................... 0.00% 86,677 10.998838 953,346 0.00% 27.84% Gartmore GVIT Small Company Fund - Class I 2003 .......................... 0.00% 163,826 21.279390 3,486,117 0.00% 41.01% 2002 .......................... 0.00% 161,607 15.090443 2,438,721 0.00% -17.33% 2001 .......................... 0.00% 171,105 18.253468 3,123,260 0.10% -6.70% 2000 .......................... 0.00% 232,635 19.565011 4,551,506 0.03% 8.90% 1999 .......................... 0.00% 210,131 17.966399 3,775,297 0.00% 44.02% Gartmore GVIT Total Return Fund - Class I 2003 .......................... 0.00% 320,276 17.013568 5,449,038 0.56% 27.51% 2002 .......................... 0.00% 343,472 13.342709 4,582,847 0.85% -17.35% 2001 .......................... 0.00% 370,050 16.144226 5,974,171 0.74% -11.82% 2000 .......................... 0.00% 383,717 18.308017 7,025,097 0.63% -2.12% 1999 .......................... 0.00% 408,867 18.704720 7,647,743 0.65% 6.94% Gartmore GVIT U.S.Growth Leaders Fund - Class I 2003 .......................... 0.00% 4,436 12.515174 55,517 0.00% 52.14% 2002 .......................... 0.00% 1,992 8.226323 16,387 0.00% -17.74% 5/1/02 Janus AS - Capital Appreciation Portfolio - Service Shares 2003 .......................... 0.00% 57,199 6.268750 358,566 0.25% 20.23% 2002 .......................... 0.00% 58,881 5.213836 306,996 0.30% -15.93% 2001 .......................... 0.00% 62,604 6.201616 388,246 0.91% -21.83% 2000 .......................... 0.00% 54,056 7.933369 428,846 1.33% -30.82% 5/1/00 Janus AS - Global Technology Portfolio - Service Shares 2003 .......................... 0.00% 63,964 3.676479 235,162 0.00% 46.47% 2002 .......................... 0.00% 54,722 2.510001 137,352 0.00% -40.93% 2001 .......................... 0.00% 58,616 4.249300 249,077 0.56% -37.31% 2000 .......................... 0.00% 51,067 6.778794 346,173 1.21% -20.67% 5/1/00 Janus AS - International Growth Portfolio - Service Shares 2003 .......................... 0.00% 43,445 6.081514 264,211 0.99% 34.53% 2002 .......................... 0.00% 43,393 4.520472 196,157 0.67% -25.76% 2001 .......................... 0.00% 37,721 6.088787 229,675 0.70% -23.43% 2000 .......................... 0.00% 28,662 7.951801 227,915 6.25% -20.48% 5/1/00 MAS GVIT Multi Sector Bond Fund - Class I 2003 .......................... 0.00% 18,184 13.140266 238,943 5.47% 12.12% 2002 .......................... 0.00% 12,174 11.720231 142,682 4.53% 7.21% 2001 .......................... 0.00% 2,363 10.932334 25,833 8.29% 4.19% 2000 .......................... 0.00% 3,146 10.492823 33,010 8.52% 4.93% 5/1/00 MFS VIT - MFS Value Series - Initial Class 2003 .......................... 0.00% 255 12.367820 3,154 0.00% 23.68% 5/1/03 Neuberger Berman AMT - Growth Portfolio 2003 .......................... 0.00% 92,061 12.310867 1,133,351 0.00% 31.40% 2002 .......................... 0.00% 91,607 9.369018 858,268 0.00% -31.16% 2001 .......................... 0.00% 194,831 13.610476 2,651,743 0.00% -30.36% 2000 .......................... 0.00% 165,377 19.543829 3,232,100 0.00% -11.66% 1999 .......................... 0.00% 101,415 22.122463 2,243,550 0.00% 50.40%
Contract Investment Expense Unit Contract Income Total Rate* Units Fair Value Owners' Equity Ratio** Return*** -------- ------- ---------- -------------- ---------- --------- Neuberger Berman AMT - Guardian Portfolio 2003 .......................... 0.00% 33,326 $10.389042 $ 346,225 0.84% 31.76% 2002 .......................... 0.00% 40,952 7.884759 322,897 0.80% -26.45% 2001 .......................... 0.00% 42,795 10.719948 458,760 0.47% -1.51% 2000 .......................... 0.00% 31,192 10.883981 339,493 0.59% 1.13% 1999 .......................... 0.00% 28,718 10.762335 309,073 0.29% 14.93% Neuberger Berman AMT - Limited Maturity Bond Portfolio 2003 .......................... 0.00% 68,260 14.847857 1,013,515 4.41% 2.42% 2002 .......................... 0.00% 78,261 14.496454 1,134,507 4.91% 5.34% 2001 .......................... 0.00% 53,267 13.761786 733,049 5.78% 8.78% 2000 .......................... 0.00% 48,744 12.650873 616,654 6.96% 6.78% 1999 .......................... 0.00% 73,941 11.847132 875,989 5.57% 1.48% Neuberger Berman AMT - Mid Cap Growth Portfolio - Class S 2003 .......................... 0.00% 2,927 12.322580 36,068 0.00% 23.23% 5/1/03 Neuberger Berman AMT - Partners Portfolio 2003 .......................... 0.00% 212,651 16.900050 3,593,813 0.00% 35.09% 2002 .......................... 0.00% 211,641 12.510433 2,647,721 0.53% -24.14% 2001 .......................... 0.00% 214,234 16.491924 3,533,131 0.38% -2.83% 2000 .......................... 0.00% 218,683 16.971642 3,711,410 0.79% 0.07% 1999 .......................... 0.00% 229,651 16.853460 3,870,414 1.20% 7.37% Neuberger Berman AMT - Socially Responsive Portfolio 2003 .......................... 0.00% 42 12.374746 520 0.00% 23.75% 5/1/03 Oppenheimer Aggressive Growth Fund/VA - Initial Class 2003 .......................... 0.00% 27,076 4.877042 132,051 0.00% 25.59% 2002 .......................... 0.00% 11,406 3.883303 44,293 0.65% -27.79% 2001 .......................... 0.00% 27,049 5.377832 145,465 0.87% -31.27% 2000 .......................... 0.00% 29,380 7.824211 229,875 0.00% -21.76% 5/1/00 Oppenheimer Bond Fund/VA - Initial Class 2003 .......................... 0.00% 113,252 16.292834 1,845,196 5.67% 6.78% 2002 .......................... 0.00% 126,813 15.258399 1,934,963 7.25% 9.08% 2001 .......................... 0.00% 120,742 13.988352 1,688,982 7.04% 7.79% 2000 .......................... 0.00% 108,962 12.977817 1,414,089 7.66% 6.10% 1999 .......................... 0.00% 101,438 12.232154 1,240,805 4.68% -1.52% Oppenheimer Capital Appreciation Fund/VA - Initial Class 2003 .......................... 0.00% 98,014 15.394717 1,508,898 0.38% 30.94% 2002 .......................... 0.00% 90,095 11.756809 1,059,230 0.64% -26.86% 2001 .......................... 0.00% 116,791 16.074008 1,877,299 0.64% -12.58% 2000 .......................... 0.00% 115,080 18.386180 2,115,882 0.12% -0.23% 1999 .......................... 0.00% 83,414 18.428739 1,537,215 0.17% 41.66% Oppenheimer Global Securities Fund/VA - Initial Class 2003 .......................... 0.00% 103,002 24.690704 2,543,192 0.76% 43.02% 2002 .......................... 0.00% 106,692 17.263833 1,841,913 0.56% -22.13% 2001 .......................... 0.00% 111,537 22.171331 2,472,924 0.69% -12.04% 2000 .......................... 0.00% 119,169 25.205074 3,003,663 0.27% 5.09% 1999 .......................... 0.00% 94,622 23.984739 2,269,484 0.92% 58.48% Oppenheimer High Income Fund/VA - Initial Class 2003 .......................... 0.00% 6,913 11.181817 77,300 0.00% 11.82% 5/1/03 Oppenheimer Main Street(R) Growth & Income Fund/VA - Initial Class 2003 .......................... 0.00% 34,417 8.370485 288,087 0.90% 26.72% 2002 .......................... 0.00% 30,456 6.605587 201,180 0.65% -18.80% 2001 .......................... 0.00% 21,240 8.134641 172,780 0.41% -10.16% 2000 .......................... 0.00% 10,745 9.054521 97,291 0.00% -9.45% 5/1/00 Oppenheimer Main Street(R) Small Cap Fund/VA - Initial Class 2003 .......................... 0.00% 2,855 13.869971 39,599 0.00% 38.70% 5/1/03 Oppenheimer Multiple Strategies Fund/VA - Initial Class 2003 .......................... 0.00% 80,959 18.621945 1,507,614 2.82% 24.96% 2002 .......................... 0.00% 82,462 14.902681 1,228,905 3.60% -10.40% 2001 .......................... 0.00% 84,920 16.632670 1,412,446 3.96% 2.22% 2000 .......................... 0.00% 82,390 16.271709 1,340,626 4.57% 6.44% 1999 .......................... 0.00% 80,822 15.287602 1,235,575 3.30% 11.80%
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 NOTES TO FINANCIAL STATEMENTS, Continued
Contract Investment Expense Unit Contract Income Total Rate* Units Fair Value Owners' Equity Ratio** Return*** -------- ------- ---------- -------------- ---------- --------- Putnam VT Voyager Fund - IB Shares 2003 .......................... 0.00% 42 $11.853879 $ 498 0.00% 18.54% 5/1/03 Strong GVIT Mid Cap Growth Fund - Class I 2003 .......................... 0.00% 85,532 5.014057 428,862 0.00% 40.13% 2002 .......................... 0.00% 49,103 3.578034 175,692 0.00% -37.01% 2001 .......................... 0.00% 15,083 5.680754 85,683 0.00% -30.31% 2000 .......................... 0.00% 15,341 8.151094 125,046 0.00% -18.49% 5/1/00 Strong Opportunity Fund II, Inc. 2003 .......................... 0.00% 93,627 21.294252 1,993,717 0.07% 37.01% 2002 .......................... 0.00% 98,264 15.542573 1,527,275 0.38% -26.82% 2001 .......................... 0.00% 103,859 21.238327 2,205,791 0.59% -3.70% 2000 .......................... 0.00% 96,471 22.004768 2,122,822 0.00% 6.60% 1999 .......................... 0.00% 85,543 20.690172 1,769,899 0.00% 34.91% Strong VIF - Strong Discovery Fund II 2003 .......................... 0.00% 18,929 16.542813 313,139 0.00% 39.43% 2002 .......................... 0.00% 20,094 11.864827 238,412 0.00% -12.02% 2001 .......................... 0.00% 22,035 13.485135 297,145 0.72% 4.08% 2000 .......................... 0.00% 25,155 12.955970 325,907 0.00% 4.39% 1999 .......................... 0.00% 19,763 12.410693 245,273 0.00% 5.09% Strong VIF - Strong International Stock Fund II 2002 .......................... 0.00% 57,275 5.361165 307,061 4.04% -26.54% 2001 .......................... 0.00% 55,640 7.298468 406,087 0.00% -22.14% 2000 .......................... 0.00% 51,648 9.373600 484,128 0.00% -39.52% 1999 .......................... 0.00% 91,170 15.499580 1,413,097 0.17% 87.20% Turner GVIT Growth Focus Fund - Class I 2003 .......................... 0.00% 35,452 3.336873 118,299 0.00% 50.96% 2002 .......................... 0.00% 5,450 2.210411 12,047 0.00% -42.86% Van Eck WIT - Worldwide Bond Fund 2003 .......................... 0.00% 23,556 15.553340 366,374 1.75% 18.16% 2002 .......................... 0.00% 39,706 13.162611 522,635 0.00% 21.66% 2001 .......................... 0.00% 15,977 10.819530 172,864 4.39% -5.10% 2000 .......................... 0.00% 15,146 11.400381 172,670 4.90% 1.87% 1999 .......................... 0.00% 16,613 11.191476 185,924 4.31% -7.82% Van Eck WIT - Worldwide Emerging Markets Fund 2003 .......................... 0.00% 79,411 10.046593 797,810 0.11% 54.19% 2002 .......................... 0.00% 99,351 6.515847 647,356 0.20% -2.90% 2001 .......................... 0.00% 79,757 6.710492 535,209 0.00% -1.81% 2000 .......................... 0.00% 91,301 6.834145 623,964 0.00% -41.87% 1999 .......................... 0.00% 175,122 11.755719 2,058,685 0.00% 100.28% Van Eck WIT - Worldwide Hard Assets Fund 2003 .......................... 0.00% 43,115 11.615034 500,782 0.48% 45.08% 2002 .......................... 0.00% 40,828 8.006062 326,871 0.68% -2.83% 2001 .......................... 0.00% 32,526 8.239575 268,000 1.21% -10.44% 2000 .......................... 0.00% 35,253 9.200485 324,345 1.12% 11.40% 1999 .......................... 0.00% 38,783 8.258894 320,305 1.47% 21.00% Van Kampen UIF - Core Plus Fixed Income Portfolio - Class A 2003 .......................... 0.00% 49 10.233765 501 0.00% 2.34% 5/1/03 Van Kampen UIF - Emerging Markets Debt Portfolio 2003 .......................... 0.00% 41,844 15.664315 655,458 0.00% 27.86% 2002 .......................... 0.00% 36,681 12.250737 449,369 6.91% 9.22% 2001 .......................... 0.00% 33,534 11.216363 376,130 9.40% 10.10% 2000 .......................... 0.00% 33,493 10.187412 341,207 12.32% 11.39% 1999 .......................... 0.00% 25,999 9.146001 237,787 16.19% 29.37%
Contract Investment Expense Unit Contract Income Total Rate* Units Fair Value Owners' Equity Ratio** Return*** -------- ------ ---------- -------------- ---------- --------- Van Kampen UIF - U.S. Real Estate Portfolio 2003 .......................... 0.00% 54,506 $27.220749 $1,483,694 0.00% 37.51% 2002 .......................... 0.00% 52,407 19.795314 1,037,413 3.29% -0.79% 2001 .......................... 0.00% 58,299 19.952330 1,163,201 3.98% 9.84% 2000 .......................... 0.00% 57,529 18.164582 1,044,990 8.22% 28.06% 1999 .......................... 0.00% 53,125 14.184757 753,565 6.87% -3.37% Single Premium contracts issued prior to April 16, 1990 (policy years 11 and thereafter) AIM VIF Capital Development Fund - Series I 2003 .......................... 0.50% 1,364 12.965885 17,685 0.00% 29.66% 5/1/03 Alliance VPS Growth & Income Portfolio - Class A 2003 .......................... 0.50% 1,081 12.400313 13,405 0.00% 24.00% 5/1/03 American Century VP Balanced Fund - Class I 2003 .......................... 0.50% 10,265 20.907285 214,613 2.53% 18.86% 2002 .......................... 0.50% 2,665 17.589248 46,875 2.63% -10.01% American Century VP Capital Appreciation Fund - Class I 2003 .......................... 0.50% 31,820 26.787231 852,370 0.00% 19.87% 2002 .......................... 0.50% 13,972 22.346236 312,222 0.00% -21.59% 2001 .......................... 0.50% 2,922 28.500613 83,279 0.00% -28.43% 2000 .......................... 0.50% 7,428 39.820221 295,785 0.00% 8.49% 1999 .......................... 0.50% 6,108 36.406768 222,373 0.00% 63.70% American Century VP Income & Growth Fund - Class I 2003 .......................... 0.50% 14,230 10.704192 152,321 1.30% 28.71% 2002 .......................... 0.50% 7,837 8.316655 65,178 1.10% -19.77% American Century VP International Fund - Class I 2003 .......................... 0.50% 27,774 15.360020 426,609 0.75% 23.89% 2002 .......................... 0.50% 5,091 12.398163 63,119 0.79% -20.77% 2000 .......................... 0.50% 2,453 22.205291 54,470 0.14% -17.24% 1999 .......................... 0.50% 2,459 26.614141 65,444 0.00% 63.23% American Century VP Ultra Fund - Class I 2003 .......................... 0.50% 2,408 9.956460 23,975 0.00% 24.28% American Century VP Value Fund - Class I 2003 .......................... 0.50% 31,176 19.171791 597,700 1.09% 28.32% 2002 .......................... 0.50% 13,026 14.941112 194,623 0.90% -13.06% 2000 .......................... 0.50% 118 15.308543 1,806 0.73% 17.56% Comstock GVIT Value Fund - Class I 2003 .......................... 0.50% 570 12.630064 7,199 1.52% 26.30% 5/1/03 Credit Suisse Trust - Global Post-Venture Capital Portfolio 2003 .......................... 0.50% 6,096 10.836336 66,058 0.00% 46.92% 2002 .......................... 0.50% 1,728 7.375606 12,745 0.00% -34.49% 2000 .......................... 0.50% 4,740 15.854894 75,152 0.00% -19.34% Credit Suisse Trust - International Focus Portfolio 2003 .......................... 0.50% 14,533 10.839093 157,525 0.49% 32.43% 2002 .......................... 0.50% 2,769 8.184926 22,664 0.00% -20.30% Credit Suisse Trust - Small Cap Growth Portfolio 2003 .......................... 0.50% 27,210 17.364452 472,487 0.00% 47.81% 2002 .......................... 0.50% 6,039 11.748025 70,946 0.00% -34.02% Dreyfus GVIT International Value Fund - Class I 2003 .......................... 0.50% 4,952 13.791985 68,298 0.00% 37.92% 5/1/03 Dreyfus GVIT Mid Cap Index Fund - Class I 2003 .......................... 0.50% 19,389 11.622612 225,351 0.49% 33.98% 2002 .......................... 0.50% 7,249 8.674888 62,884 0.42% -15.73% Dreyfus IP - Small Cap Stock Index Portfolio - Service Class 2003 .......................... 0.50% 6,160 10.487006 64,600 0.33% 37.09% 2002 .......................... 0.50% 4,866 7.649570 37,223 0.27% -23.50% 5/1/02 Dreyfus Socially Responsible Growth Fund, Inc. - Initial Shares 2003 .......................... 0.50% 7,832 22.067029 172,829 0.11% 25.38% 2002 .......................... 0.50% 876 17.600806 15,418 0.21% -29.30% 1999 .......................... 0.50% 1,699 36.209915 61,521 0.02% 29.43%
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 NOTES TO FINANCIAL STATEMENTS, Continued
Contract Investment Expense Unit Contract Income Total Rate* Units Fair Value Owners' Equity Ratio** Return*** -------- ------- ---------- -------------- ---------- --------- Dreyfus Stock Index Fund 2003 ............................. 0.50% 108,026 $26.123506 $2,822,018 1.51% 27.72% 2002 ............................. 0.50% 26,741 20.453144 546,938 1.31% -22.75% 2001 ............................. 0.50% 1,122 26.476528 29,707 1.06% -12.62% 2000 ............................. 0.50% 6,384 30.300792 193,440 0.96% -9.73% 1999 ............................. 0.50% 16,208 33.296352 539,667 1.11% 20.00% Dreyfus VIF - Appreciation Portfolio - Initial Shares 2003 ............................. 0.50% 15,431 13.062720 201,571 1.40% 20.57% 2002 ............................. 0.50% 7,627 10.834553 82,635 1.14% -17.13% 1999 ............................. 0.50% 868 14.538186 12,619 0.70% 10.90% Dreyfus VIF - Developing Leaders Portfolio - Initial Shares 2003 ............................. 0.50% 840 12.857964 10,801 0.08% 28.58% 5/1/03 Dreyfus VIF - Growth and Income Portfolio - Initial Shares 2003 ............................. 0.50% 6,368 12.474297 79,436 0.84% 25.94% Federated Quality Bond Fund II - Primary Shares 2003 ............................. 0.50% 4,444 11.189906 49,728 3.93% 4.12% Fidelity(R) VIP - Equity-Income Portfolio: Initial Class 2003 ............................. 0.50% 86,371 48.630667 4,200,279 1.80% 29.68% 2002 ............................. 0.50% 25,078 37.500399 940,435 1.77% -17.36% 2001 ............................. 0.50% 3,200 45.378727 145,212 1.70% -5.43% 2000 ............................. 0.50% 5,076 47.985530 243,575 1.65% 7.88% 1999 ............................. 0.50% 5,082 44.120448 224,220 1.45% 5.80% Fidelity(R) VIP - Growth Portfolio: Initial Class 2003 ............................. 0.50% 105,480 53.205281 5,612,093 0.27% 32.19% 2002 ............................. 0.50% 39,628 40.250246 1,595,037 0.25% -30.45% 2001 ............................. 0.50% 3,370 57.875878 195,042 0.08% -18.06% 2000 ............................. 0.50% 4,686 70.634432 330,993 0.12% -11.42% 1999 ............................. 0.50% 3,009 79.099308 238,010 0.15% 36.75% Fidelity(R) VIP - High Income Portfolio: Initial Class 2003 ............................. 0.50% 55,652 25.802029 1,435,935 5.94% 26.63% 2002 ............................. 0.50% 2,722 20.375870 55,463 9.29% 2.93% 2001 ............................. 0.50% 1,784 19.796324 35,317 13.67% -12.17% 2000 ............................. 0.50% 1,862 22.540543 41,970 7.66% -22.86% 1999 ............................. 0.50% 2,115 28.983767 61,301 9.63% 7.62% Fidelity(R) VIP - Overseas Portfolio: Initial Class 2003 ............................. 0.50% 58,985 24.680530 1,455,781 0.83% 42.65% 2002 ............................. 0.50% 16,114 17.300971 278,788 0.83% -20.68% 2001 ............................. 0.50% 2,274 21.810922 49,598 5.37% -21.56% 2000 ............................. 0.50% 2,500 27.806776 69,517 1.56% -19.51% 1999 ............................. 0.50% 4,084 34.268141 139,951 1.25% 41.92% Fidelity(R) VIP II - Asset Manager Portfolio: Initial Class 2003 ............................. 0.50% 84,282 30.161112 2,542,039 3.62% 17.39% 2002 ............................. 0.50% 7,255 25.693764 186,408 3.98% -9.18% 2001 ............................. 0.50% 1,169 28.291882 33,073 4.21% -4.57% 2000 ............................. 0.50% 1,178 29.647039 34,924 3.30% -4.41% 1999 ............................. 0.50% 1,185 30.762893 36,454 3.18% 10.54% Fidelity(R) VIP II - Contrafund Portfolio: Initial Class 2003 ............................. 0.50% 101,752 24.487594 2,491,662 0.46% 27.82% 2002 ............................. 0.50% 11,284 19.157346 216,171 0.85% -9.80% 1999 ............................. 0.50% 677 25.968332 17,581 0.43% 23.63% Fidelity(R) VIP II - Investment Grade Bond Portfolio: Service Class 2003 ............................. 0.50% 9,748 10.183621 99,270 0.00% 1.84% 5/1/03 Fidelity(R) VIP III - Growth Opportunities Portfolio: Initial Class 2003 ............................. 0.50% 20,500 9.938499 203,739 0.74% 29.23% 2002 ............................. 0.50% 3,061 7.690844 23,542 1.07% -22.23% 2001 ............................. 0.50% 1,210 9.889817 11,967 0.38% -14.85% 2000 ............................. 0.50% 1,231 11.614608 14,298 1.30% -17.48% 1999 ............................. 0.50% 1,477 13.960952 20,620 0.94% 3.75%
Contract Investment Expense Unit Contract Income Total Rate* Units Fair Value Owners' Equity Ratio** Return*** -------- ------- ---------- -------------- ---------- --------- Fidelity(R) VIP III - Mid Cap Portfolio: Service Class 2003 ............................. 0.50% 2,295 $14.038431 $ 32,218 0.00% 40.38% 5/1/03 Fidelity(R) VIP III -Value Strategies Portfolio: Service Class 2003 ............................. 0.50% 15,781 11.750739 185,438 0.00% 57.00% Franklin Templeton VIP - Franklin Rising Dividends Securities Fund - Class I 2003 ............................. 0.50% 11,618 12.265513 142,501 0.20% 22.66% 5/1/03 Franklin Templeton VIP - Franklin Small Cap Value Securities Fund - Class I 2003 ............................. 0.50% 2,305 13.312843 30,686 0.12% 33.13% 5/1/03 Franklin Templeton VIPT - Templeton Foreign Securities Fund - Class I 2003 ............................. 0.50% 2,090 13.224912 27,640 0.79% 32.25% 5/1/03 Gartmore GVIT Emerging Markets Fund - Class I 2003 ............................. 0.50% 17,288 11.386650 196,852 0.66% 64.44% Gartmore GVIT Global Financial Services Fund - Class I 2003 ............................. 0.50% 629 12.153349 7,644 0.88% 40.75% Gartmore GVIT Global Health Sciences Fund - Class I 2003 ............................. 0.50% 3,699 11.305727 41,820 0.00% 36.01% Gartmore GVIT Global Technology and Communications Fund - Class I 2003 ............................. 0.50% 44,144 3.012098 132,966 0.00% 54.46% 2002 ............................. 0.50% 2,129 1.950112 4,152 0.59% -43.07% Gartmore GVIT Government Bond Fund - Class I 2003 ............................. 0.50% 20,794 30.370279 631,520 3.14% 1.49% 2002 ............................. 0.50% 10,251 29.923916 306,750 4.42% 10.43% 2001 ............................. 0.50% 1,291 27.097613 34,983 5.12% 6.72% 2000 ............................. 0.50% 1,707 25.392104 43,344 5.25% 11.98% 1999 ............................. 0.50% 1,747 22.492327 39,294 5.74% -2.83% Gartmore GVIT Growth Fund - Class I 2003 ............................. 0.50% 13,689 15.988156 218,862 0.02% 32.08% 2002 ............................. 0.50% 10,305 12.105122 124,743 0.00% -29.08% 1999 ............................. 0.50% 1,979 32.388538 64,097 0.66% 3.76% Gartmore GVIT ID Conservative Fund 2003 ............................. 0.50% 1,037 10.740821 11,138 2.37% 7.37% Gartmore GVIT ID Moderate Fund 2003 ............................. 0.50% 16,518 10.867503 179,509 2.06% 19.45% Gartmore GVIT Money Market Fund - Class I 2003 ............................. 0.50% 103,301 18.569650 1,918,271 0.63% 0.12% 2002 ............................. 0.50% 12,207 18.546928 226,402 1.26% 0.71% 2001 ............................. 0.50% 7,295 18.417013 134,352 3.57% 3.08% 2000 ............................. 0.50% 12,856 17.866283 229,689 5.53% 5.50% 1999 ............................. 0.50% 16,350 16.794246 274,586 5.04% 4.32% Gartmore GVIT Nationwide (R) Leaders Fund - Class I 2003 ............................. 0.50% 588 10.510022 6,180 0.19% 24.76% Gartmore GVIT Small Cap Growth Fund - Class I 2003 ............................. 0.50% 10,334 6.366359 65,790 0.00% 33.60% Gartmore GVIT Small Cap Value Fund - Class I 2003 ............................. 0.50% 31,504 17.423619 548,914 0.00% 56.07% 2002 ............................. 0.50% 4,939 11.163801 55,138 0.01% -27.53% 2001 ............................. 0.50% 16,203 15.403979 249,591 0.03% 27.63% 2000 ............................. 0.50% 5,781 12.068870 69,770 0.00% 10.65% 1999 ............................. 0.50% 2,201 10.825871 23,828 0.00% 27.20% Gartmore GVIT Small Company Fund - Class I 2003 ............................. 0.50% 45,264 26.974404 1,220,969 0.00% 40.31% 2002 ............................. 0.50% 13,072 19.224829 251,307 0.00% -17.74% 2001 ............................. 0.50% 749 23.371178 17,505 0.10% -7.17% 2000 ............................. 0.50% 762 25.176901 19,185 0.03% 8.36% 1999 ............................. 0.50% 913 23.047417 21,042 0.00% 43.30%
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 NOTES TO FINANCIAL STATEMENTS, Continued
Contract Investment Expense Unit Contract Income Total Rate* Units Fair Value Owners' Equity Ratio** Return*** -------- ------ ----------- -------------- ---------- --------- Gartmore GVIT Total Return Fund - Class I 2003 ............................. 0.50% 19,074 $38.145818 $727,593 0.56% 26.88% 2002 ............................. 0.50% 3,981 30.065207 119,690 0.85% -17.77% 2001 ............................. 0.50% 1,162 36.560512 42,483 0.74% -12.26% 2000 ............................. 0.50% 1,319 41.669957 54,963 0.63% -2.61% 1999 ............................. 0.50% 4,738 42.439374 201,078 0.65% 6.41% Gartmore GVIT U.S. Growth Leaders Fund - Class I 2003 ............................. 0.50% 8,655 12.411260 107,419 0.00% 51.38% Janus AS - Capital Appreciation Portfolio - Service Shares 2003 ............................. 0.50% 7,149 6.154757 44,000 0.25% 19.63% 2002 ............................. 0.50% 12,685 5.144661 65,260 0.30% -16.35% Janus AS - Global Technology Portfolio - Service Shares 2003 ............................. 0.50% 8,256 3.609555 29,800 0.00% 45.74% 2002 ............................. 0.50% 3,149 2.476639 7,799 0.00% -41.23% Janus AS - International Growth Portfolio - Service Shares 2003 ............................. 0.50% 7,242 5.970919 43,241 0.99% 33.86% 2002 ............................. 0.50% 12,584 4.460490 56,131 0.67% -26.13% MAS GVIT Multi Sector Bond Fund - Class I 2003 ............................. 0.50% 2,912 12.901625 37,570 5.47% 11.56% 2002 ............................. 0.50% 360 11.565028 4,163 4.53% 6.67% 2000 ............................. 0.50% 259 10.458203 2,709 8.52% 4.58% 5/1/00 MFS VIT - MFS Investors Growth Stock Series - Initial Class 2003 ............................. 0.50% 1,131 11.559230 13,073 0.00% 15.59% 5/1/03 Neuberger Berman AMT - Balanced Portfolio 2003 ............................ 0.50% 387 9.728263 3,765 1.91% 15.70% Neuberger Berman AMT - Growth Portfolio 2003 ............................. 0.50% 24,292 29.754395 722,794 0.00% 30.75% 2002 ............................. 0.50% 5,671 22.757505 129,058 0.00% -31.51% 2001 ............................. 0.50% 3,126 33.226236 103,865 0.00% -30.71% 2000 ............................. 0.50% 3,192 47.952407 153,064 0.00% -12.09% 1999 ............................. 0.50% 3,041 54.109841 164,548 0.00% 49.65% Neuberger Berman AMT - Guardian Portfolio 2003 ............................. 0.50% 12,247 10.098680 123,679 0.84% 31.10% 2002 ............................. 0.50% 870 7.702769 6,701 0.80% -26.82% 1999 ............................. 0.50% 561 10.593122 5,943 0.29% 14.36% Neuberger Berman AMT - Limited Maturity Bond Portfolio 2003 ............................. 0.50% 20,267 22.367675 453,326 4.41% 1.91% 2002 ............................. 0.50% 4,156 21.947749 91,215 4.91% 4.81% 2001 ............................. 0.50% 2,817 20.939856 58,988 5.78% 8.24% 2000 ............................. 0.50% 6,082 19.346478 117,665 6.96% 6.25% 1999 ............................. 0.50% 5,986 18.060558 108,111 5.57% 0.97% Neuberger Berman AMT - Mid Cap Growth Portfolio - Class S 2003 ............................. 0.50% 1,669 12.281545 20,498 0.00% 22.82% 5/1/03 Neuberger Berman AMT - Partners Portfolio 2003 ............................. 0.50% 15,209 24.617984 374,415 0.00% 34.41% 2002 ............................. 0.50% 7,065 18.314930 129,395 0.53% -24.52% 2000 ............................. 0.50% 72 25.096849 1,807 0.69% 0.20% Oppenheimer Aggressive Growth Fund/VA - Initial Class 2003 ............................. 0.50% 15,822 4.788336 75,761 0.00% 24.96% 2002 ............................. 0.50% 2,385 3.831748 9,139 0.65% -28.15% Oppenheimer Bond Fund/VA- Initial Class 2003 ............................. 0.50% 32,391 24.998938 809,741 5.67% 6.25% 2002 ............................. 0.50% 379 23.529109 8,918 7.25% 8.54% 2001 ............................. 0.50% 47 21.678723 1,019 7.04% 7.25% 2000 ............................. 0.50% 51 20.213946 1,031 7.66% 5.57%
Contract Investment Expense Unit Contract Income Total Rate* Units Fair Value Owners' Equity Ratio** Return*** -------- ------ ---------- -------------- ---------- --------- Oppenheimer Capital Appreciation Fund/VA - Initial Class 2003 ............................. 0.50% 43,463 $14.860580 $ 645,885 0.38% 30.29% 2002 ............................. 0.50% 9,164 11.405697 104,522 0.64% -27.22% 2001 ............................. 0.50% 8,487 15.672302 133,011 0.64% -13.02% 2000 ............................. 0.50% 6,917 18.017261 124,625 0.12% -0.73% Oppenheimer Global Securities Fund/VA - Initial Class 984,291 0.76% 42.31% 2003 ............................. 0.50% 33,503 29.379176 91,250 0.56% -22.52% 2002 ............................. 0.50% 4,420 20.644823 64,484 0.27% 4.57% 2000 ............................. 0.50% 2,118 30.445645 Oppenheimer High Income Fund/VA- Initial Class 95,208 0.00% 11.45% 5/1/03 2003 ............................. 0.50% 8,543 11.144531 Oppenheimer Main Street(R) Growth & Income Fund/VA - Initial Class 2003 ............................. 0.50% 10,060 8.218350 82,677 0.90% 26.09% 2002 ............................. 0.50% 3,493 6.518000 22,767 0.65% -19.20% Oppenheimer Multiple Strategies Fund/VA - Initial Class 24.33% 2003 ............................. 0.50% 23,053 31.171669 718,600 2.82% -10.85% 2002 ............................. 0.50% 9,549 25.070852 239,402 3.60% Strong GVIT Mid Cap Growth Fund - Class I 2003 ............................. 0.50% 74,157 4.922829 365,062 0.00% 39.44% Strong Opportunity Fund II, Inc. 2003 ............................. 0.50% 38,309 40.699472 1,559,156 0.07% 36.32% 2002 ............................. 0.50% 10,474 29.855056 312,702 0.38% -27.18% 2001 ............................. 0.50% 3,831 41.000669 157,074 0.59% -4.19% 2000 ............................. 0.50% 447 42.694690 19,085 0.00% 6.07% 1999 ............................. 0.50% 450 40.018322 18,008 0.00% 34.23% Strong VIF - Strong Discovery Fund II 2003 ............................. 0.50% 18,256 26.361651 481,258 0.00% 38.73% 2002 ............................. 0.50% 2,071 19.001713 39,353 0.00% -12.45% Strong VIF - Strong International Stock Fund II 2002 ............................. 0.50% 392 5.758212 2,257 4.04% -26.91% Turner GVIT Growth Focus Fund - Class I 2003 ............................. 0.50% 17,823 3.283013 58,513 0.00% 50.21% Van Eck WIT - Worldwide Bond Fund 2003 ............................. 0.50% 19,995 20.854897 416,994 1.75% 17.57% 2002 ............................. 0.50% 4,159 17.737696 73,771 0.00% 21.05% 2001 ............................. 0.50% 1,086 14.653212 15,913 4.39% -5.57% 2000 ............................. 0.50% 1,105 15.517699 17,147 4.90% 1.36% 1999 ............................. 0.50% 1,325 15.185599 20,121 4.31% -8.28% Van Eck WIT - Worldwide Emerging Markets Fund 2003 ............................. 0.50% 60,208 9.646671 580,807 0.11% 53.42% 2002 ............................. 0.50% 32,774 6.287778 206,076 0.20% -3.39% 2000 ............................. 0.50% 407 6.661531 2,711 0.00% -42.15% 1999 ............................. 0.50% 6,267 11.423096 71,589 0.00% 99.29% Van Eck WIT - Worldwide Hard Assets Fund 2003 ............................. 0.50% 19,105 16.655601 318,205 0.48% 44.36% 2002 ............................. 0.50% 7,750 11.537923 89,419 0.68% -3.32% 2001 ............................. 0.50% 4 11.933986 48 1.21% -10.89% 2000 ............................. 0.50% 5 13.393001 67 1.12% 10.85% 1999 ............................. 0.50% 10 11.984540 120 1.47% 20.40% Van Kampen UIF - Emerging Markets Debt Portfolio 2003 ............................. 0.50% 7,714 15.120856 116,642 0.00% 27.23% 2002 ............................. 0.50% 2,372 11.884934 28,191 6.91% 8.68% 2001 ............................. 0.50% 1,244 10.935992 13,604 9.40% 9.55% 2000 ............................. 0.50% 1,265 9.982829 12,628 12.32% 10.83% 1999 ............................. 0.50% 1,518 8.934183 13,562 16.19% 28.73% Van Kampen UIF - U.S. Real Estate Portfolio 2003 ............................. 0.50% 28,086 28.701013 806,097 0.00% 36.83% 2002 ............................. 0.50% 10,521 20.976263 220,691 3.29% -1.28% 2000 ............................. 0.50% 3,074 19.442286 59,766 8.22% 27.42%
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 NOTES TO FINANCIAL STATEMENTS, Continued
Contract Investment Expense Unit Contract Income Total Rate* Units Fair Value Owners' Equity Ratio** Return*** -------- ------- ---------- -------------- ---------- --------- Multiple Payment contracts and Flexible Premium contracts AIM VIF - AIM V.I. Capital Appreciation Fund - Series I 2003 .......................... 0.80% 5,333 $12.327742 $ 65,744 0.00% 23.28% 5/1/03 AIM VIF Basic Value Fund - Series I 2003 .......................... 0.80% 14,499 12.998258 188,462 0.11% 29.98% 5/1/03 AIM VIF Capital Development Fund - Series I 2003 .......................... 0.80% 3,166 12.939952 40,968 0.00% 29.40% 5/1/03 Alliance Bernstein VPS Small Cap Value Portfolio - Class A 2003 .......................... 0.80% 11,736 13.722986 161,053 0.02% 37.23% 5/1/03 Alliance VPS Growth & Income Portfolio - Class A 2003 .......................... 0.80% 22,041 12.375515 272,769 0.00% 23.76% 5/1/03 American Century VP Balanced Fund - Class I 2003 .......................... 0.80% 195,164 20.727117 4,045,187 2.53% 18.51% 2002 .......................... 0.80% 196,895 17.490037 3,443,701 2.63% -10.28% 2001 .......................... 0.80% 201,384 19.493759 3,925,731 2.81% -4.31% 2000 .......................... 0.80% 204,099 20.372425 4,157,992 2.45% -3.42% 1999 .......................... 0.80% 222,611 21.094348 4,695,834 1.78% 9.18% American Century VP Capital Appreciation Fund - Class I 2003 .......................... 0.80% 592,724 16.804738 9,960,572 0.00% 19.51% 2002 .......................... 0.80% 657,612 14.060797 9,246,549 0.00% -21.83% 2001 .......................... 0.80% 735,263 17.987270 13,225,374 0.00% -28.64% 2000 .......................... 0.80% 819,897 25.207415 20,667,484 0.00% 8.17% 1999 .......................... 0.80% 643,372 23.303640 14,992,909 0.00% 63.21% American Century VP Income & Growth Fund - Class I 2003 .......................... 0.80% 259,996 10.523680 2,736,115 1.30% 28.32% 2002 .......................... 0.80% 289,017 8.200926 2,370,207 1.10% -20.01% 2001 .......................... 0.80% 322,604 10.252927 3,307,635 0.81% -9.09% 2000 .......................... 0.80% 303,622 11.277817 3,424,193 0.55% -11.32% 1999 .......................... 0.80% 235,223 12.717991 2,991,564 0.02% 17.08% American Century VP Inflation Protection Fund - Class II 2003 .......................... 0.80% 6,574 10.268669 67,506 1.88% 2.69% 4/30/03 American Century VP International Fund - Class I 2003 .......................... 0.80% 587,899 15.176915 8,922,493 0.75% 23.52% 2002 .......................... 0.80% 679,193 12.287143 8,345,342 0.79% -21.01% 2001 .......................... 0.80% 733,730 15.554724 11,412,968 0.09% -29.74% 2000 .......................... 0.80% 754,646 22.139513 16,707,495 0.14% -17.49% 1999 .......................... 0.80% 649,836 26.831062 17,435,790 0.00% 62.74% American Century VP Ultra Fund - Class I 2003 .......................... 0.80% 34,345 9.906750 340,247 0.00% 23.90% 2002 .......................... 0.80% 7,959 7.995504 63,636 0.46% -20.04% 5/1/02 American Century VP Value Fund - Class I 2003 .......................... 0.80% 461,113 18.875362 8,703,675 1.09% 27.93% 2002 .......................... 0.80% 522,332 14.754246 7,706,615 0.90% -13.32% 2001 .......................... 0.80% 499,070 17.020923 8,494,632 0.95% 11.92% 2000 .......................... 0.80% 323,587 15.208380 4,921,234 0.73% 17.21% 1999 .......................... 0.80% 156,791 12.975752 2,034,481 0.93% -1.64% Comstock GVIT Value Fund - Class I 2003 .......................... 0.80% 9,638 12.604789 121,485 1.52% 26.05% 5/1/03 Credit Suisse Trust - Global Post-Venture Capital Portfolio 2003 .......................... 0.80% 53,805 10.668685 574,029 0.00% 46.48% 2002 .......................... 0.80% 156,158 7.283277 1,137,342 0.00% -34.68% 2001 .......................... 0.80% 135,156 11.150533 1,507,061 0.00% -29.21% 2000 .......................... 0.80% 139,959 15.751152 2,204,515 0.00% -19.58% 1999 .......................... 0.80% 123,907 19.586645 2,426,922 0.00% 62.20%
Contract Investment Expense Unit Contract Income Total Rate* Units Fair Value Owners' Equity Ratio** Return*** -------- --------- ---------- -------------- ---------- --------- Credit Suisse Trust - International Focus Portfolio 2003 ............................. 0.80% 431,745 $10.695076 $ 4,617,546 0.49% 32.03% 2002 ............................. 0.80% 469,749 8.100409 3,805,159 0.00% -20.54% 2001 ............................. 0.80% 503,048 10.194751 5,128,449 0.00% -22.90% 2000 ............................. 0.80% 525,361 13.222451 6,946,560 0.45% -26.48% 1999 ............................. 0.80% 555,966 17.985801 9,999,494 0.93% 52.21% Credit Suisse Trust - Small Cap Growth Portfolio 2003 ............................. 0.80% 692,838 17.133573 11,870,790 0.00% 47.37% 2002 ............................. 0.80% 739,837 11.626571 8,601,767 0.00% -34.22% 2001 ............................. 0.80% 816,970 17.675000 14,439,945 0.00% -16.68% 2000 ............................. 0.80% 942,509 21.214019 19,994,404 0.00% -18.76% 1999 ............................. 0.80% 754,487 26.113570 19,702,349 0.00% 67.73% Dreyfus GVIT International Value Fund - Class I 2003 ............................. 0.80% 6,704 13.764414 92,277 0.00% 37.64% 5/1/03 Dreyfus GVIT Mid Cap Index Fund - Class I 2003 ............................. 0.80% 402,465 11.495433 4,626,509 0.49% 33.58% 2002 ............................. 0.80% 332,165 8.605706 2,858,514 0.42% -15.98% 2001 ............................. 0.80% 246,977 10.242303 2,529,613 0.54% -2.10% 2000 ............................. 0.80% 145,426 10.461575 1,521,385 0.56% 4.62% 5/1/00 Dreyfus IP - European Equity Portfolio 2001 ............................. 0.80% 9,248 6.633319 61,345 0.84% -28.71% 2000 ............................. 0.80% 3,721 9.304097 34,621 0.42% -6.96% 5/1/00 Dreyfus IP - Small Cap Stock Index Portfolio - Service Class 2003 ............................. 0.80% 47,348 10.434661 494,060 0.33% 36.68% 2002 ............................. 0.80% 5,194 7.634206 39,652 0.27% -23.66% 5/1/02 Dreyfus Socially Responsible Growth Fund, Inc.- Initial Shares 2003 ............................. 0.80% 403,682 21.830604 8,812,622 0.11% 25.00% 2002 ............................. 0.80% 432,657 17.464486 7,556,132 0.21% -29.51% 2001 ............................. 0.80% 479,262 24.776659 11,874,511 0.06% -23.20% 2000 ............................. 0.80% 508,803 32.259560 16,413,761 0.81% -11.74% 1999 ............................. 0.80% 450,901 36.549891 16,480,382 0.02% 29.04% Dreyfus Stock Index Fund 2003 ............................. 0.80% 2,290,356 25.844217 59,192,457 1.51% 27.34% 2002 ............................. 0.80% 2,526,349 20.295193 51,272,741 1.31% -22.98% 2001 ............................. 0.80% 2,735,378 26.351146 72,080,345 1.06% -12.88% 2000 ............................. 0.80% 2,613,545 30.248565 79,055,986 0.96% -10.00% 1999 ............................. 0.80% 2,592,791 33.609618 87,142,715 1.11% 19.64% Dreyfus VIF - Appreciation Portfolio - Initial Shares 2003 ............................. 0.80% 338,655 12.850022 4,351,724 1.40% 20.20% 2002 ............................. 0.80% 376,103 10.690124 4,020,588 1.14% -17.38% 2001 ............................. 0.80% 358,763 12.938645 4,641,907 0.84% -10.04% 2000 ............................. 0.80% 365,003 14.382034 5,249,486 0.63% -1.44% 1999 ............................. 0.80% 404,377 14.591996 5,900,668 0.70% 10.57% Dreyfus VIF - Developing Leaders Portfolio - Initial Shares 2003 ............................. 0.80% 8,113 12.832258 104,108 0.08% 28.32% 5/1/03 Dreyfus VIF - Growth and Income Portfolio - Initial Shares 2003 ............................. 0.80% 140,345 12.281397 1,723,633 0.84% 25.56% 2002 ............................. 0.80% 152,335 9.781078 1,490,001 0.60% -25.92% 2001 ............................. 0.80% 162,195 13.204070 2,141,634 0.50% -6.60% 2000 ............................. 0.80% 152,925 14.137245 2,161,938 0.61% -4.54% 1999 ............................. 0.80% 138,815 14.810164 2,055,873 0.65% 15.95% Federated American Leaders Fund II - Primary Shares 2003 ............................. 0.80% 1,104 12.531875 13,835 0.00% 25.32% 5/1/03 Federated Capital Appreciation Fund II - Primary Shares 2003 ............................. 0.80% 553 11.988805 6,630 0.00% 19.89% 5/1/03 Federated GVIT High Income Bond Fund - Class I 2003 ............................. 0.80% 13,029 11.059766 144,098 9.25% 10.60% 5/1/03
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 NOTES TO FINANCIAL STATEMENTS, Continued
Contract Investment Expense Unit Contract Income Total Rate* Units Fair Value Owners' Equity Ratio** Return*** -------- --------- ---------- -------------- ---------- --------- Federated Quality Bond Fund II - Primary Shares 2003 ............................. 0.80% 117,985 $11.134037 $ 1,313,649 3.93% 3.81% 2002 ............................. 0.80% 101,228 10.725195 1,085,690 0.00% 7.25% 5/1/02 Fidelity(R) VIP - Equity-Income Portfolio: Initial Class 2003 ............................. 0.80% 1,336,308 40.389521 53,972,840 1.80% 29.29% 2002 ............................. 0.80% 1,471,599 31.238892 45,971,122 1.77% -17.61% 2001 ............................. 0.80% 1,558,719 37.915521 59,099,643 1.70% -5.72% 2000 ............................. 0.80% 1,556,185 40.214814 62,581,690 1.65% 7.56% 1999 ............................. 0.80% 1,750,754 37.388084 65,457,338 1.45% 5.48% Fidelity(R) VIP - Growth Portfolio: Initial Class 2003 ............................. 0.80% 2,035,206 36.851094 74,999,568 0.27% 31.79% 2002 ............................. 0.80% 2,235,794 27.961807 62,516,840 0.25% -30.66% 2001 ............................. 0.80% 2,474,278 40.327380 99,781,149 0.08% -18.31% 2000 ............................. 0.80% 2,621,312 49.366480 129,404,946 0.12% -11.69% 1999 ............................. 0.80% 2,613,902 55.899014 146,114,544 0.15% 36.34% Fidelity(R) VIP - High Income Portfolio: Initial Class 2003 ............................. 0.80% 720,241 24.464133 17,620,072 5.94% 26.25% 2002 ............................. 0.80% 765,595 19.377316 14,835,176 9.29% 2.62% 2001 ............................. 0.80% 653,854 18.882734 12,346,551 13.67% -12.44% 2000 ............................. 0.80% 619,065 21.565326 13,350,339 7.66% -23.09% 1999 ............................. 0.80% 672,537 28.039263 18,857,442 9.63% 7.29% Fidelity(R) VIP - Overseas Portfolio: Initial Class 2003 ............................. 0.80% 653,974 18.945840 12,390,087 0.83% 42.23% 2002 ............................. 0.80% 722,432 13.320811 9,623,380 0.83% -20.92% 2001 ............................. 0.80% 814,381 16.843777 13,717,252 5.37% -21.80% 2000 ............................. 0.80% 866,875 21.539183 18,671,779 1.56% -19.75% 1999 ............................. 0.80% 863,446 26.840170 23,175,037 1.25% 41.49% Fidelity(R) VIP II - Asset Manager Portfolio: Initial Class 2003 ............................. 0.80% 623,055 26.285930 16,377,580 3.62% 17.04% 2002 ............................. 0.80% 753,208 22.459775 16,916,882 3.98% -9.46% 2001 ............................. 0.80% 808,651 24.805237 20,058,780 4.21% -4.86% 2000 ............................. 0.80% 851,071 26.071970 22,189,098 3.30% -4.69% 1999 ............................. 0.80% 917,098 27.355020 25,087,234 3.18% 10.21% Fidelity(R) VIP II - Contrafund Portfolio: Initial Class 2003 ............................. 0.80% 1,740,028 24.162368 42,043,197 0.46% 27.44% 2002 ............................. 0.80% 1,875,068 18.959642 35,550,618 0.85% -10.07% 2001 ............................. 0.80% 2,013,717 21.083066 42,455,328 0.78% -12.95% 2000 ............................. 0.80% 2,107,468 24.218904 51,040,565 0.36% -7.36% 1999 ............................. 0.80% 2,151,780 26.143948 56,256,024 0.43% 23.26% Fidelity(R) VIP II - Investment Grade Bond Portfolio: Service Class 2003 ............................. 0.80% 12,869 10.163210 130,790 0.00% 1.63% 5/1/03 Fidelity(R) VIP III - Growth Opportunities Portfolio: Initial Class 2003 ............................. 0.80% 324,568 9.776597 3,173,171 0.74% 28.84% 2002 ............................. 0.80% 328,074 7.588268 2,489,513 1.07% -22.47% 2001 ............................. 0.80% 341,765 9.787292 3,344,954 0.38% -15.11% 2000 ............................. 0.80% 358,453 11.528985 4,132,599 1.30% -17.72% 1999 ............................. 0.80% 385,372 14.012663 5,400,088 0.94% 3.44% Fidelity(R) VIP III - Mid Cap Portfolio: Service Class 2003 ............................. 0.80% 40,642 14.010381 569,410 0.00% 40.10% 5/1/03 Fidelity(R) VIP III - Value Strategies Portfolio: Service Class 2003 ............................. 0.80% 100,700 11.692079 1,177,392 0.00% 56.53% 2002 ............................. 0.80% 10,466 7.469351 78,174 0.00% -25.31% 5/1/02 Franklin Templeton VIP - Franklin Rising Dividends Securities Fund - Class I 2003 ............................. 0.80% 47,169 12.240997 577,396 0.20% 22.41% 5/1/03 Franklin Templeton VIP - Franklin Small Cap Value Securities Fund - Class I 2003 ............................. 0.80% 8,003 13.286230 106,330 0.12% 32.86% 5/1/03
Contract Investment Expense Units Unit Contract Income Total Rate* Fair Value Owners' Equity Ratio** Return*** -------- --------- ---------- -------------- ---------- --------- Franklin Templeton VIPT - Templeton Foreign Securities Fund - Class I 2003 ............................. 0.80% 22,318 $13.198462 $294,563 0.79% 31.98% 5/1/03 Gartmore GVIT Emerging Markets Fund - Class I 2003 ............................. 0.80% 74,580 11.276219 840,980 0.66% 63.95% 2002 ............................. 0.80% 29,904 6.877883 205,676 0.17% -15.91% 2001 ............................ 0.80% 23,612 8.178748 193,117 0.52% -5.94% 2000 ............................. 0.80% 1,063 8.695491 9,243 0.00% -13.05% 10/2/00 Gartmore GVIT Global Financial Services Fund - Class I 2003 ............................. 0.80% 19,256 12.092670 232,856 0.88% 40.33% 2002 ............................. 0.80% 3,345 8.617613 28,826 0.08% -13.82% 5/1/02 Gartmore GVIT Global Health Sciences Fund - Class I 2003 ............................. 0.80% 22,955 11.249287 258,227 0.00% 35.61% 2002 ............................. 0.80% 3,831 8.295539 31,780 0.00% -17.04% 5/1/02 Gartmore GVIT Global Technology and Communications Fund - Class I 2003 ............................. 0.80% 304,934 2.982846 909,571 0.00% 54.00% 2002 ............................. 0.80% 113,725 1.936951 220,280 0.59% -43.24% 2001 ............................ 0.80% 86,686 3.412440 295,811 0.00% -43.18% 2000 ............................. 0.80% 46,652 6.005978 280,191 0.00% -39.94% 10/2/00 Gartmore GVIT Global Utilities Fund - Class I 2003 ............................. 0.80% 6,211 10.629478 66,020 0.70% 23.06% 2002 ............................. 0.80% 1,341 8.637451 11,583 0.54% -13.63% 5/1/02 Gartmore GVIT Government Bond Fund - Class I 2003 ............................. 0.80% 448,119 23.180734 10,387,727 3.14% 1.19% 2002 ............................. 0.80% 575,815 22.908666 13,191,154 4.42% 10.10% 2001 ............................ 0.80% 492,674 20.807253 10,251,193 5.12% 6.40% 2000 ............................. 0.80% 359,189 19.556523 7,024,488 5.25% 11.65% 1999 ............................. 0.80% 402,906 17.516435 7,057,477 5.74% -3.13% Gartmore GVIT Growth Fund - Class I 2003 ............................. 0.80% 936,407 15.849998 14,842,049 0.02% 31.68% 2002 ............................. 0.80% 969,929 12.036520 11,674,570 0.00% -29.29% 2001 ............................ 0.80% 950,129 17.022307 16,173,388 0.00% -28.71% 2000 ............................. 0.80% 952,662 23.877962 22,747,627 0.18% -27.12% 1999 ............................. 0.80% 1,104,444 32.761545 36,183,292 0.66% 3.45% Gartmore GVIT ID Aggressive Fund 2003 ............................. 0.80% 45,840 10.818285 495,910 1.41% 30.82% 2002 ............................. 0.80% 17,710 8.269753 146,457 1.83% -17.30% 1/25/02 Gartmore GVIT ID Conservative Fund 2003 ............................. 0.80% 27,042 10.678769 288,775 2.37% 7.05% 2002 ............................. 0.80% 21,249 9.975795 211,976 2.80% -0.24% 1/25/02 Gartmore GVIT ID Moderate Fund 2003 ............................. 0.80% 153,659 10.804715 1,660,242 2.06% 19.10% 2002 ............................. 0.80% 44,700 9.072331 405,533 1.72% -9.28% 1/25/02 Gartmore GVIT ID Moderately Aggressive Fund 2003 ............................. 0.80% 180,393 10.833658 1,954,316 1.54% 25.64% 2002 ............................. 0.80% 94,483 8.623105 814,737 1.55% -13.77% 1/25/02 Gartmore GVIT ID Moderately Conservative Fund 2003 ............................. 0.80% 40,296 10.795210 435,004 2.34% 12.79% 2002 ............................. 0.80% 18,773 9.570814 179,673 2.35% -4.29% 1/25/02 Gartmore GVIT International Growth Fund - Class I 2003 ............................. 0.80% 5,733 6.618892 37,946 0.00% 34.54% 2002 ............................. 0.80% 7,532 4.919535 37,054 0.00% -24.71% 2001 ............................ 0.80% 8,456 6.534130 55,253 0.09% -29.22% 2000 ............................. 0.80% 453 9.231934 4,182 0.00% -7.68% 10/2/00 Gartmore GVIT Money Market Fund - Class I 2003 ............................. 0.80% 1,224,466 15.008153 18,376,973 0.63% -0.18% 2002 ............................. 0.80% 1,963,625 15.035122 29,523,341 1.26% 0.40% 2001 ............................ 0.80% 1,991,692 14.974957 29,825,502 3.57% 2.77% 2000 ............................. 0.80% 2,268,467 14.571330 33,054,581 5.53% 5.18% 1999 ............................. 0.80% 2,312,418 13.853330 32,034,690 5.04% 4.01%
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 NOTES TO FINANCIAL STATEMENTS, Continued
Contract Investment Expense Unit Contract Income Total Rate* Units Fair Value Owners' Equity Ratio** Return*** -------- --------- ---------- -------------- ---------- --------- Gartmore GVIT Nationwide(R) Leaders Fund - Class I 2003 .............................. 0.80% 6,691 $10.457551 $ 69,971 0.19% 24.39% 2002 .............................. 0.80% 12,664 8.407288 106,470 1.18% -15.93% 5/1/02 Gartmore GVIT Small Cap Growth Fund - Class I 2003 .............................. 0.80% 191,617 6.296628 1,206,541 0.00% 33.20% 2002 .............................. 0.80% 202,182 4.727311 955,777 0.00% -33.82% 2001 ............................. 0.80% 146,635 7.143137 1,047,434 0.00% -11.55% 2000 .............................. 0.80% 85,563 8.076240 691,027 0.00% -19.24% 5/1/00 Gartmore GVIT Small Cap Value Fund - Class I 2003 .............................. 0.80% 566,915 17.129814 9,711,149 0.00% 55.61% 2002 .............................. 0.80% 581,061 11.008455 6,396,584 0.01% -27.74% 2001 ............................. 0.80% 679,631 15.235359 10,354,422 0.03% 27.25% 2000 .............................. 0.80% 275,697 11.972833 3,300,874 0.00% 10.32% 1999 .............................. 0.80% 165,130 10.852975 1,792,152 0.00% 26.82% Gartmore GVIT Small Company Fund - Class I 2003 .............................. 0.80% 812,594 26.603797 21,618,086 0.00% 39.89% 2002 .............................. 0.80% 877,427 19.017572 16,686,531 0.00% -17.99% 2001 ............................. 0.80% 928,089 23.188796 21,521,266 0.10% -7.45% 2000 .............................. 0.80% 998,068 25.056031 25,007,623 0.03% 8.03% 1999 .............................. 0.80% 907,754 23.192622 21,053,195 0.00% 42.87% Gartmore GVIT Total Return Fund - Class I 2003 .............................. 0.80% 2,115,628 30.907637 65,389,062 0.56% 26.50% 2002 .............................. 0.80% 2,203,258 24.433418 53,833,124 0.85% -18.01% 2001 ............................. 0.80% 2,295,929 29.801440 68,421,990 0.74% -12.53% 2000 .............................. 0.80% 2,359,054 34.069071 80,370,778 0.63% -2.90% 1999 .............................. 0.80% 2,622,351 35.085217 92,005,754 0.65% 6.09% Gartmore GVIT U.S. Growth Leaders Fund - Class I 2003 .............................. 0.80% 55,080 12.349314 680,200 0.00% 50.93% 2002 .............................. 0.80% 3,205 8.182356 26,224 0.00% -18.18% 5/1/02 Janus AS - Balanced Portfolio - Service Shares 2003 .............................. 0.80% 2,548 10.971897 27,956 4.49% 9.72% 5/1/03 Janus AS - Capital Appreciation Portfolio - Service Shares 2003 .............................. 0.80% 331,505 6.087370 2,017,994 0.25% 19.28% 2002 .............................. 0.80% 358,288 5.103609 1,828,562 0.30% -16.60% 2001 ............................. 0.80% 350,620 6.119334 2,145,561 0.91% -22.46% 2000 .............................. 0.80% 297,781 7.891490 2,349,936 1.33% -21.09% 5/1/00 Janus AS - Global Technology Portfolio - Service Shares 2003 .............................. 0.80% 262,295 3.569999 936,393 0.00% 45.31% 2002 .............................. 0.80% 276,903 2.456849 680,309 0.00% -41.40% 2001 ............................. 0.80% 346,031 4.192814 1,450,844 0.56% -37.82% 2000 .............................. 0.80% 259,751 6.742955 1,751,489 1.21% -32.57% 5/1/00 Janus AS - International Growth Portfolio - Service Shares 2003 .............................. 0.80% 186,894 5.905539 1,103,710 0.99% 33.46% 2002 .............................. 0.80% 219,129 4.424879 969,619 0.67% -26.35% 2001 ............................. 0.80% 227,552 6.008001 1,367,133 0.70% -24.04% 2000 .............................. 0.80% 174,672 7.909816 1,381,623 6.25% -20.90% 5/1/00 Janus AS - Risk-Managed Large Cap Core Portfolio - Service Shares 2003 .............................. 0.80% 649 12.236775 7,942 0.30% 22.37% 5/1/03 MAS GVIT Multi Sector Bond Fund - Class I 2003 .............................. 0.80% 67,316 12.760526 858,988 5.47% 11.22% 2002 .............................. 0.80% 94,053 11.472904 1,079,061 4.53% 6.35% 2001 ............................. 0.80% 55,247 10.787560 595,980 8.29% 3.35% 2000 .............................. 0.80% 3,000 10.437484 31,312 8.52% 4.37% 5/1/00 MFS VIT - MFS Investors Growth Stock Series - Initial Class 2003 .............................. 0.80% 3,685 11.536092 42,510 0.00% 15.36% 5/1/03 MFS VIT - MFS Value Series - Initial Class 2003 .............................. 0.80% 3,296 12.301954 40,547 0.00% 23.02% 5/1/03
Contract Investment Expense Unit Contract Income Total Rate* Units Fair Value Owners' Equity Ratio** Return*** -------- --------- ---------- -------------- ---------- --------- Neuberger Berman AMT - Balanced Portfolio 2003 ............................. 0.80% 3,028 $21.268673 $ 64,402 1.91% 15.35% 2002 ............................. 0.80% 2,497 18.438130 46,040 4.01% -17.81% 2001 ............................ 0.80% 636 22.433930 14,268 0.00% -3.34% 6/15/01 Neuberger Berman AMT - Fasciano Portfolio 2003 ............................. 0.80% 854 12.540843 10,710 0.00% 25.41% 5/1/03 Neuberger Berman AMT - Growth Portfolio 2003 ............................. 0.80% 637,363 20.381526 12,990,431 0.00% 30.35% 2002 ............................. 0.80% 698,803 15.635481 10,926,121 0.00% -31.71% 2001 ............................ 0.80% 800,152 22.896752 18,320,882 0.00% -30.92% 2000 ............................. 0.80% 793,907 33.145055 26,314,091 0.00% -12.36% 1999 ............................. 0.80% 660,524 37.818375 24,979,944 0.00% 49.20% Neuberger Berman AMT - Guardian Portfolio 2003 ............................. 0.80% 143,460 9.928356 1,424,322 0.84% 30.71% 2002 ............................. 0.80% 161,292 7.595581 1,225,106 0.80% -27.04% 2001 ............................ 0.80% 196,852 10.409898 2,049,209 0.47% -2.30% 2000 ............................. 0.80% 149,159 10.654639 1,589,235 0.59% 0.33% 1999 ............................. 0.80% 181,217 10.619652 1,924,461 0.29% 14.02% Neuberger Berman AMT - Limited Maturity Bond Portfolio 2003 ............................. 0.80% 195,325 18.158640 3,546,836 4.41% 1.61% 2002 ............................. 0.80% 225,668 17.871272 4,032,974 4.91% 4.50% 2001 ............................ 0.80% 178,198 17.101800 3,047,507 5.78% 7.91% 2000 ............................. 0.80% 141,846 15.848178 2,248,001 6.96% 5.94% 1999 ............................. 0.80% 203,409 14.959827 3,042,963 5.57% 0.67% Neuberger Berman AMT - Mid Cap Growth Portfolio - Class S 2003 ............................. 0.80% 17,581 12.256991 215,490 0.00% 22.57% 5/1/03 Neuberger Berman AMT - Partners Portfolio 2003 ............................. 0.80% 637,464 24.324378 15,505,915 0.00% 34.01% 2002 ............................. 0.80% 728,943 18.150798 13,230,897 0.53% -24.75% 2001 ............................ 0.80% 777,174 24.119941 18,745,391 0.38% -3.61% 2000 ............................. 0.80% 781,588 25.022294 19,557,125 0.79% -0.01% 1999 ............................. 0.80% 1,008,241 25.046437 25,252,845 1.20% 6.51% Neuberger Berman AMT - Socially Responsive Portfolio 2003 ............................. 0.80% 3,251 12.308850 40,016 0.00% 23.09% 5/1/03 Oppenheimer Aggressive Growth Fund/VA - Initial Class 2003 ............................. 0.80% 315,600 4.735882 1,494,644 0.00% 24.59% 2002 ............................. 0.80% 279,004 3.801151 1,060,536 0.65% -28.37% 2001 ............................ 0.80% 298,688 5.306432 1,584,968 0.87% -31.82% 2000 ............................. 0.80% 313,898 7.782869 2,443,027 0.00% -22.17% 5/1/00 Oppenheimer Bond Fund/VA- Initial Class 2003 ............................. 0.80% 422,466 22.815950 9,638,963 5.67% 5.93% 2002 ............................. 0.80% 492,395 21.538984 10,605,688 7.25% 8.21% 2001 ............................ 0.80% 499,632 19.904727 9,945,039 7.04% 6.92% 2000 ............................. 0.80% 480,377 18.615856 8,942,629 7.66% 5.26% 1999 ............................. 0.80% 520,266 17.686402 9,201,634 4.68% -2.30% Oppenheimer Capital Appreciation Fund/VA- Initial Class 2003 ............................. 0.80% 796,583 14.618573 11,644,907 0.38% 29.90% 2002 ............................. 0.80% 847,094 11.253616 9,532,871 0.64% -27.44% 2001 ............................ 0.80% 859,711 15.509895 13,334,027 0.64% -13.28% 2000 ............................. 0.80% 796,536 17.884539 14,245,679 0.12% -1.02% 1999 ............................. 0.80% 535,283 18.069110 9,672,087 0.17% 40.53% Oppenheimer Global Securities Fund/VA - Initial Class 2003 ............................. 0.80% 941,453 29.065271 27,363,587 0.76% 41.88% 2002 ............................. 0.80% 1,001,953 20.485514 20,525,522 0.56% -22.76% 2001 ............................ 0.80% 1,078,042 26.520512 28,590,226 0.69% -12.74% 2000 ............................. 0.80% 1,096,887 30.393395 33,338,120 0.27% 4.26% 1999 ............................. 0.80% 1,018,848 29.152831 29,702,304 0.92% 57.22% Oppenheimer High Income Fund/VA- Initial Class 2003 ............................. 0.80% 12,557 11.122220 139,662 0.00% 11.22% 5/1/03
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 NOTES TO FINANCIAL STATEMENTS, Continued
Contract Investment Expense Unit Contract Income Total Rate* Units Fair Value Owners' Equity Ratio** Return*** -------- --------- ---------- -------------- ---------- --------- Oppenheimer Main Street(R) Growth & Income Fund/VA - Initial Class 2003 ............................. 0.80% 114,284 $ 8.128407 $ 928,947 0.90% 25.71% 2002 ............................. 0.80% 111,681 6.466008 722,130 0.65% -19.44% 2001 ............................. 0.80% 73,856 8.026816 592,829 0.41% -10.88% 2000 ............................. 0.80% 33,482 9.006749 301,564 0.00% -9.93% 5/1/00 Oppenheimer Main Street(R) Small Cap Fund/VA - Initial Class 2003 ............................. 0.80% 26,396 13.796198 364,164 0.00% 37.96% 5/1/03 Oppenheimer Multiple Strategies Fund/VA - Initial Class 2003 ............................. 0.80% 378,776 29.695890 11,248,090 2.82% 23.96% 2002 ............................. 0.80% 393,230 23.955594 9,420,058 3.60% -11.12% 2001 ............................. 0.80% 394,571 26.951432 10,634,253 3.96% 1.40% 2000 ............................. 0.80% 412,843 26.579650 10,973,222 4.57% 5.59% 1999 ............................. 0.80% 437,927 25.171538 11,023,296 3.30% 10.91% Putnam VT Growth & Income Fund - IB Shares 2003 ............................. 0.80% 1,210 12.359054 14,954 0.00% 23.59% 5/1/03 Putnam VT International Equity Fund - IB Shares 2003 ............................. 0.80% 4,931 12.730633 62,775 0.00% 27.31% 5/1/03 Putnam VT Voyager Fund - IB Shares 2003 ............................. 0.80% 1,238 11.790763 14,597 0.00% 7.91% 5/1/03 Strong GVIT Mid Cap Growth Fund - Class I 2003 ............................. 0.80% 398,980 4.868865 1,942,580 0.00% 39.02% 2002 ............................. 0.80% 250,537 3.502288 877,453 0.00% -37.52% 2001 ............................. 0.80% 146,210 5.605279 819,548 0.00% -30.87% 2000 ............................. 0.80% 76,685 8.108035 621,765 0.00% -18.92% 5/1/00 Strong Opportunity Fund II, Inc. 2003 ............................. 0.80% 690,716 40.347502 27,868,665 0.07% 35.92% 2002 ............................. 0.80% 826,619 29.685674 24,538,742 0.38% -27.40% 2001 ............................. 0.80% 901,762 40.890795 36,873,765 0.59% -4.48% 2000 ............................. 0.80% 877,807 42.709091 37,490,339 0.00% 5.75% 1999 ............................. 0.80% 898,106 40.478200 36,353,714 0.00% 33.83% Strong VIF - Strong Discovery Fund II 2003 ............................. 0.80% 240,474 26.133664 6,284,467 0.00% 38.32% 2002 ............................. 0.80% 264,753 18.893884 5,002,212 0.00% -12.72% 2001 ............................. 0.80% 269,121 21.646818 5,825,613 0.72% 3.25% 2000 ............................. 0.80% 271,144 20.965624 5,684,703 0.00% 3.57% 1999 ............................. 0.80% 296,260 20.243703 5,997,399 0.00% 4.25% Strong VIF - Strong International Stock Fund II 2002 ............................. 0.80% 199,430 5.696130 1,135,979 4.04% -27.13% 2001 ............................. 0.80% 213,256 7.816872 1,666,995 0.00% -22.76% 2000 ............................. 0.80% 210,636 10.120684 2,131,780 0.00% -40.00% 1999 ............................. 0.80% 219,407 16.868902 3,701,155 0.17% 85.71% Turner GVIT Growth Focus Fund - Class I 2003 ............................. 0.80% 103,819 3.251119 337,528 0.00% 49.76% 2002 ............................. 0.80% 80,828 2.170866 175,467 0.00% -43.31% 2001 ............................. 0.80% 50,607 3.829622 193,806 0.00% -39.52% 2000 ............................. 0.80% 7,806 6.332010 49,428 0.00% -36.68% Van Eck WIT - Worldwide Bond Fund 2003 ............................. 0.80% 159,535 18.848928 3,007,064 1.75% 17.22% 2002 ............................. 0.80% 198,934 16.079714 3,198,802 0.00% 20.69% 2001 ............................. 0.80% 120,008 13.323421 1,598,917 4.39% -5.86% 2000 ............................. 0.80% 123,195 14.152095 1,743,467 4.90% 1.06% 1999 ............................. 0.80% 143,676 14.003753 2,012,003 4.31% -8.56% Van Eck WIT - Worldwide Emerging Markets Fund 2003 ............................. 0.80% 401,918 9.497431 3,817,188 0.11% 52.96% 2002 ............................. 0.80% 444,801 6.209058 2,761,795 0.20% -3.68% 2001 ............................. 0.80% 444,368 6.445985 2,864,389 0.00% -2.60% 2000 ............................. 0.80% 443,771 6.617911 2,936,837 0.00% -42.33% 1999 ............................. 0.80% 576,742 11.474995 6,618,112 0.00% 98.69%
Contract Investment Expense Unit Contract Income Total Rate* Units Fair Value Owners' Equity Ratio** Return*** -------- --------- ---------- -------------- ---------- --------- Van Eck WIT - Worldwide Hard Assets Fund 2003 ............................. 0.80% 173,612 $19.968789 $3,466,821 0.48% 43.92% 2002 ............................. 0.80% 254,426 13.874598 3,530,058 0.68% -3.61% 2001 ............................. 0.80% 176,699 14.394010 2,543,407 1.21% -11.16% 2000 ............................. 0.80% 186,255 16.202639 3,017,823 1.12% 10.52% 1999 ............................. 0.80% 206,979 14.660562 3,034,428 1.47% 20.04% Van Kampen UIF - Core Plus Fixed Income Portfolio - Class A 2003 ............................. 0.80% 2,958 10.179170 30,110 0.00% 1.79% 5/1/03 Van Kampen UIF - Emerging Markets Debt Portfolio 2003 ............................. 0.80% 113,201 14.874690 1,683,830 0.00% 26.85% 2002 ............................. 0.80% 79,485 11.726545 932,084 6.91% 8.35% 2001 ............................. 0.80% 74,719 10.822665 808,659 9.40% 9.22% 2000 ............................. 0.80% 62,323 9.909218 617,572 12.32% 10.50% 1999 ............................. 0.80% 43,728 8.967304 392,122 16.19% 28.35% Van Kampen UIF - U.S. Real Estate Portfolio 2003 ............................. 0.80% 336,013 28.319843 9,515,835 0.00% 36.42% 2002 ............................. 0.80% 355,742 20.759770 7,385,122 3.29% -1.58% 2001 ............................. 0.80% 313,717 21.092541 6,617,089 3.98% 8.96% 2000 ............................. 0.80% 277,285 19.357784 5,367,623 8.22% 27.04% 1999 ............................. 0.80% 246,788 15.237208 3,760,360 6.87% -4.14% Single Premium contracts issued on or after April 16, 1990 American Century VP Balanced Fund - Class I 2003 ............................. 1.30% 36,906 19.550372 721,526 2.53% 17.92% 2002 ............................. 1.30% 36,064 16.579698 597,930 2.63% -10.73% 2001 ............................. 1.30% 27,610 18.571841 512,769 2.81% -4.79% 2000 ............................. 1.30% 29,587 19.506844 577,149 2.45% -3.90% 1999 ............................. 1.30% 36,043 20.298769 731,629 1.78% 8.64% American Century VP Capital Appreciation Fund - Class I 2003 ............................. 1.30% 85,342 17.111726 1,460,349 0.00% 18.92% 2002 ............................. 1.30% 83,334 14.389339 1,199,121 0.00% -22.22% 2001 ............................. 1.30% 93,041 18.500029 1,721,261 0.00% -29.00% 2000 ............................. 1.30% 156,838 26.057031 4,086,733 0.00% 7.63% 1999 ............................. 1.30% 134,822 24.209204 3,263,933 0.00% 62.40% American Century VP Income & Growth Fund - Class I 2003 ............................. 1.30% 21,876 10.229575 223,782 1.30% 27.68% 2002 ............................. 1.30% 18,481 8.011655 148,063 1.10% -20.41% 2001 ............................. 1.30% 40,468 10.066594 407,375 0.81% -9.54% 2000 ............................. 1.30% 48,794 11.128733 543,015 0.55% -11.76% 1999 ............................. 1.30% 53,220 12.612413 671,233 0.02% 16.50% American Century VP International Fund - Class I 2003 ............................. 1.30% 52,719 14.478934 763,315 0.75% 22.90% 2002 ............................. 1.30% 67,411 11.780758 794,153 0.79% -21.40% 2001 ............................. 1.30% 105,515 14.988556 1,581,517 0.09% -30.10% 2000 ............................. 1.30% 126,911 21.441430 2,721,153 0.14% -17.90% 1999 ............................. 1.30% 162,982 26.114709 4,256,228 0.00% 61.93% American Century VP Ultra Fund - Class I 2003 ............................. 1.30% 1,710 9.824442 16,800 0.00% 23.29% 2002 ............................. 1.30% 739 7.968770 5,889 0.46% -20.31% 5/1/02 American Century VP Value Fund - Class I 2003 ............................. 1.30% 85,452 18.224277 1,557,301 1.09% 27.29% 2002 ............................. 1.30% 94,957 14.316630 1,359,464 0.90% -13.75% 2001 ............................. 1.30% 123,905 16.598988 2,056,698 0.95% 11.36% 2000 ............................. 1.30% 57,614 14.906133 858,802 0.73% 16.63% 1999 ............................. 1.30% 26,781 12.781220 342,294 0.93% -2.13% Credit Suisse Trust - Global Post-Venture Capital Portfolio 2003 ............................. 1.30% 10,616 10.300420 109,349 0.00% 45.75% 2002 ............................. 1.30% 5,188 7.067052 36,664 0.00% -35.01% 2001 ............................. 1.30% 7,002 10.873870 76,139 0.00% -29.56% 2000 ............................. 1.30% 11,974 15.438040 184,855 0.00% -19.98% 1999 ............................. 1.30% 88,739 19.293144 1,712,054 0.00% 61.39%
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 NOTES TO FINANCIAL STATEMENTS, Continued
Contract Investment Expense Unit Contract Income Total Rate* Units Fair Value Owners' Equity Ratio** Return*** -------- --------- ---------- -------------- ---------- --------- Credit Suisse Trust - International Focus Portfolio 2003 ............................. 1.30% 33,394 $10.250133 $ 342,293 0.49% 31.37% 2002 ............................. 1.30% 49,680 7.802280 387,617 0.00% -20.94% 2001 ............................. 1.30% 55,979 9.868857 552,449 0.00% -23.29% 2000 ............................. 1.30% 66,083 12.864457 850,122 0.45% -26.85% 1999 ............................. 1.30% 81,838 17.586224 1,439,221 0.93% 51.45% Credit Suisse Trust - Small Cap Growth Portfolio 2003 ............................. 1.30% 49,309 16.420586 809,683 0.00% 46.63% 2002 ............................. 1.30% 54,671 11.198504 612,233 0.00% -34.55% 2001 ............................. 1.30% 82,230 17.109846 1,406,943 0.00% -17.10% 2000 ............................. 1.30% 118,070 20.639565 2,436,913 0.00% -19.17% 1999 ............................. 1.30% 114,996 25.533360 2,936,234 0.00% 66.90% Dreyfus GVIT Mid Cap Index Fund - Class I 2003 ............................. 1.30% 76,418 11.286523 862,494 0.49% 32.91% 2002 ............................. 1.30% 48,885 8.491590 415,111 0.42% -16.40% 2001 ............................. 1.30% 41,031 10.157238 416,762 0.54% -2.59% 2000 ............................. 1.30% 10,564 10.427067 110,152 0.56% 4.27% 5/1/00 Dreyfus IP - European Equity Portfolio 2001 ............................. 1.30% 2,993 6.578172 19,688 0.84% -29.06% 2000 ............................. 1.30% 5,683 9.273374 52,701 0.42% -7.27% 5/1/00 Dreyfus IP - Small Cap Stock Index Portfolio - Service Class 2003 ............................. 1.30% 14,581 10.347973 150,884 0.33% 36.00% Dreyfus Socially Responsible Growth Fund, Inc. - Initial Shares 2003 ............................. 1.30% 11,971 20.741572 248,297 0.11% 24.38% 2002 ............................. 1.30% 13,724 16.676328 228,866 0.21% -29.86% 2001 ............................. 1.30% 22,613 23.777410 537,679 0.06% -23.58% 2000 ............................. 1.30% 33,067 31.114958 1,028,878 0.81% -12.18% 1999 ............................. 1.30% 31,488 35.428815 1,115,583 0.02% 28.40% Dreyfus Stock Index Fund 2003 ............................. 1.30% 181,645 24.553549 4,460,029 1.51% 26.71% 2002 ............................. 1.30% 179,477 19.378177 3,477,937 1.31% -23.37% 2001 ............................. 1.30% 215,776 25.286872 5,456,300 1.06% -13.32% 2000 ............................. 1.30% 248,888 29.173405 7,260,910 0.96% -10.45% 1999 ............................. 1.30% 315,343 32.576553 10,272,788 1.11% 19.05% Dreyfus VIF - Appreciation Portfolio - Initial Shares 2003 ............................. 1.30% 71,606 12.441321 890,873 1.40% 19.61% 2002 ............................. 1.30% 74,627 10.401947 776,266 1.14% -17.79% 2001 ............................. 1.30% 80,268 12.653068 1,015,636 0.84% -10.49% 2000 ............................. 1.30% 69,804 14.135555 986,718 0.63% -1.93% 1999 ............................. 1.30% 81,279 14.413356 1,171,503 0.70% 10.02% Dreyfus VIF - Growth and Income Portfolio - Initial Shares 2003 ............................. 1.30% 19,988 11.857652 237,011 0.84% 24.94% 2002 ............................. 1.30% 13,957 9.490878 132,464 0.60% -26.29% 2001 ............................. 1.30% 12,109 12.876695 155,924 0.50% -7.07% 2000 ............................. 1.30% 16,818 13.856323 233,036 0.61% -5.02% 1999 ............................. 1.30% 9,941 14.588194 145,021 0.65% 15.38% Federated Quality Bond Fund II - Primary Shares 2003 ............................. 1.30% 11,443 11.041537 126,348 3.93% 3.29% 2002 ............................. 1.30% 4,830 10.689420 51,630 0.00% 6.89% 5/1/02 Fidelity(R) VIP - Equity-Income Portfolio: Initial Class 2003 ............................. 1.30% 228,092 37.815050 8,625,310 1.80% 28.65% 2002 ............................. 1.30% 242,191 29.394119 7,118,991 1.77% -18.02% 2001 ............................. 1.30% 292,636 35.855591 10,492,637 1.70% -6.19% 2000 ............................. 1.30% 304,863 38.221825 11,652,420 1.65% 7.03% 1999 ............................. 1.30% 395,355 35.712129 14,118,969 1.45% 4.96%
Contract Investment Expense Unit Contract Income Total Rate* Units Fair Value Owners' Equity Ratio** Return*** -------- ------- ----------- -------------- ---------- --------- Fidelity(R) VIP - Growth Portfolio: Initial Class 2003 ............................. 1.30% 224,376 $34.977889 $ 7,848,199 0.27% 31.13% 2002 ............................. 1.30% 239,109 26.673304 6,377,827 0.25% -31.01% 2001 ............................ 1.30% 283,815 38.662344 10,972,953 0.08% -18.72% 2000 ............................. 1.30% 342,658 47.567395 16,299,348 0.12% -12.12% 1999 ............................. 1.30% 355,884 54.130524 19,264,187 0.15% 35.66% Fidelity(R) VIP - High Income Portfolio: Initial Class 2003 ............................. 1.30% 136,028 25.234771 3,432,635 5.94% 25.62% 2002 ............................. 1.30% 160,671 20.087809 3,227,528 9.29% 2.11% 2001 ............................ 1.30% 93,229 19.673202 1,834,113 13.67% -12.88% 2000 ............................. 1.30% 100,049 22.581448 2,259,251 7.66% -23.47% 1999 ............................. 1.30% 105,520 29.506936 3,113,572 9.63% 6.76% Fidelity(R) VIP - Overseas Portfolio: Initial Class 2003 ............................. 1.30% 111,937 16.898456 1,891,562 0.83% 41.52% 2002 ............................. 1.30% 129,046 11.940760 1,540,907 0.83% -21.31% 2001 ............................ 1.30% 150,144 15.174561 2,278,369 5.37% -22.19% 2000 ............................. 1.30% 168,125 19.502680 3,278,888 1.56% -20.15% 1999 ............................. 1.30% 213,601 24.423718 5,216,931 1.25% 40.79% Fidelity(R) VIP II - Asset Manager Portfolio: Initial Class 2003 ............................. 1.30% 143,073 28.002882 4,006,456 3.62% 16.45% 2002 ............................. 1.30% 165,830 24.046655 3,987,657 3.98% -9.91% 2001 ............................ 1.30% 187,390 26.691052 5,001,636 4.21% -5.34% 2000 ............................. 1.30% 201,334 28.195602 5,676,733 3.30% -5.16% 1999 ............................. 1.30% 211,956 29.730624 6,301,584 3.18% 9.66% Fidelity(R) VIP II - Contrafund Portfolio: Initial Class 2003 ............................. 1.30% 185,397 23.157613 4,293,352 0.46% 26.81% 2002 ............................. 1.30% 199,804 18.262213 3,648,863 0.85% -10.52% 2001 ............................ 1.30% 215,185 20.409441 4,391,806 0.78% -13.39% 2000 ............................. 1.30% 250,535 23.563410 5,903,459 0.36% -7.82% 1999 ............................. 1.30% 290,335 25.563198 7,421,891 0.43% 22.65% Fidelity(R) VIP III - Growth Opportunities Portfolio: Initial Class 2003 ............................. 1.30% 18,158 9.465516 171,875 0.74% 28.20% 2002 ............................. 1.30% 15,005 7.383595 110,791 1.07% -22.86% 2001 ............................ 1.30% 17,924 9.571123 171,553 0.38% -15.53% 2000 ............................. 1.30% 19,392 11.331281 219,736 1.30% -18.13% 1999 ............................. 1.30% 21,868 13.841079 302,677 0.94% 2.93% Fidelity(R) VIP III - Value Strategies Portfolio: Service Class 2003 ............................. 1.30% 40,013 11.594984 463,950 0.00% 55.76% 2002 ............................. 1.30% 1,517 7.444367 11,293 0.00% -25.56% 5/1/02 Gartmore GVIT Emerging Markets Fund - Class I 2003 ............................. 1.30% 31,749 11.094534 352,240 0.66% 63.13% 2002 ............................. 1.30% 2,303 6.800904 15,662 0.17% -16.33% 2001 ............................ 1.30% 1,128 8.127810 9,168 0.52% -6.42% Gartmore GVIT Global Financial Services Fund - Class I 2003 ............................. 1.30% 8,059 11.992233 96,645 0.88% 39.63% 2002 ............................. 1.30% 3,861 8.588804 33,161 0.08% -14.11% 5/1/02 Gartmore GVIT Global Health Sciences Fund - Class I 2003 ............................. 1.30% 22,102 11.155813 246,566 0.00% 34.93% 2002 ............................. 1.30% 13,221 8.267793 109,308 0.00% -17.32% 5/1/02 Gartmore GVIT Global Technology and Communications Fund - Class I 2003 ............................. 1.30% 49,780 2.934687 146,089 0.00% 53.23% 2002 ............................. 1.30% 7,189 1.915215 13,768 0.59% -43.52% 2001 ............................ 1.30% 13,394 3.391119 45,421 0.00% -43.47% 2000 ............................. 1.30% 18,398 5.998698 110,364 0.00% -40.01% 10/2/00 Gartmore GVIT Global Utilities Fund - Class I 2003 ............................. 1.30% 6,218 10.541163 65,545 0.70% 22.45% 2002 ............................. 1.30% 2,573 8.608580 22.150 0.54% -13.91% 5/1/02
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 NOTES TO FINANCIAL STATEMENTS, Continued
Contract Investment Expense Unit Contract Income Total Rate* Units Fair Value Owners' Equity Ratio** Return*** -------- --------- ---------- -------------- ---------- --------- Gartmore GVIT Government Bond Fund - Class I 2003 ............................. 1.30% 125,005 $23.935432 $ 2,992,049 3.14% 0.68% 2002 ............................. 1.30% 222,251 23.773114 5,283,598 4.42% 9.55% 2001 ............................ 1.30% 253,883 21.700608 5,509,415 5.12% 5.86% 2000 ............................. 1.30% 188,357 20.498919 3,861,115 5.25% 11.09% 1999 ............................. 1.30% 240,383 18.452016 4,435,551 5.74% -3.61% Gartmore GVIT Growth Fund - Class I 2003 ............................. 1.30% 25,825 14.949958 386,083 0.02% 31.03% 2002 ............................. 1.30% 29,222 11.409842 333,418 0.00% -29.64% 2001 ............................ 1.30% 37,694 16.217110 611,288 0.00% -29.07% 2000 ............................. 1.30% 45,948 22.863519 1,050,533 0.18% -27.48% 1999 ............................. 1.30% 62,075 31.526314 1,956,996 0.66% 2.93% Gartmore GVIT ID Conservative Fund 2003 ............................. 1.30% 2,945 10.576130 31,147 2.37% 6.51% Gartmore GVIT ID Moderate Fund 2003 ............................. 1.30% 32,069 10.700865 343,166 2.06% 18.50% 2002 ............................. 1.30% 265 9.030143 2,393 1.72% -9.70% 1/25/02 Gartmore GVIT ID Moderately Conservative Fund 2003 ............................. 1.30% 3,555 10.691448 38,008 2.34% 12.23% 2002 ............................. 1.30% 99 9.526311 943 2.35% -4.74% 1/25/02 Gartmore GVIT International Growth Fund - Class I 2003 ............................. 1.30% 4,222 6.512199 27,495 0.00% 33.87% 2002 ............................. 1.30% 3,701 4.864470 18,003 0.00% -25.09% Gartmore GVIT Money Market Fund - Class I 2003 ............................. 1.30% 388,834 14.800105 5,754,784 0.63% -0.68% 2002 ............................. 1.30% 594,197 14.901808 8,854,610 1.26% -0.10% 2001 ............................ 1.30% 788,057 14.917365 11,755,734 3.57% 2.25% 2000 ............................. 1.30% 857,846 14.589227 12,515,310 5.53% 4.66% 1999 ............................. 1.30% 1,082,615 13.940225 15,091,897 5.04% 3.49% Gartmore GVIT Nationwide(R) Leaders Fund - Class I 2003 ............................. 1.30% 3,455 10.370684 35,831 0.19% 23.77% 2002 ............................. 1.30% 178 8.379188 1,491 1.18% -16.21% 5/1/02 Gartmore GVIT Small Cap Growth Fund - Class I 2003 ............................. 1.30% 28,379 6.182099 175,442 0.00% 32.53% 2002 ............................. 1.30% 23,644 4.664552 110,289 0.00% -34.15% 2001 ............................ 1.30% 10,664 7.083730 75,541 0.00% -12.00% 2000 ............................. 1.30% 3,122 8.049546 25,131 0.00% -29.07% 5/1/00 Gartmore GVIT Small Cap Value Fund - Class I 2003 ............................. 1.30% 130,023 16.651092 2,165,025 0.00% 54.83% 2002 ............................. 1.30% 95,522 10.754320 1,027,274 0.01% -28.11% 2001 ............................ 1.30% 193,975 14.958425 2,901,560 0.03% 26.61% 2000 ............................. 1.30% 236,917 11.814503 2,799,057 0.00% 9.77% 1999 ............................. 1.30% 23,585 10.762831 253,841 0.00% 26.19% Gartmore GVIT Small Company Fund - Class I 2003 ............................. 1.30% 40,659 25.536562 1,038,291 0.00% 39.19% 2002 ............................. 1.30% 38,599 18.345997 708,137 0.00% -18.40% 2001 ............................ 1.30% 42,033 22.482240 944,996 0.10% -7.92% 2000 ............................. 1.30% 74,796 24.415235 1,826,162 0.03% 7.50% 1999 ............................. 1.30% 66,890 22.712185 1,519,218 0.00% 42.16% Gartmore GVIT Total Return Fund - Class I 2003 ............................. 1.30% 66,484 31.265566 2,078,660 0.56% 25.87% 2002 ............................. 1.30% 72,057 24.840096 1,789,903 0.85% -18.42% 2001 ............................ 1.30% 91,363 30.449581 2,781,965 0.74% -12.97% 2000 ............................. 1.30% 103,521 34.985736 3,621,758 0.63% -3.38% 1999 ............................. 1.30% 115,322 36.208762 4,175,667 0.65% 5.56% Gartmore GVIT U.S. Growth Leaders Fund - Class I 2003 ............................. 1.30% 16,491 12.246750 201,961 0.00% 50.17% 2002 ............................. 1.30% 4,697 8.154993 38,304 0.00% -18.45% 5/1/02
Contract Investment Expense Unit Contract Income Total Rate* Units Fair Value Owners' Equity Ratio** Return*** -------- ------- ---------- -------------- ---------- --------- Janus AS - Capital Appreciation Portfolio - Service Shares 2003 ............................. 1.30% 13,360 $ 5.976684 $ 79,848 0.25% 18.68% 2002 ............................. 1.30% 10,536 5.035896 53,058 0.30% -17.02% 2001 ............................ 1.30% 15,561 6.068452 94,431 0.91% -22.85% 2000 ............................. 1.30% 22,133 7.865419 174,085 1.33% -21.35% 5/1/00 Janus AS - Global Technology Portfolio - Service Shares 2003 ............................. 1.30% 36,630 3.505015 128,389 0.00% 44.58% 2002 ............................. 1.30% 22,402 2.424192 54,307 0.00% -41.70% 2001 ............................ 1.30% 44,468 4.157888 184,893 0.56% -38.13% 2000 ............................. 1.30% 52,739 6.720656 354,441 1.21% -32.79% 5/1/00 Janus AS - International Growth Portfolio - Service Shares 2003 ............................. 1.30% 53,588 5.798153 310,711 0.99% 32.80% 2002 ............................. 1.30% 59,542 4.366167 259,970 0.67% -26.72% 2001 ............................ 1.30% 59,476 5.958051 354,361 0.70% -24.43% 2000 ............................. 1.30% 72,749 7.883682 573,530 6.25% -21.16% 5/1/00 MAS GVIT Multi Sector Bond Fund - Class I 2003 ............................. 1.30% 10,621 12.528743 133,068 5.47% 10.67% 2002 ............................. 1.30% 10,843 11.320967 122,753 4.53% 5.82% 2001 ............................ 1.30% 269 10.698042 2,878 8.29% 2.84% 2000 ............................. 1.30% 1,928 10.403041 20,057 8.52% 4.03% 5/1/00 Neuberger Berman AMT - Growth Portfolio 2003 ............................. 1.30% 67,899 19.952228 1,354,736 0.00% 29.71% 2002 ............................. 1.30% 70,474 15.382754 1,084,084 0.00% -32.05% 2001 ............................ 1.30% 116,532 22.639891 2,638,272 0.00% -31.27% 2000 ............................. 1.30% 110,577 32.939123 3,642,309 0.00% -12.79% 1999 .......................... 1.30% 97,552 37.771042 3,684,641 0.00% 48.46% Neuberger Berman AMT - Guardian Portfolio 2003 ............................. 1.30% 6,729 9.650858 64,941 0.84% 30.06% 2002 ............................. 1.30% 6,891 7.420249 51,133 0.80% -27.40% 2001 ............................ 1.30% 7,490 10.220670 76,553 0.47% -2.79% 2000 ............................. 1.30% 4,316 10.513749 45,377 0.59% -0.17% 1999 ............................. 1.30% 2,945 10.531438 31,015 0.29% 13.45% Neuberger Berman AMT - Limited Maturity Bond Portfolio 2003 ............................. 1.30% 68,214 18.229469 1,243,505 4.41% 1.10% 2002 ............................. 1.30% 82,238 18.030897 1,482,825 4.91% 3.98% 2001 ............................ 1.30% 64,208 17.341018 1,113,432 5.78% 7.37% 2000 ............................. 1.30% 55,938 16.150810 903,444 6.96% 5.41% 1999 ............................. 1.30% 58,827 15.321478 901,317 5.57% 0.17% Neuberger Berman AMT - Partners Portfolio 2003 ............................. 1.30% 38,219 23.205843 886,904 0.00% 33.35% 2002 ............................. 1.30% 42,685 17.402827 742,840 0.53% -25.12% 2001 ............................ 1.30% 58,929 23.242157 1,369,637 0.38% -4.09% 2000 ............................. 1.30% 56,278 24.233377 1,363,806 0.79% -0.59% 1999 ............................. 1.30% 69,118 24.377639 1,684,934 1.20% 5.98% Oppenheimer Aggressive Growth Fund/VA - Initial Class 2003 ............................. 1.30% 27,365 4.649735 127,240 0.00% 23.97% 2002 ............................. 1.30% 11,830 3.750690 44,371 0.65% -28.72% 2001 ............................ 1.30% 12,032 5.262277 63,316 0.87% -32.16% 2000 ............................. 1.30% 25,730 7.757136 199,591 0.00% -22.43% 5/1/00 Oppenheimer Bond Fund/VA - Initial Class 2003 ............................. 1.30% 39,108 23.210049 907,699 5.67% 5.40% 2002 ............................. 1.30% 66,289 22.020858 1,459,741 7.25% 7.67% 2001 ............................ 1.30% 71,479 20.452013 1,461,889 7.04% 6.39% 2000 ............................. 1.30% 57,658 19.224081 1,108,422 7.66% 4.73% 1999 ............................. 1.30% 70,351 18.355321 1,291,315 4.68% -2.79%
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 NOTES TO FINANCIAL STATEMENTS, Continued
Contract Investment Expense Unit Contract Income Total Rate* Units Fair Value Owners' Equity Ratio** Return*** -------- ------- ---------- -------------- ---------- --------- Oppenheimer Capital Appreciation Fund/VA- Initial Class 2003 ............................. 1.30% 87,490 $14.153408 $1,238,282 0.38% 29.25% 2002 ............................. 1.30% 84,080 10.950071 920,682 0.64% -27.81% 2001 ............................ 1.30% 89,005 15.167382 1,349,973 0.64% -13.71% 2000 ............................. 1.30% 91,772 17.577949 1,613,164 0.12% -1.51% 1999 ............................. 1.30% 60,384 17.847892 1,077,727 0.17% 39.83% Oppenheimer Global Securities Fund/VA - Initial Class 2003 ............................. 1.30% 72,050 27.613518 1,989,554 0.76% 41.18% 2002 ............................. 1.30% 77,714 19.559687 1,520,062 0.56% -23.14% 2001 ............................ 1.30% 89,126 25.449092 2,268,176 0.69% -13.18% 2000 ............................. 1.30% 103,662 29.312842 3,038,628 0.27% 3.74% 1999 ............................. 1.30% 99,036 28.256521 2,798,413 0.92% 56.44% Oppenheimer Main Street(R) Growth & Income Fund/VA - Initial Class 2003 ............................. 1.30% 16,358 7.980692 130,548 0.90% 25.08% 2002 ............................. 1.30% 8,466 6.380282 54,015 0.65% -19.85% 2001 ............................ 1.30% 11,244 7.960162 89,504 0.41% -11.33% 2000 ............................. 1.30% 3,017 8.977032 27,084 0.00% -10.23% 5/1/00 Oppenheimer Multiple Strategies Fund/VA - Initial Class 2003 ............................. 1.30% 66,415 29.070523 1,930,719 2.82% 23.34% 2002 ............................. 1.30% 58,166 23.568558 1,370,889 3.60% -11.56% 2001 ............................ 1.30% 95,325 26.649037 2,540,319 3.96% 0.89% 2000 ............................. 1.30% 102,256 26.413991 2,700,989 4.57% 5.07% 1999 ............................. 1.30% 106,259 25.139330 2,671,280 3.30% 10.35% Strong GVIT Mid Cap Growth Fund - Class I 2003 ............................. 1.30% 54,348 4.780255 259,797 0.00% 38.33% 2002 ............................. 1.30% 36,181 3.455755 125,033 0.00% -37.83% 2001 ............................ 1.30% 3,579 5.558609 19,894 0.00% -31.22% 2000 ............................. 1.30% 9,148 8.081237 73,927 0.00% -19.19% 5/1/00 Strong Opportunity Fund II, Inc. 2003 ............................. 1.30% 69,041 38.060714 2,627,750 0.07% 35.24% 2002 ............................. 1.30% 78,959 28.143339 2,222,170 0.38% -27.77% 2001 ............................ 1.30% 99,955 38.960989 3,894,346 0.59% -4.95% 2000 ............................. 1.30% 101,232 40.898881 4,140,276 0.00% 5.23% 1999 ............................. 1.30% 102,073 38.955700 3,976,325 0.00% 33.17% Strong VIF - Strong Discovery Fund II 2003 ............................. 1.30% 22,400 24.651908 552,203 0.00% 37.63% 2002 ............................. 1.30% 26,664 17.911803 477,600 0.00% -13.15% 2001 ............................ 1.30% 35,961 20.624646 741,683 0.72% 2.73% 2000 ............................. 1.30% 29,577 20.076460 593,801 0.00% 3.05% 1999 ............................. 1.30% 32,996 19.481837 642,823 0.00% 3.73% Strong VIF - Strong International Stock Fund II 2002 ............................. 1.30% 28,207 5.494908 154,995 4.04% -27.49% 2001 ............................ 1.30% 28,858 7.578594 218,703 0.00% -23.15% 2000 ............................. 1.30% 77,557 9.861771 764,849 0.00% -40.30% 1999 ............................. 1.30% 142,490 16.519505 2,353,864 0.17% 84.79% Turner GVIT Growth Focus Fund - Class I 2003 ............................. 1.30% 41,875 3.198637 133,943 0.00% 49.02% 2002 ............................. 1.30% 9,832 2.146502 21,104 0.00% -43.60% 2001 ............................ 1.30% 2,633 3.805692 10,020 0.00% -39.82% Van Eck WIT - Worldwide Bond Fund 2003 ............................. 1.30% 45,248 19.362563 876,117 1.75% 16.64% 2002 ............................. 1.30% 48,544 16.600653 805,862 0.00% 20.09% 2001 ............................ 1.30% 33,122 13.823940 457,877 4.39% -6.33% 2000 ............................. 1.30% 31,281 14.757769 461,638 4.90% 0.56% 1999 ............................. 1.30% 34,273 14.675886 502,987 4.31% -9.01%
Contract Investment Expense Unit Contract Income Total Rate* Units Fair Value Owners' Equity Ratio** Return*** -------- ------- ---------- -------------- ---------- --------- Van Eck WIT - Worldwide Emerging Markets Fund 2003 ............................. 1.30% 41,241 $9.169570 $ 378,162 0.11% 52.20% 2002 ............................. 1.30% 32,199 6.024691 193,989 0.20% -4.16% 2001 ............................ 1.30% 34,168 6.285993 214,780 0.00% -3.09% 2000 ............................. 1.30% 37,709 6.486254 244,590 0.00% -42.61% 1999 ............................. 1.30% 123,914 11.302972 1,400,596 0.00% 97.70% Van Eck WIT - Worldwide Hard Assets Fund 2003 ............................. 1.30% 52,868 17.487326 924,520 0.48% 43.21% 2002 ............................. 1.30% 42,486 12.211274 518,808 0.68% -4.09% 2001 ............................ 1.30% 38,241 12.731937 486,882 1.21% -11.61% 2000 ............................. 1.30% 57,160 14.404038 823,335 1.12% 9.97% 1999 ............................. 1.30% 71,735 13.098076 939,590 1.47% 19.44% Van Kampen UIF - Emerging Markets Debt Portfolio 2003 ............................. 1.30% 28,152 14.401515 405,431 0.00% 26.21% 2002 ............................. 1.30% 5,151 11.410385 58,775 6.91% 7.81% 2001 ............................ 1.30% 7,324 10.583651 77,515 9.40% 8.67% 2000 ............................. 1.30% 9,551 9.739230 93,019 12.32% 9.96% 1999 ............................. 1.30% 6,540 8.857388 57,927 16.19% 27.71% Van Kampen UIF - U.S. Real Estate Portfolio 2003 ............................. 1.30% 45,256 27.142344 1,228,354 0.00% 35.74% 2002 ............................. 1.30% 51,170 19.996209 1,023,206 3.29% -2.07% 2001 ............................ 1.30% 53,253 20.418602 1,087,352 3.98% 8.41% 2000 ............................. 1.30% 50,123 18.833757 944,004 8.22% 26.41% 1999 ............................. 1.30% 39,678 14.898574 591,146 6.87% -4.62%
Contract Owners' Equity Total By Year 2003..................................... $ 881,562,186 ============== 2002..................................... $ 727,023,336 ============== 2001..................................... $ 933,404,977 ============== 2000..................................... $1,071,884,297 ============== 1999..................................... $1,144,615,392 ============== * This represents the contract expense rate 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 dividends for the period indicated, excluding distributions of capital gains, received by the subaccount from the underlying mutual fund, net of management fees assessed by the fund manager, divided by average net assets. The ratios exclude those expenses, such as mortality and expense charges, that result in direct reductions to the contractholder accounts either through reductions in unit values or redemption of units. The recognition of investment income by the subaccount is affected by the timing of the declaration of dividends by the underlying fund in which the subaccounts invest. *** This represents the 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 in the total return presented. Investment options with a date notation indicate the effective date of that investment option in the Account. The total return is calculated for the period indicated or from the effective date through the end of the period. - -------------------------------------------------------------------------------- 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 (the Company) as of December 31, 2003 and 2002, and the related consolidated statements of earnings, shareholder's equity, and cash flows for each of the years in the three-year period ended December 31, 2003. 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, 2003 and 2002, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. As discussed in note 2 to the consolidated financial statements, the Company changed its methods of accounting for derivative instruments and hedging activities, and for purchased or retained interests in securitized financial assets in 2001. /s/ KPMG LLP Columbus, Ohio March 11, 2004 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Consolidated Statements of Earnings (in millions)
YEARS ENDED DECEMBER 31, --------------------------------------- 2003 2002 2001 ==================================================================================================================================== REVENUES: Policy charges $ 924.1 $ 973.8 $1,017.3 Life insurance premiums 279.8 259.9 251.1 Net investment income 1,980.0 1,838.5 1,724.7 Net realized gains (losses) on investments, hedging instruments and hedged items: Unrelated parties (100.8) (107.6) (62.7) Related parties - 23.2 44.4 Other income 12.7 8.8 8.2 - ------------------------------------------------------------------------------------------------------------------------------------ Total revenues 3,095.8 2,996.6 2,983.0 - ------------------------------------------------------------------------------------------------------------------------------------ BENEFITS AND EXPENSES: Interest credited to policyholder account values 1,300.4 1,241.2 1,238.7 Other benefits and claims 361.8 326.0 280.3 Policyholder dividends on participating policies 41.2 45.2 41.7 Amortization of deferred policy acquisition costs 375.9 670.1 347.9 Interest expense on debt, primarily with Nationwide Financial Services, Inc. (NFS) 48.4 36.0 6.2 Other operating expenses 533.7 508.6 439.3 - ------------------------------------------------------------------------------------------------------------------------------------ Total benefits and expenses 2,661.4 2,827.1 2,354.1 - ------------------------------------------------------------------------------------------------------------------------------------ Income from continuing operations before federal income tax expense 434.4 169.5 628.9 Federal income tax expense 96.2 8.7 161.2 - ------------------------------------------------------------------------------------------------------------------------------------ Income from continuing operations 338.2 160.8 467.7 Income from discontinued operations, net of tax - 0.7 1.2 Cumulative effect of adoption of accounting principle, net of tax (0.6) - (7.1) - ------------------------------------------------------------------------------------------------------------------------------------ Net income $ 337.6 $ 161.5 $ 461.8 ====================================================================================================================================
See accompanying notes to consolidated financial statements, including note 15 which describes related party transactions. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Consolidated Balance Sheets (in millions, except share amounts)
DECEMBER 31, December 31, 2003 2002 ============================================================================================================================= ASSETS: Investments: Securities available-for-sale, at fair value: Fixed maturity securities (cost $25,850.2 in 2003; $23,134.3 in 2002) $ 26,946.8 $ 24,169.0 Equity securities (cost $74.0 in 2003; $85.1 in 2002) 85.6 84.3 Mortgage loans on real estate, net 8,345.8 7,923.2 Real estate, net 96.5 116.6 Policy loans 618.3 629.2 Other long-term investments 130.6 137.5 Short-term investments, including amounts managed by a related party 1,860.8 1,210.3 - ----------------------------------------------------------------------------------------------------------------------------- Total invested assets 38,084.4 34,270.1 - ----------------------------------------------------------------------------------------------------------------------------- Cash 0.1 0.9 Accrued investment income 367.1 328.7 Deferred policy acquisition costs 3,219.3 2,971.1 Other assets 1,815.5 1,243.6 Assets held in separate accounts 57,084.5 47,208.2 - ----------------------------------------------------------------------------------------------------------------------------- Total assets $ 100,570.9 $ 86,022.6 ============================================================================================================================= LIABILITIES AND SHAREHOLDER'S EQUITY: Future policy benefits and claims $ 35,322.3 $ 31,679.8 Short-term debt 199.8 - Long-term debt, payable to NFS 700.0 600.0 Other liabilities 3,264.7 2,985.8 Liabilities related to separate accounts 57,084.5 47,208.2 - ----------------------------------------------------------------------------------------------------------------------------- Total liabilities 96,571.3 82,473.8 - ----------------------------------------------------------------------------------------------------------------------------- Shareholder's equity: Capital shares, $1 par value. Authorized 5.0 million shares; 3.8 million shares issued 3.8 3.8 and outstanding Additional paid-in capital 271.3 171.1 Retained earnings 3,257.2 2,979.6 Accumulated other comprehensive income 467.3 394.3 - ----------------------------------------------------------------------------------------------------------------------------- Total shareholder's equity 3,999.6 3,548.8 - ----------------------------------------------------------------------------------------------------------------------------- Total liabilities and shareholder's equity $ 100,570.9 $ 86,022.6 =============================================================================================================================
See accompanying notes to consolidated financial statements, including note 15 which describes related party transactions. 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, 2003, 2002 and 2001 (in millions)
ACCUMULATED ADDITIONAL OTHER TOTAL CAPITAL PAID-ON RETAINED COMPREHENSIVE SHAREHOLDER'S SHARES CAPITAL EARNINGS INCOME EQUTY ================================================================================================================================= ================================================================================================================================= Balance as of January 1, 2001 $ 3.8 $ 646.1 $2,436.3 $ 116.7 $ 3,202.9 Comprehensive income: Net income - - 461.8 - 461.8 Net unrealized gains on securities available-for-sale arising during the period, net of tax - - - 98.2 98.2 Cumulative effect of adoption of accounting principles, net of tax - - - (1.4) (1.4) Accumulated net losses on cash flow hedges, net of tax - - - (8.8) (8.8) --------------- Total comprehensive income 549.8 --------------- Dividend to NFS - - (35.0) - (35.0) - --------------------------------------------------------------------------------------------------------------------------------- Balance as of December 31, 2001 $ 3.8 $ 646.1 $2,863.1 $ 204.7 $ 3,717.7 ================================================================================================================================= Comprehensive income: Net income - - 161.5 - 161.5 Net unrealized gains on securities available-for-sale arising during the period, net of tax - - - 178.6 178.6 Accumulated net gains on cash flow hedges, net of tax - - - 11.0 11.0 --------------- Total comprehensive income 351.1 --------------- Returns of capital to NFS - (475.0) - - (475.0) Dividend to NFS - - (45.0) - (45.0) - --------------------------------------------------------------------------------------------------------------------------------- Balance as of December 31, 2002 $ 3.8 $ 171.1 $2,979.6 $ 394.3 $ 3,548.8 ================================================================================================================================= Comprehensive income: Net income - - 337.6 - 337.6 Net unrealized gains on securities available-for-sale arising during the period, net of tax - - - 99.6 99.6 Accumulated net losses on cash flow hedges, net of tax - - - (26.6) (26.6) --------------- Total comprehensive income 410.6 --------------- Capital contributed by NFS - 200.2 - - 200.2 Return of capital to NFS - (100.0) - - (100.0) Dividend to NFS - - (60.0) - (60.0) - --------------------------------------------------------------------------------------------------------------------------------- Balance as of December 31, 2003 $ 3.8 $ 271.3 $3,257.2 $ 467.3 $ 3,999.6 =================================================================================================================================
See accompanying notes to unaudited consolidated financial statements, including note 15 which describes related party transactions. 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, ---------------------------------------- 2003 2002 2001 =========================================================================================================================== CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 337.6 $ 161.5 $ 461.8 Adjustments to reconcile net income to net cash provided by operating activities: Income from discontinued operations - (0.7) (1.2) Interest credited to policyholder account values 1,300.4 1,241.2 1,238.7 Capitalization of deferred policy acquisition costs (567.2) (648.2) (743.0) Amortization of deferred policy acquisition costs 375.9 670.1 347.9 Amortization and depreciation 69.3 (0.7) (31.5) Realized losses (gains) on investments, hedging instruments and hedged items: Unrelated parties 100.8 107.6 62.7 Related parties - (23.2) (44.4) Cumulative effect of adoption of accounting principles (0.9) - 10.9 Increase in other assets (640.7) (606.1) (271.8) Increase in policy and other liabilities 299.1 463.1 335.8 Other, net 1.1 11.0 (47.0) - --------------------------------------------------------------------------------------------------------------------------- Net cash provided by continuing operations 1,275.4 1,375.6 1,318.9 Net cash provided by discontinued operations - 0.7 1.7 - --------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 1,275.4 1,376.3 1,320.6 - --------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from maturity of available-for-sale securities 4,101.6 3,887.7 3,933.9 Proceeds from sale of available-for-sale securities 2,220.5 1,534.9 497.2 Proceeds from repayments of mortgage loans on real estate 1,478.3 1,009.0 1,204.4 Proceeds from sale of limited partnership to related parties - 54.5 158.9 Cost of available-for-sale securities acquired (9,366.7) (9,874.5) (7,123.6) Cost of mortgage loans on real estate acquired (1,914.4) (1,810.2) (2,123.1) Short-term investments, net (639.9) (193.1) (568.7) Disposal of subsidiary, net of cash - (20.0) - Other, net 254.2 (31.8) 697.0 - --------------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (3,866.4) (5,443.5) (3,324.0) Net cash provided by discontinued operations - - 0.6 - --------------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (3,866.4) (5,443.5) (3,323.4) - --------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net change in short-term debt 199.8 (100.0) (18.7) Net proceeds from issuance of long-term debt to NFS 100.0 300.0 300.0 Capital contributed by NFS 200.2 - - Capital returned to NFS (100.0) (475.0) - Cash dividends paid to NFS (60.0) (35.0) (35.0) Increase in investment and universal life insurance product account values 5,116.1 6,278.9 5,976.7 Decrease in investment and universal life insurance product account values (2,865.9) (1,923.4) (4,216.0) - --------------------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 2,590.2 4,045.5 2,007.0 - --------------------------------------------------------------------------------------------------------------------------- Net (decrease) increase in cash (0.8) (21.7) 4.2 Cash, beginning of period 0.9 22.6 18.4 - --------------------------------------------------------------------------------------------------------------------------- Cash, end of period $ 0.1 $ 0.9 $ 22.6 ===========================================================================================================================
See accompanying notes to consolidated financial statements, including note 15 which describes related party transactions. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements December 31, 2003, 2002 and 2001 (1) ORGANIZATION AND DESCRIPTION OF BUSINESS Nationwide Life Insurance Company (NLIC, or collectively with its subsidiaries, the Company) is a leading provider of life insurance and retirement savings products in the United States of America (U.S.) 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, other investment products sold to institutions, life insurance and an advisory services program. The Company markets its products through a diverse distribution network, including independent broker/dealers, wirehouse and regional firms, financial institutions, pension plan administrators, life insurance specialists, certified public accounting firms and the following affiliated producers: Nationwide Retirement Solutions, TBG Financial, Nationwide Provident agents and Nationwide agents. Wholly owned subsidiaries of NLIC include Nationwide Life and Annuity Insurance Company (NLAIC) 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 U.S. (GAAP), which differ from statutory accounting practices. The statutory financial statements of NLIC and NLAIC are presented on the basis of accounting practices prescribed or permitted by the Ohio Department of Insurance (the Department). The Ohio Department of Insurance has adopted the National Association of Insurance Commissioners (NAIC) statutory accounting practices (NAIC SAP) as the basis of its statutory accounting practices. NLIC and NLAIC have no statutory accounting practices that differ from NAIC SAP. See also note 14 for discussion of statutory capital requirements and dividend limitations. 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 the balance and amortization of deferred policy acquisition costs (DAC) for investment products, universal life insurance products, valuation allowances for mortgage loans on real estate, impairment losses on other investments and accruals related to federal income taxes and pension and other postretirement benefits. Although some variability is inherent in these estimates, the recorded amounts reflect management's best estimates and management believes the amounts provided are appropriate. (a) Consolidation Policy The consolidated financial statements include the accounts of NLIC and companies in which NLIC directly or indirectly has a controlling financial interest and, as discussed in note 2(n), effective December 31, 2003, the Company applied the provisions of FIN 46R to those special purpose entities (SPIEs) with which it is associated. All significant intercompany balances and transactions have been eliminated. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements Notes to Consolidated Financial Statements, Continued (b) Valuation of Investments, Investment Income and Related Gains and Losses The Company is required to classify its fixed maturity securities and marketable equity securities as held-to-maturity, available-for-sale or trading. All fixed maturity and marketable equity securities are classified 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 (DAC), future policy benefits and claims, and deferred federal income tax, reported as a separate component of accumulated other comprehensive income (AOCI) in shareholders' equity. The adjustment to DAC represents the changes in amortization of DAC that would have been required as a charge or credit to operations had such unrealized amounts been realized and allocated to the product lines. The adjustment to future policy benefits and claims represents the increase in policy reserves from using a discount rate that would have been required if such unrealized gains been realized and the proceeds reinvested at then current market interest rates, which were lower than the then current effective portfolio rate. The fair value of fixed maturity and marketable equity securities is generally obtained from independent pricing services based on market quotations. For fixed maturity securities not priced by independent services (generally private placement securities and securities that do not trade regularly), an internally developed pricing model or "corporate pricing matrix" is most often used. The corporate pricing matrix is developed by obtaining spreads versus the US Treasury yield for corporate securities with varying weighted average lives and bond ratings. The weighted average life and bond rating of a particular fixed maturity security to be priced using the corporate matrix are important inputs into the model and are used to determine a corresponding spread that is added to the US Treasury yield to create an estimated market yield for the that bond. The estimated market yield and other relevant factors are then used to estimate the fair value of the particular fixed maturity security. Additionally, the Company's internal corporate pricing matrix is not suitable for valuing certain fixed maturity securities, particularly those with complex cash flows such as certain mortgage-backed and asset-backed securities. In these cases, a separate "structured product pricing matrix" has been developed to value, as appropriate, using the same methodology described above. For securities for which quoted market prices are not available and for which the Company's structured product pricing matrix is not suitable for estimating fair values, qualified company representatives determine the fair value using other modeling techniques, primarily using a commercial software application utilized in valuing complex securitized investments with variable cash flows. As of December 31, 2003, 68% of the fair values of fixed maturity securities were obtained from independent pricing services, 21% from the Company's pricing matricies and 11% from other sources. Management regularly reviews its fixed maturity and equity securities portfolio to evaluate the necessity of recording impairment losses for other-than-temporary declines in the fair value of investments. A number of criteria are considered during this process including, but not limited to, the current fair value as compared to amortized cost or cost, as appropriate, of the security, the length of time the security's fair value has been below amortized cost/cost, and by how much, specific credit issues related to the issuer, and current economic conditions. Other-than-temporary impairment losses result in a permanent reduction of the cost basis of the underlying investment. Also, the Company estimates the cash flows over the life of certain purchased beneficial interests in securitized financial assets. 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 an adverse change in the estimated cash flows since the last revised estimate, considering both timing and amount, then an other-than-temporary impairment is recognized and the purchased beneficial interest is written down to fair value. Impairment losses are recorded on investments in 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. For mortgage-backed securities, the Company recognizes income using a constant effective yield method based on prepayment assumptions and the estimated economic life of the securities. When estimated prepayments differ significantly from anticipated prepayments, the effective yield is recalculated to reflect actual payments to date and anticipated future payments; any resulting adjustment is included in net investment income. All other investment income is recorded using the interest-method without anticipating the impact of prepayments. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements 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. Mortgage loans on real estate are considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. When the Company determines that a loan is impaired, a provision for loss is established equal to the difference between the carrying value and the estimated value of the mortgage loan. Estimated value is based on the present value of expected future cash flows discounted at the loan's effective interest rate, or the fair value of the collateral, if the loan is collateral dependent. Loans in foreclosure and loans considered impaired are placed on non-accrual status. Interest received on non-accrual status mortgage loans on real estate is included in net investment income in the period received. The valuation allowance account for mortgage loans on real estate is maintained at a level believed adequate by the Company to absorb its best estimate of probable credit losses inherent in the portfolio at the balance sheet date. The valuation allowance for mortgage loans is comprised of a specific component, based on known impairments by specific loan and an unallocated component that is derived based on the Company's estimate of impairments inherent in the portfolio at the balance sheet date, but not specifically identified by loan. The unallocated component is derived for principal amounts related to loans without a specific reserve. The Company's periodic evaluation of the adequacy of the allowance for losses is based on past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to repay, the estimated value of the underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. Real estate is carried at cost less accumulated depreciation. Real estate designated as held for disposal is carried at the lower of the carrying value at the time of such designation or fair value less cost to sell. Other long-term investments are carried on the equity method of accounting. Realized gains and losses on the sale of investments are determined on the basis of specific security identification. Changes in the Company's mortgage loan valuation allowances and recognition of impairment losses for other-than-temporary declines in the fair values of applicable investments are included in realized gains and losses on investments, hedging instruments and hedged items. (c) Derivative Instruments Derivatives are carried at fair value. On the date the derivative contract is entered into, the Company designates the derivative as either a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (fair value hedge), a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (cash flow hedge), a foreign currency fair value or cash flow hedge (foreign currency hedge) or a non-hedge transaction. The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for entering into various hedge transactions. This process includes linking all derivatives that are designated as fair value, cash flow or foreign currency hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. The Company also formally assesses, both at the hedge's inception and on an ongoing basis, whether the derivatives that are used for hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. When it is determined that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective hedge, the Company discontinues hedge accounting prospectively. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements The Company enters into interest rate swaps, cross-currency swaps or Euro futures to hedge the fair value of existing fixed rate assets and liabilities. In addition, the Company uses short Treasury future positions to hedge the fair value of bond and mortgage loan commitments. Typically, the Company is hedging the risk of changes in fair value attributable to changes in benchmark interest rates. Derivative instruments classified as fair value hedges are carried at fair value, with changes in fair value recorded in realized gains and losses on investments, hedging instruments and hedged items. Changes in the fair value of the hedged item, attributable to the risk being hedged, are also recorded in realized gains and losses on investments, hedging instruments and hedged items. The Company may enter into "receive fixed/pay variable" interest rate swaps to hedge existing floating rate assets or to hedge cash flows from the anticipated purchase of investments. These derivative instruments are identified as cash flow hedges and are carried at fair value with the offset recorded in AOCI to the extent the hedging relationship is effective. The ineffective portion of the hedging relationship is recorded in realized gains and losses on investments, hedging instruments and hedged items. Gains and losses on derivative instruments that are initially recognized into AOCI are reclassified out of AOCI and recognized in earnings over the same period(s) that the hedged item affects earnings. Accrued interest receivable or payable under interest rate and foreign currency swaps are recognized as an adjustment to net investment income or interest credited to policyholder account values consistent with the nature of the hedged item, except for interest rate swaps hedging the anticipated sale of investments where amounts receivable or payable under the swaps are recorded as realized gains and losses on investments, hedging instruments and hedged items, and except for interest rate swaps hedging the anticipated purchase of investments where amounts receivable or payable under the swaps are initially recorded in AOCI to the extent the hedging relationship is effective. From time to time, the Company may enter into a derivative transaction that will not qualify for hedge accounting. The Company does not enter into speculative positions. Although these transactions do not qualify for hedge accounting, or have not been designated in hedging relationships by the Company, they provide the Company with an economic hedge, which is used as part of its overall risk management strategies. For example, the Company may sell credit default protection through a credit default swap. Although the credit default swap may not be effective in hedging specific investments, the income stream allows the Company to manage overall investment yields. The Company may enter into a cross-currency basis swap (pay a variable US rate and receive a variable foreign-denominated rate) to eliminate the foreign currency exposure of a variable rate foreign-denominated liability. Although basis swaps may qualify for hedge accounting, the Company has chosen not to designate these derivatives as hedging instruments due to the difficulty in assessing and monitoring effectiveness for both sides of the basis swap. Derivative instruments that do not qualify for hedge accounting, or are not designated as hedging instruments are carried at fair value, with changes in fair value recorded in realized gains and losses on investments, hedging instruments and hedged items. (d) 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. The timing of revenue recognition as it relates to fees assessed on investment contracts and universal life contracts is determined based on the nature of such fees. Asset fees, cost of insurance and policy administration charges are assessed on a daily or monthly basis and recognized as revenue when assessed and earned. Certain amounts assessed that represent compensation for services to be provided in future periods are reported as unearned revenue and recognized in income over the periods benefited. Surrender charges are recognized upon surrender of a contract in accordance with contractual terms. Policy benefits and claims that are charged to expense include interest credited to policy account values and benefits and claims incurred in the period in excess of related policy account values. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements 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. (e) Deferred Policy Acquisition Costs The costs of acquiring business, principally commissions, certain expenses of the policy issue and underwriting department and certain variable sales expenses that relate to and vary with the production of new or renewal business have been deferred. DAC is subject to recoverability testing at the time of policy issuance and loss recognition testing at the end of each reporting period. For investment products (principally individual and group annuities) and universal life insurance products, DAC is 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, less policy benefits and policy maintenance expenses. The DAC asset related to investment products and universal life insurance products is adjusted to reflect the impact of unrealized gains and losses on fixed maturity securities available-for-sale as described in note 2(b). The most significant assumptions that are involved in the estimation of future gross profits include future net separate account performance, surrender/lapse rates, interest margins and mortality. The Company's long-term assumption for net separate account performance is 8 percent growth per year. If actual net separate account performance varies from the 8 percent assumption, the Company assumes different performance levels over the next three years, such that the mean return equals the long-term assumption. This process is referred to as a reversion to the mean. The assumed net separate account return assumptions used in the DAC models are intended to reflect what is anticipated. However, based on historical returns of the S&P 500 Index, the Company's policy regarding the reversion to the mean process does not permit such returns to be negative or in excess of 15 percent during the three-year reversion period. Changes in assumptions can have a significant impact on the amount of DAC reported for investment products and universal life insurance products and their related amortization patterns. In the event actual experience differs from assumptions or assumptions are revised, the Company is required to record an increase or decrease in DAC amortization expense (DAC unlocking), which could be significant. In general, increases in the estimated general and separate account returns result in increased expected future profitability and may lower the rate of DAC amortization, while increases in lapse/surrender and mortality assumptions reduce the expected future profitability of the underlying business and may increase the rate of DAC amortization. Due to the magnitude of the DAC balance related to the individual variable annuity business, the sensitivity of the calculation to minor changes in the underlying assumptions, the complexity and judgments involved in related estimate, and the related volatility that could result in the reported DAC balance without meaningful improvement in its reasonableness, the Company evaluates the appropriateness of the individual variable annuity DAC balance within pre-set parameters. Should the recorded balance of individual variable annuity DAC fall outside of these parameters for a prescribed period of time, or should the recorded balance fall outside of these parameters and the Company determines it is not reasonably possible to get back within this period of time, assumptions are required to be unlocked and the DAC is recalculated using revised best estimate assumptions. Otherwise, DAC is not unlocked to reflect updated assumptions. In the event DAC assumptions are unlocked and revised, the Company will continue to use the reversion to the mean process. For other investment products and universal life insurance products, DAC is set each quarter to reflect revised best estimate assumptions, including the use of a reversion to the mean methodology over the next three years as it relates to net separate account performance. Any resulting DAC unlocking adjustments are reflected currently as a charge or credit to DAC amortization expense. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements For traditional life insurance products, DAC is 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 is estimated using the same assumptions as those used for computing liabilities for future policy benefits at issuance. Under existing accounting guidance, the concept of DAC unlocking does not apply to traditional life insurance products, although evaluations of DAC for recoverability at the time of policy issuance and loss recognition testing at each reporting period are performed as required. (f) Separate Accounts Separate account assets and liabilities represent contractholders' funds which have been segregated into accounts with specific investment objectives. Separate account assets are recorded at fair value based primarily on market quotations of the underlying securities. 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. Such fees are assessed on a daily or monthly basis and recognized as revenue when assessed and earned. (g) Future Policy Benefits The liability for future policy benefits for investment products in the accumulation phase, universal life insurance and variable universal life insurance policies is the policy account balance, which represents participants' net premiums and deposits plus investment performance and interest credited less applicable contract charges. The liability for future policy benefits for traditional life insurance policies has been calculated by the net level premium method using interest rates varying from 3.0% 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. The liability for future policy benefits for payout annuities has been calculated using the present value of future benefits and maintenance costs discounted using interest rates varying from 3.0% to 13.0%. Also, as of December 31, 2003 and 2002, the calculated reserve was adjusted to reflect the incremental reserve that would be required if unrealized gains and losses had been realized and therefore resulted in the use of a lower discount rate, as discussed in note 2(b). (h) Participating Business Participating business represented approximately 13% in 2003 (15% in 2002 and 17% in 2001) of the Company's life insurance in-force, 56% of the number of life insurance policies in-force in 2003 (59% in 2002 and 63% in 2001), and 11% of life insurance statutory premiums in 2003 (9% in 2002 and 9% in 2001). The provision for policyholder dividends was based on then current dividend scales and has been included in Future policy benefits and claims in the accompanying consolidated balance sheets. (i) Federal Income Tax The Company provides for federal income taxes based on amounts the Company believes it will ultimately owe. Inherent in the provision for federal income taxes are estimates regarding the deductibility of certain items and the realization of certain tax credits. In the event the ultimate deductibility of certain expenses or the realization of certain tax credits differ from estimates, the Company may be required to significantly change the provision for federal income taxes recorded in the consolidated financial statements. Management has used best estimates to establish reserves based on current facts and circumstances regarding tax exposure items where the ultimate deductibility is open to interpretation. Quarterly, management evaluates the appropriateness of such reserves based on any new developments specific to their fact patterns. Information considered includes results of completed tax examinations, Technical Advice Memorandums and other rulings issued by the Internal Revenue Service or the tax courts. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements 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. (j) 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 in the consolidated balance sheets on a gross basis, separately from the related balances of the Company. (k) Recently Issued Accounting Pronouncements In December 2003, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 132 (revised 2003) Employers' Disclosures about Pensions and Other Postretirement Benefits an amendment of FASB Statements No. 87, 88 and 106 (SFAS 132R). SFAS 132R provides revised disclosure guidance for pension and other postretirement benefit plans but does not change the measurement or recognition of those plans under existing guidance. Disclosures previously required under SFAS No. 132 Employers' Disclosures about Pensions and Other Postretirement Benefits, which was replaced by SFAS 132R, were retained. In addition, SFAS 132R requires additional disclosures about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other defined benefit pension plans. The Company adopted SFAS 132R effective December 31, 2003, except for disclosures about estimated benefit payments, which is expected to be adopted in the second quarter of 2004, as permitted by SFAS 132R. In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities - an interpretation of ARB No. 51 (FIN 46). Accounting Research Bulletin No. 51, Consolidated Financial Statements (ARB 51) states that consolidation is usually necessary when a company has a "controlling financial interest" in another company, a condition most commonly achieved via ownership of a majority voting interest. FIN 46 clarifies the application of ARB 51, to certain "variable interest entities" (VIEs) where (i) the equity investors are not empowered to make sufficient decisions about the entity's operations, or do not receive expected returns or absorb expected losses commensurate with their equity ownership; or (ii) the entity does not have sufficient equity to finance its activities without additional subordinated financial support from other parties. VIEs are consolidated by their primary beneficiary, which is a party having a majority of the entity's expected losses, expected residual returns, or both. A company holding a significant variable interest in a VIE, but not deemed the primary beneficiary is subject to certain disclosure requirements specified by FIN 46. FIN 46 applies to entities formed after January 31, 2003, and to VIEs in which an enterprise obtains an interest after that date. In October 2003, the FASB delayed the implementation date of FIN 46 for VIEs acquired prior to January 31, 2003 to interim periods ending after December 15, 2003, with early adoption permitted. In December 2003, the FASB issued Interpretation No. 46 (revised December 2003) Consolidation of Variable Interest Entities - an interpretation of ARB No. 51 (FIN 46R) that required all public companies to apply the provisions of FIN 46 or FIN 46R to special purpose entities created prior to February 1, 2003. Once adopted by an entity, FIN 46R replaces FIN 46. Public companies, including the Company, at a minimum, must apply the unmodified provisions of FIN 46 to entities that were considered "special purpose entities" in practice and under applicable FASB pronouncements or guidance by the end of the first reporting period ending after December 15, 2003. The Company had no special purpose entity VIE's as of December 31, 2003. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements The Company is required to apply the provisions of FIN 46R to all entities created after December 31, 2003 and to all other entities no later than the beginning of the first reporting period beginning after March 15, 2004. FIN 46 may be applied on a prospective basis with a cumulative effect adjustment made as of the date of initial application or by restating previously issued financial statements for one or more years with a cumulative effect adjustment as of the beginning of the first year restated. The Company plans to adopt the remaining provisions of FIN 46R during the first quarter of 2004. The adoption of the remaining provisions of FIN 46R is not expected to have a material impact on the results of operations or financial position of the Company. In July 2003, the American Institute of Certified Public Accountants issued Statement of Position 03-1, Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts (SOP 03-1). SOP 03-1 addresses a number of topics; the most significant of which to the Company is the accounting for contracts with guaranteed minimum death benefits (GMDB). SOP 03-1 requires companies to evaluate the significance of the GMDB benefit to determine whether the contract should be accounted for as an investment or insurance contract. For contracts determined to be insurance contracts, companies are required to establish a reserve to recognize a portion of the assessment (revenue) that compensates the insurance company for benefits to be provided in future periods. SOP 03-1 also provides guidance on separate account presentation, interest in separate accounts, gains and losses on the transfer of assets from the general account to a separate account, liability valuation, return based on a contractually referenced pool of assets or index, annuitization options and sales inducements to contract holders. The Company adopted SOP 03-1 on January 1, 2004. As a result, the Company expects to record a cumulative effect adjustment resulting from the adoption of accounting principles of approximately $3.3 million, net of tax, during the first quarter of 2004. See note 21 for further discussion. In May 2003, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (SFAS 150). SFAS 150 establishes standards for the classification and measurement of certain freestanding financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. Further, SFAS 150 requires disclosure regarding the terms of those instruments and settlement alternatives. As originally issued the guidance in SFAS 150 was generally effective for financial instruments entered into or modified after May 31, 2003, and otherwise effective at the beginning of the first interim period beginning after June 15, 2003. Adjustments required as a result of the application of SFAS 150 to existing instruments should be reported as a cumulative effect of a change in accounting principle. The adoption of SFAS 150 on July 1, 2003 did not have any impact on the results of operations or financial position of the Company. In April 2003, the FASB released SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities (SFAS 149). SFAS 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133). SFAS 149 is generally effective for contracts entered into or modified after June 30, 2003. The adoption of SFAS 149 on July 1, 2003 did not 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 Consolidated Financial Statements In April 2003, the FASB released Statement 133 Implementation Issue B36, Embedded Derivatives: Modified Coinsurance Arrangements and Debt Instruments That Incorporate Credit Risk Exposures That Are Unrelated or Only Partially Related to the Creditworthiness of the Obligor under Those Instruments (DIG B36). DIG B36 addresses the need to separately account for an embedded derivative within a reinsurer's receivable and ceding company's payable arising from modified coinsurance or similar arrangements. Paragraph 12.a. of SFAS 133 indicates that an embedded derivative must be separated from the host contract (bifurcated) if the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract. DIG B36 concludes that bifurcation is necessary in a modified coinsurance and similar arrangement because the yield on the receivable and payable is based on or referenced to a specified proportion of the ceding company's return on either its general account assets or a specified block of those assets, rather than the overall creditworthiness of the ceding company. The effective date of implementation was the first day of the first fiscal quarter beginning after September 15, 2003, October 1, 2003 for the Company. Upon adoption of DIG B36 on October 1, 2003, the Company recorded a derivative liability of $0.9 million, deferred taxes of $0.3 million and a charge of $0.6 million as a cumulative effect of adoption of this accounting principal. In November 2002, the FASB issued Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees - an Iinterpretation of FASB Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34 (FIN 45). FIN 45 requires a guarantor to provide more detailed interim and annual financial statement disclosures about obligations under certain guarantees it has issued. It also requires a guarantor to recognize, at the inception of new guarantees issued or modified after December 31, 2002, a liability for the fair value of the obligation undertaken in issuing the guarantee. Although superceded by FIN 45, the guidance provided in FASB Interpretation No. 34, Disclosure of Indirect Guarantees of Indebtedness of Others has been incorporated into FIN 45 without change. The adoption of FIN 45 on January 1, 2003 did not have a material impact on the financial position or results of operations of the Company. In June 2002, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 146, Accounting for Costs Associated with Exit or Disposal Activities (SFAS 146), which the Company adopted January 1, 2003. Adoption of SFAS 146 did not have any impact on the financial position or results of operations of the Company. In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections (SFAS 145), which the Company adopted on October 1, 2002. The adoption of SFAS 145 did not have any impact on the financial position or results of operations of the Company. In October 2001, the FASB issued SFAS 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 (APB 30). SFAS 144 was adopted by the Company on January 1, 2002 and carries forward many of the provisions of SFAS 121 for recognition and measurement of the impairment of long-lived assets to be held and used, and measurement of long-lived assets to be disposed of by sale, while providing additional criteria to determine when a long-lived asset is actually held-for-sale. SFAS 144 also broadens the definition of "discontinued operations," but does not allow for the accrual of future operating losses before they occur as previously required by APB 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. The adoption of SFAS 144 did not 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 Consolidated Financial Statements In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible Assets (SFAS 142). 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 (APB 17) and carries forward provisions in APB 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 Company adopted SFAS 142 on January 1, 2002, at which time, the Company had no unamortized goodwill and therefore, the adoption of SFAS 142 did not have any impact on the results of operations or financial position of the Company. In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133). SFAS 133, as amended by SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133 (SFAS 137), and SFAS 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities (SFAS 138), was adopted by the Company effective January 1, 2001. All references hereafter to SFAS 133 include the amendments outlined in SFAS 137 and SFAS 138. Upon adoption, the provisions of SFAS 133 were applied prospectively. 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. 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 2001. In addition, a net transition adjustment loss of $3.6 million (net of related income tax of $2.0 million) was recorded in AOCI as of 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. The adoption of SFAS 133 increases the Company's exposure to the volatility of reported earnings and other comprehensive income. The amount of volatility will, in part, vary with the level of derivative and hedging activities, fluctuations in market interest rates, foreign currency exchange rates and other hedged risks, during any period; and the effectiveness of hedging derivatives in offsetting changes in fiar value and cash flows attributable to those hedged risks. 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 certain asset-backed investment securities that are not of high credit quality. 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 less than its carrying value and that there has been an adverse change 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 AOCI. (l) Discontinued Operations As described more fully in note 15, NLIC paid a dividend to NFS in the form of all of the shares of common stock of Nationwide Securities, Inc. (NSI), a wholly owned broker/dealer subsidiary engaged in the asset management business. The accompanying consolidated financial statements and related notes reflect this business as discontinued operations. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements (m) Reclassification Certain items in the 2002 and 2001 consolidated financial statements and related footnotes have been reclassified to conform to the 2003 presentation. (3) INVESTMENTS The amortized cost, gross unrealized gains and losses and estimated fair value of securities available-for-sale as of December 31, 2003 and 2002 were:
GROSS GROSS AMORTIZED UNREALIZED UNREALIZED ESTIMATED (in millions) COST GAINS LOSSES FAIR VALUE ======================================================================================================================= December 31, 2003: Fixed maturity securities: U.S. Treasury securities and obligations of U.S. Government corporations and agencies $1,042.5 $ 61.0 $ 1.9 $1,101.6 Obligations of states and political subdivisions 167.6 1.0 5.2 163.4 Debt securities issued by foreign governments 51.8 2.0 0.8 53.0 Public securities 10,000.0 503.7 26.2 10,477.5 Private securities 6,454.2 469.1 25.3 6,898.0 Mortgage-backed securities - U.S. Government backed 3,990.1 73.9 21.8 4,042.2 Asset-backed securities 4,144.0 129.0 61.9 4,211.1 - ----------------------------------------------------------------------------------------------------------------------- Total fixed maturity securities 25,850.2 1,239.7 143.1 26,946.8 Equity securities 74.0 11.8 0.2 85.6 - ----------------------------------------------------------------------------------------------------------------------- Total $25,924.2 $1,251.5 $ 143.3 $27,032.4 ======================================================================================================================= DECEMBER 31, 2002: Fixed maturity securities: U.S. Treasury securities and obligations of U.S. Government corporations and agencies $ 774.3 $ 64.4 $ 0.3 $ 838.4 Obligations of states and political subdivisions 20.8 1.1 - 21.9 Debt securities issued by foreign governments 39.3 2.7 - 42.0 Public securities 8,744.3 445.4 75.2 9,114.5 Private securities 5,399.2 489.1 41.4 5,846.9 Mortgage-backed securities - U.S. Government backed 4,347.5 146.5 0.1 4,493.9 Asset-backed securities 3,808.9 157.3 154.8 3,811.4 - ----------------------------------------------------------------------------------------------------------------------- Total fixed maturity securities 23,134.3 1,306.5 271.8 24,169.0 Equity securities 85.1 7.1 7.9 84.3 - ----------------------------------------------------------------------------------------------------------------------- Total $23,219.4 $1,313.6 $ 279.7 $24,253.3 =======================================================================================================================
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements The amortized cost and estimated fair value of fixed maturity securities available-for-sale as of December 31, 2003, by expected maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
AMORTIZED ESTIMATED (in millions) COST FAIR VALUE ========================================================================================================================= Fixed maturity securities available-for-sale: Due in one year or less $1,056.7 $1,079.1 Due after one year through five years 7,442.2 7,784.5 Due after five years through ten years 6,704.7 7,123.5 Due after ten years 2,512.5 2,706.4 - ------------------------------------------------------------------------------------------------------------------------- Subtotal 17,716.1 18,693.5 Mortgage-backed securities - U.S. Government backed 3,990.1 4,042.2 Asset-backed securities 4,144.0 4,211.1 - ------------------------------------------------------------------------------------------------------------------------- Total $25,850.2 $26,946.8 ========================================================================================================================= The components of unrealized gains on securities available-for-sale, net, were as follows as of December 31: (in millions) 2003 2002 ========================================================================================================================= Unrealized gains, before adjustments and taxes $ 1,108.2 $ 1,033.9 Adjustment to deferred policy acquisition costs (243.7) (300.6) Adjustment to future policy benefits and claims (110.6) (133.2) Deferred federal income tax (264.2) (210.0) - ------------------------------------------------------------------------------------------------------------------------- Net unrealized gains $ 489.7 $ 390.1 ========================================================================================================================= An analysis of the change in gross unrealized gains on securities available-for-sale for the years ended December 31: (in millions) 2003 2002 2001 ========================================================================================================================= Fixed maturity securities $ 61.9 $ 625.5 $ 212.0 Equity securities 12.4 (11.8) 5.5 - ------------------------------------------------------------------------------------------------------------------------- Net change $ 74.3 $ 613.7 $ 217.5 =========================================================================================================================
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements An analysis of selected data about gross unrealized losses on available-for-sale securities by time on an unrealized loss position as of December 31, 2003 and 2002 follows:
LESS THAN OR EQUAL TO MORE TOTAL ONE YEAR THAN ONE YEAR ------------------------------------------------------------------------------------- GROSS GROSS GROSS ESTIMATED UNREALIZED ESTIMATED UNREALIZED ESTIMATED UNREALIZED (in millions) FAIR VALUE LOSSES FAIR VALUE LOSSES FAIR VALUE LOSSES ========================================================================================================================== December 31, 2003: Fixed maturity securities: U.S. Treasury securities and $ 154.4 $ 1.9 $ - $ - $ 154.4 $ 1.9 obligations of U.S. Government corporations and agencies Obligations of states and 123.4 5.2 - - 123.4 5.2 political subdivisions Debt securities issued by 19.9 0.8 - - 19.9 0.8 foreign governments Public securities 1,236.7 24.5 31.7 1.7 1,268.4 26.2 Private securities 832.3 21.4 49.1 3.9 881.4 25.3 Mortgage-backed securities - 984.9 21.7 5.3 0.1 990.2 21.8 U.S. Government backed Asset-backed securities 787.0 36.2 260.4 25.7 1,047.4 61.9 - -------------------------------------------------------------------------------------------------------------------------- Total fixed maturity securities 4,138.6 111.7 346.5 31.4 4,485.1 143.1 Equity securities 6.2 0.1 2.0 0.1 8.2 0.2 - -------------------------------------------------------------------------------------------------------------------------- Total $ 4,144.8 $ 111.8 $ 348.5 $ 31.5 $ 4,493.3 $ 143.3 ========================================================================================================================== % of gross unrealized loss 78.0% 22.0% DECEMBER 31, 2002: Fixed maturity securities: U.S. Treasury securities and $ 55.3 $ 0.3 $ - $ - $ 55.3 $ 0.3 obligations of U.S. Government corporations and agencies Obligations of states and - - - - - - political subdivisions Debt securities issued by - - - - - - foreign governments Public securities 590.5 46.5 266.7 28.7 857.2 75.2 Private securities 245.6 32.8 70.4 8.6 316.0 41.4 Mortgage-backed securities - 51.4 0.1 19.6 - 71.0 0.1 U.S. Government backed Asset-backed securities 576.3 62.6 260.8 92.2 837.1 154.8 - -------------------------------------------------------------------------------------------------------------------------- Total fixed maturity securities 1,519.1 142.3 617.5 129.5 2,136.6 271.8 Equity securities 24.6 3.9 16.1 4.0 40.7 7.9 - -------------------------------------------------------------------------------------------------------------------------- Total $ 1,543.7 $ 146.2 $ 633.6 $ 133.5 $ 2,177.3 $ 279.7 ========================================================================================================================== % of gross unrealized loss 52.3% 47.7%
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements Proceeds from the sale of securities available-for-sale during 2003, 2002 and 2001 were $2.22 billion, $1.53 billion and $497.2 million, respectively. During 2003, gross gains of $104.0 million ($42.0 million and $31.3 million in 2002 and 2001, respectively) and gross losses of $27.6 million ($16.6 million and $10.1 million in 2002 and 2001, respectively) were realized on those sales. The Company had $27.2 million and $28.0 million of real estate investments as of December 31, 2003 and 2002, respectively, that were non-income producing during the preceding twelve months. Real estate is presented at cost less accumulated depreciation of $22.4 million as of December 31, 2003 ($18.6 million as of December 31, 2002). The carrying value of real estate held for disposal totaled $10.5 million and $46.0 million as of December 31, 2003 and 2002, respectively. The recorded investment of mortgage loans on real estate considered to be impaired was $46.3 million as of December 31, 2003 ($27.4 million as of December 31, 2002), which includes $46.3 million ($10.9 million as of December 31, 2002) of impaired mortgage loans on real estate for which the related valuation allowance was $3.9 million ($2.5 million as of December 31, 2002). Impaired mortgage loans with no valuation allowance are a result of collateral dependent loans where the fair value of the collateral is estimated to be greater than the recorded investment of the loan. During 2003, the average recorded investment in impaired mortgage loans on real estate was $15.4 million ($5.5 million in 2002) and interest income recognized on those loans using the cash-basis method of income recognition, totaled $3.3 million in 2003 ($0.1 million in 2002). Activity in the valuation allowance account for mortgage loans on real estate for the years ended December 31 was:
(in millions) 2003 2002 2001 ================================================================================================================= Allowance, beginning of period $ 43.4 $ 42.9 $ 45.3 Net (reductions) additions (credited) charged to allowance (14.3) 0.5 (2.4) - -------------------------------------------------------------------------------------------------------------- Allowance, end of period $ 29.1 $ 43.4 $ 42.9 =================================================================================================================
During the third quarter of 2003, the Company refined its analysis of the overall performance of the mortgage loan portfolio and related allowance for mortgage loan losses. This analysis included an evaluation of the current composition of the portfolio, historical losses by property type, current economic conditions and expected losses incurred as of the balance sheet date, but not yet identified by specific loan. As a result of the analysis, the total valuation allowance was reduced by $12.1 million. An analysis of investment income (loss) from continuing operations by investment type follows for the years ended December 31:
(in millions) 2003 2002 2001 ===================================================================================================================== Securities available-for-sale: Fixed maturity securities $1,453.1 1,332.5 1,181.1 Equity securities 1.4 1.9 1.8 Mortgage loans on real estate 579.7 563.8 527.9 Real estate 21.7 26.8 33.1 Short-term investments 9.3 12.6 28.0 Derivatives (100.3) (79.6) (19.7) Other 64.8 31.0 20.9 - --------------------------------------------------------------------------------------------------------------------- Gross investment income 2,029.7 1,889.0 1,773.1 Less investment expenses 49.7 50.5 48.4 - --------------------------------------------------------------------------------------------------------------------- Net investment income $1,980.0 1,838.5 1,724.7 =====================================================================================================================
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements An analysis of net realized losses on investments, hedging instruments and hedged items, by source follows for the years ended December 31:
(in millions) 2003 2002 2001 ============================================================================================================= UNRELATED PARTIES: Realized gains on sales, net of hedging losses: Fixed maturity securities, available-for-sale $ 98.5 $ 42.0 $ 30.1 Hedging losses on fixed maturity sales (42.4) (36.2) (1.5) Equity securities, available-for-sale 5.5 - 1.2 Real estate 4.2 14.0 3.3 Mortgage loans on real estate 3.0 3.2 11.2 Mortgage loan hedging losses (2.4) (1.2) (8.1) Other - 0.1 1.2 - ------------------------------------------------------------------------------------------------------------- Total realized gains on sales - unrelated parties 66.4 21.9 37.4 - ------------------------------------------------------------------------------------------------------------- Realized losses on sales, net of hedging gains: Fixed maturity securities, available-for-sale (27.2) (15.7) (9.3) Hedging gains on fixed maturity sales 9.2 10.7 0.1 Equity securities, available-for-sale (0.4) (0.9) (0.8) Real estate (0.3) (3.0) (1.4) Mortgage loans on real estate (5.0) (3.3) (0.6) Mortgage loan hedging gains 0.5 0.9 - Other (2.0) (1.0) (7.7) - ------------------------------------------------------------------------------------------------------------- Total realized losses on sales - unrelated parties (25.2) (12.3) (19.7) - ------------------------------------------------------------------------------------------------------------- Other-than-temporary impairments: Fixed maturity securities, available-for-sale (159.4) (111.6) (66.1) Equity securities, available-for-sale (8.0) - (13.8) Real estate (0.8) (2.4) - Mortgage loans on real estate 11.7 (6.3) (0.7) - ------------------------------------------------------------------------------------------------------------- Total other-than-temporary impairments (156.5) (120.3) (80.6) - ------------------------------------------------------------------------------------------------------------- Credit default swaps 13.3 (6.4) (0.5) Derivatives, excluding hedging gains and losses on 1.2 9.5 0.7 sales, and credit default swaps - ------------------------------------------------------------------------------------------------------------- Total unrelated parties (100.8) (107.6) (62.7) Gain on sale of limited partnership - related party - 23.2 44.4 - ------------------------------------------------------------------------------------------------------------- Net realized losses on investments, $ (100.8) $ (84.4) $ (18.3) hedging instruments and hedged items =============================================================================================================
Fixed maturity securities with an amortized cost of $7.8 million as of December 31, 2003 and $7.3 million as of December 31, 2002 were on deposit with various regulatory agencies as required by law. As of December 31, 2003 and 2002 the Company had pledged fixed maturity securities with a fair value of $101.2 million and $152.4 million, respectively, as collateral to various derivative counterparties. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements As of December 31, 2003 and 2002 the Company held collateral of $544.5 million and $413.1 million, respectively, on derivative transactions. This amount is invested in short-term investments with a corresponding liability recorded in other liabilities. The Company also held $163.0 million and $25.9 million of securities as off-balance sheet collateral on derivative transactions as of December 31, 2003 and 2002, respectively. As of December 31, 2003 and 2002, the Company had loaned securities with a fair value of $958.1 million and $950.5 million, respectively. As of December 31, 2003 and 2002 the Company held collateral of $976.6 million and $974.5 million, respectively. This amount is invested in short-term investments with a corresponding liability recorded in other liabilities. (4) DEFERRED POLICY ACQUISITION COSTS As part of the regular quarterly analysis of DAC, at the end of the third quarter of 2002, the Company determined that using actual experience to date and assumptions consistent with those used in the second quarter of 2002, its individual variable annuity DAC balance would be outside a pre-set parameter of acceptable results. The Company also determined that it was not reasonably possible that the DAC would return to an amount within the acceptable parameter within a prescribed period of time. Accordingly, the Company unlocked its DAC assumptions for individual variable annuities and reduced the DAC asset to the amount calculated using the revised assumptions. Because the Company unlocked the net separate account growth rate assumption for individual variable annuities for the three-year reversion period, the Company unlocked that assumption for all investment products and variable universal life insurance products to be consistent across product lines. Therefore, the Company recorded an acceleration of DAC amortization totaling $347.1 million, before tax, or $225.6 million, net of $121.5 million of federal income tax benefit, which has been reported in the following segments in the amounts indicated, net of tax: Individual Annuity - $213.4 million, Institutional Products - $7.8 million and Life Insurance - $4.4 million. The acceleration of DAC amortization was the result of unlocking certain assumptions underlying the calculation of DAC for investment products and variable universal life insurance products. The most significant assumption changes were the resetting of the Company's anchor date for reversion to the mean calculations to September 30, 2002, and resetting the assumption for net separate account growth to 8 percent during the three-year reversion period for all investment products and variable life insurance products, as well as increasing the future lapses and costs related to guaranteed minimum death benefits (GMDB) on individual variable annuity contracts. These adjustments were primarily driven by the sustained downturn in the equity markets. (5) VARIABLE ANNUITY CONTRACTS The Company issues traditional variable annuity contracts through its separate accounts, for which investment income and gains and losses on investments accrue directly to, and investment risk is borne by, the contract holder. The Company also issues non-traditional variable annuity contracts in which the Company provides various forms of guarantees to benefit the related contract holders. There are three primary guarantee types that are provided under non-traditional variable annuity contracts: (1) Guaranteed Minimum Death Benefits (GMDB); (2) Guaranteed Minimum Accumulation Benefits (GMAB); and (3) Guaranteed Minimum Income Benefits (GMIB). The GMDB provides a specified minimum return upon death. Many, but not all of these death benefits are spousal, whereby a death benefit will be paid upon death of the first spouse and the survivor has the option to terminate the contract or continue it and have the death benefit paid into the contract and a second death benefit paid upon the survivor's death. There are six primary GMDB types that the company offers. o RETURN OF PREMIUM - provides the greater of account value or total deposits made to the contract less any partial withdrawals and assessments, which is referred to as "net premiums". There are two variations of this benefit. In general, there is no lock in age for this benefit, however for some contracts, the GMDB reverts to the account value at a specified age, typically age 75. o RESET - provides the greater of a return of premium death benefit or the most recent five-year anniversary (prior to lock in age) account value adjusted for withdrawals. For most contracts, this GMDB locks in at age 86 or 90 and for others the GMDB reverts to the account value at age 75, 85, 86 or 90. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements o RATCHET - provides the greater of a return of premium death benefit or the highest specified "anniversary" account value (prior to age 86) adjusted for withdrawals. Currently, there are three versions of ratchet, with the difference being based on the definition of anniversary: monthaversary - evaluated monthly, annual - evaluated annually, and five-year - evaluated every fifth year. o ROLLUP - provides the greater of a return of premium death benefit or premiums adjusted for withdrawals accumulated at generally 5% simple interest up to the earlier of age 86 or 200% of adjusted premiums. There are two variations of this benefit. For certain contracts, this GMDB locks in at age 86 and for others the GMDB reverts to the account value at age 75. o COMBO - provides the greater of annual ratchet death benefit or rollup death benefit. This benefit locks in at either age 81 or 86. o EARNINGS ENHANCEMENT - provides an enhancement to the death benefit that is a specified percentage of the adjusted earnings accumulated on the contract at the date of death. There are two versions of this benefit, one where the benefit expires at age 86 and a credit of 4% of account value is deposited into the contract and the second where the benefit doesn't have an end age, but has a cap on the payout and is paid upon the first death in a spousal situation. Both benefits have age limitations. This benefit is paid in addition to any other death benefits paid under the contract. The GMAB is a living benefit that provides the contract holder with a guaranteed return of premium, adjusted proportionately for withdrawals, after a specified period of time, 5, 7 or 10 years, selected by the contract holder at the issuance of the variable annuity contract. In some cases, the contract holder also has the option, after a specified period of time, to drop the rider and continue the variable annuity contract without the GMAB. In general, the GMAB requires a minimum allocation to guaranteed term options (GTOs) or adherence to limitations required by an approved asset allocation strategy. The GMIB is a living benefit that provides the contract holder with a guaranteed annuitization value. The GMIB types are: o RATCHET - provides an annuitization value equal to the greater of account value, net premiums or the highest one-year anniversary account value (prior to age 86) adjusted for withdrawals. o ROLLUP - provides an annuitization value equal to the greater of account value and premiums adjusted for withdrawals accumulated at 5% compound interest up to the earlier of age 86 or 200% of adjusted premiums. o COMBO - provides an annuitization value equal to the greater of account value, ratchet GMIB benefit or rollup GMIB benefit. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements Following is a summary of the account values and net amount at risk, net of reinsurance, for variable annuity contracts with guarantees as of December 31, 2003 and 2002:
2003 2002 ----------------------------------------------- ---------------------------------------------- ACCOUNT NET AMOUNT WTD. AVG. Account Net amount Wtd. Avg. (in millions) VALUE AT RISK 1 ATTAINED AGE value at risk 1 attained age ============================================================================================================================== GMDB: Return of premium $ 9,760.0 $ 199.8 56.0 $ 8,737.4 $ 736.7 54.0 Reset 17,534.2 569.4 61.0 14,710.3 1,776.9 60.0 Ratchet 8,147.7 141.0 63.0 6,058.3 411.2 63.0 Roll-up 669.7 22.2 68.0 616.7 32.8 67.0 Combo 2,128.7 39.6 67.0 1,104.0 111.6 65.0 - ------------------------------------------------------------------------------------------------------------------------------ Subtotal $ 38,240.3 972.0 61.0 $ 31,226.7 3,069.2 59.0 ============== ============= Earnings enhancement $ 314.1 10.9 59.0 $ 213.1 1.7 61.0 ----------------------------------- -------------------------------- Total - GMDB $ 982.9 61.0 $ 3,070.9 59.0 =================================== ================================ GMAB: 5 Year $ 79.9 $ 0.1 N/A n/a n/a n/a 7 Year 125.5 0.5 N/A n/a n/a n/a 10 Year 43.4 0.1 N/A n/a n/a n/a - ------------------------------------------------------------------------------------------------------------------------------ Total - GMAB $ 248.8 $ 0.7 N/A n/a n/a n/a ============================================================================================================================== GMIB: 2 Ratchet $ 416.6 $ - N/A $ 307.8 $ - n/a Roll-up 1,131.9 - N/A 664.4 - n/a Combo 1.1 - N/A 0.1 - n/a - ------------------------------------------------------------------------------------------------------------------------------ Total - GMIB $ 1,549.6 $ - N/A $ 972.3 $ - n/a ==============================================================================================================================
1 Net amount at risk is calculated on a seriatum basis and represents the greater of the respective guaranteed benefit less the account value and zero. As it relates to GMIB, net amount at risk is calculated as if all policies were eligible to annuitize immediately, although all GMIB options have a waiting period of at least 7 years from issuance, with the earliest annuitizations beginning in 2005. 2 The weighted average period remaining until expected annuitization is not meaningful and has not been presented because there is currently no net GMIB exposure. Please refer to note 8 for discussion about the use of derivatives in managing the guarantee risks discussed above. Also, refer to the equity market risk section of note 12 for discussion about the risks associated with these guarantees. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements Following is a rollforward of the liabilities for guarantees on variable annuity contracts reflected in the general account for the years ended December 31, 2003 and 2002:
(in millions) GMDB GMAB GMIB TOTAL ========================================================================================================================== Balance as of December 31, 2001 $ 10.8 $ - $ - $ 10.8 Change in fair value 23.6 - - 23.6 Paid guarantee benefits (20.7) - - (20.7) - -------------------------------------------------------------------------------------------------------------------------- Balance as of December 31, 2002 13.7 - - 13.7 NEW BUSINESS ACQUIRED - 4.7 - 4.7 Change in fair value 30.0 (0.4) - 29.6 Paid guarantee benefits, net of reinsurance (21.9) - - (21.9) - -------------------------------------------------------------------------------------------------------------------------- Balance as of December 31, 2003 $ 21.8 $ 4.3 $ - $ 26.1 ==========================================================================================================================
Account balances of contracts with guarantees were invested in separate accounts as follows as of each December 31:
(in millions) 2003 2002 =============================================================================================================== Bond mutual funds $ 4,620.3 $ 4,476.3 Domestic equity mutual funds 26,399.4 20,040.6 International equity mutual funds 1,622.0 1,158.7 Money market funds 1,792.9 2,550.2 - --------------------------------------------------------------------------------------------------------------- Total $ 34,434.6 $ 28,225.8 ===============================================================================================================
(6) SHORT-TERM DEBT NLIC has established a $500.0 million commercial paper program under which borrowings are unsecured and are issued for terms of 364 days or less. NLIC had $199.8 million of commercial paper outstanding as of December 31, 2003 at a weighted average effective rate of 1.07%, none as of December 31, 2002. See also note 16. The Company paid interest on short-term debt totaling $1.3 million, $0.7 million and $5.3 million in 2003, 2002 and 2001, respectively, including $0.1 million and $0.5 million to NFS in 2003 and 2002, respectively. (7) LONG-TERM DEBT, PAYABLE TO NATIONWIDE FINANCIAL SERVICES, INC. Following is a summary of surplus notes payable to NFS as of each December 31:
(in millions) 2003 2002 ==================================================================================================================== 7.50% surplus note, due December 17, 2031 $ 300.0 $ 300.0 8.15% surplus note, due June 27, 2032 300.0 300.0 6.75% surplus note, due December 23, 2033 100.0 - - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- Total long-term debt $ 700.0 $ 600.0 ====================================================================================================================
The Company made interest payments to NFS on surplus notes totaling $47.1 million in 2003, $30.1 million in 2002 and none in 2001. Payments of interest and principal under the notes require the prior approval of the Ohio Department of Insurance. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements (8) DERIVATIVE FINANCIAL INSTRUMENTS QUALITATIVE DISCLOSURE Interest Rate Risk Management From time to time the Company purchases fixed rate investments to back variable rate liabilities. As a result, the Company can be exposed to interest rate risk due to the mismatch between variable rate liabilities and fixed rate assets. To mitigate 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 pay fixed/receive variable interest rate swaps and short Euro futures to manage this risk. Under interest rate swaps, the Company receives variable interest rate payments and makes fixed rate payments. The fixed interest paid on the swap offsets the fixed interest received on the investment, resulting in the Company receiving the variable interest payments on the swap, generally 3-month libor. The net receipt of a variable rate will then match the variable rate paid on the liability. Short Euro futures, when considered in combination with the fixed-rate instruments, effectively change the fixed rate cash flow exposure to variable rate cash flows. With short Euro futures, if interest rates rise (fall), the gains (losses) on the futures are recognized in investment income. When combined with the fixed income received on the investment, the gains and losses on the Euro futures contracts results in a variable stream of cash inflows, which matches the variable interest paid on the liability. As a result of entering into commercial mortgage loan and private placement commitments, the Company is exposed to changes in the fair value of such commitments due to changes in interest rates during the commitment period prior to the loans being funded. To manage this risk, the Company enters into short Treasury futures during the commitment period. 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 variability in cash flows and investment income due to changes in interest rates. Such variability poses risks to the Company when the assets are funded with fixed rate liabilities. To manage this risk, the Company enters into receive fixed, pay variable interest rate swaps. In using interest rate swaps, the Company receives fixed interest rate payments and makes variable rate payments. The variable interest paid on the swap offsets the variable interest received on the investment, resulting in the Company receiving the fixed interest payments on the swap. The net receipt of a fixed rate will then match the fixed rate paid on the liability. Foreign Currency Risk Management In conjunction with the Company's medium-term note program, 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 resulting, when combined with the hedged obligations, in net U.S. dollar cash outflows. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements 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 U.S. 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 U.S. dollar rate, generally 3-month libor. In both cases, the terms of the foreign currency received on the swap will exactly match the terms of the foreign currency paid on the liability, thus eliminating currency risk. Because the resulting cash flows in both cases remain variable, the Company has designated such cross-currency interest rate swaps as fair value hedging relationships. 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. To manage this risk, the Company uses cross-currency interest rate swaps , resulting, when combined with hedged investments, in net U.S. dollar cash inflows. Cross-currency interest rate swaps on investments are structured to pay a fixed rate, in the foreign currency and receive a variable U.S. dollar rate, generally 3-month libor. The terms of the foreign currency paid on the swap will exactly match the terms of the foreign currency received on the asset, thus eliminating currency risk. Because the resulting cash inflows remain variable, the Company has designated such cross-currency interest rate swaps in fair value hedging relationships. Equity Market Risk Management Many of the Company's individual variable annuity contracts offer GMDB features. The GMDB generally provides a benefit if the annuitant dies and the contract value is less than a specified amount, which may be based on the premiums paid less amounts withdrawn or contract value on a specified anniversary date. A decline in the stock market causing the contract value to fall below this specified amount, which varies from contract to contract based on the date the contract was entered into as well as the GMDB feature elected, will increase the net amount at risk, which is the GMDB in excess of the contract value, which could result in additional GMDB claims. To manage this risk, the Company has implemented a GMDB economic hedging program for primarily for certain new business generated after December 2002. The program does not qualify for hedge accounting under FAS 133, but is designed to offset changes in the value of the GMDB obligation up to a return of the contractholder's premiums paid less amounts withdrawn. Currently the program shorts S&P 500 index futures, which provides an offset to changes in the value of the designated obligation. Prior to implementation of the GMDB hedging program in 2003, the Company managed the risk of these benefits primarily by entering into reinsurance arrangements. See note 12 for additional discussion. The Company also offers certain variable annuity products with a guaranteed minimum accumulation benefit (GMAB) rider. The GMAB provides the contract holder with a guaranteed return of premium, adjusted proportionately for withdrawals, after a specified period of time, 5, 7 or 10 years, selected by the contract holder at the issuance of the variable annuity contract. In some cases, the contract holder also has the option, after a specified period of time, to drop the rider and continue the variable annuity contract without the GMAB. The GMAB is an embedded derivative, as such, the equity exposure in this product is recognized at fair value, separately from the annuity contract, with changes in fair value recognized in the income statement. The Company is exposed to equity market risk to the extent that the underlying investment options, which can include fixed and variable components, selected by the contract holder do not generate enough earnings over the life of the contract to at least equal the adjusted premiums. The Company is economically hedging the GMAB exposure for those risks that exceed a level considered acceptable by purchasing interest rate futures and shorting S&P 500 futures. The GMAB economic hedge does not qualify for hedge accounting under FAS 133. Other Non-Hedging Derivatives From time-to-time, the Company enters into 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 is not able to match the receive-side terms of the derivative to a specific liability; therefore, basis swaps do not receive hedge accounting treatment. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements The Company sells credit default protection on selected debt instruments and combines the credit default swap with selected assets the Company owns to replicate a higher yielding bond. These assets may have sufficient duration for the related liability, but do not earn a sufficient credit spread. The combined credit default swap and cash instrument provides the duration and credit spread targeted by the Company. The credit default swaps do not qualify for hedge accounting treatment. The Company also has purchased credit default protection on selected debt instruments exposed to short-term credit concerns, or because the combination of the corporate bond and purchased default protection provides sufficient spread and duration targeted by the Company. The purchased credit default protection does not qualify for hedge accounting treatment. QUANTITATIVE DISCLOSURE Fair Value Hedges During the years ended December 31, 2003, 2002 and 2001 gains of $4.2 million, $7.1 million and $2.1 million, respectively, were recognized in net realized 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 instruments' change in fair 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 For the year ended December 31, 2003 and 2002, the ineffective portion of cash flow hedges was a loss of $5.4 and a gain of $1.8 million in 2002. There were no net gains or losses attributable to the portion of the derivative instruments' change in fair value excluded from the assessment of hedge effectiveness. The Company anticipates reclassifying less than $0.2 million in losses out of AOCI over the next 12-month period. In general, the maximum length of time over which the Company is hedging its exposure to the variability in future cash flows associated with forecasted transactions is twelve months or less. However, in 2003, the Company did enter into a hedge of a forecasted purchase of shares of a specified mutual fund, where delivery of the shares will occur 30 years in the future. During 2003, 2002 and 2001 the Company did not discontinue any cash flow hedges because the original forecasted transaction was no longer probable. Additionally, no amounts were reclassified from AOCI into earnings because it became probable that a forecasted transaction would not occur. Other Derivative Instruments, Including Embedded Derivatives Net realized gains and losses on investments, hedging instruments and hedged items for the years ended December 31, 2003, 2002 and 2001 include a net gain of $11.8 million, a net loss of $2.2 million and a net loss of $1.6 million, respectively, related to other derivative instruments, including embedded derivatives, not designated in hedging relationships. For the years ended December 31, 2003, 2002 and 2001, net gains of $4.2 million, $120.4 million and a net loss of $27.7 million, respectively, were recorded in net realized losses on investments, hedging instruments and hedged items reflecting the change in fair value of cross-currency interest rate swaps hedging variable rate medium-term notes denominated in foreign currencies. An additional net gain of $0.9, loss of $119.6 million and a net gain of $26.3 million were recorded in net realized losses on investments, hedging instruments and hedged items to reflect the change in spot rates of these foreign currency denominated obligations during the years ended December 31, 2003, 2002 and 2001, respectively. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements The notional amount of derivative financial instruments outstanding as of December 31, 2003 and 2002 were as follows:
(in millions) 2003 2002 =================================================================================================================== INTEREST RATE SWAPS: Pay fixed/receive variable rate swaps hedging investments $1,954.7 $ 2,206.5 Pay variable/receive fixed rate swaps hedging investments 188.2 229.7 Pay variable/receive variable rate swaps 154.0 221.0 Pay variable/receive fixed rate swaps hedging liabilities 500.0 500.0 Pay variable/receive variable rate swaps 430.0 430.0 Other contracts hedging investments 842.5 690.8 CROSS CURRENCY INTEREST RATE SWAPS: Hedging foreign currency denominated investments 580.1 111.0 Hedging foreign currency denominated liabilities 2,643.9 3,033.6 Futures contracts 2,615.8 4,250.9 - ------------------------------------------------------------------------------------------------------------------- Total $9,909.2 $11,673.5 ===================================================================================================================
(9) FEDERAL INCOME TAX Through September 30, 2002, the Company filed a consolidated federal income tax return with Nationwide Mutual Insurance Company (NMIC), the ultimate majority shareholder of NFS. Effective October 1, 2002, Nationwide Corporation's ownership in NFS decreased from 80% to 63%, and as a result, NFS and its subsidiaries, including the Company, no longer qualify to be included in the NMIC consolidated federal income tax return. The members of the NMIC consolidated federal income tax return group participated in a tax sharing arrangement, which provided, in effect, for each member to bear essentially the same federal income tax liability as if separate tax returns were filed. Under Internal Revenue Code regulations, NFS and its subsidiaries cannot file a life/non-life consolidated federal income tax return until five full years following NFS' departure from the NMIC consolidated federal income tax return group. Therefore, NFS and its direct non-life insurance company subsidiaries will file a consolidated federal income tax return; NLIC and NLAIC will file a consolidated federal income tax return; the direct non-life insurance companies under NLIC will file separate federal income tax returns until 2008, when NFS expects to be able to file a single consolidated federal income tax return with all of its subsidiaries, including NLIC. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements The tax effects of temporary differences that give rise to significant components of the net deferred tax liability as of December 31, 2003 and 2002 were as follows:
(in millions) 2003 2002 ======================================================================================================================== DEFERRED TAX ASSETS: Future policy benefits $ 594.8 $ 549.6 Derivatives 11.7 40.2 Other 104.4 40.1 - ------------------------------------------------------------------------------------------------------------------------ Gross deferred tax assets 710.9 629.9 Less valuation allowance (7.0) (7.0) - ------------------------------------------------------------------------------------------------------------------------ Net deferred tax assets 703.9 622.9 - ------------------------------------------------------------------------------------------------------------------------ DEFERRED TAX LIABILITIES: Fixed maturity securities 390.0 402.2 Equity securities and other investments 42.7 37.4 Deferred policy acquisition costs 840.8 762.0 Other 88.1 50.5 - ------------------------------------------------------------------------------------------------------------------------ Gross deferred tax liabilities 1,361.6 1,252.1 - ------------------------------------------------------------------------------------------------------------------------ Net deferred tax liability $ 657.7 $ 629.2 ========================================================================================================================
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 each of the years in the three-year period ended December 31, 2003. The Company's current federal income tax liability was $106.3 million and $176.4 million as of December 31, 2003 and 2002, respectively. Federal income tax expense attributable to income from continuing operations before cumulative effect of adoption of accounting principles for the years ended December 31 was as follows:
(in millions) 2003 2002 2001 ====================================================================================================================== Current $ 106.7 $ 63.7 $ 32.2 Deferred (10.5) (55.0) 129.0 - ---------------------------------------------------------------------------------------------------------------------- Federal income tax expense $ 96.2 $ 8.7 $161.2 ======================================================================================================================
The customary relationship between federal income tax expense and pre-tax income from continuing operations before cumulative effect of adoption of accounting principles did not exist in 2002. This is a result of the impact of the $121.5 million tax benefit associated with the $347.1 million of accelerated DAC amortization reported in 2002 (see note 4) being calculated at the U.S. federal corporate income tax rate of 35%. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements Total federal income tax expense for the years ended December 31, 2003, 2002 and 2001 differs from the amount computed by applying the U.S. federal income tax rate to income from continuing operations before federal income tax expense and cumulative effect of adoption of accounting principles as follows:
2003 2002 2001 ---------------------- ----------------------- ----------------------- (in millions) AMOUNT % Amount % Amount % ===================================================================================================================== Computed (expected) tax expense $ 152.0 35.0 $ 59.3 35.0 $ 220.1 35.0 Tax exempt interest and dividends received deduction (45.7) (10.5) (38.9) (22.9) (48.8) (7.7) Income tax credits (10.8) (2.5) (12.7) (7.5) (11.5) (1.8) Other, net 0.7 0.1 1.0 0.5 1.4 0.1 - --------------------------------------------------------------------------------------------------------------------- Total (effective rate for each year) $ 96.2 22.1 $ 8.7 5.1 $ 161.2 25.6 =====================================================================================================================
Total federal income tax paid (refunded) was $176.0 million, $71.0 million and $(45.4) million during the years ended December 31, 2003, 2002 and 2001, respectively. The 2002 amount includes $56.0 million for previously deferred intercompany gains for tax purposes that became due when NFS no longer qualified to be included in the NMIC consolidated federal income tax return. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements (10) COMPREHENSIVE INCOME Comprehensive income 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 is comprised of net unrealized gains on securities available-for-sale and accumulated net gains (losses) on cash flow hedges. The related before and after federal income tax amounts for the years ended December 31, 2003, 2002 and 2001 were as follows:
YEARS ENDED DECEMBER 31, ------------------------------------------- (in millions) 2003 2002 2001 ===================================================================================================================== Unrealized (losses) gains on securities available-for-sale arising during the period: Gross $ (16.7) $ 527.5 $ 164.0 Adjustment to deferred policy acquisition costs 56.9 (205.7) (71.7) Adjustment to future policy benefits and claims 22.6 (133.2) - Related federal income tax expense (22.4) (66.0) (32.3) - --------------------------------------------------------------------------------------------------------------------- Net unrealized gains 40.4 122.6 60.0 - --------------------------------------------------------------------------------------------------------------------- Reclassification adjustment for net losses on securities available-for-sale realized during the period: Gross 91.0 86.2 58.7 Related federal income tax benefit (31.8) (30.2) (20.5) - --------------------------------------------------------------------------------------------------------------------- Net reclassification adjustment 59.2 56.0 38.2 - --------------------------------------------------------------------------------------------------------------------- Other comprehensive income on securities 99.6 178.6 98.2 available-for-sale - --------------------------------------------------------------------------------------------------------------------- Accumulated net (losses) gains on cash flow hedges: Gross (40.9) 16.9 (13.5) Related federal income tax benefit (expense) 14.3 (5.9) 4.7 - --------------------------------------------------------------------------------------------------------------------- Other comprehensive (loss) income on cash flow hedges (26.6) 11.0 (8.8) - --------------------------------------------------------------------------------------------------------------------- Accumulated net loss on transition adjustments: Transition adjustment - SFAS 133 - - (5.6) Transition adjustment - EITF 99-20 - - 3.5 Related federal income tax benefit - - 0.7 - --------------------------------------------------------------------------------------------------------------------- Other comprehensive loss on transition adjustments - - (1.4) - --------------------------------------------------------------------------------------------------------------------- Total other comprehensive income $ 73.0 $ 189.6 $ 88.0 =====================================================================================================================
Reclassification adjustments for net realized gains and losses on the ineffective portion of cash flow hedges were immaterial during 2003, 2002 and 2001 and, therefore, are not reflected in the table above. (11) 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. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements The fair value of a financial instrument is defined as the amount at which the financial instrument could be bought, or in case of liabilities incurred, or sold, or in the case of liabilities settled, in a current transaction between willing parties. In cases where quoted market prices are not available, fair value is to be based on the best information available in the circumstances. Such estimates of fair value should consider prices for similar assets or similar liabilities and the results of valuation techniques to the extent available in the circumstances. Examples of valuation techniques include the present value of estimated expected future cash flows using discount rates commensurate with the risks involved, option-pricing models, matrix pricing, option-adjusted spread models, and fundamental analysis. Valuation techniques for measuring assets and liabilities must be consistent with the objective of measuring fair value and should incorporate assumptions that market participants would use in their estimates of values, future revenues, and future expenses, including assumptions about interest rates, default, prepayment, and volatility. 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 matrix pricing, present value or other suitable 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, the Company's estimate of the fair values 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 the estimates of fair value and have not been considered in arriving at such estimates. In estimating its fair value disclosures, the Company used the following methods and assumptions: Fixed maturity and equity securities: The fair value of fixed maturity and marketable equity securities is generally obtained from independent pricing services based on market quotations. For fixed maturity securities not priced by independent services (generally private placement securities and securities that do not trade regularly), an internally developed pricing model or "corporate pricing matrix" is most often used. The corporate pricing matrix is developed by obtaining spreads versus the US Treasury yield for corporate securities with varying weighted average lives and bond ratings. The weighted average life and bond rating of a particular fixed maturity security to be priced using the corporate matrix are important inputs into the model and are used to determine a corresponding spread that is added to the US Treasury yield to create an estimated market yield for the that bond. The estimated market yield and other relevant factors are then used to estimate the fair value of the particular fixed maturity security. Additionally, the Company's internal corporate pricing matrix is not suitable for valuing certain fixed maturity securities, particularly those with complex cash flows such as certain mortgage-backed and asset-backed securities. In these cases, a separate "structured product pricing matrix" has been developed to value, as appropriate, using the same methodology described above. For securities for which quoted market prices are not available and for which the Company's structured product pricing matrix is not suitable for estimating fair values, qualified company representatives determine the fair value using other modeling techniques, primarily using a commercial software application utilized in valuing complex securitized investments with variable cash flows. As of December 31, 2003, 68% of the fair values of fixed maturity securities were obtained from independent pricing services, 21% from the Company's pricing matricies and 11% from other sources. 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. Estimated fair value is based on the present value of expected future cash flows discounted at the loan's effective interest rate. Policy loans, short-term investments and cash: The carrying amounts reported in the consolidated balance sheets for these instruments approximate their fair value. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements 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 in this analysis are similar to currently offered contracts with maturities consistent with those remaining for the contracts being valued. Policy reserves on life insurance contracts: Included are disclosures for individual and corporate-owned 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, for 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 debt and collateral received - securities lending and derivatives: The carrying amounts reported in the consolidated balance sheets for these instruments approximates their fair value. Long-term debt, payable to NFS: The fair value for long-term debt is based on estimated market prices. Commitments to extend credit: Commitments to extend credit have nominal fair value because of the short-term nature of such commitments. See note 12. Interest rate and cross currency interest rate swaps: The fair value for interest rate and cross currency interest rate swaps are calculated with pricing models using current rate assumptions. Futures contracts: The fair value for futures contracts is based on quoted market prices. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements 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:
2003 2002 --------------------------- -------------------------- CARRYING ESTIMATED Carrying Estimated (in millions) AMOUNT FAIR VALUE amount fair value ==================================================================================================================== ASSETS Investments: Securities available-for-sale: Fixed maturity securities $26,946.8 $26,946.8 $ 24,169.0 $ 24,169.0 Equity securities 85.6 85.6 84.3 84.3 Mortgage loans on real estate, net 8,345.8 8,830.0 7,923.2 8,536.4 Policy loans 618.3 618.3 629.2 629.2 Short-term investments 1,860.8 1,860.8 1,210.3 1,210.3 Cash 0.1 0.1 0.9 0.9 Assets held in separate accounts 57,084.5 57,084.5 47,208.2 47,208.2 LIABILITIES Investment contracts (28,663.4) (27,239.8) (25,276.3) (23,634.1) Policy reserves on life insurance contracts (6,658.9) (6,706.7) (6,403.5) (6,479.6) Short-term debt (199.8) (199.8) - - Long-term debt, payable to NFS (700.0) (803.7) (600.0) (728.5) Collateral received - securities lending and derivatives (1,521.1) (1,521.1) (1,363.6) (1,363.6) Liabilities related to separate accounts (57,084.5) (56,118.6) (47,208.2) (45,524.6) DERIVATIVE FINANCIAL INSTRUMENTS Interest rate swaps hedging assets (99.4) (99.4) (141.2) (141.2) Cross currency interest rate swaps 599.1 599.1 325.1 325.1 Futures contracts (25.2) (25.2) (45.7) (45.7) Other derivatives 4.6 4.6 - - - --------------------------------------------------------------------------------------------------------------------
(12) RISK DISCLOSURES The following is a description of the most significant risks facing the Company and how it mitigates those risks: Credit Risk: The risk that issuers of securities, mortgagees on real estate mortgage loans or other parties, including reinsurers and derivatives counterparties, default on their contractual obligations. The Company mitigates this risk by adhering to investment policies that provide portfolio diversification on an asset class, creditor, and industry basis, and by complying with investment limitations governed by State insurance laws and regulations, as applicable. The Company actively monitors and manages exposures, including restructuring, reducing, or liquidating investments, and determines whether any securities are impaired or loans are deemed uncollectible and takes charges in the period such assessments are made. The ratings of reinsurers who owe the Company money are regularly monitored along with outstanding balances as part of the Company's reinsurance collection process, with timely follow-up on delayed payments. The aggregate credit risk taken in the investment portfolio is influenced by management's risk/return preferences, the economic and credit environment, the relationship of credit risk in the asset portfolio to other business risks that the Company is exposed to and the Company's current and expected future capital position. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements Interest Rate Risk: The risk that interest rates will change and cause a decrease in the value of an insurer's investments relative to the value of its liabilities, and/or an unfavorable change in prepayment activity, resulting in compressed interest margins. For example, if 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. In some investments that contain borrower options, this risk may be realized through unfavorable cash flow patterns, e.g. increased principal repayment when interest rates have declined. When unfavorable interest rate movements occur, interest margins may compress, reducing profitability. The Company mitigates this risk by offering products that transfer this risk to the purchaser and/or by attempting to approximately match the maturity schedule of its assets with the expected payouts of its liabilities, both at inception and on an ongoing basis. In some investments that permit prepayment at the borrower option, make-whole provisions are required such that if the borrower prepays in a lower-rate environment, the Company be compensated for the loss of future income. In other situations, the Company accepts some interest rate risk in exchange for a higher yield on the investment. 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 U.S., thus reducing its exposure to any single product or jurisdiction, and also by employing practices that identify and minimize the adverse impact of this risk. Ratings Risk: The risk that rating agencies change their outlook or rating of the Company or a subsidiary of the company. The rating agencies generally utilize proprietary capital adequacy models in the process of establishing ratings for the Company and certain subsidiaries. The Company is at risk to changes in these models and the impact that changes in the underlying business that it is engaged in can have on such models. To mitigate this risk, the Company maintains regular communications with the rating agencies and evaluates the impact of significant transactions on such capital adequacy models and considers the same in the design of transactions to minimize the adverse impact of this risk. Financial Instruments with Off-Balance-Sheet Risk: The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business through management of its investment portfolio. These financial instruments include commitments to extend credit in the form of loans. These instruments involve, to varying degrees, elements of credit risk in excess of amounts recognized on the 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 uinderlying 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 mortgaged property represents the collateral if the commitment is funded. The Company's policy for new mortgage loans on real estate is to generally lend no more than 80% 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 $391.8 million extending into 2004 were outstanding as of December 31, 2003. The Company also had $110.3 million of commitments to purchase fixed maturity securities outstanding as of December 31, 2003. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements 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 the Company, 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. Any exposures related to derivative activity are aggregated with other credit exposures between the Company and the derivative counterparty to assess adherence to established credit limits. As of December 31, 2003, the Company's credit risk from these derivative financial instruments was $75.8 million, net of $544.5 million of cash collateral and $163.0 million in securities pledged as collateral. Equity Market Risk: Asset fees calculated as a percentage of the separate account assets are a significant source of revenue to the Company. As of December 31, 2003, approximately 80% of separate account assets were invested in equity mutual funds. Gains and losses in the equity markets will result in corresponding increases and decreases in the Company's separate account assets and the reported asset fee revenue. In addition, a decrease in separate account assets may decrease the Company's expectations of future profit margins due to a decrease in asset fee revenue and/or an increase in GMDB or GMAB claims, which may require the Company to accelerate the amortization of DAC. Many of the Company's individual variable annuity contracts offer GMDB features. The GMDB generally provides a benefit if the annuitant dies and the contract value is less than a specified amount, which may be based on the premiums paid less amounts withdrawn or contract value on a specified anniversary date. A decline in the stock market causing the contract value to fall below this specified amount, which varies from contract to contract based on the date the contract was entered into as well as the GMDB feature elected, will increase the net amount at risk, which is the GMDB in excess of the contract value, which could result in additional GMDB claims. The Company utilizes a combination of risk management techniques to mitigate this risk. In general, for most contracts issued prior to July 2002, the Company obtained reinsurance from independent third parties, whereas for certain contracts issued after December 2002, the Company has been executing an economic hedging program. The GMDB economic hedging program is designed to offset changes in the economic value of the GMDB obligation up to a return of the contract holder's premium payments, however the first 10% of GMDB claims are not hedged. Currently the program shorts S&P 500 index futures, which provides an offset to changes in the value of the designated obligation. The Company's economic evaluation of the GMDB obligation is not consistent with current accounting treatment of the GMDB obligation. Therefore the hedging activity will lead to volatility of earnings. This volatility was negligible in 2003. As of December 31, 2003, the net amount at risk, defined as the excess of the death benefit over the account value, was $2.8 billion before reinsurance and $982.9 million net of reinsurance. As of December 31, 2003 and 2002, the Company's reserve for GMDB claims was $21.8 million and $13.7 million, respectively. See note 21 for discussion of the impact of adopting a new accounting principle regarding GMDB reserves in 2004. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements The Company also offers certain variable annuity products with a GMAB rider. The GMAB provides the contract holder with a guaranteed return of premium, adjusted proportionately for withdrawals, after a specified period of time, 5, 7 or 10 years, selected by the contract holder at the time of issuance of the variable annuity contract. In some cases, the contract holder also has the option, after a specified period of time, to drop the rider and continue the variable annuity contract without the GMAB. The design of the GMAB rider limits the risk to the Company in a variety of ways including the requirement that a significant portion of the premium be allocated to a guaranteed term option (GTO) that is a fixed rate investment, thereby reducing the equity exposure. The GMAB represents an embedded derivative in the variable annuity contract that is required to be separated from and valued apart from the host variable annuity contract. The embedded derivative is carried at fair value and reported in other future policy benefits and claims. The Company initially records an offset to the fair value of the embedded derivative on the balance sheet, which is amortized through the income statement over the term of the GMAB period of the contract. The fair value of the GMAB embedded derivative is calculated based on actuarial assumptions related to the projected benefit cash flows incorporating numerous assumptions including, but not limited to, expectations of contract holder persistency, market returns, correlation's of market returns and market return volatility. The Company began selling contracts with the GMAB feature on May 1, 2003. Beginning October 1, 2003, the Company launched an enhanced version of the rider that offered increased equity exposure to the contract holder in return for a higher charge. The Company simultaneously began economically hedging the GMAB exposure for those risks that exceed a level it considered acceptable. The GMAB economic hedge consists of shorting interest rate futures and S&P 500 futures contracts and does not qualify for hedge accounting under FAS 133. See note 2(c) for discussion of economic hedges. The objective of the GMAB economic hedge strategy is to manage the exposures with risk beyond a level considered acceptable to the Company. The Company is exposed to equity market risk related to the GMAB feature should the growth in the underlying investments, including any GTO investment, fail to reach the guaranteed return level. The GMAB embedded derivative will create volatility in earnings, however the hedging program provides substantial mitigation of this exposure. This volatility was negligible in 2003. The fair value of the GMAB embedded derivative as of December 31, 2003 was $4.3 million. Changes in the fair value of the GMAB embedded derivative and the hedging instruments totaled $(0.4) million and $(0.1) million, respectively, during the year ended December 31, 2003. Significant Concentrations of Credit Risk: The Company grants mainly commercial mortgage loans on real estate to customers throughout the U. S. As of December 31, 2003, the Company has a diversified portfolio with no more than 23% in any geographic area and no more than 2% with any one borrower. As of December 31, 2003, 31% of the carrying value of the Company's commercial mortgage loan portfolio financed retail properties. Significant Business Concentrations: As of December 31, 2003, the Company did not have a material concentration of financial instruments in a single investee, industry or geographic location. Also, the Company did not have a concentration of business transactions with a particular customer, lender or distribution source, a market or geographic area in which business is conducted that makes it overly vulnerable to a single event which could cause a severe impact to the Company's financial position. Guarantee Risk: In connection with the selling of securitized interests in Low Income Housing Tax Credit Funds (Tax Credit Funds), see note 18, the Company guarantees a specified minimum return to the investor. The guaranteed return varies by transaction and follows general market trends. The Company's risk related to securitized interests in Tax Credit Funds is that the tax benefits provided to the investor are not sufficient to provide the guaranteed cumulative after-tax yields. The Company mitigates these risks by having qualified individuals with extensive industry experience perform due diligence on each of the underlying properties to ensure they will be capable of delivering the amount of credits anticipated and by requiring cash reserves to be held at various levels within these structures to provide for possible shortfalls in the amount of credits generated. Reinsurance: The Company has entered into reinsurance contracts to cede a portion of its general account individual annuity business. Total recoveries due from these contracts were $635.9 million as of December 31, 2003. 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 contractholder. Under the terms of the contracts, trusts have been established as collateral for the recoveries. The trust assets are invested in investment grade securities, the fair value of which must at all times be greater than or equal to 100% or 102% of the reinsured reserves, as outlined in each of the underlying contract. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements Collateral - Derivatives: The Company enters into agreements with various counterparties to execute over-the-counter derivative transactions. The Company's policy is to include a Credit Support Annex with each agreement to protect the Company for any exposure above the approved credit threshold. This also protects the counterparty against exposure to the Company. The Company generally posts securities as collateral and receives cash as collateral from counterparties. The Company maintains ownership of the pledged securities at all times and is entitled to receive from the borrower any payments for interest or dividends received on such securities during the period it is pledged as collateral. Collateral - Securities Lending: The Company, through its agent, lends certain portfolio holdings and in turn receives cash collateral. The cash collateral is invested in high-quality short-term investments. The Company's policy requires a minimum of 102% of the fair value of the securities loaned be maintained as collateral. Net returns on the investments, after payment of a rebate to the borrower, are shared between the Company and its agent. Both the borrower and the Company can request or return the loaned securities at any time. The Company maintains ownership of the securities at all times and is entitled to receive from the borrower any payments for interest or dividends received on such securities during the loan term. (13) PENSION PLAN, POSTRETIREMENT BENEFITS OTHER THAN PENSIONS AND RETIREMENT SAVINGS PLAN The Company, together with certain affiliated companies, sponsors pension plans covering all employees of participating companies 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 costs charged to operations by the Company during the years ended December 31, 2003, 2002 and 2001 were $13.2 million, $10.0 million and $5.0 million, respectively. The Company has recorded a prepaid pension asset of $7.7 million as of December 31, 2003 compared to pension liability of $0.5 million as of December 31, 2002. In addition to the defined benefit pension plan, the Company, together with certain 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, hired prior to June 1, 2000, 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, by no more than three percent through 2006, at which time the cap will be frozen. 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 Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) was signed into law on December 8, 2003. FASB Staff Position FAS 106-1, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003 permits employers that sponsor postretirement benefit plans to defer accounting for the effects of the Act until the FASB issues guidance on how to account for the provisions of the Act. Specific authoritative guidance on accounting for the Act is pending. The issued guidance could require the plan sponsor to change previously reported information. The Company will defer recognition of the Act until the guidance is issued. Any measures of the accumulated postretirement benefit obligation (APBO) and net periodic postretirement benefit cost (NPPBC) do not reflect the effects of the Act. The Company's accrued postretirement benefit expense as of December 31, 2003 and 2002 was $50.5 million and $51.9 million, respectively, and the NPPBC for 2003, 2002 and 2001 was $1.1 million, $3.5 million and $2.9 million, respectively. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements Information regarding the funded status of the pension plans as a whole and the postretirement life and health care benefit plan as a whole, both of which are U.S. plans, as of December 31, 2003 and 2002 follows:
PENSION BENEFITS POSTRETIREMENT BENEFITS --------------------------- ------------------------------ (in millions) 2003 2002 2003 2002 ======================================================================================================================== CHANGE IN BENEFIT OBLIGATION: Benefit obligation at beginning of year $ 2,236.2 $ 2,132.2 $ 269.7 $ 314.0 Service cost 104.0 103.3 9.9 13.2 Interest cost 131.7 135.6 19.5 22.5 Participant contributions - - 4.2 4.0 Plan amendment 1.6 (11.5) - (117.7) Actuarial loss (gain) 85.1 (13.1) (2.8) 54.0 Benefits paid (101.6) (97.6) (20.4) (20.3) Impact of settlement/curtailment - (12.7) - - Impact of plan merger - - 26.7 - - ------------------------------------------------------------------------------------------------------------------------ Benefit obligation at end of year 2,457.0 2,236.2 306.8 269.7 - ------------------------------------------------------------------------------------------------------------------------ CHANGE IN PLAN ASSETS: Fair value of plan assets at beginning of year 1,965.0 2,200.7 106.9 119.7 Actual return on plan assets 265.4 (142.4) 16.5 (12.7) Employer contributions1 113.6 4.3 20.3 16.2 Participant contributions - - 4.2 4.0 Benefits paid1 (101.6) (97.6) (20.4) (20.3) - ------------------------------------------------------------------------------------------------------------------------ Fair value of plan assets at end of year 2,242.4 1,965.0 127.5 106.9 - ------------------------------------------------------------------------------------------------------------------------ Funded status (214.6) (271.2) (179.3) (162.8) Unrecognized prior service cost 30.3 33.6 (103.3) (116.9) Unrecognized net losses 192.1 225.9 56.9 71.9 Unrecognized net (asset) obligation at transition (2.5) (3.8) - 0.1 - ------------------------------------------------------------------------------------------------------------------------ Prepaid (accrued) benefit cost, net $ 5.3 $ (15.5) $ (225.7) $ (207.7) ======================================================================================================================== - ------------------------------------------------------------------------------------------------------------------------ Accumulated benefit obligation $ 2,020.2 $ 1,821.0 N/A N/A ========================================================================================================================
________ 1 Employer contributions and benefits paid include only those amounts contributed directly to or paid directly from plan assets. Effective January 1, 2003, the pension plan was amended to improve benefits for certain participants, resulting in an increase in the projected benefit of $1.6 million. Two significant plan changes were enacted to the postretirement benefit plans as of December 31, 2002. The postretirement medical plan was revised to reflect the current expectation that there will be no further increases in the benefit cap after 2006. Prior to 2007, it is assumed that benefit caps will increase by 3 percent per year, at which time the cap will be frozen. The postretirement death benefit plan was revised to reflect that all employer subsidies will be phased out beginning in 2007. The 2007 subsidy is assumed to be 2/3 of the current subsidy and the 2008 subsidy is assumed to be 1/3 of the current amount. There is no employer subsidized benefit assumed after 2008. The plan sponsor and participating employers, including the Company, expect to contribute $130.0 million to the pension plan and $20.0 million to the postretirement benefit plan in 2004. Effective January 1, 2002, the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) raised IRS limits for benefits and salaries considered in qualified pension plans. The projected benefit obligation decreased by $11.5 million from December 31, 2001 due to the anticipation of the EGTRRA sunset provisions not recognized in the December 31, 2001 calculations. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements On June 30, 2002, NMIC Medicare operations ceased, and all Medicare employees were terminated as Nationwide employees. Curtailment charges of $10.5 million and curtailment credits of $10.0 million were directly assigned to NMIC for the years ended December 31, 2003 and 2002 respectively. Weighted average assumptions used in calculating benefit obligations and the funded status of the pension plan and postretirement life and health care benefit plan as of the end of each period presented were as follows:
PENSION BENEFITS POSTRETIREMENT BENEFITS ---------------------------- ----------------------------- 2003 2002 2003 2002 =================================================================================================================== Discount rate 5.50% 6.00% 6.10% 6.60% Rate of increase in future compensation levels 4.00% 4.50% - - Assumed health care cost trend rate: Initial rate - - 11.00%1 11.30%1 Ultimate rate - - 5.20%1 5.70%1 Declining period - - 11 YEARS 11 Years - -------------------------------------------------------------------------------------------------------------------
________ 1 The 2003 initial rate is 12.0% for participants over age 65, with an ultimate rate of 5.6% and the 2002 initial rate is 12.3% for participants over age 65, with an ultimate rate of 6.3%. The Company uses a December 31 measurement date for all plans. The asset allocation for the pension plan as a whole at the end of 2003 and 2002, and the target allocation for 2004, by asset category, are as follows:
TARGET ALLOCATION PERCENTAGE PERCENTAGE OF PLAN ASSETS - ----------------------------------------------------------------------------------------------------------------------------------- Asset Category 2004 2003 2002 =================================================================================================================================== Equity Securities 40 - 65 45% 43% Debt Securities 25 - 50 55% 57% Real Estate 0 - 10 0% 0% Total - 100% 100% ===================================================================================================================================
The plan employs a total return investment approach whereby a mix of equities and fixed income investments are used to maximize the long-term return of plan assets for a prudent level of risk. Risk tolerance is established through careful consideration of plan liabilities, plan funded status, and corporate financial condition. Plan language requires investment in a group annuity contract backed by fixed investments with an interest rate guarantee to match liabilit ies for specific classes of retirees. On a periodic basis, the portfolio is analyzed to establish the optimal mix of assets given current market conditions given the risk tolerance. In the most recent study, asset sub-classes were considered in debt securities (diversified US investment grade bonds, diversified high-yield US securities, and international fixed income, emerging markets, and commercial mortgage loans) and equity investments (domestic equities, private equities, international equities, emerging market equities and real estate investments). Each asset sub-class chosen contains a diversified blend of securities from that sub-class. Investment mix is measured and monitored on an on-going basis through regular investment reviews, annual liability measurements, and periodic asset/liability studies. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements The asset allocation for the other postretirement life and healthcare benefit plan as a whole at the end of 2003 and 2002, and the target allocation for 2004, by asset category, are as follows:
TARGET ALLOCATION PERCENTAGE PERCENTAGE OF PLAN ASSETS - --------------------------------------------------------------------------------------------------------------------------------- Asset Category 2004 2003 2002 ================================================================================================================================= - Equity Securities 50 - 80 59% 53% Debt Securities 20 - 50 35% 39% Other 0 - 10 6% 8% Total - 100% 100% =================================================================================================================================
The other postretirement life and health care benefit plan employs a total return investment approach whereby a mix of equities and fixed income investments are used to maximize the long-term return of plan assets for a prudent level of risk. Risk tolerance is established through careful consideration of plan liabilities, plan funded status, and corporate financial condition. Plan investments for retiree life insurance benefits include a retiree life insurance contract issued by NLIC and for retiree medical liabilities both a group annuity contract issued by NLIC backed by fixed investments with an interest rate guarantee and a separate account invested in diversified US equities. The investment mix is measured and monitored on an on-going basis through regular investment reviews, annual liability measurements, and periodic asset/liability studies. The components of net periodic pension cost for the pension plan as a whole for the years ended December 31, 2003, 2002 and 2001 were as follows:
(in millions) 2003 2002 2001 ======================================================================================================================== Service cost (benefits earned during the period) $ 104.0 $ 103.3 $ 89.3 Interest cost on projected benefit obligation 131.7 135.6 129.1 Expected return on plan assets (156.7) (178.6) (183.8) Recognized gains 0.1 - (7.8) Amortization of prior service cost 4.5 4.4 3.2 Amortization of unrecognized transition asset (1.3) (1.3) (1.3) - ------------------------------------------------------------------------------------------------------------------------ Net periodic pension cost $ 82.3 $ 63.4 $ 28.7 ========================================================================================================================
Weighted average assumptions used in calculating the net periodic pension cost, set at the beginning of each year, for the pension plan were as follows:
2003 2002 2001 ==================================================================================================================== Weighted average discount rate 6.00% 6.50% 6.75% Rate of increase in future compensation levels 4.50% 4.75% 5.00% Expected long-term rate of return on plan assets 7.75% 8.25% 8.00% - --------------------------------------------------------------------------------------------------------------------
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements The Company employs a prospective building block approach in determining the long-term expected rate of return for plan assets. This process is integrated with the determination of other economic assumptions such as discount rate and salary scale. Historical markets are studied and long-term historical relationships between equities and fixed-income are preserved consistent with the widely accepted capital market principle that assets with higher volatility generate a greater return over the long run called a risk premium. Historic risk premiums are used to develop expected real rates of return of each asset sub-class. The expected real rates of return, reduced for investment expenses, are applied to the target allocation of each asset sub-class to produce an expected real rate of return for the target portfolio. This expected real rate of return will vary by plan and will change when the plan's target investment portfolio changes. Current market factors such as inflation and interest rates are incorporated in the process as follows. For a given measurement date, the discount rate is set by reference to the yield on high-quality corporate bonds to approximate the rate at which plan benefits could effectively be settled. The historic real rate of return is subtracted from these bonds to generate an assumed inflation rate. The expected long-term rate of return for plan assets is the assumed inflation rate plus the expected real rate of return. This process effectively sets the expected return for the plan's portfolio at the yield for the reference bond portfolio, adjusted for expected risk premiums of the target asset portfolio. Given the prospective nature of this calculation, short-term fluctuations in the market do not impact the expected risk premiums. However, as the yield for the reference bond fluctuates, the assumed inflation rate and the expected long-term rate are adjusted in tandem. In 2002, the pension plan's target investment portfolio was modified based on the recommendations of a pension optimization study. This change in investment strategy is expected to increase long-term real rates of return 0.50% while maintaining the same aggregate risk level. For this reason, the expected long-term rate of return was increased to 8.25% in 2002 from 8.00% in 2001. The components of NPPBC for the postretirement benefit plan as a whole for the years ended December 31, 2003, 2002 and 2001 were as follows:
(in millions) 2003 2002 2001 ===================================================================================================================== Service cost (benefits attributed to employee service during the year) $ 9.9 $ 13.2 $ 12.6 Interest cost on accumulated postretirement benefit obligation 19.5 22.5 21.4 Expected return on plan assets (8.0) (9.2) (9.6) Amortization of unrecognized transition obligation of affiliates - 0.6 0.6 Net amortization and deferral (9.9) (0.5) (0.4) - --------------------------------------------------------------------------------------------------------------------- NPPBC $11.5 $ 26.6 $ 24.6 =====================================================================================================================
Weighted average actuarial assumptions used for the measurement of the NPPBC, set at the beginning of each year, for the postretirement benefit plan for 2003, 2002 and 2001 were as follows:
2003 2002 2001 ========================================================================================================================== Discount rate 6.60% 7.25% 7.50% Long-term rate of return on plan assets 7.50% 7.75% 8.00% Assumed health care cost trend rate: Initial rate 11.30% 1 11.00% 1 11.00% Ultimate rate 5.70% 1 5.50% 1 5.50% Declining period 11 YEARS 4 Years 4 Years - --------------------------------------------------------------------------------------------------------------------------
1 The 2003 initial rate is 12.0% for participants over age 65, with an ultimate rate of 5.6% and the 2002 initial rate is 12.3% for participants over age 65, with an ultimate rate of 6.3%. Because current plan costs are very close to the employer dollar caps, the health care cost trend has an immaterial effect on plan obligations and expense 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, 2003 and on the NPPBC for the year ended December 31, 2003 was not calculated. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements The Company, together with other affiliated companies, sponsors defined contribution retirement savings plans covering substantially all employees of the Company. Employees may make salary deferral contributions of up to 22%. Salary deferrals of up to 6% are subject to a 50% Company match. The Company's expense for contributions to these plans totaled $5.5 million, $5.7 million and $5.6 million for 2003, 2002 and 2001, respectively, including $0.5 million and $0.4 million related to discontinued operations for 2002 and 2001, respectively. (14) SHAREHOLDER'S EQUITY, REGULATORY RISK-BASED CAPITAL, RETAINED EARNINGS AND DIVIDEND RESTRICTIONS The State of Ohio, where NLIC and NLAIC are domiciled, 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 total adjusted capital, as defined by the NAIC, to 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 for all periods presented herein. The statutory capital and surplus of NLIC as of December 31, 2003 and 2002 was $2.23 billion and $1.61 billion, respectively. The statutory net income of NLIC for the years ended December 31, 2003, 2002 and 2001 was $444.4 million, $92.5 million and $83.1 million, respectively. The Company is limited in the amount of shareholder dividends it may pay without prior approval by the Department. As of January 1, 2004, based on statutory financial results as of and for the year ended December 31, 2003, NLIC could pay dividends totaling $284.4 million without obtaining prior approval. In February 2004, NLIC obtained prior approval from the Ohio Department of Insurance to pay a dividend to NFS in the amount of $75.0 million because the December 31, 2003 statutory financial statements had not been filed at the time of the dividend. In addition, the payment of dividends by NLIC may also be subject to restrictions set forth in the insurance laws of the State 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, interest and shareholder dividends in the future. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements (15) RELATED PARTY TRANSACTIONS 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 investment management, 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 and that are within industry guidelines and practices. In addition, Nationwide Services Company, LLC, 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, 2003, 2002 and 2001, the Company made payments to NMIC and Nationwide Services Company, LLC, totaling $170.4 million, $135.6 million and $139.8 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. NLIC has issued group annuity and life insurance contracts and performs administrative services for various employee benefit plans sponsored by NMIC or its affiliates. Total account values of these contracts were $5.22 billion and $4.50 billion as of December 31, 2003 and 2002, respectively. Total revenues from these contracts were $138.9 million, $143.3 million and $150.7 million for the years ended December 31, 2003, 2002 and 2001, respectively, and include policy charges, net investment income from investments backing the contracts and administrative fees. Total interest credited to the account balances were $111.8 million, $114.8 million and $122.5 million for the years ended December 31, 2003, 2002 and 2001, respectively. The terms of these contracts are consistent in all material respects with what the Company offers to unaffiliated parties who are similarly situated. Funds of Gartmore Global Investments, Inc. (GGI), an affiliate, are offered as investment options in certain of the Company's products. As of December 31, 2003 and 2002, customer allocations to GGI funds were $12.80 billion and $12.21 billion, respectively. For the years ended December 31, 2003 and 2002, GGI paid the Company $38.6 million and $35.3 million, respectively, for the distribution and servicing of these funds. NLIC has a reinsurance agreement with NMIC whereby all of NLIC's accident and health business not ceded to unaffiliated reinsurers is ceded to NMIC on a modified coinsurance basis. Either party may terminate the agreement on January 1 of any year with prior notice. Under a modified coinsurance agreement, the ceding company retains invested assets and investment earnings are paid to the reinsurer. Under the terms of NLIC's agreements, the investment risk associated with changes in interest rates is borne by the reinsurer. Risk of asset default is retained by NLIC, although a fee is paid to NLIC 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 for the years ended December 31, 2003, 2002 and 2001 were $286.7 million, $325.0 million and $200.7 million, respectively, while benefits, claims and expenses ceded were $247.5 million, $328.4 million and $210.1 million, respectively. Under a marketing agreement with NMIC, NLIC makes payments to cover a portion of the agent marketing allowance that is paid to Nationwide agents. These costs cover product development and promotion, sales literature, rent and similar items. Payments under this agreement totaled $24.8 million, $24.9 million and $26.4 million for the years ended December 31, 2003, 2002 and 2001, respectively. The Company leases office space from NMIC and certain of its subsidiaries. For the years ended December 31, 2003, 2002 and 2001, the Company made lease payments to NMIC and its subsidiaries of $17.5 million, $20.2 million and $18.7 million, respectively. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements 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 interest. As of December 31, 2003 and 2002, the Company had no borrowings from affiliated entities under such agreements. During 2003, 2002 and 2001, the most the Company had outstanding at any given time was $126.0 million, $224.9 million and $368.5 million, respectively, and the Company incurred interest expense on intercompany repurchase agreements of $0.1 million, $0.3 million and $0.2 million for 2003, 2002 and 2001, respectively. 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 for the benefit of the Company were $205.9 million and $87.0 million as of December 31, 2003 and 2002, respectively, and are included in short-term investments on the accompanying consolidated balance sheets. For the years ending December 31, 2003, 2002 and 2001, the Company paid NCMC fees and expenses totaling $0.3 million, $0.3 million and $0.4 million, respectively. Certain annuity products are sold through affiliated companies, which are also subsidiaries of NFS. Total commissions and fees paid to these affiliates for each of the years in the three year period ended December 31, 2003 were $62.0 million, $50.3 million and $52.9 million, respectively. Through September 30, 2002, the Company filed a consolidated federal income tax return with NMIC, as discussed in more detail in note 9, beginning October 1, 2002, NLIC files a consolidated federal income tax return with NLAIC. Total payments to (from) NMIC were $71.0 million and $(45.4) million for the years ended December 31, 2002 and 2001, respectively. Total payments to (from) NLAIC were $(2.7) million and $0 for the years ended December 31, 2003 and 2002, respectively. In the third quarter of 2003, NLIC received a capital contribution of 100% of the common stock of Nationwide Retirement Plan Solutions (NRPS) from NFS. The capital contribution was valued at $0.2 million. Immediately after receipt of this capital contribution, NRPS was dissolved into NLIC. In first quarter 2003 NLIC received a $200.0 million capital contribution from NFS for general corporate purposes. In 2003 and 2002, NLIC paid dividends of $60.0 million and $35.0 million, respectively, to NFS. During 2003 and 2002 NLIC paid dividends in the form of return of capital of $100.0 million and $475.0 million to NFS, respectively. Furthermore, in February 2004, NLIC paid a $75.0 million dividend to NFS. In addition, in June 2002, NLIC paid a dividend to NFS in the form of all of the shares of common stock of NSI, a wholly owned broker/dealer subsidiary. Therefore, the results of the operations of NSI have been reflected as discontinued operations for all periods presented. This was a transaction between related parties and therefore was recorded at carrying value, $10.0 million, of the underlying components of the transaction rather than fair value. Such amount represents a non-cash transaction that is not reflected in the Consolidated Statement of Cash Flows. In December 2001, NLIC issued NFS a 7.50%, $300.0 million surplus note maturing on December 17, 2031. In June 2002, NLIC issued NFS an 8.15%, $300.0 million surplus note maturing June 27, 2032. In December 2003, NLIC issued NFS a 6.75%, $100.0 million surplus note maturing December 23, 2033. The Company made interest payments on surplus notes to NFS totaling $47.1 million and $30.1 million in 2003 and 2002, respectively. In addition, the Company made interest payments on unsecured notes to NFS totaling less than $0.1 million and $0.5 million in 2003 and 2002, respectively. As of December 31, 2003 there were no outstanding balances on unsecured notes to NFS. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements During 2001, the Company entered into a transaction with NMIC, whereby it sold 78% of its interest in a limited partnership (representing 49% of the limited partnership) to NMIC for $158.9 million. As a result of this sale, the Company recorded a realized gain of $44.4 million, and related tax expense of $15.5 million. During 2002, the Company entered into transactions with NMIC and Nationwide Indemnity Company (NIC), whereby it sold 100% of its remaining interest in the limited partnership (representing 15.11% of the limited partnership) to NMIC and NIC for a total of $54.5 million. As a result of this sale, the Company recorded a realized gain of $23.2 million and related tax expense of $8.1 million. The sales prices for each transaction, which were paid in cash, represented the fair value of the portions of limited partnership interests that were sold and were based on valuations of the limited partnership and its underlying investments as of the effective dates of the transactions. The valuations were completed by qualified management of the limited partnership and utilized a combination of internal and independent valuations of the underlying investments of the limited partnership. Additionally, senior financial officers and the Boards of Directors of the Company and NMIC separately reviewed, through their respective Finance Committees, and approved the process and methodology of the valuations prior to the execution of these transactions. The Company no longer holds an economic or voting interest in the limited partnership. (16) BANK LINES OF CREDIT The Company has available as a source of funds a $1.00 billion revolving credit facility entered into by NFS, NLIC and NMIC. The facility is comprised of a five-year $700.0 million agreement maturing in May of 2005 and a 364 day $300.0 million agreement maturing in May of 2004 with a group of financial institutions. The Company and NMIC intend to renew both parts of the credit facility in 2004. The facility provides for several and not joint liability with respect to any amount drawn by any party. The facility contains covenants, including, but not limited to, requirements that the Company maintain consolidated tangible net worth, as defined, in excess of $1.69 billion and NLIC maintain statutory surplus in excess of $935.0 million. The Company had no amounts outstanding under this agreement as of December 31, 2003. NLIC is currently required to maintain an available credit facility equal to 50% of any amounts outstanding under its $500.0 million commercial paper program. Therefore, availability under the aggregate $1.00 billion credit facility is reduced by an amount equal to 50% of any commercial paper outstanding. NLIC had $199.8 million of commercial paper outstanding as of December 31, 2003. Also, the Company has entered into an agreement with its custodial bank to borrow against the cash collateral that is posted in connection with its securities lending program. This is an uncommitted facility, which is contingent on the liquidity of the securities lending program. The maximum amount available under the agreement is $100.0 million. The borrowing rate on this program rate is equal to fed funds plus 3 basis points. There were no amounts outstanding under this agreement as of December 31, 2003. (17) CONTINGENCIES On October 29, 1998, the Company was named in a lawsuit filed in Ohio state court by plaintiff Mercedes Castillo that challenged 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 was 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 allegedly used to fund certain tax-deferred retirement plans. The amended complaint seeks unspecified compensatory and punitive damages. On May 28, 2002, the Court granted the motion of Marcus Shore to withdraw as a named plaintiff and denied plaintiffs' motion to add new persons as named plaintiffs. On November 4, 2002, the Court issued a decision granting the Company's motion for summary judgment on all of plaintiff Mercedes Castillo's individual claims, and ruling that plaintiff's motion for class certification was moot. Following appeal by the plaintiff, both of those decisions were affirmed by the Ohio Court of Appeals on September 9, 2003. The plaintiff filed a notice of appeal of the decision by the Ohio Court of Appeals on October 24, 2003. The Ohio Supreme Court announced on January 21, 2004 that the appeal was not accepted and the time for reconsideration has expired. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements On October 31, 2003, a lawsuit seeking class action status containing allegations similar to those made in the Castillo case was filed against NLIC in Arizona federal court by plaintiff Robert Helman (Robert Helman et al v. Nationwide Life Insurance Company et al). This lawsuit is in a very preliminary stage and the Company is of evaluating its merits. The Company intends to defend this lawsuit vigorously. On August 15, 2001, the Company was named in a lawsuit filed in Connecticut federal court (Lou Haddock, as trustee of the Flyte Tool & Die, Incorporated Deferred Compensation Plan, et al v. Nationwide Financial Services, Inc. and Nationwide Life Insurance Company). The plaintiffs first amended their complaint on September 6, 2001 to include class action allegations, and have subsequently amended their complaint twice. As amended, in the current complaint, the plaintiffs seek to represent a class of ERISA qualified retirement plans that purchased variable annuities from NLIC. Plaintiffs allege that they invested ERISA plan assets in their variable annuity contracts, and that the Company acquired and breached ERISA fiduciary duties by accepting service payments from certain mutual funds that allegedly consisted of or diminished those ERISA plan assets. The complaint seeks disgorgement of some or all of the fees allegedly received by the Company and other unspecified relief for restitution, along with declaratory and injunctive relief and attorneys' fees. On December 3, 2001, the plaintiffs filed a motion for class certification. Plaintiffs filed a supplement to that motion on September 19, 2003. The Company opposed that motion on December 24, 2003. On January 30, 2004, the Company filed its Revised Memorandum in Support of Summary Judgment, and a Motion Requesting that the Court Decide Summary Judgment before Class Certification. Plaintiffs are opposing that motion. The Company intends to defend this lawsuit vigorously. On May 1, 2003, a class action was filed against NLIC in the United States District Court for the Eastern District of Louisiana, (Edward Miller, Individually, and on behalf of all others similarly situated, v. Nationwide Life Insurance Company). The complaint alleges that in 2001, plaintiff Edward Miller purchased three group modified single premium variable annuities issued by NLIC. Plaintiff alleges that NLIC represented in its prospectus and promised in its annuity contracts that contract holders could transfer assets without charge among the various funds available through the contracts, that the transfer rights of contract holders could not be modified and that NLIC's expense charges under the contracts were fixed. Plaintiff claims that NLIC has breached the contracts and violated federal securities laws by imposing trading fees on transfers that were supposed to have been without charge. Plaintiff seeks compensatory damages and rescission on behalf of himself and a class of persons who purchased this type of annuity or similar contracts issued by NLIC between May 1, 2001 and April 30, 2002 inclusive and were allegedly damaged by paying transfer fees. The Company's motion to dismiss the complaint was granted by the Court on October 28, 2003. Plaintiff has appealed that dismissal. On January 21, 2004, the Company was named in a lawsuit filed in the U.S. District Court for the Northern District of Mississippi (United Investors Life Insurance Company v. Nationwide Life Insurance Company and/or Nationwide Life Insurance Company of America and/or Nationwide Life and Annuity Insurance Company and/or Nationwide Life and Annuity Company of America and/or Nationwide Financial Services, Inc. and/or Nationwide Financial Corporation, and John Does A-Z). In its complaint, the plaintiff alleges that the Company and/or its affiliated life insurance companies (1) tortiously interfered with the plaintiff's contractual and fiduciary relationship with Waddell & Reed, Inc. and/or its affiliates, Waddell & Reed Financial, Inc., Waddell & Reed Financial Services, Inc. and W & R Insurance Agency, Inc. (collectively, "Waddell & Reed"), (2) conspired with and otherwise caused Waddell & Reed to breach its contractual and fiduciary obligations to the plaintiff, and (3) tortiously interfered with the plaintiff's contractual relationship with policyholders of insurance policies issued by the plaintiff. The complaint seeks compensatory damages, punitive damages, pre- and post-judgment interest, a full accounting, and costs and disbursements, including attorneys' fees. The plaintiff seeks to have each defendant judged jointly and severally liable for all damages. This lawsuit is in a very preliminary stage, and the Company intends to defend it vigorously. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements The financial services industry, including mutual fund, variable annuity and distribution companies have been the subject of increasing scrutiny by regulators, legislators, and the media over the past year. Numerous regulatory agencies, including the United States Securities and Exchange Commission and the New York Attorney General, have commenced industry-wide investigations regarding late trading and market timing in connection with mutual funds and variable insurance contracts, and have commenced enforcement actions against some mutual fund companies on those issues. Investigations and enforcement actions have also been commenced, on a smaller scale, regarding the sales practices of mutual fund and variable annuity distributors. These legal proceedings are expected to continue in the future. These investigations and proceedings could result in legal precedents, as well as new industry-wide legislation, rules, or regulations, that could significantly affect the financial services industry, including variable annuity companies. The Company has been contacted by regulatory agencies for information relating to market timing, late trading, and sales practices. The Company is cooperating with these regulatory agencies and is responding to those information requests. There can be no assurance that any such litigation or regulatory actions will not have a material adverse effect on the Company in the future. (18) SECURITIZATION TRANSACTIONS To date, the Company has sold $290.1 million of credit enhanced equity interests in Tax Credit Funds to unrelated third parties. The Company has guaranteed cumulative after-tax yields to third party investors ranging from 5.10% to 5.25% and as of December 31, 2003 held guarantee reserves totaling $2.9 million on these transactions. These guarantees are in effect for periods of approximately 15 years each. The Tax Credit Funds provide a stream of tax benefits to the investors that will generate a yield and return of capital. To the extent that the tax benefits are not sufficient to provide these cumulative after-tax yields, then the Company must fund any shortfall, which is mitigated by stabilization collateral set aside by the Company at the inception of the transactions. The maximum amount of undiscounted future payments that the Company could be required to pay the investors under the terms of the guarantees is $824.2 million. The Company does not anticipate making any payments related to the guarantees. At the time of the sales, $4.3 million of net sale proceeds were set aside as collateral for certain properties owned by the Tax Credit Funds that had not met all of the criteria necessary to generate tax credits. Such criteria include completion of construction and the leasing of each unit to a qualified tenant among other criteria. Properties meeting the necessary criteria are considered to have "stabilized." The properties are evaluated regularly and upon stabilizing, the collateral is released. During 2003 and 2002, $3.1 million and $0.5 million of stabilization collateral had been released into income, respectively. To the extent there are cash deficits in any specific property owned by the Tax Credit Funds, property reserves, property operating guarantees and reserves held by the Tax Credit Funds are exhausted before the Company is required to perform under its guarantees. To the extent the Company is ever required to perform under its guarantees, it may recover any such funding out of the cash flow distributed from the sale of any and/or all of the underlying properties of the Tax Credit Funds. This cash flow distribution would be paid to the Company prior to any cash flow distributions to unrelated third party investors. (19) SEGMENT INFORMATION 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. In addition, the Company reports certain other revenues and expenses in a Corporate segment. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements The Individual Annuity segment consists of individual The BEST of AMERICA(R) and private label deferred variable annuity products, deferred fixed annuity products and income products. Individual deferred 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 prescribed periods. The Institutional Products segment is comprised of the Company's private and public sector group retirement plans, medium-term note program and structured products initiatives. The private sector includes the 401(k) business generated through fixed and variable annuities. The public sector includes the Internal Revenue Code Section 457 business in the form of fixed and variable annuities. The Life Insurance segment consists of investment life products, including individual variable life and COLI products, traditional life insurance products and universal life insurance. Life insurance products provide a death benefit and generally 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, unallocated expenses and interest expense on debt and expenses of the Company's non-insurance subsidiaries not reported within the three product segments. In addition to these operating revenues and expenses, the Company also reports net realized gains and losses on investments not related to securitizations, hedging instruments and hedged items in the Corporate segment, but does not consider them as part of pre-tax operating earnings. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements The following tables summarize the financial results of the Company's business segments for the years ended December 31, 2003, 2002 and 2001.
INDIVIDUAL INSTITUTIONAL LIFE (in millions) ANNUITY PRODUCTS INSURANCE CORPORATE TOTAL =========================================================================================================================== 2003 Net investment income $ 807.9 $ 787.7 $ 324.3 $ 60.1 $ 1,980.0 Other operating revenue 517.7 162.3 536.2 0.4 1,216.6 Net realized losses on investments, hedging - - - (100.8) (100.8) instruments and hedged items - --------------------------------------------------------------------------------------------------------------------------- Total operating revenues 1,325.6 950.0 860.5 (40.3) 3,095.8 - --------------------------------------------------------------------------------------------------------------------------- Interest credited to policyholder account values 602.5 512.3 185.6 - 1,300.4 Amortization of deferred policy acquisition costs 228.4 45.6 101.9 - 375.9 Interest expense on debt, primarily with NFS - - - 48.4 48.4 Other benefits and expenses 324.0 183.1 423.0 6.6 936.7 - --------------------------------------------------------------------------------------------------------------------------- Total benefits and expenses 1,154.9 741.0 710.5 55.0 2,661.4 - --------------------------------------------------------------------------------------------------------------------------- Income from continuing operations before federal income tax expense 170.7 209.0 150.0 (95.3) $ 434.4 =============== Net realized losses on investments, hedging instruments and hedged items - - - 100.8 - ------------------------------------------------------------------------------------------------------------ Pre-tax operating earnings 1 $ 170.7 $ 209.0 $ 150.0 $ 5.5 ============================================================================================================ - ------------------------------------------------------------------------------------------------------------ Assets as of period end $ 49,392.5 $ 33,837.4 $ 11,243.5 $ 6,097.5 $ 100,570.9 =========================================================================================================================== 2002 Net investment income $ 668.5 $ 800.2 $ 328.6 $ 41.2 $ 1,838.5 Other operating revenue 526.2 177.9 537.7 0.7 1,242.5 Net realized losses on investments, hedging instruments and hedged items - - - (84.4) (84.4) - --------------------------------------------------------------------------------------------------------------------------- Total operating revenues 1,194.7 978.1 866.3 (42.5) 2,996.6 - --------------------------------------------------------------------------------------------------------------------------- Interest credited to policyholder account values 505.9 548.9 186.4 - 1,241.2 Amortization of deferred policy acquisition costs 528.2 53.7 88.2 - 670.1 Interest expense on debt, primarily with NFS - - - 36.0 36.0 Other benefits and expenses 283.4 172.1 420.2 4.1 879.8 - --------------------------------------------------------------------------------------------------------------------------- Total benefits and expenses 1,317.5 774.7 694.8 40.1 2,827.1 - --------------------------------------------------------------------------------------------------------------------------- Income (loss) from continuing operations before federal income tax expense (122.8) 203.4 171.5 (82.6) 169.5 =============== Net realized losses on investments, hedging instruments and hedged items - - - 84.4 - --------------------------------------------------------------------------------------------------------------------------- Pre-tax operating (loss) earnings 1 $ (122.8) $ 203.4 $ 171.5 $ 1.8 =========================================================================================================================== - --------------------------------------------------------------------------------------------------------------------------- Assets as of period end $ 40,830.0 $ 30,440.7 $ 9,676.3 $ 5,075.6 $ 86,022.6 ===========================================================================================================================
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements
INDIVIDUAL INSTITUTIONAL LIFE (in millions) ANNUITY PRODUCTS INSURANCE CORPORATE TOTAL =========================================================================================================================== 2001 Net investment income $ 534.7 $ 847.5 $ 323.3 $ 19.2 $ 1,724.7 Other operating revenue 556.0 209.4 511.5 (0.3) 1,276.6 Net realized losses on investments, hedging instruments and hedged items - - - (18.3) (18.3) - --------------------------------------------------------------------------------------------------------------------------- Total operating revenues 1,090.7 1,056.9 834.8 0.6 2,983.0 - --------------------------------------------------------------------------------------------------------------------------- Interest credited to policyholder account values 433.2 627.8 177.7 - 1,238.7 Amortization of deferred policy acquisition costs 220.0 47.6 80.3 - 347.9 Interest expense on debt primarily with NFS - - - 6.2 6.2 Other benefits and expenses 206.1 170.2 387.1 (2.1) 761.3 - --------------------------------------------------------------------------------------------------------------------------- Total benefits and expenses 859.3 845.6 645.1 4.1 2,354.1 - --------------------------------------------------------------------------------------------------------------------------- Income (loss) from continuing operations before 231.4 211.3 189.7 (3.5) $ 628.9 federal income tax expense ============ Net realized losses on investments, hedging instruments and hedged items not related to securitizations - - - 20.2 - --------------------------------------------------------------------------------------------------------------------------- Pre-tax operating earnings 1 $ 231.4 $ 211.3 $ 189.7 $ 16.7 =========================================================================================================================== - --------------------------------------------------------------------------------------------------------------------------- 2 Assets as of period end $ 43,885.4 $ 34,130.1 $ 9,129.0 $ 4,010.1 $ 91,154.6 ===========================================================================================================================
____________ 1 Excludes net realized gains and losses on investments not related to securitizations, hedging instruments and hedged items, discontinued operations and cumulative effect of adoption of accounting principles. 2 Inclues $24.8 million of assets related to discontinued operations. The Company has no significant revenue from customers located outside of the U.S. nor does the Company have any significant long-lived assets located outside the U.S. (20) VARIABLE INTEREST ENTITIES As of December 31, 2003, the Company has relationships with eight VIEs where the Company is the primary beneficiary. Each of these VIEs is a conduit that assists the Company in structured products transactions. One of the VIEs is used in the securitization of mortgage loans, while the others are involved in the sale of Low-Income-Housing Tax Credit Funds (Tax Credit Funds) to third-party investors where the Company provides guaranteed returns (See note 18). The Company has not yet adopted FIN 46 or FIN 46R as it relates to these VIEs. As such, these VIEs and their results of operations are not included in the consolidated financial statements. The net assets of these VIEs totaled $176.1 million as of December 31, 2003. The most significant components of net assets are $58.7 million of mortgage loans on real estate, $241.9 million of other long-term investments, $37.9 million in other assets, $59.2 million of short-term debt and $103.3 million of other liabilities. The total exposure to loss on these VIEs where the Company may be the primary beneficiary is less than $0.1 million as of December 31, 2003. For the mortgage loan VIE, which is the VIE to which the short-term debt relates to, the creditors have no recourse against the Company in the event of default by the VIE. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements In addition to the VIEs described above, the Company also holds variable interests, in the form of limited partnership (LP) or similar investments, in a number of tax credit funds. These investments have been held by the Company for periods of 1 to 7 years and allow the Company to experience certain tax credits and other tax benefits from affordable housing projects. The Company also has certain investments in securitization transactions that qualify as VIEs, but for which the Company is not the primary beneficiary. The total exposure to loss on these VIEs where the Company is not the primary beneficiary is $44.2 million as of December 31, 2003. (21) SUBSEQUENT EVENT As discussed in note 2(n), the Company adopted SOP 03-1 effective January 1, 2004. In connection with this adoption, the following cumulative effect adjustments are expected to be recorded in the 2004 consolidated financial statements.
(in millions) JANUARY 1, 2004 ================================================================================================================================== Increase in future policy benefits - ratchet interest crediting $ (12.3) Increase in future policy benefits - secondary guarantees - life insurance (2.4) Increase in future policy benefits - GMDB claim reserves (1.8) Increase in future policy benefits - GMIB claim reserves (1.0) Deferred acquisition costs related to above 12.4 Deferred federal income taxes 1.8 Cumulative effect of adoption of accounting principle, net of tax $ (3.3) ==================================================================================================================================
Under SOP 03-1, the Company's GMDB claim reserves are determined by estimating the expected value of death benefits on contracts that trigger a policy benefit and recognizing the excess ratably over the accumulation period based on total expected assessments. The Company will regularly evaluate estimates used and will adjust the additional liability balance as appropriate, with a related charge or credit to other benefits and claims, if actual experience or other evidence suggests that earlier assumptions should be revised. The following assumptions and methodology were used to determine the GMDB claim reserves upon adoption of SOP 03-1: o Data used was based on a combination of historical numbers and future projections involving 250 stochastically generated investment performance scenarios o Mean gross equity performance of 8.1% o Equity volatility of 18.7% o Mortality - 100% of Annuity 2000 table o Discount rate of 8.0% Lapse rate assumptions vary by duration as shown below:
DURATION 1 2 3 4 5 6 7 8 9 10+ - --------------------------------------------------------------------------------------------------------------------- Minimum 4.50% 5.50% 6.50% 8.50% 10.50% 10.50% 10.50% 17.50% 17.50% 17.50% MAXIMUM 4.50% 8.50% 11.50% 17.50% 22.50% 22.50% 22.50% 22.50% 22.50% 19.50%
GMABs are considered derivatives under SFAS 133 resulting in the related liabilities being recognized at fair value with changes in fair value reported in earnings, and therefore, excluded from the SOP 03-1 claim reserve. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements The GMIB claim reserves will be determined each period by estimating the expected value of the annuitization benefits in excess of the projected account balance at the date of annuitization and recognizing the excess ratably over the accumulation period based on total assessments. The Company will regularly evaluate estimates used and will adjust the additional liability balance as appropriate, with a related charge or credit to other benefits and claims, if actual experience or other evidence suggests that earlier assumptions should be revised. The assumptions used in calculating the GMIB claim reserves are consistent with those used for calculating the GMDB claim reserves. In addition, the calculation of the GMIB claim reserves assumes utilization ranges from a low of 3% when the contract holder's annuitization value is 10% in the money to 100% utilization when the contract holder is 90% in the money. -----END PRIVACY-ENHANCED MESSAGE-----